Allowance for Credit Losses

The allowance for credit losses consists of the allowance for loan losses and the allowance for unfunded letters of credit. Management maintains the allowance for credit losses at a level estimated to absorb probable loan losses of the loan portfolio and unfunded letter of credit commitments at the balance sheet date. The allowance for loan losses is based on ongoing evaluations of the probable estimated losses inherent in the loan portfolio, including unexpected additional credit impairment of PCI loan pools subsequent to acquisition.

The following table summarizes the allowance for credit losses at September 30, 2016 and December 31, 2015:



	September 30, 2016		December 31, 2015
	(in thousands)
Components of allowance for credit losses:
Allowance for loan losses	$	110,697	$	106,178
Allowance for unfunded letters of credit	2,217		2,189
Total allowance for credit losses	$	112,914	$	108,367

The following table summarizes the provision for credit losses for the periods indicated:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016		2015
	(in thousands)
Components of provision for credit losses:
Provision for loan losses	$	5,949		$	—	$	8,041	$	4,382
Provision for unfunded letters of credit	(109		)	94		28		212
Total provision for credit losses	$	5,840		$	94	$	8,069	$	4,594

The following tables detail activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2016 and 2015:



	Commercial and Industrial			Commercial Real Estate			Residential Mortgage			Consumer			Unallocated			Total
	(in thousands)
Three Months Ended September 30, 2016
Allowance for loan losses:
Beginning balance	$	48,025		$	51,877		$	3,495		$	4,691		$	—		$	108,088
Loans charged-off	(3,763		)	—			(518		)	(782		)	—			(5,063		)
Charged-off loans recovered	902			44			495			282			—			1,723
Net (charge-offs) recoveries	(2,861		)	44			(23		)	(500		)	—			(3,340		)
Provision for loan losses	5,588			539			(94		)	(84		)				5,949
Ending balance	$	50,752		$	52,460		$	3,378		$	4,107		$	—		$	110,697
Three Months Ended September 30, 2015
Allowance for loan losses:
Beginning balance	$	41,714		$	44,185		$	5,055		$	5,542		$	6,339		$	102,835
Loans charged-off	(1,124		)	(40		)	(111		)	(734		)	—			(2,009		)
Charged-off loans recovered	2,550			536			151			488			—			3,725
Net recoveries (charge-offs)	1,426			496			40			(246		)	—			1,716
Provision for loan losses	4,397			(2,403		)	(546		)	(829		)	(619		)	—
Ending balance	$	47,537		$	42,278		$	4,549		$	4,467		$	5,720		$	104,551



	Commercial and Industrial			Commercial Real Estate			Residential Mortgage			Consumer			Unallocated		Total
	(in thousands)
Nine Months Ended September 30, 2016
Allowance for loan losses:
Beginning balance	$	48,767		$	48,006		$	4,625		$	4,780		$	—	$	106,178
Loans charged-off	(5,507		)	(519		)	(750		)	(2,553		)	—		(9,329		)
Charged-off loans recovered	2,418			1,591			604			1,194			—		5,807
Net (charge-offs) recoveries	(3,089		)	1,072			(146		)	(1,359		)	—		(3,522		)
Provision for loan losses	5,074			3,382			(1,101		)	686			—		8,041
Ending balance	$	50,752		$	52,460		$	3,378		$	4,107		$	—	$	110,697
Nine Months Ended September 30, 2015
Allowance for loan losses:
Beginning balance	$	43,676		$	42,840		$	5,093		$	5,179		$	5,565	$	102,353
Loans charged-off	(5,103		)	(2,780		)	(499		)	(2,642		)	—		(11,024		)
Charged-off loans recovered	5,587			1,686			395			1,172			—		8,840
Net (charge-offs) recoveries	484			(1,094		)	(104		)	(1,470		)	—		(2,184		)
Provision for loan losses	3,377			532			(440		)	758			155		4,382
Ending balance	$	47,537		$	42,278		$	4,549		$	4,467		$	5,720	$	104,551

At December 31, 2015, Valley refined and enhanced its assessment of the adequacy of the allowance for loan losses, including both changes to look-back periods for certain portfolios, as well as enhancements to its qualitative factor framework. The enhancements were meant to increase the level of precision in the allowance for credit losses. As a result, Valley no longer has an “unallocated” segment in its allowance for credit losses, as the risks and uncertainties meant to be captured by the unallocated allowance have been included in the qualitative framework for the respective loan portfolio segment (reported in the tables above) at September 30, 2016. As such, the unallocated allowance has in essence been reallocated to the applicable portfolios based on the risks and uncertainties it was meant to capture.

The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the impairment methodology at September 30, 2016 and December 31, 2015.



	Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Total
	(in thousands)
September 30, 2016
Allowance for loan losses:
Individually evaluated for impairment	$	3,506	$	4,575	$	708	$	210	$	8,999
Collectively evaluated for impairment	47,246		47,885		2,670		3,897		101,698
Total	$	50,752	$	52,460	$	3,378	$	4,107	$	110,697
Loans:
Individually evaluated for impairment	$	27,128	$	69,089	$	18,508	$	1,723	$	116,448
Collectively evaluated for impairment	2,239,292		7,780,548		2,618,803		2,021,929		14,660,572
Loans acquired with discounts related to credit quality	292,548		1,266,786		188,819		108,962		1,857,115
Total	$	2,558,968	$	9,116,423	$	2,826,130	$	2,132,614	$	16,634,135
December 31, 2015
Allowance for loan losses:
Individually evaluated for impairment	$	3,439	$	3,671	$	1,377	$	295	$	8,782
Collectively evaluated for impairment	45,328		44,335		3,248		4,485		97,396
Total	$	48,767	$	48,006	$	4,625	$	4,780	$	106,178
Loans:
Individually evaluated for impairment	$	25,714	$	81,930	$	22,612	$	2,132	$	132,388
Collectively evaluated for impairment	2,130,835		6,595,296		2,889,467		2,054,650		13,670,248
Loans acquired with discounts related to credit quality	383,942		1,502,357		218,462		135,710		2,240,471
Total	$	2,540,491	$	8,179,583	$	3,130,541	$	2,192,492	$	16,043,107