Loans and Allowance for Loan Losses

Major classifications within the Company’s held for investment loan portfolio at March 31, 2016 and December 31, 2015 are as follows:



(In thousands)	March 31, 2016		December 31, 2015
Commercial:
Business	$	4,575,081	$	4,397,893
Real estate – construction and land	745,369		624,070
Real estate – business	2,395,933		2,355,544
Personal Banking:
Real estate – personal	1,903,969		1,915,953
Consumer	1,904,320		1,924,365
Revolving home equity	423,005		432,981
Consumer credit card	744,364		779,744
Overdrafts	5,829		6,142
Total loans	$	12,697,870	$	12,436,692

At March 31, 2016, loans of $3.7 billion were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $1.5 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings.

Allowance for loan losses

A summary of the activity in the allowance for loan losses during the three months ended March 31, 2016 and 2015, respectively, follows:



	For the Three Months Ended March 31
(In thousands)	Commercial			Personal Banking		Total
Balance January 1	$	82,086		$	69,446	$	151,532
Provision	4,151			5,288		9,439
Deductions:
Loans charged off	1,513			11,777		13,290
Less recoveries on loans	1,303			3,148		4,451
Net loan charge-offs (recoveries)	210			8,629		8,839
Balance March 31, 2016	$	86,027		$	66,105	$	152,132
Balance January 1	$	89,622		$	66,910	$	156,532
Provision	(1,752		)	6,172		4,420
Deductions:
Loans charged off	724			11,576		12,300
Less recoveries on loans	1,760			3,120		4,880
Net loan charge-offs (recoveries)	(1,036		)	8,456		7,420
Balance March 31, 2015	$	88,906		$	64,626	$	153,532

The following table shows the balance in the allowance for loan losses and the related loan balance at March 31, 2016 and December 31, 2015, disaggregated on the basis of impairment methodology. Impaired loans evaluated under ASC 310-10-35 include loans on non-accrual status, which are individually evaluated for impairment, and other impaired loans discussed below, which are deemed to have similar risk characteristics and are collectively evaluated. All other loans are collectively evaluated for impairment under ASC 450-20.



	Impaired Loans				All Other Loans
(In thousands)	Allowance for Loan Losses		Loans Outstanding		Allowance for Loan Losses		Loans Outstanding
March 31, 2016
Commercial	$	2,963	$	58,199	$	83,064	$	7,658,184
Personal Banking	1,385		22,188		64,720		4,959,299
Total	$	4,348	$	80,387	$	147,784	$	12,617,483
December 31, 2015
Commercial	$	1,927	$	43,027	$	80,159	$	7,334,480
Personal Banking	1,557		22,287		67,889		5,036,898
Total	$	3,484	$	65,314	$	148,048	$	12,371,378

Impaired loans

The table below shows the Company’s investment in impaired loans at March 31, 2016 and December 31, 2015. These loans consist of all loans on non-accrual status and other restructured loans whose terms have been modified and classified as troubled debt restructurings. These restructured loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. They are discussed further in the "Troubled debt restructurings" section on page 13.



(In thousands)	Mar. 31, 2016		Dec. 31, 2015
Non-accrual loans	$	29,367	$	26,575
Restructured loans (accruing)	51,020		38,739
Total impaired loans	$	80,387	$	65,314

The following table provides additional information about impaired loans held by the Company at March 31, 2016 and December 31, 2015, segregated between loans for which an allowance for credit losses has been provided and loans for which no allowance has been provided.



(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
March 31, 2016
With no related allowance recorded:
Business	$	10,381	$	12,874	$	—
Real estate – construction and land	2,335		3,307		—
Real estate – business	3,593		4,739		—
Real estate – personal	362		373		—
	$	16,671	$	21,293	$	—
With an allowance recorded:
Business	$	34,821	$	36,845	$	2,328
Real estate – construction and land	546		6,962		67
Real estate – business	6,523		8,773		568
Real estate – personal	7,377		10,291		656
Consumer	5,945		5,945		119
Revolving home equity	541		592		31
Consumer credit card	7,963		7,963		579
	$	63,716	$	77,371	$	4,348
Total	$	80,387	$	98,664	$	4,348
December 31, 2015
With no related allowance recorded:
Business	$	9,330	$	11,777	$	—
Real estate – construction and land	2,961		8,956		—
Real estate – business	4,793		6,264		—
Real estate – personal	373		373		—
	$	17,457	$	27,370	$	—
With an allowance recorded:
Business	$	18,227	$	20,031	$	1,119
Real estate – construction and land	1,227		2,804		63
Real estate – business	6,489		9,008		745
Real estate – personal	7,667		10,530		831
Consumer	5,599		5,599		63
Revolving home equity	704		852		67
Consumer credit card	7,944		7,944		596
	$	47,857	$	56,768	$	3,484
Total	$	65,314	$	84,138	$	3,484

Total average impaired loans for the three month periods ended March 31, 2016 and 2015, respectively, are shown in the table below.



(In thousands)	Commercial		Personal Banking		Total
Average Impaired Loans:
For the three months ended March 31, 2016
Non-accrual loans	$	21,004	$	4,623	$	25,627
Restructured loans (accruing)	27,179		17,701		44,880
Total	$	48,183	$	22,324	$	70,507
For the three months ended March 31, 2015
Non-accrual loans	$	31,281	$	6,258	$	37,539
Restructured loans (accruing)	22,280		19,386		41,666
Total	$	53,561	$	25,644	$	79,205

The table below shows interest income recognized during the three month periods ended March 31, 2016 and 2015, respectively, for impaired loans held at the end of each respective period. This interest all relates to accruing restructured loans, as discussed in the "Troubled debt restructurings" section on page 13.



	For the Three Months Ended March 31
(In thousands)	2016		2015
Interest income recognized on impaired loans:
Business	$	274	$	135
Real estate – construction and land	2		80
Real estate – business	36		15
Real estate – personal	46		53
Consumer	90		52
Revolving home equity	5		4
Consumer credit card	146		174
Total	$	599	$	513

Delinquent and non-accrual loans

The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at March 31, 2016 and December 31, 2015.



(In thousands)	Current or Less Than 30 Days Past Due		30 – 89 Days Past Due		90 Days Past Due and Still Accruing		Non-accrual		Total
March 31, 2016
Commercial:
Business	$	4,551,468	$	6,806	$	709	$	16,098	$	4,575,081
Real estate – construction and land	734,547		8,112		—		2,710		745,369
Real estate – business	2,379,738		9,961		—		6,234		2,395,933
Personal Banking:
Real estate – personal	1,890,775		6,477		2,512		4,205		1,903,969
Consumer	1,884,817		16,726		2,777		—		1,904,320
Revolving home equity	419,114		2,147		1,624		120		423,005
Consumer credit card	728,741		7,885		7,738		—		744,364
Overdrafts	5,593		236		—		—		5,829
Total	$	12,594,793	$	58,350	$	15,360	$	29,367	$	12,697,870
December 31, 2015
Commercial:
Business	$	4,384,149	$	2,306	$	564	$	10,874	$	4,397,893
Real estate – construction and land	617,838		3,142		—		3,090		624,070
Real estate – business	2,340,919		6,762		—		7,863		2,355,544
Personal Banking:
Real estate – personal	1,901,330		7,117		3,081		4,425		1,915,953
Consumer	1,903,389		18,273		2,703		—		1,924,365
Revolving home equity	427,998		2,641		2,019		323		432,981
Consumer credit card	762,750		8,894		8,100		—		779,744
Overdrafts	5,834		308		—		—		6,142
Total	$	12,344,207	$	49,443	$	16,467	$	26,575	$	12,436,692

Credit quality

The following table provides information about the credit quality of the Commercial loan portfolio, using the Company’s internal rating system as an indicator. The internal rating system is a series of grades reflecting management’s risk assessment, based on its analysis of the borrower’s financial condition. The “pass” category consists of a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is applied to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment.



Commercial Loans
(In thousands)	Business		Real Estate-Construction		Real Estate- Business		Total
March 31, 2016
Pass	$	4,435,061	$	733,542	$	2,318,735	$	7,487,338
Special mention	64,964		8,026		20,180		93,170
Substandard	58,958		1,091		50,784		110,833
Non-accrual	16,098		2,710		6,234		25,042
Total	$	4,575,081	$	745,369	$	2,395,933	$	7,716,383
December 31, 2015
Pass	$	4,278,857	$	618,788	$	2,281,565	$	7,179,210
Special mention	49,302		1,033		15,009		65,344
Substandard	58,860		1,159		51,107		111,126
Non-accrual	10,874		3,090		7,863		21,827
Total	$	4,397,893	$	624,070	$	2,355,544	$	7,377,507

The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above "Delinquent and non-accrual loans" section. In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a borrower's financial history. The Bank normally obtains a FICO score at the loan's origination and renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain Personal Banking loans for which FICO scores are not obtained because they generally pertain to commercial customer activities and are often underwritten with other collateral considerations. At March 31, 2016, these were comprised of $250.2 million in personal real estate loans, or 5.0% of the Personal Banking portfolio, compared to $257.8 million at December 31, 2015. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at March 31, 2016 and December 31, 2015 by FICO score.



Personal Banking Loans
	% of Loan Category
	Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card
March 31, 2016
FICO score:
Under 600	1.4	%	4.6	%	1.4	%	4.3	%
600 - 659	2.8		9.2		3.9		12.5
660 - 719	9.8		22.1		15.1		32.7
720 - 779	24.7		26.5		27.1		27.9
780 and over	61.3		37.6		52.5		22.6
Total	100.0	%	100.0	%	100.0	%	100.0	%
December 31, 2015
FICO score:
Under 600	1.5	%	4.5	%	1.5	%	3.9	%
600 - 659	3.0		9.7		3.9		12.0
660 - 719	9.1		21.8		13.6		31.7
720 - 779	25.0		26.4		28.4		27.9
780 and over	61.4		37.6		52.6		24.5
Total	100.0	%	100.0	%	100.0	%	100.0	%

Troubled debt restructurings

As mentioned previously, the Company's impaired loans include loans which have been classified as troubled debt restructurings. Total restructured loans amounted to $66.4 million at March 31, 2016. Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due under the contractual terms will be collected, and those non-accrual loans totaled $15.4 million at March 31, 2016. Other performing restructured loans totaled $51.0 million at March 31, 2016. These include certain business, construction and business real estate loans classified as substandard. Upon maturity, the loans renewed at interest rates judged not to be market rates for new debt with similar risk and as a result the loans were classified as troubled debt restructurings. These commercial loans totaled $33.9 million at March 31, 2016. These restructured loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. Troubled debt restructurings also include certain credit card loans under various debt management and assistance programs, which totaled $8.0 million at March 31, 2016. Modifications to credit card loans generally involve removing the available line of credit, placing loans on amortizing status, and lowering the contractual interest rate. The Company has classified additional loans as troubled debt restructurings because they were not reaffirmed by the borrower in bankruptcy proceedings. At March 31, 2016, these loans totaled $8.8 million in personal real estate, revolving home equity, and consumer loans. Interest on these loans is being recognized on an accrual basis, as the borrowers are continuing to make payments under the terms of the loan agreements.

The following table shows the outstanding balances of loans classified as troubled debt restructurings at March 31, 2016, in addition to the outstanding balances of these restructured loans which the Company considers to have been in default at any time during the past twelve months. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal.



(In thousands)	March 31, 2016		Balance 90 days past due at any time during previous 12 months
Commercial:
Business	$	39,577	$	—
Real estate - construction and land	2,849		81
Real estate - business	4,587		—
Personal Banking:
Real estate - personal	4,995		370
Consumer	5,969		465
Revolving home equity	431		63
Consumer credit card	7,963		547
Total restructured loans	$	66,371	$	1,526

For those loans on non-accrual status also classified as restructured, the modification did not create any further financial effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no financial impact to the Company as a result of modification to these loans. No financial impact resulted from those performing loans where the debt was not reaffirmed in bankruptcy, as no changes to loan terms occurred in that process. The effects of modifications to consumer credit card loans were estimated to decrease interest income by approximately $927 thousand on an annual, pre-tax basis, compared to amounts contractually owed.

The allowance for loan losses related to troubled debt restructurings on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which management expects to collect under contractual terms. Performing commercial loans have had no other concessions granted other than being renewed at an interest rate judged not to be market. As such, they have similar risk characteristics as non-troubled debt commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical experience and current economic factors.

If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for loan losses continues to be based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing troubled debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for loan losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begun.

The Company had commitments of $12.6 million at March 31, 2016 to lend additional funds to borrowers with restructured loans.

Loans held for sale

Beginning January 1, 2015, certain long-term fixed rate personal real estate loan originations have been designated as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 10. At March 31, 2016, the fair value of these loans was $4.5 million, and the unpaid principal balance was $4.3 million.

Beginning in the third quarter of 2015, the Company has designated certain student loan originations as held for sale. The borrowers are credit-worthy students who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains contracts with Sallie Mae to sell the loans at various times while the student is attending school or shortly after graduation. At March 31, 2016, the balance of these loans was $5.2 million. These loans are carried at lower of cost or fair value.

In March 2016, the Company designated certain loans secured by automobiles, totaling $50.4 million, as held for sale. The loans are being marketed to other financial institutions such as regional banks and credit unions, and the amount expected to be sold approximates nearly 5% of the total auto loan portfolio. The group of loans held for sale are representative of the overall auto loan portfolio. These loans are carried at lower of cost or fair value.

At March 31, 2016, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing. Interest income with respect to loans held for sale is accrued based on the principal amount outstanding and the loan's contractual interest rate. Gains and losses in fair value resulting from the application of the fair value option, or lower of cost or fair value accounting, are recognized in loan fees and sales in the consolidated statements of income.

Foreclosed real estate/repossessed assets

The Company’s holdings of foreclosed real estate totaled $2.0 million and $2.8 million at March 31, 2016 and December 31, 2015, respectively. Personal property acquired in repossession, generally autos and marine and recreational vehicles, totaled $2.6 million and $3.3 million at March 31, 2016 and December 31, 2015, respectively. Upon acquisition, these assets are recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this cost basis or fair value less estimated selling costs.