ALLOWANCE FOR CREDIT LOSSES (Note 6)

The allowance for credit losses consists of the allowance for loan losses and the allowance for unfunded letters of credit. Management maintains the allowance for credit losses at a level estimated to absorb probable loan losses of the loan portfolio and unfunded letter of credit commitments at the balance sheet date. The allowance for loan losses is based on ongoing evaluations of the probable estimated losses inherent in the loan portfolio, including unexpected additional credit impairment of PCI loan pools subsequent to acquisition.

The following table summarizes the allowance for credit losses at December 31, 2015 and 2014:



	December 31,
	2015		2014
	(in thousands)
Components of allowance for credit losses:
Allowance for loan losses	$	106,178	$	102,353
Allowance for unfunded letters of credit	2,189		1,934
Total allowance for credit losses	$	108,367	$	104,287

The following table summarizes the provision for credit losses for the years ended December 31, 2015, 2014 and 2013:



	2015		2014			2013
	(in thousands)
Components of provision for credit losses:
Provision for loan losses	$	7,846	$	3,445		$	14,895
Provision for unfunded letters of credit	255		(1,561		)	1,200
Total provision for credit losses	$	8,101	$	1,884		$	16,095

The following table details the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2015 and 2014:



	Commercial and Industrial			Commercial Real Estate			Residential Mortgage			Consumer			Unallocated			Total
	(in thousands)
December 31, 2015
Allowance for loan losses:
Beginning balance	$	43,676		$	42,840		$	5,093		$	5,179		$	5,565		$	102,353
Loans charged-off ⁽¹⁾	(7,928		)	(2,790		)	(813		)	(3,441		)	—			(14,972		)
Charged-off loans recovered ⁽²⁾	7,233			1,759			421			1,538			—			10,951
Net charge-offs	(695		)	(1,031		)	(392		)	(1,903		)	—			(4,021		)
Provision for loan losses	5,786			6,197			(76		)	1,504			(5,565		)	7,846
Ending balance	$	48,767		$	48,006		$	4,625		$	4,780		$	—		$	106,178
December 31, 2014
Allowance for loan losses:
Beginning balance	$	51,551		$	42,343		$	7,786		$	4,359		$	7,578		$	113,617
Loans charged-off ⁽¹⁾⁽³⁾	(12,722		)	(9,470		)	(1,004		)	(3,702		)	—			(26,898		)
Charged-off loans recovered ⁽²⁾	6,874			3,110			248			1,957			—			12,189
Net charge-offs	(5,848		)	(6,360		)	(756		)	(1,745		)	—			(14,709		)
Provision for loan losses	(2,027		)	6,857			(1,937		)	2,565			(2,013		)	3,445
Ending balance	$	43,676		$	42,840		$	5,093		$	5,179		$	5,565		$	102,353


(1)	Includes covered loans charge-offs totaling $200 thousand and $1.5 million during 2015 and 2014, respectively, primarily in the commercial and industrial loan and commercial real estate loan portfolios, respectively.


(2)	Includes covered loan recoveries totaling $462 thousand during 2014. There were no covered loan recoveries during 2015.


(3)	The commercial and industrial loan and commercial real estate loan categories included $4.8 million and $4.0 million of charge-offs, respectively, related to the valuation of non-performing loans transferred to loans held for sale during 2014.

The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the impairment methodology for the years ended December 31, 2015 and 2014. Loans individually evaluated for impairment represent Valley’s impaired loans. Loans acquired with discounts related to credit quality represent Valley’s PCI loans.



	Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Unallocated		Total
	(in thousands)
December 31, 2015
Allowance for loan losses:
Individually evaluated for impairment	$	3,439	$	3,671	$	1,377	$	295	$	—	$	8,782
Collectively evaluated for impairment	45,328		44,335		3,248		4,485		—		97,396
Total	$	48,767	$	48,006	$	4,625	$	4,780	$	—	$	106,178
Loans:
Individually evaluated for impairment	$	25,714	$	81,930	$	22,612	$	2,132	$	—	$	132,388
Collectively evaluated for impairment	2,130,835		6,595,296		2,889,467		2,054,650		—		13,670,248
Loans acquired with discounts related to credit quality	383,942		1,502,357		218,462		135,710		—		2,240,471
Total	$	2,540,491	$	8,179,583	$	3,130,541	$	2,192,492	$	—	$	16,043,107
December 31, 2014
Allowance for loan losses:
Individually evaluated for impairment	$	4,929	$	5,502	$	1,629	$	465	$	—	$	12,525
Collectively evaluated for impairment	38,577		37,338		3,434		4,714		5,565		89,628
Loans acquired with discounts related to credit quality	170		—		30		—		—		200
Total	$	43,676	$	42,840	$	5,093	$	5,179	$	5,565	$	102,353
Loans:
Individually evaluated for impairment	$	28,224	$	91,298	$	22,340	$	3,146	$	—	$	145,008
Collectively evaluated for impairment	1,931,703		5,438,538		2,396,704		1,840,159		—		11,607,104
Loans acquired with discounts related to credit quality	291,184		1,164,179		157,328		109,110		—		1,721,801
Total	$	2,251,111	$	6,694,015	$	2,576,372	$	1,952,415	$	—	$	13,473,913

During the fourth quarter of 2015, Valley refined and enhanced its assessment of the adequacy of the allowance for loan losses, including both changes to look-back periods for certain portfolios, as well as enhancements to its qualitative factor framework. The enhancements were meant to increase the level of precision in the allowance for credit losses. As a result, Valley will no longer have an “unallocated” segment in its allowance for credit losses, as the risks and uncertainties meant to be captured by the unallocated allowance have been included in the qualitative framework for the respective loan portfolio segment (reported in the table above) at December 31, 2015. As such, the unallocated allowance has in essence been reallocated to the applicable portfolios based on the risks and uncertainties it was meant to capture. See Note 1 to the consolidated financial statements for additional information regarding our allowance for loan losses.