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:



(In thousands)	March 31, 2016		December 31, 2015

Loans held for sale	$	108,764	$	149,880

Commercial:
Commercial and industrial	$	13,590,238	$	13,211,481
Leasing	437,150		441,666
Owner occupied	7,022,429		7,150,028
Municipal	695,436		675,839
Total commercial	21,745,253		21,479,014
Commercial real estate:
Construction and land development	1,967,702		1,841,502
Term	8,826,375		8,514,401
Total commercial real estate	10,794,077		10,355,903
Consumer:
Home equity credit line	2,432,632		2,416,357
1-4 family residential	5,417,810		5,382,099
Construction and other consumer real estate	401,422		385,240
Bankcard and other revolving plans	438,540		443,780
Other	188,451		187,149
Total consumer	8,878,855		8,814,625
Total loans	$	41,418,185	$	40,649,542

Loan balances are presented net of unearned income and fees, which amounted to $148.5 million at March 31, 2016 and $150.3 million at December 31, 2015.

Owner occupied and commercial real estate (“CRE”) loans include unamortized premiums of approximately $24.9 million at March 31, 2016 and $26.2 million at December 31, 2015.

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.

Land development loans included in the construction and land development loan class were $286.8 million at March 31, 2016 and $288.0 million at December 31, 2015.

Loans with a carrying value of approximately $25.3 billion at March 31, 2016 and $19.4 billion at December 31, 2015 have been pledged at the Federal Reserve and various Federal Home Loan Banks (“FHLBs”) as collateral for potential borrowings.

We sold loans totaling $273.2 million and $300.4 million for the three months ended March 31, 2016 and 2015, respectively, that were classified as loans held for sale. The sold loans were derecognized from the balance sheet. Loans classified as loans held for sale primarily consist of conforming residential mortgages and the guaranteed portion of SBA loans. Amounts added to loans held for sale during these periods were $235.7 million and $309.7 million, respectively.

The principal balance of sold loans for which we retain servicing was approximately $1.3 billion at both March 31, 2016 and December 31, 2015. Income from loans sold, excluding servicing, for the three months ended March 31, 2016 and 2015 was $3.0 million and $4.6 million, respectively.

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 and CRE loans are charged off or charged down when 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 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 consumer 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 loan portfolio. The methodology for impaired loans is discussed subsequently. For commercial and CRE loans with commitments equal to or greater than $750,000, we assign internal risk grades using a comprehensive loan grading system based on financial and statistical models, individual credit analysis, and loan officer experience and judgment. The credit quality indicators discussed subsequently are based on this grading system. Estimated losses for these commercial and CRE loans are derived from a statistical analysis of our historical default and loss given default (“LGD”) experience over the period of January 2008 through the most recent full quarter.

For consumer and small commercial and CRE loans with commitments less than $750,000, we primarily use roll rate models to forecast probable inherent losses. Roll rate models measure the rate at which these loans migrate from one delinquency category to the next worse delinquency category, and eventually to loss. We estimate roll rates for these loans using recent delinquency and loss experience by segmenting our loan portfolios 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.

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:


•	Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices


•	Changes in international, national, regional, and local economic and business conditions


•	Changes in the nature and volume of the portfolio and in the terms of loans


•	Changes in the experience, ability, and depth of lending management and other relevant staff


•	Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans


•	Changes in the quality of the loan review system


•	Changes in the value of underlying collateral for collateral-dependent loans


•	The existence and effect of any concentration of credit, and changes in the level of such concentrations


•	The effect of other external factors such as competition and legal and regulatory requirements

The magnitude of the impact of these factors on our qualitative assessment of the ALLL changes from quarter to quarter according to changes made by management in its assessment of these factors, the extent these factors are already reflected in historic loss rates, and the extent changes in 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, including 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

During the first quarter of 2016, due to the consolidation of our separate banking charters, we enhanced our methodology to estimate the ACL on a Company-wide basis. As described previously, for large commercial and CRE loans, we began estimating historic loss factors by separately calculating historic default and LGD rates, instead of directly calculating loss rates for groupings of probability of default and LGD grades using a loss migration approach. For small commercial and CRE loans, we began using roll rate models to forecast probable inherent losses. For consumer loans, we began pooling loans by current loan-to-value, where applicable. The impact of these changes was largely neutral to the total ACL at March 31, 2016.

Changes in the allowance for credit losses are summarized as follows:

	Three Months Ended March 31, 2016
(In thousands)	Commercial			Commercial real estate			Consumer			Total
Allowance for loan losses
Balance at beginning of period	$	454,277		$	113,992		$	37,779		$	606,048
Additions:
Provision for loan losses	45,875			1,701			(5,431		)	42,145
Adjustment for FDIC-supported/PCI loans	—			—			—			—
Deductions:
Gross loan and lease charge-offs	(43,230		)	(975		)	(3,905		)	(48,110		)
Recoveries	7,065			2,994			1,752			11,811
Net loan and lease charge-offs	(36,165		)	2,019			(2,153		)	(36,299		)
Balance at end of period	$	463,987		$	117,712		$	30,195		$	611,894

Reserve for unfunded lending commitments
Balance at beginning of period	$	57,696		$	16,526		$	616		$	74,838
Provision credited to earnings	(1,429		)	(3,767		)	(616		)	(5,812		)
Balance at end of period	$	56,267		$	12,759		$	—		$	69,026

Total allowance for credit losses at end of period
Allowance for loan losses	$	463,987		$	117,712		$	30,195		$	611,894
Reserve for unfunded lending commitments	56,267			12,759			—			69,026
Total allowance for credit losses	$	520,254		$	130,471		$	30,195		$	680,920



	Three Months Ended March 31, 2015
(In thousands)	Commercial			Commercial real estate			Consumer			Total
Allowance for loan losses
Balance at beginning of period	$	412,514		$	145,009		$	47,140		$	604,663
Additions:
Provision for loan losses	24,934			(26,887		)	459			(1,494		)
Adjustment for FDIC-supported/PCI loans	(38		)							(38		)
Deductions:
Gross loan and lease charge-offs	(15,951		)	(626		)	(3,611		)	(20,188		)
Recoveries	20,613			14,119			2,338			37,070
Net loan and lease charge-offs	4,662			13,493			(1,273		)	16,882
Balance at end of period	$	442,072		$	131,615		$	46,326		$	620,013

Reserve for unfunded lending commitments
Balance at beginning of period	$	58,931		$	21,517		$	628		$	81,076
Provision charged (credited) to earnings	3,844			(2,580		)	(53		)	1,211
Balance at end of period	$	62,775		$	18,937		$	575		$	82,287

Total allowance for credit losses at end of period
Allowance for loan losses	$	442,072		$	131,615		$	46,326		$	620,013
Reserve for unfunded lending commitments	62,775			18,937			575			82,287
Total allowance for credit losses	$	504,847		$	150,552		$	46,901		$	702,300

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

	March 31, 2016
(In thousands)	Commercial		Commercial real estate		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	76,987	$	3,047	$	7,230	$	87,264
Collectively evaluated for impairment	386,943		114,448		22,882		524,273
Purchased loans with evidence of credit deterioration	57		217		83		357
Total	$	463,987	$	117,712	$	30,195	$	611,894

Outstanding loan balances:
Individually evaluated for impairment	$	477,363	$	95,784	$	86,957	$	660,104
Collectively evaluated for impairment	21,219,580		10,649,342		8,782,839		40,651,761
Purchased loans with evidence of credit deterioration	48,310		48,951		9,059		106,320
Total	$	21,745,253	$	10,794,077	$	8,878,855	$	41,418,185



	December 31, 2015
(In thousands)	Commercial		Commercial real estate		Consumer		Total
Allowance for loan losses:
Individually evaluated for impairment	$	36,909	$	3,154	$	9,462	$	49,525
Collectively evaluated for impairment	417,295		110,417		27,866		555,578
Purchased loans with evidence of credit deterioration	73		421		451		945
Total	$	454,277	$	113,992	$	37,779	$	606,048

Outstanding loan balances:
Individually evaluated for impairment	$	289,629	$	107,341	$	92,605	$	489,575
Collectively evaluated for impairment	21,129,125		10,193,840		8,712,079		40,035,044
Purchased loans with evidence of credit deterioration	60,260		54,722		9,941		124,923
Total	$	21,479,014	$	10,355,903	$	8,814,625	$	40,649,542

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:

(In thousands)	March 31, 2016		December 31, 2015
Commercial:
Commercial and industrial	$	356,034	$	163,906
Leasing	14,107		3,829
Owner occupied	74,369		73,881
Municipal	926		951
Total commercial	445,436		242,567
Commercial real estate:
Construction and land development	6,152		7,045
Term	33,051		40,253
Total commercial real estate	39,203		47,298
Consumer:
Home equity credit line	10,700		8,270
1-4 family residential	43,791		50,254
Construction and other consumer real estate	645		748
Bankcard and other revolving plans	1,791		537
Other	202		186
Total consumer loans	57,129		59,995
Total	$	541,768	$	349,860

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

	March 31, 2016
(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 current ¹
Commercial:
Commercial and industrial	$	13,464,106	$	90,610	$	35,522	$	126,132	$	13,590,238	$	4,388	$	287,662
Leasing	436,597		59		494		553		437,150		—		13,613
Owner occupied	6,965,082		21,987		35,360		57,347		7,022,429		13,350		46,289
Municipal	695,436		—		—		—		695,436		—		926
Total commercial	21,561,221		112,656		71,376		184,032		21,745,253		17,738		348,490
Commercial real estate:
Construction and land development	1,960,562		2,573		4,567		7,140		1,967,702		—		1,533
Term	8,782,301		10,173		33,901		44,074		8,826,375		18,295		15,791
Total commercial real estate	10,742,863		12,746		38,468		51,214		10,794,077		18,295		17,324
Consumer:
Home equity credit line	2,420,364		7,015		5,253		12,268		2,432,632		—		4,604
1-4 family residential	5,386,087		10,617		21,106		31,723		5,417,810		321		20,131
Construction and other consumer real estate	397,809		3,365		248		3,613		401,422		—		355
Bankcard and other revolving plans	435,092		2,241		1,207		3,448		438,540		848		1,340
Other	187,760		630		61		691		188,451		—		78
Total consumer loans	8,827,112		23,868		27,875		51,743		8,878,855		1,169		26,508
Total	$	41,131,196	$	149,270	$	137,719	$	286,989	$	41,418,185	$	37,202	$	392,322



	December 31, 2015
(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 current ¹
Commercial:
Commercial and industrial	$	13,114,045	$	60,523	$	36,913	$	97,436	$	13,211,481	$	3,065	$	117,942
Leasing	440,963		183		520		703		441,666		—		3,309
Owner occupied	7,085,086		37,776		27,166		64,942		7,150,028		3,626		43,984
Municipal	668,207		7,586		46		7,632		675,839		46		951
Total commercial	21,308,301		106,068		64,645		170,713		21,479,014		6,737		166,186
Commercial real estate:
Construction and land development	1,835,360		842		5,300		6,142		1,841,502		—		1,745
Term	8,469,390		10,424		34,587		45,011		8,514,401		21,697		24,867
Total commercial real estate	10,304,750		11,266		39,887		51,153		10,355,903		21,697		26,612
Consumer:
Home equity credit line	2,407,972		4,717		3,668		8,385		2,416,357		—		3,053
1-4 family residential	5,340,549		14,828		26,722		41,550		5,382,099		1,036		20,939
Construction and other consumer real estate	374,987		8,593		1,660		10,253		385,240		1,337		408
Bankcard and other revolving plans	440,358		1,861		1,561		3,422		443,780		1,217		146
Other	186,436		647		66		713		187,149		—		83
Total consumer loans	8,750,302		30,646		33,677		64,323		8,814,625		3,590		24,629
Total	$	40,363,353	$	147,980	$	138,209	$	286,189	$	40,649,542	$	32,024	$	217,427


¹	Represents nonaccrual loans that are 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 loan risk grading systems, which vary based on the size and type of credit risk exposure. The internal risk grades assigned to loans 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 and improbable.

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 experience and judgment. For these larger loans, we assign one of 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 loans and certain small commercial and CRE loans with commitments less than $750,000, 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 or Substandard grade and are reviewed as we identify information that might warrant a grade change.

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



	March 31, 2016
(In thousands)	Pass		Special Mention		Sub- standard		Doubtful		Total loans		Total allowance
Commercial:
Commercial and industrial	$	12,245,903	$	390,768	$	953,316	$	251	$	13,590,238
Leasing	402,160		7,106		27,884		—		437,150
Owner occupied	6,577,162		156,723		288,544		—		7,022,429
Municipal	678,377		7,888		9,171		—		695,436
Total commercial	19,903,602		562,485		1,278,915		251		21,745,253		$	463,987
Commercial real estate:
Construction and land development	1,921,338		14,540		31,824		—		1,967,702
Term	8,634,484		41,331		150,560		—		8,826,375
Total commercial real estate	10,555,822		55,871		182,384		—		10,794,077		117,712
Consumer:
Home equity credit line	2,418,415		—		14,217		—		2,432,632
1-4 family residential	5,368,085		—		49,725		—		5,417,810
Construction and other consumer real estate	399,765		—		1,657		—		401,422
Bankcard and other revolving plans	433,989		—		4,551		—		438,540
Other	188,099		—		352		—		188,451
Total consumer loans	8,808,353		—		70,502		—		8,878,855		30,195
Total	$	39,267,777	$	618,356	$	1,531,801	$	251	$	41,418,185	$	611,894



	December 31, 2015
(In thousands)	Pass		Special Mention		Sub- standard		Doubtful		Total loans		Total allowance
Commercial:
Commercial and industrial	$	12,007,076	$	399,847	$	804,403	$	155	$	13,211,481
Leasing	411,131		5,166		25,369		—		441,666
Owner occupied	6,720,052		139,784		290,192		—		7,150,028
Municipal	663,903		—		11,936		—		675,839
Total commercial	19,802,162		544,797		1,131,900		155		21,479,014		$	454,277
Commercial real estate:
Construction and land development	1,786,610		42,348		12,544		—		1,841,502
Term	8,319,348		47,245		139,036		8,772		8,514,401
Total commercial real estate	10,105,958		89,593		151,580		8,772		10,355,903		113,992
Consumer:
Home equity credit line	2,404,635		—		11,722		—		2,416,357
1-4 family residential	5,325,519		—		56,580		—		5,382,099
Construction and other consumer real estate	381,738		—		3,502		—		385,240
Bankcard and other revolving plans	440,282		—		3,498		—		443,780
Other	186,836		—		313		—		187,149
Total consumer loans	8,739,010		—		75,615		—		8,814,625		37,779
Total	$	38,647,130	$	634,390	$	1,359,095	$	8,927	$	40,649,542	$	606,048

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, or if the loan is no longer reported as a TDR, we individually 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. Purchase credit-impaired (“PCI”) loans 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. 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 three months ended March 31, 2016 and 2015 was not significant.

Information on impaired loans individually evaluated is summarized as follows, including the average recorded investment and interest income recognized for the three months ended March 31, 2016 and 2015:



	March 31, 2016
(In thousands)	Unpaid principal balance		Recorded investment				Total recorded investment		Related allowance
			with no allowance		with allowance
Commercial:
Commercial and industrial	$	457,773	$	68,388	$	329,801	$	398,189	$	71,962
Owner occupied	124,637		74,158		39,778		113,936		4,162
Municipal	1,405		926		—		926		—
Total commercial	583,815		143,472		369,579		513,051		76,124
Commercial real estate:
Construction and land development	22,202		4,806		9,319		14,125		883
Term	134,297		81,795		26,275		108,070		1,706
Total commercial real estate	156,499		86,601		35,594		122,195		2,589
Consumer:
Home equity credit line	28,148		21,128		4,295		25,423		145
1-4 family residential	66,860		32,652		31,720		64,372		6,805
Construction and other consumer real estate	3,446		988		1,876		2,864		168
Other	2,565		35		1,900		1,935		53
Total consumer loans	101,019		54,803		39,791		94,594		7,171
Total	$	841,333	$	284,876	$	444,964	$	729,840	$	85,884



	December 31, 2015
(In thousands)	Unpaid principal balance		Recorded investment				Total recorded investment		Related allowance
			with no allowance		with allowance
Commercial:
Commercial and industrial	$	272,161	$	44,190	$	163,729	$	207,919	$	30,538
Owner occupied	141,526		83,024		43,243		126,267		5,486
Municipal	1,430		951		—		951		—
Total commercial	415,117		128,165		206,972		335,137		36,024
Commercial real estate:
Construction and land development	22,791		5,076		9,558		14,634		618
Term	142,239		82,864		34,361		117,225		2,604
Total commercial real estate	165,030		87,940		43,919		131,859		3,222
Consumer:
Home equity credit line	27,064		18,980		5,319		24,299		243
1-4 family residential	74,009		29,540		41,155		70,695		8,736
Construction and other consumer real estate	2,741		989		1,014		2,003		173
Other	3,187		36		2,570		2,606		299
Total consumer loans	107,001		49,545		50,058		99,603		9,451
Total	$	687,148	$	265,650	$	300,949	$	566,599	$	48,697



	Three Months Ended March 31, 2016				Three Months Ended March 31, 2015
(In thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial:
Commercial and industrial	$	281,841	$	1,472	$	160,013	$	1,451
Owner occupied	122,241		2,431		177,568		4,092
Municipal	932		—		1,033		—
Total commercial	405,014		3,903		338,614		5,543
Commercial real estate:
Construction and land development	14,293		513		38,736		569
Term	106,236		3,458		143,496		5,008
Total commercial real estate	120,529		3,971		182,232		5,577
Consumer:
Home equity credit line	24,730		386		25,386		413
1-4 family residential	63,166		477		66,711		510
Construction and other consumer real estate	2,917		48		2,560		42
Bankcard and other revolving plans	—		16		2		100
Other	2,502		107		4,748		285
Total consumer loans	93,315		1,034		99,407		1,350
Total	$	618,858	$	8,908	$	620,253	$	12,470

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 that includes the recorded investment on an accruing and nonaccruing basis by loan class and modification type is summarized in the following schedules:



	March 31, 2016
	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	$	198	$	26,309	$	12	$	91	$	1,085	$	33,894	$	61,589
Owner occupied	2,227		1,458		920		—		7,882		16,318		28,805
Total commercial	2,425		27,767		932		91		8,967		50,212		90,394
Commercial real estate:
Construction and land development	44		—		—		—		—		9,316		9,360
Term	4,660		7,397		161		980		4,037		13,749		30,984
Total commercial real estate	4,704		7,397		161		980		4,037		23,065		40,344
Consumer:
Home equity credit line	198		2,414		10,570		—		164		3,027		16,373
1-4 family residential	2,030		349		6,498		257		3,213		33,404		45,751
Construction and other consumer real estate	171		357		—		1,143		—		949		2,620
Total consumer loans	2,399		3,120		17,068		1,400		3,377		37,380		64,744
Total accruing	9,528		38,284		18,161		2,471		16,381		110,657		195,482
Nonaccruing
Commercial:
Commercial and industrial	26		396		—		1,116		18,551		63,047		83,136
Owner occupied	1,122		1,209		—		3,064		275		16,881		22,551
Municipal	—		926		—		—		—		—		926
Total commercial	1,148		2,531		—		4,180		18,826		79,928		106,613
Commercial real estate:
Construction and land development	—		312		—		—		3,135		209		3,656
Term	1,797		1,163		—		—		2,920		3,892		9,772
Total commercial real estate	1,797		1,475		—		—		6,055		4,101		13,428
Consumer:
Home equity credit line	—		299		1,359		51		—		705		2,414
1-4 family residential	—		325		1,944		302		829		6,452		9,852
Construction and other consumer real estate	—		97		16		42		—		62		217
Total consumer loans	—		721		3,319		395		829		7,219		12,483
Total nonaccruing	2,945		4,727		3,319		4,575		25,710		91,248		132,524
Total	$	12,473	$	43,011	$	21,480	$	7,046	$	42,091	$	201,905	$	328,006



	December 31, 2015
	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	$	202	$	3,236	$	13	$	100	$	23,207	$	34,473	$	61,231
Owner occupied	1,999		681		929		—		9,879		16,339		29,827
Total commercial	2,201		3,917		942		100		33,086		50,812		91,058
Commercial real estate:
Construction and land development	94		—		—		—		—		9,698		9,792
Term	4,696		638		166		976		2,249		20,833		29,558
Total commercial real estate	4,790		638		166		976		2,249		30,531		39,350
Consumer:
Home equity credit line	192		2,147		9,763		—		164		3,155		15,421
1-4 family residential	2,669		353		6,747		433		3,440		32,903		46,545
Construction and other consumer real estate	174		384		—		—		—		1,152		1,710
Total consumer loans	3,035		2,884		16,510		433		3,604		37,210		63,676
Total accruing	10,026		7,439		17,618		1,509		38,939		118,553		194,084
Nonaccruing
Commercial:
Commercial and industrial	28		455		—		1,879		3,577		49,617		55,556
Owner occupied	685		1,669		—		724		34		16,335		19,447
Municipal	—		951		—		—		—		—		951
Total commercial	713		3,075		—		2,603		3,611		65,952		75,954
Commercial real estate:
Construction and land development	—		333		—		—		3,156		208		3,697
Term	1,844		—		—		—		2,960		5,203		10,007
Total commercial real estate	1,844		333		—		—		6,116		5,411		13,704
Consumer:
Home equity credit line	7		500		1,400		54		—		233		2,194
1-4 family residential	—		275		2,052		136		1,180		7,299		10,942
Construction and other consumer real estate	—		101		17		48		—		44		210
Total consumer loans	7		876		3,469		238		1,180		7,576		13,346
Total nonaccruing	2,564		4,284		3,469		2,841		10,907		78,939		103,004
Total	$	12,590	$	11,723	$	21,087	$	4,350	$	49,846	$	197,492	$	297,088


¹	Includes 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.


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

Unfunded lending commitments on TDRs amounted to approximately $1.6 million at March 31, 2016 and $7.5 million at December 31, 2015.

The total recorded investment of all TDRs in which interest rates were modified below market was $174.5 million at March 31, 2016 and $188.0 million at December 31, 2015. 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:



	Three Months Ended March 31,
(In thousands)	2016			2015
Commercial:
Commercial and industrial	$	(73	)	$	(57	)
Owner occupied	(49		)	(112		)
Total commercial	(122		)	(169		)
Commercial real estate:
Construction and land development	(1		)	(37		)
Term	(79		)	(109		)
Total commercial real estate	(80		)	(146		)
Consumer:
Home equity credit line	(1		)	(1		)
1-4 family residential	(230		)	(271		)
Construction and other consumer real estate	(5		)	(7		)
Total consumer loans	(236		)	(279		)
Total decrease to interest income¹	$	(438	)	$	(594	)


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.

The recorded investment of accruing and nonaccruing TDRs that had a payment default during the period listed below (and are still in default at period end) and are within 12 months or less of being modified as TDRs is as follows:



	Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
(In thousands)	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial:
Commercial and industrial	$	—	$	2,992	$	2,992	$	—	$	44	$	44
Owner occupied	3,350		244		3,594		—		986		986
Total commercial	3,350		3,236		6,586		—		1,030		1,030
Commercial real estate:
Construction and land development	—		—		—		—		1,284		1,284
Term	—		—		—		—		—		—
Total commercial real estate	—		—		—		—		1,284		1,284
Consumer:
Home equity credit line	—		—		—		—		—		—
1-4 family residential	—		160		160		110		—		110
Construction and other consumer real estate	—		—		—		—		—		—
Total consumer loans	—		160		160		110		—		110
Total	$	3,350	$	3,396	$	6,746	$	110	$	2,314	$	2,424

Note: Total loans modified as TDRs during the 12 months previous to March 31, 2016 and 2015 were $180.3 million and $74.5 million, respectively.

At March 31, 2016 and December 31, 2015, the amount of foreclosed residential real estate property held by the Company was approximately $3.4 million and $0.5 million, and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was approximately $11.3 million and $12.5 million, respectively.

Concentrations of Credit Risk

Credit risk is the possibility of loss from the failure of a borrower, guarantor, or another obligor to fully perform under the terms of a credit-related contract. Credit risks (whether on- or off-balance sheet) may occur when individual borrowers, groups of borrowers, or counterparties have similar economic characteristics, including industries, geographies, collateral types, sponsors, etc., 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. See Note 7 for a discussion of counterparty risk associated with the Company’s derivative transactions.

We perform an ongoing analysis of our loan portfolio to evaluate whether there is any significant exposure to any concentrations of credit risk. Based on this analysis, we believe that the loan portfolio is generally well diversified; however, there are certain significant concentrations in CRE and oil and gas-related lending. Further, we cannot guarantee that we have fully understood or mitigated all risk concentrations or correlated risks. We have adopted and adhere to concentration limits on various types of CRE lending, particularly construction and land development lending, leveraged and enterprise value lending, municipal lending, and oil and gas-related lending. All of these limits are continually monitored and revised as necessary.

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. 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. Upon acquisition, in accordance with applicable accounting guidance, the acquired loans were recorded at their fair value without a corresponding ALLL. Certain acquired loans with similar characteristics such as risk exposure, type, size, etc., are grouped and accounted for in loan pools.

Outstanding Balances and Accretable Yield

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



(In thousands)	March 31, 2016			December 31, 2015

Commercial		$	55,997		$	72,440
Commercial real estate		60,456			65,167
Consumer		9,961			11,082
Outstanding balance		$	126,414		$	148,689

Carrying amount		$	106,320		$	125,029
Less ALLL		357			945
Carrying amount, net		$	105,963		$	124,084

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. There were no amounts of these loans at March 31, 2016 and December 31, 2015.

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



(In thousands)	Three Months Ended March 31,
(In thousands)	2016			2015

Balance at beginning of period	$	39,803		$	45,055
Accretion	(6,138		)	(9,583		)
Reclassification from nonaccretable difference	8,430			13,281
Disposals and other	1,010			2,178
Balance at end of period	$	43,105		$	50,931

Note: Amounts have been adjusted based on refinements to the original estimates of the accretable yield.

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 included in the overall ALLL in the balance sheet.

During the three months ended March 31, 2016 and 2015, we adjusted the ALLL for acquired loans by recording a negative provision for loan losses of $(0.4) million and $(0.8) million, respectively. The provision is net of the ALLL reversals resulting from changes in cash flow estimates, which are discussed subsequently.

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 the three months ended March 31, total reversals to the ALLL, including the impact of increases in estimated cash flows, were $0.4 million in 2016 and $1.4 million in 2015, respectively. 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.

For the three months ended March 31, the impact of increased cash flow estimates recognized in the statement of income for acquired loans with no ALLL was approximately $4.5 million in 2016 and $7.4 million in 2015, respectively, of additional interest income.