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Comerica

Comerica Incorporated

2016 Annual Report

Our Core Values

Customer-centricity

Collaboration

Integrity

Excellence

Agility

Diversity

Involvement

Comerica Incorporated (NYSE: CMA) is a financial services company headquartered in Dallas, Texas, and 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.

To Our Shareholders

Ralph Bapp
Ralph W. Babb Jr.
Chairman and Chief Executive Officer

We have taken significant steps to transform our company for the better. As a result of the hard work of our entire team, an action-oriented improvement plan and a sharp focus on results, we emerged from 2016 a stronger and more confident organization, well positioned for the road ahead. This was positively reflected in our stock’s performance and increased profitability as we moved through the year.

As always, we are committed to providing exceptional experiences for our customers and serving as their trusted advisor, while diligently working to reduce costs and drive efficiencies. Although we have consistently posted superior average loans and deposits per employee relative to our peers, we recognized that we needed to do more to improve returns and enhance shareholder value. As a result, in July 2016, we announced a transformational, enterprise-wide initiative to help grow efficiency and revenues, which we call GEAR Up.

Today, GEAR Up is already making a substantial contribution to our bottom line. Through GEAR Up, we identified and began in earnest executing on more than 20 work streams. As promised, we achieved more than $25 million in expense savings in 2016. In total, by the end of 2018, we expect to drive at least $270 million in additional pretax income, relative to when we began the program.

Expanded product offerings, enhanced sales tools and training and better customer analytics are expected to increase customer penetration of our products. We’ve also streamlined leadership across our organization to support speed and simplicity of getting business done, which has resulted in renewed vigor and focus for our colleagues.

We’ve taken a multifaceted approach to cutting costs, including reducing our workforce by approximately nine percent, redesigning our retirement program, optimizing real estate, streamlining operational processes, selectively outsourcing technology functions and reducing technology system applications.

Workforce reductions included the elimination of about 30 percent of our management positions in order to get closer to our customers and accelerate decision making, while ensuring we maintain our high standards for customer service and deep expertise and experience. Our new retirement program continues to provide highly competitive benefits and is expected to contribute approximately $33 million in savings in 2017. We are implementing technological enhancements, such as digitizing our credit processes to enhance data collection and analysis and improve the customer experience, as well as optimizing our infrastructure and substantially reducing the number of IT applications across the bank.

And we have also begun rationalizing our real estate. While we remain committed to our footprint, with the advancement of technology and customers' migration to a broader use of digital channels, we need less space to operate our business. The consolidation of 38 banking centers, or about eight percent of our network, of which four were closed in the second quarter and 15 were closed in the fourth quarter, is expected to result in $10 million to $13 million per annum in savings. This is net of customer attrition, which is expected to be nominal as we have another banking center within two to five miles for the bulk of the locations that are being closed. Also, we have developed a plan to consolidate operations and office space, and are targeting a 500,000-square-foot reduction in real estate, which should result in approximately $7 million in savings in 2018.

Collectively, these actions take us a long way towards our goal of achieving a double-digit return on equity in 2018. We expect to meet or exceed this goal with sustained growth, net of investment, normal credit costs, continued equity buybacks and assuming only a modest increase in rates. In addition, we are targeting an efficiency ratio of at or below 60 percent by year-end 2018 and we believe that the December increase in rates will help us reach this goal even faster. Importantly, while rising rates can be a significant benefit to Comerica, we are committed to these initiatives and are not relying on rate increases or a better economic environment to achieve our objectives.

We believe our stock’s performance in part reflects that investors recognize the value of our GEAR Up initiative. In 2016, Comerica's stock increased 63 percent, compared to a year ago, outperforming all of our peers as well as the KBW Index and S&P 500 Index. In fact, in the S&P 500 Index, we were the best performing financial stock and among the top 10 performers overall.

I, along with our executive team, remain very confident that we will continue to meet the financial targets that we have established for GEAR Up. We expect the actions we are taking will ensure that we remain a strong partner and trusted advisor for our clients in the future, while enhancing shareholder value and achieving a higher level of returns for our shareholders.

2016 Financial Highlights

We reported 2016 net income of $477 million or $2.68 per share, which included $0.34 in restructuring charges. Earnings per share increased six percent over 2015, excluding these restructuring charges,* as we began to reap the benefits of our GEAR Up initiatives, as well as rising rates. Also, we increased the size of our equity buyback by 25 percent, which is a reflection of our strong capital position and solid financial performance.

Excluding the $641 million reduction in energy loans, average loans increased over $1 billion or 2 percent. The most notable increases in average loans came from areas where we have deep expertise, such as Commercial Real Estate, National Dealer Services, and Mortgage Banker Finance.

Average deposits have grown 32 percent over the last five years and reflect our focus on building long-term client relationships. In 2016, noninterest-bearing deposits increased $1.7 billion, or 6 percent, while interest-bearing deposits declined $2.2 billion. Altogether, total average deposits declined one percent and reflected the adjustments made in early 2016 for the new Liquidity Coverage Ratio (LCR) requirements, which were mostly offset by significant growth in the third and fourth quarter of 2016.

*Earnings per share decreased 6 percent over 2015, including restructuring charges. For 2016, earnings per share excluding restructuring charges is calculated by taking the net income available to common shareholders ($473 million), plus restructuring charges net of tax ($59 million), divided by diluted average common shares (177 million).

We had $1.8 billion of net interest income in 2016, an increase of 6 percent, primarily the result of higher interest rates, loan growth and a larger securities portfolio, partially offset by modestly higher debt costs.

Credit quality continued to be strong. The provision for credit losses increased primarily due to a larger reserve required for Energy loans in the first quarter of 2016, partially offset by improvements in the remainder of the portfolio. Net charge-offs of 32 basis points were at the low end of our through-the-cycle average, and excluding energy line of business, our net charge-offs were 13 basis points.

With respect to noninterest income, customer-driven fees increased $22 million, or over two percent. We had a large increase in card fees, as well as growth in fiduciary, foreign exchange and brokerage fees as we continue to focus on growing and expanding relationships.

Noninterest expenses declined $23 million after excluding restructuring charges of $93 million, as well as a $33 million release of litigation reserves in 2015. Our GEAR Up initiative drove over $25 million in expense savings.

In June 2016, we announced that the Federal Reserve did not object to our 2016 Capital Plan. In April and July 2016, our board of directors increased the quarterly cash dividend for common stock by 5 percent and 4.5 percent, respectively, to 23 cents per share. We repurchased 6.6 million shares in 2016 under our equity repurchase program. Through the buyback and dividends, we returned $458 million, or 96 percent, of 2016 net income to shareholders. Our regulatory capital levels remain comfortably above the threshold to be considered well-capitalized.

In summary, the skillful execution of our GEAR Up initiative, a modest rise in rates, and a 25 percent increase in our equity repurchase program resulted in a six percent increase in our 2016 earnings per share before restructuring expenses, and improvements in our efficiency ratio and returns on assets and equity. Our book value increased three percent over the past year, to $44.47, and tangible book value per share increased four percent over the past year, to $40.79, as we continue to focus on creating long-term shareholder value.**

**See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.

Relationship Banking Strategy and Balanced Geographic Footprint Keys to Success

Our relationship banking strategy and balanced geographic markets are important drivers of our success. Comerica strives to be the trusted advisor to our clients, providing them with financial products and services they need to prosper. Our geographic footprint is well situated and provides diversity and significant growth opportunities. We remain committed to delivering exceptional customer experiences that exceed expectations and deliver a higher level of banking.

Regarding our footprint, we have a strong presence in the major metropolitan areas of Texas, California and Michigan, providing us with a balanced market presence. We also have locations in Arizona and Florida, with certain businesses operating in several other states, as well as Canada and Mexico. While our unique geographic footprint provides us with economic diversity, we operate as ‘one bank’ and our policies, procedures and systems are integrated across our footprint. A single platform provides significant synergies and is highly efficient and cost effective.

TEXAS: We’ve had a presence in Texas for almost three decades and moved our corporate headquarters to Dallas nearly 10 years ago. We have operations throughout Dallas-Fort Worth, Houston, Austin, and San Antonio. We continue to leverage our standing as the largest U.S. commercial bank headquartered in the state to generate new customer relationships.

The Texas economy has proved to be very resilient in adjusting to the challenging low oil price environment. We believe that the state’s important energy sector is starting to turn the corner, aided by firmer prices and strong demand. We expect Texas to continue to generate new jobs and business opportunities, supported by a healthier energy sector and a stronger U.S. economy in 2017.

CALIFORNIA: We have had a presence in California for more than 25 years. San Jose serves as our market headquarters. Additionally, we have a presence in the Greater San Francisco area, Los Angeles, Orange County, San Diego, Sacramento, and Santa Cruz/Monterey.

We expect California’s economy to be a solid performer in 2017. Expanding U.S. and global economies plus the accelerated diffusion of new technologies into the broader economy will support the state’s important technology sector. Likewise, improving domestic and international economic conditions are positive factors for the state’s entertainment industry.

MICHIGAN: In Michigan, we operate in Detroit, which is our market headquarters, as well as in the Detroit metropolitan area, Ann Arbor, Battle Creek, Grand Rapids, Jackson, Kalamazoo, Lansing, Midland, and Muskegon. We have maintained a continuous presence in Michigan since 1849, and continue to hold the second largest deposit market share in the state, based on the latest FDIC deposit market share survey.

The Michigan economy continues to improve, buoyed by a strengthening manufacturing sector. U.S. auto sales remain strong and the auto industry is in the midst of an exciting surge in new technologies, including the innovation of state-of-the-art “smart car” driving systems. Michigan’s leading academic institutions are playing a key role in developing these new technologies and incubating new business opportunities.

Our Three Strategic Lines of Business

In addition to our diverse footprint, growth is driven by our three strategic lines of business. Our model continues to be weighted toward commercial banking through our Business Bank and complemented by the Retail Bank and Wealth Management.

Within the Business Bank, Middle Market Banking remains our "bread and butter." It is where we have a competitive advantage due to the depth and breadth of our expertise in this area. As part of our GEAR Up initiative, we are taking steps to nationalize our middle market sales process. We are doing this by leveraging our best practices and conducting business in a consistent manner throughout our enterprise. Our focus is on sales enablement, organizational consistency, operational efficiency and talent management. Nationalizing our middle market sales process will be an important initiative for us throughout 2017. And it is expected to result in improved productivities, revenue generation and reduced expenses.

In May, Comerica was honored to be selected by the U.S. Treasury to be their Financial Agent providing merchant card services, also known as Card Acquiring Services. With a five year contract, this business includes approximately 7,000 merchant accounts, representing a multitude of government agencies, and an estimated $12 billion in annual payments volume. This expands our relationship with the U.S. Treasury, which already included DirectExpress®, the program that provides Social Security payments via a pre-paid card, and myRA®, a savings option for those who do not have access to a retirement savings plan at work.

Our Retail Bank continues to focus on ensuring we have the products, services and locations to meet customer needs. In addition to strategically repositioning our banking center network through consolidations and relocations, we completed more than two dozen interior refurbishments in 2016, which included transitions to new design concepts and teller cash recyclers to improve efficiency.

We also successfully deployed transformational technologies at our Greenville banking center in Dallas, building upon the successful deployment of these technologies at banking centers in Michigan and California. Approximately 90 percent of transactions at the Greenville banking center are processed via the ATMs and BankerConnect, our interactive teller-like machine. In addition, we introduced Comerica-branded ATMs at the highly-trafficked Detroit Metropolitan Airport.

Also within the Retail Bank, we made Web Banking and Bill Pay upgrades, including the launch of Web Banking Combined View, which allows our Web Banking customers to combine accounts with different taxpayer identification numbers under one Web Banking ID, fulfilling a significant customer request. Furthermore, we launched a web-based Comerica Insurance Services platform that enables customers to compare shop and buy a variety of insurance products from multiple providers.

Small Business successes in 2016 included the integration of a new centralized underwriting center that supports relationships up to $1.5 million in exposure. This contributed to improved speed-to-market for these types of loans.

Wealth Management enables us to bring private banking, investment management and fiduciary services to our Business Bank and Retail Bank clients. In large part due to our GEAR Up initiative, Wealth Management made notable progress in growing loans and fee income, while controlling expenses, and managing risk appropriately. In 2017, we will launch the Wealth Productivity Transformation initiative, which includes the implementation of a relationship management tool that we believe will enable our colleagues to drive market share and better serve our clients. Wealth Management also expects to leverage technology to increase productivity, increase share of wallet, and reduce time to close.

Well Positioned for Rising Rates

The Federal Reserve increased its benchmark rate 25 basis points in December 2016, marking only the second change it has made to the short-term benchmark rate in eight years. As I previously mentioned, our 2016 financial results benefited meaningfully from the December 2015 rate increase. Comerica's business model continues to be well positioned for a rising rate environment.

Our balance sheet is sensitive to movement in interest rates, since the majority of our revenue is derived from the interest we receive on loans we provide to our clients. Our loan portfolio represents over two-thirds of our total assets as of December 31, 2016, and over 90 percent of our loans are floating rate. Therefore, as rates rise, our portfolio reprices quickly. In addition, more than 50 percent of our deposits are noninterest-bearing, and, as such, are less impacted by movement in rates. They also provide us a source of low-cost funding as loan growth continues.

Energy Portfolio Weathering the Cycle

At year-end 2016, our energy loans had declined $820 million, or 27 percent, from one year ago, bringing our Energy line of business to less than five percent of our total loans. Energy Services, which has been most significantly impacted this cycle, represented less than one percent of our total loan portfolio. The performance of our Energy portfolio has improved. While oil prices have been relatively stable, we continue to be cautious and believe we are properly reserved with our loan loss reserve allocation at over seven percent of Energy loans as of December 31, 2016. We remain committed to the energy sector and believe that in cycles such as the current one, we can further cement our relationship with our clients.

Recent Additions Enhance Strong Board

Our board appointed two new independent directors in 2016: Michael Van de Ven, who is the chief operating officer of Southwest Airlines, and Mike Collins, who had a distinguished 37-year career at the Federal Reserve Bank of Philadelphia. We have a strong and diverse board with a good mix of industry, financial and leadership backgrounds. Given the regulated nature of our industry as well as its cyclicality, we believe it is important to have long-tenured directors with a deep understanding of our business and environment. However, we also recognize the importance of bringing fresh perspectives.

Investments in Cybersecurity Continue

The cybersecurity threat environment is intensifying and Comerica's defenses are ready. Over the past several years, Comerica has met this escalating environment with significant investments in its cybersecurity defensive posture, building a robust program with advanced identification, protection, detection, response and recovery capabilities. We have established a cybersecurity capability that leverages industry standard frameworks and targeted regulatory guidance to provide wide coverage, which we evaluate regularly through independent assessments. Our security operations center and intelligence capabilities are monitoring our systems 24/7, constantly adjusting our defenses to the changing threat environment.

Opportunities for Regulatory Relief

The national election is bringing change to Washington, D.C. and with it, optimism for regulatory relief for banks, particularly those of our size. It now appears to be a legislative priority to reduce complex and costly regulations that burden banks and impact the flow of credit to businesses. We believe there is potential for revision or elimination of certain aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act that could benefit Comerica and the industry as a whole. This includes changes to the definition of a systemically important financial institution (SIFI) from the current $50 billion and above in assets to either a higher asset threshold or a metrics-based formula to determine a firm's true complexity and risk profile. We believe a positive change to the SIFI designation would be a major step toward the kind of regulatory relief that would potentially spur increased lending to businesses, reduce compliance expenses, and allow us to manage capital and liquidity to meet our needs in a more prudent manner.

Our Strong Commitment to Community, Diversity, Financial Literacy and Sustainability

Comerica continued its commitment to the communities in which we operate in 2016. Comerica contributed more than $8 million to not-for-profit organizations in the markets we serve, and, in addition, our employees raised nearly $1.7 million for the United Way and Black United Fund. Our team also donated their personal time and talents - about $1.3 million worth in volunteer hours - to make a positive difference in our local communities.

Some of the recognition we received for our efforts included the prestigious Corporate Social Responsibility Award from the Financial Services Roundtable. In addition, Comerica was named as one of the 50 most community-minded companies in the nation as part of the Civic 50, an initiative of Points of Light, the world's largest organization dedicated to volunteer service.

Our community “Shred Day” events continue to serve as the largest, most visible and most successful brand awareness, public education, colleague engagement, and community service campaigns that we host. Working with event partner Iron Mountain at shred-day events in Dallas, Houston, Phoenix and Detroit, we securely destroyed and recycled more than 800,000 pounds of paper in 2016, while gathering donations for local food banks. These signature events continue to provide a triple bottom line: helping reduce fraud and identity theft, freeing up hundreds of tons of space in local landfills, and raising awareness of hunger in our communities.

We marked the fifth year of the Comerica Hatch Detroit Contest by more than doubling our commitment. In addition to providing the grand prize for the winning idea for a new retail business, we invested funds to help launch even more small businesses in the city. Fifteen new businesses are now open, thanks to the contest's success. We sponsored a similar contest in Dallas with the Dallas Entrepreneur Center and Tech Wildcatters. These contests offer us an opportunity to advance the aspirations of entrepreneurs in our markets.

Diversity is an important core value at Comerica. We support 39 diversity-focused teams within the bank that promote employee engagement, business outreach, and diversity awareness and learning among colleagues. Comerica's focus on diversity has been favorably recognized, as we earned a third consecutive perfect 100 rating on the Human Rights Campaign Foundation's 2017 Corporate Equality Index, a national benchmarking survey and report on corporate policies and practices related to LGBT workplace equality.

Black Enterprise magazine placed Comerica on its 2016 “40 Best Companies for Diversity” list. Comerica also ranked No. 2 on the DiversityInc 2016 Top 10 Regional Companies for Diversity. In addition, we were named to LATINO magazine’s 2016 “LATINO 100” list, the fourth annual listing of the top 100 companies providing the most opportunities for Latinos in such areas as education, hiring, workforce diversity, minority business development, governance and philanthropy.

We also ranked among 2016's "Best Places for Women and Diverse Managers to Work" by Diversity MBA, which is a national leadership organization targeting leadership and talent management among professionals, managers and executives. In addition, Comerica was named among the "Top 25 Companies for Diversity in Texas" by the National Diversity Council. The award is based on women and minority representation in executive leadership and on boards of directors.

We continued to expand our financial education efforts throughout our footprint in 2016, with some impressive results. The Comerica Money $ense program, which has been incorporated into the classrooms of 41 elementary schools throughout Maricopa, Palm Beach and Broward counties in Florida, is a web-based financial education program designed by leading technology company, EverFi. During the 2015-2016 school year, more than 2,100 students were served by the Comerica-funded program, with more than 6,000 learning modules completed to help predominantly low- and moderate-income students learn how to make wise financial decisions.

Comerica recognizes the business value created through sustainability and that’s why it is embedded in our core values. We continued our progress on reducing our environmental footprint in line with Comerica’s 2020 Environmental Sustainability Goals and remain ahead of pace on our efforts to reduce greenhouse gas emissions, water consumption, and paper use by 2020. In addition, we exceeded our goal of reducing waste sent to the landfill four years ahead of schedule by achieving a 24.1 percent reduction compared to our goal of 20 percent. Also, Comerica continues to support a green economy with nearly $900 million of environmentally beneficial loans and commitments to companies in 13 different categories.

In 2016, we were once again recognized for our climate change management strategy and emissions reduction efforts through CDP (formerly known as the Carbon Disclosure Project), receiving an “A-“ rating, among the highest scores in the U.S. financial services industry. Our work on supply chain sustainability earned Comerica its third consecutive Green Supply Chain Award from Supply & Demand Chain Executive magazine, and we were pleased to be listed on the FTSE4Good index series for the 8th consecutive year.

Positioned for Future Growth

In closing, 2016 was a pivotal year with the development and implementation of our enterprise-wide GEAR Up initiative. We have made significant progress in executing the expense savings and are fully committed to delivering on the efficiency and revenue opportunities to further enhance our profitability and shareholder value. We also benefited meaningfully from increased interest rates and our overall credit metrics remained strong as we continued to navigate the energy cycle. In addition, there has been much discussion in Washington, D.C. about plans to reduce taxes, provide regulatory relief and fiscal stimulus to drive economic growth. While there is no certainty as to what changes may prevail, we believe our customers and Comerica should benefit if changes are made. We believe we are well positioned for the future as our geographic footprint is well situated and our relationship banking strategy can drive superior growth of loans, deposits and fee income over time.

Thank you for your continued support.

Ralph Bapp
Ralph W. Babb Jr.
Chairman and Chief Executive Officer

Board of Directors

Ralph W. Babb Jr.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Comerica Incorporated and Comerica Bank
Michael E. Collins (4)
CHAIR AND SENIOR COUNSELOR
Blake Collins Group (Public Relations and Communications Firm)
FORMER CONSULTANT
Federal Reserve Bank of Cleveland (Federal Bank Regulator)
FORMER EXECUTIVE VICE PRESIDENT
Federal Reserve Bank of Philadelphia (Federal Bank Regulator)
Roger A. Cregg (1)(2)(3)
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AV Homes, Inc.
(Developer and Homebuilder in Florida and Arizona)
T. Kevin DeNicola (1*)(3*)(4)
FORMER CHIEF FINANCIAL OFFICER
KIOR, Inc.
(Biofuels Company)
Jacqueline P. Kane (2)
RETIRED EXECUTIVE VICE PRESIDENT, HUMAN RESOURCES AND CORPORATE AFFAIRS
The Clorox Company
(Manufacturer and Marketer of Consumer Products)
Richard G. Lindner (2*)(4)
RETIRED SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
AT&T, Inc.
(Global Telecommunications Company)
Alfred A. Piergallini (2)
CONSULTANT
Desert Trail Consulting
(Marketing Consulting Organization)
Robert S. Taubman (4)
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Taubman Centers, Inc.
(REIT that Owns, Develops and Operates Regional Shopping Centers Nationally) and The Taubman Company (Shopping Center Management Company Engaged in Leasing, Management and Construction Supervision)
Reginald M. Turner Jr. (1)(3)(4*)
ATTORNEY
Clark Hill PLC
(Law Firm)
Nina G. Vaca (1)(3)(4)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pinnacle Technical Resources, Inc.
(Staffing, Vendor Management and Information Technology Services Firm) and Vaca Industries Inc. (Management Company)
Michael G. Van de Ven (4)
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
Southwest Airlines Co.
(A Passenger Airline)

(1) Audit Committee

(2) Governance, Compensation and Nominating Committee

(3) Qualified Legal Compliance Committee

(4) Enterprise Risk Committee

* Committee Chairperson

Senior Leadership Team

Ralph W. Babb Jr.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Curtis C. Farmer
PRESIDENT
David E. Duprey
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
John D. Buchanan
EXECUTIVE VICE PRESIDENT
CHIEF LEGAL OFFICER/GENERAL COUNSEL
Megan D. Burkhart
EXECUTIVE VICE PRESIDENT AND CHIEF HUMAN RESOURCES OFFICER
Peter W. Guilfoile
EXECUTIVE VICE PRESIDENT AND CHIEF CREDIT OFFICER
Judith S. Love
PRESIDENT
Comerica Bank – California Market
Michael H. Michalak
EXECUTIVE VICE PRESIDENT AND CHIEF RISK OFFICER
Christine M. Moore
EXECUTIVE VICE PRESIDENT AND GENERAL AUDITOR
Paul R. Obermeyer
EXECUTIVE VICE PRESIDENT
Enterprise Technology and Operations
Michael T. Ritchie
PRESIDENT
Comerica Bank – Michigan Market
Peter L. Sefzik
PRESIDENT
Comerica Bank – Texas Market
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, 2016
Commission file number 1-10706
COMERICA INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
38-1998421
(State or Other Jurisdiction of Incorporation)
 
(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:
Common Stock, $5 par value
    Warrants to Purchase Common Stock (expiring November 14, 2018)
These securities are registered on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the
Exchange Act:
    Warrants to Purchase Common Stock (expiring December 12, 2018)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer ý
 
Accelerated
filer o
 
Non-accelerated filer o
(Do not check if a smaller
reporting company)
 
Smaller reporting
company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
At June 30, 2016 (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 $7.0 billion based on the closing price on the New York Stock Exchange on that date of $41.13 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 10, 2017, the registrant had outstanding 175,858,751 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 25, 2017.


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-1
S-1
E-1




Table of Contents

PART I
Item 1. Business.
GENERAL
Comerica Incorporated (“Comerica”) is a financial services company, incorporated under the laws of the State of Delaware, 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. Comerica was formed in 1973 to acquire the outstanding common stock of Comerica Bank, which at such time was a Michigan banking corporation and one of Michigan's oldest banks (formerly Comerica Bank-Detroit). On October 31, 2007, Comerica Bank, a Michigan banking corporation, was merged with and into Comerica Bank, a Texas banking association (“Comerica Bank”). As of December 31, 2016, Comerica owned directly or indirectly all the outstanding common stock of 2 active banking and 33 non-banking subsidiaries. At December 31, 2016, Comerica had total assets of approximately $73.0 billion, total deposits of approximately $59.0 billion, total loans (net of unearned income) of approximately $49.1 billion and shareholders’ equity of approximately $7.8 billion.
Business Segments
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. We provide information about our business segments and the principal products and services provided by these segments in Note 23 on pages F-102 through F-105 of the Notes to Consolidated Financial Statements located in the Financial Section of this report.
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 our market segments in Note 23 on pages F-102 through F-105 of the Notes to Consolidated Financial Statements located in the Financial Section of this report.
Activities with customers domiciled outside the U.S., in total or with any individual country, are not significant. We provide information on risks attendant to foreign operations: (1) under the caption “Concentration of Credit Risk” on page F-29 of the Financial Section of this report; and (2) under the caption "International Exposure" on pages F-31 through F-32 of the Financial Section of this report.
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 “Net Interest Income” on pages F-7 through F-8 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, 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. 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 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, with consumers having the opportunity to select from a growing variety of traditional and nontraditional alternatives. The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified

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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 strengthening the franchises of acquirers.
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. The Gramm-Leach-Bliley Act expanded the activities in which a bank holding company registered as a financial holding company can engage. The conditions to be a financial holding company include, among others, the requirement that each depository institution subsidiary of the holding company be well capitalized and well managed. Effective July 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) also requires the well capitalized and well managed standards to be met at the financial holding company level. 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. 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, including restrictions set forth in the Volcker Rule, described under the heading "The Dodd-Frank Wall Street Reform and Consumer Protection Act and Recent Legislative and Regulatory Developments" below); insurance underwriting and agency; merchant banking; and activities that the FRB has determined to be financial in nature or incidental or complementary to a financial activity, provided that it does not pose a substantial risk to the safety or soundness of the depository institution or the financial system generally. A bank holding company that is not also a financial holding company is limited to engaging in banking and other activities previously determined by the FRB to be closely related to banking.
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. The deposits of Comerica Bank and Comerica Bank & Trust, National Association are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”) to the extent provided by law. Certain transactions executed by Comerica Bank are also subject to regulation by the U.S. Commodity Futures Trading Commission. In Canada, Comerica Bank is supervised by the Office of the Superintendent of Financial Institutions and in Mexico, 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. (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 Department of Licensing and Regulatory Affairs (in the case of Comerica Securities, Inc.) and the Securities and Exchange Commission (“SEC”) (in the case of Comerica Securities, Inc. and World Asset Management, Inc.).
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.
Requirements for Approval of Acquisitions and Activities
In most 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. However, Federal and state laws impose notice and approval requirements for mergers and acquisitions of other depository institutions or bank holding companies. Prior approval is required before Comerica may acquire the beneficial ownership or control of more than 5% of the voting shares or substantially all of the assets of a bank holding company (including a financial holding company) or a bank.
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.

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In addition, Comerica, Comerica Bank and Comerica Bank & Trust, National Association, are each “well capitalized” and “well managed” under FRB standards. If 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.
Further, the effectiveness of Comerica and its subsidiaries in complying with anti-money laundering regulations (discussed below) is also taken into account by the FRB when considering applications for approval of acquisitions.
Transactions with Affiliates
Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and the FRB's Regulation W, limit borrowings by Comerica and its nonbank subsidiaries from its affiliate insured depository institutions, and also limit various other transactions 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 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 a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the FRB) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. 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. The Dodd-Frank Act applied the 10% of capital limit on covered transactions to financial subsidiaries and amended the definition of “covered transaction” to include (i) securities borrowing or lending transactions with an affiliate, and (ii) all derivatives 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.
Privacy
The privacy provisions of the Gramm-Leach-Bliley Act generally prohibit financial institutions, 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 affiliates for marketing purposes.
Anti-Money Laundering Regulations
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (“USA PATRIOT Act”) of 2001 and its implementing regulations substantially broadened the scope of U.S. anti-money laundering laws and regulations by requiring 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 USA PATRIOT Act and its 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.
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% of the total amount of deposits of insured depository institutions in the U.S. and no more than 30% of such deposits in that state (or such amount as established by state law if such amount is lower than 30%). 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, the “host” state must have “opted-in” to the Interstate Act by enacting a law permitting such branch purchases. The

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Dodd-Frank Act expanded the de novo interstate branching authority of banks beyond what had been permitted under the Interstate Act by eliminating the requirement that a state expressly “opt-in” to de novo branching, in favor of a rule that 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. The Dodd-Frank Act also requires that a bank holding company or bank be well capitalized and well managed (rather than simply adequately capitalized and adequately 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.
Dividends
Comerica is a legal entity separate and distinct from its banking and other subsidiaries. Most of Comerica's revenues result from dividends its bank subsidiaries pay it. 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.
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 retained 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, 2017, Comerica's subsidiary banks could declare aggregate dividends of approximately $142 million from retained net profits of the preceding two years. Comerica's subsidiary banks declared dividends of $545 million in 2016, $437 million in 2015 and $380 million in 2014.
Further, federal regulatory agencies can prohibit a banking institution or bank holding company from engaging in unsafe and unsound banking practices and could prohibit the payment of dividends under circumstances in which such payment could be deemed an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), “prompt corrective action” regime discussed below, which applies to each of Comerica Bank and Comerica Bank & Trust, National Association, a subject 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 of earnings that may be paid out as dividends to its parent company, and requiring prior approval for payments of dividends that exceed certain levels.
Additionally, the payment of dividends by Comerica to its shareholders is subject to the non-objection of the FRB pursuant to the Comprehensive Capital Analysis and Review (CCAR) program. For more information, please see “The Dodd-Frank Wall Street Reform and Consumer Protection Act and Recent Legislative and Regulatory Developments” in this section.
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. 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.
Federal Deposit Insurance Corporation Improvement Act
FDICIA requires, among other things, the federal banking agencies to take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution's capital tier will depend upon where its capital levels are in relation to various relevant capital measures, which, among others, include a Tier 1 and total risk-based capital measure and a leverage ratio capital measure.
Regulations establishing the specific capital tiers provide that, for a depository institution to be well capitalized, it must have a total risk-based capital ratio of at least 10% and a Tier 1 risk-based capital ratio of at least 8%, a common equity Tier 1 risk-based capital measure of at least 6.5%, a Tier 1 leverage ratio of at least 5% and not be subject to any specific capital order or directive. For an institution to be adequately capitalized, it must have a total risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 6%, a common equity Tier 1 risk-based capital measure of at least 4.5% and a Tier 1 leverage ratio of at least 4%. Under certain circumstances, the appropriate banking agency may treat a well capitalized, adequately capitalized or undercapitalized institution as if the institution were in the next lower capital category.
As of December 31, 2016, Comerica and its banking subsidiaries exceeded the ratios required for an institution to be considered “well capitalized” under these regulations.

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FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to limitations on growth and certain activities and are required to submit an acceptable capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the institution's parent holding company must guarantee for a specific time period that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company under the guaranty is limited to the lesser of (i) an amount equal to 5% of the depository institution's total assets at the time it became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit or implement an acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions are subject to a number of requirements and restrictions. Specifically, such a depository institution may be required to do one or more of the following, among other things: sell 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 to the appointment of a receiver or conservator or such other action as the FDIC and the applicable federal banking agency shall determine appropriate.
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 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.
Capital Requirements
Comerica and its bank subsidiaries are subject to risk-based capital requirements and guidelines imposed by the FRB and/or the OCC.
For this purpose, 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, in turn, 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 securities, 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. Certain deductions and adjustments to CET1 capital, Tier 1 capital and Tier 2 capital are subject to phase-in through December 31, 2017. Entities that engage in trading activities, whose trading activities exceed specified levels, also are required to maintain capital 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 maintains additional capital for market risk as required.
Comerica, like other bank holding companies, currently is required to maintain CET1, Tier 1 (the sum of CET1 and additional Tier 1 capital) and “total capital” (the sum of Tier 1 and Tier 2 capital) equal to at least 4.5%, 6% and 8% of its total risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit), respectively. In 2016, Comerica was also required to maintain a minimum capital conservation buffer of 0.625% in order to avoid restrictions on capital distributions and discretionary bonuses. The minimum required capital conservation buffer gradually increases to 2.5% in 2019. At December 31, 2016, Comerica met all requirements, with CET1, Tier 1 and total capital equal to 11.09%, 11.09% and 13.27% of its total risk-weighted assets, respectively, and a capital conservation buffer of 5.09% of its total risk-weighted assets.
Comerica is also required to maintain a minimum “leverage ratio” (Tier 1 capital to non-risk-adjusted total assets) of 4%. Comerica's leverage ratio of 10.18% at December 31, 2016 reflects the nature of Comerica's balance sheet and demonstrates a commitment to capital adequacy. At December 31, 2016, Comerica Bank had CET1, Tier 1 and total capital equal to 10.51%,

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10.51% and 12.40% of its total risk-weighted assets, respectively, a capital conservation buffer of 4.40% of its total risk-weighted assets, and a leverage ratio of 9.65%.
Additional information on the calculation of Comerica and its bank subsidiaries' CET1, Tier 1 capital, total capital and risk-weighted assets is set forth in Note 20 of the Notes to Consolidated Financial Statements located on pages F-99 through F-100 of the Financial Section of this report. Additional information on the timing and nature of the Basel III capital requirements is set forth below, under "Basel III: Regulatory Capital and Liquidity Regime."
FDIC Insurance Assessments
The FDIC Deposit Insurance Fund (“DIF”) provides insurance coverage for certain deposits. 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, which was amended pursuant to the Federal Deposit Insurance Reform Act of 2005 and further amended by the Dodd-Frank Act. The Dodd-Frank Act also increased the DIF's minimum reserve ratio and permanently increased general deposit insurance coverage from $100,000 to $250,000. Under the risk-based deposit premium assessment system, 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 2016, Comerica’s FDIC insurance expense totaled $54 million, including the surcharge described below.
Effective July 1, 2016, the FDIC issued a final rule in order to implement section 334 of the Dodd-Frank Act (§334), which requires the FDIC to (1) raise the minimum reserve ratio for the DIF to 1.35 percent, from 1.15 percent, (2) assess premiums on banks to reach the 1.35 percent goal by September 30, 2020, and (3) offset the effect of the increase in the minimum reserve ratio on insured depository institutions with assets of less than $10 billion. The final rule imposes a surcharge on large banks, to be assessed over a period of eight quarters, as a means to implement §334. Comerica is subject to the surcharge assessment. If this surcharge is insufficient to increase the reserve ratio to 1.35 percent by December 31, 2018, a one-time shortfall assessment will be imposed on institutions with total consolidated assets of $10 billion or more on March 31, 2019. Management currently estimates that, based on the final rule, FDIC expense will increase by a total of approximately $20 million over the eight-quarter period that began July 1, 2016.
Enforcement Powers of Federal and State Banking Agencies
The FRB and other federal and state banking agencies have broad enforcement powers, including, without limitation, and as prescribed to each agency by applicable law, the power to 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.
The Dodd-Frank Wall Street Reform and Consumer Protection Act and Recent Legislative and Regulatory Developments
The financial crisis led to significant changes in the legislative and regulatory landscape of the financial services industry, including the overhaul of that landscape with the passage of the Dodd-Frank Act, which was signed into law on July 21, 2010. Provided below is an overview of key elements of the Dodd-Frank Act relevant to Comerica, as well as recent legislative and regulatory developments. The estimates of the impact on Comerica discussed below are based on information currently available and, if applicable, are subject to change until final rulemaking is complete.
Incentive-Based Compensation. In June 2010, the FRB, OCC and FDIC issued comprehensive final guidance on incentive compensation policies 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. Comerica is subject to this final guidance and, similar to other large banking organizations, 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

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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. Further, it is the Company’s intent to continue to evolve our processes going forward by monitoring regulations and best practices for sound incentive compensation.
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. The rules were first proposed in 2011. 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 not apply to institutions with total consolidated assets of less than $1 billion, and 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.
Basel III: Regulatory Capital and Liquidity Regime. In December 2010, the Basel Committee on Banking Supervision (the “Basel Committee”) issued a framework for strengthening international capital and liquidity regulation (“Basel III”). In July 2013, U.S. banking regulators issued a final rule for the U.S. adoption of the Basel III regulatory capital framework. Basel III includes a more stringent definition of capital and introduces a new common equity Tier 1 ("CET1") capital requirement; sets forth two comprehensive methodologies for calculating risk-weighted assets ("RWA"), a standardized approach and an advanced approach; introduces two new capital buffers, a conservation buffer and a countercyclical buffer (applicable to advanced approach entities); establishes a new supplemental leverage ratio (applicable to advanced approach entities); and sets out minimum capital ratios and overall capital adequacy standards. As a banking organization subject to the standardized approach, the rules were effective for Comerica on January 1, 2015. Certain deductions and adjustments to regulatory capital (primarily related to intangible assets and surplus Tier 2 capital minority interest) phase in and will be fully implemented on January 1, 2018. The capital conservation buffer phases in at 0.625 percent beginning on January 1, 2016 and ultimately increases to 2.5 percent on January 1, 2019. Comerica is not subject to the countercyclical buffer or the supplemental leverage ratio.
Comerica's December 31, 2016 CET1 and Tier 1 ratios were both 11.09 percent. Comerica's December 31, 2016 CET1 and Tier 1 capital ratios exceed the minimum required by the final rule (4.5 percent and 6 percent, respectively).
On September 3, 2014, U.S. banking regulators adopted the Liquidity Coverage Ratio ("LCR") rule, which set for U.S. banks the minimum liquidity measure established under the Basel III liquidity framework. Under the final rule, Comerica is subject to a modified LCR standard, which requires a financial institution to hold a minimum level of high-quality, liquid assets ("HQLA") to fully cover modified net cash outflows under a 30-day systematic liquidity stress scenario. The rule was effective for Comerica on January 1, 2016. During the transition year, 2016, Comerica was required to maintain a minimum LCR of 90 percent. Beginning January 1, 2017, and thereafter, the minimum required LCR will be 100 percent. At each quarter-end in 2016, Comerica was in compliance with the fully phased-in LCR requirement, plus a buffer.
In the second quarter 2016, U.S. banking regulators issued a notice of proposed rulemaking (the proposed rule) implementing a second quantitative liquidity requirement in the U.S. generally consistent with the Net Stable Funding Ratio (NSFR) minimum liquidity measure established under the Basel III liquidity framework. Under the proposed rule, Comerica will be subject to a modified NSFR standard effective January 1, 2018, which requires a financial institution to hold a minimum level of available longer-term, stable sources of funding to fully cover a modified amount of required longer-term stable funding, over a one-year period. Comerica does not currently expect the proposed rule to have a material impact on its liquidity needs.
Interchange Fees. On July 20, 2011, the FRB published final rules (Regulation II) pursuant to the Dodd-Frank Act establishing the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction as the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction and prohibiting network exclusivity arrangements and routing restrictions. Comerica is subject to the final rules.
Supervision and Regulation Assessment. Section 318 of the Dodd-Frank Act authorizes the federal banking agencies to assess fees against bank holding companies with total consolidated assets in excess of $50 billion equal to the expenses necessary or appropriate in order to carry out their supervision and regulation of those companies. Comerica expensed $1.9 million for 2016, which will be assessed in the first quarter 2017.
The Volcker Rule. The federal banking agencies and the SEC published approved joint final regulations to implement the Volcker Rule on December 10, 2013. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from owning and sponsoring "covered funds" (e.g. hedge funds and private equity funds). The final regulations adopt

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a multi-faceted approach to implementing the Volcker Rule prohibitions that relies on: (i) detailed descriptions of prohibited and permitted activities; (ii) detailed compliance requirements; and (iii) for banking entities with large volumes of trading activity, detailed quantitative analysis and reporting obligations. In addition to rules implementing the core prohibitions and exemptions (e.g. underwriting, market-making related activities, risk-mitigating hedging and trading in certain government obligations) of the Volcker Rule, the regulations also include two appendices devoted to record-keeping and reporting requirements, including numerous quantitative data reporting obligations for banking entities with significant trading activities (Appendix A) and enhanced compliance requirements for banking entities with significant trading or covered fund activities (Appendix B). The final rule was effective April 1, 2014. The Volcker Rule generally required full compliance with the new restrictions by July 21, 2015; however, the FRB has extended the conformance period to July 21, 2017 for covered funds that were in place prior to December 31, 2013. Comerica is currently in compliance with the effective aspect of the Volcker Rule and expects to meet the final requirements adopted by regulators within the applicable regulatory timelines. Additional information on Comerica's portfolio of indirect (through funds) private equity and venture capital investments is set forth in Note 1 of the Notes to Consolidated Financial Statements located on page F-52 of the Financial Section of this report.
Annual Capital Plans and Stress Tests. Comerica is subject to the FRB’s annual Comprehensive Capital Analysis and Review (CCAR) process, as well as the Dodd-Frank Act Stress Testing (DFAST) requirements. As part of the CCAR process, the FRB undertakes a supervisory assessment of the capital adequacy of bank holding companies (BHCs), including Comerica, that have $50 billion or more in total consolidated assets. This capital adequacy assessment is based on a review of a comprehensive capital plan submitted by each participating BHC to the FRB that describes the company’s planned capital actions during the nine quarter review period, as well as the results of stress tests conducted by both the company and the FRB under different hypothetical macro-economic scenarios, including a supervisory baseline and an adverse and a severely adverse scenario provided by the FRB. The FRB reviews both quantitative factors (such as projected capital ratios under a hypothetical stress scenario) and qualitative factors (such as the strength of the company's capital planning process). On January 30, 2017, the FRB issued a final rule stating that going forward, large and noncomplex firms, such as Comerica, would remain subject to a quantitative assessment in CCAR, but would no longer be subject to the qualitative assessment as part of CCAR; instead, the qualitative assessment would be conducted through the regular ongoing supervisory review process.
After completing its review, the FRB may object or not object to the company’s proposed capital actions, such as plans to pay or increase common stock dividends, reinstate or increase common equity repurchase programs, or issue or redeem preferred stock or other regulatory capital instruments. In connection with the 2016 CCAR, Comerica submitted its 2016 capital plan to the FRB on April 4, 2016; on June 23, 2016, Comerica and the FRB released the revenue, loss and capital results from the annual stress testing exercises and on June 29, 2016, Comerica announced that the FRB had completed its CCAR 2016 capital plan review and did not object to the capital plan or capital distributions contemplated in the plan for the four-quarter period commencing in the third quarter 2016 and ending in the second quarter 2017. Comerica plans to submit its CCAR 2017 capital plan to the FRB, consistent with supervisory guidance (SR 15-19), in April 2017 and expects to receive the results of the FRB's review of the plan in June 2017 and to release its company-run stress tests results in June or July 2017.
FRB regulations also required that Comerica and other large bank holding companies conduct a separate mid-year stress test using financial data as of June 30th and three company-derived macro-economic scenarios (base, adverse and severely adverse) and publish a summary of the results under the severely adverse scenario. On October 20, 2016, Comerica released the results of its company-run mid-year stress tests. Stress test results are available in the Investor Relations section of Comerica's website at investor.comerica.com, on the “Regulatory Disclosures” page under "Financial Reports."
Enhanced Prudential Requirements. The Dodd-Frank Act created the Financial Stability Oversight Council (“FSOC”) to coordinate efforts of the primary U.S. financial regulatory agencies in establishing regulations to address financial stability concerns and to make recommendations to the FRB as to enhanced prudential standards that must apply to large, interconnected bank holding companies and nonbank financial companies supervised by the FRB under the Dodd-Frank Act, including capital, leverage, liquidity and risk management requirements.
On February 18, 2014, the FRB issued its final regulations to implement the enhanced prudential and supervisory requirements mandated by the Dodd-Frank Act. The final regulations address enhanced risk-based capital and leverage requirements, enhanced liquidity requirements, enhanced risk management and risk committee requirements, single-counterparty credit limits, semiannual stress tests (as described above under "Annual Capital Plans and Stress Tests"), and a debt-to-equity limit for companies determined to pose a grave threat to financial stability. They are intended to allow regulators to more effectively supervise large bank holding companies and nonbank financial firms whose failure could impact the stability of the US financial system, and generally build on existing US and international regulatory guidance. The rule also takes a multi-stage or phased approach to many of the requirements (such as the capital and liquidity requirements). Most of these requirements apply to Comerica because it has consolidated assets of more than $50 billion. Comerica has or will implement all requirements of the new rules within regulatory timelines.
Resolution (Living Will) Plans. Section 165(d) of the Dodd-Frank Act requires bank holding companies with total consolidated assets of $50 billion or more (“covered companies”) to prepare and submit to the federal banking agencies (e.g., FRB

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and FDIC) a plan for their rapid and orderly resolution under the U.S. Bankruptcy Code. Covered companies, such as Comerica, with less than $100 billion in total nonbank assets were required to submit their initial plans by December 31, 2013. In addition, Section 165(d) requires FDIC-insured depository institutions (like Comerica Bank) with assets of $50 billion or more to develop, maintain, and periodically submit plans outlining how the FDIC would resolve it through the FDIC's resolution powers under the Federal Deposit Insurance Act. The federal banking agencies have issued rules to implement these requirements. In addition, those rules require the filing of annual updates to the plans. Both Comerica and Comerica Bank filed their respective initial and updated resolution plans by the required due dates, and will submit their 2017 resolution plans prior to December 31, 2017.
Section 611 and Title VII of the Dodd-Frank Act. Section 611 of the Dodd-Frank Act prohibits a state bank from engaging in derivative transactions unless the lending limit laws of the state in which the bank is chartered take into consideration exposure to derivatives. Section 611 does not provide how state lending limit laws must factor in derivatives. The Texas Finance Commission has adopted an administrative rule meeting the requirements of Section 611. Comerica Bank's policy is designed to comply with the Texas rule. Accordingly, Comerica Bank may engage in derivative transactions, as permitted by applicable law.
Title VII of the Dodd-Frank Act establishes a comprehensive framework for over-the-counter (“OTC”) derivatives transactions. The structure for derivatives set forth in the Dodd-Frank Act is intended to promote, among other things, exchange trading and centralized clearing of swaps and security-based swaps, as well as greater transparency in the derivatives markets and enhanced monitoring of the entities that use these markets. In this regard, the CFTC and SEC have issued several regulatory proposals, some of which are now effective or will become effective in 2017. Most of the requirements did not impact Comerica since the Bank does not meet the definition of swap dealer nor is it a “major swap participant.”
On October 13, 2016, the CFTC issued an Order setting the de minimis threshold at $8 billion through December 31, 2018 with respect to the de minimis exception to the swap dealer definition.  In taking this action, the de minimis threshold will not decrease to $3 billion on December 31, 2017, as initially proposed.  At this time, Comerica will continue to track its dealing activity.
The  variation margin requirements for non-centrally cleared swaps and security-based swaps are effective for Comerica on March 31, 2017.  The variation 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 variation margin requirements.
Consumer Finance Regulations. The Dodd-Frank Act made several changes to consumer finance laws and regulations. It contained provisions that have weakened the federal preemption rules applicable for national banks and give state attorneys general the ability to enforce federal consumer protection laws. Additionally, the Dodd-Frank Act created the Consumer Financial Protection Bureau (“CFPB“), which has a broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices, and possesses examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. In this regard, the CFPB has commenced issuing several new rules to implement various provisions of the Dodd-Frank Act that were specifically identified as being enforced by the CFPB, as well as those specified for supervisory and enforcement authority for very large 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 Dodd-Frank Act. The CFPB issued new regulations amending Regulation E, which implements the Electronic Fund Transfer Act, effective October 28, 2013. The regulations were designed to provide protections to consumers who transfer funds to recipients located in countries outside the United States (customer foreign remittance transfers). In general, the regulation requires remittance transfer providers, such as Comerica, to disclose to a consumer the exchange rate, fees, and amount to be received by the recipient when the consumer sends a remittance transfer. Although Comerica had implemented the model disclosures provided in Appendix A to the final rule, on September 18, 2014, the CFPB extended the compliance exception period for the rule's new disclosure requirements to July 21, 2020.
On October 5, 2016, effective October 1, 2017, the CFPB issued final regulations establishing new consumer protections and disclosure requirements on prepaid accounts. The final rule’s definition of prepaid accounts specifically includes payroll card accounts and government benefit accounts. It also includes cards that are not linked to a deposit account to conduct person-to- person (P2P) transfers.  The regulations include (i) the provision of either periodic statements or free online account information access; (ii) new account error and unauthorized transaction rights; (iii) new “Know Before You Choose” prepaid account disclosures; (iv) public disclosure of account agreements for prepaid accounts and (v) credit protection for linked credit accounts. Additionally, the final rule regulates overdraft credit features that may be offered in conjunction with prepaid accounts.
Comerica has positioned itself to be in compliance with the new requirements.
Truth in Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”). In November 2013, the CFPB issued a rule implementing new TILA RESPA Integrated Disclosures (“TRID”) to replace the initial Truth-in-Lending disclosure and Good Faith Estimate for most closed-end consumer mortgage loans. The effective date was October 3, 2015. Significant

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changes in TRID include: (1) expansion of the scope of loans that require RESPA early disclosures, including bridge loans, vacant land loans, and construction loans; (2) changes and additions to “waiting period” requirements to close a loan; (3) reduced tolerances for estimated fees and (4) the lender, rather than the closing agent, is responsible for providing final disclosures. Although Comerica outsources most of its consumer mortgage loans, consumer construction financing has been suspended. This regulation has also resulted in a suspension of consumer bridge loan financing. Such financing has not been a significant business for Comerica.
Home Mortgage Disclosure Act (HMDA), Equal Credit Opportunity Act (ECOA) and Uniform Residential Loan Application (URLA). A revised and redesigned URLA was approved by the CFPB on September 23, 2016. The official approval expands the Home Mortgage Disclosure Act information about Ethnicity and Race that can be collected from January 1, 2017 through December 31, 2017. Regulation C, as amended by the final rule published in the Federal Register at 80 FR 66127 on October 28, 2015 (2015 HMDA final rule), will require financial institutions to permit applicants to self-identify using disaggregated ethnic and racial categories beginning January 1, 2018 in conformance with the 2016 URLA. Most consumer-purpose transactions, including closed-end home-equity loans, home-equity lines of credit and reverse mortgages, are subject to the regulation. Most commercial-purpose transactions (i.e., loans or lines of credit not for personal, family, or household purposes) are subject to the regulation only if they are for the purpose of home purchase, home improvement, or refinancing. The final rule excludes from coverage home improvement loans that are not secured by a dwelling (i.e., home improvement loans that are unsecured or that are secured by some other type of collateral) and all agricultural-purpose loans and lines of credit. Comerica is monitoring and implementing changes as required.
FDIC Guidance on Brokered Deposits.  On January 5, 2015, the FDIC issued guidance in the form of “Frequently Asked Questions” to promote consistency by insured depository institutions in identifying, accepting, and reporting brokered deposits.  On November 13, 2015, the FDIC issued proposed updates to the FAQs.  All insured depository institutions (including those that are well capitalized) must report brokered deposits in their Consolidated Reports of Condition and Income (Call Reports).  Comerica has evaluated the impact of these FAQs, including the proposed updates, to various business units throughout the organization. The FAQs had only a nominal impact. 
Flood Insurance Reform. The Biggert-Waters Flood Insurance Reform Act of 2012 (“Biggert-Waters Act”), as amended by the Homeowner Flood Insurance Affordability Act of 2014, modified the National Flood Insurance Program by: (i) increasing the maximum civil penalty for Flood Disaster Protection Act violations to $2,000 and eliminating the annual penalty cap; (ii) requiring certain lenders (including Comerica) to escrow premiums and fees for flood insurance on residential improved real estate; (iii) directing lenders to accept private flood insurance and to notify borrowers of its availability; (iv) amending the force placement requirement provisions; and (v) permitting lenders to charge borrowers costs for lapses in or insufficient coverage. These requirements will impact Comerica loans and extensions of credit secured with residential improved real estate. The civil penalty and force placed insurance provisions were effective immediately.  The escrow provisions became effective on January 1, 2016.
On October 31, 2016, the federal agencies issued a Joint Notice of Proposed Rulemaking concerning the private flood insurance rules with request for additional public comments due on January 6, 2017. Comerica will continue to monitor the development and implementation of the private flood insurance rules.

Future Legislation and Regulatory Measures
The environment in which financial institutions have operated since the financial crisis, including legislative and regulatory changes affecting capital, liquidity, supervision, permissible activities, corporate governance and compensation, and changes in fiscal policy, may have long-term effects on the business model and profitability of financial institutions that cannot be foreseen. Further, it is too soon for Comerica to predict what legislative or regulatory changes may occur as a result of the recent change in the U.S. presidential administration, or, if changes 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.

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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 relationship managers, 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.
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, please see the caption, “Energy Lending” on pages F-30 through F-31 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 both loans to real estate developers 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.

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Consumer and Residential Mortgage Loan Portfolios
Comerica's consumer and residential mortgage loans are originated consistent with the underwriting approach described above, but also 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. 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. We generally consider 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.
EMPLOYEES
As of December 31, 2016, Comerica and its subsidiaries had 7,659 full-time and 490 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 course," “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.
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. Conditions such as or related to inflation, recession, unemployment, volatile interest rates, international conflicts and other factors, such as real estate values, energy prices,

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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.
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 and fiscal 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, 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.
Proposed revenue enhancements and efficiency improvements may not be achieved.
In July 2016 Comerica announced the implementation of its efficiency and revenue initiative, GEAR Up (the "initiative") and related financial targets. There may be changes in the scope or assumptions underlying the initiative, delays in the anticipated timing of activities related to the initiative and higher than expected or unanticipated costs to implement them, and some benefits may not be fully achieved. As well, even if the initiative is successful, many factors can influence the amount of core noninterest expenses, some of which are not wholly in our control, including changing regulations, benefits and health care costs, technology and cybersecurity investments, outside processing expenses and litigation.
Furthermore, the implementation of the initiative may have unintended impacts on Comerica's ability to attract and retain business, customers and employees, and could result in disruptions to systems, processes, controls and procedures. Any revenue enhancement ideas may not be successful in the marketplace. Accordingly, Comerica's results of operations and profitability may be negatively impacted, making it less competitive and potentially causing a loss of market share. Additionally, Comerica's future performance is subject to the various risks inherent to its business and operations.
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 or a lack of market or customer confidence in financial markets in general, which may result in a loss of customer deposits or outflows of cash or collateral and/or 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 the 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 our 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.
In September 2014, U.S. banking regulators issued a final rule implementing a quantitative liquidity requirement in the U.S. generally consistent with the Liquidity Coverage Ratio ("LCR") minimum liquidity measure established under the Basel III liquidity framework. Under the final rule, Comerica is subject to a modified LCR standard, which requires a financial institution to hold a minimum level of high-quality, liquid assets to fully cover modified net cash outflows under a 30-day systematic liquidity stress scenario. The rule was effective for Comerica on January 1, 2016. During the transition year, 2016, Comerica was required to maintain a minimum LCR of 90 percent. Beginning January 1, 2017, and thereafter, the minimum required LCR will be 100 percent. For more information regarding the LCR, please see the “Supervision and Regulation” section of this report. The inability to access capital markets funding sources as needed could adversely impact our level of regulatory-qualifying capital and ability to continue to comply with the LCR framework.
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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Compliance with more stringent capital and liquidity requirements may adversely affect Comerica.
Comerica is required to satisfy stringent capital and liquidity standards, including annual and mid-year stress testing and quantitative standards for liquidity management, as a result of capital and liquidity requirements in connection with Basel III and the Dodd-Frank Act. Additional information on the regulatory capital and liquidity requirements currently applicable to Comerica is 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 equity 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.
Further, our regulators may also require us to satisfy additional, more stringent capital adequacy and liquidity standards than those specified as part of the Dodd-Frank Act and the FRB's rules implementing Basel III.
Maintaining higher levels of capital and liquidity may reduce Comerica's profitability and otherwise adversely affect its business, financial condition, or results of operations.
Declines in the businesses or industries of Comerica's customers - in particular, the energy industry - 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 energy industry, the automotive production industry and the real estate business. These industries are sensitive to global economic conditions, supply chain factors and/or commodities prices. Any decline in one of those customers' 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.
In particular, oil and gas prices have remained at lower levels since mid-2014. Loans in the Energy business line were $2.3 billion, or less than 5 percent of total loans, at December 31, 2016. If oil and gas prices become further depressed and remain depressed for an extended period of time, Comerica's energy portfolio could experience increased credit losses, which could adversely affect Comerica's financial results. Additionally, a prolonged period of further decreased oil prices could also have a negative impact on the Texas economy, which could have a material adverse effect on Comerica’s business, financial condition and results of operations. For more information regarding Comerica's energy portfolio, please see “Energy Lending” beginning on page F-30 of the Financial Section of this report.
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.
Operational difficulties, failure of technology infrastructure or information security incidents could adversely affect Comerica's business and operations.
Comerica is exposed to many types of operational risk, including legal risk, the risk of fraud or theft by employees or outsiders, failure of Comerica's controls and procedures and unauthorized transactions by employees or operational errors, including clerical or recordkeeping errors or those resulting from computer or telecommunications systems malfunctions. Given the high volume of transactions at Comerica, certain errors may be repeated or compounded before they are identified and resolved. The occurrence of such operational risks can lead to other types of risks including reputational and compliance risks that may amplify the adverse impact to Comerica.
In particular, Comerica's operations rely on the secure processing, storage and transmission of confidential and other information on its technology systems and networks. 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 may also be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control, which may include, for example, computer viruses, cyber attacks (including cyber attacks resulting in the destruction or exfiltration of data and systems), spikes in transaction volume and/or customer activity, electrical or telecommunications outages, or natural disasters. 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 give rise to interruptions in service to customers and loss or liability to Comerica, including loss of customer data. Comerica has not experienced a cyber attack which resulted in a loss of client data. However, future cyber attacks could be more disruptive and damaging, and Comerica may not be able to anticipate or prevent all such attacks.

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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.
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 SEC, FINRA and other regulatory bodies. Such regulation and supervision governs 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, 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. It is too soon for Comerica to predict what legislative or regulatory changes may occur as a result of the recent change in the U.S. presidential administration, or, if changes occur, the ultimate effect they would have upon the financial condition or results of operations of Comerica. The impact of any future legislation or regulatory actions may adversely affect Comerica's businesses or operations.
Comerica relies on other companies to provide certain key components of its business infrastructure, 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 business infrastructure. Third party vendors provide certain key components of Comerica's business infrastructure, such as data processing and storage, payment processing services, recording and monitoring transactions, internet connections and network access, clearing agency and card processing services. While Comerica conducts due diligence prior to engaging with third party vendors, it does not control their operations. Further, while Comerica's vendor management policies and practices are designed to comply with current vendor 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.
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 and the market value of its investment securities. Interest rates over the past several years have remained at low levels, even following the Federal Open Market Committee's 25 basis point rate rises in December 2015 and 2016. A continued low interest rate environment may continue to 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-32 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.
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 February 2016, Standard & Poor's downgraded Comerica's long-term senior credit ratings one notch to BBB+ and Comerica Bank's long and short-term credit ratings one notch to A- and A-2, respectively. In March 2015, Moody's Investors Service put global bank ratings on review following the publication of revised bank rating methodology and in May 2015, it downgraded Comerica Bank's long-term senior credit ratings one notch to A3. In February 2016, Moody's revised its outlook 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

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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 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.
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.
Damage to Comerica’s reputation could damage its businesses.
With consumers increasingly interested in doing business with companies they admire and trust, reputational risk is an increasing concern for business. 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 efficient and effective utilization of technology enables financial institutions to better serve customers and 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 among financial institutions 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.
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

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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.
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.
Changes in customer behavior may adversely impact Comerica's business, financial condition and results of operations.
Comerica uses a variety of financial tools, models and other methods to anticipate customer behavior as a part of its strategic planning and to meet certain regulatory requirements. Individual, economic, political, industry-specific conditions and other factors outside of Comerica's control, such as fuel prices, energy costs, 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.
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.
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 the 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 will 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.
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 not apply to institutions with total consolidated assets of less than $1 billion, and 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.

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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.
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 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.
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, 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.
Terrorist activities or other hostilities may adversely affect the general economy, financial and capital markets, specific industries, and Comerica.
Terrorist attacks or other hostilities may disrupt Comerica's operations or those of its customers. 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.
Catastrophic events, including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods, may adversely affect the general economy, financial and capital markets, specific industries, and Comerica.
Comerica has significant operations and a significant customer base in California, Texas, Florida and other regions where natural and other disasters may occur. These regions are known for being vulnerable to natural disasters and other risks, such as tornadoes, hurricanes, earthquakes, fires, droughts and floods, the nature and severity of which may be impacted by climate change. These types of natural catastrophic events at times have disrupted the local economy, Comerica's business and customers and have posed physical risks to Comerica's property. In addition, catastrophic events occurring in other regions of the world may have an impact on Comerica's customers and in turn, on Comerica. A significant catastrophic event could materially adversely affect Comerica's operating results.
The tax treatment of corporations could be subject to potential legislative, administrative or judicial changes or interpretations.
The present federal income tax treatment of corporations may be modified by legislative, administrative or judicial changes or interpretations at any time. For example, the current administration has indicated it will propose reductions to the corporate statutory tax rate.  A decline in the federal corporate tax rate may lower Comerica’s tax provision expense.  However, it may also significantly decrease the value of Comerica’s deferred tax assets (“DTAs”), which would result in a reduction of net income in the period in which the tax change is enacted.  At December 31, 2016, Comerica’s net DTAs were approximately $217 million. 
As well, if the President and Congress approve comprehensive tax reform, low-income housing tax credits (LIHTCs), New Markets Tax Credits (NMTCs), the beneficial tax treatment of bank-owned life insurance or other current tax positions taken by Comerica could be at risk. We are unable to predict whether any of these changes, or other proposals, will ultimately be enacted. Any such changes could adversely affect Comerica.

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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.
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 the 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. 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.
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-38 through F-41 of the Financial Section of this report and Note 1 of the Notes to Consolidated Financial Statements located on pages F-49 through F-61 of the Financial Section of this report.
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 2023. 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, 2016, Comerica, through its banking affiliates, operated at a total of 591 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 591 locations, 236 were owned and 355 were leased. As of December 31, 2016, 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; Rocky Mount, North Carolina; Memphis, Tennessee; McLean, Virginia; Bellevue and Seattle, 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-100 through F-101 of the Financial Section of this report.

Item 4.   Mine Safety Disclosures.
Not applicable.

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PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information and Holders of Common Stock
The common stock of Comerica Incorporated is traded on the New York Stock Exchange (NYSE Trading Symbol: CMA). At February 7, 2017, there were approximately 9,581 record holders of Comerica's common stock.
Sales Prices and Dividends
Quarterly cash dividends were declared during 2016 and 2015 totaling $0.89 and $0.83 per common share per year, respectively. The following table sets forth, for the periods indicated, the high and low sale prices per share of Comerica's common stock as reported on the NYSE Composite Transactions Tape for all quarters of 2016 and 2015, as well as dividend information.
Quarter    
 
High
 
Low
 
Dividends Per Share
 
Dividend Yield*    
2016
 
 
 
 
 
 
 
 
Fourth
 
$
70.44

 
$
46.75

 
$
0.23

 
1.6
%
Third
 
47.81

 
38.39

 
0.23

 
2.1

Second
 
47.55

 
36.27

 
0.22

 
2.1

First
 
41.74

 
30.48

 
0.21

 
2.3

2015
 
 
 
 
 
 
 
 
Fourth
 
$
47.44

 
$
39.52

 
$
0.21

 
1.9
%
Third
 
52.93

 
40.01

 
0.21

 
1.8

Second
 
53.45

 
44.38

 
0.21

 
1.7

First
 
47.94

 
40.09

 
0.20

 
1.8

* Dividend yield is calculated by annualizing the quarterly dividend per share and dividing by an average of the high and low price in the quarter.
A discussion of dividend restrictions is set forth in Note 20 of the Notes to Consolidated Financial Statements located on pages F-99 through F-100 of the Financial Section of this report, in the "Capital" section on pages F-19 through F-22 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
On July 26, 2016, the Board of Directors of Comerica authorized the repurchase of up to an additional 10.0 million shares of Comerica Incorporated outstanding common stock, in addition to the 5.7 million shares remaining at June 30, 2016 under the Board's prior authorizations for the equity repurchase program initially approved in November 2010. Including the July 2016 authorization, a total of 50.3 million shares and 14.1 million warrants (12.1 million share-equivalents) have been authorized for repurchase under the equity repurchase program since its inception in 2010. There is no expiration date for Comerica's equity repurchase program.
The following table summarizes Comerica's equity repurchase activity for the year ended December 31, 2016.

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(shares in thousands)
Total Number of Shares 
and Warrants Purchased 
as Part of Publicly
Announced Repurchase
Plans or Programs (a)
 
Remaining
Repurchase
Authorization 
(b)
 
Total Number
of Shares
Purchased (c)
 
Average 
Price
Paid Per 
Share
Total first quarter 2016
1,183

 
15,721

 
1,393

 
$
35.26

Total second quarter 2016
1,483

 
14,238

 
1,488

 
43.78

Total third quarter 2016
2,123

 
22,114

(d)
2,134

 
45.66

October 2016
839

 
19,575

 
842

 
49.88

November 2016
644

 
17,834

 
645

 
57.10

December 2016
302

 
15,694

 
307

 
67.27

Total fourth quarter 2016
1,785

 
15,694

 
1,794

 
55.45

Total 2016
6,574

 
15,694

 
6,809

 
$
45.70

(a)
Comerica made no repurchases of warrants under the repurchase program during the year ended December 31, 2016. Upon exercise of a warrant, the number of shares with a value equal to the aggregate exercise price is withheld from an exercising warrant holder as payment (known as a "net exercise provision"). During the year ended December 31, 2016, Comerica withheld the equivalent of approximately 2,319,000 shares to cover an aggregate of $68.2 million in exercise price and issued approximately 2,317,000 shares to the exercising warrant holders. Shares withheld in connection with the net exercise provision are not included in the total number of shares or warrants purchased in the above table.
(b)
Maximum number of shares and warrants that may yet be purchased under the publicly announced plans or programs.
(c)
Includes approximately 235,000 shares (including 9,000 shares in the quarter ended December 31, 2016) 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 and 26 shares purchased by affiliated purchasers through employee benefits plan transactions during the year ended December 31, 2016. These transactions are not considered part of Comerica's repurchase program.
(d)
Includes July 26, 2016 equity repurchase authorization for up to an additional 10.0 million shares.

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 “2016 Overview and 2017 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-43 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,” “Compliance Risk” and “Strategic Risk” on pages F-32 through F-37 of the Financial Section of this report.
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-44 through F-114 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 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 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.

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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-109 and F-110 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 Chief Financial Officer, conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the period 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 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,” “Committee Assignments,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 25, 2017, 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,” “2016 Summary Compensation Table,” “2016 Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End 2016,” “2016 Option Exercises and Stock Vested,” “Pension Benefits at Fiscal Year-End 2016,” “2016 Nonqualified Deferred Compensation,” and “Potential Payments upon Termination or Change of Control at Fiscal Year-End 2016” of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 25, 2017, 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 Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 25, 2017, 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 and Transactions of Directors with Comerica,” “Transactions of Related Parties with Comerica,” and “Information about Nominees” of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 25, 2017, 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 25, 2017, which section is hereby incorporated by reference.
PART IV

Item 15.  Exhibits and Financial Statement Schedules
The following documents are filed as a part of this report:

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1.
 
Financial Statements: The financial statements that are filed as part of this report are included in the Financial Section on pages F-44 through F-111.
 
 
 
2.
 
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.
 
 
 
3.
 
Exhibits: The exhibits listed on the Exhibit Index on pages E-1 through E-5 of this Form 10-K are filed with this report or are incorporated herein by reference.
Item 16.  Form 10-K Summary
Not applicable.

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Table of Contents

FINANCIAL REVIEW AND REPORTS
Comerica Incorporated and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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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, 2011 and the reinvestment of all dividends during the periods presented.
/projects/view/?keyname=SupportingDocument:4deb5910a1384afa91892be210cd81a3The performance shown on the graph is not necessarily indicative of future performance.


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Table of Contents

SELECTED FINANCIAL DATA
(dollar amounts in millions, except per share data)
 
 
 
 
 
 
 
 
 
Years Ended December 31
2016
 
2015
2014
 
2013
 
2012
EARNINGS SUMMARY
 
 
 
 
 
 
 
 
 
Net interest income
$
1,797

 
$
1,689

 
$
1,655

 
$
1,672

 
$
1,728

Provision for credit losses
248

 
147

 
27

 
46

 
79

Noninterest income (a)
1,051

 
1,035

 
857

 
874

 
863

Noninterest expenses (a)
1,930

(b)
1,827

 
1,615

 
1,714

 
1,750

Provision for income taxes
193

 
229

 
277

 
245

 
241

Net income
477

 
521

 
593

 
541

 
521

Net income attributable to common shares
473

 
515

 
586

 
533

 
515

PER SHARE OF COMMON STOCK
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
$
2.68

 
$
2.84

 
$
3.16

 
$
2.85

 
$
2.67

Cash dividends declared
0.89

 
0.83

 
0.79

 
0.68

 
0.55

Common shareholders’ equity
44.47

 
43.03

 
41.35

 
39.22

 
36.86

Tangible common equity (c)
40.79

 
39.33

 
37.72

 
35.64

 
33.36

Market value
68.11

 
41.83

 
46.84

 
47.54

 
30.34

Average diluted shares (in millions)
177

 
181

 
185

 
187

 
192

YEAR-END BALANCES
 
 
 
 
 
 
 
 
 
Total assets
$
72,978

 
$
71,877

 
$
69,186

 
$
65,224

 
$
65,066

Total earning assets
67,518

 
66,687

 
63,788

 
60,200

 
59,618

Total loans
49,088

 
49,084

 
48,593

 
45,470

 
46,057

Total deposits
58,985

 
59,853

 
57,486

 
53,292

 
52,191

Total medium- and long-term debt
5,160

 
3,058

 
2,675

 
3,543

 
4,720

Total common shareholders’ equity
7,796

 
7,560

 
7,402

 
7,150

 
6,939

AVERAGE BALANCES
 
 
 
 
 
 
 
 
 
Total assets
$
71,743

 
$
70,247

 
$
66,336

 
$
63,933

 
$
62,569

Total earning assets
66,545

 
65,129

 
61,560

 
59,091

 
57,483

Total loans
48,996

 
48,628

 
46,588

 
44,412

 
43,306

Total deposits
57,741

 
58,326

 
54,784

 
51,711

 
49,533

Total medium- and long-term debt
4,917

 
2,905

 
2,963

 
3,972

 
4,818

Total common shareholders’ equity
7,674

 
7,534

 
7,373

 
6,965

 
7,009

CREDIT QUALITY
 
 
 
 
 
 
 
 
 
Total allowance for credit losses
$
771

 
$
679

 
$
635

 
$
634

 
$
661

Total nonperforming loans
590

 
379

 
290

 
374

 
541

Foreclosed property
17

 
12

 
10

 
9

 
54

Total nonperforming assets
607

 
391

 
300

 
383

 
595

Net credit-related charge-offs
157

 
101

 
25

 
73

 
170

Net credit-related charge-offs as a percentage of average total loans
0.32
%
 
0.21
%
 
0.05
%
 
0.16
%
 
0.39
%
Allowance for loan losses as a percentage of total period-end loans
1.49

 
1.29

 
1.22

 
1.32

 
1.37

Allowance for loan losses as a percentage of total nonperforming loans
124

 
167

 
205

 
160

 
116

RATIOS
 
 
 
 
 
 
 
 
 
Net interest margin (fully taxable equivalent)
2.71
%
 
2.60
%
 
2.70
%
 
2.84
%
 
3.03
%
Return on average assets
0.67

 
0.74

 
0.89

 
0.85

 
0.83

Return on average common shareholders’ equity
6.22

 
6.91

 
8.05

 
7.76

 
7.43

Dividend payout ratio
32.48

 
28.33

 
24.09

 
23.29

 
20.52

Average common shareholders’ equity as a percentage of average assets
10.70

 
10.73

 
11.11

 
10.90

 
11.21

Common equity tier 1 capital as a percentage of risk-weighted assets (d)
11.09

 
10.54

 
n/a

 
n/a

 
n/a

Tier 1 capital as a percentage of risk-weighted assets (d)
11.09

 
10.54

 
10.50

 
10.64

 
10.14

Common equity ratio
10.68

 
10.52

 
10.70

 
10.97

 
10.67

Tangible common equity as a percentage of tangible assets (c)
9.89

 
9.70

 
9.85

 
10.07

 
9.76

(a)
Effective January 1, 2015, contractual changes to a card program resulted in a change to the accounting presentation of the related revenues and expenses. The effect of this change was an increase of $177 million in 2015 to both noninterest income and noninterest expenses. Amounts prior to 2015 reflect revenues from this card program net of related noninterest expenses.
(b)
Noninterest expenses in 2016 included restructuring charges of $93 million.
(c)
See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.
(d)
Ratios calculated based on the risk-based capital requirements in effect at the time. The U.S. implementation of the Basel III regulatory capital framework became effective on January 1, 2015, with transitional provisions.
n/a - not applicable.

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2016 OVERVIEW AND 2017 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 23 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.
GROWTH IN EFFICIENCY AND REVENUE INITIATIVE
In the second quarter 2016, the Corporation launched the Growth in Efficiency and Revenue (GEAR Up) initiative in order to meaningfully enhance profitability. Actions identified under this initiative are expected to drive additional annual pre-tax income, before restructuring charges, of approximately $270 million for full-year 2018. Additional financial targets expected from GEAR Up include a double-digit return on equity and an efficiency ratio at or below 60 percent by year-end 2018.
2016 progress included a reduction in workforce and a significant reduction in retirement plan expense due to a new retirement program, which together resulted in 2016 expense savings of more than $25 million, as well as the consolidation of 19 banking centers. For additional information regarding retirement plan changes, refer to the "Critical Accounting Policies" section of this financial review and Note 17 to the consolidated financial statements.
Expense reductions are expected to save an additional $125 million in full-year 2017, relative to the 2016 GEAR Up savings of more than $25 million, and increase to approximately $200 million in full-year 2018. This is to be achieved through continued savings from the reduction in workforce and the new retirement program, streamlining operational processes, real estate optimization, including consolidating an additional 19 banking centers in 2017 as well as reducing office and operations space, selective outsourcing of technology functions and reduction of technology system applications.
Revenue enhancements are expected to ramp-up to approximately $30 million in full-year 2017, gradually increasing to approximately $70 million in full-year 2018, through expanded product offerings, enhanced sales tools and training and improved customer analytics to drive opportunities.
Pre-tax restructuring charges of $140 million to $160 million in total are expected to be incurred through 2018. This includes restructuring charges totaling $93 million, which were incurred through December 31, 2016, and an additional $25 million to $50 million expected in 2017. For additional information regarding restructuring charges, refer to Note 22 to the consolidated financial statements.
OVERVIEW
Net income was $477 million in 2016, a decrease of $44 million, or 8 percent, compared to $521 million in 2015. Net income per diluted common share was $2.68 in 2016, compared to $2.84 in 2015. Excluding the after-tax impact of restructuring charges associated with GEAR Up of $59 million, or $0.34 per share, net income increased $15 million, or 3 percent.
Average loans were $49.0 billion in 2016, an increase of $368 million, or 1 percent, compared to 2015. Excluding a $641 million decrease in Energy, average loans increased $1.0 billion, primarily reflecting increases in Commercial Real Estate, National Dealer Services and Mortgage Banker Finance, partially offset by decreases in general Middle Market and Corporate Banking.
Average deposits decreased $585 million, or 1 percent, to $57.7 billion in 2016, compared to 2015. The decrease in average deposits reflected a decrease of $2.2 billion, or 7 percent, in interest-bearing deposits, partially offset by an increase of $1.7 billion, or 6 percent, in average noninterest-bearing deposits. The decrease in interest-bearing deposits reflected decreases of $1.3 billion, or 6 percent, in money market and interest-bearing checking deposits and $1.0 billion, or 24 percent, in customer certificates of deposit. The decrease in average deposits primarily reflected purposeful pricing discipline and strategic actions in light of new Liquidity Coverage Ratio (LCR) rules, with the largest decreases in

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Municipalities (a general Middle Market business), Corporate Banking and the Financial Services Division (a general Middle Market business), partially offset by increases in the remaining general Middle Market businesses and Retail Banking.
Net interest income was $1.8 billion in 2016, an increase of $108 million, or 6 percent, compared to 2015. The increase in net interest income resulted primarily from higher interest rates, loan growth and a larger securities portfolio, partially offset by higher debt costs.
The provision for credit losses was $248 million in 2016, an increase of $101 million compared to 2015, primarily reflecting increased reserves for Energy and energy-related loans recorded in the first quarter 2016, partially offset by improved credit quality in the remainder of the portfolio. Net credit-related charge-offs were $157 million, or 0.32 percent of average loans, for 2016, an increase of $46 million compared to 2015. The increase was primarily due to an increase in charge-offs in the Energy portfolio.
Noninterest income increased $16 million, or 2 percent, in 2016, compared to 2015. Customer-driven fees increased $22 million and non-fee categories declined $6 million. An increase in card fees as well as growth in fiduciary, customer derivative and foreign exchange income was partially offset by lower commercial lending fees and investment banking income.
Noninterest expenses increased $103 million, or 6 percent, in 2016, compared to 2015. Excluding $93 million of restructuring charges related to the GEAR Up initiative and $33 million from the net release of litigation reserves in 2015, noninterest expenses decreased $23 million. This primarily reflected a decrease of $48 million in salaries and benefits expense, including GEAR Up savings estimated to be in excess of $25 million as well as an additional decrease in pension expense, partially offset by the impact of merit increases and one additional day in 2016. Additionally, increases in technology expense, outside processing fees and FDIC insurance premiums were partially offset by decreases in state business taxes and gains from the early termination of leveraged lease transactions.
The provision for income taxes decreased $36 million in 2016, compared to 2015. The effective tax rate was 28.8 percent in 2016, compared to 30.5 percent in 2015, primarily reflecting a $10 million increase in tax benefits from the early termination of certain leveraged lease transactions.
The quarterly dividend was increased to 22 cents per share in April 2016 and to 23 cents per share in July 2016.
The Corporation repurchased approximately 6.6 million shares of common stock during 2016 under the equity repurchase program. Together with dividends of $0.89 per share, $458 million, or 96 percent of 2016 net income, was returned to shareholders.
2017 OUTLOOK
Management expectations for 2017, compared to 2016, assuming a continuation of the current economic and low rate environment as well as contributions from the GEAR Up initiative of $30 million in revenue and $125 million in expense savings, are as follows:
Average loans higher, in line with Gross Domestic Product growth, reflecting increases in most lines of business and reduced headwinds from a declining Energy portfolio.
Net interest income higher, reflecting the benefit from the December 2016 short-term rate increase and loan growth, partially offset by higher funding costs and minor loan yield comparison.
Full-year benefit from the December rise in short-term rates expected to be more than $70 million, assuming a 25 percent deposit beta.
Provision for credit losses lower, with continued solid performance of the overall portfolio.
Provision and net charge-offs in line with historical normal levels of 30-40 basis points.
Noninterest income higher, with the execution of GEAR Up opportunities, modest growth in treasury management and card fees, as well as wealth management products such as fiduciary and brokerage services.
Increase of 4 percent to 6 percent.
Noninterest expenses lower, reflecting lower restructuring charges and an additional $125 million in GEAR Up savings, relative to 2016 GEAR Up savings of more than $25 million. Outside processing is expected to increase in line with growing revenue. Headwinds include increased technology costs and higher FDIC insurance expense, as well as typical inflationary pressure. The gains of $13 million in 2016 from early terminations of certain leveraged lease transactions are not expected to repeat.
Restructuring charges of $25 million to $50 million, compared to $93 million in 2016.
Remaining noninterest expenses 1 percent to 2 percent lower.
Decrease of 4 percent to 5 percent including restructuring charges.
Income tax expense to approximate 33 percent of pre-tax income excluding the impact of discrete items such as the tax benefit related to stock compensation of approximately $14 million recorded during January 2017.

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Table of Contents

RESULTS OF OPERATIONS
The following provides a comparative discussion of the Corporation's consolidated results of operations for 2016 compared to 2015. A comparative discussion of results for 2015 compared to 2014 is provided at the end of this section. 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
2016
 
2015
 
2014
 
Average
Balance
Interest
Average
Rate (a)
 
Average
Balance
Interest
Average
Rate (a)
 
Average
Balance
Interest
Average
Rate (a)
Commercial loans
$
31,062

$
1,008

3.26
%
 
$
31,501

$
962

3.07
%
 
$
29,715

$
923

3.12
%
Real estate construction loans
2,508

91

3.63

 
1,884

66

3.48

 
1,909

65

3.41

Commercial mortgage loans
8,981

314

3.49

 
8,697

296

3.41

 
8,706

327

3.75

Lease financing
684

18

2.65

 
783

25

3.17

 
834

19

2.33

International loans
1,367

50

3.63

 
1,441

51

3.58

 
1,376

50

3.65

Residential mortgage loans
1,894

71

3.76

 
1,878

71

3.77

 
1,778

68

3.82

Consumer loans
2,500

83

3.32

 
2,444

80

3.26

 
2,270

73

3.20

Total loans (b) (c)
48,996

1,635

3.34

 
48,628

1,551

3.20

 
46,588

1,525

3.28

 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
9,356

203

2.19

 
9,113

202

2.24

 
8,970

209

2.33

Other investment securities
2,992

44

1.51

 
1,124

14

1.25

 
380

2

0.45

Total investment securities (d)
12,348

247

2.02

 
10,237

216

2.13

 
9,350

211

2.26

 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with banks
5,099

26

0.51

 
6,158

16

0.26

 
5,513

14

0.26

Other short-term investments
102

1

0.61

 
106

1

0.81

 
109


0.57

Total earning assets
66,545

1,909

2.88

 
65,129

1,784

2.75

 
61,560

1,750

2.85

 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
1,146

 
 
 
1,059

 
 
 
934

 
 
Allowance for loan losses
(730
)
 
 
 
(621
)
 
 
 
(601
)
 
 
Accrued income and other assets
4,782

 
 
 
4,680

 
 
 
4,443

 
 
Total assets
$
71,743

 
 
 
$
70,247

 
 
 
$
66,336

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market and interest-bearing checking deposits
$
22,744

27

0.11

 
$
24,073

26

0.11

 
$
22,891

24

0.11

Savings deposits
2,013


0.02

 
1,841


0.02

 
1,744

1

0.03

Customer certificates of deposit
3,200

13

0.40

 
4,209

16

0.37

 
4,869

18

0.36

Foreign office time deposits (e)
33


0.35

 
116

1

1.02

 
261

2

0.82

Total interest-bearing deposits
27,990

40

0.14

 
30,239

43

0.14

 
29,765

45

0.15

Short-term borrowings
138


0.45

 
93


0.05

 
200


0.04

Medium- and long-term debt (f)
4,917

72

1.45

 
2,905

52

1.80

 
2,963

50

1.68

Total interest-bearing sources
33,045

112

0.34

 
33,237

95

0.29

 
32,928

95

0.29

 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing deposits
29,751

 
 
 
28,087

 
 
 
25,019

 
 
Accrued expenses and other liabilities
1,273

 
 
 
1,389

 
 
 
1,016

 
 
Total shareholders’ equity
7,674

 
 
 
7,534

 
 
 
7,373

 
 
Total liabilities and shareholders’ equity
$
71,743

 
 
 
$
70,247

 
 
 
$
66,336

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income/rate spread
 
$
1,797

2.54

 
 
$
1,689

2.46

 
 
$
1,655

2.56

 
 
 
 
 
 
 
 
 
 
 
 
Impact of net noninterest-bearing sources of funds
 
 
0.17

 
 
 
0.14

 
 
 
0.14

Net interest margin (as a percentage of average earning assets) (b) (d)
 
 
2.71
%
 
 
 
2.60
%
 
 
 
2.70
%
(a)
Average rate is calculated on a fully taxable equivalent (FTE) basis using a federal tax rate of 35%. The FTE adjustment to net interest income was $4 million in each of the three years presented.
(b)
Accretion of the purchase discount on the acquired loan portfolio of $4 million, $7 million and $34 million in 2016, 2015 and 2014, respectively, increased the net interest margin by 1 basis point in both 2016 and 2015 and 6 basis points in 2014.
(c)
Nonaccrual loans are included in average balances reported and in the calculation of average rates.
(d)
Includes investment securities available-for-sale and investment securities held-to-maturity. Average rate based on average historical cost. Carrying value exceeded average historical cost by $143 million, $100 million and $12 million in 2016, 2015 and 2014, respectively.
(e)
Includes substantially all deposits by foreign depositors; deposits are primarily in excess of $100,000.
(f)
Medium- and long-term debt average balances included $162 million, $160 million and $192 million in 2016, 2015 and 2014, respectively, for the gain attributed to the risk hedged with interest rate swaps. Interest expense on medium-and long-term debt was reduced by $60 million, $70 million, and $72 million in 2016, 2015 and 2014, respectively, for the net gains on these fair value hedge relationships.

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Table of Contents

RATE/VOLUME ANALYSIS
(in millions)
 
 
 
 
 
 
 
Years Ended December 31
2016/2015
 
2015/2014
 
Increase
(Decrease)
Due to Rate
Increase
(Decrease)
Due to 
Volume (a)
Net
Increase
(Decrease)
 
Increase
(Decrease)
Due to Rate
Increase
(Decrease)
Due to 
Volume (a)
Net
Increase
(Decrease)
Interest Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loans
$
60

 
$
(14
)
 
$
46

 
 
$
(15
)
 
$
54

 
$
39

 
Real estate construction loans
2

 
23

 
25

 
 
2

 
(1
)
 
1

 
Commercial mortgage loans
8

 
10

 
18

 
 
(31
)
 

 
(31
)
 
Lease financing
(4
)
 
(3
)
 
(7
)
 
 
8

 
(2
)
 
6

 
International loans
1

 
(2
)
 
(1
)
 
 
(1
)
 
2

 
1

 
Residential mortgage loans

 

 

 
 
(1
)
 
4

 
3

 
Consumer loans
1

 
2

 
3

 
 
1

 
6

 
7

 
 Total loans
68

 
16

 
84

 
 
(37
)
(b)
63

 
26

(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
(4
)
 
5

 
1

 
 
(8
)
 
1

 
(7
)
 
Other investment securities
3

 
27

 
30

 
 
3

 
9

 
12

 
 Total investment securities (c)
(1
)
 
32

 
31

 
 
(5
)
 
10

 
5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with banks
15

 
(5
)
 
10

 
 

 
2

 
2

 
Other short-term investments

 

 

 
 

 
1

 
1

 
Total interest income
82

 
43

 
125

 
 
(42
)
 
76

 
34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market and interest-bearing checking deposits
2

 
(1
)
 
1

 
 

 
2

 
2

 
Savings deposits

 

 

 
 
(1
)
 

 
(1
)
 
Customer certificates of deposit
1

 
(4
)
 
(3
)
 
 
1

 
(3
)
 
(2
)
 
Foreign office time deposits
(1
)
 

 
(1
)
 
 
1

 
(2
)
 
(1
)
 
Total interest-bearing deposits
2

 
(5
)
 
(3
)
 
 
1

 
(3
)
 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medium- and long-term debt
9

 
11

 
20

 
 
3

 
(1
)
 
2

 
Total interest expense
11

 
6

 
17

 
 
4

 
(4
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
71

 
$
37

 
$
108

 
 
$
(46
)
 
$
80

 
$
34

 
(a)
Rate/volume variances are allocated to variances due to volume.
(b)
Reflected a decrease of $27 million in accretion of the purchase discount on the acquired loan portfolio in 2015.
(c)
Includes investment securities available-for-sale and investment securities held-to-maturity.
NET INTEREST INCOME
Net interest income is the difference between interest earned on assets and interest paid on liabilities. Gains and losses related to the effective portion of risk management interest rate swaps that qualify as hedges are included with the interest expense of the hedged item. Net interest income comprised 63 percent, 62 percent, and 66 percent of total revenues in 2016, 2015, and 2014, respectively. The decrease in net interest income as a percentage of total revenues in 2015 was due to an increase in noninterest income resulting from a change in the accounting presentation associated with contractual changes to a card program. 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, 2016, 2015, and 2014 and details of the components of the change in net interest income for 2016 compared to 2015 and 2015 compared to 2014.
Net interest income was $1.8 billion in 2016, an increase of $108 million compared to 2015. The increase in net interest income resulted primarily from higher yields on loans and Federal Reserve Bank (FRB) deposits, driven mainly by increases in short-term rates, and earning asset volume, partially offset by higher funding costs, primarily the result of higher costs on debt swapped to variable rate and new Federal Home Loan Bank (FHLB) borrowings in the second quarter 2016. For additional information regarding medium- and long-term debt, refer to Note 12 to the consolidated financial statements. Average earning assets increased $1.4 billion, or 2 percent, primarily reflecting increases of $2.1 billion in average investment securities and $368 million in average loans, partially offset by a decrease of $1.1 billion in average interest-bearing deposits with banks.
The net interest margin (FTE) in 2016 increased 11 basis points to 2.71 percent, from 2.60 percent in 2015, primarily due to higher loan yields and the reinvestment of FRB deposits into higher yielding Treasury securities, partially offset by the impact of higher funding costs. The increase in loan yields primarily reflected a benefit from an increase in short-term rates. Average balances deposited with the FRB were $4.9 billion and $6.0 billion in 2016 and 2015, respectively, and are included in “interest-

F-7

Table of Contents

bearing deposits with banks” on the consolidated balance sheets. Lower yielding FRB deposits decreased net interest margin by 17 basis points in 2016 and 23 basis points in 2015.
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.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $248 million in 2016, compared to $147 million in 2015. 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 $241 million in 2016, an increase of $99 million compared to $142 million in 2015, primarily reflecting increased reserves for Energy and energy-related loans recorded in the first quarter 2016, partially offset by improved credit quality in the remainder of the portfolio.
Net loan charge-offs in 2016 increased $46 million to $146 million, or 0.30 percent of average total loans, compared to $100 million, or 0.21 percent, in 2015. The increase primarily reflected an increase in charge-offs in Energy and a decrease in recoveries in Private Banking, partially offset by decreases in Technology and Life Sciences and Small Business (primarily due to the charge-off of a single large credit in 2015).
The provision for credit losses on lending-related commitments is recorded to maintain the allowance for credit losses on lending-related commitments 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 $7 million in 2016 and $5 million in 2015. Lending-related commitment charge-offs were $11 million in 2016 and $1 million in 2015.
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
2016
2015
2014
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