Company: CMA
Filing Date: 2025-02-24
Form Type: 10-K
Source: 0000028412-25-000108
Chunk: 123

Company: COMERICA INC
Filing Date: 2025-02-24
Form: 10-K
Item: Item 1
Chunk 123
---
 of which are the loan risk rating process, development of economic forecasts and application of qualitative adjustments. Sensitivities are disclosed to demonstrate how changes in loan risk ratings and economic forecast scenarios may impact the allowance for credit losses. Sensitivities only consider changes to each specific assumption in isolation and their impact to the quantitative modeled results. They do not contemplate impacts to the qualitative framework. 

Loan Risk Rating Process

Reserve factors are applied to pools of loans based on risk characteristics, including the Corporation's internal risk rating system; therefore, loss estimates are highly dependent on the accuracy of the risk rating assigned to each loan. The inherent imprecision in the risk rating system resulting from inaccuracy in assigning and/or entering risk ratings in the loan accounting system is monitored by the Corporation's asset quality review function. Changes to internal risk ratings beyond the forecasted migration inherent in the credit models would result in a different estimated allowance for credit losses. To illustrate, if five percent of the individual risk ratings were adjusted down by one rating across all pools, the allowance for loan losses as of December 31, 2024 would change by approximately $6 million.

Forecasted Economic Variables

Management utilizes models through which historical reserve factor estimates are calibrated to economic forecasts over the reasonable and supportable forecast period based on the projected performance of specific economic variables that statistically correlate with the probability of default and loss given default pools. Loss estimates revert to historical loss experience for contractual lives beyond the forecast period. Management selects economic variables it believes to be most relevant based on the composition of the loan portfolio and customer base, including forecasted levels of employment, gross domestic product, corporate bond and treasury spreads, industrial production levels, consumer and commercial real estate price indices as well as housing statistics.

The allowance for credit losses is highly sensitive to the economic forecasts used to develop the estimate. Due to the high level of uncertainty regarding significant assumptions, the Corporation evaluated a range of economic scenarios, including more severe economic forecast scenarios, with varying responses to current economic risks. The following table summarizes select economic variables representative of the forecasts used in a more severe forecast scenario.

F-36

Economic VariableMore Severe ForecastReal GDP Contracts through third quarter 2025, followed by partial recovery, resulting in a cumulative contraction of 0.7 percent over the forecast period.Unemployment rateIncreases to 8.3 percent by first quarter 2026, followed by a decline to 7.5 percent by the end of the forecast period.Corporate BBB bond to 10-year Treasury bond spreadsSp