Annual report pursuant to Section 13 and 15(d)

ALLOWANCE FOR CREDIT LOSSES

v3.22.4
ALLOWANCE FOR CREDIT LOSSES
 12 Months Ended
Dec. 31, 2022
Credit Loss [Abstract]  
Allowance for Credit Losses ALLOWANCE FOR CREDIT LOSSES
The following table presents ACL activity by portfolio segment.
(dollar amounts in millions) Commercial Consumer Total
Year ended December 31, 2022:
ALLL balance, beginning of period $ 1,462  $ 568  $ 2,030 
Loan and lease charge-offs (129) (184) (313)
Recoveries of loans and leases previously charged-off 114  78  192 
Provision (benefit) for loan and lease losses (23) 235  212 
ALLL balance, end of period
 $ 1,424  $ 697  $ 2,121 
AULC balance, beginning of period $ 41  $ 36  $ 77 
Provision for unfunded lending commitments 30  43  73 
AULC balance, end of period $ 71  $ 79  $ 150 
ACL balance, end of period $ 1,495  $ 776  $ 2,271 
Year ended December 31, 2021:
ALLL balance, beginning of period $ 1,236  $ 578  $ 1,814 
Loan and lease charge-offs (243) (139) (382)
Recoveries of loans and leases previously charged-off 83  84  167 
Provision (benefit) for loan and lease losses 12  (13) (1)
Allowance on PCD loans and leases at acquisition 374  58  432 
ALLL balance, end of period $ 1,462  $ 568  $ 2,030 
AULC balance, beginning of period $ 34  $ 18  $ 52 
Provision for unfunded lending commitments 8  18  26 
Unfunded lending commitment losses (1) —  (1)
AULC balance, end of period $ 41  $ 36  $ 77 
ACL balance, end of period $ 1,503  $ 604  $ 2,107 
Year ended December 31, 2020:
ALLL balance, beginning of period $ 552  $ 231  $ 783 
Cumulative-effect of change in accounting principle for financial instruments - credit losses (1) 180  211  391 
Loan and lease charge-offs (374) (166) (540)
Recoveries of loans and leases previously charged-off 32  59  91 
Provision for loan and lease losses 846  243  1,089 
ALLL balance, end of period $ 1,236  $ 578  $ 1,814 
AULC balance, beginning of period $ 102  $ 2  $ 104 
Cumulative-effect of change in accounting principle for financial instruments - credit losses (1) (38) 40  2 
Provision (benefit) for unfunded lending commitments (17) (24) (41)
Unfunded lending commitment losses (13) —  (13)
AULC balance, end of period $ 34  $ 18  $ 52 
ACL balance, end of period $ 1,270  $ 596  $ 1,866 
(1)Relates to day one impact of the CECL adjustment as a result of the implementation of ASU 2016-13.
At December 31, 2022, the ACL was $2.3 billion, an increase of $164 million from the December 31, 2021 balance of $2.1 billion. The increase was primarily driven by loan and lease growth of $8.3 billion, but also recognizes the increased near-term recessionary risks at the end of 2022.
The Commercial ACL was $1.5 billion at both December 31, 2022 and December 31, 2021. The impacts of strong commercial loan and lease growth of $5.4 billion and a generally more pessimistic economic forecast were offset by reductions in qualitative reserves related to the CRE portfolio as more clarity with respect to COVID-related impacts emerged throughout 2022.
The Consumer ACL balance was $776 million at December 31, 2022, an increase of $172 million from the December 31, 2021 balance of $604 million. The increase is attributable to a combination of strong consumer loan growth over the course of 2022 of $2.9 billion, while also reflecting a deterioration in the economic forecast resulting in increased near-term recessionary risks for the consumer portfolio.
The baseline economic scenario used in the December 31, 2022 ACL determination included the Federal Funds Rate projected to peak at approximately 4.6% in the second quarter of 2023 as the Federal Reserve continues to address the elevated inflation levels. As a result, inflation is expected to drop from an average of 8.1% in 2022 to an average of 2.4% by 2024. However, slowing economic growth is anticipated in the short term and unemployment is expected to gradually increase to a projected level of 4.1% by Q4 2023. It is also expected that consumers will continue to experience increased payment stress due to the interest rate increases, some of which is reflected in a deterioration in the projected HPI forecast. As a result of all these factors, there is an increased risk of a near-term recession in 2023. Economic scenarios included elevated levels of economic uncertainty associated with geopolitical instability, high inflation readings, the U.S labor market and the expected path of interest rate increases by the Federal Reserve. Given the uncertainty associated with key economic scenario assumptions, the December 31, 2022 ACL included a general reserve that consists of various risk profile components to address uncertainty not measured within the quantitative transaction reserve.