LOANS AND ALLOWANCE FOR LOAN LOSSES

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


	Originated Loans		Acquired Loans		Total Loans
September 30, 2013
Commercial real estate	$	2,548,278	$	372,530	$	2,920,808
Commercial and industrial		1,689,467		65,768		1,755,235
Commercial leases		141,714		—		141,714

Total commercial loans and leases		4,379,459		438,298		4,817,757
Direct installment		1,349,804		58,735		1,408,539
Residential mortgages		669,978		361,827		1,031,805
Indirect installment		631,030		7,282		638,312
Consumer lines of credit		804,453		83,528		887,981
Other		52,511		—		52,511

	$	7,887,235	$	949,670	$	8,836,905

December 31, 2012
Commercial real estate	$	2,448,471	$	258,575	$	2,707,046
Commercial and industrial		1,555,301		47,013		1,602,314
Commercial leases		130,133		—		130,133

Total commercial loans and leases		4,133,905		305,588		4,439,493
Direct installment		1,108,865		69,665		1,178,530
Residential mortgages		653,826		438,402		1,092,228
Indirect installment		568,324		13,713		582,037
Consumer lines of credit		732,534		72,960		805,494
Other		39,937		—		39,937

	$	7,237,391	$	900,328	$	8,137,719

The carrying amount of acquired loans at September 30, 2013 totaled $944,954, including purchased credit-impaired (PCI) loans with a carrying amount of $16,559, while the carrying amount of acquired loans at December 31, 2012 totaled $896,148, including PCI loans with a carrying amount of $15,864. The outstanding contractual balance receivable of acquired loans at September 30, 2013 totaled $1,011,890, including PCI loans with an outstanding contractual balance receivable of $43,767, while the outstanding contractual balance receivable of acquired loans at December 31, 2012 totaled $949,862, including PCI loans with an outstanding contractual balance receivable of $41,134.

Commercial real estate includes both owner-occupied and non-owner-occupied loans secured by commercial properties. Commercial and industrial includes loans to businesses that are not secured by real estate. 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 originated by third parties and underwritten by the Corporation, 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, northeastern Ohio, northern West Virginia and central Maryland. The commercial real estate portfolio also includes run-off loans in Florida, which totaled $49,189 or 0.6% of total loans at September 30, 2013, compared to $68,627 or 0.8% of total loans at December 31, 2012. Additionally, the total loan portfolio contains consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky, which equaled $175,123 or 2.0% of total loans at September 30, 2013, compared to $170,999 or 2.1% of total loans at December 31, 2012. Due to the relative size of the consumer finance loan portfolio, they are not segregated from other consumer loans.

As of September 30, 2013, 45.2% of the commercial real estate loans were owner-occupied, while the remaining 54.8% were non-owner-occupied, compared to 46.5% and 53.5%, respectively, as of December 31, 2012. As of September 30, 2013 and December 31, 2012, the Corporation had commercial construction loans of $215,433 and $190,206, respectively, representing 2.4% and 2.3% of total loans, respectively.

ASC 310-30 Loans

All loans acquired in the ANNB and Parkvale acquisitions, except for revolving loans, are accounted for in accordance with ASC 310-30. Revolving loans are accounted for under ASC 310-20. The Corporation’s allowance for loan losses for acquired loans reflects only those losses incurred after acquisition.

The following table reflects amounts at acquisition for all purchased loans subject to ASC310-30 (impaired and non-impaired) acquired from ANNB in 2013 and Parkvale in 2012:


	Acquired Impaired Loans			Acquired Performing Loans			Total
Acquired from ANNB in 2013
Contractually required cash flows at acquisition	$	12,200		$	270,197		$	282,397
Non-accretable difference (expected losses and foregone interest)		(7,829	)		(13,705	)		(21,534	)

Cash flows expected to be collected at acquisition		4,371			256,492			260,863
Accretable yield		(523	)		(41,207	)		(41,730	)

Basis in acquired loans at acquisition	$	3,848		$	215,285		$	219,133


Acquired from Parkvale in 2012
Contractually required cash flows at acquisition	$	12,224		$	1,327,342		$	1,339,566
Non-accretable difference (expected losses and foregone interest)		(6,070	)		(214,541	)		(220,611	)

Cash flows expected to be collected at acquisition		6,154			1,112,801			1,118,955
Accretable yield		(589	)		(293,594	)		(294,183	)

Basis in acquired loans at acquisition	$	5,565		$	819,207		$	824,772

The following table provides a summary of change in accretable yield for all acquired loans:


	Acquired Impaired Loans			Acquired Performing Loans			Total
Nine Months Ended September 30, 2013
Balance at beginning of period	$	778		$	253,375		$	254,153
Acquisitions		523			41,207			41,730
Reduction due to unexpected early payoffs		—			(37,432	)		(37,432	)
Reclass from non-accretable difference		6,318			1,555			7,873
Disposals/transfers		164			(210	)		(46	)
Accretion		(2,250	)		(27,629	)		(29,879	)

Balance at end of period	$	5,533		$	230,866		$	236,399


Year Ended December 31, 2012
Balance at beginning of period	$	2,477		$	49,229		$	51,706
Acquisitions		589			293,594			294,183
Reduction due to unexpected early payoffs		—			(57,840	)		(57,840	)
Reclass from non-accretable difference		3,539			10,915			14,454
Disposals/transfers		(49	)		(615	)		(664	)
Accretion		(5,778	)		(41,908	)		(47,686	)

Balance at end of period	$	778		$	253,375		$	254,153

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 is information about PCI loans identified in the Corporation’s acquisition of ANNB:


	At Acquisition		September 30, 2013
Outstanding balance	$	12,220	$	11,867
Carrying amount		3,848		3,442
Allowance for loan losses		n/a		—
Impairment recognized since acquisition		n/a		—
Allowance reduction recognized since acquisition		n/a		—

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


	At Acquisition		December 31, 2012
Outstanding balance	$	9,135	$	3,704
Carrying amount		5,565		2,552
Allowance for loan losses		n/a		103
Impairment recognized since acquisition		n/a		103
Allowance reduction recognized since acquisition		n/a		—

Following is information about the Corporation’s PCI loans:


	Outstanding Balance			Non- Accretable Difference			Expected Cash Flows			Accretable Yield			Recorded Investment
For the Nine Months Ended September 30, 2013
Balance at beginning of period	$	41,134		$	(23,733	)	$	17,401		$	(778	)	$	16,623
Acquisitions		12,220			(7,849	)		4,371			(523	)		3,848
Accretion		—			—			—			2,250			2,250
Payments received		(3,087	)		—			(3,087	)		—			(3,087	)
Reclass from non-accretable difference		—			6,318			6,318			(6,318	)		—
Disposals/transfers		(8,442	)		6,193			(2,249	)		(164	)		(2,413	)
Contractual interest		1,942			(1,942	)		—			—			—

Balance at end of period	$	43,767		$	(21,013	)	$	22,754		$	(5,533	)	$	17,221


For the Year Ended December 31, 2012
Balance at beginning of period	$	51,693		$	(33,377	)	$	18,316		$	(2,477	)	$	15,839
Acquisitions		9,135			(2,981	)		6,154			(589	)		5,565
Accretion		—			—			—			5,778			5,778
Payments received		(9,556	)		—			(9,556	)		—			(9,556	)
Reclass from non-accretable difference		—			3,539			3,539			(3,539	)		—
Disposals/transfers		(12,494	)		11,442			(1,052	)		49			(1,003	)
Contractual interest		2,356			(2,356	)		—			—			—

Balance at end of period	$	41,134		$	(23,733	)	$	17,401		$	(778	)	$	16,623

The accretion in the table above includes $440 in 2013 and $3,539 in 2012 that primarily represents payoffs received on certain loans in excess of expected cash flows.

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 on originated loans generally when principal or interest is due and has remained unpaid for a certain number of days unless the loan is both well secured and in the process of collection. Commercial loans are placed on non-accrual at 90 days, installment loans are placed on non-accrual at 120 days and residential mortgages and consumer lines of credit are generally placed on non-accrual at 180 days. 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 ability to collect 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, 2013			December 31, 2012
Non-accrual loans	$	65,451		$	66,004
Troubled debt restructurings		17,252			14,876

Total non-performing loans		82,703			80,880
Other real estate owned (OREO)		35,144			35,257

Total non-performing loans and OREO		117,847			116,137
Non-performing investments		733			2,809

Total non-performing assets	$	118,580		$	118,946


Asset quality ratios:
Non-performing loans as a percent of total loans		0.94	%		0.99	%
Non-performing loans + OREO as a percent of total loans + OREO		1.33	%		1.42	%
Non-performing assets as a percent of total assets		0.93	%		0.99	%

The following tables provide an analysis of the aging of the Corporation’s past due loans by class, segregated by loans originated and loans acquired:


	30-89 Days Past Due		>90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due		Current		Total Loans
Originated loans:
September 30, 2013
Commercial real estate	$	7,041	$	301	$	47,151	$	54,493	$	2,493,785	$	2,548,278
Commercial and industrial		4,068		459		8,081		12,608		1,676,859		1,689,467
Commercial leases		836		—		782		1,618		140,096		141,714

Total commercial loans and leases		11,945		760		56,014		68,719		4,310,740		4,379,459
Direct installment		9,952		2,515		4,462		16,929		1,332,875		1,349,804
Residential mortgages		12,331		1,986		3,694		18,011		651,967		669,978
Indirect installment		4,815		607		975		6,397		624,633		631,030
Consumer lines of credit		2,146		1,113		306		3,565		800,888		804,453
Other		23		37		—		60		52,451		52,511

	$	41,212	$	7,018	$	65,451	$	113,681	$	7,773,554	$	7,887,235


December 31, 2012
Commercial real estate	$	5,786	$	533	$	47,895	$	54,214	$	2,394,257	$	2,448,471
Commercial and industrial		7,310		456		6,017		13,783		1,541,518		1,555,301
Commercial leases		1,671		—		965		2,636		127,497		130,133

Total commercial loans and leases		14,767		989		54,877		70,633		4,063,272		4,133,905
Direct installment		8,834		2,717		3,342		14,893		1,093,972		1,108,865
Residential mortgages		15,821		2,365		2,891		21,077		632,749		653,826
Indirect installment		5,114		374		1,039		6,527		561,797		568,324
Consumer lines of credit		1,633		247		355		2,235		730,299		732,534
Other		36		15		3,500		3,551		36,386		39,937

	$	46,205	$	6,707	$	66,004	$	118,916	$	7,118,475	$	7,237,391


	30-89 Days Past Due		³ 90 Days Past Due and Still Accruing		Non-Accrual		Total Past Due (1)		Current		Discount			Total Loans
Acquired Loans:
September 30, 2013
Commercial real estate	$	4,681	$	16,002		—	$	20,683	$	370,373	$	(18,526	)	$	372,530
Commercial and industrial		3,396		4,500		—		7,896		63,566		(5,694	)		65,768
Commercial leases		—		—		—		—		—		—			—

Total commercial loans and leases		8,077		20,502		—		28,579		433,939		(24,220	)		438,298
Direct installment		1,147		1,023		—		2,170		53,785		2,780			58,735
Residential mortgages		7,272		19,002		—		26,274		370,609		(35,056	)		361,827
Indirect installment		246		38		—		284		7,661		(663	)		7,282
Consumer lines of credit		226		893		—		1,119		87,470		(5,061	)		83,528
Other		—		—		—		—		—		—			—

	$	16,968	$	41,458		—	$	58,426	$	953,464	$	(62,220	)	$	949,670


December 31, 2012
Commercial real estate	$	6,829	$	13,597		—	$	20,426	$	250,116	$	(11,967	)	$	258,575
Commercial and industrial		1,653		138		—		1,791		47,351		(2,129	)		47,013
Commercial leases		—		—		—		—		—		—			—

Total commercial loans and leases		8,482		13,735		—		22,217		297,467		(14,096	)		305,588
Direct installment		1,454		947		—		2,401		63,502		3,762			69,665
Residential mortgages		12,137		21,069		—		33,206		439,620		(34,424	)		438,402
Indirect installment		347		56		—		403		14,089		(779	)		13,713
Consumer lines of credit		379		778		—		1,157		75,800		(3,997	)		72,960
Other		—		—		—		—		—		—			—

	$	22,799	$	36,585		—	$	59,384	$	890,478	$	(49,534	)	$	900,328

(1)	Past due information for loans acquired is based on the contractual balance outstanding at September 30, 2013 and December 31, 2012.

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 within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans that migrate toward the Substandard or Doubtful credit categories. Accordingly, management applies higher risk factors to Substandard and Doubtful credit categories.

The following tables present a summary of the Corporation’s commercial loans by credit quality category, segregated by loans originated and loans acquired:


	Commercial Loan Credit Quality Categories
	Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans:
September 30, 2013
Commercial real estate	$	2,388,404	$	46,750	$	110,342	$	2,782	$	2,548,278
Commercial and industrial		1,550,195		80,987		57,966		319		1,689,467
Commercial leases		139,966		764		984		—		141,714

	$	4,078,565	$	128,501	$	169,292	$	3,101	$	4,379,459


December 31, 2012
Commercial real estate	$	2,282,139	$	57,938	$	106,258	$	2,136	$	2,448,471
Commercial and industrial		1,472,598		32,227		49,814		662		1,555,301
Commercial leases		126,283		243		3,607		—		130,133

	$	3,881,020	$	90,408	$	159,679	$	2,798	$	4,133,905


Acquired Loans:
September 30, 2013
Commercial real estate	$	277,806	$	47,663	$	45,673	$	1,388	$	372,530
Commercial and industrial		49,105		5,067		11,582		14		65,768
Commercial leases		—		—		—		—		—

	$	326,911	$	52,730	$	57,255	$	1,402	$	438,298


December 31, 2012
Commercial real estate	$	204,300	$	14,713	$	39,093	$	469	$	258,575
Commercial and industrial		39,596		3,611		3,804		2		47,013
Commercial leases		—		—		—		—		—

	$	243,896	$	18,324	$	42,897	$	471	$	305,588

Credit quality information for acquired loans is based on the contractual balance outstanding at September 30, 2013 and December 31, 2012. The increase in acquired loans in 2013 primarily relates to the ANNB acquisition on April 6, 2013.

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 originated consumer loans by payment status:


	Consumer Loan Credit Quality by Payment Status
	Performing		Non-Performing		Total
September 30, 2013
Direct installment	$	1,339,139	$	10,665	$	1,349,804
Residential mortgages		656,674		13,304		669,978
Indirect installment		629,838		1,092		631,030
Consumer lines of credit		803,904		549		804,453
Other		52,511		—		52,511

December 31, 2012
Direct installment	$	1,100,324	$	8,541	$	1,108,865
Residential mortgages		642,406		11,420		653,826
Indirect installment		567,192		1,132		568,324
Consumer lines of credit		731,788		746		732,534
Other		36,437		3,500		39,937

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 commercial 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 originated loans considered to be impaired, by class of loans:


	Recorded Investment		Unpaid Principal Balance		Specific Related Allowance		Average Recorded Investment
At or For the Nine Months Ended September 30, 2013
With no specific allowance recorded:
Commercial real estate	$	34,281	$	46,548	$	—	$	34,165
Commercial and industrial		9,308		11,377		—		9,448
Commercial leases		782		782		—		729

Total commercial loans and leases		44,371		58,707		—		44,342
Direct installment		10,665		10,901		—		10,451
Residential mortgages		13,298		13,561		—		13,767
Indirect installment		1,092		2,491		—		1,169
Consumer lines of credit		549		609		—		631
Other		—		—		—		583

With a specific allowance recorded:
Commercial real estate		14,300		23,748		2,782		14,379
Commercial and industrial		124		131		124		126
Commercial leases		—		—		—		—

Total commercial loans and leases		14,424		23,879		2,906		14,505
Direct installment		—		—		—		—
Residential mortgages		—		—		—		—
Indirect installment		—		—		—		—
Consumer lines of credit		—		—		—		—
Other		—		—		—		—

Total:
Commercial real estate		48,581		70,296		2,782		48,544
Commercial and industrial		9,432		11,508		124		9,574
Commercial leases		782		782		—		729

Total commercial loans and leases		58,795		82,586		2,906		58,847
Direct installment		10,665		10,901		—		10,451
Residential mortgages		13,298		13,561		—		13,767
Indirect installment		1,092		2,491		—		1,169
Consumer lines of credit		549		609		—		631
Other		—		—		—		583
At or For the Year Ended December 31, 2012
With no specific allowance recorded:
Commercial real estate	$	37,119	$	50,234	$	—	$	36,426
Commercial and industrial		7,074		9,597		—		6,992
Commercial leases		965		—		—		1,053

Total commercial loans and leases		45,158		59,831		—		44,471
Direct installment		8,541		8,693		—		6,443
Residential mortgages		11,414		11,223		—		9,059
Indirect installment		1,132		2,381		—		1,133
Consumer lines of credit		746		792		—		591
Other		3,500		3,500		—		3,500

With a specific allowance recorded:
Commercial real estate		12,623		21,877		2,136		14,522
Commercial and industrial		590		590		590		592
Commercial leases		—		—		—		—

Total commercial loans and leases		13,213		22,467		2,726		15,114
Direct installment		—		—		—		—
Residential mortgages		—		—		—		—
Indirect installment		—		—		—		—
Consumer lines of credit		—		—		—		—
Other		—		—		—		—

Total:
Commercial real estate		49,742		72,111		2,136		50,948
Commercial and industrial		7,664		10,187		590		7,584
Commercial leases		965		—		—		1,053

Total commercial loans and leases		58,371		82,298		2,726		59,585
Direct installment		8,541		8,693		—		6,443
Residential mortgages		11,414		11,223		—		9,059
Indirect installment		1,132		2,381		—		1,133
Consumer lines of credit		746		792		—		591
Other		3,500		3,500		—		3,500

Interest income is generally no longer recognized once a loan becomes impaired.

The above tables do not include PCI loans with a recorded investment of $17,221 at September 30, 2013 and $16,623 at December 31, 2012. These tables do not reflect the additional allowance for loan losses relating to acquired loans in the following pools and categories: commercial real estate of $1,443; commercial and industrial of $1,023; direct installment of $916: residential mortgages of $1,039; and indirect installment of $295, totaling $4,716 at September 30, 2013 and commercial real estate of $1,955; commercial and industrial of $1,140; direct installment of $657; residential mortgages of $69; and indirect installment of $359, totaling $4,180 at December 31, 2012.

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, 2013		December 31, 2012
Accruing:
Performing	$	10,102	$	12,659
Non-performing		17,252		14,876
Non-accrual		12,185		12,385

	$	39,539	$	39,920

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 nine months ended September 30, 2013, the Corporation returned to performing status $1,737 in restructured loans, all 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.

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 $756 and $41 at September 30, 2013 and December 31, 2012, respectively, and pooled reserves for individual loans under $500 of $108 and $297 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 $1,096 and $1,455 at September 30, 2013 and December 31, 2012, 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, 2013						Nine Months Ended September 30, 2013
	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		2	$	212	$	207		7	$	1,252	$	1,031
Commercial and industrial		—		—		—		—		—		—
Commercial leases		—		—		—		—		—		—

Total commercial loans and leases		2		212		207		7		1,252		1,031
Direct installment		117		1,199		1,168		300		3,078		2,930
Residential mortgages		9		346		348		39		1,809		1,784
Indirect installment		5		20		18		20		92		84
Consumer lines of credit		1		6		6		14		207		204
Other		—		—		—		—		—		—

		134	$	1,783	$	1,747		380	$	6,438	$	6,033


	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 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

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, 2013 (1)				Nine Months Ended September 30, 2013 (1)
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial real estate		—	$	—		1	$	751
Commercial and industrial		—		—		1		15
Commercial leases		—		—		—		—

Total commercial loans and leases		—		—		2		766
Direct installment		24		254		53		509
Residential mortgages		2		99		5		240
Indirect installment		—		—		4		37
Consumer lines of credit		1		85		1		85
Other		—		—		—		—

		27	$	438		65	$	1,637


	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 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

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

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision charged to earnings. Loan losses are charged against the allowance for loan losses when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for loan losses. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Changes in the allowance for loan losses related to impaired loans are charged or credited to the provision 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. Adequacy of 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 for loan losses 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.

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.

Following is a summary of changes in the allowance for loan losses, by loan class:


	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, 2013
Commercial real estate	$	35,666		$	(365	)	$	80		$	(285	)	$	(538	)	$	34,843
Commercial and industrial		32,486			(1,529	)		231			(1,298	)		1,460			32,648
Commercial leases		1,756			(69	)		59			(10	)		21			1,767

Total commercial loans and leases		69,908			(1,963	)		370			(1,593	)		943			69,258
Direct installment		15,993			(2,183	)		227			(1,956	)		3,194			17,231
Residential mortgages		5,120			(174	)		50			(124	)		437			5,433
Indirect installment		5,626			(807	)		188			(619	)		1,120			6,127
Consumer lines of credit		6,421			(454	)		60			(394	)		1,052			7,079
Other		(219	)		(333	)		—			(333	)		760			208

Total allowance on originated loans		102,849			(5,914	)		895			(5,019	)		7,506			105,336


Purchased credit-impaired loans		325			—			—			—			337			662
Other acquired loans		5,106			70			(559	)		(489	)		(563	)		4,054

Total allowance on acquired loans		5,431			70			(559	)		(489	)		(226	)		4,716


Total allowance	$	108,280		$	(5,844	)	$	336		$	(5,508	)	$	7,280		$	110,052


Three Months Ended September 30, 2012
Commercial real estate	$	38,480		$	(1,481	)	$	1,375		$	(106	)	$	(3,360	)	$	35,014
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

Total allowance on originated loans		100,863			(9,220	)		1,858			(7,362	)		6,224			99,725


Purchased credit-impaired loans		784			—			—			—			2,205			2,989
Other acquired loans		—			—			—			—			—			—

Total allowance on acquired loans		784			—			—			—			2,205			2,989


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

Nine Months Ended September 30, 2013
Commercial real estate	$	34,810		$	(3,067	)	$	1,606		$	(1,461	)	$	1,494		$	34,843
Commercial and industrial		31,849			(4,262	)		734			(3,528	)		4,327			32,648
Commercial leases		1,744			(317	)		161			(156	)		179			1,767

Total commercial loans and leases		68,403			(7,646	)		2,501			(5,145	)		6,000			69,258
Direct installment		15,130			(6,824	)		709			(6,115	)		8,216			17,231
Residential mortgages		5,155			(733	)		90			(643	)		921			5,433
Indirect installment		5,449			(2,349	)		576			(1,773	)		2,451			6,127
Consumer lines of credit		6,057			(1,183	)		209			(974	)		1,996			7,079
Other		—			(721	)		—			(721	)		929			208

Total allowance on originated loans		100,194			(19,456	)		4,085			(15,371	)		20,513			105,336


Purchased credit-impaired loans		759			(156	)		—			(156	)		59			662
Other acquired loans		3,421			(1,199	)		(320	)		(1,519	)		2,152			4,054

Total allowance on acquired loans		4,180			(1,355	)		(320	)		(1,675	)		2,211			4,716


Total allowance	$	104,374		$	(20,811	)	$	3,765		$	(17,046	)	$	22,724		$	110,052


Nine Months Ended September 30, 2012
Commercial real estate	$	43,283		$	(4,733	)	$	1,634		$	(3,099	)	$	(5,170	)	$	35,014
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

Total allowance on originated loans		100,662			(23,309	)		3,587			(19,722	)		18,785			99,725


Purchased credit-impaired loans		—			(254	)		—			(254	)		3,243			2,989
Other acquired loans		—			—			—			—			—			—

Total allowance on acquired loans		—			(254	)		—			(254	)		3,243			2,989


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

Following is a summary of the individual and collective originated allowance for loan losses and corresponding loan balances by class:


	Allowance				Loans Outstanding
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Loans		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
September 30, 2013
Commercial real estate	$	2,782	$	32,061	$	2,548,278	$	35,740	$	2,512,538
Commercial and industrial		124		32,524		1,689,467		5,357		1,684,110
Commercial leases		—		1,767		141,714		—		141,714

Total commercial loans and leases		2,906		66,352		4,379,459		41,097		4,338,362
Direct installment		—		17,231		1,349,804		—		1,349,804
Residential mortgages		—		5,433		669,978		—		669,978
Indirect installment		—		6,127		631,030		—		631,030
Consumer lines of credit		—		7,079		804,453		—		804,453
Other		—		208		52,511		—		52,511

	$	2,906	$	102,430	$	7,887,235	$	41,097	$	7,846,138


December 31, 2012
Commercial real estate	$	2,136	$	32,674	$	2,448,471	$	35,024	$	2,413,447
Commercial and industrial		590		31,259		1,555,301		1,624		1,553,677
Commercial leases		—		1,744		130,133		—		130,133

Total commercial loans and leases		2,726		65,677		4,133,905		36,648		4,097,257
Direct installment		—		15,130		1,108,865		—		1,108,865
Residential mortgages		—		5,155		653,826		—		653,826
Indirect installment		—		5,449		568,324		—		568,324
Consumer lines of credit		—		6,057		732,534		—		732,534
Other		—		—		39,937		—		39,937

	$	2,726	$	97,468	$	7,237,391	$	36,648	$	7,200,743