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Comerica

Our Mission

We will achieve balanced growth and profitability by delivering a higher level of banking that nurtures lifelong relationships with unwavering integrity and financial prudence.

Our Vision

To become the highest performing, most respected and most desired bank in the markets we serve.

Our Core Values

Customer-centricity

Collaboration

Integrity

Excellence

Agility

Diversity

Our Promise

We will raise your expectation of what a bank can be.

Comerica Incorporated

Founded in 1849, Comerica Incorporated (NYSE: CMA) is a financial services company headquartered in Dallas, Texas, 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. As of December 31, 2017, Comerica had:

$71.6 billion in assets

$49.2 billion in loans

$57.9 billion in deposits

438 banking centers

7,999 employees (FTE)

$15.0 billion market capitalization

Financial Highlights

(Dollars in millions, except per share, ratio data)
YEAR ENDED DECEMBER 31 2017 2016 % Change
Financial Performance      
Net interest income $2,061 $1,797 15%
Net interest margin 3.12% 2.71%  %
Provision for credit losses 74 248 (70)
Net charge-off ratio 0.19% 0.32%  %
Noninterest income 1,107 1,051 5
Noninterest expense 1,860 1,930 (4)
Provision for income tax 491 193 154
Net income available to common shareholders 738 473 56
Diluted net income per share 4.14 2.68 54
Book value per share 46.07 44.47 4
Selected Ratios      
Return on average common shareholders’ equity 9.34% 6.22% 50
Return on average assets 1.04 0.67 55
Common equity Tier 1 capital ratio (12/31/17) 11.68 11.09 4

To Our Shareholders

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

We began 2017 with clear strategic objectives, and we delivered solid outcomes, including record revenue, an 84 percent increase in pre-tax income and significant increases in our returns. In diligent fashion, our team made substantial progress on our goals of further enhancing financial performance, technology, products, corporate responsibility, diversity and community involvement. Our stock’s performance continued to positively reflect the advancements we have made.

We continued to successfully implement our action-oriented improvement plan—GEAR Up—which was launched in mid-2016 to drive efficiencies and revenue. It’s working. A 5 percent increase in fee income and a 4 percent decrease in expenses in 2017 demonstrate that we are reaping substantial and sustainable benefits from this enterprise-wide initiative. With enhanced training, improved customer analytics and increased marketing capacity, we are starting to see growth in our revenue base from developing deeper customer relationships. On the expense side, we obtained significant savings from several of our larger initiatives, most notably from the retirement program redesign and banking center consolidations. Through GEAR Up, we realized $30 million in revenue benefits and reached $150 million in expense savings through 2017. Our goal is to drive additional annual pre-tax income of $305 million by the end of 2019, relative to when the initiative began. Benefits we expect to realize in 2018 include the migration of a significant number of our applications to the secure cloud. Also, we expect to complete the automation and streamlining of our end-to-end credit process.

As we continue to grow our business and position Comerica for the future, we’ve been encouraged by external factors, such as higher interest rates, tax reform and the potential for regulatory relief. Our balance sheet remains well positioned to benefit from rate increases, with over 90 percent of our loans tied to floating rates and about half of our deposits noninterest-bearing at year-end 2017. The Federal Reserve increased interest rates four times since December 2016, resulting in more than a $200 million increase in our net interest income, as we prudently managed loan and deposit pricing. The Fed signaled in December that it could raise rates three more times in 2018.

While it is still too early to determine the full impact, it appears that the tax reform act Congress passed in December will be great for Comerica and our customers, as well as help drive U.S. economic growth. We distributed some of the benefit of lower taxes to our hardworking team by raising our minimum wage to $15 per hour and paid approximately 4,500 non-officer colleagues (more than half of our workforce) a one-time bonus of $1,000. We value our team and strive to provide competitive compensation packages that attract and retain the best talent.

On the regulatory front, we have recently witnessed some positive developments as well, including a white paper issued by the Treasury and a bipartisan compromise on regulatory relief bills for financial institutions. The changes outlined could allow us to actively manage capital and liquidity on a real-time basis. They also have the potential to lower related expenses, for example by reducing the amount of data management required and simplifying regulatory compliance processes. As one of the smallest banks subject to CCAR and LCR and with a relatively simple business model, we are subject to a disproportionate burden. We are closely monitoring the developments and hope to see additional action in 2018. The ultimate benefit will depend on what changes are made, as well as how they are interpreted and implemented.

We remain committed to being a trusted advisor to our customers as we’ve been preparing for a new age in banking. Our technology transformation strategy, TechVision2020, is one of our top priorities. We have been investing and will continue to invest in technology to enhance the customer experience, increase efficiency through simplification and take risk management to the next level. While the list of projects is long, here are a few examples. We rolled out improved information reporting and mobility tools for our commercial customers. We also deployed new platforms for consumer loans and mortgages. We’re upgrading our customer contact centers to leverage biometric authentication, natural language processing and robotics. We are employing tools, such as robust data analytics, to match our customers’ banking habits with products and services to meet their needs. In risk management, we will be utilizing state-of-the-art behavioral monitoring to reduce fraud.

Additionally, we are installing a new customer relationship management platform across the bank. We believe TechVision2020 provides us the blueprint to strengthen our core technology infrastructure as we continue our transformation.

Comerica demonstrated its resiliency in 2017 as we dealt with some unique challenges. For instance, we weathered several major natural disasters. In addition to the California wildfires, Hurricanes Harvey and Irma temporarily disrupted business at some of our locations, affecting our customers and colleagues. But thanks to the preparedness of our team, we were able to unite, recover and assist those in need. Furthermore, in support of our communities, we proudly partnered with the American Red Cross plus other organizations to donate more than $100,000 to assist in the hurricane-related disaster recovery efforts.

Solid 2017 Financial Performance

Revenue grew 11 percent in 2017, an all-time record. This included a 15 percent increase in net interest income, which benefited from higher interest rates as we prudently managed loan and deposit pricing. In addition, successful execution of our GEAR Up initiative helped increase fee income and lowered expenses. Credit quality remained strong with a net charge-off ratio of 19 basis points, well below our historical norm, even as we continued to navigate the energy cycle. Our tax provision included a $107 million charge to adjust deferred taxes resulting from the enactment of the Tax Cuts and Jobs Act. Altogether, we generated net income of $743 million, an increase of 56 percent over 2016, and drove significant increases in our returns as well as an efficiency ratio of 58 percent.

Excluding cyclical declines in Energy and Mortgage Banker, average loans increased $670 million. Loans grew in most other businesses, led by National Dealer Services as well as Corporate and Private Banking. Average noninterest-bearing deposits grew 4 percent; however, this was more than offset by a decline in interest-bearing deposits. The decrease was primarily due to customers using their excess liquidity for working capital needs and acquisitions, our deliberate approach to relationship pricing, as well as strategic actions we took in light of Liquidity Coverage Ratio requirements.

Our capital position remains strong. The first and most important use of capital is to invest in profitable growth. Since we are generating more capital than we can deploy, 3returning excess capital to our shareholders is a priority. We repurchased approximately 7.3 million shares in 2017 under our equity repurchase program. With increases in July and October, our board of directors raised our quarterly dividend a total of 30 percent. Through the share buyback and dividends, we returned $724 million to our shareholders, a 58 percent increase over 2016.

We believe our stock’s market value, which increased 27 percent in 2017, reflects our solid financial performance, which included the benefit of deliberate balance sheet positioning and delivering on GEAR Up targets, as well as investors’ acknowledgement of the value of our relationship banking model. For the second consecutive year, Comerica’s stock outperformed all our peers, as well as the KBW Bank Index and the S&P500 Index.

Balanced Market Presence and Relationship Banking

We recognize that customer loyalty begins with building connections. Being a trusted advisor means we are committed to forming enduring relationships, rather than short-term gains. With long-tenured employees who have deep expertise in the businesses they serve, we deliver high-quality financial services. For example, the average Middle Market banker has been with Comerica for 11 years, and the average tenure of their managers is 22 years. Our relationship-based strategy, combined with our attractive geographic footprint, helps drive our success.

We have a unique geographic footprint that is well situated with 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. A single, integrated platform across our markets provides significant synergies that are highly efficient, yet cost effective. While our markets are not contiguous, they are complementary. Our footprint provides diversity to our portfolio, reduces risk, and provides important counterbalances for us as economic conditions change.

Our headquarters is located in Dallas, Texas, and we have over 120 banking centers in the Dallas, Houston, Austin and San Antonio areas. Over the past two years, our Texas growth has been affected by the energy cycle. Strategically, we have reduced the size of our energy portfolio by $1.2 billion since year-end 2015 and have successfully managed credit losses.

We believe this will be less of a headwind going forward, and the Texas economy is expected to grow faster than the national average in 2018.

We are a market leader in Michigan, where we have been operating for 169 years. With over 190 banking centers, we maintain a strong deposit base. Over 50 percent of our loans in Michigan are to middle market companies. After several years of contraction, loans have begun to increase, and we expect this to continue as the Michigan economy grows and diversifies. We are very excited about the renaissance underway in Detroit. We look forward to participating in its continued revitalization through our financial support of new developments along the Woodward Corridor and in Corktown, in addition to our continued support of many of Detroit’s sports teams.

California, the largest economy in the United States, is where we have more than 95 banking centers positioned in the major metropolitan areas of San Francisco, San Jose, Los Angeles and San Diego. California accounts for 37 percent of our total loans and contributed most to our loan growth in 2017, led by Private Banking, National Dealer Services and general Middle Market. Economic activity in California was slightly above the national average for 2017 and is expected to continue to outperform in 2018.

Building Business Momentum

We are aligned by three business segments—the Business Bank, the Retail Bank and Wealth Management. Each segment made significant strides in 2017.

By providing comprehensive financial solutions, the Business Bank experienced broad-based growth across our various business lines. Putting aside cyclical declines in Energy and Mortgage Banker, we achieved solid loan growth in National Dealer Services, U.S. Banking, Technology and Life Sciences (driven by Equity Fund Services), as well as Environmental Services. In addition, fee income increased 5 percent, which benefitted from enhanced treasury management solutions, including enabling our customers to more efficiently manage their business through reporting and mobile capabilities.

We continue to implement enhancements to our sales and service model for our Middle Market businesses, delivering tools and sharing best practices with the goal of driving faster, more efficient growth. Early results were demonstrated by the record number of new Middle Market banking relationships we won in California, which drove their strong loan and deposit growth. Our relationship model and high standards for customer service distinguish us from competitors. For instance, for the third time in the last four years, our Captive Insurance group was named the “U.S. Captive Collateral Service Provider” of the year by Captive Review Magazine. Comerica also was a recipient of the national Greenwich Excellence Award for Middle Market Banking in 2017 for overall customer satisfaction.

Our Retail Bank is a vital part of our deposit gathering and revenue growth strategy. It is imperative that we have the products, services and locations to meet our customers’ needs. Our success is demonstrated by the more than $400 million increase in average Retail Bank deposits in 2017 along with our team’s efforts to drive customer engagement. To maximize the mobile banking experience, Retail Bank delivered on innovation with a major upgrade across mobile devices. We integrated and expanded our real-time alerts and implemented new features for our customers such as the ability to log-in using Touch ID for iPhones, view check images and perform transaction searches. We also launched an Android tablet application. Through these initiatives, we achieved our goal of providing our customers with more convenient features to manage their finances anytime and anywhere. In this ever-evolving age of technology, part of our ongoing service commitment is to provide customers with more secure, authenticated ways to make transactions. In 2017, our Retail Bank team converted to a state-of-the-art debit card platform and completed a brand conversion, efficiently reissuing more than 500,000 new chip-embedded debit cards to better protect our customers’ information during usage, such as point of sale transactions.

We have a variety of tools and information to help small businesses reach their goals, whatever they may be. These customers found our commercial and merchant card offering increased their efficiency. As a result, Small Business card fees increased more than 20 percent in 2017, primarily related to new and expanded merchant card business.

Wealth Management> enables us to bring private banking, investment management and fiduciary services to our Business Bank and Retail Bank clients. In 2017, the Wealth Management team delivered a strong performance by growing average loans over 4 percent and fee income by 5 percent, including a 4 percent increase in fiduciary income. We launched our Wealth Productivity initiative, which incorporates a relationship management tool to enable our colleagues to better serve our clients, and ultimately, drive increased market share. We also continued to enhance our investment management platform by adding new advisors. Finally, our Professional Trust Alliance remains diligent in building business. Currently, we have agreements with 17 alliance partners. This business has become a significant contributor to our fee income and assets under management continue to grow at a strong pace.

Trusted Choice for Consumers and Businesses

We recognize that maintaining customer confidence is a key component to our relationship banking strategy. As cyber threats evolve, we continue to invest in protecting our customers. In 2017, we increased customer communications, recruited and trained highly-skilled colleagues, and enhanced our security detection capabilities. We take a proactive approach to cybersecurity, making sure we understand the threats and vulnerabilities that exist in the world, and that the necessary safeguards are in place to help protect against potential risks. Our robust, in-depth defense strategy also focuses on responsiveness and recovery capabilities. We have technical experts who are constantly reassessing our processes and best practices, while monitoring systems around the clock and adjusting as necessary.

Guided by a Strong Board

Our board of directors provides Comerica with strong guidance and direction. Along with executive management, our board regularly reviews, and ensures that we adhere to, our long-term corporate strategy. Much of that strategy, and the necessary tactics to achieve it, stems from knowing who we are: a non-complex, regional, commercially-focused bank. We are dedicated to serving our communities by meeting their basic financial needs, with an emphasis on our core capabilities of taking deposits and making loans.

Our long-term value is generated not by sheer scale, but rather through a sustainable competitive advantage with a customer base we understand, and a conservative approach to risk, capital management and operations. We strive to build enduring relationships that drive superior credit quality, a stable funding base and consistent returns that meet our shareholders’ expectations. Collectively, our 10 independent directors bring a wealth of skills, experiences, diversity and knowledge that allow them to effectively address the interests of Comerica’s four core constituencies: our shareholders, our customers, our colleagues and the communities we serve each day.

In 2017, our board appointed a new independent director, Barbara R. Smith, chairman, president and chief executive officer of Texas-based Commercial Metals Company. She brings to our board many key skills, including relevant business management experience and knowledge of our geographic markets, as well as significant financial expertise garnered through the chief financial officer roles she previously held.

At the end of 2017, long-time board member Alfred A. Piergallini retired. He was appointed to the Comerica board in 1991. His experience and insights were invaluable, particularly as we navigated complex regulations and the changing landscape of the financial services industry. We are thankful for the contributions that Al made to Comerica over 26 years.

Corporate Responsibility

Comerica is only as strong as the communities we serve, and that is why we invest in them, helping ensure they remain vibrant. Annual events, financial education programs, corporate giving and our drive for sustainability were just some of the ways Comerica continued to shine in the community in 2017. Our Corporate Responsibility report, which can be found on Comerica.com, provides a comprehensive review of our active environmental, social and governance program. Here are a few highlights.

Our most visible community event – Shred Day – held in Dallas/Fort Worth, Houston, Phoenix and Detroit, experienced a banner year with a record 862,087 pounds of paper recycled. The DFW event shattered its previous record, collecting more than 548,000 pounds. In the process, we raised awareness of the Comerica brand, helped reduce fraud and identity theft, preserved the environment by freeing up space in local landfills and helped fight hunger in our communities with a connected food drive.

Empowering youth and adults to become good financial stewards remains a key component in Comerica’s commitment to our communities. In 2017, we touched the lives of thousands of students through our Money $ense, Gift of Knowledge, Empower Series and youth savings programs. Also, these educational opportunities created dialogue with our communities to showcase Comerica as a trusted advisor.

Comerica, along with our colleagues, continued to serve as pillars in the community, distributing $7.9 million in contributions to nonprofit organizations and logging nearly 68,000 volunteer hours.

Our commitment to fostering a diverse work environment garnered national recognition in 2017. For the fourth consecutive year, we earned a perfect rating on the Human Rights Campaign’s Corporate Equality Index, resulting in designation as a Best Place to Work for LGBTQ Equality. For the fifth consecutive year, Comerica was named to LATINO Magazine’s “LATINO 100” list – an honor bestowed on companies providing opportunities for Latinos. And for the third consecutive year, Comerica was ranked No. 2 on DiversityInc’s 2017 Top Regional Companies for diversity.

We are dedicated to protecting and preserving the environment. Significant strides were made in achieving our 2020 Environmental Sustainability Goals to reduce emissions, water consumption, waste generation and paper usage. Topping the list of accomplishments for 2017 was the achievement of our 2020 greenhouse gas (GHG) reduction goal three years ahead of schedule with a reduction of 22.4 percent relative to our 20 percent target. This was one component which helped us achieve an A- rating by CDP (Carbon Disclosure Project) for our climate change management strategy and emission reduction efforts. The honor places Comerica among the top 16 percent of responders within the U.S. financial services industry. The year also marked our first mapping to demonstrate how Comerica’s actions reflect the United Nations’ 17 Sustainable Development Goals. We also supported our customers’ sustainability efforts through over $830 million in environmentally beneficial loans and commitments in 13 different green loan categories.

Moving Forward

We are focused on continuing to enhance shareholder value by delivering solid results and positioning Comerica well for the future. Significant progress was made in 2017. Our relationship banking strategy and prudent management of loan and deposit pricing helped drive record revenue as interest rates increased. It’s been energizing to see the results we’ve achieved with our GEAR Up initiative, and that speaks to the perseverance and dedication of our 8,000 colleagues. Over the years, we’ve witnessed the ebbs and flows of the banking industry in response to the varying economic cycles. Today, we are experiencing an upswing and we believe Comerica is well situated to benefit from lower tax rates, further interest rate increases and favorable changes in regulation. We operate with a “go forward” approach and remain committed to being responsible stewards of our shareholders’ capital by growing relationships, continued implementation of our GEAR Up initiative and returning excess capital to our investors.

Comerica’s success story is not only told through our promise to “raise expectations of what a bank can be,” but also through our core values of diversity, collaboration, agility, excellence, customer-centricity, integrity and involvement. These are not merely words, but values we practice daily. Thank you for your support in 2017.

Sincerely,

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 (1)(3)(4)
Chair and Senior Counselor, Blake Collins Group
Former Consultant, Federal Reserve Bank of Cleveland
Former Executive Vice President, Federal Reserve Bank of Philadelphia
Roger A. Cregg (1)(2)(3)
President and Chief Executive Officer
AV Homes, Inc.
T. Kevin DeNicola (1)(3)(4)
Former Chief Financial Officer
KiOR, Inc.
Jacqueline P. Kane (2)
Retired Executive Vice President of
Human Resources and Corporate Affairs
The Clorox Company
Richard G. Lindner (2)(4)
Retired Senior Executive Vice President and
Chief Financial Officer
AT&T, Inc.
Barbara R. Smith (2)
Chairman, President and Chief Executive Officer
Commercial Metals Company
Robert S. Taubman (4)
Chairman, President and Chief Executive Officer
Taubman Centers, Inc. and The Taubman Company
Reginald M. Turner Jr. (1)(3)(4)
Member
Clark Hill PLC
Nina G. Vaca (1)(3)(4)
Chairman and Chief Executive Officer
Pinnacle Technical Resources, Inc. and Vaca Industries Inc.
Michael G. Van de Ven (4)
Chief Operating Officer
Southwest Airlines Co.

(1) Audit Committee

(2) Governance, Compensation and Nominating Committee

(3) Qualified Legal Compliance Committee

(4) Enterprise Risk Committee

Senior Leadership Team

Ralph W. Babb Jr.
Chairman and Chief Executive Officer
Comerica Incorporated and Comerica Bank
Curtis C. Farmer
President, Comerica Incorporated and Comerica Bank
Muneera S. Carr
Executive Vice President and Chief Financial Officer
John D. Buchanan
Executive Vice President and 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
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
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, 2017
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:
ž Common Stock, $5 par value
ž    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:
ž    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, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     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, 2017 (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 $12.7 billion based on the closing price on the New York Stock Exchange on that date of $73.24 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 9, 2018, the registrant had outstanding 172,813,294 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 24, 2018.


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-1
S-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, 2017, Comerica owned directly or indirectly all the outstanding common stock of 2 active banking and 39 non-banking subsidiaries. At December 31, 2017, Comerica had total assets of approximately $71.6 billion, total deposits of approximately $57.9 billion, total loans (net of unearned income) of approximately $49.2 billion and shareholders’ equity of approximately $8.0 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-97 through F-101 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-97 through F-101 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 pages F-25 through F-26 of the Financial Section of this report; and (2) under the caption "International Exposure" on page F-28 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 page F-7 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. Increasingly, Comerica competes with other companies based on financial technology and capabilities, such as mobile banking applications and money movement. 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 as technology advances have lowered the barriers to entry for financial technology companies, with consumers having

1

Table of Contents

the opportunity to select from a growing variety of traditional and nontraditional alternatives, including crowdfunding, digital wallets and money transfer services. The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified 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. 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. The Department of Labor ("DOL") regulates financial institutions providing services to plans governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). 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., the Department of Licensing and Regulatory Affairs of the State of Michigan and the Municipal Securities Rulemaking Board ("MSRB") (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 DOL (in the case of Comerica Securities, Inc. and Comerica Insurance Services, Inc.); and the Securities and Exchange Commission (“SEC”) (in the case of Comerica Securities, Inc. and World Asset Management, Inc.).
Both the scope of the laws and regulations and intensity of supervision to which our business is subject have increased in recent years, in response to the financial crisis as well as other factors such as technological and market changes. Many of these changes have occurred as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and its implementing regulations, most of which are now in place. President Trump has issued an executive order that sets forth principles for the reform of the federal financial regulatory framework, and the Republican majority in Congress has also suggested an agenda for financial regulatory change. It is too early to assess whether there will be any major changes in the regulatory environment or merely a rebalancing of the post-financial crisis framework. Accordingly, Comerica expects that its business will remain subject to extensive regulation and supervision.
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 Activities and Acquisitions
The Gramm-Leach-Bliley Act expanded the activities in which a bank holding company registered as a financial holding company can engage. 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 described 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.

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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. The Dodd-Frank Act also requires the well capitalized and well managed standards to be met at the financial holding company level. 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.
In addition, 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.
Federal and state laws impose notice and approval requirements for mergers and acquisitions of other depository institutions or bank holding companies. In many 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. 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. 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 (including financial subsidiaries) 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 (i) a loan or extension of credit, (ii) a purchase of securities issued by an affiliate, (iii) a purchase of assets (unless otherwise exempted by the FRB) from the affiliate, (iv) the acceptance of securities issued by the affiliate as collateral for a loan, (v) the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate and (vi) securities borrowing or lending transactions and derivative 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. 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.
Data Privacy and Cyber Security Regulation
Comerica is subject to many U.S. federal, state and international laws and regulations governing requirements for maintaining policies and procedures to protect the non-public confidential information of customers and employees. 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. Other laws and regulations, at the international, federal and state level, limit Comerica's ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. The Gramm-Leach-Bliley Act also requires banks to implement a comprehensive information security program that includes administrative, technical and physical safeguards to ensure the security and confidentiality of customer records and information.
In October 2016, the federal banking regulators issued an advance notice of proposed rulemaking regarding enhanced cyber risk management standards, which would apply to a wide range of large financial institutions, including Comerica, and their third-party service providers. The proposed standards would expand existing cybersecurity regulations and guidance to focus on cyber risk governance and management; management of internal and external dependencies; and incident response, cyber resilience and situational awareness. In addition, the proposal contemplates more stringent standards for institutions with systems that are critical to the financial sector. Comerica is monitoring the development of this rule.

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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, 2018, Comerica's subsidiary banks could declare aggregate dividends of approximately $7 million from retained net profits of the preceding two years. Comerica's subsidiary banks declared dividends of $907 million in 2017, $545 million in 2016 and $437 million in 2015.
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, as described below under "Annual Capital Plans and Stress Tests."
Annual Capital Plans and Stress Tests
Comerica is subject to the FRB’s annual 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, 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 bank holding company 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 tailoring hypothetical macro-economic scenarios that capture the idiosyncratic risks and business of 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.
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 2017 CCAR, Comerica submitted its 2017 capital plan to the FRB on April 4, 2017; on June 22, 2017, Comerica and the FRB released the revenue, loss and capital results from the annual stress testing exercises and on June 28, 2017, Comerica announced that the FRB had completed its CCAR 2017 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 2017 and ending in the second quarter 2018. Comerica plans to submit its CCAR 2018 capital plan to the FRB, consistent with supervisory guidance (SR 15-19), in April 2018 and expects to receive the results of the FRB's review of the plan in June 2018 and to release its company-run stress tests results in June or July 2018.
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, idiosyncratic macro-economic scenarios (base, adverse and severely adverse) and publish a summary of the results under the severely adverse scenario. On October 19, 2017, 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."
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.

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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 percent and a Tier 1 risk-based capital ratio of at least 8 percent, a common equity Tier 1 risk-based capital measure of at least 6.5 percent, a Tier 1 leverage ratio of at least 5 percent 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 percent, a Tier 1 risk-based capital ratio of at least 6 percent, a common equity Tier 1 risk-based capital measure of at least 4.5 percent and a Tier 1 leverage ratio of at least 4 percent. 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, 2017, Comerica and its banking subsidiaries exceeded the ratios required for an institution to be considered “well capitalized” under these regulations.
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 percent 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.
FDIC Insurance Assessments
The FDIC Deposit Insurance Fund (“DIF”) provides deposit insurance coverage for certain deposits up to $250,000 per depositor in each deposit account category. 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, where 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 2017, Comerica’s FDIC insurance expense totaled $51 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 the surcharge, which began July 1, 2016, will continue at a rate of approximately $6 million per quarter through at least the first quarter of 2018.

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Capital and Liquidity
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 regulatory capital are subject to phase-in. The ultimate timing for specific deductions and adjustments is yet to be determined pending the finalization of a separate proposal by banking regulators to simplify certain aspects of the capital rules. More information is set forth in the "Capital" section located on pages F-17 through F-19.
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 percent, 6 percent and 8 percent of its total risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit), respectively. In 2017, Comerica was also required to maintain a minimum capital conservation buffer of 1.250 percent in order to avoid restrictions on capital distributions and discretionary bonuses. The minimum required capital conservation buffer gradually increases to 2.5 percent in 2019. At December 31, 2017, Comerica met all requirements, with CET1, Tier 1 and total capital equal to 11.68 percent, 11.68 percent and 13.84 percent of its total risk-weighted assets, respectively, and a capital conservation buffer of 5.68 percent 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 percent. Comerica's leverage ratio of 10.89 percent at December 31, 2017 reflects the nature of Comerica's balance sheet and demonstrates a commitment to capital adequacy. At December 31, 2017, Comerica Bank had CET1, Tier 1 and total capital equal to 10.72 percent, 10.72 percent and 12.61 percent of its total risk-weighted assets, respectively, a capital conservation buffer of 4.61 percent of its total risk-weighted assets, and a leverage ratio of 10.00 percent.
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 the "Capital" section located on pages F-17 through F-19 of the Financial Section of this report and Note 20 of the Notes to Consolidated Financial Statements located on pages F-94 through F-95 of the Financial Section of this report.
Comerica must also comply with the modified Liquidity Coverage Ratio ("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. At each quarter-end in 2017, Comerica was in compliance with the fully phased-in LCR requirement of 100%, 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, 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. However, a final NSFR rule has not yet been published by the U.S. regulatory agencies so the effective date of compliance remains unknown. Comerica does not currently expect the proposed rule to have a material impact on its liquidity needs.

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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 require 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 percent of the total amount of deposits of insured depository institutions in the U.S. and no more than 30 percent of such deposits in that state (or such amount as established by state law if such amount is lower than 30 percent). 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, 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. A bank holding company or bank must be well capitalized and well 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.
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.
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.
Incentive-Based Compensation
Comerica is subject to guidance issued by the FRB, OCC and FDIC 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. Similar to other large banking organizations, Comerica 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

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programs throughout the organization, the 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.
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 $2.1 million for 2017, which will be assessed in the first quarter 2018.
The Volcker Rule
Comerica is prohibited under the Volcker Rule from (1) engaging in short-term proprietary trading for our own account and (2) having certain ownership interests in and relationships with hedge funds or private equity funds ("Covered Funds"). The final Volcker Rule regulations contain exemptions for market-making, hedging, underwriting and trading in U.S. government and agency obligations, and also permit certain ownership interests in certain types of Covered Funds to be retained. They also permit the offering and sponsoring of Covered Funds under certain conditions.
The final Volcker Rule regulations impose significant compliance and reporting obligations on banking entities. Comerica is subject to the enhanced compliance program under the Volcker Rule but does not expect to be required to report metrics to the regulators. Comerica has put in place the compliance programs required by the Volcker Rule and has either divested or received extensions for any holdings in Covered Funds. Additional information on Comerica's portfolio of indirect (through funds) private equity and venture capital investments, which includes the Covered Funds, is set forth in Note 1 of the Notes to Consolidated Financial Statements located on page F-48 of the Financial Section of this report.
Resolution (Living Will) Plans
Like other similar bank holding companies with assets at or above the $50 billion threshold, Comerica is required to prepare and submit to the federal banking agencies (e.g., FRB and FDIC) and periodically update a plan for its rapid and orderly resolution under the U.S. Bankruptcy Code. In addition, FDIC-insured depository institutions (like Comerica Bank) with assets of $50 billion or more are required 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. Comerica submitted its latest resolution plan to the FRB on December 29, 2017. The next update to the resolution plan for Comerica Bank is due to be filed with the FDIC on or before July 1, 2018.
Derivative Transactions
As a state member bank, Comerica Bank may engage in derivative transactions, as permitted by applicable Texas and federal law.
Title VII of the Dodd-Frank Act establishes a comprehensive framework for over-the-counter (“OTC”) derivatives transactions. Even though many of the requirements did not impact Comerica directly since Comerica Bank does not meet the definition of swap dealer or “major swap participant,” Comerica continues to review and evaluate whether such requirements impact the Bank indirectly. On October 26, 2017, the CFTC issued an Order extending the de minimis threshold at $8 billion through December 31, 2019 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, 2018, as proposed.  At this time, Comerica will continue to track its dealing activity and monitor any actions as it relates to the de minimis threshold.

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The variation margin requirements for non-centrally cleared swaps and security-based swaps were effective for Comerica on March 1, 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.  At this time, Comerica has met compliance with its financial counterparties with respect to the variation margin requirements.
DOL Fiduciary Rule
During April 2016, the DOL issued a final rule related to fiduciary standards in regards to the investing of clients' retirement assets. The final rule expands the definition of a fiduciary under the Employee Retirement Income Security Act of 1974. Those who provide investment advice to plans, plan sponsors, fiduciaries, plan participants, beneficiaries and IRAs and IRA owners must either avoid payments that create conflicts of interest or comply with the protective terms of an exemption issued by the DOL. Under new exemptions adopted with the rule, financial institutions will be obligated to acknowledge their status and the status of their individual advisers as "fiduciaries." Firms and advisers will be required to make prudent investment recommendations without regard to their own interests, or the interests of those other than the customer; charge only reasonable compensation; and make no misrepresentations to their customers regarding recommended investments. Additionally, the new rule requires certain disclosures to be made to investors, and ongoing compliance must be monitored and documented. The requirement that advisors act impartially was effective April 10, 2017. Other portions of the rule were scheduled to phase-in by January 1, 2018, but in November 2017, the DOL announced an extension of that date to July 1, 2019. The DOL has stated that during the extension period, it intends to consider whether possible changes and alternatives to exemptions would be appropriate in light of the current comment record and potential input from, and action by, the SEC, state insurance commissioners and other regulators.
Consumer Financial Protection Bureau and Certain Recent Consumer Finance Regulations
Consumer Financial Protection Bureau. Comerica is subject to regulation by 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.
Home Mortgage Disclosure Act, Equal Credit Opportunity Act and Uniform Residential Loan Application. The CFPB has issued final rules changing the reporting requirements for lenders under the Home Mortgage Disclosure Act. The new rules expand the range of transactions subject to these requirements to include most securitized residential mortgage loans and credit lines. The rules also increase the overall amount of data required to be collected and submitted, including additional data points about the applicable loans and expanded data about the borrowers. Comerica began collecting the expanded data on January 1, 2018.
Flood Insurance Rules
Comerica continues to monitor the development and implementation of the private flood insurance requirements. To date, the joint agencies have yet to issue a final rule with respect to this remaining requirement. All other flood insurance requirements subject to the Final Rule - Loans in Areas Having Special Flood Hazards, including the escrow of premium and fees for certain real estate loans, are now effective and have been implemented by Comerica.
UNDERWRITING APPROACH
The loan portfolio is a primary source of profitability and risk, so proper loan underwriting is critical to Comerica's long-term financial success. Comerica extends credit to businesses, individuals and public entities based on sound lending principles and consistent with prudent banking practice. During the loan underwriting process, a qualitative and quantitative analysis of potential credit facilities is performed, and the credit risks associated with each relationship are evaluated. Important factors considered as part of the underwriting process for new loans and loan renewals include:
People: Including the competence, integrity and succession planning of customers.
Purpose: The legal, logical and productive purposes of the credit facility.
Payment: Including the source, timing and probability of payment.
Protection: Including obtaining alternative sources of repayment, securing the loan, as appropriate, with collateral and/or third-party guarantees and ensuring appropriate legal documentation is obtained.
Perspective: The risk/reward relationship and pricing elements (cost of funds; servicing costs; time value of money; credit risk).
Comerica prices credit facilities to reflect risk, the related costs and the expected return, while maintaining competitiveness with other financial institutions. Loans with variable and fixed rates are underwritten to achieve expected risk-adjusted returns on the credit facilities and for the full relationship including the borrower's ability to repay the principal and interest based on such rates.

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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 support 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-27 through F-28 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.
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

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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, 2017, Comerica and its subsidiaries had 7,691 full-time and 499 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 track," “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, 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 or changes in the FRB's balance sheet, 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

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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 its efficiency and revenue initiative, GEAR Up (the "initiative") and initial financial targets. The initiative continues to be implemented. 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.
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, cybersecurity risks for financial institutions have significantly increased in recent years as reliance on information technology systems has expanded. Comerica's operations rely on the secure processing, storage and transmission of confidential and other information on its technology systems and networks. These networks are subject to infrastructure failures, ongoing system maintenance and upgrades and planned network outages. The increased use of mobile and cloud technologies can heighten these and other operational risks. 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, spikes in transaction volume and/or customer activity, electrical or telecommunications outages, natural disasters or acts of terrorism. These incidents may occur directly or through a third party provider. Cyberattacks could include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware or other security breaches, and could result in the destruction or exfiltration of data and systems. 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 still give rise to interruptions in service to customers and loss or liability to Comerica, including loss of customer data. Like other financial services firms, Comerica and its third party providers continue to be the subject of cyber attacks. Although to this date Comerica has not experienced any material losses or other material consequences related to cyber attacks, future cyber attacks could be more disruptive and damaging, and Comerica may not be able to anticipate or prevent all such attacks. Further, cyberattacks may not be detected in a timely manner.
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. Although we maintain insurance coverage that may cover certain cyber losses (subject to policy terms and conditions), such insurance coverage may be insufficient to cover all losses.

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Comerica relies on other companies to provide certain key components of its delivery systems, 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 delivery systems. Third party vendors provide certain key components of Comerica's delivery systems, such as cloud-based computing, networking and storage services, payment processing services, recording and monitoring services, internet connections and network access, clearing agency services and card processing services. While Comerica conducts due diligence prior to engaging with third party vendors and performs ongoing monitoring of vendor controls, it does not control their operations. Further, while Comerica's vendor management policies and practices are designed to comply with current 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.
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.
Additionally, Comerica must also comply with the 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. As well, under proposed rules, Comerica will be subject to a modified NSFR standard, 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. For more information regarding the LCR and the NSFR, 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 or the NSFR measure.
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.
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 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

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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.
For more information regarding certain of Comerica's lines of business, please see "Concentration of Credit Risk," "Commercial Real Estate Lending" and “Energy Lending” on pages F-25 through F-28 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.
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, DOL, MSRB 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. Although President Trump has issued an executive order that sets forth principles for the reform of the federal financial regulatory framework, and the Republican majority in Congress has also suggested an agenda for financial regulatory change, it is too early to assess whether there will be any major changes in the regulatory environment 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.
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 recent rate rises. 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-28 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.
Interest rates on Comerica's outstanding financial instruments might be subject to change based on regulatory developments, which could adversely affect its revenue, expenses, and the value of those financial instruments.
LIBOR and certain other “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform. These reforms may cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the course of the next several years. As a result of this transition, interest rates on our floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, as well as the revenue and expenses associated with those financial instruments, may be adversely affected. Further, any uncertainty regarding the continued use and reliability of LIBOR as a benchmark interest rate could adversely affect the value of our floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates. More than 90 percent of the Comerica's loans were floating at December 31, 2017, of which approximately 80 percent were based on 30-day LIBOR and 20 percent were based on Prime.

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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. While recent credit rating actions have had little to no detrimental impact on Comerica's profitability, borrowing costs, or ability to access the capital markets, future downgrades to Comerica's or its subsidiaries' credit ratings could adversely affect Comerica's profitability, borrowing costs, or ability to access the capital markets or otherwise have a negative effect on Comerica's results of operations or financial condition. If such a reduction placed Comerica's or its subsidiaries' credit ratings below investment grade, it could also create obligations or liabilities under the terms of existing arrangements that could increase Comerica's costs under such arrangements. Additionally, a downgrade of the credit rating of any particular security issued by Comerica or its subsidiaries could negatively affect the ability of the holders of that security to sell the securities and the prices at which any such securities may be sold.
Damage to Comerica’s reputation could damage its businesses.
With consumers more and more 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 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. Increasingly, Comerica competes with other companies based on financial technology and capabilities, such as mobile banking applications and money movement.
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 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.
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

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services continues to increase as technology advances have lowered the barriers to entry for financial technology companies, with consumers having the opportunity to select from a growing variety of traditional and nontraditional alternatives, including crowdfunding, digital wallets and money transfer services. The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified 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.
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.
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.
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.
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.
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.
For more information regarding risk management, please see "Risk Management" on pages F-20 through F-33 of the Financial Section of this report.


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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 have at times disrupted the local economies, Comerica's business and customers, and have caused physical damage to Comerica's property in these regions. In addition, catastrophic events occurring in other regions of the world may have an impact on Comerica's customers and in turn, on Comerica. Comerica’s business continuity and disaster recovery plans may not be successful upon the occurrence of one of these scenarios, and a significant catastrophic event anywhere in the world could materially adversely affect Comerica's operating results.
The impacts of recent tax reform are not yet fully known, and these and other tax regulations could be subject to potential legislative, administrative or judicial changes or interpretations.
The tax reform bill enacted on December 22, 2017 has had, and is expected to continue to have, far-reaching and significant effects on Comerica, its customers and the U.S. economy. The tax reform bill lowered the corporate federal statutory tax rate and eliminated or limited certain federal corporate deductions. It is too early to evaluate all of the potential consequences of the tax reform bill, but such consequences could include lower commercial customer borrowings, either due to the increase in cash flows as a result of the reduction in the corporate statutory tax rate or the utilization by businesses in certain sectors of alternative non-debt financing and/or early retirement of existing debt. Further, there can be no assurance that any benefits realized by Comerica as a result of the reduction in the corporate federal statutory tax rate will ultimately result in increased net income, whether due to decreased loan yields as a result of competition or to other factors. Uncertainty also exists related to state and other taxing jurisdictions' response to federal tax reform, which will continue to be monitored and evaluated.    
Federal income tax treatment of corporations may be further clarified and modified by other legislative, administrative or judicial changes or interpretations at any time. Any such changes could adversely affect Comerica.
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 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

17

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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.
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 fines or 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.
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.
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. In particular, the Financial Accounting Standards Board (“FASB”) has issued a new accounting standard, the Current Expected Credit Loss standard (“CECL”), for the recognition and measurement of credit losses for loans and debt securities. The new standard will be effective for Comerica in the first quarter 2020. The anticipated change in loan loss reserves due to CECL is unknown and is dependent upon many factors that are yet to be determined, such as the economic environment at adoption and future FASB clarifications. It is anticipated that CECL will have an impact on Comerica's loan loss reserves and how Comerica manages its capital.
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

18

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policies or restate prior period financial statements. See “Critical Accounting Policies” on pages F-34 through F-37 of the Financial Section of this report and Note 1 of the Notes to Consolidated Financial Statements located on pages F-45 through F-57 of the Financial Section of this report.
Comerica's stock price can be volatile.
Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Comerica's stock price can fluctuate significantly in response to a variety of factors including, among other things:
Actual or anticipated variations in quarterly results of operations.
Recommendations or projections by securities analysts.
Operating and stock price performance of other companies that investors deem comparable to us.
News reports relating to trends, concerns and other issues in the financial services industry.
Perceptions in the marketplace regarding us and/or our competitors.
New technology used, or services offered, by competitors.
Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving Comerica or its competitors.
Changes in dividends and capital returns.
Changes in government regulations.
Cyclical fluctuations.
Geopolitical conditions such as acts or threats of terrorism or military conflicts.
Activity by short sellers and changing government restrictions on such activity.

General market fluctuations, including real or anticipated changes in the strength of the economy; industry factors and general economic and political conditions and events, such as economic slowdowns or recessions; interest rate changes, oil price volatility or credit loss trends, among other factors, could also cause our stock price to decrease regardless of operating results.
For the above and other reasons, the market price of Comerica's securities may not accurately reflect the underlying value of the securities, and you should consider this before relying on the market prices of Comerica's securities when making an investment decision.
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 2028. 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, 2017, Comerica, through its banking affiliates, operated at a total of 564 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 564 locations, 226 were owned and 338 were leased. As of December 31, 2017, 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, 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-95 through F-96 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 9, 2018, there were approximately 9,373 record holders of Comerica's common stock.
Sales Prices and Dividends
Quarterly cash dividends were declared during 2017 and 2016 totaling $1.09 and $0.89 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 2017 and 2016, as well as dividend information.
Quarter    
 
High
 
Low
 
Dividends Per Share
 
Dividend Yield*    
2017
 
 
 
 
 
 
 
 
Fourth
 
$
88.22

 
$
74.16

 
$
0.30

 
1.5
%
Third
 
76.76

 
64.04

 
0.30

 
1.7

Second
 
75.30

 
64.75

 
0.26

 
1.5

First
 
75.00

 
64.27

 
0.23

 
1.3

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

* 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-94 through F-95 of the Financial Section of this report, in the "Capital" section on pages F-17 through F-19 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 25, 2017, the Board of Directors of Comerica authorized the repurchase of up to an additional 5.0 million shares of Comerica Incorporated outstanding common stock, in addition to the 8.3 million shares remaining at June 30, 2017 under the Board's prior authorizations for the equity repurchase program initially approved in November 2010. Including the July 2017 authorization, a total of 55.2 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.

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The following table summarizes Comerica's equity repurchase activity for the year ended December 31, 2017.
(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 2017
1,498

 
11,756

 
1,694

 
$
69.75

Total second quarter 2017
2,011

 
9,634

 
2,015

 
69.09

Total third quarter 2017
1,955

 
12,395

(d)
1,956

 
71.11

October 2017
797

 
11,589

 
799

 
77.36

November 2017
753

 
10,836

 
753

 
79.17

December 2017
314

 
10,387

 
314

 
85.05

Total fourth quarter 2017
1,864

 
10,387

 
1,866

 
79.38

Total 2017
7,328

 
10,387

 
7,531

 
$
72.31

(a)
Comerica made no repurchases of warrants under the repurchase program during the year ended December 31, 2017. 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, 2017, Comerica withheld the equivalent of approximately 1,209,000 shares to cover an aggregate of $35.6 million in exercise price and issued approximately 1,771,000 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 203,000 shares (including 2,000 shares in the quarter ended December 31, 2017) 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 during the year ended December 31, 2017. These transactions are not considered part of Comerica's repurchase program.
(d)
Includes July 25, 2017 equity repurchase authorization for up to an additional 5 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 “2017 Overview and 2018 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-39 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-28 through F-33 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-40 through F-110 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-105 and F-106 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 last quarter of the fiscal year 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 24, 2018, 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,” “2017 Summary Compensation Table,” “2017 Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End 2017,” “2017 Option Exercises and Stock Vested,” “Pension Benefits at Fiscal Year-End 2017,” “2017 Nonqualified Deferred Compensation,” “Potential Payments upon Termination or Change of Control at Fiscal Year-End 2017” and "Pay Ratio Disclosure" of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 24, 2018, 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 24, 2018, 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,” “Transactions with Related Persons,” and “Information about Nominees” of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 24, 2018, 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 24, 2018, which section is hereby incorporated by reference.


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PART IV

Item 15.  Exhibits and Financial Statement Schedules
The following documents are filed as a part of this report:
 
1.
 
Financial Statements: The financial statements that are filed as part of this report are included in the Financial Section on pages F-40 through F-107.
 
 
 
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:
3.1
 
 
 
 
3.2
 
 
 
 
3.3
 
 
 
 
4
 
[Reference is made to Exhibits 3.1, 3.2 and 3.3 in respect of instruments defining the rights of security holders. In accordance with Regulation S-K Item No. 601(b)(4)(iii), the Registrant is not filing copies of instruments defining the rights of holders of long-term debt because none of those instruments authorizes debt in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request.]
 
 
 
4.1
 
 
 
 
4.2
 
 
 
 
4.3
 
 
 
 
4.3A
 
 
 
 
4.4
 
 
 
 
9
 
 (not applicable)
 
 
 
10.1†
 
 
 
 
10.1A†
 
 
 
 
10.1B†
 
 
 
 
10.1C†
 
 
 
 

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10.1D†
 
 
 
 
10.1E†
 
 
 
 
10.1F†
 
 
 
 
10.1G†
 
 
 
 
10.1H†
 
 
 
 
10.1I†
 
 
 
 
10.1J†
 
 
 
 
10.1K†
 
 
 
 
10.1L†
 
 
 
 
10.1M†
 
 
 
 
10.1N†
 
 
 
 
10.1O†
 
 
 
 
10.1P†
 
 
 
 
10.1Q†
 
 
 
 
10.1R†
 
 
 
 
10.1S†
 
 
 
 

24

Table of Contents

10.1T†
 
 
 
 
10.1U†
 
 
 
 
10.1V†
 
 
 
 
10.1W†
 
 
 
 
10.1X†
 
 
 
 
10.1Y†
 
 
 
 
10.2†
 
 
 
 
10.2A†
 
 
 
 
10.3†
 
 
 
 
10.4†
 
 
 
 
10.5†
 
 
 
 
10.6†
 
 
 
 
10.7†
 
 
 
 
10.8†
 
 
 
 
10.9†
 
 
 
 
10.10†
 
 
 
 
10.11†
 
 
 
 
10.12†
 
 
 
 

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Table of Contents

10.13†
 
 
 
 
10.14†
 
 
 
 
10.14A†
 
 
 
 
10.14B†
 
 
 
 
10.14C†
 
 
 
 
10.14D†
 
 
 
 
10.14E†
 
 
 
 
10.15†
 
 
 
 
10.15A†
 
 
 
 
10.16†
 
 
 
 
10.17†
 
 
 
 
10.18†
 
 
 
 
10.19A†
 
 
 
 
10.19B†
 
 
 
 
10.19C†
 
 
 
 
10.19D†
 
 
 
 
10.20†
 
 
 
 

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Table of Contents

10.20A†
 
 
 
 
10.21†
 
 
 
 
10.21A†
 
 
 
 
10.22†
 
 
 
 
10.23†
 
 
 
 
10.23A†
 
 
 
 
11
 
Statement regarding Computation of Net Income Per Common Share (incorporated by reference from Note 15 on page F-84 of this Annual Report on Form 10-K).
 
 
 
12
 
(not applicable)
 
 
 
13
 
(not applicable)
 
 
 
14
 
(not applicable)
 
 
 
16
 
(not applicable)
 
 
 
18
 
(not applicable)
 
 
 
21
 
 
 
 
22
 
(not applicable)
 
 
 
23.1
 
 
 
 
24
 
(not applicable)
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32
 
 
 
 
33
 
(not applicable)
 
 
 
34
 
(not applicable)
 
 
 
35
 
(not applicable)
 
 
 
95
 
(not applicable)
 
 
 
99
 
(not applicable)
 
 
 
100
 
(not applicable)
 
 
 
101
 
Financial statements from Annual Report on Form 10-K of the Registrant for the year ended December 31, 2017, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Shareholders' Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.
 
 
 
 
Management contract or compensatory plan or arrangement.
 
 
 
 
 
File No. for all filings under Exchange Act, unless otherwise noted: 1-10706.

Item 16.  Form 10-K Summary
Not applicable.

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FINANCIAL REVIEW AND REPORTS
Comerica Incorporated and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


F-1

Table of Contents

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, 2012 and the reinvestment of all dividends during the periods presented.
/projects/view/?keyname=SupportingDocument:ccdc45e4df4a4ec1a12441824af99946
The performance shown on the graph is not necessarily indicative of future performance.


F-2

Table of Contents

SELECTED FINANCIAL DATA
(dollar amounts in millions, except per share data)
 
 
 
 
 
 
 
 
 
Years Ended December 31
2017
 
2016
 
2015
 
2014
 
2013
EARNINGS SUMMARY
 
 
 
 
 
 
 
 
 
Net interest income
$
2,061

 
$
1,797

 
$
1,689

 
$
1,655

 
$
1,672

Provision for credit losses
74

 
248

 
147

 
27

 
46

Noninterest income
1,107

 
1,051

 
1,035

(a)
857

 
874

Noninterest expenses
1,860

(b)
1,930

(b)
1,827

(a)
1,615

 
1,714

Provision for income taxes
491

(c)
193

 
229

 
277

 
245

Net income
743

 
477

 
521

 
593

 
541

Net income attributable to common shares
738

 
473

 
515

 
586

 
533

PER SHARE OF COMMON STOCK
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
$
4.14

 
$
2.68

 
$
2.84

 
$
3.16

 
$
2.85

Cash dividends declared
1.09

 
0.89

 
0.83

 
0.79

 
0.68

Common shareholders’ equity
46.07

 
44.47

 
43.03

 
41.35

 
39.22

Tangible common equity (d)
42.34

 
40.79

 
39.33

 
37.72

 
35.64

Market value
86.81

 
68.11

 
41.83

 
46.84

 
47.54

Average diluted shares (in millions)
178

 
177

 
181

 
185

 
187

YEAR-END BALANCES
 
 
 
 
 
 
 
 
 
Total assets
$
71,567

 
$
72,978

 
$
71,877

 
$
69,186

 
$
65,224

Total earning assets
65,880

 
67,518

 
66,687

 
63,788

 
60,200

Total loans
49,173

 
49,088

 
49,084

 
48,593

 
45,470

Total deposits
57,903

 
58,985

 
59,853

 
57,486

 
53,292

Total medium- and long-term debt
4,622

 
5,160

 
3,058

 
2,675

 
3,543

Total common shareholders’ equity
7,963

 
7,796

 
7,560

 
7,402

 
7,150

AVERAGE BALANCES
 
 
 
 
 
 
 
 
 
Total assets
$
71,452

 
$
71,743

 
$
70,247

 
$
66,336

 
$
63,933

Total earning assets
66,300

 
66,545

 
65,129

 
61,560

 
59,091

Total loans
48,558

 
48,996

 
48,628

 
46,588

 
44,412

Total deposits
57,258

 
57,741

 
58,326

 
54,784

 
51,711

Total medium- and long-term debt
4,969

 
4,917

 
2,905

 
2,963

 
3,972

Total common shareholders’ equity
7,952

 
7,674

 
7,534

 
7,373

 
6,965

CREDIT QUALITY
 
 
 
 
 
 
 
 
 
Total allowance for credit losses
$
754

 
$
771

 
$
679

 
$
635

 
$
634

Total nonperforming loans
410

 
590

 
379

 
290

 
374

Foreclosed property
5

 
17

 
12

 
10

 
9

Total nonperforming assets
415

 
607

 
391

 
300

 
383

Net credit-related charge-offs
92

 
157

 
101

 
25

 
73

Net credit-related charge-offs as a percentage of average total loans
0.19
%
 
0.32
%
 
0.21
%
 
0.05
%
 
0.16
%
Allowance for loan losses as a percentage of total period-end loans
1.45

 
1.49

 
1.29

 
1.22

 
1.32

Allowance for loan losses as a percentage of total nonperforming loans
173

 
124

 
167

 
205

 
160

RATIOS
 
 
 
 
 
 
 
 
 
Net interest margin (fully taxable equivalent)
3.12
%
 
2.71
%
 
2.60
%
 
2.70
%
 
2.84
%
Return on average assets
1.04

 
0.67

 
0.74

 
0.89

 
0.85

Return on average common shareholders’ equity
9.34

 
6.22

 
6.91

 
8.05

 
7.76

Dividend payout ratio
25.77

 
32.48

 
28.33

 
24.09

 
23.29

Average common shareholders’ equity as a percentage of average assets
11.13

 
10.70

 
10.73

 
11.11

 
10.90

Common equity tier 1 capital as a percentage of risk-weighted assets (e)
11.68

 
11.09

 
10.54

 
n/a

 
n/a

Tier 1 capital as a percentage of risk-weighted assets (e)
11.68

 
11.09

 
10.54

 
10.50

 
10.64

Common equity ratio
11.13

 
10.68

 
10.52

 
10.70

 
10.97

Tangible common equity as a percentage of tangible assets (d)
10.32

 
9.89

 
9.70

 
9.85

 
10.07

(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 included restructuring charges of $45 million and $93 million in 2017 and 2016, respectively.
(c)
The provision for income taxes for 2017 was impacted by a $107 million charge to adjust deferred taxes as a result of the enactment of the Tax Cuts and Jobs Act.
(d)
See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.
(e)
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.

F-3

Table of Contents

2017 OVERVIEW AND 2018 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.
OVERVIEW
Net income was $743 million in 2017, an increase of $266 million, or 56 percent, compared to $477 million in 2016. Net income per diluted common share was $4.14 in 2017, compared to $2.68 in 2016. Net income in 2017 included a $107 million charge to adjust deferred tax assets (60 cents per share) resulting from the 2017 enactment of the Tax Cuts and Jobs Act.
Average loans were $48.6 billion in 2017, a decrease of $438 million, or 1 percent, compared to 2016. Excluding cyclical declines of $696 million in Energy and $412 million in Mortgage Banker Finance, average loans increased $670 million, or 1 percent, with growth in most other businesses, led by National Dealer Services.
Average deposits decreased $483 million, or 1 percent, to $57.3 billion in 2017 compared to 2016. The decrease in average deposits reflected a decrease of $1.7 billion, or 6 percent, in average interest-bearing deposits, partially offset by an increase of $1.3 billion, or 4 percent, in average noninterest-bearing deposits. The decrease in interest-bearing deposits was primarily due to customers using their excess liquidity for working capital needs and acquisitions, a deliberate approach to relationship pricing, as well as strategic actions taken in early 2017 in light of the new Liquidity Coverage Ratio (LCR) rules. Average total deposits reflected decreases in Corporate Banking and Technology and Life Sciences, partially offset by increases in Commercial Real Estate and Retail Bank.
Net interest income was $2.1 billion in 2017, an increase of $264 million, or 15 percent, compared to 2016. The increase primarily reflected the benefit from higher short-term rates and prudently managing loan and deposit pricing.
The provision for credit losses was $74 million in 2017, a decrease of $174 million compared to 2016, primarily due to improvement in the credit quality in the Energy and energy-related portfolio. Net credit-related charge-offs were $92 million, or 0.19 percent of average loans in 2017, a decrease of $65 million compared to $157 million, or 0.32 percent of average loans, in 2016. The decrease primarily reflected lower Energy and energy-related charge-offs.
Noninterest income increased $56 million, or 5 percent, to $1.1 billion in 2017 in part due to the impact of Growth in Efficiency and Revenue (GEAR Up) initiatives. Increases in card fees, service charges on deposit accounts and fiduciary income, as well as smaller increases in several other categories of noninterest income were partially offset by decreases in letter of credit fees and commercial lending fees.
Noninterest expenses decreased $70 million, or 4 percent, to $1.9 billion in 2017 primarily due to decreases in salaries and benefits expense, largely driven by the GEAR Up initiative, and restructuring charges, partially offset by an increase in outside processing fees primarily tied to revenue-generating activities.
The provision for income taxes increased $298 million in 2017. The increase primarily reflected an increase in pretax income and the $107 million charge to adjust deferred taxes resulting from the Tax Cuts and Jobs Act, partially offset by a $35 million tax benefit from employee stock transactions in 2017 due to new accounting guidance for stock compensation effective January 1, 2017.
The quarterly dividend was increased 13 percent to 26 cents per share in April 2017 and further increased 15 percent to 30 cents per share in July 2017.
The Corporation repurchased approximately 7.3 million shares of common stock during 2017 under the equity repurchase program. Together with dividends of $1.09 per share, $724 million was returned to shareholders in 2017, an increase of $266 million, or 58 percent, compared to 2016.

F-4

Table of Contents

GROWTH IN EFFICIENCY AND REVENUE INITIATIVE
The Corporation launched the GEAR Up initiative in 2016 in order to meaningfully enhance profitability. Since GEAR Up began, the Corporation has consolidated 38 banking centers, implemented a new retirement program resulting in a significant reduction in retirement plan expense and reduced the number of full-time equivalent employees by over 800, among other initiatives. The impact of increases in short-term rates and the execution of certain GEAR Up initiatives helped lower the efficiency ratio to 58.6 percent for 2017, compared to 67.5 percent for 2016. Return on equity for 2017 increased to 9.3 percent, compared to 6.2 percent for 2016. Return on equity for 2017 was reduced by 1.4 percentage points due to the $107 million adjustment to deferred taxes resulting from the enactment of the Tax Cuts and Jobs Act.
Full-year 2018 pre-tax income before restructuring charges is expected to include approximately $270 million of cumulative benefits from actions identified under this initiative, increasing to approximately $305 million in full-year 2019.
Expense reductions are expected to total $200 million by year-end 2018 and increase to $215 million by year-end 2019, reflecting incremental savings of $50 million in 2018 and an additional $15 million in 2019. This is to be achieved through rationalizing and modernizing technology, including optimizing infrastructure platforms, process optimization and migrating certain applications to cloud-based systems, as well as consolidating office and operations space. The Corporation is in the process of implementing the end-to-end credit design program to streamline the credit process and increase relationship managers' capacity to service clients.
Revenue enhancements are expected to total $70 million by year-end 2018 and increase to $90 million by year-end 2019, reflecting incremental revenue of $40 million in 2018 and an additional $20 million in 2019, achieved through product enhancements, enhanced sales tools and training and improved customer analytics to drive opportunities.
Pre-tax restructuring charges of $185 million to $195 million in total are expected to be incurred from inception through 2018. Cumulative pre-tax restructuring charges of $138 million have been incurred through December 31, 2017. For additional information regarding restructuring charges, refer to Note 22 to the consolidated financial statements.
2018 OUTLOOK
For full-year 2018 compared to full-year 2017 management expects the following, assuming a continuation of the current economic and low rate environment as well as approximately $270 million of cumulative benefits from the GEAR Up initiative:
Average loans higher in line with Gross Domestic Product, reflecting increases in most lines of business while remaining stable in Energy and Corporate Banking.
Net interest income higher, reflecting full-year benefits from the 2017 rate increases and loan growth.
Full-year benefit from 2017 rate increases expected to be $110 million to $125 million, assuming a 20 percent to 40 percent deposit beta for the December rate increase.
Elevated interest recoveries of $28 million in 2017 not expected to repeat in 2018.
Provision for credit losses of 15 basis points to 25 basis points and net charge-offs to remain low, with continued solid performance of the overall portfolio.
Excluding deferred compensation asset returns of $8 million in 2017, noninterest income higher by 4 percent1, benefiting from the continued execution of GEAR Up opportunities helping to drive growth in treasury management income, card fees, brokerage fees and fiduciary income.
Excluding restructuring charges, noninterest expenses higher by 1 percent1, reflecting an additional $50 million benefit from the GEAR Up initiative.
Restructuring charges of $47 million to $57 million.
Additionally, headwinds include higher technology expenditures and typical inflationary pressures, as well as outside processing expenses to increase in line with growing revenue1.
Income tax expense to approximate 23 percent of pre-tax income reflecting the passage of the Tax Cuts and Jobs Acts and assuming no tax impact from employee stock transactions.



1 Beginning January 1, 2018, as a result of adopting a new accounting standard for revenue recognition, card fee revenue from certain card products will be presented net of network costs in noninterest income, as opposed to the current presentation of associated network costs in outside processing fee expense within noninterest expenses. Other smaller revenue streams will be similarly impacted. These changes in presentation will not impact net income and are not reflected in this outlook. This change in presentation would have resulted in decreases to noninterest income and noninterest expenses of approximately $120 million for the year ended December 31, 2017. For further information, refer to Note 1 to the consolidated financial statements.

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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 2017 compared to 2016. A comparative discussion of results for 2016 compared to 2015 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
2017
 
2016
 
2015
 
Average
Balance
Interest
Average
Rate (a)
 
Average
Balance
Interest
Average
Rate (a)
 
Average
Balance
Interest
Average
Rate (a)
Commercial loans
$
30,415

$
1,162

3.83
%
 
$
31,062

$
1,008

3.26
%
 
$
31,501

$
962

3.07
%
Real estate construction loans
2,958

124

4.18

 
2,508

91

3.63

 
1,884

66

3.48

Commercial mortgage loans
9,005

358

3.97

 
8,981

314

3.49

 
8,697

296

3.41

Lease financing
509

13

2.64

 
684

18

2.65

 
783

25

3.17

International loans
1,157

47

4.07

 
1,367

50

3.63

 
1,441

51

3.58

Residential mortgage loans
1,989

74

3.70

 
1,894

71

3.76

 
1,878

71

3.77

Consumer loans
2,525

94

3.70

 
2,500

83

3.32

 
2,444

80

3.26

Total loans (b)
48,558

1,872

3.86

 
48,996

1,635

3.34

 
48,628

1,551

3.20

 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
9,330

202

2.17

 
9,356

203

2.19

 
9,113

202

2.24

Other investment securities
2,877

48

1.67

 
2,992

44

1.51

 
1,124

14

1.25

Total investment securities (c)
12,207

250

2.05

 
12,348

247

2.02

 
10,237

216

2.13

 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with banks
5,443

60

1.09

 
5,099

26

0.51

 
6,158

16

0.26

Other short-term investments
92


0.64

 
102

1

0.61

 
106

1

0.81

Total earning assets
66,300

2,182

3.30

 
66,545

1,909

2.88

 
65,129

1,784

2.75

 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
1,209

 
 
 
1,146

 
 
 
1,059

 
 
Allowance for loan losses
(728
)
 
 
 
(730
)
 
 
 
(621
)
 
 
Accrued income and other assets
4,671

 
 
 
4,782

 
 
 
4,680

 
 
Total assets
$
71,452

 
 
 
$
71,743

 
 
 
$
70,247

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market and interest-bearing checking deposits
$
21,585

33

0.15

 
$
22,744

27

0.11

 
$
24,073

26

0.11

Savings deposits
2,133


0.02

 
2,013


0.02

 
1,841


0.02

Customer certificates of deposit
2,471

9

0.36

 
3,200

13

0.40

 
4,209

16

0.37

Foreign office time deposits (d)
56


0.64

 
33


0.35

 
116

1

1.02

Total interest-bearing deposits
26,245

42

0.16

 
27,990

40

0.14

 
30,239

43

0.14

Short-term borrowings
277

3

1.14

 
138


0.45

 
93


0.05

Medium- and long-term debt (e)
4,969

76

1.51

 
4,917

72

1.45

 
2,905

52

1.80

Total interest-bearing sources
31,491

121

0.38

 
33,045

112

0.34

 
33,237

95

0.29

 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing deposits
31,013

 
 
 
29,751

 
 
 
28,087

 
 
Accrued expenses and other liabilities
996

 
 
 
1,273

 
 
 
1,389

 
 
Total shareholders’ equity
7,952

 
 
 
7,674

 
 
 
7,534

 
 
Total liabilities and shareholders’ equity
$
71,452

 
 
 
$
71,743

 
 
 
$
70,247

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income/rate spread
 
$
2,061

2.92

 
 
$
1,797

2.54

 
 
$
1,689

2.46

 
 
 
 
 
 
 
 
 
 
 
 
Impact of net noninterest-bearing sources of funds
 
 
0.20

 
 
 
0.17

 
 
 
0.14

Net interest margin (as a percentage of average earning assets) (c)
 
 
3.12
%
 
 
 
2.71
%
 
 
 
2.60
%
(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 included in the rate calculations totaled $4 million in each of the three years presented.
(b)
Nonaccrual loans are included in average balances reported and in the calculation of average rates.
(c)
Includes investment securities available-for-sale and investment securities held-to-maturity. Average rate is based on average historical cost. Carrying value was $28 million below average historical cost in 2017 and exceeded average historical cost by $143 million and $100 million in 2016 and 2015, respectively.
(d)
Includes substantially all deposits by foreign depositors; deposits are primarily in excess of $100,000.
(e)
Medium- and long-term debt average balances included $77 million, $162 million and $160 million in 2017, 2016 and 2015, respectively, for the gain attributed to the risk hedged with interest rate swaps. Interest expense on medium-and long-term debt was reduced by $32 million, $60 million and $70 million in 2017, 2016 and 2015, respectively, for the net gains on these fair value hedge relationships.

F-6

Table of Contents

RATE/VOLUME ANALYSIS
(in millions)
 
 
 
 
 
 
 
Years Ended December 31
2017/2016
 
2016/2015
 
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
$
179

 
$
(25
)
 
$
154

 
 
$
60

 
$
(14
)
 
$
46

 
Real estate construction loans
14

 
19

 
33

 
 
2

 
23

 
25

 
Commercial mortgage loans
43

 
1

 
44

 
 
8

 
10

 
18

 
Lease financing

 
(5
)
 
(5
)
 
 
(4
)
 
(3
)
 
(7
)
 
International loans
6

 
(9
)
 
(3
)
 
 
1

 
(2
)
 
(1
)
 
Residential mortgage loans
(1
)
 
4

 
3

 
 

 

 

 
Consumer loans
10

 
1

 
11

 
 
1

 
2

 
3

 
 Total loans
251

 
(14
)
 
237

 
 
68

 
16

 
84

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities