Comerica
Incorporated
Annual
Report
2017
OUR MISSION
We will achieve balanced growth and
profitability by delivering a higher
level of banking that nurtures lifelong
relationships with unwavering integrity
and financial prudence.
OUR VISION
To become the highest performing, most
respected and most desired bank in the
markets we serve.
OUR CORE VALUES
Customer-centricity
Collaboration
Integrity
Excellence
Agility
Diversity
OUR PROMISE
We will raise your expectation of what a
bank can be.
COMERICA
INCORPORATED
Founded in 1849, Comerica
Incorporated (NYSE: CMA) is
a financial services company
headquartered in Dallas, Texas,
strategically aligned by three
business segments: The Business
Bank, The Retail Bank and Wealth
Management. Comerica focuses on
relationships, and helping people and
businesses be successful. In addition
to Texas, Comerica Bank locations
can be found in Arizona, California,
Florida and Michigan, with select
businesses operating in several other
states, as well as in Canada and
Mexico. As of December 31, 2017,
Comerica had:
• $71.6 billion in assets
• $49.2 billion in loans
• $57.9 billion in deposits
• 438 banking centers
• 7,999 employees (FTE)
• $15.0 billion market
capitalization
FINANCIAL HIGHLIGHTS
(Dollars in millions, except per share, ratio data)
YEAR ENDED DECEMBER 31
Financial Performance
Net interest income
Net interest margin
Provision for credit losses
Net charge-off ratio
o
Noninterest income
Noninterest expense
Provision for income tax
Net income available to common shareholders
Diluted net income per share
Book value per share
Selected Ratios
cted Ratiotioss
Selected Ra
Return on average common shareholders’ equity
Return on average assets
Common equity Tier 1 capital ratio (12/31/17)
2017
2016
% Change
$2,061
3.12%
74
0.19%
1,107
1,860
491
738
4.14
46.07
9.34%
1.04
11.68
$1,797
2.71%
248
0.32%
1,051
1,930
193
473
2.68
44.47
6.22%
0.67
11.09
15%
(70)
5
(4)
154
56
54
4
50
55
4
Revenue
($ in millions)
Efficiency Ratio
(In percentage points)
Pre-tax Income
($ in millions)
2,848
3,168
67.53
58.57
1,234
670
2016
2017
2016
2017
2016
2017
Earnings Per Share
(Diluted per common share)
Dividends
(Annual per share)
Market Price
(Per share; Period-end)
$86.81
$4.14
$1.09
$68.11
$2.68
$0.89
2016
2017
2016
2017
2016
2017
TO OUR SHAREHOLDERS
We began 2017 with clear strategic objectives, and we delivered solid outcomes, including record
revenue, an 84 percent increase in pre-tax income and significant increases in our returns.
In diligent fashion, our team made substantial progress on our goals of further enhancing
financial performance, technology, products, corporate responsibility, diversity and community
involvement. Our stock’s performance continued to positively reflect the advancements we have
made.
We continued to successfully implement our action-oriented improvement plan—GEAR Up—
which was launched in mid-2016 to drive efficiencies and revenue. It’s working. A 5 percent
increase in fee income and a 4 percent decrease in expenses in 2017 demonstrate that we are
reaping substantial and sustainable benefits from this enterprise-wide initiative. With enhanced
training, improved customer analytics and increased marketing capacity, we are starting to see
growth in our revenue base from developing deeper customer relationships. On the expense side,
we obtained significant savings from several of our larger initiatives, most notably from the
retirement program redesign and banking center consolidations. Through GEAR Up, we realized
$30 million in revenue benefits and reached $150 million in expense savings through 2017. Our goal is to drive additional annual
pre-tax income of $305 million by the end of 2019, relative to when the initiative began. Benefits we expect to realize in 2018
include the migration of a significant number of our applications to the secure cloud. Also, we expect to complete the automation
and streamlining of our end-to-end credit process.
As we continue to grow our business and position Comerica for the future, we’ve been encouraged by external factors, such as
higher interest rates, tax reform and the potential for regulatory relief. Our balance sheet remains well positioned to benefit from
rate increases, with over 90 percent of our loans tied to floating rates and about half of our deposits noninterest-bearing at
year-end 2017. The Federal Reserve increased interest rates four times since December 2016, resulting in more than a
$200 million increase in our net interest income, as we prudently managed loan and deposit pricing. The Fed signaled in December
that it could raise rates three more times in 2018.
While it is still too early to determine the full impact, it appears that the tax reform act Congress passed in December will be
great for Comerica and our customers, as well as help drive U.S. economic growth. We distributed some of the benefit of lower
taxes to our hardworking team by raising our minimum wage to $15 per hour and paid approximately 4,500 non-officer colleagues
(more than half of our workforce) a one-time bonus of $1,000. We value our team and strive to provide competitive compensation
packages that attract and retain the best talent.
On the regulatory front, we have recently witnessed some positive developments as well, including a white paper issued by the
Treasury and a bipartisan compromise on regulatory relief bills for financial institutions. The changes outlined could allow us to
actively manage capital and liquidity on a real-time basis. They also have the potential to lower related expenses, for example
by reducing the amount of data management required and simplifying regulatory compliance processes. As one of the smallest
banks subject to CCAR and LCR and with a relatively simple business model, we are subject to a disproportionate burden. We are
closely monitoring the developments and hope to see additional action in 2018. The ultimate benefit will depend on what changes
are made, as well as how they are interpreted and implemented.
We remain committed to being a trusted advisor to our customers as we’ve been preparing for a new age in banking. Our
technology transformation strategy, TechVision2020, is one of our top priorities. We have been investing and will continue to
invest in technology to enhance the customer experience, increase efficiency through simplification and take risk management
to the next level. While the list of projects is long, here are a few examples. We rolled out improved information reporting
and mobility tools for our commercial customers. We also deployed new platforms for consumer loans and mortgages. We’re
upgrading our customer contact centers to leverage biometric authentication, natural language processing and robotics.
We are employing tools, such as robust data analytics, to match our customers’ banking habits with products and services
to meet their needs. In risk management, we will be utilizing state-of-the-art behavioral monitoring to reduce fraud.
2
Additionally, we are installing a new customer relationship
management platform across the bank. We believe
TechVision2020 provides us the blueprint to strengthen
our core technology infrastructure as we continue our
transformation.
Comerica demonstrated its resiliency in 2017 as we dealt
with some unique challenges. For instance, we weathered
several major natural disasters. In addition to the California
wildfires, Hurricanes Harvey and Irma temporarily disrupted
business at some of our locations, affecting our customers
and colleagues. But thanks to the preparedness of our
team, we were able to unite, recover and assist those in
need. Furthermore, in support of our communities, we
proudly partnered with the American Red Cross plus other
organizations to donate more than $100,000 to assist in the
hurricane-related disaster recovery efforts.
Solid 2017 Financial Performance
Revenue grew 11 percent in 2017, an all-time record. This
included a 15 percent increase in net interest income, which
benefited from higher interest rates as we prudently managed
loan and deposit pricing. In addition, successful execution
of our GEAR Up initiative helped increase fee income and
lowered expenses. Credit quality remained strong with a net
charge-off ratio of 19 basis points, well below our historical
norm, even as we continued to navigate the energy cycle.
Our tax provision included a $107 million charge to adjust
deferred taxes resulting from the enactment of the Tax
Cuts and Jobs Act. Altogether, we generated net income of
$743 million, an increase of 56 percent over 2016, and drove
significant increases in our returns as well as an efficiency
ratio of 58 percent.
Excluding cyclical declines in Energy and Mortgage Banker,
average loans increased $670 million. Loans grew in most
other businesses, led by National Dealer Services as well as
Corporate and Private Banking. Average noninterest-bearing
deposits grew 4 percent; however, this was more than offset
by a decline in interest-bearing deposits. The decrease
was primarily due to customers using their excess liquidity
for working capital needs and acquisitions, our deliberate
approach to relationship pricing, as well as strategic actions
we took in light of Liquidity Coverage Ratio requirements.
Our capital position remains strong. The first and most
important use of capital is to invest in profitable growth.
Since we are generating more capital than we can deploy,
returning excess capital to our shareholders is a priority.
We repurchased approximately 7.3 million shares in 2017
under our equity repurchase program. With increases in
July and October, our board of directors raised our quarterly
dividend a total of 30 percent. Through the share buyback
and dividends, we returned $724 million to our shareholders,
a 58 percent increase over 2016.
We believe our stock’s market value, which increased
27 percent in 2017, reflects our solid financial performance,
which included the benefit of deliberate balance sheet
positioning and delivering on GEAR Up targets, as well as
investors’ acknowledgement of the value of our relationship
banking model. For the second consecutive year, Comerica’s
stock outperformed all our peers, as well as the KBW Bank
Index and the S&P500 Index.
Balanced Market Presence and Relationship Banking
We recognize that customer loyalty begins with building
connections. Being a trusted advisor means we are committed
to forming enduring relationships, rather than short-term
gains. With long-tenured employees who have deep expertise
in the businesses they serve, we deliver high-quality financial
services. For example, the average Middle Market banker has
been with Comerica for 11 years, and the average tenure of
their managers is 22 years. Our relationship-based strategy,
combined with our attractive geographic footprint, helps
drive our success.
We have a unique geographic footprint that is well situated
with a strong presence in the major metropolitan areas of
Texas, California and Michigan, providing us with a balanced
market presence. We also have locations in Arizona and
Florida, with certain businesses operating in several other
states, as well as Canada and Mexico. A single, integrated
platform across our markets provides significant synergies
that are highly efficient, yet cost effective. While our markets
are not contiguous, they are complementary. Our footprint
provides diversity to our portfolio, reduces risk, and provides
important counterbalances for us as economic conditions
change.
Our headquarters is located in Dallas, Texas, and we have
over 120 banking centers in the Dallas, Houston, Austin and
San Antonio areas. Over the past two years, our Texas growth
has been affected by the energy cycle. Strategically, we have
reduced the size of our energy portfolio by $1.2 billion since
year-end 2015 and have successfully managed credit losses.
3
We believe this will be less of a headwind going forward,
and the Texas economy is expected to grow faster than the
national average in 2018.
We are a market leader in Michigan, where we have been
operating for 169 years. With over 190 banking centers, we
maintain a strong deposit base. Over 50 percent of our loans
in Michigan are to middle market companies. After several
years of contraction, loans have begun to increase, and
we expect this to continue as the Michigan economy grows
and diversifies. We are very excited about the renaissance
underway in Detroit. We look forward to participating in its
continued revitalization through our financial support of new
developments along the Woodward Corridor and in Corktown,
in addition to our continued support of many of Detroit’s
sports teams.
California, the largest economy in the United States, is
where we have more than 95 banking centers positioned in
the major metropolitan areas of San Francisco, San Jose, Los
Angeles and San Diego. California accounts for 37 percent
of our total loans and contributed most to our loan growth in
2017, led by Private Banking, National Dealer Services and
general Middle Market. Economic activity in California was
slightly above the national average for 2017 and is expected
to continue to outperform in 2018.
Building Business Momentum
We are aligned by three business segments—the Business
Bank, the Retail Bank and Wealth Management. Each
segment made significant strides in 2017.
the
By providing comprehensive financial solutions,
Business Bank experienced broad-based growth across our
various business lines. Putting aside cyclical declines in
Energy and Mortgage Banker, we achieved solid loan growth
in National Dealer Services, U.S. Banking, Technology and
Life Sciences (driven by Equity Fund Services), as well as
Environmental Services. In addition, fee income increased
treasury
5 percent, which benefitted
management solutions, including enabling our customers
to more efficiently manage their business through reporting
and mobile capabilities.
from enhanced
We continue to implement enhancements to our sales
and service model for our Middle Market businesses,
delivering tools and sharing best practices with the goal
of driving faster, more efficient growth. Early results were
demonstrated by the record number of new Middle Market
4
banking relationships we won in California, which drove
their strong loan and deposit growth. Our relationship
model and high standards for customer service distinguish
us from competitors. For instance, for the third time in the
last four years, our Captive Insurance group was named
the “U.S. Captive Collateral Service Provider” of the year by
Captive Review Magazine. Comerica also was a recipient of
the national Greenwich Excellence Award for Middle Market
Banking in 2017 for overall customer satisfaction.
Our Retail Bank is a vital part of our deposit gathering and
revenue growth strategy. It is imperative that we have the
products, services and locations to meet our customers’
needs. Our success is demonstrated by the more than
$400 million increase in average Retail Bank deposits in 2017
along with our team’s efforts to drive customer engagement.
To maximize the mobile banking experience, Retail Bank
delivered on innovation with a major upgrade across mobile
devices. We integrated and expanded our real-time alerts
and implemented new features for our customers such as
the ability to log-in using Touch ID for iPhones, view check
images and perform transaction searches. We also launched
an Android tablet application. Through these initiatives,
we achieved our goal of providing our customers with more
convenient features to manage their finances anytime
and anywhere. In this ever-evolving age of technology,
part of our ongoing service commitment is to provide
customers with more secure, authenticated ways to make
transactions. In 2017, our Retail Bank team converted to a
state-of-the-art debit card platform and completed a brand
conversion, efficiently reissuing more than 500,000 new
chip-embedded debit cards to better protect our customers’
information during usage, such as point of sale transactions.
We have a variety of tools and information to help small
businesses reach their goals, whatever they may be. These
customers found our commercial and merchant card offering
increased their efficiency. As a result, Small Business card
fees increased more than 20 percent in 2017, primarily
related to new and expanded merchant card business.
Wealth Management enables us to bring private banking,
investment management and fiduciary services to our
Business Bank and Retail Bank clients. In 2017, the Wealth
Management team delivered a strong performance by
growing average loans over 4 percent and fee income by
5 percent, including a 4 percent increase in fiduciary income.
We launched our Wealth Productivity initiative, which
incorporates a relationship management tool to enable our
colleagues to better serve our clients, and ultimately, drive
increased market share. We also continued to enhance our
investment management platform by adding new advisors.
Finally, our Professional Trust Alliance remains diligent
in building business. Currently, we have agreements with
17 alliance partners. This business has become a significant
contributor to our fee income and assets under management
continue to grow at a strong pace.
Trusted Choice for Consumers and Businesses
We recognize that maintaining customer confidence is a
key component to our relationship banking strategy. As
cyber threats evolve, we continue to invest in protecting our
customers. In 2017, we increased customer communications,
recruited and trained highly-skilled colleagues, and enhanced
our security detection capabilities. We take a proactive
approach to cybersecurity, making sure we understand the
threats and vulnerabilities that exist in the world, and that
the necessary safeguards are in place to help protect against
potential risks. Our robust, in-depth defense strategy also
focuses on responsiveness and recovery capabilities. We
have technical experts who are constantly reassessing our
processes and best practices, while monitoring systems
around the clock and adjusting as necessary.
Guided by a Strong Board
Our board of directors provides Comerica with strong
guidance and direction. Along with executive management,
our board regularly reviews, and ensures that we adhere
to, our long-term corporate strategy. Much of that strategy,
and the necessary tactics to achieve it, stems from knowing
who we are: a non-complex, regional, commercially-focused
bank. We are dedicated to serving our communities by
meeting their basic financial needs, with an emphasis on
our core capabilities of taking deposits and making loans.
Our long-term value is generated not by sheer scale,
but rather through a sustainable competitive advantage
with a customer base we understand, and a conservative
approach to risk, capital management and operations. We
strive to build enduring relationships that drive superior
credit quality, a stable funding base and consistent returns
that meet our shareholders’ expectations. Collectively,
our 10 independent directors bring a wealth of skills,
experiences, diversity and knowledge that allow them to
effectively address the interests of Comerica’s four core
constituencies: our shareholders, our customers, our
colleagues and the communities we serve each day.
In 2017, our board appointed a new independent director,
Barbara R. Smith, chairman, president and chief executive
officer of Texas-based Commercial Metals Company. She
brings to our board many key skills, including relevant
business management experience and knowledge of
our geographic markets, as well as significant financial
expertise garnered through the chief financial officer roles
she previously held.
the
end
of 2017,
At
long-time board member
Alfred A. Piergallini retired. He was appointed to the Comerica
board in 1991. His experience and insights were invaluable,
particularly as we navigated complex regulations and the
changing landscape of the financial services industry. We
are thankful for the contributions that Al made to Comerica
over 26 years.
Corporate Responsibility
Comerica is only as strong as the communities we serve, and
that is why we invest in them, helping ensure they remain
vibrant. Annual events, financial education programs,
corporate giving and our drive for sustainability were just some
of the ways Comerica continued to shine in the community
in 2017. Our Corporate Responsibility report, which can be
found on Comerica.com, provides a comprehensive review of
our active environmental, social and governance program.
Here are a few highlights.
Our most visible community event – Shred Day – held in
Dallas/Fort Worth, Houston, Phoenix and Detroit, experienced
a banner year with a record 862,087 pounds of paper recycled.
The DFW event shattered its previous record, collecting more
than 548,000 pounds. In the process, we raised awareness
of the Comerica brand, helped reduce fraud and identity
theft, preserved the environment by freeing up space in local
landfills and helped fight hunger in our communities with a
connected food drive.
remains a key component
Empowering youth and adults to become good financial
stewards
in Comerica’s
commitment to our communities. In 2017, we touched the
lives of thousands of students through our Money $ense, Gift
of Knowledge, Empower Series and youth savings programs.
Also, these educational opportunities created dialogue with
our communities to showcase Comerica as a trusted advisor.
5
rates, further interest rate increases and favorable changes
in regulation. We operate with a “go forward” approach and
remain committed to being responsible stewards of our
shareholders’ capital by growing relationships, continued
implementation of our GEAR Up initiative and returning
excess capital to our investors.
Comerica’s success story is not only told through our promise
to “raise expectations of what a bank can be,” but also
through our core values of diversity, collaboration, agility,
excellence, customer-centricity, integrity and involvement.
These are not merely words, but values we practice daily.
Thank you for your support in 2017.
Sincerely,
Ralph W. Babb Jr.
Chairman and Chief Executive Officer
Comerica, along with our colleagues, continued to serve
as pillars in the community, distributing $7.9 million in
contributions to nonprofit organizations and logging nearly
68,000 volunteer hours.
Our commitment to fostering a diverse work environment
garnered national recognition in 2017. For the fourth
consecutive year, we earned a perfect rating on the Human
Rights Campaign’s Corporate Equality Index, resulting in
designation as a Best Place to Work for LGBTQ Equality.
For the fifth consecutive year, Comerica was named to
LATINO Magazine’s “LATINO 100” list – an honor bestowed
on companies providing opportunities for Latinos. And for
the third consecutive year, Comerica was ranked No. 2 on
DiversityInc’s 2017 Top Regional Companies for diversity.
We are dedicated to protecting and preserving the
environment. Significant strides were made in achieving
our 2020 Environmental Sustainability Goals to reduce
emissions, water consumption, waste generation and paper
usage. Topping the list of accomplishments for 2017 was the
achievement of our 2020 greenhouse gas (GHG) reduction goal
three years ahead of schedule with a reduction of 22.4 percent
relative to our 20 percent target. This was one component
which helped us achieve an A- rating by CDP (Carbon
Disclosure Project) for our climate change management
strategy and emission reduction efforts. The honor places
Comerica among the top 16 percent of responders within
the U.S. financial services industry. The year also marked our
first mapping to demonstrate how Comerica’s actions reflect
the United Nations’ 17 Sustainable Development Goals. We
also supported our customers’ sustainability efforts through
over $830 million in environmentally beneficial loans and
commitments in 13 different green loan categories.
Moving Forward
We are focused on continuing to enhance shareholder value
by delivering solid results and positioning Comerica well
for the future. Significant progress was made in 2017. Our
relationship banking strategy and prudent management
of loan and deposit pricing helped drive record revenue
as interest rates increased. It’s been energizing to see the
results we’ve achieved with our GEAR Up initiative, and that
speaks to the perseverance and dedication of our 8,000
colleagues. Over the years, we’ve witnessed the ebbs and
flows of the banking industry in response to the varying
economic cycles. Today, we are experiencing an upswing and
we believe Comerica is well situated to benefit from lower tax
6
BOARD OF DIRECTORS
Ralph W. Babb Jr.
Chairman and Chief Executive Officer
Comerica Incorporated and Comerica Bank
Michael E. Collins (1) (3) (4)
Chair and Senior Counselor, Blake Collins Group
Former Consultant, Federal Reserve Bank of Cleveland
Former Executive Vice President, Federal Reserve Bank of Philadelphia
Roger A. Cregg (1) (2) (3)
President and Chief Executive Officer
AV Homes, Inc.
T. Kevin DeNicola (1) (3) (4)
Former Chief Financial Officer
KiOR, Inc.
Jacqueline P. Kane (2)
Retired Executive Vice President of
Human Resources and Corporate Affairs
The Clorox Company
Barbara R. Smith (2)
Chairman, President and Chief Executive Officer
Commercial Metals Company
Robert S. Taubman (4)
Chairman, President and Chief Executive Officer
Taubman Centers, Inc. and The Taubman Company
Reginald M. Turner, Jr. (1) (3) (4)
Member
Clark Hill PLC
Nina G. Vaca (1) (3) (4)
Chairman and Chief Executive Officer
Pinnacle Technical Resources, Inc. and Vaca Industries Inc.
Michael G. Van de Ven (2)
Chief Operating Officer
Southwest Airlines Co.
Richard G. Lindner (2) (4)
Retired Senior Executive Vice President and
Chief Financial Officer
AT&T, Inc.
(1) Audit Committee
(2) Governance, Compensation and Nominating Committee
(3) Qualified Legal Compliance Committee
(4) Enterprise Risk Committee
SENIOR LEADERSHIP TEAM
Ralph W. Babb Jr.
Chairman and Chief Executive Officer
Comerica Incorporated and Comerica Bank
Curtis C. Farmer
President, Comerica Incorporated and Comerica Bank
Peter W. Guilfoile
Executive Vice President and Chief Credit Officer
Michael H. Michalak
Executive Vice President and Chief Risk Officer
Muneera S. Carr
Executive Vice President and Chief Financial Officer
Christine M. Moore
Executive Vice President and General Auditor
John D. Buchanan
Executive Vice President and Chief Legal Officer/General Counsel
Paul R. Obermeyer
Executive Vice President, Enterprise Technology and Operations
Megan D. Burkhart
Executive Vice President and Chief Human Resources Officer
7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended
December 31, 2017
Commission file number 1-10706
COMERICA INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
38-1998421
(IRS Employer Identification Number)
Comerica Bank Tower
1717 Main Street, MC 6404
Dallas, Texas 75201
(Address of Principal Executive Offices) (Zip Code)
(214) 462-6831
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of
the Exchange Act:
Common Stock, $5 par value
Warrants to Purchase Common Stock (expiring November 14, 2018)
These securities are registered on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the
Exchange Act:
Warrants to Purchase Common Stock (expiring December 12, 2018)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
At June 30, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter), the registrant’s common
stock, $5 par value, held by non-affiliates had an aggregate market value of approximately $12.7 billion based on the closing price on the New
York Stock Exchange on that date of $73.24 per share. For purposes of this Form 10-K only, it has been assumed that all common shares
Comerica’s Trust Department holds for Comerica’s employee plans, and all common shares the registrant’s directors and executive officers hold,
are shares held by affiliates.
At February 9, 2018, the registrant had outstanding 172,813,294 shares of its common stock, $5 par value.
Documents Incorporated by Reference:
Part III: Items 10-14—Proxy Statement for the Annual Meeting of Shareholders to be held April 24, 2018.
TABLE OF CONTENTS
PART I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accountant Fees and Services.
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
FINANCIAL REVIEW AND REPORTS
SIGNATURES
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F-1
S-1
PART I
Item 1. Business.
GENERAL
Comerica Incorporated (“Comerica”) is a financial services company, incorporated under the laws of the State of Delaware,
and headquartered in Dallas, Texas. Based on total assets as reported in the most recently filed Consolidated Financial Statements
for Bank Holding Companies (FR Y-9C), it was among the 25 largest commercial United States (“U.S.”) financial holding
companies. Comerica was formed in 1973 to acquire the outstanding common stock of Comerica Bank, which at such time was
a Michigan banking corporation and one of Michigan's oldest banks (formerly Comerica Bank-Detroit). On October 31, 2007,
Comerica Bank, a Michigan banking corporation, was merged with and into Comerica Bank, a Texas banking association
(“Comerica Bank”). As of December 31, 2017, Comerica owned directly or indirectly all the outstanding common stock of 2 active
banking and 39 non-banking subsidiaries. At December 31, 2017, Comerica had total assets of approximately $71.6 billion, total
deposits of approximately $57.9 billion, total loans (net of unearned income) of approximately $49.2 billion and shareholders’
equity of approximately $8.0 billion.
Business Segments
Comerica has strategically aligned its operations into three major business segments: the Business Bank, the Retail Bank,
and Wealth Management. In addition to the three major business segments, Finance is also reported as a segment. We provide
information about our business segments and the principal products and services provided by these segments in Note 23 on
pages F-97 through F-101 of the Notes to Consolidated Financial Statements located in the Financial Section of this report.
Comerica operates in three primary geographic markets - Texas, California, and Michigan, as well as in Arizona and
Florida, with select businesses operating in several other states, and in Canada and Mexico. We provide information about our
market segments in Note 23 on pages F-97 through F-101 of the Notes to Consolidated Financial Statements located in the Financial
Section of this report.
Activities with customers domiciled outside the U.S., in total or with any individual country, are not significant. We
provide information on risks attendant to foreign operations: (1) under the caption “Concentration of Credit Risk” on pages F-25
through F-26 of the Financial Section of this report; and (2) under the caption "International Exposure" on page F-28 of the
Financial Section of this report.
We provide information about the net interest income and noninterest income we received from our various classes of
products and services: (1) under the caption, “Analysis of Net Interest Income” on page F-6 of the Financial Section of this report;
(2) under the caption “Net Interest Income” on page F-7 of the Financial Section of this report; and (3) under the caption
“Noninterest Income” on pages F-8 through F-9 of the Financial Section of this report.
COMPETITION
The financial services business is highly competitive. Comerica and its subsidiaries mainly compete in their three primary
geographic markets of Texas, California and Michigan, as well as in the states of Arizona and Florida. They also compete in
broader, national geographic markets, as well as markets in Mexico and Canada. They are subject to competition with respect to
various products and services, including, without limitation, loans and lines of credit, deposits, cash management, capital market
products, international trade finance, letters of credit, foreign exchange management services, loan syndication services, consumer
lending, consumer deposit gathering, mortgage loan origination, consumer products, fiduciary services, private banking, retirement
services, investment management and advisory services, investment banking services, brokerage services, the sale of annuity
products, and the sale of life, disability and long-term care insurance products.
Comerica competes in terms of products and pricing with large national and regional financial institutions and with
smaller financial institutions. Some of Comerica's larger competitors, including certain nationwide banks that have a significant
presence in Comerica's market area, may make available to their customers a broader array of product, pricing and structure
alternatives and, due to their asset size, may more easily absorb credit losses in a larger overall portfolio. Some of Comerica's
competitors (larger or smaller) may have more liberal lending policies and processes. Increasingly, Comerica competes with other
companies based on financial technology and capabilities, such as mobile banking applications and money movement. Further,
Comerica's banking competitors may be subject to a significantly different or reduced degree of regulation due to their asset size
or types of products offered. They may also have the ability to more efficiently utilize resources to comply with regulations or
may be able to more effectively absorb the costs of regulations into their existing cost structure. Comerica believes that the level
of competition in all geographic markets will continue to increase in the future.
In addition to banks, Comerica's banking subsidiaries also face competition from other financial intermediaries, including
savings and loan associations, consumer finance companies, leasing companies, venture capital funds, credit unions, investment
banks, insurance companies and securities firms. Competition among providers of financial products and services continues to
increase as technology advances have lowered the barriers to entry for financial technology companies, with consumers having
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the opportunity to select from a growing variety of traditional and nontraditional alternatives, including crowdfunding, digital
wallets and money transfer services. The ability of non-banking financial institutions to provide services previously limited to
commercial banks has intensified competition. Because non-banking financial institutions are not subject to many of the same
regulatory restrictions as banks and bank holding companies, they can often operate with greater flexibility and lower cost structures.
In addition, the industry continues to consolidate, which affects competition by eliminating some regional and local
institutions, while strengthening the franchises of acquirers.
SUPERVISION AND REGULATION
Banks, bank holding companies, and financial institutions are highly regulated at both the state and federal level. Comerica
is subject to supervision and regulation at the federal level by the Board of Governors of the Federal Reserve System (“FRB”)
under the Bank Holding Company Act of 1956, as amended. Comerica Bank is chartered by the State of Texas and at the state
level is supervised and regulated by the Texas Department of Banking under the Texas Finance Code. Comerica Bank has elected
to be a member of the Federal Reserve System under the Federal Reserve Act and, consequently, is supervised and regulated by
the Federal Reserve Bank of Dallas. Comerica Bank & Trust, National Association is chartered under federal law and is subject
to supervision and regulation by the Office of the Comptroller of the Currency (“OCC”) under the National Bank Act. Comerica
Bank & Trust, National Association, by virtue of being a national bank, is also a member of the Federal Reserve System. The
deposits of Comerica Bank and Comerica Bank & Trust, National Association are insured by the Deposit Insurance Fund of the
Federal Deposit Insurance Corporation (“FDIC”) to the extent provided by law. Certain transactions executed by Comerica Bank
are also subject to regulation by the U.S. Commodity Futures Trading Commission. The Department of Labor ("DOL") regulates
financial institutions providing services to plans governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).
In Canada, Comerica Bank is supervised by the Office of the Superintendent of Financial Institutions and in Mexico, by the Banco
de México.
The FRB supervises non-banking activities conducted by companies directly and indirectly owned by Comerica. In
addition, Comerica's non-banking subsidiaries are subject to supervision and regulation by various state, federal and self-regulatory
agencies, including, but not limited to, the Financial Industry Regulatory Authority, Inc., the Department of Licensing and
Regulatory Affairs of the State of Michigan and the Municipal Securities Rulemaking Board ("MSRB") (in the case of Comerica
Securities, Inc.); the Department of Insurance and Financial Services of the State of Michigan (in the case of Comerica Insurance
Services, Inc.); the DOL (in the case of Comerica Securities, Inc. and Comerica Insurance Services, Inc.); and the Securities and
Exchange Commission (“SEC”) (in the case of Comerica Securities, Inc. and World Asset Management, Inc.).
Both the scope of the laws and regulations and intensity of supervision to which our business is subject have increased
in recent years, in response to the financial crisis as well as other factors such as technological and market changes. Many of these
changes have occurred as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act")
and its implementing regulations, most of which are now in place. President Trump has issued an executive order that sets forth
principles for the reform of the federal financial regulatory framework, and the Republican majority in Congress has also suggested
an agenda for financial regulatory change. It is too early to assess whether there will be any major changes in the regulatory
environment or merely a rebalancing of the post-financial crisis framework. Accordingly, Comerica expects that its business will
remain subject to extensive regulation and supervision.
Described below are material elements of selected laws and regulations applicable to Comerica and its subsidiaries. The
descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and
regulations described. Changes in applicable law or regulation, and in their application by regulatory agencies, cannot be predicted,
but they may have a material effect on the business of Comerica and its subsidiaries.
Requirements for Approval of Activities and Acquisitions
The Gramm-Leach-Bliley Act expanded the activities in which a bank holding company registered as a financial holding
company can engage. Comerica became a financial holding company in 2000. As a financial holding company, Comerica may
affiliate with securities firms and insurance companies, and engage in activities that are financial in nature. Activities that are
“financial in nature” include, but are not limited to: securities underwriting; securities dealing and market making; sponsoring
mutual funds and investment companies (subject to regulatory requirements described below); insurance underwriting and agency;
merchant banking; and activities that the FRB has determined to be financial in nature or incidental or complementary to a financial
activity, provided that it does not pose a substantial risk to the safety or soundness of the depository institution or the financial
system generally.
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The conditions to be a financial holding company include, among others, the requirement that each depository institution
subsidiary of the holding company be well capitalized and well managed. The Dodd-Frank Act also requires the well capitalized
and well managed standards to be met at the financial holding company level. Comerica, Comerica Bank and Comerica Bank &
Trust, National Association, are each “well capitalized” and “well managed” under FRB standards. If any subsidiary bank of
Comerica were to cease being “well capitalized” or “well managed” under applicable regulatory standards, the FRB could place
limitations on Comerica's ability to conduct the broader financial activities permissible for financial holding companies or impose
limitations or conditions on the conduct or activities of Comerica or its affiliates. If the deficiencies persisted, the FRB could order
Comerica to divest any subsidiary bank or to cease engaging in any activities permissible for financial holding companies that are
not permissible for bank holding companies, or Comerica could elect to conform its non-banking activities to those permissible
for a bank holding company that is not also a financial holding company.
In addition, the Community Reinvestment Act of 1977 (“CRA”) requires U.S. banks to help serve the credit needs of
their communities. Comerica Bank's current rating under the “CRA” is “satisfactory”. If any subsidiary bank of Comerica were
to receive a rating under the CRA of less than “satisfactory,” Comerica would be prohibited from engaging in certain activities.
Federal and state laws impose notice and approval requirements for mergers and acquisitions of other depository
institutions or bank holding companies. In many cases, no FRB approval is required for Comerica to acquire a company engaged
in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB. Prior
approval is required before Comerica may acquire the beneficial ownership or control of more than 5% of the voting shares or
substantially all of the assets of a bank holding company (including a financial holding company) or a bank. Further, the effectiveness
of Comerica and its subsidiaries in complying with anti-money laundering regulations (discussed below) is also taken into account
by the FRB when considering applications for approval of acquisitions.
Transactions with Affiliates
Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and the FRB's Regulation
W, limit borrowings by Comerica and its nonbank subsidiaries from its affiliate insured depository institutions, and also limit
various other transactions between Comerica and its nonbank subsidiaries, on the one hand, and Comerica's affiliate insured
depository institutions, on the other. For example, Section 23A of the Federal Reserve Act limits the aggregate outstanding amount
of any insured depository institution's loans and other “covered transactions” with any particular nonbank affiliate (including
financial subsidiaries) to no more than 10% of the institution's total capital and limits the aggregate outstanding amount of any
insured depository institution's covered transactions with all of its nonbank affiliates to no more than 20% of its total capital.
“Covered transactions” are defined by statute to include (i) a loan or extension of credit, (ii) a purchase of securities issued by an
affiliate, (iii) a purchase of assets (unless otherwise exempted by the FRB) from the affiliate, (iv) the acceptance of securities
issued by the affiliate as collateral for a loan, (v) the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate
and (vi) securities borrowing or lending transactions and derivative transactions with an affiliate, to the extent that either causes
a bank or its affiliate to have credit exposure to the securities borrowing/lending or derivative counterparty. Section 23A of the
Federal Reserve Act also generally requires that an insured depository institution's loans to its nonbank affiliates be, at a minimum,
100% secured, and Section 23B of the Federal Reserve Act generally requires that an insured depository institution's transactions
with its nonbank affiliates be on terms and under circumstances that are substantially the same or at least as favorable as those
prevailing for comparable transactions with nonaffiliates.
Data Privacy and Cyber Security Regulation
Comerica is subject to many U.S. federal, state and international laws and regulations governing requirements for
maintaining policies and procedures to protect the non-public confidential information of customers and employees. The privacy
provisions of the Gramm-Leach-Bliley Act generally prohibit financial institutions, including Comerica, from disclosing nonpublic
personal financial information of consumer customers to third parties for certain purposes (primarily marketing) unless customers
have the opportunity to “opt out” of the disclosure. Other laws and regulations, at the international, federal and state level, limit
Comerica's ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or
to contact customers with marketing offers. The Gramm-Leach-Bliley Act also requires banks to implement a comprehensive
information security program that includes administrative, technical and physical safeguards to ensure the security and
confidentiality of customer records and information.
In October 2016, the federal banking regulators issued an advance notice of proposed rulemaking regarding enhanced
cyber risk management standards, which would apply to a wide range of large financial institutions, including Comerica, and their
third-party service providers. The proposed standards would expand existing cybersecurity regulations and guidance to focus on
cyber risk governance and management; management of internal and external dependencies; and incident response, cyber resilience
and situational awareness. In addition, the proposal contemplates more stringent standards for institutions with systems that are
critical to the financial sector. Comerica is monitoring the development of this rule.
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Dividends
Comerica is a legal entity separate and distinct from its banking and other subsidiaries. Most of Comerica's revenues
result from dividends its bank subsidiaries pay it. There are statutory and regulatory requirements applicable to the payment of
dividends by subsidiary banks to Comerica, as well as by Comerica to its shareholders. Certain, but not all, of these requirements
are discussed below.
Comerica Bank and Comerica Bank & Trust, National Association are required by federal law to obtain the prior approval
of the FRB and/or the OCC, as the case may be, for the declaration and payment of dividends, if the total of all dividends declared
by the board of directors of such bank in any calendar year will exceed the total of (i) such bank's retained net income (as defined
and interpreted by regulation) for that year plus (ii) the retained net income (as defined and interpreted by regulation) for the
preceding two years, less any required transfers to surplus or to fund the retirement of preferred stock. At January 1, 2018, Comerica's
subsidiary banks could declare aggregate dividends of approximately $7 million from retained net profits of the preceding two
years. Comerica's subsidiary banks declared dividends of $907 million in 2017, $545 million in 2016 and $437 million in 2015.
Further, federal regulatory agencies can prohibit a banking institution or bank holding company from engaging in unsafe
and unsound banking practices and could prohibit the payment of dividends under circumstances in which such payment could
be deemed an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act
(“FDICIA”) “prompt corrective action” regime discussed below, which applies to each of Comerica Bank and Comerica Bank &
Trust, National Association, a subject bank is specifically prohibited from paying dividends to its parent company if payment
would result in the bank becoming “undercapitalized.” In addition, Comerica Bank is also subject to limitations under Texas state
law regarding the amount of earnings that may be paid out as dividends to its parent company, and requiring prior approval for
payments of dividends that exceed certain levels.
Additionally, the payment of dividends by Comerica to its shareholders is subject to the non-objection of the FRB pursuant
to the Comprehensive Capital Analysis and Review ("CCAR") program, as described below under "Annual Capital Plans and
Stress Tests."
Annual Capital Plans and Stress Tests
Comerica is subject to the FRB’s annual CCAR process, as well as the Dodd-Frank Act Stress Testing ("DFAST")
requirements. As part of the CCAR process, the FRB undertakes a supervisory assessment of the capital adequacy of bank holding
companies, including Comerica, that have $50 billion or more in total consolidated assets. This capital adequacy assessment is
based on a review of a comprehensive capital plan submitted by each participating bank holding company to the FRB that describes
the company’s planned capital actions during the nine quarter review period, as well as the results of stress tests conducted by
both the company tailoring hypothetical macro-economic scenarios that capture the idiosyncratic risks and business of the company
and the FRB under different hypothetical macro-economic scenarios, including a supervisory baseline and an adverse and a severely
adverse scenario provided by the FRB.
After completing its review, the FRB may object or not object to the company’s proposed capital actions, such as plans
to pay or increase common stock dividends, reinstate or increase common equity repurchase programs, or issue or redeem preferred
stock or other regulatory capital instruments. In connection with the 2017 CCAR, Comerica submitted its 2017 capital plan to the
FRB on April 4, 2017; on June 22, 2017, Comerica and the FRB released the revenue, loss and capital results from the annual
stress testing exercises and on June 28, 2017, Comerica announced that the FRB had completed its CCAR 2017 capital plan review
and did not object to the capital plan or capital distributions contemplated in the plan for the four-quarter period commencing in
the third quarter 2017 and ending in the second quarter 2018. Comerica plans to submit its CCAR 2018 capital plan to the FRB,
consistent with supervisory guidance (SR 15-19), in April 2018 and expects to receive the results of the FRB's review of the plan
in June 2018 and to release its company-run stress tests results in June or July 2018.
FRB regulations also required that Comerica and other large bank holding companies conduct a separate mid-year stress
test using financial data as of June 30th and three company-derived, idiosyncratic macro-economic scenarios (base, adverse and
severely adverse) and publish a summary of the results under the severely adverse scenario. On October 19, 2017, Comerica
released the results of its company-run mid-year stress tests. Stress test results are available in the Investor Relations section of
Comerica's website at investor.comerica.com, on the “Regulatory Disclosures” page under "Financial Reports."
Federal Deposit Insurance Corporation Improvement Act
FDICIA requires, among other things, the federal banking agencies to take “prompt corrective action” in respect of
depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: “well capitalized,”
“adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository
institution's capital tier will depend upon where its capital levels are in relation to various relevant capital measures, which, among
others, include a Tier 1 and total risk-based capital measure and a leverage ratio capital measure.
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Regulations establishing the specific capital tiers provide that, for a depository institution to be well capitalized, it must
have a total risk-based capital ratio of at least 10 percent and a Tier 1 risk-based capital ratio of at least 8 percent, a common equity
Tier 1 risk-based capital measure of at least 6.5 percent, a Tier 1 leverage ratio of at least 5 percent and not be subject to any
specific capital order or directive. For an institution to be adequately capitalized, it must have a total risk-based capital ratio of at
least 8 percent, a Tier 1 risk-based capital ratio of at least 6 percent, a common equity Tier 1 risk-based capital measure of at least
4.5 percent and a Tier 1 leverage ratio of at least 4 percent. Under certain circumstances, the appropriate banking agency may treat
a well capitalized, adequately capitalized or undercapitalized institution as if the institution were in the next lower capital category.
As of December 31, 2017, Comerica and its banking subsidiaries exceeded the ratios required for an institution to be
considered “well capitalized” under these regulations.
FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend)
or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized.
Undercapitalized depository institutions are subject to limitations on growth and certain activities and are required to submit an
acceptable capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the institution's parent holding company must guarantee for a specific time
period that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company
under the guaranty is limited to the lesser of (i) an amount equal to 5 percent of the depository institution's total assets at the time
it became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If
a depository institution fails to submit or implement an acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions are subject to a number of requirements and restrictions.
Specifically, such a depository institution may be required to do one or more of the following, among other things: sell sufficient
voting stock to become adequately capitalized, reduce the interest rates it pays on deposits, reduce its rate of asset growth, dismiss
certain senior executive officers or directors, or stop accepting deposits from correspondent banks. Critically undercapitalized
institutions are subject to the appointment of a receiver or conservator or such other action as the FDIC and the applicable federal
banking agency shall determine appropriate.
As an additional means to identify problems in the financial management of depository institutions, FDICIA requires
federal bank regulatory agencies to establish certain non-capital safety and soundness standards for institutions any such agency
supervises. The standards relate generally to, among others, earnings, liquidity, operations and management, asset quality, various
risk and management exposures (e.g., credit, operational, market, interest rate, etc.) and executive compensation. The agencies
are authorized to take action against institutions that fail to meet such standards.
FDICIA also contains a variety of other provisions that may affect the operations of depository institutions including
reporting requirements, regulatory standards for real estate lending, “truth in savings” provisions, the requirement that a depository
institution give 90 days prior notice to customers and regulatory authorities before closing any branch, and a prohibition on the
acceptance or renewal of brokered deposits by depository institutions that are not well capitalized or are adequately capitalized
and have not received a waiver from the FDIC.
FDIC Insurance Assessments
The FDIC Deposit Insurance Fund (“DIF”) provides deposit insurance coverage for certain deposits up to $250,000 per
depositor in each deposit account category. Comerica's subsidiary banks are subject to FDIC deposit insurance assessments to
maintain the DIF. The FDIC imposes a risk-based deposit premium assessment system, where the assessment rates for an insured
depository institution are determined by an assessment rate calculator, which is based on a number of elements to measure the
risk each institution poses to the DIF. The assessment rate is applied to total average assets less tangible equity. Under the current
system, premiums are assessed quarterly and could increase if, for example, criticized loans and/or other higher risk assets increase
or balance sheet liquidity decreases. For 2017, Comerica’s FDIC insurance expense totaled $51 million, including the surcharge
described below.
Effective July 1, 2016, the FDIC issued a final rule in order to implement section 334 of the Dodd-Frank Act ("§334"),
which requires the FDIC to (1) raise the minimum reserve ratio for the DIF to 1.35 percent, from 1.15 percent, (2) assess premiums
on banks to reach the 1.35 percent goal by September 30, 2020, and (3) offset the effect of the increase in the minimum reserve
ratio on insured depository institutions with assets of less than $10 billion. The final rule imposes a surcharge on large banks, to
be assessed over a period of eight quarters, as a means to implement §334. Comerica is subject to the surcharge assessment. If
this surcharge is insufficient to increase the reserve ratio to 1.35 percent by December 31, 2018, a one-time shortfall assessment
will be imposed on institutions with total consolidated assets of $10 billion or more on March 31, 2019. Management currently
estimates that the surcharge, which began July 1, 2016, will continue at a rate of approximately $6 million per quarter through at
least the first quarter of 2018.
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Capital and Liquidity
Comerica and its bank subsidiaries are subject to risk-based capital requirements and guidelines imposed by the FRB
and/or the OCC.
For this purpose, a depository institution's or holding company's assets and certain specified off-balance sheet
commitments are assigned to various risk categories defined by the FRB, each weighted differently based on the level of credit
risk that is ascribed to such assets or commitments, based on counterparty type and asset class. A depository institution's or holding
company's capital, in turn, is divided into three tiers: Common Equity Tier 1 (“CET1”), additional Tier 1, and Tier 2. CET1 capital
predominantly includes common shareholders’ equity, less certain deductions for goodwill, intangible assets and deferred tax
assets that arise from net operating losses and tax credit carry-forwards, if any. Additional Tier 1 capital primarily includes any
outstanding noncumulative perpetual preferred stock and related surplus. Comerica has also made the election to permanently
exclude accumulated other comprehensive income related to debt securities, cash flow hedges, and defined benefit postretirement
plans from CET1 capital. Tier 2 capital primarily includes qualifying subordinated debt and qualifying allowance for credit losses.
Certain deductions and adjustments to regulatory capital are subject to phase-in. The ultimate timing for specific deductions and
adjustments is yet to be determined pending the finalization of a separate proposal by banking regulators to simplify certain aspects
of the capital rules. More information is set forth in the "Capital" section located on pages F-17 through F-19.
Entities that engage in trading activities, whose trading activities exceed specified levels, also are required to maintain
capital for market risk. Market risk includes changes in the market value of trading account, foreign exchange, and commodity
positions, whether resulting from broad market movements (such as changes in the general level of interest rates, equity prices,
foreign exchange rates, or commodity prices) or from position specific factors. From time to time, Comerica's trading activities
may exceed specified regulatory levels, in which case Comerica maintains additional capital for market risk as required.
Comerica, like other bank holding companies, currently is required to maintain CET1, Tier 1 (the sum of CET1 and
additional Tier 1 capital) and “total capital” (the sum of Tier 1 and Tier 2 capital) equal to at least 4.5 percent, 6 percent and 8
percent of its total risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit), respectively.
In 2017, Comerica was also required to maintain a minimum capital conservation buffer of 1.250 percent in order to avoid
restrictions on capital distributions and discretionary bonuses. The minimum required capital conservation buffer gradually
increases to 2.5 percent in 2019. At December 31, 2017, Comerica met all requirements, with CET1, Tier 1 and total capital equal
to 11.68 percent, 11.68 percent and 13.84 percent of its total risk-weighted assets, respectively, and a capital conservation buffer
of 5.68 percent of its total risk-weighted assets.
Comerica is also required to maintain a minimum “leverage ratio” (Tier 1 capital to non-risk-adjusted total assets) of 4
percent. Comerica's leverage ratio of 10.89 percent at December 31, 2017 reflects the nature of Comerica's balance sheet and
demonstrates a commitment to capital adequacy. At December 31, 2017, Comerica Bank had CET1, Tier 1 and total capital equal
to 10.72 percent, 10.72 percent and 12.61 percent of its total risk-weighted assets, respectively, a capital conservation buffer of
4.61 percent of its total risk-weighted assets, and a leverage ratio of 10.00 percent.
Additional information on the calculation of Comerica and its bank subsidiaries' CET1, Tier 1 capital, total capital and
risk-weighted assets is set forth in the "Capital" section located on pages F-17 through F-19 of the Financial Section of this report
and Note 20 of the Notes to Consolidated Financial Statements located on pages F-94 through F-95 of the Financial Section of
this report.
Comerica must also comply with the modified Liquidity Coverage Ratio ("LCR") standard, which requires a financial
institution to hold a minimum level of high-quality, liquid assets to fully cover modified net cash outflows under a 30-day systematic
liquidity stress scenario. At each quarter-end in 2017, Comerica was in compliance with the fully phased-in LCR requirement of
100%, plus a buffer.
In the second quarter 2016, U.S. banking regulators issued a notice of proposed rulemaking (the "proposed rule")
implementing a second quantitative liquidity requirement in the U.S. generally consistent with the Net Stable Funding Ratio
("NSFR") minimum liquidity measure established under the Basel III liquidity framework. Under the proposed rule, Comerica
will be subject to a modified NSFR standard, which requires a financial institution to hold a minimum level of available longer-
term, stable sources of funding to fully cover a modified amount of required longer-term stable funding, over a one-year period.
However, a final NSFR rule has not yet been published by the U.S. regulatory agencies so the effective date of compliance remains
unknown. Comerica does not currently expect the proposed rule to have a material impact on its liquidity needs.
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Anti-Money Laundering Regulations
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Act (“USA PATRIOT Act”) of 2001 and its implementing regulations require insured depository institutions, broker-dealers, and
certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and
terrorist financing. The USA PATRIOT Act and its regulations also provide for information sharing, subject to conditions, between
federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes.
Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take
into account the effectiveness of the anti-money laundering activities of the applicants. To comply with these obligations, Comerica
and its various operating units have implemented appropriate internal practices, procedures, and controls.
Interstate Banking and Branching
The Interstate Banking and Branching Efficiency Act (the “Interstate Act”), as amended by the Dodd-Frank Act, permits
a bank holding company, with FRB approval, to acquire banking institutions located in states other than the bank holding company's
home state without regard to whether the transaction is prohibited under state law, but subject to any state requirement that the
bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank
holding company, prior to and following the proposed acquisition, control no more than 10 percent of the total amount of deposits
of insured depository institutions in the U.S. and no more than 30 percent of such deposits in that state (or such amount as established
by state law if such amount is lower than 30 percent). The Interstate Act, as amended, also authorizes banks to operate branch
offices outside their home states by merging with out-of-state banks, purchasing branches in other states and by establishing de
novo branches in other states, subject to various conditions. In the case of purchasing branches in a state in which it does not
already have banking operations, de novo interstate branching is permissible if under the law of the state in which the branch is
to be located, a state bank chartered by that state would be permitted to establish the branch. A bank holding company or bank
must be well capitalized and well managed in order to take advantage of these interstate banking and branching provisions.
Comerica has consolidated the majority of its banking business into one bank, Comerica Bank, with banking centers in
Texas, Arizona, California, Florida and Michigan, as well as Canada.
Source of Strength and Cross-Guarantee Requirements
Federal law and FRB regulations require that bank holding companies serve as a source of strength to each subsidiary
bank and commit resources to support each subsidiary bank. This support may be required at times when a bank holding company
may not be able to provide such support without adversely affecting its ability to meet other obligations. Similarly, under the cross-
guarantee provisions of the Federal Deposit Insurance Act, in the event of a loss suffered or anticipated by the FDIC (either as a
result of the failure of a banking subsidiary or related to FDIC assistance provided to such a subsidiary in danger of failure), the
other banking subsidiaries may be assessed for the FDIC's loss, subject to certain exceptions.
Enforcement Powers of Federal and State Banking Agencies
The FRB and other federal and state banking agencies have broad enforcement powers, including, without limitation,
and as prescribed to each agency by applicable law, the power to terminate deposit insurance, impose substantial fines and other
civil penalties and appoint a conservator or receiver. Failure to comply with applicable laws or regulations could subject Comerica
or its banking subsidiaries, as well as officers and directors of these organizations, to administrative sanctions and potentially
substantial civil and criminal penalties.
Incentive-Based Compensation
Comerica is subject to guidance issued by the FRB, OCC and FDIC intended to ensure that the incentive compensation
policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-
taking. The guidance, which covers senior executives as well as other employees who, either individually or as part of a group,
have the ability to expose the banking organization to material amounts of risk, is based upon the key principles that a banking
organization's incentive compensation arrangements (i) should provide employees incentives that appropriately balance risk and
financial results in a manner that does not encourage employees to expose their organizations to imprudent risk; (ii) should be
compatible with effective controls and risk-management; and (iii) should be supported by strong corporate governance, including
active and effective oversight by the organization's board of directors. Banking organizations are expected to review regularly
their incentive compensation arrangements based on these three principles. Where there are deficiencies in the incentive
compensation arrangements, they should be promptly addressed. Enforcement actions may be taken against a banking organization
if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the
organization's safety and soundness, particularly if the organization is not taking prompt and effective measures to correct the
deficiencies. Similar to other large banking organizations, Comerica has been subject to a continuing review of incentive
compensation policies and practices by representatives of the FRB, the Federal Reserve Bank of Dallas and the Texas Department
of Banking since 2011. As part of that review, Comerica has undertaken a thorough analysis of all the incentive compensation
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programs throughout the organization, the individuals covered by each plan and the risks inherent in each plan’s design and
implementation. Comerica has determined that risks arising from employee compensation plans are not reasonably likely to have
a material adverse effect on Comerica. Further, it is the Company’s intent to continue to evolve our processes going forward by
monitoring regulations and best practices for sound incentive compensation.
In 2016, the FRB, OCC and several other federal financial regulators revised and re-proposed rules to implement
Section 956 of the Dodd-Frank Act. The rules were first proposed in 2011. Section 956 directed regulators to jointly prescribe
regulations or guidelines prohibiting incentive-based payment arrangements, or any feature of any such arrangement, at covered
financial institutions that encourage inappropriate risks by providing excessive compensation or that could lead to a material
financial loss. This proposal supplements the final guidance issued by the banking agencies in June 2010. Consistent with the
Dodd-Frank Act, the proposed rule would not apply to institutions with total consolidated assets of less than $1 billion, and would
impose heightened standards for institutions with $50 billion or more in total consolidated assets, which includes Comerica. For
these larger institutions, the proposed rule would require the deferral of at least 40 percent of incentive-based payments for
designated executives and significant risk-takers who individually have the ability to expose the institution to possible losses that
are substantial in relation to the institution's size, capital or overall risk tolerance. Moreover, incentive-based compensation of
these individuals would be subject to potential clawback for seven years following vesting. Further, the rule imposes enhanced
risk management controls and governance and internal policy and procedure requirements with respect to incentive compensation.
Comerica is monitoring the development of this rule.
Supervision and Regulation Assessment
Section 318 of the Dodd-Frank Act authorizes the federal banking agencies to assess fees against bank holding companies
with total consolidated assets in excess of $50 billion equal to the expenses necessary or appropriate in order to carry out their
supervision and regulation of those companies. Comerica expensed $2.1 million for 2017, which will be assessed in the first quarter
2018.
The Volcker Rule
Comerica is prohibited under the Volcker Rule from (1) engaging in short-term proprietary trading for our own account
and (2) having certain ownership interests in and relationships with hedge funds or private equity funds ("Covered Funds"). The
final Volcker Rule regulations contain exemptions for market-making, hedging, underwriting and trading in U.S. government and
agency obligations, and also permit certain ownership interests in certain types of Covered Funds to be retained. They also permit
the offering and sponsoring of Covered Funds under certain conditions.
The final Volcker Rule regulations impose significant compliance and reporting obligations on banking entities. Comerica
is subject to the enhanced compliance program under the Volcker Rule but does not expect to be required to report metrics to the
regulators. Comerica has put in place the compliance programs required by the Volcker Rule and has either divested or received
extensions for any holdings in Covered Funds. Additional information on Comerica's portfolio of indirect (through funds) private
equity and venture capital investments, which includes the Covered Funds, is set forth in Note 1 of the Notes to Consolidated
Financial Statements located on page F-48 of the Financial Section of this report.
Resolution (Living Will) Plans
Like other similar bank holding companies with assets at or above the $50 billion threshold, Comerica is required to
prepare and submit to the federal banking agencies (e.g., FRB and FDIC) and periodically update a plan for its rapid and orderly
resolution under the U.S. Bankruptcy Code. In addition, FDIC-insured depository institutions (like Comerica Bank) with assets
of $50 billion or more are required to develop, maintain, and periodically submit plans outlining how the FDIC would resolve it
through the FDIC's resolution powers under the Federal Deposit Insurance Act. Comerica submitted its latest resolution plan to
the FRB on December 29, 2017. The next update to the resolution plan for Comerica Bank is due to be filed with the FDIC on or
before July 1, 2018.
Derivative Transactions
As a state member bank, Comerica Bank may engage in derivative transactions, as permitted by applicable Texas and
federal law.
Title VII of the Dodd-Frank Act establishes a comprehensive framework for over-the-counter (“OTC”) derivatives
transactions. Even though many of the requirements did not impact Comerica directly since Comerica Bank does not meet the
definition of swap dealer or “major swap participant,” Comerica continues to review and evaluate whether such requirements
impact the Bank indirectly. On October 26, 2017, the CFTC issued an Order extending the de minimis threshold at $8 billion
through December 31, 2019 with respect to the de minimis exception to the swap dealer definition. In taking this action, the de
minimis threshold will not decrease to $3 billion on December 31, 2018, as proposed. At this time, Comerica will continue to
track its dealing activity and monitor any actions as it relates to the de minimis threshold.
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The variation margin requirements for non-centrally cleared swaps and security-based swaps were effective for Comerica
on March 1, 2017. The variation margin requirements were issued for the purpose of ensuring safety and soundness of swap
trading in light of the risk to the financial system associated with non-cleared swaps activity. At this time, Comerica has met
compliance with its financial counterparties with respect to the variation margin requirements.
DOL Fiduciary Rule
During April 2016, the DOL issued a final rule related to fiduciary standards in regards to the investing of clients' retirement
assets. The final rule expands the definition of a fiduciary under the Employee Retirement Income Security Act of 1974. Those
who provide investment advice to plans, plan sponsors, fiduciaries, plan participants, beneficiaries and IRAs and IRA owners
must either avoid payments that create conflicts of interest or comply with the protective terms of an exemption issued by the
DOL. Under new exemptions adopted with the rule, financial institutions will be obligated to acknowledge their status and the
status of their individual advisers as "fiduciaries." Firms and advisers will be required to make prudent investment recommendations
without regard to their own interests, or the interests of those other than the customer; charge only reasonable compensation; and
make no misrepresentations to their customers regarding recommended investments. Additionally, the new rule requires certain
disclosures to be made to investors, and ongoing compliance must be monitored and documented. The requirement that advisors
act impartially was effective April 10, 2017. Other portions of the rule were scheduled to phase-in by January 1, 2018, but in
November 2017, the DOL announced an extension of that date to July 1, 2019. The DOL has stated that during the extension
period, it intends to consider whether possible changes and alternatives to exemptions would be appropriate in light of the current
comment record and potential input from, and action by, the SEC, state insurance commissioners and other regulators.
Consumer Financial Protection Bureau and Certain Recent Consumer Finance Regulations
Consumer Financial Protection Bureau. Comerica is subject to regulation by the Consumer Financial Protection Bureau
("CFPB"), which has a broad rule-making authority for a wide range of consumer protection laws that apply to all banks and
savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices, and possesses examination
and enforcement authority over all banks and savings institutions with more than $10 billion in assets.
Home Mortgage Disclosure Act, Equal Credit Opportunity Act and Uniform Residential Loan Application. The CFPB
has issued final rules changing the reporting requirements for lenders under the Home Mortgage Disclosure Act. The new rules
expand the range of transactions subject to these requirements to include most securitized residential mortgage loans and credit
lines. The rules also increase the overall amount of data required to be collected and submitted, including additional data points
about the applicable loans and expanded data about the borrowers. Comerica began collecting the expanded data on January 1,
2018.
Flood Insurance Rules
Comerica continues to monitor the development and implementation of the private flood insurance requirements. To date,
the joint agencies have yet to issue a final rule with respect to this remaining requirement. All other flood insurance requirements
subject to the Final Rule - Loans in Areas Having Special Flood Hazards, including the escrow of premium and fees for certain
real estate loans, are now effective and have been implemented by Comerica.
UNDERWRITING APPROACH
The loan portfolio is a primary source of profitability and risk, so proper loan underwriting is critical to Comerica's long-
term financial success. Comerica extends credit to businesses, individuals and public entities based on sound lending principles
and consistent with prudent banking practice. During the loan underwriting process, a qualitative and quantitative analysis of
potential credit facilities is performed, and the credit risks associated with each relationship are evaluated. Important factors
considered as part of the underwriting process for new loans and loan renewals include:
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People: Including the competence, integrity and succession planning of customers.
Purpose: The legal, logical and productive purposes of the credit facility.
Payment: Including the source, timing and probability of payment.
Protection: Including obtaining alternative sources of repayment, securing the loan, as appropriate, with collateral
and/or third-party guarantees and ensuring appropriate legal documentation is obtained.
Perspective: The risk/reward relationship and pricing elements (cost of funds; servicing costs; time value of
money; credit risk).
Comerica prices credit facilities to reflect risk, the related costs and the expected return, while maintaining competitiveness
with other financial institutions. Loans with variable and fixed rates are underwritten to achieve expected risk-adjusted returns on
the credit facilities and for the full relationship including the borrower's ability to repay the principal and interest based on such
rates.
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Credit Administration
Comerica maintains a Credit Administration Department (“Credit Administration”) which is responsible for the oversight
and monitoring of our loan portfolio. Credit Administration assists with underwriting by providing objective financial analysis,
including an assessment of the borrower's business model, balance sheet, cash flow and collateral. Each borrower relationship is
assigned an internal risk rating by Credit Administration. Further, Credit Administration updates the assigned internal risk rating
for every borrower relationship as new information becomes available, either as a result of periodic reviews of the credit quality
or as a result of a change in borrower performance. The goal of the internal risk rating framework is to support Comerica's risk
management capability, including its ability to identify and manage changes in the credit risk profile of its portfolio, predict future
losses and price the loans appropriately for risk.
Credit Policy
Comerica maintains a comprehensive set of credit policies. Comerica's credit policies provide individual relationship
managers, as well as loan committees, approval authorities based on our internal risk rating system and establish maximum exposure
limits based on risk ratings and Comerica's legal lending limit. Credit Administration, in conjunction with the businesses units,
monitors compliance with the credit policies and modifies the existing policies as necessary. New or modified policies/guidelines
require approval by the Strategic Credit Committee, chaired by Comerica's Chief Credit Officer and comprising senior credit,
market and risk management executives.
Commercial Loan Portfolio
Commercial loans are underwritten using a comprehensive analysis of the borrower's operations. The underwriting process
includes an analysis of some or all of the factors listed below:
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The borrower's business model.
Periodic review of financial statements including financial statements audited by an independent certified public
accountant when appropriate.
The pro-forma financial condition including financial projections.
The borrower's sources and uses of funds.
The borrower's debt service capacity.
The guarantor's financial strength.
A comprehensive review of the quality and value of collateral, including independent third-party appraisals of
machinery and equipment and commercial real estate, as appropriate, to determine the advance rates.
Physical inspection of collateral and audits of receivables, as appropriate.
For additional information specific to our Energy loan portfolio, please see the caption, “Energy Lending” on pages F-27
through F-28 of the Financial Section of this report.
Commercial Real Estate (CRE) Loan Portfolio
Comerica's CRE loan portfolio consists of real estate construction and commercial mortgage loans and includes both
loans to real estate developers and loans secured by owner-occupied real estate. Comerica's CRE loan underwriting policies are
consistent with the approach described above and provide maximum loan-to-value ratios that limit the size of a loan to a maximum
percentage of the value of the real estate collateral securing the loan. The loan-to-value percentage varies by the type of collateral
and is limited by advance rates established by our regulators. Our loan-to-value limitations are, in certain cases, more restrictive
than those required by regulators and are influenced by other risk factors such as the financial strength of the borrower or guarantor,
the equity provided to the project and the viability of the project itself. CRE loans generally require cash equity. CRE loans are
normally originated with full recourse or limited recourse to all principals and owners. There are limitations to the size of a single
project loan and to the aggregate dollar exposure to a single guarantor.
Consumer and Residential Mortgage Loan Portfolios
Comerica's consumer and residential mortgage loans are originated consistent with the underwriting approach described
above, but also includes an assessment of each borrower's personal financial condition, including a review of credit reports and
related FICO scores (a type of credit score used to assess an applicant's credit risk) and verification of income and assets. Comerica
does not originate subprime loans. Although a standard industry definition for subprime loans (including subprime mortgage loans)
does not exist, Comerica defines subprime loans as specific product offerings for higher risk borrowers, including individuals with
one or a combination of high credit risk factors. These credit factors include low FICO scores, poor patterns of payment history,
high debt-to-income ratios and elevated loan-to-value. We generally consider subprime FICO scores to be those below 620 on a
secured basis (excluding loans with cash or near-cash collateral and adequate income to make payments) and below 660 for
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unsecured loans. Residential mortgage loans retained in the portfolio are largely relationship based. The remaining loans are
typically eligible to be sold on the secondary market. Adjustable rate loans are limited to standard conventional loan programs.
EMPLOYEES
As of December 31, 2017, Comerica and its subsidiaries had 7,691 full-time and 499 part-time employees.
AVAILABLE INFORMATION
Comerica maintains an Internet website at www.comerica.com where the Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as soon as reasonably
practicable after those reports are filed with or furnished to the SEC. The Code of Business Conduct and Ethics for Employees,
the Code of Business Conduct and Ethics for Members of the Board of Directors and the Senior Financial Officer Code of Ethics
adopted by Comerica are also available on the Internet website and are available in print to any shareholder who requests them.
Such requests should be made in writing to the Corporate Secretary at Comerica Incorporated, Comerica Bank Tower, 1717 Main
Street, MC 6404, Dallas, Texas 75201.
In addition, pursuant to regulations adopted by the FRB, Comerica makes additional regulatory capital-related disclosures.
Under these regulations, Comerica satisfies a portion of these requirements through postings on its website, and Comerica has
done so and expects to continue to do so without also providing disclosure of this information through filings with the SEC.
Where we have included web addresses in this report, such as our web address and the web address of the SEC, we have
included those web addresses as inactive textual references only. Except as specifically incorporated by reference into this report,
information on those websites is not part hereof.
Item 1A. Risk Factors.
This report includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. In
addition, Comerica may make other written and oral communications from time to time that contain such statements. All statements
regarding Comerica's expected financial position, strategies and growth prospects and general economic conditions Comerica
expects to exist in the future are forward-looking statements. The words, “anticipates,” “believes,” “contemplates,” “feels,”
“expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,” “forecast,” “position,” “target,” “mission,” “assume,”
“achievable,” “potential,” “strategy,” “goal,” “aspiration,” "opportunity," "initiative," “outcome,” “continue,” “remain,”
“maintain,” "on track," “trend,” “objective,” "looks forward," "projects," "models" and variations of such words and similar
expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions,
as they relate to Comerica or its management, are intended to identify forward-looking statements.
Comerica cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which
change over time. Forward-looking statements speak only as of the date the statement is made, and Comerica does not undertake
to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-
looking statements are made. Actual results could differ materially from those anticipated in forward-looking statements and future
results could differ materially from historical performance.
In addition to factors mentioned elsewhere in this report or previously disclosed in Comerica's SEC reports (accessible
on the SEC's website at www.sec.gov or on Comerica's website at www.comerica.com), the factors contained below, among others,
could cause actual results to differ materially from forward-looking statements, and future results could differ materially from
historical performance.
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General political, economic or industry conditions, either domestically or internationally, may be less favorable
than expected.
Local, domestic, and international events including economic, financial market, political and industry specific conditions
affect the financial services industry, directly and indirectly. Conditions such as or related to inflation, recession,
unemployment, volatile interest rates, international conflicts and other factors, such as real estate values, energy prices,
state and local municipal budget deficits, government spending and the U.S. national debt, outside of our control may,
directly and indirectly, adversely affect Comerica.
Governmental monetary and fiscal policies may adversely affect the financial services industry, and therefore
impact Comerica's financial condition and results of operations.
Monetary and fiscal policies of various governmental and regulatory agencies, in particular the FRB, affect the financial
services industry, directly and indirectly. The FRB regulates the supply of money and credit in the U.S. and its monetary
and fiscal policies determine in a large part Comerica's cost of funds for lending and investing and the return that can be
earned on such loans and investments. Changes in such policies, including changes in interest rates or changes in the
FRB's balance sheet, will influence the origination of loans, the value of investments, the generation of deposits and the
rates received on loans and investment securities and paid on deposits. Changes in monetary and fiscal policies are beyond
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Comerica's control and difficult to predict. Comerica's financial condition and results of operations could be materially
adversely impacted by changes in governmental monetary and fiscal policies.
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Proposed revenue enhancements and efficiency improvements may not be achieved.
In July 2016, Comerica announced its efficiency and revenue initiative, GEAR Up (the "initiative") and initial financial
targets. The initiative continues to be implemented. There may be changes in the scope or assumptions underlying the
initiative, delays in the anticipated timing of activities related to the initiative and higher than expected or unanticipated
costs to implement them, and some benefits may not be fully achieved. As well, even if the initiative is successful, many
factors can influence the amount of core noninterest expenses, some of which are not wholly in our control, including
changing regulations, benefits and health care costs, technology and cybersecurity investments, outside processing
expenses and litigation.
Furthermore, the implementation of the initiative may have unintended impacts on Comerica's ability to attract and retain
business, customers and employees, and could result in disruptions to systems, processes, controls and procedures. Any
revenue enhancement ideas may not be successful in the marketplace. Accordingly, Comerica's results of operations and
profitability may be negatively impacted, making it less competitive and potentially causing a loss of market share.
Additionally, Comerica's future performance is subject to the various risks inherent to its business and operations.
•
Operational difficulties, failure of technology infrastructure or information security incidents could adversely
affect Comerica's business and operations.
Comerica is exposed to many types of operational risk, including legal risk, the risk of fraud or theft by employees or
outsiders, failure of Comerica's controls and procedures and unauthorized transactions by employees or operational errors,
including clerical or recordkeeping errors or those resulting from computer or telecommunications systems malfunctions.
Given the high volume of transactions at Comerica, certain errors may be repeated or compounded before they are
identified and resolved. The occurrence of such operational risks can lead to other types of risks including reputational
and compliance risks that may amplify the adverse impact to Comerica.
In particular, cybersecurity risks for financial institutions have significantly increased in recent years as reliance on
information technology systems has expanded. Comerica's operations rely on the secure processing, storage and
transmission of confidential and other information on its technology systems and networks. These networks are subject
to infrastructure failures, ongoing system maintenance and upgrades and planned network outages. The increased use of
mobile and cloud technologies can heighten these and other operational risks. Any failure, interruption or breach in
security of these systems could result in failures or disruptions in Comerica's customer relationship management, general
ledger, deposit, loan and other systems.
Comerica may also be subject to disruptions of its operating systems arising from events that are wholly or partially
beyond its control, which may include, for example, computer viruses, cyber attacks, spikes in transaction volume and/
or customer activity, electrical or telecommunications outages, natural disasters or acts of terrorism. These incidents may
occur directly or through a third party provider. Cyberattacks could include computer viruses, malicious or destructive
code, phishing attacks, denial of service or information, ransomware or other security breaches, and could result in the
destruction or exfiltration of data and systems. Although Comerica has programs in place related to business continuity,
disaster recovery and information security to maintain the confidentiality, integrity, and availability of its systems, business
applications and customer information, such disruptions may still give rise to interruptions in service to customers and
loss or liability to Comerica, including loss of customer data. Like other financial services firms, Comerica and its third
party providers continue to be the subject of cyber attacks. Although to this date Comerica has not experienced any
material losses or other material consequences related to cyber attacks, future cyber attacks could be more disruptive and
damaging, and Comerica may not be able to anticipate or prevent all such attacks. Further, cyberattacks may not be
detected in a timely manner.
The occurrence of any failure or interruption in Comerica's operations or information systems, or any security breach,
could cause reputational damage, jeopardize the confidentiality of customer information, result in a loss of customer
business, subject Comerica to regulatory intervention or expose it to civil litigation and financial loss or liability, any of
which could have a material adverse effect on Comerica. Although we maintain insurance coverage that may cover certain
cyber losses (subject to policy terms and conditions), such insurance coverage may be insufficient to cover all losses.
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•
Comerica relies on other companies to provide certain key components of its delivery systems, and certain failures
could materially adversely affect operations.
Comerica faces the risk of operational disruption, failure or capacity constraints due to its dependency on third party
vendors for components of its delivery systems. Third party vendors provide certain key components of Comerica's
delivery systems, such as cloud-based computing, networking and storage services, payment processing services,
recording and monitoring services, internet connections and network access, clearing agency services and card processing
services. While Comerica conducts due diligence prior to engaging with third party vendors and performs ongoing
monitoring of vendor controls, it does not control their operations. Further, while Comerica's vendor management policies
and practices are designed to comply with current regulations, these policies and practices cannot eliminate this risk. In
this context, any vendor failure to properly deliver these services could adversely affect Comerica’s business operations,
and result in financial loss, reputational harm, and/or regulatory action.
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Comerica must maintain adequate sources of funding and liquidity to meet regulatory expectations, support its
operations and fund outstanding liabilities.
Comerica’s liquidity and ability to fund and run its business could be materially adversely affected by a variety of
conditions and factors, including financial and credit market disruptions and volatility or a lack of market or customer
confidence in financial markets in general, which may result in a loss of customer deposits or outflows of cash or collateral
and/or ability to access capital markets on favorable terms.
Other conditions and factors that could materially adversely affect Comerica’s liquidity and funding include a lack of
market or customer confidence in, or negative news about, Comerica or the financial services industry generally which
also may result in a loss of deposits and/or negatively affect the ability to access the capital markets; the loss of customer
deposits to alternative investments; counterparty availability; interest rate fluctuations; general economic conditions; and
the legal, regulatory, accounting and tax environments governing our funding transactions. Many of the above conditions
and factors may be caused by events over which Comerica has little or no control. There can be no assurance that significant
disruption and volatility in the financial markets will not occur in the future. Further, Comerica's customers may be
adversely impacted by such conditions, which could have a negative impact on Comerica's business, financial condition
and results of operations.
Additionally, Comerica must also comply with the modified LCR standard, which requires a financial institution to hold
a minimum level of high-quality, liquid assets to fully cover modified net cash outflows under a 30-day systematic liquidity
stress scenario. As well, under proposed rules, Comerica will be subject to a modified NSFR standard, which requires a
financial institution to hold a minimum level of available longer-term, stable sources of funding to fully cover a modified
amount of required longer-term stable funding, over a one-year period. For more information regarding the LCR and the
NSFR, please see the “Supervision and Regulation” section of this report. The inability to access capital markets funding
sources as needed could adversely impact our level of regulatory-qualifying capital and ability to continue to comply
with the LCR framework or the NSFR measure.
Further, if Comerica is unable to continue to fund assets through customer bank deposits or access funding sources on
favorable terms, or if Comerica suffers an increase in borrowing costs or otherwise fails to manage liquidity effectively,
Comerica’s liquidity, operating margins, financial condition and results of operations may be materially adversely affected.
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Compliance with more stringent capital and liquidity requirements may adversely affect Comerica.
Comerica is required to satisfy stringent capital and liquidity standards, including annual and mid-year stress testing and
quantitative standards for liquidity management, as a result of capital and liquidity requirements in connection with Basel
III and the Dodd-Frank Act. Additional information on the regulatory capital and liquidity requirements currently
applicable to Comerica is set forth in the “Supervision and Regulation” section of this report. These requirements, and
any other new laws or regulations related to capital and liquidity, could adversely affect Comerica's ability to pay dividends
or make equity repurchases, or could require Comerica to reduce business levels or to raise capital, including in ways
that may adversely affect its results of operations or financial condition and/or existing shareholders.
Further, our regulators may also require us to satisfy additional, more stringent capital adequacy and liquidity standards
than those specified as part of the Dodd-Frank Act and the FRB's rules implementing Basel III.
Maintaining higher levels of capital and liquidity may reduce Comerica's profitability and otherwise adversely affect its
business, financial condition, or results of operations.
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Declines in the businesses or industries of Comerica's customers could cause increased credit losses or decreased
loan balances, which could adversely affect Comerica.
Comerica's business customer base consists, in part, of customers in volatile businesses and industries such as the energy
industry, the automotive production industry and the real estate business. These industries are sensitive to global economic
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conditions, supply chain factors and/or commodities prices. Any decline in one of those customers' businesses or industries
could cause increased credit losses, which in turn could adversely affect Comerica. Further, any decline in these businesses
or industries could cause decreased borrowings, either due to reduced demand or reductions in the borrowing base available
for each customer loan.
For more information regarding certain of Comerica's lines of business, please see "Concentration of Credit Risk,"
"Commercial Real Estate Lending" and “Energy Lending” on pages F-25 through F-28 of the Financial Section of this
report.
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Unfavorable developments concerning credit quality could adversely affect Comerica's financial results.
Although Comerica regularly reviews credit exposure related to its customers and various industry sectors in which it
has business relationships, default risk may arise from events or circumstances that are difficult to detect or foresee.
Under such circumstances, Comerica could experience an increase in the level of provision for credit losses, nonperforming
assets, net charge-offs and reserve for credit losses, which could adversely affect Comerica's financial results.
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Changes in regulation or oversight may have a material adverse impact on Comerica's operations.
Comerica is subject to extensive regulation, supervision and examination by the U.S. Treasury, the Texas Department of
Banking, the FDIC, the FRB, the SEC, FINRA, DOL, MSRB and other regulatory bodies. Such regulation and supervision
governs the activities in which Comerica may engage. Regulatory authorities have extensive discretion in their supervisory
and enforcement activities, including the imposition of restrictions on Comerica's operations, investigations and
limitations related to Comerica's securities, the classification of Comerica's assets and determination of the level of
Comerica's allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory
policy, regulations, legislation or supervisory action, may have a material adverse impact on Comerica's business, financial
condition or results of operations. Although President Trump has issued an executive order that sets forth principles for
the reform of the federal financial regulatory framework, and the Republican majority in Congress has also suggested an
agenda for financial regulatory change, it is too early to assess whether there will be any major changes in the regulatory
environment or, if changes occur, the ultimate effect they would have upon the financial condition or results of operations
of Comerica. The impact of any future legislation or regulatory actions may adversely affect Comerica's businesses or
operations.
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Changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing, could
adversely affect Comerica's net interest income and balance sheet.
The operations of financial institutions such as Comerica are dependent to a large degree on net interest income, which
is the difference between interest income from loans and investments and interest expense on deposits and borrowings.
Prevailing economic conditions, the trade, fiscal and monetary policies of the federal government and the policies of
various regulatory agencies all affect market rates of interest and the availability and cost of credit, which in turn
significantly affect financial institutions' net interest income and the market value of its investment securities. Interest
rates over the past several years have remained at low levels, even following recent rate rises. A continued low interest
rate environment may continue to adversely affect the interest income Comerica earns on loans and investments. For a
discussion of Comerica's interest rate sensitivity, please see, “Market and Liquidity Risk” beginning on page F-28 of the
Financial Section of this report.
Volatility in interest rates can also result in disintermediation, which is the flow of funds away from financial institutions
into direct investments, such as federal government and corporate securities and other investment vehicles, which, because
of the absence of federal insurance premiums and reserve requirements, generally pay higher rates of return than financial
institutions. Comerica's financial results could be materially adversely impacted by changes in financial market conditions.
•
Interest rates on Comerica's outstanding financial instruments might be subject to change based on regulatory
developments, which could adversely affect its revenue, expenses, and the value of those financial instruments.
LIBOR and certain other “benchmarks” are the subject of recent national, international, and other regulatory guidance
and proposals for reform. These reforms may cause such benchmarks to perform differently than in the past or have other
consequences which cannot be predicted. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which
regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after
2021. It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the
course of the next several years. As a result of this transition, interest rates on our floating rate obligations, loans, deposits,
derivatives, and other financial instruments tied to LIBOR rates, as well as the revenue and expenses associated with
those financial instruments, may be adversely affected. Further, any uncertainty regarding the continued use and reliability
of LIBOR as a benchmark interest rate could adversely affect the value of our floating rate obligations, loans, deposits,
derivatives, and other financial instruments tied to LIBOR rates. More than 90 percent of the Comerica's loans were
14
floating at December 31, 2017, of which approximately 80 percent were based on 30-day LIBOR and 20 percent were
based on Prime.
•
Reduction in our credit ratings could adversely affect Comerica and/or the holders of its securities.
Rating agencies regularly evaluate Comerica, and their ratings are based on a number of factors, including Comerica's
financial strength as well as factors not entirely within its control, including conditions affecting the financial services
industry generally. There can be no assurance that Comerica will maintain its current ratings. In February 2016, Standard
& Poor's downgraded Comerica's long-term senior credit ratings one notch to BBB+ and Comerica Bank's long and short-
term credit ratings one notch to A- and A-2, respectively. In March 2015, Moody's Investors Service put global bank
ratings on review following the publication of revised bank rating methodology and in May 2015, it downgraded Comerica
Bank's long-term senior credit ratings one notch to A3. While recent credit rating actions have had little to no detrimental
impact on Comerica's profitability, borrowing costs, or ability to access the capital markets, future downgrades to
Comerica's or its subsidiaries' credit ratings could adversely affect Comerica's profitability, borrowing costs, or ability
to access the capital markets or otherwise have a negative effect on Comerica's results of operations or financial condition.
If such a reduction placed Comerica's or its subsidiaries' credit ratings below investment grade, it could also create
obligations or liabilities under the terms of existing arrangements that could increase Comerica's costs under such
arrangements. Additionally, a downgrade of the credit rating of any particular security issued by Comerica or its
subsidiaries could negatively affect the ability of the holders of that security to sell the securities and the prices at which
any such securities may be sold.
•
Damage to Comerica’s reputation could damage its businesses.
With consumers more and more interested in doing business with companies they admire and trust, reputational risk is
an increasing concern for business. Such risks include compliance issues, operational challenges, or a strategic, high
profile event. Comerica's business is based on the trust of its customers, communities, and entire value chain, which
makes managing reputational risk extremely important. News or other publicity that impairs Comerica's reputation, or
the reputation of the financial services industry generally, can therefore cause significant harm to Comerica’s business
and prospects. Further, adverse publicity or negative information posted on social media websites regarding Comerica,
whether or not true, may result in harm to Comerica’s prospects.
•
Comerica may not be able to utilize technology to efficiently and effectively develop, market, and deliver new
products and services to its customers.
The financial services industry experiences rapid technological change with regular introductions of new technology-
driven products and services. The efficient and effective utilization of technology enables financial institutions to better
serve customers and to reduce costs. Comerica's future success depends, in part, upon its ability to address the needs of
its customers by using technology to market and deliver products and services that will satisfy customer demands, meet
regulatory requirements, and create additional efficiencies in Comerica's operations. Comerica may not be able to
effectively develop new technology-driven products and services or be successful in marketing or supporting these
products and services to its customers, which could have a material adverse impact on Comerica's financial condition
and results of operations.
•
Competitive product and pricing pressures within Comerica's markets may change.
Comerica operates in a very competitive environment, which is characterized by competition from a number of other
financial institutions in each market in which it operates. Comerica competes in terms of products and pricing with large
national and regional financial institutions and with smaller financial institutions. Some of Comerica's larger competitors,
including certain nationwide banks that have a significant presence in Comerica's market area, may make available to
their customers a broader array of product, pricing and structure alternatives and, due to their asset size, may more easily
absorb credit losses in a larger overall portfolio. Some of Comerica's competitors (larger or smaller) may have more
liberal lending policies and processes. Increasingly, Comerica competes with other companies based on financial
technology and capabilities, such as mobile banking applications and money movement.
Additionally, the financial services industry is subject to extensive regulation. For more information, see the “Supervision
and Regulation” section of this report. Such regulations may require significant additional investments in technology,
personnel or other resources or place limitations on the ability of financial institutions, including Comerica, to engage in
certain activities. Comerica's competitors may be subject to a significantly different or reduced degree of regulation due
to their asset size or types of products offered. They may also have the ability to more efficiently utilize resources to
comply with regulations or may be able to more effectively absorb the costs of regulations into their existing cost structure.
In addition to banks, Comerica's banking subsidiaries also face competition from other financial intermediaries, including
savings and loan associations, consumer finance companies, leasing companies, venture capital funds, credit unions,
investment banks, insurance companies and securities firms. Competition among providers of financial products and
15
services continues to increase as technology advances have lowered the barriers to entry for financial technology
companies, with consumers having the opportunity to select from a growing variety of traditional and nontraditional
alternatives, including crowdfunding, digital wallets and money transfer services. The ability of non-banking financial
institutions to provide services previously limited to commercial banks has intensified competition. Because non-banking
financial institutions are not subject to many of the same regulatory restrictions as banks and bank holding companies,
they can often operate with greater flexibility and lower cost structures.
If Comerica is unable to compete effectively in products and pricing in its markets, business could decline, which could
have a material adverse effect on Comerica's business, financial condition or results of operations.
•
The soundness of other financial institutions could adversely affect Comerica.
•
•
Comerica's ability to engage in routine funding transactions could be adversely affected by the actions and commercial
soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing,
counterparty or other relationships. Comerica has exposure to many different industries and counterparties, and it routinely
executes transactions with counterparties in the financial industry, including brokers and dealers, commercial banks,
investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even rumors or
questions about, one or more financial services institutions, or the financial services industry generally, have led, and
may further lead, to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.
Many of these transactions could expose Comerica to credit risk in the event of default of its counterparty or client. In
addition, Comerica's credit risk may be impacted when the collateral held by it cannot be realized upon or is liquidated
at prices not sufficient to recover the full amount of the financial instrument exposure due to Comerica. There is no
assurance that any such losses would not adversely affect, possible materially in nature, Comerica.
The introduction, implementation, withdrawal, success and timing of business initiatives and strategies may be
less successful or may be different than anticipated, which could adversely affect Comerica's business.
Comerica makes certain projections and develops plans and strategies for its banking and financial products. If Comerica
does not accurately determine demand for its banking and financial product needs, it could result in Comerica incurring
significant expenses without the anticipated increases in revenue, which could result in a material adverse effect on its
business.
Changes in customer behavior may adversely impact Comerica's business, financial condition and results of
operations.
Comerica uses a variety of financial tools, models and other methods to anticipate customer behavior as a part of its
strategic planning and to meet certain regulatory requirements. Individual, economic, political, industry-specific
conditions and other factors outside of Comerica's control, such as fuel prices, energy costs, real estate values or other
factors that affect customer income levels, could alter predicted customer borrowing, repayment, investment and deposit
practices. Such a change in these practices could materially adversely affect Comerica's ability to anticipate business
needs and meet regulatory requirements.
Further, difficult economic conditions may negatively affect consumer confidence levels. A decrease in consumer
confidence levels would likely aggravate the adverse effects of these difficult market conditions on Comerica, Comerica's
customers and others in the financial institutions industry.
•
Management's ability to maintain and expand customer relationships may differ from expectations.
The financial services industry is very competitive. Comerica not only vies for business opportunities with new customers,
but also competes to maintain and expand the relationships it has with its existing customers. While management believes
that it can continue to grow many of these relationships, Comerica will continue to experience pressures to maintain these
relationships as its competitors attempt to capture its customers. Failure to create new customer relationships and to
maintain and expand existing customer relationships to the extent anticipated may adversely impact Comerica's earnings.
•
Methods of reducing risk exposures might not be effective.
Instruments, systems and strategies used to hedge or otherwise manage exposure to various types of credit, market,
liquidity, operational, compliance, financial reporting and strategic risks could be less effective than anticipated. As a
result, Comerica may not be able to effectively mitigate its risk exposures in particular market environments or against
particular types of risk, which could have a material adverse impact on Comerica's business, financial condition or results
of operations.
For more information regarding risk management, please see "Risk Management" on pages F-20 through F-33 of the
Financial Section of this report.
16
•
Catastrophic events, including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods,
may adversely affect the general economy, financial and capital markets, specific industries, and Comerica.
Comerica has significant operations and a significant customer base in California, Texas, Florida and other regions where
natural and other disasters may occur. These regions are known for being vulnerable to natural disasters and other risks,
such as tornadoes, hurricanes, earthquakes, fires, droughts and floods, the nature and severity of which may be impacted
by climate change. These types of natural catastrophic events have at times disrupted the local economies, Comerica's
business and customers, and have caused physical damage to Comerica's property in these regions. In addition, catastrophic
events occurring in other regions of the world may have an impact on Comerica's customers and in turn, on Comerica.
Comerica’s business continuity and disaster recovery plans may not be successful upon the occurrence of one of these
scenarios, and a significant catastrophic event anywhere in the world could materially adversely affect Comerica's
operating results.
•
The impacts of recent tax reform are not yet fully known, and these and other tax regulations could be subject to
potential legislative, administrative or judicial changes or interpretations.
The tax reform bill enacted on December 22, 2017 has had, and is expected to continue to have, far-reaching and significant
effects on Comerica, its customers and the U.S. economy. The tax reform bill lowered the corporate federal statutory tax
rate and eliminated or limited certain federal corporate deductions. It is too early to evaluate all of the potential
consequences of the tax reform bill, but such consequences could include lower commercial customer borrowings, either
due to the increase in cash flows as a result of the reduction in the corporate statutory tax rate or the utilization by
businesses in certain sectors of alternative non-debt financing and/or early retirement of existing debt. Further, there can
be no assurance that any benefits realized by Comerica as a result of the reduction in the corporate federal statutory tax
rate will ultimately result in increased net income, whether due to decreased loan yields as a result of competition or to
other factors. Uncertainty also exists related to state and other taxing jurisdictions' response to federal tax reform, which
will continue to be monitored and evaluated.
Federal income tax treatment of corporations may be further clarified and modified by other legislative, administrative
or judicial changes or interpretations at any time. Any such changes could adversely affect Comerica.
•
Any future strategic acquisitions or divestitures may present certain risks to Comerica's business and operations.
Difficulties in capitalizing on the opportunities presented by a future acquisition may prevent Comerica from fully
achieving the expected benefits from the acquisition, or may cause the achievement of such expectations to take longer
to realize than expected.
Further, the assimilation of the acquired entity's customers and markets could result in higher than expected deposit
attrition, loss of key employees, disruption of Comerica's businesses or the businesses of the acquired entity or otherwise
adversely affect Comerica's ability to maintain relationships with customers and employees or achieve the anticipated
benefits of the acquisition. These matters could have an adverse effect on Comerica for an undetermined period. Comerica
will be subject to similar risks and difficulties in connection with any future decisions to downsize, sell or close units or
otherwise change the business mix of Comerica.
•
Management's ability to retain key officers and employees may change.
Comerica's future operating results depend substantially upon the continued service of its executive officers and key
personnel. Comerica's future operating results also depend in significant part upon its ability to attract and retain qualified
management, financial, technical, marketing, sales and support personnel. Competition for qualified personnel is intense,
and Comerica cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number
of persons with the requisite skills to serve in these positions, and it may be increasingly difficult for Comerica to hire
personnel over time.
Further, Comerica's ability to retain key officers and employees may be impacted by legislation and regulation affecting
the financial services industry. In 2016, the FRB, OCC and several other federal financial regulators revised and re-
proposed rules to implement Section 956 of the Dodd-Frank Act. Section 956 directed regulators to jointly prescribe
regulations or guidelines prohibiting incentive-based payment arrangements, or any feature of any such arrangement, at
covered financial institutions that encourage inappropriate risks by providing excessive compensation or that could lead
to a material financial loss. Consistent with the Dodd-Frank Act, the proposed rule would not apply to institutions with
total consolidated assets of less than $1 billion, and would impose heightened standards for institutions with $50 billion
or more in total consolidated assets, which includes Comerica. For these larger institutions, the proposed rule would
require the deferral of at least 40 percent of incentive-based payments for designated executives and significant risk-
takers who individually have the ability to expose the institution to possible losses that are substantial in relation to the
institution's size, capital or overall risk tolerance. Moreover, incentive-based compensation of these individuals would
be subject to potential clawback for seven years following vesting. Further, the rule imposes enhanced risk management
17
controls and governance and internal policy and procedure requirements with respect to incentive compensation.
Accordingly, Comerica may be at a disadvantage to offer competitive compensation compared to other financial
institutions (as referenced above) or companies in other industries, which may not be subject to the same requirements.
Comerica's business, financial condition or results of operations could be materially adversely affected by the loss of any
of its key employees, or Comerica's inability to attract and retain skilled employees.
•
Legal and regulatory proceedings and related matters with respect to the financial services industry, including
those directly involving Comerica and its subsidiaries, could adversely affect Comerica or the financial services
industry in general.
Comerica has been, and may in the future be, subject to various legal and regulatory proceedings. It is inherently difficult
to assess the outcome of these matters, and there can be no assurance that Comerica will prevail in any proceeding or
litigation. Any such matter could result in substantial cost and diversion of Comerica's efforts, which by itself could have
a material adverse effect on Comerica's financial condition and operating results. Further, adverse determinations in such
matters could result in fines or actions by Comerica's regulators that could materially adversely affect Comerica's business,
financial condition or results of operations.
Comerica establishes reserves for legal claims when payments associated with the claims become probable and the costs
can be reasonably estimated. Comerica may still incur legal costs for a matter even if it has not established a reserve. In
addition, due to the inherent subjectivity of the assessments and unpredictability of the outcome of legal proceedings,
the actual cost of resolving a legal claim may be substantially higher than any amounts reserved for that matter. The
ultimate resolution of a pending legal proceeding, depending on the remedy sought and granted, could adversely affect
Comerica's results of operations and financial condition.
•
Terrorist activities or other hostilities may adversely affect the general economy, financial and capital markets,
specific industries, and Comerica.
Terrorist attacks or other hostilities may disrupt Comerica's operations or those of its customers. In addition, these events
have had and may continue to have an adverse impact on the U.S. and world economy in general and consumer confidence
and spending in particular, which could harm Comerica's operations. Any of these events could increase volatility in the
U.S. and world financial markets, which could harm Comerica's stock price and may limit the capital resources available
to Comerica and its customers. This could have a material adverse impact on Comerica's operating results, revenues and
costs and may result in increased volatility in the market price of Comerica's common stock.
•
Changes in accounting standards could materially impact Comerica's financial statements.
From time to time accounting standards setters change the financial accounting and reporting standards that govern the
preparation of Comerica's financial statements. These changes can be difficult to predict and can materially impact how
Comerica records and reports its financial condition and results of operations. In some cases, Comerica could be required
to apply a new or revised standard retroactively, resulting in changes to previously reported financial results, or a
cumulative charge to retained earnings. In particular, the Financial Accounting Standards Board (“FASB”) has issued a
new accounting standard, the Current Expected Credit Loss standard (“CECL”), for the recognition and measurement of
credit losses for loans and debt securities. The new standard will be effective for Comerica in the first quarter 2020. The
anticipated change in loan loss reserves due to CECL is unknown and is dependent upon many factors that are yet to be
determined, such as the economic environment at adoption and future FASB clarifications. It is anticipated that CECL
will have an impact on Comerica's loan loss reserves and how Comerica manages its capital.
•
Comerica's accounting policies and processes are critical to the reporting of financial condition and results of
operations. They require management to make estimates about matters that are uncertain.
Accounting policies and processes are fundamental to how Comerica records and reports the financial condition and
results of operations. Management must exercise judgment in selecting and applying many of these accounting policies
and processes so they comply with U.S. GAAP. In some cases, management must select the accounting policy or method
to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in the
Company reporting materially different results than would have been reported under a different alternative.
Management has identified certain accounting policies as being critical because they require management's judgment to
make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be
reported under different conditions or using different assumptions or estimates. Comerica has established detailed policies
and control procedures that are intended to ensure these critical accounting estimates and judgments are well controlled
and applied consistently. In addition, the policies and procedures are intended to ensure that the process for changing
methodologies occurs in an appropriate manner. Because of the uncertainty surrounding management's judgments and
the estimates pertaining to these matters, Comerica cannot guarantee that it will not be required to adjust accounting
18
policies or restate prior period financial statements. See “Critical Accounting Policies” on pages F-34 through F-37 of
the Financial Section of this report and Note 1 of the Notes to Consolidated Financial Statements located on pages F-45
through F-57 of the Financial Section of this report.
•
Comerica's stock price can be volatile.
Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you
find attractive. Comerica's stock price can fluctuate significantly in response to a variety of factors including, among
other things:
• Actual or anticipated variations in quarterly results of operations.
• Recommendations or projections by securities analysts.
• Operating and stock price performance of other companies that investors deem comparable to us.
• News reports relating to trends, concerns and other issues in the financial services industry.
•
• New technology used, or services offered, by competitors.
•
Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital
commitments by or involving Comerica or its competitors.
Perceptions in the marketplace regarding us and/or our competitors.
• Changes in dividends and capital returns.
• Changes in government regulations.
• Cyclical fluctuations.
• Geopolitical conditions such as acts or threats of terrorism or military conflicts.
• Activity by short sellers and changing government restrictions on such activity.
General market fluctuations, including real or anticipated changes in the strength of the economy; industry factors and
general economic and political conditions and events, such as economic slowdowns or recessions; interest rate changes,
oil price volatility or credit loss trends, among other factors, could also cause our stock price to decrease regardless of
operating results.
For the above and other reasons, the market price of Comerica's securities may not accurately reflect the underlying value
of the securities, and you should consider this before relying on the market prices of Comerica's securities when making
an investment decision.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The executive offices of Comerica are located in the Comerica Bank Tower, 1717 Main Street, Dallas, Texas 75201.
Comerica Bank occupies six floors of the building, plus additional space on the building's lower level. Comerica does not own
the Comerica Bank Tower space, but has naming rights to the building and leases the space from an unaffiliated third party. The
lease for such space used by Comerica and its subsidiaries extends through September 2028. Comerica's Michigan headquarters
are located in a 10-story building in the central business district of Detroit, Michigan at 411 W. Lafayette, Detroit, Michigan 48226.
Such building is owned by Comerica Bank. As of December 31, 2017, Comerica, through its banking affiliates, operated at a total
of 564 locations. This includes banking centers, trust services locations, and/or loan production or other financial services offices,
primarily in the States of Texas, Michigan, California, Florida and Arizona. Of the 564 locations, 226 were owned and 338 were
leased. As of December 31, 2017, affiliates also operated from leased spaces in Denver, Colorado; Wilmington, Delaware; Oakbrook
Terrace, Illinois; Boston, Massachusetts; Minneapolis, Minnesota; Morristown, New Jersey; New York, New York; Rocky Mount,
North Carolina; Memphis, Tennessee; McLean, Virginia; Bellevue, Washington; Monterrey, Mexico; Toronto, Ontario, Canada
and Windsor, Ontario, Canada. Comerica and its subsidiaries own, among other properties, a check processing center in Livonia,
Michigan, and three buildings in Auburn Hills, Michigan, used mainly for lending functions and operations.
Item 3. Legal Proceedings.
Please see Note 21 of the Notes to Consolidated Financial Statements located on pages F-95 through F-96 of the Financial
Section of this report.
Item 4. Mine Safety Disclosures.
Not applicable.
19
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information and Holders of Common Stock
The common stock of Comerica Incorporated is traded on the New York Stock Exchange (NYSE Trading Symbol: CMA).
At February 9, 2018, there were approximately 9,373 record holders of Comerica's common stock.
Sales Prices and Dividends
Quarterly cash dividends were declared during 2017 and 2016 totaling $1.09 and $0.89 per common share per year,
respectively. The following table sets forth, for the periods indicated, the high and low sale prices per share of Comerica's common
stock as reported on the NYSE Composite Transactions Tape for all quarters of 2017 and 2016, as well as dividend information.
Quarter
2017
Fourth
Third
Second
First
2016
$
High
Low
Dividends Per Share
Dividend Yield*
$
88.22
76.76
75.30
75.00
$
74.16
64.04
64.75
64.27
0.30
0.30
0.26
0.23
1.5%
1.7
1.5
1.3
$
Fourth
Third
Second
First
* Dividend yield is calculated by annualizing the quarterly dividend per share and dividing by an average of the high and low
price in the quarter.
70.44
47.81
47.55
41.74
46.75
38.39
36.27
30.48
1.6%
2.1
2.1
2.3
0.23
0.23
0.22
0.21
$
$
A discussion of dividend restrictions is set forth in Note 20 of the Notes to Consolidated Financial Statements located
on pages F-94 through F-95 of the Financial Section of this report, in the "Capital" section on pages F-17 through F-19 of the
Financial Section of this report and in the “Supervision and Regulation” section of this report.
Performance Graph
Our performance graph is available under the caption "Performance Graph" on page F-2 of the Financial Section of this
report.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On July 25, 2017, the Board of Directors of Comerica authorized the repurchase of up to an additional 5.0 million shares
of Comerica Incorporated outstanding common stock, in addition to the 8.3 million shares remaining at June 30, 2017 under the
Board's prior authorizations for the equity repurchase program initially approved in November 2010. Including the July 2017
authorization, a total of 55.2 million shares and 14.1 million warrants (12.1 million share-equivalents) have been authorized for
repurchase under the equity repurchase program since its inception in 2010. There is no expiration date for Comerica's equity
repurchase program.
20
The following table summarizes Comerica's equity repurchase activity for the year ended December 31, 2017.
(shares in thousands)
Total first quarter 2017
Total second quarter 2017
Total third quarter 2017
October 2017
November 2017
December 2017
Total fourth quarter 2017
Total 2017
Total Number of Shares
and Warrants Purchased
as Part of Publicly
Announced Repurchase
Plans or Programs (a)
Remaining
Repurchase
Authorization
(b)
Total Number
of Shares
Purchased (c)
Average
Price
Paid Per
Share
1,498
2,011
1,955
797
753
314
1,864
7,328
11,756
9,634
12,395 (d)
11,589
10,836
10,387
10,387
10,387
1,694
2,015
1,956
799
753
314
1,866
7,531
$
$
69.75
69.09
71.11
77.36
79.17
85.05
79.38
72.31
(a) Comerica made no repurchases of warrants under the repurchase program during the year ended December 31, 2017. Upon exercise of a
warrant, the number of shares with a value equal to the aggregate exercise price is withheld from an exercising warrant holder as payment
(known as a "net exercise provision"). During the year ended December 31, 2017, Comerica withheld the equivalent of approximately
1,209,000 shares to cover an aggregate of $35.6 million in exercise price and issued approximately 1,771,000 shares to the exercising
warrant holders. Shares withheld in connection with the net exercise provision are not included in the total number of shares or warrants
purchased in the above table.
(b) Maximum number of shares and warrants that may yet be purchased under the publicly announced plans or programs.
(c) Includes approximately 203,000 shares (including 2,000 shares in the quarter ended December 31, 2017) purchased pursuant to deferred
compensation plans and shares purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee
share-based compensation plan during the year ended December 31, 2017. These transactions are not considered part of Comerica's
repurchase program.
(d) Includes July 25, 2017 equity repurchase authorization for up to an additional 5 million shares.
Item 6. Selected Financial Data.
Reference is made to the caption “Selected Financial Data” on page F-3 of the Financial Section of this report.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Reference is made to the sections entitled “2017 Overview and 2018 Outlook,” “Results of Operations," "Strategic Lines
of Business," "Balance Sheet and Capital Funds Analysis," "Risk Management," "Critical Accounting Policies," "Supplemental
Financial Data" and "Forward-Looking Statements" on pages F-4 through F-39 of the Financial Section of this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Reference is made to the subheadings entitled “Market and Liquidity Risk,” “Operational Risk,” “Compliance Risk” and
“Strategic Risk” on pages F-28 through F-33 of the Financial Section of this report.
Item 8. Financial Statements and Supplementary Data.
Reference is made to the sections entitled “Consolidated Balance Sheets,” “Consolidated Statements of Income,”
“Consolidated Statements of Comprehensive Income,” “Consolidated Statements of Changes in Shareholders' Equity,”
“Consolidated Statements of Cash Flows,” “Notes to Consolidated Financial Statements,” “Report of Management,” “Reports of
Independent Registered Public Accounting Firm,” and “Historical Review” on pages F-40 through F-110 of the Financial Section
of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Exchange Act, management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation as of the end of the period covered by this Annual Report on Form 10-K, of the
effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that Comerica's disclosure controls and procedures were effective
as of the end of the period covered by this Annual Report on Form 10-K.
21
Internal Control over Financial Reporting
Management's annual report on internal control over financial reporting and the related attestation report of Comerica's
registered public accounting firm are included on pages F-105 and F-106 in the Financial Section of this report.
As required by Rule 13a-15(d) of the Exchange Act, management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of our internal control over financial reporting to determine whether any changes
occurred during the last quarter of the fiscal year covered by this Annual Report on Form 10-K that have materially affected, or
are reasonably likely to materially affect, Comerica's internal control over financial reporting. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that there has been no such change during the last quarter of the fiscal
year covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, Comerica's
internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Comerica has a Senior Financial Officer Code of Ethics that applies to the Chief Executive Officer, the Chief Financial
Officer, the Chief Accounting Officer and the Treasurer. The Senior Financial Officer Code of Ethics is available on Comerica's
website at www.comerica.com. If any substantive amendments are made to the Senior Financial Officer Code of Ethics or if
Comerica grants any waiver, including any implicit waiver, from a provision of the Senior Financial Officer Code of Ethics to the
Chief Executive Officer, the Chief Financial Officer, the Chief Accounting Officer or the Treasurer, we will disclose the nature of
such amendment or waiver on our website.
The remainder of the response to this item will be included under the sections captioned “Information About Nominees,”
“Committees and Meetings of Directors,” “Committee Assignments,” “Executive Officers” and “Section 16(a) Beneficial
Ownership Reporting Compliance” of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to
be held on April 24, 2018, which sections are hereby incorporated by reference.
Item 11. Executive Compensation.
The response to this item will be included under the sections captioned “Compensation Committee Interlocks and Insider
Participation,” “Compensation Discussion and Analysis,” “Compensation of Directors,” “Governance, Compensation and
Nominating Committee Report,” “2017 Summary Compensation Table,” “2017 Grants of Plan-Based Awards,” “Outstanding
Equity Awards at Fiscal Year-End 2017,” “2017 Option Exercises and Stock Vested,” “Pension Benefits at Fiscal Year-End 2017,”
“2017 Nonqualified Deferred Compensation,” “Potential Payments upon Termination or Change of Control at Fiscal Year-
End 2017” and "Pay Ratio Disclosure" of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders
to be held on April 24, 2018, which sections are hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The response to this item will be included under the sections captioned “Security Ownership of Certain Beneficial
Owners,” “Security Ownership of Management” and "Securities Authorized for Issuance Under Equity Compensation Plans" of
Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 24, 2018, which sections
are hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The response to this item will be included under the sections captioned “Director Independence,” “Transactions with
Related Persons,” and “Information about Nominees” of Comerica's definitive Proxy Statement relating to the Annual Meeting
of Shareholders to be held on April 24, 2018, which sections are hereby incorporated by reference.
Item 14. Principal Accountant Fees and Services.
The response to this item will be included under the section captioned “Independent Registered Public Accounting Firm”
of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 24, 2018, which
section is hereby incorporated by reference.
22
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as a part of this report:
1.
2.
3.
3.1
3.2
3.3
4
4.1
4.2
4.3
4.3A
4.4
9
10.1†
10.1A†
10.1B†
10.1C†
Financial Statements: The financial statements that are filed as part of this report are included in the Financial Section
on pages F-40 through F-107.
All of the schedules for which provision is made in the applicable accounting regulations of the SEC are either not
required under the related instruction, the required information is contained elsewhere in the Form 10-K, or the
schedules are inapplicable and therefore have been omitted.
Exhibits:
Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant's Current Report
on Form 8-K dated August 4, 2010, and incorporated herein by reference).
Certificate of Amendment to Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2
to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by
reference).
Amended and Restated Bylaws of Comerica Incorporated (filed as Exhibit 3.3 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).
[Reference is made to Exhibits 3.1, 3.2 and 3.3 in respect of instruments defining the rights of security holders. In
accordance with Regulation S-K Item No. 601(b)(4)(iii), the Registrant is not filing copies of instruments defining
the rights of holders of long-term debt because none of those instruments authorizes debt in excess of 10% of the
total assets of the registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a
copy of any such instrument to the SEC upon request.]
Warrant Agreement, dated May 6, 2010, between the registrant and Equiniti Trust Company (as successor to
Wells Fargo Bank, N.A.) (filed as Exhibit 4.1 to Registrant’s Registration Statement on Form 8-A dated May 7,
2010, and incorporated herein by reference).
Form of Warrant (filed as Exhibit 4.1 to Registrant's Registration Statement on Form 8-A dated May 7, 2010, and
incorporated herein by reference).
Warrant Agreement, dated as of June 9, 2010, between Comerica Incorporated (as successor to Sterling
Bancshares, Inc.) and Equiniti Trust Company (as successor to American Stock Transfer & Trust Company, LLC)
(filed as Exhibit 4.1 to Sterling Bancshares, Inc.’s Registration Statement on Form 8-A12B filed on June 10, 2010
(File No. 001-34768) and incorporated herein by reference).
Appointment of Wells Fargo Bank, N.A. (which entity was later succeeded as Warrant Agent by Equiniti Trust
Company) as successor Warrant Agent under the Warrant Agreement, dated as of June 9, 2010, of Comerica
Incorporated (as successor to Sterling Bancshares, Inc.) (filed as Exhibit 4.1 to Registrant’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2015, and incorporated herein by reference).
Form of Warrant (filed as Exhibit 4.2 to Registrant's Registration Statement on Form S-4 (File No. 333-172211),
and incorporated herein by reference).
(not applicable)
Comerica Incorporated 2006 Amended and Restated Long-Term Incentive Plan (filed as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 2016, and incorporated herein by reference).
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated
Amended and Restated 2006 Long-Term Incentive Plan (filed as Exhibit 10.7 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 2006, and incorporated herein by reference).
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated
Amended and Restated 2006 Long-Term Incentive Plan (2011 version) (filed as Exhibit 10.44 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference).
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated
Amended and Restated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1C to Registrant's Annual
Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
23
10.1D†
10.1E†
10.1F†
10.1G†
10.1H†
10.1I†
10.1J†
10.1K†
10.1L†
10.1M†
10.1N†
10.1O†
10.1P†
10.1Q†
10.1R†
10.1S†
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated
Amended and Restated 2006 Long-Term Incentive Plan (2014 version) (filed as Exhibit 10.1 to Registrant's Current
Report on Form 8-K dated January 21, 2014, and incorporated herein by reference).
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated
Amended and Restated 2006 Long-Term Incentive Plan (2014 version 2) (filed as Exhibit 10.1 to Registrant's Current
Report on Form 8-K dated July 22, 2014, and incorporated herein by reference).
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated
Amended and Restated 2006 Long-Term Incentive Plan (2015 version) (filed as Exhibit 10.2 to Registrant's Current
Report on Form 8-K dated November 10, 2015, and incorporated herein by reference).
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated
Amended and Restated 2006 Long-Term Incentive Plan (2017 version) (filed as Exhibit 10.1G to Registrant's Annual
Report on Form 10-K for the year ended December 31, 2016, and incorporated herein by reference).
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended
and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2011 version) (filed as Exhibit 10.46 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 2010, and incorporated herein by
reference).
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended
and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1F to
Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by
reference).
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended
and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2014 version) (filed as Exhibit 10.2 to
Registrant's Current Report on Form 8-K dated January 21, 2014, and incorporated herein by reference).
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended
and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2014 version 2) (filed as Exhibit 10.2 to
Registrant's Current Report on Form 8-K dated July 22, 2014, and incorporated herein by reference).
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended
and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2017 version) (filed as Exhibit 10.1M to
Registrant's Annual Report on Form 10-K for the year ended December 31, 2016, and incorporated herein by
reference).
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff vesting) under the Comerica
Incorporated 2006 Amended and Restated Long-Term Incentive Plan (2011 version) (filed as Exhibit 10.45 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 2010, and incorporated herein by
reference).
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff vesting) under the Comerica
Incorporated 2006 Amended and Restated Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1I to
Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by
reference).
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff vesting) under the Comerica
Incorporated 2006 Amended and Restated Long-Term Incentive Plan (2017 version) (filed as Exhibit 10.1Q to
Registrant's Annual Report on Form 10-K for the year ended December 31, 2016, and incorporated herein by
reference).
Form of Standard Comerica Incorporated Restricted Stock Unit Agreement under the Amended and Restated
Comerica Incorporated 2006 Long-Term Incentive Plan (2011 version) (filed as Exhibit 10.47 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference).
Form of Standard Comerica Incorporated Restricted Stock Unit Agreement under the Amended and Restated
Comerica Incorporated 2006 Long-Term Incentive Plan (2011 version 2) (filed as Exhibit 10.5 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and incorporated herein by reference).
Form of Standard Comerica Incorporated Restricted Stock Unit Award Agreement under the Amended and Restated
Comerica Incorporated 2006 Long-Term Incentive Plan (2018 version - non-cliff vesting) (filed as Exhibit 10.2 to
Registrant's Current Report on Form 8-K dated November 8, 2017, and incorporated herein by reference).
Form of Standard Comerica Incorporated Restricted Stock Unit Award Agreement under the Amended and Restated
Comerica Incorporated 2006 Long-Term Incentive Plan (2018 version - cliff vesting) (filed as Exhibit 10.3 to
Registrant's Current Report on Form 8-K dated November 8, 2017, and incorporated herein by reference).
24
10.1T†
10.1U†
10.1V†
10.1W†
10.1X†
10.1Y†
10.2†
10.2A†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
Form of Standard Comerica Incorporated Performance Restricted Stock Unit Agreement under the Amended and
Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1 to Registrant's
Current Report on Form 8-K dated November 19, 2012, and incorporated herein by reference).
Form of Standard Comerica Incorporated Senior Executive Long-Term Performance Restricted Stock Unit Award
Agreement under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (filed as Exhibit
10.3 to Registrant's Current Report on Form 8-K dated January 21, 2014, and incorporated herein by reference).
Form of Standard Comerica Incorporated Senior Executive Long-Term Performance Restricted Stock Unit Award
Agreement under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2014 version
2) (filed as Exhibit 10.3 to Registrant's Current Report on Form 8-K dated July 22, 2014, and incorporated herein
by reference).
Form of Standard Comerica Incorporated Senior Executive Long-Term Performance Restricted Stock Unit Award
Agreement under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2015 version)
(filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated November 10, 2015, and incorporated herein
by reference).
Form of Standard Comerica Incorporated Senior Executive Long-Term Performance Restricted Stock Unit Award
Agreement under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2017 version)
(filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, and
incorporated herein by reference).
Form of Standard Comerica Incorporated Senior Executive Long-Term Performance Restricted Stock Unit Award
Agreement under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2018 version).
Comerica Incorporated 1997 Amended and Restated Long-Term Incentive Plan (filed as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference).
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Amended and Restated
Comerica Incorporated 1997 Long-Term Incentive Plan (filed as Exhibit 10.4 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004, and incorporated herein by reference).
Amended and Restated Sterling Bancshares, Inc. 2003 Stock Incentive and Compensation Plan effective April 30,
2007 (filed as Exhibit 10.1 to Sterling Bancshares, Inc.'s Current Report on Form 8-K dated August 14, 2007 (File
No. 000-20750), and incorporated herein by reference).
Comerica Incorporated Amended and Restated Employee Stock Purchase Plan (amended and restated October 22,
2013) (filed as Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2013,
and incorporated herein by reference).
Comerica Incorporated 2011 Management Incentive Plan (filed as Exhibit 10.1 to Registrant's Current Report on
Form 8-K dated April 26, 2011, and incorporated herein by reference).
Comerica Incorporated 2016 Management Incentive Plan (filed as Exhibit 10.1 to Registrant's Current Report on
Form 8-K dated May 2, 2016, and incorporated herein by reference).
Form of Standard Comerica Incorporated No Sale Agreement under the Comerica Incorporated Amended and
Restated Management Incentive Plan (filed as Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004, and incorporated herein by reference).
Supplemental Retirement Income Account Plan (formerly known as the Amended and Restated Benefit Equalization
Plan for Employees of Comerica Incorporated) (amended and restated October 13, 2016, with amendments effective
January 1, 2017) (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated January 24, 2017, and
incorporated herein by reference).
1999 Comerica Incorporated Amended and Restated Deferred Compensation Plan (amended and restated on July
26, 2011) (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated July 26, 2011, and incorporated
herein by reference).
1999 Comerica Incorporated Amended and Restated Common Stock Deferred Incentive Award Plan (amended and
restated on July 26, 2011) (filed as Exhibit 10.2 to Registrant's Current Report on Form 8-K dated July 26, 2011,
and incorporated herein by reference).
Sterling Bancshares, Inc. Deferred Compensation Plan (as Amended and Restated) (filed as Exhibit 4.4 to Registrant's
Registration Statement on Form S-8 dated July 28, 2011 (Registration No. 333-175857) and incorporated herein by
reference).
Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan (amended and restated
on January 27, 2015) (filed as Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December
31, 2014, and incorporated herein by reference).
25
10.13†
10.14†
10.14A†
10.14B†
10.14C†
10.14D†
10.14E†
10.15†
10.15A†
10.16†
10.17†
10.18†
10.19A†
10.19B†
10.19C†
10.19D†
10.20†
Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan (amended
and restated on January 27, 2015) (filed as Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 2014, and incorporated herein by reference).
Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (amended and restated
effective May 15, 2014) (filed as Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015, and incorporated herein by reference).
Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the
Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (filed as Exhibit 10.2
to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by
reference).
Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the
Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (Version 2) (filed as
Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, and incorporated
herein by reference).
Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the
Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (Version 2.5) (filed as
Exhibit 10.48 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2010, and incorporated
herein by reference).
Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the
Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (Version 3) (filed as
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and incorporated
herein by reference).
Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the
Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (Version 4) (filed as
Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, and incorporated
herein by reference).
2015 Comerica Incorporated Incentive Plan for Non-Employee Directors (filed as Exhibit 10.4 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, and incorporated herein by reference).
Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the 2015
Comerica Incorporated Incentive Plan for Non-Employee Directors (filed as Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2015, and incorporated herein by reference).
Form of Indemnification Agreement between Comerica Incorporated and certain of its directors and officers (filed
as Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated
herein by reference).
Supplemental Benefit Agreement with Eugene A. Miller (filed as Exhibit 10.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002, and incorporated herein by reference).
Supplemental Pension and Retiree Medical Agreement with Ralph W. Babb Jr. (filed as Exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference).
Restrictive Covenants and General Release Agreement by and between J. Michael Fulton and Comerica Incorporated
dated April 3, 2014 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated April 3, 2014, and
incorporated herein by reference).
Restrictive Covenants and General Release Agreement by and between Jon W. Bilstrom and Comerica Incorporated
dated July 21, 2016 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated July 27, 2016, and
incorporated herein by reference).
Restrictive Covenants and General Release Agreement by and between J. Patrick Faubion and Comerica Incorporated
dated December 11, 2016 (filed as Exhibit 10.19C to Registrant's Annual Report on Form 10-K for the year ended
December 31, 2016, and incorporated herein by reference).
Restrictive Covenants and General Release Agreement by and between David E. Duprey and Comerica Incorporated
dated February 5, 2018 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated February 8, 2018,
and incorporated herein by reference).
Form of Change of Control Employment Agreement (BE4 and Higher Version without gross-up or window period-
current) (filed as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
2015, and incorporated herein by reference).
26
10.20A†
10.21†
10.21A†
10.22†
10.23†
Schedule of Named Executive Officers Party to Change of Control Employment Agreement (BE4 and Higher
Version without gross-up or window period-current).
Form of Change of Control Employment Agreement (BE4 and Higher Version) (filed as Exhibit 10.1 to Registrant's
Current Report on Form 8-K dated November 18, 2008, and incorporated herein by reference).
Schedule of Named Executive Officers Party to Change of Control Employment Agreement (BE4 and Higher
Version).
Form of Change of Control Employment Agreement (BE4 and Higher Version without gross-up or window
period-2009 version) (filed as Exhibit 10.42 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 2009, and incorporated herein by reference).
Form of Change of Control Employment Agreement (BE2-BE3 Version) (filed as Exhibit 10.2 to Registrant's Current
Report on Form 8-K dated November 18, 2008, and incorporated herein by reference).
10.23A†
Schedule of Named Executive Officers Party to Change of Control Employment Agreement (BE2-BE3 Version).
11
12
13
14
16
18
21
22
23.1
24
31.1
31.2
32
33
34
35
95
99
100
101
†
Statement regarding Computation of Net Income Per Common Share (incorporated by reference from Note 15 on
page F-84 of this Annual Report on Form 10-K).
(not applicable)
(not applicable)
(not applicable)
(not applicable)
(not applicable)
Subsidiaries of Registrant.
(not applicable)
Consent of Ernst & Young LLP.
(not applicable)
Chairman and CEO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002).
Executive Vice President and CFO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002).
Section 1350 Certification of Periodic Report (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).
(not applicable)
(not applicable)
(not applicable)
(not applicable)
(not applicable)
(not applicable)
Financial statements from Annual Report on Form 10-K of the Registrant for the year ended December 31, 2017,
formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated
Statements of Income, (iii) the Consolidated Statements of Changes in Shareholders' Equity, (iv) the Consolidated
Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.
Management contract or compensatory plan or arrangement.
File No. for all filings under Exchange Act, unless otherwise noted: 1-10706.
Item 16. Form 10-K Summary
Not applicable.
27
[THIS PAGE INTENTIONALLY LEFT BLANK]
FINANCIAL REVIEW AND REPORTS
Comerica Incorporated and Subsidiaries
Performance Graph
Selected Financial Data
2017 Overview and 2018 Outlook
Results of Operations
Strategic Lines of Business
Balance Sheet and Capital Funds Analysis
Risk Management
Critical Accounting Policies
Supplemental Financial Data
Forward-Looking Statements
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Management
Reports of Independent Registered Public Accounting Firm
Historical Review
F-2
F-3
F-4
F-6
F-11
F-14
F-20
F-34
F-38
F-39
F-40
F-41
F-42
F-43
F-44
F-45
F-104
F-105
F-107
F-1
PERFORMANCE GRAPH
The graph shown below compares the total returns (assuming reinvestment of dividends) of Comerica Incorporated
common stock, the S&P 500 Index, and the KBW Bank Index. The graph assumes $100 invested in Comerica Incorporated common
stock (returns based on stock prices per the NYSE) and each of the indices on December 31, 2012 and the reinvestment of all
dividends during the periods presented.
The performance shown on the graph is not necessarily indicative of future performance.
F-2
SELECTED FINANCIAL DATA
(dollar amounts in millions, except per share data)
Years Ended December 31
EARNINGS SUMMARY
Net interest income
Provision for credit losses
Noninterest income
Noninterest expenses
Provision for income taxes
Net income
Net income attributable to common shares
PER SHARE OF COMMON STOCK
Diluted earnings per common share
Cash dividends declared
Common shareholders’ equity
Tangible common equity (d)
Market value
Average diluted shares (in millions)
YEAR-END BALANCES
Total assets
Total earning assets
Total loans
Total deposits
Total medium- and long-term debt
Total common shareholders’ equity
AVERAGE BALANCES
Total assets
Total earning assets
Total loans
Total deposits
Total medium- and long-term debt
Total common shareholders’ equity
CREDIT QUALITY
Total allowance for credit losses
Total nonperforming loans
Foreclosed property
Total nonperforming assets
Net credit-related charge-offs
Net credit-related charge-offs as a percentage of average total loans
Allowance for loan losses as a percentage of total period-end loans
Allowance for loan losses as a percentage of total nonperforming
RATIOS
Net interest margin (fully taxable equivalent)
Return on average assets
Return on average common shareholders’ equity
Dividend payout ratio
Average common shareholders’ equity as a percentage of average
assets
Common equity tier 1 capital as a percentage of risk-weighted
assets (e)
2017
2016
2015
2014
2013
(b)
(b)
(c)
$ 2,061
74
1,107
1,860
491
743
738
$
4.14
1.09
46.07
42.34
86.81
178
$71,567
65,880
49,173
57,903
4,622
7,963
$71,452
66,300
48,558
57,258
4,969
7,952
$
754
410
5
415
92
0.19%
1.45
173
3.12%
1.04
9.34
25.77
11.13
$ 1,797
248
1,051
1,930
193
477
473
$
2.68
0.89
44.47
40.79
68.11
177
$ 72,978
67,518
49,088
58,985
5,160
7,796
$ 71,743
66,545
48,996
57,741
4,917
7,674
$
771
590
17
607
157
0.32%
1.49
124
2.71%
0.67
6.22
32.48
10.70
(a)
(a)
$ 1,689
147
1,035
1,827
229
521
515
$
2.84
0.83
43.03
39.33
41.83
181
$ 71,877
66,687
49,084
59,853
3,058
7,560
$ 70,247
65,129
48,628
58,326
2,905
7,534
$
679
379
12
391
101
0.21%
1.29
167
2.60%
0.74
6.91
28.33
10.73
$ 1,655
27
857
1,615
277
593
586
$
3.16
0.79
41.35
37.72
46.84
185
$ 69,186
63,788
48,593
57,486
2,675
7,402
$ 66,336
61,560
46,588
54,784
2,963
7,373
$ 1,672
46
874
1,714
245
541
533
$
2.85
0.68
39.22
35.64
47.54
187
$ 65,224
60,200
45,470
53,292
3,543
7,150
$ 63,933
59,091
44,412
51,711
3,972
6,965
$
$
635
290
10
300
25
0.05%
1.22
205
634
374
9
383
73
0.16%
1.32
160
2.70%
0.89
8.05
24.09
2.84%
0.85
7.76
23.29
11.11
10.90
11.68
11.68
11.13
10.32
11.09
11.09
10.68
9.89
10.54
10.54
10.52
9.70
n/a
10.50
10.70
9.85
n/a
10.64
10.97
10.07
Tier 1 capital as a percentage of risk-weighted assets (e)
Common equity ratio
Tangible common equity as a percentage of tangible assets (d)
(a) Effective January 1, 2015, contractual changes to a card program resulted in a change to the accounting presentation of the related
revenues and expenses. The effect of this change was an increase of $177 million in 2015 to both noninterest income and noninterest
expenses. Amounts prior to 2015 reflect revenues from this card program net of related noninterest expenses.
(b) Noninterest expenses included restructuring charges of $45 million and $93 million in 2017 and 2016, respectively.
(c) The provision for income taxes for 2017 was impacted by a $107 million charge to adjust deferred taxes as a result of the enactment of
the Tax Cuts and Jobs Act.
(d) See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.
(e) Ratios calculated based on the risk-based capital requirements in effect at the time. The U.S. implementation of the Basel III regulatory
capital framework became effective on January 1, 2015, with transitional provisions.
n/a - not applicable.
F-3
2017 OVERVIEW AND 2018 OUTLOOK
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 Management. The core businesses are tailored to
each of the Corporation's three primary geographic markets: Michigan, California and Texas. Information about the activities of
the Corporation's business segments is provided in Note 23 to the consolidated financial statements.
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 principally derived 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 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 economic health of customers, and the ability to
add new customers and/or increase the number of products used by current customers. Success in providing products and services
depends on the financial needs of customers and the types of products desired.
The accounting and reporting policies of the Corporation and its subsidiaries conform to generally accepted accounting
principles (GAAP) in the United States (U.S.). 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.
OVERVIEW
• Net income was $743 million in 2017, an increase of $266 million, or 56 percent, compared to $477 million in 2016. Net
income per diluted common share was $4.14 in 2017, compared to $2.68 in 2016. Net income in 2017 included a $107
million charge to adjust deferred tax assets (60 cents per share) resulting from the 2017 enactment of the Tax Cuts and
Jobs Act.
• Average loans were $48.6 billion in 2017, a decrease of $438 million, or 1 percent, compared to 2016. Excluding cyclical
declines of $696 million in Energy and $412 million in Mortgage Banker Finance, average loans increased $670 million,
or 1 percent, with growth in most other businesses, led by National Dealer Services.
• Average deposits decreased $483 million, or 1 percent, to $57.3 billion in 2017 compared to 2016. The decrease in average
deposits reflected a decrease of $1.7 billion, or 6 percent, in average interest-bearing deposits, partially offset by an
increase of $1.3 billion, or 4 percent, in average noninterest-bearing deposits. The decrease in interest-bearing deposits
was primarily due to customers using their excess liquidity for working capital needs and acquisitions, a deliberate
approach to relationship pricing, as well as strategic actions taken in early 2017 in light of the new Liquidity Coverage
Ratio (LCR) rules. Average total deposits reflected decreases in Corporate Banking and Technology and Life Sciences,
partially offset by increases in Commercial Real Estate and Retail Bank.
• Net interest income was $2.1 billion in 2017, an increase of $264 million, or 15 percent, compared to 2016. The increase
primarily reflected the benefit from higher short-term rates and prudently managing loan and deposit pricing.
• The provision for credit losses was $74 million in 2017, a decrease of $174 million compared to 2016, primarily due to
improvement in the credit quality in the Energy and energy-related portfolio. Net credit-related charge-offs were $92
million, or 0.19 percent of average loans in 2017, a decrease of $65 million compared to $157 million, or 0.32 percent
of average loans, in 2016. The decrease primarily reflected lower Energy and energy-related charge-offs.
• Noninterest income increased $56 million, or 5 percent, to $1.1 billion in 2017 in part due to the impact of Growth in
Efficiency and Revenue (GEAR Up) initiatives. Increases in card fees, service charges on deposit accounts and fiduciary
income, as well as smaller increases in several other categories of noninterest income were partially offset by decreases
in letter of credit fees and commercial lending fees.
• Noninterest expenses decreased $70 million, or 4 percent, to $1.9 billion in 2017 primarily due to decreases in salaries
and benefits expense, largely driven by the GEAR Up initiative, and restructuring charges, partially offset by an increase
in outside processing fees primarily tied to revenue-generating activities.
• The provision for income taxes increased $298 million in 2017. The increase primarily reflected an increase in pretax
income and the $107 million charge to adjust deferred taxes resulting from the Tax Cuts and Jobs Act, partially offset by
a $35 million tax benefit from employee stock transactions in 2017 due to new accounting guidance for stock compensation
effective January 1, 2017.
• The quarterly dividend was increased 13 percent to 26 cents per share in April 2017 and further increased 15 percent to
30 cents per share in July 2017.
• The Corporation repurchased approximately 7.3 million shares of common stock during 2017 under the equity repurchase
program. Together with dividends of $1.09 per share, $724 million was returned to shareholders in 2017, an increase of
$266 million, or 58 percent, compared to 2016.
F-4
GROWTH IN EFFICIENCY AND REVENUE INITIATIVE
The Corporation launched the GEAR Up initiative in 2016 in order to meaningfully enhance profitability. Since GEAR
Up began, the Corporation has consolidated 38 banking centers, implemented a new retirement program resulting in a significant
reduction in retirement plan expense and reduced the number of full-time equivalent employees by over 800, among other initiatives.
The impact of increases in short-term rates and the execution of certain GEAR Up initiatives helped lower the efficiency ratio to
58.6 percent for 2017, compared to 67.5 percent for 2016. Return on equity for 2017 increased to 9.3 percent, compared to 6.2
percent for 2016. Return on equity for 2017 was reduced by 1.4 percentage points due to the $107 million adjustment to deferred
taxes resulting from the enactment of the Tax Cuts and Jobs Act.
Full-year 2018 pre-tax income before restructuring charges is expected to include approximately $270 million of
cumulative benefits from actions identified under this initiative, increasing to approximately $305 million in full-year 2019.
• Expense reductions are expected to total $200 million by year-end 2018 and increase to $215 million by year-end 2019,
reflecting incremental savings of $50 million in 2018 and an additional $15 million in 2019. This is to be achieved through
rationalizing and modernizing technology, including optimizing infrastructure platforms, process optimization and
migrating certain applications to cloud-based systems, as well as consolidating office and operations space. The
Corporation is in the process of implementing the end-to-end credit design program to streamline the credit process and
increase relationship managers' capacity to service clients.
• Revenue enhancements are expected to total $70 million by year-end 2018 and increase to $90 million by year-end 2019,
reflecting incremental revenue of $40 million in 2018 and an additional $20 million in 2019, achieved through product
enhancements, enhanced sales tools and training and improved customer analytics to drive opportunities.
Pre-tax restructuring charges of $185 million to $195 million in total are expected to be incurred from inception through
2018. Cumulative pre-tax restructuring charges of $138 million have been incurred through December 31, 2017. For
additional information regarding restructuring charges, refer to Note 22 to the consolidated financial statements.
•
2018 OUTLOOK
For full-year 2018 compared to full-year 2017 management expects the following, assuming a continuation of the current
economic and low rate environment as well as approximately $270 million of cumulative benefits from the GEAR Up initiative:
• Average loans higher in line with Gross Domestic Product, reflecting increases in most lines of business while remaining
stable in Energy and Corporate Banking.
• Net interest income higher, reflecting full-year benefits from the 2017 rate increases and loan growth.
Full-year benefit from 2017 rate increases expected to be $110 million to $125 million, assuming a 20 percent
to 40 percent deposit beta for the December rate increase.
Elevated interest recoveries of $28 million in 2017 not expected to repeat in 2018.
•
Provision for credit losses of 15 basis points to 25 basis points and net charge-offs to remain low, with continued solid
performance of the overall portfolio.
• Excluding deferred compensation asset returns of $8 million in 2017, noninterest income higher by 4 percent1, benefiting
from the continued execution of GEAR Up opportunities helping to drive growth in treasury management income, card
fees, brokerage fees and fiduciary income.
• Excluding restructuring charges, noninterest expenses higher by 1 percent1, reflecting an additional $50 million benefit
from the GEAR Up initiative.
Restructuring charges of $47 million to $57 million.
Additionally, headwinds include higher technology expenditures and typical inflationary pressures, as well as
outside processing expenses to increase in line with growing revenue1.
•
Income tax expense to approximate 23 percent of pre-tax income reflecting the passage of the Tax Cuts and Jobs Acts
and assuming no tax impact from employee stock transactions.
1 Beginning January 1, 2018, as a result of adopting a new accounting standard for revenue recognition, card fee revenue from
certain card products will be presented net of network costs in noninterest income, as opposed to the current presentation of
associated network costs in outside processing fee expense within noninterest expenses. Other smaller revenue streams will be
similarly impacted. These changes in presentation will not impact net income and are not reflected in this outlook. This change
in presentation would have resulted in decreases to noninterest income and noninterest expenses of approximately $120 million
for the year ended December 31, 2017. For further information, refer to Note 1 to the consolidated financial statements.
F-5
RESULTS OF OPERATIONS
The following provides a comparative discussion of the Corporation's consolidated results of operations for 2017 compared
to 2016. A comparative discussion of results for 2016 compared to 2015 is provided at the end of this section. For a discussion of
the Critical Accounting Policies that affect the Consolidated Results of Operations, see the "Critical Accounting Policies" section
of this Financial Review.
ANALYSIS OF NET INTEREST INCOME
(dollar amounts in millions)
Years Ended December 31
Commercial loans
Real estate construction loans
Commercial mortgage loans
Lease financing
International loans
Residential mortgage loans
Consumer loans
Total loans (b)
Mortgage-backed securities
Other investment securities
Total investment securities (c)
Interest-bearing deposits with banks
Other short-term investments
Total earning assets
Cash and due from banks
Allowance for loan losses
Accrued income and other assets
Total assets
Money market and interest-bearing checking deposits
Savings deposits
Customer certificates of deposit
Foreign office time deposits (d)
Total interest-bearing deposits
Short-term borrowings
Medium- and long-term debt (e)
Total interest-bearing sources
Noninterest-bearing deposits
Accrued expenses and other liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
Net interest income/rate spread
Impact of net noninterest-bearing sources of funds
Net interest margin (as a percentage of average earning
assets) (c)
2017
2016
2015
Average
Rate (a)
Average
Balance
Interest
Interest
Average
Balance
$ 30,415 $ 1,162
124
358
13
47
74
94
1,872
2,958
9,005
509
1,157
1,989
2,525
48,558
Average
Rate (a)
Interest
Average
Balance
3.83% $ 31,062 $ 1,008
4.18
91
2,508
3.97
314
8,981
2.64
18
684
4.07
50
1,367
3.70
71
1,894
3.70
83
2,500
3.86
1,635
48,996
3.26% $ 31,501 $
3.63
3.49
2.65
3.63
3.76
3.32
3.34
1,884
8,697
783
1,441
1,878
2,444
48,628
202
48
250
2.17
1.67
2.05
60
1.09
— 0.64
3.30
2,182
33
0.15
— 0.02
0.36
9
— 0.64
0.16
42
1.14
3
1.51
76
0.38
121
9,330
2,877
12,207
5,443
92
66,300
1,209
(728)
4,671
$ 71,452
$ 21,585
2,133
2,471
56
26,245
277
4,969
31,491
31,013
996
7,952
$ 71,452
203
44
247
26
1
1,909
27
—
13
—
40
—
72
112
9,356
2,992
12,348
5,099
102
66,545
1,146
(730)
4,782
$ 71,743
$ 22,744
2,013
3,200
33
27,990
138
4,917
33,045
29,751
1,273
7,674
$ 71,743
$ 2,061
2.92
0.20
$ 1,797
9,113
1,124
10,237
6,158
106
65,129
1,059
(621)
4,680
$ 70,247
$ 24,073
1,841
4,209
116
30,239
93
2,905
33,237
28,087
1,389
7,534
$ 70,247
2.19
1.51
2.02
0.51
0.61
2.88
0.11
0.02
0.40
0.35
0.14
0.45
1.45
0.34
2.54
0.17
3.12%
2.71%
Average
Rate (a)
3.07%
3.48
3.41
3.17
3.58
3.77
3.26
3.20
2.24
1.25
2.13
0.26
0.81
2.75
0.11
0.02
0.37
1.02
0.14
0.05
1.80
0.29
962
66
296
25
51
71
80
1,551
202
14
216
16
1
1,784
26
—
16
1
43
—
52
95
$ 1,689
2.46
0.14
2.60%
(a) Average rate is calculated on a fully taxable equivalent (FTE) basis using a federal tax rate of 35%. The FTE adjustment to net interest income included in
the rate calculations totaled $4 million in each of the three years presented.
(b) Nonaccrual loans are included in average balances reported and in the calculation of average rates.
(c)
Includes investment securities available-for-sale and investment securities held-to-maturity. Average rate is based on average historical cost. Carrying value
was $28 million below average historical cost in 2017 and exceeded average historical cost by $143 million and $100 million in 2016 and 2015, respectively.
Includes substantially all deposits by foreign depositors; deposits are primarily in excess of $100,000.
(d)
(e) Medium- and long-term debt average balances included $77 million, $162 million and $160 million in 2017, 2016 and 2015, respectively, for the gain
attributed to the risk hedged with interest rate swaps. Interest expense on medium-and long-term debt was reduced by $32 million, $60 million and $70
million in 2017, 2016 and 2015, respectively, for the net gains on these fair value hedge relationships.
F-6
RATE/VOLUME ANALYSIS
(in millions)
Years Ended December 31
Interest Income:
Commercial loans
Real estate construction loans
Commercial mortgage loans
Lease financing
International loans
Residential mortgage loans
Consumer loans
Total loans
Mortgage-backed securities
Other investment securities
Total investment securities (b)
Interest-bearing deposits with banks
Other short-term investments
Total interest income
Interest Expense:
Money market and interest-bearing checking deposits
Customer certificates of deposit
Foreign office time deposits
Total interest-bearing deposits
Short-term borrowings
Medium- and long-term debt
Total interest expense
2017/2016
Increase
(Decrease)
Due to
Volume (a)
Increase
(Decrease)
Due to Rate
Net
Increase
(Decrease)
Increase
(Decrease)
Due to Rate
2016/2015
Increase
(Decrease)
Due to
Volume (a)
Net
Increase
(Decrease)
$
179
$
(25)
$
154
$
$
(14)
$
14
43
—
6
(1)
10
251
(1)
5
4
30
—
285
8
(1)
—
7
1
23
31
19
1
(5)
(9)
4
1
(14)
—
(1)
(1)
4
(1)
(12)
(2)
(3)
—
(5)
2
(19)
(22)
10
$
33
44
(5)
(3)
3
11
237
(1)
4
3
34
(1)
273
6
(4)
—
2
3
4
9
$
264
$
60
2
8
(4)
1
—
1
68
(4)
3
(1)
15
—
82
2
1
(1)
2
—
9
11
71
23
10
(3)
(2)
—
2
16
5
27
32
(5)
—
43
(1)
(4)
—
(5)
—
11
6
37
$
46
25
18
(7)
(1)
—
3
84
1
30
31
10
—
125
1
(3)
(1)
(3)
—
20
17
Net interest income
254
(a) Rate/volume variances are allocated to variances due to volume.
(b)
$
Includes investment securities available-for-sale and investment securities held-to-maturity.
$
108
NET INTEREST INCOME
Net interest income is the difference between interest earned on assets and interest paid on liabilities. Gains and losses
related to the effective portion of risk management interest rate swaps that convert fixed rate debt to a floating rate and qualify as
hedges are included with the interest expense of the hedged item. Refer to the Analysis of Net Interest Income and the Rate/Volume
Analysis tables above for an analysis of net interest income for the years ended December 31, 2017, 2016, and 2015 and details
of the components of the change in net interest income for 2017 compared to 2016 and 2016 compared to 2015.
Net interest income was $2.1 billion in 2017, an increase of $264 million compared to 2016. The increase in net interest
income primarily reflected the net benefit from higher short-term rates and elevated interest recoveries, partially offset by one
fewer day in 2017. Average earning assets decreased $245 million, primarily reflecting decreases of $438 million in average loans
and $141 million in average investment securities, partially offset by an increase of $344 million in interest-bearing deposits with
banks.
The net interest margin increased 41 basis points in 2017 to 3.12 percent, from 2.71 percent in 2016, primarily reflecting
the net benefit from higher rates.
The Corporation utilizes various asset and liability management strategies to manage net interest income exposure to
interest rate risk. Refer to the “Market and Liquidity Risk” section of this financial review for additional information regarding
the Corporation's asset and liability management policies and the “Balance Sheet and Capital Funds Analysis” section for further
discussion on changes in earning assets and interest-bearing liabilities.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $74 million in 2017, compared to $248 million in 2016. The provision for credit losses
includes both the provision for loan losses and the provision for credit losses on lending-related commitments.
F-7
The provision for loan losses is recorded to maintain the allowance for loan losses at the level deemed appropriate by the
Corporation to cover probable credit losses inherent in the portfolio. The provision for loan losses was $73 million in 2017, a
decrease of $168 million compared to $241 million in 2016, primarily reflecting improvement in the credit quality of the Energy
and energy-related portfolio. Net loan charge-offs in 2017 decreased $54 million to $92 million, or 0.19 percent of average total
loans, compared to $146 million, or 0.30 percent, in 2016. The decrease primarily reflected lower Energy and energy-related
charge-offs.
The provision for credit losses on lending-related commitments is recorded to maintain the allowance for credit losses
on lending-related commitments at the level deemed appropriate by the Corporation to cover probable credit losses inherent in
lending-related commitments. The provision for credit losses on lending-related commitments was $1 million in 2017, a decrease
of $6 million, compared to $7 million in 2016, and there were no lending-related commitment charge-offs in 2017, compared to
$11 million in 2016, primarily reflecting improved credit quality.
For further discussion of the allowance for loan losses and the allowance for credit losses on lending-related commitments,
including the methodology used in the determination of the allowances and an analysis of the changes in the allowances, refer to
Note 1 to the consolidated financial statements and the "Credit Risk" section of this financial review.
NONINTEREST INCOME
(in millions)
Years Ended December 31
Card fees
Service charges on deposit accounts
Fiduciary income
Commercial lending fees
Letter of credit fees
Bank-owned life insurance
Foreign exchange income
Brokerage fees
Net securities losses
Other noninterest income (a)
Total noninterest income
2017
2016
2015
$
$
333
227
198
85
45
43
45
23
(3)
111
1,107
$
$
303
219
190
89
50
42
42
19
(5)
102
1,051
$
$
276
223
187
99
53
40
40
17
(2)
102
1,035
(a) The table below provides further details on certain categories included in other noninterest income.
Noninterest income increased $56 million, or 5 percent, to $1.1 billion in 2017, compared to 2016, partially driven by
the GEAR Up initiative.
Card fees consist primarily of interchange and other fees earned on government card programs, commercial cards and
debit/Automated Teller Machine (ATM) cards, as well as fees from providing merchant payment processing services. Card fees
increased $30 million, or 10 percent, to $333 million in 2017, compared to $303 million in 2016. The increase in 2017 was primarily
due to volume-driven increases in merchant payment processing services, including new customers, and government card programs.
Service charges on deposit accounts consist primarily of charges on retail and business accounts, including fees for treasury
management services. Service charges on deposit accounts increased $8 million, or 4 percent, to $227 million in 2017, compared
to $219 million in 2016. The increase in 2017 primarily reflected an increase in commercial service charges.
Fiduciary income increased $8 million, or 5 percent, to $198 million in 2017, compared to $190 million in 2016. Personal
trust fees, institutional trust fees and investment advisory fees are the three major components of fiduciary income. These fees are
based on services provided, assets under management and assets under administration. Fluctuations in the market values of the
underlying assets managed or administered, which include both equity and fixed income securities, and net asset flows within
client accounts impact fiduciary income. The increase in 2017 was primarily driven by the favorable impact on fees from market
value increases and net asset inflows for personal trust and investment advisory services.
Commercial lending fees decreased $4 million, or 4 percent, to $85 million in 2017, compared to $89 million in 2016,
primarily reflecting a decrease in commercial loan commitment fees.
Letter of credit fees decreased $5 million, or 11 percent, to $45 million in 2017, compared to $50 million in 2016. The
decrease in 2017 was primarily due to a decrease in outstanding standby letters of credit.
Brokerage fees increased $4 million, or 22 percent, to $23 million in 2017, compared to $19 million in 2016, primarily
due to an increase in the volume of market activity.
F-8
Other noninterest income increased $9 million, or 9 percent, to $111 million in 2017, compared to $102 million in 2016,
driven by small changes in various categories as illustrated in the following table.
(in millions)
Years Ended December 31
Customer derivative income
Insurance commissions
Investment banking fees
Income from principal investing and warrants
Securities trading income
Deferred compensation asset returns (a)
Risk management hedge ineffectiveness
All other noninterest income
Other noninterest income
2017
2016
2015
$
$
26
8
9
6
8
8
1
45
111
$
$
27
10
7
7
6
3
(2)
44
102
$
$
18
10
12
6
9
—
1
46
102
(a) Compensation deferred by the Corporation's officers and directors is invested based on investment selections of the officers and directors. Income earned
on these assets is reported in noninterest income and the offsetting change in liability is reported in salaries and benefits expense.
NONINTEREST EXPENSES
(in millions)
Years Ended December 31
Salaries and benefits expense
Outside processing fee expense
Net occupancy expense
Equipment expense
Restructuring charges
Software expense
FDIC insurance expense
Advertising expense
Litigation-related expense
Other noninterest expenses
Total noninterest expenses
2017
2016
2015
$
$
912
366
154
45
45
126
51
28
(2)
135
1,860
$
$
961
336
157
53
93
119
54
21
1
135
1,930
$
$
1,009
318
159
53
—
99
37
24
(32)
160
1,827
Noninterest expenses decreased $70 million, or 4 percent, to $1.9 billion in 2017, compared to 2016. Excluding
restructuring charges related to the GEAR Up initiative, noninterest expenses decreased $22 million, or 1 percent, in 2017.
Salaries and benefits expense decreased $49 million, or 5 percent, to $912 million in 2017, compared to $961 million in
2016. The decrease in salaries and benefits was largely driven by the GEAR Up initiative, partially offset by an increase in
performance-based incentive compensation and a one-time bonus of $1,000 to approximately 4,500 non-officer employees, as
well as the impact of merit increases.
Outside processing fee expense increased $30 million, or 9 percent, to $366 million in 2017, compared to $336 million
in 2016, primarily tied to revenue-generating activities, including expenses related to increases in merchant payment processing
services and government card programs, as well as increases in other outsourced services.
Restructuring charges associated with the implementation of the GEAR Up initiative decreased $48 million to $45 million
in 2017, compared to $93 million in 2016, including decreases of $42 million in employee costs, $19 million in other restructuring
costs such as professional and legal fees and contract termination fees, and $13 million in facilities costs, partially offset by an
increase of $26 million in technology costs. For further information about restructuring charges, refer to Note 22 to the consolidated
financial statements.
Equipment expense decreased $8 million, or 15 percent, to $45 million, primarily driven by favorable price renegotiations
and a reduction in equipment depreciation expense, in part reflecting careful management of fully depreciated assets.
Software expense increased $7 million, or 6 percent, to $126 million in 2017, compared to $119 million in 2016, primarily
reflecting continued investment in the Corporation's technology infrastructure.
Advertising expense increased $7 million to $28 million in 2017, compared to $21 million in 2016, primarily due to
increased marketing expenses tied to new initiatives as well as an increase in sponsorship expenses.
INCOME TAXES AND RELATED ITEMS
The provision for income taxes was $491 million in 2017, compared to $193 million in 2016. The $298 million increase
in the provision for income taxes in 2017, compared to 2016, was primarily due to an increase in pretax income of $564 million
and the $107 million charge to adjust deferred taxes resulting from the Tax Cuts and Jobs Act, partially offset by a tax benefit of
F-9
$35 million in 2017 from employee stock transactions due to new accounting guidance for stock compensation effective January
1, 2017.
Net deferred tax assets were $141 million at December 31, 2017, compared to $217 million at December 31, 2016. The
decrease of $76 million primarily reflects the reduction in the federal statutory tax rate from the enactment of the Tax Cuts and
Jobs Act, partially offset by a decrease in deferred tax liabilities related to lease financing transactions. Deferred tax assets of $293
million were evaluated for realization, and it was determined that a valuation allowance of $3 million related to state net operating
loss carryforwards was needed at both December 31, 2017 and 2016. These conclusions were based on available evidence of
projected future reversals of existing taxable temporary differences, assumptions made regarding future events and, when
applicable, state loss carryback capacity.
2016 RESULTS OF OPERATIONS COMPARED TO 2015
Net interest income was $1.8 billion in 2016, an increase of $108 million compared to 2015. The increase in net interest
income in 2016 resulted primarily from higher yields on loans and Federal Reserve Bank (FRB) deposits, driven mainly by increases
in short-term rates, and earning asset volume, partially offset by higher funding costs. Higher funding costs were primarily the
result of higher costs on debt swapped to variable rate and new Federal Home Loan Bank (FHLB) borrowings in the second quarter
2016.
The net interest margin (FTE) in 2016 increased 11 basis points to 2.71 percent, from 2.60 percent in 2015, primarily due
to higher loan yields and the reinvestment of a portion of FRB deposits into higher yielding Treasury securities, partially offset
by the impact of higher funding costs. The increase in loan yields primarily reflected a benefit from an increase in short-term rates.
The "Analysis of Net Interest Income" and "Rate/Volume Analysis" tables under the "Net Interest Income" subheading in this
section above provide an analysis of net interest income for 2016 and 2015 and details the components of the change in net interest
income for 2016 compared to 2015.
The provision for credit losses, which includes both the provision for loan losses and the provision for credit losses on
lending-related commitments, was $248 million in 2016, compared to $147 million in 2015. The increase primarily reflected
increased provisions for Energy and energy-related loans, partially offset by improved credit quality in the remainder of the
portfolio. Net loan charge-offs in 2016 increased $46 million to $146 million, or 0.30 percent of average total loans, compared to
$100 million, or 0.21 percent, in 2015. The increase primarily reflected an increase in charge-offs in Energy and a decrease in
recoveries in Private Banking, partially offset by decreases in Technology and Life Sciences and Small Business (primarily due
to the charge-off of a single large credit in 2015). Lending-related commitment charge-offs were $11 million in 2016 and $1 million
in 2015.
Noninterest income increased $16 million to $1.1 billion in 2016, compared to $1.0 billion in 2015. Card fees increased
$27 million, or 9 percent, to $303 million in 2016, compared to $276 million in 2015. The increase in 2016 was primarily due to
volume-driven increases from merchant payment processing services and government card programs. Service charges on deposit
accounts decreased $4 million, or 1 percent, in 2016, primarily reflecting a decrease in retail service charges. Fiduciary income
increased $3 million, or 1 percent, in 2016, primarily due to an increase in institutional trust fees, largely driven by net asset inflows
and increased activity in securities lending services. Commercial lending fees decreased $10 million, or 11 percent, in 2016,
primarily reflecting a decrease in unused commitment fees, largely due to a decline in Energy commitments, and a decrease in
syndication agent fees. Letter of credit fees decreased $3 million, or 4 percent, in 2016, primarily due to pricing actions taken
based on changes in regulatory rules. Refer to the table provided under the “Noninterest Income” subheading previously in this
section for the details of certain categories included in other noninterest income.
Noninterest expenses increased $103 million to $1.9 billion in 2016, compared to $1.8 billion in 2015. Excluding $93
million of restructuring charges related to the GEAR Up initiative and $33 million from the net release of litigation reserves in
2015, noninterest expenses decreased $23 million. Salaries and benefits expense decreased $48 million, or 5 percent, in 2016,
primarily due to the GEAR Up initiative, including a decrease in pension expense, partially offset by the impact of merit increases
and one additional day in 2016. Outside processing fee expense increased $18 million to $336 million in 2016, primarily due to
volume-driven increases related to processing for merchant services and other revenue-generating activities, as well as increases
in certain other outsourced services. Restructuring charges in 2016 associated with the implementation of the GEAR Up initiative
included $52 million of employee costs, $15 million of facilities costs and $26 million of other charges. Software expense increased
$20 million to $119 million in 2016, primarily reflecting continued investment in the Corporation's technology infrastructure.
FDIC insurance premiums increased $17 million to $54 million in 2016, in part due to federal rules implemented on July 1, 2016
in order to increase the statutorily required minimum level of the Deposit Insurance Fund, as well as higher risk-based assessment
rates (due largely to impacts from the energy cycle) and an increase in the assessment base. Litigation-related expenses increased
$33 million in 2016, reflecting the benefit to 2015 from the release of $33 million of litigation reserves. Other noninterest expenses
decreased $25 million to $135 million in 2016, primarily reflecting a decrease in state business taxes and an increase in gains from
the early termination of certain leveraged lease transactions, as well as smaller decreases in many other categories.
The provision for income taxes decreased $36 million to $193 million in 2016, primarily due to a decrease in pretax
income as well as a $10 million increase in tax benefits from the early termination of certain leveraged leases.
F-10
STRATEGIC LINES OF BUSINESS
The Corporation has strategically aligned its operations into three major business segments: the Business Bank, the Retail
Bank and Wealth Management. These business segments are differentiated based upon the type of of customer and the related
products and services provided. In addition to the three major business segments, the Finance division is also reported as a segment.
The Other category includes items not directly associated with these business segments or the Finance segment. The performance
of the business segments is not comparable with the Corporation's consolidated results and is not necessarily comparable with
similar information for any other financial institution. Additionally, because of the interrelationships of the various segments, the
information presented is not indicative of how the segments would perform if they operated as independent entities. Market segment
results are also provided for the Corporation's three primary geographic markets: Michigan, California and Texas. In addition to
the three primary geographic markets, Other Markets is also reported as a market segment. Note 23 to the consolidated financial
statements describes the Corporation's segment reporting methodology as well as the business activities of each business segment
and presents financial results of these business segments for the years ended December 31, 2017, 2016 and 2015.
The Corporation's management accounting system assigns balance sheet and income statement items to each segment
using certain methodologies, which are regularly reviewed and refined. These methodologies may be modified as the management
accounting system is enhanced and changes occur in the organizational structure and/or product lines.
Net interest income for each segment reflects the interest income generated by earning assets less interest expense on
interest-bearing liabilities plus the net impact from associated internal funds transfer pricing (FTP). FTP crediting rates on deposits
reflect the long-term value of deposits, based on their implied maturities, and FTP charge rates for funding assets reflect a matched
cost of funds based on the pricing and duration characteristics of the assets. Therefore, net interest income for each segment
primarily reflects the volume and associated FTP impacts of loan and deposit levels as well as one fewer day in the year ended
December 31, 2017, compared to the prior year. FTP crediting rates on deposits were higher in the year ended December 31, 2017
than in the prior year, and, as a result, net interest income for deposit-providing business segments has been positively impacted
during the current year. As overall market rates increased, FTP charges for funding loans increased for asset-generating business
segments in the year ended December 31, 2017, compared to the prior year.
BUSINESS SEGMENTS
The following table presents net income (loss) by business segment.
(dollar amounts in millions)
Years Ended December 31
Business Bank
Retail Bank
Wealth Management
Finance
Other (a)
Total
2017
2016
2015
$
$
724
68
88
880
(65)
(72)
743
82% $
8
10
100%
$
638
4
74
716
(239)
—
477
88% $
1
11
100%
$
761
45
84
890
(369)
—
521
85%
5
10
100%
(a) Includes a $107 million charge to adjust deferred taxes as a result of the enactment of the Tax Cuts and Jobs Act and a $35 million tax
benefit from employee stock transactions for the year ended December 31, 2017.
The Business Bank's net income of $724 million in 2017 increased $86 million, compared to $638 million in 2016. Net
interest income of $1.4 billion decreased $45 million in 2017, primarily reflecting the FTP rate impacts described above and the
impacts of decreases of $622 million in average loans and $901 million in average deposits. The decrease in average loans primarily
reflected cyclical declines in Energy and Mortgage Banker Finance, partially offset by an increase in National Dealer Services.
The decrease in average deposits reflected a $1.8 billion decrease in interest-bearing deposits. The decrease in interest-bearing
deposits was primarily due to customers using liquidity for increased working capital needs and acquisition activity, a deliberate
approach to relationship pricing, as well as strategic actions taken in light of the new LCR rules. This was partially offset by an
$846 million increase in noninterest-bearing deposits. The largest declines in average deposits were in Technology and Life
Sciences and Corporate Banking, partially offset by an increase in Commercial Real Estate. The provision for credit losses decreased
$159 million to $58 million in 2017, compared to the prior year, primarily reflecting improved credit quality in Energy, partially
offset by an increase in reserves in Technology and Life Sciences. Net credit-related charge-offs of $82 million decreased $63
million in 2017, compared to 2016, primarily reflecting a decrease in Energy. Noninterest income of $601 million in 2017 increased
$29 million from the prior year, primarily reflecting increases of $25 million in card fees and $5 million in service charges on
deposit accounts, as well as smaller increases in various other noninterest income categories, partially offset by decreases of $5
million each in letter of credit fees and commercial lending fees. Noninterest expenses of $802 million in 2017 decreased $37
million compared to the prior year, primarily reflecting a decrease of $11 million in salaries and benefits expense, largely driven
by the GEAR Up initiative, as well as decreases of $19 million in restructuring charges and $15 million in corporate overhead,
partially offset by a $17 million increase in outside processing expenses primarily tied to revenue-generating activities.
F-11
Net income for the Retail Bank of $68 million in 2017 increased $64 million, compared to $4 million in 2016. Net interest
income of $658 million increased $40 million in 2017, primarily reflecting the FTP rate impacts described above and the impact
of a $413 million increase in average deposits. The provision for credit losses decreased $22 million to $13 million in 2017,
compared to $35 million in 2016, primarily reflecting a decrease in Small Business. Net credit-related charge-offs of $15 million
in 2017 increased $3 million, compared to $12 million in 2016. Noninterest income of $193 million in 2017 increased $4 million
compared to 2016, primarily due to increases of $3 million each in card fees and service charges on deposit accounts, partially
offset by smaller decreases in various other categories. Noninterest expenses of $731 million in 2017 decreased $36 million from
the prior year, primarily reflecting a $21 million decrease in salaries and benefits expense, largely driven by the GEAR Up initiative,
as well as a decrease of $23 million in restructuring charges, partially offset by an increase of $5 million in outside processing
expense.
Wealth Management's net income of $88 million in 2017 increased $14 million, compared to $74 million in 2016. Net
interest income of $170 million in 2017 increased $3 million compared to 2016, primarily reflecting the FTP rate impacts described
above and the impact of a $208 million increase in average loans. Average deposits decreased $45 million. The provision for credit
losses increased $5 million to a provision of $1 million in 2017, compared to a benefit of $4 million in 2016. Net credit-related
recoveries were $5 million in 2017, compared to no net credit-related charge-offs in 2016. Noninterest income of $255 million
increased $12 million from the prior year, primarily reflecting increases in fiduciary income of $8 million and brokerage fees of
$2 million. Noninterest expenses of $285 million in 2017 decreased $16 million from the prior year, primarily reflecting decreases
of $6 million in restructuring charges and $4 million in salaries and benefits expense, largely driven by the GEAR Up initiative,
as well as smaller decreases in several other categories.
The net loss in the Finance segment was $65 million in 2017, compared to a net loss of $239 million in 2016. Net interest
expense of $175 million in 2017 decreased $253 million, compared to 2016, primarily reflecting a decrease in net FTP expense
as a result of higher rates charged to the business segments under the Corporation's internal FTP methodology.
The net loss in the Other category included the impact of a $107 million charge to adjust deferred taxes as a result of the
2017 enactment of the Tax Cuts and Jobs Act, partially offset by a $35 million tax benefit from employee stock transactions in
2017.
MARKET SEGMENTS
The table and narrative below present the market segment results, including prior periods, based on the structure and
methodologies in effect at December 31, 2017. Note 23 to these consolidated financial statements presents a description of each
of these market segments as well as the financial results for the years ended December 31, 2017, 2016 and 2015.
The following table presents net income (loss) by market segment.
(dollar amounts in millions)
Years Ended December 31
Michigan
California
Texas
Other Markets
Finance & Other (a)
Total
$
$
2017
2016
2015
264
238
184
194
880
(137)
743
30% $
27
21
22
100%
$
243
271
(22)
224
716
(239)
477
34% $
38
(3)
31
100%
$
319
297
77
197
890
(369)
521
36%
33
9
22
100%
(a) Includes a $107 million charge to adjust deferred taxes as a result of the enactment of the Tax Cuts and Jobs Act and a $35 million tax
benefit from employee stock transactions for the year ended December 31, 2017, as well as items not directly associated with the market
segments.
The Michigan market's net income of $264 million in 2017 increased $21 million, compared to net income of $243 million
in 2016. Net interest income of $685 million in 2017 increased $19 million, primarily reflecting the FTP rate impacts described
above and the impact of a $220 million increase in average loans. The increase in average loans resulted primarily from increases
in Corporate Banking and National Dealer Services, partially offset by a decrease in general Middle Market. Average deposits
increased $46 million. The provision for credit losses decreased $1 million to $8 million in 2017, compared to a provision of $9
million in the prior year. Net credit related charge-offs decreased $10 million to net recoveries of $1 million for 2017, compared
to net charge-offs of $9 million in the prior year, primarily reflecting a decrease in charge-offs in Corporate Banking. Noninterest
income of $324 million in 2017 increased $4 million from 2016, primarily reflecting increases of $3 million each in fiduciary
income and card fees. Noninterest expenses of $590 million in 2017 decreased $30 million from the prior year, primarily reflecting
decreases of $11 million in salaries and benefits expense, largely driven by the GEAR Up initiative, and $12 million in restructuring
charges.
F-12
The California market's net income of $238 million decreased $33 million in 2017, compared to $271 million in 2016.
Net interest income of $719 million for 2017 increased $3 million from the prior year, primarily reflecting the FTP rate impacts
described above and the impact of a $277 million increase in average loans. The increase in average loans primarily reflected
increases in Private Banking, National Dealer Services and general Middle Market, partially offset by a decrease in Technology
and Life Sciences. Average deposits increased $95 million. The provision for credit losses increased $79 million to $100 million
in 2017, compared to $21 million in the prior year, primarily reflecting increases in Technology and Life Sciences, general Middle
Market and Corporate Banking. Net credit-related charge-offs of $33 million in 2017 increased $7 million compared to 2016,
primarily reflecting an increase in Technology and Life Sciences, partially offset by a decrease in Private Banking. Noninterest
income of $171 million in 2017 increased $9 million from the prior year, primarily due to increases of $5 million in card fees and
$4 million in service charges on deposit accounts, partially offset by a decrease of $3 million in letter of credit fees. Noninterest
expenses of $404 million in 2017 decreased $30 million from the prior year, primarily reflecting decreases of $15 million in
restructuring charges and $11 million in salaries and benefits expense, largely driven by the GEAR Up initiative.
The Texas market's net income increased $206 million to net income of $184 million in 2017, compared to a net loss of
$22 million in 2016. Net interest income of $465 million in 2017 decreased $5 million from the prior year, primarily reflecting
the FTP rate impacts described above and the impacts of decreases of $668 million in average loans and $543 million in average
deposits. The decrease in average loans primarily reflected decreases in Energy and general Middle Market, partially offset by an
increase in Commercial Real Estate. The decrease in average deposits resulted primarily from decreases in general Middle Market,
Corporate Banking and Technology and Life Sciences, partially offset by an increase in Retail Bank. The provision for credit
losses decreased $297 million to a benefit of $72 million in 2017, compared to a provision of $225 million in the prior year,
primarily reflecting improved credit quality in Energy, Small Business and general Middle Market. Net credit-related charge-offs
of $46 million for 2017 decreased $72 million from the prior year, primarily reflecting a decrease in Energy. Noninterest income
of $131 million in 2017 increased $2 million from the prior year, primarily reflecting increases of $3 million each in service charges
on deposit accounts and card fees, partially offset by a $3 million decrease in commercial lending fees. Noninterest expenses of
$375 million in 2017 decreased $33 million from 2016, primarily reflecting decreases of $11 million in restructuring charges, $10
million in corporate overhead and $10 million in salaries and benefits expense, largely reflecting savings related to the GEAR Up
initiative.
Net income in Other Markets decreased $30 million to $194 million in 2017 compared to $224 million in 2016. Net
interest income of $331 million in 2017 decreased $19 million from the prior year, primarily reflecting the FTP rate impacts
described above and the impact of decreases of $267 million in average loans and $131 million in average deposits. The decrease
in average loans primarily reflected decreases in Mortgage Banker Finance, Corporate Banking and Commercial Real Estate,
partially offset by an increase in Technology and Life Sciences. The provision for credit losses increased $43 million to a provision
of $36 million in 2017, compared to a benefit of $7 million in the prior year, primarily reflecting increases in Technology and Life
Sciences, Environmental Services and Corporate Banking. Net loan charge-offs were $14 million in 2017, an increase of $10
million compared to 2016, primarily reflecting an increase in Small Business. Noninterest income of $423 million in 2017 increased
$30 million from the prior year, primarily reflecting increases of $20 million in card fees, $4 million in fiduciary income and $3
million in service charges on deposit accounts. Noninterest expenses of $449 million in 2017 increased $4 million compared to
the prior year, primarily reflecting an increase of $20 million in outside processing fee expense related to revenue generating
activities, partially offset by decreases of $10 million in restructuring charges and $5 million in salaries and benefits expense,
largely driven by the GEAR Up initiative.
The net loss for the Finance & Other category of $137 million in 2017 decreased $102 million compared to 2016. For
further information, refer to the "Business Segments" discussion above.
The following table lists the Corporation's banking centers by geographic market segment.
December 31
Michigan
Texas
California
Other Markets:
Arizona
Florida
Canada
Total Other Markets
Total
2017
2016
2015
194
122
97
17
7
1
25
438
209
127
97
17
7
1
25
458
214
133
103
19
7
1
27
477
F-13
BALANCE SHEET AND CAPITAL FUNDS ANALYSIS
ANALYSIS OF INVESTMENT SECURITIES AND LOANS
(in millions)
December 31
Investment securities available-for-sale:
2017
2016
2015
2014
2013
U.S. Treasury and other U.S. government agency securities $ 2,727
8,124
Residential mortgage-backed securities (a)
5
State and municipal securities
—
Corporate debt securities
82
Equity and other non-debt securities
10,938
Total investment securities available-for-sale
Investment securities held to maturity:
Residential mortgage-backed securities (a)
Total investment securities
Commercial loans
Real estate construction loans
Commercial mortgage loans
Lease financing
International loans:
Banks and other financial institutions
Commercial and industrial
Total international loans
Residential mortgage loans
Consumer loans:
Home equity
Other consumer
Total consumer loans
Total loans
$ 2,779
7,872
7
—
129
10,787
1,582
$ 12,369
$ 30,994
2,869
8,931
572
2
1,256
1,258
1,942
$ 2,763
7,545
9
1
201
10,519
1,981
$ 12,500
$ 31,659
2,001
8,977
724
—
1,368
1,368
1,870
1,266
$ 12,204
$ 31,060
2,961
9,159
468
4
979
983
1,988
$
526
$
7,274 (b)
23
51
242
8,116
1,935 (b)
$ 10,051
$ 31,520
1,955
8,604
805
31
1,465
1,496
1,831
45
8,926
22
56
258
9,307
—
$ 9,307
$ 28,815
1,762
8,787
845
4
1,323
1,327
1,697
1,517
720
2,237
$ 45,470
1,816
738
2,554
$ 49,173
1,800
722
2,522
$ 49,088
1,720
765
2,485
$ 49,084
1,658
724
2,382
$ 48,593
(a) Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b) During the fourth quarter 2014, the Corporation transferred residential mortgage-backed securities from available-for-sale to held-to-
maturity.
F-14
EARNING ASSETS
Loans
On a period-end basis, total loans increased $85 million to $49.2 billion at December 31, 2017 compared to $49.1 billion
at December 31, 2016. Average total loans decreased $438 million, or 1 percent, to $48.6 billion in 2017, compared to $49.0 billion
in 2016. The following tables provide information about the changes in the Corporation's average loan portfolio in 2017, compared
to 2016.
(dollar amounts in millions)
Years Ended December 31
Average Loans:
Commercial loans by business line:
General Middle Market
National Dealer Services
Energy
Technology and Life Sciences
Environmental Services
Entertainment
Total Middle Market
Corporate Banking
Mortgage Banker Finance
Commercial Real Estate
Total Business Bank commercial loans
Total Retail Bank commercial loans
Total Wealth Management commercial loans
Total commercial loans
Real estate construction loans
Commercial mortgage loans
Lease financing
International loans
Residential mortgage loans
Consumer loans:
Home equity
Other consumer
Consumer loans
Total loans
Average Loans By Geographic Market:
Michigan
California
Texas
Other Markets
Total loans
$
$
$
$
2017
2016
Change
Percent
Change
9,299
5,130
2,055
3,130
899
650
21,163
3,464
1,768
725
27,120
1,865
1,430
30,415
2,958
9,005
509
1,157
1,989
1,794
731
2,525
48,558
12,677
18,008
9,969
7,904
48,558
$
$
$
$
9,286
4,728
2,736
3,061
844
665
21,320
3,336
2,180
913
27,749
1,910
1,403
31,062
2,508
8,981
684
1,367
1,894
1,767
733
2,500
48,996
12,457
17,731
10,637
8,171
48,996
$
$
$
$
13
402
(681)
69
55
(15)
(157)
128
(412)
(188)
(629)
(45)
27
(647)
450
24
(175)
(210)
95
27
(2)
25
(438)
220
277
(668)
(267)
(438)
— %
9
(25)
2
7
(2)
(1)
4
(19)
(21)
(2)
(2)
2
(2)
18
—
(26)
(15)
5
2
—
1
(1)%
2 %
2
(6)
(3)
(1)%
Middle Market business lines generally serve customers with annual revenue between $20 million and $500 million.
National Dealer Services provides floor plan inventory financing to auto dealerships, and the $402 million increase in average
National Dealer Services commercial loans largely reflected the expansion of new and existing relationships. Customers in the
Energy business line are primarily engaged in the oil and gas businesses. The $681 million decrease in average Energy commercial
loans in 2017, compared to 2016, primarily reflected Energy customers taking actions to adjust their cash flow and reduce their
bank debt, including selling assets and raising capital, as well as improved operations. For more information on Energy and related
loans, refer to "Energy Lending" in the "Risk Management" section of this financial review.
Mortgage Banker Finance provides short-term, revolving lines of credit to independent mortgage banking companies
and therefore partly reflects the level of home sales and refinancing activity in the market as a whole. The $412 million decrease
in average Mortgage Banker Finance commercial loans reflected mostly lower average home refinancing volume in 2017, compared
to 2016.
F-15
Commercial real estate loans comprise real estate construction loans and commercial mortgage loans. Real estate
construction loans primarily include loans in the Commercial Real Estate business line, which generally serves commercial real
estate developers. Commercial mortgage loans are loans where the primary collateral is a lien on any real property and are primarily
loans secured by owner occupied real estate. Real property is generally considered primary collateral if the value of that collateral
represents more than 50 percent of the commitment at loan approval. The $450 million increase in average real estate construction
loans was primarily driven by growth in the Commercial Real Estate business line in part due to additional draws on existing
multifamily construction lines.
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO (FTE)
(dollar amounts in millions)
December 31, 2017
U.S. Treasury and other U.S. government
agency securities
Residential mortgage-backed securities (b)
State and municipal securities (c)
Equity and other non-debt securities:
Auction-rate preferred securities (d)
Money market and other mutual funds (e)
1 - 5 Years
5 - 10 Years
After 10 Years
Total
Maturity (a)
Weighted
Average
Maturity
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Years
$
2,727
1.71% $
212
—
—
—
2.47
—
—
—
—
1,713
1
—
—
—% $
2.54
2.63
—
—
—
7,465
4
44
38
—% $
2.09
2.63
2.68
—
2,727
9,390
5
44
38
1.71%
2.18
2.63
2.68
—
2.6
18.6
12.6
—
—
15.0
Total investment securities
$
2,939
1.76% $
1,714
2.54% $
7,551
2.09% $
12,204
2.07%
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(a) Based on final contractual maturity.
(b)
(c) Auction-rate securities.
(d) Auction-rate preferred securities have no contractual maturity; balances are excluded from the calculation of total weighted average maturity.
(e) Balances are excluded from the calculation of total yield and weighted average maturity.
Investment Securities
Investment securities decreased $165 million to $12.2 billion at December 31, 2017, from $12.4 billion at December 31,
2016, including an $81 million decline in fair value. Net unrealized losses on investment securities available-for-sale were $123
million at December 31, 2017, compared to net unrealized losses of $42 million at December 31, 2016. At December 31, 2017,
the weighted-average expected life of the Corporation's residential mortgage-backed securities portfolio was approximately 3.7
years. On an average basis, investment securities decreased $141 million to $12.2 billion in 2017, compared to $12.3 billion in
2016.
As of December 31, 2017, the Corporation's auction-rate securities portfolio was carried at an estimated fair value of $49
million, compared to $54 million at December 31, 2016. During 2017, auction-rate securities with a par value of $3.6 million were
redeemed or sold, resulting in an insignificant amount of net securities gains. As of December 31, 2017, approximately 96 percent
of the aggregate auction-rate securities par value had been redeemed or sold since the portfolio was acquired in 2008, for a
cumulative net gain of $52 million.
Interest-Bearing Deposits with Banks and Other Short-Term Investments
Interest-bearing deposits with banks primarily include deposits with the FRB and also include deposits with banks in
developed countries or international banking facilities of foreign banks located in the United States. Other short-term investments
include federal funds sold, trading securities and loans held-for-sale. Substantially all trading securities are deferred compensation
plan assets. Loans held-for-sale typically represent residential mortgage loans originated with management's intention to sell and,
from time to time, other loans that are transferred to held-for-sale. Federal funds sold offer supplemental earnings opportunities
and serve correspondent banks. Interest-bearing deposits with banks and federal funds sold provide a range of maturities of less
than one year and are mostly used to manage liquidity requirements of the Corporation. Interest-bearing deposits with banks
decreased $1.6 billion to $4.4 billion at December 31, 2017. Other short-term investments increased $4 million to $96 million at
December 31, 2017. On an average basis, interest-bearing deposits with banks increased $344 million to $5.4 billion in 2017,
compared to $5.1 billion in 2016, and other short-term investments decreased $10 million to $92 million in 2017.
DEPOSITS AND BORROWED FUNDS
At December 31, 2017, total deposits were $57.9 billion, a decrease of $1.1 billion, or 2 percent, compared to $59.0
billion at December 31, 2016, reflecting a $531 million, or 2 percent, increase in noninterest-bearing deposits and a $1.6 billion,
or 6 percent, decrease in interest-bearing deposits. The Corporation's average deposits and borrowed funds balances are detailed
in the following table.
F-16
(dollar amounts in millions)
Years Ended December 31
Noninterest-bearing deposits
Money market and interest-bearing checking deposits
Savings deposits
Customer certificates of deposit
Foreign office time deposits
Total deposits
Short-term borrowings
Medium- and long-term debt
Total borrowed funds
2017
2016
Change
Percent
Change
$
$
$
$
31,013
21,585
2,133
2,471
56
57,258
277
4,969
5,246
$
$
$
$
29,751
22,744
2,013
3,200
33
57,741
138
4,917
5,055
$
$
$
$
1,262
(1,159)
120
(729)
23
(483)
139
52
191
4 %
(5)
6
(23)
69
(1)%
101 %
1
4 %
Average deposits decreased $483 million, or 1 percent, to $57.3 billion in 2017, compared to $57.7 billion in 2016,
reflecting a $1.3 billion, or 4 percent, increase in noninterest-bearing deposits and a $1.7 billion, or 6 percent, decrease in interest-
bearing deposits. The decrease in interest-bearing deposits was primarily due to customers using their excess liquidity for working
capital needs and acquisitions, a deliberate approach to relationship pricing, as well as strategic actions taken in light of the new
LCR rules. The largest decreases were reflected in Corporate Banking ($588 million) and Technology and Life Sciences ($488
million), partially offset by increases in Retail Bank ($413 million) and Commercial Real Estate ($214 million). By market, average
deposits decreased in Texas ($543 million) and in Other Markets ($131 million), partially offset by increases in California ($95
million) and Michigan ($46 million).
Short-term borrowings totaled $10 million at December 31, 2017, a decrease of $15 million compared to $25 million at
December 31, 2016. Short-term borrowings primarily include federal funds purchased, short-term FHLB advances and securities
sold under agreements to repurchase. Average short-term borrowings increased $139 million, to $277 million in 2017, compared
to $138 million in 2016.
Total medium- and long-term debt at December 31, 2017 decreased $538 million to $4.6 billion, compared to $5.2 billion
at December 31, 2016, primarily reflecting the maturity of $500 million of subordinated notes in the third quarter 2017. The
Corporation uses medium- and long-term debt, which primarily includes FHLB advances and subordinated notes, to provide
funding to support earning assets, liquidity and regulatory capital. Average medium- and long-term debt increased $52 million,
or 1 percent, to $5.0 billion in 2017, compared to $4.9 billion in 2016.
Further information on medium- and long-term debt is provided in Note 12 to the consolidated financial statements.
CAPITAL
Total shareholders' equity increased $167 million to $8.0 billion at December 31, 2017, compared to $7.8 billion at
December 31, 2016. The following table presents a summary of changes in total shareholders' equity in 2017.
(in millions)
Balance at January 1, 2017
Net income
Cash dividends declared on common stock
Purchase of common stock
Other comprehensive income (loss):
Investment securities available-for-sale
Defined benefit and other postretirement plans
Total other comprehensive income (loss)
Issuance of common stock under employee stock plans
Share-based compensation
Cumulative effect of change in accounting principle
Balance at December 31, 2017
$
(52)
71
$
$
7,796
743
(193)
(544)
19
102
39
1
7,963
Further information about other comprehensive income (loss) is provided in the consolidated statements of comprehensive
income and Note 14 to the consolidated financial statements.
The Corporation periodically conducts stress tests to evaluate potential impacts to the Corporation's forecasted financial
condition under various economic scenarios and business conditions. These stress tests are a normal part of the Corporation's
overall risk management and capital planning process and are part of the forecasting process used by the Corporation to conduct
the enterprise-wide stress test that was part of the Comprehensive Capital Analysis and Review (CCAR). For additional information
about risk management processes, refer to the "Risk Management" section of this financial review.
F-17
The Federal Reserve completed its 2017 CCAR in June 2017 and did not object to the Corporation's 2017 capital plan
and the capital distributions contemplated in the plan for the period ending June 30, 2018. The plan includes equity repurchases
of up to $605 million for the four quarters commencing in the third quarter 2017 and ending in the second quarter 2018. The timing
and ultimate amount of future equity repurchases will be subject to various factors, including the Corporation's financial
performance and market conditions. At December 31, 2017, up to $318 million remained available for equity repurchases under
the plan. Share repurchases totaled $531 million (7.3 million shares) in 2017. The 2018 capital plan will be submitted to the Federal
Reserve for review in April 2018 and a response is expected in June 2018.
In July 2017, the Board of Directors of the Corporation (the Board) authorized the repurchase of up to an additional 5
million shares of Comerica Incorporated outstanding common stock, in addition to the 8.3 million shares remaining at June 30,
2017 under the Board's prior authorizations for the equity repurchase program initially approved in November 2010. Including
the July 2017 authorization, a total of 55.2 million shares and 14.1 million warrants (12.1 million share-equivalents) have been
authorized for repurchase under the equity repurchase program since its inception in 2010. There is no expiration date for the
Corporation's equity repurchase program.
In April 2017, the Board approved a 3-cent increase in the quarterly common dividend, to $0.26 per share, and in July
2017, the Board further increased the quarterly dividend to $0.30 per share. The Corporation declared common dividends in 2017
totaling $193 million, or $1.09 per share, compared to common dividends totaling $0.89 per share in 2016. Including share
repurchases under the equity repurchase program, $724 million was returned to shareholders in 2017, compared to $458 million
in 2016, a 58 percent increase.
In January 2018, the Corporation declared a quarterly dividend of $0.30 per share, payable April 1, 2018, to common
stock shareholders of record on March 15, 2018.
The following table summarizes the Corporation’s equity repurchase activity for the year ended December 31, 2017.
(shares in thousands)
Total first quarter 2017
Total second quarter 2017
Total third quarter 2017
October 2017
November 2017
December 2017
Total fourth quarter 2017
Total 2017
Total Number of Shares and
Warrants Purchased as
Part of Publicly Announced
Repurchase Plans or
Programs (a)
Remaining
Repurchase
Authorization (b)
1,498
2,011
1,955
797
753
314
1,864
7,328
11,756
9,634
12,395 (d)
11,589
10,836
10,387
10,387
10,387
Total Number
of Shares
Purchased (c)
1,694
2,015
1,956
799
753
314
1,866
7,531
$
$
Average Price
Paid Per
Share
69.75
69.09
71.11
77.36
79.17
85.05
79.38
72.31
(a) The Corporation made no repurchases of warrants under the repurchase program during the year ended December 31, 2017. Upon exercise
of a warrant, the number of shares with a value equal to the aggregate exercise price is withheld from an exercising warrant holder as
payment (known as a "net exercise provision"). During the year ended December 31, 2017, the Corporation withheld the equivalent of
approximately 1,209,000 shares to cover an aggregate of $35.6 million in exercise price and issued approximately 1,771,000 shares to the
exercising warrant holders. Shares withheld in connection with the net exercise provision are not included in the total number of shares or
warrants purchased in the above table.
(b) Maximum number of shares and warrants that may yet be purchased under the publicly announced plans or programs.
(c) Includes approximately 203,000 shares (including 2,000 shares for the quarter ended December 31, 2017) purchased pursuant to deferred
compensation plans and shares purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee
share-based compensation plan during the year ended December 31, 2017. These transactions are not considered part of the Corporation's
repurchase program.
(d) Includes July 25, 2017 equity repurchase authorization for up to an additional 5 million shares.
The U.S. adoption of the Basel III regulatory capital framework (Basel III) became effective for the Corporation on
January 1, 2015. Basel III includes a more stringent definition of capital and introduces a new common equity Tier 1 (CET1)
capital requirement; sets forth two comprehensive methodologies for calculating risk-weighted assets (RWA), a standardized
approach and an advanced approach; introduces two new capital buffers, a conservation buffer and a countercyclical buffer
(applicable to advanced approach entities); establishes a new supplemental leverage ratio (applicable to advanced approach entities);
and sets out minimum capital ratios and overall capital adequacy standards. The capital conservation buffer is being phased in and
will be fully implemented on January 1, 2019.
Under Basel III, CET1 capital predominantly includes common shareholders' equity, less certain deductions for goodwill,
intangible assets and deferred tax assets that arise from net operating losses and tax credit carry-forwards. Additionally, the
Corporation has elected to permanently exclude capital in accumulated other comprehensive income (AOCI) related to debt and
equity securities classified as available-for-sale as well as for defined benefit postretirement plans from CET1, an option available
to standardized approach entities under Basel III. Tier 1 capital incrementally includes noncumulative perpetual preferred stock.
F-18
Tier 2 capital includes Tier 1 capital as well as subordinated debt qualifying as Tier 2 and qualifying allowance for credit losses.
Certain deductions and adjustments to CET1 capital, Tier 1 capital and Tier 2 capital were subject to phase-in through December
31, 2017. However, in November 2017, U.S. banking regulators issued a final rule that suspended the full transition for certain
deductions and adjustments effective January 1, 2018 to remain at current levels for banks not subject to the advanced approach,
and issued a notice of proposed rulemaking intended to simplify certain aspects of Basel III. The Corporation does not expect
either the final rule or the proposed rule to have a significant impact on its capital ratios.
The Corporation computes RWA using the standardized approach. Under the standardized approach, RWA is generally
based on supervisory risk-weightings which vary by counterparty type and asset class. Under the Basel III standardized approach,
capital is required for credit risk RWA, to cover the risk of unexpected losses due to failure of a customer or counterparty to meet
its financial obligations in accordance with contractual terms; and if trading assets and liabilities exceed certain thresholds, capital
is also required for market risk RWA, to cover the risk of losses due to adverse market movements or from position-specific factors.
The following table presents the minimum ratios required to be considered "adequately capitalized" as of December 31,
2017 and December 31, 2016.
December 31, 2017
December 31, 2016
Common equity tier 1 capital to risk-weighted assets (a)
Tier 1 capital to risk-weighted assets (a)
Total capital to risk-weighted assets (a)
Capital conservation buffer (a)
Tier 1 capital to adjusted average assets (leverage ratio)
(a) In addition to the minimum risk-based capital requirements, the Corporation is required to maintain a minimum capital conservation buffer
in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. The required amount of the
capital conservation buffer, is being phased in and ultimately increasing to 2.5% on January 1, 2019.
4.50%
6.00
8.00
0.625
4.00
4.50%
6.00
8.00
1.25
4.00
The Corporation's capital ratios exceeded minimum regulatory requirements as follows:
December 31, 2017
December 31, 2016
(dollar amounts in millions)
Common equity tier 1 and tier 1 risk-based
Total risk-based
Leverage
Common equity
Tangible common equity (a)
Risk-weighted assets
(a) See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.
Capital/Assets
7,773
$
9,211
7,773
7,963
7,320
66,575
Ratio
11.68% $
13.84
10.89
11.13
10.32
Capital/Assets
7,540
9,018
7,540
7,796
7,151
67,966
Ratio
11.09%
13.27
10.18
10.68
9.89
At December 31, 2017, 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 20 to the consolidated financial statements for further discussion of regulatory capital
requirements and capital ratio calculations.
F-19
RISK MANAGEMENT
As a result of conducting business in the normal course, the Corporation assumes various types of risk. The Corporation's
enterprise risk framework provides a process for identifying, measuring, controlling and managing these risks. This framework
incorporates a risk assessment process, a collection of risk committees that manage the Corporation's major risk elements, and a
risk appetite statement that outlines the levels and types of risks the Corporation accepts. The Corporation continuously enhances
its enterprise risk framework with additional processes, tools and systems designed to not only provide management with deeper
insight into the Corporation's various existing and emerging risks in accordance with its appetite for risk, but also to improve the
Corporation's ability to control those risks and ensure that appropriate consideration is received for the risks taken.
The Corporation’s front line employees, the first line of defense, are responsible for the day to day management of risks
including the identification, assessment, measurement and control of risks encountered as a part of the normal course of business.
Risks are further monitored, measured and controlled by the second line of defense, comprised of specialized risk managers for
each of the major risk categories who provide oversight, effective challenge and guidance for the risk management activities of
the organization. The majority of these risk managers report into the Enterprise Risk Division. The Enterprise Risk Division, led
by the Chief Risk Officer, is responsible for designing and managing the Corporation’s enterprise risk framework and ensures
effective risk management oversight. Risk management committees serve as a point of review and escalation for those risks which
may have risk interdependencies or where risk levels may be nearing the limits outlined in the Corporation’s risk appetite statement.
These committees comprise senior and executive management that represent views from both the lines of business and risk
management. Internal Audit, the third line of defense, monitors and assesses the overall effectiveness of the risk management
framework on an ongoing basis and provides an independent assessment of the Corporation’s ability to manage and control risk
to management and the Audit Committee of the Board.
The Enterprise-Wide Risk Management Committee, established by the Enterprise Risk Committee of the Board, is
responsible for governance over the risk management framework, providing oversight in managing the Corporation's aggregate
risk position and reporting on the comprehensive portfolio of risks as well as the potential impact these risks can have on the
Corporation's risk profile and resulting capital level. The Enterprise-Wide Risk Management Committee is principally composed
of senior officers and executives representing the different risk areas and business units who are appointed by the Chairman and
Chief Executive Officer of the Corporation.
The Board's Enterprise Risk Committee meets quarterly and is chartered to assist the Board in promoting the best interests
of the Corporation by overseeing policies, procedures and risk practices relating to enterprise-wide risk and ensuring compliance
with bank regulatory obligations. Members of the Enterprise Risk Committee are selected such that the committee comprises
individuals whose experiences and qualifications can lead to broad and informed views on risk matters facing the Corporation
and the financial services industry. These include, but are not limited to, existing and emerging risk matters related to credit,
market, liquidity, operational, compliance and strategic conditions. A comprehensive risk report is submitted to the Enterprise
Risk Committee each quarter providing management's view of the Corporation's aggregate risk position.
Further discussion and analyses of each major risk area are included in the following sub-sections of the Risk Management
section in this financial review.
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 governance structure is administered through the Strategic Credit Committee. The Strategic
Credit Committee is chaired by the Chief Credit Officer and approves recommendations to address credit risk matters through
credit policy, credit risk management practices, and required credit risk actions. The Strategic Credit Committee also ensures a
comprehensive reporting of credit risk levels and trends, including exception levels, along with identification and mitigation of
emerging risks. In order to facilitate the corporate credit risk management process, various other corporate functions provide the
resources for the Strategic Credit Committee to carry out its responsibilities. The Corporation manages credit risk through
underwriting and periodically reviewing and approving its credit exposures using approved credit policies and guidelines.
Additionally, the Corporation manages credit risk through loan portfolio diversification, limiting exposure to any single industry,
customer or guarantor, and selling participations and/or syndicating credit exposures above those levels it deems prudent to third
parties.
Credit Administration manages credit policy and provides the resources to manage the line of business transactional credit
risk, assuring that all exposure is risk rated according to the requirements of the credit risk rating policy and providing business
segment reporting support as necessary. The Enterprise Risk Division provides credible and well-documented challenge of overall
portfolio credit risk, and other credit-related attributes of Comerica Incorporated's loan portfolios, with a particular emphasis on
all attendant modeled results. The Corporation's Asset Quality Review function, a division of Internal Audit, audits the accuracy
of internal risk ratings that are assigned by the lending and credit groups. The Special Assets Group is responsible for managing
the recovery process on distressed or defaulted loans and loan sales.
F-20
Portfolio Risk Analytics, within Credit Administration, provides comprehensive reporting on portfolio credit risk levels
and trends, continuous assessment and verification of risk rating models, quarterly calculation of the allowance for loan losses
and the allowance for credit losses on lending-related commitments, and calculation of economic credit risk capital.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(dollar amounts in millions)
Years Ended December 31
Balance at beginning of year
Loan charge-offs:
Commercial
Real estate construction
Commercial mortgage
Lease financing
International
Residential mortgage
Consumer
Total loan charge-offs
Recoveries:
Commercial
Real estate construction
Commercial mortgage
Lease financing
International
Residential mortgage
Consumer
Total recoveries
Net loan charge-offs
Provision for loan losses
Foreign currency translation adjustment
Balance at end of year
Net loan charge-offs during the year as a
percentage of average loans outstanding during
the year
$
Allowance for Credit Losses
2017
2016
2015
2014
2013
$
730
$
634
$
594
$
598
$
133
—
3
1
6
—
6
149
37
1
9
—
3
1
6
57
92
73
1
712
$
181
—
3
—
23
—
7
214
43
—
20
—
—
1
4
68
146
241
1
730
$
139
—
3
1
14
1
10
168
33
1
21
—
—
2
11
68
100
142
(2)
634
$
59
—
22
—
6
2
13
102
34
4
28
2
—
4
5
77
25
22
(1)
594
$
629
91
3
36
—
—
4
19
153
42
7
20
1
—
4
6
80
73
42
—
598
0.19%
0.30%
0.21%
0.05%
0.16%
The allowance for credit losses includes both the allowance for loan losses and the allowance for credit losses on lending-
related commitments. The allowance for loan losses represents management's assessment of probable, estimable losses inherent
in the Corporation's loan portfolio. The allowance for credit losses on lending-related commitments, included in "accrued expenses
and other liabilities" on the consolidated balance sheets, provides for probable losses inherent in lending-related commitments,
including unused commitments to extend credit and standby letters of credit. Refer to Note 1 to the consolidated financial statements
for a discussion of the methodology used in the determination of the allowance for credit losses.
An analysis of the coverage of the allowance for loan losses is provided in the following table.
Years Ended December 31
Allowance for loan losses as a percentage of total loans at end of year
Allowance for loan losses as a percentage of total nonperforming loans at end of year
Allowance for loan losses as a multiple of total net loan charge-offs for the year
2017
2016
2015
1.45%
173
7.7x
1.49%
124
5.0x
1.29%
167
6.3x
The allowance for loan losses was $712 million at December 31, 2017, compared to $730 million at December 31, 2016,
a decrease of $18 million, or 2 percent. The decrease in the allowance for loan losses primarily reflected improvement in Energy
and energy-related loans.
F-21
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(dollar amounts in millions) Allocated
Allowance
December 31
Allowance
Ratio (a) % (b)
Allocated
Allowance % (b)
Allocated
Allowance % (b)
Allocated
Allowance % (b)
Allocated
Allowance % (b)
2017
2016
2015
2014
2013
Business loans
Commercial
Real estate construction
Commercial mortgage
Lease financing
International
Total business loans
Retail loans
Residential mortgage
Consumer
Total retail loans
$
521
19
91
12
18
661
13
38
51
Total loans
$
712
1.68% 63% $
0.63
6
1.00
2.53
1.78
1.48
0.63
1.49
19
1
2
91
4
5
1.12
1.45% 100% $
9
547
63% $
448
65% $
21
93
5
16
682
11
37
48
6
18
1
3
91
4
5
9
12
93
3
23
579
14
41
55
4
18
1
3
91
4
5
9
379
20
120
2
13
534
14
46
60
65% $
4
18
1
3
91
4
5
9
340
16
159
4
12
531
17
50
67
63%
4
19
2
3
91
4
5
9
730
100% $
634
100% $
594
100% $
598
100%
(a) Allocated allowance as a percentage of related loans outstanding.
(b) Loans outstanding as a percentage of total loans.
The allowance for credit losses on lending-related commitments includes specific allowances, based on individual
evaluations of certain letters of credit in a manner consistent with business loans, and allowances based on the pool of the remaining
letters of credit and all unused commitments to extend credit within each internal risk rating.
The allowance for credit losses on lending-related commitments was $42 million at December 31, 2017 compared to $41
million at December 31, 2016. An analysis of changes in the allowance for credit losses on lending-related commitments is presented
below.
(dollar amounts in millions)
Years Ended December 31
Balance at beginning of year
Charge-offs on lending-related commitments (a)
Provision for credit losses on lending-related commitments
Balance at end of year
(a) Charge-offs result from the sale of unfunded lending-related commitments.
2017
$
$
41
—
1
42
2016
2015
2014
2013
$
$
45
(11)
7
41
$
$
41
(1)
5
45
$
$
36
—
5
41
$
$
32
—
4
36
For additional information regarding the allowance for credit losses, refer to the "Critical Accounting Policies" section
of this financial review and Notes 1 and 4 to the consolidated financial statements. For additional information regarding Energy
and energy-related exposures, refer to "Energy Lending" subheading later in this section.
Nonperforming Assets
Nonperforming assets include loans on nonaccrual status, troubled debt restructured loans (TDRs) which have been
renegotiated to less than the original contractual rates (reduced-rate loans) and foreclosed property. TDRs include performing and
nonperforming loans. Nonperforming TDRs are either on nonaccrual or reduced-rate status.
F-22
SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
(dollar amounts in millions)
December 31
Nonaccrual loans:
Business loans:
Commercial
Real estate construction
Commercial mortgage
Lease financing
International
Total nonaccrual business loans
Retail loans:
Residential mortgage
Consumer:
Home equity
Other consumer
Total consumer
Total nonaccrual retail loans
Total nonaccrual loans
Reduced-rate loans
Total nonperforming loans
Foreclosed property
Total nonperforming assets
Gross interest income that would have been recorded
had the nonaccrual and reduced-rate loans performed
in accordance with original terms
Interest income recognized
Nonperforming loans as a percentage of total loans
Nonperforming assets as a percentage of total loans
and foreclosed property
Loans past due 90 days or more and still accruing
Loans past due 90 days or more and still accruing as
a percentage of total loans
2017
2016
2015
2014
2013
$
$
$
$
309
—
31
4
6
350
31
21
—
21
52
402
8
410
5
415
31
7
0.83%
0.84
35
$
$
$
$
445
—
46
6
14
511
39
28
4
32
71
582
8
590
17
607
38
6
1.20%
1.24
19
$
$
$
$
238
1
60
6
8
313
27
27
—
27
54
367
12
379
12
391
27
5
0.77%
0.80
17
$
$
$
$
109
2
95
—
—
206
36
30
1
31
67
273
17
290
10
300
25
6
0.60%
0.62
5
$
$
$
$
81
21
156
—
4
262
53
31
4
35
88
350
24
374
9
383
34
5
0.82%
0.84
16
0.07%
0.04%
0.03%
0.01%
0.03%
Nonperforming assets decreased $192 million to $415 million at December 31, 2017, from $607 million at December 31,
2016. The decrease in nonperforming assets primarily reflected a decrease of $253 million in nonaccrual Energy and energy-
related loans. Nonperforming assets were 0.84 percent of total loans and foreclosed property at December 31, 2017, compared to
1.24 percent at December 31, 2016.
The following table presents a summary of TDRs at December 31, 2017 and 2016.
(in millions)
December 31
Nonperforming TDRs:
Nonaccrual TDRs
Reduced-rate TDRs
2017
2016
Total nonperforming TDRs
225
8
233
Performing TDRs (a)
94
327
Total TDRs
(a) TDRs that do not include a reduction in the original contractual interest rate which are performing in accordance with their modified terms.
182
8
190
123
313
$
$
$
$
At December 31, 2017, nonaccrual TDRs and performing TDRs included $94 million and $49 million of Energy and
energy-related loans, respectively, decreases of $47 million and $11 million, respectively, compared to December 31, 2016.
F-23
The following table presents a summary of changes in nonaccrual loans.
(in millions)
Years Ended December 31
Balance at beginning of period
Loans transferred to nonaccrual (a)
Nonaccrual business loan gross charge-offs (b)
Nonaccrual business loans sold
Payments/other (c)
Balance at end of period
(a) Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(b) Analysis of gross loan charge-offs:
Business loans
Retail loans
Total gross loan charge-offs
2017
2016
$
$
$
$
582
297
(143)
(40)
(294)
402
143
6
149
$
$
$
$
367
718
(207)
(73)
(223)
582
207
7
214
(c) 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 retail loan gross charge-offs. Excludes business loan gross charge-offs and nonaccrual business
loans sold.
There were 38 borrowers with balances greater than $2 million, totaling $297 million, transferred to nonaccrual status
in 2017, a decrease of $421 million when compared to $718 million in 2016. Of the transfers to nonaccrual greater than $2 million
in 2017, $66 million were Energy and energy-related, compared to $543 million in 2016.
The following table presents the composition of nonaccrual loans by balance and the related number of borrowers at
December 31, 2017 and 2016.
(dollar amounts in millions)
Under $2 million
$2 million - $5 million
$5 million - $10 million
$10 million - $25 million
Greater than $25 million
Total
2017
2016
Number of
Borrowers
Balance
Number of
Borrowers
Balance
939
16
12
8
1
976
$
$
85
47
93
130
47
402
1,152
18
9
14
4
1,197
$
$
95
57
60
234
136
582
The following table presents a summary of nonaccrual loans at December 31, 2017 and loans transferred to nonaccrual
and net loan charge-offs for the year ended December 31, 2017, based on North American Industry Classification System (NAICS)
categories.
December 31, 2017
Year Ended December 31, 2017
Nonaccrual Loans
Loans Transferred to
Nonaccrual (a)
Net Loan Charge-Offs
(Recoveries)
(dollar amounts in millions)
Industry Category
Mining, Quarrying and Oil & Gas Extraction (b) $
Manufacturing
Health Care and Social Assistance
Residential Mortgage
Services (b)
Wholesale Trade
Real Estate and Home Builders
Contractors
Information and Communication
Entertainment
Transportation and Warehousing
Other (c)
Total
(a) Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(b) Included nonaccrual Energy and energy-related loans of approximately $112 million in Mining, Quarrying and Oil & Gas Extraction and
29% $
24
9
8
6
5
4
4
1
1
—
9
22% $
30
9
4
4
12
2
7
3
3
2
2
42%
11
5
(1)
9
11
3
7
9
—
(10)
14
100%
113
94
38
31
25
20
18
16
6
4
—
37
402
66
89
25
12
13
34
5
22
8
10
6
7
297
38
10
5
(1)
8
10
3
7
8
—
(9)
13
92
100% $
100% $
$
$8 million in Services at December 31, 2017.
(c) Consumer, excluding residential mortgage and certain personal purpose nonaccrual loans and net charge-offs, is included in the “Other”
category.
F-24
Loans past due 90 days or more and still accruing interest generally represent loans that are well collateralized and in the
process of collection. Loans past due 90 days or more increased $16 million to $35 million at December 31, 2017, compared to
$19 million at December 31, 2016. Loans past due 30-89 days increased $173 million to $302 million at December 31, 2017,
compared to $129 million at December 31, 2016. An aging analysis of loans included in Note 4 to the consolidated financial
statements provides further information about the balances comprising past due loans.
The following table presents a summary of total criticized loans. The Corporation's criticized list is consistent with the
Special Mention, Substandard and Doubtful categories defined by regulatory authorities. Criticized loans with balances of $2
million or more on nonaccrual status or loans with balances of $1 million or more whose terms have been modified in a TDR are
individually subjected to quarterly credit quality reviews, and the Corporation may establish specific allowances for such loans.
A table of loans by credit quality indicator included in Note 4 to the consolidated financial statements provides further information
about the balances comprising total criticized loans.
(dollar amounts in millions)
December 31
Total criticized loans
As a percentage of total loans
2017
2016
$
2,231
$
4.5%
2,856
5.8%
The $625 million decrease in criticized loans from December 31, 2016 to December 31, 2017 included a $763 million
decrease in criticized Energy and energy-related loans. The decrease in criticized Energy and energy-related loans was partially
offset by modest increases in Technology and Life Sciences and other business lines. For further information about criticized
Energy and energy-related loans, refer to the "Energy Lending" subheading later in this section.
The following table presents a summary of changes in foreclosed property.
(in millions)
Years Ended December 31
Balance at beginning of period
Acquired in foreclosure
Write-downs
Foreclosed property sold (a)
Balance at end of period
(a) Net gain on foreclosed property sold
2017
2016
17
8
(1)
(19)
5
3
$
$
$
12
21
—
(16)
17
4
$
$
$
For further information regarding the Corporation's nonperforming assets policies and impaired loans, refer to Note 1
and Note 4 to the consolidated financial statements.
Concentration of Credit Risk
Concentrations of credit risk may exist when a number of borrowers are engaged in similar activities, or activities in the
same geographic region, and have similar economic characteristics that would cause them to be similarly impacted by changes in
economic or other conditions. The Corporation has a concentration of credit risk with the automotive industry. All other industry
concentrations, as defined by management, individually represented less than 10 percent of total loans at December 31, 2017.
The following table presents a summary of loans outstanding to companies related to the automotive industry.
(in millions)
December 31
Production:
Domestic
Foreign
Total production
Dealer:
Floor plan
Other
Total dealer
Total automotive
2017
2016
Loans
Outstanding
Percent of
Total Loans
Loans
Outstanding
Percent of
Total Loans
$
$
1,007
337
1,344
4,359
3,233
7,592
8,936
$
2.7%
15.5%
18.2% $
968
358
1,326
4,269
2,854
7,123
8,449
2.7%
14.5%
17.2%
Substantially all dealer loans are in the National Dealer Services business line. Loans in the National Dealer Services
business line primarily include floor plan financing and other loans to automotive dealerships. Floor plan loans, included in
“commercial loans” in the consolidated balance sheets, totaled $4.4 billion at December 31, 2017, an increase of $90 million
F-25
compared to $4.3 billion at December 31, 2016. At December 31, 2017 other loans in the National Dealer Services business line
totaled $3.2 billion, including $1.9 billion of owner-occupied commercial real estate mortgage loans, compared to $2.9 billion,
including $1.6 billion of owner-occupied commercial real estate mortgage loans, at December 31, 2016. Automotive lending also
includes loans to borrowers involved with automotive production, primarily Tier 1 and Tier 2 suppliers. Loans to borrowers
involved with automotive production totaled approximately $1.3 billion at both December 31, 2017 and 2016.
Dealer loans, as shown in the table above, totaled $7.6 billion at December 31, 2017, of which approximately $4.6 billion,
or 62 percent, were to foreign franchises, and $2.1 billion, or 28 percent, were to domestic franchises. Other dealer loans, totaling
$742 million, or 10 percent, at December 31, 2017, include obligations where a primary franchise was indeterminable, such as
loans to large public dealership consolidators and rental car, leasing, heavy truck and recreation vehicle companies.
There were no nonaccrual loans to automotive borrowers at December 31, 2017 and $1 million at December 31, 2016.
There were no automotive net loan charge-offs in 2017 and 2016.
For further information regarding significant group concentrations of credit risk, refer to Note 5 to the consolidated
financial statements.
Commercial Real Estate Lending
The following table summarizes the Corporation's commercial real estate loan portfolio by loan category.
(in millions)
December 31
Real estate construction loans:
Commercial Real Estate business line (a)
Other business lines (b)
Total real estate construction loans
Commercial mortgage loans:
Commercial Real Estate business line (a)
Other business lines (b)
Total commercial mortgage loans
(a) Primarily loans to real estate developers.
(b) Primarily loans secured by owner-occupied real estate.
2017
2016
$
$
$
$
2,630
331
2,961
1,831
7,328
9,159
$
$
$
$
2,485
384
2,869
2,018
6,913
8,931
The Corporation limits risk inherent in its commercial real estate lending activities by monitoring borrowers directly
involved in the commercial real estate markets and adhering to conservative policies on loan-to-value ratios for such loans.
Commercial real estate loans, consisting of real estate construction and commercial mortgage loans, totaled $12.1 billion at
December 31, 2017, of which $4.5 billion, or 37 percent, were to borrowers in the Commercial Real Estate business line, which
includes loans to real estate developers, an increase of $320 million compared to December 31, 2016. The remaining $7.6 billion,
or 63 percent, of commercial real estate loans in other business lines consisted primarily of owner-occupied commercial mortgages,
which bear credit characteristics similar to non-commercial real estate business loans.
The real estate construction loan portfolio primarily contains loans made to long-time customers with satisfactory
completion experience. Credit quality in the real estate construction loan portfolio was strong, with criticized loans of $4 million
and $3 million at December 31, 2017 and 2016, respectively. Net recoveries were $1 million in 2017 and there were no net charge-
offs in 2016.
Loans in the commercial mortgage portfolio generally mature within three to five years. Commercial mortgage loans in
the Commercial Real Estate business line on nonaccrual status totaled $9 million at December 31, 2017 and December 31, 2016,
and net recoveries in the same portfolio were $2 million and $10 million in 2017 and 2016, respectively. In other business lines,
$22 million and $37 million of commercial mortgage loans were on nonaccrual status at December 31, 2017 and 2016, respectively.
Net recoveries were $4 million and $7 million in 2017 and 2016, respectively.
F-26
Residential Real Estate Lending
The following table summarizes the Corporation's residential mortgage and home equity loan portfolios by geographic
market.
(dollar amounts in millions)
December 31
Geographic market:
Michigan
California
Texas
Other Markets
Total
2017
2016
Residential
Mortgage
Loans
% of
Total
Home
Equity
Loans
% of
Total
Residential
Mortgage
Loans
% of
Total
Home
Equity
Loans
% of
Total
$
$
387
1,023
297
281
1,988
19% $
52
15
14
100% $
705
718
335
58
1,816
39% $
40
18
3
100% $
386
948
337
271
1,942
20% $
49
17
14
100% $
748
687
305
60
1,800
42%
38
17
3
100%
Residential real estate loans, which consist of traditional residential mortgages and home equity loans and lines of credit,
totaled $3.8 billion at December 31, 2017. Residential mortgages totaled $2.0 billion at December 31, 2017, and were primarily
larger, variable-rate mortgages originated and retained for certain private banking relationship customers. Of the $2.0 billion of
residential mortgage loans outstanding, $31 million were on nonaccrual status at December 31, 2017. The home equity portfolio
totaled $1.8 billion at December 31, 2017, of which $1.7 billion was outstanding under primarily variable-rate, interest-only home
equity lines of credit, $120 million were in amortizing status and $45 million were closed-end home equity loans. Of the $1.8
billion of home equity loans outstanding, $21 million were on nonaccrual status at December 31, 2017. A majority of the home
equity portfolio was secured by junior liens at December 31, 2017. The residential real estate portfolio is principally located within
the Corporation's primary geographic markets. Substantially all residential real estate loans past due 90 days or more are placed
on nonaccrual status, and substantially all junior lien home equity loans that are current or less than 90 days past due are placed
on nonaccrual status if full collection of the senior position is in doubt. At no later than 180 days past due, such loans are charged
off to current appraised values less costs to sell.
Energy Lending
The Corporation has a portfolio of Energy and energy-related loans that are included primarily in "commercial loans" in
the consolidated balance sheets. Customers in the Corporation's Energy business line (approximately 175 relationships) are engaged
in three segments of the oil and gas business: exploration and production (E&P) (73 percent), midstream (16 percent) and energy
services (11 percent). E&P generally includes such activities as searching for potential oil and gas fields, drilling exploratory wells
and operating active wells. Commitments to E&P borrowers are generally subject to semi-annual borrowing base re-determinations
based on a variety of factors including updated prices (reflecting market and competitive conditions), energy reserve levels and
the impact of hedging. The midstream sector is generally involved in the transportation, storage and marketing of crude and/or
refined oil and gas products. The Corporation's energy services customers provide products and services primarily to the E&P
segment. About 90 percent of the loans in the Energy business line are Shared National Credits (SNC), which are facilities greater
than $20 million shared by three or more federally supervised institutions, reflecting the Corporation's focus on larger middle
market companies that have financing needs that generally exceed internal individual borrower targeted exposure levels. The
Corporation seeks to develop full relationships with SNC borrowers. As of January 1, 2018, the threshold for SNC designation
has been increased from greater than $20 million to greater than $100 million.
In addition to oil and gas loans in the Energy business line, the Corporation is monitoring a portfolio of loans in other
lines of business to companies that have a sizable portion of their revenue related to oil and gas or could be otherwise
disproportionately negatively impacted by prolonged lower oil and gas prices (energy-related), primarily in general Middle Market,
Corporate Banking, Small Business, and Technology and Life Sciences. These companies include downstream businesses such
as refineries and petrochemical companies, companies that sell products to E&P, midstream and energy services companies,
companies involved in developing new technologies for the oil and gas industry, and other similar businesses.
F-27
The following table summarizes information about the Corporation's portfolio of Energy and energy-related loans.
(dollar amounts in millions)
2017
2016
Outstandings
December 31
Exploration and production (E&P)
Midstream
Services
Total Energy business line
Energy-related
Total energy and energy-related
As a percentage of total Energy and energy-related loans
$ 1,346
295
195
1,836
298
$ 2,134
73% $
16
11
100%
$
Nonaccrual Criticized
Outstandings
Nonaccrual Criticized
$
$
94
—
14
108
12
120
6%
376
37
95
508
55
563
26%
$ 1,587
374
289
2,250
397
$ 2,647
70% $
17
13
100%
$
294
7
27
328
45
373
14%
$
910
45
200
1,155
171
$ 1,326
50%
Loans in the Energy business line were $1.8 billion, or approximately 4 percent of total loans, at December 31, 2017,
compared to $2.3 billion, or approximately 5 percent of total loans, at December 31, 2016, a decrease of $414 million, or 18
percent. Total exposure, including unused commitments to extend credit and letters of credit, was $4.0 billion and $4.7 billion at
December 31, 2017 and 2016, respectively. The decrease in total exposure in the Energy business line primarily reflected energy
customers taking actions to adjust their cash flow and reduce their bank debt, including selling assets to pay down debt and raising
capital in the equity markets, as well as improved operations. Energy-related outstandings were approximately $298 million at
December 31, 2017 (approximately 60 relationships), a decrease of $99 million, or 25 percent, compared to December 31, 2016.
The Corporation's allowance methodology considers the various risk elements within the loan portfolio. The Corporation
continued to incorporate a qualitative reserve component for Energy and energy-related loans at December 31, 2017. Energy and
energy-related net credit-related charge-offs of $39 million decreased $82 million for the year ended December 31, 2017, compared
to net charge-offs of $121 million for the year ended December 31, 2016.
International Exposure
International assets are subject to general risks inherent in the conduct of business in 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.
There were no countries with cross-border outstandings exceeding 1.00 percent of total assets at December 31, 2016 and
2015 and 0.75 percent in 2017. Mexico, with cross-border outstandings of $650 million (0.89 percent of total assets) and $617
million (0.86 percent of total assets) at December 31, 2016 and 2015, respectively, was the only country with outstandings between
0.75 percent and 1.00 percent of total assets at December 31, 2016 and 2015. The Corporation's international strategy is to focus
on international companies doing business in North America, with an emphasis on the Corporation's primary geographic markets.
MARKET AND LIQUIDITY RISK
Market risk represents the risk of loss due to adverse movements in market rates or prices, including interest rates, foreign
exchange rates, commodity prices and equity prices. Liquidity risk represents the failure to meet financial obligations coming due
resulting from an inability to liquidate assets or obtain adequate funding, and the inability to easily unwind or offset specific
exposures without significant changes in pricing, due to inadequate market depth or market disruptions.
The Asset and Liability Policy Committee (ALCO) of the Corporation establishes and monitors compliance with the
policies and risk limits pertaining to market and liquidity risk management activities. ALCO meets regularly to discuss and review
market and liquidity risk management strategies, and consists of executive and senior management from various areas of the
Corporation, including treasury, finance, economics, lending, deposit gathering and risk management. The Corporate Treasury
department mitigates market and liquidity risk under the direction of ALCO through the actions it takes to manage the Corporation's
market, liquidity and capital positions.
Corporate Treasury supports ALCO in measuring, monitoring and managing interest rate risk and, in coordination with
Enterprise Risk, managing all other market and liquidity risks. Key activities encompass: (i) providing information and analysis
of the Corporation's balance sheet structure and measurement of interest rate and all other market and liquidity risks; (ii) monitoring
and reporting of the Corporation's positions relative to established policy limits and guidelines; (iii) developing and presenting
analyses and strategies to adjust risk positions; (iv) reviewing and presenting policies and authorizations for approval; (v) monitoring
of industry trends and analytical tools to be used in the management of interest rate and all other market and liquidity risks; and
(vi) developing and monitoring the interest rate risk economic capital estimate.
F-28
Interest Rate Risk
Net interest income is the primary source of revenue for the Corporation. Interest rate risk arises in the normal course of
business due to differences in the repricing and cash flow characteristics of assets and liabilities, primarily through the Corporation's
core business activities of extending loans and acquiring deposits. The Corporation's balance sheet is predominantly characterized
by floating-rate loans funded by core deposits. More than 90 percent of the Corporation's loans were floating at December 31,
2017, of which approximately 80 percent were based on 30-day LIBOR and 20 percent were based on Prime. This creates sensitivity
to interest rate movements due to the imbalance between the floating-rate loan portfolio, noninterest-bearing deposits and the more
slowly repricing deposit products. In addition, the growth and/or contraction in the Corporation's loans and deposits may lead to
changes in sensitivity to interest rate movements in the absence of mitigating actions. Examples of such actions are purchasing
investment securities, primarily fixed-rate, which provide liquidity to the balance sheet and act to mitigate the inherent interest
sensitivity, and hedging the sensitivity with interest rate swaps. The Corporation actively manages its exposure to interest rate
risk, with the principal objective of optimizing net interest income and the economic value of equity while operating within
acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.
Since no single measurement system satisfies all management objectives, a combination of techniques is used to manage
interest rate risk. These techniques examine the impact of interest rate risk on net interest income and the economic value of equity
under a variety of alternative scenarios, including changes in the level, slope and shape of the yield curve, utilizing multiple
simulation analyses. Simulation analyses produce only estimates of net interest income, as the assumptions used are inherently
uncertain. Actual results may differ from simulated results due to many factors, including, but not limited to, the timing, magnitude
and frequency of changes in interest rates, market conditions, regulatory impacts and management strategies.
Sensitivity of Net Interest Income to Changes in Interest Rates
The analysis of the impact of changes in interest rates on net interest income under various interest rate scenarios is
management's principal risk management technique. Management models a base case net interest income under an unchanged
interest rate environment. Existing derivative instruments entered into for risk management purposes are included in the analysis,
but no additional hedging is currently forecasted. These derivative instruments currently comprise interest rate swaps that convert
fixed-rate long-term debt to variable rates. This base case net interest income is then compared against interest rate scenarios in
which rates rise or decline in a linear, non-parallel fashion from the base case over 12 months. In the scenarios presented, short-
term interest rates increase 200 basis points, resulting in an average increase in short-term interest rates of 100 basis points over
the period (+200 scenario). Due to the current level of interest rates, the analysis reflects a declining interest rate scenario drop in
short-term interest rates to zero percent.
Each scenario includes assumptions such as loan growth, investment security prepayment levels, depositor behavior,
yield curve changes, loan and deposit pricing, and overall balance sheet mix and growth. In this rate environment, depositors have
maintained a higher level of liquidity and their historical behavior may be less indicative of future trends. As a result, the +200
scenario reflects a greater decrease in deposits than we have experienced historically as rates begin to rise. Changes in actual
economic activity may result in a materially different interest rate environment as well as a balance sheet structure that is different
from the changes management included in its simulation analysis.
The table below, as of December 31, 2017 and 2016, displays the estimated impact on net interest income during the next
12 months by relating the base case scenario results to those from the rising and declining rate scenarios described above.
(in millions)
December 31
Change in Interest Rates:
Rising 200 basis points
Declining to zero percent
Estimated Annual Change
2017
2016
Amount
%
Amount
%
$
197
(283)
9% $
(13)
212
(138)
11%
(7)
Sensitivity to rising rates decreased slightly from December 31, 2016 to December 31, 2017, reflecting changes to the
Corporation's balance sheet and recent funding strategy. The risk to declining interest rates is impacted by an assumed floor on
interest rates of zero percent. Because deposit costs remain close to the floor while asset yields have risen with market rates,
sensitivity to falling rates has increased during the same period.
Sensitivity of Economic Value of Equity to Changes in Interest Rates
In addition to the simulation analysis on net interest income, an economic value of equity analysis provides an alternative
view of the interest rate risk position. The economic value of equity is the difference between the estimate of the economic value
of the Corporation's financial assets, liabilities and off-balance sheet instruments, derived through discounting cash flows based
on actual rates at the end of the period and the estimated economic value after applying the estimated impact of rate movements.
F-29
The economic value of equity analysis is based on an immediate parallel 200 basis point increase. The declining interest rate
scenarios are based on decreases of 150 basis points and 75 basis points in interest rates at December 31, 2017and 2016, respectively.
The table below, as of December 31, 2017 and 2016, displays the estimated impact on the economic value of equity from
the interest rate scenario described above.
(in millions)
Change in Interest Rates:
Rising 200 basis points
Falling to zero percent
2017
2016
Amount
%
Amount
%
$
1,188
(2,635)
9% $
(20)
1,133
(891)
10%
(7)
The sensitivity of the economic value of equity to a 200 basis point parallel increase in rates was mostly stable between
December 31, 2016 and December 31, 2017. The change in sensitivity of the economic value of equity to a parallel decrease in
rates to zero during the same period was primarily driven by the increase in short-term rates between the periods, allowing for an
additional 75 basis point decrease from December 31, 2016 to the December 31, 2017 scenario.
LOAN MATURITIES AND INTEREST RATE SENSITIVITY
(in millions)
December 31, 2017
Commercial loans
Real estate construction loans
Commercial mortgage loans
International loans
Total
Sensitivity of loans to changes in interest rates:
Predetermined (fixed) interest rates
Floating interest rates
Total
Loans Maturing
Within One
Year (a)
After One
But Within
Five Years
After
Five Years
Total
$
$
$
$
15,221
1,270
1,563
452
18,506
699
17,807
18,506
$
$
$
$
14,739
1,595
5,065
524
21,923
2,550
19,373
21,923
$
$
$
$
1,100
96
2,531
7
3,734
633
3,101
3,734
$
$
$
$
31,060
2,961
9,159
983
44,163
3,882
40,281
44,163
(a) Includes demand loans, loans having no stated repayment schedule or maturity and overdrafts.
The Corporation uses investment securities and derivative instruments as asset and liability management tools with the
overall objective of managing the volatility of net interest income from changes in interest rates. These tools assist management
in achieving the desired interest rate risk management objectives. Activity related to derivative instruments currently involves
interest rate swaps effectively converting fixed-rate medium- and long-term debt to a floating rate.
Risk Management Derivative Instruments
(in millions)
Risk Management Notional Activity
Balance at January 1, 2016
Additions
Maturities/amortizations
Balance at December 31, 2016
Additions
Maturities/amortizations
Balance at December 31, 2017
Interest
Rate
Contracts
Foreign
Exchange
Contracts
$
$
$
2,525
—
(250)
2,275
—
(500)
1,775
$
$
$
593
13,946
(13,822)
717
12,004
(12,071)
650
$
$
$
Totals
3,118
13,946
(14,072)
2,992
12,004
(12,571)
2,425
The notional amount of risk management interest rate swaps totaled $1.8 billion at December 31, 2017, and $2.3 billion
at December 31, 2016, all under fair value hedging strategies, converting fixed-rate medium- and long-term debt to a floating rate.
The fair value of risk management interest rate swaps was a net unrealized loss of $2 million at December 31, 2017, compared to
a net unrealized gain of $88 million at December 31, 2016. This decrease was primarily due to a January 1, 2017 clearinghouse
rule change whereby variation margin payments are treated as settlements of derivative exposure rather than as collateral, resulting
in centrally cleared derivatives having a fair value of approximately zero. Risk management interest rate swaps generated $32
million and $60 million of net interest income for the years ended December 31, 2017 and 2016, respectively.
In addition to interest rate swaps, the Corporation employs various other types of derivative instruments as offsetting
positions to mitigate exposures to foreign currency risks associated with specific assets and liabilities (e.g., customer loans or
deposits denominated in foreign currencies). Such instruments may include foreign exchange spot and forward contracts as well
as foreign exchange swap agreements.
F-30
Further information regarding risk management derivative instruments is provided in Note 8 to the consolidated financial
statements.
Customer-Initiated and Other Derivative Instruments
(in millions)
Customer-Initiated and Other Notional Activity
Balance at January 1, 2016
Additions
Maturities/amortizations
Terminations
Balance at December 31, 2016
Additions
Maturities/amortizations
Terminations
Balance at December 31, 2017
Interest
Rate
Contracts
Energy
Derivative
Contracts
Foreign
Exchange
Contracts
$
$
$
12,228
3,505
(1,469)
(941)
13,323
4,377
(2,096)
(1,215)
14,389
$
$
$
3,127
1,347
(1,908)
(339)
2,227
1,539
(1,681)
(238)
1,847
$
$
$
2,291
54,478
(55,250)
(10)
1,509
47,456
(46,987)
(94)
1,884
$
$
$
Totals
17,646
59,330
(58,627)
(1,290)
17,059
53,372
(50,764)
(1,547)
18,120
The Corporation sells and purchases interest rate caps and floors and enters into foreign exchange contracts, interest rate
swaps and energy derivative contracts to accommodate the needs of customers requesting such services. Changes in the fair value
of customer-initiated and other derivatives are recognized in earnings as they occur. To limit the market risk of these activities,
the Corporation generally takes offsetting positions with dealers. The notional amounts of offsetting positions are included in the
table above. Customer-initiated and other notional activity represented 88 percent and 85 percent of total interest rate, energy and
foreign exchange contracts at December 31, 2017 and 2016, respectively.
Further information regarding customer-initiated and other derivative instruments is provided in Note 8 to the consolidated
financial statements.
Liquidity Risk and Off-Balance Sheet Arrangements
Liquidity is the ability to meet financial obligations through the maturity or sale of existing assets or the acquisition of
additional funds. Various financial obligations, including contractual obligations and commercial commitments, may require future
cash payments by the Corporation. Certain obligations are recognized on the consolidated balance sheets, while others are off-
balance sheet under U.S. generally accepted accounting principles.
The following contractual obligations table summarizes the Corporation's noncancelable contractual obligations and
future required minimum payments. Refer to Notes 6, 9, 10, 11, 12, and 18 to the consolidated financial statements for further
information regarding these contractual obligations.
Contractual Obligations
(in millions)
December 31, 2017
Deposits without a stated maturity (a)
Certificates of deposit and other deposits with a stated
maturity (a)
Short-term borrowings (a)
Medium- and long-term debt (a)
Operating leases
Commitments to fund low income housing partnerships
Other long-term obligations (b)
Total contractual obligations
Minimum Payments Due by Period
1-3
Years
Less than
1 Year
3-5
Years
More than
5 Years
$
55,723
$
— $
— $
—
Total
55,723
$
2,180
10
4,575
391
159
350
63,388
$
1,855
10
—
68
92
87
57,835
$
$
266
—
1,025
113
57
76
1,537
44
—
—
75
4
37
160
$
— $
15
—
3,550
135
6
150
3,856
250
$
$
Medium- and long-term debt (parent company only) (a) (c) $
(a) Deposits and borrowings exclude accrued interest.
(b) Includes unrecognized tax benefits.
(c) Parent company only amounts are included in the medium- and long-term debt minimum payments above.
— $
350
600
$
In addition to contractual obligations, other commercial commitments of the Corporation impact liquidity. These include
unused commitments to extend credit, standby letters of credit and financial guarantees, and commercial letters of credit. The
following table summarizes the Corporation's commercial commitments and expected expiration dates by period.
F-31
Commercial Commitments
(in millions)
December 31, 2017
Unused commitments to extend credit
Standby letters of credit and financial guarantees
Commercial letters of credit
Total commercial commitments
Expected Expiration Dates by Period
1-3
Less than
Years
1 Year
3-5
Years
More than
5 Years
$
$
7,022
2,741
39
9,802
$
$
9,711
293
—
10,004
$
$
5,978
187
—
6,165
$
$
2,758
7
—
2,765
Total
25,469
3,228
39
28,736
$
$
Since many of these commitments expire without being drawn upon, and each customer must continue to meet the
conditions established in the contract, the total amount of these commercial commitments does not necessarily represent the future
cash requirements of the Corporation. Refer to the “Other Market Risks” section below and Note 8 to the consolidated financial
statements for a further discussion of these commercial commitments.
Wholesale Funding
The Corporation may access the purchased funds market when necessary, which includes a variety of funding sources.
Capacity for incremental purchased funds at December 31, 2017 included FHLB advances, the ability to purchase federal funds,
sell securities under agreements to repurchase, as well as issue deposits through brokers. Purchased funds totaled $25 million at
December 31, 2017, compared to $44 million at December 31, 2016. At December 31, 2017, the Bank had pledged loans totaling
$21.3 billion which provided for up to $17.2 billion of available collateralized borrowing with the FRB.
The Bank is a member of the FHLB of Dallas, Texas, which provides short- and long-term funding to its members through
advances collateralized by real estate-related assets. Actual borrowing capacity is contingent on the amount of collateral available
to be pledged to the FHLB. At December 31, 2017, $15.6 billion of real estate-related loans were pledged to the FHLB as blanket
collateral for current and potential future borrowings. The Corporation had $2.8 billion of outstanding borrowings maturing in
2026 and capacity for potential future borrowings of approximately $5.2 billion.
Additionally, the Bank had the ability to issue up to $14.0 billion of debt at December 31, 2017 under an existing $15.0
billion note program which allows the issuance of debt with maturities between three months and 30 years. The Corporation also
maintains a shelf registration statement with the Securities and Exchange Commission from which it may issue debt and/or equity
securities.
The ability of the Corporation and the Bank to raise funds at competitive rates is impacted by rating agencies' views of
the credit quality, liquidity, capital and earnings of the Corporation and the Bank. As of December 31, 2017, the three major rating
agencies had assigned the following ratings to long-term senior unsecured obligations of the Corporation and the Bank. A security
rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. Each rating should be evaluated independently of any other rating.
December 31, 2017
Standard and Poor’s
Moody’s Investors Service
Fitch Ratings
Comerica Incorporated
Comerica Bank
Rating
Outlook
Rating
Outlook
BBB+
A3
A
Stable
Stable
Stable
A-
A3
A
Stable
Stable
Stable
The Corporation satisfies liquidity requirements with either liquid assets or various funding sources. Liquid assets totaled
$17.4 billion at December 31, 2017, compared to $18.2 billion at December 31, 2016. Liquid assets include cash and due from
banks, federal funds sold, interest-bearing deposits with banks, other short-term investments and unencumbered investment
securities.
Under the Basel III liquidity framework, the Corporation is subject to a modified LCR standard, which requires a financial
institution to hold a minimum level of high-quality liquid assets to fully cover modified net cash outflows under a 30-day systematic
liquidity stress scenario. The Corporation is in compliance with the fully phased-in LCR requirement, plus a buffer.
In 2016, U.S. banking regulators issued a notice of proposed rulemaking (the proposed rule) implementing a second
quantitative liquidity requirement in the U.S. generally consistent with the Net Stable Funding Ratio (NSFR) minimum liquidity
measure established under the Basel III liquidity framework. Under the proposed rule, the Corporation will be subject to a modified
NSFR standard, which requires a financial institution to hold a minimum level of available longer-term, stable sources of funding
to fully cover a modified amount of required longer-term stable funding, over a one-year period. However, a final NSFR rule has
not been published by the U.S. regulatory agencies so the effective date of compliance remains unknown. The Corporation does
not currently expect the proposed rule to have a material impact on its liquidity needs.
F-32
The Corporation performs monthly liquidity stress testing to evaluate its ability to meet funding needs in hypothetical
stressed environments. Such environments cover a series of broad events, distinguished in terms of duration and severity. The
evaluation as of December 31, 2017 projected that sufficient sources of liquidity were available under each series of events.
Other Market Risks
Market risk related to the Corporation's trading instruments is not significant, as trading activities are limited. Certain
components of the Corporation's noninterest income, primarily fiduciary income, are at risk to fluctuations in the market values
of underlying assets, particularly equity and debt securities. Other components of noninterest income, primarily brokerage fees,
are at risk to changes in the volume of market activity.
OPERATIONAL RISK
Operational risk represents the risk of loss resulting from inadequate or failed internal processes, people and systems,
including cybersecurity, or from external events. The definition does not include strategic or reputational risks. Although operational
losses are experienced by all companies and are routinely incurred in business operations, the Corporation recognizes the need to
identify and control operational losses and seeks to limit losses to a level deemed appropriate by management, as outlined in the
Corporation’s risk appetite statement. The appropriate risk level is determined through consideration of the nature of the
Corporation's business and the environment in which it operates, in combination with the impact from, and the possible impact
on, other risks faced by the Corporation. Operational risk is mitigated through a system of internal controls that are designed to
keep operating risks at appropriate levels. The Operational Risk Management Committee monitors risk management techniques
and systems. The Corporation has developed a framework that includes a centralized operational risk management function and
business/support unit risk liaisons responsible for managing operational risk specific to the respective business lines.
COMPLIANCE RISK
Compliance risk represents the risk of regulatory sanctions or financial loss resulting from the Corporation's failure to
comply with regulations and standards of good banking practice. The impact of such risks is highly interdependent with strategic
risk, as the reputational impact from compliance breaches can be severe. Activities which may expose the Corporation to compliance
risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community
reinvestment initiatives, fair lending, consumer protection, employment and tax matters, over-the-counter derivative activities and
other activities regulated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Enterprise-Wide Compliance Committee, comprising senior and executive business unit managers, as well as
managers responsible for compliance, audit and overall risk, oversees compliance risk. This enterprise-wide approach provides a
consistent view of compliance across the organization. The Enterprise-Wide Compliance Committee also ensures that appropriate
actions are implemented in business units to mitigate risk to an acceptable level.
STRATEGIC RISK
Strategic risk represents the risk of loss due to impairment of reputation, failure to fully develop and execute business
plans, failure to assess current and new opportunities in business, markets and products, failure to determine appropriate
consideration for risks accepted, and any other event not identified in the defined risk categories of credit, market and liquidity,
operational or compliance risks. Mitigation of the various risk elements that represent strategic risk is achieved through various
metrics and initiatives to help the Corporation better understand, measure and report on such risks.
F-33
CRITICAL ACCOUNTING POLICIES
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. These policies require numerous estimates and strategic or economic assumptions,
which may prove inaccurate or subject to variations. Changes in underlying factors, assumptions or estimates could have a material
impact on the Corporation’s future financial condition and results of operations. At December 31, 2017, the most critical of these
significant accounting policies were the policies related to the allowance for credit losses, fair value measurement, goodwill,
pension plan accounting and income taxes. These policies were reviewed with the Audit Committee of the Corporation’s Board
of Directors and are discussed more fully below.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses, which includes both the allowance for loan losses and the allowance for credit losses on
lending-related commitments, is calculated with the objective of maintaining a reserve sufficient to absorb estimated probable
losses. Management's determination of the appropriateness of the allowance is based on periodic evaluations of the loan portfolio,
lending-related commitments and other relevant factors. This evaluation is inherently subjective as it requires numerous estimates,
including the loss content for internal risk ratings, collateral values, the amounts and timing of expected future cash flows, and
for lending-related commitments, estimates of the probability of draw on unused commitments. In addition, management exercises
judgment to adjust or supplement modeled estimates for factors not otherwise fully accounted for, such as the risks and uncertainties
observed in current market conditions, portfolio developments and other imprecision factors.
In determining the allowance for credit losses, the Corporation individually evaluates certain impaired loans, applies
standard reserve factors to pools of homogeneous loans and lending-related commitments and incorporates qualitative adjustments.
Standard loss factors, applied to the majority of the Corporation's loan portfolio and lending-related commitments, are based on
estimates of probabilities of default for individual risk ratings over the loss emergence period and loss given default. Loss emergence
periods are used to determine the most appropriate default horizon associated with the calculation of probabilities of default.
Changes to one or more of the estimates used to develop standard loss factors, or the use of different estimates, would result in a
different estimated allowance for credit losses. To illustrate, if recent loss experience dictated that the estimated standard loss
factors would be changed by five percent of the estimate across all loan risk ratings, the allowance for loan losses as of December 31,
2017 would change by approximately $32 million.
Because standard loss factors are applied to pools of loans based on the Corporation's internal risk rating system, loss
estimates are highly dependent on the accuracy of the risk rating assigned to each loan. The inherent imprecision in the risk rating
system resulting from inaccuracy in assigning and/or entering risk ratings in the loan accounting system is monitored by the
Corporation's asset quality review function and incorporated in a qualitative adjustment. The Corporation may also include
qualitative adjustments intended to capture the impact of certain other uncertainties that exist but are not yet reflected in the
standard reserve factors. These qualitative adjustments are based on management’s analysis of factors such as portfolios where
recent historical losses exceed expected losses or known recent events are expected to alter risk ratings once evidence is acquired,
observable macroeconomic metrics, including consideration of regional metrics within the Corporation's footprint, and a qualitative
assessment of the lending environment, including underwriting standards, current economic and political conditions, and other
factors affecting credit quality. Qualitative reserves at December 31, 2017 primarily included components for portfolios where
recent loss trends were in excess of estimated losses based on overall portfolio standard loss factors, model imprecision and changes
in market conditions compared to the conditions that existed at the date of the most recent annual update to standard reserve factors.
For further discussion of the methodology used in the determination of the allowance for credit losses, refer to Note 1 to
the consolidated financial statements. To the extent actual outcomes differ from management estimates, additional provision for
credit losses may be required that would adversely impact earnings in future periods. A substantial majority of the allowance is
assigned to business segments. Any earnings impact resulting from actual outcomes differing from management estimates would
primarily affect the Business Bank segment.
FAIR VALUE MEASUREMENT
Investment securities available-for-sale, derivatives and deferred compensation plan assets and associated liabilities are
recorded at fair value on a recurring basis. Additionally, from time to time, other assets and liabilities may be recorded at fair value
on a nonrecurring basis, such as impaired loans that have been reduced based on the fair value of the underlying collateral, other
real estate (primarily foreclosed property), nonmarketable equity securities and certain other assets and liabilities. These
nonrecurring fair value adjustments typically involve write-downs of individual assets or application of lower of cost or fair value
accounting.
Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the
measurement date and is based on the assumptions market participants would use when pricing an asset or liability. Fair value
F-34
measurement and disclosure guidance establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair
value. Notes 1 and 2 to the consolidated financial statements includes information about the fair value hierarchy, the extent to
which fair value is used to measure assets and liabilities and the valuation methodologies and key inputs used.
At December 31, 2017, assets and liabilities measured using observable inputs that are classified as Level 1 or Level 2
represented 98.4 percent and 100.0 percent of total assets and liabilities recorded at fair value, respectively, and Level 3 assets
totaled $181 million, or 1.6 percent of total assets recorded at fair value. Valuations generated from model-based techniques that
use at least one significant assumption not observable in the market are considered Level 3. Unobservable assumptions reflect
estimates of assumptions market participants would use in pricing the asset or liability. Fair value measurements for assets and
liabilities where limited or no observable market data exists often involves significant judgments about assumptions, such as
determining an appropriate discount rate that factors in both liquidity and risk premiums, and in many cases may not reflect
amounts exchanged in a current sale of the financial instrument. In addition, changes in market conditions may reduce the availability
of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities
could result in observable market inputs becoming unavailable. Therefore, when market data is not available, the Corporation
would use valuation techniques requiring more management judgment to estimate the appropriate fair value.
GOODWILL
Goodwill is initially recorded as the excess of the purchase price over the fair value of net assets acquired in a business
combination and is subsequently evaluated at least annually for impairment. Unless management determines it necessary, goodwill
impairment testing is performed at the reporting unit level, equivalent to a business segment or one level below. The Corporation
has three reporting units: the Business Bank, the Retail Bank and Wealth Management. At December 31, 2017 and 2016, goodwill
totaled $635 million, including $380 million allocated to the Business Bank, $194 million allocated to the Retail Bank and $61
million allocated to Wealth Management.
In performing the annual impairment test, the Corporation compares the carrying amount of identified reporting units,
including goodwill, with their estimated fair value. The Corporation considers the carrying value of each reporting unit to be the
greater of economic or regulatory capital. Economic capital is assigned using internal management methodologies on the basis of
each reporting unit's credit, operational and interest rate risks, as well as goodwill. To determine regulatory capital, each reporting
unit is assigned sufficient capital such that their respective Tier 1 ratio, based on allocated risk-weighted assets, is the same as that
of the Corporation. Using this two-pronged approach, the Corporation's equity is fully allocated to its reporting units except for
capital held primarily for the risk associated with the securities portfolio that is assigned to the Finance segment of the Corporation.
Determining the fair value of reporting units is a subjective process involving the use of estimates and judgments related
to the selection of inputs such as future cash flows, discount rates, comparable public company multiples, applicable control
premiums and economic expectations used in determining the interest rate environment. The estimated fair values of the reporting
units are determined using a blend of two commonly used valuation techniques: the market approach and the income approach.
For the market approach, valuations of reporting units consider a combination of earnings, equity and other multiples from
companies with characteristics similar to the reporting unit. Since the fair values determined under the market approach are
representative of noncontrolling interests, the valuations accordingly incorporate a control premium. For the income approach,
estimated future cash flows and terminal value are discounted. Estimated future cash flows are derived from internal forecasts and
economic expectations for each reporting unit which incorporate uncertainty factors inherent to long-term projections. The
applicable discount rate is based on the imputed cost of equity capital appropriate for each reporting unit, which incorporates the
risk-free rate of return, the level of non-diversified risk associated with companies with characteristics similar to the reporting
unit, a size risk premium and a market equity risk premium.
The annual test of goodwill impairment was performed as of the beginning of the third quarter 2017. The Corporation's
assumptions included modest increases to the Federal funds target rate until eventually reaching a normal interest rate environment,
as well as credit costs and the impact of the Corporation's GEAR Up initiative. At the conclusion of the first step of the annual
goodwill impairment tests performed in the third quarter 2017, the estimated fair values of all reporting units substantially exceeded
their carrying amounts, including goodwill. The results of the annual test of the goodwill impairment test for each reporting unit
were subjected to stress testing as appropriate.
Economic conditions impact the assumptions related to interest and growth rates, loss rates and imputed cost of equity
capital. The fair value estimates for each reporting unit incorporated current economic and market conditions, including the recent
Federal Reserve announcements and the impact of legislative and regulatory changes, to the extent known and as described above.
However, further weakening in the economic environment, such as adverse changes in interest rates, a decline in the performance
of the reporting units or other factors could cause the fair value of one or more of the reporting units to fall below their carrying
value, resulting in a goodwill impairment charge. Additionally, new legislative or regulatory changes not anticipated in
management's expectations may cause the fair value of one or more of the reporting units to fall below the carrying value, resulting
in a goodwill impairment charge. Any impairment charge would not affect the Corporation's regulatory capital ratios, tangible
common equity ratio or liquidity position.
F-35
PENSION PLAN ACCOUNTING
The Corporation has a qualified and non-qualified defined benefit pension plan. Prior to January 1, 2017, the plans were
in effect for substantially all salaried employees hired before January 1, 2007. In October 2016, the Corporation modified its
defined benefit plans to convert most participants, including employees participating in the Corporation's defined contribution
plan, to a cash balance formula effective January 1, 2017. Participants who were age 60 or older as of December 31, 2016 continue
to be eligible for the final average pay benefit. In addition, the Corporation added a lump-sum payment option, effective January
1, 2017. These changes were part of the GEAR Up initiative. For more information about the defined benefit pension plan
modifications, see Note 17 to the consolidated financial statements. Benefits under the cash balance formula are based on years
of service, age, compensation and an interest credit based on the 30-year Treasury rate. The Corporation makes assumptions
concerning future events that will determine the amount and timing of required benefit payments, funding requirements and defined
benefit pension expense. The major assumptions are the discount rate used in determining the current benefit obligation, the long-
term rate of return expected on plan assets, mix of assets within the portfolio, the form of payment election and the projected
mortality rate. The discount rate is determined by matching the expected cash flows of the pension plans to a portfolio of high
quality corporate bonds as of the measurement date, December 31. The long-term rate of return expected on plan assets is set after
considering both long-term returns in the general market and long-term returns experienced by the assets in the plan. The current
target asset allocation model for the plans is provided in Note 17 to the consolidated financial statements. The expected returns
on these various asset categories are blended to derive one long-term return assumption. The assets are invested in certain collective
investment funds, common stocks, U.S. Treasury and other U.S. government agency securities, and corporate and municipal bonds
and notes. The form of payment election assumption is based on market experience. Mortality rate assumptions are based on
mortality tables published by third-parties such as the Society of Actuaries (SOA), considering other available information including
historical data as well as studies and publications from reputable sources. The Corporation reviews its pension plan assumptions
on an annual basis with its actuarial consultants to determine if the assumptions are reasonable and adjusts the assumptions to
reflect changes in future expectations.
The assumptions used to calculate 2018 defined benefit plan pension expense (benefit) were as follows:
Discount rate
Long-term rate of return on plan assets
Lump sum payment election rate:
Participants before January 1, 2017
All other participants
Mortality table:
Base table (a)
Mortality improvement scale (a)
(a) Issued by the Society of Actuaries in October 2017.
3.74%
6.50%
50%
80%
RP-2017
MP-2017
In 2018, the defined benefit plan expense is expected to remain consistent compared to 2017 with a benefit of approximately
$19 million. This includes service cost expense of $31 million and a benefit from other components of $50 million.
Changing the 2018 discount rate and long-term rate of return by 25 basis points would impact defined benefit expense
in 2018 by $7.3 million and $6.3 million, respectively.
Due to the long-term nature of pension plan assumptions, actual results may differ significantly from the actuarial-based
estimates. Differences resulting in actuarial gains or losses are required to be recorded in shareholders' equity as part of accumulated
other comprehensive loss and amortized to defined benefit pension expense in future years. Refer to Note 17 to the consolidated
financial statements for further information.
INCOME TAXES
The calculation of the Corporation's income tax provision and tax-related accruals is complex and requires the use of
estimates and judgments. The provision for income taxes is the sum of income taxes due for the current year and deferred taxes.
Deferred taxes arise from temporary differences between the income tax basis and financial accounting basis of assets and liabilities.
Accrued taxes represent the net estimated amount due to or to be received from taxing jurisdictions, currently or in the future, and
are included in “accrued income and other assets” or “accrued expenses and other liabilities” on the consolidated balance sheets.
The Corporation assesses the relative risks and merits of tax positions for various transactions after considering statutes, regulations,
judicial precedent and other available information and maintains tax accruals consistent with these assessments. The Corporation
is subject to audit by taxing authorities that could question and/or challenge the tax positions taken by the Corporation.
Included in net deferred taxes are deferred tax assets. Deferred tax assets are evaluated for realization based on available
evidence of projected future reversals of existing taxable temporary differences, assumptions made regarding future events and,
when applicable, state loss carryback capacity. A valuation allowance is provided when it is more-likely-than-not that some portion
of the deferred tax asset will not be realized. In December 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law, resulting
F-36
in the reduction of the federal tax rate from 35 percent to 21 percent. Fourth quarter and full-year 2017 results were impacted by
a $107 million charge to adjust deferred taxes as a result of the decline in the federal tax rate. The year-end evaluation of the
deferred tax assets included the impact of these changes in tax law. Management continues to analyze certain aspects of the Act
and refine calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred
tax amounts.
Changes in the estimate of accrued taxes occur due to changes in tax law, interpretations of existing tax laws, new judicial
or regulatory guidance, and the status of examinations conducted by taxing authorities that impact the relative risks and merits of
tax positions taken by the Corporation. These changes, when they occur, impact the estimate of accrued taxes and could be
significant to the operating results of the Corporation. For further information on tax accruals and related risks, see Note 18 to the
consolidated financial statements.
F-37
The following table provides a reconciliation of non-GAAP financial measures used in this financial review with financial
SUPPLEMENTAL FINANCIAL DATA
measures defined by GAAP.
(dollar amounts in millions)
December 31
Tangible Common Equity Ratio:
Common shareholders' equity
Less:
Goodwill
Other intangible assets
Tangible common equity
Total assets
Less:
Goodwill
Other intangible assets
Tangible assets
Common equity ratio
Tangible common equity ratio
Tangible Common Equity per Share of Common Stock:
Common shareholders' equity
Tangible common equity
Shares of common stock outstanding (in millions)
Common shareholders' equity per share of common stock
Tangible common equity per share of common stock
2017
2016
2015
2014
2013
$
7,963
$
7,796
$
7,560
$
7,402
$
7,150
635
8
$
7,320
$ 71,567
635
8
$ 70,924
11.13%
10.32
$
$
7,963
7,320
173
46.07
42.34
$
$
$
$
$
635
10
7,151
72,978
635
10
72,333
10.68%
9.89
7,796
7,151
175
44.47
40.79
$
$
$
$
$
635
14
6,911
71,877
635
14
71,228
10.52%
9.70
7,560
6,911
176
43.03
39.33
$
$
$
$
$
635
15
6,752
69,186
635
15
68,536
10.70%
9.85
7,402
6,752
179
41.35
37.72
$
$
$
$
$
635
17
6,498
65,224
635
17
64,572
10.97%
10.07
7,150
6,498
182
39.22
35.64
The tangible common equity ratio removes the effect of intangible assets from capital and total assets. Tangible common
equity per share of common stock removes the effect of intangible assets from common shareholders equity per share of common
stock. The Corporation believes these measurements are meaningful measures of capital adequacy used by investors, regulators,
management and others to evaluate the adequacy of common equity and to compare against other companies in the industry.
F-38
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. In
addition, the Corporation may make other written and oral communications from time to time that contain such statements. All
statements regarding the Corporation's expected financial position, strategies and growth prospects, including the GEAR Up
initiative, and general economic conditions expected to exist in the future are forward-looking statements. The words, “anticipates,”
“believes,” "contemplates," “feels,” “expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,” “forecast,”
“position,” “target,” “mission,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “aspiration,” “opportunity,” “initiative,”
“outcome,” “continue,” “remain,” “maintain,” "on track," “trend,” “objective,” “looks forward,” "projects," "models" and variations
of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,”
“may” or similar expressions, as they relate to the Corporation or its management, are intended to identify forward-looking
statements. The Corporation cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties,
which change over time. Forward-looking statements speak only as of the date the statement is made, and the Corporation does
not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date
the forward-looking statements are made. Actual results could differ materially from those anticipated in forward-looking
statements and future results could differ materially from historical performance.
In addition to factors mentioned elsewhere in this report or previously disclosed in the Corporation's SEC reports
(accessible on the SEC's website at www.sec.gov or on the Corporation's website at www.comerica.com), actual results could
differ materially from forward-looking statements and future results could differ materially from historical performance due to a
variety of reasons, including but not limited to, the following factors:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
general political, economic or industry conditions, either domestically or internationally, may be less favorable than expected;
governmental monetary and fiscal policies may adversely affect the financial services industry, and therefore impact the
Corporation's financial condition and results of operations;
proposed revenue enhancements and efficiency improvements under the GEAR Up initiative may not be achieved;
adverse effects from operational difficulties, failure of technology infrastructure or information security incidents;
the Corporation relies on other companies to provide certain key components of its delivery systems, and certain failures
could materially adversely affect operations;
the Corporation must maintain adequate sources of funding and liquidity to meet regulatory expectations, support its operations
and fund outstanding liabilities;
compliance with more stringent capital and liquidity requirements may adversely affect the Corporation;
declines in the businesses or industries of the Corporation's customers could cause increased credit losses or decreased loan
balances, which could adversely affect the Corporation;
unfavorable developments concerning credit quality could adversely affect the Corporation's financial results:
changes in regulation or oversight may have a material adverse impact on the Corporation's operations;
changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing, could adversely
affect the Corporation's net interest income and balance sheet;
adverse effects due to regulatory developments impacting LIBOR and other interest rate benchmarks;
reduction in the Corporation's credit ratings could adversely affect the Corporation and/or the holders of its securities;
damage to the Corporation’s reputation could damage its businesses;
the Corporation's inability to utilize technology to develop, market and deliver new products and services to its customers;
competitive product and pricing pressures among financial institutions within the Corporation's markets may change;
the soundness of other financial institutions could adversely affect the Corporation;
the introduction, implementation, withdrawal, success and timing of business initiatives and strategies may be less successful
or may be different than anticipated, which could adversely affect the Corporation's business;
changes in customer behavior may adversely impact the Corporation's business, financial condition and results of operations;
•
• management's ability to maintain and expand customer relationships may differ from expectations;
• methods of reducing risk exposures might not be effective;
•
catastrophic events, including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods, may adversely
affect the general economy, financial and capital markets, specific industries, and the Corporation;
the unknown impacts of recent tax reform, and potential legislative, administrative or judicial changes or interpretations to
these and other tax regulations;
any future strategic acquisitions or divestitures may present certain risks to the Corporation's business and operations;
•
• management's ability to retain key officers and employees may change;
•
legal and regulatory proceedings and related financial services industry matters, including those directly involving the
Corporation and its subsidiaries, could adversely affect the Corporation or the financial services industry in general;
adverse effects from terrorist activities or other hostilities;
changes in accounting standards could materially impact the Corporation's financial statements;
the Corporation's accounting policies and processes are critical to the reporting of financial condition and results of operations
and require management to make estimates about matters that are uncertain; and
the Corporation's stock price can be volatile.
•
•
•
•
•
F-39
CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries
(in millions, except share data)
December 31
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Other short-term investments
Investment securities available-for-sale
Investment securities held-to-maturity
Commercial loans
Real estate construction loans
Commercial mortgage loans
Lease financing
International loans
Residential mortgage loans
Consumer loans
Total loans
Less allowance for loan losses
Net loans
Premises and equipment
Accrued income and other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits
Money market and interest-bearing checking deposits
Savings deposits
Customer certificates of deposit
Foreign office time deposits
Total interest-bearing deposits
Total deposits
Short-term borrowings
Accrued expenses and other liabilities
Medium- and long-term debt
Total liabilities
Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued - 228,164,824 shares
Capital surplus
Accumulated other comprehensive loss
Retained earnings
Less cost of common stock in treasury - 55,306,483 shares at 12/31/17 and 52,851,156 shares at
12/31/16
Total shareholders’ equity
Total liabilities and shareholders’ equity
See notes to consolidated financial statements.
F-40
2017
2016
$
1,438
$
4,407
96
10,938
1,266
31,060
2,961
9,159
468
983
1,988
2,554
49,173
(712)
48,461
466
4,495
71,567
32,071
21,500
2,152
2,165
15
25,832
57,903
10
1,069
4,622
63,604
1,141
2,122
(451)
7,887
$
$
(2,736)
7,963
71,567
$
$
$
$
1,249
5,969
92
10,787
1,582
30,994
2,869
8,931
572
1,258
1,942
2,522
49,088
(730)
48,358
501
4,440
72,978
31,540
22,556
2,064
2,806
19
27,445
58,985
25
1,012
5,160
65,182
1,141
2,135
(383)
7,331
(2,428)
7,796
72,978
CONSOLIDATED STATEMENTS OF INCOME
Comerica Incorporated and Subsidiaries
(in millions)
Years Ended December 31
INTEREST INCOME
Interest and fees on loans
Interest on investment securities
Interest on short-term investments
Total interest income
INTEREST EXPENSE
Interest on deposits
Interest on short-term borrowings
Interest on medium- and long-term debt
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
NONINTEREST INCOME
Card fees
Service charges on deposit accounts
Fiduciary income
Commercial lending fees
Letter of credit fees
Bank-owned life insurance
Foreign exchange income
Brokerage fees
Net securities losses
Other noninterest income
Total noninterest income
NONINTEREST EXPENSES
Salaries and benefits expense
Outside processing fee expense
Net occupancy expense
Equipment expense
Restructuring charges
Software expense
FDIC insurance expense
Advertising expense
Litigation-related expense
Other noninterest expenses
Total noninterest expenses
Income before income taxes
Provision for income taxes
NET INCOME
Less income allocated to participating securities
Net income attributable to common shares
Earnings per common share:
Basic
Diluted
Cash dividends declared on common stock
Cash dividends declared per common share
See notes to consolidated financial statements.
F-41
2017
2016
2015
$
$
$
$
$
$
1,872
250
60
2,182
42
3
76
121
2,061
74
1,987
333
227
198
85
45
43
45
23
(3)
111
1,107
912
366
154
45
45
126
51
28
(2)
135
1,860
1,234
491
743
5
738
4.23
4.14
193
1.09
$
$
$
1,635
247
27
1,909
40
—
72
112
1,797
248
1,549
303
219
190
89
50
42
42
19
(5)
102
1,051
961
336
157
53
93
119
54
21
1
135
1,930
670
193
477
4
473
2.74
2.68
154
0.89
1,551
216
17
1,784
43
—
52
95
1,689
147
1,542
276
223
187
99
53
40
40
17
(2)
102
1,035
1,009
318
159
53
—
99
37
24
(32)
160
1,827
750
229
521
6
515
2.93
2.84
148
0.83
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Comerica Incorporated and Subsidiaries
(in millions)
Years Ended December 31
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized losses on investment securities:
Net unrealized holding losses arising during the period
Less:
Reclassification adjustment for net securities losses included in net income
Net losses realized as a yield adjustment in interest on investment securities
Change in net unrealized losses before income taxes
Defined benefit pension and other postretirement plans adjustment:
Actuarial gain (loss) arising during the period
Prior service credit arising during the period
Adjustments for amounts recognized as components of net periodic benefit
cost:
Amortization of actuarial net loss
Amortization of prior service (credit) cost
Change in defined benefit pension and other postretirement plans adjustment
before income taxes
Total other comprehensive income (loss) before income taxes
(Benefit) provision for income taxes
Total other comprehensive income (loss), net of tax
2017
2016
2015
$
743
$
477
$
521
(81)
—
(3)
(78)
72
—
51
(27)
96
18
(1)
19
(70)
—
(3)
(67)
(134)
234
46
(7)
139
72
26
46
(55)
(2)
(8)
(45)
(57)
3
70
1
17
(28)
(11)
(17)
504
COMPREHENSIVE INCOME
$
762
$
523
$
See notes to consolidated financial statements.
F-42
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Comerica Incorporated and Subsidiaries
(in millions, except per share data)
BALANCE AT DECEMBER 31, 2014
Net income
Other comprehensive loss, net of tax
Cash dividends declared on common
stock ($0.83 per share)
Purchase of common stock
Purchase and retirement of warrants
Net issuance of common stock under
employee stock plans
Net issuance of common stock for
warrants
Share-based compensation
BALANCE AT DECEMBER 31, 2015
Net income
Other comprehensive income, net of tax
Cash dividends declared on common
stock ($0.89 per share)
Purchase of common stock
Net issuance of common stock under
employee stock plans
Net issuance of common stock for
warrants
Share-based compensation
BALANCE AT DECEMBER 31, 2016
Cumulative effect of change in
accounting principle
Net income
Other comprehensive income, net of tax
Cash dividends declared on common
stock ($1.09 per share)
Purchase of common stock
Net issuance of common stock under
employee stock plans
Net issuance of common stock for
warrants
Share-based compensation
Reclassification of certain deferred tax
effects
Other
Common Stock
Shares
Outstanding
179.0
—
—
—
(5.3)
—
1.0
1.0
—
175.7
—
—
—
(6.8)
4.1
2.3
—
Amount
$ 1,141
—
—
Capital
Surplus
$ 2,188
—
—
—
—
—
—
—
—
—
—
(10)
(22)
(21)
38
1,141
—
—
2,173
—
—
—
—
—
—
—
—
—
(15)
(57)
34
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Stock
Total
Shareholders’
Equity
$
(412) $
—
(17)
6,744
521
—
$
(2,259) $
—
—
—
—
—
—
—
—
(429)
—
46
—
—
—
—
—
(148)
—
—
(11)
(22)
—
7,084
477
—
(154)
—
(27)
(49)
—
—
(240)
—
47
43
—
(2,409)
—
—
—
(310)
185
106
—
7,402
521
(17)
(148)
(240)
(10)
14
—
38
7,560
477
46
(154)
(310)
143
—
34
175.3
1,141
2,135
(383)
7,331
(2,428)
7,796
—
—
—
—
(7.5)
3.3
1.8
—
—
—
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
(24)
(30)
39
—
(1)
—
—
19
—
—
—
—
—
(87)
—
(2)
743
—
(193)
—
(26)
(53)
—
87
—
—
—
—
—
(544)
152
83
—
—
1
1
743
19
(193)
(544)
102
—
39
—
—
BALANCE AT DECEMBER 31, 2017
172.9
$ 1,141
$ 2,122
$
(451) $
7,887
$
(2,736) $
7,963
See notes to consolidated financial statements.
F-43
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comerica Incorporated and Subsidiaries
(in millions)
Years Ended December 31
OPERATING ACTIVITIES
2017
2016
2015
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
743
$
477
$
Provision for credit losses
Provision (benefit) for deferred income taxes
Depreciation and amortization
Net periodic defined benefit (credit) cost
Share-based compensation expense
Net amortization of securities
Accretion of loan purchase discount
Net securities losses
Net gains on sales of foreclosed property
Net change in:
Accrued income receivable
Accrued expenses payable
Other, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Investment securities available-for-sale:
Maturities and redemptions
Sales
Purchases
Investment securities held-to-maturity:
Maturities and redemptions
Purchases
Net change in loans
Federal Home Loan Bank stock:
Purchases
Redemptions
Proceeds from sales of foreclosed property
Net increase in premises and equipment
Other, net
Net cash used in investing activities
FINANCING ACTIVITIES
Net change in:
Deposits
Short-term borrowings
Medium- and long-term debt:
Maturities and redemptions
Issuances
Terminations
Common stock:
Repurchases
Cash dividends paid
Issuances under employee stock plans
Purchase and retirement of warrants
Other, net
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Interest paid
Income taxes paid
Noncash investing and financing activities:
Loans transferred to other real estate
Loans transferred from portfolio to held-for-sale
Loans transferred from held-for-sale to portfolio
Lease residual transferred to other assets
See notes to consolidated financial statements.
$
$
F-44
74
79
121
(18)
39
6
(3)
—
(3)
(33)
41
57
1,103
1,615
1,259
(3,112)
319
—
(175)
(42)
42
22
(69)
3
(138)
(1,180)
(15)
(500)
—
(16)
(552)
(180)
110
—
(5)
(2,338)
(1,373)
7,218
5,845
122
336
8
—
—
—
$
$
248
(51)
121
6
34
8
(4)
—
(4)
(20)
37
(350)
502
1,699
—
(2,045)
402
—
(136)
(115)
—
20
(95)
—
(270)
(998)
2
(650)
2,800
—
(315)
(152)
152
—
—
839
1,071
6,147
7,218
111
151
21
—
17
—
$
$
521
147
(71)
118
48
38
13
(7)
2
(2)
(12)
(35)
105
865
1,757
—
(4,228)
324
(362)
(644)
—
—
12
(119)
5
(3,255)
2,529
(93)
(606)
1,016
—
(240)
(147)
22
(10)
(5)
2,466
76
6,071
6,147
94
88
12
28
—
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Organization
Comerica Incorporated (the Corporation) is a registered financial holding company headquartered in Dallas, Texas. The
Corporation’s major business segments are the Business Bank, the Retail Bank and Wealth Management. The Corporation operates
in three primary geographic markets: Michigan, California and Texas. For further discussion of each business segment and primary
geographic market, refer to Note 23. The Corporation and its banking subsidiaries are regulated at both the state and federal levels.
The accounting and reporting policies of the Corporation conform to United States (U.S.) generally accepted accounting
principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect reported amounts and disclosures. Actual results could differ from these estimates. Certain amounts
in the financial statements for prior years have been reclassified to conform to the current financial statement presentation.
The following summarizes the significant accounting policies of the Corporation applied in the preparation of the
accompanying consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation and the accounts of those subsidiaries that
are majority owned and in which the Corporation has a controlling financial interest. The Corporation consolidates entities not
determined to be variable interest entities (VIEs) when it holds a controlling financial interest and uses the cost or equity method
when it holds less than a controlling financial interest. In consolidation, all significant intercompany accounts and transactions are
eliminated. The results of operations of companies acquired are included from the date of acquisition.
The Corporation holds investments in certain legal entities that are considered VIEs. In general, a VIE is an entity that
either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support,
(2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity
owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. If any of these
characteristics are present, the entity is subject to a variable interests consolidation model, and consolidation is based on variable
interests, not on voting interests. Variable interests are defined as contractual ownership or other money interests in an entity that
change with fluctuations in the entity’s net asset value. The primary beneficiary is required to consolidate the VIE. The primary
beneficiary is defined as the party that has both the power to direct the activities of the VIE that most significantly impact the
entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the
VIE. The maximum potential exposure to losses relative to investments in VIEs is generally limited to the sum of the outstanding
book basis and unfunded commitments for future investments.
The Corporation evaluates its investments in VIEs, both at inception and when there is a change in circumstances that
requires reconsideration, to determine if the Corporation is the primary beneficiary and consolidation is required. The Corporation
accounts for unconsolidated VIEs using either the proportional, cost or equity method. These investments comprise investments
in community development projects which generate tax credits to their investors and are included in "accrued income and other
assets" on the consolidated balance sheets.
The proportional method is used for investments in affordable housing projects that qualify for the low-income housing
tax credit (LIHTC). The equity method is used for other investments where the Corporation has the ability to exercise significant
influence over the entity’s operation and financial policies. Other unconsolidated equity investments that do not meet the criteria
to be accounted for under the equity method are accounted for under the cost method. Amortization and other write-downs of
LIHTC investments are presented on a net basis as a component of the "provision for income taxes," while income, amortization
and write-downs from cost and equity method investments are recorded in “other noninterest income” on the consolidated statements
of income.
Assets held in an agency or fiduciary capacity are not assets of the Corporation and are not included in the consolidated
financial statements.
See Note 9 for additional information about the Corporation’s involvement with VIEs.
Fair Value Measurements
The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to
determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In
cases where quoted market values in an active market are not available, the Corporation uses present value techniques and other
valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment
and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.
F-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the
measurement date. Fair value is based on the assumptions market participants would use when pricing an asset or liability.
Trading securities, investment securities available-for-sale, derivatives and deferred compensation plans are recorded at
fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record other assets and liabilities
at fair value on a nonrecurring basis, such as impaired loans, other real estate (primarily foreclosed property), nonmarketable equity
securities and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve write-downs of
individual assets or application of lower of cost or fair value accounting.
Fair value measurements and disclosures guidance establishes a three-level fair value hierarchy based on the markets in
which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The fair value hierarchy
gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. Fair value measurements
are separately disclosed by level within the fair value hierarchy. For assets and liabilities recorded at fair value, it is the Corporation’s
policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value
measurements.
Level 1
Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2
Level 3
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical
or similar instruments in markets that are less active, and model-based valuation techniques for which all
significant assumptions are observable in the market.
Valuation is generated from model-based techniques that use at least one significant assumption not
observable in the market. These unobservable assumptions reflect estimates of assumptions that market
participants would use in pricing the asset or liability. Valuation techniques include use of option pricing
models, discounted cash flow models and similar techniques.
The Corporation generally utilizes third-party pricing services to value Level 1 and Level 2 trading and investment
securities, as well as certain derivatives designated as fair value hedges. Management reviews the methodologies and assumptions
used by the third-party pricing services and evaluates the values provided, principally by comparison with other available market
quotes for similar instruments and/or analysis based on internal models using available third-party market data. The Corporation
may occasionally adjust certain values provided by the third-party pricing service when management believes, as the result of its
review, that the adjusted price most appropriately reflects the fair value of the particular security.
Fair value measurements for assets and liabilities where limited or no observable market data exists are based primarily
upon estimates, often calculated based on the economic and competitive environment, the characteristics of the asset or liability
and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate
settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in
the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results
of current or future values.
Following are descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities
recorded at fair value, as well as a description of the methods and significant assumptions used to estimate fair value disclosures
for financial instruments not recorded at fair value in their entirety on a recurring basis. The descriptions include an indication of
the level of the fair value hierarchy in which the assets or liabilities are classified. Transfers of assets or liabilities between levels
of the fair value hierarchy are recognized at the beginning of the reporting period, when applicable.
Cash and due from banks, federal funds sold and interest-bearing deposits with banks
Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value. As such, the
Corporation classifies the estimated fair value of these instruments as Level 1.
Trading securities and associated deferred compensation plan liabilities
Trading securities include securities held for trading purposes as well as assets held related to employee deferred compensation
plans. Trading securities and associated deferred compensation plan liabilities are recorded at fair value on a recurring basis
and included in “other short-term investments” and “accrued expenses and other liabilities,” respectively, on the consolidated
balance sheets. Level 1 trading securities include assets related to employee deferred compensation plans, which are invested
in mutual funds, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and other
securities traded on an active exchange, such as the New York Stock Exchange. Deferred compensation plan liabilities represent
the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets. Level 2 trading
securities include municipal bonds and residential mortgage-backed securities issued by U.S. government-sponsored entities
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
and corporate debt securities. The methods used to value trading securities are the same as the methods used to value investment
securities, discussed below.
Investment securities
Investment securities available-for-sale are recorded at fair value on a recurring basis. The Corporation discloses estimated
fair values of investment securities held-to-maturity, which is determined in the same manner as investment securities available-
for-sale. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury
securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities
include residential mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored entities
and corporate debt securities. The fair value of Level 2 securities is determined using quoted prices of securities with similar
characteristics, or pricing models based on observable market data inputs, primarily interest rates, spreads and prepayment
information.
Securities classified as Level 3 represent securities in less liquid markets requiring significant management assumptions when
determining fair value. Auction-rate securities comprise Level 3 investment securities available-for-sale. The Corporate
Treasury department, with appropriate oversight and approval provided by senior management, is responsible for the valuation
of auction-rate securities. Valuation results, including an analysis of changes to the valuation methodology, are provided to
senior management for review on a quarterly basis.
Loans held-for-sale
Loans held-for-sale, included in “other short-term investments” on the consolidated balance sheets, are recorded at the lower
of cost or fair value. Loans held-for-sale may be carried at fair value on a nonrecurring basis when fair value is less than cost.
The fair value is based on what secondary markets are currently offering for portfolios with similar characteristics. As such,
the Corporation classifies both loans held-for-sale subjected to nonrecurring fair value adjustments and the estimated fair
value of loans held-for sale as Level 2.
Loans
The Corporation does not record loans at fair value on a recurring basis. However, the Corporation may establish a specific
allowance for an impaired loan based on the fair value of the underlying collateral. Such loan values are reported as nonrecurring
fair value measurements. Collateral values supporting individually evaluated impaired loans are evaluated quarterly. When
management determines that the fair value of the collateral requires additional adjustments, either as a result of non-current
appraisal value or when there is no observable market price, the Corporation classifies the impaired loan as Level 3. The
Special Assets Group is responsible for performing quarterly credit quality reviews for all impaired loans as part of the quarterly
allowance for loan losses process overseen by the Chief Credit Officer, during which valuation adjustments to updated collateral
values are determined.
The Corporation discloses fair value estimates for loans. The estimated fair value is determined based on characteristics such
as loan category, repricing features and remaining maturity, and includes prepayment and credit loss estimates. For variable
rate business loans that reprice frequently, the estimated fair value is based on carrying values adjusted for estimated credit
losses inherent in the portfolio at the balance sheet date. For other business loans and retail loans, fair values are estimated
using a discounted cash flow model that employs a discount rate that reflects the Corporation's current pricing for loans with
similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at
the balance sheet date. The rates take into account the expected yield curve, as well as an adjustment for prepayment risk,
when applicable. The Corporation classifies the estimated fair value of loans held for investment as Level 3.
Customers’ liability on acceptances outstanding and acceptances outstanding
Customers' liability on acceptances outstanding is included in "accrued income and other assets" and acceptances outstanding
are included in "accrued expenses and other liabilities" on the consolidated balance sheets. Due to their short-term nature, the
carrying amount of these instruments approximates the estimated fair value. As such, the Corporation classifies the estimated
fair value of these instruments as Level 1.
Derivative assets and derivative liabilities
Derivative instruments held or issued for risk management or customer-initiated activities are traded in over-the-counter
markets where quoted market prices are not readily available. Fair value for over-the-counter derivative instruments is measured
on a recurring basis using internally developed models that use primarily market observable inputs, such as yield curves and
option volatilities. Fair value for certain derivatives designated as fair value hedges is determined using third-party pricing
services. The Corporation manages credit risk on its derivative positions based on whether the derivatives are being settled
through a clearinghouse or bilaterally with each counterparty. For derivative positions settled on a counterparty-by-counterparty
basis, the Corporation calculates credit valuation adjustments, included in the fair value of these instruments, on the basis of
its relationships at the counterparty portfolio/master netting agreement level. These credit valuation adjustments are determined
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
by applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the
derivative after considering collateral and other master netting arrangements. These adjustments, which are considered Level
3 inputs, are based on estimates of current credit spreads to evaluate the likelihood of default. When credit valuation adjustments
are significant to the overall fair value of a derivative, the Corporation classifies the over-the-counter derivative valuation in
Level 3 of the fair value hierarchy; otherwise, over-the-counter derivative valuations are classified in Level 2.
Warrants which contain a net exercise provision or a non-contingent put right embedded in the warrant agreement are accounted
for as derivatives and recorded at fair value on a recurring basis using a Black-Scholes valuation model. The Black-Scholes
valuation model utilizes five inputs: risk-free rate, expected life, volatility, exercise price, and the per share market value of
the underlying company. The Corporation holds a portfolio of warrants for generally nonmarketable equity securities with a
fair value of $2 million at December 31, 2017, included in "accrued income and other assets" on the consolidated balance
sheets. These warrants are primarily from non-public technology companies obtained as part of the loan origination process.
The Corporate Development Department is responsible for the warrant valuation process, which includes reviewing all
significant inputs for reasonableness, and for providing valuation results to senior management. Increases in any of these
inputs in isolation, with the exception of exercise price, would result in a higher fair value. Increases in exercise price in
isolation would result in a lower fair value. The Corporation classifies warrants accounted for as derivatives as Level 3.
Nonmarketable equity securities
The Corporation has a portfolio of indirect (through funds) private equity and venture capital investments with a carrying
value of $6 million and unfunded commitments of less than $1 million, at December 31, 2017. These funds generally cannot
be redeemed and the majority is not readily marketable. Distributions from these funds are received by the Corporation as a
result of the liquidation of underlying investments of the funds and/or as income distributions. The investments are accounted
for either on the cost or equity method and are individually reviewed for impairment on a quarterly basis by comparing the
carrying value to the estimated fair value. These investments may be carried at fair value on a nonrecurring basis when they
are deemed to be impaired and written down to fair value. Where there is not a readily determinable fair value, the Corporation
estimates fair value for indirect private equity and venture capital investments based on the net asset value, as reported by the
fund. On a quarterly basis, the Corporate Development Department is responsible, with appropriate oversight and approval
provided by senior management, for performing the valuation procedures and updating significant inputs, as are primarily
provided by the underlying fund's management.
The Corporation also holds restricted equity investments, primarily Federal Home Loan Bank (FHLB) and Federal Reserve
Bank (FRB) stock. Restricted equity securities are not readily marketable and are recorded at cost (par value) in "accrued
income and other assets" on the consolidated balance sheets and evaluated for impairment based on the ultimate recoverability
of the par value. No significant observable market data for these instruments is available. The Corporation considers the
profitability and asset quality of the issuer, dividend payment history and recent redemption experience and believes its
investments in FHLB and FRB stock are ultimately recoverable at par. Therefore, the carrying amount for these restricted
equity investments approximates fair value. The Corporation classifies the estimated fair value of such investments as Level
1. The Corporation’s investment in FHLB stock totaled $122 million at both December 31, 2017 and 2016, and its investment
in FRB stock totaled $85 million at both December 31, 2017 and 2016.
Other real estate
Other real estate is included in “accrued income and other assets” on the consolidated balance sheets and includes primarily
foreclosed property. Foreclosed property is initially recorded at fair value, less costs to sell, at the date of legal title transfer
to the Corporation, establishing a new cost basis. Subsequently, foreclosed property is carried at the lower of cost or fair value,
less costs to sell. Other real estate may be carried at fair value on a nonrecurring basis when fair value is less than cost. Fair
value is based upon independent market prices, appraised value or management's estimate of the value of the property. The
Special Assets Group obtains updated independent market prices and appraised values, as required by state regulation or
deemed necessary based on market conditions, and determines if additional write-downs are necessary. On a quarterly basis,
senior management reviews all other real estate and determines whether the carrying values are reasonable, based on the length
of time elapsed since receipt of independent market price or appraised value and current market conditions. When management
determines that the fair value of other real estate requires additional adjustments, either as a result of a non-current appraisal
or when there is no observable market price, the Corporation classifies the other real estate as Level 3.
Deposit liabilities
The estimated fair value of checking, savings and certain money market deposit accounts is represented by the amounts payable
on demand. The estimated fair value of term deposits is calculated by discounting the scheduled cash flows using the period-
end rates offered on these instruments. As such, the Corporation classifies the estimated fair value of deposit liabilities as
Level 2.
F-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Short-term borrowings
The carrying amount of federal funds purchased, securities sold under agreements to repurchase and other short-term
borrowings approximates the estimated fair value. As such, the Corporation classifies the estimated fair value of short-term
borrowings as Level 1.
Medium- and long-term debt
The estimated fair value of the Corporation's medium- and long-term debt is based on quoted market values when available.
If quoted market values are not available, the estimated fair value is based on the market values of debt with similar
characteristics. The Corporation classifies the estimated fair value of medium- and long-term debt as Level 2.
Credit-related financial instruments
Credit-related financial instruments include unused commitments to extend credit and letters of credit. These instruments
generate ongoing fees which are recognized over the term of the commitment. In situations where credit losses are probable,
the Corporation records an allowance. The carrying value of these instruments included in "accrued expenses and other
liabilities" on the consolidated balance sheets, which includes the carrying value of the deferred fees plus the related allowance,
approximates the estimated fair value. The Corporation classifies the estimated fair value of credit-related financial instruments
as Level 3.
For further information about fair value measurements refer to Note 2.
Other Short-Term Investments
Other short-term investments include trading securities and loans held-for-sale.
Trading securities are carried at fair value. Realized and unrealized gains or losses on trading securities are included in
“other noninterest income” on the consolidated statements of income.
Loans held-for-sale, typically residential mortgages originated with the intent to sell and occasionally may include other
loans transferred to held-for-sale, are carried at the lower of cost or fair value. Fair value is determined in the aggregate for each
portfolio. Changes in fair value and gains or losses upon sale are included in “other noninterest income” on the consolidated
statements of income.
Investment Securities
Securities not held for trading purposes are classified as available-for-sale or held-to-maturity. Debt securities for which
management has the intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost. Securities
available-for-sale are recorded at fair value, with unrealized gains and losses, net of income taxes, reported as a separate component
of other comprehensive income (OCI).
Securities transferred from available-for-sale to held-to-maturity are reclassified at fair value on the date of transfer. The
net unrealized gain (loss) at the date of transfer is included in historical cost and amortized over the remaining life of the related
securities as a yield adjustment consistent with the amortization of the net unrealized gain (loss) included in accumulated other
comprehensive loss on the same securities, resulting in no impact to net income.
Investment securities are reviewed quarterly for possible other-than-temporary impairment (OTTI). In determining
whether OTTI exists for debt securities in an unrealized loss position, the Corporation assesses the likelihood of selling the security
prior to the recovery of its amortized cost basis. If the Corporation intends to sell the debt security or it is more likely than not that
the Corporation will be required to sell the debt security prior to the recovery of its amortized cost basis, the debt security is written
down to fair value, and the full amount of any impairment charge is recorded as a loss in “net securities gains” in the consolidated
statements of income. If the Corporation does not intend to sell the debt security and it is more likely than not that the Corporation
will not be required to sell the debt security prior to recovery of its amortized cost basis, only the credit component of any impairment
of a debt security is recognized as a loss in “net securities losses” on the consolidated statements of income, with the remaining
impairment recorded in OCI.
The OTTI review for equity securities includes an analysis of the facts and circumstances of each individual investment
and focuses on the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s
performance, the financial condition and near-term prospects of the issuer, and management’s intent and ability to hold the security
to recovery. A decline in value of an equity security that is considered to be other-than-temporary is recorded as a loss in “net
securities losses” on the consolidated statements of income.
Gains or losses on the sale of securities are computed based on the adjusted cost of the specific security sold.
For further information on investment securities, refer to Note 3.
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Loans
Loans and leases originated and held for investment are recorded at the principal balance outstanding, net of unearned
income, charge-offs and unamortized deferred fees and costs. Interest income is recognized on loans and leases using the interest
method.
The Corporation assesses all loan modifications to determine whether a restructuring constitutes a troubled debt
restructuring (TDR). A restructuring is considered a TDR when a borrower is experiencing financial difficulty and the Corporation
grants a concession to the borrower. TDRs on accrual status at the original contractual rate of interest are considered performing.
Nonperforming TDRs include TDRs on nonaccrual status and loans which have been renegotiated to less than the original
contractual rates (reduced-rate loans). All TDRs are considered impaired loans.
Loan Origination Fees and Costs
Substantially all loan origination fees and costs are deferred and amortized to net interest income over the life of the
related loan or over the commitment period as a yield adjustment. Net deferred income on originated loans, including unearned
income and unamortized costs, fees, premiums and discounts, totaled $113 million and $147 million at December 31, 2017 and
2016, respectively.
Loan fees on unused commitments and net origination fees related to loans sold are recognized in noninterest income.
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 Corporation disaggregates the loan portfolio into segments for purposes of determining the allowance for credit
losses. These segments are based on the level at which the Corporation develops, documents and applies a systematic methodology
to determine the allowance for credit losses. The Corporation's portfolio segments are business loans and retail loans. Business
loans include the commercial, real estate construction, commercial mortgage, lease financing and international loan portfolios.
Retail loans consist of traditional residential mortgage, home equity and other consumer loans.
For further information on the Allowance for Credit Losses, refer to Note 4.
Allowance for Loan Losses
The allowance for loan losses represents management’s assessment of probable, estimable losses inherent in the
Corporation’s loan portfolio. The allowance for loan losses includes specific allowances, based on individual evaluations of certain
loans, and allowances for homogeneous pools of loans with similar risk characteristics.
The Corporation individually evaluates certain impaired loans on a quarterly basis and establishes specific allowances
for such loans, if required. A loan is considered impaired when it is probable that interest or principal payments will not be made
in accordance with the contractual terms of the loan agreement. Consistent with this definition, all loans for which the accrual of
interest has been discontinued (nonaccrual loans) are considered impaired. The Corporation individually evaluates nonaccrual
loans with book balances of $2 million or more and accruing loans whose terms have been modified in a TDR. The threshold for
individual evaluation is revised on an infrequent basis, generally when economic circumstances change significantly. Specific
allowances for impaired loans are estimated using one of several methods, including the estimated fair value of underlying collateral,
observable market value of similar debt or discounted expected future cash flows. Collateral values supporting individually
evaluated impaired loans are evaluated quarterly. Either appraisals are obtained or appraisal assumptions are updated at least
annually unless conditions dictate increased frequency. The Corporation may reduce the collateral value based upon the age of the
appraisal and adverse developments in market conditions.
Loans which do not meet the criteria to be evaluated individually are evaluated in homogeneous pools of loans with
similar risk characteristics. Business loans are assigned to pools based on the Corporation's internal risk rating system. Internal
risk ratings are assigned to each business loan at the time of approval and are subjected to subsequent periodic reviews by the
Corporation’s senior management, generally at least annually or more frequently upon the occurrence of a circumstance that affects
the credit risk of the loan. For business loans not individually evaluated, losses inherent to the pool are estimated by applying
standard reserve factors to outstanding principal balances. Standard reserve factors are based on estimated probabilities of default
for each internal risk rating, set to a default horizon based on an estimated loss emergence period, and loss given default. These
factors are evaluated quarterly and updated annually, unless economic conditions necessitate a change, giving consideration to
count-based borrower risk rating migration experience and trends, recent charge-off experience, current economic conditions and
trends, changes in collateral values of properties securing loans, and trends with respect to past due and nonaccrual amounts.
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The allowance for business loans not individually evaluated also includes qualitative adjustments to bring the allowance
to the level management believes is appropriate based on factors that have not otherwise been fully accounted for, including
adjustments for (i) risk factors that have not been fully addressed in internal risk ratings, (ii) imprecision in the risk rating system
resulting from inaccuracy in assigning and/or entering risk ratings in the loan accounting system, (iii) market conditions and (iv)
model imprecision. Risk factors that have not been fully addressed in internal risk ratings may include portfolios where recent
historical losses exceed expected losses or known recent events are expected to alter risk ratings once evidence is acquired, portfolios
where a certain level of concentration introduces added risk, or changes in the level and quality of experience held by lending
management. An additional allowance for risk rating errors is calculated based on the results of risk rating accuracy assessments
performed on samples of business loans conducted by the Corporation's asset quality review function, a function independent of
the lending and credit groups responsible for assigning the initial internal risk rating at the time of approval. Qualitative adjustments
for market conditions are determined based on an established framework. The determination of the appropriate adjustment is based
on management's analysis of observable macroeconomic metrics, including consideration of regional metrics within the
Corporation's footprint, internal credit risk movement and a qualitative assessment of the lending environment, including
underwriting standards, current economic and political conditions, and other factors affecting credit quality. Management recognizes
the sensitivity of various assumptions made in the quantitative modeling of expected losses and may adjust reserves depending
upon the level of uncertainty that currently exists in one or more assumption.
The allowance for retail loans not individually evaluated is determined by applying estimated loss rates to various pools
of loans within the portfolios with similar risk characteristics. Estimated loss rates for all pools are updated quarterly, incorporating
quantitative and qualitative 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.
The total allowance for loan losses is sufficient to absorb incurred losses inherent in the total 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. Significant increases
in current portfolio exposures, as well as the inclusion of additional industry-specific portfolio exposures in the allowance, could
also increase the amount of the allowance. Any of these events, or some combination thereof, may result in the need for additional
provision for credit losses in order to maintain an allowance that complies with credit risk and accounting policies.
Loans deemed uncollectible are charged off and deducted from the allowance. Recoveries on loans previously charged
off are added to the allowance.
Allowance for Credit Losses on Lending-Related Commitments
The allowance for credit losses on lending-related commitments provides for probable losses inherent in lending-related
commitments, including unused commitments to extend credit and letters of credit. The allowance for credit losses on lending-
related commitments includes allowances based on homogeneous pools of letters of credit and unused commitments to extend
credit within each internal risk rating. A probability of draw estimate is applied to the commitment amount, and the result is
multiplied by standard reserve factors consistent with business loans. In general, the probability of draw for letters of credit is
considered certain for all letters of credit supporting loans and for letters of credit assigned an internal risk rating generally consistent
with regulatory defined substandard or doubtful. Other letters of credit and all unfunded commitments have a lower probability
of draw. The allowance for credit losses on lending-related commitments is included in “accrued expenses and other liabilities”
on the consolidated balance sheets, with the corresponding charge reflected in the “provision for credit losses” on the consolidated
statements of income.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, reduced-rate loans and foreclosed property.
A loan is considered past due when the contractually required principal or interest payment is not received by the specified
due date or, for certain loans, when a scheduled monthly payment is past due and unpaid for 30 days or more. Business loans are
generally placed on nonaccrual status when management determines full collection of principal or interest is unlikely or when
principal or interest payments are 90 days past due, unless the loan is fully collateralized and in the process of collection. The past-
due status of a business loan is one of many indicative factors considered in determining the collectibility of the credit. The primary
driver of when the principal amount of a business loan should be fully or partially charged-off is based on a qualitative assessment
of the recoverability of the principal amount from collateral and other cash flow sources. Residential mortgage and home equity
loans are generally placed on nonaccrual status once they become 90 days past due and are charged off to current appraised values
less costs to sell no later than 180 days past due. In addition, junior lien home equity loans less than 90 days past due are placed
on nonaccrual status if they have underlying risk characteristics that place full collection of the loan in doubt, such as when the
related senior lien position is identified as seriously delinquent. Residential mortgage and consumer loans in bankruptcy for which
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt are placed on nonaccrual status
and written down to estimated collateral value, without regard to the actual payment status of the loan, and are classified as TDRs.
All other consumer loans are generally placed on nonaccrual status at 90 days past due and are charged off at no later than 120
days past due, earlier if deemed uncollectible.
At the time a loan is placed on nonaccrual status, interest previously accrued but not collected is charged against current
income. Principal and interest payments received on such loans are generally first applied as a reduction of principal. Income on
nonaccrual loans is then recognized only to the extent that cash is received after principal has been fully repaid or future collection
of principal is probable. Generally, a loan may be returned to accrual status when all delinquent principal and interest have been
received and the Corporation expects repayment of the remaining contractual principal and interest, or when the loan or debt
security is both well secured and in the process of collection.
Foreclosed property (primarily real estate) is initially recorded at fair value, less costs to sell, at the date of legal title
transfer to the Corporation and subsequently carried at the lower of cost or fair value, less estimated costs to sell. Loans are
reclassified to foreclosed property upon obtaining legal title to the collateral. Independent appraisals are obtained to substantiate
the fair value of foreclosed property at the time of foreclosure and updated at least annually or upon evidence of deterioration in
the property’s value. At the time of foreclosure, the adjustment for the difference between the related loan balance and fair value
(less estimated costs to sell) of the property acquired is charged or credited to the allowance for loan losses. Subsequent write-
downs, operating expenses and losses upon sale, if any, are charged to noninterest expenses. Foreclosed property is included in
“accrued income and other assets” on the consolidated balance sheets.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation, computed using
the straight-line method, is charged to operations over the estimated useful lives of the assets. Estimated useful lives are generally
3 years to 33 years for premises that the Corporation owns and 3 years to 8 years for furniture and equipment. Leasehold
improvements are generally amortized over the terms of their respective leases or 10 years, whichever is shorter.
Software
Capitalized software is stated at cost, less accumulated amortization. Capitalized software includes purchased software,
capitalizable application development costs associated with internally-developed software and cloud computing arrangements,
including an in-substance software license. Amortization, computed on the straight-line method, is charged to operations over the
estimated useful life of the software, generally 5 years. Capitalized software is included in “accrued income and other assets” on
the consolidated balance sheets.
Goodwill and Core Deposit Intangibles
Goodwill, included in "accrued income and other assets" on the consolidated balance sheets, is initially recorded as the
excess of the purchase price over the fair value of net assets acquired in a business combination and is subsequently evaluated at
least annually for impairment. Goodwill impairment testing is performed at the reporting unit level, equivalent to a business
segment or one level below. The Corporation has three reporting units: the Business Bank, the Retail Bank and Wealth Management.
The Corporation performs its annual evaluation of goodwill impairment in the third quarter of each year and on an interim
basis if events or changes in circumstances between annual tests suggest additional testing may be warranted to determine if
goodwill might be impaired. The goodwill impairment test is a two-step test. The first step of the goodwill impairment test compares
the estimated fair value of identified reporting units with their carrying amount, including goodwill. If the estimated fair value of
the reporting unit is less than the carrying value, the second step must be performed to determine the implied fair value of the
reporting unit's goodwill and the amount of goodwill impairment, if any. The implied fair value of goodwill is determined as if
the reporting unit were being acquired in a business combination. If the implied fair value of goodwill exceeds the goodwill assigned
to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill,
an impairment charge would be recorded for the excess.
The Corporation may choose to perform a qualitative assessment to determine whether the first step of the impairment
test should be performed in future periods if certain factors indicate that impairment is unlikely. Factors which could be considered
in the assessment of the likelihood of impairment include macroeconomic conditions, industry and market considerations, stock
performance of the Corporation and its peers, financial performance, events affecting the Corporation as a whole or its reporting
units individually and previous results of goodwill impairment tests.
Core deposit intangibles are amortized on an accelerated basis, based on the estimated period the economic benefits are
expected to be received. Core deposit intangibles are reviewed for impairment when events or changes in circumstances indicate
that their carrying amounts may not be recoverable. Impairment for a finite-lived intangible asset exists if the sum of the undiscounted
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
cash flows expected to result from the use of the asset exceeds its carrying value.
Additional information regarding goodwill and core deposit intangibles can be found in Note 7.
Nonmarketable Equity Securities
The Corporation has certain investments that are not readily marketable. These investments include a portfolio of
investments in indirect private equity and venture capital funds and restricted equity investments, which are securities the
Corporation is required to hold for various reasons, primarily Federal Home Loan Bank of Dallas (FHLB) and Federal Reserve
Bank (FRB) stock. These investments are accounted for on the cost or equity method and are included in “accrued income and
other assets” on the consolidated balance sheets. The investments are individually reviewed for impairment on a quarterly basis.
Indirect private equity and venture capital funds are evaluated by comparing the carrying value to the estimated fair value. The
amount by which the carrying value exceeds the fair value that is determined to be other-than-temporary impairment is charged
to current earnings and the carrying value of the investment is written down accordingly. FHLB and FRB stock are recorded at
cost (par value) and evaluated for impairment based on the ultimate recoverability of the par value. If the Corporation does not
expect to recover the full par value, the amount by which the par value exceeds the ultimately recoverable value would be charged
to current earnings and the carrying value of the investment would be written down accordingly.
Derivative Instruments and Hedging Activities
Derivative instruments are carried at fair value in either “accrued income and other assets” or “accrued expenses and
other liabilities” on the consolidated balance sheets. The accounting for changes in the fair value (i.e., gains or losses) of a derivative
instrument is determined by whether it has been designated and qualifies as part of a hedging relationship and, further, by the type
of hedging relationship. The Corporation presents derivative instruments at fair value in the consolidated balance sheets on a net
basis when a right of offset exists, based on transactions with a single counterparty and any cash collateral paid to and/or received
from that counterparty for derivative contracts that are subject to legally enforceable master netting arrangements. For derivative
instruments designated and qualifying as fair value hedges (i.e., hedging the exposure to changes in the fair value of an asset or a
liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument, as
well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings during the
period of the change in fair values. For derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging
the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain
or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in
the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative
instrument in excess of the cumulative change in the present value of future cash flows of the hedged item (i.e., the ineffective
portion), if any, is recognized in current earnings during the period of change. For derivative instruments not designated as hedging
instruments, the gain or loss is recognized in current earnings during the period of change.
To qualify for the use of hedge accounting, a derivative must be effective at inception and expected to be continuously
effective in offsetting the risk being hedged. For derivatives designated as hedging instruments at inception, the Corporation uses
either the short-cut method or applies statistical regression analysis to assess effectiveness. The short-cut method is used for $150
million notional of fair value hedges of medium and long-term debt issued prior to 2006. This method allows for the assumption
of zero hedge ineffectiveness and eliminates the requirement to further assess hedge effectiveness on these transactions. For hedge
relationships to which the Corporation does not apply the short-cut method, statistical regression analysis is used at inception and
for each reporting period thereafter to assess whether the derivative used has been and is expected to be highly effective in offsetting
changes in the fair value or cash flows of the hedged item. All components of each derivative instrument’s gain or loss are included
in the assessment of hedge effectiveness. Net hedge ineffectiveness is recorded in “other noninterest income” on the consolidated
statements of income.
Further information on the Corporation’s derivative instruments and hedging activities is included in Note 8.
Short-Term Borrowings
Securities sold under agreements to repurchase are treated as collateralized borrowings and are recorded at amounts equal
to the cash received. The contractual terms of the agreements to repurchase may require the Corporation to provide additional
collateral if the fair value of the securities underlying the borrowings declines during the term of the agreement.
Financial Guarantees
Certain guarantee contracts or indemnification agreements that contingently require the Corporation, as guarantor, to
make payments to the guaranteed party are initially measured at fair value and included in “accrued expenses and other liabilities”
on the consolidated balance sheets. The subsequent accounting for the liability depends on the nature of the underlying guarantee.
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The release from risk is accounted for under a particular guarantee when the guarantee expires or is settled, or by a systematic and
rational amortization method.
Further information on the Corporation’s obligations under guarantees is included in Note 8.
Share-Based Compensation
The Corporation recognizes share-based compensation expense using the straight-line method over the requisite service
period for all stock awards, including those with graded vesting. The requisite service period is the period an employee is required
to provide service in order to vest in the award, which cannot extend beyond the date at which the employee is no longer required
to perform any service to receive the share-based compensation (the retirement-eligible date). The Corporation adopted Accounting
Standards Update (ASU) No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-
Based Payments Accounting" (ASU 2016-09), effective January 1, 2017. Upon adoption, the Corporation elected to account for
compensation cost based on forfeitures as they occur. Prior to the adoption, compensation cost was accounted for based on an
estimate of the number of awards that were expected to vest. The prior period effect of this policy election as of the beginning of
the year was reported as "cumulative effect of change in accounting principle" in the accompanying Consolidated Statements of
Changes in Shareholders’ Equity.
Certain awards are contingent upon performance and/or market conditions, which affect the number of shares ultimately
issued. The Corporation periodically evaluates the probable outcome of the performance conditions and makes cumulative
adjustments to compensation expense as appropriate. Market conditions are included in the determination of the fair value of the
award on the date of grant. Subsequent to the grant date, market conditions have no impact on the amount of compensation expense
the Corporation will recognize over the life of the award.
Further information on the Corporation’s share-based compensation plans is included in Note 16.
Revenue Recognition
The following summarizes the Corporation’s revenue recognition policies as they relate to certain noninterest income
line items in the consolidated statements of income.
Card fees includes primarily bankcard interchange revenue which is recorded as revenue when earned. For certain products
where the Corporation bears the risks and rewards of providing the service at the program level, interchange revenue is presented
gross of network costs, which are included within "outside processing fee expense" in noninterest income.
Service charges on deposit accounts include fees for banking services provided, overdrafts and non-sufficient funds.
Revenue is generally recognized in accordance with published deposit account agreements for retail accounts or when fixed and
determinable per contractual agreements for commercial accounts.
Fiduciary income includes fees and commissions from asset management, custody, recordkeeping, investment advisory
and other services provided to personal and institutional trust customers. Revenue is recognized on an accrual basis at the time
the services are performed and are based on either the market value of the assets managed or the services provided.
Commercial lending fees primarily include fees assessed on the unused portion of commercial lines of credit (unused
commitment fees) and syndication agent fees. Unused commitment fees are recognized when earned. Syndication agent fees are
generally recognized when the transaction is complete.
Defined Benefit Pension and Other Postretirement Costs
Defined benefit pension costs are included in “salaries and benefits expense" on the consolidated statements of income
and are funded consistent with the requirements of federal laws and regulations. Inherent in the determination of defined benefit
pension costs are assumptions concerning future events that will affect the amount and timing of required benefit payments under
the plans. These assumptions include demographic assumptions such as retirement age and mortality, a compensation rate increase,
a discount rate used to determine the current benefit obligation, form of payment election and a long-term expected rate of return
on plan assets. Net periodic defined benefit pension expense includes service cost, interest cost based on the assumed discount
rate, an expected return on plan assets based on an actuarially derived market-related value of assets, amortization of prior service
cost or credit and amortization of net actuarial gains or losses. The market-related value of plan assets is determined by amortizing
the current year’s investment gains and losses (the actual investment return net of the expected investment return) over 5 years.
The amortization adjustment cannot exceed 10 percent of the fair value of assets. Prior service costs or credits include the impact
of plan amendments on the liabilities and are amortized over the future service periods of active employees expected to receive
benefits under the plan. Actuarial gains and losses result from experience different from that assumed and from changes in
assumptions (excluding asset gains and losses not yet reflected in market-related value). Amortization of actuarial gains and losses
is included as a component of net periodic defined benefit pension cost for a year if the actuarial net gain or loss exceeds 10 percent
F-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
of the greater of the projected benefit obligation or the market-related value of plan assets. If amortization is required, the excess
is amortized over the average remaining service period of participating employees expected to receive benefits under the plan.
Postretirement benefits are recognized in “salaries and benefits expense" on the consolidated statements of income during
the average remaining service period of participating employees expected to receive benefits under the plan or the average remaining
future lifetime of retired participants currently receiving benefits under the plan.
See Note 17 for further information regarding the Corporation’s defined benefit pension and other postretirement plans.
Income Taxes
The provision for income taxes is the sum of income taxes due for the current year and deferred taxes. The Corporation
classifies interest and penalties on income tax liabilities and, beginning January 1, 2017, excess tax benefits and deficiencies
resulting from employee stock awards in the “provision for income taxes” on the consolidated statements of income.
Deferred taxes arise from temporary differences between the income tax basis and financial accounting basis of assets
and liabilities. Deferred tax assets are evaluated for realization based on available evidence of projected future reversals of existing
taxable temporary differences, assumptions made regarding future events and, when applicable, state loss carryback capacity. A
valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.
The Tax Cuts and Jobs Act (the "Act"), enacted on December 22, 2017, reduced the U.S. federal corporate tax rate from
35 percent to 21 percent. Also on December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 118 (SAB 118), which provides guidance on accounting for tax effects of the Act. SAB 118 provides a measurement period
of up to one year from the enactment date to complete the accounting. Based on the information available and current interpretation
of the rules, the Corporation has made reasonable estimates of the impact of the reduction in the corporate tax rate and remeasurement
of certain deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future, generally 21
percent. The provisional amount recorded related to the remeasurement of the Corporation's deferred tax balance was $107 million.
The final impact of the Act may differ from these estimates as a result of changes in management’s interpretations and assumptions,
as well as new guidance that may be issued by the Internal Revenue Service (IRS).
Earnings Per Share
Basic net income per common share is calculated using the two-class method. The two-class method is an earnings
allocation formula that determines earnings per share for each share of common stock and participating securities according to
dividends declared (distributed earnings) and participation rights in undistributed earnings. Distributed and undistributed earnings
are allocated between common and participating security shareholders based on their respective rights to receive dividends.
Nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered
participating securities (e.g., nonvested restricted stock and service-based restricted stock units). Undistributed net losses are not
allocated to nonvested restricted shareholders, as these shareholders do not have a contractual obligation to fund the losses incurred
by the Corporation. Net income attributable to common shares is then divided by the weighted-average number of common shares
outstanding during the period.
Diluted net income per common share is calculated using the more dilutive of either the treasury method or the two-class
method. The dilutive calculation considers common stock issuable under the assumed exercise of stock options and performance-
based restricted stock units granted under the Corporation’s stock plans and warrants using the treasury stock method, if dilutive.
Net income attributable to common shares is then divided by the total of weighted-average number of common shares and common
stock equivalents outstanding during the period.
Statements of Cash Flows
Cash and cash equivalents are defined as those amounts included in “cash and due from banks”, “federal funds sold” and
“interest-bearing deposits with banks” on the consolidated balance sheets. As a result of the adoption of ASU 2016-09, the
Corporation retrospectively applied certain changes to the statement of cash flows to classify excess tax benefits as an operating
activity and cash paid to a tax authority when withholding shares from an employee's award for tax-withholding purposes as a
financing activity. Accordingly, net cash provided by operating activities increased by $9 million and $3 million for 2016 and
2015, respectively, and net cash provided by financing activities decreased by the corresponding amounts.
Comprehensive Income (Loss)
The Corporation presents on an annual basis the components of net income and other comprehensive income in two
separate, but consecutive statements and presents on an interim basis the components of net income and a total for comprehensive
income in one continuous consolidated statement of comprehensive income.
F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Corporation early adopted ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (ASU 2018-02) in the fourth quarter
2017. ASU 2018-02, issued in February 2018, provides for the reclassification of the effect of remeasuring deferred tax balances
related to items within accumulated other comprehensive income (AOCI) to retained earnings resulting from the Tax Cuts and
Jobs Act of 2017. As a result, the Corporation reclassified $87 million from AOCI to retained earnings.
Pending Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, “Revenue from Contracts
with Customers (Topic 606),” (ASU 2014-09), which is intended to improve and converge the financial reporting requirements
for revenue contracts with customers. Previous GAAP comprised broad revenue recognition concepts along with numerous industry-
specific requirements. The new guidance establishes a five-step model which entities must follow to recognize revenue and removes
inconsistencies in existing guidance. The guidance under ASU 2014-09 is effective for annual and interim periods beginning after
December 15, 2017, and must be retrospectively applied. The Corporation will adopt ASU 2014-09 in the first quarter of 2018
using the modified retrospective approach, which includes presenting the cumulative effect of initial application along with
supplementary disclosures. The revenue streams within the scope of Topic 606 were less than 30 percent of total revenues.
Under the new guidance, card fee revenue from certain products will generally be presented net of network costs (including
interchange costs, surcharge fees and assessment fees), as opposed to the current presentation of associated network costs in
"outside processing fees." Network costs impacted by the new guidance were approximately $115 million for the year ended
December 31, 2017. There were similar adjustments made for other revenue streams that resulted in additional net decreases of
$5 million each to noninterest income and noninterest expense. These changes in presentation will not impact net income.
The Corporation currently defers recognition of certain treasury management fees in "service charges on deposit accounts"
in the consolidated statements of comprehensive income until the amount of compensation is considered fixed and determinable.
Under the new guidance, a portion of these fees will be recognized as services are rendered. As a result of this earlier recognition,
the Corporation will record a receivable of approximately $17 million with a corresponding adjustment to retained earnings and
deferred tax liability upon adoption of ASU 2014-09. The annual amount of treasury management fees reflected in the Corporation's
results of operations is not expected to significantly change. There were similar adjustments made for other revenue streams that
resulted in an incremental cumulative adjustment to retained earnings of $2 million.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition
of Financial Assets and Financial Liabilities," (ASU 2016-01), which makes targeted amendments to the guidance for recognition,
measurement, presentation and disclosure of financial instruments. The Corporation will adopt ASU 2016-01 in the first quarter
of 2018. The guidance under ASU 2016-01 requires equity investments, other than equity method investments, to be measured at
fair value with changes in fair value recognized in net income. As of December 31, 2017, the Corporation classified approximately
$82 million of securities as available-for-sale equity securities. At adoption, the cumulative net unrealized loss ($1 million, pretax)
of these securities previously recognized in AOCI was recorded as an adjustment to the opening balance of retained earnings. Any
further changes to the fair value of equity securities, other than equity method investments, will be recorded in net income. ASU
2016-01 also emphasizes the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies that
entities should not make use of a practicability exception in determining the fair value of loans. Accordingly, the Corporation will
refine the calculation used to determine the disclosed fair value of its held-for-investment loan portfolio as part of adopting the
standard.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” (ASU 2016-02), to increase the transparency
and comparability of lease recognition and disclosure. The update requires lessees to recognize lease contracts with a term greater
than one year on the balance sheet, while recognizing expenses on the income statement in a manner similar to current guidance.
For lessors, the update makes targeted changes to the classification criteria and the lessor accounting model to align the guidance
with the new lessee model and revenue guidance. ASU 2016-02 is effective for the Corporation on January 1, 2019 and must be
applied using the modified retrospective approach. Early adoption is permitted. The Corporation is currently in the process of
gathering a complete inventory of leases and migrating identified lease data onto a new system platform. Based on preliminary
evaluation, the right-of-use asset and the corresponding lease liability is expected to be less than one percent of the Corporation’s
total assets at adoption. The Corporation will continue to evaluate for other impacts of adoption, including potential additional
regulatory costs, but does not anticipate these to be significant.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments," (ASU 2016-13), which addresses concerns regarding the perceived delay in recognition
of credit losses under the existing incurred loss model. The amendment introduces a new, single model for recognizing credit losses
on all financial instruments presented on cost basis. Under the new model, entities must estimate current expected credit losses
by considering all available relevant information, including historical and current information, as well as reasonable and supportable
F-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
forecasts of future events. The update also requires additional qualitative and quantitative information to allow users to better
understand the credit risk within the portfolio and the methodologies for determining the allowance for credit losses. ASU 2016-13
is effective for the Corporation on January 1, 2020 and must be applied using the modified retrospective approach with limited
exceptions. Early adoption is permitted. The Corporation is currently evaluating the impact of adopting ASU 2016-13.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments,” (ASU 2016-15), which reduces diversity in the presentation of several categories of transactions
in the cash flow statement. Among other things, the update clarifies the appropriate classification for proceeds from settlement of
bank-owned life insurance (BOLI) policies. The Corporation will adopt ASU 2016-15 in the first quarter 2018 and retrospectively
change the classification of proceeds from settlement of BOLI policies from operating activities to investing activities. Proceeds
from settlement of BOLI policies totaled $18 million and $16 million for the years ended December 31, 2017 and 2016, respectively.
Other changes in classification resulting from this update are not significant.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment,” (ASU 2017-04), which intends to simplify goodwill impairment testing by eliminating the second
step of the analysis under which the implied fair value of goodwill is determined as if the reporting unit were being acquired in a
business combination. The update instead requires entities to compare the fair value of a reporting unit with its carrying amount
and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit’s fair value, to the
extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit. ASU 2017-04 must be
applied prospectively and is effective for the Corporation on January 1, 2020. Early adoption is permitted. The Corporation does
not expect the new guidance to have a material impact on its financial condition or results of operation.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-07), which requires employers
to retrospectively report service cost as part of compensation expense and the other components of net benefit cost separately from
service cost on the statement of income. Further, only the service cost component will be eligible for capitalization in deferred
loan costs.
The Corporation currently includes all components of net benefit cost in "salaries and benefits expense" in the consolidated
statements of comprehensive income. Upon adoption of ASU 2017-07 in the first quarter 2018, only service cost will remain in
salaries and benefits expense, and the other components (interest cost, expected return on assets, amortization of prior service cost
or credit and amortization of net actuarial gains or losses) will be included in "other noninterest expenses." The other components
of net benefit cost were a benefit of $50 million and $28 million for the years ended December 31, 2017 and 2016, respectively.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities” (ASU 2017-12), which better aligns the accounting and reporting of hedging relationships
with the economics of risk management activities. ASU 2017-12 provides administrative reliefs to simplify the application of
hedge accounting. The amendment is effective for the Corporation on January 1, 2019 and early adoption is permitted. The
Corporation will early adopt in the first quarter of 2018 and record an adjustment of approximately $1 million to opening retained
earnings for the cumulative effect of changes to the measurement methodology on the basis of hedged items at transition. As
permitted under the transition rules, upon adoption, the Corporation will reclassify its portfolio of held-to-maturity securities to
available-for-sale, as the securities are eligible to be hedged under the new guidance.
The Corporation’s derivative instruments used for risk management predominately comprise swaps converting fixed-rate
long-term debt to variable rates. An ineffectiveness net gain of $1 million and net loss of $2 million were included in “other
noninterest income” in the consolidated statements of income for the years ended December 31, 2017 and 2016, respectively.
Under the amendment, gains or losses relating to hedge ineffectiveness will prospectively be included in “net interest income”
rather than “other noninterest income."
F-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 2 – FAIR VALUE MEASUREMENTS
Note 1 contains information about the fair value hierarchy, descriptions of the valuation methodologies and key inputs
used to measure financial assets and liabilities recorded at fair value, as well as a description of the methods and significant
assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring
basis.
ASSETS AND LIABLILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS
The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as
Total
Level 1
Level 2
Level 3
$
92
$
92
$
— $
—
of December 31, 2017 and 2016.
(in millions)
December 31, 2017
Trading securities:
Deferred compensation plan assets
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities
Residential mortgage-backed securities (a)
State and municipal securities
Equity and other non-debt securities
Total investment securities available-for-sale
Derivative assets:
Interest rate contracts
Energy derivative contracts
Foreign exchange contracts
Warrants
Total derivative assets
Total assets at fair value
Derivative liabilities:
2,727
8,124
5
82
10,938
57
93
42
2
194
11,224
$
$
2,727
—
—
38
2,765
—
—
—
—
—
2,857
$
Interest rate contracts
Energy derivative contracts
Foreign exchange contracts
$ — $
—
—
—
92
92
(a) Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b) Auction-rate securities.
Total derivative liabilities
Deferred compensation plan liabilities
Total liabilities at fair value
59
91
40
190
92
282
$
$
$
$
F-58
—
8,124
—
—
8,124
43
93
42
—
178
8,302
59
91
40
190
—
190
$
$
$
—
—
5 (b)
44 (b)
49
14
—
—
2
16
65
—
—
—
—
—
—
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Total
Level 1
Level 2
Level 3
$
87
1
88
$
87
1
88
— $
—
—
(in millions)
December 31, 2016
Trading securities:
Deferred compensation plan assets
Equity and other non-debt securities
Total trading securities
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities
Residential mortgage-backed securities (a)
State and municipal securities
Equity and other non-debt securities
Total investment securities available-for-sale
Derivative assets:
Interest rate contracts
Energy derivative contracts
Foreign exchange contracts
Warrants
Total derivative assets
Total assets at fair value
Derivative liabilities:
$
$
2,779
7,872
7
129
10,787
223
146
38
3
410
11,285
$
2,779
—
—
82
2,861
—
—
—
—
—
2,949
$
Interest rate contracts
Energy derivative contracts
Foreign exchange contracts
— $
—
—
—
87
87
(a) Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b) Auction-rate securities.
Total derivative liabilities
Deferred compensation plan liabilities
Total liabilities at fair value
81
144
29
254
87
341
$
$
$
$
$
—
—
—
—
—
7 (b)
47 (b)
54
11
—
—
3
14
68
—
—
—
—
—
—
—
7,872
—
—
7,872
212
146
38
—
396
8,268
81
144
29
254
—
254
$
$
$
There were no transfers of assets or liabilities recorded at fair value on a recurring basis into or out of Level 1, Level 2
and Level 3 fair value measurements during the years ended December 31, 2017 and 2016.
F-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table summarizes the changes in Level 3 assets measured at fair value on a recurring basis for the years
ended December 31, 2017 and 2016.
Net Realized/Unrealized Gains (Losses)
(Pretax)
Balance
at
Beginning
of Period
Recorded in Earnings
Realized Unrealized
Recorded in
Other
Comprehensive
Income
Redemptions
Sales
Balance
at
End of
Period
(in millions)
Year Ended December 31, 2017
Investment securities available-for-sale:
State and municipal securities (a)
Equity and other non-debt securities (a)
$
Total investment securities
available-for-sale
Derivative assets:
Interest rate contracts
Warrants
Year Ended December 31, 2016
Investment securities available-for-sale:
State and municipal securities (a)
Corporate debt securities (a)
Equity and other non-debt securities (a)
$
Total investment securities
available-for-sale
Derivative assets:
Interest rate contracts
Warrants
7
47
54
11
3
9
1
67
77
9
2
$
$
$ —
—
$ —
—
—
—
—
6 (c)
3 (c)
(1) (c)
$
—
(2) (b)
(2) $ — $
(1)
—
(2) (b)
(3)
—
—
—
—
—
—
(6)
$ —
—
—
—
$ —
—
—
—
—
6 (c)
2 (c)
1 (c)
—
—
$
—
—
(1) (b)
(1) (b)
(2) $ — $
(1)
(19)
—
—
(22)
—
—
—
—
(6)
5
44
49
14
2
7
—
47
54
11
3
(a) Auction-rate securities.
(b) Recorded in "net unrealized holding losses arising during the period" in other comprehensive income (loss).
(c) Realized and unrealized gains and losses due to changes in fair value recorded in "other noninterest income" on the consolidated statements
of income.
ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS
The Corporation may be required, from time to time, to record certain assets and liabilities at fair value on a nonrecurring
basis. These include assets that are recorded at the lower of cost or fair value, and were recognized at fair value since it was less
than cost at the end of the period.
The following table presents assets recorded at fair value on a nonrecurring basis at December 31, 2017 and 2016. No
liabilities were recorded at fair value on a nonrecurring basis at December 31, 2017 and 2016.
(in millions)
December 31, 2017
Loans:
Commercial
Commercial mortgage
Total assets at fair value
December 31, 2016
Loans:
Commercial
Commercial mortgage
International
Total loans
Other real estate
Total assets at fair value
Level 3
111
5
116
256
15
11
282
1
283
$
$
$
$
Level 3 assets recorded at fair value on a nonrecurring basis at December 31, 2017 and 2016 included loans for which a
specific allowance was established based on the fair value of collateral and other real estate for which fair value of the properties
was less than the cost basis. For both asset classes, the unobservable inputs were the additional adjustments applied by management
to the appraised values to reflect such factors as non-current appraisals and revisions to estimated time to sell. These adjustments
F-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
are determined based on qualitative judgments made by management on a case-by-case basis and are not quantifiable inputs,
although they are used in the determination of fair value.
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS
The Corporation typically holds the majority of its financial instruments until maturity and thus does not expect to realize
many of the estimated fair value amounts disclosed. The disclosures also do not include estimated fair value amounts for items
that are not defined as financial instruments, but which have significant value. These include such items as core deposit intangibles,
the future earnings potential of significant customer relationships and the value of trust operations and other fee generating
businesses. The Corporation believes the imprecision of an estimate could be significant.
The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a
recurring basis on the Corporation’s consolidated balance sheets are as follows:
(in millions)
December 31, 2017
Assets
Cash and due from banks
Interest-bearing deposits with banks
Investment securities held-to-maturity
Loans held-for-sale
Total loans, net of allowance for loan losses (a)
Customers’ liability on acceptances outstanding
Restricted equity investments
Nonmarketable equity securities (b)
Liabilities
Demand deposits (noninterest-bearing)
Interest-bearing deposits
Customer certificates of deposit
Total deposits
Short-term borrowings
Acceptances outstanding
Medium- and long-term debt
Credit-related financial instruments
December 31, 2016
Assets
Cash and due from banks
Interest-bearing deposits with banks
Investment securities held-to-maturity
Loans held-for-sale
Total loans, net of allowance for loan losses (a)
Customers’ liability on acceptances outstanding
Restricted equity investments
Nonmarketable equity securities (b)
Liabilities
$
$
Carrying
Amount
Total
Estimated Fair Value
Level 2
Level 1
Level 3
$
$
1,438
4,407
1,266
4
48,461
2
207
6
32,071
23,667
2,165
57,903
10
2
4,622
(67)
1,249
5,969
1,582
4
48,358
5
207
11
$
$
1,438
4,407
1,246
4
48,153
2
207
9
32,071
23,667
2,142
57,880
10
2
4,636
(67)
1,249
5,969
1,576
4
48,250
5
207
16
$
$
1,438
4,407
—
—
—
2
207
—
—
—
—
10
2
—
—
1,249
5,969
—
—
—
5
207
— $
—
1,246
4
—
—
—
—
—
—
—
48,153
—
—
32,071
23,667
2,142
57,880
—
—
4,636
—
—
—
—
—
—
—
—
(67)
— $
—
1,576
4
—
—
—
—
—
—
—
48,250
—
—
Total deposits
Demand deposits (noninterest-bearing)
Interest-bearing deposits
Customer certificates of deposit
—
31,540
—
24,639
—
2,806
—
58,985
—
25
—
5
—
5,160
Credit-related financial instruments
(73)
(73)
(a) Included $116 million and $282 million of impaired loans recorded at fair value on a nonrecurring basis at December 31, 2017 and 2016,
Short-term borrowings
Acceptances outstanding
Medium- and long-term debt
31,540
24,639
2,731
58,910
25
5
5,132
(73)
31,540
24,639
2,731
58,910
—
—
5,132
—
—
—
—
—
25
5
—
—
respectively.
(b) Certain investments that are measured at fair value using the net asset value have not been classified in the fair value hierarchy. The fair
value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the
consolidated balance sheets.
F-61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 3 - INVESTMENT SECURITIES
A summary of the Corporation’s investment securities follows:
(in millions)
December 31, 2017
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities $
Residential mortgage-backed securities (a)
State and municipal securities
Equity and other non-debt securities
Total investment securities available-for-sale (b)
Investment securities held-to-maturity (c):
Residential mortgage-backed securities (a)
December 31, 2016
Investment securities available-for-sale:
$
$
U.S. Treasury and other U.S. government agency securities $
Residential mortgage-backed securities (a)
State and municipal securities
Equity and other non-debt securities
Total investment securities available-for-sale (b)
$
Investment securities held-to-maturity (c):
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
2,743
8,230
5
83
11,061
1,266
2,772
7,921
7
129
10,829
$
$
$
$
$
— $
22
—
1
23
$
— $
8
48
—
1
57
$
$
16
128
—
2
146
20
1
97
—
1
99
$
$
$
$
$
2,727
8,124
5
82
10,938
1,246
2,779
7,872
7
129
10,787
Residential mortgage-backed securities (a)
1
(a) Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b) Included auction-rate securities at amortized cost and fair value of $51 million and $49 million, respectively, as of December 31, 2017 and
1,576
1,582
$
$
$
7
$
$55 million and $54 million, respectively, as of December 31, 2016.
(c) The amortized cost of investment securities held-to-maturity included the unamortized balance of net unrealized losses as of the transfer
date of $9 million and $12 million at December 31, 2017 and 2016, respectively, related to securities transferred from available-for-sale,
which is included in accumulated other comprehensive loss.
F-62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
A summary of the Corporation’s investment securities in an unrealized loss position as of December 31, 2017 and 2016
follows:
(in millions)
December 31, 2017
Less than 12 Months
Temporarily Impaired
12 Months or more
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
U.S. Treasury and other U.S. government
agency securities
Residential mortgage-backed securities (a)
State and municipal securities (b)
Equity and other non-debt securities (b)
Total impaired securities
December 31, 2016
U.S. Treasury and other U.S. government
agency securities
Residential mortgage-backed securities (a)
State and municipal securities (b)
Equity and other non-debt securities (b)
Total impaired securities
$ 2,727
3,845
—
—
$ 6,572
$
527
4,992
—
36
$ 5,555
$
$
$
$
16
32
—
—
48
$
— $
4,003
5
44
$ 4,052
$
—
125
— (c)
2
127
$ 2,727
7,848
5
44
$ 10,624
1
87
—
— (c)
88
$
— $
1,177
7
11
$ 1,195
$
—
32
— (c)
— (c)
32
$
527
6,169
7
47
$ 6,750
$
$
$
16
157
— (c)
2
175
1
119
— (c)
— (c)
$
120
(a) Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b) Primarily auction-rate securities.
(c) Unrealized losses less than $0.5 million.
At December 31, 2017, the Corporation had 354 securities in an unrealized loss position with no credit impairment,
including 29 U.S. Treasury securities, 284 residential mortgage-backed securities, 13 state and municipal auction-rate securities,
and 28 equity and other non-debt auction-rate preferred securities. The unrealized losses for these securities resulted from changes
in market interest rates and liquidity, not changes in credit quality. The Corporation ultimately expects full collection of the carrying
amount of these securities, does not intend to sell the securities in an unrealized loss position, and it is not more-likely-than-not
that the Corporation will be required to sell the securities in an unrealized loss position prior to recovery of amortized cost. The
Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2017.
Sales, calls and write-downs of investment securities available-for-sale resulted in the following gains and losses recorded
in “net securities losses” on the consolidated statements of income, computed based on the adjusted cost of the specific security.
(in millions)
Years Ended December 31
Securities gains
Securities losses
Net securities losses (a)
(a) Primarily charges related to a derivative contract tied to the conversion rate of Visa Class B shares.
2
(5)
(3)
2017
$
$
$
$
2016
—
(5)
(5)
$
$
2015
—
(2)
(2)
The following table summarizes the amortized cost and fair values of debt securities by contractual maturity. Securities
with multiple maturity dates are classified in the period of final maturity. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(in millions)
December 31, 2017
Contractual maturity
After one year through five years
After five years through ten years
After ten years
Subtotal
Equity and other non-debt securities
Total investment securities
Available-for-sale
Held-to-maturity
Amortized Cost
Fair Value
Amortized Cost
Fair Value
$
$
2,956
1,690
6,332
10,978
83
11,061
$
$
2,939 $
1,697
6,220
10,856
82
10,938 $
— $
17
1,249
1,266
—
1,266
$
—
17
1,229
1,246
—
1,246
Included in the contractual maturity distribution in the table above were residential mortgage-backed securities available-
for-sale with a total amortized cost of $8.2 billion and a fair value of $8.1 billion, and residential mortgage-backed securities held-
F-63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
to-maturity with a total amortized cost of $1.3 billion and a fair value of $1.2 billion. The actual cash flows of mortgage-backed
securities may differ from contractual maturity as the borrowers of the underlying loans may exercise prepayment options.
At December 31, 2017, investment securities with a carrying value of $770 million were pledged where permitted or
required by law to secure $484 million of liabilities, primarily public and other deposits of state and local government agencies
and derivative instruments.
F-64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 4 – CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES
The following table presents an aging analysis of the recorded balance of loans.
(in millions)
December 31, 2017
Business loans:
Commercial
Real estate construction:
Commercial Real Estate business line (a)
Other business lines (b)
Total real estate construction
Commercial mortgage:
Commercial Real Estate business line (a)
Other business lines (b)
Total commercial mortgage
Lease financing
International
Total business loans
Retail loans:
Residential mortgage
Consumer:
Home equity
Other consumer
Total consumer
Total retail loans
Total loans
December 31, 2016
Business loans:
Commercial
Real estate construction:
Commercial Real Estate business line (a)
Other business lines (b)
Total real estate construction
Commercial mortgage:
Commercial Real Estate business line (a)
Other business lines (b)
Total commercial mortgage
Lease financing
International
Total business loans
Retail loans:
Residential mortgage
Consumer:
Home equity
Other consumer
Total consumer
Total retail loans
Loans Past Due and Still Accruing
30-59
Days
60-89
Days
90 Days
or More
Total
Nonaccrual
Loans
Current
Loans
Total
Loans
$
79
$
134
$
12
$ 225
$
309
$
30,526
$ 31,060
3
4
7
14
27
41
—
13
140
10
5
4
9
19
159
$
—
—
—
—
6
6
—
—
140
2
1
—
1
3
143
$
—
—
—
—
22
22
—
—
34
—
—
1
1
1
35
3
4
7
14
55
69
—
13
314
12
6
5
11
23
$ 337
$
—
—
—
9
22
31
4
6
350
31
21
—
21
52
402
2,627
327
2,954
1,808
7,251
9,059
464
964
43,967
2,630
331
2,961
1,831
7,328
9,159
468
983
44,631
1,945
1,988
1,789
733
2,522
4,467
48,434
1,816
738
2,554
4,542
$ 49,173
$
30
$
12
$
14
$
56
$
445
$
30,493
$ 30,994
$
$
—
—
—
5
58
63
—
1
94
7
4
1
5
12
106
—
—
—
—
5
5
—
—
19
—
—
—
—
—
19
—
—
—
5
68
73
—
1
130
10
7
1
8
18
$ 148
$
—
—
—
9
37
46
6
14
511
39
28
4
32
71
582
2,485
384
2,869
2,004
6,808
8,812
566
1,243
43,983
2,485
384
2,869
2,018
6,913
8,931
572
1,258
44,624
1,893
1,942
1,765
717
2,482
4,375
48,358
1,800
722
2,522
4,464
$ 49,088
$
—
—
—
—
5
5
—
—
17
3
3
—
3
6
23
F-65
$
$
Total loans
(a) Primarily loans to real estate developers.
(b) Primarily loans secured by owner-occupied real estate.
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table presents loans by credit quality indicator, based on internal risk ratings assigned to each business
loan at the time of approval and subjected to subsequent reviews, generally at least annually, and to pools of retail loans with
similar risk characteristics.
(in millions)
December 31, 2017
Business loans:
Commercial
Real estate construction:
Commercial Real Estate business line (e)
Other business lines (f)
Total real estate construction
Commercial mortgage:
Commercial Real Estate business line (e)
Other business lines (f)
Total commercial mortgage
Lease financing
International
Total business loans
Retail loans:
Residential mortgage
Consumer:
Home equity
Other consumer
Total consumer
Total retail loans
Total loans
December 31, 2016
Business loans:
Commercial
Real estate construction:
Commercial Real Estate business line (e)
Other business lines (f)
Total real estate construction
Commercial mortgage:
Commercial Real Estate business line (e)
Other business lines (f)
Total commercial mortgage
Lease financing
International
Total business loans
Retail loans:
Residential mortgage
Consumer:
Home equity
Other consumer
Total consumer
Total retail loans
Pass (a)
Internally Assigned Rating
Special
Mention (b)
Substandard (c)
Nonaccrual (d)
Total
$
29,263
$
591
$
897
$
309
$
31,060
2,630
327
2,957
1,759
7,099
8,858
440
946
42,464
1,955
1,786
737
2,523
4,478
46,942
$
—
4
4
20
115
135
23
11
764
2
1
1
2
4
768
$
—
—
—
43
92
135
1
20
1,053
—
8
—
8
8
1,061
$
—
—
—
9
22
31
4
6
350
31
21
—
21
52
402
$
2,630
331
2,961
1,831
7,328
9,159
468
983
44,631
1,988
1,816
738
2,554
4,542
49,173
28,616
$
944
$
989
$
445
$
30,994
2,485
381
2,866
1,970
6,645
8,615
550
1,200
41,847
1,900
1,767
718
2,485
4,385
46,232
$
—
—
—
19
109
128
11
22
1,105
3
1
—
1
4
1,109
$
—
3
3
20
122
142
5
22
1,161
—
4
—
4
4
1,165
$
—
—
—
9
37
46
6
14
511
39
28
4
32
71
582
$
2,485
384
2,869
2,018
6,913
8,931
572
1,258
44,624
1,942
1,800
722
2,522
4,464
49,088
$
$
$
Total loans
(a)
(b)
Includes all loans not included in the categories of special mention, substandard or nonaccrual.
Special mention loans are accruing loans that have potential credit weaknesses that deserve management’s close attention, such as loans to borrowers who may be experiencing
financial difficulties that may result in deterioration of repayment prospects from the borrower at some future date. This category is generally consistent with the "special mention"
category as defined by regulatory authorities.
Substandard loans are accruing loans that have a well-defined weakness, or weaknesses, such as loans to borrowers who may be experiencing losses from operations or inadequate
liquidity of a degree and duration that jeopardizes the orderly repayment of the loan. Substandard loans also are distinguished by the distinct possibility of loss in the future if
these weaknesses are not corrected. This category is generally consistent with the "substandard" category as defined by regulatory authorities.
(c)
(d) Nonaccrual loans are loans for which the accrual of interest has been discontinued. For further information regarding nonaccrual loans, refer to the Nonperforming Assets
subheading in Note 1 - Basis of Presentation and Accounting Policies. A significant majority of nonaccrual loans are generally consistent with the "substandard" category and
the remainder are generally consistent with the "doubtful" category as defined by regulatory authorities.
(e) Primarily loans to real estate developers.
(f)
Primarily loans secured by owner-occupied real estate.
F-66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table summarizes nonperforming assets.
(in millions)
Nonaccrual loans
Reduced-rate loans (a)
Total nonperforming loans
Foreclosed property (b)
Total nonperforming assets
(a) There were no reduced-rate business loans at both December 31, 2017 and 2016. Reduced-rate retail loans totaled $8 million at both
December 31, 2017
402
$
8
410
5
415
December 31, 2016
582
$
8
590
17
607
$
$
December 31, 2017 and 2016.
(b) Included foreclosed residential real estate properties of $4 million and $3 million at December 31, 2017 and 2016, respectively.
There were no retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual
loans at both December 31, 2017 and 2016.
Allowance for Credit Losses
The following table details the changes in the allowance for loan losses and related loan amounts.
Business
Loans
2017
Retail
Loans
Total
Business
Loans
2016
Retail
Loans
Total
Business
Loans
2015
Retail
Loans
Total
(in millions)
Years Ended December 31
Allowance for loan losses:
Balance at beginning of
period
Loan charge-offs
Recoveries on loans
previously charged-off
Net loan (charge-offs)
recoveries
Provision for loan losses
Foreign currency translation
adjustment
Balance at end of period
$
$
682
(143)
$
48
(6)
$
730
(149)
$
$
579
(207)
50
(93)
71
1
661
$
7
1
2
—
51
57
(92)
73
63
(144)
246
1
712
$
1
682
$
$
55
(7)
5
(2)
(5)
—
48
$
634
(214)
$
$
534
(157)
60
(11)
$
594
(168)
68
(146)
241
55
(102)
149
1
730
(2)
579
$
$
$
13
2
(7)
—
55
68
(100)
142
(2)
634
$
As a percentage of total loans
1.48% 1.12%
1.45%
1.53%
1.08%
1.49%
1.30%
1.26%
1.29%
December 31
Allowance for loan losses:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Total allowance for loan
losses
Loans:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Total loans evaluated for
impairment
$
67
$ — $
67
594
$
661
$
51
51
645
$
712
$
443
$
34
$
477
$
$
$
86
$
3
$
89
$
53
$ — $
53
596
682
$
45
48
566
$
48
641
730
614
$
$
$
$
526
579
$
55
55
393
$
31
581
634
424
$
$
44,188
4,508
48,696
44,058
4,416
48,474
44,336
4,324
48,660
$44,631
$ 4,542
$49,173
$ 44,624
$ 4,464
$ 49,088
$ 44,729
$ 4,355
$ 49,084
F-67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Changes in the allowance for credit losses on lending-related commitments, included in "accrued expenses and other
liabilities" on the consolidated balance sheets, are summarized in the following table.
(in millions)
Years Ended December 31
Balance at beginning of period
Charge-offs on lending-related commitments (a)
Provision for credit losses on lending-related commitments
Balance at end of period
(a) Charge-offs result from the sale of unfunded lending-related commitments.
Individually Evaluated Impaired Loans
2017
2016
2015
$
$
41
—
1
42
$
$
45
(11)
7
41
$
$
41
(1)
5
45
The following table presents additional information regarding individually evaluated impaired loans.
(in millions)
December 31, 2017
Business loans:
Commercial
Commercial mortgage:
Commercial Real Estate business line (a)
Other business lines (b)
Total commercial mortgage
International
Total business loans
Retail loans:
Residential mortgage
Consumer:
Home equity
Other consumer
Total consumer
Total retail loans (c)
Total individually evaluated impaired loans
December 31, 2016
Business loans:
Commercial
Commercial mortgage:
$
$
Commercial Real Estate business line (a)
Other business lines (b)
Total commercial mortgage
International
Total business loans
Retail loans:
Residential mortgage
Consumer:
Home equity
Other consumer
Total consumer
Total retail loans (c)
Impaired
Loans with
No Related
Allowance
Recorded Investment In:
Impaired
Loans with
Related
Allowance
Total
Impaired
Loans
Unpaid
Principal
Balance
Related
Allowance
for Loan
Losses
$
105
$
267
$
372
$
460
$
39
3
42
—
147
14
11
1
12
26
173
$
1
22
23
6
296
8
—
—
—
8
304
$
40
25
65
6
443
22
11
1
12
34
477
$
49
29
78
17
555
22
14
2
16
38
593
$
90
$
423
$
513
$
608
$
—
2
2
3
95
19
7
30
37
11
471
9
7
32
39
14
566
28
15
40
55
20
683
30
15
2
17
36
131
—
3
3
12
483
15
5
20
48
614
19
6
25
55
738
63
—
3
3
1
67
—
—
—
—
—
67
80
1
3
4
2
86
2
—
1
1
3
89
Total individually evaluated impaired loans
(a) Primarily loans to real estate developers.
(b) Primarily loans secured by owner-occupied real estate.
(c) Individually evaluated retail loans generally have no related allowance for loan losses, primarily due to policy which results in direct write-
$
$
$
$
$
downs of most restructured retail loans.
F-68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table presents information regarding average individually evaluated impaired loans and the related interest
recognized. Interest income recognized for the period primarily related to reduced-rate loans.
2017
Individually Evaluated Impaired Loans
2016
2015
Average
Balance for
the Period
Interest
Income
Recognized
for the Period
Average
Balance for
the Period
Interest
Income
Recognized
for the Period
Average
Balance for
the Period
Interest
Income
Recognized
for the Period
$
451
$
8
$
550
$
10
$
206
$
21
31
52
8
511
24
13
3
16
40
2
—
2
—
10
—
—
—
—
—
9
31
40
18
608
15
13
4
17
32
—
1
1
—
11
—
—
—
—
—
16
39
55
6
267
21
12
6
18
39
$
551
$
10
$
640
$
11
$
306
$
5
—
1
1
—
6
—
—
—
—
—
6
(in millions)
Years Ended December 31
Business loans:
Commercial
Commercial mortgage:
Commercial Real Estate
business line (a)
Other business lines (b)
Total commercial mortgage
International
Total business loans
Retail loans:
Residential mortgage
Consumer:
Home equity
Other consumer
Total consumer
Total retail loans
Total individually evaluated impaired
loans
(a) Primarily loans to real estate developers.
(b) Primarily loans secured by owner-occupied real estate.
F-69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Troubled Debt Restructurings
The following tables detail the recorded balance at December 31, 2017 and 2016 of loans considered to be TDRs that
were restructured during the years ended December 31, 2017 and 2016, by type of modification. In cases of loans with more than
one type of modification, the loans were categorized based on the most significant modification.
(in millions)
Years Ended December 31
Business loans:
Commercial
Commercial mortgage:
Commercial Real Estate business
line (d)
Other business lines (e)
Total commercial mortgage
International
Total business loans
Retail loans:
Residential mortgage
Consumer:
Home equity (f)
Total retail loans
Total loans
$
2017
Type of Modification
2016
Type of Modification
Principal
Deferrals (a)
Interest
Rate (b)
AB Note
Restructures
(c)
Total
Modifications
Principal
Deferrals (a)
Interest
Rate (b)
AB Note
Restructures
(c)
Total
Modifications
$
77
$
18 $
21 $
116
$
140
$
— $
48 $
188
37
3
40
—
117
—
1
1
118
—
—
—
—
18
—
—
—
—
—
21
—
2
2
20 $
$
—
—
21 $
37
3
40
—
156
—
3
3
159
$
—
5
5
—
145
—
2
2
147
—
—
—
—
—
2
—
—
—
3
51
—
1
3
3 $
—
—
51 $
$
—
5
5
3
196
2
3
5
201
(a) Primarily represents loan balances where terms were extended 90 days or more at or above contractual interest rates.
(b) Loan restructurings whereby interest rates were either reduced or were not at market rates.
(c) Loan restructurings whereby the original loan is restructured into two notes: an "A" note, which generally reflects the portion of the modified
loan which is expected to be collected; and a "B" note, which is either fully charged off or exchanged for an equity interest.
(d) Primarily loans to real estate developers.
(e) Primarily loans secured by owner-occupied real estate.
(f)
Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.
At December 31, 2017 and 2016, commitments to lend additional funds to borrowers whose terms have been modified
in TDRs totaled $31 million and $24 million, respectively.
The majority of the modifications considered to be TDRs that occurred during the years ended December 31, 2017 and
2016 were principal deferrals. The Corporation charges interest on principal balances outstanding during deferral periods.
Additionally, none of the modifications involved forgiveness of principal. As a result, the current and future financial effects of
the recorded balance of loans considered to be TDRs that were restructured during the years ended December 31, 2017 and 2016
were insignificant.
On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. The
allowance for loan losses continues to be reassessed on the basis of an individual evaluation of the loan.
F-70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table presents information regarding the recorded balance at December 31, 2017 and 2016 of loans modified
by principal deferral during the years ended December 31, 2017 and 2016, and those principal deferrals which experienced a
subsequent default during the same periods. For principal deferrals, incremental deterioration in the credit quality of the loan,
represented by a downgrade in the risk rating of the loan, for example, due to missed interest payments or a reduction of collateral
value, is considered a subsequent default.
(in millions)
Principal deferrals:
Business loans:
Commercial
Commercial mortgage:
Commercial Real Estate business line (a)
Other business lines (b)
Total commercial mortgage
International
Total business loans
Retail loans:
Consumer:
Home equity (c)
Total principal deferrals
2017
2016
Balance at
December 31
Subsequent
Default in the
Year Ended
December 31
Balance at
December 31
Subsequent
Default in the
Year Ended
December 31
$
77
$
3
$
140
$
37
3
40
—
117
1
118
$
—
—
—
—
3
$
—
3
$
—
5
5
—
145
2
147
$
13
—
1
1
—
14
—
14
(a) Primarily loans to real estate developers.
(b) Primarily loans secured by owner-occupied real estate.
(c) Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.
For interest rate and loans restructured into two notes (AB note restructures), a subsequent payment default is defined in
terms of delinquency, when a principal or interest payment is 90 days past due. There were no subsequent payment defaults of
interest rate loans or AB note restructures during the year ended December 31, 2017 and 2016.
NOTE 5 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk may exist when a number of borrowers are engaged in similar activities, or activities in the
same geographic region, and have similar economic characteristics that would cause them to be similarly impacted by changes in
economic or other conditions. Concentrations of both on-balance sheet and off-balance sheet credit risk are controlled and monitored
as part of credit policies. The Corporation is a regional financial services holding company with a geographic concentration of its
on-balance-sheet and off-balance-sheet activities in Michigan, California and Texas.
As outlined below, the Corporation has a concentration of credit risk 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 were excluded
from the definition. Outstanding loans, included in "commercial loans" on the consolidated balance sheets, and total exposure
(outstanding loans, unused commitments and standby letters of credit) to companies related to the automotive industry were as
follows:
F-71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
(in millions)
December 31
Automotive loans:
Production
Dealer
Total automotive loans
Total automotive exposure:
Production
Dealer
Total automotive exposure
2017
2016
$
$
$
$
1,344
7,592
8,936
2,439
9,405
11,844
$
$
$
$
1,326
7,123
8,449
2,534
8,730
11,264
Further, the Corporation’s portfolio of commercial real estate loans, which includes real estate construction and commercial
mortgage loans, was as follows.
(in millions)
December 31
Real estate construction loans:
Commercial Real Estate business line (a)
Other business lines (b)
Total real estate construction loans
Commercial mortgage loans:
Commercial Real Estate business line (a)
Other business lines (b)
Total commercial mortgage loans
Total commercial real estate loans
Total unused commitments on commercial real estate loans
(a) Primarily loans to real estate developers.
(b) Primarily loans secured by owner-occupied real estate.
NOTE 6 - PREMISES AND EQUIPMENT
A summary of premises and equipment by major category follows:
(in millions)
December 31
Land
Buildings and improvements
Furniture and equipment
Total cost
Less: Accumulated depreciation and amortization
Net book value
2017
2016
2,630
331
2,961
1,831
7,328
9,159
12,120
3,018
$
$
$
2,485
384
2,869
2,018
6,913
8,931
11,800
3,046
2017
2016
85
813
484
1,382
(916)
466
$
$
86
831
499
1,416
(915)
501
$
$
$
$
$
The Corporation conducts a portion of its business from leased facilities and leases certain equipment. Rental expense
for leased properties and equipment amounted to $78 million, $80 million and $79 million in 2017, 2016 and 2015, respectively.
As of December 31, 2017, future minimum rental payments under operating leases were as follows:
(in millions)
Years Ending December 31
2018
2019
2020
2021
2022
Thereafter
Total
$
$
68
61
52
43
32
135
391
F-72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 7 - GOODWILL AND CORE DEPOSIT INTANGIBLES
The following table summarizes the carrying value of goodwill by reporting unit for the years ended December 31, 2017
and 2016.
(in millions)
December 31
Business Bank
Retail Bank
Wealth Management
Total
2017
2016
380
194
61
635
$
$
380
194
61
635
$
$
The Corporation performs its annual evaluation of goodwill impairment in the third quarter of each year and on an interim
basis if events or changes in circumstances between annual tests indicate goodwill might be impaired. In 2017 and 2016, the annual
test of goodwill impairment was performed as of the beginning of the third quarter. At the conclusion of the first step of the annual
and interim goodwill impairment tests performed in 2017 and 2016 the estimated fair values of all reporting units exceeded their
carrying amounts, including goodwill, indicating that goodwill was not impaired. There have been no events since the annual test
performed in the third quarter 2017 that would indicate that it was more likely than not that goodwill had become impaired.
A summary of core deposit intangible carrying value and related accumulated amortization follows:
(in millions)
December 31
Gross carrying amount
Accumulated amortization
Net carrying amount
2017
2016
$
$
34
(28)
6
$
$
34
(26)
8
The Corporation recorded amortization expense related to the core deposit intangible of $2 million for each of the years
ended December 31, 2017 and 2016, and $3 million for 2015. At December 31, 2017, estimated future amortization expense was
as follows:
(in millions)
Years Ending December 31
2018
2019
2020
2021
Total
$
$
2
2
1
1
6
NOTE 8 - DERIVATIVE AND CREDIT-RELATED FINANCIAL INSTRUMENTS
In the normal course of business, the Corporation enters into various transactions involving derivative and credit-related
financial instruments to manage exposure to fluctuations in interest rate, foreign currency and other market risks and to meet the
financing needs of customers (customer-initiated derivatives). These financial instruments involve, to varying degrees, elements
of market and credit risk. Market and credit risk are included in the determination of fair value.
Market risk is the potential loss that may result from movements in interest rates, foreign currency exchange rates or
energy commodity prices that cause an unfavorable change in the value of a financial instrument. The Corporation manages this
risk by establishing monetary exposure limits and monitoring compliance with those limits. Market risk inherent in interest rate
and energy contracts entered into on behalf of customers is mitigated by taking offsetting positions, except in those circumstances
when the amount, tenor and/or contract rate level results in negligible economic risk, whereby the cost of purchasing an offsetting
contract is not economically justifiable. The Corporation mitigates most of the inherent market risk in foreign exchange contracts
entered into on behalf of customers by taking offsetting positions and manages the remainder through individual foreign currency
position limits and aggregate value-at-risk limits. These limits are established annually and positions are monitored quarterly.
Market risk inherent in derivative instruments held or issued for risk management purposes is typically offset by changes in the
fair value of the assets or liabilities being hedged.
Credit risk is the possible loss that may occur in the event of nonperformance by the counterparty to a financial instrument.
The Corporation attempts to minimize credit risk arising from customer-initiated derivatives by evaluating the creditworthiness
of each customer, adhering to the same credit approval process used for traditional lending activities and obtaining collateral as
F-73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
deemed necessary. Derivatives with dealer counterparties are either cleared through a clearinghouse or settled directly with a single
counterparty. For derivatives settled directly with dealer counterparties, the Corporation utilizes counterparty risk limits and
monitoring procedures, as well as master netting arrangements and bilateral collateral agreements to facilitate the management of
credit risk. Master netting arrangements effectively reduce credit risk by permitting settlement of positive and negative positions
and offset cash collateral held with the same counterparty on a net basis. Bilateral collateral agreements require daily exchange of
cash or highly rated securities issued by the U.S. Treasury or other U.S. government entities to collateralize amounts due to either
party beyond certain risk limits. At December 31, 2017, counterparties with bilateral collateral agreements had pledged $3 million
of marketable investment securities and deposited $1 million of cash with the Corporation to secure the fair value of contracts in
an unrealized gain position, and the Corporation had pledged $25 million of investment securities and posted $40 million of cash
as collateral for contracts in an unrealized loss position. For those counterparties not covered under bilateral collateral agreements,
collateral is obtained, if deemed necessary, based on the results of management’s credit evaluation of the counterparty. Collateral
varies, but may include cash, investment securities, accounts receivable, equipment or real estate. Included in the fair value of
derivative instruments are credit valuation adjustments reflecting counterparty credit risk. These adjustments are determined by
applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the derivative.
There were no derivative instruments with credit-risk-related contingent features that were in a liability position at December 31,
2017.
Derivative Instruments
Derivative instruments utilized by the Corporation are negotiated over-the-counter and primarily include swaps, caps
and floors, forward contracts and options, each of which may relate to interest rates, energy commodity prices or foreign currency
exchange rates. Swaps are agreements in which two parties periodically exchange cash payments based on specified indices applied
to a specified notional amount until a stated maturity. Caps and floors are agreements which entitle the buyer to receive cash
payments based on the difference between a specified reference rate or price and an agreed strike rate or price, applied to a specified
notional amount until a stated maturity. Forward contracts are over-the-counter agreements to buy or sell an asset at a specified
future date and price. Options are similar to forward contracts except the purchaser has the right, but not the obligation, to buy or
sell the asset during a specified period or at a specified future date.
Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, contain a greater
degree of credit risk and liquidity risk than exchange-traded contracts, which have standardized terms and readily available price
information. The Corporation reduces exposure to market and liquidity risks from over-the-counter derivative instruments entered
into for risk management purposes, and transactions entered into to mitigate the market risk associated with customer-initiated
transactions, by conducting hedging transactions with investment grade domestic and foreign financial institutions and subjecting
counterparties to credit approvals, limits and collateral monitoring procedures similar to those used in making other extensions of
credit. In addition, certain derivative contracts executed bilaterally with a dealer counterparty in the over-the-counter market are
cleared through a clearinghouse, whereby the clearinghouse becomes the counterparty to the transaction.
F-74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table presents the composition of the Corporation’s derivative instruments held or issued for risk
management purposes or in connection with customer-initiated and other activities at December 31, 2017 and 2016. The table
excludes commitments and warrants accounted for as derivatives.
December 31, 2017
Fair Value
December 31, 2016
Fair Value
Notional/
Contract
Amount (a)
Gross
Derivative
Assets
Gross
Derivative
Liabilities
Notional/
Contract
Amount (a)
Gross
Derivative
Assets
Gross
Derivative
Liabilities
$
1,775
$
— $
2
$
2,275
$
92
$
650
2,425
635
635
13,119
14,389
164
164
1,519
1,847
1,884
18,120
20,545
—
—
—
—
57
57
—
11
82
93
42
192
192
(49)
(1)
142
2
4
—
—
57
57
11
—
80
91
717
2,992
436
436
12,451
13,323
419
419
1,389
2,227
38
186
190
$
1,509
17,059
20,051
(49)
(39)
102
2
94
—
1
130
131
1
31
114
146
36
313
407
(84)
(47)
276
4
2
6
1
—
76
77
31
1
112
144
27
248
254
(84)
(45)
125
(in millions)
Risk management purposes
Derivatives designated as hedging instruments
Interest rate contracts:
Swaps - fair value - receive fixed/
pay floating (b)
Derivatives used as economic hedges
Foreign exchange contracts:
Spot, forwards and swaps
Total risk management purposes
Customer-initiated and other activities
Interest rate contracts:
Caps and floors written
Caps and floors purchased
Swaps (b)
Total interest rate contracts
Energy contracts:
Caps and floors written
Caps and floors purchased
Swaps
Total energy contracts
Foreign exchange contracts:
$
Spot, forwards, options and swaps
Total customer-initiated and other activities
Total gross derivatives
Amounts offset in the consolidated balance
sheets:
Netting adjustment - Offsetting derivative
assets/liabilities
Netting adjustment - Cash collateral
received/posted
Net derivatives included in the consolidated
balance sheets (c)
Amounts not offset in the consolidated balance
sheets:
Marketable securities received/pledged
under bilateral collateral agreements
Net derivatives after deducting amounts not
offset in the consolidated balance sheets
(3)
(24)
(19)
(8)
$
139
$
78
$
257
$
117
(a) Notional or contractual amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual
cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts
subject to credit or market risk and are not reflected in the consolidated balance sheets.
(b) Due to clearinghouse rule changes, beginning January 1, 2017, variation margin payments are treated as settlements of derivative exposure
rather than as collateral. As a result, these payments are now considered in determining the fair value of centrally cleared derivatives,
resulting in centrally cleared derivatives having a fair value of approximately zero.
(c) Net derivative assets are included in “accrued income and other assets” and net derivative liabilities are included in “accrued expenses
and other liabilities” on the consolidated balance sheets. Included in the fair value of net derivative assets and net derivative liabilities are
credit valuation adjustments reflecting counterparty credit risk and credit risk of the Corporation. The fair value of net derivative assets
included credit valuation adjustments for counterparty credit risk of $4 million and $5 million at December 31, 2017 and 2016, respectively.
Risk Management
The Corporation's derivative instruments used for managing interest rate risk currently comprise swaps converting fixed
rate long-term debt to variable rates. These instruments reduced interest expense by $32 million and $60 million for the years
F-75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
ended December 31 2017 and 2016, respectively. These hedges have been highly effective, with ineffectiveness net gains of $1
million for 2017 and net losses of $2 million for 2016 included in "other noninterest income" in the consolidated statements.
The following table summarizes the expected weighted average remaining maturity of the notional amount of risk
management interest rate swaps and the weighted average interest rates associated with amounts expected to be received or paid
on interest rate swap agreements as of December 31, 2017 and 2016.
(dollar amounts in millions)
December 31, 2017
Swaps - fair value - receive fixed/pay floating rate
Weighted Average
Notional
Amount
Remaining
Maturity
(in years)
Receive Rate
Pay Rate (a)
Medium- and long-term debt designation
$
1,775
December 31, 2016
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt designation
2,275
4.6
4.5
3.26%
2.35%
3.69
1.80
(a) Variable rates paid on receive fixed swaps are based on six-month LIBOR rates in effect at December 31, 2017 and 2016.
Foreign exchange rate risk arises from changes in the value of certain assets and liabilities denominated in foreign
currencies. The Corporation employs spot and forward contracts in addition to swap contracts to manage exposure to these and
other risks. These instruments are used as economic hedges and net gains or losses are included in "other noninterest income" in
the consolidated statements of comprehensive income.
Customer-Initiated and Other
The Corporation enters into derivative transactions at the request of customers and generally takes offsetting positions
with dealer counterparties to mitigate the inherent market risk. Income primarily results from the spread between the customer
derivative and the offsetting dealer position.
For customer-initiated foreign exchange contracts where offsetting positions have not been taken, the Corporation manages
the remaining inherent market risk through individual foreign currency position limits and aggregate value-at-risk limits. These
limits are established annually and reviewed quarterly. For those customer-initiated derivative contracts which were not offset or
where the Corporation holds a position within the limits described above, the Corporation recognized an insignificant amount net
losses and $1 million of net gains in “other noninterest income” in the consolidated statements of income for the years ended
December 31 2017 and 2016, respectively.
Fair values of customer-initiated and other derivative instruments represent the net unrealized gains or losses on such
contracts and are recorded in the consolidated balance sheets. Changes in fair value are recognized in the consolidated statements
of income. The net gains recognized in income on customer-initiated derivative instruments, net of the impact of offsetting positions,
were as follows:
(in millions)
Years Ended December 31
Interest rate contracts
Energy contracts
Foreign exchange contracts
Total
Location of Gain
Other noninterest income
Other noninterest income
Foreign exchange income
$
$
2017
2016
24
2
45
71
$
$
25
2
41
68
F-76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Credit-Related Financial Instruments
The Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending
activities. The Corporation’s credit risk associated with these instruments is represented by the contractual amounts indicated in
the following table.
(in millions)
December 31
Unused commitments to extend credit:
Commercial and other
Bankcard, revolving check credit and home equity loan commitments
Total unused commitments to extend credit
Standby letters of credit
Commercial letters of credit
2017
2016
$
$
$
22,636
2,833
25,469
3,228
39
$
$
$
24,333
2,658
26,991
3,623
46
The Corporation maintains an allowance to cover probable credit losses inherent in lending-related commitments,
including unused commitments to extend credit, letters of credit and financial guarantees. At December 31, 2017 and 2016, the
allowance for credit losses on lending-related commitments, included in “accrued expenses and other liabilities” on the consolidated
balance sheets, was $42 million and $41 million, respectively.
Unused Commitments to Extend Credit
Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any
condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Commitments may expire without being drawn upon; therefore, the total contractual amount of
commitments does not necessarily represent future cash requirements of the Corporation. Commercial and other unused
commitments are primarily variable rate commitments. The allowance for credit losses on lending-related commitments included
$27 million and $29 million at December 31, 2017 and 2016, respectively, for probable credit losses inherent in the Corporation’s
unused commitments to extend credit.
Standby and Commercial Letters of Credit
Standby letters of credit represent conditional obligations of the Corporation which guarantee the performance of a
customer to a third party. Standby letters of credit are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. Commercial letters of credit are issued to finance foreign
or domestic trade transactions. These contracts expire in decreasing amounts through the year 2023. The Corporation may enter
into participation arrangements with third parties that effectively reduce the maximum amount of future payments which may be
required under standby and commercial letters of credit. These risk participations covered $127 million and $255 million at
December 31, 2017 and 2016, respectively, of the $3.3 billion and $3.7 billion of standby and commercial letters of credit outstanding
at December 31, 2017 and 2016, respectively.
The carrying value of the Corporation’s standby and commercial letters of credit, included in “accrued expenses and
other liabilities” on the consolidated balance sheets, totaled $40 million at December 31, 2017, including $25 million in deferred
fees and $15 million in the allowance for credit losses on lending-related commitments. At December 31, 2016, the comparable
amounts were $44 million, $32 million and $12 million, respectively.
The following table presents a summary of criticized standby and commercial letters of credit at December 31, 2017 and
December 31, 2016. The Corporation's criticized list is consistent with the Special Mention, Substandard and Doubtful categories
defined by regulatory authorities. The Corporation manages credit risk through underwriting, periodically reviewing and approving
its credit exposures using Board committee approved credit policies and guidelines.
(dollar amounts in millions)
Total criticized standby and commercial letters of credit
As a percentage of total outstanding standby and commercial letters of credit
December 31, 2017
88
$
2.7%
December 31, 2016
135
$
3.7%
Other Credit-Related Financial Instruments
The Corporation enters into credit risk participation agreements, under which the Corporation assumes credit exposure
associated with a borrower’s performance related to certain interest rate derivative contracts. The Corporation is not a party to the
interest rate derivative contracts and only enters into these credit risk participation agreements in instances in which the Corporation
is also a party to the related loan participation agreement for such borrowers. The Corporation manages its credit risk on the credit
risk participation agreements by monitoring the creditworthiness of the borrowers, which is based on the normal credit review
process had it entered into the derivative instruments directly with the borrower. The notional amount of such credit risk participation
F-77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
agreement reflects the pro-rata share of the derivative instrument, consistent with its share of the related participated loan. As of
December 31, 2017 and 2016, the total notional amount of the credit risk participation agreements was approximately $549 million
and $458 million, respectively, and the fair value, included in customer-initiated interest rate contracts recorded in "accrued expenses
and other liabilities" on the consolidated balance sheets, was insignificant for each period. The maximum estimated exposure to
these agreements, as measured by projecting a maximum value of the guaranteed derivative instruments, assuming 100 percent
default by all obligors on the maximum values, was insignificant at December 31, 2017 and $3 million at December 31, 2016,
respectively. In the event of default, the lead bank has the ability to liquidate the assets of the borrower, in which case the lead
bank would be required to return a percentage of the recouped assets to the participating banks. As of December 31, 2017, the
weighted average remaining maturity of outstanding credit risk participation agreements was 2.6 years.
NOTE 9 - VARIABLE INTEREST ENTITIES (VIEs)
The Corporation evaluates its interest in certain entities to determine if these entities meet the definition of a VIE and
whether the Corporation is the primary beneficiary and should consolidate the entity based on the variable interests it held both
at inception and when there is a change in circumstances that requires a reconsideration.
The Corporation holds ownership interests in funds in the form of limited partnerships or limited liability companies
(LLCs) investing in affordable housing projects that qualify for the LIHTC. The Corporation also directly invests in limited
partnerships and LLCs which invest in community development projects which generate similar tax credits to investors. As an
investor, the Corporation obtains income tax credits and deductions from the operating losses of these tax credit entities. These
tax credit entities meet the definition of a VIE; however, the Corporation is not the primary beneficiary of the entities, as the general
partner or the managing member has both the power to direct the activities that most significantly impact the economic performance
of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities.
The Corporation accounts for its interests in LIHTC entities using the proportional amortization method. Exposure to
loss as a result of the Corporation’s involvement with LIHTC entities at December 31, 2017 was limited to approximately $422
million. Ownership interests in other community development projects which generate similar tax credits to investors (other tax
credit entities) are accounted for under either the cost or equity method. Exposure to loss as a result of the Corporation's involvement
in other tax credit entities at December 31, 2017 was limited to approximately $7 million. The Corporation evaluated these
investments for impairment after the enactment of the Tax Cuts and Jobs act and recorded an insignificant impairment.
Investment balances, including all legally binding commitments to fund future investments, are included in “accrued
income and other assets” on the consolidated balance sheets. A liability is recognized in “accrued expenses and other liabilities”
on the consolidated balance sheets for all legally binding unfunded commitments to fund tax credit entities ($165 million at
December 31, 2017). Amortization and other write-downs of LIHTC investments are presented on a net basis as a component of
the "provision for income taxes" on the consolidated statements of income, while amortization and write-downs of other tax credit
investments are recorded in “other noninterest income." The income tax credits and deductions are recorded as a reduction of
income tax expense and a reduction of federal income taxes payable.
The Corporation provided no financial or other support that was not contractually required to any of the above VIEs
during the years ended December 31, 2017, 2016 and 2015.
The following table summarizes the impact of these tax credit entities on line items on the Corporation’s consolidated
statements of income.
(in millions)
Years Ended December 31
Other noninterest income:
Amortization of other tax credit investments
Provision for income taxes:
Amortization of LIHTC Investments
Low income housing tax credits
Other tax benefits related to tax credit entities
Total provision for income taxes
2017
2016
2015
$
$
2
$
67
(63)
(24)
(20) $
(1) $
66
(62)
(26)
(22) $
1
62
(61)
(22)
(21)
For further information on the Corporation’s consolidation policy, see Note 1.
F-78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 10 - DEPOSITS
At December 31, 2017, the scheduled maturities of certificates of deposit and other deposits with a stated maturity were
as follows:
(in millions)
Years Ending December 31
2018
2019
2020
2021
2022
Thereafter
Total
A maturity distribution of domestic certificates of deposit of $100,000 and over follows:
(in millions)
December 31
Three months or less
Over three months to six months
Over six months to twelve months
Over twelve months
Total
2017
355
207
319
130
1,011
$
$
$
$
$
$
1,855
200
66
28
16
15
2,180
2016
510
322
449
230
1,511
The aggregate amount of domestic certificates of deposit that meet or exceed the current FDIC insurance limit of $250,000
was $462 million and $882 million at December 31, 2017 and 2016, respectively. All foreign office time deposits of $15 million
and $19 million at December 31, 2017 and 2016, respectively, were in denominations of $250,000 or more.
NOTE 11 - SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase generally mature within one to four days
from the transaction date. Other short-term borrowings, which may consist of borrowed securities and short-term notes, generally
mature within one to 120 days from the transaction date.
At December 31, 2017, Comerica Bank (the Bank), a wholly-owned subsidiary of the Corporation, had pledged loans
totaling $21.3 billion which provided for up to $17.2 billion of available collateralized borrowing with the FRB.
F-79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table provides a summary of short-term borrowings.
(dollar amounts in millions)
December 31, 2017
Amount outstanding at year-end
Weighted average interest rate at year-end
Maximum month-end balance during the year
Average balance outstanding during the year
Weighted average interest rate during the year
December 31, 2016
Amount outstanding at year-end
Weighted average interest rate at year-end
Maximum month-end balance during the year
Average balance outstanding during the year
Weighted average interest rate during the year
December 31, 2015
Amount outstanding at year-end
Weighted average interest rate at year-end
Maximum month-end balance during the year
Average balance outstanding during the year
Weighted average interest rate during the year
$
$
$
$
$
$
NOTE 12 - MEDIUM- AND LONG-TERM DEBT
Medium- and long-term debt is summarized as follows:
(in millions)
December 31
Parent company
Subordinated notes:
3.80% subordinated notes due 2026 (a)
Medium-term notes:
2.125% notes due 2019 (a)
Total parent company
Subsidiaries
Subordinated notes:
5.20% subordinated notes due 2017 (a)
4.00% subordinated notes due 2025 (a)
7.875% subordinated notes due 2026 (a)
Total subordinated notes
Medium-term notes:
2.50% notes due 2020 (a)
FHLB advances:
Floating-rate based on FHLB auction rate due 2026
Other notes:
6.0% - 6.4% fixed-rate notes due 2018 to 2020
Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase
Other
Short-term
Borrowings
$
$
$
$
$
$
10
1.43%
41
20
1.02%
25
0.54 %
25
15
0.47 %
23
0.38 %
109
93
0.05 %
2017
2016
$
255
$
347
602
—
347
208
555
665
2,800
—
—%
1,024
257
1.15%
—
— %
501
123
0.45 %
—
— %
—
—
— %
256
348
604
511
347
215
1,073
667
2,800
Total subsidiaries
Total medium- and long-term debt
(a) The fixed interest rates on these notes have been swapped to a variable rate and designated in a hedging relationship. Accordingly, carrying
$
$
value has been adjusted to reflect the change in the fair value of the debt as a result of changes in the benchmark rate.
Subordinated notes with remaining maturities greater than one year qualify as Tier 2 capital.
The Bank is a member of the FHLB, which provides short- and long-term funding to its members through advances
collateralized by real-estate related assets. The interest rate on each FHLB advance resets every four weeks, based on the FHLB
auction rate, with the reset date of each note scheduled at one-week intervals. At December 31, 2017 the weighted-average rate
on these advances was 1.41%. Each note may be prepaid in full, without penalty, at each scheduled reset date. Borrowing capacity
F-80
—
4,020
4,622
16
4,556
5,160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
is contingent upon the amount of collateral available to be pledged to the FHLB. At December 31, 2017, $15.6 billion of real
estate-related loans were pledged to the FHLB as blanket collateral for current and potential future borrowings of approximately
$5.2 billion.
Unamortized debt issuance costs deducted from the carrying amount of medium- and long-term debt totaled $5 million
and $7 million at December 31, 2017 and 2016, respectively.
At December 31, 2017, the principal maturities of medium- and long-term debt were as follows:
(in millions)
Years Ending December 31
2018
2019
2020
2021
2022
Thereafter
Total
$
$
—
350
675
—
—
3,550
4,575
NOTE 13 - SHAREHOLDERS’ EQUITY
The Federal Reserve completed its 2017 Comprehensive Capital Analysis and Review (CCAR) in June 2017 and did not
object to the Corporation's 2017/2018 capital plan and capital distributions contemplated in the plan for the period ending June
30, 2018. The plan includes equity repurchases of up to $605 million for the four-quarter period commencing in the third quarter
2017 and ending in the second quarter 2018. During the year ended December 31, 2017, the Corporation had repurchased $531
million under the equity repurchase program.
Repurchases of common stock under the equity repurchase program authorized in 2010 by the Board of Directors of the
Corporation totaled 7.3 million shares at an average price paid of $72.44 in 2017, 6.6 million shares at an average price paid of
$46.09 per share in 2016 and 5.1 million shares at an average price paid of $45.65 per share in 2015. The Corporation also
repurchased 500,000 warrants at an average price paid of $20.70 in 2015. There is no expiration date for the Corporation's equity
repurchase program.
At December 31, 2017, the Corporation had 1.0 million warrants outstanding to purchase 906,000 common shares at a
weighted-average exercise price of $29.42. Outstanding warrants were exercisable at the date of grant and expire in 2018.
Approximately 1.8 million, 2.3 million and 934,000 shares of common stock were issued upon exercise of warrants in 2017, 2016
and 2015, respectively.
At December 31, 2017, the Corporation had 906,000 shares of common stock reserved for warrant exercises, 5.1 million
shares of common stock reserved for stock option exercises and restricted stock unit vesting and 1.2 million shares of restricted
stock outstanding to employees and directors under share-based compensation plans.
F-81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents a reconciliation of the changes in the components of accumulated other comprehensive loss
and details the components of other comprehensive income (loss) for the year ended December 31, 2017, 2016 and 2015, including
the amount of income tax expense (benefit) allocated to each component of other comprehensive income (loss).
(in millions)
Years Ended December 31
2017
2016
2015
Accumulated net unrealized (losses) gains on investment securities:
Balance at beginning of period, net of tax
$
(33) $
9
$
Net unrealized holding losses arising during the period
Less: Benefit for income taxes
Net unrealized holding losses arising during the period, net of tax
Less:
Net realized losses included in net securities losses
Less: Benefit for income taxes
Reclassification adjustment for net securities losses included in net income,
net of tax
Less:
Net losses realized as a yield adjustment in interest on investment securities
Less: Benefit for income taxes
Reclassification adjustment for net losses realized as a yield adjustment
included in net income, net of tax
Change in net unrealized losses on investment securities, net of tax
Reclassification of certain deferred tax effects (a)
Balance at end of period, net of tax
Accumulated defined benefit pension and other postretirement plans
adjustment:
Balance at beginning of period, net of tax
Actuarial gain (loss) arising during the period
Prior service credit arising during the period
Net defined benefit pension and other postretirement adjustment arising
during the period
Less: Provision (benefit) for income taxes
Net defined benefit pension and other postretirement adjustment arising
during the period, net of tax
Amounts recognized in salaries and benefits expense:
Amortization of actuarial net loss
Amortization of prior service (credit) cost
Total amounts recognized in salaries and benefits expense
Less: Provision for income taxes
Adjustment for amounts recognized as components of net periodic benefit
cost during the period, net of tax
Change in defined benefit pension and other postretirement plans adjustment,
net of tax
Reclassification of certain deferred tax effects (a)
Balance at end of period, net of tax
Total accumulated other comprehensive loss at end of period, net of tax
$
$
$
$
(81)
(27)
(54)
—
—
—
(3)
(1)
(70)
(26)
(44)
—
—
—
(3)
(1)
(2)
(52)
(16)
(101) $
(2)
(42)
—
(33) $
37
(55)
(21)
(34)
(2)
(1)
(1)
(8)
(3)
(5)
(28)
—
9
(350) $
(438) $
(449)
72
—
72
17
55
51
(27)
24
8
16
(134)
234
100
37
63
46
(7)
39
14
25
71
(71)
(350) $
(451) $
88
—
(350) $
(383) $
(57)
3
(54)
(19)
(35)
70
1
71
25
46
11
—
(438)
(429)
(a) Amounts reclassified to retained earnings due to early adoption of ASU 2018-02. For further information, refer to Note 1.
F-82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 15 - NET INCOME PER COMMON SHARE
Basic and diluted net income per common share are presented in the following table.
(in millions, except per share data)
Years Ended December 31
Basic and diluted
Net income
Less income allocated to participating securities
Net income attributable to common shares
Basic average common shares
Basic net income per common share
Basic average common shares
Dilutive common stock equivalents:
Net effect of the assumed exercise of stock options
Net effect of the assumed exercise of warrants
Diluted average common shares
Diluted net income per common share
2017
2016
2015
$
$
$
$
$
$
743
5
738
174
$
$
477
4
473
172
4.23
$
2.74
$
174
3
1
178
172
2
3
177
4.14
$
2.68
$
521
6
515
176
2.93
176
2
3
181
2.84
The following average shares related to outstanding options to purchase shares of common stock were not included in
the computation of diluted net income per common share because the options were anti-dilutive for the period. There were no anti-
dilutive options for the year ended December 31, 2017.
(shares in millions)
Years Ended December 31
Average outstanding options
Range of exercise prices
NOTE 16 - SHARE-BASED COMPENSATION
2016
3.3
$37.26 - $59.86
2015
5.1
$46.68 - $60.82
Share-based compensation expense is charged to “salaries and benefits” expense on the consolidated statements of income.
The components of share-based compensation expense for all share-based compensation plans and related tax benefits are as
follows:
(in millions)
Years Ended December 31
Total share-based compensation expense
Related tax benefits recognized in net income
2017
2016
2015
$
$
39
14
$
$
34
13
$
$
38
14
The following table summarizes unrecognized compensation expense for all share-based plans.
(dollar amounts in millions)
Total unrecognized share-based compensation expense
Weighted-average expected recognition period (in years)
December 31, 2017
$
40
2.8
The Corporation has share-based compensation plans under which it awards shares of restricted stock and restricted stock
units to executive officers, directors and key personnel, and stock options to executive officers and key personnel of the Corporation
and its subsidiaries. Restricted stock and restricted stock units vest over periods ranging from one year to five years, and stock
options vest over periods ranging from one year to four years. The maturity of each option is determined at the date of grant;
however, no options may be exercised later than ten years from the date of grant. The options may have restrictions regarding
exercisability. The plans originally provided for a grant of up to 19.4 million common shares, plus shares under certain plans that
are forfeited, expire or are canceled, which become available for re-grant. At December 31, 2017, 9.5 million shares were available
for grant.
F-83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Corporation used a binomial model to value stock options granted in the periods presented. Option valuation models
require several inputs, including the expected stock price volatility, and changes in input assumptions can materially affect the fair
value estimates. The model used may not necessarily provide a reliable single measure of the fair value of employee and director
stock options. The risk-free interest rate assumption used in the binomial option-pricing model as outlined in the table below was
based on the federal ten-year treasury interest rate. The expected dividend yield was based on the historical and projected long-
term dividend yield patterns of the Corporation’s common shares. Expected volatility assumptions considered both the historical
volatility of the Corporation’s common stock over a ten-year period and implied volatility based on actively traded options on the
Corporation’s common stock with pricing terms and trade dates similar to the stock options granted. Expected option life was
based on historical exercise activity over the contractual term of the option grant (10 years), excluding certain forced transactions.
The estimated weighted-average grant-date fair value per option and the underlying binomial option-pricing model
assumptions are summarized in the following table:
Years Ended December 31
Weighted-average grant-date fair value per option
Weighted-average assumptions:
Risk-free interest rates
Expected dividend yield
Expected volatility factors of the market price of
Comerica common stock
Expected option life (in years)
2017
2016
2015
$
19.61
$
9.94
$
11.31
2.47%
3.00
34
7.0
2.01%
3.00
38
6.9
1.83%
3.00
33
6.9
A summary of the Corporation’s stock option activity and related information for the year ended December 31, 2017
follows:
Weighted-Average
Number of
Options
(in thousands)
Exercise Price
per Share
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
(in millions)
Outstanding-January 1, 2017
Granted
Forfeited or expired
Exercised
Outstanding-December 31, 2017
Exercisable-December 31, 2017
6,892
430
(57)
(3,092)
4,173
2,347
$
$
37.24
67.67
48.74
37.45
40.06
36.27
5.9
4.3
$
$
195
119
The aggregate intrinsic value of outstanding options shown in the table above represents the total pretax intrinsic value
at December 31, 2017, based on the Corporation’s closing stock price of $86.81 at December 31, 2017.
The total intrinsic value of stock options exercised was $104 million, $46 million and $12 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
A summary of the Corporation’s restricted stock activity and related information for the year ended December 31, 2017
follows:
Outstanding-January 1, 2017
Granted
Forfeited
Vested
Outstanding-December 31, 2017
Number of
Shares
(in thousands)
Weighted-Average
Grant-Date Fair
Value per Share
1,591
237
(59)
(526)
1,243
$
$
37.20
67.83
42.53
35.28
43.59
The total fair value of restricted stock awards that fully vested was $19 million, $22 million and $18 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
F-84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
A summary of the Corporation's restricted stock unit activity and related information for the year ended December 31,
2017 follows:
Outstanding-January 1, 2017
Granted
Vested
Outstanding-December 31, 2017
Service-Based Units
Performance-Based Units
Number of
Units
(in thousands)
Weighted-Average
Grant-Date Fair
Value per Share
Number of
Units
(in thousands)
Weighted-Average
Grant-Date Fair
Value per Share
$
180
19
—
199
39.61
75.06
—
43.00
$
781
149
(212)
718
39.47
66.07
48.32
42.39
The total fair value of restricted stock units that fully vested was $10 million and $11 million for the years ended
December 31, 2017 and 2016, respectively. There were no restricted stock units that vested in 2015.
The Corporation expects to satisfy the exercise of stock options, the vesting of restricted stock units and future grants of
restricted stock by issuing shares of common stock out of treasury. At December 31, 2017, the Corporation held 55.3 million shares
in treasury.
For further information on the Corporation’s share-based compensation plans, refer to Note 1.
NOTE 17 - EMPLOYEE BENEFIT PLANS
Defined Benefit Pension and Postretirement Benefit Plans
The Corporation has a qualified and non-qualified defined benefit pension plan. Prior to January 1, 2017, the plans were
in effect for substantially all salaried employees hired before January 1, 2007. In October 2016, the Corporation modified its
defined benefit pension plans to freeze final average pay benefits as of December 31, 2016, other than for participants who were
age 60 or older as of December 31, 2016, and added a cash balance plan provision effective January 1, 2017. Active pension plan
participants 60 years or older as of December 31, 2016 receive the greater of the final average pay formula or the frozen final
average pay benefit as of December 31, 2016 plus the cash balance benefit earned after January 1, 2017. Employees participating
in the retirement account plan as of December 31, 2016 were eligible to participate in the cash balance pension plan effective
January 1, 2017. Benefits earned under the cash balance pension formula, in the form of an account balance, include contribution
credits based on eligible pay earned each month, age and years of service and monthly interest credits based on the 30-year Treasury
rate. Salaries and benefits expense included defined benefit pension income of $18 million for the year ended December 31, 2017
and expense of $6 million and $47 million in the years ended December 31, 2016 and 2015, respectively, for the plans.
The Corporation’s postretirement benefit plan continues to provide postretirement health care and life insurance benefits
for retirees as of December 31, 1992. The plan also provides certain postretirement health care and life insurance benefits for a
limited number of retirees who retired prior to January 1, 2000. For all other employees hired prior to January 1, 2000, a nominal
benefit is provided. Employees hired on or after January 1, 2000 and prior to January 1, 2007 are eligible to participate in the plan
on a full contributory basis until Medicare-eligible based on age and service. Employees hired on or after January 1, 2007 are not
eligible to participate in the plan. The Corporation funds the pre-1992 retiree plan benefits with bank-owned life insurance.
Employee benefits expense included no postretirement benefit expense for each of the years ended December 31, 2017 and 2016,
and $1 million for the year ended December 31, 2015.
F-85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table sets forth reconciliations of plan assets and the projected benefit obligation, the weighted-average
assumptions used to determine year-end benefit obligations, and the amounts recognized in accumulated other comprehensive
income (loss) for the Corporation’s defined benefit pension plans and postretirement benefit plan at December 31, 2017 and 2016.
The Corporation used a measurement date of December 31, 2017 for these plans.
(dollar amounts in millions)
Change in fair value of plan assets:
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at December 31
Change in projected benefit obligation:
Projected benefit obligation at January 1
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Plan change
Projected benefit obligation at December 31
Accumulated benefit obligation
Funded status at December 31 (a) (b)
Weighted-average assumptions used:
Discount rate
Rate of compensation increase
Healthcare cost trend rate:
Defined Benefit Pension Plans
Qualified
2017
2016
Non-Qualified
2017
2016
Postretirement
Benefit Plan
2017
2016
$ 2,453
396
—
(102)
$ 2,747
$ 1,902
29
78
154
(102)
—
$ 2,061
$ 2,052
686
$
$ 2,346
200
—
(93)
$ 2,453
$ 1,916
31
87
161
(93)
(200)
$ 1,902
$ 1,894
551
$
$ — $ — $
—
—
—
—
—
—
$ — $ — $
$ 201
2
8
12
(11)
—
$ 212
$ 209
$ (212)
$ 222
3
10
11
(11)
(34)
$ 201
$ 198
$ (201)
$
$
$
$
62
2
1
(5)
60
55
—
2
(1)
(5)
—
51
51
9
$
$
$
$
$
$
61
2
4
(5)
62
59
—
3
(2)
(5)
—
55
55
7
3.74%
3.75
4.23%
3.50
3.74% 4.23%
3.75
3.50
3.55%
n/a
3.92%
n/a
Cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to
decline (the ultimate trend rate)
Year when rate reaches the ultimate trend rate
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
6.50
4.50
2027
6.50
5.00
2027
Amounts recognized in accumulated other
comprehensive income (loss) before income
taxes:
Net actuarial loss
Prior service credit
Balance at December 31
(a) Based on projected benefit obligation for defined benefit pension plans and accumulated benefit obligation for postretirement benefit plan.
(b) The Corporation recognizes the overfunded and underfunded status of the plans in “accrued income and other assets” and “accrued
$ (673)
178
$ (495)
$ (548)
159
$ (389)
(20)
1
(19)
(19)
1
(18)
(85)
42
(43)
(82)
50
(32)
$
$
$
$
$
$
$
$
expenses and other liabilities,” respectively, on the consolidated balance sheets.
n/a - not applicable
Because the non-qualified defined benefit pension plan has no assets, the accumulated benefit obligation exceeded the
fair value of plan assets at December 31, 2017 and December 31, 2016.
The following table details the changes in plan assets and benefit obligations recognized in other comprehensive income
(loss) for the year ended December 31, 2017.
Defined Benefit Pension Plans
(in millions)
Actuarial gain (loss) arising during the period
Amortization of net actuarial loss
Amortization of prior service credit
Total recognized in other comprehensive income (loss)
$
$
Qualified
82
43
(19)
106
F-86
$
Non-Qualified
$
(11) $
8
(8)
(11) $
Postretirement
Benefit Plan
Total
1
—
—
1
$
$
72
51
(27)
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Components of net periodic defined benefit cost and postretirement benefit cost, the actual return on plan assets and the
weighted-average assumptions used were as follows:
Defined Benefit Pension Plans
(dollar amounts in millions)
Years Ended December 31
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service (credit) cost
Amortization of net loss
Net periodic defined benefit (credit) cost
Actual return on plan assets
Actual rate of return on plan assets
Weighted-average assumptions used:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
n/a - not applicable
$
$
$
2017
29
78
(159)
(19)
43
(28)
396
16.48%
4.23%
6.50
3.50
Qualified
2016
$
$
$
$
$
$
31
87
(163)
(2)
38
(9)
200
8.66%
4.53%
6.75
3.75
2015
35
88
(159)
4
59
27
(73)
(2.95)%
4.28 %
6.75
3.75
(dollar amounts in millions)
Years Ended December 31
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
Net periodic postretirement benefit cost
Actual return on plan assets
Actual rate of return on plan assets
Weighted-average assumptions used:
Discount rate
Expected long-term return on plan assets
Healthcare cost trend rate:
Cost trend rate assumed
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
$
$
$
$
$
Non-Qualified
2016
2017
2015
$
$
2
8
—
(8)
8
10
n/a
n/a
$
$
3
10
—
(5)
7
15
n/a
n/a
4
10
—
(4)
10
20
n/a
n/a
4.23%
n/a
3.50
4.53%
n/a
3.75
4.28%
n/a
3.75
Postretirement Benefit Plan
2016
2017
$
2
(3)
—
1
— $
2
$
3.52%
$
3
(4)
—
1
— $
2
$
2.83%
2015
3
(4)
1
1
1
—
(0.53)%
3.92%
5.00
4.53%
5.00
3.99 %
5.00
6.50
4.50
2027
7.00
5.00
2027
7.00
5.00
2026
The expected long-term rate of return of plan assets is the average rate of return expected to be realized on funds invested
or expected to be invested over the life of the plan, which has an estimated duration of approximately 12 years as of December 31,
2017. The expected long-term rate of return on plan assets is set after considering both long-term returns in the general market
and long-term returns experienced by the assets in the plan. The returns on the various asset categories are blended to derive one
long-term rate of return. The Corporation reviews its pension plan assumptions on an annual basis with its actuarial consultants
to determine if assumptions are reasonable and adjusts the assumptions to reflect changes in future expectations.
The estimated portion of balances remaining in accumulated other comprehensive income (loss) that are expected to be
recognized as a component of net periodic benefit cost in the year ended December 31, 2018 are as follows:
(in millions)
Net loss
Prior service credit
Defined Benefit Pension Plans
Qualified
$
51
(19)
Non-Qualified
8
$
(8)
Postretirement
Benefit Plan
Total
$
$
1
—
60
(27)
F-87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement benefit plan.
A one-percentage-point change in 2017 assumed healthcare and prescription drug cost trend rates would have the following effects.
(in millions)
Effect on postretirement benefit obligation
Effect on total service and interest cost
Plan Assets
One-Percentage-Point
Increase
Decrease
$
$
3
—
(2)
—
The Corporation’s overall investment goals for the qualified defined benefit pension plan are to maintain a portfolio of
assets of appropriate liquidity and diversification; to generate investment returns (net of operating costs) that are reasonably
anticipated to maintain the plan’s fully funded status or to reduce a funding deficit, after taking into account various factors,
including reasonably anticipated future contributions and expense and the interest rate sensitivity of the plan’s assets relative to
that of the plan’s liabilities; and to generate investment returns (net of operating costs) that meet or exceed a customized benchmark
as defined in the plan investment policy. Derivative instruments are permissible for hedging and transactional efficiency, but only
to the extent that the derivative use enhances the efficient execution of the plan’s investment policy. The plan does not directly
invest in securities issued by the Corporation and its subsidiaries. The Corporation’s target allocations for plan investments are 45
percent to 55 percent for both equity securities and fixed income, including cash. Equity securities include collective investment
and mutual funds and common stock. Fixed income securities include U.S. Treasury and other U.S. government agency securities,
mortgage-backed securities, corporate bonds and notes, municipal bonds, collateralized mortgage obligations and money market
funds.
Fair Value Measurements
The Corporation’s qualified defined benefit pension plan utilizes fair value measurements to record fair value adjustments
and to determine fair value disclosures. The Corporation’s qualified benefit pension plan categorizes investments recorded at fair
value into a three-level hierarchy, based on the markets in which the investment are traded and the reliability of the assumptions
used to determine fair value. Refer to Note 1 for a description of the three-level hierarchy.
Following is a description of the valuation methodologies and key inputs used to measure the fair value of the Corporation’s
qualified defined benefit pension plan investments, including an indication of the level of the fair value hierarchy in which the
investments are classified.
Mutual funds
Fair value measurement is based upon the net asset value (NAV) provided by the administrator of the fund. Mutual
fund NAVs are quoted in an active market exchange, such as the New York Stock Exchange, and are included in Level 1 of the
fair value hierarchy.
Commercial paper
Fair value measurement is based on benchmark yields and quotes from market makers and other broker/dealers recognized
to be market participants. Commercial paper is included in Level 2 of the fair value hierarchy.
Common stock
Fair value measurement is based upon the closing price quoted in an active market exchange, such as the New York Stock
Exchange. Level 1 common stock includes domestic and foreign stock and real estate investment trusts.
U.S. Treasury and other U.S. government agency securities
Level 1 securities include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.
Fair value measurement is based upon quoted prices in an active market exchange, such as the New York Stock Exchange. Level
2 securities include debt securities issued by U.S. government agencies and U.S. government-sponsored entities. The fair value
of Level 2 securities is determined using quoted prices of securities with similar characteristics, or pricing models based on
observable market data inputs, primarily interest rates and spreads.
Corporate and municipal bonds and notes
Fair value measurement is based upon quoted prices of securities with similar characteristics or pricing models based on
observable market data inputs, primarily interest rates, spreads and prepayment information. Level 2 securities include corporate
bonds, municipal bonds, foreign bonds and foreign notes.
F-88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Mortgage-backed securities
Fair value measurement is based upon independent pricing models or other model-based valuation techniques such as
the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors, such as
credit loss and liquidity assumptions, and are included in Level 2 of the fair value hierarchy.
Private placements
Fair value is measured using the NAV provided by fund management as quoted prices in active markets are not available.
Management considers additional discounts to the provided NAV for market and credit risk. Private placements are included in
Level 3 of the fair value hierarchy.
Collective investment funds
Fair value measurement is based upon the NAV provided by the administrator of the fund as a practical expedient to
estimate fair value. There are no unfunded commitments or redemption restrictions on the collective investment funds. The
investments are redeemable daily.
Fair Values
The fair values of the Corporation’s qualified defined benefit pension plan investments measured at fair value on a
recurring basis at December 31, 2017 and 2016, by asset category and level within the fair value hierarchy, are detailed in the table
below.
(in millions)
December 31, 2017
Equity securities:
Mutual funds
Common stock
Fixed income securities:
U.S. Treasury and other U.S. government agency securities
Corporate and municipal bonds and notes
Mortgage-backed securities
Private placements
Total investments in the fair value hierarchy
Investments measured at net asset value:
Collective investment funds
Total investments at fair value
December 31, 2016
Cash equivalent securities:
Commercial paper
Common stock
Fixed income securities:
U.S. Treasury and other U.S. government agency securities
Corporate and municipal bonds and notes
Mortgage-backed securities
Private placements
Total investments in the fair value hierarchy
Investments measured at net asset value:
Collective investment funds
Total investments at fair value
Total
Level 1
Level 2
Level 3
$
$
$
$
$
1
961
$
1
961
451
—
—
—
1,413
$
456
765
25
80
2,288
455
2,743
$
$
2
850
— $
850
366
—
—
—
1,216
$
377
710
23
71
2,033
415
2,448
$
— $
—
5
765
25
—
795
$
$
2
—
11
710
23
—
746
$
—
—
—
—
—
80
80
—
—
—
—
—
71
71
F-89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The table below provides a summary of changes in the Corporation’s qualified defined benefit pension plan’s Level 3
investments measured at fair value on a recurring basis for the years ended December 31, 2017 and 2016.
(in millions)
Year Ended December 31, 2017
Private placements
Year Ended December 31, 2016
Private placements
Balance at
Beginning
of Period
Net Gains (Losses)
Realized
Unrealized
Purchases
Sales
Balance at
End of Period
$
$
71
105
$
$
2
1
$
$
3
3
$
$
77
64
$
$
(73) $
(102) $
80
71
There were no assets in the non-qualified defined benefit pension plan at December 31, 2017 and 2016. The postretirement
benefit plan is fully invested in bank-owned life insurance policies. The fair value of bank-owned life insurance policies is based
on the cash surrender values of the policies as reported by the insurance companies and is classified in Level 2 of the fair value
hierarchy.
Cash Flows
The Corporation currently expects to make no employer contributions to the qualified and non-qualified defined benefit
pension plans and postretirement benefit plan for the year ended December 31, 2018.
Estimated Future Benefit Payments
(in millions)
Years Ended December 31
2018
2019
2020
2021
2022
2023 - 2027
(a) Estimated benefit payments in the postretirement benefit plan are net of estimated Medicare subsidies.
120
123
125
127
130
665
$
$
Qualified
Defined Benefit
Pension Plan
Non-Qualified
Defined Benefit
Pension Plan
Postretirement
Benefit Plan (a)
6
$
5
5
5
5
19
11
12
13
13
13
66
Defined Contribution Plans
Substantially all of the Corporation’s employees are eligible to participate in the Corporation’s principal defined
contribution plan (a 401(k) plan). Under this plan, the Corporation makes core matching cash contributions of 100 percent of the
first 4 percent of qualified earnings contributed by employees (up to the current IRS compensation limit), invested based on
employee investment elections. Employee benefits expense included expense for the plan of $21 million for the year ended
December 31, 2017 and $22 million for each of the years ended December 31, 2016 and 2015.
Through December 31, 2016, the Corporation also provided a retirement account plan for the benefit of substantially all
employees who worked at least 1,000 hours in a plan year and were not accruing a benefit in the defined benefit pension plan.
Under the retirement account plan, the Corporation made an annual discretionary allocation to the individual account of each
eligible employee ranging from 3 percent to 8 percent of annual compensation, determined based on combined age and years of
service. The allocations were invested based on employee investment elections. Employees participating in the retirement account
plan as of December 31, 2016 were eligible to participate in the cash balance pension plan effective January 1, 2017. Final retirement
account plan balances were transferred to the Corporation's 401(k) plan in the first quarter of 2017. Contributions to the retirement
account plan ceased for periods beginning after December 31, 2016. The Corporation recognized $10 million of employee benefits
expense in both of the years ended December 31, 2016 and 2015.
Deferred Compensation Plans
The Corporation offers optional deferred compensation plans under which certain employees may make an irrevocable
election to defer incentive compensation and/or a portion of base salary until retirement or separation from the Corporation. The
employee may direct deferred compensation into one or more deemed investment options. Although not required to do so, the
Corporation invests actual funds into the deemed investments as directed by employees, resulting in a deferred compensation asset,
recorded in “other short-term investments” on the consolidated balance sheets that offsets the liability to employees under the plan,
recorded in “accrued expenses and other liabilities.” The earnings from the deferred compensation asset are recorded in “interest
on short-term investments” and “other noninterest income” and the related change in the liability to employees under the plan is
recorded in “salaries” expense on the consolidated statements of income.
F-90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 18 - INCOME TAXES AND TAX-RELATED ITEMS
The provision for income taxes is calculated as the sum of income taxes due for the current year and deferred taxes.
Income taxes due for the current year is computed by applying federal and state tax statutes to current year taxable income. Deferred
taxes arise from temporary differences between the income tax basis and financial accounting basis of assets and liabilities. Tax-
related interest and penalties and foreign taxes are then added to the tax provision.
The current and deferred components of the provision for income taxes were as follows:
(in millions)
December 31
Current:
Federal
Foreign
State and local
Total current
Deferred:
Federal
State and local
Remeasurement of deferred taxes
Total deferred
Total
2017
2016
2015
$
$
371
5
36
412
(26)
(2)
107
79
491
$
$
224
5
15
244
(49)
(2)
—
(51)
193
$
$
275
5
20
300
(68)
(3)
—
(71)
229
Income before income taxes of $1.2 billion for the year ended December 31, 2017 included $24 million of foreign-source
income.
The provision for income taxes for the year ended December 31, 2017 included a $107 million charge to adjust deferred
taxes as a result of the enactment of the Tax Cuts and Jobs Act. Refer to Note 1 for further details.
The income tax provision on securities transactions for the years ended December 31, 2017, 2016 and 2015 were benefits
of $1 million, $2 million and $1 million, respectively.
The provision for income taxes does not reflect the tax effects of unrealized gains and losses on investment securities
available-for-sale or the change in defined benefit pension and other postretirement plans adjustment included in accumulated
other comprehensive loss. Refer to Note 14 for additional information on accumulated other comprehensive loss.
The provision for income taxes for 2017 included a benefit of $35 million related to employee stock transactions as a
result of new accounting guidance for stock compensation. For the years ended December 31, 2016 and 2015, tax effects of
employee stock transactions of $4 million and $3 million, respectively, were recorded in shareholders' equity.
A reconciliation of expected income tax expense at the federal statutory rate to the Corporation’s provision for income
taxes and effective tax rate follows:
(dollar amounts in millions)
Years Ended December 31
Tax based on federal statutory rate
Remeasurement of deferred taxes
State income taxes
Employee stock transactions
Affordable housing and historic credits
Bank-owned life insurance
Lease termination transactions
Tax-related interest and penalties
Other
Provision for income taxes
2017
2016
2015
Amount
Rate
Amount
Rate
Amount
Rate
$
$
432
107
22
(35)
(21)
(16)
(2)
4
—
491
35.0% $
8.7
1.8
(2.8)
(1.7)
(1.3)
(0.2)
0.3
—
39.8% $
235
—
8
—
(22)
(15)
(15)
3
(1)
193
35.0% $
—
1.2
—
(3.3)
(2.3)
(2.2)
0.5
(0.1)
28.8% $
262
—
10
—
(22)
(15)
(5)
1
(2)
229
35.0%
—
1.3
—
(2.9)
(2.0)
(0.7)
0.1
(0.3)
30.5%
The liability for tax-related interest and penalties included in “accrued expenses and other liabilities” on the consolidated
balance sheets was $10 million and $7 million at December 31, 2017 and 2016, respectively.
In the ordinary course of business, the Corporation enters into certain transactions that have tax consequences. From time
to time, the Internal Revenue Service (IRS) may review and/or challenge specific interpretive tax positions taken by the Corporation
F-91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
with respect to those transactions. The Corporation believes that its tax returns were filed based upon applicable statutes, regulations
and case law in effect at the time of the transactions. The IRS, an administrative authority or a court, if presented with the transactions,
could disagree with the Corporation’s interpretation of the tax law.
A reconciliation of the beginning and ending amount of net unrecognized tax benefits follows:
(in millions)
Balance at January 1
Increase as a result of tax positions taken during a prior period
Decrease related to settlements with tax authorities
Other
Balance at December 31
2017
2016
2015
$
$
15
4
(8)
(1)
10
$
$
22
—
(7)
—
15
$
$
14
8
—
—
22
The Corporation anticipates that it is reasonably possible that settlements with tax authorities will result in a $1 million
decrease in net unrecognized tax benefits within the next twelve months.
After consideration of the effect of the federal tax benefit available on unrecognized state tax benefits, the total amount
of unrecognized tax benefits that, if recognized, would affect the Corporation’s effective tax rate was approximately $8 million
and $4 million at December 31, 2017 and 2016, respectively.
The following tax years for significant jurisdictions remain subject to examination as of December 31, 2017:
Jurisdiction
Federal
California
Tax Years
2014-2016
2005-2016
Based on current knowledge and probability assessment of various potential outcomes, the Corporation believes that
current tax reserves are adequate, and the amount of any potential incremental liability arising is not expected to have a material
adverse effect on the Corporation’s consolidated financial condition or results of operations. Probabilities and outcomes are reviewed
as events unfold, and adjustments to the reserves are made when necessary.
The principal components of deferred tax assets and liabilities were as follows:
(in millions)
December 31
Deferred tax assets:
Allowance for loan losses
Deferred compensation
Deferred loan origination fees and costs
Net unrealized losses on investment securities available-for-sale
Other temporary differences, net
Total deferred tax asset before valuation allowance
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Lease financing transactions
Defined benefit plans
Allowance for depreciation
Total deferred tax liabilities
Net deferred tax asset
2017
2016
$
$
150
49
6
31
57
293
(3)
290
(76)
(72)
(1)
(149)
141
$
$
256
91
20
20
76
463
(3)
460
(150)
(82)
(11)
(243)
217
Deferred tax assets included state net operating loss carryforwards of $4 million at both December 31, 2017 and
December 31, 2016. The carryforwards expire between 2018 and 2027. The Corporation believes it is more likely than not that
the benefit from certain of these state net operating loss carryforwards will not be realized and, accordingly, maintained a valuation
allowance of $3 million at both December 31, 2017 and December 31, 2016. For further information on the Corporation’s valuation
policy for deferred tax assets, refer to Note 1.
F-92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 19 - TRANSACTIONS WITH RELATED PARTIES
The Corporation’s banking subsidiaries had, and expect to have in the future, transactions with the Corporation’s directors
and executive officers, companies with which these individuals are associated, and certain related individuals. Such transactions
were made in the ordinary course of business and included extensions of credit, leases and professional services. With respect to
extensions of credit, all were made on substantially the same terms, including interest rates and collateral, as those prevailing at
the same time for comparable transactions with other customers and did not, in management’s opinion, involve more than normal
risk of collectibility or present other unfavorable features. The aggregate amount of loans attributable to persons who were related
parties at December 31, 2017, totaled $108 million at the beginning of 2017 and $66 million at the end of 2017. During 2017, new
loans to related parties aggregated $637 million and repayments totaled $679 million.
NOTE 20 - REGULATORY CAPITAL AND RESERVE REQUIREMENTS
Reserves required to be maintained and/or deposited with the FRB are classified in interest-bearing deposits with banks.
These reserve balances vary, depending on the level of customer deposits in the Corporation’s banking subsidiaries. The average
required reserve balances were $572 million and $518 million for the years ended December 31, 2017 and 2016, respectively.
Banking regulations limit the transfer of assets in the form of dividends, loans or advances from the bank subsidiaries to
the parent company. Under the most restrictive of these regulations, the aggregate amount of dividends which can be paid to the
parent company, with prior approval from bank regulatory agencies, approximated $7 million at January 1, 2018, plus 2018 net
profits. Substantially all the assets of the Corporation’s banking subsidiaries are restricted from transfer to the parent company of
the Corporation in the form of loans or advances.
The Corporation’s subsidiary banks declared dividends of $907 million, $545 million and $437 million in 2017, 2016
and 2015, respectively.
The Corporation and its U.S. banking subsidiaries are subject to various regulatory capital requirements administered by
federal and state banking agencies. The U.S. adoption of the Basel III regulatory capital framework (Basel III) became effective
for the Corporation on January 1, 2015. Basel III sets forth two comprehensive methodologies for calculating risk-weighted assets
(RWA), a standardized approach and an advanced approach. The Corporation and its U.S. banking subsidiaries are subject to the
standardized approach under the rules. Under the standardized approach, RWA is generally based on supervisory risk-weightings
which vary by counterparty type and asset class. Under the Basel III standardized approach, capital is required for credit risk RWA,
to cover the risk of unexpected losses due to failure of a customer or counterparty to meet its financial obligations in accordance
with contractual terms; and if trading assets and liabilities exceed certain thresholds, capital is also required for market risk RWA,
to cover the risk of losses due to adverse market movements or from position-specific factors.
Under Basel III, there are three categories of risk-based capital: CET1 capital, Tier 1 capital and Tier 2 capital. CET1
capital predominantly includes common shareholders' equity, less certain deductions for goodwill, intangible assets and deferred
tax assets that arise from net operating losses and tax credit carry-forwards. Additionally, the Corporation has elected to permanently
exclude capital in accumulated other comprehensive income related to debt and equity securities classified as available-for-sale
as well as for defined benefit postretirement plans from CET1, an option available to standardized approach entities under Basel
III. Tier 1 capital incrementally includes noncumulative perpetual preferred stock. Tier 2 capital includes Tier 1 capital as well as
subordinated debt qualifying as Tier 2 and qualifying allowance for credit losses. Total capital is Tier 1 capital plus Tier 2 capital.
In addition to the minimum risk-based capital requirements, the Corporation is required to maintain a minimum capital conservation
buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. The required
amount of the capital conservation buffer is being phased in and ultimately increasing to 2.5% on January 1, 2019.
Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts
and ratios of CET1, Tier 1 and total capital (as defined in the regulations) to average and/or risk-weighted assets. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Corporation’s financial statements. At December 31, 2017 and 2016, the
Corporation and its U.S. banking subsidiaries exceeded the ratios required for an institution to be considered “well capitalized”
For U.S. banking subsidiaries, those requirements were total risk-based capital, Tier 1 risk-based capital, CET1 risk-based capital
and leverage ratios greater than 10 percent, 8 percent, 6.5 percent and 5 percent, respectively, at December 31, 2017 and 2016.
For the Corporation, requirements to be considered "well capitalized" were total risk-based capital and Tier 1 risk-based capital
ratios greater than 10 percent and 6 percent, respectively, at December 31, 2017 and 2016. There have been no conditions or events
since December 31, 2017 that management believes have changed the capital adequacy classification of the Corporation or its
U.S. banking subsidiaries.
F-93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following is a summary of the capital position of the Corporation and Comerica Bank, its principal banking subsidiary.
(dollar amounts in millions)
December 31, 2017
CET1 capital (minimum $3.0 billion (Consolidated))
Tier 1 capital (minimum-$4.0 billion (Consolidated))
Total capital (minimum-$5.3 billion (Consolidated))
Risk-weighted assets
Average assets (fourth quarter)
CET1 capital to risk-weighted assets (minimum-4.5%)
Tier 1 capital to risk-weighted assets (minimum-6.0%)
Total capital to risk-weighted assets (minimum-8.0%)
Tier 1 capital to average assets (minimum-4.0%)
Capital conservation buffer
December 31, 2016
CET1 capital (minimum $3.1 billion (Consolidated))
Tier 1 capital (minimum-$4.1 billion (Consolidated))
Total capital (minimum-$5.4 billion (Consolidated))
Risk-weighted assets
Average assets (fourth quarter)
CET1 capital to risk-weighted assets (minimum-4.5%)
Tier 1 capital to risk-weighted assets (minimum-6.0%)
Total capital to risk-weighted assets (minimum-8.0%)
Tier 1 capital to average assets (minimum-4.0%)
Capital conservation buffer
NOTE 21 - CONTINGENT LIABILITIES
Legal Proceedings
Comerica
Incorporated
(Consolidated)
Comerica
Bank
$
$
$
$
7,773
7,773
9,211
66,575
71,372
11.68%
11.68
13.84
10.89
5.68
7,540
7,540
9,018
67,966
74,086
11.09 %
11.09
13.27
10.18
5.09
7,121
7,121
8,378
66,447
71,181
10.72%
10.72
12.61
10.00
4.61
7,120
7,120
8,397
67,739
73,804
10.51 %
10.51
12.40
9.65
4.40
Comerica Bank, a wholly owned subsidiary of the Corporation, was named in November 2011 as a third-party defendant
in Butte Local Development v. Masters Group v. Comerica Bank (“the case”), for lender liability. The case was tried in January
2014, in the Montana Second District Judicial Court for Silver Bow County in Butte, Montana. On January 17, 2014, a jury awarded
Masters $52 million against the Bank. On July 1, 2015, after an appeal filed by the Corporation, the Montana Supreme Court
reversed the judgment against the Corporation and remanded the case for a new trial with instructions that Michigan contract law
should apply and dismissing all other claims. The case was retried in the same district court, without a jury, in January 2017, and
the Corporation awaits a ruling. Management believes that current reserves related to this case are adequate in the event of a
negative outcome.
The Corporation and certain of its subsidiaries are subject to various other pending or threatened legal proceedings arising
out of the normal course of business or operations. The Corporation believes it has meritorious defenses to the claims asserted
against it in its other currently outstanding legal proceedings and, with respect to such legal proceedings, intends to continue to
defend itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of the
Corporation and its shareholders. Settlement may result from the Corporation's determination that it may be more prudent financially
to settle, rather than litigate, and should not be regarded as an admission of liability. On at least a quarterly basis, the Corporation
assesses its potential liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information
available. On a case-by-case basis, reserves are established for those legal claims for which it is probable that a loss will be incurred
either as a result of a settlement or judgment, and the amount of such loss can be reasonably estimated. The actual costs of resolving
these claims may be substantially higher or lower than the amounts reserved. Based on current knowledge, and after consultation
with legal counsel, management believes that current reserves are adequate, and the amount of any incremental liability arising
from these matters is not expected to have a material adverse effect on the Corporation’s consolidated financial condition,
consolidated results of operations or consolidated cash flows. Legal fees of $15 million, $19 million and $21 million for the years
ended December 31, 2017, 2016 and 2015, respectively, were included in "other noninterest expenses" on the consolidated
statements of income.
For matters where a loss is not probable, the Corporation has not established legal reserves. The Corporation believes the
estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for all legal proceedings in which
F-94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
it is involved is from zero to approximately $29 million at December 31, 2017. This estimated aggregate range of reasonably
possible losses is based upon currently available information for those proceedings in which the Corporation is involved, taking
into account the Corporation’s best estimate of such losses for those cases for which such estimate can be made. For certain cases,
the Corporation does not believe that an estimate can currently be made. The Corporation’s estimate involves significant judgment,
given the varying stages of the proceedings (including the fact that many are currently in preliminary stages), the existence in
certain proceedings of multiple defendants (including the Corporation) whose share of liability has yet to be determined, the
numerous yet-unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many
of the claims) and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Corporation’s
estimate will change from time to time, and actual losses may be more or less than the current estimate.
In the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable,
may be material to the Corporation's consolidated financial condition, consolidated results of operations or consolidated cash
flows.
For information regarding income tax contingencies, refer to Note 18.
NOTE 22 - RESTRUCTURING CHARGES
The Corporation launched an initiative in the second quarter 2016 designed to reduce overhead and increase revenue (the
"GEAR Up" initiative). The actions in the initiative include, but are not limited to, a reduction in workforce, a new retirement
program, streamlining operational processes, real estate optimization including consolidating 38 banking centers as well as reducing
office and operations space, selective outsourcing of technology functions, reduction of technology system applications, enhanced
sales tools and training, expanded product offerings and improved customer analytics to drive opportunities.
Certain actions associated with the GEAR Up initiative result in restructuring charges. Generally, costs associated with
or incurred to generate revenue as part of the initiative are recorded according to the nature of the cost and are not included in
restructuring charges. The Corporation considers the following costs associated with the initiative to be restructuring charges:
• Employee costs: Primarily severance costs in accordance with the Corporation’s severance plan.
• Facilities costs: Costs pertaining to consolidating banking centers and other facilities, such as lease termination costs
and decommissioning costs. Also includes accelerated depreciation and impairment of owned property to be sold.
• Technology costs: Impairment and other costs associated with optimizing technology infrastructure and reducing the
number of applications.
• Other costs: Includes primarily professional fees, as well as other contract termination fees and legal fees incurred in
the execution of the initiative.
F-95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Restructuring charges are recorded as a component of noninterest expenses on the consolidated statements of income.
The following table presents changes in restructuring reserves, cumulative charges incurred to date and total expected restructuring
charges:
(in millions)
Year Ended December 31, 2017
Balance at beginning of period
Restructuring charges
Payments
Adjustments for non-cash charges (a)
Balance at end of period
Year Ended December 31, 2016
Balance at beginning of period
Restructuring charges
Payments
Adjustments for non-cash charges (a)
Balance at end of period
Employee
Costs
Facilities
Costs
Technology
Costs
Other Costs
Total
$
$
$
$
10
10
(12)
—
8
$
$
— $
52
(44)
2
10
$
$
4
2
(6)
—
— $
— $
15
(6)
(5)
4
$
— $
26
(15)
(5)
6
$
— $
—
—
—
— $
4
7
(10)
—
1
$
$
— $
26
(22)
—
4
$
18
45
(43)
(5)
15
—
93
(72)
(3)
18
Total restructuring charges incurred to date
Total expected restructuring charges (b)
(a) Adjustments for non-cash charges primarily include the benefit from forfeitures of nonvested stock compensation in Employee Costs,
accelerated depreciation expense in Facilities Costs and impairments of previously capitalized software costs in Technology Costs.
138
185 - 195
26
60 - 65
17
20 - 25
33
35
62
70
$
$
$
$
$
(b) Restructuring activities are expected to be substantially completed by 12/31/2018.
Restructuring charges directly attributable to a business segment are assigned to that business segment. Restructuring
charges incurred by areas whose services support the overall Corporation are allocated based on the methodology described in
Note 23 to the consolidated financial statements. Total restructuring charges assigned to the Business Bank, Retail Bank and Wealth
Management were $24 million, $15 million and $6 million, respectively, for the year ended December 31, 2017 and $43 million,
$38 million and $12 million, respectively, for the year ended December 31, 2016. Remaining expected restructuring charges will
be assigned to the business segments using the same methodology. Facilities costs pertaining to the consolidation of banking
centers are expected to impact primarily the Retail Bank.
NOTE 23 - BUSINESS SEGMENT INFORMATION
The Corporation has strategically aligned its operations into three major business segments: the Business Bank, the Retail
Bank and Wealth Management. These business segments are differentiated based on the type of customer and the related products
and services provided. In addition to the three major business segments, the Finance Division is also reported as a segment. Business
segment results are produced by the Corporation’s internal management accounting system. This system measures financial results
based on the internal business unit structure of the Corporation. The performance of the business segments is not comparable with
the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution.
Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the
segments would perform if they operated as independent entities. The management accounting system assigns balance sheet and
income statement items to each business segment using certain methodologies, which are regularly reviewed and refined. From
time to time, the Corporation may make reclassifications among the segments to more appropriately reflect management's current
view of the segments, and methodologies may be modified as the management accounting system is enhanced and changes occur
in the organizational structure and/or product lines. For comparability purposes, amounts in all periods are based on business unit
structure and methodologies in effect at December 31, 2017.
Net interest income for each business segment is the total of interest income generated by earning assets less interest
expense on interest-bearing liabilities plus the net impact from associated internal funds transfer pricing (FTP) funding credits and
charges. The FTP methodology provides the business segments credits for deposits and other funds provided and charges the
business segments for loans and other assets utilizing funds. This credit or charge is based on matching stated or implied maturities
for these assets and liabilities. The FTP credit provided for deposits reflects the long-term value of deposits generated based on
their implied maturity. The FTP charge for funding assets reflects a matched cost of funds based on the pricing and term
characteristics of the assets. For acquired loans and deposits, matched maturity funding is determined based on origination
date. Accordingly, the FTP process reflects the transfer of interest rate risk exposures to the Corporate Treasury department within
F-96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
the Finance segment, where such exposures are centrally managed. Effective January 1, 2016, in conjunction with the effective
date for regulatory Liquidity Coverage Ratio (LCR) requirements, the Corporation prospectively implemented an additional FTP
charge, primarily for the cost of maintaining liquid assets to support potential draws on unfunded loan commitments and for the
long-term economic cost of holding collateral for secured deposits. The allowance for loan losses is allocated to the business
segments based on the methodology used to estimate the consolidated allowance for loan losses described in Note 1. The related
provision for loan losses is assigned based on the amount necessary to maintain an allowance for loan losses appropriate for each
business segment. Noninterest income and expenses directly attributable to a line of business are assigned to that business segment.
Direct expenses incurred by areas whose services support the overall Corporation are allocated to the business segments as follows:
product processing expenditures are allocated based on standard unit costs applied to actual volume measurements; administrative
expenses are allocated based on estimated time expended; and corporate overhead is assigned 50 percent based on the ratio of the
business segment’s noninterest expenses to total noninterest expenses incurred by all business segments and 50 percent based on
the ratio of the business segment’s attributed equity to total attributed equity of all business segments. Equity is attributed based
on credit, operational and interest rate risks. Most of the equity attributed relates to credit risk, which is determined based on the
credit score and expected remaining life of each loan, letter of credit and unused commitment recorded in the business segments.
Operational risk is allocated based on loans and letters of credit, deposit balances, non-earning assets, trust assets under management,
certain noninterest income items, and the nature and extent of expenses incurred by business units. Virtually all interest rate risk
is assigned to Finance, as are the Corporation’s hedging activities.
The following discussion provides information about the activities of each business segment. A discussion of the financial
results and the factors impacting 2017 performance can be found in the section entitled "Business Segments" in the financial
review.
The Business Bank meets the needs of middle market businesses, multinational corporations and governmental entities
by offering various products and services, including commercial loans and lines of credit, deposits, cash management, capital
market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services.
The Retail Bank includes small business banking and personal financial services, consisting of consumer lending,
consumer deposit gathering and mortgage loan origination. In addition to a full range of financial services provided to small
business customers, this business segment offers a variety of consumer products, including deposit accounts, installment loans,
credit cards, student loans, home equity lines of credit and residential mortgage loans.
Wealth Management offers products and services consisting of fiduciary services, private banking, retirement services,
investment management and advisory services, investment banking and brokerage services. This business segment also offers the
sale of annuity products, as well as life, disability and long-term care insurance products.
The Finance segment includes the Corporation’s securities portfolio and asset and liability management activities. This
segment is responsible for managing the Corporation’s funding, liquidity and capital needs, performing interest sensitivity analysis
and executing various strategies to manage the Corporation’s exposure to liquidity, interest rate risk and foreign exchange risk.
The Other category includes the income and expense impact of equity and cash, tax benefits not assigned to specific
business segments, charges of an unusual or infrequent nature that are not reflective of the normal operations of the business
segments and miscellaneous other expenses of a corporate nature.
F-97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Business segment financial results are as follows:
(dollar amounts in millions)
Year Ended December 31, 2017
Earnings summary:
Net interest income (expense)
Provision for credit losses
Noninterest income
Noninterest expenses
Provision (benefit) for income taxes
Net income (loss)
Net credit-related charge-offs (recoveries)
Selected average balances:
Assets
Loans
Deposits
Statistical data:
Return on average assets (b)
Efficiency ratio (c)
(dollar amounts in millions)
Year Ended December 31, 2016
Earnings summary:
Net interest income (expense)
Provision for credit losses
Noninterest income
Noninterest expenses
Provision (benefit) for income taxes
Net income (loss)
Net credit-related charge-offs
Selected average balances:
Assets
Loans
Deposits
Statistical data:
Return on average assets (b)
Efficiency ratio (c)
(Table continues on following page)
Business
Bank
Retail
Bank
Wealth
Management
Finance
Other
Total
$ 1,372
58
601
802
389
724
82
$
$
$
$
$
658
13
193
731
39
68
15
$ 38,801
37,445
28,803
$ 6,478
5,857
23,971
$
$
$
$
170
1
255
285
51
88
(5)
$
$
$
(175) $
—
48
(4)
(58)
(65) $
— $
36
2
10
46
70 (a)
(72)
—
$ 2,061
74
1,107
1,860
491
743
92
$
$
5,401
5,256
4,081
$ 13,954
—
241
$
6,818
—
162
$ 71,452
48,558
57,258
1.87%
40.61
0.28%
85.54
1.63%
66.84
N/M
N/M
N/M
N/M
1.04%
58.57
Business
Bank
Retail
Bank
Wealth
Management
Finance
Other
Total
$ 1,417
217
572
839
295
638
145
$
$
$
$
$
618
35
189
767
1
4
12
$ 39,497
38,067
29,704
$ 6,551
5,881
23,558
$
$
$
$
$
167
(4)
243
301
39
$
74
— $
(428) $
—
43
(4)
(142)
(239) $
— $
23
—
4
27
—
—
—
5,232
5,048
4,126
$ 13,993
—
88
$
6,470
—
265
$ 1,797
248
1,051
1,930
193
477
157
$
$
$ 71,743
48,996
57,741
1.61%
42.11
0.02%
94.35
1.42%
73.48
N/M
N/M
N/M
N/M
0.67%
67.53
F-98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
(dollar amounts in millions)
Year Ended December 31, 2015
Earnings summary:
Net interest income (expense)
Provision for credit losses
Noninterest income
Noninterest expenses
Provision (benefit) for income taxes
Net income (loss)
Net credit-related charge-offs (recoveries)
Selected average balances:
Assets
Loans
Deposits
Business
Bank
Retail
Bank
Wealth
Management
Finance
Other
Total
$ 1,497
158
571
778
371
761
89
$
$
$
$
$
623
8
185
734
21
45
29
$ 39,501
37,889
30,894
$ 6,474
5,792
22,876
$
$
$
$
177
(20)
235
305
43
84
(17)
$
$
$
(623) $
—
44
(4)
(206)
(369) $
— $
15
1
—
14
—
— $
— $
$ 1,689
147
1,035
1,827
229
521
101
5,153
4,953
4,151
$
$ 11,764
—
138
7,355
(6)
267
$ 70,247
48,628
58,326
Statistical data:
Return on average assets (b)
Efficiency ratio (c)
(a) Included a $107 million charge to adjust deferred taxes as a result of the enactment of the Tax Cuts and Jobs Act and a $35 million tax
1.62%
73.68
N/M
N/M
N/M
N/M
0.74%
0.19%
1.93%
90.64
37.59
66.93
benefit from employee stock transactions.
(b) Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.
(c) Noninterest expenses as a percentage of the sum of net interest income (fully taxable equivalent basis) and noninterest income excluding
net securities gains.
N/M – not meaningful
The Corporation operates in three primary markets - Texas, California, and Michigan, as well as in Arizona and Florida,
with select businesses operating in several other states, and in Canada and Mexico. The Corporation produces market segment
results for the Corporation’s three primary geographic markets as well as Other Markets. Other Markets includes Florida, Arizona,
the International Finance division and businesses with a national perspective. The Finance & Other category includes the Finance
segment and the Other category as previously described. Market segment results are provided as supplemental information to the
business segment results and may not meet all operating segment criteria as set forth in GAAP. For comparability purposes, amounts
in all periods are based on market segments and methodologies in effect at December 31, 2017.
A discussion of the financial results and the factors impacting performance can be found in the section entitled "Market
Segments" in the financial review.
Market segment financial results are as follows:
(dollar amounts in millions)
Year Ended December 31, 2017
Earnings summary:
Net interest income (expense)
Provision for credit losses
Noninterest income
Noninterest expenses
Provision (benefit) for income taxes
Net income (loss)
Net credit-related (recoveries) charge-offs
Selected average balances:
Assets
Loans
Deposits
Statistical data:
Return on average assets (b)
Efficiency ratio (c)
(Table continues on following page)
Michigan
California
Texas
Other
Markets
Finance
& Other
Total
$
$
$
685
8
324
590
147
264
(1)
$
$
$
719
100
171
404
148
238
33
$
$
$
465
(72)
131
375
109
184
46
$
$
$
331
36
423
449
75
194
14
$
$
$
(139)
2
58
42
12 (a)
(137)
—
$ 2,061
74
1,107
1,860
491
743
92
$
$
$ 13,395
12,677
21,823
$ 18,269
18,008
17,533
$ 10,443
9,969
9,625
$ 8,573
7,904
7,874
$ 20,772
—
403
$ 71,452
48,558
57,258
1.17%
58.30
1.29%
45.26
1.69%
62.80
2.25%
59.57
N/M
N/M
1.04%
58.57
F-99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
(dollar amounts in millions)
Year Ended December 31, 2016
Earnings summary:
Net interest income (expense)
Provision for credit losses
Noninterest income
Noninterest expenses
Provision (benefit) for income taxes
Net income (loss)
Net credit-related charge-offs
Selected average balances:
Assets
Loans
Deposits
Statistical data:
Return on average assets (b)
Efficiency ratio (c)
(dollar amounts in millions)
Year Ended December 31, 2015
Earnings summary:
Net interest income (expense)
Provision for credit losses
Noninterest income
Noninterest expenses
Provision (benefit) for income taxes
Net income (loss)
Net credit-related charge-offs
Selected average balances:
Assets
Loans
Deposits
Michigan
California
Texas
Other
Markets
Finance
& Other
Total
$
$
$
666
9
320
620
114
243
9
$
$
$
716
21
162
434
152
271
26
$
$
$
470
225
129
408
(12)
(22)
118
$ 13,105
12,457
21,777
$ 18,012
17,731
17,438
$ 11,101
10,637
10,168
$
$
$
$
$
$
$
$
350
(7)
393
445
81
224
4
9,062
8,171
8,005
(405) $
—
47
23
(142)
(239) $
— $
1,797
248
1,051
1,930
193
477
157
20,463
—
353
$ 71,743
48,996
57,741
1.08%
62.33
1.46%
49.55
(0.18)%
67.94
2.47%
59.86
N/M
N/M
0.67%
67.53
Michigan
California
Texas
Other
Markets
Finance
& Other
Total
$
$
$
708
(27)
329
594
151
319
8
$
$
$
735
17
150
405
166
297
18
$
$
$
518
131
131
387
54
77
46
$ 13,598
13,016
21,848
$ 17,044
16,778
17,788
$ 11,778
11,168
10,882
$
$
$
$
336
25
381
431
64
197
29
8,708
7,673
7,403
$
$
$
$
(608) $
1
44
10
(206)
(369) $
— $
1,689
147
1,035
1,827
229
521
101
19,119
(7)
405
$ 70,247
48,628
58,326
Statistical data:
Return on average assets (b)
Efficiency ratio (c)
(a) Included a $107 million charge to adjust deferred taxes as a result of the enactment of the Tax Cuts and Jobs Act and a $35 million tax
1.57%
45.88
1.40%
56.93
2.26%
59.92
0.62%
59.63
0.74%
66.93
N/M
N/M
benefit from employee stock transactions.
(b) Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.
(c) Noninterest expenses as a percentage of the sum of net interest income (fully taxable equivalent basis) and noninterest income excluding
net securities gains.
N/M – not meaningful
F-100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 24 - PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEETS - COMERICA INCORPORATED
(in millions, except share data)
December 31
Assets
Cash and due from subsidiary bank
Other short-term investments
Investment in subsidiaries, principally banks
Premises and equipment
Other assets
Total assets
Liabilities and Shareholders’ Equity
Medium- and long-term debt
Other liabilities
Total liabilities
Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued - 228,164,824 shares
Capital surplus
Accumulated other comprehensive loss
Retained earnings
Less cost of common stock in treasury - 55,306,483 shares at 12/31/17 and 52,851,156
shares at 12/31/16
Total shareholders’ equity
Total liabilities and shareholders’ equity
STATEMENTS OF INCOME - COMERICA INCORPORATED
(in millions)
Years Ended December 31
Income
Income from subsidiaries:
Dividends from subsidiaries
Other interest income
Intercompany management fees
Other noninterest income
Total income
Expenses
Interest on medium- and long-term debt
Salaries and benefits expense
Net occupancy expense
Equipment expense
Restructuring charges
Other noninterest expenses
Total expenses
Income before benefit for income taxes and equity in undistributed
earnings of subsidiaries
Benefit for income taxes
Income before equity in undistributed earnings of subsidiaries
Equity in undistributed earnings of subsidiaries, principally banks
Net income
Less income allocated to participating securities
Net income attributable to common shares
F-101
2017
915
3
136
8
1,062
13
127
5
1
6
80
232
830
(26)
856
(113)
743
5
738
$
$
2017
2016
$
$
$
1,059
92
7,467
2
127
8,747
602
182
784
1,141
2,122
(451)
7,887
(2,736)
7,963
8,747
$
761
87
7,561
2
150
8,561
604
161
765
1,141
2,135
(383)
7,331
(2,428)
7,796
8,561
2016
2015
549
1
138
3
691
10
114
5
1
33
72
235
456
(28)
484
(7)
477
4
473
$
$
441
1
123
1
566
14
112
5
1
—
70
202
364
(27)
391
130
521
6
515
$
$
$
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
STATEMENTS OF CASH FLOWS - COMERICA INCORPORATED
(in millions)
Years Ended December 31
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Undistributed earnings of subsidiaries, principally banks
Depreciation and amortization
Net periodic defined benefit (credit) cost
Share-based compensation expense
Benefit for deferred income taxes
Other, net
Net cash provided by operating activities
Investing Activities
Net change in premises and equipment
Net cash used in investing activities
Financing Activities
Medium- and long-term debt:
Maturities and redemptions
Common Stock:
Repurchases
Cash dividends paid
Issuances of common stock under employee stock plans
Purchase and retirement of warrants
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Interest paid
Income taxes recovered
2017
2016
2015
$
743
$
477
$
521
113
1
(2)
16
(10)
59
920
—
—
—
(552)
(180)
110
—
(622)
298
761
1,059
$
12
$
(331) $
$
$
$
7
1
1
14
(3)
6
503
—
—
—
(315)
(152)
152
—
(315)
188
573
$
761
9
$
(139) $
(130)
1
5
14
—
5
416
(1)
(1)
(600)
(240)
(147)
22
(10)
(975)
(560)
1,133
573
16
(62)
NOTE 25 - SUMMARY OF QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)
The following quarterly information is unaudited. However, in the opinion of management, the information reflects all
adjustments, which are necessary for the fair presentation of the results of operations, for the periods presented.
(in millions, except per share data)
Interest income
Interest expense
Net interest income
Provision for credit losses
Net securities losses
Noninterest income excluding net securities losses
Noninterest expenses
Provision for income taxes
Net income
Less income allocated to participating securities
Net income attributable to common shares
Earnings per common share:
Basic
Diluted
Comprehensive income
2017
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
$
$
578
33
545
17
—
285
483
218
112
—
112
0.65
0.63
107
$
$
$
F-102
$
$
$
579
33
546
24
(1)
276
463
108
226
2
224
1.29
1.26
228
$
$
$
529
29
500
17
(2)
278
457
99
203
1
202
1.15
1.13
221
496
26
470
16
—
271
457
66
202
2
200
1.15
1.11
206
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
(in millions, except per share data)
Interest income
Interest expense
Net interest income
Provision for credit losses
Net securities losses
Noninterest income excluding net securities losses
Noninterest expenses
Provision for income taxes
Net income
Less income allocated to participating securities
Net income attributable to common shares
Earnings per common share:
Basic
Diluted
Comprehensive income
2016
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
$
$
484
29
455
35
(2)
269
461
62
164
1
163
0.95
0.92
73
$
$
$
480
30
450
16
—
272
493
64
149
1
148
0.87
0.84
152
$
$
$
473
28
445
49
(1)
269
518
42
104
1
103
0.60
0.58
137
472
25
447
148
(2)
246
458
25
60
1
59
0.34
0.34
161
$
$
$
F-103
REPORT OF MANAGEMENT
The management of Comerica Incorporated (the Corporation) is responsible for the accompanying consolidated financial
statements and all other financial information in this Annual Report. The consolidated financial statements have been prepared in
conformity with U.S. generally accepted accounting principles and include amounts which of necessity are based on management’s
best estimates and judgments and give due consideration to materiality. The other financial information herein is consistent with
that in the consolidated financial statements.
In meeting its responsibility for the reliability of the consolidated financial statements, management develops and
maintains effective internal controls, including those over financial reporting, as defined in the Securities and Exchange Act of
1934, as amended. The Corporation’s internal control over financial reporting includes policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the Corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the
consolidated financial statements in conformity with U.S. generally accepted accounting principles, and that receipts and
expenditures of the Corporation are made only in accordance with authorizations of management and directors of the Corporation;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Corporation’s assets that could have a material effect on the consolidated financial statements.
Management assessed, with participation of the Corporation’s Chief Executive Officer and Chief Financial Officer,
internal control over financial reporting as it relates to the Corporation’s consolidated financial statements presented in conformity
with U.S. generally accepted accounting principles as of December 31, 2017. The assessment was based on criteria for effective
internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Based on this assessment,
management determined that internal control over financial reporting is effective as it relates to the Corporation’s consolidated
financial statements presented in conformity with U.S. generally accepted accounting principles as of December 31, 2017.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Corporation's internal control over financial reporting as of December 31, 2017 has been audited by Ernst & Young
LLP, an independent registered public accounting firm, as stated in their accompanying report.
The Corporation’s Board of Directors oversees management’s internal control over financial reporting and financial
reporting responsibilities through its Audit Committee as well as various other committees. The Audit Committee, which consists
of directors who are not officers or employees of the Corporation, meets regularly with management, internal audit and the
independent public accountants to assure that the Audit Committee, management, internal auditors and the independent public
accountants are carrying out their responsibilities, and to review auditing, internal control and financial reporting matters.
Ralph W. Babb Jr.
Chairman and
Chief Executive Officer
Muneera S. Carr
Executive Vice President and
Chief Financial Officer
Mauricio A. Ortiz
Senior Vice President and
Chief Accounting Officer
F-104
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Comerica Incorporated
Opinion on Internal Control over Financial Reporting
We have audited Comerica Incorporated and subsidiaries’ internal control over financial reporting as of December 31, 2017, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Comerica Incorporated and subsidiaries (the
Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based
on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the
period ended December 31, 2017, and the related notes of the Company and our report dated February 14, 2018 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Report of Management. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, TX
February 14, 2018
F-105
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Comerica Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Comerica Incorporated and subsidiaries (the Company) as of
December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 2017 and 2016, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 14, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1992.
Dallas, TX
February 14, 2018
F-106
HISTORICAL REVIEW - AVERAGE BALANCE SHEETS
Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
(in millions)
Years Ended December 31
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Other short-term investments
Investment securities
Commercial loans
Real estate construction loans
Commercial mortgage loans
Lease financing
International loans
Residential mortgage loans
Consumer loans
Total loans
Less allowance for loan losses
Net loans
Accrued income and other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits
Money market and interest-bearing checking deposits
Savings deposits
Customer certificates of deposit
Foreign office time deposits
Total interest-bearing deposits
Total deposits
Short-term borrowings
Accrued expenses and other liabilities
Medium- and long-term debt
Total liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
2017
2016
2015
2014
2013
$
1,209
$
1,146
$
1,059
$
934
$
5,443
92
5,099
102
6,158
106
12,207
12,348
10,237
5,513
109
9,350
987
4,930
112
9,637
30,415
2,958
9,005
509
1,157
1,989
2,525
48,558
(728)
47,830
4,671
$ 71,452
31,062
2,508
8,981
684
1,367
1,894
2,500
48,996
(730)
48,266
4,782
$ 71,743
31,501
1,884
8,697
783
1,441
1,878
2,444
48,628
(621)
48,007
4,680
$ 70,247
29,715
1,909
8,706
834
1,376
1,778
2,270
46,588
(601)
45,987
4,443
$ 66,336
27,971
1,486
9,060
847
1,275
1,620
2,153
44,412
(622)
43,790
4,477
$ 63,933
$ 31,013
$ 29,751
$ 28,087
$ 25,019
$ 22,379
21,585
2,133
2,471
56
26,245
57,258
277
996
4,969
63,500
7,952
$ 71,452
22,744
2,013
3,200
33
27,990
57,741
138
1,273
4,917
64,069
7,674
$ 71,743
24,073
1,841
4,209
116
30,239
58,326
93
1,389
2,905
62,713
7,534
$ 70,247
22,891
1,744
4,869
261
29,765
54,784
200
1,016
2,963
58,963
7,373
$ 66,336
21,704
1,657
5,471
500
29,332
51,711
211
1,074
3,972
56,968
6,965
$ 63,933
F-107
HISTORICAL REVIEW - STATEMENTS OF INCOME
Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
(in millions, except per share data)
Years Ended December 31
INTEREST INCOME
Interest and fees on loans
Interest on investment securities
Interest on short-term investments
Total interest income
INTEREST EXPENSE
Interest on deposits
Interest on short-term borrowings
Interest on medium- and long-term debt
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for loan losses
NONINTEREST INCOME
Card fees
Service charges on deposit accounts
Fiduciary income
Commercial lending fees
Letter of credit fees
Bank-owned life insurance
Foreign exchange income
Brokerage fees
Net securities losses
Other noninterest income
Total noninterest income
NONINTEREST EXPENSES
Salaries and benefits expense
Outside processing fee expense
Net occupancy expense
Equipment expense
Restructuring charges
Software expense
FDIC insurance expense
Advertising expense
Litigation-related expenses
Gain on debt redemption
Other noninterest expenses
Total noninterest expenses
Income before income taxes
Provision for income taxes
NET INCOME
Less income allocated to participating securities
Net income attributable to common shares
Earnings per common share:
Basic
Diluted
Comprehensive income
Cash dividends declared on common stock
Cash dividends declared per common share
$
$
$
$
2017
2016
2015
2014
2013
$
$
$
$
1,872
250
60
2,182
42
3
76
121
2,061
74
1,987
333
227
198
85
45
43
45
23
(3)
111
1,107
912
366
154
45
45
126
51
28
(2)
—
135
1,860
1,234
491
743
5
738
4.23
4.14
762
193
1.09
$
$
$
$
1,635
247
27
1,909
40
—
72
112
1,797
248
1,549
303
219
190
89
50
42
42
19
(5)
102
1,051
961
336
157
53
93
119
54
21
1
—
135
1,930
670
193
477
4
473
2.74
2.68
523
154
0.89
$
$
$
$
1,551
216
17
1,784
43
—
52
95
1,689
147
1,542
276
223
187
99
53
40
40
17
(2)
102
1,035
1,009
318
159
53
—
99
37
24
(32)
—
160
1,827
750
229
521
6
515
2.93
2.84
504
148
0.83
$
$
$
$
1,525
211
14
1,750
45
—
50
95
1,655
27
1,628
81
215
180
98
57
39
40
17
—
130
857
980
111
171
57
—
95
33
23
4
(32)
173
1,615
870
277
593
7
586
3.28
3.16
572
143
0.79
1,556
214
14
1,784
55
—
57
112
1,672
46
1,626
78
214
171
99
64
40
36
17
(1)
156
874
1,009
111
160
60
—
90
33
21
52
(1)
179
1,714
786
245
541
8
533
2.92
2.85
563
126
0.68
F-108
HISTORICAL REVIEW - STATISTICAL DATA
Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
Years Ended December 31
Average Rates (Fully Taxable Equivalent Basis)
Interest-bearing deposits with banks
Other short-term investments
Investment securities
Commercial loans
Real estate construction loans
Commercial mortgage loans
Lease financing
International loans
Residential mortgage loans
Consumer loans
Total loans
Interest income as a percentage of earning assets
Domestic deposits
Deposits in foreign offices
Total interest-bearing deposits
Short-term borrowings
Medium- and long-term debt
Interest expense as a percentage of interest-bearing sources
Interest rate spread
Impact of net noninterest-bearing sources of funds
Net interest margin as a percentage of earning assets
Ratios
Return on average common shareholders’ equity
Return on average assets
Efficiency ratio (a)
Common equity tier 1 capital as a percentage of risk weighted
assets (b)
Tier 1 capital as a percentage of risk-weighted assets (b)
Total capital as a percentage of risk-weighted assets
Common equity ratio
Tangible common equity as a percentage of tangible assets (c)
Per Common Share Data
Book value at year-end
Market value at year-end
Market value for the year
High
Low
2017
2016
2015
2014
2013
1.09%
0.64
0.51%
0.61
0.26%
0.81
0.26%
0.57
0.26%
1.22
2.05
3.83
4.18
3.97
2.64
4.07
3.70
3.70
3.86
3.30
0.16
0.64
0.16
1.14
1.51
0.38
2.92
0.20
3.12%
2.02
3.26
3.63
3.49
2.65
3.63
3.76
3.32
3.34
2.88
0.14
0.35
0.14
0.45
1.45
0.34
2.54
0.17
2.71%
2.13
3.07
3.48
3.41
3.17
3.58
3.77
3.26
3.20
2.75
0.14
1.02
0.14
0.05
1.80
0.29
2.46
0.14
2.60%
2.26
3.12
3.41
3.75
2.33
3.65
3.82
3.20
3.28
2.85
0.14
0.82
0.15
0.04
1.68
0.29
2.56
0.14
2.70%
2.25
3.28
3.85
4.11
3.23
3.74
4.09
3.30
3.51
3.03
0.18
0.52
0.19
0.07
1.45
0.33
2.70
0.14
2.84%
9.34%
1.04
58.57
6.22%
0.67
67.53
6.91%
0.74
66.93
8.05%
0.89
64.16
7.76%
0.85
68.72
11.68
11.68
13.84
11.13
10.32
11.09
11.09
13.27
10.68
9.89
10.54
10.54
12.69
10.52
9.70
n/a
10.50
12.51
10.70
9.85
n/a
10.64
13.10
10.97
10.07
$ 46.07
86.81
$ 44.47
68.11
$ 43.03
41.83
$ 41.35
46.84
$ 39.22
47.54
88.22
64.04
70.44
30.48
53.45
39.52
53.50
42.73
48.69
30.73
Other Data (share data in millions)
Average common shares outstanding - basic
Average common shares outstanding - diluted
Number of banking centers
Number of employees (full-time equivalent)
(a) Noninterest expenses as a percentage of the sum of net interest income (FTE) and noninterest income excluding net securities gains (losses).
(b) Ratios calculated based on the risk-based capital requirements in effect at the time. The U.S. implementation of the Basel III regulatory
172
177
458
7,960
183
187
483
8,948
176
181
477
8,880
179
185
481
8,876
174
178
438
7,999
capital framework became effective on January 1, 2015, with transitional provisions.
(c) See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.
n/a - not applicable
F-109
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of February 14, 2018.
SIGNATURES
COMERICA INCORPORATED
By:
/s/ Ralph W. Babb, Jr.
Ralph W. Babb, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant in the capacities indicated as of February 14, 2018.
/s/ Ralph W. Babb, Jr.
Ralph W. Babb, Jr.
/s/ Muneera S. Carr
Muneera S. Carr
/s/ Mauricio A. Ortiz
Mauricio A. Ortiz
/s/ Michael E. Collins
Michael E. Collins
/s/ Roger A. Cregg
Roger A. Cregg
/s/ T. Kevin DeNicola
T. Kevin DeNicola
/s/ Jacqueline P. Kane
Jacqueline P. Kane
/s/ Richard G. Lindner
Richard G. Lindner
/s/ Barbara R. Smith
Barbara R. Smith
/s/ Robert S. Taubman
Robert S. Taubman
/s/ Reginald M. Turner, Jr.
Reginald M. Turner, Jr.
/s/ Nina G. Vaca
Nina G. Vaca
/s/ Michael G. Van de Ven
Michael G. Van de Ven
Chairman and Chief Executive Officer and
Director (Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
S-1
SHAREHOLDER INFORMATION
Common Stock: Trades under the symbol CMA on the New York Stock Exchange (NYSE). Subject to approval of the board of
directors and applicable regulatory requirements, dividends customarily are paid on or about January 1, April 1, July 1 and
October 1.
Transfer Agent/Registrar and Shareholder Assistance:
•
•
•
•
Inquiries related to shareholder name change, address or ownership of stock, and lost or stolen stock
certificates
Eliminate duplicate mailings received at one address
Reinvest dividends and invest up to $10,000 each month for the purchase of additional shares
Direct deposit of dividends
CONTACT INFORMATION:
Website: shareowneronline.com
Email: stocktransfer@eq-us.com
Phone: 877.536.3551
WRITTEN REQUESTS:
EQ Shareowner Services
P.O. Box 64854
St. Paul, MN 55164-0854
CERTIFIED/OVERNIGHT MAIL:
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
Officer Certifications: On May 23, 2017, Comerica’s Chief Executive Officer submitted his annual certification to the New York
Stock Exchange stating that he was not aware of any violation by Comerica of the Exchange’s corporate governance listing
standards. Comerica filed the certifications by its Chief Executive Officer and Chief Financial Officer required by Section 302 of
the Sarbanes-Oxley Act of 2002 as exhibits to its Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
Investor Relations Information:
investor.comerica.com
InvestorRelations@comerica.com
214.462.6831
General Information:
Directory Services 800.521.1190
Product Information 800.292.1300
COMERICA CORPORATE HEADQUARTERS
Comerica Bank Tower
1717 Main Street
Dallas, Texas 75201