Comerica 2012 Annual Report Download

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Endurance.
2 0 1 2 ANNUAL R EPORT

Table of contents

  • Page 1
    2 0 1 2 A N N U A L R E P O R T Endurance.

  • Page 2
    ... 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. To find Comerica on Facebook, please visit www.facebook.com/ComericaCares. To follow Comerica and Comerica Bank Chief...

  • Page 3
    ... 2011 acquisition of Houston-based Sterling Bancshares, Inc. The $4 billion, or 18 percent, increase in average commercial loans in 2012 was primarily driven by increases in Energy, Mortgage Banker Finance, National Dealer Services, general Middle Market, Technology & Life Sciences, and Corporate...

  • Page 4
    ...personal wealth management solutions and strategies to high-net-worth individuals, and our Institutional Services group works with organizations to provide trust and investment services, and more. Capitalizing on Opportunities SM We operate in three primary markets - Texas, California and Michigan...

  • Page 5
    ... U.S. commercial bank headquartered in the Lone Star State in order to generate new customer relationships and expand existing ones. We are pleased with the substantial growth opportunities in Texas, including our acquisition of Sterling. Our Energy business, which operates primarily out of Dallas...

  • Page 6
    ... in San Jose and THE COMMUNITY Santa Cruz honored Comerica with commendations for our CONTINUED IN support of prom dress drives in those regions. Our banking 2012, AS WE center staff members collected hundreds of new and gently MICHIGAN MARKET PRESIDENT TOM OGDEN (FAR LEFT) presents a $50,000 check...

  • Page 7
    ... December 31, 2012. In addition, when economic activity improves and investments ramp up, particularly among small and middle market companies, we expect fee income generation to increase along with loan volumes. As we have done historically, we expect to continue to actively manage capital in a way...

  • Page 8
    ... Market JOHN M. KILLIAN Executive Vice President and Chief Credit Officer MICHAEL H. MICHALAK Executive Vice President Planning, Forecasting, Analysis & Enterprise Risk PAUL R. OBERMEYER Executive Vice President and Chief Information Officer THOMAS D. OGDEN President Comerica Bank - Michigan...

  • Page 9
    ... Number) Comerica Bank Tower 1717 Main Street, MC 6404 Dallas, Texas 75201 (Address of Principal Executive Offices) (Zip Code) (214) 462-6831 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Exchange Act: Common Stock, $5 par value...

  • Page 10
    ... 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...

  • Page 11
    ...and services, including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services. The Retail Bank includes small business banking and personal financial...

  • Page 12
    ... Mexico and Canada. They are subject to competition with respect to various products and services, including, without limitation, loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services, loan...

  • Page 13
    ..., including Comerica, from disclosing nonpublic personal financial information of consumer customers to third parties for certain purposes (primarily marketing) unless customers have the opportunity to "opt out" of the disclosure. The Fair Credit Reporting Act restricts information sharing among...

  • Page 14
    ... and adequately managed) in order to take advantage of these interstate banking and branching provisions. Comerica has consolidated most of its banking business into one bank, Comerica Bank, with branches in Texas, Arizona, California, Florida and Michigan. Dividends Comerica is a legal entity...

  • Page 15
    ... sufficient voting stock to become adequately capitalized, reduce the interest rates it pays on deposits, reduce its rate of asset growth, dismiss certain senior executive officers or directors, or stop accepting deposits from correspondent banks. Critically undercapitalized institutions are subject...

  • Page 16
    ... ratio of 10.55%. Additional information on the calculation of Comerica and its bank subsidiaries' Tier 1 Capital, total capital and risk-weighted assets is set forth in Note 20 of the Notes to Consolidated Financial Statements located on page F-107 of the Financial Section of this report. FDIC...

  • Page 17
    ... activities. Allows continued trading of foreign exchange and interest rate derivatives, but requires banks to shift energy, uncleared commodities and agriculture derivatives to a separately capitalized subsidiary within their holding company. • Interchange Fee: Limits debit card transaction...

  • Page 18
    ... proprietary trading and private equity fund sponsorship and investment activities and generally requires full compliance with the new restrictions by July 2014. The Financial Reform Act also: • Requires that publicly traded companies give stockholders a non-binding vote on executive compensation...

  • Page 19
    .... Under the rule, the FRB will annually evaluate institutions' capital adequacy, internal capital adequacy assessment processes, and their plans to make capital distributions, such as dividend payments or stock repurchases. As required, Comerica submitted its 2012 capital plan to the FRB on January...

  • Page 20
    ... depository institutions and non-depository (nonbank) entities. Comerica is subject to CFPB foreign remittance rules and home mortgage lending rules, in addition to certain other CFPB rules. The foreign remittance rules fall under Section 1073 of the Financial Reform Act. The CFPB has issued new...

  • Page 21
    ... 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...

  • Page 22
    ... loan programs. EMPLOYEES As of December 31, 2012, Comerica and its subsidiaries had 8,628 full-time and 678 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...

  • Page 23
    ... 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...

  • Page 24
    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 ...

  • Page 25
    ...compliance with federal consumer laws; • Restrictions on banking entities from engaging in proprietary trading and private equity fund sponsorship and investment activities; • • Created a new framework for the regulation of OTC derivatives activities; and Enactment of rules limiting debit-card...

  • Page 26
    ...those customers' businesses or industries could cause increased credit losses, which in turn could adversely affect Comerica. • The introduction, implementation, withdrawal, success and timing of business initiatives and strategies, including, but not limited to, the opening of new banking centers...

  • Page 27
    ...material adverse effect on Comerica. • Changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing, could adversely affect Comerica's net interest income and balance sheet. The operations of financial institutions such as Comerica are dependent to...

  • Page 28
    ... 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...

  • Page 29
    ...Detroit, Michigan 48226 through January 2012. As of December 31, 2012, Comerica, through its banking affiliates, operated a total of 637 banking centers, trust services locations, and loan production or other financial services offices, primarily in the States of Texas, Michigan, California, Florida...

  • Page 30
    ... is traded on the New York Stock Exchange (NYSE Trading Symbol: CMA). At February 13, 2013, there were approximately 11,700 record holders of Comerica's common stock. Sales Prices and Dividends Quarterly cash dividends were declared during 2012 and 2011 totaling $0.55 and $0.40 per common share per...

  • Page 31
    ...-Employee Directors of Comerica Bank and Affiliated Banks (terminated March 2004). Also includes options to purchase 245,704 shares of common stock, par value $5.00 per share, issued under the Amended and Restated Sterling Bancshares, Inc. 2003 Stock Incentive and Compensation Plan ("Sterling LTIP...

  • Page 32
    ...were no open market repurchases of common stock or warrants in 2010.The following table summarizes Comerica's share repurchase activity for the year ended December 31, 2012. Total Number of Shares and Warrants Purchased as Part of Publicly Announced Repurchase (shares in thousands) Plans or Programs...

  • Page 33
    ...," "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-49 of the Financial Section of this report. Item 7A...

  • Page 34
    ... Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information called for by this item with respect to securities authorized for issuance under equity compensation plans is included under Part II, Item 5 of this Annual Report on Form 10-K. The response to the...

  • Page 35
    ... REVIEW AND REPORTS Comerica Incorporated and Subsidiaries Performance Graph ...Selected Financial Data ...2012 Overview and Key Corporate Accomplishments ...Results of Operations ...Strategic Lines of Business ...Balance Sheet and Capital Funds Analysis ...Risk Management...Critical Accounting...

  • Page 36
    ... shown below compares the total returns (assuming reinvestment of dividends) of Comerica Incorporated common stock, the S&P 500 Index, and the Keefe 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...

  • Page 37
    ... Income (loss) from continuing operations Net income (loss) Cash dividends declared Common shareholders' equity Tangible common equity (a) 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...

  • Page 38
    ...and services, including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services. The Retail Bank includes small business banking and personal financial...

  • Page 39
    ...part of the 2012 annual planning process (the "profit improvement plan"). Primary components of the profit improvement plan included: • Increasing cross-sell referrals, allocating resources to faster-growing businesses, and reviewing fee-based pricing, credit pricing and deposit rates. • Expense...

  • Page 40
    ...deposits with banks (e) Other short-term investments Total earning assets Cash and due from banks Allowance for loan losses Accrued income and other assets Total assets Money market and interest-bearing checking deposits Savings deposits Customer certificates of deposit Foreign office and other time...

  • Page 41
    ... Other short-term investments Total interest income (FTE) Interest Expense: Money market and interest-bearing checking deposits Savings deposits Customer certificates of deposit Foreign office and other time deposits Total interest-bearing deposits Short-term borrowings Medium- and long-term debt...

  • Page 42
    ...acquired Sterling loan portfolio ($18 million), partially offset by decreased yields on loans ($70 million) and mortgage-backed investment securities ($45 million). The Corporation utilizes various asset and liability management strategies to manage net interest income exposure to interest rate risk...

  • Page 43
    ... of this financial review. NONINTEREST INCOME (in millions) Years Ended December 31 2012 2011 2010 Customer-driven income: Service charges on deposit accounts Fiduciary income Commercial lending fees Letter of credit fees Card fees Foreign exchange income Brokerage fees Other customer-driven income...

  • Page 44
    ..., in 2011, compared to 2010. Brokerage fees include commissions from retail brokerage transactions and mutual fund sales and are subject to changes in the level of market activity. The decreases in both 2012 and 2011 were primarily due to the compression of short-term interest rates and a decline...

  • Page 45
    ...defined benefit pension expense, largely driven by declines in the discount rate and the expected long-term rate of return on plan assets. The remaining increase in employee benefits expense was primarily the result of the full-year impact of Sterling in 2012, compared to a five-month impact in 2011...

  • Page 46
    ... acquired Sterling loan portfolio, a decrease in deferred tax assets related to defined benefit plans, primarily resulting from a 2012 contribution to the defined benefit pension plan, the utilization of tax credits and an increase in net unrealized gains on investment securities available-for-sale...

  • Page 47
    ... 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...

  • Page 48
    ...of the purchase discount on the acquired Sterling loan portfolio of $4 million and lower deposit rates, partially offset by lower loan yields. The provision for credit losses of $21 million in 2012 decreased $56 million from 2011, primarily reflecting decreases in Small Business and Personal Banking...

  • Page 49
    ... offset by lower loan yields. The provision for credit losses of $3 million in 2012 decreased $18 million from 2011, primarily reflecting decreases in Middle Market and Small Business, partially offset by increases in Commercial Real Estate and Corporate. Net credit-related charge-offs of $47...

  • Page 50
    ... category discussions under the "Business Segments" heading above. The following table lists the Corporation's banking centers by geographic market segment. December 31 2012 2011 2010 Michigan Texas California Other Markets: Arizona Florida International Total Other Markets Total 216 139 105 18...

  • Page 51
    ...: Auction-rate debt securities Other corporate debt securities Equity and other non-debt securities: Auction-rate preferred securities Money market and other mutual funds Total investment securities available-for-sale Commercial loans Real estate construction loans: Commercial Real Estate business...

  • Page 52
    ... 2012 2011 Change Percent Change Average Loans: Commercial loans by business line: General Middle Market National Dealer Services Energy Technology and Life Sciences Environmental Services Entertainment Total Middle Market Corporate Mortgage Banker Finance Commercial Real Estate Total Business Bank...

  • Page 53
    ...business lines in 2012 and 2011, respectively, were primarily loans secured by owner-occupied real estate. For more information on real estate loans, refer to "Commercial and Residential Real Estate Lending" in the "Risk Management" section of this financial review. ANALYSIS OF INVESTMENT SECURITIES...

  • Page 54
    ... December 31 2012 2011 Change Percent Change Noninterest-bearing deposits Money market and interest-bearing checking deposits Savings deposits Customer certificates of deposit Foreign office and other time deposits Total deposits Short-term borrowings Medium- and long-term debt Total borrowed funds...

  • Page 55
    ...on common stock Purchase of common stock Other comprehensive income (loss): Investment securities available-for-sale Defined benefit and other postretirement plans Total other comprehensive loss Issuance of common stock under employee stock plans Share-based compensation Balance at December 31, 2012...

  • Page 56
    ... over a similar timeframe, but the final form of the U.S. rules is not yet known. The Liquidity Coverage Ratio (LCR) requires a financial institution to hold a buffer of high-quality, liquid assets to fully cover net cash outflows under a 30-day systematic liquidity stress scenario. The revisions...

  • Page 57
    ... credit risks, continuous assessment and verification of risk rating models, quarterly calculation of the allowance for loan losses and the allowance for credit losses on lending-related commitments and calculation of economic credit risk capital. The Special Assets Group is responsible for managing...

  • Page 58
    ... 31 2012 2011 2010 2009 2008 $ Balance at beginning of year Loan charge-offs: 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...

  • Page 59
    ...decrease in the allowance for loan losses primarily reflected decreases in Commercial Real Estate, Middle Market and Small Business. Nonperforming loans of $541 million at December 31, 2012 decreased $346 million, compared to December 31, 2011. The allowance coverage ratio improved to 116 percent at...

  • Page 60
    ... order to maintain an allowance that complies with credit risk and accounting policies. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES 2012 (dollar amounts in millions) December 31 Business loans Commercial Real estate construction Commercial mortgage Lease financing International Total business loans...

  • Page 61
    ... reduced-rate status. Nonperforming assets do not include PCI loans. SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS (dollar amounts in millions) December 31 2012 2011 2010 2009 2008 Nonaccrual loans: Business loans: Commercial Real estate construction: Commercial Real Estate business line...

  • Page 62
    ..., transferred to nonaccrual in 2012, of which $46 million were from Middle Market. In 2012, the Corporation sold $91 million of nonaccrual business loans at prices approximating carrying value net of reserves, which were primarily from Middle Market, Commercial Real Estate and Corporate. F-28

  • Page 63
    ... Transferred to Nonaccrual (a) Net Loan Charge-Offs (Recoveries) Real Estate Services Residential Mortgage Holding & Other Investment Companies Hotels Retail Trade Manufacturing Utilities Wholesale Trade Natural Resources Contractors Transportation & Warehousing Finance Information Entertainment...

  • Page 64
    ... following table. (in millions) December 31 2012 2011 Business loans: Commercial Real estate construction Commercial mortgage International Total business loans Retail loans: Residential mortgage Home equity Other consumer Total retail loans Total loans past due 90 days or more and still accruing...

  • Page 65
    ... sales volumes and supply chain restocking related to the 2011 Japanese earthquake and tsunami. At December 31, 2012 other loans to automotive dealers in the National Dealer Services business line totaled $2.3 billion, including $1.5 billion of owner-occupied commercial real estate mortgage loans...

  • Page 66
    ... add interest charges to the outstanding loan balance during the construction period. Interest reserves are established on substantially all real estate construction loans in the Corporation's Commercial Real Estate business line. Interest reserves provide an effective means to address the cash flow...

  • Page 67
    ... mortgage loans: Commercial Real Estate business line: Residential: Single family Land carry Total residential Other commercial mortgage: Multi-family Retail Multi-use Land carry Office Commercial Other Other Sterling commercial mortgage loans (a) Total (a) California Michigan Texas Florida...

  • Page 68
    ... loans that are included primarily in "commercial loans" in the consolidated balance sheets. The Corporation has over 30 years of experience in energy lending, with a focus on middle market companies. Average loans in the Middle Market - Energy business line for the year ended December 31, 2012...

  • Page 69
    ... by municipal securities were rated investment grade and were adequately collateralized at both December 31, 2012 and 2011. Municipal securities are held in the trading account for resale to customers. In addition, Comerica Securities, a brokerdealer subsidiary of Comerica Bank, underwrites bonds...

  • Page 70
    ... with the Capital Management Policy. Interest Rate Risk Net interest income is the primary source of revenue for the Corporation. Interest rate risk arises primarily through the Corporation's core business activities of extending loans and accepting deposits. The Corporation's balance sheet is...

  • Page 71
    ...of the economic value of equity to a 200 basis point parallel increase in rates between December 31, 2011 and December 31, 2012 was primarily driven by changes in market interest rates, increases in noninterest-bearing and lower cost deposits, and forecasted prepayments on the Corporation's mortgage...

  • Page 72
    ... and other notional activity represented 91 percent of total interest rate, energy and foreign exchange contracts at December 31, 2012 and 2011. Further information regarding customer-initiated and other derivative instruments is provided in Note 8 to the consolidated financial statements. F-38

  • Page 73
    ... 31, 2012, compared to $418 million and $562 million at December 31, 2011 and 2010, respectively. The Corporation is a member of the Federal Home Loan Bank of Dallas, Texas (FHLB), which provides short- and longterm funding to its members through advances collateralized by real estate-related assets...

  • Page 74
    ...to fund $158 million of 2012 debt maturities, purchase approximately $400 million of mortgage-backed investment securities available-for-sale, repurchase 10.1 million shares of common stock under the publicly announced share repurchase program for a total of $304 million, redeem $30 million of trust...

  • Page 75
    ...and execute business plans, failure to assess current and new opportunities in business, markets and products, and any other event not identified in the defined risk categories of credit, market, operational or compliance risks. Mitigation of the various risk elements that represent business risk is...

  • Page 76
    ... risk rating. 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...

  • Page 77
    ... 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. Standard reserve factors for the loans within each risk rating are updated...

  • Page 78
    ... included primarily auction-rate securities at December 31, 2012. Additionally, from time to time, the Corporation may be required to record at fair value other financial assets or liabilities on a nonrecurring basis. Note 2 to the consolidated financial statements includes information about the...

  • Page 79
    ...16 to the consolidated financial statements for further discussion of share-based compensation expense. 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...

  • Page 80
    ...capital ratios, tangible common equity ratio or liquidity position. PENSION PLAN ACCOUNTING The Corporation has defined benefit pension plans in effect for substantially all full-time employees hired before January 1, 2007. Benefits under the plans are based on years of service, age and compensation...

  • Page 81
    ... plan in 2011. There were no assets in the non-qualified defined benefit pension plan at December 31, 2012, and 2011. Defined benefit pension expense is recorded in "employee benefits" expense on the consolidated statements of income and is allocated to business segments based on the segment's share...

  • Page 82
    ...financial review with financial measures defined by GAAP. (dollar amounts in millions) 2012 2011 2010 2009 2008 Tier 1 Common Capital Ratio: Tier 1 capital (a) Less: Fixed rate cumulative perpetual preferred stock Trust preferred securities Tier 1 common capital Risk-weighted assets (a) Tier 1 risk...

  • Page 83
    ...services to its customers; operational difficulties, failure of technology infrastructure or information security incidents could adversely affect the Corporation's business and operations; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing...

  • Page 84
    ... BALANCE SHEETS Comerica Incorporated and Subsidiaries (in millions, except share data) December 31 2012 2011 ASSETS Cash and due from banks Federal funds sold Interest-bearing deposits with banks Other short-term investments Investment securities available-for-sale Commercial loans Real estate...

  • Page 85
    ... INCOME Service charges on deposit accounts Fiduciary income Commercial lending fees Letter of credit fees Card fees Foreign exchange income Bank-owned life insurance Brokerage fees Net securities gains Other noninterest income Total noninterest income NONINTEREST EXPENSES Salaries Employee benefits...

  • Page 86
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Comerica Incorporated and Subsidiaries (in millions) Years Ended December 31 2012 2011 2010 NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) Unrealized gains on investment securities available-for-sale: Net unrealized holding gains arising during the ...

  • Page 87
    ... 31, 2010 Net income Other comprehensive income, net of tax Cash dividends declared on common stock ($0.40 per share) Purchase of common stock Acquisition of Sterling Bancshares, Inc. Net issuance of common stock under employee stock plans Share-based compensation BALANCE AT $ DECEMBER 31, 2011 Net...

  • Page 88
    ...of Federal Home Loan Bank stock Purchase of Federal Reserve Bank stock Proceeds from sales of indirect private equity and venture capital funds Other, net Net cash (used in) provided by investing activities FINANCING ACTIVITIES Net change in: Deposits Short-term borrowings Medium- and long-term debt...

  • Page 89
    ... (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...

  • Page 90
    ...acquired in business combinations are initially recorded at fair value with no carryover of any existing allowance for loan losses. Acquired loans with evidence of credit quality deterioration at acquisition are reviewed to determine if it is probable that the Corporation will not be able to collect...

  • Page 91
    ... on common risk characteristics. The Corporation estimates the total cash flows expected to be collected from the pools of acquired PCI loans, which include undiscounted expected principal and interest, using credit risk, interest rate and prepayment risk models that incorporate management's best...

  • Page 92
    ... 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. Standard reserve factors for the loans within each risk rating are updated...

  • Page 93
    ... 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. In 2012, the Corporation modified its residential mortgage and home equity nonaccrual policies. Under the new...

  • Page 94
    ... useful life of the software. Capitalized software is included in "accrued income and other assets" on the consolidated balance sheets. Goodwill and Core Deposit Intangibles Goodwill is initially recorded as the excess of the purchase price over the fair value of net assets acquired in a business...

  • Page 95
    ...(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...

  • Page 96
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Defined Benefit Pension and Other Postretirement Costs Defined benefit pension costs are charged to "employee benefits" expense on the consolidated statements of income and are funded consistent with the requirements ...

  • Page 97
    ... many cases, may not be realizable in a current sale of the financial instrument. Trading securities, investment securities available-for-sale, derivatives and deferred compensation plan liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may...

  • Page 98
    ... an active exchange, such as the New York Stock Exchange. Deferred compensation plan liabilities represent the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets. Level 2 trading securities include municipal bonds and residential mortgage-backed...

  • Page 99
    ... 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...

  • Page 100
    ...the debt or equity investment, such as relevant market conditions, offering prices, operating results, financial conditions, exit strategy and other qualitative information, as available. The lack of an independent source to validate fair value estimates, including the impact of future capital calls...

  • Page 101
    ... FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Loan servicing rights Loan servicing rights with a carrying value of $2 million at December 31, 2012, included in "accrued income and other assets" on the consolidated balance sheets and primarily related to Small Business Administration...

  • Page 102
    ...: Auction-rate debt securities Other corporate debt securities Equity and other non-debt securities: Auction-rate preferred securities Money market and other mutual funds Total investment securities available-for-sale Derivative assets: Interest rate contracts Energy derivative contracts Foreign...

  • Page 103
    ...: Auction-rate debt securities Other corporate debt securities Equity and other non-debt securities: Auction-rate preferred securities Money market and other mutual funds Total investment securities available-for-sale Derivative assets: Interest rate contracts Energy derivative contracts Foreign...

  • Page 104
    ... Recorded in Other Comprehensive Realized Unrealized Income (Pretax) Purchases (in millions) Balance at Beginning of Period Sales Settlements Balance at End of Period Year Ended December 31, 2012 Investment securities available-for-sale: $ State and municipal securities (a) Auction-rate debt...

  • Page 105
    ... were recorded at fair value on a nonrecurring basis at December 31, 2012 and 2011. (in millions) Level 3 December 31, 2012 Loans: Commercial Real estate construction Commercial mortgage Lease financing Total loans Nonmarketable equity securities Other real estate Loan servicing rights Total assets...

  • Page 106
    ... debt Credit-related financial instruments December 31, 2011 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 Nonmarketable equity securities (b) Restricted equity...

  • Page 107
    ... debt securities: Auction-rate debt securities Other corporate debt securities Equity and other non-debt securities: Auction-rate preferred securities Money market and other mutual funds $ Total investment securities available-for-sale December 31, 2011 U.S. Treasury and other U.S. government agency...

  • Page 108
    ... Fair Value Contractual maturity Within one year After one year through five years After five years through ten years After ten years Subtotal Equity and other nondebt securities: Auction-rate preferred securities Money market and other mutual funds Total investment securities available-for-sale...

  • Page 109
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The following table summarizes auction-rate securities activity for the years ended December 31, 2012 and 2011. (in millions) Par Value Fair Value (a) Balance at January 1, 2011 Redemptions Net securities gains Net ...

  • Page 110
    ... 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, 2011 Business loans: Commercial Real...

  • Page 111
    ... least annually, and to pools of retail loans with similar risk characteristics. Internally Assigned Rating Special Substandard (c) Mention (b) (in millions) Pass (a) Nonaccrual (d) Total December 31, 2012 Business loans: Commercial Real estate construction: Commercial Real Estate business line...

  • Page 112
    ... FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Allowance for Credit Losses The following table details the changes in the allowance for loan losses and related loan amounts. 2012 (in millions) Business Loans Retail Loans Total Business Loans 2011 Retail Loans Total Business Loans 2010...

  • Page 113
    ... Lease financing Total business loans Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total retail loans (c) Total individually evaluated impaired loans December 31, 2011 Business loans: Commercial Real estate construction: Commercial Real Estate business line...

  • Page 114
    ... 2012 Average Balance for the Period 2010 Interest Income Recognized for the Period (in millions) Interest Income Recognized for the Period Years Ended December 31 Business loans: $ Commercial Real estate construction: Commercial Real Estate business line (a) Other business lines (b) Total real...

  • Page 115
    ...: Commercial Real estate construction: Commercial Real Estate business line (c) Commercial mortgage: Commercial Real Estate business line (c) Other business lines (d) Total commercial mortgage Lease financing International Total business loans Retail loans: Residential mortgage Consumer: Home equity...

  • Page 116
    ...value, is considered a subsequent default. 2012 Subsequent Default in the Year Ended December 31 2011 Subsequent Default in the Year Ended December 31 (in millions) Principal deferrals: Business loans: Commercial Real estate construction: Commercial Real Estate business line (a) Commercial mortgage...

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    ... is defined in terms of delinquency, when a principal or interest payment is 90 days past due. 2012 Subsequent Default in the Year Ended December 31 2011 Subsequent Default in the Year Ended December 31 (in millions) Interest rate reductions: Business loans: Commercial Real estate construction...

  • Page 118
    ... 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...

  • Page 119
    ... 31, 2012 and 2011. Wealth Management (in millions) Business Bank Retail Bank Total Balance at December 31, 2010 Sterling acquisition Balances at December 31, 2011 and 2012 $ $ 90 290 380 $ $ 47 147 194 $ $ 13 48 61 $ $ 150 485 635 The Corporation performs its annual evaluation of...

  • Page 120
    ...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...

  • Page 121
    ... 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...

  • Page 122
    ..., the Corporation employs a variety of financial instruments for risk management purposes, including cash instruments, such as investment securities, as well as derivative instruments. Activity related to these instruments is centered predominantly in the interest rate markets and mainly involves...

  • Page 123
    ... 31, 2012 the Corporation had no interest rate swap agreements designated as cash flow hedges of loans. In the first quarter 2011, the remaining interest rate swap agreements designated as cash flow hedges outstanding matured. The net gains (losses) recognized in income and OCI on risk management...

  • Page 124
    ... Other noninterest income Foreign exchange income $ $ 22 3 35 60 $ $ 15 1 38 54 Credit-Related Financial Instruments The Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The Corporation's credit risk associated with...

  • Page 125
    ... commercial letters of credit at December 31, 2012 and 2011. The Corporation's internal watch list is generally consistent with the Special mention, Substandard and Doubtful categories defined by regulatory authorities. The Corporation manages credit risk through underwriting, periodically reviewing...

  • Page 126
    ... of commercial paper, borrowed securities, term federal funds purchased, short-term notes, and treasury tax and loan deposits generally mature within one to 120 days from the transaction date. At December 31, 2012, Comerica Bank (the Bank), a subsidiary of the Corporation, had pledged loans totaling...

  • Page 127
    ... a summary of short-term borrowings. Federal Funds Purchased and Securities Sold Under Agreements to Repurchase Other Short-term Borrowings (dollar amounts in millions) December 31, 2012 Amount outstanding at year-end Weighted average interest rate at year-end Maximum month-end balance during the...

  • Page 128
    ...on LIBOR and were secured by a blanket lien on $14 billion of real estate-related loans at December 31, 2012. The Corporation currently has a $15 billion medium-term senior note program. This program allows the Bank to issue fixed- or floating-rate notes with maturities between 3 months and 30 years...

  • Page 129
    ... 2011 and no open market repurchases of common stock or warrants in 2010. The following table summarizes the Corporation's share repurchase activity for the year ended December 31, 2012. Total Number of Shares and Warrants Purchased as Part of Publicly Announced Repurchase Plans or Programs (shares...

  • Page 130
    ... 31, 2012, 2011 and 2010, including the amount of income tax expense (benefit) allocated to each component of other comprehensive income (loss). (in millions) Years Ended December 31 2012 2011 2010 Accumulated net unrealized gains on investment securities available-for-sale: $ Balance at beginning...

  • Page 131
    ... December 31 2012 2011 2010 Basic and diluted Income from continuing operations Less: Preferred stock dividends Redemption discount accretion on preferred stock Income allocated to participating securities Income from continuing operations attributable to common shares Net income Less: Preferred...

  • Page 132
    ...of compensation for certain executives. The number of PSUs awarded for each pay period was determined by dividing the amount of base salary payable in PSUs for that pay period by the reported closing price on the New York Stock Exchange (NYSE) for a share of the Corporation's common stock on the pay...

  • Page 133
    ... shares of common stock out of treasury. At December 31, 2012, the Corporation held 39,889,610 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...

  • Page 134
    ... balance sheets. n/a - not applicable The accumulated benefit obligation exceeded the fair value of plan assets for the non-qualified defined benefit pension plan and the postretirement benefit plan at December 31, 2012 and 2011. The following table details the changes in plan assets and benefit...

  • Page 135
    ... 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 Non-Qualified 2010 2012 2011...

  • Page 136
    ... 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. The fair value of American Depositary Receipts is based upon independent pricing models utilizing primarily...

  • Page 137
    ...-backed securities Mutual funds Private placements Other assets: Securities purchased under agreements to resell Total investments at fair value December 31, 2011 Cash equivalent securities: Mutual funds Equity securities: Collective investment funds Mutual funds Common stock Fixed income securities...

  • Page 138
    ... no assets in the non-qualified defined benefit pension plan at December 31, 2012 and 2011. 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...

  • Page 139
    ... 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 for continuing operations were as follows: (in millions) December 31 2012 2011 2010...

  • Page 140
    ... plans Loan purchase accounting adjustments Deferred loan origination fees and costs Foreign tax credit Other tax credits Other temporary differences, net Total deferred tax assets Deferred tax liabilities: Lease financing transactions Net unrealized gains on investment securities available-for-sale...

  • Page 141
    ...could have a direct material effect on the Corporation's financial statements. At December 31, 2012 and 2011, the Corporation and its U.S. banking subsidiaries exceeded the ratios required for an institution to be considered "well capitalized" (total risk-based capital, Tier 1 risk-based capital and...

  • Page 142
    ... and/or product lines. Net interest income for each business segment is the total of interest income generated by earning assets less interest expense on interest-bearing liabilities plus the net impact from associated internal funds transfer pricing (FTP) funding credits and charges. The FTP...

  • Page 143
    ...and services, including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services. The Retail Bank includes small business banking and personal financial...

  • Page 144
    ...income (loss) Net credit-related charge-offs Selected average balances: Assets Loans Deposits Statistical data: Return on average assets (a) Efficiency ratio (dollar amounts in millions) Year Ended December 31, 2011 $ 1,541 36 319 602 382 $ 840 $ 107 $ 34,450 33,470 24,837 2.44% 32.35 Business Bank...

  • Page 145
    ... equity. FTE - Fully Taxable Equivalent 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...

  • Page 146
    ... income Noninterest expenses Provision (benefit) for income taxes (FTE) Net income (loss) Net credit-related charge-offs Selected average balances: Assets Loans Deposits Statistical data: Return on average assets (a) Efficiency ratio (dollar amounts in millions) Year Ended December 31, 2010...

  • Page 147
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 23 - MERGER AND RESTRUCTURING CHARGES The Corporation committed to a restructuring plan in connection with the acquisition of Sterling on July 28, 2011 (the acquisition date). The restructuring plan, which was ...

  • Page 148
    ... COMPANY FINANCIAL STATEMENTS BALANCE SHEETS - COMERICA INCORPORATED (in millions, except share data) December 31 2012 2011 Assets Cash and due from subsidiary bank Short-term investments with subsidiary bank Other short-term investments Investment in subsidiaries, principally banks Premises...

  • Page 149
    ...31 2012 2011 2010 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 employee benefits Net occupancy expense Equipment expense Merger and...

  • Page 150
    ... deferred income taxes Excess tax benefits from share-based compensation arrangements Other, net Net cash provided by operating activities Investing Activities Proceeds from sales of indirect private equity and venture capital investments Cash and cash equivalents acquired in acquisition of Sterling...

  • Page 151
    ...taxes Net income from discontinued operations Earnings per common share from discontinued operations: Basic Diluted NOTE 26 - SUMMARY OF QUARTERLY FINANCIAL STATEMENTS (UNAUDITED) $ $ $ 27 10 17 0.11 0.10 The following quarterly information is unaudited. However, in the opinion of management, the...

  • Page 152
    ... acquisition, use or disposition of the Corporation's assets that could have a material effect on the consolidated financial statements. Management assessed, with participation of the Corporation's Chief Executive Officer and Chief Financial Officer, internal control over financial reporting...

  • Page 153
    ... the standards of the Public Company Accounting Oversight Board (United States), the 2012 consolidated financial statements of Comerica Incorporated and subsidiaries and our report dated February 19, 2013 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Dallas, TX February 19, 2013...

  • Page 154
    ... 31, 2012 and 2011, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Corporation's management. Our...

  • Page 155
    ... FINANCIAL INFORMATION (in millions) Years Ended December 31 2012 2011 2010 2009 2008 ASSETS Cash and due from banks Federal funds sold Interest-bearing deposits with banks Other short-term investments Investment securities available-for-sale Commercial loans Real estate construction loans...

  • Page 156
    ... INCOME Service charges on deposit accounts Fiduciary income Commercial lending fees Letter of credit fees Card fees Foreign exchange income Bank-owned life insurance Brokerage fees Net securities gains Other noninterest income Total noninterest income NONINTEREST EXPENSES Salaries Employee benefits...

  • Page 157
    ... FINANCIAL INFORMATION Years Ended December 31 2012 2011 2010 2009 2008 Average Rates (Fully Taxable Equivalent Basis) Federal funds sold Interest-bearing deposits with banks Other short-term investments Investment securities available-for-sale Commercial loans Real estate construction loans...

  • Page 158
    ... as of February 19, 2013. COMERICA INCORPORATED By: /s/ Ralph W. Babb, Jr. Ralph W. Babb, Jr. 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...

  • Page 159
    ... and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1F to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Award Agreement...

  • Page 160
    .... (filed as Exhibit 10.1 Sterling Bancshares, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 000-20750), and incorporated herein by reference). Comerica Incorporated Amended and Restated Employee Stock Purchase Plan (amended and restated November 15, 2011) (filed as...

  • Page 161
    ..., and incorporated herein by reference) Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee Directors of Comerica Bank and Affiliated banks (amended and restated May 22, 2001) (filed as Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December 31...

  • Page 162
    ... by reference). Amendments to Benefit Plans and Related Consent of Senior Executive Officers dated November 14, 2008 (filed as Exhibit 10.3 to Registrant's Current Report on Form 8-K dated November 13, 2008, regarding U.S. Department of Treasury's Capital Purchase Program, and incorporated herein...

  • Page 163
    ... Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Shareholders' Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements. Management...

  • Page 164
    ... the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have...

  • Page 165
    ...2002 I, Karen L. Parkhill, Vice Chairman and Chief Financial Officer of Comerica Incorporated (the "Registrant"), certify that: 1. 2. I have reviewed this annual report on Form 10-K of the Registrant for the year ended December 31, 2012; Based on my knowledge, this report does not contain any untrue...

  • Page 166
    ... Vice Chairman and Chief Financial Officer, of Comerica Incorporated (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-K of the Company for the year ended December 31, 2012 (the "Report") fully complies...

  • Page 167
    ...-Oxley Act of 2002 as exhibits to its Annual Report on Form 10-K for the fiscal year ended December 31, 2012. I NVESTOR R ELATIONS ON THE I NTERNET Go to comerica.com to find the latest investor relations information about Comerica, including stock quotes, news releases and financial data.

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    COMERICA CORPORATE HEADQUARTERS / Comerica Bank Tower / 1717 Main Street / Dallas, Texas 75201