Comerica 2011 Annual Report Download - page 21

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whether legislative changes will occur or, if they occur, the ultimate effect they would have upon the financial condition or
results of operations of 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 Administration
Comerica maintains a Credit Administration Department (“Credit Administration”) which is responsible for the
oversight and monitoring of our loan portfolio. Credit Administration assists with underwriting by providing objective financial
analysis, including an assessment of the borrower’s business model, balance sheet, cash flow and collateral. Each borrower
relationship is assigned an internal risk rating by Credit Administration. Further, Credit Administration updates the assigned
internal risk rating for every borrower relationship as new information becomes available, either as a result of periodic reviews
of the credit quality or as a result of a change in borrower performance. The goal of the internal risk rating framework is to
improve Comerica’s risk management capability, including its ability to identify and manage changes in the credit risk profile
of its portfolio, predict future losses and price the loans appropriately for risk.
Credit Policy
Comerica maintains a comprehensive set of credit policies. Comerica’s credit policies provide individual loan officers,
as well as loan committees, approval authorities based on our internal risk rating system and establish maximum exposure
limits based on risk ratings and Comerica’s legal lending limit. Credit Administration, in conjunction with the businesses units,
monitors compliance with the credit policies and modifies the existing policies as necessary. New or modified policies/
guidelines require approval by the Strategic Credit Committee, chaired by Comerica’s Chief Credit Officer and comprising
senior credit, market and risk management executives.
Commercial Loan Portfolio
Commercial loans are underwritten using a comprehensive analysis of the borrower’s operations. The underwriting
process includes an analysis of some or all of the factors listed below:
• The borrower’s business model.
• Periodic review of financial statements including financial statements audited by an independent certified
public accountant when appropriate.
• The pro-forma financial condition including financial projections.
• The borrower’s sources and uses of funds.