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EX-32 - SECTION 906 CERTIFICATIONS - COMERICA INC /NEW/cma-2017q110q_ex32.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - COMERICA INC /NEW/cma-2017q110q_ex312.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - COMERICA INC /NEW/cma-2017q110q_ex311.htm
EX-10.1 - FORM OF SELTPP AGREEMENT - COMERICA INC /NEW/cma-2017q110q_ex101.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, 2017
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company o
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
$5 par value common stock:
Outstanding as of April 24, 2017: 176,936,261 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, 2017
 
December 31, 2016
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
1,176

 
$
1,249

 
 
 
 
Interest-bearing deposits with banks
7,143

 
5,969

Other short-term investments
92

 
92

 
 
 
 
Investment securities available-for-sale
10,830

 
10,787

Investment securities held-to-maturity
1,508

 
1,582

 
 
 
 
Commercial loans
30,215

 
30,994

Real estate construction loans
2,930

 
2,869

Commercial mortgage loans
9,021

 
8,931

Lease financing
550

 
572

International loans
1,106

 
1,258

Residential mortgage loans
1,944

 
1,942

Consumer loans
2,537

 
2,522

Total loans
48,303

 
49,088

Less allowance for loan losses
(708
)
 
(730
)
Net loans
47,595

 
48,358

Premises and equipment
488

 
501

Accrued income and other assets
4,144

 
4,440

Total assets
$
72,976

 
$
72,978

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Noninterest-bearing deposits
$
31,892

 
$
31,540

 
 
 
 
Money market and interest-bearing checking deposits
22,177

 
22,556

Savings deposits
2,138

 
2,064

Customer certificates of deposit
2,597

 
2,806

Foreign office time deposits
59

 
19

Total interest-bearing deposits
26,971

 
27,445

Total deposits
58,863

 
58,985

Short-term borrowings
41

 
25

Accrued expenses and other liabilities
989

 
1,012

Medium- and long-term debt
5,153

 
5,160

Total liabilities
65,046

 
65,182

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

 
1,141

Capital surplus
2,106

 
2,135

Accumulated other comprehensive loss
(379
)
 
(383
)
Retained earnings
7,431

 
7,331

Less cost of common stock in treasury - 50,732,795 shares at 3/31/17 and 52,851,156 shares at 12/31/16
(2,369
)
 
(2,428
)
Total shareholders’ equity
7,930

 
7,796

Total liabilities and shareholders’ equity
$
72,976

 
$
72,978

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)
2017
 
2016
INTEREST INCOME
 
 
 
Interest and fees on loans
$
421

 
$
406

Interest on investment securities
62

 
62

Interest on short-term investments
13

 
4

Total interest income
496

 
472

INTEREST EXPENSE
 
 
 
Interest on deposits
9

 
10

Interest on medium- and long-term debt
17

 
15

Total interest expense
26

 
25

Net interest income
470

 
447

Provision for credit losses
16

 
148

Net interest income after provision for credit losses
454

 
299

NONINTEREST INCOME
 
 
 
Card fees
77

 
72

Service charges on deposit accounts
58

 
55

Fiduciary income
49

 
46

Commercial lending fees
20

 
20

Letter of credit fees
12

 
13

Bank-owned life insurance
10

 
9

Foreign exchange income
11

 
10

Brokerage fees
5

 
4

Net securities losses

 
(2
)
Other noninterest income
29

 
17

Total noninterest income
271

 
244

NONINTEREST EXPENSES
 
 
 
Salaries and benefits expense
233

 
248

Outside processing fee expense
87

 
78

Net occupancy expense
38

 
38

Equipment expense
11

 
13

Restructuring charges
11

 

Software expense
29

 
29

FDIC insurance expense
13

 
11

Advertising expense
4

 
4

Litigation-related expense
(2
)
 

Other noninterest expenses
33

 
37

Total noninterest expenses
457

 
458

Income before income taxes
268

 
85

Provision for income taxes
66

 
25

NET INCOME
202

 
60

Less income allocated to participating securities
2

 
1

Net income attributable to common shares
$
200

 
$
59

Earnings per common share:
 
 
 
Basic
$
1.15

 
$
0.34

Diluted
1.11

 
0.34

 
 
 
 
Comprehensive income
206

 
161

 
 
 
 
Cash dividends declared on common stock
42

 
37

Cash dividends declared per common share
0.23

 
0.21

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, 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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2016
175.3

 
$
1,141

 
$
2,135

 
$
(383
)
 
$
7,331

 
$
(2,428
)
 
$
7,796

Cumulative effect of change in accounting principle

 

 
3

 

 
(2
)
 

 
1

Net income

 

 

 

 
202

 

 
202

Other comprehensive income, net of tax

 

 

 
4

 

 

 
4

Cash dividends declared on common stock ($0.23 per share)

 

 

 

 
(42
)
 

 
(42
)
Purchase of common stock
(1.7
)
 

 

 

 

 
(118
)
 
(118
)
Net issuance of common stock under employee stock plans
2.3

 

 
(25
)
 

 
(14
)
 
108

 
69

Net issuance of common stock for warrants
1.5

 

 
(24
)
 

 
(44
)
 
68

 

Share-based compensation

 

 
18

 

 

 

 
18

Other

 

 
(1
)
 

 

 
1

 

BALANCE AT MARCH 31, 2017
177.4

 
$
1,141

 
$
2,106

 
$
(379
)
 
$
7,431

 
$
(2,369
)
 
$
7,930

See notes to consolidated financial statements.



3

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


 
Three Months Ended March 31,
(in millions)
2017
 
2016
OPERATING ACTIVITIES
 
 
 
Net income
$
202

 
$
60

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
16

 
148

Benefit for deferred income taxes
(1
)
 
(39
)
Depreciation and amortization
31

 
30

Net periodic defined benefit (credit) cost
(4
)
 
3

Share-based compensation expense
18

 
20

Net amortization of securities
2

 
2

Accretion of loan purchase discount
(1
)
 
(2
)
Net securities losses

 
2

Net gains on sales of foreclosed property
(1
)
 
(1
)
Net change in:
 
 
 
Accrued income receivable
3

 
(4
)
Accrued expenses payable
5

 
10

Other, net
137

 
19

Net cash provided by operating activities
407

 
248

INVESTING ACTIVITIES
 
 
 
Investment securities available-for-sale:
 
 
 
Maturities and redemptions
393

 
350

Sales
1,259

 

Purchases
(1,699
)
 
(291
)
Investment securities held-to-maturity:
 
 
 
Maturities and redemptions
76

 
75

Net change in loans
752

 
(352
)
Proceeds from sales of foreclosed property
3

 
5

Net increase in premises and equipment
(12
)
 
(27
)
Purchases of Federal Home Loan Bank stock

 
(21
)
Other, net
1

 
3

Net cash provided by (used in) investing activities
773

 
(258
)
FINANCING ACTIVITIES
 
 
 
Net change in:
 
 
 
Deposits
(5
)
 
(3,537
)
Short-term borrowings
16

 
491

Common stock:
 
 
 
Repurchases
(125
)
 
(52
)
Cash dividends paid
(40
)
 
(37
)
Issuances under employee stock plans
76

 
1

Other, net
(1
)
 
(1
)
Net cash used in financing activities
(79
)
 
(3,135
)
Net increase (decrease) in cash and cash equivalents
1,101

 
(3,145
)
Cash and cash equivalents at beginning of period
7,218

 
6,147

Cash and cash equivalents at end of period
$
8,319

 
$
3,002

Interest paid
$
27

 
$
19

Income tax (refunds received) paid
(1
)
 
2

Noncash investing and financing activities:
 
 
 
Loans transferred to other real estate
1

 
17

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, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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, 2016.
Share-Based Compensation
Effective January 1, 2016, the Corporation adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payments Accounting” (ASU 2016-09). ASU 2016-09 provides for the election of an accounting policy as to the timing of when stock award forfeitures are recognized in compensation expense. The Corporation elected to account for forfeitures as they occur, rather than account for compensation cost based on an estimate of the number of awards that are expected to vest. The prior period effect of this policy election as of the beginning of the year was reported as "cumulative effect of change in accounting principle" in the accompanying Consolidated Statements of Changes in Shareholders’ Equity (unaudited). In addition, ASU 2016-09 requires excess tax benefits and deficiencies resulting from employee stock awards to be prospectively recognized as a component of income taxes. Previously, excess tax benefits and deficiencies were recognized in "capital surplus" in the Consolidated Statements of Changes in Shareholders' Equity. Net excess tax benefits for awards that vested, were exercised or expired included in the "provision for income taxes" totaled $24 million for the three months ended March 31, 2017. The equivalent amount included in capital surplus for the three months ended March 31, 2016 was insignificant.
The Corporation also retrospectively adopted certain changes to the statement of cash flows in accordance with ASU 2016-09. Excess tax benefits must be classified as an operating activity and cash paid to a tax authority by the Corporation when withholding shares from an employee’s award for tax-withholding purposes must be classified as a financing activity. Accordingly, the Corporation reclassified $3 million from operating activities to financing activities in the Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2016 pertaining to shares withheld from employee awards for tax withholding purposes. Excess tax benefits were insignificant for the three months ended March 31, 2016.
Recently Issued Accounting Pronouncements
In March 2017, the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-07), which requires employers to report service cost as part of compensation expense and the other components of net benefit cost separately from service cost on the statement of income. ASU 2017-07 is effective for the Corporation on January 1, 2018. Early adoption is permitted. The Corporation does not expect the new guidance to have a material impact on its financial condition or results of operation.
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, 2016 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

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 March 31, 2017 and December 31, 2016.
(in millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
March 31, 2017
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
Deferred compensation plan assets
$
89

 
$
89

 
$

 
$

 
Equity and other non-debt securities
1

 
1

 

 

 
Total trading securities
90

 
90

 

 

 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
2,780

 
2,780

 

 

 
Residential mortgage-backed securities (a)
7,938

 

 
7,938

 

 
State and municipal securities
5

 

 

 
5

(b)
Equity and other non-debt securities
107

 
61

 

 
46

(b)
Total investment securities available-for-sale
10,830

 
2,841

 
7,938

 
51

 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
85

 

 
74

 
11

 
Energy derivative contracts
99

 

 
99

 

 
Foreign exchange contracts
31

 

 
31

 

 
Warrants
2

 

 

 
2

 
Total derivative assets
217

 

 
204

 
13

 
Total assets at fair value
$
11,137

 
$
2,931

 
$
8,142

 
$
64

 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate contracts
$
52

 
$

 
$
52

 
$

 
Energy derivative contracts
98

 

 
98

 

 
Foreign exchange contracts
25

 

 
25

 

 
Total derivative liabilities
175

 

 
175

 

 
Deferred compensation plan liabilities
89

 
89

 

 

 
Total liabilities at fair value
$
264

 
$
89

 
$
175

 
$

 
(a)
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, 2016
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
Deferred compensation plan assets
$
87

 
$
87

 
$

 
$

 
Equity and other non-debt securities
1

 
1

 

 

 
Total trading securities
88

 
88

 

 

 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
2,779

 
2,779

 

 

 
Residential mortgage-backed securities (a)
7,872

 

 
7,872

 

 
State and municipal securities
7

 

 

 
7

(b)
Equity and other non-debt securities
129

 
82

 

 
47

(b)
Total investment securities available-for-sale
10,787

 
2,861

 
7,872

 
54

 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
223

 

 
212

 
11

 
Energy derivative contracts
146

 

 
146

 

 
Foreign exchange contracts
38

 

 
38

 

 
Warrants
3

 

 

 
3

 
Total derivative assets
410

 

 
396

 
14

 
Total assets at fair value
$
11,285

 
$
2,949

 
$
8,268

 
$
68

 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate contracts
$
81

 
$

 
$
81

 
$

 
Energy derivative contracts
144

 

 
144

 

 
Foreign exchange contracts
29

 

 
29

 

 
Total derivative liabilities
254

 

 
254

 

 
Deferred compensation plan liabilities
87

 
87

 

 

 
Total liabilities at fair value
$
341

 
$
87

 
$
254

 
$

 
(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-month periods ended March 31, 2017 and 2016.

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 period ended March 31, 2017 and 2016.
 
 
 
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
 
Redemptions
 
Sales
 
Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities (a)
$
7

 
$

 
$

 
$

 
 
$
(2
)
 
$

 
$
5

Equity and other non-debt securities (a)
47

 

 

 

 
 
(1
)
 

 
46

Total investment securities available-for-sale
54

 

 

 

 
 
(3
)
 

 
51

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
11

 

 

 

 
 

 

 
11

Warrants
3

 
1

(b)
(1
)
(b)

 
 

 
(1
)
 
2

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
)
 
 
(15
)
 

 
51

Total investment securities available-for-sale
77

 

 

 
(1
)
 
 
(15
)
 

 
61

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
9

 

 
11

(b)

 
 

 

 
20

Warrants
2

 

 

 

 
 

 

 
2

(a)
Auction-rate securities.
(b)
Realized and unrealized gains and losses due to changes in fair value recorded in "other noninterest income" on the consolidated statements of comprehensive income.

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, 2017 and December 31, 2016. No liabilities were recorded at fair value on a nonrecurring basis at March 31, 2017 and December 31, 2016.
(in millions)
Level 3
March 31, 2017
 
Loans:
 
Commercial
$
276

Commercial mortgage
14

International
7

Total assets at fair value
$
297

December 31, 2016
 
Loans:
 
Commercial
$
256

Commercial mortgage
15

International
11

Total loans
282

Other real estate
1

Total assets at fair value
$
283

Level 3 assets recorded at fair value on a nonrecurring basis at March 31, 2017 and December 31, 2016 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.

8

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

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 March 31, 2017 and December 31, 2016.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 workout periods reflect management's expectation of the pace at which short-term interest rates could rise at each respective period.
 
 
 
Discounted Cash Flow Model
 
 
 
Unobservable Input
 
Fair Value
(in millions)
 
Discount Rate
 
Workout Period (in years)
March 31, 2017
 
 
 
 
 
State and municipal securities (a)
$
5

 
5% - 7%
 
1 - 2
Equity and other non-debt securities (a)
46

 
7% - 9%
 
1 - 2
December 31, 2016
 
 
 
 
 
State and municipal securities (a)
$
7

 
4% - 6%
 
1 - 2
Equity and other non-debt securities (a)
47

 
7% - 9%
 
1 - 2
(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.

9

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
March 31, 2017
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
1,176

 
$
1,176

 
$
1,176

 
$

 
$

Interest-bearing deposits with banks
7,143

 
7,143

 
7,143

 

 

Investment securities held-to-maturity
1,508

 
1,499

 

 
1,499

 

Loans held-for-sale
2

 
2

 

 
2

 

Total loans, net of allowance for loan losses (a)
47,595

 
47,341

 

 

 
47,341

Customers’ liability on acceptances outstanding
4

 
4

 
4

 

 

Restricted equity investments
207

 
207

 
207

 

 

Nonmarketable equity securities (b)
11

 
18

 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Demand deposits (noninterest-bearing)
31,892

 
31,892

 

 
31,892

 

Interest-bearing deposits
24,374

 
24,374

 

 
24,374

 

Customer certificates of deposit
2,597

 
2,523

 

 
2,523

 

Total deposits
58,863

 
58,789

 

 
58,789

 

Short-term borrowings
41

 
41

 
41

 

 

Acceptances outstanding
4

 
4

 
4

 

 

Medium- and long-term debt
5,153

 
5,149

 

 
5,149

 

Credit-related financial instruments
(74
)
 
(74
)
 

 

 
(74
)
December 31, 2016
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
1,249

 
$
1,249

 
$
1,249

 
$

 
$

Interest-bearing deposits with banks
5,969

 
5,969

 
5,969

 

 

Investment securities held-to-maturity
1,582

 
1,576

 

 
1,576

 

Loans held-for-sale
4

 
4

 

 
4

 

Total loans, net of allowance for loan losses (a)
48,358

 
48,250

 

 

 
48,250

Customers’ liability on acceptances outstanding
5

 
5

 
5

 

 

Restricted equity investments
207

 
207

 
207

 

 

Nonmarketable equity securities (b)
11

 
16

 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Demand deposits (noninterest-bearing)
31,540

 
31,540

 

 
31,540

 

Interest-bearing deposits
24,639

 
24,639

 

 
24,639

 

Customer certificates of deposit
2,806

 
2,731

 

 
2,731

 

Total deposits
58,985

 
58,910

 

 
58,910

 

Short-term borrowings
25

 
25

 
25

 

 

Acceptances outstanding
5

 
5

 
5

 

 

Medium- and long-term debt
5,160

 
5,132

 

 
5,132

 

Credit-related financial instruments
(73
)
 
(73
)
 

 

 
(73
)
(a)
Included $297 million and $282 million of impaired loans recorded at fair value on a nonrecurring basis at March 31, 2017 and December 31, 2016, respectively.
(b)
Certain investments that are measured at fair value using the net asset value have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

10

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, 2017
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
2,772

 
$
9

 
$
1

 
$
2,780

Residential mortgage-backed securities (a)
7,990

 
46

 
98

 
7,938

State and municipal securities
5

 

 

 
5

Equity and other non-debt securities
107

 
1

 
1

 
107

Total investment securities available-for-sale (b)
$
10,874

 
$
56

 
$
100

 
$
10,830

Investment securities held-to-maturity (c):
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
1,508

 
$

 
$
9

 
$
1,499

 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
2,772

 
$
8

 
$
1

 
$
2,779

Residential mortgage-backed securities (a)
7,921

 
48

 
97

 
7,872

State and municipal securities
7

 

 

 
7

Equity and other non-debt securities
129

 
1

 
1

 
129

Total investment securities available-for-sale (b)
$
10,829

 
$
57

 
$
99

 
$
10,787

Investment securities held-to-maturity (c):
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
1,582

 
$
1

 
$
7

 
$
1,576

(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 $52 million and $51 million, respectively as of March 31, 2017 and $55 million and $54 million, respectively, as of December 31, 2016.
(c)
The amortized cost of investment securities held-to-maturity included net unrealized losses of $11 million at March 31, 2017 and $12 million at December 31, 2016 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, 2017 and December 31, 2016 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, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
709

 
$
1

 
 
$

 
$

 
 
$
709

 
$
1

 
Residential mortgage-backed securities (a)
5,116

 
90

 
 
1,123

 
29

 
 
6,239

 
119

 
State and municipal securities (b)

 

 
 
5

 

(c)
 
5

 

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

 

 
 
46

 
1

 
 
46

 
1

 
Total temporarily impaired securities
$
5,825

 
$
91

 
 
$
1,174


$
30

 
 
$
6,999

 
$
121

 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
527

 
$
1

 
 
$

 
$

 
 
$
527

 
$
1

 
Residential mortgage-backed securities (a)
4,992

 
87

 
 
1,177

 
32

 
 
6,169

 
119

 
State and municipal securities (b)

 

 
 
7

 

(c)
 
7

 

(c)
Equity and other non-debt securities (b)
36

 

(c)
 
11

 

(c)
 
47

 

(c)
Total temporarily impaired securities
$
5,555

 
$
88

 
 
$
1,195

 
$
32

 
 
$
6,750

 
$
120

 
(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, 2017, the Corporation had 238 securities in an unrealized loss position with no credit impairment, including 8 U.S. Treasury securities, 189 residential mortgage-backed securities, 28 auction-rate preferred securities and 13 state and

11

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

municipal auction-rate securities. As of March 31, 2017, approximately 96 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, 2017.
Sales, calls and write-downs of investment securities available-for-sale resulted in no securities gains or losses for the three-month period ended March 31, 2017 and no gains and $2 million of losses for the three-month period ended March 31, 2016, recorded in “net securities losses” on the consolidated statements of comprehensive income. Securities losses resulted primarily from charges related to a derivative contract tied to the conversion rate of Visa Class B shares.
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, 2017
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Contractual maturity
 
 
 
 
 
 
 
Within one year
$
30

 
$
30

 
$

 
$

After one year through five years
2,971

 
2,979

 

 

After five years through ten years
1,847

 
1,879

 
22

 
22

After ten years
5,919

 
5,835

 
1,486

 
1,477

Subtotal
10,767

 
10,723

 
1,508

 
1,499

Equity and other non-debt securities
107

 
107

 
 
 
 
Total investment securities
$
10,874

 
$
10,830

 
$
1,508

 
$
1,499

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 $8.0 billion and $7.9 billion, respectively, and residential mortgage-backed securities held-to-maturity with a total amortized cost and fair value of $1.5 billion. The actual cash flows of mortgage-backed securities may differ from contractual maturity as the borrowers of the underlying loans may exercise prepayment options.
At March 31, 2017, investment securities with a carrying value of $1.3 billion were pledged where permitted or required by law to secure $829 million of liabilities, primarily public and other deposits of state and local government agencies and derivative instruments.

12

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, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Business loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
35

 
$
30

 
$
3

 
$
68

 
$
400

 
$
29,747

 
$
30,215

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Real Estate business line (a)
3

 

 

 
3

 

 
2,564

 
2,567

Other business lines (b)

 

 

 

 

 
363

 
363

Total real estate construction
3

 

 

 
3

 

 
2,927

 
2,930

Commercial mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Real Estate business line (a)
19

 

 
11

 
30

 
8

 
1,978

 
2,016

Other business lines (b)
14

 
1

 
8

 
23

 
33

 
6,949

 
7,005

Total commercial mortgage
33

 
1

 
19

 
53

 
41

 
8,927

 
9,021

Lease financing

 

 
3

 
3

 
6

 
541

 
550

International
2

 

 

 
2

 
8

 
1,096

 
1,106

Total business loans
73

 
31

 
25

 
129

 
455

 
43,238

 
43,822

Retail loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
13

 
1

 

 
14

 
39

 
1,891

 
1,944

Consumer:
 
 
 
 
 
 
 
</