Loans and Allowance for Loan Losses

Major classifications within the Company’s held for investment loan portfolio at December 31, 2018 and 2017 are as follows:



(In thousands)	2018		2017
Commercial:
Business	$	5,106,427	$	4,958,554
Real estate — construction and land	869,659		968,820
Real estate — business	2,875,788		2,697,452
Personal Banking:
Real estate — personal	2,127,083		2,062,787
Consumer	1,955,572		2,104,487
Revolving home equity	376,399		400,587
Consumer credit card	814,134		783,864
Overdrafts	15,236		7,123
Total loans	$	14,140,298	$	13,983,674

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



(In thousands)
Balance at January 1, 2018	$	47,225
Additions	127,253
Amounts collected	(128,540		)
Amounts written off	—
Balance, December 31, 2018	$	45,938

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, 2018 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, Texas, 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 one 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, 2018, unfunded loan commitments totaled $11.2 billion (which included $5.3 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, 2018, loans totaling $3.7 billion were pledged at the FHLB as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $1.6 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 to commercial and industrial and tax-exempt entities of $752.2 million and $737.7 million at December 31, 2018 and 2017, respectively, which is included in business loans on the Company’s consolidated balance sheets. This investment includes deferred income of $62.6 million and $52.1 million at December 31, 2018 and 2017, respectively. The net investment in operating leases amounted to $16.1 million and $17.4 million at December 31, 2018 and 2017, 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, 2015	$	82,086		$	69,446	$	151,532
Provision for loan losses	4,898			31,420		36,318
Deductions:
Loans charged off	3,258			47,720		50,978
Less recoveries	7,635			11,425		19,060
Net loans charged off (recoveries)	(4,377		)	36,295		31,918
Balance at December 31, 2016	91,361			64,571		155,932
Provision for loan losses	2,327			42,917		45,244
Deductions:
Loans charged off	2,538			52,641		55,179
Less recoveries	2,554			10,981		13,535
Net loans charged off (recoveries)	(16		)	41,660		41,644
Balance at December 31, 2017	93,704			65,828		159,532
Provision for loan losses	254			42,440		42,694
Deductions:
Loans charged off	3,164			52,657		55,821
Less recoveries	2,075			11,452		13,527
Net loans charged off (recoveries)	1,089			41,205		42,294
Balance at December 31, 2018	$	92,869		$	67,063	$	159,932

The following table shows the balance in the allowance for loan losses and the related loan balance at December 31, 2018 and 2017, 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, 2018
Commercial	$	1,780	$	61,496	$	91,089	$	8,790,378
Personal Banking	916		17,120		66,147		5,271,304
Total	$	2,696	$	78,616	$	157,236	$	14,061,682
December 31, 2017
Commercial	$	3,067	$	92,613	$	90,637	$	8,532,213
Personal Banking	1,176		22,182		64,652		5,336,666
Total	$	4,243	$	114,795	$	155,289	$	13,868,879

Impaired loans

The table below shows the Company’s investment in impaired loans at December 31, 2018 and 2017. 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 current accounting guidance. 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 78.



(In thousands)	2018		2017
Non-accrual loans	$	12,536	$	11,983
Restructured loans (accruing)	66,080		102,812
Total impaired loans	$	78,616	$	114,795

The following table provides additional information about impaired loans held by the Company at December 31, 2018 and 2017, 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, 2018
With no related allowance recorded:
Business	$	8,725	$	14,477	$	—
	$	8,725	$	14,477	$	—
With an allowance recorded:
Business	$	40,286	$	40,582	$	1,223
Real estate – construction and land	416		421		11
Real estate – business	12,069		12,699		546
Real estate – personal	4,461		6,236		266
Consumer	5,510		5,510		38
Revolving home equity	40		40		1
Consumer credit card	7,109		7,109		611
	$	69,891	$	72,597	$	2,696
Total	$	78,616	$	87,074	$	2,696
December 31, 2017
With no related allowance recorded:
Business	$	5,356	$	9,000	$	—
Real estate – business	1,299		1,303		—
Consumer	779		817		—
	$	7,434	$	11,120	$	—
With an allowance recorded:
Business	$	72,589	$	73,168	$	2,455
Real estate – construction and land	837		841		27
Real estate – business	12,532		13,071		585
Real estate – personal	9,126		11,914		532
Consumer	5,388		5,426		67
Revolving home equity	204		204		11
Consumer credit card	6,685		6,685		566
	$	107,361	$	111,309	$	4,243
Total	$	114,795	$	122,429	$	4,243

Total average impaired loans during 2018 and 2017 are shown in the table below.



	2018						2017
(In thousands)	Commercial		Personal Banking		Total		Commercial		Personal Banking		Total
Average impaired loans:
Non-accrual loans	$	7,619	$	2,122	$	9,741	$	9,658	$	3,989	$	13,647
Restructured loans (accruing)	73,261		16,526		89,787		49,070		17,539		66,609
Total	$	80,880	$	18,648	$	99,528	$	58,728	$	21,528	$	80,256

The table below shows interest income recognized during the years ended December 31, 2018, 2017 and 2016 for impaired loans held at the end of each respective period. This interest relates to accruing restructured loans, as discussed previously.



	Years Ended December 31
(In thousands)	2018		2017		2016
Interest income recognized on impaired loans:
Business	$	2,219	$	3,135	$	1,064
Real estate – construction and land	25		41		2
Real estate – business	558		514		171
Real estate – personal	139		402		152
Consumer	305		307		339
Revolving home equity	3		10		31
Consumer credit card	746		673		722
Total	$	3,995	$	5,082	$	2,481

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, 2018 and 2017.



(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, 2018
Commercial:
Business	$	5,086,912	$	10,057	$	473	$	8,985	$	5,106,427
Real estate – construction and land	867,692		1,963		—		4		869,659
Real estate – business	2,867,347		6,704		22		1,715		2,875,788
Personal Banking:
Real estate – personal	2,118,045		6,041		1,165		1,832		2,127,083
Consumer	1,916,320		35,608		3,644		—		1,955,572
Revolving home equity	374,830		875		694		—		376,399
Consumer credit card	792,334		11,140		10,660		—		814,134
Overdrafts	14,937		299		—		—		15,236
Total	$	14,038,417	$	72,687	$	16,658	$	12,536	$	14,140,298
December 31, 2017
Commercial:
Business	$	4,949,148	$	3,085	$	374	$	5,947	$	4,958,554
Real estate – construction and land	967,321		1,473		21		5		968,820
Real estate – business	2,694,234		482		—		2,736		2,697,452
Personal Banking:
Real estate – personal	2,050,787		6,218		3,321		2,461		2,062,787
Consumer	2,067,025		32,674		3,954		834		2,104,487
Revolving home equity	397,349		1,962		1,276		—		400,587
Consumer credit card	764,568		10,115		9,181		—		783,864
Overdrafts	6,840		283		—		—		7,123
Total	$	13,897,272	$	56,292	$	18,127	$	11,983	$	13,983,674

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, 2018
Pass	$	4,915,042	$	866,527	$	2,777,374	$	8,558,943
Special mention	84,391		1,917		51,845		138,153
Substandard	98,009		1,211		44,854		144,074
Non-accrual	8,985		4		1,715		10,704
Total	$	5,106,427	$	869,659	$	2,875,788	$	8,851,874
December 31, 2017
Pass	$	4,740,013	$	955,499	$	2,593,005	$	8,288,517
Special mention	59,177		10,614		50,577		120,368
Substandard	153,417		2,702		51,134		207,253
Non-accrual	5,947		5		2,736		8,688
Total	$	4,958,554	$	968,820	$	2,697,452	$	8,624,826

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. 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 generally pertain to commercial customer activities and are often underwritten with other collateral considerations. These loans totaled $201.7 million at December 31, 2018 and $219.2 million at December 31, 2017. The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled $170.3 million at December 31, 2018 and $145.0 million at December 31, 2017. As the healthcare loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and consumer loans excluded below totaled less than 8% of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at December 31, 2018 and 2017 by FICO score.



	Personal Banking Loans
	% of Loan Category
	Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card
December 31, 2018
FICO score:
Under 600	1.1	%	3.1	%	0.8	%	4.4	%
600 – 659	1.8		4.8		1.7		14.0
660 – 719	9.4		16.1		9.1		34.8
720 – 779	24.7		25.7		24.0		26.4
780 and over	63.0		50.3		64.4		20.4
Total	100.0	%	100.0	%	100.0	%	100.0	%
December 31, 2017
FICO score:
Under 600	1.3	%	3.3	%	1.1	%	4.7	%
600 – 659	2.1		5.5		1.7		14.4
660 – 719	10.5		17.3		9.5		34.4
720 – 779	25.6		26.8		21.4		26.0
780 and over	60.5		47.1		66.3		20.5
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, as shown in the table below. 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. Commercial performing restructured loans are primarily comprised of certain business, construction and business real estate loans classified as substandard, but renewed at rates judged to be non market. These 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 and other small consumer loans under various debt management and assistance programs. Modifications to these loans generally involve removing the available line of credit, placing loans on amortizing status, and lowering the contractual interest rate. The Company also classified as consumer bankruptcy certain personal real estate, revolving home equity, and consumer loans as troubled debt restructurings because they were not reaffirmed by the borrower in bankruptcy proceedings. Interest on these loans is being recognized on an accrual basis, as the borrowers are continuing to make payments. Other consumer loans classified as troubled debt restructurings consist of various other workout arrangements with consumer customers.



		December 31
(In thousands)		2018		2017
Accruing loans:
	Commercial	$	50,904	$	88,588
	Assistance programs	7,410		6,941
	Consumer bankruptcy	4,103		3,916
	Other consumer	3,663		3,367
Non-accrual loans		9,759		7,796
Total troubled debt restructurings		$	75,839	$	110,608

The table below shows the balance of troubled debt restructurings by loan classification at December 31, 2018, in addition to the period end balances of these 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, 2018		Balance 90 days past due at any time during previous 12 months
Commercial:
Business	$	48,777	$	25
Real estate – construction and land	412		—
Real estate – business	10,355		—
Personal Banking:
Real estate – personal	3,636		158
Consumer	5,510		50
Revolving home equity	40		—
Consumer credit card	7,109		670
Total troubled debt restructurings	$	75,839	$	903

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 loans under various debt management and assistance programs were estimated to decrease interest income by approximately $1.0 million on an annual, pre-tax basis, compared to amounts contractually owed. Other modifications to consumer loans mainly involve extensions and other small modifications that did not include the forgiveness of principal or interest.

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 having no concessions granted other than being renewed at non-market interest rates are judged to 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 $1.8 million at December 31, 2018 to lend additional funds to borrowers with restructured loans, compared to $7.6 million at December 31, 2017.

Loans held for sale

The Company designates certain long-term fixed rate personal real estate loan originations as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 18. The loans are primarily sold to FNMA, FHLMC, and GNMA. At December 31, 2018, the fair value of these loans was $13.5 million, and the unpaid principal balance was $13.0 million.

The Company also designates certain student loan originations as held for sale. The borrowers are credit-worthy students who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are carried at lower of cost or fair value, which at December 31, 2018 totaled $7.2 million.

At December 31, 2018, none of the loans held for sale were past due or on non-accrual status.

Foreclosed real estate/repossessed assets

The Company’s holdings of foreclosed real estate totaled $1.4 million and $681 thousand at December 31, 2018 and 2017, respectively. Personal property acquired in repossession, generally autos and marine and recreational vehicles, totaled $2.0 million and $2.7 million at December 31, 2018 and 2017, respectively. Upon acquisition, these assets are recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this cost basis or fair value less estimated selling costs.