LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans and Loans Held for Sale

Loans are summarized as follows according to major portfolio segment and specific loan class:



	December 31,
(In thousands)	2013		2012

Loans held for sale	$	171,328	$	251,651
Commercial:
Commercial and industrial	$	12,481,083	$	11,256,945
Leasing	387,929		422,513
Owner occupied	7,437,195		7,589,082
Municipal	449,418		494,183
Total commercial	20,755,625		19,762,723
Commercial real estate:
Construction and land development	2,182,821		1,939,413
Term	8,005,837		8,062,819
Total commercial real estate	10,188,658		10,002,232
Consumer:
Home equity credit line	2,133,120		2,177,680
1-4 family residential	4,736,665		4,350,329
Construction and other consumer real estate	324,922		321,235
Bankcard and other revolving plans	356,240		306,428
Other	197,864		216,379
Total consumer	7,748,811		7,372,051
FDIC-supported loans	350,271		528,241
Total loans	$	39,043,365	$	37,665,247

Land development loans included in the construction and land development loan class were $561 million at December 31, 2013, and $788 million at December 31, 2012.

FDIC-supported loans were acquired during 2009 and are indemnified by the FDIC under loss sharing agreements. The FDIC-supported loan balances presented in the accompanying schedules include purchased credit-impaired (“PCI”) loans accounted for at their carrying values rather than their outstanding balances. See subsequent discussion under Purchased Loans.

Loan balances are presented net of unearned income and fees, which amounted to $141.7 million at December 31, 2013 and $137.5 million at December 31, 2012.

Owner occupied and commercial real estate (“CRE”) loans include unamortized premiums of approximately $47.2 million at December 31, 2013 and $59.3 million at December 31, 2012.

Municipal loans generally include loans to municipalities with the debt service being repaid from general funds or pledged revenues of the municipal entity, or to private commercial entities or 501(c)(3) not-for-profit entities utilizing a pass-through municipal entity to achieve favorable tax treatment.

Loans with a carrying value of approximately $23.0 billion at December 31, 2013 and $21.1 billion at December 31, 2012 have been pledged at the Federal Reserve and various Federal Home Loan Banks (“FHLB”) as collateral for current and potential borrowings.

We sold loans totaling $1.6 billion in 2013, $1.7 billion in 2012, and $1.6 billion in 2011, that were previously classified as loans held for sale. Loans reclassified to loans held for sale primarily consist of conforming residential mortgages. Amounts added to loans held for sale during these years were $1.5 billion, $1.7 billion, and $1.6 billion, respectively. Income from loans sold, excluding servicing, was $24.1 million in 2013, $30.7 million in 2012, and $17.5 million in 2011.

Allowance for Credit Losses

The allowance for credit losses (“ACL”) consists of the allowance for loan and lease losses (“ALLL”) (also referred to as the allowance for loan losses) and the reserve for unfunded lending commitments (“RULC”).

Allowance for Loan and Lease Losses

The ALLL represents our estimate of probable and estimable losses inherent in the loan and lease portfolio as of the balance sheet date. Losses are charged to the ALLL when recognized. Generally, commercial loans are charged off or charged down at the point at which they are determined to be uncollectible in whole or in part, or when 180 days past due, unless the loan is well secured and in the process of collection. Consumer loans are either charged off or charged down to net realizable value no later than the month in which they become 180 days past due. Closed-end loans that are not secured by residential real estate are either charged off or charged down to net realizable value no later than the month in which they become 120 days past due. We establish the amount of the ALLL by analyzing the portfolio at least quarterly, and we adjust the provision for loan losses so the ALLL is at an appropriate level at the balance sheet date.

We determine our ALLL as the best estimate within a range of estimated losses. The methodologies we use to estimate the ALLL depend upon the impairment status and portfolio segment of the loan. The methodology for impaired loans is discussed subsequently. For the commercial and CRE segments, we use a comprehensive loan grading system to assign probability of default (“PD”) and loss given default (“LGD”) grades to each loan. The credit quality indicators discussed subsequently are based on this grading system. PD and LGD grades are based on both financial and statistical models and loan officers’ judgment. We create groupings of these grades for each subsidiary bank and loan class and calculate historic loss rates using a loss migration analysis that attributes historic realized losses to these loan grade groupings over the period of January 2008 through the most recent full quarter.

For the consumer loan segment, we use roll rate models to forecast probable inherent losses. Roll rate models measure the rate at which consumer loans migrate from one delinquency category to the next worse delinquency category, and eventually to loss. We estimate roll rates for consumer loans using recent delinquency and loss experience by segmenting our consumer loan portfolio into separate pools based on common risk characteristics and separately calculating historical delinquency and loss experience for each pool. These roll rates are then applied to current delinquency levels to estimate probable inherent losses. Roll rates incorporate housing market trends inasmuch as these trends manifest themselves in charge-offs and delinquencies. In addition, our qualitative and environmental factors discussed subsequently incorporate the most recent housing market trends.

For FDIC-supported loans purchased with evidence of credit deterioration, we determine the ALLL according to separate accounting guidance. The accounting for these loans, including the allowance calculation, is described in the Purchased Loans section following.

The current status and historical changes in qualitative and environmental factors may not be reflected in our quantitative models. Thus, after applying historical loss experience, as described above, we review the quantitatively derived level of ALLL for each segment using qualitative criteria and use those criteria to determine our estimate within the range. We track various risk factors that influence our judgment regarding the level of the ALLL across the portfolio segments. These factors primarily include:


•	Asset quality trends


•	Risk management and loan administration practices


•	Risk identification practices


•	Effect of changes in the nature and volume of the portfolio


•	Existence and effect of any portfolio concentrations


•	National economic and business conditions


•	Regional and local economic and business conditions


•	Data availability and applicability


•	Effects of other external factors

The magnitude of the impact of these factors on our qualitative assessment of the ALLL changes from quarter to quarter according to the extent these factors are already reflected in historic loss rates and according to the extent these factors diverge from one to another. We also consider the uncertainty inherent in the estimation process when evaluating the ALLL.

Reserve for Unfunded Lending Commitments

We also estimate a reserve for potential losses associated with off-balance sheet commitments and standby letters of credit. We determine the RULC using the same procedures and methodologies that we use for the ALLL. The loss factors used in the RULC are the same as the loss factors used in the ALLL, and the qualitative adjustments used in the RULC are the same as the qualitative adjustments used in the ALLL. We adjust the Company’s unfunded lending commitments that are not unconditionally cancelable to an outstanding amount equivalent using credit conversion factors and we apply the loss factors to the outstanding equivalents.

Changes in ACL Assumptions

We regularly evaluate the appropriateness of our loss estimation methods to reduce differences between estimated incurred losses and actual losses. During the third quarter of 2013, we changed certain assumptions, including the credit conversion factors, in our RULC estimation process, specifically the rate at which unfunded commitments are likely to convert into funded balances. This change resulted in a decrease of $18.4 million to the provision for unfunded lending commitments during that quarter. Additionally during the third quarter of 2013, we made refinements to our risk grading methodology for certain smaller balance loans to be more consistent with regulatory guidance and the manner in which those loans are managed. These refinements decreased the classified loan balances by approximately $137 million and did not have a material effect on the overall level of the ACL or the provision for loan losses.

During the second quarter of 2013, we changed certain assumptions in our ACL estimation process including our loss migration model that we use to quantitatively estimate the ALLL and RULC for the commercial and commercial real estate segments. Prior to the second quarter of 2013, we used loss migration models based on loss experience over the most recent 60 months. During the second quarter of 2013 and subsequently, the loss migration models are based on loss experience from January 2008 through the most recent full quarter. We extended the period of loss experience to include the beginning of the year 2008 to encompass the last economic downturn period, as the improving charge-off rates experienced during recent periods may not be reflective of current incurred losses, given the environment of continued economic uncertainty. These refinements in the quantitative portion of the ACL did not have a material effect on the overall level of the ACL or the provision for loan losses.

Changes in the ACL are summarized as follows:



	December 31, 2013
(In thousands)	Commercial			Commercial real estate			Consumer			FDIC- supported ¹			Total
Allowance for loan losses
Balance at beginning of year	$	510,908		$	276,976		$	95,656		$	12,547		$	896,087
Additions:
Provision for loan losses	(5,640		)	(63,544		)	(19,100		)	1,148			(87,136		)
Adjustment for FDIC-supported loans	—			—			—			(11,237		)	(11,237		)
Deductions:
Gross loan and lease charge-offs	(75,434		)	(24,609		)	(28,960		)	(1,794		)	(130,797		)
Recoveries	35,311			24,540			13,269			6,254			79,374
Net loan and lease charge-offs	(40,123		)	(69		)	(15,691		)	4,460			(51,423		)
Balance at end of year	$	465,145		$	213,363		$	60,865		$	6,918		$	746,291

Reserve for unfunded lending commitments
Balance at beginning of year	$	67,374		$	37,852		$	1,583		$	—		$	106,809
Provision charged (credited) to earnings	(19,029		)	(367		)	2,292			—			(17,104		)
Balance at end of year	$	48,345		$	37,485		$	3,875		$	—		$	89,705

Total allowance for credit losses
Allowance for loan losses	$	465,145		$	213,363		$	60,865		$	6,918		$	746,291
Reserve for unfunded lending commitments	48,345			37,485			3,875			—			89,705
Total allowance for credit losses	$	513,490		$	250,848		$	64,740		$	6,918		$	835,996



	December 31, 2012
(In thousands)	Commercial			Commercial real estate			Consumer			FDIC- supported ¹			Total
Allowance for loan losses
Balance at beginning of year	$	561,351		$	343,747		$	123,115		$	23,472		$	1,051,685
Additions:
Provision for loan losses	16,808			(18,982		)	18,389			(1,988		)	14,227
Adjustment for FDIC-supported loans	—			—			—			(14,542		)	(14,542		)
Deductions:
Gross loan and lease charge-offs	(117,506		)	(82,944		)	(60,273		)	(6,466		)	(267,189		)
Recoveries	50,255			35,155			14,425			12,071			111,906
Net loan and lease charge-offs	(67,251		)	(47,789		)	(45,848		)	5,605			(155,283		)
Balance at end of year	$	510,908		$	276,976		$	95,656		$	12,547		$	896,087

Reserve for unfunded lending commitments
Balance at beginning of year	$	77,232		$	23,572		$	1,618		$	—		$	102,422
Provision charged (credited) to earnings	(9,858		)	14,280			(35		)	—			4,387
Balance at end of year	$	67,374		$	37,852		$	1,583		$	—		$	106,809

Total allowance for credit losses
Allowance for loan losses	$	510,908		$	276,976		$	95,656		$	12,547		$	896,087
Reserve for unfunded lending commitments	67,374			37,852			1,583			—			106,809
Total allowance for credit losses	$	578,282		$	314,828		$	97,239		$	12,547		$	1,002,896

¹The Purchased Loans section following contains further discussion related to FDIC-supported loans.

During the first quarter of 2013, we modified the reporting of certain ALLL balances in the previous schedules. This change in reporting resulted in the reclassification of approximately $83.2 million at December 31, 2012 of ALLL balances from the commercial to the commercial real estate loan segments. There was no change to the methodology or assumptions used to estimate the ALLL, nor was the change the result of any changes in credit quality.

The ALLL and outstanding loan balances according to the Company’s impairment method are summarized as follows:

	December 31, 2013
(In thousands)	Commercial		Commercial real estate		Consumer		FDIC- supported		Total
Allowance for loan losses
Individually evaluated for impairment	$	39,288	$	12,510	$	10,701	$	—	$	62,499
Collectively evaluated for impairment	425,857		200,853		50,164		392		677,266
Purchased loans with evidence of credit deterioration	—		—		—		6,526		6,526
Total	$	465,145	$	213,363	$	60,865	$	6,918	$	746,291

Outstanding loan balances
Individually evaluated for impairment	$	315,604	$	262,907	$	101,545	$	1,224	$	681,280
Collectively evaluated for impairment	20,440,021		9,925,751		7,647,266		37,963		38,051,001
Purchased loans with evidence of credit deterioration	—		—		—		311,084		311,084
Total	$	20,755,625	$	10,188,658	$	7,748,811	$	350,271	$	39,043,365



	December 31, 2012
(In thousands)	Commercial		Commercial real estate		Consumer		FDIC- supported		Total
Allowance for loan losses
Individually evaluated for impairment	$	30,587	$	22,295	$	13,758	$	—	$	66,640
Collectively evaluated for impairment	480,321		254,681		81,898		422		817,322
Purchased loans with evidence of credit deterioration	—		—		—		12,125		12,125
Total	$	510,908	$	276,976	$	95,656	$	12,547	$	896,087

Outstanding loan balances
Individually evaluated for impairment	$	353,380	$	437,647	$	112,320	$	1,149	$	904,496
Collectively evaluated for impairment	19,409,343		9,564,585		7,259,731		57,896		36,291,555
Purchased loans with evidence of credit deterioration	—		—		—		469,196		469,196
Total	$	19,762,723	$	10,002,232	$	7,372,051	$	528,241	$	37,665,247

Nonaccrual and Past Due Loans

Loans are generally placed on nonaccrual status when payment in full of principal and interest is not expected, or the loan is 90 days or more past due as to principal or interest, unless the loan is both well secured and in the process of collection. Factors we consider in determining whether a loan is placed on nonaccrual include delinquency status, collateral value, borrower or guarantor financial statement information, bankruptcy status, and other information which would indicate that the full and timely collection of interest and principal is uncertain.

A nonaccrual loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement; the loan, if secured, is well secured; the borrower has paid according to the contractual terms for a minimum of six months; and analysis of the borrower indicates a reasonable assurance of the ability and willingness to maintain payments. Payments received on nonaccrual loans are applied as a reduction to the principal outstanding.

Closed-end loans with payments scheduled monthly are reported as past due when the borrower is in arrears for two or more monthly payments. Similarly, open-end credit such as charge-card plans and other revolving credit plans are reported as past due when the minimum payment has not been made for two or more billing cycles. Other multi-payment obligations (i.e., quarterly, semiannual, etc.), single payment, and demand notes are reported as past due when either principal or interest is due and unpaid for a period of 30 days or more.

Nonaccrual loans are summarized as follows:

	December 31,
(In thousands)	2013		2012

Commercial:
Commercial and industrial	$	97,960	$	90,859
Leasing	757		838
Owner occupied	136,281		206,031
Municipal	9,986		9,234
Total commercial	244,984		306,962
Commercial real estate:
Construction and land development	29,205		107,658
Term	60,380		124,615
Total commercial real estate	89,585		232,273
Consumer:
Home equity credit line	8,969		14,247
1-4 family residential	53,002		70,180
Construction and other consumer real estate	3,510		4,560
Bankcard and other revolving plans	1,365		1,190
Other	804		1,398
Total consumer loans	67,650		91,575
FDIC-supported loans	4,394		17,343
Total	$	406,613	$	648,153

Past due loans (accruing and nonaccruing) are summarized as follows:

	December 31, 2013
(In thousands)	Current		30-89 days past due		90+ days past due		Total past due		Total loans		Accruing loans 90+ days past due		Nonaccrual loans that are current¹

Commercial:
Commercial and industrial	$	12,387,546	$	48,811	$	44,726	$	93,537	$	12,481,083	$	1,855	$	52,412
Leasing	387,526		173		230		403		387,929		36		563
Owner occupied	7,357,618		36,718		42,859		79,577		7,437,195		744		82,072
Municipal	440,608		3,307		5,503		8,810		449,418		—		1,176
Total commercial	20,573,298		89,009		93,318		182,327		20,755,625		2,635		136,223
Commercial real estate:
Construction and land development	2,162,018		8,967		11,836		20,803		2,182,821		23		17,311
Term	7,971,327		15,362		19,148		34,510		8,005,837		5,580		42,624
Total commercial real estate	10,133,345		24,329		30,984		55,313		10,188,658		5,603		59,935
Consumer:
Home equity credit line	2,122,549		8,001		2,570		10,571		2,133,120		98		2,868
1-4 family residential	4,704,852		8,526		23,287		31,813		4,736,665		667		27,592
Construction and other consumer real estate	322,807		1,038		1,077		2,115		324,922		—		2,232
Bankcard and other revolving plans	353,060		2,093		1,087		3,180		356,240		900		1,105
Other	196,327		827		710		1,537		197,864		54		125
Total consumer loans	7,699,595		20,485		28,731		49,216		7,748,811		1,719		33,922
FDIC-supported loans	305,709		12,026		32,536		44,562		350,271		30,391		1,975
Total	$	38,711,947	$	145,849	$	185,569	$	331,418	$	39,043,365	$	40,348	$	232,055



	December 31, 2012
(In thousands)	Current		30-89 days past due		90+ days past due		Total past due		Total loans		Accruing loans 90+ days past due		Nonaccrual loans that are current¹

Commercial:
Commercial and industrial	$	11,124,639	$	73,555	$	58,751	$	132,306	$	11,256,945	$	4,013	$	32,389
Leasing	421,590		115		808		923		422,513		—		—
Owner occupied	7,447,083		56,504		85,495		141,999		7,589,082		1,822		100,835
Municipal	494,183		—		—		—		494,183		—		9,234
Total commercial	19,487,495		130,174		145,054		275,228		19,762,723		5,835		142,458
Commercial real estate:
Construction and land development	1,836,284		66,139		36,990		103,129		1,939,413		853		50,044
Term	7,984,819		24,730		53,270		78,000		8,062,819		107		54,546
Total commercial real estate	9,821,103		90,869		90,260		181,129		10,002,232		960		104,590
Consumer:
Home equity credit line	2,169,722		4,036		3,922		7,958		2,177,680		—		8,846
1-4 family residential	4,282,611		24,060		43,658		67,718		4,350,329		1,423		21,945
Construction and other consumer real estate	314,931		4,344		1,960		6,304		321,235		395		2,500
Bankcard and other revolving plans	302,587		2,439		1,402		3,841		306,428		1,010		721
Other	213,930		1,411		1,038		2,449		216,379		107		275
Total consumer loans	7,283,781		36,290		51,980		88,270		7,372,051		2,935		34,287
FDIC-supported loans	454,333		12,407		61,501		73,908		528,241		52,033		7,393
Total	$	37,046,712	$	269,740	$	348,795	$	618,535	$	37,665,247	$	61,763	$	288,728

¹Represents nonaccrual loans not past due more than 30 days; however, full payment of principal and interest is still not expected.

Credit Quality Indicators

In addition to the past due and nonaccrual criteria, we also analyze loans using a loan grading system. We generally assign internal grades to loans with commitments less than $750,000 based on the performance of those loans. Performance-based grades follow our definitions of Pass, Special Mention, Substandard, and Doubtful, which are consistent with published definitions of regulatory risk classifications.

Definitions of Pass, Special Mention, Substandard, and Doubtful are summarized as follows:

Pass – A Pass asset is higher quality and does not fit any of the other categories described below. The likelihood of loss is considered remote.

Special Mention – A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank’s credit position at some future date.

Substandard – A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have well defined weaknesses and are characterized by the distinct possibility that the bank may sustain some loss if deficiencies are not corrected.

Doubtful – A Doubtful asset has all the weaknesses inherent in a Substandard asset with the added characteristics that the weaknesses make collection or liquidation in full highly questionable.

We generally assign internal risk grades to commercial and CRE loans with commitments equal to or greater than $750,000 based on financial and statistical models, individual credit analysis, and loan officer judgment. For these larger loans, we assign multiple grades within the Pass classification or one of the following four grades: Special Mention, Substandard, Doubtful, and Loss. Loss indicates that the outstanding balance has been charged off. We confirm our internal risk grades quarterly, or as soon as we identify information that affects the credit risk of the loan.

For consumer and small commercial loans, we generally assign internal risk grades similar to those described previously based on automated rules that depend on refreshed credit scores, payment performance, and other risk indicators. These are generally assigned either a Pass, Special Mention, or Substandard grade and are reviewed as we identify information that might warrant a downgrade. During the third quarter of 2013, we refined our risk grading methodology for certain smaller balance loans.

Outstanding loan balances (accruing and nonaccruing) categorized by these credit quality indicators are summarized as follows:



	December 31, 2013
(In thousands)	Pass		Special Mention		Sub- standard		Doubtful		Total loans		Total allowance

Commercial:
Commercial and industrial	$	11,807,825	$	303,598	$	360,391	$	9,269	$	12,481,083
Leasing	380,268		2,050		5,611		—		387,929
Owner occupied	6,827,464		184,328		425,403		—		7,437,195
Municipal	439,432		—		9,986		—		449,418
Total commercial	19,454,989		489,976		801,391		9,269		20,755,625		$	465,145
Commercial real estate:
Construction and land development	2,107,828		15,010		59,983		—		2,182,821
Term	7,569,472		172,856		263,509		—		8,005,837
Total commercial real estate	9,677,300		187,866		323,492		—		10,188,658		213,363
Consumer:
Home equity credit line	2,111,475		—		21,645		—		2,133,120
1-4 family residential	4,668,841		—		67,824		—		4,736,665
Construction and other consumer real estate	313,881		—		11,041		—		324,922
Bankcard and other revolving plans	353,618		—		2,622		—		356,240
Other	196,770		—		1,094		—		197,864
Total consumer loans	7,644,585		—		104,226		—		7,748,811		60,865
FDIC-supported loans	232,893		22,532		94,846		—		350,271		6,918
Total	$	37,009,767	$	700,374	$	1,323,955	$	9,269	$	39,043,365	$	746,291



	December 31, 2012
(In thousands)	Pass		Special Mention		Sub- standard		Doubtful		Total loans		Total allowance

Commercial:
Commercial and industrial	$	10,717,594	$	198,645	$	336,230	$	4,476	$	11,256,945
Leasing	419,482		226		2,805		—		422,513
Owner occupied	6,833,923		138,539		612,011		4,609		7,589,082
Municipal	453,193		31,756		9,234		—		494,183
Total commercial	18,424,192		369,166		960,280		9,085		19,762,723		$	510,908
Commercial real estate:
Construction and land development	1,648,215		57,348		233,374		476		1,939,413
Term	7,433,789		237,201		388,914		2,915		8,062,819
Total commercial real estate	9,082,004		294,549		622,288		3,391		10,002,232		276,976
Consumer:
Home equity credit line	2,138,693		85		38,897		5		2,177,680
1-4 family residential	4,234,426		4,316		111,063		524		4,350,329
Construction and other consumer real estate	313,499		218		7,518		—		321,235
Bankcard and other revolving plans	298,665		23		7,740		—		306,428
Other	209,293		3,211		3,875		—		216,379
Total consumer loans	7,194,576		7,853		169,093		529		7,372,051		95,656
FDIC-supported loans	327,609		24,980		175,652		—		528,241		12,547
Total	$	35,028,381	$	696,548	$	1,927,313	$	13,005	$	37,665,247	$	896,087

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled interest payments. For our non-purchased credit impaired loans, if a nonaccrual loan has a balance greater than $1 million or if a loan is a troubled debt restructuring (“TDR”), including TDRs that subsequently default, we evaluate the loan for impairment and estimate a specific reserve for the loan for all portfolio segments under applicable accounting guidance. Smaller nonaccrual loans are pooled for ALLL estimation purposes. PCI loans in our FDIC-supported portfolio segment are included in impaired loans and are accounted for under separate accounting guidance. See subsequent discussion under Purchased Loans.

When a loan is impaired, we estimate a specific reserve for the loan based on the projected present value of the loan’s future cash flows discounted at the loan’s effective interest rate, the observable market price of the loan, or the fair value of the loan’s underlying collateral less the cost to sell. The process of estimating future cash flows also incorporates the same determining factors discussed previously under nonaccrual loans. When we base the impairment amount on the fair value of the loan’s underlying collateral, we generally charge off the portion of the balance that is impaired, such that these loans do not have a specific reserve in the ALLL. Payments received on impaired loans that are accruing are recognized in interest income, according to the contractual loan agreement. Payments received on impaired loans that are on nonaccrual are not recognized in interest income, but are applied as a reduction to the principal outstanding. The amount of interest income recognized on a cash basis during the time the loans were impaired within the years ended December 31, 2013 and 2012 was not significant.

Information on all impaired loans is summarized as follows, including the average recorded investment and interest income recognized for the years ended December 31, 2013 and 2012:



	December 31, 2013										Year Ended December 31, 2013
(In thousands)	Unpaid principal balance		Recorded investment				Total recorded investment		Related allowance		Average recorded investment		Interest income recognized
(In thousands)	Unpaid principal balance		with no allowance		with allowance		Total recorded investment		Related allowance		Average recorded investment		Interest income recognized
Commercial:
Commercial and industrial	$	178,281	$	30,092	$	126,692	$	156,784	$	23,687	$	185,895	$	3,572
Owner occupied	151,499		50,361		88,584		138,945		13,900		216,218		3,620
Total commercial	329,780		80,453		215,276		295,729		37,587		402,113		7,192
Commercial real estate:
Construction and land development	85,440		19,206		50,744		69,950		3,483		134,540		4,013
Term	171,826		34,258		112,330		146,588		7,981		286,389		6,686
Total commercial real estate	257,266		53,464		163,074		216,538		11,464		420,929		10,699
Consumer:
Home equity credit line	17,547		12,568		2,200		14,768		178		13,380		385
1-4 family residential	95,613		38,775		42,132		80,907		10,276		100,283		1,581
Construction and other consumer real estate	4,713		2,643		933		3,576		175		6,218		148
Bankcard and other revolving plans	726		726		—		726		—		—		—
Other	—		—		—		—		—		1,770		—
Total consumer loans	118,599		54,712		45,265		99,977		10,629		121,651		2,114
FDIC-supported loans	404,308		83,917		228,392		312,309		6,526		384,402		112,082		1
Total	$	1,109,953	$	272,546	$	652,007	$	924,553	$	66,206	$	1,329,095	$	132,087



	December 31, 2012										Year Ended December 31, 2012
(In thousands)	Unpaid principal balance		Recorded investment				Total recorded investment		Related allowance		Average recorded investment		Interest income recognized
(In thousands)	Unpaid principal balance		with no allowance		with allowance		Total recorded investment		Related allowance		Average recorded investment		Interest income recognized
Commercial:
Commercial and industrial	$	176,521	$	27,035	$	119,780	$	146,815	$	12,198	$	199,238	$	3,557
Owner occupied	210,319		79,413		106,282		185,695		17,105		262,511		2,512
Total commercial	386,840		106,448		226,062		332,510		29,303		461,749		6,069
Commercial real estate:
Construction and land development	182,385		67,241		85,855		153,096		5,178		274,226		4,785
Term	310,242		70,718		187,112		257,830		16,725		410,901		7,298
Total commercial real estate	492,627		137,959		272,967		410,926		21,903		685,127		12,083
Consumer:
Home equity credit line	14,339		8,055		3,444		11,499		297		2,766		42
1-4 family residential	108,934		42,602		49,867		92,469		12,921		107,118		1,629
Construction and other consumer real estate	7,054		2,710		3,085		5,795		517		9,697		188
Bankcard and other revolving plans	287		—		287		287		1		24		—
Other	2,454		1,832		175		2,007		22		1,055		—
Total consumer loans	133,068		55,199		56,858		112,057		13,758		120,660		1,859
FDIC-supported loans	895,804		275,187		195,158		470,345		12,125		622,125		89,921		1
Total	$	1,908,339	$	574,793	$	751,045	$	1,325,838	$	77,089	$	1,889,661	$	109,932


¹	The balance of interest income recognized results primarily from accretion of interest income on impaired FDIC-supported loans.

Modified and Restructured Loans

Loans may be modified in the normal course of business for competitive reasons or to strengthen the Company’s position. Loan modifications and restructurings may also occur when the borrower experiences financial difficulty and needs temporary or permanent relief from the original contractual terms of the loan. These modifications are structured on a loan-by-loan basis and, depending on the circumstances, may include extended payment terms, a modified interest rate, forgiveness of principal, or other concessions. Loans that have been modified to accommodate a borrower who is experiencing financial difficulties, and for which the Company has granted a concession that it would not otherwise consider, are considered TDRs.

We consider many factors in determining whether to agree to a loan modification involving concessions, and seek a solution that will both minimize potential loss to the Company and attempt to help the borrower. We evaluate borrowers’ current and forecasted future cash flows, their ability and willingness to make current contractual or proposed modified payments, the value of the underlying collateral (if applicable), the possibility of obtaining additional security or guarantees, and the potential costs related to a repossession or foreclosure and the subsequent sale of the collateral.

TDRs are classified as either accrual or nonaccrual loans. A loan on nonaccrual and restructured as a TDR will remain on nonaccrual status until the borrower has proven the ability to perform under the modified structure for a minimum of six months, and there is evidence that such payments can and are likely to continue as agreed. Performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual at the time of restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. A TDR loan that specifies an interest rate that at the time of the restructuring is greater than or equal to the rate the bank is willing to accept for a new loan with comparable risk may not be reported as a TDR or an impaired loan in the calendar years subsequent to the restructuring if it is in compliance with its modified terms.

Selected information on TDRs at year-end that includes the recorded investment on an accruing and nonaccruing basis by loan class and modification type is summarized in the following schedules:



	December 31, 2013
	Recorded investment resulting from the following modification types:
(In thousands)	Interest rate below market		Maturity or term extension		Principal forgiveness		Payment deferral		Other¹		Multiple modification types²		Total
Accruing
Commercial:
Commercial and industrial	$	1,143	$	9,848	$	11,491	$	3,217	$	4,308	$	53,117	$	83,124
Owner occupied	22,841		1,482		987		1,291		9,659		23,576		59,836
Total commercial	23,984		11,330		12,478		4,508		13,967		76,693		142,960
Commercial real estate:
Construction and land development	1,067		8,231		—		1,063		4,119		28,295		42,775
Term	7,542		9,241		190		3,783		14,932		61,024		96,712
Total commercial real estate	8,609		17,472		190		4,846		19,051		89,319		139,487
Consumer:
Home equity credit line	743		—		9,438		—		323		332		10,836
1-4 family residential	2,628		997		6,814		643		3,083		35,869		50,034
Construction and other consumer real estate	128		329		11		—		—		1,514		1,982
Other	—		—		—		—		—		—		—
Total consumer loans	3,499		1,326		16,263		643		3,406		37,715		62,852
Total accruing	36,092		30,128		28,931		9,997		36,424		203,727		345,299
Nonaccruing
Commercial:
Commercial and industrial	2,028		6,989		—		473		8,948		10,395		28,833
Owner occupied	3,020		1,489		1,043		1,593		10,482		14,927		32,554
Total commercial	5,048		8,478		1,043		2,066		19,430		25,322		61,387
Commercial real estate:
Construction and land development	11,699		1,555		—		—		5,303		8,617		27,174
Term	2,126		—		—		1,943		315		14,861		19,245
Total commercial real estate	13,825		1,555		—		1,943		5,618		23,478		46,419
Consumer:
Home equity credit line	—		—		1,036		—		221		—		1,257
1-4 family residential	4,315		1,396		1,606		—		3,901		14,109		25,327
Construction and other consumer real estate	4		1,260		—		—		—		229		1,493
Bankcard and other revolving plans	—		252		—		—		—		—		252
Other	—		—		—		—		—		—		—
Total consumer loans	4,319		2,908		2,642		—		4,122		14,338		28,329
Total nonaccruing	23,192		12,941		3,685		4,009		29,170		63,138		136,135
Total	$	59,284	$	43,069	$	32,616	$	14,006	$	65,594	$	266,865	$	481,434



	December 31, 2012
	Recorded investment resulting from the following modification types:
(In thousands)	Interest rate below market		Maturity or term extension		Principal forgiveness		Payment deferral		Other¹		Multiple modification types²		Total
Accruing
Commercial:
Commercial and industrial	$	5,388	$	6,139	$	—	$	3,585	$	17,647	$	44,684	$	77,443
Owner occupied	20,963		12,104		—		4,013		9,305		13,598		59,983
Total commercial	26,351		18,243		—		7,598		26,952		58,282		137,426
Commercial real estate:
Construction and land development	1,718		9,868		2		59		8,432		30,248		50,327
Term	30,118		1,854		8,433		3,807		32,302		82,809		159,323
Total commercial real estate	31,836		11,722		8,435		3,866		40,734		113,057		209,650
Consumer:
Home equity credit line	744		—		5,965		—		300		218		7,227
1-4 family residential	2,665		1,324		5,923		147		3,319		36,199		49,577
Construction and other consumer real estate	147		—		—		—		641		2,354		3,142
Other	—		3		—		—		1		—		4
Total consumer loans	3,556		1,327		11,888		147		4,261		38,771		59,950
Total accruing	61,743		31,292		20,323		11,611		71,947		210,110		407,026
Nonaccruing
Commercial:
Commercial and industrial	318		5,667		—		480		2,035		17,379		25,879
Owner occupied	3,822		4,816		654		4,701		7,643		7,803		29,439
Total commercial	4,140		10,483		654		5,181		9,678		25,182		55,318
Commercial real estate:
Construction and land development	18,255		1,308		—		—		1,807		68,481		89,851
Term	3,042		536		—		2,645		9,389		17,718		33,330
Total commercial real estate	21,297		1,844		—		2,645		11,196		86,199		123,181
Consumer:
Home equity credit line	—		—		4,008		—		131		143		4,282
1-4 family residential	4,697		5,637		4,048		—		1,693		14,240		30,315
Construction and other consumer real estate	7		1,671		—		—		—		243		1,921
Bankcard and other revolving plans	—		287		—		—		—		—		287
Other	—		—		—		172		—		—		172
Total consumer loans	4,704		7,595		8,056		172		1,824		14,626		36,977
Total nonaccruing	30,141		19,922		8,710		7,998		22,698		126,007		215,476
Total	$	91,884	$	51,214	$	29,033	$	19,609	$	94,645	$	336,117	$	622,502

¹Includes TDRs that resulted from other modification types including, but not limited to, a legal judgment awarded on different terms, a bankruptcy plan confirmed on different terms, a settlement that includes the delivery of collateral in exchange for debt reduction, etc.

²Includes TDRs that resulted from a combination of any of the previous modification types.

Unused commitments to extend credit on TDRs amounted to approximately $6 million at December 31, 2013 and $13 million at December 31, 2012.

The total recorded investment of all TDRs in which interest rates were modified below market was $172.6 million and $225.6 million at December 31, 2013 and 2012, respectively. These loans are included in the previous schedule in the columns for interest rate below market and multiple modification types.

The net financial impact on interest income due to interest rate modifications below market for accruing TDRs is summarized in the following schedule:



	Year Ended December 31,
(In thousands)	2013			2012
Commercial:
Commercial and industrial	$	(1	)	$	(287	)
Owner occupied	(4,672		)	(1,612		)
Total commercial	(4,673		)	(1,899		)
Commercial real estate:
Construction and land development	(1,342		)	(1,069		)
Term	(8,908		)	(6,664		)
Total commercial real estate	(10,250		)	(7,733		)
Consumer:
Home equity credit line	(121		)	(86		)
1-4 family residential	(14,980		)	(16,164		)
Construction and other consumer real estate	(433		)	(674		)
Total consumer loans	(15,534		)	(16,924		)
Total decrease to interest income¹	$	(30,457	)	$	(26,556	)


¹	Calculated based on the difference between the modified rate and the premodified rate applied to the recorded investment.

On an ongoing basis, we monitor the performance of all TDRs according to their restructured terms. Subsequent payment default is defined in terms of delinquency, when principal or interest payments are past due 90 days or more for commercial loans, or 60 days or more for consumer loans.

As of December 31, 2013, the recorded investment of accruing and nonaccruing TDRs that had a payment default during the year listed below (and are still in default at year-end) and are within 12 months or less of being modified as TDRs is as follows:



(In thousands)	December 31, 2013						December 31, 2012
(In thousands)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	—	$	1,816	$	1,816
Owner occupied	—		430		430		159		679		838
Total commercial	—		430		430		159		2,495		2,654
Commercial real estate:
Construction and land development	—		1,676		1,676		—		—		—
Term	—		—		—		—		—		—
Total commercial real estate	—		1,676		1,676		—		—		—
Consumer:
Home equity credit line	—		342		342		—		336		336
1-4 family residential	—		2,592		2,592		—		8,085		8,085
Total consumer loans	—		2,934		2,934		—		8,421		8,421
Total	$	—	$	5,040	$	5,040	$	159	$	10,916	$	11,075

Note: Total loans modified as TDRs during the 12 months previous to December 31, 2013 and 2012 were $155.8 million and $174.0 million, respectively.

Concentrations of Credit Risk

We perform an ongoing analysis of our loan portfolio to evaluate whether there is any significant exposure to any concentrations of credit risk. These potential concentrations include, but are not limited to, individual borrowers, groups of borrowers, industries, geographies, collateral types, sponsors, etc. Such credit risks (whether on- or off-balance sheet) may occur when groups of borrowers or counterparties have similar economic characteristics and are similarly affected by changes in economic or other conditions. Credit risk also includes the loss that would be recognized subsequent to the reporting date if counterparties failed to perform as contracted. Our analysis as of December 31, 2013 concluded that no significant exposure exists from such credit risk concentrations. See Note 8 for a discussion of counterparty risk associated with the Company’s derivative transactions.

Purchased Loans

Background and Accounting

We purchase loans in the ordinary course of business and account for them and the related interest income based on their performing status at the time of acquisition. Purchased credit-impaired (“PCI”) loans have evidence of credit deterioration at the time of acquisition and it is probable that not all contractual payments will be collected. Interest income for PCI loans is accounted for on an expected cash flow basis. Certain other loans acquired by the Company that are not credit-impaired include loans with revolving privileges and are excluded from the PCI tabular disclosures following. Interest income for these loans is accounted for on a contractual cash flow basis. Certain acquired loans with similar characteristics such as risk exposure, type, size, etc., are grouped and accounted for in loan pools.

During 2009, CB&T and NSB acquired failed banks from the FDIC as receiver and entered into loss sharing agreements with the FDIC for the acquired loans and foreclosed assets. According to the agreements, the FDIC assumes 80% of credit losses up to a threshold specified for each acquisition and 95% above that threshold for a period of five years, or in 2014. The covered portfolio primarily consists of commercial loans. The agreements expire after ten years, or in 2019, for single family residential loans. The loans acquired from the FDIC are presented separately in the Company’s balance sheet as “FDIC-supported loans” and include both PCI and certain other acquired loans. Upon acquisition, in accordance with applicable accounting guidance, the acquired loans were recorded at their fair value without a corresponding ALLL.

Outstanding Balances and Accretable Yield

The outstanding balances of all required payments and the related carrying amounts for PCI loans are as follows:



	December 31,
(In thousands)	2013		2012

Commercial	$	150,191	$	227,414
Commercial real estate	233,720		382,068
Consumer	28,608		41,398
Outstanding balance	$	412,519	$	650,880

Carrying amount	$	311,797	$	472,040
ALLL	6,478		12,077
Carrying amount, net	$	305,319	$	459,963

At the time of acquisition of PCI loans, we determine the loan’s contractually required payments in excess of all cash flows expected to be collected as an amount that should not be accreted (nonaccretable difference). With respect to the cash flows expected to be collected, the portion representing the excess of the loan’s expected cash flows over our initial investment (accretable yield) is accreted into interest income on a level yield basis over the remaining expected life of the loan or pool of loans. The effects of estimated prepayments are considered in estimating the expected cash flows.

Certain PCI loans are not accounted for as previously described because the estimation of cash flows to be collected involves a high degree of uncertainty. Under these circumstances, the accounting guidance provides that interest income is recognized on a cash basis similar to the cost recovery methodology for nonaccrual loans. The net carrying amounts in the preceding schedule also include the amounts for these loans, which were not significant at December 31, 2013 and were approximately $12.2 million at December 31, 2012.

Changes in the accretable yield for PCI loans were as follows:



(In thousands)	2013			2012

Balance at beginning of year	$	134,461		$	184,679
Accretion	(111,951		)	(89,849		)
Reclassification from nonaccretable difference	36,467			30,632
Disposals and other	18,551			8,999
Balance at end of year	$	77,528		$	134,461

Note: Amounts have been adjusted based on refinements to the original estimates of the accretable yield. Because of the estimation process required, we expect that additional adjustments to these amounts may be necessary in future periods.

The primary drivers of reclassification to accretable yield from nonaccretable difference and increases in disposals and other resulted primarily from (1) changes in estimated cash flows, (2) unexpected payments on nonaccrual loans, and (3) recoveries on zero balance loans pools. See subsequent discussion under changes in cash flow estimates.

ALLL Determination

For all acquired loans, the ALLL is only established for credit deterioration subsequent to the date of acquisition and represents our estimate of the inherent losses in excess of the book value of acquired loans. The ALLL for acquired loans is determined without giving consideration to the amounts recoverable from the FDIC through loss sharing agreements. These amounts recoverable are separately accounted for in the FDIC indemnification asset (“IA”) and are thus presented “gross” in the balance sheet. The FDIC IA is included in other assets in the balance sheet and is discussed subsequently. The ALLL is included in the overall ALLL in the balance sheet. The provision for loan losses is reported net of changes in the amounts recoverable under the loss sharing agreements.

During 2013, 2012 and 2011, we adjusted the ALLL for acquired loans by recording a negative provision for loan losses of $(10.1) million in 2013, $(16.5) million in 2012, and $(1.7) million in 2011. The provision is net of the ALLL reversals discussed subsequently. As separately discussed and in accordance with the loss sharing agreements, changes to the provision affect the net amounts recoverable from the FDIC and the balance of the FDIC IA. These adjustments, before FDIC indemnification, resulted in net recoveries of $4.8 million in 2013 and $8.6 million in 2012, and net charge offs of $7.1 million in 2011.

Changes in the provision for loan losses and related ALLL are driven in large part by the same factors that affect the changes in reclassification from nonaccretable difference to accretable yield, as discussed under changes in cash flow estimates.

Changes in Cash Flow Estimates

Over the life of the loan or loan pool, we continue to estimate cash flows expected to be collected. We evaluate quarterly at the balance sheet date whether the estimated present values of these loans using the effective interest rates have decreased below their carrying values. If so, we record a provision for loan losses.

For increases in carrying values that resulted from better-than-expected cash flows, we use such increases first to reverse any existing ALLL. During 2013, 2012, and 2011, total reversals to the ALLL, including the impact of increases in estimated cash flows, were $15.1 million in 2013 and $20.4 million in 2012. and $16.1 million in 2011. When there is no current ALLL, we increase the amount of accretable yield on a prospective basis over the remaining life of the loan and recognize this increase in interest income. Any related decrease to the FDIC IA is recorded through a charge to other noninterest expense. Changes that increase cash flows have been due primarily to (1) the enhanced economic status of borrowers compared to original evaluations, (2) improvements in the Southern California market where the majority of these loans were originated, and (3) stronger efforts by our credit officers and loan workout professionals to resolve problem loans.

The impact of increased cash flow estimates recognized in the statement of income for acquired loans with no ALLL was approximately $90.9 million in 2013, $58.5 million in 2012, and $78.4 million in 2011, of additional interest income, and $75.0 million in 2013, $46.2 million in 2012, and $56.6 million in 2011, of additional other noninterest expense due to the reduction of the FDIC IA.

FDIC Indemnification Asset

The amount of the FDIC IA was initially recorded at fair value using estimated cash flows based on credit adjustments for each loan or loan pool and the loss sharing reimbursement of 80% or 95%, as appropriate. The timing of the cash flows was adjusted to reflect our expectations to receive the FDIC reimbursements within the estimated loss period. Discount rates were based on U.S. Treasury rates or the AAA composite yield on investment grade bonds of similar maturity. As previously discussed, the amount is adjusted as actual loss experience is developed and estimated losses covered under the loss sharing agreements are updated. Estimated loan losses, if any, in excess of the amounts recoverable are reflected as period expenses through the provision for loan losses.

We account for any change in measurement of the IA due to a change in expected cash flows on the same basis as the change in the indemnified loans. Any amortization period for changes in value of the IA would be limited to the lesser of the term of the indemnification agreement or the remaining life of the indemnified loans.

Changes in the FDIC IA were as follows:



(In thousands)	2013			2012
(In thousands)	2013			2012

Balance at beginning of year	$	90,929		$	133,810
Amounts filed with the FDIC and collected or in process	21,302			17,004
Net change in asset balance due to reestimation of projected cash flows ¹	(85,820		)	(59,885		)
Balance at end of year	$	26,411		$	90,929


¹	Negative amounts result from the accretion of loan balances based on increases in cash flow estimates on the underlying indemnified loans.

Any changes to the amortization rate of the FDIC IA are recognized immediately in the quarterly period the change in estimated cash flows is determined. All claims submitted to the FDIC have been reimbursed in a timely manner.