Allowance for credit losses

12 Months Ended

Dec. 31, 2018

4. Allowance for credit losses

Changes in the allowance for credit losses for the years ended December 31, 2018, 2017 and 2016 were as follows:

	Commercial, Financial,			Real Estate
	Leasing, etc.			Commercial			Residential			Consumer			Unallocated			Total
	(In thousands)
2018
Beginning balance	$	328,599			374,085			65,405			170,809			78,300		$	1,017,198
Provision for credit losses		33,967			(41,181	)		12,401			127,068			(255	)		132,000
Net charge-offs
Charge-offs		(60,414	)		(12,286	)		(15,345	)		(143,196	)		—			(231,241	)
Recoveries		27,903			21,037			6,664			45,883			—			101,487
Net (charge-offs) recoveries		(32,511	)		8,751			(8,681	)		(97,313	)		—			(129,754	)
Ending balance	$	330,055			341,655			69,125			200,564			78,045		$	1,019,444

2017
Beginning balance	$	330,833			362,719			61,127			156,288			78,030		$	988,997
Provision for credit losses		41,511			6,715			16,094			103,410			270			168,000
Net charge-offs
Charge-offs		(64,941	)		(7,931	)		(20,799	)		(130,927	)		—			(224,598	)
Recoveries		21,196			12,582			8,983			42,038			—			84,799
Net (charge-offs) recoveries		(43,745	)		4,651			(11,816	)		(88,889	)		—			(139,799	)
Ending balance	$	328,599			374,085			65,405			170,809			78,300		$	1,017,198

2016
Beginning balance	$	300,404			326,831			72,238			178,320			78,199		$	955,992
Provision for credit losses		59,506			33,627			6,902			90,134			(169	)		190,000
Net charge-offs
Charge-offs		(59,244	)		(4,805	)		(26,133	)		(141,073	)		—			(231,255	)
Recoveries		30,167			7,066			8,120			28,907			—			74,260
Net (charge-offs) recoveries		(29,077	)		2,261			(18,013	)		(112,166	)		—			(156,995	)
Ending balance	$	330,833			362,719			61,127			156,288			78,030		$	988,997

Despite the allocations in the preceding tables, the allowance for credit losses is general in nature and is available to absorb losses from any loan or lease type.

In establishing the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and targeted credit review processes and also estimates losses inherent in other loans and leases on a collective basis. For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolio by loan type. The amounts of loss components in the Company’s loan and lease portfolios are determined through a loan-by-loan analysis of larger balance commercial loans and commercial real estate loans that are in nonaccrual status and by applying loss factors to groups of loan balances based on loan type and management’s classification of such loans under the Company’s loan grading system. Measurement of the specific loss components is typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. In determining the allowance for credit losses, the Company utilizes a loan grading system that is applied to commercial and commercial real estate credits on an individual loan basis. Loan grades are assigned loss component factors that reflect the Company’s loss estimate for each group of loans and leases. Factors considered in assigning loan grades and loss component factors include borrower-specific information related to expected future cash flows and operating results, collateral values, geographic location, financial condition and performance, payment status, and other information; levels of and trends in portfolio charge-offs and recoveries; levels of and trends in portfolio delinquencies and impaired loans; changes in the risk profile of specific portfolios; trends in volume and terms of loans; effects of changes in credit concentrations; and observed trends and practices in the banking industry.

The following tables provide information with respect to loans and leases that were considered impaired as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016.

	December 31, 2018						December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.	$	153,478		175,549		46,034		177,250		194,257		45,488
Real estate:
Commercial		110,253		125,117		11,937		67,199		75,084		9,140
Residential builder and developer		5,981		6,557		462		5,320		5,641		308
Other commercial construction		10,563		11,113		640		4,817		20,357		647
Residential		124,974		147,817		5,402		101,724		122,602		4,000
Residential — limited documentation		74,156		90,066		3,000		77,277		92,439		3,900
Consumer:
Home equity lines and loans		47,982		53,248		9,135		48,847		53,914		8,812
Recreational finance		6,138		9,163		1,261		1,496		3,680		299
Automobile		3,527		3,599		729		13,498		15,737		2,811
Other		5,203		8,380		1,046		1,724		2,192		357
		542,255		630,609		79,646		499,152		585,903		75,762
With no related allowance recorded:
Commercial, financial, leasing, etc.		105,507		136,128		—		89,126		115,327		—
Real estate:
Commercial		113,376		124,657		—		138,356		149,716		—
Residential builder and developer		2,593		2,602		—		5,057		5,296		—
Other commercial construction		11,710		11,880		—		5,456		9,130		—
Residential		15,379		20,496		—		13,574		18,980		—
Residential — limited documentation		5,631		9,796		—		9,588		16,138		—
		254,196		305,559		—		261,157		314,587		—
Total:
Commercial, financial, leasing, etc.		258,985		311,677		46,034		266,376		309,584		45,488
Real estate:
Commercial		223,629		249,774		11,937		205,555		224,800		9,140
Residential builder and developer		8,574		9,159		462		10,377		10,937		308
Other commercial construction		22,273		22,993		640		10,273		29,487		647
Residential		140,353		168,313		5,402		115,298		141,582		4,000
Residential — limited documentation		79,787		99,862		3,000		86,865		108,577		3,900
Consumer:
Home equity lines and loans		47,982		53,248		9,135		48,847		53,914		8,812
Recreational finance		6,138		9,163		1,261		1,496		3,680		299
Automobile		3,527		3,599		729		13,498		15,737		2,811
Other		5,203		8,380		1,046		1,724		2,192		357
Total	$	796,451		936,168		79,646		760,309		900,490		75,762

	Year Ended December 31, 2018						Year Ended December 31, 2017
			Interest Income Recognized						Interest Income Recognized
	Average Recorded Investment		Total		Cash Basis		Average Recorded Investment		Total		Cash Basis
	(In thousands)

Commercial, financial, leasing, etc.	$	263,018		7,873		7,873		240,157		3,894		3,894
Real estate:
Commercial		194,451		10,880		10,880		207,616		4,497		4,497
Residential builder and developer		8,699		1,779		1,779		16,209		6,419		6,419
Other commercial construction		11,467		3,474		3,474		15,142		1,001		1,001
Residential		129,593		8,386		3,456		110,646		7,177		3,406
Residential — limited documentation		82,854		6,118		1,723		93,097		5,981		1,607
Consumer:
Home equity lines and loans		48,591		1,698		289		47,323		1,681		400
Recreational finance		1,849		333		9		1,041		212		9
Automobile		9,262		690		69		15,045		1,025		81
Other		4,413		230		13		2,322		96		2
Total	$	754,197		41,461		29,565		748,598		31,983		21,316

	Year Ended December 31, 2016
			Interest Income Recognized
	Average Recorded Investment		Total		Cash Basis
	(In thousands)

Commercial, financial, leasing, etc.	$	277,647		8,342		8,342
Real estate:
Commercial		175,877		4,878		4,878
Residential builder and developer		29,237		2,300		2,300
Other commercial construction		19,697		644		644
Residential		98,394		6,227		3,154
Residential — limited documentation		103,060		5,999		1,975
Consumer:
Home equity lines and loans		36,493		1,325		410
Recreational finance		2,549		147		49
Automobile		19,636		1,242		99
Other		6,669		293		34
Total	$	769,259		31,397		21,885

Commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. Furthermore, criticized nonaccrual commercial loans and commercial real estate loans are considered impaired and, as a result, specific loss allowances on such loans are established within the allowance for credit losses to the extent appropriate in each individual instance.

The following table summarizes the loan grades applied to the various classes of the Company’s commercial loans and commercial real estate loans.

			Real Estate
	Commercial,				Residential		Other
	Financial,				Builder and		Commercial
	Leasing, etc.		Commercial		Developer		Construction
	(In thousands)
December 31, 2018
Pass	$	21,693,705		24,539,706		1,546,002		6,890,562
Criticized accrual		1,049,848		866,987		139,509		150,115
Criticized nonaccrual		234,423		203,672		4,798		22,205
Total	$	22,977,976		25,610,365		1,690,309		7,062,882
December 31, 2017
Pass	$	20,490,486		24,380,184		1,485,148		6,270,812
Criticized accrual		1,011,174		723,777		140,119		164,812
Criticized nonaccrual		240,991		184,982		6,451		10,088
Total	$	21,742,651		25,288,943		1,631,718		6,445,712

In determining the allowance for credit losses, residential real estate loans and consumer loans are generally evaluated collectively after considering such factors as payment performance and recent loss experience and trends, which are mainly driven by current collateral values in the market place as well as the amount of loan defaults. Loss rates on such loans are determined by reference to recent charge-off history and are evaluated (and adjusted if deemed appropriate) through consideration of other factors including near-term forecasted loss estimates developed by the Company’s credit department. In arriving at such forecasts, the Company considers the current estimated fair value of its collateral based on geographical adjustments for home price depreciation/appreciation and overall borrower repayment performance. With regard to collateral values, the realizability of such values by the Company contemplates repayment of any first lien position prior to recovering amounts on a second lien position. However, residential real estate loans and outstanding balances of home equity loans and lines of credit that are more than 150 days past due are generally evaluated for collectibility on a loan-by-loan basis by giving consideration to estimated collateral values. The carrying value of residential real estate loans and home equity loans and lines of credit for which a partial charge-off has been recognized totaled $29 million and $23 million, respectively, at December 31, 2018 and $34 million and $25 million, respectively, at December 31, 2017. Residential real estate loans and home equity loans and lines of credit that were more than 150 days past due but did not require a partial charge-off because the net realizable value of the collateral exceeded the outstanding customer balance were $21 million and $31 million, respectively, at December 31, 2018 and $20 million and $32 million, respectively, at December 31, 2017.

The Company also measures additional losses for purchased impaired loans when it is probable that the Company will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. The determination of the allocated portion of the allowance for credit losses is very subjective. Given that inherent subjectivity and potential imprecision involved in determining the allocated portion of the allowance for credit losses, the Company also provides an inherent unallocated portion of the allowance. The unallocated portion of the allowance is intended to recognize probable losses that are not otherwise identifiable and includes management’s subjective determination of amounts necessary to provide for the possible use of imprecise estimates in determining the allocated portion of the allowance. Therefore, the level of the unallocated portion of the allowance is primarily reflective of the inherent imprecision in the various calculations used in determining the allocated portion of the allowance for credit losses. Other factors that could also lead to changes in the unallocated portion include the effects of expansion into new markets for which the Company does not have the same degree of familiarity and experience regarding portfolio performance in changing market conditions, the introduction of new loan and lease product types, and other risks associated with the Company’s loan portfolio that may not be specifically identifiable.

The allocation of the allowance for credit losses summarized on the basis of the Company’s impairment methodology was as follows:

	Commercial, Financial,		Real Estate
	Leasing, etc.		Commercial		Residential		Consumer		Total
	(In thousands)
December 31, 2018
Individually evaluated for impairment	$	46,034		13,039		8,402		12,171	$	79,646
Collectively evaluated for impairment		284,021		328,616		48,326		188,393		849,356
Purchased impaired		—		—		12,397		—		12,397
Allocated	$	330,055		341,655		69,125		200,564	$	941,399
Unallocated										78,045
Total									$	1,019,444
December 31, 2017
Individually evaluated for impairment	$	45,488		10,095		7,900		12,279	$	75,762
Collectively evaluated for impairment		283,111		363,990		47,645		158,530		853,276
Purchased impaired		—		—		9,860		—		9,860
Allocated	$	328,599		374,085		65,405		170,809		938,898
Unallocated										78,300
Total									$	1,017,198

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology was as follows:

	Commercial, Financial,		Real Estate
	Leasing, etc.		Commercial		Residential		Consumer		Total
	(In thousands)
December 31, 2018
Individually evaluated for impairment	$	258,985		254,476		220,140		62,850	$	796,451
Collectively evaluated for impairment		22,718,991		34,098,670		16,641,411		13,907,649		87,366,721
Purchased impaired		—		10,410		292,895		—		303,305
Total	$	22,977,976		34,363,556		17,154,446		13,970,499	$	88,466,477
December 31, 2017
Individually evaluated for impairment	$	266,376		226,205		202,163		65,565	$	760,309
Collectively evaluated for impairment		21,476,254		33,117,512		19,023,843		13,201,050		86,818,659
Purchased impaired		21		22,656		387,338		—		410,015
Total	$	21,742,651		33,366,373		19,613,344		13,266,615	$	87,988,983