COMERICA INC /NEW/ - Quarter Report: 2022 March (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 March 31, 2022
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 April 25, 2022: 130,760,307 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, 2022 | December 31, 2021 | |||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Cash and due from banks | $ | 1,466 | $ | 1,236 | |||||||
| Interest-bearing deposits with banks | 12,084 | 21,443 | |||||||||
| Other short-term investments | 181 | 197 | |||||||||
| Investment securities available-for-sale | 18,810 | 16,986 | |||||||||
| Commercial loans | 29,562 | 29,366 | |||||||||
| Real estate construction loans | 2,301 | 2,948 | |||||||||
| Commercial mortgage loans | 11,992 | 11,255 | |||||||||
| Lease financing | 644 | 640 | |||||||||
| International loans | 1,248 | 1,208 | |||||||||
| Residential mortgage loans | 1,769 | 1,771 | |||||||||
| Consumer loans | 2,047 | 2,097 | |||||||||
| Total loans | 49,563 | 49,285 | |||||||||
| Allowance for loan losses | (554) | (588) | |||||||||
| Net loans | 49,009 | 48,697 | |||||||||
| Premises and equipment | 444 | 454 | |||||||||
| Accrued income and other assets | 7,171 | 5,603 | |||||||||
| Total assets | $ | 89,165 | $ | 94,616 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Noninterest-bearing deposits | $ | 42,677 | $ | 45,800 | |||||||
| Money market and interest-bearing checking deposits | 29,746 | 31,349 | |||||||||
| Savings deposits | 3,300 | 3,167 | |||||||||
| Customer certificates of deposit | 1,854 | 1,973 | |||||||||
| Foreign office time deposits | 31 | 50 | |||||||||
| Total interest-bearing deposits | 34,931 | 36,539 | |||||||||
| Total deposits | 77,608 | 82,339 | |||||||||
| Accrued expenses and other liabilities | 1,839 | 1,584 | |||||||||
| Medium- and long-term debt | 2,682 | 2,796 | |||||||||
| Total liabilities | 82,129 | 86,719 | |||||||||
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 | 2,194 | 2,175 | |||||||||
| Accumulated other comprehensive loss | (1,173) | (212) | |||||||||
| Retained earnings | 10,585 | 10,494 | |||||||||
Less cost of common stock in treasury - 97,435,493 shares at 3/31/2022 and 97,476,872 shares at 12/31/2021 | (6,105) | (6,095) | |||||||||
| Total shareholders’ equity | 7,036 | 7,897 | |||||||||
| Total liabilities and shareholders’ equity | $ | 89,165 | $ | 94,616 | |||||||
See notes to consolidated financial statements (unaudited).
1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Comerica Incorporated and Subsidiaries
| Three Months Ended March 31, | |||||||||||
| (in millions, except per share data) | 2022 | 2021 | |||||||||
| INTEREST INCOME | |||||||||||
| Interest and fees on loans | $ | 383 | $ | 386 | |||||||
| Interest on investment securities | 77 | 69 | |||||||||
| Interest on short-term investments | 9 | 4 | |||||||||
| Total interest income | 469 | 459 | |||||||||
| INTEREST EXPENSE | |||||||||||
| Interest on deposits | 4 | 7 | |||||||||
| Interest on medium- and long-term debt | 9 | 9 | |||||||||
| Total interest expense | 13 | 16 | |||||||||
| Net interest income | 456 | 443 | |||||||||
| Provision for credit losses | (11) | (182) | |||||||||
| Net interest income after provision for credit losses | 467 | 625 | |||||||||
| NONINTEREST INCOME | |||||||||||
| Card fees | 69 | 71 | |||||||||
| Fiduciary income | 58 | 53 | |||||||||
| Service charges on deposit accounts | 48 | 48 | |||||||||
| Commercial lending fees | 22 | 18 | |||||||||
| Derivative income | 22 | 30 | |||||||||
| Bank-owned life insurance | 13 | 11 | |||||||||
| Letter of credit fees | 9 | 10 | |||||||||
| Brokerage fees | 4 | 4 | |||||||||
| Other noninterest income | (1) | 25 | |||||||||
| Total noninterest income | 244 | 270 | |||||||||
| NONINTEREST EXPENSES | |||||||||||
| Salaries and benefits expense | 289 | 282 | |||||||||
| Outside processing fee expense | 62 | 64 | |||||||||
| Software expense | 39 | 39 | |||||||||
| Occupancy expense | 38 | 39 | |||||||||
| Equipment expense | 11 | 12 | |||||||||
| FDIC insurance expense | 8 | 6 | |||||||||
| Advertising expense | 7 | 6 | |||||||||
| Other noninterest expenses | 19 | (1) | |||||||||
| Total noninterest expenses | 473 | 447 | |||||||||
| Income before income taxes | 238 | 448 | |||||||||
| Provision for income taxes | 49 | 98 | |||||||||
| NET INCOME | 189 | 350 | |||||||||
| Less: | |||||||||||
| Income allocated to participating securities | 1 | 1 | |||||||||
| Preferred stock dividends | 6 | 6 | |||||||||
| Net income attributable to common shares | $ | 182 | $ | 343 | |||||||
| Earnings per common share: | |||||||||||
| Basic | $ | 1.39 | $ | 2.46 | |||||||
| Diluted | 1.37 | 2.43 | |||||||||
| Comprehensive (loss) income | (772) | 181 | |||||||||
| Cash dividends declared on common stock | 89 | 95 | |||||||||
| Cash dividends declared per common share | 0.68 | 0.68 | |||||||||
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 DECEMBER 31, 2020 | $ | 394 | 139.2 | $ | 1,141 | $ | 2,185 | $ | 64 | $ | 9,727 | $ | (5,461) | $ | 8,050 | |||||||||||
| Net income | — | — | — | — | — | 350 | — | 350 | ||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (169) | — | — | (169) | ||||||||||||||||||
Cash dividends declared on common stock ($0.68 per share) | — | — | — | — | — | (95) | — | (95) | ||||||||||||||||||
| Cash dividends declared on preferred stock | — | — | — | — | — | (6) | — | (6) | ||||||||||||||||||
| Purchase of common stock | — | (0.1) | — | — | — | — | (3) | (3) | ||||||||||||||||||
| Net issuance of common stock under employee stock plans | — | 0.5 | — | (24) | — | (1) | 28 | 3 | ||||||||||||||||||
| Share-based compensation | — | — | — | 22 | — | — | — | 22 | ||||||||||||||||||
| BALANCE AT MARCH 31, 2021 | $ | 394 | 139.6 | $ | 1,141 | $ | 2,183 | $ | (105) | $ | 9,975 | $ | (5,436) | $ | 8,152 | |||||||||||
| BALANCE AT DECEMBER 31, 2021 | $ | 394 | 130.7 | $ | 1,141 | $ | 2,175 | $ | (212) | $ | 10,494 | $ | (6,095) | $ | 7,897 | |||||||||||
| Net income | — | — | — | — | — | 189 | — | 189 | ||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (961) | — | — | (961) | ||||||||||||||||||
Cash dividends declared on common stock ($0.68 per share) | — | — | — | — | — | (89) | — | (89) | ||||||||||||||||||
| Cash dividends declared on preferred stock | — | — | — | — | — | (6) | — | (6) | ||||||||||||||||||
| Purchase of common stock | — | (0.4) | — | — | — | — | (36) | (36) | ||||||||||||||||||
| Net issuance of common stock under employee stock plans | — | 0.4 | — | (9) | — | (3) | 26 | 14 | ||||||||||||||||||
| Share-based compensation | — | — | — | 28 | — | — | — | 28 | ||||||||||||||||||
| BALANCE AT MARCH 31, 2022 | $ | 394 | 130.7 | $ | 1,141 | $ | 2,194 | $ | (1,173) | $ | 10,585 | $ | (6,105) | $ | 7,036 | |||||||||||
See notes to consolidated financial statements (unaudited).
3
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Comerica Incorporated and Subsidiaries
| Three Months Ended March 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income | $ | 189 | $ | 350 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Provision for credit losses | (11) | (182) | |||||||||
| (Benefit) provision for deferred income taxes | (2) | 39 | |||||||||
| Depreciation and amortization | 23 | 25 | |||||||||
| Net periodic defined benefit credit | (22) | (20) | |||||||||
| Share-based compensation expense | 28 | 22 | |||||||||
| Net amortization of securities | 10 | 8 | |||||||||
| Net change in: | |||||||||||
| Accrued income receivable | (1) | (5) | |||||||||
| Accrued expenses payable | (93) | 26 | |||||||||
| Other, net | (831) | (104) | |||||||||
| Net cash (used in) provided by operating activities | (710) | 159 | |||||||||
| INVESTING ACTIVITIES | |||||||||||
| Investment securities available-for-sale: | |||||||||||
| Maturities and redemptions | 806 | 992 | |||||||||
| Purchases | (3,605) | (1,750) | |||||||||
| Net change in loans | (391) | 1,685 | |||||||||
| Net increase in premises and equipment | (17) | (18) | |||||||||
| Federal Home Loan Bank stock: | |||||||||||
| Redemptions | — | 115 | |||||||||
| Proceeds from bank-owned life insurance settlements | 8 | 5 | |||||||||
| Other, net | 2 | (21) | |||||||||
| Net cash (used in) provided by investing activities | (3,197) | 1,008 | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Net change in: | |||||||||||
| Deposits | (5,104) | 824 | |||||||||
| Medium- and long-term debt: | |||||||||||
| Maturities and redemptions | — | (2,800) | |||||||||
| Preferred stock: | |||||||||||
| Cash dividends paid | (6) | (6) | |||||||||
| Common stock: | |||||||||||
| Repurchases | (39) | (8) | |||||||||
| Cash dividends paid | (89) | (95) | |||||||||
| Issuances under employee stock plans | 18 | 10 | |||||||||
| Other, net | (2) | 12 | |||||||||
| Net cash used in financing activities | (5,222) | (2,063) | |||||||||
| Net decrease in cash and cash equivalents | (9,129) | (896) | |||||||||
| Cash and cash equivalents at beginning of period | 22,679 | 15,767 | |||||||||
| Cash and cash equivalents at end of period | $ | 13,550 | $ | 14,871 | |||||||
| Interest paid | $ | 16 | $ | 20 | |||||||
| Income taxes paid | 5 | 1 | |||||||||
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 three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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, 2021.
Recently Issued Accounting Pronouncements
In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructuring and Vintage Disclosures” (ASU 2022-02), which eliminates the accounting for troubled debt restructuring (TDR) while expanding modification and vintage disclosure requirements. Under the previous guidance, a TDR occurs when a loan to a borrower experiencing financial difficulty is restructured with a concession provided that a creditor would not otherwise consider. ASU 2022-02 removes the TDR accounting model, instead requiring modifications to apply existing refinancing and restructuring guidance. The update also requires additional disclosures on the nature, magnitude and subsequent performance of certain types of modifications with borrowers experiencing financial difficulties. ASU 2022-02 further included a requirement to disclose gross charge-offs incurred by year of origination of the related loan or lease. ASU 2022-02 is effective for the Corporation on January 1, 2023, and must be applied prospectively, except that the recognition and measurement of TDRs may be applied using a modified retrospective approach. Early adoption is permitted. The Corporation is evaluating the impact of the new guidance to its disclosures but does not expect there to be a material impact on its financial condition or results of operation.
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, 2021 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.
5
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 March 31, 2022 and December 31, 2021.
| (in millions) | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||
| Deferred compensation plan assets | $ | 106 | $ | 106 | $ | — | $ | — | |||||||||||||||
| Equity securities | 54 | 54 | — | — | |||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| U.S. Treasury securities | 2,832 | 2,832 | — | — | |||||||||||||||||||
| Residential mortgage-backed securities (a) | 13,973 | — | 13,973 | — | |||||||||||||||||||
| Commercial mortgage-backed securities (a) | 2,005 | — | 2,005 | — | |||||||||||||||||||
| Total investment securities available-for-sale | 18,810 | 2,832 | 15,978 | — | |||||||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate contracts | 131 | — | 119 | 12 | |||||||||||||||||||
| Energy contracts | 1,673 | — | 1,673 | — | |||||||||||||||||||
| Foreign exchange contracts | 32 | — | 32 | — | |||||||||||||||||||
| Total derivative assets | 1,836 | — | 1,824 | 12 | |||||||||||||||||||
| Total assets at fair value | $ | 20,806 | $ | 2,992 | $ | 17,802 | $ | 12 | |||||||||||||||
| Derivative liabilities: | |||||||||||||||||||||||
| Interest rate contracts | $ | 253 | $ | — | $ | 253 | $ | — | |||||||||||||||
| Energy contracts | 1,669 | — | 1,669 | — | |||||||||||||||||||
| Foreign exchange contracts | 26 | — | 26 | — | |||||||||||||||||||
| Other financial derivative | 12 | — | — | 12 | |||||||||||||||||||
| Total derivative liabilities | 1,960 | — | 1,948 | 12 | |||||||||||||||||||
| Deferred compensation plan liabilities | 106 | 106 | — | — | |||||||||||||||||||
| Total liabilities at fair value | $ | 2,066 | $ | 106 | $ | 1,948 | $ | 12 | |||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Deferred compensation plan assets | $ | 113 | $ | 113 | $ | — | $ | — | |||||||||||||||
| Equity securities | 62 | 62 | — | — | |||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| U.S. Treasury securities | 2,993 | 2,993 | — | — | |||||||||||||||||||
| Residential mortgage-backed securities (a) | 13,288 | — | 13,288 | — | |||||||||||||||||||
| Commercial mortgage-backed securities (a) | 705 | — | 705 | — | |||||||||||||||||||
| Total investment securities available-for-sale | 16,986 | 2,993 | 13,993 | — | |||||||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate contracts | 239 | — | 213 | 26 | |||||||||||||||||||
| Energy contracts | 670 | — | 670 | — | |||||||||||||||||||
| Foreign exchange contracts | 19 | — | 19 | — | |||||||||||||||||||
| Total derivative assets | 928 | — | 902 | 26 | |||||||||||||||||||
| Total assets at fair value | $ | 18,089 | $ | 3,168 | $ | 14,895 | $ | 26 | |||||||||||||||
| Derivative liabilities: | |||||||||||||||||||||||
| Interest rate contracts | $ | 69 | $ | — | $ | 69 | $ | — | |||||||||||||||
| Energy contracts | 662 | — | 662 | — | |||||||||||||||||||
| Foreign exchange contracts | 16 | — | 16 | — | |||||||||||||||||||
| Other financial derivative | 13 | — | — | 13 | |||||||||||||||||||
| Total derivative liabilities | 760 | — | 747 | 13 | |||||||||||||||||||
| Deferred compensation plan liabilities | 113 | 113 | — | — | |||||||||||||||||||
| Total liabilities at fair value | $ | 873 | $ | 113 | $ | 747 | $ | 13 | |||||||||||||||
(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-month periods ended March 31, 2022 and 2021.
6
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, 2022 and 2021.
| Net Realized/Unrealized Gains (Losses) (Pretax) Recorded in Earnings (a) | |||||||||||||||||||||||
| (in millions) | Balance at Beginning of Period | Realized | Unrealized | Balance at End of Period | |||||||||||||||||||
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate contracts | $ | 26 | $ | — | $ | (14) | $ | 12 | |||||||||||||||
| Derivative liabilities: | |||||||||||||||||||||||
| Other financial derivative | (13) | — | 1 | (12) | |||||||||||||||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate contracts | $ | 39 | $ | — | $ | (15) | $ | 24 | |||||||||||||||
| Derivative liabilities: | |||||||||||||||||||||||
| Other financial derivative | (11) | — | — | (11) | |||||||||||||||||||
(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 March 31, 2022 and December 31, 2021. No liabilities were recorded at fair value on a nonrecurring basis at March 31, 2022 and December 31, 2021.
| (in millions) | Level 3 | ||||
| March 31, 2022 | |||||
| Loans: | |||||
| Commercial | $ | 58 | |||
| Real estate construction | 2 | ||||
| Commercial mortgage | 13 | ||||
| Total assets at fair value | $ | 73 | |||
| December 31, 2021 | |||||
| Loans: | |||||
| Commercial | $ | 125 | |||
| Real estate construction | 4 | ||||
| Commercial mortgage | 17 | ||||
| International | 4 | ||||
| Total assets at fair value | $ | 150 | |||
Level 3 assets recorded at fair value on a nonrecurring basis at March 31, 2022 and December 31, 2021 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.
7
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, 2022 | |||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | 1,466 | $ | 1,466 | $ | 1,466 | $ | — | $ | — | |||||||||||||||||||
| Interest-bearing deposits with banks | 12,084 | 12,084 | 12,084 | — | — | ||||||||||||||||||||||||
| Other short-term investments | 16 | 16 | 16 | — | — | ||||||||||||||||||||||||
| Loans held-for-sale | 6 | 6 | — | 6 | — | ||||||||||||||||||||||||
| Total loans, net of allowance for loan losses (a) | 49,009 | 47,919 | — | — | 47,919 | ||||||||||||||||||||||||
| Customers’ liability on acceptances outstanding | 3 | 3 | 3 | — | — | ||||||||||||||||||||||||
| Restricted equity investments | 92 | 92 | 92 | — | — | ||||||||||||||||||||||||
| Nonmarketable equity securities (b) | 4 | 11 | |||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| Demand deposits (noninterest-bearing) | 42,677 | 42,677 | — | 42,677 | — | ||||||||||||||||||||||||
| Interest-bearing deposits | 33,077 | 33,077 | — | 33,077 | — | ||||||||||||||||||||||||
| Customer certificates of deposit | 1,854 | 1,838 | — | 1,838 | — | ||||||||||||||||||||||||
| Total deposits | 77,608 | 77,592 | — | 77,592 | — | ||||||||||||||||||||||||
| Acceptances outstanding | 3 | 3 | 3 | — | — | ||||||||||||||||||||||||
| Medium- and long-term debt | 2,682 | 2,709 | — | 2,709 | — | ||||||||||||||||||||||||
| Credit-related financial instruments | (74) | (74) | — | — | (74) | ||||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | 1,236 | $ | 1,236 | $ | 1,236 | $ | — | $ | — | |||||||||||||||||||
| Interest-bearing deposits with banks | 21,443 | 21,443 | 21,443 | — | — | ||||||||||||||||||||||||
| Other short-term investments | 16 | 16 | 16 | — | — | ||||||||||||||||||||||||
| Loans held-for-sale | 6 | 6 | — | 6 | — | ||||||||||||||||||||||||
| Total loans, net of allowance for loan losses (a) | 48,697 | 49,127 | — | — | 49,127 | ||||||||||||||||||||||||
| Customers’ liability on acceptances outstanding | 5 | 5 | 5 | — | — | ||||||||||||||||||||||||
| Restricted equity investments | 92 | 92 | 92 | — | — | ||||||||||||||||||||||||
| Nonmarketable equity securities (b) | 5 | 10 | |||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| Demand deposits (noninterest-bearing) | 45,800 | 45,800 | — | 45,800 | — | ||||||||||||||||||||||||
| Interest-bearing deposits | 34,566 | 34,566 | — | 34,566 | — | ||||||||||||||||||||||||
| Customer certificates of deposit | 1,973 | 1,968 | — | 1,968 | — | ||||||||||||||||||||||||
| Total deposits | 82,339 | 82,334 | — | 82,334 | — | ||||||||||||||||||||||||
| Acceptances outstanding | 5 | 5 | 5 | — | — | ||||||||||||||||||||||||
| Medium- and long-term debt | 2,796 | 2,854 | — | 2,854 | — | ||||||||||||||||||||||||
| Credit-related financial instruments | (59) | (59) | — | — | (59) | ||||||||||||||||||||||||
(a)Included $73 million and $150 million of loans recorded at fair value on a nonrecurring basis at March 31, 2022 and December 31, 2021, 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.
8
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
NOTE 3 - INVESTMENT SECURITIES
A summary of the Corporation’s investment securities, which are defined by the Corporation as debt securities reported on the Consolidated Balance Sheet as investment securities available-for-sale, follows:
| (in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| U.S. Treasury securities | $ | 2,932 | $ | 5 | $ | 105 | $ | 2,832 | |||||||||||||||
| Residential mortgage-backed securities (a) | 14,868 | 6 | 901 | 13,973 | |||||||||||||||||||
| Commercial mortgage-backed securities (a) | 2,105 | 3 | 103 | 2,005 | |||||||||||||||||||
| Total investment securities available-for-sale | $ | 19,905 | $ | 14 | $ | 1,109 | $ | 18,810 | |||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| U.S. Treasury securities | $ | 3,010 | $ | 22 | $ | 39 | $ | 2,993 | |||||||||||||||
| Residential mortgage-backed securities (a) | 13,397 | 67 | 176 | 13,288 | |||||||||||||||||||
| Commercial mortgage-backed securities (a) | 709 | 2 | 6 | 705 | |||||||||||||||||||
| Total investment securities available-for-sale | $ | 17,116 | $ | 91 | $ | 221 | $ | 16,986 | |||||||||||||||
(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 March 31, 2022 and December 31, 2021 follows:
| 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, 2022 | |||||||||||||||||||||||||||||||||||
| U.S. Treasury securities (a) | $ | 2 | $ | — | $ | 1,724 | $ | 105 | $ | 1,726 | $ | 105 | |||||||||||||||||||||||
| Residential mortgage-backed securities (b) | 10,849 | 612 | 2,373 | 289 | 13,222 | 901 | |||||||||||||||||||||||||||||
| Commercial mortgage-backed securities (b) | 1,780 | 103 | — | — | 1,780 | 103 | |||||||||||||||||||||||||||||
| Total temporarily impaired securities | $ | 12,631 | $ | 715 | $ | 4,097 | $ | 394 | $ | 16,728 | $ | 1,109 | |||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | $ | 465 | $ | 6 | $ | 1,334 | $ | 33 | $ | 1,799 | $ | 39 | |||||||||||||||||||||||
| Residential mortgage-backed securities (b) | 7,197 | 128 | 1,128 | 48 | 8,325 | 176 | |||||||||||||||||||||||||||||
| Commercial mortgage-backed securities (b) | 346 | 6 | — | — | 346 | 6 | |||||||||||||||||||||||||||||
| Total temporarily impaired securities | $ | 8,008 | $ | 140 | $ | 2,462 | $ | 81 | $ | 10,470 | $ | 221 | |||||||||||||||||||||||
(a)Unrealized losses totaled less than $0.5 million in Less than 12 Months category.
(b)Issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
Unrealized losses resulted from changes in market interest rates. 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 March 31, 2022, the Corporation had 943 securities in an unrealized loss position with no allowance for credit losses, comprised of 20 U.S. Treasury securities, 790 residential mortgage-backed securities and 133 commercial mortgage-backed securities.
9
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
Interest receivable on investment securities totaled $29 million at March 31, 2022 and $23 million at December 31, 2021 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 March 31, 2022 or March 31, 2021.
The following table summarizes the amortized cost and fair values of investment 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) | |||||||||||
| March 31, 2022 | Amortized Cost | Fair Value | |||||||||
| Contractual maturity | |||||||||||
| Within one year | $ | 800 | $ | 804 | |||||||
| After one year through five years | 2,414 | 2,311 | |||||||||
| After five years through ten years | 2,377 | 2,276 | |||||||||
| After ten years | 14,314 | 13,419 | |||||||||
| Total investment securities | $ | 19,905 | $ | 18,810 | |||||||
Included in the contractual maturity distribution in the table above were residential mortgage-backed securities with a total amortized cost of $14.9 billion and fair value of $14.0 billion and commercial mortgage-backed securities with a total amortized cost of $2.1 billion and a fair value of $2.0 billion. The actual cash flows of mortgage-backed securities may differ as borrowers of the underlying loans may exercise prepayment options.
At March 31, 2022, investment securities with a carrying value of $2.7 billion were pledged where permitted or required by law, including $1.4 billion pledged to the Federal Home Loan Bank (FHLB) as collateral for potential future borrowings and $1.3 billion to secure $983 million of liabilities, primarily deposits of state and local government agencies as well as derivative instruments. For information on FHLB borrowings, refer to Note 7.
10
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 | ||||||||||||||||||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Business loans: | |||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | 101 | $ | 5 | $ | 9 | $ | 115 | $ | 163 | $ | 29,284 | $ | 29,562 | |||||||||||||||||||||||||||
| Real estate construction: | |||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate business line (b) | 5 | — | — | 5 | — | 1,770 | 1,775 | ||||||||||||||||||||||||||||||||||
| Other business lines (c) | 5 | — | 2 | 7 | 4 | 515 | 526 | ||||||||||||||||||||||||||||||||||
| Total real estate construction | 10 | — | 2 | 12 | 4 | 2,285 | 2,301 | ||||||||||||||||||||||||||||||||||
| Commercial mortgage: | |||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate business line (b) | 15 | — | — | 15 | 1 | 3,763 | 3,779 | ||||||||||||||||||||||||||||||||||
| Other business lines (c) | 24 | 2 | 14 | 40 | 26 | 8,147 | 8,213 | ||||||||||||||||||||||||||||||||||
| Total commercial mortgage | 39 | 2 | 14 | 55 | 27 | 11,910 | 11,992 | ||||||||||||||||||||||||||||||||||
| Lease financing | 9 | 2 | — | 11 | — | 633 | 644 | ||||||||||||||||||||||||||||||||||
| International | 3 | 1 | — | 4 | 5 | 1,239 | 1,248 | ||||||||||||||||||||||||||||||||||
| Total business loans | 162 | 10 | 25 | 197 | 199 | 45,351 | 45,747 | ||||||||||||||||||||||||||||||||||
| Retail loans: | |||||||||||||||||||||||||||||||||||||||||
| Residential mortgage | 26 | 1 | — | 27 | 53 | 1,689 | 1,769 | ||||||||||||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||||||||||||
| Home equity | 2 | 2 | 1 | 5 | 14 | 1,524 | 1,543 | ||||||||||||||||||||||||||||||||||
| Other consumer | 1 | — | — | 1 | 3 | 500 | 504 | ||||||||||||||||||||||||||||||||||
| Total consumer | 3 | 2 | 1 | 6 | 17 | 2,024 | 2,047 | ||||||||||||||||||||||||||||||||||
| Total retail loans | 29 | 3 | 1 | 33 | 70 | 3,713 | 3,816 | ||||||||||||||||||||||||||||||||||
| Total loans | $ | 191 | $ | 13 | $ | 26 | $ | 230 | $ | 269 | $ | 49,064 | $ | 49,563 | |||||||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Business loans: | |||||||||||||||||||||||||||||||||||||||||
| Commercial | $ | 35 | $ | 18 | $ | 6 | $ | 59 | $ | 173 | $ | 29,134 | $ | 29,366 | |||||||||||||||||||||||||||
| Real estate construction: | |||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate business line (b) | — | — | — | — | — | 2,391 | 2,391 | ||||||||||||||||||||||||||||||||||
| Other business lines (c) | 15 | 1 | — | 16 | 6 | 535 | 557 | ||||||||||||||||||||||||||||||||||
| Total real estate construction | 15 | 1 | — | 16 | 6 | 2,926 | 2,948 | ||||||||||||||||||||||||||||||||||
| Commercial mortgage: | |||||||||||||||||||||||||||||||||||||||||
Commercial Real Estate business line (b) | — | — | — | — | 1 | 3,337 | 3,338 | ||||||||||||||||||||||||||||||||||
| Other business lines (c) | 18 | 4 | 16 | 38 | 31 | 7,848 | 7,917 | ||||||||||||||||||||||||||||||||||
| Total commercial mortgage | 18 | 4 | 16 | 38 | 32 | 11,185 | 11,255 | ||||||||||||||||||||||||||||||||||
| Lease financing | 5 | — | — | 5 | — | 635 | 640 | ||||||||||||||||||||||||||||||||||
| International | 5 | 8 | 1 | 14 | 5 | 1,189 | 1,208 | ||||||||||||||||||||||||||||||||||
| Total business loans | 78 | 31 | 23 | 132 | 216 | 45,069 | 45,417 | ||||||||||||||||||||||||||||||||||
| Retail loans: | |||||||||||||||||||||||||||||||||||||||||
| Residential mortgage | 4 | — | — | 4 | 36 | 1,731 | 1,771 | ||||||||||||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||||||||||||
| Home equity | 4 | 3 | — | 7 | 12 | 1,514 | 1,533 | ||||||||||||||||||||||||||||||||||
| Other consumer | 32 | 1 | 4 | 37 | — | 527 | 564 | ||||||||||||||||||||||||||||||||||
| Total consumer | 36 | 4 | 4 | 44 | 12 | 2,041 | 2,097 | ||||||||||||||||||||||||||||||||||
| Total retail loans | 40 | 4 | 4 | 48 | 48 | 3,772 | 3,868 | ||||||||||||||||||||||||||||||||||
| Total loans | $ | 118 | $ | 35 | $ | 27 | $ | 180 | $ | 264 | $ | 48,841 | $ | 49,285 | |||||||||||||||||||||||||||
(a)Includes $22 million of loans with deferred payments not considered past due in accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) at December 31, 2021.
(b)Primarily loans to real estate developers.
(c)Primarily loans secured by owner-occupied real estate.
11
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.
| March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vintage Year | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolvers | Revolvers Converted to Term | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Business loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | $ | 1,210 | (b) | $ | 4,411 | (b) | $ | 1,512 | (b) | $ | 1,318 | $ | 814 | $ | 1,328 | $ | 17,736 | $ | 8 | $ | 28,337 | ||||||||||||||||||||||||||||||||
| Criticized (c) | 12 | 172 | 120 | 110 | 64 | 136 | 609 | 2 | 1,225 | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial | 1,222 | 4,583 | 1,632 | 1,428 | 878 | 1,464 | 18,345 | 10 | 29,562 | ||||||||||||||||||||||||||||||||||||||||||||
| Real estate construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 80 | 552 | 762 | 499 | 162 | 126 | 107 | — | 2,288 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | — | — | 3 | — | 1 | 9 | — | — | 13 | ||||||||||||||||||||||||||||||||||||||||||||
| Total real estate construction | 80 | 552 | 765 | 499 | 163 | 135 | 107 | — | 2,301 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 642 | 2,640 | 1,910 | 1,574 | 1,382 | 3,147 | 446 | — | 11,741 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | 2 | 27 | 42 | 44 | 29 | 104 | 3 | — | 251 | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial mortgage | 644 | 2,667 | 1,952 | 1,618 | 1,411 | 3,251 | 449 | — | 11,992 | ||||||||||||||||||||||||||||||||||||||||||||
| Lease financing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 54 | 156 | 84 | 93 | 47 | 183 | — | — | 617 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | — | — | 2 | 9 | 8 | 8 | — | — | 27 | ||||||||||||||||||||||||||||||||||||||||||||
| Total lease financing | 54 | 156 | 86 | 102 | 55 | 191 | — | — | 644 | ||||||||||||||||||||||||||||||||||||||||||||
| International | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 190 | 279 | 110 | 73 | 42 | 16 | 481 | — | 1,191 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | — | 20 | 8 | 3 | 5 | 11 | 10 | — | 57 | ||||||||||||||||||||||||||||||||||||||||||||
| Total international | 190 | 299 | 118 | 76 | 47 | 27 | 491 | — | 1,248 | ||||||||||||||||||||||||||||||||||||||||||||
| Total business loans | 2,190 | 8,257 | 4,553 | 3,723 | 2,554 | 5,068 | 19,392 | 10 | 45,747 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 105 | 426 | 501 | 148 | 76 | 460 | — | — | 1,716 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | 2 | 4 | 1 | 8 | 1 | 37 | — | — | 53 | ||||||||||||||||||||||||||||||||||||||||||||
| Total residential mortgage | 107 | 430 | 502 | 156 | 77 | 497 | — | — | 1,769 | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | — | — | — | — | — | 10 | 1,474 | 42 | 1,526 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | — | — | — | — | — | 1 | 13 | 3 | 17 | ||||||||||||||||||||||||||||||||||||||||||||
| Total home equity | — | — | — | — | — | 11 | 1,487 | 45 | 1,543 | ||||||||||||||||||||||||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 15 | 64 | 63 | 11 | 1 | 11 | 335 | — | 500 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | — | — | — | — | — | — | 4 | — | 4 | ||||||||||||||||||||||||||||||||||||||||||||
| Total other consumer | 15 | 64 | 63 | 11 | 1 | 11 | 339 | — | 504 | ||||||||||||||||||||||||||||||||||||||||||||
| Total consumer | 15 | 64 | 63 | 11 | 1 | 22 | 1,826 | 45 | 2,047 | ||||||||||||||||||||||||||||||||||||||||||||
| Total retail loans | 122 | 494 | 565 | 167 | 78 | 519 | 1,826 | 45 | 3,816 | ||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | 2,312 | $ | 8,751 | $ | 5,118 | $ | 3,890 | $ | 2,632 | $ | 5,587 | $ | 21,218 | $ | 55 | $ | 49,563 | |||||||||||||||||||||||||||||||||||
| Table continues on the following page. | |||||||||||||||||||||||||||||||||||||||||||||||||||||
12
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
| December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vintage Year | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolvers | Revolvers Converted to Term | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Business loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | $ | 5,270 | (b) | $ | 1,740 | (b) | $ | 1,528 | $ | 947 | $ | 713 | $ | 763 | $ | 17,241 | $ | 10 | $ | 28,212 | |||||||||||||||||||||||||||||||||
| Criticized (c) | 101 | 120 | 105 | 86 | 26 | 94 | 620 | 2 | 1,154 | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial | 5,371 | 1,860 | 1,633 | 1,033 | 739 | 857 | 17,861 | 12 | 29,366 | ||||||||||||||||||||||||||||||||||||||||||||
| Real estate construction: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 458 | 858 | 849 | 424 | 158 | 34 | 132 | — | 2,913 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | — | 3 | — | 13 | 8 | 8 | 3 | — | 35 | ||||||||||||||||||||||||||||||||||||||||||||
| Total real estate construction | 458 | 861 | 849 | 437 | 166 | 42 | 135 | — | 2,948 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 2,491 | 1,932 | 1,444 | 1,343 | 1,018 | 2,298 | 481 | — | 11,007 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | 17 | 44 | 50 | 22 | 23 | 87 | 5 | — | 248 | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial mortgage | 2,508 | 1,976 | 1,494 | 1,365 | 1,041 | 2,385 | 486 | — | 11,255 | ||||||||||||||||||||||||||||||||||||||||||||
| Lease financing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 166 | 88 | 97 | 50 | 38 | 179 | — | — | 618 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | — | 2 | 10 | 8 | 1 | 1 | — | — | 22 | ||||||||||||||||||||||||||||||||||||||||||||
| Total lease financing | 166 | 90 | 107 | 58 | 39 | 180 | — | — | 640 | ||||||||||||||||||||||||||||||||||||||||||||
| International | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 381 | 141 | 103 | 29 | 1 | 16 | 480 | — | 1,151 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | 20 | 10 | 3 | 5 | 4 | 8 | 7 | — | 57 | ||||||||||||||||||||||||||||||||||||||||||||
| Total international | 401 | 151 | 106 | 34 | 5 | 24 | 487 | — | 1,208 | ||||||||||||||||||||||||||||||||||||||||||||
| Total business loans | 8,904 | 4,938 | 4,189 | 2,927 | 1,990 | 3,488 | 18,969 | 12 | 45,417 | ||||||||||||||||||||||||||||||||||||||||||||
| Retail loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 443 | 527 | 164 | 83 | 111 | 407 | — | — | 1,735 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | 5 | — | 1 | 2 | 7 | 21 | — | — | 36 | ||||||||||||||||||||||||||||||||||||||||||||
| Total residential mortgage | 448 | 527 | 165 | 85 | 118 | 428 | — | — | 1,771 | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | — | — | — | — | — | 11 | 1,460 | 45 | 1,516 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | — | — | — | — | — | 1 | 12 | 4 | 17 | ||||||||||||||||||||||||||||||||||||||||||||
| Total home equity | — | — | — | — | — | 12 | 1,472 | 49 | 1,533 | ||||||||||||||||||||||||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass (a) | 101 | 68 | 13 | 9 | 1 | 31 | 337 | — | 560 | ||||||||||||||||||||||||||||||||||||||||||||
| Criticized (c) | — | — | — | — | — | — | 4 | — | 4 | ||||||||||||||||||||||||||||||||||||||||||||
| Total other consumer | 101 | 68 | 13 | 9 | 1 | 31 | 341 | — | 564 | ||||||||||||||||||||||||||||||||||||||||||||
| Total consumer | 101 | 68 | 13 | 9 | 1 | 43 | 1,813 | 49 | 2,097 | ||||||||||||||||||||||||||||||||||||||||||||
| Total retail loans | 549 | 595 | 178 | 94 | 119 | 471 | 1,813 | 49 | 3,868 | ||||||||||||||||||||||||||||||||||||||||||||
| Total loans | $ | 9,453 | $ | 5,533 | $ | 4,367 | $ | 3,021 | $ | 2,109 | $ | 3,959 | $ | 20,782 | $ | 61 | $ | 49,285 | |||||||||||||||||||||||||||||||||||
(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 $233 million and $458 million at March 31, 2022 and December 31, 2021, respectively.
(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-52 in the Corporation's 2021 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 $120 million at both March 31, 2022 and December 31, 2021, and was included in accrued income and other assets on the Consolidated Balance Sheets.
13
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.
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (in millions) | Business Loans | Retail Loans | Total | Business Loans | Retail Loans | Total | |||||||||||||||||||||||||||||
| Three Months Ended March 31 | |||||||||||||||||||||||||||||||||||
| Balance at beginning of period: | |||||||||||||||||||||||||||||||||||
| Allowance for loan losses | $ | 531 | $ | 57 | $ | 588 | $ | 895 | $ | 53 | $ | 948 | |||||||||||||||||||||||
| Allowance for credit losses on lending-related commitments | 24 | 6 | 30 | 35 | 9 | 44 | |||||||||||||||||||||||||||||
| Allowance for credit losses | 555 | 63 | 618 | 930 | 62 | 992 | |||||||||||||||||||||||||||||
| Loan charge-offs | (17) | (1) | (18) | (15) | (1) | (16) | |||||||||||||||||||||||||||||
| Recoveries on loans previously charged-off | 9 | 1 | 10 | 12 | 1 | 13 | |||||||||||||||||||||||||||||
| Net loan charge-offs | (8) | — | (8) | (3) | — | (3) | |||||||||||||||||||||||||||||
| Provision for credit losses: | |||||||||||||||||||||||||||||||||||
| Provision for loan losses | (30) | 4 | (26) | (183) | 15 | (168) | |||||||||||||||||||||||||||||
| Provision for credit losses on lending-related commitments | 9 | 6 | 15 | (13) | (1) | (14) | |||||||||||||||||||||||||||||
| Provision for credit losses | (21) | 10 | (11) | (196) | 14 | (182) | |||||||||||||||||||||||||||||
| Balance at end of period: | |||||||||||||||||||||||||||||||||||
| Allowance for loan losses | 493 | 61 | 554 | 709 | 68 | 777 | |||||||||||||||||||||||||||||
| Allowance for credit losses on lending-related commitments | 33 | 12 | 45 | 22 | 8 | 30 | |||||||||||||||||||||||||||||
| Allowance for credit losses | $ | 526 | $ | 73 | $ | 599 | $ | 731 | $ | 76 | $ | 807 | |||||||||||||||||||||||
| Allowance for loan losses as a percentage of total loans | 1.08 | % | 1.61 | % | 1.12 | % | 1.52 | % | 1.74 | % | 1.54 | % | |||||||||||||||||||||||
| Allowance for credit losses as a percentage of total loans | 1.15 | 1.92 | 1.21 | 1.57 | 1.94 | 1.59 | |||||||||||||||||||||||||||||
14
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
Nonaccrual Loans
The following table presents additional information regarding nonaccrual loans. No interest income was recognized on nonaccrual loans for the three-month periods ended March 31, 2022 and 2021.
| (in millions) | Nonaccrual Loans with No Related Allowance | Nonaccrual Loans with Related Allowance | Total Nonaccrual Loans | ||||||||||||||
| March 31, 2022 | |||||||||||||||||
| Business loans: | |||||||||||||||||
| Commercial | $ | 70 | $ | 93 | $ | 163 | |||||||||||
| Real estate construction: | |||||||||||||||||
| Other business lines (a) | — | 4 | 4 | ||||||||||||||
| Commercial mortgage: | |||||||||||||||||
| Commercial Real Estate business line (b) | — | 1 | 1 | ||||||||||||||
| Other business lines (a) | 6 | 20 | 26 | ||||||||||||||
| Total commercial mortgage | 6 | 21 | 27 | ||||||||||||||
| International | 5 | — | 5 | ||||||||||||||
| Total business loans | 81 | 118 | 199 | ||||||||||||||
| Retail loans: | |||||||||||||||||
| Residential mortgage | 53 | — | 53 | ||||||||||||||
| Consumer: | |||||||||||||||||
| Home equity | 14 | — | 14 | ||||||||||||||
| Other consumer | 3 | — | 3 | ||||||||||||||
| Total consumer | 17 | — | 17 | ||||||||||||||
| Total retail loans | 70 | — | 70 | ||||||||||||||
| Total nonaccrual loans | $ | 151 | $ | 118 | $ | 269 | |||||||||||
| December 31, 2021 | |||||||||||||||||
| Business loans: | |||||||||||||||||
| Commercial | $ | 8 | $ | 165 | $ | 173 | |||||||||||
| Real estate construction: | |||||||||||||||||
| Other business lines (a) | — | 6 | 6 | ||||||||||||||
| Commercial mortgage: | |||||||||||||||||
| Commercial Real Estate business line (b) | — | 1 | 1 | ||||||||||||||
| Other business lines (a) | 4 | 27 | 31 | ||||||||||||||
| Total commercial mortgage | 4 | 28 | 32 | ||||||||||||||
| International | — | 5 | 5 | ||||||||||||||
| Total business loans | 12 | 204 | 216 | ||||||||||||||
| Retail loans: | |||||||||||||||||
| Residential mortgage | 36 | — | 36 | ||||||||||||||
| Consumer: | |||||||||||||||||
| Home equity | 12 | — | 12 | ||||||||||||||
| Total retail loans | 48 | — | 48 | ||||||||||||||
| Total nonaccrual loans | $ | 60 | $ | 204 | $ | 264 | |||||||||||
(a)Primarily loans secured by owner-occupied real estate.
(b)Primarily loans to real estate developers.
Foreclosed Properties
Foreclosed properties totaled $1 million at both March 31, 2022 and December 31, 2021. Retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual loans totaled $1 million at March 31, 2022, compared to none at December 31, 2021.
15
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
Troubled Debt Restructurings
The following table details the amortized cost basis at March 31, 2022 and 2021 of loans considered to be TDRs that were restructured during the three-month periods ended March 31, 2022 and 2021, by type of modification. In cases of loans with more than one type of modification, the loans were categorized based on the most significant modification.
| Principal Deferrals (a) | |||||||||||
| (in millions) | 2022 | 2021 (b) | |||||||||
| Three Months Ended March 31, | |||||||||||
| Commercial | $ | 21 | $ | — | |||||||
| Consumer: | |||||||||||
| Home equity (c) | 2 | — | |||||||||
| Total loans | $ | 23 | $ | — | |||||||
(a)Primarily represents loan balances where terms were extended by more than an insignificant time period, typically more than 180 days, at or above contractual interest rates. Also includes commercial loans restructured in bankruptcy.
(b)Under the provisions of the CARES Act, qualifying COVID-19-related modifications, primarily principal deferrals, were not considered TDRs during the three months ended March 31, 2021.
(c)Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.
The Corporation charges interest on principal balances outstanding during deferral periods. Additionally, none of the modifications involved forgiveness of principal. Commitments to lend additional funds to borrowers whose terms have been modified in TDRs were $1 million at March 31, 2022 compared to none at December 31, 2021, respectively. On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. The allowance for loan losses continues to be reassessed on the basis of an individual evaluation of the loan.
For principal deferrals, incremental deterioration in the credit quality of the loan, represented by a downgrade in the risk rating of the loan, for example, due to missed interest payments or a reduction of collateral value, is considered a subsequent default. For interest rate reductions, a subsequent payment default is defined in terms of delinquency, when a principal or interest payment is 90 days past due. Of the TDRs modified during the twelve-month periods ended March 31, 2022 and 2021, there were no subsequent defaults of principal deferrals or interest rate reductions for the three-month period ended March 31, 2022 and 2021.
NOTE 5 - DERIVATIVE AND CREDIT-RELATED FINANCIAL INSTRUMENTS
In the normal course of business, the Corporation enters into various transactions involving derivative and credit-related financial instruments to manage exposure to fluctuations in interest rate, foreign currency and other market risks and to meet the financing needs of customers (customer-initiated derivatives). These financial instruments involve, to varying degrees, elements of market and credit risk. Market and credit risk are included in the determination of fair value.
Market risk is the potential loss that may result from movements in interest rates, foreign currency exchange rates or energy commodity prices that cause an unfavorable change in the value of a financial instrument. The Corporation manages this risk by establishing monetary exposure limits and monitoring compliance with those limits. Market risk inherent in interest rate and energy contracts entered into on behalf of customers is mitigated by taking offsetting positions, except in those circumstances when the amount, tenor and/or contract rate level results in negligible economic risk, whereby the cost of purchasing an offsetting contract is not economically justifiable. The Corporation mitigates most of the inherent market risk in foreign exchange contracts entered into on behalf of customers by taking offsetting positions and manages the remainder through individual foreign currency position limits and aggregate value-at-risk limits. These limits are established annually and positions are monitored quarterly. Market risk inherent in derivative instruments held or issued for risk management purposes is typically offset by changes in the fair value of the assets or liabilities being hedged.
Credit risk is the possible loss that may occur in the event of nonperformance by the counterparty to a financial instrument. The Corporation attempts to minimize credit risk arising from customer-initiated derivatives by evaluating the creditworthiness of each customer, adhering to the same credit approval process used for traditional lending activities and obtaining collateral as deemed necessary. Derivatives with dealer counterparties are either cleared through a clearinghouse or settled directly with a single counterparty. For derivatives settled directly with dealer counterparties, the Corporation utilizes counterparty risk limits and monitoring procedures as well as master netting arrangements and bilateral collateral agreements to facilitate the management of credit risk.
Included in the fair value of derivative instruments are credit valuation adjustments reflecting counterparty credit risk. These adjustments are determined by applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the derivative. Master netting arrangements effectively reduce credit valuation adjustments by
16
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
permitting settlement of positive and negative positions and offset cash collateral held with the same counterparty on a net basis. Bilateral collateral agreements require daily exchange of cash or highly rated securities issued by the U.S. Treasury or other U.S. government entities to collateralize amounts due to either party. At March 31, 2022, counterparties with bilateral collateral agreements deposited $99 million of cash with the Corporation to secure the fair value of contracts in an unrealized gain position, and the Corporation had pledged $161 million of marketable investment securities and posted $1.4 billion of cash as collateral for contracts in an unrealized loss position. For those counterparties not covered under bilateral collateral agreements, collateral is obtained, if deemed necessary, based on the results of management’s credit evaluation of the counterparty. Collateral varies, but may include cash, investment securities, accounts receivable, equipment or real estate.
Derivative Instruments
Derivative instruments utilized by the Corporation are negotiated over-the-counter and primarily include swaps, caps and floors, forward contracts and options, each of which may relate to interest rates, energy commodity prices or foreign currency exchange rates. Swaps are agreements in which two parties periodically exchange cash payments based on specified indices applied to a specified notional amount until a stated maturity. Caps and floors are agreements which entitle the buyer to receive cash payments based on the difference between a specified reference rate or price and an agreed strike rate or price, applied to a specified notional amount until a stated maturity. Forward contracts are over-the-counter agreements to buy or sell an asset at a specified future date and price. Options are similar to forward contracts except the purchaser has the right, but not the obligation, to buy or sell the asset during a specified period or at a specified future date.
Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, contain a greater degree of credit risk and liquidity risk than exchange-traded contracts, which have standardized terms and readily available price information. The Corporation reduces exposure to market and liquidity risks from over-the-counter derivative instruments entered into for risk management purposes, and transactions entered into to mitigate the market risk associated with customer-initiated transactions, by taking offsetting positions with investment grade domestic and foreign financial institutions and subjecting counterparties to credit approvals, limits and collateral monitoring procedures similar to those used in making other extensions of credit. In addition, certain derivative contracts executed bilaterally with a dealer counterparty in the over-the-counter market are cleared through a clearinghouse, whereby the clearinghouse becomes the counterparty to the transaction.
The following table presents the composition of the Corporation’s derivative instruments held or issued for risk management purposes or in connection with customer-initiated and other activities at March 31, 2022 and December 31, 2021. The table excludes a derivative related to the Corporation's 2008 sale of its remaining ownership of Visa shares.
17
Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Fair Value | Fair Value | ||||||||||||||||||||||||||||||||||
| (in millions) | Notional/ Contract Amount (a) | Gross Derivative Assets | Gross Derivative Liabilities | Notional/ Contract Amount (a) | Gross Derivative Assets | Gross Derivative Liabilities | |||||||||||||||||||||||||||||
| Risk management purposes | |||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||||||||||||||||||||
| Interest rate contracts: | |||||||||||||||||||||||||||||||||||
| Fair value swaps - receive fixed/pay floating | $ | 2,650 | $ | — | $ | — | $ | 2,650 | $ | — | $ | — | |||||||||||||||||||||||
| Cash flow swaps - receive fixed/pay floating (b) | 11,150 | — | — | 8,050 | — | — | |||||||||||||||||||||||||||||
| Derivatives used as economic hedges | |||||||||||||||||||||||||||||||||||
| Foreign exchange contracts: | |||||||||||||||||||||||||||||||||||
| Spot, forwards and swaps | 379 | 1 | 1 | 452 | — | 2 | |||||||||||||||||||||||||||||
| Total risk management purposes | 14,179 | 1 | 1 | 11,152 | — | 2 | |||||||||||||||||||||||||||||
| Customer-initiated and other activities | |||||||||||||||||||||||||||||||||||
| Interest rate contracts: | |||||||||||||||||||||||||||||||||||
| Caps and floors written | 848 | — | 9 | 809 | — | 3 | |||||||||||||||||||||||||||||
| Caps and floors purchased | 848 | 9 | — | 809 | 3 | — | |||||||||||||||||||||||||||||
| Swaps | 19,044 | 122 | 244 | 19,382 | 236 | 66 | |||||||||||||||||||||||||||||
| Total interest rate contracts | 20,740 | 131 | 253 | 21,000 | 239 | 69 | |||||||||||||||||||||||||||||
| Energy contracts: | |||||||||||||||||||||||||||||||||||
| Caps and floors written | 2,935 | — | 477 | 1,779 | — | 203 | |||||||||||||||||||||||||||||
| Caps and floors purchased | 2,935 | 478 | — | 1,779 | 204 | — | |||||||||||||||||||||||||||||
| Swaps | 5,748 | 1,195 | 1,192 | 4,212 | 466 | 459 | |||||||||||||||||||||||||||||
| Total energy contracts | 11,618 | 1,673 | 1,669 | 7,770 | 670 | 662 | |||||||||||||||||||||||||||||
| Foreign exchange contracts: | |||||||||||||||||||||||||||||||||||
| Spot, forwards, options and swaps | 2,149 | 31 | 25 | 1,716 | 19 | 14 | |||||||||||||||||||||||||||||
| Total customer-initiated and other activities | 34,507 | 1,835 | 1,947 | 30,486 | 928 | 745 | |||||||||||||||||||||||||||||
| Total gross derivatives | $ | 48,686 | 1,836 | 1,948 | $ | 41,638 | 928 | 747 | |||||||||||||||||||||||||||