

NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans, net of unearned income

Loans, net of unearned income are summarized as follows as of December 31:



	2018			2017
	(in thousands)
Real estate – commercial mortgage	$	6,434,285		$	6,364,804
Commercial – industrial, financial and agricultural	4,404,548			4,300,297
Real estate – residential mortgage	2,251,044			1,954,711
Real estate – home equity	1,452,137			1,559,719
Real estate – construction	916,599			1,006,935
Consumer	419,186			313,783
Leasing and other	311,866			291,556
Overdrafts	2,774			4,113
Loans, gross of unearned income	16,192,439			15,795,918
Unearned income	(26,639		)	(27,671		)
Loans, net of unearned income	$	16,165,800		$	15,768,247

The Corporation has extended credit to officers and directors of the Corporation and to their associates. These related-party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collection. The aggregate dollar amount of these loans, including unadvanced commitments, was $116.4 million and $113.6 million as of December 31, 2018 and 2017, respectively. During 2018, additions totaled $54.6 million and repayments totaled $51.8 million in related-party loans.

The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $4.8 billion and $4.6 billion as of December 31, 2018 and 2017, respectively.

Allowance for Credit Losses

The following table presents the components of the allowance for credit losses as of December 31:



	2018		2017		2016
	(in thousands)
Allowance for loan losses	$	160,537	$	169,910	$	168,679
Reserve for unfunded lending commitments	8,873		6,174		2,646
Allowance for credit losses	$	169,410	$	176,084	$	171,325

The following table presents the activity in the allowance for credit losses for the years ended December 31:



	2018			2017			2016
	(in thousands)
Balance at beginning of year	$	176,084		$	171,325		$	171,412
Loans charged off	(66,076		)	(33,290		)	(33,927		)
Recoveries of loans previously charged off	12,495			14,744			20,658
Net loans charged off	(53,581		)	(18,546		)	(13,269		)
Provision for credit losses	46,907			23,305			13,182
Balance at end of year	$	169,410		$	176,084		$	171,325

The following table presents the activity in the allowance for loan losses by portfolio segment for the years ended December 31 and loans, net of unearned income, and their related allowance for loan losses, by portfolio segment, as of December 31:



	Real Estate - Commercial Mortgage			Commercial - Industrial, Financial and Agricultural			Real Estate - Home Equity			Real Estate - Residential Mortgage			Real Estate - Construction			Consumer			Leasing and other and Overdrafts			Unallocated			Total
	(in thousands)
Balance at December 31, 2016	$	46,842		$	54,353		$	26,801		$	22,929		$	6,455		$	3,574		$	3,192		$	4,533		$	168,679
Loans charged off	(2,169		)	(19,067		)	(2,340		)	(687		)	(3,765		)	(2,227		)	(3,035		)	—			(33,290		)
Recoveries of loans previously charged off	1,668			7,771			813			786			1,582			1,156			968			—			14,744
Net loans charged off	(501		)	(11,296		)	(1,527		)	99			(2,183		)	(1,071		)	(2,067		)	—			(18,546		)
Provision for loan losses ⁽¹⁾	12,452			23,223			(7,147		)	(6,940		)	2,348			(458		)	832			(4,533		)	19,777
Balance at December 31, 2017	58,793			66,280			18,127			16,088			6,620			2,045			1,957			—			169,910
Loans charged off	(2,045		)	(52,441		)	(3,087		)	(1,574		)	(1,368		)	(3,040		)	(2,521		)	—			(66,076		)
Recoveries of loans previously charged off	1,622			4,994			1,127			620			1,829			1,266			1,037			—			12,495
Net loans charged off	(423		)	(47,447		)	(1,960		)	(954		)	461			(1,774		)	(1,484		)	—			(53,581		)
Provision for loan losses ⁽¹⁾	(5,481		)	40,035			2,744			3,787			(2,020		)	2,946			2,197			—			44,208
Balance at December 31, 2018	$	52,889		$	58,868		$	18,911		$	18,921		$	5,061		$	3,217		$	2,670		$	—		$	160,537

Allowance for loan losses at December 31, 2018
Loans collectively evaluated for impairment	$	45,634		$	46,355		$	8,541		$	9,527		$	4,268		$	3,210		$	2,670		$	—		$	120,205
Loans individually evaluated for impairment	7,255			12,513			10,370			9,394			793			7			—			N/A			40,332
	$	52,889		$	58,868		$	18,911		$	18,921		$	5,061		$	3,217		$	2,670		$	—		$	160,537
Loans, net of unearned income at December 31, 2018
Loans collectively evaluated for impairment	$	6,388,212		$	4,349,255		$	1,428,764		$	2,212,274		$	909,209		$	419,175		$	268,733		N/A			$	15,975,622
Loans individually evaluated for impairment	46,073			55,293			23,373			38,770			7,390			11			19,268			N/A			190,178
	$	6,434,285		$	4,404,548		$	1,452,137		$	2,251,044		$	916,599		$	419,186		$	288,001		N/A			$	16,165,800
Allowance for loan losses at December 31, 2017
Loans collectively evaluated for impairment	$	50,681		$	54,874		$	7,003		$	6,193		$	5,653		$	2,028		$	1,957		$	—		$	128,389
Loans individually evaluated for impairment	8,112			11,406			11,124			9,895			967			17			—			N/A			41,521
	$	58,793		$	66,280		$	18,127		$	16,088		$	6,620		$	2,045		$	1,957		$	—		$	169,910
Loans, net of unearned income at December 31, 2017
Loans collectively evaluated for impairment	$	6,316,023		$	4,236,572		$	1,535,026		$	1,913,004		$	994,738		$	313,757		$	267,998		N/A			$	15,577,118
Loans individually evaluated for impairment	48,781			63,725			24,693			41,707			12,197			26			—			N/A			191,129
	$	6,364,804		$	4,300,297		$	1,559,719		$	1,954,711		$	1,006,935		$	313,783		$	267,998		N/A			$	15,768,247

(1)

For the year ended December 31, 2018, the provision for loan losses excluded a $2.7 million increase in the reserve for unfunded lending commitments. The total provision for credit losses, comprised of allocations for both funded and unfunded loans, was $46.9 million for the year ended December 31, 2018. For the year ended December 31, 2017, the provision for loan losses excluded a $3.5 million increase in the reserve for unfunded lending commitments. The total provision for credit losses was $23.3 million for the year ended December 31, 2017.

N/A – Not applicable.

Impaired Loans

The following table presents total impaired loans by class segment as of December 31:



	2018						2017
	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	$	25,095	$	23,481	$	—	$	26,728	$	22,886	$	—
Commercial	33,493		26,585		—		44,936		39,550		—
Real estate - residential mortgage	3,149		3,149		—		4,575		4,575		—
Construction	8,980		5,083		—		12,477		8,100		—
Leasing	19,269		19,268		—		—		—		—
	89,986		77,566				88,716		75,111
With a related allowance recorded:
Real estate - commercial mortgage	29,005		22,592		7,255		33,710		25,895		8,112
Commercial	37,706		28,708		12,513		29,816		24,175		11,406
Real estate - home equity	26,599		23,373		10,370		28,282		24,693		11,124
Real estate - residential mortgage	39,972		35,621		9,394		42,597		37,132		9,895
Construction	5,984		2,307		793		7,308		4,097		967
Consumer	11		11		7		26		26		17
	139,277		112,612		40,332		141,739		116,018		41,521
Total	$	229,263	$	190,178	$	40,332	$	230,455	$	191,129	$	41,521

As of December 31, 2018 and 2017, there were $77.6 million and $75.1 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 the loans have been 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, for the years ended December 31:



	2018				2017				2016
	Average Recorded Investment		Interest Income Recognized⁽¹⁾		Average Recorded Investment		Interest Income Recognized ⁽¹⁾		Average Recorded Investment		Interest Income Recognized ⁽¹⁾
	(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage	$	25,258	$	368	$	22,793	$	281	$	24,232	$	294
Commercial	33,395		259		31,357		182		19,825		104
Real estate - residential mortgage	3,727		91		4,631		107		5,598		126
Construction	6,943		—		7,255		12		6,285		48
	69,323		718		66,036		582		55,940		572
With a related allowance recorded:
Real estate - commercial mortgage	24,300		345		27,193		338		31,737		384
Commercial	24,888		185		24,112		137		26,744		134
Real estate - home equity	24,426		794		21,704		534		17,912		285
Real estate - residential mortgage	36,387		896		39,093		903		42,191		908
Construction	2,683		—		6,160		11		6,501		41
Consumer	16		1		33		2		33		2
Leasing, other and overdrafts	3,854		—		285		—		854		—
	116,554		2,221		118,580		1,925		125,972		1,754
Total	$	185,877	$	2,939	$	184,616	$	2,507	$	181,912	$	2,326


(1)	All impaired loans, excluding accruing TDRs, were non-accrual loans. Interest income recognized for the years ended December 31, 2018, 2017 and 2016 represents amounts earned on accruing TDRs.

Credit Quality Indicators and Non-performing Assets

The following table presents internal credit risk ratings for the indicated loan class segments as of December 31:



	Pass						Special Mention						Substandard or Lower						Total
	2018			2017			2018			2017			2018			2017			2018			2017
	(dollars in thousands)
Real estate - commercial mortgage	$	6,129,463		$	6,066,396		$	170,827		$	147,604		$	133,995		$	150,804		$	6,434,285		$	6,364,804
Commercial - secured	3,902,484			3,831,485			193,470			121,842			129,026			179,113			4,224,980			4,132,440
Commercial -unsecured	171,589			159,620			4,016			5,478			3,963			2,759			179,568			167,857
Total commercial - industrial, financial and agricultural	4,074,073			3,991,105			197,486			127,320			132,989			181,872			4,404,548			4,300,297
Construction - commercial residential	104,079			143,759			6,912			5,259			6,881			14,084			117,872			163,102
Construction - commercial	723,030			761,218			1,163			846			2,533			3,752			726,726			765,816
Total construction (excluding construction - other)	827,109			904,977			8,075			6,105			9,414			17,836			844,598			928,918
Total	$	11,030,645		$	10,962,478		$	376,388		$	281,029		$	276,398		$	350,512		$	11,683,431		$	11,594,019

% of Total	94.4		%	94.6		%	3.2		%	2.4		%	2.4		%	3.0		%	100.0		%	100.0		%

The following table presents delinquency and non-performing status for loans that do not have internal credit risk ratings, by class segment, as of December 31:



	Performing						Delinquent ⁽¹⁾						Non-performing ⁽²⁾						Total
	2018			2017			2018			2017			2018			2017			2018			2017
	(dollars in thousands)
Real estate - home equity	$	1,431,666		$	1,535,557		$	10,702		$	12,655		$	9,769		$	11,507		$	1,452,137		$	1,559,719
Real estate - residential mortgage	2,202,955			1,914,888			28,988			18,852			19,101			20,971			2,251,044			1,954,711
Real estate - construction - other	71,511			77,403			—			203			490			411			72,001			78,017
Consumer - direct	55,629			54,828			338			315			66			70			56,033			55,213
Consumer - indirect	359,405			254,663			3,405			3,681			343			226			363,153			258,570
Total consumer	415,034			309,491			3,743			3,996			409			296			419,186			313,783
Leasing, other and overdrafts	267,112			267,111			1,302			855			19,587			32			288,001			267,998
Total	$	4,388,278		$	4,104,450		$	44,735		$	36,561		$	49,356		$	33,217		$	4,482,369		$	4,174,228

% of Total	97.9		%	98.3		%	1.0		%	0.9		%	1.1		%	0.8		%	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 total non-performing assets as of December 31:



	2018		2017
	(in thousands)
Non-accrual loans	$	128,572	$	124,749
Loans 90 days or more past due and still accruing	11,106		10,010
Total non-performing loans	139,678		134,759
Other real estate owned	10,518		9,823
Total non-performing assets	$	150,196	$	144,582

The following table presents past due status and non-accrual loans, by portfolio segment and class segment, as of December 31:



	2018
	30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Current		Total
	(in thousands)
Real estate - commercial mortgage	$	12,206	$	1,500	$	1,765	$	30,388	$	6,388,426	$	6,434,285
Commercial - secured	5,227		938		1,068		49,299		4,168,448		4,224,980
Commercial - unsecured	1,598		—		51		851		177,068		179,568
Total Commercial - industrial, financial and agricultural	6,825		938		1,119		50,150		4,345,516		4,404,548
Real estate - home equity	7,144		3,558		3,061		6,708		1,431,666		1,452,137
Real estate - residential mortgage	20,796		8,192		4,433		14,668		2,202,955		2,251,044
Construction - commercial	—		—		—		19		726,707		726,726
Construction - commercial residential	2,489		—		—		6,881		108,502		117,872
Construction - other	—		—		—		490		71,511		72,001
Total Real estate - construction	2,489		—		—		7,390		906,720		916,599
Consumer - direct	267		71		66		—		55,629		56,033
Consumer - indirect	2,908		497		343		—		359,405		363,153
Total Consumer	3,175		568		409		—		415,034		419,186
Leasing, other and overdrafts	1,005		297		319		19,268		267,112		288,001
Total	$	53,640	$	15,053	$	11,106	$	128,572	$	15,957,429	$	16,165,800



	2017
	30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Current		Total
	(in thousands)
Real estate - commercial mortgage	$	9,456	$	4,223	$	625	$	34,822	$	6,315,678	$	6,364,804
Commercial - secured	4,778		5,254		1,360		52,255		4,068,793		4,132,440
Commercial - unsecured	305		10		45		649		166,848		167,857
Total Commercial - industrial, financial and agricultural	5,083		5,264		1,405		52,904		4,235,641		4,300,297
Real estate - home equity	9,640		3,015		2,372		9,135		1,535,557		1,559,719
Real estate - residential mortgage	11,961		6,891		5,280		15,691		1,914,888		1,954,711
Construction - commercial	483		—		—		19		765,314		765,816
Construction - commercial residential	—		439		—		11,767		150,896		163,102
Construction - other	203		—		—		411		77,403		78,017
Total Real estate - construction	686		439		—		12,197		993,613		1,006,935
Consumer - direct	260		55		70		—		54,828		55,213
Consumer - indirect	3,055		626		226		—		254,663		258,570
Total Consumer	3,315		681		296		—		309,491		313,783
Leasing, other and overdrafts	568		287		32		—		267,111		267,998
Total	$	40,709	$	20,800	$	10,010	$	124,749	$	15,571,979	$	15,768,247

The following table presents TDRs as of December 31:



	2018		2017
	(in thousands)
Real-estate - residential mortgage	$	24,102	$	26,016
Real estate - home equity	16,665		15,558
Real-estate - commercial mortgage	15,685		13,959
Commercial	5,143		10,820
Consumer - direct	10		26
Total accruing TDRs	61,605		66,379
Non-accrual TDRs ⁽¹⁾	28,659		29,051
Total TDRs	$	90,264	$	95,430

(1)Included within non-accrual loans in the preceding table.

As of December 31, 2018 and 2017, there were $41,600 and $8.6 million, respectively, of commitments to lend additional funds to borrowers whose loans were modified under TDRs.

The following table presents TDRs by class segment and type of concession for loans that were modified during the years ended December 31:



		2018			2017			2016
		Number of Loans	Post-Modification Recorded Investment		Number of Loans	Post-Modification Recorded Investment		Number of Loans	Post-Modification Recorded Investment
		(dollars in thousands)
Commercial:
	Extend maturity without rate concession	8	$	4,226	23	$	15,058	12	$	3,904
	Bankruptcy	—	—		1	490		—	—
Real estate - commercial mortgage:
	Extend maturity without rate concession	6	8,261		9	2,899		—	—
	Bankruptcy	—	—		1	12		—	—
Real estate - home equity:
	Extend maturity without rate concession	85	4,549		69	5,843		89	4,484
	Bankruptcy	11	538		28	1,813		47	2,671
Real estate – residential mortgage:
	Extend maturity with rate concession	4	451		2	468		—	—
	Extend maturity without rate concession	2	345		5	1,044		2	315
	Bankruptcy	1	5		3	392		6	981
Construction - commercial residential:
	Extend maturity without rate concession	—	—		1	1,204		—	—
	Bankruptcy	—	—		1	411		—	—
Consumer:
	Bankruptcy	—	—		—	—		2	23

Total		117	$	18,375	143	$	29,634	158	$	12,378

The following table presents TDRs, by class segment, that were modified during the years ended December 31, 2018, 2017 and 2016 that had a post-modification payment default during their respective year of modification. The Corporation defines a payment default as a single missed scheduled payment:



	2018			2017			2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(dollars in thousands)
Construction - commercial residential	—	$	—	1	$	1,192	—	$	—
Construction - other	—	—		1	411		—	—
Real estate - commercial mortgage	2	448		2	549		1	118
Real estate - residential mortgage	5	717		5	577		8	1,500
Commercial	1	2,163		6	1,571		7	2,523
Real estate - home equity	30	1,635		25	1,575		28	1,836
Consumer	—	—		—	—		1	19
Total	38	$	4,963	40	$	5,875	45	$	5,996