4. Loans and leases and the allowance for credit losses

The outstanding principal balance and the carrying amount of acquired loans that were recorded at fair value at the acquisition date that is included in the consolidated balance sheet were as follows:


	March 31, 2014		December 31, 2013
	(in thousands)
Outstanding principal balance	$	4,302,336		4,656,811
Carrying amount:
Commercial, financial, leasing, etc.		474,612		580,685
Commercial real estate		1,412,397		1,541,368
Residential real estate		551,698		576,473
Consumer		1,258,875		1,308,926

	$	3,697,582		4,007,452

Purchased impaired loans included in the table above totaled $303 million at March 31, 2014 and $331 million at December 31, 2013, representing less than 1% of the Company’s assets as of each date. A summary of changes in the accretable yield for acquired loans for the three months ended March 31, 2014 and 2013 follows:


	Three months ended March 31, 2014
	Purchased impaired			Other acquired			Total
	(in thousands)
Balance at beginning of period	$	37,230			538,633			575,863
Interest income		(6,328	)		(52,633	)		(58,961	)
Reclassifications from nonaccretable balance, net		37			—			37
Other (a)		—			(838	)		(838	)

Balance at end of period	$	30,939			485,162			516,101


	Three months ended March 31, 2013
	Purchased impaired			Other acquired			Total
	(in thousands)
Balance at beginning of period	$	42,252			638,272			680,524
Interest income		(8,704	)		(61,747	)		(70,451	)
Reclassifications from nonaccretable balance, net		180			10,817			10,997
Other (a)		—			(9,733	)		(9,733	)

Balance at end of period	$	33,728			577,609			611,337

(a)

Other changes in expected cash flows including changes in interest rates and prepayment assumptions.

A summary of current, past due and nonaccrual loans as of March 31, 2014 and December 31, 2013 were as follows:


	Current		30-89 Days past due		90 Days or more past due and accruing				Purchased impaired (b)		Nonaccrual		Total
	Current		30-89 Days past due		Non- acquired		Acquired (a)		Purchased impaired (b)		Nonaccrual		Total
	(in thousands)
March 31, 2014
Commercial, financial, leasing, etc.	$	18,686,680		43,019		8,245		4,295		15,560		138,271		18,896,070
Real estate:
Commercial		21,309,518		158,281		7,870		33,560		91,312		175,984		21,776,525
Residential builder and developer		1,073,532		3,613		—		8,812		122,757		89,563		1,298,277
Other commercial construction		2,915,804		41,861		—		2,381		44,175		25,063		3,029,284
Residential		7,530,046		254,376		285,478		45,733		26,986		259,678		8,402,297
Residential Alt-A		272,463		20,815		—		—		—		78,520		371,798
Consumer:
Home equity lines and loans		5,914,788		36,440		—		26,039		2,598		82,555		6,062,420
Automobile		1,454,199		20,441		—		176		—		16,351		1,491,167
Other		2,744,821		32,087		5,424		—		—		24,908		2,807,240

Total	$	61,901,851		610,933		307,017		120,996		303,388		890,893		64,135,078


	Current		30-89 Days past due		90 Days or more past due and accruing				Purchased impaired (b)		Nonaccrual		Total
	Current		30-89 Days past due		Non- acquired		Acquired (a)		Purchased impaired (b)		Nonaccrual		Total
	(in thousands)
December 31, 2013
Commercial, financial, leasing, etc.	$	18,489,474		77,538		4,981		6,778		15,706		110,739		18,705,216
Real estate:
Commercial		21,236,071		145,749		63,353		35,603		88,034		173,048		21,741,858
Residential builder and developer		1,025,984		8,486		141		7,930		137,544		96,427		1,276,512
Other commercial construction		2,986,598		42,234		—		8,031		57,707		35,268		3,129,838
Residential		7,630,368		295,131		294,649		43,700		29,184		252,805		8,545,837
Residential Alt-A		283,253		18,009		—		—		—		81,122		382,384
Consumer:
Home equity lines and loans		5,972,365		40,537		—		27,754		2,617		78,516		6,121,789
Automobile		1,314,246		29,144		—		366		—		21,144		1,364,900
Other		2,726,522		47,830		5,386		—		—		25,087		2,804,825

Total	$	61,664,881		704,658		368,510		130,162		330,792		874,156		64,073,159

(a)

Acquired loans that were recorded at fair value at acquisition date. This category does not include purchased impaired loans that are presented separately.

(b)

Accruing loans that were impaired at acquisition date and were recorded at fair value.

One-to-four family residential mortgage loans held for sale were $292 million and $401 million at March 31, 2014 and December 31, 2013, respectively. Commercial mortgage loans held for sale were $38 million at March 31, 2014 and $68 million at December 31, 2013.

Changes in the allowance for credit losses for the three months ended March 31, 2014 were as follows:


	Commercial, Financial, Leasing, etc.			Real Estate
	Commercial, Financial, Leasing, etc.			Commercial			Residential			Consumer			Unallocated		Total
	(in thousands)
Beginning balance	$	273,383			324,978			78,656			164,644			75,015		916,676
Provision for credit losses		12,598			116			4,228			14,141			917		32,000
Net charge-offs
Charge-offs		(14,809	)		(3,486	)		(7,453	)		(21,691	)		—		(47,439	)
Recoveries		5,663			3,197			1,631			5,040			—		15,531

Net charge-offs		(9,146	)		(289	)		(5,822	)		(16,651	)		—		(31,908	)

Ending balance	$	276,835			324,805			77,062			162,134			75,932		916,768

Changes in the allowance for credit losses for the three months ended March 31, 2013 were as follows:


	Commercial, Financial, Leasing, etc.			Real Estate
	Commercial, Financial, Leasing, etc.			Commercial			Residential			Consumer			Unallocated		Total
	(in thousands)
Beginning balance	$	246,759			337,101			88,807			179,418			73,775		925,860
Provision for credit losses		17,880			(312	)		5,036			14,836			560		38,000
Net charge-offs
Charge-offs		(9,544	)		(9,588	)		(8,171	)		(21,645	)		—		(48,948	)
Recoveries		2,756			815			4,450			4,184			—		12,205

Net charge-offs		(6,788	)		(8,773	)		(3,721	)		(17,461	)		—		(36,743	)

Ending balance	$	257,851			328,016			90,122			176,793			74,335		927,117

Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any loan or lease type.

In establishing the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and detailed or intensified credit review processes and also estimates losses inherent in other loans and leases on a collective basis. For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolio by loan type. The amounts of loss components in the Company’s loan and lease portfolios are determined through a loan by loan analysis of larger balance commercial and commercial real estate loans that are in nonaccrual status and by applying loss factors to groups of loan balances based on loan type and management’s classification of such loans under the Company’s loan grading system. Measurement of the specific loss components is typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. In determining the allowance for credit losses, the Company utilizes a loan grading system which is applied to commercial and commercial real estate credits on an individual loan basis. Loan officers are responsible for continually assigning grades to these loans based on standards outlined in the Company’s Credit Policy. Internal loan grades are also monitored by the Company’s loan review department to ensure consistency and strict adherence to the prescribed standards. Loan grades are assigned loss component factors that reflect the Company’s loss estimate for each group of loans and leases. Factors considered in assigning loan grades and loss component factors include borrower-specific information related to expected future cash flows and operating results, collateral values, geographic location, financial condition and performance, payment status, and other information; levels of and trends in portfolio charge-offs and recoveries; levels of and trends in portfolio delinquencies and impaired loans; changes in the risk profile of specific portfolios; trends in volume and terms of loans; effects of changes in credit concentrations; and observed trends and practices in the banking industry. As updated appraisals are obtained on individual loans or other events in the market place indicate that collateral values have significantly changed, individual loan grades are adjusted as appropriate. Changes in other factors cited may also lead to loan grade changes at any time. Except for consumer and residential mortgage loans that are considered smaller balance homogenous loans and acquired loans that are evaluated on an aggregated basis, the Company considers a loan to be impaired for purposes of applying GAAP when, based on current information and events, it is probable that the Company will be unable to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days. Regardless of loan type, the Company considers a loan to be impaired if it qualifies as a troubled debt

restructuring. Modified loans, including smaller balance homogenous loans, that are considered to be troubled debt restructurings are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows.

The following tables provide information with respect to loans and leases that were considered impaired as of March 31, 2014 and December 31, 2013 and for the three month periods ended March 31, 2014 and 2013.


	March 31, 2014						December 31, 2013
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Related allowance
	(in thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	104,878		130,132		21,578		90,293		112,092		24,614
Real estate:
Commercial		102,898		120,165		15,811		113,570		132,325		19,520
Residential builder and developer		31,314		45,625		4,746		33,311		55,122		4,379
Other commercial construction		77,054		81,296		5,933		86,260		90,515		4,022
Residential		93,029		112,025		5,262		96,508		114,521		7,146
Residential Alt-A		109,986		124,319		13,000		111,911		124,528		14,000
Consumer:
Home equity lines and loans		17,522		18,592		5,225		13,672		14,796		3,312
Automobile		38,068		38,068		10,120		40,441		40,441		11,074
Other		17,832		17,832		4,780		17,660		17,660		4,541

		592,581		688,054		86,455		603,626		702,000		92,608

With no related allowance recorded:
Commercial, financial, leasing, etc.		40,542		42,948		—		28,093		33,095		—
Real estate:
Commercial		83,194		104,359		—		65,271		84,333		—
Residential builder and developer		68,487		101,354		—		72,366		104,768		—
Other commercial construction		5,801		9,400		—		7,369		11,493		—
Residential		84,328		94,408		—		84,144		95,358		—
Residential Alt-A		28,047		51,001		—		28,357		52,211		—

		310,399		403,470		—		285,600		381,258		—

Total:
Commercial, financial, leasing, etc.		145,420		173,080		21,578		118,386		145,187		24,614
Real estate:
Commercial		186,092		224,524		15,811		178,841		216,658		19,520
Residential builder and developer		99,801		146,979		4,746		105,677		159,890		4,379
Other commercial construction		82,855		90,696		5,933		93,629		102,008		4,022
Residential		177,357		206,433		5,262		180,652		209,879		7,146
Residential Alt-A		138,033		175,320		13,000		140,268		176,739		14,000
Consumer:
Home equity lines and loans		17,522		18,592		5,225		13,672		14,796		3,312
Automobile		38,068		38,068		10,120		40,441		40,441		11,074
Other		17,832		17,832		4,780		17,660		17,660		4,541

Total	$	902,980		1,091,524		86,455		889,226		1,083,258		92,608


	Three months ended March 31, 2014						Three months ended March 31, 2013
			Interest income recognized						Interest income recognized
	Average recorded investment		Total		Cash basis		Average recorded investment		Total		Cash basis
	(in thousands)
Commercial, financial, leasing, etc.	$	134,306		548		548		167,793		2,434		2,434
Real estate:
Commercial		185,425		926		926		194,446		303		303
Residential builder and developer		101,253		74		74		183,853		140		65
Other commercial construction		87,292		1,087		1,087		98,318		635		635
Residential		174,168		1,400		902		188,075		1,470		922
Residential Alt-A		139,651		1,626		559		156,971		1,740		591
Consumer:
Home equity lines and loans		15,676		121		29		12,454		167		39
Automobile		39,383		625		87		47,606		776		146
Other		17,700		174		52		14,930		151		54

Total	$	894,854		6,581		4,264		1,064,446		7,816		5,189

In accordance with the previously described policies, the Company utilizes a loan grading system that is applied to all commercial loans and commercial real estate loans. Loan grades are utilized to differentiate risk within the portfolio and consider the expectations of default for each loan. Commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. All larger balance criticized commercial and commercial real estate loans are individually reviewed by centralized loan review personnel each quarter to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing. Smaller balance criticized loans are analyzed by business line risk management areas to ensure proper loan grade classification. Furthermore, criticized nonaccrual commercial loans and commercial real estate loans are considered impaired and, as a result, specific loss allowances on such loans are established within the allowance for credit losses to the extent appropriate in each individual instance. The following table summarizes the loan grades applied to the various classes of the Company’s commercial and commercial real estate loans.


			Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential Builder and Developer		Other Commercial Construction
	(in thousands)
March 31, 2014
Pass	$	18,022,241		21,053,068		1,151,202		2,946,152
Criticized accrual		735,558		547,473		57,512		58,069
Criticized nonaccrual		138,271		175,984		89,563		25,063

Total	$	18,896,070		21,776,525		1,298,277		3,029,284

December 31, 2013
Pass	$	17,894,592		20,972,257		1,107,144		3,040,106
Criticized accrual		699,885		596,553		72,941		54,464
Criticized nonaccrual		110,739		173,048		96,427		35,268

Total	$	18,705,216		21,741,858		1,276,512		3,129,838

In determining the allowance for credit losses, residential real estate loans and consumer loans are generally evaluated collectively after considering such factors as payment performance and recent loss experience and trends, which are mainly driven by current collateral values in the market place as well as the amount of loan defaults. Loss rates on such loans are determined by reference to recent charge-off history and are evaluated (and adjusted if deemed appropriate) through consideration of other factors including near-term forecasted loss estimates developed by the Company’s Credit Department. In arriving at such forecasts, the Company considers the current estimated fair value of its collateral based on geographical adjustments for home price depreciation/appreciation and overall borrower repayment performance. With regard to collateral values, the realizability of such values by the Company contemplates repayment of the original balance of any first lien position prior to recovering amounts on a second lien position. However, residential real estate loans and outstanding balances of home equity loans and lines of credit that are more than 150 days past due are generally evaluated for collectibility on a loan-by-loan basis giving consideration to estimated collateral values.

The Company also measures additional losses for purchased impaired loans when it is probable that the Company will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. The determination of the allocated portion of the allowance for credit losses is very subjective. Given that inherent subjectivity and potential imprecision involved in determining the allocated portion of the allowance for credit losses, the Company also provides an inherent unallocated portion of the allowance. The unallocated portion of the allowance is intended to recognize probable losses that are not otherwise identifiable and includes management’s subjective determination of amounts necessary to provide for the possible use of imprecise estimates in determining the allocated portion of the allowance. Therefore, the level of the unallocated portion of the allowance is primarily reflective of the inherent imprecision in the various calculations used in determining the allocated portion of the allowance for credit losses. Other factors that could also lead to changes in the unallocated portion include the effects of expansion into new markets for which the Company does not have the same degree of familiarity and experience regarding portfolio performance in changing market conditions, the introduction of new loan and lease product types, and other risks associated with the Company’s loan portfolio that may not be specifically identifiable.

The allocation of the allowance for credit losses summarized on the basis of the Company’s impairment methodology was as follows:


	Commercial, Financial,		Real Estate
	Leasing, etc.		Commercial		Residential		Consumer		Total
	(in thousands)
March 31, 2014
Individually evaluated for impairment	$	21,578		26,157		18,243		20,125	$	86,103
Collectively evaluated for impairment		249,499		298,048		56,797		140,409		744,753
Purchased impaired		5,758		600		2,022		1,600		9,980

Allocated	$	276,835		324,805		77,062		162,134		840,836

Unallocated										75,932

Total									$	916,768

December 31, 2013
Individually evaluated for impairment	$	24,614		27,563		21,127		18,927	$	92,231
Collectively evaluated for impairment		246,096		296,781		55,864		144,210		742,951
Purchased impaired		2,673		634		1,665		1,507		6,479

Allocated	$	273,383		324,978		78,656		164,644		841,661

Unallocated										75,015

Total									$	916,676

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology was as follows:


	Commercial, Financial,		Real Estate
	Leasing, etc.		Commercial		Residential		Consumer		Total
	(in thousands)
March 31, 2014
Individually evaluated for impairment	$	145,420		367,183		314,829		73,422	$	900,854
Collectively evaluated for impairment		18,735,090		25,478,659		8,432,280		10,284,807		62,930,836
Purchased impaired		15,560		258,244		26,986		2,598		303,388

Total	$	18,896,070		26,104,086		8,774,095		10,360,827	$	64,135,078

December 31, 2013
Individually evaluated for impairment	$	118,386		376,339		320,360		71,773	$	886,858
Collectively evaluated for impairment		18,571,124		25,488,584		8,578,677		10,217,124		62,855,509
Purchased impaired		15,706		283,285		29,184		2,617		330,792

Total	$	18,705,216		26,148,208		8,928,221		10,291,514	$	64,073,159

During the normal course of business, the Company modifies loans to maximize recovery efforts. If the borrower is experiencing financial difficulty and a concession is granted, the Company considers such modifications as troubled debt restructurings and classifies those loans as either nonaccrual loans or renegotiated loans. The types of concessions that the Company grants typically include principal deferrals and interest rate concessions, but may also include other types of concessions.

The tables below summarize the Company’s loan modification activities that were considered troubled debt restructurings for the three months ended March 31, 2014 and 2013:


			Recorded investment				Financial effects of modification
Three months ended March 31, 2014	Number		Pre- modifica- tion		Post- modifica- tion		Recorded investment (a)			Interest (b)
			(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		30	$	14,954	$	14,848	$	(106	)	$	—
Combination of concession types		2		41		39		(2	)		(4	)
Real estate:
Commercial
Principal deferral		13		7,044		7,002		(42	)		—
Combination of concession types		1		346		401		55			(104	)
Other commercial construction
Principal deferral		1		151		151		—			—
Residential
Principal deferral		13		1,602		1,663		61			—
Interest rate reduction		1		98		104		6			(32	)
Other		1		188		188		—			—
Combination of concession types		14		2,188		2,160		(28	)		(282	)
Residential Alt-A
Principal deferral		2		166		202		36			—
Combination of concession types		10		1,746		1,736		(10	)		(61	)
Consumer:
Home equity lines and loans
Principal deferral		3		280		280		—			—
Combination of concession types		15		1,856		1,856		—			(172	)
Automobile
Principal deferral		80		993		993		—			—
Other		11		61		61		—			—
Combination of concession types		23		250		250		—			(26	)
Other
Principal deferral		8		55		55		—			—
Other		1		45		45		—			—
Combination of concession types		14		466		466		—			(188	)

Total		243	$	32,530	$	32,500	$	(30	)	$	(869	)

(a)

Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized escrow arrearages.

(b)

Represents the present value of interest rate concessions discounted at the effective rate of the original loan.


			Recorded investment				Financial effects of modification
Three months ended March 31, 2013	Number		Pre- modifica- tion		Post- modifica- tion		Recorded investment (a)			Interest (b)
			(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		24	$	2,006	$	1,982	$	(24	)	$	—
Other		1		47,200		47,200		—			—
Combination of concession types		1		342		342		—			—
Real estate:
Commercial
Principal deferral		8		18,478		18,363		(115	)		—
Combination of concession types		2		582		581		(1	)		(56	)
Residential builder and developer
Principal deferral		8		1,357		1,340		(17	)		—
Combination of concession types		1		1,701		1,691		(10	)		—
Residential
Principal deferral		7		566		607		41			—
Other		1		195		195		—			—
Combination of concession types		20		2,449		2,536		87			(371	)
Residential Alt-A
Combination of concession types		5		907		925		18			(110	)
Consumer:
Home equity lines and loans
Principal deferral		2		79		79		—			—
Combination of concession types		2		211		211		—			(33	)
Automobile
Principal deferral		121		1,586		1,586		—			—
Interest rate reduction		2		36		36		—			(5	)
Other		17		159		159		—			—
Combination of concession types		61		553		553		—			(42	)
Other
Principal deferral		6		45		45		—			—
Other		1		12		12		—			—
Combination of concession types		42		1,217		1,217		—			(267	)

Total		332	$	79,681	$	79,660	$	(21	)	$	(884	)

(a)

Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized escrow arrearages.

(b)

Represents the present value of interest rate concessions discounted at the effective rate of the original loan.

Troubled debt restructurings are considered to be impaired loans and for purposes of establishing the allowance for credit losses are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows. Impairment of troubled debt restructurings that have subsequently defaulted may also be measured based on the loan’s observable market price or the fair value of collateral if the loan is collateral-dependent. Charge-offs may also be recognized on troubled debt restructurings that have subsequently defaulted. Loans that were modified as troubled debt restructurings during the twelve months ended March 31, 2014 and 2013 and for which there was a subsequent payment default during the three-month periods ended March 31, 2014 and 2013, respectively, were not material.