Comerica Incorporated (“Comerica” or the “Corporation”) is a financial services company,
incorporated under the laws of the State of Delaware, and headquartered in Detroit, Michigan. As
of December 31, 2004, it was among the 20 largest commercial banking companies in the United States
and the largest financial holding company headquartered in Michigan in terms of both total assets
and total deposits. Comerica was formed in 1973 to acquire the outstanding common stock of
Comerica Bank (formerly Comerica Bank-Detroit), one of Michigan’s oldest banks (“Comerica Bank”).
As of December 31, 2004, Comerica owned directly or indirectly all the outstanding common stock of
three active banking and 49 non-banking subsidiaries. At December 31, 2004, Comerica had total
assets of approximately $51.8 billion, total deposits of approximately $40.9 billion, total loans (net of unearned income) of approximately $40.8 billion
and common shareholders’ equity of approximately $5.1 billion.
Comerica has strategically aligned its operations into three major lines of business: the Business
Bank, Small Business and Personal Financial Services, and Wealth and Institutional Management. In
addition to the three major lines of business, the Finance Division is also reported as a segment.
The Business Bank is primarily comprised of the following business units: middle market,
commercial real estate, national dealer services, global finance, large corporate, leasing,
financial services group, and technology and life sciences. This line of business meets the needs
of medium-size businesses, multinational corporations and governmental entities by offering a
variety of financial 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.
Small Business and Personal Financial Services 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 line of business offers a variety of consumer
products, including deposit accounts, installment loans, credit cards, student loans, home equity
lines of credit, and residential mortgage loans.
Wealth and 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 lending, institutional trust, retirement services,
investment management and advisory services (including Munder Capital Management), investment
banking, and discount securities brokerage services. This line of business also offers the sale of
mutual fund and annuity products, as well as life, disability and long-term care insurance
products.
The Finance segment includes the Corporation’s securities portfolio and asset and liability
management activities. This segment is responsible for managing the Corporation’s funding,
liquidity and capital needs, performing interest sensitivity gap and earnings simulation analysis,
and executing various strategies to manage the Corporation’s exposure to liquidity, interest rate
risk, and foreign exchange risk.
In addition, Comerica has positioned itself to deliver financial services in its four primary
geographic regions: Midwest and Other Markets, Western, Texas, and Florida. Midwest and Other
Markets includes all markets in which the Corporation has operations except for the Western, Texas
and Florida regions, as described below. Substantially all of the Corporation’s international
operations are included in the Midwest and Other Markets segment. Currently, Michigan operations
represent the significant majority of the Midwest and Other Markets geographic region.
The Western region consists of the states of California, Arizona, Nevada, Colorado and Washington.
Currently, California operations represent the significant majority of the Western region.
The Texas and Florida regions consist of the states of Texas and Florida, respectively.
We provide financial information for our segments: (1) under the caption, “Strategic Lines of
Business” on pages 35 through 37 of the Corporation’s Annual Report to Shareholders for the year
ended December 31, 2004, which pages are hereby incorporated by reference; and (2) in Note 24 of
the Notes to Financial Statements located on pages 104 through 108 of the Corporation’s Annual
Report to Shareholders for the year ended December 31, 2004, 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” on page 25 of the Corporation’s Annual Report to Shareholders for the year ended December
31, 2004, which page is hereby incorporated by reference; and (2) under the caption “Noninterest
Income” on pages 31 through 33 of the Corporation’s Annual Report to Shareholders for the year
ended December 31, 2004, which pages are hereby incorporated by reference.
We provide information on risks attendant to foreign operations under the caption, “Provision and
Allowance for Loan Losses” on pages 29 through 31 of the Corporation’s Annual Report to
Shareholders for the year ended December 31, 2004, which pages are hereby incorporated by
reference.
COMPETITION
The financial services business is highly competitive. The Corporation’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,
Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Massachusetts, Michigan, Minnesota,
North Carolina, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania, Tennessee, Texas,
Virginia and Washington, Comerica competes with other financial institutions for various deposits,
loans and other products and services.
At year-end 2004, Comerica was the largest financial holding company headquartered in Michigan in
terms of total assets and deposits. 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, credit unions, insurance companies and securities firms.
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.
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 Bank Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”)
to the extent provided by law. Comerica Bank-Mexico, S.A. is chartered under the laws of Mexico
and is supervised and regulated by the Ministry of Finance and Public Credit, the Bank of Mexico,
and the Mexican National Banking Commission.
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., Comerica Capital Markets Corporation, and Munder Capital
Management, the Corporation’s investment advisory subsidiary).
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 bank holding company or bank. If any subsidiary bank of Comerica were to receive a
rating under the Community Reinvestment Act of 1977 of less than satisfactory, Comerica would be
prohibited from engaging in certain activities. 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 the Corporation’s ability to conduct the broader financial activities
permissible for financial holding companies or impose limitations or conditions on the conduct or
activities of the Corporation 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 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%).
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 business 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
require prior approval for payments of dividends that exceed certain levels.
At January 1, 2005, Comerica’s subsidiary banks, without obtaining prior governmental approvals,
could declare aggregate dividends of approximately $470 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, 2005 through the date of
declaration. Comerica’s subsidiary banks declared dividends of $691 million in 2004, $354 million
in 2003 and $647 million in 2002 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 a subsidiary in danger of failure) the other banking subsidiaries may be assessed for
the FDIC’s loss, subject to certain exceptions.
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 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, 2004, the Corporation and all of its 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.
Comerica’s subsidiary banks are all well-capitalized and may accept brokered deposits, as permitted
by their charters.
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 a limited amount of cumulative perpetual stock 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.
The Corporation, 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, 2004, the Corporation met both requirements, with Tier 1
and total capital equal to 8.77% and 12.75% of its total risk-weighted assets.
The Corporation 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. The
Corporation’s leverage ratio of 10.37% at December 31, 2004 reflects the nature of the
Corporation’s balance sheet and demonstrates a commitment to capital adequacy.
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.
Comerica’s subsidiary banks are subject to FDIC deposit insurance assessments to maintain the Bank
Insurance Fund (“BIF”) and the Savings Insurance Fund (the “SAIF”). As of December 31, 2004, the
Corporation’s banking subsidiaries held approximately $38.4 billion and $1.0 billion, respectively,
of BIF- and SAIF-assessable deposits. The Corporation currently pays no deposit insurance
assessments on the BIF- or SAIF-assessable deposits under the FDIC’s risk related assessment system
but paid the FDIC $6.2 million in the year ended December 31, 2004 on the BIF- and SAIF-assessable
deposits under a separate assessment program.
Enforcement Powers of Federal Banking Agencies
The FRB and other federal banking agencies have broad enforcement powers, including the power to
terminate deposit insurance, impose substantial fines and other civil and criminal penalties and
appoint a conservator or receiver. Failure to comply with applicable laws 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 penalties.
Future Legislation
Changes to the laws of the states and countries in which the Corporation 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 the Corporation.
EMPLOYEES
As of December 31, 2004, Comerica and its subsidiaries had 10,275 full-time and 1,239 part-time
employees.
AVAILABLE INFORMATION
The Corporation 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 and the Senior Financial Officer Code of Ethics adopted by the Corporation 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.
The executive offices of the Corporation are located in the Comerica Tower at Detroit Center, 500
Woodward Avenue, Detroit, Michigan 48226. Comerica and its subsidiaries occupy 14 floors of the
building, which is leased through Comerica Bank from an unaffiliated third party. The leases at
this building extend through January 2007. As of December 31, 2004, Comerica, through its banking
affiliates, operated a total of 435 banking branches, trust services locations, and loan production
or other financial services offices, primarily in the States of Michigan, California, Texas and
Florida. Of these offices, 222 were owned and 213 were leased. Affiliates also operate from
leased spaces in Phoenix, Arizona; Denver, Colorado; Darien, Connecticut; Wilmington, Delaware;
Atlanta, Georgia; Barrington, Chicago and Oakbrook Terrace, Illinois; Indianapolis, Indiana;
Boston, Massachusetts; Minneapolis, Minnesota; Durham, North Carolina; Princeton and Sea Girt, New
Jersey; Las Vegas, Nevada; New York, New York; Beachwood and West Chester, Ohio; Portland, Oregon;
King of Prussia, Pennsylvania; Memphis, Tennessee; Reston, Virginia; Bellevue, Washington; Sao
Paulo, Brazil; Guadalajara, Mexico; Mexico City, Mexico; Queretaro, Mexico; Monterey, Mexico;
Wanchai, Hong Kong; Toronto, Ontario, Canada and Windsor, Ontario, Canada.
The Corporation and its subsidiaries own, among other properties, a check processing center in
Livonia, Michigan, a ten-story building in the central business district of Detroit that houses
certain departments of the Corporation and Comerica Bank, and a building in Auburn Hills, Michigan,
used mainly for lending functions and operations.
An unaffiliated third party holds title to Comerica’s operations center building in Auburn Hills,
Michigan under a sale/leaseback agreement, though Comerica has entered into an agreement with such
third party to purchase the operations center building. The operations center is occupied by
various departments of the Corporation and Comerica Bank.
Item 3. 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 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 the Corporation’s consolidated financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Corporation did not submit any matters for a shareholders’ vote in the fourth quarter of 2004.
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