UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

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


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

For the transition period from to

Commission file number 1-10706

Comerica Incorporated

(Exact name of registrant as specified in its charter)


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

Comerica Bank Tower

1717 Main Street, MC 6404

Dallas, Texas 75201

(Address of principal executive offices)

(Zip Code)

(214) 462-6831

(Registrant’s telephone number, including area code)

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

$5 par value common stock:

Outstanding as of ~~July 27,~~October 28, 2020: ~~139,039,348~~139,087,862 shares

Table of Contents

COMERICA INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

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

Consolidated Statements of Comprehensive Income for the Three and ~~and Six~~Nine Months Ended September ~~June~~ 30,, 2020 an dand 2019 (unaudited)			2

Consolidated Statements of Changes in Shareholders’ Equity for the Three and ~~and Six~~Nine Months Ended ~~June~~September 30, 2 3 0 ~~, 2020~~020 and 2019 (unaudited)			3

Consolidated Statements of Cash Flows for the Nine M onths Ended ~~Six~~ ~~Months Ended~~ ~~June~~ 3 0September 30 , 2020 and 2019 (unaudited)			4

Notes to Consolidated Financial Statements (unaudited)			5

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

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			6567

ITEM 4. Controls and Procedures			6567

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings			6567

ITEM 1A. Risk Factors			6567

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			6668

ITEM 6. Exhibits			6769

Signature			6870

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

Comerica Incorporated and Subsidiaries


(in millions, except share data)	(in millions, except share data)	June 30, 2020		December 31, 2019		(in millions, except share data)	September 30, 2020		December 31, 2019
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	1,048	$	973	Cash and due from banks	$	988	$	973
Interest-bearing deposits with banks	Interest-bearing deposits with banks	12,263		4,845		Interest-bearing deposits with banks	10,153		4,845
Other short-term investments	Other short-term investments	153		155		Other short-term investments	160		155
Investment securities available-for-sale	Investment securities available-for-sale	12,759		12,398		Investment securities available-for-sale	15,090		12,398

Commercial loans	Commercial loans	33,826		31,473		Commercial loans	32,604		31,473
Real estate construction loans	Real estate construction loans	3,952		3,455		Real estate construction loans	4,146		3,455
Commercial mortgage loans	Commercial mortgage loans	9,925		9,559		Commercial mortgage loans	10,002		9,559
Lease financing	Lease financing	589		588		Lease financing	601		588
International loans	International loans	1,104		1,009		International loans	923		1,009
Residential mortgage loans	Residential mortgage loans	1,886		1,845		Residential mortgage loans	1,927		1,845
Consumer loans	Consumer loans	2,164		2,440		Consumer loans	2,166		2,440
Total loans	Total loans	53,446		50,369		Total loans	52,369		50,369
Less allowance for loan losses	Less allowance for loan losses	(1,007)		(637)		Less allowance for loan losses	(978)		(637)
Net loans	Net loans	52,439		49,732		Net loans	51,391		49,732
Premises and equipment	Premises and equipment	450		457		Premises and equipment	456		457
Accrued income and other assets	Accrued income and other assets	5,285		4,842		Accrued income and other assets	5,393		4,842
Total assets	Total assets	$	84,397	$	73,402	Total assets	$	83,631	$	73,402
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	Noninterest-bearing deposits	$	35,582	$	27,382	Noninterest-bearing deposits	$	36,533	$	27,382
Money market and interest-bearing checking deposits	Money market and interest-bearing checking deposits	26,895		24,527		Money market and interest-bearing checking deposits	26,948		24,527
Savings deposits	Savings deposits	2,500		2,184		Savings deposits	2,588		2,184
Customer certificates of deposit	Customer certificates of deposit	2,656		2,978		Customer certificates of deposit	2,300		2,978
Other time deposits	Other time deposits	—		133		Other time deposits	0		133
Foreign office time deposits	Foreign office time deposits	87		91		Foreign office time deposits	90		91
Total interest-bearing deposits	Total interest-bearing deposits	32,138		29,913		Total interest-bearing deposits	31,926		29,913
Total deposits	Total deposits	67,720		57,295		Total deposits	68,459		57,295
Short-term borrowings	Short-term borrowings	752		71		Short-term borrowings	10		71
Accrued expenses and other liabilities	Accrued expenses and other liabilities	1,602		1,440		Accrued expenses and other liabilities	1,534		1,440
Medium- and long-term debt	Medium- and long-term debt	6,521		7,269		Medium- and long-term debt	5,754		7,269
Total liabilities	Total liabilities	76,595		66,075		Total liabilities	75,757		66,075
Fixed rate reset non-cumulative perpetual preferred stock, series A, 0 par value, $100,000 liquidation preference per share:	Fixed rate reset non-cumulative perpetual preferred stock, series A, 0 par value, $100,000 liquidation preference per share:					Fixed rate reset non-cumulative perpetual preferred stock, series A, 0 par value, $100,000 liquidation preference per share:
Authorized - 4,000 shares	Authorized - 4,000 shares					Authorized - 4,000 shares
Issued - 4,000 shares at 6/30/2020		395		—
Issued - 4,000 shares at 9/30/2020						Issued - 4,000 shares at 9/30/2020	394		0
Common stock - $5 par value:	Common stock - $5 par value:					Common stock - $5 par value:
Authorized - 325,000,000 shares	Authorized - 325,000,000 shares					Authorized - 325,000,000 shares
Issued - 228,164,824 shares	Issued - 228,164,824 shares	1,141		1,141		Issued - 228,164,824 shares	1,141		1,141
Capital surplus	Capital surplus	2,173		2,174		Capital surplus	2,179		2,174
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	158		(235)		Accumulated other comprehensive income (loss)	116		(235)
Retained earnings	Retained earnings	9,404		9,538		Retained earnings	9,511		9,538
Less cost of common stock in treasury - 89,124,560 shares at 6/30/2020 and 86,069,234 shares at 12/31/2019		(5,469)		(5,291)
Less cost of common stock in treasury - 89,095,470 shares at 9/30/2020 and 86,069,234 shares at 12/31/2019						Less cost of common stock in treasury - 89,095,470 shares at 9/30/2020 and 86,069,234 shares at 12/31/2019	(5,467)		(5,291)
Total shareholders’ equity	Total shareholders’ equity	7,802		7,327		Total shareholders’ equity	7,874		7,327
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	84,397	$	73,402	Total liabilities and shareholders’ equity	$	83,631	$	73,402

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

(in millions, except per share data)	(in millions, except per share data)	2020		2019		2020		2019		(in millions, except per share data)	2020		2019		2020		2019
INTEREST INCOME	INTEREST INCOME									INTEREST INCOME
Interest and fees on loans	Interest and fees on loans	$	434	$	635	$	951	$	1,256	Interest and fees on loans	$	408	$	619	$	1,359	$	1,875
Interest on investment securities	Interest on investment securities	74		75		148		147		Interest on investment securities	72		75		220		222
Interest on short-term investments	Interest on short-term investments	3		17		21		34		Interest on short-term investments	4		17		25		51
Total interest income	Total interest income	511		727		1,120		1,437		Total interest income	484		711		1,604		2,148
INTEREST EXPENSE	INTEREST EXPENSE									INTEREST EXPENSE
Interest on deposits	Interest on deposits	20		67		76		119		Interest on deposits	15		73		91		192
Interest on short-term borrowings	Interest on short-term borrowings	1		6		1		7		Interest on short-term borrowings	0		2		1		9
Interest on medium- and long-term debt	Interest on medium- and long-term debt	19		51		59		102		Interest on medium- and long-term debt	11		50		70		152
Total interest expense	Total interest expense	40		124		136		228		Total interest expense	26		125		162		353
Net interest income	Net interest income	471		603		984		1,209		Net interest income	458		586		1,442		1,795
Provision for credit losses	Provision for credit losses	138		44		549		31		Provision for credit losses	5		35		554		66
Net interest income after provision for credit losses	Net interest income after provision for credit losses	333		559		435		1,178		Net interest income after provision for credit losses	453		551		888		1,729
NONINTEREST INCOME	NONINTEREST INCOME									NONINTEREST INCOME
Card fees	Card fees	68		65		127		128		Card fees	71		67		198		195
Fiduciary income	Fiduciary income	52		52		106		101		Fiduciary income	51		53		157		154
Service charges on deposit accounts	Service charges on deposit accounts	42		51		91		102		Service charges on deposit accounts	47		51		138		153
Commercial lending fees	Commercial lending fees	17		21		34		43		Commercial lending fees	19		23		53		66
Foreign exchange income	Foreign exchange income	9		11		20		22		Foreign exchange income	9		11		29		33
Bank-owned life insurance	Bank-owned life insurance	9		11		21		20		Bank-owned life insurance	12		11		33		31
Letter of credit fees	Letter of credit fees	9		10		18		19		Letter of credit fees	9		10		27		29
Brokerage fees	Brokerage fees	5		7		12		14		Brokerage fees	5		7		17		21
Net securities gains (losses)		1		—		—		(8)
Net securities losses										Net securities losses	0		0		0		(8)
Other noninterest income	Other noninterest income	35		22		55		47		Other noninterest income	29		23		84		70
Total noninterest income	Total noninterest income	247		250		484		488		Total noninterest income	252		256		736		744
NONINTEREST EXPENSES	NONINTEREST EXPENSES									NONINTEREST EXPENSES
Salaries and benefits expense	Salaries and benefits expense	249		245		491		510		Salaries and benefits expense	257		253		748		763
Outside processing fee expense	Outside processing fee expense	62		65		119		128		Outside processing fee expense	58		66		177		194
Occupancy expense	Occupancy expense	37		37		74		74		Occupancy expense	40		39		114		113
Software expense	Software expense	39		28		76		57		Software expense	39		30		115		87
Equipment expense	Equipment expense	12		12		24		24		Equipment expense	12		13		36		37
Advertising expense	Advertising expense	8		9		15		14		Advertising expense	9		10		24		24
FDIC insurance expense	FDIC insurance expense	8		6		16		11		FDIC insurance expense	8		6		24		17
Other noninterest expenses	Other noninterest expenses	25		22		50		39		Other noninterest expenses	23		18		73		57
Total noninterest expenses	Total noninterest expenses	440		424		865		857		Total noninterest expenses	446		435		1,311		1,292
Income before income taxes	Income before income taxes	140		385		54		809		Income before income taxes	259		372		313		1,181
Provision for income taxes	Provision for income taxes	27		87		6		172		Provision for income taxes	48		80		54		252
NET INCOME	NET INCOME	113		298		48		637		NET INCOME	211		292		259		929
Less income allocated to participating securities		1		1		1		3
Less:										Less:
Income allocated to participating securities										Income allocated to participating securities	0		2		1		5
Preferred stock dividends										Preferred stock dividends	8		0		8		0
Net income attributable to common shares	Net income attributable to common shares	$	112	$	297	$	47	$	634	Net income attributable to common shares	$	203	$	290	$	250	$	924
Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic	Basic	$	0.81	$	1.95	$	0.34	$	4.10	Basic	$	1.45	$	1.98	$	1.79	$	6.08
Diluted	Diluted	0.80		1.94		0.34		4.06		Diluted	1.44		1.96		1.78		6.02
Comprehensive income	Comprehensive income	97		429		441		864		Comprehensive income	169		338		610		1,202
Cash dividends declared on common stock	Cash dividends declared on common stock	98		100		192		205		Cash dividends declared on common stock	94		97		284		302
Cash dividends declared per common share	Cash dividends declared per common share	0.68		0.67		1.36		1.34		Cash dividends declared per common share	0.68		0.67		2.04		2.01

See notes to consolidated financial statements (unaudited).

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Comerica Incorporated and Subsidiaries


									Accumulated																Accumulated
		Nonredeemable		Common Stock							Other						Total			Nonredeemable	Common Stock						Other						Total
		Preferred		Shares			Capital		Comprehensive		Retained		Treasury		Shareholders'			Preferred		Shares			Capital		Comprehensive		Retained		Treasury		Shareholders'
(in millions, except per share data)	(in millions, except per share data)	Stock		Outstanding	Amount		Surplus		Income (Loss)		Earnings		Stock		Equity		(in millions, except per share data)	Stock		Outstanding	Amount		Surplus		Income (Loss)		Earnings		Stock		Equity
BALANCE AT MARCH 31, 2019		$	—	155.4	$	1,141	$	2,159	$	(513)	$	8,979	$	(4,357)	$	7,409
BALANCE AT JUNE 30, 2019																	BALANCE AT JUNE 30, 2019	$	—	149.8	$	1,141	$	2,168	$	(382)	$	9,176	$	(4,780)	$	7,323

Net income	Net income	—		—	—		—		—		298		—		298		Net income	—		—	—		—		—		292		—		292
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—	—		—		131		—		—		131		Other comprehensive income, net of tax	—		—	—		—		46		—		—		46
Cash dividends declared on common stock ($0.67 per share)	Cash dividends declared on common stock ($0.67 per share)	—		—	—		—		—		(100)		—		(100)		Cash dividends declared on common stock ($0.67 per share)	—		—	—		—		—		(97)		—		(97)
Purchase of common stock	Purchase of common stock	—		(5.7)	—		—		—		—		(425)		(425)		Purchase of common stock	—		(5.7)	—		—		—		—		(370)		(370)
Net issuance of common stock under employee stock plans	Net issuance of common stock under employee stock plans	—		0.1	—		1		—		(1)		2		2		Net issuance of common stock under employee stock plans	—		0	—		(1)		—		(2)		4		1

Share-based compensation	Share-based compensation	—		—	—		8		—		—		—		8		Share-based compensation	—		—	—		5		—		—		—		5

BALANCE AT JUNE 30, 2019		$	—	149.8	$	1,141	$	2,168	$	(382)	$	9,176	$	(4,780)	$	7,323
BALANCE AT MARCH 31, 2020		$	—	139.0	$	1,141	$	2,168	$	174	$	9,389	$	(5,470)	$	7,402
BALANCE AT SEPTEMBER 30, 2019																	BALANCE AT SEPTEMBER 30, 2019	$	—	144.1	$	1,141	$	2,172	$	(336)	$	9,369	$	(5,146)	$	7,200
BALANCE AT JUNE 30, 2020																	BALANCE AT JUNE 30, 2020	$	395	139.0	$	1,141	$	2,173	$	158	$	9,404	$	(5,469)	$	7,802
Net income	Net income	—		—	—		—		—		113		—		113		Net income	—		—	—		—		—		211		—		211
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—		—	—		—		(16)		—		—		(16)		Other comprehensive loss, net of tax	—		—	—		—		(42)		—		—		(42)
Cash dividends declared on common stock ($0.68 per share)	Cash dividends declared on common stock ($0.68 per share)	—		—	—		—		—		(98)		—		(98)		Cash dividends declared on common stock ($0.68 per share)	—		—	—		—		—		(94)		—		(94)
Purchase of common stock		—		—	—		—		—		—		1		1
Cash dividends declared on preferred stock																	Cash dividends declared on preferred stock	—		—	—		—		—		(8)		—		(8)

Issuance of preferred stock	Issuance of preferred stock	395		—	—		—		—		—		—		395		Issuance of preferred stock	(1)		—	—		—		—		—		—		(1)
Net issuance of common stock under employee stock plans	Net issuance of common stock under employee stock plans	—		—	—		1		—		—		—		1		Net issuance of common stock under employee stock plans	—		0.1	—		0		—		(2)		2		0
Share-based compensation	Share-based compensation	—		—	—		4		—		—		—		4		Share-based compensation	—		—	—		6		—		—		—		6

BALANCE AT JUNE 30, 2020		$	395	139.0	$	1,141	$	2,173	$	158	$	9,404	$	(5,469)	$	7,802
BALANCE AT SEPTEMBER 30, 2020																	BALANCE AT SEPTEMBER 30, 2020	$	394	139.1	$	1,141	$	2,179	$	116	$	9,511	$	(5,467)	$	7,874
BALANCE AT DECEMBER 31, 2018	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	Cumulative effect of change in accounting principle	—		—	—		—		—		(14)		—		(14)		Cumulative effect of change in accounting principle	—		—	—		—		—		(14)		—		(14)
Net income	Net income	—		—	—		—		—		637		—		637		Net income	—		—	—		—		—		929		—		929
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—	—		—		227		—		—		227		Other comprehensive income, net of tax	—		—	—		—		273		—		—		273
Cash dividends declared on common stock ($1.34 per share)		—		—	—		—		—		(205)		—		(205)
Cash dividends declared on common stock ($2.01 per share)																	Cash dividends declared on common stock ($2.01 per share)	—		—	—		—		—		(302)		—		(302)
Purchase of common stock	Purchase of common stock	—		(10.9)	—		—		—		—		(859)		(859)		Purchase of common stock	—		(16.6)	—		0		—		—		(1,229)		(1,229)

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

Share-based compensation	Share-based compensation	—		—	—		32		—		—		—		32		Share-based compensation	—		—	—		37		—		—		—		37

BALANCE AT JUNE 30, 2019		$	—	149.8	$	1,141	$	2,168	$	(382)	$	9,176	$	(4,780)	$	7,323
BALANCE AT SEPTEMBER 30, 2019																	BALANCE AT SEPTEMBER 30, 2019	$	—	144.1	$	1,141	$	2,172	$	(336)	$	9,369	$	(5,146)	$	7,200
BALANCE AT DECEMBER 31, 2019	BALANCE AT DECEMBER 31, 2019	$	—	142.1	$	1,141	$	2,174	$	(235)	$	9,538	$	(5,291)	$	7,327	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		Cumulative effect of change in accounting principle	—		—	—		—		—		13		—		13
Net income	Net income	—		—	—		—		—		48		—		48		Net income	—		—	—		—		—		259		—		259
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—	—		—		393		—		—		393		Other comprehensive income, net of tax	—		—	—		—		351		—		—		351
Cash dividends declared on common stock ($1.36 per share)		—		—	—		—		—		(192)		—		(192)
Cash dividends declared on common stock ($2.04 per share)																	Cash dividends declared on common stock ($2.04 per share)	—		—	—		—		—		(284)		—		(284)
Cash dividends declared on preferred stock																	Cash dividends declared on preferred stock	—		—	—		—		—		(8)		—		(8)
Purchase of common stock	Purchase of common stock	—		(3.4)	—		—		—		—		(194)		(194)		Purchase of common stock	—		(3.4)	—		0		—		—		(194)		(194)

Issuance of preferred stock	Issuance of preferred stock	395		—	—		—		—		—		—		395		Issuance of preferred stock	394		—	—		—		—		—		—		394
Net issuance of common stock under employee stock plans	Net issuance of common stock under employee stock plans	—		0.3	—		(13)		—		(3)		16		—		Net issuance of common stock under employee stock plans	—		0.4	—		(13)		—		(7)		18		(2)

Share-based compensation	Share-based compensation	—		—	—		12		—		—		—		12		Share-based compensation	—		—	—		18		—		—		—		18

BALANCE AT JUNE 30, 2020		$	395	139.0	$	1,141	$	2,173	$	158	$	9,404	$	(5,469)	$	7,802
BALANCE AT SEPTEMBER 30, 2020																	BALANCE AT SEPTEMBER 30, 2020	$	394	139.1	$	1,141	$	2,179	$	116	$	9,511	$	(5,467)	$	7,874

See notes to consolidated financial statements (unaudited).

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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Comerica Incorporated and Subsidiaries


		Six Months Ended June 30,							Nine Months Ended September 30,

(in millions)	(in millions)	2020		2019		(in millions)	2020		2019
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income	Net income	$	48	$	637	Net income	$	259	$	929
Adjustments to reconcile net income to net cash provided by operating activities:	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	Provision for credit losses	549		31		Provision for credit losses	554		66
Benefit for deferred income taxes		(95)		(4)
(Benefit) provision for deferred income taxes						(Benefit) provision for deferred income taxes	(104)		4
Depreciation and amortization	Depreciation and amortization	55		57		Depreciation and amortization	82		84
Net periodic defined benefit credit	Net periodic defined benefit credit	(13)		(14)		Net periodic defined benefit credit	(19)		(23)
Share-based compensation expense	Share-based compensation expense	12		32		Share-based compensation expense	18		37
Net amortization of securities	Net amortization of securities	1		1		Net amortization of securities	7		2

Net securities losses	Net securities losses	—		8		Net securities losses	0		8

Net gains on sales of foreclosed property						Net gains on sales of foreclosed property	(1)		0

Net change in:	Net change in:					Net change in:

Accrued income receivable	Accrued income receivable	43		(12)		Accrued income receivable	32		1
Accrued expenses payable	Accrued expenses payable	(64)		(86)		Accrued expenses payable	(50)		(39)
Other, net	Other, net	208		(225)		Other, net	(58)		(200)
Net cash provided by operating activities	Net cash provided by operating activities	744		425		Net cash provided by operating activities	720		869
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Investment securities available-for-sale:	Investment securities available-for-sale:					Investment securities available-for-sale:
Maturities and redemptions	Maturities and redemptions	1,311		991		Maturities and redemptions	2,344		1,615
Sales	Sales	—		987		Sales	0		987
Purchases	Purchases	(1,387)		(2,043)		Purchases	(4,796)		(2,721)

Net change in loans	Net change in loans	(3,229)		(1,685)		Net change in loans	(2,185)		(1,419)
Proceeds from sales of foreclosed property	Proceeds from sales of foreclosed property	1		—		Proceeds from sales of foreclosed property	3		1
Net increase in premises and equipment	Net increase in premises and equipment	(29)		(29)		Net increase in premises and equipment	(51)		(62)

Federal Home Loan Bank stock:	Federal Home Loan Bank stock:					Federal Home Loan Bank stock:
Purchases	Purchases	(51)		(49)		Purchases	(51)		(201)
Redemptions	Redemptions	30		—		Redemptions	92		201

Proceeds from bank-owned life insurance settlements	Proceeds from bank-owned life insurance settlements	10		7		Proceeds from bank-owned life insurance settlements	14		7

Other, net						Other, net	0		2
Net cash used in investing activities	Net cash used in investing activities	(3,344)		(1,821)		Net cash used in investing activities	(4,630)		(1,590)
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Net change in:	Net change in:					Net change in:
Deposits	Deposits	10,327		(209)		Deposits	11,054		1,105
Short-term borrowings	Short-term borrowings	681		1,689		Short-term borrowings	(61)		7
Medium- and long-term debt:	Medium- and long-term debt:					Medium- and long-term debt:
Maturities and redemptions	Maturities and redemptions	(925)		(350)		Maturities and redemptions	(1,675)		(350)
Issuances and advances	Issuances and advances	—		350		Issuances and advances	0		1,050

Preferred stock:	Preferred stock:					Preferred stock:
Issuance	Issuance	395		—		Issuance	394		0
Common stock:	Common stock:					Common stock:
Repurchases	Repurchases	(199)		(872)		Repurchases	(199)		(1,242)
Cash dividends paid	Cash dividends paid	(191)		(203)		Cash dividends paid	(282)		(303)
Issuances under employee stock plans	Issuances under employee stock plans	5		11		Issuances under employee stock plans	2		12

Other, net						Other, net	0		(2)
Net cash provided by financing activities	Net cash provided by financing activities	10,093		416		Net cash provided by financing activities	9,233		277
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	7,493		(980)		Net increase (decrease) in cash and cash equivalents	5,323		(444)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	5,818		4,561		Cash and cash equivalents at beginning of period	5,818		4,561
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	13,311	$	3,581	Cash and cash equivalents at end of period	$	11,141	$	4,117
Interest paid	Interest paid	$	152	$	220	Interest paid	$	186	$	347
Income tax paid	Income tax paid	77		161		Income tax paid	133		221
Noncash investing and financing activities:	Noncash investing and financing activities:					Noncash investing and financing activities:
Loans transferred to other real estate	Loans transferred to other real estate	1		2		Loans transferred to other real estate	1		3

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 ~~six~~nine months ended ~~June~~September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 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, 2019.

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, 2020, the Corporation adopted the provisions of Accounting Standards Update (ASU) No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," commonly referred to as the current expected credit loss (CECL) model, for all financial assets, except those accounted for at fair value through net income, using the modified retrospective approach.

Under Topic 326, current expected credit losses are 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. The previous accounting principle estimated probable, estimable losses inherent in the portfolio.

At adoption, the Corporation’s estimate of current expected credit losses in accordance with Topic 326 resulted in a $17 million day-one decrease in the 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 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 the Corporation’s total loan portfolio at transition, consist of loans and lending arrangements with generally short contractual maturities. As a result, the allowance for credit losses for business loans decreased $42 million. The allowance for credit losses increased $25 million for retail loans, given their longer contractual maturities.

Topic 326 also requires expected credit losses on available-for-sale (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 zero-loss expectation applies to all the Corporation’s securities and no allowance for credit losses was recorded on its AFS 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.

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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 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~~nine-month periods ended ~~June~~September 30, 2020, software expense included $8$9 million and ~~$15~~$24 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~~$3 million for both the three- and ~~six-month~~nine-month periods ended ~~June~~September 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~~September 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 1110 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 with no impact to its financial condition and ~~for all existing hedging relationships as~~results of ~~that date or entered into in~~operation at the ~~first quarter~~time of ~~2020.~~adoption.

NOTE 2 – FAIR VALUE MEASUREMENTS

The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Corporation uses present value techniques and other valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

Investment securities available-for-sale, derivatives, deferred compensation plans and equity securities with readily determinable fair values (primarily money market mutual funds) are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as 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, 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 ~~June~~September 30, 2020 and December 31, 2019.


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

Deferred compensation plan assets	Deferred compensation plan assets	$	92	$	92	$	—	$	—	Deferred compensation plan assets	$	100	$	100	$	0	$	0
Equity securities	Equity securities	50		50		—		—		Equity securities	53		53		0		0

Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	U.S. Treasury and other U.S. government agency securities	2,852		2,852		—		—		U.S. Treasury and other U.S. government agency securities	4,683		4,683		0		0
Residential mortgage-backed securities (a)	Residential mortgage-backed securities (a)	9,907		—		9,907		—		Residential mortgage-backed securities (a)	10,407		0		10,407		0

Total investment securities available-for-sale	Total investment securities available-for-sale	12,759		2,852		9,907		—		Total investment securities available-for-sale	15,090		4,683		10,407		0
Derivative assets:	Derivative assets:									Derivative assets:
Interest rate contracts	Interest rate contracts	649		—		605		44		Interest rate contracts	601		0		559		42
Energy derivative contracts	Energy derivative contracts	271		—		271		—		Energy derivative contracts	214		0		214		0
Foreign exchange contracts	Foreign exchange contracts	15		—		15		—		Foreign exchange contracts	10		0		10		0
Total derivative assets	Total derivative assets	935		—		891		44		Total derivative assets	825		0		783		42
Total assets at fair value	Total assets at fair value	$	13,836	$	2,994	$	10,798	$	44	Total assets at fair value	$	16,068	$	4,836	$	11,190	$	42
Derivative liabilities:	Derivative liabilities:									Derivative liabilities:
Interest rate contracts	Interest rate contracts	$	73	$	—	$	73	$	—	Interest rate contracts	$	68	$	0	$	68	$	0
Energy derivative contracts	Energy derivative contracts	263		—		263		—		Energy derivative contracts	209		0		209		0
Foreign exchange contracts	Foreign exchange contracts	15		—		15		—		Foreign exchange contracts	10		0		10		0

Total derivative liabilities	Total derivative liabilities	351		—		351		—		Total derivative liabilities	287		0		287		0
Deferred compensation plan liabilities	Deferred compensation plan liabilities	92		92		—		—		Deferred compensation plan liabilities	100		100		0		0
Total liabilities at fair value	Total liabilities at fair value	$	443	$	92	$	351	$	—	Total liabilities at fair value	$	387	$	100	$	287	$	0
December 31, 2019	December 31, 2019									December 31, 2019
Deferred compensation plan assets	Deferred compensation plan assets	$	95	$	95	$	—	$	—	Deferred compensation plan assets	$	95	$	95	$	0	$	0
Equity securities	Equity securities	54		54		—		—		Equity securities	54		54		0		0

Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	U.S. Treasury and other U.S. government agency securities	2,792		2,792		—		—		U.S. Treasury and other U.S. government agency securities	2,792		2,792		0		0
Residential mortgage-backed securities (a)	Residential mortgage-backed securities (a)	9,606		—		9,606		—		Residential mortgage-backed securities (a)	9,606		0		9,606		0

Total investment securities available-for-sale	Total investment securities available-for-sale	12,398		2,792		9,606		—		Total investment securities available-for-sale	12,398		2,792		9,606		0
Derivative assets:	Derivative assets:									Derivative assets:
Interest rate contracts	Interest rate contracts	211		—		189		22		Interest rate contracts	211		0		189		22
Energy derivative contracts	Energy derivative contracts	96		—		96		—		Energy derivative contracts	96		0		96		0
Foreign exchange contracts	Foreign exchange contracts	10		—		10		—		Foreign exchange contracts	10		0		10		0

Total derivative assets	Total derivative assets	317		—		295		22		Total derivative assets	317		0		295		22
Total assets at fair value	Total assets at fair value	$	12,864	$	2,941	$	9,901	$	22	Total assets at fair value	$	12,864	$	2,941	$	9,901	$	22
Derivative liabilities:	Derivative liabilities:									Derivative liabilities:
Interest rate contracts	Interest rate contracts	$	39	$	—	$	39	$	—	Interest rate contracts	$	39	$	0	$	39	$	0
Energy derivative contracts	Energy derivative contracts	92		—		92		—		Energy derivative contracts	92		0		92		0
Foreign exchange contracts	Foreign exchange contracts	10		—		10		—		Foreign exchange contracts	10		0		10		0

Total derivative liabilities	Total derivative liabilities	141		—		141		—		Total derivative liabilities	141		0		141		0
Deferred compensation plan liabilities	Deferred compensation plan liabilities	95		95		—		—		Deferred compensation plan liabilities	95		95		0		0
Total liabilities at fair value	Total liabilities at fair value	$	236	$	95	$	141	$	—	Total liabilities at fair value	$	236	$	95	$	141	$	0

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

There were 0 transfers of assets or liabilities recorded at fair value on a recurring basis into or out of Level 3 fair value measurements during each of the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 2019.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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


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

Derivative assets:	Derivative assets:														Derivative assets:
Interest rate contracts	Interest rate contracts	$	43	$	—		$	1			$	—	$	44	Interest rate contracts	$	44					$	0				$	(2)					$	0					$	42

Three Months Ended June 30, 2019
Three Months Ended September 30, 2019															Three Months Ended September 30, 2019

Derivative assets:	Derivative assets:														Derivative assets:
Interest rate contracts	Interest rate contracts	$	14	$	—		$	7			$	—	$	21	Interest rate contracts	$	21		$		1				$	7					$	(1)					$	28

Six Months Ended June 30, 2020
Nine Months Ended September 30, 2020															Nine Months Ended September 30, 2020

Derivative assets:	Derivative assets:														Derivative assets:
Interest rate contracts	Interest rate contracts	$	22	$	—		$	22			$	—	$	44	Interest rate contracts	$	22		$	0				$	20					$	0					$	42

Six Months Ended June 30, 2019
Nine Months Ended September 30, 2019															Nine Months Ended September 30, 2019

Derivative assets:	Derivative assets:														Derivative assets:
Interest rate contracts	Interest rate contracts	$	9	$	—		$	12			$	—	$	21	Interest rate contracts	$	9		$	1				$	19					$	(1)					$	28

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

(in millions)

Level 3

~~June~~September 30, 2020

Loans:

Commercial

~~146~~129

Commercial mortgage

Total assets at fair value

~~146~~134

December 31, 2019

Loans:

Commercial

Total assets at fair value

Level 3 assets recorded at fair value on a nonrecurring basis at ~~June~~September 30, 2020 and December 31, 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.

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																							Carrying Amount				Estimated Fair Value
(in millions)	(in millions)					Total			Level 1			Level 2			Level 3		(in millions)	Carrying Amount			Total				Level 1				Level 2				Level 3
June 30, 2020
September 30, 2020															September 30, 2020
Assets	Assets														Assets
Cash and due from banks	Cash and due from banks	$	1,048	$	1,048		$	1,048		$	—		$	—	Cash and due from banks	$	988				$	988			$	988			$	0			$	0

Interest-bearing deposits with banks	Interest-bearing deposits with banks	12,263		12,263			12,263			—			—		Interest-bearing deposits with banks	10,153			10,153				10,153				0				0

Loans held-for-sale	Loans held-for-sale	11		11			—			11			—		Loans held-for-sale	7			7				0				7				0
Total loans, net of allowance for loan losses (a)	Total loans, net of allowance for loan losses (a)	52,439		52,273			—			—			52,273		Total loans, net of allowance for loan losses (a)	51,391			51,926				0				0				51,926
Customers’ liability on acceptances outstanding	Customers’ liability on acceptances outstanding	2		2			2			—			—		Customers’ liability on acceptances outstanding	2			2				2				0				0
Restricted equity investments	Restricted equity investments	269		269			269			—			—		Restricted equity investments	207			207				207				0				0
Nonmarketable equity securities (b)	Nonmarketable equity securities (b)	5		10											Nonmarketable equity securities (b)	5			9
Liabilities	Liabilities														Liabilities
Demand deposits (noninterest-bearing)	Demand deposits (noninterest-bearing)	35,582		35,582			—			35,582			—		Demand deposits (noninterest-bearing)	36,533			36,533				0				36,533				0
Interest-bearing deposits	Interest-bearing deposits	29,482		29,482			—			29,482			—		Interest-bearing deposits	29,626			29,626				0				29,626				0
Customer certificates of deposit	Customer certificates of deposit	2,656		2,662			—			2,662			—		Customer certificates of deposit	2,300			2,302				0				2,302				0

Total deposits	Total deposits	67,720		67,726			—			67,726			—		Total deposits	68,459			68,461				0				68,461				0
Short-term borrowings	Short-term borrowings	752		752			752			—			—		Short-term borrowings	10			10				10				0				0
Acceptances outstanding	Acceptances outstanding	2		2			2			—			—		Acceptances outstanding	2			2				2				0				0
Medium- and long-term debt	Medium- and long-term debt	6,521		6,465			—			6,465			—		Medium- and long-term debt	5,754			5,741				0				5,741				0
Credit-related financial instruments	Credit-related financial instruments	(81)		(81)			—			—			(81)		Credit-related financial instruments	(85)			(85)				0				0				(85)
December 31, 2019	December 31, 2019														December 31, 2019
Assets	Assets														Assets
Cash and due from banks	Cash and due from banks	$	973	$	973		$	973		$	—		$	—	Cash and due from banks	$	973		$	973			$	973			$	0			$	0

Interest-bearing deposits with banks	Interest-bearing deposits with banks	4,845		4,845			4,845			—			—		Interest-bearing deposits with banks	4,845			4,845				4,845				0				0

Loans held-for-sale	Loans held-for-sale	6		6			—			6			—		Loans held-for-sale	6			6				0				6				0
Total loans, net of allowance for loan losses (a)	Total loans, net of allowance for loan losses (a)	49,732		49,975			—			—			49,975		Total loans, net of allowance for loan losses (a)	49,732			49,975				0				0				49,975
Customers’ liability on acceptances outstanding	Customers’ liability on acceptances outstanding	2		2			2			—			—		Customers’ liability on acceptances outstanding	2			2				2				0				0
Restricted equity investments	Restricted equity investments	248		248			248			—			—		Restricted equity investments	248			248				248				0				0
Nonmarketable equity securities (b)	Nonmarketable equity securities (b)	5		10											Nonmarketable equity securities (b)	5			10
Liabilities	Liabilities														Liabilities
Demand deposits (noninterest-bearing)	Demand deposits (noninterest-bearing)	27,382		27,382			—			27,382			—		Demand deposits (noninterest-bearing)	27,382			27,382				0				27,382				0
Interest-bearing deposits	Interest-bearing deposits	26,802		26,802			—			26,802			—		Interest-bearing deposits	26,802			26,802				0				26,802				0
Certificates of deposit	Certificates of deposit	2,978		2,968			—			2,968			—		Certificates of deposit	2,978			2,968				0				2,968				0
Other time deposits	Other time deposits	133		133			—			133			—		Other time deposits	133			133				0				133				0
Total deposits	Total deposits	57,295		57,285			—			57,285			—		Total deposits	57,295			57,285				0				57,285				0
Short-term borrowings	Short-term borrowings	71		71			71			—			—		Short-term borrowings	71			71				71				0				0
Acceptances outstanding	Acceptances outstanding	2		2			2			—			—		Acceptances outstanding	2			2				2				0				0
Medium- and long-term debt	Medium- and long-term debt	7,269		7,316			—			7,316			—		Medium- and long-term debt	7,269			7,316				0				7,316				0
Credit-related financial instruments	Credit-related financial instruments	(57)		(57)			—			—			(57)		Credit-related financial instruments	(57)			(57)				0				0				(57)

(a)Included ~~$146~~$134 million and $70 million of loans recorded at fair value on a nonrecurring basis at ~~June~~September 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.

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)	(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2020
September 30, 2020										September 30, 2020
Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	U.S. Treasury and other U.S. government agency securities	$	2,747	$	105	$	—	$	2,852	U.S. Treasury and other U.S. government agency securities	$	4,590	$	93	$	0	$	4,683
Residential mortgage-backed securities (a)	Residential mortgage-backed securities (a)	9,641		266		—		9,907		Residential mortgage-backed securities (a)	10,168		241		2		10,407

Total investment securities available-for-sale	Total investment securities available-for-sale	$	12,388	$	371	$	—	$	12,759	Total investment securities available-for-sale	$	14,758	$	334	$	2	$	15,090

December 31, 2019	December 31, 2019									December 31, 2019
Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities	U.S. Treasury and other U.S. government agency securities	$	2,745	$	47	$	—	$	2,792	U.S. Treasury and other U.S. government agency securities	$	2,745	$	47	$	0	$	2,792
Residential mortgage-backed securities (a)	Residential mortgage-backed securities (a)	9,568		66		28		9,606		Residential mortgage-backed securities (a)	9,568		66		28		9,606

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

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

A summary of the Corporation’s investment securities in an unrealized loss position as of ~~June~~September 30, 2020 and December 31, 2019 follows:


		Temporarily Impaired																															Temporarily Impaired
		Less than 12 Months									12 Months or more								Total									Less than 12 Months						12 Months or more		Total
(in millions)	(in millions)	Fair Value		Unrealized Losses				Fair Value			Unrealized Losses			Fair Value		Unrealized Losses					(in millions)	Fair Value	Unrealized Losses				Fair Value		Unrealized Losses				Fair Value		Unrealized Losses
June 30, 2020
September 30, 2020																September 30, 2020

Residential mortgage-backed securities (a)	Residential mortgage-backed securities (a)	$	1	$	—	$	—		$	—		$	1	$	—	Residential mortgage-backed securities (a)	$	980		$	2		$	0	$	0			$	980	$	2

Total temporarily impaired securities	Total temporarily impaired securities	$	1	$	—	$	—		$	—		$	1	$	—	Total temporarily impaired securities	$	980		$	2		$	0	$	0			$	980	$	2
December 31, 2019	December 31, 2019															December 31, 2019

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

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

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

Unrealized losses resulted from changes in market interest rates and liquidity. The Corporation’s portfolio is comprised of securities issued or guaranteed by the U.S. government or government-sponsored enterprises. As such, it is expected that the securities would not be settled at a price less than the amortized cost of the investments. Further, the Corporation does not intend to sell the investments, and it is not more likely than not that it will be required to sell the investments before recovery of amortized costs.

Interest receivable on investment securities totaled $19 million at ~~June~~September 30, 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 gains (losses) on the Consolidated Statements of Comprehensive Income, computed based on the adjusted cost of the specific security.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2020		2019		2020		2019
Securities gains	Securities gains	$	1	$	—	$	1	$	—	Securities gains	$	0	$	0	$	1	$	0
Securities losses	Securities losses	—		—		(1)		(8)		Securities losses	$	0	$	0	$	(1)	$	(8)
Net securities gains (losses)		$	1	$	—	$	—	$	(8)
Net securities losses										Net securities losses	$	0	$	0	$	0	$	(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)	(in millions)								(in millions)
June 30, 2020		Amortized Cost		Fair Value
September 30, 2020						September 30, 2020	Amortized Cost			Fair Value
Contractual maturity	Contractual maturity					Contractual maturity
Within one year	Within one year	$	780	$	796	Within one year	$	1,150		$	1,171
After one year through five years	After one year through five years	2,115		2,212		After one year through five years	3,359			3,438
After five years through ten years	After five years through ten years	872		898		After five years through ten years	1,011			1,036
After ten years	After ten years	8,621		8,853		After ten years	9,238			9,445

Total investment securities	Total investment securities	$	12,388	$	12,759	Total investment securities	$	14,758		$	15,090

Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with a total amortized cost of ~~$9.6~~$10.2 billion and a fair value of ~~$9.9~~$10.4 billion. The actual cash flows of mortgage-backed securities may differ as borrowers of the underlying loans may exercise prepayment options.

At ~~June~~September 30, 2020, investment securities with a carrying value of ~~$5.7~~$5.3 billion were pledged where permitted or required by law, including ~~$5.2~~$4.8 billion pledged to the Federal Home Loan Bank (FHLB) as collateral for potential future borrowings of approximately ~~$5.0~~$4.6 billion and ~~$506~~$522 million to secure ~~$432~~$439 million of liabilities, primarily public and other deposits of state and local government agencies as well as derivative instruments. For information on FHLB borrowings, refer to Note 7.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

NOTE 4 – CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES

The following table presents an aging analysis of the amortized cost basis of loans.


		Loans Past Due and Still Accruing																					Loans Past Due and Still Accruing
(in millions)	(in millions)	30-59 Days		60-89 Days		90 Days or More		Total		Nonaccrual Loans		Current Loans (a)		Total Loans		(in millions)	30-59 Days		60-89 Days		90 Days or More		Total		Nonaccrual Loans		Current Loans (a)		Total Loans
June 30, 2020
September 30, 2020																September 30, 2020
Business loans:	Business loans:															Business loans:
Commercial	Commercial	$	48	$	53	$	24	$	125	$	200	$	33,501	$	33,826	Commercial	$	174	$	42	$	15	$	231	$	241	$	32,132	$	32,604
Real estate construction:	Real estate construction:															Real estate construction:
Commercial Real Estate business line (b)	Commercial Real Estate business line (b)	16		—		—		16		$	—	3,531		3,547		Commercial Real Estate business line (b)	36		0		0		36		0		3,666		3,702
Other business lines (c)	Other business lines (c)	—		3		—		3		—		402		405		Other business lines (c)	10		2		0		12		0		432		444
Total real estate construction	Total real estate construction	16		3		—		19		—		3,933		3,952		Total real estate construction	46		2		0		48		0		4,098		4,146
Commercial mortgage:	Commercial mortgage:															Commercial mortgage:
Commercial Real Estate business line (b)	Commercial Real Estate business line (b)	1		9		—		10		$	3	2,279		2,292		Commercial Real Estate business line (b)	7		1		0		8		3		2,325		2,336
Other business lines (c)	Other business lines (c)	25		2		6		33		18		7,582		7,633		Other business lines (c)	69		10		8		87		17		7,562		7,666
Total commercial mortgage	Total commercial mortgage	26		11		6		43		21		9,861		9,925		Total commercial mortgage	76		11		8		95		20		9,887		10,002
Lease financing	Lease financing	—		—		—		—		1		588		589		Lease financing	10		1		0		11		1		589		601
International	International	—		—		5		5		—		1,099		1,104		International	0		0		0		0		0		923		923
Total business loans	Total business loans	90		67		35		192		222		48,982		49,396		Total business loans	306		56		23		385		262		47,629		48,276

Retail loans:	Retail loans:															Retail loans:
Residential mortgage	Residential mortgage	27		9		—		36		24		1,826		1,886		Residential mortgage	13		3		0		16		40		1,871		1,927
Consumer:	Consumer:															Consumer:
Home equity	Home equity	12		1		—		13		21		1,635		1,669		Home equity	2		1		0		3		20		1,617		1,640
Other consumer	Other consumer	1		—		6		7		—		488		495		Other consumer	1		0		6		7		0		519		526
Total consumer	Total consumer	13		1		6		20		21		2,123		2,164		Total consumer	3		1		6		10		20		2,136		2,166
Total retail loans	Total retail loans	40		10		6		56		45		3,949		4,050		Total retail loans	16		4		6		26		60		4,007		4,093
Total loans	Total loans	$	130	$	77	$	41	$	248	$	267	$	52,931	$	53,446	Total loans	$	322	$	60	$	29	$	411	$	322	$	51,636	$	52,369
December 31, 2019	December 31, 2019															December 31, 2019
Business loans:	Business loans:															Business loans:
Commercial	Commercial	$	27	$	7	$	17	$	51	$	148	$	31,274	$	31,473	Commercial	$	27	$	7	$	17	$	51	$	148	$	31,274	$	31,473
Real estate construction:	Real estate construction:															Real estate construction:
Commercial Real Estate business line (b)	Commercial Real Estate business line (b)	6		—		—		6		—		3,038		3,044		Commercial Real Estate business line (b)	6		0		0		6		0		3,038		3,044
Other business lines (c)	Other business lines (c)	—		7		—		7		—		404		411		Other business lines (c)	0		7		0		7		0		404		411
Total real estate construction	Total real estate construction	6		7		—		13		—		3,442		3,455		Total real estate construction	6		7		0		13		0		3,442		3,455
Commercial mortgage:	Commercial mortgage:															Commercial mortgage:
Commercial Real Estate business line (b)	Commercial Real Estate business line (b)	9		—		—		9		2		2,165		2,176		Commercial Real Estate business line (b)	9		0		0		9		2		2,165		2,176
Other business lines (c)	Other business lines (c)	16		18		9		43		12		7,328		7,383		Other business lines (c)	16		18		9		43		12		7,328		7,383
Total commercial mortgage	Total commercial mortgage	25		18		9		52		14		9,493		9,559		Total commercial mortgage	25		18		9		52		14		9,493		9,559
Lease financing	Lease financing	1		—		—		1		—		587		588		Lease financing	1		0		0		1		0		587		588
International	International	—		5		—		5		—		1,004		1,009		International	0		5		0		5		0		1,004		1,009
Total business loans	Total business loans	59		37		26		122		162		45,800		46,084		Total business loans	59		37		26		122		162		45,800		46,084

Retail loans:	Retail loans:															Retail loans:
Residential mortgage	Residential mortgage	15		2		—		17		20		1,808		1,845		Residential mortgage	15		2		0		17		20		1,808		1,845
Consumer:	Consumer:															Consumer:
Home equity	Home equity	4		5		—		9		17		1,685		1,711		Home equity	4		5		0		9		17		1,685		1,711
Other consumer	Other consumer	2		3		—		5		—		724		729		Other consumer	2		3		0		5		0		724		729
Total consumer	Total consumer	6		8		—		14		17		2,409		2,440		Total consumer	6		8		0		14		17		2,409		2,440
Total retail loans	Total retail loans	21		10		—		31		37		4,217		4,285		Total retail loans	21		10		0		31		37		4,217		4,285
Total loans	Total loans	$	80	$	47	$	26	$	153	$	199	$	50,017	$	50,369	Total loans	$	80	$	47	$	26	$	153	$	199	$	50,017	$	50,369

(a)Includes ~~$4.5 billion~~$385 million of loans with deferred payments not considered past due in accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) at ~~June~~September 30, 2020.

(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	September 30, 2020				December 31, 2019
		Vintage Year																																	Vintage Year
(in millions)	(in millions)	2020			2019		2018		2017		2016		Prior		Revolvers		Revolvers Converted to Term		Total		Total		(in millions)	2020			2019		2018		2017		2016		Prior		Revolvers		Revolvers Converted to Term		Total		Total
Business loans:	Business loans:																						Business loans:
Commercial:	Commercial:																						Commercial:
Pass (a)	Pass (a)	$	5,029	(b)	$	2,673	$	1,876	$	1,259	$	572	$	966	$	18,708	$	16	$	31,099	$	29,785	Pass (a)	$	5,220	(b)	$	2,522	$	1,712	$	1,176	$	496	$	887	$	17,916	$	18	$	29,947	$	29,785

Criticized (c)	Criticized (c)	30			305		239		147		104		205		1,695		2		2,727		1,688		Criticized (c)	32			316		236		117		95		198		1,661		2		2,657		1,688

Total commercial	Total commercial	5,059			2,978		2,115		1,406		676		1,171		20,403		18		33,826		31,473		Total commercial	5,252			2,838		1,948		1,293		591		1,085		19,577		20		32,604		31,473
Real estate construction	Real estate construction																						Real estate construction
Pass (a)	Pass (a)	127			878		1,293		795		458		218		152		—		3,921		3,424		Pass (a)	186			983		1,323		773		426		191		193		0		4,075		3,424

Criticized (c)	Criticized (c)	—			2		4		24		—		1		—		—		31		31		Criticized (c)	3			27		5		25		9		1		1		0		71		31

Total real estate construction	Total real estate construction	127			880		1,297		819		458		219		152		—		3,952		3,455		Total real estate construction	189			1,010		1,328		798		435		192		194		0		4,146		3,455
Commercial mortgage	Commercial mortgage																						Commercial mortgage
Pass (a)	Pass (a)	1,058			1,713		1,220		1,254		915		2,790		499		—		9,449		9,262		Pass (a)	1,662			1,649		1,185		1,161		880		2,509		427		0		9,473		9,262

Criticized (c)	Criticized (c)	31			96		32		47		47		215		8		—		476		297		Criticized (c)	39			118		41		58		49		213		11		0		529		297

Total commercial mortgage	Total commercial mortgage	1,089			1,809		1,252		1,301		962		3,005		507		—		9,925		9,559		Total commercial mortgage	1,701			1,767		1,226		1,219		929		2,722		438		0		10,002		9,559
Lease financing	Lease financing																						Lease financing
Pass (a)	Pass (a)	63			131		84		56		17		213		—		—		564		579		Pass (a)	94			126		78		53		15		208		0		0		574		579

Criticized (c)	Criticized (c)	1			18		3		2		1		—		—		—		25		9		Criticized (c)	2			18		4		2		1		0		0		0		27		9

Total lease financing	Total lease financing	64			149		87		58		18		213		—		—		589		588		Total lease financing	96			144		82		55		16		208		0		0		601		588
International	International																						International
Pass (a)	Pass (a)	272			185		129		13		3		75		374		—		1,051		972		Pass (a)	283			175		126		11		2		64		218		0		879		972

Criticized (c)	Criticized (c)	5			—		—		10		8		2		28		—		53		37		Criticized (c)	13			0		0		4		8		2		17		0		44		37

Total international	Total international	277			185		129		23		11		77		402		—		1,104		1,009		Total international	296			175		126		15		10		66		235		0		923		1,009
Total business loans	Total business loans	6,616			6,001		4,880		3,607		2,125		4,685		21,464		18		49,396		46,084		Total business loans	7,534			5,934		4,710		3,380		1,981		4,273		20,444		20		48,276		46,084
Retail loans:	Retail loans:																						Retail loans:
Residential mortgage	Residential mortgage																						Residential mortgage
Pass (a)	Pass (a)	355			251		149		305		255		538		—		—		1,853		1,823		Pass (a)	587			248		137		237		226		447		0		0		1,882		1,823

Criticized (c)	Criticized (c)	—			—		5		4		3		21		—		—		33		22		Criticized (c)	3			1		2		10		2		27		0		0		45		22

Total residential mortgage	Total residential mortgage	355			251		154		309		258		559		—		—		1,886		1,845		Total residential mortgage	590			249		139		247		228		474		0		0		1,927		1,845
Consumer:	Consumer:																						Consumer:
Home equity	Home equity																						Home equity
Pass (a)	Pass (a)	—			—		—		—		—		19		1,544		82		1,645		1,682		Pass (a)	0			0		0		0		0		17		1,531		69		1,617		1,682

Criticized (c)	Criticized (c)	—			—		—		—		—		1		17		6		24		29		Criticized (c)	0			0		0		0		0		1		16		6		23		29

Total home equity	Total home equity	—			—		—		—		—		20		1,561		88		1,669		1,711		Total home equity	0			0		0		0		0		18		1,547		75		1,640		1,711
Other consumer	Other consumer																						Other consumer
Pass (a)	Pass (a)	13			79		19		4		6		58		306		—		485		722		Pass (a)	47			52		17		2		7		52		339		0		516		722

Criticized (c)	Criticized (c)	—			1		3		—		—		—		6		—		10		7		Criticized (c)	0			1		3		0		0		0		6		0		10		7

Total other consumer	Total other consumer	13			80		22		4		6		58		312		—		495		729		Total other consumer	47			53		20		2		7		52		345		0		526		729
Total consumer	Total consumer	13			80		22		4		6		78		1,873		88		2,164		2,440		Total consumer	47			53		20		2		7		70		1,892		75		2,166		2,440
Total retail loans	Total retail loans	368			331		176		313		264		637		1,873		88		4,050		4,285		Total retail loans	637			302		159		249		235		544		1,892		75		4,093		4,285
Total loans	Total loans	$	6,984		$	6,332	$	5,056	$	3,920	$	2,389	$	5,322	$	23,337	$	106	$	53,446	$	50,369	Total loans	$	8,171		$	6,236	$	4,869	$	3,629	$	2,216	$	4,817	$	22,336	$	95	$	52,369	$	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~~September 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~~September 30, 2020 and December 31, 2019, respectively, and was included in accrued income and other assets on the Consolidated Balance Sheets.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Allowance for Credit Losses

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


		2020															2019																2020						2019
(in millions)	(in millions)	Business Loans			Retail Loans			Total			Business Loans			Retail Loans			Total			(in millions)	Business Loans			Retail Loans			Total			Business Loans			Retail Loans			Total
Three Months Ended June 30
Three Months Ended September 30																				Three Months Ended September 30
Balance at beginning of period:	Balance at beginning of period:																			Balance at beginning of period:

Allowance for loan losses	Allowance for loan losses	$	861		$	55		$	916		$	608		$	39		$	647		Allowance for loan losses	$	943		$	64		$	1,007		$	618		$	39		$	657
Allowance for credit losses on lending-related commitments	Allowance for credit losses on lending-related commitments	52			10			62			27			3			30			Allowance for credit losses on lending-related commitments	50			9			59			28			3			31
Allowance for credit losses	Allowance for credit losses	913			65			978			635			42			677			Allowance for credit losses	993			73			1,066			646			42			688
Loan charge-offs	Loan charge-offs	(56)			(1)			(57)			(43)			(1)			(44)			Loan charge-offs	(53)			0			(53)			(59)			(2)			(61)
Recoveries on loans previously charged-off	Recoveries on loans previously charged-off	6			1			7			10			1			11			Recoveries on loans previously charged-off	18			2			20			17			2			19
Net loan charge-offs	Net loan charge-offs	(50)			—			(50)			(33)			—			(33)			Net loan charge-offs	(35)			2			(33)			(42)			0			(42)
Provision for credit losses:	Provision for credit losses:																			Provision for credit losses:
Provision for loan losses	Provision for loan losses	132			9			141			43			—			43			Provision for loan losses	15			(11)			4			39			(2)			37
Provision for credit losses on lending-related commitments	Provision for credit losses on lending-related commitments	(2)			(1)			(3)			1			—			1			Provision for credit losses on lending-related commitments	1			0			1			(2)			0			(2)
Provision for credit losses	Provision for credit losses	130			8			138			44			—			44			Provision for credit losses	16			(11)			5			37			(2)			35

Balance at end of period:	Balance at end of period:																			Balance at end of period:
Allowance for loan losses	Allowance for loan losses	943			64			1,007			618			39			657			Allowance for loan losses	923			55			978			615			37			652
Allowance for credit losses on lending-related commitments	Allowance for credit losses on lending-related commitments	50			9			59			28			3			31			Allowance for credit losses on lending-related commitments	51			9			60			26			3			29
Allowance for credit losses	Allowance for credit losses	$	993		$	73		$	1,066		$	646		$	42		$	688		Allowance for credit losses	$	974		$	64		$	1,038		$	641		$	40		$	681
Six Months Ended June 30
Nine Months Ended September 30																				Nine Months Ended September 30
Balance at beginning of period	Balance at beginning of period																			Balance at beginning of period
Allowance for loan losses	Allowance for loan losses	$	601		$	36		$	637		$	627		$	44		$	671		Allowance for loan losses	$	601		$	36		$	637		$	627		$	44		$	671
Allowance for credit losses on lending-related commitments	Allowance for credit losses on lending-related commitments	28			3			31			26			4			30			Allowance for credit losses on lending-related commitments	28			3			31			26			4			30
Allowance for credit losses	Allowance for credit losses	629			39			668			653			48			701			Allowance for credit losses	629			39			668			653			48			701
Cumulative effect of change in accounting principle	Cumulative effect of change in accounting principle	(42)			25			(17)			—			—			—			Cumulative effect of change in accounting principle	(42)			25			(17)			0			0			0
Loan charge-offs	Loan charge-offs	(143)			(3)			(146)			(62)			(2)			(64)			Loan charge-offs	(196)			(3)			(199)			(121)			(4)			(125)
Recoveries on loans previously charged-off	Recoveries on loans previously charged-off	11			1			12			18			2			20			Recoveries on loans previously charged-off	29			3			32			35			4			39
Net loan charge-offs	Net loan charge-offs	(132)			(2)			(134)			(44)			—			(44)			Net loan charge-offs	(167)			0			(167)			(86)			0			(86)
Provision for credit losses:	Provision for credit losses:																			Provision for credit losses:
Provision for loan losses	Provision for loan losses	516			5			521			35			(5)			30			Provision for loan losses	531			(6)			525			74			(7)			67
Provision for credit losses on lending-related commitments	Provision for credit losses on lending-related commitments	22			6			28			2			(1)			1			Provision for credit losses on lending-related commitments	23			6			29			0			(1)			(1)
Provision for credit losses	Provision for credit losses	538			11			549			37			(6)			31			Provision for credit losses	554			0			554			74			(8)			66

Balance at end of period:	Balance at end of period:																			Balance at end of period:
Allowance for loan losses	Allowance for loan losses	943			64			1,007			618			39			657			Allowance for loan losses	923			55			978			615			37			652
Allowance for credit losses on lending-related commitments	Allowance for credit losses on lending-related commitments	50			9			59			28			3			31			Allowance for credit losses on lending-related commitments	51			9			60			26			3			29
Allowance for credit losses	Allowance for credit losses	$	993		$	73		$	1,066		$	646		$	42		$	688		Allowance for credit losses	$	974		$	64		$	1,038		$	641		$	40		$	681
Allowance for loan losses as a percentage of total loans	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	1.91		%	1.35		%	1.87		%	1.30		%	0.86		%	1.27		%
Allowance for loan losses as a percentage of total loans excluding PPP loans	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 loan losses as a percentage of total loans excluding PPP loans	2.07			n/a			2.01			n/a			n/a			n/a
Allowance for credit losses as a percentage of total loans	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	2.02			1.57			1.98			1.36			0.92			1.32
Allowance for credit losses as a percentage of total loans excluding PPP loans	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			Allowance for credit losses as a percentage of total loans excluding PPP loans	2.19			n/a			2.14			n/a			n/a			n/a

n/a - not applicable

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~~nine-month periods ended ~~June~~September 30, 2020 and 2019, respectively.


(in millions)	(in millions)	Nonaccrual Loans with No Related Allowance		Nonaccrual Loans with Related Allowance		Total Nonaccrual Loans		(in millions)	Nonaccrual Loans with No Related Allowance		Nonaccrual Loans with Related Allowance		Total Nonaccrual Loans
June 30, 2020
September 30, 2020								September 30, 2020
Business loans:	Business loans:							Business loans:
Commercial	Commercial	$	32	$	168	$	200	Commercial	$	39	$	202	$	241

Commercial mortgage:	Commercial mortgage:							Commercial mortgage:
Commercial Real Estate business line (a)	Commercial Real Estate business line (a)	2		1		3		Commercial Real Estate business line (a)	2		1		3
Other business lines (b)	Other business lines (b)	6		12		18		Other business lines (b)	6		11		17
Total commercial mortgage	Total commercial mortgage	8		13		21		Total commercial mortgage	8		12		20
Lease financing	Lease financing	—		1		1		Lease financing	0		1		1

Total business loans	Total business loans	40		182		222		Total business loans	47		215		262
Retail loans:	Retail loans:							Retail loans:
Residential mortgage	Residential mortgage	24		—		24		Residential mortgage	40		0		40
Consumer:	Consumer:							Consumer:
Home equity	Home equity	21		—		21		Home equity	20		0		20

Total retail loans	Total retail loans	45		—		45		Total retail loans	60		0		60
Total nonaccrual loans	Total nonaccrual loans	$	85	$	182	$	267	Total nonaccrual loans	$	107	$	215	$	322
December 31, 2019	December 31, 2019							December 31, 2019
Business loans:	Business loans:							Business loans:
Commercial	Commercial	$	29	$	119	$	148	Commercial	$	29	$	119	$	148

Commercial mortgage:	Commercial mortgage:							Commercial mortgage:
Commercial Real Estate business line (a)	Commercial Real Estate business line (a)	2		—		2		Commercial Real Estate business line (a)	2		0		2
Other business lines (b)	Other business lines (b)	1		11		12		Other business lines (b)	1		11		12
Total commercial mortgage	Total commercial mortgage	3		11		14		Total commercial mortgage	3		11		14

Total business loans	Total business loans	32		130		162		Total business loans	32		130		162
Retail loans:	Retail loans:							Retail loans:
Residential mortgage	Residential mortgage	20		—		20		Residential mortgage	20		0		20
Consumer:	Consumer:							Consumer:
Home equity	Home equity	17		—		17		Home equity	17		0		17

Total retail loans	Total retail loans	37		—		37		Total retail loans	37		0		37
Total nonaccrual loans	Total nonaccrual loans	$	69	$	130	$	199	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 $10 million and $11 million at ~~both June~~September 30, 2020 and December 31, ~~2019.~~2019, respectively. There were 0 retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual loans at ~~June~~September 30, 2020 and December 31, 2019.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Troubled Debt Restructurings

The following table details the amortized cost basis at ~~June~~September 30, 2020 and 2019 of loans considered to be TDRs that were restructured during the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 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									2020						2019
		Type of Modification								Type of Modification									Type of Modification						Type of Modification
(in millions)	(in millions)	Principal Deferrals (a)		Interest Rate Reductions		Total Modifications		Principal Deferrals (a)		Interest Rate Reductions		Total Modifications		(in millions)	Principal Deferrals (a)		Interest Rate Reductions		Total Modifications		Principal Deferrals (a)		Interest Rate Reductions		Total Modifications
Three Months Ended June 30,
Three Months Ended September 30,														Three Months Ended September 30,

Commercial														Commercial	$	11	$	0	$	11	$	11	$	0	$	11

Commercial mortgage:														Commercial mortgage:

Other business lines (b)														Other business lines (b)	1		0		1		0		0		0

Total business loans														Total business loans	12		0		12		11		0		11

Retail loans:														Retail loans:

Home equity (b)		$	—	$	—	$	—	$	—	$	1	$	1
Consumer:														Consumer:
Home equity (c)														Home equity (c)	0		1		1		0		0		0

Total loans	Total loans	$	—	$	—	$	—	$	—	$	1	$	1	Total loans	$	12	$	1	$	13	$	11	$	0	$	11
Six Months Ended June 30,
Nine Months Ended September 30,														Nine Months Ended September 30,
Business loans:	Business loans:													Business loans:
Commercial	Commercial	$	16	$	—	$	16	$	11	$	—	$	11	Commercial	$	26	$	0	$	26	$	19	$	0	$	19

Commercial mortgage:	Commercial mortgage:													Commercial mortgage:

Other business lines (c)		1		—		$	1	1		—		1
Other business lines (b)														Other business lines (b)	2		0		2		0		0		0

Total business loans	Total business loans	17		—		17		12		—		12		Total business loans	28		0		28		19		0		19
Retail loans:	Retail loans:													Retail loans:

Consumer:	Consumer:													Consumer:
Home equity (b)		—		—		—		—		1		1
Home equity (c)														Home equity (c)	0		1		1		0		1		1

Total loans	Total loans	$	17	$	—	$	17	$	12	$	1	$	13	Total loans	$	28	$	1	$	29	$	19	$	1	$	20

(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.

(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.

~~(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 ~~June~~September 30, 2020 and December 31, 2019, commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $2$1 million and $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.

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. Of the TDRs modified during the twelve-month periods ended ~~June~~September 30, 2020 and 2019, subsequent defaults of principal deferrals totaled $6 million and ~~$15~~$11 million in the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020, respectively, compared to ~~NaN~~$17 million in both of the comparable periods in 2019. There were 0 subsequent defaults of interest rate reductions during either of the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 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

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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.

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~~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 ~~June~~September 30, 2020, counterparties with bilateral collateral agreements deposited ~~$216~~$133 million of cash with the Corporation to secure the fair value of contracts in an unrealized gain position, and the Corporation had pledged ~~$56~~$51 million of marketable investment securities and posted ~~$30~~$37 million of cash as collateral for contracts in an unrealized loss position. For those counterparties not covered under bilateral collateral agreements, collateral is obtained, if deemed necessary, based on the results of management’s credit evaluation of the counterparty. Collateral varies, but may include cash, investment securities, accounts receivable, equipment or real estate. Included in the fair value of derivative instruments are credit valuation adjustments reflecting counterparty credit risk. These adjustments are determined by applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the derivative. There were 0 derivative instruments with credit-risk-related contingent features that were in a liability position at ~~June~~September 30, 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.

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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 ~~June~~September 30, 2020 and December 31, 2019. The table excludes commitments and warrants accounted for as derivatives.


		June 30, 2020										December 31, 2019											September 30, 2020					December 31, 2019
				Fair Value								Fair Value									Fair Value						Fair Value
(in millions)	(in millions)	Notional/ Contract Amount (a)		Gross Derivative Assets		Gross Derivative Liabilities		Notional/ Contract Amount (a)		Gross Derivative Assets		Gross Derivative Liabilities		(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	Risk management purposes													Risk management purposes
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments													Derivatives designated as hedging instruments
Interest rate contracts:	Interest rate contracts:													Interest rate contracts:
Swaps - fair value - receive fixed/pay floating	Swaps - fair value - receive fixed/pay floating	$	2,650	$	—	$	—	$	3,325	$	—	$	—	Swaps - fair value - receive fixed/pay floating	$	2,650	$	0	$	0	$	3,325	$	0	$	0
Swaps - cash flow - receive fixed/pay floating	Swaps - cash flow - receive fixed/pay floating	5,550		—		—		4,550		—		—		Swaps - cash flow - receive fixed/pay floating	5,550		0		0		4,550		0		0
Derivatives used as economic hedges	Derivatives used as economic hedges													Derivatives used as economic hedges
Foreign exchange contracts:	Foreign exchange contracts:													Foreign exchange contracts:
Spot, forwards and swaps	Spot, forwards and swaps	330		1		2		330		—		2		Spot, forwards and swaps	328		0		2		330		0		2
Total risk management purposes	Total risk management purposes	8,530		1		2		8,205		—		2		Total risk management purposes	8,528		0		2		8,205		0		2
Customer-initiated and other activities	Customer-initiated and other activities													Customer-initiated and other activities
Interest rate contracts:	Interest rate contracts:													Interest rate contracts:
Caps and floors written	Caps and floors written	601		—		1		671		—		—		Caps and floors written	745		0		0		671		0		0
Caps and floors purchased	Caps and floors purchased	601		1		—		671		—		—		Caps and floors purchased	745		0		0		671		0		0
Swaps	Swaps	20,039		648		72		16,485		211		39		Swaps	20,263		601		68		16,485		211		39
Total interest rate contracts	Total interest rate contracts	21,241		649		73		17,827		211		39		Total interest rate contracts	21,753		601		68		17,827		211		39
Energy contracts:	Energy contracts:													Energy contracts:
Caps and floors written	Caps and floors written	439		—		46		477		—		23		Caps and floors written	447		1		36		477		0		23
Caps and floors purchased	Caps and floors purchased	439		46		—		477		23		—		Caps and floors purchased	447		36		0		477		23		0
Swaps	Swaps	2,137		225		217		2,135		73		69		Swaps	2,126		177		173		2,135		73		69
Total energy contracts	Total energy contracts	3,015		271		263		3,089		96		92		Total energy contracts	3,020		214		209		3,089		96		92
Foreign exchange contracts:	Foreign exchange contracts:													Foreign exchange contracts:
Spot, forwards, options and swaps	Spot, forwards, options and swaps	968		14		13		1,013		10		8		Spot, forwards, options and swaps	1,173		10		8		1,013		10		8
Total customer-initiated and other activities	Total customer-initiated and other activities	25,224		934		349		21,929		317		139		Total customer-initiated and other activities	25,946		825		285		21,929		317		139
Total gross derivatives	Total gross derivatives	$	33,754	$	935	$	351	$	30,134	$	317	$	141	Total gross derivatives	$	34,474	$	825	$	287	$	30,134	$	317	$	141
Amounts offset in the Consolidated Balance Sheets:	Amounts offset in the Consolidated Balance Sheets:													Amounts offset in the Consolidated Balance Sheets:
Netting adjustment - Offsetting derivative assets/liabilities	Netting adjustment - Offsetting derivative assets/liabilities			(54)		(54)				(63)		(63)		Netting adjustment - Offsetting derivative assets/liabilities			(72)		(72)				(63)		(63)
Netting adjustment - Cash collateral received/posted	Netting adjustment - Cash collateral received/posted			(214)		(28)				(11)		(12)		Netting adjustment - Cash collateral received/posted			(118)		(36)				(11)		(12)
Net derivatives included in the Consolidated Balance Sheets (b)	Net derivatives included in the Consolidated Balance Sheets (b)			667		269				243		66		Net derivatives included in the Consolidated Balance Sheets (b)			635		179				243		66
Amounts not offset in the Consolidated Balance Sheets:	Amounts not offset in the Consolidated Balance Sheets:													Amounts not offset in the Consolidated Balance Sheets:
Marketable securities pledged under bilateral collateral agreements	Marketable securities pledged under bilateral collateral agreements			—		(53)				—		(21)		Marketable securities pledged under bilateral collateral agreements			0		(48)				0		(21)
Net derivatives after deducting amounts not offset in the Consolidated Balance Sheets	Net derivatives after deducting amounts not offset in the Consolidated Balance Sheets			$	667	$	216			$	243	$	45	Net derivatives after deducting amounts not offset in the Consolidated Balance Sheets			$	635	$	131			$	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~~$31 million and $9 million at ~~June~~September 30, 2020 and December 31, 2019, 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															Interest on Medium- and Long-Term Debt
		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2020		2019		2020		2019
Total interest on medium- and long-term debt (a)	Total interest on medium- and long-term debt (a)	$	19	$	51	$	59	$	102	Total interest on medium- and long-term debt (a)	$	11	$	50	$	70	$	152
Fair value hedging relationships:	Fair value hedging relationships:									Fair value hedging relationships:
Interest rate contracts:	Interest rate contracts:									Interest rate contracts:
Hedged items	Hedged items	28		26		58		52		Hedged items	26		28		84		80
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments	(12)		—		(18)		1		Derivatives designated as hedging instruments	(16)		(2)		(34)		(1)

(a) Includes the effects of hedging.

For information on accumulated net gains on cash flow 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 ~~June~~September 30, 2020 and December 31, 2019.

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


(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020			December 31, 2019			(dollar amounts in millions)	September 30, 2020			December 31, 2019
Derivative notional amount	Derivative notional amount	$	5,550		$	4,550		Derivative notional amount	$	5,550		$	4,550
Weighted average:	Weighted average:							Weighted average:
Remaining maturity (in years)	Remaining maturity (in years)	2.8			3.0			Remaining maturity (in years)	2.5			3.0
Receive rate	Receive rate	1.87		%	1.94		%	Receive rate	1.87		%	1.94		%
Pay rate (a)	Pay rate (a)	0.17			1.71			Pay rate (a)	0.16			1.71

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

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


(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020			December 31, 2019			(dollar amounts in millions)	September 30, 2020			December 31, 2019
Derivative notional amount	Derivative notional amount	$	2,650		$	3,325		Derivative notional amount	$	2,650		$	3,325
Carrying value of hedged items (a)	Carrying value of hedged items (a)	2,971			3,469			Carrying value of hedged items (a)	2,954			3,469
Weighted average:	Weighted average:							Weighted average:
Remaining maturity (in years)	Remaining maturity (in years)	5.1			4.6			Remaining maturity (in years)	4.9			4.6
Receive rate	Receive rate	3.68		%	3.44		%	Receive rate	3.68		%	3.44		%
Pay rate (b)	Pay rate (b)	1.54			2.80			Pay rate (b)	1.16			2.80

(a)Included ~~$322~~$305 million and $146 million of cumulative hedging adjustments at ~~June~~September 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~~September 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 significant gains or losses in other noninterest income in the Consolidated Statements of Comprehensive Income for both the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 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 June 30,						Six Months Ended June 30,								Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	Location of Gain	2020		2019		2020		2019		(in millions)	Location of Gain	2020		2019		2020		2019
Interest rate contracts	Interest rate contracts	Other noninterest income	$	8	$	6	$	16	$	12	Interest rate contracts	Other noninterest income	$	1	$	4	$	17	$	16
Energy contracts	Energy contracts	Other noninterest income	2		2		3		3		Energy contracts	Other noninterest income	0		1		3		4
Foreign exchange contracts	Foreign exchange contracts	Foreign exchange income	9		11		20		22		Foreign exchange contracts	Foreign exchange income	9		11		29		33
Total	Total		$	19	$	19	$	39	$	37	Total		$	10	$	16	$	49	$	53

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)	(in millions)	June 30, 2020		December 31, 2019		(in millions)	September 30, 2020		December 31, 2019
Unused commitments to extend credit:	Unused commitments to extend credit:					Unused commitments to extend credit:
Commercial and other	Commercial and other	$	22,588	$	23,681	Commercial and other	$	23,322	$	23,681
Bankcard, revolving check credit and home equity loan commitments	Bankcard, revolving check credit and home equity loan commitments	3,275		3,180		Bankcard, revolving check credit and home equity loan commitments	3,276		3,180
Total unused commitments to extend credit	Total unused commitments to extend credit	$	25,863	$	26,861	Total unused commitments to extend credit	$	26,598	$	26,861
Standby letters of credit	Standby letters of credit	$	3,185	$	3,320	Standby letters of credit	$	3,191	$	3,320
Commercial letters of credit	Commercial letters of credit	19		18		Commercial letters of credit	26		18

The Corporation maintains an allowance to cover current expected credit losses 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 ~~$59~~$60 million and $31 million at ~~June~~September 30, 2020 and December 31, 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 ~~$47~~$50 million at ~~June~~September 30, 2020 and $25 million at December 31, 2019 for current expected credit losses 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 ~~$163~~$169 million and $161 million, respectively, of the $3.2 billion and $3.3 billion standby and commercial letters of credit outstanding at ~~June~~September 30, 2020 and December 31, 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 ~~$34~~$35 million at ~~June~~September 30, 2020, including ~~$22~~$25 million in deferred fees and ~~$12~~$10 million in the allowance for credit losses on lending-related commitments. At December 31, 2019, the comparable amounts were $32 million, $26 million and $6 million, respectively.

The following table presents a summary of criticized standby and commercial letters of credit at ~~June~~September 30, 2020 and December 31, 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.


(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020			December 31, 2019			(dollar amounts in millions)	September 30, 2020			December 31, 2019
Total criticized standby and commercial letters of credit	Total criticized standby and commercial letters of credit	$	83		$	44		Total criticized standby and commercial letters of credit	$	91		$	44
As a percentage of total outstanding standby and commercial letters of credit	As a percentage of total outstanding standby and commercial letters of credit	2.6		%	1.3		%	As a percentage of total outstanding standby and commercial letters of credit	2.8		%	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 agreements for such borrowers. The Corporation manages credit risk on credit risk participation agreements by monitoring the creditworthiness of the borrowers, based on the normal credit review process as if the Corporation had entered into the derivative instruments directly with the borrowers. The notional amount of such credit risk participation agreements reflects the pro-rata share of the derivative instrument, consistent with the Corporation's share of the related participated loan. As of ~~June~~September 30, 2020 and December 31, 2019, the total notional amount of the credit risk participation agreements was approximately $1.1 billion and $786 million, respectively, and the fair value was $3 million at ~~June~~September 30, 2020 and insignificant 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 ~~$76~~$71 million and $20 million at ~~June~~September 30, 2020 and December 31, 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 ~~June~~September 30, 2020, the weighted average remaining maturity of outstanding credit risk participation agreements was ~~4.7~~4.5 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 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 ~~June~~September 30, 2020 was limited to ~~$451~~$450 million and $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~~171 million at ~~June~~September 30, 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 ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.

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


		Three Months Ended June 30,						Six Months Ended June 30,
											Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2020		2019		2020		2019
Other noninterest income:	Other noninterest income:									Other noninterest income:
Amortization of other tax credit investments	Amortization of other tax credit investments	$	—	$	—	$	—	$	1	Amortization of other tax credit investments	$	0	$	0	$	0	$	1
Provision for income taxes:	Provision for income taxes:									Provision for income taxes:
Amortization of LIHTC investments	Amortization of LIHTC investments	17		17		34		32		Amortization of LIHTC investments	17		16		51		48
Low income housing tax credits	Low income housing tax credits	(16)		(15)		(32)		(30)		Low income housing tax credits	(17)		(16)		(49)		(46)
Other tax benefits related to tax credit entities	Other tax benefits related to tax credit entities	(3)		(4)		(7)		(7)		Other tax benefits related to tax credit entities	(4)		(3)		(11)		(10)
Total provision for income taxes	Total provision for income taxes	$	(2)	$	(2)	$	(5)	$	(5)	Total provision for income taxes	$	(4)	$	(3)	$	(9)	$	(8)

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

NOTE 7 - MEDIUM- AND LONG-TERM DEBT

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


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

3.80% subordinated notes due 2026 (a)	3.80% subordinated notes due 2026 (a)	$	284	$	264	3.80% subordinated notes due 2026 (a)	$	282	$	264
Medium- and long-term notes:	Medium- and long-term notes:					Medium- and long-term notes:

3.70% notes due 2023 (a)	3.70% notes due 2023 (a)	917		884		3.70% notes due 2023 (a)	911		884
4.00% notes due 2029 (a)	4.00% notes due 2029 (a)	647		587		4.00% notes due 2029 (a)	643		587
Total medium- and long-term notes	Total medium- and long-term notes	1,564		1,471		Total medium- and long-term notes	1,554		1,471
Total parent company	Total parent company	1,848		1,735		Total parent company	1,836		1,735
Subsidiaries	Subsidiaries					Subsidiaries
Subordinated notes:	Subordinated notes:					Subordinated notes:

4.00% subordinated notes due 2025 (a)	4.00% subordinated notes due 2025 (a)	383		360		4.00% subordinated notes due 2025 (a)	382		360
7.875% subordinated notes due 2026 (a)	7.875% subordinated notes due 2026 (a)	213		202		7.875% subordinated notes due 2026 (a)	210		202
Total subordinated notes	Total subordinated notes	596		562		Total subordinated notes	592		562
Medium- and long-term notes:	Medium- and long-term notes:					Medium- and long-term notes:
2.50% notes due 2020 (a)	2.50% notes due 2020 (a)	—		674		2.50% notes due 2020 (a)	0		674
2.50% notes due 2024 (a)	2.50% notes due 2024 (a)	527		498		2.50% notes due 2024 (a)	526		498
Total medium- and long-term notes	Total medium- and long-term notes	527		1,172		Total medium- and long-term notes	526		1,172
FHLB advances:	FHLB advances:					FHLB advances:
Floating-rate based on FHLB auction rate due 2026	Floating-rate based on FHLB auction rate due 2026	2,800		2,800		Floating-rate based on FHLB auction rate due 2026	2,800		2,800
Floating-rate based on FHLB auction rate due 2028	Floating-rate based on FHLB auction rate due 2028	750		1,000		Floating-rate based on FHLB auction rate due 2028	0		1,000
Total FHLB advances	Total FHLB advances	3,550		3,800		Total FHLB advances	2,800		3,800
Total subsidiaries	Total subsidiaries	4,673		5,534		Total subsidiaries	3,918		5,534
Total medium- and long-term debt	Total medium- and long-term debt	$	6,521	$	7,269	Total medium- and long-term debt	$	5,754	$	7,269

(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 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 ~~June~~September 30, 2020, the weighted-average rate on the FHLB advances was ~~0.31%~~0.22%. 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 ~~June~~September 30, 2020, ~~$18.3~~$19.0 billion of real estate-related loans and ~~$5.2~~$4.8 billion of investment securities were pledged to the FHLB as collateral for outstanding ~~short- and~~ long-term advances of ~~$750 million and $3.6~~$2.8 billion ~~respectively,~~ with an additional capacity for potential future borrowings of approximately ~~$10.1~~$11.7 billion.

Unamortized debt issuance costs deducted from the carrying amount of medium- and long-term debt totaled ~~$11~~$10 million at ~~June~~September 30, 2020 and $12 million at December 31, 2019.

NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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


		Six Months Ended June 30,							Nine Months Ended September 30,

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

Net unrealized holding gains arising during the period	Net unrealized holding gains arising during the period	286		229		Net unrealized holding gains arising during the period	247		267
Less: Provision for income taxes	Less: Provision for income taxes	68		54		Less: Provision for income taxes	58		62
Net unrealized holding gains arising during the period, net of tax	Net unrealized holding gains arising during the period, net of tax	218		175		Net unrealized holding gains arising during the period, net of tax	189		205
Less:	Less:					Less:
Net realized losses included in net securities losses	Net realized losses included in net securities losses	—		(8)		Net realized losses included in net securities losses	0		(8)
Less: Benefit for income taxes	Less: Benefit for income taxes	—		(2)		Less: Benefit for income taxes	0		(2)
Reclassification adjustment for net securities losses included in net income, net of tax	Reclassification adjustment for net securities losses included in net income, net of tax	—		(6)		Reclassification adjustment for net securities losses included in net income, net of tax	0		(6)

Change in net unrealized gains on investment securities, net of tax	Change in net unrealized gains on investment securities, net of tax	218		181		Change in net unrealized gains on investment securities, net of tax	189		211
Balance at end of period, net of tax	Balance at end of period, net of tax	$	283	$	43	Balance at end of period, net of tax	$	254	$	73
Accumulated net gains on cash flow hedges:	Accumulated net gains on cash flow hedges:					Accumulated net gains on cash flow hedges:
Balance at beginning of period, net of tax	Balance at beginning of period, net of tax	$	34	$	—	Balance at beginning of period, net of tax	$	34	$	0
Net cash flow hedge gains arising during the period	Net cash flow hedge gains arising during the period	233		51		Net cash flow hedge gains arising during the period	232		69
Less: Provision for income taxes	Less: Provision for income taxes	56		12		Less: Provision for income taxes	56		16
Change in net cash flow hedge gains arising during the period, net of tax	Change in net cash flow hedge gains arising during the period, net of tax	177		39		Change in net cash flow hedge gains arising during the period, net of tax	176		53
Less:	Less:					Less:
Net cash flow hedge gains (losses) included in interest and fees on loans	Net cash flow hedge gains (losses) included in interest and fees on loans	22		(1)		Net cash flow hedge gains (losses) included in interest and fees on loans	46		(1)
Less: Provision for income taxes	Less: Provision for income taxes	7		—		Less: Provision for income taxes	12		0
Reclassification adjustment for net cash flow hedge gains (losses) included in net income, net of tax	Reclassification adjustment for net cash flow hedge gains (losses) included in net income, net of tax	15		(1)		Reclassification adjustment for net cash flow hedge gains (losses) included in net income, net of tax	34		(1)
Change in net cash flow hedge gains, net of tax	Change in net cash flow hedge gains, net of tax	162		40		Change in net cash flow hedge gains, net of tax	142		54
Balance at end of period, net of tax (a)	Balance at end of period, net of tax (a)	$	196	$	40	Balance at end of period, net of tax (a)	$	176	$	54
Accumulated defined benefit pension and other postretirement plans adjustment:	Accumulated defined benefit pension and other postretirement plans adjustment:					Accumulated defined benefit pension and other postretirement plans adjustment:
Balance at beginning of period, net of tax	Balance at beginning of period, net of tax	$	(334)	$	(471)	Balance at beginning of period, net of tax	$	(334)	$	(471)

Amortization of actuarial net loss	Amortization of actuarial net loss	31		21		Amortization of actuarial net loss	47		30
Amortization of prior service credit	Amortization of prior service credit	(14)		(13)		Amortization of prior service credit	(21)		(20)

Amounts recognized in other noninterest expenses	Amounts recognized in other noninterest expenses	17		8		Amounts recognized in other noninterest expenses	26		10
Less: Provision for income taxes	Less: Provision for income taxes	4		2		Less: Provision for income taxes	6		2

Change in defined benefit pension and other postretirement plans adjustment, net of tax	Change in defined benefit pension and other postretirement plans adjustment, net of tax	13		6		Change in defined benefit pension and other postretirement plans adjustment, net of tax	20		8
Balance at end of period, net of tax	Balance at end of period, net of tax	$	(321)	$	(465)	Balance at end of period, net of tax	$	(314)	$	(463)

Total accumulated other comprehensive income (loss) at end of period, net of tax	Total accumulated other comprehensive income (loss) at end of period, net of tax	$	158	$	(382)	Total accumulated other comprehensive income (loss) at end of period, net of tax	$	116	$	(336)

(a)The Corporation expects to reclassify ~~$73~~$72 million of net gains, net of tax, from accumulated other comprehensive income to earnings over the next twelve months if interest yield curves and notional amounts remain at ~~June~~September 30, 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 June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,

(in millions, except per share data)	(in millions, except per share data)	2020		2019		2020		2019		(in millions, except per share data)	2020		2019		2020		2019
Basic and diluted	Basic and diluted									Basic and diluted
Net income	Net income	$	113	$	298	$	48	$	637	Net income	$	211	$	292	$	259	$	929
Less: Income allocated to participating securities		1		1		1		3
Net income attributable to common share		$	112	$	297	$	47	$	634
Less:										Less:
Income allocated to participating securities										Income allocated to participating securities	0		2		1		5
Preferred stock dividends										Preferred stock dividends	8		0		8		0
Net income attributable to common shares										Net income attributable to common shares	$	203	$	290	$	250	$	924
Basic average common shares	Basic average common shares	139		152		140		155		Basic average common shares	139		147		139		152
Basic net income per common share	Basic net income per common share	$	0.81	$	1.95	$	0.34	$	4.10	Basic net income per common share	$	1.45	$	1.98	$	1.79	$	6.08
Basic average common shares	Basic average common shares	139		152		140		155		Basic average common shares	139		147		139		152
Dilutive common stock equivalents:	Dilutive common stock equivalents:									Dilutive common stock equivalents:
Net effect of the assumed exercise of stock awards	Net effect of the assumed exercise of stock awards	—		1		1		1		Net effect of the assumed exercise of stock awards	1		1		1		2

Diluted average common shares	Diluted average common shares	139		153		141		156		Diluted average common shares	140		148		140		154
Diluted net income per common share	Diluted net income per common share	$	0.80	$	1.94	$	0.34	$	4.06	Diluted net income per common share	$	1.44	$	1.96	$	1.78	$	6.02

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,				Three Months Ended September 30,		Nine Months Ended September 30,
		2020	2019	2020	2019
(average outstanding options in thousands)						(average outstanding options in thousands)	2020	2019	2020	2019
Average outstanding options	Average outstanding options	2,056,133	470,162	1,633,078	446,610	Average outstanding options	2,029	814	1,497	570
Range of exercise prices	Range of exercise prices	$39.10 - $95.25	$79.01 - $95.25	$39.10 - $95.25	$79.01 - $95.25	Range of exercise prices	$39.10 - $95.25	$67.53 - $95.25	$49.51 - $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~~$394 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~~Board of ~~directors~~Directors or a duly authorized committee of the ~~board~~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~~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 ~~consideration~~s.considerations.

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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 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 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.


Qualified Defined Benefit Pension Plan	Qualified Defined Benefit Pension Plan	Three Months Ended June 30,						Six Months Ended June 30,							Qualified Defined Benefit Pension Plan	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2020		2019			2020		2019
Service cost	Service cost	$	8	$	7	$	16	$	15	Service cost	$	8	$	8		$	24	$	23

Other components of net benefit credit:	Other components of net benefit credit:									Other components of net benefit credit:
Interest cost	Interest cost	17		20		35		40		Interest cost	18		20			53		60
Expected return on plan assets	Expected return on plan assets	(42)		(41)		(85)		(83)		Expected return on plan assets	(43)		(41)			(128)		(124)
Amortization of prior service credit	Amortization of prior service credit	(5)		(4)		(10)		(9)		Amortization of prior service credit	(5)		(5)			(15)		(14)
Amortization of net loss	Amortization of net loss	13		8		27		17		Amortization of net loss	13		8			40		25
Total other components of net benefit credit	Total other components of net benefit credit	(17)		(17)		(33)		(35)		Total other components of net benefit credit	(17)		(18)			(50)		(53)
Net periodic defined benefit credit	Net periodic defined benefit credit	$	(9)	$	(10)	$	(17)	$	(20)	Net periodic defined benefit credit	$	(9)	$	(10)		$	(26)	$	(30)


Non-Qualified Defined Benefit Pension Plan	Non-Qualified Defined Benefit Pension Plan	Three Months Ended June 30,						Six Months Ended June 30,							Non-Qualified Defined Benefit Pension Plan	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2020		2019			2020		2019
Service cost	Service cost	$	—	$	1	$	1	$	2	Service cost	$	0	$	0		$	1	$	2

Other components of net benefit cost:	Other components of net benefit cost:									Other components of net benefit cost:
Interest cost	Interest cost	2		2		4		4		Interest cost	2		3			6		7
Amortization of prior service credit	Amortization of prior service credit	(2)		(2)		(4)		(4)		Amortization of prior service credit	(2)		(2)			(6)		(6)
Amortization of net loss	Amortization of net loss	2		2		4		4		Amortization of net loss	3		1			7		5
Total other components of net benefit cost	Total other components of net benefit cost	2		2		4		4		Total other components of net benefit cost	3		2			7		6
Net periodic defined benefit cost	Net periodic defined benefit cost	$	2	$	3	$	5	$	6	Net periodic defined benefit cost	$	3	$	2		$	8	$	8


Postretirement Benefit Plan	Postretirement Benefit Plan	Three Months Ended June 30,						Six Months Ended June 30,							Postretirement Benefit Plan	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2020		2019			2020		2019
Other components of net benefit credit:	Other components of net benefit credit:									Other components of net benefit credit:
Interest cost	Interest cost	$	—	$	—	$	—	$	1	Interest cost	$	1	$	0		$	1	$	1
Expected return on plan assets	Expected return on plan assets	(1)		—		(1)		(1)		Expected return on plan assets	(1)		(1)			(2)		(2)

Net periodic defined benefit credit	Net periodic defined benefit credit	$	(1)	$	—	$	(1)	$	—	Net periodic defined benefit credit	$	0	$	(1)		$	(1)	$	(1)

NOTE 11 - INCOME TAXES AND TAX-RELATED ITEMS

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

Net deferred tax assets were ~~$11~~$34 million at ~~June~~September 30, 2020, compared to $42 million at December 31, 2019, primarily driven by increases to deferred tax liabilities related to unrealized ~~losses~~gains on investment securities available-for-sale and net hedging ~~gains,~~gains. These were partially offset by increases to deferred tax assets related to the allowance for loan losses and deferred loan origination fees and costs as well as a decrease in deferred tax liabilities related to the allowance for depreciation. Included in deferred tax assets at both ~~June~~September 30, 2020 and December 31, 2019 were $3 million of state net operating loss carryforwards, which expire between 2020 and 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 ~~June~~September 30, 2020 and December 31, 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.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

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~~

positions taken by the Corporation with respect to those transactions. The Corporation believes its tax returns were filed based upon applicable statutes, regulations and case law in effect at the time of the transactions. The IRS or other tax jurisdictions, an administrative authority or a court, if presented with the transactions, could disagree with the Corporation’s interpretation of the tax law.

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.

NOTE 12 - CONTINGENT LIABILITIES

Legal Proceedings

As previously reported in the Corporation's Form 10-K for the year ended December 31, 2019 and ~~Form~~Forms 10-Q for the ~~period~~periods ended March 31, 2020 ~~Comerica~~and June 30, 2020, the Bank ~~a wholly-owned subsidiary of the Corporation,~~ was named in November 2011 as a third-party defendant in Butte Local Development v. Masters Group v. Comerica Bank (the case), for lender liability. The case was initially tried in January 2014, in the Montana Second District Judicial Court for Silver Bow County in Butte, Montana. On January 17, 2014, a jury found for Masters, resulting in an award against the Bank. On July 1, 2015, after an appeal filed by the Bank, the Montana Supreme Court reversed the judgment against the Bank and remanded the case for a new trial with instructions that Michigan contract law should apply and dismissing all other claims. In January 2017, the case was retried, without a jury, in the Second District Court, Silver Bow County, Montana. In November 2019, the court found the Bank breached its forbearance agreement. On January 17, 2020, the court conducted a hearing on the amount of costs and interest that Masters is entitled to recover. On June 12, 2020, the court found Masters is entitled to attorneys' fees, interest and costs. The Bank is ~~considering its options, including additional appeals.~~appealing the decision. Management believes that current reserves related to this case are adequate in the event of an adverse outcome.

The Corporation and certain of its subsidiaries are subject to various other pending or threatened legal proceedings arising out of the normal course of business or operations. The Corporation believes it has meritorious defenses to the claims asserted against it in its other currently outstanding legal proceedings and, with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of the Corporation and its shareholders. Settlement may result from the Corporation's determination that it may be more prudent financially to settle, rather than litigate, and should not be regarded as an admission of liability. On at least a quarterly basis, the Corporation assesses its potential liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. On a case-by-case basis, reserves are established for those legal claims for which it is probable that a loss will be incurred either as a result of a settlement or judgment, and the amount of such loss can be reasonably estimated. The actual costs of resolving these claims may be substantially higher or lower than the amounts reserved. Based on current knowledge, and after consultation with legal counsel, management believes current reserves are adequate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the Corporation’s consolidated financial condition, results of operations or cash flows. Legal fees of $5 million ~~and $4 million~~ were included in other noninterest expenses on the Consolidated Statements of Comprehensive Income for both the three-month periods ended ~~June~~September 30, 2020 and 2019, ~~respectively,~~ and $7$12 million and $5$10 million for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 2019, respectively.

For matters where a loss is not probable, the Corporation has not established legal reserves. The Corporation believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for all legal proceedings in which it is involved is from 0 to approximately ~~$46~~$45 million at ~~June~~September 30, 2020. This estimated aggregate range of reasonably possible losses is based upon currently available information for those proceedings in which the Corporation is involved, taking into account the Corporation’s best estimate of such losses for those cases for which such estimate can be made. For certain cases, the Corporation does not believe that an estimate can currently be made. The Corporation’s estimate involves significant judgment, given the varying stages of the proceedings (including the fact many are currently in preliminary stages), the existence in certain proceedings of multiple defendants (including the Corporation) whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims) and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Corporation’s estimate will change from time to time, and actual losses may be more or less than the current estimate.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

In the event of unexpected future developments, it is possible the ultimate resolution of these matters, if unfavorable, may be material to the Corporation's consolidated financial condition, results of operations or cash flows.

~~Table of Contents~~

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

~~Comerica Incorporated and Subsidiaries~~

For information regarding income tax contingencies, refer to Note 11.

NOTE 13 - BUSINESS SEGMENT INFORMATION

The Corporation has strategically aligned its operations into 3 major business segments: the 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 ~~June~~September 30, 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 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. In addition, this business segment offers a subset of commercial products and services to micro-businesses whose primary contact is through the branch network.

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.

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 22 to the consolidated financial statements in the Corporation's 2019 Annual Report.

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Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Business segment financial results are as follows:


		Commercial Bank			Retail Bank			Wealth Management			Finance		Other		Total				Commercial Bank			Retail Bank			Wealth Management				Finance		Other				Total
(dollar amounts in millions)	(dollar amounts in millions)																											(dollar amounts in millions)										Finance	Other	Total
Three Months Ended June 30, 2020
Earnings summary:
Net interest income (expense)		$	402		$	120		$	40		$	(95)	$	4	$	471
Provision for credit losses		117			5			16			—		—		138
Noninterest income		144			24			66			11		2		247
Noninterest expenses		207			155			73			1		4		440
Provision (benefit) for income taxes		47			(4)			3			(20)		1		27
Net income (loss)		$	175		$	(12)		$	14		$	(65)	$	1	$	113
Net credit-related charge-offs		$	48		$	1		$	1		$	—	$	—	$	50

Selected average balances:
Assets		$	47,392		$	3,306		$	5,191		$	14,500	$	11,255	$	81,644
Loans		45,914			2,479			5,077			—		28		53,498
Deposits		36,318			22,647			4,217			950		150		64,282

Statistical data:
Return on average assets (a)		1.49		%	(0.21)		%	1.00		%	n/m		n/m		0.55		%
Efficiency ratio (b)		37.67			107.15			69.86			n/m		n/m		61.14
Three Months Ended June 30, 2019
Three Months Ended September 30, 2020																		Three Months Ended September 30, 2020
Earnings summary:	Earnings summary:																	Earnings summary:
Net interest income (expense)	Net interest income (expense)	$	420		$	146		$	46		$	(23)	$	14	$	603		Net interest income (expense)	$	413		$	127		$	42			$	(125)			$	1			$	458
Provision for credit losses	Provision for credit losses	52			1			(5)			—		(4)		44			Provision for credit losses	14			(2)			(7)				0		0				5
Noninterest income	Noninterest income	136			33			68			13		—		250			Noninterest income	135			28			64				16		9				252
Noninterest expenses	Noninterest expenses	195			147			67			—		15		424			Noninterest expenses	206			153			76				0		11				446
Provision (benefit) for income taxes	Provision (benefit) for income taxes	71			7			13			(4)		—		87			Provision (benefit) for income taxes	67			0			8				(26)		(1)				48
Net income (loss)	Net income (loss)	$	238		$	24		$	39		$	(6)	$	3	$	298		Net income (loss)	$	261		$	4		$	29			$	(83)	$	0			$	211
Net credit-related charge-offs (recoveries)	Net credit-related charge-offs (recoveries)	$	35		$	—		$	(2)		$	—	$	—	$	33		Net credit-related charge-offs (recoveries)	$	36		$	(1)		$	(2)			$	0	$	0			$	33

Selected average balances:	Selected average balances:																	Selected average balances:
Assets	Assets	$	45,321		$	2,839		$	5,071		$	13,907	$	4,114	$	71,252		Assets	$	45,636		$	3,487		$	5,198			$	15,909	$	14,038			$	84,268
Loans	Loans	43,932			2,107			4,930			—		(6)		50,963			Loans	44,248			2,678			5,094				0		(7)				52,013
Deposits	Deposits	28,251			20,649			3,740			2,174		181		54,995			Deposits	39,535			23,604			4,439				1,004		181				68,763

Statistical data:	Statistical data:																	Statistical data:
Return on average assets (a)	Return on average assets (a)	2.11		%	0.44		%	3.10		%	n/m		n/m		1.68		%	Return on average assets (a)	2.27		%	0.05		%	2.24		%		n/m		n/m				0.99		%
Efficiency ratio (b)	Efficiency ratio (b)	34.98			82.26			58.99			n/m		n/m		49.65			Efficiency ratio (b)	37.60			98.29			71.72				n/m		n/m				62.79
Three Months Ended September 30, 2019																		Three Months Ended September 30, 2019
Earnings summary:																		Earnings summary:
Net interest income (expense)																		Net interest income (expense)	$	420		$	142		$	47			$	(38)	$	15			$	586
Provision for credit losses																		Provision for credit losses	39			(2)			(3)				0		1				35
Noninterest income																		Noninterest income	140			31			69				12		4				256
Noninterest expenses																		Noninterest expenses	199			149			69				(1)		19				435
Provision (benefit) for income taxes																		Provision (benefit) for income taxes	74			5			12				(8)		(3)				80
Net income (loss)																		Net income (loss)	$	248		$	21		$	38			$	(17)	$	2			$	292
Net credit-related charge-offs (recoveries)																		Net credit-related charge-offs (recoveries)	$	43		$	1		$	(2)			$	0	$	0			$	42

Selected average balances:																		Selected average balances:
Assets																		Assets	$	45,460		$	2,871		$	5,032			$	14,061	$	4,312			$	71,736
Loans																		Loans	43,904			2,114			4,884				0		(15)				50,887
Deposits																		Deposits	28,917			20,761			3,775				2,049		214				55,716

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

(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)~~losses from securities and a derivative contract tied to the conversion rate of Visa Class B shares.

n/m – not meaningful

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries


		Commercial Bank			Retail Bank			Wealth Management			Finance		Other		Total				Commercial Bank			Retail Bank			Wealth Management				Finance		Other				Total
(dollar amounts in millions)	(dollar amounts in millions)																											(dollar amounts in millions)										Finance	Other	Total
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
Nine Months Ended September 30, 2020																		Nine Months Ended September 30, 2020
Earnings summary:	Earnings summary:																	Earnings summary:
Net interest income (expense)	Net interest income (expense)	$	832		$	292		$	93		$	(37)	$	29	$	1,209		Net interest income (expense)	$	1,195		$	372		$	123			$	(264)			$	16			$	1,442
Provision for credit losses	Provision for credit losses	46			(3)			(10)			—		(2)		31			Provision for credit losses	527			6			21				0		0				554
Noninterest income	Noninterest income	272			64			132			17		3		488			Noninterest income	406			80			200				41		9				736
Noninterest expenses	Noninterest expenses	393			292			139			1		32		857			Noninterest expenses	607			457			221				1		25				1,311
Provision (benefit) for income taxes	Provision (benefit) for income taxes	153			16			23			(8)		(12)		172			Provision (benefit) for income taxes	94			(4)			17				(54)		1				54
Net income (loss)	Net income (loss)	$	512		$	51		$	73		$	(13)	$	14	$	637		Net income (loss)	$	373		$	(7)		$	64			$	(170)	$	(1)			$	259
Net credit-related charge-offs (recoveries)	Net credit-related charge-offs (recoveries)	$	47		$	—		$	(3)		$	—	$	—	$	44		Net credit-related charge-offs (recoveries)	$	167		$	1		$	(1)			$	0	$	0			$	167

Selected average balances:	Selected average balances:																	Selected average balances:
Assets	Assets	$	44,619		$	2,826		$	5,121		$	13,747	$	4,202	$	70,515		Assets	$	45,764		$	3,221		$	5,156			$	14,902	$	10,699			$	79,742
Loans	Loans	43,241			2,105			4,983			—		(6)		50,323			Loans	44,256			2,413			5,035				0		2				51,706
Deposits	Deposits	28,356			20,560			3,770			1,655		157		54,498			Deposits	35,376			22,486			4,228				1,030		171				63,291

Statistical data:	Statistical data:																	Statistical data:
Return on average assets (a)	Return on average assets (a)	2.31		%	0.49		%	2.88		%	n/m		n/m		1.82		%	Return on average assets (a)	1.09		%	(0.04)		%	1.65		%		n/m		n/m				0.43		%
Efficiency ratio (b)	Efficiency ratio (b)	35.61			81.80			61.67			n/m		n/m		50.23			Efficiency ratio (b)	37.89			100.27			68.54				n/m		n/m				60.10

Nine Months Ended September 30, 2019																		Nine Months Ended September 30, 2019
Earnings summary:																		Earnings summary:
Net interest income (expense)																		Net interest income (expense)	$	1,252		$	434		$	140			$	(75)	$	44			$	1,795
Provision for credit losses																		Provision for credit losses	85			(5)			(13)				0		(1)				66
Noninterest income																		Noninterest income	412			95			201				29		7				744
Noninterest expenses																		Noninterest expenses	592			441			208				0		51				1,292
Provision (benefit) for income taxes																		Provision (benefit) for income taxes	227			21			35				(16)		(15)				252
Net income (loss)																		Net income (loss)	$	760		$	72		$	111			$	(30)	$	16			$	929
Net credit-related charge-offs (recoveries)																		Net credit-related charge-offs (recoveries)	$	90		$	1		$	(5)			$	0	$	0			$	86

Selected average balances:																		Selected average balances:
Assets																		Assets	$	44,902		$	2,841		$	5,092			$	13,853	$	4,239			$	70,927
Loans																		Loans	43,465			2,108			4,950				0		(9)				50,514
Deposits																		Deposits	28,545			20,628			3,772				1,788		176				54,909

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

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

n/m – not meaningful

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 ~~June~~September 30, 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				Michigan			California			Texas				Other Markets			Finance & Other				Total
(dollar amounts in millions)	(dollar amounts in millions)																												(dollar amounts in millions)											Other Markets		Finance & Other	Total
Three Months Ended June 30, 2020
Three Months Ended September 30, 2020																			Three Months Ended September 30, 2020
Earnings summary:	Earnings summary:																		Earnings summary:
Net interest income (expense)	Net interest income (expense)	$	159		$	176		$	116		$	111		$	(91)	$	471		Net interest income (expense)	$	168		$	179		$	117			$	118				$	(124)				$	458
Provision for credit losses	Provision for credit losses	40			51			31			16			—		138			Provision for credit losses	19			11			(25)				0			0				5
Noninterest income	Noninterest income	64			36			30			104			13		247			Noninterest income	66			33			28				100			25				252
Noninterest expenses	Noninterest expenses	139			103			91			102			5		440			Noninterest expenses	139			102			89				105			11				446
Provision (benefit) for income taxes	Provision (benefit) for income taxes	8			13			4			21			(19)		27			Provision (benefit) for income taxes	13			21			17				24			(27)				48
Net income (loss)	Net income (loss)	$	36		$	45		$	20		$	76		$	(64)	$	113		Net income (loss)	$	63		$	78		$	64			$	89		$	(83)			$	211
Net credit-related charge-offs	Net credit-related charge-offs	$	—		$	4		$	46		$	—		$	—	$	50		Net credit-related charge-offs	$	6		$	16		$	11			$	0		$	0			$	33

Selected average balances:	Selected average balances:																		Selected average balances:
Assets	Assets	$	13,643		$	18,948		$	11,597		$	11,732		$	25,724	$	81,644		Assets	$	13,280		$	18,357		$	11,365			$	11,322		$	29,944			$	84,268
Loans	Loans	13,014			18,663			11,184			10,640			(3)		53,498			Loans	12,607			18,095			10,923				10,399			(11)				52,013
Deposits	Deposits	23,460			18,463			10,209			11,050			1,100		64,282			Deposits	24,759			20,130			10,654				12,035			1,185				68,763

Statistical data:	Statistical data:																		Statistical data:
Return on average assets (a)	Return on average assets (a)	0.59		%	0.93		%	0.68		%	2.53		%	n/m		0.55		%	Return on average assets (a)	0.95		%	1.46		%	2.14		%		2.68		%	n/m				0.99		%
Efficiency ratio (b)	Efficiency ratio (b)	62.08			48.61			61.88			47.41			n/m		61.14			Efficiency ratio (b)	59.79			47.98			61.16				48.22			n/m				62.79

Three Months Ended June 30, 2019
Three Months Ended September 30, 2019																			Three Months Ended September 30, 2019
Earnings summary:	Earnings summary:																		Earnings summary:
Net interest income (expense)	Net interest income (expense)	$	186		$	208		$	124		$	94		$	(9)	$	603		Net interest income (expense)	$	185		$	203		$	125			$	96		$	(23)			$	586
Provision for credit losses	Provision for credit losses	(10)			(4)			49			13			(4)		44			Provision for credit losses	(1)			(6)			50				(9)			1				35
Noninterest income	Noninterest income	72			40			34			91			13		250			Noninterest income	74			41			31				94			16				256
Noninterest expenses	Noninterest expenses	134			99			84			92			15		424			Noninterest expenses	139			102			86				90			18				435
Provision (benefit) for income taxes	Provision (benefit) for income taxes	30			39			6			16			(4)		87			Provision (benefit) for income taxes	27			37			5				22			(11)				80
Net income (loss)	Net income (loss)	$	104		$	114		$	19		$	64		$	(3)	$	298		Net income (loss)	$	94		$	111		$	15			$	87		$	(15)			$	292
Net credit-related charge-offs		$	—		$	7		$	26		$	—		$	—	$	33
Net credit-related charge-offs (recoveries)																			Net credit-related charge-offs (recoveries)	$	6		$	5		$	34			$	(3)		$	0			$	42

Selected average balances:	Selected average balances:																		Selected average balances:
Assets	Assets	$	13,239		$	19,108		$	11,342		$	9,542		$	18,021	$	71,252		Assets	$	13,205		$	18,595		$	11,462			$	10,100		$	18,374			$	71,736
Loans	Loans	12,704			18,806			10,684			8,775			(6)		50,963			Loans	12,554			18,261			10,805				9,282			(15)				50,887
Deposits	Deposits	19,816			16,314			8,668			7,842			2,355		54,995			Deposits	20,164			16,705			8,705				7,879			2,263				55,716

Statistical data:	Statistical data:																		Statistical data:
Return on average assets (a)	Return on average assets (a)	2.01		%	2.38		%	0.69		%	2.75		%	n/m		1.68		%	Return on average assets (a)	1.79		%	2.37		%	0.48		%		3.45		%	n/m				1.61		%
Efficiency ratio (b)	Efficiency ratio (b)	52.04			40.07			52.86			49.36			n/m		49.65			Efficiency ratio (b)	53.30			41.70			55.57				47.08			n/m				51.54

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

n/m – not meaningful.

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries


		Michigan			California			Texas			Other Markets			Finance & Other		Total				Michigan			California			Texas				Other Markets			Finance & Other				Total
(dollar amounts in millions)	(dollar amounts in millions)																												(dollar amounts in millions)											Other Markets		Finance & Other	Total
Six Months Ended June 30, 2020
Nine Months Ended September 30, 2020																			Nine Months Ended September 30, 2020
Earnings summary:	Earnings summary:																		Earnings summary:
Net interest income (expense)	Net interest income (expense)	$	322		$	358		$	231		$	197		$	(124)	$	984		Net interest income (expense)	$	490		$	537		$	348			$	315				$	(248)				$	1,442
Provision for credit losses	Provision for credit losses	64			102			321			62			—		549			Provision for credit losses	83			113			296				62			0				554
Noninterest income	Noninterest income	136			72			60			191			25		484			Noninterest income	202			105			88				291			50				736
Noninterest expenses	Noninterest expenses	279			201			175			195			15		865			Noninterest expenses	418			303			264				300			26				1,311
Provision (benefit) for income taxes	Provision (benefit) for income taxes	23			30			(46)			25			(26)		6			Provision (benefit) for income taxes	36			51			(29)				49			(53)				54
Net income (loss)	Net income (loss)	$	92		$	97		$	(159)		$	106		$	(88)	$	48		Net income (loss)	$	155		$	175		$	(95)			$	195		$	(171)			$	259
Net credit-related charge-offs	Net credit-related charge-offs	$	3		$	15		$	116		$	—		$	—	$	134		Net credit-related charge-offs	$	9		$	31		$	127			$	0		$	0			$	167

Selected average balances:	Selected average balances:																		Selected average balances:
Assets	Assets	$	13,269		$	18,664		$	11,371		$	10,754		$	23,396	$	77,454		Assets	$	13,272		$	18,563		$	11,369			$	10,943		$	25,595			$	79,742
Loans	Loans	12,601			18,346			10,870			9,735			(1)		51,551			Loans	12,604			18,263			10,889				9,955			(5)				51,706
Deposits	Deposits	22,104			17,965			9,705			9,541			1,209		60,524			Deposits	22,995			18,691			10,026				10,378			1,201				63,291

Statistical data:	Statistical data:																		Statistical data:
Return on average assets (a)	Return on average assets (a)	0.81		%	1.02		%	(2.82)		%	1.99		%	n/m		0.12		%	Return on average assets (a)	0.86		%	1.18		%	(1.10)		%		2.28		%	n/m				0.43		%
Efficiency ratio (b)	Efficiency ratio (b)	60.46			46.77			60.07			50.25			n/m		58.80			Efficiency ratio (b)	60.20			47.16			60.41				49.60			n/m				60.10
Six Months Ended June 30, 2019
Nine Months Ended September 30, 2019																			Nine Months Ended September 30, 2019
Earnings summary:	Earnings summary:																		Earnings summary:
Net interest income (expense)	Net interest income (expense)	$	373		$	411		$	248		$	185		$	(8)	$	1,209		Net interest income (expense)	$	558		$	614		$	373			$	281		$	(31)			$	1,795
Provision for credit losses	Provision for credit losses	(5)			(5)			38			5			(2)		31			Provision for credit losses	(6)			(11)			88				(4)			(1)				66
Noninterest income	Noninterest income	144			80			66			178			20		488			Noninterest income	218			121			97				272			36				744
Noninterest expenses	Noninterest expenses	273			199			169			183			33		857			Noninterest expenses	412			301			255				273			51				1,292
Provision (benefit) for income taxes	Provision (benefit) for income taxes	56			76			25			35			(20)		172			Provision (benefit) for income taxes	83			113			30				57			(31)				252
Net income		$	193		$	221		$	82		$	140		$	1	$	637
Net income (loss)																			Net income (loss)	$	287		$	332		$	97			$	227		$	(14)			$	929
Net credit-related charge-offs (recoveries)	Net credit-related charge-offs (recoveries)	$	4		$	4		$	39		$	(3)		$	—	$	44		Net credit-related charge-offs (recoveries)	$	10		$	9		$	73			$	(6)		$	0			$	86

Selected average balances:	Selected average balances:																		Selected average balances:
Assets	Assets	$	13,157		$	19,020		$	11,128		$	9,261		$	17,949	$	70,515		Assets	$	13,170		$	18,877		$	11,240			$	9,548		$	18,092			$	70,927
Loans	Loans	12,631			18,730			10,474			8,494			(6)		50,323			Loans	12,605			18,572			10,586				8,760			(9)				50,514
Deposits	Deposits	19,854			16,276			8,682			7,874			1,812		54,498			Deposits	19,959			16,420			8,690				7,876			1,964				54,909

Statistical data:	Statistical data:																		Statistical data:
Return on average assets (a)	Return on average assets (a)	1.89		%	2.35		%	1.47		%	3.06		%	n/m		1.82		%	Return on average assets (a)	1.85		%	2.36		%	1.13		%		3.20		%	n/m				1.75		%
Efficiency ratio (b)	Efficiency ratio (b)	52.85			40.49			53.74			50.30			n/m		50.23			Efficiency ratio (b)	53.00			40.89			54.35				49.20			n/m				50.66

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

n/m – not meaningful.

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			Commercial Bank		Retail Bank		Wealth Management		Finance & Other		Total
(in millions)	(in millions)																						Commercial Bank	Retail Bank	Wealth Management	Finance & Other	Total
Three Months Ended June 30, 2020
Three Months Ended September 30, 2020												Three Months Ended September 30, 2020
Revenue from contracts with customers:	Revenue from contracts with customers:											Revenue from contracts with customers:
Card fees	Card fees	$	59	$	8	$	1	$	—	$	68	Card fees	$	60	$	11	$	0	$	0	$	71
Service charges on deposit accounts	Service charges on deposit accounts	30		11		1		—		42		Service charges on deposit accounts	33		12		2		0		47
Fiduciary income	Fiduciary income	—		—		52		—		52		Fiduciary income	0		0		51		0		51
Commercial loan servicing fees (a)	Commercial loan servicing fees (a)	4		—		—		—		4		Commercial loan servicing fees (a)	5		0		0		0		5
Brokerage fees	Brokerage fees	—		—		5		—		5		Brokerage fees	0		0		5		0		5
Other noninterest income (b)	Other noninterest income (b)	11		2		4		—		17		Other noninterest income (b)	8		2		4		0		14
Total revenue from contracts with customers	Total revenue from contracts with customers	104		21		63		—		188		Total revenue from contracts with customers	106		25		62		0		193
Other sources of noninterest income	Other sources of noninterest income	40		3		3		13		59		Other sources of noninterest income	29		3		2		25		59
Total noninterest income	Total noninterest income	$	144	$	24	$	66	$	13	$	247	Total noninterest income	$	135	$	28	$	64	$	25	$	252
Three Months Ended June 30, 2019
Three Months Ended September 30, 2019												Three Months Ended September 30, 2019
Revenue from contracts with customers:	Revenue from contracts with customers:											Revenue from contracts with customers:
Card fees	Card fees	$	54	$	10	$	1	$	—	$	65	Card fees	$	55	$	11	$	1	$	0	$	67
Service charges on deposit accounts	Service charges on deposit accounts	33		17		1		—		51		Service charges on deposit accounts	32		18		1		0		51
Fiduciary income	Fiduciary income	—		—		52		—		52		Fiduciary income	0		0		53		0		53
Commercial loan servicing fees (a)	Commercial loan servicing fees (a)	4		—		—		—		4		Commercial loan servicing fees (a)	5		0		0		0		5
Brokerage fees	Brokerage fees	—		—		7		—		7		Brokerage fees	0		0		7		0		7
Other noninterest income (b)	Other noninterest income (b)	2		4		4		—		10		Other noninterest income (b)	1		1		5		0		7
Total revenue from contracts with customers	Total revenue from contracts with customers	93		31		65		—		189		Total revenue from contracts with customers	93		30		67		0		190
Other sources of noninterest income	Other sources of noninterest income	43		2		3		13		61		Other sources of noninterest income	47		1		2		16		66
Total noninterest income	Total noninterest income	$	136	$	33	$	68	$	13	$	250	Total noninterest income	$	140	$	31	$	69	$	16	$	256
Six Months Ended June 30, 2020
Nine Months Ended September 30, 2020												Nine Months Ended September 30, 2020
Revenue from contracts with customers:	Revenue from contracts with customers:											Revenue from contracts with customers:
Card fees	Card fees	$	108	$	17	$	2	$	—	$	127	Card fees	$	168	$	28	$	2	$	0	$	198
Service charges on deposit accounts	Service charges on deposit accounts	62		27		2		—		91		Service charges on deposit accounts	95		39		4		0		138
Fiduciary income	Fiduciary income	—		—		106		—		106		Fiduciary income	0		0		157		0		157
Commercial loan servicing fees (a)	Commercial loan servicing fees (a)	8		—		—		—		8		Commercial loan servicing fees (a)	13		0		0		0		13
Brokerage fees	Brokerage fees	—		—		12		—		12		Brokerage fees	0		0		17		0		17
Other noninterest income (b)	Other noninterest income (b)	15		5		9		—		29		Other noninterest income (b)	23		7		13		0		43
Total revenue from contracts with customers	Total revenue from contracts with customers	193		49		131		—		373		Total revenue from contracts with customers	299		74		193		0		566
Other sources of noninterest income	Other sources of noninterest income	78		3		5		25		111		Other sources of noninterest income	107		6		7		50		170
Total noninterest income	Total noninterest income	$	271	$	52	$	136	$	25	$	484	Total noninterest income	$	406	$	80	$	200	$	50	$	736
Six Months Ended June 30, 2019
Nine Months Ended September 30, 2019												Nine Months Ended September 30, 2019
Revenue from contracts with customers:	Revenue from contracts with customers:											Revenue from contracts with customers:
Card fees	Card fees	$	107	$	19	$	2	$	—	$	128	Card fees	$	162	$	30	$	3	$	0	$	195
Service charges on deposit accounts	Service charges on deposit accounts	66		34		2		—		102		Service charges on deposit accounts	98		52		3		0		153
Fiduciary income	Fiduciary income	—		—		101		—		101		Fiduciary income	0		0		154		0		154
Commercial loan servicing fees (a)	Commercial loan servicing fees (a)	8		—		—		—		8		Commercial loan servicing fees (a)	13		0		0		0		13
Brokerage fees	Brokerage fees	—		—		14		—		14		Brokerage fees	0		0		21		0		21
Other noninterest income (b)	Other noninterest income (b)	4		7		9		—		20		Other noninterest income (b)	5		8		14		0		27
Total revenue from contracts with customers	Total revenue from contracts with customers	185		60		128		—		373		Total revenue from contracts with customers	278		90		195		0		563
Other sources of noninterest income	Other sources of noninterest income	87		4		4		20		115		Other sources of noninterest income	134		5		6		36		181
Total noninterest income	Total noninterest income	$	272	$	64	$	132	$	20	$	488	Total noninterest income	$	412	$	95	$	201	$	36	$	744

(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 ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 2019 for refunds or credits relating to prior periods were not significant.

Revenue from contracts with customers did not generate significant contract assets and liabilities.

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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 include credit risks (unfavorable developments concerning credit quality; declines or other changes in the businesses or 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; the impact of legal and regulatory proceedings or determinations; losses due to fraud; and controls and procedures failures); compliance risks (changes in regulation or oversight; 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 the critical nature of the Corporation's 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 implementation of the Corporation's strategies and business initiatives; 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; impacts from the COVID-19 global pandemic; and the volatility of the Corporation's stock 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, 2019 and "Item 1A. Risk Factors" beginning on page 6567 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 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.

Table of Contents

~~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 ~~June~~September 30, 2020 was ~~$113~~$211 million, a decrease of ~~$185~~$81 million compared to ~~$298~~$292 million for the three months ended ~~June~~September 30, 2019. The decrease in net income reflected the net impact of lower ~~short-term~~interest rates. ~~Results~~Net income for the ~~three~~nine months ended ~~June~~September 30, 2020 ~~were also impacted~~was $259 million, a decrease of $670 million compared to $929 million for the nine months ended September 30, 2019. The decrease in net income was driven by an increase in the provision for credit losses, calculated using the current expected credit loss (CECL) model, which ~~continues to reflect~~reflects 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 decrease of $589 million compared to $637 million for the six months ended June 30, 2019. The decrease in net income was driven by an increase in the provision for credit lossesportfolio, as well as the net impact of lower ~~short-term~~interest rates.

Net income per diluted common share was ~~$0.80~~$1.44 and ~~$1.94~~$1.96 for the three months ended ~~June~~September 30, 2020 and 2019, respectively, a decrease of ~~$1.14~~$0.52 per diluted common share. Net income per diluted common share was ~~$0.34~~$1.78 and ~~$4.06~~$6.02 for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively, a decrease of ~~$3.72~~$4.24 per diluted common share.

Table of Contents

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

Analysis of Net Interest Income


		Three Months Ended																							Three Months Ended
		June 30, 2020										June 30, 2019											September 30, 2020				September 30, 2019
(dollar amounts in millions)	(dollar amounts in millions)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate		(dollar amounts in millions)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Commercial loans (a)	Commercial loans (a)	$	33,944	$	271	3.22	%	$	32,607	$	405	4.99	%	Commercial loans (a)	$	32,226	$	255	3.15	%	$	32,329	$	392	4.82	%
Real estate construction loans	Real estate construction loans	3,887		35		3.60		3,319		47		5.74		Real estate construction loans	4,037		34		3.35		3,344		47		5.53
Commercial mortgage loans	Commercial mortgage loans	9,800		76		3.12		9,060		116		5.12		Commercial mortgage loans	9,978		71		2.85		9,264		112		4.82
Lease financing	Lease financing	592		5		3.34		546		3		2.32		Lease financing	601		5		2.94		578		6		3.83
International loans	International loans	1,137		10		3.51		1,025		14		5.30		International loans	1,052		9		3.25		1,007		13		5.12
Residential mortgage loans	Residential mortgage loans	1,895		17		3.49		1,943		19		3.92		Residential mortgage loans	1,961		16		3.41		1,920		18		3.84
Consumer loans	Consumer loans	2,243		20		3.62		2,463		31		5.02		Consumer loans	2,158		18		3.45		2,445		31		4.92
Total loans (b)	Total loans (b)	53,498		434		3.26		50,963		635		5.00		Total loans (b)	52,013		408		3.13		50,887		619		4.83
Mortgage-backed securities(c)	Mortgage-backed securities(c)	9,785		57		2.39		9,326		58		2.45		Mortgage-backed securities(c)	9,759		54		2.28		9,408		58		2.45
Other investment securities		2,857		17		2.47		2,765		17		2.47
U.S. Treasury securities (d)														U.S. Treasury securities (d)	4,091		18		1.77		2,795		17		2.45
Total investment securities	Total investment securities	12,642		74		2.41		12,091		75		2.45		Total investment securities	13,850		72		2.13		12,203		75		2.45
Interest-bearing deposits with banks	Interest-bearing deposits with banks	9,709		2		0.11		2,694		16		2.37		Interest-bearing deposits with banks	12,534		4		0.10		3,049		16		2.13
Other short-term investments	Other short-term investments	140		1		0.48		142		1		1.34		Other short-term investments	158		—		0.29		146		1		1.28
Total earning assets	Total earning assets	75,989		511		2.71		65,890		727		4.42		Total earning assets	78,555		484		2.47		66,285		711		4.26
Cash and due from banks	Cash and due from banks	848						900						Cash and due from banks	911						864
Allowance for loan losses	Allowance for loan losses	(932)						(660)						Allowance for loan losses	(1,002)						(673)
Accrued income and other assets	Accrued income and other assets	5,739						5,122						Accrued income and other assets	5,804						5,260
Total assets	Total assets	$	81,644					$	71,252					Total assets	$	84,268					$	71,736
Money market and interest-bearing checking deposits	Money market and interest-bearing checking deposits	$	26,320	12		0.18		$	22,913	53		0.93		Money market and interest-bearing checking deposits	$	27,671	8		0.12		$	23,497	57		0.97
Savings deposits	Savings deposits	2,394		—		0.02		2,169		—		0.03		Savings deposits	2,560		1		0.02		2,155		1		0.04
Customer certificates of deposit	Customer certificates of deposit	2,801		8		1.21		2,346		7		1.10		Customer certificates of deposit	2,495		6		0.87		2,627		8		1.30
Other time deposits	Other time deposits	—		—		—		1,156		7		2.46		Other time deposits	—		—		—		1,085		7		2.46
Foreign office time deposits	Foreign office time deposits	81		—		0.34		13		—		1.54		Foreign office time deposits	103		—		0.10		13		—		1.45
Total interest-bearing deposits	Total interest-bearing deposits	31,596		20		0.26		28,597		67		0.94		Total interest-bearing deposits	32,829		15		0.17		29,377		73		0.99
Short-term borrowings	Short-term borrowings	882		1		0.25		927		6		2.46		Short-term borrowings	218		—		0.25		268		2		2.33
Medium- and long-term debt	Medium- and long-term debt	7,206		19		1.09		6,712		51		3.05		Medium- and long-term debt	5,940		11		0.78		7,100		50		2.78
Total interest-bearing sources	Total interest-bearing sources	39,684		40		0.41		36,236		124		1.37		Total interest-bearing sources	38,987		26		0.27		36,745		125		1.34
Noninterest-bearing deposits	Noninterest-bearing deposits	32,686						26,398						Noninterest-bearing deposits	35,934						26,339
Accrued expenses and other liabilities	Accrued expenses and other liabilities	1,682						1,333						Accrued expenses and other liabilities	1,513						1,398
Total shareholders’ equity		7,592						7,285
Shareholders’ equity														Shareholders’ equity	7,834						7,254
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	81,644					$	71,252					Total liabilities and shareholders’ equity	$	84,268					$	71,736
Net interest income/rate spread	Net interest income/rate spread			$	471	2.30				$	603	3.05		Net interest income/rate spread			$	458	2.20				$	586	2.92
Impact of net noninterest-bearing sources of funds	Impact of net noninterest-bearing sources of funds					0.20						0.61		Impact of net noninterest-bearing sources of funds					0.13						0.60
Net interest margin (as a percentage of average earning assets)	Net interest margin (as a percentage of average earning assets)					2.50	%					3.66	%	Net interest margin (as a percentage of average earning assets)					2.33	%					3.52	%

(a)Includes ~~hedge income (losses)~~Paycheck Protection Program (PPP) loans with average balance of ~~$19 million and $(1) million~~$3.8 billion for the three months ended ~~June~~September 30, ~~2020 and June 30, 2019, respectively.~~2020.

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

(c)Average balances included $254 million and $28 million of unrealized gains and losses for the three months ended September 30, 2020 and 2019, respectively; yields calculated gross of these unrealized gains and losses.

(d)Average balances included $99 million and $51 million of unrealized gains and losses for the three months ended September 30, 2020 and 2019, respectively; yields calculated gross of these unrealized gains and losses.

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Rate/Volume Analysis


		Three Months Ended													Three Months Ended
		June 30, 2020/June 30, 2019													September 30, 2020/September 30, 2019
(in millions)	(in millions)	Decrease Due to Rate		Increase Due to Volume (a)		Net Decrease		(in millions)	Decrease Due to Rate		Increase (Decrease) Due to Volume (a)		Net Decrease
Interest Income:	Interest Income:							Interest Income:
Loans	Loans	$	(221)	$	20	$	(201)	Loans	$	(219)	$	8	$	(211)
Investment securities	Investment securities	(2)		1		(1)		Investment securities	(5)		2		(3)

Interest-bearing deposits with banks	Interest-bearing deposits with banks	(16)		2		(14)		Interest-bearing deposits with banks	(15)		3		(12)

Other short-term investments								Other short-term investments	(1)		—		(1)
Total interest income	Total interest income	(239)		23		(216)		Total interest income	(240)		13		(227)
Interest Expense:	Interest Expense:							Interest Expense:
Interest-bearing deposits	Interest-bearing deposits	(49)		2		(47)		Interest-bearing deposits	(59)		1		(58)
Short-term borrowings	Short-term borrowings	(5)		—		(5)		Short-term borrowings	(2)		—		(2)
Medium- and long-term debt	Medium- and long-term debt	(34)		2		(32)		Medium- and long-term debt	(34)		(5)		(39)
Total interest expense	Total interest expense	(88)		4		(84)		Total interest expense	(95)		(4)		(99)
Net interest income	Net interest income	$	(151)	$	19	$	(132)	Net interest income	$	(145)	$	17	$	(128)

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

Net interest income was ~~$471~~$458 million for the three months ended ~~June~~September 30, 2020, a decrease of ~~$132~~$128 million compared to ~~$603~~$586 million for the three months ended ~~June~~September 30, 2019. The decrease in net interest income primarily reflected the impact of lower ~~short-term rates partially offset by the impact of a $2.5~~interest rates. The $1.1 billion increase in average loans was primarily in commercial mortgage and real estate construction. Average commercial loans for third quarter 2020 included $3.8 billion in lower-yielding PPP loans. The decline in rates led to the ~~116~~119 basis point decrease in the net interest margin, to ~~2.50~~2.33 percent for the three months ended ~~June~~September 30, 2020 from ~~3.66~~3.52 percent for the three months ended ~~June~~September 30, 2019.

Provision for Credit Losses

The provision for credit losses, which includes the provision for loan losses and the provision for credit losses on lending-related commitments, calculated under the CECL model for the three months ended September 30, 2020, was ~~$138~~$5 million, compared to $35 million for the three months ended ~~June~~September 30, ~~2020, compared to $44 million for the three months ended June 30,~~ 2019. The provision for credit losses for the three 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 the Energy portfolio. Net loan charge-offs ~~increased $17~~decreased $9 million ~~to $50 million, or 0.37 percent of average total loans for the three months ended June 30, 2020, compared~~ to $33 million, or 0.26 percent of average total loans for the three months ended ~~June~~September 30, 2020, compared to $42 million, or 0.33 percent of average total loans for the three months ended September 30, 2019. ~~The~~Energy net charge-offs decreased $25 million, including a $13 million increase in recoveries, compared to the three months ended September 30, 2019, which was ~~driven~~partially offset by a ~~$20~~$16 million increase in net charge-offs ~~of Energy~~on general Middle Market loans.

An analysis of the allowance for credit losses and a summary of nonperforming assets are 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 June 30,							Three Months Ended September 30,
(in millions)	(in millions)	2020		2019		(in millions)	2020		2019
Card fees	Card fees	$	68	$	65	Card fees	$	71	$	67
Fiduciary income	Fiduciary income	52		52		Fiduciary income	51		53
Service charges on deposit accounts	Service charges on deposit accounts	42		51		Service charges on deposit accounts	47		51
Commercial lending fees	Commercial lending fees	17		21		Commercial lending fees	19		23
Foreign exchange income	Foreign exchange income	9		11		Foreign exchange income	9		11
Bank-owned life insurance	Bank-owned life insurance	9		11		Bank-owned life insurance	12		11
Letter of credit fees	Letter of credit fees	9		10		Letter of credit fees	9		10
Brokerage fees	Brokerage fees	5		7		Brokerage fees	5		7
Net securities gains		1		—

Other noninterest income (a)	Other noninterest income (a)	35		22		Other noninterest income (a)	29		23
Total noninterest income	Total noninterest income	$	247	$	250	Total noninterest income	$	252	$	256

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

Noninterest income decreased $3$4 million to ~~$247~~$252 million for the three months ended ~~June~~September 30, 2020, including ~~a reduction~~reductions in service charges on deposit accounts reflecting the impacts of social distancing, syndication agent fees (a component of commercial lending fees), brokerage fees and ~~smaller decreases~~fiduciary income, partially offset by an increase in ~~other categories, partially offset~~card fees resulting from higher activity related to stimulus payments. Noninterest income was also impacted by higher securities trading income and deferred compensation asset returns (offset in noninterest expenses), as well as lower customer derivative income ~~(both~~and income on principal investing and warrants, included in other noninterest income and detailed ~~below), as well as an increase in card fees.~~below.

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


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

Deferred compensation asset returns (a)						Deferred compensation asset returns (a)	$	8	$	3
Securities trading income	Securities trading income	10		2		Securities trading income	8		1
Investment banking fees	Investment banking fees	4		1		Investment banking fees	2		2
Deferred compensation asset returns (a)		2		—
Income from principal investing and warrants	Income from principal investing and warrants	—		2		Income from principal investing and warrants	1		3

Customer derivative income (b)						Customer derivative income (b)	—		6
All other noninterest income	All other noninterest income	9		11		All other noninterest income	10		8
Other noninterest income	Other noninterest income	$	35	$	22	Other noninterest income	$	29	$	23

(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) Customer derivative income included unfavorable valuation adjustments of $6 million for both the three months ended September 30, 2020 and 2019.

Noninterest Expenses


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

Salaries and benefits expense	Salaries and benefits expense	$	249	$	245	Salaries and benefits expense	$	257	$	253
Outside processing fee expense (a)	Outside processing fee expense (a)	62		65		Outside processing fee expense (a)	58		66
Occupancy expense	Occupancy expense	37		37		Occupancy expense	40		39
Software expense (a)	Software expense (a)	39		28		Software expense (a)	39		30
Equipment expense	Equipment expense	12		12		Equipment expense	12		13
Advertising expense	Advertising expense	8		9		Advertising expense	9		10
FDIC insurance expense	FDIC insurance expense	8		6		FDIC insurance expense	8		6
Other noninterest expenses	Other noninterest expenses	25		22		Other noninterest expenses	23		18
Total noninterest expenses	Total noninterest expenses	$	440	$	424	Total noninterest expenses	$	446	$	435

(a) Amounts reported for the three months ended ~~June~~September 30, 2020 included ~~an $8~~a $9 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 increased ~~$16~~$11 million to ~~$440 million. Excluding the $8~~$446 million, ~~classification adjustment for the prospective adoption of ASU No. 2018-15, the increase in noninterest expenses~~ primarily ~~reflected~~reflecting higher ~~outside processing fee expense,~~ salaries and benefits expense and ~~software expense.~~charitable contributions as well as smaller increases in various categories. The increase in salaries and benefits expense was driven by higher deferred compensation expense (offset in noninterest income) and annual merit increases, ~~and the payment of COVID-19-related stipends,~~ partially offset by lower incentive compensation and technology-related labor costs.

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~~Six~~Nine Months Ended ~~June~~September 30, 2020 compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2019

Analysis of Net Interest Income


		Six Months Ended																							Nine Months Ended
		June 30, 2020										June 30, 2019									September 30, 2020						September 30, 2019
(dollar amounts in millions)	(dollar amounts in millions)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate		(dollar amounts in millions)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Commercial loans (a)	Commercial loans (a)	$	32,321	$	585	3.64	%	$	32,037	$	799	5.03	%	Commercial loans (a)	$	32,289	$	840	3.48	%	$	32,135	$	1,191	4.96	%
Real estate construction loans	Real estate construction loans	3,725		78		4.19		3,279		93		5.74		Real estate construction loans	3,830		112		3.90		3,301		140		5.67
Commercial mortgage loans	Commercial mortgage loans	9,719		177		3.66		9,028		230		5.13		Commercial mortgage loans	9,806		248		3.38		9,108		342		5.02
Lease financing	Lease financing	587		10		3.49		533		8		3.08		Lease financing	592		15		3.30		548		14		3.34
International loans	International loans	1,071		21		3.96		1,019		27		5.33		International loans	1,064		30		3.73		1,015		40		5.26
Residential mortgage loans	Residential mortgage loans	1,875		34		3.58		1,954		38		3.89		Residential mortgage loans	1,904		50		3.52		1,943		56		3.87
Consumer loans	Consumer loans	2,253		46		4.12		2,473		61		5.00		Consumer loans	2,221		64		3.90		2,464		92		4.98
Total loans (b)	Total loans (b)	51,551		951		3.71		50,323		1,256		5.03		Total loans (b)	51,706		1,359		3.51		50,514		1,875		4.96
Mortgage-backed securities(c)	Mortgage-backed securities(c)	9,649		114		2.40		9,275		114		2.43		Mortgage-backed securities(c)	9,686		168		2.36		9,320		172		2.44
Other investment securities		2,837		34		2.47		2,748		33		2.40
U.S. Treasury securities (d)														U.S. Treasury securities (d)	3,258		52		2.18		2,764		50		2.42
Total investment securities	Total investment securities	12,486		148		2.42		12,023		147		2.42		Total investment securities	12,944		220		2.31		12,084		222		2.43
Interest-bearing deposits with banks	Interest-bearing deposits with banks	7,558		20		0.55		2,773		33		2.38		Interest-bearing deposits with banks	9,229		24		0.35		2,866		49		2.29
Other short-term investments	Other short-term investments	147		1		0.80		138		1		1.34		Other short-term investments	151		1		0.62		140		2		1.32
Total earning assets	Total earning assets	71,742		1,120		3.15		65,257		1,437		4.43		Total earning assets	74,030		1,604		2.91		65,604		2,148		4.37
Cash and due from banks	Cash and due from banks	843						912						Cash and due from banks	866						896
Allowance for loan losses	Allowance for loan losses	(812)						(666)						Allowance for loan losses	(876)						(668)
Accrued income and other assets	Accrued income and other assets	5,681						5,012						Accrued income and other assets	5,722						5,095
Total assets	Total assets	$	77,454					$	70,515					Total assets	$	79,742					$	70,927
Money market and interest-bearing checking deposits	Money market and interest-bearing checking deposits	$	25,486	57		0.45		$	22,763	100		0.88		Money market and interest-bearing checking deposits	$	26,220	65		0.33		$	23,010	157		0.91
Savings deposits	Savings deposits	2,298		—		0.04		2,169		—		0.04		Savings deposits	2,386		1		0.03		2,164		1		0.04
Customer certificates of deposit	Customer certificates of deposit	2,900		19		1.32		2,258		11		0.96		Customer certificates of deposit	2,764		25		1.18		2,383		19		1.09
Other time deposits	Other time deposits	35		—		2.00		661		8		2.45		Other time deposits	23		—		2.00		804		15		2.45
Foreign office time deposits	Foreign office time deposits	82		—		0.82		13		—		1.54		Foreign office time deposits	89		—		0.54		13		—		1.51
Total interest-bearing deposits	Total interest-bearing deposits	30,801		76		0.50		27,864		119		0.86		Total interest-bearing deposits	31,482		91		0.39		28,374		192		0.91
Short-term borrowings	Short-term borrowings	519		1		0.34		576		7		2.45		Short-term borrowings	418		1		0.32		472		9		2.43
Medium- and long-term debt	Medium- and long-term debt	7,266		59		1.63		6,703		102		3.07		Medium- and long-term debt	6,821		70		1.38		6,837		152		2.97
Total interest-bearing sources	Total interest-bearing sources	38,586		136		0.71		35,143		228		1.30		Total interest-bearing sources	38,721		162		0.56		35,683		353		1.32
Noninterest-bearing deposits	Noninterest-bearing deposits	29,723						26,634						Noninterest-bearing deposits	31,809						26,535
Accrued expenses and other liabilities	Accrued expenses and other liabilities	1,630						1,367						Accrued expenses and other liabilities	1,590						1,377
Total shareholders’ equity		7,515						7,371
Shareholders’ equity														Shareholders’ equity	7,622						7,332
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	77,454					$	70,515					Total liabilities and shareholders’ equity	$	79,742					$	70,927
Net interest income/rate spread	Net interest income/rate spread			$	984	2.44				$	1,209	3.13		Net interest income/rate spread			$	1,442	2.35				$	1,795	3.05
Impact of net noninterest-bearing sources of funds	Impact of net noninterest-bearing sources of funds					0.33						0.60		Impact of net noninterest-bearing sources of funds					0.26						0.60
Net interest margin (as a percentage of average earning assets)	Net interest margin (as a percentage of average earning assets)					2.77	%					3.73	%	Net interest margin (as a percentage of average earning assets)					2.61	%					3.65	%

(a)Includes ~~hedge income (losses)~~PPP loans with average balance of ~~$22 million and $(1) million~~$2.1 billion for the ~~six~~nine months ended ~~June~~September 30, ~~2020 and 2019, respectively.~~2020.

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

(c)Average balances included $212 million and $(62) million of unrealized gains and losses for the nine months ended September 30, 2020 and 2019, respectively; yields calculated gross of these unrealized gains and losses.

(d)Average balances included $94 million and $23 million of unrealized gains and losses for the nine months ended September 30, 2020 and 2019, respectively; yields calculated gross of these unrealized gains and losses.

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Rate/Volume Analysis


		Six Months Ended													Nine Months Ended
		June 30, 2020/June 30, 2019													September 30, 2020/September 30, 2019
(in millions)	(in millions)	Decrease Due to Rate		Increase Due to Volume (a)		Net (Decrease) Increase		(in millions)	Decrease Due to Rate		Increase Due to Volume (a)		Net Decrease
Interest Income:	Interest Income:							Interest Income:
Loans	Loans	$	(329)	$	24	$	(305)	Loans	$	(547)	$	31	$	(516)
Investment securities	Investment securities	—		1		1		Investment securities	(5)		3		(2)
Interest-bearing deposits with banks	Interest-bearing deposits with banks	(26)		13		(13)		Interest-bearing deposits with banks	(42)		17		(25)

Other short-term investments								Other short-term investments	(1)		—		(1)
Total interest income	Total interest income	(355)		38		(317)		Total interest income	(595)		51		(544)
Interest Expense:	Interest Expense:							Interest Expense:
Interest-bearing deposits	Interest-bearing deposits	(47)		4		(43)		Interest-bearing deposits	(110)		9		(101)
Short-term borrowings	Short-term borrowings	(6)		—		(6)		Short-term borrowings	(8)		—		(8)
Medium- and long-term debt	Medium- and long-term debt	(46)		3		(43)		Medium- and long-term debt	(82)		—		(82)
Total interest expense	Total interest expense	(99)		7		(92)		Total interest expense	(200)		9		(191)
Net interest income	Net interest income	$	(256)	$	31	$	(225)	Net interest income	$	(395)	$	42	$	(353)

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

Net interest income was ~~$984 million~~$1.4 billion for the ~~six~~nine months ended ~~June~~September 30, 2020, a decrease of ~~$225~~$353 million compared to ~~$1.2~~$1.8 billion for the ~~six~~nine months ended ~~June~~September 30, 2019. Net interest margin was ~~2.77~~2.61 percent for the ~~six~~nine months ended ~~June~~September 30, 2020, a decrease of 96104 basis points compared to ~~3.73~~3.65 percent for the comparable period in 2019. The decrease in net interest income and margin reflected the impact of lower ~~short-term~~interest rates, partially offset by the ~~impact of a~~ $1.2 billion increase in loans. The average ~~loans, primarily from~~loan balance in the nine months ended September 30, 2020 included $2.1 billion in lower-yielding 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 ~~$549~~$554 million for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to ~~$31~~$66 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The provision for credit losses for the ~~six~~nine months ended ~~June~~September 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 the Energy portfolio. Net loan charge-offs increased ~~$90~~$81 million to ~~$134~~$167 million for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to ~~$44~~$86 million for the ~~six~~nine months ended ~~June~~September 30, 2019, driven by a ~~$79~~$54 million increase in net charge-offs of Energy 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,							Nine Months Ended September 30,
(in millions)	(in millions)	2020		2019		(in millions)	2020		2019
Card fees	Card fees	$	127	$	128	Card fees	$	198	$	195
Fiduciary income	Fiduciary income	106		101		Fiduciary income	157		154
Service charges on deposit accounts	Service charges on deposit accounts	91		102		Service charges on deposit accounts	138		153
Commercial lending fees	Commercial lending fees	34		43		Commercial lending fees	53		66
Foreign exchange income	Foreign exchange income	20		22		Foreign exchange income	29		33
Bank-owned life insurance	Bank-owned life insurance	21		20		Bank-owned life insurance	33		31
Letter of credit fees	Letter of credit fees	18		19		Letter of credit fees	27		29
Brokerage fees	Brokerage fees	12		14		Brokerage fees	17		21
Net securities losses	Net securities losses	—		(8)		Net securities losses	—		(8)
Other noninterest income (a)	Other noninterest income (a)	55		47		Other noninterest income (a)	84		70
Total noninterest income	Total noninterest income	$	484	$	488	Total noninterest income	$	736	$	744

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

Noninterest income decreased $4$8 million to ~~$484~~$736 million, ~~including~~which reflected a ~~reduction~~decline in service charges on deposit accounts, ~~and syndication agent fees (included~~primarily resulting from pandemic-driven reductions 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~~activity levels and ~~detailed~~non-sufficient funds and

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~~below, primarily~~overdraft fees. Additionally, declines in syndication agent fees (included in commercial lending fees), income from principal investing and warrants, foreign exchange income and brokerage fees were partially offset by higher securities trading income ~~customer derivative~~and investment banking fees (included in other noninterest income ~~investment banking~~and detailed below) as well as increases in fiduciary income, card fees and the impact of losses related to securities repositioning during the ~~six-month~~nine-month period ended ~~June~~September 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,							Nine Months Ended September 30,
(in millions)	(in millions)	2020		2019		(in millions)	2020		2019
Securities trading income						Securities trading income	$	20	$	5
Customer derivative income (a)	Customer derivative income (a)	$	19	$	13	Customer derivative income (a)	19		19

Securities trading income		12		4
Investment banking fees	Investment banking fees	7		3		Investment banking fees	9		5
Deferred compensation asset returns (b)						Deferred compensation asset returns (b)	7		5
Income from principal investing and warrants	Income from principal investing and warrants	—		3		Income from principal investing and warrants	1		6

Deferred compensation asset returns (b)		(1)		2
All other noninterest income	All other noninterest income	18		22		All other noninterest income	28		30
Other noninterest income	Other noninterest income	$	55	$	47	Other noninterest income	$	84	$	70

(a)Customer derivative income included unfavorable valuation adjustments of ~~$16~~$22 million and $5$10 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

(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,							Nine Months Ended September 30,
(in millions)	(in millions)	2020		2019		(in millions)	2020		2019

Salaries and benefits expense	Salaries and benefits expense	$	491	$	510	Salaries and benefits expense	$	748	$	763
Outside processing fee expense (a)	Outside processing fee expense (a)	119		128		Outside processing fee expense (a)	177		194
Occupancy expense	Occupancy expense	74		74		Occupancy expense	114		113
Software expense (a)	Software expense (a)	76		57		Software expense (a)	115		87
Equipment expense	Equipment expense	24		24		Equipment expense	36		37
Advertising expense	Advertising expense	15		14		Advertising expense	24		24
FDIC insurance expense	FDIC insurance expense	16		11		FDIC insurance expense	24		17
Other noninterest expenses	Other noninterest expenses	50		39		Other noninterest expenses	73		57
Total noninterest expenses	Total noninterest expenses	$	865	$	857	Total noninterest expenses	$	1,311	$	1,292

(a) Amounts reported for the ~~six~~nine months ended ~~June~~September 30, 2020 included a ~~$15~~$24 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 increased $8$19 million to ~~$865 million. Excluding~~$1.3 billion. The increase in noninterest expenses primarily reflected increases within other noninterest expenses including higher operational losses, charitable contributions and other defined benefit costs. Additionally, excluding the ~~$15~~$24 million classification adjustment for the prospective adoption of ASU No. 2018-15, ~~the increase in noninterest expenses primarily reflected~~ higher ~~operational losses (included in other noninterest expenses),~~ outside processing ~~fee expense~~fees and FDIC insurance ~~expense,~~expenses as well as smaller increases in other categories partially offset ~~by a decrease~~decreases in salaries and benefits ~~expense.~~expense and a reduction in travel and entertainment expense due to the COVID-19 pandemic. The increase in charitable contributions included amounts previously pledged in response to the pandemic to support business needs and community service organizations that care for and provide critical services to communities served by the Corporation. The decline in salaries and benefits expense included lower incentive and annual stock-based compensation, as well as a reduction in technology-related contingent labor costs, partially offset by annual merit ~~increases~~increases.

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OUTLOOK FOR FOURTH QUARTER 2020 COMPARED TO THIRD QUARTER 2020

This outlook is based on management expectations for gradual improvement in economic conditions. While some modest forgiveness of PPP loans is expected by the end of the year, given the current level of uncertainty, any impact from loan forgiveness on loans, net interest income and expenses is excluded from this outlook.

•Decline in average loans reflects decreases in Mortgage Banker Finance due to a reduction in activity and the ~~payment~~cyclical impacts on Middle Market, Large Corporate and Energy, partially offset by growth in National Dealer Services as inventory levels begin to slowly rebuild.

•Average deposits to remain strong and relatively stable (excluding the benefit of ~~COVID-19-related stipends.~~possible additional fiscal stimulus).

•Net interest income relatively stable with lower loan balances as well as the impact of lower LIBOR and securities yields, mostly offset by careful management of loan and deposit pricing, the full quarter benefit of the larger securities portfolio and lower wholesale funding.

•Provision for credit losses reflects pace of economic recovery; net charge-offs modestly higher.

•Decrease in noninterest income as third quarter levels of deferred compensation, securities trading income and bank-owned life insurance not to repeat. Reduced card fees as economic stimulus benefits recede, offset by growth in several fee categories due to improving economic conditions.

•Increase in noninterest expenses reflects technology projects and seasonal impact of staff insurance, mostly offset by third quarter levels of deferred compensation and charitable contributions not expected to repeat.

•Maintain strong capital levels with a focus on supporting growth as well as providing an attractive return to our shareholders.

STRATEGIC LINES OF BUSINESS AND MARKETS

The Corporation has strategically aligned its operations into three major business segments: the 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 the business and market segments for the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 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 22 to

~~Table of Contents~~

the consolidated financial statements in the Corporation's 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 interest rates decreased, business segments, particularly those focused on generating deposits, were impacted by lower FTP crediting rates on deposits in the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the same period in the prior year. Similarly, FTP charges for funding loans decreased in the ~~six~~nine months ended ~~June~~September 30, 2020, compared to the same period in the prior year.

Business Segments

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

Table of Contents

Commercial Bank


		Six Months Ended										Percent Change		Nine Months Ended									Percent Change
(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change				Percent Change			September 30, 2020			September 30, 2019			Change			Percent Change
Earnings summary:	Earnings summary:
Net interest income	Net interest income	$	782	$	832	$	(50)	(6)	%	Net interest income	$	1,195		$	1,252		$	(57)		(5)	%
Provision for credit losses	Provision for credit losses	513		46		467		n/m		Provision for credit losses	527			85			442			n/m
Noninterest income	Noninterest income	271		272		(1)		(1)		Noninterest income	406			412			(6)			(1)
Noninterest expenses	Noninterest expenses	401		393		8		2		Noninterest expenses	607			592			15			2
Provision for income taxes	Provision for income taxes	27		153		(126)		(82)		Provision for income taxes	94			227			(133)			(58)
Net income	Net income	$	112	$	512	$	(400)	(78)	%	Net income	$	373		$	760		$	(387)		(51)	%
Net credit-related charge-offs	Net credit-related charge-offs	$	131	$	47	$	84	n/m		Net credit-related charge-offs	$	167		$	90		$	77		85	%

Selected average balances:	Selected average balances:									Selected average balances:
Loans	Loans	$	44,253	$	43,241	$	1,012	2	%	Loans	$	44,256		$	43,465		$	791		2	%
Deposits	Deposits	33,274		28,356		4,918		17		Deposits	35,376			28,545			6,831			24

n/m - not meaningful

The ~~$1.0 billion~~$791 million increase in average loans reflected growth in Commercial Real Estate, Mortgage Banker Finance ~~Corporate~~and Business Banking, ~~and Environmental Services,~~ partially offset by ~~decreases~~a decrease in National Dealer Services due to an imbalance in supply and ~~Energy.~~demand resulting in lower inventory. Average PPP loans totaled ~~$1.0~~$1.7 billion. Average deposits increased ~~$4.9~~$6.8 billion, reflecting increases in all deposit categories as customers conserved cash due to ~~increased liquidity in the banking system from stimulus programs.~~uncertainty. The Commercial Bank's net income decreased ~~$400~~$387 million to ~~$112~~$373 million. Net interest income decreased ~~$50~~$57 million to ~~$782 million,~~$1.2 billion, due to a ~~$293~~$505 million decrease in loan interest income, partially offset by decreases of ~~$220~~$396 million in allocated net FTP charges and ~~$23~~$52 million in deposit costs. The provision for credit losses increased ~~$467~~$442 million to ~~$513~~$527 million primarily due to the forecasted impact of the 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~~$77 million to ~~$131~~$167 million, primarily due to Energy net ~~charge-offs of $112 million.~~charge-offs. Noninterest income ~~was stable, while noninterest expenses increased $8~~decreased $6 million, primarily reflecting a $4decrease of $13 million in commercial lending fees as well as lower warrant, foreign exchange and derivative income, partially offset by an increase of $14 million in ~~transfer charges~~securities trading income as well as higher card and investment banking fees. Noninterest expenses increased $15 million, primarily reflecting a $9 million increase in corporate overhead as well as higher FDIC insurance expense, operational ~~losses, legal fees~~ and ~~outside processing fee expense,~~litigation-related costs, partially offset by lower incentive and stock-based compensation.

~~Table of Contents~~

Retail Bank


		Six Months Ended										Percent Change		Nine Months Ended									Percent Change
(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change				Percent Change			September 30, 2020			September 30, 2019			Change			Percent Change
Earnings summary:	Earnings summary:
Net interest income	Net interest income	$	245	$	292	$	(47)	(16)	%	Net interest income	$	372		$	434		$	(62)		(14)	%
Provision for credit losses	Provision for credit losses	8		(3)		11		n/m		Provision for credit losses	6			(5)			11			n/m
Noninterest income	Noninterest income	52		64		(12)		(17)		Noninterest income	80			95			(15)			(16)
Noninterest expenses	Noninterest expenses	304		292		12		4		Noninterest expenses	457			441			16			4
(Benefit) provision for income taxes	(Benefit) provision for income taxes	(4)		16		(20)		n/m		(Benefit) provision for income taxes	(4)			21			(25)			n/m
Net (loss) income	Net (loss) income	$	(11)	$	51	$	(62)	n/m		Net (loss) income	$	(7)		$	72		$	(79)		n/m
Net credit-related charge-offs	Net credit-related charge-offs	$	2	$	—	$	2	n/m		Net credit-related charge-offs	$	1		$	1		$	—		—

Selected average balances:	Selected average balances:									Selected average balances:
Loans	Loans	$	2,277	$	2,105	$	172	8	%	Loans	$	2,413		$	2,108		$	305		14	%
Deposits	Deposits	21,921		20,560		1,361		7		Deposits	22,486			20,628			1,858			9

n/m - not meaningful

Average loans increased ~~$172~~$305 million due to loans to small businesses, including ~~PPP.~~PPP loans. Average deposits increased ~~$1.4~~$1.9 billion, reflecting increases in all deposit categories. The Retail Bank's net income decreased ~~$62~~$79 million to a net loss of ~~$11~~$7 million. Net interest income decreased ~~$47~~$62 million to ~~$245~~$372 million, due to decreases of ~~$40~~$64 million in allocated net FTP credits and $8$13 million in loan income, partially offset by a $1$15 million decrease in deposit costs. The provision for credit losses increased $11 million from a benefit of $3$5 million. Noninterest income decreased ~~$12~~$15 million, including a $7$13 million decrease in service charges on deposit accounts. Noninterest expenses increased ~~$12~~$16 million, ~~which included a $7~~primarily due to increases of $6 million ~~increase~~ in operational ~~losses.~~losses and $5 million in salaries and benefits expense, as well as smaller increases in other categories.

Table of Contents

Wealth Management


		Six Months Ended										Percent Change		Nine Months Ended									Percent Change
(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change				Percent Change			September 30, 2020			September 30, 2019			Change			Percent Change
Earnings summary:	Earnings summary:
Net interest income	Net interest income	$	81	$	93	$	(12)	(13)	%	Net interest income	$	123		$	140		$	(17)		(12)	%
Provision for credit losses	Provision for credit losses	28		(10)		38		n/m		Provision for credit losses	21			(13)			34			n/m
Noninterest income	Noninterest income	136		132		4		3		Noninterest income	200			201			(1)			(1)
Noninterest expenses	Noninterest expenses	145		139		6		5		Noninterest expenses	221			208			13			6
Provision for income taxes	Provision for income taxes	9		23		(14)		(59)		Provision for income taxes	17			35			(18)			(51)
Net income	Net income	$	35	$	73	$	(38)	(53)	%	Net income	$	64		$	111		$	(47)		(43)	%
Net credit-related charge-offs (recoveries)		$	1	$	(3)	$	4	n/m
Net credit-related recoveries										Net credit-related recoveries	$	(1)		$	(5)		$	4		(90)

Selected average balances:	Selected average balances:									Selected average balances:
Loans	Loans	$	5,007	$	4,983	$	24	—	%	Loans	$	5,035		$	4,950		$	85		2	%
Deposits	Deposits	4,120		3,770		350		9		Deposits	4,228			3,772			456			12

n/m - not meaningful

Average loans remained relatively stable at $5.0 billion. Average deposits increased ~~$350~~$456 million, reflecting increases in all deposit categories. Wealth Management's net income decreased ~~$38~~$47 million to ~~$35~~$64 million. Net interest income decreased ~~$12~~$17 million to ~~$81~~$123 million, due to a ~~$27~~$45 million decrease in loan income, partially offset by decreases of ~~$12~~$20 million in allocated net FTP charges and $3$8 million in deposit costs. The provision for credit losses increased ~~$38~~$34 million from a benefit of ~~$10~~$13 million. Noninterest income ~~increased $4 million, primarily due to increased fiduciary income,~~was stable, while noninterest expenses increased $6$13 million, primarily reflecting increases of $5$6 million in salaries and benefits expense and $3$5 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~~nine months ended ~~June~~September 30, 2020 compared to the same period in the prior year.

~~Table of Contents~~

Michigan


		Six Months Ended										Percent Change		Nine Months Ended									Percent Change
(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change				Percent Change			September 30, 2020			September 30, 2019			Change			Percent Change
Earnings summary:	Earnings summary:
Net interest income	Net interest income	$	322	$	373	$	(51)	(13)	%	Net interest income	$	490		$	558		$	(68)		(12)	%
Provision for credit losses	Provision for credit losses	64		(5)		69		n/m		Provision for credit losses	83			(6)			89			n/m
Noninterest income	Noninterest income	136		144		(8)		(6)		Noninterest income	202			218			(16)			(8)
Noninterest expenses	Noninterest expenses	279		273		6		2		Noninterest expenses	418			412			6			1
Provision for income taxes	Provision for income taxes	23		56		(33)		(59)		Provision for income taxes	36			83			(47)			(57)
Net income	Net income	$	92	$	193	$	(101)	(52)	%	Net income	$	155		$	287		$	(132)		(46)	%
Net credit-related charge-offs	Net credit-related charge-offs	$	3	$	4	$	(1)	(26)	%	Net credit-related charge-offs	$	9		$	10		$	(1)		(4)	%

Selected average balances:	Selected average balances:									Selected average balances:
Loans	Loans	$	12,601	$	12,631	$	(30)	—	%	Loans	$	12,604		$	12,605		$	(1)		—	%
Deposits	Deposits	22,104		19,854		2,250		11		Deposits	22,995			19,959			3,036			15

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~~while average deposits increased ~~$2.3~~$3.0 billion, reflecting increases in all deposit categories as customers conserved cash due to ~~increased liquidity in the banking system from stimulus programs.~~uncertainty. The Michigan market's net income decreased ~~$101~~$132 million to ~~$92~~$155 million. Net interest income decreased ~~$51~~$68 million to ~~$322~~$490 million, due to ~~an $84~~a $144 million decrease in loan income, partially offset by a ~~$27~~$52 million increase in allocated net FTP credits and a $6$25 million decrease in deposit costs. The provision for credit losses increased ~~$69~~$89 million from a benefit of $5$6 million, primarily reflecting increases in general Middle Market and Business Banking. Noninterest income decreased $8$16 million, including ~~a $5~~an $8 million decrease in service charges on deposit accounts and a $3 million decline in both card and brokerage fees. Noninterest expenses increased $6 million, ~~including a $3 million~~primarily due to an 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. The California market's net income decreased $124 million to $97 million. Net interest income decreased $53 million to $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 increased $107 million from a benefit of $5 million, primarily reflecting increases in general Middle Market, Commercial Real Estate and Private Banking. Net credit-related charge-offs increased $11 million to $15 million, primarily reflecting increases in Technology and Life Sciences, Private Banking and general Middle Market. Noninterest income decreased $8 million, including declines in card fees and commercial lending fees, while noninterest expenses were relatively stable.

Table of Contents

California


	Nine Months Ended						Percent Change
(dollar amounts in millions)	September 30, 2020		September 30, 2019		Change
Earnings summary:
Net interest income	$	537	$	614	$	(77)	(12)	%
Provision for credit losses	113		(11)		124		n/m
Noninterest income	105		121		(16)		(12)
Noninterest expenses	303		301		2		1
Provision for income taxes	51		113		(62)		(54)
Net income	$	175	$	332	$	(157)	(47)	%
Net credit-related charge-offs	$	31	$	9	$	22	n/m

Selected average balances:
Loans	$	18,263	$	18,572	$	(309)	(2)	%
Deposits	18,691		16,420		2,271		14

n/m - not meaningful

Average loans decreased $309 million, primarily reflecting a decrease in National Dealer Services. Average deposits increased $2.3 billion, reflecting increases in all deposit categories. The California market's net income decreased $157 million to $175 million. Net interest income decreased $77 million to $537 million, due to a $231 million decrease in loan income, partially offset by decreases of $124 million in allocated net FTP charges and $30 million in deposit costs. The provision for credit losses increased $124 million from a benefit of $11 million, primarily reflecting increases in Commercial Real Estate, general Middle Market, and smaller increases in other categories. Net credit-related charge-offs increased $22 million to $31 million, primarily reflecting an increase in general Middle Market. Noninterest income decreased $16 million, including declines in commercial lending fees, card fees and smaller decreases in other categories, while noninterest expenses were relatively stable.

Texas


		Six Months Ended										Percent Change		Nine Months Ended									Percent Change
(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change				Percent Change			September 30, 2020			September 30, 2019			Change			Percent Change
Earnings summary:	Earnings summary:
Net interest income	Net interest income	$	231	$	248	$	(17)	(7)	%	Net interest income	$	348		$	373		$	(25)		(6)	%
Provision for credit losses	Provision for credit losses	321		38		283		n/m		Provision for credit losses	296			88			208			n/m
Noninterest income	Noninterest income	60		66		(6)		(8)		Noninterest income	88			97			(9)			(10)
Noninterest expenses	Noninterest expenses	175		169		6		4		Noninterest expenses	264			255			9			3
(Benefit) provision for income taxes	(Benefit) provision for income taxes	(46)		25		(71)		n/m		(Benefit) provision for income taxes	(29)			30			(59)			n/m
Net (loss) income	Net (loss) income	$	(159)	$	82	$	(241)	n/m		Net (loss) income	$	(95)		$	97		$	(192)		n/m
Net credit-related charge-offs	Net credit-related charge-offs	$	116	$	39	$	77	n/m		Net credit-related charge-offs	$	127		$	73		$	54		75	%

Selected average balances:	Selected average balances:									Selected average balances:
Loans	Loans	$	10,870	$	10,474	$	396	4	%	Loans	$	10,889		$	10,586		$	303		3	%
Deposits	Deposits	9,705		8,682		1,023		12		Deposits	10,026			8,690			1,336			15

n/m - not meaningful

Average loans increased ~~$396~~$303 million, primarily reflecting increases in Commercial Real Estate and Corporate Banking, partially offset by decreases in Energy and National Dealer Services. Average deposits increased ~~$1.0~~$1.3 billion, reflecting increases in all deposit categories. The Texas market's net income decreased ~~$241~~$192 million to a net loss of ~~$159~~$95 million. Net interest income decreased ~~$17~~$25 million to ~~$231~~$348 million, due to a ~~$67~~$118 million decrease in loan income, partially offset by decreases of ~~$48~~$88 million in allocated net FTP charges and $2$6 million in deposit costs. The provision for credit losses increased ~~$283~~$208 million, primarily reflecting an increase in Energy, while net credit-related charge-offs included ~~$112~~$121 million in Energy net charge-offs. Noninterest income decreased $6$9 million, primarily reflecting lower service charges on deposit accounts and commercial lending fees. Noninterest expenses increased $6$9 million, primarily due to higher corporate overhead and smaller increases in other categories.

Table of ~~$3 million in transfer charges and $2 million in operational losses.~~Contents

Other Markets


		Six Months Ended										Percent Change		Nine Months Ended									Percent Change
(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change				Percent Change			September 30, 2020			September 30, 2019			Change			Percent Change
Earnings summary:	Earnings summary:
Net interest income	Net interest income	$	197	$	185	$	12	6	%	Net interest income	$	315		$	281		$	34		11	%
Provision for credit losses	Provision for credit losses	62		5		57		n/m		Provision for credit losses	62			(4)			66			n/m
Noninterest income	Noninterest income	191		178		13		7		Noninterest income	291			272			19			7
Noninterest expenses	Noninterest expenses	195		183		12		7		Noninterest expenses	300			273			27			10
Provision for income taxes	Provision for income taxes	25		35		(10)		(28)		Provision for income taxes	49			57			(8)			(14)
Net income	Net income	$	106	$	140	$	(34)	(24)	%	Net income	$	195		$	227		$	(32)		(15)	%
Net credit-related recoveries	Net credit-related recoveries	$	—	$	(3)	$	3	n/m		Net credit-related recoveries	$	—		$	(6)		$	6		n/m

Selected average balances:	Selected average balances:									Selected average balances:
Loans	Loans	$	9,735	$	8,494	$	1,241	15	%	Loans	$	9,955		$	8,760		$	1,195		14	%
Deposits	Deposits	9,541		7,874		1,667		21		Deposits	10,378			7,876			2,502			32

n/m - not meaningful

Average loans increased $1.2 billion, primarily reflecting increases in general Middle Market and Mortgage Banker Finance, partially offset by a decrease in National Dealer Services. Average deposits increased ~~$1.7~~$2.5 billion, including increases in noninterest-bearing and relationship-based interest-bearing deposits. Other Markets' net income decreased ~~$34~~$32 million to ~~$106~~$195 million. Net interest income increased ~~$12~~$34 million to ~~$197~~$315 million due to decreases of ~~$46~~$91 million in allocated net FTP charges and $6$11 million in deposit costs, partially offset by a ~~$40~~$70 million decrease in loan income. The provision for credit losses increased ~~$57~~$66 million to $62 million, primarily reflecting increases in Corporate Banking and ~~Environmental Services.~~Technology and Life Sciences. Net credit-related recoveries decreased $6 million, primarily due to a decrease in Private Banking. Noninterest income increased ~~$13~~$19 million, including $5increases of $11 million ~~increases~~each in ~~securities trading income and~~ card fees ~~as well as higher fiduciary~~and securities trading income. Noninterest expenses increased ~~$12~~$27 million, primarily reflecting increases of $6 million each in operational losses and ~~$4 million~~software expense as well as smaller increases in ~~software expense.~~other categories.

~~Table of Contents~~

Finance & Other


		Six Months Ended										Percent Change		Nine Months Ended									Percent Change
(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020		June 30, 2019		Change				Percent Change			September 30, 2020			September 30, 2019			Change			Percent Change
Earnings summary:	Earnings summary:
Net interest income		$	(124)	$	(8)	$	(116)	n/m
Net interest expense										Net interest expense	$	(248)		$	(31)		$	(217)		n/m
Provision for credit losses	Provision for credit losses	—		(2)		2		n/m		Provision for credit losses	—			(1)			1			n/m
Noninterest income	Noninterest income	25		20		5		25		Noninterest income	50			36			14			38
Noninterest expenses	Noninterest expenses	15		33		(18)		(54)		Noninterest expenses	26			51			(25)			(49)
Benefit for income taxes	Benefit for income taxes	(26)		(20)		(6)		31		Benefit for income taxes	(53)			(31)			(22)			73
Net (loss) income		$	(88)	$	1	$	(89)	n/m
Net loss										Net loss	$	(171)		$	(14)		$	(157)		n/m

Selected average balances:	Selected average balances:									Selected average balances:
Loans	Loans	$	(1)	$	(6)	$	5	(73)	%	Loans	$	(5)		$	(9)		$	4		(49)	%
Deposits	Deposits	1,209		1,812		(603)		(33)		Deposits	1,201			1,964			(763)			(39)

n/m - not meaningful

Average deposits decreased ~~$603~~$763 million, primarily reflecting a decrease in other time deposits. Net ~~income~~loss for the Finance & Other category ~~decreased $89~~increased $157 million to ~~a net loss of $88 million, from net income of $1~~$171 million. Net interest ~~income~~expense decreased ~~$116~~$217 million, primarily reflecting a decrease in net FTP revenue as a result of lower rates charged to the business segments under the Corporation's internal FTP ~~methodology~~methodology. Noninterest income increased $14 million, primarily driven by increases of $8 million in net securities losses, due to securities repositioning in 2019, and ~~higher levels of wholesale funding.~~$4 million in derivative income. Noninterest expenses decreased ~~$18~~$25 million, driven by lower salaries and benefits expense.

Table of Contents

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


		June 30,				September 30,
		2020	2019		2020	2019
Michigan	Michigan	190	192	Michigan	189	192
Texas	Texas	123	123	Texas	123	123
California	California	96	96	California	96	96
Other Markets	Other Markets	25	25	Other Markets	25	25

Total	Total	434	436	Total	433	436

4748

Table of Contents

FINANCIAL CONDITION

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

Period-End Balances

Total assets increased ~~$11.0~~$10.2 billion to ~~$84.4~~$83.6 billion, ~~primarily due to~~driven by increases of ~~$7.4~~$5.3 billion in interest-bearing deposits with banks, $2.7 billion in investment securities available-for-sale and ~~$3.1~~$2.0 billion in loans. The growth in interest-bearing deposits with banks (primarily deposits with the Federal Reserve Bank) resulted from growth in relationship-based deposits as customers conserve cash in an uncertain environment, while investment securities increased as a portion of excess liquidity was invested in ~~the banking system from stimulus programs.~~U.S. Treasury bonds and mortgage-backed securities. The increase in loans reflected growth in Mortgage Banker Finance, ~~due to seasonality and elevated refinancing activity as well as increases in Business Banking,~~ Commercial Real Estate, ~~general Middle Market,~~Business and Retail ~~Banking (small businesses) and Corporate~~ Banking, partially offset by ~~decreases~~a decrease in National Dealer ~~Services and Equity Fund~~ Services. At ~~June~~September 30, 2020, PPP loans totaled $3.8 billion, driving the growth in ~~general Middle Market,~~ Business ~~Banking~~ and Retail Banking (small businesses). as well as offsetting a decline in general Middle Market.

Total liabilities increased ~~$10.5~~$9.7 billion to ~~$76.6~~$75.8 billion, reflecting increases of ~~$8.2~~$9.2 billion and ~~$2.2~~$2.0 billion in noninterest-bearing and interest-bearing deposits, respectively, aspartially offset by a decrease of $1.5 billion in medium- and long-term debt. The increases in noninterest-bearing and interest-bearing deposits was primarily driven by customers ~~conserved liquidity as described in the asset discussion above.~~conserving liquidity. Total shareholders' equity increased ~~$475~~$547 million, including net proceeds of ~~$395~~$394 million from the issuance of preferred stock in May 2020.

Average Balances

Total assets increased ~~$8.5~~$11.1 billion to ~~$81.6~~$84.3 billion, primarily due to increases of ~~$4.9~~$7.7 billion in interest-bearing deposits with banks, $1.6 billion in investment securities and ~~$3.0~~$1.5 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		Three Months Ended									Percent Change
(average balances; dollar amounts in millions)	(average balances; dollar amounts in millions)	June 30, 2020		December 31, 2019		Change				Percent Change			September 30, 2020			December 31, 2019			Change			Percent Change
By Loan Type:	By Loan Type:
Commercial loans (a)	Commercial loans (a)	$	33,944	$	31,808	$	2,136	7	%	Commercial loans (a)	$	32,226		$	31,808		$	418		1	%
Real estate construction loans	Real estate construction loans	3,887		3,398		489		14		Real estate construction loans	4,037			3,398			639			19
Commercial mortgage loans	Commercial mortgage loans	9,800		9,356		444		5		Commercial mortgage loans	9,978			9,356			622			7
Lease financing	Lease financing	592		586		6		1		Lease financing	601			586			15			3
International loans	International loans	1,137		1,030		107		10		International loans	1,052			1,030			22			2
Residential mortgage loans	Residential mortgage loans	1,895		1,887		8		—		Residential mortgage loans	1,961			1,887			74			4
Consumer loans	Consumer loans	2,243		2,440		(197)		(8)		Consumer loans	2,158			2,440			(282)			(12)
Total loans	Total loans	$	53,498	$	50,505	$	2,993	6	%	Total loans	$	52,013		$	50,505		$	1,508		3	%
Loans By Geographic Market:	Loans By Geographic Market:									Loans By Geographic Market:
Michigan	Michigan	$	13,014	$	12,399	$	615	5	%	Michigan	$	12,607		$	12,399		$	208		2	%
California	California	18,663		17,943		720		4		California	18,095			17,943			152			1
Texas	Texas	11,184		10,708		476		4		Texas	10,923			10,708			215			2
Other Markets and Finance	Other Markets and Finance	10,637		9,455		1,182		13		Other Markets and Finance	10,388			9,455			933			10
Total loans	Total loans	$	53,498	$	50,505	$	2,993	6	%	Total loans	$	52,013		$	50,505		$	1,508		3	%

(a)Includes PPP loans of ~~$2.6~~$3.8 billion for the three months ended ~~June~~September 30, 2020.

The increase in loans reflected growth in ~~Corporate Banking,~~Mortgage Banker Finance, Commercial Real Estate, ~~general Middle Market, Mortgage Banker Finance (due to seasonality~~Business and ~~elevated refinancing activity) and Business~~Retail Banking, partially offset by a decrease in National Dealer ~~Services and Energy.~~Services. The average balance of PPP loans for the three months ended ~~June~~September 30, 2020 was ~~$2.6~~$3.8 billion, driving the growth in ~~general Middle Market~~Business and ~~Business~~Retail Banking.

Total liabilities increased ~~$8.1~~$10.5 billion to ~~$74.1~~$76.4 billion, reflecting increases of ~~$5.7~~$9.0 billion and ~~$1.4~~$2.6 billion in noninterest-bearing and interest-bearing deposits, ~~respectively.~~respectively, partially offset by a decrease of $1.4 billion in medium- and long-term debt. Total shareholders' equity increased ~~$355~~$597 million to ~~$7.6~~$7.8 billion, ~~resulting primarily~~including net proceeds of $394 million from the ~~same reasons as described~~issuance of preferred stock in ~~the period-end discussion above.~~

May 2020.

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Capital

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

(in millions)

Balance at January 1, 2020

7,327

Cumulative effect of change in accounting principle (a)

Net income

48259

Cash dividends declared on common stock

~~(192)~~(284)

Cash dividends declared on preferred stock

(8)

Purchase of common stock

(194)

Issuance of preferred stock

~~395~~394

Other comprehensive income:

Investment securities

~~218~~189

Cash flow hedges

~~162~~142

Defined benefit and other postretirement plans

Total other comprehensive income

~~393~~351

Issuance of common stock under employee stock plans

(2)

Share-based compensation

1218

Balance at ~~June~~September 30, 2020

~~7,802~~7,874

(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.

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


(shares in thousands)	(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		(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	Total first quarter 2020	3,227	4,870	3,322	$	58.70	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 second quarter 2020							Total second quarter 2020	—	4,870	6	28.62
July 2020							July 2020	—	4,870	4	37.26
August 2020							August 2020	—	4,870	2	36.52
September 2020							September 2020	—	4,870	1	42.09
Total third quarter 2020							Total third quarter 2020	—	4,870	7	37.94

Total 2020 year-to-date	Total 2020 year-to-date	3,227	4,870	3,328	58.65		Total 2020 year-to-date	3,227	4,870	3,335	58.60

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

(b)Includes approximately ~~101,000~~108,000 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~~nine months ended ~~June~~September 30, 2020. These transactions are not considered part of the Corporation's repurchase program.

In March 2020, the Corporation 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 the second ~~quarter~~and third quarters of 2020. The Corporation will continue to assess the resumption of repurchases subject to various factors including financial performance, capital needs and market conditions. Since ~~its~~the inception of the share repurchase program in 2010, a total of 87.2 million shares have been authorized for 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~~$394 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~~September 30, 2020, the Corporation's estimated CET1 capital ratio was ~~9.97~~10.26 percent, ~~a decrease~~an increase of ~~16 thousand~~13 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~~capital. At September 30, 2020, $83 million, or a cumulative ~~13-basis-point~~12-basis-point benefit to the estimated ~~CET1~~ capital ~~ratio at June 30, 2020.~~ratios, was deferred. 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.

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The following table presents the minimum ratios required.

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Common equity tier 1 capital to risk-weighted assets	4.5	%
Tier 1 capital to risk-weighted assets	6.0
Total capital to risk-weighted assets	8.0
Capital conservation buffer (a)	2.5
Tier 1 capital to adjusted average assets (leverage ratio)	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.

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


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
(dollar amounts in millions)	(dollar amounts in millions)	Capital/Assets		Ratio		Capital/Assets		Ratio		(dollar amounts in millions)	Capital/Assets		Ratio		Capital/Assets		Ratio
Common equity tier 1 (a), (b)	Common equity tier 1 (a), (b)	$	6,698	9.97	%	$	6,919	10.13	%	Common equity tier 1 (a), (b)	$	6,805	10.26	%	$	6,919	10.13	%
Tier 1 risk-based (a), (b)	Tier 1 risk-based (a), (b)	7,093		10.56		6,919		10.13		Tier 1 risk-based (a), (b)	7,199		10.86		6,919		10.13
Total risk-based (a)	Total risk-based (a)	8,686		12.93		8,282		12.13		Total risk-based (a)	8,712		13.14		8,282		12.13
Leverage (a)	Leverage (a)	7,093		8.76		6,919		9.51		Leverage (a)	7,199		8.59		6,919		9.51
Common equity	Common equity	7,407		8.78		7,327		9.98		Common equity	7,480		8.94		7,327		9.98
Tangible common equity (b)	Tangible common equity (b)	6,769		8.08		6,688		9.19		Tangible common equity (b)	6,843		8.24		6,688		9.19
Risk-weighted assets (a)	Risk-weighted assets (a)	67,156				68,273				Risk-weighted assets (a)	66,299				68,273

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

(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-20 through F-33 in the Corporation's 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~~1.98 percent at ~~June~~September 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~~2.14 percent of total loans at ~~June~~September 30, 2020. The allowance for credit losses covered ~~3.9~~3.2 times and 3.3 times total nonperforming loans at ~~June~~September 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~~forecast 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~~$387 million from adoption date to ~~$1.1~~$1.0 billion at ~~June~~September 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 already experiencing ~~already reduced capital market activity~~stress prior to the pandemic, ~~showed continued stress through~~were further impacted by the ~~first half of 2020.~~rapid decline in demand resulting from social distancing policies. Demand improved slightly in the third quarter as the economy began to recover, but energy markets remain uncertain. 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,~~In recent months, states across the U.S. began loosening social distancing policies, stimulating economic activity. While ~~economic conditions~~the economy showed signs of ~~improvement toward~~a recovery during the ~~end of the second~~third 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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path of the economic recovery, with the potential for future waves of COVID-19 cases as jurisdictions continue to reopen across the country, the mitigating impacts of previous and possible future government interventions, as well as the effects of the results of the upcoming elections.

These factors shaped the 2-year reasonable and supportable forecast used by the Corporation in its ~~calculation of the~~ CECL estimate at ~~June~~September 30, 2020. After a ~~sharp decline~~partial rebound in GDP growth in ~~second~~third quarter 2020, forecasted GDP reaches pre-pandemic, fourth quarter 2019 levels by the ~~forecast reflects growth through the end~~latter portion of ~~2020,~~2021, normalizing tointo historical growth rates by the end of the forecast period. Forecasts for other key economic variables, including the unemployment rate and 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. Economic forecasts for third quarter 2020 were generally consistent with second quarter 2020 forecasts. The following table summarizes the forecasts for the economic variables most impactful to the allowance for credit losses estimate at ~~June~~September 30, 2020.


Economic Variable			Base Forecast
Real GDP growth			~~Grows by 24~~Growth of 8 percent in ~~third~~fourth quarter 2020, normalizing into a long-term growth rate of 2 percent by ~~the end of the forecast period.~~second quarter 2022.
Unemployment rate			~~Remaining above 10~~Below 9 percent ~~through third~~in fourth quarter 2020, gradually decreasing to 76 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~~Spreads at normalized levels between 1.70 and 2 percent ~~by the end of~~throughout the forecast period.
Oil Prices			Prices below ~~$30~~$40 per barrel in ~~third~~fourth quarter ~~increase in line with GDP through the forecast period, stabilizing at~~2020 gradually stabilize to $50 per barrel by ~~first~~third quarter ~~2022.~~2021.

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 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. 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 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~~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.

As a percentage of total loans, the allowance for loan losses was ~~1.88~~1.87 percent at ~~June~~September 30, 2020, compared to 1.27 percent at December 31, 2019. Excluding PPP loans, the allowance for loan losses was ~~2.03~~2.01 percent of total loans at ~~June~~September 30, 2020. The allocation of reserves for Energy loans remains above 10 percent in response to sustained pressures on the Energy portfolio. Nonperforming loans were ~~0.51~~0.62 percent of total loans at ~~June~~September 30, 2020, compared to 0.40 percent at December 31, 2019, and the allowance for loan losses covered ~~3.7~~3.0 times and 3.1 times total nonperforming loans at ~~June~~September 30, 2020 and December 31, 2019, respectively.

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 totaled ~~$59~~$60 million and $31 million at ~~June~~September 30, 2020 and December 31, 2019, respectively.

For additional information regarding the allowance for credit losses, refer to the "Critical Accounting Policies" section and Note 1 to the consolidated financial statements.

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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, with nonperforming TDRs on either 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

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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~~September 30, 2020, ~~the Corporation granted~~pandemic-related payment deferrals ~~for~~totaled $385 million, representing approximately ~~2,100~~300 obligors ~~with an aggregate loan balance~~and consisting of ~~$4.5 billion, which primarily consisted of~~60 percent commercial loans ~~including $57 million of~~and 40 percent retail loans, ~~on their~~primarily residential mortgages. The decrease in deferrals since second ~~deferral.~~quarter 2020 reflects customers adjusting to the new environment as initial deferrals have expired and new requests have been nominal.

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


(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020			December 31, 2019			(dollar amounts in millions)	September 30, 2020			December 31, 2019
Nonaccrual loans:	Nonaccrual loans:							Nonaccrual loans:
Business loans:	Business loans:							Business loans:
Commercial	Commercial	$	200		$	148		Commercial	$	241		$	148

Commercial mortgage	Commercial mortgage	21			14			Commercial mortgage	20			14
Lease financing	Lease financing	1			—			Lease financing	1			—

Total nonaccrual business loans	Total nonaccrual business loans	222			162			Total nonaccrual business loans	262			162
Retail loans:	Retail loans:							Retail loans:
Residential mortgage	Residential mortgage	24			20			Residential mortgage	40			20
Consumer:	Consumer:							Consumer:
Home equity	Home equity	21			17			Home equity	20			17

Total nonaccrual retail loans	Total nonaccrual retail loans	45			37			Total nonaccrual retail loans	60			37
Total nonaccrual loans	Total nonaccrual loans	267			199			Total nonaccrual loans	322			199
Reduced-rate loans	Reduced-rate loans	4			5			Reduced-rate loans	3			5
Total nonperforming loans	Total nonperforming loans	271			204			Total nonperforming loans	325			204
Foreclosed property	Foreclosed property	11			11			Foreclosed property	10			11
Total nonperforming assets	Total nonperforming assets	$	282		$	215		Total nonperforming assets	$	335		$	215

Nonperforming loans as a percentage of total loans	Nonperforming loans as a percentage of total loans	0.51		%	0.40		%	Nonperforming loans as a percentage of total loans	0.62		%	0.40		%
Nonperforming assets as a percentage of total loans and foreclosed property	Nonperforming assets as a percentage of total loans and foreclosed property	0.53			0.43			Nonperforming assets as a percentage of total loans and foreclosed property	0.64			0.43
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			Allowance for credit losses as a multiple of total nonperforming loans	3.2x			3.3x
Loans past due 90 days or more and still accruing	Loans past due 90 days or more and still accruing	$	41		$	26		Loans past due 90 days or more and still accruing	$	29		$	26

Nonperforming assets increased ~~$67~~$120 million to ~~$282~~$335 million at ~~June~~September 30, 2020, from $215 million at December 31, 2019. The increase in nonperforming assets primarily reflected a ~~$59~~$98 million increase in nonperforming Energy loans, which are a component of commercial loans.

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


(in millions)	(in millions)	June 30, 2020		December 31, 2019		(in millions)	September 30, 2020		December 31, 2019
Nonperforming TDRs:	Nonperforming TDRs:					Nonperforming TDRs:
Nonaccrual TDRs	Nonaccrual TDRs	$	46	$	36	Nonaccrual TDRs	$	47	$	36
Reduced-rate TDRs	Reduced-rate TDRs	4		5		Reduced-rate TDRs	3		5
Total nonperforming TDRs	Total nonperforming TDRs	50		41		Total nonperforming TDRs	50		41
Performing TDRs (a)	Performing TDRs (a)	40		69		Performing TDRs (a)	41		69
Total TDRs	Total TDRs	$	90	$	110	Total TDRs	$	91	$	110

(a)TDRs that do not include a reduction in the original contractual interest rate which are performing in accordance with their modified terms.

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During the ~~six~~nine months ended ~~June~~September 30, 2020, $22 million of previously performing Energy TDRs were transferred to nonaccrual or charged off. At ~~June~~September 30, 2020, Energy TDRs totaled ~~$23~~$12 million, all of which were on nonaccrual status, compared to $14 million at December 31, 2019.

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


		Three Months Ended											Three Months Ended
(in millions)	(in millions)	June 30, 2020		March 31, 2020		December 31, 2019		(in millions)	September 30, 2020		June 30, 2020		March 31, 2020
Balance at beginning of period	Balance at beginning of period	$	235	$	199	$	220	Balance at beginning of period	$	267	$	235	$	199
Loans transferred to nonaccrual (a)	Loans transferred to nonaccrual (a)	96		137		48		Loans transferred to nonaccrual (a)	161		96		137
Nonaccrual loan gross charge-offs	Nonaccrual loan gross charge-offs	(57)		(89)		(27)		Nonaccrual loan gross charge-offs	(53)		(57)		(89)
Loans transferred to accrual status (a)	Loans transferred to accrual status (a)	—		—		(7)		Loans transferred to accrual status (a)	—		—		—
Nonaccrual loans sold	Nonaccrual loans sold	—		—		(10)		Nonaccrual loans sold	(14)		—		—
Payments/other (b)	Payments/other (b)	(7)		(12)		(25)		Payments/other (b)	(39)		(7)		(12)
Balance at end of period	Balance at end of period	$	267	$	235	$	199	Balance at end of period	$	322	$	267	$	235

(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 ~~eight~~14 borrowers with a balance greater than $2 million, totaling ~~$96~~$161 million, transferred to nonaccrual status in ~~second~~third quarter 2020, compared to eight borrowers totaling $96 million in second quarter 2020 and 13 borrowers totaling $137 million in first quarter ~~2020 and six borrowers totaling $48 million in fourth quarter 2019.~~2020. 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 ~~June~~September 30, 2020 and December 31, 2019.


		June 30, 2020				December 31, 2019						September 30, 2020			December 31, 2019
(dollar amounts in millions)	(dollar amounts in millions)	Number of Borrowers	Balance		Number of Borrowers	Balance		(dollar amounts in millions)	Number of Borrowers	Balance		Number of Borrowers	Balance
Under $2 million	Under $2 million	687	$	78	708	$	74	Under $2 million	688	$	80	708	$	74
$2 million - $5 million	$2 million - $5 million	19	62		8	22		$2 million - $5 million	21	72		8	22
$5 million - $10 million	$5 million - $10 million	7	49		6	49		$5 million - $10 million	3	23		6	49
$10 million - $25 million	$10 million - $25 million	4	52		4	54		$10 million - $25 million	11	147		4	54
Greater than $25 million		1	26		—	—

Total	Total	718	$	267	726	$	199	Total	723	$	322	726	$	199

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


		June 30, 2020						Three Months Ended June 30, 2020																					September 30, 2020								Three Months Ended September 30, 2020
(dollar amounts in millions)	(dollar amounts in millions)	Nonaccrual Loans						Loans Transferred to Nonaccrual (a)								Net Loan Charge-Offs (Recoveries)									(dollar amounts in millions)	Nonaccrual Loans							Loans Transferred to Nonaccrual (a)							Net Loan Charge-Offs (Recoveries)
Industry Category	Industry Category																							Nonaccrual Loans								Loans Transferred to Nonaccrual (a)							Net Loan Charge-Offs (Recoveries)
Mining, Quarrying and Oil & Gas Extraction	Mining, Quarrying and Oil & Gas Extraction	$	102	38	%	$	87	91	%	$	45	88	%	Mining, Quarrying and Oil & Gas Extraction	$		141			44	%					$	104		64		%				$	9	26	%
Residential Mortgage														Residential Mortgage	40			12				14				9			—				—
Wholesale Trade	Wholesale Trade	41		15		6		6		(1)		(1)		Wholesale Trade	31			10				—				—			3				10
Residential Mortgage		24		9		—		—		—		—
Manufacturing	Manufacturing	21		8		—		—		(2)		(3)		Manufacturing	28			9				11				7			(1)				(2)
Services	Services	13		5		—		—		3		5		Services	21			6				16				10			6				20
Information & Communication	Information & Communication	12		5		—		—		—		—		Information & Communication	12			4				—				—			—				—
Retail Trade		8		3		—		—		4		9
Real Estate & Home Builders	Real Estate & Home Builders	7		3		3		3		—		—		Real Estate & Home Builders	7			2				—				—			—				—
Health Care & Social Assistance	Health Care & Social Assistance	5		2		—		—		1		2		Health Care & Social Assistance	5			2				2				1			2				5
Retail Trade														Retail Trade	5			1				—				—			2				6
Contractors	Contractors	4		1		—		—		—		—		Contractors	4			1				—				—			—				—
Arts, Entertainment, and Recreation														Arts, Entertainment, and Recreation	1			1				14				9			14				42

Other (b)	Other (b)	30		11		—		—		—		—		Other (b)	27			8				—				—			(2)				(7)
Total	Total	$	267	100	%	$	96	100	%	$	50	100	%	Total	$	322		100	%			$	161			100		%	$	33			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 are well collateralized and in the process of collection, increased ~~$15~~$3 million to ~~$41~~$29 million at ~~June~~September 30, 2020, compared to $26 million at December 31, 2019. Loans past due 30-89 days and still accruing interest increased ~~$80~~$255 million to ~~$207~~$382 million at ~~June~~September 30, 2020, compared to $127 million at December 31, 2019. Loans past due 30 days or more and still accruing interest as a percentage of total loans were ~~0.46~~0.79 percent and 0.30 percent at ~~June~~September 30, 2020 and December 31, 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.

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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.


(dollar amounts in millions)	(dollar amounts in millions)	June 30, 2020			March 31, 2020			December 31, 2019			(dollar amounts in millions)	September 30, 2020			June 30, 2020			December 31, 2019
Total criticized loans	Total criticized loans	$	3,379		$	2,457		$	2,120		Total criticized loans	$	3,406		$	3,379		$	2,120
As a percentage of total loans	As a percentage of total loans	6.3		%	4.6		%	4.2		%	As a percentage of total loans	6.5		%	6.3		%	4.2		%

The $1.3 billion increase in criticized loans during the ~~six~~nine months ended ~~June~~September 30, 2020 included increases of ~~$564~~$584 million in general Middle Market and ~~$475~~$354 million in Energy.

Concentrations of Credit Risk

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~~September 30, 2020.

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Automotive Lending - Dealer:

The following table presents a summary of dealer loans.


		June 30, 2020						December 31, 2019						September 30, 2020			December 31, 2019
(in millions)	(in millions)	Loans Outstanding		Percent of Total Loans		Loans Outstanding		Percent of Total Loans	(in millions)	Loans Outstanding		Percent of Total Loans		Loans Outstanding		Percent of Total Loans
Dealer:	Dealer:								Dealer:
Floor plan	Floor plan	$	1,971			$	3,967		Floor plan	$	1,964			$	3,967
Other	Other	3,077				3,447			Other	3,391				3,447
Total dealer	Total dealer	$	5,048	9.4	%	$	7,414	14.7 %	Total dealer	$	5,355	10.2	%	$	7,414	14.7 %

Substantially all dealer loans are in the National Dealer Services business line and primarily include floor plan financing and other loans to automotive dealerships. Floor plan loans, included in commercial loans in the Consolidated Balance Sheets, totaled $2.0 billion at ~~June~~September 30, 2020, a decrease of $2.0 billion compared to $4.0 billion at December 31, 2019 due to an imbalance in supply and demand resulting in lower ~~automotive inventory precipitated by the interruption in automotive production.~~inventory. At ~~June~~both September 30, 2020 and December 31, 2019, other loans to automotive dealers in the National Dealer Services business line totaled ~~$3.1 billion and~~ $3.4 billion, ~~respectively,~~ including $2.1 billion and $2.0 billion of owner-occupied commercial real estate mortgage loans at ~~both June~~September 30, 2020 and December 31, 2019, respectively.

~~Nonaccrual~~There were no nonaccrual dealer loans ~~totaled $1 million~~ at ~~June~~September 30, 2020 and $9 million at December 31, 2019. Dealer loan net charge-offs totaled $1$2 million for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to none for the ~~six~~nine months ended ~~June~~September 30, 2019.

Automotive Lending- Production:

The following table presents a summary of loans to borrowers involved with automotive production.


		June 30, 2020						December 31, 2019						September 30, 2020			December 31, 2019
(in millions)	(in millions)	Loans Outstanding		Percent of Total Loans		Loans Outstanding		Percent of Total Loans	(in millions)	Loans Outstanding (a)		Percent of Total Loans (a)		Loans Outstanding		Percent of Total Loans
Production:	Production:								Production:
Domestic	Domestic	$	1,040			$	963		Domestic	$	869			$	963
Foreign	Foreign	432				286			Foreign	359				286
Total production	Total production	$	1,472	2.8	%	$	1,249	2.5 %	Total production	$	1,228	2.5	%	$	1,249	2.5 %

(a)Excludes PPP loans.

Loans to borrowers involved with automotive production, primarily Tier 1 and Tier 2 suppliers, totaled ~~$1.5 billion and~~ $1.2 billion at ~~June~~both September 30, 2020 and December 31, ~~2019, respectively.~~2019. These borrowers could face financial difficulties due to disruptions in auto production as well as their supply chains and logistics operations as a result of the COVID-19 pandemic. As such, management prudently continued to increase allocated reserves for this portfolio as of ~~June~~September 30, 2020.

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Nonaccrual loans to borrowers involved with automotive production totaled $9$5 million at ~~June~~September 30, 2020 and $10 million at December 31, 2019. Criticized automotive production loans were 2125 percent of the automotive production portfolio at ~~June~~September 30, 2020, compared to 15 percent at December 31, 2019. Automotive production loan net charge-offs totaled $2$1 million in the ~~six~~nine months ended ~~June~~September 30, 2020, compared to net recoveries of $1 million in the ~~six~~nine months ended ~~June~~September 30, 2019.

Commercial Real Estate Lending

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


		June 30, 2020										December 31, 2019											September 30, 2020				December 31, 2019
(in millions)	(in millions)	Commercial Real Estate business line (a)		Other (b)		Total		Commercial Real Estate business line (a)		Other (b)		Total		(in millions)	Commercial Real Estate business line (a)		Other (b)		Total		Commercial Real Estate business line (a)		Other (b)		Total
Real estate construction loans	Real estate construction loans	$	3,547	$	405	$	3,952	$	3,044	$	411	$	3,455	Real estate construction loans	$	3,702	$	444	$	4,146	$	3,044	$	411	$	3,455
Commercial mortgage loans	Commercial mortgage loans	2,292		7,633		9,925		2,176		7,383		9,559		Commercial mortgage loans	2,336		7,666		10,002		2,176		7,383		9,559
Total commercial real estate	Total commercial real estate	$	5,839	$	8,038	$	13,877	$	5,220	$	7,794	$	13,014	Total commercial real estate	$	6,038	$	8,110	$	14,148	$	5,220	$	7,794	$	13,014

(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.

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Commercial real estate loans, consisting of real estate construction and commercial mortgage loans, totaled ~~$13.9~~$14.1 billion, or 27 percent of total loans, at ~~June~~September 30, 2020, an increase of ~~$863 million~~$1.1 billion compared to December 31, 2019, of which ~~$5.8~~$6.0 billion, or 4243 percent, were to borrowers in the Commercial Real Estate business line, including loans to real estate developers. The remaining ~~$8.0~~$8.1 billion, or 5857 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 ~~$17~~$54 million and $31 million at ~~June~~September 30, 2020 and December 31, 2019, respectively. In other business lines, ~~there were $14 million~~ criticized real estate construction loans totaled $17 million at ~~June~~September 30, 2020, compared to none at December 31, 2019. There were no real estate construction loan charge-offs in either of the ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 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 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 ~~$54~~$64 million and $55 million at ~~June~~September 30, 2020 and December 31, 2019, respectively. In other business lines, ~~$422~~$465 million and $242 million of commercial mortgage loans were criticized at ~~June~~September 30, 2020 and December 31, 2019, respectively. Commercial mortgage loan net recoveries were $3 million and $2 million for ~~both~~ the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~2019.~~2019, respectively.

Residential Real Estate Lending

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 ~~June~~September 30, 2020. The following table summarizes the Corporation's residential mortgage and home equity loan portfolios by geographic market.


		June 30, 2020														December 31, 2019															September 30, 2020				December 31, 2019
(dollar amounts in millions)	(dollar amounts in millions)	Residential Mortgage Loans		% of Total		Home Equity Loans		% of Total		Residential Mortgage Loans		% of Total		Home Equity Loans		% of Total		(dollar amounts in millions)	Residential Mortgage Loans		% of Total		Home Equity Loans		% of Total		Residential Mortgage Loans		% of Total		Home Equity Loans		% of Total
Geographic market:	Geographic market:																	Geographic market:
Michigan	Michigan	$	440	23	%	$	570	34	%	$	412	22	%	$	603	35	%	Michigan	$	444	23	%	$	558	34	%	$	412	22	%	$	603	35	%
California	California	953		51		700		42		932		51		699		41		California	983		51		687		42		932		51		699		41
Texas	Texas	260		14		338		20		275		15		346		20		Texas	261		14		332		20		275		15		346		20
Other Markets	Other Markets	233		12		61		4		226		12		63		4		Other Markets	239		12		63		4		226		12		63		4
Total	Total	$	1,886	100	%	$	1,669	100	%	$	1,845	100	%	$	1,711	100	%	Total	$	1,927	100	%	$	1,640	100	%	$	1,845	100	%	$	1,711	100	%

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.

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Residential mortgages totaled $1.9 billion at ~~June~~September 30, 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, ~~$24~~$40 million were on nonaccrual status at ~~June~~September 30, 2020. The home equity portfolio totaled ~~$1.7~~$1.6 billion at ~~June~~September 30, 2020, of which ~~$1.6~~$1.5 billion was outstanding under primarily variable-rate, interest-only home equity lines of credit, ~~$88~~$75 million were in amortizing status and ~~$20~~$18 million were closed-end home equity loans. Of the ~~$1.7~~$1.6 billion of home equity loans outstanding, ~~$21~~$20 million were on nonaccrual status at ~~June~~September 30, 2020. A majority of the home equity portfolio was secured by junior liens at ~~June~~September 30, 2020.

Energy Lending

The Corporation has a portfolio of Energy loans included in commercial loans in the Consolidated Balance Sheets. Customers in the Corporation's Energy line of business (approximately 140 relationships) are engaged in three segments of the oil and gas business: exploration and production (E&P), midstream and energy services. E&P generally includes such activities as searching for potential oil and gas fields, drilling exploratory wells and operating active wells. Commitments to E&P borrowers are generally subject to semi-annual borrowing base re-determinations based on a variety of factors including updated pricing (reflecting market and competitive conditions), energy reserve levels and the impact of hedging. The midstream sector is generally involved in the transportation, storage and marketing of crude and/or refined oil and gas products. The Corporation's energy services customers provide products and services primarily to the E&P segment.

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The following table summarizes information about loans in the Corporation's Energy business line.


		June 30, 2020																	December 31, 2019																	September 30, 2020										December 31, 2019
(dollar amounts in millions)	(dollar amounts in millions)	Outstandings						Nonaccrual		Criticized (a)					Outstandings						Nonaccrual		Criticized (a)		(dollar amounts in millions)		Outstandings				Nonaccrual		Criticized (a)					Outstandings				Nonaccrual		Criticized (a)
Exploration and production (E&P)	Exploration and production (E&P)	$	1,662	80	%	$	102	$	750			$	1,741		78	%	$	43	$	289	Exploration and production (E&P)	$	1,451	79		%	$	141	$	648			$	1,741		78	%	$	43	$	289
Midstream	Midstream	374		18		—		57				432			20		—		63		Midstream	338		18			—		59				432			20		—		63
Services	Services	50		2		—		34				48			2		—		14		Services	46		3			—		13				48			2		—		14
Total Energy business line	Total Energy business line	$	2,086	100	%	$	102	$	841			$	2,221		100	%	$	43	$	366	Total Energy business line	$	1,835	100		%	$	141	$	720			$	2,221		100	%	$	43	$	366
As a percentage of total Energy loans	As a percentage of total Energy loans									5	%	40		%							2	%	16	%	As a percentage of total Energy loans						8	%	39		%							2	%	16	%

(a) Includes nonaccrual loans.

Loans in the Energy business line totaled ~~$2.1~~$1.8 billion, or 4 percent of total loans, at ~~June~~September 30, 2020 and $2.2 billion at December 31, 2019, a decrease of ~~$135~~$386 million. Total exposure, including unused commitments to extend credit and letters of credit, was ~~$3.4~~$3.3 billion (a utilization rate of 55 percent) and $4.3 billion at ~~June~~September 30, 2020 and December 31, 2019, respectively.

The decrease in total exposure in the Energy business line primarily reflected reduced borrowing bases as a result of lower oil and gas ~~prices.~~prices as well as reduced production activity. At ~~June~~September 30, 2020, the Corporation had ~~completed approximately 90 percent of the Spring~~started Fall borrowing base re-determinations, ~~resulting~~and expects a slight increase in ~~an average reduction to the~~ borrowing ~~bases of 20 percent. Utilization increased to 60 percent primarily as a result of the reduction in exposure at June 30, 2020.~~bases. The value and coverage benefit of hedging contracts are dependent upon the oil/gas price in each contract, as well as the operational costs, which are different for each borrower. As of ~~June~~September 30, 2020, 7374 percent of the Corporation's E&P customers had at least 50 percent of their oil and/or gas production hedged up to one year and 3738 percent of customers had at least 50 percent of production hedged for two years or more.

The Corporation's allowance methodology considers the various risk elements within the loan portfolio. When merited, the Corporation may incorporate a qualitative reserve component for Energy loans. The allocation of reserves for Energy loans remained over 10 percent of the Energy portfolio at ~~June~~September 30, ~~2020 in response~~2020. Energy markets, which were already experiencing stress prior to ~~oil market supply/demand imbalances as well as reduced capital market activity. The supply/demand imbalance has been exacerbated~~the pandemic, were further impacted by the ~~economic impacts~~rapid decline in demand resulting from social distancing policies. Demand improved slightly in the ~~COVID-19 pandemic, further stressing~~third quarter as the ~~Energy portfolio.~~economy began to recover, but energy markets remain uncertain. Net credit-related Energy charge-offs were ~~$45~~$9 million and ~~$112~~$121 million for the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020, respectively, compared to ~~$25~~$34 million and ~~$33~~$67 million for the same periods in 2019. Nonaccrual Energy loans increased ~~$59~~$98 million to ~~$102~~$141 million at ~~June~~September 30, 2020, compared to December 31, 2019. Criticized Energy loans increased ~~$475~~$354 million to ~~$841~~$720 million, or 2521 percent of total criticized loans, at ~~June~~September 30, 2020.

Leveraged Loans

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 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

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social distancing policies and has continued to set aside increased reserves for this portfolio as of ~~June~~September 30, 2020. Certain energy, automotive production and loans in other portfolios specifically identified as subject to additional stress due to COVID-19 impacts are also considered leveraged transactions.

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.


(in millions)	(in millions)	June 30, 2020		December 31, 2019		(in millions)	September 30, 2020		December 31, 2019
Outstandings	Outstandings	$	2,436	$	2,553	Outstandings	$	2,464	$	2,553
Criticized	Criticized	440		169		Criticized	500		169
Net loan charge-offs	Net loan charge-offs	2020		2019		Net loan charge-offs	2020		2019
Three Months Ended June 30,		$	5	$	—
Six Months Ended June 30,		13		5
Three Months Ended September 30,						Three Months Ended September 30,	$	7	$	1
Nine Months Ended September 30,						Nine Months Ended September 30,	20		6

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Other Sectors Most at Risk due to Economic Stress Resulting from COVID-19 Impacts

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels. The resulting temporary closure of many businesses and the implementation of social distancing and sheltering in place policies ~~may~~has impacted, and will continue to impact, many of the Corporation’s customers. In addition to the energy, automotive production and leveraged loan portfolios, the Corporation considers the following sectors of its loan portfolio to be most vulnerable to financial risks from business disruptions caused by the pandemic spread mitigation efforts. During third quarter 2020, the Corporation removed casinos and sports franchises from the vulnerable classification as these sectors experienced no negative migration, and the criticized and nonaccrual loans within these sectors were well below the total sector average. Additionally, there was no indication at September 30, 2020 that these sectors should be considered to be at elevated risk. For further discussion, see Item 1.A "Risk Factors" on page 6567 of this report.


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

Retail Commercial Real Estate ~~(b)~~(d)	Retail Commercial Real Estate ~~(b)~~(d)	$	784	1.5	%	—	%	Retail Commercial Real Estate ~~(b)~~(d)	$	781	1.6	%	4.7	%	—	%
Hotels/Casinos		748		1.4		5.4
Hotels								Hotels	559		1.2		9.5		—
Retail Goods and Services								Retail Goods and Services	261		0.5		14.5		—
Arts/Recreation	Arts/Recreation	357		0.7		14.0		Arts/Recreation	248		0.5		28.5		—
Sports Franchises		321		0.6		0.2
Retail Goods and Services		283		0.5		8.2

All other impacted sectors ~~(c)~~(e)	All other impacted sectors ~~(c)~~(e)	1,038		1.9		8.2		All other impacted sectors ~~(c)~~(e)	1,032		2.1		9.9		0.4
Total	Total	$	3,531	6.6	%	5.6	%	Total	$	2,881	5.9	%	10.4	%	0.1	%

(a)Excludes PPP loans.

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

~~(b)~~(c)Sector nonaccrual loans as a percentage of sector total loans.

(d)Loans in the retail commercial real estate sector are primarily included in the Corporation's commercial real estate portfolio.

~~(c)~~(e)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.

Market and Liquidity Risk

Market risk represents the risk of loss due to adverse movement in prices, including interest rates, foreign exchange rates, commodity prices and equity prices. Liquidity risk represents the risk that the Corporation does not have sufficient access to funds to maintain its normal operations at all times, or does not have the ability to raise or borrow funds at a reasonable cost at all times.

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 analyses of the Corporation's

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balance sheet structure and measurement of interest rate and all other market risks; (ii) monitoring and reporting of the Corporation's positions relative to established policy limits and guidelines; (iii) developing and presenting analyses and strategies to adjust risk positions; (iv) reviewing and presenting policies and authorizations for approval; and (v) monitoring of industry trends and analytical tools to be used in the management of interest rate and all other market and liquidity risks.

Interest Rate Risk

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 ~~June~~September 30, 2020 was 5355 percent 30-day LIBOR, 87 percent other LIBOR (primarily 60-and 90-day), 1312 percent prime and 26 percent fixed rate. At September 30, 2020,

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16 percent of total loans, primarily tied to the 30-day LIBOR, had non-zero interest rate floors protecting against future rate declines. 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.

Sensitivity of Net Interest Income to Changes in Interest Rates

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 net interest income under an unchanged interest rate environment. Existing derivative instruments entered into for risk management purposes as of the balance sheet dates are included in the analysis, but no additional hedging is forecasted. At ~~June~~September 30, 2020, these derivative instruments comprise interest rate swaps that convert $2.7 billion of fixed-rate medium- and long-term debt to variable rates through fair value hedges and convert $5.6 billion of variable-rate loans to fixed rates through cash flow hedges. Additionally, included in this analysis are $8.4 billion of loans that were subject to an average interest rate floor of 0.9 percent at September 30, 2020. This base-case net interest income is then compared against interest rate scenarios in which rates rise or decline 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 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 ~~June~~September 30, 2020 and December 31, 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								September 30, 2020				December 31, 2019
(dollar amounts in millions)	(dollar amounts in millions)	Amount		%			Amount		%		(dollar amounts in millions)	Amount		%			Amount		%
Change in Interest Rates:	Change in Interest Rates:					Change in Interest Rates:					Change in Interest Rates:					Change in Interest Rates:
Rising 100 basis points	Rising 100 basis points	$	130	7	%	Rising 100 basis points	$	90	4	%	Rising 100 basis points	$	130	7	%	Rising 100 basis points	$	90	4	%
Declining to zero percent	Declining to zero percent	(32)		(2)		Declining 100 basis points	(135)		(6)		Declining to zero percent	(33)		(2)		Declining 100 basis points	(135)		(6)

~~The change in sensitivity~~

Sensitivity to declining interest rates decreased from December 31, 2019 to ~~June~~September 30, 2020 ~~was driven~~due to changes in balance sheet composition, as well as limited remaining downward movement in rates before hitting zero percent floors. Sensitivity to rising interest rates increased due to changes in balance sheet composition, partially offset by fixed-rate Paycheck Protection Program lending, growth in ~~fixed-rate loans, as well as~~the securities portfolio and the addition of swaps converting variable-rate loans to fixed ~~rates, partially offset by growth in core deposits. Also, decreased sensitivity to declining interest rates was related to limited downward movement in interest rates before hitting zero percent.~~

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rates.

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 economic value of equity. The economic value of equity analysis is based on an immediate parallel 100 basis point ~~shock.~~shock with a floor of zero percent.

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


		June 30, 2020							December 31, 2019								September 30, 2020				December 31, 2019
(dollar amounts in millions)	(dollar amounts in millions)	Amount		%			Amount		%		(dollar amounts in millions)	Amount		%			Amount		%
Change in Interest Rates:	Change in Interest Rates:					Change in Interest Rates:					Change in Interest Rates:					Change in Interest Rates:
Rising 100 basis points	Rising 100 basis points	$	1,319	15	%	Rising 100 basis points	$	716	7	%	Rising 100 basis points	$	1,238	13	%	Rising 100 basis points	$	716	7	%
Declining to zero percent	Declining to zero percent	(479)		(54)		Declining 100 basis points	(1,178)		(12)		Declining to zero percent	(479)		(5)		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~~September 30, 2020 due to changes in deposit pay rates and expected lives. The sensitivity to declining rates decreased due to changes in balance sheet 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~~Officer, continues to guide a cross-functional implementation team ~~has been tasked with execution of~~to execute an enterprise LIBOR transition ~~plan road map.~~plan. Comerica’s enterprise transition milestones ~~align~~are closely aligned with recommendations from the Alternative Reference Rates Committee (ARRC) for both best practices and recommended 2020 objectives. ~~As of the~~Beginning in second quarter of 2020, customer disclosure information for both consumer and commercial loans ~~are being~~were provided for new originations. The Corporation began indexing new retail adjustable rate mortgages to SOFR (Secured Overnight Financing Rate) in third quarter 2020. Execution ~~plans~~activities are in ~~place~~process to incorporate fallback language in legacy LIBOR-based commercial loans targeted to begin ~~incorporating fallback language related to legacy LIBOR commercial loans by the end of~~in fourth quarter 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 ~~June~~September 30, 2020 included short-term 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. Purchased funds ~~increased~~decreased to ~~$839~~$100 million at ~~June~~September 30, 2020 compared to $295 million at December 31, 2019, driven by ~~increases~~decreases in short-term FHLB advances. At ~~June~~September 30, 2020, the Bank had pledged loans totaling ~~$21.2~~$19.1 billion which provided for up to ~~$16.2~~$14.9 billion of available collateralized borrowing with the 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 ~~June~~September 30, 2020, ~~$18.3~~$19.0 billion of real estate-related loans and ~~$5.2~~$4.8 billion of investment securities were pledged to the FHLB as collateral for current and potential future borrowings. The Corporation had ~~$3.6~~$2.8 billion of FHLB long-term advances, maturing ~~between~~in 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 ~~$10.1~~$11.7 billion. ~~The Corporation expects to repay $1.0 billion of its outstanding FHLB long-term advances in third quarter 2020.~~

Additionally, the Bank had the ability to issue up to $13.5 billion of debt at ~~June~~September 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 may be impacted by rating agencies' views of the credit quality, liquidity, capital and earnings of the Corporation and the Bank. As of ~~June~~September 30, 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

~~June~~September 30, 2020

Rating

Outlook

Rating

Outlook

Standard and Poor’s

BBB+

Negative

A-

Negative

Moody’s Investors Service

Stable

Fitch Ratings

A-

Stable

A-

Stable

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The Corporation satisfies liquidity needs with either liquid assets or various funding sources. Liquid assets totaled ~~$20.5~~$21.0 billion and $17.9 billion at ~~June~~September 30, 2020 and December 31, 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 ~~June~~September 30, 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~~$47.6 billion at ~~June~~September 30, 2020. On a stand-alone basis, the Corporation had liquid assets of $1.5 billion on an unconsolidated basis at September 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 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, 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-34 through F-36 in the Corporation's 2019 Annual Report. Below are significant changes to the Corporation's critical accounting policies or estimates since the Corporation's 2019 Annual Report.

ALLOWANCE FOR CREDIT LOSSES

The Corporation adopted new accounting guidance for estimating credit losses, known as the CECL framework, in first quarter 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 determination of the allowance for credit losses, refer to Note 1 to the consolidated financial statements. For further discussion on the economic forecast incorporated into the ~~second~~third quarter 2020 model, refer to the “Risk Management” section of this ~~report.~~financial review.

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 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~~5 percent of the individual risk ratings were adjusted down by one rating across all pools, the allowance for loan losses as of ~~June~~September 30, 2020 would change by approximately ~~$13~~$15 million.

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 programs, 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~~Contracts by 134 percent in ~~third~~fourth quarter 2020, ~~followed by a short-term contraction, then reaches a~~gradually improving to 5 percent growth ~~rate of 7 percent~~in 2022 as the forecast period ends part-way through an economic recovery.
Unemployment rate			~~Remains at elevated~~Current levels ~~between~~below 10 percent ~~and 12~~increase to 11 percent ~~throughout~~in early 2021, maintaining such levels for several quarters before decreasing below 10 percent near the end of the forecast period.
Corporate BBB bond to 10-year Treasury bond spreads			~~Remains between 3.75 percent and 4.15~~Spreads widen to 4 percent in the ~~near-term before~~near term, gradually normalizing ~~into spreads~~to below 2 percent by ~~the end of the forecast period.~~2022.
Oil Prices			~~Price remains low throughout~~Continue to decline to below $25 per barrel part-way through the forecast period, improving to ~~above $25~~nearly $30 per barrel by ~~the second~~third quarter 2022.

Selecting a different forecast in the current environment could result in a 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~~September 30, 2020 would increase by approximately ~~$1.6~~$1 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~~September 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 Commercial Bank, the Retail Bank and Wealth Management. At ~~June~~September 30, 2020, goodwill totaled $635 million, including $473 million allocated to the Commercial Bank, $101 million allocated to the Retail Bank and $61 million allocated to Wealth Management.

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 being more likely than not that the fair value of any reporting unit was less than its carrying value. Impairment indicators considered comprised economic conditions, including projections of the duration of current conditions and timing of a potential recovery; industry and market considerations; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting units; performance of the Corporation’s stock and other 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 sensitivities performed. At the conclusion of the first quarter 2020 assessment, the Corporation determined that it was more likely than not that the fair value of each reporting unit exceeded its carrying value.

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 a combination of earnings and equity multiples from companies with characteristics similar to ~~the~~each 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, which ~~incorporates~~incorporated 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 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 goodwill.

The annual goodwill impairment test was performed as of the beginning of third quarter 2020. The Corporation assessed qualitative factors to determine whether it was more likely than not that the fair value of any reporting unit was less than its carrying amount, including goodwill. Qualitative factors included ~~evaluation~~economic conditions, industry and market considerations, cost factors, overall financial performance, regulatory developments and performance of the Corporation’s stock, among other events and circumstances. At the conclusion of the qualitative assessment in third quarter 2020, the Corporation determined that it was more likely than not that the fair value of each reporting unit exceeded its carrying value.

Analyzing goodwill includes consideration of various factors that continue to rapidly evolve and for which significant uncertainty remains, including the impact of the coronavirus global pandemic to the economy and ongoing government intervention to mitigate that impact. Further weakening in the economic environment, such as continued 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 the Corporation to measure the quality of capital and the return relative to balance sheet risk.

Common equity tier 1 capital ratio removes preferred stock from the Tier 1 capital ratio as defined by 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)	(dollar amounts in millions)	June 30, 2020			December 31, 2019			(dollar amounts in millions)	September 30, 2020			December 31, 2019
Common Equity Tier 1 Capital (a):	Common Equity Tier 1 Capital (a):							Common Equity Tier 1 Capital (a):
Tier 1 capital	Tier 1 capital	$	7,093		$	6,919		Tier 1 capital	$	7,199		$	6,919
Less:	Less:							Less:
Fixed-rate reset non-cumulative perpetual preferred stock	Fixed-rate reset non-cumulative perpetual preferred stock	395			—			Fixed-rate reset non-cumulative perpetual preferred stock	394			—
Common equity tier 1 capital	Common equity tier 1 capital	$	6,698		$	6,919		Common equity tier 1 capital	$	6,805		$	6,919
Risk-weighted assets	Risk-weighted assets	$	67,156		$	68,273		Risk-weighted assets	$	66,299		$	68,273
Tier 1 capital ratio	Tier 1 capital ratio	10.56		%	10.13		%	Tier 1 capital ratio	10.86		%	10.13		%
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	9.97			10.13			Common equity tier 1 capital ratio	10.26			10.13
Tangible Common Equity Ratio:	Tangible Common Equity Ratio:							Tangible Common Equity Ratio:
Total shareholders' equity	Total shareholders' equity	$	7,802		$	7,327		Total shareholders' equity	$	7,874		$	7,327
Less:	Less:							Less:
Fixed-rate non-cumulative perpetual preferred stock	Fixed-rate non-cumulative perpetual preferred stock	395			—			Fixed-rate non-cumulative perpetual preferred stock	394			—
Common shareholders' equity								Common shareholders' equity	$	7,480		$	7,327
Less:								Less:
Goodwill	Goodwill	635			635			Goodwill	635			635
Other intangible assets	Other intangible assets	3			4			Other intangible assets	2			4
Tangible common equity	Tangible common equity	$	6,769		$	6,688		Tangible common equity	$	6,843		$	6,688
Total assets	Total assets	$	84,397		$	73,402		Total assets	$	83,631		$	73,402
Less:	Less:							Less:
Goodwill	Goodwill	635			635			Goodwill	635			635
Other intangible assets	Other intangible assets	3			4			Other intangible assets	2			4
Tangible assets	Tangible assets	$	83,759		$	72,763		Tangible assets	$	82,994		$	72,763
Common equity ratio	Common equity ratio	8.78		%	9.98		%	Common equity ratio	8.94		%	9.98		%
Tangible common equity ratio	Tangible common equity ratio	8.08			9.19			Tangible common equity ratio	8.24			9.19
Tangible Common Equity per Share of Common Stock:	Tangible Common Equity per Share of Common Stock:							Tangible Common Equity per Share of Common Stock:
Common shareholders' equity	Common shareholders' equity	$	7,407		$	7,327		Common shareholders' equity	$	7,480		$	7,327
Tangible common equity	Tangible common equity	6,769			6,688			Tangible common equity	6,843			6,688
Shares of common stock outstanding (in millions)	Shares of common stock outstanding (in millions)	139			142			Shares of common stock outstanding (in millions)	139			142
Common shareholders' equity per share of common stock	Common shareholders' equity per share of common stock	$	53.28		$	51.57		Common shareholders' equity per share of common stock	$	53.78		$	51.57
Tangible common equity per share of common stock	Tangible common equity per share of common stock	48.69			47.07			Tangible common equity per share of common stock	49.20			47.07

(a)Tier 1 capital as defined by regulation; estimated for ~~June~~September 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)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.

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

Other than as set forth below, there have been no material changes in the Corporation’s risk factors as previously disclosed in our Form 10-K for the fiscal year ended December 31, 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~~and will likely continue to adversely impact 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~~has been, and is expected to continue to 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 some businesses remain closed or are forced to close again and as more customers may draw on their lines of credit or seek additional loans to help finance their businesses. Certain industries have been particularly susceptible to the effects of the pandemic, such as retail commercial real estate, retail goods and services, hotels, arts/recreation, airlines, restaurants and bars, childcare, coffee shops, cruise lines, education, gasoline and convenience stores, religious organizations, senior living, freight and travel arrangements, and Comerica has outstanding loans to clients in these industries, as described above under "Other Sectors Most at Risk due to Economic Stress Resulting from COVID-19 Impacts." Similarly, because of changing economic and market conditions affecting issuers, the securities we hold may lose value. ~~Our~~We have temporarily closed certain of our branches and offices and our business operations may also be disrupted if significant portions of our workforce are unable to work effectively long-term, including because of illness, quarantines, government actions, or

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other restrictions in connection with the ~~pandemic, and we have already temporarily closed certain of our branches and offices.~~pandemic. 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 of September 30, 2020, pandemic-related payment deferrals totaled $385 million, representing approximately 300 obligors and consisting of 60 percent commercial loans and 40 percent retail loans, primarily residential mortgages.

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~~energy markets have ~~fallen since the beginning~~shown continued stress for most of 2020 ~~due to global events.~~and remain uncertain. Loans in the Energy business line were ~~$2.1~~$1.8 billion, or approximately 4 percent of total loans, at ~~June~~September 30, 2020. At ~~June~~September 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 5657 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

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 Current Report on Form 8-K dated April 9, 2020, and incorporated herein by reference).

3.4						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.]

~~4.1~~						Deposit Agreement, dated May 26, 2020, among Comerica Incorporated, 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 4.1 to Registrant's Current Report on Form 8-K dated 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).~~

10.11†						Amended and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan (amended and restated effective July 1, 2020) (filed as Exhibit 10.11 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, and incorporated herein by reference)..

10.12†						Amended and Restated Comerica Incorporated Common Stock Non-Employee Director Fee Deferral Plan (amended and restated effective July 1, 2020)(filed as Exhibit 10.12 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, and incorporated herein by reference).

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 and 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 ~~June~~September 30, 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 ~~June~~September 30, 2020, formatted in Inline XBRL (included in Exhibit 101).

†						Management contract or compensatory plan or arrangement.

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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)

			/s/ Mauricio A. Ortiz
			Mauricio A. Ortiz
			Senior Vice President and
			Chief Accounting Officer and
			Duly Authorized Officer

Date: ~~July~~October 30, 2020

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