Loans

Loans outstanding as of December 31, 2014 and 2013, net of unearned income, consisted of the following:



(In thousands)		December 31, 2014			December 31, 2013
Originated loans
Commercial		$	7,830,085		$	6,648,279
Residential mortgage		625,283			529,253
Installment		2,393,451			1,727,925
Home equity		1,110,336			920,066
Credit cards		164,478			148,313
Leases		370,179			239,551
	Total originated loans	12,493,812			10,213,387
Allowance for originated loan losses		(95,696		)	(96,484		)
	Net originated loans	$	12,398,116		$	10,116,903
Acquired loans:
Commercial		$	1,086,899		$	1,725,970
Residential mortgage		394,484			470,652
Installment		764,168			1,004,569
Home equity		233,629			294,424
	Total acquired loans	2,479,180			3,495,615
Allowance for acquired loan losses		(7,457		)	(741		)
	Net acquired loans	$	2,471,723		$	3,494,874
Covered loans:
Commercial		211,607			375,860
Residential mortgage		41,276			50,679
Installment		4,874			6,162
Home equity		73,365			97,442
Loss share receivable		22,033			61,827
	Total covered loans	353,155			591,970
Allowance for covered loan losses		(40,496		)	(44,027		)
	Net covered loans	$	312,659		$	547,943
Total loans:
Commercial		$	9,128,591		$	8,750,109
Residential mortgage		1,061,043			1,050,584
Installment		3,162,493			2,738,656
Home equity		1,417,330			1,311,932
Credit cards		164,478			148,313
Leases		370,179			239,551
Loss share receivable		22,033			61,827
	Total loans	15,326,147			14,300,972
Total allowance for loan losses		(143,649		)	(141,252		)
	Total Net loans	$	15,182,498		$	14,159,720

The Corporation makes loans to officers on the same terms and conditions as made available to all employees and to directors on substantially the same terms and conditions as transactions with other parties. An analysis of loan activity with related parties for the years ended December 31, 2014, 2013, and 2012 is summarized as follows:



	Year Ended December 31,
(In thousands)	2014			2013			2012
Aggregate amount at beginning of year	$	24,536		$	16,578		$	15,629
New loans	2,534			11,507			3,500
Repayments	(6,388		)	(4,374		)	(2,739		)
Changes in directors and their affiliations	—			825			188
Aggregate amount at end of year	$	20,682		$	24,536		$	16,578

The following describes the distinction between originated, acquired and covered loan portfolios and certain significant accounting policies relevant to each of these portfolios.

Originated Loans

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the ALL, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the "simple-interest" method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the Consolidated Balance Sheet, except for accrued interest on credit card loans, which is included in the outstanding loan balance. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield. Net deferred loan origination fees and costs amounted to $5.4 million and $6.6 million at December 31, 2014 and 2013, respectively.

Acquired Loans

Acquired loans are those purchased in the Citizens acquisition (See Note 2 (Business Combinations) for further information). These loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALL. The acquired loans were segregated as of the Acquisition Date between those considered to be performing (acquired nonimpaired loans) and those with evidence of credit deterioration (acquired impaired loans). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Revolving loans, including lines of credit, are excluded from acquired impaired loan accounting.

Total outstanding acquired impaired loans were $590.9 million and $817.6 million as of December 31, 2014 and 2013. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for acquired impaired loans were as follows for the years ended December 31, 2014 and 2013:



	Year Ended
Acquired Impaired Loans	December 31, 2014						December 31, 2013
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	136,646		$	601,000		$	—		$	—
Additions due to Citizens acquisition on April 12, 2013	—			—			131,558			819,715
Accretion	(49,271		)	49,271			(27,144		)	27,144
Net reclassifications from nonaccretable to accretable	45,824			—			46,361			—
Payments received, net	—			(227,062		)	—			(245,859		)
Disposals	(13,749		)	—			(14,129		)	—
Balance at end of period	$	119,450		$	423,209		$	136,646		$	601,000

Cash flows expected to be collected on acquired impaired loans are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary.

Improved cash flow expectations for loans or pools that were impaired in prior periods are recorded first as a reversal of previously recorded impairment and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as an impairment through a provision for loan loss and an increase to the allowance for acquired impaired loans.

During the year ended December 31, 2014, there was an overall improvement in cash flow expectations which resulted in the reclassification of $45.8 million from the nonaccretable difference to accretable yield. This reclassification results in prospective yield adjustments on these loan pools.

Covered Loans and Related Loss Share Receivable

The loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest are covered by loss sharing agreements between the FDIC and the Corporation that afford the Bank significant loss protection. These covered loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALL and are accounted for as acquired impaired loans. A loss share receivable was recorded at the Acquisition Date which represents the estimated fair value of reimbursement the Corporation expects to receive from the FDIC for incurred losses on certain covered loans. These expected reimbursements are recorded as part of covered loans in the accompanying Consolidated Balance Sheets.

Changes in the loss share receivable associated with covered loans for the years ended December 31, 2014 and 2013, respectively, were as follows:



Loss Share Receivable	Year Ended
(In thousands)	December 31, 2014			December 31, 2013
Balance at beginning of period	$	61,827		$	113,734
Amortization	(20,943		)	(24,307		)
Increase due to impairment on covered loans	2,920			10,790
FDIC reimbursement	(17,837		)	(27,234		)
Covered loans paid in full	(3,934		)	(11,156		)
Balance at end of period	$	22,033		$	61,827

Total outstanding covered impaired loans were $451.2 million and $756.1 million as of December 31, 2014 and 2013, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for covered impaired loans were as follows for the years ended December 31, 2014 and 2013:



	Year Ended December 31,
Covered Impaired Loans	2014						2013
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	67,282		$	403,692		$	113,288		$	762,386
Accretion	(42,161		)	42,161			(64,528		)	64,528
Net reclassifications from nonaccretable to accretable	16,841			—			34,965			—
Payments received, net	—			(213,401		)	—			(423,222		)
Disposals	(4,451		)	—			(16,443		)	—
Balance at end of period	$	37,511		$	232,452		$	67,282		$	403,692

The cash flows expected to be collected on covered impaired loans are estimated quarterly in a similar manner as described above for acquired impaired loans. During the year ended December 31, 2014, the overall improvement in the cash flow expectations resulted in the reclassification of $16.8 million from the nonaccretable difference to accretable yield. This reclassification results in prospective yield adjustments on the loan pools.

Credit Quality Disclosures

The credit quality of the Corporation’s loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Corporation. These credit quality ratings are an important part of the Corporation’s overall credit risk management process and evaluation of the allowance for credit losses.

Generally loans, except for certain commercial, credit card and mortgage loans, and leases on which payments are past due for 90 days are placed on nonaccrual status, unless those loans are in the process of collection and, in Management’s opinion, are fully secured. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status. Acquired and covered impaired loans are considered to be accruing and performing even though collection of contractual payments may be in doubt because income continues to be accreted on the loan pool as long as expected cash flows are reasonably estimable.

When a loan is placed on nonaccrual status, interest deemed uncollectible which had been accrued in prior years is charged against the ALL and interest deemed uncollectible accrued in the current year is reversed against interest income. Interest on mortgage loans is accrued until Management deems it uncollectible based upon the specific identification method. Payments subsequently received on nonaccrual loans are generally applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable. This generally requires timely principal and interest payments for a minimum of six consecutive payment cycles. Loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms and other factors.

The following tables provide a summary of loans by portfolio type, including the delinquency status of those loans that continue to accrue interest and those loans that are nonaccrual:



As of December 31, 2014
(In thousands)													≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽¹⁾		Loans
Commercial
C&I	$	2,212	$	1,162	$	2,670	$	6,044	$	5,169,157	$	5,175,201	$	1,547	$	6,114
CRE	2,155		1,460		8,864		12,479		2,104,639		2,117,118		1,696		11,033
Construction	—		—		—		—		537,766		537,766		—		—
Leases	—		—		—		—		370,179		370,179		—		—
Consumer
Installment	14,621		3,647		4,716		22,984		2,370,467		2,393,451		3,695		3,268
Home equity lines	1,357		587		1,206		3,150		1,107,186		1,110,336		569		1,654
Credit cards	668		516		860		2,044		162,434		164,478		407		596
Residential mortgages	12,086		2,744		8,013		22,843		602,440		625,283		4,242		11,952
Total	$	33,099	$	10,116	$	26,329	$	69,544	$	12,424,268	$	12,493,812	$	12,156	$	34,617
													≥ 90 Days
Acquired Loans							Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing		Loans
Commercial
C&I	$	92	$	234	$	4,791	$	5,117	$	444,137	$	449,254	$	—	$	787
CRE	3,479		3,398		23,509		30,386		600,288		630,674		44		4,171
Construction	—		—		685		685		6,286		6,971		—		—
Consumer
Installment	6,204		2,029		1,861		10,094		754,074		764,168		615		1,218
Home equity lines	2,819		2,123		2,333		7,275		226,354		233,629		1,519		631
Residential mortgages	13,062		1,648		7,089		21,799		372,685		394,484		1,293		1,249
Total	$	25,656	$	9,432	$	40,268	$	75,356	$	2,403,824	$	2,479,180	$	3,471	$	8,056
													≥ 90 Days
Covered Loans ⁽²⁾	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	58	$	—	$	6,041	$	6,099	$	42,738	$	48,837	n/a		n/a
CRE	234		1,517		47,233		48,984		104,524		153,508		n/a		n/a
Construction	—		—		6,064		6,064		3,198		9,262		n/a		n/a
Consumer
Installment	23		—		34		57		4,817		4,874		n/a		n/a
Home equity lines	1,395		870		3,859		6,124		67,241		73,365		n/a		n/a
Residential mortgages	6,205		91		3,572		9,868		31,408		41,276		n/a		n/a
Total	$	7,915	$	2,478	$	66,803	$	77,196	$	253,926	$	331,122	n/a		n/a

(1) Installment loans 90 days or more past due and accruing include $2.4 million of loans guaranteed by the U.S. government as of December 31, 2014.

(2) Excludes loss share receivable of $22.0 million as of December 31, 2014.

(3) Acquired impaired loans were not classified as nonperforming assets at December 31, 2014 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.



As of December 31, 2013
(In thousands)													≥ 90 Days
Originated Loans	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽¹⁾		Loans
Commercial
C&I	$	8,941	$	994	$	10,622	$	20,557	$	4,119,010	$	4,139,567	$	151	$	11,323
CRE	4,507		2,400		9,688		16,595		2,153,192		2,169,787		460		14,229
Construction	351		21		66		438		338,487		338,925		—		122
Leases	902		—		—		902		238,649		239,551		—		—
Consumer
Installment	15,433		4,050		4,462		23,945		1,703,980		1,727,925		3,735		3,681
Home equity lines	1,864		918		965		3,747		916,319		920,066		418		1,819
Credit cards	729		471		735		1,935		146,378		148,313		404		558
Residential mortgages	19,858		2,072		9,350		31,280		497,973		529,253		6,008		10,471
Total	$	52,585	$	10,926	$	35,888	$	99,399	$	10,113,988	$	10,213,387	$	11,176	$	42,203
													≥ 90 Days
Acquired Loans							Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing		Loans
Commercial	$	1,295	$	862	$	3,744	$	5,901	$	788,178	$	794,079	$	40	$	795
C&I	5,603		5,281		26,366		37,250		881,395		918,645		403		651
CRE	2,675		—		—		2,675		10,571		13,246		—		—
Construction
Consumer	14,528		4,076		3,354		21,958		982,611		1,004,569		2,263		679
Installment	4,774		1,933		3,606		10,313		284,111		294,424		1,039		1,300
Home equity lines	3,918		1,426		8,063		13,407		457,245		470,652		403		582
Residential mortgages	$	32,793	$	13,578	$	45,133	$	91,504	$	3,404,111	$	3,495,615	$	4,148	$	4,007
Total

Covered Loans⁽²⁾	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing ⁽³⁾		Loans ⁽³⁾
Commercial
C&I	$	836	$	1,489	$	12,957	$	15,282	$	60,955	$	76,237	n/a		n/a
CRE	2,855		3,443		103,077		109,375		164,219		273,594		n/a		n/a
Construction	2,191		1,917		20,388		24,496		1,533		26,029		n/a		n/a
Consumer
Installment	33		—		—		33		6,130		6,163		n/a		n/a
Home equity lines	544		1,467		1,651		3,662		93,780		97,442		n/a		n/a
Residential mortgages	7,463		1,565		5,165		14,193		36,485		50,678		n/a		n/a
Total	$	13,922	$	9,881	$	143,238	$	167,041	$	363,102	$	530,143	n/a		n/a

(1) Installment loans 90 days or more past due and accruing include $2.1 million of loans guaranteed by the U.S. government as of December 31, 2013.

(2) Excludes loss share receivable of $61.8 million as of December 31, 2013.

(3) Acquired impaired loans were not classified as nonperforming assets at December 31, 2013 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.

Individual commercial loans are assigned credit risk grades based on an internal assessment of conditions that affect a borrower’s ability to meet its contractual obligation under the loan agreement. The assessment process includes reviewing a borrower’s current financial information, historical payment experience, credit documentation, public information, and other information specific to each borrower. Commercial loans are reviewed on an annual, quarterly or rotational basis or as Management becomes aware of information during a borrower’s ability to fulfill its obligation. For consumer loans, Management evaluates credit quality based on the aging status of the loan as well as by payment activity, which is presented in the above tables.

The credit-risk grading process for commercial loans is summarized as follows:

“Pass” Loans (Grades 1, 2, 3, 4) are not considered a greater than normal credit risk. Generally, the borrowers have the apparent ability to satisfy obligations to the bank, and the Corporation anticipates insignificant uncollectible amounts based on its individual loan review.

“Special-Mention” Loans (Grade 5) are commercial loans that have identified potential weaknesses that deserve Management’s close attention. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the institution’s credit position.

“Substandard” Loans (Grade 6) are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans so classified have a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt pursuant to the contractual principal and interest terms. Such loans are characterized by the distinct possibility that the Corporation may sustain some loss if the deficiencies are not corrected.

“Doubtful” Loans (Grade 7) have all the weaknesses inherent in those classified as substandard, with the added characteristic that existing facts, conditions, and values make collection or liquidation in full highly improbable. Such loans are currently managed separately to determine the highest recovery alternatives.

“Loss” Loans (Grade 8) are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. These loans are charged off when loss is identified.

The following tables provide a summary of commercial loans by portfolio type and the Corporation’s internal credit quality rating:



As of December 31, 2014
(In thousands)
Originated Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	52,676	$	683	$	678	$	4,451	$	58,488
Grade 2	186,278		3,454		—		14,959		204,691
Grade 3	1,340,100		294,281		46,074		71,908		1,752,363
Grade 4	3,413,446		1,745,470		490,757		277,277		5,926,950
Grade 5	139,083		29,990		257		1,389		170,719
Grade 6	43,618		43,240		—		195		87,053
Grade 7	—		—		—		—		—
Total	$	5,175,201	$	2,117,118	$	537,766	$	370,179	$	8,200,264

Acquired Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	1,076	$	—	$	—	$	—	$	1,076
Grade 2	—		—		—		—		—
Grade 3	20,891		24,867		—		—		45,758
Grade 4	376,129		532,447		6,286		—		914,862
Grade 5	23,268		28,382		685		—		52,335
Grade 6	27,890		44,978		—		—		72,868
Grade 7	—		—		—		—		—
Total	$	449,254	$	630,674	$	6,971	$	—	$	1,086,899

Covered Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	1,347		—		—		—		1,347
Grade 3	—		—		—		—		—
Grade 4	36,406		86,779		823		—		124,008
Grade 5	167		3,401		—		—		3,568
Grade 6	10,917		63,328		8,248		—		82,493
Grade 7	—		—		191		—		191
Total	$	48,837	$	153,508	$	9,262	$	—	$	211,607



As of December 31, 2013
(In thousands)
Originated Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	34,909	$	241	$	—	$	9,271	$	44,421
Grade 2	108,709		3,730		—		2,900		115,339
Grade 3	802,624		315,150		25,632		54,446		1,197,852
Grade 4	3,083,458		1,759,383		306,795		167,022		5,316,658
Grade 5	71,857		34,969		267		5,750		112,843
Grade 6	38,010		56,314		6,231		162		100,717
Grade 7	—		—		—		—		—
Total	$	4,139,567	$	2,169,787	$	338,925	$	239,551	$	6,887,830

Acquired Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	1,741		703		—		—		2,444
Grade 3	79,634		29,224		—		—		108,858
Grade 4	643,495		722,307		13,246		—		1,379,048
Grade 5	46,807		93,499		—		—		140,306
Grade 6	22,402		72,912		—		—		95,314
Grade 7	—		—		—		—		—
Total	$	794,079	$	918,645	$	13,246	$	—	$	1,725,970

Covered Loans	Commercial
	C&I		CRE		Construction		Leases		Total
Grade 1	$	—	$	—	$	—	$	—	$	—
Grade 2	968		—		—		—		968
Grade 3	—		—		—		—		—
Grade 4	41,115		113,863		601		—		155,579
Grade 5	427		6,219		—		—		6,646
Grade 6	31,621		153,318		23,208		—		208,147
Grade 7	2,106		194		2,220		—		4,520
Total	$	76,237	$	273,594	$	26,029	$	—	$	375,860