Loans and Leases and the Allowance for Loan and Lease Losses

6 Months Ended

Jun. 30, 2011

Loans and Leases and the Allowance for Loan and Lease Losses

Loans and Leases and the Allowance for Loan and Lease Losses

Note 3.    Loans and Leases and the Allowance for Loan and Lease Losses

Loans and Leases

The Company’s loan and lease portfolio was comprised of the following as of June 30, 2011 and December 31, 2010:

	June 30,		December 31,
(dollars in thousands)	2011		2010
Commercial
Commercial and Industrial	$	815,912	$	772,624
Commercial Mortgage	872,283		863,385
Construction	81,432		80,325
Lease Financing	316,776		334,997
Total Commercial	2,086,403		2,051,331
Consumer
Residential Mortgage	2,130,335		2,094,189
Home Equity	783,582		807,479
Automobile	191,739		209,008
Other 1	159,414		173,785
Total Consumer	3,265,070		3,284,461
Total Loans and Leases	$	5,351,473	$	5,335,792

1Comprised of other revolving credit, installment, and lease financing.

Allowance for Loan and Lease Losses (the “Allowance”)

The following presents by portfolio segment, the activity in the Allowance for the three and six months ended June 30, 2011.  The following also presents by portfolio segment, the balance in the Allowance disaggregated on the basis of the Company’s impairment measurement method and the related recorded investment in loans and leases as of June 30, 2011.

(dollars in thousands)	Commercial			Consumer			Total
Three Months Ended June 30, 2011
Allowance for Loan and Lease Losses:
Balance at Beginning of Period	$	87,533		$	59,825		$	147,358
Loans and Leases Charged-Off	(1,507		)	(7,514		)	(9,021		)
Recoveries on Loans and Leases Previously Charged-Off	443			2,596			3,039
Net Loans and Leases Charged-Off	(1,064		)	(4,918		)	(5,982		)
Provision for Credit Losses	2,516			1,084			3,600
Balance at End of Period	$	88,985		$	55,991		$	144,976
Six Months Ended June 30, 2011
Allowance for Loan and Lease Losses:
Balance at Beginning of Period	$	80,977		$	66,381		$	147,358
Loans and Leases Charged-Off	(3,164		)	(13,217		)	(16,381		)
Recoveries on Loans and Leases Previously Charged-Off	1,065			4,643			5,708
Net Loans and Leases Charged-Off	(2,099		)	(8,574		)	(10,673		)
Provision for Credit Losses	10,107			(1,816		)	8,291
Balance at End of Period	$	88,985		$	55,991		$	144,976
As of June 30, 2011
Allowance for Loan and Lease Losses:
Individually Evaluated for Impairment	$	-		$	3,875		$	3,875
Collectively Evaluated for Impairment	88,985			52,116			141,101
Total	$	88,985		$	55,991		$	144,976
Recorded Investment in Loans and Leases:
Individually Evaluated for Impairment	$	5,109		$	24,348		$	29,457
Collectively Evaluated for Impairment	2,081,294			3,240,722			5,322,016
Total	$	2,086,403		$	3,265,070		$	5,351,473

Credit Quality Indicators

The Company uses several credit quality indicators to manage credit risk in an ongoing manner.  The Company uses an internal credit risk rating system that categorizes loans and leases into pass, special mention, or classified categories.  Credit risk ratings are applied individually to those classes of loans and leases that have significant or unique credit characteristics that benefit from a case-by-case evaluation.  These are typically loans and leases to businesses or individuals in the classes which comprise the commercial portfolio segment.  Groups of loans and leases that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk-rated and monitored collectively.  These are typically loans and leases to individuals in the classes which comprise the consumer portfolio segment.

The following are the definitions of the Company’s credit quality indicators:

Pass: Loans and leases in all classes within the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan or lease agreement.  Management believes that there is a low likelihood of loss related to those loans and leases that are considered pass.

Special Mention: Loans and leases in the classes within the commercial portfolio segment that have potential weaknesses that deserve management’s close attention.  If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease.  The special mention credit quality indicator is not used for classes of loans and leases that are included in the consumer portfolio segment.  Management believes that there is a moderate likelihood of some loss related to those loans and leases that are considered special mention.

Classified: Loans and leases in the classes within the commercial portfolio segment that are inadequately protected by the sound worth and paying capacity of the borrower or of the collateral pledged, if any.  Classified loans and leases are also those in the classes within the consumer portfolio segment that are past due 90 days or more as to principal or interest.   Residential mortgage and home equity loans that are past due 90 days or more as to principal or interest may be considered pass if the Company is in the process of collection and the current loan-to-value ratio is 60% or less.  Residential mortgage and home equity loans may be current as to principal and interest, but may be considered classified for a period of up to six months following a loan modification.  Following a period of demonstrated performance in accordance with the modified contractual terms, the loan may be removed from classified status.  Management believes that there is a distinct possibility that the Company will sustain some loss if the deficiencies related to classified loans and leases are not corrected in a timely manner.

The Company’s credit quality indicators are periodically updated on a case-by-case basis.  The following presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of June 30, 2011 and December 31, 2010.

	June 30, 2011
(dollars in thousands)	Commercial and Industrial		Commercial Mortgage		Construction		Lease Financing		Total Commercial
Pass	$	776,973	$	796,615	$	63,255	$	287,876	$	1,924,719
Special Mention	11,742		26,902		592		24,835		64,071
Classified	27,197		48,766		17,585		4,065		97,613
Total	$	815,912	$	872,283	$	81,432	$	316,776	$	2,086,403
(dollars in thousands)	Residential Mortgage		Home Equity		Automobile		Other 1		Total Consumer
Pass	$	2,101,968	$	780,280	$	191,572	$	158,536	$	3,232,356
Classified	28,367		3,302		167		878		32,714
Total	$	2,130,335	$	783,582	$	191,739	$	159,414	$	3,265,070
Total Recorded Investment in Loans and Leases									$	5,351,473
	December 31, 2010
(dollars in thousands)	Commercial and Industrial		Commercial Mortgage		Construction		Lease Financing		Total Commercial
Pass	$	720,618	$	775,938	$	61,598	$	305,967	$	1,864,121
Special Mention	18,096		32,055		1,975		26,767		78,893
Classified	33,910		55,392		16,752		2,263		108,317
Total	$	772,624	$	863,385	$	80,325	$	334,997	$	2,051,331
(dollars in thousands)	Residential Mortgage		Home Equity		Automobile		Other 1		Total Consumer
Pass	$	2,059,012	$	804,158	$	208,598	$	172,762	$	3,244,530
Classified	35,177		3,321		410		1,023		39,931
Total	$	2,094,189	$	807,479	$	209,008	$	173,785	$	3,284,461
Total Recorded Investment in Loans and Leases									$	5,335,792

1Comprised of other revolving credit, installment, and lease financing.

Aging Analysis of Accruing and Non-Accruing Loans and Leases

The following presents by class, an aging analysis of the Company’s accruing and non-accruing loans and leases as of June 30, 2011 and December 31, 2010.

(dollars in thousands)	30 - 59 Days Past Due	60 - 89 Days Past Due	Past Due 90 Days or More	Non- Accrual	Total Past Due and Non-Accrual	Current	Total Loans and Leases	Non-Accrual Loans and Leases that are Current 2
June 30, 2011
Commercial
Commercial and Industrial	$    1,332	$      718	$          -	$    1,839	$    3,889	$     812,023	$     815,912	$       283
Commercial Mortgage	-	-	-	3,290	3,290	868,993	872,283	2,284
Construction	-	-	-	288	288	81,144	81,432	-
Lease Financing	265	-	-	8	273	316,503	316,776	8
Total Commercial	1,597	718	-	5,425	7,740	2,078,663	2,086,403	2,575
Consumer
Residential Mortgage	11,215	6,080	5,854	23,970	47,119	2,083,216	2,130,335	3,067
Home Equity	3,493	1,852	1,147	2,155	8,647	774,935	783,582	468
Automobile	4,223	522	167	-	4,912	186,827	191,739	-
Other 1	2,874	845	604	16	4,339	155,075	159,414	-
Total Consumer	21,805	9,299	7,772	26,141	65,017	3,200,053	3,265,070	3,535
Total	$  23,402	$  10,017	$7,772	$  31,566	$  72,757	$  5,278,716	$  5,351,473	$    6,110
December 31, 2010
Commercial
Commercial and Industrial	$    1,807	$    1,341	$          -	$    1,642	$    4,790	$     767,834	$     772,624	$    1,564
Commercial Mortgage	2,100	-	-	3,503	5,603	857,782	863,385	2,415
Construction	-	-	-	288	288	80,037	80,325	-
Lease Financing	82	-	-	19	101	334,896	334,997	19
Total Commercial	3,989	1,341	-	5,452	10,782	2,040,549	2,051,331	3,998
Consumer
Residential Mortgage	8,389	9,045	5,399	28,152	50,985	2,043,204	2,094,189	7,891
Home Equity	4,248	2,420	1,067	2,254	9,989	797,490	807,479	1,041
Automobile	6,046	1,004	410	-	7,460	201,548	209,008	-
Other 1	1,962	1,145	707	-	3,814	169,971	173,785	-
Total Consumer	20,645	13,614	7,583	30,406	72,248	3,212,213	3,284,461	8,932
Total	$  24,634	$  14,955	$  7,583	$  35,858	$  83,030	$  5,252,762	$  5,335,792	$  12,930

1Comprised of other revolving credit, installment, and lease financing.

2Represents nonaccrual loans that are not past due 30 days or more; however, full payment of principal and interest is still not expected.

Impaired Loans

The following presents by class, information related to the Company’s impaired loans as of June 30, 2011 and December 31, 2010.

(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance for Loan Losses
June 30, 2011
Impaired Loans with No Related Allowance Recorded:
Commercial
Commercial and Industrial	$	1,601	$	5,451	$	-
Commercial Mortgage	3,220		4,250		-
Construction	288		288		-
Total Commercial	5,109		9,989		-
Total Impaired Loans with No Related Allowance Recorded	$	5,109	$	9,989	$	-
Impaired Loans with an Allowance Recorded:
Commercial
Commercial and Industrial	$	1,336	$	1,336	$	160
Commercial Mortgage	308		611		69
Total Commercial	1,644		1,947		229
Consumer
Residential Mortgage	24,348		27,999		3,875
Home Equity	21		21		1
Automobile	5,747		5,747		101
Other1	632		632		55
Total Consumer	30,748		34,399		4,032
Total Impaired Loans with an Allowance Recorded	$	32,392	$	36,346	$	4,261
Impaired Loans:
Commercial	$	6,753	$	11,936	$	229
Consumer	30,748		34,399		4,032
Total Impaired Loans	$	37,501	$	46,335	$	4,261
December 31, 2010
Impaired Loans with No Related Allowance Recorded:
Commercial
Commercial and Industrial	$	1,564	$	5,414	$	-
Commercial Mortgage	3,377		4,407		-
Total Commercial	4,941		9,821		-
Total Impaired Loans with No Related Allowance Recorded	$	4,941	$	9,821	$	-
Impaired Loans with an Allowance Recorded:
Commercial
Commercial and Industrial	$	5,156	$	5,156	$	927
Commercial Mortgage	442		745		99
Construction	288		288		65
Total Commercial	5,886		6,189		1,091
Consumer
Residential Mortgage	21,058		24,709		2,919
Home Equity	21		21		1
Automobile	5,845		5,845		137
Other1	282		282		22
Total Consumer	27,206		30,857		3,079
Total Impaired Loans with an Allowance Recorded	$	33,092	$	37,046	$	4,170
Impaired Loans:
Commercial	$	10,827	$	16,010	$	1,091
Consumer	27,206		30,857		3,079
Total Impaired Loans	$	38,033	$	46,867	$	4,170

1Comprised of other revolving credit and installment financing.

The following presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2011.

	Three Months Ended June 30, 2011				Six Months Ended June 30, 2011
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired Loans with No Related Allowance Recorded:
Commercial
Commercial and Industrial	$	1,329	$	-	$	1,407	$	-
Commercial Mortgage	3,272		-		3,307		-
Construction	288		-		192		-
Total Commercial	4,889		-		4,906		-
Total Impaired Loans with No Related Allowance Recorded	$	4,889	$	-	$	4,906	$	-
Impaired Loans with an Allowance Recorded:
Commercial
Commercial and Industrial	$	2,807	$	21	$	3,590	$	89
Commercial Mortgage	324		5		363		9
Construction	-		-		96		-
Total Commercial	3,131		26		4,049		98
Consumer
Residential Mortgage	23,595		95		22,749		174
Home Equity	21		-		21		-
Automobile	5,796		145		5,812		288
Other 1	600		8		494		14
Total Consumer	30,012		248		29,076		476
Total Impaired Loans with an Allowance Recorded	$	33,143	$	274	$	33,125	$	574
Impaired Loans:
Commercial	$	8,020	$	26	$	8,955	$	98
Consumer	30,012		248		29,076		476
Total Impaired Loans	$	38,032	$	274	$	38,031	$	574

1  Comprised of other revolving credit and installment financing.

For the three and six months ended June 30, 2011, the amount of interest income recognized by the Company within the period that the loans were impaired were primarily related to loans modified in a troubled debt restructuring that remained on accrual status.  For the three and six months ended June 30, 2011, the amount of interest income recognized using a cash-basis method of accounting during the period that the loans were impaired was not material.