5. Allowance for credit losses

Changes in the allowance for credit losses for the years ended December 31, 2015, 2014 and 2013 were as follows:


	Commercial, Financial, Leasing, etc.			Real Estate
2015	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		43,065			25,768			19,133			79,489			2,545		170,000
Net charge-offs
Charge-offs		(60,983	)		(16,487	)		(13,116	)		(107,787	)		—		(198,373	)
Recoveries		30,284			9,623			4,311			20,585			—		64,803

Net charge-offs		(30,699	)		(6,864	)		(8,805	)		(87,202	)		—		(133,570	)

Ending balance	$	300,404		$	326,831		$	72,238		$	178,320		$	78,199	$	955,992

2014
Beginning balance	$	273,383		$	324,978		$	78,656		$	164,644		$	75,015	$	916,676
Provision for credit losses		51,410			(13,779	)		(3,974	)		89,704			639		124,000
Net charge-offs
Charge-offs		(58,943	)		(14,058	)		(21,351	)		(84,390	)		—		(178,742	)
Recoveries		22,188			10,786			8,579			16,075			—		57,628

Net charge-offs		(36,755	)		(3,272	)		(12,772	)		(68,315	)		—		(121,114	)

Ending balance	$	288,038		$	307,927		$	61,910		$	186,033		$	75,654	$	919,562

2013
Beginning balance	$	246,759		$	337,101		$	88,807		$	179,418		$	73,775	$	925,860
Provision for credit losses		124,180			275			3,149			56,156			1,240		185,000
Allowance related to loans sold or securitized		—			—			—			(11,000	)		—		(11,000	)
Net charge-offs
Charge-offs		(109,329	)		(34,595	)		(23,621	)		(85,965	)		—		(253,510	)
Recoveries		11,773			22,197			10,321			26,035			—		70,326

Net charge-offs		(97,556	)		(12,398	)		(13,300	)		(59,930	)		—		(183,184	)

Ending Balance	$	273,383		$	324,978		$	78,656		$	164,644		$	75,015	$	916,676

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 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 December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013.


	December 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.	$	179,037	$	195,821	$	44,752	$	132,340	$	165,146	$	31,779
Real estate:
Commercial		85,974		95,855		18,764		83,955		96,209		14,121
Residential builder and developer		3,316		5,101		196		17,632		22,044		805
Other commercial construction		3,548		3,843		348		5,480		6,484		900
Residential		79,558		96,751		4,727		88,970		107,343		4,296
Residential-limited documentation		90,356		104,251		8,000		101,137		114,565		11,000
Consumer:
Home equity lines and loans		25,220		26,195		3,777		19,771		20,806		6,213
Automobile		22,525		22,525		4,709		30,317		30,317		8,070
Other		17,620		17,620		4,820		18,973		18,973		5,459

		507,154		567,962		90,093		498,575		581,887		82,643

With no related allowance recorded:
Commercial, financial, leasing, etc.		93,190		110,735		—		73,978		81,493		—
Real estate:
Commercial		101,340		116,230		—		66,777		78,943		—
Residential builder and developer		27,651		47,246		—		58,820		96,722		—
Other commercial construction		13,221		31,477		—		20,738		41,035		—
Residential		19,621		30,940		—		16,815		26,750		—
Residential-limited documentation		18,414		31,113		—		26,752		46,964		—

		273,437		367,741		—		263,880		371,907		—

Total:
Commercial, financial, leasing, etc.		272,227		306,556		44,752		206,318		246,639		31,779
Real estate:
Commercial		187,314		212,085		18,764		150,732		175,152		14,121
Residential builder and developer		30,967		52,347		196		76,452		118,766		805
Other commercial construction		16,769		35,320		348		26,218		47,519		900
Residential		99,179		127,691		4,727		105,785		134,093		4,296
Residential-limited documentation		108,770		135,364		8,000		127,889		161,529		11,000
Consumer:
Home equity lines and loans		25,220		26,195		3,777		19,771		20,806		6,213
Automobile		22,525		22,525		4,709		30,317		30,317		8,070
Other		17,620		17,620		4,820		18,973		18,973		5,459

Total	$	780,591	$	935,703	$	90,093	$	762,455	$	953,794	$	82,643


	Year Ended December 31, 2015						Year Ended December 31, 2014
	Average Recorded Investment		Interest Income Recognized				Average Recorded Investment		Interest Income Recognized
	Average Recorded Investment		Total		Cash Basis		Average Recorded Investment		Total		Cash Basis
	(In thousands)
Commercial, financial, leasing, etc.	$	236,201	$	2,933	$	2,933	$	181,932	$	2,251	$	2,251
Real estate:
Commercial		166,628		6,243		6,243		184,773		4,029		4,029
Residential builder and developer		59,457		335		335		91,149		142		142
Other commercial construction		20,276		2,311		2,311		62,734		1,893		1,893
Residential		101,483		6,188		4,037		126,005		9,180		6,978
Residential-limited documentation		118,449		6,380		2,638		133,800		6,613		2,546
Consumer:
Home equity lines and loans		21,523		905		261		18,083		750		248
Automobile		25,675		1,619		175		35,173		2,251		295
Other		18,809		729		113		18,378		690		191

Total	$	768,501	$	27,643	$	19,046	$	852,027	$	27,799	$	18,573


	Year Ended December 31, 2013
			Interest Income Recognized
	Average Recorded Investment		Total		Cash Basis
	(In thousands)
Commercial, financial, leasing, etc.	$	155,188	$	7,197	$	7,197
Real estate:
Commercial		197,533		4,852		4,852
Residential builder and developer		147,288		1,043		796
Other commercial construction		96,475		5,248		5,248
Residential		183,059		6,203		4,111
Residential-limited documentation		149,461		6,784		2,341
Consumer:
Home equity lines and loans		12,811		683		183
Automobile		44,116		2,916		515
Other		15,710		634		208

Total	$	1,001,641	$	35,560	$	25,451

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)
December 31, 2015
Pass	$	19,442,183	$	23,098,856	$	1,497,465	$	3,432,679
Criticized accrual		738,238		787,480		59,779		96,654
Criticized nonaccrual		241,917		179,606		28,429		16,363

Total	$	20,422,338	$	24,065,942	$	1,585,673	$	3,545,696

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. 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 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 $55 million and $21 million, respectively, at December 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 $20 million and $28 million, respectively, at December 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)
December 31, 2015
Individually evaluated for impairment	$	44,752	$	19,175	$	12,727	$	13,306	$	89,960
Collectively evaluated for impairment		255,615		307,000		57,624		163,511		783,750
Purchased impaired		37		656		1,887		1,503		4,083

Allocated	$	300,404	$	326,831	$	72,238	$	178,320		877,793

Unallocated										78,199

Total									$	955,992

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)
December 31, 2015
Individually evaluated for impairment	$	272,227	$	234,132	$	207,949	$	65,365	$	779,673
Collectively evaluated for impairment		20,148,209		28,863,130		25,398,037		11,532,121		85,941,497
Purchased impaired		1,902		100,049		664,117		2,261		768,329

Total	$	20,422,338	$	29,197,311	$	26,270,103	$	11,599,747	$	87,489,499

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