Comerica 2012 Annual Report Download - page 66

F-32
Commercial and Residential Real Estate Lending
The following table summarizes the Corporation's commercial real estate loan portfolio by loan category as of
December 31, 2012 and 2011.
(in millions)
December 31 2012 2011
Real estate construction loans:
Commercial Real Estate business line (a) $ 1,049 $ 1,103
Other business lines (b) 191 430
Total real estate construction loans $ 1,240 $ 1,533
Commercial mortgage loans:
Commercial Real Estate business line (a) $ 1,873 $ 2,507
Other business lines (b) 7,599 7,757
Total commercial mortgage loans $ 9,472 $ 10,264
(a) Primarily loans to real estate investors and developers.
(b) Primarily loans secured by owner-occupied real estate.
The Corporation limits risk inherent in its commercial real estate lending activities by limiting exposure to those borrowers
directly involved in the commercial real estate markets and adhering to conservative policies on loan-to-value ratios for such loans.
Commercial real estate loans, consisting of real estate construction and commercial mortgage loans, totaled $10.7 billion at
December 31, 2012, of which $2.9 billion, or 27 percent, were to borrowers in the Commercial Real Estate business line, which
includes loans to real estate investors and developers. The remaining $7.8 billion, or 73 percent, of commercial real estate loans
in other business lines consisted primarily of owner-occupied commercial mortgages which bear credit characteristics similar to
non-commercial real estate business loans.
The real estate construction loan portfolio totaled $1.2 billion at December 31, 2012. The real estate construction loan
portfolio primarily contains loans made to long-time customers with satisfactory completion experience. Of the $1.0 billion of
real estate construction loans in the Commercial Real Estate business line, $30 million were on nonaccrual status at December 31,
2012. Real estate construction loan net charge-offs in the Commercial Real Estate business line totaled $2 million for 2012. In
other business lines, $3 million of real estate construction loans were on nonaccrual status at December 31, 2012 and net charge-
offs were insignificant for 2012.
When the Corporation enters into a loan agreement with a borrower for a real estate construction loan, an interest reserve
is often included in the amount of the loan commitment. An interest reserve allows the borrower to add interest charges to the
outstanding loan balance during the construction period. Interest reserves are established on substantially all real estate construction
loans in the Corporation's Commercial Real Estate business line. Interest reserves provide an effective means to address the cash
flow characteristics of a real estate construction loan. Loan agreements containing an interest reserve generally require more equity
to be contributed by the borrower to the construction project at inception. Interest that has been added to the balance of a real
estate construction loan through the use of an interest reserve is recognized as income only if the Corporation expects full collection
of the remaining contractual principal and interest payments. If a real estate construction loan with interest reserves is in default
and deemed uncollectible, interest is no longer funded through the interest reserve. Interest previously recognized from interest
reserves generally is not reversed against current income when a construction loan with interest reserves is placed on nonaccrual
status. All real estate construction loans are closely monitored through physical inspections, reconciliation of draw requests, review
of rent rolls and operating statements and quarterly portfolio reviews performed by the Corporation's senior management. When
appropriate, extensions, renewals and restructurings of real estate construction loans are approved after giving consideration to
the project's status, the borrower's financial condition, and the collateral protection based on current market conditions, and typically
strengthen the Corporation's position by adding additional collateral and controls and/or requiring amortization on the existing
debt.
The commercial mortgage loan portfolio totaled $9.5 billion at December 31, 2012 and included $1.9 billion in the
Commercial Real Estate business line and $7.6 billion in other business lines. Loans in the commercial mortgage portfolio generally
mature within three to five years. Of the $1.9 billion of commercial mortgage loans in the Commercial Real Estate business line,
$94 million were on nonaccrual status at December 31, 2012. Commercial mortgage loan net charge-offs in the Commercial Real
Estate business line totaled $32 million for 2012. In other business lines, $181 million of commercial mortgage loans were on
nonaccrual status at December 31, 2012, and net charge-offs totaled $39 million for 2012.