Allowance for credit losses

12 Months Ended

Dec. 31, 2019

4. Allowance for credit losses

Changes in the allowance for credit losses for the years ended December 31, 2019, 2018 and 2017 were as follows:

	Commercial, Financial,			Real Estate
	Leasing, etc.			Commercial			Residential			Consumer			Unallocated			Total
	(In thousands)
2019
Beginning balance	$	330,055			341,655			69,125			200,564			78,045		$	1,019,444
Provision for credit losses		69,702			(10,726	)		(8,585	)		126,029			(420	)		176,000
Net charge-offs
Charge-offs		(58,244	)		(12,664	)		(12,711	)		(154,089	)		—			(237,708	)
Recoveries		24,581			3,936			8,204			56,614			—			93,335
Net charge-offs		(33,663	)		(8,728	)		(4,507	)		(97,475	)		—			(144,373	)
Ending balance	$	366,094			322,201			56,033			229,118			77,625		$	1,051,071

2018
Beginning balance	$	328,599			374,085			65,405			170,809			78,300		$	1,017,198
Provision for credit losses		33,967			(41,181	)		12,401			127,068			(255	)		132,000
Net charge-offs
Charge-offs		(60,414	)		(12,286	)		(15,345	)		(143,196	)		—			(231,241	)
Recoveries		27,903			21,037			6,664			45,883			—			101,487
Net (charge-offs) recoveries		(32,511	)		8,751			(8,681	)		(97,313	)		—			(129,754	)
Ending balance	$	330,055			341,655			69,125			200,564			78,045		$	1,019,444

2017
Beginning balance	$	330,833			362,719			61,127			156,288			78,030		$	988,997
Provision for credit losses		41,511			6,715			16,094			103,410			270			168,000
Net charge-offs
Charge-offs		(64,941	)		(7,931	)		(20,799	)		(130,927	)		—			(224,598	)
Recoveries		21,196			12,582			8,983			42,038			—			84,799
Net (charge-offs) recoveries		(43,745	)		4,651			(11,816	)		(88,889	)		—			(139,799	)
Ending balance	$	328,599			374,085			65,405			170,809			78,300		$	1,017,198

Despite the allocations in the preceding tables, 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 targeted 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 that is applied to commercial and commercial real estate credits on an individual loan basis. Loan grades are assigned loss factors that reflect the Company’s loss estimate for each group of loans and leases. Factors considered in assigning loan grades and loss 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.

The following tables provide information with respect to loans and leases that were considered impaired as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017.

	December 31, 2019						December 31, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	230,444		257,745		74,435		153,478		175,549		46,034
Real estate:
Commercial		60,745		73,026		7,713		110,253		125,117		11,937
Residential builder and developer		9,559		9,856		121		5,981		6,557		462
Other commercial construction		12,425		24,908		1,354		10,563		11,113		640
Residential		125,623		145,497		6,873		124,974		147,817		5,402
Residential — limited documentation		64,268		77,359		2,300		74,156		90,066		3,000
Consumer:
Home equity lines and loans		46,325		51,238		8,957		47,982		53,248		9,135
Recreational finance		5,270		9,579		1,095		6,138		9,163		1,261
Automobile		3,256		3,344		703		3,527		3,599		729
Other		4,542		8,341		915		5,203		8,380		1,046
		562,457		660,893		104,466		542,255		630,609		79,646
With no related allowance recorded:
Commercial, financial, leasing, etc.		139,127		152,132		—		105,507		136,128		—
Real estate:
Commercial		117,751		131,406		—		113,376		124,657		—
Residential builder and developer		3,378		3,378		—		2,593		2,602		—
Other commercial construction		20,345		21,306		—		11,710		11,880		—
Residential		18,090		23,365		—		15,379		20,496		—
Residential — limited documentation		4,985		8,348		—		5,631		9,796		—
		303,676		339,935		—		254,196		305,559		—
Total:
Commercial, financial, leasing, etc.		369,571		409,877		74,435		258,985		311,677		46,034
Real estate:
Commercial		178,496		204,432		7,713		223,629		249,774		11,937
Residential builder and developer		12,937		13,234		121		8,574		9,159		462
Other commercial construction		32,770		46,214		1,354		22,273		22,993		640
Residential		143,713		168,862		6,873		140,353		168,313		5,402
Residential — limited documentation		69,253		85,707		2,300		79,787		99,862		3,000
Consumer:
Home equity lines and loans		46,325		51,238		8,957		47,982		53,248		9,135
Recreational finance		5,270		9,579		1,095		6,138		9,163		1,261
Automobile		3,256		3,344		703		3,527		3,599		729
Other		4,542		8,341		915		5,203		8,380		1,046
Total	$	866,133		1,000,828		104,466		796,451		936,168		79,646

	Year Ended December 31, 2019						Year Ended December 31, 2018
			Interest Income Recognized						Interest Income Recognized
	Average Recorded Investment		Total		Cash Basis		Average Recorded Investment		Total		Cash Basis
	(In thousands)

Commercial, financial, leasing, etc.	$	303,712		8,960		8,960		263,018		7,873		7,873
Real estate:
Commercial		208,200		5,850		5,850		194,451		10,880		10,880
Residential builder and developer		10,863		357		357		8,699		1,779		1,779
Other commercial construction		26,440		634		634		11,467		3,474		3,474
Residential		142,400		9,200		3,567		129,593		8,386		3,456
Residential — limited documentation		74,399		5,463		881		82,854		6,118		1,723
Consumer:
Home equity lines and loans		47,168		1,639		270		48,591		1,698		289
Recreational finance		5,707		558		17		1,849		333		9
Automobile		3,445		214		72		9,262		690		69
Other		5,025		525		11		4,413		230		13
Total	$	827,359		33,400		20,619		754,197		41,461		29,565

	Year Ended December 31, 2017
			Interest Income Recognized
	Average Recorded Investment		Total		Cash Basis
	(In thousands)

Commercial, financial, leasing, etc.	$	240,157		3,894		3,894
Real estate:
Commercial		207,616		4,497		4,497
Residential builder and developer		16,209		6,419		6,419
Other commercial construction		15,142		1,001		1,001
Residential		110,646		7,177		3,406
Residential — limited documentation		93,097		5,981		1,607
Consumer:
Home equity lines and loans		47,323		1,681		400
Recreational finance		1,041		212		9
Automobile		15,045		1,025		81
Other		2,322		96		2
Total	$	748,598		31,983		21,316

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. 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,				Residential		Other
	Financial,				Builder and		Commercial
	Leasing, etc.		Commercial		Developer		Construction
	(In thousands)
December 31, 2019
Pass	$	22,595,821		25,728,725		1,419,162		7,092,799
Criticized accrual		895,790		770,609		124,101		211,292
Criticized nonaccrual		346,557		158,474		3,982		32,770
Total	$	23,838,168		26,657,808		1,547,245		7,336,861
December 31, 2018
Pass	$	21,693,705		24,539,706		1,546,002		6,890,562
Criticized accrual		1,049,848		866,987		139,509		150,115
Criticized nonaccrual		234,423		203,672		4,798		22,205
Total	$	22,977,976		25,610,365		1,690,309		7,062,882

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 by 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 $25 million and $19 million, respectively, at December 31, 2019 and $29 million and $23 million, respectively, at December 31, 2018. 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 $29 million, respectively, at December 31, 2019 and $21 million and $31 million, respectively, at December 31, 2018.

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)
December 31, 2019
Individually evaluated for impairment	$	74,435		9,188		9,173		11,670	$	104,466
Collectively evaluated for impairment		291,659		313,013		43,656		217,448		865,776
Purchased impaired		—		—		3,204		—		3,204
Allocated	$	366,094		322,201		56,033		229,118		973,446
Unallocated										77,625
Total									$	1,051,071
December 31, 2018
Individually evaluated for impairment	$	46,034		13,039		8,402		12,171	$	79,646
Collectively evaluated for impairment		284,021		328,616		48,326		188,393		849,356
Purchased impaired		—		—		12,397		—		12,397
Allocated	$	330,055		341,655		69,125		200,564		941,399
Unallocated										78,045
Total									$	1,019,444

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)
December 31, 2019
Individually evaluated for impairment	$	369,571		224,203		212,966		59,393	$	866,133
Collectively evaluated for impairment		23,468,597		35,300,120		15,733,174		15,327,300		89,829,191
Purchased impaired		—		17,591		209,954		—		227,545
Total	$	23,838,168		35,541,914		16,156,094		15,386,693	$	90,922,869
December 31, 2018
Individually evaluated for impairment	$	258,985		254,476		220,140		62,850	$	796,451
Collectively evaluated for impairment		22,718,991		34,098,670		16,641,411		13,907,649		87,366,721
Purchased impaired		—		10,410		292,895		—		303,305
Total	$	22,977,976		34,363,556		17,154,446		13,970,499	$	88,466,477