Loans and Leases

9 Months Ended

Sep. 30, 2020

The Bancorp diversifies its loan and lease portfolio by offering a variety of loan and lease products with various payment terms and rate structures. The Bancorp’s commercial loan and lease portfolio consists of lending to various industry types. Management periodically reviews the performance of its loan and lease products to evaluate whether they are performing within acceptable interest rate and credit risk levels and changes are made to underwriting policies and procedures as needed. The Bancorp maintains an allowance to absorb loan and lease losses that are expected to be incurred over the remaining contractual terms of the related loans and leases. For further information on credit quality and the ALLL, refer to Note 7.

The following table provides a summary of commercial loans and leases classified by primary purpose and consumer loans classified based upon product or collateral as of:


($ in millions)	September 30, 2020		December 31, 2019
Loans and leases held for sale:
Commercial and industrial loans	$	57	135
Commercial mortgage loans	2		1
Residential mortgage loans	2,264		1,264
Total loans and leases held for sale	$	2,323	1,400
Portfolio loans and leases:
Commercial and industrial loans(a)	$	51,695	50,542
Commercial mortgage loans	10,878		10,963
Commercial construction loans	5,656		5,090
Commercial leases	3,021		3,363
Total commercial loans and leases	$	71,250	69,958
Residential mortgage loans(b)	$	16,158	16,724
Home equity	5,455		6,083
Indirect secured consumer loans	12,925		11,538
Credit card	2,087		2,532
Other consumer loans	2,856		2,723
Total consumer loans	$	39,481	39,600
Total portfolio loans and leases	$	110,731	109,558

(a)Includes $5.2 billion, as of September 30, 2020, related to the SBA’s Paycheck Protection Program established under the CARES Act on March 27, 2020.

(b)Includes $51 million, as of September 30, 2020, of residential mortgage loans previously sold to GNMA for which the Bancorp is deemed to have regained effective control over under ASC Topic 860, but did not exercise its option to repurchase. Refer to Note 16 for further information.

Portfolio loans and leases are recorded net of unearned income, which totaled $301 million as of September 30, 2020 and $354 million as of December 31, 2019. Additionally, portfolio loans and leases are recorded net of unamortized premiums and discounts, deferred direct loan origination fees and costs and fair value adjustments (associated with acquired loans or loans designated as fair value upon origination), which totaled a net premium of $228 million and $249 million as of September 30, 2020 and December 31, 2019, respectively. The amortized cost basis of loans and leases excludes accrued interest receivables of $361 million at September 30, 2020, which are presented as a component of other assets in the Condensed Consolidated Balance Sheets.

The Bancorp’s FHLB and FRB borrowings are primarily secured by loans. The Bancorp had loans of $15.8 billion and $16.7 billion at September 30, 2020 and December 31, 2019, respectively, pledged at the FHLB, and loans of $35.1 billion and $47.3 billion at September 30, 2020 and December 31, 2019, respectively, pledged at the FRB.

The following table presents a summary of the total loans and leases owned by the Bancorp as of:


	Carrying Value			90 Days Past Due and Still Accruing
($ in millions)	September 30, 2020		December 31, 2019	September 30, 2020	December 31, 2019
Commercial and industrial loans	$	51,752	50,677	4	11
Commercial mortgage loans	10,880		10,964	26	15
Commercial construction loans	5,656		5,090	—	—
Commercial leases	3,021		3,363	2	—
Residential mortgage loans	18,422		17,988	67	50
Home equity	5,455		6,083	2	1
Indirect secured consumer loans	12,925		11,538	10	10
Credit card	2,087		2,532	27	42
Other consumer loans	2,856		2,723	1	1
Total loans and leases	$	113,054	110,958	139	130
Less: Loans and leases held for sale	$	2,323	1,400
Total portfolio loans and leases	$	110,731	109,558

The following table presents a summary of net charge-offs (recoveries):


	For the three months ended September 30,			For the nine months ended September 30,
($ in millions)	2020		2019	2020	2019
Commercial and industrial loans	$	42	29	157	67
Commercial mortgage loans	11		—	14	(1)
Commercial leases	8		4	24	7
Residential mortgage loans	(1)		1	1	1
Home equity	1		2	5	8
Indirect secured consumer loans	3		13	23	34
Credit card	29		33	100	101
Other consumer loans	8		17	29	39
Total net charge-offs	$	101	99	353	256

The Bancorp engages in commercial lease products primarily related to the financing of commercial equipment. Leases are classified as sales-type if the Bancorp transfers control of the underlying asset to the lessee. The Bancorp classifies leases that do not meet any of the criteria for a sales-type lease as a direct financing lease if the present value of the sum of the lease payments and any residual value guaranteed by the lessee and/or any other third party equals or exceeds substantially all of the fair value of the underlying asset and the collection of the lease payments and residual value guarantee is probable.

The following table presents the components of the net investment in leases as of:


($ in millions)(a)	September 30, 2020		December 31, 2019
Net investment in direct financing leases:
Lease payment receivable (present value)	$	1,610	2,196
Unguaranteed residual assets (present value)	198		220
Net discount on acquired leases	—		(7)
Net investment in sales-type leases:
Lease payment receivable (present value)	818		510
Unguaranteed residual assets (present value)	29		15

(a)Excludes $366 and $429 of leveraged leases at September 30, 2020 and December 31, 2019, respectively.

Interest income recognized in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2020 was $16 million and $50 million, respectively, for direct financing leases and $7 million and $20 million, respectively, for sales-type leases. For the three and nine months ended September 30, 2019, interest income recognized was $22 million and $70 million, respectively, for direct financing leases and $4 million and $7 million, respectively, for sales-type leases.

The following table presents undiscounted cash flows for both direct financing and sales-type leases for the remainder of 2020 through 2025 and thereafter as well as a reconciliation of the undiscounted cash flows to the total lease receivables as follows:


As of September 30, 2020 ($ in millions)	Direct Financing Leases		Sales-Type Leases
Remainder of 2020	$	137	57
2021	503		226
2022	397		197
2023	232		144
2024	172		108
2025	115		56
Thereafter	165		113
Total undiscounted cash flows	$	1,721	901
Less: Difference between undiscounted cash flows and discounted cash flows	111		83
Present value of lease payments (recognized as lease receivables)	$	1,610	818

The lease residual value represents the present value of the estimated fair value of the leased equipment at the end of the lease. The Bancorp performs quarterly reviews of residual values associated with its leasing portfolio considering factors such as the subject equipment, structure of the transaction, industry, prior experience with the lessee and other factors that impact the residual value to assess for impairment. The Bancorp maintained an allowance of $33 million at September 30, 2020 to cover the losses that are expected to be incurred over the remaining contractual terms of the related leases, including the potential losses related to the residual value, in the net investment in leases. The Bancorp maintained an allowance of $17 million at December 31, 2019 to cover the inherent losses, including the potential losses related to the residual value, in the net investment in leases. Refer to Note 7 for additional information on credit quality and the ALLL.