ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES

12 Months Ended

Dec. 31, 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 7.1


(in millions)	Balance at Beginning of Year		Charge- Offs		Recoveries		Net Charge- Offs		Provision for Credit Losses		Balance at End of Year
Year Ended December 31, 2023
Commercial real estate	$	162.1	$	(12.4)	$	4.4	$	(8.0)	$	12.5	$	166.6
Commercial and industrial	102.1		(51.2)		3.8		(47.4)		33.1		87.8
Commercial leases	13.5		—		—		—		7.7		21.2
Other	4.0		(4.5)		1.0		(3.5)		3.2		3.7
Total commercial loans and leases	281.7		(68.1)		9.2		(58.9)		56.5		279.3
Direct installment	35.9		(0.6)		0.6		—		(2.1)		33.8
Residential mortgages	55.5		(0.7)		0.5		(0.2)		15.2		70.5
Indirect installment	17.3		(10.7)		2.3		(8.4)		3.9		12.8
Consumer lines of credit	11.3		(1.0)		0.8		(0.2)		(1.9)		9.2
Total consumer loans	120.0		(13.0)		4.2		(8.8)		15.1		126.3
Total allowance for credit losses on loans and leases	401.7		(81.1)		13.4		(67.7)		71.6		405.6
Allowance for unfunded loan commitments	21.4		—		—		—		0.1		21.5
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	423.1	$	(81.1)	$	13.4	$	(67.7)	$	71.7	$	427.1


(in millions)	Balance at Beginning of Year		Charge- Offs		Recoveries		Net Charge- Offs		Provision for Credit Losses		Allowance for PCD Loans and Leases at Acquisition		Balance at End of Year
Year Ended December 31, 2022
Commercial real estate	$	156.5	$	(12.5)	$	4.1	$	(8.4)	$	8.0	$	6.0	$	162.1
Commercial and industrial	87.4		(7.4)		5.9		(1.5)		12.7		3.5		102.1
Commercial leases	14.7		(0.1)		—		(0.1)		(1.1)		—		13.5
Other	2.6		(3.4)		1.0		(2.4)		3.8		—		4.0
Total commercial loans and leases	261.2		(23.4)		11.0		(12.4)		23.4		9.5		281.7
Direct installment	26.4		(0.6)		0.7		0.1		8.9		0.5		35.9
Residential mortgages	33.1		(0.6)		0.5		(0.1)		21.2		1.3		55.5
Indirect installment	13.5		(6.1)		2.2		(3.9)		7.7		—		17.3
Consumer lines of credit	10.1		(1.0)		1.1		0.1		0.6		0.5		11.3
Total consumer loans	83.1		(8.3)		4.5		(3.8)		38.4		2.3		120.0
Total allowance for credit losses on loans and leases	344.3		(31.7)		15.5		(16.2)		61.8		11.8		401.7
Allowance for unfunded loan commitments	19.1		—		—		—		2.3		—		21.4
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	363.4	$	(31.7)	$	15.5	$	(16.2)	$	64.1	$	11.8	$	423.1


(in millions)	Balance at Beginning of Period		Charge- Offs		Recoveries		Net Charge- Offs		Provision for Credit Losses		Balance at End of Period
Year Ended December 31, 2021
Commercial real estate	$	180.5	$	(8.8)	$	6.3	$	(2.5)	$	(21.5)	$	156.5
Commercial and industrial	81.2		(15.7)		6.6		(9.1)		15.3		87.4
Commercial leases	17.3		(0.2)		0.9		0.7		(3.3)		14.7
Other	1.4		(2.3)		1.3		(1.0)		2.2		2.6
Total commercial loans and leases	280.4		(27.0)		15.1		(11.9)		(7.3)		261.2
Direct installment	26.0		(1.4)		1.0		(0.4)		0.8		26.4
Residential mortgages	33.7		(1.0)		0.6		(0.4)		(0.2)		33.1
Indirect installment	11.2		(3.1)		2.2		(0.9)		3.2		13.5
Consumer lines of credit	11.8		(1.7)		1.4		(0.3)		(1.4)		10.1
Total consumer loans	82.7		(7.2)		5.2		(2.0)		2.4		83.1
Total allowance for credit losses on loans and leases	363.1		(34.2)		20.3		(13.9)		(4.9)		344.3
Allowance for unfunded loan commitments	13.6		—		—		—		5.5		19.1
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	376.7	$	(34.2)	$	20.3	$	(13.9)	$	0.6	$	363.4

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

TABLE 7.2


Year Ended December 31	2023		2022		2021
(in millions)
Balance at beginning of period	$	21.4	$	19.1	$	13.6
Provision for unfunded loan commitments and letters of credit:
Commercial portfolio	0.3		2.3		5.5
Consumer portfolio	(0.2)		—		—






Balance at end of period	$	21.5	$	21.4	$	19.1

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 December 31, 2023 and 2022, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment. For our ACL calculation at December 31, 2023, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which increases 5.3% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which increases 0.1% over our R&S forecast period, (iii) S&P Volatility, which decreases 4.0% in 2024 and 2.9% in 2025 and (iv) personal and business 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 $405.6 million at December 31, 2023 increased $3.9 million, or 1.0%, from December 31, 2022, primarily due to loan growth, offset by charge-off activity and improvements in classified and non-performing loans. Our ending ACL coverage ratio at December 31, 2023 was 1.25%, compared to 1.33% at December 31, 2022. Total provision for credit losses for the year ended December 31, 2023 was $71.8 million, compared to $64.2 million in 2022 which included $28.5 million of initial provision for non-PCD loans associated with the Howard and Union acquisitions. Net charge-offs were $67.7 million during 2023, compared to $16.2 million during 2022. We had an isolated $31.9 million commercial loan charge-off due to indications of alleged fraud and subsequent bankruptcy filings by our borrower and its primary supplier. The AULC was $21.5 million at December 31, 2023 and included provision expense for unfunded loan commitments and letters of credit of $0.1 million for the year ended December 31, 2023. Comparatively, the AULC was $21.4 million at December 31, 2022 and included provision expense for unfunded loan commitments and letters of credit of $2.3 million for the year ended December 31, 2022.