COMERICA INC /NEW/ - Quarter Report: 2021 June (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 June 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 July 27, 2021: 133,923,650 shares

Table of Contents

COMERICA INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

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

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

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 3 0 , 2021 and 2020 (unaudited)			3

Consolidated Statements of Cash Flows for the Six Months Ended June 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)	June 30, 2021		December 31, 2020
	(unaudited)		(recast)
ASSETS
Cash and due from banks	$	1,008	$	1,031
Interest-bearing deposits with banks	15,493		14,736
Other short-term investments	183		172
Investment securities available-for-sale	15,837		15,028

Commercial loans	30,207		32,753
Real estate construction loans	3,172		4,082
Commercial mortgage loans	11,334		9,912
Lease financing	589		594
International loans	1,036		926
Residential mortgage loans	1,807		1,830
Consumer loans	2,083		2,194
Total loans	50,228		52,291
Allowance for loan losses	(652)		(948)
Net loans	49,576		51,343
Premises and equipment	454		459
Accrued income and other assets	5,804		5,360
Total assets	$	88,355	$	88,129
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	40,514	$	39,420
Money market and interest-bearing checking deposits	30,319		28,540
Savings deposits	3,095		2,710
Customer certificates of deposit	2,115		2,133

Foreign office time deposits	23		66
Total interest-bearing deposits	35,552		33,449
Total deposits	76,066		72,869

Accrued expenses and other liabilities	1,504		1,482
Medium- and long-term debt	2,854		5,728
Total liabilities	80,424		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	2,163		2,185
Accumulated other comprehensive (loss) income	(120)		64
Retained earnings	10,202		9,727
Less cost of common stock in treasury - 94,247,402 shares at 6/30/2021 and 88,997,430 shares at 12/31/2020	(5,849)		(5,461)
Total shareholders’ equity	7,931		8,050
Total liabilities and shareholders’ equity	$	88,355	$	88,129

See notes to consolidated financial statements (unaudited).

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Comerica Incorporated and Subsidiaries


	Three Months Ended June 30,				Six Months Ended June 30,

(in millions, except per share data)	2021		2020		2021		2020
			(recast)				(recast)
INTEREST INCOME
Interest and fees on loans	$	404	$	434	$	790	$	951
Interest on investment securities	70		74		139		148
Interest on short-term investments	5		3		9		21
Total interest income	479		511		938		1,120
INTEREST EXPENSE
Interest on deposits	5		20		12		76
Interest on short-term borrowings	—		1		—		1
Interest on medium- and long-term debt	9		19		18		59
Total interest expense	14		40		30		136
Net interest income	465		471		908		984
Provision for credit losses	(135)		138		(317)		549
Net interest income after provision for credit losses	600		333		1,225		435
NONINTEREST INCOME
Card fees	84		68		155		127
Fiduciary income	60		52		113		106
Service charges on deposit accounts	47		42		95		91
Commercial lending fees	27		17		45		34
Derivative income	22		19		52		39
Letter of credit fees	10		9		20		18
Bank-owned life insurance	9		9		20		21
Brokerage fees	4		5		8		12
Net securities gains	—		1		—		—
Other noninterest income	21		25		46		36
Total noninterest income	284		247		554		484
NONINTEREST EXPENSES
Salaries and benefits expense	277		249		559		491
Outside processing fee expense	71		62		135		119
Occupancy expense	38		37		77		74
Software expense	38		39		77		76
Equipment expense	13		12		25		24
Advertising expense	9		8		15		15
FDIC insurance expense	7		8		13		16
Other noninterest expenses	10		19		9		36
Total noninterest expenses	463		434		910		851
Income before income taxes	421		146		869		68
Provision for income taxes	93		28		191		9
NET INCOME	328		118		678		59
Less:
Income allocated to participating securities	2		1		3		1
Preferred stock dividends	5		—		11		—
Net income attributable to common shares	$	321	$	117	$	664	$	58
Earnings per common share:
Basic	$	2.35	$	0.85	$	4.81	$	0.42
Diluted	2.32		0.84		4.76		0.42
Comprehensive income	313		97		494		441
Cash dividends declared on common stock	92		96		187		190
Cash dividends declared per common share	0.68		0.68		1.36		1.36

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 MARCH 31, 2020 (recast)	$	—	139.0	$	1,141	$	2,168	$	87	$	9,476	$	(5,470)	$	7,402

Net income	—		—	—		—		—		118		—		118
Other comprehensive loss, net of tax	—		—	—		—		(21)		—		—		(21)
Cash dividends declared on common stock ($0.68 per share)	—		—	—		—		—		(96)		—		(96)
Purchase of common stock	—		—	—		—		—		—		1		1
Issuance of preferred stock	395		—	—		—		—		—		—		395
Net issuance of common stock under employee stock plans	—		—	—		1		—		(2)		—		(1)

Share-based compensation	—		—	—		4		—		—		—		4

BALANCE AT JUNE 30, 2020 (recast)	$	395	139.0	$	1,141	$	2,173	$	66	$	9,496	$	(5,469)	$	7,802
BALANCE AT MARCH 31, 2021	$	394	139.6	$	1,141	$	2,183	$	(105)	$	9,975	$	(5,436)	$	8,152
Net income	—		—	—		—		—		328		—		328
Other comprehensive loss, net of tax	—		—	—		—		(15)		—		—		(15)
Cash dividends declared on common stock ($0.68 per share)	—		—	—		—		—		(92)		—		(92)
Cash dividends declared on preferred stock	—		—	—		—		—		(5)		—		(5)
Purchase of common stock	—		(5.8)	—		(24)		—		—		(426)		(450)

Net issuance of common stock under employee stock plans	—		0.1	—		(3)		—		(4)		13		6
Share-based compensation	—		—	—		7		—		—		—		7

BALANCE AT JUNE 30, 2021	$	394	133.9	$	1,141	$	2,163	$	(120)	$	10,202	$	(5,849)	$	7,931
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	—		—	—		—		—		59		—		59
Other comprehensive income, net of tax	—		—	—		—		382		—		—		382
Cash dividends declared on common stock ($1.36 per share)	—		—	—		—		—		(190)		—		(190)
Purchase of common stock	—		(3.4)	—		—		—		—		(194)		(194)
Issuance of preferred stock	395		—	—		—		—		—		—		395

Net issuance of common stock under employee stock plans	—		0.3	—		(13)		—		(5)		16		(2)

Share-based compensation	—		—	—		12		—		—		—		12

BALANCE AT JUNE 30, 2020 (recast)	$	395	139.0	$	1,141	$	2,173	$	66	$	9,496	$	(5,469)	$	7,802
BALANCE AT DECEMBER 31, 2020 (recast)	$	394	139.2	$	1,141	$	2,185	$	64	$	9,727	$	(5,461)	$	8,050

Net income	—		—	—		—		—		678		—		678
Other comprehensive loss, net of tax	—		—	—		—		(184)		—		—		(184)
Cash dividends declared on common stock ($1.36 per share)	—		—	—		—		—		(187)		—		(187)
Cash dividends declared on preferred stock	—		—	—		—		—		(11)		—		(11)
Purchase of common stock	—		(5.9)	—		(24)		—		—		(429)		(453)


Net issuance of common stock under employee stock plans	—		0.6	—		(27)		—		(5)		41		9

Share-based compensation	—		—	—		29		—		—		—		29

BALANCE AT JUNE 30, 2021	$	394	133.9	$	1,141	$	2,163	$	(120)	$	10,202	$	(5,849)	$	7,931

See notes to consolidated financial statements (unaudited).

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Comerica Incorporated and Subsidiaries


	Six Months Ended June 30,

(in millions)	2021		2020
			(recast)
OPERATING ACTIVITIES
Net income	$	678	$	59
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	(317)		549
Provision (benefit) for deferred income taxes	69		(92)
Depreciation and amortization	51		55
Net periodic defined benefit credit	(41)		(27)
Share-based compensation expense	29		12
Net amortization of securities	16		1





Net change in:

Accrued income receivable	1		43
Accrued expenses payable	31		(64)
Other, net	(514)		208
Net cash provided by operating activities	3		744
INVESTING ACTIVITIES
Investment securities available-for-sale:
Maturities and redemptions	2,819		1,311

Purchases	(3,828)		(1,387)



Net change in loans	2,616		(3,229)
Proceeds from sales of foreclosed property	8		1
Net increase in premises and equipment	(35)		(29)

Federal Home Loan Bank stock:
Purchases	—		(51)
Redemptions	115		30

Proceeds from bank-owned life insurance settlements	6		10
Other, net	(12)		—
Net cash provided by (used in) investing activities	1,689		(3,344)
FINANCING ACTIVITIES
Net change in:
Deposits	2,481		10,327
Short-term borrowings	—		681
Medium- and long-term debt:
Maturities and redemptions	(2,800)		(925)


Preferred stock:
Issuance	—		395
Cash dividends paid	(11)		—
Common stock:
Repurchases	(459)		(199)
Cash dividends paid	(190)		(191)
Issuances under employee stock plans	18		5




Other, net	3		—
Net cash (used in) provided by financing activities	(958)		10,093
Net increase in cash and cash equivalents	734		7,493
Cash and cash equivalents at beginning of period	15,767		5,818
Cash and cash equivalents at end of period	$	16,501	$	13,311
Interest paid	$	30	$	152
Income taxes paid	96		77

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 six months ended June 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 classes of assets 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


	June 30, 2021		December 31, 2020
(in millions)	Accounting Change Impact		Previously Reported		Accounting Change Impact		Recast Amounts
Accumulated other comprehensive (loss) income	$	(7)	$	168	$	(104)	$	64
Retained earnings	7		9,623		104		9,727

Consolidated Statements of Comprehensive Income


	Three Months Ended June 30,
	2021		2020
(in millions)	Accounting Change Impact		Previously Reported		Accounting Change Impact		Recast Amounts
Other noninterest expenses	$	(5)	$	25	$	(6)	$	19
Provision for income taxes	$	1	27		1		28
Net income	4		113		5		118

Earnings per common share:
Basic	$	0.03	$	0.81	$	0.04	$	0.85
Diluted	$	0.03	$	0.80	$	0.04	$	0.84

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries


	Six Months Ended June 30,
	2021		2020
(in millions)	Accounting Change Impact		Previously Reported		Accounting Change Impact		Recast Amounts
Other noninterest expenses	$	(9)	$	50	$	(14)	$	36
Provision for income taxes	2		6		3		9
Net income	7		48		11		59

Earnings per common share:
Basic	$	0.05	$	0.34	$	0.08	$	0.42
Diluted	$	0.05	$	0.34	$	0.08	$	0.42

Consolidated Statements of Cash Flows


	Six Months Ended June 30,
	2021		2020
(in millions)	Accounting Change Impact		Previously Reported		Accounting Change Impact		Recast Amounts
Net income	$	7	$	48	$	11	$	59
Provision (benefit) for deferred income taxes	2		(95)		3		(92)
Net periodic defined benefit credit	(9)		(13)		(14)		(27)

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.

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 June 30, 2021 and December 31, 2020.


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

Deferred compensation plan assets	$	112	$	112	$	—	$	—
Equity securities	63		63		—		—


Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	3,844		3,844		—		—
Residential mortgage-backed securities (a)	11,993		—		11,993		—



Total investment securities available-for-sale	15,837		3,844		11,993		—
Derivative assets:
Interest rate contracts	367		—		338		29
Energy contracts	573		—		573		—
Foreign exchange contracts	15		—		15		—
Total derivative assets	955		—		926		29
Total assets at fair value	$	16,967	$	4,019	$	12,919	$	29
Derivative liabilities:
Interest rate contracts	$	67	$	—	$	67	$	—
Energy contracts	570		—		570		—
Foreign exchange contracts	10		—		10		—

Total derivative liabilities	647		—		647		—
Deferred compensation plan liabilities	112		112		—		—
Total liabilities at fair value	$	759	$	112	$	647	$	—
December 31, 2020
Deferred compensation plan assets	$	107	$	107	$	—	$	—
Equity securities	60		60		—		—

Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency 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 six-month periods ended June 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 six-month periods ended June 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 June 30, 2021






Derivative assets:
Interest rate contracts	$	24	$	—	$	5	$	—		$	29

Three Months Ended June 30, 2020






Derivative assets:
Interest rate contracts	$	43	$	—	$	1	$	—		$	44

Six Months Ended June 30, 2021






Derivative assets:
Interest rate contracts	$	39	$	—	$	(10)	$	—		$	29

Six Months Ended June 30, 2020






Derivative assets:
Interest rate contracts	$	22	$	—	$	22	$	—		$	44

(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 June 30, 2021 and December 31, 2020. No liabilities were recorded at fair value on a nonrecurring basis at June 30, 2021 and December 31, 2020.


(in millions)	Level 3
June 30, 2021


Loans:
Commercial	$	114
Real estate construction	3
Commercial mortgage	14







Total assets at fair value	$	131
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 June 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 quantifiable 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
June 30, 2021
Assets
Cash and due from banks	$	1,008	$	1,008	$	1,008	$	—	$	—

Interest-bearing deposits with banks	15,493		15,493		15,493		—		—

Loans held-for-sale	8		8		—		8		—
Total loans, net of allowance for loan losses (a)	49,576		50,187		—		—		50,187
Customers’ liability on acceptances outstanding	4		4		4		—		—
Restricted equity investments	92		92		92		—		—
Nonmarketable equity securities (b)	6		10
Liabilities
Demand deposits (noninterest-bearing)	40,514		40,514		—		40,514		—
Interest-bearing deposits	33,437		33,437		—		33,437		—
Customer certificates of deposit	2,115		2,114		—		2,114		—
Total deposits	76,066		76,065		—		76,065		—

Acceptances outstanding	4		4		4		—		—
Medium- and long-term debt	2,854		2,919		—		2,919		—
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 $131 million and $150 million of loans recorded at fair value on a nonrecurring basis at June 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
June 30, 2021
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	$	3,821	$	44	$	21	$	3,844
Residential mortgage-backed securities (a)	11,924		156		87		11,993



Total investment securities available-for-sale	$	15,745	$	200	$	108	$	15,837



December 31, 2020
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency 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 June 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
June 30, 2021
U.S. Treasury and other U.S. government agency securities	$	1,830	$	21	$	—	$	—	$	1,830	$	21
Residential mortgage-backed securities (a)	3,437		81		198		6		3,635		87
Total temporarily impaired securities	$	5,267	$	102	$	198	$	6	$	5,465	$	108
December 31, 2020
U.S. Treasury and other U.S. government agency 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 June 30, 2021, the Corporation had 139 securities in an unrealized loss position with no allowance for credit losses, comprised of 19 U.S. Treasury securities and 120 residential mortgage-backed securities.

Interest receivable on investment securities totaled $20 million at June 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 resulted in the following losses recorded in net securities gains on the Consolidated Statements of Comprehensive Income, computed based on the adjusted cost of the specific security.


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2021		2020		2021		2020
Securities gains	$	—	$	1	$	—	$	1
Securities losses	—		—		—		(1)
Net securities gains	$	—	$	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)
June 30, 2021	Amortized Cost		Fair Value
Contractual maturity
Within one year	$	868	$	876
After one year through five years	3,151		3,179
After five years through ten years	536		551
After ten years	11,190		11,231


Total investment securities	$	15,745	$	15,837

Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with a total amortized cost of $11.9 billion and a fair value of $12.0 billion. The actual cash flows of mortgage-backed securities may differ as borrowers of the underlying loans may exercise prepayment options.

At June 30, 2021, investment securities with a carrying value of $4.0 billion were pledged where permitted or required by law, including $3.2 billion pledged to the Federal Home Loan Bank (FHLB) as collateral for potential future borrowings of approximately $3.1 billion and $830 million to secure $631 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
June 30, 2021
Business loans:
Commercial	$	65	$	8	$	4	$	77	$	221	$	29,909	$	30,207
Real estate construction:
Commercial Real Estate business line (b)	—		—		—		—		—		2,707		2,707
Other business lines (c)	—		—		4		4		4		457		465
Total real estate construction	—		—		4		4		4		3,164		3,172
Commercial mortgage:
Commercial Real Estate business line (b)	28		—		—		28		2		3,530		3,560
Other business lines (c)	23		8		10		41		29		7,704		7,774
Total commercial mortgage	51		8		10		69		31		11,234		11,334
Lease financing	40		—		—		40		—		549		589
International	—		—		—		—		—		1,036		1,036
Total business loans	156		16		18		190		256		45,892		46,338

Retail loans:
Residential mortgage	7		6		2		15		41		1,751		1,807
Consumer:
Home equity	2		—		—		2		14		1,532		1,548
Other consumer	1		7		7		15		—		520		535
Total consumer	3		7		7		17		14		2,052		2,083
Total retail loans	10		13		9		32		55		3,803		3,890
Total loans	$	166	$	29	$	27	$	222	$	311	$	49,695	$	50,228
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 $45 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 June 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.


	June 30, 2021
	Vintage Year
(in millions)	2021			2020			2019		2018		2017		Prior		Revolvers		Revolvers Converted to Term		Total
Business loans:
Commercial:
Pass (a)	$	3,319	(b)	$	3,819	(b)	$	1,876	$	1,278	$	823	$	969	$	16,582	$	14	$	28,680


Criticized (c)	55			81			205		136		64		160		824		2		1,527

Total commercial	3,374			3,900			2,081		1,414		887		1,129		17,406		16		30,207
Real estate construction
Pass (a)	142			728			1,152		557		294		80		149		—		3,102


Criticized (c)	—			3			30		17		8		9		3		—		70

Total real estate construction	142			731			1,182		574		302		89		152		—		3,172
Commercial mortgage
Pass (a)	1,064			2,088			1,611		1,636		1,206		2,848		474		—		10,927


Criticized (c)	3			48			63		36		32		210		15		—		407

Total commercial mortgage	1,067			2,136			1,674		1,672		1,238		3,058		489		—		11,334
Lease financing
Pass (a)	55			100			108		58		46		186		—		—		553


Criticized (c)	—			2			22		10		1		1		—		—		36

Total lease financing	55			102			130		68		47		187		—		—		589
International
Pass (a)	199			145			143		48		6		54		385		—		980


Criticized (c)	20			14			3		1		4		9		5		—		56

Total international	219			159			146		49		10		63		390		—		1,036
Total business loans	4,857			7,028			5,213		3,777		2,484		4,526		18,437		16		46,338
Retail loans:
Residential mortgage
Pass (a)	219			636			197		96		131		481		—		—		1,760


Criticized (c)	6			1			2		3		7		28		—		—		47

Total residential mortgage	225			637			199		99		138		509		—		—		1,807
Consumer:
Home equity
Pass (a)	—			—			—		—		—		14		1,464		53		1,531


Criticized (c)	—			—			—		—		—		—		11		6		17

Total home equity	—			—			—		—		—		14		1,475		59		1,548
Other consumer
Pass (a)	50			81			18		9		1		34		326		—		519


Criticized (c)	—			—			—		1		—		7		8		—		16

Total other consumer	50			81			18		10		1		41		334		—		535
Total consumer	50			81			18		10		1		55		1,809		59		2,083
Total retail loans	275			718			217		109		139		564		1,809		59		3,890
Total loans	$	5,132		$	7,746		$	5,430	$	3,886	$	2,623	$	5,090	$	20,246	$	75	$	50,228


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 $1.0 billion and $1.8 billion in 2021 and 2020, respectively, at June 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 $135 million and $141 million at June 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 June 30
Balance at beginning of period:

Allowance for loan losses	$	709	$	68	$	777	$	861	$	55	$	916
Allowance for credit losses on lending-related commitments	22		8		30		52		10		62
Allowance for credit losses	731		76		807		913		65		978

Loan charge-offs	(7)		(1)		(8)		(56)		(1)		(57)
Recoveries on loans previously charged-off	19		—		19		6		1		7
Net loan charge-offs	12		(1)		11		(50)		—		(50)
Provision for credit losses:
Provision for loan losses	(132)		(4)		(136)		132		9		141
Provision for credit losses on lending-related commitments	2		(1)		1		(2)		(1)		(3)
Provision for credit losses	(130)		(5)		(135)		130		8		138

Balance at end 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
Six Months Ended June 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	(22)		(2)		(24)		(143)		(3)		(146)
Recoveries on loans previously charged-off	31		1		32		11		1		12
Net loan charge-offs	9		(1)		8		(132)		(2)		(134)
Provision for credit losses:
Provision for loan losses	(315)		11		(304)		516		5		521
Provision for credit losses on lending-related commitments	(11)		(2)		(13)		22		6		28
Provision for credit losses	(326)		9		(317)		538		11		549

Balance at end 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