COMERICA INC /NEW/ - Quarter Report: 2015 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2015
Or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-10706
____________________________________________________________________________________
Comerica Incorporated
(Exact name of registrant as specified in its charter)
___________________________________________________________________________________
Delaware | 38-1998421 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Comerica Bank Tower
1717 Main Street, MC 6404
Dallas, Texas 75201
(Address of principal executive offices)
(Zip Code)
(214) 462-6831
(Registrant’s telephone number, including area code)
_________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
$5 par value common stock:
Outstanding as of April 24, 2015: 178,009,377 shares
COMERICA INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries
(in millions, except share data) | March 31, 2015 | December 31, 2014 | |||||
(unaudited) | |||||||
ASSETS | |||||||
Cash and due from banks | $ | 1,170 | $ | 1,026 | |||
Interest-bearing deposits with banks | 4,792 | 5,045 | |||||
Other short-term investments | 101 | 99 | |||||
Investment securities available-for-sale | 8,214 | 8,116 | |||||
Investment securities held-to-maturity | 1,871 | 1,935 | |||||
Commercial loans | 32,091 | 31,520 | |||||
Real estate construction loans | 1,917 | 1,955 | |||||
Commercial mortgage loans | 8,558 | 8,604 | |||||
Lease financing | 792 | 805 | |||||
International loans | 1,433 | 1,496 | |||||
Residential mortgage loans | 1,859 | 1,831 | |||||
Consumer loans | 2,422 | 2,382 | |||||
Total loans | 49,072 | 48,593 | |||||
Less allowance for loan losses | (601 | ) | (594 | ) | |||
Net loans | 48,471 | 47,999 | |||||
Premises and equipment | 531 | 532 | |||||
Accrued income and other assets | 4,186 | 4,438 | |||||
Total assets | $ | 69,336 | $ | 69,190 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Noninterest-bearing deposits | $ | 27,394 | $ | 27,224 | |||
Money market and interest-bearing checking deposits | 23,727 | 23,954 | |||||
Savings deposits | 1,817 | 1,752 | |||||
Customer certificates of deposit | 4,497 | 4,421 | |||||
Foreign office time deposits | 135 | 135 | |||||
Total interest-bearing deposits | 30,176 | 30,262 | |||||
Total deposits | 57,570 | 57,486 | |||||
Short-term borrowings | 80 | 116 | |||||
Accrued expenses and other liabilities | 1,500 | 1,507 | |||||
Medium- and long-term debt | 2,686 | 2,679 | |||||
Total liabilities | 61,836 | 61,788 | |||||
Common stock - $5 par value: | |||||||
Authorized - 325,000,000 shares | |||||||
Issued - 228,164,824 shares | 1,141 | 1,141 | |||||
Capital surplus | 2,188 | 2,188 | |||||
Accumulated other comprehensive loss | (370 | ) | (412 | ) | |||
Retained earnings | 6,841 | 6,744 | |||||
Less cost of common stock in treasury - 50,114,399 shares at 3/31/15 and 49,146,225 shares at 12/31/14 | (2,300 | ) | (2,259 | ) | |||
Total shareholders’ equity | 7,500 | 7,402 | |||||
Total liabilities and shareholders’ equity | $ | 69,336 | $ | 69,190 |
See notes to consolidated financial statements.
1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Comerica Incorporated and Subsidiaries
Three Months Ended March 31, | |||||||
(in millions, except per share data) | 2015 | 2014 | |||||
INTEREST INCOME | |||||||
Interest and fees on loans | $ | 379 | $ | 376 | |||
Interest on investment securities | 53 | 55 | |||||
Interest on short-term investments | 3 | 4 | |||||
Total interest income | 435 | 435 | |||||
INTEREST EXPENSE | |||||||
Interest on deposits | 11 | 11 | |||||
Interest on medium- and long-term debt | 11 | 14 | |||||
Total interest expense | 22 | 25 | |||||
Net interest income | 413 | 410 | |||||
Provision for credit losses | 14 | 9 | |||||
Net interest income after provision for credit losses | 399 | 401 | |||||
NONINTEREST INCOME | |||||||
Service charges on deposit accounts | 55 | 54 | |||||
Fiduciary income | 48 | 44 | |||||
Commercial lending fees | 25 | 20 | |||||
Card fees | 68 | 20 | |||||
Letter of credit fees | 13 | 14 | |||||
Bank-owned life insurance | 9 | 9 | |||||
Foreign exchange income | 10 | 9 | |||||
Brokerage fees | 4 | 5 | |||||
Net securities (losses) gains | (2 | ) | 1 | ||||
Other noninterest income | 26 | 32 | |||||
Total noninterest income | 256 | 208 | |||||
NONINTEREST EXPENSES | |||||||
Salaries and benefits expense | 253 | 247 | |||||
Net occupancy expense | 38 | 40 | |||||
Equipment expense | 13 | 14 | |||||
Outside processing fee expense | 78 | 28 | |||||
Software expense | 23 | 22 | |||||
Litigation-related expense | 1 | 3 | |||||
FDIC insurance expense | 9 | 8 | |||||
Advertising expense | 6 | 6 | |||||
Other noninterest expenses | 39 | 38 | |||||
Total noninterest expenses | 460 | 406 | |||||
Income before income taxes | 195 | 203 | |||||
Provision for income taxes | 61 | 64 | |||||
NET INCOME | 134 | 139 | |||||
Less income allocated to participating securities | 2 | 2 | |||||
Net income attributable to common shares | $ | 132 | $ | 137 | |||
Earnings per common share: | |||||||
Basic | $ | 0.75 | $ | 0.76 | |||
Diluted | 0.73 | 0.73 | |||||
Comprehensive income | 176 | 205 | |||||
Cash dividends declared on common stock | 36 | 35 | |||||
Cash dividends declared per common share | 0.20 | 0.19 |
See notes to consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
Comerica Incorporated and Subsidiaries
Common Stock | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||
(in millions, except per share data) | Shares Outstanding | Amount | Capital Surplus | Retained Earnings | Treasury Stock | |||||||||||||||||||||
BALANCE AT DECEMBER 31, 2013 | 182.3 | $ | 1,141 | $ | 2,179 | $ | (391 | ) | $ | 6,318 | $ | (2,097 | ) | $ | 7,150 | |||||||||||
Net income | — | — | — | — | 139 | — | 139 | |||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | 66 | — | — | 66 | |||||||||||||||||||
Cash dividends declared on common stock ($0.19 per share) | — | — | — | — | (35 | ) | — | (35 | ) | |||||||||||||||||
Purchase of common stock | (1.7 | ) | — | — | — | — | (80 | ) | (80 | ) | ||||||||||||||||
Net issuance of common stock under employee stock plans | 1.1 | — | (11 | ) | — | (8 | ) | 48 | 29 | |||||||||||||||||
Share-based compensation | — | — | 14 | — | — | — | 14 | |||||||||||||||||||
BALANCE AT MARCH 31, 2014 | 181.7 | $ | 1,141 | $ | 2,182 | $ | (325 | ) | $ | 6,414 | $ | (2,129 | ) | $ | 7,283 | |||||||||||
BALANCE AT DECEMBER 31, 2014 | 179.0 | $ | 1,141 | $ | 2,188 | $ | (412 | ) | $ | 6,744 | $ | (2,259 | ) | $ | 7,402 | |||||||||||
Net income | — | — | — | — | 134 | — | 134 | |||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | 42 | — | — | 42 | |||||||||||||||||||
Cash dividends declared on common stock ($0.20 per share) | — | — | — | — | (36 | ) | — | (36 | ) | |||||||||||||||||
Purchase of common stock | (1.5 | ) | — | — | — | — | (66 | ) | (66 | ) | ||||||||||||||||
Net issuance of common stock under employee stock plans | 0.6 | — | (16 | ) | — | (2 | ) | 25 | 7 | |||||||||||||||||
Share-based compensation | — | — | 16 | — | — | — | 16 | |||||||||||||||||||
Other | — | — | — | — | 1 | — | 1 | |||||||||||||||||||
BALANCE AT MARCH 31, 2015 | 178.1 | $ | 1,141 | $ | 2,188 | $ | (370 | ) | $ | 6,841 | $ | (2,300 | ) | $ | 7,500 |
See notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Comerica Incorporated and Subsidiaries
Three Months Ended March 31, | |||||||
(in millions) | 2015 | 2014 | |||||
OPERATING ACTIVITIES | |||||||
Net income | $ | 134 | $ | 139 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Provision for credit losses | 14 | 9 | |||||
Benefit for deferred income taxes | (21 | ) | (5 | ) | |||
Depreciation and amortization | 30 | 29 | |||||
Net periodic defined benefit cost | 11 | 9 | |||||
Share-based compensation expense | 16 | 14 | |||||
Net amortization of securities | 4 | 2 | |||||
Accretion of loan purchase discount | (3 | ) | (12 | ) | |||
Net securities losses (gains) | 2 | (1 | ) | ||||
Net gains on sales of foreclosed property | — | (1 | ) | ||||
Excess tax benefits from share-based compensation arrangements | (2 | ) | (5 | ) | |||
Net change in: | |||||||
Trading securities | — | 5 | |||||
Accrued income receivable | (6 | ) | — | ||||
Accrued expenses payable | (31 | ) | (61 | ) | |||
Other, net | 190 | 92 | |||||
Net cash provided by operating activities | 338 | 214 | |||||
INVESTING ACTIVITIES | |||||||
Investment securities available-for-sale: | |||||||
Maturities and redemptions | 393 | 411 | |||||
Sales | 37 | — | |||||
Purchases | (487 | ) | (499 | ) | |||
Investment securities held-to-maturity: | |||||||
Maturities and redemptions | 66 | — | |||||
Net change in loans | (487 | ) | (1,026 | ) | |||
Proceeds from sales of foreclosed property | 2 | 3 | |||||
Net increase in premises and equipment | (25 | ) | (16 | ) | |||
Other, net | — | (1 | ) | ||||
Net cash used in investing activities | (501 | ) | (1,128 | ) | |||
FINANCING ACTIVITIES | |||||||
Net change in: | |||||||
Deposits | 184 | 255 | |||||
Short-term borrowings | (36 | ) | (93 | ) | |||
Common stock: | |||||||
Repurchases | (66 | ) | (80 | ) | |||
Cash dividends paid | (36 | ) | (31 | ) | |||
Issuances under employee stock plans | 6 | 26 | |||||
Excess tax benefits from share-based compensation arrangements | 2 | 5 | |||||
Other, net | — | 1 | |||||
Net cash provided by financing activities | 54 | 83 | |||||
Net decrease in cash and cash equivalents | (109 | ) | (831 | ) | |||
Cash and cash equivalents at beginning of period | 6,071 | 6,451 | |||||
Cash and cash equivalents at end of period | $ | 5,962 | $ | 5,620 | |||
Interest paid | $ | 19 | $ | 25 | |||
Income tax refunds received | (103 | ) | — | ||||
Noncash investing and financing activities: | |||||||
Loans transferred to other real estate | 2 | 7 |
See notes to consolidated financial statements.
4
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Organization
The accompanying unaudited consolidated financial statements were prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. 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, 2014.
Revenue Recognition
In the first quarter 2015, the Corporation entered into a new contract for an existing debit card program. Guidance provided in Accounting Standards Code 605-45, "Principal Agent Considerations," indicates whether revenue should be reported gross or net for this type of arrangement. Management assessed various principal versus agent indicators provided in the guidance and concluded that the Corporation bears the risks and rewards of providing the services for the card program based on the new contract terms and, therefore, gross presentation of revenues and expenses is appropriate. The effect of this change in presentation was an increase of $44 million to both "card fees" in noninterest income and "outside processing fee expense" in noninterest expenses for the three months ended March 31, 2015.
Recently Adopted Accounting Pronouncements
Effective January 1, 2015, the Corporation prospectively adopted Accounting Standards Update (ASU) No. 2014-04, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” (ASU 2014-04), which clarifies when an in-substance foreclosure or repossession of residential real estate property occurs, requiring a creditor to reclassify the loan to other real estate. According to ASU 2014-04, a consumer mortgage loan should be reclassified to other real estate either upon the creditor obtaining legal title to the real estate collateral or when the borrower voluntarily conveys all interest in the real estate property to the creditor through a deed in lieu of foreclosure or similar legal agreement. ASU 2014-04 also clarifies that a creditor that has obtained legal title to a foreclosed property should not delay reclassification when a borrower has a legal right of redemption for a period of time. The Corporation's existing accounting treatment is consistent with the new guidance, and therefore the adoption of ASU 2014-04 had no impact to the Corporation's financial condition and results of operations. Disclosures required by ASU 2014-04 are provided in Note 4.
Also Effective January 1, 2015, the Corporation prospectively adopted ASU No. 2014-12, “Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,” (ASU 2014-12). The new guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The Corporation's current accounting treatment of performance conditions for employees who are or become retirement eligible prior to the achievement of the performance target is consistent with ASU 2014-12, and as such the adoption of ASU 2014-12 had no impact to the Corporation’s financial condition and results of operations.
Pending Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (ASU 2014-09), which is intended to improve and converge the financial reporting requirements for revenue contracts with customers. Previous GAAP comprised broad revenue recognition concepts along with numerous industry-specific requirements. The new guidance establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. In April 2015, the FASB voted to make the guidance under ASU 2014-09 effective for annual and interim periods beginning after December 15, 2017. The guidance must be retrospectively applied. Entities will have the option of presenting prior periods as impacted by the new guidance or presenting the cumulative effect of initial application along with supplementary disclosures. Early adoption is prohibited. The Corporation is currently evaluating the impact of adopting ASU 2014-09.
In February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis," (ASU 2015-02), which makes targeted amendments to the considerations applied by reporting entities when determining if a legal entity should be consolidated, including placing more emphasis on risk of loss when determining a controlling financial
5
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
interest. Low-income housing tax credit investments that meet the criteria for the proportional amortization method are not impacted by these amendments. ASU 2015-02 is effective for annual and interim periods beginning after December 15, 2015, and must be retrospectively applied. Early adoption is permitted. The Corporation is currently evaluating the impact of adopting ASU 2015-02.
In April 2015, the FASB issued ASU 2015-03, "ASU 2015-03: Interest - Imputation of Interest (Subtopic 835-30)," (ASU 2015-03), which amends the presentation of debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than as a deferred charge as presented under current guidance. ASU 2015-03 is effective for annual and interim periods beginning after December 15, 2015, and must be retrospectively applied. Early adoption is permitted. The Corporation does not expect the adoption of this amendment to have a material effect on its financial condition and results of operations.
In April 2015, the FASB issued ASU 2015-05, "ASU 2015-05 Goodwill and Other - Internal-Use Software (Subtopic 350-40)," (ASU 2015-05), which defines specific criteria entities must apply to determine if a cloud computing arrangement includes an in-substance software license. The result of the assessment will direct the entity to apply either software licensing or service contract guidance to record the related fees. ASU 2015-05 is effective for annual and interim periods beginning after December 15, 2015, and can be prospectively or retrospectively applied. Early adoption is permitted. The Corporation does not expect the adoption to have a material effect on its financial condition and results of operations.
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.
Trading securities, investment securities available-for-sale, derivatives and deferred compensation plan liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as impaired loans, other real estate (primarily foreclosed property), nonmarketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve write-downs of individual assets or application of lower of cost or fair value accounting.
Refer to Note 1 to the consolidated financial statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2014 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. When credit valuation adjustments are significant to the overall fair value of a derivative, the Corporation classifies the over-the-counter derivative valuation in Level 3 of the fair value hierarchy; otherwise, over-the-counter derivative valuations are classified in Level 2.
6
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
ASSETS AND LIABLILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS
The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014.
(in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
March 31, 2015 | ||||||||||||||||
Trading securities: | ||||||||||||||||
Deferred compensation plan assets | $ | 95 | $ | 95 | $ | — | $ | — | ||||||||
Investment securities available-for-sale: | ||||||||||||||||
U.S. Treasury and other U.S. government agency securities | 534 | 534 | — | — | ||||||||||||
Residential mortgage-backed securities (a) | 7,407 | — | 7,407 | — | ||||||||||||
State and municipal securities | 23 | — | — | 23 | (b) | |||||||||||
Corporate debt securities | 47 | — | 46 | 1 | (b) | |||||||||||
Equity and other non-debt securities | 203 | 132 | — | 71 | (b) | |||||||||||
Total investment securities available-for-sale | 8,214 | 666 | 7,453 | 95 | ||||||||||||
Derivative assets: | ||||||||||||||||
Interest rate contracts | 359 | — | 348 | 11 | ||||||||||||
Energy derivative contracts | 513 | — | 513 | — | ||||||||||||
Foreign exchange contracts | 50 | — | 50 | — | ||||||||||||
Warrants | 3 | — | — | 3 | ||||||||||||
Total derivative assets | 925 | — | 911 | 14 | ||||||||||||
Total assets at fair value | $ | 9,234 | $ | 761 | $ | 8,364 | $ | 109 | ||||||||
Derivative liabilities: | ||||||||||||||||
Interest rate contracts | $ | 130 | $ | — | $ | 130 | $ | — | ||||||||
Energy derivative contracts | 510 | — | 510 | — | ||||||||||||
Foreign exchange contracts | 39 | — | 39 | — | ||||||||||||
Other | 1 | — | — | 1 | ||||||||||||
Total derivative liabilities | 680 | — | 679 | 1 | ||||||||||||
Deferred compensation plan liabilities | 95 | 95 | — | — | ||||||||||||
Total liabilities at fair value | $ | 775 | $ | 95 | $ | 679 | $ | 1 |
(a) | Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. |
(b) | Auction-rate securities. |
7
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
(in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
December 31, 2014 | ||||||||||||||||
Trading securities: | ||||||||||||||||
Deferred compensation plan assets | $ | 94 | $ | 94 | $ | — | $ | — | ||||||||
Investment securities available-for-sale: | ||||||||||||||||
U.S. Treasury and other U.S. government agency securities | 526 | 526 | — | — | ||||||||||||
Residential mortgage-backed securities (a) | 7,274 | — | 7,274 | — | ||||||||||||
State and municipal securities | 23 | — | — | 23 | (b) | |||||||||||
Corporate debt securities | 51 | — | 50 | 1 | (b) | |||||||||||
Equity and other non-debt securities | 242 | 130 | — | 112 | (b) | |||||||||||
Total investment securities available-for-sale | 8,116 | 656 | 7,324 | 136 | ||||||||||||
Derivative assets: | ||||||||||||||||
Interest rate contracts | 328 | — | 328 | — | ||||||||||||
Energy derivative contracts | 527 | — | 527 | — | ||||||||||||
Foreign exchange contracts | 39 | — | 39 | — | ||||||||||||
Warrants | 4 | — | — | 4 | ||||||||||||
Total derivative assets | 898 | — | 894 | 4 | ||||||||||||
Total assets at fair value | $ | 9,108 | $ | 750 | $ | 8,218 | $ | 140 | ||||||||
Derivative liabilities: | ||||||||||||||||
Interest rate contracts | $ | 102 | $ | — | $ | 102 | $ | — | ||||||||
Energy derivative contracts | 525 | — | 525 | — | ||||||||||||
Foreign exchange contracts | 34 | — | 34 | — | ||||||||||||
Other | 1 | — | — | 1 | ||||||||||||
Total derivative liabilities | 662 | — | 661 | 1 | ||||||||||||
Deferred compensation plan liabilities | 94 | 94 | — | — | ||||||||||||
Total liabilities at fair value | $ | 756 | $ | 94 | $ | 661 | $ | 1 |
(a) | Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. |
(b) | Auction-rate securities. |
There were no transfers of assets or liabilities recorded at fair value on a recurring basis into or out of Level 1, Level 2 and Level 3 fair value measurements during each of the three-month periods ended March 31, 2015 and 2014.
8
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three-month periods ended March 31, 2015 and 2014.
Net Realized/Unrealized Gains (Losses) (Pretax) | ||||||||||||||||||||||||
Balance at Beginning of Period | Recorded in Earnings | Recorded in Other Comprehensive Income | Balance at End of Period | |||||||||||||||||||||
(in millions) | Realized | Unrealized | Sales | |||||||||||||||||||||
Three Months Ended March 31, 2015 | ||||||||||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||||||||||
State and municipal securities (a) | $ | 23 | $ | — | $ | — | $ | — | $ | — | $ | 23 | ||||||||||||
Corporate debt securities (a) | 1 | — | — | — | — | 1 | ||||||||||||||||||
Equity and other non-debt securities (a) | 112 | (2 | ) | (c) | — | 1 | (b) | (40 | ) | 71 | ||||||||||||||
Total investment securities available-for-sale | 136 | (2 | ) | (c) | — | 1 | (b) | (40 | ) | 95 | ||||||||||||||
Derivative assets: | ||||||||||||||||||||||||
Interest rate contracts | — | — | 11 | (d) | — | — | 11 | |||||||||||||||||
Warrants | 4 | — | (1 | ) | (d) | — | — | 3 | ||||||||||||||||
Derivative liabilities: | ||||||||||||||||||||||||
Other | 1 | — | — | — | — | 1 | ||||||||||||||||||
Three Months Ended March 31, 2014 | ||||||||||||||||||||||||
Investment securities available-for-sale: | ||||||||||||||||||||||||
State and municipal securities (a) | $ | 22 | $ | — | $ | — | $ | 1 | (b) | $ | — | $ | 23 | |||||||||||
Corporate debt securities (a) | 1 | — | — | — | — | 1 | ||||||||||||||||||
Equity and other non-debt securities (a) | 136 | 1 | (c) | — | 5 | (b) | (24 | ) | 118 | |||||||||||||||
Total investment securities available-for-sale | 159 | 1 | (c) | — | 6 | (b) | (24 | ) | 142 | |||||||||||||||
Derivative assets: | ||||||||||||||||||||||||
Warrants | 3 | — | 1 | (d) | — | (1 | ) | 3 | ||||||||||||||||
Derivative liabilities: | ||||||||||||||||||||||||
Other | 2 | — | — | — | — | 2 |
(a) | Auction-rate securities. |
(b) | Recorded in "net unrealized gains (losses) on investment securities available-for-sale" in other comprehensive income. |
(c) | Realized and unrealized gains and losses due to changes in fair value recorded in "net securities gains" on the consolidated statements of comprehensive income. |
(d) | Realized and unrealized gains and losses due to changes in fair value recorded in "other noninterest income" on the consolidated statements of comprehensive income. |
9
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS
The Corporation may be required, from time to time, 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 that were recognized at fair value below cost at the end of the period. All assets recorded at fair value on a nonrecurring basis were classified as Level 3 at March 31, 2015 and December 31, 2014 and are presented in the following table. No liabilities were recorded at fair value on a nonrecurring basis at March 31, 2015 and December 31, 2014.
(in millions) | Level 3 | |||
March 31, 2015 | ||||
Loans: | ||||
Commercial | $ | 40 | ||
Commercial mortgage | 20 | |||
Total loans | 60 | |||
Nonmarketable equity securities | 2 | |||
Other real estate | 4 | |||
Total assets at fair value | $ | 66 | ||
December 31, 2014 | ||||
Loans: | ||||
Commercial | $ | 38 | ||
Commercial mortgage | 26 | |||
Total loans | 64 | |||
Nonmarketable equity securities | 2 | |||
Other real estate | 2 | |||
Total assets at fair value | $ | 68 |
Level 3 assets recorded at fair value on a nonrecurring basis at March 31, 2015 and December 31, 2014 included loans for which a specific allowance was established based on the fair value of collateral and other real estate for which fair value of the properties was less than the cost basis. For both asset classes, 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.
The following table presents quantitative information related to the significant unobservable inputs utilized in the Corporation's Level 3 recurring fair value measurement as of March 31, 2015 and December 31, 2014. The Corporation's Level 3 recurring fair value measurements include auction-rate securities where fair value is determined using an income approach based on a discounted cash flow model. The inputs in the table below reflect management's expectation of continued illiquidity in the secondary auction-rate securities market due to a lack of market activity for the issuers remaining in the portfolio, a lack of market incentives for issuer redemptions, and the expectation for a continuing low interest rate environment. The March 31, 2015 workout periods reflect management's view that short-term interest rates could begin to rise in 2015.
Discounted Cash Flow Model | |||||||
Unobservable Input | |||||||
Fair Value (in millions) | Discount Rate | Workout Period (in years) | |||||
March 31, 2015 | |||||||
State and municipal securities (a) | $ | 23 | 3% - 9% | 1 - 3 | |||
Equity and other non-debt securities (a) | 71 | 4% - 8% | 1 - 2 | ||||
December 31, 2014 | |||||||
State and municipal securities (a) | $ | 23 | 3% - 9% | 1 - 3 | |||
Equity and other non-debt securities (a) | 112 | 4% - 8% | 1 - 2 |
(a) | Auction-rate securities. |
10
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS
The Corporation typically holds the majority of its financial instruments until maturity and thus does not expect to realize many of the estimated fair value amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments, but which have significant value. These include such items as core deposit intangibles, the future earnings potential of significant customer relationships and the value of trust operations and other fee generating businesses. The Corporation believes the imprecision of an estimate could be significant.
The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on the Corporation’s consolidated balance sheets are as follows:
Carrying Amount | Estimated Fair Value | ||||||||||||||||||
(in millions) | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||
March 31, 2015 | |||||||||||||||||||
Assets | |||||||||||||||||||
Cash and due from banks | $ | 1,170 | $ | 1,170 | $ | 1,170 | $ | — | $ | — | |||||||||
Interest-bearing deposits with banks | 4,792 | 4,792 | 4,792 | — | — | ||||||||||||||
Investment securities held-to-maturity | 1,871 | 1,886 | — | 1,886 | — | ||||||||||||||
Loans held-for-sale | 6 | 6 | — | 6 | — | ||||||||||||||
Total loans, net of allowance for loan losses (a) | 48,471 | 48,427 | — | — | 48,427 | ||||||||||||||
Customers’ liability on acceptances outstanding | 10 | 10 | 10 | — | — | ||||||||||||||
Nonmarketable equity securities (b) | 11 | 19 | — | — | 19 | ||||||||||||||
Restricted equity investments | 92 | 92 | 92 | — | — | ||||||||||||||
Liabilities | |||||||||||||||||||
Demand deposits (noninterest-bearing) | 27,394 | 27,394 | — | 27,394 | — | ||||||||||||||
Interest-bearing deposits | 25,679 | 25,679 | — | 25,679 | — | ||||||||||||||
Customer certificates of deposit | 4,497 | 4,489 | — | 4,489 | — | ||||||||||||||
Total deposits | 57,570 | 57,562 | — | 57,562 | — | ||||||||||||||
Short-term borrowings | 80 | 80 | 80 | — | — | ||||||||||||||
Acceptances outstanding | 10 | 10 | 10 | — | — | ||||||||||||||
Medium- and long-term debt | 2,686 | 2,677 | — | 2,677 | — | ||||||||||||||
Credit-related financial instruments | (83 | ) | (83 | ) | — | — | (83 | ) | |||||||||||
December 31, 2014 | |||||||||||||||||||
Assets | |||||||||||||||||||
Cash and due from banks | $ | 1,026 | $ | 1,026 | $ | 1,026 | $ | — | $ | — | |||||||||
Interest-bearing deposits with banks | 5,045 | 5,045 | 5,045 | — | — | ||||||||||||||
Investment securities held-to-maturity | 1,935 | 1,933 | — | 1,933 | — | ||||||||||||||
Loans held-for-sale | 5 | 5 | — | 5 | — | ||||||||||||||
Total loans, net of allowance for loan losses (a) | 47,999 | 47,932 | — | — | 47,932 | ||||||||||||||
Customers’ liability on acceptances outstanding | 10 | 10 | 10 | — | — | ||||||||||||||
Nonmarketable equity securities (b) | 11 | 18 | — | — | 18 | ||||||||||||||
Restricted equity investments | 92 | 92 | 92 | — | — | ||||||||||||||
Liabilities | |||||||||||||||||||
Demand deposits (noninterest-bearing) | 27,224 | 27,224 | — | 27,224 | — | ||||||||||||||
Interest-bearing deposits | 25,841 | 25,841 | — | 25,841 | — | ||||||||||||||
Customer certificates of deposit | 4,421 | 4,411 | — | 4,411 | — | ||||||||||||||
Total deposits | 57,486 | 57,476 | — | 57,476 | — | ||||||||||||||
Short-term borrowings | 116 | 116 | 116 | — | — | ||||||||||||||
Acceptances outstanding | 10 | 10 | 10 | — | — | ||||||||||||||
Medium- and long-term debt | 2,679 | 2,681 | — | 2,681 | — | ||||||||||||||
Credit-related financial instruments | (85 | ) | (85 | ) | — | — | (85 | ) |
(a) | Included $60 million and $64 million of impaired loans recorded at fair value on a nonrecurring basis at March 31, 2015 and December 31, 2014, respectively. |
(b) | Included $2 million of nonmarketable equity securities recorded at fair value on a nonrecurring basis at both March 31, 2015 and December 31, 2014. |
11
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
NOTE 3 - INVESTMENT SECURITIES
A summary of the Corporation’s investment securities follows:
(in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||
March 31, 2015 | |||||||||||||||
Investment securities available-for-sale: | |||||||||||||||
U.S. Treasury and other U.S. government agency securities | $ | 526 | $ | 8 | $ | — | $ | 534 | |||||||
Residential mortgage-backed securities (a) | 7,287 | 143 | 23 | 7,407 | |||||||||||
State and municipal securities | 24 | — | 1 | 23 | |||||||||||
Corporate debt securities | 47 | — | — | 47 | |||||||||||
Equity and other non-debt securities | 202 | 1 | — | 203 | |||||||||||
Total investment securities available-for-sale (b) | $ | 8,086 | $ | 152 | $ | 24 | $ | 8,214 | |||||||
Investment securities held-to-maturity (c): | |||||||||||||||
Residential mortgage-backed securities (a) | $ | 1,871 | $ | 15 | $ | — | $ | 1,886 | |||||||
December 31, 2014 | |||||||||||||||
Investment securities available-for-sale: | |||||||||||||||
U.S. Treasury and other U.S. government agency securities | $ | 526 | $ | — | $ | — | $ | 526 | |||||||
Residential mortgage-backed securities (a) | 7,192 | 122 | 40 | 7,274 | |||||||||||
State and municipal securities | 24 | — | 1 | 23 | |||||||||||
Corporate debt securities | 51 | — | — | 51 | |||||||||||
Equity and other non-debt securities | 242 | 1 | 1 | 242 | |||||||||||
Total investment securities available-for-sale (b) | $ | 8,035 | $ | 123 | $ | 42 | $ | 8,116 | |||||||
Investment securities held-to-maturity (c): | |||||||||||||||
Residential mortgage-backed securities (a) | $ | 1,935 | $ | — | $ | 2 | $ | 1,933 |
(a) | Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. |
(b) | Included auction-rate securities at amortized cost and fair value of $95 million as of March 31, 2015 and $137 million and $136 million, respectively, as of December 31, 2014. |
(c) | Investment securities transferred from available-for-sale are reclassified at fair value at the time of transfer. The amortized cost of investment securities held-to-maturity included gross unrealized gains and gross unrealized losses of $8 million and $29 million, respectively, at March 31, 2015 and $9 million and $32 million, respectively, at December 31, 2014, related to securities transferred, which are included in accumulated other comprehensive loss. |
12
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
A summary of the Corporation’s investment securities in an unrealized loss position as of March 31, 2015 and December 31, 2014 follows:
Temporarily Impaired | ||||||||||||||||||||||||||
Less than 12 Months | 12 Months or more | Total | ||||||||||||||||||||||||
(in millions) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||
March 31, 2015 | ||||||||||||||||||||||||||
U.S. Treasury and other U.S. government agency securities | $ | 10 | $ | — | (a) | $ | — | $ | — | $ | 10 | $ | — | (a) | ||||||||||||
Residential mortgage-backed securities (b) | 625 | 3 | 2,270 | 40 | 2,895 | 43 | ||||||||||||||||||||
State and municipal securities (c) | — | — | 23 | 1 | 23 | 1 | ||||||||||||||||||||
Corporate debt securities (c) | — | — | 1 | — | (a) | 1 | — | (a) | ||||||||||||||||||
Equity and other non-debt securities (c) | — | — | 14 | — | (a) | 14 | — | (a) | ||||||||||||||||||
Total temporarily impaired securities | $ | 635 | $ | 3 | $ | 2,308 | $ | 41 | $ | 2,943 | $ | 44 | ||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||||
U.S. Treasury and other U.S. government agency securities | $ | 298 | $ | — | (a) | $ | — | $ | — | $ | 298 | $ | — | (a) | ||||||||||||
Residential mortgage-backed securities (b) | 626 | 3 | 3,112 | 71 | 3,738 | 74 | ||||||||||||||||||||
State and municipal securities (c) | — | — | 22 | 1 | 22 | 1 | ||||||||||||||||||||
Corporate debt securities (c) | — | — | 1 | — | (a) | 1 | — | (a) | ||||||||||||||||||
Equity and other non-debt securities (c) | — | — | 112 | 1 | 112 | 1 | ||||||||||||||||||||
Total temporarily impaired securities | $ | 924 | $ | 3 | $ | 3,247 | $ | 73 | $ | 4,171 | $ | 76 |
(a) | Unrealized losses less than $0.5 million. |
(b) | Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises. |
(c) | Auction-rate securities. |
At March 31, 2015, the Corporation had 96 securities in an unrealized loss position with no credit impairment, including 65 residential mortgage-backed securities, 12 equity and other non-debt auction-rate preferred securities, 17 state and municipal auction-rate securities, one corporate auction-rate debt security and one U.S. Treasury security. As of March 31, 2015, approximately 93 percent of the aggregate par value of auction-rate securities have been redeemed or sold since acquisition, of which approximately 92 percent were redeemed at or above cost. The unrealized losses for these securities resulted from changes in market interest rates and liquidity. The Corporation ultimately expects full collection of the carrying amount of these securities, does not intend to sell the securities in an unrealized loss position, and it is not more-likely-than-not that the Corporation will be required to sell the securities in an unrealized loss position prior to recovery of amortized cost. The Corporation does not consider these securities to be other-than-temporarily impaired at March 31, 2015.
13
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
Sales, calls and write-downs of investment securities available-for-sale resulted in the following gains and losses recorded in “net securities (losses) gains” on the consolidated statements of comprehensive income, computed based on the adjusted cost of the specific security.
Three Months Ended March 31, | |||||||
(in millions) | 2015 | 2014 | |||||
Securities gains | $ | — | $ | 1 | |||
Securities losses | (2 | ) | — | ||||
Net securities (losses) gains | $ | (2 | ) | $ | 1 |
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) | Available-for-sale | Held-to-maturity | |||||||||||||
March 31, 2015 | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||
Contractual maturity | |||||||||||||||
Within one year | $ | 70 | $ | 71 | $ | — | $ | — | |||||||
After one year through five years | 689 | 697 | — | — | |||||||||||
After five years through ten years | 922 | 968 | — | — | |||||||||||
After ten years | 6,203 | 6,275 | 1,871 | 1,886 | |||||||||||
Subtotal | 7,884 | 8,011 | 1,871 | 1,886 | |||||||||||
Equity and other non-debt securities | 202 | 203 | |||||||||||||
Total investment securities | $ | 8,086 | $ | 8,214 | $ | 1,871 | $ | 1,886 |
Included in the contractual maturity distribution in the table above were residential mortgage-backed securities available-for-sale with total amortized cost and fair value of $7.3 billion and $7.4 billion, respectively, and residential mortgage-backed securities held-to-maturity with a total amortized cost and fair value of $1.9 billion. The actual cash flows of mortgage-backed securities may differ from contractual maturity as the borrowers of the underlying loans may exercise prepayment options.
At March 31, 2015, investment securities with a carrying value of $3.1 billion were pledged where permitted or required by law to secure $2.2 billion of liabilities, primarily public and other deposits of state and local government agencies and derivative instruments.
14
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
NOTE 4 – CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES
The following table presents an aging analysis of the recorded balance of loans.
Loans Past Due and Still Accruing | |||||||||||||||||||||||||||
(in millions) | 30-59 Days | 60-89 Days | 90 Days or More | Total | Nonaccrual Loans | Current Loans | Total Loans | ||||||||||||||||||||
March 31, 2015 | |||||||||||||||||||||||||||
Business loans: | |||||||||||||||||||||||||||
Commercial | $ | 53 | $ | 14 | $ | 7 | $ | 74 | $ | 113 | $ | 31,904 | $ | 32,091 | |||||||||||||
Real estate construction: | |||||||||||||||||||||||||||
Commercial Real Estate business line (a) | 2 | — | — | 2 | — | 1,573 | 1,575 | ||||||||||||||||||||
Other business lines (b) | 8 | — | — | 8 | 1 | 333 | 342 | ||||||||||||||||||||
Total real estate construction | 10 | — | — | 10 | 1 | 1,906 | 1,917 | ||||||||||||||||||||
Commercial mortgage: | |||||||||||||||||||||||||||
Commercial Real Estate business line (a) | 19 | 3 | 2 | 24 | 20 | 1,763 | 1,807 | ||||||||||||||||||||
Other business lines (b) | 14 | 5 | 2 | 21 | 62 | 6,668 | 6,751 | ||||||||||||||||||||
Total commercial mortgage | 33 | 8 | 4 | 45 | 82 | 8,431 | 8,558 | ||||||||||||||||||||
Lease financing | — | — | — | — | — | 792 | 792 | ||||||||||||||||||||
International | 4 | 3 | — | 7 | 1 | 1,425 | 1,433 | ||||||||||||||||||||
Total business loans | 100 | 25 | 11 | 136 | 197 | 44,458 | 44,791 | ||||||||||||||||||||
Retail loans: | |||||||||||||||||||||||||||
Residential mortgage | 9 | 1 | — | 10 | 37 | 1,812 | 1,859 | ||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||
Home equity | 6 | 2 | 1 | 9 | 31 | 1,638 | 1,678 | ||||||||||||||||||||
Other consumer | 2 | — | — | 2 | 1 | 741 | 744 | ||||||||||||||||||||
Total consumer | 8 | 2 | 1 | 11 | 32 | 2,379 | 2,422 | ||||||||||||||||||||
Total retail loans | 17 | 3 | 1 | 21 | 69 | 4,191 | 4,281 | ||||||||||||||||||||
Total loans | $ | 117 | $ | 28 | $ | 12 | $ | 157 | $ | 266 | $ | 48,649 | $ | 49,072 | |||||||||||||
December 31, 2014 | |||||||||||||||||||||||||||
Business loans: | |||||||||||||||||||||||||||
Commercial | $ | 58 | $ | 13 | $ | 1 | $ | 72 | $ | 109 | $ | 31,339 | $ | 31,520 | |||||||||||||
Real estate construction: | |||||||||||||||||||||||||||
Commercial Real Estate business line (a) | 3 | — | — | 3 | 1 | 1,602 | 1,606 | ||||||||||||||||||||
Other business lines (b) | 12 | — | — | 12 | 1 | 336 | 349 | ||||||||||||||||||||
Total real estate construction | 15 | — | — | 15 | 2 | 1,938 | 1,955 | ||||||||||||||||||||
Commercial mortgage: | |||||||||||||||||||||||||||
Commercial Real Estate business line (a) | 8 | 1 | 1 | 10 | 22 | 1,758 | 1,790 | ||||||||||||||||||||
Other business lines (b) | 16 | 12 | 2 | 30 | 73 | 6,711 | 6,814 | ||||||||||||||||||||
Total commercial mortgage | 24 | 13 | 3 | 40 | 95 | 8,469 | 8,604 | ||||||||||||||||||||
Lease financing | — | — | — | — | — | 805 | 805 | ||||||||||||||||||||
International | 9 | — | — | 9 | — | 1,487 | 1,496 | ||||||||||||||||||||
Total business loans | 106 | 26 | 4 | 136 | 206 | 44,038 | 44,380 | ||||||||||||||||||||
Retail loans: | |||||||||||||||||||||||||||
Residential mortgage | 9 | 2 | — | 11 | 36 | 1,784 | 1,831 | ||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||
Home equity | 5 | 3 | — | 8 | 30 | 1,620 | 1,658 | ||||||||||||||||||||
Other consumer | 12 | — | 1 | 13 | 1 | 710 | 724 | ||||||||||||||||||||
Total consumer | 17 | 3 | 1 | 21 | 31 | 2,330 | 2,382 | ||||||||||||||||||||
Total retail loans | 26 | 5 | 1 | 32 | 67 | 4,114 | 4,213 | ||||||||||||||||||||
Total loans | $ | 132 | $ | 31 | $ | 5 | $ | 168 | $ | 273 | $ | 48,152 | $ | 48,593 |
(a) | Primarily loans to real estate developers. |
(b) | Primarily loans secured by owner-occupied real estate. |
15
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
The following table presents loans by credit quality indicator, based on internal risk ratings assigned to each business loan at the time of approval and subjected to subsequent reviews, generally at least annually, and to pools of retail loans with similar risk characteristics.
Internally Assigned Rating | |||||||||||||||||||
(in millions) | Pass (a) | Special Mention (b) | Substandard (c) | Nonaccrual (d) | Total | ||||||||||||||
March 31, 2015 | |||||||||||||||||||
Business loans: | |||||||||||||||||||
Commercial | $ | 30,739 | $ | 572 | $ | 667 | $ | 113 | $ | 32,091 | |||||||||
Real estate construction: | |||||||||||||||||||
Commercial Real Estate business line (e) | 1,563 | 12 | — | — | 1,575 | ||||||||||||||
Other business lines (f) | 333 | — | 8 | 1 | 342 | ||||||||||||||
Total real estate construction | 1,896 | 12 | 8 | 1 | 1,917 | ||||||||||||||
Commercial mortgage: | |||||||||||||||||||
Commercial Real Estate business line (e) | 1,685 | 62 | 40 | 20 | 1,807 | ||||||||||||||
Other business lines (f) | 6,348 | 177 | 164 | 62 | 6,751 | ||||||||||||||
Total commercial mortgage | 8,033 | 239 | 204 | 82 | 8,558 | ||||||||||||||
Lease financing | 766 | 17 | 9 | — | 792 | ||||||||||||||
International | 1,394 | 17 | 21 | 1 | 1,433 | ||||||||||||||
Total business loans | 42,828 | 857 | 909 | 197 | 44,791 | ||||||||||||||
Retail loans: | |||||||||||||||||||
Residential mortgage | 1,809 | — | 13 | 37 | 1,859 | ||||||||||||||
Consumer: | |||||||||||||||||||
Home equity | 1,639 | — | 8 | 31 | 1,678 | ||||||||||||||
Other consumer | 729 | 2 | 12 | 1 | 744 | ||||||||||||||
Total consumer | 2,368 | 2 | 20 | 32 | 2,422 | ||||||||||||||
Total retail loans | 4,177 | 2 | 33 | 69 | 4,281 | ||||||||||||||
Total loans | $ | 47,005 | $ | 859 | $ | 942 | $ | 266 | $ | 49,072 | |||||||||
December 31, 2014 | |||||||||||||||||||
Business loans: | |||||||||||||||||||
Commercial | $ | 30,310 | $ | 560 | $ | 541 | $ | 109 | $ | 31,520 | |||||||||
Real estate construction: | |||||||||||||||||||
Commercial Real Estate business line (e) | 1,594 | 11 | — | 1 | 1,606 | ||||||||||||||
Other business lines (f) | 336 | 7 | 5 | 1 | 349 | ||||||||||||||
Total real estate construction | 1,930 | 18 | 5 | 2 | 1,955 | ||||||||||||||
Commercial mortgage: | |||||||||||||||||||
Commercial Real Estate business line (e) | 1,652 | 69 | 47 | 22 | 1,790 | ||||||||||||||
Other business lines (f) | 6,434 | 138 | 169 | 73 | 6,814 | ||||||||||||||
Total commercial mortgage | 8,086 | 207 | 216 | 95 | 8,604 | ||||||||||||||
Lease financing | 778 | 26 | 1 | — | 805 | ||||||||||||||
International | 1,468 | 15 | 13 | — | 1,496 | ||||||||||||||
Total business loans | 42,572 | 826 | 776 | 206 | 44,380 | ||||||||||||||
Retail loans: | |||||||||||||||||||
Residential mortgage | 1,790 | 2 | 3 | 36 | 1,831 | ||||||||||||||
Consumer: | |||||||||||||||||||
Home equity | 1,620 | — | 8 | 30 | 1,658 | ||||||||||||||
Other consumer | 718 | 3 | 2 | 1 | 724 | ||||||||||||||
Total consumer | 2,338 | 3 | 10 | 31 | 2,382 | ||||||||||||||
Total retail loans | 4,128 | 5 | 13 | 67 | 4,213 | ||||||||||||||
Total loans | $ | 46,700 | $ | 831 | $ | 789 | $ | 273 | $ | 48,593 |
(a) | Includes all loans not included in the categories of special mention, substandard or nonaccrual. |
(b) | Special mention loans are accruing loans that have potential credit weaknesses that deserve management’s close attention, such as loans to borrowers who may be experiencing financial difficulties that may result in deterioration of repayment prospects from the borrower at some future date. |
(c) | Substandard loans are accruing loans that have a well-defined weakness, or weaknesses, such as loans to borrowers who may be experiencing losses from operations or inadequate liquidity of a degree and duration that jeopardizes the orderly repayment of the loan. Substandard loans also are distinguished by the distinct possibility of loss in the future if these weaknesses are not corrected. This category is generally consistent with the "substandard" category as defined by regulatory authorities. |
(d) | Nonaccrual loans are loans for which the accrual of interest has been discontinued. For further information regarding nonaccrual loans, refer to the Nonperforming Assets subheading in Note 1 - Basis of Presentation and Accounting Policies - on page F-55 in the Corporation's 2014 Annual Report. A significant majority of nonaccrual loans are generally consistent with the "substandard" category and the remainder are generally consistent with the "doubtful" category as defined by regulatory authorities. |
(e) | Primarily loans to real estate developers. |
(f) | Primarily loans secured by owner-occupied real estate. |
16
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
The following table summarizes nonperforming assets.
(in millions) | March 31, 2015 | December 31, 2014 | |||||
Nonaccrual loans | $ | 266 | $ | 273 | |||
Reduced-rate loans (a) | 13 | 17 | |||||
Total nonperforming loans | 279 | 290 | |||||
Foreclosed property (b) | 9 | 10 | |||||
Total nonperforming assets | $ | 288 | $ | 300 |
(a) | Reduced-rate business loans were zero at both March 31, 2015 and December 31, 2014, and reduced-rate retail loans were $13 million and $17 million at March 31, 2015 and December 31, 2014, respectively. |
(b) | Foreclosed residential real estate properties. |
Nonaccrual loans included retail loans secured by residential real estate properties in process of foreclosure of $3 million at March 31, 2015.
Allowance for Credit Losses
The following table details the changes in the allowance for loan losses and related loan amounts.
2015 | 2014 | ||||||||||||||||||||||
(in millions) | Business Loans | Retail Loans | Total | Business Loans | Retail Loans | Total | |||||||||||||||||
Three Months Ended March 31 | |||||||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||
Balance at beginning of period | $ | 534 | $ | 60 | $ | 594 | $ | 531 | $ | 67 | $ | 598 | |||||||||||
Loan charge-offs | (21 | ) | (2 | ) | (23 | ) | (27 | ) | (3 | ) | (30 | ) | |||||||||||
Recoveries on loans previously charged-off | 12 | 3 | 15 | 16 | 2 | 18 | |||||||||||||||||
Net loan charge-offs | (9 | ) | 1 | (8 | ) | (11 | ) | (1 | ) | (12 | ) | ||||||||||||
Provision for loan losses | 17 | (1 | ) | 16 | 10 | (2 | ) | 8 | |||||||||||||||
Foreign currency translation adjustment | (1 | ) | — | (1 | ) | — | — | — | |||||||||||||||
Balance at end of period | $ | 541 | $ | 60 | $ | 601 | $ | 530 | $ | 64 | $ | 594 | |||||||||||
As a percentage of total loans | 1.21 | % | 1.39 | % | 1.22 | % | 1.25 | % | 1.62 | % | 1.28 | % | |||||||||||
March 31 | |||||||||||||||||||||||
Allowance for loan losses: | |||||||||||||||||||||||
Individually evaluated for impairment | $ | 31 | $ | — | $ | 31 | $ | 39 | $ | — | $ | 39 | |||||||||||
Collectively evaluated for impairment | 510 | 60 | 570 | 491 | 64 | 555 | |||||||||||||||||
Total allowance for loan losses | $ | 541 | $ | 60 | $ | 601 | $ | 530 | $ | 64 | $ | 594 | |||||||||||
Loans: | |||||||||||||||||||||||
Individually evaluated for impairment | $ | 169 | $ | 37 | $ | 206 | $ | 204 | $ | 49 | $ | 253 | |||||||||||
Collectively evaluated for impairment | 44,622 | 4,242 | 48,864 | 42,315 | 3,916 | 46,231 | |||||||||||||||||
Purchased credit impaired (PCI) loans | — | 2 | 2 | 2 | 3 | 5 | |||||||||||||||||
Total loans evaluated for impairment | $ | 44,791 | $ | 4,281 | $ | 49,072 | $ | 42,521 | $ | 3,968 | $ | 46,489 |
Changes in the allowance for credit losses on lending-related commitments, included in "accrued expenses and other liabilities" on the consolidated balance sheets, are summarized in the following table.
Three Months Ended March 31, | |||||||
(in millions) | 2015 | 2014 | |||||
Balance at beginning of period | $ | 41 | $ | 36 | |||
Provision for credit losses on lending-related commitments | (2 | ) | 1 | ||||
Balance at end of period | $ | 39 | $ | 37 |
17
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
Individually Evaluated Impaired Loans
The following table presents additional information regarding individually evaluated impaired loans.
Recorded Investment In: | |||||||||||||||||||
(in millions) | Impaired Loans with No Related Allowance | Impaired Loans with Related Allowance | Total Impaired Loans | Unpaid Principal Balance | Related Allowance for Loan Losses | ||||||||||||||
March 31, 2015 | |||||||||||||||||||
Business loans: | |||||||||||||||||||
Commercial | $ | 3 | $ | 105 | $ | 108 | $ | 152 | $ | 22 | |||||||||
Commercial mortgage: | |||||||||||||||||||
Commercial Real Estate business line (a) | — | 18 | 18 | 39 | 7 | ||||||||||||||
Other business lines (b) | 4 | 38 | 42 | 61 | 1 | ||||||||||||||
Total commercial mortgage | 4 | 56 | 60 | 100 | 8 | ||||||||||||||
International | — | 1 | 1 | 3 | 1 | ||||||||||||||
Total business loans | 7 | 162 | 169 | 255 | 31 | ||||||||||||||
Retail loans: | |||||||||||||||||||
Residential mortgage | 22 |