

(in millions)	Originated Loans and Leases		Loans Acquired in a Business Combination		Total Loans and Leases
June 30, 2019
Commercial real estate	$	6,601	$	2,231	$	8,832
Commercial and industrial	4,708		320		5,028
Commercial leases	385		—		385
Other	37		—		37
Total commercial loans and leases	11,731		2,551		14,282
Direct installment	1,679		79		1,758
Residential mortgages	2,573		449		3,022
Indirect installment	1,968		—		1,968
Consumer lines of credit	1,099		414		1,513
Total consumer loans	7,319		942		8,261
Total loans and leases, net of unearned income	$	19,050	$	3,493	$	22,543
December 31, 2018
Commercial real estate	$	6,171	$	2,615	$	8,786
Commercial and industrial	4,140		416		4,556
Commercial leases	373		—		373
Other	46		—		46
Total commercial loans and leases	10,730		3,031		13,761
Direct installment	1,668		96		1,764
Residential mortgages	2,612		501		3,113
Indirect installment	1,933		—		1,933
Consumer lines of credit	1,119		463		1,582
Total consumer loans	7,332		1,060		8,392
Total loans and leases, net of unearned income	$	18,062	$	4,091	$	22,153

The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market in seven states and the District of Columbia. Our primary market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina.

All loans acquired in a business combination were initially recorded at fair value at the acquisition date. Refer to the Loans Acquired in a Business Combination section in Note 1 of our 2018 Annual Report on Form 10-K for a discussion of ASC 310-20 and ASC 310-30 loans. The outstanding balance and the carrying amount of loans acquired in a business combination included in the Consolidated Balance Sheets are as follows:



(in millions)	June 30, 2019		December 31, 2018
Accounted for under ASC 310-30:
Outstanding balance	$	3,247	$	3,768
Carrying amount	2,998		3,570
Accounted for under ASC 310-20:
Outstanding balance	504		602
Carrying amount	491		513
Total loans acquired in a business combination:
Outstanding balance	3,751		4,370
Carrying amount	3,489		4,083



	Six Months Ended June 30,
(in millions)	2019			2018
Balance at beginning of period	$	605		$	708
Reduction due to unexpected early payoffs	(39		)	(94		)
Reclass from non-accretable difference to accretable yield	58			129
Other	—			(2		)
Accretion	(96		)	(116		)
Balance at end of period	$	528		$	625

Cash flows expected to be collected on loans acquired in business combinations are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. Improved cash flow expectations for loans or pools are recorded first as a reversal of previously recorded impairment, if any, and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as impairment through a charge to the provision for credit losses and credit to the allowance for credit losses.

method, since the timing and/or amount of cash flows expected to be collected can be reasonably estimated (the accretion model). The difference between the loan’s total scheduled principal and interest payments over all cash flows expected at acquisition is referred to as the non-accretable difference. The non-accretable difference represents contractually required principal and interest payments which we do not expect to collect.

During the six months ended June 30, 2019, there was an overall improvement in cash flow expectations which resulted in a net reclassification of $58.1 million from the non-accretable difference to accretable yield primarily driven by overall improvement in the primary credit quality indicators of the majority of the acquired loan pools. This reclassification was $129.0 million for the six months ended June 30, 2018. The reclassification from the non-accretable difference to the accretable yield results in prospective yield adjustments on the loan pools.

Non-performing loans include non-accrual loans and non-performing TDRs. Past due loans are reviewed on a monthly basis to identify loans for non-accrual status. We place loans on non-accrual status and discontinue interest accruals on loans generally when principal or interest is due and has remained unpaid for a certain number of days or when the full amount of principal and interest is due and has remained unpaid for a certain number of days, unless the loan is both well secured and in the process of collection. Commercial loans and leases are placed on non-accrual at 90 days, installment loans are placed on non-accrual at 120 days and residential mortgages and consumer lines of credit are placed on non-accrual at 180 days, though we may place a loan on non-accrual prior to these past due thresholds as warranted. When a loan is placed on non-accrual status, all unpaid accrued interest is reversed. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate ability to collect the remaining principal and interest is reasonably assured. The majority of TDRs are loans in which we have granted a concession on the original repayment terms due to the borrower’s financial distress.



(dollars in millions)	June 30, 2019			December 31, 2018
Non-accrual loans	$	74		$	79
Troubled debt restructurings	19			21
Total non-performing loans	93			100
Other real estate owned	32			35
Total non-performing assets	$	125		$	135
Asset quality ratios:
Non-performing loans / total loans and leases	0.41		%	0.45		%
Non-performing loans + OREO / total loans and leases + OREO	0.55		%	0.61		%
Non-performing assets / total assets	0.37		%	0.41		%

The carrying value of residential other real estate owned held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $3.2 million at June 30, 2019 and $6.3 million at December 31, 2018. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at June 30, 2019 and December 31, 2018 totaled $9.9 million and $8.9 million, respectively.



(in millions)	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due		Current		Total Loans and Leases
Originated Loans and Leases
June 30, 2019
Commercial real estate	$	7	$	—	$	27	$	34	$	6,567	$	6,601
Commercial and industrial	7		—		17		24		4,684		4,708
Commercial leases	4		—		2		6		379		385
Other	—		—		1		1		36		37
Total commercial loans and leases	18		—		47		65		11,666		11,731
Direct installment	6		1		7		14		1,665		1,679
Residential mortgages	16		2		8		26		2,547		2,573
Indirect installment	10		—		2		12		1,956		1,968
Consumer lines of credit	4		1		4		9		1,090		1,099
Total consumer loans	36		4		21		61		7,258		7,319
Total originated loans and leases	$	54	$	4	$	68	$	126	$	18,924	$	19,050
December 31, 2018
Commercial real estate	$	7	$	—	$	17	$	24	$	6,147	$	6,171
Commercial and industrial	5		—		19		24		4,116		4,140
Commercial leases	1		—		2		3		370		373
Other	—		—		1		1		45		46
Total commercial loans and leases	13		—		39		52		10,678		10,730
Direct installment	8		—		8		16		1,652		1,668
Residential mortgages	16		3		6		25		2,587		2,612
Indirect installment	11		1		2		14		1,919		1,933
Consumer lines of credit	5		1		3		9		1,110		1,119
Total consumer loans	40		5		19		64		7,268		7,332
Total originated loans and leases	$	53	$	5	$	58	$	116	$	17,946	$	18,062



(in millions)	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due (1) (2)		Current		(Discount) Premium			Total Loans
Loans Acquired in a Business Combination
June 30, 2019
Commercial real estate	$	19	$	31	$	3	$	53	$	2,332	$	(154	)	$	2,231
Commercial and industrial	1		4		2		7		336		(23		)	320
Total commercial loans	20		35		5		60		2,668		(177		)	2,551
Direct installment	1		1		—		2		77		—			79
Residential mortgages	12		4		—		16		449		(16		)	449
Consumer lines of credit	7		3		—		10		413		(9		)	414
Total consumer loans	20		8		—		28		939		(25		)	942
Total loans acquired in a business combination	$	40	$	43	$	5	$	88	$	3,607	$	(202	)	$	3,493
December 31, 2018
Commercial real estate	$	19	$	38	$	3	$	60	$	2,723	$	(168	)	$	2,615
Commercial and industrial	3		4		17		24		420		(28		)	416
Total commercial loans	22		42		20		84		3,143		(196		)	3,031
Direct installment	3		2		—		5		91		—			96
Residential mortgages	13		6		—		19		498		(16		)	501
Consumer lines of credit	8		3		1		12		461		(10		)	463
Total consumer loans	24		11		1		36		1,050		(26		)	1,060
Total loans acquired in a business combination	$	46	$	53	$	21	$	120	$	4,193	$	(222	)	$	4,091



Rating Category	Definition
Pass	in general, the condition of the borrower and the performance of the loan is satisfactory or better

Special Mention	in general, the condition of the borrower has deteriorated, requiring an increased level of monitoring

Substandard	in general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected

Doubtful	in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable

The use of these internally assigned credit quality categories within the commercial loan and lease portfolio permits management’s use of transition matrices to estimate a quantitative portion of credit risk. Our internal credit risk grading system is based on past experiences with similarly graded loans and leases and conforms with regulatory categories. In general, loan and lease risk ratings within each category are reviewed on an ongoing basis according to our policy for each class of loans and leases. Each quarter, management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the commercial loan and lease portfolio. Loans and leases within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans and leases that migrate toward the Substandard or Doubtful credit categories. Accordingly, management applies higher risk factors to Substandard and Doubtful credit categories.



	Commercial Loan and Lease Credit Quality Categories
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans and Leases
June 30, 2019
Commercial real estate	$	6,309	$	146	$	145	$	1	$	6,601
Commercial and industrial	4,419		162		126		1		4,708
Commercial leases	375		4		6		—		385
Other	36		—		1		—		37
Total originated commercial loans and leases	$	11,139	$	312	$	278	$	2	$	11,731
December 31, 2018
Commercial real estate	$	5,883	$	163	$	125	$	—	$	6,171
Commercial and industrial	3,879		180		81		—		4,140
Commercial leases	366		1		6		—		373
Other	45		—		1		—		46
Total originated commercial loans and leases	$	10,173	$	344	$	213	$	—	$	10,730
Loans Acquired in a Business Combination
June 30, 2019
Commercial real estate	$	1,926	$	147	$	158	$	—	$	2,231
Commercial and industrial	274		17		29		—		320
Total commercial loans acquired in a business combination	$	2,200	$	164	$	187	$	—	$	2,551
December 31, 2018
Commercial real estate	$	2,256	$	168	$	191	$	—	$	2,615
Commercial and industrial	355		18		43		—		416
Total commercial loans acquired in a business combination	$	2,611	$	186	$	234	$	—	$	3,031

We use delinquency transition matrices within the consumer and other loan classes to enable management to estimate a quantitative portion of credit risk. Each month, management analyzes payment and volume activity, Fair Isaac Corporation (FICO) scores and other external factors such as unemployment, to determine how consumer loans are performing.



	Consumer Loan Credit Quality by Payment Status
(in millions)	Performing		Non- Performing		Total
Originated Loans
June 30, 2019
Direct installment	$	1,665	$	14	$	1,679
Residential mortgages	2,557		16		2,573
Indirect installment	1,966		2		1,968
Consumer lines of credit	1,095		4		1,099
Total originated consumer loans	$	7,283	$	36	$	7,319
December 31, 2018
Direct installment	$	1,654	$	14	$	1,668
Residential mortgages	2,598		14		2,612
Indirect installment	1,931		2		1,933
Consumer lines of credit	1,114		5		1,119
Total originated consumer loans	$	7,297	$	35	$	7,332
Loans Acquired in a Business Combination
June 30, 2019
Direct installment	$	79	$	—	$	79
Residential mortgages	449		—		449
Consumer lines of credit	413		1		414
Total consumer loans acquired in a business combination	$	941	$	1	$	942
December 31, 2018
Direct installment	$	96	$	—	$	96
Residential mortgages	501		—		501
Consumer lines of credit	462		1		463
Total consumer loans acquired in a business combination	$	1,059	$	1	$	1,060

Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan and lease contract is doubtful. Typically, we do not consider loans for impairment unless a sustained period of delinquency (i.e., 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e., negative financial trends, bankruptcy filings, imminent foreclosure proceedings, etc.). Effective July 1, 2018, we changed our threshold for measuring impairment on a collective basis. Impairment is evaluated in the aggregate for consumer installment loans, residential mortgages, consumer lines of credit and commercial loan relationships less than $1.0 million based on loan segment loss given default. For commercial loan relationships greater than or equal to $1.0 million, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using a market interest rate or at the fair value of collateral if repayment is expected solely from the sale of the collateral. Consistent with our existing method of income recognition for loans, interest income on impaired loans, except those classified as non-accrual, is recognized using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.



(in millions)	Unpaid Contractual Principal Balance		Recorded Investment With No Specific Reserve		Recorded Investment With Specific Reserve		Total Recorded Investment		Specific Reserve		Average Recorded Investment
At or for the Six Months Ended June 30, 2019
Commercial real estate	$	31	$	21	$	6	$	27	$	2	$	24
Commercial and industrial	22		15		—		15		1		17
Commercial leases	2		2		—		2		—		2
Total commercial loans and leases	55		38		6		44		3		43
Direct installment	17		14		—		14		—		14
Residential mortgages	18		16		—		16		—		15
Indirect installment	5		2		—		2		—		2
Consumer lines of credit	7		5		—		5		—		5
Total consumer loans	47		37		—		37		—		36
Total	$	102	$	75	$	6	$	81	$	3	$	79
At or for the Year Ended December 31, 2018
Commercial real estate	$	20	$	16	$	1	$	17	$	—	$	18
Commercial and industrial	46		20		13		33		4		32
Commercial leases	2		2		—		2		—		4
Total commercial loans and leases	68		38		14		52		4		54
Direct installment	17		14		—		14		—		14
Residential mortgages	16		14		—		14		—		15
Indirect installment	5		2		—		2		—		2
Consumer lines of credit	7		5		—		5		—		5
Total consumer loans	45		35		—		35		—		36
Total	$	113	$	73	$	14	$	87	$	4	$	90

Interest income continued to accrue on certain impaired loans and totaled approximately $3.0 million and $3.1 million for the six months ended June 30, 2019 and 2018, respectively. The above tables include one loan acquired in a business combination with a specific reserve at December 31, 2018.



(in millions)	June 30, 2019		December 31, 2018
Commercial real estate	$	2	$	2
Commercial and industrial	1		4
Total commercial loans	3		6
Direct installment	1		1
Residential mortgages	1		—
Total consumer loans	2		1
Total allowance on loans acquired in a business combination	$	5	$	7

TDRs are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs typically result from loss mitigation activities and could include the extension of a maturity date, interest rate reduction, principal forgiveness, deferral or decrease in payments for a period of time and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral.



(in millions)	Originated		Acquired		Total
June 30, 2019
Accruing:
Performing	$	19	$	—	$	19
Non-performing	16		3		19
Non-accrual	16		—		16
Total TDRs	$	51	$	3	$	54
December 31, 2018
Accruing:
Performing	$	18	$	—	$	18
Non-performing	17		4		21
Non-accrual	9		—		9
Total TDRs	$	44	$	4	$	48

TDRs that are accruing and performing include loans that met the criteria for non-accrual of interest prior to restructuring for which we can reasonably estimate the timing and amount of the expected cash flows on such loans and for which we expect to fully collect the new carrying value of the loans. During the six months ended June 30, 2019, we returned to performing status $3.1 million in restructured residential mortgage loans that have consistently met their modified obligations for more than six months. TDRs that are accruing and non-performing are comprised of consumer loans that have not demonstrated a consistent repayment pattern on the modified terms for more than six months, however it is expected that we will collect all future principal and interest payments. TDRs that are on non-accrual are not placed on accruing status until all delinquent principal and interest have been paid and the ultimate collectability of the remaining principal and interest is reasonably assured. Some

Excluding purchased credit impaired loans, commercial loans over $1.0 million whose terms have been modified in a TDR are generally placed on non-accrual, individually analyzed and measured for estimated impairment based on the fair value of the underlying collateral. Our allowance for credit losses included specific reserves for commercial TDRs and pooled reserves for individually impaired loans under $1.0 million based on loan segment loss given default. Our allowance for loan losses includes specific reserves for commercial TDRs of less than $0.5 million at June 30, 2019 and 2018, respectively, and pooled reserves for individual loans of $0.9 million and $0.5 million for those same respective periods, based on loan segment loss given default. Upon default, the amount of the recorded investment in the TDR in excess of the fair value of the collateral, less estimated selling costs, is generally considered a confirmed loss and is charged-off against the allowance for credit losses.

All other classes of loans whose terms have been modified in a TDR are pooled and measured for estimated impairment based on the expected net present value of the estimated future cash flows of the pool. Our allowance for credit losses included pooled reserves for these classes of loans of $3.8 million for June 30, 2019 and $4.0 million for December 31, 2018. Upon default of an individual loan, our charge-off policy is followed for that class of loan.



	Three Months Ended June 30, 2019					Six Months Ended June 30, 2019
(dollars in millions)	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate	11	$	3	$	4	12	$	4	$	4
Commercial and industrial	2	4		3		13	5		4
Total commercial loans	13	7		7		25	9		8
Direct installment	14	1		1		32	1		1
Residential mortgages	7	—		—		10	1		1
Consumer lines of credit	7	—		—		14	—		—
Total consumer loans	28	1		1		56	2		2
Total	41	$	8	$	8	81	$	11	$	10



	Three Months Ended June 30, 2018					Six Months Ended June 30, 2018
(dollars in millions)	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate	1	$	—	$	—	1	$	—	$	—
Commercial and industrial	13	1		1		13	3		2
Total commercial loans	14	1		1		14	3		2
Direct installment	178	2		2		357	3		3
Residential mortgages	8	—		—		19	1		1
Indirect installment	7	—		—		16	—		—
Consumer lines of credit	22	1		1		41	1		—
Total consumer loans	215	3		3		433	5		4
Total	229	$	4	$	4	447	$	8	$	6



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial real estate	—	$	—	1	$	—
Commercial and industrial	—	—		—	—
Total commercial loans	—	—		1	—
Direct installment	—	$	—	3	$	—
Residential mortgages	—	—		1	—
Consumer lines of credit	—	—		1	—
Total consumer loans	—	—		5	—
Total	—	$	—	6	$	—



	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Direct installment	41	$	—	78	$	1
Residential mortgages	3	—		6	—
Indirect installment	5	—		9	—
Consumer lines of credit	2	—		3	—
Total consumer loans	51	—		96	1
Total	51	$	—	96	$	1