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COMERICA CORPORATE HEADQUARTERS
Comerica Bank Tower
1717 Main Street
Dallas, Texas 75201
Follow Us
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19
Comerica Incorporated Annual Report
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, 2019, Comerica had:
$73 billion in assets | $50.4 billion in loans | $57.3 billion in deposits
| 435 U.S. banking centers | 7,747 employees (FTE)
OUR MISSION
OUR VISION
We will achieve balanced growth and profitability by delivering a
higher level of banking that nurtures lifelong relationships with
unwavering integrity and financial prudence.
To become the highest performing, most respected and most
desired bank in the markets we serve.
OUR CORE VALUES
OUR PROMISE
Customer-centricity • Collaboration • Integrity
Excellence • Agility • Diversity • Involvement
We will Raise Your Expectations® of what a bank can be.
BOARD OF DIRECTORS
Curtis C. Farmer
Chairman, President 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) (3) (4)
Former President and Chief Executive Officer
AV Homes, Inc.
T. Kevin DeNicola (1) (3) (4)
Former Chief Financial Officer
KiOR, Inc.
Jacqueline P. Kane (2)
Retired Executive Vice President of
Human Resources and Corporate Affairs
The Clorox Company
Richard G. Lindner (1) (2) (3)
Retired Senior Executive Vice President and
Chief Financial Officer
AT&T, Inc.
Barbara R. Smith (2) (5)
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 (2) (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
(5) Independent Facilitating Director
SENIOR LEADERSHIP
Curtis C. Farmer
Chairman, President and Chief Executive Officer
James J. Herzog
Executive Vice President and Chief Financial Officer
Michael J. Aust
Executive Vice President, Retail Bank
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
John D. Buchanan
Executive Vice President and Chief Legal Officer/General Counsel
Paul R. Obermeyer
Executive Vice President, Enterprise Technology and Operations
Megan D. Burkhart
Executive Vice President and Chief Human Resources Officer
Peter L. Sefzik
Executive Vice President, Business Bank
J. McGregor Carr
Executive Vice President, Wealth Management
James H. Weber
Executive Vice President and Chief Experience Officer
TO OUR SHAREHOLDERS
To my fellow shareholders,
It is with both excitement and humility that I address you for the first time as
Chairman of Comerica Incorporated. I am honored to assume responsibility for
leading an organization that has so faithfully served its customers for more than
170 years. In succeeding Ralph Babb, I recognize the extraordinarily high bar that
has been set, and I am committed to building on Ralph’s legacy as we chart our
course into the future.
As you know, Comerica has a rich history of helping its customers and communities
thrive. Looking forward, I see this focus on customer-centricity and community
involvement as essential to effectively executing our relationship banking strategy
across our footprint of diverse, fast-growing markets. This commitment can best
be summed up in our Promise to Raise Your Expectations® of what a bank can be.
Financial Performance
I am pleased to report to you that our financial results for 2019 were strong with
a 9 percent increase in our earnings per share to a record $7.87. Highlights for
the year included 4 percent average loan growth with broad-based growth across
all markets. Meanwhile, deposit trends picked up significantly in the second
half of 2019, resulting in relatively stable year-over-year average balances. This
performance helped push total assets to a record $73.4 billion at year-end.
Curtis C. Farmer
Chairman, President and Chief Executive Officer
Regarding net interest income, the benefit from loan growth and the net impact of higher rates was offset by an increase in
interest-bearing deposits, as well as wholesale funding. With the contribution from higher fee income, revenue reached an all-
time high. This increase in revenue, coupled with careful expense control, resulted in an efficiency ratio of under 52 percent,
the best among our peers. In addition, credit quality remained solid, with net charge-offs of 21 basis points and only 4 basis
points, excluding Energy. Finally, we meaningfully reduced excess capital through a record-setting repurchase of 18.6 million
shares during the year, resulting in an 11 percent decline in our average share count. Together with a 46 percent increase in
our dividend, we returned a total of $1.8 billion to shareholders and grew our book value per share by 10 percent to a new
high of $51.57. Overall, these factors drove an increase in our Return on Equity to above 16 percent.
A Vision for Future Growth
Looking ahead, we continue to make the customer experience a top corporate priority and have established a Customer
Experience Management practice to provide further focus on this important area. We are also employing new strategies
that were launched over the past year to acquire, broaden and retain customers. Our ultimate goal is to achieve a more
diversified and balanced revenue base with an increased emphasis on fee generation. We are also seeing the benefits from
the increased sales capacity generated by our end-to-end credit process redesign, as well as the ongoing reallocation of
resources to faster-growing businesses and markets. Furthermore, new opportunities are arising with the investments made
in customer relationship management tools and predictive data analytics. Of course, collaboration between our businesses
also remains a foundational element of our strategy as we seek to maximize the value of each customer relationship through
a holistic approach to customer needs. Lastly, we launched a brand marketing campaign to raise awareness and highlight our
full-service relationship banking capabilities as we bring additional digital capabilities online.
On the technology front, we are making significant strides in our transition to become a more digitally-enabled company. Our
TechVision 2020 strategy has focused on strengthening our core, including embedding security in products, modernizing
assets, and developing talent. In addition, we are transforming our future through innovative new programs featuring robotics,
cloud computing and artificial intelligence. For example, we have been rapidly adopting cloud computing to help us become
more scalable, resilient and agile in the development and deployment of solutions for both colleagues and customers. More
recently, we embarked on an emerging technology strategy called Digital 2025, which we believe puts us on a path to become
a truly digitally-capable and data-driven financial institution.
Our Community Values
Vibrant communities, inclusive economies and a healthy environment are all key to the welfare of our society, and our ongoing
business success. Comerica maintains a strong culture of diversity and inclusion, community involvement, and commitment
to the environment through a wide variety of programs.
2
Diversity serves as one of our seven Core Values, and we relentlessly promote
a culture that recognizes, respects and embraces diversity in everything we
do. This dedication has succeeded in making Comerica a diverse employer
of choice as reflected in our listing as a top company for diversity on the
DiversityInc survey for the 10th consecutive year. This commitment is also
demonstrated in the high level of accountability we demand of our leaders,
including the introduction of a new Senior Officer Diversity Scorecard, which
analyzes and sets goals for workplace diversity, business and social impacts,
compliance, as well as risk.
The health and economic development of the communities we serve is also an
important business priority. We provide much-needed support to individuals
and organizations seeking firm financial footing through a number of initiatives,
such as MicroEnterprise Loan Funds, Technical Assistance programs,
financial education, community reinvestment
lending, and affordable
housing tax credit investments. Additionally, we partner, volunteer with, and
donate to nonprofit organizations to maximize our positive impact within our
communities. An example of this support is our signature Shred Day program
in Dallas, Houston, Phoenix and Detroit, which in 2019 educated consumers
about fraud prevention and securely destroyed and recycled a record of more
than 882,000 pounds of paper, while gathering food and monetary donations
to supply approximately 237,000 meals to those in need.
Environmental responsibility is a central part of our community strategy,
and our efforts in 2019 allowed us to achieve all of our long-term 2020
commitments ahead of schedule (baseline 2012; progress as of September
30, 2019, except paper goal as of December 31, 2019).
• 47% reduction in Greenhouse Gas (GHG) emissions (goal 20%)
• 37% reduction in water consumption (goal 30%)
• 29% reduction in waste to landfill (goal 20%)
• 56% reduction in office copy paper usage (goal 50%)
In addition, we are well on our way to attaining our third generation short-,
medium- and long-term GHG targets with the end goal of eliminating our
GHG emissions entirely by 2050. Our sustainability focus continues to earn
us international recognition, including Corporate Knight’s Global 100 list of the
world’s most sustainable companies. We also finished the year ranked ninth
in Newsweek’s inaugural ranking of America’s Most Responsible Companies.
Over our 170-year history, we have managed through many prosperous
and challenging times. It is our unwavering commitment to our relationship
strategy, coupled with our conservative, consistent approach to banking,
that have allowed us to successfully navigate these ever-changing economic
conditions and create value for you, our shareholders. I firmly believe these
foundational principles will be key to our future success as we continue to
meet the evolving needs of our customers.
Efficiency Ratio1
68%
59%
54%
52%
2016
2017
2018
2019
Return on Equity2
15.82%
16.39%
9.34%
6.22%
2016
2017
2018
2019
Return on Assets
1.75%
1.68%
1.04%
0.67%
2016
2017
2018
2019
1 Noninterest expenses as a percentage of netinterest income &
noninterest income excluding net gains (losses) fromsecurities & a
derivative contract tied to the conversion rate of VisaClass B shares
2 Return on average common shareholders’ equity
I’ll close by thanking our nearly 8,000 colleagues, who are focused on delivering our Promise to Raise Your Expectations® of
what a bank can be. They are truly remarkable, and their hard work, collaborative spirit and dedication are responsible for
our success. Finally, thanks to you, our shareholders, for your continued support.
Sincerely,
Curtis C. Farmer
Chairman, President and Chief Executive Officer
3
SALUTE TO RALPH W. BABB JR.
Ralph W. Babb Jr. played a pivotal role in Comerica’s success for nearly a quarter
of a century. It’s only fitting that as we celebrated our historic 170th anniversary,
he marked his final year as Comerica’s leader.
Ralph retired at the end of 2019, concluding a distinguished 41-year career in
the financial services industry. He joined Comerica in 1995 as the Chief Financial
Officer. In 1999, he was promoted to Vice Chairman. Then in 2002, Ralph became
Comerica’s Chairman, President and CEO.
Ralph completes his career with Comerica with a distinguished and extensive list
of accomplishments, including relocating our corporate headquarters to Dallas in
2007 to position us for further growth and expanding the bank’s reach in the Texas
market with the acquisition of Sterling Bancshares, Inc. in 2011.
Comerica’s financial performance reached new heights under Ralph’s tenure,
surpassing the $70 billion mark in assets for the first time in 2015. And just last
year, Comerica established record marks for share price and market valuation,
coupled with the highest dividend in the bank’s 170-year history. And, during the
challenging economic cycles, Ralph’s steady hand proved invaluable.
Ralph’s legacy also extends into the community where he positioned Comerica at
the forefront, promoting a wide range of diversity, inclusion, volunteer, community
and sustainability initiatives. Ralph personally spearheaded the creation of
Comerica’s diversity department in 2004 and Sustainability office in 2008, which
have been cornerstones in forming Comerica’s Core Values.
Ralph W. Babb Jr.
Former Chairman and Chief Executive Officer
And for our employees, Ralph leaves a culture of investing in our colleagues and providing valuable benefits and engagement
that make Comerica a wonderful place to work.
Ralph’s leadership has placed an indelible mark on Comerica’s past, present and future, and will continue to shape our
success for years to come.
4
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, 2019
Or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________________________ to __________________________
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:
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, $5 par value
CMA
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 ý No o
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý No o
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 ý No o
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.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
At June 28, 2019 (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 $10.7 billion based on the closing price on the New
York Stock Exchange on that date of $72.64 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 7, 2020, the registrant had outstanding 141,346,049 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 28, 2020.
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
in 1973, 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. As of December 31, 2019, Comerica owned directly or indirectly all the outstanding common stock of 2 active
banking subsidiaries (Comerica Bank, a Texas banking association, and Comerica Bank & Trust, National Association) and 29
non-banking subsidiaries. At December 31, 2019, Comerica had total assets of approximately $73.4 billion, total deposits of
approximately $57.3 billion, total loans of approximately $50.4 billion and shareholders’ equity of approximately $7.3 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 “Rate/Volume Analysis” 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, commercial 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 and commercial 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 potentially strengthening the franchises of acquirers.
1
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.
Furthermore, given that Comerica Bank is a bank with assets in excess of $10 billion dollars, it is subject to supervision and
regulation by the Consumer Financial Protection Bureau ("CFPB") for purposes of assessing compliance with federal consumer
financial laws. 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. Pursuant to an FRB
rule finalized on October 10, 2019, bank holding companies with less than $100 billion in total consolidated assets are now exempt.
Banks with less than $100 billion in total consolidated assets, including Comerica Bank, are also exempt from company-
run stress testing requirements under the EGRRCPA.
2
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 and equity securities classified as
available-for-sale, 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. On July 22, 2019, the federal banking agencies issued a
final rule that simplifies certain regulatory capital rules, including the capital treatment of mortgage servicing assets, certain
deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interests. 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. Comerica does not anticipate to elect this deferral, as the transition impact to
retained earnings is not expected to be significant. More information is set forth in the “Capital” section located on pages F-17
through F-19.
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. Comerica and its bank subsidiaries are required to maintain a minimum capital conservation buffer of 2.5 percent in
order to avoid restrictions on capital distributions and discretionary bonuses. 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 total capital ratio, Tier 1 capital ratio,
CET1 capital ratio and a leverage ratio equal to at least 10.0 percent, 8.0 percent, 6.5 percent and 5.0 percent, respectively. 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. 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, 2019, 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, 2019
CET1 capital (minimum $3.1 billion (Consolidated))
Tier 1 capital (minimum $4.1 billion (Consolidated))
Total capital (minimum $5.5 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 (minimum 2.5%)
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 (minimum 2.5%)
Comerica
Incorporated
(Consolidated)
Comerica
Bank
$
$
$
$
6,919
6,919
8,282
68,273
72,773
10.13%
10.13
12.13
9.51
4.13
7,470
7,470
8,855
67,047
71,070
11.14 %
11.14
13.21
10.51
5.14
7,199
7,199
8,371
68,071
72,564
10.58%
10.58
12.30
9.92
4.30
7,229
7,229
8,433
66,857
70,905
10.81 %
10.81
12.61
10.20
4.61
On November 1, 2019, the federal banking regulators issued a final rule that revises the framework for determining the
applicability of regulatory capital and standardized liquidity requirements for large U.S. banking organizations, the U.S.
intermediate holding companies of certain foreign banking organizations, and certain of their depository institution subsidiaries.
Under the final rule, the Liquidity Coverage Ratio and certain capital requirements no longer apply to banking organizations with
total consolidated assets of between $50 billion and $100 billion, including Comerica.
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-17 through F-19 of the Financial Section
4
of this report and Note 20 of the Notes to Consolidated Financial Statements located on pages F-90 through F-92 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, on October 10, 2019, the FRB finalized a rule that exempts bank holding
companies with less than $100 billion in total consolidated assets from these requirements.
Comerica was 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.
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, 2019, 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 net income (as defined and
interpreted by regulation) for that year plus (ii) the retained net income (as defined and interpreted by regulation) for the preceding
two years, less any required transfers to surplus or to fund the retirement of preferred stock. At January 1, 2020, Comerica's
subsidiary banks could declare aggregate dividends of approximately $98 million from retained net profits of the preceding two
years. Comerica's subsidiary banks declared dividends of $1.2 billion in 2019, $1.1 billion in 2018 and $907 million in 2017.
Comerica and its bank subsidiaries must maintain a CET1 capital conservation buffer of 2.5% to avoid becoming subject
to restrictions on capital distributions, including dividends.
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
5
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 to an affiliate, (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
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 continues to monitor 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 became 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 proposed, but not yet adopted
6
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 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 2019, Comerica’s FDIC insurance expense totaled $23 million.
Anti-Money Laundering Regulations
Comerica is subject to several federal laws that are designed to combat money laundering, terrorist financing, and
transactions with persons, companies or foreign governments designated by U.S. authorities ("AML laws"). This category of laws
includes the Bank Secrecy Act, the Money Laundering Control Act, and the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or USA PATRIOT Act.
The AML laws and their 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 AML laws and their 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. On April 16, 2019, the FDIC released
an advanced notice of proposed rulemaking (“ANPR”) 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. The ANPR offers two alternative approaches to
resolution planning for commenters to consider and solicits comment on how to tailor the requirements of the rule to reflect
differences in size, complexity and other factors among the population of large insured depository institutions, and on whether to
increase the current threshold of $50 billion in assets that triggers application of the rule.
8
Incentive-Based Compensation
Comerica is subject to guidance issued by the FRB, OCC and FDIC intended to ensure that the incentive compensation
policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-
taking. The guidance, which covers senior executives as well as other employees who, either individually or as part of a group,
have the ability to expose the banking organization to material amounts of risk, is based upon the key principles that a banking
organization's incentive compensation arrangements (i) should provide employees incentives that appropriately balance risk and
financial results in a manner that does not encourage employees to expose their organizations to imprudent risk; (ii) should be
compatible with effective controls and risk-management; and (iii) should be supported by strong corporate governance, including
active and effective oversight by the organization's board of directors. Banking organizations are expected to review regularly
their incentive compensation arrangements based on these three principles. Where there are deficiencies in the incentive
compensation arrangements, they should be promptly addressed. Enforcement actions may be taken against a banking organization
if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the
organization's safety and soundness, particularly if the organization is not taking prompt and effective measures to correct the
deficiencies. Similar to other large banking organizations, Comerica has been subject to a continuing review of incentive
compensation policies and practices by representatives of the FRB, the Federal Reserve Bank of Dallas and the Texas Department
of Banking since 2011. As part of that review, Comerica has undertaken a thorough analysis of all the incentive compensation
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 monitoring regulations and best practices for sound
incentive compensation practices.
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 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 compliance programs required by the Volcker Rule and has either divested or received extensions for any
holdings in Covered Funds. Additional information on Comerica's portfolio of indirect (through funds) private equity and venture
capital investments, which includes the Covered Funds, is set forth in Note 1 of the Notes to Consolidated Financial Statements
located on page F-48 of the Financial Section of this report.
In October 2019, the five federal agencies with rulemaking authority with respect to the Volcker Rule finalized changes
designed to simplify compliance with the Volcker Rule. The final rule formalized a three-tiered approach to compliance program
requirements for banking entities based on their level of trading activity. As a banking entity with “moderate” trading assets and
liabilities (less than $20 billion), Comerica is now subject to simplified compliance requirements. Additionally, in January 2020,
regulators proposed changes to modify the Volcker Rule’s restrictions on Covered Funds. Comerica continues to follow Volcker
Rule developments.
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
9
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, 2021, 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
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 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 affiliates.
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.
Flood Insurance Rules
Comerica implemented the private flood insurance requirements set forth in the Interagency Final Rule issued on February
20, 2019, which became effective on July 1, 2019. 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:
•
•
•
•
•
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 Line and Credit Personnel
with a framework of sound underwriting practices and potential loan structures. These credit policies also provide the framework
for loan committee 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:
•
•
•
•
•
•
•
•
The borrower's business model and industry characteristics.
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 and certain leveraged transactions in our commercial
portfolio, please see the captions “Energy Lending” and "Leveraged Loans" on page F-27 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. For additional information specific to our CRE
loan portfolio, please see the caption “Commercial Real Estate Lending” on page F-26 of the Financial Section of this report.
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. For additional information specific to our residential real estate loan portfolio, please see the caption
“Residential Real Estate Lending” on pages F-26 through F-27 of the Financial Section of this report.
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EMPLOYEES
As of December 31, 2019, Comerica and its subsidiaries had 7,467 full-time and 481 part-time employees.
AVAILABLE INFORMATION
Comerica maintains an Internet website at www.comerica.com where the Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as soon as reasonably
practicable after those reports are filed with or furnished to the SEC. The Code of Business Conduct and Ethics for Employees,
the Code of Business Conduct and Ethics for Members of the Board of Directors and the Senior Financial Officer Code of Ethics
adopted by Comerica are also available on the Internet website and are available in print to any shareholder who requests them.
Such requests should be made in writing to the Corporate Secretary at Comerica Incorporated, Comerica Bank Tower, 1717 Main
Street, MC 6404, Dallas, Texas 75201.
In addition, pursuant to regulations adopted by the FRB, Comerica makes additional regulatory capital-related disclosures.
Under these regulations, Comerica satisfies a portion of these requirements through postings on its website, and Comerica has
done so and expects to continue to do so without also providing disclosure of this information through filings with the SEC.
Where we have included web addresses in this report, such as our web address and the web address of the SEC, we have
included those web addresses as inactive textual references only. Except as specifically incorporated by reference into this report,
information on those websites is not part hereof.
Item 1A. Risk Factors.
This report includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. In
addition, Comerica may make other written and oral communications from time to time that contain such statements. All statements
regarding Comerica's expected financial position, strategies and growth prospects and general economic conditions Comerica
expects to exist in the future are forward-looking statements. The words, “anticipates,” “believes,” “contemplates,” “feels,”
“expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,” “forecast,” “position,” “target,” “mission,” “assume,”
“achievable,” “potential,” “strategy,” “goal,” “aspiration,” “opportunity,” “initiative,” “outcome,” “continue,” “remain,”
“maintain,” “on track,” “trend,” “objective,” “looks forward,” “projects,” “models” and variations of such words and similar
expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions,
as they relate to Comerica or its management, are intended to identify forward-looking statements.
Comerica cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which
change over time. Forward-looking statements speak only as of the date the statement is made, and Comerica does not undertake
to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-
looking statements are made. Actual results could differ materially from those anticipated in forward-looking statements and future
results could differ materially from historical performance.
In addition to factors mentioned elsewhere in this report or previously disclosed in Comerica's SEC reports (accessible
on the SEC's website at www.sec.gov or on Comerica's website at www.comerica.com), the factors contained below, among others,
could cause actual results to differ materially from forward-looking statements, and future results could differ materially from
historical performance.
CREDIT RISK
•
•
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.
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
automotive, commercial real estate, residential real estate and energy industries. These industries are sensitive to global
economic conditions, supply chain factors and/or commodities prices. Any decline in one of these 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.
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For more information regarding certain of Comerica's lines of business, please see "Concentration of Credit Risk,"
"Automotive Lending," "Commercial Real Estate Lending," "Residential Real Estate Lending" and “Energy Lending”
on pages F-25 through F-27 of the Financial Section of this report.
•
Changes in customer behavior may adversely impact Comerica's business, financial condition and results of
operations.
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. 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, subject
to congressional approval, passed the House of Representatives on December 19, 2019 and the Senate on January 16,
2020. The trade deal was signed by President Trump on January 29, 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 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.
MARKET RISK
•
•
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
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 decreases in the
federal funds rate, or changes in the FRB's balance sheet, will influence the origination of loans, the value of investments,
the generation of deposits and the rates received on loans and investment securities and paid on deposits. Changes in
monetary and fiscal policies are beyond 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.
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. The Federal Reserve
lowered interest rates three times in 2019. A continued low interest rate environment could adversely affect the interest
income Comerica earns on loans and investments. For a discussion of Comerica's interest rate sensitivity, please see,
“Market and Liquidity Risk” beginning on page F-28 of the Financial Section of this report.
Deposits make up a large portion of Comerica’s funding portfolio. 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 two years. 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
and differs from LIBOR in key respects. At this time, while it is expected that SOFR will be the successor to LIBOR, it
is possible that another reference rate will become an accepted alternative to LIBOR.
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 revenues and expenses associated 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;
•
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;
•
for the replacement of LIBOR with an alternative reference rate;
prompt inquiries or other actions from regulators in respect to Comerica’s preparation and readiness
•
enforceability of certain fallback language in LIBOR-based securities; and
result in disputes, litigation or other actions with counterparties regarding the interpretation and
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.
Approximately 75% of Comerica's loans at December 31, 2019 were tied to LIBOR, which excludes the impact of interest
rate swaps converting floating-rate loans to fixed. More information regarding the LIBOR transition is available on page
F-29 under "LIBOR Transition."
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.
LIQUIDITY RISK
•
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 based on interest rates, 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.
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.
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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 December 2019, Fitch
Ratings revised each of Comerica Incorporated and Comerica Bank's outlook from "Stable" to “Negative.” 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.
•
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.
TECHNOLOGY RISK
•
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,
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.
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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.
•
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
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 became 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.
OPERATIONAL RISK
•
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
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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, card processing
services and trust processing services. While Comerica conducts due diligence prior to engaging with third party vendors
and performs ongoing monitoring of vendor controls, it does not control their operations. Further, while Comerica's
vendor management policies and practices are designed to comply with current regulations, these policies and practices
cannot eliminate this risk. In this context, any vendor failure to properly deliver these services could adversely affect
Comerica’s business operations, and result in financial loss, reputational harm, and/or regulatory action.
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.
•
•
•
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.
17
•
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.
COMPLIANCE RISK
•
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 CFPB, 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.
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 share 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.
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.
•
•
FINANCIAL REPORTING RISK
•
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 approximately a $17 million decrease to Comerica's credit loss reserves at adoption, as well as a corresponding
increase to retained earnings of $13 million and a decrease of $4 million to deferred tax assets.
•
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.
18
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-34 through F-36 of
the Financial Section of this report and Note 1 of the Notes to Consolidated Financial Statements located on pages F-45
through F-57 of the Financial Section of this report.
STRATEGIC RISK
•
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.
•
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.
•
Competitive product and pricing pressures within Comerica's markets may change.
Comerica operates in a very competitive environment, which is characterized by competition from a number of other
financial institutions in each market in which it operates. Comerica competes in terms of products and pricing with large
national and regional financial institutions and with smaller financial institutions. Some of Comerica's larger competitors,
including certain nationwide banks that have a significant presence in Comerica's market area, may make available to
their customers a broader array of product, pricing and structure alternatives and, due to their asset size, may more easily
absorb credit losses in a larger overall portfolio. Some of Comerica's competitors (larger or smaller) may have more
liberal lending policies and processes. Increasingly, Comerica competes with other companies based on financial
technology and capabilities, such as mobile banking applications and 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 and commercial 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.
19
•
•
•
If Comerica is unable to compete effectively in products and pricing in its markets, business could decline, which could
have a material adverse effect on Comerica's business, financial condition or results of operations.
The 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.
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.
Management's ability to retain key officers and employees may change.
Comerica's future operating results depend substantially upon the continued service of its executive officers and key
personnel. Comerica's future operating results also depend in significant part upon its ability to attract and retain qualified
management, financial, technical, marketing, sales and support personnel. Competition for qualified personnel is intense,
and Comerica cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number
of persons with the requisite skills to serve in these positions, and it may be increasingly difficult for Comerica to hire
personnel over time.
Further, Comerica's ability to retain key officers and employees may be impacted by legislation and regulation affecting
the financial services industry. In 2016, the FRB, OCC and several other federal financial regulators revised and re-
proposed rules to implement Section 956 of the Dodd-Frank Act. Section 956 directed regulators to jointly prescribe
regulations or guidelines prohibiting incentive-based payment arrangements, or any feature of any such arrangement, at
covered financial institutions that encourage inappropriate risks by providing excessive compensation or that could lead
to a material financial loss. Consistent with the Dodd-Frank Act, the proposed rule would 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.
•
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 any 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
would 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.
20
GENERAL RISK
•
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. While many U.S. economic indicators at the end of 2019 were positive and
consistent with an ongoing economic expansion, activity in the U.S. manufacturing sector slowed and trade policy and
weak global demand remained major sources of uncertainty for businesses and markets. 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.
•
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, technology, operational, compliance, financial reporting and strategic risks could be less effective than
anticipated. As a result, Comerica may not be able to effectively mitigate its risk exposures in particular market
environments or against particular types of risk, which could have a material adverse impact on Comerica's business,
financial condition or results of operations.
For more information regarding risk management, please see "Risk Management" on pages F-20 through F-33 of the
Financial Section of this report.
•
Catastrophic events may adversely affect the general economy, financial and capital markets, specific industries,
and Comerica.
Acts of terrorism, cyber-terrorism, political unrest, war, civil disturbance, armed regional and international hostilities and
international responses to these hostilities, natural disasters (including tornadoes, hurricanes, earthquakes, fires, droughts
and floods), global health risks or pandemics, or the threat of or perceived potential for these events could have a negative
impact on us. 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.
In particular, certain of the regions where Comerica operates, including California, Texas, and Florida, are known for
being vulnerable to natural disasters, 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.
Further, catastrophic events may have an impact on Comerica's customers and in turn, on Comerica.
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.
•
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.
Perceptions in the marketplace regarding Comerica and/or its competitors.
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.
Changes in dividends and capital returns.
Changes in government regulations.
21
•
•
•
Cyclical fluctuations.
Geopolitical conditions such as acts or threats of terrorism or military conflicts.
Activity by short sellers and changing government restrictions on such activity.
General market fluctuations, including real or anticipated changes in the strength of the economy; industry factors and
general economic and political conditions and events, such as economic slowdowns or recessions; interest rate changes,
oil price volatility or credit loss trends, among other factors, could also cause 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, 2019, 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, 2019, 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; 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-92 through F-93 of the Financial
Section of this report.
Item 4. Mine Safety Disclosures.
Not applicable.
22
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 7, 2020, there were approximately 8,695 record holders of Comerica's common stock.
On January 28, 2020, Comerica’s Board of Directors approved a dividend of $0.68 per common share payable on April
1, 2020 to shareholders of record on March 13, 2020, an increase of $0.01 over the prior dividend. 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 dividend restrictions applicable to Comerica is set forth in Note 20 of the Notes to Consolidated
Financial Statements located on pages F-90 through F-92 of the Financial Section of this report, in the "Capital" section on pages
F-17 through F-19 of the Financial Section of this report and in the “Supervision and Regulation” section of this report.
Performance Graph
Our performance graph is available under the caption "Performance Graph" on page F-2 of the Financial Section of this
report.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Authorizations to repurchase up to an additional 15 million shares and 7 million shares of Comerica Incorporated
outstanding common stock were announced by the Board on January 22, 2019 and November 5, 2019, respectively. As of
December 31, 2019, a total of 87.2 million shares have been authorized for repurchase under the share repurchase program since
its inception in 2010. There is no expiration date for Comerica's share repurchase program.
The following table summarizes Comerica's share repurchase activity for the year ended December 31, 2019.
(shares in thousands)
Total first quarter 2019
Total second quarter 2019
Total third quarter 2019
October 2019
November 2019
December 2019
Total fourth quarter 2019
Total 2019
Total Number of Shares
Purchased as Part of
Publicly Announced
Repurchase Plans or
Programs
Remaining
Repurchase
Authorization
(a)
Total Number of
Shares
Purchased
(b)
Average Price
Paid Per
Share
5,094
5,656
5,734
—
901
1,225
2,126
18,610
14,613 (c)
8,957
3,223
3,223
9,322 (d)
8,097
8,097
8,097
5,216
5,658
5,739
3
903
1,231
2,137
18,750
$
$
83.48
75.13
64.53
65.47
69.90
70.84
70.44
73.67
(a) Maximum number of shares that may yet be purchased under the publicly announced plans or programs.
(b)
Includes approximately 140,000 shares (including 11,000 shares in the quarter ended December 31, 2019) 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, 2019. These transactions are not considered part of the Corporation's
repurchase program.
Includes January 2019 equity repurchase authorization for an additional 15 million shares.
Includes November 2019 equity repurchase authorization for an additional 7 million shares.
(c)
(d)
Item 6. Selected Financial Data.
Reference is made to the caption “Selected Financial Data” on page F-3 of the Financial Section of this report.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Reference is made to the sections entitled “2019 Overview and 2020 Outlook,” “Results of Operations," "Strategic Lines
of Business," "Balance Sheet and Capital Funds Analysis," "Risk Management," "Critical Accounting Policies," "Supplemental
Financial Data" and "Forward-Looking Statements" on pages F-4 through F-39 of the Financial Section of this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Reference is made to the subheadings entitled “Market and Liquidity Risk,” “Operational Risk,” "Technology Risk,"
“Compliance Risk” and “Strategic Risk” on pages F-28 through F-33 of the Financial Section of this report.
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Item 8. Financial Statements and Supplementary Data.
Reference is made to the sections entitled “Consolidated Balance Sheets,” “Consolidated Statements of Income,”
“Consolidated Statements of Comprehensive Income,” “Consolidated Statements of Changes in Shareholders' Equity,”
“Consolidated Statements of Cash Flows,” “Notes to Consolidated Financial Statements,” “Report of Management,” “Reports of
Independent Registered Public Accounting Firm,” and “Historical Review” on pages F-40 through F-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 Interim
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 Interim 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-103 and F-104 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 Interim
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 Interim 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,” and “Executive Officers” of Comerica's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on April 28, 2020, which sections are hereby incorporated by reference.
Item 11. Executive Compensation.
The response to this item will be included under the sections captioned “Compensation Committee Interlocks and Insider
Participation,” “Compensation Discussion and Analysis,” “Compensation of Directors,” “Governance, Compensation and
Nominating Committee Report,” “2019 Summary Compensation Table,” “2019 Grants of Plan-Based Awards,” “Outstanding
Equity Awards at Fiscal Year-End 2019,” “2019 Option Exercises and Stock Vested,” “Pension Benefits at Fiscal Year-End 2019,”
“2019 Nonqualified Deferred Compensation,” “Potential Payments upon Termination or Change of Control at Fiscal Year-
End 2019” and "Pay Ratio Disclosure" of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders
to be held on April 28, 2020, 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
24
Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 28, 2020, 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 28, 2020, 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 28, 2020, 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.
2
3.1
3.2
3.3
4.1
4.2
9
10.1†
Financial Statements: The financial statements that are filed as part of this report are included in the Financial Section
on pages F-40 through F-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:
(not applicable)
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.]
Description of Registrant's Securities
(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).
A† 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).
B† 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).
C† 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).
D† 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).
E† 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).
F† 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).
G† 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) (filed as Exhibit 10.1G
to Registrant's Annual Report on Form 10-K for the year ended December 31, 2018).
26
10.2†
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).
A† 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).
B† 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).
C† 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).
D† 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).
E† 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).
F† 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).
G† 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).
H† 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).
I† 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).
J† 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).
K† 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).
L† 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).
M† 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).
N† 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).
O† 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).
10.3†
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).
27
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
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).
A† 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).
B† 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).
C† 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).
D† 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).
E† 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).
10.14†
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).
A† 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).
28
10.15†
10.16†
10.17A†
10.17B†
10.17C†
10.17D†
10.18†
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 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 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).
Restrictive Covenants and General Release Agreement by and between Muneera S. Carr and Comerica Incorporated
dated September 30, 2019 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated September 30,
2019, and incorporated herein by reference).
Restrictive Covenants and General Release Agreement by and between Ralph W. Babb, Jr. and Comerica Incorporated
dated December 17, 2019 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated December 17,
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).
A† Schedule of Named Executive Officers Party to Change of Control Employment Agreement (BE4 and Higher
Version without gross-up or window period-current).
10.19†
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).
A† Schedule of Named Executive Officers Party to Change of Control Employment Agreement (BE4 and Higher
Version without gross-up or window period-2015 version).
10.20†
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).
A† Schedule of Named Executive Officers Party to Change of Control Employment Agreement (BE4 and Higher
Version).
10.21†
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).
10.22†
Form of Change of Control Employment Agreement (BE2-BE3 Version).
13
14
16
18
21
23.1
24
31.1
31.2
32
33
(not applicable)
(not applicable)
(not applicable)
(not applicable)
Subsidiaries of Registrant.
Consent of Ernst & Young LLP.
(not applicable)
Chairman, President and CEO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302
of the Sarbanes-Oxley Act of 2002).
Executive Vice President, Treasurer and Interim 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)
29
34
35
95
99
101
104
†
(not applicable)
(not applicable)
(not applicable)
(not applicable)
Financial statements from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2019,
formatted in Inline XBRL: (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.
The cover page from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2019, formatted
in Inline XBRL (included in Exhibit 101).
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
2019 Overview and 2020 Outlook
Results of Operations
Strategic Lines of Business
Balance Sheet and Capital Funds Analysis
Risk Management
Critical Accounting Policies
Supplemental Financial Data
Forward-Looking Statements
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Management
Reports of Independent Registered Public Accounting Firm
Historical Review
F-2
F-3
F-4
F-6
F-11
F-14
F-20
F-34
F-37
F-38
F-40
F-41
F-42
F-43
F-44
F-45
F-103
F-104
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, 2014 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
2019
2018
2017
2016
2015
(dollar amounts in millions, except per share data)
Years Ended December 31
EARNINGS SUMMARY
Net interest income
Provision for credit losses
Noninterest income
Noninterest expenses
Provision for income taxes
Net income
Net income attributable to common shares
PER SHARE OF COMMON STOCK
Diluted earnings per common share
Cash dividends declared
Common shareholders’ equity
Tangible common equity (d)
Market value
Average diluted shares (in millions)
YEAR-END BALANCES
Total assets
Total earning assets
Total loans
Total deposits
Total medium- and long-term debt
Total common shareholders’ equity
AVERAGE BALANCES
Total assets
Total earning assets
Total loans
Total deposits
Total medium- and long-term debt
Total common shareholders’ equity
CREDIT QUALITY
(a)
(a), (b)
$ 2,339
74
1,010
1,743
334
1,198
1,191
$ 7.87
2.68
51.57
47.07
71.75
151
$73,402
67,767
50,369
57,295
7,269
7,327
$71,488
66,134
50,511
55,481
6,955
7,308
$ 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
(b)
(b)
(c)
$ 2,061
74
1,107
1,860
491
743
738
$
4.14
1.09
46.07
42.34
86.81
178
$71,567
65,880
49,173
57,903
4,622
7,963
$71,452
66,300
48,558
57,258
4,969
7,952
$
754
410
5
415
92
0.19%
1.45
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
$ 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
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
Tier 1 capital as a percentage of risk-weighted assets
Common equity ratio
Tangible common equity as a percentage of tangible assets (d)
$
668
204
11
215
107
0.21%
1.27
3.1x
3.54%
1.68
16.39
33.71
10.22
10.13
10.13
9.98
9.19
$
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) Effective January 1, 2018, adoption of "Topic 606: Revenue from Contracts with Customers" (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) Noninterest expenses included restructuring charges of $53 million, $45 million and $93 million in 2018, 2017 and 2016, respectively.
(c)
The provision for income taxes for 2017 was impacted by a $107 million charge to adjust deferred taxes as a result of the enactment of the Tax Cuts and
Jobs Act.
See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.
(d)
F-3
2019 OVERVIEW AND 2020 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 22 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.
2019 Overview
Full-Year 2019 compared to Full-Year 2018
•
•
•
•
•
•
•
•
•
Net income decreased $37 million, or 3 percent, to $1.2 billion. Net income per diluted common share was a record $7.87
in 2019 compared to $7.20 in 2018, an increase of 9 percent.
Average loans increased $1.7 billion, or 4 percent, to $50.5 billion. The increase primarily reflected increases in Energy,
Mortgage Banker Finance, National Dealer Services, general Middle Market and Commercial Real Estate.
Average deposits decreased $454 million to $55.5 billion. Average noninterest-bearing deposits decreased $2.6 billion,
or 9 percent, driven by customers shifting balances to interest-bearing deposits and utilizing their deposits to fund growth,
acquisitions and capital expenditures as well as choosing other investment options. Average interest-bearing deposits
increased $2.1 billion, or 8 percent, driven by increases of $1.3 billion in relationship-based deposits and $703 million
in other time deposits.
Net interest income decreased $13 million to $2.3 billion, and the net interest margin decreased 4 basis points to 3.54
percent. Both decreases were primarily driven by the impact of higher interest-bearing deposit and debt balances, partially
offset by the benefit from higher loan balances and the net impact of higher short-term rates.
The provision for credit losses increased $75 million to $74 million in 2019 from a benefit of $1 million in 2018, primarily
due to a decline in valuations of select liquidating Energy credits.
Noninterest income increased $34 million to $1.0 billion, including growth in card fees, a decrease in losses related to
securities repositioning and higher deferred compensation asset returns, partially offset by lower service charges on
deposit accounts.
Noninterest expenses decreased $51 million to $1.7 billion, primarily reflecting the end of restructuring charges related
to the GEAR Up efficiency initiative and lower FDIC insurance expense, partially offset by increased technology-related
expenses and outside processing fees.
The provision for income taxes increased $34 million to $334 million, primarily due to a $31 million decrease in discrete
tax benefits.
The Corporation repurchased approximately 18.6 million shares of common stock under the equity repurchase program
and issued cash dividends of $2.68 per share, a 46 percent increase. Altogether, $1.8 billion was returned to shareholders,
an increase of $141 million.
F-4
Full-Year 2020 Outlook
For full-year 2020 compared to full-year 2019 results, management expects the following, assuming a continuation of
the current economic and rate environment:
•
•
•
•
•
•
•
•
Two percent to three percent growth in average loans, reflecting increases in most lines of business, partly offset by
declines in Mortgage Banker Finance and National Dealer Services.
One percent to two percent increase in average deposits, with a continued focus on attracting and retaining relationship-
based deposits.
Decrease in net interest income due to:
◦
◦
◦
the net impact of lower interest rates, including a net reduction of $10 million to $15 million in the first quarter
of 2020 compared to the fourth quarter of 2019; followed by a modest decrease in each of the remaining quarters
of the year as longer-dated assets and liabilities reprice as well as continued hedging activity;
the full-year impact from 2019 funding actions and lower nonaccrual interest recoveries;
partially offset by the benefit from loan growth.
Continued strong credit quality, with net credit-related charge-offs similar to 2019 levels (15 basis points to 25 basis
points of average total loans).
One percent growth in noninterest income, reflecting growth in card fees and fiduciary income, partially offset by lower
derivative and warrant income, and assuming no returns on deferred compensation assets.
Three percent increase in noninterest expenses, reflecting higher outside processing expenses in line with growing revenue,
technology expenditures, typical inflationary pressures and higher pension expense.
Income tax expense to be approximately 23 percent of pre-tax income.
Common equity Tier 1 capital ratio target of approximately 10 percent.
F-5
RESULTS OF OPERATIONS
The following provides a comparative discussion of the Corporation's consolidated results of operations for 2019 compared
to 2018. A comparative discussion of results for 2018 compared to 2017 is provided in the "Results of Operations" section beginning
on page F-6 of the Corporation's 2018 Annual Report. 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
Other time deposits
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
2019
2018
2017
Interest
Average
Balance
$ 32,053 $ 1,544
184
447
19
52
74
119
2,439
3,325
9,170
557
1,019
1,929
2,458
50,511
Interest
Average
Average
Rate
Balance
4.82% $ 30,534 $ 1,416
5.54
164
3,155
4.88
429
9,131
3.44
18
470
5.13
51
1,021
3.85
75
1,983
4.85
2,472
109
4.83
2,262
48,766
Average
Rate
Interest
Average
Balance
4.64% $ 30,415 $ 1,162
124
2,958
5.21
358
9,005
4.69
13
509
3.82
47
1,157
4.97
74
1,989
3.77
94
2,525
4.41
1,872
48,558
4.64
230
67
297
69
2
2,807
2.44
2.43
2.44
2.05
1.26
4.24
0.91
214
0.05
1
1.18
30
2.44
17
— 1.39
0.91
262
2.39
9
2.82
197
1.29
468
9,348
2,772
12,120
3,360
143
66,134
887
(667)
5,134
$ 71,488
$ 23,417
2,166
2,522
705
27
28,837
369
6,955
36,161
26,644
1,375
7,308
$ 71,488
9,099
2,711
11,810
4,700
134
65,410
1,135
(695)
4,874
$ 70,724
$ 22,378
2,199
2,090
2
25
26,694
62
5,842
32,598
29,241
1,076
7,809
$ 70,724
214
51
265
91
1
2,619
111
1
10
—
—
122
1
144
267
2.28
1.86
2.19
1.94
0.96
3.99
0.50
0.04
0.46
1.86
1.19
0.46
1.93
2.47
0.82
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
2,470
1
56
26,245
277
4,969
31,491
31,013
996
7,952
$ 71,452
Average
Rate
3.82%
4.18
3.97
2.63
4.07
3.70
3.70
3.85
2.17
1.66
2.05
1.09
0.64
3.29
0.15
0.02
0.36
1.10
0.64
0.16
1.14
1.51
0.38
Net interest income/rate spread
$ 2,339
Impact of net noninterest-bearing sources of funds
Net interest margin (as a percentage of average earning
assets)
2.95
0.59
3.54%
$ 2,352
3.17
0.41
3.58%
$ 2,061
2.91
0.20
3.11%
(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
Other time deposits
Total interest-bearing deposits
Short-term borrowings
Medium- and long-term debt
Total interest expense
$
54
11
16
(2)
1
1
11
92
15
17
32
5
—
129
96
—
10
—
106
—
16
122
2019/2018
Increase
(Decrease)
Due to
Volume (a)
Increase
(Decrease)
Due to Rate
Net
Increase
(Decrease)
Increase
Due to Rate
2018/2017
Increase
(Decrease)
Due to
Volume (a)
$
74
$
128
$
248
$
Net
Increase
(Decrease)
$
254
9
2
3
—
(2)
(1)
85
1
(1)
—
(27)
1
59
7
—
10
17
34
8
37
79
20
18
1
1
(1)
10
177
16
16
32
(22)
1
188
103
—
20
17
140
8
53
201
(20)
$
(13)
$
30
65
6
11
1
17
378
12
5
17
46
1
442
74
1
3
—
78
2
50
130
312
6
10
6
(1)
(7)
—
(2)
12
—
(2)
(2)
(15)
—
(5)
4
—
(2)
—
2
(4)
18
16
40
71
5
4
1
15
390
12
3
15
31
1
437
78
1
1
—
80
(2)
68
146
291
Net interest income
$
(a) Rate/volume variances are allocated to variances due to volume.
$
7
$
(21)
$
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 fair value hedges are
included in interest expense on medium- and long-term debt. Additionally, the portion of gains and losses on risk management
interest rate swaps that convert variable-rate loans to fixed rates through cash flow hedges that relate to the earnings effect of the
hedged loans during the period are included in loan interest income. 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, 2019, 2018 and 2017 and
details of the components of the change in net interest income for 2019 compared to 2018 as well as 2018 compared to 2017.
Net interest income was $2.3 billion, a decrease of $13 million. The impact to net interest income from higher balances
of interest-bearing sources of funds and lower balances with the Federal Reserve Bank (FRB) (included in interest-bearing deposits
with banks) was mostly offset by higher loan balances and the net impact of higher short-term rates. Earning assets increased $724
million, primarily reflecting increases of $1.7 billion in loans and $310 million in investment securities, partially offset by a $1.3
billion decrease in interest-bearing deposits with banks. Interest-bearing sources increased $3.6 billion, primarily reflecting a $2.1
billion increase in interest-bearing deposits and a $1.1 billion increase in medium- and long-term debt.
The net interest margin decreased 4 basis points to 3.54 percent, from 3.58 percent, primarily reflecting higher balances
of interest-bearing sources of funds, mostly offset by a decrease in lower-yielding FRB deposit balances, higher loan balances and
the net impact of 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.
F-7
Provision for Credit Losses
The provision for credit losses was $74 million, compared to a benefit of $1 million. The provision for credit losses
includes both the provision for loan losses and the provision for credit losses on lending-related commitments.
The provision for loan losses is recorded to maintain the allowance for loan losses at the level deemed appropriate by the
Corporation to cover probable credit losses inherent in the portfolio. The provision for loan losses was $73 million, an increase
of $62 million compared to $11 million, primarily driven by an increase in Energy reserves due to a decline in valuations of select
liquidating Energy credits. Net loan charge-offs increased $56 million to $107 million, or 0.21 percent of average total loans,
compared to $51 million, or 0.11 percent. The increase was driven by an $80 million increase in Energy net loan charge-offs, to
$86 million.
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 provision of $1 million, an increase of $13 million compared to a benefit of $12
million. The benefit in 2018 primarily reflected a decrease in Energy commitments. There were no lending-related commitment
charge-offs in 2019 and 2018.
For further discussion of the allowance for loan losses and the allowance for credit losses on lending-related commitments,
including the methodology used in the determination of the allowances and an analysis of the changes in the allowances, refer to
Note 1 to the consolidated financial statements and the "Credit Risk" section of this financial review.
Noninterest Income
(in millions)
Years Ended December 31
Card fees
Fiduciary income
Service charges on deposit accounts
Commercial lending fees
Foreign exchange income
Bank-owned life insurance
Letter of credit fees
Brokerage fees
Net securities losses
Other noninterest income (b)
Total noninterest income
2019
2018
2017 (a)
$
$
257
206
203
91
44
41
38
28
(7)
109
1,010
$
$
244
206
211
85
47
39
40
27
(19)
96
976
$
$
333
198
227
85
45
43
45
23
—
108
1,107
(a) Card fees and fiduciary income in 2017 do not reflect the 2018 adoption of new accounting guidance for revenue from contracts with
customers (Accounting Standards Codification Topic 606). Refer to page F-8 of the "Results of Operations" section in the Corporation's
2018 Annual Report for further information.
(b) The table below provides further details on certain categories included in other noninterest income.
Noninterest income increased $34 million to $1.0 billion, compared to $976 million. The change in noninterest income
included losses of $8 million and $20 million related to repositioning of the securities portfolio in 2019 and 2018, respectively,
and an $11 million increase in deferred compensation asset returns (offset in noninterest expenses). The remaining $11 million
increase was primarily due to increases in card fees, commercial lending fees and customer derivative income, partially offset by
a decrease in service charges on deposit accounts.
Card fees consist primarily of interchange and other fee income earned on government prepaid card, commercial card,
debit/Automated Teller Machine (ATM) card and merchant payment processing services. Card fees increased $13 million, or 5
percent. The increase 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 $8 million, or 3 percent. The decrease primarily reflected
higher earnings credit allowances provided on commercial customer deposit balances due to the increase in short-term interest
rates.
Commercial lending fees include the assessments on the unused portion of lines of credit (unused commitment fees),
syndication agent fees and loan servicing fees. These fees increased $6 million, or 7 percent, primarily reflecting an increase in
syndication agent fees.
Other noninterest income increased $13 million, or 13 percent, driven by increases of $11 million in deferred compensation
asset returns (offset in noninterest expenses) and $6 million in customer derivative income as well as a $6 million gain on the sale
of the Corporation's Health Savings Account business as illustrated in the following table. These increases were partially offset
F-8
by decreases of $5 million due to the wind down of a retirement savings program in 2018 and $4 million in income from tax-credit
investments (both included in all other noninterest income).
(in millions)
Years Ended December 31
Customer derivative income
Investment banking fees
Securities trading income
Income from principal investing and warrants
Deferred compensation asset returns (a)
Net gain on sale of business (b)
All other noninterest income
Other noninterest income
2019
2018
2017
$
$
32
6
9
7
9
6
40
109
$
$
26
9
8
4
(2)
—
51
96
$
$
26
9
8
6
8
—
51
108
(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.
(b) Gain on sale of the Corporation's Health Savings Account business.
Noninterest Expenses
(in millions)
Years Ended December 31
Salaries and benefits expense
Outside processing fee expense
Occupancy expense
Software expense
Equipment expense
Advertising expense
FDIC insurance expense
Restructuring charges
Other noninterest expenses
Total noninterest expenses
2019
2018
2017 (a)
$
$
1,020
264
154
117
50
34
23
—
81
1,743
$
$
1,009
255
152
125
48
30
42
53
80
1,794
$
$
961
366
154
126
45
28
51
45
84
1,860
(a) Outside processing fee expense in 2017 does not reflect the 2018 adoption of new accounting guidance for revenue from contracts with
customers (Accounting Standards Codification Topic 606). Refer to page F-8 of the "Results of Operations" section in the Corporation's
2018 Annual Report for further information.
Noninterest expenses decreased $51 million to $1.7 billion. Excluding $53 million in restructuring charges completed in
2018, noninterest expenses increased $2 million, primarily due to increases in salaries and benefits expense, outside processing
fees, advertising expense and smaller increases in various other categories, mostly offset by decreases in FDIC insurance expense,
pension expense and software expense.
Salaries and benefits expense increased $11 million, or 1 percent. The increase in salaries and benefits expense was driven
by higher technology-related labor costs, deferred compensation expense (offset in noninterest income) and merit increases, partially
offset by lower incentive compensation tied to financial performance.
Outside processing fee expense increased $9 million, or 3 percent, compared to $255 million in 2018, primarily due to
volume-driven increases in merchant payment and government card processing expenses tied to card fee revenues, increased
hosting expenses associated with migrating to cloud-based platforms and a $4 million vendor transition fee incurred in 2019,
partially offset by a $7 million reduction in processing expenses related to the end of a retirement savings program in 2018.
Software expense decreased $8 million, or 6 percent, primarily reflecting a decrease in software depreciation expense,
as several large internally developed applications became fully depreciated in 2018 and 2019.
FDIC insurance expense decreased $19 million, or 45 percent, primarily due to the completion of FDIC surcharges in
2018.
Advertising expense increased $4 million, or 16 percent, primarily due to increased marketing expenses related to digital
banking technologies as well as an increase in sponsorship expenses, reflecting recent agreements with sports franchises.
Other noninterest expenses included a decrease of $14 million in other pension and postretirement benefit costs, mostly
offset by increases of $5 million due to a state business tax refund in 2018 and $3 million each in operational losses and consulting
fees.
F-9
Income Taxes and Related Items
The provision for income taxes was $334 million in 2019, compared to $300 million in 2018. The $34 million increase
in the provision for income taxes primarily reflected a $31 million decrease in discrete tax benefits, to $17 million in 2019 from
$48 million in 2018. 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 $22 million from employee stock
transactions. The discrete benefit in 2019 included $5 million from adjustments to annual state tax filings in third quarter of 2019
and tax benefits of $12 million from employee stock transactions.
Net deferred tax assets were $42 million at December 31, 2019, compared to $166 million at December 31, 2018. Refer
to Note 18 to the consolidated financial statements for information about the components of net deferred tax assets. Deferred tax
assets of $329 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, 2019 and 2018. 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.
F-10
STRATEGIC LINES OF BUSINESS
The Corporation has strategically aligned its operations into three major business segments: the Business Bank, the Retail
Bank and Wealth Management. These business segments are differentiated based 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. The
Other category includes items not directly associated with the 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 22 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 the business and market segments for the years ended December 31, 2019, 2018 and 2017.
The Corporation's management accounting system assigns balance sheet and income statement items to each segment
using certain methodologies, which are regularly reviewed and refined. These methodologies may be modified as the management
accounting system is enhanced and changes occur in the organizational structure and/or product lines.
Net interest income for each segment reflects the interest income generated by earning assets less interest expense on
interest-bearing liabilities plus the net impact from associated internal funds transfer pricing (FTP). 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. As overall market rates were higher in 2019, business segments, particularly
those focused on generating deposits, benefited from higher FTP crediting rates on deposits compared to the prior year. Similarly,
FTP charges for funding loans were higher in 2019. Effective January 1, 2019, the Corporation prospectively discontinued
allocating an additional FTP charge for the cost of maintaining liquid assets to support potential draws on unfunded loan
commitments.
The following sections present a summary of the performance of each of the Corporation's business and market segments
for 2019 compared to 2018.
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
$
2019
2018
2017
1,021
83
140
1,244
(56)
10
1,198
82% $
7
11
100%
1,024
65
121
1,210
(1)
26
1,235
85% $
5
10
100%
755
(6)
87
836
(23)
(70)
743
Finance (a)
Other (b)
Total
Included losses, net of tax, of $6 million and $15 million in 2019 and 2018, respectively, due to repositioning the securities portfolio.
Included net discrete tax benefits of $17 million and $48 million in 2019 and 2018, respectively, and a net discrete tax charge of $72 million
in 2017.
$
$
$
(a)
(b)
90%
(1)
11
100%
The Business Bank's net income decreased $3 million to $1.0 billion. Average loans increased $1.9 billion and average
deposits decreased $1.1 billion. Net interest income increased $42 million to $1.7 billion. An increase in loan income of $160
million was partially offset by a $57 million increase in allocated net FTP charges and a $61 million increase in deposit costs. The
provision for credit losses increased $82 million to $88 million, primarily reflecting an increase in Energy reserves. Net credit-
related charge-offs increased $59 million to $111 million, primarily due to a decline in valuations of select liquidating Energy
credits, partially offset by decreases in general Middle Market and Technology and Life Sciences. Noninterest income increased
$8 million, primarily reflecting increases of $12 million in card fees and $6 million in commercial lending fees, partially offset
by a $4 million decrease in income from tax credit investments, as well as smaller decreases in other categories. Excluding
restructuring charges of $30 million in 2018, noninterest expenses decreased $22 million, primarily reflecting decreases of $15
million in corporate overhead and $14 million in FDIC insurance expense, partially offset by an increase of $7 million in outside
processing fee expense.
F-11
The Retail Bank's net income increased $18 million to $83 million. Net interest income increased $20 million to $568
million. Increases of $58 million in allocated net FTP credits and $9 million in loan income were partially offset by a $47 million
increase in deposit costs. The provision for credit losses decreased $3 million to a benefit of $4 million. Noninterest income
decreased $5 million, primarily reflecting a $5 million decrease due to the end of a retirement savings program in 2018 and a $5
million decrease in service charges on deposit accounts, partially offset by a $6 million gain on the 2019 sale of the Corporation's
HSA business and smaller increases in other categories. Excluding restructuring charges of $15 million in 2018, noninterest
expenses increased $9 million, primarily reflecting increases of $16 million in corporate overhead and $4 million in equipment
expense, primarily related to banking center modernization, partially offset by decreases of $7 million in outside processing fee
expense, due to the end of a retirement savings program in 2018, and $4 million in FDIC insurance expense.
Wealth Management's net income increased $19 million to $140 million. Net interest income increased $2 million to
$183 million. The provision for credit losses decreased $11 million to a benefit of $14 million. Net credit-related recoveries
increased $4 million. Noninterest income increased $4 million to $270 million, primarily reflecting an increase of $2 million in
customer derivative income. Excluding restructuring charges of $8 million in 2018, noninterest expenses were stable.
The Finance segment's net loss increased $55 million to $56 million. Net interest expense increased $80 million to $126
million, primarily reflecting an increase in other time deposits and higher levels of wholesale funding. Net income also benefited
from a $12 million decrease in losses related to securities repositioning.
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)
$
2019
2018
2017
369
456
119
300
1,244
(46)
1,198
30% $
36
10
24
100%
326
379
228
277
1,210
25
1,235
27% $
31
19
23
100%
247
232
175
182
836
(93)
743
30%
27
21
22
100%
(a)
Total
$
Included net discrete tax benefits of $17 million and $48 million in 2019 and 2018, respectively, and a net discrete tax charge of $72 million
in 2017, as well as losses, net of tax, of $6 million and $15 million in 2019 and 2018, respectively, due to repositioning the securities
portfolio.
$
$
The Michigan market's net income increased $43 million to $369 million. Average loans increased $22 million and average
deposits decreased $689 million. Net interest income increased $2 million to $729 million. Increases of $27 million in loan income
and $23 million in allocated net FTP credits were partially offset by a $48 million increase in deposit costs. The provision for
credit losses decreased $41 million to a benefit of $11 million, primarily reflecting decreases in general Middle Market, National
Dealer Services and Small Business. Net credit-related charge-offs increased $4 million to $11 million. Noninterest income
decreased $5 million, primarily reflecting a $4 million decrease in service charges on deposit accounts. Excluding restructuring
charges of $16 million in 2018, noninterest expenses decreased $7 million, primarily reflecting decreases of $6 million each in
FDIC insurance expense and corporate overhead, partially offset by a $2 million increase in outside processing fee expense and
smaller increases in other categories.
The California market's net income increased $77 million to $456 million. Average loans increased $257 million and
average deposits decreased $107 million. Net interest income increased $23 million to $811 million. An increase of $56 million
in loan income and a decrease of $12 million in allocated net FTP charges were partially offset by a $45 million increase in deposit
costs. The provision for credit losses decreased $59 million to a benefit of $33 million, primarily reflecting decreases in Technology
and Life Sciences, general Middle Market and Private Banking, partially offset by increases in Corporate Banking and
Entertainment. Net credit-related charge-offs decreased $19 million to $8 million, primarily reflecting decreases in general Middle
Market, as well as Technology and Life Sciences. Noninterest income increased $9 million to $173 million, primarily reflecting
increases of $5 million in commercial lending fees and $4 million in warrant income. Excluding restructuring charges of $15
million in 2018, noninterest expenses decreased $3 million, primarily reflecting decreases of $6 million in FDIC insurance expense
and $3 million in salaries and benefits expense, partially offset by a $4 million increase in corporate overhead and smaller increases
in other categories.
The Texas market's net income decreased $109 million to $119 million. Average loans increased $804 million and average
deposits decreased $212 million. Net interest income increased $19 million to $493 million. An increase in loan income of $54
million was partially offset by increases of $20 million in allocated net FTP charges and $15 million in deposit costs. The provision
for credit losses increased $172 million to $119 million from a benefit of $53 million, primarily reflecting an increase in Energy,
F-12
partially offset by a decrease in Technology and Life Sciences. Net credit-related charge-offs increased $81 million to $93 million,
primarily reflecting an increase in Energy. Noninterest income was stable. Excluding restructuring charges of $15 million in 2018,
noninterest expenses decreased $5 million, primarily reflecting decreases of $3 million each in salaries and benefits expense and
FDIC insurance expense.
Other Markets' net income increased $23 million to $300 million. Average loans increased $662 million and average
deposits decreased $239 million. Net interest income increased $20 million to $373 million. An increase in loan income of $40
million was partially offset by increases of $11 million in allocated net FTP charges and $9 million in deposit costs. The provision
for credit losses decreased $4 million to a benefit of $5 million from a benefit of $1 million. Net credit-related charge-offs decreased
$10 million to net recoveries of $5 million, primarily reflecting decreases in Small Business and Private Banking. Noninterest
income increased $6 million due to a $7 million increase in card fees. Excluding restructuring charges of $7 million in 2018,
noninterest expenses were unchanged in 2019.
Net income for the Finance & Other category decreased $71 million to a net loss of $46 million from net income of $25
million. Net interest income decreased $77 million to net interest expense of $67 million, primarily reflecting an increase in other
time deposits and higher levels of wholesale funding. Net income was also impacted by a $31 million decrease in discrete tax
benefits, partially offset by a $12 million decrease in losses related to securities repositioning.
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
2019
2018
2017
192
123
96
17
7
1
25
436
193
122
96
17
7
1
25
436
194
122
97
17
7
1
25
438
F-13
BALANCE SHEET AND CAPITAL FUNDS ANALYSIS
Analysis of Investment Securities and Loans
(in millions)
December 31
Investment securities available-for-sale:
2019
2018
2017
2016
2015
U.S. Treasury and other U.S. government agency securities $ 2,792
9,606
Residential mortgage-backed securities (a)
—
State and municipal securities
—
Corporate debt securities
—
Equity and other non-debt securities
12,398
Total investment securities available-for-sale
Investment securities held to maturity:
Residential mortgage-backed securities (a)
Total investment securities
Commercial loans
Real estate construction loans
Commercial mortgage loans
Lease financing
International loans:
Banks and other financial institutions
Commercial and industrial
Total international loans
Residential mortgage loans
Consumer loans:
Home equity
Other consumer
Total consumer loans
Total loans
$ 2,727
9,318 (b)
—
—
—
12,045
— (b)
$ 12,045
$ 31,976
3,077
9,106
507
—
1,013
1,013
1,970
$ 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
—
$ 12,398
$ 31,473
3,455
9,559
588
—
1,009
1,009
1,845
1,711
729
2,440
$ 50,369
1,765
749
2,514
$ 50,163
1,816
738
2,554
$ 49,173
1,800
722
2,522
$ 49,088
1,720
765
2,485
$ 49,084
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(a)
(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-14
Earning Assets
Loans
On a period-end basis, total loans increased $206 million to $50.4 billion at December 31, 2019, compared to $50.2
billion at December 31, 2018. Average total loans increased $1.7 billion to $50.5 billion in 2019, compared to $48.8 billion in
2018. The following tables provide information about the changes in the Corporation's average loan portfolio in 2019, compared
to 2018.
(dollar amounts in millions)
Years Ended December 31
By Business Line:
General Middle Market
National Dealer Services
Energy
Equity Fund Services
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
2019
2018
Change
Percent
Change
$
$
$
$
$
$
12,134
7,652
2,449
2,570
1,265
1,200
739
28,009
4,231
2,150
5,595
3,487
43,472
2,104
4,935
50,511
32,053
3,325
9,170
557
1,019
1,929
1,769
689
2,458
50,511
12,553
18,540
10,616
8,802
50,511
$
$
$
$
$
$
11,800
7,294
1,868
2,408
1,400
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
9,812
8,140
48,766
$
$
$
$
$
$
334
358
581
162
(135)
101
8
1,409
(106)
434
308
(191)
1,854
37
(146)
1,745
1,519
170
39
87
(2)
(54)
20
(34)
(14)
1,745
22
257
804
662
1,745
3%
5
31
7
(10)
9
1
5
(2)
25
6
(5)
4
2
(3)
4%
5%
5
—
19
—
(3)
1
(5)
(1)
4%
—%
1
8
8
4%
Middle Market business lines generally serve customers with annual revenue between $30 million and $500 million.
Within the Middle Market business lines, the largest changes were increases in Energy, National Dealer Services and General
Middle Market. Customers in the Energy business line are primarily engaged in the oil and gas businesses. The $581 million
increase in average Energy loans primarily reflected reduced capital market activity, which drove higher utilization. For more
information on Energy loans, refer to "Energy Lending" in the "Risk Management" section of this financial review. National Dealer
Services provides floor plan inventory financing and commercial mortgages to auto dealerships. The $358 million increase in
average National Dealer Services loans and the $334 million increase in General Middle Market loans largely reflected the expansion
of new and existing relationships.
F-15
Mortgage Banker Finance provides short-term, revolving lines of credit to independent mortgage banking companies
and therefore partly reflects the level of home sales and refinancing activity in the market as a whole. The $434 million increase
was primarily due to elevated refinancing activity and new customer acquisition.
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, 2019
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Years
U.S. Treasury and other U.S.
government agency securities
$
Residential mortgage-backed
securities (b)
$
Total investment securities
(a) Based on final contractual maturity.
(b)
30
—
30
1.68% $ 2,762
2.48% $
—
—% $
—
—% $ 2,792
2.47%
2.2
—
132
3.62
1,013
2.26
8,461
2.42
9,606
2.42
1.68% $ 2,894
2.53% $ 1,013
2.26% $ 8,461
2.42% $ 12,398
2.43%
22.3
17.9
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
Investment securities increased $353 million to $12.4 billion at December 31, 2019, from $12.0 billion at December 31,
2018. At December 31, 2019, the weighted-average expected life of the Corporation's residential mortgage-backed securities
portfolio was approximately 2.9 years. On an average basis, investment securities increased $310 million to $12.1 billion in 2019,
compared to $11.8 billion in 2018. The increase was primarily due unrealized gains due to lower interest rates.
The Corporation repositioned treasury securities by selling $1.0 billion in 2019 and $1.3 billion in 2018 and purchasing
higher yielding treasuries. This resulted in after-tax losses of $6 million and $15 million in 2019 and 2018, respectively.
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 increased $1.7 billion to $4.8 billion at December 31, 2019. On an average basis, interest-bearing deposits with banks
decreased $1.3 billion to $3.4 billion in 2019.
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 $21 million to $155 million at December 31, 2019. On an average basis, other short-
term investments increased $9 million to $143 million in 2019.
Deposits and Borrowed Funds
At December 31, 2019, total deposits were $57.3 billion, an increase of $1.7 billion, or 3 percent, compared to $55.6
billion at December 31, 2018. The increase reflects an increase of $3.0 billion, or 11 percent, in interest-bearing deposits, partially
offset by a decrease of $1.3 billion, or 5 percent, in noninterest-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
Other time deposits
Foreign office time deposits
Total deposits
Short-term borrowings
Medium- and long-term debt
Total borrowed funds
n/m - not meaningful
2019
2018
Change
Percent
Change
$
$
$
$
26,644
23,417
2,166
2,522
705
27
55,481
369
6,955
7,324
$
$
$
$
29,241
22,378
2,199
2,090
2
25
55,935
62
5,842
5,904
$
$
$
$
(2,597)
1,039
(33)
432
703
2
(454)
307
1,113
1,420
(9)%
5
(2)
21
n/m
10
(1)%
n/m
19
24 %
Average deposits decreased $454 million to $55.5 billion in 2019, compared to $55.9 billion in 2018, reflecting a decrease
of $2.6 billion in noninterest-bearing deposits, partially offset by an increase of $2.1 billion in interest-bearing deposits. The decline
in noninterest-bearing deposits was primarily the result of customers shifting balances to interest-bearing deposits and utilizing
their deposits to fund growth, acquisitions and capital expenditures as well as choosing other investment options. The increase in
F-16
interest-bearing deposits reflected increases of $1.3 billion in relationship-based deposits and $703 million in other time deposits.
Other time deposits, primarily brokered deposits, provided low-cost, flexible funding.
Short-term borrowings totaled $71 million at December 31, 2019, an increase of $27 million compared to $44 million
at December 31, 2018. Short-term borrowings primarily include federal funds purchased, short-term FHLB advances and securities
sold under agreements to repurchase. Average short-term borrowings increased $307 million, to $369 million in 2019, compared
to $62 million in 2018.
Total medium- and long-term debt at December 31, 2019 increased $806 million to $7.3 billion, compared to $6.5 billion
at December 31, 2018. The increase in medium- and long-term debt reflected issuances of $550 million of long-term notes and
$500 million of medium-term notes, partially offset by the maturity of $350 million of medium-term notes. The Corporation uses
medium- and long-term debt, which includes long-term FHLB advances, medium- and long-term senior notes as well as
subordinated notes, to provide funding to support earning assets, liquidity and regulatory capital. Average medium- and long-term
debt increased $1.1 billion, or 19 percent, to $7.0 billion in 2019, compared to $5.8 billion in 2018.
Further information on medium- and long-term debt is provided in Note 12 to the consolidated financial statements.
Capital
Total shareholders' equity decreased $180 million to $7.3 billion at December 31, 2019, compared to $7.5 billion at
December 31, 2018. The following table presents a summary of changes in total shareholders' equity in 2019.
(in millions)
Balance at January 1, 2019
Cumulative effect of change in accounting principles
Net income
Cash dividends declared on common stock
Purchase of common stock
Other comprehensive income:
Investment securities
Cash flow hedges
Defined benefit and other postretirement plans
Total other comprehensive income
Issuance of common stock under employee stock plans
Share-based compensation
Balance at December 31, 2019
$
$
7,507
(14)
1,198
(398)
(1,380)
374
1
39
7,327
$
203
34
137
Further information about other comprehensive income is provided in the Consolidated Statements of Comprehensive
Income and Note 14 to the consolidated financial statements.
The Corporation expects to continue to return capital to shareholders with a target of maintaining a common equity Tier
1 capital ratio of approximately 10 percent. At December 31, 2019, the Corporation's Tier 1 capital ratio was 10.13 percent. The
timing and ultimate amount of future distributions will be subject to various factors including financial performance, capital needs
and market conditions.
The Board of Directors (the Board) authorized additional share repurchases of up to 15 million shares and 7 million
shares of Comerica Incorporated common stock in January 2019 and November 2019, respectively, in addition to the 4.7 million
shares remaining at December 31, 2018 under the Board's prior authorizations for the share repurchase program. During 2019,
the Corporation repurchased 18.6 million shares for a total of $1.4 billion. At December 31, 2019, 8.1 million shares remained
authorized for repurchase under the share repurchase program. Repurchases of common stock under the authorization may include
open market purchases, privately negotiated transactions or accelerated repurchase programs. The number of shares ultimately
purchased during 2020 will depend on many factors, including capital needs of the Corporation and market conditions. There is
no expiration date for the Corporation's share repurchase program.
The Board approved a 7-cent increase in the quarterly dividend, to $0.67 per share, in January 2019 and approved an
additional 1-cent increase to $0.68 per share in January 2020, effective for the dividend payable April 1, 2020.
The following table summarizes the Corporation’s share repurchase activity for the year ended December 31, 2019.
F-17
(shares in thousands)
First quarter 2019
Second quarter 2019
Third quarter 2019
Fourth quarter 2019
Total 2019
Total Number of Shares
Purchased as Part of Publicly
Announced Repurchase
Plans or Programs
Remaining
Repurchase
Authorization
(a)
Total Number
of Shares
Purchased
(b)
Average Price
Paid Per
Share
5,094
5,656
5,734
2,126
18,610
(c)
14,613
8,957
3,223
8,097 (d)
8,097
5,216
5,658
5,739
2,137
18,750
$
$
83.48
75.13
64.53
70.44
73.67
(a) Maximum number of shares that may yet be purchased under the publicly announced plans or programs.
(b) Includes approximately 140,000 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, 2019. These transactions are not considered part of the Corporation's repurchase program.
(c) Includes January 2019 equity repurchase authorization for an additional 15 million shares.
(d) Includes November 2019 equity repurchase authorization for an additional 7 million shares.
The Corporation is subject to the capital adequacy standards under the Basel III regulatory framework (Basel III). This
regulatory framework establishes comprehensive methodologies for calculating regulatory capital and risk-weighted assets (RWA).
Basel III also set minimum capital ratios as well as overall capital adequacy standards.
Under Basel III, regulatory capital comprises common equity Tier 1 (CET1) capital, additional Tier 1 capital and Tier II
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 (AOCI) related to debt and equity securities classified
as available-for-sale as well as for cash flow hedges and 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. 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 transition impact on retained earnings of the new current expected credit loss accounting
standard (CECL), effective for the Corporation on January 1, 2020, over a period of three years. The Corporation does not anticipate
to elect this deferral. The transition impact to retained earnings is not expected to be significant. For further information about the
adoption of CECL, refer to Note 1 to the consolidated financial statement.
The Corporation computes RWA using the standardized approach. Under the standardized approach, RWA is generally
based on supervisory risk-weightings which vary by counterparty type and asset class. Under the Basel III standardized approach,
capital is required for credit risk RWA, to cover the risk of unexpected losses due to failure of a customer or counterparty to meet
its financial obligations in accordance with contractual terms; and if trading assets and liabilities exceed certain thresholds, capital
is also required for market risk RWA, to cover the risk of losses due to adverse market movements or from position-specific factors.
The following table presents the minimum ratios required to be considered "adequately capitalized."
4.5%
6.0
8.0
2.5
4.0
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 Corporation's capital ratios exceeded minimum regulatory requirements as follows:
December 31, 2019
December 31, 2018
(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
6,919
$
8,282
6,919
7,327
6,688
68,273
Ratio
10.13% $
12.13
9.51
9.98
9.19
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
F-18
At December 31, 2019, the Corporation and its U.S. banking subsidiaries exceeded the capital ratios required for an
institution to be considered “well capitalized” by the standards developed under the Federal Deposit Insurance Corporation
Improvement Act of 1991. Refer to Note 20 to the consolidated financial statements for further discussion of regulatory capital
requirements and capital ratio calculations.
F-19
RISK MANAGEMENT
The Corporation assumes various types of risk as a result of conducting business in the normal course. The Corporation's
enterprise risk management 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 and measured by the second line of defense, comprising specialized risk managers for each of the
major risk categories, who reside in the Enterprise Risk Division and provide oversight, independent and effective challenge and
guidance for the risk management activities of the organization. The Enterprise Risk Division, led by the Chief Risk Officer, is
responsible for designing and managing the Corporation’s enterprise risk management 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, objective 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 provides the primary buffer for
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 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, technology, 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. Credit risk is found in all activities where success depends on counterparty, issuer, or borrower
performance. It arises any time funds are extended, committed, invested or otherwise exposed, whether reflected on or off the
balance sheet. 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-20
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 calculations of both expected and unexpected loss.
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
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
2019
2018
2017
2016
2015
$
671
$
712
$
730
$
634
$
143
3
—
1
1
4
152
35
—
4
1
1
4
45
107
73
—
637
$
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
$
594
139
3
1
14
1
10
168
33
1
21
—
2
11
68
100
142
(2)
634
0.21%
0.11%
0.19%
0.30%
0.21%
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. On January 1, 2020, the Corporation adopted a new
accounting standard for estimating credit losses (CECL). The day-one impact to the allowance for credit losses was not significant.
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, as well as further information about the adoption of CECL, under the "Pending Accounting
Pronouncements" section.
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
2019
2018
2017
1.27%
3.1x
6.0x
1.34%
2.9x
13.1x
1.45%
1.7x
7.7x
The allowance for loan losses was $637 million at December 31, 2019, compared to $671 million at December 31, 2018,
a decrease of $34 million. The decrease in the allowance for loan losses reflected continued strong credit quality, partially offset
by an increase in Energy reserves.
F-21
Allocation of the Allowance for Loan Losses
(dollar amounts in millions) Allocated
Allowance
December 31
Allowance
Ratio (a) % (b)
Allocated
Allowance % (b)
Allocated
Allowance % (b)
Allocated
Allowance % (b)
Allocated
Allowance % (b)
2019
2018
2017
2016
2015
Business loans
Commercial
Real estate construction
Commercial mortgage
Lease financing
International
Total business loans
Retail loans
Residential mortgage
Consumer
Total retail loans
$
490
17
81
3
10
601
7
29
36
Total loans
$
637
1.56% 62% $
0.49
7
0.84
0.47
1.04
1.30
0.35
1.21
19
1
2
91
4
5
0.84
1.27% 100% $
9
492
64% $
521
63% $
547
63% $
448
65%
19
99
4
13
627
9
35
44
6
18
1
2
91
4
5
9
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
671
100% $
712
100% $
730
100% $
634
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 $31 million at December 31, 2019 compared to $30
million at December 31, 2018. 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.
2019
$
$
30
—
1
31
2018
2017
2016
2015
$
$
42
—
(12)
30
$
$
41
—
1
42
$
$
45
(11)
7
41
$
$
41
(1)
5
45
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-22
Summary of Nonperforming Assets and Past Due Loans
(dollar amounts in millions)
December 31
Nonaccrual loans:
Business loans:
Commercial
Real estate construction
Commercial mortgage
Lease financing
International
Total nonaccrual business loans
Retail loans:
Residential mortgage
Consumer:
Home equity
Other consumer
Total consumer
Total nonaccrual retail loans
Total nonaccrual loans
Reduced-rate loans
Total nonperforming loans
Foreclosed property
Total nonperforming assets
Gross interest income that would have been recorded
had the nonaccrual and reduced-rate loans performed
in accordance with original terms
Interest income recognized
Nonperforming loans as a percentage of total loans
Loans past due 90 days or more and still accruing
2019
2018
2017
2016
2015
$
$
$
$
148
—
14
—
—
162
20
17
—
17
37
199
5
204
11
215
20
5
0.40%
26
$
$
$
$
141
—
20
2
3
166
36
19
—
19
55
221
8
229
1
230
19
4
0.46%
16
$
$
$
$
309
—
31
4
6
350
31
21
—
21
52
402
8
410
5
415
31
7
0.83%
35
$
$
$
$
445
—
46
6
14
511
39
28
4
32
71
582
8
590
17
607
38
6
1.20%
19
$
$
$
$
238
1
60
6
8
313
27
27
—
27
54
367
12
379
12
391
27
5
0.77%
17
Nonperforming assets decreased $15 million to $215 million at December 31, 2019, from $230 million at December 31,
2018. Nonperforming assets were 0.43 percent of total loans and foreclosed property at December 31, 2019, compared to 0.46
percent at December 31, 2018.
The following table presents a summary of TDRs at December 31, 2019 and 2018.
(in millions)
December 31
Nonperforming TDRs:
Nonaccrual TDRs
Reduced-rate TDRs
2019
2018
Total nonperforming TDRs
73
8
81
101
Performing TDRs (a)
Total TDRs
182
(a) TDRs that do not include a reduction in the original contractual interest rate which are performing in accordance with their modified terms.
36
5
41
69
110
$
$
$
$
At December 31, 2019, nonaccrual and performing TDRs included $14 million and $22 million of Energy loans,
respectively, compared to $38 million and $46 million, respectively at December 31, 2018.
F-23
The following table presents a summary of changes in nonaccrual loans.
(in millions)
Years Ended December 31
Balance at beginning of period
Loans transferred to nonaccrual (a)
Nonaccrual 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)
2019
2018
$
$
221
230
(152)
(7)
(15)
(78)
199
$
$
402
197
(103)
(6)
(39)
(230)
221
Includes net changes related to nonaccrual loans with balances less than $2 million, payments on nonaccrual loans with book balances
greater than $2 million and transfers of nonaccrual loans to foreclosed property.
There were 23 borrowers with balances greater than $2 million transferred to nonaccrual status in 2019, a decrease of 9
compared to 32 in 2018.
The following table presents the composition of nonaccrual loans by balance and the related number of borrowers at
December 31, 2019 and 2018.
(dollar amounts in millions)
Under $2 million
$2 million - $5 million
$5 million - $10 million
$10 million - $25 million
Total
2019
2018
Number of
Borrowers
Balance
Number of
Borrowers
Balance
708
8
6
4
726
$
$
74
22
49
54
199
799
14
10
2
825
$
$
78
41
69
33
221
The following table presents a summary of nonaccrual loans at December 31, 2019 and loans transferred to nonaccrual
and net loan charge-offs for the year ended December 31, 2019, based on North American Industry Classification System (NAICS)
categories.
December 31, 2019
Year Ended December 31, 2019
(dollar amounts in millions)
Loans Transferred to
Nonaccrual (a)
Net Loan Charge-Offs
(Recoveries)
$
Nonaccrual Loans
Industry Category
Mining, Quarrying and Oil & Gas Extraction
Wholesale Trade
Manufacturing
Residential Mortgage
Information & Communication
Services
Health Care & Social Assistance
Real Estate & Home Builders
Contractors
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
22% $
19
14
10
6
5
3
3
2
16
100% $
56% $
18
7
1
10
2
—
—
1
5
81%
3
1
—
5
6
8
(2)
(3)
1
100%
86
3
1
—
5
7
9
(2)
(3)
1
107
43
38
28
20
13
11
6
5
4
31
199
128
42
16
3
23
5
—
—
3
10
230
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 increased $10 million to $26 million at December 31, 2019, compared to
$16 million at December 31, 2018. Loans past due 30-89 days decreased $6 million to $127 million at December 31, 2019,
compared to $133 million at December 31, 2018. 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-24
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
2019
2018
$
2,120
$
4.2%
1,548
3.1%
The $572 million increase in criticized loans in the year ended December 31, 2019 included increases of $423 million
in general Middle Market and $161 million in Energy.
For further information regarding the Corporation's nonperforming assets policies and impaired loans, refer to Notes 1
and 4 to the consolidated financial statements.
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. The Corporation has concentrations of credit risk with the automotive and commercial real estate
industries. All other industry concentrations, as defined by management, individually represented less than 10 percent of total
loans at December 31, 2019.
Automotive Lending
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
2019
2018
Loans
Outstanding
Percent of
Total Loans
Loans
Outstanding
Percent of
Total Loans
$
$
963
286
1,249
3,967
3,447
7,414
8,663
$
2.5%
14.7%
17.2% $
946
385
1,331
4,678
3,419
8,097
9,428
2.7%
16.1%
18.8%
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 $4.0 billion at December 31, 2019, a decrease of $711 million
compared to $4.7 billion at December 31, 2018. At both December 31, 2019 and 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. 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 $1.2 billion and $1.3 billion at December 31, 2019 and December 31,
2018, respectively.
Dealer loans, as shown in the table above, totaled $7.4 billion at December 31, 2019, of which $4.3 billion, or 61 percent,
were to foreign franchises, and $2.0 billion, or 28 percent, were to domestic franchises. The remaining dealer loans 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 $19 million of nonaccrual loans to automotive borrowers at December 31, 2019 and $4 million at December 31,
2018. Automotive loan net recoveries were $1 million in 2019, compared to net charge-offs of $5 million in 2018.
F-25
Commercial Real Estate Lending
At December 31, 2019, the Corporation's commercial real estate portfolio represented 26 percent of total loans. The
following table summarizes the Corporation's commercial real estate loan portfolio by loan category.
(in millions)
Real estate construction loans
Commercial mortgage loans
Total commercial real estate
(a) Primarily loans to real estate developers.
(b) Primarily loans secured by owner-occupied real estate.
December 31, 2019
December 31, 2018
Commercial
Real Estate
business line
(a)
$
$
3,044
2,176
5,220
Other
(b)
$
411
7,383
$ 7,794
Total
$ 3,455
9,559
$ 13,014
Commercial
Real Estate
business line
(a)
$
$
2,687
1,743
4,430
Other
(b)
$
390
7,363
$ 7,753
Total
$ 3,077
9,106
$ 12,183
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 $13.0 billion at
December 31, 2019. Of the total, $5.2 billion, or 40 percent, were to borrowers in the Commercial Real Estate business line, which
includes loans to real estate developers, an increase of $790 million compared to December 31, 2018. Commercial real estate
loans in other business lines totaled $7.8 billion, or 60 percent, at December 31, 2019. These loans 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. Criticized real estate construction loans in the Commercial Real Estate business line totaled $31 million
and $23 million at December 31, 2019 and 2018, respectively. In other business lines, there were no criticized real estate construction
loans at December 31, 2019, compared to $8 million at December 31, 2018. There were no net charge-offs in either of the years
ended December 31, 2019 and 2018.
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 $55 million
and $61 million at December 31, 2019 and December 31, 2018, respectively. In other business lines, $242 million and $206 million
of commercial mortgage loans were criticized at December 31, 2019 and 2018, respectively. Commercial mortgage loans net
recoveries were $1 million in 2019, compared to net charge-offs of $1 million in 2018.
For further information regarding significant group concentrations of credit risk, refer to Note 5 to the consolidated
financial statements.
Residential Real Estate Lending
At December 31, 2019, 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
2019
2018
Residential
Mortgage
Loans
% of
Total
Home
Equity
Loans
% of
Total
Residential
Mortgage
Loans
% of
Total
Home
Equity
Loans
% of
Total
$
$
412
932
275
226
1,845
22% $
51
15
12
100% $
603
699
346
63
1,711
35% $
41
20
4
100% $
406
993
310
261
1,970
21% $
50
16
13
100% $
650
710
346
59
1,765
37%
40
20
3
100%
Residential real estate loans, which consist of traditional residential mortgages and home equity loans and lines of credit,
totaled $3.6 billion at December 31, 2019. 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.
F-26
Residential mortgages totaled $1.8 billion at December 31, 2019, and were primarily larger, variable-rate mortgages
originated and retained for certain private banking relationship customers. Of the $1.8 billion of residential mortgage loans
outstanding, $20 million were on nonaccrual status at December 31, 2019. The home equity portfolio totaled $1.7 billion at
December 31, 2019, of which $1.6 billion was outstanding under primarily variable-rate, interest-only home equity lines of credit,
$89 million were in amortizing status and $23 million were closed-end home equity loans. Of the $1.7 billion of home equity
loans outstanding, $17 million were on nonaccrual status at December 31, 2019. A majority of the home equity portfolio was
secured by junior liens at December 31, 2019.
Energy Lending
The Corporation has a portfolio of Energy loans that are included entirely in commercial loans in the Consolidated Balance
Sheets. Customers in the Corporation's Energy business line (approximately 150 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 Energy business line.
(dollar amounts in millions)
2019
2018
December 31
Exploration and production (E&P) $ 1,741
432
Midstream
48
Services
$ 2,221
Total Energy business line
As a percentage of total Energy loans
(a)
Includes nonaccrual loans.
78% $
20
2
100% $
Outstandings
Nonaccrual Criticized (a)
$
43
—
—
43
2%
$
289
63
14
366
16%
Outstandings
$ 1,771
298
94
$ 2,163
82% $
14
4
100% $
Nonaccrual Criticized (a)
$
46
—
2
48
2%
$
143
43
19
205
9%
Loans in the Energy business line totaled $2.2 billion, or approximately 4 percent of total loans, at December 31, 2019,
an increase of $58 million. Total exposure, including unused commitments to extend credit and letters of credit, was $4.3 billion
and $4.5 billion at December 31, 2019 and December 31, 2018, 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 $86 million and $6 million in net
credit-related charge-offs in the Energy business line for the years ended December 31, 2019 and 2018, respectively. Criticized
loans increased $161 million to $366 million at December 31, 2019. The increase in net charge-offs and criticized loans resulted
from the impact of a decline in valuations of select liquidating assets due to tight capital markets in the industry.
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 $2.6 billion and $2.5 billion at December 31, 2019 and
2018, respectively. Criticized loans within the HR C&I loan portfolio were $169 million and $147 million at December 31, 2019
and 2018, respectively. Charge-offs of HR C&I loans totaled $6 million in 2019 and $15 million in 2018.
F-27
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 0.75 percent of total assets at December 31, 2019,
2018 and 2017. 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 movement in prices, including interest rates, foreign exchange rates,
commodity prices and equity prices. Liquidity risk represents the risk that the Corporation does not have sufficient access to funds
to maintain its normal operations at all times, or does not have the ability to raise or borrow funds at a reasonable cost at all times.
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. Including the impact of interest rate swaps converting floating-rate loans to fixed,
the Corporation's loan composition at December 31, 2019 was 62 percent 30-day LIBOR, 6 percent other LIBOR (primarily 60-
day), 14 percent prime and 18 percent fixed rate. This creates sensitivity to interest rate movements due to the imbalance between
the faster repricing of the floating-rate loan portfolio versus 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.
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 as of the balance sheet dates
F-28
are included in the analysis, but no additional hedging is forecasted. At December 31, 2019, these derivative instruments comprise
interest rate swaps that convert $3.3 billion of fixed-rate medium- and long-term debt to variable rates through fair value hedges
and convert $4.6 billion of variable-rate loans to fixed rates through cash flow hedges. This base case net interest income is then
compared against interest rate scenarios in which rates rise or decline 100 basis points in a linear, non-parallel fashion from the
base case over 12 months, resulting in an average increase or decrease in short-term interest rates of 50 basis points over the period.
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
rising rate scenario reflects a greater decrease in deposits than we have experienced historically as rates 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, 2019 and 2018, 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 100 basis points
Declining 100 basis points
Estimated Annual Change
2019
2018
Amount
%
Amount
%
$
90
(135)
4% $
(6)
82
(155)
3%
(6)
Sensitivity to declining interest rates decreased from December 31, 2018 to December 31, 2019 due to the impact of
swaps converting variable-rate loans to fixed rates. Sensitivity to rising interest rates increased due to changes in balance sheet
composition, partially offset by the addition of swaps converting variable-rate loans to fixed rates.
During January 2020, the Corporation added interest rate swaps that convert an additional $1 billion of variable-rate
loans to fixed rates through cash flow hedges. These additional hedges are not included in the sensitivity analysis discussed above.
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 100 basis point shock.
The table below, as of December 31, 2019 and 2018, 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 100 basis points
Declining 100 basis points
2019
2018
Amount
%
Amount
%
$
716
(1,178)
7% $
(12)
434
(1,023)
3%
(8)
The sensitivity of the economic value of equity to rising and declining rates increased from December 31, 2018 and
December 31, 2019 due to changes in expected deposit lives and balance sheet composition, partially offset by the addition of
swaps converting variable-rate loans to fixed rate.
LIBOR Transition
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. The Corporation has substantial exposure to
LIBOR-based products, including loans, securities, derivatives and hedges, and is preparing for a transition from LIBOR toward
alternative rates. A dedicated program office and governance structure has been established, with direction and oversight from the
Chief Executive Officer, Interim Chief Financial Officer and Chief Risk Officer. A cross-functional implementation team tasked
with execution of the LIBOR transition plan is responsible for evaluating alternative rates and associated impacts, assessing the
population of impacted contracts and ensuring necessary fallback provisions are incorporated, ensuring operational readiness and
communicating timely with internal and external stakeholders. Additionally, the Corporation continues to monitor market
developments and regulatory updates, as well as collaborate with regulators and industry groups on the transition. For a discussion
F-29
of the various risks facing the Corporation in relation to the transition away from LIBOR, see the market risk discussion within
Item 1A. Risk Factors.
Loan Maturities and Interest Rate Sensitivity
(in millions)
December 31, 2019
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
$
$
$
$
15,068
1,321
1,856
343
18,588
595
17,993
18,588
$
$
$
$
15,423
1,978
4,922
583
22,906
2,147
20,759
22,906
$
$
$
$
982
156
2,781
83
4,002
588
3,414
4,002
$
$
$
$
31,473
3,455
9,559
1,009
45,496
3,330
42,166
45,496
(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 as well as variable rate loans
to a fixed rate.
Risk Management Derivative Instruments
(in millions)
Risk Management Notional Activity
Balance at January 1, 2018
Additions
Maturities/amortizations
Balance at December 31, 2018
Additions
Maturities/amortizations
Balance at December 31, 2019
Interest
Rate
Contracts
Foreign
Exchange
Contracts
$
$
$
1,775
850
—
2,625
5,600
(350)
7,875
$
$
$
650
10,095
(10,443)
302
7,922
(7,894)
330
$
$
$
Totals
2,425
10,945
(10,443)
2,927
13,522
(8,244)
8,205
The notional amount of risk management interest rate swaps totaled $7.9 billion at December 31, 2019, and $2.6 billion
at December 31, 2018, which included fair value hedging strategies that convert $3.3 billion of fixed-rate medium- and long-term
debt to a floating rate as well as cash flow hedging strategies that convert $4.6 billion of variable-rate loans to a fixed rate. Risk
management interest rate swaps generated $4 million and $7 million of net interest income for the years ended December 31, 2019
and 2018, 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.
F-30
Customer-Initiated and Other Derivative Instruments
(in millions)
Customer-Initiated and Other Notional Activity
Balance at January 1, 2018
Additions
Maturities/amortizations
Terminations
Balance at December 31, 2018
Additions
Maturities/amortizations
Terminations
Balance at December 31, 2019
Interest
Rate
Contracts
Energy
Derivative
Contracts
Foreign
Exchange
Contracts
$
$
$
14,389
4,245
(2,195)
(1,554)
14,885
6,411
(2,289)
(1,180)
17,827
$
$
$
1,847
2,287
(1,481)
(3)
2,650
2,719
(2,198)
(82)
3,089
$
$
$
1,884
50,220
(50,639)
(370)
1,095
38,805
(38,887)
—
1,013
$
$
$
Totals
18,120
56,752
(54,315)
(1,927)
18,630
47,935
(43,374)
(1,262)
21,929
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 73 percent and 86 percent of total interest rate, energy and
foreign exchange contracts at December 31, 2019 and 2018, 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, 2019
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
4-5
Years
More than
5 Years
$
54,093
Total
54,093
$
3,202
71
7,125
438
160
356
65,445
$
2,970
71
675
60
98
101
58,068
$
$
180
—
—
115
52
92
439
$
26
—
1,350
88
5
34
1,503
850
$
$
26
—
5,100
175
5
129
5,435
800
Medium- and long-term debt (parent company only) (a) (c) $
(a) Deposits and borrowings exclude accrued interest.
(b)
(c) Parent company only amounts are included in the medium- and long-term debt minimum payments above.
Includes unrecognized tax benefits.
— $
1,650
$
— $
In addition to contractual obligations, other commercial commitments of the Corporation impact liquidity. These include
unused commitments to extend credit, standby letters of credit and financial guarantees, and commercial letters of credit. The
following table summarizes the Corporation's commercial commitments and expected expiration dates by period.
F-31
Commercial Commitments
(in millions)
December 31, 2019
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
4-5
Years
More than
5 Years
$
$
10,863
2,837
17
13,717
$
$
8,648
319
—
8,967
$
$
4,507
103
1
4,611
$
$
2,843
61
—
2,904
Total
26,861
3,320
18
30,199
$
$
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, 2019 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
to $295 million at December 31, 2019, compared to $52 million at December 31, 2018, primarily reflecting a $133 million increase
in brokered deposits included in other time deposits on the Consolidated Balance Sheets. At December 31, 2019, the Bank had
pledged loans totaling $22.0 billion which provided for up to $17.8 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, 2019, $17.2 billion of real estate-related loans were pledged to the FHLB as 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 $5.1 billion.
Additionally, the Bank had the ability to issue up to $13.5 billion of debt at December 31, 2019 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, 2019, 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, 2019
Standard and Poor’s
Moody’s Investors Service
Fitch Ratings
Comerica Incorporated
Comerica Bank
Rating
BBB+
A3
A
Outlook
Stable
Stable
Negative
Rating
A-
A3
A
Outlook
Stable
Stable
Negative
The Corporation satisfies liquidity needs with either liquid assets or various funding sources. Liquid assets totaled $17.9
billion at December 31, 2019, compared to $16.3 billion at December 31, 2018. 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, 2019 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.
F-32
Operational Risk
Operational risk represents the risk of loss resulting from inadequate or failed internal processes and people, or from
external events, excluding in most cases those driven by technology (see Technology Risk below). The Corporation's definition
of operational risk includes fraud; employment practice and workplace safety; clients, products and business practice; business
continuity or disaster recovery; execution, delivery, and process management; third party and model risks. 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 in the Enterprise Risk Division and business/support unit risk liaisons
responsible for managing operational risk specific to the respective business lines.
Technology Risk
Technology risk represents the risk of loss or adverse outcomes arising from the people, processes, applications and
infrastructure that support the technology environment. The Corporation's definition of technology risk includes technology
delivery risk, technology investment risk, cybersecurity risk, information security risk and information management risk.
Technology risk is inclusive of the risks associated with the execution of technology processes and activities by third-party
contractors and suppliers to the Corporation. Other risk types may materialize in the event of a technology risk event, such as the
risk of a financial reporting error or regulatory non-compliance, and the impact of such risks are highly interdependent with
operational risk.
The Technology Risk Management Committee, comprising senior and executive business unit managers, as well as
managers responsible for technology, cybersecurity, information security and enterprise risk management, oversees technology
risk. The Technology Risk Management Committee also ensures that appropriate actions are implemented in business units to
mitigate risk to an acceptable level.
Compliance Risk
Compliance risk represents the risk of sanctions or financial loss resulting from the Corporation's failure to comply with
all applicable laws, 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 regulated activities.
The Enterprise-Wide Compliance Committee, comprising senior and executive business unit managers, as well as
managers responsible for compliance, audit and overall risk, oversees compliance risk. This enterprise-wide approach provides a
consistent view of compliance across the organization. The Enterprise-Wide Compliance Committee also ensures that appropriate
actions are implemented in business units to mitigate risk to an acceptable level.
Strategic Risk
Strategic risk represents the risk of inadequate returns or possible losses 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, technology or compliance risks. Mitigation of the various risk elements that represent strategic
risk is achieved through various metrics and initiatives to help the Corporation better understand, measure and report on such
risks.
F-33
CRITICAL ACCOUNTING POLICIES
The Corporation’s consolidated financial statements are prepared based on the application of accounting policies, the
most significant of which are described in Note 1. These policies require numerous estimates and strategic or economic assumptions,
which may prove inaccurate or subject to variations. Changes in underlying factors, assumptions or estimates could have a material
impact on the Corporation’s future financial condition and results of operations. At December 31, 2019, 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,
2019 would change by approximately $28 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, 2019 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.
On January 1, 2020, the Corporation adopted a new accounting standard for estimating credit losses (CECL). For
additional information about the adoption of CECL, refer to the "Pending Accounting Pronouncements" section of Note 1 to the
consolidated financial statements.
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.
F-34
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
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, as well as the valuation methodologies and key inputs used.
At December 31, 2019, assets and liabilities measured using observable inputs that are classified as Level 1 or Level 2
represented 99.3 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 at least annually for impairment. The Corporation may elect to perform a quantitative
impairment analysis, or first conduct a qualitative analysis to determine if a quantitative analysis is necessary. Goodwill impairment
testing is performed at the reporting unit level, equivalent to a business segment or one level below. The Corporation has three
reporting units: the Business Bank, the Retail Bank and Wealth Management. At December 31, 2019, 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 2019. 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 2019, the Corporation determined
that it was more likely than not that the fair value of each reporting unit exceeded its carrying value.
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 continued declines 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 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, as well as corporate and municipal
bonds and notes. Mortality rate assumptions are based on mortality tables published by third-parties such as the Society of Actuaries
(SOA), considering other available information including historical data as well as studies and publications from reputable sources.
The Corporation reviews its pension plan assumptions on an annual basis with its actuarial consultants to determine if
the assumptions are reasonable and adjusts the assumptions to reflect changes in future expectations. The major assumptions used
to calculate 2020 defined benefit plan pension expense (benefit) were as follows:
F-35
Discount rate
Long-term rate of return on plan assets
Mortality table:
Base table (a)
Mortality improvement scale (a)
Issued by the Society of Actuaries in October 2019.
(a)
3.43%
6.50%
Pri-2012
MP-2019
Defined benefit plan expense is expected to decrease $7 million to a benefit of approximately $22 million in 2020,
compared to a benefit of $29 million in 2019. This includes service cost expense of $35 million and a benefit from other components
of $57 million.
Changing the 2020 discount rate and long-term rate of return by 25 basis points would impact defined benefit expense
in 2020 by $7.6 million and $6.6 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.
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-36
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
2019
2018
2017
2016
2015
$
7,327
$
7,507
$
7,963
$
7,796
$
7,560
635
4
$
6,688
$ 73,402
635
4
$ 72,763
9.98%
9.19
$
$
7,327
6,688
142
51.57
47.07
$
$
$
$
$
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
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-37
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:
•
•
•
•
•
•
•
•
•
•
•
•
•
unfavorable developments concerning credit quality could adversely affect the Corporation's financial results;
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;
changes in customer behavior may adversely impact the Corporation's business, financial condition and results of operations;
governmental monetary and fiscal policies may adversely affect the financial services industry, and therefore impact the
Corporation's financial condition and results of operations;
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;
the Corporation must maintain adequate sources of funding and liquidity to meet regulatory expectations, support its operations
and fund outstanding liabilities;
reduction in the Corporation's credit ratings could adversely affect the Corporation and/or the holders of its securities;
the soundness of other financial institutions could adversely affect the Corporation;
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;
cybersecurity and data privacy are areas of heightened legislative and regulatory focus;
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;
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;
controls and procedures may fail to prevent or detect all errors or acts of fraud;
changes in regulation or oversight may have a material adverse impact on the Corporation's operations;
compliance with more stringent capital requirements may adversely affect the Corporation;
the impacts of future legislative, administrative or judicial changes or interpretations to tax regulations are unknown;
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;
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 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;
• management's ability to maintain and expand customer relationships may differ from expectations;
• management's ability to retain key officers and employees may change;
•
any future strategic acquisitions or divestitures may present certain risks to the Corporation's business and operations;
•
•
•
•
•
•
•
•
•
•
•
•
F-38
general political, economic or industry conditions, either domestically or internationally, may be less favorable than expected;
•
• methods of reducing risk exposures might not be effective;
•
catastrophic events may adversely affect the general economy, financial and capital markets, specific industries, and the
Corporation; and
the Corporation's stock price can be volatile.
•
F-39
CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries
(in millions, except share data)
December 31
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Other short-term investments
Investment securities available-for-sale
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
Other time deposits
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 - 86,069,234 shares at 12/31/19 and 68,081,176 shares at
12/31/18
Total shareholders’ equity
Total liabilities and shareholders’ equity
See notes to consolidated financial statements.
F-40
2019
2018
$
973
$
$
$
4,845
155
12,398
31,473
3,455
9,559
588
1,009
1,845
2,440
50,369
(637)
49,732
457
4,842
73,402
27,382
24,527
2,184
2,978
133
91
29,913
57,295
71
1,440
7,269
66,075
1,141
2,174
(235)
9,538
(5,291)
7,327
73,402
$
$
$
$
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
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
Fiduciary income
Service charges on deposit accounts
Commercial lending fees
Foreign exchange income
Bank-owned life insurance
Letter of credit fees
Brokerage fees
Net securities losses
Other noninterest income
Total noninterest income
NONINTEREST EXPENSES
Salaries and benefits expense
Outside processing fee expense
Occupancy expense
Software expense
Equipment expense
Advertising expense
FDIC insurance expense
Restructuring charges
Other noninterest expenses
Total noninterest expenses
Income before income taxes
Provision for income taxes
NET INCOME
Less income allocated to participating securities
Net income attributable to common shares
Earnings per common share:
Basic
Diluted
Cash dividends declared on common stock
Cash dividends declared per common share
See notes to consolidated financial statements.
F-41
$
$
$
2019
2018
2017
$
$
$
2,439
297
71
2,807
262
9
197
468
2,339
74
2,265
257
206
203
91
44
41
38
28
(7)
109
1,010
1,020
264
154
117
50
34
23
—
81
1,743
1,532
334
1,198
7
1,191
7.95
7.87
398
2.68
$
$
$
2,262
265
92
2,619
122
1
144
267
2,352
(1)
2,353
244
206
211
85
47
39
40
27
(19)
96
976
1,009
255
152
125
48
30
42
53
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
198
227
85
45
43
45
23
—
108
1,107
961
366
154
126
45
28
51
45
84
1,860
1,234
491
743
5
738
4.23
4.14
193
1.09
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Comerica Incorporated and Subsidiaries
(in millions)
Years Ended December 31
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on investment securities:
Net unrealized holding gains (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 gains (losses) before income taxes
Net gains on cash flow hedges:
Change in net cash flow hedge gains before income taxes
Defined benefit pension and other postretirement plans adjustment:
Actuarial gain (loss) 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 income (loss) before income taxes
Provision (benefit) for income taxes
Total other comprehensive income (loss), net of tax
2019
2018
2017
$
1,198
$
1,235
$
743
257
(8)
—
265
44
163
42
(27)
178
487
113
374
(69)
(20)
—
(49)
—
(191)
61
(27)
(157)
(206)
(47)
(159)
(81)
—
(3)
(78)
—
72
51
(27)
96
18
(1)
19
762
COMPREHENSIVE INCOME
$
1,572
$
1,076
$
See notes to consolidated financial statements.
F-42
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Comerica Incorporated and Subsidiaries
(in millions, except per share data)
BALANCE AT DECEMBER 31, 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
BALANCE AT DECEMBER 31, 2018
Cumulative effect of change in
accounting principle
Net income
Other comprehensive income, net of tax
Cash dividends declared on common
stock ($2.68 per share)
Purchase of common stock
Net issuance of common stock under
employee stock plans
Share-based compensation
Common Stock
Shares
Outstanding
Amount
Capital
Surplus
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Stock
Total
Shareholders’
Equity
175.3
$ 1,141
$ 2,135
$
(383) $
7,331
$
(2,428) $
7,796
—
—
—
—
(7.5)
3.3
1.8
—
—
—
172.9
—
—
—
—
(14.9)
1.5
0.6
—
—
—
—
—
—
—
—
—
3
—
—
—
—
(24)
(30)
39
—
—
1,141
—
(1)
2,122
—
—
—
—
—
—
—
—
—
—
—
—
(3)
(9)
(10)
48
—
—
19
—
—
—
—
—
(87)
—
(451)
1
—
(159)
—
—
—
—
—
(2)
743
—
(193)
—
(26)
(53)
—
87
—
7,887
14
1,235
—
(309)
—
(23)
(23)
—
—
—
—
—
(544)
152
83
—
—
1
(2,736)
—
—
—
—
(1,326)
75
33
—
160.1
1,141
2,148
(609)
8,781
(3,954)
—
—
—
—
(18.7)
0.7
—
—
—
—
—
—
—
—
—
—
—
—
—
(13)
39
—
—
374
—
—
—
—
(14)
1,198
—
(398)
—
(29)
—
—
—
—
—
(1,380)
43
—
1
743
19
(193)
(544)
102
—
39
—
—
7,963
15
1,235
(159)
(309)
(1,329)
43
—
48
7,507
(14)
1,198
374
(398)
(1,380)
1
39
BALANCE AT DECEMBER 31, 2019
142.1
$ 1,141
$ 2,174
$
(235) $
9,538
$
(5,291) $
7,327
See notes to consolidated financial statements.
F-43
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comerica Incorporated and Subsidiaries
(in millions)
Years Ended December 31
OPERATING ACTIVITIES
2019
2018
2017
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
1,198
$
1,235
$
Provision for credit losses
Provision for deferred income taxes
Depreciation and amortization
Net periodic defined benefit credit
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
Issuances and advances
Terminations
Common stock:
Repurchases
Cash dividends paid
Issuances under employee stock plans
Other, net
Net cash provided by (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 paid
Noncash investing and financing activities:
Loans transferred to other real estate
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-44
74
12
114
(29)
39
2
—
7
1
17
(27)
(318)
1,090
2,262
987
(3,346)
—
(324)
1
(86)
(201)
201
10
2
(494)
1,711
27
(350)
1,050
—
(1,394)
(402)
18
1
661
1,257
4,561
5,818
462
266
12
—
—
$
$
(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
$
$
743
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
—
—
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 22. The Corporation and its banking subsidiaries are regulated at both the state and federal levels.
The accounting and reporting policies of the Corporation conform to United States (U.S.) generally accepted accounting
principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect reported amounts and disclosures. Actual results could differ from these estimates. Certain amounts
in the financial statements for prior years have been reclassified to conform to the current financial statement presentation.
The following summarizes the significant accounting policies of the Corporation applied in the preparation of the
accompanying consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation and the accounts of those subsidiaries that
are majority owned and in which the Corporation has a controlling financial interest. The Corporation consolidates entities not
determined to be variable interest entities (VIEs) when it holds a controlling financial interest and uses the cost or equity method
when it holds less than a controlling financial interest. In consolidation, all significant intercompany accounts and transactions are
eliminated. The results of operations of companies acquired are included from the date of acquisition.
The Corporation holds investments in certain legal entities that are considered VIEs. In general, a VIE is an entity that
either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support,
(2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity
owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. If any of these
characteristics are present, the entity is subject to a variable interests consolidation model, and consolidation is based on variable
interests, not on voting interests. Variable interests are defined as contractual ownership or other money interests in an entity that
change with fluctuations in the entity’s net asset value. The primary beneficiary is required to consolidate the VIE. The primary
beneficiary is defined as the party that has both the power to direct the activities of the VIE that most significantly impact the
entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the
VIE. The maximum potential exposure to losses relative to investments in VIEs is generally limited to the sum of the outstanding
book basis and unfunded commitments for future investments.
The Corporation evaluates its investments in VIEs, both at inception and when there is a change in circumstances that
requires reconsideration, to determine if the Corporation is the primary beneficiary and consolidation is required. The Corporation
accounts for unconsolidated VIEs using either the proportional, cost or equity method. These investments comprise investments
in community development projects which generate tax credits to their investors and are included in accrued income and other
assets on the Consolidated Balance Sheets.
The proportional method is used for investments in affordable housing projects that qualify for the low-income housing
tax credit (LIHTC). The equity method is used for other investments where the Corporation has the ability to exercise significant
influence over the entity’s operation and financial policies. Other unconsolidated equity investments that do not meet the criteria
to be accounted for under the equity method are accounted for under the cost method. Amortization and other write-downs of
LIHTC investments are presented on a net basis as a component of the provision for income taxes, while income, amortization
and write-downs from cost and equity method investments are recorded in other noninterest income on the Consolidated Statements
of Income.
Assets held in an agency or fiduciary capacity are not assets of the Corporation and are not included in the consolidated
financial statements.
See Note 9 for additional information about the Corporation’s involvement with VIEs.
Fair Value Measurements
The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to
determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In
cases where quoted market values in an active market are not available, the Corporation uses present value techniques and other
valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment
and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.
F-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the
measurement date. Fair value is based on the assumptions market participants would use when pricing an asset or liability.
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 securities including equity securities and assets held related to 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 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
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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 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. The Corporate Treasury department, with appropriate oversight and approval provided by senior
management, is responsible for the valuation of Level 3 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-47
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 $5 million and unfunded commitments of less than $1 million, at December 31, 2019. 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 at both December 31, 2019 and 2018, and its investment in FRB stock totaled $85 million at
both December 31, 2019 and 2018.
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-48
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 including 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 are classified as trading, available-for-sale or held-to-maturity. Trading securities are recorded at fair value,
with unrealized gains and losses included in noninterest income on the Consolidated Statements of Income. Securities available-
for-sale are recorded at fair value, with unrealized gains and losses, net of income taxes, reported as a separate component of other
comprehensive income (OCI). Securities for which management has the intent and ability to hold to maturity are classified as
held-to-maturity and recorded at amortized cost. Interest income is recognized using the interest method.
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.
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 on 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.
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 TDR. A restructuring
is considered a TDR when a borrower is experiencing financial difficulty and the Corporation grants a concession to the borrower.
TDRs on accrual status at the original contractual rate of interest are considered performing. Nonperforming TDRs include TDRs
on nonaccrual status and loans which have been renegotiated to less than the original contractual rates (reduced-rate loans). All
TDRs are considered impaired loans.
Loan Origination Fees and Costs
Substantially all loan origination fees and costs are deferred and amortized to net interest income over the life of the
related loan or over the commitment period as a yield adjustment. Net deferred income on originated loans, including unearned
income and unamortized costs, fees, premiums and discounts, totaled $103 million and $115 million at December 31, 2019 and
2018, 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.
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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. Generally, appraisals are obtained or appraisal
assumptions are updated annually, unless conditions dictate increased frequency. The Corporation may reduce the collateral value
based upon the age of the appraisal and adverse developments in market conditions.
Loans which do not meet the criteria to be evaluated individually are evaluated in homogeneous pools of loans with
similar risk characteristics. Business loans are assigned to pools based on the Corporation's internal risk rating system. Internal
risk ratings are assigned to each business loan at the time of approval and are subjected to subsequent periodic reviews by the
Corporation’s senior management, generally at least annually or more frequently upon the occurrence of a circumstance that affects
the credit risk of the loan. For business loans not individually evaluated, losses inherent to the pool are estimated by applying
standard reserve factors to outstanding principal balances. Standard reserve factors are based on estimated probabilities of default
for each internal risk rating, set to a default horizon based on an estimated loss emergence period, and loss given default. These
factors are evaluated quarterly and updated annually, unless economic conditions necessitate a change, giving consideration to
count-based borrower risk rating migration experience and trends, recent charge-off experience, current economic conditions and
trends, changes in collateral values of properties securing loans, and trends with respect to past due and nonaccrual amounts.
The allowance for business loans not individually evaluated also includes qualitative adjustments to bring the allowance
to the level management believes is appropriate based on factors that have not otherwise been fully accounted for, including
adjustments for (i) risk factors that have not been fully addressed in internal risk ratings, (ii) imprecision in the risk rating system
resulting from inaccuracy in assigning and/or entering risk ratings in the loan accounting system, (iii) market conditions and (iv)
model imprecision. Risk factors that have not been fully addressed in internal risk ratings may include portfolios where recent
historical losses exceed expected losses or known recent events are expected to alter risk ratings once evidence is acquired, portfolios
where a certain level of concentration introduces added risk, or changes in the level and quality of experience held by lending
management. An additional allowance for risk rating errors is calculated based on the results of risk rating accuracy assessments
performed on samples of business loans conducted by the Corporation's asset quality review function, a function independent of
the lending and credit groups responsible for assigning the initial internal risk rating at the time of approval. Qualitative adjustments
for market conditions are determined based on an established framework. The determination of the appropriate adjustment is based
on management's analysis of observable macroeconomic metrics, including consideration of regional metrics within the
Corporation's footprint, internal credit risk movement and a qualitative assessment of the lending environment, including
underwriting standards, current economic and political conditions, and other factors affecting credit quality. Management recognizes
the sensitivity of various assumptions made in the quantitative modeling of expected losses and may adjust reserves depending
upon the level of uncertainty that currently exists in one or more assumption.
The allowance for retail loans not individually evaluated is determined by applying estimated loss rates to various pools
of loans within the portfolios with similar risk characteristics. Estimated loss rates for all pools are updated quarterly, incorporating
quantitative and qualitative factors such as recent charge-off experience, current economic conditions and trends, changes in
collateral values of properties securing loans (using index-based estimates), and trends with respect to past due and nonaccrual
amounts.
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The total allowance for loan losses is sufficient to absorb incurred losses inherent in the total portfolio. Unanticipated
economic events, including political, economic and regulatory instability in countries where the Corporation has loans, could cause
changes in the credit characteristics of the portfolio and result in an unanticipated increase in the allowance. Significant increases
in current portfolio exposures, as well as the inclusion of additional industry-specific portfolio exposures in the allowance, could
also increase the amount of the allowance. Any of these events, or some combination thereof, may result in the need for additional
provision for credit losses in order to maintain an allowance that complies with credit risk and accounting policies.
Loans deemed uncollectible are charged off and deducted from the allowance. Recoveries on loans previously charged
off are added to the allowance.
Allowance for Credit Losses on Lending-Related Commitments
The allowance for credit losses on lending-related commitments provides for probable losses inherent in lending-related
commitments, including unused commitments to extend credit and letters of credit. The allowance for credit losses on lending-
related commitments includes allowances based on homogeneous pools of letters of credit and unused commitments to extend
credit within each internal risk rating. A probability of draw estimate is applied to the commitment amount, and the result is
multiplied by standard reserve factors consistent with business loans. In general, the probability of draw for letters of credit is
considered certain for all letters of credit supporting loans and for letters of credit assigned an internal risk rating generally consistent
with regulatory defined substandard or doubtful. Other letters of credit and all unfunded commitments have a lower probability
of draw. The allowance for credit losses on lending-related commitments is included in accrued expenses and other liabilities on
the Consolidated Balance Sheets, with the corresponding charge reflected in the provision for credit losses on the Consolidated
Statements of Income.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, reduced-rate loans and foreclosed property.
A loan is considered past due when the contractually required principal or interest payment is not received by the specified
due date or, for certain loans, when a scheduled monthly payment is past due and unpaid for 30 days or more. Business loans are
generally placed on nonaccrual status when management determines full collection of principal or interest is unlikely or when
principal or interest payments are 90 days past due, unless the loan is fully collateralized and in the process of collection. The past-
due status of a business loan is one of many indicative factors considered in determining the collectibility of the credit. The primary
driver of when the principal amount of a business loan should be fully or partially charged-off is based on a qualitative assessment
of the recoverability of the principal amount from collateral and other cash flow sources. Residential mortgage and home equity
loans are generally placed on nonaccrual status once they become 90 days past due and are charged off to current appraised values
less costs to sell no later than 180 days past due. In addition, junior lien home equity loans less than 90 days past due are placed
on nonaccrual status if they have underlying risk characteristics that place full collection of the loan in doubt, such as when the
related senior lien position is identified as seriously delinquent. Residential mortgage and consumer loans in bankruptcy for which
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
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.
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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.
Operating Leases
Effective January 1, 2019, the Corporation adopted the provisions of Accounting Standards Update (ASU) No. 2016-02,
“Leases (Topic 842),” (ASU 2016-02), for all open leases with a term greater than one year as of the adoption date, using the
modified retrospective approach. Prior comparable periods are presented in accordance with previous guidance under Accounting
Standards Codification (ASC) 840, “Leases.”
Topic 842 requires the recognition of a lease liability, measured as the present value of unpaid lease payments for operating
leases where the Corporation is the lessee, and a corresponding right-of-use (ROU) asset for the right to use the leased properties.
The Corporation elected not to reassess whether contracts are or contain leases, lease classification or initial direct costs for existing
leases, a set of practical expedients for transition provided by ASU 2016-12. Further, the Corporation elected the practical expedient
to use hindsight in determining the lease term and assessing impairment. The election of the hindsight practical expedient resulted
in longer lease terms for a limited number of strategic locations based on relevant factors as of the adoption date.
The impact at adoption was increases of $329 million and $343 million to total assets and liabilities, respectively, and a
$14 million reduction to retained earnings. The increase in total assets was due to the recognition of ROU assets recorded in accrued
income and other assets, and the increase in total liabilities was due to corresponding recognition of lease payment liabilities
recorded in accrued expenses and other liabilities.
Operating lease liabilities reflect the Corporation’s obligation to make future lease payments, primarily for real estate
locations. Lease terms typically comprise contractual terms but may include extension options reasonably certain of being exercised
at lease inception for certain strategic locations such as regional headquarters. Payments are discounted using the rate the Corporation
would pay to borrow amounts equal to the lease payments over the lease term (the Corporation’s incremental borrowing rate). The
Corporation does not separate lease and non-lease components for contracts in which it is the lessee. ROU assets are measured
based on lease liabilities adjusted for incentives as well as accrued and prepaid rent. Operating lease expense is recognized on a
straight-line basis over the lease term, while variable lease payments are recognized as incurred. Common area maintenance and
other executory costs are the main components of variable lease payments. Operating and variable lease expenses are recorded in
net occupancy expense on the Consolidated Statements of Income.
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.
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Corporation may choose to perform a qualitative assessment to determine whether it is more likely than not that the
fair value of any reporting unit is less than its carrying amount, including goodwill. Factors 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. Based on the results of the qualitative analysis, the Corporation determines
whether a two-step quantitative test is deemed necessary.
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
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 on the Consolidated Balance Sheets on a
net basis when a right of offset exists, based on transactions with a single counterparty and any cash collateral paid to and/or
received from that counterparty for derivative contracts that are subject to legally enforceable master netting arrangements.
For derivative instruments designated and qualifying as fair value hedges (e.g., 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 (e.g., 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.
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 $2.1
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.
Further information on the Corporation’s derivative instruments and hedging activities is included in Note 8.
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Short-Term Borrowings
Securities sold under agreements to repurchase are treated as collateralized borrowings and are recorded at amounts equal
to the cash received. The contractual terms of the agreements to repurchase may require the Corporation to provide additional
collateral if the fair value of the securities underlying the borrowings declines during the term of the agreement.
Financial Guarantees
Certain guarantee contracts or indemnification agreements that contingently require the Corporation, as guarantor, to
make payments to the guaranteed party are initially measured at fair value and included in accrued expenses and other liabilities
on the Consolidated Balance Sheets. The subsequent accounting for the liability depends on the nature of the underlying guarantee.
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
Revenue from contracts with customers comprises the noninterest income earned by the Corporation in exchange for
services provided to customers and is recognized when services are completed 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 accordingly 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-upon prices and customer
demand for services.
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.
F-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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 completed 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 on 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.
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.
F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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.
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
Current Expected Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments," 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. Topic 326 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. The Corporation adopted
Topic 326 effective January 1, 2020 using the modified retrospective approach.
Estimation Methodology
The Corporation expects to determine an allowance for the majority of its loan portfolio by applying reserve factors
designed to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio.
Loans with similar risk characteristics are aggregated in homogeneous pools. Business loans are assigned to pools based on risk
factors including the borrower’s industry; loan type and structure; collateral type; as well as the Corporation’s historical loss
patterns and internal risk rating system. For retail loans, pools are based on loan type, past due status and credit scores. Reserve
factors are based on estimated probability of default for each pool, set to a default horizon based on contractual life, and loss given
default. Historical estimates are calibrated to economic forecasts over the reasonable and supportable forecast period based on the
projected performance of specific economic variables that statistically correlate with each of the probability of default and loss
given default pools. The Corporation 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 foresight risk, input
imprecisions and model imprecision.
The calculation of current expected credit losses is inherently subjective, as it requires management to exercise judgment
in determining appropriate factors used to determine the allowance. Some of the most significant factors are selecting the economic
forecasts used to calibrate the reserve factors, determining the reasonable and supportable forecast period and choosing the
methodology for reverting to appropriate historical credit losses.
•
Economic Forecasts: Management selects economic variables it believes to be most relevant based on the composition of
the loan portfolio and customer base, including forecasted levels of employment, gross domestic product, corporate bond and
F-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
treasury spreads, industrial production levels, consumer and commercial real estate price indices as well as housing statistics.
The Corporation generally uses a consensus forecast, which may be adjusted after different economic forecasts ranging from
more benign to more severe are evaluated, to forecast losses over the contractual life of the loan portfolio.
•
•
Forecast Period: Management believes it can reasonably forecast credit losses over a two-year horizon. The two-year forecast
period, which is shorter than the loss emergence period used under the incurred methodology, encompasses most of the
remaining contractual life of the portfolio of business loans. Management may adjust the forecast period in response to changes
in the economic environment.
Reversion Methodology: For contractual periods which extend beyond the two-year forecast horizon, management elected
an immediate reversion to an average historical loss experience that generally incorporates a full economic cycle.
Credit losses for loans that no longer share similar risk characteristics are estimated on an individual basis. Individual
evaluations are typically performed for nonaccrual loans and modified loans classified as troubled debt restructurings. Specific
allowances are estimated based on one of several methods, including the estimated fair value of the underlying collateral, observable
market value of similar debt or the present value of expected cash flows.
The estimation methodology for credit losses on lending-related commitments is similar to the process for estimating
credit losses for loans, with the addition of a probability of draw estimate that is applied to each commitment amount.
Topic 326 also requires expected credit losses on available-for-sale (AFS) debt securities be recorded as an allowance
for credit losses. For certain types of debt securities, such as U.S. Treasuries and other securities with government guarantees,
entities may expect zero credit losses. The Corporation believes the zero-loss expectation currently applies to all its AFS debt
securities.
Impact of Adoption
The Corporation’s estimate of current expected credit losses in accordance with Topic 326 assumes continued moderate
economic growth of the U.S. economy and is expected to result in a $17 million day-one decrease in the overall allowance for
credit losses from $668 million at December 31, 2019 under the incurred loss model. Accordingly, the Corporation expects a
corresponding increase of $13 million to retained earnings and a $4 million reduction to deferred tax assets. A similar adjustment
at December 31, 2019 would have caused a 2-basis-point increase in the common equity tier 1 capital (CET1) ratio. Business
loans, comprising approximately 91 percent of the Corporation’s total loan portfolio, consist of loans and lending arrangements
with generally short contractual maturities, which resulted in an expected reduction of $42 million in the allowance for credit
losses. The allowance for credit losses is expected to increase $25 million for retail loans, given their longer contractual maturities.
Cloud Computing Arrangements
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 also requires the amortization of capitalized implementation
costs over the term of the associated hosting arrangement to be presented in the same line of the Consolidated Statement of Income
as the associated hosting arrangement fees.
The Corporation adopted ASU 2018-15 prospectively on January 1, 2020. The impact of adoption will depend on the
magnitude and timing of upcoming software and hosting arrangement projects as well as the nature of the implementation costs.
Additionally, upon adoption, certain fees that were previously classified as outside processing fee expense will be reported in
software expense on the Consolidated Statements of Income.
F-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 2 – FAIR VALUE MEASUREMENTS
Note 1 contains information about the fair value hierarchy, descriptions of the valuation methodologies and key inputs
used to measure financial assets and liabilities recorded at fair value, as well as a description of the methods and significant
assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring
basis.
Assets and 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
$
95
54
$
95
54
— $
—
—
—
—
—
—
22
—
—
22
22
—
—
—
—
—
—
—
9,606
9,606
189
96
10
295
9,901
39
92
10
141
—
141
$
$
$
of December 31, 2019 and 2018.
(in millions)
December 31, 2019
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:
$
$
2,792
9,606
12,398
211
96
10
317
12,864
$
2,792
—
2,792
—
—
—
—
2,941
$
Interest rate contracts
Energy derivative contracts
Foreign exchange contracts
— $
—
—
—
95
95
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
39
92
10
141
95
236
$
$
$
$
$
(a)
F-58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Total
Level 1
Level 2
Level 3
$
88
43
$
88
43
— $
—
(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
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
$
$
$
$
$
(a)
—
—
—
—
—
9
—
—
9
9
—
—
—
—
—
—
—
9,318
9,318
58
189
19
266
9,584
70
186
13
269
—
269
$
$
$
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, 2019 and 2018.
The following table summarizes the changes in Level 3 assets measured at fair value on a recurring basis for the years
ended December 31, 2019 and 2018.
(in millions)
Year Ended December 31, 2019
Derivative assets:
Interest rate contracts
Year Ended December 31, 2018
Equity securities
Investment securities available-for-sale:
State and municipal securities (c)
Equity and other non-debt securities (c)
Total investment securities
available-for-sale
Derivative assets:
Balance at
Beginning
of Period
Change in
Classification
(a)
Net Realized/Unrealized
Gains (Losses) (Pretax)
Recorded in Earnings (b)
Realized
Unrealized
Sales and
Redemptions
Balance
at End of
Period
$
$
9
$
— $
1
$
13
— $
44
$ —
$ —
5
44
49
—
(44)
(44)
—
—
—
—
—
—
$
$
(1) $
(44) $
(5)
—
(5)
22
—
—
—
—
Interest rate contracts
—
(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
(5)
—
—
14
9
of Income.
(c) 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.
F-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table presents assets recorded at fair value on a nonrecurring basis at December 31, 2019 and 2018. No
liabilities were recorded at fair value on a nonrecurring basis at December 31, 2019 and 2018.
(in millions)
December 31, 2019
Loans:
Commercial
Total assets at fair value
December 31, 2018
Business loans:
Commercial
Commercial mortgage
Total business loans
Retail loans:
Residential mortgage
Total assets at fair value
Level 3
70
70
96
4
100
8
108
$
$
$
$
Level 3 assets recorded at fair value on a nonrecurring basis at December 31, 2019 and 2018 included both nonaccrual
loans and TDRs 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.
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.
F-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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, 2019
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
Other time deposits
Total deposits
Short-term borrowings
Acceptances outstanding
Medium- and long-term debt
Credit-related financial instruments
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
$
$
Carrying
Amount
Total
Estimated Fair Value
Level 2
Level 1
Level 3
$
$
973
4,845
6
49,732
2
248
5
27,382
26,802
2,978
133
57,295
71
2
7,269
(57)
1,390
3,171
3
49,492
4
248
6
$
$
973
4,845
6
49,975
2
248
10
27,382
26,802
2,968
133
57,285
71
2
7,316
(57)
1,390
3,171
3
48,889
4
248
11
$
973
4,845
—
—
2
248
— $
—
6
—
—
—
—
—
—
49,975
—
—
—
—
—
—
—
71
2
—
—
27,382
26,802
2,968
133
57,285
—
—
7,316
—
—
—
—
—
—
—
—
—
(57)
$
1,390
3,171
—
—
4
248
— $
—
3
—
—
—
—
—
—
48,889
—
—
Total deposits
Demand deposits (noninterest-bearing)
Interest-bearing deposits
Customer certificates of deposit
—
—
—
—
—
—
—
(57)
Included $70 million and $108 million of impaired loans recorded at fair value on a nonrecurring basis at December 31, 2019 and 2018,
respectively.
Short-term borrowings
Acceptances outstanding
Medium- and long-term debt
28,690
24,740
2,100
55,530
44
4
6,436
(57)
28,690
24,740
2,131
55,561
44
4
6,463
(57)
28,690
24,740
2,100
55,530
—
—
6,436
—
Credit-related financial instruments
(a)
—
—
—
—
44
4
—
—
(b) Certain investments that are measured at fair value using the net asset value have not been classified in the fair value hierarchy. The fair
value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the
Consolidated Balance Sheets.
F-61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 3 - INVESTMENT SECURITIES
A summary of the Corporation’s investment securities follows:
(in millions)
December 31, 2019
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
$
2,745
9,568
12,313
$
$
47
66
113
December 31, 2018
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
(a)
14
22
36
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
2,732
9,493
12,225
$
$
$
$
$
$
$
— $
28
28
$
2,792
9,606
12,398
19
197
216
$
$
2,727
9,318
12,045
A summary of the Corporation’s investment securities in an unrealized loss position as of December 31, 2019 and 2018
follows:
(in millions)
December 31, 2019
Less than 12 Months
Unrealized
Losses
Fair
Value
Temporarily Impaired
12 Months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
Residential mortgage-backed securities (a)
Total temporarily impaired securities
$ 1,494
$ 1,494
$
$
7
7
$ 1,906
$ 1,906
December 31, 2018
U.S. Treasury and other U.S. government
agency securities
Residential mortgage-backed securities (a)
Total temporarily impaired securities
$
— $
1,008
$ 1,008
$
— $ 1,457
6,412
9
$ 7,869
9
$
$
$
$
21
21
19
188
207
$ 3,400
$ 3,400
$ 1,457
7,420
$ 8,877
$
$
$
$
28
28
19
197
216
(a)
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
F-62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
At December 31, 2019, the Corporation had 170 residential mortgage-backed securities in an unrealized loss position
with no credit impairment. 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, 2019.
Sales, primarily from repositioning $1.0 billion and $1.3 billion of lower-yielding treasury securities in the years ended
December 31, 2019 and 2018, respectively, 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 year ended December 31, 2017.
(in millions)
Year Ended December 31
Securities gains
Securities losses
Net securities losses
2019
2018
$
1
(8)
(7) $
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, 2019
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
$
$
30
2,842
1,006
8,435
12,313
$
$
30
2,894
1,013
8,461
12,398
Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with a
total amortized cost and fair value of $9.6 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, 2019, investment securities with a carrying value of $518 million were pledged where permitted or
required by law to secure $418 million of liabilities, primarily public and other deposits of state and local government agencies
and derivative instruments.
F-63
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, 2019
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, 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
(a) Primarily loans to real estate developers.
(b) Primarily loans secured by owner-occupied real estate.
$
Loans Past Due and Still Accruing
30-59
Days
60-89
Days
90 Days
or More
Total
Nonaccrual
Loans
Current
Loans
Total
Loans
$
27
$
7
$
17
$
51
$
148
$
31,274
$ 31,473
6
—
6
9
16
25
1
—
59
15
4
2
6
21
80
$
—
7
7
—
18
18
—
5
37
2
5
3
8
10
47
$
—
—
—
—
9
9
—
—
26
—
—
—
—
—
26
6
7
13
9
43
52
1
5
122
17
9
5
14
31
$ 153
$
—
—
—
2
12
14
—
—
162
20
17
—
17
37
199
3,038
404
3,442
2,165
7,328
9,493
587
1,004
45,800
3,044
411
3,455
2,176
7,383
9,559
588
1,009
46,084
1,808
1,845
1,685
724
2,409
4,217
50,017
1,711
729
2,440
4,285
$ 50,369
$
34
$
26
$
8
$
68
$
141
$
31,767
$ 31,976
$
$
6
6
12
4
32
36
—
—
82
11
4
1
5
16
98
—
—
—
—
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
$
—
—
—
—
5
5
—
—
31
3
1
—
1
4
35
$
F-64
$
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, 2019
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, 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
(a)
(b)
Pass (a)
Internally Assigned Rating
Special
Mention (b)
Substandard (c)
Nonaccrual (d)
Total
$
29,785
$
841
$
699
$
148
$
31,473
3,013
411
3,424
2,121
7,141
9,262
579
972
44,022
1,823
1,682
722
2,404
4,227
48,249
$
19
—
19
12
147
159
7
29
1,055
2
1
6
7
9
1,064
$
12
—
12
41
83
124
2
8
845
—
11
1
12
12
857
$
—
—
—
2
12
14
—
—
162
20
17
—
17
37
199
$
3,044
411
3,455
2,176
7,383
9,559
588
1,009
46,084
1,845
1,711
729
2,440
4,285
50,369
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
$
$
$
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.
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.
Primarily loans to real estate developers.
Primarily loans secured by owner-occupied real estate.
(c)
(d)
(e)
(f)
F-65
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
Total nonperforming assets
(a) Comprised of reduced-rate retail loans.
December 31, 2019
199
$
5
204
11
215
$
December 31, 2018
221
$
8
229
1
230
$
There were no retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual
loans at December 31, 2019, compared to $1 million at December 31, 2018.
Allowance for Credit Losses
The following table details the changes in the allowance for loan losses and related loan amounts.
Business
Loans
2019
Retail
Loans
Total
Business
Loans
2018
Retail
Loans
Total
Business
Loans
2017
Retail
Loans
Total
(dollar amounts in millions)
Years Ended December 31
Allowance for loan losses:
Balance at beginning of
period
Loan charge-offs
Recoveries on loans
previously charged-off
Net loan (charge-offs)
recoveries
Provision for loan losses
Foreign currency translation
adjustment
Balance at end of period
$
$
627
(147)
$
40
(107)
81
—
601
$
44
(5)
5
—
(8)
—
36
$
671
(152)
$
$
661
(99)
45
(107)
73
—
637
$
$
47
(52)
19
(1)
627
$
51
(4)
5
1
(8)
—
44
$
712
(103)
$
$
682
(143)
48
(6)
$
730
(149)
52
(51)
11
(1)
671
$
50
(93)
71
1
661
$
$
7
1
2
—
51
57
(92)
73
1
712
$
As a percentage of total loans
1.30% 0.84%
1.27%
1.37%
0.97%
1.34%
1.48%
1.12%
1.45%
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
$
31
$ — $
31
570
$
601
$
199
$
$
36
36
606
$
637
16
$
215
$
$
$
27
$ — $
27
$
67
$ — $
67
600
627
$
44
44
240
$
36
644
671
276
$
$
$
$
594
661
$
51
51
443
$
34
645
712
477
$
$
45,885
4,269
50,154
45,439
4,448
49,887
44,188
4,508
48,696
$46,084
$ 4,285
$50,369
$ 45,679
$ 4,484
$ 50,163
$ 44,631
$ 4,542
$ 49,173
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
Provision for credit losses on lending-related commitments
Balance at end of period
2019
2018
2017
$
$
30
1
31
$
$
42
(12)
30
$
$
41
1
42
F-66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Individually Evaluated Impaired Loans
The following table presents additional information regarding individually evaluated impaired loans.
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
$
30
$
120
$
150
$
251
$
39
1
40
70
8
8
16
86
$
—
9
9
129
—
—
—
129
$
39
10
49
199
8
8
16
215
$
49
15
64
315
8
10
18
333
$
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
$
30
—
1
1
31
—
—
—
31
24
—
3
3
—
27
—
—
—
—
—
27
(in millions)
December 31, 2019
Business loans:
Commercial
Commercial mortgage:
Commercial Real Estate business line (a)
Other business lines (b)
Total commercial mortgage
Total business loans
Retail loans:
Residential mortgage
Consumer:
Home equity
Total retail loans (c)
Total individually evaluated impaired loans
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
(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-67
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.
2019
Individually Evaluated Impaired Loans
2018
2017
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
$
156
$
2
$
262
$
5
$
451
$
(in millions)
Years Ended December 31
Business loans:
Commercial
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 individually evaluated impaired
39
14
53
1
2
212
21
9
—
9
30
loans
$
(a) Primarily loans to real estate developers.
(b) Primarily loans secured by owner-occupied real estate.
242
$
8
2
—
2
—
—
10
—
—
—
—
—
10
3
1
4
—
—
6
1
—
—
—
1
40
23
63
—
4
329
21
11
1
12
33
4
—
4
—
—
9
—
—
—
—
—
21
31
52
—
8
511
24
13
3
16
40
7
$
362
$
9
$
551
$
F-68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Troubled Debt Restructurings
The following tables detail the recorded balance at December 31, 2019 and 2018 of loans considered to be TDRs that
were restructured during the years ended December 31, 2019 and 2018, by type of modification. In cases of loans with more than
one type of modification, the loans were categorized based on the most significant modification.
(in millions)
Years Ended December 31
Business loans:
Commercial
Commercial mortgage:
Other business lines (b)
International
Total business loans
Retail loans:
Consumer:
Home equity (c)
2019
2018
Type of Modification
Type of Modification
Principal
Deferrals (a)
Interest
Rate
Reductions
Total
Modifications
Principal
Deferrals (a)
Interest
Rate
Reductions
Total
Modifications
$
28
$
— $
28
$
27
$
— $
—
—
28
—
—
—
—
—
28
2
1
30
—
—
—
27
2
1
30
3
33
—
28
1
1 $
1
29
—
30
3
3 $
$
Total loans
(a) Primarily represents loan balances where terms were extended 90 days or more at or above contractual interest rates. Also includes
$
$
$
commercial loans restructured in bankruptcy.
(b) Primarily loans secured by owner-occupied real estate.
(c)
Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.
The Corporation charges interest on principal balances outstanding during deferral periods. Additionally, none of the
modifications involved forgiveness of principal.
At December 31, 2019 and 2018, commitments to lend additional funds to borrowers whose terms have been modified
in TDRs totaled $3 million and $20 million, respectively. 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 for each 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, a subsequent payment default is defined in terms of delinquency, when a principal or interest
payment is 90 days past due. Subsequent defaults of principal deferrals totaled $12 million in commercial loans for the year ended
December 31, 2019, compared to none in the comparable period in 2018. There were no subsequent defaults of interest rate
reductions during either of the years ended December 31, 2019 and 2018.
NOTE 5 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk may exist when a number of borrowers are engaged in similar activities, or activities in the
same geographic region, and have similar economic characteristics that would cause them to be similarly impacted by changes in
economic or other conditions. Concentrations of both on-balance sheet and off-balance sheet credit risk are controlled and monitored
as part of credit policies. The Corporation is a regional financial services holding company with a geographic concentration of its
on-balance-sheet and off-balance-sheet activities in Michigan, California and Texas.
As outlined below, the Corporation has a concentration of credit risk with the automotive industry. Loans to automotive
dealers and to borrowers involved with automotive production are reported as automotive, as management believes these loans
have similar economic characteristics that might cause them to react similarly to changes in economic conditions. This aggregation
involves the exercise of judgment. Included in automotive production are: (a) original equipment manufacturers and Tier 1 and
Tier 2 suppliers that produce components used in vehicles and whose primary revenue source is automotive-related (“primary”
defined as greater than 50%) and (b) other manufacturers that produce components used in vehicles and whose primary revenue
source is automotive-related. Loans less than $1 million and loans recorded in the Small Business loan portfolio were excluded
from the definition. Outstanding loans, included in commercial loans on the Consolidated Balance Sheets, and total exposure
F-69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
(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
2019
2018
$
$
$
$
1,249
7,414
8,663
2,358
9,677
12,035
$
$
$
$
1,331
8,097
9,428
2,396
10,044
12,440
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
2019
2018
3,044
411
3,455
2,176
7,383
9,559
13,014
3,557
$
$
$
2,687
390
3,077
1,743
7,363
9,106
12,183
3,146
2019
2018
86
818
513
1,417
(960)
457
$
$
85
842
492
1,419
(944)
475
$
$
$
$
$
The Corporation conducts a portion of its business from leased facilities and leases certain equipment. Rental expense
for leased properties and equipment amounted to $81 million, $75 million and $78 million in 2019, 2018 and 2017, respectively.
Refer to Note 26 for more information on leased facilities and equipment.
F-70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 7 - GOODWILL AND CORE DEPOSIT INTANGIBLES
The following table summarizes the carrying value of goodwill by reporting unit for the years ended December 31, 2019
and 2018.
(in millions)
December 31
Business Bank
Retail Bank
Wealth Management
Total
2019
2018
$
$
473
101
61
635
$
$
473
101
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 2019 and 2018, the annual
test of goodwill impairment was performed as of the beginning of the third quarter, and in both of these periods, a qualitative
assessment resulted 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.
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
2019
2018
$
$
34
(32)
2
$
$
34
(30)
4
The Corporation recorded amortization expense related to the core deposit intangible of $2 million for both the years
ended December 31, 2019 and 2018. At December 31, 2019, estimated future amortization expense was as follows:
(in millions)
Years Ending December 31
2020
2021
Total
$
$
1
1
2
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
F-71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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, 2019, counterparties with bilateral collateral agreements had no pledged marketable investment securities
and deposited $12 million of cash with the Corporation to secure the fair value of contracts in an unrealized gain position, and the
Corporation had pledged $23 million of marketable investment securities and posted $15 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, 2019.
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 taking offsetting positions 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-72
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, 2019 and 2018. The table
excludes commitments and warrants accounted for as derivatives.
December 31, 2019
Fair Value
December 31, 2018
Fair Value
Notional/
Contract
Amount (a)
Gross
Derivative
Assets
Gross
Derivative
Liabilities
Notional/
Contract
Amount (a)
Gross
Derivative
Assets
Gross
Derivative
Liabilities
$
3,325
$
— $
— $
2,625
$
— $
4,550
330
8,205
671
671
16,485
17,827
477
477
2,135
3,089
1,013
21,929
30,134
—
—
—
—
—
211
211
—
23
73
96
10
317
317
(63)
(11)
243
—
2
2
—
—
39
39
23
—
69
92
—
302
2,927
885
885
13,115
14,885
278
278
2,094
2,650
8
139
141
$
1,095
18,630
21,557
(63)
(12)
66
—
1
1
—
1
66
67
—
26
163
189
18
274
275
(45)
(174)
56
2
—
1
3
1
—
67
68
26
—
160
186
12
266
269
(45)
(1)
223
(in millions)
Risk management purposes
Derivatives designated as hedging instruments
Interest rate contracts:
Swaps - fair value - receive fixed/
pay floating
Swaps - cash flow - 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
—
(21)
(1)
—
223
(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 on the Consolidated Balance Sheets.
243
45
55
$
$
$
$
(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 $9 million and $2 million at December 31, 2019 and 2018, respectively.
Risk Management
The Corporation's derivative instruments used for managing interest rate risk include fair value hedging strategies that
convert fixed-rate long-term debt to variable rates and variable-rate loans to fixed rates.
F-73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table details the effects of fair value hedging on the Consolidated Statements of Income.
(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
Includes the effects of hedging.
(a)
Interest on Medium- and Long-Term Debt
2019
2018
$
197
$
144
110
(4)
74
(7)
For the impact of cash flow hedging, refer to Note 14.
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 items and the weighted average interest rates associated
with amounts expected to be received or paid on interest rate swap agreements as of December 31, 2019 and 2018.
(dollar amounts in millions)
December 31, 2019
Swaps - cash flow - 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
Variable rate loans
$
4,550
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt
December 31, 2018
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt
3,325
$
3,469
2,625
2,663
3.0
4.6
3.9
1.94%
1.71%
3.44
2.80
3.40
3.45
(a)
Included $146 million and $49 million of cumulative hedging adjustments at December 31, 2019 and 2018, respectively, which
included $7 million and $8 million, respectively, of hedging adjustment on a discontinued hedging relationship.
(b) Variable rates paid on receive fixed swaps designated as fair value and cash flow hedges are based on one- and six-month LIBOR rates in
effect at December 31, 2019 and 2018.
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 on
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 on the Consolidated Statements of Income for the years ended December 31, 2019 and 2018, respectively.
F-74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Fair values of customer-initiated and other derivative instruments represent the net unrealized gains or losses on such
contracts and are recorded on the Consolidated Balance Sheets. Changes in fair value are recognized on 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
Credit-Related Financial Instruments
Location of Gain
Other noninterest income
Other noninterest income
Foreign exchange income
$
$
2019
2018
29
5
43
77
$
$
26
4
47
77
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
2019
2018
$
$
$
23,681
3,180
26,861
3,320
18
$
$
$
24,266
3,001
27,267
3,244
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 $31
million and $30 million at December 31, 2019 and 2018, 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
$25 million and $24 million at December 31, 2019 and 2018, 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 $161 million and $136 million at
December 31, 2019 and 2018, respectively, of the $3.3 billion of standby and commercial letters of credit outstanding at both
December 31, 2019 and 2018.
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 $32 million at December 31, 2019, including $26 million in deferred fees
and $6 million in the allowance for credit losses on lending-related commitments. At December 31, 2018, the comparable amounts
were $34 million, $28 million and $6 million, respectively.
F-75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following table presents a summary of criticized standby and commercial letters of credit at December 31, 2019 and
2018. 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, 2019
44
$
1.3%
December 31, 2018
49
$
1.5%
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
agreement reflects the pro-rata share of the derivative instrument, consistent with its share of the related participated loan. As of
December 31, 2019 and 2018, the total notional amount of the credit risk participation agreements was approximately $786 million
and $703 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 $20 million and $7 million at December 31, 2019 and 2018, 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, 2019, the weighted average remaining
maturity of outstanding credit risk participation agreements was 3.4 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. 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 LIHTC entities and other tax credit entities at December 31, 2019 was limited to $441 million and
$6 million, respectively.
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 ($160 million at
December 31, 2019). 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, 2019, 2018 and 2017.
The following table summarizes the impact of these tax credit entities on line items on the Corporation’s Consolidated
Statements of Income.
F-76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
(in millions)
Years Ended December 31
Other noninterest income:
Sales 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
2019
2018
2017
$
$
2
$
65
(62)
(13)
(10) $
5
$
65
(62)
(14)
(11) $
2
67
(63)
(24)
(20)
For further information on the Corporation’s consolidation policy, see Note 1.
NOTE 10 - DEPOSITS
At December 31, 2019, the scheduled maturities of certificates of deposit and other deposits with a stated maturity were
as follows:
(in millions)
Years Ending December 31
2020
2021
2022
2023
2024
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
2019
398
503
819
97
1,817
$
$
$
$
$
$
2,970
156
24
15
11
26
3,202
2018
363
146
278
297
1,084
The aggregate amount of domestic certificates of deposit that meet or exceed the current FDIC insurance limit of $250,000
was $956 million and $543 million at December 31, 2019 and 2018, respectively. All foreign office time deposits of $91 million
and $8 million at December 31, 2019 and 2018, 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, 2019, Comerica Bank (the Bank), a wholly-owned subsidiary of the Corporation, had pledged loans
totaling $22.0 billion which provided for up to $17.8 billion of available collateralized borrowing with the FRB.
F-77
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, 2019
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, 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
$
$
$
$
$
$
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
$
$
$
$
$
$
71
1.50%
835
113
2.28%
44
2.39 %
182
59
1.91 %
10
1.43 %
41
20
1.02 %
2019
2018
3.80% subordinated notes due 2026 (a)
$
264
$
Medium- and long-term notes:
2.125% notes due 2019 (a)
3.70% notes due 2023 (a)
4.00% notes due 2029 (a)
Total medium- and long-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- and long-term notes:
2.50% notes due 2020 (a)
2.50% notes due 2024 (a)
Total medium- and long-term notes
Federal Home Loan Bank (FHLB) advances:
—
884
587
1,471
1,735
360
202
562
674
498
1,172
—
—%
1,200
256
2.44%
—
— %
250
3
1.75 %
—
— %
1,024
257
1.15 %
250
348
861
—
1,209
1,459
343
198
541
663
—
663
Total FHLB advances
Floating-rate based on FHLB auction rate due 2026
Floating-rate based on FHLB auction rate due 2028
2,800
1,000
3,800
5,004
Total subsidiaries
6,463
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
2,800
1,000
3,800
5,534
7,269
$
$
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.
F-78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Bank, a wholly-owned subsidiary of the Corporation, is a member of the FHLB, which provides short- and long-
term funding to its members through advances collateralized by real-estate related assets. The interest rate on the FHLB advances
resets between four and eight weeks, based on the FHLB auction rate. At December 31, 2019, the weighted-average rate on the
FHLB advances was 1.75%. 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, 2019, $17.2 billion of real
estate-related loans were pledged to the FHLB as blanket collateral for current and potential future borrowings of approximately
$5.1 billion.
The Corporation issued $350 million of 4.00% senior notes maturing in 2029, swapped to a floating rate at 30-day LIBOR
plus 129 basis points in first quarter 2019 and issued an additional $200 million of 4.00% senior notes maturing in 2029 in third
quarter 2019, swapped to a floating rate at 30-day LIBOR plus 123 basis points. These notes were consolidated under a single
series with an aggregate principal amount of $550 million.
Also in third quarter 2019, the Bank issued $500 million of 2.50% medium-term notes due in 2024, swapped to a floating
rate based on 30-day LIBOR plus 84 basis points.
Unamortized debt issuance costs deducted from the carrying amount of medium- and long-term debt totaled $12 million
and $8 million at December 31, 2019 and 2018, respectively.
At December 31, 2019, the principal maturities of medium- and long-term debt were as follows:
(in millions)
Years Ending December 31
2020
2021
2022
2023
2024
Thereafter
Total
$
$
675
—
—
850
500
5,100
7,125
NOTE 13 - SHAREHOLDERS’ EQUITY
Repurchases of common stock under the equity repurchase program initially authorized in 2010 by the Board of Directors
of the Corporation totaled 18.6 million shares at an average price paid of $73.60 in 2019, 14.8 million shares at an average price
paid of $89.21 per share in 2018 and 7.3 million shares at an average price paid of $72.44 per share in 2017. There is no expiration
date for the Corporation's equity repurchase program. During the year ended December 31, 2019, the Corporation repurchased
$1.4 billion under the equity repurchase program.
At December 31, 2019, the Corporation had no outstanding warrants as all remaining warrants to purchase common stock
expired in 2018. Approximately 585,000 and 1.8 million shares of common stock were issued upon exercise of warrants in 2018
and 2017, respectively.
At December 31, 2019, the Corporation had 3.8 million shares of common stock reserved for stock option exercises and
restricted stock unit vesting and 458,000 shares of restricted stock outstanding to employees and directors under share-based
compensation plans.
F-79
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 years ended December 31, 2019, 2018 and 2017,
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 gains (losses) on investment securities:
2019
2018
2017
Balance at beginning of period, net of tax
$
(138) $
(101) $
Cumulative effect of change in accounting principle
Net unrealized holding gains (losses) arising during the period
Less: Provision (benefit) for income taxes
Net unrealized holding gains (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 gains (losses) on investment securities, net of tax
Reclassification of certain deferred tax effects (a)
Balance at end of period, net of tax
Accumulated net gains on cash flow hedges:
Balance at beginning of period, net of tax
Net cash flow hedge gains arising during the period
Less: Provision for income taxes
Change in net cash flow hedge gains, net of tax
Balance at end of period, net of tax (b)
Accumulated defined benefit pension and other postretirement plans
adjustment:
Balance at beginning of period, net of tax
Actuarial gain (loss) arising during the period
Less: Provision (benefit) for income taxes
Net defined benefit pension and other postretirement adjustment arising
during the period, net of tax
Amounts recognized in 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
$
$
$
$
$
$
—
257
60
197
(8)
(2)
(6)
—
—
—
203
—
65
$
— $
44
10
34
34
$
1
(69)
(16)
(53)
(20)
(5)
(15)
—
—
—
(38)
—
(138) $
— $
—
—
—
— $
(33)
—
(81)
(27)
(54)
—
—
—
(3)
(1)
(2)
(52)
(16)
(101)
—
—
—
—
—
(471) $
(350) $
(350)
163
38
125
42
(27)
15
3
12
(191)
(44)
(147)
61
(27)
34
8
26
137
—
(334) $
(235) $
(121)
—
(471) $
(609) $
72
17
55
51
(27)
24
8
16
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.
(b) The corporation expects to reclassify $12 million of net gains, net of tax, from accumulated other comprehensive loss to earnings over
the next twelve months if interest yield curves and notional amounts remain at December 31, 2019 levels.
F-80
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
2019
2018
2017
$
$
$
$
$
$
1,198
7
1,191
150
$
$
1,235
8
1,227
168
7.95
$
7.31
$
150
1
—
151
168
2
1
171
7.87
$
7.20
$
743
5
738
174
4.23
174
3
1
178
4.14
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.
Years Ended December 31
Average outstanding options
Range of exercise prices
NOTE 16 - SHARE-BASED COMPENSATION
2019
542,786
$67.53 - $95.25
2018
193,248
$95.25
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
2019
2018
2017
$
$
39
9
$
$
48
11
$
$
39
14
The following table summarizes unrecognized compensation expense for all share-based plans.
(dollar amounts in millions)
Total unrecognized share-based compensation expense
Weighted-average expected recognition period (in years)
December 31, 2019
$
33
2.3
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 to executive officers and key personnel under a previous
share-based compensation plan 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, 2019, over 5 million shares were available
for grant.
F-81
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)
2019
2018
2017
$
22.27
$
30.32
$
19.61
2.74%
3.00
30
7.6
2.63%
3.00
36
7.4
2.47%
3.00
34
7.0
A summary of the Corporation’s stock option activity and related information for the year ended December 31, 2019
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, 2019
Granted
Forfeited or expired
Exercised
Outstanding-December 31, 2019
Exercisable-December 31, 2019
2,943
283
(35)
(511)
2,680
1,816
$
$
44.70
80.14
65.91
37.32
49.58
41.79
5.3
4.2
$
$
66
56
The aggregate intrinsic value of outstanding options shown in the table above represents the total pretax intrinsic value
at December 31, 2019, based on the Corporation’s closing stock price of $71.75 at December 31, 2019.
The total intrinsic value of stock options exercised was $20 million, $81 million and $104 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
A summary of the Corporation’s restricted stock activity and related information for the year ended December 31, 2019
follows:
Outstanding-January 1, 2019
Forfeited
Vested
Outstanding-December 31, 2019
Number of
Shares
(in thousands)
Weighted-Average
Grant-Date Fair
Value per Share
869
(27)
(384)
458
$
$
44.34
49.81
38.81
48.64
The total fair value of restricted stock awards that fully vested was $15 million, $14 million and $19 million for the years
ended December 31, 2019, 2018 and 2017, respectively.
A summary of the Corporation's restricted stock unit activity and related information for the year ended December 31,
2019 follows:
F-82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Outstanding-January 1, 2019
Granted
Forfeited
Vested
Outstanding-December 31, 2019
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
$
367
237
(14)
(12)
578
68.14
78.81
87.38
55.81
72.34
$
662
329
(28)
(420)
543
56.64
66.80
81.06
32.53
80.22
The total fair value of restricted stock units that fully vested was $14 million, $10 million and $10 million for the years
ended December 31, 2019, 2018 and 2017, 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, 2019, the Corporation held 86.1 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. 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-83
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, 2019 and 2018.
The Corporation used a measurement date of December 31, 2019 for these plans.
(dollar amounts in millions)
Change in fair value of plan assets:
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at December 31
Change in projected benefit obligation:
Projected benefit obligation at January 1
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
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
2019
2018
2019
2018
2019
2018
$ 2,458
579
—
(104)
$ 2,933
$ 1,901
31
80
223
(104)
$ 2,131
$ 2,121
802
$
$ 2,747
(167)
—
(122)
$ 2,458
$ 2,061
29
75
(142)
(122)
$ 1,901
$ 1,893
557
$
$ — $ — $
—
—
—
—
—
—
$ — $ — $
$
211
3
9
25
(13)
$
235
234
$
$ (235)
$
212
2
8
—
(11)
$
211
209
$
$ (211)
$
$
$
$
56
5
1
(5)
57
46
—
2
5
(5)
48
48
9
$
$
$
$
$
$
60
(1)
1
(4)
56
51
—
2
(3)
(4)
46
46
10
3.43%
4.00
4.37%
4.00
3.43%
4.00
4.37%
4.00
3.26%
n/a
4.26%
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
6.25
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
$ (687)
140
$ (547)
$ (463)
121
$ (342)
(94)
26
(68)
(20)
1
(19)
(76)
34
(42)
(19)
1
(18)
$
$
$
$
$
$
$
$
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, 2019 and December 31, 2018.
The following table details the changes in plan assets and benefit obligations recognized in other comprehensive income
(loss) for the year ended December 31, 2019.
Defined Benefit Pension Plans
(in millions)
Actuarial gain (loss) arising during the period
Amortization of net actuarial loss
Amortization of prior service credit
Total recognized in other comprehensive income (loss)
$
$
Qualified
190
34
(19)
205
F-84
$
Non-Qualified
$
(25) $
7
(8)
(26) $
Postretirement
Benefit Plan
Total
(2) $
1
—
(1) $
163
42
(27)
178
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Components of net periodic defined benefit cost and postretirement benefit cost, the actual return on plan assets and the
weighted-average assumptions used were as follows:
Defined Benefit Pension Plans
(dollar amounts in millions)
Years Ended December 31
Service cost (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)
(b)
n/a - not applicable
2019
31
$
80
(166)
(19)
34
(71)
(40)
579
$
$
Qualified
2018
29
$
75
(165)
(19)
51
(58)
$ (29)
$ (167)
2017
29
$
2019
3
$
Non-Qualified
2018
2
$
$
2017
2
78
(159)
(19)
43
(57)
(28)
396
$
$
$
9
—
(8)
7
8
11
n/a
n/a
$
8
—
(8)
9
9
11
n/a
n/a
$
8
—
(8)
8
8
10
n/a
n/a
24.07% (6.21)% 16.48%
4.37% 3.74 %
6.50
4.00
6.50
3.75
4.23%
6.50
3.50
4.37%
n/a
4.00
3.74%
n/a
3.75
4.23%
n/a
3.50
Included in salaries and benefits expense on the Consolidated Statements of Income.
Included in other noninterest expenses on the Consolidated Statements of Income.
(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
2018
2017
2019
$
$
$
$
2
(3)
1
— $
5
$
9.14%
$
2
(3)
1
— $
(1)
$
(2.05)%
4.26%
5.00
3.55 %
5.00
6.50
4.50
2027
6.50
4.50
2027
2
(3)
1
—
2
3.52%
3.92%
5.00
6.50
4.50
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 12 years as of December 31,
2019. 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, 2020 are as follows:
(in millions)
Net loss
Prior service credit
Defined Benefit Pension Plans
Qualified
$
54
(19)
Non-Qualified
9
$
(8)
Postretirement
Benefit Plan
Total
$
$
1
—
64
(27)
F-85
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 2019 assumed healthcare and prescription drug cost trend rates would result in a five-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-86
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, 2019 and 2018, by asset category and level within the fair value hierarchy, are detailed in the table
below.
(in millions)
December 31, 2019
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, 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
Total
Level 1
Level 2
Level 3
$
$
$
$
$
2
1,086
$
2
1,086
551
—
—
—
1,639
$
574
734
27
57
2,480
469
2,949
$
$
3
803
$
3
803
482
—
—
—
1,288
$
496
679
29
60
2,070
392
2,462
$
— $
—
23
734
27
—
784
$
— $
—
14
679
29
—
722
$
—
—
—
—
—
57
57
—
—
—
—
—
60
60
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, 2019 and 2018.
(in millions)
Year Ended December 31, 2019
Private placements
Year Ended December 31, 2018
Private placements
Balance at
Beginning
of Period
Net Gains (Losses)
Realized
Unrealized
Purchases
Sales
Balance at
End of Period
$
$
60
80
$
$
3
$
8
$
(1) $
(7) $
49
70
$
$
(63) $
(82) $
57
60
There were no assets in the non-qualified defined benefit pension plan at December 31, 2019 and 2018. 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-87
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, 2020.
Estimated Future Benefit Payments
(in millions)
Years Ended December 31
2020
2021
2022
2023
2024
2025 - 2029
(a) Estimated benefit payments in the postretirement benefit plan are net of estimated Medicare subsidies.
134
133
136
137
139
683
$
$
Qualified
Defined Benefit
Pension Plan
Non-Qualified
Defined Benefit
Pension Plan
Postretirement
Benefit Plan (a)
5
$
5
5
5
4
16
14
14
14
15
15
74
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 $22 million for the year ended
December 31, 2019, and $21 million for the years ended December 31, 2018 and 2017.
Deferred Compensation Plans
The Corporation offers optional deferred compensation plans under which certain employees and non-employee directors
(participants) may make an irrevocable election to defer incentive compensation and/or a portion of base salary until retirement
or separation from the Corporation. The participant 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 participants,
resulting in a deferred compensation asset, recorded in other short-term investments on the Consolidated Balance Sheets that
offsets the liability to participants 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 participants 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.
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
2019
2018
2017
$
$
267
7
48
322
16
(4)
—
12
334
$
$
227
10
39
276
29
3
(8)
24
300
$
$
371
5
36
412
(26)
(2)
107
79
491
Income before income taxes of $1.5 billion for the year ended December 31, 2019 included $42 million of foreign-source
income.
F-88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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. 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.
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:
$
2019
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 insurance expense (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 insurance expense is no longer deductible as a result of the enactment of the Tax Cuts and Jobs Act.
35.0%
1.8
(2.8)
—
(1.7)
(1.3)
8.7
—
—
0.3
(0.2)
—
39.8%
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% $
2.2
(0.8)
—
(0.7)
(0.6)
—
0.3
—
0.1
—
0.2
21.7% $
21.0% $
2.3
(1.5)
(1.1)
(0.8)
(0.6)
(0.5)
0.5
0.3
(0.2)
—
0.1
19.5% $
432
22
(35)
—
(21)
(16)
107
—
—
4
(2)
—
491
323
35
(23)
(17)
(12)
(9)
(8)
8
4
(3)
—
2
300
322
33
(12)
—
(11)
(9)
—
5
—
2
—
4
334
$
The liability for tax-related interest and penalties included in accrued expenses and other liabilities on the Consolidated
Balance Sheets was $8 million and $7 million at December 31, 2019 and 2018, 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.
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
2019
2018
2017
$
$
14
4
(1)
—
17
$
$
10
9
(4)
(1)
14
$
$
15
4
(8)
(1)
10
The Corporation anticipates it is reasonably possible settlements with tax authorities will result in a $5 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 $14 million and
$11 million at December 31, 2019 and 2018, respectively.
The following tax years for significant jurisdictions remain subject to examination as of December 31, 2019:
Jurisdiction
Federal
California
Tax Years
2014-2018
2006-2017
F-89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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
Operating lease liability
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
Hedging gains and losses
Leasing right of use asset
Net unrealized gains on investment securities available-for-sale
Total deferred tax liabilities
Net deferred tax asset
2019
2018
$
$
134
61
8
—
77
49
329
(3)
326
(73)
(91)
(21)
(10)
(69)
(20)
(284)
42
$
$
141
68
9
42
—
42
302
(3)
299
(74)
(41)
(18)
—
—
—
(133)
166
Deferred tax assets included state net operating loss carryforwards of $3 million and $4 million at December 31, 2019
and December 31, 2018, respectively, which expire between 2019 and 2028. 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, 2019 and December 31, 2018. For further information on the Corporation’s valuation
policy for deferred tax assets, refer to Note 1.
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, 2019, totaled $109 million at the beginning of 2019 and $74 million at the end of 2019. During 2019, new
loans to related parties aggregated $732 million and repayments totaled $767 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 $586 million and $599 million for the years ended December 31, 2019 and 2018, 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 $98 million at January 1, 2020, plus 2020 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 $1.2 billion, $1.1 billion and $907 million in 2019, 2018 and
2017, respectively.
F-90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The Corporation and its U.S. banking subsidiaries are subject to various regulatory capital requirements administered by
federal and state banking agencies under the Basel III regulatory framework (Basel III). This regulatory framework establishes
comprehensive methodologies for calculating regulatory capital and risk-weighted assets (RWA). Basel III also set minimum
capital ratios as well as overall capital adequacy standards.
Under Basel III, regulatory capital comprises common equity Tier 1 (CET1) capital, additional Tier 1 capital and Tier II
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 (AOCI) related to debt and equity securities classified
as available-for-sale as well as for cash flow hedges and 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. In
addition to the minimum risk-based capital requirements, the Corporation and its Bank subsidiaries are required to maintain a
minimum capital conservation buffer, in the form of common equity, of 2.5 percent in order to avoid restrictions on capital
distributions and discretionary bonuses.
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.
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, 2019 and 2018, 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, 2019 and 2018.
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, 2019 and 2018. There have been no conditions or events
since December 31, 2019 that management believes have changed the capital adequacy classification of the Corporation or its
U.S. banking subsidiaries.
F-91
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, 2019
CET1 capital (minimum $3.1 billion (Consolidated))
Tier 1 capital (minimum $4.1 billion (Consolidated))
Total capital (minimum $5.5 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 (minimum-2.5%)
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 (minimum-2.5%)
NOTE 21 - CONTINGENT LIABILITIES
Legal Proceedings
Comerica
Incorporated
(Consolidated)
Comerica
Bank
$
$
$
$
6,919
6,919
8,282
68,273
72,773
10.13%
10.13
12.13
9.51
4.13
7,470
7,470
8,855
67,047
71,070
11.14 %
11.14
13.21
10.51
5.14
7,199
7,199
8,371
68,071
72,564
10.58%
10.58
12.30
9.92
4.30
7,229
7,229
8,433
66,857
70,905
10.81 %
10.81
12.61
10.20
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 initially tried in
January 2014, in the Montana Second District Judicial Court for Silver Bow County in Butte, Montana. On January 17, 2014, a
jury found for Masters, resulting in an award against the Bank. On July 1, 2015, after an appeal filed by the Bank, the Montana
Supreme Court reversed the judgment against the Bank and remanded the case for a new trial with instructions that Michigan
contract law should apply and dismissing all other claims. In January 2017, the case was retried, without a jury, in the Second
District Court, Silver Bow County, Montana. In November 2019, the court found the Bank breached its forbearance agreement.
On January 17, 2020, the court conducted a hearing on the amount of costs and interest that Masters is entitled to recover. The
court also heard argument on whether Masters is entitled to attorneys fees, and if so how much. Its decision is pending. The Bank
is considering its options, including additional appeals. 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 $15 million, $17 million and $15 million for the years ended December 31, 2019, 2018
and 2017, respectively, were included in other noninterest expenses on the Consolidated Statements of Income.
F-92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
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 $45 million at December 31, 2019. This estimated aggregate range of reasonably
possible losses is based upon currently available information for those proceedings in which the Corporation is involved, taking
into account the Corporation’s best estimate of such losses for those cases for which such estimate can be made. For certain cases,
the Corporation does not believe that an estimate can currently be made. The Corporation’s estimate involves significant judgment,
given the varying stages of the proceedings (including the fact 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 - BUSINESS SEGMENT INFORMATION
The Corporation has strategically aligned its operations into three major business segments: the Business Bank, the Retail
Bank and Wealth Management. These business segments are differentiated based on the type of customer and the related products
and services provided. In addition to the three major business segments, the Finance Division is also reported as a segment. Business
segment results are produced by the Corporation’s internal management accounting system. This system measures financial results
based on the internal business unit structure of the Corporation. The performance of the business segments is not comparable with
the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution.
Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the
segments would perform if they operated as independent entities. The management accounting system assigns balance sheet and
income statement items to each business segment using certain methodologies, which are regularly reviewed and refined. From
time to time, the Corporation may make reclassifications among the segments to more appropriately reflect management's current
view of the segments, and methodologies may be modified as the management accounting system is enhanced and changes occur
in the organizational structure and/or product lines. For comparability purposes, amounts in all periods are based on business unit
structure and methodologies in effect at December 31, 2019.
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 on deposits and other funds provided reflect the long-term value of deposits and other funding sources
based on their implied maturity. 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. 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, 2019, the Corporation
prospectively discontinued allocating an additional FTP charge for the cost of maintaining liquid assets to support potential draws
on unfunded loan commitments. 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.
F-93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
The following discussion provides information about the activities of each business segment. A discussion of the financial
results and the factors impacting 2019 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-94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
Business segment financial results are as follows:
(dollar amounts in millions)
Year Ended December 31, 2019
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)
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)
(Table continues on following page)
Business
Bank
Retail
Bank
Wealth
Management
Finance
Other
Total
$ 1,655
88
555
795
306
$ 1,021
111
$
$
$
$
568
(4)
132
597
24
83
1
$ 44,946
43,472
29,047
$ 2,852
2,104
20,743
$
$
$
$
183
(14)
270
283
44
140
(5)
$
$
$
(126) $
—
43
(1)
(26)
(56) $
— $
59
4
10
69
(14) (a)
10
—
$ 2,339
74
1,010
1,743
334
$ 1,198
107
$
5,083
4,935
3,833
$
$ 14,235
—
1,673
4,372
—
185
$ 71,488
50,511
55,481
2.27%
35.96
0.39%
84.49
2.76%
62.45
n/m
n/m
n/m
n/m
1.68%
51.82
$ 1,613
6
547
847
283
$ 1,024
52
$
$
$
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
$
$ 43,207
41,618
30,116
$ 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 %
87.59
2.32 %
65.60
n/m
n/m
n/m
n/m
1.75 %
53.56
F-95
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 (benefit) for income taxes
Net income (loss)
Net credit-related charge-offs (recoveries)
Selected average balances:
Assets
Loans
Deposits
Business
Bank
Retail
Bank
Wealth
Management
Finance
Other
Total
$ 1,513
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
Statistical data:
Return on average assets (b)
101.29
Efficiency ratio (c)
(a) Primarily reflected discrete tax items, including benefits of $17 million and $48 million in 2019 and 2018, respectively, and a net charge
1.61%
67.06
1.77%
42.67
1.04%
58.70
n/m
n/m
n/m
n/m
(0.03)%
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 net gains (losses) from securities
and 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, 2019.
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, 2019
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)
(Table continues on following page)
Michigan
California
Texas
Other
Markets
Finance
& Other
Total
$
$
$
729
(11)
291
554
108
369
11
$
$
$
811
(33)
173
406
155
456
8
$
$
$
493
119
128
345
38
119
93
$
$
$
373
(5)
365
369
74
300
(5)
$
$
$
(67)
4
53
69
(41) (a)
(46)
—
$ 2,339
74
1,010
1,743
334
$ 1,198
107
$
$ 13,157
12,553
20,081
$ 18,856
18,540
16,857
$ 11,269
10,616
8,780
$ 9,599
8,802
7,905
$ 18,607
—
1,858
$ 71,488
50,511
55,481
1.77%
54.02
2.42%
41.21
1.06%
55.59
3.13%
50.03
n/m
n/m
1.68%
51.82
F-96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
(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)
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
Selected average balances:
Assets
Loans
Deposits
Michigan
California
Texas
Other
Markets
Finance
& Other
Total
$
$
$
727
30
296
577
90
326
7
$
$
$
788
26
164
424
123
379
27
$
$
$
474
(53)
130
365
64
228
12
$
$
$
353
(1)
359
376
60
277
5
$
$
$
10
(3)
27
52
(37) (a)
25
—
$ 2,352
(1)
976
1,794
300
$ 1,235
51
$
$ 13,207
12,531
20,770
$ 18,544
18,283
16,964
$ 10,380
9,812
8,992
$ 8,922
8,140
8,144
$ 19,671
—
1,065
$ 70,724
48,766
55,935
1.51%
56.22
2.04%
44.58
2.20%
60.30
3.11%
52.93
n/m
n/m
1.75%
53.56
$
$
$
657
8
324
589
137
247
(1)
$
$
$
711
101
171
404
145
232
33
$
$
$
451
(72)
131
375
104
175
46
$
$
$
316
36
423
450
71
182
14
$
$
$
(74)
1
58
42
34 (a)
(93)
—
$ 2,061
74
1,107
1,860
491
743
92
$
$
$ 13,393
12,676
21,818
$ 18,269
18,008
17,533
$ 10,434
9,960
9,623
$ 8,584
7,914
7,881
$ 20,772
—
403
$ 71,452
48,558
57,258
Statistical data:
Return on average assets (b)
Efficiency ratio (c)
(a) Primarily reflected discrete tax items, including benefits of $17 million and $48 million in 2019 and 2018, respectively, and a net charge
1.09%
60.01
1.61%
64.35
2.12%
60.98
1.25%
45.83
1.04%
58.70
n/m
n/m
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 net gains (losses) from securities
and a derivative contract tied to the conversion rate of Visa Class B shares.
n/m – not meaningful
F-97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 23 - 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 - 86,069,234 shares at 12/31/19 and 68,081,176
shares at 12/31/18
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
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-98
2019
1,229
20
224
—
1,473
56
143
6
1
—
72
278
1,195
(9)
1,204
(6)
1,198
7
1,191
$
$
2019
2018
$
$
$
1,196
95
7,784
1
242
9,318
1,735
256
1,991
1,141
2,174
(235)
9,538
(5,291)
7,327
9,318
$
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
2018
2017
$
1,135
13
228
—
1,376
29
140
5
1
2
75
252
1,124
(5)
1,129
106
1,235
8
1,227
$
915
3
136
8
1,062
13
127
5
1
6
80
232
830
(26)
856
(113)
743
5
738
$
$
$
$
$
$
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:
Maturities
Issuances
Common Stock:
Repurchases
Cash dividends paid
Issuances of common stock under employee stock plans
Net cash used in 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 recovered
2019
2018
2017
$
1,198
$
1,235
$
743
6
1
4
15
(2)
28
1,250
(350)
550
(106)
1
4
21
(1)
10
1,164
—
850
(1,394)
(402)
18
(1,578)
(328)
1,524
1,196
$
55
$
(226) $
(1,338)
(263)
52
(699)
465
1,059
$
1,524
11
$
(155) $
$
$
$
113
1
(2)
16
(10)
59
920
—
—
(560)
(180)
118
(622)
298
761
1,059
12
(331)
NOTE 24 - 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 gains (losses)
Noninterest income excluding net securities gains (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
2019
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
$
$
659
115
544
8
1
265
451
82
269
2
267
1.87
1.85
370
$
$
$
711
125
586
35
—
256
435
80
292
2
290
1.98
1.96
338
$
$
$
727
124
603
44
—
250
424
87
298
1
297
1.95
1.94
429
710
104
606
(13)
(8)
246
433
85
339
2
337
2.14
2.11
435
$
$
$
F-99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
(in millions, except per share data)
Interest income
Interest expense
Net interest income
Provision for credit losses
Net securities (losses) gains
Noninterest income excluding net securities (losses) gains
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-100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 25 - 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.
Business
Bank
Retail
Bank
Wealth
Management
Finance &
Other
Total
(in millions)
Year Ended December 31, 2019
Revenue from contracts with customers:
Card fees
Fiduciary income
Service charges on deposit accounts
Commercial loan servicing fees (a)
Brokerage fees
Other noninterest income (b)
Total revenue from contracts with customers
Other sources of noninterest income
Total noninterest income
Year Ended December 31, 2018
Revenue from contracts with customers:
Card fees (c)
Fiduciary income
Service charges on deposit accounts (c)
Commercial loan servicing fees (a)
Brokerage fees
Other noninterest income (b)
Total revenue from contracts with customers
Other sources of noninterest income
Total noninterest income
Year Ended December 31, 2017
Card fees
Fiduciary income
Services charges on deposit accounts
Commercial lending fees
Letter of credit fees
Bank-owned life insurance
Foreign exchange income
Brokerage fees
Other noninterest income
$
$
$
$
$
$
$
$
$
$
213
—
130
18
—
8
369
186
555
201
—
134
18
—
12
365
182
547
285
—
143
84
44
—
43
—
40
639
$
$
$
$
$
40
—
68
—
—
11
119
13
132
39
—
72
—
—
19
130
6
136
43
—
79
—
—
—
—
—
32
154
$
$
$
$
$
4
206
5
—
28
18
261
9
270
4
206
5
—
27
17
259
7
266
5
198
5
1
1
—
2
23
20
255
— $
—
—
—
—
—
—
53
53
$
— $
—
—
—
—
1
1
26
27
$
257
206
203
18
28
37
749
261
1,010
244
206
211
18
27
49
755
221
976
— $
—
—
—
—
43
—
—
16
59
$
333
198
227
85
45
43
45
23
108
1,107
Included in commercial lending fees on the Consolidated Statements of Income.
Total noninterest income
(a)
(b) Excludes derivative, warrant and other miscellaneous income.
(c) 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.
$
$
$
$
Adjustments to revenue during the years ended December 31, 2019 and 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-101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
NOTE 26 - LEASES
As a lessee, the Corporation has entered into operating leases for the majority of its real estate locations, primarily retail
and office space. Total lease expenses were $81 million, including $64 million of operating lease expense and $19 million of
variable lease expense, reported net of $2 million in sublease income, for the year ended December 31, 2019.
At December 31, 2019, the Corporation's Right of Use (ROU) assets and operating lease liabilities were $329 million
and $367 million, respectively. The weighted average lease term for the lease liabilities was 9 years, and the weighted average
discount rate of remaining payments was 3.78 percent. Lease liabilities from new ROU assets obtained during the year ended
December 31, 2019 totaled $49 million. Cash paid on operating lease liabilities was $67 million for the year ended December 31,
2019.
As of December 31, 2019, the contractual maturities of operating lease liabilities were as follows:
(in millions)
Years Ending December 31
2020
2021
2022
2023
2024
Thereafter
Total contractual maturities
Less imputed interest
Total operating lease liabilities
$
$
60
62
53
46
42
175
438
(71)
367
As a lessor, the Corporation leases certain types of manufacturing and warehouse equipment as well as public and private
transportation vehicles to its customers. The Corporation recognized lease-related revenue, primarily interest income from sales-
type and direct financing leases of $14 million for the year ended December 31, 2019. At December 31, 2019, the Corporation's
net investment in sales-type and direct financing leases was $369 million.
As of December 31, 2019, the contractual maturities of sales-type and direct financing lease receivables were as follows:
(in millions)
Years Ending December 31
2020
2021
2022
2023
2024
Thereafter
Total lease payments receivable
Unguaranteed residual values
Less deferred interest income
Total lease receivables (a)
(a) Excludes net investment in leveraged leases of $219 million.
$
$
66
54
90
45
40
31
326
64
(21)
369
F-102
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 Interim 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, 2019. 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, 2019.
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, 2019 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.
Curtis C. Farmer
Chairman, President and
Chief Executive Officer
James J. Herzog
Executive Vice President, Treasurer and
Interim Chief Financial Officer
Mauricio A. Ortiz
Senior Vice President and
Chief Accounting Officer
F-103
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, 2019, 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, 2019, 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, 2019 and 2018, 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, 2019, and the related notes of the Company and our report dated February 11, 2020 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 11, 2020
F-104
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, 2019 and 2018, 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, 2019, and the related notes (collectively referred
to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2019 and 2018, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 11, 2020 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosure to which it relates.
Description of
the Matter
Allowance for loan losses
The Company’s loan portfolio totaled $50.3 billion as of December 31, 2019, and the associated
allowance for loan losses (ALL) was $637 million. As discussed in Note 1 and 4 of the financial
statements, the allowance for loan losses represents management’s estimate of incurred loan losses
inherent in the loan portfolio at the balance sheet date. The allowance for loan losses includes specific
allowances for certain nonaccrual loans and TDR loans and allowances for homogeneous pools of loans
with similar risk characteristics. The Company evaluates each impaired loan to determine the need and
amount of specific allowance. The Company determines the allowance for homogeneous pools of loans
with similar risk characteristics by applying loss factors to outstanding principal balances. Qualitative
adjustments are then made to bring the allowance to the level management believes is appropriate based
on factors that are not fully considered in the quantitative analysis. Examples of these adjustments
include 1) risk factors that have not been fully addressed in internal risk ratings, 2) imprecision in the risk
rating system resulting from inaccuracy in assigning and/or entering risk ratings in the loan accounting
system, 3) market conditions, and 4) model imprecision.
Auditing management’s estimate of the allowance for loan losses involved a high degree of subjectivity
due to the qualitative adjustments included in the ALL. Management’s identification and measurement of
the qualitative adjustments is highly judgmental and could have a significant effect on the allowance for
loan losses.
F-105
How We
Addressed the
Matter in Our
Audit
We obtained an understanding of the Company’s process for establishing the allowance for loan losses,
including the qualitative adjustments made to the ALL. We evaluated the design and tested the operating
effectiveness of the controls and governance over the appropriateness of the qualitative reserve
methodology, including the identification and the assessment for the need for qualitative adjustments, the
reliability and accuracy of data used to estimate the various components of the qualitative reserves, and
management’s review and approval of qualitative adjustments.
To test the qualitative adjustments, we evaluated the identification and measurement of the qualitative
adjustments, including the basis for concluding an adjustment was warranted when considering historical
loss experience utilized in the quantitative analysis, tested the completeness and accuracy of data used by
the Company to estimate the qualitative adjustments, recalculated the analyses used by management to
determine the qualitative adjustments, and analyzed the changes in assumptions and components of the
qualitative reserves relative to changes in the Company’s loan portfolio. For example, we evaluated the
data and information utilized by management to estimate the qualitative adjustments by independently
obtaining and comparing to historical loan data, third-party macroeconomic data, and peer bank data to
assess the appropriateness of the information and to consider whether new or contradictory information
existed.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1992.
Dallas, TX
February 11, 2020
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
2019
2018
2017
2016
2015
1,059
6,158
106
$
887
$
1,135
$
1,209
$
1,146
$
3,360
143
12,120
32,053
3,325
9,170
557
1,019
1,929
2,458
50,511
(667)
49,844
5,134
$ 71,488
4,700
134
5,443
92
5,099
102
11,810
12,207
12,348
10,237
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
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits
Money market and interest-bearing checking deposits
Savings deposits
Customer certificates of deposit
Other time deposits
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
$ 26,644
$ 29,241
$ 31,013
$ 29,751
$ 28,087
23,417
2,166
2,522
705
27
28,837
55,481
369
1,375
6,955
64,180
7,308
$ 71,488
22,378
2,199
2,090
2
25
26,694
55,935
62
1,076
5,842
62,915
7,809
$ 70,724
21,585
2,133
2,470
1
56
26,245
57,258
277
996
4,969
63,500
7,952
$ 71,452
22,744
2,013
3,198
2
33
27,990
57,741
138
1,273
4,917
64,069
7,674
$ 71,743
24,073
1,841
4,208
1
116
30,239
58,326
93
1,389
2,905
62,713
7,534
$ 70,247
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
Fiduciary income
Service charges on deposit accounts
Commercial lending fees
Foreign exchange income
Bank-owned life insurance
Letter of credit fees
Brokerage fees
Net securities losses
Other noninterest income
Total noninterest income
NONINTEREST EXPENSES
Salaries and benefits expense
Outside processing fee expense
Occupancy expense
Software expense
Equipment expense
Advertising expense
FDIC insurance expense
Restructuring charges
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
$
$
$
$
2019
2018
2017
2016
2015
$
$
$
$
2,439
297
71
2,807
262
9
197
468
2,339
74
2,265
257
206
203
91
44
41
38
28
(7)
109
1,010
1,020
264
154
117
50
34
23
—
81
1,743
1,532
334
1,198
7
1,191
7.95
7.87
1,572
398
2.68
$
$
$
$
2,262
265
92
2,619
122
1
144
267
2,352
(1)
2,353
244
206
211
85
47
39
40
27
(19)
96
976
1,009
255
152
125
48
30
42
53
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
198
227
85
45
43
45
23
—
108
1,107
961
366
154
126
45
28
51
45
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
190
219
89
42
42
50
19
—
97
1,051
989
336
157
119
53
21
54
93
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
187
223
99
40
40
53
17
(2)
102
1,035
1,000
318
159
99
53
24
37
—
137
1,827
750
229
521
6
515
2.93
2.84
504
148
0.83
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
Tier 1 capital as a percentage of risk-weighted assets
Total capital as a percentage of risk-weighted assets
Common equity ratio
Tangible common equity as a percentage of tangible assets (b)
Per Common Share Data
Book value at year-end
Market value at year-end
Market value for the year
High
Low
2019
2018
2017
2016
2015
2.05%
1.26
1.94%
0.96
1.09%
0.64
0.51%
0.61
0.26%
0.81
2.44
4.82
5.54
4.88
3.44
5.13
3.85
4.85
4.83
4.24
0.91
1.39
0.91
2.39
2.82
1.29
2.95
0.59
3.54%
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
1.93
2.47
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%
16.39% 15.82%
1.68
51.82
1.75
53.56
9.34%
1.04
58.64
6.22%
0.67
67.62
6.91%
0.74
67.03
10.13
10.13
12.13
9.98
9.19
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
$ 51.57
71.75
$ 46.89
68.69
$ 46.07
86.81
$ 44.47
68.11
$ 43.03
41.83
88.96
58.54
102.66
63.69
88.22
64.04
70.44
30.48
53.45
39.52
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
172
177
458
7,960
174
178
438
7,999
150
151
436
7,747
176
181
477
8,880
168
171
436
7,865
securities and a derivative contract tied to the conversion rate of Visa Class B shares.
(b) See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.
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 11, 2020.
SIGNATURES
COMERICA INCORPORATED
By:
/s/ Curtis C. Farmer
Curtis C. Farmer
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant in the capacities indicated as of February 11, 2020.
/s/ Curtis C. Farmer
Curtis C. Farmer
/s/ James J. Herzog
James J. Herzog
/s/ Mauricio A. Ortiz
Mauricio A. Ortiz
/s/ Michael E. Collins
Michael E. Collins
/s/ Roger A. Cregg
Roger A. Cregg
/s/ T. Kevin DeNicola
T. Kevin DeNicola
/s/ Jacqueline P. Kane
Jacqueline P. Kane
/s/ Richard G. Lindner
Richard G. Lindner
/s/ Barbara R. Smith
Barbara R. Smith
/s/ Robert S. Taubman
Robert S. Taubman
/s/ Reginald M. Turner, Jr.
Reginald M. Turner, Jr.
/s/ Nina G. Vaca
Nina G. Vaca
/s/ Michael G. Van de Ven
Michael G. Van de Ven
Chairman, President and Chief Executive Officer and
Director (Principal Executive Officer)
Executive Vice President, Treasurer and Interim
Chief Financial Officer (Principal Financial Officer)
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
S-1
SHAREHOLDER INFORMATION
Common Stock:
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:
Website: computershare.com/investor
Email: web.queries@computershare.com
Phone: 877.536.3551 or 781.575.3100
WRITTEN REQUESTS:
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
CERTIFIED/OVERNIGHT MAIL:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Officer Certifications:
On May 16, 2019, 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, 2019.
Investor Relations Information:
investor.comerica.com
InvestorRelations@comerica.com
214.462.6831
General Information:
Directory Services
Product Information
800.521.1190
800.292.1300
COMERICA CORPORATE HEADQUARTERS
Comerica Bank Tower
1717 Main Street
Dallas, Texas 75201
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