Loans and leases and the allowance for credit losses | 3. Loans and leases and the allowance for credit losses A summary of current, past due and nonaccrual loans as of March 31, 2018 and December 31, 2017 follows: Current 30-89 Days Past Due Accruing Loans Due 90 Days or More (a) Accruing Loans Acquired a Discount Past Due 90 days or More (b) Purchased Impaired (c) Nonaccrual Total (In thousands) March 31, 2018 Commercial, financial, leasing, etc. $ 21,377,917 51,438 5,547 26 2 262,592 $ 21,697,522 Real estate: Commercial 24,919,508 250,993 3,311 4,569 11,744 152,832 25,342,957 Residential builder and developer 1,641,644 1,974 — — 357 4,519 1,648,494 Other commercial construction 6,680,584 71,115 — — 1,194 9,162 6,762,055 Residential 14,942,659 407,773 221,666 8,416 263,939 234,309 16,078,762 Residential — limited documentation 2,599,705 82,738 — — 100,764 98,977 2,882,184 Consumer: Home equity lines and loans 5,037,213 32,100 — 8,157 — 73,169 5,150,639 Automobile 3,468,893 64,995 — — — 20,613 3,554,501 Other 4,523,469 28,686 4,801 28,181 — 8,498 4,593,635 Total $ 85,191,592 991,812 235,325 49,349 378,000 864,671 $ 87,710,749 December 31, 2017 Commercial, financial, leasing, etc. $ 21,332,234 167,756 1,322 327 21 240,991 $ 21,742,651 Real estate: Commercial 24,910,381 166,305 4,444 6,016 16,815 184,982 25,288,943 Residential builder and developer 1,618,973 5,159 — — 1,135 6,451 1,631,718 Other commercial construction 6,407,451 23,467 — — 4,706 10,088 6,445,712 Residential 15,376,759 474,372 233,437 7,582 282,102 235,834 16,610,086 Residential — limited documentation 2,718,019 83,898 — — 105,236 96,105 3,003,258 Consumer: Home equity lines and loans 5,171,345 38,546 — 9,391 — 74,500 5,293,782 Automobile 3,441,371 78,511 — — — 23,781 3,543,663 Other 4,349,071 40,929 5,202 24,102 — 9,866 4,429,170 Total $ 85,325,604 1,078,943 244,405 47,418 410,015 882,598 $ 87,988,983 (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. 3. Loans and leases and the allowance for credit losses, continued One-to-four family residential mortgage loans held for sale were $288 million and $356 million at March 31, 2018 and December 31, 2017, respectively. Commercial real estate loans held for sale were $167 million at March 31, 2018 and $22 million at December 31, 2017. 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, 2018 2017 (In thousands) Outstanding principal balance $ 1,305,611 1,394,188 Carrying amount: Commercial, financial, leasing, etc. 28,637 31,105 Commercial real estate 200,932 228,054 Residential real estate 587,562 620,827 Consumer 122,073 123,413 $ 939,204 1,003,399 Purchased impaired loans included in the table above totaled $378 million at March 31, 2018 and $410 million at December 31, 2017, 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, 2018 and 2017 follows: Three Months Ended March 31, 2018 Three Months Ended March 31, 2017 Purchased Other Purchased Other Impaired Acquired Impaired Acquired (In thousands) Balance at beginning of period $ 157,918 133,162 $ 154,233 201,153 Interest income (9,819 ) (15,112 ) (10,925 ) (25,518 ) Reclassifications from nonaccretable balance 908 207 146 3,183 Other (a) — (73 ) — 2,492 Balance at end of period $ 149,007 118,184 $ 143,454 181,310 (a) Other changes in expected cash flows including changes in interest rates and prepayment assumptions. Changes in the allowance for credit losses for the three months ended March 31, 2018 were as follows: Commercial, Financial, Real Estate Leasing, etc. Commercial Residential Consumer Unallocated Total (In thousands) Beginning balance $ 328,599 374,085 65,405 170,809 78,300 $ 1,017,198 Provision for credit losses 7,230 (5,225 ) 10,486 29,814 695 43,000 Net charge-offs Charge-offs (14,581 ) (1,366 ) (4,354 ) (36,451 ) — (56,752 ) Recoveries 4,823 223 1,510 9,669 — 16,225 Net charge-offs (9,758 ) (1,143 ) (2,844 ) (26,782 ) — (40,527 ) Ending balance $ 326,071 367,717 73,047 173,841 78,995 $ 1,019,671 3. 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) recoveries (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 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 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 which is applied to commercial and commercial real estate credits on an individual loan basis. 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. 3. 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, 2018 and December 31, 2017 and for the three-month periods ended March 31, 2018 and 2017. March 31, 2018 December 31, 2017 Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance (In thousands) With an allowance recorded: Commercial, financial, leasing, etc. $ 172,385 203,464 45,501 177,250 194,257 45,488 Real estate: Commercial 77,118 88,313 9,981 67,199 75,084 9,140 Residential builder and developer 5,536 5,828 187 5,320 5,641 308 Other commercial construction 3,893 19,598 456 4,817 20,357 647 Residential 112,068 134,431 4,048 101,724 122,602 4,000 Residential — limited documentation 76,984 92,586 4,000 77,277 92,439 3,900 Consumer: Home equity lines and loans 48,991 54,032 8,913 48,847 53,914 8,812 Automobile 12,797 15,461 2,694 13,498 15,737 2,811 Other 3,082 5,857 629 3,220 5,872 656 512,854 619,570 76,409 499,152 585,903 75,762 With no related allowance recorded: Commercial, financial, leasing, etc. 115,336 145,450 — 89,126 115,327 — Real estate: Commercial 96,267 104,911 — 138,356 149,716 — Residential builder and developer 3,760 3,832 — 5,057 5,296 — Other commercial construction 5,425 9,142 — 5,456 9,130 — Residential 13,868 19,105 — 13,574 18,980 — Residential — limited documentation 7,751 12,960 — 9,588 16,138 — 242,407 295,400 — 261,157 314,587 — Total: Commercial, financial, leasing, etc. 287,721 348,914 45,501 266,376 309,584 45,488 Real estate: Commercial 173,385 193,224 9,981 205,555 224,800 9,140 Residential builder and developer 9,296 9,660 187 10,377 10,937 308 Other commercial construction 9,318 28,740 456 10,273 29,487 647 Residential 125,936 153,536 4,048 115,298 141,582 4,000 Residential — limited documentation 84,735 105,546 4,000 86,865 108,577 3,900 Consumer: Home equity lines and loans 48,991 54,032 8,913 48,847 53,914 8,812 Automobile 12,797 15,461 2,694 13,498 15,737 2,811 Other 3,082 5,857 629 3,220 5,872 656 Total $ 755,261 914,970 76,409 760,309 900,490 75,762 3. Loans and leases and the allowance for credit losses, continued Three Months Ended March 31, 2018 Three Months Ended March 31, 2017 Interest Income Recognized Interest Income Recognized Average Recorded Investment Total Cash Basis Average Recorded Investment Total Cash Basis (In thousands) Commercial, financial, leasing, etc. $ 272,172 783 783 271,825 478 478 Real estate: Commercial 181,846 3,147 3,147 182,857 975 975 Residential builder and developer 9,840 1,682 1,682 20,051 429 429 Other commercial construction 10,102 6 6 16,328 847 847 Residential 121,209 1,902 902 103,875 1,636 774 Residential — limited documentation 85,595 1,728 696 97,121 1,500 384 Consumer: Home equity lines and loans 48,797 414 86 45,542 399 100 Automobile 13,125 224 15 16,504 275 19 Other 3,119 85 3 3,598 72 3 Total $ 745,805 9,971 7,320 757,701 6,611 4,009 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) March 31, 2018 Pass $ 20,484,737 24,525,402 1,505,502 6,654,458 Criticized accrual 950,193 664,723 138,473 98,435 Criticized nonaccrual 262,592 152,832 4,519 9,162 Total $ 21,697,522 25,342,957 1,648,494 6,762,055 December 31, 2017 Pass $ 20,490,486 24,380,184 1,485,148 6,270,812 Criticized accrual 1,011,174 723,777 140,119 164,812 Criticized nonaccrual 240,991 184,982 6,451 10,088 Total $ 21,742,651 25,288,943 1,631,718 6,445,712 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 3. Loans and leases and the allowance for credit losses, continued 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 $33 million and $25 million, respectively, at March 31, 2018 and $34 million and $25 million, respectively, at December 31, 2017. 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 $19 million and $29 million, respectively, at March 31, 2018 and $20 million and $32 million, respectively, at December 31, 2017. 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. 3. 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, 2018 Individually evaluated for impairment $ 45,501 10,624 8,048 12,236 $ 76,409 Collectively evaluated for impairment 280,570 357,093 51,093 161,605 850,361 Purchased impaired — — 13,906 — 13,906 Allocated $ 326,071 367,717 73,047 173,841 940,676 Unallocated 78,995 Total $ 1,019,671 December 31, 2017 Individually evaluated for impairment $ 45,488 10,095 7,900 12,279 $ 75,762 Collectively evaluated for impairment 283,111 363,990 47,645 158,530 853,276 Purchased impaired — — 9,860 — 9,860 Allocated $ 328,599 374,085 65,405 170,809 938,898 Unallocated 78,300 Total $ 1,017,198 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, 2018 Individually evaluated for impairment $ 287,721 191,999 210,671 64,870 $ 755,261 Collectively evaluated for impairment 21,409,799 33,548,212 18,385,572 13,233,905 86,577,488 Purchased impaired 2 13,295 364,703 — 378,000 Total $ 21,697,522 33,753,506 18,960,946 13,298,775 $ 87,710,749 December 31, 2017 Individually evaluated for impairment $ 266,376 226,205 202,163 65,565 $ 760,309 Collectively evaluated for impairment 21,476,254 33,117,512 19,023,843 13,201,050 86,818,659 Purchased impaired 21 22,656 387,338 — 410,015 Total $ 21,742,651 33,366,373 19,613,344 13,266,615 $ 87,988,983 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. 3. 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, 2018 and 2017: Post-modification (a) Number Pre- modification recorded investment Principal Deferral Interest Rate Reduction Other Combination of Concession Types Total Three Months Ended March 31, 2018 (Dollars in thousands) Commercial, financial, leasing, etc. 56 $ 47,994 $ 35,673 $ 624 $ — $ 13,047 $ 49,344 Real estate: Commercial 20 6,780 5,824 — — 927 6,751 Other commercial construction 1 752 746 — — — 746 Residential 47 12,636 6,945 — — 6,902 13,847 Residential — limited documentation 2 295 267 — — 118 385 Consumer: Home equity lines and loans 14 1,348 4 — — 1,348 1,352 Automobile 8 148 148 — — — 148 Other 2 49 49 — — — 49 Total 150 $ 70,002 $ 49,656 $ 624 $ — $ 22,342 $ 72,622 Three Months Ended March 31, 2017 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 (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. 3. 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, 2018 and 2017 and for which there was a subsequent payment default during the three-month periods ended March 31, 2018 and 2017, respectively, were not material. The amount of foreclosed residential real estate property held by the Company was $100 million and $108 million at March 31, 2018 and December 31, 2017, respectively. There were $458 million and $497 million at March 31, 2018 and December 31, 2017, 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, 2018, approximately 41% were classified as purchased impaired and 21% were government guaranteed. |