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

Table of Contents

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
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 24, 2015: 178,009,377 shares


Table of Contents

COMERICA INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries
(in millions, except share data)
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.

1

Table of Contents
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.

2

Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
Comerica Incorporated and Subsidiaries


 
Common Stock
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
Total
Shareholders’
Equity
(in millions, except per share data)
Shares
Outstanding
 
Amount
 
Capital
Surplus
 
 
Retained
Earnings
 
Treasury
Stock
 
BALANCE AT DECEMBER 31, 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.



3

Table of Contents
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.

4

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

NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Organization
The accompanying unaudited consolidated financial statements were prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the 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

5

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

The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three-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.

9

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

ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS
The Corporation may be required, from time to time, to record certain assets and liabilities at fair value on a nonrecurring basis. These include assets that are recorded at the lower of cost or fair value that were recognized at fair value below cost at the end of the period. 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.

10

Table of Contents
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.

11

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

NOTE 3 - INVESTMENT SECURITIES
A summary of the Corporation’s investment securities follows:
(in millions)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
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.

12

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.

13

Table of Contents
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.

14

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.


15

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.

16

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



17

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

 

 
22

 
25

 

Consumer:
 
 
 
 
 
 
 
 
 
Home equity
12

 

 
12

 
17

 

Other consumer
3

 

 
3

 
4

 

Total consumer
15

 

 
15

 
21

 

Total retail loans (c)
37

 

 
37

 
46

 

Total individually evaluated impaired loans
$
44

 
$
162

 
$
206

 
$
301

 
$
31

December 31, 2014
 
 
 
 
 
 
 
 
 
Business loans:
 
 
 
 
 
 
 
 
 
Commercial
$
7

 
$
103

 
$
110

 
$
148

 
$
29

Real estate construction:
 
 
 
 
 
 
 
 
 
Other business lines (b)

 
1

 
1

 
1

 

Commercial mortgage:
 
 
 
 
 
 
 
 
 
Commercial Real Estate business line (a)

 
19

 
19

 
41

 
8

Other business lines (b)
4

 
43

 
47

 
63

 
2

Total commercial mortgage
4

 
62

 
66

 
104

 
10

Total business loans
11

 
166

 
177

 
253

 
39

Retail loans:
 
 
 
 
 
 
 
 
 
Residential mortgage
25

 

 
25

 
28

 

Consumer:
 
 
 
 
 
 
 
 
 
Home equity
12

 

 
12

 
16

 

Other consumer
5

 

 
5

 
7

 

Total consumer
17

 

 
17

 
23

 

Total retail loans (c)
42

 

 
42

 
51

 

Total individually evaluated impaired loans
$
53

 
$
166

 
$
219

 
$
304

 
$
39

(a)
Primarily loans to real estate developers.
(b)
Primarily loans secured by owner-occupied real estate.
(c)
Individually evaluated retail loans had no related allowance for loan losses, primarily due to policy changes which resulted in direct write-downs of restructured retail loans. 

18

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

The following table presents information regarding average individually evaluated impaired loans and the related interest recognized. Interest income recognized for the period primarily related to performing restructured loans.
 
Individually Evaluated Impaired Loans
 
2015
 
2014
(in millions)
Average Balance for the Period
 
Interest Income Recognized for the Period
 
Average Balance for the Period
 
Interest Income Recognized for the Period
Three Months Ended March 31
 
 
 
 
 
 
 
Business loans:
 
 
 
 
 
 
 
Commercial
$
109

 
$
1

 
$
62

 
$

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

 

 
19

 

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

 

 
62

 

Other business lines (b)
44

 

 
67

 
1

Total commercial mortgage
63

 

 
129

 
1

International
1

 

 
3

 

Total business loans
173

 
1

 
213

 
1

Retail loans:
 
 
 
 
 
 
 
Residential mortgage
23

 

 
34

 

Consumer loans:
 
 
 
 
 
 
 
Home equity
12

 

 
12

 

Other consumer
4

 

 
4

 

Total consumer
16

 

 
16

 

Total retail loans
39

 

 
50

 

Total individually evaluated impaired loans
$
212

 
$
1

 
$
263

 
$
1

(a)
Primarily loans to real estate developers.
(b)
Primarily loans secured by owner-occupied real estate.
Troubled Debt Restructurings
The following tables detail the recorded balance at March 31, 2015 and 2014 of loans considered to be TDRs that were restructured during the three-month periods ended March 31, 2015 and 2014, by type of modification. In cases of loans with more than one type of modification, the loans were categorized based on the most significant modification.
 
2015
 
2014
 
 
 
Type of Modification
 
(in millions)
Principal Deferrals (a)
 
Principal Deferrals (a)
Interest Rate Reductions
Total Modifications
Three Months Ended March 31
 
 
 
 
 
 
 
Business loans:
 
 
 
 
 
 
 
Commercial
$

 
 
$
1

 
$

$
1

Commercial mortgage:
 
 
 
 
 
 
 
Other business lines (b)
3

 
 
8

 

8

International

 
 
1

 

1

Total business loans
3

 
 
10

 

10

Retail loans:
 
 
 
 
 
 
 
Consumer:
 
 
 
 
 
 
 
Home equity


 
1

(c)
1

2

Total loans
$
3

 
 
$
11

 
$
1

$
12

(a)
Primarily represents loan balances where terms were extended 90 days or more at or above contractual interest rates.
(b)
Primarily loans secured by owner-occupied real estate.
(c)
Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.
Commitments to lend additional funds to borrowers whose terms have been modified in TDRs were insignificant at March 31, 2015 and $3 million at December 31, 2014.

19

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

The majority of the modifications considered to be TDRs that occurred during the three months ended March 31, 2015 and 2014 were principal deferrals. The Corporation charges interest on principal balances outstanding during deferral periods. Additionally, none of the modifications involved forgiveness of principal. As a result, the current and future financial effects of the recorded balance of loans considered to be TDRs that were restructured during the three months ended March 31, 2015 and 2014 were insignificant.
On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. In the event of a subsequent default, the allowance for loan losses continues to be reassessed on the basis of an individual evaluation of the loan.
The following table presents information regarding the recorded balance at March 31, 2015 and 2014 of loans modified by principal deferral during the twelve-month periods ended March 31, 2015 and 2014, and those principal deferrals which experienced a subsequent default during the three-month periods ended March 31, 2015 and 2014. For principal deferrals, incremental deterioration in the credit quality of the loan, represented by a downgrade in the risk rating of the loan, for example, due to missed interest payments or a reduction of collateral value, is considered a subsequent default.
 
2015
 
2014
(in millions)
Balance at March 31
Subsequent Default in the Three Months Ended March 31
 
Balance at March 31
Subsequent Default in the Three Months Ended March 31
Principal deferrals:
 
 
 
 
 
 
 
Business loans:
 
 
 
 
 
 
 
Commercial
$
20

 
$
15

 
$
13

 
$
2

Commercial mortgage:
 
 
 
 
 
 
 
Commercial Real Estate business line (a)

 

 
17

 

Other business lines (b)
9

 
1

 
12

 

Total commercial mortgage
9

 
1

 
29

 

International

 

 
1

 

Total business loans
29

 
16

 
43

 
2

Retail loans:
 
 
 
 
 
 
 
Residential mortgage
1

(c)

 
3

(c)

Consumer:
 
 
 
 
 
 
 
Home equity
1

(c)

 
6

(c)

Other consumer

 

 
2

(c)

Total consumer
1

 

 
8

 

Total retail loans
2

 

 
11

 

Total principal deferrals
$
31

 
$
16

 
$
54

 
$
2

(a)
Primarily loans to real estate developers.
(b)
Primarily loans secured by owner-occupied real estate.
(c)
Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.
During the twelve-month periods ended March 31, 2015 and 2014, loans with a carrying value of $3 million and $6 million, respectively, were modified by interest rate reduction. During the twelve months ended March 31, 2014, loans with a carrying value of $8 million were restructured into two notes (AB note restructures). For reduced-rate loans and AB note restructures, a subsequent payment default is defined in terms of delinquency, when a principal or interest payment is 90 days past due. There were no subsequent payment defaults of reduced-rate loans or AB note restructures during the three-month periods ended March 31, 2015 and 2014.
Purchased Credit-Impaired Loans
Acquired loans are initially recorded at fair value with no carryover of any allowance for loan losses. Loans acquired with evidence of credit quality deterioration at acquisition for which it was probable that the Corporation would not be able to collect all contractual amounts due were accounted for as PCI loans. The Corporation aggregated the acquired PCI loans into pools of loans based on common risk characteristics.

20

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

No allowance for loan losses was required on the acquired PCI loan pools at both March 31, 2015 and December 31, 2014. The carrying amount of acquired PCI loans included in the consolidated balance sheet and the related outstanding balance at March 31, 2015 and December 31, 2014 were as follows.
(in millions)
March 31, 2015
 
December 31, 2014
Acquired PCI loans:
 
 
 
Carrying amount
$
2

 
$
2

Outstanding balance (principal and unpaid interest)
7

 
8

Changes in the accretable yield for acquired PCI loans for the three-month periods ended March 31, 2015 and 2014 were as follows.
 
Three Months Ended March 31,
(in millions)
2015
 
2014
Balance at beginning of period
$
1

 
$
15

Reclassifications from nonaccretable
1

 
5

Accretion
(1
)
 
(9
)
Balance at end of period
$
1

 
$
11

NOTE 5 - DERIVATIVE AND CREDIT-RELATED FINANCIAL INSTRUMENTS
In the normal course of business, the Corporation enters into various transactions involving derivative and credit-related financial instruments to manage exposure to fluctuations in interest rate, foreign currency and other market risks and to meet the financing needs of customers (customer-initiated derivatives). These financial instruments involve, to varying degrees, elements of market and credit risk. Market and credit risk are included in the determination of fair value.
Market risk is the potential loss that may result from movements in interest rates, foreign currency exchange rates or energy commodity prices that cause an unfavorable change in the value of a financial instrument. The Corporation manages this risk by establishing monetary exposure limits and monitoring compliance with those limits. Market risk inherent in interest rate and energy contracts entered into on behalf of customers is mitigated by taking offsetting positions, except in those circumstances when the amount, tenor and/or contract rate level results in negligible economic risk, whereby the cost of purchasing an offsetting contract is not economically justifiable. The Corporation mitigates most of the inherent market risk in foreign exchange contracts entered into on behalf of customers by taking offsetting positions and manages the remainder through individual foreign currency position limits and aggregate value-at-risk limits. These limits are established annually and reviewed quarterly. Market risk inherent in derivative instruments held or issued for risk management purposes is typically offset by changes in the fair value of the assets or liabilities being hedged.
Credit risk is the possible loss that may occur in the event of nonperformance by the counterparty to a financial instrument. The Corporation attempts to minimize credit risk arising from customer-initiated derivatives by evaluating the creditworthiness of each customer, adhering to the same credit approval process used for traditional lending activities and obtaining collateral as deemed necessary. Derivatives with dealer counterparties are either cleared through a clearinghouse or settled directly with a single counterparty. For derivatives settled directly with dealer counterparties, the Corporation utilizes counterparty risk limits and monitoring procedures as well as master netting arrangements and bilateral collateral agreements to facilitate the management of credit risk. Master netting arrangements effectively reduce credit risk by permitting settlement of positive and negative positions and offset cash collateral held with the same counterparty on a net basis. Bilateral collateral agreements require daily exchange of cash or highly rated securities issued by the U.S. Treasury or other U.S. government entities to collateralize amounts due to either party beyond certain risk limits. At March 31, 2015, counterparties with bilateral collateral agreements had pledged $203 million of marketable investment securities and deposited $345 million of cash with the Corporation to secure the fair value of contracts in an unrealized gain position, and the Corporation had pledged $7 million of investment securities and posted $2 million of cash as collateral for contracts in an unrealized loss position. For those counterparties not covered under bilateral collateral agreements, collateral is obtained, if deemed necessary, based on the results of management’s credit evaluation of the counterparty. Collateral varies, but may include cash, investment securities, accounts receivable, equipment or real estate. Included in the fair value of derivative instruments are credit valuation adjustments reflecting counterparty credit risk. These adjustments are determined by applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the derivative.
The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on March 31, 2015 was $4 million, for which the Corporation had pledged no collateral in the normal course of business. The credit-risk-related contingent features require the Corporation’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the Corporation’s debt were to fall below investment grade, the counterparties to the derivative

21

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

instruments could require additional overnight collateral on derivative instruments in net liability positions. If the credit-risk-related contingent features underlying these agreements had been triggered on March 31, 2015, the Corporation would have been required to assign an additional $4 million of collateral to its counterparties.
Derivative Instruments
Derivative instruments utilized by the Corporation are negotiated over-the-counter and primarily include swaps, caps and floors, forward contracts and options, each of which may relate to interest rates, energy commodity prices or foreign currency exchange rates. Swaps are agreements in which two parties periodically exchange cash payments based on specified indices applied to a specified notional amount until a stated maturity. Caps and floors are agreements which entitle the buyer to receive cash payments based on the difference between a specified reference rate or price and an agreed strike rate or price, applied to a specified notional amount until a stated maturity. Forward contracts are over-the-counter agreements to buy or sell an asset at a specified future date and price. Options are similar to forward contracts except the purchaser has the right, but not the obligation, to buy or sell the asset during a specified period or at a specified future date.
Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, contain a greater degree of credit risk and liquidity risk than exchange-traded contracts, which have standardized terms and readily available price information. The Corporation reduces exposure to market and liquidity risks from over-the-counter derivative instruments entered into for risk management purposes, and transactions entered into to mitigate the market risk associated with customer-initiated transactions, by conducting hedging transactions with investment grade domestic and foreign financial institutions and subjecting counterparties to credit approvals, limits and collateral monitoring procedures similar to those used in making other extensions of credit. In addition, certain derivative contracts executed bilaterally with a dealer counterparty in the over-the-counter market are cleared through a clearinghouse, whereby the clearinghouse becomes the counterparty to the transaction.


22

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

The following table presents the composition of the Corporation’s derivative instruments held or issued for risk management purposes or in connection with customer-initiated and other activities at March 31, 2015 and December 31, 2014. The table excludes commitments, warrants accounted for as derivatives and a derivative related to the Corporation’s 2008 sale of its remaining ownership of Visa shares.
 
March 31, 2015
 
December 31, 2014
 
 
 
Fair Value
 
 
 
Fair Value
(in millions)
Notional/
Contract
Amount (a)
 
Gross Derivative Assets
 
Gross Derivative Liabilities
 
Notional/
Contract
Amount (a)
 
Gross Derivative Assets
 
Gross Derivative Liabilities
Risk management purposes
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
Swaps - fair value - receive fixed/pay floating
$
1,800

 
$
180

 
$

 
$
1,800

 
$
175

 
$

Derivatives used as economic hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
Spot, forwards and swaps
573

 
5

 

 
508

 
4

 

Total risk management purposes
2,373

 
185

 

 
2,308

 
179

 

Customer-initiated and other activities
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
Caps and floors written
296

 

 

 
274

 

 

Caps and floors purchased
296

 

 

 
274

 

 

Swaps
12,055

 
179

 
130

 
11,780

 
153

 
102

Total interest rate contracts
12,647

 
179

 
130

 
12,328

 
153

 
102

Energy contracts:
 
 
 
 
 
 
 
 
 
 
 
Caps and floors written
1,041

 

 
147

 
1,218

 

 
173

Caps and floors purchased
1,041

 
147

 

 
1,218

 
173

 

Swaps
2,477

 
366

 
363

 
2,496

 
354

 
352

Total energy contracts
4,559

 
513

 
510

 
4,932

 
527

 
525

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
Spot, forwards, options and swaps
1,918

 
45

 
39

 
1,994

 
35

 
34

Total customer-initiated and other activities
19,124

 
737

 
679

 
19,254

 
715

 
661

Total gross derivatives
$
21,497

 
922

 
679

 
$
21,562

 
894

 
661

Amounts offset in the consolidated balance sheets:
 
 
 
 
 
 
 
 
 
 
 
Netting adjustment - Offsetting derivative assets/liabilities
 
 
(131
)
 
(131
)
 
 
 
(133
)
 
(133
)
Netting adjustment - Cash collateral received/posted
 
 
(290
)
 
(2
)
 
 
 
(262
)
 

Net derivatives included in the consolidated balance sheets (b)

 
501

 
546

 



499

 
528

Amounts not offset in the consolidated balance sheets:
 
 
 
 
 
 
 
 
 
 
 
Marketable securities pledged under bilateral collateral agreements
 
 
(203
)
 
(7
)
 
 
 
(239
)
 
(2
)
Net derivatives after deducting amounts not offset in the consolidated balance sheets


 
$
298

 
$
539

 


 
$
260

 
$
526

(a)
Notional or contractual amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the consolidated balance sheets.
(b)
Net derivative assets are included in “accrued income and other assets” and net derivative liabilities are included in “accrued expenses and other liabilities” on the consolidated balance sheets. Included in the fair value of net derivative assets and net derivative liabilities are credit valuation adjustments reflecting counterparty credit risk and credit risk of the Corporation. The fair value of net derivative assets included credit valuation adjustments for counterparty credit risk of $5 million and $2 million at March 31, 2015 and December 31, 2014, respectively.
Risk Management
As an end-user, the Corporation employs a variety of financial instruments for risk management purposes, including cash instruments, such as investment securities, as well as derivative instruments. Activity related to these instruments is centered


23

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

predominantly in the interest rate markets and mainly involves interest rate swaps. Various other types of instruments also may be used to manage exposures to market risks, including interest rate caps and floors, total return swaps, foreign exchange forward contracts and foreign exchange swap agreements.
The Corporation entered into interest rate swap agreements for interest rate risk management purposes. These interest rate swap agreements effectively modify the Corporation’s exposure to interest rate risk by converting fixed-rate debt to a floating rate. These agreements involve the receipt of fixed-rate interest amounts in exchange for floating-rate interest payments over the life of the agreement, without an exchange of the underlying principal amount. Risk management fair value interest rate swaps generated net interest income of $18 million for both the three-month periods ended March 31, 2015 and 2014. The Corporation recognized $1 million of net gains for the three months ended March 31, 2015 and an insignificant amount of net losses for the three months ended March 31, 2014 in "other noninterest income" in the consolidated statements of comprehensive income for the ineffective portion of risk management derivative instruments designated as fair value hedges of fixed-rate debt.
Foreign exchange rate risk arises from changes in the value of certain assets and liabilities denominated in foreign currencies. The Corporation employs spot and forward contracts in addition to swap contracts to manage exposure to these and other risks. The Corporation recognized an insignificant amount of net losses on risk management derivative instruments used as economic hedges in "other noninterest income" in the consolidated statements of comprehensive income for each of the three-month periods ended March 31, 2015 and 2014.
 The following table summarizes the expected weighted average remaining maturity of the notional amount of risk management interest rate swaps and the weighted average interest rates associated with amounts expected to be received or paid on interest rate swap agreements as of March 31, 2015 and December 31, 2014.
 
 
 
Weighted Average
(dollar amounts in millions)
Notional
Amount
 
Remaining
Maturity
(in years)
 
Receive Rate
 
Pay Rate (a)
March 31, 2015
 
 
 
 
 
 
 
Swaps - fair value - receive fixed/pay floating rate
 
 
 
 
 
 
 
Medium- and long-term debt designation
$
1,800

 
4.4
 
4.54
%
 
0.52
%
December 31, 2014
 
 
 
 
 
 
 
Swaps - fair value - receive fixed/pay floating rate
 
 
 
 
 
 
 
Medium- and long-term debt designation
1,800

 
4.6
 
4.54

 
0.49

(a)
Variable rates paid on receive fixed swaps are based on six-month LIBOR rates in effect at March 31, 2015 and December 31, 2014.
Management believes these hedging strategies achieve the desired relationship between the rate maturities of assets and funding sources which, in turn, reduce the overall exposure of net interest income to interest rate risk, although there can be no assurance that such strategies will be successful.
Customer-Initiated and Other
The Corporation enters into derivative transactions at the request of customers and generally takes offsetting positions with dealer counterparties to mitigate the inherent market risk. Income primarily results from the spread between the customer derivative and the offsetting dealer position.
For customer-initiated foreign exchange contracts where offsetting positions have not been taken, the Corporation manages the remaining inherent market risk through individual foreign currency position limits and aggregate value-at-risk limits. These limits are established annually and reviewed quarterly. For those customer-initiated derivative contracts which were not offset or where the Corporation holds a speculative position within the limits described above, the Corporation recognized an insignificant amount of net gains in “other noninterest income” in the consolidated statements of comprehensive income for each of the three-month periods ended March 31, 2015 and 2014.


24

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

Fair values of customer-initiated and other derivative instruments represent the net unrealized gains or losses on such contracts and are recorded in the consolidated balance sheets. Changes in fair value are recognized in the consolidated statements of comprehensive income. The net gains recognized in income on customer-initiated derivative instruments, net of the impact of offsetting positions, were as follows.
 
 
 
Three Months Ended March 31,
(in millions)
 
Location of Gain
2015
 
2014
Interest rate contracts
 
Other noninterest income
$
2

 
$
4

Energy contracts
 
Other noninterest income
1

 

Foreign exchange contracts
 
Foreign exchange income
10

 
9

Total
 
 
$
13

 
$
13

Credit-Related Financial Instruments
The Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The Corporation’s credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.
(in millions)
March 31, 2015
 
December 31, 2014
Unused commitments to extend credit:
 
 
 
Commercial and other
$
27,254

 
$
27,905

Bankcard, revolving check credit and home equity loan commitments
2,209

 
2,151

Total unused commitments to extend credit
$
29,463

 
$
30,056

Standby letters of credit
$
3,766

 
$
3,880

Commercial letters of credit
48

 
75

Other credit-related financial instruments
1

 
1

The Corporation maintains an allowance to cover probable credit losses inherent in lending-related commitments, including unused commitments to extend credit, letters of credit and financial guarantees. At March 31, 2015 and December 31, 2014, the allowance for credit losses on lending-related commitments, included in “accrued expenses and other liabilities” on the consolidated balance sheets, was $39 million and $41 million, respectively.
Unused Commitments to Extend Credit
Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Corporation. Commercial and other unused commitments are primarily variable rate commitments. The allowance for credit losses on lending-related commitments included $27 million and $30 million at March 31, 2015 and December 31, 2014, respectively, for probable credit losses inherent in the Corporation’s unused commitments to extend credit.
Standby and Commercial Letters of Credit
Standby letters of credit represent conditional obligations of the Corporation which guarantee the performance of a customer to a third party. Standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Commercial letters of credit are issued to finance foreign or domestic trade transactions. These contracts expire in decreasing amounts through the year 2022. The Corporation may enter into participation arrangements with third parties that effectively reduce the maximum amount of future payments which may be required under standby and commercial letters of credit. These risk participations covered $317 million and $316 million, respectively, of the $3.8 billion and $4.0 billion standby and commercial letters of credit outstanding at March 31, 2015 and December 31, 2014, respectively.
The carrying value of the Corporation’s standby and commercial letters of credit, included in “accrued expenses and other liabilities” on the consolidated balance sheets, totaled $55 million at March 31, 2015, including $43 million in deferred fees and $12 million in the allowance for credit losses on lending-related commitments. At December 31, 2014, the comparable amounts were $55 million, $44 million and $11 million, respectively.
The following table presents a summary of criticized standby and commercial letters of credit at March 31, 2015 and December 31, 2014. The Corporation's criticized list is generally consistent with the Special mention, Substandard and Doubtful


25

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

categories defined by regulatory authorities. The Corporation manages credit risk through underwriting, periodically reviewing and approving its credit exposures using Board committee approved credit policies and guidelines.
(dollar amounts in millions)
March 31, 2015
 
December 31, 2014
Total criticized standby and commercial letters of credit
$
80

 
$
79

As a percentage of total outstanding standby and commercial letters of credit
2.1
%
 
2.0
%
Other Credit-Related Financial Instruments
The Corporation enters into credit risk participation agreements, under which the Corporation assumes credit exposure associated with a borrower’s performance related to certain interest rate derivative contracts. The Corporation is not a party to the interest rate derivative contracts and only enters into these credit risk participation agreements in instances in which the Corporation is also a party to the related loan participation agreement for such borrowers. The Corporation manages its credit risk on the credit risk participation agreements by monitoring the creditworthiness of the borrowers, which is based on the normal credit review process had it entered into the derivative instruments directly with the borrower. The notional amount of such credit risk participation agreement reflects the pro-rata share of the derivative instrument, consistent with its share of the related participated loan. As of March 31, 2015 and December 31, 2014, the total notional amount of the credit risk participation agreements was approximately $629 million and $598 million, respectively, and the fair value, included in customer-initiated interest rate contracts recorded in "accrued expenses and other liabilities" on the consolidated balance sheets, was insignificant for each period. The maximum estimated exposure to these agreements, as measured by projecting a maximum value of the guaranteed derivative instruments, assuming 100 percent default by all obligors on the maximum values, was approximately $10 million and $7 million at March 31, 2015 and December 31, 2014, respectively. In the event of default, the lead bank has the ability to liquidate the assets of the borrower, in which case the lead bank would be required to return a percentage of the recouped assets to the participating banks. As of March 31, 2015, the weighted average remaining maturity of outstanding credit risk participation agreements was 2.7 years.
In 2008, the Corporation sold its remaining ownership of Visa Class B shares and entered into a derivative contract. Under the terms of the derivative contract, the Corporation will compensate the counterparty primarily for dilutive adjustments made to the conversion factor of the Visa Class B shares to Class A shares based on the ultimate outcome of litigation involving Visa. Conversely, the Corporation will be compensated by the counterparty for any increase in the conversion factor from anti-dilutive adjustments. The notional amount of the derivative contract was equivalent to approximately 780,000 Visa Class B shares. The fair value of the derivative liability, included in "accrued expenses and other liabilities" on the consolidated balance sheets, was $1 million at both March 31, 2015 and December 31, 2014, respectively.
NOTE 6 - VARIABLE INTEREST ENTITIES (VIEs)
The Corporation evaluates its interest in certain entities to determine if these entities meet the definition of a VIE and whether the Corporation is the primary beneficiary and should consolidate the entity based on the variable interests it held both at inception and when there is a change in circumstances that requires a reconsideration.
The Corporation holds ownership interests in funds in the form of limited partnerships or limited liability companies (LLCs) investing in affordable housing projects that qualify for the low-income housing tax credit (LIHTC). The Corporation also directly invests in limited partnerships and LLCs which invest in community development projects which generate similar tax credits to investors. As an investor, the Corporation obtains income tax credits and deductions from the operating losses of these tax credit entities. These tax credit entities meet the definition of a VIE; however, the Corporation is not the primary beneficiary of the entities, as the general partner or the managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. While the partnership/LLC agreements allow the limited partners/investor members, through a majority vote, to remove the general partner/managing member, this right is not deemed to be substantive as the general partner/managing member can only be removed for cause.
The Corporation accounts for its interests in LIHTC entities using the proportional amortization method. Exposure to loss as a result of the Corporation’s involvement with LIHTC entities at March 31, 2015 was limited to approximately $391 million. Ownership interests in other community development projects which generate similar tax credits to investors (other tax credit entities) are accounted for under either the cost or equity method. Exposure to loss as a result of the Corporation's involvement in other tax credit entities at March 31, 2015 was limited to approximately $8 million.
Investment balances, including all legally binding commitments to fund future investments, are included in “accrued income and other assets” on the consolidated balance sheets. A liability is recognized in “accrued expenses and other liabilities” on the consolidated balance sheets for all legally binding unfunded commitments to fund tax credit entities ($133 million at March 31, 2015). Amortization and other write-downs of LIHTC investments are presented on a net basis as a component of the


26

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

"provision for income taxes" on the consolidated statements of comprehensive income, while amortization and write-downs of other tax credit investments are recorded in “other noninterest income." The income tax credits and deductions are recorded as a reduction of income tax expense and a reduction of federal income taxes payable.
The Corporation provided no financial or other support that was not contractually required to any of the above VIEs during the three months ended March 31, 2015 and 2014.
The following table summarizes the impact of these tax credit entities on line items on the Corporation’s consolidated statements of comprehensive income.
 
Three Months Ended March 31,
(in millions)
2015
 
2014
Other noninterest income:
 
 
 
Amortization of other tax credit investments
$
1

 
$
(2
)
Provision for income taxes:
 
 
 
Amortization of LIHTC investments
15

 
14

Low income housing tax credits
(15
)
 
(14
)
Other tax benefits related to tax credit entities
(5
)
 
(6
)
Total provision for income taxes
$
(5
)
 
$
(6
)
For further information on the Corporation’s consolidation policy, see Note 1 to the consolidated financial statements in the Corporation's 2014 Annual Report.
NOTE 7 - MEDIUM- AND LONG-TERM DEBT
Medium- and long-term debt is summarized as follows:
(in millions)
March 31, 2015
 
December 31, 2014
Parent company
 
 
 
Subordinated notes:
 
 
 
4.80% subordinated notes due 2015 (a)
$
301

 
$
304

3.80% subordinated notes due 2026 (a)
265

 
259

Medium-term notes:
 
 
 
3.00% notes due 2015
300

 
300

2.125% notes due 2019 (a)
353

 
349

Total parent company
1,219

 
1,212

Subsidiaries
 
 
 
Subordinated notes:
 
 
 
5.75% subordinated notes due 2016 (a)
668

 
670

5.20% subordinated notes due 2017 (a)
546

 
548

7.875% subordinated notes due 2026 (a)
231

 
227

Total subordinated notes
1,445

 
1,445

Other notes:
 
 
 
6.0% - 6.4% fixed-rate notes due 2020
22

 
22

Total subsidiaries
1,467

 
1,467

Total medium- and long-term debt
$
2,686

 
$
2,679

(a)
The carrying value of medium- and long-term debt has been adjusted to reflect the gain or loss attributable to the risk hedged with interest rate swaps.
Subordinated notes with remaining maturities greater than one year qualify as Tier 2 capital.
Comerica Bank (the Bank) is a member of the FHLB, which provides short- and long-term funding to its members through advances collateralized by real estate-related assets. Actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. At March 31, 2015, $14 billion of real estate-related loans were pledged to the FHLB as blanket collateral for potential future borrowings of approximately $5 billion.    

27

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

NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents a reconciliation of the changes in the components of accumulated other comprehensive loss and details the components of other comprehensive income (loss) for the three months ended March 31, 2015 and 2014, including the amount of income tax expense (benefit) allocated to each component of other comprehensive income (loss).
 
Three Months Ended March 31,
(in millions)
2015
 
2014
Accumulated net unrealized gains (losses) on investment securities:
 
 
 
Balance at beginning of period, net of tax
$
37

 
$
(68
)
 
 
 
 
Net unrealized holding gains arising during the period
45

 
94

Less: Provision for income taxes
16

 
33

Net unrealized holding gains arising during the period, net of tax
29

 
61

Less:
 
 
 
Net realized (losses) gains included in net securities (losses) gains
(2
)
 
1

Less: Benefit for income taxes
(1
)
 

Reclassification adjustment for net securities (losses) gains included in net income, net of tax
(1
)
 
1

Less:
 
 
 
Net losses realized as a yield adjustment in interest on investment securities
(2
)
 

Less: Benefit for income taxes
(1
)
 

Reclassification adjustment for net losses realized as a yield adjustment included in net income, net of tax
(1
)
 

Change in net unrealized gains on investment securities, net of tax
31

 
60

Balance at end of period, net of tax
$
68

 
$
(8
)
 
 
 
 
Accumulated defined benefit pension and other postretirement plans adjustment:
 
 
 
Balance at beginning of period, net of tax
$
(449
)
 
$
(323
)
 
 
 
 
Amortization of actuarial net loss recognized in salaries and benefits expense
17

 
10

Less: Provision for income taxes
6

 
4

Change in defined benefit pension and other postretirement plans adjustment, net of tax
11

 
6

Balance at end of period, net of tax
$
(438
)
 
$
(317
)
Total accumulated other comprehensive loss at end of period, net of tax
$
(370
)
 
$
(325
)
NOTE 9 - NET INCOME PER COMMON SHARE
Basic and diluted net income per common share are presented in the following table.
 
Three Months Ended March 31,
(in millions, except per share data)
2015
 
2014
Basic and diluted
 
 
 
Net income
$
134

 
$
139

Less:
 
 
 
Income allocated to participating securities
2

 
2

Net income attributable to common shares
$
132

 
$
137

 
 
 
 
Basic average common shares
176

 
180

 
 
 
 
Basic net income per common share
$
0.75

 
$
0.76

 
 
 
 
Basic average common shares
176

 
180

Dilutive common stock equivalents:
 
 
 
Net effect of the assumed exercise of stock options
2

 
2

Net effect of the assumed exercise of warrants
4

 
5

Diluted average common shares
182

 
187

 
 
 
 
Diluted net income per common share
$
0.73

 
$
0.73


28

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

The following average shares related to outstanding options to purchase shares of common stock were not included in the computation of diluted net income per common share because the options were anti-dilutive for the period.
 
Three Months Ended March 31,
(shares in millions)
2015
 
2014
Average outstanding options
6.8
 
8.7
Range of exercise prices
$46.68 - $60.82
 
$48.17 - $61.94
NOTE 10 - EMPLOYEE BENEFIT PLANS
Net periodic benefit costs are charged to "employee benefits expense" on the consolidated statements of comprehensive income. The components of net periodic benefit cost for the Corporation's qualified pension plan, non-qualified pension plan and postretirement benefit plan are as follows.
Qualified Defined Benefit Pension Plan
Three Months Ended March 31,
(in millions)
2015
 
2014
Service cost
$
9

 
$
7

Interest cost
22

 
22

Expected return on plan assets
(40
)
 
(33
)
Amortization of prior service cost
1

 
1

Amortization of net loss
14

 
8

Net periodic defined benefit cost
$
6

 
$
5

Non-Qualified Defined Benefit Pension Plan
Three Months Ended March 31,
(in millions)
2015
 
2014
Service cost
$
1

 
$
1

Interest cost
2

 
2

Amortization of prior service credit
(1
)
 
(1
)
Amortization of net loss
3

 
2

Net periodic defined benefit cost
$
5

 
$
4

Postretirement Benefit Plan
Three Months Ended March 31,
(in millions)
2015
 
2014
Interest cost
$
1

 
$
1

Expected return on plan assets
(1
)
 
(1
)
Net periodic postretirement benefit cost
$

 
$

For further information on the Corporation's employee benefit plans, refer to Note 17 to the consolidated financial statements in the Corporation's 2014 Annual Report.
NOTE 11 - INCOME TAXES AND TAX-RELATED ITEMS
At March 31, 2015, net unrecognized tax benefits were $16 million, compared to $14 million at December 31, 2014. The Corporation anticipates that it is reasonably possible that final settlement of federal and state tax issues will result in a decrease in net unrecognized tax benefits of $8 million within the next twelve months. Included in "accrued expense and other liabilities" on the consolidated balance sheets was a $2 million liability for tax-related interest and penalties at both March 31, 2015 and December 31, 2014.
Net deferred tax assets were $126 million at March 31, 2015, compared to $130 million at December 31, 2014. Deferred tax assets were evaluated for realization and it was determined that no valuation allowance was needed at both March 31, 2015 and December 31, 2014. This conclusion was based on sufficient taxable income in the carryback period and projected future reversals of existing taxable temporary differences to absorb the deferred tax assets.
In the ordinary course of business, the Corporation enters into certain transactions that have tax consequences. From time to time, the Internal Revenue Service (IRS) may review and/or challenge specific interpretive tax positions taken by the Corporation with respect to those transactions. The Corporation believes that its tax returns were filed based upon applicable statutes, regulations and case law in effect at the time of the transactions. The IRS, an administrative authority or a court, if presented with the transactions, could disagree with the Corporation’s interpretation of the tax law.

29

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

Based on current knowledge and probability assessment of various potential outcomes, the Corporation believes that current tax reserves are adequate, and the amount of any potential incremental liability arising is not expected to have a material adverse effect on the Corporation’s consolidated financial condition or results of operations. Probabilities and outcomes are reviewed as events unfold, and adjustments to the reserves are made when necessary.
NOTE 12 - CONTINGENT LIABILITIES
Legal Proceedings
As previously reported in the Corporation's Form 10-K for the year ended December 31, 2014, Comerica Bank, a wholly owned subsidiary of the Corporation, was sued in November 2011 as a third-party defendant in Butte Local Development v. Masters Group v. Comerica Bank (“the case”), for lender liability. The case was tried in January 2014, in the Montana Second District Judicial Court for Silver Bow County in Butte, Montana ("the court"). On January 17, 2014, a jury awarded Masters $52 million against the Bank. Including additional attorney's fees and costs awarded by the court, the Corporation's reserve related to the case was $54 million as of March 31, 2015.
The Corporation believes that it has meritorious defenses and appellate issues for this litigation and therefore appealed to the Montana Supreme Court, the sole appellate court for the state of Montana. The Montana Supreme Court heard oral arguments in September 2014 and will be rendering a written decision on the appeal.
The Corporation and certain of its subsidiaries are subject to various other pending or threatened legal proceedings arising out of the normal course of business or operations. The Corporation believes it has meritorious defenses to the claims asserted against it in its other currently outstanding legal proceedings and, with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of the Corporation and its shareholders. Settlement may result from the Corporation's determination that it may be more prudent financially to settle, rather than litigate, and should not be regarded as an admission of liability. On at least a quarterly basis, the Corporation assesses its potential liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. On a case-by-case basis, reserves are established for those legal claims for which it is probable that a loss will be incurred either as a result of a settlement or judgment, and the amount of such loss can be reasonably estimated. The actual costs of resolving these claims may be substantially higher or lower than the amounts reserved. Based on current knowledge, and after consultation with legal counsel, management believes that current reserves are adequate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the Corporation’s consolidated financial condition, consolidated results of operations or consolidated cash flows. Legal fees of $5 million were included in "other noninterest expenses" on the consolidated statements of income for both the three-month periods ended March 31, 2015 and 2014.
For matters where a loss is not probable, the Corporation has not established legal reserves. The Corporation believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for all legal proceedings in which it is involved is from zero to approximately $32 million at March 31, 2015. This estimated aggregate range of reasonably possible losses is based upon currently available information for those proceedings in which the Corporation is involved, taking into account the Corporation’s best estimate of such losses for those cases for which such estimate can be made. For certain cases, the Corporation does not believe that an estimate can currently be made. The Corporation’s estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many are currently in preliminary stages), the existence in certain proceedings of multiple defendants (including the Corporation) whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims) and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Corporation’s estimate will change from time to time, and actual losses may be more or less than the current estimate.
In the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation's consolidated financial condition, consolidated results of operations or consolidated cash flows.
For information regarding income tax contingencies, refer to Note 11.
NOTE 13 - BUSINESS SEGMENT INFORMATION
The Corporation has strategically aligned its operations into three major business segments: the Business Bank, the Retail Bank and Wealth Management. These business segments are differentiated based on the type of customer and the related products and services provided. In addition to the three major business segments, the Finance Division is also reported as a segment. Business segment results are produced by the Corporation’s internal management accounting system. This system measures financial results based on the internal business unit structure of the Corporation. The performance of the business segments is not comparable with the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution.

30

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

Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. The management accounting system assigns balance sheet and income statement items to each business segment using certain methodologies, which are regularly reviewed and refined. These methodologies may be modified as the management accounting system is enhanced and changes occur in the organizational structure and/or product lines. For comparability purposes, amounts in all periods are based on business segments and methodologies in effect at March 31, 2015.
In the second quarter 2014, the Corporation enhanced the approach used to determine the standard reserve factors used in estimating the allowance for credit losses, which had the effect of capturing certain elements in the standard reserve component that had formerly been included in the qualitative assessment. The impact of the change was largely neutral to the total allowance for loan losses at June 30, 2014. However, because standard reserves are allocated to the segments at the loan level, while qualitative reserves are allocated at the portfolio level, the impact of the methodology change on the allowance of each segment reflected the characteristics of the individual loans within each segment's portfolio, causing segment reserves to increase or decrease accordingly. As a result, the current year provision for credit losses within each segment is not comparable to prior period amounts.
The following discussion provides information about the activities of each business segment. A discussion of the financial results and the factors impacting performance can be found in the section entitled "Business Segments" in the financial review.
The Business Bank meets the needs of middle market businesses, multinational corporations and governmental entities by offering various products and services, including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services.
The Retail Bank includes small business banking and personal financial services, consisting of consumer lending, consumer deposit gathering and mortgage loan origination. In addition to a full range of financial services provided to small business customers, this business segment offers a variety of consumer products, including deposit accounts, installment loans, credit cards, student loans, home equity lines of credit and residential mortgage loans.
Wealth Management offers products and services consisting of fiduciary services, private banking, retirement services, investment management and advisory services, investment banking and brokerage services. This business segment also offers the sale of annuity products, as well as life, disability and long-term care insurance products.
The Finance segment includes the Corporation’s securities portfolio and asset and liability management activities. This segment is responsible for managing the Corporation’s funding, liquidity and capital needs, performing interest sensitivity analysis and executing various strategies to manage the Corporation’s exposure to liquidity, interest rate risk and foreign exchange risk.
The Other category includes discontinued operations, the income and expense impact of equity and cash, tax benefits not assigned to specific business segments, charges of an unusual or infrequent nature that are not reflective of the normal operations of the business segments and miscellaneous other expenses of a corporate nature.
For further information on the methodologies which form the basis for these results refer to Note 22 to the consolidated financial statements in the Corporation's 2014 Annual Report.

31

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

Business segment financial results are as follows:
(dollar amounts in millions)
Business
Bank
 
Retail
Bank
 
Wealth Management
 
Finance
 
Other
 
Total
Three Months Ended March 31, 2015
Earnings summary:
 
 
 
 
 
 
 
 
 
 
 
Net interest income (expense) (FTE)
$
370

 
$
151

 
$
43

 
$
(152
)
 
$
2

 
$
414

Provision for credit losses
25

 
(8
)
 
(1
)
 

 
(2
)
 
14

Noninterest income
142

 
43

 
58

 
12

 
1

 
256

Noninterest expenses
200

 
176

 
77

 
2

 
5

 
460

Provision (benefit) for income taxes (FTE)
98

 
9

 
9

 
(53
)
 
(1
)
 
62

Net income (loss)
$
189

 
$
17

 
$
16

 
$
(89
)
 
$
1

 
$
134

Net credit-related charge-offs (recoveries)
$
9

 
$

 
$
(1
)
 
$

 
$

 
$
8

 
 
 
 
 
 
 
 
 
 
 
 
Selected average balances:
 
 
 
 
 
 
 
 
 
 
 
Assets
$
38,794

 
$
6,229

 
$
5,029

 
$
12,140

 
$
6,547

 
$
68,739

Loans
37,763

 
5,554

 
4,834

 

 

 
48,151

Deposits
30,169

 
22,378

 
3,996

 
170

 
277

 
56,990

 
 
 
 
 
 
 
 
 
 
 
 
Statistical data:
 
 
 
 
 
 
 
 
 
 
 
Return on average assets (a)
1.95
%
 
0.29
%
 
1.29
%
 
N/M

 
N/M

 
0.78
%
Efficiency ratio (b)
39.20

 
90.92

 
74.58

 
N/M

 
N/M

 
68.55

(dollar amounts in millions)
Business
Bank
 
Retail
Bank
 
Wealth Management
 
Finance
 
Other
 
Total
Three Months Ended March 31, 2014
Earnings summary:
 
 
 
 
 
 
 
 
 
 
 
Net interest income (expense) (FTE)
$
371

 
$
147

 
$
45

 
$
(158
)
 
$
6

 
$
411

Provision for credit losses
16

 
2

 
(8
)
 

 
(1
)
 
9

Noninterest income
91

 
41

 
60

 
14

 
2

 
208

Noninterest expenses
146

 
173

 
76

 
3

 
8

 
406

Provision (benefit) for income taxes (FTE)
100

 
4

 
13

 
(55
)
 
3

 
65

Net income (loss)
$
200

 
$
9

 
$
24

 
$
(92
)
 
$
(2
)
 
$
139

Net credit-related charge-offs (recoveries)
$
11

 
$
4

 
$
(3
)
 
$

 
$

 
$
12

 
 
 
 
 
 
 
 
 
 
 
 
Selected average balances:
 
 
 
 
 
 
 
 
 
 
 
Assets
$
35,896

 
$
6,061

 
$
4,930

 
$
11,129

 
$
6,692

 
$
64,708

Loans
34,926

 
5,388

 
4,761

 

 

 
45,075

Deposits
27,023

 
21,595

 
3,582

 
353

 
217

 
52,770

 
 
 
 
 
 
 
 
 
 
 
 
Statistical data:
 
 
 
 
 
 
 
 
 
 
 
Return on average assets (a)
2.22
%
 
0.15
%
 
1.96
%
 
N/M

 
N/M

 
0.86
%
Efficiency ratio (b)
31.70

 
91.79

 
73.13

 
N/M

 
N/M

 
65.79

(a)
Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.
(b)    Noninterest expenses as a percentage of the sum of net interest income (FTE) and noninterest income excluding net securities gains.
FTE – Fully Taxable Equivalent
N/M – not meaningful
The Corporation operates in three primary markets - Texas, California, and Michigan, as well as in Arizona and Florida, with select businesses operating in several other states, and in Canada and Mexico. The Corporation produces market segment results for the Corporation’s three primary geographic markets as well as Other Markets. Other Markets includes Florida, Arizona, the International Finance division and businesses with a national perspective. The Finance & Other category includes the Finance segment and the Other category as previously described. Market segment results are provided as supplemental information to the business segment results and may not meet all operating segment criteria as set forth in GAAP. For comparability purposes, amounts in all periods are based on market segments and methodologies in effect at March 31, 2015.
A discussion of the financial results and the factors impacting performance can be found in the section entitled "Market Segments" in the financial review.

32

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

Market segment financial results are as follows:
(dollar amounts in millions)
Michigan
 
California
 
Texas
 
Other
Markets
 
Finance
& Other
 
Total
Three Months Ended March 31, 2015
Earnings summary:
 
 
 
 
 
 
 
 
 
 
 
Net interest income (expense) (FTE)
$
177

 
$
176

 
$
131

 
$
80

 
$
(150
)
 
$
414

Provision for credit losses
(8
)
 
(3
)
 
21

 
6

 
(2
)
 
14

Noninterest income
81

 
38

 
36

 
88

 
13

 
256

Noninterest expenses
155

 
100

 
96

 
102

 
7

 
460

Provision (benefit) for income taxes (FTE)
38

 
44

 
18

 
16

 
(54
)
 
62

Net income (loss)
$
73

 
$
73

 
$
32

 
$
44

 
$
(88
)
 
$
134

Net credit-related charge-offs
$
3

 
$
1

 
$
3

 
$
1

 
$

 
$
8

 
 
 
 
 
 
 
 
 
 
 
 
Selected average balances:
 
 
 
 
 
 
 
 
 
 
 
Assets
$
13,736

 
$
16,461

 
$
12,193

 
$
7,662

 
$
18,687

 
$
68,739

Loans
13,223

 
16,193

 
11,535

 
7,200

 

 
48,151

Deposits
21,710

 
16,837

 
11,010

 
6,986

 
447

 
56,990

 
 
 
 
 
 
 
 
 
 
 
 
Statistical data:
 
 
 
 
 
 
 
 
 
 
 
Return on average assets (a)
1.30
%
 
1.62
%
 
1.01
%
 
2.29
%
 
N/M

 
0.78
%
Efficiency ratio (b)
60.22

 
46.82

 
57.43

 
60.01

 
N/M

 
68.55

(dollar amounts in millions)
Michigan
 
California
 
Texas
 
Other
Markets
 
Finance
& Other
 
Total
Three Months Ended March 31, 2014
Earnings summary:
 
 
 
 
 
 
 
 
 
 
 
Net interest income (expense) (FTE)
$
183

 
$
172

 
$
136

 
$
72

 
$
(152
)
 
$
411

Provision for credit losses
3

 
11

 
6

 
(10
)
 
(1
)
 
9

Noninterest income
84

 
34

 
34

 
40

 
16

 
208

Noninterest expenses
161

 
96

 
90

 
48

 
11

 
406

Provision (benefit) for income taxes (FTE)
37

 
36

 
26

 
18

 
(52
)
 
65

Net income (loss)
$
66

 
$
63

 
$
48

 
$
56

 
$
(94
)
 
$
139

Net credit-related charge-offs (recoveries)
$

 
$
10

 
$
6

 
$
(4
)
 
$

 
$
12

 
 
 
 
 
 
 
 
 
 
 
 
Selected average balances:
 
 
 
 
 
 
 
 
 
 
 
Assets
$
13,819

 
$
15,133

 
$
11,070

 
$
6,865

 
$
17,821

 
$
64,708

Loans
13,473

 
14,824

 
10,364

 
6,414

 

 
45,075

Deposits
20,642

 
14,782

 
10,875

 
5,901

 
570

 
52,770

 
 
 
 
 
 
 
 
 
 
 
 
Statistical data:
 
 
 
 
 
 
 
 
 
 
 
Return on average assets (a)
1.22
%
 
1.59
%
 
1.56
%
 
3.28
%
 
N/M

 
0.86
%
Efficiency ratio (b)
60.47

 
46.66

 
52.94

 
43.28

 
N/M

 
65.79

(a)
Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.
(b)    Noninterest expenses as a percentage of the sum of net interest income (FTE) and noninterest income excluding net securities gains.
FTE – Fully Taxable Equivalent
N/M – not meaningful

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ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. In addition, the Corporation may make other written and oral communications from time to time that contain such statements. All statements regarding the Corporation's expected financial position, strategies and growth prospects and general economic conditions expected to exist in the future are forward-looking statements. The words, "anticipates," "believes," "contemplates," "feels," "expects," "estimates," "seeks," "strives," "plans," "intends," "outlook," "forecast," "position," "target," "mission," "assume," "achievable," "potential," "strategy," "goal," "aspiration," "opportunity," "initiative," "outcome," "continue," "remain," "maintain," "on course," "trend," "objective," "looks forward," "projects," "models," and variations of such words and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions, as they relate to the Corporation or its management, are intended to identify forward-looking statements. These forward-looking statements are predicated on the beliefs and assumptions of the Corporation's management based on information known to the Corporation's management as of the date of this report and do not purport to speak as of any other date. Forward-looking statements may include descriptions of plans and objectives of the Corporation's management for future or past operations, products or services, and forecasts of the Corporation's revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries, estimates of credit trends and global stability. Such statements reflect the view of the Corporation's management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, the Corporation's actual results could differ materially from those discussed. Factors that could cause or contribute to such differences are changes in general economic, political or industry conditions; changes in monetary and fiscal policies, including changes in interest rates; changes in regulation or oversight; Comerica's ability to maintain adequate sources of funding and liquidity; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of Comerica's customers, including the energy industry; operational difficulties, failure of technology infrastructure or information security incidents; reliance on other companies to provide certain key components of business infrastructure; factors impacting noninterest expenses which are beyond Comerica's control; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; changes in Comerica's credit rating; unfavorable developments concerning credit quality; the interdependence of financial service companies; the implementation of Comerica's strategies and business initiatives; Comerica's ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; competitive product and pricing pressures among financial institutions within Comerica's markets; changes in customer behavior; any future strategic acquisitions or divestitures; management's ability to maintain and expand customer relationships; management's ability to retain key officers and employees; the impact of legal and regulatory proceedings or determinations; the effectiveness of methods of reducing risk exposures; the effects of terrorist activities and other hostilities; the effects of catastrophic events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods; changes in accounting standards and the critical nature of Comerica's accounting policies. The Corporation cautions that the foregoing list of factors is not exclusive. For discussion of factors that may cause actual results to differ from expectations, please refer to our filings with the Securities and Exchange Commission. In particular, please refer to “Item 1A. Risk Factors” beginning on page 12 of Comerica's Annual Report on Form 10-K for the year ended December 31, 2014. Forward-looking statements speak only as of the date they are made. The Corporation does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. For any forward-looking statements made in this report or in any documents, the Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

34

Table of Contents

RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2015 was $134 million, a decrease of $5 million from $139 million reported for the three months ended March 31, 2014. The decrease in net income primarily reflected increases in technology-related and revenue-generating noninterest expenses and the provision for credit losses, partially offset by increases in noninterest income and net interest income. Net income per diluted common share was $0.73 for both the three-month periods ended March 31, 2015 and 2014. Average diluted common shares were 182 million and 187 million for the three months ended March 31, 2015 and 2014, respectively.
Full-Year 2015 Outlook Compared to Full-Year 2014
Management expectations for full-year 2015 compared to full-year 2014, assuming a continuation of the current economic and low-rate environment, are as follows:
Average full-year loan growth consistent with 2014, reflecting typical seasonality throughout the year and continued focus on pricing and structure discipline.
Net interest income relatively stable, assuming no rise in interest rates, reflecting a decrease of about $30 million in purchase accounting accretion, to about $6 million, and the impact of a continuing low rate environment on asset yields, offset by earning asset growth.
Provision for credit losses higher, consistent with modest net charge-offs and continued loan growth.
Noninterest income relatively stable, excluding the impact of a change in accounting presentation for a card program. Stable noninterest income reflects growth in fee income, particularly card fees and fiduciary income, mostly offset by a decline in warrant income and regulatory impacts on letter of credit and derivative income.
Noninterest expenses higher, excluding the impact of a change in accounting presentation for a card program, reflecting increases in technology, regulatory and pension expenses, as well as typical inflationary pressures, with continued focus on driving efficiencies for the long term. Technology and regulatory expenses are expected to increase approximately $40 million in total compared to 2014.
Income tax expense to approximate 33 percent of pre-tax income.

For information about the change in accounting presentation for a card program, refer to Note 1 to the unaudited consolidated financial statements and under the "Noninterest Income" subheading later in this section of the financial review.

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Table of Contents

Net Interest Income
The "Quarterly Analysis of Net Interest Income & Rate/Volume - Fully Taxable Equivalent" table that follows provides an analysis of net interest income (FTE) for the three months ended March 31, 2015 and 2014 and details the components of the change in net interest income on a FTE basis for the three months ended March 31, 2015 compared to the same period in the prior year.
Quarterly Analysis of Net Interest Income & Rate/Volume - Fully Taxable Equivalent (FTE)
 
Three Months Ended
 
March 31, 2015
 
March 31, 2014
(dollar amounts in millions)
Average
Balance
Interest
Average
Rate
 
Average
Balance
Interest
Average
Rate
Commercial loans
$
31,090

$
235

3.06
%
 
$
28,362

$
221

3.17
%
Real estate construction loans
1,938

16

3.36

 
1,827

15

3.40

Commercial mortgage loans
8,581

73

3.44

 
8,770

86

3.97

Lease financing
797

6

3.05

 
848

9

4.07

International loans
1,512

14

3.71

 
1,301

12

3.68

Residential mortgage loans
1,856

17

3.76

 
1,724

17

3.86

Consumer loans
2,377

19

3.21

 
2,243

17

3.16

Total loans (a)
48,151

380

3.19

 
45,075

377

3.39

 
 
 
 
 
 
 
 
Mortgage-backed securities (b)
9,071

51

2.26

 
8,911

55

2.42

Other investment securities
836

2

1.10

 
371


0.43

Total investment securities (b)
9,907

53

2.16

 
9,282

55

2.34

 
 
 
 
 
 
 
 
Interest-bearing deposits with banks
5,323

3

0.26

 
5,448

4

0.26

Other short-term investments
99


1.11

 
111


0.66

Total earning assets
63,480

436

2.78

 
59,916

436

2.94

 
 
 
 
 
 
 
 
Cash and due from banks
1,027

 
 
 
913

 
 
Allowance for loan losses
(601
)
 
 
 
(603
)
 
 
Accrued income and other assets
4,833

 
 
 
4,482

 
 
Total assets
$
68,739

 
 
 
$
64,708

 
 
 
 
 
 
 
 
 
 
Money market and interest-bearing checking deposits
$
23,960

6

0.11

 
$
22,261

6

0.11

Savings deposits
1,786


0.03

 
1,700


0.03

Customer certificates of deposit
4,423

4

0.37

 
5,109

5

0.36

Foreign office time deposits
124

1

1.46

 
464


0.42

Total interest-bearing deposits
30,293

11

0.15

 
29,534

11

0.15

Short-term borrowings
110


0.06

 
185


0.03

Medium- and long-term debt
2,690

11

1.72

 
3,545

14

1.53

Total interest-bearing sources
33,093

22

0.27

 
33,264

25

0.30

 
 
 
 
 
 
 
 
Noninterest-bearing deposits
26,697

 
 
 
23,236

 
 
Accrued expenses and other liabilities
1,496

 
 
 
979

 
 
Total shareholders’ equity
7,453

 
 
 
7,229

 
 
Total liabilities and shareholders’ equity
$
68,739

 
 
 
$
64,708

 
 
 
 
 
 
 
 
 
 
Net interest income/rate spread (FTE)
 
$
414

2.51

 
 
$
411

2.64

 
 
 
 
 
 
 
 
FTE adjustment
 
$
1

 
 
 
$
1

 
 
 
 
 
 
 
 
 
Impact of net noninterest-bearing sources of funds
 
 
0.13

 
 
 
0.13

Net interest margin (as a percentage of average earning assets) (FTE) (a)
 
 
2.64
%
 
 
 
2.77
%
(a)
Accretion of the purchase discount on the acquired loan portfolio of $3 million and $12 million in the three-month periods ended March 31, 2015 and 2014, respectively, increased the net interest margin by 2 basis points and 8 basis points in each respective period.
(b)
Includes investment securities available-for-sale and investment securities held-to-maturity.




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Table of Contents

Quarterly Analysis of Net Interest Income & Rate/Volume - Fully Taxable Equivalent (FTE) (continued)
 
Three Months Ended
 
March 31, 2015/March 31, 2014
(in millions)
Increase
(Decrease)
Due to Rate
Increase
(Decrease)
Due to 
Volume (a)
Net
Increase
(Decrease)
Interest Income (FTE):
 
 
 
 
 
 
Loans
$
(21
)
 
$
24

 
$
3

 
Investment securities (b)
(3
)
 
1

 
(2
)
 
Interest-bearing deposits with banks

 
(1
)
 
(1
)
 
Total interest income (FTE)
(24
)
 
24

 

 
 
 
 
 
 
 
 
Interest Expense:
 
 
 
 
 
 
Interest-bearing deposits
1

 
(1
)
 

 
Medium- and long-term debt
1

 
(4
)
 
(3
)
 
Total interest expense
2

 
(5
)
 
(3
)
 
Net interest income (FTE)
$
(26
)
 
$
29

 
$
3

 
(a)
Rate/volume variances are allocated to variances due to volume.
(b)
Includes investment securities available-for-sale and investment securities held-to-maturity.
Net interest income was $413 million for the three months ended March 31, 2015, an increase of $3 million compared to $410 million for the three months ended March 31, 2014. The increase in net interest income resulted primarily from the benefit provided by an increase in average earning assets and a decrease in average medium- and long-term debt, partially offset by the impact of lower yields on loans and investment securities. Average earning assets increased $3.6 billion, or 6 percent, to $63.5 billion for the three months ended March 31, 2015, compared to $59.9 billion for the same period in 2014. The increase in average earning assets primarily reflected increases of $3.1 billion in average loans and $625 million in average investment securities, partially offset by a decrease of $125 million in average interest-bearing deposits with banks. The net interest margin (FTE) for the three months ended March 31, 2015 decreased 13 basis points to 2.64 percent, from 2.77 percent for the comparable period in 2014, primarily from lower yields on loans and investment securities, partially offset by the benefit from lower funding costs. The decrease in loan yields reflected a decrease in accretion on the acquired loan portfolio, shifts in the average loan portfolio mix, the impact of a competitive low-rate environment and improvements in credit quality. Accretion of the purchase discount on the acquired loan portfolio increased the net interest margin by 2 basis points for the three months ended March 31, 2015, compared to 8 basis points for the same period in 2014. Average balances deposited with the Federal Reserve Bank (FRB) were $5.2 billion and $5.3 billion in the three months ended March 31, 2015 and 2014, respectively, and are included in "interest bearing deposits with banks" on the consolidated balance sheets.
For further discussion of the effects of market rates on net interest income, refer to the "Market and Liquidity Risk" section of this financial review.
Provision for Credit Losses
The provision for credit losses was $14 million for the three months ended March 31, 2015, compared to $9 million for the same period in 2014. The provision for credit losses includes both the provision for loan losses and the provision for credit losses on lending-related commitments.
The provision for loan losses is recorded to maintain the allowance for loan losses at the level deemed appropriate by the Corporation to cover probable credit losses inherent in the portfolio. The provision for loan losses was $16 million for the three months ended March 31, 2015, compared to $8 million for the three months ended March 31, 2014. The increase in the provision primarily reflects the impact of loan growth and increased reserves for loans related to energy, which could be negatively impacted by prolonged low oil and gas prices, partially offset by improvements in credit quality in the remainder of the portfolio. Improvements in credit quality included a decline of $72 million in the Corporation's criticized loan list from March 31, 2014 to March 31, 2015. Reflected in the decline in criticized loans was a decrease in nonaccrual loans of $51 million. The Corporation's criticized loan list is consistent with loans in the Special Mention, Substandard and Doubtful categories defined by regulatory authorities.
Net loan charge-offs in the three months ended March 31, 2015 decreased $4 million to $8 million, or 0.07 percent of average total loans, compared to $12 million, or 0.10 percent, for the three months ended March 31, 2014. The $4 million decrease in net loan charge-offs in the three months ended March 31, 2015, compared to the same period in 2014, primarily reflected decreases in Technology and Life Sciences, Commercial Real Estate and Small Business, partially offset by an increase in general Middle Market.
The provision for credit losses on lending-related commitments is recorded to maintain the allowance for credit losses

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Table of Contents

on lending-related commitments at the level deemed appropriate by the Corporation to cover probable credit losses inherent in lending-related commitments. The provision for credit losses on lending-related commitments was a benefit of $2 million in the three months ended March 31, 2015, compared to a provision of $1 million in the three months ended March 31, 2014. The $3 million decrease in the provision for credit losses on lending-related commitments in the three months ended March 31, 2015 compared to the same period in 2014, primarily reflected improvements in credit quality and a decrease in letters of credit outstanding. Lending-related commitment charge-offs were insignificant for the three months ended March 31, 2015 and 2014.
An analysis of the allowance for credit losses and nonperforming assets is presented under the "Credit Risk" subheading in the "Risk Management" section of this financial review.
Noninterest Income
 
Three Months Ended March 31,
(in millions)
2015
 
2014
Service charges on deposit accounts
$
55

 
$
54

Fiduciary income
48

 
44

Commercial lending fees
25

 
20

Card fees
68

 
23

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 (a)
26

 
29

Total noninterest income
$
256

 
$
208

(a)
The table below provides further details on certain categories included in other noninterest income.
Noninterest income was $256 million for the three months ended March 31, 2015, an increase of $48 million compared to $208 million for the same period in 2014. Effective January 1, 2015, contractual changes to a card program resulted in a change to the accounting presentation of the related revenues and expenses. The effect of the change was an increase of $44 million to both noninterest income and noninterest expenses in the first quarter 2015. Excluding the impact of this change, noninterest income increased $4 million.
Commercial lending fees increased $5 million, primarily reflecting increased revenue from syndication agent fees. Fiduciary income increased $4 million, primarily due to an increase in personal trust revenue, reflecting increases in volume and market value. Excluding the impact of the accounting presentation change described above, card fees increased $1 million, primarily due to a change to the Corporation's strategy for providing merchant payment processing services. The Corporation is winding down its participation in a joint venture that provides merchant payment processing services. Income from the joint venture is recorded in other noninterest income using the equity method. The Corporation now directly enters into agreements with its merchants and uses a third party to process the transactions. Pursuant to the agreements with the merchants and the arrangement with the third-party vendor, merchant payment processing income is recognized in card fees, and related processing expense is recognized in outside processing fees in noninterest expenses. For further discussion about the impact of using a third party to process merchant transactions on outside processing fees, refer to the "Noninterest Expenses" subheading below.
Partially offsetting the increases in noninterest income was a $3 million decrease from securities losses of $2 million for the three months ended March 31, 2015 compared to a $1 million gain for the same period in 2014, as well as small decreases in several categories of other noninterest income as can be seen in the table below.
 
Three Months Ended March 31,
(in millions)
2015
 
2014
Investment banking fees
$
4

 
$
4

Customer derivative income
3

 
4

Insurance commissions
3

 
4

Securities trading income
2

 
1

Deferred compensation asset returns (a)
1

 
2

Income from principal investing and warrants

 
2

All other noninterest income
13

 
12

Other noninterest income
$
26

 
$
29

(a)
Compensation deferred by the Corporation's officers is invested based on investment selections of the officers. Income earned on these assets is reported in noninterest income and the offsetting increase in liability is reported in salaries and benefits expense.

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Table of Contents

Noninterest Expenses
 
Three Months Ended March 31,
(in millions)
2015
 
2014
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

Noninterest expenses were $460 million for the three months ended March 31, 2015, an increase of $54 million compared to $406 million for the three months ended March 31, 2014. Excluding the impact of the above-described accounting presentation change, noninterest expenses increased $10 million in the three months ended March 31, 2015, compared to the same period in the prior year. Salaries and benefits expense increased $6 million, primarily reflecting an increase in technology-related contract labor expense and the impact of merit increases effective in second quarter 2014. Excluding the impact of the accounting presentation change described above, outside processing fee expense increased $6 million, largely due to up-front costs incurred for converting customers to a new vendor for providing merchant payment processing services, as discussed under the "Noninterest Income" subheading above, as well as smaller increases in other outside processing expenses related to revenue-generating activities.
STRATEGIC LINES OF BUSINESS
The Corporation's management accounting system assigns balance sheet and income statement items to each segment using certain methodologies, which are regularly reviewed and refined. These methodologies may be modified as the management accounting system is enhanced and changes occur in the organizational structure and/or product lines. Note 22 to the consolidated financial statements in the Corporation's 2014 Annual Report describes the Corporation's segment reporting methodology.
In the second quarter 2014, the Corporation enhanced the approach used to determine the standard reserve factors used in estimating the allowance for credit losses, which had the effect of capturing certain elements in the standard reserve component that had formerly been included in the qualitative assessment. The impact of the change was largely neutral to the total allowance for loan losses at June 30, 2014. However, because standard reserves are allocated to the segments at the loan level, while qualitative reserves are allocated at the portfolio level, the impact of the methodology change on the allowance of each segment reflected the characteristics of the individual loans within each segment's portfolio, causing segment reserves to increase or decrease accordingly. As a result, the current year provision for credit losses within each segment is not comparable to prior year amounts.
Business Segments
The Corporation's operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank and Wealth Management. These business segments are differentiated based upon the products and services provided. In addition to the three major business segments, Finance is also reported as a segment. The Other category includes items not directly associated with these business segments or the Finance segment. The performance of the business segments is not comparable with the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Note 13 to the consolidated financial statements describes the business activities of each business segment and presents financial results of these business segments for the three months ended March 31, 2015 and 2014.

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Table of Contents

The following table presents net income (loss) by business segment.
 
Three Months Ended March 31,
(dollar amounts in millions)
2015
 
2014
Business Bank
$
189

 
85
%
 
$
200

 
86
%
Retail Bank
17

 
8

 
9

 
4

Wealth Management
16

 
7

 
24

 
10

 
222

 
100
%
 
233

 
100
%
Finance
(89
)
 
 
 
(92
)
 
 
Other (a)
1

 
 
 
(2
)
 
 
Total
$
134

 
 
 
$
139

 
 
(a)    Includes items not directly associated with the three major business segments or the Finance Division.
The Business Bank's net income of $189 million for the three months ended March 31, 2015 decreased $11 million compared to the three months ended March 31, 2014. Net interest income (FTE) of $370 million for the three months ended March 31, 2015 decreased $1 million compared to the same period in the prior year, as the benefit from a $2.8 billion increase in average loans and the funds transfer pricing (FTP) benefit provided by a $3.1 billion increase in average deposits were more than offset by a decrease in accretion of the purchase discount on the acquired loan portfolio, lower loan yields and a lower FTP crediting rate. The allowance for credit losses increased $8 million, primarily reflecting the impact of loan growth and increased reserves for loans related to energy, including a qualitative component, partially offset by credit quality improvements in the remainder of the portfolio. Net credit-related charge-offs of $9 million decreased $2 million in the three months ended March 31, 2015, compared to the three months ended March 31, 2014, primarily reflecting decreases in Technology and Life Sciences and Commercial Real Estate, partially offset by an increase in general Middle Market. The provision for credit losses increased $9 million to $25 million for the three months ended March 31, 2015, compared to the same period in the prior year. Excluding the impact of the change in accounting presentation for a card program discussed previously under the "Noninterest Income" subheading of the "Results of Operations" section of this financial review, noninterest income for the three months ended March 31, 2015 increased $7 million from the comparable period in the prior year, primarily reflecting an increase in commercial lending fees. Excluding the impact of the change in accounting presentation for a card program, noninterest expenses for the three months ended March 31, 2015 increased $10 million compared to the same period in the prior year, primarily due to a $4 million increase in corporate overhead, a $3 million increase in outside processing expenses largely due to the up-front costs incurred for converting customers to a new vendor for providing merchant payment processing services, as previously discussed under the "Noninterest Income" subheading, and a $3 million increase in salaries and benefits expense, primarily reflecting the impact of merit increases.
Net income for the Retail Bank of $17 million for the three months ended March 31, 2015 increased $8 million, compared to $9 million for the three months ended March 31, 2014. Net interest income (FTE) of $151 million increased $4 million in the three months ended March 31, 2015, primarily due to the benefit provided by a $166 million increase in average loans, the FTP benefit provided by a $783 million increase in average deposits and lower deposit rates, partially offset by a decrease in accretion of the purchase discount on the acquired loan portfolio and a lower FTP crediting rate. The provision for credit losses was a benefit of $8 million for the three months ended March 31, 2015, a decrease of $10 million from the comparable period in the prior year, primarily reflecting a decrease in Small Business. Net credit-related charge-offs were zero for the three months ended March 31, 2015 compared to $4 million in the same period in the prior year, reflecting a decrease in Small Business. Noninterest income of $43 million for the three months ended March 31, 2015 increased $2 million compared to the three months ended March 31, 2014, due to small increases in several noninterest income categories. Noninterest expenses of $176 million for the three months ended March 31, 2015 increased $3 million from the comparable period in the prior year, primarily due to increases of $2 million in salaries and benefits expense, primarily reflecting the impact of merit increases, and $2 million in outside processing expenses related to revenue-generating activities.
Wealth Management's net income of $16 million for the three months ended March 31, 2015 decreased $8 million, compared to $24 million for the three months ended March 31, 2014. Net interest income (FTE) of $43 million for the three months ended March 31, 2015 decreased $2 million compared to the same period in the prior year, primarily reflecting a decrease in net FTP credits. Average loans increased $73 million and average deposits increased $414 million. The provision for credit losses was a benefit of $1 million for the three months ended March 31, 2015, compared to a benefit of $8 million for the three months ended March 31, 2014. Net credit-related recoveries were $1 million for the three months ended March 31, 2015, compared to recoveries of $3 million for the three months ended March 31, 2014. Noninterest income of $58 million decreased $2 million, primarily reflecting a $3 million decrease from securities losses of $2 million for the three months ended March 31, 2015 compared to a $1 million gain for the same period in 2014. Noninterest expenses of $77 million for the three months ended March 31, 2015 increased $1 million from the comparable period in the prior year.
The net loss in the Finance segment was $89 million for the three months ended March 31, 2015, compared to a net loss of $92 million for the three months ended March 31, 2014. Net interest expense (FTE) of $152 million for the three months ended

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March 31, 2015 decreased $6 million, compared to the three months ended March 31, 2014, primarily reflecting a decrease in net FTP expense as a result of lower rates paid to the business segments under the Corporation's internal FTP methodology.
Market Segments
Market segment results are provided for the Corporation's three largest geographic markets: Michigan, California and Texas. In addition to the three largest geographic markets, Other Markets is also reported as a market segment. The Finance & Other category includes the Finance segment and the Other category as previously described in the "Business Segments" section of this financial review. Note 13 to these consolidated financial statements presents a description of each of these market segments as well as the financial results for the three months ended March 31, 2015 and 2014.
The following table presents net income (loss) by market segment.
 
Three Months Ended March 31,
(dollar amounts in millions)
2015
 
2014
Michigan
$
73

 
33
%
 
$
66

 
28
%
California
73

 
33

 
63

 
27

Texas
32

 
14

 
48

 
21

Other Markets
44

 
20

 
56

 
24

 
222

 
100
%
 
233

 
100
%
Finance & Other (a)
(88
)
 
 
 
(94
)
 
 
Total
$
134

 
 
 
$
139

 
 
(a)    Includes items not directly associated with the market segments.
The Michigan market's net income of $73 million for the three months ended March 31, 2015 increased $7 million, compared to $66 million for the three months ended March 31, 2014. Net interest income (FTE) of $177 million for the three months ended March 31, 2015 decreased $6 million from the comparable period in the prior year, primarily due to lower loan yields, the impact of a $250 million decrease in average loans and a lower FTP crediting rate, partially offset by the FTP benefit provided by a $1.1 billion increase in average deposits and lower deposit rates. The provision for credit losses was a benefit of $8 million for the three months ended March 31, 2015, compared to a provision of $3 million for the comparable period in the prior year. Net credit-related charge-offs were $3 million for the three months ended March 31, 2015, compared to zero for the comparable period in the prior year, primarily reflecting an increase in general Middle Market, partially offset by decreases in Commercial Real Estate and Small Business. Noninterest income of $81 million for the three months ended March 31, 2015 decreased $3 million from the comparable period in the prior year, reflecting small decreases in several noninterest income categories. Noninterest expenses of $155 million for the three months ended March 31, 2015 decreased $6 million from the comparable period in the prior year, primarily reflecting a $3 million decrease in litigation-related expense and small decreases in several other noninterest expense categories.
The California market's net income of $73 million increased $10 million in the three months ended March 31, 2015, compared to $63 million for the three months ended March 31, 2014. Net interest income (FTE) of $176 million for the three months ended March 31, 2015 increased $4 million from the comparable period in the prior year, primarily due to the benefit provided by a $1.4 billion increase in average loans and the FTP benefit provided by a $2.1 billion increase in average deposits, partially offset by lower loan yields and a lower FTP crediting rate. The provision for credit losses was a benefit of $3 million for the three months ended March 31, 2015, compared to a provision of $11 million for the comparable period in the prior year. Net credit-related charge-offs of $1 million in the three months ended March 31, 2015 decreased $9 million compared to the three months ended March 31, 2014, primarily reflecting a decrease in Technology and Life Sciences. Noninterest income of $38 million for the three months ended March 31, 2015 increased $4 million compared to the three months ended March 31, 2014, primarily reflecting a $2 million increase in syndication agent fees and small increases in several other categories. Noninterest expenses of $100 million for the three months ended March 31, 2015 increased $4 million from the comparable period in the prior year, primarily reflecting small increases in several noninterest expense categories.
The Texas market's net income of $32 million for the three months ended March 31, 2015 decreased $16 million from $48 million for the three months ended March 31, 2014. Net interest income (FTE) of $131 million for the three months ended March 31, 2015 decreased $5 million from the comparable period in the prior year, primarily due to a decrease in accretion of the purchase discount on the acquired loan portfolio, lower loan yields and a decrease in net FTP credits due to a lower FTP crediting rate, partially offset by the benefit provided by a $1.2 billion increase in average loans. The provision for credit losses of $21 million for the three months ended March 31, 2015 increased $15 million from the comparable period in the prior year, primarily reflecting the impact of loan growth and increased reserves for loans related to energy, including a qualitative component, partially offset by credit quality improvements in the remainder of the portfolio. Net credit-related charge-offs of $3 million for the three months ended March 31, 2015 decreased $3 million from the comparable period in the prior year, primarily due to a decrease Technology and Life Sciences. Noninterest income of $36 million for the three months ended March 31, 2015 increased $2 million compared to the comparable period in the prior year, primarily due to small increases in several noninterest income categories.

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Noninterest expenses of $96 million for the three months ended March 31, 2015 increased $6 million compared to the three months ended March 31, 2014, primarily reflecting a $2 million increase in salaries and benefits expense and small increases in several other noninterest expense categories.
Net income in Other Markets of $44 million for the three months ended March 31, 2015 decreased $12 million from the three months ended March 31, 2014. Net interest income (FTE) of $80 million for the three months ended March 31, 2015 increased $8 million from the comparable period in the prior year, primarily due to the benefit provided by an increase in average loans of $786 million and the FTP benefit provided by a $1.1 billion increase in average deposits, partially offset by the impact of a lower FTP crediting rate. The provision for credit losses of $6 million increased $16 million in the three months ended March 31, 2015, compared to the same period in the prior year. Net credit-related charge-offs were $1 million for the three months ended March 31, 2015, compared to net recoveries of $4 million for the comparable period in the prior year, primarily reflecting increases in Commercial Real Estate and Corporate Banking. Excluding the impact of the change in accounting presentation for a card program discussed previously under the "Noninterest Income" subheading of the "Results of Operations" section of this financial review, noninterest income for the three months ended March 31, 2015 increased $4 million from the comparable period in the prior year, primarily reflecting increases of $2 million in customer derivative income, $2 million in fiduciary income and small increases in several other noninterest income categories, partially offset by a $3 million decrease from securities losses of $2 million for the three months ended March 31, 2015 compared to a $1 million gain for the same period in 2014. Excluding the impact of the change in accounting presentation for a card program, noninterest expenses for the three months ended March 31, 2015 increased $10 million compared to the same period in the prior year, primarily due to a $2 million increase in corporate overhead expense and small increases in several categories of noninterest expense.
The net loss for the Finance & Other category of $88 million in the three months ended March 31, 2015 decreased $6 million compared to the three months ended March 31, 2014. For further information, refer to the Finance segment discussion under the "Business Segments" subheading above.
The following table lists the Corporation's banking centers by geographic market segment.
 
March 31,
 
2015
 
2014
Michigan
214

 
214

Texas
135

 
136

California
104

 
105

Other Markets:
 
 
 
Arizona
19

 
18

Florida
9

 
9

Canada
1

 
1

Total
482

 
483


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FINANCIAL CONDITION
Total assets were $69.3 billion at March 31, 2015, an increase of $146 million from $69.2 billion at December 31, 2014, primarily reflecting increases of $479 million in total loans and $144 million in cash and due from banks, mostly offset by decreases of $253 million in interest-bearing deposits with banks and $252 million in accrued income and other assets. On an average basis, total assets decreased $572 million to $68.7 billion in the first quarter 2015, compared to $69.3 billion in the fourth quarter 2014, resulting primarily from a decrease of $2.3 billion in average interest-bearing deposits with banks, partially offset by increases of $790 million in average loans, $542 million in average investment securities and $315 million in accrued income and other assets.
The following tables provide information about the change in the Corporation's average loan portfolio in the first quarter 2015, compared to the fourth quarter 2014.
 
Three Months Ended
 
 
 
Percent
Change
(dollar amounts in millions)
March 31, 2015
 
December 31, 2014
 
Change
 
Average Loans:
 
 
 
 
 
 
 
Commercial loans by business line:
 
 
 
 
 
 
 
General Middle Market
$
10,465

 
$
10,296

 
$
169

 
2
 %
National Dealer Services
4,222

 
4,115

 
107

 
3

Energy
3,653

 
3,443

 
210

 
6

Technology and Life Sciences
2,686

 
2,531

 
155

 
6

Environmental Services
904

 
885

 
19

 
2

Entertainment
577

 
557

 
20

 
4

Total Middle Market
22,507

 
21,827

 
680

 
3

Corporate Banking
3,306

 
3,305

 
1

 

Mortgage Banker Finance
1,399

 
1,396

 
3

 

Commercial Real Estate
833

 
862

 
(29
)
 
(3
)
Total Business Bank commercial loans
28,045


27,390

 
655

 
2

Total Retail Bank commercial loans
1,721

 
1,627

 
94

 
6

Total Wealth Management commercial loans
1,324

 
1,374

 
(50
)
 
(4
)
Total commercial loans
31,090

 
30,391

 
699

 
2

Real estate construction loans
1,938

 
1,920

 
18

 
1

Commercial mortgage loans
8,581

 
8,609

 
(28
)
 

Lease financing
797

 
818

 
(21
)
 
(3
)
International loans
1,512

 
1,455

 
57

 
4

Residential mortgage loans
1,856

 
1,821

 
35

 
2

Consumer loans
2,377

 
2,347

 
30

 
1

Total loans
$
48,151

 
$
47,361

 
$
790

 
2
 %
Average Loans By Geographic Market:
 
 
 
 
 
 
 
Michigan
$
13,223

 
$
13,142

 
$
81

 
1
 %
California
16,193

 
15,777

 
416

 
3

Texas
11,535

 
11,327

 
208

 
2

Other Markets
7,200

 
7,115

 
85

 
1

Total loans
$
48,151

 
$
47,361

 
$
790

 
2
 %
Average loans for the three months ended March 31, 2015 increased $790 million, compared to the three months ended December 31, 2014, led by increases of $699 million, or 2 percent in average commercial loans and $57 million, or 4 percent in average international loans. The $699 million increase in average commercial loans primarily reflected increases of $210 million in Energy, $169 million in general Middle Market, $155 million in Technology and Life Sciences, $107 million in National Dealer Services and $92 million in Small Business. In general, Middle Market serves customers with annual revenue between $20 million and $500 million; while Corporate serves customers with revenue over $500 million. Changes in average total loans by geographic market is provided in the table above.
Investment securities increased $34 million to $10.1 billion at March 31, 2015, from $10.1 billion at December 31, 2014. Net unrealized gains on investment securities available-for-sale increased $47 million to a net unrealized gain of $128 million at March 31, 2015, compared to $81 million at December 31, 2014. On an average basis, investment securities available-for-sale increased $542 million in the first quarter 2015, compared to the fourth quarter 2014, primarily reflecting the purchase of approximately $500 million of U.S. Treasury securities in late December, 2014.

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The Corporation has been purchasing Government National Mortgage Association (GNMA) residential mortgage-backed securities (RMBS) to replace paydowns on RMBS issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (government-sponsored enterprises), as GNMA securities receive more favorable treatment under Liquidity Coverage Ratio (LCR) rules, as further discussed under the "Wholesale Funding" subheading in the "Risk Management" section of this financial review. The following table provides a summary of the composition of the Corporation's RMBS portfolio.
 
March 31, 2015
 
December 31, 2014
(dollar amounts in millions)
Amount
 
Percent of Total
 
Amount
 
Percent of Total
RMBS issued by GNMA
$
2,471

 
27
%
 
$
2,111

 
23
%
RMBS issued by government-sponsored enterprises
6,807

 
73

 
7,098

 
77

Total RMBS
$
9,278

 
100
%
 
$
9,209

 
100
%
Total liabilities increased $48 million to $61.8 billion at March 31, 2015, compared to $61.8 billion at December 31, 2014, primarily reflecting an increase of $84 million in total deposits, partially offset by a decrease of $36 million in short-term borrowings. On an average basis, total liabilities decreased $507 million in the first quarter 2015, compared to the fourth quarter 2014, primarily due to a decrease of $807 million in noninterest-bearing deposits, partially offset by an increase of $313 million in accrued expenses and other liabilities. The decrease in average noninterest-bearing deposits primarily reflected a decrease in Corporate Banking ($794 million). By geographic market, average noninterest-bearing deposits decreased in California ($1.2 million), partially offset by increases in Michigan ($156 million), Other Markets ($140 million) and Texas ($55 million).
Capital
Total shareholders' equity increased $98 million to $7.5 billion at March 31, 2015, compared to December 31, 2014. The following table presents a summary of changes in total shareholders' equity in the three months ended March 31, 2015.
(in millions)
  
 
 
Balance at January 1, 2015
 
 
$
7,402

Net income
 
 
134

Cash dividends declared on common stock
 
 
(36
)
Purchase of common stock
 
 
(66
)
Other comprehensive income:
 
 
 
Investment securities
$
31

 
 
Defined benefit and other postretirement plans
11

 
 
Total other comprehensive income
 
 
42

Issuance of common stock under employee stock plans
 
 
7

Share-based compensation
 
 
16

Other
 
 
1

Balance at March 31, 2015
 
 
$
7,500

The Corporation periodically conducts stress tests to evaluate potential impacts to the Corporation's forecasted financial condition under various economic scenarios and business conditions. These stress tests are a normal part of the Corporation's overall risk management and capital planning process and are part of the forecasting process used by the Corporation to conduct the enterprise-wide stress test that was part of the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR). For additional information about risk management processes, refer to the "Risk Management" sections of this financial review and the Corporations 2014 Annual Report.
The Federal Reserve completed its 2015 CCAR review in March 2015 and did not object to the Corporation's capital plan and capital distributions contemplated in the plan. The plan provides for up to $393 million in equity repurchases for the five-quarter period ending June 30, 2016. The capital plan further included a 1-cent increase in the quarterly dividend to $0.21 per common share. The dividend proposal was approved by the Board of Directors of the Corporation (the Board) on April 28, 2015 and will be effective for the dividend payable July 1, 2015.


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The following table summarizes the Corporation's repurchase activity during the three months ended March 31, 2015.
(shares in thousands)
Total Number of Shares and Warrants Purchased as 
Part of Publicly Announced Repurchase Plans or Programs
 
Remaining
Repurchase
Authorization (a)
 
Total Number
of Shares
Purchased (b)
 
Average Price
Paid Per 
Share
 
Average Price Paid Per 
Warrant (c)
January 2015
788

 
13,294

 
946

 
$
42.30

 
$

February 2015
566

 
12,728

 
571

 
45.16

 

March 2015

 
12,728

 

 

 

Total first quarter 2015
1,354

 
12,728

 
1,517

 
$
43.38

 
$

(a)
Maximum number of shares and warrants that may yet be purchased under the publicly announced plans or programs. Does not reflect April 28, 2015 authorization for up to an additional 10.0 million share repurchases and the equivalent of an additional 618 thousand shares from warrant repurchases.
(b)
Includes approximately 162,000 shares purchased pursuant to deferred compensation plans and shares purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee share-based compensation plan during the three months ended March 31, 2015. These transactions are not considered part of the Corporation's repurchase program.
(c)
The Corporation made no repurchases of warrants under the repurchase program during the three months ended March 31, 2015.
On April 28, 2015, the Board authorized the repurchase of up to an additional 10.0 million shares of Comerica Incorporated outstanding common stock, in addition to the 2.1 million shares remaining at March 31, 2015 under the Board's prior authorizations for the share repurchase program initially approved in November 2010. Including the April 28, 2015 authorization, a total of 40.3 million shares has been authorized for repurchase under the share repurchase program since its inception in 2010. On April 28, 2015, the Board also authorized the repurchase of up to an additional 2.6 million warrants, in addition to the 10.6 million warrants remaining at March 31, 2015 under an authorization initially approved in November 2010. There is no expiration date for the Corporation's equity repurchase program.
In July 2013, U.S. banking regulators issued a final rule for the U.S. adoption of the Basel III regulatory capital framework (Basel III). Basel III includes a more stringent definition of capital and introduces a new common equity Tier 1 (CET1) capital requirement; sets forth two comprehensive methodologies for calculating risk-weighted assets (RWA), a standardized approach and an advanced approach; introduces two new capital buffers, a conservation buffer and a countercyclical buffer (applicable to advanced approaches entities); establishes a new supplemental leverage ratio (applicable to advanced approaches entities); and sets out minimum capital ratios and overall capital adequacy standards. As a banking organization subject to the standardized approach, Basel III became effective for the Corporation on January 1, 2015. Certain deductions and adjustments to regulatory capital phase in starting January 1, 2015 and will be fully implemented on January 1, 2018. The capital conservation buffer phases in beginning January 1, 2016 and will be fully implemented on January 1, 2019.
Under Basel III, CET1 capital predominantly includes common shareholders’ equity, less certain deductions for goodwill, intangible assets and deferred tax assets that arise from net operating losses and tax credit carry-forwards. Additionally, the Corporation has elected to permanently exclude capital in accumulated other comprehensive income (AOCI) related to debt and equity securities classified as available-for-sale as well as for defined benefit postretirement plans from CET1, an option available to standardized approach entities under Basel III. Tier 1 capital incrementally includes noncumulative perpetual preferred stock. Tier 2 capital includes Tier 1 capital as well as subordinated debt qualifying as Tier 2 and qualifying allowance for credit losses. Certain deductions and adjustments to CET1 capital, Tier 1 capital and Tier 2 capital are subject to phase-in through December 31, 2017.
Comerica computes RWA using the standardized approach. Under the standardized approach, RWA is generally based on supervisory risk-weightings which vary by counterparty type and asset class. Under the Basel III standardized approach, capital is required for credit risk RWA, to cover the risk of unexpected losses due to failure of a customer or counterparty to meet its financial obligations in accordance with contractual terms; and if trading assets and liabilities exceed certain thresholds, capital is also required for market risk RWA, to cover the risk of losses due to adverse market movements or from position-specific factors.

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The following table presents the minimum ratios required to be considered "adequately capitalized" as of March 31, 2015 and December 31, 2014.
 
March 31, 2015
December 31, 2014
 
Basel III Rules
Basel I Rules
Common equity tier 1 capital to risk-weighted assets
 
4.5
%
(a)
 
n/a

 
Tier 1 capital to risk-weighed assets
 
6.0

(a)
 
4.0
%
 
Total capital to risk-weighted assets
 
8.0

(a)
 
8.0

 
Tier 1 capital to adjusted average assets (leverage ratio)
 
4.0

 
 
3.0

 
(a)
In order to avoid restrictions on capital distributions and discretionary bonuses, the Corporation will also be required to maintain a minimum capital conservation buffer, which phases in at 0.625% beginning on January 1, 2016 and ultimately increases to 2.5% on January 1, 2019.
n/a - not applicable.
The Corporation's capital ratios exceeded minimum regulatory requirements as follows:
 
March 31, 2015
 
December 31, 2014
 
(Basel III Rules)
 
(Basel I Rules)
(dollar amounts in millions)
Capital/Assets
 
Ratio
 
Capital/Assets
 
Ratio
Common equity tier 1 (a)
$
7,230

 
10.43
%
 
n/a

 
n/a

Tier 1 common (b)
n/a

 
n/a

 
$
7,169

 
10.50
%
Tier 1 risk-based (a)
7,230

 
10.43

 
7,169

 
10.50

Total risk-based (a)
8,586

 
12.39

 
8,543

 
12.51

Leverage (a)
7,230

 
10.53

 
7,169

 
10.35

Tangible common equity (b)
6,850

 
9.97

 
6,752

 
9.85

Risk-weighted assets (a)
69,314

 
 
 
68,273

 
 
(a)
March 31, 2015 capital and ratios are estimated.
(b)
See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.
n/a - not applicable.
RISK MANAGEMENT
The following updated information should be read in conjunction with the "Risk Management" section on pages F-21 through F-36 in the Corporation's 2014 Annual Report.
Credit Risk
Allowance for Credit Losses
The allowance for credit losses includes both the allowance for loan losses and the allowance for credit losses on lending-related commitments. The allowance for loan losses represents management's assessment of probable, estimable losses inherent in the Corporation's loan portfolio. The allowance for credit losses on lending-related commitments, included in "accrued expenses and other liabilities" on the consolidated balance sheets, provides for probable losses inherent in lending-related commitments, including unused commitments to extend credit and standby letters of credit.
After strong U.S. Gross Domestic Product (GDP) growth last year, averaging 4.8 percent in the second and third quarters of 2014, real GDP growth slowed to 2.2 percent in the fourth quarter of 2014. A similar result is expected for the first quarter 2015. Continuing low oil and gas prices remain a source of uncertainty for the U.S. economy. Also, the strong dollar is a headwind for U.S. exports. The Corporation expects the Federal Reserve will look beyond the soft winter data and focus on the potential for higher inflation in the months ahead. The euro zone economy is gaining momentum this spring despite the fact that Greek fiscal problems remain a risk. Core Europe is expected to grow modestly through 2015, aided by the low-euro tailwind. Recent data from China is pointing to another step down in growth as export demand and construction slow. A firming Europe and a solid U.S. economy should be supportive of Chinese exports.
Improvement in overall credit portfolio metrics is beginning to abate, and the Corporation believes it has generally reached cycle-low levels of criticized loans and loan charge-offs. While the overall credit quality of the loan portfolio remained strong in the first quarter of 2015, economic uncertainty and the impact of low oil and gas prices continued to be a consideration when determining the appropriateness of the allowance for loan losses.
The allowance for loan losses was $601 million at March 31, 2015, compared to $594 million at December 31, 2014, an increase of $7 million, or 1 percent. The increase in the allowance primarily reflected the impact of loan growth and increased reserves for loans related to energy, including an increase in the qualitative component, partially offset by improvements in credit quality in other portfolios.

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Loans related to energy at March 31, 2015 included approximately $3.6 billion of outstanding loans in the Middle Market - Energy business line as well as approximately $750 million of loans in other lines of business to companies that have a sizable portion of their revenue related to energy or could be otherwise disproportionately negatively impacted by prolonged low oil and gas prices. The Corporation generally reviews commitments to energy exploration and production (EP) customers semi-annually, in conjunction with scheduled borrowing base re-determinations. Internal risk ratings for all loans are reviewed at least annually, or more frequently upon the occurrence of a circumstance that affects the credit risk of the loan. During the three months ended March 31, 2015, the Corporation reviewed approximately 35 percent of the internal risk ratings for borrowers in the Middle Market - Energy business line, including approximately 35 percent of EP customers, 40 percent of energy services customers and 25 percent of midstream customers. The reviews resulted in some internal risk rating downgrades, which were incorporated into the quantitative component of the allowance. In addition, the Corporation modestly increased its estimate for the qualitative reserve component for Energy and energy-related loans established at December 31, 2014. Refer to the "Energy Lending" subheading later in this section for further discussion of the Corporation's portfolio of loans related to energy.
The allowance for credit losses on lending-related commitments includes specific allowances, based on individual evaluations of certain letters of credit in a manner consistent with business loans, and allowances based on the pool of the remaining letters of credit and all unused commitments to extend credit within each internal risk rating.
The allowance for credit losses on lending-related commitments was $39 million at March 31, 2015 compared to $41 million at December 31, 2014. The $2 million decrease in the allowance for credit losses on lending-related commitments primarily reflected the impact of decreases in the level of unfunded commitments and issued letters of credit.
For additional information regarding the allowance for credit losses, refer to page F-37 in the "Critical Accounting Policies" section and pages F-54 through F-55 in Note 1 to the consolidated financial statements of the Corporation's 2014 Annual Report.
Nonperforming Assets
Nonperforming assets include loans on nonaccrual status, troubled debt restructured loans (TDRs) which have been renegotiated to less than the original contractual rates (reduced-rate loans) and foreclosed property. TDRs include performing and nonperforming loans. Nonperforming TDRs are either on nonaccrual or reduced-rate status. Nonperforming assets do not include purchased credit impaired (PCI) loans.

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Table of Contents

The following table presents a summary of nonperforming assets and past due loans.
(dollar amounts in millions)
March 31, 2015
 
December 31, 2014
Nonaccrual loans:
 
 
 
Business loans:
 
 
 
Commercial
$
113

 
$
109

Real estate construction
1

 
2

Commercial mortgage
82

 
95

International
1

 

Total nonaccrual business loans
197

 
206

Retail loans:
 
 
 
Residential mortgage
37

 
36

Consumer:
 
 
 
Home equity
31

 
30

Other consumer
1

 
1

Total consumer
32

 
31

Total nonaccrual retail loans
69

 
67

Total nonaccrual loans
266

 
273

Reduced-rate loans
13

 
17

Total nonperforming loans
279

 
290

Foreclosed property
9

 
10

Total nonperforming assets
$
288

 
$
300

Nonperforming loans as a percentage of total loans
0.57
%
 
0.60
%
Nonperforming assets as a percentage of total loans and foreclosed property
0.59

 
0.62

Allowance for loan losses as a percentage of total nonperforming loans
216

 
205

Loans past due 90 days or more and still accruing
$
12

 
$
5

Loans past due 90 days or more and still accruing as a percentage of total loans
0.03
%
 
0.01
%
Nonperforming assets decreased $12 million to $288 million at March 31, 2015, from $300 million at December 31, 2014. The decrease in nonperforming assets primarily reflected a decrease in nonaccrual commercial mortgage loans ($13 million). Nonperforming assets as a percentage of total loans and foreclosed property was 0.59 percent at March 31, 2015, compared to 0.62 percent at December 31, 2014.
The following table presents a summary of TDRs at March 31, 2015 and December 31, 2014.
(in millions)
March 31, 2015
 
December 31, 2014
Nonperforming TDRs:
 
 
 
Nonaccrual TDRs
$
55

 
$
58

Reduced-rate TDRs
13

 
17

Total nonperforming TDRs
68

 
75

Performing TDRs (a)
33

 
43

Total TDRs
$
101

 
$
118

(a)
TDRs that do not include a reduction in the original contractual interest rate which are performing in accordance with their modified terms.
Performing TDRs primarily included $22 million in Small Business Banking, $6 million in Middle Market, and $4 million in Commercial Real Estate at March 31, 2015.

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Table of Contents

The following table presents a summary of changes in nonaccrual loans.
 
Three Months Ended
(in millions)
March 31, 2015
 
December 31, 2014
Balance at beginning of period
$
273

 
$
329

Loans transferred to nonaccrual (a)
39

 
41

Nonaccrual business loan gross charge-offs (b)
(21
)
 
(16
)
Loans transferred to accrual status (a)
(4
)
 
(18
)
Nonaccrual business loans sold (c)
(2
)
 
(24
)
Payments/other (d)
(19
)
 
(39
)
Balance at end of period
$
266

 
$
273

(a) Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(b) Analysis of gross loan charge-offs:
 
 
 
Nonaccrual business loans
$
21

 
$
16

Retail loans
2

 
4

Total gross loan charge-offs
$
23

 
$
20

(c) Analysis of loans sold:
 
 
 
Nonaccrual business loans
$
2

 
$
24

Performing criticized loans
7

 
5

Total criticized loans sold
$
9

 
$
29

(d) Includes net changes related to nonaccrual loans with balances less than $2 million, payments on nonaccrual loans with book balances greater than $2 million, transfers of nonaccrual loans to foreclosed property and retail loan gross charge-offs. Excludes business loan gross charge-offs and nonaccrual business loans sold.
There were five borrowers with balances greater than $2 million, totaling $39 million, transferred to nonaccrual status in the first quarter 2015, a decrease of $2 million when compared to $41 million in the fourth quarter 2014. The transfers to nonaccrual greater than $2 million in the first quarter 2015 included one $3 million transfer of a loan related to energy.
The following table presents the composition of nonaccrual loans by balance and the related number of borrowers at March 31, 2015 and December 31, 2014.
 
March 31, 2015
 
December 31, 2014
(dollar amounts in millions)
Number of
Borrowers
 
Balance
 
Number of
Borrowers
 
Balance
Under $2 million
1,445

 
$
145

 
1,492

 
$
154

$2 million - $5 million
12

 
37

 
15

 
48

$5 million - $10 million
5

 
38

 
3

 
22

$10 million - $25 million
3

 
46

 
2

 
23

Greater than $25 million

 

 
1

 
26

Total
1,465

 
$
266

 
1,513

 
$
273


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Table of Contents

The following table presents a summary of nonaccrual loans at March 31, 2015 and loans transferred to nonaccrual and net loan charge-offs for the three months ended March 31, 2015, based primarily on North American Industry Classification System (NAICS) categories.
 
March 31, 2015
 
Three Months Ended March 31, 2015
(dollar amounts in millions)
Nonaccrual Loans
 
Loans Transferred to
Nonaccrual (a)
 
Net Loan Charge-Offs (Recoveries)
Industry Category
 
 
Residential Mortgage
$
37

 
14
%
 
$

 
%
 
$
(1
)
 
(13
)%
Services
35

 
13

 
2

 
6

 
4

 
50

Real Estate
34

 
13

 

 

 

 

Contractors (b)
25

 
9

 

 

 

 

Health Care and Social Assistance
19

 
7

 

 

 

 

Retail
15

 
6

 
11

 
28

 
3

 
38

Manufacturing
15

 
6

 
9

 
23

 
(3
)
 
(38
)
Holding and Other Investment Companies
14

 
5

 

 

 

 

Wholesale Trade
10

 
4

 
14

 
36

 
3

 
38

Natural Resources
4

 
2

 

 

 

 

Restaurants and Food Service
4

 
1

 

 

 

 

Transportation and Warehousing
3

 
1

 

 

 

 

Mining, Quarrying and Oil & Gas Extraction
1

 
1

 
3

 
7

 
2

 
25

Other (c)
50

 
18

 

 

 

 

Total
$
266

 
100
%
 
$
39

 
100
%
 
$
8

 
100
 %
(a)
Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(b)
Included approximately $20 million of nonaccrual loans related to energy at March 31, 2015.
(c)
Consumer, excluding residential mortgage and certain personal purpose nonaccrual loans and net charge-offs, are included in the “Other” category.
Loans past due 90 days or more and still accruing interest generally represent loans that are well collateralized and in a continuing process of collection. Loans past due 90 days or more and still accruing interest increased $7 million to $12 million at March 31, 2015, compared to $5 million at December 31, 2014. Loans past due 30-89 days decreased $18 million to $145 million at March 31, 2015, compared to $163 million at December 31, 2014.
The following table presents a summary of total criticized loans. Criticized loans with balances of $2 million or more on nonaccrual status or whose terms have been modified in a TDR are individually subjected to quarterly credit quality reviews, and the Corporation may establish specific allowances for such loans.
(dollar amounts in millions)
March 31, 2015
 
December 31, 2014
Total criticized loans
$
2,067

 
$
1,893

As a percentage of total loans
4.2
%
 
3.9
%
The $174 million increase in criticized loans in the three months ended March 31, 2015, included approximately $50 million of loans related to energy.
The following table presents a summary of changes in foreclosed property.
 
Three Months Ended
(in millions)
March 31, 2015
 
December 31, 2014
Balance at beginning of period
$
9

 
$
10

Acquired in foreclosure
2

 
4

Write-downs

 

Foreclosed property sold (a)
(2
)
 
(5
)
Balance at end of period
$
9

 
$
9

(a) Net gain on foreclosed property sold
$

 
$
1


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Table of Contents

Commercial and Residential Real Estate Lending
The following table summarizes the Corporation's commercial real estate loan portfolio by loan category.
(in millions)
March 31, 2015
 
December 31, 2014
Real estate construction loans:
 
 
 
Commercial Real Estate business line (a)
$
1,575

 
$
1,606

Other business lines (b)
342

 
349

Total real estate construction loans
$
1,917

 
$
1,955

Commercial mortgage loans:
 
 
 
Commercial Real Estate business line (a)
$
1,807

 
$
1,790

Other business lines (b)
6,751

 
6,814

Total commercial mortgage loans
$
8,558

 
$
8,604

(a)
Primarily loans to real estate developers.
(b)
Primarily loans secured by owner-occupied real estate.
The Corporation limits risk inherent in its commercial real estate lending activities by limiting exposure to those borrowers directly involved in the commercial real estate markets and adhering to conservative policies on loan-to-value ratios for such loans. Commercial real estate loans, consisting of real estate construction and commercial mortgage loans, totaled $10.5 billion at March 31, 2015, of which $3.4 billion, or 32 percent, were to borrowers in the Commercial Real Estate business line, which includes loans to real estate developers. The remaining $7.1 billion, or 68 percent, of commercial real estate loans in other business lines consisted primarily of owner-occupied commercial mortgages, which bear credit characteristics similar to non-commercial real estate business loans. In the Texas market, commercial real estate loans totaled $2.5 billion at March 31, 2015, of which $1.2 billion were to borrowers in the Commercial Real Estate business line. The remaining $1.3 billion consisted primarily of owner-occupied commercial mortgages. Loans in the Commercial Real Estate business line secured by properties located in Texas totaled $905 million at March 31, 2015, primarily including $499 million for multifamily properties, $121 million for retail properties and and $93 million for commercial properties.
The real estate construction loan portfolio primarily contains loans made to long-time customers with satisfactory completion experience. Credit quality in the real estate construction loan portfolio was strong, with $1 million on nonaccrual status at both March 31, 2015 and December 31, 2014 and no real estate construction loan charge-offs in either of the three-month periods ended March 31, 2015 and 2014.
Loans in the commercial mortgage portfolio generally mature within three to five years. Of the $1.8 billion of commercial mortgage loans in the Commercial Real Estate business line outstanding at both March 31, 2015 and December 31, 2014, $20 million and $22 million were on nonaccrual status at March 31, 2015 and December 31, 2014, respectively. Commercial mortgage loan net recoveries in the Commercial Real Estate business line were $1 million for the three months ended March 31, 2015, compared to net charge-offs of $5 million for the three months ended March 31, 2014. In other business lines, $62 million and $73 million of commercial mortgage loans were on nonaccrual status at March 31, 2015 and December 31, 2014, respectively. Commercial mortgage loan net recoveries in other business lines were $2 million for the three months ended March 31, 2015, compared to zero for the three months ended March 31, 2014.
The following table summarizes the Corporation's residential mortgage and home equity loan portfolios by geographic market.
 
March 31, 2015
 
December 31, 2014
(dollar amounts in millions)
Residential
Mortgage 
Loans
 
% of
Total
 
Home
Equity 
Loans
 
% of
Total
 
Residential
Mortgage 
Loans
 
% of
Total
 
Home
Equity 
Loans
 
% of
Total
Geographic market:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Michigan
$
409

 
22
%
 
$
788

 
47
%
 
$
417

 
23
%
 
$
795

 
48
%
California
847

 
46

 
583

 
35

 
831

 
46

 
564

 
34

Texas
339

 
18

 
253

 
15

 
337

 
18

 
247

 
15

Other Markets
264

 
14

 
54

 
3

 
246

 
13

 
52

 
3

Total
$
1,859

 
100
%
 
$
1,678

 
100
%
 
$
1,831

 
100
%
 
$
1,658

 
100
%
Residential real estate loans consist of traditional residential mortgages and home equity loans and lines of credit. Residential mortgages totaled $1.9 billion at March 31, 2015, and were primarily larger, variable-rate mortgages originated and retained for certain private banking relationship customers. Of the $1.9 billion of residential mortgage loans outstanding, $37 million were on nonaccrual status at March 31, 2015. The home equity portfolio totaled $1.7 billion at March 31, 2015, of which $1.6 billion was outstanding under primarily variable-rate, interest-only home equity lines of credit and $71 million were closed-end home equity loans. Of the $1.7 billion of home equity loans outstanding, $31 million were on nonaccrual status at March 31,

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Table of Contents

2015. A majority of the home equity portfolio was secured by junior liens at March 31, 2015. The residential real estate portfolio is principally located within the Corporation's primary geographic markets. Substantially all residential real estate loans past due 90 days or more are placed on nonaccrual status, and substantially all junior lien home equity loans that are current or less than 90 days past due are placed on nonaccrual status if full collection of the senior position is in doubt. At no later than 180 days past due, such loans are charged off to current appraised values less costs to sell.
Energy Lending
The Corporation has a portfolio of energy-related loans that are included primarily in "commercial loans" in the consolidated balance sheets. The Corporation's energy lending team has over 30 years of experience, with a focus on middle market companies. Loans in the Middle Market - Energy business line (approximately 200 relationships) were $3.6 billion, or approximately 7 percent of total loans, at both March 31, 2015 and December 31, 2014, and total exposure, including unused commitments to extend credit and letters of credit, was $6.9 billion and $7.1 billion at March 31, 2015 and December 31, 2014, respectively. In addition to loans in the Middle-Market - Energy business line, the Corporation is monitoring a portfolio of approximately 165 relationships with approximately $750 million outstanding and total exposure of about $1.5 billion at March 31, 2015 to companies in Corporate Banking, general Middle-Market and Small Business that have a sizable portion of their revenue related to the energy business or could be otherwise disproportionately negatively impacted by prolonged low oil and gas prices.
The portfolio of energy-related loans in the Middle Market - Energy business line is diverse in nature, with outstanding balances by customer market segment distributed approximately as follows at March 31, 2015: 70 percent EP (comprising approximately 59 percent oil, 26 percent mixed and 15 percent natural gas), 15 percent energy services and 15 percent midstream. EP generally includes such activities as searching for potential oil and gas fields, drilling exploratory wells and operating active wells. The midstream sector is generally involved in the transportation, storage and marketing of crude and/or refined energy products. The Corporation's energy services customers provide services primarily to the EP sector. As of March 31, 2015, a majority of the Corporation’s EP customers had at least 50 percent of their oil and/or gas production hedged up to the end of 2015. Approximately 95 percent of the amount of loans outstanding in the Middle Market - Energy business line had varying levels and types of collateral at March 31, 2015, including oil and gas reserves and pipelines, equipment, accounts receivable, inventory and other assets, or some combination thereof. Commitments to EP borrowers are generally subject to borrowing base re-determinations about every six months, based on updated prices which consider the then-current energy prices, energy reserve levels and other factors. As of mid-April 2015, the Corporation had completed approximately 45 percent of semi-annual borrowing base re-determinations for EP borrowers in the Middle Market - Energy line of business, resulting in some internal risk rating downgrades and about a 10 percent reduction in total commitment size for the portion reviewed.
As of March 31, 2015, approximately 6 percent of the total energy and energy-related portfolio was classified as criticized, including $22 million on nonaccrual status. Charge-offs in the energy and energy-related portfolio totaled $2 million for the three months ended March 31, 2015.
Refer to the “Allowance for Credit Losses” subheading earlier in this section for a discussion of changes in the allowance for loan losses as a result of the above-described events.
Automotive Lending
Substantially all dealer loans are in the National Dealer Services business line. Loans in the National Dealer Services business line include floor plan financing and other loans to automotive dealerships. Floor plan loans, included in “commercial loans” in the consolidated balance sheets, totaled $3.5 billion at March 31, 2015, a decrease of $246 million compared to $3.8 billion at December 31, 2014. At both March 31, 2015 and December 31, 2014, other loans to automotive dealers in the National Dealer Services business line totaled $2.4 billion, including $1.5 billion of owner-occupied commercial real estate mortgage loans. Automotive lending also includes loans to borrowers involved with automotive production, primarily Tier 1 and Tier 2 suppliers. Loans to borrowers involved with automotive production totaled approximately $1.3 billion and $1.2 billion at March 31, 2015 and December 31, 2014, respectively.
International Exposure
International assets are subject to general risks inherent in the conduct of business in foreign countries, including economic uncertainties and each foreign government's regulations. Risk management practices minimize the risk inherent in international lending arrangements. These practices include structuring bilateral agreements or participating in bank facilities, which secure repayment from sources external to the borrower's country. Accordingly, such international outstandings are excluded from the cross-border risk of that country.

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Table of Contents

The Corporation does not hold any sovereign exposure to Europe. The Corporation's international strategy as it pertains to Europe is to focus on European companies doing business in North America, with an emphasis on the Corporation's primary geographic markets. The following table summarizes cross-border exposure to entities domiciled in European countries.
(in millions)
 
March 31, 2015
 
December 31, 2014
European exposure:
 
 
 
 
Commercial and industrial
 
$
230

 
$
211

Banks and other financial institutions
 
40

 
52

Total outstanding
 
270

 
263

Unfunded commitments and guarantees
 
381

 
382

Total European exposure (a)
 
$
651

 
$
645

(a)
Primarily United Kingdom and the Netherlands
For further discussion of credit risk, see the "Credit Risk" section of pages F-21 through F-29 in the Corporation's 2014 Annual Report.
Market and Liquidity Risk
Market risk represents the risk of loss due to adverse movements in market rates or prices, including interest rates, foreign exchange rates, and commodity and equity prices. Liquidity risk represents the failure to meet financial obligations coming due resulting from an inability to liquidate assets or obtain adequate funding, and the inability to easily unwind or offset specific exposures without significant changes in pricing, due to inadequate market depth or market disruptions.
The Asset and Liability Policy Committee (ALCO) of the Corporation establishes and monitors compliance with the policies and risk limits pertaining to market and liquidity risk management activities. ALCO meets regularly to discuss and review market and liquidity risk management strategies, and consists of executive and senior management from various areas of the Corporation, including treasury, finance, economics, lending, deposit gathering and risk management. The Treasury Department mitigates market and liquidity risk through the actions it takes to manage the Corporation's market, liquidity and capital positions under the direction of ALCO.
Market Risk Analytics, of the Office of Enterprise Risk, supports ALCO in measuring, monitoring and managing interest rate and liquidity risks and coordinating all other market risks. Key activities encompass: (i) providing information and analysis of the Corporation's balance sheet structure and measurement of interest rate, liquidity and all other market risks; (ii) monitoring and reporting of the Corporation's positions relative to established policy limits and guidelines; (iii) developing and presenting analyses and strategies to adjust risk positions; (iv) reviewing and presenting policies and authorizations for approval; (v) monitoring of industry trends and analytical tools to be used in the management of interest rate, liquidity and all other market risks; and (vi) developing and monitoring the interest rate risk economic capital estimate.
Interest Rate Risk
Net interest income is the primary source of revenue for the Corporation. Interest rate risk arises in the normal course of business due to differences in the repricing and cash flow characteristics of assets and liabilities, primarily through the Corporation's core business activities of extending loans and acquiring deposits. The Corporation's balance sheet is predominantly characterized by floating-rate loans funded by a combination of core deposits and wholesale borrowings. Approximately 85 percent of the Corporation's loans were floating at March 31, 2015, of which approximately 75 percent were based on LIBOR and 25 percent were based on Prime. This creates sensitivity to interest rate movements due to the imbalance between the floating-rate loan portfolio and the more slowly repricing deposit products. In addition, growth and/or contraction in the Corporation's loans and deposits may lead to changes in sensitivity to interest rate movements in the absence of mitigating actions. Examples of such actions are purchasing investment securities, primarily fixed-rate, which provide liquidity to the balance sheet and act to mitigate the inherent interest sensitivity, and hedging the sensitivity with interest rate swaps. The Corporation actively manages its exposure to interest rate risk, with the principal objective of optimizing net interest income and the economic value of equity while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.
Since no single measurement system satisfies all management objectives, a combination of techniques is used to manage interest rate risk. These techniques examine the impact of interest rate risk on net interest income and the economic value of equity under a variety of alternative scenarios, including changes in the level, slope and shape of the yield curve, utilizing multiple simulation analyses. Simulation analyses produce only estimates of net interest income, as the assumptions used are inherently uncertain. Actual results may differ from simulated results due to many factors, including, but not limited to, the timing, magnitude and frequency of changes in interest rates, market conditions, regulatory impacts and management strategies.

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Table of Contents

Sensitivity of Net Interest Income to Changes in Interest Rates
The analysis of the impact of changes in interest rates on net interest income under various interest rate scenarios is management's principal risk management technique. Management models a base case net interest income under an unchanged interest rate environment and what is believed to be the most likely balance sheet structure. Existing derivative instruments entered into for risk management purposes are included in the analysis, but no additional hedging is currently forecasted. These derivative instruments currently comprise interest rate swaps that convert fixed-rate long-term debt to variable rates. This base case net interest income is then compared against interest rate scenarios in which rates rise or decline in a linear, non-parallel fashion from the base case over 12 months. In the scenarios presented, short-term interest rates increase 200 basis points, resulting in an average increase in short-term interest rates of 100 basis points over the period (+200 scenario). Due to the current low level of interest rates, the analysis reflects a declining interest rate scenario of a 25 basis point drop in short-term interest rates, to zero percent.
Each scenario includes assumptions such as loan growth, investment security prepayment levels, depositor behavior, yield curve changes, loan and deposit pricing, and overall balance sheet mix and growth. In the +200 scenario, assumptions related to loan growth and deposit run-off are based on historical experience, resulting in a modest increase in loans and a modest decrease in deposits from the base case. Investment securities modeling includes the replacement of prepayments as well as an estimate of projected growth in High Quality Liquid Assets (HQLA) needed for compliance with the Liquidity Coverage Ratio (LCR), and expected funding maturities are included. In addition, the model reflects deposit pricing based on historical price movements with short-term interest rates and loan spreads held at current levels. Changes in economic activity may result in a balance sheet structure that is different from the changes management included in its simulation analysis and may translate into a materially different interest rate environment than those presented. For example, deposit balances have grown significantly over the past several years, creating uncertainty regarding future deposit balance levels. A decline in deposit balances beyond historical experience would reduce the estimated increase in net interest income in the +200 scenario.
The table below, as of March 31, 2015 and December 31, 2014, displays the estimated impact on net interest income during the next 12 months by relating the base case scenario results to those from the rising and declining rate scenarios described above.
 
Estimated Annual Change
 
March 31, 2015
 
December 31, 2014
(in millions)
Amount
 
%
 
Amount
 
%
Change in Interest Rates:
 
 
 
 
 
 
 
+200 basis points
$
220

 
13
 %
 
$
224

 
13
 %
-25 basis points (to zero percent)
(33
)
 
(2
)
 
(32
)
 
(2
)
Sensitivity decreased slightly from December 31, 2014 to March 31, 2015 primarily due to changes in the current balance sheet mix driving a revised forecast, offset by the modest impact from the addition of HQLA for the LCR. The risk to declining interest rates is limited as a result of the inability of the current low level of rates to fall significantly.
The table below, as of March 31, 2015, illustrates the estimated sensitivity of the above results to a change in deposit balance assumptions in the +200 scenario, with all other assumptions held constant. In this analysis, average noninterest-bearing deposit run-off in the 12-month period has been increased by $1 billion and $3 billion from the historical run-off experience included in the standard +200 scenario presented above and assumes the deposit run-off reduces excess reserves and increases purchased funds. The analysis is provided as an indicator of the sensitivity of net interest income to the modeled deposit run-off assumption. It is not meant to reflect management's expectation or best estimate. Actual run-off results may vary from those reflected.
 
+200 Basis Points
(in millions)
Estimated Annual Change
March 31, 2015
Amount
 
%
Incremental Average Decrease in Noninterest-bearing Deposit Balances:
 
 
 
$1 billion
$
209

 
12
%
$3 billion
187

 
11

Sensitivity of Economic Value of Equity to Changes in Interest Rates
In addition to the simulation analysis on net interest income, an economic value of equity analysis provides an alternative view of the interest rate risk position. The economic value of equity is the difference between the estimate of the economic value of the Corporation's financial assets, liabilities and off-balance sheet instruments, derived through discounting cash flows based on actual rates at the end of the period and the estimated economic value after applying the estimated impact of rate movements. The economic value of equity analysis is based on an immediate parallel 200 basis point increase and 25 basis point decrease in interest rates.

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Table of Contents

The table below, as of March 31, 2015 and December 31, 2014, displays the estimated impact on the economic value of equity from the interest rate scenario described above.
 
March 31, 2015
 
December 31, 2014
(in millions)
Amount
 
%
 
Amount
 
%
Change in Interest Rates:
 
 
 
 
 
 
 
+200 basis points
$
1,077

 
9
 %
 
$
1,218

 
10
 %
-25 basis points (to zero percent)
(253
)
 
(2
)
 
(293
)
 
(2
)
The change in the sensitivity of the economic value of equity to a 200 basis point parallel increase in rates between December 31, 2014 and March 31, 2015 was primarily driven by changes in market interest rates at the middle to long end of the curve, which most significantly impact the value of deposits without a stated maturity.
Wholesale Funding
The Corporation may access the purchased funds market when necessary, which includes foreign office time deposits and short-term borrowings. Capacity for incremental purchased funds at March 31, 2015 included the ability to purchase federal funds, sell securities under agreements to repurchase, as well as issue deposits to institutional investors and issue certificates of deposit through brokers. Purchased funds totaled $215 million at March 31, 2015, compared to $251 million at December 31, 2014. At March 31, 2015, the Bank had pledged loans totaling $26 billion which provided for up to $20 billion of available collateralized borrowing with the FRB.
The Bank is a member of the FHLB of Dallas, Texas, which provides short- and long-term funding to its members through advances collateralized by real estate-related assets. Actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. At March 31, 2015, real estate-related loans pledged to the FHLB as blanket collateral provided for potential future borrowings of approximately $5 billion. As of March 31, 2015, the Corporation did not have any outstanding borrowings from the FHLB. Additionally, the Bank has the ability to issue up to $15 billion of debt under an existing $15 billion note program which allows the issuance of debt with maturities between three months and 30 years.The Corporation also maintains a shelf registration statement with the Securities and Exchange Commission from which it may issue debt and/or equity securities.
The ability of the Corporation and the Bank to raise funds at competitive rates is impacted by rating agencies' views of the credit quality, liquidity, capital and earnings of the Corporation and the Bank. As of March 31, 2015, the four major rating agencies had assigned the following ratings to long-term senior unsecured obligations of the Corporation and the Bank. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
 
Comerica Incorporated
 
Comerica Bank
March 31, 2015
Rating
Outlook
 
Rating
Outlook
Standard and Poor’s
A-
Negative
 
A
Negative
Moody’s Investors Service (a)
A3
Stable
 
A2
Stable
Fitch Ratings
A
Stable
 
A
Stable
DBRS
A
Stable
 
A (High)
Stable
(a)
In March 2015, Moody's Investors Service put global bank ratings on review following the publication of revised bank rating methodology. While the outlook for both Comerica Incorporated and Comerica Bank continue to be "Stable", Moody’s released a preliminary indication of an “A3” rating for Comerica Bank long-term senior unsecured debt.
The Corporation satisfies liquidity requirements with either liquid assets or various funding sources. Liquid assets, which totaled $13.0 billion at March 31, 2015, compared to $13.3 billion at December 31, 2014, before any applicable regulatory haircuts, provide a reservoir of liquidity. Liquid assets include cash and due from banks, federal funds sold, interest-bearing deposits with banks, other short-term investments and unencumbered investment securities. At March 31, 2015, the Corporation held deposits at the FRB of $4.7 billion, compared to $4.9 billion at December 31, 2014.
In September 2014, U.S. banking regulators issued a final rule implementing a quantitative liquidity requirement in the U.S. generally consistent with the LCR minimum liquidity measure established under the Basel III liquidity framework. Under the rule, the Corporation is subject to a modified LCR standard, which requires a financial institution to hold a minimum level of HQLA to fully cover modified net cash outflows under a 30-day systematic liquidity stress scenario. The rule is effective for the Corporation on January 1, 2016. During the transition year, 2016, the Corporation will be required to maintain a minimum LCR of 90 percent. Beginning January 1, 2017, and thereafter, the minimum required LCR will be 100 percent. The Corporation continues to evaluate the impact of the rule; however, we expect to meet the final requirements adopted by U.S. banking regulators within the required timetable. To reach full compliance and provide a buffer for normal volatility in balance sheet dynamics, the Corporation expects to add additional HQLA, which may be funded with additional debt, in the future. The Corporation does not currently expect compliance with the LCR rule will have a significant impact on net interest income.

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The Basel III liquidity framework includes a second minimum liquidity measure, the Net Stable Funding Ratio (NSFR), which requires the amount of available longer-term, stable sources of funding to be at least 100 percent of the required amount of longer-term stable funding over a one-year period. On October 31, 2014, the Basel Committee on Banking Supervision issued its final NSFR rule, which was originally introduced in 2010 and revised in January 2014. U.S. banking regulators have announced that they expect to issue proposed rules to implement the NSFR in advance of its scheduled global implementation in 2018. While uncertainty exists in the final form and timing of the U.S. rule implementing the NSFR and whether or not the Corporation will be subject to the full requirements, the Corporation is closely monitoring the development of the rule.
The Corporation regularly evaluates its ability to meet funding needs in unanticipated, stressed environments. In conjunction with the quarterly 200 basis point interest rate simulation analyses, discussed in the “Interest Rate Sensitivity” section of this financial review, liquidity ratios and potential funding availability are examined. Each quarter, the Corporation also evaluates its ability to meet liquidity needs under a series of broad events, distinguished in terms of duration and severity. The evaluation as of March 31, 2015 projected that sufficient sources of liquidity were available under each series of events.
CRITICAL ACCOUNTING POLICIES
The Corporation’s consolidated financial statements are prepared based on the application of accounting policies, the most significant of which are described in Note 1 to the consolidated financial statements included in the Corporation's 2014 Annual Report. These policies require numerous estimates and strategic or economic assumptions, which may prove inaccurate or subject to variations. Changes in underlying factors, assumptions or estimates could have a material impact on the Corporation’s future financial condition and results of operations. At December 31, 2014, the most critical of these significant accounting policies were the policies related to the allowance for credit losses, valuation methodologies, goodwill, pension plan accounting and income taxes. These policies were reviewed with the Audit Committee of the Corporation’s Board of Directors and are discussed more fully on pages F-37 through F-40 in the Corporation's 2014 Annual Report. As of the date of this report, there have been no significant changes to the Corporation's critical accounting policies or estimates.


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SUPPLEMENTAL FINANCIAL DATA
The following table provides a reconciliation of non-GAAP financial measures used in this financial review with financial measures defined by GAAP.
(dollar amounts in millions)
March 31, 2015
 
December 31, 2014
Tier 1 Common Capital Ratio:
 
 
 
Tier 1 and Tier 1 common capital (a)
n/a

 
$
7,169

Risk-weighted assets (a)
n/a

 
68,273

Tier 1 and Tier 1 common risk-based capital ratio
n/a

 
10.50
%
Tangible Common Equity Ratio:
 
 
 
Common shareholders' equity
$
7,500

 
$
7,402

Less:
 
 
 
Goodwill
635

 
635

Other intangible assets
15

 
15

Tangible common equity
$
6,850

 
$
6,752

Total assets
$
69,336

 
$
69,190

Less:
 
 
 
Goodwill
635

 
635

Other intangible assets
15

 
15

Tangible assets
$
68,686

 
$
68,540

Common equity ratio
10.82
%
 
10.70
%
Tangible common equity ratio
9.97

 
9.85

Tangible Common Equity per Share of Common Stock:
 
 
 
Common shareholders' equity
$
7,500

 
$
7,402

Tangible common equity
6,850

 
6,752

Shares of common stock outstanding (in millions)
178

 
179

Common shareholders' equity per share of common stock
$
42.12

 
$
41.35

Tangible common equity per share of common stock
38.47

 
37.72

(a)
Tier 1 capital and risk-weighted assets as defined by Basel I risk-based capital rules.
n/a - not applicable.
The Tier 1 common capital ratio removes preferred stock and qualifying trust preferred securities from Tier 1 capital as defined by and calculated in conformity with Basel I risk-based capital rules in effect through December 31, 2014. Effective January 1, 2015, regulatory capital components and risk-weighted assets are defined by and calculated in conformity with Basel III risk-based capital rules. The tangible common equity ratio removes preferred stock and the effect of intangible assets from capital and the effect of intangible assets from total assets and tangible common equity per share of common stock removes the effect of intangible assets from common shareholders' equity per share of common stock. The Corporation believes these measurements are meaningful measures of capital adequacy used by investors, regulators, management and others to evaluate the adequacy of common equity and to compare against other companies in the industry.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Quantitative and qualitative disclosures for the current period can be found in the "Market and Liquidity Risk" section of "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 4. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures. The Corporation maintains a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Corporation's management, including the Corporation's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management has evaluated, with the participation of the Corporation's Chief Executive Officer and Chief Financial Officer, the effectiveness of the Corporation's disclosure controls and procedures as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based on the evaluation, the Corporation's Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Corporation's disclosure controls and procedures are effective.
(b)
Changes in Internal Control Over Financial Reporting. During the period to which this report relates, there have not been any changes in the Corporation's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
For information regarding the Corporation's legal proceedings, see "Part I. Item 1. Note 12 – Contingent Liabilities," which is incorporated herein by reference.
ITEM 1A. Risk Factors
There has been no material change in the Corporation’s risk factors as previously disclosed in our Form 10-K for the fiscal year ended December 31, 2014 in response to Part I, Item 1A. of such Form 10-K. Such risk factors are incorporated herein by reference.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
For information regarding the Corporation's purchase of equity securities, see "Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Capital," which is incorporated herein by reference.

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ITEM 6. Exhibits
Exhibit No.
 
Description
 
 
 
3.1
 
Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant's Current Report on Form 8-K dated August 4, 2010, and incorporated herein by reference).
 
 
 
3.2
 
Certificate of Amendment to Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).
 
 
 
3.3
 
Amended and Restated Bylaws of Comerica Incorporated (filed as Exhibit 3.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).
 
 
 
4
 
[In accordance with Regulation S-K Item No. 601(b)(4)(iii), the Registrant is not filing copies of instruments defining the rights of holders of long-term debt because none of those instruments authorizes debt in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request.]
 
 
 
10.1†
 
Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan (amended and restated on January 27, 2015) (filed as Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2014, and incorporated herein by reference).

 
 
 
10.2†
 
Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan (amended and restated on January 27, 2015) (filed as Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2014, and incorporated herein by reference).

 
 
 
10.3†
 
Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (filed herewith).
 
 
 
10.4†
 
2015 Comerica Incorporated Incentive Plan for Non-Employee Directors (filed herewith).
 
 
 
31.1
 
Chairman and CEO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).
 
 
 
31.2
 
Vice Chairman and CFO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).
 
 
 
32
 
Section 1350 Certification of Periodic Report (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).
 
 
 
101
 
Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended March 31, 2015, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of Changes in Shareholders' Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.

 
 
 
 
Management contract or compensatory plan or arrangement.


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
COMERICA INCORPORATED
 
(Registrant)
 
 
 
/s/ Muneera S. Carr
 
Muneera S. Carr
 
Executive Vice President and
 
Chief Accounting Officer and
 
Duly Authorized Officer
Date: April 29, 2015

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Table of Contents

EXHIBIT INDEX
Exhibit No.
 
Description
 
 
 
3.1
 
Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant's Current Report on Form 8-K dated August 4, 2010, and incorporated herein by reference).
 
 
 
3.2
 
Certificate of Amendment to Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).
 
 
 
3.3
 
Amended and Restated Bylaws of Comerica Incorporated (filed as Exhibit 3.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).
 
 
 
4
 
[In accordance with Regulation S-K Item No. 601(b)(4)(iii), the Registrant is not filing copies of instruments defining the rights of holders of long-term debt because none of those instruments authorizes debt in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request.]
 
 
 
10.1†
 
Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan (amended and restated on January 27, 2015) (filed as Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2014, and incorporated herein by reference).

 
 
 
10.2†
 
Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan (amended and restated on January 27, 2015)(filed as Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2014, and incorporated herein by reference).

 
 
 
10.3†
 
Comerica Incorporated Amended and Restated Incentive Plan for Non-Employee Directors (filed herewith).
 
 
 
10.4†
 
2015 Comerica Incorporated Incentive Plan for Non-Employee Directors (filed herewith).
 
 
 
31.1
 
Chairman and CEO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
 
 
 
31.2
 
Vice Chairman and CFO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
 
 
 
32
 
Section 1350 Certification of Periodic Report (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
 
 
 
101
 
Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended March 31, 2015, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of Changes in Shareholders' Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.
 
 
 
 
Management contract or compensatory plan or arrangement.

61