Comerica 2012 Annual Report Download - page 93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comerica Incorporated and Subsidiaries
F-59
related commitments includes specific allowances, based on individual evaluations of certain letters of credit in a manner consistent
with business loans, and allowances based on the pool of the remaining letters of credit and all unused commitments to extend
credit within each internal risk rating. A probability of draw estimate is applied to the commitment amount, and the result is
multiplied by standard reserve factors consistent with business loans. In general, the probability of draw for letters of credit is
considered certain for all letters of credit supporting loans and for letters of credit assigned an internal risk rating generally consistent
with regulatory defined substandard or doubtful. Other letters of credit and all unfunded commitments have a lower probability
of draw. The allowance for credit losses on lending-related commitments is included in "accrued expenses and other liabilities"
on the consolidated balance sheets, with the corresponding charge reflected in the "provision for credit losses" on the consolidated
statements of income.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, including loans held-for-sale, reduced-rate loans and foreclosed
property.
Business loans are generally placed on nonaccrual status when management determines full collection of principal or
interest is unlikely or when principal or interest payments are 90 days past due, unless the loan is fully collateralized and in the
process of collection. There is no past-due status threshold in the determination of when a business loan should be charged-off.
Business loans typically require individual evaluation and management judgment to determine the timing and amount of principal
charge-offs. The past-due status of a business loan is one of many indicative factors considered in determining the collectibility
of the credit. The primary driver of when the principal amount of a business loan should be fully or partially charged-off is based
on a qualitative assessment of the recoverability of the principal amount from collateral and other cash flow sources.
In 2012, the Corporation modified its residential mortgage and home equity nonaccrual policies. Under the new policies,
residential mortgage and home equity loans are generally placed on nonaccrual status once they become 90 days past due (previously
no later than 180 days past due) and charged off to current appraised values less costs to sell no later than 180 days past due. In
addition, junior lien home equity loans less than 90 days past due are placed on nonaccrual status if they have underlying risk
characteristics that place full collection of the loan in doubt, such as when the related senior lien position is seriously delinquent.
In connection with regulatory guidance issued during 2012, the Corporation further modified its nonaccrual and charge-off policy
regarding residential mortgage and consumer loans in bankruptcy for which the court has discharged the borrower's obligation
and the borrower has not reaffirmed the debt. Such loans are placed on nonaccrual status and written down to estimated collateral
value, without regard to the actual payment status of the loan, and are classified as TDRs.
All other consumer loans are generally not placed on nonaccrual status and are charged off at no later than 120 days past
due, earlier if deemed uncollectible. At the time a loan is placed on nonaccrual status, interest previously accrued but not collected
is charged against current income. Income on such loans is then recognized only to the extent that cash is received and future
collection of principal is probable. Generally, a loan or debt security may be returned to accrual status when all delinquent principal
and interest have been received and the Corporation expects repayment of the remaining contractual principal and interest, or when
the loan or debt security is both well secured and in the process of collection.
PCI loans are recorded at fair value at acquisition date. Although the PCI loans may be contractually delinquent, the
Corporation does not classify these loans as past due or nonperforming as the loans were written down to fair value at the acquisition
date and the accretable yield is recognized in interest income over the remaining life of the loan.
Foreclosed property (primarily real estate) is initially recorded at at fair value, less costs to sell, at the date of foreclosure
and subsequently carried at the lower of cost or fair value, less estimated costs to sell. Independent appraisals are obtained to
substantiate the fair value of foreclosed property at the time of foreclosure and updated at least annually or upon evidence of
deterioration in the property’s value. At the time of foreclosure, any excess of the related loan balance over fair value (less estimated
costs to sell) of the property acquired is charged to the allowance for loan losses. Subsequent write-downs, operating expenses
and losses upon sale, if any, are charged to noninterest expenses. Foreclosed property is included in "accrued income and other
assets" on the consolidated balance sheets.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation, computed on
the straight-line method, is charged to operations over the estimated useful lives of the assets. Estimated useful lives are generally
3 years to 33 years for premises that the Corporation owns and 3 years to 8 years for furniture and equipment. Leasehold
improvements are generally amortized over the terms of their respective leases or 10 years, whichever is shorter.