Comerica 2014 Annual Report Download - page 30

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• Noninterest expenses are important to our profitability, but are subject to a number of factors, some of which are
not in our control.
Many factors can influence the amount of noninterest expenses, including changing regulations, rising pension and health
care costs, technology and cybersecurity investments and litigation. The importance of managing expenses has been
amplified in the current slow growth, low net interest margin business environment. Comerica's noninterest expenses
may increase more than anticipated, which could result in an adverse impact on net income.
• 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 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, the trade, fiscal and monetary policies of the federal government and the policies of
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. Interest rates over the past several years have remained at
low levels. 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-29 of the Financial Section of this report.
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.
• Any reduction in our credit rating 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 March 2012, Moody's
Investors Service downgraded Comerica's long-term and short-term senior credit ratings one notch to A3 and P-2,
respectively. From July 2012 through October 2013, Fitch Ratings had Comerica's outlook as “Negative”; in October
2013, Fitch Ratings affirmed Comerica's rating while revising the outlook to “Stable.” In January 2015, Standard & Poor's
revised its outlook on Comerica to "Negative" from "Stable." 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.
• 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.
• 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 upon 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, possible materially in nature, Comerica.