Loans and Leases | 6. Loans and Leases Following is a summary of loans and leases, net of unearned income: Originated Loans and Acquired Total Loans and December 31, 2015 Commercial real estate $ 3,531,146 $ 577,910 $ 4,109,056 Commercial and industrial 2,534,351 67,371 2,601,722 Commercial leases 204,553 — 204,553 Total commercial loans and leases 6,270,050 645,281 6,915,331 Direct installment 1,660,717 45,919 1,706,636 Residential mortgages 1,044,689 351,282 1,395,971 Indirect installment 996,175 554 996,729 Consumer lines of credit 1,021,830 115,425 1,137,255 Other 38,518 — 38,518 $ 11,031,979 $ 1,158,461 $ 12,190,440 December 31, 2014 Commercial real estate $ 3,031,810 $ 783,898 $ 3,815,708 Commercial and industrial 2,197,793 120,222 2,318,015 Commercial leases 177,824 — 177,824 Total commercial loans and leases 5,407,427 904,120 6,311,547 Direct installment 1,579,770 64,851 1,644,621 Residential mortgages 817,586 445,467 1,263,053 Indirect installment 873,645 1,906 875,551 Consumer lines of credit 946,427 164,549 1,110,976 Other 41,290 — 41,290 $ 9,666,145 $ 1,580,893 $ 11,247,038 Commercial real estate includes both owner-occupied and non-owner-occupied loans secured by commercial properties. Commercial and industrial includes loans to businesses that are not secured by real estate. Commercial leases are made for new or used equipment. Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans. Residential mortgages consist of conventional and jumbo mortgage loans for non-commercial properties. Indirect installment is comprised of loans originated by third parties and underwritten by the Corporation, primarily automobile loans. Consumer lines of credit include home equity lines of credit (HELOC) and consumer lines of credit that are either unsecured or secured by collateral other than home equity. Other is comprised primarily of credit cards, mezzanine loans and student loans. The loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within the Corporation’s primary market area of Pennsylvania, eastern Ohio, Maryland and northern West Virginia. The total loan portfolio contains consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky, which totaled $186,162 or 1.5% of total loans at December 31, 2015, compared to $180,588 or 1.6% of total loans at December 31, 2014. Due to the relative size of the consumer finance loan portfolio, they are not segregated from other consumer loans. As of December 31, 2015, 38.1% of the commercial real estate loans were owner-occupied, while the remaining 61.9% were non-owner-occupied, compared to 41.6% and 58.4%, respectively, as of December 31, 2014. As of December 31, 2015 and 2014, the Corporation had commercial construction loans of $352,322 and $296,156, respectively, representing 2.9% and 2.6% of total loans at those respective dates. As of December 31, 2015 and 2014, there were no concentrations of loans relating to any industry in excess of 10% of total loans. The Corporation has extended credit to certain directors and executive officers and their related interests. These related-party loans were made in the ordinary course of business under normal credit terms and do not involve more than a normal risk of collection. Following is an analysis of these loans to related parties: Total loans at December 31, 2014 $ 42,263 New loans 4,954 Repayments (3,802 ) Other (1,614 ) Total loans at December 31, 2015 $ 41,801 Other represents the net change in loan balances resulting from changes in related parties during 2015. Acquired Loans All acquired loans were initially recorded at fair value at the acquisition date. The outstanding balance and the carrying amount of acquired loans included in the consolidated balance sheet are as follows: 2015 2014 December 31 Accounted for under ASC 310-30: Outstanding balance $ 1,258,418 $ 1,597,558 Carrying amount 1,011,139 1,344,171 Accounted for under ASC 310-20: Outstanding balance 146,161 242,488 Carrying amount 140,595 228,748 Total acquired loans: Outstanding balance 1,404,579 1,840,046 Carrying amount 1,151,734 1,572,919 The carrying amount of purchased credit impaired loans included in the table above totaled $5,940 at December 31, 2015 and $9,556 at December 31, 2014, representing less than 1% of the carrying amount of total acquired loans as of each date. The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-30. Loans accounted for under ASC 310-20 are not included in this table. Year Ended December 31 2015 2014 Balance at beginning of period $ 331,899 $ 305,646 Acquisitions — 125,001 Reduction due to unexpected early payoffs (47,075 ) (48,556 ) Reclass from non-accretable difference 32,141 29,643 Disposals/transfers (674 ) (5,513 ) Accretion (60,171 ) (74,322 ) Balance at end of period $ 256,120 $ 331,899 Credit Quality Management monitors the credit quality of the Corporation’s loan portfolio on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan. Non-performing loans include non-accrual loans and non-performing troubled debt restructurings (TDRs). Past due loans are reviewed on a monthly basis to identify loans for non-accrual status. The Corporation places a loan on non-accrual status and discontinues interest accruals on originated loans generally when principal or interest is due and has remained unpaid for a certain number of days unless the loan is both well secured and in the process of collection. Commercial loans are placed on non-accrual at 90 days, installment loans are placed on non-accrual at 120 days and residential mortgages and consumer lines of credit are generally placed on non-accrual at 180 days. When a loan is placed on non-accrual status, all unpaid accrued interest is reversed. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate ability to collect the remaining principal and interest is reasonably assured. TDRs are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress. Following is a summary of non-performing assets: December 31 2015 2014 Non-accrual loans $ 49,897 $ 45,113 Troubled debt restructurings 22,028 23,439 Total non-performing loans 71,925 68,552 Other real estate owned (OREO) 38,918 41,466 Total non-performing assets $ 110,843 $ 110,018 Asset quality ratios: Non-performing loans as a percent of total loans and leases 0.59 % 0.61 % Non-performing loans + OREO as a percent of total loans and leases + OREO 0.91 % 0.97 % Non-performing assets as a percent of total assets 0.63 % 0.68 % The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $5,219 at December 31, 2015. Also, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at December 31, 2015 amounted to $11,725. The following tables provide an analysis of the aging of loans by class segregated by loans and leases originated and loans acquired: 30-89 Days Past Due ³ 90 Days Still Accruing Non- Accrual Total Past Due Current Total Loans and Originated Loans and Leases December 31, 2015 Commercial real estate $ 11,006 $ 1 $ 23,503 $ 34,510 $ 3,496,636 $ 3,531,146 Commercial and industrial 5,409 3 14,382 19,794 2,514,557 2,534,351 Commercial leases 924 — 659 1,583 202,970 204,553 Total commercial loans and leases 17,339 4 38,544 55,887 6,214,163 6,270,050 Direct installment 9,254 3,813 4,806 17,873 1,642,844 1,660,717 Residential mortgages 8,135 1,470 2,882 12,487 1,032,202 1,044,689 Indirect installment 9,472 379 1,361 11,212 984,963 996,175 Consumer lines of credit 2,410 1,189 1,181 4,780 1,017,050 1,021,830 Other 73 169 — 242 38,276 38,518 $ 46,683 $ 7,024 $ 48,774 $ 102,481 $ 10,929,498 $ 11,031,979 December 31, 2014 Commercial real estate $ 9,601 $ 313 $ 24,132 $ 34,046 $ 2,997,764 $ 3,031,810 Commercial and industrial 2,446 3 8,310 10,759 2,187,034 2,197,793 Commercial leases 961 43 722 1,726 176,098 177,824 Total commercial loans and leases 13,008 359 33,164 46,531 5,360,896 5,407,427 Direct installment 9,333 3,617 7,117 20,067 1,559,703 1,579,770 Residential mortgages 8,709 3,891 2,964 15,564 802,022 817,586 Indirect installment 7,804 684 1,149 9,637 864,008 873,645 Consumer lines of credit 2,408 562 719 3,689 942,738 946,427 Other 13 135 — 148 41,142 41,290 $ 41,275 $ 9,248 $ 45,113 $ 95,636 $ 9,570,509 $ 9,666,145 30-89 Days Past Due ³ 90 Days Non- Total Past Due (1)(2) Current Discount Total Loans Acquired Loans December 31, 2015 Commercial real estate $ 6,399 $ 12,752 $ 931 $ 20,082 $ 593,128 $ (35,300 ) $ 577,910 Commercial and industrial 1,065 616 103 1,784 72,037 (6,450 ) 67,371 Total commercial loans 7,464 13,368 1,034 21,866 665,165 (41,750 ) 645,281 Direct installment 837 659 — 1,496 43,596 827 45,919 Residential mortgages 5,871 15,136 — 21,007 366,742 (36,467 ) 351,282 Indirect installment 32 9 — 41 571 (58 ) 554 Consumer lines of credit 830 546 89 1,465 117,443 (3,483 ) 115,425 $ 15,034 $ 29,718 $ 1,123 $ 45,875 $ 1,193,517 $ (80,931 ) $ 1,158,461 December 31, 2014 Commercial real estate $ 12,076 $ 12,368 — $ 24,444 $ 799,991 $ (40,537 ) $ 783,898 Commercial and industrial 687 1,968 — 2,655 127,535 (9,968 ) 120,222 Total commercial loans 12,763 14,336 — 27,099 927,526 (50,505 ) 904,120 Direct installment 2,670 1,443 — 4,113 59,532 1,206 64,851 Residential mortgages 8,159 19,936 — 28,095 456,810 (39,438 ) 445,467 Indirect installment 38 30 — 68 2,179 (341 ) 1,906 Consumer lines of credit 1,048 2,279 — 3,327 166,912 (5,690 ) 164,549 $ 24,678 $ 38,024 — $ 62,702 $ 1,612,959 $ (94,768 ) $ 1,580,893 (1) Past due information for loans acquired is based on the contractual balance outstanding at December 31, 2015 and 2014. (2) Acquired loans are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Corporation can reasonably estimate the timing and amount of expected cash flows on such loans. In these instances, the Corporation does not consider acquired contractually delinquent loans to be non-accrual or non-performing and continues to recognize interest income on these loans using the accretion method. Acquired loans are considered non-accrual or non-performing when, due to credit deterioration or other factors, the Corporation determines it is no longer able to reasonably estimate the timing and amount of expected cash flows on such loans. The Corporation does not recognize interest income on acquired loans considered non-accrual or non-performing. The Corporation utilizes the following categories to monitor credit quality within its commercial loan and lease portfolio: Rating Definition Pass in general, the condition of the borrower and the performance of the loan is satisfactory or better Special Mention in general, the condition of the borrower has deteriorated, requiring an increased level of monitoring Substandard in general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected Doubtful in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable The use of these internally assigned credit quality categories within the commercial loan portfolio permits management’s use of transition matrices to estimate a quantitative portion of credit risk. The Corporation’s internal credit risk grading system is based on past experiences with similarly graded loans and conforms with regulatory categories. In general, loan risk ratings within each category are reviewed on an ongoing basis according to the Corporation’s policy for each class of loans. Each quarter, management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the commercial loan portfolio. Loans within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans that migrate toward the Substandard or Doubtful credit categories. Accordingly, management applies higher risk factors to Substandard and Doubtful credit categories. The following tables present a summary of the Corporation’s commercial loans by credit quality category segregated by loans and leases originated and loans acquired: Commercial Loan and Lease Credit Quality Categories Pass Special Substandard Doubtful Total Originated Loans and Leases December 31, 2015 Commercial real estate $ 3,416,527 $ 52,887 $ 61,411 $ 321 $ 3,531,146 Commercial and industrial 2,335,103 109,539 87,380 2,329 2,534,351 Commercial leases 198,207 2,447 3,899 — 204,553 $ 5,949,837 $ 164,873 $ 152,690 $ 2,650 $ 6,270,050 December 31, 2014 Commercial real estate $ 2,890,830 $ 58,630 $ 81,951 $ 399 $ 3,031,810 Commercial and industrial 2,085,893 71,420 39,684 796 2,197,793 Commercial leases 174,677 2,198 949 — 177,824 $ 5,151,400 $ 132,248 $ 122,584 $ 1,195 $ 5,407,427 Acquired Loans December 31, 2015 Commercial real estate $ 464,162 $ 47,619 $ 66,129 — $ 577,910 Commercial and industrial 56,446 3,182 7,743 — 67,371 $ 520,608 $ 50,801 $ 73,872 — $ 645,281 December 31, 2014 Commercial real estate $ 610,260 $ 73,891 $ 99,747 — $ 783,898 Commercial and industrial 103,862 3,506 12,854 — 120,222 $ 714,122 $ 77,397 $ 112,601 — $ 904,120 Credit quality information for acquired loans is based on the contractual balance outstanding at December 31, 2015 and 2014. The Corporation uses delinquency transition matrices within the consumer and other loan classes to enable management to estimate a quantitative portion of credit risk. Each month, management analyzes payment and volume activity, FICO scores and other external factors such as unemployment, to determine how consumer loans are performing. Following is a table showing originated consumer and other loans by payment status: Consumer Loan Credit Quality by Payment Status Performing Non-Performing Total December 31, 2015 Direct installment $ 1,646,925 $ 13,792 $ 1,660,717 Residential mortgages 1,031,926 12,763 1,044,689 Indirect installment 994,661 1,514 996,175 Consumer lines of credit 1,019,783 2,047 1,021,830 Other 38,518 — 38,518 December 31, 2014 Direct installment $ 1,565,090 $ 14,680 $ 1,579,770 Residential mortgages 802,522 15,064 817,586 Indirect installment 872,340 1,305 873,645 Consumer lines of credit 944,631 1,796 946,427 Other 41,290 — 41,290 Loans and leases are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan and lease contract is doubtful. Typically, the Corporation does not consider loans and leases for impairment unless a sustained period of delinquency (i.e., 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e., negative financial trends, bankruptcy filings, imminent foreclosure proceedings, etc.). Impairment is evaluated in the aggregate for consumer installment loans, residential mortgages, consumer lines of credit and commercial loan relationships less than $500 based on loan segment loss given default. For commercial loan relationships greater than or equal to $500, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using a market interest rate or at the fair value of collateral if repayment is expected solely from the collateral. Consistent with the Corporation’s existing method of income recognition for loans, interest on impaired loans, except those classified as non-accrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Following is a summary of information pertaining to originated loans and leases considered to be impaired, by class of loan and lease: Unpaid Principal Balance Recorded Investment Reserve Recorded Investment Specific Reserve Total Recorded Investment Specific Average Recorded Investment At or for the Year Ended December 31, 2015 Commercial real estate $ 33,780 $ 24,423 $ 772 $ 25,195 $ 321 $ 26,143 Commercial and industrial 15,860 9,176 5,543 14,719 2,329 12,298 Commercial leases 659 659 — 659 — 747 Total commercial loans and leases 50,299 34,258 6,315 40,573 2,650 39,188 Direct installment 14,679 13,792 — 13,792 — 13,267 Residential mortgages 13,394 12,763 — 12,763 — 12,896 Indirect installment 3,745 1,514 — 1,514 — 1,401 Consumer lines of credit 2,408 2,047 — 2,047 — 2,198 $ 84,525 $ 64,374 $ 6,315 $ 70,689 $ 2,650 $ 68,950 At or for the Year Ended December 31, 2014 Commercial real estate $ 34,583 $ 25,443 $ 883 $ 26,326 $ 399 $ 30,807 Commercial and industrial 11,412 7,609 1,948 9,557 780 9,510 Commercial leases 722 722 — 722 — 686 Total commercial loans and leases 46,717 33,774 2,831 36,605 1,179 41,003 Direct installment 14,987 14,680 — 14,680 — 14,248 Residential mortgages 16,791 15,064 — 15,064 — 16,924 Indirect installment 1,467 1,305 — 1,305 — 1,399 Consumer lines of credit 1,803 1,796 — 1,796 — 1,793 $ 81,765 $ 66,619 $ 2,831 $ 69,450 $ 1,179 $ 75,367 Interest income is generally no longer recognized once a loan becomes impaired. These tables do not reflect the additional allowance for credit losses relating to acquired loans in the following pools and categories: commercial real estate of $3,073; commercial and industrial of $695; direct installment of $1,557; residential mortgages of $659; indirect installment of $221; and consumer lines of credit of $522, totaling $6,727 at December 31, 2015 and commercial real estate of $3,286; commercial and industrial of $1,484; direct installment of $1,847; residential mortgages of $858; indirect installment of $232; and consumer lines of credit of $267, totaling $7,974 at December 31, 2014. Troubled Debt Restructurings TDRs are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs typically result from loss mitigation activities and could include the extension of a maturity date, interest rate reduction, principal forgiveness, deferral or decrease in payments for a period of time and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral. Following is a summary of the composition of total TDRs: December 31 2015 2014 Accruing: Performing $ 15,165 $ 9,441 Non-performing 22,028 23,439 Non-accrual 8,307 8,272 $ 45,500 $ 41,152 TDRs that are accruing and performing include loans that met the criteria for non-accrual of interest prior to restructuring for which the Corporation can reasonably estimate the timing and amount of the expected cash flows on such loans and for which the Corporation expects to fully collect the new carrying value of the loans. During 2015, the Corporation returned to performing status $7,338 in restructured residential mortgage loans that have consistently met their modified obligations for more than six months. TDRs that are accruing and non-performing are comprised of consumer loans that have not demonstrated a consistent repayment pattern on the modified terms for more than six months, however it is expected that the Corporation will collect all future principal and interest payments. TDRs that are on non-accrual are not placed on accruing status until all delinquent principal and interest have been paid and the ultimate collectability of the remaining principal and interest is reasonably assured. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and may result in potential incremental losses which are factored into the allowance for credit losses. Excluding purchased impaired loans, commercial loans over $500 whose terms have been modified in a TDR are generally placed on non-accrual, individually analyzed and measured for estimated impairment based on the fair value of the underlying collateral. The Corporation’s allowance for credit losses included specific reserves for commercial TDRs of $300 and $371 at December 31, 2015 and 2014, respectively, and pooled reserves for individual loans under $500 of $929 and $1,215 for those same respective periods, based on loan segment loss given default. Upon default, the amount of the recorded investment in the TDR in excess of the fair value of the collateral, less estimated selling costs, is generally considered a confirmed loss and is charged-off against the allowance for credit losses. All other classes of loans, which are primarily secured by residential properties, whose terms have been modified in a TDR are pooled and measured for estimated impairment based on the expected net present value of the estimated future cash flows of the pool. The Corporation’s allowance for credit losses included pooled reserves for these classes of loans of $3,515 and $3,448 at December 31, 2015 and 2014, respectively. Upon default of an individual loan, the Corporation’s charge-off policy is followed accordingly for that class of loan. The majority of TDRs are the result of interest rate concessions for a limited period of time. Following is a summary of loans, by class, that have been restructured: Year Ended December 31 2015 2014 Number of Contracts Pre-Modification Recorded Investment Post- Outstanding Recorded Investment Number of Contracts Pre-Modification Recorded Investment Post- Outstanding Recorded Investment Commercial real estate 3 $ 1,165 $ 960 11 $ 2,946 $ 2,282 Commercial and industrial 1 5 4 4 573 540 Total commercial loans 4 1,170 964 15 3,519 2,822 Direct installment 489 6,712 6,314 522 5,742 5,422 Residential mortgages 45 1,667 1,660 46 2,456 2,357 Indirect installment 17 55 48 24 70 66 Consumer lines of credit 58 950 832 41 1,089 1,037 613 $ 10,554 $ 9,818 648 $ 12,876 $ 11,704 Following is a summary of TDRs, by class of loans, for which there was a payment default, excluding loans that were either charged-off or cured by period end. Default occurs when a loan is 90 days or more past due and is within 12 months of restructuring. Year Ended December 31 2015 2014 Number Contracts Recorded Investment (1) Number Contracts Recorded Investment (1) Commercial real estate 1 $ 26 — $ — Commercial and industrial — — — — Total commercial loans 1 26 — — Direct installment 97 510 97 728 Residential mortgages 7 306 4 151 Indirect installment 9 14 7 16 Consumer lines of credit — — 1 50 114 $ 856 109 $ 945 (1) The recorded investment is as of period end. |