UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2018~~March 31, 2019



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-10706

Comerica Incorporated

(Exact name of registrant as specified in its charter)



Delaware	38-1998421
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ý		Accelerated filer o
Non-accelerated filer o ~~(Do not check if a smaller reporting company)~~		Smaller reporting company o
		Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

$5 par value common stock:

Outstanding as of ~~July 25, 2018: 171,399,203~~April 24, 2019: 154,160,837 shares

COMERICA INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Balance Sheets at ~~June 30, 2018~~March 31, 2019 (unaudited) and December 31, ~~2017~~2018	1

Consolidated Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	2

Consolidated Statements of Changes in Shareholders’ Equity for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	3

Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	4

Notes to Consolidated Financial Statements (unaudited)	5

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	39 35

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	5951

ITEM 4. Controls and Procedures	5951

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings	59

ITEM 1A. Risk Factors	59

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	59

ITEM 6. Exhibits	60 59

Signature	61 60

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

Comerica Incorporated and Subsidiaries


(in millions, except share data)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(unaudited)						(unaudited)
ASSETS
Cash and due from banks	$	1,424		$	1,438		$	1,063		$	1,390

Interest-bearing deposits with banks	4,236			4,407			2,418			3,171
Other short-term investments	134			96			136			134

Investment securities available-for-sale	11,915			10,938			12,212			12,045
Investment securities held-to-maturity	—			1,266

Commercial loans	31,530			31,060			32,007			31,976
Real estate construction loans	3,257			2,961			3,291			3,077
Commercial mortgage loans	9,124			9,159			8,989			9,106
Lease financing	458			468			535			507
International loans	993			983			1,040			1,013
Residential mortgage loans	1,954			1,988			1,949			1,970
Consumer loans	2,476			2,554			2,491			2,514
Total loans	49,792			49,173			50,302			50,163
Less allowance for loan losses	(677		)	(712		)	(647		)	(671		)
Net loans	49,115			48,461			49,655			49,492

Premises and equipment	467			466			474			475
Accrued income and other assets	4,696			4,495			4,732			4,111
Total assets	$	71,987		$	71,567		$	70,690		$	70,818

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	30,316		$	32,071		$	26,242		$	28,690

Money market and interest-bearing checking deposits	22,544			21,500			22,889			22,560
Savings deposits	2,227			2,152			2,175			2,172
Customer certificates of deposit	2,089			2,165
Certificates of deposit							2,776			2,131
Foreign office time deposits	34			15			9			8
Total interest-bearing deposits	26,894			25,832			27,849			26,871
Total deposits	57,210			57,903			54,091			55,561

Short-term borrowings	58			10			935			44
Accrued expenses and other liabilities	1,057			1,069			1,407			1,243
Medium- and long-term debt	5,583			4,622			6,848			6,463
Total liabilities	63,908			63,604			63,281			63,311

Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued - 228,164,824 shares	1,141			1,141			1,141			1,141
Capital surplus	2,144			2,122			2,159			2,148
Accumulated other comprehensive loss	(589		)	(451		)	(513		)	(609		)
Retained earnings	8,374			7,887			8,979			8,781
Less cost of common stock in treasury - 57,254,526 shares at 6/30/18 and 55,306,483 shares at 12/31/17	(2,991		)	(2,736		)
Less cost of common stock in treasury - 72,747,011 shares at 3/31/19 and 68,081,176 shares at 12/31/18							(4,357		)	(3,954		)
Total shareholders’ equity	8,079			7,963			7,409			7,507
Total liabilities and shareholders’ equity	$	71,987		$	71,567		$	70,690		$	70,818

See notes to consolidated financial statements (unaudited).

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Comerica Incorporated and Subsidiaries


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended March 31,
(in millions, except per share data)	2018			2017		2018			2017			2019				2018
INTEREST INCOME
Interest and fees on loans	$	568		$	453	$	1,077		$	874		$	621			$	509
Interest on investment securities	64			62		128			123			72				64
Interest on short-term investments	18			14		35			28			17				17
Total interest income	650			529		1,240			1,025			710				590
INTEREST EXPENSE
Interest on deposits	28			9		44			18			52				16
Interest on short-term borrowings												1				—
Interest on medium- and long-term debt	32			20		57			37			51				25
Total interest expense	60			29		101			55			104				41
Net interest income	590			500		1,139			970			606			��	549
Provision for credit losses	(29		)	17		(17		)	33			(13		)		12
Net interest income after provision for credit losses	619			483		1,156			937			619				537
NONINTEREST INCOME
Card fees	60			80		119			157			63				59
Service charges on deposit accounts	53			57		107			115			51				54
Fiduciary income	52			51		104			100			49				52
Commercial lending fees	23			22		41			42			22				18
Foreign exchange income												11				12
Letter of credit fees	11			11		21			23			9				10
Bank-owned life insurance	9			9		18			19			9				9
Foreign exchange income	12			11		24			22
Brokerage fees	6			6		13			11			7				7
Net securities gains	—			—		1			—
Net securities (losses) gains												(8		)		1
Other noninterest income	22			29		44			58			25				22
Total noninterest income	248			276		492			547			238				244
NONINTEREST EXPENSES
Salaries and benefits expense	250			231		505			476			265				255
Outside processing fee expense	64			88		125			175			63				61
Net occupancy expense	37			38		75			76			37				38
Software expense												29				31
Equipment expense	11			11		22			22			12				11
Restructuring charges	11			14		27			25
Software expense	32			31		63			60
FDIC insurance expense	12			12		25			25			5				13
Advertising expense	8			7		14			11			5				6
Litigation-related expense	—			—		—			(2		)
Restructuring charges												—				16
Other noninterest expenses	23			25		38			46			17				15
Total noninterest expenses	448			457		894			914			433				446
Income before income taxes	419			302		754			570			424				335
Provision for income taxes	93			99		147			165			85				54
NET INCOME	326			203		607			405			339				281
Less income allocated to participating securities	2			1		4			3			2				2
Net income attributable to common shares	$	324		$	202	$	603		$	402		$	337			$	279
Earnings per common share:
Basic	$	1.90		$	1.15	$	3.52		$	2.30		$	2.14			$	1.62
Diluted	1.87			1.13		3.46			2.24			2.11				1.59

Comprehensive income	290			221		468			427			435				178

Cash dividends declared on common stock	58			46		110			88			105				52
Cash dividends declared per common share	0.34			0.26		0.64			0.49			0.67				0.30

See notes to consolidated financial statements (unaudited).

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Comerica Incorporated and Subsidiaries


																														Accumulated
																							Common Stock							Other									Total
	Common Stock							Accumulated Other Comprehensive Loss												Total Shareholders’ Equity			Shares				Capital			Comprehensive			Retained			Treasury			Shareholders'
(in millions, except per share data)	Shares Outstanding		Amount		Capital Surplus						Retained Earnings				Treasury Stock				Outstanding				Amount			Surplus		Loss			Earnings			Stock			Equity

BALANCE AT DECEMBER 31, 2016	175.3		$	1,141	$	2,135		$	(383	)		$	7,331			$	(2,428	)		$	7,796
Cumulative effect of change in accounting principle	—		—		3			—				(2		)		—				1
BALANCE AT DECEMBER 31, 2017																							172.9		$	1,141	$	2,122		$	(451	)	$	7,887		$	(2,736	)	$	7,963
Cumulative effect of change in accounting principles																							—		—		—			1			14			—			15
Net income	—		—		—			—				405				—				405			—		—		—			—			281			—			281
Other comprehensive income, net of tax	—		—		—			22				—				—				22
Cash dividends declared on common stock ($0.49 per share)	—		—		—			—				(88		)		—				(88		)
Other comprehensive loss, net of tax																							—		—		—			(103		)	—			—			(103		)
Cash dividends declared on common stock ($0.30 per share)																							—		—		—			—			(52		)	—			(52		)
Purchase of common stock	(3.7	)	—		—			—				—				(257		)		(257		)	(1.7	)	—		—			—			—			(159		)	(159		)
Net issuance of common stock under employee stock plans	2.8		—		(26		)	—				(20		)		128				82			1.2		—		(11		)	—			(17		)	59			31
Net issuance of common stock for warrants	1.5		—		(25		)	—				(46		)		71				—			0.1		—		(1		)	—			(3		)	4			—
Share-based compensation	—		—		24			—				—				—				24			—		—		24			—			—			—			24
Other	—		—		(1		)	—				—				1				—
BALANCE AT JUNE 30, 2017	175.9		$	1,141	$	2,110		$	(361	)		$	7,580			$	(2,485	)		$	7,985
BALANCE AT MARCH 31, 2018																							172.5		$	1,141	$	2,134		$	(553	)	$	8,110		$	(2,832	)	$	8,000

BALANCE AT DECEMBER 31, 2017	172.9		$	1,141	$	2,122		$	(451	)		$	7,887			$	(2,736	)		$	7,963
Cumulative effect of change in accounting principles	—		—		—			1				14				—				15
BALANCE AT DECEMBER 31, 2018																							160.1		$	1,141	$	2,148		$	(609	)	$	8,781		$	(3,954	)	$	7,507
Cumulative effect of change in accounting principle																							—		—		—			—			(14		)	—			(14		)
Net income	—		—		—			—				607				—				607			—		—		—			—			339			—			339
Other comprehensive loss, net of tax	—		—		—			(139		)		—				—				(139		)
Cash dividends declared on common stock ($0.64 per share)	—		—		—			—				(110		)		—				(110		)
Other comprehensive income, net of tax																							—		—		—			96			—			—			96
Cash dividends declared on common stock ($0.67 per share)																							—		—		—			—			(105		)	—			(105		)
Purchase of common stock	(3.4	)	—		—			—				—				(328		)		(328		)	(5.2	)	—		—			—			—			(434		)	(434		)
Net issuance of common stock under employee stock plans	1.3		—		(11		)	—				(21		)		69				37			0.5		—		(13		)	—			(22		)	31			(4		)
Net issuance of common stock for warrants	0.1		—		(1		)	—				(3		)		4				—
Share-based compensation	—		—		34			—				—				—				34			—		—		24			—			—			—			24
BALANCE AT JUNE 30, 2018	170.9		$	1,141	$	2,144		$	(589	)		$	8,374			$	(2,991	)		$	8,079
BALANCE AT MARCH 31, 2019																							155.4		$	1,141	$	2,159		$	(513	)	$	8,979		$	(4,357	)	$	7,409

See notes to consolidated financial statements (unaudited).

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Comerica Incorporated and Subsidiaries


	Six Months Ended June 30,						Three Months Ended March 31,
(in millions)	2018			2017			2019			2018
OPERATING ACTIVITIES
Net income	$	607		$	405		$	339		$	281
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	(17		)	33			(13		)	12
Provision (benefit) for deferred income taxes	14			(19		)
(Benefit) provision for deferred income taxes							(4		)	7
Depreciation and amortization	60			60			29			31
Net periodic defined benefit credit	(10		)	(9		)	(7		)	(5		)
Share-based compensation expense	34			24			24			24
Net amortization of securities	2			3			—			1
Accretion of loan purchase discount	—			(2		)
Net securities gains	(1		)	—
Net gains on sales of foreclosed property	(1		)	(1		)
Net securities losses (gains)							8			(1		)
Net change in:
Accrued income receivable	(38		)	(1		)	(20		)	(26		)
Accrued expenses payable	(51		)	(17		)	(27		)	(22		)
Other, net	15			174			(289		)	56
Net cash provided by operating activities	614			650			40			358
INVESTING ACTIVITIES
Investment securities available-for-sale:
Maturities and redemptions	895			771			487			444
Sales	5			1,259			987			5
Purchases	(891		)	(2,169		)	(1,532		)	(441		)
Investment securities held-to-maturity:
Maturities and redemptions	—			153
Net change in loans	(651		)	(370		)	(151		)	(98		)
Proceeds from sales of foreclosed property	6			4			—			1
Net increase in premises and equipment	(41		)	(27		)	(16		)	(20		)
Purchases of Federal Home Loan Bank stock	(41		)	(22		)	(16		)	(41		)
Proceeds from bank-owned life insurance settlements	3			6			2			3
Other, net	(1		)	2
Net cash used in investing activities	(716		)	(393		)	(239		)	(147		)
FINANCING ACTIVITIES
Net change in:
Deposits	(737		)	(2,084		)	(1,586		)	(77		)
Short-term borrowings	48			516			891			38
Medium- and long-term debt
Federal Home Loan Bank advances	1,000			—
Terminations	—			(16		)
Issuances and advances of medium- and long-term debt							350			1,000
Common stock:
Repurchases	(337		)	(265		)	(443		)	(168		)
Cash dividends paid	(104		)	(81		)	(99		)	(53		)
Issuances under employee stock plans	46			90			6			40
Other, net	1			(4		)
Net cash used in financing activities	(83		)	(1,844		)
Net decrease in cash and cash equivalents	(185		)	(1,587		)
Net cash (used in) provided by financing activities							(881		)	780
Net (decrease) increase in cash and cash equivalents							(1,080		)	991
Cash and cash equivalents at beginning of period	5,845			7,218			4,561			5,845
Cash and cash equivalents at end of period	$	5,660		$	5,631		$	3,481		$	6,836
Interest paid	$	99		$	54		$	98		$	40
Income tax paid	94			130			12			2
Noncash investing and financing activities:
Loans transferred to other real estate	2			4			—			1
Securities transferred from held-to-maturity to available-for-sale	1,266			—			—			1,266
Securities transferred from available-for-sale to equity securities	81			—			—			81

See notes to consolidated financial statements (unaudited).

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Organization

The accompanying unaudited consolidated financial statements were prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2018~~2019. Certain items in prior periods were reclassified to conform to the current presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report of Comerica Incorporated and Subsidiaries (the Corporation) on Form 10-K for the year ended December 31, ~~2017~~2018.

~~Revenue Recognition~~Leases

Effective January 1, 2018, the Corporation adopted the provision of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers" (Topic 606), using the modified retrospective method applied to all open contracts as of January 1, 2018.

Under Topic 606, card fee revenue from certain products is generally presented net of network costs, including interchange costs, surcharge fees and assessment fees, as opposed to the previous presentation of associated network costs in outside processing fees in the Consolidated Statements of Comprehensive Income. Similar adjustments were made for other revenue streams that resulted in certain costs being recognized in the same category as the associated revenues in noninterest income.

The adoption of Topic 606 resulted in decreases of $37 million in card fees and $1 million in service charges on deposits accounts, included in noninterest income, and a corresponding $38 million decrease in outside processing fees included in noninterest expenses, in the Consolidated Statements of Comprehensive Income for the three months ended June 30, 2018. For the six months ended June 30, 2018, the impact on the Consolidated Statements of Comprehensive Income was a $71 million decrease in card fees, a $2 million decrease in service charges on deposit accounts and a $73 million decrease in outside processing fee expense.

The Corporation previously deferred recognition of certain treasury management fees included in service charges on deposit accounts in the Consolidated Statements of Comprehensive Income until the amount of compensation was considered fixed and determinable. Under the new guidance, the portion of these fees that are based on agreed upon rates less estimated credits expected to be earned by the customer is recognized as services are rendered. As a result, the Corporation recorded a transition adjustment of $14 million, after tax, to retained earnings, included in cumulative effect of change in accounting principles in the accompanying Consolidated Statements of Changes in Shareholders Equity. Similar adjustments were made for other revenue streams that resulted in an additional cumulative transition after-tax adjustment to retained earnings of $2 million.

Revenues from contracts with customers may be recognized when services are complete or as they are rendered, although contracts are generally short-term by nature. Services provided over a period of time are typically transferred to customers evenly over the term of the contracts and revenue is recognized evenly over the period services are provided. Contract receivables are included in accrued income and other assets on the Consolidated Balance Sheets. Payment terms vary by services offered, and the timing between completion of performance obligations and payment is typically not significant.

Card fees comprise interchange and other fee income earned on government card, commercial card, debit/Automated Teller Machine card and merchant payment processing programs. Card fees are presented net of network costs as performance obligations for card services are limited to transaction processing and settlement with the card network on behalf of the customers. Network costs were approximately $37 million and $26 million for the three months ended June 30, 2018 and 2017, respectively, and $71 million and $51 million for the six months ended June 30, 2018 and 2017, respectively. Fees for these services are primarily based on interchange rates set by the network and transaction volume. The Corporation also provides ongoing card program support services, for which fees are based on contractually agreed prices and customer demand for services.

Service charges on deposit accounts comprise charges on retail and business accounts, including fees for treasury management services. These treasury management services include transaction-based services related to payment processing, overdrafts, non-sufficient funds and other deposit account activity, as well as account management services that are provided over time. Business customers can earn credits depending on deposit balances maintained with the Corporation, which may be used to offset fees. Fees and credits are based on predetermined, agreed upon rates.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

Fiduciary income includes fees and commissions from asset management, custody, recordkeeping, investment advisory and other services provided primarily to personal and institutional trust customers. Revenue is recognized as the services are performed and is based either on the market value of the assets managed or the services provided, as well as agreed upon rates.

Commercial lending fees include both revenue from contracts with customers (primarily loan servicing fees) and other sources of revenue. Commercial loan servicing fees are based on contractually agreed prices and when the services are provided. Other sources of revenue in commercial lending fees primarily include fees assessed on the unused portion of commercial lines of credit (unused commitment fees) and syndication arrangements.

Brokerage fees are commissions earned for facilitating securities transactions for customers, as well other brokerage services provided. Revenue is recognized when services are complete and are based on the type of services provided and agreed upon rates. The Corporation pays commissions based on brokerage fee revenue. These are typically recognized when incurred because the amortization period is one year or less and are included in salaries and benefits expense in the Consolidated Statements of Comprehensive Income.

Other revenues, consisting primarily of other retail fees, investment banking fees and insurance commissions, are typically recognized when services or transactions are completed and are based on the type of services provided and agreed upon rates.

Except as discussed above, commissions and other incentives paid to employees are generally based on several internal and external metrics and as a result are not solely dependent on revenue generating activities.

~~Classification and Measurement of Financial Instruments~~

~~Effective January 1, 2018,~~2019, the Corporation adopted the provisions of Accounting Standards Update (ASU) No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition of Financial Assets and Financial Liabilities," (ASU 2016-01). ASU 2016-01 requires equity investments, other than equity method investments, to be measured at fair value with changes in fair value recognized in net income. At adoption, an immaterial amount of cumulative net unrealized losses on equity securities previously recognized in accumulated other comprehensive income (AOCI) was reclassified to the opening balance of retained earnings, included in cumulative effect of change in accounting principles in the accompanying Consolidated Statements of Changes in Shareholders Equity. Changes to the fair value of equity securities occurring after December 31, 2017, other than equity method investments, are included in net securities losses in the Consolidated Statements of Comprehensive Income. Also, as part of adopting ASU 2016-01, the Corporation refined the calculation used to determine the estimated fair value of loans disclosed in note 2 to the consolidated financial statements.

~~Statement of Cash Flows~~

The Corporation adopted FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” (ASU 2016-15) on January 1, 2018 and, as a result, reclassified $6 million of proceeds from settlement of bank-owned life insurance policies from operating activities to investing activities for the six-month period ended June 30, 2017.

~~Defined Benefit Pension and Other Postretirement Costs~~

The Corporation retrospectively adopted the provisions of ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-07) on January 1, 2018, which requires employers to report service cost as part of compensation expense and the other components of net benefit credit separately from service cost. As a result, $12 million and $24 million of benefit from the other components of net benefit credit was reclassified from salaries and benefits expense to other noninterest expenses in the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017, respectively. The Corporation based the adjustment to the prior periods on amounts disclosed in note 10.

~~Derivatives Instruments and Hedging Activities~~

The Corporation adopted ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (ASU 2017-12), effective January 1, 2018. At transition, the Corporation elected to change the measurement methodology of all long-haul fair value hedges existing at December 31, 2017. The prior period effect of this election was a $1 million reduction to opening retained earnings, included in cumulative effect of change in accounting principles in the Consolidated Statements of Shareholders' Equity. In addition, the Corporation made a transition election to reclassify the portfolio of held-to-maturity securities to available-for-sale in January 2018 as the securities are eligible to be hedged. This resulted in the recognition of additional unrealized losses of $11 million at the date of transfer.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

~~Income Taxes~~

The Tax Cuts and Jobs Act (the "Act"), enacted on December 22, 2017, reduced the U.S. federal corporate tax rate from 35 percent to 21 percent. Also, on December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance on accounting for tax effects of the Act. SAB 118 provides a measurement period of up to one year from the enactment date to complete the accounting. Based on the information available and current interpretation of the rules, the Corporation has made reasonable estimates of the impact of the reduction in the corporate tax rate and remeasurement of certain deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future, generally 21 percent. The provisional amount recorded related to the remeasurement of the Corporation's deferred tax balance was $104 million, including $107 million recognized in the year ended December 31, 2017 and a $3 million downward revision to the estimated impact recorded in the six months ended June 30, 2018. The final impact of the Act may differ from these estimates as a result of changes in management’s interpretations and assumptions, as well as new guidance that may be issued by the Internal Revenue Service (IRS).

~~Pending Accounting Pronouncements~~

~~In February 2016, the FASB issued ASU No.~~ 2016-02, “Leases (Topic 842),” (ASU 2016-02), ~~to increase the transparency and comparability of lease recognition and disclosure. ASU 2016-02 requires lessees to recognize lease contracts~~for all open leases with a term greater than one year onas of the ~~balance sheet, while recognizing expenses on the income statement in a manner similar to current guidance. ASU 2016-02 is effective for the Corporation on January 1, 2019 and must be applied~~adoption date, using the modified retrospective approach. ~~In July 2018,~~Prior comparable periods are presented in accordance with previous guidance under Accounting Standards Codification (ASC) 840, “Leases.”

Topic 842 requires the ~~FASB issued~~recognition of a lease liability measured as the present value of unpaid lease payments for operating leases where the Corporation is the lessee, and a corresponding right-of-use (ROU) asset for the right to use the leased properties. The Corporation elected not to reassess whether contracts are or contain leases, lease classification or initial direct costs for existing leases, a set of practical expedients for transition provided by ASU ~~2018-11 “Leases (Topic 842): Targeted Improvements,” which provides lessees~~2016-12. Further, the ~~option~~Corporation elected the practical expedient to ~~apply~~use hindsight in determining the ~~new leasing standard to all open leases~~lease term and assessing impairment. The election of the hindsight practical expedient resulted in longer lease terms for a limited number of strategic locations based on relevant factors as of the adoption date.

The impact at adoption was increases of $329 million and $343 million to total assets and liabilities, respectively, and a $14 million reduction to retained earnings. The increase in total assets was due to the recognition of ROU assets recorded in accrued income and other assets, and the increase in total liabilities was due to corresponding recognition of lease payment liabilities recorded in accrued expenses and other liabilities.

Operating lease liabilities reflect the Corporation’s obligation to make future lease payments, primarily for real estate locations. Lease terms typically comprise contractual terms but may include extension options reasonably assured of being exercised at lease inception for certain strategic locations such as regional headquarters. Payments are discounted using the rate the Corporation would pay to borrow amounts equal to the lease payments over the lease term (the Corporation’s incremental borrowing rate). The Corporation ~~expects to make use~~does not separate lease and non-lease components for contracts in which it is the lessee. ROU assets are measured based on lease liabilities adjusted for incentives and timing differences between operating lease expense and payments, recognized on a straight-line basis over the lease term. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are recognized as incurred. Common area maintenance and other executory costs are the main components of ~~this transition option~~variable lease payments. Operating and ~~is currently finalizing review of key assumptions and evaluation of service contracts for embedded leases. Based on preliminary evaluation, the right-of-use asset and corresponding~~variable lease ~~obligation liability~~expenses are ~~expected to range between $450 million and $550 million at adoption, resulting~~recorded in ~~an 8- to 10-basis point decrease~~net occupancy expense in the ~~common equity tier 1 capital (CET1) ratio. Preliminary estimates~~Consolidated Statements of Income.

The Corporation is the lessor in sales-type, direct finance and leveraged lease arrangements. Leases are ~~based on the current interest rate environment which may differ from those~~recorded at the ~~time~~principal balance outstanding, net of ~~adoption~~unearned income and charge-offs. Interest income is recognized using the interest method. The impact of ~~the standard. The Corporation will continue to evaluate other impacts of adoption but does~~adopting Topic 842 for lessor accounting was not ~~anticipate these to be~~ significant.

Pending Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," (ASU 2016-13), which addresses concerns regarding the perceived delay in recognition of credit losses under the existing incurred loss model. The amendment introduces a new, single model for recognizing credit losses on all financial instruments presented on a cost basis. Under the new model, entities must estimate current expected credit losses by considering all available relevant information, including historical and current ~~information,~~conditions, as well as reasonable and supportable forecasts of future events. The update also requires additional qualitative and quantitative ~~information~~disclosure to allow users to better understand the credit risk within the portfolio and the methodologies for determining the allowance for credit losses.

ASU 2016-13 is effective for the Corporation on January 1, 2020 and must be applied using the modified retrospective approach with limited exceptions. ~~Early adoption is permitted.~~The Corporation’s cross-functional implementation team, led by the Chief Financial Officer and Chief Credit Officer, continued to make progress in accordance with the detailed implementation plan for adoption. In prior periods, the Corporation developed new credit estimation models and, in the first quarter 2019, completed internal validation of

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

the models. The Corporation ~~will adopt the standard on January 1, 2020 and~~ is currently ~~evaluating~~finalizing and documenting new processes and controls, challenging current model assumptions and outputs, refining the qualitative framework as well as drafting policies and disclosures. Additionally, limited parallel runs, which began in the fourth quarter 2018, will be enhanced throughout 2019 as the end-to-end processes, controls and policies are finalized.

The ultimate impact of ASU 2016-13 will depend on the composition of the portfolio as well as economic conditions and forecasts at the time of adoption. Based on current factors, the overall allowance for credit losses is not expected to materially change due to the portfolio’s relatively short average contractual life. The commercial portfolio, which comprises most of the Corporation’s portfolio, consists of loans and lending arrangements with short contractual maturities which are expected to result in a slight reduction to the allowance for credit losses. The allowance for credit losses is expected to increase for the consumer portfolio given its longer contractual maturities. The standard will be adopted in first quarter 2020.

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.

Equity securities, investment securities available-for-sale, derivatives and deferred compensation plan assets and 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~~Note 1 to the consolidated financial statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 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.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

~~ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS~~Assets and Liabilities 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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018.


(in millions)	Total		Level 1		Level 2		Level 3			Total		Level 1		Level 2		Level 3
June 30, 2018
March 31, 2019
Deferred compensation plan assets	$	91	$	91	$	—	$	—		$	91	$	91	$	—	$	—
Equity securities	41		41		—		—			43		43		—		—
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	2,699		2,699		—		—			2,756		2,756		—		—
Residential mortgage-backed securities (a)	9,216		—		9,216		—			9,456		—		9,456		—
Total investment securities available-for-sale	11,915		2,699		9,216		—			12,212		2,756		9,456		—
Derivative assets:
Interest rate contracts	35		—		29		6			112		—		98		14
Energy derivative contracts	177		—		177		—			96		—		96		—
Foreign exchange contracts	39		—		39		—			15		—		15		—
Warrants	2		—		—		2
Total derivative assets	253		—		245		8			223		—		209		14
Total assets at fair value	$	12,300	$	2,831	$	9,461	$	8		$	12,569	$	2,890	$	9,665	$	14
Derivative liabilities:
Interest rate contracts	$	117	$	—	$	117	$	—		$	47	$	—	$	47	$	—
Energy derivative contracts	177		—		177		—			93		—		93		—
Foreign exchange contracts	32		—		32		—			9		—		9		—
Total derivative liabilities	326		—		326		—			149		—		149		—
Deferred compensation plan liabilities	91		91		—		—			91		91		—		—
Total liabilities at fair value	$	417	$	91	$	326	$	—		$	240	$	91	$	149	$	—
December 31, 2017
Trading securities:
December 31, 2018
Deferred compensation plan assets	$	92	$	92	$	—	$	—		$	88	$	88	$	—	$	—
Equity securities										43		43		—		—
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	2,727		2,727		—		—			2,727		2,727		—		—
Residential mortgage-backed securities (a)	8,124		—		8,124		—			9,318		—		9,318		—
State and municipal securities	5		—		—		5		(b)
Equity and other non-debt securities	82		38		—		44		(b)
Total investment securities available-for-sale	10,938		2,765		8,124		49			12,045		2,727		9,318		—
Derivative assets:
Interest rate contracts	57		—		43		14			67		—		58		9
Energy derivative contracts	93		—		93		—			189		—		189		—
Foreign exchange contracts	42		—		42		—			19		—		19		—
Warrants	2		—		—		2
Total derivative assets	194		—		178		16			275		—		266		9
Total assets at fair value	11,224		$	2,857	$	8,302	$	65		$	12,451	$	2,858	$	9,584	$	9
Derivative liabilities:
Interest rate contracts	59		—		59		—			$	70	$	—	$	70	$	—
Energy derivative contracts	91		—		91		—			186		—		186		—
Foreign exchange contracts	40		—		40		—			13		—		13		—
Total derivative liabilities	190		—		190		—			269		—		269		—
Deferred compensation plan liabilities	92		92		—		—			88		88		—		—
Total liabilities at fair value	$	282	$	92	$	190	$	—		$	357	$	88	$	269	$	—


(a)	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 each of the ~~three- and six-month~~three-month periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

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Notes to Consolidated Financial Statements (unaudited)

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 ~~three- and six-month~~three-month periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~.2018.


							Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings																					Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings (b)
	Balance at Beginning of Period																	Balance at End of Period			Balance at Beginning of Period			Change in Classification (a)															Balance at End of Period
			Change in Classification (a)											Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings			Sales and Redemptions																		Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings (b)
(in millions)						Realized		Sales and Redemptions	Realized			Unrealized																Realized	Sales and Redemptions		Realized			Unrealized
Three Months Ended June 30, 2018
Three Months Ended March 31, 2019
Derivative assets:
Interest rate contracts	$	7	$	—			$	—		$	(1	)	(b)		$	—			$	6		$	9		$	—		$		—			$	5				$	—			$	14
Warrants	2		—				1		(b)	—					(1		)		2
Three Months Ended June 30, 2017
Investment securities available-for-sale:
State and municipal securities (c)	$	5	$	—			$	—		$	—				$	—			$	5
Equity and other non-debt securities (c)	46		—				—			—					—				46
Total investment securities available-for-sale	51		—				—			—					—				51
Derivative assets:
Interest rate contracts	11		—				—			2			(b)		—				13
Warrants	2		—				4		(b)	—					(4		)		2
Six Months Ended June 30, 2018
Three Months Ended March 31, 2018
Equity securities	$	—	$	44			$	—		$	—				$	(44	)		$	—		$	—		$	44		$	—		$	—				$	(44	)		$	—
Investment securities available-for-sale:
State and municipal securities (c)	5		—				—			—					(5		)		—			5			—			—			—					(5		)		—
Equity and other non-debt securities (c)	44		(44		)		—			—					—				—			44			(44		)	—			—					—				—
Total investment securities available-for-sale	49		(44		)		—			—					(5		)		—			49			(44		)	—			—					(5		)		—
Derivative assets:
Interest rate contracts	14		—				—			(8		)	(b)		—				6			14			—			—			(7		)			—				7
Warrants	2		—				1		(b)	—					(1		)		2
Six Months Ended June 30, 2017
Investment securities available-for-sale:
State and municipal securities (c)	$	7	$	—			$	—		$	—				$	(2	)		$	5
Equity and other non-debt securities (c)	47		—				—			—					(1		)		46
Total investment securities available-for-sale	54		—				—			—					(3		)		51
Derivative assets:
Interest rate contracts	11		—				—			2			(b)		—				13
Warrants	3		—				5		(b)	(1		)	(b)		(5		)		2


(a)	Reflects the reclassification of equity securities resulting from the adoption of ASU 2016-01.


(b)	Realized and unrealized gains and losses due to changes in fair value are recorded in ~~Other Noninterest Income~~other noninterest income on the Consolidated Statements of Comprehensive Income.


(c)	Auction-rate securities.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated~~Assets and ~~Subsidiaries~~

~~ASSESTS AND LIABILITIES AT FAIR VALUE ON A NONRECURRING BASIS~~Liabilities at Fair Value on a Nonrecurring Basis

The Corporation may be required 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.

The following table presents assets recorded at fair value on a nonrecurring basis at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. No liabilities were recorded at fair value on a nonrecurring basis at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.


(in millions)	Level 3		Level 3
June 30, 2018
Loans:
Commercial	$	76
Commercial mortgage	4
Total loans	80
Other real estate	1
Total assets at fair value	$	81
December 31, 2017
March 31, 2019
Loans:
Commercial	$	111	$	40
Commercial mortgage	5		2
Total assets at fair value	$	116	$	42
December 31, 2018
Loans:
Commercial			$	33
Commercial mortgage			2
Total assets at fair value			$	35

Level 3 assets recorded at fair value on a nonrecurring basis at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 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~~collateral. 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.

~~ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS~~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.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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:


	Carrying Amount			Estimated Fair Value										Carrying Amount			Estimated Fair Value
(in millions)				Total			Level 1		Level 2		Level 3						Total			Level 1		Level 2		Level 3
June 30, 2018
March 31, 2019
Assets
Cash and due from banks	$	1,424		$	1,424		$	1,424	$	—	$	—		$	1,063		$	1,063		$	1,063	$	—	$	—
Interest-bearing deposits with banks	4,236			4,236			4,236		—		—			2,418			2,418			2,418		—		—
Loans held-for-sale	2			2			—		2		—			2			2			—		2		—
Total loans, net of allowance for loan losses (a)	49,115			48,929			—		—		48,929			49,655			50,154			—		—		50,154
Customers’ liability on acceptances outstanding	3			3			3		—		—			4			4			4		—		—
Restricted equity investments	248			248			248		—		—			264			264			264		—		—
Nonmarketable equity securities (b)	6			11										6			10
Liabilities
Demand deposits (noninterest-bearing)	30,316			30,316			—		30,316		—			26,242			26,242			—		26,242		—
Interest-bearing deposits	24,805			24,805			—		24,805		—			25,073			25,073			—		25,073		—
Customer certificates of deposit	2,089			2,061			—		2,061		—
Certificates of deposit														2,776			2,751			—		2,751		—
Total deposits	57,210			57,182			—		57,182		—			54,091			54,066			—		54,066		—
Short-term borrowings	58			58			58		—		—			935			935			935		—		—
Acceptances outstanding	3			3			3		—		—			4			4			4		—		—
Medium- and long-term debt	5,583			5,588			—		5,588		—			6,848			6,862			—		6,862		—
Credit-related financial instruments	(60		)	(60		)	—		—		(60		)	(55		)	(55		)	—		—		(55		)
December 31, 2017
December 31, 2018
Assets
Cash and due from banks	$	1,438		$	1,438		$	1,438	$	—	$	—		$	1,390		$	1,390		$	1,390	$	—	$	—
Interest-bearing deposits with banks	4,407			4,407			4,407		—		—			3,171			3,171			3,171		—		��
Investment securities held-to-maturity	1,266			1,246			—		1,246		—
Loans held-for-sale	4			4			—		4		—			3			3			—		3		—
Total loans, net of allowance for loan losses (a)	48,461			48,153			—		—		48,153			49,492			48,889			—		—		48,889
Customers’ liability on acceptances outstanding	2			2			2		—		—			4			4			4		—		—
Restricted equity investments	207			207			207		—		—			248			248			248		—		—
Nonmarketable equity securities (b)	6			9										6			11
Liabilities
Demand deposits (noninterest-bearing)	32,071			32,071			—		32,071		—			28,690			28,690			—		28,690		—
Interest-bearing deposits	23,667			23,667			—		23,667		—			24,740			24,740			—		24,740		—
Customer certificates of deposit	2,165			2,142			—		2,142		—
Certificates of deposit														2,131			2,100			—		2,100		—
Total deposits	57,903			57,880			—		57,880		—			55,561			55,530			—		55,530		—
Short-term borrowings	10			10			10		—		—			44			44			44		—		—
Acceptances outstanding	2			2			2		—		—			4			4			4		—		—
Medium- and long-term debt	4,622			4,636			—		4,636		—			6,463			6,436			—		6,436		—
Credit-related financial instruments	(67		)	(67		)	—		—		(67		)	(57		)	(57		)	—		—		(57		)


(a)	Included ~~$80~~$42 million and ~~$116~~$35 million of impaired loans recorded at fair value on a nonrecurring basis at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.


(b)	Certain investments that are measured at fair value using the net asset value have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.

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NOTE 3 - INVESTMENT SECURITIES

A summary of the Corporation’s investment securities follows:


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2018
March 31, 2019
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	$	2,744	$	—	$	45	$	2,699	$	2,742	$	19	$	5	$	2,756
Residential mortgage-backed securities (a)	9,499		10		293		9,216		9,533		36		113		9,456
Total investment securities available-for-sale	$	12,243	$	10	$	338	$	11,915	$	12,275	$	55	$	118	$	12,212

December 31, 2017
December 31, 2018
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	$	2,743	$	—	$	16	$	2,727	$	2,732	$	14	$	19	$	2,727
Residential mortgage-backed securities (a)	8,230		22		128		8,124		9,493		22		197		9,318
State and municipal securities	5		—		—		5
Equity and other non-debt securities	83		1		2		82
Total investment securities available-for-sale (b)	$	11,061	$	23	$	146	$	10,938
Investment securities held-to-maturity (c):
Residential mortgage-backed securities (a)	$	1,266	$	—	$	20	$	1,246
Total investment securities available-for-sale									$	12,225	$	36	$	216	$	12,045


(a)	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 $51 million and $49 million, respectively, as of December 31, 2017.~~


~~(c)~~	The amortized cost of investment securities held-to-maturity included net unrealized losses of $9 million at December 31, 2017 related to securities transferred from available-for-sale in 2014, which are included in accumulated other comprehensive loss.

In connection with the adoption of ASU 2016-01 on January 1, 2018, cumulative unrealized gains and losses on available-for-sale equity and other non-debt securities were reclassified to retained earnings and the carrying value was reclassified to other short-term investments. Additionally, the Corporation transferred residential mortgage-backed securities with a book value of approximately $1.3 billion from held-to-maturity to available-for-sale upon the adoption of ASU 2017-12. For additional information about the adoption of ASU 2016-01, refer to note 1.

A summary of the Corporation’s investment securities in an unrealized loss position as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 follows:


	Temporarily Impaired														Temporarily Impaired
	Less than 12 Months				12 Months or more					Total					Less than 12 Months				12 Months or more				Total
(in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2018
March 31, 2019
U.S. Treasury and other U.S. government agency securities	$	2,699	$	45	$	—	$	—		$	2,699	$	45		$	1,100	$	3	$	378	$	2	$	1,478	$	5
Residential mortgage-backed securities (a)	4,544		106		3,934		187			8,478		293			368		—		6,379		113		6,747		113
Total temporarily impaired securities	$	7,243	$	151	$	3,934	$	187		$	11,177	$	338		$	1,468	$	3	$	6,757	$	115	$	8,225	$	118
December 31, 2017
December 31, 2018
U.S. Treasury and other U.S. government agency securities	$	2,727	$	16	$	—	$	—		$	2,727	$	16		$	—	$	—	$	1,457	$	19	$	1,457	$	19
Residential mortgage-backed securities (a)	3,845		32		4,003		125			7,848		157			1,008		9		6,412		188		7,420		197
State and municipal securities (b)	—		—		5		—		(c)	5		—		(c)
Equity and other non-debt securities (b)	—		—		44		2			44		2
Total temporarily impaired securities	$	6,572	$	48	$	4,052	$	127		$	10,624	$	175		$	1,008	$	9	$	7,869	$	207	$	8,877	$	216


(a)	Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.


~~(b)~~	~~Primarily auction-rate securities.~~


~~(c)~~	~~Unrealized losses less than $0.5 million.~~

At ~~June 30, 2018,~~March 31, 2019, the Corporation had ~~399~~324 securities in an unrealized loss position with no credit impairment, including 2913 U.S. Treasury securities and ~~370~~311 residential mortgage-backed securities. The unrealized losses for these securities resulted from changes in market interest rates and liquidity, not changes in credit quality. 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

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

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 ~~June 30, 2018.~~March 31, 2019.

Sales, calls and write-downs of investment securities available-for-sale resulted in the following gains and losses recorded in net securities (losses) gains on the Consolidated Statements of Comprehensive Income, computed based on the adjusted cost of the specific security.



	Three Months Ended March 31,
(in millions)	2019			2018
Securities gains	$	—		$	1
Securities losses	(8		)	—
Net securities (losses) gains	$	(8	)	$	1

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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)
June 30, 2018	Amortized Cost		Fair Value
March 31, 2019					Amortized Cost		Fair Value
Contractual maturity
Within one year	$	100	$	100
After one year through five years	3,008		2,963		$	2,784	$	2,797
After five years through ten years	1,752		1,722		1,396		1,390
After ten years	7,383		7,130		8,095		8,025
Total investment securities	$	12,243	$	11,915	$	12,275	$	12,212

Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with total amortized cost ~~of $9.5 billion~~ and fair value of ~~$9.2~~$9.5 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 ~~June 30, 2018,~~March 31, 2019, investment securities with a carrying value of ~~$393~~$398 million were pledged where permitted or required by law to secure ~~$272~~$226 million of liabilities, primarily public and other deposits of state and local government agencies ~~and~~as well as derivative instruments.

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Notes to Consolidated Financial Statements (unaudited)

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.


	Loans Past Due and Still Accruing														Loans Past Due and Still Accruing
(in millions)	30-59 Days		60-89 Days		90 Days or More		Total		Nonaccrual Loans		Current Loans		Total Loans		30-59 Days		60-89 Days		90 Days or More		Total		Nonaccrual Loans		Current Loans		Total Loans
June 30, 2018
March 31, 2019
Business loans:
Commercial	$	66	$	8	$	13	$	87	$	171	$	31,272	$	31,530	$	58	$	16	$	19	$	93	$	114	$	31,800	$	32,007
Real estate construction:
Commercial Real Estate business line (a)	6		—		—		6		—		2,882		2,888		—		—		—		—		—		2,888		2,888
Other business lines (b)	6		—		—		6		—		363		369		6		—		—		6		—		397		403
Total real estate construction	12		—		—		12		—		3,245		3,257		6		—		—		6		—		3,285		3,291
Commercial mortgage:
Commercial Real Estate business line (a)	4		10		—		14		9		1,724		1,747		4		—		—		4		2		1,733		1,739
Other business lines (b)	21		5		7		33		20		7,324		7,377		14		8		5		27		14		7,209		7,250
Total commercial mortgage	25		15		7		47		29		9,048		9,124		18		8		5		31		16		8,942		8,989
Lease financing	—		—		—		—		2		456		458		—		—		—		—		2		533		535
International	2		—		—		2		4		987		993		15		—		—		15		3		1,022		1,040
Total business loans	105		23		20		148		206		45,008		45,362		97		24		24		145		135		45,582		45,862
Retail loans:
Residential mortgage	16		1		—		17		29		1,908		1,954		19		2		—		21		37		1,891		1,949
Consumer:
Home equity	4		1		—		5		19		1,707		1,731		3		1		—		4		19		1,740		1,763
Other consumer	2		—		—		2		—		743		745		1		—		—		1		—		727		728
Total consumer	6		1		—		7		19		2,450		2,476		4		1		—		5		19		2,467		2,491
Total retail loans	22		2		—		24		48		4,358		4,430		23		3		—		26		56		4,358		4,440
Total loans	$	127	$	25	$	20	$	172	$	254	$	49,366	$	49,792	$	120	$	27	$	24	$	171	$	191	$	49,940	$	50,302
December 31, 2017
December 31, 2018
Business loans:
Commercial	$	79	$	134	$	12	$	225	$	309	$	30,526	$	31,060	$	34	$	26	$	8	$	68	$	141	$	31,767	$	31,976
Real estate construction:
Commercial Real Estate business line (a)	3		—		—		3		—		2,627		2,630		6		—		—		6		—		2,681		2,687
Other business lines (b)	4		—		—		4		—		327		331		6		—		—		6		—		384		390
Total real estate construction	7		—		—		7		—		2,954		2,961		12		—		—		12		—		3,065		3,077
Commercial mortgage:
Commercial Real Estate business line (a)	14		—		—		14		9		1,808		1,831		4		—		—		4		2		1,737		1,743
Other business lines (b)	27		6		22		55		22		7,251		7,328		32		5		8		45		18		7,300		7,363
Total commercial mortgage	41		6		22		69		31		9,059		9,159		36		5		8		49		20		9,037		9,106
Lease financing	—		—		—		—		4		464		468		—		—		—		—		2		505		507
International	13		—		—		13		6		964		983		—		—		—		—		3		1,010		1,013
Total business loans	140		140		34		314		350		43,967		44,631		82		31		16		129		166		45,384		45,679
Retail loans:
Residential mortgage	10		2		—		12		31		1,945		1,988		11		3		—		14		36		1,920		1,970
Consumer:
Home equity	5		1		—		6		21		1,789		1,816		4		1		—		5		19		1,741		1,765
Other consumer	4		—		1		5		—		733		738		1		—		—		1		—		748		749
Total consumer	9		1		1		11		21		2,522		2,554		5		1		—		6		19		2,489		2,514
Total retail loans	19		3		1		23		52		4,467		4,542		16		4		—		20		55		4,409		4,484
Total loans	$	159	$	143	$	35	$	337	$	402	$	48,434	$	49,173	$	98	$	35	$	16	$	149	$	221	$	49,793	$	50,163


(a)	Primarily loans to real estate developers.


(b)	Primarily loans secured by owner-occupied real estate.

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Notes to Consolidated Financial Statements (unaudited)

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.


	Internally Assigned Rating										Internally Assigned Rating
(in millions)	Pass (a)		Special Mention (b)		Substandard (c)		Nonaccrual (d)		Total		Pass (a)		Special Mention (b)		Substandard (c)		Nonaccrual (d)		Total
June 30, 2018
March 31, 2019
Business loans:
Commercial	$	30,185	$	580	$	594	$	171	$	31,530	$	30,669	$	590	$	634	$	114	$	32,007
Real estate construction:
Commercial Real Estate business line (e)	2,868		20		—		—		2,888		2,865		23		—		—		2,888
Other business lines (f)	362		7		—		—		369		399		4		—		—		403
Total real estate construction	3,230		27		—		—		3,257		3,264		27		—		—		3,291
Commercial mortgage:
Commercial Real Estate business line (e)	1,678		15		45		9		1,747		1,678		14		45		2		1,739
Other business lines (f)	7,144		133		80		20		7,377		7,003		157		76		14		7,250
Total commercial mortgage	8,822		148		125		29		9,124		8,681		171		121		16		8,989
Lease financing	449		4		3		2		458		522		9		2		2		535
International	969		2		18		4		993		986		38		13		3		1,040
Total business loans	43,655		761		740		206		45,362		44,122		835		770		135		45,862
Retail loans:
Residential mortgage	1,925		—		—		29		1,954		1,911		1		—		37		1,949
Consumer:
Home equity	1,704		—		8		19		1,731		1,736		—		8		19		1,763
Other consumer	743		1		1		—		745		727		1		—		—		728
Total consumer	2,447		1		9		19		2,476		2,463		1		8		19		2,491
Total retail loans	4,372		1		9		48		4,430		4,374		2		8		56		4,440
Total loans	$	48,027	$	762	$	749	$	254	$	49,792	$	48,496	$	837	$	778	$	191	$	50,302
December 31, 2017
December 31, 2018
Business loans:
Commercial	$	29,263	$	591	$	897	$	309	$	31,060	$	30,817	$	464	$	554	$	141	$	31,976
Real estate construction:
Commercial Real Estate business line (e)	2,630		—		—		—		2,630		2,664		23		—		—		2,687
Other business lines (f)	327		4		—		—		331		382		8		—		—		390
Total real estate construction	2,957		4		—		—		2,961		3,046		31		—		—		3,077
Commercial mortgage:
Commercial Real Estate business line (e)	1,759		20		43		9		1,831		1,682		14		45		2		1,743
Other business lines (f)	7,099		115		92		22		7,328		7,157		118		70		18		7,363
Total commercial mortgage	8,858		135		135		31		9,159		8,839		132		115		20		9,106
Lease financing	440		23		1		4		468		500		3		2		2		507
International	946		11		20		6		983		996		4		10		3		1,013
Total business loans	42,464		764		1,053		350		44,631		44,198		634		681		166		45,679
Retail loans:
Residential mortgage	1,955		2		—		31		1,988		1,931		3		—		36		1,970
Consumer:
Home equity	1,786		1		8		21		1,816		1,738		—		8		19		1,765
Other consumer	737		1		—		—		738		748		1		—		—		749
Total consumer	2,523		2		8		21		2,554		2,486		1		8		19		2,514
Total retail loans	4,478		4		8		52		4,542		4,417		4		8		55		4,484
Total loans	$	46,942	$	768	$	1,061	$	402	$	49,173	$	48,615	$	638	$	689	$	221	$	50,163


(a)	Includes all loans not included in the categories of special mention, substandard or nonaccrual.

(b)

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.

(c)

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. 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 - on pages ~~F-51~~F-52 and ~~F-52~~F-53 in the Corporation's ~~2017~~2018 Annual Report. 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.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table summarizes nonperforming assets.


(in millions)	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Nonaccrual loans	$	254	$	402	$	191	$	221
Reduced-rate loans (a)	8		8		7		8
Total nonperforming loans	262		410		198		229
Foreclosed property (b)	2		5		1		1
Total nonperforming assets	$	264	$	415	$	199	$	230


(a)	There were no reduced-rate business loans at both ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. Reduced-rate retail loans were $8$7 million and $8 million at ~~both~~ ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~.2018, respectively.


(b)	~~Included $1 million and $4 million of~~There were no foreclosed residential real estate properties at ~~June 30, 2018~~both March 31, 2019 and December 31, ~~2017, respectively.~~2018.

There were no$1 million of retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual loans at both ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

Allowance for Credit Losses

The following table details the changes in the allowance for loan losses and related loan amounts.

2018 2017
(in millions) Business Loans Retail Loans Total Business Loans Retail Loans Total

Three Months Ended June 30
Allowance for loan losses:
Balance at beginning of period $ 653
$ 45
$ 698
$ 661
$ 47
$ 708
Loan charge-offs (18 ) (2 ) (20 ) (37 ) (2 ) (39 )
Recoveries on loans previously charged-off 22
1
23
20
1
21
Net loan recoveries (charge-offs) 4
(1 ) 3
(17 ) (1 ) (18 )
Provision for loan losses (21 ) (2 ) (23 ) 17
(2 ) 15
Foreign currency translation adjustment (1 ) —
(1 ) —
—
—
Balance at end of period $ 635
$ 42
$ 677
$ 661
$ 44
$ 705

Six Months Ended June 30
Allowance for loan losses:
Balance at beginning of period $ 661
$ 51
$ 712
$ 682
$ 48
$ 730
Loan charge-offs (54 ) (3 ) (57 ) (79 ) (4 ) (83 )
Recoveries on loans previously charged-off 30
2
32
29
3
32
Net loan charge-offs (24 ) (1 ) (25 ) (50 ) (1 ) (51 )
Provision for loan losses (1 ) (8 ) (9 ) 29
(3 ) 26
Foreign currency translation adjustment (1 ) —
(1 ) —
—
—
Balance at end of period $ 635
$ 42
$ 677
$ 661
$ 44
$ 705

As a percentage of total loans 1.40 % 0.96 % 1.36 % 1.47 % 0.98 % 1.43 %

June 30
Allowance for loan losses:
Individually evaluated for impairment $ 39
$ —
$ 39
$ 93
$ 1
$ 94
Collectively evaluated for impairment 596
42
638
568
43
611
Total allowance for loan losses $ 635
$ 42
$ 677
$ 661
$ 44
$ 705
Loans:
Individually evaluated for impairment $ 310
$ 30
$ 340
$ 509
$ 41
$ 550
Collectively evaluated for impairment 45,052
4,400
49,452
44,388
4,470
48,858
Total loans evaluated for impairment $ 45,362
$ 4,430
$ 49,792
$ 44,897
$ 4,511
$ 49,408

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~



	2019									2018
(in millions)	Business Loans			Retail Loans			Total			Business Loans			Retail Loans			Total

Three Months Ended March 31
Allowance for loan losses:
Balance at beginning of period	$	627		$	44		$	671		$	661		$	51		$	712
Loan charge-offs	(19		)	(1		)	(20		)	(36		)	(1		)	(37		)
Recoveries on loans previously charged-off	8			1			9			8			1			9
Net loan charge-offs	(11		)	—			(11		)	(28		)	—			(28		)
Provision for loan losses	(8		)	(5		)	(13		)	20			(6		)	14
Balance at end of period	$	608		$	39		$	647		$	653		$	45		$	698
As a percentage of total loans	1.33		%	0.88		%	1.29		%	1.46		%	0.99		%	1.42		%

March 31
Allowance for loan losses:
Individually evaluated for impairment	$	35		$	—		$	35		$	42		$	—		$	42
Collectively evaluated for impairment	573			39			612			611			45			656
Total allowance for loan losses	$	608		$	39		$	647		$	653		$	45		$	698
Loans:
Individually evaluated for impairment	$	202		$	34		$	236		$	384		$	31		$	415
Collectively evaluated for impairment	45,660			4,406			50,066			44,339			4,486			48,825
Total loans evaluated for impairment	$	45,862		$	4,440		$	50,302		$	44,723		$	4,517		$	49,240

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.


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
(in millions)	2018			2017		2018			2017		2019		2018
Balance at beginning of period	$	40		$	46	$	42		$	41	$	30	$	42
Provision for credit losses on lending-related commitments	(6		)	2		(8		)	7		—		(2		)
Balance at end of period	$	34		$	48	$	34		$	48	$	30	$	40

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Individually Evaluated Impaired Loans

The following table presents additional information regarding individually evaluated impaired loans.


	Recorded Investment In:										Recorded Investment In:
(in millions)	Impaired Loans with No Related Allowance		Impaired Loans with Related Allowance		Total Impaired Loans		Unpaid Principal Balance		Related Allowance for Loan Losses		Impaired Loans with No Related Allowance		Impaired Loans with Related Allowance		Total Impaired Loans		Unpaid Principal Balance		Related Allowance for Loan Losses
June 30, 2018
March 31, 2019
Business loans:
Commercial											$	30	$	114	$	144	$	194	$	33
Commercial mortgage:
Commercial Real Estate business line (a)											39		—		39		49		—
Other business lines (b)											2		13		15		20		2
Total commercial mortgage											41		13		54		69		2
Lease financing											—		1		1		1		—
International											2		1		3		9		—
Total business loans											73		129		202		273		35
Retail loans:
Residential mortgage											16		8		24		25		—
Consumer:
Home equity											9		—		9		11		—
Other consumer											1		—		1		1		—
Total consumer											10		—		10		12		—
Total retail loans (c)											26		8		34		37		—
Total individually evaluated impaired loans											$	99	$	137	$	236	$	310	$	35
December 31, 2018
Business loans:
Commercial	$	85	$	154	$	239	$	313	$	35	$	50	$	130	$	180	$	227	$	24
Commercial mortgage:
Commercial Real Estate business line (a)	37		3		40		49		—		39		—		39		49		—
Other business lines (b)	—		26		26		29		3		2		16		18		23		3
Total commercial mortgage	37		29		66		78		3		41		16		57		72		3
International	3		2		5		9		1		2		1		3		8		—
Total business loans	125		185		310		400		39		93		147		240		307		27
Retail loans:
Residential mortgage	11		8		19		20		—		16		8		24		25		—
Consumer:
Home equity	10		—		10		13		—		11		—		11		13		—
Other consumer	1		—		1		1		—		1		—		1		1		—
Total consumer	11		—		11		14		—		12		—		12		14		—
Total retail loans (c)	22		8		30		34		—		28		8		36		39		—
Total individually evaluated impaired loans	$	147	$	193	$	340	$	434	$	39	$	121	$	155	$	276	$	346	$	27
December 31, 2017
Business loans:
Commercial	$	105	$	267	$	372	$	460	$	63
Commercial mortgage:
Commercial Real Estate business line (a)	39		1		40		49		—
Other business lines (b)	3		22		25		29		3
Total commercial mortgage	42		23		65		78		3
International	—		6		6		17		1
Total business loans	147		296		443		555		67
Retail loans:
Residential mortgage	14		8		22		22		—
Consumer:
Home equity	11		—		11		14		—
Other consumer	1		—		1		2		—
Total consumer	12		—		12		16		—
Total retail loans (c)	26		8		34		38		—
Total individually evaluated impaired loans	$	173	$	304	$	477	$	593	$	67


(a)	Primarily loans to real estate developers.


(b)	Primarily loans secured by owner-occupied real estate.


(c)	Individually evaluated retail loans generally have no related allowance for loan losses, primarily due to policy which results in direct write-downs of most restructured retail loans.

1715

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table presents information regarding average individually evaluated impaired loans and the related interest recognized as of ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018. Interest income recognized for the period primarily related to performing restructured loans.


	Individually Evaluated Impaired Loans								Individually Evaluated Impaired Loans
	2018				2017				2019				2018
(in millions)	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		Average Balance for the Period		Interest Income Recognized for the Period
Three Months Ended June 30
Three Months Ended March 31
Business loans:
Commercial	$	277	$	1	$	473	$	2	$	162	$	1	$	344	$	1
Commercial mortgage:
Commercial Real Estate business line (a)	40		1		7		—		39		1		40		1
Other business lines (b)	25		—		35		—		16		—		25		—
Total commercial mortgage	65		1		42		—		55		1		65		1
Lease financing									1		—		—		—
International	4		—		7		—		3		—		5		—
Total business loans	346		2		522		2		221		2		414		2
Retail loans:
Residential mortgage	19		—		27		—		24		—		20		—
Consumer loans:
Home equity	11		—		12		—		10		—		11		—
Other consumer	1		—		2		—		1		—		1		—
Total consumer	12		—		14		—		11		—		12		—
Total retail loans	31		—		41		—		35		—		32		—
Total individually evaluated impaired loans	$	377	$	2	$	563	$	2	$	256	$	2	$	446	$	2
Six Months Ended June 30
Business loans:
Commercial	$	309	$	2	$	487	$	4
Commercial mortgage:
Commercial Real Estate business line (a)	40		2		7		—
Other business lines (b)	25		—		34		—
Total commercial mortgage	65		2		41		—
International	5		—		9		—
Total business loans	379		4		537		4
Retail loans:
Residential mortgage	20		—		27		—
Consumer:
Home equity	11		—		13		—
Other consumer	1		—		3		—
Total consumer	12		—		16		—
Total retail loans	32		—		43		—
Total individually evaluated impaired loans	$	411	$	4	$	580	$	4


(a)	Primarily loans to real estate developers.


(b)	Primarily loans secured by owner-occupied real estate.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

Troubled Debt Restructurings

The following table details the recorded balance at ~~June 30,~~March 31, 2019 and 2018 ~~and~~ ~~2017~~ of loans considered to be troubled debt restructurings (TDRs) that were restructured during the ~~three- and six-month~~three-month periods ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, by type~~all of ~~modification. In cases of loans with more than one type of modification, the loans~~which were ~~categorized based on the most significant modification.~~principal deferrals.


	2018						2017
	Type of Modification						Type of Modification								Principal Deferrals (a)
(in millions)	Principal Deferrals (a)		Interest Rate Reductions		Total Modifications		Principal Deferrals (a)		Interest Rate Reductions		AB Note Restructures (b)		Total Modifications		2019		2018
Three Months Ended June 30
Three Months Ended March 31,
Business loans:
Commercial	$	25	$	—	$	25	$	47	$	—	$	36	$	83	$	12	$	28
Commercial mortgage:
Other business lines (c)	—		—		—		1		—		—		1
Other business lines (b)															1		1
Total business loans	25		—		25		48		—		36		84		13		29
Retail loans:
Consumer:
Home equity (d)	—		1		1		—		1		—		1
Home equity (c)															—		1
Total loans	$	25	$	1	$	26	$	48	$	1	$	36	$	85	$	13	$	30
Six Months Ended June 30
Business loans:
Commercial	$	45	$	—	$	45	$	96	$	—	$	36	$	132
Commercial mortgage:
Other business lines (c)	1		—		1		4		—		—		4
Total business loans	46		—		46		100		—		36		136
Retail loans:
Consumer:
Home equity (d)	1		1		2		1		2		—		3
Total loans	$	47	$	1	$	48	$	101	$	2	$	36	$	139


(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 generally fully charged off.


~~(c)~~	Primarily loans to secured by owner-occupied real estate.


~~(d)~~(c)	Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.

~~At June 30, 2018 and December 31, 2017, commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $44 million and $31 million, respectively.~~

~~The majority of the modifications considered to be TDRs that occurred during the six months ended June 30, 2018 and~~ ~~2017~~ ~~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 ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and~~ ~~2017~~were insignificant.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

At March 31, 2019 and December 31, 2018, commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $24 million and $20 million, respectively. On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. The allowance for loan losses continues to be reassessed on the basis of an individual evaluation of the loan.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

The following table presents information regarding the recorded balance at ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018 of loans modified by principal deferral ~~and interest rate reduction~~ during the twelve-month periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018.


	Principal Deferrals				Interest Rate Reductions				Principal Deferrals
(in millions)	2018		2017		2018		2017		2019		2018
Balance at June 30,
March 31
Business loans:
Commercial	$	97	$	141	$	—	$	—	$	26	$	90
Commercial mortgage:
Commercial Real Estate business line (a)	37		1		—		—		—		37
Other business lines (b)	2		7		—		—		2		2
Total commercial mortgage	39		8		—		—		2		39
Total business loans	136		149		—		—		28		129
Retail loans:
Consumer:
Home equity (c)	1		2		2		3		1		2
Total principal deferrals	$	137	$	151	$	2	$	3
Total loans									$	29	$	131


(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 twelve-month periods ended March 31, 2019 and 2018, loans with a carrying value of $4 million and $17 million, respectively, were modified by interest rate reduction (reduced-rate loans). There were no loans restructured into two notes (AB note restructures) during the twelve-month ~~periods~~period ended ~~June 30, 2018,~~March 31, 2019, compared to loans with a carrying value of ~~$68~~$20 million restructured during the twelve-month period ended ~~June 30, 2017.~~March 31, 2018.

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. For interest rate reductions 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 defaults of principal deferrals, interest rate reductions or AB note restructures during both the ~~three- and six-month~~three-month periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

NOTE 5 - 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 positions are monitored 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

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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. At ~~June 30, 2018,~~March 31, 2019, counterparties with bilateral collateral agreements ~~had pledged $3 million of marketable investment securities and~~ deposited ~~$10~~$23 million of cash with the Corporation to secure the fair value of contracts in an unrealized gain position, and the Corporation had pledged ~~$10~~$12 million of marketable investment securities and posted ~~$131~~$18 million of cash 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

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

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. There were no derivative instruments with credit-risk-related contingent features that were in a liability position at ~~June 30, 2018.~~March 31, 2019.

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 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.

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Notes to Consolidated Financial Statements (unaudited)

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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018. The table excludes commitments and warrants accounted for as derivatives.


	June 30, 2018								December 31, 2017									March 31, 2019								December 31, 2018
			Fair Value								Fair Value									Fair Value								Fair Value
(in millions)	Notional/ Contract Amount (a)		Gross Derivative Assets			Gross Derivative Liabilities			Notional/ Contract Amount (a)		Gross Derivative Assets				Gross Derivative Liabilities			Notional/ Contract Amount (a)		Gross Derivative Assets			Gross Derivative Liabilities			Notional/ Contract Amount (a)		Gross Derivative Assets			Gross Derivative Liabilities
Risk management purposes														��
Derivatives designated as hedging instruments
Interest rate contracts:
Swaps - fair value - receive fixed/pay floating	$	1,775	$	—		$	3		$	1,775	$	—			$	2		$	2,975	$	—		$	2		$	2,625	$	—		$	2
Swaps - cash flow - receive fixed/pay floating																		800		—			—			—		—			—
Derivatives used as economic hedges
Foreign exchange contracts:
Spot, forwards and swaps	793		2			1			650		—				2			382		2			—			302		1			1
Total risk management purposes	2,568		2			4			2,425		—				4			4,157		2			2			2,927		1			3
Customer-initiated and other activities
Interest rate contracts:
Caps and floors written	715		—			2			635		—				—			908		—			1			885		—			1
Caps and floors purchased	715		2			—			635		—				—			908		1			—			885		1			—
Swaps	12,590		33			112			13,119		57				57			13,613		111			44			13,115		66			67
Total interest rate contracts	14,020		35			114			14,389		57				57			15,429		112			45			14,885		67			68
Energy contracts:
Caps and floors written	172		—			16			164		—				11			414		—			21			278		—			26
Caps and floors purchased	172		16			—			164		11				—			414		21			—			278		26			—
Swaps	2,046		161			161			1,519		82				80			1,957		75			72			2,094		163			160
Total energy contracts	2,390		177			177			1,847		93				91			2,785		96			93			2,650		189			186
Foreign exchange contracts:
Spot, forwards, options and swaps	1,919		37			31			1,884		42				38			1,289		13			9			1,095		18			12
Total customer-initiated and other activities	18,329		249			322			18,120		192				186			19,503		221			147			18,630		274			266
Total gross derivatives	$	20,897	$	251		$	326		$	20,545	$	192			$	190		$	23,660	$	223		$	149		$	21,557	$	275		$	269
Amounts offset in the Consolidated Balance Sheets:
Netting adjustment - Offsetting derivative assets/liabilities			(48		)	(48		)			(49		)		(49		)			(65		)	(65		)			(45		)	(45		)
Netting adjustment - Cash collateral received/posted			(6		)	(130		)			(1		)		(39		)			(18		)	(18		)			(174		)	(1		)
Net derivatives included in the Consolidated Balance Sheets (b)			197			148					142				102					140			66					56			223
Amounts not offset in the Consolidated Balance Sheets:
Marketable securities pledged under bilateral collateral agreements			(3		)	(10		)			(3		)		(24		)			—			(10		)			(1		)	—
Net derivatives after deducting amounts not offset in the Consolidated Balance Sheets			$	194		$	138				$	139			$	78				$	140		$	56				$	55		$	223


(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 $4$3 million and $2 million at ~~both June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Risk Management

The Corporation's derivative instruments used for managing interest rate risk currently comprise swaps converting fixed-rate long-term debt to variable rates and variable-rate loans to fixed rates.

The following table details the effects of fair value hedging on the Consolidated Statements of Comprehensive Income.


	Interest on Medium- and Long-Term Debt												Interest on Medium- and Long-Term Debt
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(in millions)	2018			2017			2018			2017			2019		2018
Total interest on medium-and long-term debt (a)	$	32		$	20		$	57		$	37		$	51	$	25

Fair value hedging relationships:
Interest rate contracts:
Hedged items	15			23			30			45			26		15
Derivatives designated as hedging instruments	(2		)	(10		)	(5		)	(20		)	1		(3		)

(a) Includes the effects of hedging.

The impact of cash flow hedging was insignificant for the three months ended March 31, 2019.

The following table summarizes the expected weighted average remaining maturity of the notional amount of risk management interest rate swaps, the carrying amount of the related hedged items and the weighted average interest rates associated with amounts expected to be received or paid on interest rate swap agreements as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018.


					Weighted Average									Weighted Average
(dollar amounts in millions)	Derivative Notional Amount		Carrying Value of Hedged Items (a)		Remaining Maturity (in years)	Receive Rate		Pay Rate (b)		Derivative Notional Amount		Carrying Value of Hedged Items (a)		Remaining Maturity (in years)	Receive Rate		Pay Rate (b)
June 30, 2018
March 31, 2019
Swaps - cash flow - receive fixed/pay floating rate
Variable rate loans										$	800	$	800	3.0	2.34	%	2.49	%
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt	$	1,775	$	1,783	4.1	3.26	%	3.06	%	2,975		3,048		4.4	3.47		3.56
December 31, 2017
December 31, 2018
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt	1,775		1,822		4.6	3.26		2.35		2,625		2,663		3.9	3.40		3.45


(a)	Included ~~$16~~$88 million and ~~$56~~$49 million of cumulative hedging adjustments to fair value hedges at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, which included $8$7 million and $9$8 million, respectively, of hedging adjustment on a discontinued hedging relationship.


(b)	Variable rates paid on receive fixed swaps designated as fair value and cash flow hedges are based on one- and six-month LIBOR rates in effect at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

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. These instruments are used as economic hedges and net gains or losses are included in other noninterest income in the Consolidated Statements of Comprehensive Income.

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 position within the limits described above, the Corporation recognized no net gains or losses in other noninterest income in the Consolidated Statements of Comprehensive Income for both the ~~three- and six-month~~three-month periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

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Notes to Consolidated Financial Statements (unaudited)

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 Comprehensive Income. The net gains recognized in income on customer-initiated derivative instruments, net of the impact of offsetting positions, were as follows.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(in millions)	Location of Gain	2018		2017		2018		2017		Location of Gain	2019		2018
Interest rate contracts	Other noninterest income	$	7	$	7	$	11	$	13	Other noninterest income	$	6	$	4
Energy contracts	Other noninterest income	—		1		—		1		Other noninterest income	1		—
Foreign exchange contracts	Foreign exchange income	12		11		24		22		Foreign exchange income	11		12
Total		$	19	$	19	$	35	$	36		$	18	$	16

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)	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Unused commitments to extend credit:
Commercial and other	$	23,424	$	22,636	$	23,629	$	24,266
Bankcard, revolving check credit and home equity loan commitments	2,937		2,833		3,054		3,001
Total unused commitments to extend credit	$	26,361	$	25,469	$	26,683	$	27,267
Standby letters of credit	$	3,236	$	3,228	$	3,211	$	3,244
Commercial letters of credit	48		39		29		39

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. The allowance for credit losses on lending-related commitments, included in accrued expenses and other liabilities on the Consolidated Balance Sheets, was ~~$34 million and $42~~$30 million at ~~June 30, 2018~~both March 31, 2019 and December 31, ~~2017, respectively.~~2018.

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 ~~$24~~$23 million and ~~$27~~$24 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018, 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 2028. 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 ~~$127~~$126 million and $136 million of the $3.2 billion and $3.3 billion standby and commercial letters of credit outstanding at ~~both~~ ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018., 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 $3633 million at ~~June 30, 2018~~March 31, 2019, including $26 million in deferred fees and $107 million in the allowance for credit losses on lending-related commitments. At December 31, ~~2017~~2018, the comparable amounts were $4034 million, $2528 million and $156 million, respectively.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

The following table presents a summary of criticized standby and commercial letters of credit at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018. The Corporation's criticized list is generally consistent with the Special Mention, Substandard and Doubtful categories 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.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries


(dollar amounts in millions)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Total criticized standby and commercial letters of credit	$	83		$	88		$	50		$	49
As a percentage of total outstanding standby and commercial letters of credit	2.5		%	2.7		%	1.5		%	1.5		%

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 ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the total notional amount of the credit risk participation agreements was approximately ~~$586~~$674 million and ~~$549~~$703 million, respectively, and the fair value was insignificant for both periods. 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 ~~insignificant~~$12 million and $7 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018, respectively. 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 ~~June 30, 2018,~~March 31, 2019, the weighted average remaining maturity of outstanding credit risk participation agreements was ~~2.7~~3.6 years.

NOTE 6 - 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 low-income housing tax credit (LIHTC). The Corporation also directly invests in limited partnerships and LLCs which invest in community development projects which generate similar tax credits to investors (other tax credit entities). 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.

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 ~~June 30, 2018~~March 31, 2019 was limited to $~~409~~443 million. Ownership interests in 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 ~~June 30, 2018~~March 31, 2019 was limited to $76 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 ($~~150~~172 million at ~~June 30, 2018~~March 31, 2019). Amortization and other write-downs of LIHTC investments are presented on a net basis as a component of the provision for income taxes on the Consolidated Statements of Comprehensive 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 ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table summarizes the impact of these tax credit entities on line items on the Corporation’s Consolidated Statements of Comprehensive Income.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(in millions)	2018			2017			2018			2017			2019			2018
Other noninterest income:
Amortization of other tax credit investments	$	1		$	—		$	2		$	1		$	1		$	1
Provision for income taxes:
Amortization of LIHTC investments	16			16			31			32			15			15
Low income housing tax credits	(15		)	(16		)	(30		)	(31		)	(15		)	(15		)
Other tax benefits related to tax credit entities	(4		)	(6		)	(7		)	(12		)	(3		)	(3		)
Total provision for income taxes	$	(3	)	$	(6	)	$	(6	)	$	(11	)	$	(3	)	$	(3	)

For further information on the Corporation’s consolidation policy, see ~~note~~Note 1 to the consolidated financial statements in the Corporation's ~~2017~~2018 Annual Report.

NOTE 7 - MEDIUM- AND LONG-TERM DEBT

Medium- and long-term debt is summarized as follows:


(in millions)	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Parent company
Subordinated notes:
3.80% subordinated notes due 2026 (a)	$	245	$	255	$	256	$	250
Medium-term notes:
Medium- and long-term notes:
2.125% notes due 2019 (a)	346		347		349		348
3.70% notes due 2023 (a)					869		861
4.00% notes due 2029 (a)					358		—
Total medium-term notes					1,576		1,209
Total parent company	591		602		1,832		1,459
Subsidiaries
Subordinated notes:
4.00% subordinated notes due 2025 (a)	335		347		349		343
7.875% subordinated notes due 2026 (a)	198		208		200		198
Total subordinated notes	533		555		549		541
Medium-term notes:
2.50% notes due 2020 (a)	659		665		667		663
Federal Home Loan Bank (FHLB) advances:
Floating-rate based on FHLB auction rate due 2026	2,800		2,800		2,800		2,800
Floating-rate based on FHLB auction rate due 2028	1,000		—		1,000		1,000
Total FHLB advances	3,800		2,800		3,800		3,800
Total subsidiaries	4,992		4,020		5,016		5,004
Total medium- and long-term debt	$	5,583	$	4,622	$	6,848	$	6,463


(a)	The fixed interest rates on these notes have been swapped to a variable rate and designated in a hedging relationship. Accordingly, carrying value has been adjusted to reflect the change in the fair value of the debt as a result of changes in the benchmark rate.

Subordinated notes with remaining maturities greater than one year qualify as Tier 2 capital.

Comerica Bank (the Bank), a wholly-owned subsidiary of the Corporation, is a member of the FHLB, which provides short- and long-term funding to its members through advances collateralized by real estate-related assets. ~~On February 7, 2018, the Bank borrowed an additional $1.0 billion of 10-year, floating-rate FHLB advances due January 26, 2028.~~ The interest rate on the FHLB advances resets between four and eight weeks, based on the FHLB auction rate. At ~~June 30, 2018,~~March 31, 2019, the weighted-average rate on the FHLB advances was ~~2.06%~~2.60%. Each note may be prepaid in full, without penalty, at each scheduled reset date. Borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. At ~~June 30, 2018, $16.0~~March 31, 2019, $16.3 billion of real estate-related loans were pledged to the FHLB as ~~blanket~~ collateral for current and potential future borrowings of approximately ~~$5.5~~$4.6 billion.

~~Unamortized debt issuance costs deducted from~~On February 1, 2019, the ~~carrying amount~~Corporation issued $350 million of ~~medium- and long-term debt totaled $4 million~~4.00% senior notes maturing in 2029, swapped to a floating rate at ~~June 30, 2018 and $5 million at December 31, 2017.~~30-day LIBOR plus 129 basis points.

2623

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Unamortized debt issuance costs deducted from the carrying amount of medium- and long-term debt totaled $10 million at March 31, 2019 and $8 million at December 31, 2018.

NOTE 8 - 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 ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, including the amount of income tax expense (benefit) allocated to each component of other comprehensive income (loss).


	Six Months Ended June 30,						Three Months Ended March 31,
(in millions)	2018			2017			2019			2018
Accumulated net unrealized losses on investment securities:
Balance at beginning of period, net of tax	$	(101	)	$	(33	)	$	(138	)	$	(101	)

Cumulative effect of change in accounting principle	1			—			—			1

Net unrealized holding (losses) gains arising during the period	(197		)	21
Less: (Benefit) provision for income taxes	(46		)	8
Net unrealized holding (losses) gains arising during the period, net of tax	(151		)	13
Net unrealized holding gains (losses) arising during the period							109			(142		)
Less: Provision (benefit) for income taxes							25			(33		)
Net unrealized holding gains (losses) arising during the period, net of tax							84			(109		)
Less:
Reclassification adjustment for net losses realized as a yield adjustment included in net income, net of tax	—			(1		)
Change in net unrealized losses on investment securities, net of tax	(151		)	14
Net realized losses included in net securities losses							(8		)	—
Less: Benefit for income taxes							(2		)	—
Reclassification adjustment for net securities losses included in net income, net of tax							(6		)	—
Change in net unrealized gains (losses) on investment securities, net of tax							90			(109		)
Balance at end of period, net of tax							$	(48	)	$	(209	)

Accumulated net gains on cash flow hedges:
Balance at beginning of period, net of tax							$	—		$	—

Net cash flow hedge gains arising during the period							4			—
Less: Provision for income taxes							1			—
Change in net cash flow hedge gains, net of tax							3			—
Balance at end of period, net of tax	$	(251	)	$	(19	)	$	3		$	—

Accumulated defined benefit pension and other postretirement plans adjustment:
Balance at beginning of period, net of tax	$	(350	)	$	(350	)	$	(471	)	$	(350	)

Amortization of actuarial net loss	30			25			11			15
Amortization of prior service credit	(14		)	(13		)	(7		)	(7		)
Amounts recognized in other noninterest expense	16			12			4			8
Less: Provision for income taxes	4			4			1			2
Change in defined benefit pension and other postretirement plans adjustment, net of tax	12			8			3			6
Balance at end of period, net of tax	$	(338	)	$	(342	)	$	(468	)	$	(344	)
Total accumulated other comprehensive loss at end of period, net of tax	$	(589	)	$	(361	)	$	(513	)	$	(553	)

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 9 - NET INCOME PER COMMON SHARE

Basic and diluted net income per common share are presented in the following table.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31, 2019
(in millions, except per share data)	2018		2017		2018		2017		2019		2018
Basic and diluted
Net income	$	326	$	203	$	607	$	405	$	339	$	281
Less:
Income allocated to participating securities	2		1		4		3
Less: Income allocated to participating securities									2		2
Net income attributable to common shares	$	324	$	202	$	603	$	402	$	337	$	279

Basic average common shares	171		175		171		175		158		172

Basic net income per common share	$	1.90	$	1.15	$	3.52	$	2.30	$	2.14	$	1.62

Basic average common shares	171		175		171		175		158		172
Dilutive common stock equivalents:
Net effect of the assumed exercise of stock options	2		3		2		3		2		2
Net effect of the assumed exercise of warrants	1		1		1		2		—		1
Diluted average common shares	174		179		174		180		160		175

Diluted net income per common share	$	1.87	$	1.13	$	3.46	$	2.24	$	2.11	$	1.59

~~There~~The following average shares related to outstanding options to purchase shares of common stock were nonot included in the computation of diluted net income per common share because the options were anti-dilutive ~~options~~ for ~~any of~~ the ~~three- and six-month periods ended June 30, 2018 and 2017.~~

period.



	Three Months Ended March 31, 2019
(shares in millions)	2019	2018
Average outstanding options	0.42	—
Range of exercise prices	$80.17 - $95.25	—

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

NOTE 10 - EMPLOYEE BENEFIT PLANS

Net periodic defined benefit cost (credit) comprise ~~services~~service cost and other components of net benefit cost (credit). Service costs are included in salaries and benefits expense and other components of net benefit cost (credit) are included in other noninterest expenses on the Consolidated Statements of Comprehensive Income. For further information on the Corporation's employee benefit plans, refer to ~~note~~Note 17 to the consolidated financial statements in the Corporation's ~~2017~~2018 Annual Report.

The components of net periodic benefit cost (credit) for the Corporation's qualified pension plan, non-qualified pension plan and postretirement benefit plan are as follows.


Qualified Defined Benefit Pension Plan	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(in millions)	2018			2017			2018			2017			2019			2018
Service cost	$	8		$	7		$	15		$	14		$	8		$	7

Other components of net benefit credit:
Interest cost	18			19			37			39			20			19
Expected return on plan assets	(41		)	(39		)	(82		)	(79		)	(42		)	(41		)
Amortization of prior service credit	(4		)	(4		)	(9		)	(9		)	(5		)	(5		)
Amortization of net loss	12			10			25			21			9			13
Total other components of net benefit credit	(15		)	(14		)	(29		)	(28		)	(18		)	(14		)
Net periodic defined benefit credit	$	(7	)	$	(7	)	$	(14	)	$	(14	)	$	(10	)	$	(7	)

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries


Non-Qualified Defined Benefit Pension Plan	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(in millions)	2018			2017			2018			2017			2019			2018
Service cost	$	1		$	—		$	1		$	1		$	1		$	—

Other components of net benefit cost:
Interest cost	2			2			4			4			2			2
Amortization of prior service credit	(3		)	(2		)	(5		)	(4		)	(2		)	(2		)
Amortization of net loss	3			2			5			4			2			2
Total other components of net benefit cost	2			2			4			4			2			2
Net periodic defined benefit cost	$	3		$	2		$	5		$	5		$	3		$	2


Postretirement Benefit Plan	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended March 31,
(in millions)	2018			2017		2018			2017			2019			2018
Other components of net benefit credit:
Interest cost	$	—		$	—	$	1		$	1		$	1		$	1
Expected return on plan assets	(1		)	—		(2		)	(1		)	(1		)	(1		)
Net periodic defined benefit credit	$	(1	)	$	—	$	(1	)	$	—		$	—		$	—

NOTE 11 - INCOME TAXES AND TAX-RELATED ITEMS

~~Net~~At March 31, 2019, net unrecognized tax benefits were ~~$10~~$15 million, compared to $14 million at ~~both June 30, 2018 and~~ December 31, ~~2017.~~2018. The Corporation anticipates it is reasonably possible ~~that final~~ settlements with tax authorities will result in a $1 million decrease in net unrecognized tax benefits ~~of $1 million~~ within the next twelve months. The liability for tax-related interest and penalties included in accrued expenses and other liabilities was ~~$10~~$7 million at both ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

Net deferred tax assets were ~~$169~~$145 million at ~~June 30, 2018,~~March 31, 2019, compared to ~~$141~~$166 million at December 31, ~~2017.~~2018. The ~~$28~~$21 million ~~increase~~decrease in net deferred tax assets resulted primarily from ~~an increase~~a decrease in deferred tax assets related to unrealized losses on investment securities available-for-sale and the allowance for loan losses, partially offset by the decrease ~~in the allowance for loan losses and an increase in~~to deferred tax liabilities related to ~~defined benefit pension plans.~~lease financing transactions and the allowance for depreciation. Included in deferred tax assets at both ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were $4 million of state net operating loss carryforwards, which expire between ~~2018~~2019 and ~~2027.~~2028. The Corporation believes it is more likely than not the benefit from certain of these state net operating loss carryforwards will not be realized and, accordingly, maintained a valuation allowance of $3 million at both ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

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) or other tax jurisdictions may review and/or challenge specific interpretive tax positions taken by the Corporation with respect to those transactions. The Corporation believes its tax returns were filed based upon applicable statutes, regulations and case law in effect at the time of the transactions. The IRS or other tax jurisdictions, an administrative authority or a court, if presented with the transactions, could disagree with the Corporation’s interpretation of the tax law.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

Based on current knowledge and probability assessment of various potential outcomes, the Corporation believes ~~the~~ 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.

NOTE 12 - CONTINGENT LIABILITIES

Legal Proceedings

As previously reported in the Corporation's Form 10-K for the year ended December 31, ~~2017 and Form 10-Q for~~2018, the ~~period ended March 31, 2018, Comerica~~ Bank ~~a wholly owned subsidiary of the Corporation,~~ was named in November 2011 as a third-party defendant in Butte Local Development v. Masters Group v. Comerica Bank (“the ~~case”)~~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. On January 17, 2014, a jury awarded Masters $52 million against the Bank. On July 1, 2015, after an appeal filed by the Corporation, the Montana Supreme Court reversed the judgment against the Corporation and remanded the case for a new trial with instructions that Michigan contract law should apply and dismissing all other claims. The case was retried in the same district court, without a jury, in January 2017, and the Corporation awaits a ruling. Management believes current reserves related to this case are adequate in the event of a negative outcome.

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

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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 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, results of operations or cash flows. Legal fees of $4$1 million and $5$3 million for the three-month periods ended March 31, 2019 and 2018, respectively, were included in other noninterest expenses ~~for~~on the ~~three-month periods ended June 30, 2018 and 2017, respectively, and $7 million and $10 million for the six-month periods ended June 30, 2018 and 2017, respectively.~~Consolidated Statements of Comprehensive 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 ~~$33~~$34 million at ~~June 30, 2018.~~March 31, 2019. 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 an estimate can currently be made. The Corporation’s estimate involves significant judgment, given the varying stages of the proceedings (including the fact 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 the ultimate resolution of these matters, if unfavorable, may be material to the Corporation's consolidated financial condition, results of operations or cash flows.

For information regarding income tax contingencies, refer to ~~note~~ 11.Note 11.

~~NOTE 13 - RESTRUCTURING CHARGES~~

The Corporation launched an initiative in 2016 designed to reduce overhead and increase revenue (the "GEAR Up" initiative). The actions in the initiative include, but are not limited to, a reduction in workforce, a new retirement program, streamlining operational processes, real estate optimization including consolidating banking centers as well as reducing office and operations space, selective outsourcing of technology functions, reduction of technology system applications, enhanced sales tools and training, expanded product offerings and improved customer analytics to drive opportunities.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

Certain actions associated with the GEAR Up initiative result in restructuring charges. Generally, costs associated with or incurred to generate revenue as part of the initiative are recorded according to the nature of the cost and are not included in restructuring charges. The Corporation considers the following costs associated with the initiative to be restructuring charges:

~~Employee costs:~~ ~~Primarily severance costs in accordance with the Corporation’s severance plan.~~

~~Facilities costs:~~ Costs pertaining to consolidating banking centers and other facilities, such as lease termination costs and decommissioning costs. Also includes accelerated depreciation and impairment of owned property to be sold.

~~Technology costs:~~ ~~Impairment and other costs associated with optimizing technology infrastructure and reducing the number of applications.~~

~~Other costs:~~ ~~Includes primarily professional fees, as well as other contract termination fees and legal fees incurred in the execution of the initiative.~~

Restructuring charges are recorded as a component of noninterest expenses on the Consolidated Statements of Comprehensive Income. The following table presents changes in restructuring reserves, cumulative charges incurred to date and total expected restructuring charges:

(in millions) Employee Costs Facilities Costs Technology Costs Other Costs Total

Three Months Ended June 30, 2018
Balance at beginning of period $ 10
$ —
$ 9
$ —
$ 19
Restructuring charges —
1
10
—
11
Payments (6 ) (1 ) (8 ) —
(15 )
Balance at end of period $ 4
$ —
$ 11
$ —
$ 15

Three Months Ended June 30, 2017
Balance at beginning of period $ 7
$ —
$ 3
$ 3
$ 13
Restructuring charges 3
4
6
1
14
Payments (4 ) (4 ) (4 ) (2 ) (14 )
Adjustments for non-cash charges (a) —
—
(2 ) —
(2 )
Balance at end of period $ 6
$ —
$ 3
$ 2
$ 11

Six Months Ended June 30, 2018
Balance at beginning of period $ 8
$ —
$ 6
$ 1
$ 15
Restructuring charges 5
2
20
—
27
Payments (9 ) (2 ) (15 ) (1 ) (27 )
Balance at end of period $ 4
$ —
$ 11
$ —
$ 15

Six Months Ended June 30, 2017
Balance at beginning of period $ 10
$ 4
$ —
$ 4
$ 18
Restructuring charges 4
5
12
4
25
Payments (8 ) (9 ) (4 ) (6 ) (27 )
Adjustments for non-cash charges (a) —
—
(5 ) —
(5 )
Balance at end of period $ 6
$ —
$ 3
$ 2
$ 11

Total restructuring charges incurred to date $ 67
$ 19
$ 46
$ 33
$ 165
Total expected restructuring charges (b) 70
20
60 - 65
35
185 - 190


~~(a)~~	~~Adjustments for non-cash charges primarily relate to impairments of previously capitalized software costs in Technology Costs.~~


~~(b)~~	~~Restructuring activities are expected to be substantially completed by 12/31/2018.~~

Restructuring charges directly attributable to a business segment are assigned to that business segment. Restructuring charges incurred by areas whose services support the overall Corporation are allocated based on the methodology described in note 22 to the consolidated financial statements in the Corporation's 2017 Annual Report. Total restructuring charges assigned to the Business Bank, Retail Bank and Wealth Management were $6 million, $4 million and $1 million, respectively, for the three months ended June 30, 2018 and $15 million, $9 million, and $3 million, respectively, for six months ended June 30, 2018. Total restructuring charges assigned to the Business Bank, Retail Bank and Wealth Management were $7 million, $4 million, and $3 million, respectively, for the three months ended June 30, 2017 and $13 million, $8 million, and $4 million, respectively, for the six months ended June 30, 2017. Remaining expected restructuring charges will be assigned to the business segments using the same methodology. Facilities costs pertaining to the consolidation of banking centers primarily impacted the Retail Bank.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

NOTE 1413 - 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 ~~June 30, 2018~~March 31, 2019.

The following discussion provides information about the activities of each business segment. A discussion of the financial results and the factors impacting performance can be found in the section entitled "Business Segments" in the financial review.

The Business Bank meets the needs of small and 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~~a full range of 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~~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.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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.

For further information on the methodologies which form the basis for these results refer to ~~note~~Note 23 to the consolidated financial statements in the Corporation's ~~2017~~2018 Annual Report.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

Business segment financial results are as follows:

(dollar amounts in millions) Business
Bank Retail
Bank Wealth Management Finance Other Total
Three Months Ended June 30, 2018
Earnings summary:
Net interest income $ 341
$ 169
$ 40
$ 26
$ 14
$ 590
Provision for credit losses (17 ) (9 ) 1
—
(4 ) (29 )
Noninterest income 126
42
67
12
1
248
Noninterest expenses 182
178
75
(1 ) 14
448
Provision for income taxes 68
10
7
6
2
(a) 93
Net income $ 234
$ 32
$ 24
$ 33
$ 3
$ 326
Net credit-related charge-offs (recoveries) $ —
$ (4 ) $ 1
$ —
$ —
$ (3 )

Selected average balances:
Assets $ 39,961
$ 6,412
$ 5,260
$ 13,735
$ 5,152
$ 70,520
Loans 38,332
5,766
5,127
—
—
49,225
Deposits 26,582
24,161
3,852
1,093
142
55,830

Statistical data:
Return on average assets (b) 2.34 % 0.52 % 1.90 % N/M
N/M
1.85 %
Efficiency ratio (c) 39.00
84.05
69.03
N/M
N/M
53.24


																					Business Bank			Retail Bank			Wealth Management			Finance			Other				Total
(dollar amounts in millions)	Business Bank			Retail Bank			Wealth Management			Finance				Other				Total			Business Bank						Wealth Management			Finance			Other				Total
Three Months Ended June 30, 2017	Business Bank						Wealth Management
Three Months Ended March 31, 2019																								Retail Bank
Earnings summary:				Retail Bank										Other
Net interest income (expense)	$	336		$	162		$	42		Finance		$	(49	)		$	9	Total				$	500	$	412		$	146		$	47		$	(15	)		$	16		$	606
Provision for credit losses	12			5			(2		)	—				2				17			(6		)	(4		)	(5		)	—			2				(13		)
Noninterest income	152			48			64			10				2				276			136			31			64			4			3				238
Noninterest expenses	196			180			71			(1		)		11				457			198			145			72			—			18				433
Provision (benefit) for income taxes	100			9			14			(17		)		(7		)	(a)	99			82			8			11			(4		)	(12		)	(a)	85
Net income (loss)	$	180		$	16		$	23		$	(21	)		$	5			$	203		$	274		$	28		$	33		$	(7	)	$	11			$	339
Net credit-related charge-offs (recoveries)	$	10		$	9		$	(1	)	$	—			$	—			$	18		$	12		$	—		$	(1	)	$	—		$	—			$	11

Selected average balances:
Assets	$	38,881		$	6,487		$	5,432		$	13,936			$	6,610			$	71,346		$	43,909		$	2,812		$	5,174		$	13,911		$	3,965			$	69,771
Loans	37,580			5,865			5,278			—				—				48,723			42,538			2,103			5,036			—			—				49,677
Deposits	28,748			23,935			4,106			156				183				57,128			28,463			20,470			3,801			1,130			132				53,996

Statistical data:
Return on average assets (b)	1.85		%	0.27		%	1.76		%	N/M				N/M				1.14		%	2.53		%	0.54		%	2.67		%	n/m			n/m				1.97		%
Efficiency ratio (c)	40.25			84.80			66.44			N/M				N/M				58.70			36.23			81.12			64.41			n/m			n/m				50.81

Three Months Ended March 31, 2018
Earnings summary:
Net interest income (expense)																					$	381		$	127		$	43		$	(14	)	$	12			$	549
Provision for credit losses																					16			(2		)	(4		)	—			2				12
Noninterest income																					131			33			67			11			2				244
Noninterest expenses																					213			148			72			(1		)	14				446
Provision (benefit) for income taxes																					65			3			10			(3		)	(21		)	(a)	54
Net income																					$	218		$	11		$	32		$	1		$	19			$	281
Net credit-related charge-offs (recoveries)																					$	30		$	—		$	(2	)	$	—		$	—			$	28

Selected average balances:
Assets																					$	42,706		$	2,632		$	5,373		$	13,779		$	5,836			$	70,326
Loans																					41,102			2,073			5,246			—			—				48,421
Deposits																					30,485			20,893			3,796			823			93				56,090

Statistical data:
Return on average assets (b)																					2.07		%	0.20		%	2.42		%	n/m			n/m				1.62		%
Efficiency ratio (c)																					41.55			92.16			65.81			n/m			n/m				56.33


(a)	Included discrete tax benefits ~~from employee stock transactions~~ of $3$11 million and $5$22 million for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.


(b)	Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.


(c)	Noninterest expenses as a percentage of the sum of net interest income and noninterest income excluding ~~net securities~~ gains (losses) from securities and a derivative contract tied to the conversion rate of Visa Class B shares.

~~N/M~~n/m – not meaningful

3228

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

(dollar amounts in millions) Business
Bank Retail
Bank Wealth Management Finance Other Total
Six Months Ended June 30, 2018
Earnings summary:
Net interest income $ 671
$ 334
$ 81
$ 27
$ 26
$ 1,139
Provision for credit losses (7 ) (5 ) (3 ) —
(2 ) (17 )
Noninterest income 247
84
135
23
3
492
Noninterest expenses 366
355
147
(2 ) 28
894
Provision (benefit) for income taxes 127
16
17
7
(20 ) (a) 147
Net income $ 432
$ 52
$ 55
$ 45
$ 23
$ 607
Net credit-related charge-offs (recoveries) $ 18
$ 8
$ (1 ) $ —
$ —
$ 25

Selected average balances:
Assets $ 39,438
$ 6,420
$ 5,316
$ 13,757
$ 5,492
$ 70,423
Loans 37,853
5,786
5,186
—
—
48,825
Deposits 26,946
24,112
3,824
959
118
55,959

Statistical data:
Return on average assets (b) 2.21 % 0.42 % 2.10 % N/M
N/M
1.74 %
Efficiency ratio (c) 39.85
84.54
68.06
N/M
N/M
54.74

(dollar amounts in millions) Business
Bank Retail
Bank Wealth Management Finance Other Total
Six Months Ended June 30, 2017
Earnings summary:
Net interest income (expense) $ 668
$ 322
$ 83
$ (120 ) $ 17
$ 970
Provision for credit losses 22
17
(3 ) —
(3 ) 33
Noninterest income 296
96
128
21
6
547
Noninterest expenses 393
359
141
(2 ) 23
914
Provision (benefit) for income taxes 192
15
27
(41 ) (28 ) (a) 165
Net income $ 357
$ 27
$ 46
$ (56 ) $ 31
$ 405
Net credit-related charge-offs (recoveries) $ 40
$ 14
$ (3 ) $ —
$ —
$ 51

Selected average balances:
Assets $ 38,488
$ 6,506
$ 5,419
$ 13,940
$ 7,228
$ 71,581
Loans 37,169
5,880
5,264
—
—
48,313
Deposits 29,196
23,866
4,042
149
199
57,452

Statistical data:
Return on average assets (b) 1.87 % 0.22 % 1.73 % N/M
N/M
1.14 %
Efficiency ratio (c) 40.82
85.40
66.81
N/M
N/M
60.17


~~(a)~~	~~Included tax benefits from employee stock transactions of $22 million and $29 million for the six months ended June 30, 2018 and 2017, respectively.~~


~~(b)~~	~~Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.~~


~~(c)~~	Noninterest expenses as a percentage of the sum of net interest income and noninterest income excluding net securities gains (losses) and a derivative contract tied to the conversion rate of Visa Class B shares.

~~N/M – not meaningful~~

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 ~~June 30, 2018~~.March 31, 2019.

A discussion of the financial results and the factors impacting performance can be found in the section entitled "Market Segments" in the financial review.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

Market segment financial results are as follows:

(dollar amounts in millions) Michigan California Texas Other
Markets Finance
& Other Total
Three Months Ended June 30, 2018
Earnings summary:
Net interest income $ 167
$ 183
$ 117
$ 83
$ 40
$ 590
Provision for credit losses 1
(9 ) (15 ) (2 ) (4 ) (29 )
Noninterest income 73
42
30
90
13
248
Noninterest expenses 144
105
92
94
13
448
Provision for income taxes 22
32
16
15
8
(a) 93
Net income $ 73
$ 97
$ 54
$ 66
$ 36
$ 326
Net credit-related charge-offs (recoveries) $ —
$ —
$ 3
$ (6 ) $ —
$ (3 )

Selected average balances:
Assets $ 13,427
$ 18,697
$ 10,439
$ 9,070
$ 18,887
$ 70,520
Loans 12,641
18,435
9,862
8,287
—
49,225
Deposits 20,904
16,642
8,967
8,082
1,235
55,830

Statistical data:
Return on average assets (b) 1.37 % 2.06 % 2.08 % 2.93 % N/M
1.85 %
Efficiency ratio (c) 59.77
46.94
62.17
53.72
N/M
53.24

(dollar amounts in millions) Michigan California Texas Other
Markets Finance
& Other Total
Three Months Ended June 30, 2017
Earnings summary:
Net interest income (expense) $ 167
$ 178
$ 113
$ 82
$ (40 ) $ 500
Provision for credit losses (2 ) 24
(15 ) 8
2
17
Noninterest income 81
45
33
105
12
276
Noninterest expenses 145
98
94
110
10
457
Provision (benefit) for income taxes 38
40
25
20
(24 ) (a) 99
Net income (loss) $ 67
$ 61
$ 42
$ 49
$ (16 ) $ 203
Net credit-related charge-offs (recoveries) $ (1 ) $ 8
$ 5
$ 6
$ —
$ 18

Selected average balances:
Assets $ 13,371
$ 18,474
$ 10,481
$ 8,474
$ 20,546
$ 71,346
Loans 12,712
18,194
10,015
7,802
—
48,723
Deposits 21,698
17,344
9,632
8,115
339
57,128

Statistical data:
Return on average assets (b) 1.20 % 1.33 % 1.52 % 2.24 % N/M
1.14 %
Efficiency ratio (c) 58.18
43.85
64.39
58.59
N/M
58.70


~~(a)~~	~~Included tax benefits from employee stock transactions of $3 million and $5 millionfor the three months ended June 30, 2018 and 2017, respectively.~~


~~(b)~~	~~Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.~~


~~(c)~~	Noninterest expenses as a percentage of the sum of net interest income and noninterest income excluding net securities gains (losses) and a derivative contract tied to the conversion rate of Visa Class B shares.

~~N/M – not meaningful~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

(dollar amounts in millions) Michigan California Texas Other
Markets Finance
& Other Total
Six Months Ended June 30, 2018
Earnings summary:
Net interest income $ 336
$ 363
$ 226
$ 161
$ 53
$ 1,139
Provision for credit losses 34
(11 ) (28 ) (10 ) (2 ) (17 )
Noninterest income 146
81
61
178
26
492
Noninterest expenses 288
211
184
185
26
894
Provision (benefit) for income taxes 38
62
30
30
(13 ) (a) 147
Net income $ 122
$ 182
$ 101
$ 134
$ 68
$ 607
Net credit-related charge-offs (recoveries) $ (1 ) $ 13
$ 8
$ 5
$ —
$ 25

Selected average balances:
Assets $ 13,411
$ 18,639
$ 10,406
$ 8,718
$ 19,249
$ 70,423
Loans 12,623
18,391
9,846
7,965
—
48,825
Deposits 21,064
16,865
9,077
7,876
1,077
55,959

Statistical data:
Return on average assets (b) 1.13 % 1.96 % 1.96 % 3.11 % N/M
1.74 %
Efficiency ratio (c) 59.64
47.66
63.85
54.41
N/M
54.74


																				Michigan			California			Texas			Other Markets			Finance & Other				Total
(dollar amounts in millions)	Michigan			California			Texas			Other Markets			Finance & Other				Total
Six Months Ended June 30, 2017
Three Months Ended March 31, 2019
Earnings summary:
Net interest income (expense)	$	337		$	349		$	226		$	161		$	(103	)		$	970
Net interest income																				$	187		$	205		$	122		$	91		$	1			$	606
Provision for credit losses	(4		)	45			(24		)	19			(3		)		33			5			(1		)	(11		)	(8		)	2				(13		)
Noninterest income	164			86			65			205			27				547			71			41			32			87			7				238
Noninterest expenses	295			194			188			216			21				914			140			100			84			91			18				433
Provision (benefit) for income taxes	75			76			47			36			(69		)	(a)	165			26			37			19			19			(16		)	(a)	85
Net income (loss)	$	135		$	120		$	80		$	95		$	(25	)		$	405
Net income																				$	87		$	110		$	62		$	76		$	4			$	339
Net credit-related charge-offs (recoveries)	$	(4	)	$	18		$	27		$	10		$	—			$	51		$	4		$	(3	)	$	13		$	(3	)	$	—			$	11

Selected average balances:
Assets	$	13,313		$	18,217		$	10,518		$	8,365		$	21,168			$	71,581		$	13,075		$	19,048		$	10,920		$	8,852		$	17,876			$	69,771
Loans	12,650			17,938			10,062			7,663			—				48,313			12,557			18,768			10,270			8,082			—				49,677
Deposits	21,923			17,294			9,871			8,016			348				57,452			19,893			16,245			8,698			7,898			1,262				53,996

Statistical data:
Return on average assets (b)	1.20		%	1.33		%	1.44		%	2.17		%	N/M				1.14		%	1.74		%	2.32		%	2.30		%	3.48		%	n/m				1.97		%
Efficiency ratio (c)	58.79			44.53			64.59			59.01			N/M				60.17			53.82			40.85			54.60			50.99			n/m				50.81

Three Months Ended March 31, 2018
Earnings summary:
Net interest income (expense)																				$	175		$	188		$	111		$	78		$	(3	)		$	549
Provision for credit losses																				34			(2		)	(14		)	(8		)	2				12
Noninterest income																				73			39			31			88			13				244
Noninterest expenses																				144			106			92			91			13				446
Provision (benefit) for income taxes																				17			32			15			15			(25		)	(a)	54
Net income																				$	53		$	91		$	49		$	68		$	20			$	281
Net credit-related (recoveries) charge-offs																				$	(1	)	$	13		$	5		$	11		$	—			$	28

Selected average balances:
Assets																				$	13,395		$	18,582		$	10,373		$	8,361		$	19,615			$	70,326
Loans																				12,604			18,347			9,830			7,640			—				48,421
Deposits																				21,224			17,091			9,188			7,670			917				56,090

Statistical data:
Return on average assets (b)																				0.98		%	1.98		%	1.91		%	3.32		%	n/m				1.62		%
Efficiency ratio (c)																				57.99			46.82			64.71			54.98			n/m				56.33


(a)	Included discrete tax benefits ~~from employee stock transactions~~ of ~~$22~~$11 million and ~~$29~~$22 million for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.


(b)	Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.


(c)	Noninterest expenses as a percentage of the sum of net interest income and noninterest income excluding ~~net securities~~ gains (losses) from securities and a derivative contract tied to the conversion rate of Visa Class B shares.

~~N/M~~n/m – not meaningful

3529

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 1514 - REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue from contracts with customers comprises the noninterest income earned by the Corporation in exchange for services provided to customers. The following table presents the composition of revenue from contracts with customers, segregated from other sources of noninterest income, by business segment.


	Business Bank		Retail Bank		Wealth Management		Finance & Other		Total		Business Bank		Retail Bank		Wealth Management		Finance & Other		Total
(in millions)
Three Months Ended June 30, 2018
Three Months Ended March 31, 2019
Revenue from contracts with customers:
Card fees (a)	$	47	$	12	$	1	$	—	$	60
Service charges on deposit accounts (a)	28		23		2		—		53
Card fees											$	53	$	9	$	1	$	—	$	63
Service charges on deposit accounts											33		17		1		—		51
Fiduciary income	—		—		52		—		52		—		—		49		—		49
Commercial loan servicing fees (b)	5		—		—		—		5
Commercial loan servicing fees (a)											4		—		—		—		4
Brokerage fees	—		—		6		—		6		—		—		7		—		7
Other noninterest income (c)	3		3		5		—		11
Other noninterest income (b)											2		3		5		—		10
Total revenue from contracts with customers	83		38		66		—		187		92		29		63		—		184
Other sources of noninterest income	43		4		1		13		61		44		2		1		7		54
Total noninterest income	$	126	$	42	$	67	$	13	$	248	$	136	$	31	$	64	$	7	$	238

Three Months Ended June 30, 2017
Three Months Ended March 31, 2018
Revenue from contracts with customers:
Card fees	$	65	$	14	$	1	$	—	$	80	$	49	$	9	$	1	$	—	$	59
Service charges on deposit accounts	30		25		2		—		57		35		18		1		—		54
Fiduciary income	—		—		51		—		51		—		—		52		—		52
Commercial loan servicing fees (b)	6		—		—		—		6
Commercial loan servicing fees (a)											4		—		—		—		4
Brokerage fees	—		—		6		—		6		—		—		7		—		7
Other noninterest income (c)	2		7		3		—		12
Other noninterest income (b)											4		5		4		—		13
Total revenue from contracts with customers	103		46		63		—		212		92		32		65		—		189
Other sources of noninterest income	49		2		1		12		64		39		1		2		13		55
Total noninterest income	$	152	$	48	$	64	$	12	$	276	$	131	$	33	$	67	$	13	$	244

Six Months Ended June 30, 2018
Revenue from contracts with customers:
Card fees (a)	$	94	$	23	$	2	$	—	$	119
Service charges on deposit accounts (a)	58		46		3		—		107
Fiduciary income	—		—		104		—		104
Commercial loan servicing fees (b)	9		—		—		—		9
Brokerage fees	—		—		13		—		13
Other noninterest income (c)	6		8		9		—		23
Total revenue from contracts with customers	167		77		131		—		375
Other sources of noninterest income	80		7		4		26		117
Total noninterest income	$	247	$	84	$	135	$	26	$	492

Six Months Ended June 30, 2017
Revenue from contracts with customers:
Card fees	$	129	$	26	$	2	$	—	$	157
Service charges on deposit accounts	62		50		3		—		115
Fiduciary income	—		—		100		—		100
Commercial loan servicing fees (b)	9		—		—		—		9
Brokerage fees	—		—		11		—		11
Other noninterest income (c)	6		15		8		—		29
Total revenue from contracts with customers	206		91		124		—		421
Other sources of noninterest income	90		5		4		27		126
Total noninterest income	$	296	$	96	$	128	$	27	$	547


(a)	Included in commercial lending fees on the Consolidated Statements of Comprehensive Income.


(b)	Excludes derivative, warrant and other miscellaneous income.

~~(a) Adoption of Topic 606 resulted in a change in presentation which records certain costs in~~Adjustments to revenue during the ~~same category as the associated revenues.~~

~~The effect of this change was to reduce card fees by $37 million and $71 million and service charges on deposit accounts by $1 million~~

~~and 2 million for three- and six-month~~three-month periods ended ~~June 30,~~March 31, 2019 and 2018 ~~respectively. Refer~~for refunds or credits relating to ~~note 1 for further information.~~prior periods were not significant.

~~(b) Included in commercial lending fees on the Consolidated Statements of Comprehensive Income.~~

~~(c) Excludes derivative, warrant~~Revenue from contracts with customers did not generate significant contract assets and ~~other miscellaneous income.~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

liabilities.

~~Adjustments to revenue~~

NOTE 15 - LEASES

As a lessee, the Corporation has entered into operating leases for the majority of its real estate locations, primarily retail and office space. The Corporation recognized total lease expense of $19 million, including $15 million of operating lease expense and $4 million of variable lease expense, for the three months ended March 31, 2019.

At March 31, 2019, the Corporation's ROU assets and operating lease liabilities were $318 million and $355 million, respectively. The weighted average lease term for the lease liabilities was 9 years, and the weighted average discount rate of remaining payments was 3.93 percent. Lease liabilities from new ROU assets obtained during the ~~three- and six-month periods~~three months ended ~~June 30, 2018~~March 31, 2019 totaled $4 million. Cash paid on operating lease liabilities was $16 million for ~~refunds or credits relating to prior periods were not significant.~~

~~Revenue from contracts with customers did not generate significant contract assets and liabilities.~~the three months ended March 31, 2019.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

As of March 31, 2019, the contractual maturities of operating lease liabilities were as follows:



(in millions)
Years Ending December 31
2019 (a)	$	43
2020	63
2021	55
2022	46
2023	39
Thereafter	182
Total contractual maturities	428
Less imputed interest	(73		)
Total operating lease liabilities	$	355

(a) Contractual maturities for the nine months remaining in 2019.

As a lessor, the Corporation leases certain types of manufacturing and warehouse equipment as well as public and private transportation vehicles to its customers. The Corporation recognized $3 million of lease-related revenue, primarily interest income from sales-type and direct financing leases, for the three months ended March 31, 2019. At March 31, 2019, the Corporation's net investment in sales-type and direct financing leases was $320 million.

As of March 31, 2019, the contractual maturities of sales-type and direct financing lease receivables were as follows:



(in millions)
Years Ending December 31
2019 (a)	$	65
2020	66
2021	54
2022	48
2023	42
Thereafter	68
Total lease payments receivable	343
Less deferred interest income	(23		)
Total lease receivables (b)	$	320

(a) Contractual maturities for the nine months remaining in 2019.

(b) Includes unguaranteed residual values of $60 million and excludes net investment in leveraged leases of $215 million.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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," "contemplates," "feels," "expects," "estimates," "seeks," "strives," "plans," "intends," "outlook," "forecast," "position," "target," "mission," "assume," "achievable," "potential," "strategy," "goal," "aspiration," "opportunity," "initiative," "outcome," "continue," "remain," "maintain," "on track," "trend," "objective," "looks forward," "projects," "models," and variations of such words and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions, as they relate to the Corporation or its management, are intended to identify forward-looking statements. These forward-looking statements are predicated on the beliefs and assumptions of the Corporation's management based on information known to the Corporation's management as of the date of this report and do not purport to speak as of any other date. Forward-looking statements may include descriptions of plans and objectives of the Corporation's management for future or past operations, products or services ~~including the GEAR Up initiative,~~ and forecasts of the Corporation's revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries as well as ~~estimates of the economic benefits of the GEAR Up initiative,~~ estimates of credit trends and global stability. Such statements reflect the view of the Corporation's management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, the Corporation's actual results could differ materially from those discussed. Factors that could cause or contribute to such differences are changes in general economic, political or industry conditions; changes in monetary and fiscal policies; operational, systems or infrastructure failures; reliance on other companies to provide certain key components of business infrastructure; cybersecurity risks; whether the Corporation may achieve opportunities for revenue enhancements and efficiency improvements under the GEAR Up initiative, or changes in the scope or assumptions underlying the GEAR Up initiative; ~~operational difficulties, failure of technology infrastructure or information security incidents; reliance on other companies to provide certain key components of business infrastructure;~~ the Corporation's ability to maintain adequate sources of funding and liquidity; the effects of more stringent capital ~~or liquidity~~ requirements; declines or other changes in the businesses or industries of the Corporation's customers; unfavorable developments concerning credit quality; changes in regulation or oversight; ~~changes in the financial markets, including~~heightened legislative and regulatory focus on cybersecurity and data privacy; fluctuations in interest rates and their impact on deposit pricing; transitions away from LIBOR towards new interest rate benchmarks; reductions in the Corporation's credit rating; damage to the Corporation's reputation; the Corporation's ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; competitive product and pricing pressures among financial institutions within the Corporation's markets; the interdependence of financial service companies; the implementation of the Corporation's strategies and business initiatives; changes in customer behavior; management's ability to maintain and expand customer relationships; the effectiveness of methods of reducing risk exposures; the effects of catastrophic events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods; the ~~effects~~impacts of ~~recent tax reform and potential~~future legislative, administrative or judicial changes ~~or interpretations related~~ to ~~these and other~~ tax regulations; any future strategic acquisitions or divestitures; management's ability to retain key officers and employees; the impact of legal and regulatory proceedings or determinations; losses due to fraud; the effects of terrorist activities and other hostilities; changes in accounting standards; the critical nature of the Corporation's accounting ~~policies~~policies; controls and procedures failures; and the volatility of the ~~Corporation’s~~Corporation's stock price. The Corporation cautions that the foregoing list of factors is not all-inclusive. For discussion of factors that may cause actual results to differ from expectations, please refer to our filings with the Securities and Exchange Commission. In particular, please refer to “Item 1A. Risk Factors” beginning on page 1112 of the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. Forward-looking statements speak only as of the date they are made. 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. For any forward-looking statements made in this report or in any documents, the Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

RESULTS OF OPERATIONS

Net income for the three months ended ~~June 30, 2018~~March 31, 2019 was ~~$326~~$339 million, an increase of ~~$123~~$58 million ~~from $203~~compared to $281 million ~~reported~~ for the three months ended ~~June 30, 2017.~~March 31, 2018. Net income per diluted common share for the same respective periods was ~~$1.87~~$2.11 compared to ~~$1.13. Management~~$1.59. Careful management of loan and deposit pricing in a rising rate environment, ~~improved~~sustained strong credit quality ~~successful execution of GEAR Up initiatives~~ and ~~a decrease in the federal statutory tax rate in 2018 resulting from the Tax Cuts and Jobs Act~~expense control contributed to the increase in net income. ~~Net~~

The following table lists certain items impacting net income ~~included tax benefits from employee stock transactions of $3 million (2 cents~~and earnings per ~~share) and $5 million (3 cents per share) for the three months ended June 30, 2018 and 2017, respectively. After-tax restructuring charges were $9 million (5 cents per share) in both periods.~~

~~Net income for the six months ended June 30, 2018 was $607 million, an increase of $202 million from $405 million reported for the six months ended June 30, 2017. Net income per diluted common~~ share for the ~~same respective~~three-month periods ~~was $3.46~~ended March 31, 2019 and 2018.



	Three Months Ended March 31,
	2019						2018
(in millions, except per share data)	Amount			Per Share			Amount			Per Share
Securities repositioning loss, net of tax (a)	$	(6	)	$	(0.04	)	$	—		$	—
Restructuring charges, net of tax	—			—			(12		)	(0.07		)
Discrete tax items (b)	11			0.07			22			0.12


(a)	Losses incurred on the sale of approximately $1 billion of treasury securities that were replaced by securities yielding about $1 million of additional interest per quarter.


(b)	Primarily tax benefits from employee stock transactions.

Full-Year 2019 Outlook

For full-year 2019 compared to ~~$2.24. Net income for~~ the six months ended June 30, 2018 included $22 million of tax benefits from employee stock transactions (13 cents per share), $21 million of restructuring charges, after-tax, (12 cents per share) and a $3 million deferred tax benefit resulting from the Tax Cut and Jobs Act (1 cent per share). Net income for the six months ended June 30, 2017 included tax benefits from employee stock transactions of $29 million (16 cents per share) and a $16 million after-tax impact from restructuring charges (9 cents per share).

~~Growth in Efficiency and Revenue Initiative~~

Since the GEAR Up initiative was launched in 2016, the Corporation has consolidated 38 banking centers, implemented a new retirement program resulting in a significant reduction in retirement plan expense and reduced the number of full-time equivalent employees by over 900, including a reduction of approximately 100 in the first six months of 2018, among other initiatives. The impact of increases in short-term rates and the execution of certain GEAR Up initiatives helped lower the efficiency ratio to 53.2 percent and 54.7 percent for the three- and six-month periods ended June 30, 2018, respectively, and increase return on equity to 16.4 percent and 15.4 percent for the same periods, respectively. The Corporation anticipates cumulative benefits to pre-tax income from GEAR Up initiatives of approximately $270 million and $305 million for full-year ~~2018 and 2019, respectively, relative to when the initiative was announced. For further details on anticipated additional benefits, refer to page F-5 of the Corporation's 2017 Annual Report.~~

Total pre-tax restructuring charges for 2018 are expected to range from $47 million to $52 million with no restructuring charges anticipated beyond 2018. Cumulative restructuring charges from inception of GEAR Up through 2018 are expected to range from $185 million to $190 million. For additional information regarding restructuring charges, refer to note 13 to the consolidated financial statements.

~~2018 Second-Half Outlook~~

~~For the second half of~~ 2018, management expects the following, assuming a continuation of the current economic and rate ~~environment as well as~~environment:

Growth in average loans of 2 percent to 4 percent, reflecting increases in most lines of business.

Decline in average deposits of 1 percent to 2 percent from a decrease in noninterest-bearing deposits.

Growth in net interest income of 3 percent to 4 percent from the ~~benefits~~full-year net benefit of higher interest rates, growth in average loans and repositioning the securities portfolio, partially offset by higher wholesale funding, a shift in deposit mix and lower interest recoveries.

Provision for credit losses of 10 basis points to 15 basis points and net charge-offs to remain low, with continued strong credit quality.

Noninterest income higher by 1 percent to 2 percent (including $8 million securities repositioning loss in first quarter 2019), benefiting from growth in card fees and fiduciary income, partially offset by lower derivative income and service charges on deposit accounts.

Noninterest expenses lower by 3 percent, reflecting the end of restructuring charges from the GEAR Up ~~initiative:~~

~~Moderate growth~~initiatives ($53 million in ~~average loans~~full-year 2018), Federal Deposit Insurance Corporation ("FDIC") insurance expense lower by $16 million from the discontinuance of the surcharge, as well as lower compensation and pension expense, partially offset by higher outside processing expenses in line with growing revenue, technology expenditures and typical inflationary pressures.


◦	~~Growth in most lines of business with a slower pace in general Middle Market, National Dealer Services and Mortgage Banker Finance due to seasonality.~~


◦	~~Energy and Corporate Banking to remain stable.~~

~~Net interest income higher, reflecting recent rate increases, loan growth and three additional days.~~


◦	~~Full-year 2018 net benefit of $70 million from the first quarter 2018 rate increase and $35 million to $40 million from the second quarter 2018 rate increase.~~


◦	~~Elevated interest recoveries not expected to repeat ($11 million in second quarter 2018).~~

~~Provision for credit losses of $10 million to $20 million per quarter and net charge-offs to remain low.~~

~~Noninterest income growth trend to continue benefiting from the execution of GEAR Up initiatives to help drive growth in treasury management income, card fees and fiduciary income.~~

~~Noninterest expenses modestly higher (excluding restructuring charges) primarily due to additional days.~~

◦~~GEAR Up savings remain on track.~~


◦	~~Continued higher technology expenditures.~~


◦	~~Seasonal and typical inflationary pressures leading to higher occupancy and advertising expenses.~~


◦	~~Restructuring charges of $20 million to $25 million.~~Lower compensation driven by incentive compensation, partially offset by merit increases.

Income tax expense to be approximately 23 percent of pre-tax income, excluding any tax impact from employee stock transactions.


◦	Full-year 2018 included discrete tax benefits of $48 million.

.Common equity Tier 1 capital ratio target of 9.5 percent to 10 percent through continued return of excess capital.

Net Interest Income

Quarterly Analysis of Net Interest Income ~~& Rate/Volume~~


	Three Months Ended														Three Months Ended
	June 30, 2018							June 30, 2017							March 31, 2019							March 31, 2018
(dollar amounts in millions)	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
Commercial loans	$	30,966		$	357	4.64	%	$	30,632		$	283	3.71	%	$	31,461		$	394	5.07	%	$	30,145		$	315	4.24	%
Real estate construction loans	3,189			41		5.12		2,910			29		4.08		3,238			46		5.74		3,067			36		4.74
Commercial mortgage loans	9,174			107		4.65		9,012			87		3.88		8,997			114		5.14		9,217			98		4.32
Lease financing	457			4		3.65		526			1		0.60		519			5		3.87		464			5		4.22
International loans	981			13		5.02		1,139			12		3.99		1,014			13		5.37		996			11		4.60
Residential mortgage loans	1,993			20		3.88		1,975			18		3.61		1,965			19		3.85		2,011			18		3.67
Consumer loans	2,465			26		4.35		2,529			23		3.62		2,483			30		4.98		2,521			26		4.13
Total loans(a)	49,225			568		4.63		48,723			453		3.73		49,677			621		5.07		48,421			509		4.26

Mortgage-backed securities	9,098			52		2.25		9,336			50		2.17		9,225			56		2.41		9,168			52		2.21
Other investment securities	2,701			12		1.71		2,896			12		1.67		2,730			16		2.32		2,743			12		1.72
Total investment securities	11,799			64		2.12		12,232			62		2.05		11,955			72		2.39		11,911			64		2.09

Interest-bearing deposits with banks	3,957			18		1.82		5,263			14		1.03		2,852			17		2.40		4,548			17		1.55
Other short-term investments	133			—		0.94		92			—		0.58		134			—		1.33		132			—		0.60
Total earning assets	65,114			650		3.98		66,310			529		3.21		64,618			710		4.44		65,012			590		3.66

Cash and due from banks	1,235							1,148							925							1,261
Allowance for loan losses	(708		)					(726		)					(672		)					(718		)
Accrued income and other assets	4,879							4,614							4,900							4,771
Total assets	$	70,520						$	71,346						$	69,771						$	70,326

Money market and interest-bearing checking deposits	$	22,187		26		0.47		$	21,661		7		0.13		$	22,612		47		0.83		$	21,891		14		0.26
Savings deposits	2,231			—		0.04		2,142			—		0.02		2,170			—		0.04		2,177			—		0.03
Customer certificates of deposit	2,063			2		0.38		2,527			2		0.36
Certificates of deposit															2,330			5		0.92		2,122			2		0.34
Foreign office time deposits	33			—		1.13		57			—		0.60		12			—		1.55		31			—		1.14
Total interest-bearing deposits	26,514			28		0.42		26,387			9		0.15		27,124			52		0.78		26,221			16		0.25

Short-term borrowings	56			—		1.74		147			—		1.12		221			1		2.39		35			—		1.47
Medium- and long-term debt	5,584			32		2.24		5,161			20		1.48		6,694			51		3.06		5,192			25		1.96
Total interest-bearing sources	32,154			60		0.74		31,695			29		0.37		34,039			104		1.23		31,448			41		0.53

Noninterest-bearing deposits	29,316							30,741							26,872							29,869
Accrued expenses and other liabilities	1,073							966							1,401							1,082
Total shareholders’ equity	7,977							7,944							7,459							7,927
Total liabilities and shareholders’ equity	$	70,520						$	71,346						$	69,771						$	70,326

Net interest income/rate spread				$	590	3.24					$	500	2.84					$	606	3.21					$	549	3.13

Impact of net noninterest-bearing sources of funds						0.38							0.19							0.58							0.28
Net interest margin (as a percentage of average earning assets)						3.62	%						3.03	%						3.79	%						3.41	%


(a)	Nonaccrual loans are included in average balances reported and in the calculation of average rates.

Quarterly ~~Analysis of Net Interest Income &~~ Rate/Volume ~~(continued)~~Analysis


	Three Months Ended							Three Months Ended
	June 30, 2018/June 30, 2017							March 31, 2019/March 31, 2018
(in millions)	Increase Due to Rate		Increase (Decrease) Due to Volume (a)			Net Increase		Increase Due to Rate		Increase (Decrease) Due to Volume (a)			Net Increase
Interest Income:
Loans	$	108	$	7		$	115	$	97	$	15		$	112
Investment securities	2		—			2		8		—			8
Interest-bearing deposits with banks	10		(6		)	4		10		(10		)	—
Total interest income	120		1			121		115		5			120
Interest Expense:
Interest-bearing deposits	20		(1		)	19		34		2			36

Short-term borrowings								—		1			1
Medium- and long-term debt	11		1			12		13		13			26
Total interest expense	31		—			31		47		16			63
Net interest income	$	89	$	1		$	90	$	68	$	(11	)	$	57


(a)	Rate/volume variances are allocated to variances due to volume.

Net interest income was ~~$590~~$606 million for the three months ended ~~June 30, 2018,~~March 31, 2019, an increase of ~~$90~~$57 million compared to ~~$500~~$549 million for the three months ended ~~June 30, 2017.~~March 31, 2018. The increase in net interest income primarily reflected ~~the~~a net benefit from higher ~~rates. The impact of~~rates and a ~~$502 million~~$1.3 billion increase in average loans, ~~was largely~~partially offset by the impact of a ~~$1.3~~$1.5 billion increase in average debt primarily used for share repurchases as well as a $1.7 billion decrease in ~~interest-bearing deposits with banks, primarily~~ Federal Reserve Bank (FRB) deposits. The net interest margin for the three months ended ~~June 30, 2018~~March 31, 2019 increased 5938 basis points to ~~3.62~~3.79 percent, from ~~3.03~~3.41 percent for the comparable period in ~~2017,~~2018, primarily reflecting the net benefit from higher rates, higher average loan balances and ~~the~~a decrease in lower-yielding ~~average~~FRB deposit balances, ~~deposited with the FRB.~~

~~Year-to-Date Analysis of Net Interest Income & Rate/Volume~~

Six Months Ended
June 30, 2018 June 30, 2017
(dollar amounts in millions)
Average
Balance
Interest
Average
Rate

Average
Balance
Interest
Average
Rate
Commercial loans $ 30,556
$ 672
4.44 % $ 30,166
$ 539
3.61 %
Real estate construction loans 3,129
77
4.93
2,934
57
3.95
Commercial mortgage loans 9,195
205
4.49
8,994
170
3.81
Lease financing 461
9
3.93
548
6
2.00
International loans 989
24
4.81
1,174
23
3.88
Residential mortgage loans 2,002
38
3.78
1,969
35
3.59
Consumer loans 2,493
52
4.24
2,528
44
3.52
Total loans 48,825
1,077
4.45
48,313
874
3.65

Mortgage-backed securities 9,133
104
2.23
9,321
99
2.16
Other investment securities 2,722
24
1.71
2,894
24
1.63
Total investment securities 11,855
128
2.11
12,215
123
2.03

Interest-bearing deposits with banks 4,251
35
1.68
5,857
28
0.92
Other short-term investments 132
—
0.84
92
—
0.63
Total earning assets 65,063
1,240
3.83
66,477
1,025
3.11

Cash and due from banks 1,248
1,164

Allowance for loan losses (713 ) (733 )
Accrued income and other assets 4,825
4,673

Total assets $ 70,423
$ 71,581

Money market and interest-bearing checking deposits $ 22,039
40
0.37
$ 22,066
14
0.13
Savings deposits 2,205
—
0.03
2,114
—
0.02
Customer certificates of deposit 2,092
4
0.36
2,621
4
0.37
Foreign office time deposits 32
—
1.13
50
—
0.55
Total interest-bearing deposits 26,368
44
0.34
26,851
18
0.14

Short-term borrowings 45
—
1.63
85
—
1.07
Medium- and long-term debt 5,390
57
2.11
5,159
37
1.39
Total interest-bearing sources 31,803
101
0.64
32,095
55
0.35

Noninterest-bearing deposits 29,591
30,601

Accrued expenses and other liabilities 1,077
980

Total shareholders’ equity 7,952
7,905

Total liabilities and shareholders’ equity $ 70,423
$ 71,581

Net interest income/rate spread $ 1,139
3.19
$ 970
2.76

Impact of net noninterest-bearing sources of funds 0.33
0.18
Net interest margin (as a percentage of average earning assets) 3.52 % 2.94 %

~~Year-to-Date Analysis of Net Interest Income & Rate/Volume (continued)~~

Six Months Ended
June 30, 2018/June 30, 2017
(in millions)
Increase
Due to Rate
Increase
(Decrease)
Due to
Volume (a)
Net
Increase

Interest Income:
Loans $ 191
$ 12
$ 203
Investment securities 5
—
5
Interest-bearing deposits with banks 21
(14 ) 7
Total interest income 217
(2 ) 215
Interest Expense:
Interest-bearing deposits 27
(1 ) 26
Medium- and long-term debt 21
(1 ) 20
Total interest expense 48
(2 ) 46
Net interest income $ 169
$ —
$ 169


~~(a)~~	~~Rate/volume variances are allocated to variances due to volume.~~

Net interest income was $1.1 billion for the six months ended June 30, 2018, an increase of $169 million compared to $970 million for the six months ended June 30, 2017. The increase in net interest income primarily reflected the net benefit from higher rates. The impact of a $1.6 billion decrease in interest-bearing deposits with banks, primarily FRB deposits, was mostlypartially offset by ~~a $512 million increase in~~higher average loans. The net interest margin for the six months ended June 30, 2018 increased 58 basis points to 3.52 percent, from 2.94 percent for the comparable period in 2017, reflecting the net benefit from higher rates and the decrease in lower-yielding average balances deposited with the FRB.debt.

For further discussion of the effects of market rates on net interest income, refer to the "Market and Liquidity Risk" section of this financial review.

Provision for Credit Losses

The provision for credit losses was a benefit of ~~$29 million and $17~~$13 million for the ~~three- and six-month periods~~three months ended ~~June 30, 2018, respectively,~~March 31, 2019, compared to a provision expense of ~~$17 million and $33~~$12 million for the ~~three- and six-month periods~~three months ended ~~June 30, 2017, respectively.~~March 31, 2018. 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.~~portfolio and includes qualitative adjustments for factors that have not been fully accounted for in the quantitative reserve calculations.

The provision for loan losses decreased ~~$38~~$27 million ~~from~~to a ~~provision expense~~benefit of ~~$15~~$13 million for the three months ended ~~June 30, 2017~~March 31, 2019, compared to a ~~benefit~~provision expense of ~~$23~~$14 million for the three months ended ~~June 30,~~March 31, 2018. The decrease in the provision primarily reflected ~~improved~~sustained strong credit quality in most lines of business ~~with~~driven by low levels of net charge-offs and inflows of nonaccrual loans as well as a decline in nonperforming loans. Net loan charge-offs decreased $17 million to $11 million for the ~~largest decreases~~three months ended March 31, 2019, compared to $28 million for the three months ended March 31, 2018. The decrease in net charge-offs was primarily reflected in general Middle Market and Small Business. ~~Gross charge-offs~~Nonperforming loans as a percentage of total loans decreased ~~$19 million~~29 basis points to ~~$20 million, and recoveries increased $2 million to $23 million, resulting in net loan recoveries of $3 million~~0.39 percent for the three months ended ~~June 30, 2018~~March 31, 2019, compared to ~~net loan charge-offs of $18 million for~~ the three months ended June 30, 2017. The decrease in net charge-offs was driven by decreases in general Middle Market and Small Business. The provision for loan losses decreased $35 million from a provision expense of $26 million for the six months ended June 30, 2017 to a benefit of $9 million for the six months ended June 30, 2018. The decreasesame period in the provision primarily reflected improved credit quality in Technology and Life Sciences as well as Small Business. Gross charge-offs decreased $26 million to $57 million, and recoveries were unchanged at $32 million, resulting in net loan charge-offs of $25 million for the six months ended June 30, 2018, compared to net loan charge-offs of $51 million for the six months ended June 30, 2017. The decrease in net charge-offs was driven by decreases in Technology and Life Sciences, Energy, Small Business and Corporate Banking, partially offset by an increase in general Middle Market.prior year.

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~~No provision for credit losses on lending-related commitments ~~decreased $8 million from a provision expense of $2 million~~was necessary for the three months ended June 30, 2017 to a benefit of $6 million for the three months ended June 30, 2018. The provision for credit losses on lending-related commitments decreased $15 million from a provision expense of $7 million for the six months ended June 30, 2017 to a benefit of $8 million for the six months ended June 30, 2018. The decrease in the provision reflected decreases in commercial commitments, primarily in Energy. ThereMarch 31, 2019. Additionally, there were no lending-related commitment charge-offs for both the ~~three- and six-month~~three-month periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

An analysis of the allowance for credit losses and nonperforming assets is presented under the "Credit Risk" subheading in the "Risk Management" section of this financial review.

~~Presentation Changes~~

Noninterest income and noninterest expenses for the three- and six-month periods ended June 30, 2018 reflect certain presentation changes resulting from the adoption of Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers," (Topic 606), effective January 1, 2018. These changes primarily impacted card fees and service charges on deposit accounts in noninterest income, fully offset by the impact to outside processing fee expense in noninterest expenses. See note 1 to the consolidated financial statements for further details on the adoption of Topic 606. The table below summarizes the proforma effects to the three- and six-month periods ended June 30, 2017.

Reported Amounts Proforma Effects Proforma Amounts (a)
(in millions)
Three Months Ended June 30, 2017
Card fees $ 80
$ (26 ) $ 54
Service charges on deposit accounts 57
(2 ) 55
Total noninterest income 276
(28 ) 248

Outside processing fee expense 88
(28 ) 60
Total noninterest expenses 457
(28 ) 429

Six Months Ended June 30, 2017
Card fees $ 157
$ (51 ) $ 106
Service charges on deposit accounts 115
(3 ) 112
Total noninterest income 547
(54 ) 493

Outside processing fee expense 175
(54 ) 121
Total noninterest expenses 914
(54 ) 860

(a) The Corporation believes proforma noninterest income and noninterest expenses (each a non-GAAP measure) provides a greater understanding of ongoing operations and enhances comparability of results with prior periods.

Noninterest Income


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(in millions)	2018		2017		2018		2017		2019			2018
Card fees	$	60	$	80	$	119	$	157	$	63		$	59
Service charges on deposit accounts	53		57		107		115		51			54
Fiduciary income	52		51		104		100		49			52
Commercial lending fees	23		22		41		42		22			18
Foreign exchange income									11			12
Letter of credit fees	11		11		21		23		9			10
Bank-owned life insurance	9		9		18		19		9			9
Foreign exchange income	12		11		24		22
Brokerage fees	6		6		13		11		7			7
Net securities gains	—		—		1		—
Net securities (losses) gains									(8		)	1
Other noninterest income(a)	22		29		44		58		25			22
Total noninterest income	$	248	$	276	$	492	$	547	$	238		$	244


(a)	The table below provides further details on certain categories included in other noninterest income.

Noninterest income decreased ~~$28~~$6 million to ~~$248~~$238 million for the three months ended ~~June 30, 2018,~~March 31, 2019, compared to ~~$276~~$244 million for the same period in ~~2017.~~2018. Excluding an $8 million pre-tax loss on the ~~$28 million proforma effect~~sale of ~~Topic 606 to the three months ended June 30, 2017,~~securities from repositioning approximately $1 billion of treasury securities, noninterest income ~~was unchanged at $248 million. Increases~~increased $2 million, reflecting increases in syndication agent fees (component of ~~$6 million in~~commercial lending fees) and card fees, ~~(proforma) and $1 million in fiduciary income were~~partially offset by decreases ~~of $3 million in warrant income and $2 million each~~ in service charges on deposit accounts ~~(proforma)~~ and customer derivative income. Noninterest income decreased $55 million to $492 million for the six months ended June 30, 2018, compared to $547 million for the same period in the prior year. Excluding the $54 million proforma effect of Topic 606 to the six months ended June 30, 2017, noninterest income decreased $1 million, primarily reflecting decreases of $4 million each in service charges on deposit accounts (proforma) and customer derivative income, $3 million each in warrant income and deferred compensation asset returns as well as smaller decreases in various other categories, mostly offset by increases of $13 million in card fees (proforma) and $4 million in fiduciary income.

The following table illustrates certain categories included in other noninterest income on the Consolidated Statements of Comprehensive Income.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(in millions)	2018		2017		2018		2017		2019		2018
Customer derivative income	$	6	$	8	$	10	$	14	$	7	$	4
Investment banking fees	1		1		4		5		2		3
Deferred compensation asset returns (a)	1		2		2		5		2		1
Securities trading income									2		3
Income from principal investing and warrants	1		4		1		4		1		—
All other noninterest income	13		14		27		30		11		11
Other noninterest income	$	22	$	29	$	44	$	58	$	25	$	22

(a)

Compensation deferred by the Corporation's officers and directors is invested based on investment selections of the officers and directors. Income earned on these assets is reported in other noninterest income and the ~~resulting~~offsetting change in deferred compensation plan liabilities is reported in salaries and benefits expense. ~~Changes in income earned on deferred compensation assets are substantially offset by changes in deferred compensation plan expense.~~

Noninterest Expenses


	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(in millions)	2018		2017		2018		2017			2019		2018
Salaries and benefits expense	$	250	$	231	$	505	$	476		$	265	$	255
Outside processing fee expense	64		88		125		175			63		61
Net occupancy expense	37		38		75		76			37		38
Software expense										29		31
Equipment expense	11		11		22		22			12		11
Restructuring charges	11		14		27		25
Software expense	32		31		63		60
FDIC insurance expense	12		12		25		25			5		13
Advertising expense	8		7		14		11			5		6
Litigation-related expense	—		—		—		(2		)
Restructuring charges										—		16
Other noninterest expenses	23		25		38		46			17		15
Total noninterest expenses	$	448	$	457	$	894	$	914		$	433	$	446

Noninterest expenses decreased $9$13 million to ~~$448~~$433 million for the three months ended ~~June 30, 2018,~~March 31, 2019, compared to ~~$457~~$446 million for the same period in ~~2017.~~2018. Excluding ~~the $28~~$16 million ~~proforma effect~~ of ~~Topic 606 to the three months ended June 30, 2017,~~restructuring charges completed in 2018, noninterest expenses increased ~~$19~~$3 million, ~~primarily~~ reflecting ~~increases of $19 million~~an increase in salaries and benefits expense, ~~and $4 million in outside processing fee expense (proforma),~~ partially offset by a ~~$3 million~~ decrease in ~~restructuring charges. The increase in salaries and benefits~~FDIC insurance expense~~primarily reflected higher share-based and incentive compensation tied to financial performance as well as merit increases.~~

Noninterest expenses decreased $20 million to $894 million for the six months ended June 30, 2018, compared to $914 million for the same period in 2017. Excluding the $54 million proforma effect of Topic 606 due to the ~~six months ended June 30, 2017, noninterest expenses increased $34 million, reflecting increases~~end of $29 million in salaries and benefits expense, $4 million in outside processing fee expense (proforma), $3 million each in software and advertising expense and smaller increases in various other categories, partially offset by a $5 million business tax refund included in other noninterest expenses in the six months ended June 30, 2018.FDIC surcharges. The increase in salaries and benefits expense was primarily due to an increase in technology-related labor costs and the ~~same reasons as discussed above.~~impact of merit increases.

~~For further information about restructuring charges associated with the GEAR Up initiative, see note 13 to the consolidated financial statements.~~

Provision for Income Taxes

The provision for income taxes ~~decreased $6~~increased $31 million to ~~$93~~$85 million for the three months ended ~~June 30, 2018,~~March 31, 2019, compared to ~~$99~~$54 million for the same period in ~~2017, and decreased $18 million to $147 million for the six months ended June 30,~~ 2018, ~~compared to $165 million for the same period in 2017. The decreases were primarily~~ due to ~~the decrease~~an increase in ~~the statutory tax rate in 2018 resulting from the Tax Cuts and Jobs Act,partially offset by higher~~ pre-tax income and ~~lower~~an $11 million decrease in discrete tax benefits, primarily from a lower volume of employee stock transactions. Income tax benefits from employee stock transactions were $3 million and $22 million for the three- and six-month periods ended June 30, 2018, respectively, compared to $5 million and $29 million for the same periods in 2017.

STRATEGIC LINES OF BUSINESS

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 1413 to the consolidated financial statements describes the business activities of each business segment and presents financial results of these business and market segments for the ~~three- and six-month~~three-month periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

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. Note 23 to the consolidated financial statements in the Corporation's ~~2017~~2018 Annual Report describes the Corporation's segment reporting methodology.

Net interest income for each segment reflects the interest income generated by earning assets less interest expense on interest-bearing liabilities plus the net impact from associated internal funds transfer pricing (FTP). The FTP methodology allocates credits to each business segment ~~credits~~ for deposits and other funds provided ~~and~~as well as charges ~~each business segment~~ for loans and other assets being funded. FTP crediting rates for deposits and other funds provided reflect the long-term value of deposits and other funding sources based on their implied maturities. FTP charge rates for funding loans and other assets reflect a matched cost of funds based on the pricing and duration characteristics of the assets. Therefore, net interest income for each segment primarily reflects the volume and associated FTP impacts of loan and deposit levels. Business segments that generate deposits benefited from higher FTP crediting rates on deposits ~~were higher~~ in the ~~six~~three months ended ~~June 30, 2018 than in~~March 31, 2019 compared to the same period in the prior ~~year, and as a result, net interest income for deposit-providing business segments has been positively impacted during the current~~ year. As overall market rates increased, FTP charges for funding loans increased for asset-generating business segments in the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, compared to the same period in the prior year. Additionally, the net FTP impact to a specific business or market segment is a function of the changes in that segment's balance sheet composition, primarily loan and deposit volumes.

The following sections present a summary of the performance of each of the Corporation's business and market segments for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 compared to the same period in the prior year. The proforma effect of Topic 606 to the six months ended June 30, 2017, reducing both noninterest income and noninterest expenses by $54 million, primarily impacted the Business Bank and Other Markets segments.

Business Segments

The following table presents net income (loss) by business segment.


	Six Months Ended June 30,									Three Months Ended March 31,
(dollar amounts in millions)	2018				2017					2019					2018
Business Bank	$	432	80	%	$	357		83	%	$	274		82	%	$	218	84	%
Retail Bank	52		10		27			6		28			8		11		4
Wealth Management	55		10		46			11		33			10		32		12
	539		100	%	430			100	%	335			100	%	261		100	%
Finance	45				(56		)			(7		)			1
Other (a)	23				31					11					19
Total	$	607			$	405				$	339				$	281


(a)	Included discrete tax benefits ~~from employee stock transactions~~ of ~~$22~~$11 million and ~~$29~~$22 million for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and items not directly associated with the three major business segments or the Finance Division.~~respectively.

The Business Bank's net income increased ~~$75~~$56 million to ~~$432~~$274 million. Average loans increased ~~$684 million~~$1.4 billion and average deposits decreased ~~$2.3~~$2.0 billion. Net interest income increased $3$31 million to ~~$671~~$412 million. An increase in loan income of $173 million was mostly offset by a $12 million increase in deposit costs and a $159 million increase in allocated net FTP charges. The FTP allocation reflected an increase in funding charges as well as increases in crediting rates on deposits as a result of higher short-term rates. The decline in deposit balances resulted in a decrease in FTP deposit credits. The provision for credit losses decreased $29 million to a benefit of $7 million, primarily reflecting decreases in Technology and Life Sciences and Corporate Banking, partially offset by an increase in Commercial Real Estate. Net credit-related charge-offs decreased $22 million to $18 million, primarily reflected decreases in Technology and Life Sciences and Energy. Excluding the $48 million proforma effect to the prior year of Topic 606, noninterest income decreased $1 million, and noninterest expenses increased $21 million. Noninterest income was primarily impacted by decreases of $7 million in customer derivative income, $3 million in letter of credit fees and smaller decreases in several other categories of noninterest income, partially offset by a $12 million increase in card fees (proforma). The increase in noninterest expenses primarily reflected increases of $6 million in outside processing fee expense (proforma), $5 million in corporate overhead and $3 million in salaries and benefits expense and smaller increases in other categories of noninterest income.

~~The Retail Bank's net income increased $25 million to $52 million. Average deposits increased $246 million. Net interest income increased $12 million to $334 million. An increase in loan income of $19~~$105 million was partially offset by ~~a $5~~increases of $17 million ~~increase~~ in deposit costs and ~~a $2~~$57 million ~~increase~~ in allocated net FTP charges. The FTP allocation reflected an increase in funding charges as well as increases in crediting rates on deposits as a result of higher short-term rates. Higher deposit balances resulted in an increase in FTP deposit credits. The provision for credit losses decreased $22 million to a benefit of $5$6 million, primarily reflecting a decrease in ~~Small Business.~~general Middle Market, partially offset by an increase in Energy, primarily due to loan growth. Net credit-related charge-offs decreased $6$18 million to $8 million, due to a decrease in Small Business. Excluding the $6 million proforma effect to the prior year of Topic 606, noninterest income decreased $6 million and noninterest expenses increased $2 million. Noninterest income was primarily impacted by decreases of $3 million in service charges on deposit accounts (proforma), $3 million in revenue related to a retirement savings program being wound down and smaller decreases in other categories of noninterest income, partially offset by a $3 million increase in card fees (proforma). Noninterest expenses was primarily impacted by increases of $6 million in salaries and benefits expense and $4 million in corporate overhead, partially offset by a decrease of $4 million in outside processing fee expense (proforma), $3 million of which was due to the wind-down of a retirement savings program, and smaller decreases in other categories of noninterest expenses.

Wealth Management's net income increased $9 million to $55 million. Net interest income decreased $2 million to $81 million. The provision for credit losses was unchanged at a benefit of $3 million. Net credit-related recoveries decreased $2 million to $1 million. Noninterest income increased $7 million to $135$12 million, primarily reflecting a ~~$5 million~~decrease in general Middle Market, partially offset by an increase in ~~fiduciary income.~~Energy. Noninterest ~~expenses~~income increased ~~$6 million to $147~~$5 million, primarily reflecting increases of $4 million each in ~~salaries~~card fees and ~~benefits expense~~syndication agent fees and $2 million in customer derivative income, partially offset by decreases of $2 million each in service charges on deposit accounts and investment banking

fees. Excluding restructuring charges of $10 million in first quarter 2018, noninterest expenses decreased $5 million, primarily reflecting decreases of $4 million in corporate overhead and $3 million in ~~corporate overhead,~~FDIC insurance expense.

The Retail Bank's net income increased $17 million to $28 million. Average deposits decreased $423 million. Net interest income increased $19 million to $146 million. Increases of $26 million in allocated net FTP credits and $4 million in loan income were partially offset by ~~smaller decreases~~a $10 million increase in ~~other categories~~deposit costs. The provision for credit losses decreased $2 million to a benefit of $4 million. Noninterest income and noninterest ~~expenses.~~expenses, excluding restructuring charges of $4 million in first quarter 2018, were stable.

Wealth Management's net income increased $1 million to $33 million. Net interest income increased $4 million to $47 million. The provision for credit losses decreased $1 million to a benefit of $5 million. Net credit-related recoveries decreased $1 million. Noninterest income decreased $3 million to $64 million, primarily reflecting a $3 million decrease in fiduciary income. Noninterest expenses were stable.

Net income infor the Finance segment ~~was $45~~decreased $8 million ~~compared~~ to a net loss of ~~$56 million. Net interest income increased $147~~$7 million, including the impact of the $6 million loss, net of tax, due to ~~$27 million, primarily reflecting a increase in net FTP revenue as a result of higher rates charged to~~repositioning the ~~business segments under the Corporation's internal FTP methodology.~~securities portfolio.

Market Segments

The following table presents net income ~~(loss)~~ by market segment.


	Six Months Ended June 30,									Three Months Ended March 31,
(dollar amounts in millions)	2018				2017					2019				2018
Michigan	$	122	23	%	$	135		31	%	$	87	26	%	$	53	19	%
California	182		33		120			28		110		33		91		35
Texas	101		19		80			19		62		18		49		19
Other Markets	134		25		95			22		76		23		68		27
	539		100	%	430			100	%	335		100	%	261		100	%
Finance & Other (a)	68				(25		)			4				20
Total	$	607			$	405				$	339			$	281


(a)	Included discrete tax benefits ~~from employee stock transactions~~ of ~~$22~~$11 million and ~~$29~~$22 million for the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively ~~and items not directly associated with the three major business segments or the Finance Division.~~.

The Michigan market's net income ~~decreased $13~~increased $34 million to ~~$122~~$87 million. Average deposits decreased ~~$859 million.~~$1.3 billion. Net interest income ~~decreased $1~~increased $12 million to ~~$336~~$187 million. ~~An increase~~Increases of $22 million in loan income ~~of $52~~and $2 million ~~was~~in allocated net FTP credits were partially offset by a $7$12 million increase in deposit costs and a $45 million increase in allocated net FTP charges. The FTP allocation reflected an increase in funding charges as well as increases in crediting rates on deposits as a result of higher short-term rates. The decline in deposit balances resulted in a decrease in FTP deposit credits. The provision for credit losses increased $38 million to $34 million from a benefit of $4 million, primarily reflecting an increase in general Middle Market. Net credit-related recoveries decreased $3 million to net recoveries of $1 million. Excluding the $6 million proforma effect to the prior year of Topic 606, noninterest income decreased $12 million and noninterest expense decreased $1 million. The decrease in noninterest income primarily reflected decreases of $5 million in fiduciary income and $4 million in service charges on deposit accounts (proforma) and smaller decreases in other categories of noninterest income. Noninterest expenses were primarily impacted by small decreases in several categories of noninterest expenses, offset by increases of $4 million each in corporate overhead and salaries and benefit expenses.

The California market's net income increased $62 million to $182 million. Average loans increased $453 million and average deposits decreased $429 million. Net interest income increased $14 million to $363 million. An increase in loan income of $81 million was partially offset by a $7 million increase in deposit costs and a $61 million increase in allocated net FTP charges. The FTP allocation reflected an increase in funding charges as well as increases in crediting rates on deposits as a result of higher short-term rates. The decline in deposit balances resulted in a decrease in FTP deposit credits.costs. The provision for credit losses decreased ~~$56~~$29 million to ~~a benefit of $11 million from a $45 million provision, primarily due to decreases in Technology and Life Sciences, general Middle Market and Corporate Banking. Net credit-related charge-offs decreased~~ $5 ~~million to $13~~ million, primarily reflecting decreases in ~~Technology and Life Sciences and Corporate Banking, partially offset by an increase in~~ general Middle ~~Market. Excluding the $3 million proforma effect to the prior year of Topic 606, noninterest income decreased $2 million~~Market, National Dealer Services and ~~noninterest expense increased $20 million. Noninterest incom~~

e was primarily impacted by decreases of $2 million in customer derivative income. The increase in noninterest expenses primarily reflected increases of $5 million in corporate overhead expense, $3 million in salaries and benefits expense and increases in several other categories of noninterest expenses.

The Texas market's net income increased $21 million to $101 million. Average loans decreased $216 million and average deposits decreased $794 million. Net interest income was unchanged at $226 million. An increase in loan income of $39 million was mostly offset by a $38 million increase in allocated net FTP charges. The FTP allocation reflected an increase in funding charges as well as increases in crediting rates on deposits as a result of higher short-term rates. The decline in deposit balances resulted in a decrease in FTP deposit credits. The provision for credit losses decreased $4 million to a benefit of $28 million, reflecting a decrease in Small Business, ~~and smaller decreases in most other areas,~~ partially offset by an increase in Corporate Banking. Net credit-related charge-offs ~~decreased $19~~increased $5 million to $8$4 million, from net recoveries of $1 million, primarily reflecting ~~decreases~~an increase in ~~general Middle Market and Energy. Excluding the $3 million proforma effect to the prior year of Topic 606, noninterest~~Corporate Banking. Noninterest income and noninterest expenses, ~~both decreased $1 million.~~excluding restructuring charges of $4 million in first quarter 2018, were stable.

~~Other Markets'~~The California market's net income increased ~~$39~~$19 million to ~~$134~~$110 million. Average loans increased ~~$302~~$421 million and average deposits decreased ~~$140~~$846 million. Net interest income ~~was unchanged at $161~~increased $17 million to $205 million. An increase in loan income of ~~$33~~$42 million was partially offset by ~~a $4~~increases of $10 million ~~increase~~ in deposit costs and ~~a $29~~$15 million ~~increase~~ in allocated net FTP charges. The ~~FTP allocation reflected an increase in funding charges as well as increases in crediting rates on deposits as~~provision for credit losses increased $1 million to a ~~result~~benefit of ~~higher short-term rates. The decline in deposit balances resulted in~~$1 million. Net credit-related charge-offs decreased $16 million to a benefit of $3 million, primarily reflecting a decrease in general Middle Market. Noninterest income and noninterest expenses, excluding restructuring charges of $5 million in first quarter 2018, were stable.

The Texas market's net income increased $13 million to $62 million. Average loans increased $440 million and average deposits decreased $490 million. Net interest income increased $11 million to $122 million. An increase in loan income of $27 million was partially offset by increases of $13 million in allocated net FTP charges and $3 million in deposit ~~credits.~~costs. The provision for credit losses ~~decreased $29~~increased $3 million to a benefit of ~~$10~~$11 million, ~~from a $19~~reflecting increases in Energy, primarily due to loan growth, and Small Business, mostly offset by decreases in general Middle Market as well as Technology and Life Sciences. Net credit-related charge-offs increased $8 million ~~provision expense,~~to $13 million, primarily reflecting an increase in Energy. Noninterest income was stable. Excluding $5 million in restructuring charges in first quarter 2018, noninterest expenses decreased $3 million, primarily reflecting small decreases in ~~Small Business~~most categories of noninterest expenses.

Other Markets' net income increased $8 million to $76 million. Average loans increased $442 million. Net interest income increased $13 million to $91 million. An increase in loan income of $23 million was partially offset by increases of $6 million in allocated net FTP charges and ~~Corporate Banking.~~$4 million in deposit costs. The provision for credit losses was stable. Net credit-related charge-offs decreased $5$14 million to $5net recoveries of $3 million, primarily reflecting a decrease in Small ~~Business. Excluding the $41 million proforma effect to the prior year of Topic 606, noninterest~~Business net charge-offs. Noninterest income ~~increased $14 million~~ and noninterest expenses increased $10 million. Noninterest income was primarily impacted by increases of $9 million each in card fees (proforma) and fiduciary income, partially offset by a $3 million decrease in customer derivative income. The increase in noninterest expenses primarily reflected increases of $6 million in salaries and benefits expense and smaller increases in several other categories of noninterest expenses.were stable.

Net income infor the Finance & Other category ~~of $68~~decreased $16 million ~~increased $93 million compared~~ to ~~a net loss of $25~~$4 million, primarily reflecting an ~~increase in FTP revenue as a result of higher rates charged to the market segments under the Corporation's internal FTP methodology, partially offset by a $7~~$11 million decrease in discrete tax benefits ~~from employee stock transactions.~~and the $6 million loss, net of tax, due to repositioning the securities portfolio.

The following table lists the Corporation's banking centers by geographic market segment.


	June 30,		March 31,
	2018	2017	2019	2018
Michigan	194	195	193	194
Texas	122	122	122	122
California	97	97	96	97
Other Markets:
Arizona	17	17
Florida	7	7
Canada	1	1
Other Markets			25	25
Total	438	439	436	438

FINANCIAL CONDITION

Total assets ~~increased $420~~decreased $128 million to ~~$72.0~~$70.7 billion at ~~June 30, 2018~~March 31, 2019, compared to ~~$71.6~~$70.8 billion at December 31, ~~2017, driven~~2018. A $753 million decrease in interest-bearing deposits with banks was mostly offset by a ~~$619~~$621 million increase in ~~total loans, partially offset by a $289 million decrease in investment securities.~~accrued income and other assets. On an average basis, total assets decreased ~~$878 million~~$1.0 billion to ~~$70.5~~$69.8 billion in the ~~second~~first quarter ~~2018,~~2019, compared to ~~$71.4~~$70.8 billion in the fourth quarter ~~2017, resulting primarily from decreases of $1.0~~2018, driven by a $2.1 billion decrease in ~~average~~ interest-bearing deposits with banks, ~~and $356 million in average investment securities,~~ partially offset by ~~a $292~~an $845 million increase in average ~~total~~ loans.

The following tables provide information about the change in the Corporation's average loan portfolio in the ~~second~~first quarter ~~2018~~2019, compared to the fourth quarter ~~2017,~~2018, by loan type and geographic market.


	Three Months Ended							Percent Change		Three Months Ended							Percent Change
(dollar amounts in millions)	June 30, 2018		December 31, 2017		Change			Percent Change		March 31, 2019		December 31, 2018		Change			Percent Change
Average Loans:
Commercial loans	$	30,966	$	30,719	$	247		1	%	$	31,461	$	30,651	$	810		3	%
Real estate construction loans	3,189		3,031		158			5		3,238		3,164		74			2
Commercial mortgage loans	9,174		9,054		120			1		8,997		9,051		(54		)	(1	)
Lease financing	457		470		(13		)	(3	)	519		495		24			5
International loans	981		1,122		(141		)	(13	)	1,014		1,035		(21		)	(2	)
Residential mortgage loans	1,993		2,014		(21		)	(1	)	1,965		1,968		(3		)	—
Consumer loans	2,465		2,523		(58		)	(2	)	2,483		2,468		15			1
Total loans	$	49,225	$	48,933	$	292		1	%	$	49,677	$	48,832	$	845		2	%
Average Loans By Geographic Market:
Michigan	$	12,641	$	12,798	$	(157	)	(1	)%	$	12,557	$	12,457	$	100		1	%
California	18,435		18,236		199			1		18,768		18,279		489			3
Texas	9,862		9,795		67			1		10,270		9,889		381			4
Other Markets	8,287		8,104		183			2		8,082		8,207		(125		)	(2	)
Total loans	$	49,225	$	48,933	$	292		1	%	$	49,677	$	48,832	$	845		2	%

The increase in average ~~commercial~~ loans was largely attributed to increases in ~~Technology and Life Sciences~~National Dealer Services, Energy and general Middle Market, partially offset by a seasonal decrease in ~~Corporate Banking.~~Mortgage Banker Finance.

Total liabilities ~~increased $304 million to $63.9~~remained stable at $63.3 billion at ~~June 30, 2018 compared to $63.6 billion at~~both March 31, 2019 and December 31, ~~2017, primarily reflecting~~2018 as a $961 million increase in medium- and long-term debt, partially offset by a $693 million decrease in total deposits. The increase in medium- and long-term debt primarily reflected a $1.0 billion increase in FHLB advances. The decrease in total deposits primarily reflected a $1.8$2.4 billion decrease in noninterest-bearing deposits ~~partially~~was mostly offset by ~~a $1.1 billion increase~~increases of $978 million in interest-bearing ~~deposits. On an average basis, total liabilities decreased $868~~deposits, $891 million in ~~the second quarter 2018, compared to the fourth quarter 2017, primarily due to a $1.8 billion decrease in total deposits, partially offset by a $953~~short-term borrowings and $385 million ~~increase~~ in medium- and long-term debt. The decrease in noninterest-bearing deposits included a $1.2 billion decrease due to the timing of deposits by the U.S. Treasury funding a government card program which typically fund on the first day of each month. The January payment was received in the fourth quarter of 2018 due to the New Year's holiday. The increase in short-term borrowings reflected temporary increases in federal funds purchased and short-term Federal Home Loan Bank (FHLB) advances. The increase in medium- and long-term debt reflected the issuance of $350 million in long-term notes during the first quarter 2019. On an average basis, total liabilities decreased $1.0 billion in the first quarter 2019, compared to the fourth quarter 2018, due to a $1.7 billion seasonal decrease in total deposits, ~~primarily reflected decreases~~mostly offset by increases of $311 million in ~~general Middle Market (driven by seasonality~~accrued expenses and other liabilities as well as $274 million in ~~Municipalities), Commercial Real Estate~~medium- and ~~Corporate Banking.~~long-term debt.

Capital

Total shareholders' equity ~~increased~~ ~~$116~~decreased $98 million to ~~$8.1~~$7.4 billion at ~~June 30, 2018~~March 31, 2019, compared to ~~$8.0~~$7.5 billion at December 31, ~~2017~~2018. The following table presents a summary of changes in total shareholders' equity infor the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019.


(in millions)
Balance at January 1, 2018				$	7,963
Cumulative effect of change in accounting principles				15
Balance at January 1, 2019									$	7,507
Cumulative effect of change in accounting principle									(14		)
Net income				607					339
Cash dividends declared on common stock				(110		)			(105		)
Purchase of common stock				(328		)			(434		)
Other comprehensive loss:
Other comprehensive income:
Investment securities	$	(151	)				$	90
Cash flow hedges							3
Defined benefit and other postretirement plans	12						3
Total other comprehensive loss				(139		)
Total other comprehensive income									96
Issuance of common stock under employee stock plans				37					(4		)
Share-based compensation				34					24
Balance at June 30, 2018				$	8,079
Balance at March 31, 2019									$	7,409

~~On June 21, 2018,~~The Corporation expects to continue to return capital to shareholders with a target of reaching a common equity Tier 1 capital ratio of 9.5 percent to 10 percent by the Federal Reserve announced that bank holding companies with less than $100 billion in total assets are no longer subject to supervisory stress testing, including both the Dodd-Frank Act stress tests and Comprehensive Capital Analysis and Review. As such, at its meeting on July 24, 2018, the Boardend of Directors of the Corporation (the Board) approved capital actions aimed at increasing shareholder returns while continuing to appropriately manage its capital base as well as support growth and investment in its business. The Board approved a 26-cent increase in the quarterly dividend to $0.60 per share, effective for the dividend payable October 1, 2018, as well as the repurchase of $500 million of outstanding common stock during third quarter 2018.2019. The timing and ultimate amount of future distributions will be subject to various factors including financial performance, capital position and market conditions.

Also on July 24, 2018, the Board announced the authorization to repurchase of up to an additional 10 million shares of Comerica Incorporated outstanding common stock, in addition to the 6.2 million shares and 800 thousand warrants remaining at June 30, 2018 under the Board's prior authorizations for the equity repurchase program initially approved in November 2010. Including the July 24, 2018 authorization, a total of 65.2 million shares and 14.1 million warrants (12.1 million share-equivalents) have been authorized for repurchase under the equity repurchase program since its inception in 2010. There is no expiration date for the Corporation's equity repurchase program. In the second quarter 2018, the Corporation's repurchases under the equity repurchase program totaled $169 million.

The following table summarizes the Corporation's repurchase activity during the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019.

(shares in thousands)
Total Number of Shares and Warrants Purchased as
Part of Publicly Announced Repurchase Plans or Programs (a)

Remaining
Repurchase
Authorization (b)
Total Number
of Shares and Warrants
Purchased (c)

Average Price
Paid Per
Share
Total first quarter 2018 1,565
8,714
1,674
$ 95.16
April 2018 803
7,911
805
96.06
May 2018 899
7,011
899
96.59
June 2018 53
6,952
55
95.87
Total second quarter 2018 1,755
6,952
1,759
96.32
Total 2018 year-to-date 3,320
6,952
3,433
$ 95.75



(shares in thousands)	Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans or Programs	Remaining Share Repurchase Authorization (a)		Total Number of Shares Purchased (b)	Average Price Paid Per Share
January 2019	566	19,141	(c)	682	$	81.32
February 2019	2,561	16,580		2,564	84.48
March 2019	1,967	14,613		1,970	82.92
Total first quarter 2019	5,094	14,613		5,216	$	83.48

(a)

The Corporation made no repurchases of warrants under the repurchase program during the six months ended June 30, 2018. 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 six months ended June 30, 2018, Comerica withheld the equivalent of approximately 34,000 shares to cover an aggregate $1 million in exercise price and issued approximately 81,000 shares to the exercising warrant holders. Shares withheld in connection with the net exercise provision are not included in the total number of shares or warrants purchased in the above table.


~~(b)~~	Maximum number of shares ~~and warrants~~ that may yet be purchased under the publicly announced plans or programs.

~~(c)~~(b)

Includes approximately ~~113,000~~122,000 shares purchased pursuant to deferred compensation plans and shares purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee share-based compensation plan during the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019. These transactions are not considered part of the Corporation's repurchase program.


(c)	Includes January 2019 share repurchase authorization for an additional 15 million shares.

~~On July 6, 2018,~~A total of 80.2 million shares have been authorized for repurchase under the ~~Board of Governors of~~Corporation's share repurchase program since its inception in 2010. There is no expiration date for the Federal Reserve System issued a statement announcing that, consistent with the recently enacted Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), bank holding companies with less than $100 billion in total assets are no longer subject to certain regulations and reporting requirements, such as Dodd-Frank Act stress testing, CCAR and the Liquidity Coverage Ratio, effective immediately. The Corporation is in the process of evaluating the full benefits of these changes.

In November 2017, U.S. banking regulators issued a final rule that suspended the full transition for certain deductions and adjustments to regulatory capital calculations effective January 1, 2018 to remain at current levels and issued a notice of proposed rulemaking (NPR) intended to simplify certain aspects of the Basel III regulatory capital framework. The Corporation does not expect the proposed rule to have a significant impact on its capital ratios.share repurchase program.

The following table presents the minimum ratios required to be considered "adequately ~~capitalized".~~capitalized."



Common equity tier 1 capital to risk-weighted assets	~~4.500~~4.50	%
Tier 1 capital to risk-weighted assets	~~6.000~~6.00
Total capital to risk-weighted assets	~~8.000~~8.00
Capital conservation buffer (a)	~~1.875~~2.50
Tier 1 capital to adjusted average assets (leverage ratio)	~~4.000~~4.00

(a)

In addition to the minimum risk-based capital requirements, the Corporation is required to maintain a minimum capital conservation buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. ~~The required amount of the capital conservation buffer is being phased in and ultimately increases to 2.5% on January 1, 2019. The capital conservation buffer indicated above is as of June 30, 2018.~~

The Corporation's capital ratios exceeded minimum regulatory requirements as follows:


	June 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
(dollar amounts in millions)	Capital/Assets		Ratio		Capital/Assets		Ratio		Capital/Assets		Ratio		Capital/Assets		Ratio
Common equity tier 1 and tier 1 risk based (a)	$	8,026	11.90	%	$	7,773	11.68	%	$	7,277	10.78	%	$	7,470	11.14	%
Total risk-based (a)	9,422		13.96		9,211		13.84		8,639		12.80		8,855		13.21
Leverage (a)	8,026		11.35		7,773		10.89		7,277		10.40		7,470		10.51
Common equity	8,079		11.22		7,963		11.13		7,409		10.48		7,507		10.60
Tangible common equity (b)	7,437		10.42		7,320		10.32		6,769		9.66		6,866		9.78
Risk-weighted assets (a)	67,468				66,575				67,507				67,047


(a)	~~June 30, 2018~~March 31, 2019 capital, risk-weighted assets and ratios are ~~estimated and do not reflect guidance related to high volatility commercial real estate loans as indicated in the recent interagency statement regarding the impact of the EGRRCPA.~~estimated.


(b)	See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.

RISK MANAGEMENT

The following updated information should be read in conjunction with the "Risk Management" section on pages ~~F-20~~F-21 through ~~F-33~~F-34 in the Corporation's ~~2017~~2018 Annual Report.

Credit Risk

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 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.

The allowance for loan losses was ~~$677~~$647 million at ~~June 30, 2018,~~March 31, 2019, compared to ~~$712~~$671 million at December 31, ~~2017,~~2018, a ~~$35~~decrease of $24 million, or ~~5 percent, decrease.~~4 percent. As a percentage of total loans, the allowance for loan losses was ~~1.36~~1.29 percent at ~~June 30, 2018,~~March 31, 2019, compared to ~~1.45~~1.34 percent at December 31, ~~2017.~~2018. The decrease in the allowance for loan losses reflected ~~continued improvement in~~sustained strong credit quality of the portfolio ~~including~~and continued solid economic conditions across our geography and within industry exposures. The strong credit quality performance resulted in nonperforming loans as a ~~$466 million decline in criticized~~percentage of total loans of 0.39 percent at March 31, 2019, compared to 0.46 percent at December 31, 2018, and ~~low net loan charge-offs.~~an allowance coverage of 3.3 at March 31, 2019, compared to 2.9 at December 31, 2018.

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 ~~$34 million and $42~~$30 million at ~~June 30, 2018~~both March 31, 2019 and December 31, ~~2017, respectively. The decrease in the allowance reflected decreases in commercial commitments, primarily related to Energy.~~2018.

For additional information regarding the allowance for credit losses, refer to page ~~F-34~~F-35 in the "Critical Accounting Policies" section and pages ~~F-50 and~~F-51 through F-52 in ~~note~~Note 1 to the consolidated financial statements of the Corporation's ~~2017~~2018 Annual Report.

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.

The following table presents a summary of nonperforming assets and past due loans.


(dollar amounts in millions)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Nonaccrual loans:
Business loans:
Commercial	$	171		$	309		$	114		$	141
Commercial mortgage	29			31			16			20
Lease financing	2			4			2			2
International	4			6			3			3
Total nonaccrual business loans	206			350			135			166
Retail loans:
Residential mortgage	29			31			37			36
Consumer:
Home equity	19			21			19			19
Total nonaccrual retail loans	48			52			56			55
Total nonaccrual loans	254			402			191			221
Reduced-rate loans	8			8			7			8
Total nonperforming loans	262			410			198			229
Foreclosed property	2			5			1			1
Total nonperforming assets	$	264		$	415		$	199		$	230
Nonperforming loans as a percentage of total loans	0.53		%	0.83		%	0.39		%	0.46		%
Nonperforming assets as a percentage of total loans and foreclosed property	0.53			0.84			0.40			0.46
Ratio of allowance for loan losses to total nonperforming loans	2.6x			1.7x
Allowance for loan losses as a multiple of total nonperforming loans							3.3x			2.9x
Loans past due 90 days or more and still accruing	$	20		$	35		$	24		$	16
Loans past due 90 days or more and still accruing as a percentage of total loans	0.04		%	0.07		%	0.05		%	0.03		%

Nonperforming assets decreased ~~$151~~$31 million, or 13 percent, to ~~$264~~$199 million at ~~June 30, 2018~~March 31, 2019, from ~~$415~~$230 million at December 31, ~~2017.~~2018. The decrease in nonperforming assets primarily reflected a $27 million decrease ~~of $138 million~~ in nonaccrual commercial loans, with the largest ~~decreases~~declines in ~~Corporate Banking, Energy~~general Middle Market and ~~Commercial Real Estate.~~Energy.

The following table presents a summary of TDRs at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.


(in millions)	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Nonperforming TDRs:
Nonaccrual TDRs	$	120	$	182	$	65	$	73
Reduced-rate TDRs	8		8		7		8
Total nonperforming TDRs	128		190		72		81
Performing TDRs (a)	133		123		97		101
Total TDRs	$	261	$	313	$	169	$	182


(a)	TDRs that do not include a reduction in the original contractual interest rate which are performing in accordance with their modified terms.

At ~~June 30, 2018,~~March 31, 2019, nonaccrual ~~TDRs~~ and performing TDRs included ~~$57~~$24 million and ~~$70~~$48 million of Energy loans, respectively, compared to ~~$82~~$38 million and ~~$43~~$46 million, respectively, at December 31, ~~2017.~~2018.

The following table presents a summary of changes in nonaccrual loans.


	Three Months Ended									Three Months Ended
(in millions)	June 30, 2018			March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Balance at beginning of period	$	326		$	402		$	444		$	221		$	230
Loans transferred to nonaccrual (a)	49			71			73			4			42
Nonaccrual loan gross charge-offs	(20		)	(37		)	(29		)	(20		)	(21		)
Loans transferred to accrual status (a)	—			(3		)	—			—			(3		)
Nonaccrual loans sold	(15		)	(10		)	(22		)	—			(5		)
Payments/other (b)	(86		)	(97		)	(64		)	(14		)	(22		)
Balance at end of period	$	254		$	326		$	402		$	191		$	221


(a)	Based on an analysis of nonaccrual loans with book balances greater than $2 million.


(b)	Includes net changes related to nonaccrual loans with balances less than $2 million, payments on nonaccrual loans with book balances greater than $2 million and transfers of nonaccrual loans to foreclosed property.

There ~~were ten borrowers~~was one borrower with ~~balances~~a balance greater than $2 ~~million, totaling $49~~ million transferred to nonaccrual status in the ~~second~~first quarter ~~2018,~~2019, compared to ~~five~~ten borrowers ~~totaling $71 million,~~ in ~~the first~~fourth quarter 2018.

The following table presents the composition of nonaccrual loans by balance and the related number of borrowers at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
(dollar amounts in millions)	Number of Borrowers	Balance		Number of Borrowers	Balance		Number of Borrowers	Balance		Number of Borrowers	Balance
Under $2 million	886	$	85	939	$	85	797	$	80	799	$	78
$2 million - $5 million	13	35		16	47		12	32		14	41
$5 million - $10 million	11	80		12	93		8	53		10	69
$10 million - $25 million	4	54		8	130		2	26		2	33
Greater than $25 million	—	—		1	47
Total	914	$	254	976	$	402	819	$	191	825	$	221

The following table presents a summary of nonaccrual loans at ~~June 30, 2018~~March 31, 2019 and loans transferred to nonaccrual and net loan charge-offs for the three months ended ~~June 30, 2018,~~March 31, 2019, based primarily on North American Industry Classification System (NAICS) categories.


	June 30, 2018				Three Months Ended June 30, 2018									March 31, 2019						Three Months Ended March 31, 2019
(dollar amounts in millions)	Nonaccrual Loans				Loans Transferred to Nonaccrual (a)						Net Loan Charge-Offs (Recoveries)			Nonaccrual Loans						Loans Transferred to Nonaccrual (a)						Net Loan Charge-Offs (Recoveries)
Industry Category	Nonaccrual Loans													Nonaccrual Loans						Loans Transferred to Nonaccrual (a)						Net Loan Charge-Offs (Recoveries)
Residential Mortgage														$	37		20	%		$	—		—	%		$	—		—	%
Mining, Quarrying and Oil & Gas Extraction	$	60	23	%	Loans Transferred to Nonaccrual (a)	$	6		12	%	Net Loan Charge-Offs (Recoveries)		$	4		33			17			—			—			9			82
Manufacturing	53		21		19			39			(10		)	29			15			—			—			(1		)	(13	)
Residential Mortgage	29		11		—			—			—
Health Care & Social Assistance														15			8			—			—			6			52
Contractors														12			6			—			—			—			—
Services														11			6			—			—			(1		)	(7	)
Information & Communication														9			5			4			100			—			—
Real Estate & Home Builders	17		7		—			—			(1		)	8			4			—			—			—			—
Services	15		6		—			—			(1		)
Wholesale Trade	15		6		19			39			5			4			2			—			—			—			—
Contractors	14		6		—			—			—
Health Care & Social Assistance	4		2		—			—			(3		)
Information & Communication	1		—		5			10			2
Utilities	—		—		—			—			1
Other (b)	46		18		—			—			—			33			17			—			—			(2		)	(14	)
Total	$	254	100	%	$	49		100	%		$	(3	)	$	191		100	%		$	4		100	%		$	11		100	%


(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 category.

Loans past due 90 days or more and still accruing interest generally represent loans that are well collateralized and in the process of collection. Loans past due 90 days or more ~~were $20~~increased $8 million to $24 million at ~~June 30, 2018~~March 31, 2019, compared to ~~$35~~$16 million at December 31, ~~2017.~~2018. Loans past due 30-89 days ~~decreased $150~~increased $14 million to ~~$152~~$147 million at ~~June 30, 2018,~~March 31, 2019, compared to ~~$302~~$133 million at December 31, ~~2017.~~2018. Past due loans increased slightly from very low year-end levels. An aging analysis of loans included in ~~note~~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. The Corporation's criticized list is consistent with the Special Mention, Substandard and Doubtful categories defined by regulatory authorities. Criticized loans with balances of $2 million or more on nonaccrual status or loans with balances of $1 million or more 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~~Note 4 to the consolidated financial statements provides further information about the balances comprising total criticized loans.


(dollar amounts in millions)	June 30, 2018			March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Total criticized loans	$	1,765		$	2,120		$	2,231		$	1,806		$	1,548
As a percentage of total loans	3.5		%	4.3		%	4.5		%	3.6		%	3.1		%

The ~~$466~~$258 million ~~decrease~~increase in criticized loans in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 included ~~decreases~~increases of ~~$189 million in Energy, $84 million in Technology and Life Sciences and $62~~$125 million in general Middle ~~Market.~~

~~The following table presents a summary of changes~~Market and $73 million in ~~foreclosed property.~~Corporate Banking.

Three Months Ended
(in millions) June 30, 2018 March 31, 2018 December 31, 2017
Balance at beginning of period $ 5
$ 5
6
Acquired in foreclosure 1
1
2
Foreclosed property sold (a) (4 ) (1 ) (3 )
Balance at end of period $ 2
$ 5
5
(a) Net gain on foreclosed property sold $ 1
$ —
1

Commercial Real Estate Lending

At March 31, 2019, the Corporation's commercial real estate portfolio represented 24 percent of total loans. The following table summarizes the Corporation's commercial real estate loan portfolio by loan category.


(in millions)	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Real estate construction loans:
Commercial Real Estate business line (a)	$	2,888	$	2,630	$	2,888	$	2,687
Other business lines (b)	369		331		403		390
Total real estate construction loans	$	3,257	$	2,961	$	3,291	$	3,077
Commercial mortgage loans:
Commercial Real Estate business line (a)	$	1,747	$	1,831	$	1,739	$	1,743
Other business lines (b)	7,377		7,328		7,250		7,363
Total commercial mortgage loans	$	9,124	$	9,159	$	8,989	$	9,106


(a)	Primarily loans to real estate developers.


(b)	Primarily loans secured by owner-occupied real estate.

The Corporation limits risk inherent in its commercial real estate lending activities by monitoring borrowers directly involved in the commercial real estate markets 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 ~~$12.4~~$12.3 billion at ~~June 30, 2018,~~March 31, 2019, of which $4.6 billion, or 3738 percent, were to borrowers in the Commercial Real Estate business line, which includes loans to real estate developers, an increase of ~~$174~~$97 million compared to December 31, ~~2017.~~2018. The remaining ~~$7.8~~$7.7 billion, or 6362 percent, of commercial real estate loans in other business lines 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-tenured customers with satisfactory completion experience. Credit quality in the real estate construction loan portfolio was strong, with criticized loans of $27 million and $4$31 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, and no real estate construction loan charge-offs in either of the ~~six-month~~three-month periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

Commercial mortgage loans are loans where the primary collateral is a lien on any real property and are primarily loans secured by owner occupied real estate. Real property is generally considered primary collateral if the value of that collateral represents more than 50 percent of the commitment at loan approval. Loans in the commercial mortgage portfolio generally mature within three to five years. ~~Commercial~~Criticized commercial mortgage loans in the Commercial Real Estate business line ~~on nonaccrual status~~ totaled $9$61 million at both ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017, respectively.~~2018. In other business lines, ~~$20~~$247 million and ~~$22~~$206 million of commercial mortgage loans were ~~on nonaccrual status~~criticized at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. ~~There were no commercial~~Commercial mortgage loan net charge-offs ~~for the six months ended June 30, 2018 and net recoveries of $3~~were $1 million for the ~~same period of 2017.~~three months ended March 31, 2019, compared to none for the three months ended March 31, 2018.

Residential Real Estate Lending

~~The following table summarizes the Corporation's residential mortgage and home equity loan portfolios by geographic market.~~

June 30, 2018 December 31, 2017
(dollar amounts in millions) Residential
Mortgage
Loans % of
Total Home
Equity
Loans % of
Total Residential
Mortgage
Loans % of
Total Home
Equity
Loans % of
Total
Geographic market:
Michigan $ 393
20 % $ 660
38 % $ 387
19 % $ 705
39 %
California 981
50
679
40
1,023
52
718
40
Texas 305
16
335
19
297
15
335
18
Other Markets 275
14
57
3
281
14
58
3
Total $ 1,954
100 % $ 1,731
100 % $ 1,988
100 % $ 1,816
100 %

Residential real estate loans, which consist of traditional residential mortgages and home equity loans and lines of credit, totaled $3.7 billion, or 7 percent of total loans, at ~~June 30, 2018.~~ March 31, 2019. The following table summarizes the Corporation's residential mortgage and home equity loan portfolios by geographic market.



	March 31, 2019								December 31, 2018
(dollar amounts in millions)	Residential Mortgage Loans		% of Total		Home Equity Loans		% of Total		Residential Mortgage Loans		% of Total		Home Equity Loans		% of Total
Geographic market:
Michigan	$	398	20	%	$	637	36	%	$	406	21	%	$	650	37	%
California	983		51		720		41		993		50		710		40
Texas	313		16		344		19		310		16		346		20
Other Markets	255		13		62		4		261		13		59		3
Total	$	1,949	100	%	$	1,763	100	%	$	1,970	100	%	$	1,765	100	%

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.

Residential mortgages totaled ~~$2.0~~$1.9 billion at ~~June 30, 2018~~March 31, 2019, and were primarily larger, variable-rate mortgages originated and retained for certain private banking relationship customers. Of the ~~$2.0~~$1.9 billion of residential mortgage loans outstanding, ~~$29~~$37 million were on nonaccrual status at ~~June 30, 2018.~~March 31, 2019. The home equity portfolio totaled ~~$1.7~~$1.8 billion at ~~June 30, 2018,~~March 31, 2019, of which $1.6 billion was outstanding under primarily variable-rate, interest-only home equity lines of credit, ~~$132~~$116 million were onin amortizing

status and ~~$40~~$32 million were closed-end home equity loans. Of the ~~$1.7~~$1.8 billion of home equity loans outstanding, $19 million were on nonaccrual status at ~~June 30, 2018.~~March 31, 2019. A majority of the home equity portfolio was secured by junior liens at ~~June 30, 2018.~~March 31, 2019.

Energy Lending

~~The Corporation has a portfolio of~~Loans in the Corporation's Energy ~~loans that is~~business line are included ~~primarily~~almost entirely in commercial loans in the Consolidated Balance Sheets. Customers in the Corporation's Energy line of business (approximately 160 relationships) are engaged in three segments of the oil and gas business: exploration and production (E&P), midstream and energy services. E&P generally includes such activities as searching for potential oil and gas fields, drilling exploratory wells and operating active wells. Commitments to E&P borrowers are generally subject to semi-annual borrowing base re-determinations based on a variety of factors including updated pricing (reflecting market and competitive conditions), energy reserve levels and the impact of hedging. The midstream sector is generally involved in the transportation, storage and marketing of crude and/or refined oil and gas products. The Corporation's energy services customers provide products and services primarily to the E&P segment.

The following table summarizes information about loans in the Corporation's ~~portfolio of~~ Energy ~~loans.~~business line.


	June 30, 2018									December 31, 2017										March 31, 2019										December 31, 2018
(dollar amounts in millions)	Outstandings				Nonaccrual		Criticized (a)			Outstandings				Nonaccrual			Criticized (a)			Outstandings				Nonaccrual			Criticized (a)			Outstandings				Nonaccrual			Criticized (a)
Exploration and production (E&P)	$	1,400	81	%	58		$	250		$	1,346	73	%	$	94		$	376		$	1,856	78	%	$	31		$	176		$	1,771	82	%	$	46		$	143
Midstream	243		14		—		33			295		16		—			37			454		19		—			44			298		14		—			43
Services	91		5		2		36			195		11		14			95			75		3		2			20			94		4		2			19
Total Energy business line	1,734		100	%	60		319			1,836		100	%	108			508			$	2,385	100	%	$	33		$	240		$	2,163	100	%	$	48		$	205
As a percentage of total Energy loans	As a percentage of total Energy loans				3	%	18		%					6		%	28		%	As a percentage of total Energy loans				1		%	10		%					2		%	9		%


(a)	Includes nonaccrual loans.

Loans in the Energy business line totaled ~~$1.7~~$2.4 billion, or approximately 35 percent of total loans, at ~~June 30, 2018~~March 31, 2019 and ~~$1.8~~$2.2 billion, or approximately 4 percent of total loans, at December 31, ~~2017, a decrease~~2018, an increase of ~~$102~~$222 million, or 610 percent. Total exposure, including unused commitments to extend credit and letters of credit, was ~~approximately $4~~$4.8 billion and $4.5 billion at ~~both June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018, respectively.

The Corporation's allowance methodology considers the various risk elements within the loan portfolio. ~~The~~When merited, the Corporation ~~continued to~~may incorporate a qualitative reserve component for Energy ~~loans at June 30, 2018. There were $4 million net~~loans. Net credit-related charge-offs ~~for both the three- and six-month periods ended June 30, 2018 compared to $2 million and $15~~were $8 million for the three months ended March 31, 2019, compared to no net charge-offs for the same ~~periods~~period in ~~2017.~~2018.

Automotive Lending

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, totaled ~~$4.2~~$4.5 billion at ~~June 30, 2018~~March 31, 2019, a decrease of ~~$120~~$151 million compared to ~~$4.4~~$4.7 billion at December 31, ~~2017~~2018. At both ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, other loans to automotive dealers in the National Dealer Services business line totaled ~~$3.2~~$3.4 billion, ~~and $3.1 billion, respectively,~~ including $2.0 ~~billion and $1.9~~ billion of owner-occupied commercial real estate mortgage loans at ~~June 30, 2018~~both March 31, 2019 and December 31, ~~2017, respectively.~~2018. 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 ~~$1.4 billion at June 30, 2018, compared to~~ $1.3 billion at both March 31, 2019 and December 31, ~~2017.~~2018.

Leveraged Loans

Certain loans in the Corporation's commercial portfolio are considered leveraged transactions. These loans are typically used for mergers, acquisitions, business recapitalizations, refinancing and equity buyouts. To help mitigate the risk associated with these loans, the Corporation focuses on middle market companies with highly capable management teams, strong sponsors and solid track records of financial performance. Industries prone to cyclical downturns and acquisitions with a high degree of integration risk are generally avoided. Other considerations include the sufficiency of collateral, the level of balance sheet leverage and the adequacy of financial covenants. During the underwriting process, cash flows are stress tested to evaluate the borrowers' abilities to handle economic downturns and an increase in interest rates.

The FDIC defines higher-risk commercial and industrial (HR C&I) loans for assessment purposes as loans generally with leverage of four times total debt to earnings before interest, taxes and depreciation (EBITDA) as well as three times senior debt to EBITDA, excluding certain collateralized loans. HR C&I loans were $2.6 billion and $2.5 billion at March 31, 2019 and December 31, 2018, respectively. Criticized loans within the HR C&I loan portfolio were $176 million and $147 million at March 31, 2019 and December 31, 2018, respectively. Charge-offs of HR C&I loans totaled $5 million and $11 million for the three months ended March 31, 2019 and 2018, respectively.

For further discussion of credit risk, see the "Credit Risk" section of pages ~~F-20~~F-21 through ~~F-28~~F-29 in the Corporation's ~~2017~~2018 Annual Report.

Market and Liquidity Risk

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~~Corporate Treasury ~~department~~ mitigates market and liquidity risk under the direction of ALCO through the actions it takes to manage the Corporation's market, liquidity and capital positions.

In addition to assessing liquidity risk on a consolidated basis, Corporate Treasury ~~supports~~also monitors the parent company's liquidity and has established limits for the minimum number of months into the future in which the parent company can meet existing and forecasted obligations without the support of additional dividends from subsidiaries. ALCO's liquidity policy requires the parent company to maintain sufficient liquidity to meet expected capital and debt obligations with a target of 24 months but no less than 18 months.

Corporate Treasury and the Enterprise Risk Division support ALCO in measuring, monitoring and managing interest rate risk ~~and, in coordination with Enterprise Risk, managing~~as well as all other market risks. Key activities encompass: (i) providing information and analysis of the Corporation's balance sheet structure and measurement of interest rate 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 analyses and strategies to adjust risk positions; (iv) reviewing and presenting policies and authorizations for approval; and (v) monitoring of industry trends and analytical tools to be used in the management of interest rate and all other market and liquidity ~~risks; and (vi) developing and monitoring the interest rate risk economic capital estimate.~~risks.

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 liabilities, 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 core deposits. The Corporation's loan composition at ~~June 30, 2018~~March 31, 2019 was 6367 percent 30-day LIBOR, 109 percent other LIBOR (primarily 60-day), 1716 percent prime and 108 percent fixed rate. This creates sensitivity to interest rate movements due to the imbalance between the floating-rate loan portfolio and 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 fixed-rate investment securities, which provide liquidity to the balance sheet and act to mitigate the inherent interest sensitivity, as well as hedging with interest rate ~~swaps.~~swaps and options. 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.

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~~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. Existing derivative instruments entered into for risk management purposes as of the reporting date are included in the analysis, but no additional hedging is ~~currently~~ forecasted. ~~These~~At March 31, 2019, these derivative instruments ~~currently~~ comprise interest rate swaps that convert fixed-rate medium- and long-term debt to variable rates and $800 million of variable-rate loans to fixed 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,~~The first scenario presents a 200 basis-point increase in 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). The second scenario presents a 200 basis-point decrease in short-term interest rates.

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 this low rate environment, depositors have maintained a higher level of liquidity and their historical behavior may be less indicative of future trends. As a result, the +200 scenario reflects a greater decrease in deposits than we have experienced historically as rates ~~begin to~~ rise. Changes in actual economic activity may result in a materially different interest rate environment as well as a balance sheet structure that is different from the changes management included in its simulation analysis.

The table below, as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~,2018, 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.


	Estimated Annual Change										Estimated Annual Change
	June 30, 2018					December 31, 2017					March 31, 2019					December 31, 2018
(in millions)	Amount			%		Amount			%		Amount			%		Amount			%
Change in Interest Rates:
Rising 200 basis points	$	190		8	%	$	197		9	%	$	127		5	%	$	142		6	%
Declining to zero percent	(323		)	(14	)	(283		)	(13	)
Declining 200 basis points											(285		)	(12	)	(313		)	(12	)

Sensitivity to rising and declining rates ~~was relatively stable~~decreased from December 31, ~~2017~~2018 to ~~June 30, 2018. The risk to declining interest rates is impacted by an assumed floor on interest rates of zero percent, and therefore the December~~March 31, ~~2017 sensitivity simulates a decline of 150 basis points while the June 30, 2018 sensitivity reflects a decline of 200 basis points~~2019 due to ~~higher short term~~changes in balance sheet composition and the impact of swaps converting variable-rate loans to fixed rates.

Sensitivity of Economic Value of Equity to Changes in Interest Rates

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 Corporation primarily monitors the percentage change on the base case economic value of equity. The economic value of equity analysis is based on an immediate parallel 200 basis point ~~increase. The declining interest rate scenarios are based on decreases of 200 basis points and 150 basis points in interest rates at June 30, 2018 and December 31, 2017, respectively.~~shock.

The table below, as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~,2018, displays the estimated impact on the economic value of equity from the interest rate scenario described above.


	June 30, 2018					December 31, 2017					March 31, 2019					December 31, 2018
(in millions)	Amount			%		Amount			%		Amount			%		Amount			%
Change in Interest Rates:
Rising 200 basis points	$	1,009		7	%	$	1,188		9	%	$	613		5	%	$	711		6	%
Declining to zero percent	(2,893		)	(21	)	(2,635		)	(20	)
Declining 200 basis points											(2,593		)	(21	)	(2,769		)	(21	)

The sensitivity of the economic value of equity to ~~a 200 basis point parallel increase in~~rising and declining rates declined slightly between December 31, 2017 and June 30, 2018. The change in sensitivity of the economic value of equity to a parallel decrease in rates to zero during the same period was primarily driven by the increase in short-term rates between the periods, allowing for an additional 50 basis point decreasedecreased from December 31, ~~2017~~2018 to March 31, 2019 due to similar factors described above in the ~~June 30, 2018 scenario.~~net interest income sensitivity analysis.

Wholesale Funding

The Corporation may access the purchased funds market when necessary, which includes a variety of funding sources. Capacity for incremental purchased funds at ~~June 30, 2018~~March 31, 2019 included short-term FHLB advances, the ability to purchase federal funds, sell securities under agreements to repurchase, as well as issue deposits through brokers. ~~Purchased funds increased to $92~~Short-term borrowings totaled $944 million at ~~June 30, 2018,~~March 31, 2019, compared to ~~$25~~$52 million at December 31, ~~2017.~~2018. The increase in short-term borrowings reflected temporary increases in federal funds purchased and short-term FHLB advances. At ~~June 30, 2018,~~March 31, 2019, the Bank had pledged loans totaling ~~$22.1~~$23.6 billion which provided for up to ~~$18.0~~$19.7 billion of available collateralized borrowing with the FRB.

The Bank is a member of the FHLB of Dallas, Texas, 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 ~~June 30, 2018~~March 31, 2019, ~~$16.0~~$16.3 billion of real estate-related loans were pledged to the FHLB as ~~blanket~~ collateral for current and potential future borrowings. The Corporation had $3.8 billion of outstanding borrowings ~~including $1.0 billion borrowed in February 2018,~~ maturing between 2026 and 2028, $400 million in short-term advances and capacity for potential future borrowings of approximately ~~$5.5~~$4.6 billion.

On July 31, 2018, the Corporation issued $850 million of 3.70% senior notes maturing in 2023, swapped to floating rate at 30-day LIBOR plus 80 basis points. Proceeds will be used for general corporate purposes, which may include working capital, investments in or advances to existing or future subsidiaries, and repurchases, maturities and redemptions of other outstanding securities. Pending such use, the net proceeds will be invested for the short term.

Additionally, as of ~~June 30, 2018~~March 31, 2019 the Bank had the ability to issue up to ~~$14~~$14.0 billion of debt under an existing ~~$15~~$15.0 billion 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 ~~June 30, 2018~~March 31, 2019, the three major rating agencies had assigned the ~~following~~ ratings below 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
~~June 30, 2018~~March 31, 2019	Rating	Outlook	Rating	Outlook
Standard and Poor’s	BBB+	Stable	A-	Stable
Moody’s Investors Service	A3	Stable	A3	Stable
Fitch Ratings	A	Stable	A	Stable

The Corporation satisfies liquidity needs with either liquid assets or various funding sources. Liquid assets totaled ~~$17.3~~$15.4 billion at ~~June 30, 2018~~March 31, 2019, compared to ~~$17.4~~$16.3 billion at December 31, ~~2017~~2018. Liquid assets include cash and due from banks, federal funds sold, interest-bearing deposits with banks, other short-term investments and unencumbered investment securities.

The Corporation performs monthly liquidity stress testing to evaluate its ability to meet funding needs in hypothetical stressed environments. Such environments cover a series of broad events, distinguished in terms of duration and severity. The evaluation as of ~~June 30, 2018~~March 31, 2019 projected sufficient sources of liquidity were available under each series of events.

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 to the consolidated financial statements included in the Corporation's ~~2017~~2018 Annual Report. 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, ~~2017,~~2018, the most critical of these significant accounting policies were the policies related to the allowance for credit losses, fair value measurement, 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 on pages ~~F-34~~F-35 through F-37 in the Corporation's ~~2017~~2018 Annual Report. As of the date of this report, there have been no significant changes to the Corporation's critical accounting policies or estimates.

SUPPLEMENTAL FINANCIAL DATA

The Corporation believes non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate the adequacy of common equity and our performance trends. Tangible common equity is used by Comerica to measure the quality of capital and the return relative to balance sheet risk.

The following table provides a reconciliation of non-GAAP financial measures used in this financial review with financial measures defined by GAAP.


(dollar amounts in millions)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Tangible Common Equity Ratio:
Common shareholders' equity	$	8,079		$	7,963		$	7,409		$	7,507
Less:
Goodwill	635			635			635			635
Other intangible assets	7			8			5			6
Tangible common equity	$	7,437		$	7,320		$	6,769		$	6,866
Total assets	$	71,987		$	71,567		$	70,690		$	70,818
Less:
Goodwill	635			635			635			635
Other intangible assets	7			8			5			6
Tangible assets	$	71,345		$	70,924		$	70,050		$	70,177
Common equity ratio	11.22		%	11.13		%	10.48		%	10.60		%
Tangible common equity ratio	10.42			10.32			9.66			9.78
Tangible Common Equity per Share of Common Stock:
Common shareholders' equity	$	8,079		$	7,963		$	7,409		$	7,507
Tangible common equity	7,437			7,320			6,769			6,866
Shares of common stock outstanding (in millions)	171			173			155			160
Common shareholders' equity per share of common stock	$	47.27		$	46.07		$	47.67		$	46.89
Tangible common equity per share of common stock	43.51			42.34			43.55			42.89

The tangible common equity ratio removes the effect of intangible assets from capital and total assets. Tangible common equity per share of common stock removes the effect of intangible assets from common shareholders' equity per share of common stock.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures for the current period can be found in the "Market and Liquidity Risk" section of "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 4. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures. The Corporation maintains a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Corporation's management, including the Corporation's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management has evaluated, with the participation of the Corporation's Chief Executive Officer and Chief Financial Officer, the effectiveness of the Corporation's disclosure controls and procedures as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based on the evaluation, the Corporation's Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Corporation's disclosure controls and procedures are effective.


(b)	Changes in Internal Control Over Financial Reporting. During the period to which this report relates, there have not been any changes in the Corporation's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

For information regarding the Corporation's legal proceedings, see "Part I. Item 1. Note 12 – Contingent Liabilities," which is incorporated herein by reference.

ITEM 1A. Risk Factors

~~Other than as set forth below, there~~There has been no material change in the Corporation’s risk factors as previously disclosed in our Form 10-K for the fiscal year ended December 31, ~~2017~~2018 in response to Part I, Item 1A. of such Form 10-K. Such risk factors are incorporated herein by reference.

~~Below we amend the following risk factors in our Form 10-K for the fiscal year ended December 31, 2017:~~

~~General political, economic or industry conditions, either domestically or internationally, may be less favorable than expected.~~

Local, domestic, and international events including economic, financial market, political and industry specific conditions affect the financial services industry, directly and indirectly. Conditions such as or related to inflation, recession, unemployment, volatile interest rates, international conflicts, changes in trade policies and other factors, such as real estate values, energy prices, state and local municipal budget deficits, government spending and the U.S. national debt, outside of our control may, directly and indirectly, adversely affect Comerica.

~~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, tariffs, 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.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

For information regarding the Corporation's purchase of equity securities, see "Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Capital," which is incorporated herein by reference.

ITEM 6. Exhibits



Exhibit No.		Description

3.1		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).

3.2		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).

3.3		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).

4		[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.]

10.1†		~~Comerica Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated April 24, 2018, and incorporated herein by reference).~~

~~10.2†~~		Form of Standard Comerica Incorporated Restricted Stock Unit Agreement (cliff vesting) under the Comerica Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.2 to Registrant's Current Report on Form 8-K dated April 24, 2018, and incorporated herein by reference).

~~10.3†~~		Form of Standard Comerica Incorporated Restricted Stock Unit Agreement (non-cliff vesting) under the Comerica Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.3 to Registrant's Current Report on Form 8-K dated April 24, 2018, and incorporated herein by reference).

~~10.4†~~		Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.4 to Registrant's Current Report on Form 8-K dated April 24, 2018, and incorporated herein by reference).

~~10.5†~~		Form of Standard Comerica Incorporated Senior Executive Long-Term Performance Restricted Stock Unit Award Agreement under the Comerica Incorporated 2018 Long-Term Incentive Plan (2019 version) (filed as Exhibit ~~10.5~~10.1G to Registrant's ~~Current~~Annual Report on Form ~~8-K dated April 24,~~10-K for the year ended December 31, 2018, and incorporated herein by reference).

~~10.6†~~10.2†		~~Form of Standard~~Restrictive Covenants and General Release Agreement by and between Michael H. Michalak and Comerica Incorporated ~~Restricted Stock Agreement (cliff vesting) under the Comerica Incorporated 2018 Long-Term Incentive Plan~~dated January 8, 2019 (filed as Exhibit ~~10.6~~10.1 to Registrant's Current Report on Form 8-K dated ~~April 24, 2018, and incorporated herein by reference).~~

~~10.7†~~		Form of Standard Comerica Incorporated Restricted Stock Agreement (non-cliff vesting) under the Comerica Incorporated 2018 Long-Term Incentive Plan (filed as Exhibit 10.7 to Registrant's Current Report on Form 8-K dated April 24, 2018,January 11, 2019, and incorporated herein by reference).

31.1		~~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).

31.2		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).

32		Section 1350 Certification of Periodic Report (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).

101		Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended ~~June 30, 2018,~~March 31, 2019, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Comprehensive Income (unaudited), (iii) the Consolidated Statements of Changes in Shareholders' Equity (unaudited), (iv) the Consolidated Statements of Cash Flows (unaudited) and (v) the Notes to Consolidated Financial Statements (unaudited).

†		Management contract or compensatory plan or arrangement.

SIGNATURE

Pursuant to the requirements 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.



	COMERICA INCORPORATED
	(Registrant)

	/s/ Mauricio A. Ortiz
	Mauricio A. Ortiz
	Senior Vice President and
	Chief Accounting Officer and
	Duly Authorized Officer

Date: ~~July 31, 2018~~April 29, 2019

6153



(in millions)	Employee Costs			Facilities Costs			Technology Costs			Other Costs			Total

Three Months Ended June 30, 2018
Balance at beginning of period	$	10		$	—		$	9		$	—		$	19
Restructuring charges	—			1			10			—			11
Payments	(6		)	(1		)	(8		)	—			(15		)
Balance at end of period	$	4		$	—		$	11		$	—		$	15

Three Months Ended June 30, 2017
Balance at beginning of period	$	7		$	—		$	3		$	3		$	13
Restructuring charges	3			4			6			1			14
Payments	(4		)	(4		)	(4		)	(2		)	(14		)
Adjustments for non-cash charges (a)	—			—			(2		)	—			(2		)
Balance at end of period	$	6		$	—		$	3		$	2		$	11

Six Months Ended June 30, 2018
Balance at beginning of period	$	8		$	—		$	6		$	1		$	15
Restructuring charges	5			2			20			—			27
Payments	(9		)	(2		)	(15		)	(1		)	(27		)
Balance at end of period	$	4		$	—		$	11		$	—		$	15

Six Months Ended June 30, 2017
Balance at beginning of period	$	10		$	4		$	—		$	4		$	18
Restructuring charges	4			5			12			4			25
Payments	(8		)	(9		)	(4		)	(6		)	(27		)
Adjustments for non-cash charges (a)	—			—			(5		)	—			(5		)
Balance at end of period	$	6		$	—		$	3		$	2		$	11

Total restructuring charges incurred to date	$	67		$	19		$	46		$	33		$	165
Total expected restructuring charges (b)	70			20			60 - 65			35			185 - 190



	Six Months Ended
	June 30, 2018							June 30, 2017
(dollar amounts in millions)	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
Commercial loans	$	30,556		$	672	4.44	%	$	30,166		$	539	3.61	%
Real estate construction loans	3,129			77		4.93		2,934			57		3.95
Commercial mortgage loans	9,195			205		4.49		8,994			170		3.81
Lease financing	461			9		3.93		548			6		2.00
International loans	989			24		4.81		1,174			23		3.88
Residential mortgage loans	2,002			38		3.78		1,969			35		3.59
Consumer loans	2,493			52		4.24		2,528			44		3.52
Total loans	48,825			1,077		4.45		48,313			874		3.65

Mortgage-backed securities	9,133			104		2.23		9,321			99		2.16
Other investment securities	2,722			24		1.71		2,894			24		1.63
Total investment securities	11,855			128		2.11		12,215			123		2.03

Interest-bearing deposits with banks	4,251			35		1.68		5,857			28		0.92
Other short-term investments	132			—		0.84		92			—		0.63
Total earning assets	65,063			1,240		3.83		66,477			1,025		3.11

Cash and due from banks	1,248							1,164
Allowance for loan losses	(713		)					(733		)
Accrued income and other assets	4,825							4,673
Total assets	$	70,423						$	71,581

Money market and interest-bearing checking deposits	$	22,039		40		0.37		$	22,066		14		0.13
Savings deposits	2,205			—		0.03		2,114			—		0.02
Customer certificates of deposit	2,092			4		0.36		2,621			4		0.37
Foreign office time deposits	32			—		1.13		50			—		0.55
Total interest-bearing deposits	26,368			44		0.34		26,851			18		0.14

Short-term borrowings	45			—		1.63		85			—		1.07
Medium- and long-term debt	5,390			57		2.11		5,159			37		1.39
Total interest-bearing sources	31,803			101		0.64		32,095			55		0.35

Noninterest-bearing deposits	29,591							30,601
Accrued expenses and other liabilities	1,077							980
Total shareholders’ equity	7,952							7,905
Total liabilities and shareholders’ equity	$	70,423						$	71,581

Net interest income/rate spread				$	1,139	3.19					$	970	2.76

Impact of net noninterest-bearing sources of funds						0.33							0.18
Net interest margin (as a percentage of average earning assets)						3.52	%						2.94	%



	Reported Amounts		Proforma Effects			Proforma Amounts (a)
(in millions)
Three Months Ended June 30, 2017
Card fees	$	80	$	(26	)	$	54
Service charges on deposit accounts	57		(2		)	55
Total noninterest income	276		(28		)	248

Outside processing fee expense	88		(28		)	60
Total noninterest expenses	457		(28		)	429

Six Months Ended June 30, 2017
Card fees	$	157	$	(51	)	$	106
Service charges on deposit accounts	115		(3		)	112
Total noninterest income	547		(54		)	493

Outside processing fee expense	175		(54		)	121
Total noninterest expenses	914		(54		)	860



(shares in thousands)	Total Number of Shares and Warrants Purchased as Part of Publicly Announced Repurchase Plans or Programs (a)	Remaining Repurchase Authorization (b)	Total Number of Shares and Warrants Purchased (c)	Average Price Paid Per Share
Total first quarter 2018	1,565	8,714	1,674	$	95.16
April 2018	803	7,911	805	96.06
May 2018	899	7,011	899	96.59
June 2018	53	6,952	55	95.87
Total second quarter 2018	1,755	6,952	1,759	96.32
Total 2018 year-to-date	3,320	6,952	3,433	$	95.75