Fifth Third(FITB) - 2023 Q2 - Quarterly Report

Part I. Financial Information This section presents Fifth Third Bancorp's comprehensive financial information, including management's discussion, financial statements, and detailed notes Glossary of Abbreviations and Acronyms This section provides a comprehensive list of abbreviations and acronyms used in the financial report for reader comprehension - The glossary serves as a tool for readers to understand the terminology used in the report, covering MD&A, financial statements, and notes[607][612] Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 2) This section provides management's analysis of Fifth Third Bancorp's financial condition, operations, key trends, and risk management - Fifth Third Bancorp is a diversified financial services company with $207 billion in assets as of June 30, 2023, operating 1,072 full-service banking centers and 2,114 ATMs across eleven states[611] - Net interest income (FTE basis) and noninterest income contributed 67% and 33% to total revenue for the three months ended June 30, 2023, and 68% and 32% for the six months ended June 30, 2023, respectively[614] - The company's revenues are primarily driven by changes in interest rates, credit quality, economic trends, and capital markets[614] - Recent high-profile bank failures have increased regulatory and market focus on liquidity, asset-liability management, and unrealized securities losses, leading to a proposed special deposit insurance assessment of approximately $208 million for the Bancorp[618] - The LIBOR transition is ongoing, with all remaining LIBOR-based exposures expected to transition to alternative reference rates (like SOFR) at the next repricing event after June 30, 2023[621] Overview This section provides a high-level summary of Fifth Third Bancorp's business, financial performance, and key economic and regulatory developments - Fifth Third Bancorp is a diversified financial services company with $207 billion in assets as of June 30, 2023, operating 1,072 full-service banking centers and 2,114 ATMs in eleven states[611] - Net interest income (FTE basis) and noninterest income provided 67% and 33% of total revenue for the three months ended June 30, 2023, and 68% and 32% for the six months ended June 30, 2023[614] - Economic activity expanded in Q2 2023 with a strong labor market and slowed inflation, but persistent inflationary pressures may lead to higher interest rates for longer[616][362] - Recent bank failures have led to increased regulatory scrutiny and a proposed special deposit insurance assessment of approximately $208 million for the Bancorp[618] - The LIBOR transition is nearing completion, with all remaining LIBOR-based exposures transitioning to alternative reference rates (e.g., SOFR) after June 30, 2023[621] - The Bancorp completed an accelerated share repurchase transaction of $200 million, repurchasing 5,589,996 shares, with final settlement on March 6, 2023[103][439][440] Non-GAAP Financial Measures This section reconciles non-GAAP financial measures to U.S. GAAP, providing additional insights into the Bancorp's performance and capital - The Bancorp uses non-GAAP financial measures like Net Interest Income on an FTE basis, Return on Average Tangible Common Equity, and Efficiency Ratio to provide additional insight, emphasizing they should supplement, not replace, U.S. GAAP measures[25][26][27] Non-GAAP Financial Measures Reconciliation (Three Months Ended June 30) | ($ in millions) | For the three months ended June 30, 2023 | 2022 | |:---|:---|:---| | Net interest income (U.S. GAAP) | $1,457 | $1,339 | | Add: FTE adjustment | 6 | 3 | | Net interest income on an FTE basis | $1,463 | $1,342 | | Interest income (U.S. GAAP) | $2,370 | $1,464 | | Add: FTE adjustment | 6 | 3 | | Interest income on an FTE basis | $2,376 | $1,467 | | Net interest margin on an FTE basis | 3.10 % | 2.92 % | | Net interest rate spread on an FTE basis | 2.32 | 2.76 | | Efficiency ratio on an FTE basis | 56.2 | 55.1 | Non-GAAP Financial Measures Reconciliation (Six Months Ended June 30) | ($ in millions) | For the six months ended June 30, 2023 | 2022 | |:---|:---|:---| | Net interest income (U.S. GAAP) | $2,974 | $2,534 | | Add: FTE adjustment | 11 | 7 | | Net interest income on an FTE basis | $2,985 | $2,541 | | Interest income (U.S. GAAP) | $4,583 | $2,752 | | Add: FTE adjustment | 11 | 7 | | Interest income on an FTE basis | $4,594 | $2,759 | | Net interest margin on an FTE basis | 3.20 % | 2.75 % | | Net interest rate spread on an FTE basis | 2.46 | 2.61 | | Efficiency ratio on an FTE basis | 58.1 | 59.8 | Return on Average Tangible Common Equity Reconciliation (Three Months Ended June 30) | ($ in millions) | For the three months ended June 30, 2023 | 2022 | |:---|:---|:---|\ | Net income available to common shareholders (U.S. GAAP) | $562 | $526 | | Add: Intangible amortization, net of tax | 8 | 9 | | Tangible net income available to common shareholders | $570 | $535 | | Return on average tangible common equity | 20.5 % | 17.5 % | Return on Average Tangible Common Equity Reconciliation (Six Months Ended June 30) | ($ in millions) | For the six months ended June 30, 2023 | 2022 | |:---|:---|:---|\ | Net income available to common shareholders (U.S. GAAP) | $1,097 | $1,000 | | Add: Intangible amortization, net of tax | 18 | 17 | | Tangible net income available to common shareholders | $1,115 | $1,017 | | Return on average tangible common equity | 20.5 % | 15.3 % | Non-GAAP Capital Ratios Reconciliation (As of) | As of ($ in millions) | June 30, 2023 | December 31, 2022 | |:---|:---|:---|\ | Total Bancorp Shareholders' Equity (U.S. GAAP) | $17,809 | $17,327 | | Tangible equity as a percentage of tangible assets | 8.58 % | 8.31 % | | Tangible common equity as a percentage of tangible assets | 7.57 | 7.30 | Recent Accounting Standards This section details the adoption and impact of new accounting standards, including those related to credit losses, derivatives, and supplier finance programs - The Bancorp adopted ASU 2022-02 (Troubled Debt Restructurings and Vintage Disclosures) on January 1, 2023, resulting in a $49 million decrease to the Allowance for Credit Losses (ACL) and a $37 million cumulative-effect adjustment to retained earnings, net of tax[2][34] - ASU 2022-01 (Derivatives and Hedging: Portfolio Layer Method) was adopted on January 1, 2023, expanding fair value hedging scope to all financial assets and allowing multiple layers within a single closed portfolio; it had no material impact[1] - ASU 2022-04 (Liabilities-Supplier Finance Programs: Disclosure of Supplier Finance Program Obligations) was adopted on January 1, 2023, requiring enhanced disclosures for supplier finance programs, with no material impact[3] - ASU 2021-08 (Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers) was adopted on January 1, 2023, for business combinations occurring on or after this date, with no material impact[9] - ASU 2022-03 (Fair Value Measurement: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions) is effective for the Bancorp on January 1, 2024, clarifying that contractual sale restrictions are not considered in fair value measurement[10] - ASU 2023-02 (Investments – Equity Method and Joint Ventures: Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method) is effective for the Bancorp on January 1, 2024, expanding the proportional amortization method for tax credit investments; the impact is currently being evaluated[634] Critical Accounting Policies This section outlines the Bancorp's critical accounting policies, emphasizing management judgment and estimates in areas like ALLL and fair value measurements - The Bancorp's critical accounting policies, including ALLL, reserve for unfunded commitments, valuation of servicing rights, fair value measurements, goodwill, and legal contingencies, require significant management judgment and estimates[33] - The ALLL methodology was revised following the adoption of ASU 2022-02 on January 1, 2023, focusing on expected credit losses over contractual terms, adjusted for prepayments[34][36] - The ALLL is determined through collective evaluation for groups of loans with similar risk characteristics and specific allowances for individually evaluated loans, considering historical losses, current/forecasted economic conditions, and qualitative factors[38][43][45] - For individually evaluated commercial loans, allowances consider collateral value, guarantor credit quality, loan structure, and macroeconomic environment, with collateral-dependent loans measured at fair value less costs to sell[39][41][42] - Expected credit loss models for collectively evaluated loans forecast losses based on probability of default, expected balance at default, and loss percentage given default, using historical data and reasonable/supportable forecasts (up to three years)[43][44] Statements of Income Analysis This section analyzes the Bancorp's income statement, focusing on trends in net interest income, noninterest income, provision for credit losses, and expenses - Net interest income on an FTE basis increased by $121 million (9%) to $1.5 billion for Q2 2023 and by $444 million (17%) to $3.0 billion for H1 2023, driven by higher market interest rates and growth in certain loan categories, partially offset by increased deposit rates and wholesale funding costs[50][84][115][116] - Net interest margin on an FTE basis increased to 3.10% for Q2 2023 (from 2.92% in Q2 2022) and to 3.20% for H1 2023 (from 2.75% in H1 2022), positively impacted by higher market rates and loan growth, but partially offset by deposit migration and rising wholesale funding costs[85][115][116] - Provision for credit losses was $177 million for Q2 2023 (vs. $179 million in Q2 2022) and $341 million for H1 2023 (vs. $224 million in H1 2022), driven by economic forecast deterioration and increases in specific reserves for commercial and industrial loans[20][94] - Noninterest income increased by $50 million (7%) to $726 million for Q2 2023 and by $63 million (5%) to $1.4 billion for H1 2023, primarily due to increases in net securities gains, mortgage banking net revenue, and commercial banking revenue, partially offset by decreases in other noninterest income, service charges on deposits, and leasing business revenue[21][97][98] - Noninterest expense increased by $119 million (11%) to $1.2 billion for Q2 2023 and by $228 million (10%) to $2.6 billion for H1 2023, mainly due to higher compensation and benefits, technology and communications, net occupancy, and marketing expenses[22][171][172] Key Income Statement Data (Three and Six Months Ended June 30) | ($ in millions) | For the three months ended June 30, 2023 | 2022 | For the six months ended June 30, 2023 | 2022 | |:---|:---|:---|:---|:---|\ | Net interest income (U.S. GAAP) | $1,457 | $1,339 | $2,974 | $2,534 | | Net interest income (FTE) | $1,463 | $1,342 | $2,985 | $2,541 | | Noninterest income | $726 | $676 | $1,422 | $1,359 | | Total revenue (FTE) | $2,189 | $2,018 | $4,407 | $3,900 | | Provision for credit losses | $177 | $179 | $341 | $224 | | Noninterest expense | $1,231 | $1,112 | $2,562 | $2,334 | | Net income | $601 | $562 | $1,159 | $1,056 | | Net income available to common shareholders | $562 | $526 | $1,097 | $1,000 | | Diluted EPS | $0.82 | $0.76 | $1.59 | $1.44 | | Return on average assets | 1.17 % | 1.09 % | 1.14 % | 1.03 % | | Return on average tangible common equity | 20.5 % | 17.5 % | 20.5 % | 15.3 % | Balance Sheet Analysis This section analyzes the Bancorp's balance sheet, detailing changes in loans, investment securities, deposits, and borrowings - Total loans and leases, including held for sale, increased by $164 million from December 31, 2022, driven by consumer loan growth, partially offset by a decrease in commercial loans and leases[11] - Commercial loans and leases decreased by $78 million from December 31, 2022, primarily due to a $379 million decrease in commercial and industrial loans, partially offset by a $290 million increase in commercial mortgage loans[215] - Consumer loans increased by $242 million (1%) from December 31, 2022, led by a $1.2 billion (24%) increase in other consumer loans (driven by solar energy installation loans), partially offset by decreases in indirect secured consumer loans, residential mortgage loans, and home equity[183] - Total investment securities decreased from $52.2 billion at December 31, 2022, to $50.8 billion at June 30, 2023. Available-for-sale debt and other securities decreased by $2.1 billion, while trading debt securities increased by $725 million due to U.S. Treasury purchases for collateral management[220][225] - Core deposits decreased by $2.1 billion (1%) from December 31, 2022, due to balance migration to higher interest-bearing products. Demand deposits decreased by $7.9 billion (15%), while CDs $250,000 or less increased by $5.0 billion[233] - Total borrowings decreased by $474 million (3%) from December 31, 2022, primarily due to a $1.4 billion decrease in long-term debt, partially offset by a $979 million increase in other short-term borrowings to boost liquidity[242] Total Loans and Leases by Category (As of June 30, 2023 and December 31, 2022) | As of ($ in millions) | June 30, 2023 Carrying Value | % of Total | December 31, 2022 Carrying Value | % of Total | |:---|:---|:---|:---|:---|\ | Commercial and industrial loans | $56,926 | 46 % | $57,305 | 47 % | | Commercial mortgage loans | 11,310 | 9 | 11,020 | 9 | | Commercial construction loans | 5,475 | 5 | 5,433 | 4 | | Commercial leases | 2,673 | 2 | 2,704 | 2 | | Total commercial loans and leases | $76,384 | 62 % | $76,462 | 62 % | | Residential mortgage loans | 18,231 | 15 | 18,562 | 15 | | Home equity | 3,911 | 3 | 4,039 | 3 | | Indirect secured consumer loans | 16,097 | 13 | 16,552 | 14 | | Credit card | 1,818 | 2 | 1,874 | 2 | | Other consumer loans | 6,210 | 5 | 4,998 | 4 | | Total consumer loans | $46,267 | 38 % | $46,025 | 38 % | | Total loans and leases | $122,651 | 100 % | $122,487 | 100 % | Components of Deposits (As of June 30, 2023 and December 31, 2022) | As of ($ in millions) | June 30, 2023 Balance | % of Total | December 31, 2022 Balance | % of Total | |:---|:---|:---|:---|:---|\ | Demand | $45,264 | 28 % | $53,125 | 33 % | | Interest checking | 52,743 | 32 | 51,653 | 32 | | Savings | 21,342 | 13 | 23,469 | 14 | | Money market | 30,012 | 18 | 28,220 | 17 | | Foreign office | 182 | — | 182 | — | | Total transaction deposits | $149,543 | 91 % | $156,649 | 96 % | | CDs $250,000 or less | 8,833 | 5 | 3,809 | 2 | | Total core deposits | $158,376 | 96 % | $160,458 | 98 % | | CDs over $250,000 | 5,752 | 4 | 3,232 | 2 | | Total deposits | $164,128 | 100 % | $163,690 | 100 % | Business Segment Review This section reviews the financial performance of the Bancorp's Commercial Banking, Consumer, and Wealth and Asset Management segments - The Bancorp reports on three business segments: Commercial Banking, Consumer and Small Business Banking, and Wealth and Asset Management, with financial results based on management structure and accounting practices[278] - Net income for Commercial Banking increased to $711 million for Q2 2023 (from $317 million in Q2 2022) and to $1.3 billion for H1 2023 (from $657 million in H1 2022), driven by higher net interest income and lower provision for credit losses[285] - Net income for Consumer and Small Business Banking increased to $746 million for Q2 2023 (from $208 million in Q2 2022) and to $1.4 billion for H1 2023 (from $321 million in H1 2022), primarily due to higher net interest income and noninterest income[295] - Net income for Wealth and Asset Management increased to $73 million for Q2 2023 (from $38 million in Q2 2022) and to $146 million for H1 2023 (from $66 million in H1 2022), mainly due to increased net interest income and noninterest income[341] - General Corporate and Other reported net losses of $929 million for Q2 2023 (vs. $1 million loss in Q2 2022) and $1.7 billion for H1 2023 (vs. $12 million gain in H1 2022), primarily due to increased FTP credits to business segments and higher interest expense on debt and deposits[282][347] Net Income (Loss) by Business Segment (Three and Six Months Ended June 30) | ($ in millions) | For the three months ended June 30, 2023 | 2022 | For the six months ended June 30, 2023 | 2022 | |:---|:---|:---|:---|:---|\ | Commercial Banking | 711 | 317 | 1,290 | 657 | | Consumer and Small Business Banking | 746 | 208 | 1,408 | 321 | | Wealth and Asset Management | 73 | 38 | 146 | 66 | | General Corporate and Other | (929) | (1) | (1,685) | 12 | | Net income | 601 | 562 | 1,159 | 1,056 | Risk Management—Overview This section provides an overview of the Bancorp's Enterprise Risk Management Framework and its approach to identifying and mitigating key risks - The Bancorp's Enterprise Risk Management Framework and Three Lines of Defense structure address key risks including credit, liquidity, interest rate, price, legal and regulatory compliance, operational, reputation, and strategic risks[352] Credit Risk Management This section details the Bancorp's credit risk management strategy, including ALLL, nonperforming assets, and net charge-offs - The Bancorp's credit risk management strategy is based on conservatism, diversification, and monitoring, utilizing risk-based limits, conservative underwriting, and ongoing portfolio reviews[354] - The Allowance for Credit Losses (ACL) increased by $133 million from December 31, 2022, to $2.3 billion at June 30, 2023, inclusive of a $49 million reduction from ASU 2022-02 adoption[95] - Nonperforming portfolio assets increased to $663 million at June 30, 2023, from $539 million at December 31, 2022, with nonperforming portfolio assets as a percent of portfolio loans and leases and OREO rising to 0.54% from 0.44%[20][473][434] - Net charge-offs as a percent of average portfolio loans and leases increased to 0.29% for Q2 2023 (from 0.21% in Q2 2022) and to 0.27% for H1 2023 (from 0.17% in H1 2022), driven by increases in consumer loan charge-offs[20][479][481][483] - The Bancorp modified $331 million and $444 million of portfolio loans for borrowers experiencing financial difficulty during Q2 and H1 2023, respectively, representing 0.27% and 0.36% of total portfolio loans and leases[149] - The ACL as of June 30, 2023, was impacted by deterioration in the economic forecast and increases in specific reserves on individually evaluated commercial loans, partially offset by lower period-end loan balances[492] - Applying a 100% probability weighting to the Downside economic scenario would result in an approximate $2.3 billion increase in the quantitative ACL[495] Allowance for Loan and Lease Losses (ALLL) by Portfolio Segment (Six Months Ended June 30) | For the six months ended June 30, 2023 ($ in millions) | Commercial | Residential Mortgage | Consumer | Total | |:---|:---|:---|:---|:---|\ | Balance, beginning of period | $1,127 | $245 | $822 | $2,194 | | Impact of adoption of ASU 2022-02 | 4 | (36) | (17) | (49) | | Losses charged off | (69) | (2) | (160) | (231) | | Recoveries of losses previously charged off | 6 | 2 | 55 | 63 | | Provision for (benefit from) loan and lease losses | 131 | (36) | 255 | 350 | | Balance, end of period | $1,199 | $173 | $955 | $2,327 | Nonperforming Assets (As of June 30, 2023 and December 31, 2022) | ($ in millions) | June 30, 2023 | December 31, 2022 | |:---|:---|:---|\ | Total nonaccrual portfolio loans and leases | $629 | $515 | | OREO and other repossessed property | 32 | 24 | | Total nonperforming portfolio loans and leases and OREO | $661 | $539 | | Nonperforming portfolio assets as a percent of portfolio loans and leases and OREO | 0.54 % | 0.44 % | | ACL as a percent of nonperforming portfolio loans and leases | 403 | 468 | Net Losses Charged-off as a Percent of Average Portfolio Loans and Leases (Three and Six Months Ended June 30) | | For the three months ended June 30, 2023 | 2022 | For the six months ended June 30, 2023 | 2022 | |:---|:---|:---|:---|:---|\ | Total net losses charged-off as a percent of average portfolio loans and leases | 0.29 % | 0.21 % | 0.27 % | 0.17 % | Interest Rate and Price Risk Management This section describes the Bancorp's management of interest rate and price risk, utilizing NII simulation, EVE, and derivative instruments - Interest rate risk, a prominent market risk, impacts net interest income and capital through changes in interest income on earning assets, cost of interest-bearing liabilities, and interest-sensitive fees[500] - The Bancorp uses an NII simulation model to analyze sensitivity to interest rate changes, incorporating contractual and estimated cash flows, repricing characteristics, and market-based assumptions[503] - As of June 30, 2023, NII sensitivity in rising-rate scenarios is negative, with interest expense expected to increase more than interest income due to deposit repricing and balance migration. In falling-rate scenarios, NII is projected to increase due to deposits repricing faster than assets and receive-fixed hedges[541] - The Bancorp's actual cumulative deposit beta through June 30, 2023, was approximately 45%, outperforming previous NII simulation expectations, but dynamic models assume higher betas (74-75%) in rising-rate scenarios[539] - The Bancorp also uses Economic Value of Equity (EVE) to measure longer-term interest rate risk, which is a point-in-time analysis of current balance sheet and off-balance sheet positions over their estimated remaining lives[545] - Derivative instruments, such as interest rate swaps and floors, are an integral component of the Bancorp's interest rate risk management strategy to minimize earnings fluctuations[550] Estimated NII Sensitivity Profile and ALCO Policy Limits (As of June 30) | Change in Interest Rates (bps) | June 30, 2023 % Change in NII (FTE) 12 Months | 13-24 Months | ALCO Policy Limit 12 Months | 13-24 Months | |:---|:---|:---|:---|:---|\ | +200 Ramp over 12 months | (3.89) % | (5.73) | (4.00) | (6.00) | | +100 Ramp over 12 months | (1.93) | (2.76) | N/A | N/A | | -100 Ramp over 12 months | 0.93 | 0.63 | N/A | N/A | | -200 Ramp over 12 months | 1.54 | 0.48 | (8.00) | (12.00) | Estimated EVE Sensitivity Profile (As of June 30) | Change in Interest Rates (bps) | June 30, 2023 % Change in EVE | ALCO Policy Limit | |:---|:---|:---|\ | +200 Shock | (5.94) % | (12.00) | | +100 Shock | (2.70) | N/A | | -100 Shock | 2.04 | N/A | | -200 Shock | 1.41 | (12.00) | Liquidity Risk Management This section outlines the Bancorp's liquidity management strategy, focusing on maintaining liquid assets, borrowing capacity, and core deposit growth - Liquidity management aims to meet changes in loan demand, deposit withdrawals, and other obligations by maintaining liquid assets, unused borrowing capacity, and consistent core deposit growth[561] - The Bancorp maintains a strong liquidity profile with approximately $100 billion in current available liquidity, driven by core deposit funding and a diversified mix of secured and unsecured wholesale funding sources[624] - As of June 30, 2023, the Bank had $20.9 billion available under its global bank note program and approximately $61.6 billion in secured borrowing capacity through the FRB (including the Bank Term Funding Program and Discount Window) and FHLB[623] - The Bancorp (parent company) has sufficient liquidity to meet contractual obligations and dividends for 24 months without accessing capital markets or receiving upstream dividends from the Bank subsidiary[625] - The Board of Directors authorized $10.0 billion of debt or other securities for issuance in June 2023, all of which was available as of June 30, 2023[598] Credit Ratings (As of August 7, 2023) | | Moody's | Standard and Poor's | Fitch | DBRS Morningstar | |:---|:---|:---|:---|:---|\ | Fifth Third Bancorp: | | | | | | Short-term borrowings | No rating | A-2 | F1 | R-1L | | Senior debt | Baa1 | BBB+ | A- | A | | Subordinated debt | Baa1 | BBB | BBB+ | AL | | Fifth Third Bank, National Association: | | | | | | Short-term borrowings | P-2 | A-2 | F1 | R-1M | | Short-term deposit | P-1 | No rating | F1 | No rating | | Long-term deposit | A1 | No rating | A | AH | | Senior debt | A3 | A- | A- | AH | | Subordinated debt | A3 | BBB+ | BBB+ | A | | Rating Agency Outlook | Stable | Stable | Stable | Stable | Capital Management This section details the Bancorp's capital management, including regulatory capital ratios, stress capital buffer, and share repurchase activities - The Bancorp's capital ratios exceeded the stress capital buffer requirement for all periods presented, with a 2.5% stress capital buffer affirmed for October 1, 2023[654] - On a fully phased-in basis, the Bancorp's CET1 ratio would be reduced by 13 bps as of June 30, 2023, due to the CECL transition amount[631] - The Bancorp declared common stock dividends of $0.33 per share for Q2 2023 and $0.66 per share for H1 2023, reflecting a 10% increase year-over-year[113][659] - During Q1 2023, the Bancorp settled a $200 million accelerated share repurchase transaction, repurchasing 5,589,996 shares, but does not expect to repurchase common stock in Q3 2023 (except for employee compensation plans)[440][659] - U.S. banking regulators issued a proposed rulemaking on July 27, 2023, to revise capital requirements for large banking organizations, which the Bancorp is currently evaluating[655][747] Regulatory Capital Ratios (As of June 30, 2023 and December 31, 2022) | ($ in millions) | June 30, 2023 | December 31, 2022 | |:---|:---|:---|\ | CET1 capital | $16,100 | $15,670 | | Tier 1 capital | 18,216 | 17,786 | | Total regulatory capital | 21,781 | 21,606 | | Risk-weighted assets | 169,720 | 168,909 | | Regulatory capital ratios: | | | | CET1 capital | 9.49 % | 9.28 % | | Tier 1 risk-based capital | 10.73 | 10.53 | | Total risk-based capital | 12.83 | 12.79 | | Leverage | 8.81 | 8.56 | Quantitative and Qualitative Disclosures about Market Risk (Item 3) This section incorporates detailed information on interest rate and price risk management from the MD&A, highlighting the forward-looking nature of these disclosures - Information on interest rate and price risk management is incorporated by reference from the MD&A section[663] - The disclosures contain forward-looking statements, subject to inherent risks and uncertainties[606][663] Controls and Procedures (Item 4) This section confirms the effectiveness of disclosure controls and procedures and reports no material changes to internal control over financial reporting - The Bancorp's disclosure controls and procedures were effective as of June 30, 2023, ensuring timely and accurate reporting of information[664] - No material changes occurred in the Bancorp's internal control over financial reporting during the period ended June 30, 2023[665] Condensed Consolidated Financial Statements and Notes (Item 1) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, and comprehensive notes on accounting policies and financial instruments Balance Sheets (unaudited) This section presents the unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity as of the reporting dates Condensed Consolidated Balance Sheets (As of June 30, 2023 and December 31, 2022) | ($ in millions, except share data) | As of June 30, 2023 | December 31, 2022 | |:---|:---|:---|\ | Assets | | | | Cash and due from banks | $2,594 | $3,466 | | Other short-term investments | 10,943 | 8,351 | | Available-for-sale debt and other securities | 49,329 | 51,503 | | Held-to-maturity securities | 2 | 5 | | Trading debt securities | 1,139 | 414 | | Equity securities | 331 | 317 | | Loans and leases held for sale | 760 | 1,007 | | Portfolio loans and leases | 121,891 | 121,480 | | Allowance for loan and lease losses | (2,327) | (2,194) | | Portfolio loans and leases, net | 119,564 | 119,286 | | Bank premises and equipment | 2,275 | 2,187 | | Operating lease equipment | 537 | 627 | | Goodwill | 4,919 | 4,915 | | Intangible assets | 146 | 169 | | Servicing rights | 1,764 | 1,746 | | Other assets | 12,973 | 13,459 | | Total Assets | $207,276 | $207,452 | | Liabilities | | | | Noninterest-bearing deposits | $45,264 | $53,125 | | Interest-bearing deposits | 118,864 | 110,565 | | Total deposits | 164,128 | 163,690 | | Federal funds purchased | 163 | 180 | | Other short-term borrowings | 5,817 | 4,838 | | Accrued taxes, interest and expenses | 1,765 | 1,822 | | Other liabilities | 5,316 | 5,881 | | Long-term debt | 12,278 | 13,714 | | Total Liabilities | $189,467 | $190,125 | | Equity | | | | Common stock | $2,051 | $2,051 | | Preferred stock | 2,116 | 2,116 | | Capital surplus | 3,708 | 3,684 | | Retained earnings | 22,366 | 21,689 | | Accumulated other comprehensive loss | (5,166) | (5,110) | | Treasury stock | (7,266) | (7,103) | | Total Equity | $17,809 | $17,327 | | Total Liabilities and Equity | $207,276 | $207,452 | Statements of Income (unaudited) This section presents the unaudited condensed consolidated statements of income, detailing interest income, interest expense, noninterest income, and expenses Condensed Consolidated Statements of Income (Three and Six Months Ended June 30) | ($ in millions, except share data) | For the three months ended June 30, 2023 | 2022 | For the six months ended June 30, 2023 | 2022 | |:---|:---|:---|:---|:---|\ | Interest Income | | | | | | Interest and fees on loans and leases | $1,831 | $1,081 | $3,545 | $2,062 | | Interest on securities | 437 | 369 | 876 | 663 | | Interest on other short-term investments | 102 | 14 | 162 | 27 | | Total interest income | 2,370 | 1,464 | 4,583 | 2,752 | | Interest Expense | | | | | | Interest on deposits | 655 | 25 | 1,133 | 36 | | Interest on federal funds purchased | 5 | 1 | 10 | 1 | | Interest on other short-term borrowings | 90 | 12 | 147 | 13 | | Interest on long-term debt | 163 | 87 | 319 | 168 | | Total interest expense | 913 | 125 | 1,609 | 218 | | Net Interest Income | 1,457 | 1,339 | 2,974 | 2,534 | | Provision for credit losses | 177 | 179 | 341 | 224 | | Net Interest Income After Provision for Credit Losses | 1,280 | 1,160 | 2,633 | 2,310 | | Noninterest Income | | | | | | Commercial banking revenue | 146 | 137 | 307 | 272 | | Wealth and asset management revenue | 143 | 140 | 289 | 289 | | Service charges on deposits | 144 | 154 | 281 | 306 | | Card and processing revenue | 106 | 105 | 206 | 201 | | Mortgage banking net revenue | 59 | 31 | 127 | 83 | | Leasing business revenue | 47 | 56 | 104 | 118 | | Other noninterest income | 74 | 85 | 97 | 138 | | Securities gains (losses), net | 7 | (32) | 11 | (47) | | Securities losses, net – non-qualifying hedges on mortgage servicing rights | — | — | — | (1) | | Total noninterest income | 726 | 676 | 1,422 | 1,359 | | Noninterest Expense | | | | | | Compensation and benefits | 650 | 584 | 1,407 | 1,295 | | Technology and communications | 114 | 98 | 232 | 199 | | Net occupancy expense | 83 | 75 | 164 | 152 | | Equipment expense | 36 | 36 | 73 | 72 | | Leasing business expense | 31 | 31 | 65 | 63 | | Marketing expense | 31 | 28 | 60 | 52 | | Card and processing expense | 20 | 20 | 42 | 38 | | Other noninterest expense | 266 | 240 | 519 | 463 | | Total noninterest expense | 1,231 | 1,112 | 2,562 | 2,334 | | Income Before Income Taxes | 775 | 724 | 1,493 | 1,335 | | Applicable income tax expense | 174 | 162 | 334 | 279 | | Net Income | 601 | 562 | 1,159 | 1,056 | | Dividends on preferred stock | 39 | 36 | 62 | 56 | | Net Income Available to Common Shareholders | $562 | $526 | $1,097 | $1,000 | | Earnings per share - basic | $0.82 | $0.76 | $1.60 | $1.45 | | Earnings per share - diluted | $0.82 | $0.76 | $1.59 | $1.44 | | Average common shares outstanding - basic | 684,028,603 | 689,018,541 | 684,023,063 | 688,282,355 | | Average common shares outstanding - diluted | 686,385,938 | 694,804,715 | 687,967,395 | 695,519,583 | Statements of Comprehensive Income (unaudited) This section presents the unaudited condensed consolidated statements of comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income (Three and Six Months Ended June 30) | ($ in millions) | For the three months ended June 30, 2023 | 2022 | For the six months ended June 30, 2023 | 2022 | |:---|:---|:---|:---|:---|\ | Net Income | $601 | $562 | $1,159 | $1,056 | | Other Comprehensive Income (Loss), Net of Tax: | | | | | | Net unrealized losses on available-for-sale debt securities: | | | | | | Unrealized holding losses arising during period | (633) | (1,506) | (33) | (3,435) | | Reclassification adjustment for net gains included in net income | — | — | — | (2) | | Net unrealized losses on cash flow hedge derivatives: | | | | | | Unrealized holding (losses) gains arising during period | (352) | 2 | (137) | (310) | | Reclassification adjustment for net losses (gains) included in net income | 63 | (45) | 113 | (106) | | Defined benefit pension plans, net: | | | | | | Net actuarial loss arising during the year | — | (1) | — | (1) | | Reclassification of amounts to net periodic benefit costs | 1 | 2 | 1 | 3 | | Other comprehensive loss, net of tax | (921) | (1,548) | (56) | (3,851) | | Comprehensive Income (Loss) | $(320) | $(986) | $1,103 | $(2,795) | Statements of Changes in Equity (unaudited) This section presents the unaudited condensed consolidated statements of changes in equity, detailing movements in common stock, retained earnings, and AOCI Condensed Consolidated Statements of Changes in Equity (Three Months Ended June 30, 2023) | ($ in millions, except per share data) | Common Stock | Preferred Stock | Capital Surplus | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Equity | |:---|:---|:---|:---|:---|:---|:---|:---|\ | Balance at March 31, 2023 | $2,051 | $2,116 | $3,682 | $22,032 | $(4,245) | $(7,272) | $18,364 | | Net income | | | | 601 | | | 601 | | Other comprehensive loss, net of tax | | | | | (921) | | (921) | | Cash dividends declared: | | | | | | | | | Common stock ($0.33 per share) | | | | (228) | | | (228) | | Preferred stock: | | | | | | | | | Series H ($637.50 per share) | | | | (15) | | | (15) | | Series I ($414.06 per share) | | | | (8) | | | (8) | | Series J ($523.71 per share) | | | | (6) | | | (6) | | Series K ($309.38 per share) | | | | (3) | | | (3) | | Series L ($281.25 per share) | | | | (4) | | | (4) | | Class B, Series A ($15.00 per share) | | | | (3) | | | (3) | | Impact of stock transactions under stock compensation plans, net | | | 26 | | | 6 | 32 | | Balance at June 30, 2023 | $2,051 | $2,116 | $3,708 | $22,366 | $(5,166) | $(7,266) | $17,809 | Condensed Consolidated Statements of Changes in Equity (Six Months Ended June 30, 2023) | ($ in millions, except per share data) | Common Stock | Preferred Stock | Capital Surplus | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Total Equity | |:---|:---|:---|:---|:---|:---|:---|:---|\ | Balance at December 31, 2022 | $2,051 | $2,116 | $3,684 | $21,689 | $(5,110) | $(7,103) | $17,327 | | Impact of cumulative effect of change in accounting principle | | | | 37 | | | 37 | | Balance at January 1, 2023 | $2,051 | $2,116 | $3,684 | $21,726 | $(5,110) | $(7,103) | $17,364 | | Net income | | | | 1,159 | | | 1,159 | | Other comprehensive loss, net of tax | | | | | (56) | | (56) | | Cash dividends declared: | | | | | | | | | Common stock ($0.66 per share) | | | | (457) | | | (457) | | Preferred stock: | | | | | | | | | Series H ($637.50 per share) | | | | (15) | | | (15) | | Series I ($828.12 per share) | | | | (15) | | | (15) | | Series J ($1,016.46 per share) | | | | (12) | | | (12) | | Series K ($618.75 per share) | | | | (6) | | | (6) | | Series L ($562.50 per share) | | | | (8) | | | (8) | | Class B, Series A ($30.00 per share) | | | | (6) | | | (6) | | Shares acquired for treasury | | | | | | (201) | (201) | | Impact of stock transactions under stock compensation plans, net | | | 24 | | | 38 | 62 | | Balance at June 30, 2023 | $2,051 | $2,116 | $3,708 | $22,366 | $(5,166) | $(7,266) | $17,809 | Statements of Cash Flows (unaudited) This section presents the unaudited condensed consolidated statements of cash flows, categorizing activities into operating, investing, and financing Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | ($ in millions) | For the six months ended June 30, 2023 | 2022 | |:---|:---|:---|\ | Operating Activities | | | | Net income | $1,159 | $1,056 | | Provision for credit losses | 341 | 224 | | Depreciation, amortization and accretion | 232 | 218 | | (Benefit from) provision for deferred income taxes | (127) | 6 | | Securities (gains) losses, net | (11) | 52 | | MSR fair value adjustment | 40 | (169) | | Net gains on sales of loans and fair value adjustments on loans held for sale | (18) | (68) | | Net gains on disposition and impairment of bank premises and equipment and operating lease equipment | (1) | (4) | | Proceeds from sales of loans held for sale | 2,557 | 6,463 | | Loans originated or purchased for sale, net of repayments | (2,289) | (5,022) | | Dividends representing return on equity investments | 26 | 17 | | Net change in: | | | | Equity and trading debt securities | (121) | 215 | | Other assets | 82 | 357 | | Accrued taxes, interest and expenses and other liabilities | (180) | (807) | | Net Cash Provided by Operating Activities | 1,801 | 2,645 | | Investing Activities | | | | Proceeds from sales: | | | | AFS securities and other investments | 2,469 | 3,259 | | Loans and leases | 41 | 94 | | Bank premises and equipment | 3 | 1 | | Proceeds from repayments / maturities of AFS and HTM securities and other investments | 2,084 | 2,776 | | Purchases: | | | | AFS securities and other investments | (3,167) | (25,335) | | Bank premises and equipment | (248) | (143) | | MSRs | (23) | (191) | | Proceeds from settlement of BOLI | 9 | 31 | | Proceeds from sales and dividends representing return of equity investments | 60 | 45 | | Net cash received for divestitures | — | 46 | | Net cash paid on acquisitions | — | (918) | | Net change in: | | | | Other short-term investments | (2,592) | 27,156 | | Portfolio loans and leases | (630) | (6,155) | | Operating lease equipment | 32 | (39) | | Net Cash (Used in) Provided by Investing Activities | (1,962) | 627 | | Financing Activities | | | | Net change in deposits | 438 | (8,151) | | Net change in other short-term borrowings and federal funds purchased | 1,058 | 6,507 | | Dividends paid on common and preferred stock | (559) | (472) | | Proceeds from issuance of long-term debt | 35 | 1,007 | | Repayment of long-term debt | (1,433) | (1,642) | | Repurchases of treasury stock and related forward contract | (200) | — | | Other | (50) | (78) | | Net Cash Used in Financing Activities | (711) | (2,829) | | (Decrease) Increase in Cash and Due from Banks | (872) | 443 | | Cash and Due from Banks at Beginning of Period | 3,466 | 2,994 | | Cash and Due from Banks at End of Period | $2,594 | $3,437 | Notes to Condensed Consolidated Financial Statements (unaudited) This section provides detailed notes to the unaudited condensed consolidated financial statements, offering further context on accounting policies and financial data 1. Basis of Presentation This note outlines the basis for preparing financial statements, covering consolidation, equity method investments, and the use of estimates under U.S. GAAP - The Condensed Consolidated Financial Statements include the Bancorp and its majority-owned subsidiaries and VIEs where the Bancorp is the primary beneficiary[679] - Investments with significant influence are accounted for using the equity method, while those without readily determinable fair value use a measurement alternative (cost minus impairment, plus/minus observable price changes)[679] - The statements are unaudited and include normal recurring accruals, prepared in accordance with U.S. GAAP and SEC rules for interim financial information, and should be read with the Annual Report on Form 10-K[680] - Preparation of financial statements requires management to make estimates and assumptions, and actual results may differ[681] 2. Supplemental Cash Flow Information This note provides supplemental cash flow information, detailing cash payments for interest and taxes, and non-cash investing and financing activities Supplemental Cash Flow Information (Six Months Ended June 30) | ($ in millions) | 2023 | 2022 | |:---|:---|:---|\ | Cash Payments: | | | | Interest | $1,474 | $205 | | Income taxes | 337 | 52 | | Transfers: | | | | Portfolio loans and leases to loans and leases held for sale | $67 | $73 | | Loans and leases held for sale to portfolio loans and leases | 5 | 403 | | Portfolio loans and leases to OREO | 5 | 3 | | Bank premises and equipment to OREO | 14 | 18 | | Supplemental Disclosures: | | | | Net additions to lease liabilities under operating leases | $32 | $77 | | Net (reductions) additions to lease liabilities under finance leases | (1) | 15 | 3. Accounting and Reporting Developments This note details new accounting standards adopted and pending, and updates to policies for nonaccrual loans, modifications, and ALLL following ASU 2022-02 - The Bancorp adopted ASU 2022-01 (Derivatives and Hedging: Portfolio Layer Method) on January 1, 2023, expanding fair value hedging scope to all financial assets and allowing multiple layers within a single closed portfolio; it had no material impact[1] - ASU 2022-02 (Financial Instruments-Credit Losses: Troubled Debt Restructurings and Vintage Disclosures) was adopted on January 1, 2023, eliminating TDR accounting guidance for creditors and resulting in a $49 million decrease to ACL and a $37 million cumulative-effect adjustment to retained earnings, net of tax[2] - ASU 2022-04 (Liabilities-Supplier Finance Programs: Disclosure of Supplier Finance Program Obligations) was adopted on January 1, 2023, requiring enhanced disclosures for supplier finance programs, with no material impact[3] - ASU 2021-08 (Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers) was adopted on January 1, 2023, for business combinations occurring on or after this date, with no material impact[9] - ASU 2022-03 (Fair Value Measurement: Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions) is effective for the Bancorp on January 1, 2024, clarifying that contractual sale restrictions are not considered in fair value measurement[10] - ASU 2023-02 (Investments – Equity Method and Joint Ventures: Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method) is effective for the Bancorp on January 1, 2024, expanding the proportional amortization method for tax credit investments; the impact is currently being evaluated[634] - The Bancorp updated its accounting policies for nonaccrual loans and leases, and loan modifications following ASU 2022-02 adoption, including specific criteria for placing loans on nonaccrual status (e.g., 90 days past due for commercial, 150 days for residential mortgage)[637][638][640] - The ALLL methodology now estimates expected credit losses over the remaining contractual terms, adjusted for expected prepayments, and includes both collective and individual evaluations based on risk characteristics and macroeconomic conditions[648][650] 4. Investment Securities This note details the investment securities portfolio, including AFS, HTM, trading, and equity securities, with data on cost, fair value, unrealized gains/losses, and pledges - Total available-for-sale debt and other securities had an amortized cost of $55.4 billion and a fair value of $49.3 billion at June 30, 2023, with total net unrealized losses of $6.1 billion[585] - The Bancorp recognized $4 million in impairment losses on available-for-sale debt and other securities during Q2 2023, where recovery of amortized cost was no longer probable[223][588] - Investment securities with a fair value of $22.9 billion were pledged to secure borrowing capacity, public deposits, trust funds, and derivative contracts at June 30, 2023[590] Available-for-Sale Debt and Other Securities (As of June 30, 2023 and December 31, 2022) | ($ in millions) | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |:---|:---|:---|:---|:---|\ | June 30, 2023 | | | | | | U.S. Treasury and federal agencies securities | $2,924 | — | (184) | 2,740 | | Obligations of states and political subdivisions securities | 2 | — | — | 2 | | Agency residential mortgage-backed securities | 11,959 | — | (1,378) | 10,581 | | Agency commercial mortgage-backed securities | 29,125 | 3 | (3,581) | 25,547 | | Non-agency commercial mortgage-backed securities | 5,027 | — | (538) | 4,489 | | Asset-backed securities and other debt securities | 5,526 | 3 | (395) | 5,134 | | Other securities | 836 | — | — | 836 | | Total available-for-sale debt and other securities | $55,399 | $6 | $(6,076) | $49,329 | | December 31, 2022 | | | | | | U.S. Treasury and federal agencies securities | $2,683 | — | (188) | 2,495 | | Obligations of states and political subdivisions securities | 18 | — | — | 18 | | Agency residential mortgage-backed securities | 12,604 | 5 | (1,372) | 11,237 | | Agency commercial mortgage-backed securities | 29,824 | 11 | (3,513) | 26,322 | | Non-agency commercial mortgage-backed securities | 5,235 | — | (520) | 4,715 | | Asset-backed securities and other debt securities | 6,292 | 3 | (453) | 5,842 | | Other securities | 874 | — | — | 874 | | Total available-for-sale debt and other securities | $57,530 | $19 | $(6,046) | $51,503 | Net Securities Gains and Losses (Three and Six Months Ended June 30) | ($ in millions) | For the three months ended June 30, 2023 | 2022 | For the six months ended June 30, 2023 | 2022 | |:---|:---|:---|:---|:---|\ | Net realized gains on available-for-sale debt and other securities | $— | $— | $— | $3 | | Net trading debt securities gains | 2 | — | 2 | 10 | | Net equity securities gains (losses) | 5 | (32) | 9 | (61) | | Total gains (losses) recognized in income | $7 | $(32) | $11 | $(48) | 5. Loans and Leases This note summarizes the loan and lease portfolio by commercial and consumer categories, including held-for-sale and portfolio loans, unearned income, and pledged loans - The Bancorp diversifies its loan and lease portfolio across various products, payment terms, and rate structures, with ongoing management review of performance and underwriting policies[152] - Portfolio loans and leases are recorded net of unearned income ($262 million at June 30, 2023) and net of unamortized premiums/discounts and fair value adjustments (net discount of $226 million at June 30, 2023)[13] - The Bancorp had $15.8 billion in loans pledged to the FHLB and $55.4 billion pledged to the FRB as of June 30, 2023[16] Summary of Loans and Leases (As of June 30, 2023 and December 31, 2022) | ($ in millions) | June 30, 2023 | December 31, 2022 | |:---|:---|:---|\ | Loans and leases held for sale: | | | | Commercial and industrial loans | $29 | $73 | | Residential mortgage loans | 728 | 934 | | Total loans and leases held for sale | $760 | $1,007 | | Portfolio loans and leases: | | | | Commercial and industrial loans | $56,897 | $57,232 | | Commercial mortgage loans | 11,310 | 11,020 | | Commercial construction loans | 5,475 | 5,433 | | Commercial leases | 2,670 | 2,704 | | Total commercial loans and leases | $76,352 | $76,389 | | Residential mortgage loans | $17,503 | $17,628 | | Home equity | 3,911 | 4,039 | | Indirect secured consumer loans | 16,097 | 16,552 | | Credit card | 1,818 | 1,874 | | Other consumer loans | 6,210 | 4,998 | | Total consumer loans | $45,539 | $45,091 | | Total portfolio loans and leases | $121,891 | $121,480 | Net Investment in Portfolio Leases (As of June 30, 2023 and December 31, 2022) | ($ in millions) | June 30, 2023 | December 31, 2022 | |:---|:---|:---|\ | Net investment in direct financing leases: | | | | Lease payment receivable (present value) | 594 | 570 | | Unguaranteed residual assets (present value) | 111 | 107 | | Net investment in sales-type leases: | | | | Lease payment receivable (present value) | 1,638 | 1,704 | | Unguaranteed residual assets (present value) | 78 | 76 | 6. Credit Quality and the Allowance for Loan and Lease Losses This note details credit quality and ALLL by portfolio segment, including transactions, risk profiles, nonperforming assets, and loan modifications for financial difficulty - The ALLL increased to $2.3 billion at June 30, 2023, from $2.2 billion at December 31, 2022, with a $49 million reduction due to ASU 2022-02 adoption[60] - Nonperforming portfolio assets increased to $661 million at June 30, 2023, from $539 million at December 31, 2022, with nonaccrual commercial loans rising to $345 million and consumer loans to $147 million[144][432] - Total portfolio loans with modifications for borrowers experiencing financial difficulty amounted to $331 million for Q2 2023 and $444 million for H1 2023, representing 0.27% and 0.36% of total portfolio loans and leases, respectively[149] - Commercial loan modifications primarily involved term extensions (weighted-average 4 months for C&I, 10 months for owner-occupied mortgage, 12 months for construction loans)[192][194] - Residential mortgage loan modifications commonly included term extensions (weighted-average 139 months for Q2 2023) and payment delays[192][194] - Consumer loan modifications included interest rate reductions (e.g., credit card from 23.6% to 3.6%) and term extensions for home equity (weighted-average 25.5 years)[192][194] Transactions in the ALLL by Portfolio Segment (Six Months Ended June 30, 2023) | ($ in millions) | Commercial | Residential Mortgage | Consumer | Total | |:---|:---|:---|:---|:---|\ | Balance, beginning of period | $1,127 | $245 | $822 | $2,194 | | Impact of adoption of ASU 2022-02 | 4 | (36) | (17) | (49) | | Losses charged off | (69) | (2) | (160) | (231) | | Recoveries of losses previously charged off | 6 | 2 | 55 | 63 | | Provision for (benefit from) loan and lease losses | 131 | (36) | 255 | 350 | | Balance, end of period | $1,199 | $173 | $955 | $2,327 | ALLL and Related Loans and Leases by Portfolio Segment (As of June 30, 2023) | ($ in millions) | Commercial | Residential Mortgage | Consumer | Total | |:---|:---|:---|:---|:---|\ | ALLL: | | | | | | Individually evaluated | $117 | $1 | $6 | $124 | | Collectively evaluated | 1,082 | 172 | 949 | 2,203 | | Total ALLL | $1,199 | $173 | $955 | $2,327 | | Portfolio loans and leases: | | | | | | Individually evaluated | $322 | $132 | $73 | $527 | | Collectively evaluated | 76,030 | 17,247 | 27,963 | 121,240 | | Total portfolio loans and leases | $76,352 | $17,379 | $28,036 | $121,767 | Nonaccrual Loans and Leases and OREO (As of June 30, 2023 and December 31, 2022) | ($ in millions) | June 30, 2023 Total | December 31, 2022 Total | |:---|:---|:---|\ | Commercial loans and leases | $345 | $263 | | Residential mortgage loans | 137 | 124 | | Consumer loans | 147 | 128 | | Total nonaccrual portfolio loans and leases | $629 | $515 | | OREO and other repossessed property | 32 | 24 | | Total nonperforming portfolio assets | $661 | $539 | 7. Bank Premises and Equipment This note summarizes bank premises and equipment, detailing asset categories, changes from banking center closures, and impairment losses - The Bancorp closed 24 banking centers during the six months ended June 30, 2023, as part of an ongoing assessment of its consumer distribution network[204] - Impairment losses on long-lived assets were immaterial for Q2 2023 and $1 million for H1 2023, recorded in other noninterest income[205] Summary of Bank Premises and Equipment (As of June 30, 2023 and December 31, 2022) | ($ in millions) | June 30, 2023 | December 31, 2022 | |:---|:---|:---|\ | Equipment | $2,506 | $2,492 | | Buildings | 1,729 | 1,699 | | Land and improvements | 633 | 640 | | Leasehold improvements | 608 | 568 | | Construction in progress | 140 | 124 | | Bank premises and equipment held for sale: | | | | Land and improvements | 16 | 17 | | Buildings | 6 | 7 | | Accumulated depreciation and amortization | (3,363) | (3,360) | | Total bank premises and equipment | $2,275 | $2,187 | 8. Operating Lease Equipment This note details operating lease equipment, including net value, income, depreciation, impairment, and future lease payments receivable - Operating lease equipment was $537 million at June 30, 2023, net of $357 million in accumulated depreciation[244] - Lease income from operating leases was $35 million for Q2 2023 and $72 million for H1 2023[244] - Depreciation expense for operating lease equipment was $29 million for Q2 2023 and $60 million for H1 2023[244] - Impairment losses on operating lease assets were immaterial for Q2 2023 and H1 2023, recorded in leasing business revenue[207] Future Lease Payments Receivable from Operating Leases (As of June 30, 2023) | ($ in millions) | Undiscounted Cash Flows | |:---|:---|\ | Remainder of 2023 | $65 | | 2024 | 103 | | 2025 | 78 | | 2026 | 50 | | 2027 | 25 | | 2028 | 10 | | Thereafter | 15 | | Total operating lease payments | $346 | 9. Lease Obligations – Lessee This note details lease obligations as a lessee, summarizing ROU assets, lease liabilities, lease costs, future payments, and impairment assessments - Total Right-of-Use (ROU) assets were $646 million at June 30, 2023, and total lease liabilities were $744 million[247] - Total lease costs were $35 million for Q2 2023 and $70 million for H1 2023, including amortization of ROU assets, interest on lease liabilities, operating lease costs, and variable lease costs[247] - Impairment losses and termination charges for ROU assets related to operating leases were immaterial for Q2 2023 and $1 million for H1 2023[247] Summary of Lease Assets and Liabilities (As of June 30, 2023 and December 31, 2022) | ($ in millions) | June 30, 2023 | December 31, 2022 | |:---|:---|:---|\ | Assets | | | | Operating lease right-of-use assets | $506 | $508 | | Finance lease right-of-use assets | 140 | 150 | | Total right-of-use assets | $646 | $658 | | Liabilities | | | | Operating lease liabilities | $597 | $599 | | Finance lease liabilities | 147 | 156 | | Total lease liabilities | $744 | $755 | Undiscounted Cash Flows for Lease Liabilities (As of June 30, 2023) | ($ in millions) | Operating Leases | Finance Leases | Total | |:---|:---|:---|:---|\ | Remainder of 2023 | $45 | $10 | $55 | | 2024 | 89 | 21 | 110 | | 2025 | 81 | 14 | 95 | | 2026 | 73 | 9 | 82 | | 2027 | 65 | 8 | 73 | | 2028 | 57 | 8 | 65 | | Thereafter | 329 | 119 | 448 | | Total undiscounted cash flows | $739 | $189 | $928 | | Less: Difference between undiscounted cash flows and discounted cash flows | 142 | 42 | 184 | | Present value of lease liabilities | $597 | $147 | $744 | 10. Intangible Assets This note details intangible assets, including core deposit intangibles and developed technology, summarizing their carrying amount, amortization, and expense - Total intangible assets were $146 million at June 30, 2023, down from $169 million at December 31, 2022[253] - Amortization expense for intangible assets was $10 million for Q2 2023 and $23 million for H1 2023[253] Details of Intangible Assets (As of June 30, 2023 and December 31, 2022) | ($ in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |:---|:---|:---|:---|\ | As of June 30, 2023 | | | | | Core deposit intangibles | $209 | $(174) | $35 | | Developed technology | 106 | (25) | 81 | | Customer relationships | 30 | (8) | 22 | | Other | 17 | (9) | 8 | | Total intangible assets | $362 | $(216) | $146 | | As of December 31, 2022 | | | | | Core deposit intangibles | $229 | $(182) | $47 | | Developed technology | 106 | (17) | 89 | | Customer relationships | 30 | (7) | 23 | | Other | 20 | (10) | 10 | | Total intangible assets | $385 | $(216) | $169 | 11. Variable Interest Entities This note discusses the Bancorp's involvement with VIEs, detailing consolidated and non-consolidated entities, their assets, liabilities, and maximum exposure to loss - The Bancorp consolidates VIEs related to an automobile loan securitization and a solar loan securitization where it is the primary beneficiary, retaining residual interests and servicing rights[257] - In Q1 2023, the Bancorp exercised its cleanup call option on the outstanding automobile securitization, acquiring all remaining loans and repaying outstanding debt[257] - For non-consolidated VIEs, the Bancorp holds interests but is not the primary beneficiary, with maximum exposure to loss limited to carrying amounts of investments plus unfunded commitments[260][262] - CDC investments, primarily in affordable housing tax credits, totaled $1.6 billion at June 30, 2023, with unfunded commitments of $688 million[263] - Private equity investments had unfunded commitments of $174 million at June 30, 2023, with the Bancorp's maximum exposure to loss limited to carrying amounts plus unfunded commitments[308] Consolidated VIEs Assets and Liabilities (As of June 30, 2023 and December 31, 2022) | ($ in millions) | June 30, 2023 | December 31, 2022 | |:---|:---|:---|\ | Assets: | | | | O