Comerica
Annual Report 2014

Plain-text annual report

2014 COMERICA INCORPORATED ANNUAL REPORTKeeping the Promise®Comerica Incorporated (NYSE: CMA) is a financial services company headquartered in Dallas, Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. To find Comerica on Facebook, please visit www.facebook.com/ComericaCares. To follow Comerica and Comerica Bank Chief Economist Robert Dye on Twitter, go to @ComericaCares and @Comerica_Econ, respectively. Customer-centricityCollaborationIntegrityExcellenceAgilityDiversityInvolvementTo Our Shareholders The national economy began the year with many challenges, but finished with strong job growth, and increasing business and consumer confidence. Throughout 2014, we remained focused on keeping our promise of providing a higher level of banking to our customers by serving as their trusted advisor and delivering an exceptional customer experience that exceeds expectations. In 2014, we also continued to make a positive difference in the communities where we live and work. All the while, we remained diligent in managing the things we can control, such as our expenses. Founded 165 years ago, the Comerica of today has the resources of a large bank and the customer-centric culture of a community bank. We have a strong presence in Texas, California and Michigan, as well as operations in Arizona and Florida. Our strategy is to have balance between our markets, which should help us achieve consistent and sustainable growth over time. We have made meaningful progress in that regard over the past 10 years. We provide comprehensive banking services through our Business Bank, Retail Bank, and Wealth Management segments. Our focus on relationships in all three segments makes a positive difference for us in this highly competitive, low-rate environment. 2014 Financial Results Our 2014 net income increased 10 percent from a year ago, reflecting lower litigation-related expenses, a decrease in pension expense, and our continued drive for efficiency. We reported 2014 net income of $593 million, or $3.16 per diluted share, compared to $541 million, or $2.85 per diluted share for 2013. Excluding the impact to 2013 results of an unfavorable jury verdict in a lender liability case, which decreased 2013 net income by $28 million, or 15 cents per share, 2014 net income increased $24 million, or 4 percent, and earnings per diluted share increased 16 cents, or 5 percent. Our loan and deposit growth was solid in 2014. Average total loans increased $2.2 billion, or 5 percent, to $46.6 billion in 2014, primarily reflecting increases of $1.7 billion, or 6 percent, in commercial loans, $158 million, or 10 percent, in residential mortgage loans and $117 million, or 5 percent, in consumer loans. The increase in commercial loans was primarily driven by increases in Technology and Life Sciences, National Dealer Services, Energy and general Middle Market, partially offset by a decrease in Mortgage Banker Finance. Average total deposits increased $3.1 billion, or 6 percent, to a record $54.8 billion in 2014, reflecting increases of $2.6 billion, or 12 percent, in noninterest-bearing deposits and $433 million, or 1 percent, in interest-bearing deposits. We increased deposits in nearly all business lines and all three of our major markets, reflecting our focus on relationship banking. 2 0 1 4 C o m e r i C a i n C o r p o r a t e d a n n u a l r e p o r t  0 1 Earnings per Share Diluted 2010 2011 2012 2013 2014$3.16$2.85$2.67$2.09$0.88 2010 2011 2012 2013 2014$54.8Total Average Loansand DepositsDepositsLoansIn Billions$51.7$49.5$43.8$39.5$46.6$44.4$43.3$40.1$40.5Letter to ShareholdersRALPH W. BABB JR.Chairman and Chief Executive OfficerWe had modestly lower net interest income in 2014 of $1.7 billion, a decrease of $17 million, or 1 percent, primarily as a result of a $15 million decrease in accretion of the purchase discount on our acquired loan portfolio. The benefit from an increase in loan volume was offset by continued pressure on yields from the low-rate environment and loan portfolio dynamics. Credit quality continued to be strong in 2014. As a result, the provision for credit losses decreased $19 million to $27 million in 2014, compared to 2013. Net charge-offs were $25 million, or 0.05 percent of average loans for 2014, compared to $73 million or 0.16 percent of average loans for 2013. Noninterest income decreased $14 million, or 2 percent, to $868 million in 2014. The decrease was primarily the result of a $19 million decrease in noncustomer-driven fee income categories, partially offset by a $5 million increase in customer-driven fees. We continued to carefully manage expenses in 2014. Noninterest expenses decreased $96 million, or 6 percent, to $1.6 billion, compared to 2013, primarily reflecting decreases of $48 million in litigation-related expenses and $47 million in pension expense. Comerica continued to maintain a very strong capital position. Our regulatory capital levels remain comfortably above the threshold to be considered well capitalized. On January 21, 2014, and April 22, 2014, the board of directors increased the quarterly cash dividend for common stock by 12 percent and 5 percent, respectively. We repurchased 5.2 million shares in 2014 under our share repurchase program. The dividend increases and share buyback reflect our strong capital position and solid financial performance. Through the buyback and dividends, we returned $392 million, or 66 percent, of 2014 net income to shareholders. In March 2014, the Federal Reserve did not object to our 2014 Capital Plan submission and the capital actions contemplated for the period spanning the second quarter of 2014 through the first quarter of 2015. We again participated in the Capital Plan process for 2015. Our tangible book value per share increased 6 percent over the past year, to $37.72, as we continue to focus on creating long-term shareholder value.* * See Supplemental Financial Data section for reconcilements of non-GAAP financial measures. Increased Regulatory and Technology Demands Along with the rest of the financial services industry, Comerica faces increased regulatory and technology demands. We incurred more than $25 million in expense in 2014 to comply with regulations. We will continue to add staff and invest in technology for regulatory-related projects such as capital planning, stress testing, enterprise risk, and the Liquidity Coverage Ratio, or LCR. Irrespective of our technology spend for compliance-related projects, technology is becoming an increasingly important element in the execution of our strategy. Customers are growing much more comfortable with online means of accessing their accounts and conducting routine banking transactions. 0 2  2 0 1 4 C o m e r i C a i n C o r p o r a t e d a n n u a l r e p o r t 2010 2011 2012 2013 201401020304050$41.35Book ValuePer Share$39.22$36.86$34.79$32.80 2010 2011 2012 2013 20140.00.10.20.30.40.50.60.70.8$0.79DividendsPer Share$0.68$0.55$0.40$0.25Balanced against these growing technology demands are an expanded array of cyber- security threats across the industry that are driving increased investments in information security. Such investments enable our customers to better protect themselves and the bank to better detect sophisticated attempts to penetrate our defenses. At the same time, we see our investments in technology as helping to improve data quality, deepen insights into customer demands, and provide for greater overall efficiency. With respect to LCR, the final rule was issued in September 2014. The LCR was included as part of the Basel Accords to help ensure that banks can withstand short-term liquidity disruptions. Banks of our size will need to phase in compliance beginning in 2016 and be subject to a monthly calculation. We continue to feel comfortable that we will meet the proposed phase-in threshold within the required time frame, which for us is 90 percent by January 2016 and 100 percent by January 2017. Diverse Footprint, Key Business Segments Drive Growth Our diverse footprint covers seven of the largest 10 cities in the country, as well as many just outside the top 10. We find customers are attracted to Comerica because we get to know and understand them. Our relationship banking model does make a positive difference for us and remains a competitive advantage. Texas and California are the two largest economies in the United States. We have had a presence in these high-growth markets for more than a quarter century. Within Texas, we continue to leverage our standing as the largest U.S. commercial bank headquartered in the state, a source of pride for us and our customers. We strengthened our Middle Market Banking team across Texas in 2014 with the addition of bankers in Houston, Dallas and, most recently, Austin. Texas is home to our Energy business, which is focused on well-established middle market companies. We have extensive knowledge of the energy industry, with a long history of managing a solid portfolio that has performed exceptionally well through a number of cycles. Our Energy business strategy is built to withstand the kind of energy sector volatility that we saw late in 2014. Average loans and deposits in Texas in 2014 were up 10 percent and 5 percent, respectively, compared to a year ago. California is home to our Technology and Life Sciences business, Entertainment group, and Financial Services Division, which is our title and escrow business. Our expertise in these businesses and others help differentiate us from the competition in California. California also is the largest market for our National Dealer Services business – another industry in which we have accumulated years of experience. Average loans and deposits in California in 2014 were both up 10 percent compared to a year ago. 2 0 1 4 C o m e r i C a i n C o r p o r a t e d a n n u a l r e p o r t  0 3 Our relationship banking model does make a positive difference for us and remains a competitive advantage.Ask us how you can power your business.Help power mybusiness.I expec¶ my bank §o:Michigan is an important market to us and is where we began operations in 1849. We have maintained our No. 2 deposit market share in the state, based on the latest FDIC data. We continue to benefit from our reputation as a steady, reliable main street bank, committed to the region. We were proud to support the City of Detroit through our $1 million commitment to the “grand bargain,” which helped the city successfully emerge from bankruptcy, while supporting city pensioners and protecting the great works at the Detroit Institute of Arts. Average loans in Michigan were relatively stable in 2014 compared to a year ago, and average deposits increased 3 percent. Together with our diverse footprint, growth is driven by our three strategic lines of business. Business Bank Within the Business Bank, our clear strengths are our relationship model and approach to commercial banking. We are not just “lenders,” as we strive to be strategic partners with our customers. Through our relationship banker model, we have a singular point of contact who not only understands our customers’ strategic initiatives, but is a conduit to key specialists who customize solutions that will support our customers in attaining their goals. Our tenured and experienced Business Bank colleagues provide for a consistent delivery of the promise we make to raise the expectations of what a bank can be. With a strong foundation provided by our active credit training and mentoring programs, and the long tenure of our Business Bank managers, who average almost 20 years of experience, we are proudly delivering value to our customers. Nationally, we provide a broad spectrum of specialized business lines, such as National Dealer Services, Mortgage Banker Finance, and Technology and Life Sciences. We opened a new Technology and Life Sciences office in New York in 2014. With that addition, we now have a physical presence in nine of the top 10 markets for new venture capital investments in the United States. In 2014, the Business Bank focused on achieving profitable growth through the addition of new and expanded customer relationships, and selectively reallocating resources to those markets and business lines that provide the greatest opportunities for us. All the while, the Business Bank maintained pricing discipline in an increasingly competitive environment by focusing on our value proposition and by acting as a strategic partner with our customers. In addition, the Business Bank rolled out several key initiatives in 2014 that are aligned with our long-term corporate strategy. Among these initiatives are “High Performance Planning and Execution” and “Trusted Advisor.” Piloted in our Middle Market groups with almost immediate success, our High Performance Planning and Execution initiative provides analytical data that leads to specific action plans geared at improving the overall financial performance of our portfolio. 0 4  2 0 1 4 C o m e r i C a i n C o r p o r a t e d a n n u a l r e p o r t Comerica Brand PromiseWithinthe Business Bank, ourclear strengths are our relationship model and approach to commercial banking.Trusted Advisor is a Comerica developed and led program that provides our relationship bankers and other customer-facing colleagues in the Business Bank with the tools they need to build mutually beneficial relationships through quality customer experiences and tailored financial solutions. The program focuses our business bankers on identifying solutions that help our customers to manage their growth, cash, risk and wealth. Technology and integration played important roles within the Treasury Management Services area of the Business Bank in 2014. We introduced a suite of new integrated solutions to help our customers be more successful in managing their payables, receivables and cash flow. These new solutions – Integrated Payables Web, Integrated Receivables and Integrated Cash Position Manager – certainly leverage the latest technology, but the true value these solutions provide can only be achieved if they are designed with the customer in mind. That’s why we formed the Treasury Management Strategic Advisory Council in 2014. The Council’s membership includes Treasury Management customers in all markets who give us their feedback, ideas and insights to improve the services we provide. In its first year of operation, the Council has proven to be one of the most critical inputs to our product road map and our design of commercial mobile solutions. Commercial cards continue to gain traction and are a key component of our Treasury Management Services integrated payables offering as customers seek efficient, paperless solutions to meet their cash management needs. Comerica was ranked as the 10th largest U.S. Visa and MasterCard commercial card issuer in 2013, according to the August 2014 edition of The Nilson Report. In particular, Comerica was ranked as the largest issuer of prepaid commercial cards and fifth largest issuer of fleet cards. Comerica is proud to serve as the U.S. Department of the Treasury’s exclusive financial agent for the Direct Express® Debit MasterCard®, a prepaid debit card and electronic payment option for federal benefits, which provides a convenient alternative to paper checks. Since the U.S. Department of the Treasury began surveying cardholders in 2009, the Direct Express® program has maintained very high customer satisfaction ratings of 94 percent or above. This program provides monthly benefits payments via safe, reliable channels for individuals who typically do not have traditional bank accounts. In September 2014, the U.S. Department of the Treasury announced it has retained Comerica as the exclusive financial agent for the Direct Express® program for another five years, through 2020. In 2014, we also announced our agreement with Vantiv, Inc., to provide payment processing solutions for our Merchant Services customers. Comerica’s Merchant Services enable businesses to enjoy the convenience of accepting card payments utilizing the latest in technology, including advanced security products and reporting tools. While at year-end 2014 we were just getting started with Vantiv, our pipeline, closed sales and activations were all exceeding expectations. 2 0 1 4 C o m e r i C a i n C o r p o r a t e d a n n u a l r e p o r t  0 5 I expec¶ my bank §o:Grow my business.We’re trusted advisors first, bankers second.Grow my businessnot their commission.I expec¶ my bank §o:As we enter 2015, the Business Bank is focused on sustaining its momentum by building upon its successful 2014 initiatives and supporting our continued growth and success in an increasingly regulated, competitive, and dynamic environment. Retail Bank and Wealth Management The Retail Bank and Wealth Management segments are key parts of our strategy of growth and balance. Through strong collaboration with colleagues in other business units, we bring a broad spectrum of products and services to customers and prospects in each of our primary markets. Our Retail Bank and Wealth Management segments provide us a stable, low-cost source of funding through core deposit generation, which has gained even more importance since the announcement of the Basel III LCR requirements. Like the bank as a whole, the Retail Bank and Wealth Management segments are focused on operating efficiencies that go beyond cutting expenses. This includes streamlining procedures, rethinking the way we have done business in the past, and investing in technology to provide even more convenience to our customers. For example, we invested in technology that enabled us to offer a number of enhancements to our consumer mobile banking service in 2014, including alerts, Click&Capture Deposit, person-to-person transfers, and a new, enhanced iPad application. Technology is also at the forefront in the evolution now underway in branch banking. It really is no longer a one-size-fits-all strategy. The evolution is driven, in part, by the speed at which new technologies and capabilities are being embraced by the consumer. That is why we are excited about piloting our experienceCenter. Designed to be experimental, the experienceCenter is a true test-and-learn environment that allows us to vet new technologies, delivery channels and services in real time. It also offers us a way to identify and measure technologies best suited to serve our clients and colleagues. This helps ensure wise spending as only the most successful concepts go into production. The first such pilot opened in 2014 at a banking center in Auburn Hills, Michigan. Our banking network remains strategically aligned within the key urban areas of our primary markets. We believe our network is well situated. We regularly review it to ensure we have optimal coverage to meet customer needs. We plan to add banking centers as the right opportunities arise and as the economy continues to improve. Small Business is an important part of our Retail Bank, just as small businesses are important to the growth of our national economy. We were pleased to introduce our Small Business Resource Center in 2014. The Center is a web-based informational space that brings a wealth of tools and resources for business owners and leaders right to their fingertips. The materials and interactive components are practical, easy to use and assist our customers in taking the right steps to grow and manage their businesses. Look for more information at comerica.com/ResourceCenter. 0 6  2 0 1 4 C o m e r i C a i n C o r p o r a t e d a n n u a l r e p o r t The Retail Bank and Wealth Management segments are key parts of our strategy of growth and balance.We’re here to serve you with the quality and attention you deserve.Treat me likethey don’t ever want me to leave.I expec¶ my bank §o:Additionally, in 2014 we expanded our small business healthcare profession group to Michigan, to go along with the group’s presence in Texas and Arizona. The group applies our specialty lending expertise to a high-growth segment focused on doctors, dentists, group practices, surgery centers, medical office buildings and other healthcare entities. Comerica, through the Retail Bank, was selected to serve as the financial agent for the U.S. Department of Treasury’s myRA program. The myRA program is a retirement savings program targeting low- to moderate-income Americans who do not have access to employer-sponsored retirement savings plans. Wealth Management provides us the ability to bring private banking, investment management, and fiduciary solutions to our Business Bank and Retail Bank customers. Our target customers include business owners, corporate executives, first generation wealth, foundations and institutions. A key strength of Comerica is working with business owners to address the needs of their businesses, as well as their personal wealth goals. Our Business Owner Advisory Services group within Wealth Management, partnering with the Business Bank, has had impressive results, bringing in some $1 billion in new balances in 2014, and nearly $2 billion since its inception in 2012. Also within Wealth Management is our Professional Trust Alliance, which we established almost 20 years ago. We have agreements with third-party broker-dealers to provide trust administration and investment monitoring for their clients. We continue to build this business and currently have agreements with 13 broker-dealers. This business has become a significant contributor to increasing our fiduciary income. We have grown the assets under management related to these alliances considerably over the past two years. At present, we have 14 offices throughout the United States dedicated to serving and building our Professional Trust Alliance business. Our Corporate Marketing area continues to facilitate the adoption of the Comerica Promise in partnership across all of our business lines. The new “Promise” branding can be seen in many of our printed materials, including this annual report, as well as in our advertising. At the heart of the Comerica Promise, which is aimed at raising expectations of what a bank can be, are our core values of Customer-centricity, Collaboration, Integrity, Excellence, Agility, Diversity, and Involvement. The response to the Promise campaign from customers and colleagues has been positive and enthusiastic. Ongoing Commitment to Sustainability, Community and Diversity Comerica continues to be recognized for its commitment to sustainability. In 2014, we were listed for a second consecutive year on the CDP Carbon Performance Leadership Index and were one of the top-ranked U.S. banks in the Newsweek Green Rankings. Comerica also received a Green Supply Chain award from the Supply & Demand Chain Executive Magazine, was the only U.S. bank listed as a Greenbiz Natural Capital Efficiency Leader, and continued its listing on the FTSE4Good and Thomson Reuters Corporate Responsibility indices. 2 0 1 4 C o m e r i C a i n C o r p o r a t e d a n n u a l r e p o r t  0 7 When you reach a certain point, you expect more.Our dedicated team of Wealth Advisors provides strategies designed to help protect, nurture and grow what you’ve built.Work as hard asI have for my money.I expec¶ my bank §o:One initiative that showcased our core value of Involvement in 2014 was our community shred days, where Comerica helped individuals and businesses discard documents safely and sustainably. The secure shredding of these documents supported our commitments to reduce the potential for identity theft from improper disposal of sensitive documents and to safely recycle the waste paper. Comerica’s commitment to the community also can be seen in our charitable contributions, and employee giving and volunteerism. In 2014, Comerica contributed more than $8.5 million to nonprofit organizations within our markets. Our employees raised some $2.2 million for the United Way and Black United Fund. In addition, our employees donated their personal time and talents – more than 73,000 hours, far exceeding our goal – back to the communities where they live and work, including on our National Days of Service, when some 54 projects were held. In Dallas, we formed a partnership in 2014 with Dallas Children’s Advocacy Center (DCAC) to help the nonprofit provide backpacks, school supplies, uniforms and personal effects to children who might have otherwise started the school year without these essentials. In our first year of sponsoring the social media-driven effort, we helped the nonprofit raise more than $40,000 and provide more than 900 backpacks to DCAC clients and their siblings. Helping to provide school supplies for low- to moderate-income students has been a priority in a number of our markets for several years. In California, we participated in backpack drives in the Bay Area, Los Angeles and San Diego. Comerica continues to sponsor the Comerica Hatch Detroit Contest, which seeks ideas for new retail businesses in Detroit. In 2014, Comerica again provided the grand prize award. A similar contest was held for the first time in North Texas with the Dallas Entrepreneur Center, with positive results. We awarded a grant in Michigan to the City of Ferndale Police Department, winner of the grand prize in our Home of the Brave National Anthem Facebook Contest. Ferndale Detective Brendan Moore won the grant for his department and the opportunity to sing the National Anthem at Comerica Park, home of the Detroit Tigers. At Comerica, we celebrate the differences among our colleagues and customers, with the understanding that such differences make us a stronger company. That is why we are so grateful and honored to receive recognition in 2014 for our focus on diversity. For example, Comerica was once again ranked among the top five in the DiversityInc “Top 10 Regional Companies for Diversity.” LATINA Style Magazine recognized our bank, once again, as being among the “50 Best Companies for Latinas to Work for in the U.S.” Digital media company DailyWorth recognized Comerica for being among the “25 Best Companies to Work for if You are a Woman.” And, Comerica earned a perfect rating of 100 percent on the Human Rights Campaign 2014 Corporate Equality Index, a national benchmarking survey and report on corporate policies and practices related to LGBT workplace equality. 0 8  2 0 1 4 C o m e r i C a i n C o r p o r a t e d a n n u a l r e p o r t We never missan opportunityto serve.At Comerica, we celebrate the differences among our colleagues and customers, with the understanding that such differences make us a stronger company.Among other notable recognition received in 2014, Comerica ranked fifth among customers and fourth among noncustomers in the American Banker /Reputation Institute survey of bank reputations. We certainly appreciate all of the positive recognition. Looking Ahead Looking ahead, we believe we are well positioned for 2015 and beyond. We remain focused on the long term and the things we can control, such as growing loans and deposits along with managing our expenses. We are in the right markets with the right products and services, and with the right people, who remain focused on building enduring customer relationships. We plan to stay with our relationship banking strategy, which has served us well through many cycles. This is not the time to reach, so we plan to maintain our pricing and credit discipline. We will continue to manage through the headwinds arising from the continuing low-rate environment, declining purchase accounting accretion, and increasing regulatory and technology demands. We expect that as the economy continues to improve and the potential for a rate-rise nears, our revenue picture looks brighter. In short, our conservative, consistent approach to banking – which includes credit management, investment strategy, capital position, and focus on building relationships – has positioned us well for the future. We remain committed to providing attractive long-term returns for you, our shareholders. Sincerely, 2 0 1 4 C o m e r i C a i n C o r p o r a t e d a n n u a l r e p o r t  0 9 Ralph W. Babb Jr.Chairman and Chief Executive OfficerComerica Incorporated and Comerica BankWe expect that as the economy continues to improve and the potential for a rate-rise nears, our revenue picture looks brighter. Senior Leadership TeamRalph W. Babb Jr.Chairman and Chief Executive OfficerLars C. AndersonVice Chairman The Business BankCurtis C. FarmerVice Chairman The Retail Bank and Wealth Management Karen L. ParkhillVice Chairman and Chief Financial Officer Jon W. BilstromExecutive Vice President Governance, Regulatory Relations and Legal Affairs Megan D. BurkhartExecutive Vice President and Chief Human Resources OfficerDavid E. DupreyExecutive Vice President and General AuditorJ. Patrick FaubionPresident Comerica Bank – Texas Market Linda D. ForteSenior Vice President Business Affairs Peter W. GuilfoileExecutive Vice President andChief Credit OfficerJohn M. KillianExecutive Vice President CreditJudith S. LovePresident Comerica Bank – California MarketMichael H. MichalakExecutive Vice President and Chief Risk OfficerPaul R. ObermeyerExecutive Vice President and Chief Information OfficerMichael T. RitchiePresident Comerica Bank – Michigan MarketRalph W. Babb Jr.CHAIRMAN AND CHIEF EXECUTIVE OFFICERComerica Incorporated and Comerica BankRoger A. Cregg (1)(2)(3)PRESIDENT AND CHIEF EXECUTIVE OFFICERAV Homes, Inc. (Developer and Homebuilder in Florida and Arizona)T. Kevin DeNicola (1*)(3*)(4)FORMER CHIEF FINANCIAL OFFICERKIOR, Inc. (Biofuels Company)Jacqueline P. Kane (2)SENIOR VICE PRESIDENT OF HUMAN RESOURCES AND CORPORATE AFFAIRSThe Clorox Company (Manufacturer and Marketer of Consumer Products) Richard G. Lindner (2*)(4)RETIRED SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICERAT&T, Inc. (Global Telecommunications Company)Alfred A. Piergallini (2)CONSULTANTDesert Trail Consulting (Marketing Consulting Organization)Robert S. Taubman (4)CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICERTaubman Centers, Inc. (REIT that Owns, Develops and OperatesRegional Shopping Centers Nationally)and The Taubman Company (Shopping Center Management CompanyEngaged in Leasing, Management andConstruction Supervision) Reginald M. Turner Jr. (1)(3)(4*)ATTORNEYClark Hill PLC (Law Firm)Nina G. Vaca (1)(3)(4)CHAIRMAN AND CHIEF EXECUTIVE OFFICERPinnacle Technical Resources, Inc. (Staffing, Vendor Management and Information Technology Services Firm)and Vaca Industries Inc. (Management Company)(1) AUDIT COMMITTEE(2) GOVERNANCE, COMPENSATION AND NOMINATING COMMITTEE(3) QUALIFIED LEGAL COMPLIANCE COMMITTEE(4) ENTERPRISE RISK COMMITTEE* COMMITTEE CHAIRPERSONBoard of Directors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, 2014 Commission file number 1-10706 COMERICA INCORPORATED (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation) 38-1998421 (IRS Employer Identification Number) Comerica Bank Tower 1717 Main Street, MC 6404 Dallas, Texas 75201 (Address of Principal Executive Offices) (Zip Code) (214) 462-6831 (Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Exchange Act: Common Stock, $5 par value Warrants to Purchase Common Stock (expiring November 14, 2018) These securities are registered on the New York Stock Exchange. Securities registered pursuant to Section 12(g) of the Exchange Act: Warrants to Purchase Common Stock (expiring December 12, 2018) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No 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 No 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 No 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. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No At June 30, 2014 (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 $8.9 billion based on the closing price on the New York Stock Exchange on that date of $50.16 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 11, 2015, the registrant had outstanding 178,359,394 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 28, 2015. TABLE OF CONTENTS PART I Item 1. Business. Item 1A. Risk Factors. Item 1B. Unresolved Staff Comments. Item 2. Properties. Item 3. Legal Proceedings. Item 4. Mine Safety Disclosures. PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Item 6. Selected Financial Data. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Item 8. Financial Statements and Supplementary Data. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Item 9A. Controls and Procedures. Item 9B. Other Information. PART III Item 10. Directors, Executive Officers and Corporate Governance. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Item 13. Certain Relationships and Related Transactions, and Director Independence. Item 14. Principal Accountant Fees and Services. PART IV Item 15. Exhibits and Financial Statement Schedules FINANCIAL REVIEW AND REPORTS SIGNATURES EXHIBIT INDEX 1 1 12 19 20 20 20 20 20 21 21 21 21 21 22 22 22 22 22 22 22 23 23 23 F-1 S-1 E-1 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, 2014, Comerica owned directly or indirectly all the outstanding common stock of 2 active banking and 40 non-banking subsidiaries. At December 31, 2014, Comerica had total assets of approximately $69.2 billion, total deposits of approximately $57.5 billion, total loans (net of unearned income) of approximately $48.6 billion and shareholders’ equity of approximately $7.4 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 in Note 22 on pages F-101 through F-105 of the Notes to Consolidated Financial Statements located in the Financial Section of this report. Comerica operates in three primary geographic markets - Texas, California, and Michigan, as well as in Arizona and Florida, with select businesses operating in several other states, and in Canada and Mexico. We provide information about our market segments in Note 22 on pages F-101 through F-105 of the Notes to Consolidated Financial Statements located in the Financial Section of this report. Activities with customers domiciled outside the U.S., in total or with any individual country, are not significant. We provide information on risks attendant to foreign operations: (1) under the caption “Concentration of Credit Risk” on pages F-26 through F-27 of the Financial Section of this report; and (2) under the caption "International Exposure" on page F-29 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-Fully Taxable Equivalent (FTE)” on page F-6 of the Financial Section of this report; (2) under the caption “Net Interest Income” on pages F-7 through F-8 of the Financial Section of this report; and (3) under the caption “Noninterest Income” on pages F-8 through F-9 of the Financial Section of this report. Acquisition of Sterling Bancshares, Inc. On July 28, 2011, Comerica acquired all the outstanding common stock of Sterling Bancshares, Inc. ("Sterling"), a bank holding company headquartered in Houston, Texas, in a stock-for-stock transaction. Sterling common shareholders and holders of outstanding Sterling phantom stock units received 0.2365 shares of Comerica's common stock in exchange for each share of Sterling common stock or phantom stock unit. As a result, Comerica issued approximately 24 million common shares with an acquisition date fair value of $793 million, based on Comerica's closing stock price of $32.67 on July 27, 2011. Based on the merger agreement, outstanding and unexercised options to purchase Sterling common stock were converted into fully vested options to purchase common stock of Comerica. In addition, outstanding warrants to purchase Sterling common stock were converted into warrants to purchase common stock of Comerica. Including an insignificant amount of cash paid in lieu of fractional shares, the fair value of total consideration paid was $803 million. The acquisition of Sterling significantly expanded Comerica's presence in Texas, particularly in the Houston and San Antonio areas. 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 and 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 1 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 loans in a larger overall portfolio. Some of Comerica's smaller competitors may have more liberal lending policies and processes. Further, Comerica's banking competitors may be subject to a significantly different or reduced degree of regulation due to their asset size or types of products offered. They may also have the ability to more efficiently utilize resources to comply with regulations or may be able to more effectively absorb the costs of regulations into their existing cost structure. Comerica believes that the level of competition in all geographic markets will continue to increase in the future. In addition to banks, Comerica's banking subsidiaries also face competition from other financial intermediaries, including savings and loan associations, consumer finance companies, leasing companies, venture capital funds, credit unions, investment banks, insurance companies and securities firms. Competition among providers of financial products and services continues to increase, with consumers having the opportunity to select from a growing variety of traditional and nontraditional alternatives. The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified competition. Because non-banking financial institutions are not subject to many of the same regulatory restrictions as banks and bank holding companies, they can often operate with greater flexibility and lower cost structures. In addition, the industry continues to consolidate, which affects competition by eliminating some regional and local institutions, while strengthening the franchises of acquirers. SUPERVISION AND REGULATION Banks, bank holding companies, and financial institutions are highly regulated at both the state and federal level. Comerica is subject to supervision and regulation at the federal level by the Board of Governors of the Federal Reserve System (“FRB”) under the Bank Holding Company Act of 1956, as amended. The Gramm-Leach-Bliley Act expanded the activities in which a bank holding company registered as a financial holding company can engage. The conditions to be a financial holding company include, among others, the requirement that each depository institution subsidiary of the holding company be well capitalized and well managed. Effective July 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) also requires the well capitalized and well managed standards to be met at the financial holding company level. Comerica became a financial holding company in 2000. As a financial holding company, Comerica may affiliate with securities firms and insurance companies, and engage in activities that are financial in nature. Activities that are “financial in nature” include, but are not limited to: securities underwriting; securities dealing and market making; sponsoring mutual funds and investment companies (subject to regulatory requirements, including restrictions set forth in the Volcker Rule, described under the heading "The Dodd-Frank Wall Street Reform and Consumer Protection Act and Other Recent Legislative and Regulatory Developments" below); insurance underwriting and agency; merchant banking; and activities that the FRB has determined to be financial in nature or incidental or complementary to a financial activity, provided that it does not pose a substantial risk to the safety or soundness of the depository institution or the financial system generally. A bank holding company that is not also a financial holding company is limited to engaging in banking and other activities previously determined by the FRB to be closely related to banking. Comerica Bank is chartered by the State of Texas and at the state level is supervised and regulated by the Texas Department of Banking under the Texas Finance Code. Comerica Bank has elected to be a member of the Federal Reserve System under the Federal Reserve Act and, consequently, is supervised and regulated by the Federal Reserve Bank of Dallas. Comerica Bank & Trust, National Association is chartered under federal law and is subject to supervision and regulation by the Office of the Comptroller of the Currency (“OCC”) under the National Bank Act. Comerica Bank & Trust, National Association, by virtue of being a national bank, is also a member of the Federal Reserve System. The deposits of Comerica Bank and Comerica Bank & Trust, National Association are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”) to the extent provided by law. In Canada, Comerica Bank is supervised by the Office of the Superintendent of Financial Institutions. 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 (in the case of Comerica Securities, Inc.), the Office of Financial and Insurance Regulation of the State of Michigan (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., World Asset Management, Inc. and Wilson, Kemp & Associates, Inc.). Described below are material elements of selected laws and regulations applicable to Comerica and its subsidiaries. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described. Changes in applicable law or regulation, and in their application by regulatory agencies, cannot be predicted, but they may have a material effect on the business of Comerica and its subsidiaries. 2 Requirements for Approval of Acquisitions and Activities In most cases, no FRB approval is required for Comerica to acquire a company engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB. However, Federal and state laws impose notice and approval requirements for mergers and acquisitions of other depository institutions or bank holding companies. Prior approval is required before Comerica may acquire the beneficial ownership or control of more than 5% of the voting shares or substantially all of the assets of a bank holding company (including a financial holding company) or a bank. The Community Reinvestment Act of 1977 (“CRA”) requires U.S. banks to help serve the credit needs of their communities. Comerica Bank's current rating under the “CRA” is “satisfactory”. If any subsidiary bank of Comerica were to receive a rating under the CRA of less than “satisfactory,” Comerica would be prohibited from engaging in certain activities. In addition, Comerica, Comerica Bank and Comerica Bank & Trust, National Association, are each “well capitalized” and “well managed” under FRB standards. If any subsidiary bank of Comerica were to cease being “well capitalized” or “well managed” under applicable regulatory standards, the FRB could place limitations on Comerica's ability to conduct the broader financial activities permissible for financial holding companies or impose limitations or conditions on the conduct or activities of Comerica or its affiliates. If the deficiencies persisted, the FRB could order Comerica to divest any subsidiary bank or to cease engaging in any activities permissible for financial holding companies that are not permissible for bank holding companies, or Comerica could elect to conform its non-banking activities to those permissible for a bank holding company that is not also a financial holding company. Further, the effectiveness of Comerica and its subsidiaries in complying with anti-money laundering regulations (discussed below) is also taken into account by the FRB when considering applications for approval of acquisitions. Transactions with Affiliates Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and the FRB's Regulation W, limit borrowings by Comerica and its nonbank subsidiaries from its affiliate insured depository institutions, and also limit various other transactions between Comerica and its nonbank subsidiaries, on the one hand, and Comerica's affiliate insured depository institutions, on the other. For example, Section 23A of the Federal Reserve Act limits the aggregate outstanding amount of any insured depository institution's loans and other “covered transactions” with any particular nonbank affiliate to no more than 10% of the institution's total capital and limits the aggregate outstanding amount of any insured depository institution's covered transactions with all of its nonbank affiliates to no more than 20% of its total capital. “Covered transactions” are defined by statute to include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the FRB) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. Section 23A of the Federal Reserve Act also generally requires that an insured depository institution's loans to its nonbank affiliates be, at a minimum, 100% secured, and Section 23B of the Federal Reserve Act generally requires that an insured depository institution's transactions with its nonbank affiliates be on terms and under circumstances that are substantially the same or at least as favorable as those prevailing for comparable transactions with nonaffiliates. The Dodd-Frank Act significantly expanded the coverage and scope of the limitations on affiliate transactions within a banking organization. For example, commencing in July 2012, the Dodd-Frank Act applies the 10% of capital limit on covered transactions to financial subsidiaries and amends the definition of “covered transaction” to include (i) securities borrowing or lending transactions with an affiliate, and (ii) all derivatives transactions with an affiliate, to the extent that either causes a bank or its affiliate to have credit exposure to the securities borrowing/lending or derivative counterparty. Privacy The privacy provisions of the Gramm-Leach-Bliley Act generally prohibit financial institutions, including Comerica, from disclosing nonpublic personal financial information of consumer customers to third parties for certain purposes (primarily marketing) unless customers have the opportunity to “opt out” of the disclosure. The Fair Credit Reporting Act restricts information sharing among affiliates for marketing purposes. Anti-Money Laundering Regulations The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (“USA PATRIOT Act”) of 2001 and its implementing regulations substantially broadened the scope of U.S. anti-money laundering laws and regulations by requiring insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The USA PATRIOT Act and its regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. To comply with these obligations, Comerica and its various operating units have implemented appropriate internal practices, procedures, and controls. 3 Interstate Banking and Branching The Interstate Banking and Branching Efficiency Act (the “Interstate Act”), as amended by the Dodd-Frank Act, permits a bank holding company, with FRB approval, to acquire banking institutions located in states other than the bank holding company's home state without regard to whether the transaction is prohibited under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, prior to and following the proposed acquisition, control no more than 10% of the total amount of deposits of insured depository institutions in the U.S. and no more than 30% of such deposits in that state (or such amount as established by state law if such amount is lower than 30%). The Interstate Act, as amended, also authorizes banks to operate branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states and by establishing de novo branches in other states, subject to various conditions. In the case of purchasing branches in a state in which it does not already have banking operations, the “host” state must have “opted-in” to the Interstate Act by enacting a law permitting such branch purchases. The Dodd-Frank Act expanded the de novo interstate branching authority of banks beyond what had been permitted under the Interstate Act by eliminating the requirement that a state expressly “opt-in” to de novo branching, in favor of a rule that de novo interstate branching is permissible if under the law of the state in which the branch is to be located, a state bank chartered by that state would be permitted to establish the branch. Effective July 21, 2011, the Dodd-Frank Act also required that a bank holding company or bank be well capitalized and well managed (rather than simply adequately capitalized and adequately managed) in order to take advantage of these interstate banking and branching provisions. Comerica has consolidated most of its banking business into one bank, Comerica Bank, with branches in Texas, Arizona, California, Florida and Michigan. Dividends Comerica is a legal entity 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, 2015, Comerica's subsidiary banks could declare aggregate dividends of approximately $375 million from retained net profits of the preceding two years. Comerica's subsidiary banks declared dividends of $380 million in 2014, $480 million in 2013 and $497 million in 2012. Further, federal regulatory agencies can prohibit a banking institution or bank holding company from engaging in unsafe and unsound banking practices and could prohibit the payment of dividends under circumstances in which such payment could be deemed an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), “prompt corrective action” regime discussed below, which applies to each of Comerica Bank and Comerica Bank & Trust, National Association, a subject bank is specifically prohibited from paying dividends to its parent company if payment would result in the bank becoming “undercapitalized.” In addition, Comerica Bank is also subject to limitations under Texas state law regarding the amount of earnings that may be paid out as dividends to its parent company, and requiring prior approval for payments of dividends that exceed certain levels. Additionally, the payment of dividends by Comerica to its shareholders is subject to the non-objection of the FRB pursuant to the Comprehensive Capital Analysis and Review (CCAR) program. For more information, please see “The Dodd-Frank Wall Street Reform and Consumer Protection Act and Other Recent Legislative and Regulatory Developments” in this section. Source of Strength and Cross-Guarantee Requirements Federal law and FRB regulations require that bank holding companies serve as a source of strength to each subsidiary bank and commit resources to support each subsidiary bank. This support may be required at times when a bank holding company may not be able to provide such support without adversely affecting its ability to meet other obligations. Similarly, under the cross- guarantee provisions of the Federal Deposit Insurance Act, in the event of a loss suffered or anticipated by the FDIC (either as a result of the failure of a banking subsidiary or related to FDIC assistance provided to such a subsidiary in danger of failure), the other banking subsidiaries may be assessed for the FDIC's loss, subject to certain exceptions. Federal Deposit Insurance Corporation Improvement Act FDICIA requires, among other things, the federal banking agencies to take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository 4 institution's capital tier will depend upon where its capital levels are in relation to various relevant capital measures, which, among others, include a Tier 1 and total risk-based capital measure and a leverage ratio capital measure. Regulations establishing the specific capital tiers provide that, for a depository institution to be well capitalized, it must have a total risk-based capital ratio of at least 10% and a Tier 1 risk-based capital ratio of at least 6%, a Tier 1 leverage ratio of at least 5% and not be subject to any specific capital order or directive. For an institution to be adequately capitalized, it must have a total risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 4%, and a Tier 1 leverage ratio of at least 4% (and in some cases 3%). 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, 2014, 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% of the depository institution's total assets at the time it became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit or implement an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized depository institutions are subject to a number of requirements and restrictions. Specifically, such a depository institution may be required to do one or more of the following, among other things: sell sufficient voting stock to become adequately capitalized, reduce the interest rates it pays on deposits, reduce its rate of asset growth, dismiss certain senior executive officers or directors, or stop accepting deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator or such other action as the FDIC and the applicable federal banking agency shall determine appropriate. As an additional means to identify problems in the financial management of depository institutions, FDICIA requires federal bank regulatory agencies to establish certain non-capital safety and soundness standards for institutions any such agency supervises. The standards relate generally to, among others, earnings, liquidity, operations and management, asset quality, various risk and management exposures (e.g., credit, operational, market, interest rate, etc.) and executive compensation. The agencies are authorized to take action against institutions that fail to meet such standards. FDICIA also contains a variety of other provisions that may affect the operations of depository institutions including reporting requirements, regulatory standards for real estate lending, “truth in savings” provisions, the requirement that a depository institution give 90 days prior notice to customers and regulatory authorities before closing any branch, and a prohibition on the acceptance or renewal of brokered deposits by depository institutions that are not well capitalized or are adequately capitalized and have not received a waiver from the FDIC. Capital Requirements Comerica and its bank subsidiaries are subject to risk-based capital requirements and guidelines imposed by the FRB and/or the OCC. For this purpose, a depository institution's or holding company's assets and certain specified off-balance sheet commitments are assigned to four risk categories, each weighted differently based on the level of credit risk that is ascribed to such assets or commitments. A depository institution's or holding company's capital, in turn, is divided into two tiers: core (“Tier 1”) capital, which includes common equity, non-cumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock and related surplus (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill, certain identifiable intangible assets and certain other assets; and supplementary (“Tier 2”) capital, which includes, among other items, perpetual preferred stock not meeting the Tier 1 definition, mandatory convertible securities, subordinated debt, and allowances for loan and lease losses, subject to certain limitations, less certain required deductions. Bank holding companies 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. 5 Comerica, like other bank holding companies, currently is required to maintain Tier 1 and “total capital” (the sum of Tier 1 and Tier 2 capital) equal to at least 4% and 8% of its total risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit), respectively. At December 31, 2014, Comerica met both requirements, with Tier 1 and total capital equal to 10.50% and 12.51% of its total risk-weighted assets, respectively. Comerica is also required to maintain a minimum “leverage ratio” (Tier 1 capital to non-risk-adjusted total assets) of 3% to 4%, depending upon criteria defined and assessed by the FRB. Comerica's leverage ratio of 10.35% at December 31, 2014 reflects the nature of Comerica's balance sheet and demonstrates a commitment to capital adequacy. At December 31, 2014, Comerica Bank had Tier 1 and total capital equal to 10.36% and 12.02% of its total risk-weighted assets, respectively, and a leverage ratio of 10.20%. Additional information on the calculation of Comerica and its bank subsidiaries' Tier 1 capital, total capital and risk- weighted assets is set forth in Note 20 of the Notes to Consolidated Financial Statements located on pages F-99 through F-100 of the Financial Section of this report. Additional information on the timing and nature of the Basel III capital requirements is set forth below, under "Basel III: Regulatory Capital and Liquidity Regime." FDIC Insurance Assessments The FDIC Deposit Insurance Fund (“DIF”) provides insurance coverage for certain deposits. Comerica's subsidiary banks are subject to FDIC deposit insurance assessments to maintain the DIF. The FDIC imposes a risk-based deposit premium assessment system, which was amended pursuant to the Federal Deposit Insurance Reform Act of 2005 and further amended by the Dodd- Frank Act. The Dodd-Frank Act also increased the DIF's minimum reserve ratio and permanently increased general deposit insurance coverage from $100,000 to $250,000. The final rule implementing revisions to the assessment system became effective April 1, 2011. Under the risk-based deposit premium assessment system, the assessment rates for an insured depository institution are determined by an assessment rate calculator, which is based on a number of elements to measure the risk each institution poses to the DIF. The assessment rate is applied to total average assets less tangible equity. Under the current system, premiums are assessed quarterly. For 2014, Comerica’s FDIC insurance expense totaled $33 million. Our assessment rate could increase in the future under the current system if, for example, criticized loans and/or other higher risk assets increase or balance sheet liquidity decreases. 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. Capital Purchase Program On November 14, 2008, Comerica participated in the United States Department of the Treasury (“U.S. Treasury”) Capital Purchase Program by issuing to the U.S. Treasury, in exchange for aggregate consideration of $2.25 billion, (i) 2.25 million shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series F, no par value (the “Series F Preferred Stock”), and (ii) a warrant to purchase 11,479,592 shares of Comerica's common stock at an exercise price of $29.40 per share that expires on November 14, 2018 (the “Warrant”). Both the Series F Preferred Stock and the Warrant were accounted for as components of Comerica's regulatory Tier 1 capital and contained terms and limitations imposed by the U.S. Treasury. On March 17, 2010, Comerica fully redeemed the Series F Preferred Stock previously issued to the U.S. Treasury, and Comerica exited the Capital Purchase Program. The Warrant was separated into 11,479,592 warrants to purchase one share of Comerica's common stock at an exercise price of $29.40 per share, and such warrants are now listed and traded on the NYSE. As a result of participating in the Capital Purchase Program, Comerica was subject to certain executive compensation and corporate governance standards promulgated by the U.S. Treasury prior to redemption, which no longer applied to Comerica following the redemption. The Dodd-Frank Wall Street Reform and Consumer Protection Act and Other Recent Legislative and Regulatory Developments The recent financial crisis has led to significant changes in the legislative and regulatory landscape of the financial services industry, including the overhaul of that landscape with the passage of the Dodd-Frank Act, which was signed into law on July 21, 2010. Provided below is an overview of key elements of the Dodd-Frank Act relevant to Comerica, as well as other recent legislative and regulatory developments. The estimates of the impact on Comerica discussed below are based on information currently available and, if applicable, are subject to change until final rulemaking is complete. Incentive-Based Compensation. In June 2010, the FRB, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers senior executives as well as other employees who, either individually or as part of a group, have the ability to expose the banking organization to 6 material amounts of risk, is based upon the key principles that a banking organization's incentive compensation arrangements (i) should provide employees incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risk; (ii) should be compatible with effective controls and risk-management; and (iii) should be supported by strong corporate governance, including active and effective oversight by the organization's board of directors. Banking organizations are expected to review regularly their incentive compensation arrangements based on these three principles. Where there are deficiencies in the incentive compensation arrangements, they should be promptly addressed. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk- management control or governance processes, pose a risk to the organization's safety and soundness, particularly if the organization is not taking prompt and effective measures to correct the deficiencies. Comerica is subject to this final guidance and, similar to other large banking organizations, has been subject to a continuing review of incentive compensation policies and practices by representatives of the FRB, the Federal Reserve Bank of Dallas and the Texas Department of Banking since 2011. As part of that review, Comerica has undertaken a thorough analysis of all the incentive compensation programs throughout the organization, the 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. On April 14, 2011, the FRB, OCC and several other federal financial regulators issued a joint proposed rulemaking 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. 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 that at least 50 percent of annual incentive-based payments be deferred over a period of at least three years for designated executives. Moreover, boards of directors of these larger institutions would be required to identify employees 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, and to determine that the incentive compensation for these employees appropriately balances risk and rewards according to enumerated standards. Comerica is monitoring the development of this rule. Basel III: Regulatory Capital and Liquidity Regime. In December 2010, the Basel Committee on Banking Supervision (the “Basel Committee”) issued a framework for strengthening international capital and liquidity regulation (“Basel III”). In July 2013, U.S. banking regulators issued a final rule for the U.S. adoption of the Basel III regulatory capital framework. The regulatory framework includes a more conservative definition of capital, two new capital buffers - a conservation buffer and a countercyclical buffer, new and more stringent risk weight categories for assets and off-balance sheet items, and a supplemental leverage ratio. As a banking organization subject to the standardized approach, the rules are effective for Comerica on January 1, 2015, with certain transition provisions fully phased in on January 1, 2018. According to the rule, Comerica will be subject to the capital conservation buffer of 2.5 percent, when fully phased in, to avoid restrictions on capital distributions and discretionary bonuses. However, the rules do not subject Comerica to the capital countercyclical buffer of up to 2.5 percent or the supplemental leverage ratio. Comerica estimates the December 31, 2014 Tier 1 and Tier 1 common risk-based ratio would be 10.3 percent if calculated under the final rule, as fully phased in, excluding most elements of accumulated other comprehensive income from regulatory capital. Comerica's December 31, 2014 estimated Tier 1 common and Tier 1 capital ratios exceed the minimum required by the final rule (7 percent and 8.5 percent, respectively, including the fully phased-in capital conservation buffer). For a reconcilement of these non-GAAP financial measures, see page F-41 of the Financial Section of this report under the caption "Supplemental Financial Data." On December 9, 2014, U.S. banking regulators proposed a rule that would establish an additional capital buffer for banking organizations deemed systemically important to the global financial system (globally systemically important bank holding companies, or “G-SIB”). Comerica would not be considered a G-SIB under the rule as proposed. On September 3, 2014, U.S. banking regulators adopted the Liquidity Coverage Ratio ("LCR") rule, which set for U.S. banks the minimum liquidity measure established under the Basel III liquidity framework. Under the final rule, Comerica is subject to a modified LCR standard, which requires a financial institution to hold a minimum level of high-quality, liquid assets ("HQLA") to fully cover net cash outflows under a 30-day systematic liquidity stress scenario. The rule is effective for Comerica on January 1, 2016. During the transition year, 2016, Comerica will be required to maintain a minimum LCR of 90 percent. Beginning January 1, 2017, and thereafter, the minimum required LCR will be 100 percent. Comerica continues to evaluate the impact of the rule; however, we expect to meet the final requirements adopted by U.S. banking regulators within the required timetable. To reach full compliance and provide a buffer for normal volatility in balance sheet dynamics, Comerica expects to add additional HQLA, which may be funded with additional debt, in the future. Comerica does not currently expect compliance with the LCR rule will have a significant impact on net interest income. 7 The Basel III liquidity framework includes a second minimum liquidity measure, the Net Stable Funding Ratio ("NSFR"), which requires the amount of available longer-term, stable sources of funding to be at least 100 percent of the required amount of longer-term stable funding over a one-year period. The Basel Committee on Banking Supervision is in the process of reviewing the proposed NSFR standard and evaluating its impact on the banking system. U.S. banking regulators have announced that they expect to issue proposed rulemaking to implement the NFSR in advance of its scheduled global implementation in 2018. While uncertainty exists in the final form and timing of the U.S. rule implementing the NSFR and whether or not Comerica will be subject to the full requirements, Comerica is closely monitoring the development of the rule. Interchange Fees. On July 20, 2011, the FRB published final rules pursuant to the Dodd-Frank Act establishing the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction as the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction and prohibiting network exclusivity arrangements and routing restrictions. Comerica is subject to the final rules. In July 2013, a federal district court invalidated the FRB's interchange fee rules. The FRB's appeal of the court’s ruling resulted in the U.S. Circuit Court of Appeals for the District of Columbia overruling the district court, reinstating the final rule as previously issued. On January 20, 2015, the U.S. Supreme Court denied a further appeal. 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. We paid $1.5 million in 2014 with respect to the 2013 assessment year and accrued another $1.5 million for the 2014 assessment year. The Volcker Rule. The federal banking agencies and the SEC published approved joint final regulations to implement the Volcker Rule on December 10, 2013. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from owning and sponsoring "covered funds" (e.g. hedge funds and private equity funds). The final regulations adopt a multi-faceted approach to implementing the Volcker Rule prohibitions that relies on: (i) detailed descriptions of prohibited and permitted activities; (ii) detailed compliance requirements; and (iii) for banking entities with large volumes of trading activity, detailed quantitative analysis and reporting obligations. In addition to rules implementing the core prohibitions and exemptions (e.g. underwriting, market-making related activities, risk-mitigating hedging and trading in certain government obligations) of the Volcker Rule, the regulations also include two appendices devoted to record-keeping and reporting requirements, including numerous quantitative data reporting obligations for banking entities with significant trading activities (Appendix A) and enhanced compliance requirements for banking entities with significant trading or covered fund activities (Appendix B). The final rule was effective April 1, 2014. The Volcker Rule generally requires full compliance with the new restrictions by July 21, 2015; however, the FRB has recently extended the conformance period to July 21, 2017 for covered funds that were in place prior to December 31, 2013. Comerica expects to meet the final requirements adopted by regulators within the applicable regulatory timelines. Additional information on Comerica's portfolio of indirect (through funds) private equity and venture capital investments is set forth in Note 1 of the Notes to Consolidated Financial Statements located on page F-51 of the Financial Section of this report. Annual Capital Plans and Stress Tests. Comerica is subject to the FRB’s annual Comprehensive Capital Analysis and Review (CCAR) process, as well as the Dodd-Frank Act Stress Testing (DFAST) requirements. As part of the CCAR process, the FRB undertakes a supervisory assessment of the capital adequacy of bank holding companies (BHCs), including Comerica, that have $50 billion or more in total consolidated assets. This capital adequacy assessment is based on a review of a comprehensive capital plan submitted by each participating BHC to the FRB that describes the company’s planned capital actions during the nine quarter review period, as well as the results of stress tests conducted by both the company and the FRB under different hypothetical macro-economic scenarios, including a supervisory baseline and an adverse and a severely adverse scenario provided by the FRB. 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 stock repurchase programs, or redeem preferred stock or other regulatory capital instruments. In connection with the 2014 CCAR, Comerica submitted its 2014 capital plan to the FRB on January 3, 2014; on March 26, 2014, Comerica announced that the FRB had completed its CCAR 2014 capital plan review and did not object to the capital plan or capital distributions contemplated in the plan. Also as required, Comerica submitted its CCAR 2015 capital plan to the FRB on January 5, 2015 and expects to receive the results of the FRB's review of the plan in March 2015. As part of the CCAR and DFAST process, both the FRB and Comerica release certain revenue, loss and capital results from their stress testing exercises, generally in March of each year. FRB regulations also require that Comerica and other large bank holding companies conduct a separate mid-year stress test using financial data as of March 31st and three company-derived macro-economic scenarios (base, adverse and severely adverse) and publish a summary of the results under the severely adverse scenario in September. On March 20, 2014 and September 15, 2014, Comerica released the results of its company-run annual and mid-year stress tests, respectively, which are available in the Investor Relations section of Comerica's website at investor.comerica.com, on the “Dodd-Frank Act Stress Test Results” page under "Financial Reports." Similar timelines will be expected for the 2015 mid-year stress tests. In October 2014, the FRB modified the timing of the capital planning cycle. For 2016, the annual capital plan will be moved to an April submission (instead of January) and the mid-year stress test will be moved to an October submission (instead 8 of July). Accordingly, for the 2015 Capital Plan submission, the FRB’s determination regarding capital distributions will extend over a period of five quarters, 2Q 2015 - 2Q 2016, in order to accommodate the shift in the capital plan cycle in 2016. Enhanced Prudential Requirements. The Dodd-Frank Act created the Financial Stability Oversight Council (“FSOC”) to coordinate efforts of the primary U.S. financial regulatory agencies in establishing regulations to address financial stability concerns and to make recommendations to the FRB as to enhanced prudential standards that must apply to large, interconnected bank holding companies and nonbank financial companies supervised by the FRB under the Dodd-Frank Act, including capital, leverage, liquidity and risk management requirements. On February 18, 2014, the FRB issued its final regulations to implement the enhanced prudential and supervisory requirements mandated by the Dodd-Frank Act. The final regulations address enhanced risk-based capital and leverage requirements, enhanced liquidity requirements, enhanced risk management and risk committee requirements, single-counterparty credit limits, semiannual stress tests (as described above under "Annual Capital Plans and Stress Tests"), and a debt-to-equity limit for companies determined to pose a grave threat to financial stability. They are intended to allow regulators to more effectively supervise large bank holding companies and nonbank financial firms whose failure could impact the stability of the US financial system, and generally build on existing US and international regulatory guidance. The proposal also takes a multi-stage or phased approach to many of the requirements (such as the capital and liquidity requirements). Most of these requirements apply to Comerica because it has consolidated assets of more than $50 billion. Comerica has or will implement all requirements of the new rules within regulatory timelines. Resolution (Living Will) Plans. Section 165(d) of the Dodd-Frank Act requires bank holding companies with total consolidated assets of $50 billion or more (“covered companies”) to prepare and submit to the federal banking agencies (e.g., FRB and FDIC) a plan for their rapid and orderly resolution under the U.S. Bankruptcy Code. Covered companies, such as Comerica, with less than $100 billion in total nonbank assets were required to submit their initial plans by December 31, 2013. In addition, Section 165(d) requires FDIC-insured depository institutions (like Comerica Bank) with assets of $50 billion or more to develop, maintain, and periodically submit plans outlining how the FDIC would resolve it through the FDIC's resolution powers under the Federal Deposit Insurance Act. The federal banking agencies have issued rules to implement these requirements. In addition, those rules require the filing of annual updates to the plans. Both Comerica and Comerica Bank filed their respective initial and updated resolution plans by the required due dates. The resolution plans are currently under review by the FRB and FDIC. Section 611 and Title VII of the Dodd-Frank Act. Section 611 of the Dodd-Frank Act prohibits a state bank from engaging in derivative transactions unless the lending limit laws of the state in which the bank is chartered take into consideration exposure to derivatives. Section 611 does not provide how state lending limit laws must factor in derivatives. The Texas Finance Commission has adopted an administrative rule meeting the requirements of Section 611. Accordingly, Comerica Bank may engage in derivative transactions, as permitted by applicable law. Title VII of the Dodd-Frank Act establishes a comprehensive framework for over-the-counter (“OTC”) derivatives transactions. The structure for derivatives set forth in the Dodd-Frank Act is intended to promote, among other things, exchange trading and centralized clearing of swaps and security-based swaps, as well as greater transparency in the derivatives markets and enhanced monitoring of the entities that use these markets. In this regard, the CFTC and SEC have issued several regulatory proposals, some of which are now effective or will become effective in 2015. The SEC and CFTC have jointly adopted rules further defining the terms “swap,” “security-based swap,” “security-based swap agreement,” and have also adopted final joint rules defining the terms “swap dealer,” “security-based swap dealer,” “major swap participant,” and “major security-based swap participant.” Comerica has determined that neither it, nor its subsidiaries, are within the definition of “swap dealer” or “major swap participant,” but some portions of the Title VII regulations apply nonetheless. One of these regulations centers on limiting certain OTC transactions to “eligible contract participants.” This regulation may have an impact on the small business customers of Comerica's banking subsidiaries by making such customers ineligible for swap derivatives as hedging in their loan agreements. Consumer Finance Regulations. The Dodd-Frank Act made several changes to consumer finance laws and regulations. It contained provisions that have weakened the federal preemption rules applicable for national banks and give state attorneys general the ability to enforce federal consumer protection laws. Additionally, the Dodd-Frank Act created the Consumer Financial Protection Bureau (“CFPB“), which has a broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices, and possesses examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. In this regard, the CFPB has commenced issuing several new rules to implement various provisions of the Dodd-Frank Act that were specifically identified as being enforced by the CFPB, as well as those specified for supervisory and enforcement authority for very large depository institutions and non-depository (nonbank) entities. Comerica is subject to CFPB foreign remittance rules and home mortgage lending rules, in addition to certain other CFPB rules. The foreign remittance rules fall under Section 1073 of the Dodd-Frank Act. The CFPB issued new regulations amending Regulation E, which implements the Electronic Fund Transfer Act, effective October 28, 2013. The regulations were designed to 9 provide protections to consumers who transfer funds to recipients located in countries outside the United States (customer foreign remittance transfers). In general, the regulation requires remittance transfer providers, such as Comerica, to disclose to a consumer the exchange rate, fees, and amount to be received by the recipient when the consumer sends a remittance transfer. Although Comerica had implemented the model disclosures provided in Appendix A to the final rule, on September 18, 2014, the CFPB extended the compliance exception period for the rule's new disclosure requirements to July 21, 2020. On July 17, 2014, the CFPB issued an interpretive rule clarifying that where a successor-in-interest (successor) who has previously acquired title to a dwelling agrees to be added as obligor or substituted for the existing obligor on a consumer credit transaction secured by that dwelling, the creditor's written acknowledgment of the successor as obligor is not subject to the CFPB’s Ability-to-Repay Rule because such a transaction does not constitute an assumption as defined by Regulation Z. In addition, the CFPB issued other Regulation Z-related rules that had little or no effect on Comerica’s operations as it has outsourced most of its consumer loan origination and servicing. On November 13, 2014, the CFPB issued a proposed regulation establishing new consumer protections and disclosure requirements on prepaid accounts, including (i) the provision of either periodic statements or free online account information access; (ii) new account error and unauthorized transaction rights; (iii) new “Know Before You Owe” prepaid account disclosures; (iv) public disclosure of account agreements for prepaid accounts and (v) credit protection for linked credit accounts. Comerica is monitoring the development of these new rules and will position itself to be in compliance with any new requirements within the established regulatory time frames. Truth in Lending Act. As a result of recent judicial decisions, borrowers are permitted to rescind their mortgage pursuant to the Truth in Lending Act by giving notice of their intent to rescind within three years of closing, and do not need to file suit to exercise this right. This decision could impact Comerica’s indemnity rights with its mortgage servicing vendor, as well as consumer closed-end mortgage loans held in Comerica’s portfolio; however, such impact is not anticipated to be significant. FDIC Guidance on Brokered Deposits. On January 5, 2015, the FDIC issued guidance in the form of “Frequently Asked Questions” to promote consistency by insured depository institutions in identifying, accepting, and reporting brokered deposits. All insured depository institutions (including those that are well capitalized) must report brokered deposits in their Consolidated Reports of Condition and Income (Call Reports). Comerica is currently evaluating the impact of these FAQs to various business units throughout the organization. Flood Insurance Reform. The Biggert-Waters Flood Insurance Reform Act of 2012 (“Biggert-Waters Act”), as amended by the Homeowner Flood Insurance Affordability Act of 2014, modified the National Flood Insurance Program by: (i) increasing the maximum civil penalty for Flood Disaster Protection Act violations to $2,000 and eliminating the annual penalty cap; (ii) requiring certain lenders (including Comerica) to escrow premiums and fees for flood insurance on residential improved real estate; (iii) directing lenders to accept private flood insurance and to notify borrowers of its availability; (iv) amending the force placement requirement provisions; and (v) permitting lenders to charge borrowers costs for lapses in or insufficient coverage. These requirements will impact Comerica loans and extensions of credit secured with residential improved real estate. The civil penalty and force placed insurance provisions were effective immediately. On October 21, 2014, certain federal agencies issued a joint proposed rule exempting: (1) detached structures that are not used as a residence from the mandatory flood insurance purchase requirements and (2) HELOCs, business purpose loans, nonperforming loans, loans with terms of less than one year, loans for co-ops and condominiums, and subordinate loans on the same property from the mandatory escrow of flood insurance premium requirements. Additionally, the proposed rule would require Comerica to offer the option to escrow flood insurance premiums starting on January 1, 2016. The federal agencies will address the remaining provisions of the Biggert-Waters Act in a separate rulemaking. Comerica will continue to monitor the development and implementation of these rules. Future Legislation and Regulatory Measures The environment in which financial institutions will operate after the recent financial crisis, including legislative and regulatory changes affecting capital, liquidity, supervision, permissible activities, corporate governance and compensation, and changes in fiscal policy, may have long-term effects on the business model and profitability of financial institutions that cannot be foreseen. Moreover, in light of recent events and current conditions in the U.S. financial markets and economy, Congress and regulators have continued to increase their focus on the regulation of the financial services industry. Comerica cannot accurately predict whether legislative changes will occur or, if they occur, the ultimate effect they would have upon the financial condition or results of operations of Comerica. UNDERWRITING APPROACH The loan portfolio is a primary source of profitability and risk, so proper loan underwriting is critical to Comerica's long- term financial success. Comerica extends credit to businesses, individuals and public entities based on sound lending principles and consistent with prudent banking practice. During the loan underwriting process, a qualitative and quantitative analysis of 10 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. Credit Administration Comerica maintains a Credit Administration Department (“Credit Administration”) which is responsible for the oversight and monitoring of our loan portfolio. Credit Administration assists with underwriting by providing objective financial analysis, including an assessment of the borrower's business model, balance sheet, cash flow and collateral. Each borrower relationship is assigned an internal risk rating by Credit Administration. Further, Credit Administration updates the assigned internal risk rating for every borrower relationship as new information becomes available, either as a result of periodic reviews of the credit quality or as a result of a change in borrower performance. The goal of the internal risk rating framework is to improve Comerica's risk management capability, including its ability to identify and manage changes in the credit risk profile of its portfolio, predict future losses and price the loans appropriately for risk. Credit Policy Comerica maintains a comprehensive set of credit policies. Comerica's credit policies provide individual relationship managers, as well as loan committees, approval authorities based on our internal risk rating system and establish maximum exposure limits based on risk ratings and Comerica's legal lending limit. Credit Administration, in conjunction with the businesses units, monitors compliance with the credit policies and modifies the existing policies as necessary. New or modified policies/guidelines require approval by the Strategic Credit Committee, chaired by Comerica's Chief Credit Officer and comprising senior credit, market and risk management executives. Commercial Loan Portfolio Commercial loans are underwritten using a comprehensive analysis of the borrower's operations. The underwriting process includes an analysis of some or all of the factors listed below: • • • • • • • • The borrower's business model. Periodic review of financial statements including financial statements audited by an independent certified public accountant when appropriate. The pro-forma financial condition including financial projections. The borrower's sources and uses of funds. The borrower's debt service capacity. The guarantor's financial strength. A comprehensive review of the quality and value of collateral, including independent third-party appraisals of machinery and equipment and commercial real estate, as appropriate, to determine the advance rates. Physical inspection of collateral and audits of receivables, as appropriate. For additional information specific to our Energy loan portfolio, please see the caption, “Energy Lending” on pages F-28 through F-29 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 11 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 loan programs. Although a standard industry definition for subprime loans (including subprime mortgage loans) does not exist, Comerica defines subprime loans as specific product offerings for higher risk borrowers, including individuals with one or a combination of high credit risk factors. These credit factors include low FICO scores, poor patterns of payment history, high debt-to-income ratios and elevated loan-to-value. We generally consider subprime FICO scores to be those below 620 on a secured basis (excluding loans with cash or near-cash collateral and adequate income to make payments) and below 660 for unsecured loans. Residential mortgage loans retained in the portfolio are largely relationship based. The remaining loans are typically eligible to be sold on the secondary market. Adjustable rate loans are limited to standard conventional loan programs. EMPLOYEES As of December 31, 2014, Comerica and its subsidiaries had 8,499 full-time and 616 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 will be required to make additional regulatory capital- related disclosures beginning in 2015. Under these regulations, Comerica may be able to satisfy at least 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,” “feels,” “expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,” “forecast,” “position,” “target,” “mission,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “aspiration,” "opportunity," "initiative," “outcome,” “continue,” “remain,” “maintain,” "on course," “trend,” “objective,” "looks forward," "projects," "models" and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions, as they relate to Comerica or its management, are intended to identify forward-looking statements. Comerica cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date the statement is made, and Comerica does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward- looking statements are made. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance. In addition to factors mentioned elsewhere in this report or previously disclosed in Comerica's SEC reports (accessible on the SEC's website at www.sec.gov or on Comerica's website at www.comerica.com), the factors contained below, among others, 12 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 economic, 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, the recent European debt crisis and government spending and the U.S. national debt, outside of our control may, directly and indirectly, adversely affect Comerica. As has been the case with the impact of recent economic conditions, economic downturns could result in the delinquency of outstanding loans, which could have a material adverse impact on Comerica's earnings. Governmental monetary and fiscal policies may adversely affect the financial services industry, and therefore impact Comerica's financial condition and results of operations. Monetary and fiscal policies of various governmental and regulatory agencies, in particular the FRB, affect the financial services industry, directly and indirectly. The FRB regulates the supply of money and credit in the U.S. and its monetary and fiscal policies determine in a large part Comerica's cost of funds for lending and investing and the return that can be earned on such loans and investments. Changes in such policies, including changes in interest rates, will influence the origination of loans, the value of investments, the generation of deposits and the rates received on loans and investment securities and paid on deposits. Changes in monetary and fiscal policies are beyond Comerica's control and difficult to predict. Comerica's financial condition and results of operations could be materially adversely impacted by changes in governmental monetary and fiscal policies. • Changes in regulation or oversight may have a material adverse impact on Comerica's operations. Comerica is subject to extensive regulation, supervision and examination by the U.S. Treasury, the Texas Department of Banking, the FDIC, the FRB, the SEC, FINRA and other regulatory bodies. Such regulation and supervision governs the activities in which Comerica may engage. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on Comerica's operations, investigations and limitations related to Comerica's securities, the classification of Comerica's assets and determination of the level of Comerica's allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material adverse impact on Comerica's business, financial condition or results of operations. In particular, Congress and other regulators have significantly increased their focus on the regulation of the financial services industry. Their actions include, but are not limited to, the passage of the Dodd-Frank Act, many parts of which are now in effect, and the adoption of the Basel III framework in the U.S. For additional information on these actions, please see “The Dodd-Frank Wall Street Reform and Consumer Protection Act and Other Recent Legislative and Regulatory Developments” section of the “Supervisory and Regulation” section of this report. Many provisions in the Dodd-Frank Act and the Basel III framework remain subject to regulatory rule-making and/or implementation, the effects of which are not yet known. Additionally, Comerica may be subject to other regulatory actions that are currently under consideration, or may be under consideration in the future. For example, as discussed in the “The Dodd-Frank Wall Street Reform and Consumer Protection Act and Other Recent Legislative and Regulatory Developments” section of the “Supervisory and Regulation” section of this report, Comerica is not subject to the additional capital buffer for banking organizations deemed systemically important to the global financial system. However, should U.S. banking regulators establish an additional capital buffer for banking organizations deemed systemically important to the U.S. financial system, Comerica may be subject to an additional buffer. Further, the current administration proposed in January 2010 a fee on those financial institutions that benefited from recent actions taken by the U.S. government to stabilize the financial system. Calls for that fee were renewed during the 2013 federal budget discussions. Most recently, the administration's 2015 budget proposal would impose a 7 basis point tax on U.S. financial firms with assets over $50 billion, with the goal of such proposal to penalize financial institutions for being overly leveraged. If such fee or another similar fee were implemented, Comerica would likely be subject to its terms. The effects of such legislation and regulatory actions on Comerica cannot reliably be fully determined at this time. We can neither predict when or whether future regulatory or legislative reforms will be enacted nor what their contents will be. The impact of any future legislation or regulatory actions on Comerica's businesses or operations cannot be reliably determined at this time, and such impact may adversely affect Comerica. 13 • Comerica must maintain adequate sources of funding and liquidity to meet regulatory expectations, support its operations and fund outstanding liabilities. Comerica’s liquidity and ability to fund and run its business could be materially adversely affected by a variety of conditions and factors, including financial and credit market disruptions and volatility or a lack of market or customer confidence in financial markets in general, which may result in a loss of customer deposits or outflows of cash or collateral and/or ability to access capital markets on favorable terms. Other conditions and factors that could materially adversely affect Comerica’s liquidity and funding include a lack of market or customer confidence in, or negative news about, Comerica or the financial services industry generally which also may result in a loss of deposits and/or negatively affect the ability to access the capital markets; the loss of customer deposits to alternative investments; counterparty availability; interest rate fluctuations; general economic conditions; and the legal, regulatory, accounting and tax environments governing our funding transactions. Many of the above conditions and factors may be caused by events over which Comerica has little or no control. There can be no assurance that significant disruption and volatility in the financial markets will not occur in the future. Further, Comerica's customers may be adversely impacted by such conditions, which could have a negative impact on Comerica's business, financial condition and results of operations. In September 2014, U.S. banking regulators issued a final rule implementing a quantitative liquidity requirement in the U.S. generally consistent with the Liquidity Coverage Ratio (LCR) minimum liquidity measure established under the Basel III liquidity framework. Under the rule, Comerica will be required to hold a minimum level of high-quality, liquid assets (HQLA) to fully cover modified net cash outflows under a 30-day systematic liquidity stress scenario. The rule is effective for Comerica on January 1, 2016. During the transition year, 2016, Comerica will be required to maintain a minimum LCR of 90 percent. Beginning January 1, 2017, and thereafter, the minimum required LCR will be 100 percent. To reach full compliance and provide a buffer for normal volatility in balance sheet dynamics, Comerica expects to add additional HQLA, which may be funded with additional debt, in the future. For more information regarding the LCR, please see the “Supervision and Regulation” section of this report. The inability to access capital markets funding sources as needed could adversely impact our level of regulatory-qualifying capital and ability to comply with the LCR framework. Further, if Comerica is unable to continue to fund assets through customer bank deposits or access funding sources on favorable terms or if Comerica suffers an increase in borrowing costs or otherwise fails to manage liquidity effectively, Comerica’s liquidity, operating margins, financial condition and results of operations may be materially adversely affected. • Compliance with more stringent capital and liquidity requirements may adversely affect Comerica. New capital requirements in connection with Basel III and the requirements of the Dodd-Frank Act applicable to Comerica as a bank holding company as well as to Comerica's subsidiary banks will have an effect on Comerica. Additional information on the regulatory capital requirements applicable to Comerica is set forth in the “Supervision and Regulation” section of this report. These requirements, and any other new laws or regulations, could adversely affect Comerica's ability to pay dividends or make share 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. The liquidity requirements applicable to Comerica as a bank holding company as well as to our subsidiary banks are in the process of being substantially revised, in connection with recent supervisory guidance, Basel III and the requirements of the Dodd-Frank Act. Additional information on the liquidity requirements applicable to Comerica is set forth in the “Supervision and Regulation” section of this report. In light of these or other new legal and regulatory requirements, Comerica and our subsidiary banks are, and will be in the future, required to satisfy additional, more stringent, liquidity standards, including, for the first time, quantitative standards for liquidity management. 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 proposed and final rules implementing Basel III, or comply with the requirements of these standards earlier than might otherwise be required, in connection with the annual CCAR process. The ultimate impact of the new capital and liquidity standards cannot be fully determined at this time and will depend on a number of factors, including treatment and implementation by the U.S. banking regulators. However, 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 14 conditions, supply chain factors and/or commodities prices. Any decline in one of those customers' businesses or industries could cause increased credit losses, which in turn could adversely affect Comerica. Further, any decline in these businesses or industries could cause decreased borrowings, either due to reduced demand or reductions in the borrowing base available for each customer loan. In particular, oil and gas prices have fallen sharply since mid-2014. Loans in the Middle Market - Energy business line were $3.6 billion, or approximately 7 percent of total loans, at December 31, 2014. If oil and gas prices remain depressed for a prolonged period of time, Comerica's energy portfolio could decrease and/or experience increased credit losses, which could adversely affect Comerica's financial results. • Operational difficulties, failure of technology infrastructure or information security incidents could adversely affect Comerica's business and operations. Comerica is exposed to many types of operational risk, including legal risk, the risk of fraud or theft by employees or outsiders, failure of Comerica's controls and procedures and unauthorized transactions by employees or operational errors, including clerical or recordkeeping errors or those resulting from computer or telecommunications systems malfunctions. Given the high volume of transactions at Comerica, certain errors may be repeated or compounded before they are identified and resolved. The occurrence of such operational risks can lead to other types of risks including reputational and compliance risks that may amplify the adverse impact to Comerica. In particular, Comerica's operations rely on the secure processing, storage and transmission of confidential and other information on its technology systems and networks. Any failure, interruption or breach in security of these systems could result in failures or disruptions in Comerica's customer relationship management, general ledger, deposit, loan and other systems. Comerica may also be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control, which may include, for example, computer viruses, cyber attacks (including cyber attacks resulting in the destruction or exfiltration of data and systems), spikes in transaction volume and/or customer activity, electrical or telecommunications outages, or natural disasters. Although Comerica has programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity, and availability of its systems, business applications and customer information, such disruptions may give rise to interruptions in service to customers and loss or liability to Comerica. For example, along with a number of other large financial institutions' websites, Comerica’s website, www.comerica.com, was subject to denial of service attacks in 2013. These events did not result in a breach of Comerica’s client data, and account information remained secure; however, during one attack, some customers may have been prevented from accessing Comerica Bank’s secure websites through www.comerica.com. In all cases, the attacks primarily resulted in inconvenience; however, future cyber attacks could be more disruptive and damaging, and Comerica may not be able to anticipate or prevent all such attacks. 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. Further, Comerica may be impacted by data breaches at retailers and other third parties who participate in data interchanges with Comerica customers that involve the theft of customer data, which may include the theft of Comerica debit card PIN numbers and commercial cards used to make purchases at such retailers and other third parties. Such data breaches could result in Comerica incurring significant expenses to reissue debit cards and cover losses, which could result in a material adverse effect on its results of operations. • Comerica relies on other companies to provide certain key components of its business infrastructure, and certain failures could materially adversely affect operations. Comerica faces the risk of operational disruption, failure or capacity constraints due to its dependency on third party vendors for components of its business infrastructure. Third party vendors provide certain key components of Comerica's business infrastructure, such as data processing and storage, payment processing services, recording and monitoring transactions, internet connections and network access, clearing agency and card processing services. While Comerica conducts due diligence prior to selecting these third party vendors, it does not control their operations. As such, any failure on the part of these business partners to perform their various responsibilities could also expose financial institutions to risks that can result in reputational problems, financial loss or regulatory actions, and otherwise adversely affect Comerica's business and operations. Additionally, federal banking regulators recently issued regulatory guidance on how banks select, engage and manage their outside vendors. These regulations may affect the circumstances and conditions under which we work with third parties and the cost of managing such relationships. 15 • • Noninterest expenses are important to our profitability, but are subject to a number of factors, some of which are not in our control. Many factors can influence the amount of noninterest expenses, including changing regulations, rising pension and health care costs, technology and cybersecurity investments and litigation. The importance of managing expenses has been amplified in the current slow growth, low net interest margin business environment. Comerica's noninterest expenses may increase more than anticipated, which could result in an adverse impact on net income. Changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing, could adversely affect Comerica's net interest income and balance sheet. The operations of financial institutions such as Comerica are dependent to a large degree on net interest income, which is the difference between interest income from loans and investments and interest expense on deposits and borrowings. Prevailing economic conditions, the trade, fiscal and monetary policies of the federal government and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which in turn significantly affect financial institutions' net interest income. Interest rates over the past several years have remained at low levels. A continued low interest rate environment could adversely affect the interest income Comerica earns on loans and investments. For a discussion of Comerica's interest rate sensitivity, please see, “Market and Liquidity Risk” beginning on page F-29 of the Financial Section of this report. Volatility in interest rates can also result in disintermediation, which is the flow of funds away from financial institutions into direct investments, such as federal government and corporate securities and other investment vehicles, which, because of the absence of federal insurance premiums and reserve requirements, generally pay higher rates of return than financial institutions. Comerica's financial results could be materially adversely impacted by changes in financial market conditions. • Any reduction in our credit rating could adversely affect Comerica and/or the holders of its securities. Rating agencies regularly evaluate Comerica, and their ratings are based on a number of factors, including Comerica's financial strength as well as factors not entirely within its control, including conditions affecting the financial services industry generally. There can be no assurance that Comerica will maintain its current ratings. In March 2012, Moody's Investors Service downgraded Comerica's long-term and short-term senior credit ratings one notch to A3 and P-2, respectively. From July 2012 through October 2013, Fitch Ratings had Comerica's outlook as “Negative”; in October 2013, Fitch Ratings affirmed Comerica's rating while revising the outlook to “Stable.” In January 2015, Standard & Poor's revised its outlook on Comerica to "Negative" from "Stable." While recent credit rating actions have had little to no detrimental impact on Comerica's profitability, borrowing costs, or ability to access the capital markets, future downgrades to Comerica's or its subsidiaries' credit ratings could adversely affect Comerica's profitability, borrowing costs, or ability to access the capital markets or otherwise have a negative effect on Comerica's results of operations or financial condition. If such a reduction placed Comerica's or its subsidiaries' credit ratings below investment grade, it could also create obligations or liabilities under the terms of existing arrangements that could increase Comerica's costs under such arrangements. Additionally, a downgrade of the credit rating of any particular security issued by Comerica or its subsidiaries could negatively affect the ability of the holders of that security to sell the securities and the prices at which any such securities may be sold. • Unfavorable developments concerning credit quality could adversely affect Comerica's financial results. Although Comerica regularly reviews credit exposure related to its customers and various industry sectors in which it has business relationships, default risk may arise from events or circumstances that are difficult to detect or foresee. Under such circumstances, Comerica could experience an increase in the level of provision for credit losses, nonperforming assets, net charge-offs and reserve for credit losses, which could adversely affect Comerica's financial results. • The soundness of other financial institutions could adversely affect Comerica. Comerica's ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. Comerica has exposure to many different industries and counterparties, and it routinely executes transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led, and may further lead, to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions could expose Comerica to credit risk in the event of default of its counterparty or client. In addition, Comerica's credit risk may be impacted when the collateral held by it cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due to Comerica. There is no assurance that any such losses would not adversely affect, possible materially in nature, Comerica. 16 • • 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. Comerica may not be able to utilize technology to efficiently and effectively develop, market, and deliver new products and services to its customers. The financial services industry experiences rapid technological change with regular introductions of new technology- driven products and services. The efficient and effective utilization of technology enables financial institutions to better serve customers and to reduce costs. Comerica's future success depends, in part, upon its ability to address the needs of its customers by using technology to market and deliver products and services that will satisfy customer demands, meet regulatory requirements, and create additional efficiencies in Comerica's operations. Comerica may not be able to effectively develop new technology-driven products and services or be successful in marketing or supporting these products and services to its customers, which could have a material adverse impact on Comerica's financial condition and results of operations. • Competitive product and pricing pressures among financial institutions within Comerica's markets may change. Comerica operates in a very competitive environment, which is characterized by competition from a number of other financial institutions in each market in which it operates. Comerica competes in terms of products and pricing with large national and regional financial institutions and with smaller financial institutions. Some of Comerica's larger competitors, including certain nationwide banks that have a significant presence in Comerica's market area, may make available to their customers a broader array of product, pricing and structure alternatives and, due to their asset size, may more easily absorb loans in a larger overall portfolio. Some of Comerica's smaller competitors may have more liberal lending policies and processes. Additionally, the financial services industry has recently been subject to increasing 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. If Comerica is unable to compete effectively in products and pricing in its markets, business could decline, which could have a material adverse effect on Comerica's business, financial condition or results of operations. • Changes in customer behavior may adversely impact Comerica's business, financial condition and results of operations. Comerica uses a variety of financial tools, models and other methods to anticipate customer behavior as a part of its strategic planning and to meet certain regulatory requirements. Individual, economic, political, industry-specific conditions and other factors outside of Comerica's control, such as fuel prices, energy costs, real estate values or other factors that affect customer income levels, could alter predicted customer borrowing, repayment, investment and deposit practices. Such a change in these practices could materially adversely affect Comerica's ability to anticipate business needs and meet regulatory requirements. Further, difficult economic conditions may negatively affect consumer confidence levels. A decrease in consumer confidence levels would likely aggravate the adverse effects of these difficult market conditions on Comerica, Comerica's customers and others in the financial institutions industry. • Any future strategic acquisitions or divestitures may present certain risks to Comerica's business and operations. Difficulties in capitalizing on the opportunities presented by a future acquisition may prevent Comerica from fully achieving the expected benefits from the acquisition, or may cause the achievement of such expectations to take longer to realize than expected. Further, the assimilation of the acquired entity's customers and markets could result in higher than expected deposit attrition, loss of key employees, disruption of Comerica's businesses or the businesses of the acquired entity or otherwise adversely affect Comerica's ability to maintain relationships with customers and employees or achieve the anticipated benefits of the acquisition. These matters could have an adverse effect on Comerica for an undetermined period. Comerica 17 will be subject to similar risks and difficulties in connection with any future decisions to downsize, sell or close units or otherwise change the business mix of Comerica. • Management's ability to maintain and expand customer relationships may differ from expectations. The financial services industry is very competitive. Comerica not only vies for business opportunities with new customers, but also competes to maintain and expand the relationships it has with its existing customers. While management believes that it can continue to grow many of these relationships, Comerica will continue to experience pressures to maintain these relationships as its competitors attempt to capture its customers. Failure to create new customer relationships and to maintain and expand existing customer relationships to the extent anticipated may adversely impact Comerica's earnings. • Management's ability to retain key officers and employees may change. Comerica's future operating results depend substantially upon the continued service of its executive officers and key personnel. Comerica's future operating results also depend in significant part upon its ability to attract and retain qualified management, financial, technical, marketing, sales and support personnel. Competition for qualified personnel is intense, and Comerica cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number of persons with the requisite skills to serve in these positions, and it may be increasingly difficult for Comerica to hire personnel over time. Further, Comerica's ability to retain key officers and employees may be impacted by legislation and regulation affecting the financial services industry. On April 14, 2011, FRB, OCC and several other federal financial regulators issued a joint proposed rulemaking to implement Section 956 of the Dodd-Frank Act. Section 956 requires the regulators to issue regulations that prohibit incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions and are deemed to be excessive, or that may lead to material losses. 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 that at least 50 percent of incentive-based payments be deferred over a minimum period of three years for designated executives. Moreover, boards of directors of these larger institutions would be required to identify employees who 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, and to determine that the incentive compensation for these employees appropriately balances risk and rewards according to enumerated standards. 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 actions by Comerica's regulators that could materially adversely affect Comerica's business, financial condition or results of operations. Comerica establishes reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. Comerica may still incur legal costs for a matter even if it has not established a reserve. In addition, due to the inherent subjectivity of the assessments and unpredictability of the outcome of legal proceedings, the actual cost of resolving a legal claim may be substantially higher than any amounts reserved for that matter. The ultimate resolution of a pending legal proceeding, depending on the remedy sought and granted, could adversely affect Comerica's results of operations and financial condition. • Methods of reducing risk exposures might not be effective. Instruments, systems and strategies used to hedge or otherwise manage exposure to various types of credit, market, liquidity, operational, compliance 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. 18 • • Terrorist activities or other hostilities may adversely affect the general economy, financial and capital markets, specific industries, and Comerica. Terrorist attacks or other hostilities may disrupt Comerica's operations or those of its customers. In addition, these events have had and may continue to have an adverse impact on the U.S. and world economy in general and consumer confidence and spending in particular, which could harm Comerica's operations. Any of these events could increase volatility in the U.S. and world financial markets, which could harm Comerica's stock price and may limit the capital resources available to Comerica and its customers. This could have a material adverse impact on Comerica's operating results, revenues and costs and may result in increased volatility in the market price of Comerica's common stock. Catastrophic events, including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods, may adversely affect the general economy, financial and capital markets, specific industries, and Comerica. Comerica has significant operations and a significant customer base in California, Texas, Florida and other regions where natural and other disasters may occur. These regions are known for being vulnerable to natural disasters and other risks, such as tornadoes, hurricanes, earthquakes, fires, droughts and floods. These types of natural catastrophic events at times have disrupted the local economy, Comerica's business and customers and have posed physical risks to Comerica's property. In addition, catastrophic events occurring in other regions of the world may have an impact on Comerica's customers and in turn, on Comerica. A significant catastrophic event could materially adversely affect Comerica's operating results. • Changes in accounting standards could materially impact Comerica's financial statements. From time to time accounting standards setters change the financial accounting and reporting standards that govern the preparation of Comerica's financial statements. These changes can be difficult to predict and can materially impact how Comerica records and reports its financial condition and results of operations. In some cases, Comerica could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results, or a cumulative charge to retained earnings. • Comerica's accounting policies and processes are critical to the reporting of financial condition and results of operations. They require management to make estimates about matters that are uncertain. Accounting policies and processes are fundamental to how Comerica records and reports the financial condition and results of operations. Management must exercise judgment in selecting and applying many of these accounting policies and processes so they comply with U.S. GAAP. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in the Company reporting materially different results than would have been reported under a different alternative. Management has identified certain accounting policies as being critical because they require management's judgment to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. Comerica has established detailed policies and control procedures that are intended to ensure these critical accounting estimates and judgments are well controlled and applied consistently. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. Because of the uncertainty surrounding management's judgments and the estimates pertaining to these matters, Comerica cannot guarantee that it will not be required to adjust accounting policies or restate prior period financial statements. See “Critical Accounting Policies” on pages F-37 through F-40 of the Financial Section of this report and Note 1 of the Notes to Consolidated Financial Statements located on pages F-48 through F-61 of the Financial Section of this report. Item 1B. Unresolved Staff Comments. None. 19 Item 2. Properties. The executive offices of Comerica are located in the Comerica Bank Tower, 1717 Main Street, Dallas, Texas 75201. Comerica Bank occupies five floors of the building, plus additional space on the building's lower level. Comerica leased an additional floor of the building, totaling 25,135 sq. feet, in December 2014, which is anticipated to be occupied starting in April 2015. Comerica does not own the Comerica Bank Tower space, but has naming rights to the building and leases the space from an unaffiliated third party. The lease for such space used by Comerica and its subsidiaries extends through September 2023. Comerica's Michigan headquarters are located in a 10-story building in the central business district of Detroit, Michigan at 411 W. Lafayette, Detroit, Michigan 48226. Such building is owned by Comerica Bank. As of December 31, 2014, Comerica, through its banking affiliates, operated a total of 548 banking centers, trust services locations, and loan production or other financial services offices, primarily in the States of Texas, Michigan, California, Florida and Arizona. Of these offices, 235 were owned and 313 were leased. As of December 31, 2014, affiliates also operated from leased spaces in Denver, Colorado; Wilmington, Delaware; Oakbrook Terrace, Illinois; Boston and Waltham, Massachusetts; Minneapolis, Minnesota; Morristown, New Jersey; New York, New York; Rocky Mount and Cary, North Carolina; Granville, Ohio; Memphis, Tennessee; Reston, Virginia; Bellevue and Seattle, Washington; Monterrey, Mexico; Toronto, Ontario, Canada and Windsor, Ontario, Canada. Comerica and its subsidiaries own, among other properties, a check processing center in Livonia, Michigan, and three buildings in Auburn Hills, Michigan, used mainly for lending functions and operations. Item 3. Legal Proceedings. Please see Note 21 of the Notes to Consolidated Financial Statements located on pages F-100 through F-101 of the Financial Section of this report. Item 4. Mine Safety Disclosures. Not applicable. 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 11, 2015, there were approximately 10,695 record holders of Comerica's common stock. Sales Prices and Dividends Quarterly cash dividends were declared during 2014 and 2013 totaling $0.79 and $0.68 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 2014 and 2013, as well as dividend information. Quarter 2014 Fourth Third Second First 2013 $ High Low Dividends Per Share Dividend Yield* $ 50.14 52.72 52.60 53.50 $ 42.73 48.33 45.34 43.96 0.20 0.20 0.20 0.19 1.7% 1.6 1.6 1.6 $ Fourth Third Second First * 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. 38.64 38.56 33.55 30.73 48.69 43.49 40.44 36.99 1.6% 1.7 1.8 2.0 0.17 0.17 0.17 0.17 $ $ A discussion of dividend restrictions is set forth in Note 20 of the Notes to Consolidated Financial Statements located on pages F-99 through F-100 of the Financial Section of this report 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. 20 Purchases of Equity Securities by the Issuer and Affiliated Purchasers On April 22, 2014, the Board of Directors of Comerica authorized the repurchase of up to an additional 2.0 million shares of Comerica Incorporated outstanding common stock, in addition to the 5.1 million shares remaining at March 31, 2014 under the Board's prior authorizations for the share repurchase program initially approved in November 2010. Including the April 22, 2014 authorization, a total of 30.3 million shares has been authorized for repurchase under the share repurchase program since its inception in 2010. In November 2010, the Board authorized the purchase of up to all 11.5 million of Comerica's original outstanding warrants. There is no expiration date for Comerica's share repurchase program. The following table summarizes Comerica's share repurchase activity for the year ended December 31, 2014. Average Price Paid Per Share Total Number of Shares and Warrants Purchased as Part of Publicly Announced Repurchase Plans or Programs Remaining Repurchase Authorization (a) Average Price Paid Per Warrant (c) — $ — — — — — — — Total Number of Shares Purchased (b) 1,703 1,273 1,186 702 439 129 1,270 5,432 (shares in thousands) Total first quarter 2014 Total second quarter 2014 Total third quarter 2014 October 2014 November 2014 December 2014 Total fourth quarter 2014 47.21 47.73 49.83 46.55 48.29 46.10 47.11 47.88 (a) Maximum number of shares and warrants that may yet be purchased under the publicly announced plans or programs. (b) Includes approximately 239,000 shares (including 19,000 shares in the quarter ended December 31, 2014) purchased pursuant to deferred compensation plans and shares purchased from employees to pay for required minimum tax withholding related to restricted stock vesting under the terms of an employee share-based compensation plan during the year ended December 31, 2014. These transactions are not considered part of Comerica's repurchase program. 16,591 16,697 (d) 15,334 14,640 14,210 14,082 14,082 14,082 1,523 1,236 1,183 693 430 128 1,251 5,193 Total 2014 $ (c) Comerica made no repurchases of warrants under the repurchase program during the year ended December 31, 2014. 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, 2014, Comerica withheld the equivalent of approximately 491,000 shares to cover an aggregate of $25.1 million in exercise price and issued approximately 361,000 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. (d) Includes April 22, 2014 share repurchase authorization for up to an additional 2.0 million shares. Item 6. Selected Financial Data. Reference is made to the caption “Selected Financial Data” on page F-3 of the Financial Section of this report. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Reference is made to the sections entitled “2014 Overview and 2015 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-42 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-29 through F-36 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-43 through F-114 of the Financial Section of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 21 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. Internal Control over Financial Reporting Management's annual report on internal control over financial reporting and the related attestation report of Comerica's registered public accounting firm are included on pages F-109 and F-110 in the Financial Section of this report. As required by Rule 13a-15(d) of the Exchange Act, management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, Comerica's internal control over financial reporting. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that there has been no such change during the last quarter of the fiscal year covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, Comerica's internal control over financial reporting. Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers and Corporate Governance. Comerica has a Senior Financial Officer Code of Ethics that applies to the Chief Executive Officer, the Chief Financial Officer, the Chief Accounting Officer and the Treasurer. The Senior Financial Officer Code of Ethics is available on Comerica's website at www.comerica.com. If any substantive amendments are made to the Senior Financial Officer Code of Ethics or if Comerica grants any waiver, including any implicit waiver, from a provision of the Senior Financial Officer Code of Ethics to the Chief Executive Officer, the Chief Financial Officer, the Chief Accounting Officer or the Treasurer, we will disclose the nature of such amendment or waiver on our website. The remainder of the response to this item will be included under the sections captioned “Information About Nominees,” “Committees and Meetings of Directors,” “Committee Assignments,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 28, 2015, 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,” “2014 Summary Compensation Table,” “2014 Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End 2014,” “2014 Option Exercises and Stock Vested,” “Pension Benefits at Fiscal Year-End 2014,” “2014 Nonqualified Deferred Compensation,” and “Potential Payments upon Termination or Change of Control at Fiscal Year- End 2014” of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 28, 2015, 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 28, 2015, which sections are hereby incorporated by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The response to this item will be included under the sections captioned “Director Independence and Transactions of Directors with Comerica,” “Transactions of Related Parties with Comerica,” and “Information about Nominees” of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 28, 2015, which sections are hereby incorporated by reference. 22 Item 14. Principal Accountant Fees and Services. The response to this item will be included under the section captioned “Independent Auditors” of Comerica's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 28, 2015, which section is hereby incorporated by reference. PART IV Item 15. Exhibits and Financial Statement Schedules The following documents are filed as a part of this report: 1. 2. 3. Financial Statements: The financial statements that are filed as part of this report are included in the Financial Section on pages F-43 through F-111. 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. Exhibits: The exhibits listed on the Exhibit Index on pages E-1 through E-5 of this Form 10-K are filed with this report or are incorporated herein by reference. 23 FINANCIAL REVIEW AND REPORTS Comerica Incorporated and Subsidiaries Performance Graph Selected Financial Data 2014 Overview and 2015 Outlook Results of Operations Strategic Lines of Business Balance Sheet and Capital Funds Analysis Risk Management Critical Accounting Policies Supplemental Financial Data Forward-Looking Statements Consolidated Financial Statements: 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 Historical Review F-2 F-3 F-4 F-6 F-12 F-15 F-21 F-37 F-41 F-42 F-43 F-44 F-45 F-46 F-47 F-48 F-109 F-110 F-112 F-1 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 Keefe Bank Index. The graph assumes $100 invested in Comerica Incorporated common stock (returns based on stock prices per the NYSE) and each of the indices on December 31, 2009 and the reinvestment of all dividends during the periods presented. The performance shown on the graph is not necessarily indicative of future performance. F-2 SELECTED FINANCIAL DATA (dollar amounts in millions, except per share data) Years Ended December 31 2014 2013 2012 2011 2010 EARNINGS SUMMARY Net interest income Provision for credit losses Noninterest income Noninterest expenses Provision for income taxes Income from continuing operations Net income Preferred stock dividends Net income attributable to common shares PER SHARE OF COMMON STOCK Diluted earnings per common share: Income from continuing operations Net income Cash dividends declared Common shareholders’ equity Tangible common equity (a) Market value Average diluted shares (in millions) YEAR-END BALANCES Total assets Total earning assets Total loans Total deposits Total medium- and long-term debt Total common shareholders’ equity AVERAGE BALANCES Total assets Total earning assets Total loans Total deposits Total medium- and long-term debt Total common shareholders’ equity Total shareholders’ equity CREDIT QUALITY Total allowance for credit losses Total nonperforming loans Foreclosed property Total nonperforming assets Net credit-related charge-offs Net credit-related charge-offs as a percentage of average total loans Allowance for loan losses as a percentage of total period-end loans Allowance for loan losses as a percentage of total nonperforming loans RATIOS Net interest margin (fully taxable equivalent) Return on average assets Return on average common shareholders’ equity Dividend payout ratio Average common shareholders’ equity as a percentage of average assets Tier 1 common capital as a percentage of risk-weighted assets (a) Tier 1 capital as a percentage of risk-weighted assets Tangible common equity as a percentage of tangible assets (a) $ $ 1,655 27 868 1,626 277 593 593 — 586 3.16 3.16 0.79 41.35 37.72 46.84 185 $ $ 1,672 46 882 1,722 245 541 541 — 533 2.85 2.85 0.68 39.22 35.64 47.54 187 $ $ 1,728 79 870 1,757 241 521 521 — 515 2.67 2.67 0.55 36.86 33.36 30.34 192 $ $ 1,653 144 843 1,771 188 393 393 — 389 2.09 2.09 0.40 34.79 31.40 25.80 186 $ $ 1,646 478 839 1,642 105 260 277 123 153 0.78 0.88 0.25 32.80 31.92 42.24 173 $ 69,190 63,788 48,593 57,486 2,679 7,402 $ 66,338 61,560 46,588 54,784 2,965 7,373 7,373 $ 65,224 60,200 45,470 53,292 3,543 7,150 $ 63,933 59,091 44,412 51,711 3,972 6,965 6,965 $ 65,066 59,618 46,057 52,191 4,720 6,939 $ 62,569 57,483 43,306 49,533 4,818 7,009 7,009 $ 61,005 55,506 42,679 47,755 4,944 6,865 $ 56,914 52,121 40,075 43,762 5,519 6,348 6,348 $ 53,664 49,352 40,236 40,471 6,138 5,790 $ 55,550 51,004 40,517 39,486 8,684 5,622 6,065 $ $ 635 290 10 300 25 0.05% 1.22 205 2.70% 0.89 8.05 24.09 11.11 10.50 10.50 9.85 $ 634 374 9 383 73 0.16% 1.32 160 2.84% 0.85 7.76 23.29 10.90 10.64 10.64 10.07 $ 661 541 54 595 170 0.39% 1.37 116 3.03% 0.83 7.43 20.52 11.21 10.14 10.14 9.76 $ 752 887 94 981 328 0.82% 1.70 82 3.19% 0.69 6.18 18.96 11.16 10.37 10.41 10.27 936 1,123 112 1,235 564 1.39% 2.24 80 3.24% 0.50 2.74 27.78 10.13 10.13 10.13 10.54 (a) See Supplemental Financial Data section for reconcilements of non-GAAP financial measures. n/m - not meaningful. F-3 2014 OVERVIEW AND 2015 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 22 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 $593 million in 2014, an increase of $52 million, or 10 percent, compared to $541 million in 2013. Net income per diluted common share was $3.16 in 2014, compared to $2.85 in 2013. Excluding the impact to 2013 results of an unfavorable jury verdict in a lender liability case, which decreased 2013 net income by $28 million, or 15 cents per share, 2014 net income increased $24 million, or 4 percent, and earnings per diluted share increased 16 cents, or 5 percent. • Average loans were $46.6 billion in 2014, an increase of $2.2 billion, or 5 percent, compared to 2013. The increase in average loans primarily reflected an increase of $1.7 billion, or 6 percent, in commercial loans, $158 million, or 10 percent, in residential mortgage loans and $117 million, or 5 percent, in consumer loans. The increase in commercial loans primarily reflected increases in Technology and Life Sciences, National Dealer Services, Energy and general Middle Market, partially offset by a decrease in Mortgage Banker Finance. • Average deposits increased $3.1 billion, or 6 percent, to $54.8 billion in 2014, compared to 2013. The increase in average deposits reflected increases of $2.6 billion, or 12 percent, in average noninterest-bearing deposits and $1.2 billion, or 5 percent, in money market and interest-bearing checking deposits, partially offset by a decrease of $602 million, or 11 percent, in customer certificates of deposit. The increase in average deposits reflected increases in almost all lines of business and in all geographic markets. • Net interest income was $1.7 billion in 2014, a decrease of $17 million, or 1 percent, compared to 2013. The decrease in net interest income resulted primarily from a $15 million decrease in the accretion of the purchase discount on the acquired loan portfolio. The benefit from an increase in average earning assets of $2.5 billion and lower funding costs was offset by continued pressure on yields from the low-rate environment and loan portfolio dynamics. • The provision for credit losses decreased $19 million in 2014, compared to 2013, primarily due to continued improvements in credit quality. Improvements in credit quality included a decline of $367 million in the Corporation's criticized loan list from December 31, 2013 to December 31, 2014. The Corporation's criticized loan list is consistent with loans in the Special Mention, Substandard and Doubtful categories defined by regulatory authorities. Additional indicators of improved credit quality included a $48 million decrease in net credit-related charge-offs in 2014, compared to 2013. • Noninterest income decreased $14 million or 2 percent, in 2014, compared to 2013, primarily the result of a $19 million decrease in noncustomer-driven income categories, with the largest decreases in deferred compensation asset returns, securities trading income and warrant income, partially offset by a $5 million increase in customer-driven fees, largely driven by increases in fiduciary income and card fees, partially offset by a decrease in letter of credit fees. • Noninterest expenses decreased $96 million, or 6 percent, in 2014, compared to 2013, primarily reflecting decreases of $48 million in litigation-related expenses and $47 million in pension expense. • The quarterly dividend was increased to 19 cents per common share in January 2014 and further increased to 20 cents per • share in April 2014, increases of 12 percent and 5 percent, respectively. Shares repurchased under the share repurchase program totaled 5.2 million shares in 2014. Together with dividends of $0.79 per share, $392 million, or 66 percent of 2014 net income, was returned to shareholders. F-4 2015 OUTLOOK Management expectations for 2015, compared to 2014, assuming a continuation of the current economic and low-rate environment, are as follows: • Average loan growth consistent with 2014, reflecting typical seasonality in Mortgage Banker Finance and National Dealer Services throughout the year and continued focus on pricing and structure discipline. • Net interest income relatively stable, assuming no rise in interest rates, reflecting a decrease of about $30 million in purchase accounting accretion, to $4 million to $6 million, and the impact of a continuing low rate environment on asset yields, offset by earning asset growth. Provision for credit losses higher, consistent with modest net charge-offs and continued loan growth. • • Noninterest income relatively stable, reflecting growth in fee income, particularly card fees and fiduciary income, mostly offset by regulatory impacts on letter of credit, derivative and warrant income. • Noninterest expenses higher, reflecting increases in technology, regulatory and pension expenses, as well as typical inflationary pressures, with continued focus on driving efficiencies for the long term. Technology and regulatory expenses are expected to increase approximately $40 million in total, compared to 2014. Income tax expense to approximate 33 percent of pretax income. • F-5 RESULTS OF OPERATIONS The following provides a comparative discussion of the Corporation's consolidated results of operations for 2014 compared to 2013. A comparative discussion of results for 2013 compared to 2012 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 - Fully Taxable Equivalent (FTE) (dollar amounts in millions) Years Ended December 31 Commercial loans Real estate construction loans Commercial mortgage loans Lease financing International loans Residential mortgage loans Consumer loans Total loans (a) (b) Mortgage-backed securities Other investment securities Total investment securities (c) Interest-bearing deposits with banks Other short-term investments Total earning assets Cash and due from banks Allowance for loan losses Accrued income and other assets Total assets Money market and interest-bearing checking deposits Savings deposits Customer certificates of deposit Foreign office time deposits (d) Total interest-bearing deposits Short-term borrowings Medium- and long-term debt (e) Total interest-bearing sources Noninterest-bearing deposits Accrued expenses and other liabilities Total shareholders’ equity Total liabilities and shareholders’ equity 2014 2013 2012 Interest Interest Average Balance Average Rate 3.12% $ 27,971 $ 3.41 3.75 2.33 3.65 3.82 3.20 3.28 1,486 9,060 847 1,275 1,620 2,153 44,412 927 65 327 19 50 68 73 1,529 209 2 211 2.33 0.45 2.26 14 0.26 — 0.57 2.85 1,754 0.11 24 0.03 1 0.36 18 0.82 2 45 0.15 — 0.04 1.68 50 0.29 95 Average Balance $ 29,715 $ 1,909 8,706 834 1,376 1,778 2,270 46,588 8,970 380 9,350 5,513 109 61,560 934 (601) 4,445 $ 66,338 $ 22,891 1,744 4,869 261 29,765 200 2,965 32,930 25,019 1,016 7,373 $ 66,338 917 57 372 27 48 66 71 1,558 213 2 215 13 1 1,787 28 1 23 3 55 — 57 112 Average Rate Average Balance Interest Average Rate 903 62 437 26 47 68 76 1,619 231 4 235 10 2 1,866 3.44% 4.44 4.44 3.01 3.73 4.55 3.42 3.74 2.52 0.77 2.43 0.26 1.65 3.27 35 1 31 3 70 — 65 135 0.17 0.06 0.53 0.63 0.25 0.12 1.36 0.41 3.28% $ 26,224 $ 3.85 4.11 3.23 3.74 4.09 3.30 3.51 1,390 9,842 864 1,272 1,505 2,209 43,306 2.33 0.48 2.25 0.26 1.22 3.03 0.13 0.03 0.42 0.52 0.19 0.07 1.45 0.33 9,446 469 9,915 4,128 134 57,483 983 (693) 4,796 $ 62,569 $ 20,622 1,593 5,902 412 28,529 76 4,818 33,423 21,004 1,133 7,009 $ 62,569 9,246 391 9,637 4,930 112 59,091 987 (622) 4,477 $ 63,933 $ 21,704 1,657 5,471 500 29,332 211 3,972 33,515 22,379 1,074 6,965 $ 63,933 Net interest income/rate spread (FTE) $ 1,659 2.56 $ 1,675 2.70 $ 1,731 2.86 FTE adjustment (f) $ 4 $ 3 $ 3 Impact of net noninterest-bearing sources of funds Net interest margin (as a percentage of average earning assets) (FTE) (a) (c) 0.14 2.70% 0.14 2.84% 0.17 3.03% (a) Accretion of the purchase discount on the acquired loan portfolio of $34 million, $49 million and $71 million increased the net interest margin by 6 basis points, 8 basis points and 12 basis points in 2014, 2013 and 2012, respectively. (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 based on average historical cost. Carrying value exceeded average historical cost by $12 million, $92 million and $255 million in 2014, 2013 and 2012, respectively. Includes substantially all deposits by foreign depositors; deposits are primarily in excess of $100,000. (d) (e) Medium- and long-term debt average balances included $192 million, $274 million and $343 million in 2014, 2013 and 2012, respectively, for the gain attributed to the risk hedged with interest rate swaps. Interest expense on medium-and long-term debt was reduced by $72 million in both 2014 and 2013 and $69 million in 2012, for the net gains on these fair value hedge relationships. (f) The FTE adjustment is computed using a federal tax rate of 35%. F-6 RATE/VOLUME ANALYSIS - FTE (in millions) Years Ended December 31 Interest Income (FTE): Commercial loans Real estate construction loans Commercial mortgage loans Lease financing International loans Residential mortgage loans Consumer loans Total loans Mortgage-backed securities Other investment securities Total investment securities (c) Interest-bearing deposits with banks Other short-term investments Total interest income (FTE) Interest Expense: Money market and interest-bearing checking deposits Customer certificates of deposit Foreign office time deposits Total interest-bearing deposits Medium- and long-term debt Total interest expense Increase (Decrease) Due to Rate $ $ $ (45) (6) (32) (8) (1) (4) (2) (98) (b) $ — — — — (1) (99) (5) (3) 1 (7) 9 2 Net interest income (FTE) $ (101) $ 2014/2013 Increase (Decrease) Due to Volume (a) 55 14 (13) — 3 6 4 69 (4) — (4) 1 — 66 1 (2) (2) (3) (16) (19) 85 Net Increase (Decrease) Increase (Decrease) Due to Rate $ 10 8 (45) (8) 2 2 2 $ $ (43) (9) (33) 2 1 (7) (3) $ (29) (b) (92) (b) (4) — (4) 1 (1) (33) (4) (5) (1) (10) (7) (17) (16) $ (17) (2) (19) — — (111) (9) (6) — (15) 4 (11) $ (100) $ 2013/2012 Increase (Decrease) Due to Volume (a) Net Increase (Decrease) 57 4 (32) (1) — 5 (2) 31 (1) — (1) 3 (1) 32 2 (2) — — (12) (12) 44 $ $ 14 (5) (65) 1 1 (2) (5) (61) (b) (18) (2) (20) 3 (1) (79) (7) (8) — (15) (8) (23) (56) (a) Rate/volume variances are allocated to variances due to volume. (b) Reflected decreases of $15 million and $22 million in accretion of the purchase discount on the acquired loan portfolio in 2014 and 2013, respectively. (c) Includes investment securities available-for-sale and investment securities held-to-maturity. NET INTEREST INCOME Net interest income is the difference between interest and yield-related fees earned on assets and interest paid on liabilities. FTE adjustments are made to the yields on tax-exempt assets in order to present tax-exempt income and fully taxable income on a comparable basis. FTE adjustments totaled $4 million in 2014 and $3 million in both 2013 and 2012. Gains and losses related to the effective portion of risk management interest rate swaps that qualify as hedges are included with the interest expense of the hedged item. Net interest income on a FTE basis comprised 66 percent of total revenues in both 2014 and 2013, and 67 percent in 2012. The “Analysis of Net Interest Income-Fully Taxable Equivalent” table of this financial review provides an analysis of net interest income for the years ended December 31, 2014, 2013, and 2012. The rate-volume analysis in the table above details the components of the change in net interest income on a FTE basis for 2014 compared to 2013 and 2013 compared to 2012. Net interest income was $1.7 billion in 2014, a decrease of $17 million compared to 2013. The decrease in net interest income in 2014, compared to 2013, resulted primarily from a $15 million decrease in the accretion of the purchase discount on the acquired loan portfolio. The benefits from a $2.5 billion, or 4 percent, increase in average earning assets and lower funding costs were offset by lower loan yields. The increase in average earning assets primarily reflected increases of $2.2 billion in average loans and $583 million in average interest-bearing deposits with banks, partially offset by a decrease of $287 million in average investment securities. The net interest margin (FTE) in 2014 decreased 14 basis points to 2.70 percent, from 2.84 percent in 2013, primarily from decreased yields on loans and an increase in Federal Reserve Bank (FRB) deposits, partially offset by lower deposit rates. The decrease in loan yields reflected the impact of a competitive rate environment, a decrease in accretion on the acquired loan portfolio, positive credit quality migration throughout the portfolio, lower LIBOR rates and the impact of a $9 million negative residual value adjustment to assets in the leasing portfolio. Accretion of the purchase discount on the acquired loan portfolio increased the net interest margin by 6 basis points in 2014, compared to 8 basis points in 2013. Average balances deposited with F-7 the FRB were $5.4 billion and $4.8 billion in 2014 and 2013, respectively, and are included in “interest-bearing deposits with banks” on the consolidated balance sheets. The Corporation utilizes various asset and liability management strategies to manage net interest income exposure to interest rate risk. Refer to the “Market and Liquidity Risk” section of this financial review for additional information regarding the Corporation's asset and liability management policies. PROVISION FOR CREDIT LOSSES The provision for credit losses was $27 million in 2014, compared to $46 million in 2013. The provision for credit losses includes both the provision for loan losses and the provision for credit losses on lending-related commitments. The provision for loan losses is recorded to maintain the allowance for loan losses at the level deemed appropriate by the Corporation to cover probable credit losses inherent in the portfolio. The provision for loan losses was $22 million in 2014, compared to $42 million in 2013. Credit quality in the loan portfolio continued to improve in 2014, compared to 2013. Improvements in credit quality included a decline of $367 million in the Corporation's criticized loan list from December 31, 2013 to December 31, 2014. Reflected in the decline in criticized loans was a decrease in nonaccrual loans of $77 million. The Corporation's criticized loan list is consistent with loans in the Special Mention, Substandard and Doubtful categories defined by regulatory authorities. Net loan charge-offs in 2014 decreased $48 million to $25 million, or 0.05 percent of average total loans, compared to $73 million, or 0.16 percent, in 2013. The $48 million decrease in net loan charge-offs in 2014, compared to 2013, reflected decreases in almost all business lines, with the largest decreases in Commercial Real Estate and general Middle Market, partially offset by an increase in Technology and Life Sciences. The provision for credit losses on lending-related commitments is recorded to maintain the allowance for credit losses on lending-related commitments at the level deemed appropriate by the Corporation to cover probable credit losses inherent in lending-related commitments. The provision for credit losses on lending-related commitments was $5 million in 2014, compared to $4 million in 2013. Lending-related commitment charge-offs were insignificant in 2014 and 2013. For further discussion of the allowance for loan losses and the allowance for credit losses on lending-related commitments, including the methodology used in the determination of the allowances and an analysis of the changes in the allowances, refer to Note 1 to the consolidated financial statements and the "Credit Risk" section of this financial review. NONINTEREST INCOME (in millions) Years Ended December 31 Customer-driven income: Service charges on deposit accounts Fiduciary income Commercial lending fees Card fees Letter of credit fees Foreign exchange income Brokerage fees Other customer-driven income (a) Total customer-driven noninterest income Noncustomer-driven income: Bank-owned life insurance Net securities (losses) gains Other noncustomer-driven income (a) $ 2014 2013 2012 215 180 98 80 57 40 17 81 768 39 — 61 868 $ $ $ 214 171 99 74 64 36 17 88 763 40 (1) 80 882 $ 214 158 96 65 71 38 19 89 750 39 12 69 870 Total noninterest income (a) The table below provides further details on certain categories included in other noninterest income. $ Noninterest income decreased $14 million to $868 million in 2014, compared to $882 million in 2013, reflecting a $19 million decrease in noncustomer-driven income categories, partially offset by a $5 million increase in customer-driven fees. An analysis of significant year over year changes by individual line item follows. Fiduciary income increased $9 million, or 6 percent, to $180 million in 2014, compared to $171 million in 2013. Personal and institutional trust fees are the two major components of fiduciary income. These fees are based on services provided and assets managed. Fluctuations in the market values of the underlying assets managed, which include both equity and fixed income securities, impact fiduciary income. The increase in 2014 was primarily due to an increase in personal trust fees, largely driven by an increase in the volume of fiduciary services sold in the professional trust alliance business and the favorable impact on fees of market value increases. F-8 Card fees, which consist primarily of interchange fees earned on debit cards and commercial cards, increased $6 million, or 8 percent, to $80 million in 2014, compared to $74 million in 2013. The increase in 2014 primarily reflected a volume-driven increase in commercial charge card interchange revenue. Letter of credit fees decreased $7 million, or 12 percent, to $57 million in 2014, compared to $64 million in 2013. The decrease in 2014 was primarily due to regulatory-driven decreases in the volume of letters of credit outstanding. Foreign exchange income increased $4 million, or 9 percent, to $40 million in 2014, compared to $36 million in 2013. The increase in 2014 was primarily due to an increase in customer-driven trading volume throughout the year. Other noninterest income decreased $26 million, or 15 percent, to $142 million in 2014, compared to $168 million in 2013, primarily reflecting decreases in deferred compensation plan asset returns, income recognized from the Corporation's third- party credit card provider, securities trading income and income from principal investing and warrants. The decrease in deferred compensation plan asset returns was offset by a decrease in deferred compensation expense in salaries and benefits expense. The decrease in income from the Corporation's third-party credit card provider was primarily the result of a change in the timing of the recognition of incentives from annually to quarterly in the third quarter 2013. The following table illustrates certain categories included in "other noninterest income" on the consolidated statements of income. (in millions) Years Ended December 31 Other noninterest income: Other customer-driven income: Customer derivative income Investment banking fees All other customer-driven income Total other customer-driven income Other noncustomer-driven income: 2014 2013 2012 $ $ 22 18 41 81 $ 25 19 44 88 25 20 44 89 Securities trading income Income from principal investing and warrants Income from third-party credit card provider Deferred compensation plan asset returns (a) All other noncustomer-driven income 19 8 9 7 26 69 158 Total other noninterest income (a) Compensation deferred by the Corporation's officers is invested based on investment selections of the officers. Income earned on these Total other noncustomer-driven income 14 14 14 13 25 80 168 10 10 9 6 26 61 142 $ $ $ assets is reported in noninterest income and the offsetting increase in liability is reported in salaries and benefits expense. NONINTEREST EXPENSES (in millions) Years Ended December 31 Salaries and benefits expense Net occupancy expense Equipment expense Outside processing fee expense Software expense Litigation-related expenses FDIC insurance expense Advertising expense Gain on debt redemption Merger and restructuring charges Other noninterest expenses Total noninterest expenses 2014 2013 2012 980 171 57 122 95 4 33 23 (32) — 173 1,626 $ 1,009 160 60 119 90 52 33 21 (1) — 179 1,722 $ 1,018 163 65 107 90 23 38 27 — 35 191 1,757 $ Noninterest expenses decreased $96 million, or 6 percent, to $1.6 billion in 2014, compared to $1.7 billion in 2013. An analysis of significant increases and decreases by individual line item is presented below. Salaries and benefits expense decreased $29 million, or 3 percent, to $980 million in 2014, compared to $1.0 billion in 2013. The decrease in salaries and benefits expense was primarily due to decreases in pension and deferred compensation expense, partially offset by the impact of merit increases and an increase in technology-related contract labor expense. F-9 Net occupancy and equipment expense increased $8 million, or 4 percent, to $228 million in 2014, compared to $220 million in 2013. The increase was primarily the result of lease termination charges of $10 million taken in 2014 related to real estate optimization. Software expense increased $5 million, or 6 percent, to $95 million in 2014, compared to $90 million in 2013. The increase was primarily due to an increase in amortization expense as a result of the completion of technology projects throughout the year. Litigation-related expenses decreased $48 million to $4 million in 2014, compared to $52 million in 2013, primarily as a result of the recognition of a $52 million unfavorable jury verdict on a lender liability case in 2013. For further information about legal proceedings, refer to Note 21 to the consolidated financial statements. The Corporation recognized a gain on debt redemption of $32 million in 2014, on the early redemption of a $150 million subordinated note in the third quarter 2014, primarily from the recognition of the unamortized value of a related, previously terminated interest rate swap. Other noninterest expenses decreased $6 million, or 4 percent, to $173 million in 2014, from $179 million in 2013. The decrease primarily reflected decreases of $5 million in other real estate expense and $5 million in losses on other foreclosed property, partially offset by an increase of $9 million in charitable contributions to the Comerica Charitable Foundation in 2014. INCOME TAXES AND RELATED ITEMS The provision for income taxes was $277 million in 2014, compared to $245 million in 2013. The $32 million increase in the provision for income taxes in 2014, compared to 2013, was due primarily to an increase in pretax income. Net deferred tax assets were $130 million at December 31, 2014, compared to $257 million at December 31, 2013. The decrease of $127 million resulted primarily from an increase in net unrealized gains on investment securities available-for-sale, a 2014 contribution to the defined benefit pension plan net of an increase in related unrealized losses, legal reserves, accretion of the purchase discount on the acquired loan portfolio and stock-based compensation benefits. Deferred tax assets of $408 million were evaluated for realization and it was determined that no valuation allowance was needed at both December 31, 2014 and December 31, 2013. This conclusion was based on available evidence of loss carryback capacity and projected future reversals of existing taxable temporary differences. 2013 RESULTS OF OPERATIONS COMPARED TO 2012 Net interest income was $1.7 billion in 2013, a decrease of $56 million compared to 2012. The decrease in net interest income in 2013 resulted primarily from a decrease in yields and a $22 million decrease in the accretion of the purchase discount on the acquired loan portfolio, partially offset by the benefit from a $1.6 billion, or 3 percent, increase in average earning assets and lower funding costs. The increase in average earning assets primarily reflected increases of $1.1 billion in average loans and $802 million in average interest-bearing deposits with banks, partially offset by a decrease of $278 million in average investment securities available-for-sale. The net interest margin (FTE) in 2013 decreased 19 basis points to 2.84 percent, from 3.03 percent in 2012, primarily from decreased yields on loans and mortgage-backed investment securities, a decrease in accretion of the purchase discount on the acquired loan portfolio and an increase in average balances deposited with the FRB, partially offset by lower deposit rates. The decrease in loan yields reflected competitive pricing in the low interest rate environment, a shift in the average loan portfolio mix, largely due to volume shifts in business mix, as well as lower LIBOR rates, positive credit quality migration throughout the portfolio, an increase in lower-yielding average commercial loans and a decrease in higher-yielding commercial mortgage loans. Yields on mortgage-backed investment securities decreased as a result of prepayments on higher-yielding securities and new investments in lower-yielding securities impacted by the lower rate environment. Accretion of the purchase discount on the acquired loan portfolio increased the net interest margin by 8 basis points in 2013, compared to 12 basis points in 2012. Average balances deposited with the FRB of $4.8 billion and $4.0 billion in 2013 and 2012, respectively, are included in “interest-bearing deposits with banks” on the consolidated balance sheets. The "Analysis of Net Interest Income - Fully Taxable Equivalent (FTE)" and "Rate/Volume Analysis - FTE" tables under the "Net Interest Income" subheading in this section above provide an analysis of net interest income (FTE) for 2013 and 2012 and details the components of the change in net interest income on a FTE basis for 2013 compared to 2012. The provision for credit losses, which includes both the provision for loan losses and the provision for credit losses on lending-related commitments, was $46 million in 2013, compared to $79 million in 2012. The provision for loan losses was $42 million in 2013 compared to $73 million in 2012. The $31 million decrease in the provision for loan losses in 2013, when compared to 2012, resulted primarily from continued improvements in credit quality, including a decrease of $516 million in the Corporation's criticized loan list. Reflected in the decline in criticized loans was a decrease in nonaccrual loans of $169 million. Net loan charge- offs in 2013 decreased $97 million to $73 million, or 0.16 percent of average total loans, compared to $170 million, or 0.39 percent, in 2012. The $97 million decrease in net loan charge-offs in 2013, compared to 2012, reflected decreases in all geographic markets F-10 and across almost all business lines. The provision for credit losses on lending-related commitments was $4 million in 2013, compared to $6 million in 2012. The $2 million decrease in the provision for credit losses on lending-related commitments resulted primarily from the reduction of specific reserves established in 2012 for set aside/bonded stop loss commitments related to residential real estate construction credits in the California market. The reserves for set aside/bonded stop loss commitments were reduced in 2013 as the underlying commitments were funded and simultaneously charged-off against the allowance for loan losses. Lending- related commitment charge-offs were insignificant in 2013 and 2012. Noninterest income increased $12 million to $882 million in 2013, compared to $870 million in 2012. Fiduciary income increased $13 million, or 8 percent in 2013, primarily due to an increase in personal trust fees, largely driven by an increase in the volume of fiduciary services sold and the favorable impact on fees of market value increases. Commercial lending fees increased $3 million, or 3 percent, primarily due to an increase in fees earned on the unused portion of lines of credit. Card fees increased $9 million, or 14 percent in 2013, primarily reflecting volume-driven increases in commercial charge card and debit card interchange revenue. Letter of credit fees decreased $7 million, or 10 percent in 2013, primarily due to a decrease in the volume of letters of credit outstanding. Net securities gains (losses) decreased $13 million in 2013, primarily reflecting a decrease in gains on the redemption of auction-rate securities. Other noninterest income increased $10 million, or 7 percent, in 2013, compared to 2012. The increase primarily reflected increases of $6 million in deferred compensation plan asset returns, $6 million in income from principal investing and warrants and $5 million in income from the Corporation's third-party credit card provider, partially offset by a $5 million decrease in income from securities trading. The increase in income from the Corporation's third-party credit card provider primarily reflected a change in the timing of the recognition of incentives from annually to quarterly in 2013. Refer to the table provided under the “Noninterest Income” subheading previously in this section for the details of certain categories included in other noninterest income. Noninterest expenses decreased $35 million, or 2 percent, in 2013, compared to 2012. Salaries and benefits expense decreased $9 million in 2013, primarily reflecting reduced staffing levels and lower executive incentive compensation, partially offset by increases in deferred compensation expense and defined benefit pension expense, as well as annual merit increases. Net occupancy expense decreased $8 million, primarily due to savings associated with leased properties exited in 2012, lower utility expense and a reduction in equipment depreciation expense, partially offset by an increase in maintenance expense and an increase in property tax expense as a result of refunds received in 2012 related to settlements of tax appeals. Outside processing fee expense increased $12 million in 2013, primarily due to increased activity tied to fee-based revenue growth, transactional costs related to increased volume and outsourcing of certain operational functions. Litigation-related expenses increased $29 million in 2013, primarily reflecting an increase in legal reserves related to an unfavorable jury verdict on a lender liability case. FDIC insurance expense decreased $5 million in 2013, primarily the result of lower assessment rates, reflecting improvements in the Corporation's risk profile used in determining the quarterly assessment rate. Advertising expense decreased $6 million in 2013, primarily due to timing changes related to certain marketing campaigns. Merger and restructuring charges related to the acquisition of Sterling Bancshares, Inc. in 2011 decreased $35 million from 2012 as the integration plan was completed. Other noninterest expenses decreased $12 million in 2013, primarily reflecting decreases of $7 million in other real estate expenses, $6 million in operational losses, $7 million in legal fees and $5 million in core deposit intangible amortization, partially offset by an $8 million decrease in net gains recognized on sales of assets and a $5 million loss on other foreclosed property in 2013. The provision for income taxes increased $4 million to $245 million in 2013. An increase in taxes due to increased pretax income in 2013 was largely offset by certain federal and state tax discrete items and the release of certain tax reserves in 2013. F-11 STRATEGIC LINES OF BUSINESS The Corporation's operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank and Wealth Management. These business segments are differentiated based upon the products and services provided. In addition to the three major business segments, Finance is also reported as a segment. The Other category includes items not directly associated with these business segments or the Finance segment. The performance of the business segments is not comparable with the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Market segment results are also provided for the Corporation's three primary geographic markets: Michigan, California and Texas. In addition to the three primary geographic markets, Other Markets is also reported as a market segment. Note 22 to the consolidated financial statements describes the Corporation's segment reporting methodology as well as the business activities of each business segment and presents financial results of these business segments for the years ended December 31, 2014, 2013 and 2012. The Corporation's management accounting system assigns balance sheet and income statement items to each segment using certain methodologies, which are regularly reviewed and refined. These methodologies may be modified as the management accounting system is enhanced and changes occur in the organizational structure and/or product lines. In the second quarter 2014, the Corporation enhanced the approach used to determine the standard reserve factors used in estimating the allowance for credit losses, which had the effect of capturing certain elements in the standard reserve component that had formerly been included in the qualitative assessment. The impact of the change was largely neutral to the total allowance for loan losses. However, because standard reserves are allocated to the segments at the loan level, while qualitative reserves are allocated at the portfolio level, the impact of the methodology change on the allowance of each segment reflected the characteristics of the individual loans within each segment's portfolio, causing segment reserves to increase or decrease accordingly. As a result, the current year provision for credit losses within each segment is not comparable to prior year amounts. BUSINESS SEGMENTS The following table presents net income (loss) by business segment. (dollar amounts in millions) Years Ended December 31 Business Bank Retail Bank Wealth Management Finance Other (a) Total 2014 2013 2012 $ $ 816 43 91 950 (357) — 593 86% $ 4 10 100% $ 785 42 87 914 (376) 3 541 86% $ 5 9 100% $ 826 50 67 943 (382) (40) 521 88% 5 7 100% (a) Includes items not directly associated with the three major business segments or the Finance Division. The Business Bank's net income of $816 million in 2014 increased $31 million, compared to $785 million in 2013. Net interest income (FTE) of $1.5 billion increased $9 million in 2014, primarily the result of the benefit from an increase in average loans of $1.9 billion, an increase in net funds transfer pricing (FTP) credits and lower deposit costs, partially offset by lower loan yields, a decrease in accretion of the purchase discount on the acquired loan portfolio and the impact of a $9 million negative residual value adjustment to assets in the leasing portfolio. The increase in net FTP credits primarily reflected the benefit from a $2.4 billion increase in average deposits in 2014, compared to 2013. The provision for credit losses decreased $1 million, to $53 million in 2014, compared to the prior year. Provision decreases in Environmental Services, National Dealer Services and Corporate Banking were mostly offset by increases in Mortgage Banker Finance, Energy, and Technology and Life Sciences. Net credit- related charge-offs of $15 million decreased $28 million in 2014, compared to 2013, primarily reflecting decreases in Commercial Real Estate, general Middle Market and Environmental Services, partially offset by an increase in Technology and Life Sciences. Noninterest income of $376 million in 2014 decreased $6 million from the prior year, primarily reflecting a $7 million decrease in letter of credit fees and small decreases in most other categories of noninterest income, partially offset by a $6 million increase in card fees. Noninterest expenses of $590 million in 2014 decreased $53 million compared to the prior year, primarily due to a $50 million decrease in litigation-related expenses, a $10 million decrease in salaries and benefits expense and a $7 million decrease in expenses related to foreclosed properties, partially offset by a $14 million increase in corporate overhead expense. The increase in corporate overhead expense was primarily related to certain actions taken in the third quarter 2014 including a contribution to the Comerica Charitable Foundation, charges associated with real estate optimization and several other efficiency-related actions. Net income for the Retail Bank of $43 million in 2014 increased $1 million, compared to net income of $42 million in 2013. Net interest income (FTE) of $596 million decreased $14 million in 2014, primarily due to lower loan yields, a decrease in accretion of the purchase discount on the acquired loan portfolio and a decrease in net funds transfer pricing (FTP) credits due to F-12 the lower interest rate environment, partially offset by the benefit provided by a $135 million increase in average loans and lower deposit rates. Average deposits increased $463 million. The provision for credit losses was a benefit of $5 million in 2014, compared to a provision of $13 million in 2013. Net credit-related charge-offs of $11 million in 2014 decreased $11 million compared to 2013, reflecting decreases in both Small Business and Retail Banking. Noninterest income of $167 million in 2014 decreased $8 million compared to 2013, primarily due to a $5 million decrease in income from the Corporation's third-party credit card provider, largely reflecting a change in the timing of the recognition of incentives from annually to quarterly in the third quarter 2013. Noninterest expenses of $702 million in 2014 decreased $6 million from the prior year, primarily due to a $5 million decrease in salaries and benefits expense and small decreases in several other noninterest expense categories, partially offset by a $7 million increase in corporate overhead expense, largely for the same reasons as described above in the Business Bank discussion. Wealth Management's net income of $91 million in 2014 increased $4 million, compared to $87 million in 2013. Net interest income (FTE) of $186 million in 2014 increased $2 million compared to 2013, as the benefit provided by a $161 million increase in average loans was largely offset by a decline in loan yields. Average deposits increased $259 million. The provision for credit losses was a benefit of $20 million in 2014, compared to a benefit of $18 million in 2013. Net credit-related recoveries were $1 million in 2014, compared to charge-offs of $8 million in 2013. Noninterest income of $259 million increased $7 million from the prior year, primarily reflecting a $10 million increase in fiduciary income, partially offset by small decreases in several other categories of noninterest income. Noninterest expenses of $322 million in 2014 increased $3 million from the prior year, primarily due to a $5 million increase in corporate overhead expense and a $5 million increase in litigation-related expenses, partially offset by a decrease of $8 million in salaries and benefits expense. See the Business Bank discussion for an explanation of the increase in corporate overhead expense. The net loss in the Finance segment was $357 million in 2014, compared to a net loss of $376 million in 2013. Net interest expense (FTE) of $662 million in 2014 increased $9 million, compared to 2013, primarily reflecting an increase in net FTP expense as a result of higher deposit levels in the business segments, partially offset by lower net rates paid to the business segments under the Corporation's internal FTP methodology. Noninterest income of $60 million in 2014 decreased $1 million compared to 2013. A decrease in noninterest expenses of $31 million in 2014 was primarily the result of the third quarter 2014 gain of $32 million on the early redemption of debt. MARKET SEGMENTS The table and narrative below present the market segment results, including prior periods, based on the structure and methodologies in effect at December 31, 2014. Note 22 to these consolidated financial statements presents a description of each of these market segments as well as the financial results for the years ended December 31, 2014, 2013 and 2012. The following table presents net income (loss) by market segment. (dollar amounts in millions) Years Ended December 31 Michigan California Texas Other Markets Finance & Other (a) Total $ $ 2014 2013 2012 297 272 160 221 950 (357) 593 31% $ 29 17 23 100% $ 261 268 177 208 914 (373) 541 29% $ 29 19 23 100% $ 315 253 181 194 943 (422) 521 33% 27 19 21 100% (a) Includes items not directly associated with the market segments. The Michigan market's net income of $297 million in 2014 increased $36 million, compared to net income of $261 million in 2013. Net interest income (FTE) of $718 million in 2014 decreased $33 million, primarily due to lower loan yields, partially due to the impact of a $9 million negative residual value adjustment to assets in the leasing portfolio and the impact of a $125 million decrease in average loans. Average deposits increased $677 million. The provision for credit losses was a benefit of $32 million in 2014, a decrease of $20 million compared to a benefit of $12 million in the prior year. Net credit-related charge-offs of $8 million for 2014 increased $2 million from the prior year, primarily reflecting increases in general Middle Market and Commercial Real Estate, partially offset by decreases in most other lines of business. Noninterest income of $360 million in 2014 increased $3 million from 2013, primarily due to small increases in several noninterest income categories. Noninterest expenses of $644 million in 2014 decreased $70 million from the prior year, primarily reflecting a $47 million decrease in litigation-related expenses, an $8 million decrease in salaries and benefits expense and small decreases in several noninterest expense categories, partially offset by a $7 million increase in corporate overhead expenses. See the Business Bank discussion for an explanation of the increase in corporate overhead expense. The California market's net income of $272 million increased $4 million in 2014, compared to $268 million in 2013. Net interest income (FTE) of $722 million for 2014 increased $30 million from the prior year, primarily due to the benefit provided F-13 by a $1.4 billion increase in average loans and an increase in net FTP credits, partially offset by lower loan yields. Average deposits increased $1.4 billion. The provision for credit losses of $28 million in 2014 increased $10 million from the prior year, primarily due to an increase in general Middle Market, partially offset by decreases in almost all other business lines. Net credit-related charge-offs of $22 million in 2014 decreased $5 million compared to 2013, primarily reflecting decreases in most lines of business, partially offset by increases in Technology and Life Sciences and general Middle Market. Noninterest income of $147 million in 2014 decreased $3 million from the prior year, primarily due to decreases of $3 million each in warrant income and securities trading income, partially offset by smaller increases in foreign exchange income, card fees and several other categories of noninterest income. Noninterest expenses of $401 million in 2014 increased $5 million from the prior year, primarily reflecting a $7 million increase in corporate overhead expenses and small increases in several other noninterest expense categories, partially offset by a $6 million decrease in salaries and benefits expense and a $5 million decrease in losses related to foreclosed property. See the Business Bank discussion for an explanation of the increase in corporate overhead expense. The Texas market's net income decreased $17 million to $160 million in 2014, compared to $177 million in 2013. Net interest income (FTE) of $542 million in 2014 increased $1 million from the prior year, primarily due to the benefit provided by a $965 million increase in average loans and lower deposit rates, partially offset by lower loan yields and a decrease in accretion of the purchase discount on the acquired loan portfolio. Average deposits increased $517 million. The provision for credit losses of $50 million in 2014 increased $15 million from the prior year, primarily reflecting increases in Energy, Commercial Real Estate and Technology and Life Sciences, partially offset by a decrease in Small Business. Refer to the "Allowance for Credit Losses" and "Energy Lending" subheadings in the Risk Management section of this financial review for a discussion of the impact of the significant decline in oil and gas prices in the late third and fourth quarters of 2014 on the Corporation's portfolio of energy-related loans. Net credit-related charge-offs of $9 million for 2014 decreased $11 million from the prior year, with decreases in almost all lines of business. Noninterest income of $129 million in 2014 decreased $3 million from the prior year, primarily due to a decrease in syndication fees, a component of commercial lending fees. Noninterest expenses of $369 million in 2014 increased $6 million from 2013, primarily due to an $8 million increase in corporate overhead expenses, partially offset by small decreases in several other categories of noninterest expenses. See the Business Bank discussion, above, for an explanation of the increase in corporate overhead expense. Net income in Other Markets of $221 million in 2014 increased $13 million compared to $208 million in 2013. Net interest income (FTE) of $312 million in 2014 decreased $1 million from the prior year, primarily due to the impact of a decrease in average loans of $76 million and lower loan yields, partially offset by an increase in net FTP credits. Average deposits increased $476 million. The provision for credit losses decreased $26 million in 2014, compared to the prior year, primarily reflecting decreases in general Middle Market, Environmental Services and Commercial Real Estate, partially offset by an increase in Mortgage Banker Finance. Net credit-related recoveries were $14 million in 2014 compared to net charge-offs of $20 million in 2013, primarily reflecting decreases in general Middle Market, Commercial Real Estate and Environmental Services. Noninterest income of $166 million in 2014 decreased $4 million from the prior year, primarily reflecting a $5 million decrease in income from the Corporation's third-party credit card provider, largely due to a change in the timing of the recognition of incentives from annually to quarterly in the third quarter 2013 and small decreases in several other noninterest income categories, partially offset by a $4 million increase in fiduciary income. Noninterest expenses of $200 million in 2014 increased $3 million compared to the prior year, primarily due to a $3 million increase in corporate overhead expenses, a $3 million increase in efficiency-related occupancy expenses and small increases in several other noninterest expense categories, partially offset by a $7 million decrease in salaries and benefits expense. See the Business Banking discussion for an explanation of the increase in corporate overhead expense. The net loss for the Finance & Other category of $357 million in 2014 decreased $16 million compared to 2013, primarily reflecting a $19 million decrease in net loss in the Finance segment, largely due to the third quarter 2014 gain of $32 million on the early redemption of debt as previously discussed under the "Business Segments" subheading above. The following table lists the Corporation's banking centers by geographic market segment. December 31 Michigan Texas California Other Markets: Arizona Florida Canada Total Other Markets Total 2014 2013 2012 214 135 104 18 9 1 28 481 216 140 105 18 10 1 29 490 218 142 104 18 11 1 30 494 F-14 BALANCE SHEET AND CAPITAL FUNDS ANALYSIS ANALYSIS OF INVESTMENT SECURITIES AND LOANS (in millions) December 31 Investment securities available-for-sale: U.S. Treasury and other U.S. government agency securities $ Residential mortgage-backed securities (a) State and municipal securities Corporate debt securities Equity and other non-debt securities Total investment securities available-for-sale Investment securities held to maturity: Residential mortgage-backed securities (a) Total investment securities Commercial loans Real estate construction loans Commercial mortgage loans Lease financing International loans: Banks and other financial institutions Commercial and industrial Total international loans Residential mortgage loans Consumer loans: Home equity Other consumer Total consumer loans Total loans 2014 2013 2012 2011 2010 526 7,274 (b) 23 51 242 8,116 1,935 (b) $ 10,051 $ 31,520 1,955 8,604 805 31 1,465 1,496 1,831 1,658 724 2,382 $ 48,593 $ 45 8,926 22 56 258 9,307 — $ 9,307 $ 28,815 1,762 8,787 845 4 1,323 1,327 1,697 $ 35 9,920 23 58 261 10,297 — $ 10,297 $ 29,513 1,240 9,472 859 2 1,291 1,293 1,527 $ 40 9,492 24 47 501 10,104 — $ 10,104 $ 24,996 1,533 10,264 905 18 1,152 1,170 1,526 $ 131 6,709 39 27 654 7,560 — $ 7,560 $ 22,145 2,253 9,767 1,009 2 1,130 1,132 1,619 1,517 720 2,237 $ 45,470 1,537 616 2,153 $ 46,057 1,655 630 2,285 $ 42,679 1,704 607 2,311 $ 40,236 (a) Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. (b) During the fourth quarter 2014, the Corporation transferred residential mortgage-backed securities from available-for sale to held-to- maturity. F-15 EARNING ASSETS Loans to 2013. The following tables provide information about the change in the Corporation's average loan portfolio in 2014, compared (dollar amounts in millions) Years Ended December 31 Average Loans: Commercial loans by business line: General Middle Market National Dealer Services Energy Technology and Life Sciences Environmental Services Entertainment Total Middle Market Corporate Banking Mortgage Banker Finance Commercial Real Estate Total Business Bank commercial loans Total Retail Bank commercial loans Total Wealth Management commercial loans Total commercial loans Real estate construction loans Commercial mortgage loans Lease financing International loans Residential mortgage loans Consumer loans: Home equity Other consumer Consumer loans Total loans Average Loans By Geographic Market: Michigan California Texas Other Markets Total loans $ $ $ $ 2014 2013 Change Percent Change 10,330 4,012 3,211 2,396 865 536 21,350 3,324 1,301 787 26,762 1,561 1,392 29,715 1,909 8,706 834 1,376 1,778 1,583 687 2,270 46,588 13,336 15,390 10,954 6,908 46,588 $ $ $ $ 10,019 3,554 2,871 1,891 741 591 19,667 3,235 1,565 750 25,217 1,356 1,398 27,971 1,486 9,060 847 1,275 1,620 1,505 648 2,153 44,412 13,461 13,978 9,989 6,984 44,412 $ $ $ $ 311 458 340 505 124 (55) 1,683 89 (264) 37 1,545 205 (6) 1,744 423 (354) (13) 101 158 78 39 117 2,176 (125) 1,412 965 (76) 2,176 3 % 13 12 27 17 (9) 9 3 (17) 5 6 15 — 6 28 (4) (2) 8 10 5 6 5 5 % (1)% 10 10 (1) 5 % Average total loans increased $2.2 billion, or 5 percent, to $46.6 billion in 2014, compared to $44.4 billion in 2013, primarily reflecting increases of $1.7 billion, or 6 percent, in commercial loans, $423 million, or 28 percent, in real estate construction loans and $158 million, or 10 percent, in residential mortgage loans, partially offset by a decrease of $354 million, or 4 percent, in commercial mortgage loans. The $1.7 billion increase in average commercial loans primarily reflected increases in Technology and Life Sciences ($505 million), National Dealer Services ($458 million), Energy ($340 million) and general Middle Market ($311 million), partially offset by a decrease in Mortgage Banker Finance ($264 million). Middle Market business lines generally serve customers with annual revenue between $20 million and $500 million, while Corporate Banking serves customers with revenue over $500 million. The decline in Mortgage Banker Finance, which provides mortgage warehousing lines, primarily reflected a decline in residential mortgage refinancing activity. Changes in average total loans by geographic market are provided in the table above. Commercial real estate loans comprise real estate construction loans and commercial mortgage loans.The $69 million increase in average commercial real estate loans primarily reflected increased construction loan activity in the Commercial Real Estate business line, which primarily includes loans to real estate developers, mostly offset by a decrease in owner-occupied commercial mortgages, which largely reflected payments on existing loans faster than new commitments were originated and F-16 being drawn. Commercial mortgage loans are loans where the primary collateral is a lien on any real property. Real property is generally considered primary collateral if the value of that collateral represents more than 50 percent of the commitment at loan approval. Average commercial real estate loans to borrowers in the Commercial Real Estate business line represented $3.3 billion, or 32 percent of average total commercial real estate loans, in 2014, compared to $3.0 billion, or 28 percent of average total commercial real estate loans, in 2013. The remaining $7.3 billion and $7.6 billion of average commercial real estate loans in other business lines in 2014 and 2013, respectively, were primarily loans secured by owner-occupied real estate. For more information on real estate loans, refer to “Commercial and Residential Real Estate Lending” in the “Risk Management” section of this financial review. Total loans were $48.6 billion at December 31, 2014, an increase of $3.1 billion from December 31, 2013, primarily reflecting an increase of $2.7 billion, or 9 percent, in commercial loans. The increase in commercial loans primarily reflected increases in Energy ($670 million), Technology and Life Sciences ($601 million), National Dealer Services ($405 million), Mortgage Banker Finance ($377 million) and smaller increases in most other lines of business. ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO (FTE) (dollar amounts in millions) December 31, 2014 Within 1 Year 1 - 5 Years 5 - 10 Years After 10 Years Total Maturity (a) Weighted Average Maturity Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Years U.S. Treasury and other U.S. government agency securities Residential mortgage-backed securities (b) $ 30 54 0.27% $ 2.30 State and municipal securities (c) Corporate debt securities: Auction-rate debt securities Other corporate debt securities Equity and other non-debt securities: Auction-rate preferred securities (d) Money market and other mutual funds (e) — — — — 50 1.18 — — — — 496 291 — — — — — 1.66% $ — —% $ — —% $ 526 1.58% 2.09 — — — — — 732 16 3.53 0.34 — — — — — — — — 8,132 7 1 2.13 0.34 0.07 — — 9,209 23 1 50 2.24 0.34 0.07 1.18 112 0.19 130 — 112 0.19 130 — 4.7 15.0 10.0 23.0 — — — Total investment securities $ 134 1.44% $ 787 1.82% $ 748 3.46% $ 8,382 2.11% $ 10,051 2.18% 14.3 Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. (a) Based on final contractual maturity. (b) (c) Auction-rate securities. (d) Auction-rate preferred securities have no contractual maturity; balances are excluded from the calculation of total weighted average maturity. (e) Balances are excluded from the calculation of total yield and weighted average maturity. Investment Securities Investment securities increased $744 million to $10.1 billion at December 31, 2014, from $9.3 billion at December 31, 2013, primarily reflecting purchases out-pacing paydowns on residential mortgage-backed investment securities (RMBS) as well as an increase in fair value. Unrealized gains on investment securities were $79 million at December 31, 2014, compared to an unrealized loss of $107 million at December 31, 2013. At December 31, 2014, the weighted-average expected life of the Corporation's residential mortgage-backed securities portfolio was approximately 4.0 years. On an average basis, investment securities decreased $287 million to $9.4 billion in 2014, compared to $9.6 billion in 2013. During the fourth quarter 2014, the Corporation transferred residential mortgage-backed securities with a fair value of approximately $2.0 billion from available-for- sale to held-to-maturity. Management changed its intent with respect to these securities and committed to hold them to maturity partly in response to the issuance of final liquidity coverage requirements (LCR) by U.S. banking regulators. Further information about LCR is provided later in the "Risk Management" section under the "Wholesale Funding" subheading. The Corporation has been purchasing Government National Mortgage Association (GNMA) RMBS to replace paydowns on RMBS issued by government-sponsored enterprises, as GNMA securities receive more favorable treatment under LCR rules. The following table provides a summary of the composition of the Corporation's RMBS portfolio. (dollar amounts in millions) RMBS issued by GNMA RMBS issued by government-sponsored enterprises Total RMBS Amount Percent of Total Amount $ $ 2,111 7,098 9,209 23% $ 77 100% $ 672 8,254 8,926 Percent of Total 8% 92 100% December 31, 2014 December 31, 2013 F-17 As of December 31, 2014, the Corporation's auction-rate securities portfolio was carried at an estimated fair value of $136 million, compared to $159 million at December 31, 2013. During 2014, auction-rate securities with a par value of $34 million were redeemed or sold, resulting in net securities gains of $2 million. As of December 31, 2014, approximately 89 percent of the aggregate auction-rate securities par value had been redeemed or sold since acquired in 2008 for a cumulative net gain of $54 million. Short-Term Investments Short-term investments include federal funds sold, interest-bearing deposits with banks and other short-term investments. Federal funds sold offer supplemental earnings opportunities and serve correspondent banks. Interest-bearing deposits with banks primarily include deposits with the FRB and also include deposits with banks in developed countries or international banking facilities of foreign banks located in the United States. These investments provide a range of maturities of less than one year and are mostly used to manage liquidity requirements of the Corporation. Other short-term investments include trading securities and loans held-for-sale. Loans held-for-sale typically represent residential mortgage loans originated with management's intention to sell. Short-term investments decreased $279 million to $5.1 billion at December 31, 2014, compared to $5.4 billion at December 31, 2013. On an average basis, short-term investments increased $580 million to $5.6 billion in 2014, compared to $5.0 billion in 2013. Average interest-bearing deposits with banks increased $583 million to $5.5 billion in 2014, compared to 2013, primarily reflecting a $596 million increase in average deposits with the FRB. DEPOSITS AND BORROWED FUNDS The Corporation's average deposits and borrowed funds balances are detailed in the following table. (dollar amounts in millions) Years Ended December 31 Noninterest-bearing deposits Money market and interest-bearing checking deposits Savings deposits Customer certificates of deposit Foreign office and other time deposits Total deposits Short-term borrowings Medium- and long-term debt Total borrowed funds 2014 2013 Change Percent Change $ $ $ $ 25,019 22,891 1,744 4,869 261 54,784 200 2,965 3,165 $ $ $ $ 22,379 21,704 1,657 5,471 500 51,711 211 3,972 4,183 $ $ $ $ 2,640 1,187 87 (602) (239) 3,073 (11) (1,007) (1,018) 12 % 5 5 (11) (48) 6 % (6)% (25) (24)% Average deposits increased $3.1 billion, or 6 percent, to $54.8 billion in 2014, compared to $51.7 billion in 2013. Average deposits increased in almost all business lines from 2013 to 2014, with the largest increases in general Middle Market ($962 million), Technology and Life Sciences ($769 million), Retail Banking ($383 million), Commercial Real Estate ($369 million) and Corporate Banking ($362 million). Average deposits increased in all geographic markets from 2013 to 2014, including increases in California ($1.4 billion), Michigan ($677 million), Texas ($517 million) and Other Markets ($476 million). Average noninterest- bearing deposits increased $2.6 billion, or 12 percent, to $25.0 billion in 2014, compared to $22.4 billion in 2013. At December 31, 2014, total deposits were $57.5 billion, an increase of $4.2 billion, or 8 percent, compared to $53.3 billion at December 31, 2013. Noninterest-bearing deposits were $27.2 billion at December 31, 2014, an increase of $3.3 billion, or 14 percent, compared to $23.9 billion at December 31, 2013. Short-term borrowings primarily include federal funds purchased and securities sold under agreements to repurchase. Average short-term borrowings decreased $11 million, to $200 million in 2014, compared to $211 million in 2013, primarily reflecting a decrease in securities sold under agreements to repurchase. Total short-term borrowings at December 31, 2014 were $116 million, a decrease of $137 million compared to $253 million at December 31, 2013. Average medium- and long-term debt decreased $1.0 billion, or 25 percent, to $3.0 billion in 2014, compared to $4.0 billion in 2013. The Corporation uses medium- and long-term debt to provide funding to support earning assets. Total medium- and long-term debt at December 31, 2014 decreased $864 million to $2.7 billion, compared to $3.5 billion at December 31, 2013. The net decrease resulted from the maturity or redemption of $1.0 billion of FHLB advances and $400 million of subordinated notes, partially offset by the issuances of $250 million of subordinated notes and $350 million of medium-term notes. Further information on medium- and long-term debt is provided in Note 12 to the consolidated financial statements. F-18 CAPITAL Total shareholders' equity increased $252 million to $7.4 billion at December 31, 2014, compared to December 31, 2013. The following table presents a summary of changes in total shareholders' equity in 2014. (in millions) Balance at January 1, 2014 Net income Cash dividends declared on common stock Purchase of common stock Other comprehensive income (loss): Investment securities available-for-sale Defined benefit and other postretirement plans Total other comprehensive income (loss) Issuance of common stock under employee stock plans Share-based compensation Balance at December 31, 2014 $ 105 (126) $ $ 7,150 593 (143) (260) (21) 45 38 7,402 Further information about other comprehensive income (loss) is provided in the consolidated statements of comprehensive income and Note 14 to the consolidated financial statements. The Federal Reserve completed its 2014 Comprehensive Capital Analysis and Review (CCAR) in March 2014 and did not object to the Corporation's 2014 capital plan and the capital distributions contemplated in the plan. The plan provides for up to $236 million in share repurchases for the four-quarter period ending March 31, 2015. At December 31, 2014, up to $59 million remained available for share repurchases under the plan. Share repurchases under the share repurchase program totaled $249 million (5.2 million shares) in 2014. The 2015 capital plan was submitted to the Federal Reserve for review in January 2015 and a response is expected in March 2015. The following table summarizes the Corporation’s share repurchase activity for the year ended December 31, 2014. Total Number of Shares and Warrants Purchased as Part of Publicly Announced Repurchase Plans or Programs Average Price Paid Per Share (shares in thousands) Total first quarter 2014 Total second quarter 2014 Total third quarter 2014 Remaining Repurchase Authorization (a) 16,591 16,697 (d) 15,334 14,640 14,210 14,082 14,082 14,082 Total Number of Shares Purchased (b) 1,703 1,273 1,186 702 439 129 1,270 5,432 October 2014 November 2014 December 2014 47.21 47.73 49.83 46.55 48.29 46.10 47.11 47.88 (a) Maximum number of shares and warrants that may yet be purchased under the publicly announced plans or programs. (b) Includes approximately 239,000 shares (including 19,000 shares for the quarter ended December 31, 2014) purchased pursuant to deferred compensation plans and shares purchased from employees to pay for required minimum tax withholding related to restricted stock vesting under the terms of an employee share-based compensation plan during the year ended December 31, 2014. These transactions are not considered part of the Corporation's repurchase program. 1,523 1,236 1,183 693 430 128 1,251 5,193 Total fourth quarter 2014 Total 2014 $ $ Average Price Paid Per Warrant (c) — — — — — — — — (c) The Corporation made no repurchases of warrants under the repurchase program during the year ended December 31, 2014. 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, 2014, the Corporation withheld the equivalent of approximately 491,000 shares to cover an aggregate of $25.1 million in exercise price and issued approximately 361,000 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. (d) Includes April 22, 2014 share repurchase authorization for up to an additional 2.0 million shares. In April 2014, the Board of Directors of the Corporation (the Board) authorized the repurchase of up to an additional 2.0 million shares of Comerica Incorporated outstanding common stock, in addition to the 5.1 million shares remaining at March 31, 2014 under the Board's prior authorizations for the share repurchase program initially approved in November 2010. Including the April 2014 authorization, a total of 30.3 million shares has been authorized for repurchase under the share repurchase program since its inception. In November 2010, the Board authorized the purchase of up to all 11.5 million of the Corporation's original outstanding warrants. There is no expiration date for the Corporation's share repurchase program. F-19 In January 2014, the Board approved a 12 percent increase in the quarterly cash dividend, to 19 cents per common share, effective with the April 2014 dividend payment, and in April 2014 approved an additional 5 percent increase, to 20 cents per common share. The 2014 dividend increases were contemplated in the Corporation's 2014 capital plan. The Corporation declared common dividends in 2014 totaling $143 million, or $0.79 per share, on net income of $593 million, compared to common dividends totaling $0.68 per share in 2013. The dividend payout ratio, calculated on a per share basis, was 24 percent in 2014, compared to 23 percent in 2013. Including share repurchases, the total payout to shareholders was 66 percent in 2014, compared to 76 percent in 2013. The Corporation assesses capital adequacy against the risk inherent in the balance sheet, recognizing that unexpected loss is the common denominator of risk and that common equity has the greatest capacity to absorb unexpected loss. At December 31, 2014, the Corporation and its U.S. banking subsidiaries exceeded the capital ratios required for an institution to be considered “well capitalized” by the standards developed under the Federal Deposit Insurance Corporation Improvement Act of 1991. Refer to Note 20 to the consolidated financial statements for further discussion of regulatory capital requirements and capital ratio calculations. The Corporation periodically conducts stress tests to evaluate potential impacts to the Corporation's forecasted financial condition under various economic scenarios. These stress tests are a regular part of the Corporation's overall risk management and capital planning process. The same forecasting process is also used by the Corporation to conduct the stress test that was part of CCAR. For additional information about risk management processes, refer to the "Risk Management" section of this financial review. In July 2013, U.S. banking regulators issued a final rule for the U.S. adoption of the Basel III regulatory capital framework. The regulatory framework includes a more conservative definition of capital, two new capital buffers - a conservation buffer and a countercyclical buffer, new and more stringent risk weight categories for assets and off-balance sheet items, and a supplemental leverage ratio. As a banking organization subject to the standardized approach, the rules are effective for the Corporation on January 1, 2015, with certain transition provisions fully phased in on January 1, 2018. According to the rule, the Corporation will be subject to the capital conservation buffer of 2.5 percent, when fully phased in, to avoid restrictions on capital distributions and discretionary bonuses. However, the rules do not subject the Corporation to the capital countercyclical buffer of up to 2.5 percent or the supplemental leverage ratio. The Corporation estimates the December 31, 2014 Tier 1 and common equity Tier 1 risk-based ratio would be 10.3 percent if calculated under the final rule, as fully phased in, excluding most elements of accumulated other comprehensive income from regulatory capital. The Corporation's December 31, 2014 estimated common equity Tier 1 and Tier 1 capital ratios exceed the minimum required by the final rule (7 percent and 8.5 percent, respectively, including the fully phased-in capital conservation buffer). For a reconcilement of these non- GAAP financial measures, refer to the "Supplemental Financial Data" section of this financial review. On December 9, 2014, U.S. banking regulators proposed a rule that would establish an additional capital buffer for banking organizations deemed systemically important to the global financial system (Globally Systemically Important Bank Holding Companies, or “G-SIB”). The Corporation would not be considered a G-SIB under the rule as proposed. F-20 RISK MANAGEMENT As a result of conducting business in the normal course, the Corporation assumes various types of risk. The Corporation's enterprise risk framework provides a process for identifying, measuring, controlling and managing these risks. This framework incorporates a risk assessment process, a collection of risk committees that manage the Corporation's major risk elements, and a risk appetite statement that outlines the levels and types of risks the Corporation accepts. The Corporation continuously enhances its enterprise risk framework with additional processes, tools and systems designed to not only provide management with deeper insight into the Corporation's various existing and emerging risks in accordance with its appetite for risk, but also to improve the Corporation's ability to control those risks and ensure that appropriate consideration is received for the risks taken. The Corporation’s front line employees are responsible for the day to day management of risks including the identification, assessment, measurement and control of risks encountered as a part of the normal course of business. Risks are further monitored, measured and controlled by specialized risk managers for each of the major risk categories, who aid in the identification, measurement, and control of organizational risks. The majority of these risk managers report into the Office of Enterprise Risk. The Office of Enterprise Risk, led by the Chief Risk Officer, is responsible for designing and managing the Corporation’s enterprise risk framework and ensures effective risk management oversight. Risk management committees serve as a point of review and escalation for those risks which may have risk interdependencies or where risk levels may be nearing the limits outlined in the Corporation’s risk appetite statement. These committees comprise senior and executive management that represent views from both the lines of business and risk management. Internal Audit monitors and assesses the overall effectiveness of the risk management framework on an ongoing basis and provides an independent assessment of the Corporation’s ability to manage and control risk to management and the Audit Committee of the Board. The Enterprise-Wide Risk Management Committee, established by the Enterprise Risk Committee of the Board, is responsible for governance over the risk management framework, providing oversight in managing the Corporation's aggregate risk position and reporting on the comprehensive portfolio of risks as well as the potential impact these risks can have on the Corporation's risk profile and resulting capital level. The Enterprise-Wide Risk Management Committee is principally composed of senior officers and executives representing the different risk areas and business units who are appointed by the Chairman and Chief Executive Officer of the Corporation. The Board's Enterprise Risk Committee meets quarterly and is chartered to assist the Board in promoting the best interests of the Corporation by overseeing policies, procedures and risk practices relating to enterprise-wide risk and ensuring compliance with bank regulatory obligations. Members of the Enterprise Risk Committee are selected such that the committee comprises individuals whose experiences and qualifications can lead to broad and informed views on risk matters facing the Corporation and the financial services industry. These include, but are not limited to, existing and emerging risk matters related to credit, market, liquidity, operational, compliance and strategic conditions. A comprehensive risk report is submitted to the Enterprise Risk Committee each quarter providing management's view of the Corporation's aggregate risk position. Further discussion and analyses of each major risk area are included in the following sub-sections of the Risk Management section in this financial review. CREDIT RISK Credit risk represents the risk of loss due to failure of a customer or counterparty to meet its financial obligations in accordance with contractual terms. The governance structure is administered through the Strategic Credit Committee. The Strategic Credit Committee is chaired by the Chief Credit Officer and approves recommendations to address credit risk matters through credit policy, credit risk management practices, and required credit risk actions. The Strategic Credit Committee also ensures a comprehensive reporting of credit risk levels and trends, including exception levels, along with identification and mitigation of emerging risks. In order to facilitate the corporate credit risk management process, various other corporate functions provide the resources for the Strategic Credit Committee to carry out its responsibilities. The Corporation manages credit risk through underwriting, periodically reviewing and approving its credit exposures using approved credit policies and guidelines. Additionally, the Corporation manages credit risk through loan portfolio diversification, limiting exposure to any single industry, customer or guarantor, and selling participations and/or syndicating credit exposures above those levels it deems prudent to third parties. Credit Administration provides the resources to manage the line of business transactional credit risk, assuring that all exposure is risk rated according to the requirements of the credit risk rating policy and providing business segment reporting support as necessary. The Corporation's Asset Quality Review function, a division of Internal Audit, audits the accuracy of internal risk ratings that are assigned by the lending and credit groups. The Special Assets Group is responsible for managing the recovery process on distressed or defaulted loans and loan sales. Portfolio Risk Analytics, of the Office of Enterprise Risk, provides comprehensive reporting on portfolio credit risk levels and trends, continuous assessment and verification of risk rating models, quarterly calculation of the allowance for loan losses F-21 and the allowance for credit losses on lending-related commitments, calculation of economic credit risk capital and management of credit policy to ensure it remains current, relevant and provides comprehensive coverage of credit risk. ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES (dollar amounts in millions) Years Ended December 31 Balance at beginning of year Loan charge-offs: Commercial Real estate construction Commercial mortgage Lease financing International Residential mortgage Consumer Total loan charge-offs Recoveries: Commercial Real estate construction Commercial mortgage Lease financing International Residential mortgage Consumer Total recoveries Net loan charge-offs Provision for loan losses Foreign currency translation adjustment Balance at end of year Net loan charge-offs during the year as a percentage of average loans outstanding during the year $ Allowance for Credit Losses 2014 2013 2012 2011 2010 $ 598 $ 629 $ 726 $ 901 $ 59 — 22 — 6 2 13 102 34 4 28 2 — 4 5 77 25 22 (1) 594 $ 91 3 36 — — 4 19 153 42 7 20 1 — 4 6 80 73 42 — 598 $ 112 8 89 — 3 13 20 245 39 6 18 — 2 2 8 75 170 73 — 629 $ 192 37 139 — 7 15 33 423 33 14 26 11 5 2 4 95 328 153 — 726 $ 985 195 179 191 1 8 14 39 627 25 11 16 5 1 1 4 63 564 480 — 901 0.05% 0.16% 0.39% 0.82% 1.39% The allowance for credit losses includes both the allowance for loan losses and the allowance for credit losses on lending- related commitments. The allowance for loan losses represents management's assessment of probable, estimable losses inherent in the Corporation's loan portfolio. The allowance for credit losses on lending-related commitments, included in "accrued expenses and other liabilities" on the consolidated balance sheets, provides for probable losses inherent in lending-related commitments, including unused commitments to extend credit and standby letters of credit. Refer to Note 1 to the consolidated financial statements for a discussion of the methodology used in the determination of the allowance for credit losses. The initial estimate of fourth quarter 2014 real annualized Gross Domestic Product (GDP) growth of 2.6 percent showed that growth in the U.S. economy eased at the end of the year, largely reflecting lower government spending and fixed business investments, after strong second and third quarters. Real annualized GDP growth in the second and third quarters of 2014 exceeded 4.5 percent, and job growth at year-end brought the U.S. unemployment rate down to 5.6 percent in December. Many U.S. metrics, including the unemployment rate, are returning to healthier levels. Both consumer and business confidence measures finished the year at levels not seen since before the Great Recession, and auto sales trended up to finish the year on par with recent cyclical highs. In contrast to the improving trends in U.S. economic indicators through 2014, many global indicators softened. The eurozone economy slumped in the second half of 2014, as did Japan's. Global uncertainty, coinciding with stimulatory monetary policy by the European Central Bank and the bank of Japan, kept downward pressure on U.S. interest rates, even as the U.S. Federal Reserve ended its bond buying program. Falling oil and gas prices through the second half of 2014 added to financial market uncertainty. The Corporation believes it has reached near cycle-low levels of criticized loans and loan charge-offs. This is balanced by continued loan growth at the Corporation and industry wide. While overall credit quality of the loan portfolio remained strong through the end of 2014, economic complexity and uncertainty continued to be a consideration when determining the appropriateness of the allowance for loan losses. F-22 An analysis of the coverage of the allowance for loan losses is provided in the following table. Years Ended December 31 Allowance for loan losses as a percentage of total loans at end of year Allowance for loan losses as a percentage of total nonperforming loans at end of year Allowance for loan losses as a multiple of total net loan charge-offs for the year 2014 2013 2012 1.22% 205 23.5x 1.32% 160 8.2x 1.37% 116 3.7x The allowance for loan losses was $594 million at December 31, 2014, compared to $598 million at December 31, 2013, a decrease of $4 million, or 1 percent resulting primarily from an increase in credit quality in the loan portfolio, partially offset by higher loan balances. The $4 million decrease in the allowance for loan losses primarily reflected decreased reserves in Corporate Banking, Private Banking, and Small Business, partially offset by increased reserves in Energy and Technology and Life Sciences. By market, reserves decreased in Michigan and Other Markets and increased in Texas (primarily due to Energy) and California. Oil and gas prices declined significantly in the late third and fourth quarters of 2014. While no adverse trends had been noted in the internal risk ratings of borrowers in the Energy portfolio at December 31, 2014, some borrowers could be adversely impacted from this event, resulting in incurred losses that have yet to emerge in the portfolio. Accordingly, in addition to the reserves resulting from the application of standard reserve factors to the portfolio of energy-related loans at December 31, 2014, the Corporation included a qualitative adjustment to the allowance for credit losses. In developing the qualitative adjustment, management considered a range of possible outcomes for probability of default, loss given default and the loss emergence period, as well as historical migration and loss experience under similar economic conditions. The additional reserve on Middle Market- Energy loans resulting from the qualitative adjustment was approximately 60 basis points of outstanding Middle Market - Energy loan balances at December 31, 2014. Refer to the "Energy Lending" subheading later in this section for further discussion of the Corporation's portfolio of energy-related loans. Acquired loans were initially recorded at fair value, which included an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses was recorded for these loans at acquisition. Methods utilized to estimate the required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance less the remaining purchase discount, either on an individually evaluated basis or based on the pool of acquired loans not deemed credit-impaired at acquisition within each risk rating, as applicable. At December 31, 2014, there was a $1 million allowance for loan losses on acquired loans not deemed credit-impaired and $12 million of purchase discount remained, compared to no allowance for loan losses and $21 million of remaining purchase discount at December 31, 2013. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES (dollar amounts in millions) Allocated Allowance December 31 Allowance Ratio (a) % (b) Allocated Allowance % (b) Allocated Allowance % (b) Allocated Allowance % (b) Allocated Allowance % (b) 2014 2013 2012 2011 2010 $ Business loans Commercial Real estate construction Commercial mortgage Lease financing International Total business loans Retail loans Residential mortgage Consumer Total retail loans 388 20 120 2 4 534 14 46 60 Total loans $ 594 1.23% 65% $ 0.99 4 1.39 0.29 0.30 1.20 0.77 1.94 18 1 3 91 4 5 1.43 1.22% 100% $ 9 346 16 159 4 6 531 17 50 67 63% $ 4 19 2 3 91 4 5 9 297 16 227 4 8 552 20 57 77 63% $ 3 21 2 3 92 3 5 8 303 48 281 7 9 648 21 57 78 58% $ 4 24 2 3 91 4 5 9 422 102 272 8 20 824 29 48 77 54% 6 24 3 3 90 4 6 10 598 100% $ 629 100% $ 726 100% $ 901 100% (a) Allocated allowance as a percentage of related loans outstanding. (b) Loans outstanding as a percentage of total loans. The allowance for credit losses on lending-related commitments includes specific allowances, based on individual evaluations of certain letters of credit in a manner consistent with business loans, and allowances based on the pool of the remaining letters of credit and all unused commitments to extend credit within each internal risk rating. The allowance for credit losses on lending-related commitments was $41 million at December 31, 2014 compared to $36 million at December 31, 2013. The $5 million increase in the allowance for credit losses on lending-related commitments reflected increases in both the reserves for unused commitments to extend credit and reserves for standby letters of credit. An analysis of changes in the allowance for credit losses on lending-related commitments is presented below. F-23 (dollar amounts in millions) Years Ended December 31 Balance at beginning of year Add: Provision for credit losses on lending-related commitments Balance at end of year 2014 2013 2012 2011 2010 $ $ 36 5 41 $ $ 32 4 36 $ $ 26 6 32 $ $ 35 $ (9) 26 $ 37 (2) 35 For additional information regarding the allowance for credit losses, refer to the "Critical Accounting Policies" section of this financial review and Notes 1 and 4 to the consolidated financial statements. Nonperforming Assets Nonperforming assets include loans on nonaccrual status, troubled debt restructured loans (TDRs) which have been renegotiated to less than the original contractual rates (reduced-rate loans) and foreclosed property. TDRs include performing and nonperforming loans. Nonperforming TDRs are either on nonaccrual or reduced-rate status. Nonperforming assets do not include purchased credit impaired (PCI) loans. SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS (dollar amounts in millions) December 31 Nonaccrual loans: Business loans: Commercial Real estate construction Commercial mortgage Lease financing International Total nonaccrual business loans Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total nonaccrual retail loans Total nonaccrual loans Reduced-rate loans Total nonperforming loans Foreclosed property Total nonperforming assets Gross interest income that would have been recorded had the nonaccrual and reduced-rate loans performed in accordance with original terms Interest income recognized Nonperforming loans as a percentage of total loans Nonperforming assets as a percentage of total loans and foreclosed property Loans past due 90 days or more and still accruing Loans past due 90 days or more and still accruing as a percentage of total loans 2014 2013 2012 2011 2010 $ $ $ $ 109 2 95 — — 206 36 30 1 31 67 273 17 290 10 300 25 6 0.60% 0.62 5 $ $ $ $ 81 21 156 — 4 262 53 33 2 35 88 350 24 374 9 383 34 5 0.82% 0.84 16 $ $ $ $ 103 33 275 3 — 414 70 31 4 35 105 519 22 541 54 595 62 5 1.17% 1.29 23 $ $ $ $ 237 101 427 5 8 778 71 5 6 11 82 860 27 887 94 981 74 11 2.08% 2.29 58 $ $ $ $ 252 263 483 7 2 1,007 55 5 13 18 73 1,080 43 1,123 112 1,235 87 18 2.79% 3.06 62 0.01% 0.03% 0.05% 0.14% 0.15% Nonperforming assets decreased $83 million to $300 million at December 31, 2014, from $383 million at December 31, 2013. The decrease in nonperforming assets primarily reflected decreases in nonaccrual commercial mortgage loans ($61 million), real estate construction loans ($19 million) and residential mortgage loans ($17 million), partially offset by an increase in nonaccrual commercial loans ($28 million). Nonperforming assets as a percentage of total loans and foreclosed property was 0.62 percent at December 31, 2014, compared to 0.84 percent at December 31, 2013. F-24 The following table presents a summary of changes in nonaccrual loans. (in millions) Years Ended December 31 Balance at beginning of period Loans transferred to nonaccrual (a) Nonaccrual business loan gross charge-offs (b) Loans transferred to accrual status (a) Nonaccrual business loans sold (c) Payments/other (d) Balance at end of period (a) Based on an analysis of nonaccrual loans with book balances greater than $2 million. (b) Analysis of gross loan charge-offs: Nonaccrual business loans Performing criticized loans Retail loans Total gross loan charge-offs (c) Analysis of loans sold: 2014 2013 $ $ $ $ 350 167 (87) (18) (36) (103) 273 87 — 15 102 $ $ $ $ 519 144 (117) — (47) (149) 350 117 13 23 153 Total loans sold Nonaccrual business loans Performing criticized loans 47 105 152 (d) Includes net changes related to nonaccrual loans with balances less than $2 million, payments on nonaccrual loans with book balances greater than $2 million, transfers of nonaccrual loans to foreclosed property and retail loan gross charge-offs. Excludes business loan gross charge-offs and nonaccrual business loans sold. 36 19 55 $ $ $ $ There were 20 borrowers with balances greater than $2 million, totaling $167 million, transferred to nonaccrual status in 2014, an increase of $23 million when compared to $144 million in 2013. Of the transfers to nonaccrual greater than $2 million in 2014, $118 million were from Middle Market. The following table presents a summary of nonaccrual loans at December 31, 2014 and loans transferred to nonaccrual and net loan charge-offs for the year ended December 31, 2014, based on North American Industry Classification System (NAICS) categories. December 31, 2014 Year Ended December 31, 2014 $ Nonaccrual Loans Loans Transferred to Nonaccrual (a) Net Loan Charge-Offs (Recoveries) (dollar amounts in millions) Industry Category Real Estate and Home Builders Services Residential Mortgage Contractors Retail Trade Health Care and Social Assistance Holding and Other Investment Companies Manufacturing Natural Resources Restaurants and Food Service Transportation and Warehousing Finance Wholesale Trade Information and Communication Hotels Other (b) Total (a) Based on an analysis of nonaccrual loans with book balances greater than $2 million. (b) Consumer, excluding residential mortgage and certain personal purpose nonaccrual loans and net charge-offs, are included in the “Other” 16% $ 16 13 12 7 7 5 3 2 2 1 1 1 1 — 13 100% $ 17% $ 16 — 18 9 8 2 6 — — 13 — — 2 6 3 (12)% (4) (8) 4 40 — (32) 72 (4) 4 8 (16) — — 12 36 100 % 29 26 — 30 15 13 4 10 — — 22 — — 3 10 5 167 44 44 36 32 20 18 14 8 5 5 3 3 2 2 1 36 273 (3) (1) (2) 1 10 — (8) 18 (1) 1 2 (4) — — 3 9 25 100% $ $ category. F-25 The following table presents the composition of nonaccrual loans by balance and the related number of borrowers at December 31, 2014 and 2013. (dollar amounts in millions) Under $2 million $2 million - $5 million $5 million - $10 million $10 million - $25 million Greater than $25 million Total 2014 2013 Number of Borrowers Balance Number of Borrowers Balance 1,492 15 3 2 1 1,513 $ $ 154 48 22 23 26 273 1,756 23 3 3 — 1,785 $ $ 211 71 23 45 — 350 The following table presents a summary of TDRs at December 31, 2014 and 2013. 2014 2013 (in millions) Nonperforming TDRs: Nonaccrual TDRs Reduced-rate TDRs Total nonperforming TDRs 100 24 124 57 Performing TDRs (a) Total TDRs 181 (a) TDRs that do not include a reduction in the original contractual interest rate which are performing in accordance with their modified terms. 58 17 75 43 118 $ $ $ $ Performing TDRs included $23 million of commercial mortgage loans (primarily in Small Business and Commercial Real Estate) and $20 million of commercial loans (primarily in Middle Market and Small Business) at December 31, 2014. Loans past due 90 days or more and still accruing interest generally represent loans that are well collateralized and in a continuing process of collection. Loans past due 90 days or more decreased $11 million to $5 million at December 31, 2014, compared to $16 million at December 31, 2013. Loans past due 30-89 days increased $36 million to $163 million at December 31, 2014, compared to $127 million at December 31, 2013. An aging analysis of loans included in Note 4 to the consolidated financial statements provides further information about the balances comprising past due loans. The following table presents a summary of total criticized loans. Criticized loans with balances of $2 million or more on nonaccrual status or whose terms have been modified in a TDR are individually subjected to quarterly credit quality reviews, and the Corporation may establish specific allowances for such loans. A table of loans by credit quality indicator included in Note 4 to the consolidated financial statements provides further information about the balances comprising total criticized loans. (dollar amounts in millions) December 31 Total criticized loans As a percentage of total loans 2014 2013 $ 1,893 $ 3.9% 2,260 5.0% At December 31, 2014, foreclosed property totaled $9 million and consisted of 88 properties, compared to $9 million and 89 properties at December 31, 2013. The following table presents a summary of changes in foreclosed property. (in millions) Years Ended December 31 Balance at beginning of period Acquired in foreclosure Write-downs Foreclosed property sold (a) Balance at end of period (a) Net gain on foreclosed property sold 2014 2013 9 16 (1) (14) 10 5 $ $ $ 54 14 (10) (49) 9 6 $ $ $ For further information regarding the Corporation's nonperforming assets policies and impaired loans, refer to Note 1 and Note 4 to the consolidated financial statements. Concentration of Credit Risk Concentrations of credit risk may exist when a number of borrowers are engaged in similar activities, or activities in the same geographic region, and have similar economic characteristics that would cause them to be similarly impacted by changes in F-26 economic or other conditions. The Corporation has a concentration of credit risk with the automotive industry. All other industry concentrations, as defined by management, individually represented less than 10 percent of total loans at December 31, 2014. The following table presents a summary of loans outstanding to companies related to the automotive industry. (in millions) December 31 Production: Domestic Foreign Total production Dealer: Floor plan Other Total dealer Total automotive 2014 2013 Loans Outstanding Percent of Total Loans Loans Outstanding Percent of Total Loans $ $ 883 353 1,236 3,790 2,641 6,431 7,667 $ 2.5% 13.2% 15.8% $ 916 313 1,229 3,504 2,350 5,854 7,083 2.7% 12.9% 15.6% Substantially all dealer loans are in the National Dealer Services business line. Loans in the National Dealer Services business line primarily include floor plan financing and other loans to automotive dealerships. Floor plan loans, included in “commercial loans” in the consolidated balance sheets, totaled $3.8 billion at December 31, 2014, an increase of $286 million compared to $3.5 billion at December 31, 2013. At December 31, 2014 other loans in the National Dealer Services business line totaled $2.6 billion, including $1.5 billion of owner-occupied commercial real estate mortgage loans, compared to $2.4 billion, including $1.4 billion of owner-occupied commercial real estate mortgage loans, at December 31, 2013. Automotive lending also includes loans to borrowers involved with automotive production, primarily Tier 1 and Tier 2 suppliers. Loans to borrowers involved with automotive production totaled approximately $1.2 billion at both December 31, 2014 and 2013. December 31, 2014, dealer loans, as shown in the table above, totaled $6.4 billion, of which approximately $4.1 billion, or 63 percent, were to foreign franchises, and $1.7 billion, or 27 percent, were to domestic franchises. Other dealer loans, totaling $646 million, or 10 percent, at December 31, 2014, include obligations where a primary franchise was indeterminable, such as loans to large public dealership consolidators and rental car, leasing, heavy truck and recreation vehicle companies. Nonaccrual loans to automotive borrowers totaled $4 million, or 1 percent of total nonaccrual loans at December 31, 2014, compared to $5 million, or 1 percent of total nonaccrual loans at December 31, 2013. Total automotive net loan charge-offs were $1 million in both 2014 and 2013. For further information regarding significant group concentrations of credit risk, refer to Note 5 to the consolidated financial statements. Commercial and Residential Real Estate Lending The following table summarizes the Corporation's commercial real estate loan portfolio by loan category. (in millions) December 31 Real estate construction loans: Commercial Real Estate business line (a) Other business lines (b) Total real estate construction loans Commercial mortgage loans: Commercial Real Estate business line (a) Other business lines (b) Total commercial mortgage loans (a) Primarily loans to real estate developers. (b) Primarily loans secured by owner-occupied real estate. 2014 2013 $ $ $ $ 1,606 349 1,955 1,790 6,814 8,604 $ $ $ $ 1,447 315 1,762 1,678 7,109 8,787 The Corporation limits risk inherent in its commercial real estate lending activities by limiting exposure to those borrowers directly involved in the commercial real estate markets, diversifying credit risk by geography and project type, and adhering to conservative policies on loan-to-value ratios for such loans. Commercial real estate loans, consisting of real estate construction and commercial mortgage loans, totaled $10.6 billion at December 31, 2014, of which $3.4 billion, or 32 percent, were to borrowers in the Commercial Real Estate business line, which includes loans to real estate developers. The remaining $7.2 billion, or 68 F-27 percent, of commercial real estate loans is to borrowers in other business lines and consisted primarily of owner-occupied commercial mortgages which bear credit characteristics similar to non-commercial real estate business loans. The real estate construction loan portfolio primarily contains loans made to long-time customers with satisfactory completion experience. Real estate construction loans in the Commercial Real Estate business line totaled $1.6 billion with $1 million on nonaccrual status at December 31, 2014, compared to $1.4 billion with $20 million on nonaccrual status at December 31, 2013. Net real estate construction loan recoveries in the Commercial Real Estate business line were $4 million in both 2014 and 2013. Loans in the commercial mortgage portfolio generally mature within three to five years. Of the $1.8 billion of commercial mortgage loans in the Commercial Real Estate business line, $22 million were on nonaccrual status at December 31, 2014, compared to $1.7 billion with $51 million on nonaccrual status at December 31, 2013. Commercial mortgage loan net recoveries in the Commercial Real Estate business line were $8 million in 2014, compared to net charge-offs of $6 million in 2013. In other business lines, $73 million and $105 million of commercial mortgage loans were on nonaccrual status at December 31, 2014 and 2013, respectively, and net charge-offs were $2 million and $10 million in 2014 and 2013, respectively. The following table summarizes the Corporation's residential mortgage and home equity loan portfolios by geographic market. (dollar amounts in millions) Geographic market: Michigan California Texas Other Markets Total Residential Mortgage Loans December 31, 2014 Home Equity Loans % of Total % of Total Residential Mortgage Loans December 31, 2013 Home Equity Loans % of Total $ $ 417 831 337 246 1,831 23% $ 46 18 13 100% $ 795 564 247 52 1,658 48% $ 34 15 3 100% $ 422 705 340 230 1,697 25% $ 41 20 14 100% $ 808 436 228 45 1,517 % of Total 53% 29 15 3 100% Residential real estate loans, which consist of traditional residential mortgages and home equity loans and lines of credit, totaled $3.5 billion at December 31, 2014. Residential mortgages totaled $1.8 billion at December 31, 2014, and were primarily larger, variable-rate mortgages originated and retained for certain private banking relationship customers. Of the $1.8 billion of residential mortgage loans outstanding, $36 million were on nonaccrual status at December 31, 2014. The home equity portfolio totaled $1.7 billion at December 31, 2014, of which $1.5 billion was outstanding under primarily variable-rate, interest-only home equity lines of credit, $120 million were in amortizing status and $76 million were closed-end home equity loans. Of the $1.7 billion of home equity loans outstanding, $30 million were on nonaccrual status at December 31, 2014. A majority of the home equity portfolio was secured by junior liens at December 31, 2014. The residential real estate portfolio is principally located within the Corporation's primary geographic markets. Substantially all residential real estate loans past due 90 days or more are placed on nonaccrual status, and substantially all junior lien home equity loans that are current or less than 90 days past due are placed on nonaccrual status if full collection of the senior position is in doubt. At no later than 180 days past due, such loans are charged off to current appraised values less costs to sell. Energy Lending The Corporation has a portfolio of energy-related loans that are included primarily in "commercial loans" in the consolidated balance sheets. The Corporation has over 30 years of experience in energy lending, with a focus on middle market companies. Loans in the Middle Market - Energy business line (approximately 200 borrowers at December 31, 2014) were $3.6 billion, or approximately 7 percent of total loans, at December 31, 2014, compared to $2.8 billion, or approximately 6 percent of total loans, at December 31, 2013. There were no nonaccrual Middle Market - Energy loans at December 31, 2014 and no net charge-offs in 2014, compared to $1 million of nonaccrual loans at December 31, 2013 and net charge-offs of $2 million in 2013. Credit policy for energy loans includes parameters for collateral, engineering review, advance rates on proven reserves, well and field diversity, and environmental due diligence, among other factors. The portfolio of energy-related loans is diverse in nature, with outstanding balances by customer market segment distributed approximately as follows at December 31, 2014: 71 percent exploration and production (EP) (comprising approximately 59 percent oil, 26 percent mixed and 15 percent natural gas), 16 percent energy services and 13 percent midstream. EP generally includes such activities as searching for potential oil and gas fields, drilling exploratory wells and operating active wells. The midstream sector is generally involved in the transportation, storage and marketing of crude and/or refined energy products. Energy services companies provide services to the EP and midstream sectors. As of December 31, 2014, a majority of the Corporation’s EP customers had at least 50 percent of their oil and/or gas production hedged up to the end of 2015. Approximately 95 percent of the amount of loans outstanding in the Middle Market - Energy business line had varying levels and types of collateral at December 31, 2014, including oil and gas reserves and pipelines, equipment, accounts receivable, inventory and other assets, or some combination thereof. Commitments to EP borrowers are F-28 generally subject to borrowing base re-determinations about every six months, based on updated prices which consider the then- current energy prices and other factors. While no adverse trends had been noted in the internal risk ratings of energy borrowers at December 31, 2014 from the significant decline in oil and gas prices in the late third and fourth quarters of 2014, energy borrowers could be adversely impacted from this event. Upcoming re-determinations could result in some reductions to the lines of credit available to those borrowers, and may result in some internal risk rating downgrades. Refer to the “Allowance for Credit Losses” subheading earlier in this section for a discussion of changes in the allowance for loan losses as a result of the above-described events. International Exposure International assets are subject to general risks inherent in the conduct of business in foreign countries, including economic uncertainties and each foreign government's regulations. Risk management practices minimize the risk inherent in international lending arrangements. These practices include structuring bilateral agreements or participating in bank facilities, which secure repayment from sources external to the borrower's country. Accordingly, such international outstandings are excluded from the cross-border risk of that country. Mexico, with cross-border outstandings of $670 million (0.97 percent of total assets), $645 million (0.99 percent of total assets) and $569 million (0.87 percent of total assets) at December 31, 2014, 2013 and 2012, respectively, was the only country with outstandings between 0.75 and 1.00 percent of total assets at year-end 2014, 2013 and 2012. There were no countries with cross-border outstandings exceeding 1.00 percent of total assets at year-end 2014, 2013 and 2012. The Corporation does not hold any sovereign exposure to Europe. The Corporation's international strategy as it pertains to Europe is to focus on European companies doing business in North America, with an emphasis on the Corporation's primary geographic markets. The following table summarizes cross-border exposure to entities domiciled in Mexico and Europe at December 31, 2014 and 2013. (in millions) December 31 Mexico exposure: Commercial and industrial Banks and other financial institutions Total outstanding Unfunded commitments and guarantees Total Mexico exposure European exposure: Commercial and industrial Banks and other financial institutions Total outstanding Unfunded commitments and guarantees Total European exposure (a) (a) Primarily United Kingdom and the Netherlands. MARKET AND LIQUIDITY RISK 2014 2013 $ $ $ $ 661 9 670 179 849 211 52 263 382 645 $ $ $ $ 641 4 645 204 849 195 93 288 341 629 Market risk represents the risk of loss due to adverse movements in market rates or prices, including interest rates, foreign exchange rates, commodity prices and equity prices. Liquidity risk represents the failure to meet financial obligations coming due resulting from an inability to liquidate assets or obtain adequate funding, and the inability to easily unwind or offset specific exposures without significant changes in pricing, due to inadequate market depth or market disruptions. The Asset and Liability Policy Committee (ALCO) of the Corporation establishes and monitors compliance with the policies and risk limits pertaining to market and liquidity risk management activities. ALCO meets regularly to discuss and review market and liquidity risk management strategies, and consists of executive and senior management from various areas of the Corporation, including treasury, finance, economics, lending, deposit gathering and risk management. The Treasury Department mitigates market and liquidity risk through the actions it takes to manage the Corporation's market, liquidity and capital positions under the direction of ALCO. Market Risk Analytics, of the Office of Enterprise Risk, supports ALCO in measuring, monitoring and managing interest rate and liquidity risks and coordinating all other market risks. Key activities encompass: (i) providing information and analysis of the Corporation's balance sheet structure and measurement of interest rate, liquidity and all other market risks; (ii) monitoring and reporting of the Corporation's positions relative to established policy limits and guidelines; (iii) developing and presenting F-29 analysis and strategies to adjust risk positions; (iv) reviewing and presenting policies and authorizations for approval; (v) monitoring of industry trends and analytical tools to be used in the management of interest rate, liquidity and all other market risks; and (vi) developing and monitoring the interest rate risk economic capital estimate. Interest Rate Risk Net interest income is the primary source of revenue for the Corporation. Interest rate risk arises in the normal course of business due to differences in the repricing and cash flow characteristics of assets and liability, primarily through the Corporation's core business activities of extending loans and acquiring deposits. The Corporation's balance sheet is predominantly characterized by floating-rate loans funded by a combination of core deposits and wholesale borrowings. Approximately 85 percent of the Corporation's loans were floating at December 31, 2014, of which approximately 75 percent were based on LIBOR and 25 percent were based on Prime. This creates sensitivity to interest rate movements due to the imbalance between the floating-rate loan portfolio and the more slowly repricing deposit products. In addition, the growth and/or contraction in the Corporation's loans and deposits may lead to changes in sensitivity to interest rate movements in the absence of mitigating actions. Examples of such actions are purchasing investment securities, primarily fixed-rate, which provide liquidity to the balance sheet and act to mitigate the inherent interest sensitivity, and hedging the sensitivity with interest rate swaps. The Corporation actively manages its exposure to interest rate risk, with the principal objective of optimizing net interest income and the economic value of equity while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity. Interest Rate Sensitivity Since no single measurement system satisfies all management objectives, a combination of techniques is used to manage interest rate risk. These techniques examine the impact of interest rate risk on net interest income and the economic value of equity under a variety of alternative scenarios, including changes in the level, slope and shape of the yield curve, utilizing multiple simulation analyses. Simulation analyses produce only estimates of net interest income, as the assumptions used are inherently uncertain. Actual results may differ from simulated results due to many factors, including, but not limited to, the timing, magnitude and frequency of changes in interest rates, market conditions, regulatory impacts and management strategies. Sensitivity of Net Interest Income to Changes in Interest Rates The analysis of the impact of changes in interest rates on net interest income under various interest rate scenarios is management's principal risk management technique. Management models a base case net interest income under an unchanged interest rate environment and what is believed to be the most likely balance sheet structure. Existing derivative instruments entered into for risk management purposes are included in the analysis, but no additional hedging is currently forecasted. These derivative instruments currently comprise interest rate swaps that convert fixed-rate long term debt to variable rates. This base case net interest income is then compared against interest rate scenarios in which rates rise or decline in a linear, non-parallel fashion from the base case over 12 months. In the scenarios presented, short-term interest rates increase 200 basis points, resulting in an average increase in short-term interest rates of 100 basis points over the period (+200 scenario). Due to the current low level of interest rates, the analysis reflects a declining interest rate scenario of a 25 basis point drop in short-term interest rates, to zero percent. F-30 Each scenario includes assumptions such as loan growth, investment security prepayment levels, depositor behavior, yield curve changes, loan and deposit pricing, and overall balance sheet mix and growth. In the +200 scenario, assumptions related to loan growth and deposit run-off are based on historical experience, resulting in a modest increase in loans and a modest decrease in deposits from the base case. No changes are modeled to investment securities beyond the replacement of prepayments, and expected funding maturities are included. As a result of the modeled balance sheet movement, excess reserves diminish. In addition, the model reflects deposit pricing based on historical price movements with short-term interest rates and loan spread held at current levels. The analysis also does not capture possible regulatory impacts, including impacts of the recently finalized liquidity coverage ratio (LCR) requirements, which could impact balance sheet structure, product offerings and pricing as well as how interest rate risk is managed. How the Corporation chooses to make additional investments in high-quality, liquid assets (HQLA) and fund such investments may have an impact on sensitivity. Changes in economic activity may result in a balance sheet structure that is different from the changes management included in its simulation analysis and may translate into a materially different interest rate environment than those presented. For example, deposit balances have grown significantly over the past several years, creating uncertainty regarding future deposit balance levels. In isolation, a decline in deposit balances beyond historical experience would reduce the estimated increase in net interest income in the +200 scenario. The table below, as of December 31, 2014 and 2013, displays the estimated impact on net interest income during the next 12 months by relating the base case scenario results to those from the rising and declining rate scenarios described above. (in millions) December 31 Change in Interest Rates: +200 basis points -25 basis points (to zero percent) Estimated Annual Change 2014 2013 Amount % Amount % $ 224 (32) 13% $ (2) 210 (30) 13% (2) Sensitivity increased slightly from December 31, 2013 to December 31, 2014, primarily due to changes in the current balance sheet mix driving a revised forecast. The risk to declining interest rates is limited as a result of the inability of the current low level of rates to fall significantly. The table below, as of December 31, 2014, illustrates the estimated sensitivity of the above results to a change in deposit balance assumptions in the +200 scenario, with all other assumptions held constant. In this analysis, average noninterest-bearing deposit run-off in the 12-month period has been increased by $1 billion and $3 billion from the historical run-off experience included in the standard +200 scenario presented above and assumes the deposit run-off reduces excess reserves and increases purchased funds. The analysis is provided as an indicator of the sensitivity of net interest income to the modeled deposit run-off assumption. It is not meant to reflect management's expectation or best estimate. Actual changes in deposit balances may vary from those reflected. (in millions) December 31, 2014 Incremental Average Decrease in Noninterest-bearing Deposit Balances: $1 billion $3 billion Sensitivity of Economic Value of Equity to Changes in Interest Rates +200 Basis Points Estimated Annual Change % Amount $ 213 191 13% 11 In addition to the simulation analysis on net interest income, an economic value of equity analysis provides an alternative view of the interest rate risk position. The economic value of equity is the difference between the estimate of the economic value of the Corporation's financial assets, liabilities and off-balance sheet instruments, derived through discounting cash flows based on actual rates at the end of the period and the estimated economic value after applying the estimated impact of rate movements. The economic value of equity analysis is based on an immediate parallel 200 basis point increase and 25 basis point decrease in interest rates. The table below, as of December 31, 2014 and 2013, displays the estimated impact on the economic value of equity from the interest rate scenario described above. (in millions) Change in Interest Rates: +200 basis points -25 basis points (to zero percent) 2014 2013 Amount % Amount % $ 1,218 (293) 10% $ (2) 670 (164) 6% (1) F-31 The change in the sensitivity of the economic value of equity to a 200 basis point parallel increase in rates between December 31, 2013 and December 31, 2014 was primarily driven by growth in deposits without a stated maturity and by changes in market interest rates at the middle to long end of the curve, which most significantly impact the value of deposits without a stated maturity. LOAN MATURITIES AND INTEREST RATE SENSITIVITY (in millions) December 31, 2014 Commercial loans Real estate construction loans Commercial mortgage loans International loans Total Sensitivity of loans to changes in interest rates: Predetermined (fixed) interest rates Floating interest rates Total Loans Maturing Within One Year (a) After One But Within Five Years After Five Years Total $ $ $ $ 13,301 705 1,617 733 16,356 1,118 15,238 16,356 $ $ $ $ 16,990 1,090 4,788 732 23,600 3,072 20,528 23,600 $ $ $ $ 1,229 160 2,199 31 3,619 891 2,728 3,619 $ $ $ $ 31,520 1,955 8,604 1,496 43,575 5,081 38,494 43,575 (a) Includes demand loans, loans having no stated repayment schedule or maturity and overdrafts. The Corporation uses investment securities and derivative instruments as asset and liability management tools with the overall objective of managing the volatility of net interest income from changes in interest rates. These tools assist management in achieving the desired interest rate risk management objectives. Activity related to derivative instruments mainly involves interest rate swaps effectively converting fixed-rate medium- and long-term debt to floating rate. Risk Management Derivative Instruments (in millions) Risk Management Notional Activity Balance at January 1, 2013 Additions Maturities/amortizations Balance at December 31, 2013 Additions Maturities/amortizations Balance at December 31, 2014 Interest Rate Contracts Foreign Exchange Contracts $ $ $ 1,450 — — 1,450 600 (250) 1,800 $ $ $ 475 16,232 (16,454) 253 14,012 (13,757) 508 $ $ $ Totals 1,925 16,232 (16,454) 1,703 14,612 (14,007) 2,308 The notional amount of risk management interest rate swaps totaled $1.8 billion at December 31, 2014, and $1.5 billion at December 31, 2013, all under fair value hedging strategies. The fair value of risk management interest rate swaps was a net unrealized gain of $175 million at December 31, 2014, compared to a net unrealized gain of $290 million at December 31, 2013. Risk management interest rate swaps generated $72 million of net interest income for each of the years ended December 31, 2014 and 2013. In addition to interest rate swaps, the Corporation employs various other types of derivative instruments as offsetting positions to mitigate exposures to foreign currency risks associated with specific assets and liabilities (e.g., customer loans or deposits denominated in foreign currencies). Such instruments may include foreign exchange forward contracts and foreign exchange swap agreements. The aggregate notional amounts of these risk management derivative instruments at December 31, 2014 and 2013 were $508 million and $253 million, respectively. Further information regarding risk management derivative instruments is provided in Note 8 to the consolidated financial statements. F-32 Customer-Initiated and Other Derivative Instruments (in millions) Customer-Initiated and Other Notional Activity Balance at January 1, 2013 Additions Maturities/amortizations Terminations Balance at December 31, 2013 Additions Maturities/amortizations Terminations Balance at December 31, 2014 Interest Rate Contracts Energy Derivative Contracts Foreign Exchange Contracts $ $ $ 12,042 3,167 (2,092) (1,420) 11,697 3,298 (1,668) (999) 12,328 $ $ $ 5,561 3,455 (3,293) (349) 5,374 2,925 (3,160) (207) 4,932 $ $ $ 2,253 66,534 (67,023) — 1,764 62,871 (62,641) — 1,994 $ $ $ Totals 19,856 73,156 (72,408) (1,769) 18,835 69,094 (67,469) (1,206) 19,254 The Corporation writes and purchases interest rate caps and floors and enters into foreign exchange contracts, interest rate swaps and energy derivative contracts to accommodate the needs of customers requesting such services. Changes in the fair value of customer-initiated and other derivatives are recognized in earnings as they occur. To limit the market risk of these activities, the Corporation generally takes offsetting positions with dealers. The notional amounts of offsetting positions are included in the table above. Customer-initiated and other notional activity represented 89 percent and 92 percent of total interest rate, energy and foreign exchange contracts at December 31, 2014 and 2013, respectively. Further information regarding customer-initiated and other derivative instruments is provided in Note 8 to the consolidated financial statements. Liquidity Risk and Off-Balance Sheet Arrangements Liquidity is the ability to meet financial obligations through the maturity or sale of existing assets or the acquisition of additional funds. Various financial obligations, including contractual obligations and commercial commitments, may require future cash payments by the Corporation. The following contractual obligations table summarizes the Corporation's noncancelable contractual obligations and future required minimum payments. Refer to Notes 6, 9, 10, 11, 12, and 18 to the consolidated financial statements for further information regarding these contractual obligations. Contractual Obligations (in millions) December 31, 2014 Deposits without a stated maturity (a) Certificates of deposit and other deposits with a stated maturity (a) Short-term borrowings (a) Medium- and long-term debt (a) Operating leases Commitments to fund low income housing partnerships Other long-term obligations (b) Total contractual obligations Minimum Payments Due by Period 1-3 Years Less than 1 Year 3-5 Years More than 5 Years $ 52,930 $ — $ — $ Total 52,930 $ 4,556 116 2,522 473 123 231 60,951 1,200 3,447 116 606 73 76 60 57,308 600 899 — 1,150 125 36 47 2,257 — 54 — 407 182 6 101 750 250 156 — 359 93 5 23 636 350 $ $ $ Medium- and long-term debt (parent company only) (a) (c) $ (a) Deposits and borrowings exclude accrued interest. (b) Includes unrecognized tax benefits. (c) Parent company only amounts are included in the medium- and long-term debt minimum payments above. $ $ $ $ $ — $ In addition to contractual obligations, other commercial commitments of the Corporation impact liquidity. These include commitments to fund indirect private equity and venture capital investments, unused commitments to extend credit, standby letters of credit and financial guarantees, and commercial letters of credit. The following table summarizes the Corporation's commercial commitments and expected expiration dates by period. F-33 Commercial Commitments (in millions) December 31, 2014 Commitments to fund indirect private equity and venture capital investments Unused commitments to extend credit Standby letters of credit and financial guarantees Commercial letters of credit Total commercial commitments Expected Expiration Dates by Period 1-3 Less than Years 1 Year 3-5 Years More than 5 Years Total $ $ 5 30,056 3,881 75 34,017 $ $ — $ — $ — $ 9,287 2,757 75 12,119 $ 10,406 717 — 11,123 $ 8,157 368 — 8,525 $ 5 2,206 39 — 2,250 Since many of these commitments expire without being drawn upon, the total amount of these commercial commitments does not necessarily represent the future cash requirements of the Corporation. Refer to the “Other Market Risks” section below and Note 8 to the consolidated financial statements for a further discussion of these commercial commitments. Wholesale Funding The Corporation may access the purchased funds market when necessary, which includes foreign office time deposits and short-term borrowings. Capacity for incremental purchased funds at December 31, 2014 included the ability to purchase federal funds, sell securities under agreements to repurchase, as well as issue deposits to institutional investors and issue certificates of deposit through brokers. Purchased funds totaled $251 million at December 31, 2014, compared to $602 million at December 31, 2013. At December 31, 2014, the Bank had pledged loans totaling $25 billion which provided for up to $19 billion of available collateralized borrowing with the FRB. The Bank is a member of the Federal Home Loan Bank of Dallas, Texas (FHLB), which provides short- and long-term funding to its members through advances collateralized by real estate-related assets. Actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. At December 31, 2014, $14 billion of real estate-related loans were pledged to the FHLB as blanket collateral to provide capacity for potential future borrowings of approximately $6 billion. As of December 31, 2014, the Corporation did not have any outstanding borrowings from the FHLB. Additionally, the Bank had the ability to issue up to $15.0 billion of debt at December 31, 2014 under an existing $15 billion medium-term senior note program which allows the issuance of debt with maturities between three months and 30 years. The Corporation also maintains a shelf registration statement with the Securities and Exchange Commission from which it may issue debt and/or equity securities. The ability of the Corporation and the Bank to raise funds at competitive rates is impacted by rating agencies' views of the credit quality, liquidity, capital and earnings of the Corporation and the Bank. As of December 31, 2014, the four major rating agencies had assigned the following ratings to long-term senior unsecured obligations of the Corporation and the Bank. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. Comerica Incorporated Comerica Bank December 31, 2014 Standard and Poor’s Moody’s Investors Service Fitch Ratings DBRS (a) On January 29, 2015, Standard and Poor's updated its outlook to "negative". A- A3 A A Rating Outlook Rating Outlook Stable (a) Stable Stable Stable A A2 A A (High) Stable (a) Stable Stable Stable The Corporation satisfies liquidity requirements with either liquid assets or various funding sources. Liquid assets, which totaled $13.3 billion at December 31, 2014, compared to $12.6 billion at December 31, 2013, provide a reservoir of liquidity. Liquid assets include cash and due from banks, federal funds sold, interest-bearing deposits with banks, other short-term investments and unencumbered investment securities. In September 2014, U.S. banking regulators issued a final rule implementing a quantitative liquidity requirement in the U.S. generally consistent with the LCR minimum liquidity measure established under the Basel III liquidity framework. Under the rule, the Corporation is subject to a modified LCR standard, which requires a financial institution to hold a minimum level of HQLA to fully cover modified net cash outflows under a 30-day systematic liquidity stress scenario. The rule is effective for the Corporation on January 1, 2016. During the transition year, 2016, the Corporation will be required to maintain a minimum LCR of 90 percent. Beginning January 1, 2017, and thereafter, the minimum required LCR will be 100 percent. The Corporation continues to evaluate the impact of the rule; however, we expect to meet the final requirements adopted by U.S. banking regulators within the required timetable. To reach full compliance and provide a buffer for normal volatility in balance sheet dynamics, the F-34 Corporation expects to add additional HQLA, which may be funded with additional debt, in the future. The Corporation does not currently expect compliance with the LCR rule will have a significant impact on net interest income. The Basel III liquidity framework includes a second minimum liquidity measure, the Net Stable Funding Ratio (NSFR), which requires the amount of available longer-term, stable sources of funding to be at least 100 percent of the required amount of longer-term stable funding over a one-year period. The Basel Committee on Banking Supervision is in the process of reviewing the proposed NSFR standard and evaluating its impact on the banking system. U.S. banking regulators have announced that they expect to issue proposed rulemaking to implement the NSFR in advance of its scheduled global implementation in 2018. While uncertainty exists in the final form and timing of the U.S. rule implementing the NSFR and whether or not the Corporation will be subject to the full requirements, the Corporation is closely monitoring the development of the rule. The Corporation regularly evaluates its ability to meet funding needs in unanticipated, stressed environments. In conjunction with the quarterly 200 basis point interest rate simulation analyses, discussed in the “Interest Rate Sensitivity” section of this financial review, liquidity ratios and potential funding availability are examined. Each quarter, the Corporation also evaluates its ability to meet liquidity needs under a series of broad events, distinguished in terms of duration and severity. The evaluation as of December 31, 2014 projected that sufficient sources of liquidity were available under each series of events. Variable Interest Entities The Corporation holds interests in certain unconsolidated variable interest entities (VIEs). These unconsolidated VIEs are principally funds (limited partnerships or limited liability companies) which invest in low income housing projects. The Corporation is not deemed the primary beneficiary of these VIEs and, accordingly, the Corporation does not consolidate these VIEs. Refer to the “Principles of Consolidation” section in Note 1 to the consolidated financial statements for a summary of the Corporation's consolidation policy as it relates to VIEs. Also, refer to Note 9 to the consolidated financial statements for a discussion of the Corporation's involvement in VIEs, including those in which the Corporation holds a significant interest but for which it is not the primary beneficiary. Other Market Risks Market risk related to the Corporation's trading instruments is not significant, as trading activities are limited. Certain components of the Corporation's noninterest income, primarily fiduciary income, are at risk to fluctuations in the market values of underlying assets, particularly equity and debt securities. Other components of noninterest income, primarily brokerage fees, are at risk to changes in the volume of market activity. OPERATIONAL RISK Operational risk represents the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The definition includes legal risk, which is the risk of loss resulting from failure to comply with laws and regulations as well as prudent ethical standards and contractual obligations. The definition does not include strategic or reputational risks. Although operational losses are experienced by all companies and are routinely incurred in business operations, the Corporation recognizes the need to identify and control operational losses and seeks to limit losses to a level deemed appropriate by management, as outlined in the Corporation’s risk appetite statement. The appropriate risk level is determined through consideration of the nature of the Corporation's business and the environment in which it operates, in combination with the impact from, and the possible impact on, other risks faced by the Corporation. Operational risk is mitigated through a system of internal controls that are designed to keep operating risks at appropriate levels. The Operational Risk Management Committee monitors risk management techniques and systems. The Corporation has developed a framework that includes a centralized operational risk management function and business/support unit risk coordinators responsible for managing operational risk specific to the respective business lines. COMPLIANCE RISK Compliance risk represents the risk of regulatory sanctions or financial loss resulting from the Corporation's failure to comply with regulations and standards of good banking practice. The impact of such risks is highly interdependent with strategic risk, as the reputational impact from compliance breaches can be severe. Activities which may expose the Corporation to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending, consumer protection, employment and tax matters, over-the-counter derivative activities and other activities regulated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Enterprise-Wide Compliance Committee, comprising senior and executive business unit managers, as well as managers responsible for compliance, audit and overall risk, oversees compliance risk. This enterprise-wide approach provides a consistent view of compliance across the organization. The Enterprise-Wide Compliance Committee also ensures that appropriate actions are implemented in business units to mitigate risk to an acceptable level. F-35 STRATEGIC RISK Strategic risk represents the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, failure to assess current and new opportunities in business, markets and products, failure to determine appropriate consideration for risks accepted, and any other event not identified in the defined risk categories of credit, market, operational or compliance risks. Mitigation of the various risk elements that represent strategic risk is achieved through various metrics and initiatives to help the Corporation better understand, measure and report on such risks. F-36 CRITICAL ACCOUNTING POLICIES 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. These policies require numerous estimates and strategic or economic assumptions, which may prove inaccurate or subject to variations. Changes in underlying factors, assumptions or estimates could have a material impact on the Corporation’s future financial condition and results of operations. At December 31, 2014, the most critical of these significant accounting policies were the policies related to the allowance for credit losses, valuation methodologies, goodwill, pension plan accounting and income taxes. These policies were reviewed with the Audit Committee of the Corporation’s Board of Directors and are discussed more fully below. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses, which includes both the allowance for loan losses and the allowance for credit losses on lending-related commitments, is calculated with the objective of maintaining a reserve sufficient to absorb estimated probable losses. Management's determination of the appropriateness of the allowance is based on periodic evaluations of the loan portfolio, lending-related commitments, and other relevant factors. This evaluation is inherently subjective as it requires numerous estimates, including the loss content for internal risk ratings, collateral values, the amounts and timing of expected future cash flows, and for lending-related commitments, estimates of the probability of draw on unused commitments. In determining the allowance for credit losses, the Corporation individually evaluates certain impaired loans, applies standard reserve factors to pools of homogeneous loans and lending-related commitments and incorporates qualitative adjustments. Standard loss factors, applied to the majority of the Corporation's loan portfolio and lending-related commitments, are based on estimates of probabilities of default for individual risk ratings over the loss emergence period and loss given default. Since standard loss factors are applied to large pools of loans, even minor changes in these factors could significantly affect the Corporation's determination of the appropriateness of the allowance for credit losses. To illustrate, if recent loss experience dictated that the estimated standard loss factors would be changed by five percent (of the estimate) across all loan risk ratings, the allowance for loan losses as of December 31, 2014 would change by approximately $24 million. Loss emergence periods are used to determine the most appropriate default horizon associated with the calculation of probabilities of default. Loss emergence periods tend to lengthen during benign economic periods and shorten during periods of economic distress. Considered in isolation, lengthening the loss emergence period assumption would result in an increase to the allowance for credit losses. Because standard loss factors are applied to pools of loans based on the Corporation's internal risk rating system, loss estimates are highly dependent on the accuracy of the risk rating assigned to each loan. The inherent imprecision in the risk rating system resulting from inaccuracy in assigning and/or entering risk ratings in the loan accounting system is monitored by the Corporation's asset quality review function and incorporated in a qualitative adjustment. The Corporation may also include qualitative adjustments intended to capture the impact of certain other uncertainties that exist but are not yet reflected in the standard reserve factors. These qualitative adjustments are based on management’s analysis of factors such as portfolios where recent historical losses exceed expected losses or known recent events are expected to alter risk ratings once evidence is acquired, observable macroeconomic metrics, including consideration of regional metrics within the Corporation's footprint, and a qualitative assessment of the lending environment, including underwriting standards, current economic and political conditions, and other factors affecting credit quality. Deterioration in metrics and credit trends included in this analysis would result in an increase to the qualitative adjustment increasing the allowance for credit losses. For example, if energy prices remain low for an extended period, risk ratings for Middle Market- Energy customers could deteriorate beyond management's expectations, which could result in an increase to the allowance for credit losses. For further discussion of the methodology used in the determination of the allowance for credit losses, refer to Note 1 to the consolidated financial statements. To the extent actual outcomes differ from management estimates, additional provision for credit losses may be required that would adversely impact earnings in future periods. A substantial majority of the allowance is assigned to business segments. Any earnings impact resulting from actual outcomes differing from management estimates would primarily affect the Business Bank segment. VALUATION METHODOLOGIES Fair Value Measurement of Level 3 Financial Instruments Fair value measurement applies whenever accounting guidance requires or permits assets or liabilities to be measured at fair value. Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the measurement date and is based on the assumptions market participants would use when pricing an asset or liability. Fair value measurement and disclosure guidance establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. Notes 1 and 2 to the consolidated financial statements includes information about the fair value hierarchy, the extent to which fair value is used to measure assets and liabilities and the valuation methodologies and key inputs used. At December 31, 2014, assets and liabilities measured using observable inputs that are classified as Level 1 or Level 2 represented F-37 98.5 percent and 99.9 percent of total assets and liabilities recorded at fair value, respectively. Valuations generated from model- based techniques that use at least one significant assumption not observable in the market are considered Level 3. These unobservable assumptions reflect estimates of assumptions market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. Fair value measurements for assets and liabilities where limited or no observable market data exists are based primarily upon estimates which cannot be determined with precision and in many cases may not reflect amounts exchanged in a current sale of the financial instrument. Changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, the Corporation would use valuation techniques requiring more management judgment to estimate the appropriate fair value. At December 31, 2014, Level 3 financial assets recorded at fair value on a recurring basis totaled $140 million, or less than one percent of total assets. This included auction-rate securities with a fair value of $136 million at December 31, 2014. Changes in the fair value are recorded in other comprehensive income (loss) and reviewed quarterly for possible other-than- temporary impairment. The fair value at December 31, 2014 was determined using an income approach based on a discounted cash flow model utilizing two significant assumptions in the model: discount rate (including a liquidity risk premium) and workout period. The discount rate was calculated using credit spreads of the underlying collateral or similar securities plus a liquidity risk premium. The liquidity risk premium was derived from the rate at which various types of auction-rate securities had been redeemed or sold. The workout period was based on an assessment of publicly available information on efforts to re-establish functioning markets for these securities and the Corporation's redemption experience. Changes in these significant assumptions could result in different valuations. For example, an increase or decrease in the liquidity premium of 100 basis points could change the fair value by $2 million at December 31, 2014. At December 31, 2014, Level 3 financial assets recorded at fair value on a nonrecurring basis totaled $68 million, or less than one percent of total assets, and consisted primarily of impaired loans and foreclosed property. At December 31, 2014, there were no financial liabilities recorded at fair value on a nonrecurring basis. GOODWILL Goodwill is initially recorded as the excess of the purchase price over the fair value of net assets acquired in a business combination and is subsequently evaluated at least annually for impairment. Goodwill impairment testing is performed at the reporting unit level, equivalent to a business segment or one level below. The Corporation has three reporting units: the Business Bank, the Retail Bank and Wealth Management. At December 31, 2014 and 2013, goodwill totaled $635 million, including $380 million allocated to the Business Bank, $194 million allocated to the Retail Bank and $61 million allocated to Wealth Management. The goodwill impairment test is a two-step test. The first step of the goodwill impairment test compares the estimated fair value of identified reporting units with their carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying value, the second step must be performed to determine the implied fair value of the reporting unit's goodwill and the amount of goodwill impairment, if any. Reporting units are not legal entities, Therefore, determining the carrying value of reporting units requires the use of judgment. In performing the annual impairment test, the carrying value of each reporting unit is the greater of economic or regulatory capital. The Corporation assigns economic capital using internal management methodologies on the basis of each reporting unit's credit, operational and interest rate risks, as well as goodwill. To determine regulatory capital, each reporting unit is assigned sufficient capital such that their respective Tier 1 ratio, based on allocated risk-weighted assets, is the same as that of the Corporation. Using this two-pronged approach, the Corporation's equity is fully allocated to its reporting units except for capital held primarily for the risk associated with the securities portfolio which is assigned to the Finance segment of the Corporation. Determining the fair value of reporting units is a subjective process involving the use of estimates and judgments related to the selection of inputs such as future cash flows, discount rates, comparable public company multiples, applicable control premiums and economic expectations used in determining the interest rate environment. The estimated fair values of the reporting units are determined using a blend of two commonly used valuation techniques: the market approach and the income approach. For the market approach, valuations of reporting units consider a combination of earnings, equity and other multiples from companies with characteristics similar to the reporting unit. Since the fair values determined under the market approach are representative of noncontrolling interests, the valuations accordingly incorporate a control premium. For the income approach, estimated future cash flows and terminal value are discounted. Estimated future cash flows are derived from internal forecasts and economic expectations for each reporting unit which incorporate uncertainty factors inherent to long-term projections. The applicable discount rate is based on the imputed cost of equity capital appropriate for each reporting unit, which incorporates the risk-free rate of return, the level of non-diversified risk associated with companies with characteristics similar to the reporting unit, a size risk premium and a market equity risk premium. The annual test of goodwill impairment was performed as of the beginning of the third quarter 2014. The Corporation's assumptions included maintaining the low Federal funds target rate through mid-2015 with modest increases thereafter until eventually reaching a normal interest rate environment. At the conclusion of the first step of the annual goodwill impairment tests F-38 performed in the third quarter 2014, the estimated fair values of all reporting units substantially exceeded their carrying amounts, including goodwill. The results of the annual test of the goodwill impairment test for each reporting unit were subjected to stress testing as appropriate. Economic conditions impact the assumptions related to interest and growth rates, loss rates and imputed cost of equity capital. The fair value estimates for each reporting unit incorporated current economic and market conditions, including the recent Federal Reserve announcements and the impact of legislative and regulatory changes, to the extent known and as described above. However, further weakening in the economic environment, such as adverse changes in interest rates, a decline in the performance of the reporting units or other factors could cause the fair value of one or more of the reporting units to fall below their carrying value, resulting in a goodwill impairment charge. Additionally, new legislative or regulatory changes not anticipated in management's expectations may cause the fair value of one or more of the reporting units to fall below the carrying value, resulting in a goodwill impairment charge. Any impairment charge would not affect the Corporation's regulatory capital ratios, tangible common equity ratio or liquidity position. For further information about the Corporation's goodwill accounting policy, refer to Note 1 to the consolidated financial statements. PENSION PLAN ACCOUNTING The Corporation has defined benefit pension plans in effect for substantially all full-time employees hired before January 1, 2007. Benefits under the plans are based on years of service, age and compensation. Assumptions are made concerning future events that will determine the amount and timing of required benefit payments, funding requirements and defined benefit pension expense. The major assumptions are the discount rate used in determining the current benefit obligation, the long-term rate of return expected on plan assets, the rate of compensation increase and the estimated mortality rate. The discount rate is determined by matching the expected cash flows of the pension plans to a portfolio of high quality corporate bonds as of the measurement date, December 31. The long-term rate of return expected on plan assets is set after considering both long-term returns in the general market and long-term returns experienced by the assets in the plan. The current target asset allocation model for the plans is detailed in Note 17 to the consolidated financial statements. The expected returns on these various asset categories are blended to derive one long-term return assumption. The assets are invested in certain collective investment and mutual funds, common stocks, U.S. Treasury and other U.S. government agency securities, and corporate and municipal bonds and notes. The rate of compensation increase is based on reviewing recent annual pension-eligible compensation increases as well as the expectation of future increases. Mortality rate assumptions are based on mortality tables published by third-parties such as the Society of Actuaries (SOA), considering other available information including historical data as well as studies and publications from reputable sources. The Corporation reviews its pension plan assumptions on an annual basis with its actuarial consultants to determine if the assumptions are reasonable and adjusts the assumptions to reflect changes in future expectations. The assumptions used to calculate 2015 expense for the defined benefit pension plans were a discount rate of 4.28 percent, a long-term rate of return on plan assets of 6.75 percent and a rate of compensation increase of 3.75 percent. The Corporation adopted the RP-2014 mortality tables and the MP-2014 mortality improvement scales issued by the SOA in October 2014, with certain entity-specific adjustments. The new mortality assumptions increased the projected benefit obligations for the qualified and non-qualified defined benefit pension plans by approximately $119 million and $17 million, respectively, at December 31, 2014 and increased expected 2015 pension expense by approximately $25 million. Had the new mortality tables been adopted as published, expected 2015 pension expense would have increased by approximately $34 million. Defined benefit pension expense in 2015 is expected to increase approximately 14 percent to about $45 million from the $39 million recorded in 2014, primarily driven by a decrease in the discount rate and the impact of changes in mortality assumptions, partially offset by the benefit from a $350 million cash contribution from the Corporation in December 2014. Changing the 2015 key actuarial assumptions discussed above by 25 basis points would have the following impact on defined benefit pension expense in 2015: (in millions) Key Actuarial Assumption: Discount rate Long-term rate of return Rate of compensation increase 25 Basis Point Increase Decrease $ (10.7) $ (5.9) 3.0 10.7 5.9 (3.0) Due to the long-term nature of pension plan assumptions, actual results may differ significantly from the actuarial-based estimates. Differences resulting in actuarial gains or losses are required to be recorded in shareholders' equity as part of accumulated other comprehensive loss and amortized to defined benefit pension expense in future years. In 2014, the actual return on plan assets in the qualified defined benefit pension plan was $278 million, compared to an expected return on plan assets of $131 million. In 2013, the actual return on plan assets was $136 million, compared to an expected return on plan assets of $132 million. Total pretax losses recognized in accumulated other comprehensive loss at December 31, 2014 were $593 million for the qualified F-39 defined benefit pension plan and $79 million for the non-qualified defined benefit pension plan. Actuarial pretax net losses recognized in other comprehensive income (loss) for the year ended December 31, 2014 were $196 million for the qualified defined benefit pension plan and $38 million for the non-qualified defined benefit pension plan. For further information, refer to Note 1 to the consolidated financial statements. Defined benefit pension expense is recorded in “employee benefits” expense on the consolidated statements of income and is allocated to business segments based on the segment's share of salaries expense. Accordingly, defined benefit pension expense was allocated approximately 43 percent, 28 percent, 24 percent and 5 percent to the Retail Bank, Business Bank, Wealth Management and Finance segments, respectively, in 2014. INCOME TAXES The calculation of the Corporation's income tax provision and tax-related accruals is complex and requires the use of estimates and judgments. The provision for income taxes is the sum of income taxes due for the current year and deferred taxes. Deferred taxes arise from temporary differences between the income tax basis and financial accounting basis of assets and liabilities. Accrued taxes represent the net estimated amount due to or to be received from taxing jurisdictions, currently or in the future, and are included in “accrued income and other assets” or “accrued expenses and other liabilities” on the consolidated balance sheets. The Corporation assesses the relative risks and merits of tax positions for various transactions after considering statutes, regulations, judicial precedent and other available information and maintains tax accruals consistent with these assessments. The Corporation is subject to audit by taxing authorities that could question and/or challenge the tax positions taken by the Corporation. Included in net deferred taxes are deferred tax assets. Deferred tax assets are evaluated for realization based on available evidence of loss carryback capacity, projected future reversals of existing taxable temporary differences and assumptions made regarding future events. A valuation allowance is provided when it is more-likely-than-not that some portion of the deferred tax asset will not be realized. Changes in the estimate of accrued taxes occur due to changes in tax law, interpretations of existing tax laws, new judicial or regulatory guidance, and the status of examinations conducted by taxing authorities that impact the relative risks and merits of tax positions taken by the Corporation. These changes, when they occur, impact the estimate of accrued taxes and could be significant to the operating results of the Corporation. For further information on tax accruals and related risks, see Note 18 to the consolidated financial statements. F-40 The following table provides a reconciliation of non-GAAP financial measures used in this financial review with financial SUPPLEMENTAL FINANCIAL DATA measures defined by GAAP. (dollar amounts in millions) December 31 Tier 1 Common Capital Ratio: Tier 1 capital (a) Less: Trust preferred securities Tier 1 common capital Risk-weighted assets (a) Tier 1 risk-based capital ratio Tier 1 common capital ratio Basel III Common Equity Tier 1 Capital Ratio (estimated): Tier 1 common capital Basel III adjustments (b) Basel III common equity Tier 1 capital (b) Risk-weighted assets (a) Basel III adjustments (b) Basel III risk-weighted assets (b) Tier 1 common capital ratio Basel III common equity Tier 1 capital ratio (estimated) Tangible Common Equity Ratio: Total shareholder's equity Less: Goodwill Other intangible assets Tangible common equity Total assets Less: Goodwill Other intangible assets Tangible assets Common equity ratio Tangible common equity ratio Tangible Common Equity per Share of Common Stock: Common shareholders' equity Tangible common equity Shares of common stock outstanding (in millions) Common shareholders' equity per share of common stock Tangible common equity per share of common stock 2014 2013 2012 2011 2010 $ 7,169 $ 6,895 $ 6,705 $ 6,582 $ 6,027 — 7,169 $ $ 68,273 $ $ 10.50% 10.50 — 6,895 64,825 10.64% 10.64 $ $ — 6,705 66,115 10.14% 10.14 $ $ 25 6,557 63,244 10.41% 10.37 $ $ — 6,027 59,506 10.13% 10.13 $ 7,169 — $ 7,169 $ 68,273 1,536 $ 69,809 10.5% 10.3 $ 7,402 $ 7,150 $ 6,939 $ 6,865 $ 5,790 635 15 $ 6,752 $ 69,190 635 15 $ 68,540 10.85% 9.85 $ $ 7,402 6,752 179 41.35 37.72 $ $ $ $ $ 635 17 6,498 65,224 635 17 64,572 10.97% 10.07 7,150 6,498 182 39.22 35.64 $ $ $ $ $ 635 22 6,282 65,066 635 22 64,409 10.67% 9.76 6,939 6,282 188 36.86 33.36 $ $ $ $ $ 635 32 6,198 61,005 635 32 60,338 11.26% 10.27 6,865 6,198 197 34.79 31.40 $ $ $ $ $ 150 6 5,634 53,664 150 6 53,508 10.80% 10.54 5,790 5,634 177 32.80 31.92 (a) Tier 1 capital and risk-weighted assets as defined by regulation. (b) Estimated ratios based on the standardized approach in the final rule for the U.S. adoption of the Basel III regulatory capital framework, excluding most elements of AOCI, as fully phased in. The Tier 1 common capital ratio removes preferred stock and qualifying trust preferred securities from Tier 1 capital as defined by and calculated in conformity with bank regulations. The Basel III common equity Tier 1 capital ratio further adjusts Tier 1 common capital and risk-weighted assets to account for the final rule approved by U.S. banking regulators in July 2013 for the U.S. adoption of the Basel III regulatory capital framework. The final Basel III capital rules are effective January 1, 2015 for banking organizations subject to the standardized approach. The tangible common equity ratio removes preferred stock and the effect of intangible assets from capital and the effect of intangible assets from total assets and tangible common equity per share of common stock removes the effect of intangible assets from common shareholders' equity per share of common stock. The Corporation believes these measurements are meaningful measures of capital adequacy used by investors, regulators, management and others to evaluate the adequacy of common equity and to compare against other companies in the industry. F-41 FORWARD-LOOKING STATEMENTS This report includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. In addition, the Corporation may make other written and oral communications from time to time that contain such statements. All statements regarding the Corporation's expected financial position, strategies and growth prospects and general economic conditions expected to exist in the future are forward-looking statements. The words, “anticipates,” “believes,” “feels,” “expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,” “forecast,” “position,” “target,” “mission,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “aspiration,” “opportunity,” “initiative,” “outcome,” “continue,” “remain,” “maintain,” "on course," “trend,” “objective,” “looks forward,” "projects," "models" and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions, as they relate to the Corporation or its management, are intended to identify forward-looking statements. The Corporation 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 the Corporation 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 the Corporation's SEC reports (accessible on the SEC's website at www.sec.gov or on the Corporation's website at www.comerica.com), actual results could differ materially from forward-looking statements and future results could differ materially from historical performance due to a variety of reasons, including but not limited to, the following factors: • • • • • • • • • • • • • • general political, economic or industry conditions, either domestically or internationally, may be less favorable than expected; governmental monetary and fiscal policies may adversely affect the financial services industry, and therefore impact the Corporation's financial condition and results of operations; changes in regulation or oversight may have a material adverse impact on the Corporation's operations; the Corporation must maintain adequate sources of funding and liquidity to meet regulatory expectations, support its operations and fund outstanding liabilities; compliance with more stringent capital and liquidity requirements may adversely affect the Corporation; declines in the businesses or industries of the Corporation's customers, including the energy industry, could cause increased credit losses or decreased loan balances, which could adversely affect the Corporation; operational difficulties, failure of technology infrastructure or information security incidents could adversely affect the Corporation's business and operations; the Corporation relies on other companies to provide certain key components of its business infrastructure, and certain failures could materially adversely affect operations; noninterest expenses are important to the Corporation's profitability, but are subject to a number of factors, some of which are not in the Corporation's control; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing, could adversely affect the Corporation's net interest income and balance sheet; any reduction in the Corporation's credit rating could adversely affect the Corporation and/or the holders of its securities; unfavorable developments concerning credit quality could adversely impact the Corporation's financial results; the soundness of other financial institutions could adversely affect the Corporation; 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 the Corporation's business;the Corporation may not be able to utilize technology to efficiently and effectively develop, market and deliver new products and services to its customers; competitive product and pricing pressures among financial institutions within the Corporation's markets may change; changes in customer behavior may adversely impact the Corporation's business, financial condition and results of operations; any future strategic acquisitions or divestitures may present certain risks to the Corporation's business and operations; • • • • management's ability to maintain and expand customer relationships may differ from expectations; • management's ability to retain key officers and employees may change; • legal and regulatory proceedings and related matters with respect to the financial services industry, including those directly involving the Corporation and its subsidiaries, could adversely affect the Corporation or the financial services industry in general; • methods of reducing risk exposures might not be effective; • terrorist activities or other hostilities may adversely affect the general economy, financial and capital markets, specific industries, and the Corporation; 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 the Corporation; changes in accounting standards could materially impact the Corporation's financial statements; and the Corporation'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. • • • F-42 CONSOLIDATED BALANCE SHEETS Comerica Incorporated and Subsidiaries (in millions, except share data) December 31 ASSETS Cash and due from banks Interest-bearing deposits with banks Other short-term investments Investment securities available-for-sale Investment securities held-to-maturity Commercial loans Real estate construction loans Commercial mortgage loans Lease financing International loans Residential mortgage loans Consumer loans Total loans Less allowance for loan losses Net loans Premises and equipment Accrued income and other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Noninterest-bearing deposits Money market and interest-bearing checking deposits Savings deposits Customer certificates of deposit Foreign office time deposits Total interest-bearing deposits Total deposits Short-term borrowings Accrued expenses and other liabilities Medium- and long-term debt Total liabilities Common stock - $5 par value: Authorized - 325,000,000 shares Issued - 228,164,824 shares Capital surplus Accumulated other comprehensive loss Retained earnings Less cost of common stock in treasury - 49,146,225 shares at 12/31/14 and 45,860,786 shares at 12/31/13 Total shareholders’ equity Total liabilities and shareholders’ equity See notes to consolidated financial statements. F-43 2014 2013 $ 1,026 $ 5,045 99 8,116 1,935 31,520 1,955 8,604 805 1,496 1,831 2,382 48,593 (594) 47,999 532 4,438 69,190 27,224 23,954 1,752 4,421 135 30,262 57,486 116 1,507 2,679 61,788 1,141 2,188 (412) 6,744 $ $ (2,259) 7,402 69,190 $ $ $ $ 1,140 5,311 112 9,307 — 28,815 1,762 8,787 845 1,327 1,697 2,237 45,470 (598) 44,872 594 3,888 65,224 23,875 22,332 1,673 5,063 349 29,417 53,292 253 986 3,543 58,074 1,141 2,179 (391) 6,318 (2,097) 7,150 65,224 CONSOLIDATED STATEMENTS OF INCOME Comerica Incorporated and Subsidiaries (in millions) Years Ended December 31 INTEREST INCOME Interest and fees on loans Interest on investment securities Interest on short-term investments Total interest income INTEREST EXPENSE Interest on deposits Interest on medium- and long-term debt Total interest expense Net interest income Provision for credit losses Net interest income after provision for credit losses NONINTEREST INCOME Service charges on deposit accounts Fiduciary income Commercial lending fees Card fees Letter of credit fees Bank-owned life insurance Foreign exchange income Brokerage fees Net securities (losses) gains Other noninterest income Total noninterest income NONINTEREST EXPENSES Salaries and benefits expense Net occupancy expense Equipment expense Outside processing fee expense Software expense Litigation-related expense FDIC insurance expense Advertising expense Gain on debt redemption Merger and restructuring charges Other noninterest expenses Total noninterest expenses Income before income taxes Provision for income taxes NET INCOME Less income allocated to participating securities Net income attributable to common shares Earnings per common share: Basic Diluted Cash dividends declared on common stock Cash dividends declared per common share See notes to consolidated financial statements. F-44 2014 2013 2012 $ $ $ $ $ $ 1,525 211 14 1,750 45 50 95 1,655 27 1,628 215 180 98 80 57 39 40 17 — 142 868 980 171 57 122 95 4 33 23 (32) — 173 1,626 870 277 593 7 586 3.28 3.16 143 0.79 $ $ 1,556 214 14 1,784 55 57 112 1,672 46 1,626 214 171 99 74 64 40 36 17 (1) 168 882 1,009 160 60 119 90 52 33 21 (1) — 179 1,722 786 245 541 8 533 2.92 2.85 126 0.68 1,617 234 12 1,863 70 65 135 1,728 79 1,649 214 158 96 65 71 39 38 19 12 158 870 1,018 163 65 107 90 23 38 27 — 35 191 1,757 762 241 521 6 515 2.68 2.67 106 0.55 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Comerica Incorporated and Subsidiaries (in millions) Years Ended December 31 NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) Unrealized (losses) gains on investment securities available-for-sale: Net unrealized holding gains (losses) arising during the period Less: Reclassification adjustment for net securities gains included in net income Change in net unrealized gains (losses) before income taxes Defined benefit pension and other postretirement plans adjustment: Actuarial (loss) gain arising during the period Adjustments for amounts recognized as components of net periodic benefit cost: Amortization of actuarial net loss Amortization of prior service cost Amortization of transition obligation Change in defined benefit pension and other postretirement plans adjustment before income taxes Total other comprehensive (loss) income before income taxes (Benefit) provision for income taxes Total other comprehensive (loss) income, net of tax 2014 2013 2012 $ 593 $ 541 $ 521 166 1 165 (240) 39 3 — (198) (33) (12) (21) (343) 1 (344) 286 89 2 — 377 33 11 22 48 14 34 (192) 62 3 4 (123) (89) (32) (57) 464 COMPREHENSIVE INCOME $ 572 $ 563 $ See notes to consolidated financial statements. F-45 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Comerica Incorporated and Subsidiaries (in millions, except per share data) BALANCE AT DECEMBER 31, 2011 Net income Other comprehensive loss, net of tax Cash dividends declared on common stock ($0.55 per share) Purchase of common stock Net issuance of common stock under employee stock plans Share-based compensation Other BALANCE AT DECEMBER 31, 2012 Net income Other comprehensive income, net of tax Cash dividends declared on common stock ($0.68 per share) Purchase of common stock Net issuance of common stock under employee stock plans Share-based compensation Other BALANCE AT DECEMBER 31, 2013 Net income Other comprehensive loss, net of tax Cash dividends declared on common stock ($0.79 per share) Purchase of common stock Net issuance of common stock under employee stock plans Share-based compensation Other Common Stock Shares Outstanding 197.3 — — — (10.2) 1.2 — — 188.3 — — — (7.5) 1.5 — — 182.3 — — — (5.4) 2.1 — — Amount $ 1,141 — — Capital Surplus $ 2,170 — — — — — — — 1,141 — — — — — — — — — (46) 37 1 2,162 — — — — (17) 35 (1) 1,141 — — 2,179 — — — — — — — — — (27) 38 (2) Accumulated Other Comprehensive Loss Retained Earnings Treasury Stock Total Shareholders’ Equity $ (356) $ — (57) — — — — — (413) — 22 — — — — — (391) — (21) — — — — — 5,543 521 — (106) — (30) — — 5,928 541 — (126) — (25) — — 6,318 593 — (143) — (24) — — $ (1,633) $ — — — (308) 63 — (1) (1,879) — — — (291) 72 — 1 (2,097) — — — (260) 96 — 2 6,865 521 (57) (106) (308) (13) 37 — 6,939 541 22 (126) (291) 30 35 — 7,150 593 (21) (143) (260) 45 38 — BALANCE AT DECEMBER 31, 2014 179.0 $ 1,141 $ 2,188 $ (412) $ 6,744 $ (2,259) $ 7,402 See notes to consolidated financial statements. F-46 CONSOLIDATED STATEMENTS OF CASH FLOWS Comerica Incorporated and Subsidiaries (in millions) Years Ended December 31 OPERATING ACTIVITIES 2014 2013 2012 Net income Adjustments to reconcile net income to net cash provided by operating activities: $ 593 $ 541 $ Provision for credit losses Provision (benefit) for deferred income taxes Depreciation and amortization Net periodic defined benefit cost Share-based compensation expense Net amortization of securities Accretion of loan purchase discount Net securities losses (gains) Net (gain) loss/writedown on foreclosed property Gain on debt redemption Excess tax benefits from share-based compensation arrangements Net change in: Trading securities Accrued income receivable Accrued expenses payable Other, net Net cash provided by operating activities INVESTING ACTIVITIES Investment securities: Maturities and redemptions Purchases Net change in loans Sales of Federal Home Loan Bank stock Proceeds from sales of foreclosed property Net increase in premises and equipment Other, net Net cash (used in) provided by investing activities FINANCING ACTIVITIES Net change in: Deposits Short-term borrowings Medium- and long-term debt: Maturities and redemptions Issuances Common stock: Repurchases Cash dividends paid Issuances under employee stock plans Excess tax benefits from share-based compensation arrangements Other, net Net cash provided by (used in) financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Interest paid Income taxes, tax deposits and tax-related interest paid Noncash investing and financing activities: Loans transferred to other real estate Securities transferred from available-for-sale to held-to-maturity See notes to consolidated financial statements. $ $ F-47 27 130 123 40 38 13 (34) — (4) (32) (7) 13 (4) (14) (243) 639 1,781 (2,372) (3,144) 41 20 (70) 1 (3,743) 4,013 (137) (1,406) 596 (260) (137) 49 7 (1) 2,724 (380) 6,451 6,071 101 218 16 1,958 $ $ 46 (20) 122 88 35 23 (49) 1 4 (1) (3) 6 7 38 (2) 836 2,849 (2,225) 549 41 55 (102) 7 1,174 1,229 143 (1,080) — (291) (123) 33 3 (7) (93) 1,917 4,534 6,451 114 115 14 — $ $ 521 79 158 133 81 37 48 (71) (12) — — (1) 1 5 35 (322) 692 3,839 (4,032) (3,498) 3 82 (75) 5 (3,676) 4,520 40 (193) — (308) (97) 3 1 (4) 3,962 978 3,556 4,534 135 46 42 — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES Organization Comerica Incorporated (the Corporation) is a registered financial holding company headquartered in Dallas, Texas. The Corporation’s major business segments are the Business Bank, the Retail Bank and Wealth Management. The Corporation operates in three primary geographic markets: Michigan, California and Texas. For further discussion of each business segment and primary geographic market, refer to Note 22. The Corporation and its banking subsidiaries are regulated at both the state and federal levels. The accounting and reporting policies of the Corporation conform to United States (U.S.) generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from these estimates. The following summarizes the significant accounting policies of the Corporation applied in the preparation of the accompanying consolidated financial statements. Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and the accounts of those subsidiaries that are majority owned and in which the Corporation has a controlling financial interest. The Corporation consolidates entities not determined to be variable interest entities (VIEs) when it holds a controlling financial interest in the entity's outstanding voting stock and uses the cost or equity method when it holds less than a controlling financial interest. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies acquired are included from the date of acquisition. Certain amounts in the financial statements for prior years have been reclassified to conform to current financial statement presentation. The Corporation holds investments in certain legal entities that are considered VIEs. In general, a VIE is an entity that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. If any of these characteristics are present, the entity is subject to a variable interests consolidation model, and consolidation is based on variable interests, not on ownership of the entity’s outstanding voting stock. Variable interests are defined as contractual ownership or other money interests in an entity that change with fluctuations in the entity’s net asset value. The primary beneficiary is required to consolidate the VIE. The primary beneficiary is defined as the party that has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. The maximum potential exposure to losses relative to investments in VIEs is generally limited to the sum of the outstanding book basis and unfunded commitments for future investments. The Corporation evaluates its investments in VIEs, both at inception and when there is a change in circumstances that requires reconsideration, to determine if the Corporation is the primary beneficiary and consolidation is required. The Corporation accounts for unconsolidated VIEs using either the proportional, cost or equity method. These investments are included in "accrued income and other assets" on the consolidated balance sheets. The proportional method is used for investments in affordable housing projects that qualify for the low-income housing tax credit (LIHTC). The equity method is used for other investments where the Corporation has the ability to exercise significant influence over the entity’s operation and financial policies, which is generally presumed to exist if the Corporation owns more than a 20 percent voting interest in the entity. Other unconsolidated equity investments that do not meet the criteria to be accounted for under the equity method are accounted for under the cost method. Amortization and other write-downs of LIHTC investments are presented on a net basis as a component of the "provision for income taxes," while income, amortization and write-downs from cost and equity method investments are recorded in “other noninterest income” on the consolidated statements of income. Assets held in an agency or fiduciary capacity are not assets of the Corporation and are not included in the consolidated financial statements. See Note 9 for additional information about the Corporation’s involvement with VIEs. Fair Value Measurements The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Corporation uses present value techniques and other valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. F-48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the measurement date. Fair value is based on the assumptions market participants would use when pricing an asset or liability. Trading securities, investment securities available-for-sale, derivatives and deferred compensation plan liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as impaired loans, other real estate (primarily foreclosed property), nonmarketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve write-downs of individual assets or application of lower of cost or fair value accounting. Fair value measurements and disclosures guidance establishes a three-level fair value hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. Fair value measurements are separately disclosed by level within the fair value hierarchy. For assets and liabilities recorded at fair value, it is the Corporation’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2 Level 3 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. The Corporation generally utilizes third-party pricing services to value Level 1 and Level 2 trading and investment securities, as well as certain derivatives designated as fair value hedges. Management reviews the methodologies and assumptions used by the third-party pricing services and evaluates the values provided, principally by comparison with other available market quotes for similar instruments and/or analysis based on internal models using available third-party market data. The Corporation may occasionally adjust certain values provided by the third-party pricing service when management believes, as the result of its review, that the adjusted price most appropriately reflects the fair value of the particular security. Fair value measurements for assets and liabilities where limited or no observable market data exists are based primarily upon estimates, often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values. Following are descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities recorded at fair value, as well as a description of the methods and significant assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis. The descriptions include an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. Transfers of assets or liabilities between levels of the fair value hierarchy are recognized at the beginning of the reporting period, when applicable. Cash and due from banks, federal funds sold and interest-bearing deposits with banks Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value. As such, the Corporation classifies the estimated fair value of these instruments as Level 1. Trading securities and associated deferred compensation plan liabilities Trading securities include securities held for trading purposes as well as assets held related to employee deferred compensation plans. Trading securities and associated deferred compensation plan liabilities are recorded at fair value on a recurring basis and included in “other short-term investments” and “accrued expenses and other liabilities,” respectively, on the consolidated balance sheets. Level 1 trading securities include assets related to employee deferred compensation plans, which are invested in mutual funds, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and other securities traded on an active exchange, such as the New York Stock Exchange. Deferred compensation plan liabilities represent the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets. Level 2 trading securities include municipal bonds and residential mortgage-backed securities issued by U.S. government-sponsored entities F-49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries and corporate debt securities. The methods used to value trading securities are the same as the methods used to value investment securities, discussed below. Loans held-for-sale Loans held-for-sale, included in “other short-term investments” on the consolidated balance sheets, are recorded at the lower of cost or fair value. Loans held-for-sale may be carried at fair value on a nonrecurring basis when fair value is less than cost. The fair value is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Corporation classifies both loans held-for-sale subjected to nonrecurring fair value adjustments and the estimated fair value of loans held-for sale as Level 2. Investment securities Investment securities available-for-sale are recorded at fair value on a recurring basis. The Corporation discloses estimated fair values of investment securities held-to-maturity, which is determined in the same manner as investment securities available- for-sale. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include residential mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored entities and corporate debt securities. The fair value of Level 2 securities is determined using quoted prices of securities with similar characteristics, or pricing models based on observable market data inputs, primarily interest rates, spreads and prepayment information. Securities classified as Level 3 represent securities in less liquid markets requiring significant management assumptions when determining fair value. Auction-rate securities comprise Level 3 investment securities available-for-sale. Due to the lack of a robust secondary auction-rate securities market with active fair value indicators, fair value for all periods presented was determined using an income approach based on a discounted cash flow model. The discounted cash flow model utilizes two significant inputs: discount rate and workout period. The discount rate was calculated using credit spreads of the underlying collateral or similar securities plus a liquidity risk premium. The liquidity risk premium was derived from the rate at which various types of similar auction-rate securities had been redeemed or sold. The workout period was based on an assessment of publicly available information on efforts to re-establish functioning markets for these securities and the Corporation's own redemption experience. Significant increases in any of these inputs in isolation would result in a significantly lower fair value. The Corporate Development Department, with appropriate oversight and approval provided by senior management, is responsible for determining the valuation methodology for auction-rate securities and for updating significant inputs based on changes to the factors discussed above. Valuation results, including an analysis of changes to the valuation methodology and significant inputs, are provided to senior management for review on a quarterly basis. Loans The Corporation does not record loans at fair value on a recurring basis. However, the Corporation may establish a specific allowance for an impaired loan based on the fair value of the underlying collateral. Such loan values are reported as nonrecurring fair value measurements. Collateral values supporting individually evaluated impaired loans are evaluated quarterly. When management determines that the fair value of the collateral requires additional adjustments, either as a result of non-current appraisal value or when there is no observable market price, the Corporation classifies the impaired loan as Level 3. The Special Assets Group is responsible for performing quarterly credit quality reviews for all impaired loans as part of the quarterly allowance for loan losses process overseen by the Chief Credit Officer, during which valuation adjustments to updated collateral values are determined. The Corporation discloses fair value estimates for loans. The estimated fair value is determined based on characteristics such as loan category, repricing features and remaining maturity, and includes prepayment and credit loss estimates. For variable rate business loans that reprice frequently, the estimated fair value is based on carrying values adjusted for estimated credit losses inherent in the portfolio at the balance sheet date. For other business loans and retail loans, fair values are estimated using a discounted cash flow model that employs a discount rate that reflects the Corporation's current pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date. The rates take into account the expected yield curve, as well as an adjustment for prepayment risk, when applicable. The Corporation classifies the estimated fair value of loans held for investment as Level 3. Customers’ liability on acceptances outstanding and acceptances outstanding Customers' liability on acceptances outstanding is included in "accrued income and other assets" and acceptances outstanding are included in "accrued expenses and other liabilities" on the consolidated balance sheets. Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value. As such, the Corporation classifies the estimated fair value of these instruments as Level 1. F-50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Derivative assets and derivative liabilities Derivative instruments held or issued for risk management or customer-initiated activities are traded in over-the-counter markets where quoted market prices are not readily available. Fair value for over-the-counter derivative instruments is measured on a recurring basis using internally developed models that use primarily market observable inputs, such as yield curves and option volatilities. The Corporation manages credit risk on its derivative positions based on whether the derivatives are being settled through a clearinghouse or bilaterally with each counterparty. For derivative positions settled on a counterparty-by- counterparty basis, the Corporation calculates credit valuation adjustments, included in the fair value of these instruments, on the basis of its relationships at the counterparty portfolio/master netting agreement level. These credit valuation adjustments are determined by applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the derivative after considering collateral and other master netting arrangements. These adjustments, which are considered Level 3 inputs, are based on estimates of current credit spreads to evaluate the likelihood of default. The Corporation assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Corporation classifies its over-the-counter derivative valuations in Level 2 of the fair value hierarchy. Examples of Level 2 derivative instruments are interest rate swaps and energy derivative and foreign exchange contracts. Warrants which contain a net exercise provision or a non-contingent put right embedded in the warrant agreement are accounted for as derivatives and recorded at fair value on a recurring basis using a Black-Scholes valuation model. The Black-Scholes valuation model utilizes five inputs: risk-free rate, expected life, volatility, exercise price, and the per share market value of the underlying company. The Corporation holds a portfolio of warrants for generally nonmarketable equity securities with a fair value of $4 million at December 31, 2014, included in "accrued income and other assets" on the consolidated balance sheets. These warrants are primarily from non-public technology companies obtained as part of the loan origination process. The Corporate Development Department is responsible for the warrant valuation process, which includes reviewing all significant inputs for reasonableness, and for providing valuation results to senior management. Increases in any of these inputs in isolation, with the exception of exercise price, would result in a higher fair value. Increases in exercise price in isolation would result in a lower fair value. The Corporation classifies warrants accounted for as derivatives as Level 3. The Corporation also holds a derivative contract associated with the 2008 sale of its remaining ownership of Visa Inc. (Visa) Class B shares. Under the terms of the derivative contract, the Corporation will compensate the counterparty primarily for dilutive adjustments made to the conversion factor of the Visa Class B to Class A shares based on the ultimate outcome of litigation involving Visa. Conversely, the Corporation will be compensated by the counterparty for any increase in the conversion factor from anti-dilutive adjustments. At December 31, 2014, the fair value of the contract was a liability of $1 million. The recurring fair value of the derivative contract is based on unobservable inputs consisting of management's estimate of the litigation outcome, timing of litigation settlements and payments related to the derivative. Significant increases in the estimate of litigation outcome and the timing of litigation settlements in isolation would result in a significantly higher liability fair value. Significant increases in payments related to the derivative in isolation would result in a significantly lower liability fair value. The Corporation classifies the derivative liability as Level 3. Nonmarketable equity securities The Corporation has a portfolio of indirect (through funds) private equity and venture capital investments with a carrying value and unfunded commitments of $11 million and $5 million, respectively, at December 31, 2014. These funds generally cannot be redeemed and the majority is not readily marketable. Distributions from these funds are received by the Corporation as a result of the liquidation of underlying investments of the funds and/or as income distributions. It is estimated that the underlying assets of the funds will be liquidated over a period of up to 15 years. Recently issued federal regulations will require the Corporation to sell certain of these funds prior to liquidation. The investments are accounted for either on the cost or equity method and are individually reviewed for impairment on a quarterly basis by comparing the carrying value to the estimated fair value. These investments may be carried at fair value on a nonrecurring basis when they are deemed to be impaired and written down to fair value. Where there is not a readily determinable fair value, the Corporation estimates fair value for indirect private equity and venture capital investments based on the net asset value, as reported by the fund, after indication that the fund adheres to applicable fair value measurement guidance. On a quarterly basis, the Corporate Development Department is responsible, with appropriate oversight and approval provided by senior management, for performing the valuation procedures and updating significant inputs, as are primarily provided by the underlying fund's management. The Corporation classifies fair value measurements of nonmarketable equity securities as Level 3. The Corporation also holds restricted equity investments, primarily Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock. Restricted equity securities are not readily marketable and are recorded at cost (par value) in "accrued income and other assets" on the consolidated balance sheets and evaluated for impairment based on the ultimate recoverability of the par value. No significant observable market data for these instruments is available. The Corporation considers the F-51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries profitability and asset quality of the issuer, dividend payment history and recent redemption experience when determining the ultimate recoverability of the par value. The Corporation’s investment in FHLB stock totaled $7 million and $48 million at December 31, 2014 and 2013, respectively, and its investment in FRB stock totaled $85 million at both December 31, 2014 and 2013. The Corporation believes its investments in FHLB and FRB stock are ultimately recoverable at par. Therefore, the carrying amount for these restricted equity investments approximates fair value. The Corporation classifies the estimated fair value of such investments as Level 1. Other real estate Other real estate is included in “accrued income and other assets” on the consolidated balance sheets and includes primarily foreclosed property. Foreclosed property is initially recorded at fair value, less costs to sell, at the date of foreclosure, establishing a new cost basis. Subsequently, foreclosed property is carried at the lower of cost or fair value, less costs to sell. Other real estate may be carried at fair value on a nonrecurring basis when fair value is less than cost. Fair value is based upon independent market prices, appraised value or management's estimate of the value of the property. The Special Assets Group obtains updated independent market prices and appraised values, as required by state regulation or deemed necessary based on market conditions, and determines if additional write-downs are necessary. On a quarterly basis, senior management reviews all other real estate and determines whether the carrying values are reasonable, based on the length of time elapsed since receipt of independent market price or appraised value and current market conditions. When management determines that the fair value of other real estate requires additional adjustments, either as a result of a non-current appraisal or when there is no observable market price, the Corporation classifies the other real estate as Level 3. Deposit liabilities The estimated fair value of checking, savings and certain money market deposit accounts is represented by the amounts payable on demand. The estimated fair value of term deposits is calculated by discounting the scheduled cash flows using the period- end rates offered on these instruments. As such, the Corporation classifies the estimated fair value of deposit liabilities as Level 2. Short-term borrowings The carrying amount of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings approximates the estimated fair value. As such, the Corporation classifies the estimated fair value of short-term borrowings as Level 1. Medium- and long-term debt The carrying value of variable-rate FHLB advances approximates the estimated fair value. The estimated fair value of the Corporation's remaining variable- and fixed-rate medium- and long-term debt is based on quoted market values when available. If quoted market values are not available, the estimated fair value is based on the market values of debt with similar characteristics. The Corporation classifies the estimated fair value of medium- and long-term debt as Level 2. Credit-related financial instruments Credit-related financial instruments include unused commitments to extend credit and letters of credit. These instruments generate ongoing fees which are recognized over the term of the commitment. In situations where credit losses are probable, the Corporation records an allowance. The carrying value of these instruments included in "accrued expenses and other liabilities" on the consolidated balance sheets, which includes the carrying value of the deferred fees plus the related allowance, approximates the estimated fair value. The Corporation classifies the estimated fair value of credit-related financial instruments as Level 3. For further information about fair value measurements refer to Note 2. Other Short-Term Investments Other short-term investments include trading securities and loans held-for-sale. Trading securities are carried at fair value. Realized and unrealized gains or losses on trading securities are included in “other noninterest income” on the consolidated statements of income. Loans held-for-sale, typically residential mortgages originated with the intent to sell, are carried at the lower of cost or fair value. Fair value is determined in the aggregate for each portfolio. Changes in fair value are included in “other noninterest income” on the consolidated statements of income. Investment Securities Securities not held for trading purposes are classified as available-for-sale or held-to-maturity. Only those debt securities for which management has the intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized F-52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries cost. Securities available-for-sale are recorded at fair value, with unrealized gains and losses, net of income taxes, reported as a separate component of other comprehensive income (loss) (OCI). Securities transferred from available-for-sale to held-to-maturity are reclassified at fair value on the date of transfer. The net unrealized gain (loss) at the date of transfer is included in historical cost and amortized over the remaining life of the related securities as a yield adjustment consistent with the amortization of the net unrealized gain (loss) included in accumulated other comprehensive loss on the same securities, resulting in no impact to net income. Investment securities are reviewed quarterly for possible other-than-temporary impairment (OTTI). In determining whether OTTI exists for debt securities in an unrealized loss position, the Corporation assesses the likelihood of selling the security prior to the recovery of its amortized cost basis. If the Corporation intends to sell the debt security or it is more likely than not that the Corporation will be required to sell the debt security prior to the recovery of its amortized cost basis, the debt security is written down to fair value, and the full amount of any impairment charge is recorded as a loss in “net securities gains” in the consolidated statements of income. If the Corporation does not intend to sell the debt security and it is more likely than not that the Corporation will not be required to sell the debt security prior to recovery of its amortized cost basis, only the credit component of any impairment of a debt security is recognized as a loss in “net securities gains” on the consolidated statements of income, with the remaining impairment recorded in OCI. The OTTI review for equity securities includes an analysis of the facts and circumstances of each individual investment and focuses on the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the financial condition and near-term prospects of the issuer, and management’s intent and ability to hold the security to recovery. A decline in value of an equity security that is considered to be other-than-temporary is recorded as a loss in “net securities (losses) gains” on the consolidated statements of income. Gains or losses on the sale of securities are computed based on the adjusted cost of the specific security sold. For further information on investment securities, refer to Note 3. Loans Loans and leases originated and held for investment are recorded at the principal balance outstanding, net of unearned income, charge-offs and unamortized deferred fees and costs. Interest income is recognized on loans and leases using the interest method. Loans and leases acquired in business combinations are initially recorded at fair value with no carryover of any existing allowance for loan losses. Acquired loans with evidence of credit quality deterioration at acquisition are reviewed to determine if it is probable that the Corporation will not be able to collect all contractual amounts due, including both principal and interest. When both conditions exist, such loans are accounted for as purchased credit-impaired (PCI) loans. The Corporation generally aggregates PCI loans into pools of loans based on common risk characteristics. The Corporation estimates the total cash flows expected to be collected from the pools of acquired PCI loans, which include undiscounted expected principal and interest, using credit risk, interest rate and prepayment risk models that incorporate management's best estimate of current key assumptions such as default rates, loss severity and payment speeds. The excess of the undiscounted total cash flows expected to be collected over the fair value of the related PCI loans represents the accretable yield, which is recognized as interest income on a level-yield basis over the life of the related loan pools. The difference between the undiscounted contractual principal and interest and the undiscounted total cash flows expected to be collected is the nonaccretable difference, which reflects the impact of estimated credit losses and other factors. Subsequent increases in expected cash flows will result in a recovery of any previously recorded allowance for loan losses, to the extent applicable, and a reclassification from nonaccretable difference to accretable yield, which is recognized prospectively over the then remaining lives of the loan pools. Subsequent decreases in expected cash flows will result in an impairment charge to the provision for loan losses, resulting in an addition to the allowance for loan losses, and a reclassification from accretable yield to nonaccretable difference. A loan disposal, which may include a loan sale, receipt of payment in full from the borrower or foreclosure, results in removal of the loan from the acquired PCI loan pool at its allocated carrying amount. Refinanced or restructured loans remain within the acquired PCI loan pools. For acquired loans not deemed credit-impaired at acquisition, the difference between the initial fair value and the unpaid principal balance is recognized as interest income on a level-yield basis over the lives of the related loans. The Corporation assesses all loan modifications to determine whether a restructuring constitutes a troubled debt restructuring (TDR). A restructuring is considered a TDR when a borrower is experiencing financial difficulty and the Corporation grants a concession to the borrower. TDRs on accrual status at the original contractual rate of interest are considered performing. F-53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Nonperforming TDRs include TDRs on nonaccrual status and loans which have been renegotiated to less than the original contractual rates (reduced-rate loans). All TDRs are considered impaired loans. Loan Origination Fees and Costs Substantially all loan origination fees and costs are deferred and amortized to net interest income of over the life of the related loan or over the commitment period as a yield adjustment. Net deferred income on originated loans, including unearned income and unamortized costs, fees, premiums and discounts, totaled $267 million and $287 million at December 31, 2014 and 2013, respectively. Loan fees on unused commitments and net origination fees related to loans sold are recognized in noninterest income. Allowance for Credit Losses The allowance for credit losses includes both the allowance for loan losses and the allowance for credit losses on lending- related commitments. The Corporation disaggregates the loan portfolio into segments for purposes of determining the allowance for credit losses. These segments are based on the level at which the Corporation develops, documents and applies a systematic methodology to determine the allowance for credit losses. The Corporation's portfolio segments are business loans and retail loans. Business loans are defined as those belonging to the commercial, real estate construction, commercial mortgage, lease financing and international loan portfolios. Retail loans consist of traditional residential mortgage, home equity and other consumer loans. For further information on the Allowance for Credit Losses, refer to Note 4. Allowance for Loan Losses The allowance for loan losses represents management’s assessment of probable, estimable losses inherent in the Corporation’s loan portfolio. The allowance for loan losses includes specific allowances, based on individual evaluations of certain loans, and allowances for homogeneous pools of loans with similar risk characteristics. The Corporation individually evaluates certain impaired loans on a quarterly basis and establishes specific allowances for such loans, if required. A loan is considered impaired when it is probable that interest or principal payments will not be made in accordance with the contractual terms of the loan agreement. Consistent with this definition, all loans for which the accrual of interest has been discontinued (nonaccrual loans) are considered impaired. The Corporation individually evaluates nonaccrual loans with book balances of $2 million or more and accruing loans whose terms have been modified in a TDR. The threshold for individual evaluation is revised on an infrequent basis, generally when economic circumstances change significantly. Specific allowances for impaired loans are estimated using one of several methods, including the estimated fair value of underlying collateral, observable market value of similar debt or discounted expected future cash flows. Collateral values supporting individually evaluated impaired loans are evaluated quarterly. Either appraisals are obtained or appraisal assumptions are updated at least annually unless conditions dictate increased frequency. The Corporation may reduce the collateral value based upon the age of the appraisal and adverse developments in market conditions. Loans which do not meet the criteria to be evaluated individually are evaluated in homogeneous pools of loans with similar risk characteristics. Business loans are assigned to pools based on the Corporation's internal risk rating system. Internal risk ratings are assigned to each business loan at the time of approval and are subjected to subsequent periodic reviews by the Corporation’s senior management, generally at least annually or more frequently upon the occurrence of a circumstance that affects the credit risk of the loan. For business loans not individually evaluated, losses inherent to the pool are estimated by applying standard reserve factors to outstanding principal balances. Standard reserve factors are based on estimated probabilities of default for each internal risk rating, set to a default horizon based on an estimated loss emergence period, and loss given default. These factors are evaluated quarterly and updated annually, unless economic conditions necessitate a change, giving consideration to count-based borrower risk rating migration experience and trends, recent charge-off experience, current economic conditions and trends, changes in collateral values of properties securing loans, and trends with respect to past due and nonaccrual amounts. The allowance for business loans not individually evaluated also includes qualitative adjustments to bring the allowance to the level management believes is appropriate based on factors that have not otherwise been fully accounted for, including adjustments for (i) risk factors that have not been fully addressed in internal risk ratings, (ii) imprecision in the risk rating system resulting from inaccuracy in assigning and/or entering risk ratings in the loan accounting system, (iii) market conditions and (iv) model imprecision. Risk factors that have not been fully addressed in internal risk ratings may include portfolios where recent historical losses exceed expected losses or known recent events are expected to alter risk ratings once evidence is acquired, portfolios where a certain level of concentration introduces added risk, or changes in the level and quality of experience held by lending management. An additional allowance for risk rating errors is calculated based on the results of risk rating accuracy assessments performed on samples of business loans conducted by the Corporation's asset quality review function, a function independent of F-54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries the lending and credit groups responsible for assigning the initial internal risk rating at the time of approval. Qualitative adjustments for market conditions are determined based on an established framework. The determination of the appropriate adjustment is based on management's analysis of observable macroeconomic metrics, including consideration of regional metrics within the Corporation's footprint, internal credit risk movement and a qualitative assessment of the lending environment, including underwriting standards, current economic and political conditions, and other factors affecting credit quality. Management recognizes the sensitivity of various assumptions made in the quantitative modeling of expected losses and may adjust reserves depending upon the level of uncertainty that currently exists in one or more assumption. In the second quarter 2014, the Corporation enhanced the approach used to determine the standard reserve factors used in estimating the allowance for credit losses, which had the effect of capturing certain elements in the standard reserve component that had formerly been included in the qualitative assessment. The impact of the change was largely neutral to the total allowance for loan losses at June 30, 2014. However, because standard reserves are allocated to the segments at the loan level, while qualitative reserves are allocated at the portfolio level, the impact of the methodology change on the allowance of each segment reflected the characteristics of the individual loans within each segment's portfolio, causing segment reserves to increase or decrease accordingly. In the first quarter 2013, the Corporation enhanced the approach utilized for determining standard reserve factors by changing from a dollar-based migration method for developing probability of default statistics to a count-based method. Under the dollar-based method, each dollar that moved to default received equal weight in the determination of standard reserve factors for each internal risk rating. As a result, the movement of larger loans impacted standard reserve factors more than the movement of smaller loans. By moving to a count-based approach, where each loan that moves to default receives equal weighting, unusually large or small loans will not have a disproportionate influence on the standard reserve factors. The change resulted in a $40 million increase to the allowance for loan losses at March 31, 2013. The allowance for retail loans not individually evaluated is determined by applying estimated loss rates to various pools of loans within the portfolios with similar risk characteristics. Estimated loss rates for all pools are updated quarterly, incorporating factors such as recent charge-off experience, current economic conditions and trends, changes in collateral values of properties securing loans (using index-based estimates), and trends with respect to past due and nonaccrual amounts. Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses is recorded for these loans at acquisition. Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance less any remaining purchase discount. The total allowance for loan losses is sufficient to absorb incurred losses inherent in the total portfolio. Unanticipated economic events, including political, economic and regulatory instability in countries where the Corporation has loans, could cause changes in the credit characteristics of the portfolio and result in an unanticipated increase in the allowance. Significant increases in current portfolio exposures, as well as the inclusion of additional industry-specific portfolio exposures in the allowance, could also increase the amount of the allowance. Any of these events, or some combination thereof, may result in the need for additional provision for credit losses in order to maintain an allowance that complies with credit risk and accounting policies. Loans deemed uncollectible are charged off and deducted from the allowance. The provision for loan losses and recoveries on loans previously charged off are added to the allowance. Allowance for Credit Losses on Lending-Related Commitments The allowance for credit losses on lending-related commitments provides for probable losses inherent in lending-related commitments, including unused commitments to extend credit and letters of credit. The allowance for credit losses on lending- related commitments includes allowances based on homogeneous pools of letters of credit and unused commitments to extend credit within each internal risk rating. A probability of draw estimate is applied to the commitment amount, and the result is multiplied by standard reserve factors consistent with business loans. In general, the probability of draw for letters of credit is considered certain for all letters of credit supporting loans and for letters of credit assigned an internal risk rating generally consistent with regulatory defined substandard or doubtful. Other letters of credit and all unfunded commitments have a lower probability of draw. The allowance for credit losses on lending-related commitments is included in “accrued expenses and other liabilities” on the consolidated balance sheets, with the corresponding charge reflected in the “provision for credit losses” on the consolidated statements of income. Nonperforming Assets Nonperforming assets consist of nonaccrual loans, including loans held-for-sale, reduced-rate loans and foreclosed property. F-55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries A loan is considered past due when the contractually required principal or interest payment is not received by the specified due date or, for certain loans, when a scheduled monthly payment is past due and unpaid for 30 days or more. Business loans are generally placed on nonaccrual status when management determines full collection of principal or interest is unlikely or when principal or interest payments are 90 days past due, unless the loan is fully collateralized and in the process of collection. Business loans typically require individual evaluation and management judgment to determine the timing and amount of principal charge- offs. The past-due status of a business loan is one of many indicative factors considered in determining the collectibility of the credit. The primary driver of when the principal amount of a business loan should be fully or partially charged-off is based on a qualitative assessment of the recoverability of the principal amount from collateral and other cash flow sources. Residential mortgage and home equity loans are generally placed on nonaccrual status once they become 90 days past due and are charged off to current appraised values less costs to sell no later than 180 days past due. In addition, junior lien home equity loans less than 90 days past due are placed on nonaccrual status if they have underlying risk characteristics that place full collection of the loan in doubt, such as when the related senior lien position is seriously delinquent. Residential mortgage and consumer loans in bankruptcy for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt are placed on nonaccrual status and written down to estimated collateral value, without regard to the actual payment status of the loan, and are classified as TDRs. All other consumer loans are generally not placed on nonaccrual status and are charged off at no later than 120 days past due, earlier if deemed uncollectible. At the time a loan is placed on nonaccrual status, interest previously accrued but not collected is charged against current income. Income on such loans is then recognized only to the extent that cash is received and future collection of principal is probable. Generally, a loan may be returned to accrual status when all delinquent principal and interest have been received and the Corporation expects repayment of the remaining contractual principal and interest, or when the loan or debt security is both well secured and in the process of collection. PCI loans are recorded at fair value at acquisition date. Although the PCI loans may be contractually delinquent, the Corporation does not classify these loans as past due or nonperforming as the loans were written down to fair value at the acquisition date and the accretable yield is recognized in interest income over the remaining life of the loan. Foreclosed property (primarily real estate) is initially recorded at fair value, less costs to sell, at the date of foreclosure and subsequently carried at the lower of cost or fair value, less estimated costs to sell. Independent appraisals are obtained to substantiate the fair value of foreclosed property at the time of foreclosure and updated at least annually or upon evidence of deterioration in the property’s value. At the time of foreclosure, any excess of the related loan balance over fair value (less estimated costs to sell) of the property acquired is charged to the allowance for loan losses. Subsequent write-downs, operating expenses and losses upon sale, if any, are charged to noninterest expenses. Foreclosed property is included in “accrued income and other assets” on the consolidated balance sheets. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation, computed on the straight-line method, is charged to operations over the estimated useful lives of the assets. Estimated useful lives are generally 3 years to 33 years for premises that the Corporation owns and 3 years to 8 years for furniture and equipment. Leasehold improvements are generally amortized over the terms of their respective leases or 10 years, whichever is shorter. Software Capitalized software is stated at cost, less accumulated amortization. Capitalized software includes purchased software and capitalizable application development costs associated with internally-developed software. Amortization, computed on the straight-line method, is charged to operations over 5 years, the estimated useful life of the software. Capitalized software is included in “accrued income and other assets” on the consolidated balance sheets. Goodwill and Core Deposit Intangibles Goodwill, included in "accrued income and other assets" on the consolidated balance sheets, is initially recorded as the excess of the purchase price over the fair value of net assets acquired in a business combination and is subsequently evaluated at least annually for impairment. Goodwill impairment testing is performed at the reporting unit level, equivalent to a business segment or one level below. The Corporation has three reporting units: the Business Bank, the Retail Bank and Wealth Management. The Corporation performs its annual evaluation of goodwill impairment in the third quarter of each year and on an interim basis if events or changes in circumstances between annual tests suggest additional testing may be warranted to determine if goodwill might be impaired. The goodwill impairment test is a two-step test. The first step of the goodwill impairment test compares the estimated fair value of identified reporting units with their carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying value, the second step must be performed to determine the implied fair value of the F-56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries reporting unit's goodwill and the amount of goodwill impairment, if any. The implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charge would be recorded for the excess. In performing the annual impairment test, the carrying value of each reporting unit is the greater of economic or regulatory capital. The Corporation assigns economic capital using internal management methodologies on the basis of each reporting unit's credit, operational and interest rate risks, as well as goodwill. To determine regulatory capital, each reporting unit is assigned sufficient capital such that their respective Tier 1 ratio, based on allocated risk-weighted assets, is the same as that of the Corporation. Using this two-pronged approach, the Corporation's equity is fully allocated to its reporting units except for capital held primarily for the risk associated with the securities portfolio which is assigned to the Finance segment of the Corporation. The estimated fair values of the reporting units are determined using a blend of two commonly used valuation techniques: the market approach and the income approach. For the market approach, valuations of reporting units consider a combination of earnings, equity and other multiples from companies with characteristics similar to the reporting unit. Since the fair values determined under the market approach are representative of noncontrolling interests, the valuations accordingly incorporate a control premium. For the income approach, estimated future cash flows and terminal value are discounted. Estimated future cash flows are derived from internal forecasts and economic expectations for each reporting unit which incorporate uncertainty factors inherent to long-term projections. The applicable discount rate is based on the imputed cost of equity capital appropriate for each reporting unit, which incorporates the risk-free rate of return, the level of non-diversified risk associated with companies with characteristics similar to the reporting unit, an entity-specific risk premium and a market equity risk premium. Determining the fair value of reporting units is a subjective process involving the use of estimates and judgments related to the selection of inputs such as future cash flows, discount rates, comparable public company multiples, applicable control premiums and economic expectations used in determining the interest rate environment. The Corporation may choose to perform a qualitative assessment to determine whether the first step of the impairment test should be performed in future periods if certain factors indicate that impairment is unlikely. Factors which could be considered in the assessment of the likelihood of impairment include macroeconomic conditions, industry and market considerations, stock performance of the Corporation and its peers, financial performance, events affecting the Corporation as a whole or its reporting units individually and previous results of goodwill impairment tests. Core deposit intangibles are amortized on an accelerated basis, based on the estimated period the economic benefits are expected to be received. Core deposit intangibles are reviewed for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Impairment for a finite-lived intangible asset exists if the sum of the undiscounted cash flows expected to result from the use of the asset exceeds its carrying value. Additional information regarding goodwill and core deposit intangibles can be found in Note 7. Nonmarketable Equity Securities The Corporation has certain investments that are not readily marketable. These investments include a portfolio of investments in indirect private equity and venture capital funds and restricted equity investments, which are securities the Corporation is required to hold for various reasons, primarily Federal Home Loan Bank of Dallas (FHLB) and Federal Reserve Bank (FRB) stock. These investments are accounted for on the cost or equity method and are included in “accrued income and other assets” on the consolidated balance sheets. The investments are individually reviewed for impairment on a quarterly basis. Indirect private equity and venture capital funds are evaluated by comparing the carrying value to the estimated fair value. The amount by which the carrying value exceeds the fair value that is determined to be other-than-temporary impairment is charged to current earnings and the carrying value of the investment is written down accordingly. FHLB and FRB stock are recorded at cost (par value) and evaluated for impairment based on the ultimate recoverability of the par value. If the Corporation does not expect to recover the full par value, the amount by which the par value exceeds the ultimately recoverable value would be charged to current earnings and the carrying value of the investment would be written down accordingly. Derivative Instruments and Hedging Activities Derivative instruments are carried at fair value in either “accrued income and other assets” or “accrued expenses and other liabilities” on the consolidated balance sheets. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument is determined by whether it has been designated and qualifies as part of a hedging relationship and, further, by the type of hedging relationship. The Corporation presents derivative instruments at fair value in the consolidated balance sheets on a net basis when a right of offset exists, based on transactions with a single counterparty and any cash collateral paid to and/or received from that counterparty for derivative contracts that are subject to legally enforceable master netting arrangements. For derivative instruments designated and qualifying as fair value hedges (i.e., hedging the exposure to changes in the fair value of an asset or a F-57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item (i.e., the ineffective portion), if any, is recognized in current earnings during the period of change. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. For derivatives designated as hedging instruments at inception, the Corporation uses either the short-cut method or applies statistical regression analysis to assess effectiveness. The short-cut method is used for $700 million notional of fair value hedges of medium and long-term debt issued prior to 2006. This method allows for the assumption of zero hedge ineffectiveness and eliminates the requirement to further assess hedge effectiveness on these transactions. For hedge relationships to which the Corporation does not apply the short-cut method, statistical regression analysis is used at inception and for each reporting period thereafter to assess whether the derivative used has been and is expected to be highly effective in offsetting changes in the fair value or cash flows of the hedged item. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. Net hedge ineffectiveness is recorded in “other noninterest income” on the consolidated statements of income. Further information on the Corporation’s derivative instruments and hedging activities is included in Note 8. Short-Term Borrowings Securities sold under agreements to repurchase are treated as collateralized borrowings and are recorded at amounts equal to the cash received. The contractual terms of the agreements to repurchase may require the Corporation to provide additional collateral if the fair value of the securities underlying the borrowings declines during the term of the agreement. Financial Guarantees Certain guarantee contracts or indemnification agreements that contingently require the Corporation, as guarantor, to make payments to the guaranteed party are initially measured at fair value and included in “accrued expenses and other liabilities” on the consolidated balance sheets. The subsequent accounting for the liability depends on the nature of the underlying guarantee. The release from risk is accounted for under a particular guarantee when the guarantee expires or is settled, or by a systematic and rational amortization method. Further information on the Corporation’s obligations under guarantees is included in Note 8. Share-Based Compensation The Corporation recognizes share-based compensation expense using the straight-line method over the requisite service period for all stock awards, including those with graded vesting. The requisite service period is the period an employee is required to provide service in order to vest in the award, which cannot extend beyond the date at which the employee is no longer required to perform any service to receive the share-based compensation (the retirement-eligible date). Certain awards are contingent upon performance and/or market conditions, which affect the number of shares ultimately issued. The Corporation periodically evaluates the probable outcome of the performance conditions and makes cumulative adjustments to compensation expense as appropriate. Market conditions are included in the determination of the fair value of the award on the date of grant. Subsequent to the grant date, market conditions have no impact on the amount of compensation expense the Corporation will recognize over the life of the award. Further information on the Corporation’s share-based compensation plans is included in Note 16. Revenue Recognition The following summarizes the Corporation’s revenue recognition policies as they relate to certain noninterest income line items in the consolidated statements of income. Service charges on deposit accounts include fees for banking services provided, overdrafts and non-sufficient funds. Revenue is generally recognized in accordance with published deposit account agreements for retail accounts or contractual agreements for commercial accounts. F-58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Fiduciary income includes fees and commissions from asset management, custody, recordkeeping, investment advisory and other services provided to personal and institutional trust customers. Revenue is recognized on an accrual basis at the time the services are performed and are based on either the market value of the assets managed or the services provided. Commercial lending fees primarily include fees assessed on the unused portion of commercial lines of credit ("unused commitment fees") and syndication agent fees. Unused commitment fees are recognized when earned. Syndication agent fees are generally recognized when the transaction is complete. Card fees includes primarily bankcard interchange revenue which is recorded as revenue when earned. Defined Benefit Pension and Other Postretirement Costs Defined benefit pension costs are included in “salaries and benefits expense" on the consolidated statements of income and are funded consistent with the requirements of federal laws and regulations. Inherent in the determination of defined benefit pension costs are assumptions concerning future events that will affect the amount and timing of required benefit payments under the plans. These assumptions include demographic assumptions such as retirement age and mortality, a compensation rate increase, a discount rate used to determine the current benefit obligation and a long-term expected rate of return on plan assets. Net periodic defined benefit pension expense includes service cost, interest cost based on the assumed discount rate, an expected return on plan assets based on an actuarially derived market-related value of assets, amortization of prior service cost and amortization of net actuarial gains or losses. The market-related value of plan assets is determined by amortizing the current year’s investment gains and losses (the actual investment return net of the expected investment return) over 5 years. The amortization adjustment cannot exceed 10 percent of the fair value of assets. Prior service costs include the impact of plan amendments on the liabilities and are amortized over the future service periods of active employees expected to receive benefits under the plan. Actuarial gains and losses result from experience different from that assumed and from changes in assumptions (excluding asset gains and losses not yet reflected in market-related value). Amortization of actuarial gains and losses is included as a component of net periodic defined benefit pension cost for a year if the actuarial net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets. If amortization is required, the excess is amortized over the average remaining service period of participating employees expected to receive benefits under the plan. Postretirement benefits are recognized in “salaries and benefits expense" on the consolidated statements of income during the average remaining service period of participating employees expected to receive benefits under the plan or the average remaining future lifetime of retired participants currently receiving benefits under the plan. See Note 17 for further information regarding the Corporation’s defined benefit pension and other postretirement plans. Income Taxes The provision for income taxes is the sum of income taxes due for the current year and deferred taxes. Deferred taxes arise from temporary differences between the income tax basis and financial accounting basis of assets and liabilities. Deferred tax assets are evaluated for realization based on available evidence of loss carry-back capacity, future reversals of existing taxable temporary differences, and assumptions made regarding future events. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The Corporation classifies interest and penalties on income tax liabilities in the “provision for income taxes” on the consolidated statements of income. Earnings Per Share Basic net income per common share is calculated using the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared (distributed earnings) and participation rights in undistributed earnings. Distributed and undistributed earnings are allocated between common and participating security shareholders based on their respective rights to receive dividends. Nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities (e.g., nonvested restricted stock and service-based restricted stock units). Undistributed net losses are not allocated to nonvested restricted shareholders, as these shareholders do not have a contractual obligation to fund the losses incurred by the Corporation. Net income attributable to common shares is then divided by the weighted-average number of common shares outstanding during the period. Diluted net income per common share is calculated using the more dilutive of either the treasury method or the two-class method. The dilutive calculation considers common stock issuable under the assumed exercise of stock options and performance- based restricted stock units granted under the Corporation’s stock plans and warrants using the treasury stock method, if dilutive. F-59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Net income attributable to common shares is then divided by the total of weighted-average number of common shares and common stock equivalents outstanding during the period. Statements of Cash Flows Cash and cash equivalents are defined as those amounts included in “cash and due from banks”, “federal funds sold” and “interest-bearing deposits with banks” on the consolidated balance sheets. Comprehensive Income (Loss) The Corporation presents on an annual basis the components of net income and other comprehensive income in two separate, but consecutive statements and presents on an interim basis the components of net income and a total for comprehensive income in one continuous consolidated statement of comprehensive income. Recently Adopted Accounting Pronouncement Effective January 1, 2014, the Corporation early adopted Accounting Standards Update (ASU) No. 2014-01, “Investments- Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects,” an amendment to GAAP which enables companies that invest in affordable housing projects that qualify for the low-income housing tax credit (LIHTC) to elect to use the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial investment cost of the project is amortized in proportion to the amount of tax credits and other benefits received, with the results of the investment presented on a net basis as a component of the provision for income taxes. Previously, LIHTC investments were accounted for under the cost or equity method, and the amortization was recorded as a reduction to other noninterest income, with the tax credits and other benefits received recorded as a component of the provision for income taxes. The Corporation believes the proportional amortization method more appropriately represents the economics of LIHTC investments and provides users with a better understanding of the returns from such investments than the cost or equity method. The cumulative effect of the retrospective application of the change in amortization method was a $3 million decrease to both "accrued income and other assets" and "retained earnings" on the consolidated balance sheets as of January 1, 2013. The consolidated financial statements have been retrospectively adjusted to reflect the prior period effect of the adoption of the amendment, which resulted in increases of $56 million and $52 million to both "other noninterest income" and "provision for income taxes" for the years ended December 31, 2013 and 2012, respectively. The adoption of ASU 2014-01 had no effect on net income or earnings per common share for any period presented. See Note 9 for additional information regarding LIHTC and other tax credit investments. Pending Accounting Pronouncements In January 2014, the FASB issued ASU No. 2014-04, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” (ASU 2014-04), which clarifies when an in-substance foreclosure or repossession of residential real estate property occurs, requiring a creditor to reclassify the loan to other real estate. According to ASU 2014-04, a consumer mortgage loan should be reclassified to other real estate either upon the creditor obtaining legal title to the real estate collateral or when the borrower voluntarily conveys all interest in the real estate property to the creditor through a deed in lieu of foreclosure or similar legal agreement. ASU 2014-04 also clarifies that a creditor should not delay reclassification when a borrower has a legal right of redemption. The Corporation's current practice is to delay reclassification of foreclosed residential real estate to other real estate until the redemption period, if any, has expired. The Corporation expects to prospectively adopt ASU 2014-04 in the first quarter 2015 and does not expect the adoption to have a material effect on the Corporation's financial condition and results of operations. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (ASU 2014-09), which is intended to improve and converge the financial reporting requirements for revenue contracts with customers. Previous GAAP comprised broad revenue recognition concepts along with numerous industry-specific requirements. The new guidance establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016, and must be retrospectively applied. Entities will have the option of presenting prior periods as impacted by the new guidance or presenting the cumulative effect of initial application along with supplementary disclosures. Early adoption is prohibited. The Corporation is currently evaluating the impact of adopting ASU 2014-09. In June 2014, the FASB issued ASU No. 2014-12, “Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,” (ASU 2014-12). The new guidance requires that a performance target that affects vesting and that could be F-60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The Corporation's current accounting treatment of performance conditions for employees who are or become retirement eligible prior to the achievement of the performance target are consistent with ASU 2014-12 and, as such, does not expect the new guidance to have a material effect on the Corporation’s financial condition and results of operations. The Corporation expects to prospectively adopt ASU 2014-12 in the first quarter 2015. F-61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 2 – FAIR VALUE MEASUREMENTS The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Corporation uses present value techniques and other valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. Trading securities, investment securities available-for-sale, derivatives and deferred compensation plan liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as impaired loans, other real estate (primarily foreclosed property), nonmarketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve write-downs of individual assets or application of lower of cost or fair value accounting. Refer to Note 1 for further information about the fair value hierarchy, descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities recorded at fair value, as well as a description of the methods and significant assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis. ASSETS AND LIABLILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and 2013. (in millions) December 31, 2014 Trading securities: Deferred compensation plan assets Investment securities available-for-sale: U.S. Treasury and other U.S. government agency securities Residential mortgage-backed securities (a) State and municipal securities Corporate debt securities Equity and other non-debt securities Total investment securities available-for-sale Derivative assets: Interest rate contracts Energy derivative contracts Foreign exchange contracts Warrants Total derivative assets Total assets at fair value Derivative liabilities: Interest rate contracts Energy derivative contracts Foreign exchange contracts Other Total derivative liabilities Deferred compensation plan liabilities Total liabilities at fair value Total Level 1 Level 2 Level 3 $ 94 $ 94 $ — $ — 526 7,274 23 51 242 8,116 328 527 39 4 898 9,108 102 525 34 1 662 94 756 $ $ 526 — — — 130 656 — — — — — 750 $ $ — $ — — — — 94 94 $ — 7,274 — 50 — 7,324 328 527 39 — 894 8,218 102 525 34 — 661 — 661 $ $ $ $ $ $ — — 23 (b) 1 (b) 112 (b) 136 — — — 4 4 140 — — — 1 1 — 1 (a) Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. (b) Auction-rate securities. F-62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries (in millions) December 31, 2013 Trading securities: Deferred compensation plan assets Equity and other non-debt securities Residential mortgage-backed securities (a) State and municipal securities Total trading securities Investment securities available-for-sale: U.S. Treasury and other U.S. government agency securities Residential mortgage-backed securities (a) State and municipal securities Corporate debt securities Equity and other non-debt securities Total investment securities available-for-sale Derivative assets: Interest rate contracts Energy derivative contracts Foreign exchange contracts Warrants Total derivative assets Total assets at fair value Derivative liabilities: Interest rate contracts Energy derivative contracts Foreign exchange contracts Other Total derivative liabilities Deferred compensation plan liabilities Total liabilities at fair value Total Level 1 Level 2 Level 3 $ $ $ $ 96 7 2 3 108 45 8,926 22 56 258 9,307 380 105 15 3 503 9,918 133 102 14 2 251 96 347 $ $ $ $ 96 7 — — 103 45 — — — 122 167 — — — — — 270 $ $ — $ — — — — 96 96 $ — $ — 2 3 5 — 8,926 — 55 — 8,981 380 105 15 — 500 9,486 133 102 14 — 249 — 249 $ $ $ — — — — — — — 22 (b) 1 (b) 136 (b) 159 — — — 3 3 162 — — — 2 2 — 2 (a) Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. (b) Auction-rate securities. There were no transfers of assets or liabilities recorded at fair value on a recurring basis into or out of Level 1, Level 2 and Level 3 fair value measurements during the years ended December 31, 2014 and 2013. F-63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended December 31, 2014 and 2013. (in millions) Year Ended December 31, 2014 Investment securities available-for-sale: State and municipal securities (a) Corporate debt securities (a) Equity and other non-debt securities (a) Total investment securities available-for-sale Derivative assets: Warrants Derivative liabilities: Other Year Ended December 31, 2013 Investment securities available-for-sale: State and municipal securities (a) Corporate debt securities (a) Equity and other non-debt securities (a) Total investment securities available-for-sale Derivative assets: Warrants Derivative liabilities: Other Net Realized/Unrealized Gains (Losses) (Pretax) Balance at Beginning of Period Recorded in Earnings Realized Unrealized Recorded in Other Comprehensive Income (Loss) Sales Settlements Balance at End of Period $ $ 22 1 136 159 3 2 23 1 156 180 3 1 $ — — 2 (c) $ — — — 2 (c) — 7 (d) 1 (d) (1) (c) — $ — — 1 (c) $ — — — $ $ 1 (b) — 7 (b) $ — $ — (33) 8 (b) (33) — — (7) — 2 (b) — (1) (b) $ (3) $ — (20) 1 (c) — 1 (b) (23) 9 (d) 1 (d) — (2) (c) — — (4) — — $ — — — — (2) — $ — — — (6) (1) 23 1 112 136 4 1 22 1 136 159 3 2 (a) Auction-rate securities. (b) Recorded in "net unrealized gains (losses) on investment securities available-for-sale" in other comprehensive income. (c) Realized and unrealized gains and losses due to changes in fair value recorded in "net securities gains (losses)" on the consolidated statements of income. (d) Realized and unrealized gains and losses due to changes in fair value recorded in "other noninterest income" on the consolidated statements of income. F-64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS The Corporation may be required, from time to time, to record certain assets and liabilities at fair value on a nonrecurring basis. These include assets that are recorded at the lower of cost or fair value, and were recognized at fair value since it was less than cost at the end of the period. All assets recorded at fair value on a nonrecurring basis were classified as Level 3 at December 31, 2014 and 2013 and are presented in the following table. No liabilities were recorded at fair value on a nonrecurring basis at December 31, 2014 and 2013. (in millions) December 31, 2014 Loans: Commercial Commercial mortgage Total loans Nonmarketable equity securities (a) Other real estate Total assets at fair value December 31, 2013 Loans: Commercial Real estate construction Commercial mortgage International Total loans Nonmarketable equity securities (a) Other real estate Total assets at fair value Level 3 38 26 64 2 2 68 43 20 61 4 128 2 5 135 $ $ $ $ (a) Commitments to fund additional investments in nonmarketable equity securities recorded at fair value on a nonrecurring basis were insignificant at December 31, 2014 and 2013. Level 3 assets recorded at fair value on a nonrecurring basis at December 31, 2014 and 2013 included loans for which a specific allowance was established based on the fair value of collateral and other real estate for which fair value of the properties was less than the cost basis. For both asset classes, the unobservable inputs were the additional adjustments applied by management to the appraised values to reflect such factors as non-current appraisals and revisions to estimated time to sell. These adjustments are determined based on qualitative judgments made by management on a case-by-case basis and are not quantifiable inputs, although they are used in the determination of fair value. The following table presents quantitative information related to the significant unobservable inputs utilized in the Corporation's Level 3 recurring fair value measurement as of December 31, 2014 and December 31, 2013. The Corporation's Level 3 recurring fair value measurements include auction-rate securities where fair value is determined using an income approach based on a discounted cash flow model. The inputs in the table below reflect management's expectation of continued illiquidity in the secondary auction-rate securities market due to a lack of market activity for the issuers remaining in the portfolio, a lack of market incentives for issuer redemptions, and the expectation for a continuing low interest rate environment. Discounted Cash Flow Model Unobservable Input Fair Value (in millions) Discount Rate Workout Period (in years) $ $ 23 112 22 136 3% - 9% 4% - 8% 5% - 10% 5% - 8% 1 - 3 1 - 2 3 - 4 2 - 3 December 31, 2014 State and municipal securities (a) Equity and other non-debt securities (a) December 31, 2013 State and municipal securities (a) Equity and other non-debt securities (a) (a) Auction-rate securities. F-65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS The Corporation typically holds the majority of its financial instruments until maturity and thus does not expect to realize many of the estimated fair value amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments, but which have significant value. These include such items as core deposit intangibles, the future earnings potential of significant customer relationships and the value of trust operations and other fee generating businesses. The Corporation believes the imprecision of an estimate could be significant. The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on the Corporation’s consolidated balance sheets are as follows: (in millions) December 31, 2014 Assets Cash and due from banks Interest-bearing deposits with banks Investment securities held-to-maturity Loans held-for-sale Total loans, net of allowance for loan losses (a) Customers’ liability on acceptances outstanding Nonmarketable equity securities (b) Restricted equity investments Liabilities Demand deposits (noninterest-bearing) Interest-bearing deposits Customer certificates of deposit Total deposits Short-term borrowings Acceptances outstanding Medium- and long-term debt Credit-related financial instruments December 31, 2013 Assets Cash and due from banks Interest-bearing deposits with banks Loans held-for-sale Total loans, net of allowance for loan losses (a) Customers’ liability on acceptances outstanding Nonmarketable equity securities (b) Restricted equity investments Liabilities $ $ Carrying Amount Total Estimated Fair Value Level 2 Level 1 Level 3 $ $ 1,026 5,045 1,935 5 47,999 10 11 92 27,224 25,841 4,421 57,486 116 10 2,679 (85) 1,140 5,311 4 44,872 11 12 133 $ $ 1,026 5,045 1,933 5 47,932 10 18 92 27,224 25,841 4,411 57,476 116 10 2,681 (85) 1,140 5,311 4 44,801 11 19 133 $ $ 1,026 5,045 — — — 10 — 92 — — — — 116 10 — — 1,140 5,311 — — 11 — 133 — $ — 1,933 5 — — — — — — — — 47,932 — 18 — 27,224 25,841 4,411 57,476 — — 2,681 — — — — — — — — (85) — $ — 4 — — — — — — — 44,801 — 19 — Total deposits Demand deposits (noninterest-bearing) Interest-bearing deposits Customer certificates of deposit — 23,875 — 24,354 — 5,063 — 53,292 — 253 — 11 — 3,543 Credit-related financial instruments (88) (88) (a) Included $64 million and $128 million of impaired loans recorded at fair value on a nonrecurring basis at December 31, 2014 and 2013, Short-term borrowings Acceptances outstanding Medium- and long-term debt 23,875 24,354 5,055 53,284 253 11 3,540 (88) 23,875 24,354 5,055 53,284 — — 3,540 — — — — — 253 11 — — respectively. (b) Included $2 million of nonmarketable equity securities recorded at fair value on a nonrecurring basis at both December 31, 2014 and 2013. F-66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 3 - INVESTMENT SECURITIES A summary of the Corporation’s investment securities follows: (in millions) December 31, 2014 Investment securities available-for-sale: U.S. Treasury and other U.S. government agency securities $ Residential mortgage-backed securities (a) State and municipal securities Corporate debt securities Equity and other non-debt securities Total investment securities available-for-sale (b) Investment securities held-to-maturity (c): Residential mortgage-backed securities (a) December 31, 2013 Investment securities available-for-sale: $ $ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 526 7,192 24 51 242 8,035 1,935 $ $ $ — $ 122 — — 1 123 $ — $ 40 1 — 1 42 $ 526 7,274 23 51 242 8,116 — $ 2 $ 1,933 U.S. Treasury and other U.S. government agency securities $ Residential mortgage-backed securities (a) State and municipal securities Corporate debt securities Equity and other non-debt securities 45 8,926 22 56 258 Total investment securities available-for-sale (b) 9,307 $ (a) Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. (b) Included auction-rate securities at amortized cost and fair value of $137 million and $136 million, respectively, as of December 31, 2014 — $ 188 2 — 9 199 — $ 91 — — 1 92 45 9,023 24 56 266 9,414 $ $ $ $ and $169 million and $159 million, respectively, as of December 31, 2013. (c) Investment securities transferred from available-for-sale are reclassified at fair value at the time of transfer. The amortized cost of investment securities held-to-maturity included gross unrealized gains of $9 million and gross unrealized losses of $32 million at December 31, 2014 related to securities transferred, which are included in accumulated other comprehensive loss. During the fourth quarter 2014, the Corporation transferred residential mortgage-backed securities with a fair value of approximately $2.0 billion from available-for-sale to held-to-maturity. Accumulated other comprehensive loss included pretax net unrealized losses of $23 million at the date of transfer. F-67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries A summary of the Corporation’s investment securities in an unrealized loss position as of December 31, 2014 and 2013 follows: (in millions) December 31, 2014 Less than 12 Months Temporarily Impaired 12 Months or more Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasury and other U.S. government agency securities Residential mortgage-backed securities (b) State and municipal securities (c) Corporate debt securities (c) Equity and other non-debt securities (c) Total impaired securities $ $ 298 626 — — — 924 December 31, 2013 Residential mortgage-backed securities (b) $ 5,825 — State and municipal securities (c) — Corporate debt securities (c) Equity and other non-debt securities (c) — $ 5,825 Total impaired securities $ $ $ $ — (a) 3 — — — 3 187 — — — 187 $ — $ 3,112 22 1 112 $ 3,247 $ $ 11 22 1 148 182 $ $ $ — 71 1 — (a) 1 73 1 2 — (a) 9 12 $ 298 3,738 22 1 112 $ 4,171 $ 5,836 22 1 148 $ 6,007 $ $ $ $ — (a) 74 1 — (a) 1 76 188 2 — (a) 9 199 (a) Unrealized losses less than $0.5 million. (b) Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. (c) Primarily auction-rate securities. At December 31, 2014, the Corporation had 142 securities in an unrealized loss position with no credit impairment, including 80 residential mortgage-backed securities, 43 equity and other non-debt auction-rate preferred securities, 17 state and municipal auction-rate securities, one corporate auction-rate debt security and one U.S. Treasury security. As of December 31, 2014, approximately 89 percent of the aggregate par value of auction-rate securities have been redeemed or sold since acquisition, of which approximately 95 percent were redeemed at or above cost. The unrealized losses for these securities resulted from changes in market interest rates and liquidity. The Corporation ultimately expects full collection of the carrying amount of these securities, does not intend to sell the securities in an unrealized loss position, and it is not more-likely-than-not that the Corporation will be required to sell the securities in an unrealized loss position prior to recovery of amortized cost. The Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2014. F-68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Sales, calls and write-downs of investment securities available-for-sale resulted in the following gains and losses recorded in “net securities gains (losses)” on the consolidated statements of income, computed based on the adjusted cost of the specific security. (in millions) Years Ended December 31 2 Securities gains (2) Securities losses (a) — $ Net securities (losses) gains (a) Primarily charges related to a derivative contract tied to the conversion rate of Visa Class B shares. 2014 $ $ $ 2013 2012 $ 1 (2) (1) $ 14 (2) 12 The following table summarizes the amortized cost and fair values of debt securities by contractual maturity. Securities with multiple maturity dates are classified in the period of final maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. (in millions) December 31, 2014 Contractual maturity Within one year After one year through five years After five years through ten years After ten years Subtotal Equity and other non-debt securities Total investment securities Available-for-sale Held-to-maturity Amortized Cost Fair Value Amortized Cost Fair Value $ $ 134 786 711 6,162 7,793 242 8,035 $ $ 134 $ 787 748 6,205 7,874 242 8,116 $ — $ — — 1,935 1,935 — 1,935 $ — — — 1,933 1,933 — 1,933 Included in the contractual maturity distribution in the table above were residential mortgage-backed securities available- for-sale with a total amortized cost and fair value of $7.2 billion and $7.3 billion, respectively, and residential mortgage-backed securities held-to-maturity with a total amortized cost and fair value of $1.9 billion. The actual cash flows of mortgage-backed securities may differ from contractual maturity as the borrowers of the underlying loans may exercise prepayment options. At December 31, 2014, investment securities with a carrying value of $2.9 billion were pledged where permitted or required by law to secure $1.9 billion of liabilities, primarily public and other deposits of state and local government agencies and derivative instruments. F-69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 4 – CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES The following table presents an aging analysis of the recorded balance of loans. (in millions) December 31, 2014 Business loans: Commercial Real estate construction: Commercial Real Estate business line (a) Other business lines (b) Total real estate construction Commercial mortgage: Commercial Real Estate business line (a) Other business lines (b) Total commercial mortgage Lease financing International Total business loans Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total retail loans Total loans December 31, 2013 Business loans: Commercial Real estate construction: Commercial Real Estate business line (a) Other business lines (b) Total real estate construction Commercial mortgage: Commercial Real Estate business line (a) Other business lines (b) Total commercial mortgage Lease financing International Total business loans Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total retail loans Loans Past Due and Still Accruing 30-59 Days 60-89 Days 90 Days or More Total Nonaccrual Loans Current Loans Total Loans $ 58 $ 13 $ 1 $ 72 $ 109 $ 31,339 $ 31,520 3 12 15 8 16 24 — 9 106 9 5 12 17 26 132 $ — — — 1 12 13 — — 26 2 3 — 3 5 31 $ — — — 1 2 3 — — 4 — — 1 1 1 5 3 12 15 10 30 40 — 9 136 11 1 1 2 22 73 95 — — 206 1,602 336 1,938 1,758 6,711 8,469 805 1,487 44,038 1,606 349 1,955 1,790 6,814 8,604 805 1,496 44,380 36 1,784 (c) 1,831 8 13 21 32 $ 168 $ 30 1 31 67 273 1,620 710 2,330 4,114 $ 48,152 (c) 1,658 724 2,382 4,213 $ 48,593 36 $ 17 $ 4 $ 57 $ 81 $ 28,677 $ 28,815 — — — 9 27 36 — — 72 15 — — — 1 6 7 — — 24 3 — — — — 4 4 — 3 11 — — — — 10 37 47 — 3 107 18 20 1 21 51 105 156 — 4 262 1,427 314 1,741 1,617 6,967 8,584 845 1,320 41,167 1,447 315 1,762 1,678 7,109 8,787 845 1,327 41,536 53 1,626 (c) 1,697 $ $ 6 4 10 25 97 2 1 3 6 30 — 5 5 5 16 8 10 18 36 $ 143 33 2 35 88 350 1,476 708 2,184 3,810 $ 44,977 (c) 1,517 720 2,237 3,934 $ 45,470 Total loans (a) Primarily loans to real estate developers. (b) Primarily loans secured by owner-occupied real estate. (c) Included purchased credit-impaired (PCI) loans with a total carrying value of $2 million and $5 million at December 31, 2014 and 2013, $ $ $ $ respectively. F-70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The following table presents loans by credit quality indicator, based on internal risk ratings assigned to each business loan at the time of approval and subjected to subsequent reviews, generally at least annually, and to pools of retail loans with similar risk characteristics. (in millions) December 31, 2014 Business loans: Commercial Real estate construction: Commercial Real Estate business line (e) Other business lines (f) Total real estate construction Commercial mortgage: Commercial Real Estate business line (e) Other business lines (f) Total commercial mortgage Lease financing International Total business loans Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total retail loans Total loans December 31, 2013 Business loans: Commercial Real estate construction: Commercial Real Estate business line (e) Other business lines (f) Total real estate construction Commercial mortgage: Commercial Real Estate business line (e) Other business lines (f) Total commercial mortgage Lease financing International Total business loans Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total retail loans Pass (a) Internally Assigned Rating Special Mention (b) Substandard (c) Nonaccrual (d) Total $ 30,310 $ 560 $ 541 $ 109 $ 31,520 1,594 336 1,930 1,652 6,434 8,086 778 1,468 42,572 1,790 1,620 718 2,338 4,128 46,700 $ 11 7 18 69 138 207 26 15 826 2 — 3 3 5 831 $ — 5 5 47 169 216 1 13 776 3 8 2 10 13 789 $ 1 1 2 22 73 95 — — 206 36 30 1 31 67 273 $ 1,606 349 1,955 1,790 6,814 8,604 805 1,496 44,380 1,831 1,658 724 2,382 4,213 48,593 27,470 $ 590 $ 674 $ 81 $ 28,815 1,399 314 1,713 1,474 6,596 8,070 841 1,298 39,392 1,635 1,475 708 2,183 3,818 43,210 $ 13 — 13 92 145 237 3 7 850 3 4 3 7 10 860 $ 15 — 15 61 263 324 1 18 1,032 6 5 7 12 18 1,050 $ 20 1 21 51 105 156 — 4 262 53 33 2 35 88 350 $ 1,447 315 1,762 1,678 7,109 8,787 845 1,327 41,536 1,697 1,517 720 2,237 3,934 45,470 $ $ $ Total loans (a) (b) (c) Includes all loans not included in the categories of special mention, substandard or nonaccrual. Special mention loans are accruing loans that have potential credit weaknesses that deserve management’s close attention, such as loans to borrowers who may be experiencing financial difficulties that may result in deterioration of repayment prospects from the borrower at some future date. This category is generally consistent with the "special mention" category as defined by regulatory authorities. Substandard loans are accruing loans that have a well-defined weakness, or weaknesses, such as loans to borrowers who may be experiencing losses from operations or inadequate liquidity of a degree and duration that jeopardizes the orderly repayment of the loan. Substandard loans also are distinguished by the distinct possibility of loss in the future if these weaknesses are not corrected. PCI loans are included in the substandard category. This category is generally consistent with the "substandard" category as defined by regulatory authorities. (d) Nonaccrual loans are loans for which the accrual of interest has been discontinued. For further information regarding nonaccrual loans, refer to the Nonperforming Assets subheading in Note 1 - Basis of Presentation and Accounting Policies. A significant majority of nonaccrual loans are generally consistent with the "substandard" category and the remainder are generally consistent with the "doubtful" category as defined by regulatory authorities. (e) Primarily loans to real estate developers. (f) Primarily loans secured by owner-occupied real estate. F-71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The following table summarizes nonperforming assets. (in millions) Nonaccrual loans Reduced-rate loans (a) Total nonperforming loans Foreclosed property Total nonperforming assets (a) There were no reduced-rate business loans at December 31, 2014 and $4 million at December 31, 2013. Reduced-rate retail loans totaled December 31, 2014 273 $ 17 290 10 300 December 31, 2013 350 $ 24 374 9 383 $ $ $17 million and $20 million at December 31, 2014 and 2013, respectively. Allowance for Credit Losses The following table details the changes in the allowance for loan losses and related loan amounts. Business Loans 2014 Retail Loans Total Business Loans 2013 Retail Loans Total Business Loans 2012 Retail Loans (in millions) Years Ended December 31 Allowance for loan losses: Balance at beginning of period $ Loan charge-offs Recoveries on loans previously charged-off Net loan charge-offs Provision for loan losses Foreign currency translation adjustment 68 (19) 23 (1) Balance at end of period $ 534 $ $ 531 (87) 67 (15) $ 598 (102) $ $ 552 (130) 9 (6) (1) — 60 77 (25) 22 (1) 70 (60) 39 — $ 594 $ 531 $ 77 (23) 10 (13) 3 — 67 $ 629 (153) $ $ 648 (212) 80 (73) 42 — 598 $ 65 (147) 51 — $ 552 $ 78 (33) 10 (23) 22 — 77 Total $ $ 726 (245) 75 (170) 73 — 629 As a percentage of total loans 1.20% 1.43% 1.22% 1.28% 1.70% 1.32% 1.30% 2.10% 1.37% December 31 Allowance for loan losses: Individually evaluated for impairment $ 39 $ — $ 39 Collectively evaluated for impairment Total allowance for loan losses Loans: Individually evaluated for impairment Collectively evaluated for impairment PCI loans (a) Total loans evaluated for impairment 495 $ 534 $ 177 44,203 — 60 60 555 $ 594 42 $ 219 $ $ $ $ $ 57 $ — $ 57 $ 76 $ — $ 76 474 531 $ 67 67 223 $ 51 541 598 274 $ $ $ $ 476 552 $ 77 77 368 $ 51 553 629 419 $ $ 4,169 2 48,372 2 41,311 2 3,880 3 45,191 5 41,979 30 3,623 6 45,602 36 $44,380 $ 4,213 $48,593 $ 41,536 $ 3,934 $ 45,470 $ 42,377 $ 3,680 $ 46,057 (a) No allowance for loan losses was required for PCI loans at December 31, 2014, 2013 and 2012. Changes in the allowance for credit losses on lending-related commitments, included in "accrued expenses and other liabilities" on the consolidated balance sheets, are summarized in the following table. (in millions) Years Ended December 31 Balance at beginning of period Provision for credit losses on lending-related commitments Balance at end of period 2014 2013 2012 $ $ 36 5 41 $ $ 32 4 36 $ $ 26 6 32 F-72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Individually Evaluated Impaired Loans The following table presents additional information regarding individually evaluated impaired loans. (in millions) December 31, 2014 Business loans: Commercial Real estate construction: Other business lines (b) Commercial mortgage: Commercial Real Estate business line (a) Other business lines (b) Total commercial mortgage Total business loans Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total retail loans (c) Total individually evaluated impaired loans December 31, 2013 Business loans: Commercial Real estate construction: $ $ Commercial Real Estate business line (a) Other business lines (b) Total real estate construction Commercial mortgage: Commercial Real Estate business line (a) Other business lines (b) Total commercial mortgage International Total business loans Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total retail loans (c) Impaired Loans with No Related Allowance Recorded Investment In: Impaired Loans with Related Allowance Total Impaired Loans Unpaid Principal Balance Related Allowance for Loan Losses $ 7 $ 103 $ 110 $ 148 $ — — 4 4 11 25 12 5 17 42 53 $ 1 19 43 62 166 — — — — — 166 $ 1 19 47 66 177 25 12 5 17 42 219 $ 1 41 63 104 253 28 16 7 23 51 304 $ 10 $ 64 $ 74 $ 121 $ — — — — 1 1 — 11 35 20 1 21 60 63 123 4 212 — 20 1 21 60 64 124 4 223 35 24 1 25 104 90 194 4 344 42 12 4 16 51 62 — — — — 212 12 4 16 51 274 17 12 29 71 415 29 — 8 2 10 39 — — — — — 39 26 3 — 3 12 15 27 1 57 — — — — — 57 Total individually evaluated impaired loans (a) Primarily loans to real estate developers. (b) Primarily loans secured by owner-occupied real estate. (c) Individually evaluated retail loans had no related allowance for loan losses, primarily due to policy which results in direct write-downs of $ $ $ $ $ restructured retail loans. F-73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The following table presents information regarding average individually evaluated impaired loans and the related interest recognized. Interest income recognized for the period primarily related to reduced-rate loans. 2014 Individually Evaluated Impaired Loans 2013 2012 Average Balance for the Period Interest Income Recognized for the Period Average Balance for the Period Interest Income Recognized for the Period Average Balance for the Period Interest Income Recognized for the Period $ 77 $ 2 $ 99 $ 2 $ 195 $ 14 — 14 48 64 112 — 2 205 30 12 4 16 46 — — — — 2 2 — — 4 — — — — — 25 — 25 81 105 186 — 1 311 35 8 4 12 47 — — — — 3 3 — — 5 — — — — — 58 4 62 139 177 316 3 2 578 41 5 4 9 50 $ 251 $ 4 $ 358 $ 5 $ 628 $ 4 — — — — 4 4 — — 8 — — — — — 8 (in millions) Years Ended December 31 Business loans: Commercial Real estate construction: Commercial Real Estate business line (a) Other business lines (b) Total real estate construction Commercial mortgage: Commercial Real Estate business line (a) Other business lines (b) Total commercial mortgage Lease financing International Total business loans Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total retail loans Total individually evaluated impaired loans (a) Primarily loans to real estate developers. (b) Primarily loans secured by owner-occupied real estate. F-74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Troubled Debt Restructurings The following tables detail the recorded balance at December 31, 2014 and 2013 of loans considered to be TDRs that were restructured during the years ended December 31, 2014 and 2013, by type of modification. In cases of loans with more than one type of modification, the loans were categorized based on the most significant modification. 2014 Type of Modification Principal Deferrals (a) Interest Rate Reductions 2013 Type of Modification Total Modifications Principal Deferrals (a) Interest Rate Reductions AB Note Restructures (b) Total Modifications (in millions) Years Ended December 31 Business loans: Commercial Commercial mortgage: $ 22 $ — $ 22 $ 21 $ — $ 8 $ Commercial Real Estate business line (c) Other business lines (d) Total commercial mortgage Total business loans — 6 6 28 Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total retail loans Total loans 1 (e) 1 (e) 1 (e) 2 3 $ 31 $ — — — — — 3 — 3 3 3 $ — 6 6 28 1 4 1 5 6 34 32 8 40 61 3 (e) 7 (e) 2 (e) 9 12 $ 73 $ — — — — 2 2 — 2 4 4 $ — 11 11 19 — — — — — 19 $ 29 32 19 51 80 5 9 2 11 16 96 (a) Primarily represents loan balances where terms were extended 90 days or more at or above contractual interest rates. (b) Loan restructurings whereby the original loan is restructured into two notes: an "A" note, which generally reflects the portion of the modified loan which is expected to be collected; and a "B" note, which is either fully charged off or exchanged for an equity interest. (c) Primarily loans to real estate developers. (d) Primarily loans secured by owner-occupied real estate. (e) Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt. At December 31, 2014 and 2013, commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $3 million and $4 million, respectively. The majority of the modifications considered to be TDRs that occurred during the years ended December 31, 2014 and 2013 were principal deferrals. The Corporation charges interest on principal balances outstanding during deferral periods. Additionally, none of the modifications involved forgiveness of principal. As a result, the current and future financial effects of the recorded balance of loans considered to be TDRs that were restructured during the years ended December 31, 2014 and 2013 were insignificant. On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. In the event of a subsequent default, the allowance for loan losses continues to be reassessed on the basis of an individual evaluation of the loan. F-75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The following table presents information regarding the recorded balance at December 31, 2014 and 2013 of loans modified by principal deferral during the years ended December 31, 2014 and 2013, and those principal deferrals which experienced a subsequent default during the same periods. For principal deferrals, incremental deterioration in the credit quality of the loan, represented by a downgrade in the risk rating of the loan, for example, due to missed interest payments or a reduction of collateral value, is considered a subsequent default. (in millions) Principal deferrals: Business loans: Commercial Commercial mortgage: Commercial Real Estate business line (a) Other business lines (b) Total commercial mortgage Total business loans Retail loans: Residential mortgage Consumer: Home equity Other consumer Total consumer Total retail loans Total principal deferrals 2014 2013 Balance at December 31 Subsequent Default in the Year Ended December 31 Balance at December 31 Subsequent Default in the Year Ended December 31 $ 1 $ $ $ 22 — 6 6 28 1 (c) 1 (c) 1 (c) 2 3 31 $ 21 32 8 40 61 3 (c) 7 (c) 2 (c) 9 12 73 $ $ 11 19 5 24 35 — — — — — 35 — 2 2 3 — — — — — 3 $ (a) Primarily loans to real estate developers. (b) Primarily loans secured by owner-occupied real estate. (c) Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt. During the years ended December 31, 2014 and 2013, loans with a carrying value of $3 million and $4 million at December 31, 2014 and 2013, respectively, were modified by interest rate reduction and loans with a carrying value of $19 million at December 31, 2013, were restructured into two notes (AB note restructures). For reduced-rate loans and AB note restructures, a subsequent payment default is defined in terms of delinquency, when a principal or interest payment is 90 days past due. There were no subsequent payment defaults of reduced rate loans or AB note restructures during the years ended December 31, 2014 and 2013. Purchased Credit-Impaired Loans Acquired loans are initially recorded at fair value with no carryover of any allowance for loan losses. Loans acquired with evidence of credit quality deterioration at acquisition for which it was probable that the Corporation would not be able to collect all contractual amounts due were accounted for as PCI loans. The Corporation aggregated the acquired PCI loans into pools of loans based on common risk characteristics. No allowance for loan losses was required on the acquired PCI loan pools at both December 31, 2014 and 2013. The carrying amount of acquired PCI loans included in the consolidated balance sheet and the related outstanding balance at December 31, 2014 and 2013 were as follows. (in millions) December 31 Acquired PCI loans: Carrying amount Outstanding balance (principal and unpaid interest) 2014 2013 $ $ 2 8 5 46 F-76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Changes in the accretable yield for acquired PCI loans for the years ended December 31, 2014 and 2013 were as follows. (in millions) Years Ended December 31 Balance at beginning of period Reclassifications from nonaccretable Accretion Balance at end of period 2014 2013 $ $ 15 12 (26) 1 $ $ 16 28 (29) 15 NOTE 5 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK Concentrations of credit risk may exist when a number of borrowers are engaged in similar activities, or activities in the same geographic region, and have similar economic characteristics that would cause them to be similarly impacted by changes in economic or other conditions. Concentrations of both on-balance sheet and off-balance sheet credit risk are controlled and monitored as part of credit policies. The Corporation is a regional financial services holding company with a geographic concentration of its on-balance-sheet and off-balance-sheet activities in Michigan, California and Texas. As outlined below, the Corporation has a concentration of credit risk with the automotive industry. Loans to automotive dealers and to borrowers involved with automotive production are reported as automotive, as management believes these loans have similar economic characteristics that might cause them to react similarly to changes in economic conditions. This aggregation involves the exercise of judgment. Included in automotive production are: (a) original equipment manufacturers and Tier 1 and Tier 2 suppliers that produce components used in vehicles and whose primary revenue source is automotive-related (“primary” defined as greater than 50%) and (b) other manufacturers that produce components used in vehicles and whose primary revenue source is automotive-related. Loans less than $1 million and loans recorded in the Small Business loan portfolio were excluded from the definition. Outstanding loans, included in "commercial loans" on the consolidated balance sheets, and total exposure from loans, unused commitments and standby letters of credit to companies related to the automotive industry were as follows: (in millions) December 31 Automotive loans: Production Dealer Total automotive loans Total automotive exposure: Production Dealer Total automotive exposure 2014 2013 $ $ $ $ 1,236 6,431 7,667 2,408 7,763 10,171 $ $ $ $ 1,229 5,854 7,083 2,316 6,857 9,173 Further, the Corporation’s portfolio of commercial real estate loans, which includes real estate construction and commercial mortgage loans, was as follows. (in millions) December 31 Real estate construction loans: Commercial Real Estate business line (a) Other business lines (b) Total real estate construction loans Commercial mortgage loans: Commercial Real Estate business line (a) Other business lines (b) Total commercial mortgage loans Total commercial real estate loans Total unused commitments on commercial real estate loans (a) Primarily loans to real estate developers. (b) Primarily loans secured by owner-occupied real estate. F-77 2014 2013 $ $ $ 1,606 349 1,955 1,790 6,814 8,604 10,559 2,335 $ $ $ 1,447 315 1,762 1,678 7,109 8,787 10,549 1,780 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 6 - PREMISES AND EQUIPMENT A summary of premises and equipment by major category follows: (in millions) December 31 Land Buildings and improvements Furniture and equipment Total cost Less: Accumulated depreciation and amortization Net book value 2014 2013 $ $ 88 808 508 1,404 (872) 532 $ $ 90 830 515 1,435 (841) 594 The Corporation conducts a portion of its business from leased facilities and leases certain equipment. Rental expense for leased properties and equipment amounted to $89 million, $78 million and $81 million in 2014, 2013 and 2012, respectively. Rental expense in 2014 included approximately $10 million of lease termination charges. As of December 31, 2014, future minimum rental payments under operating leases were as follows: (in millions) Years Ending December 31 2015 2016 2017 2018 2019 Thereafter Total $ $ 73 67 58 51 42 182 473 NOTE 7 - GOODWILL AND CORE DEPOSIT INTANGIBLES The following table summarizes the carrying value of goodwill for the years ended December 31, 2014, 2013 and 2012. (in millions) December 31 Business Bank Retail Bank Wealth Management Total 2014 2013 2012 $ $ 380 $ 194 61 635 $ 380 $ 194 61 635 $ 380 194 61 635 The Corporation performs its annual evaluation of goodwill impairment in the third quarter of each year and on an interim basis if events or changes in circumstances between annual tests indicate goodwill might be impaired. In 2014 and 2013, the annual test of goodwill impairment was performed as of the beginning of the third quarter. At the conclusion of the first step of the annual and interim goodwill impairment tests performed in 2014 and 2013 the estimated fair values of all reporting units exceeded their carrying amounts, including goodwill, indicating that goodwill was not impaired. There have been no events since the annual test performed in the third quarter 2014 that would indicate that it was more likely than not that goodwill had become impaired. A summary of core deposit intangible carrying value and related accumulated amortization follows: (in millions) December 31 Gross carrying amount Accumulated amortization Net carrying amount 2014 2013 $ $ 34 (21) 13 $ $ 34 (18) 16 The Corporation recorded amortization expense related to the core deposit intangible of $3 million and $4 million for the years ended December 31, 2014 and 2013, respectively. At December 31, 2014, estimated future amortization expense was as follows: F-78 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries (in millions) Years Ending December 31 2015 2016 2017 2018 2019 Thereafter Total $ $ 3 2 2 2 1 3 13 NOTE 8 - DERIVATIVE AND CREDIT-RELATED FINANCIAL INSTRUMENTS In the normal course of business, the Corporation enters into various transactions involving derivative and credit-related financial instruments to manage exposure to fluctuations in interest rate, foreign currency and other market risks and to meet the financing needs of customers (customer-initiated derivatives). These financial instruments involve, to varying degrees, elements of market and credit risk. Market and credit risk are included in the determination of fair value. Market risk is the potential loss that may result from movements in interest rates, foreign currency exchange rates or energy commodity prices that cause an unfavorable change in the value of a financial instrument. The Corporation manages this risk by establishing monetary exposure limits and monitoring compliance with those limits. Market risk inherent in interest rate and energy contracts entered into on behalf of customers is mitigated by taking offsetting positions, except in those circumstances when the amount, tenor and/or contract rate level results in negligible economic risk, whereby the cost of purchasing an offsetting contract is not economically justifiable. The Corporation mitigates most of the inherent market risk in foreign exchange contracts entered into on behalf of customers by taking offsetting positions and manages the remainder through individual foreign currency position limits and aggregate value-at-risk limits. These limits are established annually and reviewed quarterly. Market risk inherent in derivative instruments held or issued for risk management purposes is typically offset by changes in the fair value of the assets or liabilities being hedged. Credit risk is the possible loss that may occur in the event of nonperformance by the counterparty to a financial instrument. The Corporation attempts to minimize credit risk arising from customer-initiated derivatives by evaluating the creditworthiness of each customer, adhering to the same credit approval process used for traditional lending activities and obtaining collateral as deemed necessary. Derivatives with dealer counterparties are either cleared through a clearinghouse or settled directly with a single counterparty. For derivatives settled directly with dealer counterparties, the Corporation utilizes counterparty risk limits and monitoring procedures as well as master netting arrangements and bilateral collateral agreements to facilitate the management of credit risk. Master netting arrangements effectively reduce credit risk by permitting settlement of positive and negative positions and offset cash collateral held with the same counterparty on a net basis. Bilateral collateral agreements require daily exchange of cash or highly rated securities issued by the U.S. Treasury or other U.S. government entities to collateralize amounts due to either party beyond certain risk limits. At December 31, 2014, counterparties with bilateral collateral agreements had pledged $245 million of marketable investment securities and deposited $264 million of cash with the Corporation to secure the fair value of contracts in an unrealized gain position, and the Corporation had pledged $2 million of investment securities as collateral for contracts in an unrealized loss position. For those counterparties not covered under bilateral collateral agreements, collateral is obtained, if deemed necessary, based on the results of management’s credit evaluation of the counterparty. Collateral varies, but may include cash, investment securities, accounts receivable, equipment or real estate. Included in the fair value of derivative instruments are credit valuation adjustments reflecting counterparty credit risk. These adjustments are determined by applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the derivative. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on December 31, 2014 was $6 million, for which the Corporation had pledged collateral of $2 million in the normal course of business. The credit-risk-related contingent features require the Corporation’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the Corporation’s debt were to fall below investment grade, the counterparties to the derivative instruments could require additional overnight collateral on derivative instruments in net liability positions. If the credit-risk-related contingent features underlying these agreements had been triggered on December 31, 2014, the Corporation would have been required to assign an additional $4 million of collateral to its counterparties. Derivative Instruments Derivative instruments utilized by the Corporation are negotiated over-the-counter and primarily include swaps, caps and floors, forward contracts and options, each of which may relate to interest rates, energy commodity prices or foreign currency exchange rates. Swaps are agreements in which two parties periodically exchange cash payments based on specified indices applied to a specified notional amount until a stated maturity. Caps and floors are agreements which entitle the buyer to receive cash F-79 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries payments based on the difference between a specified reference rate or price and an agreed strike rate or price, applied to a specified notional amount until a stated maturity. Forward contracts are over-the-counter agreements to buy or sell an asset at a specified future date and price. Options are similar to forward contracts except the purchaser has the right, but not the obligation, to buy or sell the asset during a specified period or at a specified future date. Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, contain a greater degree of credit risk and liquidity risk than exchange-traded contracts, which have standardized terms and readily available price information. The Corporation reduces exposure to market and liquidity risks from over-the-counter derivative instruments entered into for risk management purposes, and transactions entered into to mitigate the market risk associated with customer-initiated transactions, by conducting hedging transactions with investment grade domestic and foreign financial institutions and subjecting counterparties to credit approvals, limits and collateral monitoring procedures similar to those used in making other extensions of credit. In addition, certain derivative contracts executed bilaterally with a dealer counterparty in the over-the-counter market are cleared through a clearinghouse, whereby the clearinghouse becomes the counterparty to the transaction. F-80 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The following table presents the composition of the Corporation’s derivative instruments held or issued for risk management purposes or in connection with customer-initiated and other activities at December 31, 2014 and 2013. The table excludes commitments, warrants accounted for as derivatives and a derivative related to the Corporation’s 2008 sale of its remaining ownership of Visa shares. (in millions) Risk management purposes Derivatives designated as hedging instruments Interest rate contracts: Swaps - fair value - receive fixed/ pay floating Derivatives used as economic hedges Foreign exchange contracts: Spot, forwards and swaps Total risk management purposes Customer-initiated and other activities Interest rate contracts: Caps and floors written Caps and floors purchased Swaps Total interest rate contracts Energy contracts: Caps and floors written Caps and floors purchased Swaps Total energy contracts Foreign exchange contracts: $ Spot, forwards, options and swaps Total customer-initiated and other activities Total gross derivatives Amounts offset in the consolidated balance sheets: Netting adjustment - Offsetting derivative assets/liabilities Netting adjustment - Cash collateral received/posted Net derivatives included in the consolidated balance sheets (b) Amounts not offset in the consolidated balance sheets: Marketable securities pledged under bilateral collateral agreements Net derivatives after deducting amounts not offset in the consolidated balance sheets December 31, 2014 Fair Value December 31, 2013 Fair Value Notional/ Contract Amount (a) Gross Derivative Assets Gross Derivative Liabilities Notional/ Contract Amount (a) Gross Derivative Assets Gross Derivative Liabilities $ 1,800 $ 175 $ — $ 1,450 $ 198 $ — 508 2,308 274 274 11,780 12,328 1,218 1,218 2,496 4,932 1,994 19,254 21,562 4 179 — — 153 153 — 173 354 527 35 715 894 — — — — 102 102 173 — 352 525 34 661 661 $ 253 1,703 277 277 11,143 11,697 1,325 1,325 2,724 5,374 1,764 18,835 20,538 1 199 — 1 181 182 1 48 56 105 14 301 500 — — 1 — 132 133 48 1 53 102 14 249 249 (133) (262) 499 (133) — 528 (187) (187) (2) 311 (10) 52 (239) (2) (138) (10) $ 260 $ 526 $ 173 $ 42 (a) Notional or contractual amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the consolidated balance sheets. (b) Net derivative assets are included in “accrued income and other assets” and net derivative liabilities are included in “accrued expenses and other liabilities” on the consolidated balance sheets. Included in the fair value of net derivative assets and net derivative liabilities are credit valuation adjustments reflecting counterparty credit risk and credit risk of the Corporation. The fair value of net derivative assets included credit valuation adjustments for counterparty credit risk of $2 million at both December 31, 2014 and 2013. Risk Management As an end-user, the Corporation employs a variety of financial instruments for risk management purposes, including cash instruments, such as investment securities, as well as derivative instruments. Activity related to these instruments is centered predominantly in the interest rate markets and mainly involves interest rate swaps. Various other types of instruments also may F-81 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries be used to manage exposures to market risks, including interest rate caps and floors, total return swaps, foreign exchange forward contracts and foreign exchange swap agreements. The Corporation entered into interest rate swap agreements related to medium- and long-term debt for interest rate risk management purposes. These interest rate swap agreements effectively modify the Corporation’s exposure to interest rate risk by converting fixed-rate debt to a floating rate. These agreements involve the receipt of fixed-rate interest amounts in exchange for floating-rate interest payments over the life of the agreement, without an exchange of the underlying principal amount. Risk management fair value interest rate swaps generated net interest income of $72 million for each of the years ended December 31, 2014 and 2013. The Corporation recognized an insignificant amount of gain for the year ended December 31, 2014 and an insignificant amount of loss for the year ended December 31, 2013 in "other noninterest income" in the consolidated statements of income for the ineffective portion of risk management derivative instruments designated as fair value hedges of fixed-rate debt. Foreign exchange rate risk arises from changes in the value of certain assets and liabilities denominated in foreign currencies. The Corporation employs spot and forward contracts in addition to swap contracts to manage exposure to these and other risks. The Corporation recognized an insignificant amount of net gains for the year ended December 31, 2014 and an insignificant amount of net losses for the year ended December 31, 2013 on risk management derivative instruments used as economic hedges in "other noninterest income" in the consolidated statements of income. The following table summarizes the expected weighted average remaining maturity of the notional amount of risk management interest rate swaps and the weighted average interest rates associated with amounts expected to be received or paid on interest rate swap agreements as of December 31, 2014 and 2013. (dollar amounts in millions) December 31, 2014 Swaps - fair value - receive fixed/pay floating rate Weighted Average Notional Amount Remaining Maturity (in years) Receive Rate Pay Rate (a) Medium- and long-term debt designation $ 1,800 December 31, 2013 Swaps - fair value - receive fixed/pay floating rate Medium- and long-term debt designation 1,450 4.6 3.4 4.54% 0.49% 5.45 0.38 (a) Variable rates paid on receive fixed swaps are based on six-month LIBOR rates in effect at December 31, 2014 and 2013. Management believes these hedging strategies achieve the desired relationship between the rate maturities of assets and funding sources which, in turn, reduce the overall exposure of net interest income to interest rate risk, although there can be no assurance that such strategies will be successful. Customer-Initiated and Other The Corporation enters into derivative transactions at the request of customers and generally takes offsetting positions with dealer counterparties to mitigate the inherent market risk. Income primarily results from the spread between the customer derivative and the offsetting dealer position. For customer-initiated foreign exchange contracts where offsetting positions have not been taken, the Corporation manages the remaining inherent market risk through individual foreign currency position limits and aggregate value-at-risk limits. These limits are established annually and reviewed quarterly. For those customer-initiated derivative contracts which were not offset or where the Corporation holds a speculative position within the limits described above, the Corporation recognized $1 million of net gains in “other noninterest income” in the consolidated statements of income for each of the years ended December 31, 2014 and 2013. F-82 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Fair values of customer-initiated and other derivative instruments represent the net unrealized gains or losses on such contracts and are recorded in the consolidated balance sheets. Changes in fair value are recognized in the consolidated statements of income. The net gains recognized in income on customer-initiated derivative instruments, net of the impact of offsetting positions, were as follows. (in millions) Years Ended December 31 Interest rate contracts Energy contracts Foreign exchange contracts Total Location of Gain 2014 2013 Other noninterest income $ Other noninterest income Foreign exchange income $ 20 2 38 60 $ $ 22 3 35 60 Credit-Related Financial Instruments The Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The Corporation’s credit risk associated with these instruments is represented by the contractual amounts indicated in the following table. (in millions) December 31 Unused commitments to extend credit: Commercial and other Bankcard, revolving check credit and home equity loan commitments Total unused commitments to extend credit Standby letters of credit Commercial letters of credit Other credit-related financial instruments 2014 2013 $ $ $ $ $ $ 27,905 2,151 30,056 3,880 75 1 27,728 1,889 29,617 4,297 103 2 The Corporation maintains an allowance to cover probable credit losses inherent in lending-related commitments, including unused commitments to extend credit, letters of credit and financial guarantees. At December 31, 2014 and 2013, the allowance for credit losses on lending-related commitments, included in “accrued expenses and other liabilities” on the consolidated balance sheets, was $41 million and $36 million, respectively. Unused Commitments to Extend Credit Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Corporation. Commercial and other unused commitments are primarily variable rate commitments. The allowance for credit losses on lending-related commitments included $30 million and $28 million at December 31, 2014 and 2013, respectively, for probable credit losses inherent in the Corporation’s unused commitments to extend credit. Standby and Commercial Letters of Credit Standby letters of credit represent conditional obligations of the Corporation which guarantee the performance of a customer to a third party. Standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Commercial letters of credit are issued to finance foreign or domestic trade transactions. These contracts expire in decreasing amounts through the year 2022. The Corporation may enter into participation arrangements with third parties that effectively reduce the maximum amount of future payments which may be required under standby and commercial letters of credit. These risk participations covered $316 million and $259 million, respectively, of the $4.0 billion and $4.4 billion standby and commercial letters of credit outstanding at December 31, 2014 and 2013, respectively. The carrying value of the Corporation’s standby and commercial letters of credit, included in “accrued expenses and other liabilities” on the consolidated balance sheets, totaled $55 million at December 31, 2014, including $44 million in deferred fees and $11 million in the allowance for credit losses on lending-related commitments. At December 31, 2013, the comparable amounts were $59 million, $51 million and $8 million, respectively. The following table presents a summary of criticized standby and commercial letters of credit at December 31, 2014 and December 31, 2013. The Corporation's criticized list is consistent with the Special mention, Substandard and Doubtful categories F-83 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries defined by regulatory authorities. The Corporation manages credit risk through underwriting, periodically reviewing and approving its credit exposures using Board committee approved credit policies and guidelines. (dollar amounts in millions) Total criticized standby and commercial letters of credit As a percentage of total outstanding standby and commercial letters of credit December 31, 2014 79 $ 2.0% December 31, 2013 69 $ 1.6% Other Credit-Related Financial Instruments The Corporation enters into credit risk participation agreements, under which the Corporation assumes credit exposure associated with a borrower’s performance related to certain interest rate derivative contracts. The Corporation is not a party to the interest rate derivative contracts and only enters into these credit risk participation agreements in instances in which the Corporation is also a party to the related loan participation agreement for such borrowers. The Corporation manages its credit risk on the credit risk participation agreements by monitoring the creditworthiness of the borrowers, which is based on the normal credit review process had it entered into the derivative instruments directly with the borrower. The notional amount of such credit risk participation agreement reflects the pro-rata share of the derivative instrument, consistent with its share of the related participated loan. As of December 31, 2014 and 2013, the total notional amount of the credit risk participation agreements was approximately $598 million and $614 million, respectively, and the fair value, included in customer-initiated interest rate contracts recorded in "accrued expenses and other liabilities" on the consolidated balance sheets, was insignificant for each period. The maximum estimated exposure to these agreements, as measured by projecting a maximum value of the guaranteed derivative instruments, assuming 100 percent default by all obligors on the maximum values, was approximately $7 million at both December 31, 2014 and 2013. In the event of default, the lead bank has the ability to liquidate the assets of the borrower, in which case the lead bank would be required to return a percentage of the recouped assets to the participating banks. As of December 31, 2014, the weighted average remaining maturity of outstanding credit risk participation agreements was 2.9 years. In 2008, the Corporation sold its remaining ownership of Visa Class B shares and entered into a derivative contract. Under the terms of the derivative contract, the Corporation will compensate the counterparty primarily for dilutive adjustments made to the conversion factor of the Visa Class B shares to Class A shares based on the ultimate outcome of litigation involving Visa. Conversely, the Corporation will be compensated by the counterparty for any increase in the conversion factor from anti- dilutive adjustments. The notional amount of the derivative contract was equivalent to approximately 780,000 Visa Class B shares. The fair value of the derivative liability, included in "accrued expenses and other liabilities" on the consolidated balance sheets, was $1 million and $2 million at December 31, 2014 and 2013, respectively. NOTE 9 - VARIABLE INTEREST ENTITIES (VIEs) The Corporation evaluates its interest in certain entities to determine if these entities meet the definition of a VIE and whether the Corporation is the primary beneficiary and should consolidate the entity based on the variable interests it held both at inception and when there is a change in circumstances that requires a reconsideration. The Corporation holds ownership interests in funds in the form of limited partnerships or limited liability companies (LLCs) investing in affordable housing projects that qualify for the LIHTC. The Corporation also directly invests in limited partnerships and LLCs which invest in community development projects which generate similar tax credits to investors. As an investor, the Corporation obtains income tax credits and deductions from the operating losses of these tax credit entities. These tax credit entities meet the definition of a VIE; however, the Corporation is not the primary beneficiary of the entities, as the general partner or the managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. While the partnership/LLC agreements allow the limited partners/investor members, through a majority vote, to remove the general partner/ managing member, this right is not deemed to be substantive as the general partner/managing member can only be removed for cause. The Corporation accounts for its interests in LIHTC entities using the proportional amortization method. Exposure to loss as a result of the Corporation’s involvement with LIHTC entities at December 31, 2014 was limited to approximately $389 million. Ownership interests in other community development projects which generate similar tax credits to investors (other tax credit entities) are accounted for under either the cost or equity method. Exposure to loss as a result of the Corporation's involvement in other tax credit entities at December 31, 2014 was limited to approximately $8 million. Investment balances, including all legally binding commitments to fund future investments, are included in “accrued income and other assets” on the consolidated balance sheets. A liability is recognized in “accrued expenses and other liabilities” on the consolidated balance sheets for all legally binding unfunded commitments to fund tax credit entities ($130 million at December 31, 2014). Amortization and other write-downs of LIHTC investments are presented on a net basis as a component of F-84 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries the "provision for income taxes" on the consolidated statements of income, while amortization and write-downs of other tax credit investments are recorded in “other noninterest income." The income tax credits and deductions are recorded as a reduction of income tax expense and a reduction of federal income taxes payable. The Corporation provided no financial or other support that was not contractually required to any of the above VIEs during the years ended December 31, 2014, 2013 and 2012. The following table summarizes the impact of these tax credit entities on line items on the Corporation’s consolidated statements of income. (in millions) Years Ended December 31 Other noninterest income: Amortization of other tax credit investments Provision for income taxes: Amortization of LIHTC Investments Low income housing tax credits Other tax benefits related to tax credit entities Total provision for income taxes 2014 2013 2012 $ $ (5) $ 60 (59) (28) (27) $ (1) $ 56 (56) (21) (21) $ (6) 52 (53) (24) (25) For further information on the Corporation’s consolidation policy, see Note 1. NOTE 10 - DEPOSITS At December 31, 2014, the scheduled maturities of certificates of deposit and other deposits with a stated maturity were as follows: (in millions) Years Ending December 31 2015 2016 2017 2018 2019 Thereafter Total A maturity distribution of domestic certificates of deposit of $100,000 and over follows: (in millions) December 31 Three months or less Over three months to six months Over six months to twelve months Over twelve months Total 2014 822 456 733 795 2,806 $ $ $ $ $ $ 3,447 717 182 76 80 54 4,556 2013 1,088 544 1,065 570 3,267 The aggregate amount of domestic certificates of deposit that meet or exceed the current FDIC insurance limit of $250,000 was $2.0 billion and $2.4 billion at December 31, 2014 and 2013, respectively. All foreign office time deposits of $135 million and $349 million at December 31, 2014 and 2013, respectively, were in denominations of $250,000 or more. NOTE 11 - SHORT-TERM BORROWINGS Federal funds purchased and securities sold under agreements to repurchase generally mature within one to four days from the transaction date. Other short-term borrowings, which may consist of commercial paper, borrowed securities, term federal funds purchased, short-term notes, and treasury tax and loan deposits generally mature within one to 120 days from the transaction date. F-85 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries At December 31, 2014, Comerica Bank (the Bank), a subsidiary of the Corporation, had pledged loans totaling $25 billion which provided for up to $19 billion of available collateralized borrowing with the FRB. The following table provides a summary of short-term borrowings. (dollar amounts in millions) December 31, 2014 Amount outstanding at year-end Weighted average interest rate at year-end Maximum month-end balance during the year Average balance outstanding during the year Weighted average interest rate during the year December 31, 2013 Amount outstanding at year-end Weighted average interest rate at year-end Maximum month-end balance during the year Average balance outstanding during the year Weighted average interest rate during the year December 31, 2012 Amount outstanding at year-end Weighted average interest rate at year-end Maximum month-end balance during the year Average balance outstanding during the year Weighted average interest rate during the year Federal Funds Purchased and Securities Sold Under Agreements to Repurchase Other Short-term Borrowings $ $ $ $ $ $ $ $ $ $ $ $ 116 0.04% 238 200 0.04% 253 0.05 % 277 211 0.07 % 87 0.11 % 87 76 0.12 % — —% — — —% — — % — — — % 23 — % 23 — — % F-86 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 12 - MEDIUM- AND LONG-TERM DEBT Medium- and long-term debt is summarized as follows: (in millions) December 31 Parent company Subordinated notes: 2014 2013 4.80% subordinated notes due 2015 (a) 3.80% subordinated notes due 2026 (a) $ $ 304 259 Medium-term notes: 3.00% notes due 2015 2.125% notes due 2019 (a) Total parent company Subsidiaries Subordinated notes: 5.70% subordinated notes due 2014 (a) 8.375% subordinated notes called 2014 5.75% subordinated notes due 2016 (a) 5.20% subordinated notes due 2017 (a) 7.875% subordinated notes due 2026 (a) Total subordinated notes Federal Home Loan Bank advances: Floating-rate based on LIBOR indices due 2014 Other notes: 6.0% - 6.4% fixed-rate notes due 2013 to 2020 318 — 299 — 617 255 183 681 566 213 1,898 1,000 28 2,926 3,543 300 349 1,212 — — 670 548 227 1,445 — 22 1,467 2,679 Total subsidiaries Total medium- and long-term debt (a) The carrying value of medium- and long-term debt has been adjusted to reflect the gain attributable to the risk hedged with $ $ interest rate swaps. Subordinated notes with remaining maturities greater than one year qualify as Tier 2 capital. The Bank is a member of the FHLB, which provides short- and long-term funding to its members through advances collateralized by real-estate related assets. Actual borrowing capacity is contingent upon the amount of collateral available to be pledged to the FHLB. At December 31, 2014, $14 billion of real estate-related loans were pledged to the FHLB as blanket collateral for potential future borrowings of approximately $6 billion. In the second quarter 2014, the Corporation issued $350 million of 2.125% senior notes due 2019, which were swapped to a floating rate based on six-month LIBOR. Proceeds were used for general corporate purposes. In the third quarter 2014, the Corporation issued $250 million of 3.80% subordinated notes due 2026, which were swapped to a floating rate based on six-month LIBOR. Proceeds were used for general corporate purposes. Also in the third quarter 2014, the Corporation exercised its option to redeem, at par, $150 million of 8.375% subordinated notes, originally due in 2024. A gain of $32 million was recognized on the early redemption, primarily from the recognition of the unamortized value of a related, previously terminated interest rate swap. At December 31, 2014, the principal maturities of medium- and long-term debt were as follows: (in millions) Years Ending December 31 2015 2016 2017 2018 2019 Thereafter Total F-87 $ $ 606 650 500 2 357 407 2,522 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 13 - SHAREHOLDERS’ EQUITY The Federal Reserve completed its 2014 Comprehensive Capital Analysis and Review (CCAR) of the Corporation's 2014-2015 capital plan in March 2014 and did not object to the capital distributions contemplated in the plan. The capital plan provides for up to $236 million of equity repurchases for the four-quarter period ending March 31, 2015. At December 31, 2014, up to $59 million remained available for share repurchases under the capital plan. Repurchases of common stock under the share repurchase program authorized by the Board of Directors of the Corporation in 2010 totaled 5.2 million shares at an average price paid of $47.91 per share, 7.4 million shares at an average price paid of $38.63 per share and 10.1 million shares at an average price paid of $30.21 per share in 2014, 2013 and 2012, respectively. There is no expiration date for the Corporation's share repurchase program. At December 31, 2014, the Corporation had 13.2 million warrants outstanding to purchase 11.2 million common shares at a weighted-average exercise price of $29.45. Outstanding warrants were exercisable at the date of grant and expire in 2018. Approximately 361 thousand shares of common stock were issued upon exercise of warrants in 2014. There were no warrant exercises in 2013 and 2012. At December 31, 2014, the Corporation had 11.2 million shares of common stock reserved for warrant exercises, 14.7 million shares of common stock reserved for stock option exercises and restricted stock unit vesting and 2.1 million shares of restricted stock outstanding to employees and directors under share-based compensation plans. F-88 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE LOSS The following table presents a reconciliation of the changes in the components of accumulated other comprehensive loss and details the components of other comprehensive income (loss) for the years ended December 31, 2014, 2013 and 2012, including the amount of income tax expense (benefit) allocated to each component of other comprehensive income (loss). (in millions) Years Ended December 31 Accumulated net unrealized gains (losses) on investment securities available- for-sale: Balance at beginning of period, net of tax Net unrealized holding gains (losses) arising during the period Less: Provision (benefit) for income taxes Net unrealized holding gains (losses) arising during the period, net of tax Less: Net realized gains included in net securities gains Less: Provision for income taxes Reclassification adjustment for net securities gains included in net income, net of tax Change in net unrealized gains (losses) on investment securities available-for- sale, net of tax Balance at end of period, net of tax Accumulated defined benefit pension and other postretirement plans adjustment: Balance at beginning of period, net of tax Actuarial (loss) gain arising during the period Less: (Benefit) provision for income taxes Net defined benefit pension and other postretirement adjustment arising during the period, net of tax Amounts recognized in salaries and benefits expense: Amortization of actuarial net loss Amortization of prior service cost Amortization of transition obligation Total amounts recognized in salaries and benefits expense Less: Benefit for income taxes Adjustment for amounts recognized as components of net periodic benefit cost during the period, net of tax Change in defined benefit pension and other postretirement plans adjustment, net of tax Balance at end of period, net of tax Total accumulated other comprehensive loss at end of period, net of tax 2014 2013 2012 $ (68) $ 150 $ 129 166 60 106 1 — 1 (343) (126) (217) 1 — 1 105 37 $ (218) (68) $ (323) $ (563) $ (240) (87) (153) 39 3 — 42 15 27 286 103 183 89 2 — 91 34 57 48 18 30 14 5 9 21 150 (485) (192) (70) (122) 62 3 4 69 25 44 (126) (449) $ (412) $ 240 (323) $ (391) $ (78) (563) (413) $ $ $ $ F-89 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 15 - NET INCOME PER COMMON SHARE Basic and diluted net income per common share are presented in the following table. (in millions, except per share data) Years Ended December 31 Basic and diluted Net income Less income allocated to participating securities Net income attributable to common shares Basic average common shares Basic net income per common share Basic average common shares Dilutive common stock equivalents: Net effect of the assumed exercise of stock options Net effect of the assumed exercise of warrants Diluted average common shares Diluted net income per common share 2014 2013 2012 $ $ $ $ $ $ 593 7 586 179 $ $ 541 8 533 183 3.28 $ 2.92 $ 179 2 4 185 183 1 3 187 3.16 $ 2.85 $ 521 6 515 191 2.68 191 1 — 192 2.67 The following average shares related to outstanding options and warrants to purchase shares of common stock were not included in the computation of diluted net income per common share because the prices of the options and warrants were greater than the average market price of common shares for the period. (shares in millions) Years Ended December 31 Average outstanding options Range of exercise prices Average outstanding warrants Exercise price 2014 7.2 $47.24 - 61.94 — — 2013 10.8 $34.78 - $61.94 — — 2012 16.0 $29.81 - $64.50 0.3 $30.36 NOTE 16 - SHARE-BASED COMPENSATION Share-based compensation expense is charged to “salaries and benefits” expense on the consolidated statements of income. The components of share-based compensation expense for all share-based compensation plans and related tax benefits are as follows. (in millions) Years Ended December 31 Total share-based compensation expense Related tax benefits recognized in net income 2014 2013 2012 $ $ 38 14 $ $ 35 13 $ $ 37 13 The following table summarizes unrecognized compensation expense for all share-based plans: (dollar amounts in millions) Total unrecognized share-based compensation expense Weighted-average expected recognition period (in years) December 31, 2014 $ 53 2.7 The Corporation has share-based compensation plans under which it awards shares of restricted stock and restricted stock units to key executive officers, directors and key personnel, and stock options to executive officers and key personnel of the Corporation and its subsidiaries. Restricted stock vests over periods ranging from three years to five years, restricted stock units vest over periods ranging from one year to four years, and stock options vest over periods ranging from one year to four years. The maturity of each option is determined at the date of grant; however, no options may be exercised later than ten years from the date of grant. The options may have restrictions regarding exercisability. The plans originally provided for a grant of up to 17.9 F-90 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries million common shares, plus shares under certain plans that are forfeited, expire or are canceled. At December 31, 2014, 9.0 million shares were available for grant. The Corporation used a binomial model to value stock options granted in the periods presented. Option valuation models require several inputs, including the expected stock price volatility, and changes in input assumptions can materially affect the fair value estimates. The model used may not necessarily provide a reliable single measure of the fair value of employee and director stock options. The risk-free interest rate assumption used in the binomial option-pricing model as outlined in the table below was based on the federal ten-year treasury interest rate. The expected dividend yield was based on the historical and projected dividend yield patterns of the Corporation’s common shares. Expected volatility assumptions considered both the historical volatility of the Corporation’s common stock over a ten-year period and implied volatility based on actively traded options on the Corporation’s common stock with pricing terms and trade dates similar to the stock options granted. The estimated weighted-average grant-date fair value per option and the underlying binomial option-pricing model assumptions are summarized in the following table: Years Ended December 31 Weighted-average grant-date fair value per option Weighted-average assumptions: Risk-free interest rates Expected dividend yield Expected volatility factors of the market price of Comerica common stock Expected option life (in years) 2014 2013 2012 $ 13.21 $ 9.07 $ 8.63 2.95% 3.00 31 5.8 1.94% 3.00 34 6.4 2.16% 3.00 39 6.1 A summary of the Corporation’s stock option activity and related information for the year ended December 31, 2014 follows: Weighted-Average Number of Options (in thousands) Exercise Price per Share Remaining Contractual Term (in years) Aggregate Intrinsic Value (in millions) Outstanding-January 1, 2014 Granted Forfeited or expired Exercised Outstanding-December 31, 2014 Outstanding, net of expected forfeitures- December 31, 2014 Exercisable-December 31, 2014 $ 16,795 883 (2,066) (1,609) 14,003 13,708 10,835 43.52 49.51 52.22 34.47 44.28 44.43 46.28 4.1 $ 4.0 3.0 97 94 65 The aggregate intrinsic value of outstanding options shown in the table above represents the total pretax intrinsic value at December 31, 2014, based on the Corporation’s closing stock price of $46.84 at December 31, 2014. The total intrinsic value of stock options exercised was $23 million, $14 million and $2 million for the years ended December 31, 2014, 2013 and 2012, respectively. A summary of the Corporation’s restricted stock activity and related information for the year ended December 31, 2014 follows: Outstanding-January 1, 2014 Granted Forfeited Vested Outstanding-December 31, 2014 F-91 Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value per Share 2,479 325 (44) (620) 2,140 $ $ 31.78 49.51 34.83 28.41 35.38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The total fair value of restricted stock awards that fully vested during the years ended December 31, 2014, 2013 and 2012 was $18 million, $10 million and $16 million, respectively. A summary of the Corporation's restricted stock unit activity and related information for the year ended December 31, 2014 follows: Outstanding-January 1, 2014 Granted Converted Vested Outstanding-December 31, 2014 Service-Based Units Performance-Based Units Number of Units (in thousands) Weighted-Average Grant-Date Fair Value per Share Number of Units (in thousands) Weighted-Average Grant-Date Fair Value per Share $ 331 15 41 — 387 34.01 49.30 33.79 — 34.58 $ 124 240 (41) (4) 319 33.79 49.51 33.79 49.51 45.44 The Corporation expects to satisfy the exercise of stock options, the vesting of restricted stock units and future grants of restricted stock by issuing shares of common stock out of treasury. At December 31, 2014, the Corporation held 49.1 million shares in treasury. For further information on the Corporation’s share-based compensation plans, refer to Note 1. NOTE 17 - EMPLOYEE BENEFIT PLANS Defined Benefit Pension and Postretirement Benefit Plans The Corporation has a qualified and a non-qualified defined benefit pension plan, which together provide benefits for substantially all full-time employees hired before January 1, 2007 who continue to meet the eligibility requirements of the plans. Salaries and benefits expense included defined benefit pension expense of $39 million, $86 million and $75 million in the years ended December 31, 2014, 2013 and 2012, respectively, for the plans. Benefits under the defined benefit plans are based primarily on years of service, age and compensation during the five highest paid consecutive calendar years occurring during the last ten years before retirement. The Corporation’s postretirement benefit plan continues to provide postretirement health care and life insurance benefits for retirees as of December 31, 1992. The plan also provides certain postretirement health care and life insurance benefits for a limited number of retirees who retired prior to January 1, 2000. For all other employees hired prior to January 1, 2000, a nominal benefit is provided. Employees hired on or after January 1, 2000 and prior to January 1, 2007 are eligible to participate in the plan on a full contributory basis until Medicare-eligible. Employees hired on or after January 1, 2007 are not eligible to participate in the plan. The Corporation funds the pre-1992 retiree plan benefits with bank-owned life insurance. Employee benefits expense included postretirement benefit expense of $1 million, $2 million and $6 million in the years ended December 31, 2014, 2013 and 2012, respectively, for the plan. F-92 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The following table sets forth reconciliations of plan assets and the projected benefit obligation, the weighted-average assumptions used to determine year-end benefit obligations, and the amounts recognized in accumulated other comprehensive income (loss) for the Corporation’s defined benefit pension plans and postretirement benefit plan at December 31, 2014 and 2013. The Corporation used a measurement date of December 31, 2014 for these plans. Defined Benefit Pension Plans Qualified Non-Qualified Postretirement Benefit Plan 2014 2013 2014 2013 2014 2013 $ 2,035 278 350 (122) $ 2,541 $ 1,731 29 88 344 (122) — $ 2,070 $ 1,905 471 $ (a) (a) $ 1,955 136 — (56) $ 2,035 $ 1,897 37 80 (260) (56) 33 $ 1,731 $ 1,598 304 $ $ — $ — $ — — — — — — $ — $ — $ $ 195 3 10 37 (10) — 235 $ $ 203 $ (235) $ 245 4 9 (21) (9) (33) 195 $ $ 163 $ (195) $ $ $ $ 67 3 2 (5) 67 69 — 3 6 (5) — 73 73 (6) $ $ $ $ $ $ 72 (2) 3 (6) 67 79 — 3 (7) (6) — 69 69 (2) 4.28% 3.75 5.17% 4.00 4.28% 3.75 5.17% 4.00 3.99% n/a 4.59% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 7.00 5.00 7.50 5.00 2026 2033 (dollar amounts in millions) Change in fair value of plan assets: Fair value of plan assets at January 1 Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at December 31 Change in projected benefit obligation: Projected benefit obligation at January 1 Service cost Interest cost Actuarial (gain) loss Benefits paid Transfer between plans Projected benefit obligation at December 31 Accumulated benefit obligation Funded status at December 31 (b) (c) Weighted-average assumptions used: Discount rate Rate of compensation increase Healthcare cost trend rate: Cost trend rate assumed for next year Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) Year when rate reaches the ultimate trend rate Amounts recognized in accumulated other comprehensive income (loss) before income taxes: Net actuarial loss Prior service (cost) credit Balance at December 31 (a) Includes $63 million in benefit payments made to certain terminated vested eligible participants who elected to receive lump-sum settlements $ (104) 25 (79) $ (568) (25) $ (593) (403) (31) (434) (23) (3) (26) (27) (3) (30) (73) 28 (45) $ $ $ $ $ $ $ $ $ during the fourth quarter of 2014. (b) Based on projected benefit obligation for defined benefit pension plans and accumulated benefit obligation for postretirement benefit plan. (c) The Corporation recognizes the overfunded and underfunded status of the plans in “accrued income and other assets” and “accrued expenses and other liabilities,” respectively, on the consolidated balance sheets. n/a - not applicable The accumulated benefit obligation exceeded the fair value of plan assets for the non-qualified defined benefit pension plan and the postretirement benefit plan at December 31, 2014 and 2013. The following table details the changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the year ended December 31, 2014. (in millions) Actuarial loss arising during the period Amortization of net actuarial loss Amortization of prior service cost (credit) Total recognized in other comprehensive income (loss) Defined Benefit Pension Plans Qualified Non-Qualified Postretirement Benefit Plan Total (196) $ 31 6 (159) $ $ $ F-93 (38) $ 7 (4) (35) $ (6) $ 1 1 (4) $ (240) 39 3 (198) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Components of net periodic defined benefit cost and postretirement benefit cost, the actual return on plan assets and the weighted-average assumptions used were as follows. Defined Benefit Pension Plans Qualified 2013 2012 2014 Non-Qualified 2013 2012 (dollar amounts in millions) Years Ended December 31 Service cost Interest cost Expected return on plan assets Amortization of prior service cost (credit) Amortization of net loss Net periodic defined benefit cost Actual return on plan assets Actual rate of return on plan assets Weighted-average assumptions used: Discount rate Expected long-term return on plan assets Rate of compensation increase n/a - not applicable $ $ $ 2014 29 88 (131) 6 31 23 278 13.88% 5.17% 6.75 4.00 $ $ $ $ $ $ 37 80 (132) 7 76 68 136 7.05% 4.20% 7.25 4.00 33 79 (114) 4 54 56 199 13.33% 4.99% 7.50 4.00 (dollar amounts in millions) Years Ended December 31 Interest cost Expected return on plan assets Amortization of transition obligation Amortization of prior service cost Amortization of net loss Net periodic postretirement benefit cost Actual return on plan assets Actual rate of return on plan assets Weighted-average assumptions used: Discount rate Expected long-term return on plan assets Healthcare cost trend rate: Cost trend rate assumed Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) Year that the rate reaches the ultimate trend rate $ $ $ $ $ $ $ 3 10 — (4) 7 16 n/a n/a $ $ 4 9 — (6) 11 18 n/a n/a 4 10 — (2) 7 19 n/a n/a 5.17% n/a 4.00 4.20% n/a 4.00 4.99% n/a 4.00 2014 2012 $ $ Postretirement Benefit Plan 2013 3 (4) — 1 2 2 (2) (2.29)% 3 (4) — 1 1 1 3 4.62% $ $ $ $ 3 (3) 4 1 1 6 4 6.39% 4.59% 5.00 7.50 5.00 2033 3.81 % 5.00 8.00 5.00 2033 4.55% 5.00 8.00 5.00 2032 The expected long-term rate of return of plan assets is the average rate of return expected to be realized on funds invested or expected to be invested over the life of the plan, which has an estimated average life of approximately 15 years as of December 31, 2014. The expected long-term rate of return on plan assets is set after considering both long-term returns in the general market and long-term returns experienced by the assets in the plan. The returns on the various asset categories are blended to derive one long-term rate of return. The Corporation reviews its pension plan assumptions on an annual basis with its actuarial consultants to determine if assumptions are reasonable and adjusts the assumptions to reflect changes in future expectations. The estimated portion of balances remaining in accumulated other comprehensive income (loss) that are expected to be recognized as a component of net periodic benefit cost in the year ended December 31, 2015 are as follows. (in millions) Net loss Prior service cost (credit) Defined Benefit Pension Plans Qualified $ Non-Qualified 10 $ (4) 57 4 Postretirement Benefit Plan Total $ $ 1 1 68 1 F-94 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement benefit plan. A one-percentage-point change in 2014 assumed healthcare and prescription drug cost trend rates would have the following effects. (in millions) Effect on postretirement benefit obligation Effect on total service and interest cost Plan Assets One-Percentage-Point Increase Decrease $ $ 4 — (4) — The Corporation’s overall investment goals for the qualified defined benefit pension plan are to maintain a portfolio of assets of appropriate liquidity and diversification; to generate investment returns (net of operating costs) that are reasonably anticipated to maintain the plan’s fully funded status or to reduce a funding deficit, after taking into account various factors, including reasonably anticipated future contributions and expense and the interest rate sensitivity of the plan’s assets relative to that of the plan’s liabilities; and to generate investment returns (net of operating costs) that meet or exceed a customized benchmark as defined in the plan investment policy. Derivative instruments are permissible for hedging and transactional efficiency, but only to the extent that the derivative use enhances the efficient execution of the plan’s investment policy. The plan does not directly invest in securities issued by the Corporation and its subsidiaries. The Corporation’s target allocations for plan investments are 36 percent to 56 percent equity securities and 44 percent to 64 percent fixed income, including cash. Equity securities include collective investment and mutual funds and common stock. Fixed income securities include U.S. Treasury and other U.S. government agency securities, mortgage-backed securities, corporate bonds and notes, municipal bonds, collateralized mortgage obligations and money market funds. Fair Value Measurements The Corporation’s qualified defined benefit pension plan utilizes fair value measurements to record fair value adjustments and to determine fair value disclosures. The Corporation’s qualified benefit pension plan categorizes investments recorded at fair value into a three-level hierarchy, based on the markets in which the investment are traded and the reliability of the assumptions used to determine fair value. Refer to Note 1 for a description of the three-level hierarchy. Following is a description of the valuation methodologies and key inputs used to measure the fair value of the Corporation’s qualified defined benefit pension plan investments, including an indication of the level of the fair value hierarchy in which the investments are classified. Collective investment funds Fair value measurement is based upon the net asset value (NAV) provided by the administrator of the fund. Collective investment fund NAVs are based primarily on observable inputs, generally the quoted prices for underlying assets owned by the fund, and are included in Level 2 of the fair value hierarchy. Mutual funds Fair value measurement is based upon the NAV provided by the administrator of the fund. Mutual fund NAVs are quoted in an active market exchange, such as the New York Stock Exchange, and are included in Level 1 of the fair value hierarchy. Common stock Fair value measurement is based upon the closing price quoted in an active market exchange, such as the New York Stock Exchange. Level 1 common stock includes domestic and foreign stock and real estate investment trusts. U.S. Treasury and other U.S. government agency securities Fair value measurement is based upon quoted prices in an active market exchange, such as the New York Stock Exchange. Level 1 securities include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Corporate and municipal bonds and notes Fair value measurement is based upon quoted prices of securities with similar characteristics or pricing models based on observable market data inputs, primarily interest rates, spreads and prepayment information. Level 2 securities include corporate bonds, municipal bonds, foreign bonds and foreign notes. Collateralized mortgage obligations Fair value measurement is based upon independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors, such as credit loss and liquidity assumptions, and are included in Level 2 of the fair value hierarchy. F-95 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Private placements Fair value is measured using the NAV provided by fund management as quoted prices in active markets are not available. Management considers additional discounts to the provided NAV for market and credit risk. Private placements are included in Level 3 of the fair value hierarchy. Securities purchased under agreements to resell Fair value measurement is based upon independent pricing models or other model-based valuation techniques such as the present value of future cash flows, and is included in Level 2 of the fair value hierarchy. Fair Values The fair values of the Corporation’s qualified defined benefit pension plan investments measured at fair value on a recurring basis at December 31, 2014 and 2013, by asset category and level within the fair value hierarchy, are detailed in the table below. (in millions) December 31, 2014 Cash equivalent securities: Mutual funds Equity securities: Collective investment funds Mutual funds Common stock Fixed income securities: U.S. Treasury and other U.S. government agency securities Corporate and municipal bonds and notes Collateralized mortgage obligations Private placements Total investments at fair value December 31, 2013 Cash equivalent securities: Mutual funds Equity securities: Collective investment funds Mutual funds Common stock Fixed income securities: U.S. Treasury and other U.S. government agency securities Corporate and municipal bonds and notes Collateralized mortgage obligations U.S. government agency mortgage-backed securities Mutual funds Private placements Other assets: Securities purchased under agreements to resell Total investments at fair value Total Level 1 Level 2 Level 3 $ 390 $ 390 $ — $ 466 76 499 359 659 9 73 2,531 — 76 499 359 — — $ 1,324 $ 466 — — — 659 9 — 1,134 $ 23 $ 23 $ — $ $ $ 463 73 483 329 496 4 2 113 36 — 73 483 329 — — — 113 6 2,028 $ — 1,021 $ $ 463 — — — 496 4 2 — — 6 971 $ — — — — — — — 73 73 — — — — — — — — — 36 — 36 The table below provides a summary of changes in the Corporation’s qualified defined benefit pension plan’s Level 3 investments measured at fair value on a recurring basis for the years ended December 31, 2014 and 2013. (in millions) Year Ended December 31, 2014 Private placements Year Ended December 31, 2013 Private placements Net Gains (Losses) Balance at Beginning of Period Realized Unrealized Purchases Sales Balance at End of Period $ $ 36 30 $ $ 1 $ 4 $ — $ (4) $ 60 46 $ $ (28) $ (36) $ 73 36 F-96 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries There were no assets in the non-qualified defined benefit pension plan at December 31, 2014 and 2013. The postretirement benefit plan is fully invested in bank-owned life insurance policies. The fair value of bank-owned life insurance policies is based on the cash surrender values of the policies as reported by the insurance companies and is classified in Level 2 of the fair value hierarchy. Cash Flows The Corporation currently expects to make no employer contributions to the qualified and non-qualified defined benefit pension plans and postretirement benefit plan for the year ended December 31, 2015. Estimated Future Benefit Payments (in millions) Years Ended December 31 2015 2016 2017 2018 2019 2020 - 2024 (a) Estimated benefit payments in the postretirement benefit plan are net of estimated Medicare subsidies. 67 72 78 84 89 529 $ $ Qualified Defined Benefit Pension Plan Non-Qualified Defined Benefit Pension Plan Postretirement Benefit Plan (a) 6 $ 6 6 6 6 25 11 11 12 12 13 70 Defined Contribution Plans Substantially all of the Corporation’s employees are eligible to participate in the Corporation’s principal defined contribution plan (a 401(k) plan). Under this plan, the Corporation makes core matching cash contributions of 100 percent of the first 4 percent of qualified earnings contributed by employees (up to the current IRS compensation limit), invested based on employee investment elections. Employee benefits expense included expense for the plan of $22 million, $21 million and $20 million for the years ended December 31, 2014, 2013 and 2012, respectively. The Corporation also provides a profit sharing plan for the benefit of substantially all employees who work at least 1,000 hours in a plan year and are not accruing a benefit in the defined benefit pension plan. Under the profit sharing plan, the Corporation makes an annual discretionary allocation to the individual account of each eligible employee ranging from 3 percent to 8 percent of annual compensation, determined based on combined age and years of service. The allocations are invested based on employee investment elections. The employee fully vests in the defined contribution pension plan after three years of service, at age 65 if still employed, or in the event of death while an employee. Before an employee is eligible to participate, the plan requires the equivalent of one year of service. The Corporation recognized $10 million, $7 million and $7 million in employee benefits expense for this plan for the years ended December 31, 2014, 2013 and 2012, respectively. Deferred Compensation Plans The Corporation offers optional deferred compensation plans under which certain employees may make an irrevocable election to defer incentive compensation and/or a portion of base salary until retirement or separation from the Corporation. The employee may direct deferred compensation into one or more deemed investment options. Although not required to do so, the Corporation invests actual funds into the deemed investments as directed by employees, resulting in a deferred compensation asset, recorded in “other short-term investments” on the consolidated balance sheets that offsets the liability to employees under the plan, recorded in “accrued expenses and other liabilities.” The earnings from the deferred compensation asset are recorded in “interest on short-term investments” and “other noninterest income” and the related change in the liability to employees under the plan is recorded in “salaries” expense on the consolidated statements of income. NOTE 18 - INCOME TAXES AND TAX-RELATED ITEMS The provision for income taxes is calculated as the sum of income taxes due for the current year and deferred taxes. Income taxes due for the current year is computed by applying federal and state tax statutes to current year taxable income. Deferred taxes arise from temporary differences between the income tax basis and financial accounting basis of assets and liabilities. Tax- related interest and penalties and foreign taxes are then added to the tax provision. F-97 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The current and deferred components of the provision for income taxes were as follows: (in millions) December 31 Current: Federal Foreign State and local Total current Deferred: Federal State and local Total deferred Total 2014 2013 2012 $ $ 127 6 14 147 123 7 130 277 $ $ 242 6 17 265 (20) — (20) 245 $ $ 59 6 18 83 152 6 158 241 Income before income taxes of $870 million for the year ended December 31, 2014 included $32 million of foreign- source income. There was no income tax provision on securities transactions for the years ended December 31, 2014 and December 31, 2013 and an income tax provision of $4 million on securities transactions for the year ended December 31, 2012. The provision for income taxes does not reflect the tax effects of unrealized gains and losses on investment securities available-for-sale or the change in defined benefit pension and other postretirement plans adjustment included in accumulated other comprehensive loss. Refer to Note 14 for additional information on accumulated other comprehensive loss. The income tax effects of transactions under the Corporation's share-based compensation plans reduced both shareholders’ equity and deferred tax assets by $11 million, $5 million and $16 million in 2014, 2013, and 2012 respectively. A reconciliation of expected income tax expense at the federal statutory rate to the Corporation’s provision for income taxes and effective tax rate follows: (dollar amounts in millions) Years Ended December 31 Tax based on federal statutory rate State income taxes Affordable housing and historic credits Bank-owned life insurance Other changes in unrecognized tax benefits Tax-related interest and penalties Other Provision for income taxes 2014 2013 2012 Amount Rate Amount Rate Amount Rate $ $ 305 13 (24) (15) 2 (3) (1) 277 35.0% $ 1.5 (2.8) (1.7) 0.2 (0.3) (0.1) 31.8% $ 275 11 (21) (15) (2) (1) (2) 245 35.0% $ 1.4 (2.6) (1.9) (0.2) (0.1) (0.4) 31.2% $ 267 14 (22) (15) 1 — (4) 241 35.0% 1.9 (2.9) (2.0) 0.2 — (0.6) 31.6% Included in “accrued expenses and other liabilities” on the consolidated balance sheets was a $2 million liability for tax- related interest and penalties at both December 31, 2014 and December 31, 2013. In the ordinary course of business, the Corporation enters into certain transactions that have tax consequences. From time to time, the Internal Revenue Service (IRS) may review and/or challenge specific interpretive tax positions taken by the Corporation with respect to those transactions. The Corporation believes that its tax returns were filed based upon applicable statutes, regulations and case law in effect at the time of the transactions. The IRS, an administrative authority or a court, if presented with the transactions, could disagree with the Corporation’s interpretation of the tax law. A reconciliation of the beginning and ending amount of net unrecognized tax benefits follows: (in millions) Balance at January 1 Increases as a result of tax positions taken during a prior period Decrease related to settlements with tax authorities Balance at December 31 2014 2013 2012 $ $ 11 3 — 14 $ $ 42 — (31) 11 $ $ 20 33 (11) 42 The Corporation anticipates that it is reasonably possible that settlements with tax authorities will result in a $9 million decrease in net unrecognized tax benefits within the next twelve months. F-98 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries After consideration of the effect of the federal tax benefit available on unrecognized state tax benefits, the total amount of unrecognized tax benefits that, if recognized, would affect the Corporation’s effective tax rate was approximately $2 million at both December 31, 2014 and December 31, 2013. The following tax years for significant jurisdictions remain subject to examination as of December 31, 2014: Jurisdiction Federal California Tax Years 2010-2013 2002-2013 Based on current knowledge and probability assessment of various potential outcomes, the Corporation believes that current tax reserves are adequate, and the amount of any potential incremental liability arising is not expected to have a material adverse effect on the Corporation’s consolidated financial condition or results of operations. Probabilities and outcomes are reviewed as events unfold, and adjustments to the reserves are made when necessary. The principal components of deferred tax assets and liabilities were as follows: (in millions) December 31 Deferred tax assets: Allowance for loan losses Deferred compensation Defined benefit plans Loan purchase accounting adjustments Deferred loan origination fees and costs Net unrealized losses on investment securities available-for-sale Other temporary differences, net Total deferred tax assets Deferred tax liabilities: Lease financing transactions Defined benefit plans Net unrealized gains on investment securities available-for-sale Allowance for depreciation Total deferred tax liabilities Net deferred tax asset 2014 2013 $ $ 208 123 — 5 28 — 44 408 (206) (38) (21) (13) (278) 130 $ $ 209 131 2 17 28 39 75 501 (226) — — (18) (244) 257 At December 31, 2014 and December 31, 2013, the Corporation determined that no valuation allowance was necessary on federal or state deferred tax assets. This determination was based on sufficient taxable income in the carry-back period and projected future reversals of existing taxable temporary differences to absorb the deferred tax assets. The remaining deferred tax assets will be absorbed by future reversals of existing taxable temporary differences. For further information on the Corporation’s valuation policy for deferred tax assets, refer to Note 1. NOTE 19 - TRANSACTIONS WITH RELATED PARTIES The Corporation’s banking subsidiaries had, and expect to have in the future, transactions with the Corporation’s directors and executive officers, companies with which these individuals are associated, and certain related individuals. Such transactions were made in the ordinary course of business and included extensions of credit, leases and professional services. With respect to extensions of credit, all were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers and did not, in management’s opinion, involve more than normal risk of collectibility or present other unfavorable features. The aggregate amount of loans attributable to persons who were related parties at December 31, 2014, totaled $105 million at the beginning of 2014 and $79 million at the end of 2014. During 2014, new loans to related parties aggregated $544 million and repayments totaled $570 million. NOTE 20 - REGULATORY CAPITAL AND RESERVE REQUIREMENTS Reserves required to be maintained and/or deposited with the FRB are classified in interest-bearing deposits with banks. These reserve balances vary, depending on the level of customer deposits in the Corporation’s banking subsidiaries. The average required reserve balances were $430 million and $397 million for the years ended December 31, 2014 and 2013, respectively. Banking regulations limit the transfer of assets in the form of dividends, loans or advances from the bank subsidiaries to the parent company. Under the most restrictive of these regulations, the aggregate amount of dividends which can be paid to the F-99 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries parent company, with prior approval from bank regulatory agencies, approximated $375 million at January 1, 2015, plus 2015 net profits. Substantially all the assets of the Corporation’s banking subsidiaries are restricted from transfer to the parent company of the Corporation in the form of loans or advances. The Corporation’s subsidiary banks declared dividends of $380 million, $480 million and $497 million in 2014, 2013 and 2012, respectively. The Corporation and its U.S. banking subsidiaries are subject to various regulatory capital requirements administered by federal and state banking agencies. Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios of Tier 1 and total capital (as defined in the regulations) to average and risk-weighted assets. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. At December 31, 2014 and 2013, the Corporation and its U.S. banking subsidiaries exceeded the ratios required for an institution to be considered “well capitalized” (total risk-based capital, Tier 1 risk-based capital and leverage ratios greater than 10 percent, 6 percent and 5 percent, respectively). There have been no conditions or events since December 31, 2014 that management believes have changed the capital adequacy classification of the Corporation or its U.S. banking subsidiaries. The following is a summary of the capital position of the Corporation and Comerica Bank, its principal banking subsidiary. (dollar amounts in millions) December 31, 2014 Tier 1 capital (minimum-$2.7 billion (Consolidated)) Total capital (minimum-$5.5 billion (Consolidated)) Risk-weighted assets Average assets (fourth quarter) Tier 1 capital to risk-weighted assets (minimum-4.0%) Total capital to risk-weighted assets (minimum-8.0%) Tier 1 capital to average assets (minimum-3.0%) December 31, 2013 Tier 1 capital (minimum-$2.6 billion (Consolidated)) Total capital (minimum-$5.2 billion (Consolidated)) Risk-weighted assets Average assets (fourth quarter) Tier 1 capital to risk-weighted assets (minimum-4.0%) Total capital to risk-weighted assets (minimum-8.0%) Tier 1 capital to average assets (minimum-3.0%) NOTE 21 - CONTINGENT LIABILITIES Legal Proceedings Comerica Incorporated (Consolidated) Comerica Bank 7,169 8,543 68,273 69,284 10.50% 12.51 10.35 6,895 8,491 64,825 64,017 10.64 % 13.10 10.77 $ 7,051 8,175 68,037 69,092 10.36% 12.02 10.20 6,803 8,340 64,629 63,836 10.53 % 12.90 10.66 $ As previously reported in the Corporation's Form 10-K for the year ended December 31, 2013 and updated in Forms 10- Q for the quarterly periods ended March 31, 2014, June 30, 2014 and September 30, 2014, Comerica Bank, a wholly owned subsidiary of the Corporation, was sued in November 2011 as a third-party defendant in Butte Local Development v. Masters Group v. Comerica Bank (“the case”), for lender liability. The case was tried in January 2014, in the Montana Second District Judicial Court for Silver Bow County in Butte, Montana ("the court"). On January 17, 2014, a jury awarded Masters $52 million against the Bank. Following the jury’s decision on the case, the Corporation increased its reserve for litigation-related expense, effective as of December 31, 2013, to $52 million. The Corporation increased its reserve related to the case to $54 million in March 2014, to include additional attorney's fees and costs awarded by the court. The Corporation believes that it has meritorious defenses and appellate issues for this litigation and has appealed to the Montana Supreme Court, the sole appellate court for the state of Montana. The Montana Supreme Court heard oral arguments in September 2014 and will be rendering a written decision on the appeal. F-100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries The Corporation and certain of its subsidiaries are subject to various other pending or threatened legal proceedings arising out of the normal course of business or operations. The Corporation believes it has meritorious defenses to the claims asserted against it in its other currently outstanding legal proceedings and, with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of the Corporation and its shareholders. Settlement may result from the Corporation's determination that it may be more prudent financially to settle, rather than litigate, and should not be regarded as an admission of liability. On at least a quarterly basis, the Corporation assesses its potential liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. On a case-by-case basis, reserves are established for those legal claims for which it is probable that a loss will be incurred either as a result of a settlement or judgment, and the amount of such loss can be reasonably estimated. The actual costs of resolving these claims may be substantially higher or lower than the amounts reserved. Based on current knowledge, and after consultation with legal counsel, management believes that current reserves are adequate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the Corporation’s consolidated financial condition, consolidated results of operations or consolidated cash flows. Legal fees of $24 million for each of the years ended December 31, 2014 and 2013, and $31 million for the year ended December 31, 2012, were included in "other noninterest expenses" on the consolidated statements of income. For matters where a loss is not probable, the Corporation has not established legal reserves. The Corporation believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for all legal proceedings in which it is involved is from zero to approximately $36 million at December 31, 2014. This estimated aggregate range of reasonably possible losses is based upon currently available information for those proceedings in which the Corporation is involved, taking into account the Corporation’s best estimate of such losses for those cases for which such estimate can be made. For certain cases, the Corporation does not believe that an estimate can currently be made. The Corporation’s estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many are currently in preliminary stages), the existence in certain proceedings of multiple defendants (including the Corporation) whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims) and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Corporation’s estimate will change from time to time, and actual losses may be more or less than the current estimate. In the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation's consolidated financial condition, consolidated results of operations or consolidated cash flows. For information regarding income tax contingencies, refer to Note 18. NOTE 22 - BUSINESS SEGMENT INFORMATION The Corporation has strategically aligned its operations into three major business segments: the Business Bank, the Retail Bank and Wealth Management. These business segments are differentiated based on the type of customer and the related products and services provided. In addition to the three major business segments, the Finance Division is also reported as a segment. Business segment results are produced by the Corporation’s internal management accounting system. This system measures financial results based on the internal business unit structure of the Corporation. The performance of the business segments is not comparable with the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. The management accounting system assigns balance sheet and income statement items to each business segment using certain methodologies, which are regularly reviewed and refined. From time to time, the Corporation may make reclassifications among the segments to more appropriately reflect management's current view of the segments, and methodologies may be modified as the management accounting system is enhanced and changes occur in the organizational structure and/or product lines. For comparability purposes, amounts in all periods are based on business unit structure and methodologies in effect at December 31, 2014. Net interest income for each business segment is the total of interest income generated by earning assets less interest expense on interest-bearing liabilities plus the net impact from associated internal funds transfer pricing (FTP) funding credits and charges. The FTP methodology provides the business segments credits for deposits and other funds provided and charges the business segments for loans and other assets utilizing funds. This credit or charge is based on matching stated or implied maturities for these assets and liabilities. The FTP credit provided for deposits reflects the long-term value of deposits generated based on their implied maturity. The FTP charge for funding assets reflects a matched cost of funds based on the pricing and term characteristics of the assets. For acquired loans and deposits, matched maturity funding is determined based on origination date. Accordingly, the FTP process reflects the transfer of interest rate risk exposures to the Treasury group within the Finance segment, where such exposures are centrally managed. The allowance for loan losses is allocated to the business segments based F-101 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries on the methodology used to estimate the consolidated allowance for loan losses described in Note 1. The related provision for loan losses is assigned based on the amount necessary to maintain an allowance for loan losses appropriate for each business segment. Noninterest income and expenses directly attributable to a line of business are assigned to that business segment. Direct expenses incurred by areas whose services support the overall Corporation are allocated to the business segments as follows: product processing expenditures are allocated based on standard unit costs applied to actual volume measurements; administrative expenses are allocated based on estimated time expended; and corporate overhead is assigned 50 percent based on the ratio of the business segment’s noninterest expenses to total noninterest expenses incurred by all business segments and 50 percent based on the ratio of the business segment’s attributed equity to total attributed equity of all business segments. Equity is attributed based on credit, operational and interest rate risks. Most of the equity attributed relates to credit risk, which is determined based on the credit score and expected remaining life of each loan, letter of credit and unused commitment recorded in the business segments. Operational risk is allocated based on loans and letters of credit, deposit balances, non-earning assets, trust assets under management, certain noninterest income items, and the nature and extent of expenses incurred by business units. Virtually all interest rate risk is assigned to Finance, as are the Corporation’s hedging activities. In 2014, the Corporation enhanced the approach used to determine the standard reserve factors used in estimating the allowance for credit losses, which had the effect of capturing certain elements in the standard reserve component that had formerly been included in the qualitative assessment. The impact of the change was largely neutral to the total allowance for loan losses at June 30, 2014. However, because standard reserves are allocated to the segments at the loan level, while qualitative reserves are allocated at the portfolio level, the impact of the methodology change on the allowance of each segment reflected the characteristics of the individual loans within each segment's portfolio, causing segment reserves to increase or decrease accordingly. As a result, the current year provision for credit losses within each segment is not comparable to prior period amounts. In 2013, the Corporation changed the method of assigning the allowance for loan losses to each business segment. In 2012, national probability of default and loss given default statistics were incorporated into the Corporation's allowance methodology. Each business segment was assigned an allowance for loan losses based on market-specific standard reserve factors applied to the loans in each segment, and the difference between the total allowance required on a national basis and the market- specific allowances was allocated based on the relative loan balances in each segment. Effective 2013, each segment was assigned an allowance for loan losses by applying national standard reserve factors to the loan balances in each segment by risk rating distribution. This change was retroactively applied to 2012. Also in 2013, the Corporation changed the method of allocating FDIC insurance expense to the segments as well as certain noninterest income and expense associated with commercial charge cards. The changes did not have a material impact on segment operating results. The following discussion provides information about the activities of each business segment. A discussion of the financial results and the factors impacting 2014 performance can be found in the section entitled "Business Segments" in the financial review. The Business Bank meets the needs of middle market businesses, multinational corporations and governmental entities by offering various products and services, including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services. The Retail Bank includes small business banking and personal financial services, consisting of consumer lending, consumer deposit gathering and mortgage loan origination. In addition to a full range of financial services provided to small business customers, this business segment offers a variety of consumer products, including deposit accounts, installment loans, credit cards, student loans, home equity lines of credit and residential mortgage loans. Wealth Management offers products and services consisting of fiduciary services, private banking, retirement services, investment management and advisory services, investment banking and brokerage services. This business segment also offers the sale of annuity products, as well as life, disability and long-term care insurance products. The Finance segment includes the Corporation’s securities portfolio and asset and liability management activities. This segment is responsible for managing the Corporation’s funding, liquidity and capital needs, performing interest sensitivity analysis and executing various strategies to manage the Corporation’s exposure to liquidity, interest rate risk and foreign exchange risk. The Other category includes the income and expense impact of equity and cash, tax benefits not assigned to specific business segments, charges of an unusual or infrequent nature that are not reflective of the normal operations of the business segments and miscellaneous other expenses of a corporate nature. F-102 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries Business segment financial results are as follows: (dollar amounts in millions) Year Ended December 31, 2014 Earnings summary: Net interest income (expense) (FTE) Provision for credit losses Noninterest income Noninterest expenses Provision (benefit) for income taxes (FTE) Net income (loss) Net credit-related charge-offs (recoveries) Selected average balances: Assets Loans Deposits Statistical data: Return on average assets (a) Efficiency ratio (b) (dollar amounts in millions) Year Ended December 31, 2013 Earnings summary: Net interest income (expense) (FTE) Provision for credit losses Noninterest income Noninterest expenses Provision (benefit) for income taxes (FTE) Net income (loss) Net credit-related charge-offs Selected average balances: Assets Loans Deposits Statistical data: Return on average assets (a) Efficiency ratio (b) (Table continues on following page) Business Bank Retail Bank Wealth Management Finance Other Total $ 1,512 53 376 590 429 816 15 $ $ $ $ $ 596 (5) 167 702 23 43 11 $ 37,332 36,353 28,554 $ 6,092 5,424 21,710 $ $ $ $ 186 (20) 259 322 52 91 (1) $ $ $ (662) $ — 60 (21) (224) (357) $ — $ 27 (1) 6 33 1 — $ — $ $ 1,659 27 868 1,626 281 593 25 4,997 4,811 4,034 $ $ 11,361 — 233 6,556 $ 66,338 — 46,588 54,784 253 2.18% 31.24 0.20% 91.75 1.83% 72.54 N/M N/M N/M N/M 0.89% 64.31 Business Bank Retail Bank Wealth Management Finance Other Total $ 1,503 54 382 643 403 785 43 $ $ $ $ $ 610 13 175 708 22 42 22 $ 35,529 34,473 26,169 $ 5,974 5,289 21,247 $ $ $ $ 184 (18) 252 319 48 87 8 $ $ $ (653) $ — 61 10 (226) (376) $ — $ 31 (3) 12 42 1 $ 3 — $ $ 1,675 46 882 1,722 248 541 73 4,807 4,650 3,775 $ $ 11,422 — 312 6,201 $ 63,933 — 44,412 51,711 208 2.21% 34.13 0.19% 89.95 1.82% 73.14 N/M N/M N/M N/M 0.85% 67.32 F-103 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries (dollar amounts in millions) Year Ended December 31, 2012 Earnings summary: Net interest income (expense) (FTE) Provision for credit losses Noninterest income Noninterest expenses Provision (benefit) for income taxes (FTE) Net income (loss) Net credit-related charge-offs Selected average balances: Assets Loans Deposits Business Bank Retail Bank Wealth Management Finance Other Total $ 1,517 34 371 602 426 826 107 $ $ $ $ $ 647 24 173 723 23 50 40 $ 34,444 33,470 24,837 $ 6,008 5,308 20,623 $ $ $ $ 187 19 258 320 39 67 23 $ $ $ (658) $ — 60 12 (228) (382) $ — $ 38 2 8 100 (16) (40) $ — $ $ 1,731 79 870 1,757 244 521 170 4,623 4,528 3,680 $ $ 11,881 — 206 5,613 $ 62,569 — 43,306 49,533 187 Statistical data: N/M Return on average assets (a) N/M 31.89 Efficiency ratio (b) (a) Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity. (b) Noninterest expenses as a percentage of the sum of net interest income (FTE) and noninterest income excluding net securities gains. FTE – Fully Taxable Equivalent N/M – not meaningful 1.45% 74.21 N/M N/M 0.23% 2.40% 87.93 0.83% 67.85 The Corporation operates in three primary markets - Texas, California, and Michigan, as well as in Arizona and Florida, with select businesses operating in several other states, and in Canada and Mexico. The Corporation produces market segment results for the Corporation’s three primary geographic markets as well as Other Markets. Other Markets includes Florida, Arizona, the International Finance division and businesses with a national perspective. The Finance & Other category includes the Finance segment and the Other category as previously described. Market segment results are provided as supplemental information to the business segment results and may not meet all operating segment criteria as set forth in GAAP. For comparability purposes, amounts in all periods are based on market segments and methodologies in effect at December 31, 2014. A discussion of the financial results and the factors impacting performance can be found in the section entitled "Market Segments" in the financial review. Market segment financial results are as follows: (dollar amounts in millions) Year Ended December 31, 2014 Earnings summary: Net interest income (expense) (FTE) Provision for credit losses Noninterest income Noninterest expenses Provision (benefit) for income taxes (FTE) Net income (loss) Net credit-related charge-offs (recoveries) Selected average balances: Assets Loans Deposits Statistical data: Return on average assets (a) Efficiency ratio (b) (Table continues on following page) Michigan California Texas Other Markets Finance & Other Total $ $ $ 718 (32) 360 644 169 297 8 $ $ $ 722 28 147 401 168 272 22 $ $ $ 542 50 129 369 92 160 9 $ $ $ 312 (18) 166 200 75 221 (14) $ 13,749 13,336 21,023 $ 15,667 15,390 16,142 $ 11,645 10,954 10,764 $ 7,360 6,908 6,369 $ $ $ $ (635) $ 1,659 27 868 1,626 281 593 25 (1) 66 12 (223) (357) $ — $ 17,917 $ 66,338 — 46,588 54,784 486 1.35% 59.73 1.58% 46.09 1.33% 54.84 3.00% 42.01 N/M N/M 0.89% 64.31 F-104 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries (dollar amounts in millions) Year Ended December 31, 2013 Earnings summary: Net interest income (expense) (FTE) Provision for credit losses Noninterest income Noninterest expenses Provision (benefit) for income taxes (FTE) Net income (loss) Net credit-related charge-offs Selected average balances: Assets Loans Deposits Statistical data: Return on average assets (a) Efficiency ratio (b) Michigan California Texas Other Markets Finance & Other Total $ $ $ 751 (12) 357 714 145 261 6 $ $ $ 692 18 150 396 160 268 27 $ $ $ 541 35 132 363 98 177 20 $ 13,879 13,461 20,346 $ 14,233 13,978 14,705 $ 10,694 9,989 10,247 $ $ $ $ 313 8 170 197 70 208 20 7,504 6,984 5,893 $ $ $ $ (622) $ (3) 73 52 (225) (373) $ — $ 1,675 46 882 1,722 248 541 73 17,623 — 520 $ 63,933 44,412 51,711 1.22% 64.38 1.72% 47.07 1.54% 53.86 2.77% 40.72 N/M N/M 0.85% 67.32 (dollar amounts in millions) Year Ended December 31, 2012 Earnings summary: Net interest income (expense) (FTE) Provision for credit losses Noninterest income Noninterest expenses Provision (benefit) for income taxes (FTE) Net income (loss) Net credit-related charge-offs Selected average balances: Assets Loans Deposits Michigan California Texas Other Markets Finance & Other Total $ $ $ 777 (30) 385 707 170 315 41 $ $ $ 692 24 136 395 156 253 47 $ $ $ 564 49 124 360 98 181 22 $ 13,921 13,618 19,573 $ 12,988 12,747 14,568 $ 10,307 9,552 10,040 $ $ $ $ 318 34 157 183 64 194 60 7,859 7,389 4,959 $ $ $ $ (620) $ 2 68 112 (244) (422) $ — $ 1,731 79 870 1,757 244 521 170 17,494 — 393 $ 62,569 43,306 49,533 Statistical data: N/M 1.53% Return on average assets (a) N/M 60.75 Efficiency ratio (b) (a) Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity. (b) Noninterest expenses as a percentage of the sum of net interest income (FTE) and noninterest income excluding net securities gains. FTE – Fully Taxable Equivalent N/M – not meaningful 1.60% 52.28 1.63% 47.67 2.47% 39.76 0.83% 67.85 F-105 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 23 - PARENT COMPANY FINANCIAL STATEMENTS BALANCE SHEETS - COMERICA INCORPORATED (in millions, except share data) December 31 Assets Cash and due from subsidiary bank Short-term investments with subsidiary bank Other short-term investments Investment in subsidiaries, principally banks Premises and equipment Other assets Total assets Liabilities and Shareholders’ Equity Medium- and long-term debt Other liabilities Total liabilities Common stock - $5 par value: Authorized - 325,000,000 shares Issued - 228,164,824 shares Capital surplus Accumulated other comprehensive loss Retained earnings Less cost of common stock in treasury - 49,146,225 shares at 12/31/14 and 45,860,786 shares at 12/31/13 Total shareholders’ equity Total liabilities and shareholders’ equity STATEMENTS OF INCOME - COMERICA INCORPORATED (in millions) Years Ended December 31 Income Income from subsidiaries: Dividends from subsidiaries Other interest income Intercompany management fees Other noninterest income Total income Expenses Interest on medium- and long-term debt Salaries and benefits expense Net occupancy expense Equipment expense Merger and restructuring charges Other noninterest expenses Total expenses Income before benefit for income taxes and equity in undistributed earnings of subsidiaries Benefit for income taxes Income before equity in undistributed earnings of subsidiaries Equity in undistributed earnings of subsidiaries, principally banks Net income Less income allocated to participating securities Net income attributable to common shares F-106 2014 384 1 118 7 510 14 114 5 1 — 70 204 306 (27) 333 260 593 7 586 $ $ 2014 2013 — $ $ $ 1,133 94 7,411 2 142 8,782 1,212 168 1,380 1,141 2,188 (412) 6,744 (2,259) 7,402 8,782 $ 31 482 96 7,171 4 139 7,923 617 156 773 1,141 2,179 (391) 6,318 (2,097) 7,150 7,923 2013 2012 490 1 110 14 615 11 118 4 1 — 78 212 403 (30) 433 108 541 8 533 $ $ 505 1 108 7 621 11 114 7 1 35 54 222 399 (37) 436 85 521 6 515 $ $ $ $ $ $ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries STATEMENTS OF CASH FLOWS - COMERICA INCORPORATED (in millions) Years Ended December 31 Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of subsidiaries, principally banks Depreciation and amortization Net periodic defined benefit cost Share-based compensation expense Provision for deferred income taxes Excess tax benefits from share-based compensation arrangements Other, net Net cash provided by operating activities Investing Activities Capital transactions with subsidiaries Net change in premises and equipment Net cash provided by (used in) investing activities Financing Activities Medium- and long-term debt: Maturities and redemptions Issuances Common Stock: Repurchases Cash dividends paid Issuances of common stock under employee stock plans Excess tax benefits from share-based compensation arrangements Net cash provided by (used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Interest paid Income taxes recovered 2014 2013 2012 $ 593 $ 541 $ 521 (260) 1 4 16 — (7) 16 363 — 2 2 — 596 (260) (137) 49 7 255 620 513 1,133 $ 12 $ (33) $ $ $ $ (108) 1 8 14 3 (3) 2 458 — — — — — (291) (123) 33 3 (378) 80 433 $ 513 11 $ (27) $ (85) 1 7 15 2 (1) (8) 452 (5) (1) (6) (30) — (308) (97) 3 1 (431) 15 418 433 12 (46) F-107 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Comerica Incorporated and Subsidiaries NOTE 24 - SUMMARY OF QUARTERLY FINANCIAL STATEMENTS (UNAUDITED) The following quarterly information is unaudited. However, in the opinion of management, the information reflects all adjustments, which are necessary for the fair presentation of the results of operations, for the periods presented. (in millions, except per share data) Interest income Interest expense Net interest income Provision for credit losses Net securities (losses) gains Noninterest income excluding net securities (losses) gains Noninterest expenses Provision for income taxes Net income Less income allocated to participating securities Net income attributable to common shares Earnings per common share: Basic Diluted Comprehensive income (in millions, except per share data) Interest income Interest expense Net interest income Provision for credit losses Net securities gains (losses) Noninterest income excluding net securities gains (losses) Noninterest expenses Provision for income taxes Net income Less income allocated to participating securities Net income attributable to common shares Earnings per common share: Basic Diluted Comprehensive income 2014 Fourth Quarter Third Quarter Second Quarter First Quarter $ $ $ $ $ $ $ $ $ $ $ $ 438 23 415 2 — 225 419 70 149 1 148 0.83 0.80 54 Fourth Quarter 456 26 430 9 — 219 473 50 117 2 115 0.64 0.62 267 $ $ $ 436 22 414 5 (1) 216 397 73 154 2 152 0.85 0.82 141 441 25 416 11 — 220 404 70 151 2 149 0.83 0.80 172 2013 Third Quarter Second Quarter $ $ $ 439 27 412 8 1 227 417 68 147 2 145 0.80 0.78 144 443 29 414 13 (2) 224 416 64 143 2 141 0.77 0.76 15 $ $ $ $ $ $ 435 25 410 9 1 207 406 64 139 2 137 0.76 0.73 205 First Quarter 446 30 416 16 — 213 416 63 134 2 132 0.71 0.70 137 F-108 REPORT OF MANAGEMENT The management of Comerica Incorporated (the Corporation) is responsible for the accompanying consolidated financial statements and all other financial information in this Annual Report. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and include amounts which of necessity are based on management’s best estimates and judgments and give due consideration to materiality. The other financial information herein is consistent with that in the consolidated financial statements. In meeting its responsibility for the reliability of the consolidated financial statements, management develops and maintains effective internal controls, including those over financial reporting, as defined in the Securities and Exchange Act of 1934, as amended. The Corporation’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles, and that receipts and expenditures of the Corporation are made only in accordance with authorizations of management and directors of the Corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation’s assets that could have a material effect on the consolidated financial statements. Management assessed, with participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, internal control over financial reporting as it relates to the Corporation’s consolidated financial statements presented in conformity with U.S. generally accepted accounting principles as of December 31, 2014. The assessment was based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Based on this assessment, management determined that internal control over financial reporting is effective as it relates to the Corporation’s consolidated financial statements presented in conformity with U.S. generally accepted accounting principles as of December 31, 2014. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Corporation's internal control over financial reporting as of December 31, 2014 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their accompanying report. The Corporation’s Board of Directors oversees management’s internal control over financial reporting and financial reporting responsibilities through its Audit Committee as well as various other committees. The Audit Committee, which consists of directors who are not officers or employees of the Corporation, meets regularly with management, internal audit and the independent public accountants to assure that the Audit Committee, management, internal auditors and the independent public accountants are carrying out their responsibilities, and to review auditing, internal control and financial reporting matters. Ralph W. Babb Jr. Chairman, President and Chief Executive Officer Karen L. Parkhill Vice Chairman and Chief Financial Officer Muneera S. Carr Executive Vice President and Chief Accounting Officer F-109 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Comerica Incorporated We have audited Comerica Incorporated and subsidiaries' internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Comerica Incorporated and subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management. Our responsibility is to express an opinion on the Corporation's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Comerica Incorporated and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2014 consolidated financial statements of Comerica Incorporated and subsidiaries and our report dated February 17, 2015 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Dallas, TX February 17, 2015 F-110 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Comerica Incorporated We have audited the accompanying consolidated balance sheets of Comerica Incorporated and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Comerica Incorporated and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Comerica Incorporated and subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2015 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Dallas, TX February 17, 2015 F-111 HISTORICAL REVIEW - AVERAGE BALANCE SHEETS Comerica Incorporated and Subsidiaries CONSOLIDATED FINANCIAL INFORMATION (in millions) Years Ended December 31 ASSETS Cash and due from banks Interest-bearing deposits with banks Other short-term investments Investment securities Commercial loans Real estate construction loans Commercial mortgage loans Lease financing International loans Residential mortgage loans Consumer loans Total loans Less allowance for loan losses Net loans Accrued income and other assets Total assets 2014 2013 2012 2011 2010 $ 934 $ 987 $ 983 $ 921 $ 5,513 109 9,350 4,930 112 9,637 4,128 134 9,915 3,746 129 8,171 825 3,197 126 7,164 29,715 1,909 8,706 834 1,376 1,778 2,270 46,588 (601) 45,987 4,445 $ 66,338 27,971 1,486 9,060 847 1,275 1,620 2,153 44,412 (622) 43,790 4,477 $ 63,933 26,224 1,390 9,842 864 1,272 1,505 2,209 43,306 (693) 42,613 4,796 $ 62,569 22,208 1,843 10,025 950 1,191 1,580 2,278 40,075 (838) 39,237 4,710 $ 56,914 21,090 2,839 10,244 1,086 1,222 1,607 2,429 40,517 (1,019) 39,498 4,740 $ 55,550 LIABILITIES AND SHAREHOLDERS’ EQUITY Noninterest-bearing deposits $ 25,019 $ 22,379 $ 21,004 $ 16,994 $ 15,094 Money market and interest-bearing checking deposits Savings deposits Customer certificates of deposit Other time deposits Foreign office time deposits Total interest-bearing deposits Total deposits Short-term borrowings Accrued expenses and other liabilities Medium- and long-term debt Total liabilities Total shareholders’ equity Total liabilities and shareholders’ equity 22,891 1,744 4,869 — 261 29,765 54,784 200 1,016 2,965 58,965 7,373 $ 66,338 21,704 1,657 5,471 — 500 29,332 51,711 211 1,074 3,972 56,968 6,965 $ 63,933 20,622 1,593 5,902 — 412 28,529 49,533 76 1,133 4,818 55,560 7,009 $ 62,569 19,088 1,550 5,719 23 388 26,768 43,762 138 1,147 5,519 50,566 6,348 $ 56,914 16,355 1,394 5,875 306 462 24,392 39,486 216 1,099 8,684 49,485 6,065 $ 55,550 F-112 HISTORICAL REVIEW - STATEMENTS OF INCOME Comerica Incorporated and Subsidiaries CONSOLIDATED FINANCIAL INFORMATION (in millions, except per share data) Years Ended December 31 INTEREST INCOME Interest and fees on loans Interest on investment securities Interest on short-term investments Total interest income INTEREST EXPENSE Interest on deposits Interest on short-term borrowings Interest on medium- and long-term debt Total interest expense Net interest income Provision for credit losses Net interest income after provision for loan losses NONINTEREST INCOME Service charges on deposit accounts Fiduciary income Commercial lending fees Card fees Letter of credit fees Bank-owned life insurance Foreign exchange income Brokerage fees Net securities (losses) gains Other noninterest income Total noninterest income NONINTEREST EXPENSES Salaries and benefits expense Net occupancy expense Equipment expense Outside processing fee expense Software expense Litigation-related expenses FDIC insurance expense Advertising expense Gain on debt redemption Merger and restructuring charges Other noninterest expenses Total noninterest expenses Income from continuing operations before income taxes Provision for income taxes Income from continuing operations Income from discontinued operations, net of tax NET INCOME Less: Preferred stock dividends Income allocated to participating securities Net income attributable to common shares Basic earnings per common share: Income from continuing operations Net income Diluted earnings per common share: Income from continuing operations Net income Comprehensive income Cash dividends declared on common stock Cash dividends declared per common share $ $ $ $ 2014 2013 2012 2011 2010 $ $ $ $ 1,525 211 14 1,750 45 — 50 95 1,655 27 1,628 215 180 98 80 57 39 40 17 — 142 868 980 171 57 122 95 4 33 23 (32) — 173 1,626 870 277 593 — 593 — 7 586 3.28 3.28 3.16 3.16 572 143 0.79 $ $ $ $ 1,556 214 14 1,784 55 — 57 112 1,672 46 1,626 214 171 99 74 64 40 36 17 (1) 168 882 1,009 160 60 119 90 52 33 21 (1) — 179 1,722 786 245 541 — 541 — 8 533 2.92 2.92 2.85 2.85 563 126 0.68 $ $ $ $ 1,617 234 12 1,863 70 — 65 135 1,728 79 1,649 214 158 96 65 71 39 38 19 12 158 870 1,018 163 65 107 90 23 38 27 — 35 191 1,757 762 241 521 — 521 — 6 515 2.68 2.68 2.67 2.67 464 106 0.55 $ $ $ $ 1,564 233 12 1,809 90 — 66 156 1,653 144 1,509 208 151 87 77 73 37 40 22 14 134 843 975 169 66 101 88 10 43 28 — 75 216 1,771 581 188 393 — 393 — 4 389 2.11 2.11 2.09 2.09 426 75 0.40 1,617 226 10 1,853 115 1 91 207 1,646 478 1,168 208 154 95 74 76 40 39 25 3 125 839 919 162 63 96 89 2 62 30 — — 219 1,642 365 105 260 17 277 123 1 153 0.79 0.90 0.78 0.88 224 44 0.25 F-113 HISTORICAL REVIEW - STATISTICAL DATA Comerica Incorporated and Subsidiaries CONSOLIDATED FINANCIAL INFORMATION Years Ended December 31 Average Rates (Fully Taxable Equivalent Basis) Interest-bearing deposits with banks Other short-term investments Investment securities Commercial loans Real estate construction loans Commercial mortgage loans Lease financing International loans Residential mortgage loans Consumer loans Total loans Interest income as a percentage of earning assets Domestic deposits Deposits in foreign offices Total interest-bearing deposits Short-term borrowings Medium- and long-term debt Interest expense as a percentage of interest-bearing sources Interest rate spread Impact of net noninterest-bearing sources of funds Net interest margin as a percentage of earning assets Ratios Return on average common shareholders’ equity Return on average assets Efficiency ratio (a) Tier 1 common capital as a percentage of risk-weighted assets (b) Tier 1 capital as a percentage of risk-weighted assets Total capital as a percentage of risk-weighted assets Tangible common equity as a percentage of tangible assets (b) Per Common Share Data Book value at year-end Market value at year-end Market value for the year High Low 2014 2013 2012 2011 2010 0.26% 0.57 0.26% 1.22 0.26% 1.65 0.24% 2.17 0.25% 1.58 2.26 3.12 3.41 3.75 2.33 3.65 3.82 3.20 3.28 2.85 0.14 0.82 0.15 0.04 1.68 0.29 2.56 0.14 2.70% 8.05% 0.89 64.31 10.50 10.50 12.51 9.85 2.25 3.28 3.85 4.11 3.23 3.74 4.09 3.30 3.51 3.03 0.18 0.52 0.19 0.07 1.45 0.33 2.70 0.14 2.84% 7.76% 0.85 68.83 10.64 10.64 13.10 10.07 2.43 3.44 4.44 4.44 3.01 3.73 4.55 3.42 3.74 3.27 0.24 0.63 0.25 0.12 1.36 0.41 2.86 0.17 3.03% 7.43% 0.83 69.24 10.14 10.14 13.15 9.76 2.91 3.69 4.37 4.23 3.51 3.83 5.27 3.50 3.91 3.49 0.33 0.48 0.33 0.13 1.20 0.48 3.01 0.18 3.19% 6.18% 0.69 72.73 10.37 10.41 14.25 10.27 3.24 3.89 3.17 4.10 3.88 3.94 5.30 3.54 4.00 3.65 0.48 0.31 0.47 0.25 1.05 0.62 3.03 0.21 3.24% 2.74% 0.50 67.39 10.13 10.13 14.54 10.54 $ 41.35 46.84 $ 39.22 47.54 $ 36.86 30.34 $ 34.79 25.80 $ 32.80 42.24 53.50 42.73 48.69 30.73 34.00 26.25 43.53 21.48 45.85 29.68 Other Data (share data in millions) Average common shares outstanding - basic Average common shares outstanding - diluted Number of banking centers Number of employees (full-time equivalent) (a) Noninterest expenses as a percentage of the sum of net interest income (FTE) and noninterest income excluding net securities gains (losses). (b) See Supplemental Financial Data section for reconcilements of non-GAAP financial measures. 183 187 483 8,948 170 173 444 9,073 185 186 494 9,468 191 192 489 9,035 179 185 481 8,876 F-114 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of February 17, 2015. SIGNATURES COMERICA INCORPORATED By: /s/ Ralph W. Babb, Jr. Ralph W. Babb, Jr. Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities indicated as of February 17, 2015. /s/ Ralph W. Babb, Jr. Ralph W. Babb, Jr. /s/ Karen L. Parkhill Karen L. Parkhill /s/ Muneera S. Carr Muneera S. Carr /s/ Roger A. Cregg Roger A. Cregg /s/ T. Kevin DeNicola T. Kevin DeNicola /s/ Jacqueline P. Kane Jacqueline P. Kane /s/ Richard G. Lindner Richard G. Lindner Alfred A. Piergallini /s/ Robert S. Taubman Robert S. Taubman /s/ Reginald M. Turner, Jr. Reginald M. Turner, Jr. /s/ Nina G. Vaca Nina G. Vaca Chairman, President and Chief Executive Officer and Director (Principal Executive Officer) Vice Chairman and Chief Financial Officer (Principal Financial Officer) Executive Vice President and Chief Accounting Officer (Principal Accounting Officer) Director Director Director Director Director Director Director Director S-1 2.1 3.1 3.2 3.3 4 4.1 4.2 4.3 4.4 9 10.1† 10.1A† 10.1B† 10.1C† 10.1D† 10.1E† 10.1F† 10.1G† EXHIBIT INDEX Agreement and Plan of Merger, dated as of January 16, 2011, by and among Comerica Incorporated, Sterling Bancshares, Inc., and, from and after its accession to the Agreement, Sub (as defined therein) (the schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (filed as Exhibit 2.1 to Registrant's Current Report on Form 8-K dated January 16, 2011, and incorporated herein by reference). Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant's Current Report on Form 8-K dated August 4, 2010, and incorporated herein by reference). Certificate of Amendment to Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference). Amended and Restated Bylaws of Comerica Incorporated (filed as Exhibit 3.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference). [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.] Warrant Agreement, dated May 6, 2010, between the registrant and Wells Fargo Bank, N.A. (filed as Exhibit 4.1 to Registrant's Registration Statement on Form 8-A dated May 7, 2010, and incorporated herein by reference). Form of Warrant (filed as Exhibit 4.1 to Registrant's Registration Statement on Form 8-A dated May 7, 2010, and incorporated herein by reference). Warrant Agreement, dated as of June 9, 2010, between Comerica Incorporated (as successor to Sterling Bancshares, Inc.) and American Stock Transfer & Trust Company, LLC (filed as Exhibit 4.1 to Sterling Bancshares, Inc.'s Registration Statement on Form 8-A12B filed on June 10, 2010 (File No. 001-34768) and incorporated herein by reference). Form of Warrant (filed as Exhibit 4.2 to Registrant's Registration Statement on Form S-4 (File No. 333-172211), and incorporated herein by reference). (not applicable) Comerica Incorporated 2006 Amended and Restated Long-Term Incentive Plan (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated April 23, 2013, and incorporated herein by reference). Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated Amended and Restated 2006 Long-Term Incentive Plan (filed as Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2006, and incorporated herein by reference). Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated Amended and Restated 2006 Long-Term Incentive Plan (2011 version) (filed as Exhibit 10.44 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference). Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated Amended and Restated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1C to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference) . Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated Amended and Restated 2006 Long-Term Incentive Plan (2014 version) (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated January 21, 2014, and incorporated herein by reference). Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated Amended and Restated 2006 Long-Term Incentive Plan (2014 version 2) (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated July 22, 2014, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (filed as Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2006, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2011 version) (filed as Exhibit 10.46 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference). E-1 10.1H† 10.1I† 10.1J† 10.1K† 10.1L† 10.1M† 10.1N† 10.1O† 10.1P† 10.1Q† 10.1R† 10.1S† 10.2† 10.2A† 10.3† 10.4† 10.5† Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1F to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2014 version) (filed as Exhibit 10.2 to Registrant's Current Report on Form 8-K dated January 21, 2014, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2014 version 2) (filed as Exhibit 10.2 to Registrant's Current Report on Form 8-K dated July 22, 2014, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff vesting) under the Comerica Incorporated 2006 Amended and Restated Long-Term Incentive Plan (filed as Exhibit 99.1 to Registrant's Current Report on Form 8-K dated January 22, 2007, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff vesting) under the Comerica Incorporated 2006 Amended and Restated Long-Term Incentive Plan (2011 version) (filed as Exhibit 10.45 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff vesting) under the Comerica Incorporated 2006 Amended and Restated Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1I to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff vesting) under the Comerica Incorporated 2006 Amended and Restated Long-Term Incentive Plan (long-term restricted version) (filed as Exhibit 10.41 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2009, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Unit Agreement under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2011 version) (filed as Exhibit 10.47 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference). Form of Standard Comerica Incorporated Restricted Stock Unit Agreement under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2011 version 2) (filed as Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and incorporated herein by reference). Form of Standard Comerica Incorporated Performance Restricted Stock Unit Agreement under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated November 19, 2012, and incorporated herein by reference). Form of Standard Comerica Incorporated Senior Executive Long-Term Performance Restricted Stock Unit Award Agreement under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (filed as Exhibit 10.3 to Registrant's Current Report on Form 8-K dated January 21, 2014, and incorporated herein by reference). Form of Standard Comerica Incorporated Senior Executive Long-Term Performance Restricted Stock Unit Award Agreement under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2014 version 2) (filed as Exhibit 10.3 to Registrant's Current Report on Form 8-K dated July 22, 2014, and incorporated herein by reference). Comerica Incorporated 1997 Amended and Restated Long-Term Incentive Plan (filed as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference). Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Amended and Restated Comerica Incorporated 1997 Long-Term Incentive Plan (filed as Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, and incorporated herein by reference). Amended and Restated Sterling Bancshares, Inc. 2003 Stock Incentive and Compensation Plan effective April 30, 2007 (filed as Exhibit 10.1 to Sterling Bancshares, Inc.'s Current Report on Form 8-K dated August 14, 2007 (File No. 000-20750), and incorporated herein by reference). 1994 Incentive Stock Option Plan of Sterling Bancshares, Inc. (filed as Exhibit 10.1 Sterling Bancshares, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 000-20750), and incorporated herein by reference). Comerica Incorporated Amended and Restated Employee Stock Purchase Plan (amended and restated October 22, 2013) (filed as Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2013, and incorporated herein by reference). E-2 10.6† 10.6A† 10.7† 10.8† 10.9† 10.10† 10.11† 10.12† 10.13† 10.14† 10.15† 10.15A† 10.15B† 10.15C† 10.15D† 10.15E† 10.16† Comerica Incorporated 2011 Management Incentive Plan (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated April 26, 2011, and incorporated herein by reference). Form of Standard Comerica Incorporated No Sale Agreement under the Comerica Incorporated Amended and Restated Management Incentive Plan (filed as Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, and incorporated herein by reference). Amended and Restated Benefit Equalization Plan for Employees of Comerica Incorporated (amended and restated March 24, 2009, with amendments effective January 1, 2009) (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated March 24, 2009, and incorporated herein by reference). 1999 Comerica Incorporated Amended and Restated Deferred Compensation Plan (amended and restated on July 26, 2011) (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated July 26, 2011, and incorporated herein by reference). 1999 Comerica Incorporated Amended and Restated Common Stock Deferred Incentive Award Plan (amended and restated on July 26, 2011) (filed as Exhibit 10.2 to Registrant's Current Report on Form 8-K dated July 26, 2011, and incorporated herein by reference). Sterling Bancshares, Inc. Deferred Compensation Plan (as Amended and Restated) (filed as Exhibit 4.4 to Registrant's Registration Statement on Form S-8 dated July 28, 2011 (Registration No. 333-175857) and incorporated herein by reference). Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee Directors (amended and restated on May 22, 2001) (filed as Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference). Amended and Restated Comerica Incorporated Stock Option Plan For Non-Employee Directors of Comerica Bank and Affiliated Banks (amended and restated May 22, 2001) (filed as Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference). Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan (amended and restated on January 27, 2015) (filed herewith). Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan (amended and restated on January 27, 2015) (filed herewith). Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (amended and restated on November 18, 2008, with amendments effective December 31, 2008) (filed as Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2008, and incorporated herein by reference). Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (filed as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference). Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (Version 2) (filed as Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, and incorporated herein by reference). Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (Version 2.5) (filed as Exhibit 10.48 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2010, and incorporated herein by reference). Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (Version 3) (filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and incorporated herein by reference). Form of Standard Comerica Incorporated Non-Employee Director Restricted Stock Unit Agreement under the Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (Version 4) (filed as Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, and incorporated herein by reference). Form of Director Indemnification Agreement between Comerica Incorporated and certain of its directors (filed as Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference). E-3 10.17† 10.18† 10.19A† 10.19B† 10.19C† 10.19D† 10.20† 10.20A† 10.21† 10.21A† 10.22† 10.23† 11 12 13 14 16 18 21 22 23.1 24 31.1 31.2 32 33 Supplemental Benefit Agreement with Eugene A. Miller (filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and incorporated herein by reference). Supplemental Pension and Retiree Medical Agreement with Ralph W. Babb Jr. (filed as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). Restrictive Covenants and General Release Agreement by and between J. Michael Fulton and Comerica Incorporated dated April 3, 2014 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated April 3, 2014, and incorporated herein by reference). Restrictive Covenants and General Release Agreement by and between Elizabeth S. Acton and Comerica Incorporated dated April 20, 2012 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated April 25, 2012, and incorporated herein by reference). Restrictive Covenants and General Release Agreement by and between Dale E. Greene and Comerica Incorporated dated August 22, 2011 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated August 22, 2011, and incorporated herein by reference). Restrictive Covenants and General Release Agreement by and between Mary Constance Beck and Comerica Incorporated dated January 21, 2011 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated January 21, 2011, and incorporated herein by reference). Form of Change of Control Employment Agreement (BE4 and Higher Version without gross-up or window period- current) (filed as Exhibit 10.42 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2009, and incorporated herein by reference). Schedule of Named Executive Officers Party to Change of Control Employment Agreement (BE4 and Higher Version without gross-up or window period-current). Form of Change of Control Employment Agreement (BE4 and Higher Version) (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated November 18, 2008, and incorporated herein by reference). Schedule of Named Executive Officers Party to Change of Control Employment Agreement (BE4 and Higher Version). Form of Change of Control Employment Agreement (BE2-BE3 Version) (filed as Exhibit 10.2 to Registrant's Current Report on Form 8-K dated November 18, 2008, and incorporated herein by reference). Waiver of Senior Executive Officers dated November 14, 2008 (filed as Exhibit 10.2 to Registrant's Current Report on Form 8-K dated November 13, 2008, regarding U.S. Department of Treasury's Capital Purchase Program, and incorporated herein by reference). Statement regarding Computation of Net Income Per Common Share (incorporated by reference from Note 15 on page F-90 of this Annual Report on Form 10-K). (not applicable) (not applicable) (not applicable) (not applicable) (not applicable) Subsidiaries of Registrant. (not applicable) Consent of Ernst & Young LLP. (not applicable) Chairman, President and CEO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002). Executive Vice President and CFO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002). Section 1350 Certification of Periodic Report (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002). (not applicable) E-4 34 35 95 99 100 101 † (not applicable) (not applicable) (not applicable) (not applicable) (not applicable) Financial statements from Annual Report on Form 10-K of the Registrant for the year ended December 31, 2014, 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. E-5  High Low Per Share Dividend Yield*Quarter2014FOURTHTHIRDSECONDFIRST2013FOURTHTHIRDSECONDFIRST $ 50.14 $ 42.73 $ 0.20 1.72% $ 52.72 $ 48.33 $ 0.20 1.58% $ 52.60 $ 45.34 $ 0.20 1.63% $ 53.50 $ 43.96 $ 0.19 1.56% $ 48.69 $ 38.64 $ 0.17 1.6% $ 43.49 $ 38.56 $ 0.17 1.7% $ 40.44 $ 33.55 $ 0.17 1.8% $ 36.99 $ 30.73 $ 0.17 2.0%Dividends * 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.CERTIFIED/OVERNIGHT MAIL:Wells Fargo Shareowner Services1110 Centre Pointe Curve, Suite 101Mendota Heights, MN 55120(877) 536-3551shareowneronline.comStockComerica’s common stock trades on the New York Stock Exchange (NYSE) under the symbol CMA.Shareholder AssistanceInquiries related to shareholder records, change of name, address or ownership of stock, and lost or stolen stock certificates should be directed to the transfer agent and registrar:WRITTEN REQUESTS: Wells FargoShareowner ServicesP.O. Box 64854St. Paul, MN 55164-0854(877) 536-3551stocktransfer@wellsfargo.comElimination of Duplicate MaterialsIf you receive duplicate mailings at one address, you may have multiple shareholder accounts. You can consolidate your multiple accounts into a single, more convenient account by contacting the transfer agent shown above. In addition, if more than one member of your householdis receiving shareholder materials, you can eliminate the duplicate mailings by contacting the transfer agent.Dividend Reinvestment PlanThe dividend reinvestment plan permits participating shareholders of record to reinvest dividends in Comerica common stock. Participating shareholders also may invest up to $10,000 in additional funds each month for the purchase of additional shares. A brochure describing the plan in detail and an authorization form can be requested from the transfer agent shown above.Dividend Direct DepositCommon shareholders of Comerica may have their dividends deposited into their savings or checking account at any bank that is a member of the National Automated Clearing House (ACH) system. Information describing this service and an authorization form can be requested from the transfer agent shown above.Dividend PaymentsSubject to approval of the board of directors and applicable regulatory requirements, dividends customarily are paid on Comerica’s common stock on or about January 1, April 1, July 1 and October 1.Officer CertificationsOn May 19, 2014, Comerica’s Chief Executive Officer submitted his annual certification to the New York Stock Exchange stating that he was not aware of any violation by Comerica of the Exchange’s corporate governance listing standards. Comerica filed the certifications by its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to its Annual Report on Form 10-K for the fiscal year ended December 31, 2014.Investor Relations on the InternetGo to investor.comerica.com to find the latest investor relations information about Comerica, including stock quotes, news releases and financial data.STOCK PRICES, DIVIDENDS AND YIELDSAs of January 31, 2015, there were 10,708 holders of record of Comerica’s common stock.Community Reinvestment Act (CRA) PerformanceComerica is committed to meeting the credit needs of the communities it serves. Equal Employment OpportunityComerica is committed to its affirmative action program and practices, which ensure uniform treatment of employees without regard to ancestry, race, color, religion, sex, national origin, age, physical or mental disability, medical condition, veteran status, marital status, pregnancy, weight, height, gender identity or sexual orientation.Corporate EthicsThe Corporate Governance section of Comerica’s website at comerica.com includes the following codes of ethics: Senior Financial Officer Code of Ethics, Code of Business Conduct and Ethics for Employees, and Code of Business Conduct and Ethics for Members of the Board of Directors. Comerica will also disclose in that website section any amendments or waivers to the Senior Financial Officer Code of Ethics within four business days of such an event.General InformationDirectory Services 800.521.1190Product Information 800.292.1300Shareholder InformationCOMERICA CORPORATE HEADQUARTERSComerica Bank Tower 1717 Main Street Dallas, Texas 75201®

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