ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

Allowance for Credit Losses Activity

A summary of changes in the allowance for credit losses for the years ended December 31 is as follows:



(Dollars in thousands)	2017			2016			2015
Allowance for credit losses
Allowance for loan losses at beginning of period	$	144,719		$	138,378		$	130,131
Provision for loan losses before adjustment attributable to FDIC loss share agreements	51,111			42,927			29,548
Adjustment attributable to FDIC loss share arrangements	—			1,497			1,360
Net provision for loan losses	51,111			44,424			30,908
Adjustment attributable to FDIC loss share arrangements	—			(1,497		)	(1,360		)
Transfer of balance to OREO and other	934			(2,781		)	(10,419		)
Loans charged-off	(62,466		)	(39,839		)	(17,301		)
Recoveries	6,593			6,034			6,419
Allowance for loan losses at end of period	$	140,891		$	144,719		$	138,378

Reserve for unfunded commitments at beginning of period	$	11,241		$	14,145		$	11,801
Balance created in acquisition accounting	1,370			—			—
Provision for (Reversal of) unfunded lending commitments	597			(2,904		)	2,344
Reserve for unfunded commitments at end of period	$	13,208		$	11,241		$	14,145
Allowance for credit losses at end of period	$	154,099		$	155,960		$	152,523

A summary of changes in the allowance for credit losses, by loan portfolio type, for the years ended December 31 is as follows:



	2017
(Dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Residential Mortgage			Consumer			Total
Allowance for loan losses at beginning of period	$	49,231		$	60,939		$	11,249		$	23,300		$	144,719
Provision for (Reversal of) loan losses	10,433			31,891			(2,206		)	10,993			51,111
Transfer of balance to OREO and other	853			(68		)	2			147			934
Loans charged off	(7,433		)	(40,015		)	(365		)	(14,653		)	(62,466		)
Recoveries	1,117			1,169			437			3,870			6,593
Allowance for loan losses at end of period	$	54,201		$	53,916		$	9,117		$	23,657		$	140,891

Reserve for unfunded commitments at beginning of period	$	3,207		$	4,537		$	657		$	2,840		$	11,241
Balance created in acquisition accounting	253			783			327			7			1,370
Provision for (Reversal of) unfunded commitments	1,071			(11		)	(429		)	(34		)	597
Reserve for unfunded commitments at end of period	$	4,531		$	5,309		$	555		$	2,813		$	13,208

Allowance on loans individually evaluated for impairment	$	1,588		$	12,736		$	172		$	2,856		$	17,352
Allowance on loans collectively evaluated for impairment	30,360			38,944			3,141			17,210			89,655
Allowance on loans acquired with deteriorated credit quality	22,253			2,236			5,804			3,591			33,884

Loans, net of unearned income:
Balance at end of period	$	8,938,230		$	5,135,067		$	3,056,352		$	2,948,532		$	20,078,181
Balance at end of period individually evaluated for impairment	91,785			102,416			6,749			37,177			238,127
Balance at end of period collectively evaluated for impairment	8,616,924			5,001,505			2,911,222			2,828,848			19,358,499
Balance at end of period acquired with deteriorated credit quality	229,521			31,146			138,381			82,507			481,555



	2016
(Dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Residential Mortgage			Consumer			Total
Allowance for loan losses at beginning of period	$	51,372		$	49,355		$	11,789		$	25,862		$	138,378
Provision for loan losses	1,958			32,296			824			9,346			44,424
Decrease in FDIC loss share receivable	(34		)	(50		)	(1,090		)	(323		)	(1,497		)
Transfer of balance to OREO and other	(868		)	(519		)	(141		)	(1,253		)	(2,781		)
Loans charged off	(4,338		)	(21,645		)	(313		)	(13,543		)	(39,839		)
Recoveries	1,141			1,502			180			3,211			6,034
Allowance for loan losses at end of period	$	49,231		$	60,939		$	11,249		$	23,300		$	144,719

Reserve for unfunded commitments at beginning of period	$	4,167		$	6,106		$	830		$	3,042		$	14,145
Reversal of provision for unfunded commitments	(960		)	(1,569		)	(173		)	(202		)	(2,904		)
Reserve for unfunded commitments at end of period	$	3,207		$	4,537		$	657		$	2,840		$	11,241

Allowance on loans individually evaluated for impairment	$	1,378		$	21,413		$	144		$	1,358		$	24,293
Allowance on loans collectively evaluated for impairment	25,248			37,206			4,223			17,537			84,214
Allowance on loans acquired with deteriorated credit quality	22,605			2,320			6,882			4,405			36,212

Loans, net of unearned income:
Balance at end of period	$	6,846,549		$	4,060,032		$	1,267,400		$	2,890,990		$	15,064,971
Balance at end of period individually evaluated for impairment	61,006			220,995			4,312			16,467			302,780
Balance at end of period collectively evaluated for impairment	6,504,875			3,806,305			1,140,136			2,780,689			14,232,005
Balance at end of period acquired with deteriorated credit quality	280,668			32,732			122,952			93,834			530,186



	2015
(Dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Residential Mortgage			Consumer			Total
Allowance for loan losses at beginning of period	$	57,093		$	33,328		$	9,162		$	30,548		$	130,131
Provision for loan losses	1,059			17,423			3,620			8,806			30,908
Increase (Decrease) in FDIC loss share receivable	757			(49		)	(235		)	(1,833		)	(1,360		)
Transfer of balance to OREO and other	(6,849		)	(275		)	(491		)	(2,804		)	(10,419		)
Loans charged off	(2,806		)	(1,279		)	(362		)	(12,854		)	(17,301		)
Recoveries	2,118			207			95			3,999			6,419
Allowance for loan losses at end of period	$	51,372		$	49,355		$	11,789		$	25,862		$	138,378

Reserve for unfunded commitments at beginning of period	$	3,439		$	5,260		$	168		$	2,934		$	11,801
Provision for unfunded commitments	728			846			662			108			2,344
Reserve for unfunded commitments at end of period	$	4,167		$	6,106		$	830		$	3,042		$	14,145

Allowance on loans individually evaluated for impairment	$	1,287		$	2,394		$	1		$	397		$	4,079
Allowance on loans collectively evaluated for impairment	24,186			44,080			4,150			17,839			90,255
Allowance on loans acquired with deteriorated credit quality	25,899			2,881			7,638			7,626			44,044

Loans, net of unearned income:
Balance at end of period	$	6,125,927		$	4,072,928		$	1,195,319		$	2,933,254		$	14,327,428
Balance at end of period individually evaluated for impairment	29,578			33,270			70			5,066			67,984
Balance at end of period collectively evaluated for impairment	5,685,272			3,987,665			1,054,669			2,807,119			13,534,725
Balance at end of period acquired with deteriorated credit quality	411,077			51,993			140,580			121,069			724,719

Portfolio Segment Risk Factors

Commercial real estate loans include loans to commercial customers for long-term financing of land and buildings or for land development or construction of a building. These loans are repaid through revenues from operations of the businesses, rents of properties, sales of properties and refinances. Commercial and industrial loans represent loans to commercial customers to finance general working capital needs, equipment purchases and other projects where repayment is derived from cash flows resulting from business operations. The Company originates commercial business loans on a secured and, to a lesser extent, unsecured basis.

Residential mortgage loans consist of loans to consumers to finance a primary residence. The vast majority of the residential mortgage loan portfolio is comprised of non-conforming 1-4 family mortgage loans secured by properties located in the Company's market areas and originated under terms and documentation that permit their sale in a secondary market.

Consumer loans are offered by the Company in order to provide a full range of retail financial services to its customers and include home equity, credit card and other direct consumer installment loans. The Company originates substantially all of its consumer loans in its primary market areas. Loans in the consumer segment are sensitive to unemployment and other key consumer economic measures.

Credit Quality

The Company utilizes an asset risk classification system in accordance with guidelines established by the Federal Reserve Board as part of its efforts to monitor commercial asset quality. “Special mention” loans are defined as loans where known information about possible credit problems of the borrower cause management to have some doubt as to the ability of these borrowers to comply with the present loan repayment terms and which may result in future disclosure of these loans as non-performing. For assets with identified credit issues, the Company has two primary classifications for problem assets: “substandard” and “doubtful.”

Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full satisfaction of the loan balance outstanding questionable, which makes probability of loss based on currently existing facts, conditions, and values higher. Loans classified as "Loss" have been identified as uncollectible and in most cases these loans will be charged off in the subsequent reporting period. Loans classified as “Pass” do not meet the criteria set forth for special mention, substandard, doubtful, or loss classification and are not considered criticized. Asset risk classifications are determined at origination or acquisition and reviewed on an ongoing basis. Risk classifications are changed if, in the opinion of management, the risk profile of the customer has changed since the last review of the loan relationship.

The Company’s investment in loans by credit quality indicator is presented in the following tables. Asset risk classifications for commercial loans reflect the classification as of December 31, 2017 and 2016, respectively. Credit quality information in the tables below includes total loans acquired (including acquired impaired loans) at the net loan balance, after the application of premiums/discounts, at December 31, 2017 and 2016. Loan premiums/discounts represent the adjustment of acquired loans to fair value at the acquisition date, as adjusted for income accretion and changes in cash flow estimates in subsequent periods.

Loan delinquency is the primary credit quality indicator that the Company utilizes to monitor consumer asset quality.




	December 31, 2017												December 31, 2016
(Dollars in thousands)	Pass		Special Mention		Sub- standard		Doubtful		Loss		Total		Pass		Special Mention		Sub- standard		Doubtful		Loss		Total
Commercial real estate - construction	$	1,189,490	$	20,351	$	30,541	$	14	$	—	$	1,240,396	$	775,387	$	2,694	$	22,026	$	2,135	$	—	$	802,242
Commercial real estate - owner-occupied	2,388,715		82,114		56,590		2,466		—		2,529,885		2,180,201		29,039		66,816		1,670		23		2,277,749
Commercial real estate - non-owner-occupied	5,104,074		19,311		42,702		1,744		118		5,167,949		3,687,439		23,004		55,576		539		—		3,766,558
Commercial and industrial	4,882,554		88,149		128,961		35,403		—		5,135,067		3,660,080		104,482		266,553		28,917		—		4,060,032
Total	$	13,564,833	$	209,925	$	258,794	$	39,627	$	118	$	14,073,297	$	10,303,107	$	159,219	$	410,971	$	33,261	$	23	$	10,906,581




	December 31, 2017						December 31, 2016
(Dollars in thousands)	Current		30+ Days Past Due		Total		Current		30+ Days Past Due		Total
Residential mortgage	$	2,962,043	$	94,309	$	3,056,352	$	1,229,761	$	37,639	$	1,267,400
Consumer - home equity	2,250,205		42,070		2,292,275		2,129,110		26,816		2,155,926
Consumer - indirect automobile	59,836		2,857		62,693		127,047		4,005		131,052
Consumer - credit card	95,263		1,105		96,368		82,052		940		82,992
Consumer - other	490,399		6,797		497,196		515,857		5,163		521,020
Total	$	5,857,746	$	147,138	$	6,004,884	$	4,083,827	$	74,563	$	4,158,390

Impaired Loans

Information on the Company’s investment in impaired loans, which include all TDRs and all other non-accrual loans evaluated or measured individually for impairment for purposes of determining the allowance for loan losses, is presented in the following tables as of and for the periods indicated.



	December 31, 2017
(Dollars in thousands)	Unpaid Principal Balance		Recorded Investment		Related Allowance			Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate - construction	$	13,763	$	13,013	$	—		$	9,104	$	441
Commercial real estate - owner-occupied	50,867		44,482		—			53,282		1,389
Commercial real estate - non-owner-occupied	15,370		14,975		—			15,127		692
Commercial and industrial	103,013		70,254		—			92,312		2,279
Residential mortgage	2,004		2,001		—			2,044		85
Consumer - home equity	5,906		5,634		—			5,747		231
Consumer - other	75		75		—			11		1
With an allowance recorded:
Commercial real estate - construction	238		156		(19		)	197		6
Commercial real estate - owner-occupied	13,314		13,287		(949		)	13,498		414
Commercial real estate - non-owner-occupied	6,051		5,872		(620		)	6,196		154
Commercial and industrial	35,306		32,162		(12,736		)	42,874		1,220
Residential mortgage	5,179		4,748		(172		)	4,861		180
Consumer - home equity	27,189		26,575		(2,358		)	23,546		1,007
Consumer - indirect automobile	1,034		679		(79		)	873		38
Consumer - other	4,320		4,214		(419		)	3,582		231
Total	$	283,629	$	238,127	$	(17,352	)	$	273,254	$	8,368
Total commercial loans	$	237,922	$	194,201	$	(14,324	)	$	232,590	$	6,595
Total mortgage loans	7,183		6,749		(172		)	6,905		265
Total consumer loans	38,524		37,177		(2,856		)	33,759		1,508



	December 31, 2016
(Dollars in thousands)	Unpaid Principal Balance		Recorded Investment		Related Allowance			Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate - construction	$	38	$	38	$	—		$	28	$	—
Commercial real estate - owner-occupied	25,180		25,074		—			25,890		647
Commercial real estate - non-owner-occupied	15,654		14,794		—			19,587		879
Commercial and industrial	148,311		138,202		—			111,261		3,418
Consumer - home equity	—		—		—			—		—
Consumer - other	—		—		—			—		—
With an allowance recorded:
Commercial real estate - construction	1,946		1,946		(649		)	1,839		54
Commercial real estate - owner-occupied	17,580		17,429		(640		)	16,668		493
Commercial real estate - non-owner-occupied	1,743		1,725		(89		)	1,782		95
Commercial and industrial	84,197		82,793		(21,413		)	78,270		2,858
Residential mortgage	4,628		4,312		(144		)	4,377		161
Consumer - home equity	13,916		13,267		(993		)	10,237		435
Consumer - indirect automobile	1,037		758		(114		)	956		49
Consumer - other	2,448		2,442		(251		)	1,469		102
Total	$	316,678	$	302,780	$	(24,293	)	$	272,364	$	9,191
Total commercial loans	$	294,649	$	282,001	$	(22,791	)	$	255,325	$	8,444
Total mortgage loans	4,628		4,312		(144		)	4,377		161
Total consumer loans	17,401		16,467		(1,358		)	12,662		586



	December 31, 2015
(Dollars in thousands)	Unpaid Principal Balance		Recorded Investment		Related Allowance			Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate - construction	$	54	$	51	$	—		$	55	$	1
Commercial real estate - owner-occupied	3,630		3,495		—			2,928		106
Commercial real estate - non-owner-occupied	13,318		12,600		—			12,881		209
Commercial and industrial	14,571		14,340		—			18,839		1,148
Consumer - home equity	730		730		—			533		22
Consumer - other	66		66		—			66		5
With an allowance recorded:
Commercial real estate - construction	3		3		(2		)	57		1
Commercial real estate - owner-occupied	12,744		12,691		(1,244		)	12,908		527
Commercial real estate - non-owner-occupied	738		738		(41		)	1,027		62
Commercial and industrial	18,958		18,930		(2,394		)	20,055		776
Residential mortgage	70		70		(1		)	70		5
Consumer - home equity	3,859		3,683		(338		)	2,454		73
Consumer - other	588		587		(59		)	488		3
Total	$	69,329	$	67,984	$	(4,079	)	$	72,361	$	2,938
Total commercial loans	$	64,016	$	62,848	$	(3,681	)	$	68,750	$	2,830
Total mortgage loans	70		70		(1		)	70		5
Total consumer loans	5,243		5,066		(397		)	3,541		103

As of December 31, 2017 and 2016, the Company was not committed to lend a material amount of additional funds to any customer whose loan was classified as impaired or as a troubled debt restructuring.