COMERICA INC /NEW/ - Quarter Report: 2019 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019



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 every Interactive Data File required to be submitted 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 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, a 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		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, 2019: 154,160,837 shares

Table of Contents

COMERICA INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Balance Sheets at March 31, 2019 (unaudited) and December 31, 2018	1

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)	2

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2019 and 2018 (unaudited)	3

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (unaudited)	4

Notes to Consolidated Financial Statements (unaudited)	5

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	51

ITEM 4. Controls and Procedures	51

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings	59

ITEM 1A. Risk Factors	59

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	59

ITEM 6. Exhibits	59

Signature	60

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, 2019			December 31, 2018
	(unaudited)
ASSETS
Cash and due from banks	$	1,063		$	1,390

Interest-bearing deposits with banks	2,418			3,171
Other short-term investments	136			134

Investment securities available-for-sale	12,212			12,045

Commercial loans	32,007			31,976
Real estate construction loans	3,291			3,077
Commercial mortgage loans	8,989			9,106
Lease financing	535			507
International loans	1,040			1,013
Residential mortgage loans	1,949			1,970
Consumer loans	2,491			2,514
Total loans	50,302			50,163
Less allowance for loan losses	(647		)	(671		)
Net loans	49,655			49,492

Premises and equipment	474			475
Accrued income and other assets	4,732			4,111
Total assets	$	70,690		$	70,818

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	26,242		$	28,690

Money market and interest-bearing checking deposits	22,889			22,560
Savings deposits	2,175			2,172
Certificates of deposit	2,776			2,131
Foreign office time deposits	9			8
Total interest-bearing deposits	27,849			26,871
Total deposits	54,091			55,561

Short-term borrowings	935			44
Accrued expenses and other liabilities	1,407			1,243
Medium- and long-term debt	6,848			6,463
Total liabilities	63,281			63,311

Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued - 228,164,824 shares	1,141			1,141
Capital surplus	2,159			2,148
Accumulated other comprehensive loss	(513		)	(609		)
Retained earnings	8,979			8,781
Less cost of common stock in treasury - 72,747,011 shares at 3/31/19 and 68,081,176 shares at 12/31/18	(4,357		)	(3,954		)
Total shareholders’ equity	7,409			7,507
Total liabilities and shareholders’ equity	$	70,690		$	70,818

See notes to consolidated financial statements (unaudited).

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Comerica Incorporated and Subsidiaries



	Three Months Ended March 31,
(in millions, except per share data)	2019			2018
INTEREST INCOME
Interest and fees on loans	$	621		$	509
Interest on investment securities	72			64
Interest on short-term investments	17			17
Total interest income	710			590
INTEREST EXPENSE
Interest on deposits	52			16
Interest on short-term borrowings	1			—
Interest on medium- and long-term debt	51			25
Total interest expense	104			41
Net interest income	606			549
Provision for credit losses	(13		)	12
Net interest income after provision for credit losses	619			537
NONINTEREST INCOME
Card fees	63			59
Service charges on deposit accounts	51			54
Fiduciary income	49			52
Commercial lending fees	22			18
Foreign exchange income	11			12
Letter of credit fees	9			10
Bank-owned life insurance	9			9
Brokerage fees	7			7
Net securities (losses) gains	(8		)	1
Other noninterest income	25			22
Total noninterest income	238			244
NONINTEREST EXPENSES
Salaries and benefits expense	265			255
Outside processing fee expense	63			61
Net occupancy expense	37			38
Software expense	29			31
Equipment expense	12			11
FDIC insurance expense	5			13
Advertising expense	5			6
Restructuring charges	—			16
Other noninterest expenses	17			15
Total noninterest expenses	433			446
Income before income taxes	424			335
Provision for income taxes	85			54
NET INCOME	339			281
Less income allocated to participating securities	2			2
Net income attributable to common shares	$	337		$	279
Earnings per common share:
Basic	$	2.14		$	1.62
Diluted	2.11			1.59

Comprehensive income	435			178

Cash dividends declared on common stock	105			52
Cash dividends declared per common share	0.67			0.30

See notes to consolidated financial statements (unaudited).

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Comerica Incorporated and Subsidiaries



								Accumulated
	Common Stock							Other									Total
	Shares				Capital			Comprehensive			Retained			Treasury			Shareholders'
(in millions, except per share data)	Outstanding		Amount		Surplus			Loss			Earnings			Stock			Equity
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

BALANCE AT DECEMBER 31, 2018	160.1		$	1,141	$	2,148		$	(609	)	$	8,781		$	(3,954	)	$	7,507
Cumulative effect of change in accounting principle	—		—		—			—			(14		)	—			(14		)
Net income	—		—		—			—			339			—			339
Other comprehensive income, net of tax	—		—		—			96			—			—			96
Cash dividends declared on common stock ($0.67 per share)	—		—		—			—			(105		)	—			(105		)
Purchase of common stock	(5.2	)	—		—			—			—			(434		)	(434		)
Net issuance of common stock under employee stock plans	0.5		—		(13		)	—			(22		)	31			(4		)
Share-based compensation	—		—		24			—			—			—			24
BALANCE AT MARCH 31, 2019	155.4		$	1,141	$	2,159		$	(513	)	$	8,979		$	(4,357	)	$	7,409

See notes to consolidated financial statements (unaudited).

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Comerica Incorporated and Subsidiaries



	Three Months Ended March 31,
(in millions)	2019			2018
OPERATING ACTIVITIES
Net income	$	339		$	281
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	(13		)	12
(Benefit) provision for deferred income taxes	(4		)	7
Depreciation and amortization	29			31
Net periodic defined benefit credit	(7		)	(5		)
Share-based compensation expense	24			24
Net amortization of securities	—			1
Net securities losses (gains)	8			(1		)
Net change in:
Accrued income receivable	(20		)	(26		)
Accrued expenses payable	(27		)	(22		)
Other, net	(289		)	56
Net cash provided by operating activities	40			358
INVESTING ACTIVITIES
Investment securities available-for-sale:
Maturities and redemptions	487			444
Sales	987			5
Purchases	(1,532		)	(441		)
Net change in loans	(151		)	(98		)
Proceeds from sales of foreclosed property	—			1
Net increase in premises and equipment	(16		)	(20		)
Purchases of Federal Home Loan Bank stock	(16		)	(41		)
Proceeds from bank-owned life insurance settlements	2			3
Net cash used in investing activities	(239		)	(147		)
FINANCING ACTIVITIES
Net change in:
Deposits	(1,586		)	(77		)
Short-term borrowings	891			38
Issuances and advances of medium- and long-term debt	350			1,000
Common stock:
Repurchases	(443		)	(168		)
Cash dividends paid	(99		)	(53		)
Issuances under employee stock plans	6			40
Net cash (used in) provided by financing activities	(881		)	780
Net (decrease) increase in cash and cash equivalents	(1,080		)	991
Cash and cash equivalents at beginning of period	4,561			5,845
Cash and cash equivalents at end of period	$	3,481		$	6,836
Interest paid	$	98		$	40
Income tax paid	12			2
Noncash investing and financing activities:
Loans transferred to other real estate	—			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).

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, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018.

Leases

Effective January 1, 2019, the Corporation adopted the provisions of Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842),” (ASU 2016-02), for all open leases with a term greater than one year as of the adoption date, using the modified retrospective approach. Prior comparable periods are presented in accordance with previous guidance under Accounting Standards Codification (ASC) 840, “Leases.”

Topic 842 requires the recognition of a lease liability measured as the present value of unpaid lease payments for operating leases where the Corporation is the lessee, and a corresponding right-of-use (ROU) asset for the right to use the leased properties. The Corporation elected not to reassess whether contracts are or contain leases, lease classification or initial direct costs for existing leases, a set of practical expedients for transition provided by ASU 2016-12. Further, the Corporation elected the practical expedient to use hindsight in determining the lease term and assessing impairment. The election of the hindsight practical expedient resulted in longer lease terms for a limited number of strategic locations based on relevant factors as of the adoption date.

The impact at adoption was increases of $329 million and $343 million to total assets and liabilities, respectively, and a $14 million reduction to retained earnings. The increase in total assets was due to the recognition of ROU assets recorded in accrued income and other assets, and the increase in total liabilities was due to corresponding recognition of lease payment liabilities recorded in accrued expenses and other liabilities.

Operating lease liabilities reflect the Corporation’s obligation to make future lease payments, primarily for real estate locations. Lease terms typically comprise contractual terms but may include extension options reasonably assured of being exercised at lease inception for certain strategic locations such as regional headquarters. Payments are discounted using the rate the Corporation would pay to borrow amounts equal to the lease payments over the lease term (the Corporation’s incremental borrowing rate). The Corporation does not separate lease and non-lease components for contracts in which it is the lessee. ROU assets are measured based on lease liabilities adjusted for incentives and timing differences between operating lease expense and payments, recognized on a straight-line basis over the lease term. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are recognized as incurred. Common area maintenance and other executory costs are the main components of variable lease payments. Operating and variable lease expenses are recorded in net occupancy expense in the Consolidated Statements of Income.

The Corporation is the lessor in sales-type, direct finance and leveraged lease arrangements. Leases are recorded at the principal balance outstanding, net of unearned income and charge-offs. Interest income is recognized using the interest method. The impact of adopting Topic 842 for lessor accounting was not significant.

Pending Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," (ASU 2016-13), which addresses concerns regarding the perceived delay in recognition of credit losses under the existing incurred loss model. The amendment introduces a new, single model for recognizing credit losses on all financial instruments presented on a cost basis. Under the new model, entities must estimate current expected credit losses by considering all available relevant information, including historical and current conditions, as well as reasonable and supportable forecasts of future events. The update also requires additional qualitative and quantitative disclosure to allow users to better understand the credit risk within the portfolio and the methodologies for determining the allowance for credit losses.

ASU 2016-13 is effective for the Corporation on January 1, 2020 and must be applied using the modified retrospective approach with limited exceptions. The Corporation’s cross-functional implementation team, led by the Chief Financial Officer and Chief Credit Officer, continued to make progress in accordance with the detailed implementation plan for adoption. In prior periods, the Corporation developed new credit estimation models and, in the first quarter 2019, completed internal validation of

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

the models. The Corporation is currently finalizing and documenting new processes and controls, challenging current model assumptions and outputs, refining the qualitative framework as well as drafting policies and disclosures. Additionally, limited parallel runs, which began in the fourth quarter 2018, will be enhanced throughout 2019 as the end-to-end processes, controls and policies are finalized.

The ultimate impact of ASU 2016-13 will depend on the composition of the portfolio as well as economic conditions and forecasts at the time of adoption. Based on current factors, the overall allowance for credit losses is not expected to materially change due to the portfolio’s relatively short average contractual life. The commercial portfolio, which comprises most of the Corporation’s portfolio, consists of loans and lending arrangements with short contractual maturities which are expected to result in a slight reduction to the allowance for credit losses. The allowance for credit losses is expected to increase for the consumer portfolio given its longer contractual maturities. The standard will be adopted in first quarter 2020.

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, 2018 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.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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, 2019 and December 31, 2018.



(in millions)	Total		Level 1		Level 2		Level 3
March 31, 2019
Deferred compensation plan assets	$	91	$	91	$	—	$	—
Equity securities	43		43		—		—
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	2,756		2,756		—		—
Residential mortgage-backed securities (a)	9,456		—		9,456		—
Total investment securities available-for-sale	12,212		2,756		9,456		—
Derivative assets:
Interest rate contracts	112		—		98		14
Energy derivative contracts	96		—		96		—
Foreign exchange contracts	15		—		15		—
Total derivative assets	223		—		209		14
Total assets at fair value	$	12,569	$	2,890	$	9,665	$	14
Derivative liabilities:
Interest rate contracts	$	47	$	—	$	47	$	—
Energy derivative contracts	93		—		93		—
Foreign exchange contracts	9		—		9		—
Total derivative liabilities	149		—		149		—
Deferred compensation plan liabilities	91		91		—		—
Total liabilities at fair value	$	240	$	91	$	149	$	—
December 31, 2018
Deferred compensation plan assets	$	88	$	88	$	—	$	—
Equity securities	43		43		—		—
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	2,727		2,727		—		—
Residential mortgage-backed securities (a)	9,318		—		9,318		—
Total investment securities available-for-sale	12,045		2,727		9,318		—
Derivative assets:
Interest rate contracts	67		—		58		9
Energy derivative contracts	189		—		189		—
Foreign exchange contracts	19		—		19		—
Total derivative assets	275		—		266		9
Total assets at fair value	$	12,451	$	2,858	$	9,584	$	9
Derivative liabilities:
Interest rate contracts	$	70	$	—	$	70	$	—
Energy derivative contracts	186		—		186		—
Foreign exchange contracts	13		—		13		—
Total derivative liabilities	269		—		269		—
Deferred compensation plan liabilities	88		88		—		—
Total liabilities at fair value	$	357	$	88	$	269	$	—


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

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, 2019 and 2018.

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, 2019 and 2018.



						Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings (b)
	Balance at Beginning of Period		Change in Classification (a)											Balance at End of Period
											Sales and Redemptions
(in millions)						Realized		Unrealized			Sales and Redemptions
Three Months Ended March 31, 2019
Derivative assets:
Interest rate contracts	$	9	$	—		$	—	$	5		$	—		$	14
Three Months Ended March 31, 2018
Equity securities	$	—	$	44		$	—	$	—		$	(44	)	$	—
Investment securities available-for-sale:
State and municipal securities (c)	5		—			—		—			(5		)	—
Equity and other non-debt securities (c)	44		(44		)	—		—			—			—
Total investment securities available-for-sale	49		(44		)	—		—			(5		)	—
Derivative assets:
Interest rate contracts	14		—			—		(7		)	—			7


(a)	Reflects the reclassification of equity securities resulting from the adoption of ASU 2016-01.


(b)	Realized and unrealized gains and losses due to changes in fair value are recorded in other noninterest income on the Consolidated Statements of Comprehensive Income.


(c)	Auction-rate securities.

Assets 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, 2019 and December 31, 2018. No liabilities were recorded at fair value on a nonrecurring basis at March 31, 2019 and December 31, 2018.



(in millions)	Level 3
March 31, 2019
Loans:
Commercial	$	40
Commercial mortgage	2
Total assets at fair value	$	42
December 31, 2018
Loans:
Commercial	$	33
Commercial mortgage	2
Total assets at fair value	$	35

Level 3 assets recorded at fair value on a nonrecurring basis at March 31, 2019 and December 31, 2018 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.

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, 2019
Assets
Cash and due from banks	$	1,063		$	1,063		$	1,063	$	—	$	—
Interest-bearing deposits with banks	2,418			2,418			2,418		—		—
Loans held-for-sale	2			2			—		2		—
Total loans, net of allowance for loan losses (a)	49,655			50,154			—		—		50,154
Customers’ liability on acceptances outstanding	4			4			4		—		—
Restricted equity investments	264			264			264		—		—
Nonmarketable equity securities (b)	6			10
Liabilities
Demand deposits (noninterest-bearing)	26,242			26,242			—		26,242		—
Interest-bearing deposits	25,073			25,073			—		25,073		—
Certificates of deposit	2,776			2,751			—		2,751		—
Total deposits	54,091			54,066			—		54,066		—
Short-term borrowings	935			935			935		—		—
Acceptances outstanding	4			4			4		—		—
Medium- and long-term debt	6,848			6,862			—		6,862		—
Credit-related financial instruments	(55		)	(55		)	—		—		(55		)
December 31, 2018
Assets
Cash and due from banks	$	1,390		$	1,390		$	1,390	$	—	$	—
Interest-bearing deposits with banks	3,171			3,171			3,171		—		—
Loans held-for-sale	3			3			—		3		—
Total loans, net of allowance for loan losses (a)	49,492			48,889			—		—		48,889
Customers’ liability on acceptances outstanding	4			4			4		—		—
Restricted equity investments	248			248			248		—		—
Nonmarketable equity securities (b)	6			11
Liabilities
Demand deposits (noninterest-bearing)	28,690			28,690			—		28,690		—
Interest-bearing deposits	24,740			24,740			—		24,740		—
Certificates of deposit	2,131			2,100			—		2,100		—
Total deposits	55,561			55,530			—		55,530		—
Short-term borrowings	44			44			44		—		—
Acceptances outstanding	4			4			4		—		—
Medium- and long-term debt	6,463			6,436			—		6,436		—
Credit-related financial instruments	(57		)	(57		)	—		—		(57		)


(a)	Included $42 million and $35 million of impaired loans recorded at fair value on a nonrecurring basis at March 31, 2019 and December 31, 2018, 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.

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, 2019
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	$	2,742	$	19	$	5	$	2,756
Residential mortgage-backed securities (a)	9,533		36		113		9,456
Total investment securities available-for-sale	$	12,275	$	55	$	118	$	12,212

December 31, 2018
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	$	2,732	$	14	$	19	$	2,727
Residential mortgage-backed securities (a)	9,493		22		197		9,318
Total investment securities available-for-sale	$	12,225	$	36	$	216	$	12,045


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

A summary of the Corporation’s investment securities in an unrealized loss position as of March 31, 2019 and December 31, 2018 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, 2019
U.S. Treasury and other U.S. government agency securities	$	1,100	$	3	$	378	$	2	$	1,478	$	5
Residential mortgage-backed securities (a)	368		—		6,379		113		6,747		113
Total temporarily impaired securities	$	1,468	$	3	$	6,757	$	115	$	8,225	$	118
December 31, 2018
U.S. Treasury and other U.S. government agency securities	$	—	$	—	$	1,457	$	19	$	1,457	$	19
Residential mortgage-backed securities (a)	1,008		9		6,412		188		7,420		197
Total temporarily impaired securities	$	1,008	$	9	$	7,869	$	207	$	8,877	$	216


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

At March 31, 2019, the Corporation had 324 securities in an unrealized loss position with no credit impairment, including 13 U.S. Treasury securities and 311 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, 2019.

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)	2019			2018
Securities gains	$	—		$	1
Securities losses	(8		)	—
Net securities (losses) gains	$	(8	)	$	1

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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, 2019	Amortized Cost		Fair Value
Contractual maturity
After one year through five years	$	2,784	$	2,797
After five years through ten years	1,396		1,390
After ten years	8,095		8,025
Total investment securities	$	12,275	$	12,212

Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with total amortized cost and fair value of $9.5 billion. The actual cash flows of mortgage-backed securities may differ from contractual maturity as the borrowers of the underlying loans may exercise prepayment options.

At March 31, 2019, investment securities with a carrying value of $398 million were pledged where permitted or required by law to secure $226 million of liabilities, primarily public and other deposits of state and local government agencies as well as derivative instruments.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 4 – CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES

The following table presents an aging analysis of the recorded balance of loans.



	Loans Past Due and Still Accruing
(in millions)	30-59 Days		60-89 Days		90 Days or More		Total		Nonaccrual Loans		Current Loans		Total Loans
March 31, 2019
Business loans:
Commercial	$	58	$	16	$	19	$	93	$	114	$	31,800	$	32,007
Real estate construction:
Commercial Real Estate business line (a)	—		—		—		—		—		2,888		2,888
Other business lines (b)	6		—		—		6		—		397		403
Total real estate construction	6		—		—		6		—		3,285		3,291
Commercial mortgage:
Commercial Real Estate business line (a)	4		—		—		4		2		1,733		1,739
Other business lines (b)	14		8		5		27		14		7,209		7,250
Total commercial mortgage	18		8		5		31		16		8,942		8,989
Lease financing	—		—		—		—		2		533		535
International	15		—		—		15		3		1,022		1,040
Total business loans	97		24		24		145		135		45,582		45,862
Retail loans:
Residential mortgage	19		2		—		21		37		1,891		1,949
Consumer:
Home equity	3		1		—		4		19		1,740		1,763
Other consumer	1		—		—		1		—		727		728
Total consumer	4		1		—		5		19		2,467		2,491
Total retail loans	23		3		—		26		56		4,358		4,440
Total loans	$	120	$	27	$	24	$	171	$	191	$	49,940	$	50,302
December 31, 2018
Business loans:
Commercial	$	34	$	26	$	8	$	68	$	141	$	31,767	$	31,976
Real estate construction:
Commercial Real Estate business line (a)	6		—		—		6		—		2,681		2,687
Other business lines (b)	6		—		—		6		—		384		390
Total real estate construction	12		—		—		12		—		3,065		3,077
Commercial mortgage:
Commercial Real Estate business line (a)	4		—		—		4		2		1,737		1,743
Other business lines (b)	32		5		8		45		18		7,300		7,363
Total commercial mortgage	36		5		8		49		20		9,037		9,106
Lease financing	—		—		—		—		2		505		507
International	—		—		—		—		3		1,010		1,013
Total business loans	82		31		16		129		166		45,384		45,679
Retail loans:
Residential mortgage	11		3		—		14		36		1,920		1,970
Consumer:
Home equity	4		1		—		5		19		1,741		1,765
Other consumer	1		—		—		1		—		748		749
Total consumer	5		1		—		6		19		2,489		2,514
Total retail loans	16		4		—		20		55		4,409		4,484
Total loans	$	98	$	35	$	16	$	149	$	221	$	49,793	$	50,163


(a)	Primarily loans to real estate developers.


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

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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



	Internally Assigned Rating
(in millions)	Pass (a)		Special Mention (b)		Substandard (c)		Nonaccrual (d)		Total
March 31, 2019
Business loans:
Commercial	$	30,669	$	590	$	634	$	114	$	32,007
Real estate construction:
Commercial Real Estate business line (e)	2,865		23		—		—		2,888
Other business lines (f)	399		4		—		—		403
Total real estate construction	3,264		27		—		—		3,291
Commercial mortgage:
Commercial Real Estate business line (e)	1,678		14		45		2		1,739
Other business lines (f)	7,003		157		76		14		7,250
Total commercial mortgage	8,681		171		121		16		8,989
Lease financing	522		9		2		2		535
International	986		38		13		3		1,040
Total business loans	44,122		835		770		135		45,862
Retail loans:
Residential mortgage	1,911		1		—		37		1,949
Consumer:
Home equity	1,736		—		8		19		1,763
Other consumer	727		1		—		—		728
Total consumer	2,463		1		8		19		2,491
Total retail loans	4,374		2		8		56		4,440
Total loans	$	48,496	$	837	$	778	$	191	$	50,302
December 31, 2018
Business loans:
Commercial	$	30,817	$	464	$	554	$	141	$	31,976
Real estate construction:
Commercial Real Estate business line (e)	2,664		23		—		—		2,687
Other business lines (f)	382		8		—		—		390
Total real estate construction	3,046		31		—		—		3,077
Commercial mortgage:
Commercial Real Estate business line (e)	1,682		14		45		2		1,743
Other business lines (f)	7,157		118		70		18		7,363
Total commercial mortgage	8,839		132		115		20		9,106
Lease financing	500		3		2		2		507
International	996		4		10		3		1,013
Total business loans	44,198		634		681		166		45,679
Retail loans:
Residential mortgage	1,931		3		—		36		1,970
Consumer:
Home equity	1,738		—		8		19		1,765
Other consumer	748		1		—		—		749
Total consumer	2,486		1		8		19		2,514
Total retail loans	4,417		4		8		55		4,484
Total loans	$	48,615	$	638	$	689	$	221	$	50,163


(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. This category is generally consistent with the "special mention" category as defined by regulatory authorities.

(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 pages F-52 and F-53 in the Corporation's 2018 Annual Report. A significant majority of nonaccrual loans are generally consistent with the "substandard" category and the remainder are generally consistent with the "doubtful" category as defined by regulatory authorities.


(e)	Primarily loans to real estate developers.


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

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table summarizes nonperforming assets.



(in millions)	March 31, 2019		December 31, 2018
Nonaccrual loans	$	191	$	221
Reduced-rate loans (a)	7		8
Total nonperforming loans	198		229
Foreclosed property (b)	1		1
Total nonperforming assets	$	199	$	230


(a)	There were no reduced-rate business loans at both March 31, 2019 and December 31, 2018. Reduced-rate retail loans were $7 million and $8 million at March 31, 2019 and December 31, 2018, respectively.


(b)	There were no foreclosed residential real estate properties at both March 31, 2019 and December 31, 2018.

There were $1 million of retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual loans at both March 31, 2019 and December 31, 2018.

Allowance for Credit Losses

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



	2019									2018
(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	$	627		$	44		$	671		$	661		$	51		$	712
Loan charge-offs	(19		)	(1		)	(20		)	(36		)	(1		)	(37		)
Recoveries on loans previously charged-off	8			1			9			8			1			9
Net loan charge-offs	(11		)	—			(11		)	(28		)	—			(28		)
Provision for loan losses	(8		)	(5		)	(13		)	20			(6		)	14
Balance at end of period	$	608		$	39		$	647		$	653		$	45		$	698
As a percentage of total loans	1.33		%	0.88		%	1.29		%	1.46		%	0.99		%	1.42		%

March 31
Allowance for loan losses:
Individually evaluated for impairment	$	35		$	—		$	35		$	42		$	—		$	42
Collectively evaluated for impairment	573			39			612			611			45			656
Total allowance for loan losses	$	608		$	39		$	647		$	653		$	45		$	698
Loans:
Individually evaluated for impairment	$	202		$	34		$	236		$	384		$	31		$	415
Collectively evaluated for impairment	45,660			4,406			50,066			44,339			4,486			48,825
Total loans evaluated for impairment	$	45,862		$	4,440		$	50,302		$	44,723		$	4,517		$	49,240

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)	2019		2018
Balance at beginning of period	$	30	$	42
Provision for credit losses on lending-related commitments	—		(2		)
Balance at end of period	$	30	$	40

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, 2019
Business loans:
Commercial	$	30	$	114	$	144	$	194	$	33
Commercial mortgage:
Commercial Real Estate business line (a)	39		—		39		49		—
Other business lines (b)	2		13		15		20		2
Total commercial mortgage	41		13		54		69		2
Lease financing	—		1		1		1		—
International	2		1		3		9		—
Total business loans	73		129		202		273		35
Retail loans:
Residential mortgage	16		8		24		25		—
Consumer:
Home equity	9		—		9		11		—
Other consumer	1		—		1		1		—
Total consumer	10		—		10		12		—
Total retail loans (c)	26		8		34		37		—
Total individually evaluated impaired loans	$	99	$	137	$	236	$	310	$	35
December 31, 2018
Business loans:
Commercial	$	50	$	130	$	180	$	227	$	24
Commercial mortgage:
Commercial Real Estate business line (a)	39		—		39		49		—
Other business lines (b)	2		16		18		23		3
Total commercial mortgage	41		16		57		72		3
International	2		1		3		8		—
Total business loans	93		147		240		307		27
Retail loans:
Residential mortgage	16		8		24		25		—
Consumer:
Home equity	11		—		11		13		—
Other consumer	1		—		1		1		—
Total consumer	12		—		12		14		—
Total retail loans (c)	28		8		36		39		—
Total individually evaluated impaired loans	$	121	$	155	$	276	$	346	$	27


(a)	Primarily loans to real estate developers.


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


(c)	Individually evaluated retail loans generally have no related allowance for loan losses, primarily due to policy which results in direct write-downs of most restructured retail loans.

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 as of March 31, 2019 and 2018. Interest income recognized for the period primarily related to performing restructured loans.



	Individually Evaluated Impaired Loans
	2019				2018
(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	$	162	$	1	$	344	$	1
Commercial mortgage:
Commercial Real Estate business line (a)	39		1		40		1
Other business lines (b)	16		—		25		—
Total commercial mortgage	55		1		65		1
Lease financing	1		—		—		—
International	3		—		5		—
Total business loans	221		2		414		2
Retail loans:
Residential mortgage	24		—		20		—
Consumer loans:
Home equity	10		—		11		—
Other consumer	1		—		1		—
Total consumer	11		—		12		—
Total retail loans	35		—		32		—
Total individually evaluated impaired loans	$	256	$	2	$	446	$	2


(a)	Primarily loans to real estate developers.


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

Troubled Debt Restructurings

The following table details the recorded balance at March 31, 2019 and 2018 of loans considered to be troubled debt restructurings (TDRs) that were restructured during the three-month periods ended March 31, 2019 and 2018, all of which were principal deferrals.



	Principal Deferrals (a)
(in millions)	2019		2018
Three Months Ended March 31,
Business loans:
Commercial	$	12	$	28
Commercial mortgage:
Other business lines (b)	1		1
Total business loans	13		29
Retail loans:
Consumer:
Home equity (c)	—		1
Total loans	$	13	$	30


(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.

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, 2019 and 2018 were insignificant.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

At March 31, 2019 and December 31, 2018, commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $24 million and $20 million, respectively. On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. 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, 2019 and 2018 of loans modified by principal deferral during the twelve-month periods ended March 31, 2019 and 2018.



	Principal Deferrals
(in millions)	2019		2018
March 31
Business loans:
Commercial	$	26	$	90
Commercial mortgage:
Commercial Real Estate business line (a)	—		37
Other business lines (b)	2		2
Total commercial mortgage	2		39
Total business loans	28		129
Retail loans:
Consumer:
Home equity (c)	1		2
Total loans	$	29	$	131


(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, 2019 and 2018, loans with a carrying value of $4 million and $17 million, respectively, were modified by interest rate reduction (reduced-rate loans). There were no loans restructured into two notes (AB note restructures) during the twelve-month period ended March 31, 2019, compared to loans with a carrying value of $20 million restructured during the twelve-month period ended March 31, 2018.

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. For interest rate reductions 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 defaults of principal deferrals, interest rate reductions or AB note restructures during both the three-month periods ended March 31, 2019 and 2018.

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 positions are monitored 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

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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. At March 31, 2019, counterparties with bilateral collateral agreements deposited $23 million of cash with the Corporation to secure the fair value of contracts in an unrealized gain position, and the Corporation had pledged $12 million of marketable investment securities and posted $18 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. There were no derivative instruments with credit-risk-related contingent features that were in a liability position at March 31, 2019.

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.

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, 2019 and December 31, 2018. The table excludes commitments and warrants accounted for as derivatives.

March 31, 2019

December 31, 2018

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

2,975

—