LOANS AND ALLOWANCE FOR LOAN LOSSES

Following is a summary of loans, net of unearned income:


	September 30, 2012		December 31, 2011
Commercial real estate	$	2,597,029	$	2,341,646
Commercial real estate – FL		71,887		154,081
Commercial and industrial		1,532,366		1,363,692
Commercial leases		127,065		110,795

Total commercial loans and leases		4,328,347		3,970,214
Direct installment		1,128,310		1,029,187
Residential mortgages		1,121,237		670,936
Indirect installment		583,939		540,789
Consumer lines of credit		780,155		607,280
Other		37,462		38,261

	$	7,979,450	$	6,856,667

Commercial loans include both owner occupied and non-owner occupied loans secured by commercial properties, as well as commercial and industrial loans. Commercial leases consist of loans for new or used equipment. 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. Residential mortgages consist of conventional and jumbo mortgage loans for non-commercial properties. Indirect installment is comprised of loans written by third parties, primarily automobile loans. Consumer lines of credit include home equity lines of credit (HELOC) and consumer lines of credit that are either unsecured or secured by collateral other than home equity. Other is comprised primarily of mezzanine loans and student loans.

The loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within the Corporation’s primary market area of Pennsylvania and northeastern Ohio. The portfolio also includes commercial real estate loans in Florida, of which 24.8% were land-related as of September 30, 2012. Additionally, the portfolio contains consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky, which totaled $163,954 or 2.1% of total loans as of September 30, 2012, compared to $163,856 or 2.4% of total loans as of December 31, 2011. Due to the relative size of the consumer finance loan portfolio and the lower risk profile relative to the Florida loans, they are not segregated from other consumer loans.

As of September 30, 2012, approximately 46% of the commercial real estate loans, including those in Florida, were owner-occupied, while the remaining 54% were non-owner-occupied. As of September 30, 2012 and December 31, 2011, the Corporation had commercial construction loans of $190,309 and $210,098, respectively, representing 2.4% and 3.1% of total loans, respectively.

For each reporting period, total cash flows (both principal and interest) expected to be collected over the remaining life of the loan incorporate assumptions regarding default rates, loss severities, the amounts and timing of prepayments, the value of underlying collateral based on independent appraisals that the Corporation reviews for acceptability and considering the time and costs of foreclosure and disposition of the collateral and other factors that reflect then-current market conditions. The Corporation modifies, updates and refines assumptions as circumstances change. Contractual cash flows at each reporting period are determined utilizing the amortized cost method of loan accounting after recognition of contractual interest.

Purchased Credit-Impaired (PCI) Loans

The Corporation has acquired loans for which there was evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected.

Following are provisional amounts recognized for PCI loans identified in the Corporation’s acquisition of Parkvale:


	At Acquisition
Contractually required principal and interest	$	8,989
Contractual cash flows not expected to be collected (non-accretable difference)		2,835

Expected cash flows		6,154
Interest component of expected cash flows (accretable difference)		589

Fair value	$	5,565

Following is additional information about PCI loans identified in the Corporation’s acquisition of Parkvale:


	At Acquisition		September 30, 2012
Outstanding balance	$	8,989	$	9,191
Carrying amount		5,565		5,344
Allowance for loan losses		n/a		—
Impairment recognized since acquisition		n/a		—
Allowance reduction recognized since acquisition		n/a		—

Following is information about the Corporation’s PCI loans:


	Contractual Receivable			Non-Accretable Difference			Expected Cash Flows			Accretable Yield			Carrying Amount
For the Nine Months Ended September 30, 2012
Balance at beginning of period	$	51,693		$	(33,377	)	$	18,316		$	(2,477	)	$	15,839
Acquisitions		8,989			(2,835	)		6,154			(589	)		5,565
Accretion		—			—			—			3,320			3,320
Payments received		(4,095	)		—			(4,095	)		—			(4,095	)
Reclass from non-accretable difference		—			1,476			1,476			(1,476	)		—
Disposals/transfers		(3,543	)		2,798			(745	)		31			(714	)
Contractual interest		2,368			(2,368	)		—			—			—

Balance at end of period	$	55,412		$	(34,306	)	$	21,106		$	(1,191	)	$	19,915

For the Year Ended December 31, 2011
Balance at beginning of period	$	20,356		$	(15,589	)	$	4,767		$	(791	)	$	3,976
Acquisitions		38,890			(19,401	)		19,489			(2,025	)		17,464
Accretion		—			—			—			903			194
Payments received		(4,784	)		—			(4,784	)		—			(4,075	)
Reclass from non-accretable difference		—			709			709			(709	)		—
Disposals/transfers		(6,128	)		4,263			(1,865	)		145			(1,720	)
Contractual interest		3,359			(3,359	)		—			—			—

Balance at end of period	$	51,693		$	(33,377	)	$	18,316		$	(2,477	)	$	15,839

The accretion in the table above includes $1,476 in 2012 and $709 in 2011 that primarily represents payoffs received on certain loans in excess of expected cash flows. This accretion was recorded as interest income in the Consolidated Statements of Comprehensive Income.

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 loans and non-performing troubled debt restructurings (TDRs). 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 is reversed. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate collectability of the remaining principal and interest is reasonably assured. TDRs 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 that have not been returned to accrual status.

Following is a summary of non-performing assets:


	September 30, 2012		December 31, 2011
Non-accrual loans	$	69,986	$	94,335
Troubled debt restructurings		12,957		11,893

Total non-performing loans		82,943		106,228
Other real estate owned (OREO)		35,613		34,719

Total non-performing loans and OREO		118,556		140,947
Non-performing investments		2,754		8,972

Total non-performing assets	$	121,310	$	149,919


	September 30, 2012			December 31, 2011
Asset quality ratios:
Non-performing loans as a percent of total loans		1.04	%		1.55	%
Non-performing loans + OREO as a percent of total loans + OREO		1.48	%		2.05	%
Non-performing assets as a percent of total assets		1.01	%		1.53	%

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
September 30, 2012
Commercial real estate	$	17,757	$	11,443	$	37,644	$	66,844	$	2,530,185	$	2,597,029
Commercial real estate – FL		—		—		13,974		13,974		57,913		71,887
Commercial and industrial		2,852		1,069		6,564		10,485		1,521,881		1,532,366
Commercial leases		1,032		44		1,141		2,217		124,848		127,065

Total commercial loans and leases		21,641		12,556		59,323		93,520		4,234,827		4,328,347
Direct installment		9,932		3,175		3,087		16,194		1,112,116		1,128,310
Residential mortgages		20,235		24,824		2,587		47,646		1,073,591		1,121,237
Indirect installment		4,495		374		1,054		5,923		578,016		583,939
Consumer lines of credit		2,027		831		435		3,293		776,862		780,155
Other		11		12		3,500		3,523		33,939		37,462

	$	58,341	$	41,772	$	69,986	$	170,099	$	7,809,351	$	7,979,450

December 31, 2011
Commercial real estate	$	13,868	$	9,612	$	37,134	$	60,614	$	2,281,032	$	2,341,646
Commercial real estate – FL		—		—		39,122		39,122		114,959		154,081
Commercial and industrial		2,164		690		6,956		9,810		1,353,882		1,363,692
Commercial leases		1,102		5		1,084		2,191		108,604		110,795

Total commercial loans and leases		17,134		10,307		84,296		111,737		3,858,477		3,970,214
Direct installment		8,228		3,614		2,525		14,367		1,014,820		1,029,187
Residential mortgages		14,492		3,342		2,443		20,277		650,659		670,936
Indirect installment		5,031		282		918		6,231		534,558		540,789
Consumer lines of credit		1,253		586		653		2,492		604,788		607,280
Other		36		—		3,500		3,536		34,725		38,261

	$	46,174	$	18,131	$	94,335	$	158,640	$	6,698,027	$	6,856,667

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


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 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 is 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
September 30, 2012
Commercial real estate	$	2,397,479	$	62,324	$	134,300	$	2,926	$	2,597,029
Commercial real estate – FL		41,826		12,078		15,593		2,390		71,887
Commercial and industrial		1,456,976		16,579		58,407		404		1,532,366
Commercial leases		122,672		328		4,065		—		127,065

	$	4,018,953	$	91,309	$	212,365	$	5,720	$	4,328,347

December 31, 2011
Commercial real estate	$	2,127,334	$	73,701	$	139,578	$	1,033	$	2,341,646
Commercial real estate – FL		70,802		16,002		67,277		—		154,081
Commercial and industrial		1,275,230		49,282		38,171		1,009		1,363,692
Commercial leases		105,631		3,362		1,802		—		110,795

	$	3,578,997	$	142,347	$	246,828	$	2,042	$	3,970,214

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 and volume activity, as well as other external statistics and factors such as unemployment, to determine how consumer loans are performing.

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


	Consumer and Other Loan Credit Quality by Payment Status
	Performing		Non-Performing		Total
September 30, 2012
Direct installment	$	1,121,496	$	6,814	$	1,128,310
Residential mortgages		1,110,302		10,935		1,121,237
Indirect installment		582,817		1,122		583,939
Consumer lines of credit		779,628		527		780,155
Other		33,962		3,500		37,462

December 31, 2011
Direct installment	$	1,022,025	$	7,162	$	1,029,187
Residential mortgages		661,392		9,544		670,936
Indirect installment		539,810		979		540,789
Consumer lines of credit		606,533		747		607,280
Other		34,761		3,500		38,261

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 the aggregate for consumer installment loans, residential mortgages, consumer lines of credit, commercial leases and commercial loan relationships less than $500. For loan relationships greater than or equal to $500, 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 a market interest 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, by class of loans:


	Recorded Investment		Unpaid Principal Balance		Specific Related Allowance		Average Recorded Investment		Interest Income Recognized
At or For the Nine Months Ended September 30, 2012
With no specific allowance recorded:
Commercial real estate	$	31,310	$	39,078	$	—	$	30,879	$	175
Commercial real estate – FL		4,422		8,798		—		8,844		—
Commercial and industrial		6,910		10,399		—		6,657		47
Commercial leases		1,141		1,141		—		1,201		—

Total commercial loans and leases		43,783		59,416		—		47,581		222
Direct installment		4,316		4,500		—		5,744		104
Residential mortgages		6,908		7,017		—		8,388		156
Indirect installment		1,116		2,366		—		1,126		14
Consumer lines of credit		435		460		—		433		4
Other		3,500		3,500		—		3,500		—

With a specific allowance recorded:
Commercial real estate		6,869		6,869		2,001		7,404		107
Commercial real estate – FL		9,553		17,347		2,389		9,977		—
Commercial and industrial		593		593		327		1,910		4
Commercial leases		—		—		—		—		—

Total commercial loans and leases		17,015		24,809		4,717		19,291		111
Direct installment		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Indirect installment		—		—		—		—		—
Consumer lines of credit		—		—		—		—		—
Other		—		—		—		—		—

Total:
Commercial real estate		38,179		45,947		2,001		38,283		282
Commercial real estate – FL		13,975		26,145		2,389		18,821		—
Commercial and industrial		7,503		10,992		327		8,567		51
Commercial leases		1,141		1,141		—		1,201		—

Total commercial loans and leases		60,798		84,225		4,717		66,872		333
Direct installment		4,316		4,500		—		5,744		104
Residential mortgages		6,908		7,017		—		8,388		156
Indirect installment		1,116		2,366		—		1,126		14
Consumer lines of credit		435		460		—		433		4
Other		3,500		3,500		—		3,500		—


	Recorded Investment		Unpaid Principal Balance		Specific Related Allowance		Average Recorded Investment		Interest Income Recognized
At or For the Year Ended December 31, 2011
With no specific allowance recorded:
Commercial real estate	$	28,163	$	32,476	$	—	$	31,432	$	151
Commercial real estate – FL		28,721		46,162		—		29,630		33
Commercial and industrial		4,228		4,971		—		4,610		17
Commercial leases		1,084		1,084		—		1,217		—

Total commercial loans and leases		62,196		84,693		—		66,889		201
Direct installment		7,162		7,522		—		7,530		207
Residential mortgages		9,544		9,839		—		10,278		175
Indirect installment		979		1,071		—		973		24
Consumer lines of credit		747		761		—		947		8
Other		3,500		3,500		—		1,750		—
With a specific allowance recorded:
Commercial real estate		8,403		8,423		2,482		8,875		32
Commercial real estate – FL		10,401		18,195		2,389		16,559		21
Commercial and industrial		3,588		3,750		2,276		3,603		20
Commercial leases		—		—		—		—		—

Total commercial loans and leases		22,392		30,368		7,147		29,037		73
Direct installment		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Indirect installment		—		—		—		—		—
Consumer lines of credit		—		—		—		—		—
Other		—		—		—		—		—
Total:
Commercial real estate		36,566		40,899		2,482		40,307		183
Commercial real estate – FL		39,122		64,357		2,389		46,189		54
Commercial and industrial		7,816		8,721		2,276		8,213		37
Commercial leases		1,084		1,084		—		1,217		—

Total commercial loans and leases		84,588		115,061		7,147		95,926		274
Direct installment		7,162		7,522		—		7,530		207
Residential mortgages		9,544		9,839		—		10,278		175
Indirect installment		979		1,071		—		973		24
Consumer lines of credit		747		761		—		947		8
Other		3,500		3,500		—		1,750		—

The above tables do not include PCI loans totaling $19,915 and $15,839 at September 30, 2012 and December 31, 2011, respectively.

Troubled Debt Restructurings

TDRs are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs typically result from loss mitigation activities and could include the extension of a maturity date, interest rate reduction, principal forgiveness, deferral or decrease in payments for a period of time and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral.

Following is a summary of the composition of total TDRs:


	September 30, 2012		December 31, 2011
Accruing:
Performing	$	11,292	$	10,130
Non-performing		12,957		11,893
Non-accrual		10,890		10,827

	$	35,139	$	32,850

TDRs that are accruing and performing include loans that met the criteria for non-accrual of interest prior to restructuring for which the Corporation can reasonably estimate the timing and amount of the expected cash flows on such loans and for which the Corporation expects to fully collect the new carrying value of the loans. During the first nine months of 2012, the Corporation returned to performing status $5,552 in restructured loans, the majority of which were secured by residential mortgages that have consistently met their modified obligations for more than six months. TDRs that are accruing and non-performing are comprised of consumer loans that have not demonstrated a consistent repayment pattern on the modified terms for more than six months, however it is expected that the Corporation will collect all future principal and interest payments. TDRs that are on non-accrual are not placed on accruing status until all delinquent principal and interest have been paid and the ultimate collectability of the remaining principal and interest is reasonably assured. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and result in potential incremental losses which are factored into the allowance for loan losses estimate.

Excluding purchased impaired loans, commercial loans over $500 whose terms have been modified in a TDR are generally placed on non-accrual, individually analyzed and measured for estimated impairment based on the fair value of the underlying collateral. The Corporation’s allowance for loan losses included specific reserves for commercial TDRs of $53 and $41 at September 30, 2012 and December 31, 2011, respectively and pooled reserves for individual loans under $500 of $348 and $0 for those same periods, based on historical loss experience. Upon default, the amount of the recorded investment in the TDR 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 allowance for loan losses.

All other classes of loans, which are primarily secured by residential properties, whose terms have been modified in a TDR are pooled and measured for estimated impairment based on the expected net present value of the estimated future cash flows of the pool. The Corporation’s allowance for loan losses included pooled reserves for these classes of loans of $1,100 and $847 at September 30, 2012 and December 31, 2011, respectively. Upon default of an individual loan, the Corporation’s charge-off policy is followed accordingly for that class of loan.

The majority of TDRs are the result of interest rate concessions for a limited period of time. Following is a summary of loans, by class, that have been restructured during the periods indicated:


	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
	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		13	$	2,183	$	2,245		16	$	2,341	$	2,971
Commercial real estate – FL		—		—		—		—		—		—
Commercial and industrial		4		51		48		7		254		123
Commercial leases		—		—		—		—		—		—

Total commercial loans and leases		17		2,234		2,293		23		2,595		3,094
Direct installment		50		237		228		229		1,597		1,557
Residential mortgages		15		934		996		39		2,085		2,266
Indirect installment		4		30		30		17		105		97
Consumer lines of credit		2		2		3		4		5		5
Other		—		—		—		—		—		—

		88	$	3,437	$	3,550		312	$	6,387	$	7,019


	Three Months Ended September 30, 2011						Nine Months Ended September 30, 2011
	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		6	$	1,135	$	1,102		9	$	4,400	$	4,310
Commercial real estate – FL		—		—		—		—		—		—
Commercial and industrial		7		289		264		8		328		301
Commercial leases		—		—		—		—		—		—

Total commercial loans and leases		13		1,424		1,366		17		4,728		4,611
Direct installment		106		1,182		1,159		258		3,019		2,961
Residential mortgages		19		1,106		1,106		72		5,043		5,043
Indirect installment		5		4		4		16		41		41
Consumer lines of credit		2		3		2		2		3		2
Other		—		—		—		—		—		—

		145	$	3,719	$	3,637		365	$	12,834	$	12,658

Following is a summary of TDRs, by class of loans, for which there was a payment default during the periods indicated, excluding loans that were either charged-off or cured by period end. Default occurs when a loan is 90 days or more past due and is within 12 months of restructuring.


	Three Months Ended September 30, 2012 (1)				Nine Months Ended September 30, 2012 (1)
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial real estate		—	$	—		—	$	—
Commercial real estate – FL		—		—		—		—
Commercial and industrial		—		—		—		—
Commercial leases		—		—		—		—

Total commercial loans and leases		—		—		—		—
Direct installment		21		138		27		165
Residential mortgages		1		25		3		208
Indirect installment		2		6		3		8
Consumer lines of credit		—		—		—		—
Other		—		—		—		—

		24	$	169		33	$	381


		Three Months Ended September 30, 2011 (1)				Nine Months Ended September 30, 2011 (1)
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial real estate		1	$	240		4	$	2,390
Commercial real estate – FL		—		—		—		—
Commercial and industrial		—		—		—		—
Commercial leases		—		—		—		—

Total commercial loans and leases		1		240		4		2,390
Direct installment		—		—		18		301
Residential mortgages		—		—		2		20
Indirect installment		—		—		2		4
Consumer lines of credit		—		—		—		—
Other		—		—		—		—

		1	$	240		26	$	2,715

(1) The recorded investment is as of period end.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level that, in management’s judgment, is believed adequate to absorb probable losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the loan portfolio at the balance sheet date. The allowance for loan losses is based on management’s evaluation of potential loan losses in the loan portfolio, which includes an assessment of past experience, current economic conditions in specific industries and geographic areas, general economic conditions, known and inherent risks in the loan portfolio, the estimated value of underlying collateral and residuals and changes in the composition of the loan portfolio. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience and consideration of current environmental factors and economic trends, all of which are susceptible to significant change. Loan losses are charged off against the allowance when the loss actually occurs or when a determination is made that a loss is probable, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is recorded based on management’s periodic evaluation of the factors previously mentioned as well as other pertinent factors. Evaluations are conducted at least quarterly and more often as deemed necessary.

Management estimates the allowance for loan losses pursuant to ASC 450, Contingencies, and ASC 310, Receivables. ASC 310 is applied to commercial loans that are individually evaluated for impairment. Under ASC 310, a loan is impaired when, based upon current information and events, it is probable that the loan will not be repaid according to its original contractual terms, including both principal and interest. Management performs individual assessments of impaired commercial loan relationships greater than or equal to $500 to determine the existence of loss exposure and, where applicable, the extent of loss exposure based upon the present value of expected future cash flows available to pay the loan, or based upon the fair value of the collateral less estimated selling costs where a loan is collateral dependent. Commercial loans excluded from individual assessment, as well as smaller balance homogeneous loans, such as consumer installment, residential mortgages, consumer lines of credit and commercial leases, are evaluated for loss exposure under ASC 450 based upon historical loss rates for each of these categories of loans.

During the first quarter of 2012, the Corporation adjusted its methodology for calculating the allowance for loan losses to refine the supporting calculations. The minimum threshold for individual commercial relationships evaluated for impairment and specific valuation under ASC 310 is $500. The historical loss period for commercial loan loss rate analysis was adjusted to utilize a full 3-year period migration model. These changes along with related higher loss rates for commercial loans under $500 resulted in a slight increase in the overall allowance for loan losses. The changes appropriately reflect inherent loss in the portfolio during this recovery stage of the current economic cycle. The 3-year period captures both a steep economic decline and a moderate recovery, which best reflects losses inherent in the portfolio.

Management also evaluates the impact of various qualitative factors which pose additional risks that may not adequately be addressed in the analyses described above. Historical loss rates for each loan category may be adjusted for levels of and trends in loan volumes, large exposures, charge-offs, recoveries, delinquency, non-performing and other impaired loans. In addition, management takes into consideration the impact of changes to lending policies; the experience and depth of lending management and staff; the results of internal loan reviews; concentrations of credit; mergers and acquisitions; weighted average risk ratings; competition, legal and regulatory risk; market uncertainty and collateral illiquidity; national and local economic trends; or any other common risk factor that might affect loss experience across one or more components of the portfolio. The assessment of relevant economic factors indicates that the Corporation’s primary markets historically tend to lag the national economy, with local economies in the Corporation’s primary market areas also improving or weakening, as the case may be, but at a more measured rate than the national trends. Regional economic factors influencing management’s estimate of reserves include uncertainty of the labor markets in the regions the Corporation serves and a contracting labor force due, in part, to productivity growth and industry consolidations. The determination of this component of the allowance is particularly dependent on the judgment of management.

Following are summaries of changes in the allowance for loan losses by loan class for the periods indicated:


	Balance at Beginning of Period		Charge-Offs			Recoveries			Net Charge-Offs			Provision for Loan Losses			Balance at End of Period
Three Months Ended September 30, 2012
Commercial real estate	$	29,989	$	(1,364	)	$	186		$	(1,178	)	$	(430	)	$	28,381
Commercial real estate – FL		8,491		(117	)		1,189			1,072			(2,930	)		6,633
Commercial and industrial		30,779		(3,746	)		(19	)		(3,765	)		4,861			31,875
Commercial leases		1,674		(216	)		78			(138	)		214			1,750

Total commercial loans and leases		70,933		(5,443	)		1,434			(4,009	)		1,715			68,639
Direct installment		14,536		(1,985	)		225			(1,760	)		1,929			14,705
Residential mortgages		4,259		(3	)		4			1			256			4,516
Indirect installment		5,666		(688	)		158			(530	)		539			5,675
Consumer lines of credit		5,266		(831	)		37			(794	)		1,556			6,028
Other		203		(270	)		—			(270	)		229			162
Purchased credit-impaired loans		784		—			—			—			2,205			2,989

	$	101,647	$	(9,220	)	$	1,858		$	(7,362	)	$	8,429		$	102,714


	Balance at Beginning of Period		Charge-Offs			Recoveries		Net Charge-Offs			Provision for Loan Losses			Balance at End of Period
Three Months Ended September 30, 2011
Commercial real estate	$	34,215	$	(1,569	)	$	143	$	(1,426	)	$	112		$	32,901
Commercial real estate – FL		20,018		(3,481	)		—		(3,481	)		3,941			20,478
Commercial and industrial		23,725		(694	)		107		(587	)		904			24,042
Commercial leases		1,273		(173	)		28		(145	)		289			1,417

Total commercial loans and leases		79,231		(5,917	)		278		(5,639	)		5,246			78,838
Direct installment		14,915		(1,920	)		212		(1,708	)		1,371			14,578
Residential mortgages		4,480		(233	)		14		(219	)		95			4,356
Indirect installment		5,705		(775	)		121		(654	)		594			5,645
Consumer lines of credit		4,796		(285	)		97		(188	)		774			5,382
Other		97		(599	)		23		(576	)		493			14
Purchased credit-impaired loans		—		—			—		—			—			—

	$	109,224	$	(9,729	)	$	745	$	(8,984	)	$	8,573		$	108,813

Nine Months Ended September 30, 2012
Commercial real estate	$	30,337	$	(3,804	)	$	436	$	(3,368	)	$	1,412		$	28,381
Commercial real estate – FL		12,946		(929	)		1,198		269			(6,582	)		6,633
Commercial and industrial		25,476		(7,086	)		349		(6,737	)		13,136			31,875
Commercial leases		1,556		(509	)		177		(332	)		526			1,750

Total commercial loans and leases		70,315		(12,328	)		2,160		(10,168	)		8,492			68,639
Direct installment		14,814		(5,908	)		721		(5,187	)		5,078			14,705
Residential mortgages		4,437		(644	)		127		(517	)		596			4,516
Indirect installment		5,503		(2,128	)		433		(1,695	)		1,867			5,675
Consumer lines of credit		5,447		(1,585	)		146		(1,439	)		2,020			6,028
Other		146		(716	)		—		(716	)		732			162
Purchased credit-impaired loans		—		(254	)		—		(254	)		3,243			2,989

	$	100,662	$	(23,563	)	$	3,587	$	(19,976	)	$	22,028		$	102,714

Nine Months Ended September 30, 2011
Commercial real estate	$	32,439	$	(4,995	)	$	337	$	(4,658	)	$	5,120		$	32,901
Commercial real estate – FL		17,485		(4,761	)		—		(4,761	)		7,754			20,478
Commercial and industrial		24,682		(3,016	)		242		(2,774	)		2,134			24,042
Commercial leases		1,070		(378	)		58		(320	)		667			1,417

Total commercial loans and leases		75,676		(13,150	)		637		(12,513	)		15,675			78,838
Direct installment		14,941		(6,422	)		646		(5,776	)		5,413			14,578
Residential mortgages		4,578		(640	)		45		(595	)		373			4,356
Indirect installment		5,941		(2,312	)		415		(1,897	)		1,601			5,645
Consumer lines of credit		4,743		(1,103	)		184		(919	)		1,558			5,382
Other		241		(1,005	)		46		(959	)		732			14
Purchased credit-impaired loans		—		—			—		—			—			—

	$	106,120	$	(24,632	)	$	1,973	$	(22,659	)	$	25,352		$	108,813

Following are summaries of the individual and collective allowance for loan losses and corresponding loan balances by class for the periods indicated:


	Allowance				Loans Outstanding
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Loans		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
September 30, 2012
Commercial real estate	$	2,001	$	28,169	$	2,597,029	$	15,419	$	2,581,610
Commercial real estate – FL		2,389		4,244		71,887		23,354		48,533
Commercial and industrial		327		32,448		1,532,366		6,185		1,526,181
Commercial leases		—		1,750		127,065		—		127,065

Total commercial loans and leases		4,717		66,611		4,328,347		44,958		4,283,389
Direct installment		—		15,005		1,128,310		—		1,128,310
Residential mortgages		—		4,516		1,121,237		—		1,121,237
Indirect installment		—		5,675		583,939		—		583,939
Consumer lines of credit		—		6,028		780,155		—		780,155
Other		—		162		37,462		—		37,462

	$	4,717	$	97,997	$	7,979,450	$	44,958	$	7,934,492

December 31, 2011
Commercial real estate	$	2,482	$	27,855	$	2,341,646	$	36,566	$	2,305,080
Commercial real estate – FL		2,389		10,557		154,081		39,122		114,959
Commercial and industrial		2,276		23,200		1,363,692		7,816		1,355,876
Commercial leases		—		1,556		110,795		—		110,795

Total commercial loans and leases		7,147		63,168		3,970,214		83,504		3,886,710
Direct installment		—		14,814		1,029,187		—		1,029,187
Residential mortgages		—		4,437		670,936		—		670,936
Indirect installment		—		5,503		540,789		—		540,789
Consumer lines of credit		—		5,447		607,280		—		607,280
Other		—		146		38,261		—		38,261

	$	7,147	$	93,515	$	6,856,667	$	83,504	$	6,773,163