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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, 2016
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 July 26, 2016: 173,902,572 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)
June 30, 2016
 
December 31, 2015
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
1,172

 
$
1,157

 
 
 
 
Interest-bearing deposits with banks
2,938

 
4,990

Other short-term investments
100

 
113

 
 
 
 
Investment securities available-for-sale
10,712

 
10,519

Investment securities held-to-maturity
1,807

 
1,981

 
 
 
 
Commercial loans
32,360

 
31,659

Real estate construction loans
2,553

 
2,001

Commercial mortgage loans
9,038

 
8,977

Lease financing
684

 
724

International loans
1,365

 
1,368

Residential mortgage loans
1,856

 
1,870

Consumer loans
2,524

 
2,485

Total loans
50,380

 
49,084

Less allowance for loan losses
(729
)
 
(634
)
Net loans
49,651

 
48,450

Premises and equipment
544

 
550

Accrued income and other assets
4,356

 
4,117

Total assets
$
71,280

 
$
71,877

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Noninterest-bearing deposits
$
28,559

 
$
30,839

 
 
 
 
Money market and interest-bearing checking deposits
22,539

 
23,532

Savings deposits
2,022

 
1,898

Customer certificates of deposit
3,230

 
3,552

Foreign office time deposits
24

 
32

Total interest-bearing deposits
27,815

 
29,014

Total deposits
56,374

 
59,853

Short-term borrowings
12

 
23

Accrued expenses and other liabilities
1,279

 
1,383

Medium- and long-term debt
5,921

 
3,058

Total liabilities
63,586

 
64,317

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

 
1,141

Capital surplus
2,165

 
2,173

Accumulated other comprehensive loss
(295
)
 
(429
)
Retained earnings
7,157

 
7,084

Less cost of common stock in treasury - 54,247,325 shares at 6/30/16
and 52,457,113 shares at 12/31/15
(2,474
)
 
(2,409
)
Total shareholders’ equity
7,694

 
7,560

Total liabilities and shareholders’ equity
$
71,280

 
$
71,877

See notes to consolidated financial statements.

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


 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions, except per share data)
2016
 
2015
 
2016
 
2015
INTEREST INCOME
 
 
 
 
 
 
 
Interest and fees on loans
$
406

 
$
388

 
$
812

 
$
766

Interest on investment securities
62

 
53

 
124

 
106

Interest on short-term investments
5

 
3

 
9

 
7

Total interest income
473

 
444

 
945

 
879

INTEREST EXPENSE
 
 
 
 
 
 
 
Interest on deposits
10

 
11

 
20

 
22

Interest on medium- and long-term debt
18

 
12

 
33

 
23

Total interest expense
28

 
23

 
53

 
45

Net interest income
445

 
421

 
892

 
834

Provision for credit losses
49

 
47

 
197

 
61

Net interest income after provision for credit losses
396

 
374

 
695

 
773

NONINTEREST INCOME
 
 
 
 
 
 
 
Card fees
77

 
69

 
151

 
132

Service charges on deposit accounts
55

 
56

 
110

 
111

Fiduciary income
49

 
48

 
95

 
95

Commercial lending fees
22

 
22

 
42

 
47

Letter of credit fees
13

 
13

 
26

 
26

Bank-owned life insurance
9

 
10

 
18

 
19

Foreign exchange income
11

 
9

 
21

 
19

Brokerage fees
5

 
4

 
9

 
8

Net securities losses
(1
)
 
—

 
(3
)
 
(2
)
Other noninterest income
29

 
27

 
46

 
54

Total noninterest income
269

 
258

 
515

 
509

NONINTEREST EXPENSES
 
 
 
 
 
 
 
Salaries and benefits expense
247

 
251

 
495

 
504

Outside processing fee expense
84

 
83

 
163

 
156

Net occupancy expense
39

 
39

 
77

 
77

Equipment expense
14

 
13

 
27

 
26

Restructuring charges
53

 
—

 
53

 
—

Software expense
30

 
24

 
59

 
47

FDIC insurance expense
14

 
9

 
25

 
18

Advertising expense
6

 
5

 
10

 
11

Litigation-related expense
—

 
(30
)
 
—

 
(29
)
Other noninterest expenses
32

 
39

 
70

 
78

Total noninterest expenses
519

 
433

 
979

 
888

Income before income taxes
146

 
199

 
231

 
394

Provision for income taxes
42

 
64

 
67

 
125

NET INCOME
104

 
135

 
164

 
269

Less income allocated to participating securities
1

 
1

 
2

 
3

Net income attributable to common shares
$
103

 
$
134

 
$
162

 
$
266

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.60

 
$
0.76

 
$
0.94

 
$
1.51

Diluted
0.58

 
0.73

 
0.92

 
1.46

 
 
 
 
 
 
 
 
Comprehensive income
137

 
109

 
298

 
285

 
 
 
 
 
 
 
 
Cash dividends declared on common stock
38

 
37

 
75

 
73

Cash dividends declared per common share
0.22

 
0.21

 
0.43

 
0.41

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, 2014
179.0

 
$
1,141

 
$
2,188

 
$
(412
)
 
$
6,744

 
$
(2,259
)
 
$
7,402

Net income
—

 
—

 
—

 
—

 
269

 
—

 
269

Other comprehensive income, net of tax
—

 
—

 
—

 
16

 
—

 
—

 
16

Cash dividends declared on common stock ($0.41 per share)
—

 
—

 
—

 
—

 
(73
)
 
—

 
(73
)
Purchase of common stock
(2.5
)
 
—

 
—

 
—

 
—

 
(115
)
 
(115
)
Purchase and retirement of warrants
—

 
—

 
(10
)
 
—

 
—

 
—

 
(10
)
Net issuance of common stock under employee stock plans
0.9

 
—

 
(23
)
 
—

 
(10
)
 
43

 
10

Net issuance of common stock for warrants
1.0

 
—

 
(21
)
 
—

 
(22
)
 
43

 
—

Share-based compensation
—

 
—

 
24

 
—

 
—

 
—

 
24

BALANCE AT JUNE 30, 2015
178.4

 
$
1,141

 
$
2,158

 
$
(396
)
 
$
6,908

 
$
(2,288
)
 
$
7,523

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2015
175.7

 
$
1,141

 
$
2,173

 
$
(429
)
 
$
7,084

 
$
(2,409
)
 
$
7,560

Net income
—

 
—

 
—

 
—

 
164

 
—

 
164

Other comprehensive income, net of tax
—

 
—

 
—

 
134

 
—

 
—

 
134

Cash dividends declared on common stock ($0.43 per share)
—

 
—

 
—

 
—

 
(75
)
 
—

 
(75
)
Purchase of common stock
(2.9
)
 
—

 
—

 
—

 
—

 
(114
)
 
(114
)
Net issuance of common stock under employee stock plans
1.1

 
—

 
(33
)
 
—

 
(16
)
 
49

 
—

Share-based compensation
—

 
—

 
25

 
—

 
—

 
—

 
25

BALANCE AT JUNE 30, 2016
173.9

 
$
1,141

 
$
2,165

 
$
(295
)
 
$
7,157

 
$
(2,474
)
 
$
7,694

See notes to consolidated financial statements.



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


 
Six Months Ended June 30,
(in millions)
2016
 
2015
OPERATING ACTIVITIES
 
 
 
Net income
$
164

 
$
269

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
197

 
61

Benefit for deferred income taxes
(52
)
 
(25
)
Depreciation and amortization
59

 
60

Net periodic defined benefit cost
7

 
23

Share-based compensation expense
25

 
24

Net amortization of securities
4

 
8

Accretion of loan purchase discount
(3
)
 
(4
)
Net securities losses
3

 
2

Net gains on sales of foreclosed property
(2
)
 
(1
)
Excess tax benefits from share-based compensation arrangements
(1
)
 
(3
)
Net change in:
 
 
 
Accrued income receivable
(7
)
 
(4
)
Accrued expenses payable
40

 
(83
)
Other, net
(195
)
 
67

Net cash provided by operating activities
239

 
394

INVESTING ACTIVITIES
 
 
 
Investment securities available-for-sale:
 
 
 
Maturities and redemptions
736

 
842

Sales
14

 
37

Purchases
(756
)
 
(1,055
)
Investment securities held-to-maturity:
 
 
 
Maturities and redemptions
175

 
153

Purchases
—

 
(166
)
Net change in loans
(1,392
)
 
(1,188
)
Proceeds from sales of foreclosed property
11

 
5

Net increase in premises and equipment
(54
)
 
(54
)
Purchases of Federal Home Loan Bank stock
(115
)
 
—

Other, net
1

 
2

Net cash used in investing activities
(1,380
)
 
(1,424
)
FINANCING ACTIVITIES
 
 
 
Net change in:
 
 
 
Deposits
(3,509
)
 
971

Short-term borrowings
(11
)
 
(60
)
Medium- and long-term debt:
 
 
 
Maturities
—

 
(306
)
Issuances
2,800

 
497

Common stock:
 
 
 
Repurchases
(114
)
 
(115
)
Cash dividends paid
(74
)
 
(72
)
Issuances under employee stock plans
12

 
18

Purchase and retirement of warrants
—

 
(10
)
Excess tax benefits from share-based compensation arrangements
1

 
3

Other, net
(1
)
 
(2
)
Net cash (used in) provided by financing activities
(896
)
 
924

Net decrease in cash and cash equivalents
(2,037
)
 
(106
)
Cash and cash equivalents at beginning of period
6,147

 
6,071

Cash and cash equivalents at end of period
$
4,110

 
$
5,965

Interest paid
$
51

 
$
45

Income taxes paid (refunds received)
15

 
(11
)
Noncash investing and financing activities:
 
 
 
Loans transferred to other real estate
19

 
4

Loans transferred from portfolio to held-for-sale
—

 
19

Loans transferred from held-for-sale to portfolio
10

 
—

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 six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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, 2015.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842),” (ASU 2016-02), to increase the transparency and comparability of lease recognition and disclosure. The update requires lessees to recognize lease contracts with a term greater than one year on the balance sheet, while recognizing expenses on the income statement in a manner similar to current guidance. For lessors, the update makes targeted changes to the classification criteria and the lessor accounting model to align the guidance with the new lessee model and revenue guidance. ASU 2016-02 is effective for the Corporation on January 1, 2019 and must be applied using the modified retrospective approach. Early adoption is permitted. The Corporation is currently evaluating the impact of adopting ASU 2016-02.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payments Accounting,” (ASU 2016-09), which intends to simplify accounting for share based payment transactions, including the income tax consequences and classification of awards. Among other items, the update requires excess tax benefits and deficiencies to be recognized as a component of income taxes within the income statement rather than other comprehensive income as required in current guidance. ASU 2016-09 is effective for the Corporation on January 1, 2017. The recognition of excess tax benefits and deficiencies in the income statement must be adopted prospectively. The method of transition required will differ for other items being amended. Early adoption is permitted. The impact to the Corporation upon adoption is dependent on the market value per share of the Corporation's common stock at option expiration dates and restricted stock vesting dates.
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 cost basis. Under the new model, entities must estimate current expected credit losses by considering all available relevant information, including historical and current information, as well as reasonable and supportable forecasts of future events. The update also requires additional qualitative and quantitative information to allow users to better understand the credit risk within the portfolio and the methodologies for determining allowance. 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 is currently evaluating the impact of adopting ASU 2016-13.
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, 2015 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

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

significant assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis.
ASSETS AND LIABLILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS
The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015.
(in millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
June 30, 2016
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
Deferred compensation plan assets
$
87

 
$
87

 
$
—

 
$
—

 
Equity and other non-debt securities
3

 
3

 
—

 
—

 
Total trading securities
90

 
90

 
—

 
—

 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
2,843

 
2,843

 
—

 
—

 
Residential mortgage-backed securities (a)
7,680

 
—

 
7,680

 
—

 
State and municipal securities
8

 
—

 
—

 
8

(b)
Corporate debt securities
1

 
—

 
—

 
1

(b)
Equity and other non-debt securities
180

 
132

 
—

 
48

(b)
Total investment securities available-for-sale
10,712

 
2,975

 
7,680

 
57

 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
459

 
—

 
432

 
27

 
Energy derivative contracts
242

 
—

 
242

 
—

 
Foreign exchange contracts
61

 
—

 
61

 
—

 
Warrants
2

 
—

 
—

 
2

 
Total derivative assets
764

 
—

 
735

 
29

 
Total assets at fair value
$
11,566

 
$
3,065

 
$
8,415

 
$
86

 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate contracts
$
204

 
$
—

 
$
204

 
$
—

 
Energy derivative contracts
240

 
—

 
240

 
—

 
Foreign exchange contracts
45

 
—

 
45

 
—

 
Total derivative liabilities
489

 
—

 
489

 
—

 
Deferred compensation plan liabilities
87

 
87

 
—

 
—

 
Total liabilities at fair value
$
576

 
$
87

 
$
489

 
$
—

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


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

(in millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
December 31, 2015
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
Deferred compensation plan assets
$
89

 
$
89

 
$
—

 
$
—

 
Equity and other non-debt securities
3

 
3

 
$
—

 
$
—

 
Total trading securities
92

 
92

 
—

 
—

 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
2,763

 
2,763

 
—

 
—

 
Residential mortgage-backed securities (a)
7,545

 
—

 
7,545

 
—

 
State and municipal securities
9

 
—

 
—

 
9

(b)
Corporate debt securities
1

 
—

 
—

 
1

(b)
Equity and other non-debt securities
201

 
134

 
—

 
67

(b)
Total investment securities available-for-sale
10,519

 
2,897

 
7,545

 
77

 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
286

 
—

 
277

 
9

 
Energy derivative contracts
475

 
—

 
475

 
—

 
Foreign exchange contracts
57

 
—

 
57

 
—

 
Warrants
2

 
—

 
—

 
2

 
Total derivative assets
820

 
—

 
809

 
11

 
Total assets at fair value
$
11,431

 
$
2,989

 
$
8,354

 
$
88

 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate contracts
$
92

 
$
—

 
$
92

 
$
—

 
Energy derivative contracts
472

 
—

 
472

 
—

 
Foreign exchange contracts
46

 
—

 
46

 
—

 
Total derivative liabilities
610

 
—

 
610

 
—

 
Deferred compensation plan liabilities
89

 
89

 
—

 
—

 
Total liabilities at fair value
$
699

 
$
89

 
$
610

 
$
—

 
(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 periods ended June 30, 2016 and 2015.

7
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 six-month periods ended June 30, 2016 and 2015.
 
 
 
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 June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities (a)
$
9

 
$
—

 
$
—

 
$
—

 
 
$
(1
)
 
$
8

Corporate debt securities (a)
1

 
—

 
—

 
—

 
 
—

 
1

Equity and other non-debt securities (a)
51

 
—

 
—

 
(3
)
(b)
 
—

 
48

Total investment securities available-for-sale
61

 
—

 
—

 
(3
)
(b)
 
(1
)
 
57

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
20

 
—

 
7

(c)
—

 
 
—

 
27

Warrants
2

 
—

 
1

(c)
—

 
 
(1
)
 
2

Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
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)
71

 
—

 
—

 
—

 
 
—

 
71

Total investment securities available-for-sale
95

 
—

 
—

 
—

 
 
—

 
95

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
11

 
—

 
(9
)
(c)
—

 
 
—

 
2

Warrants
3

 
1

(c)
—

 
—

 
 
(1
)
 
3

Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities (a)
$
9

 
$
—

 
$
—

 
$
—

 
 
$
(1
)
 
$
8

Corporate debt securities (a)
1

 
—

 
—

 
—

 
 
—

 
1

Equity and other non-debt securities (a)
67

 
—


—

 
(4
)
(b)
 
(15
)
 
48

Total investment securities available-for-sale
77

 
—


—

 
(4
)
(b)
 
(16
)
 
57

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
9

 
—

 
18

(c)
—

 
 
—

 
27

Warrants
2

 
—

 
1

(c)
—

 
 
(1
)
 
2

Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
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)
112

 
(2
)
(d)
—

 
1

(b)
 
(40
)
 
71

Total investment securities available-for-sale
136

 
(2
)
(d)
—

 
1

(b)
 
(40
)
 
95

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
—

 
—

 
2

(c)
—

 
 
—

 
2

Warrants
4

 
1

(c)
(1
)
(c)
—

 
 
(1
)
 
3

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

8
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 June 30, 2016 and December 31, 2015. No liabilities were recorded at fair value on a nonrecurring basis at June 30, 2016 and December 31, 2015.
(in millions)
Total
 
Level 2
 
Level 3
June 30, 2016
 
 
 
 
 
Loans held-for-sale:
 
 
 
 
 
Commercial
$
5

 
$
5

 
$
—

Loans:
 
 
 
 
 
Commercial
381

 
—

 
381

Commercial mortgage
9

 
—

 
9

International
18

 
—

 
18

Total loans
408

 
—

 
408

Other real estate
1

 
—

 
1

Total assets at fair value
$
414

 
$
5

 
$
409

December 31, 2015
 
 
 
 
 
Loans held-for-sale:
 
 
 
 
 
Commercial
$
8

 
$
8

 
$
—

Loans:
 
 
 
 
 
Commercial
134

 
—

 
134

Commercial mortgage
11

 
—

 
11

International
8

 
—

 
8

Total loans
153

 
—

 
153

Other real estate
2

 
—

 
2

Total assets at fair value excluding investments recorded at net asset value
163

 
8

 
155

Other investments recorded at net asset value:
 
 
 
 
 
Nonmarketable equity securities (a)
1

 
 
 
 
Total assets at fair value
$
164

 


 


(a)
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.
Level 3 assets recorded at fair value on a nonrecurring basis at June 30, 2016 and December 31, 2015 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.

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

The Corporation's Level 3 recurring fair value measurements primarily include auction-rate securities where fair value is determined using an income approach based on a discounted cash flow model and certain interest rate derivative contracts where credit valuation adjustments are significant to the overall fair value of the derivative. 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 June 30, 2016 workout periods reflect the view that short-term interest rates could rise at a slower pace in 2016 than was expected at December 31, 2015.
 
 
 
Discounted Cash Flow Model
 
 
 
Unobservable Input
 
Fair Value
(in millions)
 
Discount Rate
 
Workout Period (in years)
June 30, 2016
 
 
 
 
 
State and municipal securities (a)
$
8

 
4% - 6%
 
1 - 3
Equity and other non-debt securities (a)
48

 
6% - 10%
 
1 - 2
December 31, 2015
 
 
 
 
 
State and municipal securities (a)
$
9

 
3% - 8%
 
1 - 2
Equity and other non-debt securities (a)
67

 
4% - 9%
 
1
(a)
Auction-rate securities.
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.

10
Table of Contents
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
(in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
June 30, 2016
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
1,172

 
$
1,172

 
$
1,172

 
$
—

 
$
—

Interest-bearing deposits with banks
2,938

 
2,938

 
2,938

 
—

 
—

Investment securities held-to-maturity
1,807

 
1,834

 
—

 
1,834

 
—

Loans held-for-sale (a)
10

 
10

 
—

 
10

 
—

Total loans, net of allowance for loan losses (b)
49,651

 
49,614

 
—

 
—

 
49,614

Customers’ liability on acceptances outstanding
4

 
4

 
4

 
—

 
—

Restricted equity investments
207

 
207

 
207

 
—

 
—

Nonmarketable equity securities (c) (d)
10

 
16

 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Demand deposits (noninterest-bearing)
28,559

 
28,559

 
—

 
28,559

 
—

Interest-bearing deposits
24,585

 
24,585

 
—

 
24,585

 
—

Customer certificates of deposit
3,230

 
3,221

 
—

 
3,221

 
—

Total deposits
56,374

 
56,365

 
—

 
56,365

 
—

Short-term borrowings
12

 
12

 
12

 
—

 
—

Acceptances outstanding
4

 
4

 
4

 
—

 
—

Medium- and long-term debt
5,921

 
5,863

 
—

 
5,863

 
—

Credit-related financial instruments
(79
)
 
(79
)
 
—

 
—

 
(79
)
December 31, 2015
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
1,157

 
$
1,157

 
$
1,157

 
$
—

 
$
—

Interest-bearing deposits with banks
4,990

 
4,990

 
4,990

 
—

 
—

Investment securities held-to-maturity
1,981

 
1,973

 
—

 
1,973

 
—

Loans held-for-sale (a)
21

 
21

 
—

 
21

 
—

Total loans, net of allowance for loan losses (b)
48,450

 
48,269

 
—

 
—

 
48,269

Customers’ liability on acceptances outstanding
5

 
5

 
5

 
—

 
—

Restricted equity investments
92

 
92

 
92

 
—

 
—

Nonmarketable equity securities (c) (d)
10

 
18

 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Demand deposits (noninterest-bearing)
30,839

 
30,839

 
—

 
30,839

 
—

Interest-bearing deposits
25,462

 
25,462

 
—

 
25,462

 
—

Customer certificates of deposit
3,552

 
3,536

 
—

 
3,536

 
—

Total deposits
59,853

 
59,837

 
—

 
59,837

 
—

Short-term borrowings
23

 
23

 
23

 
—

 
—

Acceptances outstanding
5

 
5

 
5

 
—

 
—

Medium- and long-term debt
3,058

 
3,032

 
—

 
3,032

 
—

Credit-related financial instruments
(83
)
 
(83
)
 
—

 
—

 
(83
)
(a)
Included $5 million and $8 million impaired loans held-for-sale recorded at fair value on a nonrecurring basis at June 30, 2016 and December 31, 2015, respectively.
(b)
Included $408 million and $153 million of impaired loans recorded at fair value on a nonrecurring basis at June 30, 2016 and December 31, 2015, respectively.
(c)
Included $1 million of nonmarketable equity securities recorded at fair value on a nonrecurring basis at December 31, 2015.
(d)
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.

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
June 30, 2016
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
2,770

 
$
73

 
$
—

 
$
2,843

Residential mortgage-backed securities (a)
7,532

 
152

 
4

 
7,680

State and municipal securities
8

 
—

 
—

 
8

Corporate debt securities
1

 
—

 
—

 
1

Equity and other non-debt securities
182

 
1

 
3

 
180

Total investment securities available-for-sale (b)
$
10,493

 
$
226

 
$
7

 
$
10,712

Investment securities held-to-maturity (c):
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
1,807

 
$
27

 
$
—

 
$
1,834

 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
2,769

 
$
1

 
$
7

 
$
2,763

Residential mortgage-backed securities (a)
7,513

 
76

 
44

 
7,545

State and municipal securities
9

 
—

 
—

 
9

Corporate debt securities
1

 
—

 
—

 
1

Equity and other non-debt securities
199

 
2

 
—

 
201

Total investment securities available-for-sale (b)
$
10,491

 
$
79

 
$
51

 
$
10,519

Investment securities held-to-maturity (c):
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
1,981

 
$
2

 
$
10

 
$
1,973

(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 $60 million and $57 million, respectively as of June 30, 2016 and $76 million and $77 million, respectively, as of December 31, 2015.
(c)
The amortized cost of investment securities held-to-maturity included net unrealized losses of $14 million at June 30, 2016 and $15 million at December 31, 2015 related to securities transferred from available-for-sale, which are included in accumulated other comprehensive loss.
A summary of the Corporation’s investment securities in an unrealized loss position as of June 30, 2016 and December 31, 2015 follows:
 
Temporarily Impaired
 
Less than 12 Months
 
12 Months or more
 
Total
(in millions)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
36

 
$
—

(c)
 
$
1,357

 
$
11

 
 
$
1,393

 
$
11

 
State and municipal securities (b)
—

 
—

 
 
8

 
—

(c)
 
8

 
—

(c)
Corporate debt securities (b)
—

 
—

 
 
1

 
—

(c)
 
1

 
—

(c)
Equity and other non-debt securities (b)
49