Loans and Allowance for Loan Losses

Major classifications within the Company’s held to maturity loan portfolio at December 31, 2014 and 2013 are as follows:



(In thousands)	2014		2013
Commercial:
Business	$	3,969,952	$	3,715,319
Real estate — construction and land	403,507		406,197
Real estate — business	2,288,215		2,313,550
Personal Banking:
Real estate — personal	1,883,092		1,787,626
Consumer	1,705,134		1,512,716
Revolving home equity	430,873		420,589
Consumer credit card	782,370		796,228
Overdrafts	6,095		4,611
Total loans	$	11,469,238	$	10,956,836

Loans to directors and executive officers of the Parent and the Bank, and to their associates, are summarized as follows:



(In thousands)
Balance at January 1, 2014	$	44,728
Additions	402,428
Amounts collected	(381,737		)
Amounts written off	—
Balance, December 31, 2014	$	65,419

Management believes all loans to directors and executive officers have been made in the ordinary course of business with normal credit terms, including interest rate and collateral considerations, and do not represent more than a normal risk of collection. The activity in the table above includes draws and repayments on several lines of credit with business entities. There were no outstanding loans at December 31, 2014 to principal holders (over 10% ownership) of the Company’s common stock.

The Company’s lending activity is generally centered in Missouri, Illinois, Kansas and other nearby states including Oklahoma, Colorado, Iowa, Ohio, and others. The Company maintains a diversified portfolio with limited industry concentrations of credit risk. Loans and loan commitments are extended under the Company’s normal credit standards, controls, and monitoring features. Most loan commitments are short or intermediate term in nature. Commercial loan maturities generally range from three to seven years. Collateral is commonly required and would include such assets as marketable securities and cash equivalent assets, accounts receivable and inventory, equipment, other forms of personal property, and real estate. At December 31, 2014, unfunded loan commitments totaled $8.4 billion (which included $3.5 billion in unused approved lines of credit related to credit card loan agreements) which could be drawn by customers subject to certain review and terms of agreement. At December 31, 2014, loans totaling $3.6 billion were pledged at the FHLB as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $1.3 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings.

The Company has a net investment in direct financing and sales type leases of $413.0 million and $368.8 million at December 31, 2014 and 2013, respectively, which is included in business loans on the Company’s consolidated balance sheets. This investment includes deferred income of $26.4 million and $25.1 million at December 31, 2014 and 2013, respectively. The net investment in operating leases amounted to $22.8 million and $24.4 million at December 31, 2014 and 2013, respectively, and is included in other assets on the Company’s consolidated balance sheets.

Allowance for loan losses

A summary of the activity in the allowance for losses during the previous three years follows:



(In thousands)	Commercial			Personal Banking		Total
Balance at December 31, 2011	$	122,497		$	62,035	$	184,532
Provision for loan losses	(14,444		)	41,731		27,287
Deductions:
Loans charged off	11,094			52,067		63,161
Less recoveries	8,766			15,108		23,874
Net loans charged off	2,328			36,959		39,287
Balance at December 31, 2012	105,725			66,807		172,532
Provision for loan losses	(16,143		)	36,496		20,353
Deductions:
Loans charged off	5,170			49,029		54,199
Less recoveries	9,777			13,069		22,846
Net loans charged off (recoveries)	(4,607		)	35,960		31,353
Balance at December 31, 2013	94,189			67,343		161,532
Provision for loan losses	(5,204		)	34,735		29,531
Deductions:
Loans charged off	4,548			48,225		52,773
Less recoveries	5,185			13,057		18,242
Net loans charged off (recoveries)	(637		)	35,168		34,531
Balance at December 31, 2014	$	89,622		$	66,910	$	156,532

The following table shows the balance in the allowance for loan losses and the related loan balance at December 31, 2014 and 2013, disaggregated on the basis of impairment methodology. Impaired loans evaluated under ASC 310-10-35 include loans on non-accrual status which are individually evaluated for impairment and other impaired loans deemed to have similar risk characteristics, which are collectively evaluated. All other loans are collectively evaluated for impairment under ASC 450-20.



	Impaired Loans				All Other Loans
(In thousands)	Allowance for Loan Losses		Loans Outstanding		Allowance for Loan Losses		Loans Outstanding
December 31, 2014
Commercial	$	4,527	$	55,551	$	85,095	$	6,606,123
Personal Banking	2,314		25,537		64,596		4,782,027
Total	$	6,841	$	81,088	$	149,691	$	11,388,150
December 31, 2013
Commercial	$	8,476	$	78,516	$	85,713	$	6,356,550
Personal Banking	2,424		29,120		64,919		4,492,650
Total	$	10,900	$	107,636	$	150,632	$	10,849,200

Impaired loans

The table below shows the Company’s investment in impaired loans at December 31, 2014 and 2013. These loans consist of all loans on non-accrual status and other restructured loans whose terms have been modified and classified as troubled debt restructurings under ASC 310-40. These restructured loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. They are discussed further in the "Troubled debt restructurings" section on page 73.



(In thousands)	2014		2013
Non-accrual loans	$	40,775	$	48,814
Restructured loans (accruing)	40,313		58,822
Total impaired loans	$	81,088	$	107,636

The following table provides additional information about impaired loans held by the Company at December 31, 2014 and 2013, segregated between loans for which an allowance for credit losses has been provided and loans for which no allowance has been provided.



(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2014
With no related allowance recorded:
Business	$	9,237	$	11,532	$	—
Real estate – construction and land	4,552		8,493		—
Real estate – business	13,453		17,258		—
Real estate – personal	1,227		1,384		—
	$	28,469	$	38,667	$	—
With an allowance recorded:
Business	$	12,326	$	13,846	$	1,844
Real estate – construction and land	8,148		9,610		1,081
Real estate – business	7,835		15,025		1,602
Real estate – personal	9,096		12,465		1,441
Consumer	4,244		4,244		50
Revolving home equity	529		529		9
Consumer credit card	10,441		10,441		814
	$	52,619	$	66,160	$	6,841
Total	$	81,088	$	104,827	$	6,841
December 31, 2013
With no related allowance recorded:
Business	$	7,969	$	9,000	$	—
Real estate – construction and land	8,766		16,067		—
Real estate – business	4,089		6,417		—
Revolving home equity	2,191		2,741		—
	$	23,015	$	34,225	$	—
With an allowance recorded:
Business	$	19,266	$	22,597	$	3,037
Real estate – construction and land	17,632		19,708		2,174
Real estate – business	20,794		29,287		3,265
Real estate – personal	10,425		13,576		1,361
Consumer	4,025		4,025		85
Revolving home equity	666		666		2
Consumer credit card	11,813		11,813		976
	$	84,621	$	101,672	$	10,900
Total	$	107,636	$	135,897	$	10,900

Total average impaired loans during 2014 and 2013 are shown in the table below.



	2014						2013
(In thousands)	Commercial		Personal Banking		Total		Commercial		Personal Banking		Total
Average impaired loans:
Non-accrual loans	$	38,114	$	7,132	$	45,246	$	35,900	$	5,329	$	41,229
Restructured loans (accruing)	33,156		20,040		53,196		40,251		24,134		64,385
Total	$	71,270	$	27,172	$	98,442	$	76,151	$	29,463	$	105,614

The table below shows interest income recognized during the years ended December 31, 2014, 2013 and 2012 for impaired loans held at the end of each respective period. This interest relates to accruing restructured loans, as discussed previously.



	For the Year Ended December 31
(In thousands)	2014		2013		2012
Interest income recognized on impaired loans:
Business	$	344	$	509	$	1,184
Real estate – construction and land	361		758		655
Real estate – business	153		215		246
Real estate – personal	208		263		376
Consumer	286		346		415
Revolving home equity	27		36		37
Consumer credit card	993		1,116		1,341
Total	$	2,372	$	3,243	$	4,254

Delinquent and non-accrual loans

The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at December 31, 2014 and 2013.



(In thousands)	Current or Less Than 30 Days Past Due		30 – 89 Days Past Due		90 Days Past Due and Still Accruing		Non-accrual		Total
December 31, 2014
Commercial:
Business	$	3,946,144	$	11,152	$	1,096	$	11,560	$	3,969,952
Real estate – construction and land	397,488		827		35		5,157		403,507
Real estate – business	2,266,688		3,661		—		17,866		2,288,215
Personal Banking:
Real estate – personal	1,868,606		6,618		1,676		6,192		1,883,092
Consumer	1,687,285		16,053		1,796		—		1,705,134
Revolving home equity	428,478		1,552		843		—		430,873
Consumer credit card	764,599		9,559		8,212		—		782,370
Overdrafts	5,721		374		—		—		6,095
Total	$	11,365,009	$	49,796	$	13,658	$	40,775	$	11,469,238
December 31, 2013
Commercial:
Business	$	3,697,589	$	5,467	$	671	$	11,592	$	3,715,319
Real estate – construction and land	386,423		9,601		—		10,173		406,197
Real estate – business	2,292,385		1,340		47		19,778		2,313,550
Personal Banking:
Real estate – personal	1,771,231		9,755		1,560		5,080		1,787,626
Consumer	1,492,960		17,482		2,274		—		1,512,716
Revolving home equity	416,614		1,082		702		2,191		420,589
Consumer credit card	777,564		9,952		8,712		—		796,228
Overdrafts	4,315		296		—		—		4,611
Total	$	10,839,081	$	54,975	$	13,966	$	48,814	$	10,956,836

Credit quality

The following table provides information about the credit quality of the Commercial loan portfolio, using the Company’s internal rating system as an indicator. The internal rating system is a series of grades reflecting management’s risk assessment, based on its analysis of the borrower’s financial condition. The “pass” category consists of a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is attached to loans where the borrower exhibits material negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment, as discussed in Note 1.



	Commercial Loans
(In thousands)	Business		Real Estate -Construction		Real Estate - Business		Total
December 31, 2014
Pass	$	3,871,569	$	385,831	$	2,184,541	$	6,441,941
Special mention	62,904		3,865		40,668		107,437
Substandard	23,919		8,654		45,140		77,713
Non-accrual	11,560		5,157		17,866		34,583
Total	$	3,969,952	$	403,507	$	2,288,215	$	6,661,674
December 31, 2013
Pass	$	3,618,120	$	372,515	$	2,190,344	$	6,180,979
Special mention	61,916		1,697		53,079		116,692
Substandard	23,691		21,812		50,349		95,852
Non-accrual	11,592		10,173		19,778		41,543
Total	$	3,715,319	$	406,197	$	2,313,550	$	6,435,066

The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above section on "Delinquent and non-accrual loans". In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a person's financial history. The bank normally obtains a FICO score at the loan's origination and renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain personal real estate loans for which FICO scores are not obtained because the loans are related to commercial activity. These totaled $244.3 million, or less than 6.0% of the Personal Banking portfolio, at both December 31, 2014 and December 31, 2013. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at December 31, 2014 and 2013 by FICO score.



	Personal Banking Loans
	% of Loan Category
	Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card
December 31, 2014
FICO score:
Under 600	1.4	%	5.2	%	1.8	%	4.1	%
600 – 659	3.1		10.2		4.4		11.8
660 – 719	9.9		22.9		13.7		32.4
720 – 779	26.7		28.0		32.8		27.8
780 and over	58.9		33.7		47.3		23.9
Total	100.0	%	100.0	%	100.0	%	100.0	%
December 31, 2013
FICO score:
Under 600	1.7	%	5.4	%	2.1	%	4.1	%
600 – 659	3.3		10.1		7.3		11.7
660 – 719	10.3		23.4		15.0		32.9
720 – 779	25.8		28.3		28.5		27.9
780 and over	58.9		32.8		47.1		23.4
Total	100.0	%	100.0	%	100.0	%	100.0	%

Troubled debt restructurings

As mentioned previously, the Company's impaired loans include loans which have been classified as troubled debt restructurings. Total restructured loans amounted to $64.4 million at December 31, 2014. Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due under the contractual terms will be collected, and those non-accrual loans totaled $24.1 million at December 31, 2014. Other performing restructured loans totaled $40.3 million at December 31, 2014. These are partly comprised of certain business, construction and business real estate loans classified as substandard. Upon maturity, the loans renewed at interest rates judged not to be market rates for new debt with similar risk and as a result were classified as troubled debt restructurings. These commercial loans totaled $21.8 million and $38.2 million at December 31, 2014 and 2013, respectively. These restructured loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. Troubled debt restructurings also include certain credit card loans under various debt management and assistance programs, which totaled $10.4 million at December 31, 2014 and $11.8 million at December 31, 2013. Modifications to credit card loans generally involve removing the available line of credit, placing loans on amortizing status, and lowering the contractual interest rate. The Company also classifies certain loans as troubled debt restructurings because they were not reaffirmed by the borrower in bankruptcy proceedings. These loans, which are comprised of personal real estate, revolving home equity and consumer loans, totaled $8.1 million and $8.8 million at December 31, 2014 and 2013, respectively. Interest on these loans is being recognized on an accrual basis, as the borrowers are continuing to make payments.

The table below shows the outstanding balance of loans classified as troubled debt restructurings at December 31, 2014, in addition to the period end balances of restructured loans which the Company considers to have been in default at any time during the past twelve months. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal.



(In thousands)	December 31, 2014		Balance 90 days past due at any time during previous 12 months
Commercial:
Business	$	18,321	$	7,464
Real estate – construction and land	12,249		3,285
Real estate – business	12,634		22
Personal Banking:
Real estate – personal	6,000		84
Consumer	4,271		47
Revolving home equity	529		40
Consumer credit card	10,441		890
Total restructured loans	$	64,445	$	11,832

For those loans on non-accrual status also classified as restructured, the modification did not create any further financial effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no financial impact to the Company as a result of modification to these loans. No financial impact resulted from those performing loans where the debt was not reaffirmed in bankruptcy, as no changes to loan terms occurred in that process . However, the effects of modifications to consumer credit card loans were estimated to decrease interest income by approximately $1.1 million on an annual, pre-tax basis, compared to amounts contractually owed.

The allowance for loan losses related to troubled debt restructurings on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which management expects to collect under contractual terms. Performing commercial loans have had no other concessions granted other than being renewed at an interest rate judged not to be market. As such, they have similar risk characteristics as non-troubled debt commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical experience and current economic factors.

If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for loan losses continues to be based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing, troubled debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for loan losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin.

The Company had commitments of $6.9 million at December 31, 2014 to lend additional funds to borrowers with restructured loans.

The Company’s holdings of foreclosed real estate totaled $5.5 million and $6.6 million at December 31, 2014 and 2013, respectively. Personal property acquired in repossession, generally autos and marine and recreational vehicles, totaled $2.4 million and $2.8 million at December 31, 2014 and 2013, respectively. These assets are carried at the lower of the amount recorded at acquisition date or the current fair value less estimated selling costs.