Loans | NOTE 4. LOANS For purposes of disclosures related to the credit quality of financing receivables and the allowance for loan losses, People’s United has identified two loan portfolio segments, Commercial and Retail, which are comprised of the following loan classes: • Commercial Portfolio • Retail Portfolio Loans acquired in connection with business combinations are referred to as ‘acquired’ loans as a result of the manner in which they are accounted for (see further discussion under ‘Acquired Loans’). All other loans are referred to as ‘originated’ loans. Accordingly, selected credit quality disclosures that follow are presented separately for the ‘originated’ loan portfolio and the ‘acquired’ loan portfolio. People’s United maintains several significant accounting policies with respect to loans, including: • Establishment of the allowance for loan losses (including the identification of ‘impaired’ loans and related impairment measurement considerations); • Income recognition (including the classification of a loan as ‘non-accrual’ • Recognition of loan charge-offs. The Company did not change its application of the accounting policies noted above or its methodology for determining the allowance for loan losses during the nine months ended September 30, 2017. The following table summarizes People’s United’s loans by loan portfolio segment and class: September 30, 2017 December 31, 2016 (in millions) Originated Acquired Total Originated Acquired Total Commercial: Commercial real estate $ 10,194.1 $ 986.4 $ 11,180.5 $ 10,012.6 $ 234.7 $ 10,247.3 Commercial and industrial 7,971.3 653.4 8,624.7 7,939.0 186.1 8,125.1 Equipment financing 3,039.1 666.5 3,705.6 3,020.9 11.6 3,032.5 Total Commercial Portfolio 21,204.5 2,306.3 23,510.8 20,972.5 432.4 21,404.9 Retail: Residential mortgage: Adjustable-rate 5,800.9 147.5 5,948.4 5,453.8 95.3 5,549.1 Fixed-rate 706.7 125.9 832.6 613.5 54.1 667.6 Total residential mortgage 6,507.6 273.4 6,781.0 6,067.3 149.4 6,216.7 Home equity and other consumer: Home equity 1,981.8 59.7 2,041.5 2,044.9 27.7 2,072.6 Other consumer 47.3 3.9 51.2 50.0 0.7 50.7 Total home equity and other consumer 2,029.1 63.6 2,092.7 2,094.9 28.4 2,123.3 Total Retail Portfolio 8,536.7 337.0 8,873.7 8,162.2 177.8 8,340.0 Total loans $ 29,741.2 $ 2,643.3 $ 32,384.5 $ 29,134.7 $ 610.2 $ 29,744.9 Loan origination fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized in interest income as an adjustment of yield. Depending on the loan portfolio, amounts are amortized or accreted using the level yield method over either the actual life or the estimated average life of the loan. Net deferred loan costs, which are included in loans by respective class and accounted for as interest yield adjustments, totaled $73.1 million at September 30, 2017 and $69.9 million at December 31, 2016. The following tables present a summary, by loan portfolio segment, of activity in the allowance for loan losses for the three and nine months ended September 30, 2017 and 2016. With respect to the originated portfolio, an allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in another segment. Three months ended Commercial Retail September 30, 2017 (in millions) Originated Acquired Total Originated Acquired Total Total Balance at beginning of period $ 198.3 $ 3.6 $ 201.9 $ 29.6 $ 0.1 $ 29.7 $ 231.6 Charge-offs (4.0 ) (1.0 ) (5.0 ) (1.8 ) — (1.8 ) (6.8 ) Recoveries 0.9 0.1 1.0 0.6 — 0.6 1.6 Net loan charge-offs (3.1 ) (0.9 ) (4.0 ) (1.2 ) — (1.2 ) (5.2 ) Provision for loan losses 4.3 1.3 5.6 1.3 0.1 1.4 7.0 Balance at end of period $ 199.5 $ 4.0 $ 203.5 $ 29.7 $ 0.2 $ 29.9 $ 233.4 Nine months ended Commercial Retail September 30, 2017 (in millions) Originated Acquired Total Originated Acquired Total Total Balance at beginning of period $ 198.8 $ 6.1 $ 204.9 $ 24.2 $ 0.2 $ 24.4 $ 229.3 Charge-offs (12.0 ) (2.9 ) (14.9 ) (5.1 ) — (5.1 ) (20.0 ) Recoveries 3.8 0.1 3.9 1.7 — 1.7 5.6 Net loan charge-offs (8.2 ) (2.8 ) (11.0 ) (3.4 ) — (3.4 ) (14.4 ) Provision for loan losses 8.9 0.7 9.6 8.9 — 8.9 18.5 Balance at end of period $ 199.5 $ 4.0 $ 203.5 $ 29.7 $ 0.2 $ 29.9 $ 233.4 Three months ended Commercial Retail September 30, 2016 (in millions) Originated Acquired Total Originated Acquired Total Total Balance at beginning of period $ 189.7 $ 7.2 $ 196.9 $ 23.3 $ 0.2 $ 23.5 $ 220.4 Charge-offs (2.7 ) (0.1 ) (2.8 ) (1.1 ) — (1.1 ) (3.9 ) Recoveries 0.9 — 0.9 0.5 — 0.5 1.4 Net loan charge-offs (1.8 ) (0.1 ) (1.9 ) (0.6 ) — (0.6 ) (2.5 ) Provision for loan losses 7.1 — 7.1 1.3 — 1.3 8.4 Balance at end of period $ 195.0 $ 7.1 $ 202.1 $ 24.0 $ 0.2 $ 24.2 $ 226.3 Nine months ended Commercial Retail September 30, 2016 (in millions) Originated Acquired Total Originated Acquired Total Total Balance at beginning of period $ 181.8 $ 7.9 $ 189.7 $ 21.1 $ 0.2 $ 21.3 $ 211.0 Charge-offs (10.7 ) (0.4 ) (11.1 ) (6.6 ) — (6.6 ) (17.7 ) Recoveries 1.6 — 1.6 2.5 — 2.5 4.1 Net loan charge-offs (9.1 ) (0.4 ) (9.5 ) (4.1 ) — (4.1 ) (13.6 ) Provision for loan losses 22.3 (0.4 ) 21.9 7.0 — 7.0 28.9 Balance at end of period $ 195.0 $ 7.1 $ 202.1 $ 24.0 $ 0.2 $ 24.2 $ 226.3 The following is a summary, by loan portfolio segment and impairment methodology, of the allowance for loan losses and related portfolio balances: Originated Loans Originated Loans As of Individually Evaluated Collectively Evaluated September 30, 2017 for Impairment for Impairment Acquired Loans (1) Total (in millions) Portfolio Allowance Portfolio Allowance Portfolio Allowance Portfolio Allowance Commercial $ 172.5 $ 5.7 $ 21,032.0 $ 193.8 $ 2,306.3 $ 4.0 $ 23,510.8 $ 203.5 Retail 94.3 2.4 8,442.4 27.3 337.0 0.2 8,873.7 29.9 Total $ 266.8 $ 8.1 $ 29,474.4 $ 221.1 $ 2,643.3 $ 4.2 $ 32,384.5 $ 233.4 Originated Loans Originated Loans As of Individually Evaluated Collectively Evaluated December 31, 2016 for Impairment for Impairment Acquired Loans (1) Total (in millions) Portfolio Allowance Portfolio Allowance Portfolio Allowance Portfolio Allowance Commercial $ 161.8 $ 5.8 $ 20,810.7 $ 193.0 $ 432.4 $ 6.1 $ 21,404.9 $ 204.9 Retail 91.8 3.2 8,070.4 21.0 177.8 0.2 8,340.0 24.4 Total $ 253.6 $ 9.0 $ 28,881.1 $ 214.0 $ 610.2 $ 6.3 $ 29,744.9 $ 229.3 (1) Approximately $3.8 million of the allowance at September 30, 2017 relates to Commercial and Retail PCI loans totaling $406.5 million and $134.7 million, respectively. The remainder of the acquired portfolio represents purchased performing loans with an allowance of approximately $0.4 million at that date. The allowance at December 31, 2016 relates entirely to PCI loans (no acquired loans were purchased performing at that date). The recorded investments, by class of loan, in originated non-performing September 30, December 31, (in millions) 2017 2016 Commercial: Commercial real estate $ 36.7 $ 22.3 Commercial and industrial 34.9 41.5 Equipment financing 54.1 39.4 Total (1) 125.7 103.2 Retail: Residential mortgage 33.8 27.4 Home equity 14.8 17.4 Other consumer — — Total (2) 48.6 44.8 Total $ 174.3 $ 148.0 (1) Reported net of government guarantees totaling $4.0 million and $13.1 million at September 30, 2017 and December 31, 2016, respectively. These government guarantees relate, almost entirely, to guarantees provided by the Small Business Administration as well as selected other Federal agencies and represent the carrying value of the loans that are covered by such guarantees, the extent of which (i.e. full or partial) varies by loan. At September 30, 2017, the principal loan classes to which these government guarantees relate are commercial and industrial loans (95%) and commercial real estate loans (5%). (2) Includes $17.8 million and $9.8 million of loans in the process of foreclosure at September 30, 2017 and December 31, 2016, respectively. The preceding table excludes acquired loans that are (i) accounted for as PCI loans or (ii) covered by a Federal Deposit Insurance Corporation (“FDIC”) loss-share agreement (“LSA”) totaling $24.5 million and $24.7 million at September 30, 2017 and December 31, 2016, respectively. Such loans otherwise meet People’s United’s definition of a non-performing non-performing A loan is generally considered “non-performing” non-accrual non-accrual non-accrual All previously accrued but unpaid interest on non-accrual non-accrual non-accrual A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impaired loans also include certain loans whose terms have been modified in such a way that they are considered troubled debt restructurings (“TDRs”). Loans are considered TDRs if the borrower is experiencing financial difficulty and is afforded a concession by People’s United, such as, but not limited to: (i) payment deferral; (ii) a reduction of the stated interest rate for the remaining contractual life of the loan; (iii) an extension of the loan’s original contractual term at a stated interest rate lower than the current market rate for a new loan with similar risk; (iv) capitalization of interest; or (v) forgiveness of principal or interest. TDRs may either be accruing or placed on non-accrual non-performing non-accrual non-performing Impairment is evaluated on a collective basis for smaller-balance loans with similar credit risk and on an individual loan basis for other loans. If a loan is deemed to be impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported (net of the allowance) at the present value of expected future cash flows discounted at the loan’s original effective interest rate or at the fair value of the collateral less cost to sell if repayment is expected solely from the collateral. Interest payments on impaired non-accrual People’s United’s recorded investment in loans classified as TDRs totaled $194.4 million and $189.9 million at September 30, 2017 and December 31, 2016, respectively. The related allowance for loan losses was $4.6 million at September 30, 2017 and $4.2 million at December 31, 2016. Interest income recognized on TDRs totaled $1.4 million and $1.2 million for the three months ended September 30, 2017 and 2016, respectively, and $3.7 million and $3.3 million for the nine months ended September 30, 2017 and 2016, respectively. Fundings under commitments to lend additional amounts to borrowers with loans classified as TDRs were immaterial for the three and nine months ended September 30, 2017 and 2016. Loans that were modified and classified as TDRs during the three and nine months ended September 30, 2017 and 2016 principally involve reduced payment and/or payment deferral, extension of term (generally no more than two years for commercial loans and five years for retail loans) and/or a temporary reduction of interest rate (generally less than 200 basis points). The following tables summarize, by class of loan, the recorded investments in loans modified as TDRs during the three and nine months ended September 30, 2017 and 2016. For purposes of this disclosure, recorded investments represent amounts immediately prior to and subsequent to the restructuring. Three Months Ended September 30, 2017 Pre-Modification Post-Modification Outstanding Outstanding Number Recorded Recorded (dollars in millions) of Contracts Investment Investment Commercial: Commercial real estate (1) 1 $ 0.1 $ 0.1 Commercial and industrial (2) 9 11.6 11.6 Equipment financing (3) 13 8.1 8.1 Total 23 19.8 19.8 Retail: Residential mortgage (4) 17 3.8 3.8 Home equity (5) 19 1.5 1.5 Other consumer — — — Total 36 5.3 5.3 Total 59 $ 25.1 $ 25.1 (1) Represents the following concession: extension of term (1 contract; recorded investment of $0.1 million). (2) Represents the following concessions: extension of term (9 contracts; recorded investment of $11.6 million). (3) Represents the following concessions: reduced payment and/or payment deferral (12 contracts; recorded investment of $8.0 million); or a combination of concessions (1 contract; recorded investment of $0.1 million). (4) Represents the following concessions: loans restructured through bankruptcy (9 contracts; recorded investment of $1.7 million); reduced payment and/or payment deferral (5 contract; recorded investment of $1.7 million); or a combination of concessions (3 contracts; recorded investment of $0.4 million). (5) Represents the following concessions: loans restructured through bankruptcy (10 contracts; recorded investment of $1.0 million); reduced payment and/or payment deferral (4 contracts; recorded investment of $0.3 million); or a combination of concessions (5 contracts; recorded investment of $0.2 million). Nine Months Ended September 30, 2017 (dollars in millions) Number Pre-Modification Post-Modification Commercial: Commercial real estate (1) 8 $ 5.3 $ 5.3 Commercial and industrial (2) 28 39.6 39.6 Equipment financing (3) 54 25.1 25.1 Total 90 70.0 70.0 Retail: Residential mortgage (4) 45 10.8 10.8 Home equity (5) 65 4.5 4.5 Other consumer — — — Total 110 15.3 15.3 Total 200 $ 85.3 $ 85.3 (1) Represents the following concessions: extension of term (5 contracts; recorded investment of $1.4 million); reduced payment and/or payment deferral (2 contracts; recorded investment of $2.2 million); or a temporary rate reduction (1 contract; recorded investment of $1.7 million). (2) Represents the following concessions: extension of term (25 contracts; recorded investment of $29.9 million); reduced payment and/or payment deferral (2 contracts; recorded investment of $9.4 million); or a combination of concessions (1 contract; recorded investment of $0.3 million). (3) Represents the following concessions: reduced payment and/or payment deferral (28 contracts; recorded investment of $17.4 million); or a combination of concessions (26 contracts; recorded investment of $7.7 million). (4) Represents the following concessions: loans restructured through bankruptcy (28 contracts; recorded investment of $4.2 million); reduced payment and/or payment deferral (10 contracts; recorded investment of $3.4 million); or a combination of concessions (7 contracts; recorded investment of $3.2 million). (5) Represents the following concessions: loans restructured through bankruptcy (41 contracts; recorded investment of $2.6 million); reduced payment and/or payment deferral (10 contracts; recorded investment of $0.8 million); or a combination of concessions (14 contracts; recorded investment of $1.1 million). Three Months Ended September 30, 2016 (dollars in millions) Number Pre-Modification Post-Modification Commercial: Commercial real estate (1) 7 $ 22.1 $ 22.1 Commercial and industrial (2) 11 4.5 4.5 Equipment financing (3) 22 10.4 10.4 Total 40 37.0 37.0 Retail: Residential mortgage (4) 9 2.9 2.9 Home equity (5) 17 1.2 1.2 Other consumer — — — Total 26 4.1 4.1 Total 66 $ 41.1 $ 41.1 (1) Represents the following concessions: extension of term (5 contracts; recorded investment of $3.3 million); reduced payment and/or payment deferral (1 contract; recorded investment of $1.7 million); or a combination of concessions (1 contract; recorded investment of $17.1 million). (2) Represents the following concessions: extension of term (9 contracts; recorded investment of $4.1 million); or reduced payment and/or payment deferral (2 contracts; recorded investment of $0.4 million). (3) Represents the following concessions: extension of term (6 contracts; recorded investment of $4.3 million); reduced payment and/or payment deferral (13 contracts; recorded investment of $4.7 million); or a combination of concessions (3 contracts; recorded investment of $1.4 million). (4) Represents the following concessions: loans restructured through bankruptcy (6 contracts; recorded investment of $1.0 million); reduced payment and/or payment deferral (1 contract; recorded investment of $0.7 million); or a combination of concessions (2 contracts; recorded investment of $1.2 million). (5) Represents the following concessions: loans restructured through bankruptcy (11 contracts; recorded investment of $0.5 million); reduced payment and/or payment deferral (1 contract; recorded investment of $0.2 million); or a combination of concessions (5 contracts; recorded investment of $0.5 million). Nine Months Ended September 30, 2016 (dollars in millions) Number Pre-Modification Post-Modification Commercial: Commercial real estate (1) 12 $ 25.9 $ 25.9 Commercial and industrial (2) 36 22.9 22.9 Equipment financing (3) 49 21.7 21.7 Total 97 70.5 70.5 Retail: Residential mortgage (4) 47 13.1 13.1 Home equity (5) 50 3.8 3.8 Other consumer — — — Total 97 16.9 16.9 Total 194 $ 87.4 $ 87.4 (1) Represents the following concessions: extension of term (8 contracts; recorded investment of $6.2 million); reduced payment and/or payment deferral (2 contracts; recorded investment of $2.6 million); or a combination of concessions (2 contracts; recorded investment of $17.1 million). (2) Represents the following concessions: extension of term (23 contracts; recorded investment of $12.3 million); reduced payment and/or payment deferral (9 contracts; recorded investment of $9.8 million); or a combination of concessions (4 contracts; recorded investment of $0.8 million). (3) Represents the following concessions: extension of term (17 contracts; recorded investment of $6.3 million); reduced payment and/or payment deferral (25 contracts; recorded investment of $12.5 million); or a combination of concessions (7 contracts; recorded investment of $2.9 million). (4) Represents the following concessions: loans restructured through bankruptcy (18 contracts; recorded investment of $3.2 million); reduced payment and/or payment deferral (11 contracts; recorded investment of $5.5 million); or a combination of concessions (18 contracts; recorded investment of $4.4 million). (5) Represents the following concessions: loans restructured through bankruptcy (31 contracts; recorded investment of $2.1 million); reduced payment and/or payment deferral (2 contracts; recorded investment of $0.3 million); or a combination of concessions (17 contracts; recorded investment of $1.4 million). The following is a summary, by class of loan, of information related to TDRs completed within the previous 12 months that subsequently defaulted during the three and nine months ended September 30, 2017 and 2016. For purposes of this disclosure, the previous 12 months is measured from October 1 of the respective prior year and a default represents a previously-modified loan that became past due 30 days or more during the three or nine months ended September 30, 2017 or 2016. Three Months Ended September 30, 2017 2016 (dollars in millions) Number Recorded Number Recorded Commercial: Commercial real estate — $ — — $ — Commercial and industrial 1 0.1 — — Equipment financing 8 4.2 14 2.2 Total 9 4.3 14 2.2 Retail: Residential mortgage 2 0.9 3 0.6 Home equity 5 0.8 — — Other consumer — — — — Total 7 1.7 3 0.6 Total 16 $ 6.0 17 $ 2.8 Nine Months Ended September 30, 2017 2016 (dollars in millions) Number Recorded Number Recorded Commercial: Commercial real estate — $ — 2 $ 0.9 Commercial and industrial 4 1.5 5 0.6 Equipment financing 15 6.8 20 5.9 Total 19 8.3 27 7.4 Retail: Residential mortgage 9 2.7 10 1.9 Home equity 11 1.3 7 0.5 Other consumer — — — — Total 20 4.0 17 2.4 Total 39 $ 12.3 44 $ 9.8 People’s United’s impaired loans consist of certain loans that have been placed on non-accrual individually-evaluated As of September 30, 2017 As of December 31, 2016 (in millions) Unpaid Recorded Related Unpaid Recorded Related Without a related allowance for loan losses: Commercial: Commercial real estate $ 50.7 $ 46.1 $ — $ 41.4 $ 40.0 $ — Commercial and industrial 39.3 36.7 — 50.7 45.7 — Equipment financing 42.8 39.1 — 38.2 35.3 — Retail: Residential mortgage 66.8 60.0 — 63.6 58.0 — Home equity 23.5 20.0 — 22.4 18.7 — Other consumer — — — — — — Total $ 223.1 $ 201.9 $ — $ 216.3 $ 197.7 $ — With a related allowance for loan losses: Commercial: Commercial real estate $ 13.5 $ 12.8 $ 1.2 $ 12.2 $ 11.4 $ 0.6 Commercial and industrial 25.2 24.6 3.0 25.9 25.0 4.7 Equipment financing 14.1 13.2 1.5 5.0 4.4 0.5 Retail: Residential mortgage 12.4 12.4 1.7 13.1 13.1 2.3 Home equity 1.9 1.9 0.7 2.1 2.0 0.9 Other consumer — — — — — — Total $ 67.1 $ 64.9 $ 8.1 $ 58.3 $ 55.9 $ 9.0 Total impaired loans: Commercial: Commercial real estate $ 64.2 $ 58.9 $ 1.2 $ 53.6 $ 51.4 $ 0.6 Commercial and industrial 64.5 61.3 3.0 76.6 70.7 4.7 Equipment financing 56.9 52.3 1.5 43.2 39.7 0.5 Total 185.6 172.5 5.7 173.4 161.8 5.8 Retail: Residential mortgage 79.2 72.4 1.7 76.7 71.1 2.3 Home equity 25.4 21.9 0.7 24.5 20.7 0.9 Other consumer — — — — — — Total 104.6 94.3 2.4 101.2 91.8 3.2 Total $ 290.2 $ 266.8 $ 8.1 $ 274.6 $ 253.6 $ 9.0 The following tables summarize, by class of loan, the average recorded investment and interest income recognized on impaired loans for the periods indicated. The average recorded investment amounts are based on month-end Three Months Ended September 30, 2017 2016 (in millions) Average Interest Average Interest Commercial: Commercial real estate $ 61.8 $ 0.3 $ 54.1 $ 0.4 Commercial and industrial 59.7 0.7 60.5 0.3 Equipment financing 46.5 0.2 38.2 0.1 Total 168.0 1.2 152.8 0.8 Retail: Residential mortgage 72.4 0.4 71.7 0.4 Home equity 21.8 0.1 21.3 0.1 Other consumer — — — — Total 94.2 0.5 93.0 0.5 Total $ 262.2 $ 1.7 $ 245.8 $ 1.3 Nine Months Ended September 30, 2017 2016 (in millions) Average Interest Average Interest Commercial: Commercial real estate $ 56.9 $ 0.9 $ 58.6 $ 1.1 Commercial and industrial 66.1 1.6 61.9 1.2 Equipment financing 43.0 0.4 35.9 0.2 Total 166.0 2.9 156.4 2.5 Retail: Residential mortgage 71.9 1.3 72.1 1.2 Home equity 21.1 0.3 21.9 0.2 Other consumer — — — — Total 93.0 1.6 94.0 1.4 Total $ 259.0 $ 4.5 $ 250.4 $ 3.9 The following tables summarize, by class of loan, aging information for originated loans: Past Due As of September 30, 2017 (in millions) Current 30-89 90 Days Total Total Commercial: Commercial real estate $ 10,158.6 $ 20.3 $ 15.2 $ 35.5 $ 10,194.1 Commercial and industrial 7,943.2 10.1 18.0 28.1 7,971.3 Equipment financing 2,942.7 88.4 8.0 96.4 3,039.1 Total 21,044.5 118.8 41.2 160.0 21,204.5 Retail: Residential mortgage 6,455.4 31.8 20.4 52.2 6,507.6 Home equity 1,968.5 7.0 6.3 13.3 1,981.8 Other consumer 46.5 0.8 — 0.8 47.3 Total 8,470.4 39.6 26.7 66.3 8,536.7 Total originated loans $ 29,514.9 $ 158.4 $ 67.9 $ 226.3 $ 29,741.2 Included in the “Current” and “30-89 non-performing non-accrual Past Due As of December 31, 2016 (in millions) Current 30-89 90 Days Total Total Commercial: Commercial real estate $ 9,989.9 $ 10.9 $ 11.8 $ 22.7 $ 10,012.6 Commercial and industrial 7,899.2 10.0 29.8 39.8 7,939.0 Equipment financing 2,941.5 68.4 11.0 79.4 3,020.9 Total 20,830.6 89.3 52.6 141.9 20,972.5 Retail: Residential mortgage 6,027.5 22.0 17.8 39.8 6,067.3 Home equity 2,030.3 5.2 9.4 14.6 2,044.9 Other consumer 49.7 0.3 — 0.3 50.0 Total 8,107.5 27.5 27.2 54.7 8,162.2 Total originated loans $ 28,938.1 $ 116.8 $ 79.8 $ 196.6 $ 29,134.7 Included in the “Current” and “30-89 non-performing non-accrual Commercial Credit Quality Indicators The Company utilizes an internal loan risk rating system as a means of monitoring portfolio credit quality and identifying both problem and potential problem loans. Under the Company’s risk rating system, loans not meeting the criteria for problem and potential problem loans as specified below are considered to be “Pass”-rated loans. Problem and potential problem loans are classified as either “Special Mention,” “Substandard” or “Doubtful.” Loans that do not currently expose the Company to sufficient enough risk of loss to warrant classification as either Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are classified as Special Mention. Substandard loans represent those credits characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful possess all the weaknesses inherent in those classified Substandard with the added characteristic that collection or liquidation in full, on the basis of existing facts, conditions and values, is highly questionable and/or improbable. Risk ratings on commercial loans are subject to ongoing monitoring by lending and credit personnel with such ratings updated annually or more frequently, if warranted. The Company’s internal Loan Review function is responsible for independently evaluating the appropriateness of those credit risk ratings in connection with its cyclical reviews, the approach to which is risk-based and determined by reference to underlying portfolio credit quality and the results of prior reviews. Differences in risk ratings noted in conjunction with such periodic portfolio loan reviews, if any, are reported to management each month. Retail Credit Quality Indicators Pools of smaller-balance, homogeneous loans with similar risk and loss characteristics are also assessed for probable losses. These loan pools include residential mortgage, home equity and other consumer loans that are not assigned individual loan risk ratings. Rather, the assessment of these portfolios is based upon a consideration of recent historical loss experience, broader portfolio indicators, including trends in delinquencies, non-performing The portfolio-specific risk characteristics considered include: (i) collateral values/loan-to-value non-stated non-owner For example, to the extent LTV ratios exceed 70% (reflecting a weaker collateral position for the Company) or borrower FICO scores are less than 680 (reflecting weaker financial standing and/or credit history of the customer), the loans are considered to have an increased level of inherent loss. As a result, a loan with a combination of these characteristics would generally be classified as “High” risk. Conversely, as LTV ratios decline (reflecting a stronger collateral position for the Company) or borrower FICO scores exceed 680 (reflecting stronger financial standing and/or credit history of the customer), the loans are considered to have a decreased level of inherent loss. A loan with a combination of these characteristics would generally be classified as “Low” risk. This analysis also considers (i) the extent of underwriting that occurred at the time of origination (direct income verification provides further support for credit decisions) and (ii) the property’s intended use (owner-occupied properties are less likely to default compared to ‘investment-type’ non-owner LTV ratios and FICO scores are determined at origination and updated periodically throughout the life of the loan. LTV ratios are updated for loans 90 days past due and FICO scores are updated for the entire portfolio quarterly. The portfolio stratification (“High”, “Moderate” and “Low” risk) and identification of the corresponding credit quality indicators also occurs quarterly. Commercial and Retail loans are also evaluated to determine whether they are impaired loans. Such loans are included in the tabular disclosures of credit quality indicators that follow. Acquired Loan Credit Quality Indicators Upon acquiring a loan portfolio, the Company’s internal Loan Review function undertakes the process of assigning risk ratings to all commercial loans in accordance with the Company’s established policy, which may differ in certain respects from the risk rating policy of the predecessor company. The length of time necessary to complete this process varies based on the size of the acquired portfolio, the quality of the documentation maintained in the underlying loan files and the extent to which the predecessor company followed a risk rating approach comparable to People’s United’s. As a result, while acquired loans are risk rated, there are occasions when such ratings may be deemed “preliminary” until the Company’s re-rating Acquired loans are initially recorded at fair value, determined based upon an estimate of the amount and timing of both principal and interest cash flows expected to be collected and discounted using a market interest rate. For purchased performing loans, the required allowance for loan losses is determined in a manner similar to that for originated loans with a provision for loan losses only recorded when the required allowance for loan losses exceeds any remaining purchase discount at the loan level. For PCI loans, the difference between contractually required principal and interest payments at the acquisition date and the undiscounted cash flows expected to be collected at the acquisition date is referred to as the “nonaccretable difference”, which includes an estimate of future credit losses expected to be incurred over the life of the loans in each pool. A decrease in the expected cash flows in subsequent periods requires the establishment of an allowance for loan losses at that time. At September 30, 2017 and December 31, 2016, the allowance for loan losses on acquired loans was $4.2 million and $6.3 million, respectively. The following is a summary, by class of loan, of credit quality indicators: As of September 30, 2017 (in millions) Commercial Commercial Equipment Total Commercial: Originated loans: Pass $ 9,926.2 $ 7,588.1 $ 2,619.7 $ 20,134.0 Special mention 129.1 122.8 101.8 353.7 Substandard 137.9 259.6 317.6 715.1 Doubtful 0.9 0.8 — 1.7 Total originated loans 10,194.1 7,971.3 3,039.1 21,204.5 Acquired loans: Pass 940.9 562.2 666.5 2,169.6 Special mention 6.2 42.4 — 48.6 Substandard 38.6 48.8 — 87.4 Doubtful 0.7 — — 0.7 Total acquired loans 986.4 653.4 666.5 2,306.3 Total $ 11,180.5 $ 8,624.7 $ 3,705.6 $ 23,510.8 As of September 30, 2017 (in millions) Residential Home Other Total Retail: Originated loans: Low risk $ 3,259.8 $ 928.2 $ 27.2 $ 4,215.2 Moderate risk 2,715.9 652.2 8.0 3,376.1 High risk 531.9 401.4 12.1 945.4 Total originated loans 6,507.6 1,981.8 47.3 8,536.7 Acquired loans: Low risk 154.9 — — 154.9 Moderate risk 60.2 — — 60.2 High risk 58.3 59.7 3.9 121.9 Total acquired loans 273.4 59.7 3.9 337.0 Total $ 6,781.0 $ 2,041.5 $ 51.2 $ 8,873.7 As of December 31, 2016 (in millions) Commercial Commercial Equipment Total Commercial: Originated loans: Pass $ 9,817.2 $ 7,580.6 $ 2,617.9 $ 20,015.7 Special mention 107.3 121.9 98.8 328.0 Substandard 87.1 233.3 304.2 624.6 Doubtful 1.0 3.2 — 4.2 Total originated loans 10,012.6 7,939.0 3,020.9 20,972.5 Acquired loans: Pass 182.9 155.5 1.0 339.4 Special mention 13.5 3.6 8.6 25.7 Substandard 37.6 27.0 2.0 66.6 Doubtful 0.7 — — 0.7 Total acquired loans 234.7 186.1 11.6 432.4 Total $ 10,247.3 $ 8,125.1 $ 3,032.5 $ 21,404.9 Residential Home Other As of December 31, 2016 (in millions) Mortgage Equity Consumer Total Retail: Originated loans: Low risk $ 3,016.4 $ 950.9 $ 31.1 $ 3,998.4 Moderate risk 2,538.9 663.9 7.2 3,210.0 High risk 512.0 430.1 11.7 953.8 Total originated loans 6,067.3 2,044.9 50.0 8,162.2 Acquired loans: Low risk 75.7 — — 75.7 Moderate risk 27.5 — — 27.5 High risk 46.2 27.7 0.7 74.6 Total acquired loans 149.4 27.7 0.7 177.8 Total $ 6,216.7 $ 2,072.6 $ 50.7 $ 8,340.0 A cquired Loans Loans acquired in a business combination are initially recorded at fair value with no carryover of an acquired entity’s previously established allowance for loan losses. Fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses and prepayments, and then applying a market-based discount rate to those cash flows. Acquired loans are evaluated upon acquisition and classified as either purchased performing or PCI. For purchased performing loans, any premium or discount, representing the difference between the fair value and the outstanding principal balance of the loans, is recognized (using the level yield method) as an adjustment to interest income over the remaining period to contractual maturity or until the loan is repaid in full or sold. Subsequent to the acquisition date, the method utilized to estimate the required allowance for loan losses for these loans is similar to that for originated loans. However, a provision for loan losses is only recorded when the required allowance for loan losses exceeds any remaining purchase discount at the loan level. PCI loans represent those acquired loans with specific evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, |