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, 2018
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 1-10706
____________________________________________________________________________________
Comerica Incorporated
(Exact name of registrant as specified in its charter)
___________________________________________________________________________________
Delaware
38-1998421
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Comerica Bank Tower
1717 Main Street, MC 6404
Dallas, Texas 75201
(Address of principal executive offices)
(Zip Code)
(214) 462-6831
(Registrant’s telephone number, including area code)  
_________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý  No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ý
 
Accelerated filer  o

Non-accelerated filer  o
(Do not check if a smaller reporting company)
 
Smaller reporting company  o
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No  ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
$5 par value common stock:
Outstanding as of April 24, 2018 : 171,933,253 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, 2018
 
December 31, 2017
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
$
1,173

 
$
1,438

 
 
 
 
Interest-bearing deposits with banks
5,663

 
4,407

Other short-term investments
133

 
96

 
 
 
 
Investment securities available-for-sale
11,971

 
10,938

Investment securities held-to-maturity

 
1,266

 
 
 
 
Commercial loans
30,909

 
31,060

Real estate construction loans
3,114

 
2,961

Commercial mortgage loans
9,272

 
9,159

Lease financing
464

 
468

International loans
964

 
983

Residential mortgage loans
2,003

 
1,988

Consumer loans
2,514

 
2,554

Total loans
49,240

 
49,173

Less allowance for loan losses
(698
)
 
(712
)
Net loans
48,542

 
48,461

Premises and equipment
468

 
466

Accrued income and other assets
4,385

 
4,495

Total assets
$
72,335

 
$
71,567

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Noninterest-bearing deposits
$
30,961

 
$
32,071

 
 
 
 
Money market and interest-bearing checking deposits
22,355

 
21,500

Savings deposits
2,233

 
2,152

Customer certificates of deposit
2,071

 
2,165

Foreign office time deposits
15

 
15

Total interest-bearing deposits
26,674

 
25,832

Total deposits
57,635

 
57,903

Short-term borrowings
48

 
10

Accrued expenses and other liabilities
1,058

 
1,069

Medium- and long-term debt
5,594

 
4,622

Total liabilities
64,335

 
63,604

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

 
1,141

Capital surplus
2,134

 
2,122

Accumulated other comprehensive loss
(553
)
 
(451
)
Retained earnings
8,110

 
7,887

Less cost of common stock in treasury - 55,690,402 shares at 3/31/18 and 55,306,483 shares at 12/31/17
(2,832
)
 
(2,736
)
Total shareholders’ equity
8,000

 
7,963

Total liabilities and shareholders’ equity
$
72,335

 
$
71,567

See notes to consolidated financial statements (unaudited).

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)
2018
 
2017
INTEREST INCOME
 
 
 
Interest and fees on loans
$
509

 
$
421

Interest on investment securities
64

 
61

Interest on short-term investments
17

 
14

Total interest income
590

 
496

INTEREST EXPENSE
 
 
 
Interest on deposits
16

 
9

Interest on medium- and long-term debt
25

 
17

Total interest expense
41

 
26

Net interest income
549

 
470

Provision for credit losses
12

 
16

Net interest income after provision for credit losses
537

 
454

NONINTEREST INCOME
 
 
 
Card fees
59

 
77

Service charges on deposit accounts
54

 
58

Fiduciary income
52

 
49

Commercial lending fees
18

 
20

Letter of credit fees
10

 
12

Bank-owned life insurance
9

 
10

Foreign exchange income
12

 
11

Brokerage fees
7

 
5

Other noninterest income
23

 
29

Total noninterest income
244

 
271

NONINTEREST EXPENSES
 
 
 
Salaries and benefits expense
255

 
245

Outside processing fee expense
61

 
87

Net occupancy expense
38

 
38

Equipment expense
11

 
11

Restructuring charges
16

 
11

Software expense
31

 
29

FDIC insurance expense
13

 
13

Advertising expense
6

 
4

Litigation-related expense

 
(2
)
Other noninterest expenses
15

 
21

Total noninterest expenses
446

 
457

Income before income taxes
335

 
268

Provision for income taxes
54

 
66

NET INCOME
281

 
202

Less income allocated to participating securities
2

 
2

Net income attributable to common shares
$
279

 
$
200

Earnings per common share:
 
 
 
Basic
$
1.62

 
$
1.15

Diluted
1.59

 
1.11

 
 
 
 
Comprehensive income
178

 
206

 
 
 
 
Cash dividends declared on common stock
52

 
42

Cash dividends declared per common share
0.30

 
0.23

See notes to consolidated financial statements (unaudited).


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


 
Common Stock
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
Total
Shareholders’
Equity
(in millions, except per share data)
Shares
Outstanding
 
Amount
 
Capital
Surplus
 
 
Retained
Earnings
 
Treasury
Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2016
175.3

 
$
1,141

 
$
2,135

 
$
(383
)
 
$
7,331

 
$
(2,428
)
 
$
7,796

Cumulative effect of change in accounting principle

 

 
3

 

 
(2
)
 

 
1

Net income

 

 

 

 
202

 

 
202

Other comprehensive income, net of tax

 

 

 
4

 

 

 
4

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

 

 

 

 
(42
)
 

 
(42
)
Purchase of common stock
(1.7
)
 

 

 

 

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

 

 
(25
)
 

 
(14
)
 
108

 
69

Net issuance of common stock for warrants
1.5

 

 
(24
)
 

 
(44
)
 
68

 

Share-based compensation

 

 
18

 

 

 

 
18

Other

 

 
(1
)
 

 

 
1

 

BALANCE AT MARCH 31, 2017
177.4

 
$
1,141

 
$
2,106

 
$
(379
)
 
$
7,431

 
$
(2,369
)
 
$
7,930

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2017
172.9

 
$
1,141

 
$
2,122

 
$
(451
)
 
$
7,887

 
$
(2,736
)
 
$
7,963

Cumulative effect of change in accounting principles

 

 

 
1

 
14

 

 
15

Net income

 

 

 

 
281

 

 
281

Other comprehensive loss, net of tax

 

 

 
(103
)
 

 

 
(103
)
Cash dividends declared on common stock ($0.30 per share)

 

 

 

 
(52
)
 

 
(52
)
Purchase of common stock
(1.7
)
 

 

 

 

 
(159
)
 
(159
)
Net issuance of common stock under employee stock plans
1.2

 

 
(11
)
 

 
(17
)
 
59

 
31

Net issuance of common stock for warrants
0.1

 

 
(1
)
 

 
(3
)
 
4

 

Share-based compensation

 

 
24

 

 

 

 
24

BALANCE AT MARCH 31, 2018
172.5

 
$
1,141

 
$
2,134

 
$
(553
)
 
$
8,110

 
$
(2,832
)
 
$
8,000

See notes to consolidated financial statements (unaudited).



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


 
Three Months Ended March 31,
(in millions)
2018
 
2017
OPERATING ACTIVITIES
 
 
 
Net income
$
281

 
$
202

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
12

 
16

Provision (benefit) for deferred income taxes
7

 
(1
)
Depreciation and amortization
31

 
31

Net periodic defined benefit credit
(5
)
 
(4
)
Share-based compensation expense
24

 
18

Net amortization of securities
1

 
2

Net change in:
 
 
 
Accrued income receivable
(26
)
 
3

Accrued expenses payable
(22
)
 
5

Other, net
55

 
132

Net cash provided by operating activities
358

 
404

INVESTING ACTIVITIES
 
 
 
Investment securities available-for-sale:
 
 
 
Maturities and redemptions
444

 
393

Sales
5

 
1,259

Purchases
(441
)
 
(1,699
)
Investment securities held-to-maturity:
 
 
 
Maturities and redemptions

 
76

Net change in loans
(98
)
 
752

Proceeds from sales of foreclosed property
1

 
3

Net increase in premises and equipment
(20
)
 
(12
)
Purchases of Federal Home Loan Bank stock
(41
)
 

Proceeds from bank-owned life insurance settlements
3

 
3

Other, net

 
1

Net cash (used in) provided by investing activities
(147
)
 
776

FINANCING ACTIVITIES
 
 
 
Net change in:
 
 
 
Deposits
(77
)
 
(5
)
Short-term borrowings
38

 
16

FHLB issuances of medium- and long-term debt
1,000

 

Common stock:
 
 
 
Repurchases
(168
)
 
(126
)
Cash dividends paid
(53
)
 
(40
)
Issuances under employee stock plans
40

 
77

Other, net

 
(1
)
Net cash provided by (used in) financing activities
780

 
(79
)
Net increase in cash and cash equivalents
991

 
1,101

Cash and cash equivalents at beginning of period
5,845

 
7,218

Cash and cash equivalents at end of period
$
6,836

 
$
8,319

Interest paid
$
40

 
$
27

Income tax paid (refunds received)
2

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

 
1

Securities transferred from held-to-maturity to available-for-sale
1,266

 

Securities transferred from available-for-sale to equity securities
81

 

See notes to consolidated financial statements (unaudited).

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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, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 . 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, 2017 .
Revenue Recognition
Effective January 1, 2018, the Corporation adopted the provision of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers" (Topic 606), using the modified retrospective method applied to all open contracts as of January 1, 2018.
Under Topic 606, card fee revenue from certain products is generally presented net of network costs, including interchange costs, surcharge fees and assessment fees, as opposed to the previous presentation of associated network costs in outside processing fees in the Consolidated Statements of Comprehensive Income. Similar adjustments were made for other revenue streams that resulted in certain costs being recognized in the same category as the associated revenues in noninterest income.
The impact on the Consolidated Statements of Comprehensive Income of adopting Topic 606 was a $34 million decrease in card fees and a $1 million decrease in service charges on deposit accounts included in noninterest income, along with a corresponding $35 million decrease in outside processing fees included in noninterest expenses for the three months ended March 31, 2018.
The Corporation previously deferred recognition of certain treasury management fees included in service charges on deposit accounts in the Consolidated Statements of Comprehensive Income until the amount of compensation was considered fixed and determinable. Under the new guidance, the portion of these fees that are based on agreed upon rates less estimated credits expected to be earned by the customer is recognized as services are rendered. As a result, the Corporation recorded a transition adjustment of $14 million , after tax, to retained earnings, included in cumulative effect of change in accounting principles in the accompanying Consolidated Statements of Changes in Shareholders Equity. Similar adjustments were made for other revenue streams that resulted in an additional cumulative transition after-tax adjustment to retained earnings of $2 million .
The Corporation's revenues from contracts with customers may be recognized when services are complete or as they are rendered, although contracts are generally short-term by nature. Services provided over a period of time are typically transferred to customers evenly over the term of the contracts and revenue is recognized evenly over the period services are provided. Contract receivables are included in accrued income and other assets on the Consolidated Balance Sheets. Payment terms vary by services offered, and the timing between completion of performance obligations and payment is typically not significant.
Card fees comprise interchange and other fee income earned on government card, commercial card, debit/ATM card and merchant payment processing programs. Card fees are presented net of network costs as performance obligations for card services are limited to transaction processing and settlement with the card network on behalf of the customers. Network costs were approximately $34 million and $25 million for the three months ended March 31, 2018 and 2017, respectively. Fees for these services are primarily based on interchange rates set by the network and transaction volume. The Corporation also provides ongoing card program support services, for which fees are based on contractually agreed prices and customer demand for services.
Service charges on deposit accounts primarily comprise charges on retail and business accounts, including fees for treasury management services. These treasury management services include transaction-based services related to payment processing, overdrafts, non-sufficient funds and other deposit account activity, as well as account management services that are provided over time. Business customers can earn credits depending on deposit balances maintained with the Corporation, which may be used to offset fees. Fees and credits are based on predetermined, agreed upon rates.
Fiduciary income includes fees and commissions from asset management, custody, recordkeeping, investment advisory and other services provided primarily to personal and institutional trust customers. Revenue is recognized as the services are performed and is based either on the market value of the assets managed or the services provided, as well as agreed upon rates.

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

Commercial lending fees include both revenue from contracts with customers (primarily loan servicing fees) and other sources of revenue. Commercial loan servicing fees are based on contractually agreed prices and when the services are provided. Other sources of revenue in commercial lending fees primarily include fees assessed on the unused portion of commercial lines of credit (unused commitment fees) and syndication arrangements.
Brokerage fees are commissions earned for facilitating securities transactions for customers, as well other brokerage services provided. Revenue is recognized when services are complete and are based on the type of services provided and agreed upon rates. The Corporation pays commissions based on brokerage fee revenue. These are typically recognized when incurred because the amortization period is one year or less and are included in salaries and benefits expense in the Consolidated Statements of Comprehensive Income.
Other revenues, consisting primarily of other retail fees, investment banking fees and insurance commissions, are typically recognized when services or transactions are completed and are based on the type of services provided and agreed upon rates.
Except as discussed above, commissions and other incentives paid to employees are generally based on several internal and external metrics and as a result are not solely dependent on revenue generating activities.
Classification and Measurement of Financial Instruments
Effective January 1, 2018, the Corporation adopted the provisions of Accounting Standards Update (ASU) No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition of Financial Assets and Financial Liabilities," (ASU 2016-01). ASU 2016-01 requires equity investments, other than equity method investments, to be measured at fair value with changes in fair value recognized in net income. At adoption, an immaterial amount of cumulative net unrealized losses on equity securities previously recognized in accumulated other comprehensive income (AOCI) was reclassified to the opening balance of retained earnings, included in cumulative effect of change in accounting principles in the accompanying Consolidated Statements of Changes in Shareholders Equity. Changes to the fair value of equity securities occurring after December 31, 2017, other than equity method investments, are included in net securities losses in the Consolidated Statements of Comprehensive Income. Also, as part of adopting ASU 2016-01, the Corporation refined the calculation used to determine the estimated fair value of loans disclosed in note 2 to the consolidated financial statements.
Statement of Cash Flows
The Corporation adopted FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” (ASU 2016-15) on January 1, 2018 and, as a result, reclassified $3 million of proceeds from settlement of bank-owned life insurance policies from operating activities to investing activities for the three-month period ended March 31, 2017.
Defined Benefit Pension and Other Postretirement Costs
The Corporation retrospectively adopted the provisions of ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-07) on January 1, 2018, which requires employers to report service cost as part of compensation expense and the other components of net benefit cost separately from service cost. As a result, $12 million of benefit from the other components of net benefit cost was reclassified from salaries and benefits expense to other noninterest expenses in the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017. The Corporation based the adjustment to the prior period on amounts disclosed in note 10.
Derivatives Instruments and Hedging Activities
The Corporation adopted ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (ASU 2017-12), effective January 1, 2018. At transition, the Corporation elected to change the measurement methodology of all long-haul fair value hedges existing at December 31, 2017. The prior period effect of this election was a $1 million reduction to opening retained earnings, included in cumulative effect of change in accounting principles in the Consolidated Statements of Shareholders' Equity. In addition, the Corporation made a transition election to reclassify the portfolio of held-to-maturity securities to available-for-sale in January 2018 as the securities are eligible to be hedged. This resulted in the recognition of additional unrealized losses of $11 million at the date of transfer.
Income Taxes
The Tax Cuts and Jobs Act (the "Act"), enacted on December 22, 2017, reduced the U.S. federal corporate tax rate from 35 percent to 21 percent. Also on December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance on accounting for tax effects of the Act. SAB 118 provides a measurement period of up to one year from the enactment date to complete the accounting. Based on the information available and current interpretation

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

of the rules, the Corporation has made reasonable estimates of the impact of the reduction in the corporate tax rate and remeasurement of certain deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future, generally 21 percent. The provisional amount recorded related to the remeasurement of the Corporation's deferred tax balance was $104 million , including $107 million recognized in the year ended December 31, 2017 and a $3 million downward revision to the estimated impact recorded in the three months ended March 31, 2018. The final impact of the Act may differ from these estimates as a result of changes in management’s interpretations and assumptions, as well as new guidance that may be issued by the Internal Revenue Service (IRS).
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.
Equity securities, investment securities available-for-sale, derivatives and deferred compensation plan assets and 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, 2017 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.
ASSETS AND LIABILITIES 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, 2018 and December 31, 2017 .
(in millions)
Total
 
Level 1
 
Level 2
 
Level 3
 
March 31, 2018
 
 
 
 
 
 
 
 
Deferred compensation plan assets
$
93

 
$
93

 
$

 
$

 
Equity securities
38

 
38

 

 

 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
2,706

 
2,706

 

 

 
Residential mortgage-backed securities (a)
9,265

 

 
9,265

 

 
Total investment securities available-for-sale
11,971

 
2,706

 
9,265

 

 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
33

 

 
26

 
7

 
Energy derivative contracts
107

 

 
107

 

 
Foreign exchange contracts
37

 

 
37

 

 
Warrants
2

 

 

 
2

 
Total derivative assets
179

 

 
170

 
9

 
Total assets at fair value
$
12,281

 
$
2,837

 
$
9,435

 
$
9

 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate contracts
$
98

 
$

 
$
98

 
$

 
Energy derivative contracts
106

 

 
106

 

 
Foreign exchange contracts
32

 

 
32

 

 
Total derivative liabilities
236

 

 
236

 

 
Deferred compensation plan liabilities
93

 
93

 

 

 
Total liabilities at fair value
$
329

 
$
93

 
$
236

 
$

 
(a)
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.

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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, 2017
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
Deferred compensation plan assets
$
92

 
$
92

 
$

 
$

 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
2,727

 
2,727

 

 

 
Residential mortgage-backed securities (a)
8,124

 

 
8,124

 

 
State and municipal securities
5

 

 

 
5

(b)
Equity and other non-debt securities
82

 
38

 

 
44

(b)
Total investment securities available-for-sale
10,938

 
2,765

 
8,124

 
49

 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
57

 

 
43

 
14

 
Energy derivative contracts
93

 

 
93

 

 
Foreign exchange contracts
42

 

 
42

 

 
Warrants
2

 

 

 
2

 
Total derivative assets
194

 

 
178

 
16

 
Total assets at fair value
$
11,224

 
$
2,857

 
$
8,302

 
$
65

 
Derivative liabilities:
 
 
 
 
 
 
 
 
Interest rate contracts
$
59

 
$

 
$
59

 
$

 
Energy derivative contracts
91

 

 
91

 

 
Foreign exchange contracts
40

 

 
40

 

 
Total derivative liabilities
190

 

 
190

 

 
Deferred compensation plan liabilities
92

 
92

 

 

 
Total liabilities at fair value
$
282

 
$
92

 
$
190

 
$

 
(a)
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Auction-rate securities.
There were no transfers of assets or liabilities recorded at fair value on a recurring basis into or out of Level 1, Level 2 and Level 3 fair value measurements during each of the three-month period ended March 31, 2018 and 2017 .
The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three-month period ended March 31, 2018 and 2017 .
 
 
 
 
 
 
Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings
 
 
 
 
 
Balance 
at
Beginning
of Period
 
 
 
 
 
 
 
Balance at End of Period
 
 
Change in Classification (a)
 
 
Sales and Redemptions
 
(in millions)
 
 
Realized
Unrealized
 
 
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities

 
44

 


 

 
 
(44
)
 

Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities (b)
$
5

 
$

 
 
$

 
$

 
 
$
(5
)
 
$

Equity and other non-debt securities (b)
44

 
(44
)
 
 

 

 
 

 

Total investment securities available-for-sale
49

 
(44
)
 
 

 

 
 
(5
)
 

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
14

 

 
 

 
(7
)
(c)
 

 
7

Warrants
2

 

 
 

 

 
 

 
2

Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities (b)
$
7

 
$

 
 
$

 
$

 
 
$
(2
)
 
$
5

Equity and other non-debt securities (b)
47

 

 
 

 

 
 
(1
)
 
46

Total investment securities available-for-sale
54

 

 
 

 

 
 
(3
)
 
51

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
11

 

 


 

 
 

 
11

Warrants
3

 

 
 
1

(c)
(1
)
(c)
 
(1
)
 
2

(a)
Reflects the reclassification of equity securities resulting from the adoption of ASU 2016-01.
(b)
Auction-rate securities.
(c)
Realized and unrealized gains and losses due to changes in fair value recorded in Other Noninterest Income on the Consolidated Statements of Comprehensive Income.

8

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

ASSESTS AND LIABILITIES AT FAIR VALUE ON A NONRECURRING BASIS
The Corporation may be required 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, and were recognized at fair value since it was less than cost at the end of the period.
The following table presents assets recorded at fair value on a nonrecurring basis at March 31, 2018 and December 31, 2017 . No liabilities were recorded at fair value on a nonrecurring basis at March 31, 2018 and December 31, 2017 .
(in millions)
Level 3
March 31, 2018
 
Loans:
 
Commercial
$
102

Commercial mortgage
4

Total assets at fair value
$
106

December 31, 2017
 
Loans:
 
Commercial
$
111

Commercial mortgage
5

Total assets at fair value
$
116

Level 3 assets recorded at fair value on a nonrecurring basis at March 31, 2018 and December 31, 2017 included loans for which a specific allowance was established based on the fair value of collateral. 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.
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS
The Corporation typically holds the majority of its financial instruments until maturity and thus does not expect to realize many of the estimated fair value amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments, but which have significant value. These include such items as core deposit intangibles, the future earnings potential of significant customer relationships and the value of trust operations and other fee generating businesses. The Corporation believes the imprecision of an estimate could be significant.

9

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

The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on the Corporation’s Consolidated Balance Sheets are as follows:
 
Carrying
Amount
 
Estimated Fair Value
(in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
March 31, 2018
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
1,173

 
$
1,173

 
$
1,173

 
$

 
$

Interest-bearing deposits with banks
5,663

 
5,663

 
5,663

 

 

Loans held-for-sale
2

 
2

 

 
2

 

Total loans, net of allowance for loan losses (a)
48,542

 
48,345

 

 

 
48,345

Customers’ liability on acceptances outstanding
2

 
2

 
2

 

 

Restricted equity investments
248

 
248

 
248

 

 

Nonmarketable equity securities (b)
6

 
9

 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Demand deposits (noninterest-bearing)
30,961

 
30,961

 

 
30,961

 

Interest-bearing deposits
24,603

 
24,603

 

 
24,603

 

Customer certificates of deposit
2,071

 
2,041

 

 
2,041

 

Total deposits
57,635

 
57,605

 

 
57,605

 

Short-term borrowings
48

 
48

 
48

 

 

Acceptances outstanding
2

 
2

 
2

 

 

Medium- and long-term debt
5,594

 
5,604

 

 
5,604

 

Credit-related financial instruments
(68
)
 
(68
)
 

 

 
(68
)
December 31, 2017
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
1,438

 
$
1,438

 
$
1,438

 
$

 
$

Interest-bearing deposits with banks
4,407

 
4,407

 
4,407

 

 

Investment securities held-to-maturity
1,266

 
1,246

 

 
1,246

 

Loans held-for-sale
4

 
4

 

 
4

 

Total loans, net of allowance for loan losses (a)
48,461

 
48,153

 

 

 
48,153

Customers’ liability on acceptances outstanding
2

 
2

 
2

 

 

Restricted equity investments
207

 
207

 
207

 

 

Nonmarketable equity securities (b)
6

 
9

 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Demand deposits (noninterest-bearing)
32,071

 
32,071

 

 
32,071

 

Interest-bearing deposits
23,667

 
23,667

 

 
23,667

 

Customer certificates of deposit
2,165

 
2,142

 

 
2,142

 

Total deposits
57,903

 
57,880

 

 
57,880

 

Short-term borrowings
10

 
10

 
10

 

 

Acceptances outstanding
2

 
2

 
2

 

 

Medium- and long-term debt
4,622

 
4,636

 

 
4,636

 

Credit-related financial instruments
(67
)
 
(67
)
 

 

 
(67
)
(a)
Included $106 million and $116 million of impaired loans recorded at fair value on a nonrecurring basis at March 31, 2018 and December 31, 2017 , respectively.
(b)
Certain investments that are measured at fair value using the net asset value have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.

10

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, 2018
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
2,744

 
$

 
$
38

 
$
2,706

Residential mortgage-backed securities (a)
9,500

 
13

 
248

 
9,265

Total investment securities available-for-sale
$
12,244

 
$
13

 
$
286

 
$
11,971

 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
2,743

 
$

 
$
16

 
$
2,727

Residential mortgage-backed securities (a)
8,230

 
22

 
128

 
8,124

State and municipal securities
5

 

 

 
5

Equity and other non-debt securities
83

 
1

 
2

 
82

Total investment securities available-for-sale (b)
$
11,061

 
$
23

 
$
146

 
$
10,938

Investment securities held-to-maturity (c):
 
 
 
 
 
 
 
Residential mortgage-backed securities (a)
$
1,266

 
$

 
$
20

 
$
1,246

(a)
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Included auction-rate securities at amortized cost and fair value of $51 million and $49 million , respectively, as of December 31, 2017 .
(c)
The amortized cost of investment securities held-to-maturity included net unrealized losses of $9 million at December 31, 2017 related to securities transferred from available-for-sale in 2014, which are included in accumulated other comprehensive loss.
In connection with the adoption of ASU 2016-01 on January 1, 2018, cumulative unrealized gains and losses on available-for-sale equity and other non-debt securities were reclassified to retained earnings and the carrying value was reclassified to other short-term investments. Additionally, the Corporation transferred residential mortgage-backed securities with a book value of approximately $1.3 billion from held-to-maturity to available-for-sale upon the adoption of ASU 2017-12. For additional information about the adoption of ASU 2016-01, refer to note 1.
A summary of the Corporation’s investment securities in an unrealized loss position as of March 31, 2018 and December 31, 2017 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, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
2,706

 
$
38

 
 
$

 
$

 
 
$
2,706

 
$
38

 
Residential mortgage-backed securities (a)
4,623

 
81

 
 
3,855

 
167

 
 
8,478

 
248

 
Total temporarily impaired securities
$
7,329

 
$
119

 
 
$
3,855


$
167

 
 
$
11,184

 
$
286

 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government agency securities
$
2,727

 
$
16

 
 
$

 
$

 
 
$
2,727

 
$
16

 
Residential mortgage-backed securities (a)
3,845

 
32

 
 
4,003

 
125

 
 
7,848

 
157

 
State and municipal securities (c)

 

 
 
5

 

(b)
 
5

 

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

 

 
 
44

 
2

 
 
44

 
2

 
Total temporarily impaired securities
$
6,572

 
$
48

 
 
$
4,052

 
$
127

 
 
$
10,624

 
$
175

 
(a)
Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Unrealized losses less than $0.5 million.
(c)
Primarily auction-rate securities.
At March 31, 2018 , the Corporation had 377 securities in an unrealized loss position with no credit impairment, including 29 U.S. Treasury securities and 348 residential mortgage-backed securities. The unrealized losses for these securities resulted from changes in market interest rates and liquidity, not changes in credit quality. 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, 2018 .

11

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

There were no significant gains or losses of debt securities available-for-sale or equity securities during the three months ended March 31, 2018 , including the sale and redemption of the remaining auction-rate securities in the investment securities portfolio. Additionally, there were no significant gains or losses of investment securities available-for-sale during the three months ended March 31, 2017 .
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)
 
March 31, 2018
Amortized Cost
 
Fair Value
Contractual maturity
 
 
 
Within one year
$
100

 
$
100

After one year through five years
2,861

 
2,823

After five years through ten years
1,727

 
1,709

After ten years
7,557

 
7,339

Total investment securities
$
12,245

 
$
11,971

Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with total amortized cost of $9.5 billion and fair value of $9.3 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, 2018 , investment securities with a carrying value of $628 million were pledged where permitted or required by law to secure $311 million of liabilities, primarily public and other deposits of state and local government agencies and derivative instruments.

12

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, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Business loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
84

 
$
29

 
$
26

 
$
139

 
$
242

 
$
30,528

 
$
30,909

Real estate construction:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Real Estate business line (a)
12

 

 

 
12

 

 
2,746

 
2,758

Other business lines (b)

 

 

 

 

 
356

 
356

Total real estate construction
12

 

 

 
12

 

 
3,102

 
3,114

Commercial mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Real Estate business line (a)
15

 

 

 
15

 
9

 
1,882

 
1,906

Other business lines (b)
20

 
6

 
8

 
34

 
20

 
7,312

 
7,366

Total commercial mortgage
35

 
6

 
8

 
49

 
29

 
9,194

 
9,272

Lease financing

 

 

 

 
3

 
461

 
464

International
14

 

 

 
14

 
4

 
946

 
964

Total business loans
145

 
35

 
34

 
214

 
278

 
44,231

 
44,723

Retail loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
11

 
1

 

 
12

 
29

 
1,962

 
2,003

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity
6

 
2

 
1

 
9

 
19

 
1,735

 
1,763

Other consumer
1

 

 
1

 
2

 

 
749

 
751

Total consumer
7

 
2

 
2

 
11

 
19

 
2,484

 
2,514

Total retail loans
18

 
3

 
2

 
23

 
48

 
4,446

 
4,517

Total loans
$
163

 
$
38

 
$
36

 
$
237

 
$
326

 
$
48,677

 
$
49,240

December 31, 2017