Comerica 2009 Annual Report Download - page 81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the fair value of the reporting
unit is less than the carrying value, the second step must be performed to determine the implied fair value of the
reporting unit’s goodwill and the amount of goodwill impairment.
Additional information regarding goodwill and impairment testing can be found in Note 9.
Nonmarketable Equity Securities
The Corporation has a portfolio of investments in indirect private equity and venture capital funds. The
majority of these investments are not readily marketable and are included in ‘‘accrued income and other assets’’
on the consolidated balance sheets. The investments are individually reviewed for impairment on a quarterly
basis by comparing the carrying value to the estimated fair value. The amount by which the carrying value
exceeds the fair value that is determined to be other-than-temporary impairment is charged to current earnings
and the carrying value of the investment is written down accordingly.
The Corporation also holds restricted equity investments, which are securities the Corporation is required
to hold for various reasons and consist primarily of Federal Home Loan Bank of Dallas (FHLB) and Federal
Reserve Bank (FRB) stock. Restricted equity securities, classified in ‘‘accrued income and other assets’’ on the
consolidated balance sheets, are not readily marketable and are recorded at cost (par value) and evaluated for
impairment based on the ultimate recoverability of the par value. If the Corporation does not expect to recover
the full par value, the amount by which the par value exceeds the ultimately recoverable value would be charged
to current earnings and the carrying value of the investment would be written down accordingly.
Derivative Instruments and Hedging Activities
Derivative instruments are carried at fair value in either ‘‘accrued income and other assets’’ or ‘‘accrued
expenses and other liabilities’’ on the consolidated balance sheets. The accounting for changes in the fair value
(i.e., gains or losses) of a derivative instrument is determined by whether it has been designated and qualifies as
part of a hedging relationship and, further, by the type of hedging relationship. For those derivative instruments
that are designated and qualify as hedging instruments, the Corporation designates the hedging instrument,
based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge. For derivative
instruments designated and qualifying as fair value hedges (i.e., hedging the exposure to changes in the fair value
of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on
the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk,
are recognized in current earnings during the period of the change in fair values. For derivative instruments that
are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash
flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument
is reported as a component of other comprehensive income and reclassified into earnings in the same period or
periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative
instrument in excess of the cumulative change in the present value of future cash flows of the hedged item (i.e.,
the ineffective portion), if any, is recognized in current earnings during the period of change. For derivative
instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the
period of change.
For derivatives designated as hedging instruments at inception, the Corporation uses either the short-cut
method or applies dollar offset or statistical regression analysis to assess effectiveness. The short-cut method is
used for certain fair value hedges of medium- and long-term debt. This method allows for the assumption of zero
hedge ineffectiveness and eliminates the requirement to further assess hedge effectiveness on these transactions.
For hedge relationships to which the Corporation does not apply the short-cut method, either the dollar offset or
statistical regression analysis is used at inception and for each reporting period thereafter to assess whether the
derivative used has been and is expected to be highly effective in offsetting changes in the fair value or cash flows
79