LOANS AND LEASES

9 Months Ended

Sep. 30, 2021

Receivables [Abstract]

LOANS AND LEASES

LOANS AND LEASES

Accrued interest receivable on loans and leases, which totaled $51.4 million at September 30, 2021 and $62.9 million at December 31, 2020, is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets for both periods and not included in the tables below. Upon adoption of CECL on January 1, 2020, PCD assets were adjusted to reflect the addition of a $50.3 million ACL and a remaining noncredit discount of $110.0 million included in the amortized cost. The remaining noncredit discount was $34.2 million and $50.9 million at September 30, 2021 and December 31, 2020, respectively.

Loans and Leases by Portfolio Segment

Following is a summary of total loans and leases, net of unearned income:

TABLE 4.1

(in millions)	September 30, 2021		December 31, 2020
Commercial real estate	$	9,871	$	9,731
Commercial and industrial	5,960		7,214
Commercial leases	489		485
Other	81		40
Total commercial loans and leases	16,401		17,470
Direct installment	2,250		2,020
Residential mortgages	3,588		3,433
Indirect installment	1,230		1,218
Consumer lines of credit	1,247		1,318
Total consumer loans	8,315		7,989
Total loans and leases, net of unearned income	$	24,716	$	25,459

The loans and leases portfolio categories are comprised of the following types of loans, where in each case the LGD is dependent on the nature and value of the respective collateral:

•Commercial real estate includes both owner-occupied and non-owner-occupied loans secured by commercial properties where operational cash flows on owner-occupied properties or rents received by our borrowers from their tenant(s) on both a property and global basis are the primary default risk drivers, including rents paid by stand-alone business customers for owner-occupied properties;

•Commercial and industrial includes loans to businesses that are not secured by real estate where the borrower's leverage and cash flows from operations are the primary default risk drivers. PPP loans are included in the commercial and industrial category and comprise $0.7 billion and $2.2 billion of this category's outstanding balance at September 30, 2021 and December 31, 2020, respectively. The PPP loans are 100% guaranteed by the SBA, which provides a reduced risk of loss to us on these loans;

•Commercial leases consist of leases for new or used equipment where the borrower's cash flow from operations is the primary default risk driver;

•Other is comprised primarily of credit cards and mezzanine loans where the borrower's cash flow from operations is the primary default risk driver;

•Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans where the primary default risk driver is the borrower's employment status and income;

•Residential mortgages consist of conventional and jumbo mortgage loans for 1-4 family properties where the primary default risk driver is the borrower's employment status and income;

•Indirect installment is comprised of loans originated by approved third parties and underwritten by us, primarily automobile loans where the primary default risk driver is the borrower's employment status and income; and

•Consumer lines of credit include home equity lines of credit and consumer lines of credit that are either unsecured or secured by collateral other than home equity where the primary default risk driver is the borrower's employment status and income.

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.

The following table shows occupancy information relating to commercial real estate loans:

TABLE 4.2

(dollars in millions)	September 30, 2021		December 31, 2020
Commercial real estate:
Percent owner-occupied	28.2	%	28.1	%
Percent non-owner-occupied	71.8		71.9

Credit Quality

Management monitors the credit quality of our loan portfolio using several performance measures based on payment activity and borrower performance. We use an internal risk rating assigned to a commercial loan or lease at origination, summarized below.

TABLE 4.3

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 establish a basis which is then impacted by quantitative inputs from our econometric model forecasts over the R&S period. Our internal credit risk grading system is based on past experiences with similarly graded loans and leases and conforms to 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.

The following tables summarize the designated loan rating category by loan class including term loans on an amortized cost basis by origination year:

TABLE 4.4

September 30, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
Pass	$	1,290	$	1,817	$	1,706	$	964	$	797	$	2,385	$	148	$	9,107
Special Mention	15		16		45		111		115		175		2		479
Substandard	—		8		34		38		44		158		3		285
Total commercial real estate	1,305		1,841		1,785		1,113		956		2,718		153		9,871
Commercial and Industrial:
Risk Rating:
Pass	1,500		980		788		422		200		293		1,335		5,518
Special Mention	—		31		15		5		18		64		35		168
Substandard	2		6		22		61		65		21		97		274
Total commercial and industrial	1,502		1,017		825		488		283		378		1,467		5,960
Commercial Leases:
Risk Rating:
Pass	139		124		107		58		43		2		—		473
Special Mention	—		—		—		2		3		2		—		7
Substandard	—		4		3		2		—		—		—		9
Total commercial leases	139		128		110		62		46		4		—		489
Other Commercial:
Risk Rating:
Pass	23		—		—		—		—		9		49		81
Substandard	—		—		—		—		—		—		—		—
Total other commercial	23		—		—		—		—		9		49		81
Total commercial	2,969		2,986		2,720		1,663		1,285		3,109		1,669		16,401
CONSUMER
Direct Installment:
Current	707		585		240		141		106		458		—		2,237
Past due	—		—		1		1		—		11		—		13
Total direct installment	707		585		241		142		106		469		—		2,250
Residential Mortgages:
Current	996		986		445		167		240		715		2		3,551
Past due	—		2		4		4		3		24		—		37
Total residential mortgages	996		988		449		171		243		739		2		3,588
Indirect Installment:
Current	415		290		180		210		80		45		—		1,220
Past due	2		2		2		2		1		1		—		10
Total indirect installment	417		292		182		212		81		46		—		1,230
Consumer Lines of Credit:
Current	13		3		4		6		3		126		1,078		1,233
Past due	—		—		—		—		—		12		2		14
Total consumer lines of credit	13		3		4		6		3		138		1,080		1,247
Total consumer	2,133		1,868		876		531		433		1,392		1,082		8,315
Total loans and leases	$	5,102	$	4,854	$	3,596	$	2,194	$	1,718	$	4,501	$	2,751	$	24,716

December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
Pass	$	1,879	$	1,854	$	1,135	$	927	$	888	$	1,911	$	163	$	8,757
Special Mention	9		30		80		158		70		163		4		514
Substandard	4		32		29		81		116		192		6		460
Total commercial real estate	1,892		1,916		1,244		1,166		1,074		2,266		173		9,731
Commercial and Industrial:
Risk Rating:
Pass	3,286		1,007		590		304		120		311		1,095		6,713
Special Mention	30		23		13		28		10		35		79		218
Substandard	8		26		65		44		6		37		97		283
Total commercial and industrial	3,324		1,056		668		376		136		383		1,271		7,214
Commercial Leases:
Risk Rating:
Pass	178		134		83		56		5		3		—		459
Special Mention	1		1		4		4		1		2		—		13
Substandard	7		2		2		1		1		—		—		13
Total commercial leases	186		137		89		61		7		5		—		485
Other Commercial:
Risk Rating:
Pass	—		—		—		—		—		4		35		39
Substandard	—		—		—		—		—		1		—		1
Total other commercial	—		—		—		—		—		5		35		40
Total commercial	5,402		3,109		2,001		1,603		1,217		2,659		1,479		17,470
CONSUMER
Direct Installment:
Current	706		337		200		143		171		442		1		2,000
Past due	—		1		2		1		2		14		—		20
Total direct installment	706		338		202		144		173		456		1		2,020
Residential Mortgages:
Current	1,079		707		283		378		330		603		1		3,381
Past due	1		5		7		4		6		29		—		52
Total residential mortgages	1,080		712		290		382		336		632		1		3,433
Indirect Installment:
Current	372		260		332		147		67		27		—		1,205
Past due	1		3		4		2		2		1		—		13
Total indirect installment	373		263		336		149		69		28		—		1,218
Consumer Lines of Credit:
Current	4		7		8		3		5		127		1,146		1,300
Past due	—		—		—		—		—		15		3		18
Total consumer lines of credit	4		7		8		3		5		142		1,149		1,318
Total consumer	2,163		1,320		836		678		583		1,258		1,151		7,989
Total loans and leases	$	7,565	$	4,429	$	2,837	$	2,281	$	1,800	$	3,917	$	2,630	$	25,459

We use delinquency transition matrices within the consumer and other loan classes to establish the basis for the R&S forecast portion of the credit risk. Each month, management analyzes payment and volume activity, Fair Isaac Corporation (FICO) scores and Debt-to-Income (DTI) scores and other external factors such as unemployment, to determine how consumer loans are performing.

Non-Performing and Past Due

The following tables provide an analysis of the aging of loans by class.

TABLE 4.5

(in millions)	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due		Current		Total Loans and Leases		Non-accrual with No ACL
September 30, 2021
Commercial real estate	$	6	$	—	$	55	$	61	$	9,810	$	9,871	$	20
Commercial and industrial	13		—		23		36		5,924		5,960		4
Commercial leases	4		—		1		5		484		489		—
Other	—		—		1		1		80		81		—
Total commercial loans and leases	23		—		80		103		16,298		16,401		24
Direct installment	4		1		8		13		2,237		2,250		—
Residential mortgages	18		5		14		37		3,551		3,588		—
Indirect installment	8		—		2		10		1,220		1,230		—
Consumer lines of credit	6		2		6		14		1,233		1,247		—
Total consumer loans	36		8		30		74		8,241		8,315		—
Total loans and leases	$	59	$	8	$	110	$	177	$	24,539	$	24,716	$	24

(in millions)	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due		Current		Total Loans and Leases		Non-accrual with No ACL
December 31, 2020
Commercial real estate	$	13	$	—	$	85	$	98	$	9,633	$	9,731	$	36
Commercial and industrial	8		—		44		52		7,162		7,214		16
Commercial leases	2		—		2		4		481		485		—
Other	—		—		1		1		39		40		—
Total commercial loans and leases	23		—		132		155		17,315		17,470		52
Direct installment	7		2		11		20		2,000		2,020		—
Residential mortgages	23		11		18		52		3,381		3,433		—
Indirect installment	10		1		2		13		1,205		1,218		—
Consumer lines of credit	9		2		7		18		1,300		1,318		—
Total consumer loans	49		16		38		103		7,886		7,989		—
Total loans and leases	$	72	$	16	$	170	$	258	$	25,201	$	25,459	$	52

Following is a summary of non-performing assets:

TABLE 4.6

(dollars in millions)	September 30, 2021			December 31, 2020
Non-accrual loans	$	110		$	170
Total non-performing loans	110			170
Other real estate owned	8			10
Total non-performing assets	$	118		$	180
Asset quality ratios:
Non-performing loans / total loans and leases	0.45		%	0.67		%
Non-performing assets + 90 days past due + OREO / total loans and leases + OREO	0.51			0.77

The carrying value of residential-secured consumer OREO 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 $1.1 million at September 30, 2021 and $2.5 million at December 31, 2020. The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at September 30, 2021 and December 31, 2020 totaled $6.3 million and $8.2 million, respectively. During 2020 and 2021, we extended the residential mortgage foreclosure moratorium beyond the requirements for government-backed loans, under the CARES Act, to all residential mortgage loan customers.

Approximately $40 million of commercial loans are collateral dependent at September 30, 2021. Repayment is expected to be substantially through the operation or sale of the collateral on the loan. These loans are primarily secured by business assets or commercial real estate.

Troubled Debt Restructurings

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. Consistent with the CARES Act and interagency bank regulatory guidance which allows temporary relief for current borrowers affected by COVID-19, we are working with borrowers and granting certain modifications through programs related to COVID-19 relief. As of September 30, 2021, we had $54 million in loans that have been granted short-term modifications as a result of financial disruptions associated with the COVID-19 pandemic, compared to $397 million as of December 31, 2020 and $2.4 billion as of June 30, 2020, the highest point during the pandemic. Also, consistent with the CARES Act and the interagency bank regulatory guidelines, such modifications are not included in our TDR totals.

Following is a summary of the composition of total TDRs:

TABLE 4.7

(in millions)	September 30, 2021		December 31, 2020
Accruing	$	58	$	58
Non-accrual	35		33
Total TDRs	$	93	$	91

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 nine months ended September 30, 2021, we returned to accruing status $7.8 million in restructured residential mortgage loans that have consistently met their modified obligations for more than six months. 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 loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and may result in potential incremental losses which are factored into the ACL.

Commercial loans over $1.0 million whose terms have been modified in a TDR are generally placed on non-accrual, individually analyzed and measured based on the fair value of the underlying collateral. Our ACL includes specific reserves for commercial TDRs of $1.4 million at September 30, 2021 compared to $2.8 million at December 31, 2020, and pooled reserves for individual loans of $1.8 million and $2.5 million for those same periods, respectively, based on loan segment LGD. 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 ACL.

All other classes of loans whose terms have been modified in a TDR are pooled and measured based on the loan segment LGD. Our ACL included pooled reserves for these classes of loans of $3.8 million for September 30, 2021 and $4.1 million for December 31, 2020. Upon default of an individual loan, our charge-off policy is followed for that class of loan.

Following is a summary of TDR loans, by class, for loans that were modified during the periods indicated:

TABLE 4.8

	Three Months Ended September 30, 2021					Nine Months Ended September 30, 2021
(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	5	$	2	$	2	21	$	20	$	20
Commercial and industrial	3	—		—		8	1		—
Other	1	—		—		1	—		—
Total commercial loans	9	2		2		30	21		20
Direct installment	8	—		—		26	1		1
Residential mortgages	12	2		2		15	2		2
Consumer lines of credit	7	—		—		31	2		2
Total consumer loans	27	2		2		72	5		5
Total	36	$	4	$	4	102	$	26	$	25

	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
(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	7	$	2	$	2	23	$	8	$	6
Commercial and industrial	4	—		—		19	3		2
Other	—	—		—		1	—		—
Total commercial loans	11	2		2		43	11		8
Direct installment	14	1		1		50	3		3
Residential mortgages	2	1		1		18	3		2
Consumer lines of credit	9	—		—		36	1		1
Total consumer loans	25	2		2		104	7		6
Total	36	$	4	$	4	147	$	18	$	14

The year-to-date items in the above tables have been adjusted for loans that have been paid off and/or sold.

Following is a summary of TDRs, by class, for which there was a payment default, excluding loans that have been paid off and/or sold. Default occurs when a loan is 90 days or more past due and is within 12 months of restructuring.

TABLE 4.9

	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial and industrial	—	$	—	1	$	—
Total commercial loans	—	—		1	—
Direct installment	1	—		1	—
Residential mortgages	—	—		1	—
Total consumer loans	1	—		2	—
Total	1	$	—	3	$	—

	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial real estate	—	$	—	8	$	3
Commercial and industrial	1	—		3	—
Total commercial loans	1	—		11	3
Direct installment	4	—		12	1
Residential mortgages	—	—		2	—
Consumer lines of credit	1	—		3	—
Total consumer loans	5	—		17	1
Total	6	$	—	28	$	4