Loans and Leases | 5. LOANS AND LEASES Following is a summary of loans and leases, net of unearned income: (in thousands) Originated Loans and Leases Acquired Loans Total Loans and March 31, 2017 Commercial real estate $ 4,262,270 $ 4,506,087 $ 8,768,357 Commercial and industrial 2,857,584 935,095 3,792,679 Commercial leases 197,071 — 197,071 Total commercial loans and leases 7,316,925 5,441,182 12,758,107 Direct installment 1,758,895 206,223 1,965,118 Residential mortgages 1,551,928 790,239 2,342,167 Indirect installment 1,259,770 177 1,259,947 Consumer lines of credit 1,100,695 705,301 1,805,996 Other 46,315 — 46,315 Total loans and leases, net of unearned income $ 13,034,528 $ 7,143,122 $ 20,177,650 December 31, 2016 Commercial real estate $ 4,095,817 $ 1,339,345 $ 5,435,162 Commercial and industrial 2,711,886 330,895 3,042,781 Commercial leases 196,636 — 196,636 Total commercial loans and leases 7,004,339 1,670,240 8,674,579 Direct installment 1,765,257 79,142 1,844,399 Residential mortgages 1,446,776 397,798 1,844,574 Indirect installment 1,196,110 203 1,196,313 Consumer lines of credit 1,099,627 201,573 1,301,200 Other 35,878 — 35,878 Total loans and leases, net of unearned income $ 12,547,987 $ 2,348,956 $ 14,896,943 The loans and leases portfolio categories are comprised of the following: • Commercial real estate includes both owner-occupied and non-owner-occupied • Commercial and industrial includes loans to businesses that are not secured by real estate; • Commercial leases consist of leases for new or used equipment; • Direct installment is comprised of fixed-rate, closed-end • Residential mortgages consist of conventional and jumbo mortgage loans for 1-4 • Indirect installment is comprised of loans originated by approved third parties and underwritten by us, 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; and • Other is comprised primarily of credit cards, mezzanine loans and student loans. The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized The loans and leases portfolio also contains Regency consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky. Due to the relative size of the Regency consumer finance loan portfolio, these loans are not segregated from other consumer loans. The following table shows certain information relating to the Regency consumer finance loans: March 31, December 31, (dollars in thousands) 2017 2016 Regency consumer finance loans $ 173,786 $ 184,687 Percent of total loans and leases 0.9 % 1.2 % The following table shows certain information relating to commercial real estate loans: March 31, December 31, (dollars in thousands) 2017 2016 Commercial construction loans $ 1,050,129 $ 459,995 Percent of total loans and leases 5.2 % 3.1 % Commercial real estate: Percent owner-occupied 37.4 % 36.2 % Percent non-owner-occupied 62.6 % 63.8 % Acquired Loans All acquired loans were initially recorded at fair value at the acquisition date. Refer to the Acquired Loans section in Note 1 of our 2016 Annual Report on Form 10-K 310-20 310-30 (in thousands) March 31, 2017 December 31, Accounted for under ASC 310-30: Outstanding balance $ 7,205,696 $ 2,346,687 Carrying amount 6,644,633 2,015,904 Accounted for under ASC 310-20: Outstanding balance 502,001 342,015 Carrying amount 491,921 325,784 Total acquired loans: Outstanding balance 7,707,697 2,688,702 Carrying amount 7,136,554 2,341,688 The outstanding balance is the undiscounted sum of all amounts owed under the loan, including amounts deemed principal, interest, fees, penalties and other, whether or not currently due and whether or not any such amounts have been written or charged-off. The carrying amount of purchased credit impaired loans included in the table above totaled $11.8 million at March 31, 2017 and $2.8 million at December 31, 2016, 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. 310-20 Three Months Ended March 31, (in thousands) 2017 2016 Balance at beginning of period $ 467,070 $ 256,120 Acquisitions 443,261 284,092 Reduction due to unexpected early payoffs (20,560 ) (9,375 ) Reclass from non-accretable 23,106 10,494 Disposals/transfers (36 ) (260 ) Accretion (25,241 ) (13,204 ) Balance at end of period $ 887,600 $ 527,867 Cash flows expected to be collected on acquired loans are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. Improved cash flow expectations for loans or pools are recorded first as a reversal of previously recorded impairment, if any, and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as impairment through a charge to the provision for credit losses and credit to the allowance for credit losses. During the three months ended March 31, 2017, there was an overall improvement in cash flow expectations which resulted in a net reclassification of $23.1 million from the non-accretable non-accretable The following table reflects amounts at acquisition for all purchased loans subject to ASC 310-30 non-impaired (in thousands) Acquired Acquired Performing Loans Total Contractually required cash flows at acquisition $ 48,941 $ 5,084,475 $ 5,133,416 Non-accretable (25,673 ) (406,802 ) (432,475 ) Cash flows expected to be collected at acquisition 23,268 4,677,673 4,700,941 Accretable yield (3,323 ) (439,938 ) (443,261 ) Fair value of acquired loans at acquisition $ 19,945 $ 4,237,735 $ 4,257,680 In addition, loans purchased in the YDKN acquisition that were not subject to ASC 310-30 Credit Quality Management monitors the credit quality of our loan and lease portfolio using several performance measures to do so based on payment activity and borrower performance. Non-performing non-accrual non-performing non-accrual non-accrual non-accrual non-accrual non-accrual non-accrual non-accrual Non-accrual Following is a summary of non-performing (dollars in thousands) March 31, 2017 December 31, Non-accrual $ 81,390 $ 65,479 Troubled debt restructurings 23,988 20,428 Total non-performing 105,378 85,907 Other real estate owned (OREO) 50,088 32,490 Total non-performing $ 155,466 $ 118,397 Asset quality ratios: Non-performing 0.52 % 0.58 % Non-performing 0.77 % 0.79 % Non-performing 0.51 % 0.54 % 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 totaled $5.9 million at March 31, 2017 and $5.3 million at December 31, 2016. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at March 31, 2017 and December 31, 2016 totaled $11.9 million and $12.0 million, respectively. The following tables provide an analysis of the aging of loans by class segregated by loans and leases originated and loans acquired: (in thousands) 30-89 Days Past Due ³ 90 Days Non- Accrual Total Past Due Current Total Loans and Originated Loans and Leases March 31, 2017 Commercial real estate $ 5,923 $ 1 $ 23,040 $ 28,964 $ 4,233,306 $ 4,262,270 Commercial and industrial 5,007 3 34,826 39,836 2,817,748 2,857,584 Commercial leases 1,039 — 2,017 3,056 194,015 197,071 Total commercial loans and leases 11,969 4 59,883 71,856 7,245,069 7,316,925 Direct installment 7,973 4,092 7,675 19,740 1,739,155 1,758,895 Residential mortgages 9,797 1,966 4,466 16,229 1,535,699 1,551,928 Indirect installment 5,678 374 1,488 7,540 1,252,230 1,259,770 Consumer lines of credit 2,739 375 1,782 4,896 1,095,799 1,100,695 Other 242 121 1,000 1,363 44,952 46,315 Total originated loans and leases $ 38,398 $ 6,932 $ 76,294 $ 121,624 $ 12,912,904 $ 13,034,528 December 31, 2016 Commercial real estate $ 8,452 $ 1 $ 20,114 $ 28,567 $ 4,067,250 $ 4,095,817 Commercial and industrial 16,019 3 24,141 40,163 2,671,723 2,711,886 Commercial leases 973 1 3,429 4,403 192,233 196,636 Total commercial loans and leases 25,444 5 47,684 73,133 6,931,206 7,004,339 Direct installment 10,573 4,386 6,484 21,443 1,743,814 1,765,257 Residential mortgages 10,594 3,014 3,316 16,924 1,429,852 1,446,776 Indirect installment 9,312 513 1,983 11,808 1,184,302 1,196,110 Consumer lines of credit 3,529 1,112 1,616 6,257 1,093,370 1,099,627 Other 398 83 1,000 1,481 34,397 35,878 Total originated loans and leases $ 59,850 $ 9,113 $ 62,083 $ 131,046 $ 12,416,941 $ 12,547,987 (in thousands) 30-89 Days Past Due ³ 90 Days and Still Non- Accrual Total Past Due (1) (2) Current Discount Total Loans Acquired Loans March 31, 2017 Commercial real estate $ 41,450 $ 39,243 $ 1,414 $ 82,107 $ 4,630,159 $ (206,179 ) $ 4,506,087 Commercial and industrial 7,587 7,736 2,854 18,177 977,012 (60,094 ) 935,095 Total commercial loans 49,037 46,979 4,268 100,284 5,607,171 (266,273 ) 5,441,182 Direct installment 5,669 2,183 81 7,933 196,563 1,727 206,223 Residential mortgages 19,069 14,075 — 33,144 800,460 (43,365 ) 790,239 Indirect installment — 2 — 2 75 100 177 Consumer lines of credit 11,395 5,974 747 18,116 703,422 (16,237 ) 705,301 Total acquired loans $ 85,170 $ 69,213 $ 5,096 $ 159,479 $ 7,307,691 $ (324,048 ) $ 7,143,122 December 31, 2016 Commercial real estate $ 9,501 $ 23,890 $ 949 $ 34,340 $ 1,384,752 $ (79,747 ) $ 1,339,345 Commercial and industrial 1,789 2,942 2,111 6,842 353,494 (29,441 ) 330,895 Total commercial loans 11,290 26,832 3,060 41,182 1,738,246 (109,188 ) 1,670,240 Direct installment 2,317 1,344 — 3,661 73,479 2,002 79,142 Residential mortgages 8,428 10,816 — 19,244 416,561 (38,007 ) 397,798 Indirect installment 19 4 — 23 96 84 203 Consumer lines of credit 2,156 1,528 336 4,020 201,958 (4,405 ) 201,573 Total acquired loans $ 24,210 $ 40,524 $ 3,396 $ 68,130 $ 2,430,340 $ (149,514 ) $ 2,348,956 (1) Past due information for acquired loans is based on the contractual balance outstanding at March 31, 2017 and December 31, 2016. (2) Acquired loans are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, as long as we can reasonably estimate the timing and amount of expected cash flows on such loans. In these instances, we do not consider acquired contractually delinquent loans to be non-accrual non-performing non-accrual non-performing non-accrual non-performing. We utilize the following categories to monitor credit quality within our commercial loan and lease portfolio: Rating Category Definition Pass in general, the condition and performance of the borrower 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 and performance of the borrower has significantly deteriorated and 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 and lease portfolio permits management’s use of transition matrices to estimate a quantitative portion of credit risk. Our internal credit risk grading system is based on past experiences with similarly graded loans and leases and conforms with regulatory categories. In general, loan and lease risk ratings within each category are reviewed on an ongoing basis according to our policy for each class of loans and leases. 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 and lease portfolio. Loans and leases within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans and leases 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 our commercial loans and leases by credit quality category, segregated by loans and leases originated and loans acquired: Commercial Loan and Lease Credit Quality Categories (in thousands) Pass Special Substandard Doubtful Total Originated Loans and Leases March 31, 2017 Commercial real estate $ 4,068,403 $ 132,700 $ 60,958 $ 209 $ 4,262,270 Commercial and industrial 2,616,144 122,892 109,515 9,033 2,857,584 Commercial leases 190,641 3,711 2,719 — 197,071 Total originated commercial loans and leases $ 6,875,188 $ 259,303 $ 173,192 $ 9,242 $ 7,316,925 December 31, 2016 Commercial real estate $ 3,895,764 $ 130,452 $ 69,588 $ 13 $ 4,095,817 Commercial and industrial 2,475,955 104,652 128,089 3,190 2,711,886 Commercial leases 188,662 3,789 4,185 — 196,636 Total originated commercial loans and leases $ 6,560,381 $ 238,893 $ 201,862 $ 3,203 $ 7,004,339 Acquired Loans March 31, 2017 Commercial real estate $ 3,699,904 $ 531,316 $ 274,506 $ 361 $ 4,506,087 Commercial and industrial 786,808 77,961 70,171 155 935,095 Total acquired commercial loans $ 4,486,712 $ 609,277 $ 344,677 $ 516 $ 5,441,182 December 31, 2016 Commercial real estate $ 1,144,676 $ 85,894 $ 108,128 $ 647 $ 1,339,345 Commercial and industrial 274,819 20,593 34,967 516 330,895 Total acquired commercial loans $ 1,419,495 $ 106,487 $ 143,095 $ 1,163 $ 1,670,240 Credit quality information for acquired loans is based on the contractual balance outstanding at March 31, 2017 and December 31, 2016. We use 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 consumer loans by payment status: Consumer Loan Credit Quality by Payment Status (in thousands) Performing Non- Performing Total Originated loans March 31, 2017 Direct installment $ 1,742,702 $ 16,193 $ 1,758,895 Residential mortgages 1,537,779 14,149 1,551,928 Indirect installment 1,258,084 1,686 1,259,770 Consumer lines of credit 1,097,781 2,914 1,100,695 Total originated consumer loans $ 5,636,346 $ 34,942 $ 5,671,288 December 31, 2016 Direct installment $ 1,750,305 $ 14,952 $ 1,765,257 Residential mortgages 1,433,409 13,367 1,446,776 Indirect installment 1,193,930 2,180 1,196,110 Consumer lines of credit 1,096,642 2,985 1,099,627 Total originated consumer loans $ 5,474,286 $ 33,484 $ 5,507,770 Acquired loans March 31, 2017 Direct installment $ 206,138 $ 85 $ 206,223 Residential mortgages 788,656 1,583 790,239 Indirect installment 177 — 177 Consumer lines of credit 703,972 1,329 705,301 Total acquired consumer loans $ 1,698,943 $ 2,997 $ 1,701,940 December 31, 2016 Direct installment $ 79,142 $ — $ 79,142 Residential mortgages 397,798 — 397,798 Indirect installment 203 — 203 Consumer lines of credit 201,061 512 201,573 Total acquired consumer loans $ 678,204 $ 512 $ 678,716 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, we do not consider loans and leases for impairment unless a sustained period of delinquency (i.e., 90-plus non-accrual, Following is a summary of information pertaining to originated loans and leases considered to be impaired, by class of loan and lease: (in thousands) Unpaid Contractual Principal Balance Recorded Investment With No Specific Reserve Recorded Investment Specific Reserve Total Recorded Investment Specific Reserve Average Recorded Investment At or for the Three Months Ended March 31, 2017 Commercial real estate $ 27,470 $ 21,266 $ 1,795 $ 23,061 $ 209 $ 21,612 Commercial and industrial 36,889 12,055 22,299 34,354 9,038 29,065 Commercial leases 2,017 2,017 — 2,017 — 2,723 Total commercial loans and leases 66,376 35,338 24,094 59,432 9,247 53,400 Direct installment 18,062 16,193 — 16,193 — 15,572 Residential mortgages 15,151 14,149 — 14,149 — 13,758 Indirect installment 4,168 1,686 — 1,686 — 1,933 Consumer lines of credit 3,831 2,914 — 2,914 — 2,950 Other 1,000 1,000 — 1,000 — 1,000 Total $ 108,588 $ 71,280 $ 24,094 $ 95,374 $ 9,247 $ 88,613 At or for the Year Ended December 31, 2016 Commercial real estate $ 23,771 $ 19,699 $ 464 $ 20,163 $ 13 $ 19,217 Commercial and industrial 25,719 14,781 8,996 23,777 3,190 29,730 Commercial leases 3,429 3,429 — 3,429 — 3,394 Total commercial loans and leases 52,919 37,909 9,460 47,369 3,203 52,341 Direct installment 16,440 14,952 — 14,952 — 14,997 Residential mortgages 14,090 13,367 — 13,367 — 13,200 Indirect installment 5,172 2,180 — 2,180 — 2,037 Consumer lines of credit 3,858 2,985 — 2,985 — 2,813 Other 1,000 1,000 — 1,000 — 1,000 Total $ 93,479 $ 72,393 $ 9,460 $ 81,853 $ 3,203 $ 86,388 Interest income continued to accrue on certain impaired loans and totaled approximately $1.9 million and $1.2 million for the three months ended March 31, 2017 and 2016, respectively. The above tables do not reflect the additional allowance for credit losses relating to acquired loans in the following pools and categories: (in thousands) March 31, 2017 December 31, 2016 Commercial real estate $ 3,734 $ 4,538 Commercial and industrial 127 500 Total commercial loans 3,861 5,038 Direct installment 994 1,005 Residential mortgages 795 632 Indirect installment 221 221 Consumer lines of credit 697 372 Total allowance on acquired loans $ 6,568 $ 7,268 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 payment status of TDRs: (in thousands) Originated Acquired Total March 31, 2017 Accruing: Performing $ 17,552 $ 272 $ 17,824 Non-performing 19,659 4,329 23,988 Non-accrual 8,862 562 9,424 Total TDRs $ 46,073 $ 5,163 $ 51,236 December 31, 2016 Accruing: Performing $ 17,105 $ 365 $ 17,470 Non-performing 20,252 176 20,428 Non-accrual 9,035 — 9,035 Total TDRs $ 46,392 $ 541 $ 46,933 TDRs that are accruing and performing include loans that met the criteria for non-accrual non-performing non-accrual Excluding purchased impaired loans, commercial loans over $500,000 whose terms have been modified in a TDR are generally placed on non-accrual, charged-off (in thousands) March 31, 2017 December 31, Specific reserves for commercial TDRs $ 253 $ 291 Pooled reserves for individual loans under $500 234 276 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. Our allowance for credit losses included pooled reserves for these classes of loans of $3.7 million at both March 31, 2017 and December 31, 2016. Upon default of an individual loan, our charge-off 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: Three Months Ended March 31, 2017 Three Months Ended March 31, 2016 (dollars in thousands) 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 1 $ 114 $ 109 4 $ 778 $ 760 Commercial and industrial — — — 2 5,565 3,279 Total commercial loans 1 114 109 6 6,343 4,039 Direct installment 171 1,488 1,412 145 1,991 1,961 Residential mortgages 8 163 176 18 968 951 Indirect installment 5 17 14 3 11 12 Consumer lines of credit 22 742 729 20 243 238 Total 207 $ 2,524 $ 2,440 192 $ 9,556 $ 7,201 Following is a summary of originated TDRs, by class, for which there was a payment default, excluding loans that were either charged-off Three Months Ended March 31, 2017 Three Months Ended March 31, 2016 (dollars in thousands) Number of Contracts Recorded Investment Number of Contracts Recorded Investment Commercial real estate — $ — — $ — Commercial and industrial — — — — Total commercial loans — — — — Direct installment 29 82 28 175 Residential mortgages 2 224 1 50 Indirect installment 6 10 4 5 Consumer lines of credit 1 34 1 10 Total 38 $ 350 34 $ 240 |