Allowance for Credit Losses

6 Months Ended

Jun. 30, 2022

ALLOWANCE FOR CREDIT LOSSES

The ACL for loans and leases is reported in the allowance for credit losses on the Consolidated Balance Sheets, while the ACL for unfunded commitments is reported in other liabilities. The provision or benefit for credit losses related to both (i) loans and leases and (ii) unfunded commitments is reported in the Consolidated Statements of Income as provision or benefit for credit losses. The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. Forecasted economic conditions are developed using third party macroeconomic scenarios and may be adjusted based on management’s expectations over the lives of the portfolios. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product (“GDP”), home price index, commercial real estate index, corporate profits, and credit spreads.

The processes and methodologies we utilized to determine the ACL at June 30, 2022 were consistent with those utilized to determine the ACL at March 31, 2022. As previously disclosed in our Quarterly Report on Form 10-Q as of and for the three month period ended March 31, 2022, we changed certain aspects of our ACL methodology during the three month period ended March 31, 2022. BancShares made these changes to integrate the ACL methodologies of CIT and BancShares. The most significant changes in the ACL methodology compared to that utilized to determine the ACL at December 31, 2021 include the following: (i) utilized economic scenario forecasts over the lives of the loan portfolios instead of using a two year reasonable and supportable period with a one year reversion period followed by a historical long run average economic forecast for the remainder of the portfolio life; and (ii) implemented scenario weighting of a range of economic scenarios, including baseline, upside, and downside scenarios instead of utilizing just the consensus baseline scenario as the basis of the quantitative ACL estimate.

The ACL at June 30, 2022 increased slightly compared to March 31, 2022 due to the impacts of loan growth and mild deterioration in the macroeconomic forecast (primarily related to GDP, home prices, commercial real estate prices, and higher interest rates) were partially offset by improvements in credit quality and a $12 million decrease in the initial ACL for PCD loans and leases acquired in the CIT Merger (the “Initial PCD ACL”). The remaining changes in the ACL for the six month period ending June 30, 2022 were primarily related to the CIT Merger. The Initial PCD ACL of $272 million was established through the PCD Gross-Up and there was no corresponding increase to the provision for credit losses. The PCD Gross-Up is discussed further in Note 2 — Business Combinations. The initial ACL for Non-PCD loans and leases acquired in the CIT Merger was established through a corresponding increase of $454 million to the provision for credit losses (the “Initial Non-PCD Provision”).

The ACL activity for loans and leases and the ACL for unfunded commitments is summarized in the following tables.

ACL for Loans and Leases


	Three Months Ended June 30, 2022						Six Months Ended June 30, 2022
dollars in millions	Commercial		Consumer		Total		Commercial		Consumer		Total
Balance at beginning of period	$	743	$	105	$	848	$	80	$	98	$	178
Initial PCD ACL(1)	(12)		—		(12)		258		14		272
Initial Non-PCD Provision	—		—		—		432		22		454
Provision (benefit) for credit losses - loans and leases	33		3		36		10		(27)		(17)
Total provision (benefit) for credit losses- loans and leases	33		3		36		442		(5)		437
Charge-offs(1)	(36)		(5)		(41)		(64)		(10)		(74)
Recoveries	12		7		19		24		13		37

Balance at June 30, 2022	$	740	$	110	$	850	$	740	$	110	$	850

	Three Months Ended June 30, 2021						Six Months Ended June 30, 2021
	Commercial		Consumer		Total		Commercial		Consumer		Total
Balance at beginning of period	$	86	$	124	$	210	$	92	$	133	$	225
Provision (benefit) for credit losses - loans and leases	1		(20)		(19)		(3)		(28)		(31)
Charge-offs	(3)		(4)		(7)		(7)		(9)		(16)
Recoveries	2		3		5		4		7		11

Balance at June 30, 2021	$	86	$	103	$	189	$	86	$	103	$	189

(1) The Initial PCD ACL related to the CIT Merger was $272 million, net of an additional $243 million for loans that CIT charged-off prior to the Merger Date (whether full or partial) which met BancShares’ charge-off policy at the Merger Date. The $12 million reflects second quarter adjustment to the original amount recorded on the Merger Date, with an equal adjustment to the UPB of PCD loans. There was no income statement impact or adjustment to the purchase price.

ACL for Unfunded Commitments


	Three Months Ended June 30,				Six Months Ended June 30,
dollars in millions	2022		2021		2022		2021
Beginning balance	$	75	$	12	$	12	$	13
Provision (benefit) for credit losses - unfunded commitments	6		(1)		69		(2)
Ending balance	$	81	$	11	$	81	$	11

For the period ended June 30, 2022, the increase in the ACL for unfunded commitments compared to June 30, 2021 primarily reflected the additional commitments acquired in the CIT Merger.