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Loans and Leases and the Allowance for Loan and Lease Losses

9 Months Ended

Sep. 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 September 30, 2011 and December 31, 2010:

		September 30,	December 31,
(dollars in thousands)		2011	2010
Commercial
	Commercial and Industrial	$ 790,294	$ 772,624
	Commercial Mortgage	922,075	863,385
	Construction	69,635	80,325
	Lease Financing	312,159	334,997
Total Commercial		2,094,163	2,051,331
Consumer
	Residential Mortgage	2,130,589	2,094,189
	Home Equity	775,105	807,479
	Automobile	191,497	209,008
	Other 1	157,118	173,785
Total Consumer		3,254,309	3,284,461
Total Loans and Leases		$ 5,348,472	$ 5,335,792

1 Comprised 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 nine months ended September 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 September 30, 2011.

(dollars in thousands)				Commercial	Consumer	Total
Three Months Ended September 30, 2011
	Allowance for Loan and Lease Losses:
		Balance at Beginning of Period		$ 88,985	$ 55,991	$ 144,976
			Loans and Leases Charged-Off	(4,215)	(6,556)	(10,771)
			Recoveries on Loans and Leases Previously Charged-Off	4,929	2,096	7,025
			Net Loans and Leases Charged-Off	714	(4,460)	(3,746)
			Provision for Credit Losses	(7,024)	9,204	2,180
		Balance at End of Period		$ 82,675	$ 60,735	$ 143,410
Nine Months Ended September 30, 2011
	Allowance for Loan and Lease Losses:
		Balance at Beginning of Period		$ 80,977	$ 66,381	$ 147,358
			Loans and Leases Charged-Off	(7,379)	(19,773)	(27,152)
			Recoveries on Loans and Leases Previously Charged-Off	5,994	6,739	12,733
			Net Loans and Leases Charged-Off	(1,385)	(13,034)	(14,419)
			Provision for Credit Losses	3,083	7,388	10,471
		Balance at End of Period		$ 82,675	$ 60,735	$ 143,410

As of September 30, 2011
	Allowance for Loan and Lease Losses:
		Individually Evaluated for Impairment		$ -	$ 4,179	$ 4,179
		Collectively Evaluated for Impairment		82,675	56,556	139,231
		Total		$ 82,675	$ 60,735	$ 143,410
	Recorded Investment in Loans and Leases:
		Individually Evaluated for Impairment		$ 8,602	$ 26,400	$ 35,002
		Collectively Evaluated for Impairment		2,085,561	3,227,909	5,313,470
		Total		$ 2,094,163	$ 3,254,309	$ 5,348,472

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 September 30, 2011 and December 31, 2010.

	September 30, 2011
(dollars in thousands)	Commercial and Industrial	Commercial Mortgage	Construction	Lease Financing	Total Commercial
Pass	$ 742,444	$ 845,563	$ 52,570	$ 282,123	$ 1,922,700
Special Mention	26,170	28,253	579	26,183	81,185
Classified	21,680	48,259	16,486	3,853	90,278
Total	$ 790,294	$ 922,075	$ 69,635	$ 312,159	$ 2,094,163

(dollars in thousands)	Residential Mortgage	Home Equity	Automobile	Other 1	Total Consumer
Pass	$ 2,102,296	$ 770,603	$ 191,359	$ 156,370	$ 3,220,628
Classified	28,293	4,502	138	748	33,681
Total	$ 2,130,589	$ 775,105	$ 191,497	$ 157,118	$ 3,254,309
Total Recorded Investment in Loans and Leases					$ 5,348,472

	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

1 Comprised 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 September 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
As of September 30, 2011
Commercial
	Commercial and Industrial	$ 956	$ 761	$ -	$ 6,593	$ 8,310	$ 781,984	$ 790,294	$ 5,912
	Commercial Mortgage	103	-	-	2,188	2,291	919,784	922,075	1,231
	Construction	-	-	-	-	-	69,635	69,635	-
	Lease Financing	13	-	-	6	19	312,140	312,159	6
Total Commercial		1,072	761	-	8,787	10,620	2,083,543	2,094,163	7,149
Consumer
	Residential Mortgage	11,735	9,667	7,664	23,779	52,845	2,077,744	2,130,589	3,940
	Home Equity	6,422	1,545	2,639	1,863	12,469	762,636	775,105	284
	Automobile	3,640	714	138	-	4,492	187,005	191,497	-
	Other 1	1,336	1,049	414	-	2,799	154,319	157,118	-
Total Consumer		23,133	12,975	10,855	25,642	72,605	3,181,704	3,254,309	4,224
Total		$ 24,205	$ 13,736	$ 10,855	$ 34,429	$ 83,225	$ 5,265,247	$ 5,348,472	$ 11,373

As of 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

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

2 Represents 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 September 30, 2011 and December 31, 2010.

(dollars in thousands)				Recorded Investment	Unpaid Principal Balance	Related Allowance for Loan Losses
September 30, 2011
	Impaired Loans with No Related Allowance Recorded:
		Commercial
			Commercial and Industrial	$ 6,436	$ 13,787	$ -
			Commercial Mortgage	2,166	2,666	-
		Total Commercial		8,602	16,453	-
		Total Impaired Loans with No Related Allowance Recorded		$ 8,602	$ 16,453	$ -

	Impaired Loans with an Allowance Recorded:
		Commercial
			Commercial and Industrial	$ 4,723	$ 4,723	$ 905
			Commercial Mortgage	314	617	71
		Total Commercial		5,037	5,340	976
		Consumer
			Residential Mortgage	26,400	30,457	4,179
			Home Equity	21	21	1
			Automobile	5,927	5,927	99
			Other 1	569	569	51
		Total Consumer		32,917	36,974	4,330
		Total Impaired Loans with an Allowance Recorded		$ 37,954	$ 42,314	$ 5,306

	Impaired Loans:
		Commercial		$ 13,639	$ 21,793	$ 976
		Consumer		32,917	36,974	4,330
		Total Impaired Loans		$ 46,556	$ 58,767	$ 5,306

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
			Other 1	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

1 Comprised 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 nine months ended September 30, 2011.

			Three Months Ended September 30, 2011		Nine Months Ended September 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	$ 4,019	$ -	$ 2,665	$ -
		Commercial Mortgage	2,693	-	3,022	-
		Construction	144	-	192	-
	Total Commercial		6,856	-	5,879	-
	Total Impaired Loans with No Related Allowance Recorded		$ 6,856	$ -	$ 5,879	$ -

Impaired Loans with an Allowance Recorded:
	Commercial
		Commercial and Industrial	$ 3,030	$ 27	$ 3,873	$ 116
		Commercial Mortgage	311	1	351	10
		Construction	-	-	96	-
	Total Commercial		3,341	28	4,320	126
	Consumer
		Residential Mortgage	25,374	78	23,662	252
		Home Equity	21	-	21	-
		Automobile	5,837	150	5,841	438
		Other 1	601	8	513	22
	Total Consumer		31,833	236	30,037	712
	Total Impaired Loans with an Allowance Recorded		$ 35,174	$ 264	$ 34,357	$ 838

Impaired Loans:
	Commercial		$ 10,197	$ 28	$ 10,199	$ 126
	Consumer		31,833	236	30,037	712
	Total Impaired Loans		$ 42,030	$ 264	$ 40,236	$ 838

1 Comprised of other revolving credit and installment financing.

For the three and nine months ended September 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 nine months ended September 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.

Modifications

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying a loan or lease, however, forgiveness of principal is rarely granted. 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 mortgage 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. Lease financing modifications generally involves a short-term forbearance period, usually about three months, after which the missed payments are added to the end of the lease term, thereby extending the maturity date. Interest continues to accrue on the missed payments and as a result, the effective yield on the lease remains unchanged. As the forbearance period usually involves an insignificant payment delay, lease financing modifications typically do not meet the reporting criteria for a TDR. Residential mortgage loans modified in a TDR are primarily comprised of loans where monthly payments are lowered to accommodate the borrowers’ financial needs for a period of time, normally two years. During that time, the borrower’s entire monthly payment is applied to principal. After the lowered monthly payment period ends, the borrower reverts back to paying principal and interest per the original terms with the maturity date adjusted accordingly. Land loans are also included in the class of residential mortgage loans. Land loans are typically structured as interest-only monthly payments with a balloon payment due at maturity. Land loans modified in a TDR typically involve extending the balloon payment by one to three years, changing the monthly payments from interest-only to principal and interest, while leaving the interest rate unchanged. Home equity modifications are made infrequently and are not offered if the Company also holds the first mortgage. Home equity modifications are uniquely designed to meet the specific needs of each borrower. Occasionally, the terms will be modified to a standalone second lien mortgage, thereby changing their loan class from home equity to residential mortgage. Automobile loans modified in a TDR are primarily comprised of loans where the Company has lowered monthly payments by extending the term.

Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR for the Company may have the financial effect of increasing the specific Allowance associated with the loan. An Allowance for impaired consumer and commercial loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.

The following presents by class, information related to loans modified in a TDR during the three and nine months ended September 30, 2011.

		Loans Modified as a TDR for the			Loans Modified as a TDR for the
		Three Months Ended September 30, 2011			Nine Months Ended September 30, 2011
			Recorded	Increase in		Recorded	Increase in
Troubled Debt Restructurings 1		Number of	Investment	the Allowance	Number of	Investment	the Allowance
(dollars in thousands)		Contracts	(as of period end)	(as of period end)	Contracts	(as of period end)	(as of period end)
Commercial
	Commercial and Industrial	3	$ 4,106	$ -	7	$ 4,419	$ -
	Commercial Mortgage	2	292	-	4	1,249	-
Total Commercial		5	4,398	-	11	5,668	-
Consumer
	Residential Mortgage	3	1,413	131	13	6,308	904
	Automobile	90	893	-	201	2,064	-
	Other 2	-	-	-	3	326	-
Total Consumer		93	2,306	131	217	8,698	904
Total		98	$ 6,704	$ 131	228	$ 14,366	$ 904

1 The period end balances are inclusive of all partial paydowns and charge-offs since the modification date. Loans modified in a TDR that were fully paid down, charged-off, or foreclosed upon by period end are not reported.

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

The following presents by class, loans modified in a TDR from October 1, 2010 through September 30, 2011 that subsequently defaulted (i.e., 60 days or more past due following a modification) during the three and nine months ended September 30, 2011.

		Loans Modified as a TDR		Loans Modified as a TDR
		Within the Previous Twelve Months		Within the Previous Twelve Months
		That Subsequently Defaulted During the		That Subsequently Defaulted During the
		Three Months Ended September 30, 2011		Nine Months Ended September 30, 2011

			Recorded		Recorded
		Number of	Investment	Number of	Investment
(dollars in thousands)		Contracts	(as of period end) 1	Contracts	(as of period end) 1
Consumer
	Residential Mortgage	-	$ -	1	$ 848
	Automobile	6	67	7	91
Total Consumer		6	67	8	939
Total		6	$ 67	8	$ 939

The residential mortgage loan TDR that subsequently defaulted was modified by temporarily lowering monthly payments and applying all payments during this time to principal. Automobile loans modified in a TDR that subsequently defaulted were primarily modified by lowering monthly payments by extending the term. There were no other loans modified as a TDR within the previous 12 months that subsequently defaulted during the three and nine months ended September 30, 2011.

Commercial and consumer 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 Company evaluates the loan for possible further impairment. The Allowance may be increased, adjustments may be made in the allocation of the Allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.