4.	Loans and leases and the allowance for credit losses

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


	March 31, 2016		December 31, 2015
	(in thousands)

Outstanding principal balance	$	2,918,333		3,122,935
Carrying amount:
Commercial, financial, leasing, etc.		71,577		78,847
Commercial real estate		588,983		644,284
Residential real estate		964,893		1,016,129
Consumer		681,535		725,807

	$	2,306,988		2,465,067

Purchased impaired loans included in the table above totaled $716 million at March 31, 2016 and $768 million at December 31, 2015, representing less than 1% of the Company’s assets as of each date. A summary of changes in the accretable yield for loans acquired at a discount for the three-month periods ended March 31, 2016 and 2015 follows:


	Three months ended March 31, 2016
	Purchased impaired			Other acquired			Total
	(in thousands)

Balance at beginning of period	$	184,618			296,434			481,052
Interest income		(14,062	)		(37,862	)		(51,924	)
Reclassifications from nonaccretable balance, net		629			5,664			6,293
Other (a)		—			4,781			4,781

Balance at end of period	$	171,185			269,017			440,202


	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

(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, 2016 and December 31, 2015 were as follows:


	Current		30-89 Days past due		Accruing loans past due 90 days or more(a)		Accruing loans acquired at a discount past due 90 days or more(b)		Purchased impaired(c)		Nonaccrual		Total
March 31, 2016					(in thousands)
Commercial, financial, leasing, etc.	$	20,911,645		30,495		2,358		524		1,765		279,790		21,226,577
Real estate:
Commercial		23,740,729		149,108		41,776		6,818		39,840		171,256		24,149,527
Residential builder and developer		1,747,261		15,304		195		3,493		23,516		32,458		1,822,227
Other commercial construction		3,663,835		28,336		9,068		280		19,239		20,781		3,741,539
Residential		19,747,097		500,241		278,640		15,790		463,871		186,452		21,192,091
Residential-limited documentation		3,757,924		107,679		275		—		165,404		76,265		4,107,547
Consumer:
Home equity lines and loans		5,720,342		40,054		—		15,898		2,239		78,722		5,857,255
Automobile		2,580,241		33,439		—		2		—		14,817		2,628,499
Other		3,083,495		24,739		3,858		18,962		—		16,150		3,147,204

Total	$	84,952,569		929,395		336,170		61,767		715,874		876,691		87,872,466


	Current		30-89 Days past due		Accruing loans past due 90 days or more(a)		Accruing loans acquired at a discount past due 90 days or more(b)		Purchased impaired(c)		Nonaccrual		Total
December 31, 2015					(in thousands)
Commercial, financial, leasing, etc.	$	20,122,648		52,868		2,310		693		1,902		241,917		20,422,338
Real estate:
Commercial		23,645,354		172,439		12,963		8,790		46,790		179,606		24,065,942
Residential builder and developer		1,507,856		7,969		5,760		6,925		28,734		28,429		1,585,673
Other commercial construction		3,428,939		65,932		7,936		2,001		24,525		16,363		3,545,696
Residential		20,507,551		560,312		284,451		16,079		488,599		153,281		22,010,273
Residential-limited documentation		3,885,073		137,289		—		—		175,518		61,950		4,259,830
Consumer:
Home equity lines and loans		5,805,222		45,604		—		15,222		2,261		84,467		5,952,776
Automobile		2,446,473		56,181		—		6		—		16,597		2,519,257
Other		3,051,435		36,702		4,021		18,757		—		16,799		3,127,714

Total	$	84,400,551		1,135,296		317,441		68,473		768,329		799,409		87,489,499

(a)

Excludes loans acquired at a discount.

(b)

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

(c)

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 $269 million and $353 million at March 31, 2016 and December 31, 2015, respectively. Commercial mortgage loans held for sale were $128 million at March 31, 2016 and $39 million at December 31, 2015.

Changes in the allowance for credit losses for the three months ended March 31, 2016 were as follows:


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

Beginning balance	$	300,404			326,831			72,238			178,320			78,199			955,992
Provision for credit losses		24,364			4,013			1,218			19,893			(488	)		49,000
Net charge-offs
Charge-offs		(6,149	)		(1,272	)		(6,972	)		(44,319	)		—			(58,712	)
Recoveries		5,247			2,413			1,887			6,925			—			16,472

Net charge-offs		(902	)		1,141			(5,085	)		(37,394	)		—			(42,240	)

Ending balance	$	323,866			331,985			68,371			160,819			77,711			962,752

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


	Commercial,
	Financial,			Real Estate
	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

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, 2016 and December 31, 2015 and for the three month periods ended March 31, 2016 and 2015.


	March 31, 2016						December 31, 2015
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Related allowance
	(in thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	204,786		223,269		58,714		179,037		195,821		44,752
Real estate:
Commercial		86,612		97,912		19,600		85,974		95,855		18,764
Residential builder and developer		6,581		8,296		839		3,316		5,101		196
Other commercial construction		2,358		2,678		397		3,548		3,843		348
Residential		77,579		95,679		4,348		79,558		96,751		4,727
Residential-limited documentation		87,791		101,841		7,000		90,356		104,251		8,000
Consumer:
Home equity lines and loans		27,544		28,540		3,904		25,220		26,195		3,777
Automobile		21,289		21,289		4,867		22,525		22,525		4,709
Other		17,876		17,876		4,844		17,620		17,620		4,820

		532,416		597,380		104,513		507,154		567,962		90,093

With no related allowance recorded:
Commercial, financial, leasing, etc.		105,342		126,130		—		93,190		110,735		—
Real estate:
Commercial		92,733		106,710		—		101,340		116,230		—
Residential builder and developer		28,938		49,177		—		27,651		47,246		—
Other commercial construction		18,811		37,498		—		13,221		31,477		—
Residential		17,574		28,336		—		19,621		30,940		—
Residential-limited documentation		17,362		29,544		—		18,414		31,113		—

		280,760		377,395		—		273,437		367,741		—


Total:
Commercial, financial, leasing, etc.		310,128		349,399		58,714		272,227		306,556		44,752
Real estate:
Commercial		179,345		204,622		19,600		187,314		212,085		18,764
Residential builder and developer		35,519		57,473		839		30,967		52,347		196
Other commercial construction		21,169		40,176		397		16,769		35,320		348
Residential		95,153		124,015		4,348		99,179		127,691		4,727
Residential-limited documentation		105,153		131,385		7,000		108,770		135,364		8,000
Consumer:
Home equity lines and loans		27,544		28,540		3,904		25,220		26,195		3,777
Automobile		21,289		21,289		4,867		22,525		22,525		4,709
Other		17,876		17,876		4,844		17,620		17,620		4,820

Total	$	813,176		974,775		104,513		780,591		935,703		90,093


	Three months ended March 31, 2016						Three months ended March 31, 2015
			Interest income recognized						Interest income recognized
	Average recorded investment		Total		Cash basis		Average recorded investment		Total		Cash basis
	(in thousands)
Commercial, financial, leasing, etc.	$	296,584		611		611		214,618		604		604
Real estate:
Commercial		182,454		1,474		1,474		153,070		1,102		1,102
Residential builder and developer		33,750		42		42		73,151		63		63
Other commercial construction		16,868		38		38		25,540		55		55
Residential		96,788		1,372		882		104,490		1,446		910
Residential-limited documentation		107,473		1,472		630		125,654		1,610		647
Consumer:
Home equity lines and loans		26,019		246		85		19,683		201		48
Automobile		21,962		339		36		29,013		450		54
Other		17,717		178		27		18,861		174		33

Total	$	799,615		5,772		3,825		764,080		5,705		3,516

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, 2016
Pass	$	20,155,277		23,138,987		1,700,088		3,631,947
Criticized accrual		791,510		839,284		89,681		88,811
Criticized nonaccrual		279,790		171,256		32,458		20,781

Total	$	21,226,577		24,149,527		1,822,227		3,741,539


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

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 $52 million and $24 million, respectively, at March 31, 2016 and $55 million and $21 million, respectively, at December 31, 2015. 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 $32 million, respectively, at March 31, 2016 and $20 million and $28 million, respectively, at December 31, 2015.

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, 2016
Individually evaluated for impairment	$	58,714		20,611		11,348		13,615	$	104,288
Collectively evaluated for impairment		264,652		308,897		55,970		145,841		775,360
Purchased impaired		500		2,477		1,053		1,363		5,393

Allocated	$	323,866		331,985		68,371		160,819		885,041

Unallocated										77,711


Total									$	962,752


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

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, 2016
Individually evaluated for impairment	$	310,128		235,039		200,306		66,709	$	812,182
Collectively evaluated for impairment		20,914,684		29,395,659		24,470,057		11,564,010		86,344,410
Purchased impaired		1,765		82,595		629,275		2,239		715,874


Total	$	21,226,577		29,713,293		25,299,638		11,632,958	$	87,872,466


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

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, 2016 and 2015:


			Recorded investment				Financial effects of modification
Three months ended March 31, 2016	Number		Pre- modification		Post- modification		Recorded investment (a)			Interest (b)
			(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral		24	$	11,571	$	12,721	$	1,150		$	—
Combination of concession types		7		6,157		5,952		(205	)		—
Real estate:
Commercial
Principal deferral		16		3,483		3,448		(35	)		—
Combination of concession types		5		3,933		3,924		(9	)		(35	)
Residential
Principal deferral		17		1,981		2,191		210			—
Combination of concession types		10		2,321		2,369		48			—
Residential-limited documentation
Principal deferral		1		125		138		13			—
Combination of concession types		5		1,312		1,379		67			(339	)
Consumer:
Home equity lines and loans
Principal deferral		3		335		335		—			—
Combination of concession types		23		2,496		2,496		—			(283	)
Automobile
Principal deferral		48		521		521		—			—
Other		16		38		38		—			—
Combination of concession types		8		85		85		—			(3	)
Other
Principal deferral		26		374		374		—			—
Other		2		25		25		—			—
Combination of concession types		8		147		147		—			(27	)

Total		219	$	34,904	$	36,143	$	1,239		$	(687	)

(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, 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-limited documentation
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.

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, 2016 and 2015 and for which there was a subsequent payment default during the three-month periods ended March 31, 2016 and 2015, respectively, were not material.

The amount of foreclosed residential real estate property held by the Company was $169 million and $172 million at March 31, 2016 and December 31, 2015, respectively. There were $309 million and $315 million at March 31, 2016 and December 31, 2015, respectively, of loans secured by residential real estate that were in the process of foreclosure.