Document
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q 
______________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 1-10706
____________________________________________________________________________________
Comerica Incorporated
(Exact name of registrant as specified in its charter)
___________________________________________________________________________________
Delaware
38-1998421
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Comerica Bank Tower
1717 Main Street, MC 6404
Dallas, Texas 75201
(Address of principal executive offices)
(Zip Code)
(214) 462-6831
(Registrant’s telephone number, including area code) 
_________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
 
 
 
 
 
 
 
 
59
 
 
59
 
 
59
 
 
59
 
 
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).

1

Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Comerica Incorporated and Subsidiaries 


 
Three Months Ended March 31,
(in millions, except per share data)
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).


2

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).



3

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).

4

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

NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Organization
The accompanying unaudited consolidated financial statements were prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the three months ended March 31, 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

5

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.

6

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.

7

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
 
 
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.

8

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.

9

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


10

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.

11

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.

12

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