Loans

Loans outstanding as of December 31, 2015 and 2014, net of unearned income, consisted of the following:



(In thousands)		December 31, 2015			December 31, 2014
Originated loans:
Commercial		$	9,007,830		$	8,200,264
Residential mortgage		689,045			625,283
Installment		2,990,349			2,393,451
Home equity		1,248,438			1,110,336
Credit cards		182,843			164,478
	Total originated loans	14,118,505			12,493,812
Allowance for originated loan losses		(105,135		)	(95,696		)
	Net originated loans	$	14,013,370		$	12,398,116
Acquired loans:
Commercial		$	677,149		$	1,086,899
Residential mortgage		324,008			394,484
Installment		573,372			764,168
Home equity		168,542			233,629
	Total acquired loans	1,743,071			2,479,180
Allowance for acquired loan losses		(3,877		)	(7,457		)
	Net acquired loans	$	1,739,194		$	2,471,723
FDIC acquired loans:
Commercial		129,109			211,607
Residential mortgage		35,568			41,276
Installment		2,077			4,874
Home equity		38,668			73,365
Loss share receivable		9,947			22,033
	Total FDIC acquired loans	215,369			353,155
Allowance for FDIC acquired loan losses		(44,679		)	(40,496		)
	Net FDIC acquired loans	$	170,690		$	312,659
Total loans:
Commercial		$	9,814,088		$	9,498,770
Residential mortgage		1,048,621			1,061,043
Installment		3,565,798			3,162,493
Home equity		1,455,648			1,417,330
Credit cards		182,843			164,478
Loss share receivable		9,947			22,033
	Total loans	16,076,945			15,326,147
Total allowance for loan losses		(153,691		)	(143,649		)
	Total Net loans	$	15,923,254		$	15,182,498

Loan activity with related parties for the years ended December 31, 2015, 2014, and 2013 is summarized as follows:



	Years Ended December 31,
(In thousands)	2015			2014			2013
Aggregate amount at beginning of year	$	20,682		$	24,536		$	16,578
New loans	5,365			2,534			11,507
Repayments	(5,619		)	(6,388		)	(4,374		)
Changes in directors and their affiliations	—			—			825
Aggregate amount at end of year	$	20,428		$	20,682		$	24,536

The following describes the distinction between originated, acquired and FDIC acquired 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, 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 $4.1 million and $5.4 million at December 31, 2015 and 2014, respectively.

Acquired Loans

Acquired loans are those purchased in the Citizens acquisition. 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 $406.0 million and $590.9 million as of December 31, 2015 and 2014. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loan terms, 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, 2015 and 2014:



	Years Ended
Acquired Impaired Loans	December 31, 2015						December 31, 2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	119,450		$	423,209		$	136,646		$	601,000
Accretion	(40,756		)	40,756			(49,271		)	49,271
Net reclassifications from nonaccretable to accretable	37,245			—			45,824			—
Payments received, net	—			(179,256		)	—			(227,062		)
Disposals	(26,116		)	—			(13,749		)	—
Balance at end of period	$	89,823		$	284,709		$	119,450		$	423,209

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, 2015, there was an overall improvement in cash flow expectations which resulted in a net reclassification of $37.2 million from the nonaccretable difference to accretable yield. This reclassification was $45.8 million for the year ended December 31, 2014. The reclassification from the nonaccretable difference to the accretable yield results in prospective yield adjustments on the loan pools.

FDIC Acquired Loans and Related Loss Share Receivable

FDIC acquired loans include loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest. George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, 2015 and June 30, 2015, respectively, resulting in $129.1 million of loans no longer being covered as of December 31, 2015. As of December 31, 2015, $76.3 million of loans remained covered by single family loss share agreements.

Changes in the loss share receivable for the years ended December 31, 2015 and 2014, respectively, were as follows:



Loss Share Receivable	Years Ended
(In thousands)	December 31, 2015			December 31, 2014
Balance at beginning of period	$	22,033		$	61,827
Amortization	(4,141		)	(20,943		)
Increase due to impairment on FDIC acquired loans	6,373			2,920
FDIC reimbursement	(13,795		)	(17,837		)
FDIC acquired loans paid in full	(523		)	(3,934		)
Balance at end of period ⁽¹⁾	$	9,947		$	22,033

(1) As of December 31, 2015, the loss share receivable of $9.9 million was related to single family covered loans.

Total outstanding FDIC acquired impaired loans were $323.7 million and $451.2 million as of December 31, 2015 and 2014, 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 loan terms, 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 FDIC acquired impaired loans were as follows for the years ended December 31, 2015 and 2014:



	Years Ended December 31,
FDIC Acquired Impaired Loans	2015						2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	37,511		$	232,452		$	67,282		$	403,692
Accretion	(14,947		)	14,947			(42,161		)	42,161
Net reclassifications from nonaccretable to accretable	4,818			—			16,841			—
Payments received, net	—			(116,751		)	—			(213,401		)
(Disposals)/Additions	(4,474		)	—			(4,451		)	—
Balance at end of period	$	22,908		$	130,648		$	37,511		$	232,452

The cash flows expected to be collected on FDIC acquired impaired loans are estimated quarterly in a similar manner as described above for acquired impaired loans. During the year ended December 31, 2015, the re-estimation process resulted in a net reclassification of $4.8 million from the nonaccretable difference to accretable yield. This reclassification was $16.8 million for the year ended December 31, 2014. The reclassification from the nonaccretable difference to the accretable yield 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, 2015
(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	$	4,684	$	115	$	8,824	$	13,623	$	5,779,785	$	5,793,408	$	236	$	23,123
CRE	12,880		—		2,260		15,140		2,062,204		2,077,344		153		4,503
Construction	1,360		—		486		1,846		643,491		645,337		—		482
Leases	—		—		—		—		491,741		491,741		—		—
Consumer
Installment	17,934		4,828		3,920		26,682		2,963,667		2,990,349		3,519		2,178
Home equity lines	1,952		913		1,478		4,343		1,244,095		1,248,438		513		1,674
Credit cards	1,449		494		632		2,575		180,268		182,843		725		545
Residential mortgages	11,099		1,519		6,693		19,311		669,734		689,045		2,876		11,600
Total originated loans	$	51,358	$	7,869	$	24,293	$	83,520	$	14,034,985	$	14,118,505	$	8,022	$	44,105
													≥ 90 Days
Acquired Loans							Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing⁽³⁾		Loans
Commercial
C&I	$	311	$	31	$	3,336	$	3,678	$	236,467	$	240,145	$	13	$	782
CRE	3,192		1,681		9,657		14,530		416,361		430,891		522		4,948
Construction	—		—		733		733		5,380		6,113		—		—
Consumer
Installment	5,059		1,329		974		7,362		566,010		573,372		236		835
Home equity lines	1,365		660		1,260		3,285		165,257		168,542		644		514
Residential mortgages	8,760		567		6,792		16,119		307,889		324,008		1,681		1,166
Total acquired loans	$	18,687	$	4,268	$	22,752	$	45,707	$	1,697,364	$	1,743,071	$	3,096	$	8,245
													≥ 90 Days
FDIC Acquired 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	$	—	$	—	$	1,054	$	1,054	$	34,412	$	35,466	n/a		n/a
CRE	296		354		28,501		29,151		58,623		87,774		n/a		n/a
Construction	—		—		3,761		3,761		2,108		5,869		n/a		n/a
Consumer
Installment	—		—		—		—		2,077		2,077		n/a		n/a
Home equity lines	2,230		52		1,917		4,199		34,469		38,668		n/a		n/a
Residential mortgages	4,616		172		2,655		7,443		28,125		35,568		n/a		n/a
Total FDIC acquired loans	$	7,142	$	578	$	37,888	$	45,608	$	159,814	$	205,422	n/a		n/a

(1) Installment loans 90 days or more past due and accruing include $2.3 million of loans guaranteed by the U.S. government as of December 31, 2015.

(2) Excludes loss share receivable of $9.9 million as of December 31, 2015.

(3) Acquired and FDIC acquired impaired loans were not classified as nonperforming assets at December 31, 2015 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 and FDIC Acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and FDIC acquired impaired loans.



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 ⁽³⁾		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


FDIC Acquired 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 and FDIC 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 and FDIC Acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and FDIC 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 regarding 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 Corporation, 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 Corporation’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.

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



As of December 31, 2015
(In thousands)
Originated Loans	Commercial
	C&I		CRE			Construction		Leases		Total
Grade 1	$	60,440	$	773		$	—	$	12,732	$	73,945
Grade 2	353,581		831			—		69,258		423,670
Grade 3	1,371,850		319,987			59,182		49,956		1,800,975
Grade 4	3,756,333		1,697,261			569,098		344,763		6,367,455
Grade 5	124,140		18,388			7,193		7,858		157,579
Grade 6	124,483		40,105			9,864		7,174		181,626
Grade 7	2,581		(1		)	—		—		2,580
Total	$	5,793,408	$	2,077,344		$	645,337	$	491,741	$	9,007,830

Acquired Loans	Commercial
	C&I		CRE			Construction		Leases		Total
Grade 1	$	346	$	—		$	—	$	—	$	346
Grade 2	—		—			—		—		—
Grade 3	15,548		27,387			—		—		42,935
Grade 4	200,736		361,518			5,380		—		567,634
Grade 5	11,735		12,546			—		—		24,281
Grade 6	11,780		29,440			733		—		41,953
Grade 7	—		—			—		—		—
Total	$	240,145	$	430,891		$	6,113	$	—	$	677,149

FDIC Acquired Loans	Commercial
	C&I		CRE			Construction		Leases		Total
Grade 1	$	—	$	—		$	—	$	—	$	—
Grade 2	1,072		—			—		—		1,072
Grade 3	—		7,004			—		—		7,004
Grade 4	31,637		49,917			819		—		82,373
Grade 5	295		—			—		—		295
Grade 6	2,462		30,853			5,050		—		38,365
Grade 7	—		—			—		—		—
Total	$	35,466	$	87,774		$	5,869	$	—	$	129,109



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

FDIC Acquired 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