4. Loans and leases and the allowance for credit losses

A summary of current, past due and nonaccrual loans as of March 31, 2017 and December 31, 2016 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
	(In thousands)
March 31, 2017
Commercial, financial, leasing, etc.	$	21,986,926		38,046		6,695		387		1,825		261,497	$	22,295,376
Real estate:
Commercial		25,088,525		185,331		17,322		13,618		26,391		183,113		25,514,300
Residential builder and developer		1,714,177		15,185		—		1,972		12,798		13,573		1,757,705
Other commercial construction		5,747,834		23,973		—		—		13,879		13,963		5,799,649
Residential		17,004,912		431,427		251,308		11,116		362,283		237,685		18,298,731
Residential — limited documentation		3,086,264		91,177		—		—		135,759		112,560		3,425,760
Consumer:
Home equity lines and loans		5,398,590		32,939		—		12,238		—		79,962		5,523,729
Automobile		3,049,712		48,751		—		—		—		16,109		3,114,572
Other		3,519,996		25,876		4,694		24,401		—		8,213		3,583,180
Total	$	86,596,936		892,705		280,019		63,732		552,935		926,675	$	89,313,002

December 31, 2016
Commercial, financial, leasing, etc.	$	22,287,857		53,503		6,195		417		641		261,434	$	22,610,047
Real estate:
Commercial		25,076,684		183,531		7,054		12,870		31,404		176,201		25,487,744
Residential builder and developer		1,884,989		4,667		5		1,952		14,006		16,707		1,922,326
Other commercial construction		5,985,118		77,701		922		198		14,274		18,111		6,096,324
Residential		17,631,377		485,468		281,298		11,537		378,549		229,242		19,017,471
Residential — limited documentation		3,239,344		88,366		—		—		139,158		106,573		3,573,441
Consumer:
Home equity lines and loans		5,502,091		44,565		—		12,678		—		81,815		5,641,149
Automobile		2,869,232		56,158		—		1		—		18,674		2,944,065
Other		3,491,629		31,286		5,185		21,491		—		11,258		3,560,849
Total	$	87,968,321		1,025,245		300,659		61,144		578,032		920,015	$	90,853,416

(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 acquired at a discount that were impaired at acquisition date and recorded at fair value.

4. Loans and leases and the allowance for credit losses, continued

One-to-four family residential mortgage loans held for sale were $297 million and $414 million at March 31, 2017 and December 31, 2016, respectively. Commercial real estate loans held for sale were $75 million at March 31, 2017 and $643 million at December 31, 2016.

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

	March 31,		December 31,
	2017		2016
	(In thousands)

Outstanding principal balance	$	2,089,909		2,311,699
Carrying amount:
Commercial, financial, leasing, etc.		55,671		59,928
Commercial real estate		415,047		456,820
Residential real estate		765,986		799,802
Consumer		369,803		487,721
	$	1,606,507		1,804,271

Purchased impaired loans included in the table above totaled $553 million at March 31, 2017 and $578 million at December 31, 2016, 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, 2017 and 2016 follows:


	Three Months Ended March 31, 2017						Three Months Ended March 31, 2016
	Purchased			Other			Purchased			Other
	Impaired			Acquired			Impaired			Acquired
	(In thousands)

Balance at beginning of period	$	154,233			201,153		$	184,618			296,434
Interest income		(10,925	)		(25,518	)		(14,062	)		(37,862	)
Reclassifications from nonaccretable balance		146			3,183			629			5,664
Other (a)		—			2,492			—			4,781
Balance at end of period	$	143,454			181,310		$	171,185			269,017

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

4. Loans and leases and the allowance for credit losses, continued

Changes in the allowance for credit losses for the three months ended March 31, 2017 were as follows:

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

Beginning balance	$	330,833			362,719			61,127			156,288			78,030	$	988,997
Provision for credit losses		28,823			1,262			5,637			18,832			446		55,000
Net charge-offs
Charge-offs		(16,357	)		(5,445	)		(6,259	)		(34,503	)		—		(62,564	)
Recoveries		4,461			1,474			1,507			12,555			—		19,997
Net charge-offs		(11,896	)		(3,971	)		(4,752	)		(21,948	)		—		(42,567	)
Ending balance	$	347,760			360,010			62,012			153,172			78,476	$	1,001,430

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) recoveries		(902	)		1,141			(5,085	)		(37,394	)		—			(42,240	)
Ending balance	$	323,866			331,985			68,371			160,819			77,711		$	962,752

4. Loans and leases and the allowance for credit losses, continued

Despite the allocation in the preceding table, 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 credit 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 loans 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.

4. Loans and leases and the allowance for credit losses, continued

The following tables provide information with respect to loans and leases that were considered impaired as of March 31, 2017 and December 31, 2016 and for the three-month periods ended March 31, 2017 and 2016.

	March 31, 2017						December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	177,001		196,338		64,056		168,072		184,432		48,480
Real estate:
Commercial		64,746		80,482		10,541		71,862		86,666		11,620
Residential builder and developer		6,870		7,031		403		7,396		8,361		506
Other commercial construction		2,203		2,673		398		2,475		2,731		448
Residential		91,077		111,477		3,738		86,680		105,944		3,457
Residential — limited documentation		81,922		97,658		5,000		82,547		97,718		6,000
Consumer:
Home equity lines and loans		46,132		50,262		8,389		44,693		48,965		8,027
Automobile		16,087		16,602		3,508		16,982		18,272		3,740
Other		3,522		3,670		725		3,791		5,296		776
		489,560		566,193		96,758		484,498		558,385		83,054
With no related allowance recorded:
Commercial, financial, leasing, etc.		92,546		127,252		—		100,805		124,786		—
Real estate:
Commercial		126,437		139,103		—		113,276		121,846		—
Residential builder and developer		11,748		18,863		—		14,368		21,124		—
Other commercial construction		12,029		31,072		—		15,933		35,281		—
Residential		14,946		22,209		—		16,823		24,161		—
Residential — limited documentation		14,466		22,941		—		15,429		24,590		—
		272,172		361,440		—		276,634		351,788		—
Total:
Commercial, financial, leasing, etc.		269,547		323,590		64,056		268,877		309,218		48,480
Real estate:
Commercial		191,183		219,585		10,541		185,138		208,512		11,620
Residential builder and developer		18,618		25,894		403		21,764		29,485		506
Other commercial construction		14,232		33,745		398		18,408		38,012		448
Residential		106,023		133,686		3,738		103,503		130,105		3,457
Residential — limited documentation		96,388		120,599		5,000		97,976		122,308		6,000
Consumer:
Home equity lines and loans		46,132		50,262		8,389		44,693		48,965		8,027
Automobile		16,087		16,602		3,508		16,982		18,272		3,740
Other		3,522		3,670		725		3,791		5,296		776
Total	$	761,732		927,633		96,758		761,132		910,173		83,054

4. Loans and leases and the allowance for credit losses, continued

	Three Months Ended March 31, 2017						Three Months Ended March 31, 2016
			Interest Income Recognized						Interest Income Recognized
	Average Recorded Investment		Total		Cash Basis		Average Recorded Investment		Total		Cash Basis
	(In thousands)

Commercial, financial, leasing, etc.	$	271,825		478		478		296,584		611		611
Real estate:
Commercial		182,857		975		975		182,454		1,474		1,474
Residential builder and developer		20,051		429		429		33,750		42		42
Other commercial construction		16,328		847		847		16,868		38		38
Residential		103,875		1,636		774		96,788		1,372		882
Residential — limited documentation		97,121		1,500		384		107,473		1,472		630
Consumer:
Home equity lines and loans		45,542		399		100		26,019		246		85
Automobile		16,504		275		19		21,962		339		36
Other		3,598		72		3		17,717		178		27
Total	$	757,701		6,611		4,009		799,615		5,772		3,825

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 credit 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.

4. Loans and leases and the allowance for credit losses, continued

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,				Residential		Other
	Financial,				Builder and		Commercial
	Leasing, etc.		Commercial		Developer		Construction
	(In thousands)
March 31, 2017
Pass	$	21,036,982		24,589,201		1,660,537		5,609,985
Criticized accrual		996,897		741,986		83,595		175,701
Criticized nonaccrual		261,497		183,113		13,573		13,963
Total	$	22,295,376		25,514,300		1,757,705		5,799,649
December 31, 2016
Pass	$	21,398,581		24,570,269		1,789,071		5,912,351
Criticized accrual		950,032		741,274		116,548		165,862
Criticized nonaccrual		261,434		176,201		16,707		18,111
Total	$	22,610,047		25,487,744		1,922,326		6,096,324

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 totaled $43 million and $30 million, respectively, at March 31, 2017 and $44 million and $32 million, respectively, at December 31, 2016. 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 were $18 million and $39 million, respectively, at March 31, 2017 and $16 million and $39 million, respectively, at December 31, 2016.

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.

4. Loans and leases and the allowance for credit losses, continued

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, 2017
Individually evaluated for impairment	$	64,056		11,342		8,738		12,622	$	96,758
Collectively evaluated for impairment		283,704		346,795		49,902		140,550		820,951
Purchased impaired		—		1,873		3,372		—		5,245
Allocated	$	347,760		360,010		62,012		153,172		922,954
Unallocated										78,476
Total									$	1,001,430
December 31, 2016
Individually evaluated for impairment	$	48,480		12,500		9,457		12,543	$	82,980
Collectively evaluated for impairment		282,353		348,301		47,993		143,745		822,392
Purchased impaired		—		1,918		3,677		—		5,595
Allocated	$	330,833		362,719		61,127		156,288		910,967
Unallocated										78,030
Total									$	988,997

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, 2017
Individually evaluated for impairment	$	269,547		224,033		202,411		65,741	$	761,732
Collectively evaluated for impairment		22,024,004		32,794,553		21,024,038		12,155,740		87,998,335
Purchased impaired		1,825		53,068		498,042		—		552,935
Total	$	22,295,376		33,071,654		21,724,491		12,221,481	$	89,313,002
December 31, 2016
Individually evaluated for impairment	$	268,877		224,630		201,479		65,466	$	760,452
Collectively evaluated for impairment		22,340,529		33,222,080		21,871,726		12,080,597		89,514,932
Purchased impaired		641		59,684		517,707		—		578,032
Total	$	22,610,047		33,506,394		22,590,912		12,146,063	$	90,853,416

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.

4. Loans and leases and the allowance for credit losses, continued

The table that follows summarizes the Company’s loan modification activities that were considered troubled debt restructurings for the three months ended March 31, 2017 and 2016:

					Post-modification (a)
	Number		Pre- modification recorded investment		Principal Deferral		Other		Combination of Concession Types		Total
Three Months Ended March 31, 2017	(Dollars in thousands)

Commercial, financial, leasing, etc.	50		$	11,921	$	4,389	$	806	$	2,728	$	7,923
Real estate:
Commercial	20			6,702		2,991		—		3,606		6,597
Residential builder and developer	3			12,291		—		—		10,879		10,879
Other commercial construction	1			102		102		—		—		102
Residential	41			9,380		5,593		—		4,355		9,948
Residential — limited documentation	6			1,378		-		—		1,525		1,525
Consumer:
Home equity lines and loans	25			2,502		163		491		1,848		2,502
Automobile	20			390		383		—		7		390
Other	2			26		26		—		—		26
Total		168	$	44,692	$	13,647	$	1,297	$	24,948	$	39,892

Three Months Ended March 31, 2016

Commercial, financial, leasing, etc.		31	$	17,728	$	12,721	$	—	$	5,952	$	18,673
Real estate:
Commercial		21		7,416		3,448		—		3,924		7,372
Residential		27		4,302		2,191		—		2,369		4,560
Residential — limited documentation		6		1,437		138		—		1,379		1,517
Consumer:
Home equity lines and loans		26		2,831		335		—		2,496		2,831
Automobile		72		644		521		38		85		644
Other		36		546		374		25		147		546
Total		219	$	34,904	$	19,728	$	63	$	16,352	$	36,143

(a)	Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized escrow arrearages. The present value of interest rate concessions, discounted at the effective rate of the original loan, was not material.

4. Loans and leases and the allowance for credit losses, continued

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, 2017 and 2016 and for which there was a subsequent payment default during the three-month periods ended March 31, 2017 and 2016, respectively, were not material.

The amount of foreclosed residential real estate property held by the Company totaled $112 million and $129 million at March 31, 2017 and December 31, 2016, respectively. There were $538 million and $506 million at March 31, 2017 and December 31, 2016, respectively, in loans secured by residential real estate that were in the process of foreclosure. Of all loans in the process of foreclosure at March 31, 2017, approximately 53% were classified as purchased impaired and 20% were government guaranteed.