Loans and Allowance for Credit Losses | Loans and Leases and Allowance for Credit Losses Loans and Leases, Net of Unearned Income Loans and leases, net of unearned income are summarized as follows: June 30, December 31, 2018 (in thousands) Real-estate - commercial mortgage $ 6,497,973 $ 6,434,285 Commercial - industrial, financial and agricultural 4,365,248 4,404,548 Real estate - residential mortgage 2,451,966 2,251,044 Real estate - home equity 1,386,974 1,452,137 Real estate - construction 922,547 916,599 Consumer 452,874 419,186 Equipment lease financing and other 314,901 311,866 Overdrafts 3,187 2,774 Loans and leases, gross of unearned income 16,395,670 16,192,439 Unearned income (27,212 ) (26,639 ) Loans and leases, net of unearned income $ 16,368,458 $ 16,165,800 The Corporation segments its loan and lease portfolio by general loan type, or "portfolio segments," as presented in the table under the heading, "Loans and Leases, Net of Unearned Income," above. Certain portfolio segments are further disaggregated and evaluated collectively for impairment based on "class segments," which are largely based on the type of collateral underlying each loan. Commercial loans include both secured and unsecured loans. Construction loans include loans secured by commercial real estate, loans to commercial borrowers secured by residential real estate and loans to individuals secured by residential real estate. Consumer loans include direct consumer installment loans and indirect vehicle loans. Allowance for Credit Losses The allowance for credit losses consists of the allowance for loan and lease losses and the reserve for unfunded lending commitments. The allowance for loan and lease losses represents management’s estimate of incurred losses in the loan and lease portfolio as of the balance sheet date and is recorded as a reduction to loans and leases. The reserve for unfunded lending commitments represents management’s estimate of incurred losses in its unfunded loan commitments and other off balance sheet credit exposures, such as letters of credit, and is recorded in other liabilities on the consolidated balance sheets. The allowance for credit losses is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries. The Corporation’s allowance for credit losses includes: (1) specific allowances allocated to loans and leases individually evaluated for impairment (FASB ASC Section 310-10-35); and (2) allowances calculated for pools of loans and leases collectively evaluated for impairment (FASB ASC Subtopic 450-20). The following table presents the components of the allowance for credit losses: June 30, December 31, (in thousands) Allowance for loan and lease losses $ 170,233 $ 160,537 Reserve for unfunded lending commitments 6,708 8,873 Allowance for credit losses $ 176,941 $ 169,410 The following table presents the activity in the allowance for credit losses: Three months ended June 30 Six months ended June 30 2019 2018 2019 2018 (in thousands) Balance at beginning of period $ 170,372 $ 176,019 $ 169,410 $ 176,084 Loans and leases charged off (3,711 ) (42,160 ) (10,080 ) (48,557 ) Recoveries of loans and leases previously charged off 5,255 2,271 7,486 4,633 Net loans and leases recovered (charged off) 1,544 (39,889 ) (2,594 ) (43,924 ) Provision for credit losses 5,025 33,117 10,125 37,087 Balance at end of period $ 176,941 $ 169,247 $ 176,941 $ 169,247 The following table presents the activity in the allowance for loan and lease losses by portfolio segment: Real Estate - Commercial Mortgage Commercial - Industrial, Financial and Agricultural Real Estate - Home Equity Real Estate - Residential Mortgage Real Estate - Construction Consumer Equipment lease financing, other and overdrafts Total (in thousands) Three months ended June 30, 2019 Balance at March 31, 2019 $ 51,946 $ 60,501 $ 19,215 $ 19,146 $ 4,941 $ 3,319 $ 3,041 $ 162,109 Loans and leases charged off (230 ) (1,895 ) (206 ) (134 ) (3 ) (795 ) (448 ) (3,711 ) Recoveries of loans and leases previously charged off 169 2,680 223 211 1,245 579 148 5,255 Net loans and leases (charged off) recovered (61 ) 785 17 77 1,242 (216 ) (300 ) 1,544 Provision for loan and lease losses (1) 2,974 5,055 (251 ) (331 ) (1,255 ) 260 128 6,580 Balance at June 30, 2019 $ 54,859 $ 66,341 $ 18,981 $ 18,892 $ 4,928 $ 3,363 $ 2,869 $ 170,233 Three months ended June 30, 2018 Balance at March 31, 2018 $ 58,717 $ 61,830 $ 17,528 $ 15,261 $ 5,924 $ 1,903 $ 2,054 $ 163,217 Loans and leases charged off (366 ) (38,632 ) (816 ) (483 ) (606 ) (712 ) (545 ) (42,160 ) Recoveries of loans and leases previously charged off 321 541 271 96 444 446 152 2,271 Net loans and leases charged off (45 ) (38,091 ) (545 ) (387 ) (162 ) (266 ) (393 ) (39,889 ) Provision for loan and lease losses (1) (2,089 ) 35,306 (736 ) (370 ) 226 62 323 32,722 Balance at June 30, 2018 $ 56,583 $ 59,045 $ 16,247 $ 14,504 $ 5,988 $ 1,699 $ 1,984 $ 156,050 Six months ended June 30, 2019 Balance at December 31, 2018 $ 52,889 $ 58,868 $ 18,911 $ 18,921 $ 5,061 $ 3,217 $ 2,670 $ 160,537 Loans and leases charged off (1,375 ) (4,682 ) (425 ) (789 ) (98 ) (1,478 ) (1,233 ) (10,080 ) Recoveries of loans and leases previously charged off 305 3,923 420 343 1,329 789 377 7,486 Net loans and leases (charged off) recovered (1,070 ) (759 ) (5 ) (446 ) 1,231 (689 ) (856 ) (2,594 ) Provision for loan losses (1) 3,040 8,232 75 417 (1,364 ) 835 1,055 12,290 Balance at June 30, 2019 $ 54,859 $ 66,341 $ 18,981 $ 18,892 $ 4,928 $ 3,363 $ 2,869 $ 170,233 Six months ended June 30, 2018 Balance at December 31, 2017 $ 58,793 $ 66,280 $ 18,127 $ 16,088 $ 6,620 $ 2,045 $ 1,957 $ 169,910 Loans and leases charged off (633 ) (42,637 ) (1,224 ) (645 ) (764 ) (1,604 ) (1,050 ) (48,557 ) Recoveries of loans and leases previously charged off 600 1,616 477 203 750 625 362 4,633 Net loans and leases charged off (33 ) (41,021 ) (747 ) (442 ) (14 ) (979 ) (688 ) (43,924 ) Provision for loan losses (1) (2,177 ) 33,786 (1,133 ) (1,142 ) (618 ) 633 715 30,064 Balance at June 30, 2018 $ 56,583 $ 59,045 $ 16,247 $ 14,504 $ 5,988 $ 1,699 $ 1,984 $ 156,050 (1) The provision for loan and lease losses excluded a $1.6 million and a $2.2 million decrease in the reserve for unfunded lending commitments for the three and six months ended June 30, 2019 , respectively, and a $395,000 and a $7.0 million increase in the reserve for unfunded lending commitments for the three and six months ended June 30, 2018, respectively. The following table presents loans and leases, net of unearned income and their related allowance for loan and lease losses, by portfolio segment: Real Estate - Commercial Mortgage Commercial - Industrial, Financial and Agricultural Real Estate - Home Equity Real Estate - Residential Mortgage Real Estate - Construction Consumer Equipment lease financing, other and overdrafts Total (in thousands) Allowance for loan and lease losses at June 30, 2019: Collectively evaluated for impairment $ 45,367 $ 53,985 $ 8,463 $ 9,913 $ 4,399 $ 3,356 $ 2,869 $ 128,352 Individually evaluated for impairment 9,492 12,356 10,518 8,979 529 7 — 41,881 $ 54,859 $ 66,341 $ 18,981 $ 18,892 $ 4,928 $ 3,363 $ 2,869 $ 170,233 Loans and leases, net of unearned income at June 30, 2019: Collectively evaluated for impairment $ 6,438,080 $ 4,313,666 $ 1,363,392 $ 2,414,627 $ 918,380 $ 452,865 $ 273,118 $ 16,174,128 Individually evaluated for impairment 59,893 51,582 23,582 37,339 4,167 9 17,758 194,330 $ 6,497,973 $ 4,365,248 $ 1,386,974 $ 2,451,966 $ 922,547 $ 452,874 $ 290,876 $ 16,368,458 Allowance for loan and lease losses at June 30, 2018: Collectively evaluated for impairment $ 48,489 $ 49,354 $ 5,093 $ 5,171 $ 5,338 $ 1,691 $ 1,984 $ 117,120 Individually evaluated for impairment 8,094 9,691 11,154 9,333 650 8 — 38,930 $ 56,583 $ 59,045 $ 16,247 $ 14,504 $ 5,988 $ 1,699 $ 1,984 $ 156,050 Loans and leases, net of unearned income at June 30, 2018: Collectively evaluated for impairment $ 6,252,747 $ 4,209,786 $ 1,466,393 $ 2,055,206 $ 981,584 $ 360,304 $ 286,947 $ 15,612,967 Individually evaluated for impairment 51,728 54,816 25,002 39,324 9,121 11 — 180,002 $ 6,304,475 $ 4,264,602 $ 1,491,395 $ 2,094,530 $ 990,705 $ 360,315 $ 286,947 $ 15,792,969 Impaired Loans and Leases A loan or lease is considered to be impaired if it is probable that all amounts will not be collected according to the contractual terms of the loan or lease agreement. Impaired loans and leases consist of all loans and leases on non-accrual status and accruing troubled debt restructurings ("TDRs"). An allowance for loan and lease losses is established for an impaired loan or lease if its carrying value exceeds its estimated fair value. Impaired loans and leases to borrowers with total commitments greater than or equal to $1.0 million are evaluated individually for impairment. Impaired loans and leases to borrowers with total commitments less than $1.0 million are pooled and measured for impairment collectively. All loans and leases individually evaluated for impairment are measured for losses on a quarterly basis. As of June 30, 2019 and December 31, 2018 , substantially all of the Corporation’s individually evaluated impaired loans and leases with total commitments greater than or equal to $1.0 million were measured based on the estimated fair value of each loan’s collateral. Collateral could be in the form of real estate, in the case of impaired commercial mortgages and construction loans, or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate. As of June 30, 2019 and December 31, 2018 , approximately 84% and 89% , respectively, of impaired loans and leases with principal balances greater than or equal to $1.0 million , whose primary collateral is real estate, were measured at estimated fair value using appraisals performed by state certified third-party appraisers that had been updated in the preceding 12 months. When updated appraisals are not obtained for loans and leases evaluated for impairment that are secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated an acceptable loan-to-value position and, in the opinion of the Corporation's internal credit administration staff, there has not been a significant deterioration in the collateral value since the original appraisal was performed. Original appraisals are typically used only when the estimated collateral value, as adjusted for the age of the appraisal, results in a current loan-to-value ratio that is lower than the Corporation's loan-to-value requirements for new loans, generally less than 70% . The following table presents total impaired loans and leases by class segment: June 30, 2019 December 31, 2018 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 $ 32,406 $ 30,574 $ — $ 25,095 $ 23,481 $ — Commercial 29,696 23,588 — 33,493 26,585 — Real estate - residential mortgage 4,565 4,400 — 3,149 3,149 — Construction 6,454 2,604 — 8,980 5,083 — Equipment lease financing 17,758 17,758 — 19,269 19,268 — 90,879 78,924 — 89,986 77,566 — With a related allowance recorded: Real estate - commercial mortgage 40,435 29,319 9,492 29,005 22,592 7,255 Commercial 38,010 27,994 12,356 37,706 28,708 12,513 Real estate - residential mortgage 37,202 32,939 8,979 39,972 35,621 9,394 Real estate - home equity 26,712 23,582 10,518 26,599 23,373 10,370 Construction 5,112 1,563 529 5,984 2,307 793 Consumer 9 9 7 11 11 7 147,480 115,406 41,881 139,277 112,612 40,332 Total $ 238,359 $ 194,330 $ 41,881 $ 229,263 $ 190,178 $ 40,332 As of June 30, 2019 and December 31, 2018 , there were $78.9 million and $77.6 million , respectively, of impaired loans and leases that did not have a related allowance for loan and lease losses. The estimated fair values of the collateral securing these loans and leases exceeded their carrying amount, or the loans and leases were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary. The following table presents average impaired loans and leases by class segment: Three months ended June 30 Six months ended June 30 2019 2018 2019 2018 Average Interest (1) Average Interest (1) Average Interest (1) Average Interest (1) (in thousands) With no related allowance recorded: Real estate - commercial mortgage $ 27,738 $ 100 $ 27,127 $ 97 $ 26,319 $ 197 $ 25,713 $ 180 Commercial 25,238 32 33,644 69 25,686 62 35,612 142 Real estate - residential mortgage 3,764 23 3,870 24 3,559 43 4,105 51 Construction 3,814 — 7,528 — 4,237 — 7,718 — Equipment lease financing, other and overdrafts 18,136 — — — 18,513 — — 78,690 155 72,169 190 78,314 302 73,148 373 With a related allowance recorded: Real estate - commercial mortgage 24,528 87 25,419 91 23,883 172 25,578 175 Commercial 28,485 36 26,120 54 28,558 69 25,471 97 Real estate - home equity 23,706 222 24,907 195 23,595 445 24,835 379 Real estate - residential mortgage 34,695 215 36,261 223 35,004 440 36,551 444 Construction 1,595 — 2,400 — 1,832 — 2,966 — Consumer 10 — 18 — 10 — 20 — 113,019 560 115,125 563 112,882 1,126 115,421 1,095 Total $ 191,709 $ 715 $ 187,294 $ 753 $ 191,196 $ 1,428 $ 188,569 $ 1,468 (1) All impaired loans, excluding accruing TDRs, were non-accrual loans. Interest income recognized for the three and six months ended June 30, 2019 and 2018 represents amounts earned on accruing TDRs. Credit Quality Indicators and Non-performing Assets The following is a summary of the Corporation's internal risk rating categories: • Pass : These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk. • Special Mention : These loans have a heightened credit risk, but not to the point of justifying a classification of substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak. • Substandard or Lower : These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt. The risk rating process allows management to identify credits that potentially carry more risk in a timely manner and to allocate resources to managing troubled accounts. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for the class segments presented in the preceding tables. The migration of loans through the various internal risk rating categories is a significant component of the allowance for credit loss methodology, which bases the probability of default on this migration. Assigning risk ratings involves judgment. The Corporation's loan review officers provide an independent assessment of risk rating accuracy. Ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or if specific loan review activities identify a deterioration or an improvement in the loan. The following table presents internal credit risk ratings for the indicated loan class segments: Pass Special Mention Substandard or Lower Total June 30, 2019 December 31, 2018 June 30, 2019 December 31, 2018 June 30, 2019 December 31, 2018 June 30, 2019 December 31, 2018 (dollars in thousands) Real estate - commercial mortgage $ 6,173,883 $ 6,129,463 $ 162,425 $ 170,827 $ 161,665 $ 133,995 $ 6,497,973 $ 6,434,285 Commercial - secured 3,835,171 3,902,484 182,569 193,470 171,856 129,026 4,189,596 4,224,980 Commercial - unsecured 168,311 171,589 4,972 4,016 2,369 3,963 175,652 179,568 Total commercial - industrial, financial and agricultural 4,003,482 4,074,073 187,541 197,486 174,225 132,989 4,365,248 4,404,548 Construction - commercial residential 109,168 104,079 3,082 6,912 3,959 6,881 116,209 117,872 Construction - commercial 725,556 723,030 731 1,163 3,197 2,533 729,484 726,726 Total construction (excluding Construction - other) 834,724 827,109 3,813 8,075 7,156 9,414 845,693 844,598 $ 11,012,089 $ 11,030,645 $ 353,779 $ 376,388 $ 343,046 $ 276,398 $ 11,708,914 $ 11,683,431 % of Total 94.1 % 94.4 % 3.0 % 3.2 % 2.9 % 2.4 % 100.0 % 100.0 % The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans and leases, such as home equity, residential mortgage, construction loans to individuals secured by residential real estate, consumer and leases. For these loans and leases, the most relevant credit quality indicator is delinquency status. The migration of loans and leases through the various delinquency status categories is a significant component of the allowance for credit losses methodology for those loans and leases, which bases the probability of default on this migration. The following table presents a summary of performing, delinquent and non-performing loans and leases for the indicated class segments: Performing Delinquent (1) Non-performing (2) Total June 30, 2019 December 31, 2018 June 30, 2019 December 31, 2018 June 30, 2019 December 31, 2018 June 30, 2019 December 31, 2018 (dollars in thousands) Real estate - home equity $ 1,363,344 $ 1,431,666 $ 11,634 $ 10,702 $ 11,996 $ 9,769 $ 1,386,974 $ 1,452,137 Real estate - residential mortgage 2,398,432 2,202,955 31,876 28,988 21,658 19,101 2,451,966 2,251,044 Construction - other 76,116 71,511 549 — 189 490 76,854 72,001 Consumer - direct 58,295 55,629 295 338 123 66 58,713 56,033 Consumer - indirect 390,394 359,405 3,508 3,405 259 343 394,161 363,153 Total consumer 448,689 415,034 3,803 3,743 382 409 452,874 419,186 Equipment lease financing, other and overdrafts 271,130 267,112 1,808 1,302 17,938 19,587 290,876 288,001 $ 4,557,711 $ 4,388,278 $ 49,670 $ 44,735 $ 52,163 $ 49,356 $ 4,659,544 $ 4,482,369 % of Total 97.8 % 97.9 % 1.1 % 1.0 % 1.1 % 1.1 % 100.0 % 100.0 % (1) Includes all accruing loans and leases 30 days to 89 days past due. (2) Includes all accruing loans and leases 90 days or more past due and all non-accrual loans and leases. The following table presents non-performing assets: June 30, December 31, (in thousands) Non-accrual loans and leases $ 133,118 $ 128,572 Loans and leases 90 days or more past due and still accruing 14,598 11,106 Total non-performing loans and leases 147,716 139,678 Other real estate owned (OREO) 7,241 10,518 Total non-performing assets $ 154,957 $ 150,196 The following tables present past due status and non-accrual loans and leases by portfolio segment and class segment: June 30, 2019 30-59 Days Past Due 60-89 Days Past Due ≥ 90 Days Past Due and Accruing Non- accrual Total ≥ 90 Days Total Past Due Current Total (in thousands) Real estate - commercial mortgage $ 16,620 $ 2,059 $ 637 $ 43,213 $ 43,850 $ 62,529 $ 6,435,444 $ 6,497,973 Commercial - secured 8,480 1,923 1,422 45,114 46,536 56,939 4,132,657 4,189,596 Commercial - unsecured 592 136 — 723 723 1,451 174,201 175,652 Total commercial - industrial, financial and agricultural 9,072 2,059 1,422 45,837 47,259 58,390 4,306,858 4,365,248 Real estate - home equity 9,370 2,264 4,803 7,193 11,996 23,630 1,363,344 1,386,974 Real estate - residential mortgage 26,135 5,741 6,708 14,950 21,658 53,534 2,398,432 2,451,966 Construction - commercial residential — — — 3,959 3,959 3,959 112,250 116,209 Construction - commercial 895 — 466 19 485 1,380 728,104 729,484 Construction - other 549 — — 189 189 738 76,116 76,854 Total real estate - construction 1,444 — 466 4,167 4,633 6,077 916,470 922,547 Consumer - direct 205 90 123 — 123 418 58,295 58,713 Consumer - indirect 2,901 607 259 — 259 3,767 390,394 394,161 Total consumer 3,106 697 382 — 382 4,185 448,689 452,874 Equipment lease financing, other and overdrafts 1,365 443 180 17,758 17,938 19,746 271,130 290,876 Total $ 67,112 $ 13,263 $ 14,598 $ 133,118 $ 147,716 $ 228,091 $ 16,140,367 $ 16,368,458 December 31, 2018 30-59 Days Past Due 60-89 Days Past Due ≥ 90 Days Past Due and Accruing Non- accrual Total ≥ 90 Days Total Past Due Current Total (in thousands) Real estate - commercial mortgage $ 12,206 $ 1,500 $ 1,765 $ 30,388 $ 32,153 $ 45,859 $ 6,388,426 $ 6,434,285 Commercial - secured 5,227 938 1,068 49,299 50,367 56,532 4,168,448 4,224,980 Commercial - unsecured 1,598 — 51 851 902 2,500 177,068 179,568 Total commercial - industrial, financial and agricultural 6,825 938 1,119 50,150 51,269 59,032 4,345,516 4,404,548 Real estate - home equity 7,144 3,558 3,061 6,708 9,769 20,471 1,431,666 1,452,137 Real estate - residential mortgage 20,796 8,192 4,433 14,668 19,101 48,089 2,202,955 2,251,044 Construction - commercial residential 2,489 — — 6,881 6,881 9,370 108,502 117,872 Construction - commercial — — — 19 19 19 726,707 726,726 Construction - other — — — 490 490 490 71,511 72,001 Total real estate - construction 2,489 — — 7,390 7,390 9,879 906,720 916,599 Consumer - direct 267 71 66 — 66 404 55,629 56,033 Consumer - indirect 2,908 497 343 — 343 3,748 359,405 363,153 Total consumer 3,175 568 409 — 409 4,152 415,034 419,186 Equipment lease financing, other and overdrafts 1,005 297 319 19,268 19,587 20,889 267,112 288,001 Total $ 53,640 $ 15,053 $ 11,106 $ 128,572 $ 139,678 $ 208,371 $ 15,957,429 $ 16,165,800 The following table presents TDRs, by class segment: June 30, December 31, (in thousands) Real-estate - residential mortgage $ 22,389 $ 24,102 Real estate - home equity 16,389 16,665 Real-estate - commercial mortgage 16,680 15,685 Commercial 5,744 5,143 Consumer 9 10 Total accruing TDRs 61,211 61,605 Non-accrual TDRs (1) 29,958 28,659 Total TDRs $ 91,169 $ 90,264 (1) Included in non-accrual loans and leases in the preceding table detailing non-performing assets. The following table presents TDRs, by class segment for loans that were modified during the three and six months ended June 30, 2019 and 2018: Three months ended June 30 Six months ended June 30 2019 2018 2019 2018 Number of Loans Recorded Investment Number of Loans Recorded Investment Number of Loans Recorded Investment Number of Loans Recorded Investment (dollars in thousands) Commercial 6 $ 2,371 2 $ 53 10 $ 4,831 11 $ 9,412 Real estate - residential mortgage 1 516 1 77 5 1,433 2 82 Real estate - home equity 22 1,125 28 1,659 34 1,954 47 3,043 Total 29 $ 4,012 31 $ 1,789 49 $ 8,218 60 $ 12,537 Restructured loan modifications may include payment schedule modifications, interest rate concessions, bankruptcies, principal reduction, or some combination of these concessions. During the three and six months ended June 30, 2019, restructured loan modifications of residential mortgages, home equity loans and commercial mortgage loans primarily included maturity date extensions, rate modifications and payment schedule modifications. The following table presents TDRs, by class segment, as of June 30, 2019 and 2018 that were modified in the previous 12 months and had a post-modification payment default during the six months ended June 30, 2019 and 2018 . The Corporation defines a payment default as a single missed payment. 2019 2018 Number of Loans Recorded Investment Number of Loans Recorded Investment (dollars in thousands) Real estate - residential mortgage 2 $ 299 8 $ 863 Real estate - commercial mortgage — — 1 176 Real estate - home equity 16 890 29 1,955 Commercial 4 2,302 5 146 Total 22 $ 3,491 43 $ 3,140 |