Comerica 2014 Annual Report Download - page 139

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
F-102
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.
In 2014, the Corporation enhanced the approach used to determine the standard reserve factors used in estimating the
allowance for credit losses, which had the effect of capturing certain elements in the standard reserve component that had formerly
been included in the qualitative assessment. The impact of the change was largely neutral to the total allowance for loan losses
at June 30, 2014. However, because standard reserves are allocated to the segments at the loan level, while qualitative reserves
are allocated at the portfolio level, the impact of the methodology change on the allowance of each segment reflected the
characteristics of the individual loans within each segment's portfolio, causing segment reserves to increase or decrease accordingly.
As a result, the current year provision for credit losses within each segment is not comparable to prior period amounts.
In 2013, the Corporation changed the method of assigning the allowance for loan losses to each business segment. In
2012, national probability of default and loss given default statistics were incorporated into the Corporation's allowance
methodology. Each business segment was assigned an allowance for loan losses based on market-specific standard reserve factors
applied to the loans in each segment, and the difference between the total allowance required on a national basis and the market-
specific allowances was allocated based on the relative loan balances in each segment. Effective 2013, each segment was assigned
an allowance for loan losses by applying national standard reserve factors to the loan balances in each segment by risk rating
distribution. This change was retroactively applied to 2012. Also in 2013, the Corporation changed the method of allocating FDIC
insurance expense to the segments as well as certain noninterest income and expense associated with commercial charge cards.
The changes did not have a material impact on segment operating results.
The following discussion provides information about the activities of each business segment. A discussion of the financial
results and the factors impacting 2014 performance can be found in the section entitled "Business Segments" in the financial
review.
The Business Bank meets the needs of middle market businesses, multinational corporations and governmental entities
by offering various products and services, including commercial loans and lines of credit, deposits, cash management, capital
market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services.
The Retail Bank includes small business banking and personal financial services, consisting of consumer lending,
consumer deposit gathering and mortgage loan origination. In addition to a full range of financial services provided to small
business customers, this business segment offers a variety of consumer products, including deposit accounts, installment loans,
credit cards, student loans, home equity lines of credit and residential mortgage loans.
Wealth Management offers products and services consisting of fiduciary services, private banking, retirement services,
investment management and advisory services, investment banking and brokerage services. This business segment also offers the
sale of annuity products, as well as life, disability and long-term care insurance products.
The Finance segment includes the Corporation’s securities portfolio and asset and liability management activities. This
segment is responsible for managing the Corporation’s funding, liquidity and capital needs, performing interest sensitivity analysis
and executing various strategies to manage the Corporation’s exposure to liquidity, interest rate risk and foreign exchange risk.
The Other category includes the income and expense impact of equity and cash, tax benefits not assigned to specific
business segments, charges of an unusual or infrequent nature that are not reflective of the normal operations of the business
segments and miscellaneous other expenses of a corporate nature.