Loans and Allowance for Credit Losses

Loans, Net of Unearned Income

Loans, net of unearned income are summarized as follows:



	March 31, 2015			December 31, 2014
	(in thousands)
Real-estate - commercial mortgage	$	5,227,101		$	5,197,155
Commercial - industrial, financial and agricultural	3,762,631			3,725,567
Real-estate - home equity	1,701,623			1,736,688
Real-estate - residential mortgage	1,364,788			1,377,068
Real-estate - construction	677,806			690,601
Consumer	257,301			265,431
Leasing and other	135,552			127,562
Overdrafts	1,721			4,021
Loans, gross of unearned income	13,128,523			13,124,093
Unearned income	(13,018		)	(12,377		)
Loans, net of unearned income	$	13,115,505		$	13,111,716

Allowance for Credit Losses

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of incurred losses in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of incurred losses in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet. The allowance for credit losses is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.

The Corporation’s allowance for credit losses includes: (1) specific allowances allocated to loans evaluated for impairment under the FASB's ASC Section 310-10-35; and (2) allowances calculated for pools of loans measured for impairment under FASB ASC Subtopic 450-20.

The Corporation segments its loan portfolio by general loan type, or "portfolio segments," as presented in the table under the heading, "Loans, Net of Unearned Income," above. Certain portfolio segments are further disaggregated and evaluated collectively for impairment based on "class segments," which are largely based on the type of collateral underlying each loan. Commercial loans include loans secured by collateral and unsecured loans. Construction loan class segments include loans secured by commercial real estate, loans to commercial borrowers secured by residential real estate and loans to individuals secured by residential real estate. Consumer loan class segments include direct consumer installment loans and indirect automobile loans.

The following table presents the components of the allowance for credit losses:



	March 31, 2015		December 31, 2014
	(in thousands)
Allowance for loan losses	$	177,701	$	184,144
Reserve for unfunded lending commitments	1,957		1,787
Allowance for credit losses	$	179,658	$	185,931

The following table presents the activity in the allowance for credit losses:



	Three months ended March 31
	2015			2014
	(in thousands)
Balance at beginning of period	$	185,931		$	204,917
Loans charged off	(5,764		)	(10,268		)
Recoveries of loans previously charged off	3,191			1,857
Net loans charged off	(2,573		)	(8,411		)
Provision for credit losses	(3,700		)	2,500
Balance at end of period	$	179,658		$	199,006

The following table presents the activity in the allowance for loan losses by portfolio segment:



	Real Estate - Commercial Mortgage			Commercial - Industrial, Financial and Agricultural			Real Estate - Home Equity			Real Estate - Residential Mortgage			Real Estate - Construction			Consumer			Leasing and other and overdrafts			Unallocated			Total
	(in thousands)
Three months ended March 31, 2015
Balance at December 31, 2014	$	53,493		$	51,378		$	28,271		$	29,072		$	9,756		$	3,015		$	1,799		$	7,360		$	184,144
Loans charged off	(709		)	(1,863		)	(768		)	(1,281		)	—			(780		)	(363		)	—			(5,764		)
Recoveries of loans previously charged off	436			786			251			159			1,147			241			171			—			3,191
Net loans charged off	(273		)	(1,077		)	(517		)	(1,122		)	1,147			(539		)	(192		)	—			(2,573		)
Provision for loan losses (1)	(360		)	6,849			(4,273		)	(4,715		)	(2,416		)	51			46			948			(3,870		)
Balance at March 31, 2015	$	52,860		$	57,150		$	23,481		$	23,235		$	8,487		$	2,527		$	1,653		$	8,308		$	177,701
Three months ended March 31, 2014
Balance at December 31, 2013	$	55,659		$	50,330		$	28,222		$	33,082		$	12,649		$	3,260		$	3,370		$	16,208		$	202,780
Loans charged off	(1,386		)	(5,125		)	(1,651		)	(846		)	(214		)	(751		)	(295		)	—			(10,268		)
Recoveries of loans previously charged off	44			744			356			116			224			209			164			—			1,857
Net loans charged off	(1,342		)	(4,381		)	(1,295		)	(730		)	10			(542		)	(131		)	—			(8,411		)
Provision for loan losses (1)	(560		)	4,614			5,533			977			(2,817		)	606			(1,228		)	(4,405		)	2,720
Balance at March 31, 2014	$	53,757		$	50,563		$	32,460		$	33,329		$	9,842		$	3,324		$	2,011		$	11,803		$	197,089

(1)

The provision for loan losses excluded a $170,000 increase and $220,000 decrease in the reserve for unfunded lending commitments for the three months ended March 31, 2015 and March 31, 2014, respectively. The total provision for credit losses, comprised of allocations for both funded and unfunded loans, was a negative $3.7 million for the three months ended March 31, 2015 and was $2.5 million for the three months ended March 31, 2014.

The following table presents loans, net of unearned income and their related allowance for loan losses, by portfolio segment:



	Real Estate - Commercial Mortgage		Commercial - Industrial, Financial and Agricultural		Real Estate - Home Equity		Real Estate - Residential Mortgage		Real Estate - Construction		Consumer		Leasing and other and overdrafts		Unallocated (1)		Total
	(in thousands)
Allowance for loan losses at March 31, 2015:
Measured for impairment under FASB ASC Subtopic 450-20	$	38,916	$	40,027	$	16,937	$	9,162	$	6,037	$	2,504	$	1,653	$	8,308	$	123,544
Evaluated for impairment under FASB ASC Section 310-10-35	13,944		17,123		6,544		14,073		2,450		23		—		N/A		54,157
	$	52,860	$	57,150	$	23,481	$	23,235	$	8,487	$	2,527	$	1,653	$	8,308	$	177,701

Loans, net of unearned income at March 31, 2015:
Measured for impairment under FASB ASC Subtopic 450-20	$	5,157,342	$	3,716,037	$	1,688,869	$	1,312,861	$	656,021	$	257,265	$	124,255	N/A		$	12,912,650
Evaluated for impairment under FASB ASC Section 310-10-35	69,759		46,594		12,754		51,927		21,785		36		—		N/A		202,855
	$	5,227,101	$	3,762,631	$	1,701,623	$	1,364,788	$	677,806	$	257,301	$	124,255	N/A		$	13,115,505

Allowance for loan losses at March 31, 2014:
Measured for impairment under FASB ASC Subtopic 450-20	$	37,363	$	36,859	$	22,969	$	11,618	$	7,256	$	3,309	$	2,011	$	11,803	$	133,188
Evaluated for impairment under FASB ASC Section 310-10-35	16,394		13,704		9,491		21,711		2,586		15		—		N/A		63,901
	$	53,757	$	50,563	$	32,460	$	33,329	$	9,842	$	3,324	$	2,011	$	11,803	$	197,089

Loans, net of unearned income at March 31, 2014:
Measured for impairment under FASB ASC Subtopic 450-20	$	5,075,556	$	3,528,857	$	1,726,342	$	1,279,783	$	555,852	$	270,004	$	96,009	N/A		$	12,532,403
Evaluated for impairment under FASB ASC Section 310-10-35	61,898		45,273		14,154		51,682		28,365		17		—		N/A		201,389
	$	5,137,454	$	3,574,130	$	1,740,496	$	1,331,465	$	584,217	$	270,021	$	96,009	N/A		$	12,733,792


(1)	The unallocated allowance, which was approximately 5% and 6% of the total allowance for credit losses as of March 31, 2015 and March 31, 2014, respectively, was, in the opinion of management, reasonable and appropriate given that the estimates used in the allocation process are inherently imprecise.

N/A Not applicable.

Impaired Loans

A loan is considered to be impaired if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. Impaired loans consist of all loans on non-accrual status and accruing troubled debt restructurings ("TDRs"). An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. Impaired loans to borrowers with total outstanding commitments greater than or equal to $1.0 million are evaluated individually for impairment. Impaired loans to borrowers with total outstanding commitments less than $1.0 million are pooled and measured for impairment collectively.

Based on an evaluation of all relevant credit quality factors, the Corporation recorded a $3.7 million negative provision for credit losses during the three months ended March 31, 2015, compared to a $2.5 million provision for credit losses for the same period in 2014. The $6.2 million improvement in the provision for credit losses was driven by an improvement in net charge-off levels, particularly a decrease in net charge-offs on pooled impaired loans across all loan portfolio segments. During the three months ended March 31, 2015, net charge-offs were $2.6 million, compared to $8.4 million for the three months ended March 31, 2014, and the allowance for loan loss allocations on impaired loans decreased $9.7 million, or 15.2%, compared to the three months ended March 31, 2014.

All loans individually evaluated for impairment under FASB ASC Section 310-10-35 are measured for losses on a quarterly basis.

As of March 31, 2015 and December 31, 2014, substantially all of the Corporation’s individually evaluated impaired loans with total outstanding balances greater than or equal to $1.0 million were measured based on the estimated fair value of each loan’s collateral. Collateral could be in the form of real estate, in the case of impaired commercial mortgages and construction loans, or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real property.

As of March 31, 2015 and 2014, approximately 78% and 79%, respectively, of impaired loans with principal balances greater than or equal to $1.0 million, whose primary collateral is real estate, were measured at estimated fair value using state certified third-party appraisals that had been updated within the preceding 12 months.

When updated appraisals are not obtained for loans evaluated for impairment under FASB ASC Section 310-10-35 that are secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated a strong loan-to-value position and, in the opinion of the Corporation's internal loan evaluation staff, there has not been a significant deterioration in the collateral value since the original appraisal was performed. Original appraisals are typically used only when the estimated collateral value, as adjusted appropriately for the age of the appraisal, results in a current loan-to-value ratio that is lower than the Corporation's loan-to-value requirements for new loans, generally less than 70%.

The following table presents total impaired loans by class segment:



	March 31, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
	(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage	$	35,586	$	30,462	$	—	$	25,802	$	23,236	$	—
Commercial - secured	17,832		14,769		—		17,599		14,582		—
Real estate - residential mortgage	4,858		4,858		—		4,873		4,873		—
Construction - commercial residential	16,448		13,643		—		18,041		14,801		—
Construction - commercial	829		694		—		1,707		1,581		—
	75,553		64,426				68,022		59,073
With a related allowance recorded:
Real estate - commercial mortgage	48,636		39,297		13,944		49,619		40,023		16,715
Commercial - secured	35,825		30,565		16,315		24,824		19,335		12,165
Commercial - unsecured	1,417		1,260		808		1,241		1,089		865
Real estate - home equity	18,035		12,754		6,544		19,392		13,458		9,224
Real estate - residential mortgage	56,684		47,069		14,073		56,607		46,478		18,592
Construction - commercial residential	13,267		6,590		2,169		14,007		7,903		2,675
Construction - commercial	867		577		178		1,501		1,023		459
Construction - other	452		281		103		452		281		137
Consumer - direct	17		17		11		19		19		17
Consumer - indirect	41		19		12		20		19		18
	175,241		138,429		54,157		167,682		129,628		60,867
Total	$	250,794	$	202,855	$	54,157	$	235,704	$	188,701	$	60,867

As of March 31, 2015 and December 31, 2014, there were $64.4 million and $59.1 million, respectively, of impaired loans that did not have a related allowance for loan loss. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or they were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary.

The following table presents average impaired loans by class segment:



	Three months ended March 31
	2015				2014
	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
	(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage	$	26,849	$	91	$	23,993	$	86
Commercial - secured	14,676		21		21,125		35
Real estate - home equity	—		—		300		—
Real estate - residential mortgage	4,866		28		159		1
Construction - commercial residential	14,222		55		17,223		60
Construction - commercial	1,138		—		1,969		—
	61,751		195		64,769		182
With a related allowance recorded:
Real estate - commercial mortgage	39,660		133		37,119		132
Commercial - secured	24,950		36		23,045		38
Commercial - unsecured	1,175		1		845		1
Real estate - home equity	13,106		31		14,096		20
Real estate - residential mortgage	46,774		273		51,231		294
Construction - commercial residential	7,247		28		9,771		35
Construction - commercial	800		—		193		—
Construction - other	281		—		546		—
Consumer - direct	18		—		13		—
Consumer - indirect	19		—		2		—
	134,030		502		136,861		520
Total	$	195,781	$	697	$	201,630	$	702


(1)	All impaired loans, excluding accruing TDRs, were non-accrual loans. Interest income recognized for the three months ended March 31, 2015 and 2014 represents amounts earned on accruing TDRs.

Credit Quality Indicators and Non-performing Assets

The following table presents internal credit risk ratings for real estate - commercial mortgages, commercial - secured loans, commercial - unsecured loans, construction - commercial residential loans and construction - commercial loans:



	Pass						Special Mention						Substandard or Lower						Total
	March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014
	(dollars in thousands)
Real estate - commercial mortgage	$	4,919,760		$	4,899,016		$	123,644		$	127,302		$	183,697		$	170,837		$	5,227,101		$	5,197,155
Commercial - secured	3,344,506			3,333,486			151,724			120,584			112,156			110,544			3,608,386			3,564,614
Commercial - unsecured	142,536			146,680			3,331			7,463			8,378			6,810			154,245			160,953
Total commercial - industrial, financial and agricultural	3,487,042			3,480,166			155,055			128,047			120,534			117,354			3,762,631			3,725,567
Construction - commercial residential	173,833			136,109			20,662			27,495			37,038			40,066			231,533			203,670
Construction - commercial	378,131			409,631			11,802			12,202			3,475			5,586			393,408			427,419
Total construction (excluding Construction - other)	551,964			545,740			32,464			39,697			40,513			45,652			624,941			631,089
	$	8,958,766		$	8,924,922		$	311,163		$	295,046		$	344,744		$	333,843		$	9,614,673		$	9,553,811
% of Total	93.2		%	93.4		%	3.2		%	3.1		%	3.6		%	3.5		%	100.0		%	100.0		%

The following is a summary of the Corporation's internal risk rating categories:


•	Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.


•	Special Mention: These loans constitute an undue and unwarranted credit risk, but not to a point of justifying a classification of substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak.


•	Substandard or Lower: These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.

The risk rating process allows management to identify riskier credits in a timely manner and to allocate resources to managing troubled accounts.The Corporation believes that internal risk ratings are the most relevant credit quality indicator for the class segments presented above. The migration of loans through the various internal risk rating categories is a significant component of the allowance for credit loss methodology, which bases the probability of default on this migration. Assigning risk ratings involves judgment. Risk ratings are initially assigned to loans by loan officers and are reviewed on a regular basis by credit administration staff. The Corporation's loan review officers provide a separate assessment of risk rating accuracy. Ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or if specific loan review activities identify a deterioration or an improvement in the loan.

The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, consumer, lease receivables and construction loans to individuals secured by residential real estate. For these loans, the most relevant credit quality indicator is delinquency status. The migration of loans through the various delinquency status categories is a significant component of the allowance for credit losses methodology for those loans, which bases the probability of default on this migration.

The following table presents a summary of delinquency and non-performing status for home equity, real estate - residential mortgages, construction loans to individuals and consumer, leasing and other loans by class segment:



	Performing						Delinquent (1)						Non-performing (2)						Total
	March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014			March 31, 2015			December 31, 2014
	(dollars in thousands)
Real estate - home equity	$	1,674,544		$	1,711,017		$	12,624		$	10,931		$	14,455		$	14,740		$	1,701,623		$	1,736,688
Real estate - residential mortgage	1,312,299			1,321,139			23,894			26,934			28,595			28,995			1,364,788			1,377,068
Construction - other	52,119			59,180			417			—			329			332			52,865			59,512
Consumer - direct	97,959			104,018			2,919			2,891			2,390			2,414			103,268			109,323
Consumer - indirect	152,286			153,358			1,653			2,574			94			176			154,033			156,108
Total consumer	250,245			257,376			4,572			5,465			2,484			2,590			257,301			265,431
Leasing and other and overdrafts	122,255			118,550			1,976			523			24			133			124,255			119,206
	$	3,411,462		$	3,467,262		$	43,483		$	43,853		$	45,887		$	46,790		$	3,500,832		$	3,557,905
% of Total	97.5		%	97.5		%	1.2		%	1.2		%	1.3		%	1.3		%	100.0		%	100.0		%


(1)	Includes all accruing loans 31 days to 89 days past due.


(2)	Includes all accruing loans 90 days or more past due and all non-accrual loans.

The following table presents non-performing assets:



	March 31, 2015		December 31, 2014
	(in thousands)
Non-accrual loans	$	129,929	$	121,080
Accruing loans greater than 90 days past due	19,365		17,402
Total non-performing loans	149,294		138,482
Other real estate owned (OREO)	14,251		12,022
Total non-performing assets	$	163,545	$	150,504

The following table presents TDRs, by class segment:



	March 31, 2015		December 31, 2014
	(in thousands)
Real-estate - residential mortgage	$	31,574	$	31,308
Real-estate - commercial mortgage	23,468		18,822
Construction - commercial residential	7,791		9,241
Commercial - secured	6,786		5,170
Real estate - home equity	3,084		2,975
Commercial - unsecured	189		67
Consumer - indirect	17		19
Consumer - direct	17		19
Total accruing TDRs	72,926		67,621
Non-accrual TDRs (1)	29,392		24,616
Total TDRs	$	102,318	$	92,237


(1)	Included within non-accrual loans in the preceding table detailing non-performing assets.

As of March 31, 2015 and December 31, 2014, there were $7.1 million and $3.9 million, respectively, of commitments to lend additional funds to borrowers whose loans were modified under TDRs.

The following table presents TDRs, by class segment as of March 31, 2015 and 2014 that were modified during the three months ended March 31, 2015 and 2014:



	2015			2014
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(dollars in thousands)
Commercial - secured	8	$	6,776	—	$	—
Real estate - commercial mortgage	3	2,495		7	7,470
Construction - commercial residential	1	889		1	548
Real estate - residential mortgage	4	610		6	706
Real estate - home equity	10	492		10	529
Commercial - unsecured	1	42		—	—
Consumer - indirect	1	13		3	1
Consumer - direct	—	—		4	4
Total	28	$	11,317	31	$	9,258

The following table presents TDRs, by class segment as of March 31, 2015 and 2014 that were modified within the previous 12 months and had a post-modification payment default during the three months ended March 31, 2015 and 2014. The Corporation defines a payment default as a single missed payment.



	2015			2014
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(dollars in thousands)
Commercial - secured	7	$	7,888	1	$	11
Real estate - commercial mortgage	2	1,659		3	126
Construction - commercial residential	1	1,366		1	619
Real estate - home equity	7	816		14	1,432
Real estate - residential mortgage	8	748		12	2,522
Total	25	$	12,477	31	$	4,710

The following table presents past due status and non-accrual loans by portfolio segment and class segment:



	March 31, 2015
	31-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Total ≥ 90 Days		Total Past Due		Current		Total
	(in thousands)
Real estate - commercial mortgage	$	20,528	$	5,620	$	40	$	46,291	$	46,331	$	72,479	$	5,154,622	$	5,227,101
Commercial - secured	8,056		1,002		3,646		38,548		42,194		51,252		3,557,134		3,608,386
Commercial - unsecured	832		58		—		1,071		1,071		1,961		152,284		154,245
Total commercial - industrial, financial and agricultural	8,888		1,060		3,646		39,619		43,265		53,213		3,709,418		3,762,631
Real estate - home equity	10,347		2,277		4,785		9,670		14,455		27,079		1,674,544		1,701,623
Real estate - residential mortgage	16,375		7,519		8,242		20,353		28,595		52,489		1,312,299		1,364,788
Construction - commercial residential	1,559		151		98		12,442		12,540		14,250		217,283		231,533
Construction - commercial	—		—		—		1,271		1,271		1,271		392,137		393,408
Construction - other	417		—		48		281		329		746		52,119		52,865
Total real estate - construction	1,976		151		146		13,994		14,140		16,267		661,539		677,806
Consumer - direct	1,978		941		2,390		—		2,390		5,309		97,959		103,268
Consumer - indirect	1,422		231		92		2		94		1,747		152,286		154,033
Total consumer	3,400		1,172		2,482		2		2,484		7,056		250,245		257,301
Leasing and other and overdrafts	1,666		310		24		—		24		2,000		122,255		124,255
Total	$	63,180	$	18,109	$	19,365	$	129,929	$	149,294	$	230,583	$	12,884,922	$	13,115,505



	December 31, 2014
	31-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Total ≥ 90 Days		Total Past Due		Current		Total
	(in thousands)
Real estate - commercial mortgage	$	14,399	$	3,677	$	800	$	44,437	$	45,237	$	63,313	$	5,133,842	$	5,197,155
Commercial - secured	4,839		958		610		28,747		29,357		35,154		3,529,460		3,564,614
Commercial - unsecured	395		65		9		1,022		1,031		1,491		159,462		160,953
Total commercial - industrial, financial and agricultural	5,234		1,023		619		29,769		30,388		36,645		3,688,922		3,725,567
Real estate - home equity	8,048		2,883		4,257		10,483		14,740		25,671		1,711,017		1,736,688
Real estate - residential mortgage	18,789		8,145		8,952		20,043		28,995		55,929		1,321,139		1,377,068
Construction - commercial residential	160		—		—		13,463		13,463		13,623		190,047		203,670
Construction - commercial	—		—		—		2,604		2,604		2,604		424,815		427,419
Construction - other	—		—		51		281		332		332		59,180		59,512
Total real estate - construction	160		—		51		16,348		16,399		16,559		674,042		690,601
Consumer - direct	2,034		857		2,414		—		2,414		5,305		104,018		109,323
Consumer - indirect	2,156		418		176		—		176		2,750		153,358		156,108
Total consumer	4,190		1,275		2,590		—		2,590		8,055		257,376		265,431
Leasing and other and overdrafts	357		166		133		—		133		656		118,550		119,206
Total	$	51,177	$	17,169	$	17,402	$	121,080	$	138,482	$	206,828	$	12,904,888	$	13,111,716