COMERICA INC /NEW/ - Quarter Report: 2021 September (Form 10-Q)
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 September 30, 2021
Or
☐ | 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 October 27, 2021: 131,148,664 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) | September 30, 2021 | December 31, 2020 | |||||||||
(unaudited) | (recast) | ||||||||||
ASSETS | |||||||||||
Cash and due from banks | $ | 1,050 | $ | 1,031 | |||||||
Interest-bearing deposits with banks | 22,539 | 14,736 | |||||||||
Other short-term investments | 187 | 172 | |||||||||
Investment securities available-for-sale | 16,846 | 15,028 | |||||||||
Commercial loans | 28,355 | 32,753 | |||||||||
Real estate construction loans | 3,010 | 4,082 | |||||||||
Commercial mortgage loans | 11,215 | 9,912 | |||||||||
Lease financing | 569 | 594 | |||||||||
International loans | 1,131 | 926 | |||||||||
Residential mortgage loans | 1,813 | 1,830 | |||||||||
Consumer loans | 2,102 | 2,194 | |||||||||
Total loans | 48,195 | 52,291 | |||||||||
Allowance for loan losses | (609) | (948) | |||||||||
Net loans | 47,586 | 51,343 | |||||||||
Premises and equipment | 447 | 459 | |||||||||
Accrued income and other assets | 5,874 | 5,360 | |||||||||
Total assets | $ | 94,529 | $ | 88,129 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
Noninterest-bearing deposits | $ | 44,093 | $ | 39,420 | |||||||
Money market and interest-bearing checking deposits | 32,932 | 28,540 | |||||||||
Savings deposits | 3,125 | 2,710 | |||||||||
Customer certificates of deposit | 2,091 | 2,133 | |||||||||
Foreign office time deposits | 43 | 66 | |||||||||
Total interest-bearing deposits | 38,191 | 33,449 | |||||||||
Total deposits | 82,284 | 72,869 | |||||||||
Accrued expenses and other liabilities | 1,605 | 1,482 | |||||||||
Medium- and long-term debt | 2,837 | 5,728 | |||||||||
Total liabilities | 86,726 | 80,079 | |||||||||
Fixed rate reset non-cumulative perpetual preferred stock, series A, no par value, $100,000 liquidation preference per share: | |||||||||||
Authorized - 4,000 shares | |||||||||||
Issued - 4,000 shares | 394 | 394 | |||||||||
Common stock - $5 par value: | |||||||||||
Authorized - 325,000,000 shares | |||||||||||
Issued - 228,164,824 shares | 1,141 | 1,141 | |||||||||
Capital surplus | 2,170 | 2,185 | |||||||||
Accumulated other comprehensive (loss) income | (207) | 64 | |||||||||
Retained earnings | 10,366 | 9,727 | |||||||||
Less cost of common stock in treasury - 97,158,441 shares at 9/30/2021 and 88,997,430 shares at 12/31/2020 | (6,061) | (5,461) | |||||||||
Total shareholders’ equity | 7,803 | 8,050 | |||||||||
Total liabilities and shareholders’ equity | $ | 94,529 | $ | 88,129 |
See notes to consolidated financial statements (unaudited).
1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Comerica Incorporated and Subsidiaries
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(in millions, except per share data) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
(recast) | (recast) | ||||||||||||||||||||||
INTEREST INCOME | |||||||||||||||||||||||
Interest and fees on loans | $ | 411 | $ | 408 | $ | 1,201 | $ | 1,359 | |||||||||||||||
Interest on investment securities | 70 | 72 | 209 | 220 | |||||||||||||||||||
Interest on short-term investments | 8 | 4 | 17 | 25 | |||||||||||||||||||
Total interest income | 489 | 484 | 1,427 | 1,604 | |||||||||||||||||||
INTEREST EXPENSE | |||||||||||||||||||||||
Interest on deposits | 5 | 15 | 17 | 91 | |||||||||||||||||||
Interest on short-term borrowings | — | — | — | 1 | |||||||||||||||||||
Interest on medium- and long-term debt | 9 | 11 | 27 | 70 | |||||||||||||||||||
Total interest expense | 14 | 26 | 44 | 162 | |||||||||||||||||||
Net interest income | 475 | 458 | 1,383 | 1,442 | |||||||||||||||||||
Provision for credit losses | (42) | 5 | (359) | 554 | |||||||||||||||||||
Net interest income after provision for credit losses | 517 | 453 | 1,742 | 888 | |||||||||||||||||||
NONINTEREST INCOME | |||||||||||||||||||||||
Card fees | 72 | 71 | 227 | 198 | |||||||||||||||||||
Fiduciary income | 58 | 51 | 171 | 157 | |||||||||||||||||||
Service charges on deposit accounts | 50 | 47 | 145 | 138 | |||||||||||||||||||
Commercial lending fees | 31 | 19 | 76 | 53 | |||||||||||||||||||
Derivative income | 20 | 9 | 72 | 48 | |||||||||||||||||||
Bank-owned life insurance | 12 | 12 | 32 | 33 | |||||||||||||||||||
Letter of credit fees | 10 | 9 | 30 | 27 | |||||||||||||||||||
Brokerage fees | 3 | 5 | 11 | 17 | |||||||||||||||||||
Other noninterest income | 24 | 29 | 70 | 65 | |||||||||||||||||||
Total noninterest income | 280 | 252 | 834 | 736 | |||||||||||||||||||
NONINTEREST EXPENSES | |||||||||||||||||||||||
Salaries and benefits expense | 282 | 257 | 841 | 748 | |||||||||||||||||||
Outside processing fee expense | 65 | 58 | 200 | 177 | |||||||||||||||||||
Occupancy expense | 40 | 40 | 117 | 114 | |||||||||||||||||||
Software expense | 40 | 39 | 117 | 115 | |||||||||||||||||||
Equipment expense | 13 | 12 | 38 | 36 | |||||||||||||||||||
Advertising expense | 10 | 9 | 25 | 24 | |||||||||||||||||||
FDIC insurance expense | 4 | 8 | 17 | 24 | |||||||||||||||||||
Other noninterest expenses | 11 | 15 | 20 | 51 | |||||||||||||||||||
Total noninterest expenses | 465 | 438 | 1,375 | 1,289 | |||||||||||||||||||
Income before income taxes | 332 | 267 | 1,201 | 335 | |||||||||||||||||||
Provision for income taxes | 70 | 50 | 261 | 59 | |||||||||||||||||||
NET INCOME | 262 | 217 | 940 | 276 | |||||||||||||||||||
Less: | |||||||||||||||||||||||
Income allocated to participating securities | 1 | — | 4 | 1 | |||||||||||||||||||
Preferred stock dividends | 6 | 8 | 17 | 8 | |||||||||||||||||||
Net income attributable to common shares | $ | 255 | $ | 209 | $ | 919 | $ | 267 | |||||||||||||||
Earnings per common share: | |||||||||||||||||||||||
Basic | $ | 1.92 | $ | 1.49 | $ | 6.75 | $ | 1.91 | |||||||||||||||
Diluted | 1.90 | 1.48 | 6.67 | 1.90 | |||||||||||||||||||
Comprehensive income | 175 | 169 | 669 | 610 | |||||||||||||||||||
Cash dividends declared on common stock | 89 | 94 | 276 | 284 | |||||||||||||||||||
Cash dividends declared per common share | 0.68 | 0.68 | 2.04 | 2.04 |
See notes to consolidated financial statements (unaudited).
2
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
Comerica Incorporated and Subsidiaries
Accumulated | ||||||||||||||||||||||||||
Nonredeemable | Common Stock | Other | Total | |||||||||||||||||||||||
Preferred | Shares | Capital | Comprehensive | Retained | Treasury | Shareholders' | ||||||||||||||||||||
(in millions, except per share data) | Stock | Outstanding | Amount | Surplus | Income (Loss) | Earnings | Stock | Equity | ||||||||||||||||||
BALANCE AT JUNE 30, 2020 (recast) | $ | 395 | 139.0 | $ | 1,141 | $ | 2,173 | $ | 66 | $ | 9,496 | $ | (5,469) | $ | 7,802 | |||||||||||
Net income | — | — | — | — | — | 217 | — | 217 | ||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (48) | — | — | (48) | ||||||||||||||||||
Cash dividends declared on common stock ($0.68 per share) | — | — | — | — | — | (94) | — | (94) | ||||||||||||||||||
Cash dividends on preferred stock | — | — | — | — | — | (8) | — | (8) | ||||||||||||||||||
Issuance of preferred stock | (1) | — | — | — | — | — | — | (1) | ||||||||||||||||||
Net issuance of common stock under employee stock plans | — | 0.1 | — | — | — | (2) | 2 | — | ||||||||||||||||||
Share-based compensation | — | — | — | 6 | — | — | — | 6 | ||||||||||||||||||
BALANCE AT SEPTEMBER 30, 2020 (recast) | $ | 394 | 139.1 | $ | 1,141 | $ | 2,179 | $ | 18 | $ | 9,609 | $ | (5,467) | $ | 7,874 | |||||||||||
BALANCE AT JUNE 30, 2021 | $ | 394 | 133.9 | $ | 1,141 | $ | 2,163 | $ | (120) | $ | 10,202 | $ | (5,849) | $ | 7,931 | |||||||||||
Net income | — | — | — | — | — | 262 | — | 262 | ||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (87) | — | — | (87) | ||||||||||||||||||
Cash dividends declared on common stock ($0.68 per share) | — | — | — | — | — | (89) | — | (89) | ||||||||||||||||||
Cash dividends declared on preferred stock | — | — | — | — | — | (6) | — | (6) | ||||||||||||||||||
Purchase of common stock | — | (3.1) | — | — | — | — | (220) | (220) | ||||||||||||||||||
Net issuance of common stock under employee stock plans | — | 0.2 | — | — | — | (3) | 8 | 5 | ||||||||||||||||||
Share-based compensation | — | — | — | 7 | — | — | — | 7 | ||||||||||||||||||
BALANCE AT SEPTEMBER 30, 2021 | $ | 394 | 131.0 | $ | 1,141 | $ | 2,170 | $ | (207) | $ | 10,366 | $ | (6,061) | $ | 7,803 | |||||||||||
BALANCE AT DECEMBER 31, 2019 (recast) | $ | — | 142.1 | $ | 1,141 | $ | 2,174 | $ | (316) | $ | 9,619 | $ | (5,291) | $ | 7,327 | |||||||||||
Cumulative effect of change in accounting principle | — | — | — | — | — | 13 | — | 13 | ||||||||||||||||||
Net income | — | — | — | — | — | 276 | — | 276 | ||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 334 | — | — | 334 | ||||||||||||||||||
Cash dividends declared on common stock ($2.04 per share) | — | — | — | — | — | (284) | — | (284) | ||||||||||||||||||
Cash dividends declared on preferred stock | — | — | — | — | — | (8) | — | (8) | ||||||||||||||||||
Purchase of common stock | — | (3.4) | — | — | — | — | (194) | (194) | ||||||||||||||||||
Issuance of preferred stock | 394 | — | — | — | — | — | — | 394 | ||||||||||||||||||
Net issuance of common stock under employee stock plans | — | 0.4 | — | (13) | — | (7) | 18 | (2) | ||||||||||||||||||
Share-based compensation | — | — | — | 18 | — | — | — | 18 | ||||||||||||||||||
BALANCE AT SEPTEMBER 30, 2020 (recast) | $ | 394 | 139.1 | $ | 1,141 | $ | 2,179 | $ | 18 | $ | 9,609 | $ | (5,467) | $ | 7,874 | |||||||||||
BALANCE AT DECEMBER 31, 2020 (recast) | $ | 394 | 139.2 | $ | 1,141 | $ | 2,185 | $ | 64 | $ | 9,727 | $ | (5,461) | $ | 8,050 | |||||||||||
Net income | — | — | — | — | — | 940 | — | 940 | ||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (271) | — | — | (271) | ||||||||||||||||||
Cash dividends declared on common stock ($2.04 per share) | — | — | — | — | — | (276) | — | (276) | ||||||||||||||||||
Cash dividends declared on preferred stock | — | — | — | — | — | (17) | — | (17) | ||||||||||||||||||
Purchase of common stock | — | (9.0) | — | (24) | — | — | (649) | (673) | ||||||||||||||||||
Net issuance of common stock under employee stock plans | — | 0.8 | — | (27) | — | (8) | 49 | 14 | ||||||||||||||||||
Share-based compensation | — | — | — | 36 | — | — | — | 36 | ||||||||||||||||||
BALANCE AT SEPTEMBER 30, 2021 | $ | 394 | 131.0 | $ | 1,141 | $ | 2,170 | $ | (207) | $ | 10,366 | $ | (6,061) | $ | 7,803 |
See notes to consolidated financial statements (unaudited).
3
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Comerica Incorporated and Subsidiaries
Nine Months Ended September 30, | |||||||||||
(in millions) | 2021 | 2020 | |||||||||
(recast) | |||||||||||
OPERATING ACTIVITIES | |||||||||||
Net income | $ | 940 | $ | 276 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Provision for credit losses | (359) | 554 | |||||||||
Provision (benefit) for deferred income taxes | 119 | (99) | |||||||||
Depreciation and amortization | 76 | 82 | |||||||||
Net periodic defined benefit credit | (61) | (41) | |||||||||
Share-based compensation expense | 36 | 18 | |||||||||
Net amortization of securities | 26 | 7 | |||||||||
Net gains on sales of foreclosed property | — | (1) | |||||||||
Net change in: | |||||||||||
Accrued income receivable | 17 | 32 | |||||||||
Accrued expenses payable | 84 | (50) | |||||||||
Other, net | (673) | (58) | |||||||||
Net cash provided by operating activities | 205 | 720 | |||||||||
INVESTING ACTIVITIES | |||||||||||
Investment securities available-for-sale: | |||||||||||
Maturities and redemptions | 4,203 | 2,344 | |||||||||
Purchases | (6,327) | (4,796) | |||||||||
Net change in loans | 5,222 | (2,185) | |||||||||
Proceeds from sales of foreclosed property | 8 | 3 | |||||||||
Net increase in premises and equipment | (50) | (51) | |||||||||
Federal Home Loan Bank stock: | |||||||||||
Purchases | — | (51) | |||||||||
Redemptions | 115 | 92 | |||||||||
Proceeds from bank-owned life insurance settlements | 10 | 14 | |||||||||
Other, net | (11) | — | |||||||||
Net cash provided by (used in) investing activities | 3,170 | (4,630) | |||||||||
FINANCING ACTIVITIES | |||||||||||
Net change in: | |||||||||||
Deposits | 8,200 | 11,054 | |||||||||
Short-term borrowings | — | (61) | |||||||||
Medium- and long-term debt: | |||||||||||
Maturities and redemptions | (2,800) | (1,675) | |||||||||
Preferred stock: | |||||||||||
Issuance | — | 394 | |||||||||
Cash dividends paid | (17) | — | |||||||||
Common stock: | |||||||||||
Repurchases | (679) | (199) | |||||||||
Cash dividends paid | (281) | (282) | |||||||||
Issuances under employee stock plans | 22 | 2 | |||||||||
Other, net | 2 | — | |||||||||
Net cash provided by financing activities | 4,447 | 9,233 | |||||||||
Net increase in cash and cash equivalents | 7,822 | 5,323 | |||||||||
Cash and cash equivalents at beginning of period | 15,767 | 5,818 | |||||||||
Cash and cash equivalents at end of period | $ | 23,589 | $ | 11,141 | |||||||
Interest paid | $ | 47 | $ | 186 | |||||||
Income taxes paid | 115 | 133 | |||||||||
See notes to consolidated financial statements (unaudited).
4
NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Organization
The accompanying unaudited consolidated financial statements were prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020.
Defined Benefit Pension and Other Postretirement Costs
Effective January 1, 2021, the Corporation elected to change the accounting methodology for determining the market-related value of assets (MRVA) for certain asset classes in the qualified defined benefit pension plan. The MRVA is used to calculate the Corporation's expected return on plan assets, a component of defined pension benefit cost (credit). These classes are currently comprised of the fixed income securities and private placement assets held in the portfolio, utilized by the Corporation to mitigate the impacts to financial results from changes in fair value of the pension liability. Previously, MRVA was measured using a historical five-year average fair value. Under the new methodology, the Corporation calculates MRVA using fair value of plan assets. Although both methods are permitted under U.S. GAAP, the Corporation believes the new policy is preferable for these classes of assets as it results in more timely recognition of the performance of pension assets in the results from operations.
The change in accounting methodology is applied retrospectively to all prior periods presented in the consolidated financial statements. The impact of the change to the qualified defined benefit plan on the Corporation's consolidated financial statements is as follows:
Consolidated Balance Sheets
September 30, 2021 | December 31, 2020 | ||||||||||||||||
(in millions) | Accounting Change Impact | Previously Reported | Accounting Change Impact | Recast Amounts | |||||||||||||
Accumulated other comprehensive (loss) income | $ | (11) | $ | 168 | $ | (104) | $ | 64 | |||||||||
Retained earnings | 11 | 9,623 | 104 | 9,727 |
Consolidated Statements of Comprehensive Income
Three Months Ended September 30, | |||||||||||||||||
2021 | 2020 | ||||||||||||||||
(in millions) | Accounting Change Impact | Previously Reported | Accounting Change Impact | Recast Amounts | |||||||||||||
Other noninterest expenses | $ | (5) | $ | 23 | $ | (8) | $ | 15 | |||||||||
Provision for income taxes | 1 | 48 | 2 | 50 | |||||||||||||
Net income | 4 | 211 | 6 | 217 | |||||||||||||
Earnings per common share: | |||||||||||||||||
Basic | $ | 0.03 | $ | 1.45 | $ | 0.04 | $ | 1.49 | |||||||||
Diluted | 0.03 | 1.44 | 0.04 | 1.48 |
5
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
Nine Months Ended September 30, | |||||||||||||||||
2021 | 2020 | ||||||||||||||||
(in millions) | Accounting Change Impact | Previously Reported | Accounting Change Impact | Recast Amounts | |||||||||||||
Other noninterest expenses | $ | (14) | $ | 73 | $ | (22) | $ | 51 | |||||||||
Provision for income taxes | 3 | 54 | 5 | 59 | |||||||||||||
Net income | 11 | 259 | 17 | 276 | |||||||||||||
Earnings per common share: | |||||||||||||||||
Basic | $ | 0.08 | $ | 1.79 | $ | 0.12 | $ | 1.91 | |||||||||
Diluted | 0.08 | 1.78 | 0.12 | 1.90 |
Consolidated Statements of Cash Flows
Nine Months Ended September 30, | |||||||||||||||||
2021 | 2020 | ||||||||||||||||
(in millions) | Accounting Change Impact | Previously Reported | Accounting Change Impact | Recast Amounts | |||||||||||||
Net income | $ | 11 | $ | 259 | $ | 17 | $ | 276 | |||||||||
Provision (benefit) for deferred income taxes | 3 | (104) | 5 | (99) | |||||||||||||
Net periodic defined benefit credit | (14) | (19) | (22) | (41) |
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 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, 2020 for further information about the fair value hierarchy, descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities recorded at fair value, as well as a description of the methods and significant assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis.
6
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.
(in millions) | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||
Deferred compensation plan assets | $ | 108 | $ | 108 | $ | — | $ | — | |||||||||||||||
Equity securities | 71 | 71 | — | — | |||||||||||||||||||
Investment securities available-for-sale: | |||||||||||||||||||||||
U.S. Treasury securities | 3,429 | 3,429 | — | — | |||||||||||||||||||
Residential mortgage-backed securities (a) | 13,163 | — | 13,163 | — | |||||||||||||||||||
Commercial mortgage-backed securities (a) | 254 | — | 254 | — | |||||||||||||||||||
Total investment securities available-for-sale | 16,846 | 3,429 | 13,417 | — | |||||||||||||||||||
Derivative assets: | |||||||||||||||||||||||
Interest rate contracts | 326 | — | 299 | 27 | |||||||||||||||||||
Energy contracts | 769 | — | 769 | — | |||||||||||||||||||
Foreign exchange contracts | 18 | — | 18 | — | |||||||||||||||||||
Total derivative assets | 1,113 | — | 1,086 | 27 | |||||||||||||||||||
Total assets at fair value | $ | 18,138 | $ | 3,608 | $ | 14,503 | $ | 27 | |||||||||||||||
Derivative liabilities: | |||||||||||||||||||||||
Interest rate contracts | $ | 62 | $ | — | $ | 62 | $ | — | |||||||||||||||
Energy contracts | 764 | — | 764 | — | |||||||||||||||||||
Foreign exchange contracts | 12 | — | 12 | — | |||||||||||||||||||
Total derivative liabilities | 838 | — | 838 | — | |||||||||||||||||||
Deferred compensation plan liabilities | 108 | 108 | — | — | |||||||||||||||||||
Total liabilities at fair value | $ | 946 | $ | 108 | $ | 838 | $ | — | |||||||||||||||
December 31, 2020 | |||||||||||||||||||||||
Deferred compensation plan assets | $ | 107 | $ | 107 | $ | — | $ | — | |||||||||||||||
Equity securities | 60 | 60 | — | — | |||||||||||||||||||
Investment securities available-for-sale: | |||||||||||||||||||||||
U.S. Treasury securities | 4,658 | 4,658 | — | — | |||||||||||||||||||
Residential mortgage-backed securities (a) | 10,370 | — | 10,370 | — | |||||||||||||||||||
Total investment securities available-for-sale | 15,028 | 4,658 | 10,370 | — | |||||||||||||||||||
Derivative assets: | |||||||||||||||||||||||
Interest rate contracts | 531 | — | 492 | 39 | |||||||||||||||||||
Energy contracts | 151 | — | 151 | — | |||||||||||||||||||
Foreign exchange contracts | 18 | — | 18 | — | |||||||||||||||||||
Total derivative assets | 700 | — | 661 | 39 | |||||||||||||||||||
Total assets at fair value | $ | 15,895 | $ | 4,825 | $ | 11,031 | $ | 39 | |||||||||||||||
Derivative liabilities: | |||||||||||||||||||||||
Interest rate contracts | $ | 61 | $ | — | $ | 61 | $ | — | |||||||||||||||
Energy contracts | 149 | — | 149 | — | |||||||||||||||||||
Foreign exchange contracts | 19 | — | 19 | — | |||||||||||||||||||
Total derivative liabilities | 229 | — | 229 | — | |||||||||||||||||||
Deferred compensation plan liabilities | 107 | 107 | — | — | |||||||||||||||||||
Total liabilities at fair value | $ | 336 | $ | 107 | $ | 229 | $ | — |
(a)Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
There were no transfers of assets or liabilities recorded at fair value on a recurring basis into or out of Level 3 fair value measurements during each of the three- and nine-month periods ended September 30, 2021 and 2020.
7
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three- and nine-month periods ended September 30, 2021 and 2020.
Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings (a) | ||||||||||||||||||||||||||||||||
Balance at Beginning of Period | Balance at End of Period | |||||||||||||||||||||||||||||||
Sales | ||||||||||||||||||||||||||||||||
(in millions) | Realized | Unrealized | ||||||||||||||||||||||||||||||
Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||
Interest rate contracts | $ | 29 | $ | — | $ | (2) | $ | — | $ | 27 | ||||||||||||||||||||||
Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||
Interest rate contracts | $ | 44 | $ | — | $ | (2) | $ | — | $ | 42 | ||||||||||||||||||||||
Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||
Interest rate contracts | $ | 39 | $ | — | $ | (12) | $ | — | $ | 27 | ||||||||||||||||||||||
Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||
Interest rate contracts | $ | 22 | $ | — | $ | 20 | $ | — | $ | 42 | ||||||||||||||||||||||
(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 Recorded at Fair Value on a Nonrecurring Basis
The Corporation may be required to record certain assets and liabilities at fair value on a nonrecurring basis. These include assets that are recorded at the lower of cost or fair value, and were recognized at fair value since it was less than cost at the end of the period.
The following table presents assets recorded at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020. No liabilities were recorded at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020.
(in millions) | Level 3 | ||||
September 30, 2021 | |||||
Loans: | |||||
Commercial | $ | 125 | |||
Real estate construction | 4 | ||||
Commercial mortgage | 12 | ||||
International | 7 | ||||
Total assets at fair value | $ | 148 | |||
December 31, 2020 | |||||
Loans: | |||||
Commercial | $ | 134 | |||
Commercial mortgage | 16 | ||||
Total assets at fair value | $ | 150 |
Level 3 assets recorded at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020 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 observable inputs, although they are used in the determination of fair value.
8
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 | |||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Cash and due from banks | $ | 1,050 | $ | 1,050 | $ | 1,050 | $ | — | $ | — | |||||||||||||||||||
Interest-bearing deposits with banks | 22,539 | 22,539 | 22,539 | — | — | ||||||||||||||||||||||||
Loans held-for-sale | 7 | 7 | — | 7 | — | ||||||||||||||||||||||||
Total loans, net of allowance for loan losses (a) | 47,586 | 48,146 | — | — | 48,146 | ||||||||||||||||||||||||
Customers’ liability on acceptances outstanding | 3 | 3 | 3 | — | — | ||||||||||||||||||||||||
Restricted equity investments | 92 | 92 | 92 | — | — | ||||||||||||||||||||||||
Nonmarketable equity securities (b) | 6 | 10 | |||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Demand deposits (noninterest-bearing) | 44,093 | 44,093 | — | 44,093 | — | ||||||||||||||||||||||||
Interest-bearing deposits | 36,100 | 36,100 | — | 36,100 | — | ||||||||||||||||||||||||
Customer certificates of deposit | 2,091 | 2,090 | — | 2,090 | — | ||||||||||||||||||||||||
Total deposits | 82,284 | 82,283 | — | 82,283 | — | ||||||||||||||||||||||||
Acceptances outstanding | 3 | 3 | 3 | — | — | ||||||||||||||||||||||||
Medium- and long-term debt | 2,837 | 2,904 | — | 2,904 | — | ||||||||||||||||||||||||
Credit-related financial instruments | (51) | (51) | — | — | (51) | ||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Cash and due from banks | $ | 1,031 | $ | 1,031 | $ | 1,031 | $ | — | $ | — | |||||||||||||||||||
Interest-bearing deposits with banks | 14,736 | 14,736 | 14,736 | — | — | ||||||||||||||||||||||||
Loans held-for-sale | 5 | 5 | — | 5 | — | ||||||||||||||||||||||||
Total loans, net of allowance for loan losses (a) | 51,343 | 50,601 | — | — | 50,601 | ||||||||||||||||||||||||
Customers’ liability on acceptances outstanding | 1 | 1 | 1 | — | — | ||||||||||||||||||||||||
Restricted equity investments | 207 | 207 | 207 | — | — | ||||||||||||||||||||||||
Nonmarketable equity securities (b) | 5 | 9 | |||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Demand deposits (noninterest-bearing) | 39,420 | 39,420 | — | 39,420 | — | ||||||||||||||||||||||||
Interest-bearing deposits | 31,316 | 31,316 | — | 31,316 | — | ||||||||||||||||||||||||
Customer certificates of deposit | 2,133 | 2,133 | — | 2,133 | — | ||||||||||||||||||||||||
Total deposits | 72,869 | 72,869 | — | 72,869 | — | ||||||||||||||||||||||||
Acceptances outstanding | 1 | 1 | 1 | — | — | ||||||||||||||||||||||||
Medium- and long-term debt | 5,728 | 5,790 | — | 5,790 | — | ||||||||||||||||||||||||
Credit-related financial instruments | (68) | (68) | — | — | (68) |
(a)Included $148 million and $150 million of loans recorded at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020, respectively.
(b)Certain investments that are measured at fair value using the net asset value have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.
9
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 | |||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||
Investment securities available-for-sale: | |||||||||||||||||||||||
U.S. Treasury securities | $ | 3,417 | $ | 34 | $ | 22 | $ | 3,429 | |||||||||||||||
Residential mortgage-backed securities (a) | 13,175 | 114 | 126 | 13,163 | |||||||||||||||||||
Commercial mortgage-backed securities (a) | 258 | — | 4 | 254 | |||||||||||||||||||
Total investment securities available-for-sale | $ | 16,850 | $ | 148 | $ | 152 | $ | 16,846 | |||||||||||||||
December 31, 2020 | |||||||||||||||||||||||
Investment securities available-for-sale: | |||||||||||||||||||||||
U.S. Treasury securities | $ | 4,583 | $ | 76 | $ | 1 | $ | 4,658 | |||||||||||||||
Residential mortgage-backed securities (a) | 10,169 | 203 | 2 | 10,370 | |||||||||||||||||||
Total investment securities available-for-sale | $ | 14,752 | $ | 279 | $ | 3 | $ | 15,028 | |||||||||||||||
(a)Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
A summary of the Corporation’s investment securities in an unrealized loss position as of September 30, 2021 and December 31, 2020 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 | |||||||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 992 | $ | 8 | $ | 832 | $ | 14 | $ | 1,824 | $ | 22 | |||||||||||||||||||||||
Residential mortgage-backed securities (a) | 6,872 | 107 | 391 | 19 | 7,263 | 126 | |||||||||||||||||||||||||||||
Commercial mortgage-backed securities (a) | 254 | 4 | — | — | 254 | 4 | |||||||||||||||||||||||||||||
Total temporarily impaired securities | $ | 8,118 | $ | 119 | $ | 1,223 | $ | 33 | $ | 9,341 | $ | 152 | |||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 1,119 | $ | 1 | $ | — | $ | — | $ | 1,119 | $ | 1 | |||||||||||||||||||||||
Residential mortgage-backed securities (a) | 952 | 2 | — | — | 952 | 2 | |||||||||||||||||||||||||||||
Total temporarily impaired securities | $ | 2,071 | $ | 3 | $ | — | $ | — | $ | 2,071 | $ | 3 |
(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. At September 30, 2021, the Corporation had 390 securities in an unrealized loss position with no allowance for credit losses, comprised of 20 U.S. Treasury securities, 345 residential mortgage-backed securities and 25 commercial mortgage-backed securities.
10
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
Interest receivable on investment securities totaled $22 million at September 30, 2021 and $18 million at December 31, 2020 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, computed based on the adjusted cost of the specific security, resulted in no gains or losses during the three months ended September 30, 2021 or September 30, 2020 or the nine months ended September 30, 2021. There were $1 million of gains and $1 million of losses for the nine months ended September 30, 2020.
The following table summarizes the amortized cost and fair values of debt securities by contractual maturity. Securities with multiple maturity dates are classified in the period of final maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(in millions) | |||||||||||
September 30, 2021 | Amortized Cost | Fair Value | |||||||||
Contractual maturity | |||||||||||
Within one year | $ | 469 | $ | 472 | |||||||
After one year through five years | 3,143 | 3,163 | |||||||||
After five years through ten years | 902 | 915 | |||||||||
After ten years | 12,336 | 12,296 | |||||||||
Total investment securities | $ | 16,850 | $ | 16,846 |
Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with a total amortized cost and fair value of $13.2 billion and commercial mortgage-backed securities with a total amortized cost of $258 million and a fair value of $254 million. The actual cash flows of mortgage-backed securities may differ as borrowers of the underlying loans may exercise prepayment options.
At September 30, 2021, investment securities with a carrying value of $3.9 billion were pledged where permitted or required by law, including $2.4 billion pledged to the Federal Home Loan Bank (FHLB) as collateral for potential future borrowings of approximately $2.3 billion and $1.4 billion to secure $926 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.
11
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 | |||||||||||||||||||||||||||||||||||||||||
(in millions) | 30-59 Days | 60-89 Days | 90 Days or More | Total | Nonaccrual Loans | Current Loans (a) | Total Loans | ||||||||||||||||||||||||||||||||||
September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
Business loans: | |||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 51 | $ | 6 | $ | 3 | $ | 60 | $ | 200 | $ | 28,095 | $ | 28,355 | |||||||||||||||||||||||||||
Real estate construction: | |||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate business line (b) | 17 | — | — | 17 | — | 2,471 | 2,488 | ||||||||||||||||||||||||||||||||||
Other business lines (c) | — | 6 | 3 | 9 | 6 | 507 | 522 | ||||||||||||||||||||||||||||||||||
Total real estate construction | 17 | 6 | 3 | 26 | 6 | 2,978 | 3,010 | ||||||||||||||||||||||||||||||||||
Commercial mortgage: | |||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate business line (b) | 7 | — | — | 7 | 2 | 3,404 | 3,413 | ||||||||||||||||||||||||||||||||||
Other business lines (c) | 34 | 11 | 1 | 46 | 28 | 7,728 | 7,802 | ||||||||||||||||||||||||||||||||||
Total commercial mortgage | 41 | 11 | 1 | 53 | 30 | 11,132 | 11,215 | ||||||||||||||||||||||||||||||||||
Lease financing | 6 | — | — | 6 | — | 563 | 569 | ||||||||||||||||||||||||||||||||||
International | 9 | 1 | 1 | 11 | 8 | 1,112 | 1,131 | ||||||||||||||||||||||||||||||||||
Total business loans | 124 | 24 | 8 | 156 | 244 | 43,880 | 44,280 | ||||||||||||||||||||||||||||||||||
Retail loans: | |||||||||||||||||||||||||||||||||||||||||
Residential mortgage | 12 | 1 | — | 13 | 35 | 1,765 | 1,813 | ||||||||||||||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||||||||||||||
Home equity | 7 | 1 | — | 8 | 12 | 1,537 | 1,557 | ||||||||||||||||||||||||||||||||||
Other consumer | — | — | 4 | 4 | — | 541 | 545 | ||||||||||||||||||||||||||||||||||
Total consumer | 7 | 1 | 4 | 12 | 12 | 2,078 | 2,102 | ||||||||||||||||||||||||||||||||||
Total retail loans | 19 | 2 | 4 | 25 | 47 | 3,843 | 3,915 | ||||||||||||||||||||||||||||||||||
Total loans | $ | 143 | $ | 26 | $ | 12 | $ | 181 | $ | 291 | $ | 47,723 | $ | 48,195 | |||||||||||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
Business loans: | |||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 62 | $ | 115 | $ | 33 | $ | 210 | $ | 252 | $ | 32,291 | $ | 32,753 | |||||||||||||||||||||||||||
Real estate construction: | |||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate business line (b) | 31 | — | — | 31 | — | 3,626 | 3,657 | ||||||||||||||||||||||||||||||||||
Other business lines (c) | 9 | — | — | 9 | 1 | 415 | 425 | ||||||||||||||||||||||||||||||||||
Total real estate construction | 40 | — | — | 40 | 1 | 4,041 | 4,082 | ||||||||||||||||||||||||||||||||||
Commercial mortgage: | |||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate business line (b) | 51 | 1 | — | 52 | 3 | 2,218 | 2,273 | ||||||||||||||||||||||||||||||||||
Other business lines (c) | 48 | 40 | 5 | 93 | 26 | 7,520 | 7,639 | ||||||||||||||||||||||||||||||||||
Total commercial mortgage | 99 | 41 | 5 | 145 | 29 | 9,738 | 9,912 | ||||||||||||||||||||||||||||||||||
Lease financing | 14 | — | 1 | 15 | 1 | 578 | 594 | ||||||||||||||||||||||||||||||||||
International | — | — | — | — | — | 926 | 926 | ||||||||||||||||||||||||||||||||||
Total business loans | 215 | 156 | 39 | 410 | 283 | 47,574 | 48,267 | ||||||||||||||||||||||||||||||||||
Retail loans: | |||||||||||||||||||||||||||||||||||||||||
Residential mortgage | 11 | 4 | — | 15 | 47 | 1,768 | 1,830 | ||||||||||||||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||||||||||||||
Home equity | 7 | 1 | — | 8 | 17 | 1,563 | 1,588 | ||||||||||||||||||||||||||||||||||
Other consumer | 10 | — | 6 | 16 | — | 590 | 606 | ||||||||||||||||||||||||||||||||||
Total consumer | 17 | 1 | 6 | 24 | 17 | 2,153 | 2,194 | ||||||||||||||||||||||||||||||||||
Total retail loans | 28 | 5 | 6 | 39 | 64 | 3,921 | 4,024 | ||||||||||||||||||||||||||||||||||
Total loans | $ | 243 | $ | 161 | $ | 45 | $ | 449 | $ | 347 | $ | 51,495 | $ | 52,291 |
(a)Includes $35 million and $141 million of loans with deferred payments not considered past due in accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) at September 30, 2021 and December 31, 2020, respectively.
(b)Primarily loans to real estate developers.
(c)Primarily loans secured by owner-occupied real estate.
12
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.
September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Vintage Year | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolvers | Revolvers Converted to Term | Total | ||||||||||||||||||||||||||||||||||||||||||||
Business loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | $ | 3,891 | (b) | $ | 2,149 | (b) | $ | 1,670 | $ | 1,122 | $ | 779 | $ | 863 | $ | 16,606 | $ | 12 | $ | 27,092 | |||||||||||||||||||||||||||||||||
Criticized (c) | 67 | 102 | 138 | 93 | 33 | 143 | 685 | 2 | 1,263 | ||||||||||||||||||||||||||||||||||||||||||||
Total commercial | 3,958 | 2,251 | 1,808 | 1,215 | 812 | 1,006 | 17,291 | 14 | 28,355 | ||||||||||||||||||||||||||||||||||||||||||||
Real estate construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 262 | 899 | 977 | 425 | 189 | 35 | 157 | — | 2,944 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | — | 3 | 30 | 14 | 8 | 8 | 3 | — | 66 | ||||||||||||||||||||||||||||||||||||||||||||
Total real estate construction | 262 | 902 | 1,007 | 439 | 197 | 43 | 160 | — | 3,010 | ||||||||||||||||||||||||||||||||||||||||||||
Commercial mortgage | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 1,655 | 2,003 | 1,504 | 1,547 | 1,135 | 2,588 | 445 | — | 10,877 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | 11 | 44 | 66 | 30 | 27 | 151 | 9 | — | 338 | ||||||||||||||||||||||||||||||||||||||||||||
Total commercial mortgage | 1,666 | 2,047 | 1,570 | 1,577 | 1,162 | 2,739 | 454 | — | 11,215 | ||||||||||||||||||||||||||||||||||||||||||||
Lease financing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 62 | 93 | 103 | 54 | 40 | 183 | — | — | 535 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | — | 2 | 21 | 9 | 1 | 1 | — | — | 34 | ||||||||||||||||||||||||||||||||||||||||||||
Total lease financing | 62 | 95 | 124 | 63 | 41 | 184 | — | — | 569 | ||||||||||||||||||||||||||||||||||||||||||||
International | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 281 | 135 | 154 | 31 | 4 | 16 | 448 | — | 1,069 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | 20 | 13 | 3 | 8 | 4 | 8 | 6 | — | 62 | ||||||||||||||||||||||||||||||||||||||||||||
Total international | 301 | 148 | 157 | 39 | 8 | 24 | 454 | — | 1,131 | ||||||||||||||||||||||||||||||||||||||||||||
Total business loans | 6,249 | 5,443 | 4,666 | 3,333 | 2,220 | 3,996 | 18,359 | 14 | 44,280 | ||||||||||||||||||||||||||||||||||||||||||||
Retail loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 363 | 577 | 187 | 85 | 122 | 443 | — | — | 1,777 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | 1 | — | 1 | 2 | 7 | 25 | — | — | 36 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage | 364 | 577 | 188 | 87 | 129 | 468 | — | — | 1,813 | ||||||||||||||||||||||||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Home equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | — | — | — | — | — | 13 | 1,477 | 52 | 1,542 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | — | — | — | — | — | — | 10 | 5 | 15 | ||||||||||||||||||||||||||||||||||||||||||||
Total home equity | — | — | — | — | — | 13 | 1,487 | 57 | 1,557 | ||||||||||||||||||||||||||||||||||||||||||||
Other consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 68 | 72 | 17 | 9 | 1 | 33 | 341 | — | 541 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | — | — | — | — | — | — | 4 | — | 4 | ||||||||||||||||||||||||||||||||||||||||||||
Total other consumer | 68 | 72 | 17 | 9 | 1 | 33 | 345 | — | 545 | ||||||||||||||||||||||||||||||||||||||||||||
Total consumer | 68 | 72 | 17 | 9 | 1 | 46 | 1,832 | 57 | 2,102 | ||||||||||||||||||||||||||||||||||||||||||||
Total retail loans | 432 | 649 | 205 | 96 | 130 | 514 | 1,832 | 57 | 3,915 | ||||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 6,681 | $ | 6,092 | $ | 4,871 | $ | 3,429 | $ | 2,350 | $ | 4,510 | $ | 20,191 | $ | 71 | $ | 48,195 | |||||||||||||||||||||||||||||||||||
Table continues on the following page. |
13
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Vintage Year | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolvers | Revolvers Converted to Term | Total | |||||||||||||||||||||||||||||||||||||||||||||
Business loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | $ | 5,991 | (b) | $ | 2,316 | $ | 1,563 | $ | 1,051 | $ | 429 | $ | 755 | $ | 18,416 | $ | 17 | $ | 30,538 | ||||||||||||||||||||||||||||||||||
Criticized (c) | 30 | 281 | 191 | 116 | 64 | 166 | 1,365 | 2 | 2,215 | ||||||||||||||||||||||||||||||||||||||||||||
Total commercial | 6,021 | 2,597 | 1,754 | 1,167 | 493 | 921 | 19,781 | 19 | 32,753 | ||||||||||||||||||||||||||||||||||||||||||||
Real estate construction: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 433 | 1,080 | 1,244 | 631 | 335 | 141 | 171 | — | 4,035 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | 3 | 28 | 5 | 8 | — | 1 | 2 | — | 47 | ||||||||||||||||||||||||||||||||||||||||||||
Total real estate construction | 436 | 1,108 | 1,249 | 639 | 335 | 142 | 173 | — | 4,082 | ||||||||||||||||||||||||||||||||||||||||||||
Commercial mortgage: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 2,053 | 1,559 | 1,146 | 1,120 | 818 | 2,272 | 431 | — | 9,399 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | 47 | 130 | 42 | 45 | 41 | 193 | 15 | — | 513 | ||||||||||||||||||||||||||||||||||||||||||||
Total commercial mortgage | 2,100 | 1,689 | 1,188 | 1,165 | 859 | 2,465 | 446 | — | 9,912 | ||||||||||||||||||||||||||||||||||||||||||||
Lease financing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 109 | 122 | 71 | 50 | 14 | 201 | — | — | 567 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | 2 | 17 | 5 | 2 | 1 | — | — | — | 27 | ||||||||||||||||||||||||||||||||||||||||||||
Total lease financing | 111 | 139 | 76 | 52 | 15 | 201 | — | — | 594 | ||||||||||||||||||||||||||||||||||||||||||||
International | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 274 | 161 | 103 | 11 | 3 | 64 | 245 | — | 861 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | 13 | 8 | 18 | 4 | 7 | 2 | 13 | — | 65 | ||||||||||||||||||||||||||||||||||||||||||||
Total international | 287 | 169 | 121 | 15 | 10 | 66 | 258 | — | 926 | ||||||||||||||||||||||||||||||||||||||||||||
Total business loans | 8,955 | 5,702 | 4,388 | 3,038 | 1,712 | 3,795 | 20,658 | 19 | 48,267 | ||||||||||||||||||||||||||||||||||||||||||||
Retail loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 639 | 230 | 119 | 197 | 196 | 398 | — | — | 1,779 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | 7 | 2 | 2 | 6 | 2 | 32 | — | — | 51 | ||||||||||||||||||||||||||||||||||||||||||||
Total residential mortgage | 646 | 232 | 121 | 203 | 198 | 430 | — | — | 1,830 | ||||||||||||||||||||||||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Home equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | — | — | — | — | — | 15 | 1,489 | 63 | 1,567 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | — | — | — | — | — | 1 | 13 | 7 | 21 | ||||||||||||||||||||||||||||||||||||||||||||
Total home equity | — | — | — | — | — | 16 | 1,502 | 70 | 1,588 | ||||||||||||||||||||||||||||||||||||||||||||
Other consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass (a) | 113 | 23 | 12 | 2 | 3 | 41 | 404 | — | 598 | ||||||||||||||||||||||||||||||||||||||||||||
Criticized (c) | — | — | 2 | — | — | — | 6 | — | 8 | ||||||||||||||||||||||||||||||||||||||||||||
Total other consumer | 113 | 23 | 14 | 2 | 3 | 41 | 410 | — | 606 | ||||||||||||||||||||||||||||||||||||||||||||
Total consumer | 113 | 23 | 14 | 2 | 3 | 57 | 1,912 | 70 | 2,194 | ||||||||||||||||||||||||||||||||||||||||||||
Total retail loans | 759 | 255 | 135 | 205 | 201 | 487 | 1,912 | 70 | 4,024 | ||||||||||||||||||||||||||||||||||||||||||||
Total loans | $ | 9,714 | $ | 5,957 | $ | 4,523 | $ | 3,243 | $ | 1,913 | $ | 4,282 | $ | 22,570 | $ | 89 | $ | 52,291 |
(a)Includes all loans not included in the categories of special mention, substandard or nonaccrual.
(b)Includes Small Business Administration Paycheck Protection Program (PPP) loans of $627 million and $393 million in 2021 and 2020, respectively, at September 30, 2021, and PPP loans of $3.5 billion in 2020 at December 31, 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-59 in the Corporation's 2020 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 $118 million and $141 million at September 30, 2021 and December 31, 2020, respectively, and was included in accrued income and other assets on the Consolidated Balance Sheets.
14
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.
2021 | 2020 | ||||||||||||||||||||||||||||||||||
(in millions) | Business Loans | Retail Loans | Total | Business Loans | Retail Loans | Total | |||||||||||||||||||||||||||||
Three Months Ended September 30 | |||||||||||||||||||||||||||||||||||
Balance at beginning of period: | |||||||||||||||||||||||||||||||||||
Allowance for loan losses | $ | 589 | $ | 63 | $ | 652 | $ | 943 | $ | 64 | $ | 1,007 | |||||||||||||||||||||||
Allowance for credit losses on lending-related commitments | 24 | 7 | 31 | 50 | 9 | 59 | |||||||||||||||||||||||||||||
Allowance for credit losses | 613 | 70 | 683 | 993 | 73 | 1,066 | |||||||||||||||||||||||||||||
Loan charge-offs | (26) | — | (26) | (53) | — | (53) | |||||||||||||||||||||||||||||
Recoveries on loans previously charged-off | 22 | 2 | 24 | 18 | 2 | 20 | |||||||||||||||||||||||||||||
Net loan (charge-offs) recoveries | (4) | 2 | (2) | (35) | 2 | (33) | |||||||||||||||||||||||||||||
Provision for credit losses: | |||||||||||||||||||||||||||||||||||
Provision for loan losses | (31) | (10) | (41) | 15 | (11) | 4 | |||||||||||||||||||||||||||||
Provision for credit losses on lending-related commitments | — | (1) | (1) | 1 | — | 1 | |||||||||||||||||||||||||||||
Provision for credit losses | (31) | (11) | (42) | 16 | (11) | 5 | |||||||||||||||||||||||||||||
Balance at end of period: | |||||||||||||||||||||||||||||||||||
Allowance for loan losses | 554 | 55 | 609 | 923 | 55 | 978 | |||||||||||||||||||||||||||||
Allowance for credit losses on lending-related commitments | 24 | 6 | 30 | 51 | 9 | 60 | |||||||||||||||||||||||||||||
Allowance for credit losses | $ | 578 | $ | 61 | $ | 639 | $ | 974 | $ | 64 | $ | 1,038 | |||||||||||||||||||||||
Nine Months Ended September 30 | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | |||||||||||||||||||||||||||||||||||
Allowance for loan losses | $ | 895 | $ | 53 | $ | 948 | $ | 601 | $ | 36 | $ | 637 | |||||||||||||||||||||||
Allowance for credit losses on lending-related commitments | 35 | 9 | 44 | 28 | 3 | 31 | |||||||||||||||||||||||||||||
Allowance for credit losses | 930 | 62 | 992 | 629 | 39 | 668 | |||||||||||||||||||||||||||||
Cumulative effect of change in accounting principle | — | — | — | (42) | 25 | (17) | |||||||||||||||||||||||||||||
Loan charge-offs | (48) | (2) | (50) | (196) | (3) | (199) | |||||||||||||||||||||||||||||
Recoveries on loans previously charged-off | 53 | 3 | 56 | 29 | 3 | 32 | |||||||||||||||||||||||||||||
Net loan recoveries (charge-offs) | 5 | 1 | 6 | (167) | — | (167) | |||||||||||||||||||||||||||||
Provision for credit losses: | |||||||||||||||||||||||||||||||||||
Provision for loan losses | (346) | 1 | (345) | 531 | (6) | 525 | |||||||||||||||||||||||||||||
Provision for credit losses on lending-related commitments | (11) | (3) | (14) | 23 | 6 | 29 | |||||||||||||||||||||||||||||
Provision for credit losses | (357) | (2) | (359) | 554 | — | 554 | |||||||||||||||||||||||||||||
Balance at end of period: | |||||||||||||||||||||||||||||||||||
Allowance for loan losses | 554 | 55 | 609 | 923 | 55 | 978 | |||||||||||||||||||||||||||||
Allowance for credit losses on lending-related commitments | 24 | 6 | 30 | 51 | 9 | 60 | |||||||||||||||||||||||||||||
Allowance for credit losses | $ | 578 | $ | 61 | $ | 639 | $ | 974 | $ | 64 | $ | 1,038 | |||||||||||||||||||||||
Allowance for loan losses as a percentage of total loans | 1.25 | % | 1.42 | % | 1.26 | % | 1.91 | % | 1.35 | % | 1.87 | % | |||||||||||||||||||||||
Allowance for loan losses as a |