Comerica(CMA) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents unaudited financial statements, management's discussion, and supplemental data ITEM 1. Financial Statements Presents unaudited consolidated financial statements, including balance sheets, income, equity, cash flows, and accounting notes Consolidated Balance Sheets Consolidated Balance Sheets at June 30, 2025 (unaudited) and December 31, 2024 | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Total assets | $77,988 | $79,297 | | Total liabilities | $71,128 | $72,754 | | Total shareholders' equity | $6,860 | $6,543 | | Total loans (net) | $50,481 | $49,849 | | Total deposits | $60,003 | $63,811 | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2025 and 2024 (unaudited) | (in millions, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net interest income | $575 | $533 | $1,150 | $1,081 | | Provision for credit losses | $44 | $0 | $64 | $14 | | Noninterest income | $274 | $291 | $528 | $527 | | Noninterest expenses | $561 | $555 | $1,145 | $1,158 | | Net income | $199 | $206 | $371 | $344 | | Diluted earnings per common share | $1.42 | $1.49 | $2.66 | $2.47 | Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Changes in Shareholders' Equity (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Total Shareholders' Equity | $6,860 | $6,543 | | Net income (six months) | $371 | $371 (from Jan 1, 2025) | | Other comprehensive income, net of tax (six months) | $662 | $662 (from Jan 1, 2025) | | Redemption of preferred stock (six months) | $(400) | $(400) (from Jan 1, 2025) | | Purchase of common stock (six months) | $(151) | $(151) (from Jan 1, 2025) | - The Corporation redeemed 4,000 shares of Series A Preferred Stock, resulting in a $400 million reclassification from shareholders' equity to other liabilities[10] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024 (unaudited) | (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $749 | $(94) | | Net cash (used in) provided by investing activities | $(135) | $1,171 | | Net cash used in financing activities | $(2,130) | $(5,767) | | Net decrease in cash and cash equivalents | $(1,516) | $(4,690) | | Cash and cash equivalents at end of period | $5,288 | $4,812 | NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information[13] - The Corporation adopted ASU 2023-02 (Income Taxes) effective January 1, 2024, with no material impact expected on income tax disclosures[14] - The Corporation is evaluating the impact of ASU 2024-03 (Expense Disaggregation Disclosures), effective January 1, 2027, on its disclosures[15] NOTE 2 – FAIR VALUE MEASUREMENTS - The Corporation utilizes fair value measurements for recurring assets (investment securities, derivatives) and nonrecurring assets (impaired loans, foreclosed property)[17] Assets and Liabilities Recorded at Fair Value on a Recurring Basis (June 30, 2025) | (in millions) | Total | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :---- | :------ | :------ | :------ | | Assets: | | | | | | Deferred compensation plan assets | $86 | $86 | $— | $— | | Equity securities | $47 | $47 | $— | $— | | Investment securities available-for-sale | $14,874 | $1,271 | $13,603 | $— | | Derivative assets | $781 | $— | $781 | $— | | Total assets at fair value | $15,788 | $1,404 | $14,384 | $— | | Liabilities: | | | | | | Derivative liabilities | $824 | $— | $814 | $10 | | Deferred compensation plan liabilities | $84 | $84 | $— | $— | | Total liabilities at fair value | $908 | $84 | $814 | $10 | Assets Recorded at Fair Value on a Nonrecurring Basis (June 30, 2025) | (in millions) | Level 3 | | :---------------------- | :------ | | Loans: | | | Commercial | $44 | | Commercial mortgage | $35 | | Residential mortgage | $9 | | Total loans | $88 | | Loans held-for-sale | $177 | | Other real estate | $12 | | Total assets at fair value | $277 | NOTE 3 - INVESTMENT SECURITIES Investment Securities Available-for-Sale (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Amortized Cost | $17,310 | $17,918 | | Gross Unrealized Gains | $5 | $1 | | Gross Unrealized Losses | $2,441 | $2,874 | | Fair Value | $14,874 | $15,045 | - Unrealized losses on investment securities decreased from $2,874 million to $2,441 million at June 30, 2025, primarily due to changes in market interest rates[31][33] - No allowance for credit losses was recorded on securities in an unrealized loss position, as the Corporation does not intend to sell them before recovery of amortized costs[33] NOTE 4 – CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES Total Loans and Nonaccrual Loans (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Total Loans | $51,179 | $50,539 | | Nonaccrual Loans | $248 | $308 | | Loans Past Due 30-59 Days | $104 | $180 | | Loans Past Due 60-89 Days | $30 | $39 | | Loans Past Due 90 Days or More | $42 | $44 | Allowance for Credit Losses (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :------------------ | | Allowance for loan losses | $698 | $690 | | Allowance for credit losses on lending-related commitments | $37 | $35 | | Total Allowance for Credit Losses | $735 | $725 | - Net loan charge-offs for the six months ended June 30, 2025, were $54 million, an increase of $29 million compared to $25 million in the prior year, driven by Commercial Real Estate, Energy, and general Middle Market[48][54] - Financially Distressed Modifications (FDMs) totaled $194 million for the six months ended June 30, 2025, with a weighted-average term extension of 21 months and a weighted-average interest rate reduction of (2.11)%[56][62] NOTE 5 - GOODWILL AND INTANGIBLES Goodwill by Reporting Unit (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :------------------ | | Commercial Bank | $473 | $473 | | Retail Bank | $101 | $101 | | Wealth Management | $61 | $61 | | Total | $635 | $635 | - Goodwill remained stable at $635 million, and no impairment was indicated during the annual test or interim periods ended June 30, 2025[67] NOTE 6 – DERIVATIVES AND CREDIT-RELATED FINANCIAL INSTRUMENTS - The Corporation uses derivative instruments for risk management (hedging) and customer-initiated activities, managing market and credit risks through offsetting positions, limits, and collateral[69][70][71] Total Gross Derivatives (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Notional/Contract Amount | $71,775 | $69,729 | | Gross Derivative Assets | $781 | $666 | | Gross Derivative Liabilities | $814 | $794 | Credit-Related Financial Instruments (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :------------------ | | Unused commitments to extend credit | $28,113 | $28,397 | | Standby letters of credit | $4,156 | $4,138 | | Commercial letters of credit | $10 | $12 | - Criticized standby and commercial letters of credit increased to $71 million (1.7% of total) at June 30, 2025, from $37 million (0.9% of total) at December 31, 2024[100] NOTE 7 - VARIABLE INTEREST ENTITIES (VIEs) - The Corporation holds ownership interests in tax credit entities (LIHTC and other community development projects) that are classified as VIEs, but it is not the primary beneficiary[105] - Exposure to loss from these VIEs was limited to $570 million at June 30, 2025[106] Impact of Tax Credit Investments on Provision for Income Taxes (6 months ended June 30) | (in millions) | 2025 | 2024 | | :------------------------------------------ | :--- | :--- | | Amortization of investments | $43 | $39 | | Tax credits | $(38) | $(38) | | Other income tax benefits | $(13) | $(8) | | Total provision for income taxes | $(8) | $(7) | NOTE 8 - MEDIUM- AND LONG-TERM DEBT Medium- and Long-Term Debt (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Parent company debt | $1,786 | $1,746 | | Subsidiaries subordinated notes | $973 | $953 | | Subsidiaries FHLB advances | $3,003 | $3,974 | | Total medium- and long-term debt | $5,762 | $6,673 | - Total medium- and long-term debt decreased by $911 million, primarily due to the maturity of FHLB advances[111] - At June 30, 2025, total FHLB borrowings were $5.0 billion, with $11.9 billion remaining capacity for future borrowing[112] NOTE 9 - SHAREHOLDERS' EQUITY - On June 10, 2025, the Corporation delivered a notice of redemption for all 4,000 shares of Series A Preferred Stock, effective July 1, 2025[115] - The redemption resulted in a $400 million reclassification from shareholders' equity to other liabilities on the Consolidated Balance Sheets[115] NOTE 10 - ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated Other Comprehensive Loss (June 30, 2025 vs June 30, 2024) | (in millions) | June 30, 2025 | June 30, 2024 | | :------------------------------------------------------------------ | :------------ | :------------ | | Accumulated net unrealized losses on investment securities, net of tax | $(1,867) | $(2,252) | | Accumulated net losses on cash flow hedges, net of tax | $(267) | $(814) | | Accumulated defined benefit pension and other postretirement plans adjustment, net of tax | $(365) | $(397) | | Total accumulated other comprehensive loss at end of period, net of tax | $(2,499) | $(3,463) | - The Corporation expects to reclassify $145 million of losses, net of tax, from accumulated other comprehensive loss to earnings over the next twelve months[118] NOTE 11 - NET INCOME PER COMMON SHARE Diluted Earnings Per Common Share (3 & 6 months ended June 30) | (per share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Diluted EPS | $1.42 | $1.49 | $2.66 | $2.47 | - Basic average common shares decreased to 131 million for the three and six months ended June 30, 2025, from 133 million in the prior year periods[120] NOTE 12 - EMPLOYEE BENEFIT PLANS Net Periodic Defined Benefit Credit (Qualified Pension Plan) (3 & 6 months ended June 30) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Service cost | $8 | $9 | $17 | $17 | | Other components of net benefit credit | $(21) | $(23) | $(42) | $(44) | | Net periodic defined benefit credit | $(13) | $(14) | $(25) | $(27) | Net Periodic Defined Benefit Cost (Non-Qualified Pension Plan) (3 & 6 months ended June 30) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Service cost | $1 | $0 | $2 | $1 | | Other components of net benefit cost | $2 | $2 | $4 | $3 | | Net periodic defined benefit cost | $3 | $2 | $6 | $4 | NOTE 13 - INCOME TAXES AND TAX-RELATED ITEMS - Net deferred tax assets decreased by approximately $215 million to $819 million at June 30, 2025, from $1.0 billion at December 31, 2024[127] - Unrecognized tax benefits remained stable at $8 million at June 30, 2025, with a $2 million decrease anticipated within the next twelve months[126] - The Corporation maintains a federal valuation allowance of $9 million and a state valuation allowance of $2 million for certain tax carryforwards[127] NOTE 14 - CONTINGENT LIABILITIES - Accruals are established for legal claims and regulatory matters where a loss is probable and estimable[132] - The estimated aggregate range of reasonably possible losses, in excess of established accruals, is from zero to approximately $24 million at June 30, 2025[133] - The CFPB investigation into Comerica Bank's Direct Express® program is closed, with no further action intended[131] NOTE 15 - STRATEGIC LINES OF BUSINESS - The Corporation operates through three major business segments: Commercial Bank, Retail Bank, and Wealth Management, plus Finance and Other categories[135] - Segment performance is evaluated using segment net interest income and net income (loss) for resource allocation and product pricing[136] - The Commercial Bank's net income decreased by $71 million (13%) for the six months ended June 30, 2025, primarily due to increased provision for credit losses[195] - The Retail Bank's net income increased by $76 million (91%) for the six months ended June 30, 2025, driven by higher net interest income and lower noninterest expenses[197] - Wealth Management's net income increased by $9 million (24%) for the six months ended June 30, 2025, mainly due to higher noninterest income[198] - The Finance & Other category reported a net loss of $(322) million for the six months ended June 30, 2025, an improvement of $13 million from the prior year[199] NOTE 16 - REVENUE FROM CONTRACTS WITH CUSTOMERS Total Revenue from Contracts with Customers (3 & 6 months ended June 30) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Card fees | $59 | $64 | $118 | $130 | | Fiduciary income | $57 | $58 | $109 | $109 | | Service charges on deposit accounts | $47 | $46 | $93 | $91 | | Total revenue from contracts with customers | $185 | $203 | $368 | $390 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial performance, condition, operations, business lines, capital, and risk management FORWARD-LOOKING STATEMENTS - This report contains forward-looking statements regarding future events, financial results, and business strategies, which are inherently uncertain and outside the Corporation's control[153] - Actual results and financial condition may differ materially due to various factors, including credit, market, liquidity, technology, operational, compliance, and strategic risks[153] RESULTS OF OPERATIONS - Net income for the three months ended June 30, 2025, increased by $27 million sequentially to $199 million, driven by lower noninterest expenses and higher noninterest income[157] - For the six months ended June 30, 2025, net income increased by $27 million year-over-year to $371 million, primarily due to higher net interest income and lower noninterest expenses[176] Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025 Key Financial Highlights (3 months ended June 30, 2025 vs March 31, 2025) | (in millions, except per share data) | June 30, 2025 | March 31, 2025 | Change | | :---------------------------------- | :------------ | :------------- | :----- | | Net interest income | $575 | $575 | $0 | | Provision for credit losses | $44 | $20 | $24 | | Noninterest income | $274 | $254 | $20 | | Noninterest expenses | $561 | $584 | $(23) | | Net income | $199 | $172 | $27 | | Diluted earnings per common share | $1.42 | $1.25 | $0.17 | - Net interest margin decreased 2 basis points to 3.16%, primarily due to a $1.2 billion increase in short-term borrowings and the net impact of lower rates, partially offset by a $748 million decline in medium- and long-term debt and a $451 million increase in average loans[163] - Net loan charge-offs increased by $2 million to $28 million, or 22 basis points as a percentage of average loans, reflecting increases in general Middle Market and Technology and Life Sciences[166] - Noninterest expenses decreased $23 million, primarily due to decreases in other noninterest expenses, salaries and benefits expense, and FDIC insurance expense[172] - Provision for income taxes decreased $8 million, including a $9 million benefit from changes in California state income tax rates[174] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 Key Financial Highlights (6 months ended June 30, 2025 vs 2024) | (in millions, except per share data) | 2025 | 2024 | Change | | :---------------------------------- | :--- | :--- | :----- | | Net interest income | $1,150 | $1,081 | $69 | | Provision for credit losses | $64 | $14 | $50 | | Noninterest income | $528 | $527 | $1 | | Noninterest expenses | $1,145 | $1,158 | $(13) | | Net income | $371 | $344 | $27 | | Diluted earnings per common share | $2.66 | $2.47 | $0.19 | - Net interest margin increased 34 basis points to 3.17%, due to lower rates (including BSBY cessation impact), a $2.1 billion decline in higher-cost brokered deposits, and a $1.7 billion decrease in FHLB advances[183] - Net loan charge-offs increased $29 million to $54 million, reflecting increases in Commercial Real Estate and general Middle Market net charge-offs, as well as a reduction in Energy net recoveries[184] - Noninterest expenses decreased $13 million, due to decreases in FDIC insurance expense, consulting fees, and operational losses, partially offset by increases in salaries and benefits expense and software expense[189] STRATEGIC LINES OF BUSINESS - The Corporation's three main business segments (Commercial Bank, Retail Bank, Wealth Management) and the Finance & Other category showed varied performance for the six months ended June 30, 2025[191][194] Commercial Bank Commercial Bank Earnings Summary (6 months ended June 30) | (in millions) | 2025 | 2024 | Change | | :-------------------- | :--- | :--- | :----- | | Net interest income | $925 | $942 | $(17) | | Provision for credit losses | $79 | $16 | $63 | | Net income | $481 | $552 | $(71) | | Net charge-offs | $51 | $22 | $29 | | Average Loans | $43,000 | $43,810 | $(810) | | Average Deposits | $32,510 | $31,694 | $816 | - Net income decreased by $71 million (13%) due to lower income on loans and a $63 million increase in provision for credit losses[196] Retail Bank Retail Bank Earnings Summary (6 months ended June 30) | (in millions) | 2025 | 2024 | Change | | :-------------------- | :--- | :--- | :----- | | Net interest income | $499 | $404 | $95 | | Provision for credit losses | $(7) | $0 | $(7) | | Net income | $161 | $85 | $76 | | Net charge-offs | $3 | $2 | $1 | | Average Loans | $2,394 | $2,309 | $85 | | Average Deposits | $23,539 | $24,487 | $(948) | - Net income increased by $76 million (91%) due to a $95 million increase in net interest income and lower noninterest expenses[197] Wealth Management Wealth Management Earnings Summary (6 months ended June 30) | (in millions) | 2025 | 2024 | Change | | :-------------------- | :--- | :--- | :----- | | Net interest income | $95 | $94 | $1 | | Provision for credit losses | $(7) | $(1) | $(6) | | Noninterest income | $147 | $143 | $4 | | Net income | $51 | $42 | $9 | | Average Loans | $5,044 | $5,089 | $(45) | | Average Deposits | $3,598 | $3,925 | $(327) | - Net income increased by $9 million (24%) primarily due to higher investment fees and lower operational losses and consultant fees[198] Finance & Other Finance & Other Earnings Summary (6 months ended June 30) | (in millions) | 2025 | 2024 | Change | | :-------------------- | :--- | :--- | :----- | | Net interest expense | $(369) | $(359) | $(10) | | Noninterest income | $45 | $30 | $15 | | Net loss | $(322) | $(335) | $13 | | Average Deposits | $1,922 | $4,077 | $(2,155) | - Net loss decreased by $13 million, reflecting higher risk management hedging income, partially offset by increased net interest expense and salaries and benefits[199] FINANCIAL CONDITION - Total assets decreased by $1.3 billion to $78.0 billion at June 30, 2025, compared to December 31, 2024, mainly due to lower interest-bearing deposits with banks, partially offset by loan growth[203] - Total liabilities decreased by $1.6 billion, while total shareholders' equity increased by $317 million[204] Second Quarter 2025 Compared to Fourth Quarter 2024 - Period-end total assets decreased by $1.3 billion, driven by a $1.9 billion decrease in interest-bearing deposits with banks, partially offset by a $640 million increase in total loans[203] - Total liabilities decreased by $1.6 billion, reflecting decreases in interest-bearing and noninterest-bearing deposits and medium- and long-term debt, partially offset by increased short-term borrowings[204] - Total shareholders' equity increased by $317 million, primarily due to decreased accumulated unrealized losses and net income, partially offset by preferred stock redemption[204] Change in Average Loan Portfolio (3 months ended June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :------------ | :------------------ | :----- | | Commercial loans | $26,441 | $26,198 | $243 | | Real estate construction loans | $3,499 | $3,765 | $(266) | | Commercial mortgage loans | $14,722 | $14,728 | $(6) | | Total loans | $50,665 | $50,617 | $48 | Change in Average Deposits and Borrowed Funds (3 months ended June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | Change | | :------------------------------------------ | :------------ | :------------------ | :----- | | Noninterest-bearing deposits | $23,107 | $24,222 | $(1,115) | | Total deposits | $61,246 | $63,347 | $(2,101) | | Short-term borrowings | $1,341 | $42 | $1,299 | | Medium- and long-term debt | $5,740 | $6,698 | $(958) | | Total borrowed funds | $7,081 | $6,740 | $341 | Capital Summary of Changes in Total Shareholders' Equity (6 months ended June 30, 2025) | (in millions) | Amount | | :------------------------------------------ | :----- | | Balance at January 1, 2025 | $6,543 | | Net income | $371 | | Redemption of preferred stock | $(400) | | Other comprehensive income, net of tax | $662 | | Balance at June 30, 2025 | $6,860 | - The Corporation redeemed all Series A Preferred Stock, reclassifying $400 million from shareholders' equity to other liabilities[211] - The Corporation announced a $100 million common stock repurchase for Q3 2025 and entered into an Accelerated Share Repurchase (ASR) transaction[215] Estimated Capital Ratios (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Common equity tier 1 capital | $8,718 | $8,667 | | Common equity tier 1 capital ratio | 11.94% | 11.89% | | Total risk-based capital ratio | 13.74% | 14.21% | | Leverage ratio | 10.90% | 11.08% | - If subject to the Basel III Endgame framework, the estimated impact related to proposed inclusion of most components of AOCI would be an approximate 300 basis point decrease to CET1 as of June 30, 2025[224] RISK MANAGEMENT - The Corporation actively manages credit, market, and liquidity risks through established policies and monitoring by the Asset Liability Management Committee (ALCO)[280] - Credit quality metrics remained stable, but economic forecasts for CECL reflect a moderately weaker outlook with continued uncertainty[228][229] - Available liquidity sources totaled $40.5 billion at June 30, 2025, and uninsured deposits are well-diversified[305][309] Credit Risk Allowance for Credit Losses Allowance for Credit Losses Metrics (June 30, 2025 vs Dec 31, 2024) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :------------------ | | Allowance for credit losses as a percentage of total loans | 1.44% | 1.44% | | Allowance for credit losses as a multiple of total nonperforming loans | 3.0x | 2.4x | CECL Forecast and Economic Variables at June 30, 2025 - Economic forecasts for the CECL model reflect a moderately weaker outlook due to new tariff policies and weaker Q1 GDP, with continued uncertainty[229] Select Economic Variables (Base Forecast at June 30, 2025) | Economic Variable | Base Forecast | | :------------------------------------------ | :------------ | | Real GDP growth | Slows to less than 1.0% in Q3 2025 before recovering to over 2.0% annualized in H2 2026. | | Unemployment rate | Remains between 4.3% and 4.6% throughout the forecast period. | | Oil Prices | Hovers between $63 and $65 per barrel over the forecast period. | - A more severe economic scenario could result in an approximate $313 million increase in the quantitative calculation of the allowance for credit losses[232] Allowance for Loan Losses - The allowance for loan losses increased by $8 million to $698 million at June 30, 2025, from $690 million at December 31, 2024[234] - Estimates are based on current expected credit losses, including collective and individual loss estimates, and qualitative adjustments for uncaptured risks[235] Allowance for Credit Losses on Lending-Related Commitments - The allowance for credit losses on lending-related commitments totaled $37 million at June 30, 2025, up from $35 million at December 31, 2024[236] Nonperforming Assets Nonperforming Assets Summary (June 30, 2025 vs Dec 31, 2024) | (dollar amounts in millions) | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :------------------ | | Total nonperforming loans | $248 | $308 | | Total nonperforming assets | $249 | $308 | | Nonperforming loans as a percentage of total loans | 0.48% | 0.61% | - Total criticized loans increased by $215 million to $2,745 million (5.4% of total loans) at June 30, 2025, from $2,530 million (5.0% of total loans) at December 31, 2024[250] Concentrations of Credit Risk - The Corporation has significant credit risk concentrations in commercial real estate (36% of total loans) and automotive industries[252][253] Commercial Real Estate Lending - Commercial real estate loans totaled $18.3 billion (36% of total loans) at June 30, 2025[253][256] - Criticized real estate construction loans in the Commercial Real Estate business line increased to $93 million at June 30, 2025, from $36 million at December 31, 2024[258] - Commercial mortgage net charge-offs were $8 million for the six months ended June 30, 2025, up from $5 million in the prior year[260] Automotive Lending - Dealer Automotive Dealership Loans (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :------------------ | | Floor plan | $2,249 | $2,279 | | Other | $3,192 | $3,234 | | Total dealer | $5,441 | $5,513 | | Percent of Total Loans | 10.6% | 10.9% | - No nonaccrual dealer loans or net charge-offs were reported for the periods presented[263] Automotive Lending - Production Loans to Automotive Production Borrowers (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :------------------ | | Domestic | $516 | $499 | | Foreign | $281 | $265 | | Total production | $797 | $764 | | Percent of Total Loans | 1.6% | 1.5% | - No nonaccrual automotive production loans or net charge-offs were reported[266] Residential Real Estate Lending - Residential real estate loans totaled $3.7 billion (7% of total loans) at June 30, 2025[267][269] - Nonaccrual residential mortgages increased to $42 million at June 30, 2025, from $37 million at December 31, 2024[270] - Home equity nonaccrual loans were $28 million at June 30, 2025[270] Energy Lending Energy Business Line Loans (June 30, 2025 vs Dec 31, 2024) | (dollar amounts in millions) | Outstandings | Nonaccrual | Criticized (a) | | :------------------------------------------ | :----------- | :----------- | :------------- | | Exploration and production (E&P) | $1,213 | $0 | $0 | | Midstream | $305 | $0 | $0 | | Total Energy business line | $1,518 | $0 | $0 | - Energy loans totaled $1.5 billion (3% of total loans) at June 30, 2025, with no nonaccrual or criticized loans[274] Leveraged Loans HR C&I Loans (June 30, 2025 vs Dec 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :------------------ | | Outstandings | $2,933 | $2,836 | | Criticized | $383 | $300 | - Leveraged loans (HR C&I) represented 6% of total loans, with net charge-offs totaling $8 million for the six months ended June 30, 2025[277][278] Market and Liquidity Risk - The Corporation actively manages market and liquidity risks through ALCO, utilizing simulation analyses for interest rate risk and stress testing for liquidity[280][281] - Sensitivity to both rising and declining interest rates increased slightly from December 31, 2024, to June 30, 2025[292] - Available liquidity sources totaled $40.5 billion at June 30, 2025, including cash, unencumbered investment securities, and secured borrowing facilities[305] Interest Rate Risk - Interest rate risk arises from differences in repricing and cash flow characteristics of assets and liabilities, with the balance sheet predominantly characterized by floating-rate loans funded by core deposits[284] - The Corporation actively manages interest rate risk to optimize net interest income and the economic value of equity within established limits[285] Sensitivity of Net Interest Income to Changes in Interest Rates Estimated Annual Change in Net Interest Income (June 30, 2025 vs Dec 31, 2024) | Change in Interest Rates | June 30, 2025 (Amount) | June 30, 2025 (%) | December 31, 2024 (Amount) | December 31, 2024 (%) | | :--------------------- | :--------------------- | :---------------- | :------------------------- | :-------------------- | | Rising 100 basis points | $(36) | (2)% | $(26) | (1)% | | Declining 100 basis points | $18 | 1% | $12 | 1% | | Rising 200 basis points | $(85) | (4)% | $(67) | (3)% | | Declining 200 basis points | $22 | 1% | $12 | 1% | - Sensitivity to both rising and declining interest rates increased slightly from December 31, 2024, to June 30, 2025, due to changes in balance sheet mix dynamics[292] Sensitivity of Economic Value of Equity to Changes in Interest Rates Estimated Impact on Economic Value of Equity (June 30, 2025 vs Dec 31, 2024) | Change in Interest Rates | June 30, 2025 (Amount) | June 30, 2025 (%) | December 31, 2024 (Amount) | December 31, 2024 (%) | | :--------------------- | :--------------------- | :---------------- | :------------------------- | :-------------------- | | Rising 100 basis points | $(406) | (3)% | $(503) | (4)% | | Declining 100 basis points | $527 | 4% | $598 | 5% | | Rising 200 basis points | $(904) | (7)% | $(1,066) | (9)% | | Declining 200 basis points | $917 | 7% | $1,097 | 9% | - The sensitivity of the economic value of equity to rising and declining rates decreased from December 31, 2024, to June 30, 2025, due to a declining notional amount of cash flow swaps and a smaller securities portfolio[296] BSBY Cessation - The Corporation has substantially completed its BSBY transition efforts, with all impacted swaps re-designated as of April 1, 2024[299] - BSBY cessation positively impacted interest income on commercial loans by $23 million for the three months ended June 30, 2025[298] Sources of Liquidity Sources of Available Liquidity (June 30, 2025) | (dollar amounts in millions) | Available Liquidity | | :------------------------------------------ | :------------------ | | Cash on deposit with FRB | $3,909 | | Unencumbered investment securities | $7,262 | | FHLB (available capacity) | $11,914 | | FRB (available capacity) | $17,430 | | Total available liquidity | $40,515 | - The Bank had $11.9 billion of remaining borrowing capacity with the FHLB and $17.4 billion with the FRB discount window at June 30, 2025[303][304][305] Deposit Concentrations and Uninsured Deposits - The Corporation's uninsured