Comerica(US:CMA)2024-07-26 20:19PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Comerica Incorporated's unaudited consolidated financial statements, including Balance Sheets, Statements of Comprehensive Income, Shareholders' Equity, and Cash Flows, along with detailed accounting policy notes Consolidated Balance Sheets Total assets decreased to $79.6 billion at June 30, 2024, from $85.8 billion at year-end 2023, primarily due to reduced interest-bearing deposits, with total liabilities and shareholders' equity also declining Consolidated Balance Sheet Highlights (unaudited) | (in millions) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $79,597 | $85,834 | | Total Loans, net | $51,164 | $51,425 | | Investment securities available-for-sale | $15,656 | $16,869 | | Interest-bearing deposits with banks | $4,093 | $8,059 | | Total Liabilities | $73,436 | $79,428 | | Total Deposits | $62,459 | $66,762 | | Short-term borrowings | $1,250 | $3,565 | | Medium- and long-term debt | $7,112 | $6,206 | | Total Shareholders' Equity | $6,161 | $6,406 | Consolidated Statements of Comprehensive Income Net income for the six months ended June 30, 2024, significantly decreased to $344 million from $597 million in 2023, driven by lower net interest income and higher noninterest expenses, resulting in diluted EPS of $2.47 Six Months Ended June 30, (unaudited) | (in millions, except per share data) | 2024 | 2023 | | :--- | :--- | :--- | | Net interest income | $1,081 | $1,329 | | Provision for credit losses | $14 | $63 | | Total noninterest income | $527 | $585 | | Total noninterest expenses | $1,158 | $1,086 | | Net Income | $344 | $597 | | Diluted EPS | $2.47 | $4.40 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $6.41 billion at year-end 2023 to $6.16 billion at June 30, 2024, primarily due to a $415 million other comprehensive loss and $200 million in dividends, partially offset by net income Changes in Shareholders' Equity (Six Months Ended June 30, 2024) | (in millions) | Amount | | :--- | :--- | | Balance at Dec 31, 2023 | $6,406 | | Net income | $344 | | Other comprehensive loss, net of tax | ($415) | | Cash dividends declared (Common & Preferred) | ($200) | | Share-based compensation & stock plans | $30 | | Balance at June 30, 2024 | $6,161 | Consolidated Statements of Cash Flows Net cash used in operating activities was $94 million for the six months ended June 30, 2024, a reversal from $307 million provided in 2023, leading to a $4.69 billion decrease in cash and cash equivalents due to financing activities Net Cash Flow Summary (Six Months Ended June 30) | (in millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(94) | $307 | | Net cash provided by (used in) investing activities | $1,171 | $(1,145) | | Net cash (used in) provided by financing activities | $(5,767) | $4,779 | | Net (decrease) increase in cash and cash equivalents | $(4,690) | $3,941 | | Cash and cash equivalents at end of period | $4,812 | $10,223 | Notes to Consolidated Financial Statements This section details accounting policies, fair value, investment securities, credit quality, derivatives, debt, and segment performance, highlighting ASU 2023-02 adoption, nonperforming loan details, and derivative hedging impacts - Effective January 1, 2024, the Corporation adopted ASU 2023-02, expanding the use of the proportional amortization method for tax equity investments, resulting in a $4 million reduction to retained earnings6 - Total nonaccrual loans increased to $226 million at June 30, 2024, from $178 million at December 31, 202341 - The Corporation de-designated and subsequently re-designated $7.0 billion of interest rate swaps due to the upcoming cessation of the BSBY index, impacting noninterest income by a net loss of $130 million in Q4 2023 and Q1 202445 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This section provides management's analysis of financial condition and operations, covering performance, segment results, balance sheet changes, capital, and risk management, including the potential loss of the Direct Express program contract Results of Operations Net income for Q2 2024 increased to $206 million from $138 million in Q1 2024, while the first six months of 2024 saw net income decrease to $344 million from $597 million year-over-year due to lower net interest income Q2 2024 vs Q1 2024 Performance | (in millions) | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Net interest income | $533 | $548 | | Noninterest income | $291 | $236 | | Noninterest expenses | $555 | $603 | | Net income | $206 | $138 | Six Months 2024 vs Six Months 2023 Performance | (in millions) | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net interest income | $1,081 | $1,329 | | Noninterest income | $527 | $585 | | Noninterest expenses | $1,158 | $1,086 | | Net income | $344 | $597 | Strategic Lines of Business In H1 2024, net income decreased across Commercial Bank ($552 million), Retail Bank ($85 million), and Wealth Management ($42 million) due to lower net interest income and higher expenses, while Finance & Other reported a larger net loss - Commercial Bank: Net income decreased by $66 million to $552 million in H1 2024, driven by a $103 million drop in net interest income from higher deposit costs and FTP charges97 - Retail Bank: Net income fell by $33 million to $85 million in H1 2024, as a $32 million decrease in net interest income and a $22 million rise in noninterest expenses weighed on results140 - Wealth Management: Net income declined by $11 million to $42 million in H1 2024, primarily due to a $15 million decrease in net interest income and a $13 million drop in noninterest income119 Financial Condition Total assets decreased by $6.2 billion to $79.6 billion at June 30, 2024, primarily due to reduced Federal Reserve deposits, while the estimated Common Equity Tier 1 capital ratio improved to 11.55%, with no current share repurchases Capital Ratios | Ratio | June 30, 2024 (Est.) | Dec 31, 2023 | | :--- | :--- | :--- | | Common equity tier 1 (CET1) | 11.55% | 11.09% | | Tier 1 risk-based | 12.08% | 11.60% | | Total risk-based | 14.02% | 13.52% | | Tangible common equity | 6.49% | 6.30% | - Management is not currently engaged in repurchasing shares and will monitor earnings, capital needs, and market conditions before resuming the program; the remaining authorization is for 4.977 million shares125146 Risk Management Credit risk increased with nonperforming assets rising to $226 million, while the allowance for credit losses slightly decreased to 1.38%; significant concentration exists in commercial real estate (36% of loans), and the potential loss of the Direct Express program poses a major emerging risk - The company received preliminary notification that it was not selected to continue the Direct Express program for the U.S. Treasury, which had average deposits of $3.3 billion in Q2 2024 and generated $137 million in card fees in 2023, potentially having a material impact195 Credit Quality Metrics | Metric | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Nonperforming Assets | $226M | $178M | | Nonperforming loans as % of total loans | 0.44% | 0.34% | | Allowance for credit losses as % of total loans | 1.38% | 1.40% | | Total criticized loans | $2,430M | $2,405M | - Commercial real estate loans represent the largest concentration of credit risk, totaling $18.7 billion, or 36% of total loans at June 30, 2024158177 - Total available liquidity stood at $41.4 billion as of June 30, 2024, comprising cash, unencumbered securities, and borrowing capacity from the FHLB and FRB193 Critical Accounting Estimates No significant changes have occurred in the Corporation's critical accounting estimates, including allowance for credit losses, fair value, goodwill, pension accounting, and income taxes, since the 2023 Annual Report - There have been no significant changes to the Corporation's critical accounting estimates, which include allowance for credit losses, fair value, goodwill, pension accounting, and income taxes, since the 2023 Annual Report198 Quantitative and Qualitative Disclosures about Market Risk This section refers to the 'Market and Liquidity Risk' subsection within 'Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations' for market risk disclosures - Disclosures for the current period regarding market risk are located in the 'Market and Liquidity Risk' section of the MD&A (Item 2)222 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting identified during the quarter - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective as of the evaluation date, June 30, 2024222 - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, such controls222 PART II. OTHER INFORMATION Legal Proceedings This section refers to Note 12 for legal proceedings information, disclosing an estimated aggregate range of reasonably possible losses from zero to approximately $172 million as of June 30, 2024 - For information on legal proceedings, the report refers to Note 12 – Contingent Liabilities200 - The estimated aggregate range of reasonably possible losses for all legal and regulatory matters, in excess of established accruals, is from zero to approximately $172 million at June 30, 202476 Risk Factors There have been no material changes to the Corporation's risk factors as previously disclosed in its Form 10-K for the year ended December 31, 2023 - There has been no material change in the Corporation's risk factors as disclosed in the Form 10-K for the year ended December 31, 2023223 Unregistered Sales of Equity Securities and Use of Proceeds This section refers to the 'Capital' subsection within the MD&A for information on equity security purchases, noting that management is not currently engaged in share repurchases - For information on the purchase of equity securities, the report refers to the 'Capital' section of the MD&A224 Other Information No director or officer adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2024 - No director or officer adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2024233 Exhibits This section lists the exhibits filed with the quarterly report, including the company's bylaws, CEO and CFO certifications, and financial statements in Inline XBRL format - The report includes standard exhibits such as the Restated Certificate of Incorporation, Bylaws, CEO/CFO certifications (Rule 13a-14(a) and Section 1350), and financial statements in Inline XBRL format226