LOANS AND LEASES

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


	Originated Loans		Acquired Loans		Total Loans and Leases
September 30, 2015
Commercial real estate	$	3,322,669	$	626,577	$	3,949,246
Commercial and industrial		2,410,186		81,169		2,491,355
Commercial leases		199,130		—		199,130

Total commercial loans and leases		5,931,985		707,746		6,639,731
Direct installment		1,643,345		49,293		1,692,638
Residential mortgages		1,013,254		373,132		1,386,386
Indirect installment		973,216		812		974,028
Consumer lines of credit		1,003,278		123,724		1,127,002
Other		53,860		—		53,860

	$	10,618,938	$	1,254,707	$	11,873,645

December 31, 2014
Commercial real estate	$	3,031,810	$	783,898	$	3,815,708
Commercial and industrial		2,197,793		120,222		2,318,015
Commercial leases		177,824		—		177,824

Total commercial loans and leases		5,407,427		904,120		6,311,547
Direct installment		1,579,770		64,851		1,644,621
Residential mortgages		817,586		445,467		1,263,053
Indirect installment		873,645		1,906		875,551
Consumer lines of credit		946,427		164,549		1,110,976
Other		41,290		—		41,290

	$	9,666,145	$	1,580,893	$	11,247,038

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 are made 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 credit cards, mezzanine loans and student loans.

The loan and lease portfolio consists principally of loans to individuals and small- and medium-sized businesses within the Corporation’s primary market area of Pennsylvania, eastern Ohio, Maryland and northern West Virginia. The total loan portfolio contains consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky, which totaled $181,298 or 1.5% of total loans and leases at September 30, 2015, compared to $180,588 or 1.6% of total loans and leases at December 31, 2014. Due to the relative size of the consumer finance loan portfolio, they are not segregated from other consumer loans.

As of September 30, 2015, 38.9% of the commercial real estate loans were owner-occupied, while the remaining 61.1% were non-owner-occupied, compared to 41.6% and 58.4%, respectively, as of December 31, 2014. As of September 30, 2015 and December 31, 2014, the Corporation had commercial construction loans of $294,249 and $296,156, respectively, representing 2.5% and 2.6% of total loans and leases at those respective dates.

Acquired Loans

All acquired loans were initially recorded at fair value at the acquisition date. The outstanding balance and the carrying amount of acquired loans included in the consolidated balance sheet are as follows:


	September 30, 2015		December 31, 2014
Accounted for under ASC 310-30:
Outstanding balance	$	1,345,685	$	1,597,558
Carrying amount		1,094,604		1,344,171

Accounted for under ASC 310-20:
Outstanding balance		159,695		242,488
Carrying amount		153,539		228,748

Total acquired loans:
Outstanding balance		1,505,380		1,840,046
Carrying amount		1,248,143		1,572,919

The carrying amount of purchased credit impaired loans included in the table above totaled $8,766 at September 30, 2015 and $9,556 at December 31, 2014, representing less than 1% of the carrying amount of total acquired loans as of each date.

The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-30. Loans accounted for under ASC 310-20 are not included in this table.


	Nine Months Ended
	September 30,
	2015			2014
Balance at beginning of period	$	331,899		$	305,646
Acquisitions		—			71,111
Reduction due to unexpected early payoffs		(35,601	)		(34,747	)
Reclass from non-accretable difference		24,489			9,925
Disposals/transfers		(509	)		(5,390	)
Accretion		(46,207	)		(54,664	)

Balance at end of period	$	274,071		$	291,881

Credit Quality

Management monitors the credit quality of the Corporation’s loan and lease portfolio on an ongoing basis. Measurement of delinquency and past due status is 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, or when the full amount of principal and interest due is not expected to be collected in full, 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.

Following is a summary of non-performing assets:


	September 30, 2015			December 31, 2014
Non-accrual loans	$	47,298		$	45,113
Troubled debt restructurings		21,221			23,439

Total non-performing loans		68,519			68,552
Other real estate owned (OREO)		38,931			41,466

Total non-performing assets	$	107,450		$	110,018

Asset quality ratios:
Non-performing loans as a percent of total loans and leases		0.58	%		0.61	%
Non-performing loans + OREO as a percent of total loans and leases + OREO		0.90	%		0.97	%
Non-performing assets as a percent of total assets		0.64	%		0.68	%

The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $4,285 at September 30, 2015. Also, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 2015 amounted to $12,786.

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


	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non-Accrual		Total Past Due		Current		Total Loans and Leases
Originated Loans and Leases
September 30, 2015
Commercial real estate	$	6,040	$	3	$	25,262	$	31,305	$	3,291,364	$	3,322,669
Commercial and industrial		3,854		3		9,529		13,386		2,396,800		2,410,186
Commercial leases		709		14		835		1,558		197,572		199,130

Total commercial loans and leases		10,603		20		35,626		46,249		5,885,736		5,931,985
Direct installment		9,874		3,326		4,718		17,918		1,625,427		1,643,345
Residential mortgages		11,121		1,334		2,971		15,426		997,828		1,013,254
Indirect installment		8,213		522		1,133		9,868		963,348		973,216
Consumer lines of credit		3,385		629		988		5,002		998,276		1,003,278
Other		134		169		—		303		53,557		53,860

	$	43,330	$	6,000	$	45,436	$	94,766	$	10,524,172	$	10,618,938

December 31, 2014
Commercial real estate	$	9,601	$	313	$	24,132	$	34,046	$	2,997,764	$	3,031,810
Commercial and industrial		2,446		3		8,310		10,759		2,187,034		2,197,793
Commercial leases		961		43		722		1,726		176,098		177,824

Total commercial loans and leases		13,008		359		33,164		46,531		5,360,896		5,407,427
Direct installment		9,333		3,617		7,117		20,067		1,559,703		1,579,770
Residential mortgages		8,709		3,891		2,964		15,564		802,022		817,586
Indirect installment		7,804		684		1,149		9,637		864,008		873,645
Consumer lines of credit		2,408		562		719		3,689		942,738		946,427
Other		13		135		—		148		41,142		41,290

	$	41,275	$	9,248	$	45,113	$	95,636	$	9,570,509	$	9,666,145


	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non-Accrual		Total Past Due (1) (2)		Current		Discount			Total Loans
Acquired Loans
September 30, 2015
Commercial real estate	$	10,510	$	11,108	$	1,303	$	22,921	$	641,768	$	(38,112	)	$	626,577
Commercial and industrial		686		527		107		1,320		87,163		(7,314	)		81,169

Total commercial loans		11,196		11,635		1,410		24,241		728,931		(45,426	)		707,746
Direct installment		670		834		—		1,504		46,981		808			49,293
Residential mortgages		8,607		15,261		—		23,868		386,425		(37,161	)		373,132
Indirect installment		26		11		—		37		801		(26	)		812
Consumer lines of credit		1,105		810		452		2,367		125,150		(3,793	)		123,724

	$	21,604	$	28,551	$	1,862	$	52,017	$	1,288,288	$	(85,598	)	$	1,254,707

December 31, 2014
Commercial real estate	$	12,076	$	12,368		—	$	24,444	$	799,991	$	(40,537	)	$	783,898
Commercial and industrial		687		1,968		—		2,655		127,535		(9,968	)		120,222

Total commercial loans		12,763		14,336		—		27,099		927,526		(50,505	)		904,120
Direct installment		2,670		1,443		—		4,113		59,532		1,206			64,851
Residential mortgages		8,159		19,936		—		28,095		456,810		(39,438	)		445,467
Indirect installment		38		30		—		68		2,179		(341	)		1,906
Consumer lines of credit		1,048		2,279		—		3,327		166,912		(5,690	)		164,549

	$	24,678	$	38,024		—	$	62,702	$	1,612,959	$	(94,768	)	$	1,580,893

(1)	Past due information for acquired loans is based on the contractual balance outstanding at September 30, 2015 and December 31, 2014.

(2)

Acquired loans are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, as long as the Corporation can reasonably estimate the timing and amount of expected cash flows on such loans. In these instances, the Corporation does not consider acquired contractually delinquent loans to be non-accrual or non-performing and continues to recognize interest income on these loans using the accretion method. Acquired loans are considered non-accrual or non-performing when, due to credit deterioration or other factors, the Corporation determines it is no longer able to reasonably estimate the timing and amount of expected cash flows on such loans. The Corporation does not recognize interest income on acquired loans considered non-accrual or non-performing.

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


Rating Category		Definition

Pass		in general, the condition and performance of the borrower 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 and performance of the borrower has significantly deteriorated and 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 and lease portfolio permits management’s use of transition matrices 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 leases and conforms with regulatory categories. In general, loan and lease risk ratings within each category are reviewed on an ongoing basis according to the Corporation’s policy for each class of loans and leases. 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 and lease portfolio. Loans and leases within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans and leases 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 and leases by credit quality category, segregated by loans and leases originated and loans acquired:


	Commercial Loan and Lease Credit Quality Categories
	Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans and Leases
September 30, 2015
Commercial real estate	$	3,195,455	$	60,727	$	65,568	$	919	$	3,322,669
Commercial and industrial		2,259,932		103,650		45,014		1,590		2,410,186
Commercial leases		194,783		3,149		1,198		—		199,130

	$	5,650,170	$	167,526	$	111,780	$	2,509	$	5,931,985

December 31, 2014
Commercial real estate	$	2,890,830	$	58,630	$	81,951	$	399	$	3,031,810
Commercial and industrial		2,085,893		71,420		39,684		796		2,197,793
Commercial leases		174,677		2,198		949		—		177,824

	$	5,151,400	$	132,248	$	122,584	$	1,195	$	5,407,427

Acquired Loans
September 30, 2015
Commercial real estate	$	488,840	$	49,669	$	88,068		—	$	626,577
Commercial and industrial		69,036		1,969		10,164		—		81,169

	$	557,876	$	51,638	$	98,232		—	$	707,746

December 31, 2014
Commercial real estate	$	610,260	$	73,891	$	99,747		—	$	783,898
Commercial and industrial		103,862		3,506		12,854		—		120,222

	$	714,122	$	77,397	$	112,601		—	$	904,120

Credit quality information for acquired loans is based on the contractual balance outstanding at September 30, 2015 and December 31, 2014.

The Corporation uses delinquency transition matrices 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, FICO scores and other external 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, 2015
Direct installment	$	1,630,566	$	12,779	$	1,643,345
Residential mortgages		1,000,774		12,480		1,013,254
Indirect installment		971,936		1,280		973,216
Consumer lines of credit		1,000,929		2,349		1,003,278
Other		53,860		—		53,860

December 31, 2014
Direct installment	$	1,565,090	$	14,680	$	1,579,770
Residential mortgages		802,522		15,064		817,586
Indirect installment		872,340		1,305		873,645
Consumer lines of credit		944,631		1,796		946,427
Other		41,290		—		41,290

Loans and leases 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 and lease contract is doubtful. Typically, the Corporation does not consider loans and leases 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 and commercial loan and lease relationships less than $500 based on loan and lease segment loss given default. 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 and leases, 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 and leases considered to be impaired, by class of loan and lease:


	Unpaid Contractual Principal Balance		Recorded Investment With No Specific Reserve		Recorded Investment With Specific Reserve		Total Recorded Investment		Specific Reserve		Average Recorded Investment
At or for the Nine Months Ended September 30, 2015
Commercial real estate	$	35,733	$	25,035	$	2,057	$	27,092	$	919	$	26,928
Commercial and industrial		10,981		4,770		5,107		9,877		1,590		9,565
Commercial leases		835		835		—		835		—		767

Total commercial loans and leases		47,549		30,640		7,164		37,804		2,509		37,260
Direct installment		13,569		12,779		—		12,779		—		13,538
Residential mortgages		12,971		12,480		—		12,480		—		13,744
Indirect installment		3,220		1,280		—		1,280		—		1,168
Consumer lines of credit		2,565		2,349		—		2,349		—		2,134

	$	79,874	$	59,528	$	7,164	$	66,692	$	2,509	$	67,844

At or for the Year Ended December 31, 2014
Commercial real estate	$	34,583	$	25,443	$	883	$	26,326	$	399	$	30,807
Commercial and industrial		11,412		7,609		1,948		9,557		780		9,510
Commercial leases		722		722		—		722		—		686

Total commercial loans and leases		46,717		33,774		2,831		36,605		1,179		41,003
Direct installment		14,987		14,680		—		14,680		—		14,248
Residential mortgages		16,791		15,064		—		15,064		—		16,924
Indirect installment		1,467		1,305		—		1,305		—		1,399
Consumer lines of credit		1,803		1,796		—		1,796		—		1,793

	$	81,765	$	66,619	$	2,831	$	69,450	$	1,179	$	75,367

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

These tables do not reflect the additional allowance for credit losses relating to acquired loans in the following pools and categories: commercial real estate of $3,056; commercial and industrial of $579; direct installment of $1,427; residential mortgages of $558; indirect installment of $302; and consumer lines of credit of $642, totaling $6,564 at September 30, 2015 and commercial real estate of $3,286; commercial and industrial of $1,484; direct installment of $1,847; residential mortgages of $858; indirect installment of $232; and consumer lines of credit of $267, totaling $7,974 at December 31, 2014.

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 payment status of originated TDRs:


	September 30, 2015		December 31, 2014
Accruing:
Performing	$	14,692	$	9,441
Non-performing		21,221		23,439
Non-accrual		7,800		8,272

	$	43,713	$	41,152

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, 2015, the Corporation returned to performing status $7,577 in restructured residential mortgage loans 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 may result in potential incremental losses which are factored into the allowance for credit 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 credit losses included specific reserves for commercial TDRs of $438 and $371 at September 30, 2015 and December 31, 2014, respectively, and pooled reserves for individual loans under $500 of $1,146 and $1,215 for those same respective periods, based on loan segment loss given default. 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 credit 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 credit losses included pooled reserves for these classes of loans of $3,350 and $3,448 at September 30, 2015 and December 31, 2014, 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 originated loans, by class, that have been restructured:


	Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
	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	$	312	$	168
Commercial and industrial		—		—		—		1		5		4

Total commercial loans		—		—		—		3		317		172
Direct installment		121		1,757		1,726		361		5,064		4,835
Residential mortgages		10		232		233		31		1,048		1,074
Indirect installment		3		13		10		13		43		40
Consumer lines of credit		10		146		143		40		666		610

		144	$	2,148	$	2,112		448	$	7,138	$	6,731


	Three Months Ended September 30, 2014						Nine Months Ended September 30, 2014
	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		1	$	50	$	48		10	$	2,633	$	2,187
Commercial and industrial		2		126		119		3		323		307

Total commercial loans		3		176		167		13		2,956		2,494
Direct installment		116		1,323		1,240		378		4,922		4,693
Residential mortgages		9		480		470		33		1,847		1,784
Indirect installment		7		18		15		20		52		48
Consumer lines of credit		6		88		56		31		899		857

		141	$	2,085	$	1,948		475	$	10,676	$	9,876

Following is a summary of originated TDRs, by class of loans and leases, for which there was a payment default, 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, 2015 (1)				Nine Months Ended September 30, 2015 (1)
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial real estate		—	$	—		—	$	—
Commercial and industrial		—		—		1		204

Total commercial loans		—		—		1		204
Direct installment		22		87		75		254
Residential mortgages		2		75		5		179
Indirect installment		1		6		6		12
Consumer lines of credit		—		—		1		8

		25	$	168		88	$	657


	Three Months Ended September 30, 2014 (1)				Nine Months Ended September 30, 2014 (1)
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Direct installment		41	$	356		80	$	732
Residential mortgages		2		33		2		33
Indirect installment		3		10		4		11
Consumer lines of credit		1		50		1		50

		47	$	449		87	$	826

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