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 September 30, 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) September 30, 2018 Commercial, financial, leasing, etc. $ 21,317,925 81,323 1,390 100 — 234,656 $ 21,635,394 Real estate: Commercial 24,650,660 97,630 52,436 4,277 9,948 207,584 25,022,535 Residential builder and developer 1,631,501 7,354 1,656 114 — 2,786 1,643,411 Other commercial construction 6,792,917 39,598 440 16 571 18,887 6,852,429 Residential 13,989,937 437,170 193,604 7,065 224,618 227,619 15,080,013 Residential — limited documentation 2,373,778 93,582 729 — 90,843 82,454 2,641,386 Consumer: Home equity lines and loans 4,850,989 35,212 — 4,694 — 66,303 4,957,198 Automobile 3,527,867 71,184 — — — 20,949 3,620,000 Other 5,144,471 41,992 4,105 27,957 — 9,594 5,228,119 Total $ 84,280,045 905,045 254,360 44,223 325,980 870,832 $ 86,680,485 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 $258 million and $356 million at September 30, 2018 and December 31, 2017, respectively. Commercial real estate loans held for sale were $381 million at September 30, 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: September 30, December 31, 2018 2017 (In thousands) Outstanding principal balance $ 1,124,232 1,394,188 Carrying amount: Commercial, financial, leasing, etc. 26,473 31,105 Commercial real estate 165,431 228,054 Residential real estate 507,475 620,827 Consumer 97,125 123,413 $ 796,504 1,003,399 Purchased impaired loans included in the table above totaled $326 million at September 30, 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 months and nine months ended September 30, 2018 and 2017 follows: Three Months Ended September 30 2018 2017 Purchased Other Purchased Other Impaired Acquired Impaired Acquired (In thousands) Balance at beginning of period $ 149,388 $ 117,715 $ 133,532 $ 163,099 Interest income (8,105 ) (18,001 ) (10,815 ) (20,064 ) Reclassifications from nonaccretable balance 8,445 25 30,799 6,041 Other (a) — 2,001 — 1,545 Balance at end of period $ 149,728 101,740 $ 153,516 $ 150,621 Nine Months Ended September 30 2018 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 (25,893 ) (48,507 ) (32,546 ) (66,505 ) Reclassifications from nonaccretable balance 17,703 11,230 31,829 11,076 Other (a) — 5,855 — 4,897 Balance at end of period $ 149,728 $ 101,740 $ 153,516 150,621 (a) Other changes in expected cash flows including changes in interest rates and prepayment assumptions. 3. Loans and leases and the allowance for credit losses, continued Changes in the allowance for credit losses for the three months ended September 30, 2018 were as follows: Commercial, Financial, Real Estate Leasing, etc. Commercial Residential Consumer Unallocated Total (In thousands) Beginning balance $ 328,830 353,761 76,123 182,987 77,547 $ 1,019,248 Provision for credit losses (6,972 ) (11,394 ) 741 32,887 738 16,000 Net charge-offs Charge-offs (11,792 ) (1,941 ) (3,338 ) (34,995 ) — (52,066 ) Recoveries 7,123 14,577 1,655 12,951 — 36,306 Net (charge-offs) recoveries (4,669 ) 12,636 (1,683 ) (22,044 ) — (15,760 ) Ending balance $ 317,189 355,003 75,181 193,830 78,285 $ 1,019,488 Changes in the allowance for credit losses for the three months ended September 30, 2017 were as follows: Commercial, Financial, Real Estate Leasing, etc. Commercial Residential Consumer Unallocated Total (In thousands) Beginning balance $ 339,314 $ 366,229 66,006 158,559 78,117 $ 1,008,225 Provision for credit losses 2,451 (7,699 ) 1,267 33,886 95 30,000 Net charge-offs Charge-offs (9,714 ) (258 ) (4,206 ) (32,874 ) — (47,052 ) Recoveries 4,423 5,895 2,028 9,807 — 22,153 Net (charge-offs) recoveries (5,291 ) 5,637 (2,178 ) (23,067 ) — (24,899 ) Ending balance $ 336,474 $ 364,167 65,095 169,378 78,212 $ 1,013,326 Changes in the allowance for credit losses for the nine months ended September 30, 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 11,508 (27,464 ) 16,469 93,502 (15 ) 94,000 Net charge-offs Charge-offs (41,273 ) (7,855 ) (11,658 ) (105,479 ) — (166,265 ) Recoveries 18,355 16,237 4,965 34,998 — 74,555 Net (charge-offs) recoveries (22,918 ) 8,382 (6,693 ) (70,481 ) — (91,710 ) Ending balance $ 317,189 355,003 75,181 193,830 78,285 $ 1,019,488 3. Loans and leases and the allowance for credit losses, continued Changes in the allowance for credit losses for the nine months ended September 30, 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 44,642 1,201 14,067 76,908 182 137,000 Net charge-offs Charge-offs (51,318 ) (7,556 ) (16,364 ) (96,060 ) — (171,298 ) Recoveries 12,317 7,803 6,265 32,242 — 58,627 Net (charge-offs) recoveries (39,001 ) 247 (10,099 ) (63,818 ) — (112,671 ) Ending balance $ 336,474 364,167 65,095 169,378 78,212 $ 1,013,326 Despite the allocation 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 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 I nformation with respect to loans and leases that were considered impaired as of September 30, 2018 and December 31, 2017 and for the three-month and nine-month periods ended September 30, 2018 and 2017 follows. September 30, 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. $ 171,272 193,161 46,554 177,250 194,257 45,488 Real estate: Commercial 123,451 135,167 11,851 67,199 75,084 9,140 Residential builder and developer 6,248 6,782 352 5,320 5,641 308 Other commercial construction 11,287 11,650 878 4,817 20,357 647 Residential 122,627 145,231 5,695 101,724 122,602 4,000 Residential — limited documentation 75,183 91,149 4,000 77,277 92,439 3,900 Consumer: Home equity lines and loans 48,711 53,869 9,269 48,847 53,914 8,812 Automobile 3,445 4,118 705 13,498 15,737 2,811 Other 11,536 17,010 2,365 3,220 5,872 656 573,760 658,137 81,669 499,152 585,903 75,762 With no related allowance recorded: Commercial, financial, leasing, etc. 84,235 115,654 — 89,126 115,327 — Real estate: Commercial 104,753 114,998 — 138,356 149,716 — Residential builder and developer 1,174 1,174 — 5,057 5,296 — Other commercial construction 7,698 11,428 — 5,456 9,130 — Residential 14,651 19,742 — 13,574 18,980 — Residential — limited documentation 5,873 10,190 — 9,588 16,138 — 218,384 273,186 — 261,157 314,587 — Total: Commercial, financial, leasing, etc. 255,507 308,815 46,554 266,376 309,584 45,488 Real estate: Commercial 228,204 250,165 11,851 205,555 224,800 9,140 Residential builder and developer 7,422 7,956 352 10,377 10,937 308 Other commercial construction 18,985 23,078 878 10,273 29,487 647 Residential 137,278 164,973 5,695 115,298 141,582 4,000 Residential — limited documentation 81,056 101,339 4,000 86,865 108,577 3,900 Consumer: Home equity lines and loans 48,711 53,869 9,269 48,847 53,914 8,812 Automobile 3,445 4,118 705 13,498 15,737 2,811 Other 11,536 17,010 2,365 3,220 5,872 656 Total $ 792,144 931,323 81,669 760,309 900,490 75,762 3. Loans and leases and the allowance for credit losses, continued Three Months Ended September 30, 2018 Three Months Ended September 30, 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. $ 256,196 1,985 1,985 $ 224,526 391 391 Real estate: Commercial 204,315 1,489 1,489 233,572 1,425 1,425 Residential builder and developer 9,000 — — 8,550 895 895 Other commercial construction 9,623 3,379 3,379 16,578 25 25 Residential 133,337 1,959 773 113,892 1,903 905 Residential — limited documentation 81,729 1,607 481 91,974 1,624 569 Consumer: Home equity lines and loans 48,542 421 62 47,831 419 99 Automobile 7,805 181 20 14,588 251 22 Other 7,450 126 6 3,269 80 2 Total $ 757,997 11,147 8,195 754,780 7,013 4,333 Nine Months Ended September 30, 2018 Nine Months Ended September 30, 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. $ 266,594 4,101 4,101 242,410 1,674 1,674 Real estate: Commercial 184,795 8,447 8,447 205,814 3,213 3,213 Residential builder and developer 9,111 1,682 1,682 14,551 1,791 1,791 Other commercial construction 9,056 3,438 3,438 15,474 958 958 Residential 126,910 6,190 2,612 108,741 5,004 2,285 Residential — limited documentation 83,700 4,763 1,494 94,680 4,573 1,292 Consumer: Home equity lines and loans 48,661 1,268 220 46,829 1,240 290 Automobile 11,189 630 49 15,483 788 62 Other 4,545 299 12 3,430 227 8 Total $ 744,561 30,818 22,055 747,412 19,468 11,573 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. 3. 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) September 30, 2018 Pass $ 20,498,610 24,190,472 1,499,791 6,709,973 Criticized accrual 902,128 624,479 140,834 123,569 Criticized nonaccrual 234,656 207,584 2,786 18,887 Total $ 21,635,394 25,022,535 1,643,411 6,852,429 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 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 $29 million and $23 million, respectively, at September 30, 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 $18 million and $29 million, respectively, at September 30, 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 3. Loans and leases and the allowance for credit losses, continued 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) September 30, 2018 Individually evaluated for impairment $ 46,554 13,081 9,695 12,339 $ 81,669 Collectively evaluated for impairment 270,635 341,922 50,576 181,491 844,624 Purchased impaired — — 14,910 — 14,910 Allocated $ 317,189 355,003 75,181 193,830 $ 941,203 Unallocated 78,285 Total $ 1,019,488 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) September 30, 2018 Individually evaluated for impairment $ 255,507 254,611 218,334 63,692 $ 792,144 Collectively evaluated for impairment 21,379,887 33,253,245 17,187,604 13,741,625 85,562,361 Purchased impaired — 10,519 315,461 — 325,980 Total $ 21,635,394 33,518,375 17,721,399 13,805,317 $ 86,680,485 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-month and nine-month periods ended September 30, 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 September 30, 2018 (Dollars in thousands) Commercial, financial, leasing, etc. 47 $ 6,837 $ 1,683 $ 5 $ — $ 5,018 $ 6,706 Real estate: Commercial 18 11,581 1,493 — 3,475 6,297 11,265 Residential 34 8,182 6,026 — — 3,002 9,028 Residential — limited documentation 3 716 — — — 847 847 Consumer: Home equity lines and loans 17 1,651 220 — — 1,450 1,670 Automobile 30 526 526 — — — 526 Other 2 44 44 — — — 44 Total 151 $ 29,537 $ 9,992 $ 5 $ 3,475 $ 16,614 $ 30,086 Three Months Ended September 30, 2017 Commercial, financial, leasing, etc. 49 $ 15,812 $ 5,888 $ — $ 97 $ 9,251 $ 15,236 Real estate: Commercial 17 5,861 1,420 — 868 3,450 5,738 Residential 34 5,123 3,033 — — 2,716 5,749 Residential — limited documentation 4 515 383 — — 167 550 Consumer: Home equity lines and loans 25 2,154 461 — — 1,776 2,237 Automobile 17 342 326 — — 16 342 Other 1 5 5 — — — 5 Total 147 $ 29,812 $ 11,516 $ — $ 965 $ 17,376 $ 29,857 3. Loans and leases and the allowance for credit losses, continued Post-modification (a) Nine Months Ended September 30, 2018 Number Pre- modification Recorded Investment Principal Deferral Interest Rate Reduction Other Combination of Concession Types Total (Dollars in thousands) Commercial, financial, leasing, etc. 150 $ 96,221 $ 47,029 $ 658 $ 6,111 $ 43,086 $ 96,884 Real estate: Commercial 66 25,561 14,693 175 3,869 7,224 25,961 Other commercial construction 1 752 746 — — — 746 Residential 111 28,769 15,785 — — 15,670 31,455 Residential — limited documentation 8 1,595 467 — — 1,423 1,890 Consumer: Home equity lines and loans 41 3,554 224 — — 3,357 3,581 Automobile 57 1,007 995 — — 12 1,007 Other 4 93 93 — — — 93 Total 438 $ 157,552 $ 80,032 $ 833 $ 9,980 $ 70,772 $ 161,617 Nine Months Ended September 30, 2017 Commercial, financial, leasing, etc. 162 $ 93,346 $ 18,449 $ — $ 6,459 $ 47,211 $ 72,119 Real estate: Commercial 67 38,608 16,193 — 868 21,332 38,393 Residential builder and developer 3 12,291 — — — 10,879 10,879 Other commercial construction 2 168 168 — — — 168 Residential 105 22,459 11,608 — — 12,557 24,165 Residential — limited documentation 17 3,724 618 — — 3,352 3,970 Consumer: Home equity lines and loans 85 7,885 1,040 — 491 6,442 7,973 Automobile 59 1,160 1,089 — — 71 1,160 Other 6 85 85 — — — 85 Total 506 $ 179,726 $ 49,250 $ — $ 7,818 $ 101,844 $ 158,912 (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. 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 September 30, 2018 and 2017 and for which there was a subsequent payment default during the nine-month periods ended September 30, 2018 and 2017, respectively, were not material. The amount of foreclosed residential real estate property held by the Company was $85 million and $108 million at September 30, 2018 and December 31, 2017, respectively. There were $404 million and $497 million at September 30, 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 September 30, 2018, approximately 40% were classified as purchased impaired and 20% were government guaranteed. |