ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES

6 Months Ended

Jun. 30, 2023

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES

The ACL is maintained for credit losses expected in the existing loan and lease portfolio and is presented as a reserve against loans and leases on the Consolidated Balance Sheets. Loan and lease losses are charged off against the ACL, with recoveries of amounts previously charged off credited to the ACL. Provisions for credit losses are charged to operations based on management’s periodic evaluation of the appropriate level of the ACL.

Following is a summary of changes in the ACL, by loan and lease class:

TABLE 6.1


(in millions)	Balance at Beginning of Period		Charge- Offs		Recoveries		Net (Charge- Offs) Recoveries		Provision for Credit Losses		Balance at End of Period
Three Months Ended June 30, 2023
Commercial real estate	$	159.2	$	(1.8)	$	1.3	$	(0.5)	$	(4.5)	$	154.2
Commercial and industrial	101.7		(5.5)		0.7		(4.8)		17.4		114.3
Commercial leases	14.8		—		—		—		0.4		15.2
Other	4.0		(1.6)		0.2		(1.4)		1.2		3.8
Total commercial loans and leases	279.7		(8.9)		2.2		(6.7)		14.5		287.5
Direct installment	36.2		(0.1)		0.1		—		(0.6)		35.6
Residential mortgages	60.4		(0.2)		—		(0.2)		3.2		63.4
Indirect installment	16.6		(2.2)		0.5		(1.7)		1.7		16.6
Consumer lines of credit	10.5		(0.3)		0.2		(0.1)		(0.8)		9.6
Total consumer loans	123.7		(2.8)		0.8		(2.0)		3.5		125.2
Total allowance for credit losses on loans and leases	403.4		(11.7)		3.0		(8.7)		18.0		412.7
Allowance for unfunded loan commitments	20.5		—		—		—		0.5		21.0
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	423.9	$	(11.7)	$	3.0	$	(8.7)	$	18.5	$	433.7

Six Months Ended June 30, 2023
Commercial real estate	$	162.1	$	(8.3)	$	2.3	$	(6.0)	$	(1.9)	$	154.2
Commercial and industrial	102.1		(11.3)		1.6		(9.7)		21.9		114.3
Commercial leases	13.5		—		—		—		1.7		15.2
Other	4.0		(2.4)		0.5		(1.9)		1.7		3.8
Total commercial loans and leases	281.7		(22.0)		4.4		(17.6)		23.4		287.5
Direct installment	35.9		(0.4)		0.3		(0.1)		(0.2)		35.6
Residential mortgages	55.5		(0.6)		0.2		(0.4)		8.3		63.4
Indirect installment	17.3		(4.8)		1.1		(3.7)		3.0		16.6
Consumer lines of credit	11.3		(0.6)		0.5		(0.1)		(1.6)		9.6
Total consumer loans	120.0		(6.4)		2.1		(4.3)		9.5		125.2
Total allowance for credit losses on loans and leases	401.7		(28.4)		6.5		(21.9)		32.9		412.7
Allowance for unfunded loan commitments	21.4		—		—		—		(0.4)		21.0
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	423.1	$	(28.4)	$	6.5	$	(21.9)	$	32.5	$	433.7


(in millions)	Balance at Beginning of Period		Charge- Offs		Recoveries		Net (Charge- Offs) Recoveries		Provision for Credit Losses		Balance at End of Period
Three Months Ended June 30, 2022
Commercial real estate	$	165.7	$	(0.6)	$	0.7	$	0.1	$	(7.9)	$	157.9
Commercial and industrial	91.7		(1.1)		2.7		1.6		1.0		94.3
Commercial leases	13.8		—		—		—		(0.1)		13.7
Other	3.8		(0.7)		0.3		(0.4)		0.8		4.2
Total commercial loans and leases	275.0		(2.4)		3.7		1.3		(6.2)		270.1
Direct installment	31.2		(0.2)		0.2		—		3.0		34.2
Residential mortgages	39.7		(0.2)		0.1		(0.1)		7.6		47.2
Indirect installment	14.2		(1.2)		0.4		(0.8)		2.6		16.0
Consumer lines of credit	10.5		(0.2)		0.2		—		—		10.5
Total consumer loans	95.6		(1.8)		0.9		(0.9)		13.2		107.9
Total allowance for credit losses on loans and leases	370.6		(4.2)		4.6		0.4		7.0		378.0
Allowance for unfunded loan commitments	18.8		—		—		—		(0.6)		18.2
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	389.4	$	(4.2)	$	4.6	$	0.4	$	6.4	$	396.2


(in millions)	Balance at Beginning of Period		Charge- Offs		Recoveries		Net (Charge- Offs) Recoveries		Provision for Credit Losses		Allowance for PCD Loans and Leases at Acquisition		Balance at End of Period














Six Months Ended June 30, 2022
Commercial real estate	$	156.5	$	(1.6)	$	2.1	$	0.5	$	(3.5)	$	4.4	$	157.9
Commercial and industrial	87.4		(4.3)		4.0		(0.3)		3.8		3.4		94.3
Commercial leases	14.7		(0.1)		—		(0.1)		(0.9)		—		13.7
Other	2.6		(1.4)		0.5		(0.9)		2.5		—		4.2
Total commercial loans and leases	261.2		(7.4)		6.6		(0.8)		1.9		7.8		270.1
Direct installment	26.4		(0.2)		0.4		0.2		7.1		0.5		34.2
Residential mortgages	33.1		(0.3)		0.3		—		12.8		1.3		47.2
Indirect installment	13.5		(2.2)		1.1		(1.1)		3.6		—		16.0
Consumer lines of credit	10.1		(0.4)		0.6		0.2		(0.2)		0.4		10.5
Total consumer loans	83.1		(3.1)		2.4		(0.7)		23.3		2.2		107.9
Total allowance for credit losses on loans and leases	344.3		(10.5)		9.0		(1.5)		25.2		10.0		378.0
Allowance for unfunded loan commitments	19.1		—		—		—		(0.9)		—		18.2
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	363.4	$	(10.5)	$	9.0	$	(1.5)	$	24.3	$	10.0	$	396.2

Following is a summary of changes in the AULC by portfolio segment:

TABLE 6.2


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
(in millions)
Balance at beginning of period	$	20.5	$	18.8	$	21.4	$	19.1
Provision for unfunded loan commitments and letters of credit:
Commercial portfolio	0.5		(0.6)		(0.4)		(0.9)







Balance at end of period	$	21.0	$	18.2	$	21.0	$	18.2

The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates. Specifically, the following considerations are incorporated into the ACL calculation:

•a third-party macroeconomic forecast scenario;

•a 24-month R&S forecast period for macroeconomic factors with a reversion to the historical mean on a straight-line basis over a 12-month period; and

•the historical through-the-cycle mean was calculated using an expanded period to include a prior recessionary period.

At June 30, 2023 and December 31, 2022, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment. For our ACL calculation at June 30, 2023, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which declines 5.4% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 8.9% over our R&S forecast period, (iii) S&P Volatility, which decreases 33.2% in 2023 and 21.0% in 2024 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historical through the cycle period. Macroeconomic variables that we utilized for our ACL calculation as of December 31, 2022 included, but were not limited to: (i) the purchase only Housing Price Index, which declines 3.7% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 0.9% over our R&S forecast period, (iii) S&P Volatility, which decreases 41.0% in 2023 and 8.1% in 2024 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historical levels.

The ACL on loans and leases of $412.7 million at June 30, 2023 increased $11.0 million, or 2.7%, from December 31, 2022. Our ending ACL coverage ratio at June 30, 2023 was 1.32%, compared to 1.33% at December 31, 2022. Total provision for credit losses for the three months ended June 30, 2023 was $18.5 million compared to $6.4 million for the same period of 2022. Provision expense was primarily due to loan growth and a $13 million specific reserve established for a single $32 million commercial and industrial loan downgraded to non-performing status during the quarter. The second quarter of 2023 reflected net charge-offs of $8.7 million, or 0.11% annualized of average total loans, compared to net recoveries of $0.4 million, or 0.01% annualized, in the second quarter of 2022. Total provision for credit losses for the six months ended June 30, 2023 was $32.6 million compared to $24.4 million that included $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition for the same period of 2022. Net charge-offs were $21.9 million, or 0.14% annualized of average total loans, during the six months ended June 30, 2023, compared to $1.5 million, or 0.01% annualized, for the same period of 2022.