United States Securities and Exchange Commission
Washington, D.C. 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, 2006.
Commission file number 1-10706
COMERICA INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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38-1998421
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(State or Other Jurisdiction of Incorporation)
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(IRS Employer Identification Number)
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Comerica Tower at Detroit Center
500 Woodward Avenue, MC 3391
Detroit, Michigan 48226
(Address of Principal Executive Offices) (Zip Code)
(313) 222-6317
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange 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 Exchange Act:
• 7 1/4% 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
• 6.576% Capital Securities of Comerica Capital Trust II due 2082
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*
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The registrant has reporting obligations for these securities, which were acquired in
connection with the merger of Imperial Bancorp with and into Comerica Holdings Incorporated, a
wholly-owned subsidiary of the registrant. As a result of the merger, Imperial Capital Trust
I became a wholly-owned indirect subsidiary of the registrant. In December 2006, registrant
gave irrevocable notice of its intent to call these securities on June 30, 2007.
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
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Yes No
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Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
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Yes No
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Indicate by check mark whether 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.
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Yes No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
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Yes No
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At June 30, 2006 (the last business day of the registrant’s most recently completed second fiscal
quarter), the registrant’s common stock, $5 par value, held by non-affiliates had an aggregate
market value of $8,105,712,497 based on the closing price on the New York Stock Exchange on that
date of $51.99 per share and 155,909,069 shares of common stock held by non-affiliates. 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
February 21, 2007, the registrant had outstanding 157,654,399 shares of its common stock, $5 par
value.
Documents Incorporated by Reference:
1. Parts I and II:
Items 1, 6-8 and 9A—Annual Report to Shareholders for the year ended December 31, 2006.
2. Part III:
Items 10-14—Proxy Statement for the Annual Meeting of Shareholders to be held May 15, 2007.
TABLE OF CONTENTS
PART I
Item 1. Business.
GENERAL
Comerica Incorporated (“Comerica”) is a financial services company, incorporated under the laws of
the State of Delaware, and headquartered in Detroit, Michigan. As of December 31, 2006, it was
among the 20 largest commercial banking companies in the United States. 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”). As of December 31, 2006, Comerica owned directly or
indirectly all the outstanding common stock of 2 active banking and 63 non-banking subsidiaries.
At December 31, 2006, Comerica had total assets of approximately $58.0 billion, total deposits of
approximately $44.9 billion, total loans (net of unearned income) of approximately $47.4 billion
and common shareholders’ equity of approximately $5.2 billion.
During 2006 Comerica sold its stake in Munder Capital Management (“Munder”). Munder provides
investment advisory services to institutions, municipalities, unions, charitable organizations and
private investors, and also serves as investment advisor for Munder Funds.
BUSINESS STRATEGY
Comerica has strategically aligned its operations into 3 major business segments: the Business
Bank, the Retail Bank, and Wealth & Institutional Management. In addition to the three major
business segments, the Finance Division is also reported as a segment.
The Business Bank is primarily comprised of the following businesses: middle market, commercial
real estate, national dealer services, global finance, large corporate, leasing, financial
services, and technology and life sciences. This business segment meets the needs of medium-size
businesses, multinational corporations and governmental entities by offering various products and
services, including commercial loans and lines of credit, deposits, cash management, capital market
products, international trade finance, letters of credit, foreign exchange management services and
loan syndication services.
The Retail Bank includes small business banking (entities with annual sales under $10 million) and
personal financial services, consisting of consumer lending, consumer deposit gathering and
mortgage loan origination. In addition to a full range of financial services provided to small
business customers, this business segment offers a variety of consumer products, including deposit
accounts, installment loans, credit cards, student loans, home equity lines of credit, and
residential mortgage loans.
Wealth & Institutional Management offers products and services consisting of personal trust, which
is designed to meet the personal financial needs of affluent individuals (as defined by individual
net income or wealth), private banking, institutional trust, retirement services, investment
management and advisory services, investment banking, and discount securities brokerage services.
This business segment also offers the sale of annuity products, as well as life, disability and
long-term care insurance products.
The Finance segment includes 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 analysis and executing various strategies to manage
Comerica’s exposure to liquidity, interest rate risk, and foreign exchange risk.
In addition, Comerica has positioned itself to deliver financial services in its four primary
geographic markets: Midwest & Other Markets, Western, Texas, and Florida. Midwest & Other Markets
includes all markets in which Comerica has operations, except for the Western, Texas and Florida
markets. Substantially all of Comerica’s international operations are included in the Midwest &
Other Markets segment. Currently, Michigan operations represent the significant majority of the
Midwest & Other Markets geographic market.
The Western market consists of the states of California, Arizona, Nevada, Colorado and Washington.
Currently, California operations represent the significant majority of the Western market.
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The Texas and Florida markets consist of the states of Texas and Florida, respectively.
We provide financial information for our segments and information about our non-U.S. revenues and
long-lived assets: (1) under the caption, “Strategic Lines of Business” on pages 33 through 36 of
Comerica’s Annual Report to Shareholders for the year ended December 31, 2006, which pages are
hereby incorporated by reference; and (2) in Note 24 of the Notes to Consolidated Financial
Statements located on pages 114 through 118 of Comerica’s Annual Report to Shareholders for the
year ended December 31, 2006, which pages are hereby incorporated by reference.
We provide information about the net interest income and noninterest income we received from our
various classes of products and services: (1) under the caption, “Table 2: Analysis of Net Interest
Income — Fully Taxable Equivalent (FTE)” on page 24 of Comerica’s Annual Report to Shareholders for
the year ended December 31, 2006, which page is hereby incorporated by reference; and (2) under the
caption “Noninterest Income” on pages 28 through 29 of Comerica’s Annual Report to Shareholders for
the year ended December 31, 2006, which pages are hereby incorporated by reference.
We provide information on risks attendant to foreign operations: (1) under the caption, “Provision
for Credit Losses” on page 27 of Comerica’s Annual Report to Shareholders for the year ended
December 31, 2006, which pages are hereby incorporated by reference; (2) under the caption, “Table
7: International Cross-Border Outstandings” on page 41 of Comerica’s Annual Report to Shareholders
for the year ended December 31, 2006, which pages are hereby incorporated by reference; and (3)
under the caption “Allowance for Credit Losses” on pages 46 through 48 of Comerica’s Annual Report
to Shareholders for the year ended December 31, 2006, which pages are hereby incorporated by
reference.
COMPETITION
The financial services business is highly competitive. Comerica’s banking subsidiaries compete
primarily with banks based in its primary areas of operations in the United States for loans,
deposits and trust accounts. Through its offices in Arizona, California, Colorado, Delaware,
Florida, Illinois, Massachusetts, Michigan, Minnesota, North Carolina, Nevada, New Jersey, New
York, Ohio, Tennessee, Texas, Virginia and Washington, Comerica competes with other financial
institutions for various deposits, loans and other products and services.
Based on the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate
Act”) and the Gramm-Leach-Bliley Act as described below, Comerica believes that the level of
competition in all geographic markets will increase in the future. In addition to banks,
Comerica’s banking subsidiaries also face competition from other financial intermediaries,
including savings and loan associations, consumer finance companies, leasing companies, venture
capital funds, credit unions, investment banks, insurance companies and securities firms.
SUPERVISION AND REGULATION
Banks, bank holding companies and financial institutions are highly regulated at both the state and
federal level. Comerica is subject to supervision and regulation at the federal level by the Board
of Governors of the Federal Reserve System (“FRB”) under the Bank Holding Company Act of 1956, as
amended.
The Gramm-Leach-Bliley Act expanded the activities in which a bank holding company registered as a
financial holding company can engage. The conditions to be a financial holding company include,
among others, the requirement that each depository institution subsidiary of the holding company be
well capitalized and well managed.
Comerica became a financial holding company in 2000. As a financial holding company, Comerica may
affiliate with securities firms and insurance companies and engage in activities that are financial
in nature. Activities that are “financial in nature” include, but are not limited to: securities
underwriting; securities dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; merchant banking; travel agent services; and
activities that the FRB has determined to be financial in nature or incidental or complementary to
a financial activity, provided that it does not pose a substantial risk to the safety or soundness
of the depository institution or the financial system generally. A bank holding company that is
not also a financial holding company is limited to engaging in banking and other activities
previously determined by the FRB to be closely related to banking.
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Comerica Bank is chartered by the State of Michigan and at this level is primarily supervised and
regulated by the Division of Financial Institutions, Office of Financial and Insurance Services of
the Michigan Department of Labor and Economic Growth. 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 and Comerica Bank & Trust, National Association,
are members of the Federal Reserve System (“FRS”). The deposits of both the foregoing banks are
insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”) to the
extent provided by law.
The FRB supervises non-banking activities conducted by companies directly and indirectly owned by
Comerica Incorporated. In addition, Comerica’s non-banking subsidiaries are subject to supervision
and regulation by various state, federal and self-regulatory 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 Comerica Securities, Inc. and Comerica Capital Markets Corporation).
In most cases, no FRB approval is required for Comerica to acquire a company 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, however, 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 financial or bank holding company or a bank. Comerica’s current rating under the
Community Reinvestment Act of 1977 (“CRA”) is “outstanding”. If any subsidiary bank of Comerica
were to receive a rating under the CRA of less than “satisfactory”, Comerica would be prohibited
from engaging in certain activities. In addition, Comerica is “well capitalized” and “well
managed” under FRB standards. If any subsidiary bank of Comerica were to cease being “well
capitalized” or “well managed” under applicable regulatory standards, the FRB could place
limitations on Comerica’s ability to conduct the broader financial activities permissible for
financial holding companies or impose limitations or conditions on the conduct or activities of
Comerica or its affiliates. If the deficiencies persisted, the FRB could order Comerica to divest
any subsidiary bank or to cease engaging in any activities permissible for financial holding
companies that are not permissible for bank holding companies, or Comerica could elect to conform
its non-banking activities to those permissible for a bank holding company that is not also a
financial holding company.
Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and
Regulation W of the FRB, 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 the
aggregate outstanding amount of any insured depository institution’s loans and other “covered
transactions” with any particular nonbank affiliate to no more than 10% of the institution’s total
capital and limits the aggregate outstanding amount of any insured depository institution’s covered
transactions with all of its nonbank affiliates to no more than 20% of its total capital. Section
23A of the Federal Reserve Act also generally requires that an insured depository institution’s
loans to its nonbank affiliates be, at a minimum, 100% 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
domestic banks and other subsidiaries. The summaries are not complete, are qualified in their
entirety by references to the particular statutes and regulations, and are not intended as legal
advice. A change in applicable law or regulation could have a material effect on the business of
Comerica.
Interstate Banking and Branching
Pursuant to the Interstate Banking and Branching Efficiency Act (the “Interstate Act”), a bank
holding company may 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 10% of the total amount of deposits of insured depository institutions in the
United States and no more than 30% of such deposits in that state (or such amount as established by
state law if such amount is lower than 30%).
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The Interstate Act also authorizes banks to acquire branch offices outside their home states by
merging with out-of-state banks, purchasing branches in other states and establishing de novo
branches in other states, thereby creating interstate branching, provided that, in the case of
purchasing branches and establishing new branches in a state in which it does not already have
banking operations, such state must have “opted-in” to the Interstate Act by enacting a law
permitting such branch purchases or de novo branching and, in the case of mergers, such state must
not have “opted-out” of that portion of the Interstate Act.
As permitted by the Interstate Act, Comerica has consolidated most of its banking business into one
bank, Comerica Bank, with branches in Michigan, California, Texas, Florida, and Arizona.
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.
Comerica Bank and Comerica Bank & Trust, National Association are 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 banking practices
and could prohibit the payment of dividends under circumstances in which such payment could be
deemed an unsafe and unsound banking practice. In addition, Comerica Bank is also subject to
limitations under state law regarding the amount of earnings that may be paid out as dividends, and
requiring prior approval for payments of dividends that exceed certain levels.
At January 1, 2007, Comerica’s subsidiary banks, without obtaining prior governmental approvals,
could declare aggregate dividends of approximately $261 million from retained net profits of the
preceding two years, plus an amount approximately equal to the retained net profits (as measured
under current regulations), if any, earned for the period from January 1, 2007 through the date of
declaration. Comerica’s subsidiary banks declared dividends of $746 million in 2006, $793 million
in 2005 and $691 million in 2004 without the need for prior governmental approvals.
Source of Strength
FRB regulations require that bank holding companies serve as a source of strength to each
subsidiary bank and 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 without adversely
affecting its ability to meet other obligations. 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 failure of a banking or thrift subsidiary or related to FDIC assistance
provided to such a subsidiary in danger of failure), the other banking subsidiaries may be assessed
for the FDIC’s loss, subject to certain exceptions.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) requires, among other things,
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.
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% and a Tier 1
risk-based capital ratio of at least 6%, a Tier 1 leverage ratio of at least 5% 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%, a Tier 1 risk-based capital ratio of
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at least 4%, and a Tier 1 leverage ratio of at least 4% (and in some cases 3%). 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, 2006, Comerica and its U.S. banking subsidiaries exceeded the ratios required
for an institution to be considered “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% 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, among other things: 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, or 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.
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.
Capital Requirements
Comerica and its bank subsidiaries are subject to risk-based capital requirements and guidelines
imposed by the FRB and/or the OCC.
For this purpose, a depository institution’s or holding company’s assets and certain specified
off-balance sheet commitments are assigned to four risk categories, each weighted differently based
on the level of credit risk that is ascribed to such assets or commitments. A depository
institution’s or holding company’s capital, in turn, is divided into two tiers: core (“Tier 1”)
capital, which includes common equity, non-cumulative perpetual preferred stock, and a limited
amount of cumulative perpetual preferred stock and related surplus (excluding auction rate issues)
and minority interests in equity accounts of consolidated subsidiaries, less goodwill, certain
identifiable intangible assets and certain other assets; and supplementary (“Tier 2”) capital,
which includes, among other items, perpetual preferred stock not meeting the Tier 1 definition,
mandatory convertible securities, subordinated debt, and allowances for loan and lease losses,
subject to certain limitations, less certain required deductions.
Comerica, like other bank holding companies, currently is required to maintain Tier 1 and “total
capital” (the sum of Tier 1 and Tier 2 capital) equal to at least 4% and 8% of its total
risk-weighted assets (including certain off-balance-sheet items, such as standby letters of
credit), respectively. At December 31, 2006, Comerica met both requirements, with Tier 1 and total
capital equal to 8.02% and 11.63% of its total risk-weighted assets, respectively.
Comerica is also required to maintain a minimum “leverage ratio” (Tier 1 capital to adjusted total
assets) of 3% to 5%, depending upon criteria defined and assessed by the FRB. Comerica’s leverage
ratio of 9.76% at December 31, 2006 reflects the nature of Comerica’s balance sheet and
demonstrates a commitment to capital adequacy.
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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 any such agency supervises. The standards relate generally
to, among others, earnings, liquidity, operations and management, asset quality, various risk and
management exposures (
e.g.
, credit, operational, market, interest rate, etc.) 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 to maintain the
Deposit Insurance Fund (“DIF”). As of December 31, 2006, Comerica’s banking subsidiaries held
approximately $42.6 billion of DIF-assessable deposits. Comerica’s banking subsidiaries in recent
years have not paid nor been assessed deposit insurance assessments on the DIF-assessable deposits
under the FDIC’s risk related assessment system. The FDIC’s risk related system has been revised
effective in 2007, however, and Comerica’s banking subsidiaries will be expected to begin paying
annual deposit insurance assessments annually, although Comerica’s banking subsidiaries have
approximately $34 million of credits to use before assessments will be expensed and paid.
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 penalties and appoint a
conservator or receiver. Failure to comply with applicable laws or regulations could subject
Comerica or its banking subsidiaries, as well as officers and directors of these organizations, to
administrative sanctions and potentially substantial civil and criminal penalties.
Future Legislation
Changes to the laws of the states and countries in which Comerica and its subsidiaries do business
could affect the operating environment of bank holding companies and their subsidiaries in
substantial and unpredictable ways. Comerica cannot accurately predict whether such changes will
occur or, if they occur, the ultimate effect they would have upon the financial condition or
results of operations of Comerica.
EMPLOYEES
As of December 31, 2006, Comerica and its subsidiaries had 10,129 full-time and 1,141 part-time
employees.
AVAILABLE INFORMATION
Comerica maintains an Internet website at www.comerica.com where the Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are
available without charge, as soon as reasonably practicable after those reports are filed with or
furnished to the U.S. Securities and Exchange Commission. The Code of Business Conduct and Ethics
for Employees, the Code of Business Conduct and Ethics for Members of the Board of Directors and
the Senior Financial Officer Code of Ethics adopted by Comerica are also available on the Internet
website and are available in print to any shareholder who requests them. Such requests should be
made in writing to the Corporate Secretary at Comerica Incorporated, Comerica Tower at Detroit
Center, 500 Woodward Avenue, MC 3381, Detroit, Michigan 48226.
Item 1A. Risk Factors.
This Report includes forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. In addition, Comerica may make other written and oral communications from time
to time that contain such statements. All statements regarding Comerica’s expected financial
position, strategies and growth prospects and general economic conditions Comerica expects to exist
in the future are forward-looking statements. The words, “anticipates,” “believes,” “feels,”
“expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,” “forecast,” “position,”
“target,” “mission,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “aspiration,”
“outcome,” “continue,” “remain,” “maintain,” “trend,” “objective” and variations of such words and
similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,”
“might,” “can,” “may” or
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similar expressions, as they relate to Comerica or its management, are
intended to identify forward-looking statements.
Comerica cautions that forward-looking statements are subject to numerous assumptions, risks and
uncertainties, which change over time. Forward-looking statements speak only as of the date the
statement is made, and Comerica does not undertake to update forward-looking statements to reflect
facts, circumstances, assumptions or events that occur after the date the forward-looking
statements are made. Actual results could differ materially from those anticipated in
forward-looking statements, and future results could differ materially from historical performance.
In addition to factors mentioned elsewhere in this Report or previously disclosed in Comerica’s SEC
reports (accessible on the SEC’s website at
www.sec.gov
or on Comerica’s website at
www.comerica.com
), the factors contained below, among others, could cause actual results to
differ materially from forward-looking statements, and future results could differ materially from
historical performance.
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General political, economic or industry conditions, either domestically or
internationally, may be less favorable than expected.
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Local, domestic, and international economic, political and industry specific conditions, and
governmental monetary and fiscal policies affect the financial services industry, directly
and indirectly. Conditions such as inflation, recession, unemployment, volatile interest
rates, tight money supply, real estate values, international conflicts and other factors
outside of Comerica’s control may adversely affect Comerica. Economic downturns could result
in the delinquency of outstanding loans, which could have a material adverse impact on
Comerica’s earnings.
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Unfavorable developments concerning credit quality could adversely affect Comerica’s
financial results.
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Although Comerica regularly reviews credit exposure related to its customers and various
industry sectors in which it has business relationships, default risk may arise from events
or circumstances that are difficult to detect or foresee. Under such circumstances, Comerica
could experience an increase in the level of provision for credit losses, nonperforming
assets, net charge-offs and reserve for credit losses, which could adversely affect
Comerica’s financial results.
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Industries in which Comerica has lending concentrations, including, but not limited to,
automotive production and the commercial real estate industry, could suffer a significant
decline which could adversely affect Comerica.
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Comerica’s business customer base consists, in part, of lending concentrations in volatile
industries such as automotive production and the commercial real estate industry. In the
event of a downturn in the economy or general or further decline in any one of those
industries, Comerica could experience increased credit losses, and its business could be
materially adversely affected.
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•
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The introductions, withdrawal, success and timing of business initiatives and
strategies, including, but not limited to, the opening of new banking centers, and plans to
grow personal financial services and wealth management, may be less successful or may be
different than anticipated. Such a result could adversely affect Comerica’s business.
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Comerica makes certain projections and develops plans and strategies for its banking and
financial products. If Comerica does not accurately determine demand for its banking and
financial product needs, it could result in Comerica incurring significant expenses without
the anticipated increases in revenue, which could result in a material adverse effect on its
earnings.
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•
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Fluctuations in interest rates could adversely affect Comerica’s net interest income
and balance sheet.
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The operations of financial institutions such as Comerica are dependent to a large degree on
net interest income, which is the difference between interest income from loans and
investments and interest expense on deposits and borrowings. Prevailing economic conditions,
the fiscal and monetary policies of the federal government and the policies of various
regulatory agencies all affect market rates of interest, which in turn
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8
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significantly affect
financial institutions’ net interest income. Fluctuations in interest rates affect
Comerica’s balance sheet, as they do for all financial institutions. Volatility in interest
rates can also result in
disintermediation, which is the flow of funds away from financial institutions into direct
investments, such as federal government and corporate securities and other investment
vehicles, which, because of the absence of federal insurance premiums and reserve
requirements, generally pay higher rates of return than financial institutions. Fluctuations
in interest rates could materially adversely affect Comerica’s net interest income and
balance sheet.
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•
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Customer borrowing, repayment, investment and deposit practices generally may be
different than anticipated.
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Comerica uses a variety of financial tools, models and other methods to anticipate customer
behavior as a part of its strategic planning and to meet certain regulatory requirements.
Individual, economic, political, industry-specific conditions and other factors outside of
Comerica’s control could alter predicted customer borrowing, repayment, investment and
deposit practices. Such a change in these practices could materially adversely affect
Comerica’s ability to anticipate business needs and meet regulatory requirements.
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•
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Management’s ability to maintain and expand customer relationships may differ from
expectations.
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The financial services industry is very competitive. Comerica not only vies for business
opportunities with new customers, but also competes to maintain and expand the relationships
it has with its existing customers. While management believes that it can continue to grow
many of these relationships, Comerica will continue to experience pressures to maintain these
relationships as its competitors attempt to capture its customers. Failure to create new
customer relationships and to maintain and expand existing customer relationships to the
extent anticipated may adversely impact Comerica’s earnings.
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•
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Competitive product and pricing pressures among financial institutions within
Comerica’s markets may change.
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Comerica operates in a very competitive environment, which is characterized by competition
from a number of other financial institutions in each market in which it operates. Comerica
competes with large national and regional financial institutions and with smaller financial
institutions in terms of products and pricing. If Comerica is unable to compete effectively
in products and pricing in its markets, business could decline, which could have a material
adverse effect on Comerica’s business, financial condition or results of operations.
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•
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Management’s ability to retain key officers and employees may change.
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Comerica’s future operating results depend substantially upon the continued service of
Comerica’s executive officers and key personnel. Comerica’s future operating results also
depend in significant part upon Comerica’s ability to attract and retain qualified
management, financial, technical, marketing, sales and support personnel. Competition for
qualified personnel is intense, and Comerica cannot ensure success in attracting or retaining
qualified personnel. There may be only a limited number of persons with the requisite skills
to serve in these positions, and it may be increasingly difficult for Comerica to hire
personnel over time. Comerica’s business, financial condition or results of operations could
be materially adversely affected by the loss of any of its key employees, by the failure of
any key employee to perform in his or her current position, or by Comerica’s inability to
attract and retain skilled employees.
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•
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Legal and regulatory proceedings and related matters with respect to the financial
services industry, including those directly involving Comerica and its subsidiaries, could
adversely affect Comerica or the financial services industry in general.
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Comerica has been, and may in the future be, subject to various legal and regulatory
proceedings. It is inherently difficult to assess the outcome of these matters, and there
can be no assurance that Comerica will prevail in any proceeding or litigation. Any such
matter could result in substantial cost and diversion of Comerica’s efforts, which by itself
could have a material adverse effect on Comerica’s financial condition and operating results.
Further, adverse determinations in such matters could result in actions by Comerica’s
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9
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regulators that could materially adversely affect Comerica’s business, financial condition or
results of operations.
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•
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Changes in regulation or oversight may have a material adverse impact on Comerica’s
operations.
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Comerica is subject to extensive regulation, supervision and examination by the Michigan
Office of Financial and Insurance Services, the Federal Deposit Insurance Corporation, the
Board of Governors of the Federal Reserve System, the Securities and Exchange Commission and
other regulatory bodies. Such regulation and supervision governs the activities in which
Comerica may engage. Regulatory authorities have extensive discretion in their supervisory
and enforcement activities, including the imposition of restrictions on Comerica’s
operations, investigations and limitations related to Comerica’s securities, the
classification of Comerica’s assets and determination of the level of Comerica’s allowance
for loan losses. Any change in such regulation and oversight, whether in the form of
regulatory policy, regulations, legislation or supervisory action, may have a material
adverse impact on Comerica’s business, financial condition or results of operations.
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•
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Methods of reducing risk exposures might not be effective.
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Instruments, systems and strategies used to hedge or otherwise manage exposure to various
types of credit, market and liquidity, operational, compliance, business risks and
enterprise-wide risk could be less effective than anticipated. As a result, Comerica may not
be able to effectively mitigate its risk exposures in particular market environments or
against particular types of risk, which could have a material adverse impact on Comerica’s
business, financial condition or results of operations.
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•
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There could be terrorist activities or other hostilities, which may adversely affect
the general economy, financial and capital markets, specific industries, and Comerica.
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Terrorist attacks or other hostilities may disrupt Comerica’s operations or those of its
customers. In addition, these events have had and may continue to have an adverse impact on
the U.S. and world economy in general and consumer confidence and spending in particular,
which could harm Comerica’s operations. Any of these events could increase volatility in the
U.S. and world financial markets, which could harm Comerica’s stock price and may limit the
capital resources available to its customers and Comerica. This could have a material
adverse impact on Comerica’s operating results, revenues and costs and may result in
increased volatility in the market price of Comerica’s common stock.
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•
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There could be natural disasters, including, but not limited to, hurricanes, tornadoes,
earthquakes, fires and floods, which may adversely affect the general economy, financial
and capital markets, specific industries, and Comerica.
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Comerica has significant operations and a significant customer base in California, Texas,
Florida and other regions where natural disasters may occur. These regions are known for
being vulnerable to natural disasters and other risks, such as tornadoes, hurricanes,
earthquakes, fires and floods. These types of natural disasters at times have disrupted the
local economy, Comerica’s business and customers and have posed physical risks to Comerica’s
property. A significant natural disaster could materially adversely affect Comerica’s
operating results.
|
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The executive offices of Comerica are located in the Comerica Tower at Detroit Center, 500 Woodward
Avenue, Detroit, Michigan 48226. Comerica and its subsidiaries currently occupy 11 floors of the
building, which is leased through Comerica Bank from an unaffiliated third party. The leases at
this building extend through January 2012. As of December 31, 2006, Comerica, through its banking
affiliates, operated a total of 461 banking centers, trust
10
services locations, and loan production
or other financial services offices, primarily in the States of Michigan, California, Texas and
Florida. Of these offices, 225 were owned and 236 were leased. As of December 31, 2006,
affiliates also operated from leased spaces in Mesa and Phoenix, Arizona; Denver, Colorado;
Wilmington, Delaware; Barrington, Chicago and Oakbrook Terrace, Illinois; Boston and Waltham,
Massachusetts; Minneapolis, Minnesota; Princeton and Sea Girt, New Jersey; Las Vegas, Nevada; New
York, New York; Rocky Mount, North Carolina; Cleveland and West Chester, Ohio; Memphis, Tennessee;
Reston, Virginia; Bellevue and Seattle, Washington; Monterey, Mexico; Wanchai, Hong Kong; Toronto,
Ontario, Canada and Windsor, Ontario, Canada.
Comerica and its subsidiaries own, among other properties, a check processing center in Livonia,
Michigan, a 10-story building in the central business district of Detroit, Michigan that houses
certain departments of Comerica and Comerica Bank, and three buildings in Auburn Hills, Michigan,
used mainly for lending functions and operations.
Item 3. Legal Proceedings.
Comerica and certain of its subsidiaries are subject to various pending and threatened legal
proceedings arising out of the normal course of business or operations. In view of the inherent
difficulty of predicting the outcome of such matters, Comerica cannot state what the eventual
outcome of any such matters will be. However, based on current knowledge and after consultation
with legal counsel, management believes that current reserves, determined in accordance with SFAS
No. 5, “Accounting for Contingencies,” are adequate and the amount of any incremental liability
arising from these matters is not expected to have a material adverse effect on Comerica’s
consolidated financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Comerica did not submit any matters for a shareholders’ vote in the fourth quarter of 2006.
11
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market Information and Holders of Common Stock
The common stock of Comerica Incorporated is traded on the New York Stock Exchange (NYSE Trading
Symbol: CMA). At February 21, 2007, there were approximately 14,093 record holders of Comerica’s
common stock.
Sales Prices and Dividends
Quarterly cash dividends were declared during 2006 and 2005 totaling $2.36 and $2.20 per common
share per year, respectively. The following table sets forth, for the periods indicated, the high
and low sale prices per share of Comerica’s common stock as reported on the NYSE Composite
Transactions Tape for all quarters of 2006 and 2005, as well as dividend information.
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Dividends
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Dividend*
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Quarter
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High
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Low
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Per Share
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Yield
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2006
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Fourth
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$
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59.72
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$
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55.82
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$
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0.59
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4.1
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%
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Third
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58.95
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51.45
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0.59
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4.3
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Second
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60.10
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50.12
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0.59
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4.3
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First
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58.62
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54.23
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0.59
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4.2
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2005
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Fourth
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$
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60.25
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$
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53.60
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$
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0.55
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3.9
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%
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Third
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63.38
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56.80
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0.55
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3.7
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Second
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59.29
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53.17
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0.55
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|
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3.9
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|
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First
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61.40
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|
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53.70
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|
|
|
0.55
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|
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3.8
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*
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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.
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12
Securities Authorized for Issuance Under Equity Compensation Plans
As of December 31, 2006
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Number of
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securities
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remaining
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Number of
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available for
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|
securities to be
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Weighted-
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future issuance
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issued upon
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average
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under equity
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exercise of
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exercise price
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|
compensation
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outstanding
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of outstanding
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|
plans (excluding
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options,
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|
options,
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securities
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warrants and
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|
warrants and
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reflected in
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rights
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rights
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column (a))
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Plan Category
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(a)
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(b)
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(c)
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Equity compensation plans approved by
security holders
(1)
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18,926,236
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|
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$
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55.05
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|
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13,375,910
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(2)(3)
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Equity compensation plans not approved by security holders
(4)
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264,500
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|
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55.50
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0
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|
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|
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|
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Total
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19,190,736
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$
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55.06
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|
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13,375,910
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(1)
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Consists of options to acquire shares of common stock, par value $5.00 per share,
issued under the Comerica’s Amended and Restated 2006 Long-Term Incentive Plan, Amended and
Restated 1997 Long-Term Incentive Plan, the 1991 Long-Term Incentive Plan, the Amended and
Restated Comerica Incorporated Stock Option Plan for Non-Employee Directors, and the Imperial
Bank Stock Option Plan (assumed by Comerica in connection with its acquisition of Imperial
Bank). Does not include 24,916 restricted stock units equivalent to shares of common stock
issued under the Comerica Incorporated Incentive Plan for Non-Employee Directors and
outstanding as of December 31, 2006, or 1,114,222 shares of restricted stock issued under
Comerica’s Amended and Restated 2006 Long-Term Incentive Plan and outstanding as of December
31, 2006. There are no shares available for future issuances under any of these plans other
than the Comerica Incorporated Incentive Plan for Non-Employee Directors and Comerica’s
Amended and Restated 2006 Long-Term Incentive Plan. The Comerica Incorporated Incentive Plan
for Non-Employee Directors was approved by the shareholders on May 18, 2004. The Amended and
Restated 2006 Long-Term Incentive Plan was approved on May 16, 2006.
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(2)
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Does not include shares of common stock purchased by employees under the Amended and
Restated Employee Stock Purchase Plan, or contributed by Comerica on behalf of the employees.
The Amended and Restated Employee Stock Purchase Plan was ratified and approved by the
shareholders on May 18, 2004. Five million shares of Comerica’s common stock have been
registered for sale or awards to employees under the Amended and Restated Employee Stock
Purchase Plan. As of December 31, 2006, 1,272,624 shares had been purchased by or contributed
on behalf of employees, leaving 3,727,376 shares available for future sale or awards. If
these shares available for future sale or awards under the Employee Stock Purchase Plan were
included, the number shown in column (c) would be 17,103,286.
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(3)
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These shares are available for future issuance under Comerica’s Amended and Restated
2006 Long-Term Incentive Plan in the form of options, stock appreciation rights, restricted
stock, restricted stock units, performance awards and other stock-based awards and under the
Incentive Plan for Non-Employee Directors in the form of options, stock appreciation rights,
restricted stock, restricted stock units and other equity-based awards. Under the Long-Term
Incentive Plan, not more than a total of 2.2 million shares may be used for awards other than
options and stock appreciation rights and not more than one million shares are available as
incentive stock options. Further, no award recipient may receive more than 350,000 shares
during any calendar year, and the maximum number of shares underlying awards of options and
stock appreciation rights that may be granted to an award recipient in any calendar year is
350,000.
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(4)
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Consists of options to acquire shares of common stock, par value $5.00 per share,
issued under the Amended and Restated Comerica Incorporated Stock Option Plan for Non-Employee
Directors of Comerica Bank and Affiliated Banks (terminated March 2004).
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Most of the equity awards made by Comerica during 2006 were granted under the Amended and Restated
1997 Long-Term Incentive Plan which was incorporated into shareholder-approved Amended and Restated
2006 Long-Term Incentive Plan on May 16, 2006. Plans not approved by Comerica’s shareholders
include:
13
Amended and Restated Comerica Incorporated Stock Option Plan for Non-Employee Directors of
Comerica Bank and Affiliated Banks (Terminated March 2004)
— Under the plan, Comerica granted
options to acquire up to 450,000 shares of common stock, subject to equitable adjustment upon the
occurrence of events such as stock splits, stock dividends or recapitalizations. After each annual
meeting of shareholders, each member of the Board of Directors of a subsidiary bank of Comerica who
was not an employee of Comerica or of any of its subsidiaries nor a director of Comerica (the
“Eligible Directors”) automatically was granted an option to purchase 2,500 shares of the common
stock of Comerica. Option grants under the plan were in addition to annual retainers, meeting fees
and other compensation payable to Eligible Directors in connection with their services as
directors. The plan is administered by a committee of the Board of Directors. With respect to the
automatic grants, the Committee does not and did not have discretion as to matters such as the
selection of directors to whom options will be granted, the timing of grants, the number of shares
to become subject to each option grant, the exercise price of options, or the periods of time
during which any option may be exercised. In addition to the automatic grants, the committee could
grant options to the Eligible Directors in its discretion. The exercise price of each option
granted was the fair market value of each share of common stock subject to the option on the date
the option was granted. The exercise price is payable in full upon exercise of the option and may
be paid in cash or by delivery of previously owned shares. The committee may change the option
price per share following a corporate reorganization or recapitalization so that the aggregate
option price for all shares subject to each outstanding option prior to the change is equivalent to
the aggregate option price for all shares or other securities into which option shares have been
converted or which have been substituted for option shares. The term of each option cannot be more
than ten years. This plan was terminated by the Board of Directors on March 23, 2004.
Accordingly, no new options may be granted under this plan.
Director Deferred Compensation Plans
— Comerica maintains two deferred compensation plans
for non-employee directors of Comerica, its subsidiaries and its advisory boards: the Amended and
Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan (the “Common
Stock Deferral Plan”) and the Amended and Restated Comerica Incorporated Non-Employee Director Fee
Deferral Plan (the “Director Fee Deferral Plan”). The Common Stock Deferral Plan allows directors
to invest in units that correlate to, and are functionally equivalent to, shares of common stock of
Comerica, while the Director Fee Deferral Plan allows directors to invest in units that correlate
to, and are functionally equivalent to, the shares of certain mutual funds offered under such plan.
The Common Stock Deferral Plan previously provided for the mandatory deferral of 50% of the annual
retainer of each director of Comerica into shares of common stock of Comerica, but currently has no
mandatory deferral. Until the mandatory deferral requirement was discontinued, directors could
voluntarily defer the remaining 50% of their director fees (and all other non-employee directors of
Comerica’s subsidiaries could choose to defer up to 100% of their director fees) under the Common
Stock Deferral Plan or the Director Fee Deferral Plan, or a combination of the two plans.
Currently, all eligible non-employee directors may defer any portion or none of their director fees
under the Common Stock Deferral Plan or the Director Fee Deferral Plan, or a combination of the two
plans.
The directors’ accounts under the Common Stock Deferral Plan are increased to the extent of
dividends paid on Comerica common stock to reflect the number of additional shares of Comerica’s
common stock that could have been purchased had the dividends been paid on each share of common
stock underlying then-outstanding stock units in the directors’ accounts. Similarly, the
directors’ accounts under the Director Fee Deferral Plan are increased in connection with the
payment of dividends paid on the mutual fund shares to reflect the number of additional shares of
mutual fund shares that could have been purchased had the dividends or other distributions been
paid on each share of stock underlying then-outstanding mutual fund units in the directors’
accounts. Following the applicable deferral period, the distribution of a participant’s Comerica
stock unit account under the Common Stock Deferral Plan is made in Comerica’s common stock (with
fractional shares being paid in cash), while the distribution of a participant’s mutual fund
account under the Director Fee Deferral Plan is made in cash.
Employee Deferred Compensation Plans
— Comerica maintains two deferred compensation plans
for eligible employees of Comerica and its subsidiaries: the 1999 Comerica Incorporated Amended and
Restated Common Stock Deferred Incentive Award Plan (the “Employee Common Stock Deferral Plan”) and
the 1999 Comerica Incorporated Deferred Compensation Plan (the “Employee Deferral Plan”). Under
the Employee Common Stock Deferral Plan, eligible employees may defer specified portions of their
incentive awards into units that correlate to, and are functionally equivalent to, shares of common
stock of Comerica. The employees’ accounts under the Employee Common Stock Deferral Plan are
increased in connection with the payment of dividends paid on Comerica’s common stock to reflect
the number of additional shares of Comerica’s common stock that could have been purchased had the
dividends been paid on each share of common stock underlying then-outstanding stock units
14
in the employees’ accounts. The deferred compensation under the Employee Common Stock Deferral
Plan is payable in shares of Comerica’s common stock following termination of service as an
employee.
Similarly, under the Employee Deferral Plan, eligible employees may defer specified portions of
their compensation, including salary, bonus and incentive awards, into units that correlate to, and
are functionally equivalent to, shares of funds offered under the Employee Deferral Plan. Beginning
in 1999, no such funds are Comerica stock funds. The employees’ accounts under the Employee
Deferral Plan are increased in connection with the payment of dividends paid on the fund shares to
reflect the number of additional shares of the fund stock that could have been purchased had the
dividends been paid on each share of fund stock underlying then-outstanding stock units in the
employees’ accounts. The deferred compensation under the Employee Deferral Plan is payable in cash
following termination of service as an employee.
For additional information regarding Comerica’s equity compensation plans, please refer to Note 15
on pages 92 through 94 of the Consolidated Financial Statements contained in Comerica’s Annual
Report to Shareholders for the year ended December 31, 2006.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Board of Directors of the Corporation (the “Board”) authorized the purchase of up to 10 million
shares of Comerica Incorporated outstanding common stock on July 26, 2005 and an additional 10
million shares on November 14, 2006. Substantially all shares purchased as part of Comerica’s
publicly announced repurchase program were transacted in the open market and were within the scope
of Rule 10b-18, which provides a safe harbor for purchases in a given day if an issuer of equity
securities satisfies the manner, timing, price and volume conditions of the rule when purchasing
its own common shares in the open market. There is no expiration date for Comerica’s share
repurchase program. The following table summarizes Comerica’s share repurchase activity for the
quarter ended December 31, 2006.
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Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Shares that May
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Yet Be
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
Purchased Under
|
|
|
|
|
|
Total Number of
|
|
|
Average Price Paid
|
|
|
Announced Plans or
|
|
|
the Plans or
|
|
|
|
Month Ended
|
|
Shares Purchased
|
|
|
Per Share
|
|
|
Programs
|
|
|
Programs
|
|
|
|
October 31, 2006
|
|
|
3,340
|
|
|
$
|
56.48
|
|
|
|
—
|
|
|
|
4,018,477
|
|
|
|
November 30, 2006
|
|
|
549,600
|
|
|
|
58.46
|
|
|
|
549,600
|
|
|
|
13,468,877
|
|
|
|
December 31, 2006
|
|
|
915,100
|
|
|
|
58.89
|
|
|
|
915,100
|
|
|
|
12,553,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,468,040
|
|
|
$
|
58.72
|
|
|
|
1,464,700
|
|
|
|
12,553,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information regarding Comerica’s share repurchase program, please refer to Note 12
on pages 88 through 89 of the Consolidated Financial Statements contained in Comerica’s Annual
Report to Shareholders for the year ended December 31, 2006.
15
Item 6. Selected Financial Data.
The response to this item is included on page 19 of Comerica’s Annual Report to Shareholders for
the year ended December 31, 2006, 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 is included on pages 20 through 65 of Comerica’s Annual Report to
Shareholders for the year ended December 31, 2006, which pages are hereby incorporated by
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The response to this item is included on pages 52 through 59 of Comerica’s Annual Report to
Shareholders for the year ended December 31, 2006, which pages are hereby incorporated by
reference.
Item 8. Financial Statements and Supplementary Data.
The response to this item is included on pages 66 through 131 of Comerica’s Annual Report to
Shareholders for the year ended December 31, 2006, and in the Statistical Disclosure by Bank
Holding Companies on pages 24 through 55 and 80 through 85 of Comerica’s Annual Report to
Shareholders for the year ended December 31, 2006, which pages are hereby incorporated by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Exchange Act, management, including the Chief Executive
Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by
this Annual Report on Form 10-K, of the effectiveness of our disclosure controls and procedures as
defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that Comerica’s disclosure controls and procedures were effective
as of the end of the period covered by this Annual Report on Form 10-K.
Internal Control Over Financial Reporting
Management’s annual report on internal control over financial reporting and the related attestation
report of Comerica’s registered public accounting firm are included on pages 126 through 127 of
Comerica’s Annual Report to Shareholders for the year ended December 31, 2006, which pages are
hereby incorporated by reference.
As required by Rule 13a-15(d), management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of our internal control over financial reporting to
determine whether any changes occurred during the period covered by this Annual Report on Form 10-K
that have materially affected, or are reasonably likely to materially affect, Comerica’s internal
control over financial reporting. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that there has been no such change during the last quarter of the
fiscal year covered by this Annual Report on Form 10-K that has materially affected, or is
reasonably likely to materially affect, Comerica’s internal control over financial reporting.
Item 9B. Other Information.
None.
16
PART III
Item 10. Directors and Executive Officers of the Registrant.
Comerica has a Senior Financial Officer Code of Ethics that applies to the Chief Executive Officer,
the Chief Financial Officer, the Chief Accounting Officer, the Senior Vice President – Finance, and
the Treasurer of Comerica. The Senior Financial Officer Code of Ethics is available on Comerica’s
website at www.comerica.com.
On January 23, 2007, the Board of Directors of Comerica amended Article III, Section 12 of the
Comerica bylaws to require a nominee for election or reelection as a director of Comerica to
complete a written questionnaire prepared by Comerica with respect to the background and
qualification of the person and, if applicable, the background of any other person or entity on
whose behalf the nomination is being made.
A nominee must also make certain representations and agree that he or she (A) will abide by the
requirements of Article III, Section 13 of the bylaws (concerning, among other things, the required
tendering of a resignation by a director who does not receive a majority of votes cast in an
uncontested election), (B) is not and will not become a party to (1) any agreement, arrangement or
understanding with, and has not given any commitment or assurance to, any person or entity as to
how, if elected as a director of Comerica, he or she will act or vote on any issue or question (a
“Voting Commitment”) that has not been disclosed to Comerica or (2) any Voting Commitment that
could limit or interfere with his or her ability to comply, if elected as a director of Comerica,
with his or her fiduciary duties under applicable law, (C) is not and will not become a party to
any agreement, arrangement or understanding with any person or entity other than Comerica with
respect to any direct or indirect compensation, reimbursement or indemnification in connection with
service or action as a director that has not been disclosed, and (D) in his or her individual
capacity and on behalf of any person or entity on whose behalf the nomination is being made, would
be in compliance, if elected as a director of Comerica, and would comply with all applicable
publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership
and trading policies and guidelines of Comerica.
The remainder of the response to this item will be included under the sections captioned
“Information About Nominees and Incumbent Directors,” “Committees and Meetings of Directors,”
“Committee Assignments,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting
Compliance” of Comerica’s definitive Proxy Statement relating to the Annual Meeting of Shareholders
to be held on May 15, 2007, which sections are hereby incorporated by reference.
Item 11. Executive Compensation.
The response to this item will be included under the sections captioned “Compensation Committee
Interlocks and Insider Participation”, “Compensation of Executive Officers”, “Compensation
Discussion and Analysis”, “Compensation of Directors”, “Officer Stock Ownership Guidelines”,
“Compensation Committee Report”, “Summary Compensation Table”, “Summary Compensation Table for
Retired Vice Chairman”, “Grants Of Plan-Based Awards”, “Outstanding Equity Awards At Fiscal
Year-End”, “Option Exercises and Stock Vested”, “Pension Benefits”, “Nonqualified Deferred
Compensation”, “Employee Deferred Compensation Plans”, and “Potential Payments Upon Termination or
Change in Control” of Comerica’s definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 15, 2007, which sections are hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information called for by this item with respect to securities authorized for issuance under
equity compensation plans is included under Part II, Item 5 of this Annual Report on Form 10-K.
The response to the remaining requirements of this item will be included under the sections
captioned “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management”
of Comerica’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held
on May 15, 2007, which sections are hereby incorporated by reference.
17
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The response to this item will be included under the sections captioned “Director Independence and
Transactions of Directors with Comerica,” “Transactions of Executive Officers with Comerica” and
“Information about Nominees and Incumbent Directors” of Comerica’s definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on May 15, 2007, which sections are
hereby incorporated by reference.
Item 14. Principal Accountant Fees and Services.
The response to this item will be included under the section captioned “Independent Auditors” of
Comerica’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on
May 15, 2007, which section is hereby incorporated by reference.
18
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 2006 Annual
Report to
Shareholders or in
the 2007 Proxy
Statement used in
connection with the
2007 Annual Meeting
of Shareholders to be
held on May 15, 2007.
|
|
The following
cross-reference index
shows the page
location in the 2006
Annual Report to
Shareholders or the
section of the 2007
Proxy Statement of
only that information
which is to be
incorporated by
reference into this
Form 10-K.
|
|
All other sections of
the 2006 Annual
Report to
Shareholders or the
2007 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 2006 Annual
Report to Shareholders or
Section of 2007 Proxy Statement
|
|
|
|
|
|
|
|
|
PART I
|
|
|
|
|
|
|
|
|
|
ITEM 1.
|
|
Business
|
|
24; 27-29; 114-118
|
|
ITEM 1A.
|
|
Risk Factors
|
|
Included herein
|
|
ITEM 1B.
|
|
Unresolved Staff Comments
|
|
Included herein
|
|
ITEM 2.
|
|
Properties
|
|
Included herein
|
|
ITEM 3.
|
|
Legal Proceedings
|
|
Included herein
|
|
ITEM 4.
|
|
Submission of Matters to a Vote of Security Holders
|
|
Included herein
|
|
|
|
|
|
|
|
|
|
PART II
|
|
|
|
|
|
|
|
|
|
ITEM 5.
|
|
Market for Registrant’s Common Equity, Related Stockholder Matters,
Issuer Purchases of
|
|
|
|
|
|
Equity Securities, and Performance Graph
|
|
Included herein
|
|
ITEM 6.
|
|
Selected Financial Data
|
|
19
|
|
ITEM 7.
|
|
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
|
20-65
|
|
ITEM 7A.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
|
52-59
|
|
ITEM 8.
|
|
Financial Statements and Supplementary Data:
|
|
66-131
|
|
|
|
Comerica Incorporated and Subsidiaries
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
66
|
|
|
|
Consolidated Statements of Income
|
|
67
|
|
|
|
Consolidated Statements of Changes in Shareholders’ Equity
|
|
68
|
|
|
|
Consolidated Statements of Cash Flows
|
|
69
|
|
|
|
Notes to Consolidated Financial Statements
|
|
70-125
|
|
|
|
Report of Management
|
|
126
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
128
|
|
|
|
Management’s Report on Internal Control Over Financial Reporting
|
|
126
|
|
|
|
Attestation Report of Independent Registered Public Accounting Firm
|
|
127
|
|
|
|
Statistical Disclosure by Bank Holding Companies:
|
|
|
|
|
|
Analysis of Net Interest Income — Fully Taxable Equivalent
|
|
24
|
|
|
|
Rate-Volume Analysis — Fully Taxable Equivalent
|
|
25
|
|
|
|
Analysis of Investment Securities and Loans
|
|
37
|
|
|
|
Loan Maturities and Interest Rate Sensitivity
|
|
38
|
|
|
|
Analysis of Investment Securities Portfolio — Fully Taxable Equivalent
|
|
40
|
|
|
|
International Cross-Border Outstandings
|
|
41
|
|
|
|
Analysis of the Allowance for Loan Losses
|
|
45
|
|
|
|
Allocation of the Allowance for Loan Losses
|
|
47
|
|
|
|
Summary of Nonperforming Assets and Past Due Loans
|
|
48, 80-82
|
|
|
|
Concentration of Credit
|
|
51-52
|
|
|
|
Remaining Expected Maturity of Risk Management Interest Rate Swaps
|
|
55
|
|
|
|
Deposits — Maturity Distribution of Domestic Certificates of Deposit of
$100,000 and Over
|
|
84
|
|
|
|
Short-Term Borrowings
|
|
85
|
|
ITEM 9.
|
|
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
|
Included herein
|
19
|
|
|
|
|
|
|
ITEM 9A.
|
|
Controls and Procedures:
|
|
|
|
|
|
Management’s Report on Internal Control Over Financial Reporting
|
|
126
|
|
|
|
Attestation Report of Independent Registered Public Accounting Firm
|
|
127
|
|
|
|
Other information called for by this item
|
|
Included herein
|
|
ITEM 9B.
|
|
Other Information
|
|
Included herein
|
|
|
|
|
|
|
|
|
|
PART III
|
|
|
|
|
|
|
|
|
|
ITEM 10.
|
|
Directors and Executive Officers of the Registrant:
|
|
|
|
|
|
Information about Senior Financial Officer Code of Ethics
Other information called for by this item
|
|
Included herein
Information About
Nominees and Incumbent
Directors, Committees
and Meetings of
Directors, Committee
Assignments, Executive
Officers and Section
16(a) Beneficial
Ownership Reporting
Compliance
|
|
|
|
|
|
|
|
ITEM 11.
|
|
Executive Compensation
|
|
Compensation Committee
Interlocks and Insider
Participation,
Compensation of
Executive Officers,
Compensation
Discussion and
Analysis, Compensation
of Directors, Retirement Plans for Directors,
Officer Stock Ownership
Guidelines,
Compensation Committee
Report, Summary
Compensation Table,
Summary Compensation
Table for Retired Vice
Chairman, Grants Of
Plan-Based Awards,
Outstanding Equity
Awards At Fiscal
Year-End, Option
Exercises and Stock
Vested, Pension
Benefits, Nonqualified
Deferred Compensation,
Potential Payments
Upon Termination or
Change in Control, and Director Compensation
|
|
|
|
|
|
|
|
ITEM 12.
|
|
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters:
|
|
|
|
|
|
Information about securities authorized for issuance under equity
compensation plans
|
|
Included herein
Security Ownership of
|
|
|
|
Other information called for by this item
|
|
Certain Beneficial
Owners and Security
Ownership of Management
|
|
|
|
|
|
|
|
ITEM 13.
|
|
Certain Relationships and Related Transactions, and Director
Independence
|
|
Director Independence
and Transactions of
Directors with
Comerica, Transactions
of Executive Officers
with Comerica and
Information about
Nominees
and Incumbent Directors
|
|
|
|
|
|
|
|
ITEM 14.
|
|
Principal Accountant Fees and Services
|
|
Independent Auditors
|
20
PART IV
Item 15. Exhibits and Financial Statement Schedules
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 pages
19-20.
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.
3. Exhibits:
|
|
|
|
|
2
|
|
(not applicable)
|
|
|
|
|
|
3.1(a)
|
|
Restated Certificate of Incorporation of Comerica Incorporated (as
amended) (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).
|
|
|
|
|
|
3.1(b)
|
|
Certificate of Amendment to Restated Certificate of Incorporation
of Comerica Incorporated (filed as Exhibit 3.2 to Registrant’s
Registration Statement on Form S-4, filed December 1, 2000, File
No. 333-51042, and incorporated herein by reference).
|
|
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of Comerica Incorporated (amended and
restated January 23, 2007) (filed as Exhibit 3.1 to Registrant’s
Current Report on Form 8-K dated January 25, 2007, regarding the
Registrant’s Bylaws, and incorporated herein by reference).
|
|
|
|
|
|
4
|
|
(not applicable) [Note: In accordance with Regulation S-K Item No.
601(b)(4)(iii), the Registrant is not filing copies of instruments
defining the rights of holders of long-term debt because none of
those instruments authorizes debt in excess of 10% of the total
consolidated assets of the registrant and its consolidated
subsidiaries. The Registrant hereby agrees to furnish a copy of
any such instrument to the Securities and Exchange Commission upon
request.]
|
|
|
|
|
|
9
|
|
(not applicable)
|
|
|
|
|
|
10.1†
|
|
Comerica Incorporated 2006 Amended and Restated Long-Term Incentive
Plan (amended and restated November 14, 2006).
|
|
|
|
|
|
10.2†
|
|
Comerica Incorporated 2006 Management Incentive Plan (filed as
Appendix IV to Registrant’s Proxy Statement dated April 10, 2006,
and incorporated herein by reference).
|
|
|
|
|
|
10.3†
|
|
Benefit Equalization Plan for Employees of Comerica Incorporated
(filed as Exhibit 10.4 to Registrant’s Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated herein by
reference).
|
|
|
|
|
|
10.4†
|
|
Comerica Incorporated Amended and Restated Employee Stock Purchase
Plan (amended and restated effective June 30, 2003) (filed as
Exhibit 10.6 to Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004, and incorporated herein by
reference).
|
|
|
|
|
|
10.5†
|
|
1986 Stock Option Plan of Imperial Bancorp (as amended) (filed as
Exhibit 10.23 to Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2001, and incorporated herein by
reference).
|
21
|
|
|
|
|
10.6†
|
|
Form of Standard Comerica Incorporated Non-Qualified Stock Option
Agreement under the Amended and Restated Comerica Incorporated 1997
Long-Term Incentive Plan (filed as Exhibit 10.4 to Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30,
2004, and incorporated herein by reference).
|
|
|
|
|
|
10.7†
|
|
Form of Standard Comerica Incorporated Non-Qualified Stock Option
Agreement under the Comerica Incorporated Amended and Restated 2006
Long-Term Incentive Plan.
|
|
|
|
|
|
10.8†
|
|
Form of Standard Comerica Incorporated Restricted Stock Award
Agreement (cliff vesting) under the Amended and Restated Comerica
Incorporated 1997 Long-Term Incentive Plan (filed as Exhibit 10.2
to Registrant’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004, and incorporated herein by reference).
|
|
|
|
|
|
10.9†
|
|
Form of Standard Comerica Incorporated Restricted Stock Award
Agreement (cliff vesting) under the Amended and Restated Comerica
Incorporated 2006 Long-Term Incentive Plan (filed as Exhibit 99.1
to Registrant’s Current Report on Form 8-K dated January 22, 2007,
and incorporated herein by reference).
|
|
|
|
|
|
10.10†
|
|
Form of Standard Comerica Incorporated Restricted Stock Award
Agreement (non-cliff vesting) under the Amended and Restated
Comerica Incorporated 1997 Long-Term Incentive Plan (filed as
Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004, and incorporated herein by
reference).
|
|
|
|
|
|
10.11†
|
|
Form of Standard Comerica Incorporated Restricted Stock Award
Agreement (non-cliff vesting) under the Amended and Restated
Comerica Incorporated 2006 Long-Term Incentive Plan.
|
|
|
|
|
|
10.12†
|
|
Form of Standard Comerica Incorporated No Sale Agreement under the
Comerica Incorporated Amended and Restated Management Incentive
Plan (filed as Exhibit 10.5 to Registrant’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004, and
incorporated herein by reference).
|
|
|
|
|
|
10.13†
|
|
Form of Director Indemnification Agreement between Comerica
Incorporated and certain of its directors (filed as Exhibit 10.6 to
Registrant’s Annual Report on Form 10-K for the year ended December
31, 2002, and incorporated herein by reference).
|
|
|
|
|
|
10.14†
|
|
Supplemental Benefit Agreement with Eugene A. Miller (filed as
Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002, and incorporated herein by
reference).
|
|
|
|
|
|
10.15†
|
|
Employment Agreement with Ralph W. Babb, Jr. (filed as Exhibit 10.1
to Registrant’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, and incorporated herein by reference).
|
|
|
|
|
|
10.16†
|
|
Supplemental Pension and Retiree Medical Agreement with Ralph W.
Babb Jr. (filed as Exhibit 10.2 to Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, and incorporated
herein by reference).
|
|
|
|
|
|
10.17†
|
|
1999 Comerica Incorporated Deferred Compensation Plan (effective
January 1, 1999) (filed as Exhibit 10.18 to Registrant’s Annual
Report on Form 10-K for the year ended December 31, 1999, and
incorporated herein by reference).
|
|
|
|
|
|
10.18†
|
|
1999 Comerica Incorporated Amended and Restated Deferred
Compensation Plan (amended and restated January 25, 2005) (filed as
Exhibit 10.18 to Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2005, and incorporated herein by
reference).
|
|
|
|
|
|
10.19†
|
|
1999 Comerica Incorporated Amended and Restated Common Stock
Deferred Incentive Award Plan (amended and restated January 25,
2005) (filed as Exhibit 10.19 to Registrant’s Annual Report on Form
10-K for the year ended December 31, 2005, and incorporated herein
by reference).
|
|
|
|
|
|
10.20†
|
|
Amended and Restated Comerica Incorporated Stock Option Plan For
Non-Employee Directors (amended and restated May 22, 2001) (filed
as Exhibit 10.12 to Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2002, and incorporated herein by
reference).
|
22
|
|
|
|
|
10.21†
|
|
Amended and Restated Comerica Incorporated Stock Option Plan For
Non-Employee Directors of Comerica Bank and Affiliated Banks
(amended and restated May 22, 2001) (filed as Exhibit 10.13 to
Registrant’s Annual Report on Form 10-K for the year ended December
31, 2002, and incorporated herein by reference).
|
|
|
|
|
|
10.22†
|
|
Amended and Restated Comerica Incorporated Non-Employee Director
Fee Deferral Plan (amended and restated January 27, 2004) (filed as
Exhibit 10.14 to Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2003, and incorporated herein by
reference).
|
|
|
|
|
|
10.23†
|
|
Amended and Restated Comerica Incorporated Common Stock
Non-Employee Director Fee Deferral Plan (amended and restated
January 27, 2004) (filed as Exhibit 10.15 to Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2003, and
incorporated herein by reference).
|
|
|
|
|
|
10.24†
|
|
Amended and Restated Comerica Incorporated Incentive Plan for
Non-Employee Directors (amended and restated July 26, 2005) (filed
as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2005, and incorporated herein by
reference).
|
|
|
|
|
|
10.25†
|
|
Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit
Agreement under the Comerica Incorporated Incentive Plan for Non-Employee Directors
(filed as Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005, and incorporated herein by reference).
|
|
|
|
|
|
10.26†
|
|
Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit
Agreement under the Comerica Incorporated Incentive Plan for Non-Employee Directors
(Version 2) (filed as Exhibit 10.6 to Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006, and incorporated herein by reference).
|
|
|
|
|
|
10.27
|
|
Restrictive Covenants and General Release Agreement by and between John D. Lewis and
Comerica Incorporated dated March 13, 2006 (filed as Exhibit 10.1 to Registrant’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, and incorporated
herein by reference).
|
|
|
|
|
|
10.28†
|
|
Form of Employment Agreement (Executive Vice President) (filed as Exhibit 10.2 to
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and
incorporated herein by reference).
|
|
|
|
|
|
10.29†
|
|
Form of Employment Agreement (Executive Vice President — Version 2) (filed as Exhibit
10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006,
and incorporated herein by reference).
|
|
|
|
|
|
10.30
|
|
Schedule of Employees Party to Employment Agreement (Executive Vice President — Version
2) (filed as Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2006, and incorporated herein by reference).
|
|
|
|
|
|
10.31†
|
|
Form of Employment Agreement (Senior Vice President) (filed as Exhibit 10.3 to
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and
incorporated herein by reference).
|
|
|
|
|
|
10.32†
|
|
Form of Employment Agreement (Senior Vice President – Version 2) (filed as Exhibit 10.4
to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, and
incorporated herein by reference).
|
|
|
|
|
|
10.33
|
|
Schedule of Employees Party to Employment Agreement (Senior Vice President – Version 2)
(filed as Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006, and incorporated herein by reference).
|
|
|
|
|
|
10.34
|
|
Settlement Agreement dated as of November 3, 2006 and enforceable as of November 10, 2006.
|
|
|
|
|
|
10.35
|
|
Implementation Agreement dated July 28, 2005 between Framlington Holdings Limited,
Guarantors as named in the Agreement and AXA Investment Managers SA (restated to reflect
amendments on September 7, 2005) (filed as Exhibit 10.4 to Registrant’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).
|
23
|
|
|
|
|
10.36
|
|
Second Amendment Agreement dated October 31, 2005 in relation to an Implementation
Agreement dated July 28, 2005 (as amended on September 7, 2005) (filed as Exhibit 10.5 to
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and
incorporated herein by reference).
|
|
|
|
|
|
10.37
|
|
Cash Offer dated July 27, 2005 by AXA Investment Managers S.A. (filed as Exhibit 10.6 to
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and
incorporated herein by reference).
|
|
|
|
|
|
10.38
|
|
Form of Acceptance relating to the Cash Offer by AXA Investment Managers S.A. for the
Entire Issued Share Capital of Framlington Group Limited (filed as Exhibit 10.7 to
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and
incorporated herein by reference).
|
|
|
|
|
|
11
|
|
Statement regarding Computation of Net Income Per Common Share (incorporated by reference
from Note 14 on page 91 of Registrant’s 2006 Annual Report to Shareholders attached
hereto as Exhibit 13).
|
|
|
|
|
|
12
|
|
(not applicable)
|
|
|
|
|
|
13
|
|
Incorporated Sections of Registrant’s 2006 Annual Report to Shareholders
|
|
|
|
|
|
14
|
|
(not applicable)
|
|
|
|
|
|
16
|
|
(not applicable)
|
|
|
|
|
|
18
|
|
(not applicable)
|
|
|
|
|
|
21
|
|
Subsidiaries of Registrant
|
|
|
|
|
|
22
|
|
(not applicable)
|
|
|
|
|
|
23
|
|
Consent of Ernst & Young LLP
|
|
|
|
|
|
24
|
|
(not applicable)
|
|
|
|
|
|
31.1
|
|
Chairman, President and CEO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report
(pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
|
|
|
|
|
|
31.2
|
|
Executive Vice President and CFO Rule 13a-14(a)/15d-14(a) Certification of Periodic
Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
|
|
|
|
|
|
32
|
|
Section 1350 Certification of Periodic Report (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002)
|
|
|
|
|
|
33
|
|
(not applicable)
|
|
|
|
|
|
34
|
|
(not applicable)
|
|
|
|
|
|
35
|
|
(not applicable)
|
|
|
|
|
|
99
|
|
(not applicable)
|
|
|
|
|
|
100
|
|
(not applicable)
|
|
|
|
|
|
†
|
|
Management compensation plan.
|
File No. for all filings under Exchange Act: 1-10706.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 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 as of February 27, 2007.
|
|
|
|
|
|
|
COMERICA INCORPORATED
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Ralph W. Babb, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
Ralph W. Babb, Jr.
|
|
|
|
|
|
Chairman, President and Chief Executive Officer
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the registrant in the capacities
indicated as of February 27,
2007.
|
|
|
|
|
/s/ Ralph W. Babb, Jr.
|
|
|
|
|
|
|
|
Chairman, President and Chief Executive
|
|
|
|
Officer and Director (Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/ Elizabeth S. Acton
|
|
|
|
|
|
|
|
Executive Vice President and
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/ Marvin J. Elenbaas
|
|
|
|
|
|
|
|
Senior Vice President and Chief Accounting Officer
|
|
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/ Lillian Bauder
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ Joseph J. Buttigieg, III
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ James F. Cordes
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ Roger A. Cregg
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ Peter D. Cummings
|
|
|
|
|
|
|
|
Director
|
|
|
25
|
|
|
|
|
/s/ T. Kevin DeNicola
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ Anthony F. Earley, Jr.
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ Alfred A. Piergallini
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ Robert S. Taubman
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ Reginald M. Turner, Jr.
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ William P. Vititoe
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ Kenneth L. Way
|
|
|
|
|
|
|
|
Director
|
|
|
26
FINANCIAL
REVIEW AND REPORTS
Comerica Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
20
|
|
|
|
|
|
21
|
|
|
|
|
|
33
|
|
|
|
|
|
37
|
|
|
|
|
|
44
|
|
|
|
|
|
60
|
|
|
|
|
|
65
|
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
67
|
|
|
|
|
|
68
|
|
|
|
|
|
69
|
|
|
|
|
|
70
|
|
|
|
|
|
126
|
|
|
|
|
|
127
|
|
|
|
|
|
129
|
|
17
PERFORMANCE
GRAPH
Comparison
of Five Year Cumulative Total Return
Among Comerica Incorporated, Keefe 50-Bank Index, and S&P
500 Index
(Assumes $100 Invested on 12/31/01 and Reinvestment of
Dividends)
The performance shown on the graph above is not necessarily
indicative of future performance.
18
TABLE 1:
SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
(dollar amounts in millions, except per share data)
|
|
|
|
|
EARNINGS SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,983
|
|
|
$
|
1,956
|
|
|
$
|
1,811
|
|
|
$
|
1,928
|
|
|
$
|
2,133
|
|
|
Provision for loan losses
|
|
|
37
|
|
|
|
(47
|
)
|
|
|
64
|
|
|
|
377
|
|
|
|
635
|
|
|
Noninterest income
|
|
|
855
|
|
|
|
819
|
|
|
|
808
|
|
|
|
850
|
|
|
|
865
|
|
|
Noninterest expenses
|
|
|
1,674
|
|
|
|
1,613
|
|
|
|
1,458
|
|
|
|
1,452
|
|
|
|
1,393
|
|
|
Provision for income taxes
|
|
|
345
|
|
|
|
393
|
|
|
|
349
|
|
|
|
291
|
|
|
|
312
|
|
|
Income from continuing operations
|
|
|
782
|
|
|
|
816
|
|
|
|
748
|
|
|
|
658
|
|
|
|
658
|
|
|
Income (loss) from discontinued
operations, net of tax
|
|
|
111
|
|
|
|
45
|
|
|
|
9
|
|
|
|
3
|
|
|
|
(57
|
)
|
|
Net income
|
|
|
893
|
|
|
|
861
|
|
|
|
757
|
|
|
|
661
|
|
|
|
601
|
|
|
PER SHARE OF COMMON
STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
4.81
|
|
|
$
|
4.84
|
|
|
$
|
4.31
|
|
|
$
|
3.73
|
|
|
$
|
3.72
|
|
|
Net income
|
|
|
5.49
|
|
|
|
5.11
|
|
|
|
4.36
|
|
|
|
3.75
|
|
|
|
3.40
|
|
|
Cash dividends declared
|
|
|
2.36
|
|
|
|
2.20
|
|
|
|
2.08
|
|
|
|
2.00
|
|
|
|
1.92
|
|
|
Common shareholders’ equity
|
|
|
32.70
|
|
|
|
31.11
|
|
|
|
29.94
|
|
|
|
29.20
|
|
|
|
28.31
|
|
|
Market value
|
|
|
58.68
|
|
|
|
56.76
|
|
|
|
61.02
|
|
|
|
56.06
|
|
|
|
43.24
|
|
|
YEAR-END BALANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
58,001
|
|
|
$
|
53,013
|
|
|
$
|
51,766
|
|
|
$
|
52,592
|
|
|
$
|
53,301
|
|
|
Total earning assets
|
|
|
54,052
|
|
|
|
48,646
|
|
|
|
48,016
|
|
|
|
48,804
|
|
|
|
47,780
|
|
|
Total loans
|
|
|
47,431
|
|
|
|
43,247
|
|
|
|
40,843
|
|
|
|
40,302
|
|
|
|
42,281
|
|
|
Total deposits
|
|
|
44,927
|
|
|
|
42,431
|
|
|
|
40,936
|
|
|
|
41,463
|
|
|
|
41,775
|
|
|
Total medium- and long-term debt
|
|
|
5,949
|
|
|
|
3,961
|
|
|
|
4,286
|
|
|
|
4,801
|
|
|
|
5,216
|
|
|
Total common shareholders’
equity
|
|
|
5,153
|
|
|
|
5,068
|
|
|
|
5,105
|
|
|
|
5,110
|
|
|
|
4,947
|
|
|
AVERAGE BALANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
56,579
|
|
|
$
|
52,506
|
|
|
$
|
50,948
|
|
|
$
|
52,980
|
|
|
$
|
51,130
|
|
|
Total earning assets
|
|
|
52,291
|
|
|
|
48,232
|
|
|
|
46,975
|
|
|
|
48,841
|
|
|
|
47,053
|
|
|
Total loans
|
|
|
47,750
|
|
|
|
43,816
|
|
|
|
40,733
|
|
|
|
42,370
|
|
|
|
42,091
|
|
|
Total deposits
|
|
|
42,074
|
|
|
|
40,640
|
|
|
|
40,145
|
|
|
|
41,519
|
|
|
|
37,712
|
|
|
Total medium- and long-term debt
|
|
|
5,407
|
|
|
|
4,186
|
|
|
|
4,540
|
|
|
|
5,074
|
|
|
|
5,763
|
|
|
Total common shareholders’
equity
|
|
|
5,176
|
|
|
|
5,097
|
|
|
|
5,041
|
|
|
|
5,033
|
|
|
|
4,884
|
|
|
CREDIT QUALITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
493
|
|
|
$
|
516
|
|
|
$
|
673
|
|
|
$
|
803
|
|
|
$
|
791
|
|
|
Allowance for credit losses on
lending-related commitments
|
|
|
26
|
|
|
|
33
|
|
|
|
21
|
|
|
|
33
|
|
|
|
35
|
|
|
Total allowance for credit losses
|
|
|
519
|
|
|
|
549
|
|
|
|
694
|
|
|
|
836
|
|
|
|
826
|
|
|
Total nonperforming assets
|
|
|
232
|
|
|
|
162
|
|
|
|
339
|
|
|
|
538
|
|
|
|
579
|
|
|
Net loan charge-offs
|
|
|
60
|
|
|
|
110
|
|
|
|
194
|
|
|
|
365
|
|
|
|
481
|
|
|
Net credit-related charge-offs
|
|
|
72
|
|
|
|
116
|
|
|
|
194
|
|
|
|
365
|
|
|
|
481
|
|
|
Net loan charge-offs as a
percentage of average total loans
|
|
|
0.13
|
%
|
|
|
0.25
|
%
|
|
|
0.48
|
%
|
|
|
0.86
|
%
|
|
|
1.14
|
%
|
|
Net credit-related charge-offs as
a percentage of average total loans
|
|
|
0.15
|
|
|
|
0.26
|
|
|
|
0.48
|
|
|
|
0.86
|
|
|
|
1.14
|
|
|
Allowance for loan losses as a
percentage of total period-end loans
|
|
|
1.04
|
|
|
|
1.19
|
|
|
|
1.65
|
|
|
|
1.99
|
|
|
|
1.87
|
|
|
Allowance for loan losses as a
percentage of total nonperforming assets
|
|
|
213
|
|
|
|
319
|
|
|
|
198
|
|
|
|
149
|
|
|
|
136
|
|
|
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
3.79
|
%
|
|
|
4.06
|
%
|
|
|
3.86
|
%
|
|
|
3.95
|
%
|
|
|
4.55
|
%
|
|
Return on average assets
|
|
|
1.58
|
|
|
|
1.64
|
|
|
|
1.49
|
|
|
|
1.25
|
|
|
|
1.18
|
|
|
Return on average common
shareholders’ equity
|
|
|
17.24
|
|
|
|
16.90
|
|
|
|
15.03
|
|
|
|
13.12
|
|
|
|
12.31
|
|
|
Efficiency ratio
|
|
|
58.92
|
|
|
|
58.01
|
|
|
|
55.60
|
|
|
|
53.19
|
|
|
|
47.05
|
|
|
Dividend payout ratio
|
|
|
42.99
|
|
|
|
43.05
|
|
|
|
47.71
|
|
|
|
53.33
|
|
|
|
56.47
|
|
|
Total payout to shareholders
|
|
|
85.79
|
|
|
|
104.11
|
|
|
|
96.56
|
|
|
|
57.60
|
|
|
|
91.47
|
|
|
Average common shareholders’
equity as a percentage of average assets
|
|
|
9.15
|
|
|
|
9.71
|
|
|
|
9.90
|
|
|
|
9.50
|
|
|
|
9.55
|
|
|
Tier 1 common capital as a
percentage of risk-weighted assets
|
|
|
7.54
|
|
|
|
7.78
|
|
|
|
8.13
|
|
|
|
8.04
|
|
|
|
7.39
|
|
|
Tier 1 risk-based capital as
a percentage of risk-weighted assets
|
|
|
8.02
|
|
|
|
8.38
|
|
|
|
8.77
|
|
|
|
8.72
|
|
|
|
8.05
|
|
19
2006
FINANCIAL RESULTS AND KEY CORPORATE INITIATIVES
Financial
Results
|
|
|
|
|
|
•
|
Reported net income of $893 million, or $5.49 per
diluted share for 2006, compared to $861 million, or
$5.11 per diluted share, for 2005. Income from continuing
operations was $782 million, or $4.81 per diluted
share for 2006, compared to $816 million, or $4.84 per
diluted share for 2005. The most significant item contributing
to the $34 million decrease in income from continuing
operations in 2006, when compared to 2005, was an increase in
the provision for loan losses of $55 million (after-tax)
|
|
|
|
|
•
|
Returned 17.24 percent on average common shareholders’
equity and 1.58 percent on average assets
|
|
|
|
|
•
|
Generated growth from December 31, 2005 to
December 31, 2006 of $4.2 billion in loans and
$1.9 billion in unused commitments to extend credit
|
|
|
|
|
•
|
Generated geographic market growth in average loans (excluding
Financial Services Division) of eight percent from 2005 to 2006,
including Western (15 percent), Texas (19 percent),
Florida (25 percent) and Midwest & Other Markets
(1 percent)
|
|
|
|
|
•
|
Continued strong credit quality, resulting in a $50 million
decline in net loan charge-offs; nonperforming assets increased
to $232 million but remained at historically low levels
|
|
|
|
|
•
|
Raised the quarterly cash dividend 7.3 percent, to
$0.59 per share, an annual rate of $2.36 per share,
for an annual dividend payout ratio of 43 percent,
49 percent excluding the effects of the $108 million
after-tax gain on the sale of Munder Capital Management (Munder)
discussed below
|
|
|
|
|
•
|
Repurchased 6.6 million shares of outstanding common stock
in the open market for $383 million, which combined with
dividends, returned 86 percent of earnings to shareholders,
98 percent excluding the effects of the $108 million
after-tax gain on the sale of Munder
|
Key
Corporate Initiatives
|
|
|
|
|
|
•
|
Continued organic growth focused in high growth markets,
including opening 25 new banking centers in 2006; banking center
expansion in 2007 expected to accelerate to about 30 new banking
centers
|
|
|
|
|
•
|
Sold Munder and our Mexican bank charter, businesses not central
to the Corporation’s strategy
|
|
|
|
|
•
|
Continued to refine and develop the enterprise-wide risk
management program, including improvement of analytics, systems,
and reporting
|
|
|
|
|
•
|
Managed full-time equivalent staff growth (from continuing
operations) to less than one percent, in spite of approximately
145 full-time equivalent employees added to support new
banking center openings
|
20
OVERVIEW/EARNINGS
PERFORMANCE
Comerica Incorporated (the Corporation) is a financial holding
company headquartered in Detroit, Michigan. The
Corporation’s major business segments are the Business
Bank, the Retail Bank and Wealth & Institutional
Management. The core businesses are tailored to each of the
Corporation’s four primary geographic markets:
Midwest & Other Markets, Western, Texas and Florida.
The accounting and reporting policies of the Corporation and its
subsidiaries conform to U.S. generally accepted accounting
principles and prevailing practices within the banking industry.
The Corporation’s consolidated financial statements are
prepared based on the application of accounting policies, the
most significant of which are described on page 70 in
Note 1 to the consolidated financial statements. The most
critical of these significant accounting policies are discussed
in the “Critical Accounting Policies” section on
page 60 of this financial review.
As a financial institution, the Corporation’s principal
activity is lending to and accepting deposits from businesses
and individuals. The primary source of revenue is net interest
income, which is derived principally from the difference between
interest earned on loans and interest paid on deposits and other
funding sources. The Corporation also provides other products
and services that meet the financial needs of customers and
which generate noninterest income, the Corporation’s
secondary source of revenue. Growth in loans, deposits and
noninterest income are affected by many factors, including the
economic growth in the markets the Corporation serves, the
financial requirements and health of customers, and successfully
adding new customers
and/or
increasing the number of products used by current customers.
Success in providing products and services depends on the
financial needs of customers and the types of products desired.
The Corporation sold its stake in Munder Capital Management
(Munder) in 2006 and recognized an after-tax gain of
$108 million at closing, reflected in “income from
discontinued operations, net of tax” on the consolidated
statements of income. This financial review and the consolidated
financial statements reflect Munder as a discontinued operation
in all periods presented. For detailed information concerning
the sale of Munder and the components of discontinued
operations, refer to Note 26 to the consolidated financial
statements on page 121.
The remaining discussion and analysis of the Corporation’s
results of operations is based on results from continuing
operations.
The Corporation generated growth of $4.2 billion in loans
and $1.9 billion in unused commitments to extend credit
from December 31, 2005 to December 31, 2006. Within
average loans, nearly all business lines showed growth in 2006,
compared to 2005, including the Corporation’s National
Dealer Services (20 percent), Specialty Businesses
(20 percent), Commercial Real Estate (16 percent),
Small Business (7 percent), and Middle Market
(6 percent) loan portfolios. Specialty Businesses includes
Entertainment, Energy, the Financial Services Division, Leasing
and Technology and Life Sciences. The increase in average loans
in the Specialty Businesses loan portfolio was primarily due to
increases in average loans in Energy (38 percent),
Technology and Life Sciences (31 percent), and the
Financial Services Division (25 percent). The Specialty
Businesses loan portfolio includes loans in the
Corporation’s Financial Services Division, where customers
deposit large balances (primarily noninterest-bearing) and the
Corporation pays certain customer services expenses (included in
noninterest expenses on the consolidated statements of income)
and/or
makes
low-rate loans (included in net interest income on the
consolidated statements of income) to such customers. Average
loans grew in all primary geographic markets, including Texas
(19 percent), Western (17 percent), Florida
(25 percent), and Midwest & Other Markets
(1 percent) in 2006, compared to 2005. Average deposits
increased $1.4 billion, or four percent, in 2006, compared
to 2005. The increase in average deposits in 2006, when compared
to 2005, was due primarily to a $4.0 billion increase in
average institutional certificates of deposit, partially offset
by a $2.4 billion decrease in average Financial Services
Division deposits, in part due to slower real estate activity in
the Western market. Financial Services Division deposit levels
may change with the direction of mortgage activity changes, the
desirability of such deposits and competition for deposits. Net
interest income increased one percent in 2006, compared to 2005,
primarily due to loan growth.
Noninterest income, excluding net securities gains, net gain
(loss) on sales of businesses and income from lawsuit
settlement, increased less than one percent in 2006, compared to
2005, resulting primarily from increases in card fees
($7 million) and fiduciary income ($6 million),
partially offset by decreases in letter of credit fees
($6 million) and warrant income ($10 million).
21
The Corporation’s credit staff closely monitors the
financial health of lending customers in order to assess ability
to repay and to adequately provide for expected losses. Loan
quality remained strong during 2006, in spite of the economic
and automotive industry problems in Midwest & Other
Markets. Credit quality trends resulted in a decline in net
credit-related charge-offs in 2006, compared to 2005, and total
nonperforming assets remained at historically low levels. The
tools developed in the past several years for evaluating the
adequacy of the allowance for loan losses, and the resulting
information gained from these processes, continue to help the
Corporation monitor and manage credit risk.
Noninterest expenses increased four percent in 2006, compared to
2005, primarily due to increases in regular salaries
($37 million), share-based compensation ($14 million),
interest expense on tax liabilities ($27 million), net
occupancy and equipment expense ($9 million), and pension
expense ($8 million), partially offset by decreases in
customer services expense in the Financial Services Division
($22 million) and credit-related costs ($21 million),
which includes the provision for credit losses on
lending-related commitments and other real estate expense.
Customer services expense represents expenses paid on behalf of
Financial Services Division customers, and is one method to
attract and retain title and escrow deposits in that division.
The $9 million increase in net occupancy and equipment
expense in 2006 was primarily due to the addition of 25 new
banking centers ($7 million). Full-time equivalent
employees from continuing operations increased by less than one
percent (approximately 65 employees) from year-end 2005 to
year-end 2006, in spite of approximately 145 full-time
equivalent employees added to support new banking center
openings.
A majority of the Corporation’s revenues are generated by
the Business Bank business segment, making the Corporation
highly sensitive to changes in the business environment in its
primary geographic markets. To facilitate better balance among
business segments, the Corporation opened 25 new banking centers
in 2006 in markets with favorable demographics and plans to
continue banking center expansion in these markets. This is
expected to provide opportunity for growth across all business
segments, especially in the Retail Bank and Wealth &
Institutional Management segments, as the Corporation penetrates
existing relationships through cross-selling and develops new
relationships.
For 2007, management expects the following, compared to 2006 (as
adjusted for the adoption of FIN 48, explained below):
|
|
|
|
|
|
•
|
High single-digit average loan growth, excluding Financial
Services Division loans, with low single-digit growth in the
Midwest market and low double-digit growth in the Western and
Texas markets
|
|
|
|
|
•
|
Average earning asset growth slightly less than average loan
growth
|
|
|
|
|
•
|
Financial Services Division noninterest-bearing deposits
declining about 10 to 15 percent from the fourth quarter
2006 average of $4.0 billion. Financial Services Division
loans of $1.9 billion in the fourth quarter 2006 will
fluctuate in 2007 with the level of noninterest-bearing deposits
|
|
|
|
|
•
|
Average full year net interest margin of about 3.75 percent
|
|
|
|
|
•
|
Average net credit-related charge-offs of about 20 basis
points of average loans, with a provision for credit losses
modestly exceeding net charge-offs
|
|
|
|
|
•
|
Low single-digit growth in noninterest income, excluding the
Financial Services Division-related lawsuit settlement and the
loss on sale of the Mexican bank charter in 2006
|
|
|
|
|
•
|
Low single-digit growth in noninterest expenses, excluding the
provision for credit losses on lending-related commitments,
basing the increase in noninterest expenses on the table below
|
|
|
|
|
•
|
Effective tax rate of about 32 percent
|
|
|
|
|
•
|
Active capital management within targeted capital ratios
(Tier 1 common of 6.50 percent to 7.50 percent
and Tier 1 risk-based of 7.25 percent to
8.25 percent)
|
The Corporation will adopt the provisions of Financial
Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an
interpretation of FASB Statement No. 109”
(FIN 48), in the first quarter 2007. FIN 48 permits
the Corporation to elect a change in its accounting policy as to
where interest on tax liabilities is classified in the
consolidated statements of income. Effective January 1,
2007, the Corporation will change its accounting policy and
classify interest on tax liabilities in the “provision for
income taxes” on the
22
consolidated statements of income and will reclassify all prior
periods presented. Upon adoption, the Corporation will
reclassify $38 million and $11 million of interest on
tax liabilities related to 2006 and 2005, respectively, from
“other noninterest expenses” to the “provision
for income taxes” on the consolidated statements of income.
The Corporation’s summarized statements of income from
continuing operations for 2006 and 2005 will be as follows:
Statements
of Income Adjusted for Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Net interest income
|
|
$
|
1,983
|
|
|
$
|
1,956
|
|
|
Provision for loan losses
|
|
|
37
|
|
|
|
(47
|
)
|
|
Noninterest income
|
|
|
855
|
|
|
|
819
|
|
|
Noninterest expenses
|
|
|
1,636
|
|
|
|
1,602
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
|
1,165
|
|
|
|
1,220
|
|
|
Provision for income taxes
|
|
|
383
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
782
|
|
|
$
|
816
|
|
|
|
|
|
|
|
|
|
|
|
23
TABLE 2:
ANALYSIS OF NET INTEREST INCOME-Fully Taxable Equivalent
(FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Commercial loans(1)(2)(3)
|
|
$
|
27,341
|
|
|
$
|
1,877
|
|
|
|
6.87
|
%
|
|
$
|
24,575
|
|
|
$
|
1,381
|
|
|
|
5.62
|
%
|
|
$
|
22,139
|
|
|
$
|
934
|
|
|
|
4.22
|
%
|
|
Real estate construction loans
|
|
|
3,905
|
|
|
|
336
|
|
|
|
8.61
|
|
|
|
3,194
|
|
|
|
231
|
|
|
|
7.23
|
|
|
|
3,264
|
|
|
|
177
|
|
|
|
5.43
|
|
|
Commercial mortgage loans
|
|
|
9,278
|
|
|
|
675
|
|
|
|
7.27
|
|
|
|
8,566
|
|
|
|
534
|
|
|
|
6.23
|
|
|
|
7,991
|
|
|
|
415
|
|
|
|
5.19
|
|
|
Residential mortgage loans
|
|
|
1,570
|
|
|
|
95
|
|
|
|
6.02
|
|
|
|
1,388
|
|
|
|
80
|
|
|
|
5.74
|
|
|
|
1,237
|
|
|
|
70
|
|
|
|
5.68
|
|
|
Consumer loans
|
|
|
2,533
|
|
|
|
181
|
|
|
|
7.13
|
|
|
|
2,696
|
|
|
|
159
|
|
|
|
5.89
|
|
|
|
2,668
|
|
|
|
126
|
|
|
|
4.73
|
|
|
Lease financing
|
|
|
1,314
|
|
|
|
52
|
|
|
|
4.00
|
|
|
|
1,283
|
|
|
|
49
|
|
|
|
3.81
|
|
|
|
1,272
|
|
|
|
52
|
|
|
|
4.06
|
|
|
International loans
|
|
|
1,809
|
|
|
|
127
|
|
|
|
7.01
|
|
|
|
2,114
|
|
|
|
126
|
|
|
|
5.98
|
|
|
|
2,162
|
|
|
|
102
|
|
|
|
4.69
|
|
|
Business loan swap income
(expense)(4)
|
|
|
—
|
|
|
|
(124
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
182
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans(2)(3)(5)
|
|
|
47,750
|
|
|
|
3,219
|
|
|
|
6.74
|
|
|
|
43,816
|
|
|
|
2,558
|
|
|
|
5.84
|
|
|
|
40,733
|
|
|
|
2,058
|
|
|
|
5.05
|
|
|
Investment securities
available-for-sale(6)
|
|
|
3,992
|
|
|
|
174
|
|
|
|
4.22
|
|
|
|
3,861
|
|
|
|
148
|
|
|
|
3.76
|
|
|
|
4,321
|
|
|
|
147
|
|
|
|
3.36
|
|
|
Federal funds sold and securities
purchased under agreements to resell
|
|
|
283
|
|
|
|
14
|
|
|
|
5.15
|
|
|
|
390
|
|
|
|
12
|
|
|
|
3.29
|
|
|
|
1,695
|
|
|
|
23
|
|
|
|
1.36
|
|
|
Other short-term investments
|
|
|
266
|
|
|
|
18
|
|
|
|
6.69
|
|
|
|
165
|
|
|
|
12
|
|
|
|
7.22
|
|
|
|
226
|
|
|
|
13
|
|
|
|
5.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
52,291
|
|
|
|
3,425
|
|
|
|
6.53
|
|
|
|
48,232
|
|
|
|
2,730
|
|
|
|
5.65
|
|
|
|
46,975
|
|
|
|
2,241
|
|
|
|
4.76
|
|
|
Cash and due from banks
|
|
|
1,557
|
|
|
|
|
|
|
|
|
|
|
|
1,721
|
|
|
|
|
|
|
|
|
|
|
|
1,685
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(499
|
)
|
|
|
|
|
|
|
|
|
|
|
(623
|
)
|
|
|
|
|
|
|
|
|
|
|
(787
|
)
|
|
|
|
|
|
|
|
|
|
Accrued income and other assets
|
|
|
3,230
|
|
|
|
|
|
|
|
|
|
|
|
3,176
|
|
|
|
|
|
|
|
|
|
|
|
3,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
56,579
|
|
|
|
|
|
|
|
|
|
|
$
|
52,506
|
|
|
|
|
|
|
|
|
|
|
$
|
50,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market and NOW deposits(1)
|
|
$
|
15,373
|
|
|
|
443
|
|
|
|
2.88
|
|
|
$
|
17,282
|
|
|
|
337
|
|
|
|
1.95
|
|
|
$
|
17,768
|
|
|
|
188
|
|
|
|
1.06
|
|
|
Savings deposits
|
|
|
1,441
|
|
|
|
11
|
|
|
|
0.79
|
|
|
|
1,545
|
|
|
|
7
|
|
|
|
0.49
|
|
|
|
1,629
|
|
|
|
6
|
|
|
|
0.39
|
|
|
Customer certificates of deposit
|
|
|
6,505
|
|
|
|
261
|
|
|
|
4.01
|
|
|
|
5,418
|
|
|
|
148
|
|
|
|
2.73
|
|
|
|
5,121
|
|
|
|
93
|
|
|
|
1.81
|
|
|
Institutional certificates of
deposit(4)(7)
|
|
|
4,489
|
|
|
|
235
|
|
|
|
5.23
|
|
|
|
511
|
|
|
|
19
|
|
|
|
3.72
|
|
|
|
841
|
|
|
|
11
|
|
|
|
1.34
|
|
|
Foreign office time deposits(8)
|
|
|
1,131
|
|
|
|
55
|
|
|
|
4.82
|
|
|
|
877
|
|
|
|
37
|
|
|
|
4.18
|
|
|
|
664
|
|
|
|
17
|
|
|
|
2.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
28,939
|
|
|
|
1,005
|
|
|
|
3.47
|
|
|
|
25,633
|
|
|
|
548
|
|
|
|
2.14
|
|
|
|
26,023
|
|
|
|
315
|
|
|
|
1.21
|
|
|
Short-term borrowings
|
|
|
2,654
|
|
|
|
130
|
|
|
|
4.89
|
|
|
|
1,451
|
|
|
|
52
|
|
|
|
3.59
|
|
|
|
275
|
|
|
|
4
|
|
|
|
1.25
|
|
|
Medium- and long-term debt(4)(7)
|
|
|
5,407
|
|
|
|
304
|
|
|
|
5.63
|
|
|
|
4,186
|
|
|
|
170
|
|
|
|
4.05
|
|
|
|
4,540
|
|
|
|
108
|
|
|
|
2.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing sources
|
|
|
37,000
|
|
|
|
1,439
|
|
|
|
3.89
|
|
|
|
31,270
|
|
|
|
770
|
|
|
|
2.46
|
|
|
|
30,838
|
|
|
|
427
|
|
|
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits(1)
|
|
|
13,135
|
|
|
|
|
|
|
|
|
|
|
|
15,007
|
|
|
|
|
|
|
|
|
|
|
|
14,122
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other
liabilities
|
|
|
1,268
|
|
|
|
|
|
|
|
|
|
|
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
947
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
5,176
|
|
|
|
|
|
|
|
|
|
|
|
5,097
|
|
|
|
|
|
|
|
|
|
|
|
5,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity
|
|
$
|
56,579
|
|
|
|
|
|
|
|
|
|
|
$
|
52,506
|
|
|
|
|
|
|
|
|
|
|
$
|
50,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/rate spread
(FTE)
|
|
|
|
|
|
$
|
1,986
|
|
|
|
2.64
|
|
|
|
|
|
|
$
|
1,960
|
|
|
|
3.19
|
|
|
|
|
|
|
$
|
1,814
|
|
|
|
3.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTE adjustment(9)
|
|
|
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of net noninterest-bearing
sources of funds
|
|
|
|
|
|
|
|
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (as a
percentage of average earning assets) (FTE)(2)(3)
|
|
|
|
|
|
|
|
|
|
|
3.79
|
%
|
|
|
|
|
|
|
|
|
|
|
4.06
|
%
|
|
|
|
|
|
|
|
|
|
|
3.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) FSD balances included
above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (primarily low-rate)
|
|
$
|
2,363
|
|
|
$
|
13
|
|
|
|
0.57
|
%
|
|
$
|
1,893
|
|
|
$
|
8
|
|
|
|
0.45
|
%
|
|
$
|
885
|
|
|
$
|
5
|
|
|
|
0.53
|
%
|
|
Interest-bearing deposits
|
|
|
1,710
|
|
|
|
66
|
|
|
|
3.86
|
|
|
|
2,600
|
|
|
|
76
|
|
|
|
2.91
|
|
|
|
2,027
|
|
|
|
31
|
|
|
|
1.53
|
|
|
Noninterest-bearing deposits
|
|
|
4,374
|
|
|
|
|
|
|
|
|
|
|
|
5,851
|
|
|
|
|
|
|
|
|
|
|
|
5,280
|
|
|
|
|
|
|
|
|
|
|
(2) Impact of FSD loans
(primarily low-rate) on the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
(0.59
|
)%
|
|
|
|
|
|
|
|
|
|
|
(0.43
|
)%
|
|
|
|
|
|
|
|
|
|
|
(0.15
|
)%
|
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.10
|
)
|
|
Net interest margin (FTE) (assuming
loans were funded by noninterest bearing deposits)
|
|
|
|
|
|
|
|
|
|
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.06
|
)
|
|
(3) Impact of 2005 warrant
accounting change on the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20
|
|
|
|
0.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) The gain or loss
attributable to the effective portion of cash flow hedges of
loans is shown in “Business loan swap income
(expense)”. The gain or loss attributable to the effective
portion of fair value hedges of institutional certificates of
deposits and medium- and long-term debt, which totaled a net
gain of $16 million in 2006, is included in the related
interest expense line items.
|
|
(5) Nonaccrual loans are
included in average balances reported and are used to calculate
rates.
|
|
(6) Average rate based on
average historical cost.
|
|
(7) Institutional certificates
of deposit and medium- and long-term debt average balances have
been adjusted to reflect the gain or loss attributable to the
risk hedged by risk management swaps that qualify as a fair
value hedge.
|
|
(8) Includes substantially all
deposits by foreign domiciled depositors; deposits are primarily
in excess of $100,000.
|
|
(9) The FTE adjustment is
computed using a federal income tax rate of 35%.
|
24
TABLE 3:
RATE-VOLUME ANALYSIS-Fully Taxable Equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2005
|
|
|
2005/2004
|
|
|
|
|
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)
|
|
|
|
|
(in millions)
|
|
|
|
|
Interest income
(FTE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
306
|
|
|
$
|
190
|
|
|
$
|
496
|
|
|
$
|
310
|
|
|
$
|
137
|
|
|
$
|
447
|
|
|
Real estate construction loans
|
|
|
44
|
|
|
|
61
|
|
|
|
105
|
|
|
|
59
|
|
|
|
(5
|
)
|
|
|
54
|
|
|
Commercial mortgage loans
|
|
|
89
|
|
|
|
52
|
|
|
|
141
|
|
|
|
83
|
|
|
|
36
|
|
|
|
119
|
|
|
Residential mortgage loans
|
|
|
4
|
|
|
|
11
|
|
|
|
15
|
|
|
|
1
|
|
|
|
9
|
|
|
|
10
|
|
|
Consumer loans
|
|
|
34
|
|
|
|
(12
|
)
|
|
|
22
|
|
|
|
31
|
|
|
|
2
|
|
|
|
33
|
|
|
Lease financing
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
International loans
|
|
|
22
|
|
|
|
(21
|
)
|
|
|
1
|
|
|
|
27
|
|
|
|
(3
|
)
|
|
|
24
|
|
|
Business loan swap income (expense)
|
|
|
(122
|
)
|
|
|
—
|
|
|
|
(122
|
)
|
|
|
(184
|
)
|
|
|
—
|
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
379
|
|
|
|
282
|
|
|
|
661
|
|
|
|
324
|
|
|
|
176
|
|
|
|
500
|
|
|
Investment securities
available-for-sale
|
|
|
20
|
|
|
|
6
|
|
|
|
26
|
|
|
|
19
|
|
|
|
(18
|
)
|
|
|
1
|
|
|
Federal funds sold and securities
purchased under agreements to resell
|
|
|
8
|
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
32
|
|
|
|
(43
|
)
|
|
|
(11
|
)
|
|
Other short-term investments
|
|
|
1
|
|
|
|
5
|
|
|
|
6
|
|
|
|
3
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (FTE)
|
|
|
408
|
|
|
|
287
|
|
|
|
695
|
|
|
|
378
|
|
|
|
111
|
|
|
|
489
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market and NOW
deposits
|
|
|
161
|
|
|
|
(55
|
)
|
|
|
106
|
|
|
|
159
|
|
|
|
(10
|
)
|
|
|
149
|
|
|
Savings deposits
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
Customer certificates of deposit
|
|
|
69
|
|
|
|
44
|
|
|
|
113
|
|
|
|
47
|
|
|
|
8
|
|
|
|
55
|
|
|
Institutional certificates of
deposit
|
|
|
8
|
|
|
|
208
|
|
|
|
216
|
|
|
|
20
|
|
|
|
(12
|
)
|
|
|
8
|
|
|
Foreign office time deposits
|
|
|
6
|
|
|
|
12
|
|
|
|
18
|
|
|
|
11
|
|
|
|
9
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
249
|
|
|
|
208
|
|
|
|
457
|
|
|
|
238
|
|
|
|
(5
|
)
|
|
|
233
|
|
|
Short-term borrowings
|
|
|
19
|
|
|
|
59
|
|
|
|
78
|
|
|
|
6
|
|
|
|
42
|
|
|
|
48
|
|
|
Medium- and long-term debt
|
|
|
66
|
|
|
|
68
|
|
|
|
134
|
|
|
|
76
|
|
|
|
(14
|
)
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
334
|
|
|
|
335
|
|
|
|
669
|
|
|
|
320
|
|
|
|
23
|
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (FTE)
|
|
$
|
74
|
|
|
$
|
(48
|
)
|
|
$
|
26
|
|
|
$
|
58
|
|
|
$
|
88
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Rate/volume variances are allocated to variances due to
volume.
Net
Interest Income
Net interest income is the difference between interest and
yield-related fees earned on assets and interest paid on
liabilities. Adjustments are made to the yields on tax-exempt
assets in order to present tax-exempt income and fully taxable
income on a comparable basis. Gains and losses related to the
effective portion of risk management interest rate swaps that
qualify as hedges are included with the interest income or
expense of the hedged item when classified in net income. Net
interest income on a fully taxable equivalent (FTE) basis
comprised 70 percent of net revenues in 2006, compared to
71 percent in 2005 and 69 percent in 2004. Table 2 on
page 24 of this
25
financial review provides an analysis of net interest income for
the years ended December 31, 2006, 2005 and 2004. The
rate-volume analysis in Table 3 above details the components of
the change in net interest income on a FTE basis for the years
ended December 31, 2006, compared to 2005 and
December 31, 2005, compared to 2004.
Net interest income (FTE) was $2.0 billion in 2006, an
increase of $26 million, or one percent, from 2005. The net
interest margin (FTE), which is net interest income (FTE)
expressed as a percentage of average earning assets, decreased
to 3.79 percent in 2006, from 4.06 percent in 2005.
The increase in net interest income in 2006 was due to strong
loan growth, which was nearly offset by a decline in
noninterest-bearing deposits (primarily in the Financial
Services Division), competitive environments for both loan and
deposit pricing and the impact of a warrant accounting change
discussed in Note 1 to the consolidated financial statements on
page 70, which increased net interest income by
$20 million in 2005. A greater contribution from
noninterest-bearing deposits in a higher rate environment also
benefited net interest income in 2006. The decrease in net
interest margin (FTE) was due to the 2005 warrant accounting
change, which increased the 2005 net interest margin by
four basis points, the changes in average Financial Services
Division loans and noninterest-bearing deposits discussed below,
competitive loan and deposit pricing, a change in the
interest-bearing deposit mix toward higher-cost deposits and the
margin impact of loan growth funded with non-core deposits and
purchased funds. These decreases in the net interest margin
(FTE) were partially offset by a greater contribution from
noninterest-bearing deposits in a higher rate environment.
Average earning assets increased $4.1 billion, or eight
percent, to $52.3 billion in 2006, compared to 2005,
primarily as a result of a $3.9 billion increase in average
loans and a $131 million increase in average investment
securities
available-for-sale.
Average Financial Services Division loans (primarily low-rate)
increased $470 million, and average Financial Services
Division noninterest-bearing deposits decreased
$1.5 billion in 2006, compared to 2005.
The Corporation expects, on average, net interest margin in 2007
to be about 3.75 percent for the full year.
Net interest income and net interest margin are impacted by the
operations of the Corporation’s Financial Services
Division. Financial Services Division customers deposit large
balances (primarily noninterest-bearing) and the Corporation
pays certain customer services expenses (included in
“noninterest expenses” on the consolidated statements
of income)
and/or
makes
low-rate loans (included in “net interest income” on
the consolidated statements of income) to such customers.
Footnote (1) to Table 2 on page 24 of this financial
review displays average Financial Services Division loans and
deposits, with related interest income/expense and average
rates. As shown in Footnote (2) to Table 2 on page 24
of this financial review, the impact of Financial Services
Division loans (primarily low-rate) on net interest margin
(assuming the loans were funded by Financial Services Division
noninterest-bearing deposits) was a decrease of 16 basis
points and 15 basis points in 2006 and 2005, respectively.
The Corporation implements various asset and liability
management tactics to manage net interest income exposure to
interest rate 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
loan and deposit portfolio growth rates. Such actions include
the management of earning assets, funding and capital and the
use of interest rate swap contracts. Interest rate swap
contracts are employed to effectively fix the yields on certain
variable rate loans and to alter the interest rate
characteristics of deposits and debt issued throughout the year.
Refer to the “Interest Rate Risk” section on
page 53 of this financial review for additional information
regarding the Corporation’s asset and liability management
policies.
In 2005, net interest income (FTE) was $2.0 billion, an
increase of $146 million, or eight percent, from 2004. The
net interest margin (FTE) increased to 4.06 percent in
2005, from 3.86 percent in 2004. The increases in net
interest income and net interest margin resulted primarily from
a greater contribution from noninterest-bearing deposits in a
higher rate environment and loan growth. Net interest income in
2005 was also impacted by the warrant accounting change,
discussed in Note 1 to the consolidated financial
statements on page 70, which resulted in a $20 million
increase in net interest income and a four basis point increase
in the net interest margin in 2005. Average earning assets
increased $1.3 billion, or three percent, to
$48.2 billion in 2005, compared to 2004, primarily as a
result of a $3.1 billion increase in average loans,
partially offset by a $1.3 billion decline in average
federal funds sold and securities purchased under agreements to
resell, and a $460 million decline in average investment
securities
available-for-sale.
26
Provision
for Credit Losses
The provision for credit losses includes both the provision for
loan losses and the provision for credit losses on
lending-related commitments. The provision for loan losses
reflects management’s evaluation of the adequacy of the
allowance for loan losses. The allowance for loan losses
represents management’s assessment of probable losses
inherent in the Corporation’s loan portfolio. The provision
for credit losses on lending-related commitments, a component of
“noninterest expenses” on the consolidated statements
of income, reflects management’s assessment of the adequacy
of the allowance for credit losses on lending-related
commitments. The allowance for credit losses on lending-related
commitments, which is included in “accrued expenses and
other liabilities” on the consolidated balance sheets,
covers probable credit-related losses inherent in credit-related
commitments, including letters of credit and financial
guarantees. The Corporation performs a quarterly credit quality
review to determine the adequacy of both allowances. For a
further discussion of the both the allowance for loan losses and
the allowance for credit losses on lending-related commitments,
refer to the “Credit Risk” section of this financial
review on page 44, and the “Critical Accounting
Policies” section on page 60 of this financial review.
The provision for loan losses was $37 million in 2006,
compared to a negative provision of $47 million in 2005 and
a provision of $64 million in 2004. The $84 million
increase in the provision for loan losses in 2006, compared to
2005, resulted primarily from loan growth, challenges in the
automotive industry and the Michigan commercial real estate
industry and a leveling off of credit quality improvement
trends. These credit trends reflect economic conditions in the
Corporation’s primary geographic markets. While the
economic conditions in the Corporation’s Michigan market
deteriorated over the last year, the economic conditions in the
Texas market have continued to improve somewhat faster than
growth in the national economy, while California appears to be
improving, but at a rate equal to or slightly slower than the
nation as a whole. The average 2006 Michigan Business
Activity index compiled by the Corporation declined
approximately three percent when compared to the average for
2005. Intense restructuring efforts in the Michigan-based
automotive sector are creating a significant drag on the state
economy. Forward-looking indicators suggest that current
economic conditions in the Corporation’s primary markets
are likely to continue in 2007. The decrease in the provision
for loan losses in 2005, when compared to 2004, was primarily
the result of improving credit quality trends in net loan
charge-offs and watch list loans (generally consistent with
regulatory defined special mention, substandard and doubtful
credits).
The provision for credit losses on lending-related commitments
was $5 million in 2006, compared to a provision of
$18 million in 2005 and a negative provision of
$12 million in 2004. The decrease in the provision for
credit losses on lending-related commitments in 2006 was
primarily due to reduced reserve needs resulting from improved
market values for unfunded commitments to certain customers in
the automotive industry. The increase in 2005 resulted primarily
from increases in specific reserves related to unused
commitments to extend credit to customers in the automotive
industry. An analysis of the changes in the allowance for credit
losses on lending-related commitments is presented on
page 45 of this financial review.
Net loan charge-offs in 2006 were $60 million, or
0.13 percent of average total loans, compared to
$110 million, or 0.25 percent, in 2005 and
$194 million, or 0.48 percent, in 2004. Total net
credit-related charge-offs, which includes charge-offs on both
loans and lending-related commitments, were $72 million, or
0.15 percent of average total loans, in 2006, compared to
$116 million, or 0.26 percent, in 2005 and
$194 million, or 0.48 percent, in 2004. Of the
$44 million decrease in net credit-related charge-offs in
2006, compared to 2005, net credit-related charge-offs in the
Business Bank business segment decreased $49 million,
partially offset by an increase of $10 million in the
Retail Bank business segment. Net credit-related charge-offs in
the Midwest & Other Markets and Western geographic markets
decreased $30 million and $11 million, respectively,
in 2006, compared to 2005. Net credit-related charge-offs in
2006 were impacted by a decision to sell a $74 million
portfolio of loans related to manufactured housing. These loans
were transferred to
held-for-sale
in the fourth quarter 2006, which required a charge-off of
$9 million to adjust the loans to estimated fair value. An
analysis of the changes in the allowance for loan losses,
including charge-offs and recoveries by loan category, is
presented in Table 8 on page 45 of this financial review.
An analysis of the changes in the allowance for credit losses on
lending-related commitments is presented on page 45 of this
financial review.
Management expects full-year 2007 average net credit-related
charge-offs of about 20 basis points of full-year 2007
average loans, with a provision for credit losses modestly
exceeding net charge-offs.
27
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(In millions)
|
|
|
|
|
Service charges on deposit accounts
|
|
$
|
218
|
|
|
$
|
218
|
|
|
$
|
231
|
|
|
Fiduciary income
|
|
|
180
|
|
|
|
174
|
|
|
|
166
|
|
|
Commercial lending fees
|
|
|
65
|
|
|
|
63
|
|
|
|
55
|
|
|
Letter of credit fees
|
|
|
64
|
|
|
|
70
|
|
|
|
66
|
|
|
Foreign exchange income
|
|
|
38
|
|
|
|
37
|
|
|
|
37
|
|
|
Brokerage fees
|
|
|
40
|
|
|
|
36
|
|
|
|
36
|
|
|
Card fees
|
|
|
46
|
|
|
|
39
|
|
|
|
32
|
|
|
Bank-owned life insurance
|
|
|
40
|
|
|
|
38
|
|
|
|
34
|
|
|
Warrant income (loss)
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
7
|
|
|
Net gain (loss) on sales of
businesses
|
|
|
(12
|
)
|
|
|
1
|
|
|
|
7
|
|
|
Income from lawsuit settlement
|
|
|
47
|
|
|
|
—
|
|
|
|
—
|
|
|
Other noninterest income
|
|
|
130
|
|
|
|
134
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
855
|
|
|
$
|
819
|
|
|
$
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income increased $36 million, or five percent,
to $855 million in 2006, compared to $819 million in
2005, and increased $11 million, or one percent, in 2005,
compared to $808 million in 2004. Excluding net gain (loss)
on sales of businesses ($(12) million, $1 million and
$7 million in 2006, 2005 and 2004, respectively), and
income from lawsuit settlement ($47 million in 2006),
noninterest income increased less than one percent in 2006 and
two percent in 2005. An analysis of increases and decreases by
individual line item is presented below.
Service charges on deposit accounts remained flat at
$218 million in 2006, compared to a decrease of
$13 million, or six percent, in 2005. In 2006, additional
non-check volumes from new and existing treasury management
customers and an increase in web-based payment product revenues
were offset by the impact of higher earnings credit allowances
provided to business customers. The decrease in 2005 was
primarily due to higher earnings credit allowances provided to
business customers, driven by a higher interest rate
environment, and the popularity of free checking accounts which
were marketed beginning in mid-2004.
Fiduciary income increased $6 million, or four percent, in
2006 and increased $8 million, or four percent, in 2005.
Personal and institutional trust fees are the two major
components of fiduciary income. These fees are based on services
provided and assets managed. Fluctuations in the market values
of the underlying assets managed, which include both equity and
fixed income securities, impact fiduciary income. The increase
in 2006 was from a combination of net new business and market
appreciation. The increase in 2005 was primarily due to
improvements in equity markets during that year.
Commercial lending fees increased $2 million, or two
percent, in 2006, compared to an increase of $8 million, or
16 percent, in 2005. The increase in 2006 was primarily due
to continued strength in the syndicated lending market and
higher commercial loan commitment fees paid in arrears. The
increase in 2005 was primarily due to an increase in fees
resulting from increased opportunities in 2005 to lead or
co-lead syndicated lending arrangements.
Letter of credit fees decreased $6 million, or eight
percent, in 2006, compared to an increase of $4 million, or
six percent, in 2005. Of the decline, $3 million reflected
the impact, in 2005, of an adjustment of deferred fee
amortization to more closely align the amortization periods with
actual terms of the letters of credit. The 2005 increase in
letter of credit fees was principally due to the 2005 adjustment
of deferred fee amortization described above.
Foreign exchange income remained relatively flat at
$38 million in 2006, compared to $37 million in both
2005 and 2004.
Brokerage fees of $40 million increased $4 million, or
10 percent, in 2006, compared to $36 million in both
2005 and 2004. Brokerage fees include commissions from retail
broker transactions and mutual fund sales and are subject to
changes in the level of market activity. The increase in 2006
was primarily due to increased transaction volumes as a result
of improved market conditions.
28
Card fees, which consist primarily of interchange fees earned on
debit and commercial cards, increased $7 million, or
17 percent, to $46 million, compared to
$39 million in 2005, and increased $7 million, or
22 percent, compared to $32 million in 2004. Growth in
both 2006 and 2005 resulted primarily from an increase in
transaction volume caused by the continued shift to electronic
banking and new customer accounts.
Bank-owned life insurance income increased $2 million, to
$40 million in 2006, compared to an increase of
$4 million, to $38 million in 2005. The increases in
both 2006 and 2005 resulted primarily from increased earnings
and death benefits received on policies held.
Warrant income (loss) was $(1) million in 2006, compared to
$9 million in 2005 and $7 million in 2004. In 2005,
the Corporation changed its accounting for warrants to recognize
in warrant income the changes in the fair value of warrants
held. For a further discussion of warrant accounting, refer to
Note 1 to the consolidated financial statements on
page 70.
The net gain (loss) on sales of businesses in 2006 included a
net loss of $12 million on the sale of the
Corporation’s Mexican bank charter, while 2004 included a
net gain of $7 million on the sale of a portion of the
Corporation’s merchant card processing business.
The income from lawsuit settlement of $47 million in 2006
resulted from a payment received to settle a Financial Services
Division-related lawsuit in the fourth quarter 2006.
Other noninterest income decreased $4 million, or three
percent, in 2006, compared to a decrease of $3 million, or
two percent, in 2005. The following table illustrates
fluctuations in certain categories included in “other
noninterest income” on the consolidated statements of
income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Other noninterest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management hedge gains
(losses) from interest rate and foreign exchange contracts
|
|
$
|
(1
|
)
|
|
$
|
3
|
|
|
$
|
(4
|
)
|
|
Income (net of write-downs) from
unconsolidated venture capital and private equity investments
|
|
|
11
|
|
|
|
8
|
|
|
|
13
|
|
|
Amortization of low income housing
investments
|
|
|
(29
|
)
|
|
|
(25
|
)
|
|
|
(20
|
)
|
Management expects low single-digit growth in noninterest income
in 2007 from 2006 levels, excluding the Financial Services
Division-related lawsuit settlement and the loss on sale of the
Mexican bank charter in 2006.
Noninterest
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Salaries
|
|
$
|
823
|
|
|
$
|
786
|
|
|
$
|
736
|
|
|
Employee benefits
|
|
|
184
|
|
|
|
178
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total salaries and employee
benefits
|
|
|
1,007
|
|
|
|
964
|
|
|
|
890
|
|
|
Net occupancy expense
|
|
|
125
|
|
|
|
118
|
|
|
|
122
|
|
|
Equipment expense
|
|
|
55
|
|
|
|
53
|
|
|
|
54
|
|
|
Outside processing fee expense
|
|
|
85
|
|
|
|
77
|
|
|
|
67
|
|
|
Software expense
|
|
|
56
|
|
|
|
49
|
|
|
|
43
|
|
|
Customer services
|
|
|
47
|
|
|
|
69
|
|
|
|
23
|
|
|
Litigation and operational losses
|
|
|
11
|
|
|
|
14
|
|
|
|
24
|
|
|
Provision for credit losses on
lending-related commitments
|
|
|
5
|
|
|
|
18
|
|
|
|
(12
|
)
|
|
Other noninterest expenses
|
|
|
283
|
|
|
|
251
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
$
|
1,674
|
|
|
$
|
1,613
|
|
|
$
|
1,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Noninterest expenses increased $61 million, or four
percent, to $1,674 million in 2006, compared to
$1,613 million in 2005, and increased $155 million, or
11 percent, in 2005, compared to $1,458 million in
2004. Increases in regular salaries ($37 million),
share-based compensation ($14 million), interest expense on
tax liabilities ($27 million), net occupancy and equipment
expense ($9 million), and pension expense ($8 million)
accounted for a majority of the increase, partially offset by a
decrease in customer services expense in the Financial Services
Division ($22 million) and credit-related costs
($21 million), including the provision for credit losses on
lending-related commitments and other real estate expense. An
analysis of increases and decreases by individual line item is
presented below.
The following table summarizes the various components of
salaries and employee benefits expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Salaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regular salaries (including
contract labor)
|
|
$
|
619
|
|
|
$
|
582
|
|
|
$
|
570
|
|
|
Severance
|
|
|
8
|
|
|
|
6
|
|
|
|
9
|
|
|
Incentives
|
|
|
139
|
|
|
|
155
|
|
|
|
123
|
|
|
Share-based compensation
|
|
|
57
|
|
|
|
43
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total salaries
|
|
|
823
|
|
|
|
786
|
|
|
|
736
|
|
|
Employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense
|
|
|
39
|
|
|
|
31
|
|
|
|
16
|
|
|
Other employee benefits
|
|
|
145
|
|
|
|
147
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee benefits
|
|
|
184
|
|
|
|
178
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total salaries and employee
benefits
|
|
$
|
1,007
|
|
|
$
|
964
|
|
|
$
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries expense increased $37 million, or five percent, in
2006, compared to an increase of $50 million, or seven
percent, in 2005. The increase in 2006 was primarily due to
increases in regular salaries of $37 million and
share-based compensation of $14 million. The increase in
regular salaries in 2006 was primarily the result of annual
merit increases of approximately $17 million and increased
contract labor costs associated with technology-related
projects, including a large project to standardize the
Corporation’s workstation operating system and office
automation suite. In addition, staff size from continuing
operations increased approximately 65 full-time equivalent
employees from year-end 2005 to year-end 2006, in spite of
approximately 145 full-time equivalent employees added to
support new banking center openings. Share-based compensation
expense increased primarily as a result of adopting the
requisite service period provisions of SFAS No. 123
(revised 2004) (SFAS 123(R)), “Shared-Based
Payment,” effective January 1, 2006, as discussed in
Notes 1 and 15 to the consolidated financial statements on
pages 70 and 92, respectively. These increases were partially
offset by a $16 million decline in business unit and
executive incentives, which included a $6 million decline
in warrant-related incentives. Business unit incentives are tied
to new business and business unit profitability, while executive
incentives are tied to peer-based comparisons of corporate
results. The increase in salaries expense in 2005 was primarily
due to a $32 million increase in business unit and
executive incentives, including an accrual of $4 million
related to the warrant accounting change discussed in
Note 1 to the consolidated financial statements on
page 70, annual merit increases of approximately
$17 million and an increase of $9 million in
share-based compensation expense. These increases were partially
offset by a full-time equivalent employee reduction in staff
size from continuing operations of approximately 85 employees
from year-end 2004 to year-end 2005 and a $3 million
decline in severance expense.
Employee benefits expense increased $6 million, or three
percent, in 2006, compared to an increase of $24 million,
or 16 percent, in 2005. The increases in 2006 and 2005
resulted primarily from increases in pension expense. For a
further discussion of pension expense, refer to the
“Critical Accounting Policies” on page 60 of this
financial review and Note 16 to the consolidated financial
statements on page 94.
Net occupancy and equipment expense, on a combined basis,
increased $9 million, or six percent, to $180 million
in 2006, compared to a decrease of $5 million, or three
percent, in 2005. Net occupancy and equipment expense increased
$7 million due to the addition of 25 new banking centers in
2006, and 18 in 2005,
30
mitigated in part by savings of approximately $2 million
due to the purchase of a previously leased operations center in
March 2005. The decrease in net occupancy expense in 2005
occurred in spite of the addition of new banking centers in
2005, due to savings of approximately $5 million realized
from the aforementioned operations center purchase and other
lease re-negotiations.
Outside processing fee expense increased $8 million, or
10 percent, to $85 million in 2006, from
$77 million in 2005, compared to an increase of
$10 million, or 15 percent, in 2005. The 2006 increase
in outside processing fees resulted primarily from the
outsourcing of certain trust and retirement services processing
and a new electronic bill payment service marketed to corporate
customers in 2006. The 2005 increase in outside processing fees
resulted, in part, from the outsourcing of certain retirement
services processing beginning in the second quarter of 2005.
Software expense increased $7 million, or 15 percent,
in 2006, compared to an increase of $6 million, or
13 percent in 2005. The increases in both 2006 and 2005
were primarily due to increased investments in technology and
the implementation of several systems, including tools for the
enterprise-wide risk management program, an image check
settlement system and a sales tracking system in the banking
centers, increasing both amortization and maintenance costs.
Customer services expense decreased $22 million, or
33 percent, to $47 million in 2006, from
$69 million in 2005, and increased $46 million, or
203 percent, in 2005, compared to $23 million in 2004.
Customer services expense represents compensation provided to
customers, and is one method to attract and retain title and
escrow deposits in the Financial Services Division. The amount
of customer services expense varies from period to period as a
result of changes in the level of noninterest-bearing deposits
and low-rate loans in the Financial Services Division and the
earnings credit allowances provided on these deposits, as well
as a competitive environment.
Litigation and operational losses decreased $3 million, or
17 percent, to $11 million in 2006, from
$14 million in 2005, and decreased $10 million, or
43 percent, in 2005, compared to $24 million in 2004.
Litigation and operational losses include traditionally defined
operating losses, such as fraud or processing problems, as well
as uninsured losses and litigation losses. These expenses are
subject to fluctuation due to timing of authorized and actual
litigation settlements as well as insurance settlements.
The provision for credit losses on lending-related commitments
was $5 million in 2006, compared to $18 million in
2005 and a negative provision of $12 million in 2004. For
additional information on the provision for credit losses on
lending-related commitments, refer to Notes 1 and 20 to the
consolidated financial statements on pages 70 and 102,
respectively, and the “Provision for Credit Losses”
section on page 27 of this financial review.
Other noninterest expenses increased $32 million, or
13 percent, in 2006, compared to a $4 million, or two
percent, increase in 2005. The following table illustrates the
fluctuations in certain categories included in “other
noninterest expenses” on the consolidated statements of
income. For a further discussion of interest on tax liabilities,
refer to “Income Taxes and Tax-Related Items” below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Other noninterest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on tax liabilities
|
|
$
|
38
|
|
|
$
|
11
|
|
|
$
|
22
|
|
|
Other real estate expenses
|
|
|
4
|
|
|
|
12
|
|
|
|
3
|
|
Management expects low single-digit growth in noninterest
expenses in 2007 compared to 2006 levels, excluding the
provision for credit losses on lending-related commitments,
basing the increase on noninterest expenses as adjusted for the
adoption of FIN 48 in the table on page 23 of this
financial review.
The Corporation’s efficiency ratio is defined as total
noninterest expenses divided by the sum of net interest income
(FTE) and noninterest income, excluding net securities gains.
The ratio increased to 58.92 percent in 2006, compared to
58.01 percent in 2005 and 55.60 percent in 2004. The
efficiency ratio increased in 2006 and 2005 primarily due to
higher expense levels.
31
Income
Taxes and Tax-Related Items
The provision for income taxes was $345 million in 2006,
compared to $393 million in 2005 and $349 million in
2004. In the first quarter 2006, the IRS completed the
examination of the Corporation’s federal tax returns for
the years 1996 through 2000. Tax reserves, which includes the
provision for income taxes and interest on tax liabilities
(included in “other noninterest expenses”) were
adjusted to reflect the resolution of those tax years, and to
reflect an updated assessment of reserves on certain types of
structured lease transactions and a series of loans to foreign
borrowers. Tax-related interest expense was also reduced by
$6 million in the second quarter 2006, upon settlement of
various refund claims with the IRS. As previously disclosed in
quarterly and annual SEC filings under the heading “Tax
Contingency,” the examination staff with the Internal
Revenue Service (IRS) disallowed the benefits related to a
series of loans to foreign borrowers. The Corporation has had
ongoing discussions with the IRS related to the disallowance. In
the fourth quarter 2006, based on settlements discussed, the
Corporation recorded a charge to its tax reserves for the
disallowed loan benefits. The following table summarizes the
impact of the items described above on the Corporation’s
consolidated statement of income for the year ended
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
Interest on Tax Liabilities
|
|
|
Provision for
|
|
|
|
|
Pre-tax
|
|
|
After-tax
|
|
|
Income Taxes
|
|
|
|
|
(in millions)
|
|
|
|
|
Completion of IRS audit of the
Corporation’s federal income tax returns for
1996-2000
|
|
$
|
24
|
|
|
$
|
15
|
|
|
$
|
(16
|
)
|
|
Settlement of various refund claims
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
Adjustment to tax reserves on a
series of loans to foreign borrowers
|
|
|
14
|
|
|
|
9
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax-related items
|
|
$
|
32
|
|
|
$
|
20
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate, computed by dividing the provision for
income taxes by income before income taxes, was
30.6 percent in 2006, 32.5 percent in 2005 and
31.8 percent in 2004. Changes in the effective tax rate in
2006 from 2005, and 2005 from 2004, are shown in Note 17 to
the consolidated financial statements on page 99. The
Corporation had a net deferred tax liability of
$111 million at December 31, 2006. Included in net
deferred taxes were deferred tax assets of $558 million,
which the Corporation’s management believes will be
realized in future periods. In the event that the future taxable
income does not occur in the manner anticipated, other
initiatives could be undertaken to preclude the need to
recognize a valuation allowance against the deferred tax asset.
Management expects an effective tax rate for the full-year 2007
of about 32 percent.
Income
from Discontinued Operations, Net of Tax
Income from discontinued operations, net of tax, was
$111 million in 2006, compared to $45 million in 2005
and $9 million in 2004. The increase in 2006, compared to
2005, was primarily due to the $108 million after-tax gain
on the sale of the Corporation’s Munder subsidiary in the
fourth quarter 2006, partially offset by an $8 million
after-tax transition adjustment expense related to
SFAS No. 123(R) recorded in the first quarter 2006 and
the $32 million after-tax gain in the fourth quarter 2005
that resulted from Munder’s sale of its minority interest
in Framlington Group Limited (Framlington) (a London, England
based investment manager). The increase in 2005, when compared
to 2004, primarily resulted from Munder’s 2005 gain on the
sale of Framlington discussed above. For further information on
discontinued operations, refer to Note 26 to the
consolidated financial statements on page 121.
32
STRATEGIC
LINES OF BUSINESS
Business
Segments
The Corporation’s operations are strategically aligned into
three major business segments: the Business Bank, the Retail
Bank and Wealth & Institutional Management. These
business segments are differentiated based upon the products and
services provided. In addition to the three major business
segments, the Finance Division is also reported as a segment.
The Other category includes discontinued operations and items
not directly associated with these business segments or the
Finance Division. Note 24 to the consolidated financial
statements on page 114 describes the business activities of
each business segment and the methodologies which form the basis
for these results, and presents financial results of these
business segments for the years ended December 31, 2006,
2005 and 2004.
The following table presents net income (loss) by business
segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Business Bank
|
|
$
|
586
|
|
|
|
76
|
%
|
|
$
|
671
|
|
|
|
75
|
%
|
|
$
|
697
|
|
|
|
75
|
%
|
|
Retail Bank
|
|
|
134
|
|
|
|
17
|
|
|
|
168
|
|
|
|
19
|
|
|
|
165
|
|
|
|
18
|
|
|
Wealth & Institutional
Management
|
|
|
56
|
|
|
|
7
|
|
|
|
59
|
|
|
|
6
|
|
|
|
67
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
776
|
|
|
|
100
|
%
|
|
|
898
|
|
|
|
100
|
%
|
|
|
929
|
|
|
|
100
|
%
|
|
Finance
|
|
|
(20
|
)
|
|
|
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
(158
|
)
|
|
|
|
|
|
Other*
|
|
|
137
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
893
|
|
|
|
|
|
|
$
|
861
|
|
|
|
|
|
|
$
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Includes discontinued operations and items not directly
associated with the three major business segments or the Finance
Division.
|
The Business Bank’s net income decreased $85 million,
or 13 percent, to $586 million in 2006, compared to a
decrease of $26 million, or four percent, to
$671 million in 2005. Net interest income (FTE) of
$1.3 billion in 2006, decreased $80 million, or six
percent, compared to 2005, due to a decline in loan spreads, an
increase in low-yield Financial Services Division loans, a
decline in Financial Services Division noninterest-bearing
deposits, and a $20 million adjustment related to a change
in warrant accounting policy recognized in third quarter 2005,
partially offset by a $3.1 billion, or nine percent,
increase in average loan balances (excluding Financial Services
Division). The provision for loan losses increased
$86 million in 2006, primarily due to loan growth,
challenges in the automotive industry and the Michigan
commercial real estate industry and a leveling off of credit
quality improvement trends in 2006, compared to improving credit
quality trends in 2005, as discussed in the “Provision for
Credit Losses” section of this financial review on
page 27. Noninterest income of $305 million in 2006,
increased $22 million from 2005, reflecting a
$47 million payment received to settle a Financial Services
Division-related lawsuit, partially offset by a $12 million
loss on the sale of the Corporation’s Mexican bank charter
in 2006. In addition, warrant income decreased $10 million
and investment banking fees increased $4 million in 2006,
when compared to 2005. Noninterest expenses of
$715 million, increased $4 million in 2006, primarily
due to a $24 million increase in allocated net corporate
overhead expenses, a $6 million increase in outside
processing fee expense, a $5 million increase in legal
fees, partially offset by a $22 million decrease in
customer services expense and an $11 million decrease in
the provision for credit losses on lending-related commitments.
The corporate overhead allocation rates used were
14 percent and 10 percent in 2006 and 2005,
respectively. The four percentage point increase in rate in
2006, when compared to 2005, resulted mostly from income tax
related items.
The Retail Bank’s net income decreased $34 million, or
21 percent, to $134 million in 2006, compared to an
increase of $3 million, or two percent, to
$168 million in 2005. Net interest income (FTE) of
$635 million, increased $27 million, or four percent,
in 2006, primarily due to an improvement in deposit spreads. The
provision for loan losses increased $21 million in 2006,
primarily due to stable credit quality trends in 2006, compared
to improving credit quality trends in 2005. Noninterest income
was relatively flat at $209 million in
33
2006, compared to $208 million in 2005. Noninterest
expenses of $619 million increased $67 million in
2006, primarily due to a $24 million increase in allocated
net corporate overhead expenses, a $14 million increase in
salaries and employee benefits expense, and a $6 million
increase in net occupancy expense related to new banking
centers. Refer to the Business Bank discussion above for an
explanation on the increase in allocated net corporate overhead
expenses. The Corporation opened 25 new banking centers in 2006
and 18 new banking centers in 2005, contributing
$30 million to noninterest expenses in 2006, an increase of
$15 million compared to 2005. In addition, the Corporation
consolidated 11 banking centers in Michigan in 2006 which
resulted in approximately $6 million in expense savings in
2006. Net credit-related charge-offs were impacted by a decision
to sell a $74 million portfolio of loans related to
manufactured housing. These loans were transferred to
held-for-sale
in the fourth quarter 2006, which required a charge-off of
$9 million to adjust the loans to estimated fair value.
Wealth & Institutional Management’s net income
decreased $3 million, or five percent, to $56 million
in 2006, compared to a decrease of $8 million, or
11 percent, to $59 million in 2005. Net interest
income (FTE) of $149 million decreased $1 million, or
less than one percent, in 2006, compared to 2005, primarily due
to declines in loan and deposit spreads, partially offset by an
increase in average loan balances. The provision for loan losses
increased $4 million, primarily due to stable credit
quality trends in 2006, compared to improving credit quality
trends in 2005. Noninterest income of $259 million
increased $5 million, or two percent, in 2006, primarily
due to a $6 million increase in trust fees. Noninterest
expenses of $325 million increased $10 million, or
three percent, in 2006, primarily due to a $9 million
increase in allocated net corporate overhead expenses and a
$5 million increase in outside processing fee expense,
partially offset by an $8 million decrease in other real
estate expense. Refer to the Business Bank discussion above for
an explanation on the increase in allocated net corporate
overhead expenses.
The net loss in the Finance Division was $20 million in
2006, compared to a net loss of $72 million in 2005.
Contributing to the decrease in net loss was an $82 million
increase in net interest income (FTE), primarily due to the
rising rate environment in which interest income received from
the lending-related business units rises more quickly than the
longer-term value attributed to deposits generated by the
business units. In addition, noninterest expenses increased
$5 million in 2006, compared to 2005, in part due to
accrued expenses related to a 2006 irrevocable commitment to
redeem trust preferred securities in 2007.
Net income in the Other category was $137 million for 2006,
compared to $35 million for 2005. Contributing to the
increase in net income was a $27 million decrease in the
unallocated provision for loan losses, resulting from reduced
new business migration risk reserves based on improved data, as
well as improved risk rating accuracy in the Corporation’s
commercial loan portfolio. Noninterest income increased
$8 million, due in part to a $3 million increase in
income from indirect private equity and venture capital
investments. Income from discontinued operations, net of tax,
increased $66 million, primarily due to the
$108 million after-tax gain on the sale of the
Corporation’s Munder subsidiary in 2006, compared to the
$32 million after-tax gain that resulted from Munder’s
sale of its minority interest in Framlington in 2005.
Geographic
Market Segments
The Corporation’s management accounting system also
produces market segment results for the Corporation’s four
primary geographic markets: Midwest & Other Markets,
Western, Texas and Florida. The Finance & Other
Businesses category includes discontinued operations.
Note 24 to the consolidated financial statements on
page 114 presents financial results of these market
segments for the years ended December 31, 2006, 2005 and
2004.
34
The following table presents net income (loss) by market segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Midwest & Other Markets
|
|
$
|
416
|
|
|
|
54
|
%
|
|
$
|
452
|
|
|
|
50
|
%
|
|
$
|
537
|
|
|
|
58
|
%
|
|
Western
|
|
|
263
|
|
|
|
34
|
|
|
|
344
|
|
|
|
38
|
|
|
|
288
|
|
|
|
31
|
|
|
Texas
|
|
|
81
|
|
|
|
10
|
|
|
|
86
|
|
|
|
10
|
|
|
|
87
|
|
|
|
9
|
|
|
Florida
|
|
|
16
|
|
|
|
2
|
|
|
|
16
|
|
|
|
2
|
|
|
|
17
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
776
|
|
|
|
100
|
%
|
|
|
898
|
|
|
|
100
|
%
|
|
|
929
|
|
|
|
100
|
%
|
|
Finance & Other*
|
|
|
117
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
893
|
|
|
|
|
|
|
$
|
861
|
|
|
|
|
|
|
$
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Includes discontinued operations and items not directly
associated with the four primary geographic markets.
|
Midwest & Other Markets’ net income decreased
$36 million, or eight percent, to $416 million in
2006, compared to a decrease of $85 million, or
16 percent, to $452 million in 2005. Net interest
income (FTE) was $1.1 billion in 2006, as changes,
including changes in loan spreads and deposit spreads, resulted
in a net increase of $1 million from 2005. Average loans
increased $314 million, or one percent, in 2006, compared
to 2005. The provision for loan losses increased
$43 million, primarily due to loan growth, challenges in
the automotive industry and the Michigan commercial real estate
industry and a leveling off of credit quality improvement trends
in 2006, when compared to 2005. Noninterest income of
$522 million in 2006 decreased $10 million, or two
percent, from 2005, primarily due to a $12 million loss on
the sale of the Corporation’s Mexican bank charter in 2006.
Noninterest expenses of $957 million increased
$35 million, or four percent, from 2005, primarily due to a
$32 million increase in allocated net corporate overhead
expenses and a $12 million increase in outside processing
fee expense, partially offset by an $11 million decrease in
the provision for credit losses on lending-related commitments
and an $8 million decrease in other real estate expense.
Refer to the Business Bank discussion above for an explanation
on the increase in allocated net corporate overhead expenses.
The Corporation opened one new banking center and consolidated
11 banking centers in Michigan in 2006. In addition, 16 banking
centers in Michigan were refurbished in 2006. Net credit-related
charge-offs were impacted by a decision to sell a
$74 million portfolio of loans related to manufactured
housing. These loans were transferred to
held-for-sale
in the fourth quarter 2006, which required a charge-off of
$9 million to adjust the loans to estimated market value.
The Western market’s net income decreased $81 million,
or 23 percent, to $263 million in 2006, compared to an
increase of $56 million, or 19 percent, to
$344 million in 2005. Net interest income (FTE) of
$703 million decreased $82 million, or
11 percent, in 2006, primarily due to an increase in
low-yield Financial Services Division loans, a decline in
Financial Services Division noninterest-bearing deposits, a
decline in loan spreads and a $20 million adjustment
related to a change in warrant accounting policy recognized in
third quarter 2005, partially offset by a $1.8 billion, or
15 percent, increase in average loan balances (excluding
Financial Services Division). The provision for loan losses
increased $60 million, primarily due to loan growth and
stable credit quality trends in 2006, compared to improving
credit quality trends in 2005. Noninterest income of
$160 million increased $37 million in 2006, primarily
due to a $47 million payment received to settle a Financial
Services Division-related lawsuit, partially offset by a
$6 million decline in warrant income. Noninterest expenses
of $449 million increased $15 million, or four
percent, in 2006, primarily due to a $16 million increase
in allocated net corporate overhead expenses, a $6 million
increase in legal fees, a $5 million increase in net
occupancy expense related to new banking centers and a
$4 million increase in salaries and employee benefits
expense, partially offset by a $22 million decrease in
customer services expenses. Refer to the Business Bank
discussion above for an explanation on the increase in allocated
net corporate overhead expenses. The Corporation opened 14 new
banking centers in the Western market in 2006, including 12 in
California and two in Arizona, which resulted in a
$9 million increase in noninterest expenses. In addition,
three banking centers in the Western market were relocated and
one was refurbished in 2006.
The Texas market’s net income decreased $5 million, or
seven percent, to $81 million in 2006, compared to a
decrease of $1 million, to $86 million in 2005. Net
interest income (FTE) of $263 million increased
$21 million,
35
or eight percent, in 2006, compared to 2005. The increase in net
interest income (FTE) was primarily due to a $951 million,
or 19 percent, increase in average loan balances, partially
offset by a decrease in loan spreads. The provision for loan
losses increased $6 million, primarily due to loan growth
in 2006. Noninterest income was $76 million in both 2006
and 2005. Noninterest expenses of $217 million increased
$25 million, or 14 percent, from 2005, primarily due
to a $9 million increase in allocated net corporate
overhead expenses, an $8 million increase in salaries and
employee benefits expense, and a $3 million increase in net
occupancy expense related to new banking centers. Refer to the
Business Bank discussion above for an explanation on the
increase in allocated net corporate overhead expenses. The
Corporation opened seven new banking centers in the Texas market
in 2006, which resulted in a $5 million increase in
noninterest expenses. In addition, three banking centers in the
Texas market were relocated and two were refurbished in 2006.
The Florida market’s net income of $16 million in 2006
was unchanged from 2005, compared to a decrease of
$1 million in 2005, when compared to 2004. Net interest
income (FTE) of $48 million increased $6 million, or
14 percent, from 2005, primarily due to a
$364 million, or 25 percent, increase in average loan
balances, partially offset by a decrease in loan spreads. The
provision for loan losses increased $2 million, primarily
due to loan growth. Noninterest income of $15 million
increased $1 million, compared to 2005. Noninterest
expenses of $36 million increased $6 million, or
20 percent, from 2005, primarily due to a $2 million
increase in allocated net corporate overhead expenses and a
$2 million increase in salaries and employee benefits
expense. Refer to the Business Bank discussion above for an
explanation on the increase in allocated net corporate overhead
expenses. The Corporation opened three new banking centers in
the Florida market in 2006.
Net income for the Finance & Other Businesses category
was $117 million in 2006, compared to a net loss of
$37 million in 2005. Net interest income (FTE) increased
$80 million in 2006, primarily due to the rising rate
environment in which interest income received from the
lending-related business units rises more quickly than the
longer-term value attributed to deposits generated by the
business units. Also contributing to the increase in net income
was a $27 million decrease in the unallocated provision for
loan losses. Noninterest income increased $8 million, in
part due to a $3 million increase in income from indirect
private equity and venture capital investments. Income from
discontinued operations, net of tax, increased $66 million,
primarily due to the $108 million after-tax gain on the
sale of the Corporation’s Munder subsidiary in 2006,
compared to the $32 million after-tax gain that resulted
from Munder’s sale of its minority interest in Framlington
in 2005.
The following table lists the Corporation’s banking centers
by geographic market segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Midwest & Other Markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan
|
|
|
240
|
|
|
|
250
|
|
|
|
263
|
|
|
Other
|
|
|
1
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
255
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
70
|
|
|
|
58
|
|
|
|
50
|
|
|
Arizona
|
|
|
5
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
61
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
68
|
|
|
|
61
|
|
|
|
54
|
|
|
Florida
|
|
|
9
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
393
|
|
|
|
383
|
|
|
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
BALANCE
SHEET AND CAPITAL FUNDS ANALYSIS
Total assets were $58.0 billion at December 31, 2006,
an increase of $5.0 billion from $53.0 billion at
December 31, 2005. On an average basis, total assets
increased to $56.6 billion in 2006, from $52.5 billion
in 2005, an increase of $4.1 billion, resulting primarily
from a $4.1 billion increase in earning assets. The
Corporation also reported a $1.4 billion increase in
average deposits, a $1.2 billion increase in average
short-term borrowings, and a $1.2 billion increase in
average medium- and long-term debt in 2006, compared to 2005.
TABLE 4:
ANALYSIS OF INVESTMENT SECURITIES AND LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
(in millions)
|
|
|
|
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other
Government agency securities
|
|
$
|
46
|
|
|
$
|
124
|
|
|
$
|
192
|
|
|
$
|
188
|
|
|
$
|
46
|
|
|
Government-sponsored enterprise
securities
|
|
|
3,497
|
|
|
|
3,954
|
|
|
|
3,564
|
|
|
|
4,121
|
|
|
|
2,702
|
|
|
State and municipal securities
|
|
|
4
|
|
|
|
4
|
|
|
|
7
|
|
|
|
11
|
|
|
|
23
|
|
|
Other securities
|
|
|
115
|
|
|
|
158
|
|
|
|
180
|
|
|
|
169
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
$
|
3,662
|
|
|
$
|
4,240
|
|
|
$
|
3,943
|
|
|
$
|
4,489
|
|
|
$
|
3,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
$
|
26,265
|
|
|
$
|
23,545
|
|
|
$
|
22,039
|
|
|
$
|
21,579
|
|
|
$
|
23,961
|
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate business
line
|
|
|
3,449
|
|
|
|
2,831
|
|
|
|
2,461
|
|
|
|
2,754
|
|
|
|
2,900
|
|
|
Other
|
|
|
754
|
|
|
|
651
|
|
|
|
592
|
|
|
|
643
|
|
|
|
557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
loans
|
|
|
4,203
|
|
|
|
3,482
|
|
|
|
3,053
|
|
|
|
3,397
|
|
|
|
3,457
|
|
|
Commercial mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate business
line
|
|
|
1,534
|
|
|
|
1,450
|
|
|
|
1,556
|
|
|
|
1,655
|
|
|
|
1,626
|
|
|
Other
|
|
|
8,125
|
|
|
|
7,417
|
|
|
|
6,680
|
|
|
|
6,223
|
|
|
|
5,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage loans
|
|
|
9,659
|
|
|
|
8,867
|
|
|
|
8,236
|
|
|
|
7,878
|
|
|
|
7,194
|
|
|
Residential mortgage loans
|
|
|
1,677
|
|
|
|
1,485
|
|
|
|
1,294
|
|
|
|
1,228
|
|
|
|
1,143
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
1,591
|
|
|
|
1,775
|
|
|
|
1,837
|
|
|
|
1,647
|
|
|
|
1,530
|
|
|
Other consumer
|
|
|
832
|
|
|
|
922
|
|
|
|
914
|
|
|
|
963
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans
|
|
|
2,423
|
|
|
|
2,697
|
|
|
|
2,751
|
|
|
|
2,610
|
|
|
|
2,465
|
|
|
Lease financing
|
|
|
1,353
|
|
|
|
1,295
|
|
|
|
1,265
|
|
|
|
1,301
|
|
|
|
1,296
|
|
|
International loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and official
institutions
|
|
|
—
|
|
|
|
3
|
|
|
|
4
|
|
|
|
12
|
|
|
|
9
|
|
|
Banks and other financial
institutions
|
|
|
47
|
|
|
|
46
|
|
|
|
11
|
|
|
|
45
|
|
|
|
199
|
|
|
Commercial and industrial
|
|
|
1,804
|
|
|
|
1,827
|
|
|
|
2,190
|
|
|
|
2,252
|
|
|
|
2,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international loans
|
|
|
1,851
|
|
|
|
1,876
|
|
|
|
2,205
|
|
|
|
2,309
|
|
|
|
2,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
47,431
|
|
|
$
|
43,247
|
|
|
$
|
40,843
|
|
|
$
|
40,302
|
|
|
$
|
42,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
TABLE 5:
LOAN MATURITIES AND INTEREST RATE SENSITIVITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
Loans Maturing
|
|
|
|
|
|
|
|
After One
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
But Within
|
|
|
After
|
|
|
|
|
|
|
|
One Year*
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
|
|
|
(in millions)
|
|
|
|
|
Commercial loans
|
|
$
|
20,159
|
|
|
$
|
5,063
|
|
|
$
|
1,043
|
|
|
$
|
26,265
|
|
|
Real estate construction loans
|
|
|
3,298
|
|
|
|
688
|
|
|
|
217
|
|
|
|
4,203
|
|
|
Commercial mortgage loans
|
|
|
3,458
|
|
|
|
4,507
|
|
|
|
1,694
|
|
|
|
9,659
|
|
|
International loans
|
|
|
1,732
|
|
|
|
111
|
|
|
|
8
|
|
|
|
1,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,647
|
|
|
$
|
10,369
|
|
|
$
|
2,962
|
|
|
$
|
41,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity of Loans to Changes in
Interest Rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predetermined (fixed) interest
rates
|
|
|
|
|
|
$
|
4,007
|
|
|
$
|
2,486
|
|
|
|
|
|
|
Floating interest rates
|
|
|
|
|
|
|
6,362
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
10,369
|
|
|
$
|
2,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Includes demand loans, loans having no stated repayment schedule
or maturity and overdrafts.
|
Earning
Assets
Total earning assets were $54.1 billion at
December 31, 2006, an increase of $5.5 billion from
$48.6 billion at December 31, 2005. The
Corporation’s average earning assets balances are reflected
in Table 2 on page 24.
The following table details the Corporation’s average loan
portfolio by loan type, business line and geographic market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Average Loans By Loan
Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans*
|
|
$
|
27,341
|
|
|
$
|
24,575
|
|
|
$
|
2,766
|
|
|
|
11
|
%
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate business
line
|
|
|
3,184
|
|
|
|
2,588
|
|
|
|
596
|
|
|
|
23
|
|
|
Other
|
|
|
721
|
|
|
|
606
|
|
|
|
115
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
loans
|
|
|
3,905
|
|
|
|
3,194
|
|
|
|
711
|
|
|
|
22
|
|
|
Commercial mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate business
line
|
|
|
1,504
|
|
|
|
1,503
|
|
|
|
1
|
|
|
|
—
|
|
|
Other
|
|
|
7,774
|
|
|
|
7,063
|
|
|
|
711
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage loans
|
|
|
9,278
|
|
|
|
8,566
|
|
|
|
712
|
|
|
|
8
|
|
|
Residential mortgage loans
|
|
|
1,570
|
|
|
|
1,388
|
|
|
|
182
|
|
|
|
13
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
1,705
|
|
|
|
1,815
|
|
|
|
(110
|
)
|
|
|
(6
|
)
|
|
Other consumer
|
|
|
828
|
|
|
|
881
|
|
|
|
(53
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans
|
|
|
2,533
|
|
|
|
2,696
|
|
|
|
(163
|
)
|
|
|
(6
|
)
|
|
Lease financing
|
|
|
1,314
|
|
|
|
1,283
|
|
|
|
31
|
|
|
|
2
|
|
|
International loans
|
|
|
1,809
|
|
|
|
2,114
|
|
|
|
(305
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
47,750
|
|
|
$
|
43,816
|
|
|
$
|
3,934
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Average Loans By Business
Line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market
|
|
$
|
15,386
|
|
|
$
|
14,588
|
|
|
$
|
798
|
|
|
|
6
|
%
|
|
Commercial Real Estate
|
|
|
6,397
|
|
|
|
5,521
|
|
|
|
876
|
|
|
|
16
|
|
|
Global Corporate Banking
|
|
|
4,868
|
|
|
|
4,909
|
|
|
|
(41
|
)
|
|
|
(1
|
)
|
|
National Dealer Services
|
|
|
4,937
|
|
|
|
4,121
|
|
|
|
816
|
|
|
|
20
|
|
|
Specialty Businesses*
|
|
|
6,492
|
|
|
|
5,422
|
|
|
|
1,070
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Business Bank
|
|
|
38,080
|
|
|
|
34,561
|
|
|
|
3,519
|
|
|
|
10
|
|
|
Small Business
|
|
|
3,784
|
|
|
|
3,538
|
|
|
|
246
|
|
|
|
7
|
|
|
Personal Financial Services
|
|
|
2,256
|
|
|
|
2,287
|
|
|
|
(31
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail Bank
|
|
|
6,040
|
|
|
|
5,825
|
|
|
|
215
|
|
|
|
4
|
|
|
Private Banking
|
|
|
3,579
|
|
|
|
3,396
|
|
|
|
183
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Wealth &
Institutional Management
|
|
|
3,579
|
|
|
|
3,396
|
|
|
|
183
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance/Other
|
|
|
51
|
|
|
|
34
|
|
|
|
17
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
47,750
|
|
|
$
|
43,816
|
|
|
$
|
3,934
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Loans By Geographic
Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest & Other
|
|
$
|
23,938
|
|
|
$
|
23,624
|
|
|
$
|
314
|
|
|
|
1
|
%
|
|
Western*
|
|
|
15,990
|
|
|
|
13,702
|
|
|
|
2,288
|
|
|
|
17
|
|
|
Texas
|
|
|
5,971
|
|
|
|
5,020
|
|
|
|
951
|
|
|
|
19
|
|
|
Florida
|
|
|
1,800
|
|
|
|
1,436
|
|
|
|
364
|
|
|
|
25
|
|
|
Finance/Other
|
|
|
51
|
|
|
|
34
|
|
|
|
17
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
47,750
|
|
|
$
|
43,816
|
|
|
$
|
3,934
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* FSD balances included
above:
Loans (primarily low-rate)
|
|
$
|
2,363
|
|
|
$
|
1,893
|
|
|
$
|
470
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans were $47.4 billion at December 31, 2006,
an increase of $4.2 billion from $43.2 billion at
December 31, 2005. Total loans, on an average basis,
increased $3.9 billion, or nine percent,
($3.5 billion, or eight percent, excluding Financial
Services Division loans), to $47.8 billion in 2006, from
$43.8 billion in 2005. Within average loans, nearly all
business lines and all geographic markets showed growth. The
Corporation continues to make progress toward the goal of
achieving more geographic balance with the Western, Texas, and
Florida markets comprising 47 percent of average total
loans (excluding Financial Services Division loans) in 2006,
compared to 44 percent in 2005.
Average commercial real estate loans, consisting of real estate
construction and commercial mortgage loans, increased
$1.4 billion, or 12 percent, to $13.2 billion in
2006, from $11.8 billion in 2005. Commercial mortgage loans
are loans where the primary collateral is a lien on any real
property. Real property is generally considered primary
collateral if the value of that collateral represents more than
50 percent of the commitment at loan approval. Average
loans to borrowers in the Commercial Real Estate business line
represented $4.7 billion, or 36 percent, of the 2006
$13.2 billion average commercial real estate loans,
compared to $4.1 billion, or 35 percent, of the 2005
$11.8 billion average commercial real estate loans. The
remaining $8.5 billion and $7.7 billion of commercial
real estate loans in 2006 and 2005, respectively, were primarily
owner-occupied commercial mortgages. In addition to the
$4.7 billion of average 2006 commercial real estate loans
discussed above, the Commercial Real Estate business line also
had $1.7 billion of average 2006 loans not classified as
commercial real estate on the consolidated balance sheet.
Average residential mortgage loans increased $182 million,
or 13 percent, from 2005, due to management’s decision
to retain mortgages originated for certain relationship
customers.
39
Average home equity loans decreased $110 million, or six
percent, from 2005, as a result of market conditions,
particularly in Michigan.
Shared National Credit Program (SNC) loans totaled
$8.8 billion (approximately 1,000 borrowers) at
December 31, 2006, compared to $6.6 billion
(approximately 870 borrowers) at December 31, 2005. SNC
loans are facilities greater than $20 million shared by
three or more federally supervised financial institutions which
are reviewed by regulatory authorities at the agent bank level.
These loans, diversified by both line of business and geography,
comprised approximately 19 percent and 15 percent of
total loans at December 31, 2006 and 2005, respectively.
Management currently expects average loan growth for 2007 to be
in the high single-digit range, excluding Financial Services
Division loans, with low single-digit growth in the Midwest
market and low double-digit growth in the Western and Texas
markets, compared to 2006.
TABLE 6:
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO
(Fully Taxable Equivalent)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Maturity*
|
|
|
Average
|
|
|
|
|
Within 1 Year
|
|
|
1 - 5 Years
|
|
|
5 - 10 Years
|
|
|
After 10 Years
|
|
|
Total
|
|
|
Maturity
|
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Yrs./Mos.
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other
Government agency securities
|
|
$
|
28
|
|
|
|
5.04
|
%
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
19
|
|
|
|
3.36
|
%
|
|
$
|
47
|
|
|
|
4.38
|
%
|
|
|
8/7
|
|
|
Government-sponsored enterprise
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
330
|
|
|
|
3.70
|
|
|
|
1,575
|
|
|
|
3.99
|
|
|
|
1,592
|
|
|
|
4.63
|
|
|
|
3,497
|
|
|
|
4.25
|
|
|
|
10/0
|
|
|
State and municipal securities
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
9.42
|
|
|
|
1
|
|
|
|
9.83
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
9.08
|
|
|
|
3/2
|
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other bonds, notes and debentures
|
|
|
44
|
|
|
|
4.61
|
|
|
|
2
|
|
|
|
5.76
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46
|
|
|
|
4.66
|
|
|
|
0/3
|
|
|
Other investments**
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
69
|
|
|
|
—
|
|
|
|
69
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
$
|
72
|
|
|
|
4.79
|
%
|
|
$
|
334
|
|
|
|
3.75
|
%
|
|
$
|
1,576
|
|
|
|
3.99
|
%
|
|
$
|
1,680
|
|
|
|
4.61
|
%
|
|
$
|
3,662
|
|
|
|
4.26
|
%
|
|
|
9/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Based on final contractual maturity.
|
|
|
|
**
|
|
Balances are excluded from the calculation of total yield.
|
Investment securities
available-for-sale
decreased $578 million to $3.7 billion at
December 31, 2006, from $4.2 billion at
December 31, 2005. Average investment securities
available-for-sale
increased $131 million to $4.0 billion in 2006,
compared to $3.9 billion in 2005, primarily due to a
$171 million increase in average U.S. Treasury,
Government agency, and Government-sponsored enterprise
securities. Changes in U.S. Treasury, Government agency,
and Government-sponsored enterprise securities resulted from
interest rate risk and balance sheet management decisions.
Average other securities decreased $38 million to
$146 million in 2006, and consisted largely of money market
and other fund investments at December 31, 2006.
Short-term investments include federal funds sold and securities
purchased under agreements to resell, and other short-term
investments. Federal funds sold offer supplemental earning
opportunities and serve
40
correspondent banks. Average federal funds sold and securities
purchased under agreements to resell declined $107 million
to $283 million during 2006, compared to 2005. Other
short-term investments include interest-bearing deposits with
banks, trading securities, and loans
held-for-sale.
Interest-bearing deposits with banks are investments with banks
in developed countries or foreign banks’ international
banking facilities located in the United States. Loans
held-for-sale
typically represent residential mortgage loans and Small
Business Administration loans that have been originated and
which management has decided to sell. Average other short-term
investments increased $101 million to $266 million
during 2006, compared to 2005. Short-term investments, other
than loans
held-for-sale,
provide a range of maturities less than one year and are mostly
used to manage short-term investment requirements of the
Corporation.
TABLE 7:
INTERNATIONAL CROSS-BORDER OUTSTANDINGS
(year-end outstandings exceeding 1% of total assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
Government
|
|
|
Banks and
|
|
|
|
|
|
|
|
|
|
|
and Official
|
|
|
Other Financial
|
|
|
Commercial
|
|
|
|
|
|
|
|
Institutions
|
|
|
Institutions
|
|
|
and Industrial
|
|
|
Total
|
|
|
|
|
(in millions)
|
|
|
|
|
Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
922
|
|
|
$
|
922
|
|
|
2005
|
|
|
3
|
|
|
|
—
|
|
|
|
905
|
|
|
|
908
|
|
|
2004
|
|
|
4
|
|
|
|
—
|
|
|
|
937
|
|
|
|
941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
—
|
|
|
$
|
653
|
|
|
$
|
68
|
|
|
$
|
721
|
|
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 the cross-border risk of that
country. Mexico, with cross-border outstandings of
$922 million, or 1.59 percent of total assets at
December 31, 2006, and Canada, with cross-border
outstandings of $721 million, or 1.24 percent of total
assets at December 31, 2006, were the only countries with
outstandings exceeding 1.00 percent of total assets at
year-end 2006. The Netherlands, with cross-border outstandings
of $439 million, or 0.76 percent of total assets at
December 31, 2006, was the only country with cross-border
outstandings between 0.75 and 1.00 percent of total assets
at year-end 2006. Additional information on the
Corporation’s international cross-border risk in countries
where the Corporation’s outstandings exceeded
1.00 percent of total assets at the end of one or more of
the three years in the period ended December 31, 2006 is
provided in Table 7 above.
41
Deposits
And Borrowed Funds
The Corporation’s average deposits and borrowed funds
balances are detailed in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
|
|
(in millions)
|
|
|
|
|
Money market and NOW deposits*
|
|
$
|
15,373
|
|
|
$
|
17,282
|
|
|
$
|
(1,909
|
)
|
|
|
(11
|
)%
|
|
Savings deposits
|
|
|
1,441
|
|
|
|
1,545
|
|
|
|
(104
|
)
|
|
|
(7
|
)
|
|
Customer certificates of deposit
|
|
|
6,505
|
|
|
|
5,418
|
|
|
|
1,087
|
|
|
|
20
|
|
|
Institutional certificates of
deposit
|
|
|
4,489
|
|
|
|
511
|
|
|
|
3,978
|
|
|
|
778
|
|
|
Foreign office time deposits
|
|
|
1,131
|
|
|
|
877
|
|
|
|
254
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
28,939
|
|
|
|
25,633
|
|
|
|
3,306
|
|
|
|
13
|
|
|
Noninterest-bearing deposits*
|
|
|
13,135
|
|
|
|
15,007
|
|
|
|
(1,872
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
42,074
|
|
|
$
|
40,640
|
|
|
$
|
1,434
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
2,654
|
|
|
$
|
1,451
|
|
|
$
|
1,203
|
|
|
|
83
|
%
|
|
Medium- and long-term debt
|
|
|
5,407
|
|
|
|
4,186
|
|
|
|
1,221
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
$
|
8,061
|
|
|
$
|
5,637
|
|
|
$
|
2,424
|
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* FSD balances included
above:
Interest-bearing deposits
|
|
$
|
1,710
|
|
|
$
|
2,600
|
|
|
$
|
(890
|
)
|
|
|
(34
|
)%
|
|
Noninterest-bearing deposits
|
|
|
4,374
|
|
|
|
5,851
|
|
|
|
(1,477
|
)
|
|
|
(25
|
)
|
Average deposits were $42.1 billion during 2006, an
increase of $1.4 billion, or four percent, from 2005. The
$3.3 billion, or 13 percent, increase in average
interest-bearing deposits in 2006, when compared to 2005,
resulted primarily from an increase in average customer and
institutional certificates of deposit. Institutional
certificates of deposit represent certificates of deposit issued
to institutional investors in denominations in excess of
$100,000 and are an alternative to other sources of purchased
funds. The increases in certificates of deposit were partially
offset by decreases in average money market, NOW and savings
deposits. Average noninterest-bearing deposits decreased
$1.9 billion, or 12 percent, from 2005.
Noninterest-bearing deposits include title and escrow deposits
in the Corporation’s Financial Services Division, which
benefit from home mortgage financing and refinancing activity.
Deposit levels may change with the direction of mortgage
activity changes, and the desirability of and competition for
such deposits. Average Financial Services Division
noninterest-bearing deposits decreased $1.5 billion, to
$4.4 billion in 2006, from $5.9 billion in 2005.
Average short-term borrowings increased $1.2 billion, to
$2.7 billion in 2006, compared to $1.5 billion in
2005. Short-term borrowings include federal funds purchased,
securities sold under agreements to repurchase, commercial paper
and treasury tax and loan notes.
The Corporation uses medium-term debt (both domestic and
European) and long-term debt to provide funding to support
earning assets while providing liquidity that mirrors the
estimated duration of deposits. Long-term subordinated notes
further help maintain the Corporation’s and subsidiary
banks’ total capital ratios at a level that qualifies for
the lowest FDIC risk-based insurance premium. Medium- and
long-term debt increased, on an average basis, by
$1.2 billion. Further information on medium- and long-term
debt is provided in Note 11 to the consolidated financial
statements on page 86.
42
Capital
Common shareholders’ equity was $5.2 billion at
December 31, 2006, compared to $5.1 billion at
December 31, 2005. The following table presents a summary
of changes in common shareholders’ equity in 2006:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
Balance at January 1, 2006
|
|
$
|
5,068
|
|
|
Retention of retained earnings
(net income less cash dividends declared)
|
|
|
513
|
|
|
Change in accumulated other
comprehensive income (loss) *
|
|
|
(154
|
)
|
|
Repurchase of approximately
7.0 million common shares
|
|
|
(384
|
)
|
|
Net issuance of common stock under
employee stock plans
|
|
|
53
|
|
|
Recognition of share-based
compensation expense
|
|
|
57
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
5,153
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Includes a $(209) million after-tax transition adjustment
to apply the provisions of SFAS 158, partially offset by an
increase in accumulated net gains on cash flow hedges
($43 million).
|
Further information on the change in accumulated other
comprehensive income (loss) is provided in Note 13 to the
consolidated financial statements on page 89.
The Corporation declared common dividends totaling
$380 million, or $2.36 per share, on net income applicable
to common stock of $893 million. The dividend payout ratio
calculated on a per share basis, was 43 percent in 2006 and
2005, and 48 percent in 2004.
The Corporation recognizes the need to limit capital in order to
ensure returns that are consistent with shareholder
expectations. The Corporation assesses capital adequacy against
the risk inherent in the balance sheet, recognizing that
unexpected loss is the common denominator of risk, and that
common equity has the greatest capacity to absorb unexpected
loss. Appropriate capitalization is therefore defined through
the use of a target capital range. The Corporation targets to
maintain a Tier 1 common capital ratio of between 6.5% and
7.5% and a Tier 1 risk-based capital ratio of between 7.25%
and 8.25%. The Tier 1 common capital ratio is defined as
the ratio of common equity to risk-adjusted assets. Common
shareholders’ equity was reduced on December 31, 2006
by a $209 million after-tax charge associated with a new
accounting standard (SFAS 158) on pension and
postretirement plan accounting. Based on the interim decision
issued by the banking regulators, this charge was excluded from
the calculation of regulatory capital ratios. Refer to
note 19 on page 101 for further discussion of
regulatory capital requirements and capital ratio calculations.
When capital exceeds necessary levels, the Corporation’s
common stock can be repurchased as a way to return excess
capital to shareholders. Repurchasing common stock offers a
flexible way to control capital levels by adjusting the capital
deployed in reaction to core balance sheet growth. In July 2005,
and again in November 2006, the Board of Directors of the
Corporation (the Board) authorized the purchase of up to
10 million shares of Comerica Incorporated outstanding
common stock in the open market. In addition to limits that
result from the Board authorization, the share repurchase
program is constrained by holding company liquidity and capital
levels relative to internal targets and regulatory minimums. The
Corporation repurchased 6.6 million shares in the open
market in 2006 for $383 million, compared to
9.0 million shares in 2005 for $525 million. Comerica
Incorporated common stock available for repurchase under Board
authority totaled 12.6 million shares at December 31,
2006. Refer to Note 12 to the consolidated financial
statements on page 88 for additional information on the
Corporation’s share repurchase program.
At December 31, 2006, the Corporation and its
U.S. banking subsidiaries exceeded the capital ratios
required for an institution to be considered “well
capitalized” by the standards developed under the Federal
Deposit Insurance Corporation Improvement Act of 1991.
43
RISK
MANAGEMENT
The Corporation assumes various types of risk in the normal
course of business. Management classifies the risk exposures
into five areas: (1) credit, (2) market and liquidity,
(3) operational, (4) compliance and (5) business
risks; and employs, or is in the process of employing, various
risk management processes to identify, measure, monitor and
control these risks, as described below.
The Corporation continues to enhance its risk management
capabilities with additional processes, tools and systems
designed to provide management with deeper insight into the
Corporation’s various risks, enhance the Corporation’s
ability to control those risks, and ensure that appropriate
compensation is received for the risks taken.
Specialized risk managers, along with the risk management
committees in credit, market and liquidity, operational and
compliance are responsible for the
day-to-day
management of those respective risks. The Corporation’s
Enterprise-Wide Risk Management Committee is responsible for
establishing the governance over the risk management process as
well as providing oversight in managing the Corporation’s
aggregate risk position. The Enterprise-Wide Risk Management
Committee is principally made up of the various managers from
the different risk areas and business units and has reporting
responsibility to the Enterprise Risk Committee of the Board.
Credit
Risk
Credit risk represents the risk of loss due to failure of a
customer or counterparty to meet its financial obligations in
accordance with contractual terms. The Corporation manages
credit risk through underwriting, periodically reviewing, and
approving its credit exposures using Board committee approved
credit policies and guidelines. Additionally, the Corporation
manages credit risk through loan sales and loan portfolio
diversification, limiting exposure to any single industry,
customer or guarantor, and selling participations
and/or
syndicating credit exposures above those levels it deems prudent
to third parties.
During 2006, the Corporation continued its focus on the credit
components of the previously described enterprise-wide risk
management program. A two-factor risk rating system was
implemented across all business segments in 2005. As of December
2005, substantially all of the loan portfolios were rated using
the two-factor system. During 2006, the system was introduced
into the Corporation’s decision-making process. The
evaluation of the Corporation’s loan portfolios with the
new tools is anticipated to provide improved measurement of the
potential risks within the loan portfolios. Enhancements in the
analytics related to capital modeling, migration, credit loss
forecasting and stress testing analysis continued in 2006 and
builds a foundation upon which the performance analysis of the
new ratings will be added.
44
TABLE 8:
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
516
|
|
|
$
|
673
|
|
|
$
|
803
|
|
|
$
|
791
|
|
|
$
|
637
|
|
|
Loan charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
44
|
|
|
|
91
|
|
|
|
201
|
|
|
|
302
|
|
|
|
423
|
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate business
line
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate business
line
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
6
|
|
|
Other
|
|
|
13
|
|
|
|
13
|
|
|
|
19
|
|
|
|
18
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage
|
|
|
17
|
|
|
|
17
|
|
|
|
23
|
|
|
|
22
|
|
|
|
10
|
|
|
Residential mortgage
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer
|
|
|
23
|
|
|
|
15
|
|
|
|
14
|
|
|
|
11
|
|
|
|
11
|
|
|
Lease financing
|
|
|
10
|
|
|
|
37
|
|
|
|
13
|
|
|
|
4
|
|
|
|
9
|
|
|
International
|
|
|
4
|
|
|
|
11
|
|
|
|
14
|
|
|
|
67
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan charge-offs
|
|
|
98
|
|
|
|
174
|
|
|
|
268
|
|
|
|
408
|
|
|
|
517
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
27
|
|
|
|
55
|
|
|
|
52
|
|
|
|
28
|
|
|
|
27
|
|
|
Real estate construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial mortgage
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
|
|
1
|
|
|
|
2
|
|
|
Residential mortgage
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Consumer
|
|
|
3
|
|
|
|
5
|
|
|
|
2
|
|
|
|
3
|
|
|
|
3
|
|
|
Lease financing
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
3
|
|
|
International
|
|
|
4
|
|
|
|
1
|
|
|
|
16
|
|
|
|
11
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
38
|
|
|
|
64
|
|
|
|
74
|
|
|
|
43
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
|
60
|
|
|
|
110
|
|
|
|
194
|
|
|
|
365
|
|
|
|
481
|
|
|
Provision for loan losses
|
|
|
37
|
|
|
|
(47
|
)
|
|
|
64
|
|
|
|
377
|
|
|
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
493
|
|
|
$
|
516
|
|
|
$
|
673
|
|
|
$
|
803
|
|
|
$
|
791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a
percentage of total loans at end of year
|
|
|
1.04
|
%
|
|
|
1.19
|
%
|
|
|
1.65
|
%
|
|
|
1.99
|
%
|
|
|
1.87
|
%
|
|
Net loans charged-off during the
year as a percentage of average loans outstanding during the year
|
|
|
0.13
|
|
|
|
0.25
|
|
|
|
0.48
|
|
|
|
0.86
|
|
|
|
1.14
|
|
The following table provides an analysis of the changes in the
allowance for credit losses on lending-related commitments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Balance at beginning of year
|
|
$
|
33
|
|
|
$
|
21
|
|
|
$
|
33
|
|
|
$
|
35
|
|
|
$
|
18
|
|
|
Less: Charge-offs on
lending-related commitments *
|
|
|
12
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Add: Provision for credit losses
on lending-related commitments
|
|
|
5
|
|
|
|
18
|
|
|
|
(12
|
)
|
|
|
(2
|
)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
26
|
|
|
$
|
33
|
|
|
$
|
21
|
|
|
$
|
33
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Charge-offs result from the sale of unfunded lending-related
commitments.
|
45
Allowance
for Credit Losses
The allowance for credit losses includes both the allowance for
loan losses and the allowance for credit losses on
lending-related commitments. The allowance for loan losses
represents management’s assessment of probable losses
inherent in the Corporation’s loan portfolio. The allowance
for loan losses provides for probable losses that have been
identified with specific customer relationships and for probable
losses believed to be inherent in the loan portfolio, but that
have not been specifically identified. Internal risk ratings are
assigned to each business loan at the time of approval and are
subject to subsequent periodic reviews by the Corporation’s
senior management. The Corporation performs a detailed credit
quality review quarterly on both large business and certain
large personal purpose consumer and residential mortgage loans
that have deteriorated below certain levels of credit risk, and
may allocate a specific portion of the allowance to such loans
based upon this review. The Corporation defines business loans
as those belonging to the commercial, real estate construction,
commercial mortgage, lease financing and international loan
portfolios. A portion of the allowance is allocated to the
remaining business loans by applying projected loss ratios,
based on numerous factors identified below, to the loans within
each risk rating. In addition, a portion of the allowance is
allocated to these remaining loans based on industry specific
risks inherent in certain portfolios, including portfolio
exposures to automotive, contractor, technology-related,
entertainment and air transportation industries, real estate,
and Small Business Administration loans. The portion of the
allowance allocated to all other consumer and residential
mortgage loans is determined by applying projected loss ratios
to various segments of the loan portfolio. Projected loss ratios
for all portfolios incorporate factors, such as recent
charge-off experience, current economic conditions and trends,
and trends with respect to past due and nonaccrual amounts, and
are supported by underlying analysis, including information on
migration and loss given default studies from each of the three
major domestic geographic markets (Midwest, Western, and Texas),
as well as mapping to bond tables. The allowance for credit
losses on lending-related commitments, included in “accrued
expenses and other liabilities” on the consolidated balance
sheets, provides for probable credit losses inherent in
lending-related commitments, including unused commitments to
extend credit, letters of credit and financial guarantees.
Lending-related commitments for which it is probable that the
commitment will be drawn (or sold) are reserved with the same
projected loss rates as loans, or with specific reserves. In
general, the probability of draw is considered certain once the
credit becomes a watch list credit. Non-watch list credits have
a lower probability of draw, to which standard loan loss rates
are applied.
The total allowance for loan losses was $493 million at
December 31, 2006, compared to $516 million at
December 31, 2005. The allocated portion of the allowance
was $464 million at December 31, 2006, an increase of
$4 million from year-end 2005. The increase resulted
primarily from loan growth, challenges in the automotive
industry and the Michigan real estate industry and a leveling
off of credit quality improvement trends. An analysis of the
changes in the allowance for loan losses is presented in Table 8
on page 45 of this financial review. The allowance for
credit losses on lending-related commitments was
$26 million at December 31, 2006, compared to
$33 million at December 31, 2005, a decrease of
$7 million, resulting primarily from a decrease in specific
reserves related to unused commitments to extend credit to
customers in the automotive industry due to reduced reserve
needs resulting from improved market values for unfunded
commitments to certain automotive customers. An analysis of the
changes in the allowance for credit losses on lending-related
commitments is presented on page 45 of this financial
review.
46
TABLE 9:
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
303
|
|
|
|
55
|
%
|
|
$
|
302
|
|
|
|
55
|
%
|
|
$
|
411
|
|
|
|
54
|
%
|
|
$
|
487
|
|
|
|
54
|
%
|
|
$
|
476
|
|
|
|
57
|
%
|
|
Real estate construction
|
|
|
26
|
|
|
|
9
|
|
|
|
16
|
|
|
|
8
|
|
|
|
23
|
|
|
|
8
|
|
|
|
31
|
|
|
|
8
|
|
|
|
26
|
|
|
|
8
|
|
|
Commercial mortgage
|
|
|
74
|
|
|
|
20
|
|
|
|
62
|
|
|
|
21
|
|
|
|
76
|
|
|
|
20
|
|
|
|
95
|
|
|
|
20
|
|
|
|
86
|
|
|
|
17
|
|
|
Residential mortgage
|
|
|
2
|
|
|
|
4
|
|
|
|
1
|
|
|
|
3
|
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
|
|
3
|
|
|
Consumer
|
|
|
21
|
|
|
|
5
|
|
|
|
24
|
|
|
|
6
|
|
|
|
25
|
|
|
|
7
|
|
|
|
27
|
|
|
|
6
|
|
|
|
25
|
|
|
|
6
|
|
|
Lease financing
|
|
|
26
|
|
|
|
3
|
|
|
|
28
|
|
|
|
3
|
|
|
|
44
|
|
|
|
3
|
|
|
|
26
|
|
|
|
3
|
|
|
|
8
|
|
|
|
3
|
|
|
International
|
|
|
12
|
|
|
|
4
|
|
|
|
27
|
|
|
|
4
|
|
|
|
40
|
|
|
|
5
|
|
|
|
91
|
|
|
|
6
|
|
|
|
130
|
|
|
|
6
|
|
|
Unallocated
|
|
|
29
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
493
|
|
|
|
100
|
%
|
|
$
|
516
|
|
|
|
100
|
%
|
|
$
|
673
|
|
|
|
100
|
%
|
|
$
|
803
|
|
|
|
100
|
%
|
|
$
|
791
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount — allocated allowance
% — loans outstanding as a percentage of total loans
Actual loss ratios experienced in the future may vary from those
projected. The uncertainty occurs because factors may exist
which affect the determination of probable losses inherent in
the loan portfolio and are not necessarily captured by the
application of projected loss ratios or identified industry
specific risks. An unallocated portion of the allowance is
maintained to capture these probable losses. The unallocated
allowance reflects management’s view that the allowance
should recognize the margin for error inherent in the process of
estimating expected loan losses. Factors that were considered in
the evaluation of the adequacy of the Corporation’s
unallocated allowance include the inherent imprecision in the
risk rating system and the risk associated with new customer
relationships. The unallocated allowance associated with the
margin for inherent imprecision covers probable loan losses as a
result of an inaccuracy in assigning risk ratings or stale
ratings which may not have been updated for recent negative
trends in the particular credits. The unallocated allowance due
to new business migration risk is based on an evaluation of the
risk of rating downgrades associated with loans that do not have
a full year of payment history. The unallocated allowance was
$29 million at December 31, 2006, a decrease of
$27 million from year-end 2005. This decrease was primarily
due to reduced new business migration risk reserves based on
improved data, as well as improved risk rating accuracy in the
Corporation’s commercial loan portfolio.
The total allowance, including the unallocated amount, is
available to absorb losses from any segment within the
portfolio. Unanticipated economic events, including political,
economic and regulatory instability in countries where the
Corporation has loans, could cause changes in the credit
characteristics of the portfolio and result in an unanticipated
increase in the allocated allowance. Inclusion of other industry
specific portfolio exposures in the allocated allowance, as well
as significant increases in the current portfolio exposures,
could also increase the amount of the allocated allowance. Any
of these events, or some combination thereof, may result in the
need for additional provision for loan losses in order to
maintain an allowance that complies with credit risk and
accounting policies.
The allowance as a percentage of total loans, nonperforming
assets and annual net loan charge-offs is provided in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Allowance for loan losses as a
percentage of total loans at end of year
|
|
|
1.04
|
%
|
|
|
1.19
|
%
|
|
|
1.65
|
%
|
|
Allowance for loan losses as a
percentage of total nonperforming assets at end of year
|
|
|
213
|
|
|
|
319
|
|
|
|
198
|
|
|
Allowance for loan losses as a
percentage of total net loan charge-offs for the year
|
|
|
822
|
|
|
|
469
|
|
|
|
346
|
|
47
The allowance for loan losses as a percentage of total
period-end loans decreased to 1.04 percent at
December 31, 2006, from 1.19 percent at
December 31, 2005. The allowance for loan losses as a
percentage of nonperforming assets decreased to 213 percent
at December 31, 2006, from 319 percent at
December 31, 2005. The decrease in allowance coverage of
total loans and allowance coverage of nonperforming assets
resulted primarily from the $23 million reduction in the
allowance during 2006, combined with $4.2 billion of loan
growth and a $70 million increase in nonperforming assets
during the year. The allowance for loan losses as a percentage
of net loan charge-offs increased to 822 percent for the
year ended December 31, 2006, compared to 469 percent
for the prior year, as a result of lower levels of net loan
charge-offs in 2006.
Management expects full-year 2007 average net credit-related
charge-offs as a percentage of average loans to be about
20 basis points.
TABLE 10:
SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
NONPERFORMING ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
97
|
|
|
$
|
65
|
|
|
$
|
161
|
|
|
$
|
295
|
|
|
$
|
368
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate business
line
|
|
|
18
|
|
|
|
3
|
|
|
|
31
|
|
|
|
21
|
|
|
|
17
|
|
|
Other
|
|
|
2
|
|
|
|
—
|
|
|
|
3
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
20
|
|
|
|
3
|
|
|
|
34
|
|
|
|
24
|
|
|
|
19
|
|
|
Commercial mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate business
line
|
|
|
18
|
|
|
|
6
|
|
|
|
6
|
|
|
|
3
|
|
|
|
8
|
|
|
Other
|
|
|
54
|
|
|
|
29
|
|
|
|
58
|
|
|
|
84
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage
|
|
|
72
|
|
|
|
35
|
|
|
|
64
|
|
|
|
87
|
|
|
|
53
|
|
|
Residential mortgage
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
Consumer
|
|
|
4
|
|
|
|
2
|
|
|
|
1
|
|
|
|
7
|
|
|
|
5
|
|
|
Lease financing
|
|
|
8
|
|
|
|
13
|
|
|
|
15
|
|
|
|
24
|
|
|
|
5
|
|
|
International
|
|
|
12
|
|
|
|
18
|
|
|
|
36
|
|
|
|
68
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
214
|
|
|
|
138
|
|
|
|
312
|
|
|
|
507
|
|
|
|
565
|
|
|
Reduced-rate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
214
|
|
|
|
138
|
|
|
|
312
|
|
|
|
507
|
|
|
|
565
|
|
|
Other real estate
|
|
|
18
|
|
|
|
24
|
|
|
|
27
|
|
|
|
30
|
|
|
|
10
|
|
|
Nonaccrual debt securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
232
|
|
|
$
|
162
|
|
|
$
|
339
|
|
|
$
|
538
|
|
|
$
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a
percentage of total loans
|
|
|
0.45
|
%
|
|
|
0.32
|
%
|
|
|
0.76
|
%
|
|
|
1.26
|
%
|
|
|
1.34
|
%
|
|
Nonperforming assets as a
percentage of total loans, other real estate and nonaccrual debt
securities
|
|
|
0.49
|
|
|
|
0.37
|
|
|
|
0.83
|
|
|
|
1.33
|
|
|
|
1.37
|
|
|
Allowance for loan losses as a
percentage of total nonperforming assets
|
|
|
213
|
|
|
|
319
|
|
|
|
198
|
|
|
|
149
|
|
|
|
136
|
|
|
Loans past due 90 days or
more and still accruing
|
|
$
|
14
|
|
|
$
|
16
|
|
|
$
|
15
|
|
|
$
|
32
|
|
|
$
|
43
|
|
Nonperforming
Assets
Nonperforming assets include loans and loans
held-for-sale
on nonaccrual status, loans which have been renegotiated to less
than market rates due to a serious weakening of the
borrower’s financial condition, real estate which has been
acquired primarily through foreclosure and is awaiting
disposition (Other Real Estate or ORE) and debt securities on
nonaccrual status.
48
Consumer loans, except for certain large personal purpose
consumer and residential mortgage loans, are charged-off no
later than 180 days past due, and earlier, if deemed
uncollectible. Loans, other than consumer loans, and debt
securities are generally placed on nonaccrual status when
management determines that principal or interest may not be
fully collectible, but no later than 90 days past due on
principal or interest, unless the loan or debt security 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 that have been restructured to
yield a rate that was equal to or greater than the rate charged
for new loans with comparable risk and have met the requirements
for a return to accrual status are not included in nonperforming
assets. However, such loans may be required to be evaluated for
impairment. Refer to Note 4 of the consolidated financial
statements on page 80 for a further discussion of impaired
loans.
Nonperforming assets increased $70 million, or
43 percent, to $232 million at December 31, 2006,
from $162 million at December 31, 2005. As shown in
Table 10 above, nonaccrual loans increased $76 million, or
54 percent, to $214 million at December 31, 2006,
from $138 million at December 31, 2005. ORE decreased
$6 million, to $18 million at December 31, 2006,
from $24 million at December 31, 2005. There were no
nonaccrual debt securities at December 31, 2006 or 2005.
The $76 million increase in nonaccrual loans at
December 31, 2006 from year-end 2005 levels resulted
primarily from a $37 million increase in nonaccrual
commercial mortgage loans, a $32 million increase in
nonaccrual commercial loans, and a $17 million increase in
nonaccrual real estate construction loans, partially offset by a
$6 million decrease in nonaccrual international loans. An
analysis of nonaccrual loans at December 31, 2006, based
primarily on the Standard Industrial Classification (SIC) code,
is presented on page 50 of this financial review. Loans
past due 90 days or more and still on accrual status
decreased $2 million, to $14 million at
December 31, 2006, from $16 million at
December 31, 2005. Nonperforming assets as a percentage of
total loans, other real estate and nonaccrual debt securities
was 0.49 percent and 0.37 percent at December 31,
2006 and 2005, respectively.
The following table presents a summary of changes in nonaccrual
loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Balance at January 1
|
|
$
|
138
|
|
|
$
|
312
|
|
|
Loans transferred to nonaccrual (1)
|
|
|
176
|
|
|
|
222
|
|
|
Nonaccrual business loans gross
charge-offs (2)
|
|
|
(72
|
)
|
|
|
(154
|
)
|
|
Loans transferred to accrual
status (1)
|
|
|
—
|
|
|
|
(15
|
)
|
|
Nonaccrual business loans sold (3)
|
|
|
(9
|
)
|
|
|
(37
|
)
|
|
Payments/Other (4)
|
|
|
(19
|
)
|
|
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
214
|
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on an analysis of nonaccrual loan relationships with book
balances greater than $2 million.
|
|
|
|
(2)
|
Analysis of gross loan charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual business
loans
|
|
$
|
72
|
|
|
$
|
154
|
|
|
Performing watch list
loans (as defined below)
|
|
|
3
|
|
|
|
4
|
|
|
Consumer and
residential mortgage loans
|
|
|
23
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loan
charge-offs
|
|
$
|
98
|
|
|
$
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) Analysis of loans sold:
|
|
|
|
|
|
|
|
|
|
Nonaccrual business
loans
|
|
$
|
9
|
|
|
$
|
37
|
|
|
Performing watch list
loans (as defined below) sold
|
|
|
77
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans sold
|
|
$
|
86
|
|
|
$
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) Net change related to
nonaccrual loans with balances less than $2 million, other
than business loan gross charge-offs and nonaccrual loans sold,
are included in Payments/Other.
|
|
|
|
|
|
|
|
|
49
Loan relationships with balances greater than $2 million
transferred to nonaccrual status decreased $46 million, or
21 percent, to $176 million in 2006, compared to
$222 million in 2005. There were eight loan relationships
greater than $10 million transferred to nonaccrual in 2006.
These loans totaled $104 million and were to companies in
the wholesale trade ($39 million), automotive
($26 million), real estate ($26 million) and retail
trade ($13 million) industries.
The Corporation sold $9 million of nonaccrual business
loans in 2006. These loans were to customers in the
manufacturing industry. In addition, the Corporation sold
$114 million of unused commitments in 2006, including
$112 million with customers in the automotive industry. The
losses associated with the sale of the unused commitments were
charged to the “provision for credit losses on
lending-related commitments” on the consolidated statements
of income.
Nonaccrual loan payments/other, as shown in the table above,
decreased $171 million in 2006, when compared to 2005. The
decrease was mostly due to a decline in payments received on
nonaccrual loans greater than $2 million in 2006, compared
to 2005, resulting in part from the changes in the levels of
nonaccrual loans greater than $2 million in 2006 compared
to 2005.
The following table presents a summary of total internally
classified watch list loans (generally consistent with
regulatory defined special mention, substandard and doubtful
loans) at December 31, 2006. Consistent with the increase
in nonaccrual loans from December 31, 2005 to
December 31, 2006, total watch list loans increased both in
dollars and as a percentage of the total loan portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Total watch list loans
|
|
$
|
2,411
|
|
|
$
|
1,917
|
|
|
As a percentage of total loans
|
|
|
5.1
|
%
|
|
|
4.4
|
%
|
The following table presents a summary of nonaccrual loans at
December 31, 2006 and loan relationships transferred to
nonaccrual and net loan charge-offs during the year ended
December 31, 2006, based primarily on the Standard
Industrial Classification (SIC) industry categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
2006
|
|
|
Loans Transferred to
|
|
|
Net Loan
|
|
|
Industry Category
|
|
Nonaccrual Loans
|
|
|
Nonaccrual *
|
|
|
Charge-Offs
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Automotive
|
|
$
|
46
|
|
|
|
22
|
%
|
|
$
|
49
|
|
|
|
28
|
%
|
|
$
|
4
|
|
|
|
6
|
%
|
|
Real estate
|
|
|
44
|
|
|
|
21
|
|
|
|
39
|
|
|
|
22
|
|
|
|
3
|
|
|
|
5
|
|
|
Wholesale trade
|
|
|
44
|
|
|
|
21
|
|
|
|
47
|
|
|
|
27
|
|
|
|
3
|
|
|
|
5
|
|
|
Retail trade
|
|
|
24
|
|
|
|
11
|
|
|
|
15
|
|
|
|
9
|
|
|
|
4
|
|
|
|
6
|
|
|
Services
|
|
|
20
|
|
|
|
9
|
|
|
|
3
|
|
|
|
2
|
|
|
|
9
|
|
|
|
15
|
|
|
Manufacturing
|
|
|
12
|
|
|
|
5
|
|
|
|
13
|
|
|
|
7
|
|
|
|
5
|
|
|
|
8
|
|
|
Entertainment
|
|
|
6
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Airline transportation
|
|
|
4
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
|
15
|
|
|
Other **
|
|
|
14
|
|
|
|
6
|
|
|
|
10
|
|
|
|
5
|
|
|
|
23
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
214
|
|
|
|
100
|
%
|
|
$
|
176
|
|
|
|
100
|
%
|
|
$
|
60
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Based on an analysis of nonaccrual loan relationships with book
balances greater than $2 million.
|
|
|
|
**
|
|
Consumer nonaccrual loans and net charge-offs are included in
the “Other” category.
|
SNC nonaccrual loans comprised less than one percent and
approximately 10 percent of total nonaccrual loans at
December 31, 2006 and 2005, respectively. As a percentage
of total loans, SNC loans represented approximately
19 percent and 15 percent at December 31, 2006
and 2005, respectively. SNC loan net charge-offs were
$2 million in 2006, compared to net charge-offs of
$4 million in 2005. For further discussion of the
Corporations SNC portfolio, refer to the “Earning
Assets” section of this financial review on page 38.
50
The following nonaccrual loans table indicates the percentage of
nonaccrual loan value to contractual value, which exhibits the
degree to which loans reported as nonaccrual have been partially
charged-off.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Carrying value of nonaccrual loans
|
|
$
|
214
|
|
|
$
|
138
|
|
|
Contractual value of nonaccrual
loans
|
|
|
300
|
|
|
|
258
|
|
|
Carrying value as a percentage of
contractual value
|
|
|
71
|
%
|
|
|
54
|
%
|
The increase in the carrying value of nonaccrual loans as a
percentage of contractual value in 2006, when compared to 2005,
reflected a stronger focus in recent years on exiting
under-collateralized loan relationships prior to the loan
reaching nonaccrual status, either through secondary debt market
sales or aggressively encouraging those borrowers to find other
sources of financing.
Concentration
of Credit
Loans to borrowers in the automotive industry represented the
largest significant industry concentration at December 31,
2006 and 2005. Loans to dealers and to borrowers involved with
automotive production are reported as automotive, since
management believes these loans have similar economic
characteristics that might cause them to react similarly to
changes in economic conditions. This aggregation involves the
exercise of judgment. Included in automotive production are:
(a) original equipment manufacturers and Tier 1 and
Tier 2 suppliers that produce components used in vehicles
and whose primary revenue source is automotive-related (primary
defined as greater than 50%) and (b) other manufacturers
that produce components used in vehicles and whose primary
revenue source is automotive-related. Loans less than
$1 million and loans recorded in the Small Business
division were excluded from the definition. Foreign ownership
consists of North American affiliates of foreign automakers and
suppliers.
A summary of loans outstanding and total exposure from loans,
unused commitments and standby letters of credit and financial
guarantees to companies related to the automotive industry
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Loans
|
|
|
Total
|
|
|
Loans
|
|
|
Total
|
|
|
|
|
Outstanding
|
|
|
Exposure
|
|
|
Outstanding
|
|
|
Exposure
|
|
|
|
|
(in millions)
|
|
|
|
|
Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
1,737
|
|
|
$
|
2,950
|
|
|
$
|
2,048
|
|
|
$
|
3,323
|
|
|
Foreign
|
|
|
469
|
|
|
|
1,267
|
|
|
|
672
|
|
|
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production
|
|
|
2,206
|
|
|
|
4,217
|
|
|
|
2,720
|
|
|
|
4,853
|
|
|
Dealer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan
|
|
|
3,125
|
|
|
|
4,312
|
|
|
|
2,800
|
|
|
|
3,898
|
|
|
Other
|
|
|
2,433
|
|
|
|
3,089
|
|
|
|
2,029
|
|
|
|
2,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dealer
|
|
|
5,558
|
|
|
|
7,401
|
|
|
|
4,829
|
|
|
|
6,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive
|
|
$
|
7,764
|
|
|
$
|
11,618
|
|
|
$
|
7,549
|
|
|
$
|
11,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, dealer loans, as shown in the table
above, totaled $5.6 billion, of which approximately
$2.9 billion, or 51 percent, was to foreign
franchises, $2.1 billion, or 38 percent, was to
domestic franchises and $627 million, or 11 percent,
was to other. Other includes obligations where a primary
franchise was indeterminable, such as loans to large public
dealership consolidators, and rental car, leasing, heavy truck
and recreation vehicle companies.
Nonaccrual loans to automotive borrowers comprised approximately
22 percent of total nonaccrual loans at December 31,
2006. The largest automotive loan on nonaccrual status at
December 31, 2006 was $14 million. Total automotive
net loan charge-offs were $4 million in 2006. The largest
automotive net loan charge-off during
51
2006 was $2 million. The following table presents a summary
of automotive net credit-related charge-offs for the years ended
December 31, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Production
|
|
$
|
4
|
|
|
$
|
16
|
|
|
Dealer
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive net loan
charge-offs
|
|
$
|
4
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic ownership
|
|
$
|
4
|
|
|
$
|
11
|
|
|
Foreign ownership
|
|
|
—
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive net loan
charge-offs
|
|
$
|
4
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive charge-offs from
the sale of unused commitments *
|
|
$
|
12
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Primarily related to domestic-owned production companies.
|
All other industry concentrations, as defined by management,
individually represented less than 10 percent of total
loans at year-end 2006.
Commercial
Real Estate Lending
The Corporation takes measures to limit risk inherent in its
commercial real estate lending activities. These measures
include limiting exposure to those borrowers directly involved
in the commercial real estate markets and adherence to policies
requiring conservative
loan-to-value
ratios for such loans. Commercial real estate loans, consisting
of real estate construction and commercial mortgage loans,
totaled $13.9 billion at December 31, 2006, of which
$5.0 billion, or 36 percent, were to borrowers in the
Commercial Real Estate business line.
The real estate construction loan portfolio contains loans
primarily made to long-time customers with satisfactory
completion experience. The portfolio totaled $4.2 billion
and included approximately 1,825 loans, of which 55 percent
had balances less than $1 million at December 31,
2006. The largest real estate construction loan had a balance of
approximately $68 million at December 31, 2006. The
commercial mortgage loan portfolio totaled $9.7 billion at
December 31, 2006. The portfolio included approximately
8,875 loans, of which 74 percent had balances of less than
$1 million, at December 31, 2006. The largest
commercial mortgage loan had a balance of approximately
$59 million at December 31, 2006.
The geographic distribution of commercial real estate loan
borrowers is an important factor in diversifying credit risk.
The following table indicates, by location of lending office,
the diversification of the Corporation’s commercial real
estate loan portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2006
|
|
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Michigan
|
|
$
|
7,007
|
|
|
|
50
|
%
|
|
California
|
|
|
3,856
|
|
|
|
28
|
|
|
Texas
|
|
|
1,467
|
|
|
|
11
|
|
|
Florida
|
|
|
377
|
|
|
|
3
|
|
|
Other
|
|
|
1,155
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate loans
|
|
$
|
13,862
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Market
Risk
Market risk represents the risk of loss due to adverse movements
in market rates or prices, which include interest rates, foreign
exchange rates, and equity prices; the failure to meet financial
obligations coming due
52
because of an inability to liquidate assets or obtain adequate
funding; and the inability to easily unwind or offset specific
exposures without significantly lowering prices because of
inadequate market depth or market disruptions.
The Asset and Liability Policy Committee (ALPC) establishes and
monitors compliance with the policies and risk limits pertaining
to market risk management activities. The ALPC meets regularly
to discuss and review market risk management strategies and is
comprised of executive and senior management from various areas
of the Corporation, including finance, lending, deposit
gathering and risk management.
Interest
Rate Risk
Interest rate risk arises primarily through the
Corporation’s core business activities of extending loans
and accepting deposits. The Corporation actively manages its
exposure to interest rate risk. The principal objective of
interest rate risk 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.
Interest
Rate Sensitivity
Interest rate risk arises in the normal course of business due
to differences in the repricing and cash flow characteristics of
assets and liabilities. Since no single measurement system
satisfies all management objectives, a combination of techniques
is used to manage interest rate risk. These techniques examine
earnings at risk and economic value of equity utilizing multiple
simulation analyses.
The Corporation frequently evaluates net interest income under
various balance sheet and interest rate scenarios, using
simulation modeling analysis as its principal risk management
evaluation technique. The results of these analyses provide the
information needed to assess the balance sheet structure.
Changes in economic activity, different from those management
included in its simulation analyses, whether domestically or
internationally, could translate into a materially different
interest rate environment than currently expected. Management
evaluates “base” net interest income under what is
believed to be the most likely balance sheet structure and
interest rate environment. The most likely interest rate
environment is derived from management’s forecast for the
next 12 months. This “base” net interest income
is then evaluated against non-parallel interest rate scenarios
that increase and decrease 200 basis points (but no lower than
zero percent) from the most likely rate environment. Since
movement is from the most likely rate environment, actual
movement from the current rates may be more or less than
200 basis points. For this analysis, the rise or decline in
interest rates occurs in a linear fashion over four months. 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. However, the model
can indicate the likely direction of change. Derivative
instruments entered into for risk management purposes are
included in these analyses. The table below as of
December 31, 2006 and December 31, 2005 displays the
estimated impact on net interest income during the next
12 months as it relates the most likely scenario results to
those from the 200 basis point non-parallel shock described
above.
Sensitivity
of Net Interest Income to Changes in Interest
Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(in millions)
|
|
|
|
|
Change in Interest Rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+200 basis points
|
|
$
|
55
|
|
|
|
3
|
%
|
|
$
|
84
|
|
|
|
4
|
%
|
|
–200 basis points
|
|
|
(72
|
)
|
|
|
(4
|
)
|
|
|
(51
|
)
|
|
|
(2
|
)
|
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. The change in interest rate
53
sensitivity from December 31, 2005 to December 31,
2006 was primarily a result of loan and deposit growth,
activities in the Financial Services Division and competitive
pricing. In addition, a variety of alternative scenarios are
performed to assist in the portrayal of the Corporation’s
interest rate risk position, including, but not limited to, flat
balance sheet and rates, 200 basis point parallel rate shocks
and yield curve twists. Changes in interest rates will continue
to impact the Corporation’s net interest income in 2007.
This interest rate risk will be actively managed through the use
of on- and off-balance sheet financial instruments so that the
desired risk profile is achieved.
In addition to the simulation analysis, an economic value of
equity analysis is performed for a longer term view of the
interest rate risk position. The economic value of equity
analysis begins with an estimate of the
mark-to-market
valuation of the Corporation’s balance sheet and then
applies the estimated market value impact of rate movements upon
the assets and liabilities. The economic value of equity is then
calculated as the residual necessary to re-balance the resulting
assets and liabilities. The market value change in the economic
value of equity is then compared to the corporate policy
guideline limiting such adverse change to 10 percent of the
base economic value of equity as a result of a parallel
200 basis point increase or decrease in interest rates. The
Corporation is operating within this policy parameter. As with
net interest income shocks, a variety of alternative scenarios
are performed to measure the impact on economic value of equity,
including, but not limited to, changes in balance sheet
structure and yield curve twists.
Sensitivity
of Economic Value of Equity to Changes in Interest
Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(in millions)
|
|
|
|
|
Change in Interest Rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+200 basis points
|
|
$
|
155
|
|
|
|
2
|
%
|
|
$
|
290
|
|
|
|
4
|
%
|
|
–200 basis points
|
|
|
(351
|
)
|
|
|
(4
|
)
|
|
|
(234
|
)
|
|
|
(3
|
)
|
The change in economic value of equity sensitivity from
December 31, 2005 to December 31, 2006 was primarily
due to changes in loan and funding mix, and a reduction in
interest rate swaps, due to maturing swaps not replaced in 2006.
The Corporation uses 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 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 risk management
objectives.
Risk
Management Derivative Instruments
Risk
Management Notional Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Foreign
|
|
|
|
|
|
|
|
Rate
|
|
|
Exchange
|
|
|
|
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Totals
|
|
|
|
|
(in millions)
|
|
|
|
|
Balance at January 1, 2005
|
|
$
|
12,087
|
|
|
$
|
376
|
|
|
$
|
12,463
|
|
|
Additions
|
|
|
3,450
|
|
|
|
5,356
|
|
|
|
8,806
|
|
|
Maturities/amortizations
|
|
|
(4,082
|
)
|
|
|
(5,321
|
)
|
|
|
(9,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
11,455
|
|
|
$
|
411
|
|
|
$
|
11,866
|
|
|
Additions
|
|
|
100
|
|
|
|
5,521
|
|
|
|
5,621
|
|
|
Maturities/amortizations
|
|
|
(3,102
|
)
|
|
|
(5,377
|
)
|
|
|
(8,479
|
)
|
|
Terminations
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
8,453
|
|
|
$
|
551
|
|
|
$
|
9,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
The notional amount of risk management interest rate swaps
totaled $8.5 billion at December 31, 2006, and
$11.5 billion at December 31, 2005. The decrease in
notional amount of $3.0 billion from December 31, 2005
to December 31, 2006 reflects diminished interest rate risk
in the core balance sheet due to changes in balance sheet mix,
particularly with non-specific maturity deposits. The fair value
of risk management interest rate swaps was a net unrealized loss
of $19 million at December 31, 2006, compared to a net
unrealized loss of $41 million at December 31, 2005.
For the year ended December 31, 2006, risk management
interest rate swaps generated $108 million of net interest
expense, compared to $57 million of net interest income for
the year ended December 31, 2005. The lower swap income for
2006, compared to 2005, was primarily due to the rising
short-term rate environment in 2005 and 2006, which caused swaps
initiated in prior years that receive a fixed rate and pay a
floating rate to generate negative spreads.
Table 11 below 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, 2006.
Swaps have been grouped by asset and liability designation.
In addition to interest rate swaps, the Corporation employs
various other types of derivative instruments 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 may include
interest rate caps and floors, purchased put options, foreign
exchange forward contracts and foreign exchange swap agreements.
The aggregate notional amounts of these risk management
derivative instruments at December 31, 2006 and 2005 were
$551 million and $411 million, respectively.
Further information regarding risk management derivative
instruments is provided in Notes 1, 11, and 20 to the
consolidated financial statements on pages 70, 86 and 102,
respectively.
TABLE 11:
REMAINING EXPECTED MATURITY OF RISK MANAGEMENT INTEREST RATE
SWAPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 31,
|
|
|
Dec. 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012-
|
|
|
2006
|
|
|
2005
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2026
|
|
|
Total
|
|
|
Total
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Variable rate asset
designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generic receive fixed swaps
|
|
$
|
3,000
|
|
|
$
|
3,200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,200
|
|
|
$
|
9,200
|
|
|
Weighted average:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
4.97
|
%
|
|
|
7.02
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
6.03
|
%
|
|
|
5.37
|
%
|
|
Pay rate
|
|
|
7.10
|
|
|
|
8.25
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7.69
|
|
|
|
6.30
|
|
|
Fixed rate asset
designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
Weighted average:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
4.34
|
%
|
|
|
4.33
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
4.34
|
%
|
|
|
3.27
|
%
|
|
Pay rate
|
|
|
3.53
|
|
|
|
3.52
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.52
|
|
|
|
3.53
|
|
|
Medium- and long-term debt
designation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generic receive fixed swaps
|
|
$
|
450
|
|
|
$
|
350
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,350
|
|
|
$
|
2,250
|
|
|
$
|
2,250
|
|
|
Weighted average:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive rate
|
|
|
5.82
|
%
|
|
|
6.17
|
%
|
|
|
6.06
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
5.92
|
%
|
|
|
5.95
|
%
|
|
|
5.85
|
%
|
|
Pay rate
|
|
|
5.47
|
|
|
|
5.39
|
|
|
|
5.37
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5.44
|
|
|
|
5.44
|
|
|
|
4.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notional amount
|
|
$
|
3,452
|
|
|
$
|
3,551
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,350
|
|
|
$
|
8,453
|
|
|
$
|
11,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Variable rates paid on receive fixed swaps are based on prime or
LIBOR (with various maturities) rates in effect at
December 31, 2006
|
|
|
|
(2)
|
|
Variable rates received are based on six-month LIBOR or
one-month Canadian Dollar Offered Rates in effect at
December 31, 2006
|
55
Customer-Initiated
and Other Derivative Instruments
Customer-Initiated
and Other Notional Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Energy
|
|
|
Foreign
|
|
|
|
|
|
|
|
Rate
|
|
|
Derivative
|
|
|
Exchange
|
|
|
|
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Totals
|
|
|
|
|
(in millions)
|
|
|
|
|
Balance at January 1, 2005
|
|
$
|
2,376
|
|
|
$
|
—
|
|
|
$
|
3,189
|
|
|
$
|
5,565
|
|
|
Additions
|
|
|
2,300
|
|
|
|
979
|
|
|
|
107,041
|
|
|
|
110,320
|
|
|
Maturities/amortizations
|
|
|
(570
|
)
|
|
|
—
|
|
|
|
(104,725
|
)
|
|
|
(105,295
|
)
|
|
Terminations
|
|
|
(302
|
)
|
|
|
—
|
|
|
|
(31
|
)
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
3,804
|
|
|
$
|
979
|
|
|
$
|
5,474
|
|
|
$
|
10,257
|
|
|
Additions
|
|
|
3,275
|
|
|
|
463
|
|
|
|
96,615
|
|
|
|
100,353
|
|
|
Maturities/amortizations
|
|
|
(1,256
|
)
|
|
|
(177
|
)
|
|
|
(99,196
|
)
|
|
|
(100,629
|
)
|
|
Terminations
|
|
|
(256
|
)
|
|
|
(160
|
)
|
|
|
—
|
|
|
|
(416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
5,567
|
|
|
$
|
1,105
|
|
|
$
|
2,893
|
|
|
$
|
9,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation writes and purchases interest rate caps and
enters into foreign exchange contracts, interest rate swaps and
energy derivative contracts to accommodate the needs of
customers requesting such services. Customer-initiated and other
notional activity represented 51 percent of total
derivative instruments, including commitments to purchase and
sell securities, at December 31, 2006, compared to
47 percent at December 31, 2005. Refer to Notes 1
and 20 of the consolidated financial statements on pages 70 and
102, respectively, for further information regarding
customer-initiated and other derivative instruments.
Warrants
The Corporation holds a portfolio of approximately 790 warrants
for generally non-marketable equity securities. These warrants
are primarily from high technology, non-public companies
obtained as part of the loan origination process. As discussed
in Note 1 to the consolidated financial statements on
page 70, warrants that have a net exercise provision
embedded in the warrant agreement are required to be accounted
for as derivatives and recorded at fair value. The value of all
warrants that are carried at fair value ($26 million at
December 31, 2006) is at risk to changes in equity
markets, general economic conditions and other factors. For
further information regarding the valuation of warrants
accounted for as derivatives, refer to the “Critical
Accounting Policies” section of this financial review on
page 60.
Liquidity
Risk and Off-Balance Sheet Arrangements
Liquidity is the ability to meet financial obligations through
the maturity or sale of existing assets or the acquisition of
additional funds. The Corporation has various financial
obligations, including contractual obligations and commercial
commitments, which may require future cash payments. The
following contractual obligations table summarizes the
Corporation’s noncancelable contractual obligations and
future required minimum payments. Refer to Notes 7, 10 and
11 of the financial statements on pages 83, 85 and 86,
respectively, for a further discussion of these contractual
obligations.
56
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
Minimum Payments Due by Period
|
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
|
(in millions)
|
|
|
|
|
Deposits without a stated maturity
*
|
|
$
|
30,516
|
|
|
$
|
30,516
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Certificates of deposit and other
deposits with a stated maturity *
|
|
|
14,411
|
|
|
|
11,517
|
|
|
|
2,741
|
|
|
|
109
|
|
|
|
44
|
|
|
Short-term borrowings *
|
|
|
635
|
|
|
|
635
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Medium- and long-term debt *
|
|
|
5,868
|
|
|
|
1,157
|
|
|
|
1,286
|
|
|
|
1,175
|
|
|
|
2,250
|
|
|
Operating leases
|
|
|
398
|
|
|
|
51
|
|
|
|
89
|
|
|
|
73
|
|
|
|
185
|
|
|
Commitments to fund low income
housing partnerships
|
|
|
123
|
|
|
|
69
|
|
|
|
51
|
|
|
|
2
|
|
|
|
1
|
|
|
Other long-term obligations
|
|
|
213
|
|
|
|
20
|
|
|
|
23
|
|
|
|
16
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
52,164
|
|
|
$
|
43,965
|
|
|
$
|
4,190
|
|
|
$
|
1,375
|
|
|
$
|
2,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Deposits and borrowings exclude interest.
|
The Corporation has other
commercial commitments that impact liquidity. These commitments
include commitments to purchase and sell earning assets,
commitments to fund private equity and venture capital
investments, unused commitments to extend credit, standby
letters of credit and financial guarantees, and commercial
letters of credit. The following commercial commitments table
summarizes the Corporation’s commercial commitments and
expected expiration dates by period.
Commercial
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
Expected Expiration Dates by Period
|
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
|
(in millions)
|
|
|
|
|
Commitments to purchase investment
securities
|
|
$
|
20
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commitments to sell investment
securities
|
|
|
16
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commitments to fund private equity
and venture capital investments
|
|
|
40
|
|
|
|
—
|
|
|
|
1
|
|
|
|
5
|
|
|
|
34
|
|
|
Unused commitments to extend credit
|
|
|
32,557
|
|
|
|
12,782
|
|
|
|
8,722
|
|
|
|
8,650
|
|
|
|
2,403
|
|
|
Standby letters of credit and
financial guarantees
|
|
|
6,584
|
|
|
|
4,385
|
|
|
|
1,179
|
|
|
|
947
|
|
|
|
73
|
|
|
Commercial letters of credit
|
|
|
249
|
|
|
|
218
|
|
|
|
16
|
|
|
|
15
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
39,466
|
|
|
$
|
17,421
|
|
|
$
|
9,918
|
|
|
$
|
9,617
|
|
|
$
|
2,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since many of these commitments expire without being drawn upon,
the total amount of these commercial commitments does not
necessarily represent the future cash requirements of the
Corporation. Refer to the “Other Market Risks” section
below and Note 20 of the consolidated financial statements
on page 102 for a further discussion of these commercial
commitments.
The Corporation also holds a significant interest in certain
variable interest entities (VIE’s), in which it is not the
primary beneficiary, and does not consolidate. The Corporation
defines a significant interest in a VIE as a subordinated
interest that exposes it to a significant portion of the
VIE’s expected losses or residual returns. In general, a
VIE is an entity that either (1) has an insufficient amount
of equity to carry out its principal activities without
additional subordinated financial support, (2) has a group
of equity owners that are unable to make significant decisions
about its activities, or (3) has a group of equity owners
that do not have the obligation to absorb losses or the right to
receive returns generated by its operations. If any of these
characteristics is present, the entity is subject to a variable
interests consolidation model, and consolidation is based on
variable interests, not on ownership of the entity’s
outstanding voting stock. Variable interests are defined as
contractual, ownership, or other monetary interests in an entity
that change with fluctuations in the entity’s net asset
value. A company must
57
consolidate an entity depending on whether the entity is a
voting rights entity or a VIE. Refer to the “principles of
consolidation” section in Note 1 of the consolidated
financial statements on page 70 for a summarization of the
Corporation’s consolidation policy. Also refer to
Note 22 of the consolidated financial statements on
page 110 for a discussion of the Corporation’s
involvement in VIEs, including those in which it holds a
significant interest but for which it is not the primary
beneficiary.
Liquidity requirements are satisfied with various funding
sources. First, the Corporation accesses the purchased funds
market regularly to meet funding needs. Purchased funds,
comprised of customer certificates of deposit of $100,000 and
over that mature in less than one year, institutional
certificates of deposit, foreign office time deposits and
short-term borrowings, approximated $9.3 billion at
December 31, 2006, compared to $3.5 billion and
$2.9 billion at December 31, 2005 and 2004,
respectively. Second, two medium-term note programs, a
$15 billion senior note program and a $2 billion
European note program, allow the principal banking subsidiary to
issue debt with maturities between one month and 30 years.
At year-end 2006, unissued debt relating to the two medium-term
note programs totaled $14.3 billion. A third source, if
needed, would be liquid assets, including cash and due from
banks, federal funds sold and securities purchased under
agreements to resell, other short-term investments, and
investment securities
available-for-sale,
which totaled $8.1 billion at December 31, 2006.
Additionally, the Corporation also had available
$16.0 billion from a collateralized borrowing account with
the Federal Reserve Bank at December 31, 2006.
The parent company held $122 million of cash and cash
equivalents and $246 million of short-term investments with
a subsidiary bank at December 31, 2006. In addition, the
parent company had available $250 million of borrowing
capacity under an unused commercial paper facility at
December 31, 2006. Refer to Note 10 of the
consolidated financial statements on page 85 for further
information on the unused commercial paper facility. Another
source of liquidity for the parent company is dividends from its
subsidiaries. As discussed in Note 19 to the consolidated
financial statements on page 101, banking subsidiaries are
subject to regulation and may be limited in their ability to pay
dividends or transfer funds to the holding company. During 2007,
the banking subsidiaries can pay dividends up to
$261 million plus 2007 net profits without prior
regulatory approval. One measure of current parent company
liquidity is investment in subsidiaries as a percentage of
shareholders’ equity. An amount over 100 percent
represents the reliance on subsidiary dividends to repay
liabilities. As of December 31, 2006, the ratio was
108 percent.
The Corporation regularly evaluates its ability to meet funding
needs in unanticipated, stress environments. In conjunction with
the quarterly 200 basis point interest rate shock analyses,
discussed in the “Interest Rate Sensitivity” section
on page 53 of this financial review, liquidity ratios and
potential funding availability are examined. Each quarter, the
Corporation also evaluates its ability to meet liquidity needs
under a series of broad events, distinguished in terms of
duration and severity. The evaluation projects that sufficient
sources of liquidity are available in each series of events.
Other
Market Risks
The Corporation’s market risk related to trading
instruments is not significant, as trading activities are
limited. Certain components of the Corporation’s
noninterest income, primarily fiduciary income, are at risk to
fluctuations in the market values of underlying assets,
particularly equity securities. Other components of noninterest
income, primarily brokerage fees, are at risk to changes in the
level of market activity.
Share-based compensation expense recognized by the Corporation
is dependent upon the fair value of stock options and restricted
stock at the date of grant. The fair value of both stock options
and restricted stock is impacted by the market price of the
Corporation’s stock on the date of grant and is at risk to
changes in equity markets, general economic conditions and other
factors. For further information regarding the valuation of
stock options and restricted stock, refer to the “Critical
Accounting Policies” section of this financial review on
page 60.
Indirect
Private Equity and Venture Capital Investments
At December 31, 2006, the Corporation had an
$87 million portfolio of indirect (through funds) private
equity and venture capital investments, and had commitments of
$40 million to fund additional investments in future
periods. The value of these investments is at risk to changes in
equity markets, general economic conditions and a variety of
other factors. The majority of these investments are not readily
marketable, and are reported in other assets. The investments
are individually reviewed for impairment on a quarterly basis,
by comparing the carrying value to the estimated fair value. For
further information regarding the valuation of indirect private
equity and venture capital investments, refer to the
“Critical Accounting Policies” section of this
financial review on
58
page 60. Approximately $13 million of the underlying
equity and debt (primarily equity) in these funds are to
companies in the automotive industry. The automotive-related
positions do not represent a majority of any one fund’s
investments, and therefore, the exposure related to these
positions is mitigated by the performance of other investment
interests within the fund’s portfolio of companies. Income
from unconsolidated indirect private equity and venture capital
investments in 2006 was $21 million, which was partially
offset by $10 million of write-downs recognized on such
investments in 2006. No generic assumption is applied to all
investments when evaluating for impairment. The uncertainty in
the economy and equity markets may affect the values of the fund
investments. The following table provides information on the
Corporation’s indirect private equity and venture capital
investments portfolio.
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
(dollar amounts
|
|
|
|
|
in millions)
|
|
|
|
|
Number of investments
|
|
|
115
|
|
|
Balance of investments
|
|
$
|
87
|
|
|
Largest single investment
|
|
|
18
|
|
|
Commitments to fund additional
investments
|
|
|
40
|
|
Operational
Risk
Operational risk represents the risk of loss resulting from
inadequate or failed internal processes, people and systems, or
from external events. The definition includes legal risk, which
is the risk of loss resulting from failure to comply with laws
and regulations as well as prudent ethical standards and
contractual obligations. It also includes the exposure to
litigation from all aspects of an institution’s activities.
The definition does not include strategic or reputational risks.
Although operational losses are experienced by all companies and
are routinely incurred in business operations, the Corporation
recognizes the need to identify and control operational losses,
and seeks to limit losses to a level deemed appropriate by
management after considering the nature of the
Corporation’s business and the environment in which it
operates. Operational risk is mitigated through a system of
internal controls that are designed to keep operating risks at
appropriate levels. An Operational Risk Management Committee
ensures appropriate risk management techniques and systems are
maintained. The Corporation has developed a framework that
includes a centralized operational risk management function and
business/support unit risk coordinators responsible for managing
operational risk specific to the respective business lines.
In addition, internal audit and financial staff monitors and
assesses the overall effectiveness of the system of internal
controls on an ongoing basis. Internal Audit reports the results
of reviews on the controls and systems to management and the
Audit Committee of the Board. The internal audit staff
independently supports the Audit Committee oversight process.
The Audit Committee serves as an independent extension of the
Board.
Compliance
Risk
Compliance risk represents the risk of regulatory sanctions,
reputational impact or financial loss resulting from its failure
to comply with regulations and standards of good banking
practice. Activities which may expose the Corporation to
compliance risk include, but are not limited to, those dealing
with the prevention of money laundering, privacy and data
protection, community reinvestment initiatives, fair lending
challenges resulting from the Corporation’s expansion of
its banking center network, and employment and tax matters.
The Enterprise-Wide Compliance Committee, comprised of senior
business unit managers as well as managers responsible for
compliance, audit and overall risk, oversees compliance risk.
This enterprise-wide approach provides a consistent view of
compliance across the organization. The Enterprise-Wide
Compliance Committee also ensures that appropriate actions are
implemented in business units to mitigate risk to an acceptable
level.
Business
Risk
Business risk represents the risk of loss due to impairment of
reputation, failure to fully develop and execute business plans,
failure to assess current and new opportunities in business,
markets and products, and any other event not identified in the
defined risk categories of credit, market and liquidity,
operational or compliance risks. Mitigation of the various risk
elements that represent business risk is achieved through
initiatives to help the Corporation better understand and report
on the various risks. Wherever quantifiable, the Corporation
intends to use situational analysis and other testing techniques
to appreciate the scope and extent of these risks.
59
CRITICAL
ACCOUNTING POLICIES
The consolidated financial statements are prepared based on the
application of accounting policies, the most significant of
which are described on page 70 in Note 1 to the
consolidated financial statements. These policies require
numerous estimates and strategic or economic assumptions, which
may prove inaccurate or subject to variations. Changes in
underlying factors, assumptions or estimates could have a
material impact on the Corporation’s future financial
condition and results of operations. The most critical of these
significant accounting policies are the policies for allowance
for credit losses, pension plan accounting, income taxes and the
valuation of restricted stock and stock options, nonmarketable
equity securities and warrants. These policies are reviewed with
the Audit Committee of the Board and are discussed more fully
below.
Allowance
for Credit Losses
The allowance for credit losses (combined allowance for loan
losses and allowance for credit losses on lending-related
commitments) is calculated with the objective of maintaining a
reserve sufficient to absorb estimated probable losses.
Management’s determination of the adequacy of the allowance
is based on periodic evaluations of the loan portfolio,
lending-related commitments, and other relevant factors.
However, this evaluation is inherently subjective as it requires
an estimate of the loss content for each risk rating and for
each impaired loan, an estimate of the amounts and timing of
expected future cash flows, an estimate of the value of
collateral, including the market value of thinly traded or
nonmarketable equity securities, and an estimate of the
probability of drawing on unused commitments.
Allowance
for Loan Losses
Loans for which it is probable that payment of interest and
principal will not be made in accordance with the contractual
terms of the loan agreement are considered impaired. Consistent
with this definition, all nonaccrual and reduced-rate loans
(with the exception of residential mortgage and consumer loans)
are impaired. The fair value of impaired loans is estimated
using one of several methods, including collateral value, market
value of similar debt, enterprise value, liquidation value and
discounted cash flows. The valuation is reviewed and updated on
a quarterly basis. While the determination of fair value may
involve estimates, each estimate is unique to the individual
loan, and none is individually significant.
The portion of the allowance allocated to the remaining loans is
determined by applying projected loss ratios to loans in each
risk category. 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, and are supported by underlying analysis, including
information on migration and loss given default studies from
each of the three major domestic geographic markets, as well as
mapping to bond tables. Since a loss ratio is applied to a large
portfolio of loans, any variation between actual and assumed
results could be significant. In addition, a portion of the
allowance is allocated to these remaining loans based on
industry specific risks inherent in certain portfolios,
including portfolio exposures to automotive, contractor,
technology-related, entertainment, air transportation and real
estate industries, as well as Small Business Administration
loans.
An unallocated allowance is also maintained to cover factors
affecting the determination of probable losses inherent in the
loan portfolio that are not necessarily captured by the
application of projected loss ratios or identified industry
specific risks. The unallocated allowance considers the
imprecision in the risk rating system and the risk associated
with new customer relationships.
The principle assumption used in deriving the allowance for loan
losses is the estimate of loss content for each risk rating. To
illustrate, if recent loss experience dictated that the
projected loss ratios would be changed by five percent (of the
estimate) across all risk ratings, the allocated allowance as of
December 31, 2006 would change by approximately
$13 million.
Allowance
for Credit Losses on Lending-Related Commitments
Lending-related commitments for which it is probable that the
commitment will be drawn (or sold) are reserved with the same
projected loss rates as loans, or with specific reserves. In
general, the probability of draw is considered certain once the
credit becomes a watch list credit. Non-watch list credits have
a lower probability of draw, to which standard loan loss rates
are applied.
60
Automotive
Industry Concentration
A concentration in loans to the automotive industry could result
in significant changes to the allowance for credit losses if
assumptions underlying the expected losses differed from actual
results. For example, a bankruptcy by a domestic automotive
manufacturer could adversely affect the risk ratings of its
suppliers, causing actual losses to differ from those expected.
The allowance for loan losses included a component for
automotive suppliers, which assumed that suppliers who derive a
significant portion of their revenue from certain domestic
manufacturers would be downgraded by one or two risk ratings in
the event of bankruptcy of those domestic manufacturers. If a
similar reserve methodology were extended to cover all suppliers
to domestic manufacturers, the allowance for loan losses would
increase by about $17 million at December 31, 2006. In
addition, the allowance for credit losses on lending-related
commitments included reserves for losses on certain unfunded
commitments to the domestic manufacturers. Each five percentage
point fluctuation in the market price (used to determine
expected loss) of those unused commitments would change the
allowance for credit losses on lending-related commitments by
about $8 million at December 31, 2006.
For further discussion of the methodology used in the
determination of the allowance for credit losses, refer to the
“Allowance for Credit Losses” section in this
financial review on page 46, and Note 1 to the
consolidated financial statements on page 70. To the extent
actual outcomes differ from management estimates, additional
provision for credit losses may be required that would adversely
impact earnings in future periods. A substantial majority of the
allocated allowance is assigned to business segments. Any
earnings impact resulting from actual outcomes differing from
management estimates would primarily affect the Business Bank
segment. The unallocated allowance for loan losses is not
assigned to business segments, and any earnings impact resulting
from actual outcomes differing from management estimates would
primarily affect the “Other” category in segment
reporting.
Pension
Plan Accounting
The Corporation has defined benefit plans in effect for
substantially all full-time employees. Benefits under the plans
are based on years of service, age and compensation. Assumptions
are made concerning future events that will determine the amount
and timing of required benefit payments, funding requirements
and pension expense (income). The three major assumptions are
the discount rate used in determining the current benefit
obligation, the long-term rate of return expected on plan assets
and the rate of compensation increase. The assumed discount rate
is determined by matching the expected cash flows of the pension
plans to a yield curve that is representative of long-term,
high-quality fixed income debt instruments as of the measurement
date, December 31. The second assumption, long-term rate of
return expected on plan assets, is set after considering both
long-term returns in the general market and long-term returns
experienced by the assets in the plan. The current asset
allocation and target asset allocation model for the plans is
detailed in Note 16 on page 94. The expected returns
on these various asset categories are blended to derive one
long-term return assumption. The assets are invested in certain
collective investment funds and mutual investment funds
administered by Munder Capital Management, equity securities,
U.S. Treasury and other Government agency securities,
Government-sponsored enterprise securities, corporate bonds and
notes and a real estate investment trust. The third assumption,
rate of compensation increase, is based on reviewing recent
annual pension-eligible compensation increases as well as the
expectation of future increases. The Corporation reviews its
pension plan assumptions on an annual basis with its actuarial
consultants to determine if the assumptions are reasonable and
adjusts the assumptions to reflect changes in future
expectations.
The key actuarial assumptions that will be used to calculate
2007 expense for the defined benefit pension plans are a
discount rate of 5.89 percent, a long-term rate of return
on assets of 8.25 percent, and a rate of compensation
increase of 4.00 percent. Pension expense in 2007 is
expected to be approximately $29 million, a decrease of
$10 million from the $39 million recorded in 2006,
primarily due to changes in the discount rate and plan
demographics and progression.
61
Changing the 2007 key actuarial assumptions discussed above in
25 basis point increments would have the following impact on
pension expense in 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
25 Basis Point
|
|
|
Key Actuarial Assumption
|
|
Increase
|
|
|
Decrease
|
|
|
|
|
(in millions)
|
|
|
|
|
Discount rate
|
|
$
|
(5.7
|
)
|
|
$
|
5.7
|
|
|
Long-term rate of return
|
|
|
(2.8
|
)
|
|
|
2.8
|
|
|
Rate of compensation
|
|
|
2.8
|
|
|
|
(2.8
|
)
|
If the assumed long-term return on assets differs from the
actual return on assets, the asset gains and losses are
incorporated in the market-related value, which is used to
determine the expected return on assets, over a five-year
period. The Employee Benefits Committee, which is comprised of
executive and senior managers from various areas of the
Corporation, provides broad asset allocation guidelines to the
asset manager, who reports results and investment strategy
quarterly to the Committee. Actual asset allocations are
compared to target allocations by asset category and investment
returns for each class of investment are compared to expected
results based on broad market indices.
Note 16 on page 94 to the consolidated financial
statements contains a table showing the funded status of the
qualified defined benefit plan at year-end which was
$140 million at December 31, 2006. Due to the
long-term nature of pension plan assumptions, actual results may
differ significantly from the actuarial-based estimates.
Differences between estimates and experience not recovered in
the market or by future assumption changes are required to be
recorded in shareholders’ equity as part of accumulated
other comprehensive income (loss) and amortized to pension
expense in future years. For further information, refer to
Note 1 to the consolidated financial statements on
page 70. The actuarial net loss in the qualified defined
benefit plan recognized in accumulated other comprehensive
income (loss) at December 31, 2006 was $138 million,
net of tax. In 2006, the actual return on plan assets was
$123 million, compared to an expected return on plan assets
of $89 million. In 2005, the actual return on plan assets
was $66 million, compared to an expected return on plan
assets of $91 million. The Corporation will make
contributions from time to time to the qualified defined benefit
plan to mitigate the impact of the actuarial losses on future
years. No contributions were made to the plan in 2006. However,
additional contributions, to the extent allowable by law, may be
made to further mitigate the losses. For the foreseeable future,
the Corporation has sufficient liquidity to make such payments.
Pension expense is recorded in “employee benefits”
expense on the consolidated statements of income, and is
allocated to business segments based on the segment’s share
of salaries expense. Given the salaries expense included in 2006
segment results, pension expense was allocated approximately
37 percent, 35 percent, 23 percent and
five percent to the Retail Bank, Business Bank,
Wealth & Institutional Management and Finance segments,
respectively, in 2006.
Income
Taxes
The calculation of the Corporation’s income tax provision
and related tax accruals is complex and requires the use of
estimates and judgments. The provision for income taxes is based
on amounts reported in the consolidated statements of income
(after exclusion of nontaxable items, principally income on
bank-owned life insurance and interest income on state and
municipal securities) and includes deferred income taxes on
temporary differences between the tax basis and financial
reporting basis of assets and liabilities. Accrued taxes
represent the net estimated amount due or to be received from
taxing jurisdictions currently or in the future and are included
in “accrued income and other assets” or “accrued
expenses and other liabilities” on the consolidated balance
sheets. The Corporation assesses the relative risks and merits
of tax positions for various transactions after considering
statutes, regulations, judicial precedent and other available
information, and maintains tax accruals consistent with these
assessments. The Corporation is subject to audit by taxing
authorities that could question
and/or
challenge the tax positions taken by the Corporation. In the
event of such a challenge, the Corporation would pursue any
disallowed taxes through administrative measures, and if
necessary, vigorously defend its position in court in accordance
with its view of the law.
Included in net deferred taxes are deferred tax assets, which
the Corporation’s management believes will be realized in
future periods. Deferred tax assets are evaluated for
realization based on available evidence and assumptions made
regarding future events. In the event that the future taxable
income does not occur in the
62
manner anticipated, other initiatives could be undertaken to
preclude the need to recognize a valuation allowance against the
deferred tax asset.
Changes in the estimate of accrued taxes occur due to changes in
tax law, interpretations of existing tax laws, new judicial or
regulatory guidance, and the status of examinations conducted by
taxing authorities that impact the relative risks and merits of
tax positions taken by the Corporation. These changes in the
estimate of accrued taxes could be significant to the operating
results of the Corporation. For further information on tax
accruals and related risks, see Notes 1 and 17 to the
consolidated financial statements on pages 70 and 99,
respectively.
In July 2006, the FASB issued Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an
interpretation of FASB Statement No. 109,”
(FIN 48). FIN 48 provides guidance on measurement,
de-recognition of tax benefits, classification, accounting
disclosure and transition requirements in accounting for
uncertain tax positions. The Corporation will adopt the
provisions of FIN 48 in the first quarter 2007. For further
discussion of FIN 48, see Note 2 to the consolidated
financial statements on page 77.
Valuation
Methodologies
Restricted
Stock and Stock Options
The fair value of share-based compensation as of the date of
grant is recognized as compensation expense on a straight-line
basis over the vesting period. In 2006, the Corporation
recognized total share-based compensation expense of
$57 million. The Corporation used a binomial model to value
stock options granted subsequent to March 31, 2005.
Substantially all stock options granted in 2005 were valued
using a binomial model. Previously, a Black-Scholes
option-pricing model was used. Option valuation models require
several inputs, including the risk-free interest rate, the
expected dividend yield, expected volatility factors of the
market price of the Corporation’s common stock and the
expected option life. For further discussion on the valuation
model inputs, see Note 15 to the consolidated financial
statements on page 92. Changes in input assumptions can
materially affect the fair value estimates. The option valuation
model is sensitive to the market price of the Corporation’s
stock at the grant date, which affects the fair value estimates
and, therefore, the amount of expense recorded on future grants.
Using the number of stock options granted in 2006 and the
Corporation’s stock price at December 31, 2006, a
$5.00 per share increase in stock price would result in an
increase in pretax expense of approximately $2 million,
from the assumed base, over the options’ vesting period.
The fair value of restricted stock is based on the market price
of the Corporation’s stock at the grant date. Using the
number of restricted stock awards issued in 2006, a
$5.00 per share increase in stock price would result in an
increase in pretax expense of approximately $2 million,
from the assumed base, over the awards’ vesting period.
Refer to Notes 1 and 15 of the consolidated financial
statements on pages 70 and 92, respectively, for further
discussion of share-based compensation expense.
Nonmarketable
Equity Securities
At December 31, 2006, the Corporation had an
$87 million portfolio of indirect (through funds) private
equity and venture capital investments, and had commitments to
fund additional investments of $40 million in future
periods. A majority of these investments are not readily
marketable. The investments are individually reviewed for
impairment, on a quarterly basis, by comparing the carrying
value to the estimated fair value. The Corporation bases its
estimates of fair value for the majority of its indirect private
equity and venture capital investments on the percentage
ownership in the fair value of the entire fund, as reported by
the fund management. In general, the Corporation does not have
the benefit of the same information regarding the fund’s
underlying investments as does fund management. Therefore, after
indication that fund management adheres to accepted, sound and
recognized valuation techniques, the Corporation generally
utilizes the fair values assigned to the underlying portfolio
investments by fund management. For those funds where fair value
is not reported by fund management, the Corporation derives the
fair value of the fund by estimating the fair value of each
underlying investment in the fund. In addition to using
qualitative information about each underlying investment, as
provided by fund management, the Corporation gives consideration
to information pertinent to the specific nature of the debt or
equity investment, such as relevant market conditions, offering
prices, operating results, financial conditions, exit strategy
and other qualitative information, as available. The lack of an
independent source to validate fair value estimates is an
inherent limitation in the valuation process. The amount by
which the carrying value exceeds the fair value, that is
determined to be
other-than-temporary
impairment, is charged to current earnings and the carrying
value of the investment is written down accordingly. While the
determination of
63
fair value involves estimates, no generic assumption is applied
to all investments when evaluating for impairment. As such, each
estimate is unique to the individual investment, and none is
individually significant. The inherent uncertainty in the
process of valuing equity securities for which a ready market is
unavailable may cause our estimated values of these securities
to differ significantly from the values that would have been
derived had a ready market for the securities existed, and those
differences could be material. The value of these investments is
at risk to changes in equity markets, general economic
conditions and a variety of other factors, which could result in
an impairment charge in future periods.
Warrants
The Corporation holds a portfolio of approximately 790 warrants
for generally non-marketable equity securities. These warrants
are primarily from high technology, non-public companies
obtained as part of the loan origination process. Substantially
all of the warrants contain a net exercise provision, which
requires them to be accounted for as derivatives and recorded at
fair value in accordance with the provisions of Implementation
Issue 17a of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities.” The fair value of the
derivative warrant portfolio is reviewed quarterly and
adjustments to the fair value are recorded quarterly in current
earnings. Fair value is determined using a Black-Scholes
valuation model, which has five inputs: risk-free rate, term,
volatility, exercise price, and the per share market value of
the underlying company. Key assumptions used in the
December 31, 2006 valuation were as follows. The risk-free
rate was estimated using the U.S. treasury rate, as of the
valuation date, corresponding with the expected term of the
warrant. The Corporation used an expected term of one half of
the remaining contractual term of each warrant, which averages
approximately seven years. Volatility was estimated using an
index of comparable publicly traded companies, based on the
Standard Industrial Classification codes. Where sufficient
financial data exists, a market approach method was utilized to
estimate the current value of the underlying company. When
quoted market values were not available, an index method was
utilized. Under the index method, the subject companies’
values were “rolled-forward” from the inception date
through the valuation date based on the change in value of an
underlying index of guideline public companies.
The fair value of warrants recorded on the Corporation’s
consolidated balance sheets represents management’s best
estimate of the fair value of these instruments within the
framework of existing accounting standards. Changes in the above
material assumptions could result in significantly different
valuations. For example, the following table demonstrates the
effect of changes in the volatility assumption used, currently
60 percent, on the value of warrants required to be carried
at fair value:
Valuation
of Warrants Held at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Volatility Factor
|
|
|
|
|
20% Lower
|
|
|
20% Higher
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Value of all warrants required to
be carried at fair value
|
|
$
|
(2.4
|
)
|
|
$
|
2.6
|
|
The valuation of warrants is complex and is subject to a certain
degree of management judgment. The inherent uncertainty in the
process of valuing warrants for which a ready market is
unavailable may cause estimated values of these warrant assets
to differ significantly from the values that would have been
derived had a ready market for the warrant assets existed, and
those differences could be material. The use of an alternative
valuation methodology or alternative approaches used to
calculate material assumptions could result in significantly
different estimated values for these assets. In addition, the
value of all warrants required to be carried at fair value
($26 million at December 31, 2006) is at risk to
changes in equity markets, general economic conditions and other
factors.
64
FORWARD-LOOKING
STATEMENTS
This report includes forward-looking statements as defined in
the Private Securities Litigation Reform Act of 1995. In
addition, the Corporation may make other written and oral
communication from time to time that contain such statements.
All statements regarding the Corporation’s expected
financial position, strategies and growth prospects and general
economic conditions expected to exist in the future are
forward-looking statements. The words, “anticipates,”
“believes,” “feels,” “expects,”
“estimates,” “seeks,” “strives,”
“plans,” “intends,” “outlook,”
“forecast,” “position,” “target,”
“mission,” “assume,” “achievable,”
“potential,” “strategy,” “goal,”
“aspiration,” “outcome,”
“continue,” “remain,” “maintain,”
“trend,” “objective,” and variations of such
words and similar expressions, or future or conditional verbs
such as “will,” “would,” “should,”
“could,” “might,” “can,”
“may” or similar expressions as they relate to the
Corporation or its management, are intended to identify
forward-looking statements.
The Corporation cautions that forward-looking statements are
subject to numerous assumptions, risks and uncertainties, which
change over time. Forward-looking statements speak only as of
the date the statement is made, and the Corporation does not
undertake to update forward-looking statements to reflect facts,
circumstances, assumptions or events that occur after the date
the forward-looking statements are made. Actual results could
differ materially from those anticipated in forward-looking
statements and future results could differ materially from
historical performance.
In addition to factors mentioned elsewhere in this report or
previously disclosed in the Corporation’s SEC reports
(accessible on the SEC’s website at
www.sec.gov
or
on the Corporation’s website at
www.comerica.com
),
the following factors, among others, could cause actual results
to differ materially from forward-looking statements and future
results could differ materially from historical performance. The
Corporation cautions that these factors are not exclusive.
|
|
|
|
|
|
•
|
general political, economic or industry conditions, either
domestically or internationally, may be less favorable than
expected;
|
|
|
|
|
•
|
unfavorable developments concerning credit quality could affect
the Corporation’s financial results;
|
|
|
|
|
•
|
industries in which the Corporation has lending concentrations,
including, but not limited to, automotive production, could
suffer a significant decline which could adversely affect the
Corporation;
|
|
|
|
|
•
|
the introductions, withdrawal, success and timing of business
initiatives and strategies, including, but not limited to, the
opening of new banking centers and plans to grow personal
financial services and wealth management, may be less successful
or may be different than anticipated. Such a result could
adversely affect the Corporation’s business.
|
|
|
|
|
•
|
fluctuations in interest rates could affect the
Corporation’s net interest income and balance sheet;
|
|
|
|
|
•
|
customer borrowing, repayment, investment and deposit practices
generally may be different than anticipated;
|
|
|
|
|
•
|
management’s ability to maintain and expand customer
relationships may differ from expectations;
|
|
|
|
|
•
|
competitive product and pricing pressures among financial
institutions within the Corporation’s markets may change;
|
|
|
|
|
•
|
management’s ability to retain key officers and employees
may change;
|
|
|
|
|
•
|
legal and regulatory proceedings and related matters with
respect to the financial services industry, including those
directly involving the Corporation and its subsidiaries, could
adversely affect the Corporation or the financial services
industry in general;
|
|
|
|
|
•
|
changes in regulation or oversight may have a material adverse
impact on the Corporation’s operations;
|
|
|
|
|
•
|
methods of reducing risk exposures might not be effective;
|
|
|
|
|
•
|
there could be terrorist activities or other hostilities, which
may adversely affect the general economy, financial and capital
markets, specific industries, and the Corporation; and
|
|
|
|
|
•
|
there could be natural disasters, including, but not limited to,
hurricanes, tornadoes, earthquakes, fires, floods and the
disruption of private or public utilities, which may adversely
affect the general economy, financial and capital markets,
specific industries, and the Corporation.
|
65
CONSOLIDATED
BALANCE SHEETS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions, except share data)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,434
|
|
|
$
|
1,609
|
|
|
Federal funds sold and securities
purchased under agreements to resell
|
|
|
2,632
|
|
|
|
937
|
|
|
Other short-term investments
|
|
|
327
|
|
|
|
222
|
|
|
Investment securities
available-for-sale
|
|
|
3,662
|
|
|
|
4,240
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
26,265
|
|
|
|
23,545
|
|
|
Real estate construction loans
|
|
|
4,203
|
|
|
|
3,482
|
|
|
Commercial mortgage loans
|
|
|
9,659
|
|
|
|
8,867
|
|
|
Residential mortgage loans
|
|
|
1,677
|
|
|
|
1,485
|
|
|
Consumer loans
|
|
|
2,423
|
|
|
|
2,697
|
|
|
Lease financing
|
|
|
1,353
|
|
|
|
1,295
|
|
|
International loans
|
|
|
1,851
|
|
|
|
1,876
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
47,431
|
|
|
|
43,247
|
|
|
Less allowance for loan losses
|
|
|
(493
|
)
|
|
|
(516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
46,938
|
|
|
|
42,731
|
|
|
Premises and equipment
|
|
|
568
|
|
|
|
510
|
|
|
Customers’ liability on
acceptances outstanding
|
|
|
56
|
|
|
|
59
|
|
|
Accrued income and other assets
|
|
|
2,384
|
|
|
|
2,705
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
58,001
|
|
|
$
|
53,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$
|
13,901
|
|
|
$
|
15,666
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market and NOW deposits
|
|
|
15,250
|
|
|
|
17,064
|
|
|
Savings deposits
|
|
|
1,365
|
|
|
|
1,454
|
|
|
Customer certificates of deposit
|
|
|
7,223
|
|
|
|
5,679
|
|
|
Institutional certificates of
deposit
|
|
|
5,783
|
|
|
|
1,750
|
|
|
Foreign office time deposits
|
|
|
1,405
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
31,026
|
|
|
|
26,765
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
44,927
|
|
|
|
42,431
|
|
|
Short-term borrowings
|
|
|
635
|
|
|
|
302
|
|
|
Acceptances outstanding
|
|
|
56
|
|
|
|
59
|
|
|
Accrued expenses and other
liabilities
|
|
|
1,281
|
|
|
|
1,192
|
|
|
Medium- and long-term debt
|
|
|
5,949
|
|
|
|
3,961
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
52,848
|
|
|
|
47,945
|
|
|
Common stock —
$5 par value:
|
|
|
|
|
|
|
|
|
|
Authorized —
325,000,000 shares
|
|
|
|
|
|
|
|
|
|
Issued —
178,735,252 shares at 12/31/06 and 12/31/05
|
|
|
894
|
|
|
|
894
|
|
|
Capital surplus
|
|
|
520
|
|
|
|
461
|
|
|
Accumulated other comprehensive
loss
|
|
|
(324
|
)
|
|
|
(170
|
)
|
|
Retained earnings
|
|
|
5,282
|
|
|
|
4,796
|
|
|
Less cost of common stock in
treasury — 21,161,161 shares at 12/31/06 and
15,834,985 shares at 12/31/05
|
|
|
(1,219
|
)
|
|
|
(913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
5,153
|
|
|
|
5,068
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity
|
|
$
|
58,001
|
|
|
$
|
53,013
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
66
CONSOLIDATED
STATEMENTS OF INCOME
Comerica Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions, except per share data)
|
|
|
|
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
3,216
|
|
|
$
|
2,554
|
|
|
$
|
2,055
|
|
|
Interest on investment securities
|
|
|
174
|
|
|
|
148
|
|
|
|
147
|
|
|
Interest on short-term investments
|
|
|
32
|
|
|
|
24
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
3,422
|
|
|
|
2,726
|
|
|
|
2,238
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
1,005
|
|
|
|
548
|
|
|
|
315
|
|
|
Interest on short-term borrowings
|
|
|
130
|
|
|
|
52
|
|
|
|
4
|
|
|
Interest on medium- and long-term
debt
|
|
|
304
|
|
|
|
170
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,439
|
|
|
|
770
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,983
|
|
|
|
1,956
|
|
|
|
1,811
|
|
|
Provision for loan losses
|
|
|
37
|
|
|
|
(47
|
)
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses
|
|
|
1,946
|
|
|
|
2,003
|
|
|
|
1,747
|
|
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
218
|
|
|
|
218
|
|
|
|
231
|
|
|
Fiduciary income
|
|
|
180
|
|
|
|
174
|
|
|
|
166
|
|
|
Commercial lending fees
|
|
|
65
|
|
|
|
63
|
|
|
|
55
|
|
|
Letter of credit fees
|
|
|
64
|
|
|
|
70
|
|
|
|
66
|
|
|
Foreign exchange income
|
|
|
38
|
|
|
|
37
|
|
|
|
37
|
|
|
Brokerage fees
|
|
|
40
|
|
|
|
36
|
|
|
|
36
|
|
|
Card fees
|
|
|
46
|
|
|
|
39
|
|
|
|
32
|
|
|
Bank-owned life insurance
|
|
|
40
|
|
|
|
38
|
|
|
|
34
|
|
|
Warrant income (loss)
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
7
|
|
|
Net gain (loss) on sales of
businesses
|
|
|
(12
|
)
|
|
|
1
|
|
|
|
7
|
|
|
Income from lawsuit settlement
|
|
|
47
|
|
|
|
—
|
|
|
|
—
|
|
|
Other noninterest income
|
|
|
130
|
|
|
|
134
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
855
|
|
|
|
819
|
|
|
|
808
|
|
|
NONINTEREST EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
823
|
|
|
|
786
|
|
|
|
736
|
|
|
Employee benefits
|
|
|
184
|
|
|
|
178
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total salaries and employee
benefits
|
|
|
1,007
|
|
|
|
964
|
|
|
|
890
|
|
|
Net occupancy expense
|
|
|
125
|
|
|
|
118
|
|
|
|
122
|
|
|
Equipment expense
|
|
|
55
|
|
|
|
53
|
|
|
|
54
|
|
|
Outside processing fee expense
|
|
|
85
|
|
|
|
77
|
|
|
|
67
|
|
|
Software expense
|
|
|
56
|
|
|
|
49
|
|
|
|
43
|
|
|
Customer services
|
|
|
47
|
|
|
|
69
|
|
|
|
23
|
|
|
Litigation and operational losses
|
|
|
11
|
|
|
|
14
|
|
|
|
24
|
|
|
Provision for credit losses on
lending-related commitments
|
|
|
5
|
|
|
|
18
|
|
|
|
(12
|
)
|
|
Other noninterest expenses
|
|
|
283
|
|
|
|
251
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
1,674
|
|
|
|
1,613
|
|
|
|
1,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
|
1,127
|
|
|
|
1,209
|
|
|
|
1,097
|
|
|
Provision for income taxes
|
|
|
345
|
|
|
|
393
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
782
|
|
|
|
816
|
|
|
|
748
|
|
|
Income from discontinued
operations, net of tax
|
|
|
111
|
|
|
|
45
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
893
|
|
|
$
|
861
|
|
|
$
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
4.88
|
|
|
$
|
4.90
|
|
|
$
|
4.36
|
|
|
Net income
|
|
|
5.57
|
|
|
|
5.17
|
|
|
|
4.41
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
4.81
|
|
|
|
4.84
|
|
|
|
4.31
|
|
|
Net income
|
|
|
5.49
|
|
|
|
5.11
|
|
|
|
4.36
|
|
|
Cash dividends declared on common
stock
|
|
|
380
|
|
|
|
367
|
|
|
|
356
|
|
|
Cash dividends declared per common
share
|
|
|
2.36
|
|
|
|
2.20
|
|
|
|
2.08
|
|
See notes to consolidated financial statements.
67
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Comerica Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Capital
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury
|
|
|
Shareholders’
|
|
|
|
|
In Shares
|
|
|
Amount
|
|
|
Surplus
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Stock
|
|
|
Equity
|
|
|
|
|
(in millions, except per share data)
|
|
|
|
|
BALANCE AT JANUARY 1,
2004
|
|
|
175.0
|
|
|
$
|
894
|
|
|
$
|
384
|
|
|
$
|
74
|
|
|
$
|
3,973
|
|
|
$
|
(215
|
)
|
|
$
|
5,110
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
757
|
|
|
|
—
|
|
|
|
757
|
|
|
Other comprehensive loss, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(143
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
614
|
|
|
Cash dividends declared on common
stock
($2.08 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(356
|
)
|
|
|
—
|
|
|
|
(356
|
)
|
|
Purchase of common stock
|
|
|
(6.5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(370
|
)
|
|
|
(370
|
)
|
|
Net issuance of common stock under
employee
stock plans
|
|
|
2.0
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
(43
|
)
|
|
|
113
|
|
|
|
72
|
|
|
Recognition of share-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31,
2004
|
|
|
170.5
|
|
|
$
|
894
|
|
|
$
|
421
|
|
|
$
|
(69
|
)
|
|
$
|
4,331
|
|
|
$
|
(472
|
)
|
|
$
|
5,105
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
861
|
|
|
|
—
|
|
|
|
861
|
|
|
Other comprehensive loss, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(101
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
760
|
|
|
Cash dividends declared on common
stock
($2.20 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(367
|
)
|
|
|
—
|
|
|
|
(367
|
)
|
|
Purchase of common stock
|
|
|
(9.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(525
|
)
|
|
|
(525
|
)
|
|
Net issuance of common stock under
employee
stock plans
|
|
|
1.4
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
84
|
|
|
|
51
|
|
|
Recognition of share-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
44
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31,
2005
|
|
|
162.9
|
|
|
$
|
894
|
|
|
$
|
461
|
|
|
$
|
(170
|
)
|
|
$
|
4,796
|
|
|
$
|
(913
|
)
|
|
$
|
5,068
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
893
|
|
|
|
—
|
|
|
|
893
|
|
|
Other comprehensive income, net of
tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
948
|
|
|
Cash dividends declared on common
stock
($2.36 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(380
|
)
|
|
|
—
|
|
|
|
(380
|
)
|
|
Purchase of common stock
|
|
|
(6.7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(384
|
)
|
|
|
(384
|
)
|
|
Net issuance of common stock under
employee
stock plans
|
|
|
1.7
|
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
(27
|
)
|
|
|
95
|
|
|
|
53
|
|
|
Recognition of share-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
57
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
57
|
|
|
Employee deferred compensation
obligations
|
|
|
(0.3
|
)
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(17
|
)
|
|
|
—
|
|
|
SFAS 158 transition
adjustment, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(209
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31,
2006
|
|
|
157.6
|
|
|
$
|
894
|
|
|
$
|
520
|
|
|
$
|
(324
|
)
|
|
$
|
5,282
|
|
|
$
|
(1,219
|
)
|
|
$
|
5,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
68
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Comerica Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
893
|
|
|
$
|
861
|
|
|
$
|
757
|
|
|
Income from discontinued
operations, net of tax
|
|
|
111
|
|
|
|
45
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations,
net of tax
|
|
|
782
|
|
|
|
816
|
|
|
|
748
|
|
|
Adjustments to reconcile net income
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
37
|
|
|
|
(47
|
)
|
|
|
64
|
|
|
Provision for credit losses on
lending-related commitments
|
|
|
5
|
|
|
|
18
|
|
|
|
(12
|
)
|
|
Depreciation and software
amortization
|
|
|
84
|
|
|
|
72
|
|
|
|
68
|
|
|
Share-based compensation expense
|
|
|
57
|
|
|
|
43
|
|
|
|
34
|
|
|
Excess tax benefits from
share-based compensation arrangements
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Net amortization of securities
|
|
|
(2
|
)
|
|
|
8
|
|
|
|
24
|
|
|
Net loss (gain) on sales of
businesses
|
|
|
12
|
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
Contributions to qualified pension
plan fund
|
|
|
—
|
|
|
|
(58
|
)
|
|
|
(62
|
)
|
|
Net increase in trading securities
|
|
|
(50
|
)
|
|
|
—
|
|
|
|
(9
|
)
|
|
Net decrease (increase) in loans
held-for-sale
|
|
|
78
|
|
|
|
(1
|
)
|
|
|
115
|
|
|
Net (increase) decrease in accrued
income receivable
|
|
|
(65
|
)
|
|
|
95
|
|
|
|
(150
|
)
|
|
Net increase (decrease) in accrued
expenses
|
|
|
37
|
|
|
|
(84
|
)
|
|
|
234
|
|
|
Other, net
|
|
|
(66
|
)
|
|
|
(1
|
)
|
|
|
(41
|
)
|
|
Discontinued operations, net
|
|
|
75
|
|
|
|
(14
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
193
|
|
|
|
30
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
975
|
|
|
|
846
|
|
|
|
1,028
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (increase) decrease in other
short-term investments
|
|
|
(1,663
|
)
|
|
|
2,115
|
|
|
|
677
|
|
|
Proceeds from sales of investment
securities
available-for-sale
|
|
|
1
|
|
|
|
—
|
|
|
|
337
|
|
|
Proceeds from maturities of
investment securities
available-for-sale
|
|
|
1,337
|
|
|
|
1,302
|
|
|
|
1,032
|
|
|
Purchases of investment securities
available-for-sale
|
|
|
(747
|
)
|
|
|
(1,647
|
)
|
|
|
(867
|
)
|
|
Net increase in loans
|
|
|
(4,324
|
)
|
|
|
(2,618
|
)
|
|
|
(766
|
)
|
|
Net increase in fixed assets
|
|
|
(163
|
)
|
|
|
(132
|
)
|
|
|
(95
|
)
|
|
Net decrease (increase) in
customers’ liability on acceptances outstanding
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
(30
|
)
|
|
Proceeds from sales of businesses
|
|
|
43
|
|
|
|
1
|
|
|
|
8
|
|
|
Discontinued operations, net
|
|
|
221
|
|
|
|
103
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
(5,292
|
)
|
|
|
(878
|
)
|
|
|
289
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
2,496
|
|
|
|
1,524
|
|
|
|
(527
|
)
|
|
Net increase (decrease) in
short-term borrowings
|
|
|
333
|
|
|
|
109
|
|
|
|
(69
|
)
|
|
Net (decrease) increase in
acceptances outstanding
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
30
|
|
|
Proceeds from issuance of medium-
and long-term debt
|
|
|
3,326
|
|
|
|
283
|
|
|
|
364
|
|
|
Repayments of medium- and long-term
debt
|
|
|
(1,303
|
)
|
|
|
(576
|
)
|
|
|
(848
|
)
|
|
Proceeds from issuance of common
stock under employee stock plans
|
|
|
45
|
|
|
|
51
|
|
|
|
72
|
|
|
Excess tax benefits from
share-based compensation arrangements
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
Purchase of common stock for
treasury
|
|
|
(384
|
)
|
|
|
(525
|
)
|
|
|
(370
|
)
|
|
Dividends paid
|
|
|
(377
|
)
|
|
|
(366
|
)
|
|
|
(357
|
)
|
|
Discontinued operations, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
4,142
|
|
|
|
502
|
|
|
|
(1,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and
due from banks
|
|
|
(175
|
)
|
|
|
470
|
|
|
|
(388
|
)
|
|
Cash and due from banks at
beginning of year
|
|
|
1,609
|
|
|
|
1,139
|
|
|
|
1,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of
year
|
|
$
|
1,434
|
|
|
$
|
1,609
|
|
|
$
|
1,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1,385
|
|
|
$
|
733
|
|
|
$
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
299
|
|
|
$
|
340
|
|
|
$
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans transferred to other real
estate
|
|
$
|
13
|
|
|
$
|
33
|
|
|
$
|
33
|
|
|
Loans transferred to
held-for-sale
|
|
|
74
|
|
|
|
43
|
|
|
|
—
|
|
|
Deposits transferred to
held-for-sale
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
See notes to consolidated financial statements.
69
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Note 1 —
Summary of Significant Accounting Policies
Organization
Comerica Incorporated (the Corporation) is a registered
financial holding company headquartered in Detroit, Michigan.
The Corporation’s major business segments are the Business
Bank, the Retail Bank and Wealth & Institutional
Management. For further discussion of each business segment,
refer to Note 24 on page 114. The core businesses are
tailored to each of the Corporation’s four primary
geographic markets: Midwest & Other Markets, Western,
Texas and Florida. The Corporation and its banking subsidiaries
are regulated at both the state and federal levels.
The accounting and reporting policies of the Corporation conform
to U.S. generally accepted accounting principles and
prevailing practices within the banking industry. The
preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from
these estimates.
The following summarizes the significant accounting policies of
the Corporation applied in the preparation of the accompanying
consolidated financial statements.
Principles
of Consolidation
The consolidated financial statements include the accounts of
the Corporation and its subsidiaries after elimination of all
significant intercompany accounts and transactions. The
financial statements for prior years have been reclassified to
conform to current financial statement presentation.
The Corporation consolidates variable interest entities
(VIE’s) in which it is the primary beneficiary. In general,
a VIE is an entity that either (1) has an insufficient
amount of equity to carry out its principal activities without
additional subordinated financial support, (2) has a group
of equity owners that are unable to make significant decisions
about its activities or (3) has a group of equity owners
that do not have the obligation to absorb losses or the right to
receive returns generated by its operations. If any of these
characteristics is present, the entity is subject to a variable
interests consolidation model, and consolidation is based on
variable interests, not on ownership of the entity’s
outstanding voting stock. Variable interests are defined as
contractual, ownership or other money interests in an entity
that change with fluctuations in the entity’s net asset
value. The primary beneficiary consolidates the VIE; the primary
beneficiary is defined as the enterprise that absorbs a majority
of expected losses or receives a majority of residual returns
(if the losses or returns occur), or both. The Corporation
consolidates entities not determined to be VIE’s when it
holds a majority (controlling) interest in the entity’s
outstanding voting stock. The minority interest in less than
100% owned consolidated subsidiaries is not material, and is
included in “accrued expenses and other liabilities”
on the consolidated balance sheets. The related minority
interest in earnings which is included in “other
noninterest expenses” on the consolidated statements of
income was not significant for the year ended December 31,
2006, approximately $4 million for the year ended
December 31, 2005 and was not significant for the year
ended December 31, 2004.
Equity investments in entities that are not VIE’s where the
Corporation owns less than a majority (controlling) interest and
equity investments in entities that are VIE’s where the
Corporation is not the primary beneficiary are not consolidated.
Rather, such investments are accounted for using either the
equity method or cost method. The equity method is used for
investments in a corporate joint venture and investments where
the Corporation has the ability to exercise significant
influence over the investee’s operation and financial
policies, which is generally presumed to exist if the
Corporation owns more than 20 percent of the voting
interest of the investee. Equity method investments are included
in “accrued income and other assets” on the
consolidated balance sheets, with income and losses recorded in
“other noninterest income” on the consolidated
statements of income. Unconsolidated equity investments that do
not meet the criteria to be accounted for under the equity
method are accounted for under the cost method. Cost method
investments in publicly traded companies are included in
“investment securities
available-for-sale”
on the consolidated balance sheets, with income (net of
70
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
write-downs) recorded in “net securities gains
(losses)” on the consolidated statements of income. Cost
method investments in non-publicly traded companies are included
in “accrued income and other assets” on the
consolidated balance sheets, with income (net of write-downs)
recorded in “other noninterest income” on the
consolidated statements of income.
For further information regarding the Corporation’s
investments in VIE’s, refer to Note 22 on
page 110.
Discontinued
Operations
Components of the Corporation that have been or will be disposed
of by sale that are significant to the consolidated financial
statements are accounted for as discontinued operations in all
periods presented. For further information on discontinued
operations, refer to Note 26 on page 121.
Short-term
Investments
Short-term investments include interest-bearing deposits with
banks, trading securities and loans
held-for-sale.
Trading securities are carried at market value. Realized and
unrealized gains or losses on trading securities are included in
“other noninterest income” on the consolidated
statements of income.
Loans
held-for-sale,
typically residential mortgages and Small Business
Administration loans, are carried at the lower of cost or
market. Market value is determined in the aggregate for each
portfolio.
Investment
Securities
Investment securities
held-to-maturity
are those securities which the Corporation has the ability and
management has the positive intent to hold to maturity as of the
balance sheet dates. Investment securities
held-to-maturity
are stated at cost, adjusted for amortization of premium and
accretion of discount.
Investment securities that are not considered
held-to-maturity
are accounted for as securities
available-for-sale,
and stated at fair value, with unrealized gains and losses, net
of income taxes, reported as a separate component of other
comprehensive income (loss). Unrealized losses on securities
available-for-sale
are recognized in earnings if the Corporation does not have the
ability or management does not have the intent to hold the
securities until market recovery or if full collection of the
amounts due according to the contractual terms of the debt is
not expected.
Gains or losses on the sale of securities are computed based on
the adjusted cost of the specific security sold.
Allowance
for Loan Losses
The allowance for loan losses represents management’s
assessment of probable losses inherent in the Corporation’s
loan portfolio. The allowance provides for probable losses that
have been identified with specific customer relationships and
for probable losses believed to be inherent in the loan
portfolio, but that have not been specifically identified.
Internal risk ratings are assigned to each business loan at the
time of approval and are subject to subsequent periodic reviews
by the Corporation’s senior management. The Corporation
performs a detailed credit quality review quarterly on both
large business and certain large personal purpose consumer and
residential mortgage loans that have deteriorated below certain
levels of credit risk, and may allocate a specific portion of
the allowance to such loans based upon this review. The
Corporation defines business loans as those belonging to the
commercial, real estate construction, commercial mortgage, lease
financing and international loan portfolios. A portion of the
allowance is allocated to the remaining business loans by
applying projected loss ratios, based on numerous factors
identified below, to the loans within each risk rating. In
addition, a portion of the allowance is allocated to these
remaining loans based on industry specific risks inherent in
certain portfolios, including portfolio exposures to automotive,
contractor, technology-related, entertainment and air
transportation industries, real estate, and Small Business
Administration loans. The portion of the allowance allocated to
all other consumer and residential mortgage loans is determined
by applying projected loss ratios to various
71
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
segments of the loan portfolio. Projected loss ratios for all
portfolios incorporate factors, such as recent charge-off
experience, current economic conditions and trends, and trends
with respect to past due and nonaccrual amounts, and are
supported by underlying analysis, including information on
migration and loss given default studies from each of the three
major domestic geographic markets (Midwest, Western and Texas),
as well as mapping to bond tables.
Management maintains an unallocated allowance to recognize the
uncertainty and inherent imprecision underlying the process of
estimating expected loan losses. Determination of the probable
losses inherent in the portfolio, which are not necessarily
captured by the allocation methodology discussed above, involve
the exercise of judgment. Factors that were considered in the
evaluation of the adequacy of the Corporation’s unallocated
allowance include the inherent imprecision in the risk rating
system, and the risk associated with new customer relationships.
The unallocated allowance associated with the margin for
imprecision in the risk rating system is based on a historical
evaluation of the accuracy of the risk ratings associated with
loans, while the unallocated allowance due to new business
migration risk is based on an evaluation of the risk of ratings
downgrades associated with loans that do not have a full year of
payment history.
The total allowance, including the unallocated amount, is
available to absorb losses from any segment within the
portfolio. Unanticipated economic events, including political,
economic and regulatory instability in countries where the
Corporation has loans, could cause changes in the credit
characteristics of the portfolio and result in an unanticipated
increase in the allocated allowance. Inclusion of other industry
specific exposures in the allocated allowance, as well as
significant increases in the current portfolio exposures, could
also increase the amount of the allocated allowance. Any of
these events, or some combination thereof, may result in the
need for additional provision for loan losses in order to
maintain an allowance that complies with credit risk and
accounting policies.
Loans deemed uncollectible are charged off and deducted from the
allowance. The provision for loan losses and recoveries on loans
previously charged off are added to the allowance.
Allowance
for Credit Losses on Lending-Related Commitments
The allowance for credit losses on lending-related commitments
covers management’s assessment of probable credit losses
inherent in lending-related commitments, including unused
commitments to extend credit, letters of credit and financial
guarantees. Lending-related commitments for which it is probable
that the commitment will be drawn (or sold) are reserved with
the same projected loss rates as loans, or with specific
reserves. In general, the probability of draw is considered
certain once the credit becomes a watch list credit (generally
consistent with regulatory defined special mention, substandard
and doubtful accounts). Non-watch list credits have a lower
probability of draw, to which standard loan loss rates are
applied. The allowance for credit losses on lending-related
commitments is included in “accrued expenses and other
liabilities” on the consolidated balance sheets, with the
corresponding charge reflected in “provision for credit
losses on lending-related commitments” in the noninterest
expenses section on the consolidated statements of income.
Nonperforming
Assets
Nonperforming assets are comprised of loans and debt securities
for which the accrual of interest has been discontinued, loans
for which the terms have been renegotiated to less than market
rates due to a serious weakening of the borrower’s
financial condition, and real estate which has been acquired
primarily through foreclosure and is awaiting disposition.
Loans that have been restructured but yield a rate equal to or
greater than the rate charged for new loans with comparable risk
and have met the requirements for accrual status are not
reported as nonperforming assets. Such loans continue to be
evaluated for impairment for the remainder of the calendar year
of the restructuring. These loans may be excluded from the
impairment assessment in the calendar years subsequent to the
restructuring, if not impaired based on the modified terms. See
Note 4 on page 80 for additional information on loan
impairment.
72
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Consumer loans are generally not placed on nonaccrual status and
are charged off no later than 180 days past due, and
earlier, if deemed uncollectible. Loans, other than consumer
loans, and debt securities are generally placed on nonaccrual
status when principal or interest is past due 90 days or
more
and/or
when, in the opinion of management, full collection of principal
or interest is unlikely. At the time a loan or debt security is
placed on nonaccrual status, interest previously accrued but not
collected is charged against current income. Income on such
loans and debt securities is then recognized only to the extent
that cash is received and where future collection of principal
is probable. Generally, a loan or debt security may be returned
to accrual status when all delinquent principal and interest
have been received and the Corporation expects repayment of the
remaining contractual principal and interest, or when the loan
or debt security is both well secured and in the process of
collection.
A nonaccrual loan that is restructured will generally remain on
nonaccrual after the restructuring for a period of six months to
demonstrate that the borrower can meet the restructured terms.
However, sustained payment performance prior to the
restructuring or significant events that coincide with the
restructuring are included in assessing whether the borrower can
meet the restructured terms. These factors may result in the
loan being returned to an accrual status at the time of
restructuring or upon satisfaction of a shorter performance
period. If management is uncertain whether the borrower has the
ability to meet the revised payment schedule, the loan remains
classified as nonaccrual. Other real estate acquired is carried
at the lower of cost or fair value, 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 loan losses. Subsequent write-downs, operating
expenses and losses upon sale, if any, are charged to
noninterest expenses.
Premises
and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation, computed on the
straight-line method, is charged to operations over the
estimated useful lives of the assets. The estimated useful lives
are generally
10-33 years
for premises that the company owns and three to eight years for
furniture and equipment. Leasehold improvements are amortized
over the terms of their respective leases, or 10 years,
whichever is shorter.
Software
Capitalized software is stated at cost, less accumulated
amortization. Capitalized software includes purchased software
and capitalizable application development costs associated with
internally-developed software. Amortization, computed on the
straight-line method, is charged to operations over the
estimated useful life of the software, which is generally five
years. Capitalized software is included in “accrued income
and other assets” on the consolidated balance sheets.
Goodwill
and Other Intangible Assets
Goodwill and identified intangible assets that have an
indefinite useful life are subject to impairment testing, which
the Corporation conducts annually, or on an interim basis if
events or changes in circumstances between annual tests indicate
the assets might be impaired. The Corporation performs its
annual impairment test for goodwill as of July 1 of each
year. The impairment test involves assigning tangible assets and
liabilities, identified intangible assets and goodwill to
reporting units, which are a subset of the Corporation’s
operating segments, and comparing the fair value of each
reporting unit to its carrying value. If the fair value is less
than the carrying value, a further test is required to measure
the amount of impairment.
The Corporation reviews finite-lived intangible assets and other
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable from projected undiscounted net operating
cash flows. If the projected undiscounted net operating cash
flows are less than the carrying amount, a loss is recognized to
reduce the carrying amount to fair value.
Additional information regarding goodwill, other intangible
assets and impairment policies can be found in Note 8 on
page 83.
73
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Share-based
Compensation
In 2006, the Corporation adopted the provisions of
SFAS No. 123 (revised 2004) (SFAS 123(R)),
“Share-Based Payment,” using the modified-prospective
transition method. Compensation expense is recognized under
SFAS 123(R) using the straight-line method over the
requisite service period. Measurement and attribution of
compensation cost for awards that were granted prior to the date
SFAS 123(R) was adopted continue to be based on the
estimate of the grant-date fair value and attribution method
used under prior accounting guidance. Prior to the adoption of
SFAS 123(R), the benefit of tax deductions in excess of
recognized compensation costs was reported in net cash provided
by operating activities in the consolidated statements of cash
flows. SFAS 123(R) requires such excess tax benefits be
reported as a cash inflow from financing activities, rather than
a cash flow from operating activities; therefore, these amounts
for the year ended December 31, 2006 are reported in net
cash provided by financing activities in the consolidated
statements of cash flows.
In 2002, the Corporation adopted the fair value recognition
provisions of SFAS 123, “Accounting for Stock-Based
Compensation” (SFAS 123) (as amended by
SFAS No. 148, “Accounting for Stock-Based
CompensationTransition and Disclosure”), which the
Corporation applied prospectively to new share-based
compensation awards granted to employees after December 31,
2001. Options granted prior to January 1, 2002 were
accounted for under the intrinsic value method, as outlined in
APB Opinion No. 25, “Accounting for Stock Issued to
Employees.” Net income and earnings per share for the year
ended December 31, 2006 fully reflect the impact of
applying the fair value recognition method to all outstanding
and unvested awards. There would have been no effect on reported
net income and earnings per share if the fair value method
required by SFAS 123 (as amended by SFAS 148) had
been applied to all outstanding and unvested awards in 2005. The
effect on net income and earnings per share, if the fair value
method had been applied to all outstanding and unvested awards
in the year ended December 31, 2004 is presented in the
following table.
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2004
|
|
|
|
|
(in millions, except
|
|
|
|
|
per share data)
|
|
|
|
|
Net income applicable to common
stock, as reported
|
|
$
|
757
|
|
|
Add: Share-based compensation
expense included in reported net income, net of related tax
effects
|
|
|
22
|
|
|
Deduct: Total share-based
compensation expense determined under fair value method for all
awards, net of related tax effects
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
Pro forma net income applicable to
common stock
|
|
$
|
752
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
Basic — as reported
|
|
$
|
4.41
|
|
|
Basic — pro forma
|
|
|
4.38
|
|
|
Diluted — as
reported
|
|
|
4.36
|
|
|
Diluted — pro forma
|
|
|
4.32
|
|
SFAS 123(R) requires that the expense associated with
share-based compensation awards be recorded over the requisite
service period. The requisite service period is the period an
employee is required to provide service in order to vest in the
award, which cannot extend beyond the retirement eligible date
(the date at which the employee is no longer required to perform
any service to receive the share-based compensation). Prior to
the adoption of SFAS 123(R), the Corporation recorded the
expense associated with share-based compensation awards over the
explicit service period (vesting period). Upon retirement, any
remaining unrecognized costs related to share-based compensation
awards retained after retirement were expensed. Share-based
compensation expense, net of related tax effects, would have
decreased $6 million in 2006 and increased $2 million
and $3 million in 2005 and 2004, respectively, had the
requisite service period provisions of SFAS 123(R) been
applied on a historical basis.
74
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Applying the requisite service period provisions to all
2006 share-based compensation awards resulted in a net
increase of $16 million in compensation expense
($10 million, or $0.06 per diluted share, net of
related tax effects) related to these awards in 2006.
The Corporation has elected to adopt the alternative transition
method provided in the Financial Accounting Standards Board
(FASB) Staff Position No. FAS 123(R)-3,
“Transition Election Related to Accounting for Tax Effects
of Share-Based Payment Awards,” for calculating the tax
effects of share-based compensation under SFAS 123(R). The
alternative transition method includes simplified methods to
establish the beginning balance of the additional paid-in
capital pool (APIC pool) related to the tax effects of employee
share-based compensation, and to determine the subsequent impact
on the APIC pool and consolidated statements of cash flows of
the tax effects of employee share-based compensation awards that
were outstanding and fully or partially unvested upon adoption
of SFAS 123(R).
Further information on the Corporation’s share-based
compensation plans is included in Note 15 on page 92.
Pension
and Other Postretirement Costs
On December 31, 2006, the Corporation adopted the
provisions of SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88, 106, and
132(R),” (SFAS 158), and recognized in its
consolidated balance sheet the funded status of its defined
benefit pension and postretirement plans, measured as the
difference between the fair value of plan assets and the benefit
obligation at December 31, 2006. For a pension plan, the
benefit obligation is the projected benefit obligation; for any
other postretirement plan, the benefit obligation is the
accumulated benefit obligation. The Corporation also recorded
prior service costs, net actuarial losses and remaining
transition obligations as components of accumulated other
comprehensive income (loss), net of tax, at December 31,
2006. Actuarial gains or losses and prior service costs or
credits that arise subsequent to December 31, 2006 and are
not recognized as components of net periodic benefit cost will
be recognized as increases or decreases in other comprehensive
income (loss).
Pension costs are charged to “employee benefits”
expense on the consolidated statements of income and are funded
consistent with the requirements of federal laws and
regulations. Inherent in the determination of pension costs are
assumptions concerning future events that will affect the amount
and timing of required benefit payments under the plans. These
assumptions include demographic assumptions such as retirement
age and death, a compensation rate increase, a discount rate
used to determine the current benefit obligation, and a
long-term expected return on plan assets. Net periodic pension
expense includes service cost, interest cost based on the
assumed discount rate, an expected return on plan assets based
on an actuarially derived market-related value of assets,
amortization of prior service cost and amortization of net
actuarial gains or losses. The market-related value used to
determine the expected return on plan assets is based on fair
value adjusted for the difference between expected returns and
actual asset performance. The asset gains and losses are
incorporated in the market-related value over a five-year
period. Prior service costs include the impact of plan
amendments on the liabilities and are amortized over the future
service periods of active employees expected to receive benefits
under the plan. Actuarial gains and losses result from
experience different from that assumed and from changes in
assumptions (excluding asset gains and losses not yet reflected
in market-related value). Amortization of actuarial gains and
losses is included as a component of net periodic pension cost
for a year if the actuarial net gain or loss exceeds
10 percent of the greater of the projected benefit
obligation or the market-related value of plan assets. If
amortization is required, the excess is amortized over the
average remaining service period of participating employees
expected to receive benefits under the plan.
Postretirement benefits are recognized in “employee
benefits” expense on the consolidated statements of income
during the average remaining service period of participating
employees expected to receive benefits under the plan or the
average remaining future lifetime of retired participants
currently receiving benefits under the plan.
For further information regarding SFAS 158 and the
Corporation’s pension and other postretirement plans refer
to Note 16 on page 94.
75
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Derivative
Instruments
Derivative instruments are carried at fair value in either,
“accrued income and other assets” or “accrued
expenses and other liabilities” on the consolidated balance
sheets. The accounting for changes in the fair value (i.e.,
gains or losses) of a derivative instrument is determined by
whether it has been designated and qualifies as part of a
hedging relationship and, further, on the type of hedging
relationship. For those derivative instruments that are
designated and qualify as hedging instruments, the Corporation
designates the hedging instrument, based upon the exposure being
hedged, as either a fair value hedge, cash flow hedge or a hedge
of a net investment in a foreign operation. For derivative
instruments designated and qualifying as a fair value hedge
(i.e., hedging the exposure to changes in the fair value of an
asset or a liability or an identified portion thereof that is
attributable to a particular risk), the gain or loss on the
derivative instrument, as well as the offsetting loss or gain on
the hedged item attributable to the hedged risk, are recognized
in current earnings during the period of the change in fair
values. For derivative instruments that are designated and
qualify as a cash flow hedge (i.e., hedging the exposure to
variability in expected future cash flows that is attributable
to a particular risk), the effective portion of the gain or loss
on the derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same
period or periods during which the hedged transaction affects
earnings. The remaining gain or loss on the derivative
instrument in excess of the cumulative change in the present
value of future cash flows of the hedged item (i.e., the
ineffective portion), if any, is recognized in current earnings
during the period of change. For derivative instruments that are
designated and qualify as a hedge of a net foreign currency
investment in a foreign subsidiary, the gain or loss is reported
in other comprehensive income as part of the cumulative
translation adjustment to the extent it is effective. For
derivative instruments not designated as hedging instruments,
the gain or loss is recognized in current earnings during the
period of change.
If the Corporation determines that a derivative instrument has
not been or will not continue to be highly effective as a fair
value or cash flow hedge, or that the hedge designation is no
longer appropriate, hedge accounting is discontinued. The
derivative instrument will continue to be recorded in the
consolidated balance sheets at its fair value, with future
changes in fair value recognized in noninterest income.
Foreign exchange futures and forward contracts, foreign currency
options, interest rate caps, interest rate swap agreements and
energy derivative contracts executed as a service to customers
are not designated as hedging instruments and both the realized
and unrealized gains and losses on these instruments are
recognized in noninterest income.
The Corporation holds a portfolio of warrants for non-marketable
equity securities. These warrants are primarily from high
technology, non-public companies obtained as part of the loan
origination process. Due to a net exercise provision embedded in
substantially all of the warrant agreements, the warrants are
recorded at fair value. The initial fair value of warrants
obtained as part of the loan origination process is deferred and
amortized into “interest and fees on loans” on the
consolidated statements of income over the life of the loan, in
accordance with SFAS 91, “Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases.” The fair value of
these warrants is subsequently adjusted on a quarterly basis,
with any changes in fair value recorded in “warrant
income” on the consolidated statements of income. Prior to
2005, the Corporation recognized income related to these
warrants approximately 30 days prior to the warrant
issuer’s publicly traded stock becoming free of
restrictions, when a publicly traded company acquired the
warrant issuer, or when cash was received. The cumulative
adjustment to record the fair value was not material to 2005 or
any other prior reporting period.
Further information on the Corporation’s derivative
instruments is included in Note 20 on page 102.
Standby
and Commercial Letters of Credit and Financial
Guarantees
A liability related to certain guarantee contracts or
indemnification agreements that contingently require the
guarantor to make payments to the guaranteed party is recognized
and initially measured at fair value by the guarantor. The
initial recognition and measurement provisions were applied by
the Corporation on a prospective
76
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
basis to guarantees issued or modified subsequent to
December 31, 2002. Further information on the
Corporation’s obligations under guarantees is included in
Note 20 on page 102.
Income
Taxes
The provision for income taxes is based on amounts reported in
the statements of income (after exclusion of nontaxable items,
principally affordable housing credits, income on bank-owned
life insurance and interest income on state and municipal
securities) and includes deferred income taxes on temporary
differences between the tax basis and financial reporting basis
of assets and liabilities. Deferred tax assets are evaluated for
realization based on available evidence and assumptions made
regarding future events. In the event that the future taxable
income does not occur in the manner anticipated, other
initiatives could be undertaken to preclude the need to
recognize a valuation allowance against the deferred tax asset.
The provision for income taxes assigned to discontinued
operations is based on statutory rates, adjusted for permanent
differences generated by those operations.
Statements
of Cash Flows
Cash and cash equivalents are defined as those amounts included
in “cash and due from banks” on the consolidated
balance sheets. Cash flows from discontinued operations are
reported as separate line items within cash flows from
operating, investing and financing activities in the
consolidated statements of cash flows.
Deferred
Distribution Costs
Certain mutual fund distribution costs, principally commissions
paid to brokers, are capitalized when paid and amortized over
six years. Fees that contractually recoup the deferred costs,
primarily
12b-1
fees,
are received over a 6-8 year period. The net of these fees
and amortization is recorded in “income from discontinued
operations, net of tax” on the consolidated statements of
income. Early redemption fees collected are generally recorded
as a reduction to the capitalized costs, unless there is
evidence that, on an ongoing basis, amounts collected will
exceed the unamortized deferred fee asset.
Loan
Origination Fees and Costs
Loan origination and commitment fees and certain costs 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 (Loss)
The Corporation has elected to present information on
comprehensive income in the consolidated statements of changes
in shareholders’ equity on page 68 and in Note 12
on page 88.
Note 2 —
Pending Accounting Pronouncements
In July 2006, the FASB issued FASB Staff Position
No. FAS 13-2,
“Accounting for a Change or Projected Change in the Timing
of Cash Flows Relating to Income Taxes Generated by a Leveraged
Lease Transaction,”
(FSP 13-2).
FSP
13-2
requires a recalculation of the lease income from the inception
of a leveraged lease if, during the lease term, the expected
timing of the income tax cash flows generated from a leveraged
lease is revised. At adoption of FSP
13-2,
recalculations of affected leveraged leases would result in a
one-time non-cash charge to be recognized as a change in
accounting principle via a cumulative adjustment to the opening
balance of retained earnings in the period of adoption. Assuming
there is no subsequent change in future periods to total
expected cash flows, the amount of the charge, if any, related
to the previously recognized lease income would be recognized as
income over the remaining lives of the leveraged leases affected
by the provision of FSP
13-2.
Subsequent changes in future periods to total expected cash
flows would require recalculations of affected leveraged leases,
and any resulting changes would be recognized in income in the
period the change occurs.
77
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
FSP 13-2
is effective for fiscal years beginning after December 15,
2006. Accordingly, the Corporation will adopt the provisions of
FSP
13-2
in
the first quarter 2007, and currently estimates the non-cash
after-tax charge to beginning retained earnings to be
approximately $47 million, which is expected to be
recognized as income over periods ranging from 4 years to
20 years.
In July 2006, the FASB also issued Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an
interpretation of FASB Statement No. 109,”
(FIN 48). FIN 48 clarifies the accounting for
uncertain tax positions in accordance with SFAS 109,
“Accounting for Income Taxes,” by prescribing a
minimum recognition threshold that a tax position is required to
meet before being recognized in the financial statements. The
minimum recognition threshold requires the Corporation to
recognize, in its financial statements, the impact of a tax
position if it is more likely than not that the tax position is
valid and would be sustained on audit, including resolution of
related appeals or litigation processes, if any. Only tax
positions that meet the “more likely than not”
recognition criteria at the effective date may be recognized or
continue to be recognized in the financial statements upon the
adoption of FIN 48. The Interpretation provides guidance on
measurement, de-recognition of tax benefits, classification,
accounting disclosure and transition requirements in accounting
for uncertain tax positions. FIN 48 also allows a
registrant, upon adoption, to change its financial statement
classification of interest and penalties on tax liabilities.
Changes in the amount of tax benefits recognized resulting from
the application of the provisions of this Interpretation would
result in a one-time non-cash adjustment to be recognized as a
change in accounting principle via a cumulative adjustment to
the opening balance of retained earnings in the period of
adoption. Events causing a change in judgment resulting in
subsequent recognition, de-recognition or changes in measurement
of a tax position previously recognized would be recognized in
income in the period the event occurs. FIN 48 is effective
for fiscal years beginning after December 15, 2006.
Accordingly, the Corporation will adopt the provisions of
FIN 48 in the first quarter 2007, and currently estimates
the non-cash adjustment to beginning retained earnings will not
be material. Additionally, the Corporation will elect to change
the classification of interest and penalties on tax liabilities
from other noninterest expenses to the provision for income
taxes in the consolidated statements of income in the first
quarter 2007, and all prior periods will be reclassified.
In September 2006, the FASB issued SFAS No. 157,
“Fair Value Measurements,” (SFAS 157), which
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 applies
whenever other standards require (or permit) assets or
liabilities to be measured at fair value, and therefore, does
not expand the use of fair value in any new circumstances. Fair
value refers to the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants in the market in which the
Corporation transacts. SFAS 157 clarifies that fair value
should be based on the assumptions market participants would use
when pricing an asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those
assumptions. The fair value hierarchy gives the highest priority
to quoted prices in active markets and the lowest priority to
unobservable data, for example, the Corporation’s own data.
SFAS 157 requires fair value measurements to be separately
disclosed by level within the fair value hierarchy.
SFAS 157 is effective for fiscal years beginning after
November 15, 2007. Accordingly, the Corporation will adopt
the provisions of SFAS 157 in the first quarter of 2008.
The Corporation is currently evaluating the guidance contained
in SFAS 157 to determine the effect adoption of the
guidance will have on the Corporation’s financial condition
and results of operations.
78
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Note 3 —
Investment Securities
A summary of the Corporation’s investment securities
available-for-sale
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
(in millions)
|
|
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other
Government agency securities
|
|
$
|
47
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
47
|
|
|
Government-sponsored enterprise
securities
|
|
|
3,590
|
|
|
|
1
|
|
|
|
94
|
|
|
|
3,497
|
|
|
State and municipal securities
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
Other securities
|
|
|
115
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available-for-sale
|
|
$
|
3,755
|
|
|
$
|
1
|
|
|
$
|
94
|
|
|
$
|
3,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other
Government agency securities
|
|
$
|
125
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
124
|
|
|
Government-sponsored enterprise
securities
|
|
|
4,059
|
|
|
|
2
|
|
|
|
107
|
|
|
|
3,954
|
|
|
State and municipal securities
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
Other securities
|
|
|
157
|
|
|
|
1
|
|
|
|
—
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available-for-sale
|
|
$
|
4,345
|
|
|
$
|
3
|
|
|
$
|
108
|
|
|
$
|
4,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Corporation’s temporarily impaired
investment securities
available-for-sale
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
|
|
|
|
|
Less than 12 months
|
|
|
Over 12 months
|
|
|
Total
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
(in millions)
|
|
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other
Government agency securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
—
|
*
|
|
$
|
18
|
|
|
$
|
—
|
*
|
|
Government-sponsored enterprise
securities
|
|
|
404
|
|
|
|
1
|
|
|
|
2,814
|
|
|
|
93
|
|
|
|
3,218
|
|
|
|
94
|
|
|
State and municipal securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
securities
|
|
$
|
404
|
|
|
$
|
1
|
|
|
$
|
2,832
|
|
|
$
|
93
|
|
|
$
|
3,236
|
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other
Government agency securities
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
47
|
|
|
$
|
1
|
|
|
$
|
83
|
|
|
$
|
1
|
|
|
Government-sponsored enterprise
securities
|
|
|
1,085
|
|
|
|
15
|
|
|
|
2,535
|
|
|
|
92
|
|
|
|
3,620
|
|
|
|
107
|
|
|
State and municipal securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
securities
|
|
$
|
1,121
|
|
|
$
|
15
|
|
|
$
|
2,582
|
|
|
$
|
93
|
|
|
$
|
3,703
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Unrealized losses less than $0.5 million.
|
79
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
At December 31, 2006, the Corporation had 146 securities in
an unrealized loss position, including 141 Government-sponsored
enterprise securities (i.e., FMNA, FHLMC). The unrealized losses
resulted from changes in market interest rates, not credit
quality. The Corporation has the ability and intent to hold
these
available-for-sale
investment securities until maturity or market price recovery,
and full collection of the amounts due according to the
contractual terms of the debt is expected; therefore, the
Corporation does not consider these investments to be
other-than-temporarily
impaired at December 31, 2006.
The table below summarizes the amortized cost and fair values of
debt securities, by contractual maturity (securities with
multiple maturity dates are classified in the period of final
maturity). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
(in millions)
|
|
|
|
|
Contractual maturity
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
72
|
|
|
$
|
72
|
|
|
After one year through five years
|
|
|
4
|
|
|
|
4
|
|
|
After five years through ten years
|
|
|
1
|
|
|
|
1
|
|
|
After ten years
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
77
|
|
|
|
77
|
|
|
Mortgage-backed securities
|
|
|
3,609
|
|
|
|
3,516
|
|
|
Equity and other nondebt securities
|
|
|
69
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available-for-sale
|
|
$
|
3,755
|
|
|
$
|
3,662
|
|
|
|
|
|
|
|
|
|
|
|
Sales, calls and write-downs of investment securities
available-for-sale
resulted in realized gains and losses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Securities gains
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
6
|
|
|
Securities losses
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net securities gains (losses)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, investment securities having a
carrying value of $1.7 billion were pledged where permitted
or required by law to secure $805 million of liabilities,
including public and other deposits, and derivative contracts.
This included securities of $880 million pledged with the
Federal Reserve Bank to secure actual treasury tax and loan
borrowings of $73 million at December 31, 2006, and
potential borrowings of up to an additional $777 million.
The remaining pledged securities of $824 million are
primarily with state and local government agencies to secure
$733 million of deposits and other liabilities, including
deposits of the State of Michigan of $214 million at
December 31, 2006.
Note 4 —
Nonperforming Assets
The following table summarizes nonperforming assets and loans,
which generally 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.
80
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Nonaccrual and reduced-rate loans are included in loans on the
consolidated balance sheets and other real estate is included in
“accrued income and other assets” on the consolidated
balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
97
|
|
|
$
|
65
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate business
line
|
|
|
18
|
|
|
|
3
|
|
|
Other
|
|
|
2
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
20
|
|
|
|
3
|
|
|
Commercial mortgage:
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate business
line
|
|
|
18
|
|
|
|
6
|
|
|
Other
|
|
|
54
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage
|
|
|
72
|
|
|
|
35
|
|
|
Residential mortgage
|
|
|
1
|
|
|
|
2
|
|
|
Consumer
|
|
|
4
|
|
|
|
2
|
|
|
Lease financing
|
|
|
8
|
|
|
|
13
|
|
|
International
|
|
|
12
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
214
|
|
|
|
138
|
|
|
Reduced-rate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
214
|
|
|
|
138
|
|
|
Other real estate
|
|
|
18
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
232
|
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days and
still accruing
|
|
$
|
14
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest income that would
have been recorded had the nonaccrual and reduced-rate loans
performed in accordance with original terms
|
|
$
|
27
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized
|
|
$
|
9
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
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, 2006 were $209 million.
Restructured loans which are performing in accordance with their
modified terms must be disclosed as impaired for the remainder
of the calendar year of the
81
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
restructuring, in accordance with impaired loan disclosure
requirements. Less than $1 million of loans were
restructured during the year which met the requirements to be on
accrual status at December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Average impaired loans for the year
|
|
$
|
149
|
|
|
$
|
221
|
|
|
$
|
424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total year-end nonaccrual business
loans
|
|
$
|
209
|
|
|
$
|
134
|
|
|
$
|
310
|
|
|
Loans restructured during the year
on accrual status at year-end
|
|
|
—
|
|
|
|
15
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total year-end impaired loans
|
|
$
|
209
|
|
|
$
|
149
|
|
|
$
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end impaired loans requiring
an allowance
|
|
$
|
195
|
|
|
$
|
129
|
|
|
$
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance allocated to impaired
loans
|
|
$
|
34
|
|
|
$
|
42
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Those impaired loans not requiring an allowance represent loans
for which the fair value of expected repayments or collateral
exceeded the recorded investments in such loans. At
December 31, 2006, substantially all of the total impaired
loans were evaluated based on fair value of related collateral.
Remaining loan impairment is based on the present value of
expected future cash flows discounted at the loan’s
effective interest rate or observable market value.
Note 5 —
Allowance for Loan Losses
An analysis of changes in the allowance for loan losses follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Balance at January 1
|
|
$
|
516
|
|
|
$
|
673
|
|
|
$
|
803
|
|
|
Loan charge-offs
|
|
|
(98
|
)
|
|
|
(174
|
)
|
|
|
(268
|
)
|
|
Recoveries on loans previously
charged-off
|
|
|
38
|
|
|
|
64
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
|
(60
|
)
|
|
|
(110
|
)
|
|
|
(194
|
)
|
|
Provision for loan losses
|
|
|
37
|
|
|
|
(47
|
)
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
493
|
|
|
$
|
516
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total loans
|
|
|
1.04
|
%
|
|
|
1.19
|
%
|
|
|
1.65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 —
Significant Group Concentrations of Credit Risk
Concentrations of both on-balance sheet and off-balance sheet
credit risk are controlled and monitored as part of credit
policies. The Corporation is a regional financial services
holding company with a geographic concentration of its
on-balance sheet and off-balance sheet activities in Michigan,
California and Texas.
Additionally, the Corporation has an industry concentration with
the automotive industry. At December 31, 2006 and 2005,
outstanding loans to companies related to the automotive
industry totaled $7.8 billion and $7.5 billion,
respectively. Total exposure from loans, unused commitments and
standby letters of credit and financial guarantees to companies
related to the automotive industry totaled $11.6 billion
and $11.3 billion at December 31, 2006 and 2005,
respectively. Further, the Corporation’s portfolio of
commercial real estate loans, which includes real estate
construction and commercial mortgage loans, totaled
$13.9 billion and $12.3 billion at December 31,
2006 and 2005, respectively. Unused commitments on commercial
real estate loans were $4.1 billion and $3.8 billion
at December 31, 2006 and 2005, respectively.
82
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Note 7 —
Premises and Equipment
A summary of premises and equipment by major category follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Land
|
|
$
|
91
|
|
|
$
|
85
|
|
|
Buildings and improvements
|
|
|
631
|
|
|
|
579
|
|
|
Furniture and equipment
|
|
|
427
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
1,149
|
|
|
|
1,078
|
|
|
Less: Accumulated depreciation and
amortization
|
|
|
(581
|
)
|
|
|
(568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
$
|
568
|
|
|
$
|
510
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation conducts a portion of its business from leased
facilities and leases certain equipment. Rental expense of
continuing operations for leased properties and equipment
amounted to $58 million, $56 million and
$64 million in 2006, 2005 and 2004, respectively. As of
December 31, 2006, future minimum payments under operating
leases and other long-term obligations were as follows:
|
|
|
|
|
|
|
|
|
Years Ending
|
|
|
|
|
December 31
|
|
|
|
|
(in millions)
|
|
|
|
|
2007
|
|
$
|
71
|
|
|
2008
|
|
|
59
|
|
|
2009
|
|
|
53
|
|
|
2010
|
|
|
45
|
|
|
2011
|
|
|
44
|
|
|
Thereafter
|
|
|
339
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
611
|
|
|
|
|
|
|
|
Note 8 —
Goodwill and Other Intangible Assets
Goodwill and identified intangible assets that have an
indefinite useful life are subject to impairment testing, which
the Corporation conducts annually, or on an interim basis if
events or changes in circumstances between annual tests indicate
the assets might be impaired. The annual test of goodwill and
intangible assets that have an indefinite-life, performed as of
July 1, 2006 and 2005 did not indicate that an impairment
charge was required.
In the fourth quarter 2006, the Corporation sold its ownership
interest in Munder, a consolidated subsidiary that was part of
the Corporation’s asset management reporting unit. Goodwill
of $63 million was allocated to the sale in accordance with
SFAS No. 142, “Goodwill and Other Intangible
Assets” (SFAS 142). Following the sale of Munder, the
remaining components of the asset management reporting unit,
which were not significant, were combined with another reporting
unit and tested for impairment. The test did not indicate an
impairment charge was required. In 2005, the Corporation sold
its interest in Framlington Group Limited, an unconsolidated
subsidiary of Munder. Goodwill of $34 million was allocated
to the sale in accordance with SFAS 142. The Corporation
has accounted for Munder as a discontinued operation in all
periods presented, which is included in the “Other”
category for business segment reporting purposes. For additional
information regarding discontinued operations, refer to
Note 26 on page 121.
83
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The changes in the carrying amount of goodwill for the years
ended December 31, 2006 and 2005 are shown in the following
table. Amounts in all periods are based on business segments in
effect at December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
Retail
|
|
|
Institutional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
Bank
|
|
|
Management
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$
|
90
|
|
|
$
|
47
|
|
|
$
|
13
|
|
|
$
|
97
|
|
|
$
|
247
|
|
|
|
|
|
|
Goodwill allocated to the sale of
Framlington Group Limited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
Goodwill impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
90
|
|
|
$
|
47
|
|
|
$
|
13
|
|
|
$
|
63
|
|
|
$
|
213
|
|
|
|
|
|
|
Goodwill allocated to the sale of
Munder Capital Management
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(63
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
Goodwill impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
90
|
|
|
$
|
47
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 —
Deposits
At December 31, 2006, the scheduled maturities of
certificates of deposit and other deposits with a stated
maturity were as follows:
|
|
|
|
|
|
|
|
|
Years Ending
|
|
|
|
|
December 31
|
|
|
|
|
(in millions)
|
|
|
|
|
2007
|
|
$
|
11,517
|
|
|
2008
|
|
|
1,483
|
|
|
2009
|
|
|
1,258
|
|
|
2010
|
|
|
65
|
|
|
2011
|
|
|
44
|
|
|
Thereafter
|
|
|
44
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,411
|
|
|
|
|
|
|
|
A maturity distribution of domestic customer and institutional
certificates of deposit of $100,000 and over follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Three months or less
|
|
$
|
2,576
|
|
|
$
|
1,247
|
|
|
Over three months to six months
|
|
|
1,022
|
|
|
|
573
|
|
|
Over six months to twelve months
|
|
|
3,654
|
|
|
|
530
|
|
|
Over twelve months
|
|
|
2,428
|
|
|
|
2,125
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,680
|
|
|
$
|
4,475
|
|
|
|
|
|
|
|
|
|
|
|
A majority of foreign office time deposits of $1.4 billion
and $818 million at December 31, 2006 and 2005,
respectively, were in denominations of $100,000 or more.
84
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Note 10 —
Short-Term Borrowings
Federal funds purchased and securities sold under agreements to
repurchase generally mature within one to four days from the
transaction date. Other borrowed funds, consisting of commercial
paper, borrowed securities, term federal funds purchased,
short-term notes and treasury tax and loan deposits, generally
mature within one to 120 days from the transaction date.
The following table provides a summary of short-term borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Purchased
|
|
|
Other
|
|
|
|
|
and Securities Sold Under
|
|
|
Borrowed
|
|
|
|
|
Agreements to Repurchase
|
|
|
Funds
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
Amount outstanding at year-end
|
|
$
|
561
|
|
|
$
|
74
|
|
|
Weighted average interest rate at
year-end
|
|
|
5.04
|
%
|
|
|
4.92
|
%
|
|
Maximum month-end balance during
the year
|
|
$
|
595
|
|
|
$
|
1,306
|
|
|
Average balance outstanding during
the year
|
|
|
2,130
|
|
|
|
524
|
|
|
Weighted average interest rate
during the year
|
|
|
4.92
|
%
|
|
|
4.77
|
%
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
|
Amount outstanding at year-end
|
|
$
|
90
|
|
|
$
|
212
|
|
|
Weighted average interest rate at
year-end
|
|
|
4.08
|
%
|
|
|
3.84
|
%
|
|
Maximum month-end balance during
the year
|
|
$
|
304
|
|
|
$
|
212
|
|
|
Average balance outstanding during
the year
|
|
|
1,358
|
|
|
|
93
|
|
|
Weighted average interest rate
during the year
|
|
|
3.59
|
%
|
|
|
3.59
|
%
|
At December 31, 2006, the Corporation had available a
$250 million commercial paper facility, with no outstanding
borrowings. This facility is supported by a $125 million
line of credit agreement. Under the current agreement, the line
will expire in May 2007.
At December 31, 2006, the Corporation’s subsidiary
banks had pledged loans totaling $21 billion to secure a
$16 billion collateralized borrowing account with the
Federal Reserve Bank.
85
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Note 11 —
Medium- and Long-Term Debt
Medium- and long-term debt are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Parent company
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due
2007
|
|
$
|
151
|
|
|
$
|
155
|
|
|
4.80% subordinated note due
2015
|
|
|
294
|
|
|
|
298
|
|
|
7.60% subordinated note due
2050
|
|
|
361
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
Total parent company
|
|
|
806
|
|
|
|
813
|
|
|
Subsidiaries
|
|
|
|
|
|
|
|
|
|
Subordinated notes:
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due
2007
|
|
|
201
|
|
|
|
205
|
|
|
9.98% subordinated note due
2007
|
|
|
58
|
|
|
|
58
|
|
|
6.00% subordinated note due
2008
|
|
|
253
|
|
|
|
257
|
|
|
6.875% subordinated note due
2008
|
|
|
102
|
|
|
|
104
|
|
|
8.50% subordinated note due
2009
|
|
|
101
|
|
|
|
103
|
|
|
7.125% subordinated note due
2013
|
|
|
157
|
|
|
|
160
|
|
|
5.70% subordinated note due
2014
|
|
|
251
|
|
|
|
255
|
|
|
5.75% subordinated note due
2016
|
|
|
397
|
|
|
|
—
|
|
|
5.20% subordinated note due
2017
|
|
|
489
|
|
|
|
250
|
|
|
8.375% subordinated note due
2024
|
|
|
182
|
|
|
|
189
|
|
|
7.875% subordinated note due
2026
|
|
|
192
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subordinated notes
|
|
|
2,383
|
|
|
|
1,781
|
|
|
Medium-term notes:
|
|
|
|
|
|
|
|
|
|
Floating rate based on LIBOR
indices due 2006 to 2011
|
|
|
2,299
|
|
|
|
100
|
|
|
Floating rate based on PRIME
indices due 2007
|
|
|
350
|
|
|
|
—
|
|
|
2.95% fixed rate note due 2006
|
|
|
—
|
|
|
|
98
|
|
|
2.85% fixed rate note due 2007
|
|
|
100
|
|
|
|
98
|
|
|
Variable rate secured debt
financing due 2007
|
|
|
—
|
|
|
|
1,056
|
|
|
Variable rate note payable due 2009
|
|
|
11
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subsidiaries
|
|
|
5,143
|
|
|
|
3,148
|
|
|
|
|
|
|
|
|
|
|
|
|
Total medium- and long-term debt
|
|
$
|
5,949
|
|
|
$
|
3,961
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of medium- and long-term debt has been
adjusted to reflect the gain or loss attributable to the risk
hedged. Concurrent with or subsequent to the issuance of certain
of the medium- and long-term debt 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.
86
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
|
|
|
|
Base
|
|
|
|
|
of Debt
|
|
|
|
|
|
Rate at
|
|
|
|
|
Converted
|
|
|
Base Rate
|
|
|
12/31/06
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due
2007
|
|
$
|
150
|
|
|
|
6-month
LIBOR
|
|
|
|
5.36
|
%
|
|
4.80% subordinated note due
2015
|
|
|
300
|
|
|
|
6-month
LIBOR
|
|
|
|
5.36
|
|
|
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% subordinated note due
2007
|
|
|
200
|
|
|
|
6-month
LIBOR
|
|
|
|
5.36
|
|
|
6.00% subordinated note due
2008
|
|
|
250
|
|
|
|
6-month
LIBOR
|
|
|
|
5.36
|
|
|
6.875% subordinated note due
2008
|
|
|
100
|
|
|
|
6-month
LIBOR
|
|
|
|
5.36
|
|
|
8.50% subordinated note due
2009
|
|
|
100
|
|
|
|
3-month
LIBOR
|
|
|
|
5.36
|
|
|
7.125% subordinated note due
2013
|
|
|
150
|
|
|
|
6-month
LIBOR
|
|
|
|
5.36
|
|
|
5.70% subordinated note due
2014
|
|
|
250
|
|
|
|
6-month
LIBOR
|
|
|
|
5.36
|
|
|
5.20% subordinated note due
2017
|
|
|
500
|
|
|
|
6-month
LIBOR
|
|
|
|
5.36
|
|
|
8.375% subordinated note due
2024
|
|
|
150
|
|
|
|
6-month
LIBOR
|
|
|
|
5.36
|
|
|
7.875% subordinated note due
2026
|
|
|
150
|
|
|
|
6-month
LIBOR
|
|
|
|
5.36
|
|
|
Medium-term notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.85% fixed rate note due 2007
|
|
|
100
|
|
|
|
3-month
LIBOR
|
|
|
|
5.36
|
|
In November 2006, Comerica Bank (the Bank), a subsidiary of the
Corporation, issued $400 million of 5.75% Subordinated
Notes, which are classified in medium- and long-term debt. The
notes pay interest on May 21 and November 21 of each year,
beginning with May 21, 2007, and mature November 21,
2016. The Bank used the net proceeds for general corporate
purposes.
In February 2006, the Bank issued an additional
$250 million of 5.20% Subordinated Notes under a series
initiated in August 2005. The notes are classified in medium-and
long-term debt, pay interest on February 22 and August 22 of
each year, beginning August 22, 2006, and mature
August 22, 2017. The Bank used the net proceeds for general
corporate purposes.
In August 2005, the Bank exercised its option to redeem, at par,
a $250 million, 7.65% Subordinated Note, which was
classified in medium- and long-term debt and had a maturity date
of 2010.
In August 2005, the Bank issued $250 million of
5.20% Subordinated Notes, which are classified in medium-
and long-term debt. The notes pay interest on February 22 and
August 22 of each year, beginning with February 22, 2006,
and mature August 22, 2017. The Bank used the net proceeds
for general corporate purposes.
The Corporation has a $350 million, 7.60% Subordinated
Note and a $55 million, 9.98% Subordinated Note that
relate to trust preferred securities issuances held by entities
that were deconsolidated, effective July 1, 2003, as a
result of the adoption of FIN 46(R). The $350 million,
7.60% Subordinated Note, which became callable effective
July 31, 2006, qualifies as Tier 1 capital. In
December 2006, the Corporation gave irrevocable notice of its
intent to call the $55 million, 9.98% Subordinated
Note on June 30, 2007; therefore, the note does not qualify
as Tier 1 or Tier 2 capital at December 31, 2006.
All other subordinated notes with maturities greater than one
year qualify as Tier 2 capital.
The Corporation currently has two medium-term note programs: a
$15 billion senior note program and a $2 billion
European note program. These programs allow the principal
banking subsidiary to issue fixed or floating rate notes with
maturities between one month and 30 years. The Bank issued
a total of $2.7 billion of floating rate bank notes during
the second and third quarters of 2006 under the senior note
program, using the proceeds to fund loan growth. The interest
rate on the floating rate medium-term notes based on LIBOR at
December 31, 2006 ranged from one-month LIBOR less 0.03% to
three-month LIBOR plus 0.19%. The interest
87
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
rate on the floating rate medium-term note based on PRIME at
December 31, 2006 was PRIME less 2.91%. The medium-term
notes outstanding at December 31, 2006 are due from 2007 to
2011. The medium-term notes do not qualify as Tier 2
capital and are not insured by the FDIC.
In December 2001, the Corporation privately placed approximately
$1.0 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 included $924 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. Both deferred
payment notes were repaid in full in the fourth quarter 2006.
At December 31, 2006, the principal maturities of medium-
and long-term debt were as follows:
|
|
|
|
|
|
|
|
|
Years Ending
|
|
|
|
|
December 31
|
|
|
|
|
(in millions)
|
|
|
|
|
2007
|
|
$
|
1,157
|
|
|
2008
|
|
|
700
|
|
|
2009
|
|
|
586
|
|
|
2010
|
|
|
300
|
|
|
2011
|
|
|
875
|
|
|
Thereafter
|
|
|
2,250
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,868
|
|
|
|
|
|
|
|
Note 12 —
Shareholders’ Equity
The Board of Directors of the Corporation authorized the
purchase of up to 10 million shares of Comerica
Incorporated outstanding common stock on July 26, 2005, and
an additional 10 million shares on November 14, 2006.
Substantially all shares purchased as part of the
Corporation’s publicly announced repurchase program were
transacted in the open market and were within the scope of
Rule 10b-18,
which provides a safe harbor for purchases in a given day if an
issuer of equity securities satisfies the manner, timing, price
and volume conditions of the rule when purchasing its own common
shares in the open market. There is no expiration date for the
Corporation’s share repurchase program. Open market
repurchases totaled 6.6 million shares, 9.0 million
shares and 6.5 million shares in the years ended
December 31, 2006, 2005 and 2004, respectively.
88
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table summarizes the Corporation’s share
repurchase activity for the year ended December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
|
|
|
|
|
|
Total Number
|
|
|
|
|
|
Purchased as Part of Publicly
|
|
|
Remaining Share
|
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Announced Repurchase
|
|
|
Repurchase
|
|
|
|
|
Purchased (1)
|
|
|
Paid Per Share
|
|
|
Plans or Programs
|
|
|
Authorization (2)
|
|
|
|
|
(shares in thousands)
|
|
|
|
|
Total first quarter 2006
|
|
|
1,539
|
|
|
$
|
56.97
|
|
|
|
1,513
|
|
|
|
7,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total second quarter 2006
|
|
|
325
|
|
|
|
52.99
|
|
|
|
—
|
|
|
|
7,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total third quarter 2006
|
|
|
3,660
|
|
|
|
57.48
|
|
|
|
3,657
|
|
|
|
4,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2006
|
|
|
4
|
|
|
|
56.48
|
|
|
|
—
|
|
|
|
4,018
|
|
|
November 2006 (3)
|
|
|
549
|
|
|
|
58.46
|
|
|
|
549
|
|
|
|
13,469
|
|
|
December 2006
|
|
|
915
|
|
|
|
58.89
|
|
|
|
915
|
|
|
|
12,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fourth quarter 2006
|
|
|
1,468
|
|
|
|
58.72
|
|
|
|
1,464
|
|
|
|
12,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2006
|
|
|
6,992
|
|
|
$
|
57.42
|
|
|
|
6,634
|
|
|
|
12,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes shares purchased as part of publicly announced
repurchase plans or programs, shares purchased pursuant to
deferred compensation plans held in a rabbi trust (grantor trust
set up to fund compensation for a select group of management)
and shares purchased from employees under the terms of an
employee share-based compensation plan.
|
|
|
|
(2)
|
|
Maximum number of shares that may yet be purchased under the
publicly announced plans or programs.
|
|
|
|
(3)
|
|
Remaining share repurchases authorization includes the
November 14, 2006 Board of Directors resolution for the
repurchase of an additional 10 million shares.
|
At December 31, 2006, the Corporation had 32.6 million
shares of common stock reserved for issuance and
1.1 million shares of restricted stock outstanding to
employees and directors under share-based compensation plans.
Note 13 —
Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) includes the change in net
unrealized gains and losses on investment securities
available-for-sale,
the change in accumulated net gains and losses on cash flow
hedges, the change in the accumulated foreign currency
translation adjustment and the change in the accumulated defined
benefit and other postretirement plans adjustment. The
consolidated statements of changes in shareholders’ equity
on page 68 include only combined other comprehensive income
(loss), net of tax. The following table presents reconciliations
of the components of accumulated other comprehensive income
(loss) for the years ended December 31, 2006, 2005 and
2004. Total comprehensive income totaled $948 million,
$760 million and $614 million for the years ended
December 31, 2006, 2005 and 2004, respectively. The
$188 million increase in total comprehensive income in the
year ended December 31, 2006, when compared to 2005,
resulted principally from decreases in net losses on cash flow
hedges ($118 million) and net unrealized losses on
investment securities
available-for-sale
($43 million), due to changes in the interest rate
environment, and an increase in net income ($32 million).
Accumulated other comprehensive income at December 31, 2006
was also impacted by a $209 million after-tax transition
adjustment to apply the provisions of SFAS 158.
For a further discussion of the effect of derivative instruments
and the effects of SFAS 158 on other comprehensive income
(loss) refer to Notes 1, 16 and 20 on pages 70, 94 and 102,
respectively.
89
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Accumulated net unrealized
gains (losses) on investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period,
net of tax
|
|
$
|
(69
|
)
|
|
$
|
(34
|
)
|
|
$
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains
(losses) arising during the period
|
|
|
12
|
|
|
|
(53
|
)
|
|
|
(17
|
)
|
|
Less: Reclassification adjustment
for gains (losses) included in net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains
(losses) before income taxes
|
|
|
12
|
|
|
|
(53
|
)
|
|
|
(17
|
)
|
|
Less: Provision for income taxes
|
|
|
4
|
|
|
|
(18
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains
(losses) on investment securities
available-for-sale,
net of tax
|
|
|
8
|
|
|
|
(35
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period, net of
tax
|
|
$
|
(61
|
)
|
|
$
|
(69
|
)
|
|
$
|
(34
|
)
|
|
Accumulated net gains (losses)
on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period,
net of tax
|
|
$
|
(91
|
)
|
|
$
|
(16
|
)
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flow hedges gains
(losses) arising during the period
|
|
|
(58
|
)
|
|
|
(117
|
)
|
|
|
(18
|
)
|
|
Less: Reclassification adjustment
for gains (losses) included in net income
|
|
|
(124
|
)
|
|
|
(2
|
)
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash flow hedges before
income taxes
|
|
|
66
|
|
|
|
(115
|
)
|
|
|
(200
|
)
|
|
Less: Provision for income taxes
|
|
|
23
|
|
|
|
(40
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash flow hedges, net of
tax
|
|
|
43
|
|
|
|
(75
|
)
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period, net of
tax
|
|
$
|
(48
|
)
|
|
$
|
(91
|
)
|
|
$
|
(16
|
)
|
|
Accumulated foreign currency
translation adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(7
|
)
|
|
$
|
(6
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net translation gains (losses)
arising during the period
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
Less: Reclassification adjustment
for gains (losses) included in net income, due to sale of
foreign subsidiaries
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency
translation adjustment
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
—
|
|
|
$
|
(7
|
)
|
|
$
|
(6
|
)
|
|
Accumulated defined benefit
pension and other postretirement plans adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period,
net of tax
|
|
$
|
(3
|
)
|
|
$
|
(13
|
)
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability
adjustment arising during the period before income taxes
|
|
|
(5
|
)
|
|
|
15
|
|
|
|
—
|
|
|
Less: Provision for income taxes
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension
liability, net of tax
|
|
|
(3
|
)
|
|
|
10
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS 158 transition
adjustment before income taxes
|
|
|
(327
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Less: Provision for income taxes
|
|
|
(118
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS 158 transition
adjustment, net of tax
|
|
|
(209
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period, net of
tax
|
|
$
|
(215
|
)
|
|
$
|
(3
|
)
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other
comprehensive loss at end of period, net of tax
|
|
$
|
(324
|
)
|
|
$
|
(170
|
)
|
|
$
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Note 14 —
Net Income Per Common Share
Basic income from continuing operations and net income per
common share are computed by dividing income from continuing
operations and net income applicable to common stock,
respectively, by the weighted-average number of shares of common
stock outstanding during the period. Diluted income from
continuing operations and net income per common share are
computed by dividing income from continuing operations and net
income applicable to common stock, respectively, by the
weighted-average number of shares, nonvested restricted stock
and dilutive common stock equivalents outstanding during the
period. Common stock equivalents consist of common stock
issuable under the assumed exercise of stock options granted
under the Corporation’s stock plans, using the treasury
stock method. A computation of basic and diluted income from
continuing operations and net income per common share are
presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions, except per
|
|
|
|
|
share data)
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
applicable to common stock
|
|
$
|
782
|
|
|
$
|
816
|
|
|
$
|
748
|
|
|
Net income applicable to common
stock
|
|
|
893
|
|
|
|
861
|
|
|
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
160
|
|
|
|
167
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income from continuing
operations per common share
|
|
$
|
4.88
|
|
|
$
|
4.90
|
|
|
$
|
4.36
|
|
|
Basic net income per common share
|
|
|
5.57
|
|
|
|
5.17
|
|
|
|
4.41
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
applicable to common stock
|
|
$
|
782
|
|
|
$
|
816
|
|
|
$
|
748
|
|
|
Net income applicable to common
stock
|
|
|
893
|
|
|
|
861
|
|
|
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
160
|
|
|
|
167
|
|
|
|
172
|
|
|
Nonvested stock
|
|
|
1
|
|
|
|
1
|
|
|
|
—
|
|
|
Common stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of the assumed exercise
of stock options
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average common shares
|
|
|
162
|
|
|
|
169
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income from continuing
operations per common share
|
|
$
|
4.81
|
|
|
$
|
4.84
|
|
|
$
|
4.31
|
|
|
Diluted net income per common share
|
|
|
5.49
|
|
|
|
5.11
|
|
|
|
4.36
|
|
The following average outstanding options to purchase shares of
common stock were not included in the computation of diluted net
income per common share because the options’ exercise
prices were greater than the average market price of common
shares for the period.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(options in millions)
|
|
|
|
Average outstanding options
|
|
6.0
|
|
6.1
|
|
6.2
|
|
Range of exercise prices
|
|
$56.80 —
$71.58
|
|
$57.99 — $71.58
|
|
$57.60 — $71.58
|
91
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Note 15 —
Share-Based Compensation
Share-based compensation expense is charged to
“salaries” expense, except for the Corporation’s
Munder subsidiary, which was sold in 2006, whose share-based
compensation expense was charged to “income from
discontinued operations, net of tax,” on the consolidated
statements of income. The components of share-based compensation
expense for all share-based compensation plans and related tax
benefits are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comerica Incorporated share-based
plans
|
|
$
|
57
|
|
|
$
|
43
|
|
|
$
|
34
|
|
|
Munder share-based plans*
|
|
|
7
|
|
|
|
2
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation
expense
|
|
$
|
64
|
|
|
$
|
45
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related tax benefits recognized in
net income
|
|
$
|
23
|
|
|
$
|
16
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Excludes $9 million and $7 million of long-term
incentive plan expense triggered by the 2006 sale of Munder and
the 2005 sale of Framlington, respectively.
|
The following table summarizes unrecognized compensation expense
for all share-based plans:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2006
|
|
|
|
|
(dollar amounts
|
|
|
|
|
in millions)
|
|
|
|
|
Total unrecognized share-based
compensation expense
|
|
$
|
66
|
|
|
|
|
|
|
|
|
Weighted-average expected
recognition period (in years)
|
|
|
2.5
|
|
|
|
|
|
|
|
The Corporation has share-based compensation plans under which
it awards both shares of restricted stock to key executive
officers and key personnel, and stock options to executive
officers, directors and key personnel of the Corporation and its
subsidiaries. Restricted stock vests over periods ranging from
three to five years. Stock options vest over periods ranging
from one to four years. The maturity of each option is
determined at the date of grant; however, no options may be
exercised later than ten years and one month from the date of
grant. The options may have restrictions regarding
exercisability. The plans originally provided for a grant of up
to 13.2 million common shares, plus shares under certain
plans that are forfeited, expire or are cancelled. At
December 31, 2006, 13.4 million shares were available
for grant.
The Corporation used a binomial model to value stock options
granted subsequent to March 31, 2005. Previously, a
Black-Scholes option-pricing model was used. Substantially all
stock option grants for 2005 occurred in the second quarter 2005
and were valued using the binomial model. Option valuation
models require several inputs, including the expected stock
price volatility, and changes in input assumptions can
materially affect the fair value estimates. The model used may
not necessarily provide a reliable single measure of the fair
value of employee and director stock options. The risk-free
interest rate assumption used in the binomial option-pricing
model as outlined in the table below was based on the federal
ten-year treasury interest rate. The expected dividend yield was
based on the historical and projected dividend yield patterns of
the Corporation. Expected volatility assumptions during 2006
considered both the historical volatility of the
Corporation’s common stock over a ten-year period and
implied volatility based on actively traded options on the
Corporation’s common stock with pricing terms and trade
dates similar to the stock options granted. Previously, only
historical volatility was considered under the binomial model.
The expected life of employee and director stock options, which
is an output of the binomial model, considered the percentage of
vested shares estimated to be cancelled over the life of the
grant and was based on the historical exercise behavior of the
option holders.
92
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The fair value of options granted subsequent to March 31,
2005 was estimated using the binomial option-pricing model with
the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
Year Ended
|
|
|
April 1, 2005
|
|
|
|
|
December 31,
|
|
|
to December 31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Risk-free interest rates
|
|
|
4.69
|
%
|
|
|
4.44
|
%
|
|
Expected dividend yield
|
|
|
3.85
|
|
|
|
3.85
|
|
|
Expected volatility factors of the
market price of Comerica common stock
|
|
|
24
|
|
|
|
29
|
|
|
Expected option life (in years)
|
|
|
6.5
|
|
|
|
6.5
|
|
The fair value of the options granted prior to April 1,
2005 was estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
January 1, 2005
|
|
|
Year Ended
|
|
|
|
|
to March 31,
|
|
|
December 31,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Risk-free interest rate
|
|
|
4.06
|
%
|
|
|
3.52
|
%
|
|
Expected dividend yield
|
|
|
3.51
|
|
|
|
3.28
|
|
|
Expected volatility factors of the
market price of Comerica common stock
|
|
|
28
|
|
|
|
31
|
|
|
Expected option life (in years)
|
|
|
5.0
|
|
|
|
5.0
|
|
The weighted-average grant-date fair values per option share
granted, based on the assumptions above, were $12.25, $13.56,
and $12.33 in 2006, 2005 and 2004, respectively.
A summary of the Corporation’s stock option activity and
related information for the year ended December 31, 2006
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
Options
|
|
|
per Share
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in years)
|
|
|
(in millions)
|
|
|
|
|
Outstanding —
January 1, 2006
|
|
|
18,291
|
|
|
$
|
53.64
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,595
|
|
|
|
56.47
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(449
|
)
|
|
|
57.27
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,246
|
)
|
|
|
36.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding —
December 31, 2006
|
|
|
19,191
|
|
|
$
|
55.06
|
|
|
|
5.6
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, net of expected
forfeitures — December 31, 2006
|
|
|
18,845
|
|
|
$
|
55.05
|
|
|
|
5.5
|
|
|
$
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable —
December 31, 2006
|
|
|
12,817
|
|
|
$
|
55.68
|
|
|
|
4.2
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of outstanding options shown in
the table above represents the total pretax intrinsic value at
December 31, 2006, based on the Corporation’s closing
stock price of $58.68 as of December 31, 2006. The total
intrinsic value of stock options exercised was $26 million,
$31 million and $45 million for the years ended
December 31, 2006, 2005 and 2004, respectively.
Cash received from the exercise of stock options during 2006,
2005 and 2004 totaled $45 million, $42 million and
$58 million, respectively. The net excess income tax
benefit realized for the tax deductions from the exercise of
these options during the years ended December 31, 2006,
2005 and 2004 totaled $8 million, $9 million and
$14 million, respectively.
93
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
A summary of the Corporation’s restricted stock activity
and related information for 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
|
|
Shares
|
|
|
Fair Value per Share
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Outstanding —
January 1, 2006
|
|
|
838
|
|
|
$
|
51.93
|
|
|
Granted
|
|
|
454
|
|
|
|
56.61
|
|
|
Forfeited
|
|
|
(38
|
)
|
|
|
51.20
|
|
|
Vested
|
|
|
(140
|
)
|
|
|
47.75
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding —
December 31, 2006
|
|
|
1,114
|
|
|
$
|
54.38
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock awards that fully
vested during the years ended December 31, 2006, 2005 and
2004 totaled $8 million, $1 million and
$4 million, respectively.
The Corporation expects to satisfy the exercise of stock options
and future grants of restricted stock by issuing shares of
common stock out of treasury. At December 31, 2006, the
Corporation held 21.2 million shares in treasury.
For further information on the Corporation’s share-based
compensation plans, refer to Note 1 on page 70.
Note 16 —
Employee Benefit Plans
The Corporation has a qualified and a non-qualified defined
benefit pension plan, which together, provide benefits for
substantially all full-time employees hired before
January 1, 2007. A new defined contribution retirement plan
will be provided to employees hired by the Corporation on or
after January 1, 2007. Employee benefits expense included
pension expense of $39 million, $31 million and
$16 million in the years ended December 31, 2006, 2005
and 2004, respectively, for the plans. Benefits under the
defined benefit plans are based primarily on years of service,
age and compensation during the five highest paid consecutive
calendar years occurring during the last ten years before
retirement. The defined benefit plans’ assets primarily
consist of units of certain collective investment funds and
mutual investment funds administered by Munder, equity
securities, U.S. Treasury and other Government agency
securities, Government-sponsored enterprise securities,
corporate bonds and notes and a real estate investment trust.
The majority of these assets have publicly quoted prices, which
is the basis for determining fair value of plan assets.
The Corporation’s postretirement benefit plan continues to
provide 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 bank-owned life insurance.
On December 31, 2006, the Corporation adopted the
provisions of SFAS 158. SFAS 158 requires the
Corporation to recognize in its consolidated balance sheet the
over-funded or under-funded status of its defined benefit
pension and postretirement plans, measured as the difference
between the fair value of plan assets and the benefit
obligation. For a pension plan, the benefit obligation is the
projected benefit obligation; for any other postretirement plan,
the benefit obligation is the accumulated benefit obligation.
SFAS 158 also requires the immediate recognition of
unrecognized prior service costs and credits, unrecognized net
actuarial gains or losses, and any unrecognized transition
obligation or asset as components of other comprehensive income,
net of tax.
94
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table summarizes the incremental effect of
applying SFAS 158 on the individual line items in the
consolidated balance sheet at December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Application of
|
|
|
SFAS 158
|
|
|
After Application of
|
|
|
Balance Sheet Line Item
|
|
SFAS 158
|
|
|
Adoption Adjustments
|
|
|
SFAS 158
|
|
|
|
|
(in millions)
|
|
|
|
|
Accrued income and other assets
|
|
$
|
2,685
|
|
|
$
|
(301
|
)
|
|
$
|
2,384
|
|
|
Total assets
|
|
|
58,302
|
|
|
|
(301
|
)
|
|
|
58,001
|
|
|
Accrued expenses and other
liabilities
|
|
|
1,373
|
|
|
|
(92
|
)
|
|
|
1,281
|
|
|
Total liabilities
|
|
|
52,940
|
|
|
|
(92
|
)
|
|
|
52,848
|
|
|
Accumulated other comprehensive
loss
|
|
|
(115
|
)
|
|
|
(209
|
)
|
|
|
(324
|
)
|
|
Total shareholders’ equity
|
|
|
5,362
|
|
|
|
(209
|
)
|
|
|
5,153
|
|
The following table sets forth reconciliations of the projected
benefit obligation and plan assets of the Corporation’s
qualified pension plan, non-qualified pension plan and
postretirement benefit plan. The Corporation used a measurement
date of December 31, 2006 for these plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
Defined Benefit
|
|
|
Defined Benefit
|
|
|
Postretirement
|
|
|
|
|
Pension Plan
|
|
|
Pension Plan
|
|
|
Benefit Plan
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Change in projected benefit
obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at
January 1
|
|
$
|
1,066
|
|
|
$
|
945
|
|
|
$
|
104
|
|
|
$
|
103
|
|
|
$
|
79
|
|
|
$
|
78
|
|
|
Service cost
|
|
|
31
|
|
|
|
29
|
|
|
|
4
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest cost
|
|
|
57
|
|
|
|
55
|
|
|
|
6
|
|
|
|
5
|
|
|
|
5
|
|
|
|
4
|
|
|
Actuarial (gain) loss
|
|
|
(78
|
)
|
|
|
48
|
|
|
|
3
|
|
|
|
15
|
|
|
|
(3
|
)
|
|
|
3
|
|
|
Benefits paid
|
|
|
(32
|
)
|
|
|
(30
|
)
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(8
|
)
|
|
|
(6
|
)
|
|
Plan change
|
|
|
—
|
|
|
|
19
|
|
|
|
—
|
|
|
|
(19
|
)
|
|
|
9
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at
December 31
|
|
$
|
1,044
|
|
|
$
|
1,066
|
|
|
$
|
114
|
|
|
$
|
104
|
|
|
$
|
82
|
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
January 1
|
|
$
|
1,093
|
|
|
$
|
999
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
83
|
|
|
$
|
84
|
|
|
Actual return on plan assets
|
|
|
123
|
|
|
|
66
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
3
|
|
|
Employer contributions
|
|
|
—
|
|
|
|
58
|
|
|
|
3
|
|
|
|
4
|
|
|
|
4
|
|
|
|
2
|
|
|
Benefits paid
|
|
|
(32
|
)
|
|
|
(30
|
)
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(8
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
December 31
|
|
$
|
1,184
|
|
|
$
|
1,093
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
85
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
909
|
|
|
$
|
913
|
|
|
$
|
88
|
|
|
$
|
73
|
|
|
$
|
83
|
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at December 31*
|
|
$
|
140
|
|
|
$
|
27
|
|
|
$
|
(114
|
)
|
|
$
|
(104
|
)
|
|
$
|
2
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Based on projected benefit obligation for pension plans and
accumulated benefit obligation for postretirement benefit plan.
|
The 2006 postretirement benefit
plan change of $9 million reflects an adjustment to include
certain participant groups not previously included in plan
valuations. The plan change of $19 million in 2005 reflects
a periodic reallocation of exposure from the non-qualified
pension plan to the qualified pension plan. The non-qualified
pension plan was the only pension plan with an accumulated
benefit obligation in excess of plan assets at December 31,
2006 and 2005.
95
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table details the amounts recognized in
accumulated other comprehensive income (loss) at
December 31, 2006 for the qualified pension plan,
non-qualified pension plan and postretirement benefit plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
|
|
|
Defined Benefit
|
|
|
Postretirement
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
Pension Plan
|
|
|
Benefit Plan
|
|
|
Total
|
|
|
|
|
(in millions)
|
|
|
|
|
SFAS 158 transition
adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss not yet recognized in net
periodic benefit cost
|
|
$
|
216
|
|
|
$
|
49
|
|
|
$
|
13
|
|
|
$
|
278
|
|
|
Net transition obligation not yet
recognized in net periodic benefit cost
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
|
|
25
|
|
|
Prior service cost (credit) not
yet recognized in net periodic benefit cost
|
|
|
38
|
|
|
|
(13
|
)
|
|
|
9
|
|
|
|
34
|
|
|
Reversal of additional minimum
pension liability
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS 158 transition
adjustment before income taxes
|
|
|
254
|
|
|
|
26
|
|
|
|
47
|
|
|
|
327
|
|
|
Less: Provision for income taxes
|
|
|
92
|
|
|
|
9
|
|
|
|
17
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS 158 transition
adjustment, net of tax
|
|
$
|
162
|
|
|
$
|
17
|
|
|
$
|
30
|
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
Defined Benefit
|
|
|
Defined Benefit
|
|
|
|
|
Pension Plan
|
|
|
Pension Plan
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Service cost
|
|
$
|
31
|
|
|
$
|
29
|
|
|
$
|
24
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
Interest cost
|
|
|
57
|
|
|
|
55
|
|
|
|
50
|
|
|
|
6
|
|
|
|
5
|
|
|
|
6
|
|
|
Expected return on plan assets
|
|
|
(89
|
)
|
|
|
(91
|
)
|
|
|
(84
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of prior service cost
(credit)
|
|
|
6
|
|
|
|
6
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
|
Amortization of net loss
|
|
|
21
|
|
|
|
20
|
|
|
|
12
|
|
|
|
5
|
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
26
|
|
|
$
|
19
|
|
|
$
|
4
|
|
|
$
|
13
|
|
|
$
|
12
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
$
|
123
|
|
|
$
|
66
|
|
|
$
|
112
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
Postretirement Benefit Plan
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Interest cost
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
Expected return on plan assets
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
Amortization of transition
obligation
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
Amortization of net loss
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The estimated portion of balances remaining in accumulated other
comprehensive income (loss) that are expected to be recognized
as a component of net periodic benefit cost in the year ended
December 31, 2007 are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
|
|
|
Defined Benefit
|
|
|
Postretirement
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
Pension Plan
|
|
|
Benefit Plan
|
|
|
Total
|
|
|
|
|
(in millions)
|
|
|
|
|
Net loss
|
|
$
|
13
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
Transition obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
4
|
|
|
Prior service cost (credit)
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
5
|
|
Actuarial assumptions are reflected below. The discount rate and
rate of compensation increase used to determine benefit
obligation for each year shown is as of the end of the year. The
discount rate, expected return on plan assets and rate of
compensation increase used to determine net cost for each year
shown is as of the beginning of the year.
Weighted-average assumptions used to determine year end benefit
obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
Qualified and
|
|
|
|
|
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
Defined Benefit
|
|
|
Postretirement
|
|
|
|
|
Pension Plans
|
|
|
Benefit Plan
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Discount rate used in determining
benefit obligation
|
|
|
5.89
|
%
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
|
|
5.89
|
%
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
|
Rate of compensation increase
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
Qualified and
|
|
|
|
|
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
Defined Benefit
|
|
|
Postretirement
|
|
|
|
|
Pension Plans
|
|
|
Benefit Plan
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Discount rate used in determining
net cost
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
|
|
6.13
|
%
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
|
|
6.13
|
%
|
|
Expected return on plan assets
|
|
|
8.25
|
|
|
|
8.75
|
|
|
|
8.75
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
Rate of compensation increase
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The long-term rate of return expected on plan assets is set
after considering both long-term returns in the general market
and long-term returns experienced by the assets in the plan. The
returns on the various asset categories are blended to derive
one long-term rate of return. The Corporation reviews its
pension plan assumptions on an annual basis with its actuarial
consultants to determine if assumptions are reasonable and
adjusts the assumptions to reflect changes in future
expectations.
Assumed healthcare and prescription drug cost trend rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
Healthcare
|
|
|
Prescription Drug
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Cost trend rate assumed for next
year
|
|
|
6.50
|
%
|
|
|
7.00
|
%
|
|
|
8.00
|
%
|
|
|
12.00
|
%
|
|
Rate that the cost trend rate
gradually declines to
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
Year that the rate reaches the
rate at which it is assumed to remain
|
|
|
2012
|
|
|
|
2012
|
|
|
|
2012
|
|
|
|
2012
|
|
97
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Assumed healthcare and prescription drug cost trend rates have a
significant effect on the amounts reported for the healthcare
plans. A one-percentage point change in 2006 assumed healthcare
and prescription drug cost trend rates would have the following
effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-Percentage-Point
|
|
|
|
|
Increase
|
|
|
Decrease
|
|
|
|
|
(in millions)
|
|
|
|
|
Effect on postretirement benefit
obligation
|
|
$
|
5
|
|
|
$
|
(5
|
)
|
|
Effect on total service and
interest cost
|
|
|
—
|
|
|
|
—
|
|
Plan
Assets
The Corporation’s qualified defined benefit pension plan
asset allocations at December 31, 2006 and 2005 and target
allocation for 2007 are shown in the table below. There were no
assets in the non-qualified defined benefit pension plan. The
postretirement benefit plan is fully invested in bank-owned life
insurance policies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Defined Benefit
|
|
|
|
|
Pension Plan
|
|
|
|
|
Target
|
|
|
Percentage of Plan Assets at
|
|
|
|
|
Allocation
|
|
|
December 31
|
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Equity securities
|
|
|
55 – 65
|
%
|
|
|
63
|
%
|
|
|
65
|
%
|
|
Fixed income, including cash
|
|
|
30 – 40
|
|
|
|
37
|
|
|
|
33
|
|
|
Alternative assets
|
|
|
0 – 5
|
|
|
|
—
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investment goal for the qualified defined benefit pension
plan is to achieve a real rate of return (nominal rate minus
consumer price index change) consistent with that received on
investment grade corporate bonds. The Corporation’s 2007
target allocation percentages by asset category are noted in the
table above. Given the mix of equity securities and fixed income
(including cash), management believes that by targeting the
benchmark return to an “investment grade” quality
return, an appropriate degree of risk is maintained. Within the
asset classes, the degree of
non-U.S. based
assets is limited to 15 percent of the total, to be
allocated within both equity securities and fixed income. The
investment manager has discretion to make investment decisions
within the target allocation parameters. The Corporation’s
Employee Benefits Committee must approve exceptions to this
policy. Securities issued by the Corporation and its
subsidiaries are not eligible for use within this plan.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
Defined Benefit
|
|
|
Defined Benefit
|
|
|
Postretirement
|
|
|
Estimated Future Employer Contributions
|
|
Pension Plan
|
|
|
Pension Plan
|
|
|
Benefit Plan*
|
|
|
|
|
(in millions)
|
|
|
|
|
2007
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
7
|
|
|
|
|
|
*
|
Estimated employer contributions in the postretirement benefit
plan do not include settlements on death claims.
|
98
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
Defined Benefit
|
|
|
Defined Benefit
|
|
|
Postretirement
|
|
|
Estimated Future Benefit Payments
|
|
Pension Plan
|
|
|
Pension Plan
|
|
|
Benefit Plan*
|
|
|
|
|
(in millions)
|
|
|
|
|
2007
|
|
$
|
34
|
|
|
$
|
4
|
|
|
$
|
7
|
|
|
2008
|
|
|
36
|
|
|
|
4
|
|
|
|
7
|
|
|
2009
|
|
|
39
|
|
|
|
5
|
|
|
|
7
|
|
|
2010
|
|
|
42
|
|
|
|
6
|
|
|
|
7
|
|
|
2011
|
|
|
46
|
|
|
|
6
|
|
|
|
7
|
|
|
2012 — 2016
|
|
|
294
|
|
|
|
40
|
|
|
|
34
|
|
|
|
|
|
*
|
Estimated benefit payments in the postretirement benefit plan
are net of estimated Medicare subsidies.
|
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. Under the
Corporation’s principal defined contribution plan, the
Corporation makes matching contributions, most of which are
based on a declining percentage of employee contributions (in
2006, the Corporation matched 50 percent of the first
$1,000 and 25 percent of the next $2,000 of compensation
contributed; the maximum match per employee was $1,000) as well
as a performance-based matching contribution based on the
Corporation’s financial performance. The Corporation’s
match is made in stock of the Corporation, which is restricted
until the end of the calendar year, after which the employees
may reallocate to other investment options. Employees may choose
to invest their contributions in the stock of the Corporation,
and may reallocate employee contributions invested in the
Corporation’s stock to other investments at any time.
Employee benefits expense included expense for the plans of
$13 million, $15 million and $13 million in the
years ended December 31, 2006, 2005 and 2004, respectively.
Effective January 1, 2007, the Corporation prospectively
changed its core matching contribution to 100 percent of
the first four percent of qualified earnings contributed (up to
the current IRS compensation limit) which will be invested based
on employee investment elections, rather than in stock of the
Corporation, and discontinued the performance-based matching
contribution.
Note 17 —
Income Taxes
The current and deferred components of the provision for income
taxes for continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
309
|
|
|
$
|
321
|
|
|
$
|
230
|
|
|
Foreign
|
|
|
12
|
|
|
|
16
|
|
|
|
6
|
|
|
State and local
|
|
|
12
|
|
|
|
32
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
333
|
|
|
|
369
|
|
|
|
234
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
8
|
|
|
|
31
|
|
|
|
103
|
|
|
State and local
|
|
|
4
|
|
|
|
(7
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
12
|
|
|
|
24
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
345
|
|
|
$
|
393
|
|
|
$
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Income from discontinued operations, net of tax, included a
provision for income taxes on discontinued operations of
$73 million, $25 million and $4 million for the
years ended December 31, 2006, 2005 and 2004, respectively.
There was a nominal income tax provision on securities
transactions in each of the three years in the period ended
December 31, 2006.
The principal components of deferred tax assets and liabilities
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
181
|
|
|
$
|
189
|
|
|
Deferred loan origination fees and
costs
|
|
|
38
|
|
|
|
42
|
|
|
Other comprehensive income
|
|
|
180
|
|
|
|
88
|
|
|
Employee benefits
|
|
|
35
|
|
|
|
2
|
|
|
Foreign tax credit
|
|
|
36
|
|
|
|
39
|
|
|
Other temporary differences, net
|
|
|
88
|
|
|
|
54
|
|
|
Deferred tax assets of
discontinued operations
|
|
|
—
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
558
|
|
|
|
445
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Lease financing transactions
|
|
|
663
|
|
|
|
593
|
|
|
Allowance for depreciation
|
|
|
6
|
|
|
|
12
|
|
|
Deferred tax liabilities of
discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
669
|
|
|
|
605
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
111
|
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of expected income tax expense at the federal
statutory rate of 35 percent to the Corporation’s
provision for income taxes for continuing operations and
effective tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Tax based on federal statutory rate
|
|
$
|
395
|
|
|
|
35.0
|
%
|
|
$
|
423
|
|
|
|
35.0
|
%
|
|
$
|
384
|
|
|
|
35.0
|
%
|
|
State income taxes
|
|
|
10
|
|
|
|
0.9
|
|
|
|
16
|
|
|
|
1.4
|
|
|
|
7
|
|
|
|
0.6
|
|
|
Affordable housing and historic
credits
|
|
|
(31
|
)
|
|
|
(2.8
|
)
|
|
|
(24
|
)
|
|
|
(2.0
|
)
|
|
|
(22
|
)
|
|
|
(2.0
|
)
|
|
Bank-owned life insurance
|
|
|
(15
|
)
|
|
|
(1.4
|
)
|
|
|
(15
|
)
|
|
|
(1.2
|
)
|
|
|
(14
|
)
|
|
|
(1.2
|
)
|
|
Effect of tax-exempt interest
income
|
|
|
(2
|
)
|
|
|
(0.1
|
)
|
|
|
(2
|
)
|
|
|
(0.2
|
)
|
|
|
(2
|
)
|
|
|
(0.2
|
)
|
|
Disallowance of foreign tax credit
|
|
|
22
|
|
|
|
2.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Settlement of
1996-2000
IRS audit
|
|
|
(16
|
)
|
|
|
(1.4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
(18
|
)
|
|
|
(1.6
|
)
|
|
|
(5
|
)
|
|
|
(0.5
|
)
|
|
|
(4
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
345
|
|
|
|
30.6
|
%
|
|
$
|
393
|
|
|
|
32.5
|
%
|
|
$
|
349
|
|
|
|
31.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 18 —
Transactions with Related Parties
The Corporation’s banking subsidiaries have had, and expect
to have in the future, transactions with the Corporation’s
directors and executive officers, and companies with which these
individuals are associated. Such transactions were made in the
ordinary course of business and included extensions of credit,
leases and professional services. With respect to extensions of
credit, all were made on substantially the same terms,
100
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
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, 2006, totaled
$140 million at the beginning and $216 million at the
end of 2006. During 2006, new loans to related parties
aggregated $324 million and repayments totaled
$248 million.
Note 19 —
Regulatory Capital and Reserve Requirements
Cash and due from banks includes reserves required to be
maintained
and/or
deposited with the Federal Reserve Bank. These reserve balances
vary, depending on the level of customer deposits in the
Corporation’s banking subsidiaries. The average required
reserve balances were $298 million and $289 million
for the years ended December 31, 2006 and 2005,
respectively.
Banking regulations limit the transfer of assets in the form of
dividends, loans or advances from the bank subsidiaries to the
parent company. Under the most restrictive of these regulations,
the aggregate amount of dividends which can be paid to the
parent company without obtaining prior approval from bank
regulatory agencies approximated $261 million at
January 1, 2007, plus 2007 net profits. Substantially
all the assets of the Corporation’s banking subsidiaries
are restricted from transfer to the parent company of the
Corporation in the form of loans or advances.
Dividends declared to the parent company of the Corporation by
its banking subsidiaries amounted to $746 million,
$793 million and $691 million in 2006, 2005 and 2004,
respectively.
The Corporation and its U.S. banking subsidiaries are
subject to various regulatory capital requirements administered
by federal and state banking agencies. Quantitative measures
established by regulation to ensure capital adequacy require the
maintenance of minimum amounts and ratios of Tier 1 and
total capital (as defined in the regulations) to average and
risk-weighted assets. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
Corporation’s financial statements. At December 31,
2006 and 2005, the Corporation and its U.S. banking
subsidiaries exceeded the ratios required for an institution to
be considered “well capitalized” (total risk-based
capital, Tier 1 risk-based capital and leverage ratios
greater than 10 percent, 6 percent and 5 percent,
respectively). The following is a summary of the capital
position of the Corporation and Comerica Bank, its significant
banking subsidiary.
101
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
Comerica Incorporated
|
|
|
Comerica
|
|
|
|
|
(Consolidated)
|
|
|
Bank
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
Tier 1 common capital
|
|
$
|
5,311
|
|
|
$
|
5,367
|
|
|
Tier 1 capital
|
|
|
5,650
|
|
|
|
5,687
|
|
|
Total capital
|
|
|
8,196
|
|
|
|
7,924
|
|
|
Risk-weighted assets
|
|
|
70,486
|
|
|
|
70,343
|
|
|
Average assets (fourth quarter)
|
|
|
57,884
|
|
|
|
57,663
|
|
|
Tier 1 common capital to
risk-weighted assets
|
|
|
7.54
|
%
|
|
|
7.63
|
%
|
|
Tier 1 capital to
risk-weighted assets (minimum-4.0%)
|
|
|
8.02
|
|
|
|
8.08
|
|
|
Total capital to risk-weighted
assets (minimum-8.0%)
|
|
|
11.63
|
|
|
|
11.26
|
|
|
Tier 1 capital to average
assets (minimum-3.0%)
|
|
|
9.76
|
|
|
|
9.86
|
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
|
Tier 1 common capital
|
|
$
|
5,012
|
|
|
$
|
5,161
|
|
|
Tier 1 capital
|
|
|
5,399
|
|
|
|
5,481
|
|
|
Total capital
|
|
|
7,499
|
|
|
|
7,240
|
|
|
Risk-weighted assets
|
|
|
64,390
|
|
|
|
64,338
|
|
|
Average assets (fourth quarter)
|
|
|
54,157
|
|
|
|
53,898
|
|
|
Tier 1 common capital to
risk-weighted assets
|
|
|
7.78
|
%
|
|
|
8.02
|
%
|
|
Tier 1 capital to
risk-weighted assets (minimum-4.0%)
|
|
|
8.38
|
|
|
|
8.52
|
|
|
Total capital to risk-weighted
assets (minimum-8.0%)
|
|
|
11.65
|
|
|
|
11.25
|
|
|
Tier 1 capital to average
assets (minimum-3.0%)
|
|
|
9.97
|
|
|
|
10.17
|
|
Note 20 —
Derivative and Credit-Related Financial Instruments
In the normal course of business, the Corporation enters into
various transactions involving derivative and credit-related
financial instruments to manage exposure to fluctuations in
interest rate, foreign currency and other market risks and to
meet the financing needs of customers. These financial
instruments involve, to varying degrees, elements of credit and
market risk.
Credit risk is the possible loss that may occur in the event of
nonperformance by the counterparty to a financial instrument.
The Corporation attempts to minimize credit risk arising from
financial instruments by evaluating the creditworthiness of each
counterparty, adhering to the same credit approval process used
for traditional lending activities. Counterparty risk limits and
monitoring procedures have also been established to facilitate
the management of credit risk. Collateral is obtained, if deemed
necessary, based on the results of management’s credit
evaluation. Collateral varies, but may include cash, investment
securities, accounts receivable, equipment or real estate.
Derivative instruments are traded over an organized exchange or
negotiated
over-the-counter.
Credit risk associated with exchange-traded contracts is
typically assumed by the organized exchange.
Over-the-counter
contracts are tailored to meet the needs of the counterparties
involved and, therefore, contain a greater degree of credit risk
and liquidity risk than exchange-traded contracts, which have
standardized terms and readily available price information. The
Corporation reduces exposure to credit and liquidity risks from
over-the-counter
derivative instruments 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 and energy prices, which
cause an unfavorable change in the value of a financial
instrument. The Corporation manages this risk by establishing
monetary exposure limits and monitoring compliance with those
limits. Market
102
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
risk arising from derivative instruments entered into on behalf
of customers is reflected in the consolidated financial
statements and may be mitigated by entering into offsetting
transactions. Market risk inherent in derivative instruments
held or issued for risk management purposes is generally offset
by changes in the value of rate sensitive assets or liabilities.
Derivative
Instruments
The Corporation, as an end-user, employs a variety of financial
instruments for risk management purposes. Activity related to
these instruments is centered predominantly in the interest rate
markets and mainly involves interest rate swaps. Various other
types of instruments also may be used to manage exposures to
market risks, including interest rate caps and floors, total
return swaps, foreign exchange forward contracts and foreign
exchange swap agreements.
For hedge relationships accounted for under SFAS 133 at
inception of the hedge, the Corporation uses either the
short-cut method if it qualifies, or applies dollar offset or
statistical regression analysis to assess effectiveness. The
short-cut method is used for fair value hedges of medium and
long-term debt. This method allows for the assumption of zero
hedge ineffectiveness and eliminates the requirement to further
assess hedge effectiveness on these transactions. For
SFAS 133 hedge relationships to which the Corporation does
not apply the short-cut method, dollar offset or statistical
regression analysis is used at inception and for each reporting
period thereafter to assess whether the derivative used has been
and is expected to be highly effective in offsetting changes in
the fair value or cash flows of the hedged item. All components
of each derivative instrument’s gain or loss are included
in the assessment of hedge effectiveness. Net hedge
ineffectiveness is recorded in “other noninterest
income” on the consolidated statements of income.
The following table presents net hedge ineffectiveness gains
(losses) by risk management hedge type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
Cash Flow Hedges
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(3
|
)
|
|
Fair Value Hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Foreign Currency Hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As part of a fair value hedging strategy, the Corporation has
entered into interest rate swap agreements for interest rate
risk management purposes. These interest rate swap agreements
effectively modify the Corporation’s exposure to interest
rate risk by converting fixed-rate deposits and debt to a
floating rate. These agreements involve the receipt of fixed
rate interest amounts in exchange for floating rate interest
payments over the life of the agreement, without an exchange of
the underlying principal amount.
As part of a cash flow hedging strategy, the Corporation entered
into predominantly 2 to 3 year interest rate swap
agreements (weighted average original maturity of
2.9 years) that effectively convert a portion of its
existing and forecasted floating-rate loans to a fixed-rate
basis, thus reducing the impact of interest rate changes on
future interest income over the next 2 to 3 years.
Approximately 13 percent ($6.2 billion) of the
Corporation’s outstanding loans were designated as hedged
items to interest rate swap agreements at December 31,
2006. For the year ended December 31, 2006, interest rate
swap agreements designated as cash flow hedges decreased
interest and fees on loans by $124 million, compared with a
decrease of $2 million for the year ended December 31,
2005. If interest rates, interest yield curves and notional
amounts remain at their current levels, the Corporation expects
to reclassify $42 million of net losses on derivative
instruments, that are designated as cash flow hedges, from
accumulated other comprehensive income (loss) to earnings during
the next twelve months due to receipt of variable interest
associated with the existing and forecasted floating-rate loans.
103
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Foreign exchange rate risk arises from changes in the value of
certain assets and liabilities denominated in foreign
currencies. The Corporation employs cash instruments, such as
investment securities, as well as derivative instruments, to
manage exposure to these and other risks. In addition, the
Corporation uses foreign exchange forward and option contracts
to protect the value of its foreign currency investment in
foreign subsidiaries. Realized and unrealized gains and losses
from foreign exchange forward and option contracts used to
protect the value of investments in foreign subsidiaries are not
included in the statement of income, but are shown in the
accumulated foreign currency translation adjustment account
included in other comprehensive income (loss), with the related
amounts due to or from counterparties included in other
liabilities or other assets. During the year ended
December 31, 2006, the Corporation recognized net gains of
less than $0.5 million in accumulated foreign currency
translation adjustment, related to the foreign exchange forward
and option contracts, compared to $4 million of net losses
during the year ended December 31, 2005. During the third
quarter 2006, the Corporation completed the sale of its Mexican
bank charter and reclassified $7 million of related
accumulated foreign currency translation loss to “net gain
(loss) on sales of businesses” on the consolidated
statements of income, in accordance with SFAS 130,
“Reporting Comprehensive Income” (as amended). During
the fourth quarter 2006, the Corporation completed the sale of
its Munder subsidiary and reclassified the remaining accumulated
foreign currency translation gain, which was not significant, to
“income from discontinued operations, net of tax” on
the consolidated statements of income.
Management believes these hedging strategies achieve the desired
relationship between the rate maturities of assets and funding
sources which, in turn, reduces the overall exposure of net
interest income to interest rate risk, although, there can be no
assurance that such strategies will be successful. The
Corporation also may use various other types of financial
instruments to mitigate interest rate and foreign currency risks
associated with specific assets or liabilities. Such instruments
include interest rate caps and floors, foreign exchange forward
contracts, foreign exchange option contracts and foreign
exchange cross-currency swaps.
The following table presents the composition of derivative
instruments held or issued for risk management purposes,
excluding commitments, at December 31, 2006 and 2005. The
fair values of all derivative instruments are reflected in the
consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Amount
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
(in millions)
|
|
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps — cash flow
|
|
$
|
6,200
|
|
|
$
|
—
|
|
|
$
|
87
|
|
|
$
|
(87
|
)
|
|
Swaps — fair value
|
|
|
2,253
|
|
|
|
75
|
|
|
|
7
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate contracts
|
|
|
8,453
|
|
|
|
75
|
|
|
|
94
|
|
|
|
(19
|
)
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot and forwards
|
|
|
518
|
|
|
|
6
|
|
|
|
2
|
|
|
|
4
|
|
|
Swaps
|
|
|
33
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign exchange contracts
|
|
|
551
|
|
|
|
6
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk management
|
|
$
|
9,004
|
|
|
$
|
81
|
|
|
$
|
96
|
|
|
$
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Amount
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
(in millions)
|
|
|
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps — cash flow
|
|
$
|
9,200
|
|
|
$
|
—
|
|
|
$
|
144
|
|
|
$
|
(144
|
)
|
|
Swaps — fair value
|
|
|
2,255
|
|
|
|
107
|
|
|
|
4
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate contracts
|
|
|
11,455
|
|
|
|
107
|
|
|
|
148
|
|
|
|
(41
|
)
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot and forwards
|
|
|
367
|
|
|
|
3
|
|
|
|
8
|
|
|
|
(5
|
)
|
|
Swaps
|
|
|
44
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign exchange contracts
|
|
|
411
|
|
|
|
3
|
|
|
|
8
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk management
|
|
$
|
11,866
|
|
|
$
|
110
|
|
|
$
|
156
|
|
|
$
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 instruments.
Bilateral collateral agreements with counterparties covered
76 percent and 85 percent of the notional amount of
interest rate derivative contracts at December 31, 2006 and
2005, 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, 2006, 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 instruments.
Fee income is earned from entering into various transactions,
principally foreign exchange contracts, interest rate contracts,
and energy derivative contracts at the request of customers. The
Corporation mitigates market risk inherent in customer-initiated
interest rate and energy contracts by taking offsetting
positions, except in those circumstances when the amount, tenor
and/or
contracted rate level results in negligible economic risk,
whereby the cost of purchasing an offsetting contract is not
economically justifiable. For customer-initiated foreign
exchange contracts, the Corporation mitigates most of the
inherent market risk by taking offsetting positions and manages
the remainder through individual foreign currency position
limits and aggregate
value-at-risk
limits. These limits are established annually and reviewed
quarterly.
For those customer-initiated derivative contracts which were not
offset or where the Corporation holds a speculative position
within the limits described above, the Corporation recognized
$1 million of net gains in both 2006 and 2005, and
$2 million of net gains in 2004, which were included in
“other noninterest income” in the consolidated
statements of income. The fair value of derivative instruments
held or issued in connection with customer-initiated activities,
including those customer-initiated derivative contracts where
the Corporation does not enter into an offsetting derivative
contract position, is included in the following table.
105
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table presents the composition of derivative
instruments held or issued in connection with customer-initiated
and other activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Amount
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
(in millions)
|
|
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-initiated and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caps and floors written
|
|
$
|
551
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
(3
|
)
|
|
Caps and floors purchased
|
|
|
536
|
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
|
Swaps
|
|
|
4,480
|
|
|
|
37
|
|
|
|
26
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate contracts
|
|
|
5,567
|
|
|
|
40
|
|
|
|
29
|
|
|
|
11
|
|
|
Energy derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caps and floors written
|
|
|
310
|
|
|
|
—
|
|
|
|
23
|
|
|
|
(23
|
)
|
|
Caps and floors purchased
|
|
|
310
|
|
|
|
23
|
|
|
|
—
|
|
|
|
23
|
|
|
Swaps
|
|
|
485
|
|
|
|
22
|
|
|
|
21
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total energy derivative contracts
|
|
|
1,105
|
|
|
|
45
|
|
|
|
44
|
|
|
|
1
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot, forwards, futures and options
|
|
|
2,889
|
|
|
|
24
|
|
|
|
21
|
|
|
|
3
|
|
|
Swaps
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign exchange contracts
|
|
|
2,893
|
|
|
|
24
|
|
|
|
21
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total customer-initiated and other
|
|
$
|
9,565
|
|
|
$
|
109
|
|
|
$
|
94
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-initiated and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caps and floors written
|
|
$
|
267
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
Caps and floors purchased
|
|
|
267
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
Swaps
|
|
|
3,270
|
|
|
|
30
|
|
|
|
22
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest rate contracts
|
|
|
3,804
|
|
|
|
31
|
|
|
|
23
|
|
|
|
8
|
|
|
Energy derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caps and floors written
|
|
|
344
|
|
|
|
—
|
|
|
|
32
|
|
|
|
(32
|
)
|
|
Caps and floors purchased
|
|
|
344
|
|
|
|
32
|
|
|
|
—
|
|
|
|
32
|
|
|
Swaps
|
|
|
291
|
|
|
|
12
|
|
|
|
12
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total energy derivative contracts
|
|
|
979
|
|
|
|
44
|
|
|
|
44
|
|
|
|
—
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot, forwards, futures and options
|
|
|
5,453
|
|
|
|
32
|
|
|
|
34
|
|
|
|
(2
|
)
|
|
Swaps
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign exchange contracts
|
|
|
5,474
|
|
|
|
32
|
|
|
|
34
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total customer-initiated and other
|
|
$
|
10,257
|
|
|
$
|
107
|
|
|
$
|
101
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Fair values for customer-initiated and other derivative
instruments represent the net unrealized gains or losses on such
contracts and are recorded in the consolidated balance sheets.
Changes in fair value are recognized in the consolidated income
statements. The following table provides the average unrealized
gains and unrealized losses and noninterest income generated on
customer-initiated and other interest rate contracts, energy
derivative contracts and foreign exchange contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Average unrealized gains
|
|
$
|
103
|
|
|
$
|
77
|
|
|
Average unrealized losses
|
|
|
92
|
|
|
|
74
|
|
|
Noninterest income
|
|
|
42
|
|
|
|
39
|
|
Detailed discussions of each class of derivative instruments
held or issued by the Corporation for both risk management and
customer-initiated and other activities are as follows.
Interest
Rate Swaps
Interest rate swaps are agreements in which two parties
periodically exchange fixed cash payments for variable payments
based on a designated market rate or index (or variable payments
based on two different rates or indices 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. All interest rate caps and floors entered into by the
Corporation are
over-the-counter
agreements.
Foreign
Exchange Contracts
Foreign exchange contracts such as futures, forwards and options
are primarily entered into as a service to customers and to
offset market risk arising from such positions. Futures and
forward contracts require the delivery or receipt of foreign
currency at a specified date and exchange rate. Foreign currency
options allow the owner to purchase or sell a foreign currency
at a specified date and price. Foreign exchange futures are
exchange-traded, while forwards, swaps and most options are
negotiated
over-the-counter.
Foreign exchange contracts expose the Corporation to both market
risk and credit risk. The Corporation also uses foreign exchange
rate swaps and cross-currency swaps for risk management purposes.
Energy
Derivative Contracts
The Corporation offers energy derivative contracts, including
over-the-counter
and NYMEX based natural gas and crude oil fixed rate swaps and
options as a service to customers seeking to hedge market risk
in the underlying products. Contract tenors are typically
limited to three years to accommodate hedge requirements and are
further limited to products that are liquid and available on
demand. Energy derivative swaps are
over-the-counter
agreements in which the Corporation and the counterparty
periodically exchange fixed cash payments for variable payments
based upon a designated market price or index. Energy derivative
option contracts grant the option owner the right to buy or sell
the underlying commodity for a predetermined price at settlement
date. Energy caps,
107
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
floors and collars are option-based contracts that result in the
buyer and seller of the contract receiving or making cash
payments based on the difference between a designated reference
price and the contracted strike price, applied to a notional
amount. An option fee or premium is received by the Corporation
at inception for assuming the risk of unfavorable changes in
energy commodity prices. Purchased options contain both credit
and market risk. Commodity options entered into by the
Corporation are
over-the-counter
agreements.
Warrants
The Corporation holds a portfolio of approximately 790 warrants
for generally non-marketable equity securities. These warrants
are primarily from high technology, non-public companies
obtained as part of the loan origination process. As discussed
in Note 1 on page 70, warrants that have a net
exercise provision embedded in the warrant agreement are
required to be recorded at fair value. Fair value for these
warrants (approximately 680 warrants at December 31, 2006
and 800 warrants at December 31, 2005) was
approximately $26 million at December 31, 2006 and
$30 million at December 31, 2005, as estimated using a
Black-Scholes valuation model.
Commitments
The Corporation also enters into commitments to purchase or sell
earning assets for risk management and trading purposes. These
transactions are similar in nature to forward contracts. The
Corporation had commitments to purchase investment securities
for its trading account totaling $20 million at
December 31, 2006, and $6 million at December 31,
2005. Commitments to sell investment securities related to the
trading account totaled $16 million at December 31,
2006 and $6 million at December 31, 2005. Outstanding
commitments expose the Corporation to both credit and market
risk.
Credit-Related
Financial Instruments
The Corporation issues off-balance sheet financial instruments
in connection with commercial and consumer lending activities.
The Corporation’s credit risk associated with these
instruments is represented by the contractual amounts indicated
in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions)
|
|
|
|
|
Unused commitments to extend
credit:
|
|
|
|
|
|
|
|
|
|
Commercial and other
|
|
$
|
30,410
|
|
|
$
|
28,606
|
|
|
Bankcard, revolving check credit
and equity access loan commitments
|
|
|
2,147
|
|
|
|
2,003
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unused commitments to extend
credit
|
|
$
|
32,557
|
|
|
$
|
30,609
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit and
financial guarantees:
|
|
|
|
|
|
|
|
|
|
Maturing within one year
|
|
$
|
4,385
|
|
|
$
|
4,376
|
|
|
Maturing after one year
|
|
|
2,199
|
|
|
|
2,057
|
|
|
|
|
|
|
|
|
|
|
|
|
Total standby letters of credit
and financial guarantees
|
|
$
|
6,584
|
|
|
$
|
6,433
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial letters of credit
|
|
$
|
249
|
|
|
$
|
269
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation maintains an allowance to cover probable credit
losses inherent in lending-related commitments, including unused
commitments to extend credit, letters of credit and financial
guarantees. At December 31, 2006 and 2005, the allowance
for credit losses on lending-related commitments, which is
recorded in “accrued expenses and other liabilities”
on the consolidated balance sheets, was $26 million and
$33 million, respectively.
108
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Unused
Commitments to Extend Credit
Commitments to extend credit are legally binding agreements to
lend to a customer, provided there is no violation of any
condition established in the contract. These commitments
generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many commitments
expire without being drawn upon, the total contractual amount of
commitments does not necessarily represent future cash
requirements of the Corporation. Commercial and other unused
commitments are primarily variable rate commitments.
Standby
and Commercial Letters of Credit and Financial
Guarantees
Standby and commercial letters of credit 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 are defined as those maturing beyond one year and
expire in decreasing amounts through the year 2016.
Commercial letters of credit are issued to finance foreign or
domestic trade transactions and are short-term in nature. The
Corporation may enter into participation arrangements with third
parties, which effectively reduce the maximum amount of future
payments, which may be required under standby letters of credit.
These risk participations covered $640 million of the
$6,584 million standby letters of credit outstanding at
December 31, 2006. At December 31, 2006, the carrying
value of the Corporation’s standby and commercial letters
of credit and financial guarantees, which is included in
“accrued expenses and other liabilities” on the
consolidated balance sheet, totaled $78 million.
Note 21 —
Contingent Liabilities
Legal
Proceedings
The Corporation and certain of its subsidiaries are subject to
various pending and threatened legal proceedings arising out of
the normal course of business or operations. In view of the
inherent difficulty of predicting the outcome of such matters,
the Corporation cannot state what the eventual outcome of these
matters will be. However, based on current knowledge and after
consultation with legal counsel, management believes that
current reserves, determined in accordance with SFAS 5,
“Accounting for Contingencies”, (SFAS 5) are
adequate and the amount of any incremental liability arising
from these matters is not expected to have a material adverse
effect on the Corporation’s consolidated financial
condition or results of operations.
Tax
Contingency
In the ordinary course of business, the Corporation enters into
certain transactions that have tax consequences. From time to
time, the IRS questions
and/or
challenges the tax position taken by the Corporation with
respect to those transactions. The Corporation engaged in
certain types of structured leasing transactions and a series of
loans to foreign borrowers that the IRS disallowed in its
examination of the Corporation’s federal tax returns for
the years 1996 through 2000. The Corporation has had ongoing
discussion with the IRS related to the series of loans to
foreign borrowers and adjusted tax and related interest reserves
based on settlements discussed.
The Corporation believes that its tax returns were filed based
upon applicable statutes, regulations and case law in effect at
the time of the transactions. The Corporation intends to
vigorously defend its positions taken in those returns in
accordance with its view of the law controlling these
activities. However, as noted above, the IRS examination team,
an administrative authority or a court, if presented with the
transactions, could disagree with the Corporation’s
interpretation of the tax law. After evaluating the risks and
opportunities, the best outcome may result in a settlement. The
ultimate outcome for each position is not known.
Based on current knowledge and probability assessment of various
potential outcomes, the Corporation believes that the current
tax reserves, determined in accordance with SFAS 5, are
adequate to cover the above
109
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
matters, and the amount of any incremental liability arising
from these matters is not expected to have a material adverse
effect on the Corporation’s consolidated financial
condition or results of operations. Probabilities and outcomes
are reviewed as events unfold, and adjustments to the reserves
are made when necessary. In July 2006, the FASB issued
FIN 48, new accounting guidance which will change the
method for determining tax benefits that the Corporation can
recognize in its financial statements. The Corporation will
adopt the provisions of FIN 48 in the first quarter 2007.
See Note 2 on page 77 for a further discussion of the
adoption of FIN 48.
Note 22 —
Variable Interest Entities (VIE’s)
The Corporation evaluates its interest in certain entities to
determine if these entities meet the definition of a VIE, and
whether the Corporation was the primary beneficiary and should
consolidate the entity based on the variable interests it held.
The following provides a summary of the VIE’s in which the
Corporation has a significant interest.
The Corporation owns 100% of the common stock of two entities
formed in 1997 and 2001 to issue trust preferred securities.
These entities meet the definition of a VIE, but the Corporation
is not the primary beneficiary in either of these entities. The
trust preferred securities held by these entities
($405 million at December 31, 2006) are
classified as subordinated debt. The Corporation is not exposed
to loss related to these VIE’s. In December 2006, the
Corporation gave irrevocable notice of its intention to call
$55 million of the trust preferred securities on
June 30, 2007. As such, the $55 million does not
qualify as Tier 1 or Tier 2 capital. The remaining
$350 million qualifies as Tier 1 capital.
The Corporation has a significant limited partnership interest
in The Peninsula Fund Limited Partnership (PFLP), a venture
capital fund, which was acquired in 1995. The PFLP’s
general partner (an employee of the Corporation) is considered a
related party to the Corporation. This entity meets the
definition of a VIE, and the Corporation is the primary
beneficiary of the entity. As such, the Corporation consolidates
PFLP. Creditors of the partnership do not have recourse against
the Corporation, and exposure to loss as a result of involvement
with PFLP at December 31, 2006 was limited to approximately
$1 million of book basis in the entity and approximately
$2 million of commitments for future investments.
The Corporation has limited partnership interests in three other
venture capital funds, which were acquired in 1998, 1999 and
2001, where the general partner (an employee of the Corporation)
in these three partnerships is considered a related party to the
Corporation. These three entities meet the definition of a VIE,
however, the Corporation is not the primary beneficiary of the
entities. As such, the Corporation accounts for its interest in
these partnerships on the cost method. These three entities had
approximately $190 million in assets at December 31,
2006. Exposure to loss as a result of involvement with these
three entities at December 31, 2006 was limited to
approximately $7 million of book basis of the
Corporation’s investments and approximately $1 million
of commitments for future investments.
The Corporation, as a limited partner, also holds an
insignificant ownership percentage interest in 111 other venture
capital and private equity investment partnerships where the
Corporation is not related to the general partner. While these
entities may meet the definition of a VIE, the Corporation is
not the primary beneficiary of any of these entities as a result
of its insignificant ownership percentage interest. The
Corporation accounts for its interests in these partnerships on
the cost method, and exposure to loss as a result of involvement
with these entities at December 31, 2006 was limited to
approximately $79 million of book basis of the
Corporation’s investments and approximately
$37 million of commitments for future investments.
Two limited liability subsidiaries of the Corporation are the
general partners in two investment fund partnerships, formed in
1999 and 2003. As general partner, these subsidiaries manage the
investments held by these funds. These two investment
partnerships meet the definition of a VIE. In the investment
fund partnership formed in 1999, the Corporation is not the
primary beneficiary of the entity. As such, the Corporation
accounts for its indirect interests in this partnership on the
cost method. This investment partnership had approximately
$198 million in assets at December 31, 2006 and was
structured so that the Corporation’s exposure to loss as a
result of its interest should be limited to the book basis of
the Corporation’s investment in the limited liability
110
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
subsidiary, which was insignificant at December 31, 2006.
In the investment fund partnership formed in 2003, the
Corporation is the primary beneficiary of the entity and would
be required to consolidate the entity, if material. This
investment partnership had assets of approximately
$10 million at December 31, 2006 and was structured so
that the Corporation’s exposure to loss as a result of its
interest should be limited to the book basis of the
Corporation’s investment in the limited liability
subsidiary, which was insignificant at December 31, 2006.
The Corporation has a significant limited partner interest in 21
low income housing tax credit/historic rehabilitation tax credit
partnerships, acquired at various times from 1992 to 2006. These
entities meet the definition of a VIE. However, the Corporation
is not the primary beneficiary of the entities and, as such,
accounts for its interest in these partnerships on the cost or
equity method. These entities had approximately
$150 million in assets at December 31, 2006. Exposure
to loss as a result of its involvement with these entities at
December 31, 2006 was limited to approximately
$20 million of book basis of the Corporation’s
investment, which includes unused commitments for future
investments.
The Corporation, as a limited partner, also holds an
insignificant ownership percentage interest in 95 other low
income housing tax credit/historic rehabilitation tax credit
partnerships. While these entities may meet the definition of a
VIE, the Corporation is not the primary beneficiary of any of
these entities as a result of its insignificant ownership
percentage interest. As such, the Corporation accounts for its
interest in these partnerships on the cost or equity method.
Exposure to loss as a result of its involvement with these
entities at December 31, 2006 was limited to approximately
$286 million of book basis of the Corporation’s
investment, which includes unused commitments for future
investments.
For further information on the company’s consolidation
policy, see Note 1 on page 70.
Note 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 typically
holds the majority of its financial instruments until maturity,
it does not expect to realize many of the estimated amounts
disclosed. The disclosures also do not include estimated fair
value amounts for items which are not defined as financial
instruments, but which have significant value. These include
such items as core deposit intangibles, the future earnings
potential of significant customer relationships and the value of
trust operations and other fee generating businesses. The
Corporation believes the imprecision of an estimate could be
significant.
The Corporation used the following methods and assumptions in
estimating fair value disclosures for financial instruments:
Cash and due from banks, federal funds sold and securities
purchased under agreements to resell, and interest-bearing
deposits with banks:
The carrying amount
approximates the estimated fair value of these instruments.
Trading 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 current market
values of similar loans.
Investment securities:
Investment securities
are carried at quoted market value, if available. The market
value for comparable securities is used to estimate fair value
if quoted market values are not available.
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
111
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
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:
These consist primarily
of short-term trade-related loans, variable rate loans or loans
which have no cross-border risk due to the existence of domestic
guarantors or liquid collateral. The estimated fair value of the
Corporation’s international loan portfolio is represented
by their carrying value, adjusted by an amount which estimates
the effect on fair value of changes in the credit quality of
borrowers or guarantors.
Retail loans:
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 representative of a discounted cash flow analysis,
using interest rates and prepayment speed assumptions currently
quoted for comparable instruments.
Deposit liabilities:
The estimated fair value
of demand deposits, consisting of checking, savings and certain
money market deposit accounts, is represented by the amounts
payable on demand. The carrying amount of deposits in foreign
offices approximates their estimated fair value, while the
estimated fair value of term deposits is calculated by
discounting the scheduled cash flows using the year-end rates
offered on these instruments.
Short-term borrowings:
The carrying amount of
federal funds purchased, securities sold under agreements to
repurchase and other 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 instruments:
The estimated fair
value of interest rate and energy commodity 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, energy commodity and
foreign currency options (including caps, floors and collars) is
determined using option pricing models. The estimated fair value
of warrants that are accounted for as derivatives are valued
using a Black-Scholes valuation model. All derivative
instruments 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.
112
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The estimated fair values of the Corporation’s financial
instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
(in millions)
|
|
|
|
|
Assets
|
|
Cash and due from banks
|
|
$
|
1,434
|
|
|
$
|
1,434
|
|
|
$
|
1,609
|
|
|
$
|
1,609
|
|
|
Federal funds sold and securities
purchased under agreements to resell
|
|
|
2,632
|
|
|
|
2,632
|
|
|
|
937
|
|
|
|
937
|
|
|
Interest-bearing deposits with
banks
|
|
|
—
|
|
|
|
—
|
|
|
|
32
|
|
|
|
32
|
|
|
Trading securities
|
|
|
179
|
|
|
|
179
|
|
|
|
38
|
|
|
|
38
|
|
|
Loans
held-for-sale
|
|
|
148
|
|
|
|
148
|
|
|
|
152
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other short-term investments
|
|
|
327
|
|
|
|
327
|
|
|
|
222
|
|
|
|
222
|
|
|
Investment securities
available-for-sale
|
|
|
3,662
|
|
|
|
3,662
|
|
|
|
4,240
|
|
|
|
4,240
|
|
|
Commercial loans
|
|
|
26,265
|
|
|
|
26,050
|
|
|
|
23,545
|
|
|
|
23,257
|
|
|
Real estate construction loans
|
|
|
4,203
|
|
|
|
4,192
|
|
|
|
3,482
|
|
|
|
3,490
|
|
|
Commercial mortgage loans
|
|
|
9,659
|
|
|
|
9,796
|
|
|
|
8,867
|
|
|
|
8,866
|
|
|
Residential mortgage loans
|
|
|
1,677
|
|
|
|
1,718
|
|
|
|
1,485
|
|
|
|
1,465
|
|
|
Consumer loans
|
|
|
2,423
|
|
|
|
2,477
|
|
|
|
2,697
|
|
|
|
2,677
|
|
|
Lease financing
|
|
|
1,353
|
|
|
|
1,191
|
|
|
|
1,295
|
|
|
|
1,267
|
|
|
International loans
|
|
|
1,851
|
|
|
|
1,839
|
|
|
|
1,876
|
|
|
|
1,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
47,431
|
|
|
|
47,263
|
|
|
|
43,247
|
|
|
|
42,871
|
|
|
Less allowance for loan losses
|
|
|
(493
|
)
|
|
|
—
|
|
|
|
(516
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
46,938
|
|
|
|
47,263
|
|
|
|
42,731
|
|
|
|
42,871
|
|
|
Customers’ liability on
acceptances outstanding
|
|
|
56
|
|
|
|
56
|
|
|
|
59
|
|
|
|
59
|
|
|
Loan servicing rights
|
|
|
14
|
|
|
|
14
|
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
(noninterest-bearing)
|
|
|
13,901
|
|
|
|
13,901
|
|
|
|
15,666
|
|
|
|
15,666
|
|
|
Interest-bearing deposits
|
|
|
31,026
|
|
|
|
30,998
|
|
|
|
26,765
|
|
|
|
26,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
44,927
|
|
|
|
44,899
|
|
|
|
42,431
|
|
|
|
42,417
|
|
|
Short-term borrowings
|
|
|
635
|
|
|
|
635
|
|
|
|
302
|
|
|
|
302
|
|
|
Acceptances outstanding
|
|
|
56
|
|
|
|
56
|
|
|
|
59
|
|
|
|
59
|
|
|
Medium- and long-term debt
|
|
|
5,949
|
|
|
|
5,642
|
|
|
|
3,961
|
|
|
|
3,676
|
|
|
Derivative
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
|
81
|
|
|
|
81
|
|
|
|
110
|
|
|
|
110
|
|
|
Unrealized losses
|
|
|
(96
|
)
|
|
|
(96
|
)
|
|
|
(156
|
)
|
|
|
(156
|
)
|
|
Customer-initiated and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
|
109
|
|
|
|
109
|
|
|
|
107
|
|
|
|
107
|
|
|
Unrealized losses
|
|
|
(94
|
)
|
|
|
(94
|
)
|
|
|
(101
|
)
|
|
|
(101
|
)
|
|
Warrants
|
|
|
26
|
|
|
|
26
|
|
|
|
30
|
|
|
|
30
|
|
|
Credit-related financial
instruments
|
|
|
(94
|
)
|
|
|
(100
|
)
|
|
|
(103
|
)
|
|
|
(107
|
)
|
113
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Note 24 —
Business Segment Information
The Corporation has strategically aligned its operations into
three major business segments: the Business Bank, the Retail
Bank (formerly known as Small Business & Personal
Financial Services), and Wealth & Institutional
Management. These business segments are differentiated based on
the type of customer and the related products and services
provided. In addition to the three major business segments, the
Finance Division is also reported as a segment. Business segment
results are produced by the Corporation’s internal
management accounting system. This system measures financial
results based on the internal business unit structure of the
Corporation. Information presented is not necessarily comparable
with similar information for any other financial institution.
The management accounting system assigns balance sheet and
income statement items to each business segment using certain
methodologies, which are regularly reviewed and refined. For
comparability purposes, amounts in all periods are based on
business segments and methodologies in effect at
December 31, 2006. These methodologies, which are briefly
summarized in the following paragraph, may be modified as
management accounting systems are enhanced and changes occur in
the organizational structure or product lines.
The Corporation’s internal funds transfer pricing system
records cost of funds or credit for funds using a combination of
matched maturity funding for certain assets and liabilities and
a blended rate based on various maturities for the remaining
assets and liabilities. The allowance for loan losses is
allocated to both large business and certain large personal
purpose consumer and residential mortgage loans that have
deteriorated below certain levels of credit risk based on a
non-standard, specifically calculated amount. Additional loan
loss reserves are allocated based on industry-specific risk not
captured in the credit scores of individual loans. For other
business loans, it is recorded in business units based on the
credit score of each loan outstanding. For other consumer and
residential mortgage loans, the allowance for loan losses is
allocated based on applying projected loss ratios to various
segments of the loan portfolio. The related loan loss provision
is assigned based on the amount necessary to maintain an
allowance for loan losses adequate for each product category.
Noninterest income and expenses directly attributable to a line
of business are assigned to that business segment. Direct
expenses incurred by areas whose services support the overall
Corporation are allocated to the business segments as follows:
product processing expenditures are allocated based on standard
unit costs applied to actual volume measurements; administrative
expenses are allocated based on estimated time expended; and
corporate overhead is assigned based on the ratio of a business
segment’s noninterest expenses to total noninterest
expenses incurred by all business segments. Equity is attributed
based on credit, operational and interest rate risks. Most of
the equity attributed relates to credit risk, which is
determined based on the credit score and expected remaining life
of each loan, letter of credit and unused commitment recorded in
the business units. Operational risk is allocated based on
deposit balances, non-earning assets, trust assets under
management, and the nature and extent of expenses incurred by
business units. Virtually all interest rate risk is assigned to
Finance, as are the Corporation’s hedging activities.
The following discussion provides information about the
activities of each business segment. A discussion of the
financial results and the factors impacting 2006 performance can
be found in the section entitled “Business Segments”
in the financial review on page 33.
The Business Bank is primarily comprised of the following
businesses: middle market, commercial real estate, national
dealer services, global finance, large corporate, leasing,
financial services, and technology and life sciences. This
business segment meets the needs of medium-size businesses,
multinational corporations and governmental entities by offering
various products and services, including commercial loans and
lines of credit, deposits, cash management, capital market
products, international trade finance, letters of credit,
foreign exchange management services and loan syndication
services.
The Retail Bank includes small business banking (entities with
annual sales under $10 million) and personal financial
services, consisting of consumer lending, consumer deposit
gathering and mortgage loan origination. In addition to a full
range of financial services provided to small business
customers, this business segment offers a variety of consumer
products, including deposit accounts, installment loans, credit
cards, student loans, home equity lines of credit, and
residential mortgage loans.
114
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Wealth & Institutional Management offers products and
services consisting of personal trust, which is designed to meet
the personal financial needs of affluent individuals (as defined
by individual net income or wealth), private banking,
institutional trust, retirement services, investment management
and advisory services, investment banking, and discount
securities brokerage services. This business segment also offers
the sale of annuity products, as well as life, disability and
long-term care insurance products.
The Finance segment includes the Corporation’s securities
portfolio and asset and liability management activities. This
segment is responsible for managing the Corporation’s
funding, liquidity and capital needs, performing interest
sensitivity analysis and executing various strategies to manage
the Corporation’s exposure to liquidity, interest rate
risk, and foreign exchange risk.
The Other category includes the discontinued operations of the
Corporation’s Munder subsidiary (formerly included in the
Wealth & Institutional Management segment), divested
business lines, the income and expense impact of cash and loan
loss reserves not assigned to specific business segments, tax
benefits not assigned to specific business segments and
miscellaneous other expenses of a corporate nature. The loan
loss reserves represent the unallocated allowance for loan
losses.
115
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Business segment financial results are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
|
|
|
|
|
|
Wealth & Institutional
|
|
|
|
|
Business Bank
|
|
|
Retail Bank
|
|
|
Management
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) (FTE)
|
|
$
|
1,314
|
|
|
$
|
1,394
|
|
|
$
|
1,388
|
|
|
$
|
635
|
|
|
$
|
608
|
|
|
$
|
585
|
|
|
$
|
149
|
|
|
$
|
150
|
|
|
$
|
150
|
|
|
Provision for loan losses
|
|
|
39
|
|
|
|
(47
|
)
|
|
|
(5
|
)
|
|
|
25
|
|
|
|
4
|
|
|
|
31
|
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
3
|
|
|
Noninterest income
|
|
|
305
|
|
|
|
283
|
|
|
|
278
|
|
|
|
209
|
|
|
|
208
|
|
|
|
212
|
|
|
|
259
|
|
|
|
254
|
|
|
|
252
|
|
|
Noninterest expenses
|
|
|
715
|
|
|
|
711
|
|
|
|
590
|
|
|
|
619
|
|
|
|
552
|
|
|
|
508
|
|
|
|
325
|
|
|
|
315
|
|
|
|
293
|
|
|
Provision (benefit) for income
taxes (FTE)
|
|
|
279
|
|
|
|
342
|
|
|
|
384
|
|
|
|
66
|
|
|
|
92
|
|
|
|
93
|
|
|
|
26
|
|
|
|
33
|
|
|
|
39
|
|
|
Income from discontinued
operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
586
|
|
|
$
|
671
|
|
|
$
|
697
|
|
|
$
|
134
|
|
|
$
|
168
|
|
|
$
|
165
|
|
|
$
|
56
|
|
|
$
|
59
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net credit-related charge-offs
|
|
$
|
37
|
|
|
$
|
86
|
|
|
$
|
169
|
|
|
$
|
35
|
|
|
$
|
25
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
Selected Average
Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
39,298
|
|
|
$
|
35,757
|
|
|
$
|
32,842
|
|
|
$
|
6,746
|
|
|
$
|
6,500
|
|
|
$
|
6,424
|
|
|
$
|
3,723
|
|
|
$
|
3,547
|
|
|
$
|
3,252
|
|
|
Loans
|
|
|
38,080
|
|
|
|
34,561
|
|
|
|
31,863
|
|
|
|
6,040
|
|
|
|
5,825
|
|
|
|
5,724
|
|
|
|
3,579
|
|
|
|
3,396
|
|
|
|
3,129
|
|
|
Deposits
|
|
|
17,774
|
|
|
|
20,424
|
|
|
|
19,623
|
|
|
|
16,790
|
|
|
|
16,805
|
|
|
|
16,762
|
|
|
|
2,412
|
|
|
|
2,494
|
|
|
|
2,525
|
|
|
Liabilities
|
|
|
18,690
|
|
|
|
21,178
|
|
|
|
20,300
|
|
|
|
16,794
|
|
|
|
16,798
|
|
|
|
16,755
|
|
|
|
2,409
|
|
|
|
2,489
|
|
|
|
2,519
|
|
|
Attributed equity
|
|
|
2,639
|
|
|
|
2,528
|
|
|
|
2,462
|
|
|
|
828
|
|
|
|
801
|
|
|
|
785
|
|
|
|
302
|
|
|
|
304
|
|
|
|
298
|
|
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets(1)
|
|
|
1.49
|
%
|
|
|
1.88
|
%
|
|
|
2.12
|
%
|
|
|
0.76
|
%
|
|
|
0.96
|
%
|
|
|
0.94
|
%
|
|
|
1.51
|
%
|
|
|
1.66
|
%
|
|
|
2.05
|
%
|
|
Return on average attributed equity
|
|
|
22.21
|
|
|
|
26.55
|
|
|
|
28.31
|
|
|
|
16.13
|
|
|
|
21.02
|
|
|
|
21.05
|
|
|
|
18.60
|
|
|
|
19.38
|
|
|
|
22.33
|
|
|
Net interest margin(2)
|
|
|
3.44
|
|
|
|
4.02
|
|
|
|
4.34
|
|
|
|
3.78
|
|
|
|
3.62
|
|
|
|
3.49
|
|
|
|
4.15
|
|
|
|
4.40
|
|
|
|
4.76
|
|
|
Efficiency ratio
|
|
|
44.20
|
|
|
|
42.38
|
|
|
|
35.44
|
|
|
|
73.37
|
|
|
|
67.54
|
|
|
|
63.77
|
|
|
|
79.57
|
|
|
|
77.99
|
|
|
|
72.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
Finance
|
|
|
Other
|
|
|
Total
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense) (FTE)
|
|
$
|
(111
|
)
|
|
$
|
(193
|
)
|
|
$
|
(302
|
)
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
(7
|
)
|
|
$
|
1,986
|
|
|
$
|
1,960
|
|
|
$
|
1,814
|
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(28
|
)
|
|
|
(1
|
)
|
|
|
35
|
|
|
|
37
|
|
|
|
(47
|
)
|
|
|
64
|
|
|
Noninterest income
|
|
|
64
|
|
|
|
64
|
|
|
|
57
|
|
|
|
18
|
|
|
|
10
|
|
|
|
9
|
|
|
|
855
|
|
|
|
819
|
|
|
|
808
|
|
|
Noninterest expenses
|
|
|
6
|
|
|
|
1
|
|
|
|
1
|
|
|
|
9
|
|
|
|
34
|
|
|
|
66
|
|
|
|
1,674
|
|
|
|
1,613
|
|
|
|
1,458
|
|
|
Provision (benefit) for income
taxes (FTE)
|
|
|
(33
|
)
|
|
|
(58
|
)
|
|
|
(88
|
)
|
|
|
10
|
|
|
|
(12
|
)
|
|
|
(76
|
)
|
|
|
348
|
|
|
|
397
|
|
|
|
352
|
|
|
Income from discontinued
operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
111
|
|
|
|
45
|
|
|
|
9
|
|
|
|
111
|
|
|
|
45
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(20
|
)
|
|
$
|
(72
|
)
|
|
$
|
(158
|
)
|
|
$
|
137
|
|
|
$
|
35
|
|
|
$
|
(14
|
)
|
|
$
|
893
|
|
|
$
|
861
|
|
|
$
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net credit-related charge-offs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
116
|
|
|
$
|
194
|
|
|
Selected Average
Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
5,479
|
|
|
$
|
5,430
|
|
|
$
|
7,279
|
|
|
$
|
1,333
|
|
|
$
|
1,272
|
|
|
$
|
1,151
|
|
|
$
|
56,579
|
|
|
$
|
52,506
|
|
|
$
|
50,948
|
|
|
Loans
|
|
|
18
|
|
|
|
(15
|
)
|
|
|
(13
|
)
|
|
|
33
|
|
|
|
49
|
|
|
|
30
|
|
|
|
47,750
|
|
|
|
43,816
|
|
|
|
40,733
|
|
|
Deposits
|
|
|
5,186
|
|
|
|
896
|
|
|
|
1,209
|
|
|
|
(88
|
)
|
|
|
21
|
|
|
|
26
|
|
|
|
42,074
|
|
|
|
40,640
|
|
|
|
40,145
|
|
|
Liabilities
|
|
|
13,209
|
|
|
|
6,561
|
|
|
|
6,064
|
|
|
|
301
|
|
|
|
383
|
|
|
|
269
|
|
|
|
51,403
|
|
|
|
47,409
|
|
|
|
45,907
|
|
|
Attributed equity
|
|
|
499
|
|
|
|
510
|
|
|
|
661
|
|
|
|
908
|
|
|
|
954
|
|
|
|
835
|
|
|
|
5,176
|
|
|
|
5,097
|
|
|
|
5,041
|
|
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets(1)
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
1.58
|
%
|
|
|
1.64
|
%
|
|
|
1.49
|
%
|
|
Return on average attributed equity
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
17.24
|
|
|
|
16.90
|
|
|
|
15.03
|
|
|
Net interest margin(2)
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
3.79
|
|
|
|
4.06
|
|
|
|
3.86
|
|
|
Efficiency ratio
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
58.92
|
|
|
|
58.01
|
|
|
|
55.60
|
|
|
|
|
|
(1)
|
Return on average assets is calculated based on the greater of
average assets or average liabilities and attributed equity.
|
|
(2)
|
Net interest margin is calculated based on the greater of
average earnings assets or average deposits and purchased funds.
|
FTE-Fully Taxable Equivalent
n/m-not meaningful
116
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The Corporation’s management accounting system also
produces market segment results for the Corporation’s four
primary geographic markets: Midwest & Other Markets,
Western, Texas, and Florida. The following discussion provides
information about the activities of each market segment. A
discussion of the financial results and the factors impacting
2006 performance can be found in the section entitled
“Geographic Market Segments” in the financial review
on page 34.
Midwest & Other Markets includes all markets in which the
Corporation has operations, except for the Western, Texas and
Florida markets, as described below. Substantially all of the
Corporation’s international operations are included in the
Midwest & Other Markets segment. Currently, Michigan
operations represent the significant majority of this geographic
market.
The Western market consists of the states of California,
Arizona, Nevada, Colorado and Washington. Currently, California
operations represent the significant majority of the Western
market.
The Texas and Florida markets consist of the states of Texas and
Florida, respectively.
The Finance & Other Businesses segment includes the
Corporation’s securities portfolio, asset and liability
management activities, the discontinued operations of the
Corporation’s Munder subsidiary (formerly included in
Midwest & Other Markets), divested business lines, the
income and expense impact of cash and loan loss reserves not
assigned to specific business/market segments, tax benefits not
assigned to specific business/market segments and miscellaneous
other expenses of a corporate nature. This segment includes
responsibility for managing the Corporation’s funding,
liquidity and capital needs, performing interest sensitivity
analysis and executing various strategies to manage the
Corporation’s exposure to liquidity, interest rate risk and
foreign exchange risk.
The Corporation’s total revenues from customers attributed
to and long-lived assets (excluding certain intangible assets)
located in foreign countries in which the Corporation holds
assets were less than five percent of the Corporation’s
consolidated revenues and long-lived assets (excluding certain
intangible assets ) in each of the years ended December 31,
2006, 2005 and 2004.
117
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Market segment financial results are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
Midwest & Other Markets
|
|
|
Western
|
|
|
Texas
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(dollar amounts in millions)
|
|
|
|
|
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(expense) (FTE)
|
|
$
|
1,084
|
|
|
$
|
1,083
|
|
|
$
|
1,077
|
|
|
$
|
703
|
|
|
$
|
785
|
|
|
$
|
768
|
|
|
$
|
263
|
|
|
$
|
242
|
|
|
$
|
239
|
|
|
Provision for loan losses
|
|
|
75
|
|
|
|
32
|
|
|
|
(30
|
)
|
|
|
(14
|
)
|
|
|
(74
|
)
|
|
|
50
|
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
6
|
|
|
Noninterest income
|
|
|
522
|
|
|
|
532
|
|
|
|
522
|
|
|
|
160
|
|
|
|
123
|
|
|
|
132
|
|
|
|
76
|
|
|
|
76
|
|
|
|
75
|
|
|
Noninterest expenses
|
|
|
957
|
|
|
|
922
|
|
|
|
836
|
|
|
|
449
|
|
|
|
434
|
|
|
|
359
|
|
|
|
217
|
|
|
|
192
|
|
|
|
174
|
|
|
Provision (benefit) for income
taxes (FTE)
|
|
|
158
|
|
|
|
209
|
|
|
|
256
|
|
|
|
165
|
|
|
|
204
|
|
|
|
203
|
|
|
|
40
|
|
|
|
45
|
|
|
|
47
|
|
|
Income from discontinued
operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
416
|
|
|
$
|
452
|
|
|
$
|
537
|
|
|
$
|
263
|
|
|
$
|
344
|
|
|
$
|
288
|
|
|
$
|
81
|
|
|
$
|
86
|
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net credit-related charge-offs
|
|
$
|
60
|
|
|
$
|
90
|
|
|
$
|
93
|
|
|
$
|
3
|
|
|
$
|
14
|
|
|
$
|
92
|
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
9
|
|
|
Selected Average
Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
25,139
|
|
|
$
|
24,847
|
|
|
$
|
23,972
|
|
|
$
|
16,569
|
|
|
$
|
14,302
|
|
|
$
|
12,525
|
|
|
$
|
6,239
|
|
|
$
|
5,205
|
|
|
$
|
4,694
|
|
|
Loans
|
|
|
23,938
|
|
|
|
23,624
|
|
|
|
22,948
|
|
|
|
15,990
|
|
|
|
13,702
|
|
|
|
11,916
|
|
|
|
5,971
|
|
|
|
5,020
|
|
|
|
4,536
|
|
|
Deposits
|
|
|
18,333
|
|
|
|
18,869
|
|
|
|
19,091
|
|
|
|
14,622
|
|
|
|
16,887
|
|
|
|
15,760
|
|
|
|
3,715
|
|
|
|
3,668
|
|
|
|
3,832
|
|
|
Liabilities
|
|
|
19,168
|
|
|
|
19,594
|
|
|
|
19,757
|
|
|
|
14,692
|
|
|
|
16,907
|
|
|
|
15,766
|
|
|
|
3,725
|
|
|
|
3,666
|
|
|
|
3,826
|
|
|
Attributed equity
|
|
|
2,032
|
|
|
|
2,037
|
|
|
|
2,015
|
|
|
|
1,110
|
|
|
|
1,051
|
|
|
|
1,029
|
|
|
|
535
|
|
|
|
474
|
|
|
|
438
|
|
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (1)
|
|
|
1.66
|
%
|
|
|
1.82
|
%
|
|
|
2.24
|
%
|
|
|
1.59
|
%
|
|
|
1.91
|
%
|
|
|
1.71
|
%
|
|
|
1.29
|
%
|
|
|
1.67
|
%
|
|
|
1.85
|
%
|
|
Return on average attributed equity
|
|
|
20.49
|
|
|
|
22.19
|
|
|
|
26.65
|
|
|
|
23.74
|
|
|
|
32.67
|
|
|
|
27.93
|
|
|
|
15.05
|
|
|
|
18.30
|
|
|
|
19.83
|
|
|
Net interest margin (2)
|
|
|
4.51
|
|
|
|
4.54
|
|
|
|
4.66
|
|
|
|
4.39
|
|
|
|
4.65
|
|
|
|
4.87
|
|
|
|
4.37
|
|
|
|
4.81
|
|
|
|
5.28
|
|
|
Efficiency ratio
|
|
|
59.60
|
|
|
|
57.11
|
|
|
|
52.34
|
|
|
|
52.06
|
|
|
|
47.77
|
|
|
|
39.92
|
|
|
|
64.14
|
|
|
|
60.04
|
|
|
|
55.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
Florida
|
|
|
Finance & Other Businesses
|
|
|
Total
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Earnings Summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)(FTE)
|
|
$
|
48
|
|
|
$
|
42
|
|
|
$
|
39
|
|
|
$
|
(112
|
)
|
|
$
|
(192
|
)
|
|
$
|
(309
|
)
|
|
$
|
1,986
|
|
|
$
|
1,960
|
|
|
$
|
1,814
|
|
|
Provision for loan losses
|
|
|
3
|
|
|
|
1
|
|
|
|
3
|
|
|
|
(28
|
)
|
|
|
(1
|
)
|
|
|
35
|
|
|
|
37
|
|
|
|
(47
|
)
|
|
|
64
|
|
|
Noninterest income
|
|
|
15
|
|
|
|
14
|
|
|
|
13
|
|
|
|
82
|
|
|
|
74
|
|
|
|
66
|
|
|
|
855
|
|
|
|
819
|
|
|
|
808
|
|
|
Noninterest expenses
|
|
|
36
|
|
|
|
30
|
|
|
|
22
|
|
|
|
15
|
|
|
|
35
|
|
|
|
67
|
|
|
|
1,674
|
|
|
|
1,613
|
|
|
|
1,458
|
|
|
Provision (benefit) for income
taxes (FTE)
|
|
|
8
|
|
|
|
9
|
|
|
|
10
|
|
|
|
(23
|
)
|
|
|
(70
|
)
|
|
|
(164
|
)
|
|
|
348
|
|
|
|
397
|
|
|
|
352
|
|
|
Income from discontinued
operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
111
|
|
|
|
45
|
|
|
|
9
|
|
|
|
111
|
|
|
|
45
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
17
|
|
|
$
|
117
|
|
|
$
|
(37
|
)
|
|
$
|
(172
|
)
|
|
$
|
893
|
|
|
$
|
861
|
|
|
$
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net credit-related charge-offs
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
116
|
|
|
$
|
194
|
|
|
Selected Average
Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
1,820
|
|
|
$
|
1,450
|
|
|
$
|
1,327
|
|
|
$
|
6,812
|
|
|
$
|
6,702
|
|
|
$
|
8,430
|
|
|
$
|
56,579
|
|
|
$
|
52,506
|
|
|
$
|
50,948
|
|
|
Loans
|
|
|
1,800
|
|
|
|
1,436
|
|
|
|
1,316
|
|
|
|
51
|
|
|
|
34
|
|
|
|
17
|
|
|
|
47,750
|
|
|
|
43,816
|
|
|
|
40,733
|
|
|
Deposits
|
|
|
306
|
|
|
|
299
|
|
|
|
227
|
|
|
|
5,098
|
|
|
|
917
|
|
|
|
1,235
|
|
|
|
42,074
|
|
|
|
40,640
|
|
|
|
40,145
|
|
|
Liabilities
|
|
|
308
|
|
|
|
298
|
|
|
|
225
|
|
|
|
13,510
|
|
|
|
6,944
|
|
|
|
6,333
|
|
|
|
51,403
|
|
|
|
47,409
|
|
|
|
45,907
|
|
|
Attributed equity
|
|
|
92
|
|
|
|
71
|
|
|
|
63
|
|
|
|
1,407
|
|
|
|
1,464
|
|
|
|
1,496
|
|
|
|
5,176
|
|
|
|
5,097
|
|
|
|
5,041
|
|
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (1)
|
|
|
0.85
|
%
|
|
|
1.12
|
%
|
|
|
1.31
|
%
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
1.58
|
%
|
|
|
1.64
|
%
|
|
|
1.49
|
%
|
|
Return on average attributed equity
|
|
|
16.82
|
|
|
|
22.87
|
|
|
|
27.78
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
17.24
|
|
|
|
16.90
|
|
|
|
15.03
|
|
|
Net interest margin (2)
|
|
|
2.66
|
|
|
|
2.94
|
|
|
|
2.93
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
3.79
|
|
|
|
4.06
|
|
|
|
3.86
|
|
|
Efficiency ratio
|
|
|
57.13
|
|
|
|
53.10
|
|
|
|
41.84
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
n/m
|
|
|
|
58.92
|
|
|
|
58.01
|
|
|
|
55.60
|
|
|
|
|
|
|
(1)
|
|
Return on average assets is
calculated based on the greater of average assets or average
liabilities and attributed equity.
|
|
|
|
(2)
|
|
Net interest margin is calculated
based on the greater of average earnings assets or average
deposits and purchased funds.
|
FTE-Fully Taxable Equivalent
n/m-not meaningful
118
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Note 25 —
Parent Company Financial Statements
Balance
Sheets — Comerica Incorporated
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in millions, except share data)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and due from subsidiary bank
|
|
$
|
122
|
|
|
$
|
11
|
|
|
Short-term investments with
subsidiary bank
|
|
|
246
|
|
|
|
264
|
|
|
Other short-term investments
|
|
|
92
|
|
|
|
—
|
|
|
Investment in subsidiaries,
principally banks
|
|
|
5,586
|
|
|
|
5,587
|
|
|
Premises and equipment
|
|
|
4
|
|
|
|
3
|
|
|
Other assets
|
|
|
152
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,202
|
|
|
$
|
6,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
806
|
|
|
$
|
813
|
|
|
Other liabilities
|
|
|
243
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,049
|
|
|
|
1,054
|
|
|
Common stock —
$5 par value:
|
|
|
|
|
|
|
|
|
|
Authorized —
325,000,000 shares
|
|
|
|
|
|
|
|
|
|
Issued —
178,735,252 shares at 12/31/06 and 12/31/05
|
|
|
894
|
|
|
|
894
|
|
|
Capital surplus
|
|
|
520
|
|
|
|
461
|
|
|
Accumulated other comprehensive
loss
|
|
|
(324
|
)
|
|
|
(170
|
)
|
|
Retained earnings
|
|
|
5,282
|
|
|
|
4,796
|
|
|
Less cost of common stock in
treasury — 21,161,161 shares at 12/31/06 and
15,834,985 shares at 12/31/05
|
|
|
(1,219
|
)
|
|
|
(913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
5,153
|
|
|
|
5,068
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity
|
|
$
|
6,202
|
|
|
$
|
6,122
|
|
|
|
|
|
|
|
|
|
|
|
119
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Statements
of Income — Comerica Incorporated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
746
|
|
|
$
|
793
|
|
|
$
|
691
|
|
|
Other interest income
|
|
|
13
|
|
|
|
6
|
|
|
|
2
|
|
|
Intercompany management fees
|
|
|
178
|
|
|
|
117
|
|
|
|
75
|
|
|
Other noninterest income
|
|
|
13
|
|
|
|
3
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
950
|
|
|
|
919
|
|
|
|
780
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
52
|
|
|
|
45
|
|
|
|
37
|
|
|
Salaries and employee benefits
|
|
|
113
|
|
|
|
98
|
|
|
|
84
|
|
|
Net occupancy expense
|
|
|
2
|
|
|
|
6
|
|
|
|
7
|
|
|
Equipment expense
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
Other noninterest expenses
|
|
|
46
|
|
|
|
47
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
214
|
|
|
|
197
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision (benefit)
for income taxes and equity in undistributed earnings of
subsidiaries
|
|
|
736
|
|
|
|
722
|
|
|
|
603
|
|
|
Provision (benefit) for income
taxes
|
|
|
(6
|
)
|
|
|
(27
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in
undistributed earnings of subsidiaries
|
|
|
742
|
|
|
|
749
|
|
|
|
637
|
|
|
Equity in undistributed earnings
of subsidiaries, principally banks (including discontinued
operations)
|
|
|
151
|
|
|
|
112
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
893
|
|
|
$
|
861
|
|
|
$
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Statements
of Cash Flows — Comerica Incorporated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions)
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
893
|
|
|
$
|
861
|
|
|
$
|
757
|
|
|
Adjustments to reconcile net
income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings of
subsidiaries, principally banks (including discontinued
operations)
|
|
|
(151
|
)
|
|
|
(112
|
)
|
|
|
(120
|
)
|
|
Depreciation and software
amortization
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
Share-based compensation expense
|
|
|
21
|
|
|
|
15
|
|
|
|
14
|
|
|
Excess tax benefits from
share-based compensation arrangements
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Other, net
|
|
|
49
|
|
|
|
38
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(89
|
)
|
|
|
(58
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
804
|
|
|
|
803
|
|
|
|
649
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in short-term
investments with subsidiary bank
|
|
|
18
|
|
|
|
25
|
|
|
|
7
|
|
|
Net proceeds from private equity
and venture capital investments
|
|
|
3
|
|
|
|
21
|
|
|
|
10
|
|
|
Capital transactions with
subsidiaries
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
(9
|
)
|
|
Net increase in fixed assets
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing
activities
|
|
|
14
|
|
|
|
47
|
|
|
|
7
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock
|
|
|
45
|
|
|
|
51
|
|
|
|
72
|
|
|
Purchase of common stock for
treasury
|
|
|
(384
|
)
|
|
|
(525
|
)
|
|
|
(370
|
)
|
|
Dividends paid
|
|
|
(377
|
)
|
|
|
(366
|
)
|
|
|
(357
|
)
|
|
Excess tax benefits from
share-based compensation arrangements
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(707
|
)
|
|
|
(840
|
)
|
|
|
(655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash on deposit at
bank subsidiary
|
|
|
111
|
|
|
|
10
|
|
|
|
1
|
|
|
Cash on deposit at bank subsidiary
at beginning of year
|
|
|
11
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash on deposit at bank subsidiary
at end of year
|
|
$
|
122
|
|
|
$
|
11
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
50
|
|
|
$
|
42
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (recovered) paid
|
|
$
|
—
|
|
|
$
|
(30
|
)
|
|
$
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 26 —
Sales of Businesses/Discontinued Operations
In December 2006, the Corporation sold its ownership interest in
Munder to an investor group. Munder provides investment advisory
services to institutions, municipalities, unions, charitable
organizations and private investors, and also serves as
investment advisor for Munder Funds. For its approximately
87 percent fully diluted interest in Munder, the
Corporation received $232 million in cash at closing, an
interest-bearing contingent note and Munder’s interest in
World Asset Management, an internal division of Munder with
$17 billion in indexed assets under management at
December 31, 2006. The contingent note has an initial
principal amount of $70 million, which would be realized if
the Corporation’s client-related revenues earned by Munder
remain consistent with current levels of approximately
$17 million per year for the five years following the
closing of the transaction
(2007-2011).
The principal amount of the note may be increased to a maximum
of $80 million or decreased to as low as zero, depending on
the level of such revenues earned in the five years following
the closing.
121
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Repayment of the principal is scheduled to begin after the sixth
anniversary of the closing of the transaction from Munder’s
excess cash flows, as defined in the sale agreement. The note
matures in December 2013. Future gains related to the contingent
note are expected to be recognized periodically as targets for
the Corporation’s client-related revenues earned by Munder
are achieved. The potential future gains are expected to be
recorded between 2008 and the fourth quarter of 2011, unless
fully earned prior to that time. The sale, including associated
costs and assigned goodwill, resulted in a net after-tax gain of
$108 million, or $0.67 per average annual diluted
share. Included in “income from discontinued operations,
net of tax” on the consolidated statement of income for the
year ended December 31, 2006 were the following items
related to the sale:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
Sale proceeds, less net book value
and costs to sell
|
|
$
|
181
|
|
|
Long-term incentive plan expense
at Munder triggered by the sale
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
Net gain on sale before income
taxes
|
|
|
172
|
|
|
Applicable income taxes
|
|
|
64
|
|
|
|
|
|
|
|
|
Gain included in “income from
discontinued operations, net of tax” on the consolidated
statement of income
|
|
$
|
108
|
|
|
|
|
|
|
|
As a result of the sale transaction, the Corporation accounted
for Munder as a discontinued operation and all prior periods
presented have been restated. As such, Munder was reported in
“Other” and “Finance & Other” for
business and geographic market segment reporting purposes,
respectively. Munder was previously reported in
“Wealth & Institutional Management” and
“Midwest & Other Markets” for business and
geographic market segment reporting purposes, respectively.
Included in income from discontinued operations before income
taxes was $11 million of intercompany noninterest income in
each of the three years ended December 31, 2006, 2005 and
2004 and $1 million, $2 million and $1 million of
intercompany noninterest expense in the years ended
December 31, 2006, 2005 and 2004, respectively. The assets
and liabilities related to the discontinued operations of Munder
are not material and have not been reclassified on the
consolidated balance sheets.
The components of net income from discontinued operations for
the years ended December 31, 2006, 2005 and 2004,
respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
(in millions, except per share data)
|
|
|
|
|
Net interest income
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
Noninterest income
|
|
|
257
|
|
|
|
113
|
|
|
|
37
|
|
|
Noninterest expenses
|
|
|
66
|
|
|
|
43
|
|
|
|
23
|
|
|
Provision for income taxes
|
|
|
77
|
|
|
|
25
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations before cumulative effect of change in accounting
principle
|
|
|
119
|
|
|
|
45
|
|
|
|
9
|
|
|
Cumulative effect of change in
accounting principle, net of taxes
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued
operations
|
|
$
|
111
|
|
|
$
|
45
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations before cumulative effect of change in accounting
principle
|
|
$
|
0.74
|
|
|
$
|
0.27
|
|
|
$
|
0.05
|
|
|
Net income from discontinued
operations
|
|
|
0.69
|
|
|
|
0.27
|
|
|
|
0.05
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations before cumulative effect of change in accounting
principle
|
|
|
0.73
|
|
|
|
0.27
|
|
|
|
0.05
|
|
|
Net income from discontinued
operations
|
|
|
0.68
|
|
|
|
0.27
|
|
|
|
0.05
|
|
|
Other comprehensive income from
discontinued operations, net of tax
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
122
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
During the third quarter 2006, the Corporation completed the
sale of its Mexican bank charter. Included in “net gain
(loss) on sales of businesses” on the consolidated
statements of income is a net loss on the sale of
$12 million, which is reflected in the Corporation’s
Business Bank business segment and Midwest & Other
Markets geographic market segment. As part of the sale
transaction, the Corporation transferred $24 million of
loans and $18 million of liabilities to the buyer.
In the fourth quarter 2006, the Corporation decided to sell a
portfolio of loans related to manufactured housing, located
primarily in Michigan and Ohio. In accordance with
SFAS 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets,” approximately $74 million of
loans have been classified as
held-for-sale,
which are included in “other short-term investments”
on the consolidated balance sheet at December 31, 2006. The
Corporation recorded a $9 million charge-off to adjust the
loans classified as
held-for-sale
to fair value.
During the fourth quarter 2005, HCM Holdings Limited (formerly
Framlington Holdings Limited), which is a 49 percent owned
subsidiary of Munder, sold its 90.8 percent interest in
London, England based Framlington Group Limited. The sale
resulted in a net after-tax gain of $32 million, or
$0.19 per diluted share, which is included in “income
from discontinued operations, net of tax” on the
consolidated statements of income and reflected in
“Other” and “Finance & Other” for
business and geographic market segment reporting purposes,
respectively.
123
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Note 27 —
Summary of Quarterly Financial Statements (Unaudited)
The following quarterly information is unaudited. However, in
the opinion of management, the information reflects all
adjustments, which are necessary for the fair presentation of
the results of operations, for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
(in millions, except per share data)
|
|
|
|
|
Interest income
|
|
$
|
912
|
|
|
$
|
893
|
|
|
$
|
845
|
|
|
$
|
772
|
|
|
Interest expense
|
|
|
410
|
|
|
|
391
|
|
|
|
345
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
502
|
|
|
|
502
|
|
|
|
500
|
|
|
|
479
|
|
|
Provision for loan losses
|
|
|
22
|
|
|
|
15
|
|
|
|
27
|
|
|
|
(27
|
)
|
|
Net securities gains (losses)
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
Noninterest income (excluding net
securities gains (losses))
|
|
|
261
|
|
|
|
195
|
|
|
|
202
|
|
|
|
197
|
|
|
Noninterest expenses
|
|
|
457
|
|
|
|
399
|
|
|
|
389
|
|
|
|
429
|
|
|
Provision for income taxes
|
|
|
100
|
|
|
|
88
|
|
|
|
92
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
185
|
|
|
|
195
|
|
|
|
195
|
|
|
|
207
|
|
|
Income (loss) from discontinued
operations, net of tax
|
|
|
114
|
|
|
|
5
|
|
|
|
5
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
299
|
|
|
$
|
200
|
|
|
$
|
200
|
|
|
$
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.17
|
|
|
$
|
1.22
|
|
|
$
|
1.21
|
|
|
$
|
1.28
|
|
|
Net income
|
|
|
1.89
|
|
|
|
1.25
|
|
|
|
1.24
|
|
|
|
1.20
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1.16
|
|
|
|
1.20
|
|
|
|
1.19
|
|
|
|
1.26
|
|
|
Net income
|
|
|
1.87
|
|
|
|
1.23
|
|
|
|
1.22
|
|
|
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
(in millions, except per share data)
|
|
|
|
|
Interest income
|
|
$
|
744
|
|
|
$
|
719
|
|
|
$
|
655
|
|
|
$
|
608
|
|
|
Interest expense
|
|
|
244
|
|
|
|
207
|
|
|
|
172
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
500
|
|
|
|
512
|
|
|
|
483
|
|
|
|
461
|
|
|
Provision for loan losses
|
|
|
(20
|
)
|
|
|
(30
|
)
|
|
|
2
|
|
|
|
1
|
|
|
Net securities gains (losses)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Noninterest income (excluding net
securities gains (losses))
|
|
|
207
|
|
|
|
214
|
|
|
|
204
|
|
|
|
194
|
|
|
Noninterest expenses
|
|
|
469
|
|
|
|
410
|
|
|
|
370
|
|
|
|
364
|
|
|
Provision for income taxes
|
|
|
87
|
|
|
|
113
|
|
|
|
99
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
171
|
|
|
|
233
|
|
|
|
216
|
|
|
|
196
|
|
|
Income from discontinued
operations, net of tax
|
|
|
36
|
|
|
|
5
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
207
|
|
|
$
|
238
|
|
|
$
|
217
|
|
|
$
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.05
|
|
|
$
|
1.40
|
|
|
$
|
1.29
|
|
|
$
|
1.16
|
|
|
Net income
|
|
|
1.27
|
|
|
|
1.43
|
|
|
|
1.29
|
|
|
|
1.18
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1.04
|
|
|
|
1.38
|
|
|
|
1.27
|
|
|
|
1.14
|
|
|
Net income
|
|
|
1.25
|
|
|
|
1.41
|
|
|
|
1.28
|
|
|
|
1.16
|
|
124
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Beginning with the quarter ended September 30, 2006, the
Corporation accounted for Munder as a discontinued operation.
The summarized statements of income from discontinued operations
for the first two quarters of 2006 and the four quarterly
periods in 2005 below represent the difference between quarterly
amounts previously reported in the Quarterly Reports on
Form 10-Q
and the quarterly information presented above.
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
Second
|
|
|
First
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
(in millions, except per share data)
|
|
|
|
|
Net interest income
|
|
$
|
2
|
|
|
$
|
—
|
|
|
Noninterest income
|
|
|
22
|
|
|
|
20
|
|
|
Noninterest expenses
|
|
|
16
|
|
|
|
20
|
|
|
Provision for income taxes
|
|
|
3
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations before cumulative effect of change in accounting
principle
|
|
|
5
|
|
|
|
(5
|
)
|
|
Cumulative effect of change in
accounting principle, net of tax
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from
discontinued operations
|
|
$
|
5
|
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations before cumulative effect of change in accounting
principle
|
|
$
|
0.03
|
|
|
$
|
(0.03
|
)
|
|
Net income (loss) from
discontinued operations
|
|
|
0.03
|
|
|
|
(0.08
|
)
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations before cumulative effect of change in accounting
principle
|
|
|
0.03
|
|
|
|
(0.03
|
)
|
|
Net income (loss) from
discontinued operations
|
|
|
0.03
|
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
(in millions, except per share data)
|
|
|
|
|
Net interest income
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
Noninterest income
|
|
|
74
|
|
|
|
18
|
|
|
|
15
|
|
|
|
16
|
|
|
Noninterest expenses
|
|
|
18
|
|
|
|
12
|
|
|
|
13
|
|
|
|
10
|
|
|
Provision for income taxes
|
|
|
21
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued
operations
|
|
$
|
36
|
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued
operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
|
$
|
0.03
|
|
|
$
|
—
|
|
|
$
|
0.02
|
|
|
Diluted
|
|
|
0.21
|
|
|
|
0.03
|
|
|
|
0.01
|
|
|
|
0.02
|
|
125
REPORT OF
MANAGEMENT
The management of Comerica Incorporated (the Corporation) is
responsible for the accompanying consolidated financial
statements and all other financial information in this Annual
Report. The consolidated financial statements have been prepared
in conformity with U.S. generally accepted accounting
principles and include amounts which of necessity are based on
management’s best estimates and judgments and give due
consideration to materiality. The other financial information
herein is consistent with that in the consolidated financial
statements.
In meeting its responsibility for the reliability of the
consolidated financial statements, management develops and
maintains effective internal controls, including those over
financial reporting, as defined in the Securities and Exchange
Act of 1934, as amended. The Corporation’s internal control
over financial reporting includes policies and procedures that
(1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Corporation;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the consolidated
financial statements in conformity with U.S. generally
accepted accounting principles, and that receipts and
expenditures of the Corporation are made only in accordance with
authorizations of management and directors of the Corporation;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the Corporation’s assets that could have a
material effect on the consolidated financial statements.
Management assessed, with participation of the
Corporation’s Chief Executive Officer and Chief Financial
Officer, internal control over financial reporting as it relates
to the Corporation’s consolidated financial statements
presented in conformity with U.S. generally accepted
accounting principles as of December 31, 2006. The
assessment was based on criteria for effective internal control
over financial reporting described in Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, management determined that internal
control over financial reporting is effective as it relates to
the Corporation’s consolidated financial statements
presented in conformity with U.S. generally accepted
accounting principles as of December 31, 2006.
Because of inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
The consolidated financial statements as of December 31,
2006 were audited by Ernst & Young LLP, an independent
registered public accounting firm. The audit was conducted in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), which required the independent
public accountants to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement and whether effective internal control over
financial reporting is maintained in all material respects. In
addition, management’s assessment of the effectiveness of
internal control over financial reporting as of
December 31, 2006 was audited by Ernst & Young
LLP, as stated in their report which is included herein.
The Corporation’s Board of Directors oversees
management’s internal control over financial reporting and
financial reporting responsibilities through its Audit Committee
as well as various other committees. The Audit Committee, which
consists of directors who are not officers or employees of the
Corporation, meets regularly with management, internal audit and
the independent public accountants to assure that the Audit
Committee, management, internal auditors and the independent
public accountants are carrying out their responsibilities, and
to review auditing, internal control and financial reporting
matters.
|
|
|
|
|
|
Ralph W. Babb Jr.
Chairman, President and
Chief Executive Officer
|
|
Elizabeth S. Acton
Executive Vice President and
Chief Financial Officer
|
|
Marvin J. Elenbaas
Senior Vice President and
Controller
|
126
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Comerica Incorporated
We have audited management’s assessment, included in the
accompanying Report of Management, that Comerica Incorporated
maintained effective internal control over financial reporting
as of December 31, 2006, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). The Corporation’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Corporation’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. A
company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the Corporation; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance
with U.S. generally accepted accounting principles, and
that receipts and expenditures of the Corporation are being made
only in accordance with authorizations of management and
directors of the Corporation; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Corporation’s assets that could have a material effect on
the consolidated financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Comerica
Incorporated maintained effective internal control over
financial reporting as of December 31, 2006, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Comerica Incorporated maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2006, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Comerica Incorporated as of
December 31, 2006 and 2005, and the related consolidated
statements of income, changes in shareholders’ equity, and
cash flows for each of the three years in the period ended
December 31, 2006 and our report dated February 14, 2007
expressed an unqualified opinion thereon.
Detroit, Michigan
February 14, 2007
127
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Comerica Incorporated
We have audited the accompanying consolidated balance sheets of
Comerica Incorporated and subsidiaries as of December 31,
2006 and 2005, and the related consolidated statements of
income, changes in shareholders’ equity, and cash flows for
each of the three years in the period ended December 31,
2006. These financial statements are the responsibility of the
Corporation’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Comerica Incorporated and subsidiaries at
December 31, 2006 and 2005, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2006, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 16 to the consolidated financial
statements, in 2006 Comerica Incorporated and subsidiaries
changed its method of accounting for defined benefit pension and
other postretirement plans.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Comerica Incorporated’s internal control
over financial reporting as of December 31, 2006, based on
criteria established in “Internal Control-Integrated
Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
February 14, 2007, expressed an unqualified opinion thereon.
Detroit, Michigan
February 14, 2007
128
HISTORICAL
REVIEW — AVERAGE BALANCE SHEETS
Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
(in millions)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,557
|
|
|
$
|
1,721
|
|
|
$
|
1,685
|
|
|
$
|
1,811
|
|
|
$
|
1,800
|
|
|
Federal funds sold and securities
purchased under agreements to resell
|
|
|
283
|
|
|
|
390
|
|
|
|
1,695
|
|
|
|
1,634
|
|
|
|
212
|
|
|
Other short-term investments
|
|
|
266
|
|
|
|
165
|
|
|
|
226
|
|
|
|
308
|
|
|
|
390
|
|
|
Investment securities available
for sale
|
|
|
3,992
|
|
|
|
3,861
|
|
|
|
4,321
|
|
|
|
4,529
|
|
|
|
4,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
27,341
|
|
|
|
24,575
|
|
|
|
22,139
|
|
|
|
23,764
|
|
|
|
24,266
|
|
|
Real estate construction loans
|
|
|
3,905
|
|
|
|
3,194
|
|
|
|
3,264
|
|
|
|
3,540
|
|
|
|
3,353
|
|
|
Commercial mortgage loans
|
|
|
9,278
|
|
|
|
8,566
|
|
|
|
7,991
|
|
|
|
7,521
|
|
|
|
6,786
|
|
|
Residential mortgage loans
|
|
|
1,570
|
|
|
|
1,388
|
|
|
|
1,237
|
|
|
|
1,192
|
|
|
|
1,101
|
|
|
Consumer loans
|
|
|
2,533
|
|
|
|
2,696
|
|
|
|
2,668
|
|
|
|
2,474
|
|
|
|
2,355
|
|
|
Lease financing
|
|
|
1,314
|
|
|
|
1,283
|
|
|
|
1,272
|
|
|
|
1,283
|
|
|
|
1,242
|
|
|
International loans
|
|
|
1,809
|
|
|
|
2,114
|
|
|
|
2,162
|
|
|
|
2,596
|
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
47,750
|
|
|
|
43,816
|
|
|
|
40,733
|
|
|
|
42,370
|
|
|
|
42,091
|
|
|
Less allowance for loan losses
|
|
|
(499
|
)
|
|
|
(623
|
)
|
|
|
(787
|
)
|
|
|
(831
|
)
|
|
|
(739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
47,251
|
|
|
|
43,193
|
|
|
|
39,946
|
|
|
|
41,539
|
|
|
|
41,352
|
|
|
Accrued income and other assets
|
|
|
3,230
|
|
|
|
3,176
|
|
|
|
3,075
|
|
|
|
3,159
|
|
|
|
3,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
56,579
|
|
|
$
|
52,506
|
|
|
$
|
50,948
|
|
|
$
|
52,980
|
|
|
$
|
51,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$
|
13,135
|
|
|
$
|
15,007
|
|
|
$
|
14,122
|
|
|
$
|
13,910
|
|
|
$
|
11,841
|
|
|
Interest-bearing deposits
|
|
|
28,939
|
|
|
|
25,633
|
|
|
|
26,023
|
|
|
|
27,609
|
|
|
|
25,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
42,074
|
|
|
|
40,640
|
|
|
|
40,145
|
|
|
|
41,519
|
|
|
|
37,712
|
|
|
Short-term borrowings
|
|
|
2,654
|
|
|
|
1,451
|
|
|
|
275
|
|
|
|
550
|
|
|
|
1,962
|
|
|
Accrued expenses and other
liabilities
|
|
|
1,268
|
|
|
|
1,132
|
|
|
|
947
|
|
|
|
804
|
|
|
|
809
|
|
|
Medium- and long-term debt
|
|
|
5,407
|
|
|
|
4,186
|
|
|
|
4,540
|
|
|
|
5,074
|
|
|
|
5,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
51,403
|
|
|
|
47,409
|
|
|
|
45,907
|
|
|
|
47,947
|
|
|
|
46,246
|
|
|
Shareholders’ equity
|
|
|
5,176
|
|
|
|
5,097
|
|
|
|
5,041
|
|
|
|
5,033
|
|
|
|
4,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity
|
|
$
|
56,579
|
|
|
$
|
52,506
|
|
|
$
|
50,948
|
|
|
$
|
52,980
|
|
|
$
|
51,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
HISTORICAL
REVIEW — STATEMENTS OF INCOME
Comerica
Incorporated and Subsidiaries
CONSOLIDATED
FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
(in millions, except per share data)
|
|
|
|
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
3,216
|
|
|
$
|
2,554
|
|
|
$
|
2,055
|
|
|
$
|
2,213
|
|
|
$
|
2,525
|
|
|
Interest on investment securities
|
|
|
174
|
|
|
|
148
|
|
|
|
147
|
|
|
|
165
|
|
|
|
246
|
|
|
Interest on short-term investments
|
|
|
32
|
|
|
|
24
|
|
|
|
36
|
|
|
|
36
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
3,422
|
|
|
|
2,726
|
|
|
|
2,238
|
|
|
|
2,414
|
|
|
|
2,798
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
1,005
|
|
|
|
548
|
|
|
|
315
|
|
|
|
370
|
|
|
|
479
|
|
|
Interest on short-term borrowings
|
|
|
130
|
|
|
|
52
|
|
|
|
4
|
|
|
|
7
|
|
|
|
37
|
|
|
Interest on medium- and long-term
debt
|
|
|
304
|
|
|
|
170
|
|
|
|
108
|
|
|
|
109
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,439
|
|
|
|
770
|
|
|
|
427
|
|
|
|
486
|
|
|
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,983
|
|
|
|
1,956
|
|
|
|
1,811
|
|
|
|
1,928
|
|
|
|
2,133
|
|
|
Provision for loan losses
|
|
|
37
|
|
|
|
(47
|
)
|
|
|
64
|
|
|
|
377
|
|
|
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for loan losses
|
|
|
1,946
|
|
|
|
2,003
|
|
|
|
1,747
|
|
|
|
1,551
|
|
|
|
1,498
|
|
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
218
|
|
|
|
218
|
|
|
|
231
|
|
|
|
238
|
|
|
|
227
|
|
|
Fiduciary income
|
|
|
180
|
|
|
|
174
|
|
|
|
166
|
|
|
|
166
|
|
|
|
167
|
|
|
Commercial lending fees
|
|
|
65
|
|
|
|
63
|
|
|
|
55
|
|
|
|
63
|
|
|
|
69
|
|
|
Letter of credit fees
|
|
|
64
|
|
|
|
70
|
|
|
|
66
|
|
|
|
65
|
|
|
|
60
|
|
|
Foreign exchange income
|
|
|
38
|
|
|
|
37
|
|
|
|
37
|
|
|
|
36
|
|
|
|
38
|
|
|
Brokerage fees
|
|
|
40
|
|
|
|
36
|
|
|
|
36
|
|
|
|
34
|
|
|
|
38
|
|
|
Card fees
|
|
|
46
|
|
|
|
39
|
|
|
|
32
|
|
|
|
27
|
|
|
|
23
|
|
|
Bank-owned life insurance
|
|
|
40
|
|
|
|
38
|
|
|
|
34
|
|
|
|
42
|
|
|
|
53
|
|
|
Warrant income (loss)
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
7
|
|
|
|
4
|
|
|
|
5
|
|
|
Net securities gains
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
|
41
|
|
|
Net gain (loss) on sales of
businesses
|
|
|
(12
|
)
|
|
|
1
|
|
|
|
7
|
|
|
|
—
|
|
|
|
12
|
|
|
Income from lawsuit settlement
|
|
|
47
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other noninterest income
|
|
|
130
|
|
|
|
134
|
|
|
|
137
|
|
|
|
125
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
855
|
|
|
|
819
|
|
|
|
808
|
|
|
|
850
|
|
|
|
865
|
|
|
NONINTEREST EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
823
|
|
|
|
786
|
|
|
|
736
|
|
|
|
713
|
|
|
|
675
|
|
|
Employee benefits
|
|
|
184
|
|
|
|
178
|
|
|
|
154
|
|
|
|
156
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total salaries and employee benefits
|
|
|
1,007
|
|
|
|
964
|
|
|
|
890
|
|
|
|
869
|
|
|
|
815
|
|
|
Net occupancy expense
|
|
|
125
|
|
|
|
118
|
|
|
|
122
|
|
|
|
126
|
|
|
|
120
|
|
|
Equipment expense
|
|
|
55
|
|
|
|
53
|
|
|
|
54
|
|
|
|
56
|
|
|
|
57
|
|
|
Outside processing fee expense
|
|
|
85
|
|
|
|
77
|
|
|
|
67
|
|
|
|
70
|
|
|
|
65
|
|
|
Software expense
|
|
|
56
|
|
|
|
49
|
|
|
|
43
|
|
|
|
37
|
|
|
|
33
|
|
|
Customer services
|
|
|
47
|
|
|
|
69
|
|
|
|
23
|
|
|
|
25
|
|
|
|
26
|
|
|
Litigation and operational losses
|
|
|
11
|
|
|
|
14
|
|
|
|
24
|
|
|
|
18
|
|
|
|
20
|
|
|
Provision for credit losses on
lending-related commitments
|
|
|
5
|
|
|
|
18
|
|
|
|
(12
|
)
|
|
|
(2
|
)
|
|
|
17
|
|
|
Other noninterest expenses
|
|
|
283
|
|
|
|
251
|
|
|
|
247
|
|
|
|
253
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
1,674
|
|
|
|
1,613
|
|
|
|
1,458
|
|
|
|
1,452
|
|
|
|
1,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
|
1,127
|
|
|
|
1,209
|
|
|
|
1,097
|
|
|
|
949
|
|
|
|
970
|
|
|
Provision for income taxes
|
|
|
345
|
|
|
|
393
|
|
|
|
349
|
|
|
|
291
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
782
|
|
|
|
816
|
|
|
|
748
|
|
|
|
658
|
|
|
|
658
|
|
|
Income (loss) from discontinued
operations, net of tax
|
|
|
111
|
|
|
|
45
|
|
|
|
9
|
|
|
|
3
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
893
|
|
|
$
|
861
|
|
|
$
|
757
|
|
|
$
|
661
|
|
|
$
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
4.88
|
|
|
$
|
4.90
|
|
|
$
|
4.36
|
|
|
$
|
3.76
|
|
|
$
|
3.76
|
|
|
Net income
|
|
|
5.57
|
|
|
|
5.17
|
|
|
|
4.41
|
|
|
|
3.78
|
|
|
|
3.43
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
4.81
|
|
|
|
4.84
|
|
|
|
4.31
|
|
|
|
3.73
|
|
|
|
3.72
|
|
|
Net income
|
|
|
5.49
|
|
|
|
5.11
|
|
|
|
4.36
|
|
|
|
3.75
|
|
|
|
3.40
|
|
|
Cash dividends declared on common
stock
|
|
|
380
|
|
|
|
367
|
|
|
|
356
|
|
|
|
350
|
|
|
|
335
|
|
|
Cash dividends declared per common
share
|
|
|
2.36
|
|
|
|
2.20
|
|
|
|
2.08
|
|
|
|
2.00
|
|
|
|
1.92
|
|
130
HISTORICAL
REVIEW — STATISTICAL DATA
Comerica
Incorporated and Subsidiaries
CONSOLIDATED
FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
AVERAGE RATES (FULLY TAXABLE
EQUIVALENT BASIS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and securities
purchased under agreements to resell
|
|
|
5.15
|
%
|
|
|
3.29
|
%
|
|
|
1.36
|
%
|
|
|
1.11
|
%
|
|
|
1.61
|
%
|
|
Other short-term investments
|
|
|
6.69
|
|
|
|
7.22
|
|
|
|
5.83
|
|
|
|
5.75
|
|
|
|
5.99
|
|
|
Investment securities
available-for-sale
|
|
|
4.22
|
|
|
|
3.76
|
|
|
|
3.36
|
|
|
|
3.65
|
|
|
|
5.74
|
|
|
Commercial loans
|
|
|
6.87
|
|
|
|
5.62
|
|
|
|
4.22
|
|
|
|
4.12
|
|
|
|
4.68
|
|
|
Real estate construction loans
|
|
|
8.61
|
|
|
|
7.23
|
|
|
|
5.43
|
|
|
|
5.04
|
|
|
|
5.74
|
|
|
Commercial mortgage loans
|
|
|
7.27
|
|
|
|
6.23
|
|
|
|
5.19
|
|
|
|
5.35
|
|
|
|
6.12
|
|
|
Residential mortgage loans
|
|
|
6.02
|
|
|
|
5.74
|
|
|
|
5.68
|
|
|
|
6.12
|
|
|
|
6.88
|
|
|
Consumer loans
|
|
|
7.13
|
|
|
|
5.89
|
|
|
|
4.73
|
|
|
|
4.94
|
|
|
|
5.94
|
|
|
Lease financing
|
|
|
4.00
|
|
|
|
3.81
|
|
|
|
4.06
|
|
|
|
4.59
|
|
|
|
5.37
|
|
|
International loans
|
|
|
7.01
|
|
|
|
5.98
|
|
|
|
4.69
|
|
|
|
4.44
|
|
|
|
4.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
6.74
|
|
|
|
5.84
|
|
|
|
5.05
|
|
|
|
5.23
|
|
|
|
6.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income as a percentage of
earning assets
|
|
|
6.53
|
|
|
|
5.65
|
|
|
|
4.76
|
|
|
|
4.94
|
|
|
|
5.96
|
|
|
Domestic deposits
|
|
|
3.42
|
|
|
|
2.07
|
|
|
|
1.17
|
|
|
|
1.30
|
|
|
|
1.81
|
|
|
Deposits in foreign offices
|
|
|
4.82
|
|
|
|
4.18
|
|
|
|
2.60
|
|
|
|
3.15
|
|
|
|
3.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
3.47
|
|
|
|
2.14
|
|
|
|
1.21
|
|
|
|
1.34
|
|
|
|
1.85
|
|
|
Short-term borrowings
|
|
|
4.89
|
|
|
|
3.59
|
|
|
|
1.25
|
|
|
|
1.20
|
|
|
|
1.85
|
|
|
Medium- and long-term debt
|
|
|
5.63
|
|
|
|
4.05
|
|
|
|
2.39
|
|
|
|
2.14
|
|
|
|
2.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense as a percentage of
interest-bearing sources
|
|
|
3.89
|
|
|
|
2.46
|
|
|
|
1.38
|
|
|
|
1.46
|
|
|
|
1.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
2.64
|
|
|
|
3.19
|
|
|
|
3.38
|
|
|
|
3.48
|
|
|
|
3.98
|
|
|
Impact of net noninterest-bearing
sources of funds
|
|
|
1.15
|
|
|
|
0.87
|
|
|
|
0.48
|
|
|
|
0.47
|
|
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin as a percentage
of earning assets
|
|
|
3.79
|
%
|
|
|
4.06
|
%
|
|
|
3.86
|
%
|
|
|
3.95
|
%
|
|
|
4.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average common
shareholders’ equity
|
|
|
17.24
|
%
|
|
|
16.90
|
%
|
|
|
15.03
|
%
|
|
|
13.12
|
%
|
|
|
12.31
|
%
|
|
Return on average assets
|
|
|
1.58
|
|
|
|
1.64
|
|
|
|
1.49
|
|
|
|
1.25
|
|
|
|
1.18
|
|
|
Efficiency ratio
|
|
|
58.92
|
|
|
|
58.01
|
|
|
|
55.60
|
|
|
|
53.19
|
|
|
|
47.05
|
|
|
Tier 1 common capital as a
percentage of risk-weighted assets
|
|
|
7.54
|
|
|
|
7.78
|
|
|
|
8.13
|
|
|
|
8.04
|
|
|
|
7.39
|
|
|
Tier 1 risk-based capital as a
percentage of risk-weighted assets
|
|
|
8.02
|
|
|
|
8.38
|
|
|
|
8.77
|
|
|
|
8.72
|
|
|
|
8.05
|
|
|
Total risk-based capital as a
percentage of risk-weighted assets
|
|
|
11.63
|
|
|
|
11.65
|
|
|
|
12.75
|
|
|
|
12.71
|
|
|
|
11.72
|
|
|
PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value at year-end
|
|
$
|
32.70
|
|
|
$
|
31.11
|
|
|
$
|
29.94
|
|
|
$
|
29.20
|
|
|
$
|
28.31
|
|
|
Market value at year-end
|
|
|
58.68
|
|
|
|
56.76
|
|
|
|
61.02
|
|
|
|
56.06
|
|
|
|
43.24
|
|
|
Market value for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
60.10
|
|
|
|
63.38
|
|
|
|
63.80
|
|
|
|
56.34
|
|
|
|
66.09
|
|
|
Low
|
|
|
50.12
|
|
|
|
53.17
|
|
|
|
50.45
|
|
|
|
37.10
|
|
|
|
35.20
|
|
|
OTHER DATA (share data in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstanding — basic
|
|
|
160
|
|
|
|
167
|
|
|
|
172
|
|
|
|
175
|
|
|
|
175
|
|
|
Average common shares
outstanding — diluted
|
|
|
162
|
|
|
|
169
|
|
|
|
174
|
|
|
|
176
|
|
|
|
177
|
|
|
Number of banking centers
|
|
|
393
|
|
|
|
383
|
|
|
|
379
|
|
|
|
361
|
|
|
|
358
|
|
|
Number of employees (full-time
equivalent)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
10,700
|
|
|
|
10,636
|
|
|
|
10,720
|
|
|
|
11,034
|
|
|
|
11,096
|
|
|
Discontinued operations
|
|
|
—
|
|
|
|
180
|
|
|
|
172
|
|
|
|
175
|
|
|
|
191
|
|
131
