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EX-31.2 - SECTION 302 CFO CERTIFICATION - COMERICA INC /NEW/cma-2016q110q_ex312.htm
EX-32 - SECTION 906 CERTIFICATIONS - COMERICA INC /NEW/cma-2016q110q_ex32.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - COMERICA INC /NEW/cma-2016q110q_ex311.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 March 31, 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 April 25, 2016: 175,133,972 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)
March 31, 2016
 
December 31, 2015
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
977

 
$
1,157

 
 
 
 
Interest-bearing deposits with banks
2,025

 
4,990

Other short-term investments
94

 
113

 
 
 
 
Investment securities available-for-sale
10,607

 
10,519

Investment securities held-to-maturity
1,907

 
1,981

 
 
 
 
Commercial loans
31,562

 
31,659

Real estate construction loans
2,290

 
2,001

Commercial mortgage loans
8,982

 
8,977

Lease financing
731

 
724

International loans
1,455

 
1,368

Residential mortgage loans
1,874

 
1,870

Consumer loans
2,483

 
2,485

Total loans
49,377

 
49,084

Less allowance for loan losses
(724
)
 
(634
)
Net loans
48,653

 
48,450

Premises and equipment
541

 
550

Accrued income and other assets
4,203

 
4,117

Total assets
$
69,007

 
$
71,877

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Noninterest-bearing deposits
$
28,025

 
$
30,839

 
 
 
 
Money market and interest-bearing checking deposits
22,872

 
23,532

Savings deposits
2,006

 
1,898

Customer certificates of deposit
3,401

 
3,552

Foreign office time deposits
47

 
32

Total interest-bearing deposits
28,326

 
29,014

Total deposits
56,351

 
59,853

Short-term borrowings
514

 
23

Accrued expenses and other liabilities
1,389

 
1,383

Medium- and long-term debt
3,109

 
3,058

Total liabilities
61,363

 
64,317

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

 
1,141

Capital surplus
2,158

 
2,173

Accumulated other comprehensive loss
(328
)
 
(429
)
Retained earnings
7,097

 
7,084

Less cost of common stock in treasury - 53,086,733 shares at 3/31/16
and 52,457,113 shares at 12/31/15
(2,424
)
 
(2,409
)
Total shareholders’ equity
7,644

 
7,560

Total liabilities and shareholders’ equity
$
69,007

 
$
71,877

See notes to consolidated financial statements.

1

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Comerica Incorporated and Subsidiaries 


 
Three Months Ended March 31,
(in millions, except per share data)
2016
 
2015
INTEREST INCOME
 
 
 
Interest and fees on loans
$
406

 
$
378

Interest on investment securities
62

 
53

Interest on short-term investments
4

 
4

Total interest income
472

 
435

INTEREST EXPENSE
 
 
 
Interest on deposits
10

 
11

Interest on medium- and long-term debt
15

 
11

Total interest expense
25

 
22

Net interest income
447

 
413

Provision for credit losses
148

 
14

Net interest income after provision for credit losses
299

 
399

NONINTEREST INCOME
 
 
 
Card fees
74

 
64

Service charges on deposit accounts
55

 
55

Fiduciary income
46

 
47

Commercial lending fees
20

 
25

Letter of credit fees
13

 
13

Bank-owned life insurance
9

 
9

Foreign exchange income
10

 
10

Brokerage fees
4

 
4

Net securities losses
(2
)
 
(2
)
Other noninterest income
17

 
27

Total noninterest income
246

 
252

NONINTEREST EXPENSES
 
 
 
Salaries and benefits expense
248

 
253

Outside processing fee expense
79

 
74

Net occupancy expense
38

 
38

Equipment expense
13

 
13

Software expense
29

 
23

FDIC insurance expense
11

 
9

Advertising expense
4

 
6

Litigation-related expense

 
1

Other noninterest expenses
38

 
39

Total noninterest expenses
460

 
456

Income before income taxes
85

 
195

Provision for income taxes
25

 
61

NET INCOME
60

 
134

Less income allocated to participating securities
1

 
2

Net income attributable to common shares
$
59

 
$
132

Earnings per common share:
 
 
 
Basic
$
0.34

 
$
0.75

Diluted
0.34

 
0.73

 
 
 
 
Comprehensive income
161

 
176

 
 
 
 
Cash dividends declared on common stock
37

 
36

Cash dividends declared per common share
0.21

 
0.20

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, 2014
179.0

 
$
1,141

 
$
2,188

 
$
(412
)
 
$
6,744

 
$
(2,259
)
 
$
7,402

Net income

 

 

 

 
134

 

 
134

Other comprehensive income, net of tax

 

 

 
42

 

 

 
42

Cash dividends declared on common stock ($0.20 per share)

 

 

 

 
(36
)
 

 
(36
)
Purchase of common stock
(1.5
)
 

 

 

 

 
(66
)
 
(66
)
Net issuance of common stock under employee stock plans
0.6

 

 
(16
)
 

 
(2
)
 
25

 
7

Share-based compensation

 

 
16

 

 

 

 
16

Other

 

 

 

 
1

 

 
1

BALANCE AT MARCH 31, 2015
178.1

 
$
1,141

 
$
2,188

 
$
(370
)
 
$
6,841

 
$
(2,300
)
 
$
7,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2015
175.7

 
$
1,141

 
$
2,173

 
$
(429
)
 
$
7,084

 
$
(2,409
)
 
$
7,560

Net income

 

 

 

 
60

 

 
60

Other comprehensive income, net of tax

 

 

 
101

 

 

 
101

Cash dividends declared on common stock ($0.21 per share)

 

 

 

 
(37
)
 

 
(37
)
Purchase of common stock
(1.4
)
 

 

 

 

 
(49
)
 
(49
)
Net issuance of common stock under employee stock plans
0.8

 

 
(35
)
 

 
(10
)
 
34

 
(11
)
Share-based compensation

 

 
20

 

 

 

 
20

BALANCE AT MARCH 31, 2016
175.1

 
$
1,141

 
$
2,158

 
$
(328
)
 
$
7,097

 
$
(2,424
)
 
$
7,644

See notes to consolidated financial statements.



3

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


 
Three Months Ended March 31,
(in millions)
2016
 
2015
OPERATING ACTIVITIES
 
 
 
Net income
$
60

 
$
134

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
148

 
14

Benefit for deferred income taxes
(39
)
 
(21
)
Depreciation and amortization
30

 
30

Net periodic defined benefit cost
3

 
11

Share-based compensation expense
20

 
16

Net amortization of securities
2

 
4

Accretion of loan purchase discount
(2
)
 
(3
)
Net securities losses
2

 
2

Net gains on sales of foreclosed property
(1
)
 

Excess tax benefits from share-based compensation arrangements

 
(2
)
Net change in:
 
 
 
Accrued income receivable
(4
)
 
(6
)
Accrued expenses payable
10

 
(31
)
Other, net
16

 
190

Net cash provided by operating activities
245

 
338

INVESTING ACTIVITIES
 
 
 
Investment securities available-for-sale:
 
 
 
Maturities and redemptions
336

 
393

Sales
14

 
37

Purchases
(291
)
 
(487
)
Investment securities held-to-maturity:
 
 
 
Maturities and redemptions
75

 
66

Net change in loans
(352
)
 
(487
)
Proceeds from sales of foreclosed property
5

 
2

Net increase in premises and equipment
(27
)
 
(25
)
Purchases of Federal Home Loan Bank stock
(21
)
 

Other, net
3

 

Net cash used in investing activities
(258
)
 
(501
)
FINANCING ACTIVITIES
 
 
 
Net change in:
 
 
 
Deposits
(3,537
)
 
184

Short-term borrowings
491

 
(36
)
Common stock:
 
 
 
Repurchases
(49
)
 
(66
)
Cash dividends paid
(37
)
 
(36
)
Issuances under employee stock plans
1

 
6

Excess tax benefits from share-based compensation arrangements

 
2

Other, net
(1
)
 

Net cash (used in) provided by financing activities
(3,132
)
 
54

Net decrease in cash and cash equivalents
(3,145
)
 
(109
)
Cash and cash equivalents at beginning of period
6,147

 
6,071

Cash and cash equivalents at end of period
$
3,002

 
$
5,962

Interest paid
$
19

 
$
19

Income taxes paid (refunds received)
2

 
(103
)
Noncash investing and financing activities:
 
 
 
Loans transferred to other real estate
17

 
2

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 three months ended March 31, 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.
Pending 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.
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 significant assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis.

5

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 March 31, 2016 and December 31, 2015.
(in millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
March 31, 2016
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
Deferred compensation plan assets
$
83

 
$
83

 
$

 
$

 
Equity and other non-debt securities
3

 
3

 

 

 
Total trading securities
86

 
86

 

 

 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
2,823

 
2,823

 

 

 
Residential mortgage-backed securities (a)
7,591

 

 
7,591

 

 
State and municipal securities
9

 

 

 
9

(b)
Corporate debt securities
1

 

 

 
1

(b)
Equity and other non-debt securities
183

 
132

 

 
51

(b)
Total investment securities available-for-sale
10,607

 
2,955

 
7,591

 
61

 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
407

 

 
387

 
20

 
Energy derivative contracts
393

 

 
393

 

 
Foreign exchange contracts
53

 

 
53

 

 
Warrants
2

 

 

 
2

 
Total derivative assets
855

 

 
833

 
22

 
Total assets at fair value
$
11,548

 
$
3,041

 
$
8,424

 
$
83

 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate contracts
$
169

 
$

 
$
169

 
$

 
Energy derivative contracts
391

 

 
391

 

 
Foreign exchange contracts
48

 

 
48

 

 
Total derivative liabilities
608

 

 
608

 

 
Deferred compensation plan liabilities
83

 
83

 

 

 
Total liabilities at fair value
$
691

 
$
83

 
$
608

 
$

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

6

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)
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-month periods ended March 31, 2016 and 2015.

7

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-month periods ended March 31, 2016 and 2015.
 
 
 
Net Realized/Unrealized Gains (Losses) (Pretax)
 
 
 
 
 
 
 
 
 
 
 
 
Balance 
at
Beginning
of Period
 
Recorded in Earnings
Recorded in
Other
Comprehensive
Income (Loss)
 
 
 
Balance 
at
End of 
Period
 
 
 
 
 
 
 
 
 
(in millions)
 
Realized
Unrealized
 
Sales
 
Three Months Ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities (a)
$
9

 
$

 
$

 
$

 
 
$

 
$
9

Corporate debt securities (a)
1

 

 

 

 
 

 
1

Equity and other non-debt securities (a)
67

 

 

 
(1
)
(b)
 
(15
)
 
51

Total investment securities available-for-sale
77

 

 

 
(1
)
(b)
 
(15
)
 
61

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
9

 

 
11

(c)

 
 

 
20

Warrants
2

 

 

 

 
 

 
2

Three Months Ended March 31, 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

 

 
11

(c)

 
 

 
11

Warrants
4

 

 
(1
)
(c)

 
 

 
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

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 March 31, 2016 and December 31, 2015. No liabilities were recorded at fair value on a nonrecurring basis at March 31, 2016 and December 31, 2015.
(in millions)
Total
 
Level 2
 
Level 3
March 31, 2016
 
 
 
 
 
Loans held-for-sale:
 
 
 
 
 
Commercial
$
7

 
$
7

 
$

Loans:
 
 
 
 
 
Commercial
346

 

 
346

Commercial mortgage
11

 

 
11

International
27

 

 
27

Total loans
384

 

 
384

Other real estate
1

 

 
1

Total assets at fair value
$
392

 
$
7

 
$
385

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 March 31, 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

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 March 31, 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)
March 31, 2016
 
 
 
 
 
State and municipal securities (a)
$
9

 
5% - 6%
 
1 - 3
Equity and other non-debt securities (a)
51

 
6% - 9%
 
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.



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
March 31, 2016
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
977

 
$
977

 
$
977

 
$

 
$

Interest-bearing deposits with banks
2,025

 
2,025

 
2,025

 

 

Investment securities held-to-maturity
1,907

 
1,927

 

 
1,927

 

Loans held-for-sale (a)
8

 
8

 

 
8

 

Total loans, net of allowance for loan losses (b)
48,653

 
48,588

 

 

 
48,588

Customers’ liability on acceptances outstanding
4

 
4

 
4

 

 

Restricted equity investments
113

 
113

 
113

 

 

Nonmarketable equity securities (c) (d)
10

 
18

 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Demand deposits (noninterest-bearing)
28,025

 
28,025

 

 
28,025

 

Interest-bearing deposits
24,925

 
24,925

 

 
24,925

 

Customer certificates of deposit
3,401

 
3,390

 

 
3,390

 

Total deposits
56,351

 
56,340

 

 
56,340

 

Short-term borrowings
514

 
514

 
514

 

 

Acceptances outstanding
4

 
4

 
4

 

 

Medium- and long-term debt
3,109

 
3,029

 

 
3,029

 

Credit-related financial instruments
(83
)
 
(83
)
 

 

 
(83
)
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 $7 million and $8 million impaired loans held-for-sale recorded at fair value on a nonrecurring basis at March 31, 2016 and December 31, 2015, respectively.
(b)
Included $384 million and $153 million of impaired loans recorded at fair value on a nonrecurring basis at March 31, 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

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
March 31, 2016
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
2,769

 
$
54

 
$

 
$
2,823

Residential mortgage-backed securities (a)
7,468

 
135

 
12

 
7,591

State and municipal securities
9

 

 

 
9

Corporate debt securities
1

 

 

 
1

Equity and other non-debt securities
183

 
1

 
1

 
183

Total investment securities available-for-sale (b)
$
10,430

 
$
190

 
$
13

 
$
10,607

Investment securities held-to-maturity (c):
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
1,907

 
$
20

 
$

 
$
1,927

 
 
 
 
 
 
 
 
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 $61 million and $60 million, respectively as of March 31, 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 March 31, 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 March 31, 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
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
137

 
$

 
 
$
1,989

 
$
25

 
 
$
2,126

 
$
25

 
State and municipal securities (b)

 

 
 
9

 

(c)
 
9

 

(c)
Corporate debt securities (b)

 

 
 
1

 

(c)
 
1

 

(c)
Equity and other non-debt securities (b)
51

 
1

 
 

 

 
 
51

 
1

 
Total temporarily impaired securities
$
188

 
$
1

 
 
$
1,999


$
25

 
 
$
2,187

 
$
26

 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
2,265

 
$
7

 
 
$

 
$

 
 
$
2,265

 
$
7

 
Residential mortgage-backed securities (a)
2,665

 
21

 
 
1,976

 
51

 
 
4,641

 
72

 
State and municipal securities (b)

 

 
 
9

 

(c)
 
9

 

(c)
Corporate debt securities (b)

 

 
 
1

 

(c)
 
1

 

(c)
Equity and other non-debt securities (b)
14

 

(c)
 

 

 
 
14

 

(c)
Total temporarily impaired securities
$
4,944

 
$
28

 
 
$
1,986

 
$
51

 
 
$
6,930

 
$
79

 
(a)
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Primarily auction-rate securities.
(c)
Unrealized losses less than $0.5 million.
At March 31, 2016, the Corporation had 109 securities in an unrealized loss position with no credit impairment, including 63 residential mortgage-backed securities, 16 state and municipal auction-rate securities, one corporate auction-rate debt security

12

Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries

and 29 equity and other non-debt auction-rate preferred securities. As of March 31, 2016, approximately 95 percent of the aggregate par value of auction-rate securities have been redeemed or sold since acquisition, of which approximately 90 percent were redeemed at or above cost. The unrealized losses for these securities resulted from changes in market interest rates and liquidity. The Corporation ultimately expects full collection of the carrying amount of these securities, does not intend to sell the securities in an unrealized loss position, and it is not more-likely-than-not that the Corporation will be required to sell the securities in an unrealized loss position prior to recovery of amortized cost. The Corporation does not consider these securities to be other-than-temporarily impaired at March 31, 2016.
Sales, calls and write-downs of investment securities available-for-sale resulted in no securities gains and $2 million of securities losses in each of the three-month periods ended March 31, 2016, and 2015, recorded in “net securities losses” on the consolidated statements of comprehensive income, computed based on the adjusted cost of the specific security.
The following table summarizes the amortized cost and fair values of debt securities by contractual maturity. Securities with multiple maturity dates are classified in the period of final maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(in millions)
Available-for-sale
 
Held-to-maturity
March 31, 2016
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Contractual maturity
 
 
 
 
 
 
 
Within one year
$
10

 
$
10

 
$

 
$

After one year through five years
3,002

 
3,058

 

 

After five years through ten years
1,438

 
1,490

 

 

After ten years
5,797

 
5,866

 
1,907

 
1,927

Subtotal
10,247

 
10,424

 
1,907

 
1,927

Equity and other non-debt securities
183

 
183

 

 

Total investment securities
$
10,430

 
$
10,607

 
$
1,907

 
$
1,927

Included in the contractual maturity distribution in the table above were residential mortgage-backed securities available-for-sale with total amortized cost and fair value of $7.5 billion and $7.6 billion, respectively, and residential mortgage-backed securities held-to-maturity with a total amortized cost and fair value of $1.9 billion. The actual cash flows of mortgage-backed securities may differ from contractual maturity as the borrowers of the underlying loans may exercise prepayment options.
At March 31, 2016, investment securities with a carrying value of $1.8 billion were pledged where permitted or required by law to secure $1.2 billion of liabilities, primarily public and other deposits of state and local government agencies and derivative instruments.

13

Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries

NOTE 4 – CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES
The following table presents an aging analysis of the recorded balance of loans.
 
Loans Past Due and Still Accruing
 
 
 
 
 
 
(in millions)
30-59
Days
 
60-89 
Days
 
90 Days
or More
 
Total
 
Nonaccrual
Loans
 
Current
Loans
 
Total 
Loans
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Business loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
44

 
$
19

 
$
2

 
$
65

 
$
547

 
$
30,950

 
$
31,562

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Real Estate business line (a)

 

 

 

 

 
1,947

 
1,947

Other business lines (b)

 
3

 

 
3

 

 
340

 
343

Total real estate construction

 
3

 

 
3

 

 
2,287

 
2,290

Commercial mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Real Estate business line (a)
18

 
13