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LOANS AND LEASES

6 Months Ended

Jun. 30, 2023

Accrued interest receivable on loans and leases, which totaled $106.9 million at June 30, 2023 and $99.3 million at December 31, 2022, 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 following tables.

Loans and Leases by Portfolio Segment

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

TABLE 5.1



(in millions)	June 30, 2023		December 31, 2022
Commercial real estate	$	11,689	$	11,526
Commercial and industrial	7,248		7,131
Commercial leases	618		519
Other	121		114
Total commercial loans and leases	19,676		19,290
Direct installment	2,747		2,784
Residential mortgages	6,089		5,297
Indirect installment	1,539		1,553
Consumer lines of credit	1,303		1,331
Total consumer loans	11,678		10,965
Total loans and leases, net of unearned income	$	31,354	$	30,255

The remaining accretable discount included in the amortized cost of acquired loans was $50.7 million and $58.6 million at June 30, 2023 and December 31, 2022, respectively, which includes $10.1 million and $30.9 million established for Howard and Union, respectively, at the time of acquisition.

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;

•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.; Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina; and Charleston, South Carolina.

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

TABLE 5.2


(dollars in millions)	June 30, 2023		December 31, 2022
Commercial real estate:
Percent owner-occupied	29.8	%	30.2	%
Percent non-owner-occupied	70.2		69.8

Credit Quality

We monitor 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 5.3


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 our 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, we analyze 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, we apply higher risk factors to Substandard and Doubtful credit categories.

The following table summarizes the designated loan rating category by loan class including term loans on an amortized cost basis by origination year and year-to-date gross charge-offs by originating year:

TABLE 5.4


June 30, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
Pass	$	610	$	1,985	$	2,362	$	1,567	$	1,222	$	2,892	$	239	$	10,877
Special Mention	3		44		22		96		65		255		16		501
Substandard	—		13		14		20		60		187		17		311

Total commercial real estate	613		2,042		2,398		1,683		1,347		3,334		272		11,689
Commercial real estate current period gross charge-offs	—		0.1		0.1		—		—		8.1		—		8.3
Commercial and Industrial:
Risk Rating:
Pass	679		1,511		1,057		716		454		632		1,646		6,695
Special Mention	16		16		55		8		24		106		74		299
Substandard	4		11		39		8		15		50		127		254

Total commercial and industrial	699		1,538		1,151		732		493		788		1,847		7,248
Commercial and industrial current period gross charge-offs	0.1		0.2		0.1		0.5		1.3		9.1		—		11.3
Commercial Leases:
Risk Rating:
Pass	192		139		107		60		44		50		—		592
Special Mention	6		2		1		—		1		—		—		10
Substandard	1		1		4		7		2		1		—		16

Total commercial leases	199		142		112		67		47		51		—		618
Commercial leases current period gross charge-offs	—		—		—		—		—		—		—		—
Other Commercial:
Risk Rating:
Pass	60		—		—		—		—		9		52		121



Total other commercial	60		—		—		—		—		9		52		121
Other commercial current period gross charge-offs	—		—		—		—		—		2.4		—		2.4
Total commercial loans and leases	1,571		3,722		3,661		2,482		1,887		4,182		2,171		19,676


June 30, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
(in millions)
CONSUMER
Direct Installment:
Current	159		756		836		422		150		411		—		2,734
Past due	—		1		1		1		1		9		—		13
Total direct installment	159		757		837		423		151		420		—		2,747
Direct installment current period gross charge-offs	—		0.1		0.1		—		—		0.2		—		0.4
Residential Mortgages:
Current	770		1,641		1,565		831		361		878		—		6,046
Past due	—		2		3		2		—		36		—		43
Total residential mortgages	770		1,643		1,568		833		361		914		—		6,089
Residential mortgages current period gross charge-offs	—		—		—		—		—		0.6		—		0.6
Indirect Installment:
Current	268		690		296		131		62		75		—		1,522
Past due	—		6		7		2		1		1		—		17
Total indirect installment	268		696		303		133		63		76		—		1,539
Indirect installment current period gross charge-offs	0.1		1.9		2.1		0.3		0.2		0.2		—		4.8
Consumer Lines of Credit:
Current	23		68		17		2		3		124		1,050		1,287
Past due	—		—		—		—		—		14		2		16
Total consumer lines of credit	23		68		17		2		3		138		1,052		1,303
Consumer lines of credit current period gross charge-offs	—		—		0.1		—		—		0.5		—		0.6
Total consumer loans	1,220		3,164		2,725		1,391		578		1,548		1,052		11,678
Total loans and leases	$	2,791	$	6,886	$	6,386	$	3,873	$	2,465	$	5,730	$	3,223	$	31,354
Total charge-offs	$	0.2	$	2.3	$	2.5	$	0.8	$	1.5	$	21.1	$	—	$	28.4

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

TABLE 5.5


December 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
Pass	$	1,967	$	2,348	$	1,678	$	1,283	$	700	$	2,447	$	258	$	10,681
Special Mention	43		35		67		74		104		208		5		536
Substandard	3		7		20		47		45		167		20		309

Total commercial real estate	2,013		2,390		1,765		1,404		849		2,822		283		11,526

Commercial and Industrial:
Risk Rating:
Pass	1,635		1,194		760		533		289		453		1,856		6,720
Special Mention	15		43		16		27		48		48		54		251
Substandard	5		12		11		8		38		34		52		160

Total commercial and industrial	1,655		1,249		787		568		375		535		1,962		7,131

Commercial Leases:
Risk Rating:
Pass	187		121		69		59		36		27		—		499
Special Mention	—		1		—		1		—		—		—		2
Substandard	2		5		8		1		1		1		—		18

Total commercial leases	189		127		77		61		37		28		—		519

Other Commercial:
Risk Rating:
Pass	58		—		—		—		—		12		44		114



Total other commercial	58		—		—		—		—		12		44		114

Total commercial loans and leases	3,915		3,766		2,629		2,033		1,261		3,397		2,289		19,290

CONSUMER
Direct Installment:
Current	801		887		453		163		91		374		—		2,769
Past due	—		1		1		1		1		11		—		15
Total direct installment	801		888		454		164		92		385		—		2,784

Residential Mortgages:
Current	1,464		1,587		871		378		128		819		2		5,249
Past due	2		3		3		2		5		33		—		48
Total residential mortgages	1,466		1,590		874		380		133		852		2		5,297

Indirect Installment:
Current	800		357		166		88		80		40		—		1,531
Past due	5		11		3		1		1		1		—		22
Total indirect installment	805		368		169		89		81		41		—		1,553

Consumer Lines of Credit:
Current	74		17		1		3		4		126		1,086		1,311
Past due	—		1		1		—		—		15		3		20
Total consumer lines of credit	74		18		2		3		4		141		1,089		1,331

Total consumer loans	3,146		2,864		1,499		636		310		1,419		1,091		10,965
Total loans and leases	$	7,061	$	6,630	$	4,128	$	2,669	$	1,571	$	4,816	$	3,380	$	30,255

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, 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 5.6


(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
June 30, 2023
Commercial real estate	$	10	$	—	$	42	$	52	$	11,637	$	11,689	$	19
Commercial and industrial	16		—		74		90		7,158		7,248		11
Commercial leases	1		—		1		2		616		618		—
Other	1		—		—		1		120		121		—
Total commercial loans and leases	28		—		117		145		19,531		19,676		30
Direct installment	6		1		6		13		2,734		2,747		—
Residential mortgages	27		4		12		43		6,046		6,089		—
Indirect installment	14		1		2		17		1,522		1,539		—
Consumer lines of credit	8		2		6		16		1,287		1,303		—
Total consumer loans	55		8		26		89		11,589		11,678		—
Total loans and leases	$	83	$	8	$	143	$	234	$	31,120	$	31,354	$	30


(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, 2022
Commercial real estate	$	13	$	—	$	39	$	52	$	11,474	$	11,526	$	15
Commercial and industrial	9		1		44		54		7,077		7,131		11
Commercial leases	3		—		1		4		515		519		—
Other	1		—		—		1		113		114		—
Total commercial loans and leases	26		1		84		111		19,179		19,290		26
Direct installment	7		1		7		15		2,769		2,784		—
Residential mortgages	28		6		14		48		5,249		5,297		—
Indirect installment	20		1		1		22		1,531		1,553		—
Consumer lines of credit	10		3		7		20		1,311		1,331		—
Total consumer loans	65		11		29		105		10,860		10,965		—
Total loans and leases	$	91	$	12	$	113	$	216	$	30,039	$	30,255	$	26

Following is a summary of non-performing assets:

TABLE 5.7


(dollars in millions)	June 30, 2023			December 31, 2022
Non-accrual loans	$	143		$	113
Total non-performing loans and leases	143			113
Other real estate owned	5			6
Total non-performing assets	$	148		$	119
Asset quality ratios:
Non-performing loans and leases / total loans and leases	0.45		%	0.37		%
Non-performing assets plus 90 days or more past due / total loans and leases plus OREO	0.50			0.44

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 $1.2 million at June 30, 2023 and $1.1 million at December 31, 2022. The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at June 30, 2023 and December 31, 2022 totaled $12.8 million and $11.8 million, respectively.

Approximately $82.0 million of commercial loans are collateral dependent at June 30, 2023. 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.

Loan Modifications

During the period, there are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. These modifications typically result from loss mitigation activities and could include a term extension, interest rate reduction, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral. Accrued interest receivable on loan modifications totaled $0.08 million at June 30, 2023, and is excluded from the amortized cost of loan modifications in the tables below.

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable, type of concession granted and the financial effect of the modifications made to borrowers experiencing financial difficulty:

TABLE 5.8


(dollars in millions)	Amortized Cost Basis		% of Total Class of Financing Receivable		Financial Effect
Three Months Ended June 30, 2023
Term Extension
Commercial real estate	$	11.2	0.10	%	The modified loans had an average increase in term of 22 months, extending the maturity date.



Direct installment	0.3		0.01		The repayment on the loans modified were extended, lowering the monthly repayment.
Residential mortgages	1.5		0.02		The modified loans had an average increase in term of 138 months, extending the maturity date.


Total	13.0




















Term Extension and Rate Reduction

Commercial and industrial	0.1		—		The term was extended, with a weighted average yield reduction of 487 bps.


Direct installment	0.2		0.01		The modified loans had an average increase in term of 445 months, extending the maturity date.
Residential mortgages	0.4		0.01		The modified loans had an average increase in term of 151 months, extending the maturity date.

Consumer lines of credit	0.6		0.05		The term was extended, with a weighted average yield reduction of 326 bps.
Total	1.3








































Other







Consumer lines of credit	0.2		0.02		Multiple modifications were made with no material financial effect.
Total	0.2
Total Outstanding Modified	$	14.5


(dollars in millions)	Amortized Cost Basis		% of Total Class of Financing Receivable		Financial Effect
Six Months Ended June 30, 2023
Term Extension
Commercial real estate	$	11.5	0.10	%	The modified loans had an average increase in term of 22 months, extending the maturity date.
Commercial and industrial	2.3		0.03		The modified loans had an average increase in term of 12 months, extending the maturity date.


Direct installment	0.4		0.01		The repayment on the loans modified were extended, lowering the monthly repayment.
Residential mortgages	1.6		0.03		The modified loans had an average increase in term of 141 months, extending the maturity date.

Consumer lines of credit	0.2		0.02		The repayment on the loans modified was extended, lowering the monthly repayment.
Total	16.0




















Term Extension and Rate Reduction

Commercial and industrial	0.2		—		The term was extended, with a weighted average yield reduction of 487 bps.


Direct installment	0.3		0.01		The modified loans had an average increase in term of 363 months, extending the maturity date.
Residential mortgages	0.7		0.01		The term was extended, with a weighted average yield reduction of 278 bps.

Consumer lines of credit	0.6		0.05		The term was extended, with a weighted average yield reduction of 326 bps.
Total	1.8








































Other
Commercial real estate	0.3		—		Multiple modifications were made with no material financial effect.




Residential mortgages	0.1		—		Multiple modifications were made with no material financial effect.

Consumer lines of credit	0.2		0.02		Multiple modifications were made with no material financial effect.
Total	0.6
Total Outstanding Modified	$	18.4

Some loan modifications 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. There were no additional funds committed to borrowers whose loans were modified during the first six months of 2023.

Commercial loans over $1.0 million whose terms have been modified may be placed on non-accrual, individually analyzed and measured based on the fair value of the underlying collateral. Our ACL includes specific reserves for commercial loans modified. There was $1.5 million and no specific reserve for commercial loans modified at June 30, 2023 and December 31, 2022, respectively, and pooled reserves for individual loans of $1.3 million and $1.1 million for those same periods, respectively, based on loan segment LGD. Upon default, the amount of the recorded investment of the modified loan balance 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 are pooled and measured based on the loan segment LGD. Our ACL included pooled reserves for these classes of loans of $3.8 million at both June 30, 2023 and December 31, 2022. Upon default of an individual loan, our charge-off policy is followed for that class of loan.

Following is a summary of loans modified in a manner that grants a concession to a borrower experiencing financial difficulties, 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 or in non-accrual and is within 12 months of restructuring.

TABLE 5.9


Amortized cost basis of modified financing receivables that subsequently defaulted:
(in millions)	Term Extension		Term Extension and Rate Reduction		Other		Total Outstanding Modified
Three Months Ended June 30, 2023
Commercial real estate	$	0.4	$	—	$	0.1	$	0.5
Commercial and industrial	—		0.1		—		0.1


Total commercial loans and leases	0.4		0.1		0.1		0.6





Total	$	0.4	$	0.1	$	0.1	$	0.6

Six Months Ended June 30, 2023
Commercial real estate	$	0.4	$	—	$	0.7	$	1.1
Commercial and industrial	1.5		0.2		—		1.7


Total commercial loans and leases	1.9		0.2		0.7		2.8

Residential mortgages	—		0.3		—		0.3

Consumer lines of credit	0.1		—		—		0.1
Total consumer loans	0.1		0.3		—		0.4
Total	$	2.0	$	0.5	$	0.7	$	3.2

We closely monitor the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months:

TABLE 5.10


Payment status - amortization cost basis:
(in millions)	Current		30-89 Days Past Due		90+ Days Past Due
June 30, 2023
Commercial real estate	$	11.9	$	—	$	—
Commercial and industrial	1.7		0.8		—


Total commercial loans and leases	13.6		0.8		—
Direct installment	0.6		0.1		—
Residential mortgages	1.8		0.5		—

Consumer lines of credit	1.0		—		—
Total consumer loans	3.4		0.6		—
Total	$	17.0	$	1.4	$	—

Prior to the adoption of ASU 2022-02, below are the tables relating to the TDR disclosures as of June 30, 2022.

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

TABLE 5.11


	Three Months Ended June 30, 2022					Six Months Ended June 30, 2022
(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	$	3	$	3	9	$	3	$	4
Commercial and industrial	6	1		—		6	1		1

Total commercial loans	13	4		3		15	4		5
Direct installment	13	1		1		26	1		1
Residential mortgages	15	3		3		20	3		3

Consumer lines of credit	5	—		1		8	1		1
Total consumer loans	33	4		5		54	5		5
Total	46	$	8	$	8	69	$	9	$	10

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 5.12


	Three Months Ended June 30, 2022			Six Months Ended June 30, 2022
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial real estate	—	$	—	2	$	—

Total commercial loans	—	—		2	—
Direct installment	1	—		2	—
Residential mortgages	3	—		3	—


Total consumer loans	4	—		5	—
Total	4	$	—	7	$	—