Loans and Allowance for Credit Losses

Loans, Net of Unearned Income

Loans, net of unearned income are summarized as follows:



	March 31, 2016			December 31, 2015
	(in thousands)
Real-estate - commercial mortgage	$	5,558,108		$	5,462,330
Commercial - industrial, financial and agricultural	4,035,333			4,088,962
Real-estate - home equity	1,659,481			1,684,439
Real-estate - residential mortgage	1,377,459			1,376,160
Real-estate - construction	810,872			799,988
Consumer	263,221			268,588
Leasing and other	179,765			170,914
Overdrafts	2,379			2,737
Loans, gross of unearned income	13,886,618			13,854,118
Unearned income	(15,917		)	(15,516		)
Loans, net of unearned income	$	13,870,701		$	13,838,602

Allowance for Credit Losses

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of incurred losses in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of incurred losses in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheets. The allowance for credit losses is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.

The Corporation’s allowance for credit losses includes: (1) specific allowances allocated to loans evaluated for impairment under the FASB's ASC Section 310-10-35; and (2) allowances calculated for pools of loans measured for impairment under FASB ASC Subtopic 450-20.

The Corporation segments its loan portfolio by general loan type, or "portfolio segments," as presented in the table under the heading, "Loans, Net of Unearned Income," above. Certain portfolio segments are further disaggregated and evaluated collectively for impairment based on "class segments," which are largely based on the type of collateral underlying each loan. Commercial loans include loans secured by collateral and unsecured loans. Construction loan class segments include loans secured by commercial real estate, loans to commercial borrowers secured by residential real estate and loans to individuals secured by residential real estate. Consumer loan class segments include direct consumer installment loans and indirect automobile loans.

The following table presents the components of the allowance for credit losses:



	March 31, 2016		December 31, 2015
	(in thousands)
Allowance for loan losses	$	163,841	$	169,054
Reserve for unfunded lending commitments	2,224		2,358
Allowance for credit losses	$	166,065	$	171,412

The following table presents the activity in the allowance for credit losses:



	Three months ended March 31
	2016			2015
	(in thousands)
Balance at beginning of period	$	171,412		$	185,931
Loans charged off	(11,155		)	(5,764		)
Recoveries of loans previously charged off	4,278			3,191
Net loans charged off	(6,877		)	(2,573		)
Provision for credit losses	1,530			(3,700		)
Balance at end of period	$	166,065		$	179,658

The following table presents the activity in the allowance for loan losses by portfolio segment:



	Real Estate - Commercial Mortgage			Commercial - Industrial, Financial and Agricultural			Real Estate - Home Equity			Real Estate - Residential Mortgage			Real Estate - Construction			Consumer			Leasing, other and overdrafts			Unallocated			Total
	(in thousands)
Three months ended March 31, 2016
Balance at December 31, 2015	$	47,866		$	57,098		$	22,405		$	21,375		$	6,529		$	2,585		$	2,468		$	8,728		$	169,054
Loans charged off	(582		)	(6,188		)	(1,541		)	(1,068		)	(326		)	(1,007		)	(443		)	—			(11,155		)
Recoveries of loans previously charged off	825			2,319			338			136			383			196			81			—			4,278
Net loans charged off	243			(3,869		)	(1,203		)	(932		)	57			(811		)	(362		)	—			(6,877		)
Provision for loan losses (1)	202			1,104			1,322			(515		)	(304		)	550			868			(1,563		)	1,664
Balance at March 31, 2016	$	48,311		$	54,333		$	22,524		$	19,928		$	6,282		$	2,324		$	2,974		$	7,165		$	163,841
Three months ended March 31, 2015
Balance at December 31, 2014	$	53,493		$	51,378		$	28,271		$	29,072		$	9,756		$	3,015		$	1,799		$	7,360		$	184,144
Loans charged off	(709		)	(1,863		)	(768		)	(1,281		)	—			(780		)	(363		)	—			(5,764		)
Recoveries of loans previously charged off	436			786			251			159			1,147			241			171			—			3,191
Net loans charged off	(273		)	(1,077		)	(517		)	(1,122		)	1,147			(539		)	(192		)	—			(2,573		)
Provision for loan losses (1)	(360		)	6,849			(4,273		)	(4,715		)	(2,416		)	51			46			948			(3,870		)
Balance at March 31, 2015	$	52,860		$	57,150		$	23,481		$	23,235		$	8,487		$	2,527		$	1,653		$	8,308		$	177,701

(1)

The provision for loan losses excluded a $134,000 decrease and a $170,000 increase, respectively, in the reserve for unfunded lending commitments for the three months ended March 31, 2016 and 2015. The total provision for credit losses, comprised of allocations for both funded and unfunded loans, was $1.5 million and negative $3.7 million for the three months ended March 31, 2016 and 2015, respectively.

The following table presents loans, net of unearned income and their related allowance for loan losses, by portfolio segment:



	Real Estate - Commercial Mortgage		Commercial - Industrial, Financial and Agricultural		Real Estate - Home Equity		Real Estate - Residential Mortgage		Real Estate - Construction		Consumer		Leasing, other and overdrafts		Unallocated (1)		Total
	(in thousands)
Allowance for loan losses at March 31, 2016:
Measured for impairment under FASB ASC Subtopic 450-20	$	35,914	$	40,969	$	13,541	$	7,599	$	4,004	$	2,302	$	1,756	$	7,165	$	113,250
Evaluated for impairment under FASB ASC Section 310-10-35	12,397		13,364		8,983		12,329		2,278		22		1,218		N/A		50,591
	$	48,311	$	54,333	$	22,524	$	19,928	$	6,282	$	2,324	$	2,974	$	7,165	$	163,841

Loans, net of unearned income at March 31, 2016:
Measured for impairment under FASB ASC Subtopic 450-20	$	5,499,820	$	3,992,567	$	1,641,457	$	1,329,114	$	797,282	$	263,189	$	164,806	N/A		$	13,688,235
Evaluated for impairment under FASB ASC Section 310-10-35	58,288		42,766		18,024		48,345		13,590		32		1,421		N/A		182,466
	$	5,558,108	$	4,035,333	$	1,659,481	$	1,377,459	$	810,872	$	263,221	$	166,227	N/A		$	13,870,701

Allowance for loan losses at March 31, 2015:
Measured for impairment under FASB ASC Subtopic 450-20	$	38,916	$	40,027	$	16,937	$	9,162	$	6,037	$	2,504	$	1,653	$	8,308	$	123,544
Evaluated for impairment under FASB ASC Section 310-10-35	13,944		17,123		6,544		14,073		2,450		23		—		N/A		54,157
	$	52,860	$	57,150	$	23,481	$	23,235	$	8,487	$	2,527	$	1,653	$	8,308	$	177,701

Loans, net of unearned income at March 31, 2015:
Measured for impairment under FASB ASC Subtopic 450-20	$	5,157,342	$	3,716,037	$	1,688,869	$	1,312,861	$	656,021	$	257,265	$	124,255	N/A		$	12,912,650
Evaluated for impairment under FASB ASC Section 310-10-35	69,759		46,594		12,754		51,927		21,785		36		—		N/A		202,855
	$	5,227,101	$	3,762,631	$	1,701,623	$	1,364,788	$	677,806	$	257,301	$	124,255	N/A		$	13,115,505


(1)	The unallocated allowance, which was approximately 4% and 5% of the total allowance for credit losses, respectively, as of March 31, 2016 and March 31, 2015, was, in the opinion of management, reasonable and appropriate given that the estimates used in the allocation process are inherently imprecise.

N/A - Not applicable.

Impaired Loans

A loan is considered to be impaired if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. Impaired loans consist of all loans on non-accrual status and accruing troubled debt restructurings ("TDRs"). An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. Impaired loans to borrowers with total outstanding commitments greater than or equal to $1.0 million are evaluated individually for impairment. Impaired loans to borrowers with total outstanding commitments less than $1.0 million are pooled and measured for impairment collectively.

Based on an evaluation of all relevant credit quality factors, the Corporation recorded a $1.5 million provision for credit losses during the three months ended March 31, 2016, compared to a $3.7 million negative provision for credit losses for the same period in 2015.

All loans individually evaluated for impairment under FASB ASC Section 310-10-35 are measured for losses on a quarterly basis.

As of March 31, 2016 and December 31, 2015, substantially all of the Corporation’s individually evaluated impaired loans with total outstanding balances greater than or equal to $1.0 million were measured based on the estimated fair value of each loan’s collateral. Collateral could be in the form of real estate, in the case of impaired commercial mortgages and construction loans, or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real property.

As of March 31, 2016 and 2015, approximately 77% and 78%, respectively, of impaired loans with principal balances greater than or equal to $1.0 million, whose primary collateral is real estate, were measured at estimated fair value using state certified third-party appraisals that had been updated in the preceding 12 months.

When updated appraisals are not obtained for loans evaluated for impairment under FASB ASC Section 310-10-35 that are secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated an acceptable loan-to-value position and, in the opinion of the Corporation's internal credit administration staff, there has not been a significant deterioration in the collateral value since the original appraisal was performed. Original appraisals are typically used only when the estimated collateral value, as adjusted for the age of the appraisal, results in a current loan-to-value ratio that is lower than the Corporation's loan-to-value requirements for new loans, generally less than 70%.

The following table presents total impaired loans by class segment:



	March 31, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
	(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage	$	26,361	$	23,023	$	—	$	27,872	$	22,596	$	—
Commercial - secured	14,638		12,227		—		18,012		13,702		—
Real estate - residential mortgage	6,395		6,211		—		4,790		4,790		—
Construction - commercial residential	6,916		6,298		—		9,916		8,865		—
	54,310		47,759				60,590		49,953
With a related allowance recorded:
Real estate - commercial mortgage	44,849		35,265		12,397		45,189		35,698		12,471
Commercial - secured	34,752		29,655		12,850		39,659		33,629		14,085
Commercial - unsecured	1,039		884		514		971		821		498
Real estate - home equity	23,115		18,024		8,983		20,347		15,766		7,993
Real estate - residential mortgage	50,803		42,134		12,329		55,242		45,635		13,422
Construction - commercial residential	9,774		6,088		1,851		9,949		6,290		2,110
Construction - commercial	815		594		201		820		638		217
Construction - other	747		610		226		331		193		68
Consumer - direct	20		20		14		19		19		14
Consumer - indirect	12		12		8		14		14		8
Leasing, other and overdrafts	1,421		1,421		1,218		1,658		1,425		704
	167,347		134,707		50,591		174,199		140,128		51,590
Total	$	221,657	$	182,466	$	50,591	$	234,789	$	190,081	$	51,590

As of March 31, 2016 and December 31, 2015, there were $47.8 million and $50.0 million, respectively, of impaired loans that did not have a related allowance for loan loss. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or they were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary.

The following table presents average impaired loans by class segment:



	Three months ended March 31
	2016				2015
	Average Recorded Investment		Interest Income (1)		Average Recorded Investment		Interest Income (1)
	(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage	$	22,810	$	69	$	26,849	$	91
Commercial - secured	12,964		16		14,676		21
Real estate - residential mortgage	5,501		30		4,866		28
Construction - commercial residential	7,582		19		14,222		55
Construction - commercial	—		—		1,138		—
	48,857		134		61,751		195
With a related allowance recorded:
Real estate - commercial mortgage	35,482		108		39,660		133
Commercial - secured	31,642		38		24,950		36
Commercial - unsecured	853		1		1,175		1
Real estate - home equity	16,896		57		13,106		31
Real estate - residential mortgage	43,885		235		46,774		273
Construction - commercial residential	6,189		15		7,247		28
Construction - commercial	616		—		800		—
Construction - other	402		—		281		—
Consumer - direct	17		—		18		—
Consumer - indirect	16		—		19		—
Leasing, other and overdrafts	1,423		—		—		—
	137,421		454		134,030		502
Total	$	186,278	$	588	$	195,781	$	697


(1)	All impaired loans, excluding accruing TDRs, were non-accrual loans. Interest income recognized for the three months ended March 31, 2016 and 2015 represents amounts earned on accruing TDRs.

Credit Quality Indicators and Non-performing Assets

The following table presents internal credit risk ratings for real estate - commercial mortgages, commercial - secured loans, commercial - unsecured loans, construction - commercial residential loans and construction - commercial loans:



	Pass						Special Mention						Substandard or Lower						Total
	March 31, 2016			December 31, 2015			March 31, 2016			December 31, 2015			March 31, 2016			December 31, 2015			March 31, 2016			December 31, 2015
	(dollars in thousands)
Real estate - commercial mortgage	$	5,283,340		$	5,204,263		$	121,889		$	102,625		$	152,879		$	155,442		$	5,558,108		$	5,462,330
Commercial - secured	3,668,743			3,696,692			78,508			92,711			134,446			136,710			3,881,697			3,926,113
Commercial - unsecured	147,630			156,742			2,634			2,761			3,372			3,346			153,636			162,849
Total commercial - industrial, financial and agricultural	3,816,373			3,853,434			81,142			95,472			137,818			140,056			4,035,333			4,088,962
Construction - commercial residential	146,590			140,337			17,068			17,154			18,621			21,812			182,279			179,303
Construction - commercial	559,351			552,710			2,842			3,684			4,623			3,597			566,816			559,991
Total construction (excluding Construction - other)	705,941			693,047			19,910			20,838			23,244			25,409			749,095			739,294
	$	9,805,654		$	9,750,744		$	222,941		$	218,935		$	313,941		$	320,907		$	10,342,536		$	10,290,586
% of Total	94.8		%	94.8		%	2.2		%	2.1		%	3.0		%	3.1		%	100.0		%	100.0		%

The following is a summary of the Corporation's internal risk rating categories:


•	Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.


•	Special Mention: These loans constitute an undue and unwarranted credit risk, but not to a point of justifying a classification of substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak.


•	Substandard or Lower: These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.

The risk rating process allows management to identify credits that potentially carry more risk in a timely manner and to allocate resources to managing troubled accounts. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for the class segments presented above. The migration of loans through the various internal risk rating categories is a significant component of the allowance for credit loss methodology, which bases the probability of default on this migration. Assigning risk ratings involves judgment. Risk ratings are initially assigned to loans by loan officers and are reviewed on a regular basis by credit administration staff. The Corporation's loan review officers provide a separate assessment of risk rating accuracy. Ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or if specific loan review activities identify a deterioration or an improvement in the loan.

The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, consumer, lease receivables and construction loans to individuals secured by residential real estate. For these loans, the most relevant credit quality indicator is delinquency status. The migration of loans through the various delinquency status categories is a significant component of the allowance for credit losses methodology for those loans, which bases the probability of default on this migration.

The following table presents a summary of delinquency and non-performing status for home equity, real estate - residential mortgages, construction loans to individuals and consumer, leasing and other loans by class segment:



	Performing						Delinquent (1)						Non-performing (2)						Total
	March 31, 2016			December 31, 2015			March 31, 2016			December 31, 2015			March 31, 2016			December 31, 2015			March 31, 2016			December 31, 2015
	(dollars in thousands)
Real estate - home equity	$	1,636,040		$	1,660,773		$	9,033		$	8,983		$	14,408		$	14,683		$	1,659,481		$	1,684,439
Real estate - residential mortgage	1,334,744			1,329,371			17,533			18,305			25,182			28,484			1,377,459			1,376,160
Construction - other	60,481			59,997			686			88			610			609			61,777			60,694
Consumer - direct	90,204			94,262			1,662			2,254			1,597			2,203			93,463			98,719
Consumer - indirect	167,863			166,823			1,690			2,809			205			237			169,758			169,869
Total consumer	258,067			261,085			3,352			5,063			1,802			2,440			263,221			268,588
Leasing, overdrafts and other	164,002			155,870			711			759			1,514			1,506			166,227			158,135
	$	3,453,334		$	3,467,096		$	31,315		$	33,198		$	43,516		$	47,722		$	3,528,165		$	3,548,016
% of Total	97.9		%	97.7		%	0.9		%	1.0		%	1.2		%	1.3		%	100.0		%	100.0		%


(1)	Includes all accruing loans 30 days to 89 days past due.


(2)	Includes all accruing loans 90 days or more past due and all non-accrual loans.

The following table presents non-performing assets:



	March 31, 2016		December 31, 2015
	(in thousands)
Non-accrual loans	$	122,170	$	129,523
Loans 90 days or more past due and still accruing	15,013		15,291
Total non-performing loans	137,183		144,814
Other real estate owned (OREO)	10,946		11,099
Total non-performing assets	$	148,129	$	155,913

The following table presents past due status and non-accrual loans by portfolio segment and class segment:



	March 31, 2016
	30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Total ≥ 90 Days		Total Past Due		Current		Total
	(in thousands)
Real estate - commercial mortgage	$	6,604	$	1,824	$	2,271	$	40,861	$	43,132	$	51,560	$	5,506,548	$	5,558,108
Commercial - secured	16,053		3,194		2,024		36,360		38,384		57,631		3,824,066		3,881,697
Commercial - unsecured	415		—		—		756		756		1,171		152,465		153,636
Total commercial - industrial, financial and agricultural	16,468		3,194		2,024		37,116		39,140		58,802		3,976,531		4,035,333
Real estate - home equity	7,024		2,009		2,914		11,494		14,408		23,441		1,636,040		1,659,481
Real estate - residential mortgage	12,136		5,397		4,402		20,780		25,182		42,715		1,334,744		1,377,459
Construction - commercial residential	1,550		1,967		1,495		9,294		10,789		14,306		167,973		182,279
Construction - commercial	—		—		12		594		606		606		566,210		566,816
Construction - other	686		—		—		610		610		1,296		60,481		61,777
Total real estate - construction	2,236		1,967		1,507		10,498		12,005		16,208		794,664		810,872
Consumer - direct	1,068		594		1,597		—		1,597		3,259		90,204		93,463
Consumer - indirect	1,483		207		205		—		205		1,895		167,863		169,758
Total consumer	2,551		801		1,802		—		1,802		5,154		258,067		263,221
Leasing, overdrafts and other	615		96		93		1,421		1,514		2,225		164,002		166,227
Total	$	47,634	$	15,288	$	15,013	$	122,170	$	137,183	$	200,105	$	13,670,596	$	13,870,701



	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Total ≥ 90 Days		Total Past Due		Current		Total
	(in thousands)
Real estate - commercial mortgage	$	6,469	$	1,312	$	439	$	40,731	$	41,170	$	48,951	$	5,413,379	$	5,462,330
Commercial - secured	5,654		2,615		1,853		41,498		43,351		51,620		3,874,493		3,926,113
Commercial - unsecured	510		83		19		701		720		1,313		161,536		162,849
Total commercial - industrial, financial and agricultural	6,164		2,698		1,872		42,199		44,071		52,933		4,036,029		4,088,962
Real estate - home equity	6,438		2,545		3,473		11,210		14,683		23,666		1,660,773		1,684,439
Real estate - residential mortgage	15,141		3,164		6,570		21,914		28,484		46,789		1,329,371		1,376,160
Construction - commercial residential	1,366		494		—		11,213		11,213		13,073		166,230		179,303
Construction - commercial	50		176		—		638		638		864		559,127		559,991
Construction - other	88		—		416		193		609		697		59,997		60,694
Total real estate - construction	1,504		670		416		12,044		12,460		14,634		785,354		799,988
Consumer - direct	1,687		567		2,203		—		2,203		4,457		94,262		98,719
Consumer - indirect	2,308		501		237		—		237		3,046		166,823		169,869
Total consumer	3,995		1,068		2,440		—		2,440		7,503		261,085		268,588
Leasing, overdrafts and other	483		276		81		1,425		1,506		2,265		155,870		158,135
Total	$	40,194	$	11,733	$	15,291	$	129,523	$	144,814	$	196,741	$	13,641,861	$	13,838,602

The following table presents TDRs:



	March 31, 2016		December 31, 2015
	(in thousands)
Real-estate - residential mortgage	$	27,565	$	28,511
Real-estate - commercial mortgage	17,427		17,563
Commercial - secured	5,522		5,833
Construction - commercial residential	3,092		3,942
Real estate - home equity	6,530		4,556
Commercial - unsecured	128		120
Consumer - indirect	12		14
Consumer - direct	20		19
Total accruing TDRs	60,296		60,558
Non-accrual TDRs (1)	27,277		31,035
Total TDRs	$	87,573	$	91,593


(1)	Included in non-accrual loans in the preceding table detailing non-performing assets.

As of March 31, 2016 and December 31, 2015, there were $3.8 million and $5.3 million, respectively, of commitments to lend additional funds to borrowers whose loans were modified under TDRs.

The following table presents TDRs, by class segment as of March 31, 2016 and 2015, that were modified during the three months ended March 31, 2016 and 2015:



		2016			2015
		Number of Loans	Post-Modification Recorded Investment		Number of Loans	Post-Modification Recorded Investment
		(dollars in thousands)
Commercial – secured:
	Extend maturity without rate concession	2	$	830	8	$	6,776
Commercial – unsecured:
	Extend maturity without rate concession	2	103		1	42
Real estate - commercial mortgage:
	Extend maturity without rate concession	—	—		3	2,495
Real estate - home equity:
	Extend maturity with rate concession	1	44		—	—
	Bankruptcy	37	2,698		10	492
Real estate – residential mortgage:
	Extend maturity with rate concession	—	—		1	104
	Extend maturity without rate concession	—	—		2	225
	Bankruptcy	—	—		1	281
Construction - commercial residential:
	Extend maturity without rate concession	—	—		1	889
Consumer - direct:
	Bankruptcy	1	2		—	—
Consumer - indirect:
	Bankruptcy	—	—		1	13

Total		43	$	3,677	28	$	11,317

The following table presents TDRs, by class segment, as of March 31, 2016 and 2015, that were modified in the previous 12 months and had a post-modification payment default during the three months ended March 31, 2016 and 2015. The Corporation defines a payment default as a single missed payment.



	2016			2015
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(dollars in thousands)
Real estate - home equity	14	$	1,039	7	$	816
Real estate - residential mortgage	3	260		8	748
Real estate - commercial mortgage	3	235		2	1,659
Commercial - secured	1	47		7	7,888
Construction - commercial residential	—	—		1	1,366
Total	21	$	1,581	25	$	12,477