COMERICA INC /NEW/ - Quarter Report: 2015 March (Form 10-Q)

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, 2015



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 24, 2015: 178,009,377 shares

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COMERICA INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Balance Sheets at March 31, 2015 (unaudited) and December 31, 2014	1

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)	2

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2015 and 2014 (unaudited)	3

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (unaudited)	4

Notes to Consolidated Financial Statements (unaudited)	5

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	58

ITEM 4. Controls and Procedures	58

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings	58

ITEM 1A. Risk Factors	58

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	58

ITEM 6. Exhibits	59

Signature	60

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

Comerica Incorporated and Subsidiaries



(in millions, except share data)	March 31, 2015			December 31, 2014
	(unaudited)
ASSETS
Cash and due from banks	$	1,170		$	1,026

Interest-bearing deposits with banks	4,792			5,045
Other short-term investments	101			99

Investment securities available-for-sale	8,214			8,116
Investment securities held-to-maturity	1,871			1,935

Commercial loans	32,091			31,520
Real estate construction loans	1,917			1,955
Commercial mortgage loans	8,558			8,604
Lease financing	792			805
International loans	1,433			1,496
Residential mortgage loans	1,859			1,831
Consumer loans	2,422			2,382
Total loans	49,072			48,593
Less allowance for loan losses	(601		)	(594		)
Net loans	48,471			47,999
Premises and equipment	531			532
Accrued income and other assets	4,186			4,438
Total assets	$	69,336		$	69,190

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	27,394		$	27,224

Money market and interest-bearing checking deposits	23,727			23,954
Savings deposits	1,817			1,752
Customer certificates of deposit	4,497			4,421
Foreign office time deposits	135			135
Total interest-bearing deposits	30,176			30,262
Total deposits	57,570			57,486
Short-term borrowings	80			116
Accrued expenses and other liabilities	1,500			1,507
Medium- and long-term debt	2,686			2,679
Total liabilities	61,836			61,788

Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued - 228,164,824 shares	1,141			1,141
Capital surplus	2,188			2,188
Accumulated other comprehensive loss	(370		)	(412		)
Retained earnings	6,841			6,744
Less cost of common stock in treasury - 50,114,399 shares at 3/31/15 and 49,146,225 shares at 12/31/14	(2,300		)	(2,259		)
Total shareholders’ equity	7,500			7,402
Total liabilities and shareholders’ equity	$	69,336		$	69,190

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Comerica Incorporated and Subsidiaries



	Three Months Ended March 31,
(in millions, except per share data)	2015			2014
INTEREST INCOME
Interest and fees on loans	$	379		$	376
Interest on investment securities	53			55
Interest on short-term investments	3			4
Total interest income	435			435
INTEREST EXPENSE
Interest on deposits	11			11
Interest on medium- and long-term debt	11			14
Total interest expense	22			25
Net interest income	413			410
Provision for credit losses	14			9
Net interest income after provision for credit losses	399			401
NONINTEREST INCOME
Service charges on deposit accounts	55			54
Fiduciary income	48			44
Commercial lending fees	25			20
Card fees	68			20
Letter of credit fees	13			14
Bank-owned life insurance	9			9
Foreign exchange income	10			9
Brokerage fees	4			5
Net securities (losses) gains	(2		)	1
Other noninterest income	26			32
Total noninterest income	256			208
NONINTEREST EXPENSES
Salaries and benefits expense	253			247
Net occupancy expense	38			40
Equipment expense	13			14
Outside processing fee expense	78			28
Software expense	23			22
Litigation-related expense	1			3
FDIC insurance expense	9			8
Advertising expense	6			6
Other noninterest expenses	39			38
Total noninterest expenses	460			406
Income before income taxes	195			203
Provision for income taxes	61			64
NET INCOME	134			139
Less income allocated to participating securities	2			2
Net income attributable to common shares	$	132		$	137
Earnings per common share:
Basic	$	0.75		$	0.76
Diluted	0.73			0.73

Comprehensive income	176			205

Cash dividends declared on common stock	36			35
Cash dividends declared per common share	0.20			0.19

See notes to consolidated financial statements.

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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			Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Total Shareholders’ Equity
BALANCE AT DECEMBER 31, 2013	182.3		$	1,141	$	2,179		$	(391	)	$	6,318		$	(2,097	)	$	7,150
Net income	—		—		—			—			139			—			139
Other comprehensive income, net of tax	—		—		—			66			—			—			66
Cash dividends declared on common stock ($0.19 per share)	—		—		—			—			(35		)	—			(35		)
Purchase of common stock	(1.7	)	—		—			—			—			(80		)	(80		)
Net issuance of common stock under employee stock plans	1.1		—		(11		)	—			(8		)	48			29
Share-based compensation	—		—		14			—			—			—			14
BALANCE AT MARCH 31, 2014	181.7		$	1,141	$	2,182		$	(325	)	$	6,414		$	(2,129	)	$	7,283

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

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Comerica Incorporated and Subsidiaries



	Three Months Ended March 31,
(in millions)	2015			2014
OPERATING ACTIVITIES
Net income	$	134		$	139
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	14			9
Benefit for deferred income taxes	(21		)	(5		)
Depreciation and amortization	30			29
Net periodic defined benefit cost	11			9
Share-based compensation expense	16			14
Net amortization of securities	4			2
Accretion of loan purchase discount	(3		)	(12		)
Net securities losses (gains)	2			(1		)
Net gains on sales of foreclosed property	—			(1		)
Excess tax benefits from share-based compensation arrangements	(2		)	(5		)
Net change in:
Trading securities	—			5
Accrued income receivable	(6		)	—
Accrued expenses payable	(31		)	(61		)
Other, net	190			92
Net cash provided by operating activities	338			214
INVESTING ACTIVITIES
Investment securities available-for-sale:
Maturities and redemptions	393			411
Sales	37			—
Purchases	(487		)	(499		)
Investment securities held-to-maturity:
Maturities and redemptions	66			—
Net change in loans	(487		)	(1,026		)
Proceeds from sales of foreclosed property	2			3
Net increase in premises and equipment	(25		)	(16		)
Other, net	—			(1		)
Net cash used in investing activities	(501		)	(1,128		)
FINANCING ACTIVITIES
Net change in:
Deposits	184			255
Short-term borrowings	(36		)	(93		)
Common stock:
Repurchases	(66		)	(80		)
Cash dividends paid	(36		)	(31		)
Issuances under employee stock plans	6			26
Excess tax benefits from share-based compensation arrangements	2			5
Other, net	—			1
Net cash provided by financing activities	54			83
Net decrease in cash and cash equivalents	(109		)	(831		)
Cash and cash equivalents at beginning of period	6,071			6,451
Cash and cash equivalents at end of period	$	5,962		$	5,620
Interest paid	$	19		$	25
Income tax refunds received	(103		)	—
Noncash investing and financing activities:
Loans transferred to other real estate	2			7

See notes to consolidated financial statements.

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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, 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. The effect of this change in presentation was an increase of $44 million to both "card fees" in noninterest income and "outside processing fee expense" in noninterest expenses for the three months ended March 31, 2015.

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.

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. In April 2015, the FASB voted to make the guidance under ASU 2014-09 effective for annual and interim periods beginning after December 15, 2017. The guidance must be retrospectively applied. Entities will have the option of presenting prior periods as impacted by the new guidance or presenting the cumulative effect of initial application along with supplementary disclosures. Early adoption is prohibited. 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

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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 2015-03, "ASU 2015-03: Interest - Imputation of Interest (Subtopic 835-30)," (ASU 2015-03), 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 as presented under current guidance. ASU 2015-03 is effective for annual and interim periods beginning after December 15, 2015, and must be retrospectively applied. Early adoption is permitted. The Corporation does not expect the adoption of this amendment to have a material effect on its financial condition and results of operations.

In April 2015, the FASB issued ASU 2015-05, "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 fees. 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.

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.

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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, 2015 and December 31, 2014.



(in millions)	Total		Level 1		Level 2		Level 3
March 31, 2015
Trading securities:
Deferred compensation plan assets	$	95	$	95	$	—	$	—
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	534		534		—		—
Residential mortgage-backed securities (a)	7,407		—		7,407		—
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	8,214		666		7,453		95
Derivative assets:
Interest rate contracts	359		—		348		11
Energy derivative contracts	513		—		513		—
Foreign exchange contracts	50		—		50		—
Warrants	3		—		—		3
Total derivative assets	925		—		911		14
Total assets at fair value	$	9,234	$	761	$	8,364	$	109
Derivative liabilities:
Interest rate contracts	$	130	$	—	$	130	$	—
Energy derivative contracts	510		—		510		—
Foreign exchange contracts	39		—		39		—
Other	1		—		—		1
Total derivative liabilities	680		—		679		1
Deferred compensation plan liabilities	95		95		—		—
Total liabilities at fair value	$	775	$	95	$	679	$	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.

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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-month periods ended March 31, 2015 and 2014.

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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, 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 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		)	(c)	—				1		(b)	(40		)	71
Total investment securities available-for-sale	136		(2		)	(c)	—				1		(b)	(40		)	95
Derivative assets:
Interest rate contracts	—		—				11			(d)	—			—			11
Warrants	4		—				(1		)	(d)	—			—			3
Derivative liabilities:
Other	1		—				—				—			—			1
Three Months Ended March 31, 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)	—				5		(b)	(24		)	118
Total investment securities available-for-sale	159		1			(c)	—				6		(b)	(24		)	142
Derivative assets:
Warrants	3		—				1			(d)	—			(1		)	3
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.

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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 March 31, 2015 and December 31, 2014 and are presented in the following table. No liabilities were recorded at fair value on a nonrecurring basis at March 31, 2015 and December 31, 2014.



(in millions)	Level 3
March 31, 2015
Loans:
Commercial	$	40
Commercial mortgage	20
Total loans	60
Nonmarketable equity securities	2
Other real estate	4
Total assets at fair value	$	66
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 March 31, 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 March 31, 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 March 31, 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)
March 31, 2015
State and municipal securities (a)	$	23	3% - 9%	1 - 3
Equity and other non-debt securities (a)	71		4% - 8%	1 - 2
December 31, 2014
State and municipal securities (a)	$	23	3% - 9%	1 - 3
Equity and other non-debt securities (a)	112		4% - 8%	1 - 2


(a)	Auction-rate securities.

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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, 2015
Assets
Cash and due from banks	$	1,170		$	1,170		$	1,170	$	—	$	—
Interest-bearing deposits with banks	4,792			4,792			4,792		—		—
Investment securities held-to-maturity	1,871			1,886			—		1,886		—
Loans held-for-sale	6			6			—		6		—
Total loans, net of allowance for loan losses (a)	48,471			48,427			—		—		48,427
Customers’ liability on acceptances outstanding	10			10			10		—		—
Nonmarketable equity securities (b)	11			19			—		—		19
Restricted equity investments	92			92			92		—		—
Liabilities
Demand deposits (noninterest-bearing)	27,394			27,394			—		27,394		—
Interest-bearing deposits	25,679			25,679			—		25,679		—
Customer certificates of deposit	4,497			4,489			—		4,489		—
Total deposits	57,570			57,562			—		57,562		—
Short-term borrowings	80			80			80		—		—
Acceptances outstanding	10			10			10		—		—
Medium- and long-term debt	2,686			2,677			—		2,677		—
Credit-related financial instruments	(83		)	(83		)	—		—		(83		)
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	2,679			2,681			—		2,681		—
Credit-related financial instruments	(85		)	(85		)	—		—		(85		)


(a)	Included $60 million and $64 million of impaired loans recorded at fair value on a nonrecurring basis at March 31, 2015 and December 31, 2014, respectively.


(b)	Included $2 million of nonmarketable equity securities recorded at fair value on a nonrecurring basis at both March 31, 2015 and December 31, 2014.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 3 - INVESTMENT SECURITIES

A summary of the Corporation’s investment securities follows:



(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2015
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	$	526	$	8	$	—	$	534
Residential mortgage-backed securities (a)	7,287		143		23		7,407
State and municipal securities	24		—		1		23
Corporate debt securities	47		—		—		47
Equity and other non-debt securities	202		1		—		203
Total investment securities available-for-sale (b)	$	8,086	$	152	$	24	$	8,214
Investment securities held-to-maturity (c):
Residential mortgage-backed securities (a)	$	1,871	$	15	$	—	$	1,886

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 March 31, 2015 and $137 million and $136 million, respectively, as of December 31, 2014.

(c)

Investment securities transferred from available-for-sale are reclassified at fair value at the time of transfer. The amortized cost of investment securities held-to-maturity included gross unrealized gains and gross unrealized losses of $8 million and $29 million, respectively, at March 31, 2015 and $9 million and $32 million, respectively, at December 31, 2014, related to securities transferred, which are included in accumulated other comprehensive loss.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

A summary of the Corporation’s investment securities in an unrealized loss position as of March 31, 2015 and December 31, 2014 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, 2015
U.S. Treasury and other U.S. government agency securities	$	10	$	—	(a)	$	—	$	—		$	10	$	—	(a)
Residential mortgage-backed securities (b)	625		3			2,270		40			2,895		43
State and municipal securities (c)	—		—			23		1			23		1
Corporate debt securities (c)	—		—			1		—		(a)	1		—		(a)
Equity and other non-debt securities (c)	—		—			14		—		(a)	14		—		(a)
Total temporarily impaired securities	$	635	$	3		$	2,308	$	41		$	2,943	$	44
December 31, 2014
U.S. Treasury and other U.S. government agency securities	$	298	$	—	(a)	$	—	$	—		$	298	$	—	(a)
Residential mortgage-backed securities (b)	626		3			3,112		71			3,738		74
State and municipal securities (c)	—		—			22		1			22		1
Corporate debt securities (c)	—		—			1		—		(a)	1		—		(a)
Equity and other non-debt securities (c)	—		—			112		1			112		1
Total temporarily impaired securities	$	924	$	3		$	3,247	$	73		$	4,171	$	76


(a)	Unrealized losses less than $0.5 million.


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


(c)	Auction-rate securities.

At March 31, 2015, the Corporation had 96 securities in an unrealized loss position with no credit impairment, including 65 residential mortgage-backed securities, 12 equity and other non-debt auction-rate preferred securities, 17 state and municipal auction-rate securities, one corporate auction-rate debt security and one U.S. Treasury security. As of March 31, 2015, approximately 93 percent of the aggregate par value of auction-rate securities have been redeemed or sold since acquisition, of which approximately 92 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, 2015.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Sales, calls and write-downs of investment securities available-for-sale resulted in the following gains and losses recorded in “net securities (losses) gains” on the consolidated statements of comprehensive income, computed based on the adjusted cost of the specific security.



	Three Months Ended March 31,
(in millions)	2015			2014
Securities gains	$	—		$	1
Securities losses	(2		)	—
Net securities (losses) gains	$	(2	)	$	1

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, 2015	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Contractual maturity
Within one year	$	70	$	71	$	—	$	—
After one year through five years	689		697		—		—
After five years through ten years	922		968		—		—
After ten years	6,203		6,275		1,871		1,886
Subtotal	7,884		8,011		1,871		1,886
Equity and other non-debt securities	202		203
Total investment securities	$	8,086	$	8,214	$	1,871	$	1,886

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 $7.3 billion and $7.4 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, 2015, investment securities with a carrying value of $3.1 billion were pledged where permitted or required by law to secure $2.2 billion of liabilities, primarily public and other deposits of state and local government agencies and derivative instruments.

Table of Contents

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, 2015
Business loans:
Commercial	$	53	$	14	$	7	$	74	$	113	$	31,904	$	32,091
Real estate construction:
Commercial Real Estate business line (a)	2		—		—		2		—		1,573		1,575
Other business lines (b)	8		—		—		8		1		333		342
Total real estate construction	10		—		—		10		1		1,906		1,917
Commercial mortgage:
Commercial Real Estate business line (a)	19		3		2		24		20		1,763		1,807
Other business lines (b)	14		5		2		21		62		6,668		6,751
Total commercial mortgage	33		8		4		45		82		8,431		8,558
Lease financing	—		—		—		—		—		792		792
International	4		3		—		7		1		1,425		1,433
Total business loans	100		25		11		136		197		44,458		44,791
Retail loans:
Residential mortgage	9		1		—		10		37		1,812		1,859
Consumer:
Home equity	6		2		1		9		31		1,638		1,678
Other consumer	2		—		—		2		1		741		744
Total consumer	8		2		1		11		32		2,379		2,422
Total retail loans	17		3		1		21		69		4,191		4,281
Total loans	$	117	$	28	$	12	$	157	$	266	$	48,649	$	49,072
December 31, 2014
Business loans:
Commercial	$	58	$	13	$	1	$	72	$	109	$	31,339	$	31,520
Real estate construction:
Commercial Real Estate business line (a)	3		—		—		3		1		1,602		1,606
Other business lines (b)	12		—		—		12		1		336		349
Total real estate construction	15		—		—		15		2		1,938		1,955
Commercial mortgage:
Commercial Real Estate business line (a)	8		1		1		10		22		1,758		1,790
Other business lines (b)	16		12		2		30		73		6,711		6,814
Total commercial mortgage	24		13		3		40		95		8,469		8,604
Lease financing	—		—		—		—		—		805		805
International	9		—		—		9		—		1,487		1,496
Total business loans	106		26		4		136		206		44,038		44,380
Retail loans:
Residential mortgage	9		2		—		11		36		1,784		1,831
Consumer:
Home equity	5		3		—		8		30		1,620		1,658
Other consumer	12		—		1		13		1		710		724
Total consumer	17		3		1		21		31		2,330		2,382
Total retail loans	26		5		1		32		67		4,114		4,213
Total loans	$	132	$	31	$	5	$	168	$	273	$	48,152	$	48,593


(a)	Primarily loans to real estate developers.


(b)	Primarily loans secured by owner-occupied real estate.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table presents loans by credit quality indicator, based on internal risk ratings assigned to each business loan at the time of approval and subjected to subsequent reviews, generally at least annually, and to pools of retail loans with similar risk characteristics.



	Internally Assigned Rating
(in millions)	Pass (a)		Special Mention (b)		Substandard (c)		Nonaccrual (d)		Total
March 31, 2015
Business loans:
Commercial	$	30,739	$	572	$	667	$	113	$	32,091
Real estate construction:
Commercial Real Estate business line (e)	1,563		12		—		—		1,575
Other business lines (f)	333		—		8		1		342
Total real estate construction	1,896		12		8		1		1,917
Commercial mortgage:
Commercial Real Estate business line (e)	1,685		62		40		20		1,807
Other business lines (f)	6,348		177		164		62		6,751
Total commercial mortgage	8,033		239		204		82		8,558
Lease financing	766		17		9		—		792
International	1,394		17		21		1		1,433
Total business loans	42,828		857		909		197		44,791
Retail loans:
Residential mortgage	1,809		—		13		37		1,859
Consumer:
Home equity	1,639		—		8		31		1,678
Other consumer	729		2		12		1		744
Total consumer	2,368		2		20		32		2,422
Total retail loans	4,177		2		33		69		4,281
Total loans	$	47,005	$	859	$	942	$	266	$	49,072
December 31, 2014
Business loans:
Commercial	$	30,310	$	560	$	541	$	109	$	31,520
Real estate construction:
Commercial Real Estate business line (e)	1,594		11		—		1		1,606
Other business lines (f)	336		7		5		1		349
Total real estate construction	1,930		18		5		2		1,955
Commercial mortgage:
Commercial Real Estate business line (e)	1,652		69		47		22		1,790
Other business lines (f)	6,434		138		169		73		6,814
Total commercial mortgage	8,086		207		216		95		8,604
Lease financing	778		26		1		—		805
International	1,468		15		13		—		1,496
Total business loans	42,572		826		776		206		44,380
Retail loans:
Residential mortgage	1,790		2		3		36		1,831
Consumer:
Home equity	1,620		—		8		30		1,658
Other consumer	718		3		2		1		724
Total consumer	2,338		3		10		31		2,382
Total retail loans	4,128		5		13		67		4,213
Total loans	$	46,700	$	831	$	789	$	273	$	48,593


(a)	Includes all loans not included in the categories of special mention, substandard or nonaccrual.


(b)	Special mention loans are accruing loans that have potential credit weaknesses that deserve management’s close attention, such as loans to borrowers who may be experiencing financial difficulties that may result in deterioration of repayment prospects from the borrower at some future date.

(c)

Substandard loans are accruing loans that have a well-defined weakness, or weaknesses, such as loans to borrowers who may be experiencing losses from operations or inadequate liquidity of a degree and duration that jeopardizes the orderly repayment of the loan. Substandard loans also are distinguished by the distinct possibility of loss in the future if these weaknesses are not corrected. This category is generally consistent with the "substandard" category as defined by regulatory authorities.

(d)

Nonaccrual loans are loans for which the accrual of interest has been discontinued. For further information regarding nonaccrual loans, refer to the Nonperforming Assets subheading in Note 1 - Basis of Presentation and Accounting Policies - on page F-55 in the Corporation's 2014 Annual Report. A significant majority of nonaccrual loans are generally consistent with the "substandard" category and the remainder are generally consistent with the "doubtful" category as defined by regulatory authorities.


(e)	Primarily loans to real estate developers.


(f)	Primarily loans secured by owner-occupied real estate.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table summarizes nonperforming assets.



(in millions)	March 31, 2015		December 31, 2014
Nonaccrual loans	$	266	$	273
Reduced-rate loans (a)	13		17
Total nonperforming loans	279		290
Foreclosed property (b)	9		10
Total nonperforming assets	$	288	$	300


(a)	Reduced-rate business loans were zero at both March 31, 2015 and December 31, 2014, and reduced-rate retail loans were $13 million and $17 million at March 31, 2015 and December 31, 2014, respectively.


(b)	Foreclosed residential real estate properties.

Nonaccrual loans included retail loans secured by residential real estate properties in process of foreclosure of $3 million at March 31, 2015.

Allowance for Credit Losses

The following table details the changes in the allowance for loan losses and related loan amounts.



	2015									2014
(in millions)	Business Loans			Retail Loans			Total			Business Loans			Retail Loans			Total
Three Months Ended March 31
Allowance for loan losses:
Balance at beginning of period	$	534		$	60		$	594		$	531		$	67		$	598
Loan charge-offs	(21		)	(2		)	(23		)	(27		)	(3		)	(30		)
Recoveries on loans previously charged-off	12			3			15			16			2			18
Net loan charge-offs	(9		)	1			(8		)	(11		)	(1		)	(12		)
Provision for loan losses	17			(1		)	16			10			(2		)	8
Foreign currency translation adjustment	(1		)	—			(1		)	—			—			—
Balance at end of period	$	541		$	60		$	601		$	530		$	64		$	594

As a percentage of total loans	1.21		%	1.39		%	1.22		%	1.25		%	1.62		%	1.28		%

March 31
Allowance for loan losses:
Individually evaluated for impairment	$	31		$	—		$	31		$	39		$	—		$	39
Collectively evaluated for impairment	510			60			570			491			64			555
Total allowance for loan losses	$	541		$	60		$	601		$	530		$	64		$	594
Loans:
Individually evaluated for impairment	$	169		$	37		$	206		$	204		$	49		$	253
Collectively evaluated for impairment	44,622			4,242			48,864			42,315			3,916			46,231
Purchased credit impaired (PCI) loans	—			2			2			2			3			5
Total loans evaluated for impairment	$	44,791		$	4,281		$	49,072		$	42,521		$	3,968		$	46,489

Changes in the allowance for credit losses on lending-related commitments, included in "accrued expenses and other liabilities" on the consolidated balance sheets, are summarized in the following table.



	Three Months Ended March 31,
(in millions)	2015			2014
Balance at beginning of period	$	41		$	36
Provision for credit losses on lending-related commitments	(2		)	1
Balance at end of period	$	39		$	37

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Individually Evaluated Impaired Loans

The following table presents additional information regarding individually evaluated impaired loans.



	Recorded Investment In:
(in millions)	Impaired Loans with No Related Allowance		Impaired Loans with Related Allowance		Total Impaired Loans		Unpaid Principal Balance		Related Allowance for Loan Losses
March 31, 2015
Business loans:
Commercial	$	3	$	105	$	108	$	152	$	22
Commercial mortgage:
Commercial Real Estate business line (a)	—		18		18		39		7
Other business lines (b)	4		38		42		61		1
Total commercial mortgage	4		56		60		100		8
International	—		1		1		3		1
Total business loans	7		162		169		255		31
Retail loans:
Residential mortgage	22