10-Q
Table of Contents

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 September 30, 2015
Or
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer ý
 
Accelerated
filer o
 
Non-accelerated filer o
(Do not check if a smaller
reporting company)
 
Smaller reporting
company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
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 October 26, 2015: 176,734,815 shares

Table of Contents

COMERICA INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries
(in millions, except share data)
September 30, 2015
 
December 31, 2014
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
1,101

 
$
1,026

 
 
 
 
Interest-bearing deposits with banks
6,099

 
5,045

Other short-term investments
107

 
99

 
 
 
 
Investment securities available-for-sale
8,749

 
8,116

Investment securities held-to-maturity
1,863

 
1,935

 
 
 
 
Commercial loans
31,777

 
31,520

Real estate construction loans
1,874

 
1,955

Commercial mortgage loans
8,787

 
8,604

Lease financing
751

 
805

International loans
1,382

 
1,496

Residential mortgage loans
1,880

 
1,831

Consumer loans
2,491

 
2,382

Total loans
48,942

 
48,593

Less allowance for loan losses
(622
)
 
(594
)
Net loans
48,320

 
47,999

Premises and equipment
541

 
532

Accrued income and other assets
4,232

 
4,434

Total assets
$
71,012

 
$
69,186

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Noninterest-bearing deposits
$
28,697

 
$
27,224

 
 
 
 
Money market and interest-bearing checking deposits
23,948

 
23,954

Savings deposits
1,853

 
1,752

Customer certificates of deposit
4,126

 
4,421

Foreign office time deposits
144

 
135

Total interest-bearing deposits
30,071

 
30,262

Total deposits
58,768

 
57,486

Short-term borrowings
109

 
116

Accrued expenses and other liabilities
1,413

 
1,507

Medium- and long-term debt
3,100

 
2,675

Total liabilities
63,390

 
61,784

 
 
 
 
Common stock - $5 par value:
 
 
 
Authorized - 325,000,000 shares
 
 
 
Issued - 228,164,824 shares
1,141

 
1,141

Capital surplus
2,165

 
2,188

Accumulated other comprehensive loss
(345
)
 
(412
)
Retained earnings
7,007

 
6,744

Less cost of common stock in treasury - 51,010,418 shares at 9/30/15
and 49,146,225 shares at 12/31/14
(2,346
)
 
(2,259
)
Total shareholders’ equity
7,622

 
7,402

Total liabilities and shareholders’ equity
$
71,012

 
$
69,186

See notes to consolidated financial statements.

1
Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Comerica Incorporated and Subsidiaries 


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions, except per share data)
2015
 
2014
 
2015
 
2014
INTEREST INCOME
 
 
 
 
 
 
 
Interest and fees on loans
$
390

 
$
381

 
$
1,156

 
$
1,142

Interest on investment securities
54

 
52

 
160

 
160

Interest on short-term investments
4

 
3

 
11

 
10

Total interest income
448

 
436

 
1,327

 
1,312

INTEREST EXPENSE
 
 
 
 
 
 
 
Interest on deposits
11

 
11

 
33

 
33

Interest on medium- and long-term debt
15

 
11

 
38

 
39

Total interest expense
26

 
22

 
71

 
72

Net interest income
422

 
414

 
1,256

 
1,240

Provision for credit losses
26

 
5

 
87

 
25

Net interest income after provision for credit losses
396

 
409

 
1,169

 
1,215

NONINTEREST INCOME
 
 
 
 
 
 
 
Service charges on deposit accounts
56

 
54

 
167

 
162

Fiduciary income
47

 
44

 
142

 
133

Commercial lending fees
22

 
26

 
69

 
69

Card fees
75

 
23

 
214

 
68

Letter of credit fees
13

 
14

 
39

 
43

Bank-owned life insurance
10

 
11

 
29

 
31

Foreign exchange income
10

 
9

 
29

 
30

Brokerage fees
5

 
4

 
13

 
13

Net securities losses
—

 
(1
)
 
(2
)
 
—

Other noninterest income
26

 
31

 
80

 
94

Total noninterest income
264

 
215

 
780

 
643

NONINTEREST EXPENSES
 
 
 
 
 
 
 
Salaries and benefits expense
243

 
248

 
747

 
735

Net occupancy expense
41

 
46

 
118

 
125

Equipment expense
14

 
14

 
40

 
43

Outside processing fee expense
86

 
31

 
249

 
89

Software expense
26

 
25

 
73

 
72

Litigation-related expense
(3
)
 
(2
)
 
(32
)
 
4

FDIC insurance expense
9

 
9

 
27

 
25

Advertising expense
6

 
5

 
17

 
16

Gain on debt redemption
—

 
(32
)
 
—

 
(32
)
Other noninterest expenses
39

 
53

 
117

 
130

Total noninterest expenses
461

 
397

 
1,356

 
1,207

Income before income taxes
199

 
227

 
593

 
651

Provision for income taxes
63

 
73

 
188

 
207

NET INCOME
136

 
154

 
405

 
444

Less income allocated to participating securities
2

 
2

 
5

 
6

Net income attributable to common shares
$
134

 
$
152

 
$
400

 
$
438

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.76

 
$
0.85

 
$
2.27

 
$
2.44

Diluted
0.74

 
0.82

 
2.20

 
2.35

 
 
 
 
 
 
 
 
Comprehensive income
187

 
141

 
472

 
518

 
 
 
 
 
 
 
 
Cash dividends declared on common stock
37

 
36

 
110

 
107

Cash dividends declared per common share
0.21

 
0.20

 
0.62

 
0.59

See notes to consolidated financial statements.

2
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
Comerica Incorporated and Subsidiaries


 
Common Stock
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
Total
Shareholders’
Equity
(in millions, except per share data)
Shares
Outstanding
 
Amount
 
Capital
Surplus
 
 
Retained
Earnings
 
Treasury
Stock
 
BALANCE AT DECEMBER 31, 2013
182.3

 
$
1,141

 
$
2,179

 
$
(391
)
 
$
6,318

 
$
(2,097
)
 
$
7,150

Net income
—

 
—

 
—

 
—

 
444

 
—

 
444

Other comprehensive income, net of tax
—

 
—

 
—

 
74

 
—

 
—

 
74

Cash dividends declared on common stock ($0.59 per share)
—

 
—

 
—

 
—

 
(107
)
 
—

 
(107
)
Purchase of common stock
(4.1
)
 
—

 
—

 
—

 
—

 
(200
)
 
(200
)
Net issuance of common stock under employee stock plans
2.0

 
—

 
(26
)
 
—

 
(24
)
 
91

 
41

Share-based compensation
—

 
—

 
31

 
—

 
—

 
—

 
31

Other
—

 
—

 
(1
)
 
—

 
—

 
1

 
—

BALANCE AT SEPTEMBER 30, 2014
180.2

 
$
1,141

 
$
2,183

 
$
(317
)
 
$
6,631

 
$
(2,205
)
 
$
7,433

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2014
179.0

 
$
1,141

 
$
2,188

 
$
(412
)
 
$
6,744

 
$
(2,259
)
 
$
7,402

Net income
—

 
—

 
—

 
—

 
405

 
—

 
405

Other comprehensive income, net of tax
—

 
—

 
—

 
67

 
—

 
—

 
67

Cash dividends declared on common stock ($0.62 per share)
—

 
—

 
—

 
—

 
(110
)
 
—

 
(110
)
Purchase of common stock
(3.8
)
 
—

 
—

 
—

 
—

 
(175
)
 
(175
)
Purchase and retirement of warrants
—

 
—

 
(10
)
 
—

 
—

 
—

 
(10
)
Net issuance of common stock under employee stock plans
1.0

 
—

 
(21
)
 
—

 
(10
)
 
45

 
14

Net issuance of common stock for warrants
1.0

 
—

 
(21
)
 
—

 
(22
)
 
43

 
—

Share-based compensation
—

 
—

 
29

 
—

 
—

 
—

 
29

BALANCE AT SEPTEMBER 30, 2015
177.2

 
$
1,141

 
$
2,165

 
$
(345
)
 
$
7,007

 
$
(2,346
)
 
$
7,622

See notes to consolidated financial statements.



3
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Comerica Incorporated and Subsidiaries


 
Nine Months Ended September 30,
(in millions)
2015
 
2014
OPERATING ACTIVITIES
 
 
 
Net income
$
405

 
$
444

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
87

 
25

Provision (benefit) for deferred income taxes
(52
)
 
7

Depreciation and amortization
90

 
92

Net periodic defined benefit cost
34

 
29

Share-based compensation expense
29

 
31

Net amortization of securities
11

 
9

Accretion of loan purchase discount
(6
)
 
(25
)
Net securities losses
2

 
—

Net gains on sales of foreclosed property
(2
)
 
(3
)
Gain on debt redemption
—

 
(32
)
Excess tax benefits from share-based compensation arrangements
(3
)
 
(6
)
Net change in:
 
 
 
Trading securities
—

 
1

Accrued income receivable
(9
)
 
(2
)
Accrued expenses payable
(70
)
 
(44
)
Other, net
147

 
39

Net cash provided by operating activities
663

 
565

INVESTING ACTIVITIES
 
 
 
Investment securities available-for-sale:
 
 
 
Maturities and redemptions
1,282

 
1,328

Sales
51

 
—

Purchases
(1,933
)
 
(1,413
)
Investment securities held-to-maturity:
 
 
 
Maturities and redemptions
244

 
—

Purchases
(166
)
 
—

Net change in loans
(436
)
 
(2,254
)
Proceeds from sales of foreclosed property
8

 
13

Net increase in premises and equipment
(78
)
 
(38
)
Sales of Federal Home Loan Bank stock
—

 
41

Other, net
5

 
(4
)
Net cash used in investing activities
(1,023
)
 
(2,327
)
FINANCING ACTIVITIES
 
 
 
Net change in:
 
 
 
Deposits
1,361

 
4,205

Short-term borrowings
(7
)
 
(51
)
Medium- and long-term debt:
 
 
 
Maturities and redemptions
(606
)
 
(1,406
)
Issuances
1,016

 
596

Common stock:
 
 
 
Repurchases
(175
)
 
(200
)
Cash dividends paid
(109
)
 
(101
)
Issuances under employee stock plans
21

 
45

Purchase and retirement of warrants
(10
)
 
—

Excess tax benefits from share-based compensation arrangements
3

 
6

Other, net
(5
)
 
4

Net cash provided by financing activities
1,489

 
3,098

Net increase in cash and cash equivalents
1,129

 
1,336

Cash and cash equivalents at beginning of period
6,071

 
6,451

Cash and cash equivalents at end of period
$
7,200

 
$
7,787

Interest paid
$
64

 
$
74

Income tax paid
46

 
154

Noncash investing and financing activities:
 
 
 
Loans transferred to other real estate
9

 
13

Loans transferred from portfolio to held-for-sale
19

 
—

Lease residual transferred to other assets
16

 
—

See notes to consolidated financial statements.

4
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 nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. 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, 2014.
Revenue Recognition
In the first quarter 2015, the Corporation entered into a new contract for an existing debit card program. Guidance provided in Accounting Standards Code 605-45, "Principal Agent Considerations," indicates whether revenue should be reported gross or net for this type of arrangement. Management assessed various principal versus agent indicators provided in the guidance and concluded that the Corporation bears the risks and rewards of providing the services for the card program based on the new contract terms and, therefore, gross presentation of revenues and expenses is appropriate. This change in presentation resulted in increases of $48 million and $136 million to both "card fees" in noninterest income and "outside processing fee expense" in noninterest expenses for the three- and nine-month periods ended September 30, 2015, respectively.
Recently Adopted Accounting Pronouncements
Effective January 1, 2015, the Corporation prospectively adopted Accounting Standards Update (ASU) No. 2014-04, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” (ASU 2014-04), which clarifies when an in-substance foreclosure or repossession of residential real estate property occurs, requiring a creditor to reclassify the loan to other real estate. According to ASU 2014-04, a consumer mortgage loan should be reclassified to other real estate either upon the creditor obtaining legal title to the real estate collateral or when the borrower voluntarily conveys all interest in the real estate property to the creditor through a deed in lieu of foreclosure or similar legal agreement. ASU 2014-04 also clarifies that a creditor that has obtained legal title to a foreclosed property should not delay reclassification when a borrower has a legal right of redemption for a period of time. The Corporation's existing accounting treatment is consistent with the new guidance, and therefore the adoption of ASU 2014-04 had no impact to the Corporation's financial condition and results of operations. Disclosures required by ASU 2014-04 are provided in Note 4.
Also effective January 1, 2015, the Corporation prospectively adopted ASU No. 2014-12, “Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,” (ASU 2014-12). The new guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The Corporation's current accounting treatment of performance conditions for employees who are or become retirement eligible prior to the achievement of the performance target is consistent with ASU 2014-12, and as such the adoption of ASU 2014-12 had no impact to the Corporation’s financial condition and results of operations.
In the second quarter 2015, the Corporation early adopted ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30)," which amends the presentation of debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than as a deferred charge. The new guidance was retrospectively applied, which resulted in a decrease of $4 million to both "accrued income and other assets" and "medium- and long-term debt" on the consolidated balance sheets as of December 31, 2014. Unamortized debt issuance costs deducted from the carrying amount of medium- and long-term debt totaled $9 million at September 30, 2015.
Pending Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (ASU 2014-09), which is intended to improve and converge the financial reporting requirements for revenue contracts with customers. Previous GAAP comprised broad revenue recognition concepts along with numerous industry-specific requirements. The new guidance establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. The guidance under ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and must be retrospectively applied. Entities will have the option of presenting

5
Table of Contents
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries

prior periods as impacted by the new guidance or presenting the cumulative effect of initial application along with supplementary disclosures. Early adoption is permitted, but not before annual and interim periods beginning after December 15, 2016. The Corporation is currently evaluating the impact of adopting ASU 2014-09.
In February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis," (ASU 2015-02), which makes targeted amendments to the considerations applied by reporting entities when determining if a legal entity should be consolidated, including placing more emphasis on risk of loss when determining a controlling financial interest. Low-income housing tax credit investments that meet the criteria for the proportional amortization method are not impacted by these amendments. ASU 2015-02 is effective for annual and interim periods beginning after December 15, 2015, and must be retrospectively applied. Early adoption is permitted. The Corporation does not expect the adoption of ASU 2015-02 to have a material effect on its financial condition and results of operations.
In April 2015, the FASB issued ASU 2015-05, "Goodwill and Other - Internal-Use Software (Subtopic 350-40)," (ASU 2015-05), which defines specific criteria entities must apply to determine if a cloud computing arrangement includes an in-substance software license. The result of the assessment will direct the entity to apply either software licensing or service contract guidance to record the related costs. ASU 2015-05 is effective for annual and interim periods beginning after December 15, 2015, and can be prospectively or retrospectively applied. Early adoption is permitted. The Corporation does not expect the adoption to have a material effect on its financial condition and results of operations.
In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” (ASU 2015-07) which amends disclosure requirements for entities that utilize net asset value per share (or its equivalent) to measure fair value as a practical expedient. The update eliminates the requirement to classify these investments within the fair value hierarchy and instead requires disclosure of sufficient information about these investments to permit reconciliation of the fair value of investments categorized within the fair value hierarchy to the investments presented in the consolidated balance sheet. ASU 2015-07 is effective for annual and interim periods beginning after December 15, 2015 and must be applied retrospectively. Early adoption is permitted. The adoption of ASU 2015-07 will have no impact on the Corporation's financial condition or results of operations.
NOTE 2 – FAIR VALUE MEASUREMENTS
The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Corporation uses present value techniques and other valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.
Trading securities, investment securities available-for-sale, derivatives and deferred compensation plan liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as impaired loans, other real estate (primarily foreclosed property), nonmarketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve write-downs of individual assets or application of lower of cost or fair value accounting.
Refer to Note 1 to the consolidated financial statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2014 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. When credit valuation adjustments are significant to the overall fair value of a derivative, the Corporation classifies the over-the-counter derivative valuation in Level 3 of the fair value hierarchy; otherwise, over-the-counter derivative valuations are classified in Level 2.

6
Table of Contents
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries

ASSETS AND LIABLILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS
The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014.
(in millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
September 30, 2015
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
Deferred compensation plan assets
$
89

 
$
89

 
$
—

 
$
—

 
Equity and other non-debt securities
3

 
3

 
—

 
—

 
State and municipal securities
1

 
—

 
1

 
—

 
Total trading securities
93

 
92

 
1

 
—

 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
930

 
930

 
—

 
—

 
Residential mortgage-backed securities (a)
7,559

 
—

 
7,559

 
—

 
State and municipal securities
9

 
—

 
—

 
9

(b)
Corporate debt securities
45

 
—

 
44

 
1

(b)
Equity and other non-debt securities
206

 
137

 
—

 
69

(b)
Total investment securities available-for-sale
8,749

 
1,067

 
7,603

 
79

 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
375

 
—

 
364

 
11

 
Energy derivative contracts
459

 
—

 
459

 
—

 
Foreign exchange contracts
51

 
—

 
51

 
—

 
Warrants
3

 
—

 
—

 
3

 
Total derivative assets
888

 
—

 
874

 
14

 
Total assets at fair value
$
9,730

 
$
1,159

 
$
8,478

 
$
93

 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate contracts
$
140

 
$
—

 
$
140

 
$
—

 
Energy derivative contracts
456

 
—

 
456

 
—

 
Foreign exchange contracts
44

 
—

 
44

 
—

 
Other
1

 
—

 
—

 
1

 
Total derivative liabilities
641

 
—

 
640

 
1

 
Deferred compensation plan liabilities
89

 
89

 
—

 
—

 
Total liabilities at fair value
$
730

 
$
89

 
$
640

 
$
1

 
(a)
Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Auction-rate securities.


7
Table of Contents
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries

(in millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
December 31, 2014
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
Deferred compensation plan assets
$
94

 
$
94

 
$
—

 
$
—

 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
526

 
526

 
—

 
—

 
Residential mortgage-backed securities (a)
7,274

 
—

 
7,274

 
—

 
State and municipal securities
23

 
—

 
—

 
23

(b)
Corporate debt securities
51

 
—

 
50

 
1

(b)
Equity and other non-debt securities
242

 
130

 
—

 
112

(b)
Total investment securities available-for-sale
8,116

 
656

 
7,324

 
136

 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
328

 
—

 
328

 
—

 
Energy derivative contracts
527

 
—

 
527

 
—

 
Foreign exchange contracts
39

 
—

 
39

 
—

 
Warrants
4

 
—

 
—

 
4

 
Total derivative assets
898

 
—

 
894

 
4

 
Total assets at fair value
$
9,108

 
$
750

 
$
8,218

 
$
140

 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate contracts
$
102

 
$
—

 
$
102

 
$
—

 
Energy derivative contracts
525

 
—

 
525

 
—

 
Foreign exchange contracts
34

 
—

 
34

 
—

 
Other
1

 
—

 
—

 
1

 
Total derivative liabilities
662

 
—

 
661

 
1

 
Deferred compensation plan liabilities
94

 
94

 
—

 
—

 
Total liabilities at fair value
$
756

 
$
94

 
$
661

 
$
1

 
(a)
Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Auction-rate securities.
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 nine-month periods ended September 30, 2015 and 2014.

8
Table of Contents
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 nine-month periods ended September 30, 2015 and 2014.
 
 
 
Net Realized/Unrealized Gains (Losses) (Pretax)
 
 
 
 
 
 
 
 
 
 
 
 
Balance 
at
Beginning
of Period
 
Recorded in Earnings
Recorded in
Other
Comprehensive
Income
 
 
 
Balance 
at
End of 
Period
 
 
 
 
 
 
 
 
 
(in millions)
 
Realized
Unrealized
 
Sales
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities (a)
$
23

 
$
—

 
$
—

 
$
—

 
 
$
(14
)
 
$
9

Corporate debt securities (a)
1

 
—

 
—

 
—

 
 
—

 
1

Equity and other non-debt securities (a)
71

 
—

 
—

 
(1
)
(b)
 
(1
)
 
69

Total investment securities available-for-sale
95

 
—

 
—

 
(1
)
(b)
 
(15
)
 
79

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
2

 
—

 
9

(d)
—

 
 
—

 
11

Warrants
3

 
5

(d)
—

 
—

 
 
(5
)
 
3

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Other
1

 
—

 
—

 
—

 
 
—

 
1

Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities (a)
$
23

 
$
—

 
$
—

 
$
—

 
 
$
—

 
$
23

Corporate debt securities (a)
1

 
—

 
—

 
—

 
 
—

 
1

Equity and other non-debt securities (a)
118

 
1

(c)
—

 
1

(b)
 
(7
)
 
113

Total investment securities available-for-sale
142

 
1

(c)
—

 
1

(b)
 
(7
)
 
137

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Warrants
4

 
2

(d)
—

 
—

 
 
(2
)
 
4

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Other
2

 
—

 
(1
)
(c)
—

 
 
—

 
3

Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities (a)
$
23

 
$
—

 
$
—

 
$
—

 
 
$
(14
)
 
$
9

Corporate debt securities (a)
1

 
—

 
—

 
—

 
 
—

 
1

Equity and other non-debt securities (a)
112

 
(2
)
(c)
—

 
—

 
 
(41
)
 
69

Total investment securities available-for-sale
136

 
(2
)
(c)
—

 
—

 
 
(55
)
 
79

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
—

 
—

 
11

(d)
—

 
 
—

 
11

Warrants
4

 
6

(d)
(1
)
(d)
—

 
 
(6
)
 
3

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Other
1

 
—

 
—

 
—

 
 
—

 
1

Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities (a)
$
22

 
$
—

 
$
—

 
$
1

(b)
 
$
—

 
$
23

Corporate debt securities (a)
1

 
—

 
—

 
—

 
 
—

 
1

Equity and other non-debt securities (a)
136

 
2

(c)
—

 
7

(b)
 
(32
)
 
113

Total investment securities available-for-sale
159

 
2

(c)
—

 
8

(b)
 
(32
)
 
137

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Warrants
3

 
6

(d)
1

(d)
—

 
 
(6
)
 
4

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Other
2

 
—

 
(1
)
(c)
—

 
 
—

 
3

(a)
Auction-rate securities.
(b)
Recorded in "net unrealized gains (losses) on investment securities available-for-sale" in other comprehensive income.
(c)
Realized and unrealized gains and losses due to changes in fair value recorded in "net securities gains" on the consolidated statements of comprehensive income.
(d)
Realized and unrealized gains and losses due to changes in fair value recorded in "other noninterest income" on the consolidated statements of comprehensive income.

9
Table of Contents
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries

ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS
The Corporation may be required, from time to time, to record certain assets and liabilities at fair value on a nonrecurring basis. These include assets that are recorded at the lower of cost or fair value that were recognized at fair value below cost at the end of the period. The following table presents assets recorded at fair value on a nonrecurring basis at September 30, 2015 and December 31, 2014. No liabilities were recorded at fair value on a nonrecurring basis at September 30, 2015 and December 31, 2014.
(in millions)
Total
 
Level 2
 
Level 3
September 30, 2015
 
 
 
 
 
Loans held-for-sale:
 
 
 
 
 
Commercial
$
12

 
$
12

 
$
—

Loans:
 
 
 
 
 
Commercial
124

 
—

 
124

Commercial mortgage
12

 
—

 
12

International
8

 
—

 
8

Total loans
144

 
—

 
144

Nonmarketable equity securities
1

 
—

 
1

Other real estate
3

 
—

 
3

Total assets at fair value
$
160

 
$
12

 
$
148

December 31, 2014
 
 
 
 
 
Loans:
 
 
 
 
 
Commercial
38

 
—

 
$
38

Commercial mortgage
26

 
—

 
26

Total loans
64

 
—

 
64

Nonmarketable equity securities
2

 
—

 
2

Other real estate
2

 
—

 
2

Total assets at fair value
$
68

 
$
—

 
$
68

Level 3 assets recorded at fair value on a nonrecurring basis at September 30, 2015 and December 31, 2014 included loans for which a specific allowance was established based on the fair value of collateral and other real estate for which fair value of the properties was less than the cost basis. For both asset classes, the unobservable inputs were the additional adjustments applied by management to the appraised values to reflect such factors as non-current appraisals and revisions to estimated time to sell. These adjustments are determined based on qualitative judgments made by management on a case-by-case basis and are not quantifiable inputs, although they are used in the determination of fair value.
The following table presents quantitative information related to the significant unobservable inputs utilized in the Corporation's Level 3 recurring fair value measurement as of September 30, 2015 and December 31, 2014. The Corporation's Level 3 recurring fair value measurements include auction-rate securities where fair value is determined using an income approach based on a discounted cash flow model. The inputs in the table below reflect management's expectation of continued illiquidity in the secondary auction-rate securities market due to a lack of market activity for the issuers remaining in the portfolio, a lack of market incentives for issuer redemptions, and the expectation for a continuing low interest rate environment. The September 30, 2015 workout periods reflect management's view that short-term interest rates could begin to rise in 2015.
 
 
 
Discounted Cash Flow Model
 
 
 
Unobservable Input
 
Fair Value
(in millions)
 
Discount Rate
 
Workout Period (in years)
September 30, 2015
 
 
 
 
 
State and municipal securities (a)
$
9

 
3% - 10%
 
1 - 3
Equity and other non-debt securities (a)
69

 
4% - 9%
 
1 - 2
December 31, 2014
 
 
 
 
 
State and municipal securities (a)
$
23

 
3% - 9%
 
1 - 3
Equity and other non-debt securities (a)
112

 
4% - 8%
 
1 - 2
(a)
Auction-rate securities.

10
Table of Contents
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries

ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS
The Corporation typically holds the majority of its financial instruments until maturity and thus does not expect to realize many of the estimated fair value amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments, but which have significant value. These include such items as core deposit intangibles, the future earnings potential of significant customer relationships and the value of trust operations and other fee generating businesses. The Corporation believes the imprecision of an estimate could be significant.
The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on the Corporation’s consolidated balance sheets are as follows:
 
Carrying
Amount
 
Estimated Fair Value
(in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
September 30, 2015
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
1,101

 
$
1,101

 
$
1,101

 
$
—

 
$
—

Interest-bearing deposits with banks
6,099

 
6,099

 
6,099

 
—

 
—

Investment securities held-to-maturity
1,863

 
1,872

 
—

 
1,872

 
—

Loans held-for-sale (a)
15

 
15

 
—

 
15

 
—

Total loans, net of allowance for loan losses (b)
48,320

 
48,244

 
—

 
—

 
48,244

Customers’ liability on acceptances outstanding
5

 
5

 
5

 
—

 
—

Nonmarketable equity securities (c)
10

 
19

 
—

 
—

 
19

Restricted equity investments
92

 
92

 
92

 
—

 
—

Liabilities
 
 
 
 
 
 
 
 
 
Demand deposits (noninterest-bearing)
28,697

 
28,697

 
—

 
28,697

 
—

Interest-bearing deposits
25,945

 
25,945

 
—

 
25,945

 
—

Customer certificates of deposit
4,126

 
4,119

 
—

 
4,119

 
—

Total deposits
58,768

 
58,761

 
—

 
58,761

 
—

Short-term borrowings
109

 
109

 
109

 
—

 
—

Acceptances outstanding
5

 
5

 
5

 
—

 
—

Medium- and long-term debt
3,100

 
3,047

 
—

 
3,047

 
—

Credit-related financial instruments
(89
)
 
(89
)
 
—

 
—

 
(89
)
December 31, 2014
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
1,026

 
$
1,026

 
$
1,026

 
$
—

 
$
—

Interest-bearing deposits with banks
5,045

 
5,045

 
5,045

 
—

 
—

Investment securities held-to-maturity
1,935

 
1,933

 
—

 
1,933

 
—

Loans held-for-sale (a)
5

 
5

 
—

 
5

 
—

Total loans, net of allowance for loan losses (b)
47,999

 
47,932

 
—

 
—

 
47,932

Customers’ liability on acceptances outstanding
10

 
10

 
10

 
—

 
—

Nonmarketable equity securities (c)
11

 
18

 
—

 
—

 
18

Restricted equity investments
92

 
92

 
92

 
—

 
—

Liabilities
 
 
 
 
 
 
 
 
 
Demand deposits (noninterest-bearing)
27,224

 
27,224

 
—

 
27,224

 
—

Interest-bearing deposits
25,841

 
25,841

 
—

 
25,841

 
—

Customer certificates of deposit
4,421

 
4,411

 
—

 
4,411

 
—

Total deposits
57,486

 
57,476

 
—

 
57,476

 
—

Short-term borrowings
116

 
116

 
116

 
—

 
—

Acceptances outstanding
10

 
10

 
10

 
—

 
—

Medium- and long-term debt
2,675

 
2,681

 
—

 
2,681

 
—

Credit-related financial instruments
(85
)
 
(85
)
 
—

 
—

 
(85
)
(a)
Included $12 million and no impaired loans held-for-sale recorded at fair value on a nonrecurring basis at September 30, 2015 and December 31, 2014, respectively.
(b)
Included $144 million and $64 million of impaired loans recorded at fair value on a nonrecurring basis at September 30, 2015 and December 31, 2014, respectively.
(c)
Included $1 million and $2 million of nonmarketable equity securities recorded at fair value on a nonrecurring basis at September 30, 2015 and December 31, 2014, respectively.

11
Table of Contents
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries

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
September 30, 2015
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
917

 
$
13

 
$
—

 
$
930

Residential mortgage-backed securities (a)
7,445

 
133

 
19

 
7,559

State and municipal securities
9

 
—

 
—

 
9

Corporate debt securities
45

 
—

 
—

 
45

Equity and other non-debt securities
206

 
1

 
1

 
206

Total investment securities available-for-sale (b)
$
8,622

 
$
147

 
$
20

 
$
8,749

Investment securities held-to-maturity (c):
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
1,863

 
$
10

 
$
1

 
$
1,872

 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
526

 
$
—

 
$
—

 
$
526

Residential mortgage-backed securities (a)
7,192

 
122

 
40

 
7,274

State and municipal securities
24

 
—

 
1

 
23

Corporate debt securities
51

 
—

 
—

 
51

Equity and other non-debt securities
242

 
1

 
1

 
242

Total investment securities available-for-sale (b)
$
8,035

 
$
123

 
$
42

 
$
8,116

Investment securities held-to-maturity (c):
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
1,935

 
$
—

 
$
2

 
$
1,933

(a)
Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Included auction-rate securities at amortized cost and fair value of $80 million and $79 million, respectively as of September 30, 2015 and $137 million and $136 million, respectively, as of December 31, 2014.
(c)
The amortized cost of investment securities held-to-maturity included net unrealized losses of $17 million at September 30, 2015 and $23 million at December 31, 2014 related to securities transferred from available-for-sale, which are included in accumulated other comprehensive loss.

12
Table of Contents
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries

A summary of the Corporation’s investment securities in an unrealized loss position as of September 30, 2015 and December 31, 2014 follows: