Note 5. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments

The following is a summary of the major categories of loans:

Loans and Leases

	September 30,			December 31,
(in thousands)	2015			2014
Commercial	$	10,253,592		$	9,360,976
Commercial real estate mortgages	3,947,746			3,539,703
Residential mortgages	5,709,272			5,106,803
Real estate construction	932,422			710,224
Home equity loans and lines of credit	799,711			785,796
Installment	206,156			184,613
Lease financing	687,685			649,091

Loans and leases, excluding acquired impaired loans	22,536,584			20,337,206
Less: Allowance for loan and lease losses	(317,157		)	(310,149		)

Loans and leases, excluding acquired impaired loans, net	22,219,427			20,027,057

Acquired impaired loans	399,527			510,979
Less: Allowance for loan losses	(5,648		)	(8,608		)

Acquired impaired loans, net	393,879			502,371


Total loans and leases	$	22,936,111		$	20,848,185

Total loans and leases, net	$	22,613,306		$	20,529,428

The loan amounts above include deferred costs, net of unamortized fees, of $3.5 million and $0.2 million as of September 30, 2015 and December 31, 2014, respectively.

Concentrations of credit risk arise when a number of clients are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although the Company’s lending activities are predominantly in California, and to a lesser extent, New York, the Company has various specialty lending businesses that lend to businesses located throughout the United States of America and in certain foreign countries to facilitate trade finance activities. Excluding acquired impaired loans, at September 30, 2015, California represented 72 percent of total loans outstanding and New York represented 10 percent. The remaining 18 percent of total loans outstanding represented other states and countries. Although the Company has a diversified loan portfolio, a substantial portion of the loan portfolio and credit performance depends on the economic stability of Southern California. Credit performance also depends, to a lesser extent, on economic conditions in the San Francisco Bay area and New York.

Within the Company’s acquired impaired loan portfolio at September 30, 2015, the five states with the largest concentration were California (29 percent), Texas (12 percent), Arizona (6 percent), Ohio (6 percent) and Nevada (6 percent). The remaining 41 percent of total acquired impaired loans outstanding represented other states.

Acquired Impaired Loans

Acquired impaired loans represent loans acquired in FDIC-assisted acquisitions that are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). Loans are accounted for under ASC 310-30 when there is evidence of credit deterioration since origination and for which it is probable, at acquisition, that the Company would be unable to collect all contractually required payments. The Company evaluated the acquired loans from its FDIC-assisted acquisitions and concluded that all loans, with the exception of a small population, met the requirements of ASC 310-30.

The following is a summary of the major categories of acquired impaired loans:

	September 30,			December 31,
(in thousands)	2015			2014
Commercial	$	994		$	1,969
Commercial real estate mortgages	376,335			481,689
Residential mortgages	3,391			4,455
Real estate construction	16,042			18,790
Home equity loans and lines of credit	2,612			3,820
Installment	153			256

Acquired impaired loans	399,527			510,979
Less: Allowance for loan losses	(5,648		)	(8,608		)

Acquired impaired loans, net	$	393,879		$	502,371

The following table provides information on acquired impaired loans and loss-sharing terms by acquired entity:

(in thousands)	Imperial Capital Bank		1st Pacific Bank		Sun West Bank		Nevada Commerce Bank		Total
Acquired impaired loans as of:
September 30, 2015	$	359,723	$	18,981	$	6,356	$	14,467	$	399,527
December 31, 2014	456,177		23,895		9,353		21,554		510,979

As of September 30, 2015:
FDIC indemnification asset	$	25,960	$	760	$	—	$	1,444	$	28,164
FDIC clawback liability	—		13,395		2,801		412		16,608

Expiration date of FDIC loss sharing:
Commercial (1)	12/31/2016		6/30/2015		6/30/2015		6/30/2016
Residential	12/31/2019		5/31/2020		5/31/2020		4/30/2021

Termination date of FDIC loss-sharing agreements:
Commercial (1)	12/19/2017		5/8/2018		5/29/2018		6/30/2019
Residential	12/31/2019		5/31/2020		5/31/2020		4/30/2021

(1)

The Company is subject to sharing 80 percent of its recoveries with the FDIC up to the last day of the quarter in which the termination dates of the commercial loss-sharing agreements occur.

FDIC loss sharing under the commercial loss-sharing agreements for 1st Pacific Bank of California and Sun West Bank ended on June 30, 2015. As a result, losses recognized on assets subject to these agreements are no longer shared with the FDIC effective July 1, 2015. However, the Company is still subject to sharing 80 percent of its recoveries with the FDIC for the time period as indicated in the table above. At September 30, 2015, $377.1 million of acquired impaired loans were covered under the FDIC loss-sharing agreements and $22.4 million of acquired impaired loans were not covered.

The excess of cash flows expected to be collected over the carrying value of the underlying acquired impaired loans is referred to as the accretable yield. This amount is not reported in the consolidated balance sheets but is accreted into interest income over the remaining estimated lives of the underlying pools of loans. Changes in the accretable yield for acquired impaired loans were as follows for the nine months ended September 30, 2015 and 2014:

	For the nine months ended September 30,
(in thousands)	2015			2014
Balance, beginning of period	$	168,469		$	219,018
Accretion	(28,131		)	(36,067		)
Reclassifications from nonaccretable difference	19,545			25,636
Disposals and other	(23,239		)	(28,628		)

Balance, end of period	$	136,644		$	179,959

The factors that most significantly affect estimates of cash flows expected to be collected, and accordingly the accretable yield balance, include: (i) changes in credit assumptions, including both credit loss amounts and timing; (ii) changes in prepayment assumptions; and (iii) changes in interest rates for variable-rate loans. Reclassifications between accretable yield and nonaccretable difference may vary from period to period as the Company periodically updates its cash flow projections. The reclassification of nonaccretable difference to accretable yield during 2015 was principally driven by positive changes in cash flows, resulting mainly from changes in credit assumptions.

The Company recorded an indemnification asset related to its FDIC-assisted acquisitions, which represents the present value of the expected reimbursement from the FDIC for expected losses on acquired loans, OREO and unfunded commitments. The difference between the carrying value of the FDIC indemnification asset and the undiscounted cash flow that the Company expects to collect from the FDIC is accreted or amortized into noninterest income up until the expiration date of the FDIC loss sharing. Refer to the preceding table for a list of expiration dates of FDIC loss sharing by acquired entity. The FDIC indemnification asset is reviewed on a quarterly basis and adjusted based on changes in cash flow projections. The FDIC indemnification asset from all FDIC-assisted acquisitions was $28.2 million at September 30, 2015 and $50.5 million at December 31, 2014.

Credit Quality on Loans and Leases, Excluding Acquired Impaired Loans

Allowance for Loan and Lease Losses and Reserve for Off-Balance Sheet Credit Commitments

The Company accounts for the credit risk associated with lending activities through its allowance for loan and lease losses, reserve for off-balance sheet credit commitments and provision for credit losses. The provision is the expense recognized in the consolidated statements of income to adjust the allowance and reserve to the levels deemed appropriate by management, as determined through application of the Company’s allowance methodology. The provision for credit losses reflects management’s judgment of the adequacy of the allowance for loan and lease losses and the reserve for off-balance sheet credit commitments. It is determined through quarterly analytical reviews of the loan and commitment portfolios and consideration of such other factors as the Company’s loan and lease loss experience, trends in problem loans, concentrations of credit risk, underlying collateral values, and current economic conditions, as well as the results of the Company’s ongoing credit review process. As conditions change, the Company’s level of provisioning and the allowance for loan and lease losses and reserve for off-balance sheet credit commitments may change.

The relative significance of risk considerations used in measuring the allowance for loan and lease losses will vary by portfolio segment. For commercial loans, the primary risk consideration is a borrower’s ability to generate sufficient cash flows to repay their loan. Secondary considerations include the creditworthiness of guarantors and the valuation of collateral. In addition to the creditworthiness of a borrower, the type and location of real estate collateral is an important risk factor for commercial real estate and real estate construction loans. The primary risk considerations for consumer loans are a borrower’s personal cash flow and liquidity, as well as collateral value.

For commercial, non-homogenous loans that are not impaired, the Company derives loss factors for each risk grade and loan type via a process that begins with estimates of probable losses inherent in the portfolio based upon various statistical analyses. The factors considered in the analysis include loan type, migration analysis, in which historical delinquency and credit loss experience is applied to the portfolio, as well as analyses that reflect current trends and conditions. Each portfolio of smaller balance homogeneous loans, including residential first mortgages, installment, revolving credit and most other consumer loans, is collectively evaluated for loss potential. The quantitative portion of the allowance for loan and lease losses is adjusted for qualitative factors to account for model imprecision and to incorporate the range of probable outcomes inherent in the estimates used for the allowance. The Company has a qualitative factor matrix to determine the amount of reserves needed for judgmental factors that are not attributable to or reflected in the quantitative model. The methodology to determine the qualitative reserves includes segmenting the Company’s portfolio into three loan categories: commercial real estate secured, commercial and consumer. The qualitative reserve factors are separated into numerically informed and judgmental categories. Numerically informed factors are linked to defined macroeconomic or bank specific criteria, such as portfolio growth, problem loan trends and concentrations. Judgmental factors are based on the Company’s assessment of factors that include, but are not limited to, the legal and regulatory environment, internal systems and procedures, and entry into a new business. Each factor is assigned a risk level and a risk weight in points which is aggregated to determine the level of qualitative reserves. The factors are updated quarterly to reflect changing conditions.

A portion of the allowance for loan and lease losses is attributed to impaired loans that are individually measured for impairment. This measurement is based on the present value of expected future cash flows discounted using the loan’s contractual effective rate, the fair value of collateral or the secondary market value of the loan.

The allowance for loan and lease losses is decreased by the amount of charge-offs and increased by the amount of recoveries. Generally, commercial, commercial real estate and real estate construction loans are charged off immediately when it is determined that advances to the borrower are in excess of the calculated current fair value of the collateral and if a borrower is deemed incapable of repayment of unsecured debt, there is little or no prospect for near term improvement and no realistic strengthening action of significance pending. Consumer loans are charged off based on delinquency, ranging from 60 days for overdrafts to 180 days for secured consumer loans, or earlier when it is determined that the loan is uncollectible due to a triggering event, such as bankruptcy, fraud or death.

The following is a summary of activity in the allowance for loan and lease losses and period-end recorded investment balances of loans evaluated for impairment, excluding acquired impaired loans, for the three and nine months ended September 30, 2015 and 2014. Activity is provided by loan portfolio segment which is consistent with the Company’s methodology for determining the allowance for loan and lease losses.

(in thousands)	Commercial (1)			Commercial Real Estate Mortgages			Residential Mortgages			Real Estate Construction		Home Equity Loans and Lines of Credit			Installment			Qualitative			Total

Three months ended September 30, 2015

Allowance for loan and lease losses:
Beginning balance	$	124,314		$	48,649		$	9,660		$	10,652	$	5,404		$	2,208		$	116,035		$	316,922
Charge-offs	(4,576		)	—			—			—		—			(240		)	—			(4,816		)
Recoveries	10,514			68			34			142		37			204			—			10,999

Net recoveries (charge-offs)	5,938			68			34			142		37			(36		)	—			6,183

(Reversal of) provision for credit losses	2,939			(211		)	154			783		(163		)	118			(9,620		)	(6,000		)
Transfers from reserve for off-balance sheet credit commitments	—			—			—			—		—			—			52			52

Ending balance	$	133,191		$	48,506		$	9,848		$	11,577	$	5,278		$	2,290		$	106,467		$	317,157


Nine months ended September 30, 2015

Allowance for loan and lease losses:
Beginning balance	$	115,855		$	44,745		$	10,296		$	9,115	$	6,609		$	2,228		$	121,301		$	310,149
Charge-offs	(10,276		)	—			—			—		—			(748		)	—			(11,024		)
Recoveries	12,229			1,270			110			1,852		110			622			—			16,193

Net recoveries (charge-offs)	1,953			1,270			110			1,852		110			(126		)	—			5,169

(Reversal of) provision for credit losses	15,383			2,491			(558		)	610		(1,441		)	188			(12,673		)	4,000
Transfers to reserve for off-balance sheet credit commitments	—			—			—			—		—			—			(2,161		)	(2,161		)

Ending balance	$	133,191		$	48,506		$	9,848		$	11,577	$	5,278		$	2,290		$	106,467		$	317,157


Ending balance of allowance:
Individually evaluated for impairment	$	2,315		$	255		$	39		$	—	$	—		$	—		$	—		$	2,609
Collectively evaluated for impairment	130,876			48,251			9,809			11,577		5,278			2,290			106,467			314,548

Loans and leases, excluding acquired impaired loans
Ending balance of loans and leases:
Loans and leases, excluding acquired impaired loans	$	10,941,277		$	3,947,746		$	5,709,272		$	932,422	$	799,711		$	206,156		$	—		$	22,536,584
Individually evaluated for impairment	18,185			22,918			11,850			5,802		1,137			—			—			59,892
Collectively evaluated for impairment	10,923,092			3,924,828			5,697,422			926,620		798,574			206,156			—			22,476,692

(1)

Includes lease financing loans.

(in thousands)	Commercial (1)			Commercial Real Estate Mortgages			Residential Mortgages			Real Estate Construction			Home Equity Loans and Lines of Credit			Installment			Qualitative			Total

Three months ended September 30, 2014

Allowance for loan and lease losses:
Beginning balance	$	126,279		$	50,651		$	10,296		$	7,191		$	6,575		$	2,284		$	108,000		$	311,276
Charge-offs	(3,773		)	—			—			—			—			(76		)	—			(3,849		)
Recoveries	6,202			225			33			7,729			52			158			—			14,399

Net recoveries	2,429			225			33			7,729			52			82			—			10,550

(Reversal of) provision for credit losses	(5,762		)	113			1,138			(6,175		)	401			18			2,267			(8,000		)
Transfers to reserve for off-balance sheet credit commitments	—			—			—			—			—			—			(1,123		)	(1,123		)

Ending balance	$	122,946		$	50,989		$	11,467		$	8,745		$	7,028		$	2,384		$	109,144		$	312,703


Nine months ended September 30, 2014

Allowance for loan and lease losses:
Beginning balance	$	117,103		$	50,678		$	11,540		$	6,351		$	6,677		$	1,842		$	108,393		$	302,584
Charge-offs	(18,594		)	(5		)	(482		)	—			(165		)	(264		)	—			(19,510		)
Recoveries	15,437			352			258			12,804			254			1,490			—			30,595

Net (charge-offs) recoveries	(3,157		)	347			(224		)	12,804			89			1,226			—			11,085

(Reversal of) provision for credit losses	(353		)	(36		)	151			(10,410		)	262			(684		)	2,070			(9,000		)
Transfers from (to) reserve for off-balance sheet credit commitments	9,353			—			—			—			—			—			(1,319		)	8,034

Ending balance	$	122,946		$	50,989		$	11,467		$	8,745		$	7,028		$	2,384		$	109,144		$	312,703


Ending balance of allowance:
Individually evaluated for impairment	$	1,304		$	291		$	—		$	—		$	—		$	—		$	—		$	1,595
Collectively evaluated for impairment	121,642			50,698			11,467			8,745			7,028			2,384			109,144			311,108

Loans and leases, excluding acquired impaired loans
Ending balance of loans and leases:
Loans and leases, excluding acquired impaired loans	$	9,236,294		$	3,565,188		$	5,023,213		$	585,232		$	759,258		$	178,803		$	—		$	19,347,988
Individually evaluated for impairment	16,316			25,551			7,785			6,610			2,313			—			—			58,575
Collectively evaluated for impairment	9,219,978			3,539,637			5,015,428			578,622			756,945			178,803			—			19,289,413

(1)

Includes lease financing loans.

Off-balance sheet credit exposures include loan commitments and letters of credit. The following table provides a summary of activity in the reserve for off-balance sheet credit commitments for the three and nine months ended September 30, 2015 and 2014:

	For the three months ended September 30,					For the nine months ended September 30,
(in thousands)	2015			2014		2015		2014
Balance, beginning of period	$	30,024		$	24,787	$	27,811	$	33,944
Transfers (to) from allowance for loan and lease losses	(52		)	1,123		2,161		(8,034		)

Balance, end of period	$	29,972		$	25,910	$	29,972	$	25,910

The reserve for off-balance sheet credit commitments decreased $0.1 million and increased $2.2 million during the three and nine months ended September 30, 2015, respectively. The change was due to normal fluctuations in the amount of reserves required due to changes in the composition, amount and quality of risk ratings of borrowers associated with the off-balance sheet commitments. Increases and decreases in the reserve for off-balance sheet credit commitments are reflected as an allocation of provision expense from or to the allowance for loan and lease losses.

Impaired Loans and Leases

The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, except that if the loan is collateral dependent, the impairment is measured by using the fair value of the loan’s collateral. As a final alternative, the observable market price of the debt may be used to assess impairment. Nonperforming loans greater than $1 million are individually evaluated for impairment based upon the borrower’s overall financial condition, resources, and payment record, and the prospects for support from any financially responsible guarantors. For borrowers with multiple loans totaling $1 million or more, this threshold is applied at the total relationship level. Loans under $1 million are measured for impairment using historical loss factors. When the measurement of the impaired loan is less than the recorded amount of the loan, an impairment is recognized by creating a valuation allowance with a corresponding charge to the allowance for loan and lease losses or by adjusting an existing valuation allowance for the impaired loan.

Information on impaired loans, excluding acquired impaired loans, at September 30, 2015, December 31, 2014 and September 30, 2014 is provided in the following tables:

			Unpaid				For the three months ended September 30, 2015				For the nine months ended September 30, 2015
(in thousands)	Recorded Investment		Contractual Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
September 30, 2015
With no related allowance recorded:
Commercial	$	4,784	$	10,605	$	—	$	3,619	$	71	$	4,395	$	94
Commercial real estate mortgages	17,921		19,095		—		17,947		200		18,398		605
Residential mortgages:
Fixed	7,961		8,255		—		7,981		14		7,859		40
Variable	—		—		—		—		—		56		—

Total residential mortgages	7,961		8,255		—		7,981		14		7,915		40

Real estate construction:
Land	5,802		6,885		—		5,809		28		6,801		142

Total real estate construction	5,802		6,885		—		5,809		28		6,801		142

Home equity loans and lines of credit	1,137		2,247		—		1,035		2		1,319		2

Total with no related allowance	$	37,605	$	47,087	$	—	$	36,391	$	315	$	38,828	$	883


With an allowance recorded:
Commercial	$	13,401	$	17,347	$	2,315	$	9,869	$	95	$	8,090	$	138
Commercial real estate mortgages	4,997		5,311		255		5,008		—		5,061		142
Residential mortgages:
Variable	3,889		3,881		39		3,901		26		3,923		78

Total residential mortgages	3,889		3,881		39		3,901		26		3,923		78

Total with an allowance	$	22,287	$	26,539	$	2,609	$	18,778	$	121	$	17,074	$	358


Total impaired loans by type:
Commercial	$	18,185	$	27,952	$	2,315	$	13,488	$	166	$	12,485	$	232
Commercial real estate mortgages	22,918		24,406		255		22,955		200		23,459		747
Residential mortgages	11,850		12,136		39		11,882		40		11,838		118
Real estate construction	5,802		6,885		—		5,809		28		6,801		142
Home equity loans and lines of credit	1,137		2,247		—		1,035		2		1,319		2

Total impaired loans	$	59,892	$	73,626	$	2,609	$	55,169	$	436	$	55,902	$	1,241

(in thousands)	Recorded Investment		Unpaid Contractual Principal Balance		Related Allowance
December 31, 2014
With no related allowance recorded:
Commercial	$	8,894	$	9,182	$	—
Commercial real estate mortgages	19,858		22,416		—
Residential mortgages:
Fixed	7,756		7,994		—
Variable	224		262		—

Total residential mortgages	7,980		8,256		—

Real estate construction:
Land	6,609		8,758		—

Total real estate construction	6,609		8,758		—

Home equity loans and lines of credit	2,270		3,375		—

Total with no related allowance	$	45,611	$	51,987	$	—


With an allowance recorded:
Commercial	$	6,470	$	8,878	$	399
Commercial real estate mortgages	5,184		5,526		281
Residential mortgages:
Variable	3,957		3,948		48

Total residential mortgages	3,957		3,948		48

Total with an allowance	$	15,611	$	18,352	$	728


Total impaired loans by type:
Commercial	$	15,364	$	18,060	$	399
Commercial real estate mortgages	25,042		27,942		281
Residential mortgages	11,937		12,204		48
Real estate construction	6,609		8,758		—
Home equity loans and lines of credit	2,270		3,375		—

Total impaired loans	$	61,222	$	70,339	$	728

			Unpaid				For the three months ended September 30, 2014				For the nine months ended September 30, 2014
(in thousands)	Recorded Investment		Contractual Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
September 30, 2014
With no related allowance recorded:
Commercial	$	6,653	$	6,684	$	—	$	6,817	$	38	$	10,653	$	205
Commercial real estate mortgages	20,347		22,698		—		24,290		219		29,478		903
Residential mortgages:
Fixed	2,015		2,254		—		3,406		10		3,459		30
Variable	5,770		5,885		—		3,784		40		3,997		68

Total residential mortgages	7,785		8,139		—		7,190		50		7,456		98

Real estate construction:
Construction	—		—		—		—		—		2,742		76
Land	6,610		8,758		—		9,728		35		11,593		104

Total real estate construction	6,610		8,758		—		9,728		35		14,335		180

Home equity loans and lines of credit	2,313		3,375		—		2,874		—		2,881		—
Installment:
Consumer	—		—		—		—		1		4		1

Total installment	—		—		—		—		1		4		1

Total with no related allowance	$	43,708	$	49,654	$	—	$	50,899	$	343	$	64,807	$	1,387


With an allowance recorded:
Commercial	$	9,663	$	12,134	$	1,304	$	15,957	$	—	$	15,869	$	—
Commercial real estate mortgages	5,204		5,557		291		5,214		73		5,293		191
Residential mortgages:
Variable	—		—		—		2,000		—		1,419		11

Total residential mortgages	—		—		—		2,000		—		1,419		11

Installment:
Consumer	—		—		—		25		—		12		1

Total installment	—		—		—		25		—		12		1

Total with an allowance	$	14,867	$	17,691	$	1,595	$	23,196	$	73	$	22,593	$	203


Total impaired loans by type:
Commercial	$	16,316	$	18,818	$	1,304	$	22,774	$	38	$	26,522	$	205
Commercial real estate mortgages	25,551		28,255		291		29,504		292		34,771		1,094
Residential mortgages	7,785		8,139		—		9,190		50		8,875		109
Real estate construction	6,610		8,758		—		9,728		35		14,335		180
Home equity loans and lines of credit	2,313		3,375		—		2,874		—		2,881		—
Installment	—		—		—		25		1		16		2

Total impaired loans	$	58,575	$	67,345	$	1,595	$	74,095	$	416	$	87,400	$	1,590

Impaired loans at September 30, 2015 and December 31, 2014 included $33.1 million and $30.6 million, respectively, of loans that are on accrual status. With the exception of restructured loans on accrual status and a limited number of loans on cash basis nonaccrual for which the full collection of principal and interest is expected, interest income is not recognized on impaired loans until the principal balance of these loans is paid off.

Troubled Debt Restructured Loans

The following table provides a summary of loans modified in a troubled debt restructuring during the three months ended September 30, 2015. There were no loans modified in a troubled debt restructuring during the three months ended September 30, 2014.

(in thousands)	Number of Contracts	Pre-Modification Outstanding Principal		Period-End Outstanding Principal		Financial Effects (1)
Three months ended September 30, 2015
Commercial	2	$	2,575	$	2,570	$	—
Commercial real estate mortgages	1	187		185		—
Home equity loans and lines of credit	1	205		205		—

Total troubled debt restructured loans	4	$	2,967	$	2,960	$	—

(1)

Financial effects are comprised of charge-offs and specific reserves recognized on troubled debt restructured (“TDR”) loans at modification date.

The following table provides a summary of loans modified in a troubled debt restructuring during the nine months ended September 30, 2015 and 2014:

(in thousands)	Number of Contracts	Pre-Modification Outstanding Principal		Period-End Outstanding Principal		Financial Effects (1)
Nine months ended September 30, 2015
Commercial	3	$	3,206	$	3,091	$	—
Commercial real estate mortgages	2	605		593		—
Residential mortgages:
Fixed	1	302		299		—
Home equity loans and lines of credit	2	292		287		—

Total troubled debt restructured loans	8	$	4,405	$	4,270	$	—


Nine months ended September 30, 2014
Commercial	2	$	4,098	$	3,799	$	—
Residential mortgages:
Variable	2	4,676		4,647		5
Installment:
Consumer	1	50		—		50

Total troubled debt restructured loans	5	$	8,824	$	8,446	$	55

(1)

Financial effects are comprised of charge-offs and specific reserves recognized on TDR loans at modification date.

A restructuring constitutes a troubled debt restructuring when a lender, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. Loans with pre-modification outstanding balances totaling $3.0 million and $4.4 million were modified in troubled debt restructurings during the three and nine months ended September 30, 2015. Loans with pre-modification outstanding balances totaling $8.8 million were modified in troubled debt restructurings during the nine months ended September 30, 2014. The concessions granted in the restructurings completed in 2015 largely consisted of maturity extensions.

The unpaid principal balance of TDR loans was $27.3 million, before specific reserves of $0.4 million, at September 30, 2015 and $34.3 million, before specific reserves of $0.7 million, at December 31, 2014. The net decrease in TDR loans from December 31, 2014 was primarily attributable to payments received on existing TDR loans totaling $8.5 million and charge-offs totaling $3.1 million on an existing TDR loan. These decreases were partially offset by additions totaling $4.4 million. Loans modified in troubled debt restructurings are impaired loans at the time of restructuring and subject to the same measurement criteria as all other impaired loans.

A TDR loan is considered to be in default when payments are 90 days or more past due. The following table provides a summary of TDR loans that subsequently defaulted during the three and nine months ended September 30, 2015 that had been modified as a troubled debt restructuring during the 12 months prior to their default. The Company had no TDR loans that subsequently defaulted during the three and nine months ended September 30, 2014.

	For three months ended September 30, 2015					For nine months ended September 30, 2015
(in thousands)	Number of Contracts	Period-End Outstanding Principal		Period-End Specific Reserve		Number of Contracts	Period-End Outstanding Principal		Period-End Specific Reserve
Commercial	2	$	2,570	$	—	2	$	2,570	$	—
Commercial real estate mortgages	—	—		—		1	64		—

Total loans that subsequently defaulted	2	$	2,570	$	—	3	$	2,634	$	—

All other TDR loans were performing in accordance with their restructured terms at September 30, 2015. As of September 30, 2015, there were $0.3 million of outstanding commitments to lend additional funds on restructured loans.

Past Due and Nonaccrual Loans and Leases

Loans are considered past due following the date when either interest or principal is contractually due and unpaid. The following tables provide a summary of past due and nonaccrual loans, excluding acquired impaired loans, at September 30, 2015 and December 31, 2014 based upon the length of time the loans have been past due:

(in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days and Accruing		Nonaccrual		Total Past Due and Nonaccrual Loans		Current		Total Loans and Leases
September 30, 2015
Commercial	$	5,094	$	1,550	$	—	$	14,728	$	21,372	$	10,232,220	$	10,253,592
Commercial real estate mortgages	3,847		—		—		2,368		6,215		3,941,531		3,947,746
Residential mortgages:
Fixed	—		2,556		305		10,000		12,861		1,475,111		1,487,972
Variable	—		5,601		2,153		588		8,342		4,212,958		4,221,300

Total residential mortgages	—		8,157		2,458		10,588		21,203		5,688,069		5,709,272

Real estate construction:
Construction	—		—		—		—		—		900,928		900,928
Land	—		—		—		3,460		3,460		28,034		31,494

Total real estate construction	—		—		—		3,460		3,460		928,962		932,422

Home equity loans and lines of credit	910		3,072		460		3,340		7,782		791,929		799,711
Installment:
Commercial	—		—		—		—		—		228		228
Consumer	373		68		543		37		1,021		204,907		205,928

Total installment	373		68		543		37		1,021		205,135		206,156

Lease financing	—		457		—		1		458		687,227		687,685

Total	$	10,224	$	13,304	$	3,461	$	34,522	$	61,511	$	22,475,073	$	22,536,584

(in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days and Accruing		Nonaccrual		Total Past Due and Nonaccrual Loans		Current		Total Loans and Leases
December 31, 2014
Commercial	$	8,462	$	325	$	148	$	15,096	$	24,031	$	9,336,945	$	9,360,976
Commercial real estate mortgages	693		—		—		3,575		4,268		3,535,435		3,539,703
Residential mortgages:
Fixed	—		309		921		10,365		11,595		1,390,357		1,401,952
Variable	—		1,165		—		1,578		2,743		3,702,108		3,704,851

Total residential mortgages	—		1,474		921		11,943		14,338		5,092,465		5,106,803

Real estate construction:
Construction	—		—		—		—		—		686,990		686,990
Land	—		—		—		6,598		6,598		16,636		23,234

Total real estate construction	—		—		—		6,598		6,598		703,626		710,224

Home equity loans and lines of credit	—		39		100		4,864		5,003		780,793		785,796
Installment:
Commercial	—		—		—		—		—		298		298
Consumer	324		113		346		84		867		183,448		184,315

Total installment	324		113		346		84		867		183,746		184,613

Lease financing	321		152		—		7		480		648,611		649,091

Total	$	9,800	$	2,103	$	1,515	$	42,167	$	55,585	$	20,281,621	$	20,337,206

Credit Quality Monitoring

The Company closely monitors and assesses credit quality and credit risk in the loan and lease portfolio on an ongoing basis. Loan risk classifications are continuously reviewed and updated. The following table provides a summary of the loan and lease portfolio, excluding acquired impaired loans, by loan type and credit quality classification as of September 30, 2015 and December 31, 2014. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those loans that are classified as substandard or doubtful consistent with regulatory guidelines.

	September 30, 2015						December 31, 2014
(in thousands)	Nonclassified		Classified		Total		Nonclassified		Classified		Total
Commercial	$	10,153,594	$	99,998	$	10,253,592	$	9,304,636	$	56,340	$	9,360,976
Commercial real estate mortgages	3,905,035		42,711		3,947,746		3,511,229		28,474		3,539,703
Residential mortgages:
Fixed	1,467,932		20,040		1,487,972		1,375,175		26,777		1,401,952
Variable	4,191,381		29,919		4,221,300		3,675,723		29,128		3,704,851

Total residential mortgages	5,659,313		49,959		5,709,272		5,050,898		55,905		5,106,803

Real estate construction:
Construction	900,928		—		900,928		679,744		7,246		686,990
Land	25,702		5,792		31,494		16,636		6,598		23,234

Total real estate construction	926,630		5,792		932,422		696,380		13,844		710,224

Home equity loans and lines of credit	773,425		26,286		799,711		754,694		31,102		785,796
Installment:
Commercial	228		—		228		298		—		298
Consumer	205,229		699		205,928		183,190		1,125		184,315

Total installment	205,457		699		206,156		183,488		1,125		184,613

Lease financing	681,101		6,584		687,685		645,049		4,042		649,091

Total	$	22,304,555	$	232,029	$	22,536,584	$	20,146,374	$	190,832	$	20,337,206

Credit Quality on Acquired Impaired Loans

The following is a summary of activity in the allowance for losses on acquired impaired loans:

	For the three months ended September 30,						For the nine months ended September 30,
(in thousands)	2015			2014			2015			2014
Balance, beginning of period	$	8,075		$	9,103		$	8,608		$	15,922
Provision for losses	1,148			589			2,736			3,783
Change in allowance due to loan removals	(3,575		)	(324		)	(5,696		)	(10,337		)

Balance, end of period	$	5,648		$	9,368		$	5,648		$	9,368

The allowance for losses on acquired impaired loans was $5.6 million, $8.6 million and $9.4 million as of September 30, 2015, December 31, 2014 and September 30, 2014, respectively. The Company recorded provision expense of $1.1 million and $2.7 million during the three and nine months ended September 30, 2015, respectively. The Company recorded provision expense of $0.6 million and $3.8 million during the three and nine months ended September 30, 2014, respectively. The Company updates its cash flow projections for acquired impaired loans accounted for under ASC 310-30 on a quarterly basis, and may recognize provision expense or reversal of provision for loan losses as a result of that analysis. The provision expense or reversal of provision for losses on acquired impaired loans is the result of changes in expected cash flows, both amount and timing, due to actual loan performance and the Company’s revised loan loss and prepayment forecasts. The revisions of these forecasts were based on the results of management’s review of market conditions, the credit quality of outstanding acquired impaired loans and the analysis of loan performance data since the acquisition of the acquired impaired loans. The allowance for losses is adjusted for any loan removals, which occur when a loan has been fully paid off, fully charged off, sold or transferred to OREO.

Acquired impaired loans are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. If the timing and amount of future cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income is not recognized until the timing and amount of future cash flows can be reasonably estimated. There were no acquired impaired loans that were on nonaccrual status as of September 30, 2015 and December 31, 2014.

At September 30, 2015, acquired impaired loans that were 30 to 89 days delinquent totaled $0.9 million and acquired impaired loans that were 90 days or more past due on accrual status totaled $20.4 million. At December 31, 2014, acquired impaired loans that were 30 to 89 days delinquent totaled $7.4 million and acquired impaired loans that were 90 days or more past due on accrual status totaled $28.3 million.