Annual report pursuant to Section 13 and 15(d)

ALLOWANCE FOR CREDIT LOSSES

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ALLOWANCE FOR CREDIT LOSSES
 12 Months Ended
Dec. 31, 2023
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, 2023:
ALLL balance, beginning of period $ 1,424  $ 697  $ 2,121 
Loan and lease charge-offs (270) (184) (454)
Recoveries of loans and leases previously charged-off 112  69  181 
Provision for loan and lease losses 297  110  407 
ALLL balance, end of period $ 1,563  $ 692  $ 2,255 
AULC balance, beginning of period $ 71  $ 79  $ 150 
Benefit for unfunded lending commitments (5) —  (5)
AULC balance, end of period $ 66  $ 79  $ 145 
ACL balance, end of period $ 1,629  $ 771  $ 2,400 
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 
At December 31, 2023, the ACL was $2.4 billion, an increase of $129 million from the December 31, 2022 balance of $2.3 billion. The increase in the total ACL was primarily driven by a combination of loan and lease growth and modest overall coverage ratio builds throughout 2023.
The Commercial ACL was $1.6 billion at December 31, 2023, an increase of $134 million from the December 31, 2022 balance of $1.5 billion. The primary drivers were approximately $1.3 billion of commercial loan growth and an increase in the coverage ratio for the commercial real estate loan portfolio, reflecting the ongoing risks presented by higher interest rates, increased vacancy rates and deteriorating property values.
The Consumer ACL balance was $771 million at December 31, 2023, relatively flat compared to the December 31, 2022 balance of $776 million. Consumer loan growth over the course of 2023 was offset by modest improvement in the macroeconomic environment.
The baseline economic scenario used in the December 31, 2023 ACL determination included the federal funds rate projected to have peaked during the third quarter of 2023 and is forecast to remain at this terminal level until mid-2024 as the Federal Reserve continues to address the elevated inflation levels and tightness in the labor market. The Federal Reserve is expected to start cutting rates in the third quarter of 2024 at a rate of 25 basis points per quarter until reaching 3% in late 2026. Inflation is forecast to drop from 3.3% year over year at the end of 2023, to the Federal Reserve’s target level of 2% by the fourth quarter of 2024. Unemployment is projected to gradually increase, peaking at 4.1% in the first quarter of 2025 before marginally improving to 3.9% by 2027.
The economic scenarios used included elevated levels of economic uncertainty including the impact of specific challenges in the Commercial Real Estate industry, high inflation readings, the U.S labor market, the expected path of interest rate changes by the Federal Reserve, and the impact of significant conflicts on-going around the world. Given the uncertainty associated with key economic scenario assumptions, the December 31, 2023 ACL included a general reserve that consists of various risk profile components to address uncertainty not measured within the quantitative transaction reserve.