Allowance for credit losses

12 Months Ended

Dec. 31, 2023

5. Allowance for credit losses

For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolios by type. Changes in the allowance for credit losses for the years ended December 31, 2023, 2022 and 2021 were as follows:


	Commercial			Real Estate
(Dollars in millions)	and industrial			Commercial			Residential			Consumer			Total
2023
Beginning balance	$	568		$	611		$	115		$	631		$	1,925
Provision for credit losses		132			394			4			115			645
Net charge-offs:
Charge-offs		(132	)		(253	)		(10	)		(175	)		(570	)
Recoveries		52			12			7			58			129
Net charge-offs		(80	)		(241	)		(3	)		(117	)		(441	)
Ending balance	$	620		$	764		$	116		$	629		$	2,129

2022
Beginning balance	$	335		$	506		$	72		$	556		$	1,469
Allowance on acquired PCD loans		48			49			2			—			99
Provision for credit losses (a)		244			93			43			137			517
Net charge-offs:
Charge-offs (b)		(119	)		(60	)		(12	)		(112	)		(303	)
Recoveries		60			23			10			50			143
Net charge-offs		(59	)		(37	)		(2	)		(62	)		(160	)
Ending balance	$	568		$	611		$	115		$	631		$	1,925

2021
Beginning balance	$	469		$	607		$	104		$	556		$	1,736
Provision for credit losses		(58	)		(25	)		(30	)		38			(75	)
Net charge-offs:
Charge-offs		(124	)		(100	)		(11	)		(103	)		(338	)
Recoveries		48			24			9			65			146
Net charge-offs		(76	)		(76	)		(2	)		(38	)		(192	)
Ending balance	$	335		$	506		$	72		$	556		$	1,469

________________________________________________

(a)

Includes $242 million related to non-PCD acquired loans recorded on April 1, 2022.

(b)

For the year ended December 31, 2022, net charge-offs do not reflect $33 million of charge-offs related to PCD loans acquired on April 1, 2022.

Despite the allocation in the preceding tables, the allowance for credit losses is general in nature and is available to absorb losses from any loan or lease type. In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company utilizes statistically developed models to project principal balances over the remaining contractual lives of the loan portfolios and to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators, including loan grade and borrower repayment performance, can inform the models, which have been statistically developed based on historical correlations of credit losses with prevailing economic metrics, including unemployment, GDP and real estate prices. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. At each of December 31, 2023, 2022 and 2021, the Company utilized a reasonable and supportable forecast period of two years. Subsequent to this forecast period the Company reverted, ratably over a one-year period, to historical loss experience to inform its estimate of losses for the remaining contractual life of each portfolio. The Company also considered the impact of portfolio concentrations, changes in underwriting practices, product expansions into new markets, imprecision in its economic forecasts, geopolitical conditions and other risk factors that might influence its loss estimation process.

The Company also estimates losses attributable to specific troubled credits identified through both normal and targeted credit review processes. The amounts of specific loss components in the

Company’s loan and lease portfolios are determined through a loan-by-loan analysis of larger balance commercial and industrial loans and commercial real estate loans that are in nonaccrual status. Such loss estimates are typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. To the extent that those loans are collateral-dependent, they are evaluated based on the fair value of the loan’s collateral as estimated at or near the financial statement date. As the quality of a loan deteriorates to the point of classifying the loan as “criticized,” the process of obtaining updated collateral valuation information is usually initiated, unless it is not considered warranted given factors such as the relative size of the loan, the characteristics of the collateral or the age of the last valuation. In those cases where current appraisals may not yet be available, prior appraisals are utilized with adjustments, as deemed necessary, for estimates of subsequent declines in values as determined by line of business and/or loan workout personnel. Those adjustments are reviewed and assessed for reasonableness by the Company’s credit risk personnel. Accordingly, for real estate collateral securing larger nonaccrual commercial and industrial loans and commercial real estate loans, estimated collateral values are based on current appraisals and estimates of value. For non-real estate loans, collateral is assigned a discounted estimated liquidation value and, depending on the nature of the collateral, is verified through field exams or other procedures. In assessing collateral, real estate and non-real estate values are reduced by an estimate of selling costs.

For residential real estate loans, including home equity loans and lines of credit, the excess of the loan balance over the net realizable value of the property collateralizing the loan is charged-off when the loan becomes 150 days delinquent. That charge-off is based on recent indications of value from external parties that are generally obtained shortly after a loan becomes nonaccrual. Loans to consumers that file for bankruptcy are generally charged-off to estimated net collateral value shortly after the Company is notified of such filings. When evaluating individual home equity loans and lines of credit for charge off and for purposes of estimating losses in determining the allowance for credit losses, the Company gives consideration to the required repayment of any first lien positions related to collateral property.

Changes in the amount of the allowance for credit losses reflect the outcome of the procedures described herein, including the impact of changes in macroeconomic forecasts as compared with previous forecasts, as well as the impact of portfolio concentrations, imprecision in economic forecast, geopolitical conditions and other risk factors that might influence the loss estimation process.

The Company's reserve for off-balance sheet credit exposures was not material at December 31, 2023 and December 31, 2022.

Information with respect to loans and leases that were considered nonaccrual at the beginning and end of the reporting period and the interest income recognized on such loans for the years ended December 31, 2023, 2022 and 2021 follows.


	Amortized Cost with Allowance		Amortized Cost without Allowance		Total		Amortized Cost			Interest Income Recognized
(Dollars in millions)	December 31, 2023							January 1, 2023		Year Ended December 31, 2023
Commercial and industrial	$	397	$	273	$	670		$	504	$	22
Real estate:
Commercial		288		581		869			1,240		29
Residential builder and developer		3		—		3			1		—
Other commercial construction		71		100		171			125		2
Residential		81		134		215			272		15
Residential — limited documentation		19		36		55			78		2
Consumer:
Home equity lines and loans		42		39		81			85		7
Recreational finance		24		12		36			45		1
Automobile		9		5		14			40		—
Other		52		—		52			49		—
Total	$	986	$	1,180	$	2,166		$	2,439	$	78

(Dollars in millions)	December 31, 2022							January 1, 2022		Year Ended December 31, 2022
Commercial and industrial	$	212	$	292	$	504		$	371	$	26
Real estate:
Commercial		366		874		1,240			919		14
Residential builder and developer		1		—		1			3		2
Other commercial construction		59		66		125			111		4
Residential		147		125		272			356		25
Residential — limited documentation		48		30		78			123		1
Consumer:
Home equity lines and loans		43		42		85			70		4
Recreational finance		37		8		45			28		1
Automobile		35		5		40			34		—
Other		49		—		49			45		—
Total	$	997	$	1,442	$	2,439		$	2,060	$	77

(Dollars in millions)	December 31, 2021							January 1, 2021		Year Ended December 31, 2021
Commercial and industrial	$	153	$	218	$	371		$	433	$	23
Real estate:
Commercial		199		720		919			650		5
Residential builder and developer		1		2		3			1		1
Other commercial construction		30		81		111			114		1
Residential		198		158		356			366		24
Residential — limited documentation		80		43		123			147		—
Consumer:
Home equity lines and loans		32		38		70			79		4
Recreational finance		22		6		28			26		1
Automobile		29		5		34			39		—
Other		45		—		45			38		—
Total	$	789	$	1,271	$	2,060		$	1,893	$	59

The Company utilizes a loan grading system to differentiate risk amongst its commercial and industrial loans and commercial real estate loans. Loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more.

Line of business personnel in different geographic locations with support from and review by the Company’s credit risk personnel review and reassign loan grades based on their detailed knowledge of individual borrowers and their judgment of the impact on such borrowers resulting from changing conditions in their respective regions. Factors considered in assigning loan grades include borrower-specific information related to expected future cash flows and operating results, collateral values, geographic location, financial condition and performance, payment status, and other information. The Company’s policy is that, at least annually, updated financial information be obtained from commercial borrowers associated with pass grade loans and additional analysis performed. On a quarterly basis, the Company’s centralized credit risk department reviews all criticized commercial and industrial loans and commercial real estate loans greater than $5 million to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing.

The following table summarizes the loan grades applied at December 31, 2023 to the various classes of the Company’s commercial and industrial loans and commercial real estate loans by origination year.


	Term Loans by Origination Year												Revolving		Revolving Loans Converted to Term
(Dollars in millions)	2023		2022		2021		2020		2019		Prior		Loans		Loans		Total
Commercial and industrial:
Loan grades:
Pass	$	8,689	$	8,087	$	4,800	$	2,248	$	2,169	$	4,843	$	22,345	$	70	$	53,251
Criticized accrual		292		279		277		142		127		481		1,460		31		3,089
Criticized nonaccrual		29		68		56		75		36		150		243		13		670
Total commercial and industrial	$	9,010	$	8,434	$	5,133	$	2,465	$	2,332	$	5,474	$	24,048	$	114	$	57,010
Gross charge-offs year ended December 31, 2023	$	10	$	45	$	18	$	13	$	10	$	19	$	17	$	—	$	132
Real estate:
Commercial:
Loan grades:
Pass	$	2,048	$	1,742	$	1,367	$	2,011	$	3,059	$	8,491	$	440	$	—	$	19,158
Criticized accrual		227		891		465		456		966		2,238		7		—		5,250
Criticized nonaccrual		—		46		3		113		93		611		3		—		869
Total commercial real estate	$	2,275	$	2,679	$	1,835	$	2,580	$	4,118	$	11,340	$	450	$	—	$	25,277
Gross charge-offs year ended December 31, 2023	$	—	$	—	$	—	$	—	$	112	$	129	$	—	$	—	$	241
Residential builder and developer:
Loan grades:
Pass	$	530	$	252	$	41	$	6	$	2	$	12	$	116	$	—	$	959
Criticized accrual		1		18		30		—		59		—		3		—		111
Criticized nonaccrual		—		—		3		—		—		—		—		—		3
Total residential builder and developer	$	531	$	270	$	74	$	6	$	61	$	12	$	119	$	—	$	1,073
Gross charge-offs year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	2	$	—	$	2
Other commercial construction:
Loan grades:
Pass	$	813	$	1,366	$	651	$	373	$	646	$	187	$	30	$	—	$	4,066
Criticized accrual		53		391		390		691		565		326		—		—		2,416
Criticized nonaccrual		—		14		10		46		50		49		2		—		171
Total other commercial construction	$	866	$	1,771	$	1,051	$	1,110	$	1,261	$	562	$	32	$	—	$	6,653
Gross charge-offs year ended December 31, 2023	$	—	$	—	$	—	$	—	$	3	$	7	$	—	$	—	$	10

The Company considers repayment performance a significant indicator of credit quality for its residential real estate loan and consumer loan portfolios. A summary of loans in accrual and nonaccrual status at December 31, 2023 for the various classes of the Company’s residential real estate loans and consumer loans by origination year is as follows:


	Term Loans by Origination Year												Revolving		Revolving Loans Converted to Term
(Dollars in millions)	2023		2022		2021		2020		2019		Prior		Loans		Loans		Total
Residential:
Current	$	1,726	$	4,709	$	3,732	$	2,543	$	1,215	$	7,060	$	95	$	—	$	21,080
30-89 days past due		18		120		88		52		28		457		—		—		763
Accruing loans past due 90 days or more		1		30		28		17		14		205		—		—		295
Nonaccrual		1		17		10		3		4		179		1		—		215
Total residential	$	1,746	$	4,876	$	3,858	$	2,615	$	1,261	$	7,901	$	96	$	—	$	22,353
Gross charge-offs year ended December 31, 2023	$	—	$	—	$	1	$	—	$	3	$	4	$	—	$	—	$	8
Residential - limited documentation:
Current	$	—	$	—	$	—	$	—	$	—	$	825	$	—	$	—	$	825
30-89 days past due		—		—		—		—		—		31		—		—		31
Accruing loans past due 90 days or more		—		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		55		—		—		55
Total residential - limited documentation	$	—	$	—	$	—	$	—	$	—	$	911	$	—	$	—	$	911
Gross charge-offs year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	2	$	—	$	—	$	2
Consumer:
Home equity lines and loans:
Current	$	—	$	—	$	2	$	2	$	13	$	98	$	3,022	$	1,391	$	4,528
30-89 days past due		—		—		—		—		—		3		—		37		40
Accruing loans past due 90 days or more		—		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		5		3		73		81
Total home equity lines and loans	$	—	$	—	$	2	$	2	$	13	$	106	$	3,025	$	1,501	$	4,649
Gross charge-offs year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	1	$	5	$	6
Recreational finance:
Current	$	2,653	$	2,338	$	1,857	$	1,286	$	781	$	1,020	$	—	$	—	$	9,935
30-89 days past due		11		16		19		14		11		16		—		—		87
Accruing loans past due 90 days or more		—		—		—		—		—		—		—		—		—
Nonaccrual		3		5		8		6		5		9		—		—		36
Total recreational finance	$	2,667	$	2,359	$	1,884	$	1,306	$	797	$	1,045	$	—	$	—	$	10,058
Gross charge-offs year ended December 31, 2023	$	4	$	13	$	14	$	12	$	9	$	16	$	—	$	—	$	68
Automobile:
Current	$	1,063	$	1,096	$	1,047	$	427	$	198	$	87	$	—	$	—	$	3,918
30-89 days past due		8		15		17		9		6		5		—		—		60
Accruing loans past due 90 days or more		—		—		—		—		—		—		—		—		—
Nonaccrual		2		3		3		2		2		2		—		—		14
Total automobile	$	1,073	$	1,114	$	1,067	$	438	$	206	$	94	$	—	$	—	$	3,992
Gross charge-offs year ended December 31, 2023	$	2	$	6	$	7	$	3	$	2	$	3	$	—	$	—	$	23
Other:
Current	$	250	$	176	$	118	$	33	$	13	$	18	$	1,392	$	3	$	2,003
30-89 days past due		3		3		2		—		—		1		20		1		30
Accruing loans past due 90 days or more		—		—		—		—		—		—		7		—		7
Nonaccrual		2		1		1		—		—		—		48		—		52
Total other	$	255	$	180	$	121	$	33	$	13	$	19	$	1,467	$	4	$	2,092
Gross charge-offs year ended December 31, 2023	$	18	$	17	$	7	$	3	$	3	$	10	$	20	$	—	$	78

Total loans and leases at December 31, 2023	$	18,423	$	21,683	$	15,025	$	10,555	$	10,062	$	27,464	$	29,237	$	1,619	$	134,068
Total gross charge-offs for the year ended December 31, 2023	$	34	$	81	$	47	$	31	$	142	$	190	$	40	$	5	$	570

The following table summarizes the loan grades applied at December 31, 2022 to the various classes of the Company’s commercial and industrial loans and commercial real estate loans by origination year.


	Term Loans by Origination Year												Revolving		Revolving Loans Converted to Term
(Dollars in millions)	2022		2021		2020		2019		2018		Prior		Loans		Loans		Total
Commercial and industrial:
Loan grades:
Pass	$	10,217	$	6,582	$	3,110	$	2,989	$	1,752	$	4,615	$	19,794	$	41	$	49,100
Criticized accrual		259		237		234		170		98		527		774		17		2,316
Criticized nonaccrual		21		55		67		51		55		147		101		7		504
Total commercial and industrial	$	10,497	$	6,874	$	3,411	$	3,210	$	1,905	$	5,289	$	20,669	$	65	$	51,920

Real estate:
Commercial:
Loan grades:
Pass	$	2,493	$	1,752	$	2,303	$	3,365	$	2,359	$	8,262	$	521	$	—	$	21,055
Criticized accrual		314		449		424		635		910		1,610		42		—		4,384
Criticized nonaccrual		9		19		155		282		151		601		23		—		1,240
Total commercial real estate	$	2,816	$	2,220	$	2,882	$	4,282	$	3,420	$	10,473	$	586	$	—	$	26,679

Residential builder and developer:
Loan grades:
Pass	$	682	$	230	$	11	$	22	$	13	$	10	$	150	$	—	$	1,118
Criticized accrual		3		28		10		109		15		—		31		—		196
Criticized nonaccrual		—		1		—		—		—		—		—		—		1
Total residential builder and developer	$	685	$	259	$	21	$	131	$	28	$	10	$	181	$	—	$	1,315

Other commercial construction:
Loan grades:
Pass	$	1,033	$	1,080	$	1,226	$	1,186	$	367	$	296	$	16	$	—	$	5,204
Criticized accrual		38		145		321		1,025		299		145		—		—		1,973
Criticized nonaccrual		—		10		44		36		11		22		2		—		125
Total other commercial construction	$	1,071	$	1,235	$	1,591	$	2,247	$	677	$	463	$	18	$	—	$	7,302

A summary of loans in accrual and nonaccrual status at December 31, 2022 for the various classes of the Company’s residential real estate loans and consumer loans by origination year follows.


	Term Loans by Origination Year												Revolving		Revolving Loans Converted to Term
(Dollars in millions)	2022		2021		2020		2019		2018		Prior		Loans		Loans		Total
Residential:
Current	$	5,071	$	4,002	$	2,717	$	1,393	$	754	$	7,524	$	31	$	—	$	21,492
30-89 days past due		60		51		40		22		23		399		1		—		596
Accruing loans past due 90 days or more		12		40		20		14		14		245		—		—		345
Nonaccrual		6		11		3		10		5		231		6		—		272
Total residential	$	5,149	$	4,104	$	2,780	$	1,439	$	796	$	8,399	$	38	$	—	$	22,705

Residential - limited documentation:
Current	$	—	$	—	$	—	$	—	$	—	$	951	$	—	$	—	$	951
30-89 days past due		—		—		—		—		—		22		—		—		22
Accruing loans past due 90 days or more		—		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		—		—		78		—		—		78
Total residential - limited documentation	$	—	$	—	$	—	$	—	$	—	$	1,051	$	—	$	—	$	1,051

Consumer:
Home equity lines and loans:
Current	$	1	$	2	$	2	$	15	$	23	$	97	$	3,264	$	1,487	$	4,891
30-89 days past due		—		—		—		—		1		2		—		28		31
Accruing loans past due 90 days or more		—		—		—		—		—		—		—		—		—
Nonaccrual		—		—		—		1		—		6		3		75		85
Total home equity lines and loans	$	1	$	2	$	2	$	16	$	24	$	105	$	3,267	$	1,590	$	5,007

Recreational finance:
Current	$	2,842	$	2,281	$	1,588	$	964	$	487	$	812	$	—	$	—	$	8,974
30-89 days past due		9		10		12		8		5		11		—		—		55
Accruing loans past due 90 days or more		—		—		—		—		—		—		—		—		—
Nonaccrual		3		7		9		8		6		12		—		—		45
Total recreational finance	$	2,854	$	2,298	$	1,609	$	980	$	498	$	835	$	—	$	—	$	9,074

Automobile:
Current	$	1,491	$	1,558	$	703	$	379	$	167	$	95	$	—	$	—	$	4,393
30-89 days past due		7		13		7		7		6		4		—		—		44
Accruing loans past due 90 days or more		—		—		—		—		—		—		—		—		—
Nonaccrual		2		11		7		8		6		6		—		—		40
Total automobile	$	1,500	$	1,582	$	717	$	394	$	179	$	105	$	—	$	—	$	4,477

Other:
Current	$	274	$	173	$	58	$	39	$	8	$	23	$	1,374	$	8	$	1,957
30-89 days past due		4		1		—		—		—		1		16		1		23
Accruing loans past due 90 days or more		—		—		—		—		—		—		5		—		5
Nonaccrual		3		1		—		—		—		—		45		—		49
Total other	$	281	$	175	$	58	$	39	$	8	$	24	$	1,440	$	9	$	2,034

Total loans and leases at December 31, 2022	$	24,854	$	18,749	$	13,071	$	12,738	$	7,535	$	26,754	$	26,199	$	1,664	$	131,564