0000028412 us-gaap:CommercialBorrowerMember us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember us-gaap:GeographicDistributionForeignMember 2018-12-31

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

For the quarterly period ended ~~September~~June 30, ~~2019~~2020



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

1717 Main Street, MC 6404

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.

Non-accelerated filer

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 25, 2019: 144,154,334~~July 27, 2020: 139,039,348 shares

COMERICA INCORPORATED AND SUBSIDIARIES

Comerica Incorporated and Subsidiaries

(in millions, except share data) September 30, 2019 December 31, 2018
(unaudited)
ASSETS
Cash and due from banks $ 1,229
$ 1,390

Interest-bearing deposits with banks 2,888
3,171
Other short-term investments 146
134

Investment securities available-for-sale 12,429
12,045

Commercial loans 32,890
31,976
Real estate construction loans 3,377
3,077
Commercial mortgage loans 9,234
9,106
Lease financing 578
507
International loans 1,055
1,013
Residential mortgage loans 1,906
1,970
Consumer loans 2,451
2,514
Total loans 51,491
50,163
Less allowance for loan losses (652 ) (671 )
Net loans 50,839
49,492

Premises and equipment 467
475
Accrued income and other assets 4,850
4,111
Total assets $ 72,848
$ 70,818

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits $ 27,134
$ 28,690

Money market and interest-bearing checking deposits 23,992
22,560
Savings deposits 2,156
2,172
Customer certificates of deposit 2,853
2,131
Other time deposits 647
—
Foreign office time deposits 27
8
Total interest-bearing deposits 29,675
26,871
Total deposits 56,809
55,561

Short-term borrowings 51
44
Accrued expenses and other liabilities 1,477
1,243
Medium- and long-term debt 7,311
6,463
Total liabilities 65,648
63,311

Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued - 228,164,824 shares 1,141
1,141
Capital surplus 2,172
2,148
Accumulated other comprehensive loss (336 ) (609 )
Retained earnings 9,369
8,781
Less cost of common stock in treasury - 84,028,400 shares at 9/30/19 and 68,081,176 shares at 12/31/18 (5,146 ) (3,954 )
Total shareholders’ equity 7,200
7,507
Total liabilities and shareholders’ equity $ 72,848
$ 70,818

~~See notes to consolidated financial statements (unaudited).~~

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)	2020		2019		2020		2019
INTEREST INCOME
Interest and fees on loans	$	434	$	635	$	951	$	1,256
Interest on investment securities	74		75		148		147
Interest on short-term investments	3		17		21		34
Total interest income	511		727		1,120		1,437
INTEREST EXPENSE
Interest on deposits	20		67		76		119
Interest on short-term borrowings	1		6		1		7
Interest on medium- and long-term debt	19		51		59		102
Total interest expense	40		124		136		228
Net interest income	471		603		984		1,209
Provision for credit losses	138		44		549		31
Net interest income after provision for credit losses	333		559		435		1,178
NONINTEREST INCOME
Card fees	68		65		127		128
Fiduciary income	52		52		106		101
Service charges on deposit accounts	42		51		91		102
Commercial lending fees	17		21		34		43
Foreign exchange income	9		11		20		22
Bank-owned life insurance	9		11		21		20
Letter of credit fees	9		10		18		19
Brokerage fees	5		7		12		14
Net securities gains (losses)	1		—		—		(8)
Other noninterest income	35		22		55		47
Total noninterest income	247		250		484		488
NONINTEREST EXPENSES
Salaries and benefits expense	249		245		491		510
Outside processing fee expense	62		65		119		128
Occupancy expense	37		37		74		74
Software expense	39		28		76		57
Equipment expense	12		12		24		24
Advertising expense	8		9		15		14
FDIC insurance expense	8		6		16		11
Other noninterest expenses	25		22		50		39
Total noninterest expenses	440		424		865		857
Income before income taxes	140		385		54		809
Provision for income taxes	27		87		6		172
NET INCOME	113		298		48		637
Less income allocated to participating securities	1		1		1		3
Net income attributable to common shares	$	112	$	297	$	47	$	634
Earnings per common share:
Basic	$	0.81	$	1.95	$	0.34	$	4.10
Diluted	0.80		1.94		0.34		4.06
Comprehensive income	97		429		441		864
Cash dividends declared on common stock	98		100		192		205
Cash dividends declared per common share	0.68		0.67		1.36		1.34

See notes to consolidated financial statements (unaudited).

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Comerica Incorporated and Subsidiaries


								Accumulated																				Accumulated
	Common Stock							Other									Total				Nonredeemable		Common Stock							Other						Total
	Shares				Capital			Comprehensive			Retained			Treasury			Shareholders'				Preferred		Shares			Capital		Comprehensive		Retained		Treasury		Shareholders'
(in millions, except per share data)	Outstanding		Amount		Surplus			Loss			Earnings			Stock			Equity			(in millions, except per share data)	Stock		Outstanding	Amount		Surplus		Income (Loss)		Earnings		Stock		Equity
BALANCE AT MARCH 31, 2019																				BALANCE AT MARCH 31, 2019	$	—	155.4	$	1,141	$	2,159	$	(513)	$	8,979	$	(4,357)	$	7,409

BALANCE AT JUNE 30, 2018	170.9		$	1,141	$	2,144		$	(589	)	$	8,374		$	(2,991	)	$	8,079
Net income	—		—		—			—			318			—			318
Other comprehensive loss, net of tax	—		—		—			(22		)	—			—			(22		)
Cash dividends declared on common stock ($0.60 per share)	—		—		—			—			(100		)	—			(100		)
Purchase of common stock	(5.3	)	—		(7		)	—			—			(493		)	(500		)
Net issuance of common stock under employee stock plans	0.2		—		2			—			(3		)	5			4
Net issuance of common stock for warrants	0.1		—		(2		)	—			(2		)	4			—
Share-based compensation	—		—		7			—			—			—			7
BALANCE AT SEPTEMBER 30, 2018	165.9		$	1,141	$	2,144		$	(611	)	$	8,587		$	(3,475	)	$	7,786

BALANCE AT JUNE 30, 2019	149.8		$	1,141	$	2,168		$	(382	)	$	9,176		$	(4,780	)	$	7,323
Net income	—		—		—			—			292			—			292			Net income	—		—	—		—		—		298		—		298
Other comprehensive income, net of tax	—		—		—			46			—			—			46			Other comprehensive income, net of tax	—		—	—		—		131		—		—		131
Cash dividends declared on common stock ($0.67 per share)	—		—		—			—			(97		)	—			(97		)	Cash dividends declared on common stock ($0.67 per share)	—		—	—		—		—		(100)		—		(100)
Purchase of common stock	(5.7	)	—		—			—			—			(370		)	(370		)	Purchase of common stock	—		(5.7)	—		—		—		—		(425)		(425)
Net issuance of common stock under employee stock plans	—		—		(1		)	—			(2		)	4			1			Net issuance of common stock under employee stock plans	—		0.1	—		1		—		(1)		2		2

Share-based compensation	—		—		5			—			—			—			5			Share-based compensation	—		—	—		8		—		—		—		8
BALANCE AT SEPTEMBER 30, 2019	144.1		$	1,141	$	2,172		$	(336	)	$	9,369		$	(5,146	)	$	7,200

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
BALANCE AT JUNE 30, 2019																				BALANCE AT JUNE 30, 2019	$	—	149.8	$	1,141	$	2,168	$	(382)	$	9,176	$	(4,780)	$	7,323
BALANCE AT MARCH 31, 2020																				BALANCE AT MARCH 31, 2020	$	—	139.0	$	1,141	$	2,168	$	174	$	9,389	$	(5,470)	$	7,402
Net income	—		—		—			—			925			—			925			Net income	—		—	—		—		—		113		—		113
Other comprehensive loss, net of tax	—		—		—			(161		)	—			—			(161		)	Other comprehensive loss, net of tax	—		—	—		—		(16)		—		—		(16)
Cash dividends declared on common stock ($1.24 per share)	—		—		—			—			(210		)	—			(210		)
Cash dividends declared on common stock ($0.68 per share)																				Cash dividends declared on common stock ($0.68 per share)	—		—	—		—		—		(98)		—		(98)
Purchase of common stock	(8.7	)	—		(7		)	—			—			(821		)	(828		)	Purchase of common stock	—		—	—		—		—		—		1		1
Issuance of preferred stock																				Issuance of preferred stock	395		—	—		—		—		—		—		395
Net issuance of common stock under employee stock plans	1.5		—		(9		)	—			(24		)	74			41			Net issuance of common stock under employee stock plans	—		—	—		1		—		—		—		1
Net issuance of common stock for warrants	0.2		—		(3		)	—			(5		)	8			—
Share-based compensation	—		—		41			—			—			—			41			Share-based compensation	—		—	—		4		—		—		—		4
BALANCE AT SEPTEMBER 30, 2018	165.9		$	1,141	$	2,144		$	(611	)	$	8,587		$	(3,475	)	$	7,786

BALANCE AT JUNE 30, 2020																				BALANCE AT JUNE 30, 2020	$	395	139.0	$	1,141	$	2,173	$	158	$	9,404	$	(5,469)	$	7,802
BALANCE AT DECEMBER 31, 2018	160.1		$	1,141	$	2,148		$	(609	)	$	8,781		$	(3,954	)	$	7,507		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		)	Cumulative effect of change in accounting principle	—		—	—		—		—		(14)		—		(14)
Net income	—		—		—			—			929			—			929			Net income	—		—	—		—		—		637		—		637
Other comprehensive income, net of tax	—		—		—			273			—			—			273			Other comprehensive income, net of tax	—		—	—		—		227		—		—		227
Cash dividends declared on common stock ($2.01 per share)	—		—		—			—			(302		)	—			(302		)
Cash dividends declared on common stock ($1.34 per share)																				Cash dividends declared on common stock ($1.34 per share)	—		—	—		—		—		(205)		—		(205)
Purchase of common stock	(16.6	)	—		—			—			—			(1,229		)	(1,229		)	Purchase of common stock	—		(10.9)	—		—		—		—		(859)		(859)

Net issuance of common stock under employee stock plans	0.6		—		(13		)	—			(25		)	37			(1		)	Net issuance of common stock under employee stock plans	—		0.6	—		(12)		—		(23)		33		(2)

Share-based compensation	—		—		37			—			—			—			37			Share-based compensation	—		—	—		32		—		—		—		32
BALANCE AT SEPTEMBER 30, 2019	144.1		$	1,141	$	2,172		$	(336	)	$	9,369		$	(5,146	)	$	7,200

BALANCE AT JUNE 30, 2019																				BALANCE AT JUNE 30, 2019	$	—	149.8	$	1,141	$	2,168	$	(382)	$	9,176	$	(4,780)	$	7,323
BALANCE AT DECEMBER 31, 2019																				BALANCE AT DECEMBER 31, 2019	$	—	142.1	$	1,141	$	2,174	$	(235)	$	9,538	$	(5,291)	$	7,327
Cumulative effect of change in accounting principle																				Cumulative effect of change in accounting principle	—		—	—		—		—		13		—		13
Net income																				Net income	—		—	—		—		—		48		—		48
Other comprehensive income, net of tax																				Other comprehensive income, net of tax	—		—	—		—		393		—		—		393
Cash dividends declared on common stock ($1.36 per share)																				Cash dividends declared on common stock ($1.36 per share)	—		—	—		—		—		(192)		—		(192)
Purchase of common stock																				Purchase of common stock	—		(3.4)	—		—		—		—		(194)		(194)

Issuance of preferred stock																				Issuance of preferred stock	395		—	—		—		—		—		—		395
Net issuance of common stock under employee stock plans																				Net issuance of common stock under employee stock plans	—		0.3	—		(13)		—		(3)		16		—

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

BALANCE AT JUNE 30, 2020																				BALANCE AT JUNE 30, 2020	$	395	139.0	$	1,141	$	2,173	$	158	$	9,404	$	(5,469)	$	7,802

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,
	Nine Months Ended September 30,
(in millions)	2019			2018			(in millions)	2020		2019
OPERATING ACTIVITIES							OPERATING ACTIVITIES
Net income	$	929		$	925		Net income	$	48	$	637
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	66			(17		)	Provision for credit losses	549		31
Provision for deferred income taxes	4			37
Benefit for deferred income taxes							Benefit for deferred income taxes	(95)		(4)
Depreciation and amortization	84			90			Depreciation and amortization	55		57
Net periodic defined benefit credit	(23		)	(14		)	Net periodic defined benefit credit	(13)		(14)
Share-based compensation expense	37			41			Share-based compensation expense	12		32
Net amortization of securities	2			3			Net amortization of securities	1		1
Accretion of loan purchase discount	—			(1		)

Net securities losses	8			19			Net securities losses	—		8
Net gains on sales of foreclosed property	—			(1		)

Net change in:							Net change in:

Accrued income receivable	1			(36		)	Accrued income receivable	43		(12)
Accrued expenses payable	(39		)	19			Accrued expenses payable	(64)		(86)
Other, net	(200		)	(98		)	Other, net	208		(225)
Net cash provided by operating activities	869			967			Net cash provided by operating activities	744		425
INVESTING ACTIVITIES							INVESTING ACTIVITIES
Investment securities available-for-sale:							Investment securities available-for-sale:
Maturities and redemptions	1,615			1,366			Maturities and redemptions	1,311		991
Sales	987			1,256			Sales	—		987
Purchases	(2,721		)	(2,618		)	Purchases	(1,387)		(2,043)

Net change in loans	(1,419		)	120			Net change in loans	(3,229)		(1,685)
Proceeds from sales of foreclosed property	1			7			Proceeds from sales of foreclosed property	1		—
Net increase in premises and equipment	(62		)	(65		)	Net increase in premises and equipment	(29)		(29)

Federal Home Loan Bank stock:							Federal Home Loan Bank stock:
Purchases	(201		)	(41		)	Purchases	(51)		(49)
Redemptions	201			—			Redemptions	30		—

Proceeds from bank-owned life insurance settlements	7			4			Proceeds from bank-owned life insurance settlements	10		7
Other, net	2			(2		)
Net cash (used in) provided by investing activities	(1,590		)	27

Net cash used in investing activities							Net cash used in investing activities	(3,344)		(1,821)
FINANCING ACTIVITIES							FINANCING ACTIVITIES
Net change in:							Net change in:
Deposits	1,105			(1,978		)	Deposits	10,327		(209)
Short-term borrowings	7			74			Short-term borrowings	681		1,689
Medium- and long-term debt:							Medium- and long-term debt:
Maturities	(350		)	—
Maturities and redemptions							Maturities and redemptions	(925)		(350)
Issuances and advances	1,050			1,850			Issuances and advances	—		350

Preferred stock:							Preferred stock:
Issuance							Issuance	395		—
Common stock:							Common stock:
Repurchases	(1,242		)	(837		)	Repurchases	(199)		(872)
Cash dividends paid	(303		)	(161		)	Cash dividends paid	(191)		(203)
Issuances under employee stock plans	12			50			Issuances under employee stock plans	5		11
Other, net	(2		)	2
Net cash provided by (used in) financing activities	277			(1,000		)
Net decrease in cash and cash equivalents	(444		)	(6		)

Net cash provided by financing activities							Net cash provided by financing activities	10,093		416
Net increase (decrease) in cash and cash equivalents							Net increase (decrease) in cash and cash equivalents	7,493		(980)
Cash and cash equivalents at beginning of period	4,561			5,845			Cash and cash equivalents at beginning of period	5,818		4,561
Cash and cash equivalents at end of period	$	4,117		$	5,839		Cash and cash equivalents at end of period	$	13,311	$	3,581
Interest paid	$	347		$	172		Interest paid	$	152	$	220
Income tax paid	221			125			Income tax paid	77		161
Noncash investing and financing activities:							Noncash investing and financing activities:
Loans transferred to other real estate	3			2			Loans transferred to other real estate	1		2
Securities transferred from held-to-maturity to available-for-sale	—			1,266
Securities transferred from available-for-sale to equity securities	—			81

See notes to consolidated financial statements (unaudited).

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Organization

The accompanying unaudited consolidated financial statements were prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019~~.2020. 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~~.2019.

~~Leases~~Allowance for Credit Losses

The allowance for credit losses includes both the allowance for loan losses and the allowance for credit losses on lending-related commitments.

The Corporation disaggregates the loan portfolio into segments for purposes of determining the allowance for credit losses. These segments are based on the level at which the Corporation develops, documents and applies a systematic methodology to determine the allowance for credit losses. The Corporation's portfolio segments are business loans and retail loans. Business loans include the commercial, real estate construction, commercial mortgage, lease financing and international loan portfolios. Retail loans consist of residential mortgage and consumer loans, including home equity loans.

Effective January 1, ~~2019,~~2020, 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 certain 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 as well as accrued and prepaid rent. 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~~commonly referred to as the ~~perceived delay in recognition of~~current expected credit ~~losses under the existing incurred~~ loss ~~model. The amendment introduces a new, single~~(CECL) model, for ~~recognizing credit losses on~~ all financial ~~instruments presented on a cost basis.~~assets, except those accounted for at fair value through net income, using the modified retrospective approach.

Under ~~the new model, entities must estimate~~Topic 326, current expected credit losses byare estimated over the contractual life of the loan portfolio, considering all available relevant information, including historical and current conditions as well as reasonable and supportable forecasts of future events. ASU 2016-13 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 generally be applied using the modified retrospective approach with a cumulative effect adjustment to retained earnings. In prior periods, the Corporation developed and completed internal validations of new credit estimation models. The ~~Corporation has implemented new processes and controls for the execution of the new model and is~~previous accounting principle estimated probable, estimable losses inherent in the ~~process~~portfolio.

At adoption, the Corporation’s estimate of ~~testing them. The implementation team continues to challenge~~ current model assumptions and outputs, refine the qualitative framework and finalize policies and disclosures. Additionally, parallel runs will continue in fourth quarter 2019 as more end-to-end processes, controls and policies are fina

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

~~lized.~~

~~Incorporating reasonable and supportable forecasts of economic conditions into the estimate of~~ expected credit losses ~~will require significant judgment, such as selecting economic variables and forecast scenarios as well as determining~~in accordance with Topic 326 resulted in a $17 million day-one decrease in the appropriate length of the forecast horizon. Management will select economic variables it believes to be most relevant based on the composition of the loan portfolio and customer base, likely to include forecasted levels of employment, gross domestic product, corporate bond and treasury spreads, industrial production levels, consumer and commercial real estate price indices as well as housing statistics. Different economic forecasts ranging from more benign to more severe will be evaluated each reporting period to forecast losses over the contractual life of the loan portfolio. The Corporation anticipates using a two-year forecast horizon, which encompasses most of the remaining contractual life of its portfolio of commercial loans, reverting to its longer-term historical loss experience to estimate expected losses over any remaining contractual life.

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 Corporation estimates overall allowance for credit losses, from $668 million at December 31, 2019 under the incurred loss model. The Corporation recognized a corresponding $13 million increase to ~~remain within 5~~retained earnings and a $4 million reduction to deferred tax assets. A similar adjustment at December 31, 2019 would have caused a 2-basis-point increase in the Common Equity Tier 1 (CET1) capital ratio. Business loans, comprising approximately 91 percent ~~of current levels. The commercial portfolio, comprising the majority~~ of the Corporation’s total loan portfolio ~~consists~~at transition, consist of loans and lending arrangements with generally short contractual ~~maturities that are expected to~~maturities. As a result, ~~in a reduction of up to 5 percent in~~ the allowance for credit ~~losses.~~losses for business loans decreased $42 million. The allowance for credit losses ~~is expected to increase between 60 to 80 percent~~increased $25 million for ~~the consumer portfolio~~retail loans, given ~~its~~their longer contractual maturities.

~~ASU 2016-13~~ Topic 326 also requires expected credit losses on available-for-sale ~~securities~~ (AFS) debt securities to be recorded as an allowance for credit losses. For certain types of debt securities, such as U.S. Treasuries and other securities with government guarantees, entities may expect zero credit losses. The ~~Corporation believes the~~ zero-loss expectation ~~currently~~ applies to all ofthe Corporation’s securities and no allowance for credit losses was recorded on its AFS ~~securities.~~securities portfolio at transition.

Allowance for Loan Losses

The allowance for loan losses is estimated on a quarterly basis and represents management’s estimates of current expected credit losses in the Corporation’s loan portfolio. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually.

Collective loss estimates are determined by applying reserve factors, designed to estimate current expected credit losses, to amortized cost balances over the remaining contractual life of the collectively evaluated portfolio. Loans with similar risk characteristics are aggregated into homogeneous pools. Business loans are assigned to pools based primarily on business line and the Corporation’s internal risk rating system. For retail loans, pools are based on loan type, past due status and credit scores. Reserve factors are based on estimated probability of default for each pool, set to a default horizon based on contractual life, and loss given default. Historical estimates are calibrated to economic forecasts over the reasonable and supportable forecast period based on the projected performance of specific economic variables that statistically correlate with each of the probability of default and loss given default pools.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The calculation of current expected credit losses is inherently subjective, as it requires management to exercise judgment in determining appropriate factors used to determine the allowance. Some of the most significant factors in the quantitative allowance estimate are assigning internal risk ratings to loans, selecting the economic forecasts used to calibrate the reserve factors and determining the reasonable and supportable forecast period.

•Internal Risk Ratings: Loss factors are dependent on loan risk ratings for business loans. Risk ratings are assigned at origination, based on inherent credit risk, and may be updated based on new information that becomes available, periodic reviews of credit quality, a change in borrower performance or modifications to lending agreements.

•Economic Forecasts: Management selects economic variables it believes to be most relevant based on the composition of the loan portfolio and customer base, including forecasted levels of employment, gross domestic product, corporate bond and treasury spreads, industrial production levels, consumer and commercial real estate price indices as well as housing statistics. Different economic forecast scenarios ranging from more benign to more severe are evaluated each reporting period to forecast losses over the contractual life of the loan portfolio.

•Forecast Period: Economic forecasts are applied over the period management believes it can estimate reasonable and supportable forecasts. Forecast periods may be adjusted in response to changes in the economic environment. To estimate losses for contractual periods that extend beyond the forecast horizon, the Corporation reverts to an average historical loss experience. The Corporation typically forecasts economic variables over a two-year horizon, followed by an immediate reversion to an average historical loss experience that generally incorporates a full economic cycle. Management reviews this methodology on at least an annual basis.

The allowance for loan losses also includes qualitative adjustments to bring the allowance to the level management believes is appropriate based on factors that have not otherwise been fully accounted for, including adjustments for foresight risk, input imprecision and model imprecision. Foresight risk reflects the inherent imprecision in forecasting economic variables, including determining the depth and duration of economic cycles and their impact to relevant economic variables. The Corporation may make qualitative adjustments based on its evaluation of different forecast scenarios and known recent events impacting relevant economic variables. Input imprecision factors address the risk that certain model inputs may not reflect all available information including (i) risk factors that have not been fully addressed in internal risk ratings, (ii) changes in lending policies and procedures, (iii) changes in the level and quality of experience held by lending management, (iv) imprecision in the risk rating system and (v) limitations in data available for certain loan portfolios. Model imprecision considers known model limitations and model updates not yet fully reflected in the quantitative estimate.

The determination of the appropriate qualitative adjustment is based on management's analysis of current and expected economic conditions and their impact to the portfolio, as well as internal credit risk movements and a qualitative assessment of the lending environment, including underwriting standards. Management recognizes the sensitivity of various assumptions made in the quantitative modeling of expected losses and may adjust reserves depending upon the level of uncertainty that currently exists in one or more assumptions.

Credit losses for loans that no longer share risk characteristics with the loan pools are estimated on an individual basis. Individual credit loss estimates are typically performed for nonaccrual loans and modified loans classified as troubled debt restructurings (TDRs) and are based on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows. The Corporation considers certain loans to be collateral-dependent if the borrower is experiencing financial difficulty and management expects repayment for the loan to be substantially through the operation or sale of the collateral. For collateral-dependent loans, loss estimates are based on the fair value of collateral, less estimated cost to sell (if applicable). Collateral values supporting individually evaluated loans are assessed quarterly and appraisals are typically obtained at least annually.

The total allowance for loan losses is sufficient to absorb expected credit losses over the contractual life of the portfolio. Unanticipated events impacting the economy, including political instability or global events affecting the U.S. economy, could cause changes to expectations for current conditions and economic forecasts that result in an unanticipated increase in the allowance. Significant increases in current portfolio exposures or changes in credit characteristics could also increase the amount of the allowance. Such events, or others of similar nature, may result in the need for additional provision for credit losses in order to maintain an allowance that complies with credit risk and accounting policies.

Loans deemed uncollectible are charged off and deducted from the allowance. Recoveries on loans previously charged off are added to the allowance.

Credit losses are not estimated for accrued interest receivable as interest that is deemed uncollectible is written off through interest income.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Allowance for Credit Losses on Lending-Related Commitments

The allowance for credit losses on lending-related commitments estimates current expected credit losses on collective pools of letters of credit and unused commitments to extend credit based on reserve factors, determined in a manner similar to business loans, multiplied by a probability of draw estimate, based on historical experience and credit risk, applied to commitment amounts. The allowance for credit losses on lending-related commitments is included in accrued expenses and other liabilities on the Consolidated Balance Sheets, with the corresponding charge included in the provision for credit losses on the Consolidated Statements of Comprehensive Income.

Goodwill

Effective January 1, 2020, the Corporation prospectively adopted the provisions of ASU ~~2016-13~~No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” (ASU 2017-04), eliminating the second step of goodwill impairment testing, under which the implied fair value of goodwill was determined as if the reporting unit were being acquired in a business combination. Under ASU 2017-04, the Corporation will compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit’s fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit. The adoption of ASU 2017-04 did not impact the Corporation’s current financial condition or results of operations.

Goodwill, included in accrued income and other assets on the Consolidated Balance Sheets, is initially recorded as the excess of the purchase price over the fair value of net assets acquired in a business combination and is subsequently evaluated at least annually for impairment. Goodwill impairment testing is performed at the reporting unit level, equivalent to a business segment or one level below. The Corporation has three reporting units: the Commercial Bank, the Retail Bank and Wealth Management.

The Corporation performs its annual evaluation of goodwill impairment in the third quarter of each year and may elect to perform a quantitative impairment analysis or first conduct a qualitative analysis to determine if a quantitative analysis is necessary. Additionally, the Corporation evaluates goodwill impairment on an interim basis if events or changes in circumstances between annual tests indicate additional testing may be warranted to determine if goodwill might be impaired. Factors considered in the assessment of the likelihood of impairment include macroeconomic conditions, industry and market considerations, stock performance of the Corporation and its peers, financial performance of the reporting units, and previous results of goodwill impairment tests, amongst other factors. Based on the results of the qualitative analysis, the Corporation determines whether a quantitative test is deemed necessary. The quantitative test compares the estimated fair value of identified reporting units with their carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying value, an impairment charge would be recorded for the excess, not to exceed the amount of goodwill allocated to the reporting unit.

Software

Effective January 1, 2020, the Corporation adopted the provisions of ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," using a prospective approach for implementation costs incurred subsequent to the adoption of the standard. Amortization expense from capitalized implementation costs of hosting arrangements that are service contracts and fees associated with the hosting elements of the arrangements, are included in software expense in the Consolidated Statements of Comprehensive Income, along with other software-related expenses. For the three- and six-month periods ended June 30, 2020, software expense included $8 million and $15 million of hosting fees that would have previously been included in outside processing fee expense.

Capitalized software, stated at cost less accumulated amortization, includes purchased software, capitalizable application development costs associated with internally developed software and cloud computing arrangements, including capitalizable implementation costs associated with hosting arrangements that are service contracts. Amortization, computed on the straight-line method, is charged to software expense in the Consolidated Statements of Comprehensive Income over the estimated useful life of the software, generally 5 years, or the term of the hosting arrangement for implementation costs related to service contracts.

Cloud computing arrangements include software as a service (SaaS), platform as a service (PaaS), infrastructure as a service (IaaS) and other similar hosting arrangements. The Corporation primarily utilizes SaaS and IaaS arrangements.

Capitalized implementation costs of hosting arrangements that are service contracts were insignificant for the three- and six-month periods ended June 30, 2020.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (FASB) issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” (ASU 2020-04), to provide temporary optional guidance to ease the potential accounting burden of reference rate reform. ASU 2020-04 is effective for eligible contract modifications from January 1, 2020 through December 31, 2022. Approximately 72 percent of the Corporation’s loans at June 30, 2020 were tied to the London Interbank Offered Rate (LIBOR). The Corporation uses interest rate swaps to convert variable-LIBOR rate loans to fixed rates for approximately 11 percent of the loan portfolio. Additional contracts with exposure to LIBOR include swaps converting fixed-rate long-term debt to variable LIBOR rates. The Corporation adopted the provisions of ASU 2020-04 for loan contract modifications as of January 1, 2020 and for all existing hedging relationships as of that date or entered into in the first quarter of 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~~Investment securities available-for-sale, derivatives, ~~and~~ deferred compensation ~~plan assets~~plans and ~~liabilities~~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~~nonaccrual loans and loans classified as TDRs, 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~~2019 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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019.


(in millions)	Total		Level 1		Level 2		Level 3
June 30, 2020

Deferred compensation plan assets	$	92	$	92	$	—	$	—
Equity securities	50		50		—		—


Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	2,852		2,852		—		—
Residential mortgage-backed securities (a)	9,907		—		9,907		—



Total investment securities available-for-sale	12,759		2,852		9,907		—
Derivative assets:
Interest rate contracts	649		—		605		44
Energy derivative contracts	271		—		271		—
Foreign exchange contracts	15		—		15		—
Total derivative assets	935		—		891		44
Total assets at fair value	$	13,836	$	2,994	$	10,798	$	44
Derivative liabilities:
Interest rate contracts	$	73	$	—	$	73	$	—
Energy derivative contracts	263		—		263		—
Foreign exchange contracts	15		—		15		—

Total derivative liabilities	351		—		351		—
Deferred compensation plan liabilities	92		92		—		—
Total liabilities at fair value	$	443	$	92	$	351	$	—
December 31, 2019
Deferred compensation plan assets	$	95	$	95	$	—	$	—
Equity securities	54		54		—		—

Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	2,792		2,792		—		—
Residential mortgage-backed securities (a)	9,606		—		9,606		—



Total investment securities available-for-sale	12,398		2,792		9,606		—
Derivative assets:
Interest rate contracts	211		—		189		22
Energy derivative contracts	96		—		96		—
Foreign exchange contracts	10		—		10		—

Total derivative assets	317		—		295		22
Total assets at fair value	$	12,864	$	2,941	$	9,901	$	22
Derivative liabilities:
Interest rate contracts	$	39	$	—	$	39	$	—
Energy derivative contracts	92		—		92		—
Foreign exchange contracts	10		—		10		—

Total derivative liabilities	141		—		141		—
Deferred compensation plan liabilities	95		95		—		—
Total liabilities at fair value	$	236	$	95	$	141	$	—

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

(in millions) Total Level 1 Level 2 Level 3
September 30, 2019
Deferred compensation plan assets $ 92
$ 92
$ —
$ —

Equity securities 49
49
—
—

Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities 2,796
2,796
—
—

Residential mortgage-backed securities (a) 9,633
—
9,633
—

Total investment securities available-for-sale 12,429
2,796
9,633
—

Derivative assets:
Interest rate contracts 275
—
247
28

Energy derivative contracts 160
—
160
—

Foreign exchange contracts 13
—
13
—

Total derivative assets 448
—
420
28

Total assets at fair value $ 13,018
$ 2,937
$ 10,053
$ 28

Derivative liabilities:
Interest rate contracts $ 43
$ —
$ 43
$ —

Energy derivative contracts 156
—
156
—

Foreign exchange contracts 10
—
10
—

Total derivative liabilities 209
—
209
—

Deferred compensation plan liabilities 92
92
—
—

Total liabilities at fair value $ 301
$ 92
$ 209
$ —

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
$ —

There were no0 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- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings (b)

Balance
at
Beginning
of Period
Change in Classification (a) Balance at End of Period
Payments, Sales and Redemptions
(in millions) Realized Unrealized
Three Months Ended September 30, 2019
Derivative assets:
Interest rate contracts $ 21
$ —
$ 1
$ 7
$ (1 ) $ 28

Three Months Ended September 30, 2018
Derivative assets:
Interest rate contracts $ 6
$ —

$ —
$ (4 ) $ —
$ 2

Nine Months Ended September 30, 2019
Derivative assets:
Interest rate contracts $ 9
—
1
19
(1 ) 28

Nine Months Ended September 30, 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
—

—
(12 ) —
2


			Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings (a)
	Balance at Beginning of Period													Balance at End of Period
													Payments, Sales and Redemptions
(in millions)					Realized			Unrealized
Three Months Ended June 30, 2020






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

Three Months Ended June 30, 2019






Derivative assets:
Interest rate contracts	$	14	$	—		$	7		$	—	$	21

Six Months Ended June 30, 2020






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

Six Months Ended June 30, 2019






Derivative assets:
Interest rate contracts	$	9	$	—		$	12		$	—	$	21

(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 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~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. NaN liabilities were recorded at fair value on a nonrecurring basis at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.


(in millions)	Level 3
June 30, 2020


Loans:
Commercial	$	146









Total assets at fair value	$	146
December 31, 2019


Loans:
Commercial	$	70









Total assets at fair value	$	70

(in millions) Level 3
September 30, 2019
Loans:
Commercial $ 25
Total assets at fair value $ 25
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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 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.

~~Table of Contents~~

~~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.

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
June 30, 2020
Assets
Cash and due from banks	$	1,048	$	1,048		$	1,048		$	—		$	—

Interest-bearing deposits with banks	12,263		12,263			12,263			—			—

Loans held-for-sale	11		11			—			11			—
Total loans, net of allowance for loan losses (a)	52,439		52,273			—			—			52,273
Customers’ liability on acceptances outstanding	2		2			2			—			—
Restricted equity investments	269		269			269			—			—
Nonmarketable equity securities (b)	5		10
Liabilities
Demand deposits (noninterest-bearing)	35,582		35,582			—			35,582			—
Interest-bearing deposits	29,482		29,482			—			29,482			—
Customer certificates of deposit	2,656		2,662			—			2,662			—

Total deposits	67,720		67,726			—			67,726			—
Short-term borrowings	752		752			752			—			—
Acceptances outstanding	2		2			2			—			—
Medium- and long-term debt	6,521		6,465			—			6,465			—
Credit-related financial instruments	(81)		(81)			—			—			(81)
December 31, 2019
Assets
Cash and due from banks	$	973	$	973		$	973		$	—		$	—

Interest-bearing deposits with banks	4,845		4,845			4,845			—			—

Loans held-for-sale	6		6			—			6			—
Total loans, net of allowance for loan losses (a)	49,732		49,975			—			—			49,975
Customers’ liability on acceptances outstanding	2		2			2			—			—
Restricted equity investments	248		248			248			—			—
Nonmarketable equity securities (b)	5		10
Liabilities
Demand deposits (noninterest-bearing)	27,382		27,382			—			27,382			—
Interest-bearing deposits	26,802		26,802			—			26,802			—
Certificates of deposit	2,978		2,968			—			2,968			—
Other time deposits	133		133			—			133			—
Total deposits	57,295		57,285			—			57,285			—
Short-term borrowings	71		71			71			—			—
Acceptances outstanding	2		2			2			—			—
Medium- and long-term debt	7,269		7,316			—			7,316			—
Credit-related financial instruments	(57)		(57)			—			—			(57)

(a)Included $146 million and $70 million of loans recorded at fair value on a nonrecurring basis at June 30, 2020 and December 31, 2019, 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.

Carrying
Amount
Estimated Fair Value
(in millions) Total Level 1 Level 2 Level 3
September 30, 2019
Assets
Cash and due from banks $ 1,229
$ 1,229
$ 1,229
$ —
$ —
Interest-bearing deposits with banks 2,888
2,888
2,888
—
—
Loans held-for-sale 4
4
—
4
—
Total loans, net of allowance for loan losses (a) 50,839
51,008
—
—
51,008
Customers’ liability on acceptances outstanding 2
2
2
—
—
Restricted equity investments 248
248
248
��
—
Nonmarketable equity securities (b) 6
10
—
—
—
Liabilities
Demand deposits (noninterest-bearing) 27,134
27,134
—
27,134
—
Interest-bearing deposits 26,175
26,175
—
26,175
—
Customer certificates of deposit 2,853
2,842
—
2,842
—
Other time deposits 647
647
—
647
—
Total deposits 56,809
56,798
—
56,798
—
Short-term borrowings 51
51
51
—
—
Acceptances outstanding 2
2
2
—
—
Medium- and long-term debt 7,311
7,316
—
7,316
—
Credit-related financial instruments (56 ) (56 ) —
—
(56 )
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 )

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, 2020
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	$	2,747	$	105	$	—	$	2,852
Residential mortgage-backed securities (a)	9,641		266		—		9,907



Total investment securities available-for-sale	$	12,388	$	371	$	—	$	12,759



December 31, 2019
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	$	2,745	$	47	$	—	$	2,792
Residential mortgage-backed securities (a)	9,568		66		28		9,606



Total investment securities available-for-sale	$	12,313	$	113	$	28	$	12,398

(in millions)
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
September 30, 2019
Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities $ 2,744
$ 52
$ —
$ 2,796
Residential mortgage-backed securities (a) 9,590
74
31
9,633
Total investment securities available-for-sale $ 12,334
$ 126
$ 31
$ 12,429

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)~~	~~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~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 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, 2020

Residential mortgage-backed securities (a)	$	1	$	—	$	—		$	—		$	1	$	—



Total temporarily impaired securities	$	1	$	—	$	—		$	—		$	1	$	—
December 31, 2019

Residential mortgage-backed securities (a)	$	1,494	$	7	$	1,906		$	21		$	3,400	$	28



Total temporarily impaired securities	$	1,494	$	7	$	1,906		$	21		$	3,400	$	28

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

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, 2019
Residential mortgage-backed securities (a) $ 1,412
$ 4
$ 2,130
$ 27
$ 3,542
$ 31

Total temporarily impaired securities $ 1,412
$ 4
$ 2,130

$ 27
$ 3,542
$ 31

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 September 30, 2019, the Corporation had 178 residential mortgage-backed securities in an unrealized loss position with no credit impairment. The unrealized~~Unrealized losses ~~for these securities~~ resulted from changes in market interest rates and ~~liquidity,~~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 ~~changes in credit quality. The Corporation ultimately expects full collection~~be settled at a price less than the amortized cost of the ~~carrying amount of these securities,~~investments. Further, the Corporation does not intend to sell the ~~securities in an unrealized loss position,~~investments, and it is not ~~more-likely-than-not~~more likely than not that ~~the Corporation~~it will be required to sell the ~~securities in an unrealized loss position prior to~~investments before recovery of amortized ~~cost. The Corporation does not consider these~~costs.

Interest receivable on investment securities ~~to be other-than-temporarily impaired~~totaled $19 million at ~~September~~June 30, ~~2019.~~2020 and $20 million at December 31, 2019 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 gains and losses recorded in net securities ~~losses~~gains (losses) on the Consolidated Statements of Comprehensive Income, computed based on the adjusted cost of the specific security.

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2019 2018 2019 2018
Securities gains $ —
$ —
$ —
$ 1
Securities losses —
(20 ) (8 ) (20 )
Net securities $ —
$ (20 ) $ (8 ) $ (19 )


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Securities gains	$	1	$	—	$	1	$	—
Securities losses	—		—		(1)		(8)
Net securities gains (losses)	$	1	$	—	$	—	$	(8)

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)
September 30, 2019 Amortized Cost Fair Value
Contractual maturity
Within one year $ 30
$ 31
After one year through five years 2,818
2,874
After five years through ten years 1,127
1,134
After ten years 8,359
8,390
Total investment securities $ 12,334
$ 12,429



(in millions)
June 30, 2020	Amortized Cost		Fair Value
Contractual maturity
Within one year	$	780	$	796
After one year through five years	2,115		2,212
After five years through ten years	872		898
After ten years	8,621		8,853


Total investment securities	$	12,388	$	12,759

Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with a total amortized cost of $9.6 billion and a fair value of ~~$9.6~~$9.9 billion. The actual cash flows of mortgage-backed securities may differ as borrowers of the underlying loans may exercise prepayment options.

At ~~September~~June 30, ~~2019,~~2020, investment securities with a carrying value of ~~$375 million~~$5.7 billion were pledged where permitted or required by law, including $5.2 billion pledged to the Federal Home Loan Bank (FHLB) as collateral for potential future borrowings of approximately $5.0 billion and $506 million to secure ~~$270~~$432 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 ~~recorded balance~~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, 2020
Business loans:
Commercial	$	48	$	53	$	24	$	125	$	200	$	33,501	$	33,826
Real estate construction:
Commercial Real Estate business line (b)	16		—		—		16		$	—	3,531		3,547
Other business lines (c)	—		3		—		3		—		402		405
Total real estate construction	16		3		—		19		—		3,933		3,952
Commercial mortgage:
Commercial Real Estate business line (b)	1		9		—		10		$	3	2,279		2,292
Other business lines (c)	25		2		6		33		18		7,582		7,633
Total commercial mortgage	26		11		6		43		21		9,861		9,925
Lease financing	—		—		—		—		1		588		589
International	—		—		5		5		—		1,099		1,104
Total business loans	90		67		35		192		222		48,982		49,396

Retail loans:
Residential mortgage	27		9		—		36		24		1,826		1,886
Consumer:
Home equity	12		1		—		13		21		1,635		1,669
Other consumer	1		—		6		7		—		488		495
Total consumer	13		1		6		20		21		2,123		2,164
Total retail loans	40		10		6		56		45		3,949		4,050
Total loans	$	130	$	77	$	41	$	248	$	267	$	52,931	$	53,446
December 31, 2019
Business loans:
Commercial	$	27	$	7	$	17	$	51	$	148	$	31,274	$	31,473
Real estate construction:
Commercial Real Estate business line (b)	6		—		—		6		—		3,038		3,044
Other business lines (c)	—		7		—		7		—		404		411
Total real estate construction	6		7		—		13		—		3,442		3,455
Commercial mortgage:
Commercial Real Estate business line (b)	9		—		—		9		2		2,165		2,176
Other business lines (c)	16		18		9		43		12		7,328		7,383
Total commercial mortgage	25		18		9		52		14		9,493		9,559
Lease financing	1		—		—		1		—		587		588
International	—		5		—		5		—		1,004		1,009
Total business loans	59		37		26		122		162		45,800		46,084

Retail loans:
Residential mortgage	15		2		—		17		20		1,808		1,845
Consumer:
Home equity	4		5		—		9		17		1,685		1,711
Other consumer	2		3		—		5		—		724		729
Total consumer	6		8		—		14		17		2,409		2,440
Total retail loans	21		10		—		31		37		4,217		4,285
Total loans	$	80	$	47	$	26	$	153	$	199	$	50,017	$	50,369

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
September 30, 2019
Business loans:
Commercial $ 44
$ 28
$ 28
$ 100
$ 152
$ 32,638
$ 32,890
Real estate construction:
Commercial Real Estate business line (a) 1
—
—
1
—
2,989
2,990
Other business lines (b) —
—
—
—
—
387
387
Total real estate construction 1
—
—
1
—
3,376
3,377
Commercial mortgage:
Commercial Real Estate business line (a) 5
—
—
5
2
1,941
1,948
Other business lines (b) 37
3
2
42
11
7,233
7,286
Total commercial mortgage 42
3
2
47
13
9,174
9,234
Lease financing —
—
—
—
—
578
578
International —
—
1
1
2
1,052
1,055
Total business loans 87
31
31
149
167
46,818
47,134

Retail loans:
Residential mortgage 10
3
—
13
36
1,857
1,906
Consumer:
Home equity 4
1
—
5
17
1,700
1,722
Other consumer 2
—
—
2
—
727
729
Total consumer 6
1
—
7
17
2,427
2,451
Total retail loans 16
4
—
20
53
4,284
4,357
Total loans $ 103
$ 35
$ 31
$ 169
$ 220
$ 51,102
$ 51,491
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)Includes $4.5 billion 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, 2020.


~~(a)~~	~~Primarily loans to real estate developers.~~


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

(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, 2020																					December 31, 2019
	Vintage Year
(in millions)	2020			2019		2018		2017		2016		Prior		Revolvers		Revolvers Converted to Term		Total		Total
Business loans:
Commercial:
Pass (a)	$	5,029	(b)	$	2,673	$	1,876	$	1,259	$	572	$	966	$	18,708	$	16	$	31,099	$	29,785


Criticized (c)	30			305		239		147		104		205		1,695		2		2,727		1,688

Total commercial	5,059			2,978		2,115		1,406		676		1,171		20,403		18		33,826		31,473
Real estate construction
Pass (a)	127			878		1,293		795		458		218		152		—		3,921		3,424


Criticized (c)	—			2		4		24		—		1		—		—		31		31

Total real estate construction	127			880		1,297		819		458		219		152		—		3,952		3,455
Commercial mortgage
Pass (a)	1,058			1,713		1,220		1,254		915		2,790		499		—		9,449		9,262


Criticized (c)	31			96		32		47		47		215		8		—		476		297

Total commercial mortgage	1,089			1,809		1,252		1,301		962		3,005		507		—		9,925		9,559
Lease financing
Pass (a)	63			131		84		56		17		213		—		—		564		579


Criticized (c)	1			18		3		2		1		—		—		—		25		9

Total lease financing	64			149		87		58		18		213		—		—		589		588
International
Pass (a)	272			185		129		13		3		75		374		—		1,051		972


Criticized (c)	5			—		—		10		8		2		28		—		53		37

Total international	277			185		129		23		11		77		402		—		1,104		1,009
Total business loans	6,616			6,001		4,880		3,607		2,125		4,685		21,464		18		49,396		46,084
Retail loans:
Residential mortgage
Pass (a)	355			251		149		305		255		538		—		—		1,853		1,823


Criticized (c)	—			—		5		4		3		21		—		—		33		22

Total residential mortgage	355			251		154		309		258		559		—		—		1,886		1,845
Consumer:
Home equity
Pass (a)	—			—		—		—		—		19		1,544		82		1,645		1,682


Criticized (c)	—			—		—		—		—		1		17		6		24		29

Total home equity	—			—		—		—		—		20		1,561		88		1,669		1,711
Other consumer
Pass (a)	13			79		19		4		6		58		306		—		485		722


Criticized (c)	—			1		3		—		—		—		6		—		10		7

Total other consumer	13			80		22		4		6		58		312		—		495		729
Total consumer	13			80		22		4		6		78		1,873		88		2,164		2,440
Total retail loans	368			331		176		313		264		637		1,873		88		4,050		4,285
Total loans	$	6,984		$	6,332	$	5,056	$	3,920	$	2,389	$	5,322	$	23,337	$	106	$	53,446	$	50,369

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

(b)Includes $3.8 billion of Small Business Administration Paycheck Protection Program (PPP) loans at June 30, 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-51 in the Corporation's 2019 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 $132 million and $172 million at June 30, 2020 and December 31, 2019, respectively, and was included in accrued income and other assets on the Consolidated Balance Sheets.

Internally Assigned Rating
(in millions) Pass (a)
Special
Mention (b)
Substandard (c) Nonaccrual (d) Total
September 30, 2019
Business loans:
Commercial $ 31,420
$ 724
$ 594
$ 152
$ 32,890
Real estate construction:
Commercial Real Estate business line (e) 2,954
36
—
—
2,990
Other business lines (f) 387
—
—
—
387
Total real estate construction 3,341
36
—
—
3,377
Commercial mortgage:
Commercial Real Estate business line (e) 1,892
13
41
2
1,948
Other business lines (f) 7,097
99
79
11
7,286
Total commercial mortgage 8,989
112
120
13
9,234
Lease financing 566
10
2
—
578
International 1,025
23
5
2
1,055
Total business loans 45,341
905
721
167
47,134

Retail loans:
Residential mortgage 1,868
2
—
36
1,906
Consumer:
Home equity 1,698
1
6
17
1,722
Other consumer 723
6
—
—
729
Total consumer 2,421
7
6
17
2,451
Total retail loans 4,289
9
6
53
4,357
Total loans $ 49,630
$ 914
$ 727
$ 220
$ 51,491
December 31, 2018
Business loans:
Commercial $ 30,817
$ 464
$ 554
$ 141
$ 31,976
Real estate construction:
Commercial Real Estate business line (e) 2,664
23
—
—
2,687
Other business lines (f) 382
8
—
—
390
Total real estate construction 3,046
31
—
—
3,077
Commercial mortgage:
Commercial Real Estate business line (e) 1,682
14
45
2
1,743
Other business lines (f) 7,157
118
70
18
7,363
Total commercial mortgage 8,839
132
115
20
9,106
Lease financing 500
3
2
2
507
International 996
4
10
3
1,013
Total business loans 44,198
634
681
166
45,679

Retail loans:
Residential mortgage 1,931
3
—
36
1,970
Consumer:
Home equity 1,738
—
8
19
1,765
Other consumer 748
1
—
—
749
Total consumer 2,486
1
8
19
2,514
Total retail loans 4,417
4
8
55
4,484
Total loans $ 48,615
$ 638
$ 689
$ 221
$ 50,163
15


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

~~(b)~~

Special mention loans are accruing loans that have potential credit weaknesses that deserve management’s close attention, such as loans to borrowers who may be experiencing financial difficulties that may result in deterioration of repayment prospects from the borrower at some future date. This category is generally consistent with the "special mention" category as defined by regulatory authorities.

~~(c)~~

Substandard loans are accruing loans that have a well-defined weakness, or weaknesses, such as loans to borrowers who may be experiencing losses from operations or inadequate liquidity of a degree and duration that jeopardizes the orderly repayment of the loan. Substandard loans also are distinguished by the distinct possibility of loss in the future if these weaknesses are not corrected. This category is generally consistent with the "substandard" category as defined by regulatory authorities.

~~(d)~~

Nonaccrual loans are loans for which the accrual of interest has been discontinued. For further information regarding nonaccrual loans, refer to the Nonperforming Assets subheading in Note 1 - Basis of Presentation and Accounting Policies - on pages F-52 and F-53 in the Corporation's 2018 Annual Report. A significant majority of nonaccrual loans are generally consistent with the "substandard" category and the remainder are generally consistent with the "doubtful" category as defined by regulatory authorities.


~~(e)~~	~~Primarily loans to real estate developers.~~


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

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Allowance for Credit Losses

The following table ~~summarizes nonperforming assets.~~details the changes in the allowance for credit losses.


	2020															2019
(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	$	861		$	55		$	916		$	608		$	39		$	647
Allowance for credit losses on lending-related commitments	52			10			62			27			3			30
Allowance for credit losses	913			65			978			635			42			677
Loan charge-offs	(56)			(1)			(57)			(43)			(1)			(44)
Recoveries on loans previously charged-off	6			1			7			10			1			11
Net loan charge-offs	(50)			—			(50)			(33)			—			(33)
Provision for credit losses:
Provision for loan losses	132			9			141			43			—			43
Provision for credit losses on lending-related commitments	(2)			(1)			(3)			1			—			1
Provision for credit losses	130			8			138			44			—			44

Balance at end of period:
Allowance for loan losses	943			64			1,007			618			39			657
Allowance for credit losses on lending-related commitments	50			9			59			28			3			31
Allowance for credit losses	$	993		$	73		$	1,066		$	646		$	42		$	688
Six Months Ended June 30
Balance at beginning of period
Allowance for loan losses	$	601		$	36		$	637		$	627		$	44		$	671
Allowance for credit losses on lending-related commitments	28			3			31			26			4			30
Allowance for credit losses	629			39			668			653			48			701
Cumulative effect of change in accounting principle	(42)			25			(17)			—			—			—
Loan charge-offs	(143)			(3)			(146)			(62)			(2)			(64)
Recoveries on loans previously charged-off	11			1			12			18			2			20
Net loan charge-offs	(132)			(2)			(134)			(44)			—			(44)
Provision for credit losses:
Provision for loan losses	516			5			521			35			(5)			30
Provision for credit losses on lending-related commitments	22			6			28			2			(1)			1
Provision for credit losses	538			11			549			37			(6)			31

Balance at end of period:
Allowance for loan losses	943			64			1,007			618			39			657
Allowance for credit losses on lending-related commitments	50			9			59			28			3			31
Allowance for credit losses	$	993		$	73		$	1,066		$	646		$	42		$	688
Allowance for loan losses as a percentage of total loans	1.91		%	1.59		%	1.88		%	1.30		%	0.89		%	1.27		%
Allowance for loan losses as a percentage of total loans excluding PPP loans	2.07		%	n/a			2.03		%	n/a			n/a			n/a
Allowance for credit losses as a percentage of total loans	2.01		%	1.82		%	1.99		%	1.36		%	0.96		%	1.33		%
Allowance for credit losses as a percentage of total loans excluding PPP loans	2.18		%	n/a			2.15		%	n/a			n/a			n/a

(in millions) September 30, 2019 December 31, 2018
Nonaccrual loans $ 220
$ 221
Reduced-rate loans (a) 6
8
Total nonperforming loans 226
229
Foreclosed property 3
1
Total nonperforming assets $ 229
$ 230
n/a - not applicable

~~(a)~~

~~Comprised of reduced-rate retail loans.~~

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Nonaccrual Loans

The following table presents additional information regarding nonaccrual loans. NaN interest income was recognized on nonaccrual loans for the three- and six-month periods ended June 30, 2020 and 2019, respectively.


(in millions)	Nonaccrual Loans with No Related Allowance		Nonaccrual Loans with Related Allowance		Total Nonaccrual Loans
June 30, 2020
Business loans:
Commercial	$	32	$	168	$	200




Commercial mortgage:
Commercial Real Estate business line (a)	2		1		3
Other business lines (b)	6		12		18
Total commercial mortgage	8		13		21
Lease financing	—		1		1

Total business loans	40		182		222
Retail loans:
Residential mortgage	24		—		24
Consumer:
Home equity	21		—		21


Total retail loans	45		—		45
Total nonaccrual loans	$	85	$	182	$	267
December 31, 2019
Business loans:
Commercial	$	29	$	119	$	148




Commercial mortgage:
Commercial Real Estate business line (a)	2		—		2
Other business lines (b)	1		11		12
Total commercial mortgage	3		11		14

Total business loans	32		130		162
Retail loans:
Residential mortgage	20		—		20
Consumer:
Home equity	17		—		17

Total retail loans	37		—		37
Total nonaccrual loans	$	69	$	130	$	199

(a)Primarily loans to real estate developers.

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

Foreclosed Properties

Foreclosed properties totaled $11 million at both June 30, 2020 and December 31, 2019. There were 0 retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual loans at ~~September~~June 30, ~~2019, compared to~~ ~~$1 million~~at2020 and December 31, ~~2018.~~

~~Allowance for Credit Losses~~

~~The following table details the changes in the allowance for loan losses and related loan amounts.~~2019.

2019 2018
(in millions) Business Loans Retail Loans Total Business Loans Retail Loans Total

Three Months Ended September 30
Allowance for loan losses:
Balance at beginning of period $ 618
$ 39
$ 657
$ 635
$ 42
$ 677
Loan charge-offs (59 ) (2 ) (61 ) (24 ) (1 ) (25 )
Recoveries on loans previously charged-off 17
2
19
9
1
10
Net loan charge-offs (42 ) —
(42 ) (15 ) —
(15 )
Provision for loan losses 39
(2 ) 37
(1 ) 2
1
Foreign currency translation adjustment —
—
—
1
—
1
Balance at end of period $ 615
$ 37
$ 652
$ 620
$ 44
$ 664

Nine Months Ended September 30
Allowance for loan losses:
Balance at beginning of period $ 627
$ 44
$ 671
$ 661
$ 51
$ 712
Loan charge-offs (121 ) (4 ) (125 ) (78 ) (4 ) (82 )
Recoveries on loans previously charged-off 35
4
39
39
3
42
Net loan charge-offs (86 ) —
(86 ) (39 ) (1 ) (40 )
Provision for loan losses 74
(7 ) 67
(2 ) (6 ) (8 )
Balance at end of period $ 615
$ 37
$ 652
$ 620
$ 44
$ 664

As a percentage of total loans 1.30 % 0.86 % 1.27 % 1.39 % 1.00 % 1.35 %

September 30
Allowance for loan losses:
Individually evaluated for impairment $ 34
$ —
$ 34
$ 29
$ —
$ 29
Collectively evaluated for impairment 581
37
618
591
44
635
Total allowance for loan losses $ 615
$ 37
$ 652
$ 620
$ 44
$ 664
Loans:
Individually evaluated for impairment $ 209
$ 34
$ 243
$ 269
$ 34
$ 303
Collectively evaluated for impairment 46,925
4,323
51,248
44,358
4,349
48,707
Total loans evaluated for impairment $ 47,134
$ 4,357
$ 51,491
$ 44,627
$ 4,383
$ 49,010

~~Changes in the allowance for credit losses on lending-related commitments, included in accrued expenses and other liabilities on the Consolidated Balance Sheets, are summarized in the following table.~~17

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2019 2018 2019 2018
Balance at beginning of period $ 31
$ 34
$ 30
$ 42
Provision for credit losses on lending-related commitments (2 ) (1 ) (1 ) (9 )
Balance at end of period $ 29
$ 33
$ 29
$ 33

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

~~Individually Evaluated Impaired Loans~~

~~The following table presents additional information regarding individually evaluated impaired loans.~~

Recorded Investment In:
(in millions)
Impaired
Loans with
No Related
Allowance

Impaired
Loans with
Related
Allowance

Total
Impaired
Loans

Unpaid
Principal
Balance

Related
Allowance
for Loan
Losses
September 30, 2019
Business loans:
Commercial $ 12
$ 143
$ 155
$ 253
$ 32
Commercial mortgage:
Commercial Real Estate business line (a) 39
—
39
49
—
Other business lines (b) 1
11
12
16
2
Total commercial mortgage 40
11
51
65
2
International 2
1
3
9
—
Total business loans 54
155
209
327
34

Retail loans:
Residential mortgage 17
8
25
27
—
Consumer:
Home equity 9
—
9
10
—
Total retail loans (c) 26
8
34
37
—
Total individually evaluated impaired loans $ 80
$ 163
$ 243
$ 364
$ 34
December 31, 2018
Business loans:
Commercial $ 50
$ 130
$ 180
$ 227
$ 24
Commercial mortgage:
Commercial Real Estate business line (a) 39
—
39
49
—
Other business lines (b) 2
16
18
23
3
Total commercial mortgage 41
16
57
72
3
International 2
1
3
8
—
Total business loans 93
147
240
307
27

Retail loans:
Residential mortgage 16
8
24
25
—
Consumer:
Home equity 11
—
11
13
—
Other consumer 1
—
1
1
—
Total consumer 12
—
12
14
—
Total retail loans (c) 28
8
36
39
—
Total individually evaluated impaired loans $ 121
$ 155
$ 276
$ 346
$ 27


~~(a)~~	~~Primarily loans to real estate developers.~~


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


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

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

The following table presents information regarding average individually evaluated impaired loans and the related interest recognized as of September 30, 2019 and 2018. Interest income recognized for the period primarily related to performing restructured loans.

Individually Evaluated Impaired Loans
2019 2018
(in millions) Average Balance for the Period Interest Income Recognized for the Period Average Balance for the Period Interest Income Recognized for the Period
Three Months Ended September 30
Business loans:
Commercial $ 152
$ —
$ 221
$ 2
Commercial mortgage:
Commercial Real Estate business line (a) 39
1
40
1
Other business lines (b) 13
1
24
—
Total commercial mortgage 52
2
64
1
Lease financing 1
—
—
—
International 3
—
5
—
Total business loans 208
2
290
3

Retail loans:
Residential mortgage 24
1
20
—
Consumer loans:
Home equity 9
—
11
—
Other consumer —
—
1
—
Total consumer 9
—
12
—
Total retail loans 33
1
32
—
Total individually evaluated impaired loans $ 241
$ 3
$ 322
$ 3
Nine Months Ended September 30
Business loans:
Commercial $ 157
$ 2
$ 282
$ 4
Commercial mortgage:
Commercial Real Estate business line (a) 39
2
40
3
Other business lines (b) 15
1
24
—
Total commercial mortgage 54
3
64
3
Lease financing 1
—
—
—
International 3
—
5
—
Total business loans 215
5
351
7

Retail loans:
Residential mortgage 24
1
20
—
Consumer:
Home equity 9
—
11
—
Other consumer 1
—
1
—
Total consumer 10
—
12
—
Total retail loans 34
1
32
—
Total individually evaluated impaired loans $ 249
$ 6
$ 383
$ 7


~~(a)~~	~~Primarily loans to real estate developers.~~


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

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

Troubled Debt Restructurings

The following table details the ~~recorded balance~~amortized cost basis at ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 of loans considered to be ~~troubled debt restructurings (TDRs)~~TDRs that were restructured during the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, by type of modification. In cases of loans with more than one type of modification, the loans were categorized based on the most significant modification.


	2020										2019
	Type of Modification								Type of Modification
(in millions)	Principal Deferrals (a)		Interest Rate Reductions		Total Modifications		Principal Deferrals (a)		Interest Rate Reductions		Total Modifications
Three Months Ended June 30,

















Home equity (b)	$	—	$	—	$	—	$	—	$	1	$	1



Total loans	$	—	$	—	$	—	$	—	$	1	$	1
Six Months Ended June 30,
Business loans:
Commercial	$	16	$	—	$	16	$	11	$	—	$	11




Commercial mortgage:

Other business lines (c)	1		—		$	1	1		—		1



Total business loans	17		—		17		12		—		12
Retail loans:

Consumer:
Home equity (b)	—		—		—		—		1		1



Total loans	$	17	$	—	$	17	$	12	$	1	$	13

2019 2018
Type of Modification Type of Modification
(in millions) Principal Deferrals (a) Interest Rate Reductions Total Modifications Principal Deferrals (a) Interest Rate Reductions Total Modifications
Three Months Ended September 30,
Business loans:
Commercial $ 11
$ —
$ 11
$ 1
$ —
$ 1
Commercial mortgage:
Other business lines (b) —
—
—
1
—
1
International —
—
—
1
—
1
Total business loans 11
—
11
3
—
3

Retail loans:
Consumer:
Home equity (c) —
—
—
—
2
2
Total loans $ 11
$ —
$ 11
$ 3
$ 2
$ 5
Nine Months Ended September 30,
Business loans:
Commercial $ 19
$ —
$ 19
$ 32
$ —

$ 32
Commercial mortgage:
Other business lines (b) —
—
—
3
—
3
International —
—
—
1
—
1
Total business loans 19
—
19
36
—
36

Retail loans:
Consumer:

Home equity (c) —
1
1
—
3
3
Total loans $ 19
$ 1
$ 20
$ 36
$ 3
$ 39
(a)Primarily represents loan balances where terms were extended by more than an insignificant time period, typically more than 180 days, at or above contractual interest rates. Also includes commercial loans restructured in bankruptcy.


~~(a)~~	~~Primarily represents loan balances where terms were extended 90 days or more at or above contractual interest rates. Also includes commercial loans restructured in bankruptcy.~~


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


~~(c)~~	~~Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.~~

(b)Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.

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

The Corporation charges interest on principal balances outstanding during deferral periods. Additionally, none of the modifications involved forgiveness of principal.

At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $2 million and ~~$20~~$3 million, respectively. On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. The allowance for loan losses continues to be reassessed on the basis of an individual evaluation of the loan.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

The following table presents information regarding the recorded balance at September 30, 2019 and 2018 of loans modified by principal deferral during the twelve-month periods ended September 30, 2019 and 2018.

Principal Deferrals
(in millions) 2019 2018
September 30
Business loans:
Commercial $ 19
$ 59
Commercial mortgage:
Other business lines (a) —
3
International —
1
Total business loans 19
63
Retail loans:
Consumer:
Home equity (b) —
1
Total loans $ 19
$ 64

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


~~(b)~~	~~Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.~~

During the twelve-month periods ended September 30, 2019 and 2018, loans with a carrying value of $1 million and $3 million, respectively, were modified by interest rate reduction (reduced-rate loans).

For principal deferrals, incremental deterioration in the credit quality of the loan, represented by a downgrade in the risk rating of the loan, for example, due to missed interest payments or a reduction of collateral value, is considered a subsequent default. For interest rate reductions, a subsequent payment default is defined in terms of delinquency, when a principal or interest payment is 90 days past due. ~~Subsequent defaults of~~Of the TDRs modified during the twelve-month periods ended June 30, 2020 and 2019, principal deferrals totaled ~~$17~~$6 million and $15 million in the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019 and none~~2020, respectively compared to NaN in the comparable periods in ~~2018.~~2019. There were 0 subsequent defaults of interest rate reductions during either of the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

NOTE 5 - DERIVATIVE AND CREDIT-RELATED FINANCIAL INSTRUMENTS

In the normal course of business, the Corporation enters into various transactions involving derivative and credit-related financial instruments to manage exposure to fluctuations in interest rate, foreign currency and other market risks and to meet the financing needs of customers (customer-initiated derivatives). These financial instruments involve, to varying degrees, elements of market and credit risk. Market and credit risk are included in the determination of fair value.

Market risk is the potential loss that may result from movements in interest rates, foreign currency exchange rates or energy commodity prices that cause an unfavorable change in the value of a financial instrument. The Corporation manages this risk by establishing monetary exposure limits and monitoring compliance with those limits. Market risk inherent in interest rate and energy contracts entered into on behalf of customers is mitigated by taking offsetting positions, except in those circumstances when the amount, tenor and/or contract rate level results in negligible economic risk, whereby the cost of purchasing an offsetting contract is not economically justifiable. The Corporation mitigates most of the inherent market risk in foreign exchange contracts entered into on behalf of customers by taking offsetting positions and manages the remainder through individual foreign currency position limits and aggregate value-at-risk limits. These limits are established annually and positions are monitored quarterly. Market risk inherent in derivative instruments held or issued for risk management purposes is typically offset by changes in the fair value of the assets or liabilities being hedged.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Credit risk is the possible loss that may occur in the event of nonperformance by the counterparty to a financial instrument. The Corporation attempts to minimize credit risk arising from customer-initiated derivatives by evaluating the creditworthiness of each customer, adhering to the same credit approval process used for traditional lending activities and obtaining collateral as deemed necessary. Derivatives with dealer counterparties are either cleared through a clearinghouse or settled directly with a single counterparty. For derivatives settled directly with dealer counterparties, the Corporation utilizes counterparty risk limits and monitoring procedures as well as master netting arrangements and bilateral collateral agreements to facilitate the management of credit risk. Master netting arrangements effectively reduce credit risk by permitting settlement of positive and negative positions and offset cash collateral held with the same counterparty on a net basis. Bilateral collateral agreements require daily exchange of cash or highly rated securities issued by the U.S. Treasury or other U.S. government entities to collateralize amounts due to either party. At ~~September~~June 30, ~~2019,~~2020, counterparties with bilateral collateral agreements ~~pledged $1 million of marketable investment securities and~~ deposited ~~$102~~$216 million of cash with the Corporation to secure the fair value of contracts in an unrealized gain position, and the Corporation had pledged ~~$27~~$56 million of marketable investment securities and posted ~~$13~~$30 million of cash as

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

collateral for contracts in an unrealized loss position. For those counterparties not covered under bilateral collateral agreements, collateral is obtained, if deemed necessary, based on the results of management’s credit evaluation of the counterparty. Collateral varies, but may include cash, investment securities, accounts receivable, equipment or real estate. Included in the fair value of derivative instruments are credit valuation adjustments reflecting counterparty credit risk. These adjustments are determined by applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the derivative. There were 0 derivative instruments with credit-risk-related contingent features that were in a liability position at ~~September~~June 30, ~~2019.~~2020.

Derivative Instruments

Derivative instruments utilized by the Corporation are negotiated over-the-counter and primarily include swaps, caps and floors, forward contracts and options, each of which may relate to interest rates, energy commodity prices or foreign currency exchange rates. Swaps are agreements in which two parties periodically exchange cash payments based on specified indices applied to a specified notional amount until a stated maturity. Caps and floors are agreements which entitle the buyer to receive cash payments based on the difference between a specified reference rate or price and an agreed strike rate or price, applied to a specified notional amount until a stated maturity. Forward contracts are over-the-counter agreements to buy or sell an asset at a specified future date and price. Options are similar to forward contracts except the purchaser has the right, but not the obligation, to buy or sell the asset during a specified period or at a specified future date.

Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, contain a greater degree of credit risk and liquidity risk than exchange-traded contracts, which have standardized terms and readily available price information. The Corporation reduces exposure to market and liquidity risks from over-the-counter derivative instruments entered into for risk management purposes, and transactions entered into to mitigate the market risk associated with customer-initiated transactions, by taking offsetting positions with investment grade domestic and foreign financial institutions and subjecting counterparties to credit approvals, limits and collateral monitoring procedures similar to those used in making other extensions of credit. In addition, certain derivative contracts executed bilaterally with a dealer counterparty in the over-the-counter market are cleared through a clearinghouse, whereby the clearinghouse becomes the counterparty to the transaction.

1819

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The following table presents the composition of the Corporation’s derivative instruments held or issued for risk management purposes or in connection with customer-initiated and other activities at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~.2019. The table excludes commitments and warrants accounted for as derivatives.


	June 30, 2020										December 31, 2019
			Fair Value								Fair Value
(in millions)	Notional/ Contract Amount (a)		Gross Derivative Assets		Gross Derivative Liabilities		Notional/ Contract Amount (a)		Gross Derivative Assets		Gross Derivative Liabilities
Risk management purposes
Derivatives designated as hedging instruments
Interest rate contracts:
Swaps - fair value - receive fixed/pay floating	$	2,650	$	—	$	—	$	3,325	$	—	$	—
Swaps - cash flow - receive fixed/pay floating	5,550		—		—		4,550		—		—
Derivatives used as economic hedges
Foreign exchange contracts:
Spot, forwards and swaps	330		1		2		330		—		2
Total risk management purposes	8,530		1		2		8,205		—		2
Customer-initiated and other activities
Interest rate contracts:
Caps and floors written	601		—		1		671		—		—
Caps and floors purchased	601		1		—		671		—		—
Swaps	20,039		648		72		16,485		211		39
Total interest rate contracts	21,241		649		73		17,827		211		39
Energy contracts:
Caps and floors written	439		—		46		477		—		23
Caps and floors purchased	439		46		—		477		23		—
Swaps	2,137		225		217		2,135		73		69
Total energy contracts	3,015		271		263		3,089		96		92
Foreign exchange contracts:
Spot, forwards, options and swaps	968		14		13		1,013		10		8
Total customer-initiated and other activities	25,224		934		349		21,929		317		139
Total gross derivatives	$	33,754	$	935	$	351	$	30,134	$	317	$	141
Amounts offset in the Consolidated Balance Sheets:
Netting adjustment - Offsetting derivative assets/liabilities			(54)		(54)				(63)		(63)
Netting adjustment - Cash collateral received/posted			(214)		(28)				(11)		(12)
Net derivatives included in the Consolidated Balance Sheets (b)			667		269				243		66
Amounts not offset in the Consolidated Balance Sheets:
Marketable securities pledged under bilateral collateral agreements			—		(53)				—		(21)
Net derivatives after deducting amounts not offset in the Consolidated Balance Sheets			$	667	$	216			$	243	$	45

(a)Notional or contractual amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the Consolidated Balance Sheets.

(b)Net derivative assets are included in accrued income and other assets and net derivative liabilities are included in accrued expenses and other liabilities on the Consolidated Balance Sheets. Included in the fair value of net derivative assets and net derivative liabilities are credit valuation adjustments reflecting counterparty credit risk and credit risk of the Corporation. The fair value of net derivative assets included credit valuation adjustments for counterparty credit risk of $25 million and $9 million at June 30, 2020 and December 31, 2019, respectively.

September 30, 2019 December 31, 2018
Fair Value Fair Value
(in millions)
Notional/
Contract
Amount (a)
Gross Derivative Assets Gross Derivative Liabilities
Notional/
Contract
Amount (a)
Gross Derivative Assets Gross Derivative Liabilities
Risk management purposes
Derivatives designated as hedging instruments
Interest rate contracts:
Swaps - fair value - receive fixed/pay floating $ 3,325
$ —
$ —
$ 2,625
$ —
$ 2
Swaps - cash flow - receive fixed/pay floating 3,800
—
—
—
—
—
Derivatives used as economic hedges
Foreign exchange contracts:
Spot, forwards and swaps 309
1
—
302
1
1
Total risk management purposes 7,434
1
—
2,927
1
3
Customer-initiated and other activities
Interest rate contracts:
Caps and floors written 912
—
1
885
—
1
Caps and floors purchased 912
1
—
885
1
—
Swaps 15,687
274
42
13,115
66
67
Total interest rate contracts 17,511
275
43
14,885
67
68
Energy contracts:
Caps and floors written 468
—
30
278
—
26
Caps and floors purchased 468
30
—
278
26
—
Swaps 2,147
130
126
2,094
163
160
Total energy contracts 3,083
160
156
2,650
189
186
Foreign exchange contracts:
Spot, forwards, options and swaps 1,061
12
10
1,095
18
12
Total customer-initiated and other activities 21,655
447
209
18,630
274
266
Total gross derivatives $ 29,089
$ 448
$ 209
$ 21,557
$ 275
$ 269
Amounts offset in the Consolidated Balance Sheets:
Netting adjustment - Offsetting derivative assets/liabilities (45 ) (45 ) (45 ) (45 )
Netting adjustment - Cash collateral received/posted (101 ) (12 ) (174 ) (1 )
Net derivatives included in the Consolidated Balance Sheets (b)
302
152

56
223
Amounts not offset in the Consolidated Balance Sheets:
Marketable securities pledged under bilateral collateral agreements (1 ) (26 ) (1 ) —
Net derivatives after deducting amounts not offset in the Consolidated Balance Sheets

$ 301
$ 126

$ 55
$ 223
20


~~(a)~~	Notional or contractual amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the Consolidated Balance Sheets.

~~(b)~~

Net derivative assets are included in accrued income and other assets and net derivative liabilities are included in accrued expenses and other liabilities on the Consolidated Balance Sheets. Included in the fair value of net derivative assets and net derivative liabilities are credit valuation adjustments reflecting counterparty credit risk and credit risk of the Corporation. The fair value of net derivative assets included credit valuation adjustments for counterparty credit risk of $12 million and $2 million at September 30, 2019 and December 31, 2018, respectively.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Risk Management

The Corporation's derivative instruments used for managing interest rate risk currently comprise swaps converting fixed-rate long-term debt to variable rates and variable-rate loans to fixed rates.

The following table details the effects of fair value hedging on the Consolidated Statements of Comprehensive Income.


	Interest on Medium- and Long-Term Debt
	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Total interest on medium- and long-term debt (a)	$	19	$	51	$	59	$	102
Fair value hedging relationships:
Interest rate contracts:
Hedged items	28		26		58		52
Derivatives designated as hedging instruments	(12)		—		(18)		1

Interest on Medium- and Long-Term Debt
Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2019 2018 2019 2018
Total interest on medium-and long-term debt (a) $ 50
$ 40
$ 152
$ 97

Fair value hedging relationships:
Interest rate contracts:
Hedged items 28
21
80
51
Derivatives designated as hedging instruments (2 ) (1 ) (1 ) (7 )

(a) Includes the effects of hedging.

For ~~the impact of~~information on accumulated net gains on cash flow ~~hedging,~~hedges, refer to Note 8.

The following table summarizes the expected weighted average remaining maturity of the notional amount of risk management interest rate swaps, the carrying amount of the related hedged items and the weighted average interest rates associated with amounts expected to be received or paid on interest rate swap agreements as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019.

Cash flow swaps - receive fixed/pay floating rate on variable-rate loans:

Weighted Average
(dollar amounts in millions)
Derivative Notional
Amount
Carrying Value of Hedged Items (a)
Remaining
Maturity
(in years)
Receive Rate Pay Rate (b)
September 30, 2019
Swaps - cash flow - receive fixed/pay floating rate
Variable rate loans $ 3,800

3.3 2.04 2.07
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt 3,325
$ 3,511
4.8 3.44 3.09
December 31, 2018
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt 2,625
2,663
3.9 3.40 3.45


(dollar amounts in millions)	June 30, 2020			December 31, 2019
Derivative notional amount	$	5,550		$	4,550
Weighted average:
Remaining maturity (in years)	2.8			3.0
Receive rate	1.87		%	1.94		%
Pay rate (a)	0.17			1.71


~~(a)~~	Included $189 million and $49 million of cumulative hedging adjustments to fair value hedges at September 30, 2019 and December 31, 2018, respectively, which included $7 million and $8 million, respectively, of hedging adjustment on a discontinued hedging relationship.


~~(b)~~	~~Variable rates paid on receive fixed swaps designated as fair value and cash flow hedges are based on one- and six-month LIBOR rates in effect at September 30, 2019 and December 31, 2018.~~

(a)Variable rates paid on receive fixed swaps designated as cash flow hedges are based on one-month LIBOR rates in effect at June 30, 2020 and December 31, 2019.

Fair value swaps - receive fixed/pay floating rate on medium- and long-term debt:


(dollar amounts in millions)	June 30, 2020			December 31, 2019
Derivative notional amount	$	2,650		$	3,325
Carrying value of hedged items (a)	2,971			3,469
Weighted average:
Remaining maturity (in years)	5.1			4.6
Receive rate	3.68		%	3.44		%
Pay rate (b)	1.54			2.80

(a)Included $322 million and $146 million of cumulative hedging adjustments at June 30, 2020 and December 31, 2019, respectively, which included $6 million and $7 million, respectively, of hedging adjustment on a discontinued hedging relationship.

(b)Variable rates paid on receive fixed swaps designated as fair value hedges are based on one- and six-month LIBOR rates in effect at June 30, 2020 and December 31, 2019.

Foreign exchange rate risk arises from changes in the value of certain assets and liabilities denominated in foreign currencies. The Corporation employs spot and forward contracts in addition to swap contracts to manage exposure to these and other risks. These instruments are used as economic hedges, and net gains or losses are included in other noninterest income in the Consolidated Statements of Comprehensive Income.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Customer-Initiated and Other

The Corporation enters into derivative transactions at the request of customers and generally takes offsetting positions with dealer counterparties to mitigate the inherent market risk. Income primarily results from the spread between the customer derivative and the offsetting dealer position.

For customer-initiated foreign exchange contracts where offsetting positions have not been taken, the Corporation manages the remaining inherent market risk through individual foreign currency position limits and aggregate value-at-risk limits. These limits are established annually and reviewed quarterly. For those customer-initiated derivative contracts which were not offset or where the Corporation holds a position within the limits described above, the Corporation recognized 0 ~~net~~significant gains or losses in other noninterest income in the Consolidated Statements of Comprehensive Income for both the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

2019.

Fair values of customer-initiated and other derivative instruments represent the net unrealized gains or losses on such contracts and are recorded in the Consolidated Balance Sheets. Changes in fair value are recognized in the Consolidated Statements of Comprehensive Income. The net gains recognized in income on customer-initiated derivative instruments, net of the impact of offsetting positions, were as follows.


		Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	Location of Gain	2019		2018		2019		2018		(in millions)	Location of Gain	2020		2019		2020		2019
Interest rate contracts	Other noninterest income	$	4	$	9	$	16	$	20	Interest rate contracts	Other noninterest income	$	8	$	6	$	16	$	12
Energy contracts	Other noninterest income	1		1		4		1		Energy contracts	Other noninterest income	2		2		3		3
Foreign exchange contracts	Foreign exchange income	11		11		33		35		Foreign exchange contracts	Foreign exchange income	9		11		20		22
Total		$	16	$	21	$	53	$	56	Total		$	19	$	19	$	39	$	37

Credit-Related Financial Instruments

The Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The Corporation’s credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.

(in millions) September 30, 2019 December 31, 2018
Unused commitments to extend credit:
Commercial and other $ 23,280
$ 24,266
Bankcard, revolving check credit and home equity loan commitments 3,156
3,001
Total unused commitments to extend credit $ 26,436
$ 27,267
Standby letters of credit $ 3,281
$ 3,244
Commercial letters of credit 17
39


(in millions)	June 30, 2020		December 31, 2019
Unused commitments to extend credit:
Commercial and other	$	22,588	$	23,681
Bankcard, revolving check credit and home equity loan commitments	3,275		3,180
Total unused commitments to extend credit	$	25,863	$	26,861
Standby letters of credit	$	3,185	$	3,320
Commercial letters of credit	19		18

The Corporation maintains an allowance to cover ~~probable~~current expected credit losses ~~inherent in~~on lending-related commitments, including unused commitments to extend credit, letters of credit and financial guarantees. The allowance for credit losses on lending-related commitments, included in accrued expenses and other liabilities on the Consolidated Balance Sheets, was ~~$29~~$59 million and ~~$30~~$31 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Unused Commitments to Extend Credit

Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Corporation. Commercial and other unused commitments are primarily variable rate commitments. The allowance for credit losses on lending-related commitments included ~~$23~~$47 million at ~~September~~June 30, ~~2019~~2020 and ~~$24~~$25 million at December 31, ~~2018~~2019 for ~~probable~~current expected credit losses ~~inherent in~~on the Corporation’s unused commitments to extend credit.

Standby and Commercial Letters of Credit

Standby letters of credit represent conditional obligations of the Corporation which guarantee the performance of a customer to a third party. Standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Commercial letters of credit are issued to finance foreign or domestic trade transactions. These contracts expire in decreasing amounts through the year 2028. The Corporation may enter

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

into participation arrangements with third parties that effectively reduce the maximum amount of future payments which may be required under standby and commercial letters of credit. These risk participations covered ~~$164~~$163 million and ~~$136~~$161 million, respectively, of the $3.2 billion and $3.3 billion standby and commercial letters of credit outstanding at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~.2019, respectively.

The carrying value of the Corporation’s standby and commercial letters of credit, included in accrued expenses and other liabilities on the Consolidated Balance Sheets, totaled ~~$33~~$34 million at ~~September~~June 30, ~~2019~~,2020, including ~~$27~~$22 million in deferred fees and $6$12 million in the allowance for credit losses on lending-related commitments. At December 31, ~~2018~~,2019, the comparable amounts were ~~$34~~$32 million,, ~~$28~~ $26 million and $6$6 million,, respectively.

The following table presents a summary of criticized standby and commercial letters of credit at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~.2019. The Corporation's criticized list is generally consistent with the Special Mention, Substandard and Doubtful categories defined by regulatory authorities. The Corporation manages credit risk through underwriting, periodically reviewing and approving its credit exposures using Board committee approved credit policies and guidelines.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~


(dollar amounts in millions)	September 30, 2019			December 31, 2018			(dollar amounts in millions)	June 30, 2020			December 31, 2019
Total criticized standby and commercial letters of credit	$	45		$	49		Total criticized standby and commercial letters of credit	$	83		$	44
As a percentage of total outstanding standby and commercial letters of credit	1.4		%	1.5		%	As a percentage of total outstanding standby and commercial letters of credit	2.6		%	1.3		%

Other Credit-Related Financial Instruments

The Corporation enters into credit risk participation agreements, under which the Corporation assumes credit exposure associated with a borrower’s performance related to certain interest rate derivative contracts. The Corporation is not a party to the interest rate derivative contracts and only enters into these credit risk participation agreements in instances in which the Corporation is also a party to the related loan participation ~~agreement~~agreements for such borrowers. The Corporation manages ~~its~~ credit risk on ~~the~~ credit risk participation agreements by monitoring the creditworthiness of the borrowers, ~~which is~~ based on the normal credit review process as if the Corporation had it entered into the derivative instruments directly with the ~~borrower.~~borrowers. The notional amount of such credit risk participation ~~agreement~~agreements reflects the pro-rata share of the derivative instrument, consistent with ~~its~~the Corporation's share of the related participated loan. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the total notional amount of the credit risk participation agreements was approximately ~~$744 million~~$1.1 billion and ~~$703~~$786 million, respectively, and the fair value was $3 million at June 30, 2020 and insignificant ~~for both periods.~~at December 31, 2019. The maximum estimated exposure to these agreements, as measured by projecting a maximum value of the guaranteed derivative instruments, assuming 100 percent default by all obligors on the maximum values, was ~~$26~~$76 million and $7$20 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. In the event of default, the lead bank has the ability to liquidate the assets of the borrower, in which case the lead bank would be required to return a percentage of the recouped assets to the participating banks. As of ~~September~~June 30, ~~2019,~~2020, the weighted average remaining maturity of outstanding credit risk participation agreements was ~~3.4~~4.7 years.

NOTE 6 - VARIABLE INTEREST ENTITIES (VIEs)

The Corporation evaluates its interest in certain entities to determine if these entities meet the definition of a VIE and whether the Corporation is the primary beneficiary and should consolidate the entity based on the variable interests it held both at inception and when there is a change in circumstances that requires a reconsideration.

The Corporation holds ownership interests in funds in the form of limited partnerships or limited liability companies (LLCs) investing in affordable housing projects that qualify for the low-income housing tax credit (LIHTC). The Corporation also directly invests in limited partnerships and LLCs ~~that~~which invest in community development projects, which generate similar tax credits to investors (other tax credit entities). As an investor, the Corporation obtains income tax credits and deductions from the operating losses of these tax credit entities. These tax credit entities meet the definition of a VIE; however, the Corporation is not the primary beneficiary of the entities, as the general partner or the managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities.

The Corporation accounts for its interests in LIHTC entities using the proportional amortization method. Ownership interests in other tax credit entities are accounted for under either the cost or equity method. Exposure to loss as a result of the Corporation's involvement in LIHTC entities and other tax credit entities at ~~September~~June 30, ~~2019~~2020 was limited to ~~$446~~$451 million and $6$10 million,, respectively.

Investment balances, including all legally binding commitments to fund future investments, are included in accrued income and other assets on the Consolidated Balance Sheets. A liability is recognized in accrued expenses and other liabilities

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

on the Consolidated Balance Sheets for all legally binding unfunded commitments to fund tax credit entities ($($173 million at ~~September~~June 30, ~~2019~~)2020). Amortization and other write-downs of LIHTC investments are presented on a net basis as a component of the provision for income taxes on the Consolidated Statements of Comprehensive Income, while amortization and write-downs of other tax credit investments are recorded in other noninterest income. The income tax credits and deductions are recorded as a reduction of income tax expense and a reduction of federal income taxes payable.

The Corporation provided 0 financial or other support that was not contractually required to any of the above VIEs during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~.

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~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

2019.

The following table summarizes the impact of these tax credit entities on ~~line items on~~ the Corporation’s Consolidated Statements of Comprehensive Income.

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2019 2018 2019 2018
Other noninterest income:
Amortization of other tax credit investments $ —
$ —
$ 1
$ 2
Provision for income taxes:
Amortization of LIHTC investments 16
17
48
48
Low income housing tax credits (16 ) (16 ) (46 ) (46 )
Other tax benefits related to tax credit entities (3 ) (4 ) (10 ) (11 )
Total provision for income taxes $ (3 ) $ (3 ) $ (8 ) $ (9 )


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

(in millions)	2020		2019		2020		2019
Other noninterest income:
Amortization of other tax credit investments	$	—	$	—	$	—	$	1
Provision for income taxes:
Amortization of LIHTC investments	17		17		34		32
Low income housing tax credits	(16)		(15)		(32)		(30)
Other tax benefits related to tax credit entities	(3)		(4)		(7)		(7)
Total provision for income taxes	$	(2)	$	(2)	$	(5)	$	(5)

For further information on the Corporation’s consolidation policy, see Note 1 to the consolidated financial statements in the Corporation's ~~2018~~2019 Annual Report.

NOTE 7 - MEDIUM- AND LONG-TERM DEBT

Medium- and long-term debt is summarized as follows:



(in millions)	June 30, 2020		December 31, 2019
Parent company
Subordinated notes:

3.80% subordinated notes due 2026 (a)	$	284	$	264
Medium- and long-term notes:


3.70% notes due 2023 (a)	917		884
4.00% notes due 2029 (a)	647		587
Total medium- and long-term notes	1,564		1,471
Total parent company	1,848		1,735
Subsidiaries
Subordinated notes:




4.00% subordinated notes due 2025 (a)	383		360
7.875% subordinated notes due 2026 (a)	213		202
Total subordinated notes	596		562
Medium- and long-term notes:
2.50% notes due 2020 (a)	—		674
2.50% notes due 2024 (a)	527		498
Total medium- and long-term notes	527		1,172
FHLB advances:
Floating-rate based on FHLB auction rate due 2026	2,800		2,800
Floating-rate based on FHLB auction rate due 2028	750		1,000
Total FHLB advances	3,550		3,800
Total subsidiaries	4,673		5,534
Total medium- and long-term debt	$	6,521	$	7,269

(in millions) September 30, 2019 December 31, 2018
Parent company
Subordinated notes:
3.80% subordinated notes due 2026 (a) $ 269
$ 250
Medium- and long-term notes:
2.125% notes due 2019 (a) —
348
3.70% notes due 2023 (a) 892
861
4.00% notes due 2029 (a) 603
—
Total medium- and long-term notes 1,495
1,209
Total parent company 1,764
1,459
Subsidiaries
Subordinated notes:
4.00% subordinated notes due 2025 (a) 365
343
7.875% subordinated notes due 2026 (a) 207
198
Total subordinated notes 572
541
Medium- and long-term notes:
2.50% notes due 2020 (a) 672
663
2.50% notes due 2024 (a) 503
—
Total medium- and long-term notes 1,175
663
Federal Home Loan Bank (FHLB) advances:
Floating-rate based on FHLB auction rate due 2026 2,800
2,800
Floating-rate based on FHLB auction rate due 2028 1,000
1,000
Total FHLB advances 3,800
3,800
Total subsidiaries 5,547
5,004
Total medium- and long-term debt $ 7,311
$ 6,463

(a)The fixed interest rates on these notes have been swapped to a variable rate and designated in a hedging relationship. Accordingly, carrying value has been adjusted to reflect the change in the fair value of the debt as a result of changes in the benchmark rate.


~~(a)~~	The fixed interest rates on these notes have been swapped to a variable rate and designated in a hedging relationship. Accordingly, carrying value has been adjusted to reflect the change in the fair value of the debt as a result of changes in the benchmark rate.

Subordinated notes with remaining maturities greater than one year qualify as Tier 2 capital.

Comerica Bank (the Bank), a wholly-owned subsidiary of the Corporation, is a member of the FHLB, which provides short- and long-term funding to its members through advances collateralized by real estate-related assets. The interest ~~rate~~rates on

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

the FHLB advances resets between four and eight weeks, based on the FHLB auction rate. At ~~September~~June 30, ~~2019,~~2020, the weighted-average rate on the FHLB advances was ~~2.21%~~0.31%. Each note may be prepaid in full, without penalty, at each scheduled reset date. Borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. At ~~September~~June 30, ~~2019, $17.2~~2020, $18.3 billion of real estate-related loans and $5.2 billion of investment securities were pledged to the FHLB as collateral for ~~current~~outstanding short- and long-term advances of $750 million and $3.6 billion, respectively, with an additional capacity for potential future borrowings of approximately ~~$5.1~~$10.1 billion.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

The Corporation issued $350 million of 4.00% senior notes maturing in 2029, swapped to a floating rate at 30-day LIBOR plus 129 basis points in the first quarter 2019 and issued an additional $200 million of 4.00% senior notes maturing in 2029 in third quarter 2019, swapped to a floating rate at 30-day LIBOR plus 123 basis points. These notes were consolidated under a single series with an aggregate principal amount of $550 million.

~~Also in third quarter 2019, the Bank issued $500 million of 2.50% medium-term notes due in 2024, swapped to a floating rate based on 30-day LIBOR plus 84 basis points.~~

Unamortized debt issuance costs deducted from the carrying amount of medium- and long-term debt totaled ~~$13~~$11 million at ~~September~~June 30, ~~2019~~2020 and $8$12 million at December 31, ~~2018.~~2019.

NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

The following table presents a reconciliation of the changes in the components of accumulated other comprehensive ~~loss~~income (loss) and details the components of other comprehensive income (loss) for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~,2019, including the amount of income tax expense (benefit) allocated to each component of other comprehensive income (loss).


	Six Months Ended June 30,

(in millions)	2020		2019
Accumulated net unrealized gains on investment securities:
Balance at beginning of period, net of tax	$	65	$	(138)


Net unrealized holding gains arising during the period	286		229
Less: Provision for income taxes	68		54
Net unrealized holding gains arising during the period, net of tax	218		175
Less:
Net realized losses included in net securities losses	—		(8)
Less: Benefit for income taxes	—		(2)
Reclassification adjustment for net securities losses included in net income, net of tax	—		(6)





Change in net unrealized gains on investment securities, net of tax	218		181
Balance at end of period, net of tax	$	283	$	43
Accumulated net gains on cash flow hedges:
Balance at beginning of period, net of tax	$	34	$	—
Net cash flow hedge gains arising during the period	233		51
Less: Provision for income taxes	56		12
Change in net cash flow hedge gains arising during the period, net of tax	177		39
Less:
Net cash flow hedge gains (losses) included in interest and fees on loans	22		(1)
Less: Provision for income taxes	7		—
Reclassification adjustment for net cash flow hedge gains (losses) included in net income, net of tax	15		(1)
Change in net cash flow hedge gains, net of tax	162		40
Balance at end of period, net of tax (a)	$	196	$	40
Accumulated defined benefit pension and other postretirement plans adjustment:
Balance at beginning of period, net of tax	$	(334)	$	(471)







Amortization of actuarial net loss	31		21
Amortization of prior service credit	(14)		(13)

Amounts recognized in other noninterest expenses	17		8
Less: Provision for income taxes	4		2

Change in defined benefit pension and other postretirement plans adjustment, net of tax	13		6
Balance at end of period, net of tax	$	(321)	$	(465)












Total accumulated other comprehensive income (loss) at end of period, net of tax	$	158	$	(382)

Nine Months Ended September 30,
(in millions) 2019 2018
Accumulated net unrealized gains (losses) on investment securities:
Balance at beginning of period, net of tax $ (138 ) $ (101 )

Cumulative effect of change in accounting principle —
1

Net unrealized holding gains (losses) arising during the period 267
(254 )
Less: Provision (benefit) for income taxes 62
(59 )
Net unrealized holding gains (losses) arising during the period, net of tax 205
(195 )
Less:
Net realized losses included in net securities losses (8 ) (20 )
Less: Benefit for income taxes (2 ) (5 )
Reclassification adjustment for net securities losses included in net income, net of tax (6 ) (15 )
Change in net unrealized gains (losses) on investment securities, net of tax 211
(180 )
Balance at end of period, net of tax $ 73
$ (280 )

Accumulated net gains on cash flow hedges:
Balance at beginning of period, net of tax $ —
$ —

Net cash flow hedge gains arising during the period 69
—
Less: Provision for income taxes 16
—
Change in net cash flow hedge gains arising during the period, net of tax 53
—
Less:
Net cash flow hedge losses included in interest and fees on loans (1 ) —
Change in net cash flow hedge gains, net of tax 54
—
Balance at end of period, net of tax (a) $ 54
$ —

Accumulated defined benefit pension and other postretirement plans adjustment:
Balance at beginning of period, net of tax $ (471 ) $ (350 )

Amortization of actuarial net loss 30
45
Amortization of prior service credit (20 ) (20 )
Amounts recognized in other noninterest expense 10
25
Less: Provision for income taxes 2
6
Change in defined benefit pension and other postretirement plans adjustment, net of tax 8
19
Balance at end of period, net of tax $ (463 ) $ (331 )
Total accumulated other comprehensive loss at end of period, net of tax $ (336 ) $ (611 )

(a)The Corporation expects to reclassify ~~$12~~$73 million of net gains, net of tax, from accumulated other comprehensive ~~loss~~income to earnings over the next twelve months if interest yield curves and notional amounts remain at ~~September~~June 30, ~~2019~~2020 levels.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 9 - NET INCOME PER COMMON SHARE

Basic and diluted net income per common share are presented in the following table.

Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except per share data) 2019 2018 2019 2018
Basic and diluted
Net income $ 292
$ 318
$ 929
$ 925
Less: Income allocated to participating securities 2
2
5
6
Net income attributable to shares $ 290
$ 316
$ 924
$ 919

Basic average shares 147
167
152
170

Basic net income per share $ 1.98
$ 1.89
$ 6.08
$ 5.41

Basic average shares 147
167
152
170
Dilutive stock equivalents:
Net effect of the assumed exercise of stock options 1
2
2
2
Net effect of the assumed exercise of warrants —
1
—
1
Diluted average shares 148
170
154
173

Diluted net income per share $ 1.96
$ 1.86
$ 6.02
$ 5.32


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

(in millions, except per share data)	2020		2019		2020		2019
Basic and diluted
Net income	$	113	$	298	$	48	$	637
Less: Income allocated to participating securities	1		1		1		3
Net income attributable to common share	$	112	$	297	$	47	$	634
Basic average common shares	139		152		140		155
Basic net income per common share	$	0.81	$	1.95	$	0.34	$	4.10
Basic average common shares	139		152		140		155
Dilutive common stock equivalents:
Net effect of the assumed exercise of stock awards	—		1		1		1

Diluted average common shares	139		153		141		156
Diluted net income per common share	$	0.80	$	1.94	$	0.34	$	4.06

The following average shares related to outstanding options to purchase shares of common stock were not included in the computation of diluted net income per common share because the options were anti-dilutive for the period.



	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Average outstanding options	2,056,133	470,162	1,633,078	446,610
Range of exercise prices	$39.10 - $95.25	$79.01 - $95.25	$39.10 - $95.25	$79.01 - $95.25

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Average outstanding options 814,044
— 570,433
—
Range of exercise prices $67.53 - $95.25
— $67.53 - $95.25
—

In May 2020, the Corporation issued and sold 400,000 depositary shares, each representing a 1/100th ownership interest in a share of 5.625% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A, without par value, with a liquidation preference of $100,000 per share (equivalent of $1,000 per depositary share). Holders of the depositary shares will be entitled to all proportional rights and preferences of the Series A preferred stock (including dividend, voting, redemption and liquidation rights). The $400 million issuance yielded $395 million in proceeds net of underwriting discounts and offering expenses. Dividends on the Series A preferred stock will accrue on a non-cumulative basis and will be payable in arrears when, as and if authorized by the Corporation’s board of directors or a duly authorized committee of the board and declared by the Corporation, on the first day of January, April, July, and October of each year, commencing on October 1, 2020. Under the terms of the Series A preferred stock, the ability of the Corporation to pay dividends on, make distributions with respect to, or to repurchase, redeem or acquire its common stock or any other stock ranking on parity with or junior to the Series A preferred stock, is subject to restrictions in the event that the Corporation does not declare and either pay or set aside a sum sufficient for payment of dividends on the Series A Preferred Stock for the immediately preceding dividend period. The Series A preferred stock is perpetual and has no maturity date, but is redeemable at specified times subject to regulatory considerations.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 10 - EMPLOYEE BENEFIT PLANS

Net periodic defined benefit cost (credit) is comprised of service cost and other components of net benefit cost (credit). Service ~~costs are~~cost is included in salaries and benefits expense and other components of net benefit cost (credit) are included in other noninterest expenses on the Consolidated Statements of Comprehensive Income. For further information on the Corporation's employee benefit plans, refer to Note 17 to the consolidated financial statements in the Corporation's ~~2018~~2019 Annual Report.

The components of net periodic benefit cost (credit) for the Corporation's qualified pension plan, non-qualified pension plan and postretirement benefit plan are as follows.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

NOTE 11 - INCOME TAXES AND TAX-RELATED ITEMS

At ~~September~~June 30, ~~2019,~~2020, net unrecognized tax benefits were ~~$16~~$18 million, compared to ~~$14~~$17 million at December 31, ~~2018.~~2019. The Corporation anticipates that it is reasonably possible ~~settlements with~~that final settlement of federal and state tax ~~authorities~~issues will result in a ~~$1 million~~ decrease in net unrecognized tax benefits of $1 million within the next twelve months. ~~The~~Included in accrued expenses and other liabilities on the Consolidated Balance Sheets was a liability for tax-related interest and penalties ~~included in accrued expenses~~of $6 million and ~~other liabilities was~~ $8 million ~~and $7 million~~ on ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Net deferred tax assets were ~~$92~~$11 million at ~~September~~June 30, ~~2019,~~2020, compared to ~~$166~~$42 million at December 31, ~~2018. The $74 million decrease in net~~2019, primarily driven by increases to deferred tax ~~assets resulted primarily from a decrease in deferred tax assets, due~~liabilities related to ~~a decrease in~~ unrealized losses on investment securities available-for-sale and ~~an increase in~~net hedging gains, partially offset by increases to deferred tax ~~liabilities arising from cash flow hedges used~~assets related to ~~manage interest rate risk.~~the allowance for loan losses and allowance for depreciation. Included in deferred tax assets at both ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were $4$3 million of state net operating loss carryforwards, which expire between ~~2019~~2020 and ~~2028.~~2029. The Corporation believes that it is more likely than not that the benefit from certain of these state net operating loss carryforwards will not be realized and, accordingly, maintained a valuation allowance of $3 million at both ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The determination regarding valuation allowance was based on evidence of loss carryback capacity, projected future reversals of existing taxable temporary differences to absorb the deferred tax assets and assumptions made regarding future events.

In the ordinary course of business, the Corporation enters into certain transactions that have tax consequences. From time to time, the Internal Revenue Service (IRS) or other tax jurisdictions may review and/or challenge specific interpretive tax

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Based on current knowledge and probability assessment of various potential outcomes, the Corporation believes that current tax reserves are adequate, and the amount of any potential incremental liability arising is not expected to have a material adverse effect on the Corporation’s consolidated financial condition or results of operations. Probabilities and outcomes are reviewed as events unfold, and adjustments to the reserves are made when necessary.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

The Corporation has strategically aligned its operations into 3 major business segments: the ~~Business~~Commercial Bank, the Retail Bank and Wealth Management. These business segments are differentiated based on the type of customer and the related products and services provided. In addition to the 3 major business segments, the Finance Division is also reported as a segment. Business segment results are produced by the Corporation’s internal management accounting system. This system measures financial results based on the internal business unit structure of the Corporation. The performance of the business segments is not comparable with the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. The management accounting system assigns balance sheet and income statement items to each business segment using certain methodologies, which are regularly reviewed and refined. From time to time, the Corporation may make reclassifications among the segments to more appropriately reflect management's current view of the segments, and methodologies may be modified as the management accounting system is enhanced and changes occur in the organizational structure and/or product lines. For comparability purposes, amounts in all periods are based on business unit structure and methodologies in effect at ~~September~~June 30, ~~2019~~.2020.

The following discussion provides information about the activities of each business segment. A discussion of the financial results and the factors impacting performance can be found in the section entitled "Business Segments" in the financial review.

The ~~Business~~Commercial Bank meets the needs of small and middle market businesses, multinational corporations and governmental entities by offering various products and services including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services.

The Retail Bank includes a full range of personal financial services, consisting of consumer lending, consumer deposit gathering and mortgage loan origination. This business segment offers a variety of consumer products including deposit accounts, installment loans, credit cards, student loans, home equity lines of credit and residential mortgage loans.

Wealth Management offers products and services consisting of fiduciary services, private banking, retirement services, investment management and advisory services, investment banking and brokerage services. This business segment also offers the sale of annuity products, as well as life, disability and long-term care insurance products.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

The Finance segment includes the Corporation’s securities portfolio and asset and liability management activities. This segment is responsible for managing the Corporation’s funding, liquidity and capital needs, performing interest sensitivity analysis and executing various strategies to manage the Corporation’s exposure to liquidity, interest rate risk and foreign exchange risk.

The Other category includes the income and expense impact of equity and cash, tax benefits not assigned to specific business segments, charges of an unusual or infrequent nature that are not reflective of the normal operations of the business segments and miscellaneous other expenses of a corporate nature.

For further information on the methodologies which form the basis for these results refer to Note 2322 to the consolidated financial statements in the Corporation's ~~2018~~2019 Annual Report.

~~Business segment financial results are as follows:~~

~~Included discrete tax benefits of $5 millionand$23 million for the three months ended September 30, 2019 and 2018, respectively.~~

~~n/m – not meaningful~~

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Business segment financial results are as follows:

(dollar amounts in millions) Business
Bank Retail
Bank Wealth Management Finance Other Total
Nine Months Ended September 30, 2019
Earnings summary:
Net interest income (expense) $ 1,252
$ 434
$ 140
$ (77 ) $ 46
$ 1,795
Provision for credit losses 85
(5 ) (13 ) —
(1 ) 66
Noninterest income 412
95
201
30
6
744
Noninterest expenses 592
441
208
(1 ) 52
1,292
Provision (benefit) for income taxes 227
21
35
(16 ) (15 ) (a) 252
Net income (loss) $ 760
$ 72
$ 111
$ (30 ) $ 16
$ 929
Net credit-related charge-offs (recoveries) $ 90
$ 1
$ (5 ) $ —
$ —
$ 86

Selected average balances:
Assets $ 44,902
$ 2,841
$ 5,092
$ 14,184
$ 3,908
$ 70,927
Loans 43,456
2,108
4,950
—
—
50,514
Deposits 28,545
20,628
3,772
1,788
176
54,909

Statistical data:
Return on average assets (b) 2.26 % 0.46 % 2.92 % n/m
n/m
1.75 %
Efficiency ratio (c) 35.61
82.70
61.04
n/m
n/m
50.66

Nine Months Ended September 30, 2018
Earnings summary:
Net interest income (expense) $ 1,200
$ 402
$ 133
$ (37 ) $ 40
$ 1,738
Provision for credit losses (9 ) (2 ) (2 ) —
(4 ) (17 )
Noninterest income 403
100
201
16
6
726
Noninterest expenses 635
450
218
(3 ) 46
1,346
Provision (benefit) for income taxes 222
12
29
(13 ) (40 ) (a) 210
Net income (loss) $ 755
$ 42
$ 89
$ (5 ) $ 44
$ 925
Net credit-related charge-offs $ 40
$ —
$ —
$ —
$ —
$ 40

Selected average balances:
Assets $ 43,205
$ 2,629
$ 5,233
$ 13,736
$ 5,886
$ 70,689
Loans 41,580
2,062
5,102
—
—
48,744
Deposits 30,168
20,888
3,879
949
120
56,004

Statistical data:
Return on average assets (b) 2.34 % 0.26 % 2.26 % n/m
n/m
1.75 %
Efficiency ratio (c) 39.59
89.03
65.51
n/m
n/m
54.12
(a)Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.

(b)Noninterest expenses as a percentage of the sum of net interest income and noninterest income excluding net gains (losses) from securities and a derivative contract tied to the conversion rate of Visa Class B shares.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

(a)Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.

The Corporation operates in 3 primary markets - Texas, California and Michigan, as well as in Arizona and Florida, with select businesses operating in several other states and in Canada and Mexico. The Corporation produces market segment results for the Corporation’s 3 primary geographic markets as well as Other Markets. Other Markets includes Florida, Arizona, the International Finance division and businesses with a national perspective. The Finance & Other category includes the Finance segment and the Other category as previously described. Market segment results are provided as supplemental information to the business segment results and may not meet all operating segment criteria as set forth in GAAP. For comparability purposes, amounts in all periods are based on market segments and methodologies in effect at ~~September~~June 30, ~~2019.~~2020.

A discussion of the financial results and the factors impacting performance can be found in the section entitled "Market Segments" in the financial review.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Market segment financial results are as follows:

Michigan California Texas Other
Markets Finance
& Other Total
(dollar amounts in millions)
Three Months Ended September 30, 2019
Earnings summary:
Net interest income (expense) $ 185
$ 203
$ 125
$ 96
$ (23 ) $ 586
Provision for credit losses (1 ) (6 ) 50
(9 ) 1
35
Noninterest income 74
41
31
94
16
256
Noninterest expenses 139
102
86
90
18
435
Provision (benefit) for income taxes 27
37
5
22
(11 ) (a) 80
Net income (loss) $ 94
$ 111
$ 15
$ 87
$ (15 ) $ 292
Net credit-related charge-offs (recoveries) $ 6
$ 5
$ 34
$ (3 ) $ —
$ 42

Selected average balances:
Assets $ 13,213
$ 18,726
$ 11,462
$ 9,961
$ 18,374
$ 71,736
Loans 12,554
18,393
10,805
9,135
—
50,887
Deposits 20,164
16,725
8,705
7,859
2,263
55,716

Statistical data:
Return on average assets (b) 1.78 % 2.37 % 0.48 % 3.47 % n/m
1.61 %
Efficiency ratio (c) 53.31
41.64
55.57
47.19
n/m
51.54

Three Months Ended September 30, 2018
Earnings summary:
Net interest income (expense) $ 185
$ 200
$ 120
$ 95
$ (1 ) $ 599
Provision for credit losses 4
3
(9 ) 4
(2 ) —
Noninterest income 76
43
33
86
(4 ) 234
Noninterest expenses 144
106
89
97
16
452
Provision (benefit) for income taxes 25
34
16
16
(28 ) (a) 63
Net income $ 88
$ 100
$ 57
$ 64
$ 9
$ 318
Net credit-related charge-offs (recoveries) $ 8
$ 5
$ 3
$ (1 ) $ —
$ 15

Selected average balances:
Assets $ 13,055
$ 18,349
$ 10,263
$ 9,187
$ 20,356
$ 71,210
Loans 12,424
18,074
9,694
8,392
—
48,584
Deposits 20,720
16,894
8,902
8,523
1,054
56,093

Statistical data:
Return on average assets (b) 1.63 % 2.18 % 2.18 % 2.74 % n/m
1.77 %
Efficiency ratio (c) 54.96
43.10
58.06
54.02
n/m
52.93
(a)Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.

~~Included discrete tax benefits of $5 millionand$23 million for the three months ended September 30, 2019 and 2018, respectively.~~

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

(dollar amounts in millions) Michigan California Texas Other
Markets Finance
& Other Total
Nine Months Ended September 30, 2019
Earnings summary:
Net interest income (expense) $ 557
$ 616
$ 372
$ 281
$ (31 ) $ 1,795
Provision for credit losses (6 ) (11 ) 88
(4 ) (1 ) 66
Noninterest income 218
121
97
272
36
744
Noninterest expenses 412
301
255
273
51
1,292
Provision (benefit) for income taxes 83
113
30
57
(31 ) (a) 252
Net income (loss) $ 286
$ 334
$ 96
$ 227
$ (14 ) $ 929
Net credit-related charge-offs (recoveries) $ 10
$ 9
$ 73
$ (6 ) $ —
$ 86

Selected average balances:
Assets $ 13,176
$ 19,000
$ 11,240
$ 9,419
$ 18,092
$ 70,927
Loans 12,605
18,695
10,586
8,628
—
50,514
Deposits 19,959
16,433
8,690
7,863
1,964
54,909

Statistical data:
Return on average assets (b) 1.85 % 2.36 % 1.13 % 3.23 % n/m
1.75 %
Efficiency ratio (c) 53.00
40.82
54.35
49.33
n/m
50.66

Nine Months Ended September 30, 2018
Earnings summary:
Net interest income $ 540
$ 582
$ 353
$ 260
$ 3
$ 1,738
Provision for credit losses 38
(8 ) (37 ) (6 ) (4 ) (17 )
Noninterest income 222
124
94
264
22
726
Noninterest expenses 432
316
273
282
43
1,346
Provision (benefit) for income taxes 67
101
48
47
(53 ) (a) 210
Net income $ 225
$ 297
$ 163
$ 201
$ 39
$ 925
Net credit-related charge-offs $ 7
$ 18
$ 11
$ 4
$ —
$ 40

Selected average balances:
Assets $ 13,291
$ 18,542
$ 10,352
$ 8,882
$ 19,622
$ 70,689
Loans 12,556
18,284
9,789
8,115
—
48,744
Deposits 20,947
16,875
9,016
8,097
1,069
56,004

Statistical data:
Return on average assets (b) 1.39 % 2.14 % 2.10 % 3.03 % n/m
1.75 %
Efficiency ratio (c) 56.50
44.76
60.92
53.91
n/m
54.12

(a)Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 14 - REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue from contracts with customers comprises the noninterest income earned by the Corporation in exchange for services provided to customers. The following table presents the composition of revenue from contracts with customers, segregated from other sources of noninterest income, by business segment.


	Commercial Bank		Retail Bank		Wealth Management		Finance & Other		Total
(in millions)
Three Months Ended June 30, 2020
Revenue from contracts with customers:
Card fees	$	59	$	8	$	1	$	—	$	68
Service charges on deposit accounts	30		11		1		—		42
Fiduciary income	—		—		52		—		52
Commercial loan servicing fees (a)	4		—		—		—		4
Brokerage fees	—		—		5		—		5
Other noninterest income (b)	11		2		4		—		17
Total revenue from contracts with customers	104		21		63		—		188
Other sources of noninterest income	40		3		3		13		59
Total noninterest income	$	144	$	24	$	66	$	13	$	247
Three Months Ended June 30, 2019
Revenue from contracts with customers:
Card fees	$	54	$	10	$	1	$	—	$	65
Service charges on deposit accounts	33		17		1		—		51
Fiduciary income	—		—		52		—		52
Commercial loan servicing fees (a)	4		—		—		—		4
Brokerage fees	—		—		7		—		7
Other noninterest income (b)	2		4		4		—		10
Total revenue from contracts with customers	93		31		65		—		189
Other sources of noninterest income	43		2		3		13		61
Total noninterest income	$	136	$	33	$	68	$	13	$	250
Six Months Ended June 30, 2020
Revenue from contracts with customers:
Card fees	$	108	$	17	$	2	$	—	$	127
Service charges on deposit accounts	62		27		2		—		91
Fiduciary income	—		—		106		—		106
Commercial loan servicing fees (a)	8		—		—		—		8
Brokerage fees	—		—		12		—		12
Other noninterest income (b)	15		5		9		—		29
Total revenue from contracts with customers	193		49		131		—		373
Other sources of noninterest income	78		3		5		25		111
Total noninterest income	$	271	$	52	$	136	$	25	$	484
Six Months Ended June 30, 2019
Revenue from contracts with customers:
Card fees	$	107	$	19	$	2	$	—	$	128
Service charges on deposit accounts	66		34		2		—		102
Fiduciary income	—		—		101		—		101
Commercial loan servicing fees (a)	8		—		—		—		8
Brokerage fees	—		—		14		—		14
Other noninterest income (b)	4		7		9		—		20
Total revenue from contracts with customers	185		60		128		—		373
Other sources of noninterest income	87		4		4		20		115
Total noninterest income	$	272	$	64	$	132	$	20	$	488

Business
Bank

Retail
Bank
Wealth Management Finance & Other Total
(in millions)
Three Months Ended September 30, 2019
Revenue from contracts with customers:
Card fees $ 55
$ 11
$ 1
$ —
$ 67
Service charges on deposit accounts 32
18
1
—
51
Fiduciary income —
—
53
—
53
Commercial loan servicing fees (a) 5
—
—
—
5
Brokerage fees —
—
7
—
7
Other noninterest income (b) 1
1
5
—
7
Total revenue from contracts with customers 93
30
67
—
190
Other sources of noninterest income 47
1
2
16
66
Total noninterest income $ 140
$ 31
$ 69
$ 16
$ 256

Three Months Ended September 30, 2018
Revenue from contracts with customers:
Card fees $ 50
$ 10
$ 1
$ —
$ 61
Service charges on deposit accounts 34
18
1
—
53
Fiduciary income —
—
51
—
51
Commercial loan servicing fees (a) 5
—
—
—
5
Brokerage fees —
—
7
—
7
Other noninterest income (b) 3
6
4
—
13
Total revenue from contracts with customers 92
34
64
—
190
Other sources of noninterest income 45
1
2
(4 ) 44
Total noninterest income $ 137
$ 35
$ 66
$ (4 ) $ 234

Nine Months Ended September 30, 2019
Revenue from contracts with customers:
Card fees $ 162
$ 30
$ 3
$ —
$ 195
Service charges on deposit accounts 98
52
3
—
153
Fiduciary income —
—
154
—
154
Commercial loan servicing fees (a) 13
—
—
—
13
Brokerage fees —
—
21
—
21
Other noninterest income (b) 5
8
14
—
27
Total revenue from contracts with customers 278
90
195
—
563
Other sources of noninterest income 134
5
6
36
181
Total noninterest income $ 412
$ 95
$ 201
$ 36
$ 744

Nine Months Ended September 30, 2018
Revenue from contracts with customers:
Card fees $ 149
$ 28
$ 3
$ —
$ 180
Service charges on deposit accounts 102
54
4
—
160
Fiduciary income —
—
155
—
155
Commercial loan servicing fees (a) 14
—
—
—
14
Brokerage fees —
—
20
—
20
Other noninterest income (b) 9
13
12
—
34
Total revenue from contracts with customers 274
95
194
—
563
Other sources of noninterest income 129
5
7
22
163
Total noninterest income $ 403
$ 100
$ 201
$ 22
$ 726

(a)Included in commercial lending fees on the Consolidated Statements of Comprehensive Income.

(b)Excludes derivative, warrant and other miscellaneous income.

Adjustments to revenue during the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 for refunds or credits relating to prior periods were not significant.

~~Table of Contents~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~Comerica Incorporated and Subsidiaries~~

~~NOTE 15 - LEASES~~

As a lessee, the Corporation has entered into operating leases for the majority of its real estate locations, primarily retail and office space. Total lease expenses were $20 million, including $16 million of operating lease expense and $4 million of variable lease expense, for the three months ended September 30, 2019 and $58 million, including $47 million of operating lease expense and $11 million of variable lease expense, for the nine months ended September 30, 2019.

At September 30, 2019, the Corporation's ROU assets and operating lease liabilities were $320 million and $358 million, respectively. The weighted average lease term for the lease liabilities was 9 years, and the weighted average discount rate of remaining payments was 3.82 percent. Lease liabilities from new ROU assets obtained during the nine months ended September 30, 2019 totaled $35 million. Cash paid on operating lease liabilities was $17 million and $50 million for the three and nine months ended September 30, 2019, respectively.

~~As of September 30, 2019, the contractual maturities of operating lease liabilities were as follows:~~

(in millions)
Years Ending December 31
2019 (a) $ 10
2020 64
2021 59
2022 50
2023 44
Thereafter 204
Total contractual maturities 431
Less imputed interest (73 )
Total operating lease liabilities $ 358

~~As a lessor, the Corporation leases certain types~~

Table of manufacturing and warehouse equipment as well as public and private transportation vehicles to its customers. The Corporation recognized lease-related revenue, primarily interest income from sales-type and direct financing leases of $4 million and $10 million for the three and nine months ended September 30, 2019, respectively. At September 30, 2019, the Corporation's net investment in sales-type and direct financing leases was $361 million.

~~As of September 30, 2019, the contractual maturities of sales-type and direct financing lease receivables were as follows:~~

Contents

(in millions)
Years Ending December 31
2019 (a) $ 18
2020 63
2021 52
2022 88
2023 39
Thereafter 58
Total lease payments receivable 318
Unguaranteed residual values 64
Less deferred interest income (21 )
Total lease receivables (b) $ 361


~~(a)~~	~~Contractual maturities for the three months remaining in 2019.~~


~~(b)~~	~~Excludes net investment in leveraged leases of $217 million.~~

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

FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. In addition, the Corporation may make other written and oral communications from time to time that contain such statements. All statements regarding the Corporation's expected financial position, strategies and growth prospects and general economic conditions expected to exist in the future are forward-looking statements. The words, "anticipates," "believes," "contemplates," "feels," "expects," "estimates," "seeks," "strives," "plans," "intends," "outlook," "forecast," "position," "target," "mission," "assume," "achievable," "potential," "strategy," "goal," "aspiration," "opportunity," "initiative," "outcome," "continue," "remain," "maintain," "on track," "trend," "objective," "looks forward," "projects," "models," and variations of such words and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions, as they relate to the Corporation or its management, are intended to identify forward-looking statements. These forward-looking statements are predicated on the beliefs and assumptions of the Corporation's management based on information known to the Corporation's management as of the date of this report and do not purport to speak as of any other date. Forward-looking statements may include descriptions of plans and objectives of the Corporation's management for future or past operations, products or services and forecasts of the Corporation's revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries as well as estimates of credit trends and global stability. Such statements reflect the view of the Corporation's management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, the Corporation's actual results could differ materially from those discussed. Factors that could cause or contribute to such differences ~~are~~include credit risks (unfavorable developments concerning credit quality; declines or other changes in ~~general economic, political~~the businesses or ~~industry conditions;~~industries of the Corporation's customers, in particular the energy industry; and changes in customer behavior); market risks (changes in monetary and fiscal policies; fluctuations in interest rates and their impact on deposit pricing; and transitions away from LIBOR towards new interest rate benchmarks); liquidity risks (the Corporation's ability to maintain adequate sources of funding and liquidity; reductions in the Corporation's credit rating; and the interdependence of financial service companies); technology risks (cybersecurity risks and heightened legislative and regulatory focus on cybersecurity and data privacy); operational risks (operational, systems or infrastructure failures; reliance on other companies to provide certain key components of business infrastructure; ~~cybersecurity risks; whether~~ the ~~Corporation may achieve opportunities for revenue enhancements~~impact of legal and ~~efficiency improvements under the GEAR Up initiative,~~regulatory proceedings or ~~changes in the scope or assumptions underlying the GEAR Up initiative; the Corporation's ability~~determinations; losses due to ~~maintain adequate sources of funding~~fraud; and liquidity; the effects of more stringent capital requirements; declines or other changes in the businesses or industries of the Corporation's customers; unfavorable developments concerning credit quality; changescontrols and procedures failures); compliance risks (changes in regulation or oversight; ~~heightened~~the effects of stringent capital requirements; and the impacts of future legislative, administrative or judicial changes to tax regulations); financial reporting risks (changes in accounting standards and ~~regulatory focus on cybersecurity and data privacy; fluctuations in interest rates and their impact on deposit pricing; transitions away from LIBOR towards new interest rate benchmarks; reductions in~~the critical nature of the Corporation's ~~credit rating; damage~~accounting policies); strategic risks (damage to the Corporation's reputation; the Corporation's ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; competitive product and pricing pressures among financial institutions within the Corporation's markets; the ~~interdependence of financial service companies; the~~ implementation of the Corporation's strategies and business initiatives; ~~changes in customer behavior;~~ management's ability to maintain and expand customer relationships; management's ability to retain key officers and employees; and any future strategic acquisitions or divestitures); and other general risks (changes in general economic, political or industry conditions; the effectiveness of methods of reducing risk exposures; the effects of catastrophic ~~events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods;~~events; impacts from the impacts of future legislative, administrative or judicial changes to tax regulations; any future strategic acquisitions or divestitures; management's ability to retain key officers and employees; the impact of legal and regulatory proceedings or determinations; losses due to fraud; the effects of terrorist activities and other hostilities; changes in accounting standards; the critical nature of the Corporation's accounting policies; controls and procedures failures;COVID-19 global pandemic; and the volatility of the Corporation's stock ~~price.~~price). The Corporation cautions that the foregoing list of factors is not all-inclusive. For discussion of factors that may cause actual results to differ from expectations, please refer to our filings with the Securities and Exchange Commission. In particular, please refer to “Item 1A. Risk Factors” beginning on page 12 of the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 and "Item 1A. Risk Factors" beginning on page 65 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. Forward-looking statements speak only as of the date they are made. The Corporation does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. For any forward-looking statements made in this report or in any documents, the Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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SERVING CUSTOMERS, COLLEAGUES AND COMMUNITIES DURING THE COVID-19 PANDEMIC

The COVID-19 outbreak has affected countless people world-wide and continues to negatively impact the global economy. While the full effects of the pandemic remain unknown, the Corporation is committed to supporting its customers, colleagues and communities during this difficult time. The Corporation offers hardship relief assistance to customers, including the consideration of various loan payment deferral and fee waiver options, and encourages customers to reach out for assistance to support their individual circumstances. As a Small Business Administration preferred lender, the Corporation was well positioned to assist business customers in accessing funds available through the Paycheck Protection Program (PPP) and other lending initiatives. Through June 30, 2020, the Corporation funded $3.9 billion of PPP loans, granted payment deferrals for $4.5 billion in loans (primarily commercial), including $57 million of loans on their second deferral, and waived overdraft, late payment, ATM and other customer fees. The Corporation has continued to serve customers at banking center drive-throughs and offer lobby hours by appointment while adhering to social distancing standards.

In response to the pandemic, the Corporation activated its disaster recovery protocol, successfully avoiding significant disruptions to internal and external functions. The Corporation has supported colleagues through additional compensation and benefits to those most impacted by the pandemic, as well as awarded bonuses for extraordinary service in support of the PPP process.

The Corporation and the Comerica Charitable Foundation have pledged $8 million to support business needs and community service organizations that care for and provide critical services to our communities.

OUTLOOK FOR THIRD QUARTER 2020 COMPARED TO SECOND QUARTER 2020

Based on current management expectations for recessionary conditions:

•Decline in average loans reflects lending to small businesses with a full quarter benefit of PPP, more than offset by decreases in Mortgage Banker Finance, Large Corporate and National Dealer Services.

•Average deposits relatively stable as customers utilize economic stimulus proceeds.

•Decrease in net interest income resulting from a $10 million to $15 million net impact of lower interest rates (assumes one-month London Interbank Offered Rate (LIBOR) of 17 basis points and interest-bearing deposit cost of 20 basis points). Lower loan balances expected to be offset by lower wholesale debt and one additional day.

•Provision for credit losses reflective of economic environment, including the effects resulting from the duration and severity of the COVID-19 pandemic.

•Decline in noninterest income due to reduced card fees related to transaction activity and lower market-based investment banking and derivative fees, partially offset by higher service charges on deposit accounts due to increased activity. Higher securities trading income and deferred compensation levels in second quarter 2020 not expected to repeat.

•Increase in noninterest expenses, reflecting technology and occupancy projects as well as higher charitable contributions and seasonal impacts of marketing and staff insurance expenses, mostly offset by continued expense discipline and reduction in COVID-19-related costs.

•Capital reflects declaration of first preferred stock dividend and a focus on supporting customers' financing needs, as well as maintaining an attractive common dividend.

RESULTS OF OPERATIONS

Net income for the three months ended ~~September~~June 30, ~~2019~~2020 was ~~$292~~$113 million, a decrease of ~~$26~~$185 million compared to ~~$318~~$298 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The decrease in net income reflected ~~an increase in~~ the ~~provision~~net impact of lower short-term rates. Results for ~~credit losses, a significant decline in discrete tax benefits and lower net interest income, partially offset by a securities repositioning loss and restructuring charges in third quarter 2018. For~~ the ~~nine~~three months ended ~~September~~June 30, 2019, net income was $929 million, an increase of $4 million compared to $925 million for the nine months ended September 30, 2018. The increase in net income reflected increases in net interest income and noninterest income, and lower expenses in part due to restructuring charges in 2018, partially offset2020 were also impacted by an increase in the provision for credit losses, calculated using the current expected credit loss (CECL) model, which continues to reflect the forecasted impact of the COVID-19 pandemic and continued pressures on the Energy portfolio. Net income for the six months ended June 30, 2020 was $48 million, a ~~significant decline~~decrease of $589 million compared to $637 million for the six months ended June 30, 2019. The decrease in ~~discrete tax benefits.~~net income was driven by an increase in the provision for credit losses as well as the net impact of lower short-term rates.

Net income per diluted common share was ~~$1.96~~$0.80 and ~~$1.86~~$1.94 for the three months ended ~~September~~June 30, 2020 and 2019, ~~and 2018,~~ respectively, ~~an increase~~a decrease of ~~10 cents~~$1.14 per diluted common share. ~~For the nine months ended September 30, 2019, net~~Net income per diluted common share was ~~$6.02, an increase~~$0.34 and $4.06 for the six months ended June 30, 2020 and 2019, respectively, a decrease of ~~70 cents~~$3.72 per diluted ~~share compared to $5.32 for the nine months ended September 30, 2018. Net income per diluted share benefited from the decrease in shares outstanding due to repurchases in 2019.~~common share.

~~The following table lists certain items impacting net income and earnings per share for the three- and nine-month periods ended September 30, 2019 and~~

~~2018~~

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(in millions, except per share data) Amount Per Share Amount Per Share Amount Per Share Amount Per Share
Securities repositioning loss, net of tax (a) $ —
$ —
$ (15 ) $ (0.09 ) $ 6
$ (0.04 ) $ 15
$ 0.09
Restructuring charges, net of tax —
—
(9 ) (0.05 ) —
—
(30 ) (0.17 )
Discrete tax items (b) 5
0.03
23
0.14
16
0.10
48
0.28


~~(a)~~	~~Losses incurred on the sale of treasury securities that were replaced by higher-yielding securities.~~


~~(b)~~	Primarily tax benefits from adjustments to state tax filings in the third quarter 2019 and tax capitalization and recovery positions on fixed assets and software in the third quarter 2018, as well as from employee stock transactions.

~~Fourth Quarter 2019 Outlook~~

~~For the fourth quarter 2019 compared to third quarter 2019, management expects the following:~~

~~Average loans stable, reflecting growth in several lines~~Table of ~~business, including a seasonal increase in National Dealer Services, offset by a decrease in Mortgage Banker Finance due to seasonality and lower refinancing activity.~~Contents

~~Average deposits stable with continued focus on attracting and retaining relationship-based deposits.~~

Decline in net interest income due to the net impact of lower interest rates of approximately $40 million to $45 million (includes a 25 basis point reduction in the federal funds rate announced on October 30, 2019 with no further reductions included), as well as lower interest recoveries and loan fees from elevated third quarter levels.

~~Provision for credit losses of $25 million to $45 million and net charge-offs to remain low, with continued solid credit quality.~~

~~Noninterest income relatively stable, excluding the impact of deferred compensation asset returns, with higher syndication fees and fiduciary income in third quarter 2019 that are unlikely to repeat.~~

~~Noninterest expenses modestly higher, reflecting higher outside processing expenses, technology expenditures as well as seasonal and inflationary pressures.~~

~~Income tax expense to be approximately 23 percent of pre-tax income.~~

~~Common equity Tier 1 capital ratio target of approximately 10 percent with continued active capital management.~~

~~Full-Year 2019 Outlook Update~~

~~Consistent with the fourth quarter outlook, management now expects the following for full-year 2019 compared to full-year 2018:~~

~~Growth in average loans of 4 percent.~~

~~Decline in average deposits of 1 to 2 percent.~~

~~Net interest income stable to 1 percent lower (includes the 25 basis point reduction in the federal funds rate announced on October 30, 2019 with no further reductions included).~~

~~Provision for credit losses of 15 to 20 basis points of total loans.~~

~~Growth in noninterest income of greater than 2 percent.~~

~~Stable noninterest expenses excluding 2018 restructuring charges of $53 million.~~

Three Months Ended ~~September~~June 30, ~~2019~~2020 compared to Three Months Ended ~~September~~June 30, ~~2018~~2019

Analysis of Net Interest Income


	Three Months Ended
	June 30, 2020										June 30, 2019
(dollar amounts in millions)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Commercial loans (a)	$	33,944	$	271	3.22	%	$	32,607	$	405	4.99	%
Real estate construction loans	3,887		35		3.60		3,319		47		5.74
Commercial mortgage loans	9,800		76		3.12		9,060		116		5.12
Lease financing	592		5		3.34		546		3		2.32
International loans	1,137		10		3.51		1,025		14		5.30
Residential mortgage loans	1,895		17		3.49		1,943		19		3.92
Consumer loans	2,243		20		3.62		2,463		31		5.02
Total loans (b)	53,498		434		3.26		50,963		635		5.00
Mortgage-backed securities	9,785		57		2.39		9,326		58		2.45
Other investment securities	2,857		17		2.47		2,765		17		2.47
Total investment securities	12,642		74		2.41		12,091		75		2.45
Interest-bearing deposits with banks	9,709		2		0.11		2,694		16		2.37
Other short-term investments	140		1		0.48		142		1		1.34
Total earning assets	75,989		511		2.71		65,890		727		4.42
Cash and due from banks	848						900
Allowance for loan losses	(932)						(660)
Accrued income and other assets	5,739						5,122
Total assets	$	81,644					$	71,252
Money market and interest-bearing checking deposits	$	26,320	12		0.18		$	22,913	53		0.93
Savings deposits	2,394		—		0.02		2,169		—		0.03
Customer certificates of deposit	2,801		8		1.21		2,346		7		1.10
Other time deposits	—		—		—		1,156		7		2.46
Foreign office time deposits	81		—		0.34		13		—		1.54
Total interest-bearing deposits	31,596		20		0.26		28,597		67		0.94
Short-term borrowings	882		1		0.25		927		6		2.46
Medium- and long-term debt	7,206		19		1.09		6,712		51		3.05
Total interest-bearing sources	39,684		40		0.41		36,236		124		1.37
Noninterest-bearing deposits	32,686						26,398
Accrued expenses and other liabilities	1,682						1,333
Total shareholders’ equity	7,592						7,285
Total liabilities and shareholders’ equity	$	81,644					$	71,252
Net interest income/rate spread			$	471	2.30				$	603	3.05
Impact of net noninterest-bearing sources of funds					0.20						0.61
Net interest margin (as a percentage of average earning assets)					2.50	%					3.66	%

(a)Includes hedge income (losses) of $19 million and $(1) million for the three months ended June 30, 2020 and June 30, 2019, respectively.

(b)Nonaccrual loans are included in average balances reported and in the calculation of average rates.

Three Months Ended
September 30, 2019 September 30, 2018
(dollar amounts in millions)
Average
Balance
Interest
Average
Rate

Average
Balance
Interest
Average
Rate
Commercial loans $ 32,329
$ 392
4.82 % $ 30,371
$ 365
4.74 %
Real estate construction loans 3,344
47
5.53
3,198
43
5.38
Commercial mortgage loans 9,264
112
4.82
9,084
110
4.84
Lease financing 578
6
3.83
464
4
3.69
International loans 1,007
13
5.12
1,072
13
4.99
Residential mortgage loans 1,920
18
3.84
1,962
18
3.71
Consumer loans 2,445
31
4.92
2,433
28
4.49
Total loans (a) 50,887
619
4.83
48,584
581
4.74

Mortgage-backed securities 9,408
58
2.45
9,063
54
2.30
Other investment securities 2,795
17
2.45
2,698
12
1.72
Total investment securities 12,203
75
2.45
11,761
66
2.17

Interest-bearing deposits with banks 3,049
16
2.13
5,362
28
2.03
Other short-term investments 146
1
1.28
135
—
1.04
Total earning assets 66,285
711
4.26
65,842
675
4.05

Cash and due from banks 864
1,107

Allowance for loan losses (673 ) (681 )
Accrued income and other assets 5,260
4,942

Total assets $ 71,736
$ 71,210

Money market and interest-bearing checking deposits $ 23,485
57
0.97
$ 22,573
32
0.56
Savings deposits 2,155
1
0.04
2,208
1
0.05
Customer certificates of deposit 2,627
8
1.30
2,086
2
0.48
Other time deposits 1,085
7
2.46
8
—
1.86
Foreign office time deposits 13
—
1.45
25
—
1.25
Total interest-bearing deposits 29,365
73
0.99
26,900
35
0.51

Short-term borrowings 268
2
2.33
85
1
1.98
Medium- and long-term debt 7,100
50
2.78
6,153
40
2.61
Total interest-bearing sources 36,733
125
1.34
33,138
76
0.91

Noninterest-bearing deposits 26,351
29,193

Accrued expenses and other liabilities 1,398
1,062

Total shareholders’ equity 7,254
7,817

Total liabilities and shareholders’ equity $ 71,736
$ 71,210

Net interest income/rate spread $ 586
2.92
$ 599
3.14

Impact of net noninterest-bearing sources of funds 0.60
0.45
Net interest margin (as a percentage of average earning assets) 3.52 % 3.59 %

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~~(a)~~	~~Nonaccrual loans are included in average balances reported and in the calculation of average rates.~~

Rate/Volume Analysis


	Three Months Ended
	June 30, 2020/June 30, 2019
(in millions)	Decrease Due to Rate		Increase Due to Volume (a)		Net Decrease
Interest Income:
Loans	$	(221)	$	20	$	(201)
Investment securities	(2)		1		(1)

Interest-bearing deposits with banks	(16)		2		(14)

Total interest income	(239)		23		(216)
Interest Expense:
Interest-bearing deposits	(49)		2		(47)
Short-term borrowings	(5)		—		(5)
Medium- and long-term debt	(34)		2		(32)
Total interest expense	(88)		4		(84)
Net interest income	$	(151)	$	19	$	(132)

Three Months Ended
September 30, 2019/September 30, 2018
(in millions) Increase
(Decrease)
Due to Rate Increase (Decrease) Due to Volume (a) Net Increase (Decrease)
Interest Income:
Loans $ 11
$ 27
$ 38

Investment securities 6
3
9

Interest-bearing deposits with banks 1
(13 ) (12 )
Other short-term investments —
1
1

Total interest income 18
18
36

Interest Expense:
Interest-bearing deposits 29
9
38

Short-term borrowings —
1
1

Medium- and long-term debt 1
9
10

Total interest expense 30
19
49

Net interest income $ (12 ) $ (1 ) $ (13 )
(a)Rate/volume variances are allocated to variances due to volume.


~~(a)~~	~~Rate/volume variances are allocated to variances due to volume.~~

Net interest income was ~~$586~~$471 million for the ~~third quarter 2019,~~three months ended June 30, 2020, a decrease of ~~$13~~$132 million compared to ~~$599~~$603 million for the ~~third quarter 2018.~~three months ended June 30, 2019. The decrease in net interest income primarily reflected ~~higher deposit costs,~~ the impact of lower ~~Federal Reserve Bank (FRB) deposits (included in interest-bearing deposits with banks) and higher balances in interest-bearing sources,~~short-term rates partially offset by ~~higher loan balances and~~ the impact of ~~higher short-term~~a $2.5 billion increase in average loans, primarily PPP loans. The decline in rates ~~on loans and securities. Net~~led to the 116 basis point decrease in the net interest margin, to 2.50 percent for the three months ended ~~September~~June 30, ~~2019 decreased 7 basis points to 3.52 percent,~~2020 from ~~3.59~~3.66 percent for the comparable period in 2018, primarily reflecting higher deposit costs and higher balances in interest-bearing sources, partially offset by higher loan balances, the impact of higher short-term rates on loans and securities, as well as a decrease in lower-yielding FRB deposits balances.three months ended June 30, 2019.

Provision for Credit Losses

The provision for credit losses, ~~was $35 million for the three months ended September 30, 2019, compared to no provision for the three months ended September 30, 2018. The provision for credit losses~~which includes ~~both~~ the provision for loan losses and the provision for credit losses on lending-related commitments. The provision for loan losses is recorded to maintain the allowance for loan losses at the level deemed appropriate by the Corporation to cover probable credit losses inherent in the portfolio and includes qualitative adjustments for factors that have not been fully accounted for in the quantitative reserve calculations. The provision for credit losses on lending-related commitments, is recorded to maintain the allowance for credit losses on lending-related commitments at the level deemed appropriate by the Corporation to cover probable credit losses inherent in lending-related commitments.

~~The provision for loan losses increased $36 million to $37~~was $138 million for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to $1$44 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase in the~~ provision ~~resulted primarily from loan growth and increased Energy reserves. Net loan charge-offs were $42 million~~for credit losses for the three months ended ~~September~~June 30, ~~2019 compared~~2020, which was calculated under the CECL model, increased primarily due to ~~$15~~the forecasted impact of the COVID-19 pandemic, including the economic impacts of social distancing, and sustained pressures on the Energy portfolio. Net loan charge-offs increased $17 million to $50 million, or 0.37 percent of average total loans for the three months ended ~~September~~June 30, ~~2018. The increase in net charge-offs was driven by a $34~~2020, compared to $33 million, ~~increase in Energy, primarily due to continued declines in valuation~~or 0.26 percent of ~~select energy assets.~~

~~The provision for credit losses on lending-related commitments decreased $1 million to a $2 million benefit~~average total loans for the three months ended ~~September~~June 30, ~~2019, compared to~~2019. The increase was driven by a ~~benefit~~$20 million increase in net charge-offs of ~~$1 million for the three months ended September 30, 2018. There were no lending-related commitment charge-offs in the three-month periods ended September 30, 2019 and 2018.~~Energy loans.

An analysis of the allowance for credit losses and a summary of nonperforming assets isare presented under the "Credit Risk" subheading in the "Risk Management" section of this financial review.

Further information about the adoption of CECL, which resulted in a $17 million decrease to the allowance for credit losses as of January 1, 2020, is presented in Note 1 to the consolidated financial statements.

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Noninterest Income


	Three Months Ended September 30,						Three Months Ended June 30,
(in millions)	2019		2018			(in millions)	2020		2019
Card fees	$	67	$	61		Card fees	$	68	$	65
Fiduciary income						Fiduciary income	52		52
Service charges on deposit accounts	51		53			Service charges on deposit accounts	42		51
Fiduciary income	53		51
Commercial lending fees	23		21			Commercial lending fees	17		21
Foreign exchange income	11		12			Foreign exchange income	9		11
Bank-owned life insurance						Bank-owned life insurance	9		11
Letter of credit fees	10		9			Letter of credit fees	9		10
Bank-owned life insurance	11		11
Brokerage fees	7		7			Brokerage fees	5		7
Net securities losses	—		(20		)
Net securities gains						Net securities gains	1		—
Other noninterest income (a)	23		29			Other noninterest income (a)	35		22
Total noninterest income	$	256	$	234		Total noninterest income	$	247	$	250


~~(a)~~	~~The table below provides further details on certain categories included in other noninterest income.~~

(a)The table below provides further details on certain categories included in other noninterest income.

Noninterest income ~~increased $22~~decreased $3 million to ~~$256 million. Excluding~~$247 million for the third quarter 2018 loss of $20 million related to securities repositioning, noninterest income increased $2 million, primarily reflecting increases in card fees, fiduciary income and commercial lending fees, partially offset by decreasesthree months ended June 30, 2020, including a reduction in service charges on deposit accounts ~~customer derivative income~~reflecting the impacts of social distancing, syndication agent fees (a component of commercial lending fees) and smaller decreases in other ~~categories.~~categories, partially offset by higher securities trading income and customer derivative income (both included in other noninterest income and detailed below), as well as an increase in card fees.

The following table presents certain categories included in other noninterest income on the Consolidated Statements of Comprehensive Income.


	Three Months Ended June 30,
(in millions)	2020		2019
Customer derivative income	$	10	$	6

Securities trading income	10		2
Investment banking fees	4		1
Deferred compensation asset returns (a)	2		—
Income from principal investing and warrants	—		2


All other noninterest income	9		11
Other noninterest income	$	35	$	22

Three Months Ended September 30,
(in millions) 2019 2018
Customer derivative income $ 6
$ 8
Income from principal investing and warrants 3
2
Investment banking fees 2
3
Deferred compensation asset returns (a) 3
3
Securities trading income 1
2
All other noninterest income 8
11
Other noninterest income $ 23
$ 29
(a) Compensation deferred by the Corporation's officers and directors is invested based on investment selections of the officers and directors. Income earned on these assets is reported in other noninterest income and the offsetting change in deferred compensation plan liabilities is reported in salaries and benefits expense.


~~(a)~~	Compensation deferred by the Corporation's officers and directors is invested based on investment selections of the officers and directors. Income earned on these assets is reported in other noninterest income and the offsetting change in deferred compensation plan liabilities is reported in salaries and benefits expense.

Noninterest Expenses


	Three Months Ended June 30,
(in millions)	2020		2019


Salaries and benefits expense	$	249	$	245
Outside processing fee expense (a)	62		65
Occupancy expense	37		37
Software expense (a)	39		28
Equipment expense	12		12
Advertising expense	8		9
FDIC insurance expense	8		6
Other noninterest expenses	25		22
Total noninterest expenses	$	440	$	424

Three Months Ended September 30,
(in millions) 2019 2018
Salaries and benefits expense $ 253
$ 254
Outside processing fee expense 66
65
Occupancy expense 39
38
Software expense 30
32
Equipment expense 13
12
FDIC insurance expense 6
11
Advertising expense 10
8
Restructuring charges —
12
Other noninterest expenses 18
20
Total noninterest expenses $ 435
$ 452

~~Noninterest expenses decreased $17~~(a) Amounts reported for the three months ended June 30, 2020 included an $8 million ~~to $435 million. Excluding $12 million of restructuring charges~~classification adjustment for costs incurred in ~~2018, noninterest expenses decreased $5 million, primarily reflecting a decrease in FDIC insurance~~cloud computing arrangements, reducing outside processing fee expense and increasing software expense due to the ~~discontinuance~~prospective adoption of ~~FDIC surcharges.~~ASU No. 2018-15, effective January 1, 2020.

~~Provision for Income Taxes~~

~~The provision for income taxes~~Noninterest expenses increased ~~$17~~$16 million to ~~$80~~$440 million. Excluding the $8 million classification adjustment for the prospective adoption of ASU No. 2018-15, the increase in noninterest expenses primarily reflected higher outside processing fee expense, salaries and benefits expense and software expense. The increase in salaries and benefits expense was ~~primarily due to an $18 million decrease in certain discrete tax benefits. Discrete tax benefits were $5 million in third quarter 2019, primarily resulting from state deferred tax adjustments,~~driven by annual merit increases and the payment of COVID-19-related stipends, partially offset by lower technology-related labor costs.

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Six Months Ended June 30, 2020 compared to ~~$23 million in third quarter 2018, resulting from a review of certain tax capitalization and recovery positions.~~

~~Nine~~Six Months Ended ~~September~~June 30, 2019 ~~compared to Nine Months Ended September 30, 2018~~

Analysis of Net Interest Income


	Six Months Ended
	June 30, 2020										June 30, 2019
(dollar amounts in millions)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Commercial loans (a)	$	32,321	$	585	3.64	%	$	32,037	$	799	5.03	%
Real estate construction loans	3,725		78		4.19		3,279		93		5.74
Commercial mortgage loans	9,719		177		3.66		9,028		230		5.13
Lease financing	587		10		3.49		533		8		3.08
International loans	1,071		21		3.96		1,019		27		5.33
Residential mortgage loans	1,875		34		3.58		1,954		38		3.89
Consumer loans	2,253		46		4.12		2,473		61		5.00
Total loans (b)	51,551		951		3.71		50,323		1,256		5.03
Mortgage-backed securities	9,649		114		2.40		9,275		114		2.43
Other investment securities	2,837		34		2.47		2,748		33		2.40
Total investment securities	12,486		148		2.42		12,023		147		2.42
Interest-bearing deposits with banks	7,558		20		0.55		2,773		33		2.38
Other short-term investments	147		1		0.80		138		1		1.34
Total earning assets	71,742		1,120		3.15		65,257		1,437		4.43
Cash and due from banks	843						912
Allowance for loan losses	(812)						(666)
Accrued income and other assets	5,681						5,012
Total assets	$	77,454					$	70,515
Money market and interest-bearing checking deposits	$	25,486	57		0.45		$	22,763	100		0.88
Savings deposits	2,298		—		0.04		2,169		—		0.04
Customer certificates of deposit	2,900		19		1.32		2,258		11		0.96
Other time deposits	35		—		2.00		661		8		2.45
Foreign office time deposits	82		—		0.82		13		—		1.54
Total interest-bearing deposits	30,801		76		0.50		27,864		119		0.86
Short-term borrowings	519		1		0.34		576		7		2.45
Medium- and long-term debt	7,266		59		1.63		6,703		102		3.07
Total interest-bearing sources	38,586		136		0.71		35,143		228		1.30
Noninterest-bearing deposits	29,723						26,634
Accrued expenses and other liabilities	1,630						1,367
Total shareholders’ equity	7,515						7,371
Total liabilities and shareholders’ equity	$	77,454					$	70,515
Net interest income/rate spread			$	984	2.44				$	1,209	3.13
Impact of net noninterest-bearing sources of funds					0.33						0.60
Net interest margin (as a percentage of average earning assets)					2.77	%					3.73	%

(a) Includes hedge income (losses) of $22 million and $(1) million for the six months ended June 30, 2020 and 2019, respectively.

(b)Nonaccrual loans are included in average balances reported and in the calculation of average rates.

Nine Months Ended
September 30, 2019 September 30, 2018
(dollar amounts in millions) Average
Balance Interest Average
Rate Average
Balance Interest Average
Rate
Commercial loans $ 32,135
$ 1,191
4.97 % $ 30,494
$ 1,037
4.54 %
Real estate construction loans 3,301
140
5.67
3,152
120
5.08
Commercial mortgage loans 9,108
342
5.02
9,158
315
4.61
Lease financing 548
14
3.34
462
13
3.85
International loans 1,015
40
5.26
1,017
37
4.88
Residential mortgage loans 1,943
56
3.87
1,988
56
3.76
Consumer loans 2,464
92
4.98
2,473
80
4.32
Total loans (a) 50,514
1,875
4.96
48,744
1,658
4.55

Mortgage-backed securities 9,320
172
2.44
9,109
158
2.25
Other investment securities 2,764
50
2.42
2,714
36
1.72
Total investment securities 12,084
222
2.43
11,823
194
2.13

Interest-bearing deposits with banks 2,866
49
2.29
4,625
63
1.82
Other short-term investments 140
2
1.32
134
—
0.90
Total earning assets 65,604
2,148
4.37
65,326
1,915
3.91

Cash and due from banks 896
1,200

Allowance for loan losses (668 ) (702 )
Accrued income and other assets 5,095
4,865

Total assets $ 70,927
$ 70,689

Money market and interest-bearing checking deposits $ 23,006
157
0.91
$ 22,219
72
0.43
Savings deposits 2,164
1
0.04
2,205
1
0.04
Customer certificates of deposit 2,383
19
1.09
2,090
6
0.40
Other time deposits 804
15
2.45
3
—
1.86
Foreign office time deposits 13
—
1.51
30
—
1.17
Total interest-bearing deposits 28,370
192
0.91
26,547
79
0.40

Short-term borrowings 472
9
2.43
59
1
1.81
Medium- and long-term debt 6,837
152
2.97
5,647
97
2.31
Total interest-bearing sources 35,679
353
1.32
32,253
177
0.74

Noninterest-bearing deposits 26,539
29,457

Accrued expenses and other liabilities 1,377
1,072

Total shareholders’ equity 7,332
7,907

Total liabilities and shareholders’ equity $ 70,927
$ 70,689

Net interest income/rate spread $ 1,795
3.05
$ 1,738
3.17

Impact of net noninterest-bearing sources of funds 0.60
0.37
Net interest margin (as a percentage of average earning assets) 3.65 % 3.54 %

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~~(a)~~	~~Nonaccrual loans are included in average balances reported and in the calculation of average rates.~~

Rate/Volume Analysis


	Six Months Ended
	June 30, 2020/June 30, 2019
(in millions)	Decrease Due to Rate		Increase Due to Volume (a)		Net (Decrease) Increase
Interest Income:
Loans	$	(329)	$	24	$	(305)
Investment securities	—		1		1
Interest-bearing deposits with banks	(26)		13		(13)

Total interest income	(355)		38		(317)
Interest Expense:
Interest-bearing deposits	(47)		4		(43)
Short-term borrowings	(6)		—		(6)
Medium- and long-term debt	(46)		3		(43)
Total interest expense	(99)		7		(92)
Net interest income	$	(256)	$	31	$	(225)

Nine Months Ended
September 30, 2019/September 30, 2018
(in millions) Increase Due to Rate Increase (Decrease) Due to Volume (a) Net Increase (Decrease)
Interest Income:
Loans $ 153
$ 64
$ 217

Investment securities 24
4
28

Interest-bearing deposits with banks 16
(30 ) (14 )
Other short-term investments 1
1
2

Total interest income 194
39
233

Interest Expense:
Interest-bearing deposits 96
17
113

Short-term borrowings —
8
8

Medium- and long-term debt 24
31
55

Total interest expense 120
56
176

Net interest income $ 74
$ (17 ) $ 57

(a)Rate/volume variances are allocated to variances due to volume.


~~(a)~~	~~Rate/volume variances are allocated to variances due to volume.~~

Net interest income was ~~$1.8~~$984 million for the six months ended June 30, 2020, a decrease of $225 million compared to $1.2 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2019, an increase~~2019. Net interest margin was 2.77 percent for the six months ended June 30, 2020, a decrease of ~~$57 million~~96 basis points compared to $1.7 billion for the nine months ended September 30, 2018. The increase in net interest income primarily reflected a net benefit from higher rates and an increase in loan balances, partially offset by lower balances deposited with the FRB (included in interest-bearing deposits with banks) as well as higher balances in interest-bearing sources of funds. The net interest margin for the nine months ended September 30, 2019 increased 11 basis points to 3.65 percent from 3.543.73 percent for the comparable period in ~~2018, primarily reflecting the net benefit from higher rates, higher loan balances and a~~2019. The decrease in ~~lower-yielding FRB deposit balances,~~net interest income and margin reflected the impact of lower short-term rates partially offset by ~~higher balances~~the impact of a $1.2 billion increase in average loans, primarily from ~~interest-bearing sources.~~PPP loans.

For further discussion of the effects of market rates on net interest income, refer to the "Market and Liquidity Risk" section of this financial review.

Provision for Credit Losses

The provision for credit losses, which includes both the provision for loan losses and the provision for credit losses on lending-related commitments, was ~~$66~~$549 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~a benefit of $17~~$31 million for the ~~nine~~six months ended ~~September~~June 30, 2018. The provision for loan losses was $67 million for the nine months ended September 30, 2019, compared to a benefit of $8 million for the nine months ended September 30, 2018. The increase in the provision primarily reflected an increase in Energy reserves. Net loan charge-offs increased $46 million to $86 million for the nine months ended September 30, 2019, compared to $40 million for the nine months ended September 30, 2018. The increase in net charge-offs was driven by a $61 million increase in Energy.

2019. The provision for credit losses for the six months ended June 30, 2020, which was calculated under the CECL model, increased primarily due to the forecasted impact of the COVID-19 pandemic, including the economic impacts of social distancing, and sustained pressures on ~~lending-related commitments~~the Energy portfolio. Net loan charge-offs increased $8$90 million to ~~a $1 million benefit for the nine months ended September 30, 2019 compared to a benefit of $9~~$134 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018. The increase primarily reflected~~2020, compared to $44 million for the ~~impact of a larger benefit in 2018~~six months ended June 30, 2019, driven by a ~~decrease~~$79 million increase in net charge-offs of Energy ~~commitments. There were no lending-related commitment charge-offs for the nine months ended September 30, 2019 and 2018.~~loans.

An analysis of the allowance for credit losses and nonperforming assets is presented under the "Credit Risk" subheading in the "Risk Management" section of this financial review.

Noninterest Income


	Six Months Ended June 30,
(in millions)	2020		2019
Card fees	$	127	$	128
Fiduciary income	106		101
Service charges on deposit accounts	91		102
Commercial lending fees	34		43
Foreign exchange income	20		22
Bank-owned life insurance	21		20
Letter of credit fees	18		19
Brokerage fees	12		14
Net securities losses	—		(8)
Other noninterest income (a)	55		47
Total noninterest income	$	484	$	488

~~Noninterest Income~~(a)

The table below provides further details on certain categories included in other noninterest income.

Nine Months Ended September 30,
(in millions) 2019 2018
Card fees $ 195
$ 180
Service charges on deposit accounts 153
160
Fiduciary income 154
155
Commercial lending fees 66
62
Foreign exchange income 33
36
Letter of credit fees 29
30
Bank-owned life insurance 31
29
Brokerage fees 21
20
Net securities losses (8 ) (19 )
Other noninterest income (a) 70
73
Total noninterest income $ 744
$ 726


~~(a)~~	~~The table below provides further details on certain categories included in other noninterest income.~~

Noninterest income ~~increased $18~~decreased $4 million to ~~$744 million. Excluding losses of $8~~$484 million, and $20 million related to securities repositioning in the nine months ended September 30, 2019 and 2018, respectively, noninterest income increased $6 million, primarily reflecting increases in card fees and commercial lending fees, partially offset byincluding a ~~decrease~~reduction in service charges on deposit ~~accounts.~~accounts and syndication agent fees (included in commercial lending fees), as well as smaller decreases in other categories. These declines were partially offset by higher fiduciary income as well as increases included in other noninterest income and detailed

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below, primarily in securities trading income, customer derivative income, investment banking fees, and the impact of losses related to securities repositioning during the six-month period ended June 30, 2019.

The following table presents certain categories included in other noninterest income on the Consolidated Statements of Comprehensive Income.


	Six Months Ended June 30,
(in millions)	2020		2019
Customer derivative income (a)	$	19	$	13

Securities trading income	12		4
Investment banking fees	7		3
Income from principal investing and warrants	—		3


Deferred compensation asset returns (b)	(1)		2
All other noninterest income	18		22
Other noninterest income	$	55	$	47

Nine Months Ended September 30,
(in millions) 2019 2018
Customer derivative income $ 19
$ 18
Income from principal investing and warrants 6
3
Investment banking fees 5
7
Deferred compensation asset returns (a) 5
5
Securities trading income 5
6
All other noninterest income 30
34
Other noninterest income $ 70
$ 73
(a)Customer derivative income included unfavorable valuation adjustments of $16 million and $5 million for the six months ended June 30, 2020 and 2019, respectively.


~~(a)~~	Compensation deferred by the Corporation's officers and directors is invested based on investment selections of the officers and directors. Income earned on these assets is reported in other noninterest income and the offsetting change in deferred compensation plan liabilities is reported in salaries and benefits expense.

(b) Compensation deferred by the Corporation's officers and directors is invested based on investment selections of the officers and directors. Income earned on these assets is reported in other noninterest income and the offsetting change in deferred compensation plan liabilities is reported in salaries and benefits expense.

Noninterest Expenses


	Six Months Ended June 30,
(in millions)	2020		2019


Salaries and benefits expense	$	491	$	510
Outside processing fee expense (a)	119		128
Occupancy expense	74		74
Software expense (a)	76		57
Equipment expense	24		24
Advertising expense	15		14
FDIC insurance expense	16		11
Other noninterest expenses	50		39
Total noninterest expenses	$	865	$	857

Nine Months Ended September 30,
(in millions) 2019 2018
Salaries and benefits expense $ 763
$ 759
Outside processing fee expense 194
190
Occupancy expense 113
113
Software expense 87
95
Equipment expense 37
34
FDIC insurance expense 17
36
Advertising expense 24
22
Restructuring charges —
39
Other noninterest expenses 57
58
Total noninterest expenses $ 1,292
$ 1,346
(a) Amounts reported for the six months ended June 30, 2020 included a $15 million classification adjustment for costs incurred in cloud computing arrangements, reducing outside processing fee expense and increasing software expense due to the prospective adoption of ASU No. 2018-15, effective January 1, 2020.

Noninterest expenses ~~decreased $54~~increased $8 million to ~~$1.3 billion.~~$865 million. Excluding ~~$39~~the $15 million classification adjustment for the prospective adoption of ~~restructuring charges completed~~ASU No. 2018-15, the increase in ~~2018,~~ noninterest expenses ~~decreased $15 million,~~ primarily ~~reflecting decreases~~reflected higher operational losses (included in other noninterest expenses), outside processing fee expense and FDIC insurance ~~and software expenses,~~expense, partially offset by ~~increases~~a decrease in salaries and benefits expense. The decline in salaries and benefits expense included lower incentive and ~~outside processing fee expense.~~annual stock-based compensation, as well as a reduction in technology-related contingent labor costs, partially offset by annual merit increases and the payment of COVID-19-related stipends.

~~Provision for Income Taxes~~

~~The provision for income taxes increased $42 million to $252 million, primarily due to a $32 million decrease in discrete tax benefits and an increase in pre-tax income.~~

STRATEGIC LINES OF BUSINESS AND MARKETS

The Corporation has strategically aligned its operations into three major business segments: the ~~Business~~Commercial Bank, the Retail Bank and Wealth Management. These business segments are differentiated based on the type of customer and the related products and services provided. In addition to the three major business segments, the Finance Division is also reported as a segment. The Other category includes items not directly associated with these business segments or the Finance segment. The performance of the business segments is not comparable with the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Market segment results are also provided for the Corporation's three primary geographic markets: Michigan, California and Texas. In addition to the three primary geographic markets, Other Markets is also reported as a market segment. Note 13 to the consolidated financial statements describes the business activities of each business segment and presents financial results of ~~these~~the business and market segments for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

The Corporation's management accounting system assigns balance sheet and income statement items to each segment using certain methodologies, which are regularly reviewed and refined. These methodologies may be modified as the management accounting system is enhanced and changes occur in the organizational structure and/or product lines. Note 2322 to

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the consolidated financial statements in the Corporation's ~~2018~~2019 Annual Report describes the Corporation's segment reporting methodology.

Net interest income for each segment reflects the interest income generated by earning assets less interest expense on interest-bearing liabilities plus the net impact from associated internal funds transfer pricing (FTP). The FTP methodology allocates credits to each business segment for deposits and other funds provided as well as charges for loans and other assets being funded. FTP crediting rates for deposits and other funds provided reflect the long-term value of deposits and other funding sources based on their implied maturities. FTP charge rates for funding loans and other assets reflect a matched cost of funds based on the pricing and duration characteristics of the assets. Therefore, net interest income for each segment primarily reflects the volume and associated FTP impacts of loan and deposit levels. As overall ~~market~~interest rates ~~increased,~~decreased, business segments, particularly those focused on generating deposits, ~~benefited from higher~~were impacted by lower FTP crediting rates on deposits in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in the prior year. Similarly, FTP charges for funding loans ~~increased~~decreased in the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to the same period in the prior year. Effective January 1, 2019, the Corporation prospectively discontinued allocating an additional FTP charge for the cost of maintaining liquid assets to support potential draws on unfunded loan commitments.

Business Segments

The following sections present a summary of the performance of each of the Corporation's business ~~and market~~ segments for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in the prior year.

~~Business Segments~~Commercial Bank


	Six Months Ended								Percent Change
(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change
Earnings summary:
Net interest income	$	782	$	832	$	(50)	(6)	%
Provision for credit losses	513		46		467		n/m
Noninterest income	271		272		(1)		(1)
Noninterest expenses	401		393		8		2
Provision for income taxes	27		153		(126)		(82)
Net income	$	112	$	512	$	(400)	(78)	%
Net credit-related charge-offs	$	131	$	47	$	84	n/m

Selected average balances:
Loans	$	44,253	$	43,241	$	1,012	2	%
Deposits	33,274		28,356		4,918		17

n/m - not meaningful

The ~~following table presents net income (loss)~~$1.0 billion increase in average loans reflected growth in Commercial Real Estate, Mortgage Banker Finance, Corporate Banking and Environmental Services, partially offset by ~~business segment.~~

Nine Months Ended September 30,
(dollar amounts in millions) 2019 2018
Business Bank $ 760
80 % $ 755
85 %
Retail Bank 72
8
42
5
Wealth Management 111
12
89
10
943
100 % 886
100 %
Finance (a) (30 ) (5 )
Other (b) 16
44

Total $ 929
$ 925


~~(a)~~	~~Included losses, net of tax, of $6 million and $15 million for the nine months ended September 30, 2019 and 2018, respectively, due to repositioning the securities portfolio~~


~~(b)~~	~~Included discrete tax benefits of $16 million and $48 million for the nine months ended September 30, 2019 and 2018, respectively.~~

decreases in National Dealer Services and Energy. Average PPP loans totaled $1.0 billion. Average deposits increased $4.9 billion, reflecting increases in all deposit categories due to increased liquidity in the banking system from stimulus programs. The ~~Business~~Commercial Bank's net income ~~increased~~ $5decreased $400 million to ~~$760~~$112 million. ~~Average loans increased $1.9 billion and average deposits decreased $1.6 billion.~~ Net interest income ~~increased $52~~decreased $50 million to ~~$1.3 billion. An increase~~$782 million, due to a $293 million decrease in loan interest income, ~~of $196 million was~~ partially offset by ~~increases~~decreases of ~~$96~~$220 million in allocated net FTP charges and ~~$48~~$23 million in deposit costs. The provision for credit losses increased ~~$94~~$467 million to ~~$85~~$513 million ~~from a benefit~~primarily due to the forecasted impact of $9the COVID-19 pandemic, including the economic impacts of social distancing and sustained pressures on the Energy portfolio, while net credit-related charge-offs increased $84 million to $131 million, primarily due to Energy net charge-offs of $112 million. Noninterest income was stable, while noninterest expenses increased $8 million, primarily reflecting ~~loan growth and an~~a $4 million increase in Energy reserves. Net credit-related charge-offs increased $50 million to $90 million, primarily reflecting an increase in Energy. Noninterest income increased $9 million, primarily reflecting increases of $13 million in cardtransfer charges as well as higher operational losses, legal fees and $4 million in commercial lending fees, partially offset by decreases of $4 million each in service charges on deposit accounts and investment banking fees. Excluding restructuring charges of $23 million in the nine months ended September 30, 2018, noninterest expenses decreased $20 million, primarily reflecting decreases of $13 million each in corporate overhead and FDIC insuranceoutside processing fee expense, partially offset by ~~an increase~~lower incentive and stock-based compensation.

Table of $4Contents

Retail Bank


	Six Months Ended								Percent Change
(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change
Earnings summary:
Net interest income	$	245	$	292	$	(47)	(16)	%
Provision for credit losses	8		(3)		11		n/m
Noninterest income	52		64		(12)		(17)
Noninterest expenses	304		292		12		4
(Benefit) provision for income taxes	(4)		16		(20)		n/m
Net (loss) income	$	(11)	$	51	$	(62)	n/m
Net credit-related charge-offs	$	2	$	—	$	2	n/m

Selected average balances:
Loans	$	2,277	$	2,105	$	172	8	%
Deposits	21,921		20,560		1,361		7

n/m - not meaningful

Average loans increased $172 million ~~in outside processing fee expense and smaller~~due to loans to small businesses, including PPP. Average deposits increased $1.4 billion, reflecting increases in ~~other~~all deposit categories.

The Retail Bank's net income ~~increased $30~~decreased $62 million to ~~$72~~a net loss of $11 million. Net interest income ~~increased $32~~decreased $47 million to ~~$434 million. Increases~~$245 million, due to decreases of ~~$57~~$40 million in allocated net FTP credits and ~~$10~~$8 million in loan income, ~~were~~ partially offset by a ~~$35~~$1 million ~~increase~~decrease in deposit costs. The provision for credit losses increased $11 million from a benefit of $3 million. Noninterest income decreased $12 million, including a $7 million decrease in service charges on deposit accounts. Noninterest expenses increased $12 million, which included a $7 million increase in operational losses.

Wealth Management


	Six Months Ended								Percent Change
(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change
Earnings summary:
Net interest income	$	81	$	93	$	(12)	(13)	%
Provision for credit losses	28		(10)		38		n/m
Noninterest income	136		132		4		3
Noninterest expenses	145		139		6		5
Provision for income taxes	9		23		(14)		(59)
Net income	$	35	$	73	$	(38)	(53)	%
Net credit-related charge-offs (recoveries)	$	1	$	(3)	$	4	n/m

Selected average balances:
Loans	$	5,007	$	4,983	$	24	—	%
Deposits	4,120		3,770		350		9

n/m - not meaningful

Average loans remained relatively stable at $5.0 billion. Average deposits increased $350 million, reflecting increases in all deposit categories. Wealth Management's net income decreased $38 million to $35 million. Net interest income decreased $12 million to $81 million, due to a $27 million decrease in loan income, partially offset by decreases of $12 million in allocated net FTP charges and $3 million in deposit costs. The provision for credit losses increased $38 million from a benefit of $10 million. Noninterest income increased $4 million, primarily due to increased fiduciary income, while noninterest expenses increased $6 million, primarily reflecting increases of $5 million in salaries and benefits expense and $3 million in software expense.

Market Segments

The following sections present a summary of the performance of each of the Corporation's market segments for the six months ended June 30, 2020 compared to the same period in the prior year.

Table of Contents

Michigan


	Six Months Ended								Percent Change
(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change
Earnings summary:
Net interest income	$	322	$	373	$	(51)	(13)	%
Provision for credit losses	64		(5)		69		n/m
Noninterest income	136		144		(8)		(6)
Noninterest expenses	279		273		6		2
Provision for income taxes	23		56		(33)		(59)
Net income	$	92	$	193	$	(101)	(52)	%
Net credit-related charge-offs	$	3	$	4	$	(1)	(26)	%

Selected average balances:
Loans	$	12,601	$	12,631	$	(30)	—	%
Deposits	22,104		19,854		2,250		11

n/m - not meaningful

Average loans were relatively stable at $12.6 billion and included loans to middle market and small businesses, including PPP loans. Average deposits increased $2.3 billion, reflecting increases in all deposit categories due to increased liquidity in the banking system from stimulus programs. The Michigan market's net income decreased $101 million to $92 million. Net interest income decreased $51 million to $322 million, due to an $84 million decrease in loan income, partially offset by a $27 million increase in allocated net FTP credits and a $6 million decrease in deposit costs. The provision for credit losses increased $69 million from a benefit of $5 ~~million.~~million, primarily reflecting increases in general Middle Market and Business Banking. Noninterest income decreased $8 million, including a $5 million ~~primarily reflecting a~~ decrease ~~of $2 million~~ in service charges on deposit accounts and ~~smaller decreases~~a $3 million decline in ~~other~~card fees. Noninterest expenses increased $6 million, including a $3 million increase in operational losses.

California


	Six Months Ended								Percent Change
(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change
Earnings summary:
Net interest income	$	358	$	411	$	(53)	(13)	%
Provision for credit losses	102		(5)		107		n/m
Noninterest income	72		80		(8)		(10)
Noninterest expenses	201		199		2		1
Provision for income taxes	30		76		(46)		(60)
Net income	$	97	$	221	$	(124)	(56)	%
Net credit-related charge-offs	$	15	$	4	$	11	n/m

Selected average balances:
Loans	$	18,346	$	18,730	$	(384)	(2)	%
Deposits	17,965		16,276		1,689		10

n/m - not meaningful

Average loans decreased $384 million, primarily reflecting a decrease in National Dealer Services. Average deposits increased $1.7 billion, reflecting increases in all deposit categories. ~~Excluding restructuring charges of $11 million in the nine months ended September 30, 2018, noninterest expenses were stable.~~

~~Wealth Management's~~The California market's net income ~~increased $22~~decreased $124 million to ~~$111~~$97 million. Net interest income ~~increased $7~~decreased $53 million to ~~$140 million.~~$358 million, due to a $138 million decrease in loan income, partially offset by decreases of $72 million in allocated net FTP charges and $13 million in deposit costs. The provision for credit losses ~~was impacted by an $11~~increased $107 million ~~increase in provision~~from a benefit ~~to $13 million. Net credit-related recoveries increased $5 million. Noninterest income was stable. Excluding restructuring charges~~ of ~~$5 million in the nine months ended September 30, 2018, noninterest expenses decreased~~ $5 million, primarily reflecting ~~a $6~~increases in general Middle Market, Commercial Real Estate and Private Banking. Net credit-related charge-offs increased $11 million ~~decrease~~to $15 million, primarily reflecting increases in ~~salaries~~Technology and ~~benefits expense~~Life Sciences, Private Banking and ~~smaller decreases~~general Middle Market. Noninterest income decreased $8 million, including declines in ~~other categories,~~card fees and commercial lending fees, while noninterest expenses were relatively stable.

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Texas


	Six Months Ended								Percent Change
(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change
Earnings summary:
Net interest income	$	231	$	248	$	(17)	(7)	%
Provision for credit losses	321		38		283		n/m
Noninterest income	60		66		(6)		(8)
Noninterest expenses	175		169		6		4
(Benefit) provision for income taxes	(46)		25		(71)		n/m
Net (loss) income	$	(159)	$	82	$	(241)	n/m
Net credit-related charge-offs	$	116	$	39	$	77	n/m

Selected average balances:
Loans	$	10,870	$	10,474	$	396	4	%
Deposits	9,705		8,682		1,023		12

n/m - not meaningful

Average loans increased $396 million, primarily reflecting increases in Commercial Real Estate and Corporate Banking, partially offset by ~~a $2 million increase~~decreases in ~~outside processing fee expense.~~

Energy and National Dealer Services. Average deposits increased $1.0 billion, reflecting increases in all deposit categories. The ~~Finance segment's~~Texas market's net income decreased ~~$25~~$241 million to a net loss of ~~$30~~$159 million. Net interest ~~expense increased $40~~income decreased $17 million to ~~$77~~$231 million, due to a $67 million decrease in loan income, partially offset by decreases of $48 million in allocated net FTP charges and $2 million in deposit costs. The provision for credit losses increased $283 million, primarily reflecting an increase in ~~other time deposits~~Energy, while net credit-related charge-offs included $112 million in Energy net charge-offs. Noninterest income decreased $6 million, primarily reflecting lower service charges on deposit accounts and ~~higher levels~~commercial lending fees. Noninterest expenses increased $6 million, primarily due to increases of ~~wholesale funding,~~$3 million in transfer charges and $2 million in operational losses.

Other Markets


	Six Months Ended								Percent Change
(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change
Earnings summary:
Net interest income	$	197	$	185	$	12	6	%
Provision for credit losses	62		5		57		n/m
Noninterest income	191		178		13		7
Noninterest expenses	195		183		12		7
Provision for income taxes	25		35		(10)		(28)
Net income	$	106	$	140	$	(34)	(24)	%
Net credit-related recoveries	$	—	$	(3)	$	3	n/m

Selected average balances:
Loans	$	9,735	$	8,494	$	1,241	15	%
Deposits	9,541		7,874		1,667		21

n/m - not meaningful

Average loans increased $1.2 billion, primarily reflecting increases in general Middle Market and Mortgage Banker Finance, partially offset by ~~an increase~~a decrease in National Dealer Services. Average deposits increased $1.7 billion, including increases in noninterest-bearing and relationship-based interest-bearing deposits. Other Markets' net income decreased $34 million to $106 million. Net interest income increased $12 million to $197 million due to decreases of $46 million in allocated net FTP charges and $6 million in deposit costs, partially offset by a $40 million decrease in loan income. The provision for credit losses increased $57 million to $62 million, primarily reflecting increases in Corporate Banking and Environmental Services. Noninterest income increased $13 million, including $5 million increases in securities trading income and card fees as well as higher fiduciary income. Noninterest expenses increased $12 million, primarily reflecting increases of $6 million in operational losses and $4 million in software expense.

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Finance & Other


	Six Months Ended								Percent Change
(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change
Earnings summary:
Net interest income	$	(124)	$	(8)	$	(116)	n/m
Provision for credit losses	—		(2)		2		n/m
Noninterest income	25		20		5		25
Noninterest expenses	15		33		(18)		(54)
Benefit for income taxes	(26)		(20)		(6)		31
Net (loss) income	$	(88)	$	1	$	(89)	n/m

Selected average balances:
Loans	$	(1)	$	(6)	$	5	(73)	%
Deposits	1,209		1,812		(603)		(33)

n/m - not meaningful

Average deposits decreased $603 million, primarily reflecting a decrease in other time deposits. Net income for the Finance & Other category decreased $89 million to a net loss of $88 million, from net income of $1 million. Net interest income decreased $116 million, primarily reflecting a decrease in net FTP revenue as a result of ~~higher~~lower rates charged to the business segments under the Corporation's internal FTP ~~methodology. Net income also benefited from a $12 million decrease in losses related to securities repositioning.~~

~~Market Segments~~

~~The following table presents net income by market segment.~~

Nine Months Ended September 30,
(dollar amounts in millions) 2019 2018
Michigan $ 286
30 % $ 225
25 %
California 334
36
297
34
Texas 96
10
163
18
Other Markets 227
24
201
23
943
100 % 886
100 %
Finance & Other (a) (14 ) 39

Total $ 929
$ 925


~~(a)~~	Included discrete tax benefits of $16 million and $48 million for the nine months ended September 30, 2019 and 2018, respectively, as well as losses, net of tax, of $6 million and $15 million for the nine months ended September 30, 2019 and 2018, respectively, due to repositioning the securities portfolio.

The Michigan market's net income increased $61 million to $286 million. Average loans remained stable and average deposits decreased $988 million. Net interest income increased $17 million to $557 million. Increases of $40 million in loan income and $14 million in allocated net FTP credits were partially offset by a $37 million increase in deposit costs. The provision for credit losses decreased $44 million to a benefit of $6 million, primarily reflecting decreases in general Middle Market, National Dealer Services and Small Business. Net credit-related charge-offs increased $3 million to $10 million. Noninterest income decreased $4 million, primarily reflecting a $3 million decrease in service charges on deposit accounts and smaller decreases in other categories, partially offset by a $2 million increase in card fees. Excluding restructuring charges of $12 million in the nine months ended September 30, 2018, noninterest expenses decreased $8 million, primarily reflecting decreases of $6 million in FDIC insurance expense and $4 million in corporate overhead.

The California market's net income increased $37 million to $334 million. Average loans increased $411 million and average deposits decreased $442 million. Net interest income increased $34 million to $616 million. An increase in loan income of $79 million was partially offset by increases of $34 million in deposit costs and $11 million in allocated net FTP charges. The provision for credit losses was impacted by a $3 million increase in provision benefit to $11 million, primarily reflecting increases in Corporate Banking and Entertainment, offset by decreases in Technology and Life Sciences as well as Private Banking. Net credit-related charge-offs decreased $9 million to $9 million, primarily reflecting a decrease in general Middle Market. Noninterest income decreased $3 million, primarily reflecting a $4 million decrease in customer derivative income. Excluding restructuring charges of $11 million in the nine months ended September 30, 2018, noninterest expenses decreased $4 million, primarily reflecting a $6 million decrease in FDIC insurance expense, partially offset by smaller increases in other categories.

The Texas market's net income decreased $67 million to $96 million. Average loans increased $797 million and average deposits decreased $326 million. Net interest income increased $19 million to $372 million. An increase in loan income of $57 million was partially offset by increases of $26 million in allocated net FTP charges and $12 million in deposit costs. The provision for credit losses increased $125 million to $88 million from a benefit of $37 million, primarily reflecting an increase in Energy, partially offset by decreases in general Middle Market as well as Technology and Life Sciences. Net credit-related charge-offs increased $62 million to $73 million, primarily reflecting an increase in Energy. Noninterest income increased $3 million, primarily due to increases of $4 million in customer derivative income and $3 million in commercial lending fees, partially offset by a $3 million decrease in investment banking fees. Excluding $11 million of restructuring charges in the nine months ended September 30, 2018, noninterest expenses decreased $7 million, primarily refle

~~cting decreases of $4 million in salaries and benefits expense and $3 million FDIC insurance expense.~~

Other Markets' net income increased $26 million to $227 million. Average loans increased $513 million and average deposits decreased $234 million. Net interest income increased $21 million to $281 million. An increase in loan income of $43 million was partially offset by increases of $14 million in allocated net FTP charges and $8 million in deposit costs. The provision for credit losses increased $2 million to a benefit of $4 million from a benefit of $6 million. Net credit-related charge-offs decreased $10 million to net recoveries of $6 million, primarily reflecting decreases in Small Business and Private Banking. Noninterest income increased $8 million due to an increase in card fees. Excluding $5 million of restructuring charges in the nine months ended September 30, 2018, noninterest expenses decreased $4 million, primarily due to lower FDIC insurance expense.

Net income for the Finance & Other category decreased $53 million to a net loss of $14 million from net income of $39 million. Net interest income decreased $34 million to a $31 million expense, primarily reflecting an increase in other time depositsmethodology and higher levels of wholesale ~~funding, partially offset~~funding. Noninterest expenses decreased $18 million, driven by an increase in net FTP revenue as a result of higher rates charged to the business segments under the Corporation's internal FTP methodology. Net income was also impacted by decreases in certain discrete taxlower salaries and benefits ~~of $32 million, partially offset by a $12 million decrease in losses related to securities repositioning.~~expense.

The following table lists the Corporation's banking centers by geographic market segment.


	June 30,
	2020	2019
Michigan	190	192
Texas	123	123
California	96	96
Other Markets	25	25



Total	434	436

September 30,
2019 2018
Michigan 192
193
Texas 123
121
California 96
96
Other Markets 25
25
Total 436
435

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FINANCIAL CONDITION

~~Third~~Second Quarter ~~2019~~2020 Compared to Fourth Quarter ~~2018~~2019

Period-End Balances

Total assets increased ~~$2.0~~$11.0 billion to ~~$72.8~~$84.4 billion, ~~driven by~~primarily due to increases of ~~$1.3 billion in loans and $739 million in other assets. Total liabilities increased $2.3 billion to $65.6 billion, primarily reflecting increases of $2.8~~$7.4 billion in interest-bearing deposits with banks and ~~$848 million~~$3.1 billion in ~~medium-~~loans. The growth in interest-bearing deposits with banks (primarily deposits with the Federal Reserve Bank) resulted from increased liquidity in the banking system from stimulus programs. The increase in loans reflected growth in Mortgage Banker Finance due to seasonality and ~~long-term debt,~~elevated refinancing activity as well as increases in Business Banking, Commercial Real Estate, general Middle Market, Retail Banking (small businesses) and Corporate Banking, partially offset by ~~a $1.6~~decreases in National Dealer Services and Equity Fund Services. At June 30, 2020, PPP loans totaled $3.8 billion, ~~decrease~~driving the growth in general Middle Market, Business Banking and Retail Banking (small businesses).

Total liabilities increased $10.5 billion to $76.6 billion, reflecting increases of $8.2 billion and $2.2 billion in noninterest-bearing ~~deposits. The increase~~and interest-bearing deposits, respectively, as customers conserved liquidity as described in medium- and long-term debt reflected issuances of $350 million in long-term notes in February 2019, $500 million in medium-term notes in July 2019 and $200 million in long-term notes in August 2019, partially offset by the maturity of $350 million of medium-term notes in May 2019. The decrease in noninterest-bearing deposits included a $1.2 billion decrease due to the timing of deposits funding a government card program which typically fund on the first day of each month. The January 2019 deposit was received on December 31, 2018 due to the New Year's holiday.asset discussion above. Total shareholders' equity ~~decreased $307~~increased $475 million, ~~to $7.2 billion. The decrease~~including net proceeds of $395 million from the issuance of preferred stock in shareholders' equity reflected the impact of $1.5 billion returned to shareholders through dividends and share repurchases, partially offset by total comprehensive income of $1.2 billion in the nine months ended September 30, 2019.

May 2020.

Average Balances

Total assets increased ~~$906 million~~$8.5 billion to ~~$71.7~~$81.6 billion, ~~driven by~~primarily due to increases of ~~$2.1~~$4.9 billion ~~in average loans and $430 million in average investment securities, partially offset by a $1.9 billion decrease~~ in interest-bearing deposits with ~~banks.~~banks and $3.0 billion in loans. The following table provides information about the change in the Corporation's average loan portfolio by loan type and geographic market.


	Three Months Ended								Percent Change
(average balances; dollar amounts in millions)	June 30, 2020		December 31, 2019		Change
By Loan Type:
Commercial loans (a)	$	33,944	$	31,808	$	2,136	7	%
Real estate construction loans	3,887		3,398		489		14
Commercial mortgage loans	9,800		9,356		444		5
Lease financing	592		586		6		1
International loans	1,137		1,030		107		10
Residential mortgage loans	1,895		1,887		8		—
Consumer loans	2,243		2,440		(197)		(8)
Total loans	$	53,498	$	50,505	$	2,993	6	%
Loans By Geographic Market:
Michigan	$	13,014	$	12,399	$	615	5	%
California	18,663		17,943		720		4
Texas	11,184		10,708		476		4
Other Markets and Finance	10,637		9,455		1,182		13
Total loans	$	53,498	$	50,505	$	2,993	6	%

Three Months Ended
Percent
Change
(average balances; dollar amounts in millions) September 30, 2019 December 31, 2018 Change
By Loan Type:
Commercial loans $ 32,329
$ 30,651
$ 1,678
5 %
Real estate construction loans 3,344
3,164
180
6
Commercial mortgage loans 9,264
9,051
213
2
Lease financing 578
495
83
17
International loans 1,007
1,035
(28 ) (3 )
Residential mortgage loans 1,920
1,968
(48 ) (2 )
Consumer loans 2,445
2,468
(23 ) (1 )
Total loans $ 50,887
$ 48,832
$ 2,055
4 %
Loans By Geographic Market:
Michigan $ 12,554
$ 12,457
$ 97
1 %
California 18,393
18,279
114
1
Texas 10,805
9,889
916
9
Other Markets 9,135
8,207
928
11
Total loans $ 50,887
$ 48,832
$ 2,055
4 %
(a)Includes PPP loans of $2.6 billion for the three months ended June 30, 2020.

The increase in loans ~~was largely attributed to increases~~reflected growth in Corporate Banking, Commercial Real Estate, general Middle Market, Mortgage Banker Finance ~~Energy~~(due to seasonality and elevated refinancing activity) and Business Banking, partially offset by a decrease in National Dealer Services and Energy. The average balance of PPP loans for the three months ended June 30, 2020 was $2.6 billion, driving the growth in general Middle ~~Market.~~Market and Business Banking.

Total liabilities increased ~~$1.2~~$8.1 billion ~~primarily due~~ to $74.1 billion, reflecting increases of ~~$680~~$5.7 billion and $1.4 billion in noninterest-bearing and interest-bearing deposits, respectively. Total shareholders' equity increased $355 million ~~in medium- and long-term debt and $308 million in accrued expenses and other liabilities. The increase in medium- and long-term debt was due~~ to $7.6 billion, resulting primarily from the same reasons as described in the ~~increase in~~ period-end ~~balances discussed above~~discussion above.

~~. The increase in accrued expenses and other liabilities is largely~~ ~~due to the recognition of a lease liability related to the adoption of ASC 842.~~

~~Total equity decreased $265 million to $7.3 billion, for the same reasons as the decrease in period-end balances discussed above.~~

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Capital

The following table presents a summary of changes in total shareholders' equity for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020.


(in millions)
Balance at January 1, 2020			$	7,327
Cumulative effect of change in accounting principle (a)			13
Net income			48
Cash dividends declared on common stock			(192)
Purchase of common stock			(194)
Issuance of preferred stock			395
Other comprehensive income:
Investment securities	$	218
Cash flow hedges	162
Defined benefit and other postretirement plans	13
Total other comprehensive income			393

Share-based compensation			12

Balance at June 30, 2020			$	7,802

(a)Effective January 1, 2020, the Corporation adopted the provisions of ASU No. 2016-13, "Financial Instruments - Credit Losses" (Topic 326). For further information, refer to Note 1 to the consolidated financial statements.

(in millions)

Balance at January 1, 2019 $ 7,507
Cumulative effect of change in accounting principle (14 )
Net income 929
Cash dividends declared on common stock (302 )
Purchase of common stock (1,229 )
Other comprehensive income:
Investment securities $ 211

Cash flow hedges 54

Defined benefit and other postretirement plans 8

Total other comprehensive income 273
Issuance of common stock under employee stock plans (1 )
Share-based compensation 37
Balance at September 30, 2019 $ 7,200

The following table summarizes the Corporation's repurchase activity during the six months ended June 30, 2020.



(shares in thousands)	Total Number of Shares Purchased as Part of Publicly Announced Repurchase Plans or Programs	Remaining Share Repurchase Authorization (a)	Total Number of Shares Purchased (b)	Average Price Paid Per Share



Total first quarter 2020	3,227	4,870	3,322	$	58.70
April 2020	—	4,870	6	28.63
May 2020	—	4,870	—	—
June 2020	—	4,870	—	—
Total second quarter 2020	—	4,870	6	28.62








Total 2020 year-to-date	3,227	4,870	3,328	58.65

(a)Maximum number of shares that may yet be purchased under the publicly announced plans or programs.

(b)Includes approximately 101,000 shares purchased pursuant to deferred compensation plans and shares purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee share-based compensation plan during the six months ended June 30, 2020. These transactions are not considered part of the Corporation's repurchase program.

In March 2020, the Corporation ~~expects~~suspended its share repurchase program, with a focus on deploying capital to meet customers' growing financing requirements, resulting in no share repurchases under the program during second quarter 2020. The Corporation will continue to ~~return capital to shareholders with a target~~assess the resumption of maintaining a common equity Tier 1 capital ratio of approximately 10 percent. At September 30, 2019, the Corporation's Tier 1 capital ratio was estimated to be 9.92 percent. The timing and ultimate amount of future distributions will berepurchases subject to various factors including financial performance, capital needs and market conditions.

~~The following table summarizes the Corporation's repurchase activity during the nine months ended September 30, 2019.~~

(shares in thousands) Total Number of Shares Purchased as
Part of Publicly Announced Repurchase Plans or Programs Remaining Share
Repurchase
Authorization (a) Total Number
of Shares
Purchased (b) Average Price
Paid Per
Share
Total first quarter 2019 5,094
14,613
5,216
$ 83.48
Total second quarter 2019 5,656
8,957
5,658
75.13
July 2019 1,292
7,665
1,295
71.74
August 2019 3,006
4,659
3,006
62.26
September 2019 1,436
3,223
1,438
62.77
Total third quarter 2019 5,734
3,223
5,739
64.53
Total 2019 year-to-date 16,484
3,223
16,613
74.09


~~(a)~~	~~Maximum number of shares that may yet be purchased under the publicly announced plans or programs.~~


~~(b)~~	Includes approximately 129,000 shares purchased pursuant to deferred compensation plans and shares purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee share-based compensation plan during the nine months ended September 30, 2019. These transactions are not considered part of the Corporation's repurchase program.

A Since its inception in 2010, a total of ~~80.2~~87.2 million shares have been authorized for ~~repurchase under the Corporation's share repurchase program since its inception in 2010.~~repurchase. There is no expiration date for the share repurchase program.

In May 2020, the Corporation issued $400 million of 5.625% non-cumulative perpetual preferred stock, which yielded $395 million in proceeds net of underwriting discounts and offering expenses. See Note 9 to the consolidated financial statements for further information about the terms of the preferred stock.

The Corporation is prepared to continue using capital and liquidity in a responsible way to assist customers impacted by the COVID-19 crisis with a target of attaining and maintaining a Common Equity Tier 1 (CET1) capital ratio of approximately 10 percent. At June 30, 2020, the Corporation's estimated CET1 capital ratio was 9.97 percent, a decrease of 16 thousand basis points compared to December 31, 2019. In 2020, the Corporation elected regulatory relief to defer the impact of adopting the CECL model for measuring credit losses on regulatory capital, which resulted in a cumulative 13-basis-point benefit to the estimated CET1 capital ratio at June 30, 2020. Also in 2020, the Corporation adopted capital rules issued by federal banking agencies that simplified certain regulatory capital rules, including the capital treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions and minority interests.

The following table presents the minimum ratios ~~required to be considered "adequately capitalized."~~required.

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Common equity tier 1 capital to risk-weighted assets

~~4.50~~4.5

Tier 1 capital to risk-weighted assets

~~6.00~~6.0

Total capital to risk-weighted assets

~~8.00~~8.0

Capital conservation buffer (a)

~~2.50~~2.5

Tier 1 capital to adjusted average assets (leverage ratio)

~~4.00~~4.0


~~(a)~~	In addition to the minimum risk-based capital requirements, the Corporation is required to maintain a minimum capital conservation buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses.

(a)In addition to the minimum risk-based capital requirements, the Corporation is required to maintain a minimum capital conservation buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses.

The Corporation's capital ratios exceeded minimum regulatory requirements as follows:


	June 30, 2020						December 31, 2019
(dollar amounts in millions)	Capital/Assets		Ratio		Capital/Assets		Ratio
Common equity tier 1 (a), (b)	$	6,698	9.97	%	$	6,919	10.13	%
Tier 1 risk-based (a), (b)	7,093		10.56		6,919		10.13
Total risk-based (a)	8,686		12.93		8,282		12.13
Leverage (a)	7,093		8.76		6,919		9.51
Common equity	7,407		8.78		7,327		9.98
Tangible common equity (b)	6,769		8.08		6,688		9.19
Risk-weighted assets (a)	67,156				68,273

September 30, 2019 December 31, 2018
(dollar amounts in millions) Capital/Assets Ratio Capital/Assets Ratio
Common equity tier 1 and tier 1 risk based (a) $ 6,892
9.92 % $ 7,470
11.14 %
Total risk-based (a) 8,271
11.91
8,855
13.21
Leverage (a) 6,892
9.61
7,470
10.51
Common equity 7,200
9.88
7,507
10.60
Tangible common equity (b) 6,561
9.09
6,866
9.78
Risk-weighted assets (a) 69,479
67,047

(a) June 30, 2020 capital, risk-weighted assets and ratios are estimated and reflect deferral of CECL model impact as calculated per regulatory guidance.


~~(a)~~	~~September 30, 2019 capital, risk-weighted assets and ratios are estimated.~~


~~(b)~~	~~See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.~~

(b) See Supplemental Financial Data section for reconciliations of non-GAAP financial measures and regulatory ratios.

RISK MANAGEMENT

The following updated information should be read in conjunction with the "Risk Management" section on pages ~~F-21~~F-20 through ~~F-34~~F-33 in the Corporation's ~~2018~~2019 Annual Report.

Credit Risk

Allowance for Credit Losses

The allowance for credit losses includes both the allowance for loan losses and the allowance for credit losses on lending-related commitments. Effective January 1, 2020, the allowance for credit losses reflected the adoption of Topic 326, which requires companies to estimate credit losses using the CECL framework. As a percentage of total loans, the allowance for credit losses was 1.99 percent at June 30, 2020, compared to 1.33 percent at December 31, 2019. Excluding $3.8 billion in PPP loans, which are guaranteed by the Small Business Administration, the allowance for credit losses was 2.15 percent of total loans at June 30, 2020. The allowance for credit losses covered 3.9 times and 3.3 times total nonperforming loans at June 30, 2020 and December 31, 2019, respectively.

At adoption on January 1, 2020, the scope and severity of the economic crisis resulting from the eventual COVID-19 pandemic were unknown. As such, the economic scenario used by the Corporation to develop its estimate of CECL as of the adoption date reflected a continued moderate U.S. economic expansion compared to 2019 levels and a stable interest rate environment, with the federal funds rate remaining in the 1.50- to 1.75-percent range. Other assumptions included resolution of trade tensions, a calmer global economy and a strong U.S. dollar, all of which supported modest industrial production growth and stable oil prices. The economic scenario also assumed strong labor market conditions to support the consumer sector. Management also considered the level of uncertainty regarding its economic assumptions as part of the qualitative adjustment. The adoption of CECL resulted in a $17 million day-one decrease in the allowance for credit losses, from $668 million at December 31, 2019 under the incurred loss model. See Note 1 to the consolidated financial statements for further information about the adoption of CECL.

The allowance for credit losses increased by $415 million from adoption date to $1.1 billion at June 30, 2020, primarily reflecting the economic impacts of the COVID-19 pandemic and the response by domestic and global governmental authorities, including quarantines and other social distancing policies aimed at fighting the spread of the virus. Energy markets, which were experiencing already reduced capital market activity prior to the pandemic, showed continued stress through the first half of 2020. The U.S. economy contracted into a recession with unusual speed and force, ending the longest expansionary period in U.S. history. The U.S. government and the Federal Reserve responded to the pandemic with unprecedented measures. In addition to the Federal Reserve reducing the target federal funds rate to zero to 0.25 percent, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that included an estimated $2 trillion stimulus package. During second quarter 2020, states across the U.S. began loosening social distancing policies, stimulating economic activity. While economic conditions showed signs of improvement toward the end of the second quarter 2020, there continues to be uncertainty regarding the impact to the U.S. economy from a secondary wave of COVID-19 cases as jurisdictions begin to reopen across the country and the mitigating impacts of government intervention. These developments shaped the 2-year

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reasonable and supportable forecast used by the Corporation in its calculation of the CECL estimate at June 30, 2020. After a sharp decline in GDP in second quarter 2020, the forecast reflects growth through the end of 2020, normalizing to historical growth rates by the end of the forecast period. Forecasts for other key economic variables, including the unemployment rate, oil prices and industrial production levels, are generally in line with GDP projections. Interest rates remain low, reflecting the Federal Reserve's expectation that rates will remain at current levels in the near-to mid-term, while corporate bond rates reflect decreasing default risk as the economy recovers. The following table summarizes the forecasts for the economic variables most impactful to the allowance for credit losses estimate at June 30, 2020.


Economic Variable			Base Forecast
Real GDP growth			Grows by 24 percent in third quarter 2020, normalizing into a long-term growth rate of 2 percent by the end of the forecast period.
Unemployment rate			Remaining above 10 percent through third quarter 2020, gradually decreasing to 7 percent by the end of the forecast period.
Corporate BBB bond to 10-year Treasury bond spreads			Third quarter 2020 spread of 3 percent reflects residual impacts of economic uncertainty, followed by a sharp, short-term decline then normalizing to a rate of 2 percent by the end of the forecast period.
Oil Prices			Prices below $30 per barrel in third quarter, increase in line with GDP through the forecast period, stabilizing at $50 per barrel by first quarter 2022.

Due to the high degree of uncertainty regarding the ultimate economic consequences of the pandemic, as well as the effectiveness of the government's stimulus packages, management also considered other economic scenarios to make appropriate qualitative adjustments for certain sectors of its lending portfolio, including more benign and more severe forecasts.

Allowance for Loan Losses

The allowance for loan losses represents ~~management's assessment~~management’s estimates of ~~probable, estimable~~current expected credit losses ~~inherent~~ in the ~~Corporation's~~Corporation’s loan portfolio. ~~The allowance for~~Pools of loans with similar risk characteristics are collectively evaluated, while loans that no longer share risk characteristics with loan pools are evaluated individually.

Collective loss estimates are determined by applying reserve factors, designed to estimate current expected credit losses, ~~on lending-related commitments, included in accrued expenses and other liabilities on~~to amortized cost balances over the ~~Consolidated Balance Sheets, provides for probable losses inherent in lending-related commitments, including unused commitments to extend credit and standby letters~~remaining contractual life of ~~credit.~~

the collectively evaluated portfolio. Loans with similar risk characteristics are aggregated into homogeneous pools. The allowance for loan losses ~~was $652 million at September 30, 2019, compared~~also includes qualitative adjustments to ~~$671 million at December 31, 2018, a decrease~~bring the allowance to the level management believes is appropriate based on factors that have not otherwise been fully accounted for, including adjustments for foresight risk, input imprecisions and model imprecision. Credit losses for loans that no longer share risk characteristics with the loan pools are estimated on an individual basis. Individual credit loss estimates are typically performed for nonaccrual loans and modified loans classified as TDRs and are based on one of ~~$19 million,~~several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or ~~3 percent.~~ the present value of expected cash flows.

As a percentage of total loans, the allowance for loan losses was ~~1.27~~1.88 percent at ~~September~~June 30, ~~2019,~~2020, compared to ~~1.34~~1.27 percent at December 31, ~~2018. The decrease in~~2019. Excluding PPP loans, the allowance for loan losses ~~reflected sustained solid credit quality of the portfolio as a whole and included increases in Energy reserves. The sustained solid credit quality~~ was ~~reflected by nonperforming loans as a percentage~~2.03 percent of total loans at June 30, 2020. The allocation of ~~0.44~~reserves for Energy loans remains above 10 percent in response to sustained pressures on the Energy portfolio. Nonperforming loans were 0.51 percent of total loans at ~~September~~June 30, ~~2019,~~2020, compared to ~~0.46~~0.40 percent at December 31, ~~2018,~~2019, and anthe allowance ~~coverage of 2.9~~covered 3.7 times and 3.1 times total nonperforming ~~assets~~loans at ~~both September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively.

Allowance for Credit Losses on Lending-Related Commitments

The allowance for credit losses on lending-related commitments ~~includes specific allowances, based~~estimates current expected credit losses on ~~individual evaluations~~collective pools of ~~certain~~ letters of credit ~~in a manner consistent with business loans,~~ and ~~allowances based on the pool of the remaining letters of credit and all~~ unused commitments to extend credit ~~within each internal~~based on reserve factors, determined in a manner similar to business loans, multiplied by a probability of draw estimate based on historical experience and credit risk, ~~rating.~~applied to commitment amounts. The allowance for credit losses on lending-related commitments ~~was $29~~totaled $59 million and ~~$30~~$31 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

For additional information regarding the allowance for credit losses, refer to ~~page F-35 in~~ the "Critical Accounting Policies" section and ~~pages F-51 through F-52 in~~ Note 1 to the consolidated financial ~~statements of the Corporation's 2018 Annual Report.~~statements.

Nonperforming Assets

Nonperforming assets include loans on nonaccrual status, TDRs which have been renegotiated to less than the original contractual rates (reduced-rate loans) and foreclosed property. TDRs include performing and nonperforming ~~loans. Nonperforming~~loans, with nonperforming TDRs ~~are~~on either on nonaccrual or reduced-rate status. Certain provisions within the CARES Act encourage financial institutions to practice prudent efforts to work with borrowers impacted by COVID-19. Under these provisions, modifications

Table of Contents

deemed to be COVID-19-related would not be considered a TDR if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or December 31, 2020. The banking regulators issued similar guidance, which also clarified that a COVID-19-related modification should not be considered a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and if the modification was considered to be short-term. Modifications are first evaluated for eligibility under the CARES Act, then the interagency guidance if they do not qualify for the CARES Act relief. Modifications that are not eligible for either program continue to follow the Corporation’s established TDR policy. For loans not otherwise reportable as past due or nonaccrual, financial institutions are generally not expected to designate loans with deferrals granted due to COVID-19 as past due or nonaccrual. As of June 30, 2020, the Corporation granted payment deferrals for approximately 2,100 obligors with an aggregate loan balance of $4.5 billion, which primarily consisted of commercial loans, including $57 million of loans on their second deferral.

The following table presents a summary of nonperforming assets and past due loans.


(dollar amounts in millions)	September 30, 2019			December 31, 2018			(dollar amounts in millions)	June 30, 2020			December 31, 2019
Nonaccrual loans:							Nonaccrual loans:
Business loans:							Business loans:
Commercial	$	152		$	141		Commercial	$	200		$	148

Commercial mortgage	13			20			Commercial mortgage	21			14
Lease financing	—			2			Lease financing	1			—
International	2			3

Total nonaccrual business loans	167			166			Total nonaccrual business loans	222			162
Retail loans:							Retail loans:
Residential mortgage	36			36			Residential mortgage	24			20
Consumer:							Consumer:
Home equity	17			19			Home equity	21			17

Total nonaccrual retail loans	53			55			Total nonaccrual retail loans	45			37
Total nonaccrual loans	220			221			Total nonaccrual loans	267			199
Reduced-rate loans	6			8			Reduced-rate loans	4			5
Total nonperforming loans	226			229			Total nonperforming loans	271			204
Foreclosed property	3			1			Foreclosed property	11			11
Total nonperforming assets	$	229		$	230		Total nonperforming assets	$	282		$	215

Nonperforming loans as a percentage of total loans	0.44		%	0.46		%	Nonperforming loans as a percentage of total loans	0.51		%	0.40		%
Nonperforming assets as a percentage of total loans and foreclosed property	0.44			0.46			Nonperforming assets as a percentage of total loans and foreclosed property	0.53			0.43
Allowance for loan losses as a multiple of total nonperforming loans	2.9x			2.9x
Allowance for credit losses as a multiple of total nonperforming loans							Allowance for credit losses as a multiple of total nonperforming loans	3.9x			3.3x
Loans past due 90 days or more and still accruing	$	31		$	16		Loans past due 90 days or more and still accruing	$	41		$	26

Nonperforming assets ~~remained relatively stable with an~~increased $67 million to $282 million at June 30, 2020, from $215 million at December 31, 2019. The increase in nonperforming assets primarily reflected a $59 million increase in nonperforming Energy ~~partially offset by decreases in general Middle Market, Corporate Banking and Private Banking.~~loans, which are a component of commercial loans.

The following table presents a summary of TDRs at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The table does not include loan modifications related to the COVID-19 pandemic.

(in millions) September 30, 2019 December 31, 2018
Nonperforming TDRs:
Nonaccrual TDRs $ 44
$ 73
Reduced-rate TDRs 6
8
Total nonperforming TDRs 50
81
Performing TDRs (a) 69
101
Total TDRs $ 119
$ 182
(a)TDRs that do not include a reduction in the original contractual interest rate which are performing in accordance with their modified terms.

~~At September~~During the six months ended June 30, ~~2019, nonaccrual and performing TDRs included $9 million and~~2020, $22 million of previously performing Energy ~~loans, respectively,~~TDRs were transferred to nonaccrual or charged off. At June 30, 2020, Energy TDRs totaled $23 million, all of which were on nonaccrual status, compared to ~~$38~~$14 million ~~and $46 million, respectively,~~ at December 31, ~~2018.~~2019.

The following table presents a summary of changes in nonaccrual loans.


	Three Months Ended
(in millions)	June 30, 2020		March 31, 2020		December 31, 2019
Balance at beginning of period	$	235	$	199	$	220
Loans transferred to nonaccrual (a)	96		137		48
Nonaccrual loan gross charge-offs	(57)		(89)		(27)
Loans transferred to accrual status (a)	—		—		(7)
Nonaccrual loans sold	—		—		(10)
Payments/other (b)	(7)		(12)		(25)
Balance at end of period	$	267	$	235	$	199

Three Months Ended
(in millions) September 30, 2019 June 30, 2019 March 31, 2019
Balance at beginning of period $ 224
$ 191
$ 221
Loans transferred to nonaccrual (a) 85
93
4
Nonaccrual loan gross charge-offs (61 ) (44 ) (20 )
Nonaccrual loans sold —
(5 ) —
Payments/other (b) (28 ) (11 ) (14 )
Balance at end of period $ 220
$ 224
$ 191
(a)Based on an analysis of nonaccrual loans with book balances greater than $2 million.

(b)Includes net changes related to nonaccrual loans with balances less than $2 million, payments on nonaccrual loans with book balances greater than $2 million and transfers of nonaccrual loans to foreclosed property.

There were ~~ten~~eight borrowers with a balance greater than $2 million, totaling ~~$85~~$96 million, transferred to nonaccrual status in ~~third~~second quarter ~~2019,~~2020, compared to 13 borrowers, totaling $137 million in first quarter 2020 and six borrowers totaling $48 million in ~~second~~fourth quarter 2019. For further information about the composition of loans transferred to nonaccrual during the current period, refer to the nonaccrual information by industry category table below.

The following table presents the composition of nonaccrual loans by balance and the related number of borrowers at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

The following table presents a summary of nonaccrual loans at ~~September~~June 30, ~~2019~~2020 and loans transferred to nonaccrual and net loan charge-offs (recoveries) for the three months ended ~~September~~June 30, ~~2019,~~2020, based primarily on North American Industry Classification System (NAICS) categories.

September 30, 2019 Three Months Ended September 30, 2019
(dollar amounts in millions) Nonaccrual Loans
Loans Transferred to
Nonaccrual (a)
Net Loan Charge-Offs (Recoveries)
Industry Category
Mining, Quarrying and Oil & Gas Extraction $ 74
34 % $ 41
49 % $ 34
81 %
Residential Mortgage 36
16
3
3
—
—
Manufacturing 34
15
13
16
1
2
Wholesale Trade 21
10
21
24
2
5
Services 9
4
—
—
2
5
Health Care & Social Assistance 8
4
—
—
—
—
Information & Communication 6
3
4
5
5
10
Real Estate & Home Builders 6
3
—
—
(2 ) (6 )
Contractors 5
2
3
3
(4 ) (9 )
Other (b) 21
9
—
—
4
12
Total $ 220
100 % $ 85
100 % $ 42
100 %
(a)Based on an analysis of nonaccrual loans with book balances greater than $2 million.

(b)Consumer, excluding residential mortgage and certain personal purpose nonaccrual loans and net charge-offs, are included in the Other category.

Loans past due 90 days or more and still accruing interest, which generally ~~represent loans that~~ are well collateralized and in the process of ~~collection. Loans past due 90 days or more~~collection, increased $15 million to ~~$31~~$41 million at ~~September~~June 30, ~~2019,~~2020, compared to ~~$16~~$26 million at December 31, ~~2018.~~2019. Loans past due 30-89 days and still accruing interest increased $5$80 million to ~~$138~~$207 million at ~~September~~June 30, ~~2019,~~2020, compared to ~~$133~~$127 million at December 31, ~~2018.~~2019. Loans past due 30 days or more and still accruing interest as a percentage of total loans were ~~0.33~~0.46 percent and 0.30 percent at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. An aging analysis of loans included in Note 4 to the consolidated financial statements provides further information about the balances comprising past due loans.

The following table presents a summary of total criticized loans. The Corporation's criticized list is consistent with the Special Mention, Substandard and Doubtful categories defined by regulatory authorities. Risk ratings are adjusted as appropriate based on dialogue with borrowers and review of current and projected financial performance, including liquidity and cash flow forecasts as well as receivable and inventory levels. Criticized loans with balances of $2 million or more on nonaccrual status or loans with balances of $1 million or more whose terms have been modified in a TDR are individually subjected to quarterly credit quality reviews, and the Corporation may establish specific allowances for such loans. A table of loans by credit quality indicator included in Note 4 to the consolidated financial statements provides further information about the balances comprising total criticized loans.

The ~~$313 million~~$1.3 billion increase in criticized loans induring the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 included ~~an increase~~increases of ~~$317~~$564 million in general Middle ~~Market.~~Market and $475 million in Energy.

Concentrations of credit risk may exist when a number of borrowers are engaged in similar activities, or activities in the same geographic region, and have similar economic characteristics that would cause them to be similarly impacted by changes in economic or other conditions. The Corporation has concentrations of credit risk with the automotive and commercial real estate industries. All other industry concentrations, as defined by management, individually represented less than 10 percent of total loans at June 30, 2020.


	June 30, 2020						December 31, 2019
(in millions)	Loans Outstanding		Percent of Total Loans		Loans Outstanding		Percent of Total Loans
Dealer:
Floor plan	$	1,971			$	3,967
Other	3,077				3,447
Total dealer	$	5,048	9.4	%	$	7,414	14.7 %

Nonaccrual dealer loans totaled $1 million at June 30, 2020 and $9 million at December 31, 2019. Dealer loan net charge-offs totaled $1 million for the six months ended June 30, 2020, compared to none for the six months ended June 30, 2019.


	June 30, 2020						December 31, 2019
(in millions)	Loans Outstanding		Percent of Total Loans		Loans Outstanding		Percent of Total Loans
Production:
Domestic	$	1,040			$	963
Foreign	432				286
Total production	$	1,472	2.8	%	$	1,249	2.5 %

The following table summarizes the Corporation's commercial real estate loan portfolio by loan category.


	June 30, 2020										December 31, 2019
(in millions)	Commercial Real Estate business line (a)		Other (b)		Total		Commercial Real Estate business line (a)		Other (b)		Total
Real estate construction loans	$	3,547	$	405	$	3,952	$	3,044	$	411	$	3,455
Commercial mortgage loans	2,292		7,633		9,925		2,176		7,383		9,559
Total commercial real estate	$	5,839	$	8,038	$	13,877	$	5,220	$	7,794	$	13,014

September 30, 2019 December 31, 2018
(in millions) Commercial Real Estate business line (a) Other (b) Total Commercial Real Estate business line (a) Other (b) Total
Real estate construction loans $ 2,990
$ 387
$ 3,377
$ 2,687
$ 390
$ 3,077
Commercial mortgage loans 1,948
7,286
9,234
1,743
7,363
9,106
Total commercial real estate $ 4,938
$ 7,673
$ 12,611
$ 4,430
$ 7,753
$ 12,183
(a)Primarily loans to real estate developers.

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

The Corporation limits risk inherent in its commercial real estate lending activities by monitoring borrowers directly involved in the commercial real estate markets and adhering to conservative policies on loan-to-value ratios for such loans. Commercial real estate loans, consisting of real estate construction and commercial mortgage loans, totaled ~~$12.6~~$13.9 billion at ~~September~~June 30, 2020, an increase of $863 million compared to December 31, 2019, of which ~~$4.9~~$5.8 billion, or 3942 percent, were to borrowers in the Commercial Real Estate business line, ~~which includes~~including loans to real estate ~~developers, an increase of $428 million compared to December 31, 2018.~~developers. The remaining ~~$7.7~~$8.0 billion, or 6158 percent, of commercial real estate loans in other business lines consisted primarily of owner-occupied commercial mortgages, which bear credit characteristics similar to non-commercial real estate business loans.

The real estate construction loan portfolio primarily contains loans made to long-tenured customers with satisfactory completion experience. Criticized real estate construction loans in the Commercial Real Estate business line totaled ~~$36~~$17 million and ~~$23~~$31 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. In other business lines, there were no$14 million criticized real estate construction loans at ~~September~~June 30, ~~2019,~~2020, compared to ~~$8 million~~none at December 31, ~~2018.~~2019. There were no real estate construction loan charge-offs in either of the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

Commercial mortgage loans are loans where the primary collateral is a lien on any real property and are primarily loans secured by ~~owner occupied~~owner-occupied real estate. Real property is generally considered primary collateral if the value of that collateral represents more than 50 percent of the commitment at loan approval. Loans in the commercial mortgage portfolio generally mature within three to five years. Criticized commercial mortgage loans in the Commercial Real Estate business line totaled ~~$56~~$54 million and ~~$61~~$55 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. In other business lines, ~~$189~~$422 million and ~~$206~~$242 million of commercial mortgage loans were criticized at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Commercial mortgage loan net recoveries were $2 million ~~and $1 million~~ for both the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018, respectively.~~

Residential real estate loans, which consist of traditional residential mortgages and home equity loans and lines of credit, totaled $3.6 billion, or 7 percent of total loans, at ~~September~~June 30, ~~2019.~~2020. The following table summarizes the Corporation's residential mortgage and home equity loan portfolios by geographic market.

The residential real estate portfolio is principally located within the Corporation's primary geographic markets. Substantially all residential real estate loans past due 90 days or more are placed on nonaccrual status, and substantially all junior lien home equity loans that are current or less than 90 days past due are placed on nonaccrual status if full collection of the senior position is in doubt. At no later than 180 days past due, such loans are charged off to current appraised values less costs to sell.

Residential mortgages totaled $1.9 billion at ~~September~~June 30, ~~2019,~~2020, and were primarily larger, variable-rate mortgages originated and retained for certain private banking relationship customers. Of the $1.9 billion of residential mortgage loans outstanding, ~~$36~~$24 million were on nonaccrual status at ~~September~~June 30, ~~2019.~~2020. The home equity portfolio totaled $1.7 billion at ~~September~~June 30, ~~2019,~~2020, of which $1.6 billion was outstanding under primarily variable-rate, interest-only home equity lines of credit, ~~$97~~$88 million were in amortizing status and ~~$25~~$20 million were closed-end home equity loans. Of the $1.7 billion of home equity loans outstanding, ~~$17~~$21 million were on nonaccrual status at ~~September~~June 30, ~~2019.~~2020. A majority of the home equity portfolio was secured by junior liens at ~~September~~June 30, ~~2019.~~2020.


	June 30, 2020																	December 31, 2019
(dollar amounts in millions)	Outstandings						Nonaccrual		Criticized (a)					Outstandings						Nonaccrual		Criticized (a)
Exploration and production (E&P)	$	1,662	80	%	$	102	$	750			$	1,741		78	%	$	43	$	289
Midstream	374		18		—		57				432			20		—		63
Services	50		2		—		34				48			2		—		14
Total Energy business line	$	2,086	100	%	$	102	$	841			$	2,221		100	%	$	43	$	366
As a percentage of total Energy loans									5	%	40		%							2	%	16	%

Certain loans in the Corporation's commercial portfolio are considered leveraged transactions. These loans are typically used for mergers, acquisitions, business recapitalizations, refinancing and equity buyouts. To help mitigate the risk associated with these loans, the Corporation focuses on middle market companies with highly capable management teams, strong sponsors and solid track records of financial performance. Industries prone to cyclical downturns and acquisitions with a high degree of integration risk are generally avoided. Other considerations include the sufficiency of collateral, the level of balance sheet leverage and the adequacy of financial covenants. During the underwriting process, cash flows are ~~stress tested~~stress-tested to evaluate the borrowers' abilities to handle economic downturns and an increase in interest rates. Management considers the leveraged loan portfolio to be one of the most sensitive to economic impacts stemming from the COVID-19 pandemic and

The FDIC defines higher-risk commercial and industrial (HR C&I) loans for assessment purposes as loans generally with leverage of four times total debt to earnings before interest, taxes and depreciation (EBITDA) as well as three times senior debt to EBITDA, excluding certain collateralized loans.

The following table summarizes information about HR C&I ~~loans were $2.5 billion~~loans.

pandemic spread mitigation efforts. For further discussion, see Item 1.A "Risk Factors" on page 65 of ~~credit risk, see~~this report.


	June 30, 2020
Sector based on NAICS category (dollar amounts in millions)	Loans		Percent of Total Loans		Percent Criticized (a)


Retail Commercial Real Estate (b)	$	784	1.5	%	—	%
Hotels/Casinos	748		1.4		5.4
Arts/Recreation	357		0.7		14.0
Sports Franchises	321		0.6		0.2
Retail Goods and Services	283		0.5		8.2
All other impacted sectors (c)	1,038		1.9		8.2
Total	$	3,531	6.6	%	5.6	%

(a)Sector criticized loans as a percentage of sector total loans.

(b)Loans in the ~~"Credit Risk" section of pages F-21 through F-29~~retail commercial real estate sector are primarily included in the Corporation's ~~2018 Annual Report.~~commercial real estate portfolio.

(c)Includes airlines, restaurants and bars, childcare, coffee shops, cruise lines, education, gasoline and convenience stores, religious organizations, senior living, freight, as well as travel arrangements.

The Asset and Liability Policy Committee (ALCO) of the Corporation establishes and monitors compliance with the policies and risk limits pertaining to market and liquidity risk management activities. ALCO meets regularly to discuss and review market and liquidity risk management strategies and consists of executive and senior management from various areas of the Corporation, including treasury, finance, economics, lending, deposit gathering and risk management. Corporate Treasury mitigates market and liquidity risk under the direction of ALCO through the actions it takes to manage the Corporation's market, liquidity and capital positions.

In addition to assessing liquidity risk on a consolidated basis, Corporate Treasury also monitors the parent company's liquidity and has established limits for the minimum number of months into the future in which the parent company can meet existing and forecasted obligations without the support of additional dividends from subsidiaries. ALCO's liquidity policy requires the parent company to maintain sufficient liquidity to meet expected capital and debt obligations with a target of 24 months but no less than 18 months.

Corporate Treasury and the Enterprise Risk Division support ALCO in measuring, monitoring and managing interest rate risk as well as all other market risks. Key activities encompass: (i) providing information and ~~analysis~~analyses of the Corporation's

Net interest income is the primary source of revenue for the Corporation. Interest rate risk arises in the normal course of business due to differences in the repricing and cash flow characteristics of assets and liabilities, primarily through the Corporation's core business activities of extending loans and acquiring deposits. The Corporation's balance sheet is predominantly characterized by floating-rate loans funded by core deposits. Including the impact of interest rate swaps converting floating-rate loans to fixed, the Corporation's loan composition at ~~September~~June 30, ~~2019~~2020 was 6253 percent 30-day LIBOR, 68 percent other LIBOR (primarily ~~60-~~

~~day)~~60-and 90-day), 1513 percent prime and 1726 percent fixed rate. This creates sensitivity to interest rate movements due to the imbalance between the faster repricing of the floating-rate loan portfolio versus deposit products. In addition, the growth and/or contraction in the Corporation's loans and deposits may lead to changes in sensitivity to interest rate movements in the absence of mitigating actions. Examples of such actions are purchasing fixed-rate investment securities, which provide liquidity to the balance sheet and act to mitigate the inherent interest sensitivity, as well as hedging with interest rate swaps and options. Other mitigating factors include interest rate floors on a portion of the loan portfolio. The Corporation actively manages its exposure to interest rate risk with the principal objective of optimizing net interest income and the economic value of equity while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.

Since no single measurement system satisfies all management objectives, a combination of techniques is used to manage interest rate risk. These techniques examine the impact of interest rate risk on net interest income and the economic value of equity under a variety of alternative scenarios, including changes in the level, slope and shape of the yield curve utilizing multiple simulation analyses. Simulation analyses produce only estimates of net interest income as the assumptions used are inherently uncertain. Actual results may differ from simulated results due to many factors, including, but not limited to, the timing, magnitude and frequency of changes in interest rates, market conditions, regulatory impacts and management strategies.

The analysis of the impact of changes in interest rates on net interest income under various interest rate scenarios is management's principal risk management technique. Management models a ~~base case~~base-case net interest income under an unchanged interest rate environment. Existing derivative instruments entered into for risk management purposes as of the ~~reporting date~~balance sheet dates are included in the analysis, but no additional hedging is forecasted. At ~~September~~June 30, ~~2019,~~2020, these derivative instruments comprise interest rate swaps that convert ~~$3.3~~$2.7 billion of fixed-rate medium- and long-term debt to variable rates through fair value hedges and ~~$3.8~~convert $5.6 billion of variable-rate loans to fixed rates through cash flow hedges. This ~~base case~~base-case net interest income is then compared against interest rate scenarios in which rates rise or decline ~~200~~100 basis points (with a floor of zero percent) in a linear, non-parallel fashion from the base case over 12 months, resulting in an average increase or decrease in short-term interest rates of ~~100~~50 basis points over the period.

Each scenario includes assumptions such as loan growth, investment security prepayment levels, depositor behavior, yield curve changes, loan and deposit pricing, and overall balance sheet mix and growth. In this low rate environment, depositors have maintained a higher level of liquidity and their historical behavior may be less indicative of future trends. As a result, the rising rate scenario reflects a greater decrease in deposits than experienced historically as rates rise. Changes in actual economic activity may result in a materially different interest rate environment as well as a balance sheet structure that is different from the changes management included in its simulation analysis.

The table below, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, displays the estimated impact on net interest income during the next 12 months by relating the base case scenario results to those from the rising and declining rate scenarios described above.


	June 30, 2020							December 31, 2019
(dollar amounts in millions)	Amount		%			Amount		%
Change in Interest Rates:					Change in Interest Rates:
Rising 100 basis points	$	130	7	%	Rising 100 basis points	$	90	4	%
Declining to zero percent	(32)		(2)		Declining 100 basis points	(135)		(6)

Estimated Annual Change
September 30, 2019 December 31, 2018
(in millions) Amount % Amount %
Change in Interest Rates:
Rising 200 basis points $ 122
6 % $ 142
6 %
Declining 200 basis points (264 ) (12 ) (313 ) (12 )

Table of a decline in short-term rates of 50 basis points over a 12-month period (25 basis-point shock) can range between a decrease of approximately $65 million (50 percent deposit beta) to $95 million (10 percent deposit beta) depending on the deposit beta assumption.Contents

During October 2019, the Corporation added interest rate swaps that convert an additional $750 million of variable-rate loans to fixed rates through cash flow hedges. These additional hedges are not included in the sensitivity analysis discussed above.

Sensitivity of Economic Value of Equity to Changes in Interest Rates

In addition to the simulation analysis on net interest income, an economic value of equity analysis provides an alternative view of the interest rate risk position. The economic value of equity is the difference between the estimate of the economic value of the Corporation's financial assets, liabilities and off-balance sheet instruments, derived through discounting cash flows based on actual rates at the end of the period, and the estimated economic value after applying the estimated impact of rate movements.

The Corporation primarily monitors the percentage change on the ~~base case~~base-case economic value of equity. The economic value of equity analysis is based on an immediate parallel ~~200~~100 basis point shock.

The table below, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, displays the estimated impact on the economic value of equity from the interest rate scenario described above.

September 30, 2019 December 31, 2018
(in millions) Amount % Amount %
Change in Interest Rates:
Rising 200 basis points $ 1,126
12 % $ 711
6 %
Declining 200 basis points (2,058 ) (22 ) (2,769 ) (21 )


	June 30, 2020							December 31, 2019
(dollar amounts in millions)	Amount		%			Amount		%
Change in Interest Rates:					Change in Interest Rates:
Rising 100 basis points	$	1,319	15	%	Rising 100 basis points	$	716	7	%
Declining to zero percent	(479)		(54)		Declining 100 basis points	(1,178)		(12)

The sensitivity of the economic value of equity to rising rates increased from December 31, 2019 to June 30, 2020 due to changes in deposit pay rates and expected lives. The sensitivity to declining rates decreased ~~from December 31, 2018 to September 30, 2019~~ due to ~~the addition of swaps converting variable-rate loans to fixed rates, model updates to average deposit life assumptions and~~ changes in balance sheet ~~composition.~~composition as well as limited remaining downward movement in rates before hitting modeled zero-percent floors.

LIBOR Transition

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. The Corporation has substantial exposure to LIBOR-based products, including loans, securities, derivatives and hedges, and is preparing for a transition from LIBOR toward alternative rates. A dedicated program office and governance structure has been established, with direction and oversight from the Chief Executive Officer, Chief Financial Officer and Chief Risk Officer. A cross-functional implementation team has been tasked with execution of an enterprise LIBOR transition plan road map. Comerica’s enterprise transition milestones align with recommendations from the Alternative Reference Rates Committee (ARRC) for both best practices and recommended 2020 objectives. As of the second quarter of 2020, customer disclosure information for both consumer and commercial loans are being provided for new originations. Execution plans are in place to begin incorporating fallback language related to legacy LIBOR commercial loans by the end of 2020. Additional milestones for products originated on alternative reference rates will be executed in alignment with market and industry decisions. The Corporation continues to monitor market developments and regulatory updates, as well as collaborate with regulators and industry groups on the transition. For a discussion of the various risks facing the Corporation in relation to the transition away from LIBOR, refer to "Item 1A. Risk Factors" beginning on page 12 of the Corporation's 2019 Annual Report.

Wholesale Funding

The Corporation may access the purchased funds market when necessary, which includes a variety of funding sources. Capacity for incremental purchased funds at ~~September~~June 30, ~~2019~~2020 included short-term ~~FHLB~~Federal Home Loan Bank (FHLB) advances, the ability to purchase federal funds, sell securities under agreements to repurchase as well as issue deposits through brokers. ~~Other time deposits totaled $647~~Purchased funds increased to $839 million at June 30, 2020 compared to ~~none~~$295 million at December 31, ~~2018, reflecting the issuance of brokered deposits.~~2019, driven by increases in short-term FHLB advances. At ~~September~~June 30, ~~2019,~~2020, the Bank had pledged loans totaling ~~$23.0~~$21.2 billion which provided for up to ~~$18.6~~$16.2 billion of available collateralized borrowing with the ~~FRB.~~Federal Reserve Bank (FRB).

The Bank is a member of the FHLB of Dallas, Texas, which provides short- and long-term funding to its members through advances collateralized by real estate-related assets. Actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. At ~~September~~June 30, ~~2019, $17.2~~2020, $18.3 billion of real estate-related loans and $5.2 billion of investment securities were pledged to the FHLB as collateral for current and potential future borrowings. The Corporation had ~~$3.8~~$3.6 billion of FHLB ~~borrowings~~long-term advances, maturing between 2026 and 2028, as well as $750 million in short-term advances outstanding at June 30, 2020, and capacity for potential future borrowings of approximately ~~$5.1~~$10.1 billion. The Corporation expects to repay $1.0 billion of its outstanding FHLB long-term advances in third quarter 2020.

Additionally, ~~as of September 30, 2019~~ the Bank had the ability to issue up to $13.5 billion of debt at June 30, 2020 under an existing $15.0 billion note program which allows the issuance of debt with maturities between three months and 30 years. The Corporation also maintains a shelf registration statement with the Securities and Exchange Commission from which it may issue debt and/or equity securities.

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The ability of the Corporation and the Bank to raise funds at competitive rates ismay be impacted by rating agencies' views of the credit quality, liquidity, capital and earnings of the Corporation and the Bank. As of ~~September~~June 30, ~~2019,~~2020, the three major rating agencies had assigned the ratings below to long-term senior unsecured obligations of the Corporation and the Bank. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.

Comerica Incorporated

Comerica Bank

~~September~~June 30, ~~2019~~2020

Rating

Outlook

Rating

Outlook

Standard and Poor’s

BBB+

~~Stable~~Negative

A-

~~Stable~~Negative

Moody’s Investors Service

Stable

Fitch Ratings

AA-

Stable

AA-

Stable

The Corporation satisfies liquidity needs with either liquid assets or various funding sources. Liquid assets totaled ~~$16.3~~$20.5 billion and $17.9 billion at ~~both September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively. Liquid assets include cash and due from banks, federal funds sold, interest-bearing deposits with banks, other short-term investments and unencumbered investment securities.

The Corporation performs monthly liquidity stress testing to evaluate its ability to meet funding needs in hypothetical stressed environments. Such environments cover a series of broad events, distinguished in terms of duration and severity. The evaluation as of ~~September~~June 30, ~~2019~~2020 projected sufficient sources of liquidity were available under each series of events.

Total liquidity sources, comprised of liquid assets and remaining borrowing capacity with the FRB and the FHLB, totaled $46.8 billion at June 30, 2020.

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CRITICAL ACCOUNTING POLICIES

The Corporation’s consolidated financial statements are prepared based on the application of accounting policies, the most significant of which are described in Note 1 to the consolidated financial statements included in the Corporation's ~~2018~~2019 Annual Report. These policies require numerous estimates and strategic or economic assumptions, which may prove inaccurate or subject to variations. Changes in underlying factors, assumptions or estimates could have a material impact on the Corporation’s future financial condition and results of operations. At December 31, ~~2018,~~2019, the most critical of these significant accounting policies were the policies related to the allowance for credit losses, fair value measurement, goodwill, pension plan accounting and income

taxes. These policies were reviewed with the Audit Committee of the Corporation’s Board of Directors and are discussed more fully on pages ~~F-35~~F-34 through ~~F-37~~F-36 in the Corporation's ~~2018~~2019 Annual Report. ~~As of the date of this report, there have been no~~Below are significant changes to the Corporation's critical accounting policies or ~~estimates.~~estimates since the Corporation's 2019 Annual Report.

ALLOWANCE FOR CREDIT LOSSES

The Corporation ~~performed~~adopted new accounting guidance for estimating credit losses, known as the ~~annual goodwill impairment test~~CECL framework, in ~~third~~first quarter ~~2019, resulting~~2020. In accordance with CECL, the allowance for credit losses, which includes both the allowance for loan losses and the allowance for credit losses on lending-related commitments, is calculated with the objective of maintaining a reserve for current expected credit losses over the remaining contractual life of the portfolio.

In determining the allowance for credit losses for the majority of its lending portfolio, the Corporation uses reserve factors, based on estimated probability of default for internal risk ratings and loss given default. Management applies reserve factors to pools of loans and lending-related commitments with similar risk characteristics, calibrates these factors using economic forecasts and incorporates qualitative adjustments. For further discussion of the methodology used in the ~~following updates~~determination of the allowance for credit losses, refer to Note 1 to the ~~critical accounting policy discussed~~consolidated financial statements. For further discussion on ~~page F-36~~the economic forecast incorporated into the second quarter 2020 model, refer to the “Risk Management” section of this report.

Management's determination of the appropriateness of the allowance is based on periodic evaluations of the loan portfolio, lending-related commitments, current as well as forecasted economic factors and other relevant factors. The calculation is inherently subjective and requires management to exercise significant judgment in developing assumptions into the estimate, the most significant of which are the loan risk rating process, development of economic forecasts and application of qualitative adjustments. Sensitivities are disclosed to demonstrate how changes in loan risk ratings and economic forecast scenarios may impact the allowance for credit losses. Sensitivities only consider changes to each specific assumption in isolation and their impact to the quantitative modeled results; however, they do not contemplate impacts to the qualitative framework.

Loan Risk Rating Process

Loss factors are applied to pools of loans based on the Corporation's ~~2018 Annual Report.~~internal risk rating system; therefore, loss estimates are highly dependent on the accuracy of the risk rating assigned to each loan. The inherent imprecision in the risk rating system resulting from inaccuracy in assigning and/or entering risk ratings in the loan accounting system is monitored by the Corporation's asset quality review function. Changes to internal risk ratings, beyond the forecasted migration inherent in the credit models, would result in a different estimated allowance for credit losses. To illustrate, if five percent of the individual risk ratings were adjusted down by one rating across all pools, the allowance for loan losses as of June 30, 2020 would change by approximately $13 million.

~~Goodwill~~Forecasted Economic Variables

Historical loss factor estimates are calibrated to economic forecasts over the reasonable and supportable forecast period based on the projected performance of specific economic variables that statistically correlate with the probability of default and loss given default pools. Loss estimates revert to historical loss experience for contractual lives beyond the forecast period. Management selects economic variables it believes to be most relevant based on the composition of the loan portfolio and customer base, including forecasted levels of employment, gross domestic product, corporate bond and treasury spreads, industrial production levels, consumer and commercial real estate price indices as well as housing statistics.

The allowance for credit losses is highly sensitive to the economic forecasts used to develop the estimate. Due to the high level of uncertainty regarding significant assumptions, such as the ultimate impact of the global pandemic and effectiveness of the government stimulus, the Corporation evaluated a range of economic scenarios, including a more severe economic forecast scenario, with varying speeds of recovery. The following table summarizes the more severe forecast scenario for the economic variables that are most impactful.

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Economic Variable			More Severe Forecast
Real GDP growth			Grows by 13 percent in third quarter 2020 followed by a short-term contraction, then reaches a growth rate of 7 percent as the forecast period ends part-way through an economic recovery.
Unemployment rate			Remains at elevated levels between 10 percent and 12 percent throughout the forecast period.
Corporate BBB bond to 10-year Treasury bond spreads			Remains between 3.75 percent and 4.15 percent in the near-term before normalizing into spreads below 2 percent by the end of the forecast period.
Oil Prices			Price remains low throughout the forecast period, improving to above $25 per barrel by the second quarter 2022.

Selecting a different forecast in the current environment could result in significantly different estimated allowance for credit losses. To illustrate, absent model overlays and other qualitative adjustments that are part of the quarterly reserving process, if the Corporation selected the more severe scenario to inform its models, the allowance for credit losses as of June 30, 2020 would increase by approximately $1.6 billion. However, factoring in model overlays and qualitative adjustments could result in a materially different estimate under a more severe scenario.

Qualitative Adjustments

The Corporation includes qualitative adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in the quantitative estimate, including foresight risk, model imprecisions and input imprecisions. Qualitative adjustments for foresight risk, reflect the inherent imprecision in economic forecasts and may be included based on management’s evaluation of different forecast scenarios, ranging from more benign to more severe, and known recent events impacting the Corporation’s portfolio. Model imprecision adjustments and model overlays may be included to mitigate known limitations in the quantitative models. Input imprecision includes adjustments for portfolios where recent historical losses exceed expected losses or known recent events are expected to alter risk ratings once evidence is acquired, as well as a qualitative assessment of the lending environment, including underwriting standards, current economic and political conditions, and other factors affecting credit quality. Qualitative reserves at June 30, 2020 primarily included adjustments for uncertainties related to forecasted economic variables and model imprecision.

Other Considerations

To the extent actual outcomes differ from management estimates, additional provision for credit losses may be required that would adversely impact earnings in future periods. The allowance is assigned to business segments and any earnings impact resulting from actual outcomes differing from management estimates would primarily affect the Commercial Bank segment.

GOODWILL

Goodwill is initially recorded as the excess of the purchase price over the fair value of net assets acquired in a business combination and is subsequently evaluated at least annually for impairment. Goodwill impairment testing is performed at the reporting unit level, equivalent to a business segment or one level below. The Corporation has three reporting units: the ~~Business~~Commercial Bank, the Retail Bank and Wealth Management. At ~~September~~June 30, ~~2019 and December 31, 2018,~~2020, goodwill totaled $635 million, including $473 million allocated to the ~~Business~~Commercial Bank, $101 million allocated to the Retail Bank and $61 million allocated to Wealth Management.

The Corporation performs its annual ~~test~~evaluation of goodwill impairment ~~was performed as of the beginning of~~in the third quarter of ~~2019. The Corporation~~each year and may elect to perform a quantitative impairment analysis or first ~~assessed~~conduct a qualitative ~~factors~~analysis to determine if a quantitative analysis is necessary. Additionally, the Corporation evaluates goodwill impairment on an interim basis if events or changes in circumstances between annual tests indicate additional testing may be warranted to determine if goodwill might be impaired.

In the first quarter of 2020, economic conditions deteriorated significantly with the spread of the coronavirus global pandemic. The outbreak resulted in social distancing requirements throughout the world, severely restricting the economy. In response to the crisis, the Federal Reserve lowered the Federal Funds rate in March 2020 to close to zero. Additionally, the U.S. government initiated numerous measures to support the economy, including the CARES Act. Given the economic deterioration in the first quarter of 2020, the Corporation assessed whether the events and circumstances resulted in it ~~was~~being more likely than not that the fair value of any reporting unit was less than its carrying ~~amount,~~value. Impairment indicators considered comprised economic conditions, including ~~goodwill. Qualitative factors included economic~~projections of the duration of current conditions and timing of a potential recovery; industry and market ~~considerations,~~considerations; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors ~~overall financial performance, regulatory developments and~~of the reporting units; performance of the Corporation’s stock ~~among~~and other ~~events~~ relevant events. The Corporation further considered the amount by which fair value exceeded book value for each unit in the most recent quantitative analysis

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and ~~circumstances.~~sensitivities performed. At the conclusion of the ~~qualitative~~first quarter 2020 assessment, ~~in the third quarter 2019,~~ the Corporation determined that it was more likely than not that the fair value of each reporting unit exceeded its carrying value.

~~Qualitative factors~~In second quarter 2020, the Corporation performed a quantitative goodwill impairment test in response to continued macroeconomic deterioration and the ongoing impacts to the banking industry and markets in which the Corporation operates. The estimated fair values of the reporting units were determined using a blend of two commonly used valuation techniques: the market approach and the income approach. For the market approach, valuations of reporting units considered ina combination of earnings and equity multiples from companies with characteristics similar to the ~~analysis~~reporting unit. Since the fair values determined under the market approach are representative of noncontrolling interests, the valuations incorporated a control premium. For the income approach, estimated future cash flows were derived from internal forecasts and economic expectations for each reporting unit. In the short- and mid-term, forecasts incorporated current economic conditions and ongoing impacts of the global pandemic, including a federal funds target near zero and an elevated allowance for credit losses. Long-term projections reflected normalized rate and credit environments, as well as a long-term rate of return for each reporting unit. Projections were discounted using an applicable discount rate to calculate fair value. The discount rate was based on the imputed cost of equity capital appropriate for each reporting unit, ~~incorporated~~which incorporates the risk-free rate of return, the level of non-diversified risk associated with companies with characteristics similar to the reporting unit, a size risk premium and a market equity risk premium. The discount rate further reflected the uncertainty of current economic conditions and potential impacts to the forecasted financial information. The combined fair value of all units was compared to the Corporation’s market ~~conditions,~~capitalization for reasonableness. At the conclusion of the quantitative impairment test in second quarter 2020, the estimated fair values of all reporting units substantially exceeded their carrying amounts, including ~~the recent Federal Reserve announcements~~goodwill.

The test included evaluation of various factors that continue to rapidly evolve and for which significant uncertainty remains, including the impact of ~~legislative and regulatory changes,~~the coronavirus global pandemic to the ~~extent known. However, further~~economy and ongoing government intervention to mitigate that impact. Further weakening in the economic environment, such as continued ~~declines in interest rates, a~~ decline in the performance of the reporting units or other factors, could cause the fair value of one or more of the reporting units to fall below their carrying value, resulting in a goodwill impairment charge. Additionally, new legislative or regulatory changes not anticipated in management's expectations may cause the fair value of one or more of the reporting units to fall below the carrying value, resulting in a goodwill impairment charge. Any impairment charge would not affect the Corporation's regulatory capital ratios, tangible common equity ratio or liquidity position.

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SUPPLEMENTAL FINANCIAL DATA

The Corporation believes non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate the adequacy of common equity and our performance trends. Tangible common equity is used by ~~Comerica~~the Corporation to measure the quality of capital and the return relative to balance sheet risk.

~~The following table provides a reconciliation of non-GAAP financial measures used in this financial review with financial measures~~Common equity tier 1 capital ratio removes preferred stock from the Tier 1 capital ratio as defined by ~~GAAP.~~

(dollar amounts in millions) September 30, 2019 December 31, 2018
Tangible Equity Ratio:
Shareholders' equity $ 7,200
$ 7,507
Less:
Goodwill 635
635
Other intangible assets 4
6
Tangible equity $ 6,561
$ 6,866
Total assets $ 72,848
$ 70,818
Less:
Goodwill 635
635
Other intangible assets 4
6
Tangible assets $ 72,209
$ 70,177
Equity ratio 9.88 % 10.60 %
Tangible equity ratio 9.09
9.78
Tangible Equity per Share of Stock:
Shareholders' equity $ 7,200
$ 7,507
Tangible equity 6,561
6,866
Shares of stock outstanding (in millions) 144
160
Shareholders' equity per share of stock $ 49.96
$ 46.89
Tangible equity per share of stock 45.52
42.89

and calculated in conformity with bank regulations. The tangible common equity ratio removes the effect of intangible assets from capital and total assets. Tangible common equity per share of common stock removes the effect of intangible assets from common shareholders' equity per share of common stock.

The following table provides a reconciliation of non-GAAP financial measures and regulatory ratios used in this financial review with financial measures defined by GAAP.


(dollar amounts in millions)	June 30, 2020			December 31, 2019
Common Equity Tier 1 Capital (a):
Tier 1 capital	$	7,093		$	6,919
Less:
Fixed-rate reset non-cumulative perpetual preferred stock	395			—
Common equity tier 1 capital	$	6,698		$	6,919
Risk-weighted assets	$	67,156		$	68,273
Tier 1 capital ratio	10.56		%	10.13		%
Common equity tier 1 capital ratio	9.97			10.13
Tangible Common Equity Ratio:
Total shareholders' equity	$	7,802		$	7,327
Less:
Fixed-rate non-cumulative perpetual preferred stock	395			—
Goodwill	635			635
Other intangible assets	3			4
Tangible common equity	$	6,769		$	6,688
Total assets	$	84,397		$	73,402
Less:
Goodwill	635			635
Other intangible assets	3			4
Tangible assets	$	83,759		$	72,763
Common equity ratio	8.78		%	9.98		%
Tangible common equity ratio	8.08			9.19
Tangible Common Equity per Share of Common Stock:
Common shareholders' equity	$	7,407		$	7,327
Tangible common equity	6,769			6,688
Shares of common stock outstanding (in millions)	139			142
Common shareholders' equity per share of common stock	$	53.28		$	51.57
Tangible common equity per share of common stock	48.69			47.07

(a)Tier 1 capital as defined by regulation; estimated for June 30, 2020, reflects deferral of CECL model impact.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures for the current period can be found in the "Market and Liquidity Risk" section of "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 4. Controls and Procedures

~~(a)~~

(a)Evaluation of Disclosure Controls and Procedures. The Corporation maintains a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Corporation's management, including the Corporation's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management has evaluated, with the participation of the Corporation's Chief Executive Officer and Chief Financial Officer, the effectiveness of the Corporation's disclosure controls and procedures as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based on the evaluation, the Corporation's Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Corporation's disclosure controls and procedures are effective.

(b)Changes in Internal Control Over Financial Reporting. During the period to which this report relates, there have not been any changes in the Corporation's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.

~~Evaluation of Disclosure Controls and Procedures~~. The Corporation maintains a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Corporation's management, including the Corporation's Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management has evaluated, with the participation of the Corporation's Chief Executive Officer and Interim Chief Financial Officer, the effectiveness of the Corporation's disclosure controls and procedures as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based on the evaluation, the Corporation's Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of the Evaluation Date, the Corporation's disclosure controls and procedures are effective.


~~(b)~~	~~Changes in Internal Control Over Financial Reporting~~. During the period to which this report relates, there have not been any changes in the Corporation's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

For information regarding the Corporation's legal proceedings, see "Part I. Item 1. Note 12 – Contingent Liabilities," which is incorporated herein by reference.

ITEM 1A. Risk Factors

~~There has~~ Other than as set forth below, there have been no material ~~change~~changes in the Corporation’s risk factors as previously disclosed in our Form 10-K for the fiscal year ended December 31, ~~2018~~2019 in response to Part I, Item 1A. of such Form 10-K. Such risk factors are incorporated herein by reference.

The following risk factor is added under "General Risk":

•The COVID-19 pandemic has impacted our business, and the ultimate impact on our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. As a result, the demand for our products and services may be significantly impacted. Furthermore, the pandemic has influenced and could further influence the recognition of credit losses in our loan portfolios and has increased and could further increase our allowance for credit losses, particularly as businesses remain closed and as more customers may draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, the securities we hold may lose value. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic, and we have already temporarily closed certain of our branches and offices. In response to the pandemic, we have also enacted hardship relief assistance for customers experiencing financial difficulty as a result of COVID-19, including fee and penalty waivers, loan deferrals or other scenarios that may help our customers. As well, we are a lender for the Small Business Administration's Paycheck Protection Program ("PPP") and other SBA, Federal Reserve or United States Treasury programs that have been or may be created in the future in response to the pandemic. These programs are new and

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their effects on Comerica's business are uncertain. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

Below we amend the following risk factor discussed under "Credit Risk" in Part II, "Item 1A. Risk Factors" in Part I, Item 1A. of our Form 10-K for the fiscal year ended December 31, 2019.

•Declines in the businesses or industries of Comerica's customers - in particular, the energy industry - could cause increased credit losses or decreased loan balances, which could adversely affect Comerica.

Comerica's business customer base consists, in part, of customers in volatile businesses and industries such as the automotive, commercial real estate, residential real estate and energy industries. These industries are sensitive to global economic conditions, supply chain factors and/or commodities prices. Any decline in one of these businesses or industries could cause increased credit losses, which in turn could adversely affect Comerica. Further, any decline in these businesses or industries could cause decreased borrowings, either due to reduced demand or reductions in the borrowing base available for each customer loan.

In particular, oil and gas prices have fallen since the beginning of 2020 due to global events. Loans in the Energy business line were $2.1 billion, or approximately 4 percent of total loans, at June 30, 2020. At June 30, 2020, the reserve allocation for Energy loans was over 10 percent of total Energy loans. If oil and gas prices continue to remain depressed for a prolonged period of time, Comerica's energy portfolio could experience increased credit losses, which could adversely affect Comerica's financial results. Furthermore, a prolonged period of low oil prices could also have a negative impact on the Texas economy, which could have a material adverse effect on Comerica’s business, financial condition and results of operations. For more information regarding Comerica's energy portfolio, please see “Energy Lending” beginning on page 56 of this report.

For more information regarding certain of Comerica's lines of business, please see "Concentration of Credit Risk," "Automotive Lending," "Commercial Real Estate Lending," "Residential Real Estate Lending" and “Energy Lending” on pages F-25 through F-27 of Comerica’s Form 10-K for the fiscal year ended December 31, 2019.

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

For information regarding the Corporation's purchase of equity securities, see "Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Capital," which is incorporated herein by reference.

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ITEM 6. Exhibits


Exhibit No.		Description

~~Exhibit No.~~3.1		~~Description~~

~~3.1~~	Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant's Current Report on Form 8-K dated August 4, 2010, and incorporated herein by reference).

3.2		Certificate of Amendment to Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).

3.3		Amended and Restated Bylaws of Comerica Incorporated (filed as Exhibit 3.3 to Registrant's ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended March 31, 2011,~~8-K dated April 9, 2020, and incorporated herein by reference).

43.4		Certificate of Designations of 5.625% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A, dated May 26, 2020, of Comerica Incorporated (including the form of 5.625% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A Certificate of Comerica Incorporated attached as Exhibit A thereto) (filed as Exhibit 3.1 to Registrant's Current Report on Form 8-K dated May 26, 2020, and incorporated herein by reference).
4		[In accordance with Regulation S-K Item No. 601(b)(4)(iii), the Registrant is not filing copies of instruments defining the rights of holders of long-term debt because none of those instruments authorizes debt in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request.]

~~10.1†~~4.1		~~Restrictive Covenants and General Release~~Deposit Agreement, ~~by and between Muneera S. Carr and~~dated May 26, 2020, among Comerica Incorporated, ~~dated September 30, 2019~~Computershare Inc., Computershare Trust Company, N.A. and the holders from time to time of the depositary receipts issued thereunder (including the form of depositary share receipt attached as Exhibit A thereto) (filed as Exhibit ~~10.1~~4.1 to Registrant's Current Report on Form 8-K dated ~~September 30, 2019,~~May 26, 2020, and incorporated herein by reference).
10.1H†		Form of Standard Comerica Incorporated Restricted Stock Agreement (cliff vesting) under the Comerica Incorporated 2018 Long-Term Incentive Plan (2-year version).
~~31.1~~
10.11†		Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan (amended and restated effective July 1, 2020).

10.12†		Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan (amended and restated effective July 1, 2020).

31.1		Chairman, President and CEO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).

31.2		Executive Vice President ~~Treasurer~~ and ~~Interim~~ CFO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).

32		Section 1350 Certification of Periodic Report (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).

101		Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in Inline XBRL: (i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Comprehensive Income (unaudited), (iii) the Consolidated Statements of Changes in Shareholders' Equity (unaudited), (iv) the Consolidated Statements of Cash Flows (unaudited) and (v) the Notes to Consolidated Financial Statements (unaudited).

104		The cover page from the Registrant's Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in Inline XBRL (included in Exhibit 101).

†		Management contract or compensatory plan or arrangement.

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			COMERICA INCORPORATED
			(Registrant)

			~~COMERICA INCORPORATED~~/s/ Mauricio A. Ortiz
			~~(Registrant)~~Mauricio A. Ortiz
			Senior Vice President and
			~~/s/ James J. Herzog~~Chief Accounting Officer and
			~~James J. Herzog~~
	~~Executive Vice President, Treasurer and~~
	~~Interim Chief Financial Officer and~~
	Duly Authorized Officer

Date: ~~October~~July 30, ~~2019~~

2020



Delaware			38-1998421
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)



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


PART I. FINANCIAL INFORMATION

~~PART I. FINANCIAL INFORMATION~~

ITEM 1. Financial Statements

Consolidated Balance Sheets at ~~September~~June 30 ~~2019~~, 2020 (unaudited) and December 31, ~~2018~~2019			1

Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30 , 2020 an d 2019 ~~and 2018~~ (unaudited)			12

Consolidated Statements of Changes in Shareholders’ Equity for the Three and ~~Nine~~Six Months Ended ~~September 30,~~June 3 0 , 2020 and 2019 ~~and 2018~~ (unaudited)			23

Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September 30,~~June 3 0 , 2020 and 2019 ~~and 2018~~ (unaudited)			34

Notes to Consolidated Financial Statements (unaudited)			45

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

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			5665

ITEM 4. Controls and Procedures			5665

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings			59 65

ITEM 1A. Risk Factors			59 65

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			59 66

ITEM 6. Exhibits			59 67

Signature			60 68



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



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



(in millions, except share data)	September 30, 2019			December 31, 2018
	(unaudited)
ASSETS
Cash and due from banks	$	1,229		$	1,390

Interest-bearing deposits with banks	2,888			3,171
Other short-term investments	146			134

Investment securities available-for-sale	12,429			12,045

Commercial loans	32,890			31,976
Real estate construction loans	3,377			3,077
Commercial mortgage loans	9,234			9,106
Lease financing	578			507
International loans	1,055			1,013
Residential mortgage loans	1,906			1,970
Consumer loans	2,451			2,514
Total loans	51,491			50,163
Less allowance for loan losses	(652		)	(671		)
Net loans	50,839			49,492

Premises and equipment	467			475
Accrued income and other assets	4,850			4,111
Total assets	$	72,848		$	70,818

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	27,134		$	28,690

Money market and interest-bearing checking deposits	23,992			22,560
Savings deposits	2,156			2,172
Customer certificates of deposit	2,853			2,131
Other time deposits	647			—
Foreign office time deposits	27			8
Total interest-bearing deposits	29,675			26,871
Total deposits	56,809			55,561

Short-term borrowings	51			44
Accrued expenses and other liabilities	1,477			1,243
Medium- and long-term debt	7,311			6,463
Total liabilities	65,648			63,311

Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued - 228,164,824 shares	1,141			1,141
Capital surplus	2,172			2,148
Accumulated other comprehensive loss	(336		)	(609		)
Retained earnings	9,369			8,781
Less cost of common stock in treasury - 84,028,400 shares at 9/30/19 and 68,081,176 shares at 12/31/18	(5,146		)	(3,954		)
Total shareholders’ equity	7,200			7,507
Total liabilities and shareholders’ equity	$	72,848		$	70,818



						Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings (b)
	Balance at Beginning of Period		Change in Classification (a)											Balance at End of Period
											Payments, Sales and Redemptions
(in millions)						Realized		Unrealized			Payments, Sales and Redemptions
Three Months Ended September 30, 2019
Derivative assets:
Interest rate contracts	$	21	$	—		$	1	$	7		$	(1	)	$	28

Three Months Ended September 30, 2018
Derivative assets:
Interest rate contracts	$	6	$	—		$	—	$	(4	)	$	—		$	2

Nine Months Ended September 30, 2019
Derivative assets:
Interest rate contracts	$	9	—			1		19			(1		)	28

Nine Months Ended September 30, 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		—			—		(12		)	—			2


~~(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.~~


~~(a)~~	~~Included $25 million and $35 million of impaired loans recorded at fair value on a nonrecurring basis at September 30, 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.



	Internally Assigned Rating
(in millions)	Pass (a)		Special Mention (b)		Substandard (c)		Nonaccrual (d)		Total
September 30, 2019
Business loans:
Commercial	$	31,420	$	724	$	594	$	152	$	32,890
Real estate construction:
Commercial Real Estate business line (e)	2,954		36		—		—		2,990
Other business lines (f)	387		—		—		—		387
Total real estate construction	3,341		36		—		—		3,377
Commercial mortgage:
Commercial Real Estate business line (e)	1,892		13		41		2		1,948
Other business lines (f)	7,097		99		79		11		7,286
Total commercial mortgage	8,989		112		120		13		9,234
Lease financing	566		10		2		—		578
International	1,025		23		5		2		1,055
Total business loans	45,341		905		721		167		47,134

Retail loans:
Residential mortgage	1,868		2		—		36		1,906
Consumer:
Home equity	1,698		1		6		17		1,722
Other consumer	723		6		—		—		729
Total consumer	2,421		7		6		17		2,451
Total retail loans	4,289		9		6		53		4,357
Total loans	$	49,630	$	914	$	727	$	220	$	51,491
December 31, 2018
Business loans:
Commercial	$	30,817	$	464	$	554	$	141	$	31,976
Real estate construction:
Commercial Real Estate business line (e)	2,664		23		—		—		2,687
Other business lines (f)	382		8		—		—		390
Total real estate construction	3,046		31		—		—		3,077
Commercial mortgage:
Commercial Real Estate business line (e)	1,682		14		45		2		1,743
Other business lines (f)	7,157		118		70		18		7,363
Total commercial mortgage	8,839		132		115		20		9,106
Lease financing	500		3		2		2		507
International	996		4		10		3		1,013
Total business loans	44,198		634		681		166		45,679

Retail loans:
Residential mortgage	1,931		3		—		36		1,970
Consumer:
Home equity	1,738		—		8		19		1,765
Other consumer	748		1		—		—		749
Total consumer	2,486		1		8		19		2,514
Total retail loans	4,417		4		8		55		4,484
Total loans	$	48,615	$	638	$	689	$	221	$	50,163



	Recorded Investment In:
(in millions)	Impaired Loans with No Related Allowance		Impaired Loans with Related Allowance		Total Impaired Loans		Unpaid Principal Balance		Related Allowance for Loan Losses
September 30, 2019
Business loans:
Commercial	$	12	$	143	$	155	$	253	$	32
Commercial mortgage:
Commercial Real Estate business line (a)	39		—		39		49		—
Other business lines (b)	1		11		12		16		2
Total commercial mortgage	40		11		51		65		2
International	2		1		3		9		—
Total business loans	54		155		209		327		34

Retail loans:
Residential mortgage	17		8		25		27		—
Consumer:
Home equity	9		—		9		10		—
Total retail loans (c)	26		8		34		37		—
Total individually evaluated impaired loans	$	80	$	163	$	243	$	364	$	34
December 31, 2018
Business loans:
Commercial	$	50	$	130	$	180	$	227	$	24
Commercial mortgage:
Commercial Real Estate business line (a)	39		—		39		49		—
Other business lines (b)	2		16		18		23		3
Total commercial mortgage	41		16		57		72		3
International	2		1		3		8		—
Total business loans	93		147		240		307		27

Retail loans:
Residential mortgage	16		8		24		25		—
Consumer:
Home equity	11		—		11		13		—
Other consumer	1		—		1		1		—
Total consumer	12		—		12		14		—
Total retail loans (c)	28		8		36		39		—
Total individually evaluated impaired loans	$	121	$	155	$	276	$	346	$	27



	Individually Evaluated Impaired Loans
	2019				2018
(in millions)	Average Balance for the Period		Interest Income Recognized for the Period		Average Balance for the Period		Interest Income Recognized for the Period
Three Months Ended September 30
Business loans:
Commercial	$	152	$	—	$	221	$	2
Commercial mortgage:
Commercial Real Estate business line (a)	39		1		40		1
Other business lines (b)	13		1		24		—
Total commercial mortgage	52		2		64		1
Lease financing	1		—		—		—
International	3		—		5		—
Total business loans	208		2		290		3

Retail loans:
Residential mortgage	24		1		20		—
Consumer loans:
Home equity	9		—		11		—
Other consumer	—		—		1		—
Total consumer	9		—		12		—
Total retail loans	33		1		32		—
Total individually evaluated impaired loans	$	241	$	3	$	322	$	3
Nine Months Ended September 30
Business loans:
Commercial	$	157	$	2	$	282	$	4
Commercial mortgage:
Commercial Real Estate business line (a)	39		2		40		3
Other business lines (b)	15		1		24		—
Total commercial mortgage	54		3		64		3
Lease financing	1		—		—		—
International	3		—		5		—
Total business loans	215		5		351		7

Retail loans:
Residential mortgage	24		1		20		—
Consumer:
Home equity	9		—		11		—
Other consumer	1		—		1		—
Total consumer	10		—		12		—
Total retail loans	34		1		32		—
Total individually evaluated impaired loans	$	249	$	6	$	383	$	7



	Principal Deferrals
(in millions)	2019		2018
September 30
Business loans:
Commercial	$	19	$	59
Commercial mortgage:
Other business lines (a)	—		3
International	—		1
Total business loans	19		63
Retail loans:
Consumer:
Home equity (b)	—		1
Total loans	$	19	$	64



					Weighted Average
(dollar amounts in millions)	Derivative Notional Amount		Carrying Value of Hedged Items (a)		Remaining Maturity (in years)	Receive Rate	Pay Rate (b)
September 30, 2019
Swaps - cash flow - receive fixed/pay floating rate
Variable rate loans	$	3,800			3.3	2.04	2.07
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt	3,325		$	3,511	4.8	3.44	3.09
December 31, 2018
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt	2,625		2,663		3.9	3.40	3.45


Qualified Defined Benefit Pension Plan	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Service cost	$	8	$	7	$	16	$	15

Other components of net benefit credit:
Interest cost	17		20		35		40
Expected return on plan assets	(42)		(41)		(85)		(83)
Amortization of prior service credit	(5)		(4)		(10)		(9)
Amortization of net loss	13		8		27		17
Total other components of net benefit credit	(17)		(17)		(33)		(35)
Net periodic defined benefit credit	$	(9)	$	(10)	$	(17)	$	(20)


Postretirement Benefit Plan	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Other components of net benefit credit:
Interest cost	$	—	$	—	$	—	$	1
Expected return on plan assets	(1)		—		(1)		(1)




Net periodic defined benefit credit	$	(1)	$	—	$	(1)	$	—



Non-Qualified Defined Benefit Pension Plan	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2019			2018			2019			2018
Service cost	$	—		$	—		$	2		$	1

Other components of net benefit cost:
Interest cost	3			2			7			6
Amortization of prior service credit	(2		)	(1		)	(6		)	(6		)
Amortization of net loss	1			2			5			7
Total other components of net benefit cost	2			3			6			7
Net periodic defined benefit cost	$	2		$	3		$	8		$	8



	Business Bank			Retail Bank			Wealth Management			Finance			Other				Total
(dollar amounts in millions)	Business Bank			Retail Bank			Wealth Management			Finance			Other				Total
Three Months Ended September 30, 2019
Earnings summary:
Net interest income (expense)	$	420		$	142		$	47		$	(38	)	$	15			$	586
Provision for credit losses	39			(2		)	(3		)	—			1				35
Noninterest income	140			31			69			12			4				256
Noninterest expenses	199			149			69			(1		)	19				435
Provision (benefit) for income taxes	74			5			12			(8		)	(3		)	(a)	80
Net income (loss)	$	248		$	21		$	38		$	(17	)	$	2			$	292
Net credit-related charge-offs (recoveries)	$	43		$	1		$	(2	)	$	—		$	—			$	42

Selected average balances:
Assets	$	45,459		$	2,871		$	5,032		$	14,392		$	3,982			$	71,736
Loans	43,889			2,114			4,884			—			—				50,887
Deposits	28,917			20,761			3,775			2,049			214				55,716

Statistical data:
Return on average assets (b)	2.17		%	0.39		%	3.01		%	n/m			n/m				1.61		%
Efficiency ratio (c)	35.62			84.54			59.79			n/m			n/m				51.54

Three Months Ended September 30, 2018
Earnings summary:
Net interest income (expense)	$	414		$	140		$	46		$	(16	)	$	15			$	599
Provision for credit losses	—			1			1			—			(2		)		—
Noninterest income	137			35			66			(7		)	3				234
Noninterest expenses	211			153			72			(1		)	17				452
Provision (benefit) for income taxes	76			5			10			(8		)	(20		)	(a)	63
Net income (loss)	$	264		$	16		$	29		$	(14	)	$	23			$	318
Net credit-related charge-offs	$	14		$	—		$	1		$	—		$	—			$	15

Selected average balances:
Assets	$	43,165		$	2,621		$	5,068		$	13,696		$	6,660			$	71,210
Loans	41,591			2,057			4,936			—			—				48,584
Deposits	30,286			20,765			3,988			929			125				56,093

Statistical data:
Return on average assets (b)	2.43		%	0.31		%	2.28		%	n/m			n/m				1.77		%
Efficiency ratio (c)	38.24			86.96			63.93			n/m			n/m				52.93


~~(b)~~	~~Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.~~


~~(c)~~	Noninterest expenses as a percentage of the sum of net interest income and noninterest income excluding net gains (losses) from securities and a derivative contract tied to the conversion rate of Visa Class B shares.


	Commercial Bank			Retail Bank			Wealth Management			Finance		Other		Total
(dollar amounts in millions)
Six Months Ended June 30, 2020
Earnings summary:
Net interest income (expense)	$	782		$	245		$	81		$	(139)	$	15	$	984
Provision for credit losses	513			8			28			—		—		549
Noninterest income	271			52			136			25		—		484
Noninterest expenses	401			304			145			1		14		865
Provision (benefit) for income taxes	27			(4)			9			(28)		2		6
Net income (loss)	$	112		$	(11)		$	35		$	(87)	$	(1)	$	48
Net credit-related charge-offs	$	131		$	2		$	1		$	—	$	—	$	134

Selected average balances:
Assets	$	45,823		$	3,085		$	5,134		$	14,393	$	9,019	$	77,454
Loans	44,253			2,277			5,007			—		14		51,551
Deposits	33,274			21,921			4,120			1,043		166		60,524

Statistical data:
Return on average assets (a)	0.49		%	(0.10)		%	1.34		%	n/m		n/m		0.12		%
Efficiency ratio (b)	38.05			101.41			67.00			n/m		n/m		58.80

Six Months Ended June 30, 2019
Earnings summary:
Net interest income (expense)	$	832		$	292		$	93		$	(37)	$	29	$	1,209
Provision for credit losses	46			(3)			(10)			—		(2)		31
Noninterest income	272			64			132			17		3		488
Noninterest expenses	393			292			139			1		32		857
Provision (benefit) for income taxes	153			16			23			(8)		(12)		172
Net income (loss)	$	512		$	51		$	73		$	(13)	$	14	$	637
Net credit-related charge-offs (recoveries)	$	47		$	—		$	(3)		$	—	$	—	$	44

Selected average balances:
Assets	$	44,619		$	2,826		$	5,121		$	13,747	$	4,202	$	70,515
Loans	43,241			2,105			4,983			—		(6)		50,323
Deposits	28,356			20,560			3,770			1,655		157		54,498

Statistical data:
Return on average assets (a)	2.31		%	0.49		%	2.88		%	n/m		n/m		1.82		%
Efficiency ratio (b)	35.61			81.80			61.67			n/m		n/m		50.23


~~(a)~~	~~Included in commercial lending fees on the Consolidated Statements of Comprehensive Income.~~


~~(b)~~	~~Excludes derivative, warrant and other miscellaneous income.~~



(in millions)
Years Ending December 31
2019 (a)	$	10
2020	64
2021	59
2022	50
2023	44
Thereafter	204
Total contractual maturities	431
Less imputed interest	(73		)
Total operating lease liabilities	$	358



	Three Months Ended
	September 30, 2019							September 30, 2018
(dollar amounts in millions)	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
Commercial loans	$	32,329		$	392	4.82	%	$	30,371		$	365	4.74	%
Real estate construction loans	3,344			47		5.53		3,198			43		5.38
Commercial mortgage loans	9,264			112		4.82		9,084			110		4.84
Lease financing	578			6		3.83		464			4		3.69
International loans	1,007			13		5.12		1,072			13		4.99
Residential mortgage loans	1,920			18		3.84		1,962			18		3.71
Consumer loans	2,445			31		4.92		2,433			28		4.49
Total loans (a)	50,887			619		4.83		48,584			581		4.74

Mortgage-backed securities	9,408			58		2.45		9,063			54		2.30
Other investment securities	2,795			17		2.45		2,698			12		1.72
Total investment securities	12,203			75		2.45		11,761			66		2.17

Interest-bearing deposits with banks	3,049			16		2.13		5,362			28		2.03
Other short-term investments	146			1		1.28		135			—		1.04
Total earning assets	66,285			711		4.26		65,842			675		4.05

Cash and due from banks	864							1,107
Allowance for loan losses	(673		)					(681		)
Accrued income and other assets	5,260							4,942
Total assets	$	71,736						$	71,210

Money market and interest-bearing checking deposits	$	23,485		57		0.97		$	22,573		32		0.56
Savings deposits	2,155			1		0.04		2,208			1		0.05
Customer certificates of deposit	2,627			8		1.30		2,086			2		0.48
Other time deposits	1,085			7		2.46		8			—		1.86
Foreign office time deposits	13			—		1.45		25			—		1.25
Total interest-bearing deposits	29,365			73		0.99		26,900			35		0.51

Short-term borrowings	268			2		2.33		85			1		1.98
Medium- and long-term debt	7,100			50		2.78		6,153			40		2.61
Total interest-bearing sources	36,733			125		1.34		33,138			76		0.91

Noninterest-bearing deposits	26,351							29,193
Accrued expenses and other liabilities	1,398							1,062
Total shareholders’ equity	7,254							7,817
Total liabilities and shareholders’ equity	$	71,736						$	71,210

Net interest income/rate spread				$	586	2.92					$	599	3.14

Impact of net noninterest-bearing sources of funds						0.60							0.45
Net interest margin (as a percentage of average earning assets)						3.52	%						3.59	%



	Three Months Ended
	September 30, 2019/September 30, 2018
(in millions)	Increase (Decrease) Due to Rate			Increase (Decrease) Due to Volume (a)			Net Increase (Decrease)
Interest Income:
Loans	$	11		$	27		$	38
Investment securities	6			3			9
Interest-bearing deposits with banks	1			(13		)	(12		)
Other short-term investments	—			1			1
Total interest income	18			18			36

Interest Expense:
Interest-bearing deposits	29			9			38
Short-term borrowings	—			1			1
Medium- and long-term debt	1			9			10
Total interest expense	30			19			49

Net interest income	$	(12	)	$	(1	)	$	(13	)



	Nine Months Ended
	September 30, 2019							September 30, 2018
(dollar amounts in millions)	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
Commercial loans	$	32,135		$	1,191	4.97	%	$	30,494		$	1,037	4.54	%
Real estate construction loans	3,301			140		5.67		3,152			120		5.08
Commercial mortgage loans	9,108			342		5.02		9,158			315		4.61
Lease financing	548			14		3.34		462			13		3.85
International loans	1,015			40		5.26		1,017			37		4.88
Residential mortgage loans	1,943			56		3.87		1,988			56		3.76
Consumer loans	2,464			92		4.98		2,473			80		4.32
Total loans (a)	50,514			1,875		4.96		48,744			1,658		4.55

Mortgage-backed securities	9,320			172		2.44		9,109			158		2.25
Other investment securities	2,764			50		2.42		2,714			36		1.72
Total investment securities	12,084			222		2.43		11,823			194		2.13

Interest-bearing deposits with banks	2,866			49		2.29		4,625			63		1.82
Other short-term investments	140			2		1.32		134			—		0.90
Total earning assets	65,604			2,148		4.37		65,326			1,915		3.91

Cash and due from banks	896							1,200
Allowance for loan losses	(668		)					(702		)
Accrued income and other assets	5,095							4,865
Total assets	$	70,927						$	70,689

Money market and interest-bearing checking deposits	$	23,006		157		0.91		$	22,219		72		0.43
Savings deposits	2,164			1		0.04		2,205			1		0.04
Customer certificates of deposit	2,383			19		1.09		2,090			6		0.40
Other time deposits	804			15		2.45		3			—		1.86
Foreign office time deposits	13			—		1.51		30			—		1.17
Total interest-bearing deposits	28,370			192		0.91		26,547			79		0.40

Short-term borrowings	472			9		2.43		59			1		1.81
Medium- and long-term debt	6,837			152		2.97		5,647			97		2.31
Total interest-bearing sources	35,679			353		1.32		32,253			177		0.74

Noninterest-bearing deposits	26,539							29,457
Accrued expenses and other liabilities	1,377							1,072
Total shareholders’ equity	7,332							7,907
Total liabilities and shareholders’ equity	$	70,927						$	70,689

Net interest income/rate spread				$	1,795	3.05					$	1,738	3.17

Impact of net noninterest-bearing sources of funds						0.60							0.37
Net interest margin (as a percentage of average earning assets)						3.65	%						3.54	%



	September 30,
	2019	2018
Michigan	192	193
Texas	123	121
California	96	96
Other Markets	25	25
Total	436	435



(in millions)
Balance at January 1, 2019			$	7,507
Cumulative effect of change in accounting principle			(14		)
Net income			929
Cash dividends declared on common stock			(302		)
Purchase of common stock			(1,229		)
Other comprehensive income:
Investment securities	$	211
Cash flow hedges	54
Defined benefit and other postretirement plans	8
Total other comprehensive income			273
Issuance of common stock under employee stock plans			(1		)
Share-based compensation			37
Balance at September 30, 2019			$	7,200


~~(a)~~	~~TDRs that do not include a reduction in the original contractual interest rate which are performing in accordance with their modified terms.~~


~~(a)~~	~~Based on an analysis of nonaccrual loans with book balances greater than $2 million.~~