CREDIT QUALITY

Management monitors the credit quality of the Corporation's loan portfolio on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.

Non-performing loans include non-accrual and restructured loans. Past due loans are reviewed on a monthly basis to identify loans for non-accrual status. The Corporation places a loan on non-accrual status and discontinues interest accruals generally when principal or interest is due and has remained unpaid for 90 to 180 days depending on the loan type. When a loan is placed on non-accrual status, all unpaid interest recognized in the current year is reversed and interest accrued in prior years is charged to the allowance for loan losses. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate collectibility of the remaining principal and interest is reasonably assured. Restructured loans are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress. Non-performing assets also include debt securities on which OTTI has been taken in the current or prior periods.

Following is a summary of non-performing assets:


	June 30, 2011		December 31, 2010
Non-accrual loans	$	107,091	$	115,589
Restructured loans		20,146		19,705

Total non-performing loans		127,237		135,294
Other real estate owned (OREO)		35,793		32,702

Total non-performing loans and OREO		163,030		167,996
Non-performing investments		6,605		5,974

Total non-performing assets	$	169,635	$	173,970


	June 30, 2011			December 31, 2010
Asset quality ratios:
Non-performing loans as a percent of total loans		1.90	%		2.22	%
Non-performing loans + OREO as a percent of total loans + OREO		2.42	%		2.74	%
Non-performing assets as a percent of total assets		1.72	%		1.94	%

Following is an age analysis of the Corporation's past due loans, by class:


	30-89 Days Past Due		>90 Days Past Due and Still Accruing		Non-Accrual		Total Past Due		Current		Total Loans
June 30, 2011
Commercial	$	14,152	$	10,060	$	97,174	$	121,386	$	3,654,901	$	3,776,287
Direct installment		8,528		2,458		3,586		14,572		1,024,698		1,039,270
Residential mortgages		12,192		2,775		3,832		18,799		657,775		676,574
Indirect installment		4,297		260		908		5,465		529,726		535,191
Consumer lines of credit		857		479		851		2,187		540,283		542,470
Commercial leases		1,339		78		740		2,157		91,116		93,273
Other		45		5		—		50		39,480		39,530

	$	41,410	$	16,115	$	107,091	$	164,616	$	6,537,979	$	6,702,595


December 31, 2010
Commercial	$	17,101	$	3,020	$	106,724	$	126,845	$	3,211,147	$	3,337,992
Direct installment		8,603		2,496		3,285		14,384		988,341		1,002,725
Residential mortgages		9,127		2,144		3,272		14,543		607,699		622,242
Indirect installment		5,659		394		750		6,803		507,566		514,369
Consumer lines of credit		1,581		571		588		2,740		491,141		493,881
Commercial leases		1,551		9		970		2,530		76,899		79,429
Other		—		—		—		—		37,517		37,517

	$	43,622	$	8,634	$	115,589	$	167,845	$	5,920,310	$	6,088,155

The Corporation utilizes the following categories to monitor credit quality within its commercial loan portfolio:


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 although the loan performs as agreed
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 portfolio permits management's use of migration and roll rate analysis to estimate a quantitative portion of credit risk. The Corporation's internal credit risk grading system is based on past experiences with similarly graded loans and conforms with regulatory categories. In general, loan risk ratings within each category are reviewed on an ongoing basis according to the Corporation's policy for each class of loans. 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 portfolio. Loans that migrate toward the Pass credit category or within the Pass credit category generally have a lower risk of loss and therefore a lower risk factor compared to loans that migrate toward the Substandard or Doubtful credit categories which generally have a higher risk of loss and therefore a higher risk factor applied to those related loan balances.

Following is a table showing commercial loans by credit quality category:


	Commercial Loan Credit Quality Categories
	Pass		Special Mention		Substandard		Doubtful		Total
June 30, 2011
Commercial – PA	$	3,293,685	$	114,414	$	182,169	$	5,787	$	3,596,055
Commercial – FL		78,207		16,545		85,480		—		180,232
Commercial leases		91,937		518		818		—		93,273

	$	3,463,829	$	131,477	$	268,467	$	5,787	$	3,869,560


December 31, 2010
Commercial – PA	$	2,887,682	$	80,409	$	170,714	$	3,906	$	3,142,711
Commercial – FL		83,444		38,664		73,173		—		195,281
Commercial leases		77,945		505		979		—		79,429

	$	3,049,071	$	119,578	$	244,866	$	3,906	$	3,417,421

The Corporation uses payment status and delinquency migration analysis within the consumer and other loan classes to enable management to estimate a quantitative portion of credit risk. Each month, management analyzes payment activity, as well as other external statistics and factors such as volume, to determine how consumer loans are performing.

Following is a table showing consumer and other loans by payment activity:


	Consumer Loan Credit Quality by Payment Status
	Performing		Non-Performing		Total
June 30, 2011
Direct installment	$	1,027,412	$	11,858	$	1,039,270
Residential mortgages		662,749		13,825		676,574
Indirect installment		534,211		980		535,191
Consumer lines of credit		541,402		1,068		542,470
Other		39,530		—		39,530

December 31, 2010
Direct installment	$	991,921	$	10,804	$	1,002,725
Residential mortgages		608,642		13,600		622,242
Indirect installment		513,619		750		514,369
Consumer lines of credit		493,075		806		493,881
Other		37,517		—		37,517

Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, the Corporation does not consider loans for impairment unless a sustained period of delinquency (i.e. 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e. negative financial trends, bankruptcy filings, imminent foreclosure proceedings, etc.). Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Consistent with the Corporation's existing method of income recognition for loans, interest on impaired loans, except those classified as non-accrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Following is a summary of information pertaining to loans considered to be impaired or restructured, by class of loans:


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
At or For the Six Months Ended June 30, 2011
With no specific allowance recorded:
Commercial	$	65,121	$	85,778	$	—	$	63,828	$	55
Direct installment		11,858		12,172		—		11,689		132
Residential mortgages		13,825		14,182		—		14,297		142
Indirect installment		980		1,039		—		865		4
Consumer lines of credit		1,068		1,070		—		1,137		4
Commercial leases		740		740		—		912		—
Other		—		—		—		—		—

With a specific allowance recorded:
Commercial		33,627		33,765		8,440		35,460		22
Direct installment		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Indirect installment		—		—		—		—		—
Consumer lines of credit		—		—		—		—		—
Commercial leases		—		—		—		—		—
Other		—		—		—		—		—

Total:
Commercial		98,748		119,543		8,440		99,288		77
Direct installment		11,858		12,172		—		11,689		132
Residential mortgages		13,825		14,182		—		14,297		142
Indirect installment		980		1,039		—		865		4
Consumer lines of credit		1,068		1,070		—		1,137		4
Commercial leases		740		740		—		912		—
Other		—		—		—		—		—


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
At or For the Year Ended December 31, 2010
With no specific allowance recorded:
Commercial	$	70,832	$	95,725	$	—	$	81,394	$	98
Direct installment		4,542		4,669		—		5,613		77
Residential mortgages		8,032		8,055		—		8,233		260
Indirect installment		750		1,930		—		833		—
Consumer lines of credit		589		604		—		584		—
Commercial leases		979		979		—		749		—
Other		—		—		—		—		—

With a specific allowance recorded:
Commercial		37,532		39,250		10,313		38,070		—
Direct installment		6,262		6,340		626		4,503		275
Residential mortgages		5,568		5,568		557		4,252		246
Indirect installment		—		—		—		—		—
Consumer lines of credit		217		217		22		138		9
Commercial leases		—		—		—		—		—
Other		—		—		—		—		—

Total:
Commercial		108,364		134,975		10,313		119,464		98
Direct installment		10,804		11,009		626		10,116		352
Residential mortgages		13,600		13,623		557		12,485		506
Indirect installment		750		1,930		—		833		—
Consumer lines of credit		806		821		22		722		9
Commercial leases		979		979		—		749		—
Other		—		—		—		—		—