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EX-32 - CERTIFICATION - COMERICA INC /NEW/cma2015q210q_ex32.htm
EX-31.1 - CERTIFICATION - COMERICA INC /NEW/cma2015q210q_ex311.htm
EX-31.2 - CERTIFICATION - COMERICA INC /NEW/cma2015q210q_ex312.htm

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, 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 July 24, 2015: 177,928,704 shares



COMERICA INCORPORATED AND SUBSIDIARIES
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, 2015
 
December 31, 2014
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
1,148

 
$
1,026

 
 
 
 
Interest-bearing deposits with banks
4,817

 
5,045

Other short-term investments
119

 
99

 
 
 
 
Investment securities available-for-sale
8,267

 
8,116

Investment securities held-to-maturity
1,952

 
1,935

 
 
 
 
Commercial loans
32,723

 
31,520

Real estate construction loans
1,795

 
1,955

Commercial mortgage loans
8,674

 
8,604

Lease financing
786

 
805

International loans
1,420

 
1,496

Residential mortgage loans
1,865

 
1,831

Consumer loans
2,478

 
2,382

Total loans
49,741

 
48,593

Less allowance for loan losses
(618
)
 
(594
)
Net loans
49,123

 
47,999

Premises and equipment
541

 
532

Accrued income and other assets
3,978

 
4,434

Total assets
$
69,945

 
$
69,186

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Noninterest-bearing deposits
$
28,167

 
$
27,224

 
 
 
 
Money market and interest-bearing checking deposits
23,786

 
23,954

Savings deposits
1,841

 
1,752

Customer certificates of deposit
4,367

 
4,421

Foreign office time deposits
99

 
135

Total interest-bearing deposits
30,093

 
30,262

Total deposits
58,260

 
57,486

Short-term borrowings
56

 
116

Accrued expenses and other liabilities
1,265

 
1,507

Medium- and long-term debt
2,841

 
2,675

Total liabilities
62,422

 
61,784

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

 
1,141

Capital surplus
2,158

 
2,188

Accumulated other comprehensive loss
(396
)
 
(412
)
Retained earnings
6,908

 
6,744

Less cost of common stock in treasury - 49,803,515 shares at 6/30/15
and 49,146,225 shares at 12/31/14
(2,288
)
 
(2,259
)
Total shareholders’ equity
7,523

 
7,402

Total liabilities and shareholders’ equity
$
69,945

 
$
69,186

See notes to consolidated financial statements.

1

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)
2015
 
2014
 
2015
 
2014
INTEREST INCOME
 
 
 
 
 
 
 
Interest and fees on loans
$
389

 
$
385

 
$
767

 
$
761

Interest on investment securities
52

 
53

 
105

 
108

Interest on short-term investments
3

 
3

 
7

 
7

Total interest income
444

 
441

 
879

 
876

INTEREST EXPENSE
 
 
 
 
 
 
 
Interest on deposits
11

 
11

 
22

 
22

Interest on medium- and long-term debt
12

 
14

 
23

 
28

Total interest expense
23

 
25

 
45

 
50

Net interest income
421

 
416

 
834

 
826

Provision for credit losses
47

 
11

 
61

 
20

Net interest income after provision for credit losses
374

 
405

 
773

 
806

NONINTEREST INCOME
 
 
 
 
 
 
 
Service charges on deposit accounts
56

 
54

 
111

 
108

Fiduciary income
48

 
45

 
95

 
89

Commercial lending fees
22

 
23

 
47

 
43

Card fees
72

 
22

 
139

 
45

Letter of credit fees
13

 
15

 
26

 
29

Bank-owned life insurance
10

 
11

 
19

 
20

Foreign exchange income
9

 
12

 
19

 
21

Brokerage fees
5

 
4

 
9

 
9

Net securities (losses) gains

 

 
(2
)
 
1

Other noninterest income
26

 
34

 
53

 
63

Total noninterest income
261

 
220

 
516

 
428

NONINTEREST EXPENSES
 
 
 
 
 
 
 
Salaries and benefits expense
251

 
240

 
504

 
487

Net occupancy expense
39

 
39

 
77

 
79

Equipment expense
13

 
15

 
26

 
29

Outside processing fee expense
85

 
30

 
162

 
58

Software expense
24

 
25

 
47

 
47

Litigation-related expense
(30
)
 
3

 
(29
)
 
6

FDIC insurance expense
9

 
8

 
18

 
16

Advertising expense
6

 
5

 
12

 
11

Other noninterest expenses
39

 
39

 
78

 
77

Total noninterest expenses
436

 
404

 
895

 
810

Income before income taxes
199

 
221

 
394

 
424

Provision for income taxes
64

 
70

 
125

 
134

NET INCOME
135

 
151

 
269

 
290

Less income allocated to participating securities
1

 
2

 
3

 
4

Net income attributable to common shares
$
134

 
$
149

 
$
266

 
$
286

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.76

 
$
0.83

 
$
1.51

 
$
1.59

Diluted
0.73

 
0.80

 
1.46

 
1.54

 
 
 
 
 
 
 
 
Comprehensive income
109

 
172

 
285

 
377

 
 
 
 
 
 
 
 
Cash dividends declared on common stock
37

 
36

 
73

 
71

Cash dividends declared per common share
0.21

 
0.20

 
0.41

 
0.39

See notes to consolidated financial statements.

2

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

 

 

 

 
290

 

 
290

Other comprehensive income, net of tax

 

 

 
87

 

 

 
87

Cash dividends declared on common stock ($0.39 per share)

 

 

 

 
(71
)
 

 
(71
)
Purchase of common stock
(3.0
)
 

 

 

 

 
(141
)
 
(141
)
Net issuance of common stock under employee stock plans
1.6

 

 
(25
)
 

 
(17
)
 
74

 
32

Share-based compensation

 

 
22

 

 

 

 
22

Other

 

 
(1
)
 

 

 
1

 

BALANCE AT JUNE 30, 2014
180.9

 
$
1,141

 
$
2,175

 
$
(304
)
 
$
6,520

 
$
(2,163
)
 
$
7,369

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

See notes to consolidated financial statements.



3

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Comerica Incorporated and Subsidiaries


 
Six Months Ended June 30,
(in millions)
2015
 
2014
OPERATING ACTIVITIES
 
 
 
Net income
$
269

 
$
290

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
61

 
20

Benefit for deferred income taxes
(25
)
 
(13
)
Depreciation and amortization
60

 
61

Net periodic defined benefit cost
23

 
19

Share-based compensation expense
24

 
22

Net amortization of securities
8

 
5

Accretion of loan purchase discount
(4
)
 
(22
)
Net securities losses (gains)
2

 
(1
)
Net gains on sales of foreclosed property
(1
)
 
(2
)
Excess tax benefits from share-based compensation arrangements
(3
)
 
(6
)
Net change in:
 
 
 
Trading securities

 
5

Accrued income receivable
(4
)
 
(1
)
Accrued expenses payable
(83
)
 
(60
)
Other, net
67

 
29

Net cash provided by operating activities
394

 
346

INVESTING ACTIVITIES
 
 
 
Investment securities available-for-sale:
 
 
 
Maturities and redemptions
842

 
825

Sales
37

 

Purchases
(1,055
)
 
(940
)
Investment securities held-to-maturity:
 
 
 
Maturities and redemptions
153

 

Purchases
(166
)
 

Net change in loans
(1,188
)
 
(2,422
)
Proceeds from sales of foreclosed property
5

 
9

Net increase in premises and equipment
(54
)
 
(31
)
Sales of Federal Home Loan Bank stock

 
41

Other, net
2

 
1

Net cash used in investing activities
(1,424
)
 
(2,517
)
FINANCING ACTIVITIES
 
 
 
Net change in:
 
 
 
Deposits
971

 
763

Short-term borrowings
(60
)
 
(77
)
Medium- and long-term debt:
 
 
 
Maturities and redemptions
(306
)
 
(1,256
)
Issuances
497

 
349

Common stock:
 
 
 
Repurchases
(115
)
 
(141
)
Cash dividends paid
(72
)
 
(65
)
Issuances under employee stock plans
18

 
36

Purchase and retirement of warrants
(10
)
 

Excess tax benefits from share-based compensation arrangements
3

 
6

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

 
(386
)
Net decrease in cash and cash equivalents
(106
)
 
(2,557
)
Cash and cash equivalents at beginning of period
6,071

 
6,451

Cash and cash equivalents at end of period
$
5,965

 
$
3,894

Interest paid
$
45

 
$
50

Income tax (refunds received) paid
(11
)
 
110

Noncash investing and financing activities:
 
 
 
Loans transferred to other real estate
4

 
11

Loans transferred from portfolio to held-for-sale
19

 

See notes to consolidated financial statements.

4

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, 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 $44 million and $88 million to both "card fees" in noninterest income and "outside processing fee expense" in noninterest expenses for the three- and six-month periods ended June 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 $6 million at June 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

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 is currently evaluating the impact of adopting ASU 2015-02.
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

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 June 30, 2015 and December 31, 2014.
(in millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
June 30, 2015
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
Deferred compensation plan assets
$
94

 
$
94

 
$

 
$

 
Equity and other non-debt securities
1

 
1

 

 

 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
732

 
732

 

 

 
Residential mortgage-backed securities (a)
7,262

 

 
7,262

 

 
State and municipal securities
23

 

 

 
23

(b)
Corporate debt securities
47

 

 
46

 
1

(b)
Equity and other non-debt securities
203

 
132

 

 
71

(b)
Total investment securities available-for-sale
8,267

 
864

 
7,308

 
95

 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
284

 

 
282

 
2

 
Energy derivative contracts
349

 

 
349

 

 
Foreign exchange contracts
36

 

 
36

 

 
Warrants
3

 

 

 
3

 
Total derivative assets
672

 

 
667

 
5

 
Total assets at fair value
$
9,034

 
$
959

 
$
7,975

 
$
100

 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate contracts
$
90

 
$

 
$
90

 
$

 
Energy derivative contracts
348

 

 
348

 

 
Foreign exchange contracts
31

 

 
31

 

 
Other
1

 

 

 
1

 
Total derivative liabilities
470

 

 
469

 
1

 
Deferred compensation plan liabilities
94

 
94

 

 

 
Total liabilities at fair value
$
564

 
$
94

 
$
469

 
$
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

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 six-month periods ended June 30, 2015 and 2014.

8

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, 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 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
)
(d)

 
 

 
2

Warrants
3

 
1

(d)

 

 
 
(1
)
 
3

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Other
1

 

 

 

 
 

 
1

Three Months Ended June 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

(b)
 
(1
)
 
118

Total investment securities available-for-sale
142

 

 

 
1

(b)
 
(1
)
 
142

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Warrants
3

 
4

(d)

 

 
 
(3
)
 
4

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Other
2

 

 

 

 
 

 
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
)
(c)

 
1

(b)
 
(40
)
 
71

Total investment securities available-for-sale
136

 
(2
)
(c)

 
1

(b)
 
(40
)
 
95

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts

 

 
2

(d)

 
 

 
2

Warrants
4

 
1

(d)
(1
)
(d)

 
 
(1
)
 
3

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Other
1

 

 

 

 
 

 
1

Six Months Ended June 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

 
1

(c)

 
6

(b)
 
(25
)
 
118

Total investment securities available-for-sale
159

 
1

(c)

 
7

(b)
 
(25
)
 
142

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Warrants
3

 
4

(d)
1

(d)

 
 
(4
)
 
4

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Other
2

 

 

 

 
 

 
2

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

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. All assets recorded at fair value on a nonrecurring basis were classified as Level 3 at June 30, 2015 and December 31, 2014 and are presented in the following table. No liabilities were recorded at fair value on a nonrecurring basis at June 30, 2015 and December 31, 2014.
(in millions)
 
Level 3
June 30, 2015
 
 
Loans:
 
 
Commercial
 
$
18

Commercial mortgage
 
12

International
 
8

Total loans
 
38

Nonmarketable equity securities
 
1

Other real estate
 
4

Total assets at fair value
 
$
43

December 31, 2014
 
 
Loans:
 
 
Commercial
 
$
38

Commercial mortgage
 
26

Total loans
 
64

Nonmarketable equity securities
 
2

Other real estate
 
2

Total assets at fair value
 
$
68

Level 3 assets recorded at fair value on a nonrecurring basis at June 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 June 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 June 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)
June 30, 2015
 
 
 
 
 
State and municipal securities (a)
$
23

 
3% - 8%
 
1 - 2
Equity and other non-debt securities (a)
71

 
4% - 8%
 
1
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

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
June 30, 2015
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
1,148

 
$
1,148

 
$
1,148

 
$

 
$

Interest-bearing deposits with banks
4,817

 
4,817

 
4,817

 

 

Investment securities held-to-maturity
1,952

 
1,946

 

 
1,946

 

Loans held-for-sale
25

 
25

 

 
25

 

Total loans, net of allowance for loan losses (a)
49,123

 
49,009

 

 

 
49,009

Customers’ liability on acceptances outstanding
8

 
8

 
8

 

 

Nonmarketable equity securities (b)
11

 
18

 

 

 
18

Restricted equity investments
92

 
92

 
92

 

 

Liabilities
 
 
 
 
 
 
 
 
 
Demand deposits (noninterest-bearing)
28,167

 
28,167

 

 
28,167

 

Interest-bearing deposits
25,726

 
25,726

 

 
25,726

 

Customer certificates of deposit
4,367

 
4,357

 

 
4,357

 

Total deposits
58,260

 
58,250

 

 
58,250

 

Short-term borrowings
56

 
56

 
56

 

 

Acceptances outstanding
8

 
8

 
8

 

 

Medium- and long-term debt
2,841

 
2,835

 

 
2,835

 

Credit-related financial instruments
(95
)
 
(95
)
 

 

 
(95
)
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
5

 
5

 

 
5

 

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

 
47,932

 

 

 
47,932

Customers’ liability on acceptances outstanding
10

 
10

 
10

 

 

Nonmarketable equity securities (b)
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 $38 million and $64 million of impaired loans recorded at fair value on a nonrecurring basis at June 30, 2015 and December 31, 2014, respectively.
(b)
Included $1 million and $2 million of nonmarketable equity securities recorded at fair value on a nonrecurring basis at June 30, 2015 and December 31, 2014, respectively.

11

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, 2015
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
729

 
$
4

 
$
1

 
$
732

Residential mortgage-backed securities (a)
7,200

 
106

 
44

 
7,262

State and municipal securities
24

 

 
1

 
23

Corporate debt securities
47

 

 

 
47

Equity and other non-debt securities
201

 
2

 

 
203

Total investment securities available-for-sale (b)
$
8,201

 
$
112

 
$
46

 
$
8,267

Investment securities held-to-maturity (c):
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
1,952

 
$
2

 
$
8

 
$
1,946

 
 
 
 
 
 
 
 
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 $95 million as of June 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 $19 million at June 30, 2015 and $23 million at December 31, 2014 related to securities transferred to available-for-sale, which are included in accumulated other comprehensive loss.

12

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 June 30, 2015 and December 31, 2014 follows:
 
Temporarily Impaired
 
Less than 12 Months