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, 2015		December 31, 2014
	(in thousands)

Outstanding principal balance	$	2,837,256		3,070,268
Carrying amount:
Commercial, financial, leasing, etc.		207,884		247,820
Commercial real estate		869,700		961,828
Residential real estate		434,454		453,360
Consumer		888,985		933,537

	$	2,401,023		2,596,545

Purchased impaired loans included in the table above totaled $184 million at March 31, 2015 and $198 million at December 31, 2014, 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-month periods ended March 31, 2015 and 2014 follows:


	Three months ended March 31, 2015
	Purchased impaired			Other acquired			Total
	(in thousands)

Balance at beginning of period	$	76,518			397,379			473,897
Interest income		(5,206	)		(41,277	)		(46,483	)
Reclassifications from nonaccretable balance, net		110			183			293
Other (a)		—			1,610			1,610

Balance at end of period	$	71,422			357,895			429,317


	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

(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, 2015 and December 31, 2014 were as follows:


			30-89		90 Days or more past due and accruing				Purchased
	Current		Days past due		Non- acquired		Acquired (a)		impaired (b)		Nonaccrual		Total
			(in thousands)
March 31, 2015
Commercial, financial, leasing, etc.	$	19,519,566		43,213		4,265		3,323		9,724		195,403		19,775,494
Real estate:
Commercial		22,225,088		116,465		27,261		17,187		45,752		142,007		22,573,760
Residential builder and developer		1,460,981		6,119		—		6,953		91,839		65,310		1,631,202
Other commercial construction		3,575,578		18,244		3,864		1,721		17,061		24,280		3,640,748
Residential		7,580,514		189,901		197,299		20,058		17,283		171,496		8,176,551
Residential Alt-A		241,467		11,831		—		—		—		74,270		327,568
Consumer:
Home equity lines and loans		5,783,865		35,478		—		13,298		2,359		87,985		5,922,985
Automobile		2,024,526		25,322		—		—		—		14,100		2,063,948
Other		2,921,142		28,407		3,932		17,570		—		15,735		2,986,786

Total	$	65,332,727		474,980		236,621		80,110		184,018		790,586		67,099,042

December 31, 2014
Commercial, financial, leasing, etc.	$	19,228,265		37,246		1,805		6,231		10,300		177,445		19,461,292
Real estate:
Commercial		22,208,491		118,704		22,170		14,662		51,312		141,600		22,556,939
Residential builder and developer		1,273,607		11,827		492		9,350		98,347		71,517		1,465,140
Other commercial construction		3,484,932		17,678		—		—		17,181		25,699		3,545,490
Residential		7,640,368		226,932		216,489		35,726		18,223		180,275		8,318,013
Residential Alt-A		249,810		11,774		—		—		—		77,704		339,288
Consumer:
Home equity lines and loans		5,859,378		42,945		—		27,896		2,374		89,291		6,021,884
Automobile		1,931,138		30,500		—		133		—		17,578		1,979,349
Other		2,909,791		33,295		4,064		16,369		—		18,042		2,981,561

Total	$	64,785,780		530,901		245,020		110,367		197,737		799,151		66,668,956

(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 $423 million and $435 million at March 31, 2015 and December 31, 2014, respectively. Commercial mortgage loans held for sale were $117 million at March 31, 2015 and $308 million at December 31, 2014.

Changes in the allowance for credit losses for the three months ended March 31, 2015 were as follows:


	Commercial, Financial, Leasing, etc.			Real Estate
	Commercial, Financial, Leasing, etc.			Commercial			Residential			Consumer			Unallocated		Total
	(in thousands)

Beginning balance	$	288,038			307,927			61,910			186,033			75,654		919,562
Provision for credit losses		1,442			15,542			960			19,574			482		38,000
Net charge-offs
Charge-offs		(12,350	)		(6,679	)		(3,118	)		(25,329	)		—		(47,476	)
Recoveries		3,939			585			989			5,774			—		11,287

Net charge-offs		(8,411	)		(6,094	)		(2,129	)		(19,555	)		—		(36,189	)

Ending balance	$	281,069			317,375			60,741			186,052			76,136		921,373

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

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 loans 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 real estate 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, 2015 and December 31, 2014 and for the three month periods ended March 31, 2015 and 2014.


	March 31, 2015						December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(in thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	108,870		130,029		19,335		132,340		165,146		31,779
Real estate:
Commercial		99,729		122,098		15,836		83,955		96,209		14,121
Residential builder and developer		6,512		8,731		591		17,632		22,044		805
Other commercial construction		5,116		6,084		831		5,480		6,484		900
Residential		86,691		104,630		4,405		88,970		107,343		4,296
Residential Alt-A		97,984		110,835		11,000		101,137		114,565		11,000
Consumer:
Home equity lines and loans		19,701		20,794		6,304		19,771		20,806		6,213
Automobile		27,122		27,122		6,983		30,317		30,317		8,070
Other		18,814		18,814		5,297		18,973		18,973		5,459

		470,539		549,137		70,582		498,575		581,887		82,643

With no related allowance recorded:
Commercial, financial, leasing, etc.		116,325		135,534		—		73,978		81,493		—
Real estate:
Commercial		51,734		59,235		—		66,777		78,943		—
Residential builder and developer		62,611		101,964		—		58,820		96,722		—
Other commercial construction		19,657		40,072		—		20,738		41,035		—
Residential		17,203		27,886		—		16,815		26,750		—
Residential Alt-A		24,785		43,635		—		26,752		46,964		—

		292,315		408,326		—		263,880		371,907		—


Total:
Commercial, financial, leasing, etc.		225,195		265,563		19,335		206,318		246,639		31,779
Real estate:
Commercial		151,463		181,333		15,836		150,732		175,152		14,121
Residential builder and developer		69,123		110,695		591		76,452		118,766		805
Other commercial construction		24,773		46,156		831		26,218		47,519		900
Residential		103,894		132,516		4,405		105,785		134,093		4,296
Residential Alt-A		122,769		154,470		11,000		127,889		161,529		11,000
Consumer:
Home equity lines and loans		19,701		20,794		6,304		19,771		20,806		6,213
Automobile		27,122		27,122		6,983		30,317		30,317		8,070
Other		18,814		18,814		5,297		18,973		18,973		5,459

Total	$	762,854		957,463		70,582		762,455		953,794		82,643


	Three months ended March 31, 2015						Three months ended March 31, 2014
			Interest income recognized						Interest income recognized
	Average recorded investment		Total		Cash basis		Average recorded investment		Total		Cash basis
	(in thousands)
Commercial, financial, leasing, etc.	$	214,618		604		604		134,306		548		548
Real estate:
Commercial		153,070		1,102		1,102		185,425		926		926
Residential builder and developer		73,151		63		63		101,253		74		74
Other commercial construction		25,540		55		55		87,292		1,087		1,087
Residential		104,490		1,446		910		174,168		1,400		902
Residential Alt-A		125,654		1,610		647		139,651		1,626		559
Consumer:
Home equity lines and loans		19,683		201		48		15,676		121		29
Automobile		29,013		450		54		39,383		625		87
Other		18,861		174		33		17,700		174		52

Total	$	764,080		5,705		3,516		894,854		6,581		4,264

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 loans 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 loans and commercial real estate loans.


			Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential Builder and Developer		Other Commercial Construction
	(in thousands)
March 31, 2015
Pass	$	18,880,311		21,755,661		1,522,471		3,466,705
Criticized accrual		699,780		676,092		43,421		149,763
Criticized nonaccrual		195,403		142,007		65,310		24,280

Total	$	19,775,494		22,573,760		1,631,202		3,640,748


December 31, 2014
Pass	$	18,695,440		21,837,022		1,347,778		3,347,522
Criticized accrual		588,407		578,317		45,845		172,269
Criticized nonaccrual		177,445		141,600		71,517		25,699

Total	$	19,461,292		22,556,939		1,465,140		3,545,490

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 any first lien position prior to recovering amounts on a second lien position. 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 carrying value of residential real estate loans and home equity loans and lines of credit for which a partial charge-off has been recognized aggregated $62 million and $20 million, respectively, at March 31, 2015 and $63 million and $18 million, respectively, at December 31, 2014. Residential real estate loans and home equity loans and lines of credit that were more than 150 days past due but did not require a partial charge-off because the net realizable value of the collateral exceeded the outstanding customer balance totaled $24 million and $29 million, respectively, at March 31, 2015 and $27 million and $28 million, respectively, at December 31, 2014.

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, Leasing, etc.		Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential		Consumer		Total
	(in thousands)
March 31, 2015
Individually evaluated for impairment	$	19,335		16,921		14,811		18,584	$	69,651
Collectively evaluated for impairment		258,028		299,262		43,547		166,296		767,133
Purchased impaired		3,706		1,192		2,383		1,172		8,453

Allocated	$	281,069		317,375		60,741		186,052		845,237

Unallocated										76,136


Total									$	921,373


December 31, 2014
Individually evaluated for impairment	$	31,779		15,490		14,703		19,742	$	81,714
Collectively evaluated for impairment		251,607		291,244		45,061		165,140		753,052
Purchased impaired		4,652		1,193		2,146		1,151		9,142

Allocated	$	288,038		307,927		61,910		186,033		843,908

Unallocated										75,654


Total									$	919,562

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


	Commercial, Financial, Leasing, etc.		Real Estate
	Commercial, Financial, Leasing, etc.		Commercial		Residential		Consumer		Total
	(in thousands)
March 31, 2015
Individually evaluated for impairment	$	225,195		244,340		225,364		65,637	$	760,536
Collectively evaluated for impairment		19,540,575		27,446,718		8,261,472		10,905,723		66,154,488
Purchased impaired		9,724		154,652		17,283		2,359		184,018


Total	$	19,775,494		27,845,710		8,504,119		10,973,719	$	67,099,042


December 31, 2014
Individually evaluated for impairment	$	206,318		252,347		232,398		69,061	$	760,124
Collectively evaluated for impairment		19,244,674		27,148,382		8,406,680		10,911,359		65,711,095
Purchased impaired		10,300		166,840		18,223		2,374		197,737


Total	$	19,461,292		27,567,569		8,657,301		10,982,794	$	66,668,956

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, 2015 and 2014:


			Recorded investment				Financial effects of modification
Three months ended March 31, 2015	Number		Pre- modification		Post- modification		Recorded investment (a)			Interest (b)
			(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		21	$	1,572	$	1,557	$	(15	)	$	—
Interest rate reduction		1		99		99		—			(19	)
Combination of concession types		3		9,155		6,989		(2,166	)		—
Real estate:
Commercial
Principal deferral		7		3,792		3,776		(16	)		—
Combination of concession types		4		1,646		1,637		(9	)		(52	)
Residential builder and developer
Principal deferral		1		1,398		1,398		—			—
Residential
Principal deferral		7		721		742		21			—
Combination of concession types		3		294		349		55			(34	)
Residential Alt-A
Combination of concession types		1		210		210		—			(4	)
Consumer:
Home equity lines and loans
Principal deferral		1		21		21		—			—
Combination of concession types		5		196		196		—			(13	)
Automobile
Principal deferral		35		303		303		—			—
Interest rate reduction		3		42		42		—			(3	)
Other		10		20		20		—			—
Combination of concession types		8		84		84		—			(7	)
Other
Principal deferral		22		296		296		—			—
Other		5		59		59		—			—
Combination of concession types		13		224		224		—			(25	)

Total		150	$	20,132	$	18,002	$	(2,130	)	$	(157	)

(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.


Three months ended March 31, 2014	Number		Recorded investment				Financial effects of modification
Three months ended March 31, 2014	Number		Pre- modification		Post- modification		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.

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, 2015 and 2014 and for which there was a subsequent payment default during the three-month periods ended March 31, 2015 and 2014, respectively, were not material.

Effective January 1, 2015, the Company adopted amended accounting and disclosure guidance for reclassification of residential real estate collateralized consumer mortgage loans upon foreclosure. The amended guidance clarifies that an in-substance repossession or foreclosure occurs and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The adoption resulted in an insignificant increase in other real estate owned. The amount of foreclosed residential real estate property held by the Company was $42 million and $44 million at March 31, 2015 and December 31, 2014, respectively. At March 31, 2015, there were $158 million in loans secured by residential real estate that were in the process of foreclosure.