Loans

12 Months Ended

Dec. 31, 2021

Note 9.

Loans

Loans include (i) loans held for investment that are accounted for at amortized cost net of allowance for loan losses or at fair value under the fair value option and (ii) loans held for sale that are accounted for at the lower of cost or fair value. Interest on loans is recognized over the life of the loan and is recorded on an accrual basis.

The table below presents information about loans.



$ in millions	Amortized Cost		Fair Value	Held For Sale	Total
As of December 2021
Loan Type
Corporate	$ 50,960		$ 2,492	$2,475	$ 55,927
Wealth management	38,062		5,936	–	43,998
Commercial real estate	21,150		1,588	3,145	25,883
Residential real estate	15,493		320	100	15,913
Consumer:
Installment	3,672		–	–	3,672
Credit cards	8,212		–	–	8,212
Other	5,958		433	2,139	8,530
Total loans, gross	143,507		10,769	7,859	162,135
Allowance for loan losses	(3,573	)	–	–	(3,573	)
Total loans	$139,934		$10,769	$7,859	$158,562
As of December 2020
Loan Type
Corporate	$ 44,778		$ 2,751	$1,130	$ 48,659
Wealth management	25,151		7,872	–	33,023
Commercial real estate	17,096		1,961	1,233	20,290
Residential real estate	5,236		494	20	5,750
Consumer:
Installment	3,823		–	–	3,823
Credit cards	4,270		–	–	4,270
Other	3,211		547	416	4,174
Total loans, gross	103,565		13,625	2,799	119,989
Allowance for loan losses	(3,874	)	–	–	(3,874	)
Total loans	$ 99,691		$13,625	$2,799	$116,115

In the table above, loans held for investment that are accounted for at amortized cost include net deferred fees and costs, and unamortized premiums and discounts, which are amortized over the life of the loan. These amounts were less than 1% of loans accounted for at amortized cost as of both December 2021 and December 2020.

The following is a description of the loan types in the table above:

•

Corporate.

Corporate loans includes term loans, revolving lines of credit, letter of credit facilities and bridge loans, and are principally used for operating and general corporate purposes, or in connection with acquisitions. Corporate loans may be secured or unsecured, depending on the loan purpose, the risk profile of the borrower and other factors.

•

Wealth Management.

Wealth management loans includes loans extended to private bank clients, including wealth management and other clients. These loans are used to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity for other needs. Substantially all of such loans are secured by securities, residential real estate, commercial real estate or other assets.

•

Commercial Real Estate.

Commercial real estate loans includes originated loans (other than those extended to private bank clients) that are directly or indirectly secured by hotels, retail stores, multifamily housing complexes and commercial and industrial properties. Commercial real estate loans also includes loans extended to clients who warehouse assets that are directly or indirectly backed by commercial real estate. In addition, commercial real estate includes loans purchased by the firm.

•

Residential Real Estate.

Residential real estate loans primarily includes loans extended by the firm to clients (other than those extended to private bank clients) who warehouse assets that are directly or indirectly secured by residential real estate and loans purchased by the firm.

•

Installment.

Installment loans are unsecured and are originated by the firm.

•

Credit Cards.

Credit card loans are loans made pursuant to revolving lines of credit issued to consumers by the firm.

•

Other.

Other loans primarily includes loans extended to clients who warehouse assets that are directly or indirectly secured by consumer loans, including auto loans and private student loans, and other assets. Other loans also includes unsecured consumer and credit card loans purchased by the firm.

Credit Quality

Risk Assessment.

The firm’s risk assessment process includes evaluating the credit quality of its loans by our independent risk oversight and control function. For corporate loans and a majority of wealth management, real estate and other loans, the firm performs credit reviews which include initial and ongoing analyses of its borrowers, resulting in an internal credit rating. A credit review is an analysis of the capacity and willingness of a borrower to meet its financial obligations and is performed on an annual basis or more frequently if circumstances change that indicate that a review may be necessary. The determination of internal credit ratings also incorporates assumptions with respect to the nature of and outlook for the borrower’s industry and the economic environment.

The table below presents gross loans by an internally determined public rating agency equivalent or other credit metrics and the concentration of secured and unsecured loans.



$ in millions	Investment- Grade	Non-Investment- Grade	Other Metrics/ Unrated	Total
As of December 2021
Accounting Method
Amortized cost	$50,923	$75,179	$17,405	$143,507
Fair value	2,301	4,634	3,834	10,769
Held for sale	1,650	4,747	1,462	7,859
Total	$54,874	$84,560	$22,701	$162,135
Loan Type
Corporate	$15,370	$40,389	$ 168	$ 55,927
Wealth management	31,476	5,730	6,792	43,998
Real estate:
Commercial	3,986	21,523	374	25,883
Residential	1,112	13,779	1,022	15,913
Consumer:
Installment	–	–	3,672	3,672
Credit cards	–	–	8,212	8,212
Other	2,930	3,139	2,461	8,530
Total	$54,874	$84,560	$22,701	$162,135
Secured	85%	92%	36%	82%
Unsecured	15%	8%	64%	18%
Total	100%	100%	100%	100%
As of December 2020
Accounting Method
Amortized cost	$33,532	$58,250	$11,783	$103,565
Fair value	2,084	5,925	5,616	13,625
Held for sale	224	2,152	423	2,799
Total	$35,840	$66,327	$17,822	$119,989
Loan Type
Corporate	$ 9,478	$38,704	$ 477	$ 48,659
Wealth management	22,098	5,331	5,594	33,023
Real estate:
Commercial	1,792	17,480	1,018	20,290
Residential	636	3,852	1,262	5,750
Consumer:
Installment	–	–	3,823	3,823
Credit cards	–	–	4,270	4,270
Other	1,836	960	1,378	4,174
Total	$35,840	$66,327	$17,822	$119,989
Secured	83%	90%	46%	82%
Unsecured	17%	10%	54%	18%
Total	100%	100%	100%	100%

In the table above:

•

Wealth management loans included in the other metrics/unrated category primarily consists of loans backed by residential real estate and securities, and real estate loans included in the other metrics/unrated category primarily consists of purchased loans. The firm’s risk assessment process for these loans includes reviewing certain key metrics, such as

loan-to-value

ratio, delinquency status, collateral values, expected cash flows, the Fair Isaac Corporation (FICO) credit score (which measures a borrower’s creditworthiness by considering factors such as payment and credit history) and other risk factors.

•

For installment and credit card loans included in the other metrics/unrated category, the evaluation of credit quality incorporates the borrower’s FICO credit score. FICO credit scores are periodically refreshed by the firm to assess the updated creditworthiness of the borrower. See “Vintage” below for information about installment and credit card loans by FICO credit scores.

The firm also assigns a regulatory risk rating to its loans based on the definitions provided by the U.S. federal bank regulatory agencies. Total loans included 92% of loans as of December 2021 and 85% of loans as of December 2020 that were rated

pass/non-criticized.

Vintage.

The tables below present gross loans accounted for at amortized cost (excluding installment and credit card loans) by an internally determined public rating agency equivalent or other credit metrics and origination year for term loans.



	As of December 2021

$ in millions		Investment- Grade	Non-Investment- Grade	Other Metrics/ Unrated	Total
2021		$ 4,687	$10,424	$ 52	$ 15,163
2020		1,911	4,561	7	6,479
2019		451	3,949	–	4,400
2018		1,842	2,901	–	4,743
2017		733	1,857	–	2,590
2016 or earlier		274	1,693	–	1,967
Revolving		3,800	11,744	74	15,618
Corporate		13,698	37,129	133	50,960
2021		1,405	1,186	1,265	3,856
2020		558	287	–	845
2019		537	352	–	889
2018		334	38	–	372
2017		380	31	–	411
2016 or earlier		565	243	–	808
Revolving		26,349	2,127	2,405	30,881
Wealth management		30,128	4,264	3,670	38,062
2021		334	4,084	94	4,512
2020		127	1,890	–	2,017
2019		52	1,336	–	1,388
2018		207	829	–	1,036
2017		398	624	–	1,022
2016 or earlier		405	583	7	995
Revolving		1,768	8,412	–	10,180
Commercial real estate		3,291	17,758	101	21,150
2021		113	1,944	253	2,310
2020		260	557	103	920
2019		–	–	173	173
2018		–	84	165	249
2017		8	65	119	192
2016 or earlier		–	1	56	57
Revolving		673	10,919	–	11,592
Residential real estate		1,054	13,570	869	15,493
2021		–	694	261	955
2020		–	59	378	437
2019		–	25	19	44
2018		–	30	–	30
2017		–	5	8	13
Revolving		2,752	1,645	82	4,479
Other		2,752	2,458	748	5,958
Total		$50,923	$75,179	$5,521	$131,623
Percentage of total		39%	57%	4%	100%



	As of December 2020

$ in millions		Investment- Grade	Non-Investment- Grade	Other Metrics/ Unrated	Total
2020		$ 1,978	$ 7,545	$ 140	$ 9,663
2019		889	6,106	–	6,995
2018		2,076	3,555	–	5,631
2017		851	3,083	–	3,934
2016		268	1,262	–	1,530
2015 or earlier		351	2,073	–	2,424
Revolving		2,662	11,891	48	14,601
Corporate		9,075	35,515	188	44,778
2020		497	313	–	810
2019		723	403	–	1,126
2018		298	87	–	385
2017		377	30	–	407
2016		22	20	–	42
2015 or earlier		531	264	–	795
Revolving		18,077	2,085	1,424	21,586
Wealth management		20,525	3,202	1,424	25,151
2020		848	3,071	55	3,974
2019		76	1,965	–	2,041
2018		137	2,164	25	2,326
2017		26	1,734	12	1,772
2016		–	165	9	174
2015 or earlier		–	775	526	1,301
Revolving		461	5,047	–	5,508
Commercial real estate		1,548	14,921	627	17,096
2020		402	976	115	1,493
2019		–	90	271	361
2018		–	123	249	372
2017		9	83	152	244
2016		–	1	–	1
2015 or earlier		–	–	70	70
Revolving		225	2,470	–	2,695
Residential real estate		636	3,743	857	5,236
2020		242	84	466	792
2019		–	67	29	96
2018		–	46	–	46
2017		–	8	–	8
Revolving		1,506	664	99	2,269
Other		1,748	869	594	3,211
Total		$33,532	$58,250	$3,690	$95,472
Percentage of total		35%	61%	4%	100%

In the tables above, revolving loans which converted to term loans were not material as of both December 2021 and December 2020.

The table below presents gross installment loans by refreshed FICO credit scores and origination year and gross credit card loans by refreshed FICO credit scores.



$ in millions	Greater than or equal to 660	Less than 660	Total
As of December 2021
2021	$2,017	$ 42	$ 2,059
2020	665	40	705
2019	508	61	569
2018	257	42	299
2017	32	7	39
2016	1	–	1
Installment	3,480	192	3,672
Credit cards	6,100	2,112	8,212
Total	$9,580	$2,304	$11,884
Percentage of total:
Installment	95%	5%	100%
Credit cards	74%	26%	100%
Total	81%	19%	100%
As of December 2020
2020	$1,321	$ 38	$ 1,359
2019	1,225	132	1,357
2018	792	150	942
2017	128	30	158
2016	6	1	7
Installment	3,472	351	3,823
Credit cards	3,398	872	4,270
Total	$6,870	$1,223	$ 8,093
Percentage of total:
Installment	91%	9%	100%
Credit cards	80%	20%	100%
Total	85%	15%	100%

In the table above, credit card loans consist of revolving lines of credit.

Credit Concentrations.

The table below presents the concentration of gross loans by region.



$ in millions	Carrying Value	Americas	EMEA	Asia	Total
As of December 2021
Corporate	$ 55,927	54%	38%	8%	100%
Wealth management	43,998	87%	10%	3%	100%
Commercial real estate	25,883	80%	15%	5%	100%
Residential real estate	15,913	95%	2%	3%	100%
Consumer:
Installment	3,672	100%	–	–	100%
Credit cards	8,212	100%	–	–	100%
Other	8,530	84%	15%	1%	100%
Total	$162,135	76%	19%	5%	100%
As of December 2020
Corporate	$ 48,659	60%	31%	9%	100%
Wealth management	33,023	88%	10%	2%	100%
Commercial real estate	20,290	71%	19%	10%	100%
Residential real estate	5,750	88%	9%	3%	100%
Consumer:
Installment	3,823	100%	–	–	100%
Credit cards	4,270	100%	–	–	100%
Other	4,174	81%	17%	2%	100%
Total	$119,989	75%	19%	6%	100%

In the table above:

•

EMEA represents Europe, Middle East and Africa.

•

The top five industry concentrations for corporate loans as of December 2021 were 21% for funds (13% as of December 2020), 18% for technology, media & telecommunications (17% as of December 2020), 13% for diversified industrials (17% as of December 2020), 9% for natural resources & utilities (12% as of December 2020), and 8% for financial institutions (10% as of December 2020).

Nonaccrual and Past Due Loans.

Loans accounted for at amortized cost (other than credit card loans) are placed on nonaccrual status when it is probable that the firm will not collect all principal and interest due under the contractual terms, regardless of the delinquency status or if a loan is past due for 90 days or more, unless the loan is both well collateralized and in the process of collection. At that time, all accrued but uncollected interest is reversed against interest income and interest subsequently collected is recognized on a cash basis to the extent the loan balance is deemed collectible. Otherwise, all cash received is used to reduce the outstanding loan balance. A loan is considered past due when a principal or interest payment has not been made according to its contractual terms. Credit card loans are not placed on nonaccrual status and accrue interest until the loan is paid in full or is charged off.

In certain circumstances, the firm may modify the original terms of a loan agreement by granting a concession to a borrower experiencing financial difficulty, typically in the form of a modification of loan covenants, but may also include forbearance of interest or principal, payment extensions or interest rate reductions. These modifications, to the extent significant, are considered troubled debt restructurings (TDRs). Loan modifications that extend payment terms for a period of less than 90 days are generally considered insignificant and therefore not reported as TDRs.

The firm adopted the relief issued under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as amended, and certain interpretive guidance issued by the U.S. banking agencies that provides for certain modified loans that would otherwise meet the definition of a TDR to not be classified as such. Loans accounted for at amortized cost that were not classified as TDRs as a result of this relief and interpretive guidance were $166 million as of December 2021 and were $184 million as of December 2020. The relief provided under the CARES Act expired in January 2022.

The table below presents information about past due loans.



$ in millions	30-89 days	90 days or more	Total
As of December 2021
Corporate	$ 5	$ 90	$ 95
Wealth management	–	20	20
Commercial real estate	7	143	150
Residential real estate	3	4	7
Consumer:
Installment	20	7	27
Credit cards	86	71	157
Other	15	3	18
Total	$136	$338	$474
Total divided by gross loans at amortized cost			0.3%
As of December 2020
Corporate	$ –	$294	$294
Wealth management	58	34	92
Commercial real estate	49	183	232
Residential real estate	4	23	27
Consumer:
Installment	42	16	58
Credit cards	46	31	77
Other	20	4	24
Total	$219	$585	$804
Total divided by gross loans at amortized cost			0.8%

The table below presents information about nonaccrual loans.



	As of December

$ in millions		2021	2020
Corporate		$1,559	$2,651
Wealth management		21	61
Commercial real estate		841	649
Residential real estate		5	25
Installment		43	44
Other		–	122
Total		$2,469	$3,552
Total divided by gross loans at amortized cost		1.7%	3.4%

In the table above:

•

Nonaccrual loans included $254 million as of December 2021 and $533 million as of December 2020 of loans that were 30 days or more past due.

•

Loans that were 90 days or more past due and still accruing were not material as of both December 2021 and December 2020.

•

Nonaccrual loans included $267 million as of December 2021 and $315 million as of December 2020 of corporate and commercial real estate loans that were modified in a TDR. The firm’s lending commitments related to these loans were not material as of both December 2021 and December 2020. Installment loans that were modified in a TDR were not material as of both December 2021 and December 2020.

•

Allowance for loan losses as a percentage of total nonaccrual loans was 144.7% as of December 2021 and 109.1% as of December 2020.

Allowance for Credit Losses

The firm’s allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at amortized cost. Loans and lending commitments accounted for at fair value or accounted for at the lower of cost or fair value are not subject to an allowance for credit losses.

To determine the allowance for credit losses, the firm classifies its loans and lending commitments accounted for at amortized cost into wholesale and consumer portfolios. These portfolios represent the level at which the firm has developed and documented its methodology to determine the allowance for credit losses. The allowance for credit losses is measured on a collective basis for loans that exhibit similar risk characteristics using a modeled approach and asset-specific basis for loans that do not share similar risk characteristics.

The allowance for credit losses takes into account the weighted average of a range of forecasts of future economic conditions over the expected life of the loan and lending commitments. The expected life of each loan or lending commitment is determined based on the contractual term adjusted for extension options or demand features, or is modeled in the case of revolving credit card loans. The forecasts include baseline, favorable and adverse economic scenarios over a three-year period. For loans with expected lives beyond three years, the model reverts to historical loss information based on a

non-linear

modeled approach. The forecasted economic scenarios consider a number of risk factors relevant to the wholesale and consumer portfolios described below. The firm applies judgment in weighing individual scenarios each quarter based on a variety of factors, including the firm’s internally derived economic outlook, market consensus, recent macroeconomic conditions and industry trends.

The allowance for credit losses also includes qualitative components which allow management to reflect the uncertain nature of economic forecasting, capture uncertainty regarding model inputs, and account for model imprecision and concentration risk.

Management’s estimate of credit losses entails judgment about loan collectability at the reporting dates, and there are uncertainties inherent in those judgments. The allowance for credit losses is subject to a governance process that involves review and approval by senior management within the firm’s independent risk oversight and control functions. Personnel within the firm’s independent risk oversight and control functions are responsible for forecasting the economic variables that underlie the economic scenarios that are used in the modeling of expected credit losses. While management uses the best information available to determine this estimate, future adjustments to the allowance may be necessary based on, among other things, changes in the economic environment or variances between actual results and the original assumptions used.

The table below presents gross loans and lending commitments accounted for at amortized cost by portfolio.



	As of December

	2021			2020

$ in millions		Loans	Lending Commitments		Loans	Lending Commitments
Wholesale
Corporate		$ 50,960	$143,296		$ 44,778	$127,756
Wealth management		38,062	4,091		25,151	2,314
Commercial real estate		21,150	4,306		17,096	4,154
Residential real estate		15,493	3,317		5,236	1,804
Other		5,958	6,169		3,211	4,841
Consumer
Installment		3,672	9		3,823	4
Credit cards		8,212	35,932		4,270	21,640
Total		$143,507	$197,120		$103,565	$162,513

In the table above:

•

Wholesale loans included $2.43 billion as of December 2021 and $3.51 billion as of December 2020 of nonaccrual loans for which the allowance for credit losses was measured on an asset-specific basis. The allowance for credit losses on these loans was $543 million as of December 2021 and $649 million as of December 2020. These loans included $140 million as of December 2021 and $584 million as of December 2020 of loans which did not require a reserve as the loan was deemed to be recoverable.

•

Credit card lending commitments included $33.97 billion as of December 2021 and $21.64 billion as of December 2020 related to credit card lines issued by the firm to consumers. These credit card lines are cancellable by the firm. Credit card lending commitments also included approximately $2.0 billion as of December 2021 related to a commitment to acquire the General Motors

co-branded

credit card portfolio.

See Note 18 for further information about lending commitments.

The following is a description of the methodology used to calculate the allowance for credit losses:

Wholesale.

The allowance for credit losses for wholesale loans and lending commitments that exhibit similar risk characteristics is measured using a modeled approach. These models determine the probability of default and loss given default based on various risk factors, including internal credit ratings, industry default and loss data, expected life, macroeconomic indicators, the borrower’s capacity to meet its financial obligations, the borrower’s country of risk and industry, loan seniority and collateral type. For lending commitments, the methodology also considers probability of drawdowns or funding. In addition, for loans backed by real estate, risk factors include the loan-to-value ratio, debt service ratio and home price index. The most significant inputs to the forecast model for wholesale loans and lending commitments include unemployment rates, GDP, credit spreads, commercial and industrial delinquency rates, short- and long-term interest rates, and oil prices.

The allowance for loan losses for wholesale loans that do not share similar risk characteristics, such as nonaccrual loans or loans in a TDR, is calculated using the present value of expected future cash flows discounted at the loan’s original effective rate, the observable market price of the loan or the fair value of the collateral.

Wholesale loans are charged off against the allowance for loan losses when deemed to be uncollectible.

Consumer.

The allowance for credit losses for consumer loans that exhibit similar risk characteristics is calculated using a modeled approach which classifies consumer loans into pools based on borrower-related and exposure-related characteristics that differentiate a pool’s risk characteristics from other pools. The factors considered in determining a pool are generally consistent with the risk characteristics used for internal credit risk measurement and management and include key metrics, such as FICO credit scores, delinquency status, loan vintage and macroeconomic indicators. The most significant inputs to the forecast model for consumer loans include unemployment rates and delinquency rates. The expected life of revolving credit card loans is determined by modeling expected future draws and the timing and amount of repayments allocated to the funded balance. The firm also recognizes an allowance for credit losses on commitments to acquire loans. However, no allowance for credit losses is recognized on credit card lending commitments as they are cancellable by the firm.

The allowance for credit losses for consumer loans that do not share similar risk characteristics, such as loans in a TDR, is calculated using the present value of expected future cash flows discounted at the loan’s original effective rate.

Installment loans are charged off when they are 120 days past due. Credit card loans are charged off when they are 180 days past due.

Allowance for Credit Losses Rollforward

The table below presents information about the allowance for credit losses.



$ in millions	Wholesale		Consumer		Total
Year Ended December 2021
Allowance for loan losses
Beginning balance	$2,584		$1,290		$3,874
Net charge-offs	(130	)	(203	)	(333	)
Provision	(231	)	351		120
Other	(88	)	–		(88	)
Ending balance	$2,135		$1,438		$3,573
Allowance ratio	1.6%		12.1%		2.5%
Net charge-off ratio	0.1%		2.3%		0.3%
Allowance for losses on lending commitments
Beginning balance	$ 557		$ –		$ 557
Provision	50		187		237
Other	(18	)	–		(18	)
Ending balance	$ 589		$ 187		$ 776
Year Ended December 2020
Allowance for loan losses
Beginning balance	$1,331		$ 837		$2,168
Net charge-offs	(615	)	(292	)	(907	)
Provision	2,108		745		2,853
Other	(240	)	–		(240	)
Ending balance	$2,584		$1,290		$3,874
Allowance ratio	2.7%		15.9%		3.7%
Net charge-off ratio	0.6%		4.2%		0.9%
Allowance for losses on lending commitments
Beginning balance	$ 313		$ –		$ 313
Provision	244		–		244
Ending balance	$ 557		$ –		$ 557

In the table above:

•

Other primarily represents the reduction to the allowance related to loans and lending commitments transferred to held for sale.

•

The allowance ratio is calculated by dividing the allowance for loan losses by gross loans accounted for at amortized cost.

•

The net

charge-off

ratio is calculated by dividing net charge-offs by average gross loans accounted for at amortized cost.

•

The beginning balance for the allowance for loan losses and allowance for losses on lending commitments for 2020 reflects the cumulative effect of measuring the allowance under the CECL standard as of January 1, 2020. The cumulative effect was an increase in the allowance for credit losses of $679 million, which consisted of (i) an increase in the allowance for loan losses of $727 million (an increase in the allowance for wholesale loans of $452 million, an increase in the allowance for consumer loans of $444 million and a decrease in the allowance for PCI loans of $169 million) and (ii) a decrease in the allowance for lending commitments of $48 million.

Allowance for Credit Losses Commentary

Year Ended December 2021.

The allowance for credit losses decreased by $82 million during 2021.

The provision for credit losses reflected growth in the firm’s lending portfolios, primarily in the consumer portfolio related to credit cards, including a provision for credit losses of approximately

$185

million relating to the commitment to acquire the General Motors

co-branded

credit card portfolio, largely offset by reserve reduction driven by improved broader economic environment.

Net charge-offs for 2021 for wholesale loans were primarily related to corporate loans and net charge-offs for consumer loans were primarily related to credit cards.

Forecast model inputs as of December 2021.

When modeling expected credit losses, the firm employs a weighted, multi-scenario forecast, which includes baseline, adverse and favorable economic scenarios. As of December 2021, this multi-scenario forecast was primarily weighted towards the baseline economic scenario.

The table below presents the forecasted U.S. unemployment and U.S. GDP growth rates used in the baseline economic scenario of the forecast model.



			As of December 2021
U.S. unemployment rate
Forecast for the quarter ended:
June 2022			3.7%
December 2022			3.5%
June 2023			3.4%
Growth in U.S. GDP
Forecast for the year:
2022			3.4%
2023			2.1%
2024			1.8%

In addition, in the adverse economic scenario in the firm’s forecast model, the U.S. unemployment rate peaks at

approximately 9.5%

during the first quarter of 2023 and the maximum decline in the quarterly U.S. GDP relative to the fourth quarter of 2021 is

approximately 2.5%

, which occurs during the first quarter of 2023.

In the table above:

•

U.S. unemployment rate represents the rate forecasted as of the respective

quarter-end.

•

Growth in U.S. GDP represents the year-over-year growth rate forecasted for the respective years.

•

While the U.S. unemployment and U.S. GDP growth rates are significant inputs to the forecast model, the model contemplates a variety of other inputs across a range of scenarios to provide a forecast of future economic conditions. Given the complex nature of the forecasting process, no single economic variable can be viewed in isolation and independently of other inputs.

Year Ended December 2020.

The allowance for credit losses increased by $2.63 billion during 2020 reflecting $679 million relating to the impact of CECL adoption and $1.95 billion from activity during the period.

The provision for credit losses for wholesale and consumer loans reflected the impact of the coronavirus

(COVID-19)

pandemic on economic conditions, which resulted in higher modeled expected losses and lower recoveries. In addition, the provision for credit losses for wholesale loans was impacted by asset-specific provisions and ratings downgrades primarily related to borrowers in the diversified industrials, technology, media & telecommunications and natural resources industries. Besides the weaker economic outlook related to the

COVID-19

pandemic, the provision for credit losses for consumer loans for 2020 was also impacted by the growth of the credit card portfolio.

Net charge-offs for 2020 for wholesale loans were primarily related to corporate loans and net charge-offs for consumer loans were primarily related to installment loans.

Fair Value of Loans by Level

The table below presents loans held for investment accounted for at fair value under the fair value option by level within the fair value hierarchy.



$ in millions	Level 1	Level 2	Level 3	Total
As of December 2021
Loan Type
Corporate	$ –	$ 1,655	$ 837	$ 2,492
Wealth management	–	5,873	63	5,936
Commercial real estate	–	605	983	1,588
Residential real estate	–	115	205	320
Other	–	167	266	433
Total	$ –	$ 8,415	$2,354	$10,769
As of December 2020
Loan Type
Corporate	$ –	$ 1,822	$ 929	$ 2,751
Wealth management	–	7,809	63	7,872
Commercial real estate	–	857	1,104	1,961
Residential real estate	–	234	260	494
Other	–	225	322	547
Total	$ –	$10,947	$2,678	$13,625

The gains as a result of changes in the fair value of loans held for investment for which the fair value option was elected were $216 million for 2021 and $151 million for 2020. These gains were included in other principal transactions.

See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of loans.

Significant Unobservable Inputs

The table below presents the amount of level 3 loans, and ranges and weighted averages of significant unobservable inputs used to value such loans.

As of December 2021

As of December 2020

$ in millions

Amount or

Range

Weighted
Average

Amount or

Range

Weighted
Average

Corporate

Level 3 assets

$837

$929

Yield

1.5% to 55.6%

14.9%

1.1% to 45.2%

12.4%

Recovery rate

15.0% to 92.0%

40.8%

15.0% to 58.0%

31.0%

Duration (years)

0.9 to 6.8

2.7

1.5 to 5.3

3.4

Commercial real estate

Level 3 assets

$983

$1,104

Yield

3.2% to 18.7%

12.6%

4.5% to 19.3%

11.0%

Recovery rate

4.1% to 99.5%

41.4%

3.0% to 99.8%

66.5%

Duration (years)

0.4 to 4.0

1.7

0.3 to 4.8

2.6

Residential real estate

Level 3 assets

$205

$260

Yield

2.1% to 20.0%

16.1%

2.0% to 14.0%

12.1%

Duration (years)

0.1 to 2.4

1.0

0.6 to 2.6

1.7

Wealth management and other

Level 3 assets

$329

$385

Yield

3.6% to 18.7%

7.1%

2.8% to 18.7%

8.0%

Duration (years)

2.9 to 5.5

3.6

0.9 to 5.5

4.1

In the table above:

•

Ranges represent the significant unobservable inputs that were used in the valuation of each type of loan.

•

Weighted averages are calculated by weighting each input by the relative fair value of the loan.

•

The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one loan. For example, the highest yield for residential real estate loans is appropriate for valuing a specific residential real estate loan but may not be appropriate for valuing any other residential real estate loan. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 loans.

•

Increases in yield or duration used in the valuation of level 3 loans would have resulted in a lower fair value measurement, while increases in recovery rate would have resulted in a higher fair value measurement as of both December 2021 and December 2020. Due to the distinctive nature of each level 3 loan, the interrelationship of inputs is not necessarily uniform within each product type.

•

Loans are valued using discounted cash flows.

Level 3 Rollforward

The table below presents a summary of the changes in fair value for level 3 loans.



	Year Ended December

$ in millions		2021		2020
Beginning balance		$2,678		$1,890
Net realized gains/(losses)		99		72
Net unrealized gains/(losses)		(33	)	87
Purchases		272		670
Sales		(54	)	(50	)
Settlements		(668	)	(727	)
Transfers into level 3		369		836
Transfers out of level 3		(309	)	(100	)
Ending balance		$2,354		$2,678

In the table above:

•

Changes in fair value are presented for loans that are classified in level 3 as of the end of the period.

•

Net unrealized gains/(losses) relates to loans that were still held at

period-end.

•

Purchases includes originations and secondary purchases.

•

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a loan was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.

The table below presents information, by loan type, for loans included in the summary table above.



	Year Ended December

$ in millions		2021		2020
Corporate
Beginning balance		$ 929		$ 752
Net realized gains/(losses)		31		22
Net unrealized gains/(losses)		(34	)	(22	)
Purchases		143		277
Sales		(15	)	(38	)
Settlements		(251	)	(125	)
Transfers into level 3		127		163
Transfers out of level 3		(93	)	(100	)
Ending balance		$ 837		$ 929
Commercial real estate
Beginning balance		$1,104		$ 591
Net realized gains/(losses)		45		24
Net unrealized gains/(losses)		(21	)	60
Purchases		20		334
Sales		(6	)	(5	)
Settlements		(292	)	(366	)
Transfers into level 3		185		466
Transfers out of level 3		(52	)	–
Ending balance		$ 983		$1,104
Residential real estate
Beginning balance		$ 260		$ 221
Net realized gains/(losses)		12		13
Net unrealized gains/(losses)		(41	)	10
Purchases		58		48
Sales		(4	)	(2	)
Settlements		(61	)	(78	)
Transfers into level 3		57		48
Transfers out of level 3		(76	)	–
Ending balance		$ 205		$ 260
Wealth management and other
Beginning balance		$ 385		$ 326
Net realized gains/(losses)		11		13
Net unrealized gains/(losses)		63		39
Purchases		51		11
Sales		(29	)	(5	)
Settlements		(64	)	(158	)
Transfers into level 3		–		159
Transfers out of level 3		(88	)	–
Ending balance		$ 329		$ 385

Level 3 Rollforward Commentary

Year Ended December 2021.

The net realized and unrealized gains on level 3 loans of $66 million (reflecting $99 million of net realized gains and $33 million of net unrealized losses) for 2021 included gains of $42 million reported in other principal transactions and $24 million reported in interest income.

The drivers of the net unrealized losses on level 3 loans for 2021 were not material.

Transfers into level 3 loans during 2021 primarily reflected transfers of certain loans backed by commercial real estate from level 2 (principally due to certain unobservable yield and duration inputs becoming significant to the valuation of these instruments) and transfers of certain corporate loans from level 2 (principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments).

Transfers out of level 3 loans during 2021 primarily reflected transfers of certain corporate loans and wealth management and other loans to level 2 (in each case, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments).

Year Ended December 2020.

The net realized and unrealized gains on level 3 loans of $159 million (reflecting $72 million of net realized gains and $87 million of net unrealized gains) for 2020 included gains of $135 million reported in other principal transactions and $24 million reported in interest income.

The drivers of the net unrealized gains on level 3 loans for 2020 were not material.

Transfers into level 3 loans during 2020 reflected transfers of certain loans backed by commercial real estate, corporate loans, and wealth management and other loans from level 2 (in each case, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments).

Transfers out of level 3 loans during 2020 reflected transfers of certain corporate loans to level 2 (principally due to duration and yield inputs no longer being significant to the valuation of these loans and increased price transparency as a result of increased market evidence, including market transactions in these instruments).

Estimated Fair Value

The table below presents the estimated fair value of loans that are not accounted for at fair value and in what level of the fair value hierarchy they would have been classified if they had been included in the firm’s fair value hierarchy.



	Carrying Value		Estimated Fair Value
$ in millions	Carrying Value			Level 2	Level 3	Total
As of December 2021
Amortized cost		$139,934		$87,676	$54,127	$141,803
Held for sale		$ 7,859		$ 5,970	$ 1,917	$ 7,887
As of December 2020
Amortized cost		$ 99,691		$52,793	$48,512	$101,305
Held for sale		$ 2,799		$ 1,541	$ 1,271	$ 2,812