Loans and Leases

3 Months Ended

Mar. 31, 2020

6. Loans and Leases

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:


		March 31,		December 31,
($ in millions)		2020		2019
Loans and leases held for sale:
Commercial and industrial loans	$		64		135
Commercial mortgage loans			1		1
Residential mortgage loans			1,565		1,264
Total loans and leases held for sale	$		1,630		1,400
Portfolio loans and leases:
Commercial and industrial loans	$		58,250		50,542
Commercial mortgage loans			11,160		10,963
Commercial construction loans			5,462		5,090
Commercial leases			3,123		3,363
Total commercial loans and leases	$		77,995		69,958
Residential mortgage loans	$		16,701		16,724
Home equity			5,963		6,083
Indirect secured consumer loans			12,050		11,538
Credit card			2,417		2,532
Other consumer loans			2,911		2,723
Total consumer loans	$		40,042		39,600
Total portfolio loans and leases	$		118,037		109,558

Portfolio loans and leases are recorded net of unearned income, which totaled $315 million as of March 31, 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 $297 million and $249 million as of March 31, 2020 and December 31, 2019,

respectively. The amortized cost basis of loans and leases excludes accrued interest receivables of $347 million at March 31, 2020 which are presented as a component of other assets in the Condensed Consolidated Balance Sheets.

The Bancorp’s FHLB and FRB borrowings are generally secured by loans. The Bancorp had loans of $16.8 billion and $16.7 billion at March 31, 2020 and December 31, 2019, respectively, pledged at the FHLB, and loans of $45.0 billion and $47.3 billion at March 31, 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)		March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Commercial and industrial loans	$		58,314		50,677		13		11
Commercial mortgage loans			11,161		10,964		20		15
Commercial construction loans			5,462		5,090		-		-
Commercial leases			3,123		3,363		10		-
Residential mortgage loans			18,266		17,988		54		50
Home equity			5,963		6,083		-		1
Indirect secured consumer loans			12,050		11,538		11		10
Credit card			2,417		2,532		42		42
Other consumer loans			2,911		2,723		1		1
Total loans and leases	$		119,667		110,958		151		130
Less: Loans and leases held for sale	$		1,630		1,400
Total portfolio loans and leases	$		118,037		109,558

The following table presents a summary of net charge-offs (recoveries) for the three months ended March 31:


($ in millions)		2020		2019
Commercial and industrial loans	$		50		18
Commercial mortgage loans			2		(1	)
Commercial leases			5		-
Residential mortgage loans			1		1
Home equity			3		3
Indirect secured consumer loans			12		13
Credit card			36		33
Other consumer loans			13		10
Total net charge-offs	$		122		77

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)		March 31, 2020			December 31, 2019
Net investment in direct financing leases:
Lease payment receivable (present value)	$		1,985			2,196
Unguaranteed residual assets (present value)			215			220
Net discount on acquired leases			(6	)		(7	)
Net investment in sales-type leases:
Lease payment receivable (present value)			534			510
Unguaranteed residual assets (present value)			16			15

(a)	Excludes $379 and $429 of leveraged leases at March 31, 2020 and December 31, 2019, respectively.

Interest income recognized in the Condensed Consolidated Statements of Income for the three months ended March 31, 2020 and 2019 was $18 million and $22 million, respectively, for direct financing leases and $6 million and immaterial, respectively, for sale-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 March 31, 2020 ($ in millions)		Direct Financing Leases		Sales-Type Leases
Remainder of 2020	$		483		98
2021			512		140
2022			415		120
2023			257		80
2024			184		71
2025			115		28
Thereafter			158		54
Total undiscounted cash flows	$		2,124		591
Less: Difference between undiscounted cash flows and discounted cash flows			139		57
Present value of lease payments (recognized as lease receivables)	$		1,985		534

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 $46 million and $17 million at March 31, 2020 and December 31, 2019, respectively, 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. Refer to Note 7 for additional information on credit quality and the ALLL.