Allowance for Credit Losses and Credit Quality | ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY Allowance for Credit Losses Activity A summary of changes in the allowance for credit losses for the three months ended March 31 is as follows: (Dollars in thousands) 2018 2017 Allowance for credit losses Allowance for loan and lease losses at beginning of period $ 140,891 $ 144,719 Provision for loan and lease losses 7,986 6,154 Transfer of balance to OREO and other (47 ) 73 Charge-offs (9,116 ) (7,291 ) Recoveries 4,813 1,235 Allowance for loan and lease losses at end of period $ 144,527 $ 144,890 Reserve for unfunded commitments at beginning of period $ 13,208 $ 11,241 Provision for unfunded lending commitments 224 419 Reserve for unfunded commitments at end of period $ 13,432 $ 11,660 Allowance for credit losses at end of period $ 157,959 $ 156,550 A summary of changes in the allowance for credit losses, by loan portfolio type, for the three months ended March 31 is as follows: 2018 (Dollars in thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Consumer Total Allowance for loan and lease losses at beginning of period $ 54,201 $ 53,916 $ 9,117 $ 23,657 $ 140,891 Provision for (Reversal of) loan and lease losses 6,377 294 (686 ) 2,001 7,986 Transfer of balance to OREO and other (47 ) — — — (47 ) Charge-offs (114 ) (5,378 ) (105 ) (3,519 ) (9,116 ) Recoveries 191 3,698 22 902 4,813 Allowance for loan and lease losses at end of period $ 60,608 $ 52,530 $ 8,348 $ 23,041 $ 144,527 Reserve for unfunded commitments at beginning of period $ 4,531 $ 5,309 $ 555 $ 2,813 $ 13,208 Provision for (Reversal of) unfunded commitments 1,476 (1,004 ) (15 ) (233 ) 224 Reserve for unfunded commitments at end of period $ 6,007 $ 4,305 $ 540 $ 2,580 $ 13,432 Allowance on loans individually evaluated for impairment $ 2,506 $ 14,040 $ 178 $ 2,974 $ 19,698 Allowance on loans collectively evaluated for impairment 35,871 36,208 2,073 16,544 90,696 Allowance on loans acquired with deteriorated credit quality 22,231 2,282 6,097 3,523 34,133 Loans and leases, net of unearned income: Balance at end of period $ 9,248,951 $ 5,325,682 $ 3,971,067 $ 3,160,390 $ 21,706,090 Balance at end of period individually evaluated for impairment 78,489 78,725 6,041 33,277 196,532 Balance at end of period collectively evaluated for impairment 8,946,138 5,211,736 3,826,721 3,043,085 21,027,680 Balance at end of period acquired with deteriorated credit quality 224,324 35,221 138,305 84,028 481,878 2017 (Dollars in thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Consumer Total Allowance for loan losses at beginning of period $ 49,231 $ 60,939 $ 11,249 $ 23,300 $ 144,719 Provision for (Reversal of) loan and lease losses 1,786 2,557 (1,060 ) 2,871 6,154 Transfer of balance to OREO and other 377 (350 ) 2 44 73 Charge-offs (95 ) (3,762 ) (22 ) (3,412 ) (7,291 ) Recoveries 196 84 43 912 1,235 Allowance for loan losses at end of period $ 51,495 $ 59,468 $ 10,212 $ 23,715 $ 144,890 Reserve for unfunded commitments at beginning of period $ 3,207 $ 4,537 $ 657 $ 2,840 $ 11,241 Provision for (Reversal of) unfunded commitments 1,379 (885 ) (49 ) (26 ) 419 Reserve for unfunded commitments at end of period $ 4,586 $ 3,652 $ 608 $ 2,814 $ 11,660 Allowance on loans individually evaluated for impairment $ 1,916 $ 25,056 $ 113 $ 1,724 $ 28,809 Allowance on loans collectively evaluated for impairment 26,872 32,383 3,907 17,764 80,926 Allowance on loans acquired with deteriorated credit quality 22,707 2,029 6,192 4,227 35,155 Loans, net of unearned income: Balance at end of period $ 7,021,341 $ 3,975,734 $ 1,296,358 $ 2,838,769 $ 15,132,202 Balance at end of period individually evaluated for impairment 74,351 164,405 5,048 25,308 269,112 Balance at end of period collectively evaluated for impairment 6,687,651 3,778,775 1,176,017 2,723,308 14,365,751 Balance at end of period acquired with deteriorated credit quality 259,339 32,554 115,293 90,153 497,339 Portfolio Segment Risk Factors Commercial real estate loans include loans to commercial customers for long-term financing of land and buildings or for land development or construction of a building. These loans are repaid through revenues from operations of the businesses, rents of properties, sales of properties and refinances. Commercial and industrial loans and leases represent loans to commercial customers to finance general working capital needs, equipment purchases and leases and other projects where repayment is derived from cash flows resulting from business operations. The Company originates commercial business loans on a secured and, to a lesser extent, unsecured basis. Residential mortgage loans consist of loans to consumers to finance a primary residence. The vast majority of the residential mortgage loan portfolio is comprised of non-conforming 1-4 family mortgage loans secured by properties located in the Company's market areas and originated under terms and documentation that permit their sale in a secondary market. Consumer loans are offered by the Company in order to provide a full range of retail financial services to its customers and include home equity, credit card and other direct consumer installment loans. The Company originates substantially all of its consumer loans in its primary market areas. Loans in the consumer segment are sensitive to unemployment and other key consumer economic measures. Credit Quality The Company utilizes an asset risk classification system in accordance with guidelines established by the Federal Reserve Board as part of its efforts to monitor commercial asset quality. “Special mention” loans are defined as loans with potential weaknesses that may, if not corrected, result in future deterioration of the loan. Special mention loans do not expose the Company to sufficient risk to warrant adverse classification. For problem assets with identified credit issues, the Company has two primary classifications: “substandard” and “doubtful.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full satisfaction of the loan balance outstanding questionable, which makes probability of loss higher based on currently existing facts, conditions, and values. Loans classified as “Pass” do not meet the criteria set forth for special mention, substandard, or doubtful classification and are not considered criticized. Asset risk classifications are determined at origination or acquisition and reviewed on an ongoing basis. Risk classifications are changed if, in the opinion of management, the risk profile of the customer has changed since the last review of the loan relationship. The Company’s investment in loans by credit quality indicator is presented in the following tables. Asset risk classifications for commercial loans and leases reflect the classification as of March 31, 2018 and December 31, 2017. Credit quality information in the tables below includes total loans acquired (including acquired impaired loans) at the net loan balance, after the application of premiums/discounts, at March 31, 2018 and December 31, 2017. Loan premiums/discounts represent the adjustment of acquired loans to fair value at the acquisition date, as adjusted for income accretion and changes in cash flow estimates in subsequent periods. Loan premiums/discounts include preliminary discounts recorded on acquired Sabadell United and Gibraltar loans, which are subject to change upon receipt of final fair value estimates during the measurement period. Loan delinquency is the primary credit quality indicator that the Company utilizes to monitor consumer asset quality. March 31, 2018 December 31, 2017 (Dollars in thousands) Pass Special Mention Sub- Doubtful Total Pass Special Mention Sub- Doubtful Loss Total Commercial real estate - construction $ 1,153,604 $ 16,399 $ 29,610 $ 12 $ 1,199,625 $ 1,189,490 $ 20,351 $ 30,541 $ 14 $ — $ 1,240,396 Commercial real estate - owner-occupied 2,464,072 83,356 56,409 8,407 2,612,244 2,388,715 82,114 56,590 2,466 — 2,529,885 Commercial real estate- non-owner-occupied 5,335,816 45,905 51,089 4,272 5,437,082 5,104,074 19,311 42,702 1,744 118 5,167,949 Commercial and industrial 5,124,676 55,041 107,126 38,839 5,325,682 4,882,554 88,149 128,961 35,403 — 5,135,067 Total $ 14,078,168 $ 200,701 $ 244,234 $ 51,530 $ 14,574,633 $ 13,564,833 $ 209,925 $ 258,794 $ 39,627 $ 118 $ 14,073,297 March 31, 2018 December 31, 2017 (Dollars in thousands) Current 30+ Days Past Due Total Current 30+ Days Past Due Total Residential mortgage $ 3,859,751 $ 111,316 $ 3,971,067 $ 2,962,043 $ 94,309 $ 3,056,352 Consumer - home equity 2,376,171 45,015 2,421,186 2,250,205 42,070 2,292,275 Consumer - indirect automobile 48,587 2,084 50,671 59,836 2,857 62,693 Consumer - credit card 92,497 764 93,261 95,263 1,105 96,368 Consumer - other 589,098 6,174 595,272 490,399 6,797 497,196 Total $ 6,966,104 $ 165,353 $ 7,131,457 $ 5,857,746 $ 147,138 $ 6,004,884 Impaired Loans Information on the Company’s investment in impaired loans, which include all TDRs and all other non-accrual loans evaluated or measured individually for impairment for purposes of determining the ALLL, is presented in the following tables as of and for the periods indicated. March 31, 2018 December 31, 2017 Unpaid Principal Balance Recorded Investment Related Allowance Unpaid Principal Balance Recorded Investment Related Allowance (Dollars in thousands) With no related allowance recorded: Commercial real estate- construction $ 11,153 $ 11,153 $ — $ 13,763 $ 13,013 $ — Commercial real estate- owner-occupied 43,562 36,042 — 50,867 44,482 — Commercial real estate- non-owner-occupied 10,575 10,449 — 15,370 14,975 — Commercial and industrial 45,720 36,829 — 103,013 70,254 — Residential mortgage 1,083 1,083 — 2,004 2,001 — Consumer - home equity 31 31 — 5,906 5,634 — Consumer -other — — — 75 75 — With an allowance recorded: Commercial real estate- construction 236 154 (18 ) 238 156 (19 ) Commercial real estate- owner-occupied 17,536 17,419 (1,860 ) 13,314 13,287 (949 ) Commercial real estate- non-owner-occupied 3,399 3,272 (628 ) 6,051 5,872 (620 ) Commercial and industrial 46,705 41,896 (14,040 ) 35,306 32,162 (12,736 ) Residential mortgage 5,357 4,958 (178 ) 5,179 4,748 (172 ) Consumer - home equity 28,917 28,187 (2,435 ) 27,189 26,575 (2,358 ) Consumer - indirect automobile 1,004 656 (75 ) 1,034 679 (79 ) Consumer - other 4,493 4,403 (464 ) 4,320 4,214 (419 ) Total $ 219,771 $ 196,532 $ (19,698 ) $ 283,629 $ 238,127 $ (17,352 ) Total commercial loans and leases $ 178,886 $ 157,214 $ (16,546 ) $ 237,922 $ 194,201 $ (14,324 ) Total mortgage loans 6,440 6,041 (178 ) 7,183 6,749 (172 ) Total consumer loans 34,445 33,277 (2,974 ) 38,524 37,177 (2,856 ) Three Months Ended March 31, 2018 Three Months Ended March 31, 2017 Average Interest Average Interest (Dollars in thousands) With no related allowance recorded: Commercial real estate- construction $ 10,470 $ 144 $ — $ — Commercial real estate- owner-occupied 36,277 334 37,197 339 Commercial real estate- non-owner-occupied 10,557 98 5,988 17 Commercial and industrial 27,832 385 90,664 448 Residential mortgage 1,090 12 735 5 Consumer - home equity 32 — 4,158 40 With an allowance recorded: Commercial real estate- construction 153 1 1,984 1 Commercial real estate- owner-occupied 17,608 112 20,980 79 Commercial real estate- non-owner-occupied 3,302 10 8,587 94 Commercial and industrial 44,056 196 78,695 220 Residential mortgage 4,974 44 4,335 42 Consumer - home equity 28,203 292 16,713 179 Consumer - indirect automobile 717 5 767 7 Consumer - other 4,483 62 3,328 52 Total $ 189,754 $ 1,695 $ 274,131 $ 1,523 Total commercial loans and leases $ 150,255 $ 1,280 $ 244,095 $ 1,198 Total mortgage loans 6,064 56 5,070 47 Total consumer loans 33,435 359 24,966 278 As of March 31, 2018 and December 31, 2017, the Company was not committed to lend a material amount of additional funds to any customer whose loan was classified as impaired or as a troubled debt restructuring. |