The Corporation’s Credit Policy Division manages credit risk by establishing common credit policies for its subsidiary bank, participating in approval of its loans, conducting reviews of loan portfolios, providing centralized consumer underwriting, collections and loan operation services, and overseeing loan workouts. The Corporation’s objective is to minimize losses from its commercial lending activities and to maintain consumer losses at acceptable levels that are stable and consistent with growth and profitability objectives.

The allowance for loan losses is Management’s estimate of the amount of probable credit losses inherent in the portfolio at the balance sheet date. Management estimates credit losses based on individual loans determined to be impaired and on all other loans grouped based on similar risk characteristics. Management also considers internal and external factors such as economic conditions, loan management practices, portfolio monitoring, and other risks, collectively known as qualitative factors, or Q-factors, to estimate credit losses in the loan portfolio. Q-factors are used to reflect changes in the portfolio’s collectability characteristics not captured by historical loss data.

The Corporation’s historical loss component is the most significant of the allowance for loan losses components and is based on historical loss experience by credit-risk grade (for commercial loan pools) and payment status (for mortgage and consumer loan pools). Balances by credit-risk grade and payment status, as well as descriptions of the credit-risk grades are included in Note 5 (Loans). The historical loss experience component of the allowance for loan losses represents the results of migration analysis of historical net charge-offs for portfolios of loans (including groups of commercial loans within each credit-risk grade and groups of consumer loans by payment status). For measuring loss exposure in a pool of loans, the historical net charge-off or migration experience is utilized to estimate expected losses to be realized from the pool of loans.

If a nonperforming, substandard loan has an outstanding balance of $0.3 million or greater or if a doubtful loan has an outstanding balance of $0.1 million or greater, as determined by the Corporation’s credit-risk grading process, further analysis is performed to determine the probable loss content and assign a specific allowance to the loan, if deemed appropriate. The allowance for loan losses relating to originated loans that have become impaired is based on either expected cash flows discounted using the original effective interest rate, the observable market price, or the fair value of the collateral for certain collateral dependent loans. To the extent credit deterioration occurs on purchased loans after the date of acquisition, the Corporation records an allowance for loan losses, net of any expected reimbursement under any loss sharing agreements with the FDIC.

The activity within the allowance for noncovered loan losses, by portfolio type, for the three and six months ended June 30, 2012 and 2011 is shown in the following tables:



	Six Months Ended June 30, 2012
	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Allowance for loan losses, beginning balance	$	32,363		$	31,857		$	5,173		$	341		$	17,981		$	6,766		$	7,369		$	5,849		$	107,699
Charge-offs	(11,934		)	(2,769		)	(38		)	—			(8,934		)	(3,789		)	(3,228		)	(1,740		)	(32,432		)
Recoveries	2,055			645			303			38			6,185			1,238			1,095			128			11,687
Provision for noncovered loan losses	17,843			(2,547		)	(291		)	(21		)	(2,203		)	1,234			1,454			1,426			16,895
Allowance for loan losses, ending balance	$	40,327		$	27,186		$	5,147		$	358		$	13,029		$	5,449		$	6,690		$	5,663		$	103,849



	Three Months Ended June 30, 2012
	C&I			CRE			Construction			Leases		Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Allowance for loan losses, beginning balance	$	37,172		$	27,778		$	5,124		$	334	$	14,753		$	6,269		$	6,520		$	5,899		$	103,849
Charge-offs	(5,231		)	(2,100		)	—			—		(3,696		)	(1,465		)	(1,645		)	(878		)	(15,015		)
Recoveries	1,510			564			40			1		3,005			593			465			71			6,249
Provision for noncovered loan losses	6,876			944			(17		)	23		(1,033		)	52			1,350			571			8,766
Allowance for loan losses, ending balance	$	40,327		$	27,186		$	5,147		$	358	$	13,029		$	5,449		$	6,690		$	5,663		$	103,849



	Six Months Ended June 30, 2011
	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Allowance for loan losses, beginning balance	$	29,764		$	32,026		$	7,180		$	475		$	21,555		$	7,217		$	11,107		$	5,366		$	114,690
Charge-offs	(8,989		)	(4,459		)	(2,695		)	(127		)	(14,293		)	(5,577		)	(4,615		)	(3,015		)	(43,770		)
Recoveries	714			48			374			34			7,437			1,182			1,204			118			11,111
Provision for noncovered loan losses	6,877			5,331			3,017			(29		)	3,390			4,320			707			3,543			27,156
Allowance for loan losses, ending balance	$	28,366		$	32,946		$	7,876		$	353		$	18,089		$	7,142		$	8,403		$	6,012		$	109,187



	Three Months Ended June 30, 2011
	C&I			CRE			Construction			Leases			Installment			Home Equity Lines			Credit Cards			Residential Mortgages			Total
Allowance for loan losses, beginning balance	$	31,649		$	33,128		$	7,639		$	480		$	20,709		$	6,883		$	8,712		$	5,490		$	114,690
Charge-offs	(4,274		)	(2,608		)	(1,337		)	(127		)	(6,202		)	(2,762		)	(2,297		)	(1,351		)	(20,958		)
Recoveries	188			47			293			2			3,718			483			557			29			5,317
Provision for noncovered loan losses	803			2,379			1,281			(2		)	(136		)	2,538			1,431			1,844			10,138
Allowance for loan losses, ending balance	$	28,366		$	32,946		$	7,876		$	353		$	18,089		$	7,142		$	8,403		$	6,012		$	109,187

The following tables present the allowance for noncovered loan losses and the recorded investment in noncovered loans, by portfolio type, based on impairment method as of June 30, 2012, December 31, 2011 and June 30, 2011.



	As of June 30, 2012
	C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
Ending allowance for noncovered loan losses balance attributable to loans:
Individually evaluated for impairment	$	5,327	$	1,977	$	115	$	—	$	1,773	$	22	$	128	$	1,649	$	10,991
Collectively evaluated for impairment	35,000		25,209		5,032		358		11,256		5,427		6,562		4,014		92,858
Total ending allowance for noncovered loan losses balance	$	40,327	$	27,186	$	5,147	$	358	$	13,029	$	5,449	$	6,690	$	5,663	$	103,849
Noncovered loans:
Individually evaluated for impairment	$	25,250	$	33,145	$	5,204	$	—	$	31,043	$	6,063	$	1,998	$	18,579	$	121,282
Collectively evaluated for impairment	2,955,752		2,091,615		294,005		84,507		1,231,834		760,777		140,588		419,568		7,978,646
Total ending noncovered loan balance	$	2,981,002	$	2,124,760	$	299,209	$	84,507	$	1,262,877	$	766,840	$	142,586	$	438,147	$	8,099,928



	As of December 31, 2011
	C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
Ending allowance for noncovered loan losses balance attributable to loans:
Individually evaluated for impairment	$	2,497	$	1,599	$	99	$	—	$	1,382	$	31	$	108	$	1,364	$	7,080
Collectively evaluated for impairment	29,866		30,258		5,074		341		16,599		6,735		7,261		4,485		100,619
Total ending allowance for noncovered loan losses balance	$	32,363	$	31,857	$	5,173	$	341	$	17,981	$	6,766	$	7,369	$	5,849	$	107,699
Noncovered loans:
Individually evaluated for impairment	$	8,269	$	36,087	$	9,320	$	—	$	33,571	$	4,763	$	2,202	$	17,398	$	111,610
Collectively evaluated for impairment	2,767,207		2,018,849		268,015		73,530		1,230,094		739,219		144,154		396,266		7,637,334
Total ending noncovered loan balance	$	2,775,476	$	2,054,936	$	277,335	$	73,530	$	1,263,665	$	743,982	$	146,356	$	413,664	$	7,748,944



	As of June 30, 2011
	C&I		CRE		Construction		Leases		Installment		Home Equity Lines		Credit Cards		Residential Mortgages		Total
Ending allowance for noncovered loan losses balance attributable to loans:
Individually evaluated for impairment	$	290	$	3,169	$	1,038	$	—	$	662	$	20	$	28	$	1,209	$	6,416
Collectively evaluated for impairment	28,076		29,777		6,838		353		17,427		7,122		8,375		4,803		102,771
Total ending allowance for noncovered loan losses balance	$	28,366	$	32,946	$	7,876	$	353	$	18,089	$	7,142	$	8,403	$	6,012	$	109,187
Noncovered loans:
Individually evaluated for impairment	$	3,573	$	45,008	$	9,407	$	—	$	15,703	$	1,242	$	2,453	$	14,851	$	92,237
Collectively evaluated for impairment	2,466,295		2,040,050		243,972		57,634		1,243,369		737,477		141,375		385,810		7,315,982
Total ending noncovered loan balance	$	2,469,868	$	2,085,058	$	253,379	$	57,634	$	1,259,072	$	738,719	$	143,828	$	400,661	$	7,408,219

To the extent there is a decrease in the present value of cash flows from Acquired Impaired Loans after the date of acquisition, the Corporation records an allowance for loan losses, net of expected reimbursement under any loss sharing agreements. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. During the three months ended June 30, 2012, the Corporation increased its allowance for covered loan losses to $42.6 million to reserve for estimated additional losses on certain Acquired Impaired Loans. The increase in the allowance was recorded in the three months ended June 30, 2012 by a charge to the provision for covered loan losses of $9.6 million and an increase of $6.2 million in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements.

To the extent credit deterioration occurs in Acquired Non-Impaired loans after the date of acquisition, the Corporation records a provision for loan losses only when the required allowance, net of any expected reimbursement under the loss sharing agreements exceeds any remaining credit discount. The allowance for losses on Acquired Nonimpaired loans, included in the allowance for noncovered covered loan losses on the consolidated balance sheets was $0.4 million, $0.7 million and $0.9 million as of June 30, 2012, December 31, 2011 and June 30, 2011, respectively.

The activity within the allowance for covered loan losses for the three and six months ended June 30, 2012 and 2011 is shown in the following table:



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Balance at beginning of the period	$	41,070		$	28,405		$	36,417		$	13,733
Provision for loan losses before benefit attributable to FDIC loss share agreements	9,648			15,156			20,479			35,666
Benefit attributable to FDIC loss share agreements	(6,218		)	(7,675		)	(11,117		)	(22,854		)
Net provision for covered loan losses	3,430			7,481			9,362			12,812
Increase in indemnification asset	6,218			7,675			11,117			22,854
Loans charged-off	(8,112		)	(10,201		)	(14,290		)	(16,039		)
Balance at end of the period	$	42,606		$	33,360		$	42,606		$	33,360

Credit Quality Disclosures

A loan is considered to be impaired when, based on current events or information, it is probable the Corporation will be unable to collect all amounts due (principal and interest) per the contractual terms of the loan agreement. Loan impairment for all loans is measured based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, at the observable market price of the loan, or the fair value of the collateral for certain collateral dependent loans. Impaired loans include all nonaccrual commercial, agricultural, construction, and commercial real estate loans, and loans modified as troubled debt restructurings (“TDRs”). Aggregated consumer loans, mortgage loans, and leases that are collectively evaluated for impairment are not included in the following tables.



	As of June 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance
Commercial
C&I	$	18,773	$	22,139	$	—	$	16,455
CRE	20,426		26,942		—		21,586
Construction	4,218		6,810		—		4,956
Consumer
Installment	—		—		—		—
Home equity line	—		—		—		—
Credit card	—		—		—		—
Residential mortgages	4,411		4,411		—		4,718
Subtotal	$	47,828	$	60,302	$	—	$	47,715
Impaired loans with a related allowance
Commercial
C&I	6,477		10,511		5,327		6,641
CRE	12,718		14,817		1,977		11,007
Construction	987		987		115		991
Consumer
Installment	31,043		31,043		1,773		31,581
Home equity line	6,063		6,063		22		6,192
Credit card	1,998		1,998		128		2,159
Residential mortgages	14,168		14,168		1,649		14,192
Subtotal	73,454		79,587		10,991		72,763
Total impaired loans	$	121,282	$	139,889	$	10,991	$	120,478

(a) These tables exclude loans fully charged off.

(b) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.



	As of December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance
Commercial
C&I	$	6,999	$	9,121	$	—	$	8,442
CRE	29,566		46,744		—		37,720
Construction	7,522		13,675		—		9,908
Consumer
Installment	—		—		—		—
Home equity line	—		—		—		—
Credit card	—		—		—		—
Residential mortgages	4,244		4,262		—		4,450
Subtotal	48,331		73,802		—		60,520
Impaired loans with a related allowance
Commercial
C&I	1,270		1,769		2,497		752
CRE	6,521		6,789		1,599		3,247
Construction	1,798		2,864		99		1,929
Consumer
Installment	33,571		33,621		1,382		33,742
Home equity line	4,763		4,763		31		4,996
Credit card	2,202		2,202		108		2,497
Residential mortgages	13,154		13,160		1,364		13,155
Subtotal	63,279		65,168		7,080		60,318
Total impaired loans	$	111,610	$	138,970	$	7,080	$	120,838

(a) These tables exclude loans fully charged off.

(b) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.



	As of June 30, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance
Commercial
C&I	$	1,985	$	4,467	$	—	$	2,513
CRE	31,986		43,575		—		33,799
Construction	4,838		9,109		—		4,919
Consumer
Installment	—		—		—		—
Home equity line	—		—		—		—
Credit card	1,916		1,916		—		1,974
Residential mortgages	2,654		3,966		—		2,673
Subtotal	$	43,379	$	63,033	$	—	$	45,878
Impaired loans with a related allowance
Commercial
C&I	1,588		2,010		290		1,588
CRE	13,022		18,600		3,169		13,566
Construction	4,569		7,181		1,038		4,591
Consumer
Installment	15,703		15,724		662		15,794
Home equity line	1,242		1,242		20		1,256
Credit card	537		537		28		548
Residential mortgages	12,197		12,284		1,209		12,206
Subtotal	48,858		57,578		6,416		49,549
Total impaired loans	$	92,237	$	120,611	$	6,416	$	95,427

(a) These tables exclude loans fully charged off.

(b) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.

In certain circumstances, the Corporation may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near term. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or modification of the adjustable rate provisions of the loan that would otherwise not be considered; however, forgiveness of principal is rarely granted. Concessionary modifications are classified as TDRs unless the modification is short-term, typically less than 90 days. TDRs accrue interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms for a minimum of six consecutive payment cycles after the restructuring date.

The substantial majority of the Corporation’s residential mortgage TDRs involve reducing the client’s loan payment through an interest rate reduction for a set period of time based on the borrower’s ability to service the modified loan payment. Modifications of mortgages retained in portfolio are handled using proprietary modification guidelines, or the FDIC’s Modification Program for residential first mortgages covered by loss share agreements (agreements between the Bank and the FDIC that afford the Bank significant protection against future losses). The Corporation participates in the U.S. Treasury’s Home Affordable Modification Program for originated mortgages sold to and serviced for Fannie Mae and Freddie Mac. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial real estate and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. Acquired loans restructured after acquisition are not considered TDRs for purposes of the Corporation’s accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools. The Corporation has modified certain loans according to provisions in loss share agreements. Losses associated with modifications on these loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the loss share agreements.

The following tables provide the number of loans modified in a TDR and the recorded investment and unpaid principal balance by loan portfolio as of June 30, 2012 and December 31, 2011.



			As of June 30, 2012
			Number of Loans	Recorded Investment		Unpaid Principal Balance
Noncovered loans
	Commercial
		C&I	19	$	4,074	$	10,584
		CRE	35	18,618		22,135
		Construction	27	3,970		4,542
		Subtotal	81	26,662		37,261
	Consumer
		Installment	1,485	31,043		31,043
		Home equity lines	194	6,063		6,063
		Credit card	461	1,998		1,998
		Residential mortgages	187	18,579		18,579
		Subtotal	2,327	57,683		57,683
Covered loans
	Commercial
		C&I	11	5,099		6,668
		CRE	25	53,205		57,766
		Construction	10	15,351		43,427
		Subtotal	46	73,655		107,861
		Total	2,454	$	158,000	$	202,805

(a) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.



			As of December 31, 2011
			Number of Loans	Recorded Investment		Unpaid Principal Balance
Noncovered loans
	Commercial
		C&I	14	$	2,512	$	4,336
		CRE	28	9,167		12,659
		Construction	22	3,323		3,985
		Subtotal	64	15,002		20,980
	Consumer
		Installment	1,547	33,571		33,621
		Home equity lines	174	4,763		4,763
		Credit card	496	2,202		2,202
		Residential mortgages	177	17,398		17,422
		Subtotal	2,394	57,934		58,008
Covered loans
	Commercial
		C&I	15	7,578		10,812
		CRE	21	57,786		62,159
		Construction	8	12,056		32,035
		Subtotal	44	77,420		105,006
		Total	2,502	$	150,356	$	183,994

(a) The differences between the recorded investment and unpaid principal balance amounts represents partial charge offs.

The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the quarters ended June 30, 2012 and 2011 were not materially different. Post-modification balances may include capitalization of unpaid accrued interest and fees associated with the modification as well as forgiveness of principal. Loans modified as TDRs during the quarters ended June 30, 2012 and 2011 did not involve the forgiveness of principal, accordingly, the Corporation did not record a charge-off at the modification date. Additionally, capitalization of any unpaid accrued interest and fees assessed to loans modified in the quarters ended June 30, 2012 and 2011 were not material to the accompanying consolidated financial statements. Specific allowances for loan losses are established for loans whose terms have been modified in a TDR. Specific reserve allocations are generally assessed prior to loans being modified in a TDR, as most of these loans migrate from the Corporation’s internal watch list and have been specifically allocated for as part of the Corporation’s normal loan loss provisioning methodology. At June 30, 2012, the Corporation had $0.2 million in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

The following tables provide a summary of the delinquency status of TDRs along with the specific allowance for loan loss, by loan type, as of June 30, 2012 and December 31, 2011 including TDRs that continue to accrue interest and TDRs included in nonperforming assets.



	As of June 30, 2012
	Accruing TDRs							Nonaccruing TDRs							Total		Total
	Current		Delinquent			Total		Current		Delinquent			Total		TDRS		Allowance
Noncovered loans
Commercial
C&I	$	746	$	25		$	771	$	1,086	$	2,217		$	3,303	$	4,074	$	319
CRE	14,810		—			14,810		2,020		1,788			3,808		18,618		424
Construction	3,536		—			3,536		134		300			434		3,970		115
Total noncovered commercial	19,092		25			19,117		3,240		4,305			7,545		26,662		858
Consumer
Installment	30,035		1,002			31,037		—		6			6		31,043		1,773
Home equity lines	5,508		156			5,664		298		101			399		6,063		22
Credit card	1,902		90			1,992		—		6			6		1,998		128
Residential mortgages	12,475		3,246			15,721		952		1,906			2,858		18,579		1,649
Total noncovered consumer	49,920		4,494			54,414		1,250		2,019			3,269		57,683		3,572
Covered loans
Commercial
C&I	520		—			520		665		3,914			4,579		5,099		1,384
CRE	9,437		3,801			13,238		23,670		16,297			39,967		53,205		7,721
Construction	—		—			—		8,444		6,907			15,351		15,351		923
Total covered commercial	9,957		3,801		—	13,758		32,779		27,118		—	59,897		73,655		10,028
Total TDRs	$	78,969	$	8,320		$	87,289	$	37,269	$	33,442		$	70,711	$	158,000	$	14,458



	As of December 31, 2011
	Accruing TDRs							Nonaccruing TDRs							Total		Total
	Current		Delinquent			Total		Current		Delinquent			Total		TDRS		Allowance
Noncovered loans
Commercial
C&I	$	91	$	—		$	91	$	—	$	2,421		$	2,421	$	2,512	$	247
CRE	3,305		513			3,818		3,590		1,759			5,349		9,167		236
Construction	2,782		—			2,782		304		237			541		3,323		99
Total noncovered commercial	6,178		513			6,691		3,894		4,417			8,311		15,002		582
Consumer
Installment	31,635		1,802			33,437		—		134			134		33,571		1,382
Home equity lines	4,226		222			4,448		76		239			315		4,763		31
Credit card	2,073		110			2,183		—		19			19		2,202		108
Residential mortgages	13,694		707			14,401		1,635		1,362			2,997		17,398		1,364
Total noncovered consumer	51,628		2,841			54,469		1,711		1,754			3,465		57,934		2,885
Covered loans
Commercial
C&I	565		—			565		1,022		5,991			7,013		7,578		1,384
CRE	13,562		—			13,562		21,521		22,703			44,224		57,786		6,567
Construction	—		—			—		5,838		6,218			12,056		12,056		696
Total covered commercial	14,127		—		—	14,127		28,381		34,912		—	63,293		77,420		8,647
Total TDRs	$	71,933	$	3,354		$	75,287	$	33,986	$	41,083		$	75,069	$	150,356	$	12,114

Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Corporation evaluates the loan for possible further impairment. The allowance for loan losses may be increased, adjustments may be made in the allocation of the allowance for loan losses, or partial charge-offs may be taken to further write-down the carrying value of the loan. The following table provides the number of loans modified in a TDR during the previous 12 months which subsequently defaulted during the quarter ended June 30, 2012, as well as the recorded investment in these restructured loans as of June 30, 2012.



	As of June 30, 2012
	Number of Loans	Recorded Investment
Noncovered loans
Commercial
C&I	—	$	—
CRE	—	—
Construction	—	—
Total noncovered commercial	—	—
Consumer
Installment	105	1,834
Home equity lines	12	450
Credit card	14	88
Residential mortgages	17	1,658
Total noncovered consumer	148	4,030
Covered loans
Commercial
C&I	—	—
CRE	—	—
Construction	—	—
Total covered commercial	—	—
Total	148	$	4,030