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Comerica
Incorporated
Annual Report
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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, 2018, Comerica had:
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$70.8 billion in assets
$50.2 billion in loans
$55.6 billion in deposits
436 banking centers
7,865 employees (FTE)
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
Involvement
OUR PROMISE
We will raise your expectationsSM of what a bank can be.
TO OUR SHAREHOLDERS
To my fellow shareholders, 2018 was a year of definitive
progress for Comerica. Once again, I’m pleased to report good news
related to our strong financial performance and solid capital position.
We gained ground on the momentum coming into the year, and we
remained driven to deliver on the promise of raising expectations of
what a bank can be. We found strength in our history of consistently
connecting with customers, as well as rising to a higher level of
banking. We continued investing in our communities, enhancing
our technology to develop products that drive efficiency through
automation,
improving cybersecurity, and carefully controlling
expenses.
Ralph W. Babb Jr.
Chairman and Chief Executive Officer
Before reviewing the 2018 financial results, I would like to highlight a few key factors that
contributed to our success.
GEAR UP SUCCESS
As a result of our discipline, we met one of Comerica’s most important goals—the execution
of our enterprise-wide initiative to help grow efficiency and revenue. We launched GEAR Up in
July 2016 with an aggressive vision to transform our organization through over 20 separately
identified work streams. We took a multifaceted approach to cutting costs, and, just as importantly,
to enhance revenues. We reduced our workforce by nine percent while freeing up more time for
our relationship managers, optimized real estate, streamlined operational processes, enhanced
sales programs, and strategically outsourced select technology functions, while reducing system
applications.
The benefits derived from GEAR Up will continue into 2019 and thereafter. We have
achieved, and in many respects surpassed, the expectations that we laid out for GEAR Up when
it was launched. This success is clearly evidenced in our efficiency and return metrics.
We drove substantial contributions to our bottom line and achieved double-digit returns on
equity. Pre-tax income in 2018 included approximately $270 million of cumulative benefits. And,
by the end of 2019, we expect to have met our goal to drive at least $305 million in additional
pre-tax income.
Throughout the GEAR Up process, our executive team remained confident that we
would meet the financial targets. We wish to acknowledge and thank our devoted colleagues for
embracing change through their patience, flexibility, support, and resiliency during this time of
transition.
REGULATORY RELIEF
While the financial services sector has seen an increase in regulatory oversight since the
great recession, banks our size experienced some relief in 2018.
In June, the Economic Growth, Regulatory Relief and Consumer Protection Act was
signed into law, a positive development for Comerica. In bipartisan support, Congress passed
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the legislation allowing banks under $100 billion in assets immediate exemption from enhanced
prudential standards.
Subsequently, the Federal Reserve announced Comerica is no longer subject to supervisory
stress testing, including both the Dodd-Frank Act Stress Tests and the Comprehensive Capital
Analysis and Review. Of course, we will continue to complete robust internal stress testing to
help ensure we have sufficient capital and liquidity to withstand a variety of economic scenarios.
As a direct result of this reform, our board of directors is now able to more efficiently and
effectively take capital actions with a focus on reducing our robust capital ratios to a level that
is reflective of our business strategy and risk profile. Our goal is to move forward at a measured
pace to reach a Common Equity Tier 1 (CET1) ratio of 9.5 to 10 percent by the end of 2019.
We continue to give careful consideration to earnings generation, capital needs and market
conditions as we determine the pace of share buybacks.
INTEREST RATE HIKES
Coming into 2018, Comerica’s balance sheet continued to be well positioned for a rising
rate environment. Our balance sheet is sensitive to movement in interest rates, since a majority of
our revenue is derived from the interest we receive on floating rate loans. Therefore, as rates rise,
our portfolio reprices quickly. We skillfully navigated the rising rate environment by continuing
to carefully manage loan and deposit pricing. This resulted in a meaningful increase in our
revenue.
In 2019, we expect to realize the full-year benefit of the rate increases that occurred in
2018. We remain well positioned for any future rate increases and have the ability to moderate
some of our asset sensitivity by adding hedges over time, which should help maintain our revenue
when rates eventually decline.
OUR 2018 FINANCIAL RESULTS
Growth in net interest income of 14 percent helped drive revenue to an all-time high. As
just mentioned, this was primarily a result of our ability to manage loan and deposit pricing as
rates rose throughout 2018. Aided by our GEAR Up initiatives, we were also able to increase
customer-driven fee income, such as card, fiduciary and brokerage fees. This revenue growth,
combined with tight expense control, which also benefitted from the execution of our GEAR Up
initiatives, resulted in an efficiency ratio of under 54 percent for the year and 52 percent in the
fourth quarter.
Credit quality remained strong. The provision for credit losses decreased $75 million, from
a provision amount of $74 million, to a $1 million benefit in 2018. This reflected a 31 percent
decline in criticized loans, which accounted for only 3 percent of total period-end loans. Net
credit-related charge-offs were 11 basis points of average loans. We continued to maintain a
healthy allowance for loan losses of 1.34 percent, and we remain vigilant, looking for any areas
of stress in our loan portfolio.
Robust revenue, prudent expense control and strong credit quality resulted in a 24 percent
increase in pretax income over 2017. In addition, earnings per share benefited from a lower tax
rate and our active capital management. The decrease in the provision for income taxes resulted
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from the impact of a lower statutory tax rate due to tax reform and $120 million decrease due to
discrete tax items, partially offset by an increase in pre-tax income.
As far as capital management, as previously mentioned, we are focused on reducing
our capital and have set a target of a CET1 ratio of 9.5 to 10 percent by the end of 2019.
During 2018, we repurchased 14.8 million shares of common stock under our equity repurchase
program. Additionally, we increased our total 2018 dividend 69 percent over 2017 to $1.84 per share
and, subsequent to year-end, increased the quarterly dividend further by 7 cents to $0.67, payable
April 1, 2019. Altogether, we returned $1.6 billion to shareholders in 2018, an increase of
$903 million compared to 2017.
In summary, we achieved a 74 percent increase in earnings per share to $7.20. This
resulted in substantially higher returns, with a return on equity of nearly 16 percent and a return
on assets of 1.75 percent.
OUR TECH VISION
Throughout the year, we made great strides in advancing our technology strategy—
TechVision2020—which emphasizes strengthening our core capabilities, while also preparing
Comerica for the evolving needs of our marketplace.
We modernized our technology infrastructure through a variety of means, including the
adoption of cloud computing to become more scalable, resilient and agile in the development
and deployment of new solutions for both colleagues and customers. We also enhanced our
information security program, deployed automation technologies to reduce manual processing
and improve turnaround times for our customers, and expanded our data analytics capabilities
to improve sales prospecting, new customer onboarding, and customer retention across multiple
business units.
Going forward, the technology team remains committed to providing the right mix of digital
capabilities to complement our traditional relationship-oriented banking model and enable us to
effectively compete with anyone in our industry.
OUR BUSINESS SEGMENTS
We engage our customers and execute strategic goals across Comerica’s three lines of
business with a strong presence in Texas, California and Michigan, as well as operations in
Arizona and Florida. Over the years, we’ve maintained balance between our markets, which
should continue to help us achieve consistent and sustainable growth over time.
The Business Bank continues to capitalize on efficient and effective growth strategies.
Since we launched the complete redesign of our lending process, we are seeing great progress
in the acceleration of loan approvals and increased capacity for our relationship managers. The
efficiencies of the redesign are allowing our team to spend more time in their markets, working
with existing customers, while prospecting for new customers. The success of this initiative
is apparent as our loan production in the Business Bank exceeded 2017, with some lines of
business having record years.
Technology enhancements continue to be a consistent theme for our organization.
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We are constantly improving our treasury management products and services, which assist
our customers in being more successful. In addition, we are upgrading customer relationship
management tools that provides our relationship managers easier access to all relevant customer
interactions and information.
The Retail Bank continued to improve its offerings to customers with a keen focus on
technology. Our customers asked for modern-day conveniences to make their banking experience
more efficient. We listened. In 2018, we executed the successful rollout of Zelle® to help our
customers send money person-to-person in a safe, fast and easy way. Our retail group will
continue to deliver on opportunities to enhance the customer experience, while reducing risk.
Our banking center colleagues have spent a considerable amount of time planning the
rollouts of a series of technology initiatives. We are upgrading the data capacity at the banking
centers, followed by deployment of banking center Wi-Fi. These investments will allow for
the distribution of tablets to our banking center colleagues—making them mobile, improving
their experience and their ability to serve customers. Other investments include upgrading or
replacing our ATMs and advance function Interactive Teller Machines. Retail has embarked
on a multiyear digital transformation to deliver frictionless deposit account opening across all
channels – banking centers, online and mobile.
In addition to technology, we remained on task for the optimization of our banking
centers through relocations, refurbishments and business model transitions. We’re also nearing
the completion of the transformation of our Customer Contact Center. We’ve reorganized and
advanced our customer facing technological capabilities.
We look forward to seeing the customer-centric concepts unfold, which will greatly support
us in the future.
Wealth Management enables us to bring private banking, investment management and
fiduciary services to our Business Bank and Retail Bank clients. Wealth’s target customers include
high net worth individuals, such as business owners, corporate executives, first generation
wealth, foundations and institutions.
In 2018, we reimagined the Comerica Wealth Management experience with the goal
of delivering enhanced client engagement, increasing client retention and accelerating client
acquisition. Our premier brand, 1849 by Comerica Wealth Management, will launch in 2019.
This new initiative will deliver the highest level of comprehensive solutions, personalized
service, value-added perspectives, integrated advice and guidance, while providing exclusive
relationship benefits to our top tier of individual clients and families. In addition, Wealth
Management strengthened its investment platform by honing our overall investment philosophy.
We’ve made enhancements to our investment management capabilities, including tailored,
goal-based investment portfolios designed to balance risk and return, while providing greater tax
management capabilities, options for socially-responsible investing, and improved rebalancing
capabilities to ensure clients’ portfolios stay in line with their stated objectives.
Comerica Securities added a new element to its investor platform that unlocks value for
clients and advisors through its comprehensive planning and investing. This development gives
advisors more time to implement plans. In keeping up with technology, Comerica Securities
recently launched its mobile application, making it more convenient for clients to access and
trade their brokerage accounts.
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OUR CULTURE OF DIVERSITY AND INCLUSION
We stand on the principles of our core values. They shape our culture and reflect on
the ideals for which Comerica was founded nearly 170 years ago. Diversity is among the seven
values we uphold. Our unending commitment to the communities we serve is one of the driving
forces behind our company’s success. Our diversity drives professional growth, fosters more
creative ideas in the workplace and encourages innovation.
In 2018, we are proud to report that two of our executives were honored by diversity
organizations for being top leaders. Our Chief Financial Officer Muneera Carr was named to the
Dallas Power 50 by the Texas Diversity Council; and Black Enterprise Magazine named Nathaniel
Bennett, Comerica’s Chief Diversity Officer, to its coveted 2018 Top Executives in Diversity list.
Additionally, we were recognized by various organizations and the media for being leaders
in diversity nationwide. Comerica was among the top organizations honored by the Michigan
Veterans Affairs Agency for being a Veteran-Friendly Employer. LATINA Style 50 Award named
Comerica one of the top 50 organizations for providing Latinas career advancement for the ninth
consecutive year. And for the fourth year in a row, we earned a perfect rating on the Human
Rights Campaign Corporate Equality index, which earned us a designation for being a Best Place
to Work for LGBTQ equality.
OUR DEDICATION TO THE COMMUNITY AND ENVIRONMENT
The health of the communities we serve is also vital to our growth. We enthusiastically
engage with nonprofit organizations in our neighborhoods, so they may thrive and prosper. In
2018, we created value for our communities by distributing more than $7.8 million in charitable
contributions. The monies allocated stretched into many areas, including those that needed
emergency assistance. California is one of our key markets. The devastation of the 2018 wildfires
spread throughout the Comerica family. Sadly, we had colleagues who lost homes and valuable
possessions. We surrounded them with support as those affected began working through the
recovery process. We also partnered with the American Red Cross to provide some financial
relief for California wildfire victims statewide.
The spirit of volunteerism is another way we invest in our communities. Our colleagues
logged nearly 50,400 volunteer hours during the year. In addition, we connected with our
markets through annual events, financial education programs, and a host of other activities to
support our corporate responsibility projects. Annually, we produce a comprehensive review
of our environmental, social and governance programs which can be found on our website,
comerica.com.
We are an organization that embraces corporate, social and environmental responsibility.
This commitment was underscored by the recognitions Comerica received in 2018. We were
listed on Barron’s 100 Most Sustainable Companies in the United States and as one of America’s
100 Most Just Companies by JUST Capital and Forbes. We also received a national award for
engaging suppliers on sustainability. And, we were pleased to celebrate our tenth consecutive
year of listing on the FTSE4Good Index Series. Comerica also supports a greening economy
through more than $772 million in environmentally beneficial loans and commitments in
2018 to companies and projects in 13 different green loan categories.
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OUR FOCUS FORWARD
As we forge ahead, we have a steadfast goal of driving profitable growth for Comerica.
We can approach 2019 and the years ahead with an indelible commitment to delivering
more personalized financial services to our customers while providing increased value to our
shareholders.
The new initiatives I previously outlined are underway to enable higher performance.
There’s great opportunity across many fronts. We are confident in our ability to sustain our steady
progress.
We are a stronger organization today because of the earnest spirit of our colleagues who
demonstrate their dedication daily. And, we are extremely proud of the efforts our teams have
put forth to make 2018 one of the best years in Comerica’s 170-year history.
Thank you for your continuing support and confidence.
Sincerely,
Ralph W. Babb Jr.
Chairman and Chief Executive Officer
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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)
Former President and Chief Executive Officer
AV Homes, Inc.
T. Kevin DeNicola (1) (3) (4)
Former Chief Financial Officer
KiOR, Inc.
Curtis C. Farmer
President
Comerica Incorporated and Comerica Bank
Jacqueline P. Kane (2)
Retired Executive Vice President of
Human Resources and Corporate Affairs
The Clorox Company
Richard G. Lindner (2) (4)
Retired Senior Executive Vice President and
Chief Financial Officer
AT&T, Inc.
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
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.
(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
Muneera S. Carr
Executive Vice President and Chief Financial Officer
Peter W. Guilfoile
Executive Vice President and Chief Credit Officer
Christine M. Moore
Executive Vice President and General Auditor
Jay K. Oberg
Executive Vice President and Chief Risk Officer
Paul R. Obermeyer
Executive Vice President, Enterprise Technology and Operations
John D. Buchanan
Executive Vice President, Chief Legal Officer/General Counsel
Megan D. Burkhart
Executive Vice President and Chief Human Resources Officer
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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, 2018
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
These securities are registered on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the
Exchange Act:
None
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 every Interactive Data File required to be submitted 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 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
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 29, 2018 (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 $15.3 billion based on the closing price on the New
York Stock Exchange on that date of $90.92 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 8, 2019, the registrant had outstanding 159,000,514 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 23, 2019.
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, 2018, Comerica owned directly or indirectly all the outstanding common stock of 2 active
banking and 29 non-banking subsidiaries. At December 31, 2018, Comerica had total assets of approximately $70.8 billion, total
deposits of approximately $55.6 billion, total loans (net of unearned income) of approximately $50.2 billion and shareholders’
equity of approximately $7.5 billion.
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.
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 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 funds transfer. 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 customers 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.
In addition, the industry continues to consolidate, which affects competition by eliminating some regional and local
institutions, while strengthening the franchises of acquirers.
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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 (“DIF”)
of the Federal Deposit Insurance Corporation (“FDIC”) to the extent provided by law, and therefore Comerica Bank and Comerica
Bank & Trust, National Association are each also subject to regulation and examination by the FDIC. Certain transactions executed
by Comerica Bank are also subject to regulation by the U.S. Commodity Futures Trading Commission (“CFTC”). The Department
of Labor (“DOL”) regulates financial institutions providing services to plans governed by the Employee Retirement Income
Security Act of 1974. Comerica Bank’s Canada branch is supervised by the Office of the Superintendent of Financial Institutions
and its Mexico representative office is supervised 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. (“FINRA”), 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 Comerica’s business is subject have
increased over the past decade 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. In 2018, with the passage of the Economic Growth,
Regulatory Relief and Consumer Protection Act (“EGRRCPA”), as described below, there has been some recalibration of the post-
financial crisis framework; however, Comerica’s business remains subject to extensive regulation and supervision.
Comerica is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended, both as administered by the SEC, as well as the rules of the New York Stock
Exchange.
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.
Economic Growth, Regulatory Relief and Consumer Protection Act
On May 24, 2018, EGRRCPA was signed into law. Among other regulatory changes, EGRRCPA amends various sections
of the Dodd-Frank Act, including section 165 of Dodd-Frank Act, which was revised to raise the asset thresholds for determining
the application of enhanced prudential standards for bank holding companies. Under EGRRCPA bank holding companies with
less than $100 billion of consolidated assets, including Comerica, were immediately exempted from all of the enhanced prudential
standards, except risk committee requirements, which now apply to publicly-traded bank holding companies with $50 billion or
more of consolidated assets, including Comerica. As a result, Comerica is no longer subject to Dodd-Frank Act supervisory and
company-run stress testing, required to file a resolution plan under Section 165(d) of the Dodd-Frank Act or subject to internal
liquidity stress testing and buffer requirements. In addition, Comerica is no longer required to pay the supervision and regulation
fee assessment under the Dodd-Frank Act.
On July 6, 2018, the FRB released a statement that for bank holding companies with between $50 billion and $100 billion
in total consolidated assets, including Comerica, the FRB would take no action to require such bank holding companies to comply
with the Comprehensive Capital Analysis and Review (“CCAR”) process or the Liquidity Coverage Ratio. On October 31, 2018,
the FRB proposed rules that would revise its regulations to raise the asset thresholds for these requirements so that bank holding
companies with less than $100 billion in total consolidated assets would be exempt.
Also on July 6, 2018, the federal banking regulators issued an interagency statement that banks with less than $100 billion
in total consolidated assets, including Comerica Bank, would not be required to comply with company-run stress testing
requirements until November 25, 2019, at which time such banks will become exempt from company-run stress testing requirements
2
under the EGRRCPA. In addition, the federal banking regulators have each issued proposed rules that would revise their stress
testing regulations consistent with the EGRRCPA.
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 or incidental or
complementary to 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
determines, in consultation with the Secretary of the United States Treasury, to be financial in nature or incidental to a financial
activity. “Complementary activities” are activities that the FRB determines upon application to be complementary to a financial
activity and that do not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.
In order to maintain its status as a financial holding company, Comerica and each of its depository institution subsidiaries
must each remain “well capitalized” and “well managed,” and Comerica, Comerica Bank and Comerica Bank & Trust, National
Association are each “well capitalized” and “well managed” under FRB standards. If Comerica or 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 any class of voting
shares or substantially all of the assets of a bank holding company (including a financial holding company) or a bank. In considering
applications for approval of acquisitions, the banking regulators may take several factors into account, including whether Comerica
and its subsidiaries are well capitalized and well managed, are in compliance with anti-money laundering laws and regulations,
or have CRA ratings of less than “satisfactory.”
Acquisitions of Ownership of Comerica
Acquisitions of Comerica’s voting stock above certain thresholds are subject to prior regulatory notice or approval under
federal banking laws, including the Bank Holding Company Act of 1956 and the Change in Bank Control Act of 1978. Under the
Change in Bank Control Act, a person or entity generally must provide prior notice to the FRB before acquiring the power to vote
10% or more of Comerica’s outstanding common stock. Investors should be aware of these requirements when acquiring shares
of Comerica’s stock.
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. In calculating risk-based capital requirements, 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 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. The ultimate treatment for certain specific deductions and adjustments is yet to be determined pending
the finalization of a proposal by banking regulators to simplify certain aspects of the capital rules. In addition, in December 2018,
the federal banking regulators adopted rules that would permit bank holding companies and banks to phase in, for regulatory
capital purposes, the day-one impact of the new current expected credit loss ("CECL") accounting rule on retained earnings over
a period of three years. More information is set forth in the “Capital” section located on pages F-18 through F-20.
3
Entities that engage in trading activities that exceed specified levels, also are required to maintain capital to account 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 adjusts its risk-weighted assets to account for market risk as required.
Comerica and its bank subsidiaries, like other bank holding companies and banks, currently are required to maintain a
minimum CET1 capital ratio, minimum Tier 1 capital ratio and minimum total capital ratio equal to at least 4.5 percent, 6 percent
and 8 percent of their total risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit),
respectively. In 2018, Comerica and its bank subsidiaries were also required to maintain a minimum capital conservation buffer
of 1.875 percent in order to avoid restrictions on capital distributions and discretionary bonuses. The minimum required capital
conservation buffer increased to 2.5 percent as of January 1, 2019. Comerica and its bank subsidiaries are also required to maintain
a minimum “leverage ratio” (Tier 1 capital to non-risk-adjusted average total assets) of 4 percent.
To be well capitalized, Comerica’s bank subsidiaries are required to maintain a CET1 capital ratio, Tier 1 capital ratio,
total capital ratio and a leverage ratio equal to at least 6.5 percent, 8.0 percent, 10.0 percent and 5.0 percent, respectively. The FRB
has not yet revised the minimum requirements for bank holding companies to be considered well capitalized to reflect the higher
capital requirements imposed under the current capital rules. For purposes of the FRB’s Regulation Y, including determining
whether a bank holding company meets the requirements to be a financial holding company, bank holding companies, such as
Comerica, must maintain a Tier 1 capital ratio of at least 6.0 percent and a total capital ratio of at least 10.0 percent to be well
capitalized. If the FRB were to apply the same or a very similar minimum requirement to be considered well capitalized to bank
holding companies as that applicable to Comerica’s bank subsidiaries, Comerica’s capital ratios as of December 31, 2018 would
exceed such revised minimum requirements. The FRB may require bank holding companies, including Comerica, to maintain
capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a bank holding
company’s particular condition, risk profile and growth plans.
Failure to be well capitalized or to meet minimum capital requirements could result in certain mandatory and possible
additional discretionary actions by regulators, including restrictions on Comerica’s or its bank subsidiaries’ ability to pay dividends
or otherwise distribute capital or to receive regulatory approval of applications, or other restrictions on growth.
At December 31, 2018, Comerica met all of its minimum risk-based capital ratio and leverage ratio requirements plus
the applicable countercyclical conservation buffer and the applicable well capitalized requirements, as shown in the table below:
(dollar amounts in millions)
December 31, 2018
CET1 capital (minimum $3.0 billion (Consolidated))
Tier 1 capital (minimum $4.0 billion (Consolidated))
Total capital (minimum $5.4 billion (Consolidated))
Risk-weighted assets
Adjusted 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, 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
Adjusted 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
Comerica
Incorporated
(Consolidated)
Comerica
Bank
$
$
$
$
7,470
7,470
8,855
67,047
71,070
11.14%
11.14
13.21
10.51
5.14
7,773
7,773
9,211
66,575
71,372
11.68 %
11.68
13.84
10.89
5.68
7,229
7,229
8,433
66,857
70,905
10.81%
10.81
12.61
10.20
4.61
7,121
7,121
8,378
66,447
71,181
10.72 %
10.72
12.61
10.00
4.61
Comerica was previously required to comply with the modified Liquidity Coverage Ratio and would have been required
to comply with the proposed Net Stable Funding Ratio. However, as discussed above, the FRB has stated that it will take no action
to require bank holding companies with less than $100 billion in total consolidated assets, including Comerica, to comply with
4
the modified Liquidity Coverage Ratio. In addition, the banking regulators proposed a rule on October 31, 2018, that would raise
the asset threshold for the proposed Net Stable Funding Ratio rule to apply to firms with more than $100 billion in total consolidated
assets, and therefore, Comerica would not be required to comply with this rule as currently proposed.
Additional information on the calculation of Comerica’s and its bank subsidiaries’ CET1 capital, Tier 1 capital, total
capital and risk-weighted assets is set forth in the “Capital” section located on pages F-18 through F-20 of the Financial Section
of this report and Note 20 of the Notes to Consolidated Financial Statements located on pages F-92 through F-93 of the Financial
Section of this report.
Annual Capital Plans and Stress Tests
Comerica was previously subject to the FRB’s annual CCAR process, including the requirement to submit an annual
capital plan to the FRB for non-objection. However, as discussed above, the FRB has stated that it will take no action to require
bank holding companies with less than $100 billion in total consolidated assets, including Comerica, to comply with the
requirements of the CCAR process, and on October 31, 2018, the FRB proposed rules that would revise its regulations to raise
the asset thresholds for these requirements such that bank holding companies with less than $100 billion in total consolidated
assets would be exempt.
Comerica and Comerica Bank were also previously subject to Dodd-Frank Act stress testing requirements. As discussed
above, as a bank holding company with less than $100 billion in total consolidated assets Comerica was immediately exempted
from Dodd-Frank Act supervisory and company-run stress testing requirements by the EGRRCPA, and Comerica Bank, as a bank
with less than $100 billion in total consolidated assets, will be exempt from company-run stress testing requirements under the
EGRRCPA on November 25, 2019, and will not be required to comply with them during the intervening period. The federal
banking regulators have proposed rules that would revise their respective regulations to raise the asset thresholds for these
requirements such that bank holding companies and banks with less than $100 billion in total consolidated assets would be exempt.
Federal Deposit Insurance Corporation Improvement Act
The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) requires, among other things, the federal
banking agencies to take “prompt corrective action” with respect to depository institutions that do not meet certain minimum
capital requirements. FDICIA establishes five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized” and “critically undercapitalized.” An institution that fails to remain well capitalized becomes
subject to a series of restrictions that increase in severity as its capital condition weakens. Such restrictions may include a prohibition
on capital distributions, restrictions on asset growth or restrictions on the ability to receive regulatory approval of applications.
The FDICIA also provides for enhanced supervisory authority over undercapitalized institutions, including authority for the
appointment of a conservator or receiver for the institution.
As of December 31, 2018, each of Comerica’s bank subsidiaries’ capital ratios exceeded those required for an institution
to be considered “well capitalized” under these regulations.
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-based 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.
Dividends
Comerica is a legal entity separate and distinct from its banking and other subsidiaries. Since Comerica’s consolidated
net income and liquidity consists largely of net income of and dividends received from Comerica’s bank subsidiaries, Comerica’s
ability to pay dividends and repurchase shares depends upon its receipt of dividends from these subsidiaries. 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. No assurances can be given that Comerica’s bank
subsidiaries will, in any circumstances, pay dividends to Comerica.
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
5
preceding two years, less any required transfers to surplus or to fund the retirement of preferred stock. At January 1, 2019, Comerica's
subsidiary banks could declare aggregate dividends of approximately $108 million from retained net profits of the preceding two
years. Comerica's subsidiary banks declared dividends of $1.1 billion in 2018, $907 million in 2017 and $545 million in 2016.
Comerica and its bank subsidiaries must maintain the applicable CET1 capital conservation buffer to avoid becoming
subject to restrictions on capital distributions, including dividends. The capital conservation buffer is currently at its fully phased-
in level of 2.5%.
Furthermore, federal regulatory agencies can prohibit a bank or bank holding company from paying dividends under
circumstances in which such payment could be deemed an unsafe and unsound banking practice. Under the FDICIA “prompt
corrective action” regime discussed above, which applies to each of Comerica Bank and Comerica Bank & Trust, National
Association, a 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 Comerica, and requires prior approval for payments of dividends that exceed
certain levels.
FRB policy provides that a bank holding company should not pay dividends unless (1) the bank holding company’s net
income over the last four quarters (net of dividends paid) is sufficient to fully fund the dividends, (2) the prospective rate of earnings
retention appears consistent with the capital needs, asset quality and overall financial condition of the bank holding company and
its subsidiaries and (3) the bank holding company will continue to meet minimum required capital adequacy ratios. The policy
also provides that a bank holding company should inform the FRB reasonably in advance of declaring or paying a dividend that
exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse change to the bank
holding company’s capital structure. Bank holding companies also are required to consult with the FRB before redeeming or
repurchasing capital instruments (including common stock), or materially increasing dividends.
Transactions with Affiliates
Federal banking laws and regulations impose qualitative standards and quantitative limitations upon certain transactions
between a bank and its affiliates, including 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. Federal banking laws also place similar restrictions on loans
and other extensions of credit by FDIC-insured banks, such as Comerica Bank and Comerica Bank & Trust, National Association,
and their subsidiaries to their directors, executive officers and principal shareholders.
Data Privacy and Cybersecurity Regulation
Comerica is subject to many U.S. federal, U.S. state and international laws and regulations governing consumer data
privacy protection, which require, among other things, 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 and its subsidiaries, 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 levels, 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.
Because we have a limited presence in New York, we are subject to certain requirements of the New York Department of Financial
Service’s Cybersecurity Requirements for Financial Services Companies, which include maintaining a cybersecurity program and
policies and breach notification requirements.
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
6
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.
Data privacy and data protection are areas of increasing state legislative focus. For example, in June of 2018, the Governor
of California signed into law the California Consumer Privacy Act of 2018 (the “CCPA”). The CCPA, which becomes effective
on January 1, 2020, applies to for-profit businesses that conduct business in California and meet certain revenue or data collection
thresholds. The CCPA will give consumers the right to request disclosure of information collected about them, and whether that
information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions),
the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated against for exercising
these rights. The CCPA contains several exemptions, including an exemption applicable to information that is collected, processed,
sold or disclosed pursuant to the Gramm-Leach-Bliley Act. The California Attorney General has not yet proposed or adopted
regulations implementing the CCPA, and the California State Legislature has amended the Act since its passage. Comerica has a
physical footprint in California and will be required to comply with the CCPA. In addition, similar laws may be adopted by other
states where Comerica does business. The impact of the CCPA on Comerica’s business is yet to be determined. The federal
government may also pass data privacy or data protection legislation.
Like other lenders, Comerica Bank and other of Comerica’s subsidiaries use credit bureau data in their underwriting
activities. Use of such data is regulated under the Fair Credit Reporting Act (“FCRA”), and the FCRA also regulates reporting
information to credit bureaus, prescreening individuals for credit offers, sharing of information between affiliates, and using
affiliate data for marketing purposes. Similar state laws may impose additional requirements on Comerica and its subsidiaries.
FDIC Insurance Assessments
The 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 2018, Comerica’s FDIC insurance expense totaled $42 million, including the DIF surcharge that was in place from mid-2016
until September 30, 2018. For 2019, management expects a reduction in deposit insurance assessments of $16 million as a result
of the elimination of the DIF surcharge.
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.
Office of Foreign Assets Control Regulation
The Office of Foreign Assets Control (“OFAC”) is responsible for administering economic sanctions that affect
transactions with designated foreign countries, nationals and others, as defined by various Executive Orders and Acts of Congress.
OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on trade with or
investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned
country and prohibitions on U.S. persons engaging in financial transactions relating to, making investments in, or providing
investment-related advice or assistance to, a sanctioned country; and (2) a blocking of assets in which the government or “specially
designated nationals” of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction
(including property in the possession or control of U.S. persons). OFAC also publishes lists of persons, organizations, and countries
suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. Blocked
assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from
OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.
7
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. The FRB may require a
bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with
engaging in unsafe and unsound practices if the bank holding company fails to commit resources to such a subsidiary bank or if
it undertakes actions that the FRB believes might jeopardize the bank holding company’s ability to commit resources to such
subsidiary bank. Under these requirements, Comerica may in the future be required to provide financial assistance to its subsidiary
banks should they experience financial distress. Capital loans by Comerica to its subsidiary banks would be subordinate in right
of payment to deposits and certain other debts of the subsidiary banks. In the event of Comerica’s bankruptcy, any commitment
by Comerica to a federal bank regulatory agency to maintain the capital of its subsidiary banks would be assumed by the bankruptcy
trustee and entitled to a priority of payment.
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.
An FDIC cross-guarantee claim against a depository institution is superior in right of payment to claims of the holding company
and its affiliates against such depository institution.
Supervisory and Enforcement Powers of Federal and State Banking Agencies
The FRB and other federal and state banking agencies have broad supervisory and enforcement powers, including, without
limitation, and as prescribed to each agency by applicable law, the power to conduct examinations and investigations, impose
nonpublic supervisory agreements, issue cease and desist orders, 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. Bank regulators regularly examine the operations of bank holding companies and banks,
and the results of these examinations, as well as certain supervisory and enforcement actions, are confidential and may not be
made public.
Resolution Plans
Before the enactment of EGRRCPA, Comerica was required to prepare and submit a resolution plan to the FRB and
FDIC. As discussed above, pursuant to EGRRCPA, Comerica is now exempt from this requirement as a bank holding company
with less than $100 billion in total consolidated assets.
EGRRCPA did not change the FDIC’s rules that require depository institutions with $50 billion or more of total
consolidated assets, including Comerica Bank, to periodically file a separate resolution plan. The FDIC’s Chairman, however, has
stated that the FDIC intends to release an advanced notice of proposed rulemaking with respect to the FDIC’s bank resolution plan
requirements meant to better tailor bank resolution plans to a firm’s size, complexity and risk profile.
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,
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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
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. It is Comerica’s intent to continue to evolve its incentive compensation 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. 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
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.
The Volcker Rule
Comerica is prohibited under the Volcker Rule from (1) engaging in short-term proprietary trading for its own account
and (2) having certain ownership interests in and relationships with hedge funds or private equity funds ("Covered Funds"). The
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 Volcker Rule regulations impose significant compliance
and reporting obligations on banking entities.
Comerica has put in place the compliance programs currently 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-49 of the Financial Section of this report.
In May 2018, the five federal agencies with rulemaking authority with respect to the Volcker Rule released a proposal
to revise the Volcker Rule. The proposal would tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading
activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information
companies are required to provide the federal agencies. Comerica is following the development of this proposed rule.
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 contains a comprehensive framework for over-the-counter (“OTC”) derivatives
transactions. Even though many of the requirements do 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 the extent to which such
requirements impact its business indirectly. On November 5, 2018, the CFTC issued a final rule that sets the permanent aggregate
gross notional amount threshold for the de minimis exception from the definition of swap dealer at $8 billion in swap dealing
activity entered into by a person over the preceding 12 months. Comerica's swap dealing activities are currently below this threshold.
The initial margin requirements for non-centrally cleared swaps and security-based swaps will be effective for Comerica’s
swap and security-based swap counterparties that are swap dealers on September 1, 2020, at which time such counterparties will
be required to collect initial margin from Comerica. The initial margin requirements were issued for the purpose of ensuring safety
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and soundness of swap trading in light of the risk to the financial system associated with non-cleared swaps activity. Comerica
is currently working toward meeting compliance with the initial margin requirements.
Consumer Financial Protection Bureau and Certain Recent Consumer Finance Regulations
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 and possesses examination
and enforcement authority over all banks and savings institutions with more than $10 billion in assets, including Comerica Bank,
and their depositary affliates.
Comerica is also subject to certain state consumer protection laws, and under the Dodd-Frank Act, state attorneys general
and other state officials are empowered to enforce certain federal consumer protection laws and regulations. In recent years, state
authorities have increased their focus on and enforcement of consumer protection rules. These federal and state consumer protection
laws apply to a broad range of Comerica’s activities and to various aspects of its business and include laws relating to interest
rates, fair lending, disclosures of credit terms and estimated transaction costs to consumer borrowers, debt collection practices,
the use of and the provision of information to consumer reporting agencies, and the prohibition of unfair, deceptive or abusive
acts or practices in connection with the offer, sale or provision of consumer financial products and services.
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.
Credit Approval and Monitoring
Approval of new loan exposure and oversight and monitoring of Comerica's loan portfolio is the joint responsibility of
the Credit Risk Management and Decisioning department and the Credit Underwriting department (collectively referred to as
“Credit”), plus the business units (“Line’). Credit assists the Line with underwriting by providing objective financial analysis,
including an assessment of the borrower's business model, balance sheet, cash flow and collateral. The approval of new loan
exposure is the joint responsibility of Credit Risk Management and Decisioning and the Line. Each commercial borrower
relationship is assigned an internal risk rating by Credit Risk Management and Decisioning. Further, Credit updates the assigned
internal risk rating as new information becomes available as a result of periodic reviews of credit quality, a change in borrower
performance or approval of new loan exposure. 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
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losses and price the loans appropriately for risk. Finally, the Line and Credit (including its Portfolio Risk Analytics department)
work together to insure the overall credit risk within the loan portfolio is consistent with the bank’s Credit Risk Appetite.
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 its internal risk-rating system and establish maximum exposure
limits based on risk ratings and Comerica's legal lending limit. Credit, in conjunction with the Line, 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 comprised of 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 proforma 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 page 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 loans
to real estate developers and investors 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 loan underwriting 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, as applicable. After origination, internal risk ratings are assigned based on
payment status and product type.
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. Comerica generally considers 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 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, 2018, Comerica and its subsidiaries had 7,573 full-time and 478 part-time employees.
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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.
•
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. The economic environment and market conditions in which
Comerica operates continue to be uncertain. Financial market volatility increased through the fourth quarter of 2018.
Also, economic growth in the rest of the world appears to be slowing, notably in China and in Europe. Changes to U.S.
trade policy and reactions to changes by U.S. trading partners have also increased stress on many U.S. businesses. Most
U.S. economic indicators continue to be positive. However, some have shown signs of weakness through the end of 2018.
This includes residential investment, which has cooled as mortgage rates have increased. Conditions related to inflation,
recession, unemployment, volatile interest rates, international conflicts, changes in trade policies 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, such as recent
increases in the federal funds rate, or changes in the FRB's balance sheet, such as the FRB's continuing balance sheet
reduction, will influence the origination of loans, the value of investments, the generation of deposits and the rates received
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on loans and investment securities and paid on deposits. Changes in monetary and fiscal policies are beyond 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.
•
Comerica’s operational or security systems or infrastructure, or those of third parties, could fail or be breached,
which could disrupt Comerica’s business and adversely impact Comerica’s results of operations, liquidity and
financial condition, as well as cause legal or reputational harm.
The potential for operational risk exposure exists throughout Comerica’s business and, as a result of its interactions with,
and reliance on, third parties, is not limited to Comerica’s own internal operational functions. 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 relies on its employees and third parties in its day-to-day and ongoing operations, who may, as a result of
human error, misconduct, malfeasance or failure, or breach of Comerica’s or of third-party systems or infrastructure,
expose Comerica to risk. For example, Comerica’s ability to conduct business may be adversely affected by any significant
disruptions to Comerica or to third parties with whom Comerica interacts or upon whom it relies. 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. In addition, Comerica’s ability to implement backup systems and other safeguards with respect to third-party systems
is more limited than with respect to its own systems.
Comerica’s financial, accounting, data processing, backup or other operating or security systems and infrastructure may
fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly
or partially beyond its control, which could adversely affect its ability to process transactions or provide services. Such
events may include sudden increases in customer transaction volume and/or customer activity; electrical,
telecommunications or other major physical infrastructure outages; natural disasters such as earthquakes, tornadoes,
hurricanes and floods; disease pandemics; cyber attacks; and events arising from local or larger scale political or social
matters, including wars and terrorist acts.
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.
•
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, and additionally will be providing trust processing services starting in 2019. 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.
•
Comerica faces security risks, including denial of service attacks, hacking, social engineering attacks targeting
Comerica’s colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could
result in the disclosure of confidential information, adversely affect its business or reputation, and create significant
legal and financial exposure.
Comerica’s computer systems and network infrastructure and those of third parties, on which Comerica is highly
dependent, are subject to security risks and could be susceptible to cyber attacks, such as denial of service attacks, hacking,
terrorist activities or identity theft. Comerica’s business relies on the secure processing, transmission, storage and retrieval
of confidential, proprietary and other information in its computer and data management systems and networks, and in
the computer and data management systems and networks of third parties. In addition, to access Comerica’s network,
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products and services, its customers and other third parties may use personal mobile devices or computing devices that
are outside of its network environment and are subject to their own cybersecurity risks.
Cyber attacks could include computer viruses, malicious or destructive code, phishing attacks, denial of service or
information, ransomware, improper access by employees or vendors, attacks on personal email of employees, ransom
demands to not expose security vulnerabilities in Comerica's systems or the systems of third parties, or other security
breaches, and could result in the destruction or exfiltration of data and systems. As cyber threats continue to evolve,
Comerica may be required to expend significant additional resources to continue to modify or enhance its protective
measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure
the integrity of Comerica’s systems and implement controls, processes, policies and other protective measures, Comerica
may not be able to anticipate all security breaches, nor may it be able to implement guaranteed preventive measures
against such security breaches. Cyber threats are rapidly evolving and Comerica may not be able to anticipate or prevent
all such attacks and could be held liable for any security breach or loss.
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, cyber attacks may not be detected in a timely manner.
Cyber attacks or other information or security breaches, whether directed at Comerica or third parties, may result in a
material loss or have material consequences. Furthermore, the public perception that a cyber attack on Comerica’s systems
has been successful, whether or not this perception is correct, may damage its reputation with customers and third parties
with whom it does business. Hacking of personal information and identity theft risks, in particular, could cause serious
reputational harm. A successful penetration or circumvention of system security could cause Comerica serious negative
consequences, including loss of customers and business opportunities, costs associated with maintaining business
relationships after an attack or breach; significant business disruption to Comerica’s operations and business,
misappropriation, exposure, or destruction of its confidential information, intellectual property, funds, and/or those of its
customers; or damage to Comerica’s or Comerica’s customers’ and/or third parties’ computers or systems, and could
result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or
intervention, loss of confidence in Comerica’s security measures, reputational damage, reimbursement or other
compensatory costs, additional compliance costs, and could adversely impact its results of operations, liquidity and
financial condition. In addition, Comerica may not have adequate insurance coverage to compensate for losses from a
cybersecurity event.
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Proposed revenue enhancements and efficiency improvements may not be achieved.
In July 2016, Comerica announced its efficiency and revenue program, GEAR Up (the "program") and initial financial
targets. Several initiatives continue to be implemented within the program. There may be changes in the scope or
assumptions underlying the program, delays in the anticipated timing of activities related to the program and higher than
expected or unanticipated costs to implement them, and some benefits may not be fully achieved. As well, even if the
program 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 program 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.
•
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, a lack of market or customer
confidence in financial markets in general, or deposit competition as interest rates increase, which may result in a loss
of customer deposits or outflows of cash or collateral and/or adversely affect Comerica's ability to access capital markets
on favorable terms.
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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 Comerica's 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 Comerica's 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.
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.
•
Compliance with stringent capital requirements may adversely affect Comerica.
Comerica is required to satisfy stringent regulatory capital standards, as 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. Maintaining higher levels of capital may reduce Comerica's profitability and otherwise
adversely affect its business, financial condition, or results of operations.
•
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
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," "Residential Real Estate Lending" and “Energy Lending” on pages F-26 through
F-28 of the Financial Section of this report.
•
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.
•
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 OCC, the SEC, FINRA, DOL, MSRB and other regulatory bodies. Such regulation and
supervision governs and limits 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
and ability to make acquisitions, 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. The impact of any future legislation
or regulatory actions may adversely affect Comerica's businesses or operations.
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Cybersecurity and data privacy are areas of heightened legislative and regulatory focus.
As cybersecurity and data privacy risks for banking organizations and the broader financial system have significantly
increased in recent years, cybersecurity and data privacy issues have become the subject of increasing legislative and
regulatory focus. The federal bank regulatory agencies have proposed enhanced cyber risk management standards, which
would apply to a wide range of large financial institutions and their third-party service providers, including Comerica
and its bank subsidiaries, and would focus on cyber risk governance and management, management of internal and
external dependencies, and incident response, cyber resilience and situational awareness. Several states have also proposed
or adopted cybersecurity legislation and regulations, which require, among other things, notification to affected individuals
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when there has been a security breach of their personal data. For more information regarding cybersecurity regulation,
refer to the “Supervision and Regulation” section of this report.
Comerica receives, maintains and stores non-public personal information of Comerica’s customers and counterparties,
including, but not limited to, personally identifiable information and personal financial information. The sharing, use,
disclosure and protection of this information are governed by federal and state law. Both personally identifiable information
and personal financial information is increasingly subject to legislation and regulation, the intent of which is to protect
the privacy of personal information that is collected and handled. For example, in June of 2018, the Governor of California
signed into law the CCPA. The CCPA, which becomes effective on January 1, 2020, applies to for-profit businesses that
conduct business in California and meet certain revenue or data collection thresholds, including Comerica. For more
information regarding data privacy regulation, refer to the “Supervision and Regulation” section of this report.
Comerica may become subject to new legislation or regulation concerning cybersecurity or the privacy of personally
identifiable information and personal financial information or of any other information Comerica may store or maintain.
Comerica could be adversely affected if new legislation or regulations are adopted or if existing legislation or regulations
are modified such that Comerica is required to alter its systems or require changes to its business practices or privacy
policies. If cybersecurity, data privacy, data protection, data transfer or data retention laws are implemented, interpreted
or applied in a manner inconsistent with Comerica’s current practices, it may be subject to fines, litigation or regulatory
enforcement actions or ordered to change its business practices, policies or systems in a manner that adversely impacts
Comerica’s operating results.
•
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 and the trade, fiscal and monetary policies of the federal government and 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. For a discussion of
Comerica's interest rate sensitivity, please see, “Market and Liquidity Risk” beginning on page F-29 of the Financial
Section of this report.
While recent interest rate rises have benefited Comerica's net interest income, higher interest rates can also lead to fewer
loan originations, lower returns on investment securities and increased competition for deposits. In particular, Comerica's
funding costs may continue to increase if it raises deposit rates to avoid losing customer deposits, or if it loses customer
deposits and must rely on more expensive sources of funding. Higher funding costs will reduce Comerica's net interest
margin and net interest income.
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.
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Interest rates on Comerica's outstanding financial instruments might be subject to change based on developments
related to LIBOR, which could adversely affect its revenue, expenses, and the value of those financial instruments.
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. While there
is no consensus on what rate or rates may become accepted alternatives to LIBOR, the Alternative Reference Rates
Committee, a steering committee comprised of U.S. financial market participants, selected and the Federal Reserve Bank
of New York started in May 2018 to publish the Secured Overnight Finance Rate (“SOFR”) as an alternative to LIBOR.
SOFR is a broad measure of the cost of borrowing cash in the overnight U.S. treasury repo market. At this time, it is
impossible to predict whether the SOFR or another reference rate will become an accepted alternative to LIBOR.
Comerica's loan composition at December 31, 2018 was 62 percent 30-day LIBOR, 13 percent other LIBOR (primarily
60-day), 16 percent prime and 9 percent fixed rate. The market transition away from LIBOR to an alternative reference
rate, including SOFR, is complex and could have a range of adverse effects on our business, financial condition and
results of operations. In particular, any such transition could:
•
adversely affect the interest rates paid or received on, and the revenue and expenses associate with,
Comerica’s floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR
rates, or other securities or financial arrangements given LIBOR’s role in determining market interest rates
globally;
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•
adversely affect the value of Comerica’s floating rate obligations, loans, deposits, derivatives, and other
financial instruments tied to LIBOR rates, or other securities or financial arrangements given LIBOR’s role in
determining market interest rates globally;
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for the replacement of LIBOR with an alternative reference rate;
prompt inquiries or other actions from regulators in respect of Comerica’s preparation and readiness
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enforceability of certain fallback language in LIBOR-based securities; and
result in disputes, litigation or other actions with counterparties regarding the interpretation and
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require the transition to or development of appropriate systems and analytics to effectively transition
Comerica’s risk management processes from LIBOR-based products to those based on the applicable alternative
pricing benchmark, such as SOFR.
The manner and impact of this transition, as well as the effect of these developments on Comerica’s funding costs, loan
and investment and trading securities portfolios, asset-liability management, and business, is uncertain.
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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. 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.
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Damage to Comerica’s reputation could damage its businesses.
Reputational risk is an increasing concern for businesses as customers are interested in doing business with companies
they admire and trust. 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.
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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 ability to access and use technology is an increasingly important competitive factor in
the financial services industry, and having the right technology is a critically important component to customer satisfaction.
As well, the efficient and effective utilization of technology enables financial institutions 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.
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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
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liberal lending policies and processes. Increasingly, Comerica competes with other companies based on financial
technology and capabilities, such as mobile banking applications and funds transfer.
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
services continues to increase as technology advances have lowered the barriers to entry for financial technology
companies, with customers 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.
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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 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, possibly materially, 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, tariffs, 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.
Recently, there have been discussions regarding potential changes to U.S. trade policies, legislation, treaties and tariffs,
including trade policies and tariffs affecting China, the European Union, Canada and Mexico and retaliatory tariffs by
such countries. Tariffs and retaliatory tariffs have been imposed, and additional tariffs and retaliatory tariffs have been
proposed. Also, on October 1, 2018, the United States, Canada and Mexico agreed to a new trade deal, the United States-
Mexico-Canada Agreement ("USMCA"), to replace the North American Free Trade Agreement. The USMCA is subject
to congressional approval and various components of the USMCA are not effective until 2020. These and any other
changes in tariffs, retaliatory tariffs or other trade restrictions on products and materials that Comerica’s customers import
or export could cause the prices of their products to increase, which could reduce demand for such products, or reduce
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customer margins, and adversely impact their revenues, financial results and ability to service debt; in turn, this could
adversely affect Comerica’s financial condition and results of operations.
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.
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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-21 through F-34 of the
Financial Section of this report.
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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.
•
Tax regulations could be subject to potential legislative, administrative or judicial changes or interpretations.
Federal income tax treatment of corporations may be clarified and/or modified by legislative, administrative or judicial
changes or interpretations at any time. Any such changes could adversely affect Comerica, either directly, or indirectly
as a result of effects on Comerica's customers. For example, 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,
including commercial customer borrowings due to the increase in cash flows as a result of the reduction in the corporate
statutory tax rate.
•
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,
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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 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. 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.
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Comerica may incur losses due to fraud.
Fraudulent activity can take many forms and has escalated as more tools for accessing financial services emerge, such
as real-time payments. Fraud schemes are broad and continuously evolving. Examples include but are not limited to:
debit card/credit card fraud, check fraud, mechanical devices attached to ATM machines, social engineering and phishing
attacks to obtain personal information, impersonation of our clients through the use of falsified or stolen credentials,
employee fraud, information theft and other malfeasance. Increased deployment of technologies, such as chip card
technology, defray and reduce aspects of fraud; however, criminals are turning to other sources to steal personally
identifiable information in order to impersonate the consumer to commit fraud. Many of these data compromises have
been widely reported in the media. Further, as a result of the increased sophistication of fraud activity, Comerica continues
to invest in systems, resources, and controls to detect and prevent fraud. This will result in continued ongoing investments
in the future.
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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.
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•
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, 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 currently unknown and is dependent upon many factors that are yet to be determined, such as the economic
environment at adoption and any future FASB clarifications. Comerica anticipates that CECL will have an impact on its
loan loss reserves and retained earnings, as well as how it manages its capital.
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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 its 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. Generally Accepted Accounting Principles ("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
policies or restate prior period financial statements. See “Critical Accounting Policies” on pages F-35 through F-37 of
the Financial Section of this report and Note 1 of the Notes to Consolidated Financial Statements located on pages F-46
through F-58 of the Financial Section of this report.
•
Controls and procedures may not prevent or detect all errors or acts of fraud.
Controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports
Comerica files or submits under the Exchange Act is accurately accumulated and communicated to management, and
recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure
controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met, due to certain inherent limitations.
These limitations include the realities that judgments in decision making can be faulty, that alternative reasoned judgments
can be drawn, that breakdowns can occur because of an error or mistake, or that controls may be fraudulently circumvented.
Accordingly, because of the inherent limitations in control systems, misstatements due to error or fraud may occur and
not be detected.
•
Comerica's stock price can be volatile.
Stock price volatility may make it more difficult for shareholders to resell their common stock when they want and at
prices they 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 Comerica.
• 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 Comerica and/or its competitors.
• Changes in dividends and capital returns.
• Changes in government regulations.
• Cyclical fluctuations.
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• 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 Comerica's 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 investors 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, 2018, Comerica, through its banking affiliates, operated at a total
of 550 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 550 locations, 221 were owned and 329 were
leased. As of December 31, 2018, 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-93 through F-94 of the Financial
Section of this report.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information, Holders of Common Stock and Dividends
The common stock of Comerica Incorporated is traded on the New York Stock Exchange (NYSE Trading Symbol: CMA).
At February 8, 2019, there were approximately 8,844 record holders of Comerica's common stock.
On January 22, 2019, Comerica’s Board of Directors approved a dividend of $0.67 per common share payable on April
1, 2019 to shareholders of record on March 15, 2019. Subject to approval of the Board of Directors and applicable regulatory
requirements, Comerica expects to continue its policy of paying regular cash dividends on a quarterly basis. A discussion of
Comerica's dividend restrictions is set forth in Note 20 of the Notes to Consolidated Financial Statements located on pages F-92
through F-93 of the Financial Section of this report, in the "Capital" section on pages F-18 through F-20 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
Authorization to repurchase up to an additional 10 million shares of Comerica Incorporated outstanding common stock
was announced by the Board on July 24, 2018. As of December 31, 2018, a total of 65.2 million shares 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.
Previously, Comerica's equity repurchase program also covered the repurchase of up to 14.1 million warrants (12.1 million
share-equivalents). All unexercised warrants expired according to their terms in the quarter ended December 31, 2018.
In January 2019, the Board also authorized the repurchase of up to 15 million additional shares of Comerica Incorporated
outstanding common stock.
The following table summarizes Comerica's equity repurchase activity for the year ended December 31, 2018.
(shares in thousands)
Total first quarter 2018
Total second quarter 2018
Total third quarter 2018
October 2018
November 2018
December 2018
Total fourth quarter 2018
Total 2018
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
1,565
1,755
5,137
4,701
—
1,615
6,316
14,773
8,714
6,952
11,706 (d)
6,987
6,346
4,707
4,707
4,707
1,674
1,759
5,143
4,703
—
1,615
6,318
14,894
$
$
95.16
96.32
97.32
79.17
—
79.16
79.16
89.26
(a) The Corporation made no repurchases of warrants under the repurchase program during the year ended December 31, 2018. 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, 2018, the Corporation withheld the equivalent of
approximately 309,000 shares to cover an aggregate of $9 million in exercise price and issued approximately 585,000 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. All unexercised warrants expired in the fourth quarter.
(b) Maximum number of shares and warrants that may yet be purchased under the publicly announced plans or programs. In January 2019,
the Board rescinded its warrant repurchase authorization following the expiration of all unexercised warrants.
(c) Includes approximately 121,000 shares (including 2,000 shares in the quarter ended December 31, 2018) 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, 2018. These transactions are not considered part of the Corporation's
repurchase program.
(d) Includes July 24, 2018 equity repurchase authorization for an additional 10 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.
23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Reference is made to the sections entitled “2018 Overview and 2019 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-40 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-29 through F-34 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-41 through F-109 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.
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-104 and F-105 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,” “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 23, 2019, which
sections are hereby incorporated by reference.
24
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,” “2018 Summary Compensation Table,” “2018 Grants of Plan-Based Awards,” “Outstanding
Equity Awards at Fiscal Year-End 2018,” “2018 Option Exercises and Stock Vested,” “Pension Benefits at Fiscal Year-End 2018,”
“2018 Nonqualified Deferred Compensation,” “Potential Payments upon Termination or Change of Control at Fiscal Year-
End 2018” and "Pay Ratio Disclosure" of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders
to be held on April 23, 2019, 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 23, 2019, 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 23, 2019, 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 23, 2019, which
section is hereby incorporated by reference.
25
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
9
10.1†
10.1A†
10.1B†
10.1C†
10.1D†
10.1E†
10.1F†
10.1G†
10.2†
10.2A†
Financial Statements: The financial statements that are filed as part of this report are included in the Financial Section
on pages F-41 through F-106.
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.]
(not applicable)
Comerica Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.1 to Registrant's Current Report on
Form 8-K dated April 24, 2018, and incorporated herein by reference).
Form of Standard Comerica Incorporated Restricted Stock Unit Agreement (cliff vesting) under the Comerica
Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.2 to Registrant's Current Report on Form 8-K
dated April 24, 2018, and incorporated herein by reference).
Form of Standard Comerica Incorporated Restricted Stock Unit Agreement (non-cliff vesting) under the Comerica
Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.3 to Registrant's Current Report on Form 8-K
dated April 24, 2018, and incorporated herein by reference).
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated
2018 Long-Term Incentive Plan (filed as Exhibit 10.4 to Registrant's Current Report on Form 8-K dated April 24,
2018, and incorporated herein by reference).
Form of Standard Comerica Incorporated Senior Executive Long-Term Performance Restricted Stock Unit Award
Agreement under the Comerica Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.5 to Registrant's
Current Report on Form 8-K dated April 24, 2018, and incorporated herein by reference).
Form of Standard Comerica Incorporated Restricted Stock Agreement (cliff vesting) under the Comerica
Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.6 to Registrant's Current Report on Form 8-K
dated April 24, 2018, and incorporated herein by reference).
Form of Standard Comerica Incorporated Restricted Stock Agreement (non-cliff vesting) under the Comerica
Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.7 to Registrant's Current Report on Form 8-K
dated April 24, 2018, and incorporated herein by reference).
Form of Standard Comerica Incorporated Senior Executive Long-Term Performance Restricted Stock Unit Award
Agreement under the Comerica Incorporated 2018 Long-Term Incentive Plan (2019 version).
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).
26
10.2B†
10.2C†
10.2D†
10.2E†
10.2F†
10.2G†
10.2H†
10.2I†
10.2J†
10.2K†
10.2L†
10.2M†
10.2N†
10.2O†
10.2P†
10.2Q†
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).
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 (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 (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 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).
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).
27
10.2R†
10.2S†
10.2T†
10.2U†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
10.13A†
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)
(filed as Exhibit 10.1Y to Registrant's Annual Report on Form 10-K for the year ended December 31, 2017, 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 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).
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).
28
10.13B†
10.13C†
10.13D†
10.13E†
10.14†
10.14A†
10.15†
10.16†
10.17†
10.18A†
10.18B†
10.18C†
10.18D†
10.19†
10.19A†
10.20†
10.20A†
10.21†
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 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).
Restrictive Covenants and General Release Agreement by and between Michael H. Michalak and Comerica
Incorporated dated January 8, 2019 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated January
11, 2019, 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 10.10 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018,
and incorporated herein by reference).
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 without gross-up or window
period-2015 version) (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).
Schedule of Named Executive Officers Party to Change of Control Employment Agreement (BE4 and Higher
Version without gross-up or window period-2015 version).
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).
29
10.21A†
10.22†
10.23†
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).
13
14
16
18
21
23.1
24
31.1
31.2
32
33
34
35
95
99
101
(not applicable)
(not applicable)
(not applicable)
(not applicable)
Subsidiaries of Registrant.
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)
Financial statements from Annual Report on Form 10-K of the Registrant for the year ended December 31, 2018,
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.
30
FINANCIAL REVIEW AND REPORTS
Comerica Incorporated and Subsidiaries
Performance Graph
Selected Financial Data
2018 Overview and 2019 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-12
F-15
F-21
F-35
F-38
F-39
F-41
F-42
F-43
F-44
F-45
F-46
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, 2013 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
2018
2017
2016
2015
2014
(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 (e)
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 multiple of total nonperforming loans
RATIOS
Net interest margin
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 (f)
Tier 1 capital as a percentage of risk-weighted assets (f)
Common equity ratio
Tangible common equity as a percentage of tangible assets (e)
$
701
229
1
230
51
0.11%
1.34
2.9x
3.58%
1.75
15.82
25.17
11.04
11.14
11.14
10.60
9.78
(a)
(a), (c)
$ 2,352
(1)
976
1,794
300
1,235
1,227
$
7.20
1.84
46.89
42.89
68.69
171
$ 70,818
65,513
50,163
55,561
6,463
7,507
$ 70,724
65,410
48,766
55,935
5,842
7,809
(c)
(c)
(d)
$ 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
1.7x
3.11%
1.04
9.34
25.77
11.13
11.68
11.68
11.13
10.32
$ 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
1.2x
2.71%
0.67
6.22
32.48
10.70
11.09
11.09
10.68
9.89
(b)
(b)
$ 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
1.7x
2.60%
0.74
6.91
28.33
10.73
10.54
10.54
10.52
9.70
$ 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
$
635
290
10
300
25
0.05%
1.22
2.1x
2.69%
0.89
8.05
24.09
11.11
n/a
10.50
10.70
9.85
(a) Effective January 1, 2018, adoption of Topic 606 resulted in a change in presentation which records certain costs in the same category as the associated
revenues. The effect of this change was to reduce noninterest income and expenses by $145 million for the year ended December 31, 2018.
(b) 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.
(c) Noninterest expenses included restructuring charges of $53 million, $45 million and $93 million in 2018, 2017 and 2016, respectively.
(d) 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.
(e) See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.
(f) 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
2018 OVERVIEW AND 2019 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 $1.2 billion in 2018, an increase of $492 million, or 66 percent, compared to $743 million in 2017. Net
income per diluted common share was $7.20 in 2018 compared to $4.14 in 2017, an increase of 74 percent.
• Average loans were $48.8 billion in 2018, an increase of $208 million compared to 2017. The increase in average loans
primarily reflected increases in Technology and Life Sciences as well as National Dealer Services, partially offset by
decreases in Corporate Banking and Energy.
• Average deposits decreased $1.3 billion, or 2 percent, to $55.9 billion in 2018, with the largest decrease in general Middle
Market driven by a $925 million decline in Municipalities. The decrease in average deposits reflected a decrease of $1.8
billion, or 6 percent, in average noninterest-bearing deposits, partially offset by an increase of $449 million, or 2 percent,
in average interest-bearing deposits.
• Net interest income was $2.4 billion in 2018, an increase of $291 million, or 14 percent, compared to 2017, and the net
interest margin increased 47 basis points in 2018 to 3.58 percent, from 3.11 percent in 2017. Both increases were primarily
driven by the net benefit from higher short-term rates.
• The provision for credit losses decreased $75 million to a $1 million benefit in 2018, reflecting a $683 million decline
in total criticized loans and a $41 million decrease in net credit-related charge-offs.
• Noninterest income decreased $131 million to $976 million in 2018, reflecting a $118 million decrease due to a presentation
change resulting from the adoption of a new accounting standard1 and a $20 million loss related to repositioning the
securities portfolio in 2018.
• Noninterest expenses decreased $66 million to $1.8 billion in 2018, reflecting a $118 million decrease due to a presentation
change resulting from the adoption of a new accounting standard1, partially offset by an increase in salaries and benefits
expense, mostly due to higher incentive compensation tied to performance.
• The provision for income taxes decreased $191 million to $300 million in 2018. The decrease primarily reflected the
impact of the 14-percentage-point decrease in the statutory federal tax rate in 2018 and a $120 million decrease due to
discrete tax items, partially offset by an increase in pre-tax income.
• The Corporation repurchased 14.8 million shares of common stock during 2018 under the equity repurchase program
and increased the cash dividend 69 percent to $1.84 per share. All together, $1.6 billion was returned to shareholders in
2018, an increase of $903 million, or 125 percent, compared to 2017.
________________________________________________________
1Effective January 1, 2018, the Corporation adopted Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with
Customers," as a result, revenue from certain products is now presented net of costs. For further information, refer to Note 1 to the consolidated
financial statements.
F-4
GROWTH IN EFFICIENCY AND REVENUE INITIATIVE
Since the GEAR Up initiative was launched in 2016, the Corporation 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 900. Other expense reduction efforts included 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. Additionally, the Corporation completed a plan for an end-to-end credit redesign, which
streamlines the credit process and increases the capacity of relationship managers to service clients. Revenue improvements were
achieved through product enhancements, enhanced sales tools and training and improved customer analytics to drive opportunities.
The impact of increases in short-term rates and the execution of GEAR Up initiatives helped lower the efficiency ratio to 53.6
percent for 2018, compared to 58.6 percent for 2017. Return on equity for 2018 increased to 15.8 percent, compared to 9.3 percent
for 2017.
Restructuring activities were completed, resulting in cumulative pre-tax restructuring charges of $191 million from
inception through December 31, 2018. For additional information regarding restructuring charges, refer to Note 22 to the
consolidated financial statements.
2019 OUTLOOK
For full-year 2019 compared to full-year 2018, management expects the following, assuming a continuation of the current
economic and rate environment:
• Growth in average loans of 2 percent to 4 percent, reflecting increases in most lines of business.
• Decline in average deposits of 1 percent to 2 percent from a decrease in non-interest-bearing deposits.
• Growth in net interest income of 4 percent to 5 percent from the full-year net benefit of higher interest rates ($130 million
to $150 million), growth in average loans and repositioning the securities portfolio, partially offset by higher average
debt and lower interest recoveries.
•
Provision for credit losses of 15 basis points to 25 basis points and net charge-offs to remain low.
• Noninterest income higher by 2 percent to 3 percent, benefiting from growth in card fees and fiduciary income, partially
offset by lower service charges on deposit accounts and lower derivative income.
• Noninterest expenses lower by 3 percent, reflecting the end of restructuring charges from the GEAR Up initiatives ($53
million in full-year 2018), FDIC insurance expense lower by $16 million from the discontinuance of the surcharge, as
well as lower compensation and pension expense, partially offset by higher outside processing expenses in line with
growing revenue, technology expenditures and typical inflationary pressures.
Noninterest expenses excluding restructuring expenses expected to be stable.
Lower compensation driven by executive incentive compensation, partially offset by merit increases.
•
Income tax expense to be approximately 23 percent of pre-tax income, excluding any tax impact from employee stock
transactions.
Full-year 2018 included discrete tax benefits of $48 million.
• Common equity Tier 1 capital ratio target of 9.5 percent to 10 percent through continued return of excess capital.
F-5
RESULTS OF OPERATIONS
The following provides a comparative discussion of the Corporation's consolidated results of operations for 2018 compared
to 2017. A comparative discussion of results for 2017 compared to 2016 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 (a)
Mortgage-backed securities
Other investment securities
Total investment securities
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 (b)
Total interest-bearing deposits
Short-term borrowings
Medium- and long-term debt
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)
2018
2017
2016
Interest
Average
Balance
$ 30,534 $ 1,416
164
429
18
51
75
109
2,262
3,155
9,131
470
1,021
1,983
2,472
48,766
Interest
Average
Average
Balance
Rate
4.64% $ 30,415 $ 1,162
5.21
124
2,958
4.69
358
9,005
3.82
13
509
4.97
47
1,157
3.77
74
1,989
4.41
94
2,525
4.64
1,872
48,558
Average
Rate
Interest
Average
Balance
3.82% $ 31,062 $ 1,008
91
2,508
4.18
314
8,981
3.97
18
684
2.63
50
1,367
4.07
71
1,894
3.70
2,500
3.70
83
1,635
48,996
3.85
214
51
265
91
1
2,619
2.28
1.86
2.19
1.94
0.96
3.99
0.50
111
0.04
1
0.46
10
— 1.19
0.46
122
1.90
1
2.42
144
0.82
267
9,099
2,711
11,810
4,700
134
65,410
1,135
(695)
4,874
$ 70,724
$ 22,378
2,199
2,092
25
26,694
62
5,842
32,598
29,241
1,076
7,809
$ 70,724
202
48
250
60
—
2,182
33
—
9
—
42
3
76
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
$ 2,352
3.17
0.41
$ 2,061
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
2.17
1.66
2.05
1.09
0.64
3.29
0.15
0.02
0.36
0.64
0.16
1.14
1.51
0.38
2.91
0.20
3.58%
3.11%
Average
Rate
3.25%
3.63
3.49
2.64
3.63
3.76
3.32
3.34
2.19
1.51
2.02
0.51
0.61
2.88
203
44
247
26
1
1,909
27
—
13
—
40
—
72
112
0.11
0.02
0.40
0.35
0.14
0.45
1.45
0.34
$ 1,797
2.54
0.17
2.71%
(a) Nonaccrual loans are included in average balances reported and in the calculation of average rates.
(b) Includes substantially all deposits by foreign depositors; deposits are primarily in excess of $100,000.
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
Interest-bearing deposits with banks
Other short-term investments
Total interest income
Interest Expense:
Money market and interest-bearing checking deposits
Savings deposits
Customer certificates of deposit
Total interest-bearing deposits
Short-term borrowings
Medium- and long-term debt
Total interest expense
Increase
Due to Rate
$
248
$
30
65
6
11
1
17
378
12
5
17
46
1
442
74
1
3
78
2
50
130
6
10
6
(1)
(7)
—
(2)
12
—
(2)
(2)
(15)
—
(5)
4
—
(2)
2
(4)
18
16
2018/2017
Increase
(Decrease)
Due to
Volume (a)
Net
Increase
(Decrease)
Increase
(Decrease)
Due to Rate
2017/2016
Increase
(Decrease)
Due to
Volume (a)
Net
Increase
(Decrease)
$
254
$
179
$
(25)
$
154
40
71
5
4
1
15
390
12
3
15
31
1
437
78
1
1
80
(2)
68
146
291
14
43
—
6
(1)
10
251
(1)
5
4
30
—
285
8
—
(1)
7
1
23
31
$
254
$
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
Net interest income
$
(a) Rate/volume variances are allocated to variances due to volume.
312
$
(21)
$
NET INTEREST INCOME
Net interest income is the difference between interest earned on assets and interest paid on liabilities. Gains and losses
related to 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, 2018, 2017 and 2016 and details of the components
of the change in net interest income for 2018 compared to 2017 and 2017 compared to 2016.
Net interest income was $2.4 billion in 2018, an increase of $291 million compared to 2017. The increase in net interest
income primarily reflected the net benefit from higher short-term rates. Average earning assets decreased $890 million, primarily
reflecting decreases of $743 million in interest-bearing deposits with banks and $397 million in average investment securities,
primarily due to unrealized losses, partially offset by a $208 million increase in average loans.
The net interest margin increased 47 basis points in 2018 to 3.58 percent, from 3.11 percent in 2017, primarily reflecting
the net benefit from higher short-term 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 a benefit of $1 million in 2018, compared to a provision of $74 million in 2017. 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 $11 million in 2018, a
decrease of $62 million compared to $73 million in 2017, primarily resulting from improved credit quality in most lines of business,
reflected by lower net loan charge-offs and criticized loans. Net loan charge-offs in 2018 decreased $41 million to $51 million, or
0.11 percent of average total loans, compared to $92 million, or 0.19 percent, in 2017. The decrease primarily reflected lower
charge-offs in Energy, Technology and Life Sciences as well as Corporate Banking. Criticized loans decreased $683 million to
$1.5 billion in 2018.
The provision for credit losses on lending-related commitments is recorded to maintain reserves 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 a benefit of $12 million in 2018, a decrease of $13 million compared to a provision
of $1 million in 2017. The increase in the provision benefit primarily reflected a decrease in commercial commitments, primarily
in Energy. There were no lending-related commitment charge-offs in 2018 and 2017.
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.
PRESENTATION CHANGES
Noninterest income and noninterest expenses for 2018 reflect certain presentation changes resulting from the adoption
of ASC Topic 606, "Revenue from Contracts with Customers," (Topic 606), effective January 1, 2018. These changes primarily
impacted card fees and service charges on deposit accounts in noninterest income, fully offset by the impact to outside processing
fee expense in noninterest expenses. See Note 1 to the consolidated financial statements for further details on the adoption of Topic
606. The table below summarizes the proforma effects to 2017.
(in millions)
Year Ended December 31, 2017
Card fees
Service charges on deposit accounts
Total noninterest income
Reported Amounts
Proforma Effects
Proforma Amounts (a)
$
333 $
227
1,107
(113) $
(5)
(118)
220
222
989
Outside processing fee expense
Total noninterest expenses
(a) The Corporation believes proforma noninterest income and noninterest expenses (each a non-GAAP measure) provide a greater
366
1,860
248
1,742
(118)
(118)
understanding of ongoing operations and enhances comparability of results with 2017.
NONINTEREST INCOME
(in millions)
Years Ended December 31
Card fees
Service charges on deposit accounts
Fiduciary income
Commercial lending fees
Foreign exchange income
Letter of credit fees
Bank-owned life insurance
Brokerage fees
Net securities losses
Other noninterest income (a)
Total noninterest income
2018
2017
2016
244
211
206
85
47
40
39
27
(19)
96
976
$
$
333
227
198
85
45
45
43
23
—
108
1,107
$
$
303
219
190
89
42
50
42
19
—
97
1,051
$
$
(a) The table below provides further details on certain categories included in other noninterest income.
Noninterest income decreased $131 million to $976 million in 2018, compared to $1.1 billion in 2017. The change in
noninterest income included the Topic 606 proforma reduction of $118 million to 2017, a $20 million loss due to the repositioning
of the securities portfolio and a $10 million reduction in deferred compensation asset returns (offset in noninterest expenses).
Excluding these items, noninterest income increased $17 million in 2018. The increase was primarily due to increases in card fees
(proforma) and fiduciary income, partly offset by a decrease in service charges on deposit accounts (proforma). For further
information about the investment securities portfolio, refer to "Balance Sheet and Capital Funds Analysis" section in this financial
review.
F-8
Card fees consist primarily of interchange and other fee income earned on government card, commercial card, debit/
Automated Teller Machine (ATM) card and merchant payment processing services. Card fees increased $24 million (proforma),
or 11 percent, to $244 million in 2018, compared to $220 million (proforma) in 2017. The increase in 2018 was primarily due to
volume-driven increases in merchant payment processing services 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 decreased $11 million (proforma), or 5 percent, to $211 million
in 2018, compared to $222 million (proforma) in 2017. The decrease in service charges on deposit accounts included higher
earnings credit allowances provided on customer deposit balances due to increases in short-term interest rates.
Fiduciary income consists of fees and commissions from asset management, custody, recordkeeping, investment advisory
and other services provided primarily to personal and institutional trust customers. 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. Fiduciary income increased $8 million, or 4 percent, to $206 million in 2018, compared to $198 million in 2017. The
increase in 2018 was primarily driven by the favorable impact on fees from average market value increases and net positive asset
flows for trust as well as investment advisory services.
Other noninterest income decreased $12 million, or 11 percent, to $96 million in 2018, compared to $108 million in 2017,
driven by a $10 million decrease in deferred compensation asset returns (offset in noninterest expenses) and smaller changes in
various categories as illustrated in the following table.
(in millions)
Years Ended December 31
Customer derivative income
Insurance commissions
Investment banking fees
Securities trading income
Income from principal investing and warrants
Risk management hedge ineffectiveness
Deferred compensation asset returns (a)
All other noninterest income
Other noninterest income
2018
2017
2016
26
10
9
8
4
—
(2)
41
96
$
$
26
8
9
8
6
1
8
42
108
$
$
27
10
7
6
7
(2)
3
39
97
$
$
(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 deferred compensation plan liabilities 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
Software expense
Restructuring charges
Equipment expense
FDIC insurance expense
Advertising expense
Other noninterest expenses
Total noninterest expenses
2018
2017
2016
$
$
1,009
255
152
125
53
48
42
30
80
1,794
$
961 (a) $
366
154
126
45
45
51
28
84 (a)
989 (a)
336
157
119
93
53
54
21
108 (a)
$
1,860
$
1,930
(a) Prior period amounts restated to reflect the adoption of Accounting Standard Update (ASU) 2017-07, "Compensation - Retirement Benefits
(Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," effective January 1,
2018. For further information, refer to Note 1 to the consolidated financial statements.
Noninterest expenses decreased $66 million to $1.8 billion in 2018, compared to 2017. The change in noninterest expenses
included the Topic 606 proforma reduction of $118 million to 2017 and an $8 million increase in restructuring charges. Excluding
these items, noninterest expenses increased $44 million in 2018 primarily due to increases in salaries and benefits expense as well
as outside processing fee expense (proforma), partly offset by decreases in FDIC insurance expense and other noninterest expenses.
Salaries and benefits expense increased $48 million, or 5 percent, to $1.0 billion in 2018, compared to $961 million in
2017. The increase in salaries and benefits expense was driven by higher share-based and executive incentive compensation tied
F-9
to financial performance as well as merit increases and technology-related labor costs, partially offset by decreases in workforce
and deferred compensation expense (offset in noninterest income).
Outside processing fee expense increased $7 million (proforma), or 3 percent, to $255 million in 2018, compared to $248
million (proforma) in 2017, primarily due to expenses tied to revenue-generating activities, including government card programs
and merchant payment processing services, partially offset by $3 million of reduced expenses due to the wind down of a retirement
savings program in 2018.
Restructuring charges associated with the implementation of the GEAR Up initiative increased $8 million, or 18 percent,
to $53 million in 2018, compared to $45 million in 2017, including increases of $11 million in technology costs and $2 million
in facilities costs, partially offset by a $5 million decrease in other restructuring costs such as professional and legal fees as well
as contract termination fees. For further information about restructuring charges, refer to Note 22 to the consolidated financial
statements.
FDIC insurance expense decreased $9 million, or 17 percent, to $42 million in 2018, compared to $51 million in 2017,
primarily due to the completion of FDIC surcharges in third quarter 2018 as well as lower risk-based assessment rates.
Other noninterest expenses decreased $4 million, or 4 percent, to $80 million in 2018, compared to $84 million in 2017,
driven by decreases of $6 million in operational losses and $5 million in state business taxes, partially offset by $6 million of net
gains recognized on sales of assets in 2017 that did not repeat. The decrease in state business taxes was due to tax refunds obtained
in 2018.
INCOME TAXES AND RELATED ITEMS
The provision for income taxes was $300 million in 2018, compared to $491 million in 2017. The $191 million decrease
in the provision for income taxes in 2018, compared to 2017, primarily reflected the impact of a 14-percentage-point decrease in
federal statutory tax rate in 2018 resulting from the Tax Cuts and Jobs Act and a $120 million decrease in discrete tax items, from
a $72 million charge in 2017 to a benefit of $48 million in 2018, partially offset by the tax effect of a $301 million increase in pre-
tax income. The discrete tax charge in 2017 was primarily due to a $107 million adjustment to deferred taxes resulting from the
Tax Cuts and Jobs Act, partially offset by tax benefits of $35 million from employee stock transactions. The discrete tax benefit
in 2018 primarily resulted from a review of certain tax capitalization and recovery positions related to software and fixed assets
included in the 2017 tax return and tax benefits of $23 million from employee stock transactions.
Net deferred tax assets were $166 million at December 31, 2018, compared to $141 million at December 31, 2017. Refer
to Note 18 to the consolidated financial statements for information about the components of net deferred tax assets. Deferred tax
assets of $302 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, 2018 and 2017. 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.
2017 RESULTS OF OPERATIONS COMPARED TO 2016
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 40 basis points in 2017 to 3.11 percent, primarily reflecting the net benefit from higher
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 2017 and 2016 and details the components of the change in net
interest income for 2017 compared to 2016.
The provision for credit losses, which includes both the provision for loan losses and the provision for credit losses on
lending-related commitments, was $74 million in 2017, a decrease of $174 million compared to 2016. Net loan charge-offs in
2017 decreased $54 million to $92 million, or 0.19 percent of average total loans, primarily reflecting lower Energy charge-offs.
There were no lending-related commitment charge-offs in 2017, compared to $11 million in 2016, primarily reflecting improved
credit quality.
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 increased $30 million, or 10 percent, to $333 million in 2017, primarily due to volume-driven
increases from merchant payment processing services, including new customers, and government card programs. Service charges
on deposit accounts increased $8 million, or 4 percent, to $227 million in 2017, primarily reflecting an increase in commercial
service charges. Fiduciary income increased $8 million, or 5 percent, to $198 million in 2017, primarily driven by the favorable
impact on fees from market value increases and net asset inflows. Other noninterest income increased $11 million, or 11 percent,
to $108 million in 2017, driven by small changes in various categories of other noninterest income. Refer to the table provided
F-10
under the "Noninterest Income" subheading previously in this section for details of certain categories included in other noninterest
income.
Noninterest expenses decreased $70 million to $1.9 billion in 2017, compared to 2016. Excluding restructuring charges
related to the GEAR Up initiative, noninterest expenses decreased $22 million in 2017. Salaries and benefits expense decreased
$28 million, or 3 percent, to $961 million in 2017, primarily 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,
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, including decreases of $42 million in
employee costs, $19 million in other restructuring costs and $13 million in facilities costs, partially offset by an increase of $26
million in technology costs. Equipment expense decreased $8 million, or 15 percent, to $45 million in 2017, 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, primarily reflecting continued
investment in the Corporation's technology infrastructure. Advertising expense increased $7 million to $28 million in 2017,
primarily due to increased marketing expenses tied to new initiatives as well as an increase in sponsorship expenses.
The provision for income taxes increased $298 million to $491 million in 2017, primarily due to an increase in pre-tax
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 $35 million tax benefit from employee stock transactions.
F-11
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 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, 2018, 2017 and 2016.
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. During 2018, the Small
Business component was reclassified from Retail Bank to Business Bank. Results in all periods presented have been adjusted to
reflect the change in organizational structure.
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). The FTP methodology allocates
credits to each business segment for deposits and other funds provided as well as charges for loans and other assets being funded.
FTP crediting rates on deposits and other funds provided reflect the long-term value of deposits and other funding sources based
on their implied maturities. FTP charge rates for funding loans and other 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. Business segments that generate deposits benefited from higher FTP crediting
rates on deposits during 2018 compared to the prior year. As overall market rates increased, FTP charges for funding loans increased
for asset-generating business segments in the year ended December 31, 2018 compared to the prior year.
The following sections present a summary of the performance of each of the Corporation's business and market segments
for the year ended December 31, 2018 compared to the same period in the prior year. The proforma effect of Topic 606 to the year
ended December 31, 2017, reducing both noninterest income and noninterest expenses by $118 million, primarily impacted the
Business Bank and Other Markets segments.
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
2018
2017
2016
$
$
1,024
65
121
1,210
(1)
26
1,235
85% $
5
10
100%
$
755
(6)
87
836
(23)
(70)
743
90% $
(1)
11
100%
$
613
(61)
68
620
(146)
3
477
99%
(10)
11
100%
(a) Primarily reflected discrete tax items, including a benefit of $48 million in 2018 and a net charge of $72 million in 2017.
The Business Bank's net income increased $269 million to $1.0 billion. Average loans increased $377 million and average
deposits decreased $1.9 billion. Net interest income increased $100 million to $1.6 billion. An increase in loan income of $355
million was partially offset by a $41 million increase in deposit costs and a $215 million increase in allocated net FTP charges.
The FTP allocation reflected increases in funding charges and crediting rates on deposits as a result of higher short-term rates.
The provision for credit losses decreased $63 million to $6 million, primarily reflecting improved credit quality in most lines of
business. Net credit-related charge-offs decreased $44 million to $52 million, with most of the decreases in Energy, Technology
and Life Sciences as well as Corporate Banking. Including the Topic 606 proforma reduction of $105 million to the prior year,
noninterest income increased $13 million and noninterest expenses increased $34 million. Noninterest income benefited from a
$22 million increase in card fees (proforma) and smaller increases in other noninterest income categories, partially offset by
decreases of $9 million in service charges on deposit accounts (proforma) and $5 million in letter of credit fees. Noninterest
expenses reflected increases of $12 million in salaries and benefits expense, $11 million in outside processing fee expense
(proforma), $8 million in allocated corporate overhead and smaller increases in other categories of noninterest expenses, partially
F-12
offset by an $8 million decrease in FDIC insurance expense. Additionally, noninterest expenses in 2017 included $6 million in
net gains recognized on sales of assets that did not repeat.
The Retail Bank's net income increased $71 million to $65 million. Average loans and deposits were stable. Net interest
income increased $95 million to $548 million. Increases of $98 million in allocated net FTP credits and $14 million in loan income
were partially offset by a $16 million increase in deposit costs. The FTP allocation primarily reflected an increase in crediting
rates on deposits as a result of higher short-term rates. The provision for credit losses decreased $3 million to a benefit of $1
million. Including the Topic 606 proforma reduction of $12 million to the prior year, noninterest income decreased $6 million and
noninterest expenses decreased $1 million. Noninterest income was primarily impacted by a decrease of $6 million due to the
wind down of a retirement savings program and a $2 million decline in service charges on deposit accounts (proforma), partially
offset by a $2 million increase in card fees (proforma). The decrease in noninterest expenses primarily reflected decreases of $6
million in outside processing fee expense (proforma), including a $3 million decrease resulting from the wind down of a retirement
savings program in 2018, and $4 million in FDIC insurance expense as well as smaller decreases in other categories of noninterest
expenses, mostly offset by increases of $9 million in salaries and benefits expense and $4 million in restructuring charges.
Wealth Management's net income increased $34 million to $121 million. Net interest income increased $12 million to
$181 million, primarily reflecting an increase in crediting rates on deposits as a result of higher short-term rates. The provision
for credit losses decreased $4 million to a benefit of $3 million. Net credit-related recoveries decreased $4 million to $1 million
in 2018. Noninterest income increased $11 million to $266 million, primarily reflecting increases of $7 million in fiduciary income
and $3 million in brokerage fees. Noninterest expenses increased $8 million to $293 million, primarily reflecting a $5 million
increase in salaries and benefits expense and smaller increases in other categories of noninterest expenses.
The net loss in the Finance segment decreased $22 million to $1 million, primarily reflecting an increase in net FTP
revenue as a result of higher rates charged to the business segments under the Corporation's internal FTP methodology, partially
offset by a $15 million loss, net of tax, due to repositioning the securities portfolio.
MARKET SEGMENTS
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
2018
2017
2016
$
$
326
375
229
280
1,210
25
1,235
27% $
31
19
23
100%
$
247
229
175
185
836
(93)
743
30% $
27
21
22
100%
$
210
246
(39)
203
620
(143)
477
33%
40
(6)
33
100%
(a) Primarily reflected discrete tax items, including a benefit of $48 million in 2018 and a net charge of $72 million in 2017.
The Michigan market's net income increased $79 million to $326 million. Average loans decreased $146 million and
average deposits decreased $1.1 billion. Net interest income increased $70 million to $727 million. An increase in loan income
of $95 million was partially offset by a $23 million increase in deposit costs and a $1 million increase in allocated net FTP charges.
The FTP allocation reflected an increase in funding charges mostly offset by increases in crediting rates on deposits as a result of
higher short-term rates. The provision for credit losses increased $22 million to $30 million, primarily reflecting an increase in
general Middle Market. Net credit-related charge-offs increased $8 million to $7 million, primarily reflecting an increase in general
Middle Market. Including the Topic 606 proforma reduction of $13 million to the prior year, noninterest income decreased $15
million and noninterest expenses increased $1 million. The decrease in noninterest income reflected decreases of $9 million in
fiduciary income, $6 million in service charges on deposit accounts (proforma) and smaller decreases in several other categories,
partially offset by a $3 million increase in card fees (proforma). Noninterest expenses were impacted by an $8 million increase in
salaries and benefits expense, $6 million of net gains recognized in 2017 on sales of assets that did not repeat and smaller increases
in other categories of noninterest expenses, mostly offset by a $14 million decrease in allocated corporate overhead.
The California market's net income increased $146 million to $375 million. Average loans increased $275 million and
average deposits decreased $569 million. Net interest income increased $77 million to $788 million. An increase in loan income
of $158 million was partially offset by a $23 million increase in deposit costs and a $58 million increase in allocated net FTP
charges. The FTP allocation reflected increases in funding charges and in crediting rates on deposits as a result of higher short-
term rates. The provision for credit losses decreased $73 million to $31 million, primarily reflecting improved credit quality in
most lines of business. Net credit-related charge-offs decreased $6 million to $27 million, with the largest decrease in Corporate
Banking. Including the Topic 606 proforma reduction of $7 million to the prior year, noninterest income was unchanged and
noninterest expenses increased $27 million. Noninterest income was impacted by a $4 million increase in card fees (proforma)
F-13
and smaller increases in other categories of noninterest income, offset by decreases of $3 million each in service charges on deposit
accounts (proforma) and letter of credit fees. Noninterest expenses reflected increases of $13 million in allocated corporate
overhead, $6 million in salaries and benefits expense, $4 million each in outside processing fee expense (proforma) and restructuring
charges as well as smaller increases in other categories of noninterest expenses, partially offset by a $4 million decrease in FDIC
insurance expense. Additionally, the increase in noninterest expenses reflected the impact of a $3 million benefit in 2017 due to
a favorable litigation-related settlement.
The Texas market's net income increased $54 million to $229 million. Average loans decreased $148 million and average
deposits decreased $632 million. Net interest income increased $24 million to $475 million. An increase in loan income of $68
million was partially offset by increases of $5 million in deposit costs and $40 million in allocated net FTP charges. The FTP
allocation reflected increases in funding charges and in crediting rates on deposits as a result of higher short-term rates. The
provision for credit losses was impacted by a $19 million decrease in provision benefit to $53 million, primarily due to improved
credit quality and a large decrease in Energy loans in 2017. Net credit-related charge-offs decreased $34 million to $12 million,
primarily reflecting decreases in Energy and general Middle Market. Including the Topic 606 proforma reduction of $6 million
to the prior year, noninterest income increased $5 million and noninterest expenses decreased $4 million. Noninterest income was
primarily impacted by a $3 million increase in card fees (proforma). The decline in noninterest expenses primarily reflected
decreases of $4 million in allocated corporate overhead and $3 million in FDIC insurance expense, partially offset by a $2 million
increase in outside processing fee expense (proforma).
Other Markets' net income increased $95 million to $280 million. Average loans increased $227 million and average
deposits increased $267 million. Net interest income increased $36 million to $352 million. An increase in loan income of $70
million was partially offset by a $13 million increase in deposit costs and a $21 million increase in allocated net FTP charges. The
FTP allocation reflected an increase in funding charges as well as increases in crediting rates on deposits as a result of higher
short-term rates. The provision for credit losses decreased $39 million to a $6 million benefit, with most of the decreases in
Corporate Banking, Small Business as well as Technology and Life Sciences. Net credit-related charge-offs decreased $9 million
to $5 million, primarily reflecting decreases in Technology and Life Sciences as well as Small Business. Including the Topic 606
proforma reduction of $92 million to the prior year, noninterest income increased $28 million and noninterest expenses increased
$18 million. Noninterest income was primarily impacted by increases of $15 million in fiduciary income and $13 million in card
fees (proforma). Noninterest expenses primarily reflected increases of $11 million in salaries and benefits expense and $10 million
in allocated corporate overhead, partially offset by a $4 million decrease in outside processing fee expense (proforma).
Net income for the Finance & Other category increased $118 million to $25 million, primarily reflecting the $120 million
change in discrete tax items and an increase in FTP revenue as a result of higher rates charged to the market segments under the
Corporation's internal FTP methodology, partially offset by a $15 million loss, net of tax, due to repositioning the securities
portfolio.
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
2018
2017
2016
193
122
96
17
7
1
25
436
194
122
97
17
7
1
25
438
209
127
97
17
7
1
25
458
F-14
BALANCE SHEET AND CAPITAL FUNDS ANALYSIS
ANALYSIS OF INVESTMENT SECURITIES AND LOANS
(in millions)
December 31
Investment securities available-for-sale:
2018
2017
2016
2015
2014
U.S. Treasury and other U.S. government agency securities $ 2,727
Residential mortgage-backed securities (a)
State and municipal securities
Corporate debt securities
Equity and other non-debt securities
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
9,318 (b)
—
—
—
12,045
— (b)
$ 12,045
$ 31,976
3,077
9,106
507
—
1,013
1,013
1,970
1,765
749
2,514
$ 50,163
$ 2,727
8,124
5
—
82
10,938
1,266
$ 12,204
$ 31,060
2,961
9,159
468
4
979
983
1,988
$ 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
$
526
7,274
23
51
242
8,116
1,935
$ 10,051
$ 31,520
1,955
8,604
805
31
1,465
1,496
1,831
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) Effective with the adoption of ASU 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging
Activities” on January 1, 2018, the Corporation transferred residential mortgage-backed securities with a book value of approximately
$1.3 billion from held-to-maturity to available-for-sale.
F-15
EARNING ASSETS
Loans
On a period-end basis, total loans increased $990 million to $50.2 billion at December 31, 2018 compared to $49.2 billion
at December 31, 2017. Average total loans increased $208 million to $48.8 billion in 2018, compared to $48.6 billion in 2017.
The following tables provide information about the changes in the Corporation's average loan portfolio in 2018, compared to 2017.
(dollar amounts in millions)
Years Ended December 31
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
Small Business
Total Business Bank
Total Retail Bank
Total Wealth Management
Total loans
By Loan Type:
Commercial
Real estate construction loans
Commercial mortgage loans
Lease financing
International loans
Residential mortgage loans
Consumer loans:
Home equity
Other consumer
Total consumer loans
Total loans
By Geographic Market:
Michigan
California
Texas
Other Markets
Total loans
2018
2017
Change
Percent
Change
$
$
$
$
$
$
11,800
7,294
1,868
3,808
1,099
731
26,600
4,337
1,716
5,287
3,678
41,618
2,067
5,081
48,766
30,534
3,155
9,131
470
1,021
1,983
1,749
723
2,472
48,766
12,531
18,283
9,821
8,131
48,766
$
$
$
$
$
$
11,873
6,953
2,075
3,281
924
659
25,765
4,682
1,768
5,230
3,796
41,241
2,061
5,256
48,558
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
$
$
$
$
$
$
(73)
341
(207)
527
175
72
835
(345)
(52)
57
(118)
377
6
(175)
208
119
197
126
(39)
(136)
(6)
(45)
(8)
(53)
208
(146)
275
(148)
227
208
(1)%
5
(10)
16
19
11
3
(7)
(3)
1
(3)
1
—
(3)
— %
— %
7
1
(8)
(12)
—
(3)
(1)
(2)
— %
(1)%
2
(1)
3
— %
Middle Market business lines generally serve customers with annual revenue between $20 million and $500 million.
Within the Middle Markets business lines, the largest changes were due to Technology and Life Sciences as well as National
Dealer Services, partially offset by Energy. Technology and Life Sciences serves two segments: (1) private equity and venture
capital firms, referred to as equity fund services, and (2) companies that are typically owned by venture-capital firms, where
significant equity is invested to create products and build companies around new intellectual property. The $527 million increase
in average Technology and Life Sciences loans primarily reflected growth in the equity fund services business. National Dealer
Services provides floor plan inventory financing and commercial mortgages to auto dealerships. The $341 million increase in
average National Dealer Services 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 $207 million decrease in average Energy loans 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 loans, refer to "Energy Lending" in the "Risk Management"
section of this financial review.
F-16
Corporate Banking generally serves customers with revenue over $500 million. The $345 million decrease in average
Corporate Banking loans reflected continued pricing and credit discipline as well as an elevated number of customers taking
advantage of favorable valuations to sell their businesses.
Investment Securities
(dollar amounts in millions)
Within 1 Year
1 - 5 Years
Maturity (a)
5 - 10 Years
After 10 Years
Total
Weighted
Average
Maturity
December 31, 2018
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Years
U.S. Treasury and other U.S.
government agency securities
$
100
1.42% $ 2,627
2.34% $
—
—% $
—
—% $ 2,727
2.30%
2.3
Residential mortgage-backed
securities (b)
$
Total investment securities
(a) Based on final contractual maturity.
(b)
—
100
—
15
2.70
1,502
2.43
7,801
2.36
9,318
2.37
1.42% $ 2,642
2.34% $ 1,502
2.43% $ 7,801
2.36% $ 12,045
2.35%
19.7
15.8
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
Investment securities decreased $159 million to $12.0 billion at December 31, 2018, from $12.2 billion at December 31,
2017, including a $57 million increase in net unrealized losses. Net unrealized losses on investment securities available-for-sale
were $180 million at December 31, 2018, compared to net unrealized losses of $123 million at December 31, 2017. At December 31,
2018, the weighted-average expected life of the Corporation's residential mortgage-backed securities portfolio was approximately
3.5 years. On an average basis, investment securities decreased $397 million to $11.8 billion in 2018, compared to $12.2 billion
in 2017. The decrease was primarily due to an increase in net unrealized losses.
At the end of the third quarter 2018, the Corporation repositioned $1.3 billion of treasury securities by purchasing securities
yielding approximately $4 million in additional interest per quarter. The loss taken on the securities sold ($15 million, net of tax)
was offset by discrete tax benefits resulting from actions taken related to the Tax Cuts and Jobs Act.
Interest-Bearing Deposits with Banks and Other Short-Term Investments
Interest-bearing deposits with banks primarily include deposits with the Federal Reserve Bank (FRB) and also include
deposits with banks in developed countries or international banking facilities of foreign banks located in the United States. Interest-
bearing deposits with banks are mostly used to manage liquidity requirements of the Corporation. Interest-bearing deposits with
banks decreased $1.2 billion to $3.2 billion at December 31, 2018. On an average basis, interest-bearing deposits with banks
decreased $743 million to $4.7 billion in 2018, compared to $5.4 billion in 2017.
Other short-term investments include federal funds sold, trading securities, money market investments 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. Other short-term investments increased $38 million to $134 million at December 31, 2018. On an average basis, other short-
term investments increased $42 million to $134 million in 2018.
DEPOSITS AND BORROWED FUNDS
At December 31, 2018, total deposits were $55.6 billion, a decrease of $2.3 billion, or 4 percent, compared to $57.9
billion at December 31, 2017, reflecting a decrease of $3.4 billion, or 11 percent, in noninterest-bearing deposits, partially offset
by an increase of $1.0 billion, or 4 percent, in interest-bearing deposits. The Corporation's average deposits and borrowed funds
balances are detailed in the following table.
(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
2018
2017
Change
Percent
Change
$
$
$
$
29,241
22,378
2,199
2,092
25
55,935
62
5,842
5,904
$
$
$
$
31,013
21,585
2,133
2,471
56
57,258
277
4,969
5,246
$
$
$
$
(1,772)
793
66
(379)
(31)
(1,323)
(215)
873
658
(6)%
4
3
(15)
(56)
(2)%
(78)%
18
13 %
Average deposits decreased $1.3 billion, or 2 percent, to $55.9 billion in 2018, compared to $57.3 billion in 2017, reflecting
a decrease of $1.8 billion, or 6 percent, in noninterest-bearing deposits, partially offset by an increase of $449 million, or 2 percent,
in interest-bearing deposits. The decrease is primarily due to more efficient cash management by customers. The largest decreases
F-17
were reflected in general Middle Market (driven by a $925 million decline in Municipalities), Commercial Real Estate ($598
million) and Corporate Banking ($454 million), partially offset by increases in Finance ($699 million) and Technology and Life
Sciences ($418 million). By market, average deposits decreased in Michigan ($1.1 billion), Texas ($632 million) and in California
($569 million), partially offset by increases in Finance and Other ($662 million) and Other Markets ($267 million).
Short-term borrowings totaled $44 million at December 31, 2018, an increase of $34 million compared to $10 million
at December 31, 2017. Short-term borrowings primarily include federal funds purchased, short-term FHLB advances and securities
sold under agreements to repurchase. Average short-term borrowings decreased $215 million, to $62 million in 2018, compared
to $277 million in 2017.
Total medium- and long-term debt at December 31, 2018 increased $1.8 billion to $6.5 billion, compared to $4.6 billion
at December 31, 2017. The increase in medium- and long-term debt reflected a $1.0 billion increase in long-term FHLB advances
during the first quarter 2018 and an issuance of $850 million in medium-term notes during the third quarter 2018. The Corporation
uses medium- and long-term debt, which includes long-term FHLB advances as well as medium-term and subordinated notes, to
provide funding to support earning assets, liquidity and regulatory capital. Average medium- and long-term debt increased $873
million, or 18 percent, to $5.8 billion in 2018, compared to $5.0 billion in 2017.
On February 1, 2019, the Corporation issued $350 million of 4.00% senior notes maturing in 2029, swapped to floating
rate at 30-day LIBOR plus 129 basis points. Proceeds will be used for general corporate purposes, which may include working
capital, investments in or advances to existing or future subsidiaries, and repurchases, maturities and redemptions of other
outstanding securities. Pending such use, the net proceeds will be invested for the short term.
Further information on medium- and long-term debt is provided in Note 12 to the consolidated financial statements.
CAPITAL
Total shareholders' equity decreased $456 million to $7.5 billion at December 31, 2018, compared to $8.0 billion at
December 31, 2017. The following table presents a summary of changes in total shareholders' equity in 2018.
(in millions)
Balance at January 1, 2018
Cumulative effect of change in accounting principles
Net income
Cash dividends declared on common stock
Purchase of common stock
Other comprehensive loss:
Investment securities available-for-sale
Defined benefit and other postretirement plans
Total other comprehensive loss
Issuance of common stock under employee stock plans
Share-based compensation
Balance at December 31, 2018
$
$
7,963
15
1,235
(309)
(1,329)
(159)
43
48
7,507
$
(38)
(121)
Further information about other comprehensive loss is provided in the Consolidated Statements of Comprehensive Income
and Note 14 to the consolidated financial statements.
In July 2018, the Board of Governors of the Federal Reserve System issued a statement announcing that, consistent with
the recently enacted Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), bank holding companies
with less than $100 billion in total assets are no longer subject to certain regulations and reporting requirements, such as Dodd-
Frank Act stress testing, Comprehensive Capital Analysis and Review (CCAR) and the Liquidity Coverage Ratio, effective
immediately. EGRRCPA also revised the definition of High Volatility Commercial Real Estate (HVCRE) exposure for regulatory
capital calculations. The Corporation adopted the revised HVCRE definition effective September 30, 2018. The resulting change
in regulatory capital ratios was not significant.
The Corporation expects to return excess capital to shareholders with a target of reaching a common equity Tier 1 capital
ratio of 9.5 percent to 10 percent by the end of 2019. The timing and ultimate amount of future distributions will be subject to
various factors including financial performance, capital position and market conditions.
During 2018, the Corporation repurchased 14.8 million shares for a total $1.3 billion. This included $149 million in the
first quarter and $169 million in the second quarter repurchased under the Corporation's 2017 capital plan. The Board of Directors
(the Board) approved the repurchase of $500 million in each of the third and fourth quarters of 2018. The Corporation facilitated
the third and fourth quarter repurchases through an accelerated share repurchase program due to volume and timing execution
constraints.
F-18
In January 2019, the Board authorized the repurchase of up to an additional 15 million shares of Comerica Incorporated
outstanding common stock. This action is in addition to the 4.7 million shares remaining at December 31, 2018 under the Board's
prior authorizations for the equity repurchase program. The number of shares ultimately repurchased during 2019 will depend on
many factors, including capital needs of the Corporation and market conditions. Additionally, repurchases of common stock under
the authorization may include open market purchases, privately negotiated transactions or accelerated repurchase programs. There
is no expiration date for the Corporation's share repurchase program.
The Board approved a 4-cent increase in the quarterly dividend to $0.34 per share in April 2018 and further increased
the divided 26 cents to $0.60 per share in July 2018. In January 2019, the Board approved a 7-cent increase in the quarterly dividend
to $0.67 per share, effective for the dividend payable on April 1, 2019.
The following table summarizes the Corporation’s equity repurchase activity for the year ended December 31, 2018.
(shares in thousands)
First quarter 2018
Second quarter 2018
Third quarter 2018
Fourth quarter 2018
Total 2018
Total Number of Shares and
Warrants Purchased as
Part of Publicly Announced
Repurchase Plans or
Programs (a)
Remaining
Repurchase
Authorization (b)
1,565
1,755
5,137
6,316
14,773
8,714
6,952
11,706 (d)
4,707
4,707
Total Number
of Shares
Purchased (c)
1,674
1,759
5,143
6,318
14,894
$
$
Average Price
Paid Per
Share
95.16
96.32
97.32
79.16
89.26
(a) The Corporation made no repurchases of warrants under the repurchase program during the year ended December 31, 2018. 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, 2018, the Corporation withheld the equivalent of
approximately 309,000 shares to cover an aggregate of $9 million in exercise price and issued approximately 585,000 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. All unexercised warrants expired in fourth quarter 2018.
(b) Maximum number of shares and warrants that may yet be purchased under the publicly announced plans or programs. In January 2019,
the Board rescinded its warrant repurchase authorization following the expiration of all unexercised warrants.
(c) Includes approximately 121,000 shares 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, 2018. These transactions are not considered part of the Corporation's repurchase program.
(d) Includes July 24, 2018 equity repurchase authorization for an additional 10 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 included a more stringent definition of capital and introduced a common equity Tier 1 (CET1) capital
requirement; set forth two comprehensive methodologies for calculating risk-weighted assets (RWA), a standardized approach
and an advanced approach; introduced two capital buffers, a conservation buffer and a countercyclical buffer (applicable to advanced
approach entities); established a supplemental leverage ratio (applicable to advanced approach entities); and set 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.
Tier 2 capital includes Tier 1 capital as well as subordinated debt qualifying as Tier 2 and qualifying allowance for credit losses.
The ultimate treatment for certain specific deductions and adjustments is yet to be determined pending the finalization of a proposal
by banking regulators to simplify certain aspects of the capital rules. In addition, in December 2018, the federal banking regulators
adopted rules that would permit bank holding companies and banks to phase in, for regulatory capital purposes, the day-one impact
of the new current expected credit loss accounting rule on retained earnings over a period of three years. The Corporation does
not expect 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.
F-19
The following table presents the minimum ratios required to be considered "adequately capitalized."
Common equity tier 1 capital to risk-weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
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 increases to 2.5% on January 1, 2019. The capital conservation buffer indicated
above is as of December 31, 2018.
4.500%
6.000
8.000
1.875
4.000
The Corporation's capital ratios exceeded minimum regulatory requirements as follows:
December 31, 2018
December 31, 2017
(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
7,470
$
8,855
7,470
7,507
6,866
67,047
Ratio
11.14% $
13.21
10.51
10.60
9.78
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
At December 31, 2018, 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-20
RISK MANAGEMENT
The Corporation assumes various types of risk as a result of conducting business in the normal course. 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 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 reside in 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, chaired by the Chief Risk Officer, is established by the Enterprise
Risk Committee of the Board, and 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. Capital is the common denominator of
risk. 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.
The Credit Division 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 the Corporation'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-21
Portfolio Risk Analytics, within the Credit Division, 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
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
2018
2017
2016
2015
2014
$
712
$
730
$
634
$
594
$
95
3
—
1
—
4
103
44
—
2
—
1
1
4
52
51
11
(1)
671
$
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
$
598
59
22
—
6
2
13
102
34
4
28
2
—
4
5
77
25
22
(1)
594
0.11%
0.19%
0.30%
0.21%
0.05%
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 multiple of total nonperforming loans at end of year
Allowance for loan losses as a multiple of total net loan charge-offs for the year
2018
2017
2016
1.34%
2.9x
13.1x
1.45%
1.7x
7.7x
1.49%
1.2x
5.0x
The allowance for loan losses was $671 million at December 31, 2018, compared to $712 million at December 31, 2017,
a decrease of $41 million, or 6 percent. The decrease in the allowance for loan losses reflected continued improvement in credit
quality of the portfolio, including a $683 million decline in criticized loans and a $41 million decline in net loan charge-offs.
F-22
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)
2018
2017
2016
2015
2014
Business loans
Commercial
Real estate construction
Commercial mortgage
Lease financing
International
Total business loans
Retail loans
Residential mortgage
Consumer
Total retail loans
$
492
19
99
4
13
627
9
35
44
Total loans
$
671
1.54% 64% $
0.62
6
1.08
0.70
1.31
1.37
0.43
1.40
18
1
2
91
4
5
0.97
1.34% 100% $
9
521
63% $
547
63% $
448
65% $
19
91
12
18
661
13
38
51
6
19
1
2
91
4
5
9
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
712
100% $
730
100% $
634
100% $
594
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 $30 million at December 31, 2018 compared to $42
million at December 31, 2017. 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.
2018
$
$
42
—
(12)
30
2017
2016
2015
2014
$
$
41
—
1
42
$
$
45
(11)
7
41
$
$
41
(1)
5
45
$
$
36
—
5
41
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.
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-23
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
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
2018
2017
2016
2015
2014
$
$
$
$
$
$
$
$
141
—
20
2
3
166
36
19
—
19
55
221
8
229
1
230
19
4
0.46%
16
0.03%
$
$
$
$
309
—
31
4
6
350
31
21
—
21
52
402
8
410
5
415
31
7
0.83%
35
0.07%
$
$
$
$
445
—
46
6
14
511
39
28
4
32
71
582
8
590
17
607
38
6
1.20%
19
0.04%
$
$
$
$
238
1
60
6
8
313
27
27
—
27
54
367
12
379
12
391
27
5
0.77%
17
0.03%
109
2
95
—
—
206
36
30
1
31
67
273
17
290
10
300
25
6
0.60%
5
0.01%
Nonperforming assets decreased $185 million to $230 million at December 31, 2018, from $415 million at December 31,
2017. The decrease in nonperforming assets primarily reflected a $168 million decrease in nonaccrual commercial loans, with the
largest decreases in general Middle Market, Energy and Corporate Banking. Nonperforming assets were 0.46 percent of total loans
and foreclosed property at December 31, 2018, compared to 0.84 percent at December 31, 2017.
The following table presents a summary of TDRs at December 31, 2018 and 2017.
(in millions)
December 31
Nonperforming TDRs:
Nonaccrual TDRs
Reduced-rate TDRs
2018
2017
Total nonperforming TDRs
182
8
190
123
Performing TDRs (a)
Total TDRs
313
(a) TDRs that do not include a reduction in the original contractual interest rate which are performing in accordance with their modified terms.
73
8
81
101
182
$
$
$
$
At December 31, 2018, nonaccrual and performing TDRs included $38 million and $46 million of Energy loans,
respectively, compared to $82 million and $43 million, respectively at December 31, 2017.
F-24
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 loan gross charge-offs
Loans transferred to accrual status (a)
Nonaccrual loans sold
Payments/other (b)
Balance at end of period
(a) Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(b) Includes net changes related to nonaccrual loans with balances less than $2 million, payments on nonaccrual loans with book balances
582
297
(149)
—
(40)
(288)
402
402
197
(103)
(6)
(39)
(230)
221
2018
2017
$
$
$
$
greater than $2 million and transfers of nonaccrual loans to foreclosed property.
There were 32 borrowers with balances greater than $2 million transferred to nonaccrual status in 2018, a decrease of 6
when compared to 38 in 2017.
The following table presents the composition of nonaccrual loans by balance and the related number of borrowers at
December 31, 2018 and 2017.
(dollar amounts in millions)
Under $2 million
$2 million - $5 million
$5 million - $10 million
$10 million - $25 million
Greater than $25 million
Total
2018
2017
Number of
Borrowers
Balance
Number of
Borrowers
Balance
799
14
10
2
—
825
$
$
78
41
69
33
—
221
939
16
12
8
1
976
$
$
85
47
93
130
47
402
The following table presents a summary of nonaccrual loans at December 31, 2018 and loans transferred to nonaccrual
and net loan charge-offs for the year ended December 31, 2018, based on North American Industry Classification System (NAICS)
categories.
December 31, 2018
Year Ended December 31, 2018
(dollar amounts in millions)
$
Nonaccrual Loans
Loans Transferred to
Nonaccrual (a)
Industry Category
Mining, Quarrying and Oil & Gas Extraction
Residential Mortgage
Manufacturing
Health Care & Social Assistance
Services
Contractors
Real Estate & Home Builders
Wholesale Trade
Information & Communication
Other (b)
Total
(a) Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(b) Consumer, excluding residential mortgage and certain personal purpose nonaccrual loans and net charge-offs, is included in the Other
Net Loan Charge-Offs
(Recoveries)
9
—
19
(1)
10
(2)
2
13
1
—
51
23% $
16
15
8
6
6
4
3
2
17
100% $
15% $
5
45
7
10
—
2
10
3
3
16%
—
37
(1)
20
(3)
4
25
2
—
100%
50
36
33
18
14
13
8
7
5
37
221
30
10
91
14
19
—
3
19
5
6
197
100% $
$
category.
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 decreased $19 million to $16 million at December 31, 2018, compared to
$35 million at December 31, 2017. Loans past due 30-89 days decreased $169 million to $133 million at December 31, 2018,
compared to $302 million at December 31, 2017. An aging analysis of loans included in Note 4 to the consolidated financial
statements provides further information about the balances comprising past due loans.
F-25
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
2018
2017
$
1,548
$
3.1%
2,231
4.5%
The $683 million decrease in criticized loans in the year ended December 31, 2018 included decreases of $303 million
in Energy and $159 million in general Middle Market.
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
2018
2017
5
3
—
(7)
1
1
$
$
$
17
8
(1)
(19)
5
3
$
$
$
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, 2018.
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
2018
2017
Loans
Outstanding
Percent of
Total Loans
Loans
Outstanding
Percent of
Total Loans
$
$
946
385
1,331
4,678
3,419
8,097
9,428
$
2.7%
16.1%
18.8% $
1,007
337
1,344
4,359
3,233
7,592
8,936
2.7%
15.5%
18.2%
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 $4.7 billion at December 31, 2018, an increase of $319 million
compared to $4.4 billion at December 31, 2017. At December 31, 2018 other loans in the National Dealer Services business line
totaled $3.4 billion, including $2.0 billion of owner-occupied commercial real estate mortgage loans, compared to $3.2 billion,
including $1.9 billion of owner-occupied commercial real estate mortgage loans, at December 31, 2017. 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 $1.3 billion at both December 31, 2018 and 2017.
Dealer loans, as shown in the table above, totaled $8.1 billion at December 31, 2018, of which $4.7 billion, or 60 percent,
were to foreign franchises, and $2.3 billion, or 29 percent, were to domestic franchises. Other dealer loans, totaling $844 million,
F-26
or 11 percent, at December 31, 2018, 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 $4 million of nonaccrual loans to automotive borrowers at December 31, 2018 and none at December 31,
2017. There was $5 million of automotive net loan charge-offs in 2018 and none in 2017.
For further information regarding significant group concentrations of credit risk, refer to Note 5 to the consolidated
financial statements.
Commercial Real Estate Lending
At December 31, 2018, the Corporation's commercial real estate portfolio represented 24 percent of total loans. 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.
2018
2017
$
$
$
$
2,687
390
3,077
1,743
7,363
9,106
$
$
$
$
2,630
331
2,961
1,831
7,328
9,159
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 $12.2 billion at
December 31, 2018, of which $4.4 billion, or 36 percent, were to borrowers in the Commercial Real Estate business line, which
includes loans to real estate developers, an increase of $63 million compared to December 31, 2017. The remaining $7.8 billion,
or 64 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 $31 million
and $4 million at December 31, 2018 and 2017, respectively. There were no net charge-offs in 2018 and net recoveries of $1
million in 2017.
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. Loans in the commercial mortgage portfolio generally mature
within three to five years. Criticized commercial mortgage loans in the Commercial Real Estate business line totaled $61 million
and $72 million at December 31, 2018 and December 31, 2017, respectively. In other business lines, $206 million and $229 million
of commercial mortgage loans were criticized at December 31, 2018 and 2017, respectively. Commercial mortgage loan net charge-
offs were $1 million in 2018, compared to net recoveries of $6 million in 2017.
Residential Real Estate Lending
At December 31, 2018, residential real estate loans represented 7 percent of total loans. 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
2018
2017
Residential
Mortgage
Loans
% of
Total
Home
Equity
Loans
% of
Total
Residential
Mortgage
Loans
% of
Total
Home
Equity
Loans
% of
Total
$
$
406
993
310
261
1,970
21% $
50
16
13
100% $
650
710
346
59
1,765
37% $
40
20
3
100% $
387
1,023
297
281
1,988
19% $
52
15
14
100% $
705
718
335
58
1,816
39%
40
18
3
100%
F-27
Residential real estate loans, which consist of traditional residential mortgages and home equity loans and lines of credit,
totaled $3.7 billion at December 31, 2018. 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.
Residential mortgages totaled $2.0 billion at December 31, 2018, 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, $36 million were on nonaccrual status at December 31, 2018. The home equity portfolio totaled $1.8 billion at
December 31, 2018, of which $1.6 billion was outstanding under primarily variable-rate, interest-only home equity lines of credit,
$123 million were in amortizing status and $36 million were closed-end home equity loans. Of the $1.8 billion of home equity
loans outstanding, $19 million were on nonaccrual status at December 31, 2018. A majority of the home equity portfolio was
secured by junior liens at December 31, 2018.
Energy Lending
The Corporation has a portfolio of Energy loans that are included primarily in commercial loans in the Consolidated
Balance Sheets. Customers in the Corporation's Energy business line (approximately 170 relationships) are engaged in three
segments of the oil and gas business: exploration and production (E&P), midstream and energy services. 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.
The following table summarizes information about the Corporation's portfolio of Energy loans.
(dollar amounts in millions)
2018
2017
December 31
Exploration and production (E&P) $ 1,771
298
Midstream
94
Services
$ 2,163
Total Energy business line
As a percentage of total Energy loans
(a) Includes nonaccrual loans.
Outstandings
Nonaccrual Criticized (a)
$
82% $
14
4
100% $
46
—
2
48
2%
$
Outstandings
$ 1,346
295
195
$ 1,836
73% $
16
11
100% $
143
43
19
205
Nonaccrual Criticized (a)
$
94
—
14
108
$
376
37
95
508
9%
6%
28%
Loans in the Energy business line increased $327 million, or 18 percent, to $2.2 billion at December 31, 2018, compared
to $1.8 billion at December 31, 2017, or approximately 4 percent of total loans at both December 31, 2018 and 2017. Total exposure,
including unused commitments to extend credit and letters of credit, was $4.5 billion and $4.0 billion at December 31, 2018 and
December 31, 2017, respectively.
The Corporation's allowance methodology considers the various risk elements within the loan portfolio. When merited,
the Corporation may incorporate a qualitative reserve component for Energy loans. There were $6 million and $25 million in net
credit-related charge-offs in the Energy business line for the years ended December 31, 2018 and 2017, respectively.
Leveraged Loans
Certain loans in the Corporation's commercial portfolio are considered leveraged transactions. These loans are typically
used for mergers, acquisitions, business recapitalizations, refinancing and equity buyouts. To help mitigate the risk associated with
these loans, the Corporation focuses on middle market companies with highly capable management teams, strong sponsors and
solid track records of financial performance. Industries prone to cyclical downturns and acquisitions with a high degree of integration
risk are generally avoided. Other considerations include the sufficiency of collateral, the level of balance sheet leverage and the
adequacy of financial covenants. During the underwriting process, cash flows are stress tested to evaluate the borrowers' abilities
to handle economic downturns and an increase in interest rates.
The FDIC defines higher-risk commercial and industrial (HR C&I) loans for assessment purposes as loans generally with
leverage of four times total debt to earnings before interest, taxes and depreciation (EBITDA) as well as three times senior debt
to EBITDA, excluding certain collateralized loans. HR C&I loans were $2.5 billion and $2.7 billion at December 31, 2018 and
2017, respectively. Criticized loans within the HR C&I loan portfolio were $147 million and $284 million at December 31, 2018
and 2017, respectively. Charge-offs of HR C&I loans totaled $15 million in 2018 and $9 million in 2017.
F-28
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 one percent of total assets at December 31, 2018, 2017
and 2016. Further, none exceeded 0.75 percent of total assets at December 31, 2018 and 2017. Mexico, with cross-border
outstandings of $650 million (0.89 percent of total assets) at December 31, 2016 was the only country with outstandings between
0.75 and one percent of total assets at December 31, 2016. 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. Corporate Treasury 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.
In addition to assessing liquidity risk on a consolidated basis, Corporate Treasury also monitors the parent company's
liquidity and has established limits for the minimum number of months into the future in which the parent company can meet
existing and forecasted obligations without the support of additional dividends from subsidiaries. ALCO's liquidity policy requires
the parent company to maintain sufficient liquidity to meet expected capital and debt obligations with a target of 24 months but
no less than 18 months.
Corporate Treasury and the Enterprise Risk Division support ALCO in measuring, monitoring and managing interest rate
risk as well as all other market risks. Key activities encompass: (i) providing information and analyses of the Corporation's balance
sheet structure and measurement of interest rate and all other market 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; and (v) monitoring of industry trends and analytical
tools to be used in the management of interest rate and all other market and liquidity risks.
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. The Corporation's loan composition at December 31, 2018 was 62 percent 30-day
LIBOR, 13 percent other LIBOR (primarily 60-day), 16 percent prime and 9 percent fixed rate. This creates sensitivity to interest
rate movements due to the imbalance between the floating-rate loan portfolio and 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 fixed-rate investment securities, which
provide liquidity to the balance sheet and act to mitigate the inherent interest sensitivity, as well as hedging with interest rate swaps
and options. 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.
F-29
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 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. The first scenario presents a 200 basis-
point increase in short-term rates, resulting in an average increase in short-term interest rates of 100 basis points over the period
(+200 scenario). The second scenario presents a 200 basis-point decrease in short-term interest rates (but not to less than 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 low 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, 2018 and 2017, 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 200 basis points
Estimated Annual Change
2018
2017
Amount
%
Amount
%
$
142
(313)
6% $
(12)
197
(283)
9%
(13)
Sensitivity to rising rates decreased from December 31, 2017 to December 31, 2018, due to changes in balance sheet
composition and interest-bearing deposit pricing assumptions. The December 31, 2017 risk to declining interest rates is impacted
by the assumed floor on interest rates of zero percent and therefore simulates a decline of 150 basis points, while the December 31,
2018 sensitivity reflects a decline of 200 basis points due to higher short-term rates.
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.
The Corporation primarily monitors the percentage change on the base case economic value of equity. 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 200 basis points and 150 basis points in interest rates at December 31, 2018 and 2017, respectively.
The table below, as of December 31, 2018 and 2017, displays the estimated impact on the economic value of equity from
the interest rate scenario described above.
(in millions)
December 31
Change in Interest Rates:
Rising 200 basis points
Declining 200 basis points
2018
2017
Amount
%
Amount
%
$
711
(2,769)
6% $
(21)
1,188
(2,635)
9%
(20)
The sensitivity of the economic value of equity to a 200 basis point parallel increase in rates declined between December 31,
2017 and December 31, 2018 due to an increase in the modeled base case economic value of equity, which was driven by changes
in balance sheet composition. The percentage change in sensitivity of the economic value of equity to a parallel decrease in rates
to zero during the same period was stable.
F-30
LOAN MATURITIES AND INTEREST RATE SENSITIVITY
(in millions)
December 31, 2018
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
$
$
$
$
15,175
1,408
1,653
456
18,692
711
17,981
18,692
$
$
$
$
15,706
1,589
4,793
543
22,631
2,397
20,234
22,631
$
$
$
$
1,095
80
2,660
14
3,849
570
3,279
3,849
$
$
$
$
31,976
3,077
9,106
1,013
45,172
3,678
41,494
45,172
(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, 2017
Additions
Maturities/amortizations
Balance at December 31, 2017
Additions
Maturities/amortizations
Balance at December 31, 2018
Interest
Rate
Contracts
Foreign
Exchange
Contracts
$
$
$
2,275
—
(500)
1,775
850
—
2,625
$
$
$
717
12,004
(12,071)
650
10,095
(10,443)
302
$
$
$
Totals
2,992
12,004
(12,571)
2,425
10,945
(10,443)
2,927
The notional amount of risk management interest rate swaps totaled $2.6 billion at December 31, 2018, and $1.8 billion
at December 31, 2017, 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 both December 31, 2018 and 2017.
Risk management interest rate swaps generated $7 million and $32 million of net interest income for the years ended December 31,
2018 and 2017, 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.
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, 2017
Additions
Maturities/amortizations
Terminations
Balance at December 31, 2017
Additions
Maturities/amortizations
Terminations
Balance at December 31, 2018
Interest
Rate
Contracts
Energy
Derivative
Contracts
Foreign
Exchange
Contracts
13,323
4,377
(2,096)
(1,215)
14,389
4,245
(2,195)
(1,554)
14,885
$
$
$
$
$
$
F-31
2,227
1,539
(1,681)
(238)
1,847
2,287
(1,481)
(3)
2,650
$
$
$
1,509
47,456
(46,987)
(94)
1,884
50,220
(50,639)
(370)
1,095
$
$
$
Totals
17,059
53,372
(50,764)
(1,547)
18,120
56,752
(54,315)
(1,927)
18,630
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 86 percent and 88 percent of total interest rate, energy and
foreign exchange contracts at December 31, 2018 and 2017, 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, 2018
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
$
53,422
Total
53,422
$
2,139
44
6,425
377
165
348
62,920
$
1,614
44
350
67
101
87
55,685
$
$
472
—
675
109
45
83
1,384
$
28
—
850
74
5
38
995
850
$
$
25
—
4,550
127
14
140
4,856
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.
1,450
350
$
$
— $
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.
Commercial Commitments
(in millions)
December 31, 2018
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
$
$
7,878
2,791
37
10,706
$
$
8,733
268
—
9,001
$
$
7,860
119
2
7,981
$
$
2,796
66
—
2,862
Total
27,267
3,244
39
30,550
$
$
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, 2018 included short-term FHLB advances, the ability to purchase
federal funds, sell securities under agreements to repurchase, as well as issue deposits through brokers. Purchased funds increased
F-32
to $52 million at December 31, 2018, compared to $25 million at December 31, 2017. At December 31, 2018, the Bank had pledged
loans totaling $22.8 billion which provided for up to $18.9 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, 2018, $15.7 billion of real estate-related loans were pledged to the FHLB as blanket
collateral for current and potential future borrowings. The Corporation had $3.8 billion of outstanding borrowings maturing between
2026 and 2028 and capacity for potential future borrowings of approximately $5.0 billion.
Additionally, the Bank had the ability to issue up to $14.0 billion of debt at December 31, 2018 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 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, 2018, 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, 2018
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 needs with either liquid assets or various funding sources. Liquid assets totaled $16.3
billion at December 31, 2018, compared to $17.4 billion at December 31, 2017. Liquid assets include cash and due from banks,
federal funds sold, interest-bearing deposits with banks, other short-term investments and unencumbered investment securities.
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, 2018 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
F-33
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-34
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, 2018, 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,
2018 would change by approximately $23 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, 2018 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. The allowance is assigned to business
segments and 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
measurement and disclosure guidance establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair
F-35
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, 2018, assets and liabilities measured using observable inputs that are classified as Level 1 or Level 2
represented 99.6 percent and 100 percent of total assets and liabilities recorded at fair value, respectively. Valuations generated
from model-based techniques that use at least one significant assumption not observable in the market are considered Level 3 and
reflect estimates of assumptions market participants would use in pricing the asset or liability.
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 for impairment. Goodwill impairment testing is performed annually (unless
management determines an interim test is necessary) 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,
2018 and 2017, goodwill totaled $635 million, including $473 million allocated to the Business Bank, $101 million allocated to
the Retail Bank and $61 million allocated to Wealth Management.
The annual test of goodwill impairment was performed as of the beginning of the third quarter 2018. The Corporation
may elect to perform a quantitative impairment analysis, or first conduct a qualitative analysis to determine if a quantitative analysis
is necessary. The Corporation first assessed qualitative factors to determine whether it was more likely than not that the fair value
of any reporting unit was less than its carrying amount, including goodwill. Qualitative factors included economic conditions,
industry and market considerations, cost factors, overall financial performance, regulatory developments and performance of the
Corporation’s stock, among other events and circumstances. At the conclusion of the qualitative assessment in the third quarter
2018, the Corporation determined that it was more likely than not that the fair value of each reporting unit exceeded its carrying
value.
Subsequent to the date of the annual impairment test, the Corporation reorganized certain reporting structures. As a result,
Small Business, formerly a component of the Retail Bank, became a component of the Business Bank. Accordingly, the Corporation
reallocated $93 million of goodwill from the Retail Bank to Business Bank. The Corporation subsequently performed an additional
qualitative impairment analysis and again determined that it was more likely than not that the fair value of each reporting unit
exceeded it carrying value and that performing a quantitative impairment test was not necessary.
Qualitative factors considered in the analysis of 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.
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.
PENSION PLAN ACCOUNTING
The Corporation has a qualified and non-qualified defined benefit pension plan. Effective January 1, 2017, benefits are
calculated using a cash balance formula based on years of service, age, compensation and an interest credit based on the 30-year
Treasury rate. Participants under age 60 as of December 31, 2016 are eligible to receive a frozen final average pay benefit in
addition to amounts earned under the cash balance formula. Participants age 60 or older as of December 31, 2016 continue to be
eligible for a final average pay benefit. 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.
F-36
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 2019 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 2018.
4.37%
6.50%
50%
80%
RP-2018
MP-2018
Defined benefit plan expense is expected to decrease $9 million to a benefit of approximately $27 million in 2019,
compared to a benefit of $18 million in 2018. This includes service cost expense of $34 million and a benefit from other components
of $61 million.
Changing the 2019 discount rate and long-term rate of return by 25 basis points would impact defined benefit expense
in 2019 by $7.1 million and $6.4 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
in the reduction of the federal tax rate from 35 percent to 21 percent. This resulted in a $107 million charge to adjust deferred
taxes as a result of the decline in the federal tax rate in 2017, with an $8 million downward revision to the estimated impact
recorded in 2018 for a total remeasurement of the Corporation's deferred tax balance of $99 million.
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
2018
2017
2016
2015
2014
$
7,507
$
7,963
$
7,796
$
7,560
$
7,402
635
6
$
6,866
$ 70,818
635
6
$ 70,177
10.60%
9.78
$
$
7,507
6,866
160
46.89
42.89
$
$
$
$
$
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
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;
the Corporation’s operational or security systems or infrastructure, or those of third parties, could fail or be breached;
the Corporation relies on other companies to provide certain key components of its delivery systems, and certain failures
could materially adversely affect operations;
security risks, including denial of service attacks, hacking, social engineering attacks targeting the Corporation’s colleagues
and customers, malware intrusion or data corruption attempts, and identity theft, could result in the disclosure of confidential
information;
proposed revenue enhancements and efficiency improvements under the GEAR Up initiative may not be achieved;
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 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;
cybersecurity and data privacy are areas of heightened legislative and regulatory focus;
fluctuations in interest rates and their impact on deposit pricing could adversely affect the Corporation's net interest income
and balance sheet;
developments impacting LIBOR and other interest rate benchmarks could adversely affect the Corporation;
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 may not be able to utilize technology to develop, market and deliver new products and services to its customers;
competitive product and pricing pressures 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 impacts of future legislative, administrative or judicial changes or interpretations to tax regulations are unknown;
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;
the Corporation may incur losses due to fraud;
terrorist activities or other hostilities could cause adverse effects;
•
•
F-39
•
•
•
•
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;
controls and procedures may fail to prevent or detect all errors or acts of fraud; and
the Corporation's stock price can be volatile.
F-40
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 - 68,081,176 shares at 12/31/18 and 55,306,483 shares at
12/31/17
Total shareholders’ equity
Total liabilities and shareholders’ equity
See notes to consolidated financial statements.
F-41
2018
2017
$
1,390
$
3,171
134
12,045
—
31,976
3,077
9,106
507
1,013
1,970
2,514
50,163
(671)
49,492
475
4,111
70,818
28,690
22,560
2,172
2,131
8
26,871
55,561
44
1,243
6,463
63,311
1,141
2,148
(609)
8,781
$
$
(3,954)
7,507
70,818
$
$
$
$
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
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
Foreign exchange income
Letter of credit fees
Bank-owned life insurance
Brokerage fees
Net securities losses
Other noninterest income
Total noninterest income
NONINTEREST EXPENSES
Salaries and benefits expense
Outside processing fee expense
Net occupancy expense
Software expense
Restructuring charges
Equipment expense
FDIC insurance expense
Advertising 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-42
$
$
$
2018
2017
2016
$
$
$
2,262
265
92
2,619
122
1
144
267
2,352
(1)
2,353
244
211
206
85
47
40
39
27
(19)
96
976
1,009
255
152
125
53
48
42
30
80
1,794
1,535
300
1,235
8
1,227
7.31
7.20
309
1.84
$
$
$
1,872
250
60
2,182
42
3
76
121
2,061
74
1,987
333
227
198
85
45
45
43
23
—
108
1,107
961
366
154
126
45
45
51
28
84
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
42
50
42
19
—
97
1,051
989
336
157
119
93
53
54
21
108
1,930
670
193
477
4
473
2.74
2.68
154
0.89
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Comerica Incorporated and Subsidiaries
(in millions)
Years Ended December 31
NET INCOME
OTHER COMPREHENSIVE (LOSS) INCOME
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 (loss) gain 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
Change in defined benefit pension and other postretirement plans adjustment
before income taxes
Total other comprehensive (loss) income before income taxes
(Benefit) provision for income taxes
Total other comprehensive (loss) income, net of tax
2018
2017
2016
$
1,235
$
743
$
477
(69)
(20)
—
(49)
(191)
—
61
(27)
(157)
(206)
(47)
(159)
(81)
—
(3)
(78)
72
—
51
(27)
96
18
(1)
19
(70)
—
(3)
(67)
(134)
234
46
(7)
139
72
26
46
523
COMPREHENSIVE INCOME
$
1,076
$
762
$
See notes to consolidated financial statements.
F-43
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Comerica Incorporated and Subsidiaries
(in millions, except per share data)
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
BALANCE AT DECEMBER 31, 2017
Cumulative effect of change in
accounting principles
Net income
Other comprehensive loss, net of tax
Cash dividends declared on common
stock ($1.84 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
Common Stock
Shares
Outstanding
175.7
—
—
—
(6.8)
4.1
2.3
—
Amount
$ 1,141
—
—
Capital
Surplus
$ 2,173
—
—
—
—
—
—
—
—
—
(15)
(57)
34
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Stock
Total
Shareholders’
Equity
$
(429) $
—
46
7,084
477
—
$
(2,409) $
—
—
—
—
—
—
—
(154)
—
(27)
(49)
—
—
(310)
185
106
—
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)
172.9
1,141
2,122
—
—
—
—
(14.9)
1.5
0.6
—
—
—
—
—
—
—
—
—
—
—
—
—
(3)
(9)
(10)
48
—
—
19
—
—
—
—
—
(87)
—
(451)
1
—
(159)
—
—
—
—
—
(2)
743
—
(193)
—
(26)
(53)
—
87
—
—
—
—
—
(544)
152
83
—
—
1
7,887
(2,736)
14
1,235
—
(309)
—
(23)
(23)
—
—
—
—
—
(1,326)
75
33
—
1
743
19
(193)
(544)
102
—
39
—
—
7,963
15
1,235
(159)
(309)
(1,329)
43
—
48
BALANCE AT DECEMBER 31, 2018
160.1
$ 1,141
$ 2,148
$
(609) $
8,781
$
(3,954) $
7,507
See notes to consolidated financial statements.
F-44
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comerica Incorporated and Subsidiaries
(in millions)
Years Ended December 31
OPERATING ACTIVITIES
2018
2017
2016
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
1,235
$
743
$
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
Net change in loans
Proceeds from sales of foreclosed property
Net increase in premises and equipment
Federal Home Loan Bank stock:
Purchases
Redemptions
Proceeds from bank-owned life insurance settlements
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 and advances
Terminations
Common stock:
Repurchases
Cash dividends paid
Issuances under employee stock plans
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 held-to-sale to portfolio
Securities transferred from held-to-maturity to available-for-sale
Securities transferred from available-for-sale to equity securities
See notes to consolidated financial statements.
$
$
F-45
(1)
24
120
(18)
48
3
(1)
19
(1)
(45)
49
184
1,616
1,781
1,256
(3,032)
—
(1,045)
8
(90)
(41)
—
9
(2)
(1,156)
(2,082)
34
—
1,850
—
(1,338)
(263)
52
3
(1,744)
(1,284)
5,845
4,561
261
200
3
—
1,266
81
$
$
74
79
121
(18)
39
6
(3)
—
(3)
(33)
41
39
1,085
1,615
1,259
(3,112)
319
(175)
22
(69)
(42)
42
18
3
(120)
(1,180)
(15)
(500)
—
(16)
(560)
(180)
118
(5)
(2,338)
(1,373)
7,218
5,845
122
336
8
—
—
—
$
$
477
248
(51)
121
6
34
8
(4)
—
(4)
(20)
37
(366)
486
1,699
—
(2,045)
402
(136)
20
(95)
(115)
—
16
—
(254)
(998)
2
(650)
2,800
—
(320)
(152)
157
—
839
1,071
6,147
7,218
111
151
21
17
—
—
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-46
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.
Investment securities available-for-sale, derivatives, deferred compensation plans, and equity securities with readily
determinable fair values (primarily money market mutual funds) 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 securities. 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.
Deferred compensation plan assets and liabilities as well as equity securities with a readily determinable fair value
The Corporation holds a portfolio of equity securities, as well as assets held related to employee deferred compensation
plans. 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 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 securities include municipal bonds and residential
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
mortgage-backed securities issued by U.S. government-sponsored entities and corporate debt securities. The methods used to value
equity securities and deferred compensation plan assets 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. Fair values
are estimated using a discounted cash flow model that employs discount rates that reflects current pricing for loans with similar
maturity and risk characteristics, including credit characteristics, and the cost of equity for 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. 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 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
F-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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.
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, 2018. 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.
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 $163 million and $122 million at December 31, 2018 and 2017, respectively, and its investment in FRB stock
totaled $85 million at both December 31, 2018 and 2017.
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.
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.
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Other Short-Term Investments
Other short-term investments include deferred compensation plan assets, equity securities with a readily determinable
fair value and loans held-for-sale.
Deferred compensation plan assets and equity securities are carried at fair value. Realized and unrealized gains or losses
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
Debt securities not held for trading purposes are classified as available-for-sale or held-to-maturity. 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). Interest income is recognized using the interest method. 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 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.
The Corporation adopted ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities” (ASU 2017-12), effective January 1, 2018. As part of the adoption, the Corporation made a
transition election to reclassify the portfolio of held-to-maturity securities to available-for-sale in January 2018 as the securities
are eligible to be hedged. This resulted in the recognition of additional unrealized losses of $11 million at the date of transfer. For
further information on ASU 2017-12, refer to the “Derivatives Instruments and Hedging Activities” policy in this Note.
Debt 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 losses 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.
Gains or losses on the sale of securities are computed based on the adjusted cost of the specific security sold.
Effective January 1, 2018, the Corporation adopted the provisions of Accounting Standards Update (ASU) No. 2016-01,
"Financial Instruments - Overall (Subtopic 825-10): Recognition of Financial Assets and Financial Liabilities," (ASU 2016-01).
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 a result, equity securities with readily determinable fair value were reclassified from investment
securities available-for-sale to other short-term investments. At adoption, an immaterial amount of cumulative net unrealized losses
on equity securities previously recognized in accumulated other comprehensive income (AOCI) was reclassified to the opening
balance of retained earnings, included in cumulative effect of change in accounting principles in the accompanying Consolidated
Statements of Changes in Shareholders' Equity.
For further information on investment securities, refer to Note 3.
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.
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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 $115 million and $113 million at December 31, 2018 and
2017, 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 loans whose terms have been modified in a TDR with book balances of $1
million or more. 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. At least annually, appraisals are obtained or
appraisal assumptions are updated, 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.
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
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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 collectability 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
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, or 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
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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
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
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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.
The Corporation adopted ASU No. 2017-12 effective January 1, 2018. ASU 2017-12 better aligns the accounting and
reporting of hedging relationships with the economics of risk management activities and provides administrative reliefs to simplify
the application of hedge accounting, including expanding the application of the shortcut method, eliminating the separate
measurement and reporting of hedge ineffectiveness and generally requiring the entire effect of the hedging instrument and the
hedged item to be presented in the same income statement line item.
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
the same consolidated statement of income line that is used to present the earnings effect of the hedged item 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 gain or loss on the derivative instrument is
reported as a component of other comprehensive income and reclassified into earnings in the same consolidated statement of
income line item as the earnings effect of the hedged item in the same period or periods during which the hedged transaction affects
earnings. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during
the period of change.
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
ASU 2017-12, beginning January 1, 2018, gains or losses relating to hedge ineffectiveness are no longer separately measured or
reported.
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 $1
billion notional of fair value hedges of medium- and long-term debt. This method allows for the assumption of perfect effectiveness
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 to assess whether the derivative
used is expected to be highly effective in offsetting changes in the fair value or cash flows of the hedged item. A statistical regression
or qualitative analysis is performed at each reporting period thereafter to evaluate hedge effectiveness.
Upon adopting ASU 2017-12, the Corporation elected to change the measurement methodology of all long-haul fair value
hedges existing at December 31, 2017. The prior period effect of this election was a $1 million reduction to opening retained
earnings, included in cumulative effect of change in accounting principles in the Consolidated Statements of Shareholders' Equity.
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.
F-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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.
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 (i.e. the retirement-eligible date). Forfeiture of stock awards and
dividend equivalents are accounted for as they occur.
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
Effective January 1, 2018, the Corporation adopted the provision of Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers" (Topic 606), using the modified
retrospective method applied to all open contracts as of January 1, 2018.
Under Topic 606, card fee revenue from certain products is generally presented net of network costs, including interchange
costs, surcharge fees and assessment fees, as opposed to the previous presentation of associated network costs in outside processing
fee expense in the Consolidated Statements of Income. Similar adjustments were made for other revenue streams that resulted in
certain costs being recognized in the same category as the associated revenues in noninterest income.
The adoption of Topic 606 resulted in decreases of $140 million in card fees and $5 million in service charges on deposits
accounts, included in noninterest income, and a corresponding $145 million decrease in outside processing fee expense included
in noninterest expenses, in the Consolidated Statements of Income for 2018.
The Corporation previously deferred recognition of certain treasury management fees included in service charges on
deposit accounts in the Consolidated Statements of Income until the amount of compensation was considered fixed and
determinable. Under the new guidance, the portion of these fees that are based on agreed-upon rates less estimated credits expected
to be earned by the customer is recognized as services are rendered. As a result, the Corporation recorded a transition adjustment
of $14 million, after tax, to retained earnings, included in cumulative effect of change in accounting principles in the accompanying
Consolidated Statements of Changes in Shareholders' Equity. Similar adjustments were made for other revenue streams that resulted
in an additional cumulative transition after-tax adjustment to retained earnings of $2 million.
Revenue from contracts with customers comprises the noninterest income earned by the Corporation in exchange for
services provided to customers and are recognized when services are complete or as they are rendered, although contracts are
generally short-term by nature. Services provided over a period of time are typically transferred to customers evenly over the term
of the contracts and revenue is recognized evenly over the period services are provided. Contract receivables are included in
accrued income and other assets on the Consolidated Balance Sheets. Payment terms vary by services offered, and the time between
completion of performance obligations and payment is typically not significant.
Card Fees
Card fees comprise interchange and other fee income earned on government card, commercial card, debit/automated
teller machine card and merchant payment processing programs. Card fees are presented net of network costs, as performance
obligations for card services are limited to transaction processing and settlement with the card network on behalf of the customers.
Fees for these services are primarily based on interchange rates set by the network and transaction volume. The Corporation also
provides ongoing card program support services, for which fees are based on contractually agreed prices and customer demand
for services.
F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Service Charges on Deposit Accounts
Service charges on deposit accounts comprise charges on retail and business accounts, including fees for treasury
management services. Treasury management services include transaction-based services related to payment processing, overdrafts,
non-sufficient funds and other deposit account activity, as well as account management services that are provided over time.
Business customers can earn credits depending on deposit balances maintained with the Corporation, which may be used to offset
fees. Fees and credits are based on predetermined, agreed-upon rates.
Fiduciary Income
Fiduciary income includes fees and commissions from asset management, custody, recordkeeping, investment advisory
and other services provided primarily to personal and institutional trust customers. Revenue is recognized as the services are
performed and is based either on the market value of the assets managed or the services provided, as well as agreed-upon rates.
Commercial Lending Fees
Commercial lending fees include both revenue from contracts with customers (primarily loan servicing fees) and other
sources of revenue. Commercial loan servicing fees are based on contractually agreed-upon prices and when the services are
provided. Other sources of revenue in commercial lending fees primarily include fees assessed on the unused portion of commercial
lines of credit (unused commitment fees) and syndication arrangements.
Brokerage Fees
Brokerage fees are commissions earned for facilitating securities transactions for customers, as well as other brokerage
services provided. Revenue is recognized when services are complete and is based on the type of services provided and agreed-
upon rates. The Corporation pays commissions based on brokerage fee revenue. These are typically recognized when incurred
because the amortization period is one year or less and are included in salaries and benefits expense in the Consolidated Statements
of Income.
Other Revenues
Other revenues, consisting primarily of other retail fees, investment banking fees and insurance commissions, are typically
recognized when services or transactions are completed and are based on the type of services provided and agreed-upon rates.
Except as discussed above, commissions and other incentives paid to employees are generally based on several internal
and external metrics and, as a result, are not solely dependent on revenue generating activities.
Defined Benefit Pension and Other Postretirement Costs
Defined benefit pension costs 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 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. Service costs are included in salaries and benefits expense, while the other components
of net periodic defined benefit pension expense are included in other noninterest expenses on the Consolidated Statements of
Income.
Postretirement benefits are recognized in other noninterest expenses 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.
The Corporation retrospectively adopted the provisions of 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)
on January 1, 2018, which requires employers to report service cost as part of compensation expense and the other components
of net benefit cost separately from service cost. As a result, $49 million and $28 million of benefit from the other components of
F-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
net benefit cost was reclassified from salaries and benefits expense to other noninterest expenses in the Consolidated Statements
of Income for 2017 and 2016, respectively. The Corporation based the adjustment to the prior periods on amounts disclosed in
Note 17.
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 provided a measurement period
of up to one year from the enactment date to complete the accounting. The amount recorded related to the remeasurement of the
Corporation's deferred tax balance was a reduction of $99 million, including a provisional adjustment of $107 million recognized
in 2017 and an $8 million revision to the impact recorded in 2018.
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 certain 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 warrants, as
well as service- and performance-based restricted stock units granted under the Corporation’s stock plans 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 and interest-bearing deposits
with banks on the Consolidated Balance Sheets.
The Corporation adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments,” (ASU 2016-15) on January 1, 2018 and, as a result, reclassified $18 million and $16 million of
proceeds from settlement of bank-owned life insurance policies from operating activities to investing activities for 2017 and 2016,
respectively.
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.
Pending Accounting Pronouncements
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. ASU 2016-02 requires lessees to recognize lease contracts on the balance
sheet, while recognizing expenses on the income statement in a manner similar to current guidance. The Corporation will adopt
Topic 842 in the first quarter 2019 for all open leases with a term greater than one year as of the adoption date using the modified
F-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
retrospective approach and will elect the hindsight practical expedient in determining its lease terms. This is expected to result in
increases of $330 million and $345 million to total assets and total liabilities, respectively, and a reduction to retained earnings of
approximately $15 million. The increase to total assets was primarily due to the recognition of a right-of-use asset recorded in
accrued income and other assets, while the increase in total liabilities was primarily due to recognition of the lease payment liability
recorded in accrued expenses and other liabilities. A similar increase in assets at December 31, 2018 would have caused a 5-basis-
point decrease in the common equity tier 1 capital (CET1) ratio.
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 a cost basis. Under the new model, entities must estimate current expected credit losses
by considering all available relevant information, including historical and current conditions, as well as reasonable and supportable
forecasts of future events. The update also requires additional qualitative and quantitative disclosure 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. In preparation, the Corporation has developed new credit estimation models, processes and
controls. Internal validation of the models is underway and expected to be completed early in 2019. The Corporation has performed
test runs of the new processes and controls and expects to begin full parallel runs by mid-2019. The impact of the standard will
depend on the composition of the Corporation’s portfolio as well as economic conditions and forecasts at the time of adoption.
The Corporation expects to adopt the standard in the first quarter of 2020.
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service
Contract," (ASU 2018-15), to align the requirements for capitalizing implementation costs in a hosting arrangement that is a service
contract with the requirements for capitalizing implementation costs relating to internal-use software. The update requires entities
in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation
costs to capitalize as an asset and which costs to expense. ASU 2018-15 is effective for the Corporation on January 1, 2020 and
may be applied using either the retrospective or prospective approach. Early adoption is permitted. The Corporation is currently
evaluating the impact of adoption.
In October 2018, the FASB issued ASU No. 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured
Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting
Purposes,” (ASU 2018-16), to permit the use of SOFR as an eligible benchmark interest rate for hedge accounting. SOFR has
been identified by the Federal Reserve Board and the Alternative Reference Rates Committee as the preferred alternative
reference rate to the London Interbank Offered Rate (LIBOR). The Corporation will adopt ASU 2018-16 prospectively in the
first quarter of 2019. As of December 31, 2018, there were no active SOFR-based contracts.
F-58
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 Liabilities 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
$
88
43
$
88
43
— $
—
—
—
—
—
—
9
—
—
9
9
—
—
—
—
—
—
—
9,318
9,318
58
189
19
266
9,584
70
186
13
269
—
269
$
$
$
of December 31, 2018 and 2017.
(in millions)
December 31, 2018
Deferred compensation plan assets
Equity securities
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities
Residential mortgage-backed securities (a)
Total investment securities available-for-sale
Derivative assets:
Interest rate contracts
Energy derivative contracts
Foreign exchange contracts
Total derivative assets
Total assets at fair value
Derivative liabilities:
$
$
2,727
9,318
12,045
67
189
19
275
12,451
$
2,727
—
2,727
—
—
—
—
2,858
$
Interest rate contracts
Energy derivative contracts
Foreign exchange contracts
— $
—
—
—
88
88
(a) Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
Total derivative liabilities
Deferred compensation plan liabilities
Total liabilities at fair value
70
186
13
269
88
357
$
$
$
$
$
F-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Total
Level 1
Level 2
Level 3
$
92
$
92
$
— $
—
(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
Total derivative assets
Total assets at fair value
Derivative liabilities:
2,727
8,124
5
82
10,938
57
93
42
192
11,222
$
$
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
$
$
$
$
$
—
8,124
—
—
8,124
43
93
42
178
8,302
59
91
40
190
—
190
$
$
$
—
—
5 (b)
44 (b)
49
14
—
—
14
63
—
—
—
—
—
—
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, 2018 and 2017.
F-60
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, 2018 and 2017.
Net Realized/Unrealized Gains (Losses)
(Pretax)
Balance
at
Beginning
of Period
Change in
Classification
(a)
Recorded in Earnings (b)
Realized
Unrealized
Recorded in
Other
Comprehensive
Income (c)
Sales &
Redemptions
Balance
at
End of
Period
$
— $
44
$
— $
— $
— $
(44) $ —
5
44
49
14
7
47
54
—
(44)
(44)
—
—
—
—
—
—
—
—
(5)
—
—
—
—
(5)
—
(5)
—
$
— $
—
— $
—
— $
—
—
—
—
— $
(2)
(2)
(2) $
(1)
(3)
—
—
—
9
5
44
49
(in millions)
Year Ended December 31, 2018
Equity securities
Investment securities available-for-sale:
State and municipal securities (d)
Equity and other non-debt securities (d)
Total investment securities
available-for-sale
Derivative assets:
Interest rate contracts
Year Ended December 31, 2017
Investment securities available-for-sale:
State and municipal securities (d)
Equity and other non-debt securities (d)
$
Total investment securities
available-for-sale
Derivative assets:
Interest rate contracts
3
(a) Reflects the reclassification of equity securities resulting from the adoption of ASU 2016-01.
(b) Realized and unrealized gains and losses due to changes in fair value recorded in other noninterest income on the Consolidated Statements
14
—
—
—
—
11
of Income.
(c) Recorded in net unrealized holding losses arising during the period in the Consolidated Statements of Comprehensive Income.
(d) Auction-rate securities.
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Corporation may be required 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, 2018 and 2017. No
liabilities were recorded at fair value on a nonrecurring basis at December 31, 2018 and 2017.
(in millions)
December 31, 2018
Loans:
Commercial
Commercial mortgage
Total assets at fair value
December 31, 2017
Loans:
Commercial
Commercial mortgage
Total assets at fair value
Level 3
$
$
$
$
33
2
35
111
5
116
Level 3 assets recorded at fair value on a nonrecurring basis at December 31, 2018 and 2017 included loans for which a
specific allowance was established based on the fair value of collateral. 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 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.
F-61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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, 2018
Assets
Cash and due from banks
Interest-bearing deposits with banks
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, 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
$
$
Carrying
Amount
Total
Estimated Fair Value
Level 2
Level 1
Level 3
$
$
1,390
3,171
3
49,492
4
248
6
28,690
24,740
2,131
55,561
44
4
6,463
(57)
1,438
4,407
1,266
4
48,461
2
207
6
$
$
1,390
3,171
3
48,889
4
248
11
28,690
24,740
2,100
55,530
44
4
6,436
(57)
1,438
4,407
1,246
4
48,153
2
207
9
$
1,390
3,171
—
—
4
248
— $
—
3
—
—
—
—
—
—
48,889
—
—
—
—
—
—
44
4
—
—
28,690
24,740
2,100
55,530
—
—
6,436
—
—
—
—
—
—
—
—
(57)
$
1,438
4,407
—
—
—
2
207
— $
—
1,246
4
—
—
—
—
—
—
—
48,153
—
—
Total deposits
Demand deposits (noninterest-bearing)
Interest-bearing deposits
Customer certificates of deposit
—
32,071
—
23,667
—
2,165
—
57,903
—
10
—
2
—
4,622
Credit-related financial instruments
(67)
(67)
(a) Included $35 million and $116 million of impaired loans recorded at fair value on a nonrecurring basis at December 31, 2018 and 2017,
Short-term borrowings
Acceptances outstanding
Medium- and long-term debt
32,071
23,667
2,142
57,880
10
2
4,636
(67)
32,071
23,667
2,142
57,880
—
—
4,636
—
—
—
—
—
10
2
—
—
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-62
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, 2018
Investment securities available-for-sale:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
U.S. Treasury and other U.S. government agency securities $
Residential mortgage-backed securities (a)
Total investment securities available-for-sale
$
2,732
9,493
12,225
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)
$
$
2,743
8,230
5
83
11,061
1,266
$
$
$
$
$
14
22
36
$
$
— $
22
—
1
23
$
— $
19
197
216
16
128
—
2
146
20
$
$
$
$
$
2,727
9,318
12,045
2,727
8,124
5
82
10,938
1,246
(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.
(c) The amortized cost of investment securities held-to-maturity included the net unrealized losses of $9 million at December 31, 2017 related
to securities transferred from available-for-sale in 2014, which are included in accumulated other comprehensive loss.
In connection with the adoption of ASU 2016-01 on January 1, 2018, cumulative unrealized gains and losses on available-
for-sale equity and other non-debt securities were reclassified to retained earnings and the carrying value was reclassified to other
short-term investments. Additionally, the Corporation transferred residential mortgage-backed securities with a book value of
approximately $1.3 billion from held-to-maturity to available-for-sale upon the adoption of ASU 2017-12. For additional
information about the adoption of ASU 2016-01 and ASU 2017-12, refer to Note 1.
A summary of the Corporation’s investment securities in an unrealized loss position as of December 31, 2018 and 2017
follows:
(in millions)
December 31, 2018
Less than 12 Months
Unrealized
Losses
Fair
Value
Temporarily Impaired
12 Months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
U.S. Treasury and other U.S. government
agency securities
$
— $
Residential mortgage-backed securities (a)
Total temporarily impaired securities
1,008
$ 1,008
December 31, 2017
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 temporarily impaired securities
$ 2,727
3,845
—
—
$ 6,572
$
$
$
— $ 1,457
6,412
$ 7,869
9
9
$
$
19
188
207
16
32
—
—
48
$
— $
4,003
5
44
$ 4,052
2
127
$
—
125
— (c)
$ 1,457
7,420
$ 8,877
$ 2,727
7,848
5
44
$ 10,624
$
$
$
$
19
197
216
16
157
— (c)
2
175
(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.
F-63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
At December 31, 2018, the Corporation had 375 securities in an unrealized loss position with no credit impairment,
including 16 U.S. Treasury securities and 359 residential mortgage-backed 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, 2018.
Sales, primarily from repositioning $1.3 billion of lower-yielding treasury securities, 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. There were no securities gains or losses for
the years ended December 31, 2017 and 2016.
(in millions)
Year Ended December 31
Securities gains
Securities losses
Net securities losses
2018
2
(21)
(19)
$
$
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, 2018
Contractual maturity
Within one year
After one year through five years
After five years through ten years
After ten years
Total investment securities
Amortized Cost
Fair Value
$
$
100
2,647
1,522
7,956
12,225
$
$
100
2,642
1,502
7,801
12,045
Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with a
total amortized cost of $9.5 billion and a fair value of $9.3 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, 2018, investment securities with a carrying value of $396 million were pledged where permitted or
required by law to secure $274 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, 2018
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, 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
Loans Past Due and Still Accruing
30-59
Days
60-89
Days
90 Days
or More
Total
Nonaccrual
Loans
Current
Loans
Total
Loans
$
34
$
26
$
8
$
68
$
141
$
31,767
$ 31,976
6
6
12
4
32
36
—
—
82
11
4
1
5
16
98
$
—
—
—
—
5
5
—
—
31
3
1
—
1
4
35
$
—
—
—
—
8
8
—
—
16
—
—
—
—
—
16
6
6
12
4
45
49
—
—
129
14
5
1
6
20
$ 149
$
—
—
—
2
18
20
2
3
166
36
19
—
19
55
221
2,681
384
3,065
1,737
7,300
9,037
505
1,010
45,384
2,687
390
3,077
1,743
7,363
9,106
507
1,013
45,679
1,920
1,970
1,741
748
2,489
4,409
49,793
1,765
749
2,514
4,484
$ 50,163
$
79
$
134
$
12
$ 225
$
309
$
30,526
$ 31,060
$
$
3
4
7
14
27
41
—
13
140
10
5
4
9
19
159
—
—
—
—
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
$
—
—
—
—
6
6
—
—
140
2
1
—
1
3
143
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, 2018
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, 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
Pass (a)
Internally Assigned Rating
Special
Mention (b)
Substandard (c)
Nonaccrual (d)
Total
$
30,817
$
464
$
554
$
141
$
31,976
2,664
382
3,046
1,682
7,157
8,839
500
996
44,198
1,931
1,738
748
2,486
4,417
48,615
$
23
8
31
14
118
132
3
4
634
3
—
1
1
4
638
$
—
—
—
45
70
115
2
10
681
—
8
—
8
8
689
$
—
—
—
2
18
20
2
3
166
36
19
—
19
55
221
$
2,687
390
3,077
1,743
7,363
9,106
507
1,013
45,679
1,970
1,765
749
2,514
4,484
50,163
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
$
$
$
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, 2018 and 2017. Reduced-rate retail loans were $8 million at both
December 31, 2018
221
$
8
229
1
230
December 31, 2017
402
$
8
410
5
415
$
$
December 31, 2018 and 2017.
(b) There were no foreclosed residential real estate properties at December 31, 2018 and $4 million at December 31, 2017.
There were $1 million of retail loans secured by residential real estate properties in process of foreclosure included in
nonaccrual loans at both December 31, 2018 and 2017.
Allowance for Credit Losses
The following table details the changes in the allowance for loan losses and related loan amounts.
(in millions)
Business
Loans
2018
Retail
Loans
Total
Business
Loans
2017
Retail
Loans
Total
Business
Loans
2016
Retail
Loans
Total
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
$
661
(99)
47
(52)
19
(1)
627
$
$
51
(4)
5
1
(8)
—
44
$
712
(103)
$
$
682
(143)
48
(6)
$
730
(149)
$
$
579
(207)
52
(51)
11
(1)
671
$
50
(93)
71
1
661
$
$
7
1
2
—
51
57
(92)
73
1
712
$
63
(144)
246
1
682
$
$
55
(7)
5
(2)
(5)
—
48
$
634
(214)
68
(146)
241
1
730
$
As a percentage of total loans
1.37% 0.97%
1.34%
1.48%
1.12%
1.45%
1.53%
1.08%
1.49%
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
$
27
$ — $
27
600
$
627
$
44
44
644
$
671
$
240
$
36
$
276
$
$
$
67
$ — $
67
$
86
$
3
$
89
594
661
$
51
51
443
$
34
645
712
477
$
$
$
$
596
682
$
45
48
566
$
48
641
730
614
$
$
45,439
4,448
49,887
44,188
4,508
48,696
44,058
4,416
48,474
$45,679
$ 4,484
$50,163
$ 44,631
$ 4,542
$ 49,173
$ 44,624
$ 4,464
$ 49,088
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
2018
2017
2016
$
$
42
—
(12)
30
$
$
41
—
1
42
$
$
45
(11)
7
41
The following table presents additional information regarding individually evaluated impaired loans.
(in millions)
December 31, 2018
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, 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)
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
$
50
$
130
$
180
$
227
$
39
2
41
2
93
16
11
1
12
28
121
$
—
16
16
1
147
8
—
—
—
8
155
$
39
18
57
3
240
24
11
1
12
36
276
$
49
23
72
8
307
25
13
1
14
39
346
$
105
$
267
$
372
$
460
$
39
3
42
—
147
14
1
22
23
6
296
8
40
25
65
6
443
22
49
29
78
17
555
22
11
1
12
26
173
—
—
—
8
304
11
1
12
34
477
14
2
16
38
593
24
—
3
3
—
27
—
—
—
—
—
27
63
—
3
3
1
67
—
—
—
—
—
67
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 performing restructured loans.
2018
Individually Evaluated Impaired Loans
2017
2016
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
$
262
$
5
$
451
$
8
$
550
$
(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
40
23
63
4
329
21
11
1
12
33
Total retail loans
Total individually evaluated impaired
loans
$
(a) Primarily loans to real estate developers.
(b) Primarily loans secured by owner-occupied real estate.
362
$
10
—
1
1
—
11
—
—
—
—
—
11
4
—
4
—
9
—
—
—
—
—
21
31
52
8
511
24
13
3
16
40
2
—
2
—
10
—
—
—
—
—
9
31
40
18
608
15
13
4
17
32
9
$
551
$
10
$
640
$
F-69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Troubled Debt Restructurings
The following tables detail the recorded balance at December 31, 2018 and 2017 of loans considered to be TDRs that
were restructured during the years ended December 31, 2018 and 2017, 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.
2018
2017
Type of Modification
Type of Modification
Principal
Deferrals (a)
Interest
Rate
Reductions
Total
Modifications
Principal
Deferrals (a)
Interest
Rate
Reductions
AB Note
Restructures
(b)
Total
Modifications
$
27
$
— $
27
$
77
$
18 $
21 $
—
2
2
1
30
—
—
—
—
—
—
2
2
1
30
37
3
40
—
117
—
—
—
—
18
—
—
—
—
21
116
37
3
40
—
156
(in millions)
Years Ended December 31
Business loans:
Commercial
Commercial mortgage:
Commercial Real Estate business line (c)
Other business lines (d)
Total commercial mortgage
International
Total business loans
Retail loans:
Consumer:
Home equity (e)
—
30
3
3 $
3
33
1
118
2
20 $
—
21 $
3
159
$
$
Total loans
(a) Primarily represents loan balances where terms were extended 90 days or more at or above contractual interest rates.
(b) 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 fully charged off.
(c) Primarily loans to real estate developers.
(d) Primarily loans secured by owner-occupied real estate.
(e) Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.
At December 31, 2018 and 2017, commitments to lend additional funds to borrowers whose terms have been modified
in TDRs totaled $20 million and $31 million, respectively.
The majority of the modifications considered to be TDRs that occurred during the years ended December 31, 2018 and
2017 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, 2018 and 2017
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.
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. For interest rate reductions and 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 defaults of principal deferrals during the year
ended December 31, 2018 and $3 million during the year ended December 31, 2017. There were no subsequent payment defaults
of interest rate reductions or AB note restructures during the December 31, 2018 and 2017.
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
F-70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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:
(in millions)
December 31
Automotive loans:
Production
Dealer
Total automotive loans
Total automotive exposure:
Production
Dealer
Total automotive exposure
2018
2017
$
$
$
$
1,331
8,097
9,428
2,396
10,044
12,440
$
$
$
$
1,344
7,592
8,936
2,439
9,405
11,844
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
2018
2017
2,687
390
3,077
1,743
7,363
9,106
12,183
3,146
$
$
$
2,630
331
2,961
1,831
7,328
9,159
12,120
3,018
2018
2017
85
842
492
1,419
(944)
475
$
$
85
813
484
1,382
(916)
466
$
$
$
$
$
The Corporation conducts a portion of its business from leased facilities and leases certain equipment. Rental expense
for leased properties and equipment amounted to $75 million, $78 million and $80 million in 2018, 2017 and 2016, respectively.
F-71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
As of December 31, 2018, future minimum rental payments under operating leases were as follows:
(in millions)
Years Ending December 31
2019
2020
2021
2022
2023
Thereafter
Total
$
$
67
59
50
40
34
127
377
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, 2018
and 2017.
(in millions)
December 31
Business Bank
Retail Bank
Wealth Management
Total
2018
2017
473
101
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 2018 and 2017, the annual
test of goodwill impairment was performed as of the beginning of the third quarter. In 2018, a qualitative assessment was performed
resulting in the Corporation determining goodwill was not impaired as it was more likely than not the fair value of each reporting
unit exceeded its carrying value. In 2017, a quantitative assessment was performed and the estimated fair values of all reporting
units exceeded their carrying amounts, including goodwill, indicating goodwill was not impaired.
During 2018 the Corporation reorganized certain reporting structures. As a result, Small Business, formerly a component
of the Retail Bank, became a component of the Business Bank. Accordingly, the Corporation reallocated $93 million of goodwill
from the Retail Bank to the Business Bank. The Corporation subsequently performed an additional qualitative impairment analysis
and again determined that it was more-likely-than-not that the fair value of each reporting unit exceeded its carrying value and
that performing a quantitative impairment test was not necessary. There have been no events since the annual test performed in
the third quarter 2018 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
2018
2017
$
$
34
(30)
4
$
$
34
(28)
6
The Corporation recorded amortization expense related to the core deposit intangible of $2 million for both the years
ended December 31, 2018 and 2017. At December 31, 2018, estimated future amortization expense was as follows:
(in millions)
Years Ending December 31
2019
2020
2021
Total
$
$
2
1
1
4
F-72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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
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. At December 31, 2018, counterparties with bilateral collateral agreements had pledged $1 million of marketable investment
securities and deposited $180 million of cash with the Corporation to secure the fair value of contracts in an unrealized gain
position, and the Corporation had posted $2 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, 2018.
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-73
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, 2018 and 2017. The table
excludes commitments and warrants accounted for as derivatives.
December 31, 2018
Fair Value
December 31, 2017
Fair Value
Notional/
Contract
Amount (a)
Gross
Derivative
Assets
Gross
Derivative
Liabilities
Notional/
Contract
Amount (a)
Gross
Derivative
Assets
Gross
Derivative
Liabilities
$
2,625
$
— $
2
$
1,775
$
— $
302
2,927
885
885
13,115
14,885
278
278
2,094
2,650
1,095
18,630
21,557
1
1
—
1
66
67
—
26
163
189
18
274
275
(45)
(174)
56
650
2,425
635
635
13,119
14,389
164
164
1,519
1,847
1,884
18,120
20,545
1
3
1
—
67
68
26
—
160
186
12
266
269
(45)
(1)
223
$
—
—
—
—
57
57
—
11
82
93
42
192
192
(49)
(1)
142
2
2
4
—
—
57
57
11
—
80
91
38
186
190
(49)
(39)
102
(in millions)
Risk management purposes
Derivatives designated as hedging instruments
Interest rate contracts:
Swaps - fair value - receive fixed/
pay floating
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
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 (b)
Amounts not offset in the Consolidated Balance
Sheets:
Marketable securities pledged under
bilateral collateral agreements
Net derivatives after deducting amounts not
offset in the Consolidated Balance Sheets
(1)
—
(3)
(24)
$
55
$
223
$
139
$
78
(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) 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 $2 million and $4 million at December 31, 2018 and 2017, 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.
The following table details the effects of fair value hedging on the Consolidated Statements of Income.
F-74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
(in millions)
Years Ended December 31
Total interest on medium-and long-term debt (a)
Fair value hedging relationships:
Interest rate contracts:
Hedged items
Derivatives designated as hedging instruments
(a) Includes the effects of hedging.
Interest on Medium- and Long-Term Debt
2018
2017
$
144
$
74
(7)
76
79
(32)
The following table summarizes the expected weighted average remaining maturity of the notional amount of risk
management interest rate swaps, the carrying amount of the related hedged item and the weighted average interest rates associated
with amounts expected to be received or paid on interest rate swap agreements as of December 31, 2018 and 2017.
(dollar amounts in millions)
December 31, 2018
Swaps - fair value - receive fixed/pay floating rate
Derivative
Notional
Amount
Carrying
Value of
Hedged
Items (a)
Remaining
Maturity
(in years)
Receive Rate
Pay Rate (b)
Weighted Average
Medium- and long-term debt designation
$
2,625
$
2,663
December 31, 2017
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt designation
1,775
1,822
3.9
4.6
3.40%
3.45%
3.26
2.35
(a) Included $49 million and $56 million of cumulative hedging adjustments at December 31, 2018 and 2017, respectively, which
included $8 million and $9 million, respectively, of hedging adjustment on a discontinued hedging relationship.
(b) Variable rates paid on receive fixed swaps are based on one- and six-month LIBOR rates in effect at December 31, 2018 and six-month
LIBOR rates in effect at December 31, 2017.
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 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 no net gains and losses in
other noninterest income in the Consolidated Statements of Income for the years ended December 31 2018 and 2017, 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
$
$
2018
2017
26
4
47
77
$
$
24
2
45
71
F-75
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
2018
2017
$
$
$
24,266
3,001
27,267
3,244
39
$
$
$
22,636
2,833
25,469
3,228
39
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. The allowance for credit losses on
lending-related commitments, included in accrued expenses and other liabilities on the Consolidated Balance Sheets, was $30
million and $42 million at December 31, 2018 and 2017 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. Since many commitments expire without being drawn upon, the total contractual amount of
commitments does not necessarily represent future cash requirements of the Corporation. Commercial and other unused
commitments are primarily variable rate commitments. The allowance for credit losses on lending-related commitments included
$24 million and $27 million at December 31, 2018 and 2017, 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 2028. 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 $136 million and $127 million at
December 31, 2018 and 2017, respectively, of the $3.3 billion of standby and commercial letters of credit outstanding at both
December 31, 2018 and 2017.
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 $34 million at December 31, 2018, including $28 million in deferred fees
and $6 million in the allowance for credit losses on lending-related commitments. At December 31, 2017, the comparable amounts
were $40 million, $25 million and $15 million, respectively.
The following table presents a summary of criticized standby and commercial letters of credit at December 31, 2018 and
December 31, 2017. 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, 2018
49
$
1.5%
December 31, 2017
88
$
2.7%
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-76
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, 2018 and 2017, the total notional amount of the credit risk participation agreements was approximately $703 million
and $549 million, respectively, and the fair value was insignificant for both periods. 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 $7 million and insignificant at December 31, 2018 and 2017, 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, 2018, the weighted average remaining
maturity of outstanding credit risk participation agreements was 3.5 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 low-income housing tax credit (LIHTC). The Corporation also
directly invests in limited partnerships and LLCs which invest in community development projects which generate similar tax
credits to investors (other tax credit entities). 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, 2018 was limited to $425 million. Ownership
interests in 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, 2018 was limited to $6 million.
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, 2018). 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, 2018, 2017 and 2016.
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:
Sales (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
2018
2017
2016
$
$
5
$
65
(62)
(14)
(11) $
2
$
67
(63)
(24)
(20) $
(1)
66
(62)
(26)
(22)
For further information on the Corporation’s consolidation policy, see Note 1.
F-77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 10 - DEPOSITS
At December 31, 2018, the scheduled maturities of certificates of deposit and other deposits with a stated maturity were
as follows:
(in millions)
Years Ending December 31
2019
2020
2021
2022
2023
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
2018
363
146
278
297
1,084
$
$
$
$
$
$
1,614
434
38
17
11
25
2,139
2017
355
207
319
130
1,011
The aggregate amount of domestic certificates of deposit that meet or exceed the current FDIC insurance limit of $250,000
was $543 million and $462 million at December 31, 2018 and 2017, respectively. All foreign office time deposits of $8 million
and $15 million at December 31, 2018 and 2017, 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, 2018, Comerica Bank (the Bank), a wholly-owned subsidiary of the Corporation, had pledged loans
totaling $22.8 billion which provided for up to $18.9 billion of available collateralized borrowing with the FRB.
F-78
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, 2018
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, 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
$
$
$
$
$
$
NOTE 12 - MEDIUM- AND LONG-TERM DEBT
Medium- and long-term debt is summarized as follows:
(in millions)
December 31
Parent company
Subordinated notes:
Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase
Other
Short-term
Borrowings
$
$
$
$
$
$
44
2.39%
182
59
1.91%
10
1.43 %
41
20
1.02 %
25
0.54 %
25
15
0.47 %
2018
2017
3.80% subordinated notes due 2026 (a)
$
250
$
Medium-term notes:
2.125% notes due 2019 (a)
3.70% notes due 2023 (a)
Total medium-term notes
Total parent company
Subsidiaries
Subordinated notes:
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
Floating-rate based on FHLB auction rate due 2028
Total FHLB advances
—
—%
250
3
1.75%
—
— %
1,024
257
1.15 %
—
— %
501
123
0.45 %
255
347
—
347
602
347
208
555
665
2,800
—
2,800
4,020
4,622
348
861
1,209
1,459
343
198
541
663
2,800
1,000
3,800
5,004
6,463
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. In the first quarter 2018, the Bank borrowed an additional $1 billion of 10-year, floating-
rate FHLB advances due January 26, 2028. The interest rate on the FHLB advances resets between four and eight weeks, based
F-79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
on the FHLB auction rate. At December 31, 2018, the weighted-average rate on the FHLB advances was 2.55%. Each note may
be prepaid in full, without penalty, at each scheduled reset date. Borrowing capacity is contingent upon the amount of collateral
available to be pledged to the FHLB. At December 31, 2018, $15.7 billion of real estate-related loans were pledged to the FHLB
as blanket collateral for current and potential future borrowings of approximately $5.0 billion.
In the third quarter 2018, the Corporation issued $850 million of 3.70% senior notes maturing in 2023, swapped to a
floating rate at 30-day LIBOR plus 80 basis points.
Unamortized debt issuance costs deducted from the carrying amount of medium- and long-term debt totaled $8 million
and $5 million at December 31, 2018 and 2017, respectively.
At December 31, 2018, the principal maturities of medium- and long-term debt were as follows:
(in millions)
Years Ending December 31
2019
2020
2021
2022
2023
Thereafter
Total
$
$
350
675
—
—
850
4,550
6,425
NOTE 13 - SHAREHOLDERS’ EQUITY
On July 6, 2018, the Board of Governors of the Federal Reserve System issued a statement announcing that, consistent
with the recently enacted Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), bank holding companies
with less than $100 billion in total assets are no longer subject to certain regulations and reporting requirements, such as Dodd-
Frank Act stress testing and the Comprehensive Capital Analysis and Review, effective immediately.
Repurchases of common stock under the equity repurchase program authorized in 2010 by the Board of Directors of the
Corporation totaled 14.8 million shares at an average price paid of $89.21 in 2018, 7.3 million shares at an average price paid of
$72.44 per share in 2017 and 6.6 million shares at an average price paid of $46.09 per share in 2016. There is no expiration date
for the Corporation's equity repurchase program. During the year ended December 31, 2018, the Corporation repurchased $1.3
billion under the equity repurchase program.
At December 31, 2018, the Corporation had no outstanding warrants as all remaining warrants to purchase common stock
expired during the fourth quarter of 2018. Approximately 585,000, 1.8 million and 2.3 million shares of common stock were issued
upon exercise of warrants in 2018, 2017 and 2016, respectively.
At December 31, 2018, the Corporation had 4.0 million shares of common stock reserved for stock option exercises and
restricted stock unit vesting and 869,000 shares of restricted stock outstanding to employees and directors under share-based
compensation plans.
F-80
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, 2018, 2017 and 2016, including
the amount of income tax expense (benefit) allocated to each component of other comprehensive income (loss).
(in millions)
Years Ended December 31
Accumulated net unrealized (losses) gains on investment securities:
2018
2017
2016
Balance at beginning of period, net of tax
$
(101) $
(33) $
Cumulative effect of change in accounting principle
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 (loss) gain arising during the period
Prior service credit arising during the period
Net defined benefit pension and other postretirement adjustment arising
during the period
Less: (Benefit) provision for income taxes
Net defined benefit pension and other postretirement adjustment arising
during the period, net of tax
Amounts recognized in other noninterest expense:
Amortization of actuarial net loss
Amortization of prior service credit
Total amounts recognized in other noninterest expense
Less: Provision for income taxes
Adjustment for amounts recognized as other components of net 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
$
$
$
$
1
(69)
(16)
(53)
(20)
(5)
(15)
—
—
—
(81)
(27)
(54)
—
—
—
(3)
(1)
—
(38)
—
(138) $
(2)
(52)
(16)
(101) $
(350) $
(350) $
(191)
—
(191)
(44)
(147)
61
(27)
34
8
26
72
—
72
17
55
51
(27)
24
8
16
(121)
—
(471) $
(609) $
71
(71)
(350) $
(451) $
(a) Amounts reclassified to retained earnings due to early adoption of ASU 2018-02. For further information, refer to Note 1.
9
—
(70)
(26)
(44)
—
—
—
(3)
(1)
(2)
(42)
—
(33)
(438)
(134)
234
100
37
63
46
(7)
39
14
25
88
—
(350)
(383)
F-81
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
2018
2017
2016
$
$
$
$
$
$
1,235
8
1,227
168
$
$
743
5
738
174
7.31
$
4.23
$
168
2
1
171
174
3
1
178
7.20
$
4.14
$
477
4
473
172
2.74
172
2
3
177
2.68
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
2018
0.2
$95.25
2016
3.3
$37.26 - $59.86
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
2018
2017
2016
$
$
48
11
$
$
39
14
$
$
34
13
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, 2018
$
40
2.5
The Corporation has share-based compensation plans under which it awards shares of 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. Additionally, the Corporation has awarded restricted stock and restricted stock units to executive officers, directors
and key personnel under previous share-based compensation plans that remain unvested. Restricted stock and restricted stock units
fully vest after a period ranging from three years to five years, and stock options fully vest after 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 provide for a grant of up to 6.1 million common shares, plus
shares under certain plans that are forfeited, expire or are canceled, which become available for re-grant. At December 31, 2018,
over 6 million shares were available for grant.
F-82
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 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)
2018
2017
2016
$
30.32
$
19.61
$
9.94
2.63%
3.00
36
7.4
2.47%
3.00
34
7.0
2.01%
3.00
38
6.9
A summary of the Corporation’s stock option activity and related information for the year ended December 31, 2018
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, 2018
Granted
Forfeited or expired
Exercised
Outstanding-December 31, 2018
Exercisable-December 31, 2018
4,173
196
(24)
(1,402)
2,943
1,707
$
$
40.06
95.25
49.75
37.86
44.70
38.62
5.6
4.3
$
$
76
51
The aggregate intrinsic value of outstanding options shown in the table above represents the total pretax intrinsic value
at December 31, 2018, based on the Corporation’s closing stock price of $68.69 at December 31, 2018.
The total intrinsic value of stock options exercised was $81 million, $104 million and $46 million for the years ended
December 31, 2018, 2017 and 2016, respectively.
A summary of the Corporation’s restricted stock activity and related information for the year ended December 31, 2018
follows:
Outstanding-January 1, 2018
Forfeited
Vested
Outstanding-December 31, 2018
Number of
Shares
(in thousands)
Weighted-Average
Grant-Date Fair
Value per Share
1,243
(44)
(330)
869
$
$
43.59
44.05
41.55
44.34
The total fair value of restricted stock awards that fully vested was $14 million, $19 million and $22 million for the years
ended December 31, 2018, 2017 and 2016, respectively.
A summary of the Corporation's restricted stock unit activity and related information for the year ended December 31,
2018 follows:
F-83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Outstanding-January 1, 2018
Granted
Forfeited
Vested
Outstanding-December 31, 2018
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
$
199
194
(26)
—
367
43.00
96.55
86.54
—
68.14
$
718
184
(1)
(239)
662
42.39
92.80
93.26
41.59
56.64
The total fair value of restricted stock units that fully vested was $10 million, $10 million and $11 million for the years
ended December 31, 2018, 2017 and 2016, respectively.
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, 2018, the Corporation held 68.1 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.
The Corporation’s postretirement benefit plan provides 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.
F-84
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, 2018 and 2017.
The Corporation used a measurement date of December 31, 2018 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 (gain) loss
Benefits paid
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:
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
Amounts recognized in accumulated other
comprehensive income (loss) before income taxes:
Defined Benefit Pension Plans
Qualified
Non-Qualified
Postretirement
Benefit Plan
2018
2017
2018
2017
2018
2017
$ 2,747
(167)
—
(122)
$ 2,458
$ 2,061
29
75
(142)
(122)
$ 1,901
$ 1,893
557
$
$ 2,453
396
—
(102)
$ 2,747
$ 1,902
29
78
154
(102)
$ 2,061
$ 2,052
686
$
$ — $ — $
—
—
—
—
—
—
$ — $ — $
$
212
2
8
—
(11)
211
$
$
209
$ (211)
$
201
2
8
12
(11)
212
$
$
209
$ (212)
$
$
$
$
60
(1)
1
(4)
56
51
—
2
(3)
(4)
46
46
10
$
$
$
$
$
$
62
2
1
(5)
60
55
—
2
(1)
(5)
51
51
9
4.37%
4.00
3.74%
3.75
4.37%
4.00
3.74%
3.75
4.26%
n/a
3.55%
n/a
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
4.50
2027
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 expenses
$ (548)
159
$ (389)
$ (687)
140
$ (547)
(19)
1
(18)
(19)
1
(18)
(85)
42
(43)
(76)
34
(42)
$
$
$
$
$
$
$
$
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, 2018 and December 31, 2017.
The following table details the changes in plan assets and benefit obligations recognized in other comprehensive income
(loss) for the year ended December 31, 2018.
(in millions)
Actuarial (loss) gain arising during the period
Amortization of net actuarial loss
Amortization of prior service credit
Total recognized in other comprehensive income (loss)
$
$
Defined Benefit Pension Plans
Qualified
Non-Qualified
Postretirement
Benefit Plan
Total
(190) $
51
(19)
(158) $
— $
9
(8)
1
$
(1) $
1
—
— $
(191)
61
(27)
(157)
F-85
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:
(dollar amounts in millions)
Years Ended December 31
Service cost (a)
Other components of net benefit (credit) cost:
Interest cost
Expected return on plan assets
Amortization of prior service credit
Amortization of net loss
Total other components of net benefit (credit) cost (b)
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
(a) Included in salaries and benefits expense on the Consolidated Statements of Income.
(b) Included in other noninterest expenses on the Consolidated Statements of Income.
n/a - not applicable
$
$
(6.21)% 16.48%
3.74 %
6.50
3.75
4.23%
6.50
3.50
Defined Benefit Pension Plans
2018
29
$
Qualified
2017
29
$
2016
31
$
2018
2
$
Non-Qualified
2017
2
$
$
2016
3
75
(165)
(19)
51
(58)
$ (29)
$ (167)
78
(159)
(19)
43
(57)
(28)
396
$
$
87
(163)
(2)
38
(40)
(9)
200
8.66%
4.53%
6.75
3.75
8
—
(8)
9
9
11
n/a
n/a
$
$
8
—
(8)
8
8
10
n/a
n/a
$
10
—
(5)
7
12
15
n/a
n/a
3.74%
n/a
3.75
4.23%
n/a
3.50
4.53%
n/a
3.75
(dollar amounts in millions)
Years Ended December 31
Other components of net benefit cost:
Interest cost
Expected return on plan assets
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
Postretirement Benefit Plan
2017
2016
2018
$
2
(3)
1
$ —
(1)
$
(2.05)%
$
$
$
$
2
(3)
1
— $
$
2
3.52%
3.55 %
5.00
3.92%
5.00
6.50
4.50
2027
6.50
4.50
2027
3
(4)
1
—
2
2.83%
4.53%
5.00
7.00
5.00
2027
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 11 years as of December 31,
2018. 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, 2019 are as follows:
(in millions)
Net loss
Prior service credit
Defined Benefit Pension Plans
Non-Qualified
8
$
(8)
Postretirement
Benefit Plan
Total
$
$
1
—
43
(27)
Qualified
34
(19)
$
F-86
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 2018 assumed healthcare and prescription drug cost trend rates would result in a two-percentage-
point change in the postretirement benefit obligation.
Plan Assets
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.
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.
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.
F-87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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, 2018 and 2017, by asset category and level within the fair value hierarchy, are detailed in the table
below.
(in millions)
December 31, 2018
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, 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
Total
Level 1
Level 2
Level 3
$
$
$
$
$
3
803
$
3
803
482
—
—
—
1,288
$
496
679
29
60
2,070
392
2,462
$
$
1
961
$
1
961
451
—
—
—
1,413
$
456
765
25
80
2,288
455
2,743
$
— $
—
14
679
29
—
722
$
— $
—
5
765
25
—
795
$
—
—
—
—
—
60
60
—
—
—
—
—
80
80
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, 2018 and 2017.
(in millions)
Year Ended December 31, 2018
Private placements
Year Ended December 31, 2017
Private placements
Balance at
Beginning
of Period
Net Gains (Losses)
Realized
Unrealized
Purchases
Sales
Balance at
End of Period
$
$
80
71
$
$
(1) $
(7) $
2
$
3
$
70
77
$
$
(82) $
(73) $
60
80
There were no assets in the non-qualified defined benefit pension plan at December 31, 2018 and 2017. 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.
F-88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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, 2019.
Estimated Future Benefit Payments
(in millions)
Years Ended December 31
2019
2020
2021
2022
2023
2024 - 2028
(a) Estimated benefit payments in the postretirement benefit plan are net of estimated Medicare subsidies.
125
125
128
131
133
672
$
$
Qualified
Defined Benefit
Pension Plan
Non-Qualified
Defined Benefit
Pension Plan
Postretirement
Benefit Plan (a)
5
$
5
5
5
4
18
12
14
14
14
14
73
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 both of the years
ended December 31, 2018 and 2017 and $22 million for the year ended December 31, 2016.
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 for the year ended December 31, 2016.
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 and benefits expense on the Consolidated Statements of Income.
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.
F-89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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
2018
2017
2016
$
$
227
10
39
276
29
3
(8)
24
300
$
$
371
5
36
412
(26)
(2)
107
79
491
$
$
224
5
15
244
(49)
(2)
—
(51)
193
Income before income taxes of $1.5 billion for the year ended December 31, 2018 included $38 million of foreign-source
income.
The provision for income taxes included a $107 million charge for the year ended December 31, 2017 to adjust deferred
taxes as a result of the enactment of the Tax Cuts and Jobs Act and an $8 million downward revision to the impact recorded in
2018. Refer to Note 1 for further details.
The provision for income taxes for 2018 and 2017 included a benefit of $23 million and $35 million, respectively, related
to employee stock transactions as a result of new accounting guidance for stock compensation. For the year ended December 31,
2016, tax effects of employee stock transactions of $4 million were recorded in shareholders' equity.
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.
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:
$
2016
2018
2017
Rate
Rate
Rate
Amount
Amount
Amount
(dollar amounts in millions)
Years Ended December 31
Tax based on federal statutory rate
State income taxes
Employee stock transactions
Capitalization and recovery positions (a)
Affordable housing and historic credits
Bank-owned life insurance
Remeasurement of deferred taxes
FDIC fees (b)
Other changes in unrecognized tax benefits
Tax-related interest and penalties
Lease termination transactions
Other
Provision for income taxes
(a)
(b) Beginning January 1, 2018, FDIC fees are no longer deductible as a result of the enactment of the Tax Cuts and Jobs Act.
35.0%
1.2
—
—
(3.3)
(2.3)
—
—
—
0.5
(2.2)
(0.1)
28.8%
Tax benefits from the review of tax capitalization and recovery positions related to software and fixed assets included in the 2017 tax return.
21.0% $
2.3
(1.5)
(1.1)
(0.8)
(0.6)
(0.5)
0.5
0.3
(0.2)
—
0.1
19.5% $
35.0% $
1.8
(2.8)
—
(1.7)
(1.3)
8.7
—
—
0.3
(0.2)
—
235
8
—
—
(22)
(15)
—
—
—
3
(15)
(1)
193
432
22
(35)
—
(21)
(16)
107
—
—
4
(2)
—
491
323
35
(23)
(17)
(12)
(9)
(8)
8
4
(3)
—
2
300
39.8% $
$
The liability for tax-related interest and penalties included in accrued expenses and other liabilities on the Consolidated
Balance Sheets was $7 million and $10 million at December 31, 2018 and 2017, 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
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 or other tax jurisdictions, an administrative authority or a court, if
presented with the transactions, could disagree with the Corporation’s interpretation of the tax law.
F-90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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
2018
2017
2016
$
$
10
9
(4)
(1)
14
$
$
15
4
(8)
(1)
10
$
$
22
—
(7)
—
15
The Corporation anticipates it is reasonably possible 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, if recognized, would affect the Corporation’s effective tax rate was approximately $11 million and
$8 million at December 31, 2018 and 2017, respectively.
The following tax years for significant jurisdictions remain subject to examination as of December 31, 2018:
Jurisdiction
Federal
California
Tax Years
2014-2017
2006-2017
Based on current knowledge and probability assessment of various potential outcomes, the Corporation believes 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
2018
2017
$
$
141
68
9
42
42
302
(3)
299
(74)
(41)
(18)
(133)
166
$
$
150
49
6
31
57
293
(3)
290
(76)
(72)
(1)
(149)
141
Deferred tax assets included state net operating loss carryforwards of $4 million at both December 31, 2018 and
December 31, 2017, which expire between 2018 and 2027. The Corporation believes it is more likely than not 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, 2018 and December 31, 2017. For further information on the Corporation’s valuation policy for
deferred tax assets, refer to Note 1.
F-91
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, 2018, totaled $66 million at the beginning of 2018 and $109 million at the end of 2018. During 2018, new
loans to related parties aggregated $716 million and repayments totaled $673 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 $599 million and $572 million for the years ended December 31, 2018 and 2017, 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 $108 million at January 1, 2019, plus 2019 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 $1.1 billion, $907 million and $545 million in 2018, 2017 and
2016, 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, 2018 and 2017, 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, 2018 and 2017.
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, 2018 and 2017. There have been no conditions or events
since December 31, 2018 that management believes have changed the capital adequacy classification of the Corporation or its
U.S. banking subsidiaries.
F-92
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, 2018
CET1 capital (minimum $3.0 billion (Consolidated))
Tier 1 capital (minimum $4.0 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
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
NOTE 21 - CONTINGENT LIABILITIES
Legal Proceedings
Comerica
Incorporated
(Consolidated)
Comerica
Bank
$
$
$
$
7,470
7,470
8,855
67,047
71,070
11.14%
11.14
13.21
10.51
5.14
7,773
7,773
9,211
66,575
71,372
11.68 %
11.68
13.84
10.89
5.68
7,229
7,229
8,433
66,857
70,905
10.81%
10.81
12.61
10.20
4.61
7,121
7,121
8,378
66,447
71,181
10.72 %
10.72
12.61
10.00
4.61
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 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, results of
operations or cash flows. Legal fees of $17 million, $15 million and $19 million for the years ended December 31, 2018, 2017
and 2016, 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
it is involved is from zero to approximately $33 million at December 31, 2018. This estimated aggregate range of reasonably
F-93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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 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, results of operations or cash flows.
For information regarding income tax contingencies, refer to Note 18.
NOTE 22 - RESTRUCTURING CHARGES
The Corporation launched an initiative in 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 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 resulted in restructuring charges. Generally, costs associated with
or incurred to generate revenue as part of the initiative were recorded according to the nature of the cost and were 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-94
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 and cumulative charges incurred to date:
(in millions)
Year Ended December 31, 2018
Balance at beginning of period
Restructuring charges
Payments
Balance at end of period
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
$
$
$
$
$
$
8
10
(13)
5
10
10
(12)
—
8
$
$
$
$
— $
52
(44)
2
10
$
— $
4
(3)
1
$
$
4
2
(6)
—
— $
— $
15
(6)
(5)
4
$
6
37
(39)
4
$
$
— $
26
(15)
(5)
6
$
— $
—
—
—
— $
$
1
2
(3)
— $
4
7
(10)
—
1
$
$
— $
26
(22)
—
4
$
Total restructuring charges incurred (b)
(a) Adjustments for non-cash charges primarily relate to impairments of previously capitalized software costs in Technology Costs.
(b) Restructuring activities were completed as of 12/31/2018.
35
21
63
72
$
$
$
$
$
15
53
(58)
10
18
45
(43)
(5)
15
—
93
(72)
(3)
18
191
Restructuring charges directly attributable to a business segment are assigned to that business segment. For example,
facilities costs pertaining to the consolidation of banking centers primarily impacted the Retail Bank. 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 $30 million, $16 million and $7 million, respectively, for the year ended December 31, 2018, $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.
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. During the 2018, the Small Business component was reclassified from Retail
Bank to Business Bank. For comparability purposes, amounts in all periods are based on business unit structure and methodologies
in effect at December 31, 2018.
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) funding credits and charges. The
FTP methodology allocates credits to each business segment for deposits and other funds provided as well as charges for loans
and other assets being funded. This credit or charge is based on matching stated or implied maturities for these assets and liabilities.
The FTP crediting rates for deposits reflect the long-term value of deposits and other funding sources based on their implied
maturity. FTP charge rates for funding assets reflect a matched cost of funds based on the pricing and duration characteristics of
F-95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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 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 2018 performance can be found in the section entitled "Business Segments" in the financial
review.
The Business Bank meets the needs of small and 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 a full range of personal financial services, consisting of consumer lending, consumer deposit
gathering and mortgage loan origination. 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-96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Business segment financial results are as follows:
(dollar amounts in millions)
Year Ended December 31, 2018
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, 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)
Business
Bank
Retail
Bank
Wealth
Management
Finance
Other
Total
$ 1,613
6
547
847
283
$ 1,024
52
$
$43,207
41,618
30,116
$
$
548
(1)
136
602
18
$
$
65
$ — $
181
(3)
266
293
36
121
(1)
$
$
$
(46) $
—
27
(4)
(14)
(1) $
— $
56
(3)
—
56
(23) (a)
26
—
$ 2,352
(1)
976
1,794
300
$ 1,235
51
$
$ 2,633
2,067
20,812
$
5,214
5,081
3,941
$ 13,705
—
941
$
5,965
—
125
$ 70,724
48,766
55,935
2.37%
39.22
0.31%
87.47
2.32%
65.60
N/M
N/M
N/M
N/M
1.75%
53.56
Business
Bank
Retail
Bank
Wealth
Management
Finance
Other
Total
$ 1,513
69
639
918
410
755
96
$
$
$
$
$
453
2
154
615
(4)
(6)
1
$42,653
41,241
31,999
$ 2,626
2,061
20,775
$
$
$
$
169
1
255
285
51
87
(5)
$
$
$
(111) $
—
49
(4)
(35)
(23) $
— $
37
2
10
46
69 (a)
(70)
—
$ 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
1.77%
(0.03)%
42.67
100.72
1.61%
67.06
N/M
N/M
N/M
N/M
1.04%
58.64
F-97
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
Business
Bank
Retail
Bank
Wealth
Management
Finance
Other
Total
$ 1,506
254
608
963
284
613
155
$
$
$
$
$
393
(2)
153
643
(34)
(61)
2
$ 43,373
41,954
32,930
$ 2,675
1,994
20,332
$
$
$
$
$
158
(4)
243
301
36
68
$
— $
(283) $
—
43
(4)
(90)
(146) $
— $
$
23
—
4
27
(3)
3
$
— $
1,797
248
1,051
1,930
193
477
157
5,232
5,048
4,126
$
$ 13,993
—
88
6,470
—
265
$ 71,743
48,996
57,741
Statistical data:
N/M
Return on average assets (b)
Efficiency ratio (c)
N/M
45.52
(a) Primarily reflected discrete tax items, including a benefit of $48 million in 2018 and a net charge of $72 million in 2017.
(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 and noninterest income excluding gains (losses) from securities and
N/M
N/M
(0.29)%
116.63
0.67%
1.32%
1.41%
75.03
67.62
a derivative contract tied to the conversion rate of Visa Class B shares.
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, 2018.
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, 2018
Earnings summary:
Net interest income
Provision for credit losses
Noninterest income
Noninterest expenses
Provision (benefit) for income taxes
Net income
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)
Michigan
California
Texas
Other
Markets
Finance
& Other
Total
$
$
$
727
30
296
577
90
326
7
$
$
$
788
31
164
424
122
375
27
$
$
$
475
(53)
130
365
64
229
12
$
$
$
352
(6)
359
376
61
280
5
$
$
$
10
(3)
27
52
(37) (a)
25
—
$ 2,352
(1)
976
1,794
300
$ 1,235
51
$
$ 13,207
12,531
20,772
$ 18,532
18,283
16,964
$ 10,389
9,821
8,993
$ 8,925
8,131
8,141
$ 19,671
—
1,065
$ 70,724
48,766
55,935
1.52%
56.16
2.02%
44.58
2.20%
60.28
3.14%
52.95
N/M
N/M
1.75%
53.56
F-98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
(dollar amounts in millions)
Year Ended December 31, 2017
Earnings summary:
Net interest income (expense)
Provision for credit losses
Noninterest income
Noninterest expenses
Provision for income taxes
Net income (loss)
Net credit-related (recoveries) charge-offs
Michigan
California
Texas
Other
Markets
Finance
& Other
Total
$
$
$
657
8
324
589
137
247
(1)
$
$
$
711
104
171
404
145
229
33
$
$
$
451
(72)
131
375
104
175
46
$
$
$
316
33
423
450
71
185
14
$
$
$
(74)
1
58
42
34 (a)
(93)
—
$ 2,061
74
1,107
1,860
491
743
92
$
$
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
$ 13,395
12,677
21,823
$ 18,264
18,008
17,533
$ 10,443
9,969
9,625
$ 8,578
7,904
7,874
$ 20,772
—
403
$ 71,452
48,558
57,258
1.09%
59.84
1.24%
45.82
1.61%
64.30
2.14%
60.99
N/M
N/M
1.04%
58.64
Michigan
California
Texas
Other
Markets
Finance
& Other
Total
$
$
$
616
9
320
618
99
210
9
$
$
$
678
21
162
435
138
246
26
$
$
$
444
225
129
408
(21)
(39)
118
$ 13,105
12,457
21,777
$ 18,012
17,731
17,438
$ 11,101
10,637
10,168
$
$
$
$
$
$
$
$
319
(7)
393
446
70
203
4
9,062
8,171
8,005
(260) $
—
47
23
(93)
(143) $
— $
1,797
248
1,051
1,930
193
477
157
20,463
—
353
$ 71,743
48,996
57,741
Statistical data:
N/M
Return on average assets (b)
Efficiency ratio (c)
N/M
65.65
(a) Primarily reflected discrete tax items, including a benefit of $48 million in 2018 and a net charge of $72 million in 2017.
(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 and noninterest income excluding gains (losses) from securities and
(0.32)%
70.93
0.67%
2.24%
1.33%
0.93%
51.84
67.62
62.67
a derivative contract tied to the conversion rate of Visa Class B shares.
N/M – not meaningful
F-99
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 - 68,081,176 shares at 12/31/18 and 55,306,483
shares at 12/31/17
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-100
2018
1,135
13
228
—
1,376
29
140
5
1
2
75
252
1,124
(5)
1,129
106
1,235
8
1,227
$
$
2018
2017
$
$
$
1,524
88
7,429
1
169
9,211
1,459
245
1,704
1,141
2,148
(609)
8,781
(3,954)
7,507
9,211
$
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
2017
2016
$
915
3
136
8
1,062
13
127
5
1
6
80
232
830
(26)
856
(113)
743
5
738
$
549
1
138
3
691
10
114
5
1
33
72
235
456
(28)
484
(7)
477
4
473
$
$
$
$
$
$
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 cost (credit)
Share-based compensation expense
Benefit for deferred income taxes
Other, net
Net cash provided by operating activities
Financing Activities
Medium- and long-term debt:
Issuances
Common Stock:
Repurchases
Cash dividends paid
Issuances of common stock under employee stock plans
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
2018
2017
2016
$
1,235
$
743
$
477
(106)
1
4
21
(1)
10
1,164
113
1
(2)
16
(10)
59
920
850
—
(1,338)
(263)
52
(699)
465
1,059
1,524
$
11
$
(155) $
$
$
$
(560)
(180)
118
(622)
298
761
$
1,059
12
$
(331) $
7
1
1
14
(3)
6
503
—
(320)
(152)
157
(315)
188
573
761
9
(139)
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) gains
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
2018
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
$
$
704
90
614
16
—
250
448
90
310
2
308
1.91
1.88
312
$
$
$
675
76
599
—
(20)
254
452
63
318
2
316
1.89
1.86
296
$
$
$
650
60
590
(29)
—
248
448
93
326
2
324
1.90
1.87
290
590
41
549
12
1
243
446
54
281
2
279
1.62
1.59
178
$
$
$
F-101
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
Noninterest income
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
$
$
$
579
33
546
24
275
463
108
226
2
224
1.29
1.26
228
$
$
$
529
29
500
17
276
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
$
$
$
F-102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 26 - REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from contracts with customers comprises the noninterest income earned by the Corporation in exchange for
services provided to customers. The following table presents the composition of revenue from contracts with customers, segregated
from other sources of noninterest income, by business segment.
(in millions)
Year Ended December 31, 2018
Revenue from contracts with customers:
Card fees (a)
Service charges on deposit accounts (a)
Fiduciary income
Commercial loan servicing fees (b)
Brokerage fees
Other noninterest income (c)
Total revenue from contracts with customers
Other sources of noninterest income
Total noninterest income
Year Ended December 31, 2017
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
Other noninterest income
Total noninterest income
Year Ended December 31, 2016
$
$
$
$
Business
Bank
Retail
Bank
Wealth
Management
Finance &
Other
Total
201
134
—
18
—
12
365
182
547
285
143
—
84
44
—
43
—
40
639
$
$
$
$
39
72
—
—
—
19
130
6
136
43
79
—
—
—
—
—
—
32
154
$
$
$
$
4
5
206
—
27
17
259
7
266
5
5
198
1
1
—
2
23
20
255
$
$
$
$
— $
—
—
—
—
1
1
26
27
$
— $
—
—
—
—
43
—
—
16
59
$
244
211
206
18
27
49
755
221
976
333
227
198
85
45
43
45
23
108
1,107
$
$
$
$
Card fees
Services charges on deposit accounts
Fiduciary income
Commercial lending fees
Letter of credit fees
Bank-owned life insurance
Foreign exchange income
Brokerage fees
Other noninterest income
257
136
—
90
49
—
39
—
37
Total noninterest income
608
(a) Adoption of Topic 606 resulted in a change in presentation which records certain costs in the same category as the associated revenues.
The effect of this change was to reduce card fees by $140 million and service charges on deposit accounts by $5 million for the twelve
months ended December 31, 2018. Refer to Note 1 for further information.
(b) Included in commercial lending fees on the Consolidated Statements of Income.
(c) Excludes derivative, warrant and other miscellaneous income.
— $
—
—
(1)
—
42
—
—
6
47
303
219
190
89
50
42
42
19
97
1,051
4
4
190
—
1
—
2
19
23
243
42
79
—
—
—
—
1
—
31
153
$
$
$
$
$
Adjustments to revenue during the year ended December 31, 2018 for refunds or credits relating to prior periods were
not significant.
Revenue from contracts with customers did not generate significant contract assets and liabilities.
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, 2018. 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, 2018.
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, 2018 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, 2018, 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, 2018, 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, 2018 and 2017, 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, 2018, and the related notes of the Company and our report dated February 12, 2019 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 12, 2019
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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 12, 2019 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 12, 2019
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
2018
2017
2016
2015
2014
$
1,135
$
1,209
$
1,146
$
1,059
$
4,700
134
5,443
92
5,099
102
6,158
106
11,810
12,207
12,348
10,237
934
5,513
109
9,350
30,534
3,155
9,131
470
1,021
1,983
2,472
48,766
(695)
48,071
4,874
$ 70,724
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
$ 29,241
$ 31,013
$ 29,751
$ 28,087
$ 25,019
22,378
2,199
2,092
25
26,694
55,935
62
1,076
5,842
62,915
7,809
$ 70,724
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
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
$
$
$
$
2018
2017
2016
2015
2014
$
$
$
$
2,262
265
92
2,619
122
1
144
267
2,352
(1)
2,353
244
211
206
85
40
39
47
27
(19)
96
976
1,009
255
152
48
53
125
42
30
—
—
80
1,794
1,535
300
1,235
8
1,227
7.31
7.20
1,076
309
1.84
$
$
$
$
1,872
250
60
2,182
42
3
76
121
2,061
74
1,987
333
227
198
85
45
43
45
23
—
108
1,107
961
366
154
45
45
126
51
28
—
84
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
—
97
1,051
989
336
157
53
93
119
54
21
—
108
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
1,000
318
159
53
—
99
37
24
(32)
—
169
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
1
129
857
972
111
171
57
—
95
33
23
4
(32)
181
1,615
870
277
593
7
586
3.28
3.16
572
143
0.79
F-108
HISTORICAL REVIEW - STATISTICAL DATA
Comerica Incorporated and Subsidiaries
CONSOLIDATED FINANCIAL INFORMATION
Years Ended December 31
Average Rates
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
2018
2017
2016
2015
2014
1.94%
0.96
1.09%
0.64
0.51%
0.61
0.26%
0.81
0.26%
0.54
2.19
4.64
5.21
4.69
3.82
4.97
3.77
4.41
4.64
3.99
0.45
1.19
0.46
1.90
2.42
0.82
3.17
0.41
3.58%
2.05
3.82
4.18
3.97
2.63
4.07
3.70
3.70
3.85
3.29
0.16
0.64
0.16
1.14
1.51
0.38
2.91
0.20
3.11%
2.02
3.25
3.63
3.49
2.64
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
3.06
3.48
3.41
3.15
3.58
3.77
3.26
3.19
2.75
0.14
1.02
0.14
0.05
1.80
0.29
2.46
0.14
2.60%
2.25
3.11
3.41
3.75
2.30
3.65
3.82
3.20
3.27
2.85
0.14
0.82
0.15
0.03
1.68
0.29
2.56
0.13
2.69%
15.82%
1.75
53.56
9.34%
1.04
58.64
6.22%
0.67
67.62
6.91%
0.74
67.03
8.05%
0.89
64.26
11.14
11.14
13.21
10.60
9.78
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
$ 46.89
68.69
$ 46.07
86.81
$ 44.47
68.11
$ 43.03
41.83
$ 41.35
46.84
102.66
63.69
88.22
64.04
70.44
30.48
53.45
39.52
53.50
42.73
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 and noninterest income excluding net securities gains (losses) from
176
181
477
8,880
172
177
458
7,960
179
185
481
8,876
174
178
438
7,999
168
171
436
7,865
securities and a derivative contract tied to the conversion rate of Visa Class B shares.
(b) 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.
(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 12, 2019.
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 12, 2019.
/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/ Curtis C. Farmer
Curtis C. Farmer
/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
Director
S-1
SHAREHOLDER INFORMATION
Common Stock:
Comerica’s 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/Registration 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:
CONTACT INFORMATION:
Website: computershare.com/investor
Website: computershare.com/investor
Email: web.queries@computershare.com
Email: web.queries@computershare.com
Phone: 877.536.3551 or 781.575.3100
Phone: 877.536.3551 or 781.575.3100
WRITTEN REQUESTS:
WRITTEN REQUESTS:
Computershare
Computershare
P.O. Box 505000
P.O. Box 505000
Louisville, KY 40233-5000
Louisville, KY 40233-5000
CERTIFIED/OVERNIGHT MAIL:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
CERTIFIED/OVERNIGHT MAIL:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Officer Certifications:
On May 16, 2018, 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, 2018.
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