FINANCIAL REVIEW AND REPORTS

Comerica Incorporated and Subsidiaries

Performance Graph

    10  

Financial Results and Key Corporate Initiatives

   
12
 

Overview

   
14
 

Strategic Lines of Business

   
25
 

Balance Sheet and Capital Funds Analysis

   
30
 

Risk Management

   
38
 

Critical Accounting Policies

   
60
 

Supplemental Financial Data

   
66
 

Forward-Looking Statements

   
67
 

Consolidated Financial Statements:

       
 

Consolidated Balance Sheets

   
69
 
 

Consolidated Statements of Income

   
70
 
 

Consolidated Statements of Changes in Shareholders' Equity

   
71
 
 

Consolidated Statements of Cash Flows

   
72
 

Notes to Consolidated Financial Statements

   
73
 

Report of Management

   
150
 

Reports of Independent Registered Public Accounting Firm

   
151
 

Historical Review

   
153
 

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PERFORMANCE GRAPH

Comparison of Five Year Cumulative Total Return
Among Comerica Incorporated, Keefe Bank Index, and S&P 500 Index
(Assumes $100 Invested on 12/31/04 and Reinvestment of Dividends)

CHART

(a)
In 2009, the Keefe 50-Bank Index was discontinued by Keefe, Bruyette and Woods. For comparative purposes, the Corporation replaced the Keefe 50-Bank Index with the Keefe Bank Index (BKX).

        The performance shown on the graph is not necessarily indicative of future performance.

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Table of Contents

SELECTED FINANCIAL DATA

 
  Years Ended December 31  
 
  2009   2008   2007   2006   2005  
 
  (dollar amounts in millions,
except per share data)

 

EARNINGS SUMMARY

                               

Net interest income

  $ 1,567   $ 1,815   $ 2,003   $ 1,983   $ 1,956  

Provision for loan losses

    1,082     686     212     37     (47 )

Noninterest income

    1,050     893     888     855     819  

Noninterest expenses

    1,650     1,751     1,691     1,674     1,613  

Provision (benefit) for income taxes

    (131 )   59     306     345     393  

Net income

    17     213     686     893     861  

Preferred stock dividends

    134     17              

Net income (loss) attributable to common shares

    (118 )   192     680     886     858  

PER SHARE OF COMMON STOCK

                               

Diluted net income (loss)

  $ (0.79 ) $ 1.28   $ 4.43   $ 5.49   $ 5.11  

Cash dividends declared

    0.20     2.31     2.56     2.36     2.20  

Common shareholders' equity

    31.82     33.31     34.12     32.70     31.11  

Market value

    29.57     19.85     43.53     58.68     56.76  

Average diluted shares (in thousands)

    149     149     154     161     168  

YEAR-END BALANCES

                               

Total assets

  $ 59,249   $ 67,548   $ 62,331   $ 58,001   $ 53,013  

Total earning assets

    54,558     62,374     57,448     54,052     48,646  

Total loans

    42,161     50,505     50,743     47,431     43,247  

Total deposits

    39,665     41,955     44,278     44,927     42,431  

Total medium- and long-term debt

    11,060     15,053     8,821     5,949     3,961  

Total common shareholders' equity

    4,878     5,023     5,117     5,153     5,068  

Total shareholders' equity

    7,029     7,152     5,117     5,153     5,068  

AVERAGE BALANCES

                               

Total assets

  $ 62,809   $ 65,185   $ 58,574   $ 56,579   $ 52,506  

Total earning assets

    58,162     60,422     54,688     52,291     48,232  

Total loans

    46,162     51,765     49,821     47,750     43,816  

Total deposits

    40,091     42,003     41,934     42,074     40,640  

Total medium- and long-term debt

    13,334     12,457     8,197     5,407     4,186  

Total common shareholders' equity

    4,959     5,166     5,070     5,176     5,097  

Total shareholders' equity

    7,099     5,442     5,070     5,176     5,097  

CREDIT QUALITY

                               

Total allowance for credit losses

  $ 1,022   $ 808   $ 578   $ 519   $ 549  

Total nonperforming loans

    1,181     917     404     214     138  

Foreclosed property

    111     66     19     18     24  

Total nonperforming assets

    1,292     983     423     232     162  

Net credit-related charge-offs

    869     472     153     72     116  

Net credit-related charge-offs as a percentage of average total loans

    1.88 %   0.91 %   0.31 %   0.15 %   0.26 %

Allowance for loan losses as a percentage of total period-end loans

    2.34     1.52     1.10     1.04     1.19  

Allowance for loan losses as a percentage of total nonperforming loans

    83     84     138     231     373  

RATIOS

                               

Net interest margin

    2.72 %   3.02 %   3.66 %   3.79 %   4.06 %

Return on average assets

    0.03     0.33     1.17     1.58     1.64  

Return on average common shareholders' equity

    (2.37 )   3.79     13.52     17.24     16.90  

Dividend payout ratio

    N/M     179.07     57.79     42.99     43.05  

Average common shareholders' equity as a percentage of average assets (a)

    7.90     7.93     8.66     9.15     9.71  

Tier 1 common capital as a percentage of risk-weighted assets (a)

    8.18     7.08     6.85     7.54     7.78  

Tier 1 capital as a percentage of risk-weighted assets

    12.46     10.66     7.51     8.03     8.38  

Tangible common equity as a percentage of tangible assets (a)

    7.99     7.21     7.97     8.62     9.16  

(a)
See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.

N/M — not meaningful.

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2009 FINANCIAL RESULTS AND KEY CORPORATE INITIATIVES

Financial Results

12


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Key Corporate Initiatives

13


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OVERVIEW

        Comerica Incorporated (the Corporation) is a financial holding company headquartered in Dallas, Texas. The Corporation's major business segments are the Business Bank, the Retail Bank and Wealth & Institutional Management. The core businesses are tailored to each of the Corporation's four primary geographic markets: Midwest, Western, Texas and Florida.

        The accounting and reporting policies of the Corporation and its subsidiaries conform to U.S. generally accepted accounting principles (GAAP) and prevailing practices within the banking industry. The Corporation's consolidated financial statements are prepared based on the application of accounting policies, the most significant of which are described in Note 1 to the consolidated financial statements. The most critical of these significant accounting policies are discussed in the "Critical Accounting Policies" section of this financial review.

        As a financial institution, the Corporation's principal activity is lending to and accepting deposits from businesses and individuals. The primary source of revenue is net interest income, which is derived principally from the difference between interest earned on loans and investment securities and interest paid on deposits and other funding sources. The Corporation also provides other products and services that meet the financial needs of customers and which generate noninterest income, the Corporation's secondary source of revenue. Growth in loans, deposits and noninterest income is affected by many factors, including economic conditions 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.

        More than half of the Corporation's revenues are generated by the Business Bank business segment, making the Corporation highly sensitive to changes in the business environment in its primary geographic markets. To facilitate better balance among business segments and geographic markets, the Corporation opened 10 new banking centers in 2009 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 2010, management expects the following, compared to 2009, based on a modestly improving economic environment:

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ANALYSIS OF NET INTEREST INCOME

           Fully Taxable Equivalent (FTE)

 
   
  Years Ended December 31  
 
   
  2009   2008   2007  
 
   
  Average
Balance
  Interest   Average
Rate
  Average
Balance
  Interest   Average
Rate
  Average
Balance
  Interest   Average
Rate
 
 
   
  (dollar amounts in millions)
 

Commercial loans (a)(b)

  $ 24,534   $ 890     3.63 % $ 28,870   $ 1,468     5.08 % $ 28,132   $ 2,038     7.25 %

Real estate construction loans

    4,140     121     2.92     4,715     231     4.89     4,552     374     8.21  

Commercial mortgage loans

    10,415     437     4.20     10,411     580     5.57     9,771     709     7.26  

Residential mortgage loans

    1,756     97     5.53     1,886     112     5.94     1,814     111     6.13  

Consumer loans

    2,553     94     3.68     2,559     130     5.08     2,367     166     7.00  

Lease financing (c)

    1,231     40     3.25     1,356     8     0.59     1,302     40     3.04  

International loans

    1,533     58     3.79     1,968     101     5.13     1,883     133     7.06  

Business loan swap income (expense) (d)

        34             24             (67 )    
                                           
 

Total loans (b)(e)

    46,162     1,771     3.84     51,765     2,654     5.13     49,821     3,504     7.03  

Auction-rate securities available-for-sale

    1,010     15     1.47     193     6     2.95              

Other investment securities available-for-sale

    8,378     318     3.88     7,908     384     4.88     4,447     206     4.56  
                                           
 

Total investment securities available-for-sale (f)

    9,388     333     3.61     8,101     390     4.83     4,447     206     4.56  

Federal funds sold and securities purchased under agreements to resell

    18         0.32     93     2     2.08     164     9     5.28  

Interest-bearing deposits with banks (g)

    2,440     6     0.25     219     1     0.61     15     1     4.00  

Other short-term investments

    154     3     1.74     244     10     3.98     241     13     5.75  
                                           
 

Total earning assets

    58,162     2,113     3.64     60,422     3,057     5.06     54,688     3,733     6.82  

Cash and due from banks

    883                 1,185                 1,352              

Allowance for loan losses

    (947 )               (691 )               (520 )            

Accrued income and other assets

    4,711                 4,269                 3,054              
                                                       
 

Total assets

  $ 62,809               $ 65,185               $ 58,574              
                                                       

Money market and NOW deposits (a)

  $ 12,965     63     0.49   $ 14,245     207     1.45   $ 14,937     460     3.08  

Savings deposits

    1,339     2     0.11     1,344     6     0.45     1,389     13     0.93  

Customer certificates of deposit

    8,131     183     2.26     8,150     263     3.23     7,687     342     4.45  
                                           
 

Total interest-bearing core deposits

    22,435     248     1.11     23,739     476     2.01     24,013     815     3.39  

Other time deposits (d)(h)

    4,103     121     2.96     6,715     232     3.45     5,563     300     5.39  

Foreign office time deposits (i)

    653     2     0.29     926     26     2.77     1,071     52     4.85  
                                           
 

Total interest-bearing deposits

    27,191     371     1.37     31,380     734     2.34     30,647     1,167     3.81  

Short-term borrowings

    1,000     2     0.24     3,763     87     2.30     2,080     105     5.06  

Medium- and long-term debt (d)(h)

    13,334     165     1.23     12,457     415     3.33     8,197     455     5.55  
                                           
 

Total interest-bearing sources

    41,525     538     1.29     47,600     1,236     2.59     40,924     1,727     4.22  
                                                 

Noninterest-bearing deposits (a)

    12,900                 10,623                 11,287              

Accrued expenses and other liabilities

    1,285                 1,520                 1,293              

Total shareholders' equity

    7,099                 5,442                 5,070              
                                                       
 

Total liabilities and shareholders' equity

  $ 62,809               $ 65,185               $ 58,574              
                                                       

Net interest income/rate spread (FTE)

        $ 1,575     2.35         $ 1,821     2.47         $ 2,006     2.60  
                                                       

FTE adjustment (j)

        $ 8               $ 6               $ 3        
                                                       

Impact of net noninterest-bearing sources of funds

                0.37                 0.55                 1.06  
                                                       

Net interest margin (as a percentage of average earning assets (FTE) (b)(c)(g)

                2.72 %               3.02 %               3.66 %
                                                       


 

(a)

 

FSD balances included above:

                                                       

 

Loans (primarily low-rate)

  $ 210   $ 3     1.65 % $ 498   $ 7     1.40 % $ 1,318   $ 9     0.69 %

 

Interest-bearing deposits

    448     2     0.54     957     19     1.99     1,202     47     3.91  

 

Noninterest-bearing deposits

    1,306                 1,643                 2,836              

(b)

 

Impact of FSD loans (primarily low-rate) on the following:

                                                       

 

Commercial loans

                (0.02 )%               (0.07 )%               (0.32 )%

 

Total loans

                (0.01 )               (0.03 )               (0.18 )

 

Net interest margin (FTE) (assuming loans were funded by noninterest-bearing deposits)

                                (0.01 )               (0.08 )

(c)

 

2008 net interest income declined $38 million and the net interest margin declined six basis points due to tax-related non-cash

 

 

lease income charges. Excluding these charges, the net interest margin would have been 3.08%.

 

(d)

 

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 other time deposits and medium- and long-term debt, which totaled a net gain of $61 million in 2009, is included in the related interest expense line item.

 

(e)

 

Nonaccrual loans are included in average balances reported and are used to calculate rates.

 

(f)

 

Average rate based on average historical cost.

 

(g)

 

Excess liquidity, represented by average balances deposited with the Federal Reserve Bank, reduced the net interest margin by 11 basis points and one basis point in 2009 and 2008, respectively, and had no impact on the net interest margin in 2007. Excluding excess liquidity, the net interest margin would have been 2.83% in 2009 and 3.03% in 2008.

 

(h)

 

Other time deposits 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 fair value hedges.

 

(i)

 

Includes substantially all deposits by foreign domiciled depositors; deposits are primarily in excess of $100,000.

 

(j)

 

The FTE adjustment is computed using a federal income tax rate of 35%.

 

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RATE-VOLUME ANALYSIS
           Fully Taxable Equivalent (FTE)

 
  2009/2008   2008/2007  
 
  Increase
(Decrease)
Due to
Rate
  Increase
(Decrease)
Due to
Volume (a)
  Net
Increase
(Decrease)
  Increase
(Decrease)
Due to
Rate
  Increase
(Decrease)
Due to
Volume (a)
  Net
Increase
(Decrease)
 
 
  (in millions)
 

Interest income (FTE):

                                     

Loans:

                                     
 

Commercial loans

  $ (421 ) $ (157 ) $ (578 ) $ (608 ) $ 38   $ (570 )
 

Real estate construction loans

    (93 )   (17 )   (110 )   (151 )   8     (143 )
 

Commercial mortgage loans

    (143 )       (143 )   (165 )   36     (129 )
 

Residential mortgage loans

    (8 )   (7 )   (15 )   (3 )   4     1  
 

Consumer loans

    (36 )       (36 )   (46 )   10     (36 )
 

Lease financing

    36     (4 )   32     (32 )       (32 )
 

International loans

    (26 )   (17 )   (43 )   (36 )   4     (32 )
 

Business loan swap income (expense)

    10         10     91         91  
                           
   

Total loans

    (681 )   (202 )   (883 )   (950 )   100     (850 )

Auction-rate securities available-for-sale

    (3 )   12     9         6     6  

Other investment securities available-for-sale

    (84 )   18     (66 )   10     168     178  
                           
   

Total investment securities available-for-sale

    (87 )   30     (57 )   10     174     184  

Federal funds sold and securities purchased under agreements to resell

    (2 )       (2 )   (5 )   (2 )   (7 )

Interest-bearing deposits with banks

    (1 )   6     5     (1 )   1      

Other short-term investments

    (2 )   (5 )   (7 )   (4 )   1     (3 )
                           
   

Total interest income (FTE)

    (773 )   (171 )   (944 )   (950 )   274     (676 )

Interest expense:

                                     

Interest-bearing deposits:

                                     
 

Money market and NOW accounts

    (138 )   (6 )   (144 )   (242 )   (11 )   (253 )
 

Savings deposits

    (4 )       (4 )   (7 )       (7 )
 

Customer certificates of deposit

    (79 )   (1 )   (80 )   (94 )   15     (79 )
 

Other time deposits

    (34 )   (77 )   (111 )   (108 )   40     (68 )
 

Foreign office time deposits

    (23 )   (1 )   (24 )   (22 )   (4 )   (26 )
                           
   

Total interest-bearing deposits

    (278 )   (85 )   (363 )   (473 )   40     (433 )

Short-term borrowings

    (78 )   (7 )   (85 )   (57 )   39     (18 )

Medium- and long-term debt

    (262 )   12     (250 )   (182 )   142     (40 )
                           
   

Total interest expense

    (618 )   (80 )   (698 )   (712 )   221     (491 )
                           
   

Net interest income (FTE)

  $ (155 ) $ (91 ) $ (246 ) $ (238 ) $ 53   $ (185 )
                           

(a)
Rate/volume variances are allocated to variances due to volume.

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NET INTEREST INCOME

        Net interest income is the difference between interest and yield-related fees earned on assets and interest paid on liabilities. Adjustments are made to the yields on tax-exempt assets in order to present tax-exempt income and fully taxable income on a comparable basis. Gains and losses related to the effective portion of risk management interest rate swaps that qualify as hedges are included with the interest income or expense of the hedged item when classified in net interest income. Net interest income on a fully taxable equivalent (FTE) basis comprised 60 percent of total revenues in 2009, compared to 67 percent in 2008 and 69 percent in 2007. The "Analysis of Net Interest Income-Fully Taxable Equivalent" table of this financial review provides an analysis of net interest income for the years ended December 31, 2009, 2008 and 2007. The rate-volume analysis in the table above details the components of the change in net interest income on a FTE basis for 2009, compared to 2008, and 2008, compared to 2007.

        Net interest income was $1.6 billion in 2009, a decrease of $248 million, or 14 percent, compared to $1.8 billion in 2008. The decrease in net interest income in 2009 was primarily due to loan rates declining faster than deposit rates with late 2008 rate reductions, partially offset by increased loan spreads. On a FTE basis, net interest income was $1.6 billion in 2009, a decrease of $246 million, or 13 percent, from 2008. The net interest margin (FTE) decreased to 2.72 percent in 2009, from 3.02 percent in 2008, resulting primarily from the reasons cited for the decline in net interest income discussed above, as well as excess liquidity and the reduced contribution of noninterest-bearing funds in a significantly lower rate environment. The net interest margin was reduced by approximately 11 basis points in 2009 from excess liquidity, represented by $2.4 billion of average balances deposited with the FRB. The excess liquidity resulted from strong core deposit growth at a time when loan demand remained weak. Average earning assets decreased $2.2 billion, or four percent, to $58.2 billion in 2009, compared to 2008, primarily as a result of a $5.6 billion decrease in average loans, partially offset by increases of $2.2 billion in average interest-bearing deposits with the FRB and $1.3 billion in average investment securities available-for-sale.

        The Corporation implements various asset and liability management tactics to manage net interest income exposure to interest rate risk. Refer to the "Interest Rate Risk" section of this financial review for additional information regarding the Corporation's asset and liability management policies.

        In 2008, net interest income was $1.8 billion, a decrease of $188 million, or nine percent, from 2007. The decrease in net interest income in 2008 was primarily due to a decrease in loan portfolio yields, a competitive environment for deposit pricing, the impact of a higher level of nonaccrual loans and $38 million of tax-related non-cash charges to lease income, partially offset by growth in average earnings assets, largely driven by growth in investment securities available-for-sale. The lease income charges reflected the reversal of previously recognized income resulting from projected changes in the timing of income tax cash flows on certain structured leasing transactions and will fully reverse over the remaining lease terms. (Further information about the charges can be found in Note 20 to the consolidated financial statements). In 2008, net interest income (FTE) was $1.8 billion, a decrease of $185 million, or nine percent, from 2007. The net interest margin (FTE) decreased to 3.02 percent in 2008, from 3.66 percent in 2007, resulting primarily from the reasons cited for the decline in net interest income discussed above, and as a result of the change in the mix of both earning assets, driven by growth in investment securities available-for-sale, and interest-bearing sources of funds. The 2008 lease income charges discussed above reduced the net interest margin by six basis points. Average earning assets increased $5.7 billion, or 10 percent, to $60.4 billion in 2008, compared to 2007, primarily as a result of a $3.7 billion increase in average investment securities available-for-sale and a $1.9 billion increase in average loans.

        Based on no increase in the Federal Funds rate, management expects an average full-year 2010 net interest margin between 3.15 percent and 3.25 percent, reflecting the benefit, compared to full-year 2009, from improved loan pricing, lower funding costs and a lower level of excess liquidity.

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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 detailed credit quality review quarterly to determine the adequacy of both allowances. For a further discussion of both the allowance for loan losses and the allowance for credit losses on lending-related commitments, refer to the "Credit Risk" and the "Critical Accounting Policies" sections of this financial review.

        The provision for loan losses was $1.1 billion in 2009, compared to $686 million in 2008 and $212 million in 2007. The $396 million increase in the provision for loan losses in 2009, compared to 2008, resulted primarily from challenges in the Middle Market (primarily the Midwest and Western markets), Commercial Real Estate in the Midwest, Florida and Texas markets (primarily residential real estate developments), Global Corporate Banking (primarily the Western and International markets), Leasing (primarily the Midwest market) and Private Banking (primarily the Western and Midwest markets) loan portfolios. Commercial Real Estate challenges in the Western market moderated in 2009, compared to 2008, but remained a significant portion of the Commercial Real Estate provision for loan losses. In the first half of 2009, the national economy was hampered by turmoil in the financial markets, declining home values and a global recession. Signs of growth in the national economy began in the third quarter of 2009, as the credit and capital markets began functioning at a more normal level and the housing market began to stabilize. The Michigan economy contracted sharply in the first half of 2009, but has recently shown signs of leveling off. The average Michigan Business Activity Index compiled by the Corporation for January through November 2009 declined 15 percent, compared to the average for the full-year 2008. However, the November 2009 index rebounded by nine percent from a low reached in May 2009, with particular strength noted in automotive and steel production. The Michigan Business Activity index represents nine different measures of Michigan economic activity compiled by the Corporation. The California economy continues to lag moderately behind the national economy, with ongoing declines in construction and the state's budget problems more severe than in most other states. However, the California Economic Activity Index compiled by the Corporation is signaling that a recovery is developing. The November 2009 index was up 12 percent from a low reached in March 2009, with all components of the index contributing to the upturn except nonfarm payrolls. The California Economic Activity Index equally weights nine, seasonally-adjusted coincident indicators of real economic activity compiled by the Corporation. A wide variety of economic reports indicate that Texas continued to outperform the nation in 2009. The Texas economy began contracting following the financial market turmoil in the fall of 2008, but has experienced a much more modest reduction in homebuilding than most other states, and the state's manufacturing sector is beginning to revive as domestic and export demand is on the rise. However, the state's energy sector was hit hard by the sharp drop in crude oil and natural gas prices. Forward-looking indicators suggest that economic conditions in the Corporation's primary geographic markets are likely to strengthen gradually as moderate national and global recoveries continue to develop. The increase in the provision for loan losses in 2008, when compared to 2007, was primarily the result of challenges in the residential real estate development business located in the Western market (primarily California) and to a lesser extent in the Middle Market and Small Business loan portfolios.

        The provision for credit losses on lending-related commitments was a charge of less than $0.5 million in 2009, compared to a charge of $18 million in 2008 and a negative provision of $1 million in 2007. The $18 million decrease in the provision for credit losses on lending-related commitments in 2009, compared to 2008, resulted primarily from the cancellation and drawdown of letters of credit in the Midwest market and a reduction in unfunded commitment levels. The $19 million increase in 2008, compared to 2007, was primarily

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the result of an increase in specific reserves related to unused commitments extended to customers in the Commercial Real Estate business line in the Michigan and Western markets (largely residential real estate developments) and standby letters of credit extended to customers in the Michigan commercial real estate industry. An analysis of the changes in the allowance for credit losses on lending-related commitments is presented in the "Credit Risk" section of this financial review.

        Net loan charge-offs in 2009 increased $397 million to $868 million, or 1.88 percent of average total loans, compared to $471 million, or 0.91 percent, in 2008 and $149 million, or 0.30 percent, in 2007. Total net credit-related charge-offs, which includes net charge-offs on both loans and lending-related commitments, were $869 million, or 1.88 percent of average total loans, in 2009, compared to $472 million, or 0.91 percent, in 2008 and 153 million, or 0.31 percent, in 2007. The $397 million increase in net credit-related charge-offs in 2009, compared to 2008, resulted primarily from increases in net credit-related charge-offs in the Middle Market ($133 million), Commercial Real Estate ($70 million), Global Corporate Banking ($55 million), Small Business ($41 million) and Leasing ($38 million) loan portfolios. By geographic market, net credit-related charge-offs in the Midwest and Western markets increased $199 million and $86 million, respectively, in 2009, compared to 2008. An analysis of the changes in the allowance for loan losses, including charge-offs and recoveries by loan category, is presented in the "Analysis of the Allowance for Loan Losses" table in the "Risk Management" section of this financial review. An analysis of the changes in the allowance for credit losses on lending-related commitments is presented in the "Credit Risk" section of this financial review.

        Management expects full-year 2010 net credit-related charge-offs to decrease to between $775 million and $825 million. The provision for credit losses is expected to be slightly in excess of net charge-offs.

NONINTEREST INCOME

 
  Years Ended
December 31
 
 
  2009   2008   2007  
 
  (in millions)
 

Service charges on deposit accounts

  $ 228   $ 229   $ 221  

Fiduciary income

    161     199     199  

Commercial lending fees

    79     69     75  

Letter of credit fees

    69     69     63  

Card fees

    51     58     54  

Foreign exchange income

    41     40     40  

Bank-owned life insurance

    35     38     36  

Brokerage fees

    31     42     43  

Net securities gains

    243     67     7  

Other noninterest income

    112     82     150  
               
 

Total noninterest income

  $ 1,050   $ 893   $ 888  
               

        Noninterest income increased $157 million, or 18 percent, to $1.1 billion in 2009, compared to $893 million in 2008, and increased $5 million, or less than one percent, in 2008, compared to $888 million in 2007. Excluding net securities gains, noninterest income decreased two percent in 2009, compared to 2008, and six percent in 2008, compared to 2007. An analysis of increases and decreases by individual line item is presented below.

        Service charges on deposit accounts decreased $1 million, or less than one percent, to $228 million in 2009, compared to $229 million in 2008, and increased $8 million, or three percent, in 2008, compared to $221 million in 2007. The increase in 2008 was primarily due to lower earnings credit allowances provided on deposit balances to business customers as a result of the interest rate environment.

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        Fiduciary income decreased $38 million, or 19 percent, to $161 million in 2009, compared to $199 million in 2008, and was unchanged in 2008, compared to 2007. 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 decrease in 2009 was primarily due to lower personal trust fees related to market value decline in late 2008 and a decline in institutional trust fees related to the sale of the Corporation's proprietary defined contribution plan recordkeeping business in the second quarter 2009. In 2008, lower fees related to market value decline were offset by net new business.

        Commercial lending fees increased $10 million, or 14 percent, to $79 million in 2009, compared to a decrease of $6 million, or eight percent, in 2008. The majority of the increase in 2009 resulted from increased risk-adjusted pricing on unused commercial loan commitments. The decrease in 2008 resulted from lower participation fees and lower unused commercial loan commitments.

        Letter of credit fees of $69 million were unchanged in 2009, compared to an increase of $6 million, or 10 percent, in 2008. The increase in 2008 was principally due to one-time adjustments related to the timing of recognition of letter of credit fees.

        Card fees, which consist primarily of interchange fees earned on debit and commercial cards, decreased $7 million, or 13 percent, to $51 million in 2009, compared to $58 million in 2008, and increased $4 million, or nine percent, in 2008, compared to $54 million in 2007. The decline in 2009 resulted primarily from lower levels of retail and commercial card business activity. Growth in 2008 resulted primarily from an increase in transaction volume caused by the continued shift to electronic banking, new customer accounts and new products.

        Foreign exchange income increased $1 million, or one percent, to $41 million in 2009, compared to $40 million in both 2008 and 2007.

        Bank-owned life insurance income decreased $3 million, or eight percent, to $35 million in 2009, compared to an increase of $2 million, to $38 million in 2008. The decrease in 2009 resulted primarily from a decrease in death benefits received and reduced earnings on bank-owned life insurance policies. The increase in 2008 resulted primarily from an increase in death benefits received.

        Brokerage fees of $31 million decreased $11 million, or 25 percent, in 2009, compared to a decrease of $1 million to $42 million in 2008. Brokerage fees include commissions from retail brokerage transactions and mutual fund sales and are subject to changes in the level of market activity. The decreases in 2009 and 2008 were primarily due to lower transaction and dollar volumes as a result of depressed market conditions.

        Net securities gains increased $176 million, to $243 million in 2009, compared to an increase of $60 million, to $67 million in 2008. The increase in 2009 resulted primarily from gains on the sale of mortgage-backed government agency securities ($225 million) and gains on the redemption of auction-rate securities ($14 million), compared to gains resulting from the sales of the Corporation's ownership of Visa ($48 million) and MasterCard shares ($14 million) in 2008. Mortgage-backed government agency securities were sold in 2009 as market conditions were favorable and there was no longer a need to hold a large portfolio of fixed-rate securities to mitigate the impact of potential future rate declines on net interest income.

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        Other noninterest income increased $30 million, or 37 percent, in 2009, compared to a decrease of $69 million, or 46 percent, in 2008. The following table illustrates fluctuations in certain categories included in "other noninterest income" on the consolidated statements of income.

 
  Years Ended
December 31
 
 
  2009   2008   2007  
 
  (in millions)
 

Other noninterest income

                   
 

Gain on repurchase of debt

  $ 15   $   $  
 

Deferred compensation asset returns (a)

    10     (26 )   7  
 

Net gain on termination of leveraged leases

    8          
 

Net gain on sales of businesses

    5         3  
 

Gain on sale of SBA loans

        5     14  
 

Risk management hedge gains (losses) from interest rate and foreign exchange contracts

    (6 )   8     3  
 

Net income (loss) from principal investing and warrants

    (6 )   (10 )   19  
 

Amortization of low income housing investments

    (44 )   (42 )   (33 )

(a)
Compensation deferred by the Corporation's officers is invested in stocks and bonds to reflect the investment selections of the officers. Income (loss) earned on these assets is reported in noninterest income and the offsetting increase (decrease) in the liability is reported in salaries expense.

        Management expects flat noninterest income, after excluding $243 million of 2009 securities gains, in 2010, compared to 2009 levels.

NONINTEREST EXPENSES

 
  Years Ended December 31  
 
  2009   2008   2007  
 
  (in millions)
 

Salaries

  $ 687   $ 781   $ 844  

Employee benefits

    210     194     193  
               
 

Total salaries and employee benefits

    897     975     1,037  

Net occupancy expense

    162     156     138  

Equipment expense

    62     62     60  

Outside processing fee expense

    97     104     91  

FDIC Insurance expense

    90     16     5  

Software expense

    84     76     63  

Other real estate expense

    48     10     7  

Legal fees

    37     29     24  

Litigation and operational losses

    10     103     18  

Customer services

    4     13     43  

Provision for credit losses on lending-related commitments

        18     (1 )

Other noninterest expenses

    159     189     206  
               
 

Total noninterest expenses

  $ 1,650   $ 1,751   $ 1,691  
               

        Noninterest expenses decreased $101 million, or six percent, to $1,650 million in 2009, compared to $1,751 million in 2008, and increased $60 million, or four percent, in 2008, from $1,691 million in 2007. Excluding an $88 million net charge related to the repurchase of auction-rate securities from certain customers in 2008, noninterest expenses decreased $13 million, or one percent, in 2009, compared to 2008. An analysis of increases and decreases by individual line item is presented below.

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        The following table summarizes the various components of salaries and employee benefits expense.

 
  Years Ended December 31  
 
  2009   2008   2007  
 
  (in millions)
 

Salaries

                   
 

Regular salaries (including contract labor)

  $ 570   $ 609   $ 635  
 

Severance

    14     29     4  
 

Incentives (including commissions)

    60     117     138  
 

Deferred compensation plan costs

    11     (25 )   8  
 

Share-based compensation

    32     51     59  
               
   

Total salaries

    687     781     844  

Employee benefits

                   
 

Defined benefit pension expense

    57     20     36  
 

Severance-related benefits

    3     5      
 

Other employee benefits

    150     169     157  
               
   

Total employee benefits

    210     194     193  
               
   

Total salaries and employee benefits

  $ 897   $ 975   $ 1,037  
               

        Salaries expense decreased $94 million, or 12 percent, in 2009, compared to a decrease of $63 million, or seven percent, in 2008. The decrease in 2009 was primarily due to decreases in business unit and executive incentives ($57 million), regular salaries ($39 million), share-based compensation ($19 million) and severance ($15 million), partially offset by an increase in deferred compensation plan costs ($36 million). Business unit incentives are tied to new business and business unit profitability, while executive incentives are tied to the Corporation's overall performance and peer-based comparisons of results. The decrease in regular salaries in 2009 was primarily the result of a decrease in staff of approximately 850 full-time equivalent employees from year-end 2008 to year-end 2009. The increase in deferred compensation plan costs in 2009 was offset by increased deferred compensation asset returns in noninterest income. The decrease in salaries expense in 2008 was primarily due to decreases in deferred compensation plan costs ($33 million), regular salaries ($26 million), incentives ($21 million) and share-based compensation ($8 million), partially offset by an increase in severance expense ($25 million). The decrease in regular salaries in 2008 was primarily the result of the refinement to the deferral of costs associated with loan origination, as described in Note 1 to the consolidated financial statements, and a decrease in staff of approximately 600 full-time equivalent employees from year-end 2007 to year-end 2008.

        Employee benefits expense increased $16 million, or eight percent, in 2009, compared to an increase of $1 million, or one percent, in 2008. The increase in 2009 resulted primarily from an increase in defined benefit pension expense. In 2008, when compared to 2007, increases in staff insurance costs and severance-related benefits, were substantially offset by a decline in defined benefit pension expense. For a further discussion of defined benefit pension expense, refer to the "Critical Accounting Policies" section of this financial review and Note 19 to the consolidated financial statements.

        Net occupancy and equipment expense increased $6 million, or three percent, to $224 million in 2009, compared to an increase of $20 million, or 10 percent, in 2008. Net occupancy and equipment expense increased $7 million and $11 million in 2009 and 2008, respectively, due to the addition of new banking centers since the banking center expansion program began in late 2004.

        Outside processing fee expense decreased $7 million, or seven percent, to $97 million in 2009, from $104 million in 2008, compared to an increase of $13 million, or 13 percent, in 2008. The decrease in 2009 was largely due to lower volumes in activity-based processing charges resulting from the sale of the Corporation's proprietary defined contribution plan recordkeeping business. The increase in 2008 was due to higher volumes in activity-based processing charges, in part related to outsourcing.

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        FDIC insurance expense increased $74 million to $90 million in 2009, compared to an increase of $11 million in 2008. The increase in 2009 was primarily due to a second quarter 2009 industry-wide special assessment charge ($29 million), an increase in base assessment rates and a surcharge related to the Corporation's participation in the Temporary Liquidity Guarantee Program. For additional information regarding the Temporary Liquidity Guarantee Program, refer to the "Deposits and Borrowed Funds" portion of the "Balance Sheet and Capital Funds Analysis" section of this financial review. The increase in 2008 reflected the exhaustion of a one-time credit against which deposit insurance assessments had been applied from 2007 through mid-2008.

        Software expense increased $8 million, or 10 percent, in 2009, compared to an increase of $13 million, or 21 percent, in 2008. The increase in 2009 was mostly due to a full year of amortization expense for investments in technology throughout 2008. The increase in 2008 was primarily due to increased investments in technology, including treasury management, sales tracking tools, anti-money laundering initiatives, transition from paper to electronic check processing and the continued development of loan portfolio and enterprise level analytical tools, combined with an increase in maintenance costs.

        Other real estate expenses increased $38 million to $48 million in 2009, from $10 million in 2008, and increased $3 million in 2008, compared to 2007. Other real estate expenses reflects write-downs, net gains (losses) on sales and carrying costs related primarily to foreclosed property. The increase in 2009 was primarily due to write-downs on foreclosed property of $34 million in 2009 reflecting continued declines in property values. For additional information regarding foreclosed property, refer to the "Nonperforming Assets" portion of the "Credit Risk" section of this financial review.

        Legal fees increased $8 million to $37 million in 2009, from $29 million in 2008, and increased $5 million in 2008, compared to 2007. The increase in 2009 was primarily due to increased loan workout and collection expenses, partially offset by lower other litigation expenses.

        Litigation and operational losses decreased $93 million to $10 million in 2009, from $103 million in 2008, and increased $85 million in 2008, compared to $18 million in 2007. Litigation and operational losses include traditionally defined operating losses, such as fraud and processing losses, 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. Litigation and operational losses in 2008 included a net charge of $88 million related to the repurchase of auction-rate securities from certain customers, partially offset by a 2008 reversal of a $13 million loss sharing expense related to the Corporation's membership in Visa recognized in 2007. For additional information on the repurchase of auction-rate securities, refer to the "Investment Securities Available-for-Sale" portion of the "Balance Sheet and Capital Funds Analysis" section and "Critical Accounting Policies" section of this financial review and Note 4 to the consolidated financial statements.

        Customer services expense decreased $9 million, or 71 percent, to $4 million in 2009, from $13 million in 2008, and decreased $30 million, or 69 percent, in 2008, from $43 million in 2007. Customer services expense represents certain expenses paid on behalf of particular customers, and is one method to attract and retain title and escrow deposits in the Financial Services Division. The amount of customer services expense varies from period to period as a result of changes in the level of noninterest-bearing deposits and low-rate loans in the Financial Services Division and the earnings credit allowances provided on these deposits, as well as the competitive environment. Average Financial Services Division noninterest-bearing deposits and loans decreased $337 million and $288 million, in 2009, compared to 2008, respectively.

        The provision for credit losses on lending-related commitments decreased $18 million to a charge of less than $0.5 million in 2009, from a charge of $18 million in 2008, and increased $19 million in 2008, compared to a negative provision of $1 million in 2007. For additional information on the provision for credit losses on lending-related commitments, refer to the "Provision for Credit Losses" section of this financial review and Note 1 to the consolidated financial statements.

        Other noninterest expenses decreased $30 million, or 15 percent, in 2009, and decreased $17 million, or eight percent, in 2008. The decrease in 2009 was due in part to a decrease of $11 million, or 40 percent, in travel and entertainment expenses. The decrease in 2008 was due to nominal decreases in several categories.

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        Management expects a low single-digit decrease in noninterest expenses in 2010 compared to 2009 levels.

INCOME TAXES AND TAX-RELATED ITEMS

        The provision for income taxes was a benefit of $131 million in 2009, compared to provisions of $59 million in 2008 and $306 million in 2007. The income tax benefit in 2009 reflected the decrease in income before taxes compared to 2008 and a benefit of $14 million related to the settlement of certain tax matters due to the audit of years 2001-2004, the filing of certain amended state tax returns and the reduction of tax interest due to anticipated refunds due from the Internal Revenue Service (IRS). The provision for income taxes in 2008 reflected the impact of lower pre-tax income compared to 2007 and included a net after-tax charge of $9 million related to the acceptance of a global settlement offered by the IRS on certain structured leasing transactions, settlement with the IRS on disallowed foreign tax credits related to a series of loans to foreign borrowers and other tax adjustments.

        The Corporation had a net deferred tax asset of $158 million at December 31, 2009. Included in net deferred taxes at December 31, 2009 were deferred tax assets of $678 million, net of a $1 million valuation allowance established for certain state deferred tax assets. A valuation allowance is provided when it is "more-likely-than-not" that some portion of the deferred tax asset will not be realized. Deferred tax assets are evaluated for realization based on available evidence of loss carryback capacity, projected future reversals of existing taxable temporary differences and assumptions made regarding future events.

        Management expects 2010 income tax expense to approximate 35 percent of income before income taxes less approximately $60 million of permanent differences related to low-income housing and bank-owned life insurance.

INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX

        Income from discontinued operations, net of tax, was $1 million in both 2009 and 2008 and $4 million in 2007. Income from discontinued operations in 2007 included adjustments to the initial gain recorded on the sale of Munder Capital Management (Munder) in 2006. For further information on the sale of Munder and discontinued operations, refer to Note 26 to the consolidated financial statements.

PREFERRED STOCK DIVIDENDS

        In the fourth quarter 2008, the Corporation participated in the U.S. Department of Treasury (U.S. Treasury) Capital Purchase Program (the Capital Purchase Program) and received proceeds of $2.25 billion from the U. S. Treasury. In return, the Corporation issued 2.25 million shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series F, without par value (preferred shares) and granted a warrant to purchase 11.5 million shares of common stock to the U.S. Treasury. The preferred shares pay a cumulative dividend rate of five percent per annum on the liquidation preference of $1,000 per share.

        The proceeds from the Capital Purchase Program were allocated between the preferred shares and the related warrant based on relative fair value, which resulted in an initial carrying value of $2.1 billion for the preferred shares and $124 million for the warrant. The resulting discount to the preferred shares of $124 million accretes on a level yield basis over five years through November 2013 and is being recognized as additional preferred stock dividends.

        Preferred stock dividends were $134 million for the year ended December 31, 2009, which included $112 million of cash dividends and $22 million of discount accretion. Preferred stock dividends, including accretion of the discount, were $17 million for the fourth quarter 2008 and the year ended December 31, 2008.

        For further information on the Capital Purchase Program, refer to the "Capital" section of this financial review and Note 15 to the consolidated financial statements.

        At such time as feasible, management intends to redeem the $2.25 billion of Fixed Rate Cumulative Perpetual Preferred Stock issued to the U.S. Treasury, with careful consideration given to the economic environment.

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STRATEGIC LINES OF BUSINESS

BUSINESS SEGMENTS

        The Corporation's operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank and Wealth & Institutional Management. These business segments are differentiated based upon the products and services provided. In addition to the three major business segments, the Finance Division is also reported as a segment. The Other category includes discontinued operations and items not directly associated with these business segments or the Finance Division. Note 24 to the consolidated financial statements describes the business activities of each business segment and the methodologies which form the basis for these results, and presents financial results of these business segments for the years ended December 31, 2009, 2008 and 2007.

        The following table presents net income (loss) by business segment.

 
  Years Ended December 31  
 
  2009   2008   2007  
 
  (dollar amounts in millions)
 

Business Bank

  $ 147     104 % $ 237     89 % $ 516     72 %

Retail Bank

    (48 )   (34 )   34     13     128     18  

Wealth & Institutional Management (a)

    43     30     (4 )   (2 )   70     10  
                           

    142     100 %   267     100 %   714     100 %

Finance

    (110 )         (48 )         (38 )      

Other (b)

    (15 )         (6 )         10        
                                 
 

Total

  $ 17         $ 213         $ 686        
                                 

(a)
2008 included an $88 million net charge ($56 million, after-tax) related to the repurchase of auction-rate securities from customers.

(b)
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 $90 million, or 38 percent, to $147 million in 2009, compared to a decrease of $279 million, or 54 percent, to $237 million in 2008. Net interest income (FTE) was $1.3 billion in 2009, an increase of $51 million, or four percent, compared to 2008. The increase in net interest income (FTE) was primarily due to an increase in loan spreads and a $402 million increase in average deposits, partially offset by a $5.5 billion decrease in average loans. The provision for loan losses increased $317 million to $860 million in 2009, from $543 million in 2008, primarily due to increases in reserves for the Middle Market, Commercial Real Estate (in the Midwest, Florida and Texas markets), Leasing and Global Corporate Banking loan portfolios, partially offset by a reduction in reserves for Western residential real estate developers (primarily in California). Net credit-related charge-offs of $712 million increased $320 million, primarily due to an increase in charge-offs in the Middle Market, Commercial Real Estate, Global Corporate Banking, Small Business and Leasing loan portfolios. Noninterest income of $291 million in 2009 decreased $11 million from 2008, primarily due to a $14 million gain on the sale of MasterCard shares in 2008 and decreases in income from customer derivatives ($11 million), card fees ($7 million) and investment banking fees ($5 million), partially offset by increases in warrant income ($9 million), commercial lending fees ($7 million) and service charges on deposits ($5 million), and an $8 million 2009 net gain on the termination of leveraged leases. Noninterest expenses of $638 million in 2009 decreased $71 million from 2008, primarily due to decreases in allocated net corporate overhead expenses ($54 million), incentive compensation ($26 million), customer services expense ($10 million), salaries expense ($9 million), the provision for credit losses on lending-related commitments ($6 million), travel and entertainment expense ($5 million) and smaller decreases in several other expense categories, partially offset by increases in other real estate expenses ($33 million) and FDIC insurance expense ($27 million). The corporate overhead allocation rates used were approximately 3.3 percent and 6.1 percent in 2009 and 2008, respectively.

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The decrease in rate in 2009, when compared to 2008, resulted primarily from an increase in funding credits due to the preferred stock issued to the U.S. Treasury.

        The Retail Bank's net income decreased $82 million to a net loss of $48 million in 2009, compared to a decrease of $94 million, to net income of $34 million in 2008. Net interest income (FTE) of $510 million decreased $56 million, or 10 percent, in 2009, primarily due to a decline in deposit spreads caused by a competitive pricing environment, a decline in loan spreads and a decrease in average loans ($335 million), partially offset by an increase in average deposit balances ($444 million). The provision for loan losses increased $20 million to $143 million in 2009, primarily due to increases in reserves for the Personal Banking loan portfolio (primarily the Midwest market). Noninterest income of $190 million decreased $68 million in 2009, from $258 million in 2008, primarily due to a $48 million gain on the sale of Visa shares in 2008, a decrease in service charges on deposit accounts ($6 million) and a decline in net gains from the sale of Small Business loans and the early 2008 discontinuation of student loan sales ($5 million). Noninterest expenses of $642 million in 2009 decreased $3 million from 2008, primarily due to decreases in allocated net corporate overhead expenses ($25 million), salaries expense ($17 million) and smaller decreases in several other expense categories, partially offset by increases in FDIC insurance expense ($31 million) and net occupancy expense ($7 million), and the first quarter 2008 reversal of a $13 million Visa loss sharing expense recognized in 2007. Refer to the Business Bank discussion above for an explanation of the decrease in allocated net corporate overhead expenses.

        Wealth & Institutional Management's net income increased $47 million to $43 million in 2009, compared to a decrease of $74 million to a net loss of $4 million in 2008. Net interest income (FTE) of $161 million increased $13 million, or eight percent, in 2009, compared to 2008, primarily due to increases in average deposits ($221 million) and average loans ($216 million), and an improvement in loan spreads from 2008. The provision for loan losses increased $37 million to $62 million, primarily due to an increase in reserves for the Private Banking loan portfolio. Noninterest income of $269 million decreased $23 million, or eight percent, in 2009, primarily due to decreases in fiduciary income ($37 million) and brokerage fees ($11 million), partially offset by an increase in gains on the redemption of auction-rate-securities ($10 million), an increase in investment banking fees ($9 million) and a $5 million gain on the second quarter 2009 sale of the Corporation's proprietary defined contribution plan recordkeeping business. The decrease in fiduciary income was primarily due to lower personal trust fees related to market value decline in late 2008 and a decline in institutional trust fees related to the second quarter 2009 sale of the Corporation's proprietary defined contribution plan recordkeeping business. Noninterest expenses of $302 million in 2009 decreased $120 million from 2008, primarily due to the $88 million net charge related to the repurchase of auction-rate securities in 2008, decreases in allocated net corporate overhead expenses ($13 million) and incentive compensation ($8 million), and smaller decreases in several other expense categories, partially offset by an increase in FDIC insurance expense ($5 million). Refer to the Business Bank discussion above for an explanation of the decrease in allocated net corporate overhead expenses.

        The net loss in the Finance Division was $110 million in 2009, compared to a net loss of $48 million in 2008. Contributing to the $62 million increase in net loss was a $314 million decline in net interest income (FTE), primarily due to the Corporation's internal funds transfer policy. In the current low rate environment, the Finance Division provided a greater benefit for deposits, particularly noninterest-bearing deposits, to the three major business segments in 2009 than was actually realized at the corporate level. Noninterest expenses increased $6 million primarily due to an increase in FDIC insurance expense ($6 million). Partially offsetting these items was an increase of $224 million in noninterest income, resulting primarily from $225 million of gains on the sale of mortgage-backed government agency securities in 2009.

        The net loss in the Other category was $15 million in 2009, compared to a net loss of $6 million in 2008. The increase in net loss of $9 million was primarily due to timing differences between when corporate overhead expenses are reflected as a consolidated expense and when the expenses are allocated to the business segments.

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GEOGRAPHIC MARKET SEGMENTS

        The Corporation's management accounting system also produces market segment results for the Corporation's four primary geographic markets: Midwest, Western, Texas and Florida. In addition to the four primary geographic markets, Other Markets and International are also reported as market segments. The Finance & Other Businesses category includes discontinued operations and items not directly associated with the market segments. Note 24 to the consolidated financial statements presents a description of each of these market segments as well as the financial results for the years ended December 31, 2009, 2008 and 2007.

        The following table presents net income (loss) by market segment.

 
  Years Ended December 31  
 
  2009   2008   2007  
 
  (dollar amounts in millions)
 

Midwest

  $ 37     26 % $ 205     77 % $ 294     40 %

Western

    (14 )   (10 )   (19 )   (7 )   190     27  

Texas

    40     28     53     20     84     12  

Florida

    (23 )   (16 )   (13 )   (5 )   7     1  

Other Markets (a)

    78     55     12     4     89     13  

International

    24     17     29     11     50     7  
                           

    142     100 %   267     100 %   714     100 %

Finance & Other Businesses (b)

    (125 )         (54 )         (28 )      
                                 
 

Total

  $ 17         $ 213         $ 686        
                                 

(a)
2008 included an $88 million net charge ($56 million, after-tax) related to the repurchase of auction-rate securities from customers.

(b)
Includes discontinued operations and items not directly associated with the market segments.

        The Midwest market's net income decreased $168 million, or 82 percent, to $37 million in 2009, compared to a decrease of $89 million, or 30 percent, to $205 million in 2008. Net interest income (FTE) of $807 million increased $31 million from 2008, primarily due to $38 million of tax-related non-cash charges to income related to certain structured leasing transactions in 2008, an increase in loan spreads and the benefit provided by an increase in average deposit balances ($1.1 billion), partially offset by a decrease in average loan balances ($2.1 billion) and a decline in deposit spreads resulting from a significantly lower rate environment. The provision for loan losses increased $293 million, to $448 million in 2009, compared to 2008, primarily due to increases in reserves for the Middle Market, Commercial Real Estate (primarily residential real estate developments) and Leasing loan portfolios. Net credit-related charge-offs increased $199 million, largely due to increases in the Middle Market, Leasing, Commercial Real Estate and Small Business loan portfolios. Noninterest income of $435 million in 2009 decreased $89 million from 2008, primarily due to gains of $39 million on the sale of Visa shares and $14 million on the sale of MasterCard shares in 2008, and decreases in fiduciary income ($28 million), service charges on deposit accounts ($9 million) and card fees ($8 million). Partially offsetting these decreases was an increase in investment banking fees ($9 million) and an $8 million 2009 net gain on the termination of leveraged leases. Noninterest expenses of $761 million in 2009 decreased $52 million from 2008, primarily due to decreases in allocated net corporate overhead expenses ($41 million), incentive compensation ($13 million), the provision for credit losses on lending-related commitments ($7 million), service fees ($6 million) and smaller decreases in several other expense categories, partially offset by increases in FDIC insurance expense ($30 million) and other real estate expenses ($12 million), and the first quarter 2008 reversal of a $10 million Visa loss sharing arrangement expense recognized in 2007. Refer to the Business Bank discussion above for an explanation of the decrease in allocated net corporate overhead expenses.

        The net loss in the Western market decreased $5 million to $14 million in 2009, compared to a $209 million decrease in net income to a net loss of $19 million in 2008. Net interest income (FTE) of $623 million decreased

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$45 million, or seven percent, in 2009, primarily due to declines in average loan balances ($2.3 billion) and average Financial Services Division deposits ($829 million), and the reduced value of these deposits due to the low interest rate environment, partially offset by an increase in loan spreads. The provision for loan losses decreased $21 million, to $358 million in 2009, from $379 million in 2008, primarily due to a reduction in reserves for the Commercial Real Estate loan portfolio (primarily residential real estate developers in California), partially offset by increases in reserves for the Global Corporate Banking and Middle Market loan portfolios. Net credit-related charge-offs increased $86 million, largely due to increases in charge-offs in the Global Corporate Banking and Middle Market loan portfolios. Noninterest income was $133 million in 2009, a decrease of $6 million from 2008, primarily due to a $5 million decrease in customer derivative income and smaller decreases in several other income categories, partially offset by increases in warrant income ($8 million) and service charges on deposits ($6 million). Noninterest expenses of $432 million in 2009 decreased $16 million from 2008, primarily due to decreases in allocated net corporate overhead expenses ($26 million), incentive compensation ($11 million) and customer services expense ($9 million), and smaller decreases in several other expense categories, partially offset by increases in other real estate expenses ($20 million), FDIC insurance expense ($19 million) and net occupancy expense ($6 million). Refer to the Business Bank discussion above for an explanation of the decrease in allocated net corporate overhead expenses.

        The Texas market's net income decreased $13 million, or 25 percent, to $40 million in 2009, compared to a decrease of $31 million, or 37 percent, to $53 million in 2008. Net interest income (FTE) of $298 million increased $6 million, or two percent, in 2009, compared to 2008. The increase in net interest income (FTE) was primarily due to an increase in loan spreads and the benefit provided by an increase of $489 million in average deposit balances, partially offset by declines in deposit spreads. The provision for loan losses increased $34 million, primarily due to increases in reserves for the Commercial Real Estate and Middle Market loan portfolios in 2009, compared to 2008. Noninterest income of $86 million in 2009 decreased $8 million from 2008, primarily due to a $7 million gain on the sale of Visa shares in 2008. Noninterest expenses of $238 million in 2009 decreased $8 million from 2008, primarily due to a decrease in allocated net corporate overhead expenses ($13 million), partially offset by smaller increases in several other expense categories. Refer to the Business Bank discussion above for an explanation of the decrease in allocated net corporate overhead expenses.

        The Florida market's net loss increased $10 million to $23 million in 2009, compared to a decrease in net income of $20 million to a net loss of $13 million in 2008. Net interest income (FTE) of $44 million in 2009 decreased $3 million, or seven percent, from 2008, primarily due to a $147 million decrease in average loan balances. The provision for loan losses increased $19 million and net credit-related charge-offs increased $21 million, primarily due to the Commercial Real Estate loan portfolio. Noninterest income of $12 million in 2009 decreased $4 million from 2008, primarily due to a decrease in customer derivative income. Noninterest expenses of $37 million in 2009 decreased $5 million from 2008 due to small decreases in several expense categories.

        The Other Markets' net income increased $66 million to $78 million in 2009, compared to a decrease of $77 million to $12 million in 2008. Net interest income (FTE) of $158 million in 2009 increased $11 million from 2008, primarily due to an increase in loan spreads and a $212 million increase in average deposit balances, partially offset by a $334 million decrease in average loans. The provision for loan losses increased $20 million, primarily due to an increase in reserves for the Middle Market and Commercial Real Estate loan portfolios, partially offset by a decrease in reserves in the Global Corporate Banking loan portfolio. Net credit-related charge-offs increased $46 million, primarily due to an increase in charge-offs in the Commercial Real Estate loan portfolio. Noninterest income of $51 million increased $3 million in 2009, compared to 2008, primarily due to a $10 million increase in gains on the redemption of auction-rate securities and a gain of $5 million on the second quarter 2009 sale of the Corporation's proprietary defined contribution plan recordkeeping business, partially offset by a $5 million decrease in investment banking fees and smaller decreases in several other income categories. Noninterest expenses of $83 million in 2009 decreased $103 million from 2008, primarily due to the $88 million net charge related to the repurchase of auction-rate securities in 2008 and decreases in incentive

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compensation ($16 million) and allocated net corporate overhead expenses ($7 million). Refer to the Business Bank discussion above for an explanation of the decrease in allocated net corporate overhead expenses.

        The International market's net income decreased $5 million, to $24 million in 2009, compared to a decrease of $21 million to $29 million in 2008. Net interest income (FTE) of $69 million in 2009 increased $8 million from 2008, primarily due to an increase in loan spreads, partially offset by a $330 million decrease in average loan balances. The provision for loan losses of $33 million in 2009 increased $29 million from $4 million in 2008. Noninterest income of $33 million in 2009 increased $2 million from 2008. Noninterest expenses of $31 million decreased $10 million in 2009 compared to 2008, primarily due to small decreases in several expense categories.

        The net loss for the Finance & Other Business segment was $125 million in 2009, compared to a net loss of $54 million in 2008. The $71 million increase in net loss resulted from the same reasons noted in the Finance Division and Other category discussions under the "Business Segments" heading above.

        The following table lists the Corporation's banking centers by geographic market segment.

 
  December 31  
 
  2009   2008   2007  

Midwest (Michigan)

    232     233     237  

Western:

                   
 

California

    98     96     83  
 

Arizona

    16     12     8  
               

    114     108     91  

Texas

    90     87     79  

Florida

    10     10     9  

International

    1     1     1  
               
 

Total

    447     439     417  
               

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BALANCE SHEET AND CAPITAL FUNDS ANALYSIS

        Total assets were $59.2 billion at December 31, 2009, a decrease of $8.3 billion from $67.5 billion at December 31, 2008. On an average basis, total assets decreased $2.4 billion to $62.8 billion in 2009, from $65.2 billion in 2008, resulting primarily from a decrease in loans ($5.6 billion), partially offset by increases in interest-bearing deposits with the FRB ($2.2 billion) and investment securities available-for-sale ($1.3 billion). Also, on an average basis, total liabilities decreased $4.0 billion to $55.7 billion in 2009, from $59.7 billion in 2008, resulting primarily from decreases of $4.2 billion in interest-bearing deposits and $2.8 billion in short-term borrowings, partially offset by increases of $2.3 billion in noninterest-bearing deposits and $877 million in medium- and long-term debt.

ANALYSIS OF INVESTMENT SECURITIES AND LOANS

 
  December 31  
 
  2009   2008   2007   2006   2005  
 
  (in millions)
 

U.S. Treasury and other U.S. government agency securities

  $ 103   $ 79   $ 36   $ 46   $ 124  

Government-sponsored enterprise residential mortgage-backed securities

    6,261     7,861     6,165     3,497     3,954  

State and municipal securities

    47     66     3     4     4  

Corporate debt securities:

                               
 

Auction-rate debt securities

    150     147              
 

Other corporate debt securities

    50     42     46     46     58  

Equity and other non-debt securities:

                               
 

Auction-rate preferred securities

    706     936              
 

Money market and other mutual funds

    99     70     46     69     100  
                       
   

Total investment securities available-for-sale

  $ 7,416   $ 9,201   $ 6,296   $ 3,662   $ 4,240  
                       

Commercial loans

 
$

21,690
 
$

27,999
 
$

28,223
 
$

26,265
 
$

23,545
 

Real estate construction loans:

                               
 

Commercial Real Estate business line (a)

    2,988     3,831     4,089     3,449     2,831  
 

Other business lines (b)

    473     646     727     754     651  
                       
   

Total real estate construction loans

    3,461     4,477     4,816     4,203     3,482  

Commercial mortgage loans:

                               
 

Commercial Real Estate business line (a)

    1,824     1,619     1,377     1,534     1,450  
 

Other business lines (b)

    8,633     8,870     8,671     8,125     7,417  
                       
   

Total commercial mortgage loans

    10,457     10,489     10,048     9,659     8,867  

Residential mortgage loans

    1,651     1,852     1,915     1,677     1,485  

Consumer loans:

                               
 

Home equity

    1,803     1,781     1,616     1,591     1,775  
 

Other consumer

    708     811     848     832     922  
                       
   

Total consumer loans

    2,511     2,592     2,464     2,423     2,697  

Lease financing

    1,139     1,343     1,351     1,353     1,295  

International loans:

                               
 

Government and official institutions

                    3  
 

Banks and other financial institutions

    1     7     27     47     46  
 

Commercial and industrial

    1,251     1,746     1,899     1,804     1,827  
                       
   

Total international loans

    1,252     1,753     1,926     1,851     1,876  
                       
   

Total loans

  $ 42,161   $ 50,505   $ 50,743   $ 47,431   $ 43,247  
                       

(a)
Primarily loans to real estate investors and developers.

(b)
Primarily loans secured by owner-occupied real estate.

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EARNING ASSETS

        Total earning assets decreased $7.8 billion, or 13 percent, to $54.6 billion at December 31, 2009, from $62.4 billion at December 31, 2008. The Corporation's average earning assets balances are reflected in the "Analysis of Net Interest Income-Fully Taxable Equivalent" table of this financial review.

Loans

        The following tables detail the Corporation's average loan portfolio by loan type, business line and geographic market.

 
   
   
   
   
 
 
  Years Ended December 31  
Average Loans By Loan Type:
  2009   2008   Change   Percent
Change
 
 
  (dollar amounts in millions)
   
 

Commercial loans

  $ 24,534   $ 28,870   $ (4,336 )   (15 )%

Real estate construction loans:

                         
 

Commercial Real Estate business line (a)

    3,538     4,052     (514 )   (13 )
 

Other business lines (b)

    602     663     (61 )   (9 )
                     
   

Total real estate construction loans

    4,140     4,715     (575 )   (12 )

Commercial mortgage loans:

                         
 

Commercial Real Estate business line (a)

    1,694     1,536     158     10  
 

Other business lines (b)

    8,721     8,875     (154 )   (2 )
                     
   

Total commercial mortgage loans

    10,415     10,411     4      

Residential mortgage loans

    1,756     1,886     (130 )   (7 )

Consumer loans:

                         
 

Home equity

    1,796     1,669     127     8  
 

Other consumer

    757     890     (133 )   (15 )
                     
   

Total consumer loans

    2,553     2,559     (6 )    

Lease financing

    1,231     1,356     (125 )   (9 )

International loans

    1,533     1,968     (435 )   (22 )
                     

Total loans

  $ 46,162   $ 51,765   $ (5,603 )   (11 )%
                     

(a)
Primarily loans to real estate investors and developers.

(b)
Primarily loans secured by owner-occupied real estate.

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  Years Ended December 31  
Average Loans By Business Line:
  2009   2008   Change   Percent
Change
 
 
  (dollar amounts in millions)
   
 

Middle Market

  $ 14,286   $ 16,528   $ (2,242 )   (14 )%

Commercial Real Estate

    6,083     6,610     (527 )   (8 )

Global Corporate Banking

    6,006     6,444     (438 )   (7 )

National Dealer Services

    3,466     4,872     (1,406 )   (29 )

Specialty Businesses (a)

    5,561     6,413     (852 )   (13 )
                     
   

Total Business Bank

    35,402     40,867     (5,465 )   (13 )

Small Business

    3,948     4,244     (296 )   (7 )

Personal Financial Services

    2,059     2,098     (39 )   (2 )
                     
   

Total Retail Bank

    6,007     6,342     (335 )   (5 )

Private Banking

    4,758     4,542     216     5  
                     
   

Total Wealth & Institutional Management

    4,758     4,542     216     5  

Finance/Other

    (5 )   14     (19 )   N/M  
                     

Total loans

  $ 46,162   $ 51,765   $ (5,603 )   (11 )%
                     

(a)
Includes Entertainment, Energy, Leasing, Financial Services Division and Technology and Life Sciences.

N/M — not meaningful.

 
   
   
   
   
 
 
  Years Ended December 31  
Average Loans By Geographic Market:
  2009   2008   Change   Percent
Change
 
 
  (dollar amounts in millions)
   
 

Midwest

  $ 16,965   $ 19,062   $ (2,097 )   (11 )%

Western

    14,281     16,565     (2,284 )   (14 )

Texas

    7,384     7,776     (392 )   (5 )

Florida

    1,745     1,892     (147 )   (8 )

Other Markets

    3,883     4,217     (334 )   (8 )

International

    1,909     2,239     (330 )   (15 )

Finance/Other

    (5 )   14     (19 )   N/M  
                     

Total loans

  $ 46,162   $ 51,765   $ (5,603 )   (11 )%
                     

N/M — not meaningful.

        Total loans were $42.2 billion at December 31, 2009, a decrease of $8.3 billion from $50.5 billion at December 31, 2008. As shown in the tables above, total average loans decreased $5.6 billion, or 11 percent, to $46.2 billion in 2009, compared to $51.8 billion 2008, with declines in nearly all business lines and in all geographic markets from 2008 to 2009.

        Average commercial real estate loans, consisting of real estate construction and commercial mortgage loans, decreased $571 million, or four percent, to $14.6 billion in 2009, from $15.1 billion in 2008. 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, which primarily includes loans to real estate investors and developers, represented $5.2 billion, or 36 percent of average total commercial real estate loans, in 2009, compared to $5.6 billion, or 37 percent of average total commercial real estate loans, in

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2008. The decrease in average commercial real estate loans to borrowers in the Commercial Real Estate business line in 2009 largely resulted from the Corporation's efforts to reduce exposure to the residential real estate developer business. The remaining $9.4 billion and $9.5 billion of average commercial real estate loans in other business lines in 2009 and 2008, respectively, were primarily loans secured by owner-occupied real estate. In addition to the $14.6 billion of average 2009 commercial real estate loans discussed above, the Commercial Real Estate business line also had $851 million of average 2009 loans not classified as commercial real estate on the consolidated balance sheet.

        Average residential mortgage loans, which primarily include mortgages originated and retained for certain relationship customers, decreased $130 million, or seven percent, to $1.8 billion in 2009, from 2008.

        Average home equity loans increased $127 million, or eight percent, in 2009, from 2008, as a result of an increase in draws on new and existing commitments extended.

        For more information on real estate loans, refer to the "Commercial and Residential Real Estate Lending" portion of the "Risk Management" section of this financial review.

        Management expects low single-digit period-end loan growth for 2010, compared to period-end 2009.

ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO
(Fully Taxable Equivalent)

 
  Maturity (a)    
 
 
  Weighted Average Maturity  
 
  Within 1 Year   1 - 5 Years   5 - 10 Years   After 10 Years   Total  
December 31, 2009
  Amount   Yield   Amount   Yield   Amount   Yield   Amount   Yield   Amount   Yield   Yrs./Mos.  
 
  (dollar amounts in millions)
 

Available-for-sale

                                                                   
 

U.S. Treasury and other

                                                                   
   

U.S. government agency
securities

  $ 103     0.43 % $     % $     % $     % $ 103     0.45 %   0/6  
 

Government-sponsored enterprise residential mortgage-backed securities

    119     3.78     146     3.61     542     4.15     5,454     3.77     6,261     3.80     13/4  
 

State and municipal securities (b)

    1     9.55                     46     1.91     47     2.15     18/0  
 

Corporate debt securities:

                                                                   
   

Auction-rate debt securities

                            150     2.96     150     2.96     31/7  
   

Other corporate debt securities

    43     0.25     7     7.55                     50     1.22     0/7  
 

Equity and other non-debt securities:

                                                                   
   

Auction-rate preferred securities (c)

                            706     1.08     706     1.08      
   

Money market and other mutual funds (d)

                            99         99          
                                               

Total investment securities available-for-sale

  $ 266     1.92 % $ 153     3.80 % $ 542     4.15 % $ 6,455     3.44 % $ 7,416     3.45 %   13/5  
                                               

(a)
Based on final contractual maturity.

(b)
Primarily auction-rate securities.

(c)
Auction-rate preferred securities have no contractual maturity and are excluded from weighted average maturity.

(d)
Balances are excluded from the calculation of total yield and weighted average maturity.

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Investment Securities Available-for-Sale

        Investment securities available-for-sale decreased $1.8 billion to $7.4 billion at December 31, 2009, from $9.2 billion at December 31, 2008, reflecting sales of $5.3 billion of mortgage-backed government agency securities and redemptions of $262 million of auction-rate securities. Mortgage-backed government agency securities were sold in 2009 as market conditions were favorable and there was no longer a need to hold a large portfolio of fixed-rate securities to mitigate the impact of potential future rate declines on net interest income. On an average basis, investment securities available-for-sale increased $1.3 billion to $9.4 billion in 2009, compared to $8.1 billion in 2008, primarily due to the 2008 purchase of auction-rate securities from certain customers, all in the fourth quarter 2008.

        The purchase of auction-rate securities in 2008 resulted from the Corporation's September 2008 offer to repurchase, at par, auction-rate securities held by certain retail and institutional clients that were sold through Comerica Securities, a broker/dealer subsidiary of Comerica Bank (the Bank). As of December 31, 2009, the Corporation's auction-rate securities portfolio was carried at an estimated fair value of $901 million, a decrease of $246 million compared to $1.1 billion at December 31, 2008. Subsequent to repurchase, auction-rate securities, primarily taxable and non-taxable auction-rate preferred securities, of $276 million were called or redeemed at par, resulting in net securities gains of $14 million in 2009, compared to $84 million called or redeemed at par in the fourth quarter 2008, resulting in net securities gains of $4 million in 2008. The Corporation experienced minimal credit-related losses or defaults on contractual interest payments related to the portfolio; however, the market for these securities was not active. For additional information on the repurchase of auction-rate securities, refer to the "Critical Accounting Policies" section of this financial review and Note 4 to the consolidated financial statements.

        Management expects investment securities available-for-sale for 2010 to remain at a level similar to year-end 2009.

Short-Term Investments

        Short-term investments include federal funds sold and securities purchased under agreements to resell, interest-bearing deposits with banks and other short-term investments. Federal funds sold offer supplemental earnings opportunities and serve correspondent banks. Average federal funds sold and securities purchased under agreements to resell decreased $75 million to $18 million during 2009, compared to 2008. Interest-bearing deposits with banks are investments with banks in developed countries or international banking facilities of foreign banks located in the United States and include deposits with the FRB since October 1, 2008, the date at which the FRB began paying interest on such balances. Average interest-bearing deposits with banks increased $2.2 billion to $2.4 billion in 2009, compared to 2008, due to an increase in average deposits with the FRB. Average deposits with the FRB represent excess liquidity, which resulted from strong core deposit growth at a time when loan demand remained weak. At December 31, 2009, interest-bearing deposits with the FRB totaled $4.8 billion, compared to $2.3 billion at December 31, 2008. Other short-term investments include trading securities and loans held-for-sale. Loans held-for-sale typically represent residential mortgage loans and Small Business Administration loans that have been originated with management's intention to sell. Short-term investments, other than loans held-for-sale, provide a range of maturities less than one year and are mostly used to manage liquidity requirements of the Corporation. Average other short-term investments decreased $90 million to $154 million in 2009, compared to 2008.

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INTERNATIONAL CROSS-BORDER OUTSTANDINGS

(year-end outstandings exceeding 1% of total assets)

December 31
   
  Government
and Official
Institutions
  Banks and
Other Financial
Institutions
  Commercial
and Industrial
  Total  
 
   
  (in millions)
 
Mexico   2009   $   $   $ 681   $ 681  
    2008             883     883  
    2007         4     911     915  

        International assets are subject to general risks inherent in the conduct of business in foreign countries, including economic uncertainties and each foreign government's regulations. Risk management practices minimize the risk inherent in international lending arrangements. These practices include structuring bilateral agreements or participating in bank facilities, which secure repayment from sources external to the borrower's country. Accordingly, such international outstandings are excluded from the cross-border risk of that country. Mexico, with cross-border outstandings of $681 million, or 1.15 percent of total assets at December 31, 2009, was the only country with outstandings exceeding 1.00 percent of total assets at year-end 2009. There were no countries with cross-border outstandings between 0.75 and 1.00 percent of total assets at year-end 2009. Additional information on the Corporation's Mexican cross-border risk is provided in the table above.

DEPOSITS AND BORROWED FUNDS

        The Corporation's average deposits and borrowed funds balances are detailed in the following table.

 
  Years Ended
December 31
   
   
 
 
   
  Percent
Change
 
 
  2009   2008   Change  
 
  (dollar amounts in millions)
   
 

Noninterest-bearing deposits

  $ 12,900   $ 10,623   $ 2,277     21 %

Money market and NOW deposits

    12,965     14,245     (1,280 )   (9 )

Savings deposits

    1,339     1,344     (5 )    

Customer certificates of deposit

    8,131     8,150     (19 )    
                     
 

Total core deposits

    35,335     34,362     973     3  

Other time deposits

    4,103     6,715     (2,612 )   (39 )

Foreign office time deposits

    653     926     (273 )   (29 )
                     

Total deposits

  $ 40,091   $ 42,003   $ (1,912 )   (5 )%
                     

Short-term borrowings

  $ 1,000   $ 3,763   $ (2,763 )   (73 )%

Medium- and long-term debt

    13,334     12,457     877     7  
                     
 

Total borrowed funds

  $ 14,334   $ 16,220   $ (1,886 )   (12 )%
                     

        Average deposits were $40.1 billion in 2009, a decrease of $1.9 billion, or five percent, from $42.0 billion in 2008. Average core deposits increased $973 million, or three percent, in 2009, compared to 2008. Excluding the Financial Services Division, average core deposits increased $1.8 billion, or three percent, in 2009, compared to 2008. Within average core deposits, the majority of business lines showed increases from 2008 to 2009, including Global Corporate Banking (47 percent), National Dealer Services (17 percent) and Private Banking (nine percent). Average core deposits increased in nearly all geographic markets from 2008 to 2009, including International (42 percent), Other Markets (17 percent), Texas (12 percent), Florida (eight percent) and Midwest (five percent). The increase in average core deposits was, in part, due to an increased level of savings by customers during the uncertain economic conditions throughout 2009. The increase in insurance coverage limits on all domestic deposits from $100,000 to $250,000 and the temporary unlimited insurance coverage on certain

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transaction accounts, discussed below, expanded options to deposit savings into FDIC insured deposits. Average other time deposits decreased $2.6 billion and average foreign office time deposits decreased $273 million in 2009, compared to 2008. Other time deposits represent certificates of deposit issued to institutional investors in denominations in excess of $100,000 and to retail customers in denominations of less than $100,000 through brokers, and are an alternative to other sources of purchased funds. In the Financial Services Division, customers deposit large balances (primarily non-interest bearing) and the Corporation pays certain expenses on behalf of such customers and/or makes low-rate loans to such customers. Average Financial Services Division deposits decreased $846 million, or 33 percent, in 2009, compared to 2008, due to declines of $509 million in average interest-bearing deposits and $337 million in average noninterest-bearing deposits. The decrease in average Financial Services Division deposits in 2009 reflected lower home sales prices, as well as reduced home mortgage financing and refinancing activity. Financial Services Division deposit levels may change with the direction of mortgage activity changes, and the desirability of and competition for such deposits.

        Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, borrowings under the Federal Reserve Term Auction Facility (TAF) and treasury tax and loan notes. Average short-term borrowings decreased $2.8 billion, to $1.0 billion in 2009, compared to $3.8 billion in 2008, reflecting decreases in federal funds purchased and TAF borrowing, due to reduced funding requirements of the Corporation. At December 31, 2009, the Corporation had no TAF borrowings.

        The Corporation uses medium-term debt (both domestic and European) and long-term debt to provide funding to support earning assets. Medium- and long-term debt decreased by $4.0 billion in 2009, to $11.1 billion at December 31, 2009, compared to $15.1 billion at December 31, 2008, primarily as the result of the maturity of Federal Home Loan Bank advances ($2.0 billion) and medium-term notes ($1.6 billion) in 2009. On an average basis, medium- and long-term debt increased $877 million, or seven percent, in 2009, compared to 2008. Further information on medium- and long-term debt is provided in Note 14 to the consolidated financial statements.

        In the fourth quarter 2008, the Corporation elected to participate in the Temporary Liquidity Guarantee Program (the TLG Program) announced by the FDIC in October 2008. At December 31, 2009, there was approximately $7 million of senior unsecured debt outstanding in the form of bank-to-bank deposits issued under the TLG Program, compared to $3 million at December 31, 2008.

        The Corporation elected in 2009 to continue to participate in the unlimited FDIC deposit insurance protection under the TLG program covering noninterest-bearing deposit transaction accounts, interest-bearing transaction accounts earning interest rates of 50 basis points or less, and Interest on Lawyers' Trust Accounts (IOLTA's) through June 30, 2010, regardless of the account balance. This unlimited coverage is in addition to the increased FDIC limits approved on October 3, 2008, which increased insurance coverage limits on all deposits from $100,000 to $250,000 per account and expires December 31, 2013. An annualized surcharge of 10 basis points in 2009 and 15 to 25 basis points in 2010 is applied to those insured accounts not otherwise covered under the increased deposit insurance limit of $250,000, in addition to the existing risk-based deposit insurance premium paid on those deposits.

        For further information on the TLG Program, see Note 14 to the consolidated financial statements.

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CAPITAL

        Total shareholders' equity was $7.0 billion at December 31, 2009, compared to $7.2 billion at December 31, 2008. The following table presents a summary of changes in total shareholders' equity in 2009:

 
  (in millions)
 

Balance at January 1, 2009

        $ 7,152  

Retention of earnings (net income less cash dividends declared)

          (126 )

Change in accumulated other comprehensive loss:

             

Investment securities available-for-sale

  $ (120 )      

Cash flow hedges

    (12 )      

Defined benefit and other postretirement plans

    105        
             
 

Total change in accumulated other comprehensive loss

          (27 )

Repurchase of common stock under employee stock plans

          (1 )

Issuance of common stock under employee stock plans

          (3 )

Share-based compensation

          32  

Other

          2  
             

Balance at December 31, 2009

        $ 7,029  
             

        Further information on the change in accumulated other comprehensive income (loss) is provided in Note 16 to the consolidated financial statements.

        The Corporation assesses capital adequacy against the risk inherent in the balance sheet, recognizing that unexpected loss is the common denominator of risk and that common equity has the greatest capacity to absorb unexpected loss. At December 31, 2009, 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. Refer to Note 22 to the consolidated financial statements for further discussion of regulatory capital requirements and capital ratio calculations.

        Under the Capital Purchase Program, the consent of the U.S. Treasury is required for any increase in common dividends declared from the dividend rate in effect at the time of investment (quarterly dividend rate of $0.33 per share for the Corporation) and for any common share repurchases, other than common share repurchases in connection with any benefit plan in the ordinary course of business, until November 2011, unless the preferred shares have been fully redeemed or the U.S. Treasury has transferred all the preferred shares to third parties prior to that date. In addition, all accrued and unpaid dividends on the preferred shares must be declared and the payment set aside for the benefit of the holders of preferred shares before any dividend may be declared on the Corporation's common stock and before any shares of the Corporation's common stock may be repurchased, other than share repurchases in connection with any benefit plan in the ordinary course of business.

        The Corporation made no share repurchases in the open market in 2009 or 2008, compared to repurchases of 10.0 million shares in 2007 for $580 million. At December 31, 2009, 12.6 million shares of Comerica Incorporated common stock remained available for repurchase under the Corporation's publicly announced repurchase program authorized by the Board of Directors of the Corporation (the Board). As discussed above, common share repurchases through November 2011 require the consent of the U.S. Treasury under the terms of the Capital Purchase Program.

        Refer to Note 15 to the consolidated financial statements for additional information on the Capital Purchase Program and the Corporation's share repurchase program.

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RISK MANAGEMENT

        The Corporation assumes various types of risk in the normal course of business. Management classifies risk exposures into five areas: (1) credit, (2) market, (3) operational, (4) compliance and (5) business risks and considers credit risk as the most significant risk.

        The Corporation continues to enhance its risk management capabilities with additional processes, tools and systems designed to provide management with deeper insight into the Corporation's various risks, enhance the Corporation's ability to control those risks and ensure that appropriate return is received for the risks taken.

        Specialized risk managers, along with the risk management committees in credit, market and liquidity, operational and compliance are responsible for the day-to-day management of those respective risks. The Corporation's Enterprise-Wide Risk Management Committee is responsible for establishing the governance over the risk management process, as well as providing oversight in managing the Corporation's aggregate risk position. The Enterprise-Wide Risk Management Committee is principally made up of the various managers from the different risk areas and business units and has reporting responsibility to the Enterprise Risk Committee of the Board.

CREDIT RISK

        Credit risk represents the risk of loss due to failure of a customer or counterparty to meet its financial obligations in accordance with contractual terms. The Corporation manages credit risk through underwriting, periodically reviewing and approving its credit exposures using Board committee approved credit policies and guidelines. Additionally, the Corporation manages credit risk through loan sales and loan portfolio diversification, limiting exposure to any single industry, customer or guarantor, and selling participations and/or syndicating to third parties credit exposures above those levels it deems prudent.

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ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

 
  Years Ended December 31  
 
  2009   2008   2007   2006   2005  
 
  (dollar amounts in millions)
 

Balance at beginning of year

  $ 770   $ 557   $ 493   $ 516   $ 673  

Loan charge-offs:

                               
 

Domestic

                               
   

Commercial

    375     183     89     44     91  
   

Real estate construction:

                               
     

Commercial Real Estate business line (a)

    234     184     37         2  
     

Other business lines (b)

    1     1     5          
                       
       

Total real estate construction

    235     185     42         2  
   

Commercial mortgage:

                               
     

Commercial Real Estate business line (a)

    90     72     15     4     4  
     

Other business lines (b)

    81     28     37     13     13  
                       
       

Total commercial mortgage

    171     100     52     17     17  
     

Residential mortgage

    21     7             1  
     

Consumer

    34     22     13     23     15  
     

Lease financing

    36     1         10     37  
 

International

    23     2         4     11  
                       
     

Total loan charge-offs

    895     500     196     98     174  

Recoveries:

                               
 

Domestic

                               
   

Commercial

    18     17     27     27     55  
   

Real estate construction

    1     3              
   

Commercial mortgage

    3     4     4     4     3  
   

Residential mortgage

                     
   

Consumer

    2     3     4     3     5  
   

Lease financing

    1     1     4          
 

International

    2     1     8     4     1  
                       
     

Total recoveries

    27     29     47     38     64  
                       

Net loan charge-offs

    868     471     149     60     110  

Provision for loan losses

    1,082     686     212     37     (47 )

Foreign currency translation adjustment

    1     (2 )   1          
                       

Balance at end of year

  $ 985   $ 770   $ 557   $ 493   $ 516  
                       

Allowance for loan losses as a percentage of total loans at end of year

    2.34 %   1.52 %   1.10 %   1.04 %   1.19 %

Net loan charge-offs during the year as a percentage of average loans outstanding during the year

    1.88     0.91     0.30     0.13     0.25  

(a)
Primarily charge-offs of loans to real estate investors and developers.

(b)
Primarily charge-offs of loans secured by owner-occupied real estate.

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

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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 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 defines business loans as those belonging to the commercial, real estate construction, commercial mortgage, lease financing and international loan portfolios. The Corporation performs a detailed credit quality review quarterly on both large business and certain large consumer and residential mortgage loans that have deteriorated below certain levels of credit risk. When these individual loans are impaired, the Corporation may allocate a specific portion of the allowance to such loans, estimated using one of several methods, including estimated collateral value, market value of similar debt or discounted expected cash flows. A portion of the allowance is allocated to the remaining business loans by applying estimated loss ratios to the loans within each risk rating based on numerous factors identified below. In addition, a portion of the allowance is allocated to these remaining loans based on industry-specific risks inherent in certain portfolios that have experienced above average losses, including portfolio exposures to Small Business loans, high technology companies, retail trade (gasoline delivery) companies and automotive parts and tooling supply companies. The portion of the allowance allocated to all other consumer and residential mortgage loans is determined by applying estimated loss ratios to various segments of the loan portfolio. Estimated loss ratios for all portfolios are updated quarterly, incorporating factors such as recent charge-off experience, current economic conditions and trends, changes in collateral values of properties securing loans (using index-based estimates), 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 Corporation's three largest domestic geographic markets (Midwest, Western and Texas), as well as mapping to bond tables. For collateral-dependent loans, independent appraisals are obtained at loan inception and updated on an as-needed basis, generally at the time a loan is determined to be impaired and at least annually thereafter. The allowance for credit losses on lending-related commitments, included in "accrued expenses and other liabilities" on the consolidated balance sheets, provides for probable credit losses inherent in lending-related commitments, including unused commitments to extend credit, letters of credit and financial guarantees. Lending-related commitments for which it is probable that the commitment will be drawn (or sold) are reserved with the same estimated loss rates as loans, or with specific reserves. In general, the probability of draw for letters of credit is considered certain once the credit is assigned a risk rating that is generally consistent with regulatory defined substandard or doubtful. Other letters of credit and all unfunded commitments have a lower probability of draw, to which standard loan loss rates are applied.

        Actual loss ratios experienced in the future may vary from those estimated. The uncertainty occurs because factors may exist which affect the determination of probable losses inherent in the loan portfolio and are not necessarily captured by the application of estimated loss ratios or identified industry-specific risks. A portion of the allowance is maintained to capture these probable losses and reflects management's view that the allowance should recognize the margin for error inherent in the process of estimating expected loan losses. Factors that were considered in the evaluation of the adequacy of the Corporation's allowance include the inherent imprecision in the risk rating system which covers probable loan losses as a result of inaccuracy in assigning risk ratings or stale ratings which may not have been updated for recent negative trends in particular credits. In the first quarter 2009, the Corporation refined the methodology used to estimate the imprecision in the risk rating system portion of the allowance by only applying the identified error rate in assigning risk ratings, based on semiannual reviews, solely to the loan population that was tested. Previously, the error rate was applied to a larger population of loans. This change in methodology reduced the allowance by approximately $16 million in the first quarter 2009.

        The allowance for loan losses is available to absorb losses from any segment within the portfolio. Unanticipated economic events, including political, economic and regulatory instability in countries where the Corporation has loans, could cause changes in the credit characteristics of the portfolio and result in an unanticipated increase in the allowance. Inclusion of other industry-specific portfolio exposures in the allowance, as well as significant increases in the current portfolio exposures, could also increase the amount of

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the allowance. Any of these events, or some combination thereof, may result in the need for additional provision for loan losses in order to maintain an allowance that complies with credit risk and accounting policies. The allowance for loan losses was $985 million at December 31, 2009, compared to $770 million at December 31, 2008, an increase of $215 million. The increase resulted primarily from increases in individual and industry reserves for the Middle Market (primarily the Midwest and Western markets), Global Corporate Banking (primarily the International and Western markets), Private Banking (primarily the Western market) and Commercial Real Estate (primarily in the Texas and Florida markets, partially offset by a decline in the Western market) loan portfolios. Commercial Real Estate challenges in the Western market moderated in 2009, compared to 2008, but remained a significant portion of the Commercial Real Estate allowance for loan losses. The $215 million increase in the allowance for loan losses in 2009 was directionally consistent with the $264 million increase in nonperforming loans from December 31, 2008 to December 31, 2009. The allowance for loan losses as a percentage of total period-end loans increased to 2.34 percent at December 31, 2009, from 1.52 percent at December 31, 2008. As noted above, all large nonperforming loans are individually reviewed each quarter for potential charge-offs and reserves. Charge-offs are taken as amounts are determined to be uncollectible. A measure of the level of charge-offs already taken on nonperforming loans is the current book balance as a percentage of the contractual amount owed. At December 31, 2009, nonperforming loans were charged-off to 56 percent of the contractual amount, compared to 66 percent at December 31, 2008. This level of write-downs is consistent with loss percentages taken on defaulted loans in recent years. The allowance as a percentage of total nonperforming loans, a ratio which results from the actions noted above, was 83 percent at December 31, 2009, compared to 84 percent at December 31, 2008. The Corporation's loan portfolio is heavily composed of business loans, which in the event of default are typically carried on the books at fair value as nonperforming assets for a longer period of time than are consumer loans, which are generally fully charged off when they become nonperforming, resulting in lower nonperforming loan allowance coverage. The allowance for loan losses as a multiple of total annual net loan charge-offs decreased to 1.1 times for the year ended December 31, 2009, compared to 1.6 times for the year ended December 31, 2008, as a result of higher levels of net loan charge-offs in 2009.

        The allowance as a percentage of total loans, as a percentage of total nonperforming loans and as a multiple of annual net loan charge-offs is provided in the following table.

 
  Years Ended December 31  
 
  2009   2008   2007  

Allowance for loan losses as a percentage of total loans at end of year

    2.34 %   1.52 %   1.10 %

Allowance for loan losses as a percentage of total nonperforming loans at end of year

    83     84     138  

Allowance for loan losses as a multiple of total net loan charge-offs for the year

    1.1 x   1.6 x   3.7 x

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

 
  2009   2008   2007   2006   2005  
 
  December 31  
 
  Allocated
Allowance
  Allowance
Ratio(a)
  %(b)   Allocated
Allowance
  %(b)   Allocated
Allowance
  %(b)   Allocated
Allowance
  %(b)   Allocated
Allowance
  %(b)  
 
  (dollar amounts in millions)
 

Domestic

                                                                   
 

Commercial

  $ 456     2.10 %   51 % $ 380     55 % $ 288     55 % $ 320     55 % $ 336     55 %
 

Real estate construction

    194     5.60     8     194     9     128     9     29     9     21     8  
 

Commercial mortgage

    219     2.09     25     147     21     92     20     80     20     74     21  
 

Residential mortgage

    32     1.95     4     4     4     2     4     2     4     1     3  
 

Consumer

    38     1.51     6     27     5     21     5     22     5     25     6  
 

Lease financing

    13     1.15     3     6     3     15     3     27     3     29     3  

International

    33     2.63     3     12     3     11     4     13     4     30     4  
                                               
   

Total

  $ 985     2.34 %   100 % $ 770     100 % $ 557     100 % $ 493     100 % $ 516     100 %
                                               

(a)
Allocated Allowance as a percentage of related loans outstanding.

(b)
Loans outstanding as a percentage of total loans.

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        The allowance for credit losses on lending-related commitments was $37 million at December 31, 2009, compared to $38 million at December 31, 2008, a decrease of $1 million. An analysis of the changes in the allowance for credit losses on lending-related commitments is presented below.

 
  Years Ended December 31  
 
  2009   2008   2007   2006   2005  
 
  (dollar amounts in millions)
 

Balance at beginning of year

  $ 38   $ 21   $ 26   $ 33   $ 21  

Less: Charge-offs on lending-related commitments (a)

    1     1     4     12     6  

Add: Provision for credit losses on lending-related commitments

        18     (1 )   5     18  
                       

Balance at end of year

  $ 37   $ 38   $ 21   $ 26   $ 33  
                       

(a)
Charge-offs result from the sale of unfunded lending-related commitments.

SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS

   
  December 31  
   
  2009   2008   2007   2006   2005  
   
  (dollar amounts in millions)
 
 

Nonaccrual loans:

                               
   

Commercial

  $ 238   $ 205   $ 75   $ 97   $ 65  
   

Real estate construction:

                               
     

Commerical Real Estate business line (a)

    507     429     161     18     3  
     

Other business lines (b)

    4     5     6     2      
                         
       

Total real estate construction

    511     434     167     20     3  
   

Commercial mortgage:

                               
     

Commerical Real Estate business line (a)

    127     132     66     18     6  
     

Other business lines (b)

    192     130     75     54     29  
                         
       

Total commercial mortgage

    319     262     141     72     35  
   

Residential mortgage

    50     7     1     1     2  
   

Consumer

    12     6     3     4     2  
   

Lease financing

    13     1         8     13  
   

International

    22     2     4     12     18  
                         
       

Total nonaccrual loans

    1,165     917     391     214     138  
 

Reduced-rate loans

    16         13          
                         
       

Total nonperforming loans

    1,181     917     404     214     138  
 

Foreclosed property

    111     66     19     18     24  
                         
       

Total nonperforming assets

  $ 1,292   $ 983   $ 423   $ 232   $ 162  
                         
 

Nonperforming loans as a percentage of total loans

    2.80 %   1.82 %   0.80 %   0.45 %   0.32 %
 

Nonperforming assets as a percentage of total loans and foreclosed property

    3.06     1.94     0.83     0.49     0.37  
 

Allowance for loan losses as a percentage of total nonperforming loans

    83     84     138     231     373  
 

Loans past due 90 days or more and still accruing

  $ 101   $ 125   $ 54   $ 14   $ 16  
 

Loans past due 90 days or more and still accruing as a percentage of total loans

    0.24 %   0.25 %   0.11 %   0.03 %   0.04 %

(a)
Primarily loans to real estate investors and developers.

(b)
Primarily loans secured by owner-occupied real estate.

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Nonperforming Assets

        Nonperforming assets include loans on nonaccrual status, loans which have been renegotiated to less than market rates due to a serious weakening of the borrower's financial condition and real estate which has been acquired through foreclosure and is awaiting disposition. Nonperforming assets increased $309 million to $1.3 billion at December 31, 2009, from $983 million at December 31, 2008. The table above presents nonperforming balances by category.

        Residential real estate loans, which consist of traditional residential mortgages and home equity loans and lines of credit, are generally placed on nonaccrual status and charged off to current appraised values, less costs to sell, during the foreclosure process, normally no later than 180 days past due. Other consumer loans are generally not placed on nonaccrual status and are charged off at no later than 120 days past due, earlier if deemed uncollectible. Business loans are generally placed on nonaccrual status when management determines that principal or interest may not be fully collectible or when principal or interest payments are 90 days or more past due, unless the loan is fully collateralized and in the process of collection. Loan amounts in excess of probable future cash collections are charged off to an amount that management ultimately expects to collect. Interest previously accrued but not collected on nonaccrual loans is charged against current income at the time the loan is placed on nonaccrual. Income on such loans is then recognized only to the extent that cash is received and the future collection of principal is probable. Loans restructured in troubled debt restructurings bearing market rates of interest at the time of restructuring and performing in compliance with their modified terms (performing restructured loans) are considered impaired in the calendar year of the restructuring. At December 31, 2009, troubled debt restructurings totaled $34 million, of which $11 million were included in performing assets and $23 million were included in nonperforming assets ($16 million reduced-rate loans and $7 million nonaccrual loans). Refer to Note 1 to the consolidated financial statements for a further discussion of impaired loans.

        The $248 million increase in nonaccrual loans at December 31, 2009, compared to December 31, 2008, resulted primarily from increases in nonaccrual real estate construction (primarily residential real estate developments) ($77 million), commercial mortgage ($57 million), residential mortgage ($43 million) and commercial ($33 million) loans. Nonperforming assets as a percentage of total loans and foreclosed property was 3.06 percent and 1.94 percent at December 31, 2009 and 2008, respectively.

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        The following table presents a summary of changes in nonaccrual loans.

 
  2009   2008  
 
  (in millions)
 

Balance at January 1

  $ 917   $ 391  

Loans transferred to nonaccrual (a)

    1,287     1,123  

Nonaccrual business loan gross charge-offs (b)

    (838 )   (469 )

Loans transferred to accrual status (a)

    (8 )   (11 )

Nonaccrual business loans sold (c)

    (64 )   (47 )

Payments/Other (d)

    (129 )   (70 )
           

Balance at December 31

  $ 1,165   $ 917  
           

(a)
Based on an analysis of nonaccrual loans with book balances greater than $2 million.

(b)
Analysis of gross loan charge-offs:

   

Nonaccrual business loans

  $ 838   $ 469  
   

Performing watch list loans (as defined below)

    2     2  
   

Consumer and residential mortgage loans

    55     29  
           
     

Total gross loan charge-offs

  $ 895   $ 500  
           
(c)
Analysis of loans sold:

   

Nonaccrual business loans

  $ 64   $ 47  
   

Performing watch list loans (as defined below)

    31     16  
           
     

Total loans sold

  $ 95   $ 63  
           
(d)
Includes net changes related to nonaccrual loans with balances less than $2 million, payments on nonaccrual loans with book balances greater than $2 million, transfers of nonaccrual loans to foreclosed property and consumer and residential mortgage loan charge-offs. Excludes business loan gross charge-offs and nonaccrual business loans sold.

        The following table presents the number of nonaccrual loan relationships greater than $2 million and balance by size of relationship at December 31, 2009.

Nonaccrual
Relationship Size
  Number of Relationships   Balance  
 
  (dollar amounts
in millions)

 
$2 million — $5 million     71   $ 231  
$5 million — $10 million     41     295  
$10 million — $25 million     20     305  
Greater than $25 million     3     98  
           
Total loan relationships greater than $2 million at December 31, 2009     135   $ 929  
           

        There were 148 loan relationships each with balances greater than $2 million, totaling $1.3 billion, transferred to nonaccrual status in 2009, an increase of $164 million when compared to $1.1 billion in 2008. Of the transfers to nonaccrual with balances greater than $2 million in 2009, $597 million were from the Commercial Real Estate business line (including $305 million and $100 million from the Western and Florida markets, respectively), $336 million were from the Middle Market business line (including $202 million from the Midwest market) and $155 million were from the Global Corporate Banking business line. There were 45 loan relationships greater than $10 million transferred to nonaccrual in 2009, totaling $840 million, including

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transfers from companies in the Commercial Real Estate ($472 million), Middle Market ($173 million) and Global Corporate Banking ($124 million) business lines. The $472 million of Commercial Real Estate loan relationships greater than $10 million transferred to nonaccrual included $243 million from the Western market, $96 million from the Florida market and $70 million from the Midwest market.

        The Corporation sold $64 million of nonaccrual business loans in 2009, including $36 million and $19 million of loans from the Global Corporate Banking and Commercial Real Estate loan portfolios, respectively.

        Loans past due 90 days or more and still accruing interest generally represent loans that are well collateralized and managed in a continuing process that is expected to result in repayment or restoration to current status. Loans past due 90 days or more and still accruing decreased $24 million, to $101 million at December 31, 2009, from $125 million at December 31, 2008. Loans past due 30-89 days increased $110 million to $522 million at December 31, 2009, compared to $412 million at December 31, 2008.

        Loans past due 90 days or more and still accruing are summarized in the following table.

 
  December 31  
 
  2009   2008  
 
  (in millions)
 

Commercial

  $ 10   $ 34  

Real estate construction

    30     25  

Commercial mortgage

    31     36  

Residential mortgage

    15     23  

Consumer

    13     7  

Lease financing

         

International

    2      
           

Total loans past due 90 days or more and still accruing

  $ 101   $ 125  
           

        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, 2009 and 2008. Watch list loans that meet certain criteria are individually subjected to quarterly credit quality reviews, and the Corporation may allocate a specific portion of the allowance for loan losses to such loans. Consistent with the increase in nonaccrual loans from December 31, 2008 to December 31, 2009, total watch list loans increased both in dollars and as a percentage of the total loan portfolio. The increase in watch list loans primarily reflected negative migration in the Commercial Real Estate and Middle Market business lines.

 
  December 31  
 
  2009   2008  
 
  (dollar amounts
in millions)

 

Total watch list loans

  $ 7,730   $ 5,732  

As a percentage of total loans

    18.3 %   11.3 %

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        The following table presents a summary of nonaccrual loans at December 31, 2009 and loan relationships transferred to nonaccrual and net loan charge-offs during the year ended December 31, 2009, based primarily on Standard Industrial Classification (SIC) industry categories.

 
   
   
  Year Ended December 31, 2009  
 
  December 31, 2009  
 
  Loans Transferred to Nonaccrual (a)    
   
 
Industry Category
  Nonaccrual Loans   Net Loan Charge-Offs  
 
  (dollar amounts in millions)
 

Real estate

  $ 677     58 % $ 613     47 % $ 337     39 %

Services

    95     8     118     9     105     12  

Manufacturing

    62     5     99     8     96     11  

Holding & other investment

    48     4     50     4     20     2  

Retail trade

    45     4     24     2     49     6  

Wholesale trade

    37     3     68     5     38     4  

Automotive

    31     3     102     8     54     6  

Information

    29     2     36     3     18     2  

Hotels

    22     2     39     3     19     2  

Natural resources

    13     1     24     2     9     1  

Finance

    13     1     22     2     16     2  

Transportation

    13     1     11     1     10     1  

Contractors

    10     1     7     1     19     2  

Technology-related

    7     1     47     3     24     3  

Consumer non-durables

    6     1     15     1     4     1  

Utilities

    3         3         7     1  

Other (b)

    54     5     9     1     43     5  
                           

Total

  $ 1,165     100 % $ 1,287     100 % $ 868     100 %
                           

(a)
Based on an analysis of nonaccrual loan relationships with book balances greater than $2 million.

(b)
Consumer, excluding certain personal purpose, nonaccrual loans and net charge-offs, is included in the "Other" category.

        The following table presents a summary of foreclosed property by property type as of December 31, 2009 and 2008.

 
  December 31  
 
  2009   2008  
 
  (in millions)
 

Construction, land development and other land

  $ 62   $ 26  

Single family residential properties

    16     16  

Multi-family residential properties

    3     2  

Other non-land, nonresidential properties

    30     22  
           

Total foreclosed property

  $ 111   $ 66  
           

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        At December 31, 2009, foreclosed property totaled $111 million and consisted of approximately 210 properties, compared to $66 million and approximately 160 properties at December 31, 2008, an increase of $45 million. The following table presents a summary of changes in foreclosed property.

 
  2009   2008  
 
  (in millions)
 

Balance at January 1

  $ 66   $ 19  

Acquired in foreclosure

    114     63  

Write-downs

    (34 )   (6 )

Foreclosed property sold

    (37 )   (10 )

Capitalized expenditures

    2      
           

Balance at December 31

  $ 111   $ 66  
           

        At December 31, 2009, there were 13 foreclosed properties each with a carrying value greater than $2 million, totaling $61 million, an increase of $25 million when compared to $36 million at December 31, 2008. Of the foreclosed properties with balances greater than $2 million at December 31, 2009, $58 million were in the Commercial Real Estate business line, including $33 million in the Western market. At December 31, 2009 and 2008, there were no foreclosed properties with a carrying value greater than $10 million.

Concentration of Credit

        The Corporation has an industry concentration with the automotive industry. Loans to automotive dealers and to borrowers involved with automotive production are reported as automotive, as 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 loan portfolio are excluded from the definition. Foreign ownership consists of North American affiliates of foreign automakers and suppliers.

        The following table presents a summary of loans outstanding to companies related to the automotive industry.

 
  December 31  
 
  2009   2008  
 
  Loans
Outstanding
  Percent of
Total Loans
  Loans
Outstanding
  Percent of
Total Loans
 
 
  (in millions)
 

Production:

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