COMERICA INC /NEW/ - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________

(Mark One)


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

For the quarterly period ended September 30, 2021


☐			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)

_________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $5 par value	CMA	New York Stock Exchange

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	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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 ☐ No ☒

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 October 27, 2021: 131,148,664 shares

Table of Contents

COMERICA INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Consolidated Balance Sheets at Sept ember 3 0 , 2021 (unaudited) and December 31, 2020			1

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 3 0 , 2021 and 2020 (unaudited)			2

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30 , 2021 and 2020 (unaudited)			3

Consolidated Statements of Cash Flows for the Nine Months Ended September 3 0 , 2021 and 2020 (unaudited)			4

Notes to Consolidated Financial Statements (unaudited)			5

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

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			64

ITEM 4. Controls and Procedures			64

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings			64

ITEM 1A. Risk Factors			64

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			64

ITEM 6. Exhibits			65

Signature			66

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

Comerica Incorporated and Subsidiaries



(in millions, except share data)	September 30, 2021		December 31, 2020
	(unaudited)		(recast)
ASSETS
Cash and due from banks	$	1,050	$	1,031
Interest-bearing deposits with banks	22,539		14,736
Other short-term investments	187		172
Investment securities available-for-sale	16,846		15,028

Commercial loans	28,355		32,753
Real estate construction loans	3,010		4,082
Commercial mortgage loans	11,215		9,912
Lease financing	569		594
International loans	1,131		926
Residential mortgage loans	1,813		1,830
Consumer loans	2,102		2,194
Total loans	48,195		52,291
Allowance for loan losses	(609)		(948)
Net loans	47,586		51,343
Premises and equipment	447		459
Accrued income and other assets	5,874		5,360
Total assets	$	94,529	$	88,129
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	44,093	$	39,420
Money market and interest-bearing checking deposits	32,932		28,540
Savings deposits	3,125		2,710
Customer certificates of deposit	2,091		2,133

Foreign office time deposits	43		66
Total interest-bearing deposits	38,191		33,449
Total deposits	82,284		72,869

Accrued expenses and other liabilities	1,605		1,482
Medium- and long-term debt	2,837		5,728
Total liabilities	86,726		80,079
Fixed rate reset non-cumulative perpetual preferred stock, series A, no par value, $100,000 liquidation preference per share:
Authorized - 4,000 shares
Issued - 4,000 shares	394		394
Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued - 228,164,824 shares	1,141		1,141
Capital surplus	2,170		2,185
Accumulated other comprehensive (loss) income	(207)		64
Retained earnings	10,366		9,727
Less cost of common stock in treasury - 97,158,441 shares at 9/30/2021 and 88,997,430 shares at 12/31/2020	(6,061)		(5,461)
Total shareholders’ equity	7,803		8,050
Total liabilities and shareholders’ equity	$	94,529	$	88,129

See notes to consolidated financial statements (unaudited).

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Comerica Incorporated and Subsidiaries


	Three Months Ended September 30,				Nine Months Ended September 30,

(in millions, except per share data)	2021		2020		2021		2020
			(recast)				(recast)
INTEREST INCOME
Interest and fees on loans	$	411	$	408	$	1,201	$	1,359
Interest on investment securities	70		72		209		220
Interest on short-term investments	8		4		17		25
Total interest income	489		484		1,427		1,604
INTEREST EXPENSE
Interest on deposits	5		15		17		91
Interest on short-term borrowings	—		—		—		1
Interest on medium- and long-term debt	9		11		27		70
Total interest expense	14		26		44		162
Net interest income	475		458		1,383		1,442
Provision for credit losses	(42)		5		(359)		554
Net interest income after provision for credit losses	517		453		1,742		888
NONINTEREST INCOME
Card fees	72		71		227		198
Fiduciary income	58		51		171		157
Service charges on deposit accounts	50		47		145		138
Commercial lending fees	31		19		76		53
Derivative income	20		9		72		48
Bank-owned life insurance	12		12		32		33
Letter of credit fees	10		9		30		27
Brokerage fees	3		5		11		17

Other noninterest income	24		29		70		65
Total noninterest income	280		252		834		736
NONINTEREST EXPENSES
Salaries and benefits expense	282		257		841		748
Outside processing fee expense	65		58		200		177
Occupancy expense	40		40		117		114
Software expense	40		39		117		115
Equipment expense	13		12		38		36
Advertising expense	10		9		25		24
FDIC insurance expense	4		8		17		24
Other noninterest expenses	11		15		20		51
Total noninterest expenses	465		438		1,375		1,289
Income before income taxes	332		267		1,201		335
Provision for income taxes	70		50		261		59
NET INCOME	262		217		940		276
Less:
Income allocated to participating securities	1		—		4		1
Preferred stock dividends	6		8		17		8
Net income attributable to common shares	$	255	$	209	$	919	$	267
Earnings per common share:
Basic	$	1.92	$	1.49	$	6.75	$	1.91
Diluted	1.90		1.48		6.67		1.90
Comprehensive income	175		169		669		610
Cash dividends declared on common stock	89		94		276		284
Cash dividends declared per common share	0.68		0.68		2.04		2.04

See notes to consolidated financial statements (unaudited).

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Comerica Incorporated and Subsidiaries


								Accumulated
	Nonredeemable		Common Stock					Other						Total
	Preferred		Shares			Capital		Comprehensive		Retained		Treasury		Shareholders'
(in millions, except per share data)	Stock		Outstanding	Amount		Surplus		Income (Loss)		Earnings		Stock		Equity
BALANCE AT JUNE 30, 2020 (recast)	$	395	139.0	$	1,141	$	2,173	$	66	$	9,496	$	(5,469)	$	7,802

Net income	—		—	—		—		—		217		—		217
Other comprehensive loss, net of tax	—		—	—		—		(48)		—		—		(48)
Cash dividends declared on common stock ($0.68 per share)	—		—	—		—		—		(94)		—		(94)
Cash dividends on preferred stock	—		—	—		—		—		(8)		—		(8)

Issuance of preferred stock	(1)		—	—		—		—		—		—		(1)
Net issuance of common stock under employee stock plans	—		0.1	—		—		—		(2)		2		—

Share-based compensation	—		—	—		6		—		—		—		6

BALANCE AT SEPTEMBER 30, 2020 (recast)	$	394	139.1	$	1,141	$	2,179	$	18	$	9,609	$	(5,467)	$	7,874
BALANCE AT JUNE 30, 2021	$	394	133.9	$	1,141	$	2,163	$	(120)	$	10,202	$	(5,849)	$	7,931
Net income	—		—	—		—		—		262		—		262
Other comprehensive loss, net of tax	—		—	—		—		(87)		—		—		(87)
Cash dividends declared on common stock ($0.68 per share)	—		—	—		—		—		(89)		—		(89)
Cash dividends declared on preferred stock	—		—	—		—		—		(6)		—		(6)
Purchase of common stock	—		(3.1)	—		—		—		—		(220)		(220)

Net issuance of common stock under employee stock plans	—		0.2	—		—		—		(3)		8		5
Share-based compensation	—		—	—		7		—		—		—		7

BALANCE AT SEPTEMBER 30, 2021	$	394	131.0	$	1,141	$	2,170	$	(207)	$	10,366	$	(6,061)	$	7,803
BALANCE AT DECEMBER 31, 2019 (recast)	$	—	142.1	$	1,141	$	2,174	$	(316)	$	9,619	$	(5,291)	$	7,327
Cumulative effect of change in accounting principle	—		—	—		—		—		13		—		13
Net income	—		—	—		—		—		276		—		276
Other comprehensive income, net of tax	—		—	—		—		334		—		—		334
Cash dividends declared on common stock ($2.04 per share)	—		—	—		—		—		(284)		—		(284)
Cash dividends declared on preferred stock	—		—	—		—		—		(8)		—		(8)
Purchase of common stock	—		(3.4)	—		—		—		—		(194)		(194)
Issuance of preferred stock	394		—	—		—		—		—		—		394

Net issuance of common stock under employee stock plans	—		0.4	—		(13)		—		(7)		18		(2)

Share-based compensation	—		—	—		18		—		—		—		18

BALANCE AT SEPTEMBER 30, 2020 (recast)	$	394	139.1	$	1,141	$	2,179	$	18	$	9,609	$	(5,467)	$	7,874
BALANCE AT DECEMBER 31, 2020 (recast)	$	394	139.2	$	1,141	$	2,185	$	64	$	9,727	$	(5,461)	$	8,050

Net income	—		—	—		—		—		940		—		940
Other comprehensive loss, net of tax	—		—	—		—		(271)		—		—		(271)
Cash dividends declared on common stock ($2.04 per share)	—		—	—		—		—		(276)		—		(276)
Cash dividends declared on preferred stock	—		—	—		—		—		(17)		—		(17)
Purchase of common stock	—		(9.0)	—		(24)		—		—		(649)		(673)


Net issuance of common stock under employee stock plans	—		0.8	—		(27)		—		(8)		49		14

Share-based compensation	—		—	—		36		—		—		—		36

BALANCE AT SEPTEMBER 30, 2021	$	394	131.0	$	1,141	$	2,170	$	(207)	$	10,366	$	(6,061)	$	7,803

See notes to consolidated financial statements (unaudited).

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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Comerica Incorporated and Subsidiaries


	Nine Months Ended September 30,

(in millions)	2021		2020
			(recast)
OPERATING ACTIVITIES
Net income	$	940	$	276
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	(359)		554
Provision (benefit) for deferred income taxes	119		(99)
Depreciation and amortization	76		82
Net periodic defined benefit credit	(61)		(41)
Share-based compensation expense	36		18
Net amortization of securities	26		7


Net gains on sales of foreclosed property	—		(1)


Net change in:

Accrued income receivable	17		32
Accrued expenses payable	84		(50)
Other, net	(673)		(58)
Net cash provided by operating activities	205		720
INVESTING ACTIVITIES
Investment securities available-for-sale:
Maturities and redemptions	4,203		2,344

Purchases	(6,327)		(4,796)



Net change in loans	5,222		(2,185)
Proceeds from sales of foreclosed property	8		3
Net increase in premises and equipment	(50)		(51)

Federal Home Loan Bank stock:
Purchases	—		(51)
Redemptions	115		92

Proceeds from bank-owned life insurance settlements	10		14
Other, net	(11)		—
Net cash provided by (used in) investing activities	3,170		(4,630)
FINANCING ACTIVITIES
Net change in:
Deposits	8,200		11,054
Short-term borrowings	—		(61)
Medium- and long-term debt:
Maturities and redemptions	(2,800)		(1,675)


Preferred stock:
Issuance	—		394
Cash dividends paid	(17)		—
Common stock:
Repurchases	(679)		(199)
Cash dividends paid	(281)		(282)
Issuances under employee stock plans	22		2




Other, net	2		—
Net cash provided by financing activities	4,447		9,233
Net increase in cash and cash equivalents	7,822		5,323
Cash and cash equivalents at beginning of period	15,767		5,818
Cash and cash equivalents at end of period	$	23,589	$	11,141
Interest paid	$	47	$	186
Income taxes paid	115		133

See notes to consolidated financial statements (unaudited).

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 nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020.

Defined Benefit Pension and Other Postretirement Costs

Effective January 1, 2021, the Corporation elected to change the accounting methodology for determining the market-related value of assets (MRVA) for certain asset classes in the qualified defined benefit pension plan. The MRVA is used to calculate the Corporation's expected return on plan assets, a component of defined pension benefit cost (credit). These classes are currently comprised of the fixed income securities and private placement assets held in the portfolio, utilized by the Corporation to mitigate the impacts to financial results from changes in fair value of the pension liability. Previously, MRVA was measured using a historical five-year average fair value. Under the new methodology, the Corporation calculates MRVA using fair value of plan assets. Although both methods are permitted under U.S. GAAP, the Corporation believes the new policy is preferable for these classes of assets as it results in more timely recognition of the performance of pension assets in the results from operations.

The change in accounting methodology is applied retrospectively to all prior periods presented in the consolidated financial statements. The impact of the change to the qualified defined benefit plan on the Corporation's consolidated financial statements is as follows:

Consolidated Balance Sheets


	September 30, 2021		December 31, 2020
(in millions)	Accounting Change Impact		Previously Reported		Accounting Change Impact		Recast Amounts
Accumulated other comprehensive (loss) income	$	(11)	$	168	$	(104)	$	64
Retained earnings	11		9,623		104		9,727

Consolidated Statements of Comprehensive Income


	Three Months Ended September 30,
	2021		2020
(in millions)	Accounting Change Impact		Previously Reported		Accounting Change Impact		Recast Amounts
Other noninterest expenses	$	(5)	$	23	$	(8)	$	15
Provision for income taxes	1		48		2		50
Net income	4		211		6		217

Earnings per common share:
Basic	$	0.03	$	1.45	$	0.04	$	1.49
Diluted	0.03		1.44		0.04		1.48

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries


	Nine Months Ended September 30,
	2021		2020
(in millions)	Accounting Change Impact		Previously Reported		Accounting Change Impact		Recast Amounts
Other noninterest expenses	$	(14)	$	73	$	(22)	$	51
Provision for income taxes	3		54		5		59
Net income	11		259		17		276

Earnings per common share:
Basic	$	0.08	$	1.79	$	0.12	$	1.91
Diluted	0.08		1.78		0.12		1.90

Consolidated Statements of Cash Flows


	Nine Months Ended September 30,
	2021		2020
(in millions)	Accounting Change Impact		Previously Reported		Accounting Change Impact		Recast Amounts
Net income	$	11	$	259	$	17	$	276
Provision (benefit) for deferred income taxes	3		(104)		5		(99)
Net periodic defined benefit credit	(14)		(19)		(22)		(41)

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.

Investment securities available-for-sale, derivatives, deferred compensation plans and equity securities with readily determinable fair values (primarily money market mutual funds) 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, 2020 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.

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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 September 30, 2021 and December 31, 2020.


(in millions)	Total		Level 1		Level 2		Level 3
September 30, 2021

Deferred compensation plan assets	$	108	$	108	$	—	$	—
Equity securities	71		71		—		—


Investment securities available-for-sale:
U.S. Treasury securities	3,429		3,429		—		—
Residential mortgage-backed securities (a)	13,163		—		13,163		—
Commercial mortgage-backed securities (a)	254		—		254		—



Total investment securities available-for-sale	16,846		3,429		13,417		—
Derivative assets:
Interest rate contracts	326		—		299		27
Energy contracts	769		—		769		—
Foreign exchange contracts	18		—		18		—
Total derivative assets	1,113		—		1,086		27
Total assets at fair value	$	18,138	$	3,608	$	14,503	$	27
Derivative liabilities:
Interest rate contracts	$	62	$	—	$	62	$	—
Energy contracts	764		—		764		—
Foreign exchange contracts	12		—		12		—

Total derivative liabilities	838		—		838		—
Deferred compensation plan liabilities	108		108		—		—
Total liabilities at fair value	$	946	$	108	$	838	$	—
December 31, 2020
Deferred compensation plan assets	$	107	$	107	$	—	$	—
Equity securities	60		60		—		—

Investment securities available-for-sale:
U.S. Treasury securities	4,658		4,658		—		—
Residential mortgage-backed securities (a)	10,370		—		10,370		—



Total investment securities available-for-sale	15,028		4,658		10,370		—
Derivative assets:
Interest rate contracts	531		—		492		39
Energy contracts	151		—		151		—
Foreign exchange contracts	18		—		18		—

Total derivative assets	700		—		661		39
Total assets at fair value	$	15,895	$	4,825	$	11,031	$	39
Derivative liabilities:
Interest rate contracts	$	61	$	—	$	61	$	—
Energy contracts	149		—		149		—
Foreign exchange contracts	19		—		19		—

Total derivative liabilities	229		—		229		—
Deferred compensation plan liabilities	107		107		—		—
Total liabilities at fair value	$	336	$	107	$	229	$	—

(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 3 fair value measurements during each of the three- and nine-month periods ended September 30, 2021 and 2020.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three- and nine-month periods ended September 30, 2021 and 2020.


			Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings (a)
	Balance at Beginning of Period											Balance at End of Period
									Sales
(in millions)			Realized		Unrealized
Three Months Ended September 30, 2021






Derivative assets:
Interest rate contracts	$	29	$	—	$	(2)	$	—		$	27

Three Months Ended September 30, 2020






Derivative assets:
Interest rate contracts	$	44	$	—	$	(2)	$	—		$	42

Nine Months Ended September 30, 2021






Derivative assets:
Interest rate contracts	$	39	$	—	$	(12)	$	—		$	27

Nine Months Ended September 30, 2020






Derivative assets:
Interest rate contracts	$	22	$	—	$	20	$	—		$	42

(a)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.

Assets and Liabilities Recorded 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 September 30, 2021 and December 31, 2020. No liabilities were recorded at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020.


(in millions)	Level 3
September 30, 2021


Loans:
Commercial	$	125
Real estate construction	4
Commercial mortgage	12

International	7





Total assets at fair value	$	148
December 31, 2020


Loans:
Commercial	$	134

Commercial mortgage	16







Total assets at fair value	$	150

Level 3 assets recorded at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020 included both nonaccrual loans and TDRs 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 observable inputs, although they are used in the determination of fair value.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Estimated Fair Values of Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The Corporation typically holds the majority of its financial instruments until maturity and thus does not expect to realize many of the estimated fair value amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments, but which have significant value. These include such items as core deposit intangibles, the future earnings potential of significant customer relationships and the value of trust operations and other fee generating businesses. The Corporation believes the imprecision of an estimate could be significant.

The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on the Corporation’s Consolidated Balance Sheets are as follows:


	Carrying Amount		Estimated Fair Value
(in millions)			Total		Level 1		Level 2		Level 3
September 30, 2021
Assets
Cash and due from banks	$	1,050	$	1,050	$	1,050	$	—	$	—

Interest-bearing deposits with banks	22,539		22,539		22,539		—		—

Loans held-for-sale	7		7		—		7		—
Total loans, net of allowance for loan losses (a)	47,586		48,146		—		—		48,146
Customers’ liability on acceptances outstanding	3		3		3		—		—
Restricted equity investments	92		92		92		—		—
Nonmarketable equity securities (b)	6		10
Liabilities
Demand deposits (noninterest-bearing)	44,093		44,093		—		44,093		—
Interest-bearing deposits	36,100		36,100		—		36,100		—
Customer certificates of deposit	2,091		2,090		—		2,090		—
Total deposits	82,284		82,283		—		82,283		—

Acceptances outstanding	3		3		3		—		—
Medium- and long-term debt	2,837		2,904		—		2,904		—
Credit-related financial instruments	(51)		(51)		—		—		(51)
December 31, 2020
Assets
Cash and due from banks	$	1,031	$	1,031	$	1,031	$	—	$	—

Interest-bearing deposits with banks	14,736		14,736		14,736		—		—

Loans held-for-sale	5		5		—		5		—
Total loans, net of allowance for loan losses (a)	51,343		50,601		—		—		50,601
Customers’ liability on acceptances outstanding	1		1		1		—		—
Restricted equity investments	207		207		207		—		—
Nonmarketable equity securities (b)	5		9
Liabilities
Demand deposits (noninterest-bearing)	39,420		39,420		—		39,420		—
Interest-bearing deposits	31,316		31,316		—		31,316		—
Customer certificates of deposit	2,133		2,133		—		2,133		—

Total deposits	72,869		72,869		—		72,869		—

Acceptances outstanding	1		1		1		—		—
Medium- and long-term debt	5,728		5,790		—		5,790		—
Credit-related financial instruments	(68)		(68)		—		—		(68)

(a)Included $148 million and $150 million of loans recorded at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020, 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
September 30, 2021
Investment securities available-for-sale:
U.S. Treasury securities	$	3,417	$	34	$	22	$	3,429
Residential mortgage-backed securities (a)	13,175		114		126		13,163
Commercial mortgage-backed securities (a)	258		—		4		254



Total investment securities available-for-sale	$	16,850	$	148	$	152	$	16,846



December 31, 2020
Investment securities available-for-sale:
U.S. Treasury securities	$	4,583	$	76	$	1	$	4,658
Residential mortgage-backed securities (a)	10,169		203		2		10,370



Total investment securities available-for-sale	$	14,752	$	279	$	3	$	15,028

(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 September 30, 2021 and December 31, 2020 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
September 30, 2021
U.S. Treasury securities	$	992	$	8	$	832	$	14	$	1,824	$	22
Residential mortgage-backed securities (a)	6,872		107		391		19		7,263		126
Commercial mortgage-backed securities (a)	254		4		—		—		254		4
Total temporarily impaired securities	$	8,118	$	119	$	1,223	$	33	$	9,341	$	152
December 31, 2020
U.S. Treasury securities	$	1,119	$	1	$	—	$	—	$	1,119	$	1
Residential mortgage-backed securities (a)	952		2		—		—		952		2
Total temporarily impaired securities	$	2,071	$	3	$	—	$	—	$	2,071	$	3

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

Unrealized losses resulted from changes in market interest rates and liquidity. The Corporation’s portfolio is comprised of securities issued or guaranteed by the U.S. government or government-sponsored enterprises. As such, it is expected that the securities would not be settled at a price less than the amortized cost of the investments. Further, the Corporation does not intend to sell the investments, and it is not more likely than not that it will be required to sell the investments before recovery of amortized costs. At September 30, 2021, the Corporation had 390 securities in an unrealized loss position with no allowance for credit losses, comprised of 20 U.S. Treasury securities, 345 residential mortgage-backed securities and 25 commercial mortgage-backed securities.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Interest receivable on investment securities totaled $22 million at September 30, 2021 and $18 million at December 31, 2020 and was included in accrued income and other assets on the Consolidated Balance Sheets.

Sales, calls and write-downs of investment securities available-for-sale, computed based on the adjusted cost of the specific security, resulted in no gains or losses during the three months ended September 30, 2021 or September 30, 2020 or the nine months ended September 30, 2021. There were $1 million of gains and $1 million of losses for the nine months ended September 30, 2020.

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)
September 30, 2021	Amortized Cost		Fair Value
Contractual maturity
Within one year	$	469	$	472
After one year through five years	3,143		3,163
After five years through ten years	902		915
After ten years	12,336		12,296


Total investment securities	$	16,850	$	16,846

Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with a total amortized cost and fair value of $13.2 billion and commercial mortgage-backed securities with a total amortized cost of $258 million and a fair value of $254 million. The actual cash flows of mortgage-backed securities may differ as borrowers of the underlying loans may exercise prepayment options.

At September 30, 2021, investment securities with a carrying value of $3.9 billion were pledged where permitted or required by law, including $2.4 billion pledged to the Federal Home Loan Bank (FHLB) as collateral for potential future borrowings of approximately $2.3 billion and $1.4 billion to secure $926 million of liabilities, primarily public and other deposits of state and local government agencies as well as derivative instruments. For information on FHLB borrowings, refer to Note 7.

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 amortized cost basis 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 (a)		Total Loans
September 30, 2021
Business loans:
Commercial	$	51	$	6	$	3	$	60	$	200	$	28,095	$	28,355
Real estate construction:
Commercial Real Estate business line (b)	17		—		—		17		—		2,471		2,488
Other business lines (c)	—		6		3		9		6		507		522
Total real estate construction	17		6		3		26		6		2,978		3,010
Commercial mortgage:
Commercial Real Estate business line (b)	7		—		—		7		2		3,404		3,413
Other business lines (c)	34		11		1		46		28		7,728		7,802
Total commercial mortgage	41		11		1		53		30		11,132		11,215
Lease financing	6		—		—		6		—		563		569
International	9		1		1		11		8		1,112		1,131
Total business loans	124		24		8		156		244		43,880		44,280

Retail loans:
Residential mortgage	12		1		—		13		35		1,765		1,813
Consumer:
Home equity	7		1		—		8		12		1,537		1,557
Other consumer	—		—		4		4		—		541		545
Total consumer	7		1		4		12		12		2,078		2,102
Total retail loans	19		2		4		25		47		3,843		3,915
Total loans	$	143	$	26	$	12	$	181	$	291	$	47,723	$	48,195
December 31, 2020
Business loans:
Commercial	$	62	$	115	$	33	$	210	$	252	$	32,291	$	32,753
Real estate construction:
Commercial Real Estate business line (b)	31		—		—		31		—		3,626		3,657
Other business lines (c)	9		—		—		9		1		415		425
Total real estate construction	40		—		—		40		1		4,041		4,082
Commercial mortgage:
Commercial Real Estate business line (b)	51		1		—		52		3		2,218		2,273
Other business lines (c)	48		40		5		93		26		7,520		7,639
Total commercial mortgage	99		41		5		145		29		9,738		9,912
Lease financing	14		—		1		15		1		578		594
International	—		—		—		—		—		926		926
Total business loans	215		156		39		410		283		47,574		48,267

Retail loans:
Residential mortgage	11		4		—		15		47		1,768		1,830
Consumer:
Home equity	7		1		—		8		17		1,563		1,588
Other consumer	10		—		6		16		—		590		606
Total consumer	17		1		6		24		17		2,153		2,194
Total retail loans	28		5		6		39		64		3,921		4,024
Total loans	$	243	$	161	$	45	$	449	$	347	$	51,495	$	52,291

(a)Includes $35 million and $141 million of loans with deferred payments not considered past due in accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) at September 30, 2021 and December 31, 2020, respectively.

(b)Primarily loans to real estate developers.

(c)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 (CQI) and vintage year. CQI is 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. Vintage year is the year of origination or major modification.


	September 30, 2021
	Vintage Year
(in millions)	2021			2020			2019		2018		2017		Prior		Revolvers		Revolvers Converted to Term		Total
Business loans:
Commercial:
Pass (a)	$	3,891	(b)	$	2,149	(b)	$	1,670	$	1,122	$	779	$	863	$	16,606	$	12	$	27,092


Criticized (c)	67			102			138		93		33		143		685		2		1,263

Total commercial	3,958			2,251			1,808		1,215		812		1,006		17,291		14		28,355
Real estate construction
Pass (a)	262			899			977		425		189		35		157		—		2,944


Criticized (c)	—			3			30		14		8		8		3		—		66

Total real estate construction	262			902			1,007		439		197		43		160		—		3,010
Commercial mortgage
Pass (a)	1,655			2,003			1,504		1,547		1,135		2,588		445		—		10,877


Criticized (c)	11			44			66		30		27		151		9		—		338

Total commercial mortgage	1,666			2,047			1,570		1,577		1,162		2,739		454		—		11,215
Lease financing
Pass (a)	62			93			103		54		40		183		—		—		535


Criticized (c)	—			2			21		9		1		1		—		—		34

Total lease financing	62			95			124		63		41		184		—		—		569
International
Pass (a)	281			135			154		31		4		16		448		—		1,069


Criticized (c)	20			13			3		8		4		8		6		—		62

Total international	301			148			157		39		8		24		454		—		1,131
Total business loans	6,249			5,443			4,666		3,333		2,220		3,996		18,359		14		44,280
Retail loans:
Residential mortgage
Pass (a)	363			577			187		85		122		443		—		—		1,777


Criticized (c)	1			—			1		2		7		25		—		—		36

Total residential mortgage	364			577			188		87		129		468		—		—		1,813
Consumer:
Home equity
Pass (a)	—			—			—		—		—		13		1,477		52		1,542


Criticized (c)	—			—			—		—		—		—		10		5		15

Total home equity	—			—			—		—		—		13		1,487		57		1,557
Other consumer
Pass (a)	68			72			17		9		1		33		341		—		541


Criticized (c)	—			—			—		—		—		—		4		—		4

Total other consumer	68			72			17		9		1		33		345		—		545
Total consumer	68			72			17		9		1		46		1,832		57		2,102
Total retail loans	432			649			205		96		130		514		1,832		57		3,915
Total loans	$	6,681		$	6,092		$	4,871	$	3,429	$	2,350	$	4,510	$	20,191	$	71	$	48,195


Table continues on the following page.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries


	December 31, 2020
	Vintage Year
	2020			2019		2018		2017		2016		Prior		Revolvers		Revolvers Converted to Term		Total
Business loans:
Commercial:
Pass (a)	$	5,991	(b)	$	2,316	$	1,563	$	1,051	$	429	$	755	$	18,416	$	17	$	30,538



Criticized (c)	30			281		191		116		64		166		1,365		2		2,215
Total commercial	6,021			2,597		1,754		1,167		493		921		19,781		19		32,753
Real estate construction:
Pass (a)	433			1,080		1,244		631		335		141		171		—		4,035



Criticized (c)	3			28		5		8		—		1		2		—		47
Total real estate construction	436			1,108		1,249		639		335		142		173		—		4,082
Commercial mortgage:
Pass (a)	2,053			1,559		1,146		1,120		818		2,272		431		—		9,399



Criticized (c)	47			130		42		45		41		193		15		—		513
Total commercial mortgage	2,100			1,689		1,188		1,165		859		2,465		446		—		9,912
Lease financing
Pass (a)	109			122		71		50		14		201		—		—		567



Criticized (c)	2			17		5		2		1		—		—		—		27
Total lease financing	111			139		76		52		15		201		—		—		594
International
Pass (a)	274			161		103		11		3		64		245		—		861



Criticized (c)	13			8		18		4		7		2		13		—		65
Total international	287			169		121		15		10		66		258		—		926
Total business loans	8,955			5,702		4,388		3,038		1,712		3,795		20,658		19		48,267
Retail loans:
Residential mortgage
Pass (a)	639			230		119		197		196		398		—		—		1,779



Criticized (c)	7			2		2		6		2		32		—		—		51
Total residential mortgage	646			232		121		203		198		430		—		—		1,830
Consumer:
Home equity
Pass (a)	—			—		—		—		—		15		1,489		63		1,567



Criticized (c)	—			—		—		—		—		1		13		7		21
Total home equity	—			—		—		—		—		16		1,502		70		1,588
Other consumer
Pass (a)	113			23		12		2		3		41		404		—		598



Criticized (c)	—			—		2		—		—		—		6		—		8
Total other consumer	113			23		14		2		3		41		410		—		606
Total consumer	113			23		14		2		3		57		1,912		70		2,194
Total retail loans	759			255		135		205		201		487		1,912		70		4,024
Total loans	$	9,714		$	5,957	$	4,523	$	3,243	$	1,913	$	4,282	$	22,570	$	89	$	52,291

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

(b)Includes Small Business Administration Paycheck Protection Program (PPP) loans of $627 million and $393 million in 2021 and 2020, respectively, at September 30, 2021, and PPP loans of $3.5 billion in 2020 at December 31, 2020.

(c)Includes loans with an internal rating of special mention, substandard loans for which the accrual of interest has not been discontinued and nonaccrual loans. Special mention loans 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. Accruing substandard loans 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 are also distinguished by the distinct possibility of loss in the future if these weaknesses are not corrected. Nonaccrual loans are loans for which the accrual of interest has been discontinued. For further information regarding nonaccrual loans, refer to the Nonperforming Assets subheading in Note 1 - Basis of Presentation and Accounting Policies on page F-59 in the Corporation's 2020 Annual Report. These categories are generally consistent with the "special mention" and "substandard" categories as defined by regulatory authorities. A minority of nonaccrual loans are consistent with the "doubtful" category.

Loan interest receivable totaled $118 million and $141 million at September 30, 2021 and December 31, 2020, respectively, and was included in accrued income and other assets on the Consolidated Balance Sheets.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Allowance for Credit Losses

The following table details the changes in the allowance for credit losses.


	2021									2020
(in millions)	Business Loans			Retail Loans			Total			Business Loans			Retail Loans			Total
Three Months Ended September 30
Balance at beginning of period:

Allowance for loan losses	$	589		$	63		$	652		$	943		$	64		$	1,007
Allowance for credit losses on lending-related commitments	24			7			31			50			9			59
Allowance for credit losses	613			70			683			993			73			1,066

Loan charge-offs	(26)			—			(26)			(53)			—			(53)
Recoveries on loans previously charged-off	22			2			24			18			2			20
Net loan (charge-offs) recoveries	(4)			2			(2)			(35)			2			(33)
Provision for credit losses:
Provision for loan losses	(31)			(10)			(41)			15			(11)			4
Provision for credit losses on lending-related commitments	—			(1)			(1)			1			—			1
Provision for credit losses	(31)			(11)			(42)			16			(11)			5

Balance at end of period:
Allowance for loan losses	554			55			609			923			55			978
Allowance for credit losses on lending-related commitments	24			6			30			51			9			60
Allowance for credit losses	$	578		$	61		$	639		$	974		$	64		$	1,038
Nine Months Ended September 30
Balance at beginning of period
Allowance for loan losses	$	895		$	53		$	948		$	601		$	36		$	637
Allowance for credit losses on lending-related commitments	35			9			44			28			3			31
Allowance for credit losses	930			62			992			629			39			668
Cumulative effect of change in accounting principle	—			—			—			(42)			25			(17)
Loan charge-offs	(48)			(2)			(50)			(196)			(3)			(199)
Recoveries on loans previously charged-off	53			3			56			29			3			32
Net loan recoveries (charge-offs)	5			1			6			(167)			—			(167)
Provision for credit losses:
Provision for loan losses	(346)			1			(345)			531			(6)			525
Provision for credit losses on lending-related commitments	(11)			(3)			(14)			23			6			29
Provision for credit losses	(357)			(2)			(359)			554			—			554

Balance at end of period:
Allowance for loan losses	554			55			609			923			55			978
Allowance for credit losses on lending-related commitments	24			6			30			51			9			60
Allowance for credit losses	$	578		$	61		$	639		$	974		$	64		$	1,038
Allowance for loan losses as a percentage of total loans	1.25		%	1.42		%	1.26		%	1.91		%	1.35		%	1.87		%
Allowance for loan losses as a