Allowance for Credit Losses

3 Months Ended

Mar. 31, 2024

We utilize a minimum of four forward-looking economic scenarios to calculate lifetime ECL when estimating the allowance for credit losses for in scope financial assets and the liability for off-balance sheet credit exposures. Three of the scenarios are termed the "Consensus Economic Scenarios" which include a 'most likely outcome' (the "Central scenario") and two less likely 'outer' scenarios, referred to as the "Upside scenario" and the "Downside scenario." The fourth scenario, referred to as the "Alternative Downside scenario," is designed to consider severe downside risks with more extreme economic outcomes. Each scenario is assigned a weighting deemed appropriate for the estimation of lifetime ECL, with the majority of the weighting typically placed on the Central scenario. At management's discretion, changes may be made to the weighting assigned to the four scenarios or additional scenarios may be included in order to consider current economic conditions.

Updates to Economic Scenarios and Other Changes During the Three Months Ended March 31, 2024 Although the economic outlook improved during the first quarter of 2024, economic uncertainty remained due to elevated interest rates, inflation levels and the expectation for slowing economic growth. We updated our Consensus Economic Scenarios and our Alternative Downside Scenario to reflect management's current view of forecasted economic conditions and utilized the four updated scenarios for estimating lifetime ECL at March 31, 2024. Each of the four scenarios were assigned weightings with the majority of the weighting placed on the Central scenario, lower equal weights placed on the Upside and Downside scenarios and the lowest weighting placed on the Alternative Downside scenario. This weighting was deemed appropriate for the estimation of lifetime ECL under current conditions. The following discussion summarizes the Central, Upside, Downside and Alternative Downside scenarios at March 31, 2024. The economic assumptions described in this section have been formed specifically for the purpose of calculating ECL.

In the Central scenario, U.S. Gross Domestic Product ("GDP") growth moderates in 2024 under the assumption that diminishing excess household savings, a softened labor market, and the lagged effects of higher interest rates constrain expenditure. With a more balanced labor market, the unemployment rate increases slightly, but remains near historic lows, while residential housing prices grow modestly driven by a low inventory of existing homes for sale. In the financial markets, growth in financial asset prices remains modest while the FRB starts to reduce its policy rate in mid-2024 followed by further reductions in the second half of 2024 and 2025 as inflation continues a gradual decline over the forecast horizon.

In the Upside scenario, the economy is assumed to grow at a faster pace than in the Central scenario as inflation wanes. As a result, the unemployment rate falls and remains lower than in the Central scenario, while both residential housing and commercial real estate prices are higher than in the Central scenario. In this scenario, the equity price index climbs with strong momentum and overall optimism fueled by easing inflation allows the FRB to normalize its policy rate slightly faster than currently anticipated, which, combined with lower inflation expectations, drive the 10-year U.S. Treasury yield lower than in the Central scenario.

In the Downside scenario, inflation re-accelerates and the economy enters into a mild recession, with the unemployment rate increasing and remaining at a higher level, while residential housing and commercial real estate prices undergo sharp correction due to weakness in the labor market and rising inflation. In this scenario, the FRB raises its policy rate initially to tackle inflation and the equity price index goes through a substantial correction by mid-2025 driven by an overall erosion of consumer and business sentiments, which eventually results in lower interest rates than in the Central scenario.

In the Alternative Downside scenario, geopolitical tensions escalate significantly and more severe inflationary pressures accompanied by tighter monetary policy lead the U.S. economy into a deep recession in 2024 and 2025, followed by a very anemic recovery starting in the second half of 2026. An extended period of economic contraction keeps the unemployment rate at an elevated level, which pressures residential housing prices to depreciate substantially, while at the same time, contracting corporate activities and rising unemployment pushes the commercial real estate market into a downturn. In this scenario, financial markets experience a major sell-off and volatility in the financial markets remains extremely high over the next year, widening corporate credit spreads substantially, and flight to safe haven assets pushes the 10-year U.S. Treasury yield lower.

The following table presents the forecasted key macroeconomic variables in our Central scenarios used for estimating lifetime ECL at March 31, 2024 and December 31, 2023:


	For the Quarter Ended
	June 30, 2024		December 31, 2024		June 30, 2025		December 31, 2025
Unemployment rate (quarterly average):
Forecast at March 31, 2024	4.1	%	4.3	%	4.3	%	4.1	%

Forecast at December 31, 2023	4.3		4.3		4.2		4.1
GDP growth rate (year-over-year):
Forecast at March 31, 2024	2.5		1.2		1.6		1.8

Forecast at December 31, 2023	1.2		1.1		1.8		2.1

While we believe that the assumptions used in our credit loss models are reasonable within the parameters for which the models have been built and calibrated to operate, inflation and elevated interest rates have resulted in a macroeconomic environment that is outside the parameters for which the models have been built. As a result, adjustments to model outputs to reflect consideration of management judgment are used with stringent governance in place to ensure an appropriate lifetime ECL estimate.

The impacts of elevated interest rates, inflation levels and the expectation for slowing economic growth will continue to impact our business and our allowance for credit losses in future periods, the extent of which remains uncertain. We will continue to monitor these situations closely and will continue to adapt our approach as necessary to reflect management's current view of forecasted economic conditions.

Allowance for Credit Losses / Liability for Off-Balance Sheet Credit Exposures The following table summarizes our allowance for credit losses and the liability for off-balance sheet credit exposures:


	March 31, 2024		December 31, 2023
	(in millions)
Allowance for credit losses:
Loans	$	581	$	591
Securities held-to-maturity(1)	—		—
Other financial assets measured at amortized cost(2)	—		—
Securities available-for-sale(1)	—		—
Total allowance for credit losses	$	581	$	591

Liability for off-balance sheet credit exposures	$	123	$	111

(1)See Note 3, "Securities," for additional information regarding the allowance for credit losses associated with our security portfolios.

(2)Primarily includes accrued interest receivables and customer acceptances.

The following table summarizes the changes in the allowance for credit losses on loans by product or line of business during the three months ended March 31, 2024 and 2023:


	Commercial Loans								Consumer Loans
	Real Estate, including Construction		Business and Corporate Banking		Global Banking		Other Comm'l		Residential Mortgages		Home Equity Mortgages		Credit Cards		Other Consumer		Total Loans
	(in millions)


















Three Months Ended March 31, 2024
Allowance for credit losses – beginning of period	$	144	$	302	$	127	$	1	$	(9)	$	7	$	16	$	3	$	591


Provision charged (credited) to income	(10)		7		(8)		—		1		1		—		(1)		(10)
Charge-offs	—		(1)		—		—		—		—		(2)		—		(3)
Recoveries	—		1		—		—		1		—		1		—		3
Net (charge-offs) recoveries	—		—		—		—		1		—		(1)		—		—

Allowance for credit losses – end of period	$	134	$	309	$	119	$	1	$	(7)	$	8	$	15	$	2	$	581


	Commercial Loans								Consumer Loans
	Real Estate, including Construction		Business and Corporate Banking		Global Banking		Other Comm'l		Residential Mortgages		Home Equity Mortgages		Credit Cards		Other Consumer		Total Loans
	(in millions)
Three Months Ended March 31, 2023
Allowance for credit losses – beginning of period	$	200	$	230	$	120	$	1	$	11	$	2	$	16	$	4	$	584


Provision charged (credited) to income	(28)		38		12		—		(10)		1		—		(1)		12
Charge-offs	—		(5)		—		—		(3)		(1)		(2)		—		(11)
Recoveries	—		1		—		—		—		1		1		—		3
Net (charge-offs) recoveries	—		(4)		—		—		(3)		—		(1)		—		(8)

Allowance for credit losses – end of period	$	172	$	264	$	132	$	1	$	(2)	$	3	$	15	$	3	$	588

The following table summarizes the changes in the liability for off-balance sheet credit exposures during the three months ended March 31, 2024 and 2023:



Three Months Ended March 31,	2024		2023
	(in millions)
Balance at beginning of period	$	111	$	117


Provision charged to income	12		8
Balance at end of period	$	123	$	125

Accrued Interest Receivables The following table summarizes accrued interest receivables associated with financial assets carried at amortized cost and securities available-for-sale along with the related allowance for credit losses, which are reported net in other assets on the consolidated balance sheet. These accrued interest receivables are excluded from the amortized cost basis disclosures presented elsewhere in these financial statements, including Note 3, "Securities," and Note 4, "Loans."


	March 31, 2024		December 31, 2023
	(in millions)
Accrued interest receivables:
Loans	$	264	$	259
Securities held-to-maturity	56		57
Other financial assets measured at amortized cost	58		19
Securities available-for-sale	97		87
Total accrued interest receivables	475		422
Allowance for credit losses	—		—
Accrued interest receivables, net	$	475	$	422

During both the three months ended March 31, 2024 and 2023, charged-off accrued interest receivables were immaterial.