LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans and Loans Held for Sale

Loans are summarized as follows according to major portfolio segment and specific loan class:



(In thousands)	June 30, 2012		December 31, 2011
Loans held for sale	$	139,245	$	201,590
Commercial:
Commercial and industrial	$	10,382,676	$	10,334,858
Leasing	406,502		379,709
Owner occupied	7,810,636		8,158,556
Municipal	476,668		441,241
Total commercial	19,076,482		19,314,364
Commercial real estate:
Construction and land development	2,099,064		2,264,909
Term	8,011,281		7,883,434
Total commercial real estate	10,110,345		10,148,343
Consumer:
Home equity credit line	2,180,857		2,187,428
1-4 family residential	4,018,858		3,921,216
Construction and other consumer real estate	327,867		305,873
Bankcard and other revolving plans	284,112		291,018
Other	232,583		225,540
Total consumer	7,044,277		6,931,075
FDIC-supported loans	642,246		750,870
Total loans	$	36,873,350	$	37,144,652

FDIC-supported loans were acquired during 2009 and are indemnified by the Federal Deposit Insurance Corporation (“FDIC”) under loss sharing agreements. The FDIC-supported loan balances presented in the accompanying schedules include purchased credit-impaired loans accounted for at their carrying values rather than their outstanding balances. See subsequent discussion under Purchased Loans.

Loan balances are presented net of unearned income and fees, which amounted to $133.1 million at both June 30, 2012 and December 31, 2011.

Owner occupied and commercial real estate loans include unamortized premiums of approximately $64.8 million at June 30, 2012 and $73.4 million at December 31, 2011.

Municipal loans generally include loans to municipalities with the debt service being repaid from general funds or pledged revenues of the municipal entity, or to private commercial entities or 501(c)(3) not-for-profit entities utilizing a pass-through municipal entity to achieve favorable tax treatment.

Loans with a carrying value of approximately $21.0 billion at June 30, 2012 and $21.1 billion at December 31, 2011 have been made available for pledging at the Federal Reserve and various Federal Home Loan Banks as collateral for current and potential borrowings.

We sold loans totaling $449 million and $875 million for the three and six months ended June 30, 2012, and $392 million and $850 million for the three and six months ended June 30, 2011, respectively, that were previously classified as loans held for sale. Amounts added to loans held for sale during these periods were $401 million and $808 million for the three and six months ended June 30, 2012 and $353 million and $788 million for the three and six months ended June 30, 2011, respectively. Income from loans sold, excluding servicing, was $7.9 million and $14.0 million for the three and six months ended June 30, 2012 and $7.0 million and $10.1 million for the three and six months ended June 30, 2011.

Allowance for Credit Losses

The allowance for credit losses (“ACL”) consists of the allowance for loan and lease losses (“ALLL,” also referred to as the allowance for loan losses) and the reserve for unfunded lending commitments (“RULC”).

Allowance for Loan and Lease Losses

The ALLL represents our estimate of probable and estimable losses inherent in the loan and lease portfolio as of the balance sheet date. Losses are charged to the ALLL when recognized. Generally, commercial loans are charged off or charged down at the point at which they are determined to be uncollectible in whole or in part, or when 180 days past due unless the loan is well secured and in the process of collection. Consumer loans are either charged off or charged down to net realizable value no later than the month in which they become 180 days past due. Closed-end loans that are not secured by residential real estate are either charged off or charged down to net realizable value no later than the month in which they become 120 days past due. We establish the amount of the ALLL by analyzing the portfolio at least quarterly, and we adjust the provisions for loan losses so the ALLL is at an appropriate level at the balance sheet date.

We determine our ALLL as the best estimate within a range of estimated losses. The methodologies we use to estimate the ALLL depend upon the impairment status and portfolio segment of the loan. The methodology for impaired loans is discussed subsequently. For the commercial and commercial real estate segments, we use a comprehensive loan grading system to assign probability of default and loss given default grades to each loan. The credit quality indicators discussed subsequently are based on this grading system. Probability of default and loss given default grades are based on both financial and statistical models and loan officers’ judgment. We create groupings of these grades for each subsidiary bank and loan class and calculate historic loss rates using a loss migration analysis that attributes historic realized losses to historic loan grades over the most recent 60 months.

For the consumer loan segment, we use roll rate models to forecast probable inherent losses. Roll rate models measure the rate at which consumer loans migrate from one delinquency category to the next worse delinquency category, and eventually to loss. We estimate roll rates for consumer loans using recent delinquency and loss experience. These roll rates are then applied to current delinquency levels to estimate probable inherent losses.

For FDIC-supported loans purchased with evidence of credit deterioration, we determine the ALLL according to separate accounting guidance. The accounting for these loans, including the allowance calculation, is described in the Purchased Loans section following.

After applying historic loss experience, as described above, we review the quantitatively derived level of ALLL for each segment using qualitative criteria. We track various risk factors that influence our judgment regarding the level of the ALLL across the portfolio segments. Primary qualitative and environmental factors that may not be reflected in our quantitative models include:


•	Asset quality trends


•	Risk management and loan administration practices


•	Risk identification practices


•	Effect of changes in the nature and volume of the portfolio


•	Existence and effect of any portfolio concentrations


•	National economic and business conditions


•	Regional and local economic and business conditions


•	Data availability and applicability

We review changes in these factors to ensure that changes in the level of the ALLL are directionally consistent with changes in these factors. The magnitude of the impact of these factors on our qualitative assessment of the ALLL changes from quarter to quarter according to the extent these factors are already reflected in historic loss rates and according to the extent these factors diverge from one another. We also consider the uncertainty inherent in the estimation process when evaluating the ALLL.

Reserve for Unfunded Lending Commitments

We also estimate a reserve for potential losses associated with off-balance sheet commitments and standby letters of credit. We determine the RULC using the same procedures and methodologies that we use for the ALLL. The loss factors used in the RULC are the same as the loss factors used in the ALLL, and the qualitative adjustments used in the RULC are the same as the qualitative adjustments used in the ALLL. We adjust the Company’s unfunded lending commitments that are not unconditionally cancelable to an outstanding amount equivalent using credit conversion factors and we apply the loss factors to the outstanding equivalents.

Changes in the allowance for credit losses are summarized as follows:

	Three Months Ended June 30, 2012
(In thousands)	Commercial			Commercial real estate			Consumer			FDIC- supported ¹			Total
Allowance for loan losses:
Balance at beginning of period	$	631,169		$	248,744		$	109,101		$	21,045		$	1,010,059
Additions:
Provision for loan losses	5,733			(6,271		)	12,455			(1,064		)	10,853
Adjustment for FDIC-supported loans										(5,856		)	(5,856		)
Deductions:
Gross loan and lease charge-offs	(31,576		)	(22,823		)	(17,322		)	(1,964		)	(73,685		)
Recoveries	11,033			12,399			(1,843		)	8,756			30,345
Net loan and lease charge-offs	(20,543		)	(10,424		)	(19,165		)	6,792			(43,340		)
Balance at end of period	$	616,359		$	232,049		$	102,391		$	20,917		$	971,716

Reserve for unfunded lending commitments:
Balance at beginning of period	$	72,002		$	25,799		$	917		$	—		$	98,718
Provision charged (credited) to earnings	(1,449		)	5,864			453			—			4,868
Balance at end of period	$	70,553		$	31,663		$	1,370		$	—		$	103,586

Total allowance for credit losses at end of period:
Allowance for loan losses	$	616,359		$	232,049		$	102,391		$	20,917		$	971,716
Reserve for unfunded lending commitments	70,553			31,663			1,370			—			103,586
Total allowance for credit losses	$	686,912		$	263,712		$	103,761		$	20,917		$	1,075,302



	Six Months Ended June 30, 2012
(In thousands)	Commercial			Commercial real estate			Consumer			FDIC- supported ¹			Total
Allowance for loan losses:
Balance at beginning of period	$	627,825		$	275,546		$	123,115		$	23,472		$	1,049,958
Additions:
Provision for loan losses	32,898			(18,410		)	12,407			(378		)	26,517
Adjustment for FDIC-supported loans										(6,913		)	(6,913		)
Deductions:
Gross loan and lease charge-offs	(65,053		)	(49,834		)	(34,331		)	(4,481		)	(153,699		)
Recoveries	20,689			24,747			1,200			9,217			55,853
Net loan and lease charge-offs	(44,364		)	(25,087		)	(33,131		)	4,736			(97,846		)
Balance at end of period	$	616,359		$	232,049		$	102,391		$	20,917		$	971,716

Reserve for unfunded lending commitments:
Balance at beginning of period	$	77,232		$	23,572		$	1,618		$	—		$	102,422
Provision charged (credited) to earnings	(6,679		)	8,091			(248		)	—			1,164
Balance at end of period	$	70,553		$	31,663		$	1,370		$	—		$	103,586

Total allowance for credit losses at end of period:
Allowance for loan losses	$	616,359		$	232,049		$	102,391		$	20,917		$	971,716
Reserve for unfunded lending commitments	70,553			31,663			1,370			—			103,586
Total allowance for credit losses	$	686,912		$	263,712		$	103,761		$	20,917		$	1,075,302



	Three Months Ended June 30, 2011
(In thousands)	Commercial			Commercial real estate			Consumer			FDIC- supported ¹			Total
Allowance for loan losses:
Balance at beginning of period	$	694,090		$	480,514		$	148,110		$	27,086		$	1,349,800
Additions:
Provision for loan losses	9,825			(33,567		)	21,990			3,082			1,330
Adjustment for FDIC-supported loans										(162		)	(162		)
Deductions:
Gross loan and lease charge-offs	(49,673		)	(64,811		)	(23,611		)	(4,349		)	(142,444		)
Recoveries	13,404			10,716			3,284			1,805			29,209
Net loan and lease charge-offs	(36,269		)	(54,095		)	(20,327		)	(2,544		)	(113,235		)
Balance at end of period	$	667,646		$	392,852		$	149,773		$	27,462		$	1,237,733

Reserve for unfunded lending commitments:
Balance at beginning of period	$	74,429		$	26,300		$	1,439		$	—		$	102,168
Provision charged (credited) to earnings	653			(2,448		)	(109		)	—			(1,904		)
Balance at end of period	$	75,082		$	23,852		$	1,330		$	—		$	100,264

Total allowance for credit losses at end of period:
Allowance for loan losses	$	667,646		$	392,852		$	149,773		$	27,462		$	1,237,733
Reserve for unfunded lending commitments	75,082			23,852			1,330			—			100,264
Total allowance for credit losses	$	742,728		$	416,704		$	151,103		$	27,462		$	1,337,997



	Six Months Ended June 30, 2011
(In thousands)	Commercial			Commercial real estate			Consumer			FDIC- supported ¹			Total
Allowance for loan losses:
Balance at beginning of period	$	761,107		$	487,235		$	154,326		$	37,673		$	1,440,341
Additions:
Provision for loan losses	(9,900		)	28,295			37,946			4,989			61,330
Adjustment for FDIC-supported loans										(4,676		)	(4,676		)
Deductions:
Gross loan and lease charge-offs	(109,056		)	(138,191		)	(49,932		)	(13,233		)	(310,412		)
Recoveries	25,495			15,513			7,433			2,709			51,150
Net loan and lease charge-offs	(83,561		)	(122,678		)	(42,499		)	(10,524		)	(259,262		)
Balance at end of period	$	667,646		$	392,852		$	149,773		$	27,462		$	1,237,733

Reserve for unfunded lending commitments:
Balance at beginning of period	$	83,352		$	26,373		$	1,983		$	—		$	111,708
Provision charged (credited) to earnings	(8,270		)	(2,521		)	(653		)	—			(11,444		)
Balance at end of period	$	75,082		$	23,852		$	1,330		$	—		$	100,264

Total allowance for credit losses at end of period:
Allowance for loan losses	$	667,646		$	392,852		$	149,773		$	27,462		$	1,237,733
Reserve for unfunded lending commitments	75,082			23,852			1,330			—			100,264
Total allowance for credit losses	$	742,728		$	416,704		$	151,103		$	27,462		$	1,337,997

¹The Purchased Loans section following contains further discussion related to FDIC-supported loans.

The ALLL and outstanding loan balances according to the Company’s impairment method are summarized as follows:

	June 30, 2012
(In thousands)	Commercial		Commercial real estate		Consumer		FDIC- supported		Total
Allowance for loan losses:
Individually evaluated for impairment	$	34,434	$	24,141	$	12,042	$	542	$	71,159
Collectively evaluated for impairment	581,925		207,908		90,349		15,424		895,606
Purchased loans with evidence of credit deterioration	—		—		—		4,951		4,951
Total	$	616,359	$	232,049	$	102,391	$	20,917	$	971,716

Outstanding loan balances:
Individually evaluated for impairment	$	368,751	$	505,902	$	105,769	$	1,819	$	982,241
Collectively evaluated for impairment	18,707,731		9,604,443		6,938,508		543,631		35,794,313
Purchased loans with evidence of credit deterioration	—		—		—		96,796		96,796
Total	$	19,076,482	$	10,110,345	$	7,044,277	$	642,246	$	36,873,350



	December 31, 2011
(In thousands)	Commercial		Commercial real estate		Consumer		FDIC- supported		Total
Allowance for loan losses:
Individually evaluated for impairment	$	11,456	$	20,971	$	8,995	$	623	$	42,045
Collectively evaluated for impairment	616,369		254,575		114,120		16,830		1,001,894
Purchased loans with evidence of credit deterioration	—		—		—		6,019		6,019
Total	$	627,825	$	275,546	$	123,115	$	23,472	$	1,049,958

Outstanding loan balances:
Individually evaluated for impairment	$	349,662	$	668,022	$	113,798	$	2,701	$	1,134,183
Collectively evaluated for impairment	18,964,702		9,480,321		6,817,277		637,962		35,900,262
Purchased loans with evidence of credit deterioration	—		—		—		110,207		110,207
Total	$	19,314,364	$	10,148,343	$	6,931,075	$	750,870	$	37,144,652

Nonaccrual and Past Due Loans

Loans are generally placed on nonaccrual status when payment in full of principal and interest is not expected, or the loan is 90 days or more past due as to principal or interest, unless the loan is both well secured and in the process of collection. Factors we consider in determining whether a loan is placed on nonaccrual include delinquency status, collateral value, borrower or guarantor financial statement information, bankruptcy status, and other information which would indicate that the full and timely collection of interest and principal is uncertain.

A nonaccrual loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement; the loan, if secured, is well secured; the borrower has paid according to the contractual terms for a minimum of six months; and analysis of the borrower indicates a reasonable assurance of the ability and willingness to maintain payments. Payments received on nonaccrual loans are applied as a reduction to the principal outstanding.

Closed-end loans with payments scheduled monthly are reported as past due when the borrower is in arrears for two or more monthly payments. Similarly, open-end credit such as charge-card plans and other revolving credit plans are reported as past due when the minimum payment has not been made for two or more billing cycles. Other multi-payment obligations (i.e., quarterly, semiannual, etc.), single payment, and demand notes are reported as past due when either principal or interest is due and unpaid for a period of 30 days or more.

Nonaccrual loans are summarized as follows:

(In thousands)	June 30, 2012		December 31, 2011
Loans held for sale	$	30	$	18,216
Commercial:
Commercial and industrial	$	133,241	$	126,468
Leasing	1,259		1,546
Owner occupied	239,549		239,203
Total commercial	374,049		367,217
Commercial real estate:
Construction and land development	115,411		219,837
Term	182,412		156,165
Total commercial real estate	297,823		376,002
Consumer:
Home equity credit line	13,741		18,376
1-4 family residential	74,935		90,857
Construction and other consumer real estate	7,731		12,096
Bankcard and other revolving plans	1,256		346
Other	1,945		2,498
Total consumer loans	99,608		124,173
FDIC-supported loans	21,980		24,267
Total	$	793,460	$	891,659

Past due loans (accruing and nonaccruing) are summarized as follows:

	June 30, 2012
(In thousands)	Current		30-89 days past due		90+ days past due		Total past due		Total loans		Accruing loans 90+ days past due		Nonaccrual loans that are current¹
Loans held for sale	$	139,215	$	30	$	—	$	30	$	139,245	$	—	$	—
Commercial:
Commercial and industrial	$	10,242,577	$	53,792	$	86,307	$	140,099	$	10,382,676	$	7,440	$	44,566
Leasing	404,387		825		1,290		2,115		406,502		34		—
Owner occupied	7,632,058		53,507		125,071		178,578		7,810,636		4,674		97,109
Municipal	476,668		—		—		—		476,668		—		—
Total commercial	18,755,690		108,124		212,668		320,792		19,076,482		12,148		141,675
Commercial real estate:
Construction and land development	2,008,441		32,853		57,770		90,623		2,099,064		2,335		50,991
Term	7,885,492		36,470		89,319		125,789		8,011,281		1,221		80,753
Total commercial real estate	9,893,933		69,323		147,089		216,412		10,110,345		3,556		131,744
Consumer:
Home equity credit line	2,169,606		6,188		5,063		11,251		2,180,857		—		6,001
1-4 family residential	3,960,786		13,405		44,667		58,072		4,018,858		459		27,160
Construction and other consumer real estate	310,855		2,101		14,911		17,012		327,867		12,096		4,339
Bankcard and other revolving plans	279,221		3,144		1,747		4,891		284,112		1,197		580
Other	229,536		1,639		1,408		3,047		232,583		4		465
Total consumer loans	6,950,004		26,477		67,796		94,273		7,044,277		13,756		38,545
FDIC-supported loans	541,689		17,430		83,127		100,557		642,246		70,453		7,395
Total	$	36,141,316	$	221,354	$	510,680	$	732,034	$	36,873,350	$	99,913	$	319,359



	December 31, 2011
(In thousands)	Current		30-89 days past due		90+ days past due		Total past due		Total loans		Accruing loans 90+ days past due		Nonaccrual loans that are current¹
Loans held for sale	$	183,344	$	—	$	18,246	$	18,246	$	201,590	$	30	$	—

Commercial:
Commercial and industrial	$	10,198,434	$	62,153	$	74,271	$	136,424	$	10,334,858	$	4,966	$	47,939
Leasing	377,914		1,634		161		1,795		379,709		—		1,319
Owner occupied	7,953,280		93,763		111,513		205,276		8,158,556		3,230		85,495
Municipal	441,241		—		—		—		441,241		—		—
Total commercial	18,970,869		157,550		185,945		343,495		19,314,364		8,196		134,753

Commercial real estate:
Construction and land development	2,137,544		21,562		105,803		127,365		2,264,909		2,471		107,991
Term	7,770,268		51,592		61,574		113,166		7,883,434		4,170		88,451
Total commercial real estate	9,907,812		73,154		167,377		240,531		10,148,343		6,641		196,442

Consumer:
Home equity credit line	2,169,190		8,669		9,569		18,238		2,187,428		—		5,542
1-4 family residential	3,846,012		18,985		56,219		75,204		3,921,216		2,833		32,067
Construction and other consumer real estate	294,371		5,008		6,494		11,502		305,873		136		4,773
Bankcard and other revolving plans	287,541		1,984		1,493		3,477		291,018		1,309		122
Other	221,575		1,995		1,970		3,965		225,540		—		372
Total consumer loans	6,818,689		36,641		75,745		112,386		6,931,075		4,278		42,876

FDIC-supported loans	634,113		27,791		88,966		116,757		750,870		74,611		6,812
Total	$	36,331,483	$	295,136	$	518,033	$	813,169	$	37,144,652	$	93,726	$	380,883

¹Represents nonaccrual loans that are not past due more than 30 days; however, full payment of principal and interest is still not expected.

Credit Quality Indicators

In addition to the past due and nonaccrual criteria, we also analyze loans using a loan grading system. We generally assign internal grades to loans with commitments less than $500,000 based on the performance of those loans. Performance-based grades follow our definitions of Pass, Special Mention, Substandard, and Doubtful, which are consistent with published definitions of regulatory risk classifications.

Definitions of Pass, Special Mention, Substandard, and Doubtful are summarized as follows:

Pass: A Pass asset is higher quality and does not fit any of the other categories described below. The likelihood of loss is considered remote.

Special Mention: A Special Mention asset has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the bank is currently protected and loss is considered unlikely and not imminent.

Substandard: A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have well defined weaknesses and are characterized by the distinct possibility that the bank may sustain some loss if deficiencies are not corrected.

Doubtful: A Doubtful asset has all the weaknesses inherent in a Substandard asset with the added characteristics that the weaknesses make collection or liquidation in full highly questionable.

We generally assign internal grades to commercial and commercial real estate loans with commitments equal to or greater than $500,000 based on financial/statistical models and loan officer judgment. For these larger loans, we assign one of fourteen probability of default grades (in order of declining credit quality) and one of twelve loss-given-default grades. The first ten of the fourteen probability of default grades indicate a Pass grade. The remaining four grades are: Special Mention, Substandard, Doubtful, and Loss. Loss indicates that the outstanding balance has been charged-off. We evaluate our credit quality information such as risk grades at least quarterly, or as soon as we identify information that might warrant an upgrade or downgrade. Risk grades are then updated as necessary.

For consumer loans, we generally assign internal risk grades similar to those described previously based on payment performance. These are generally assigned with either a Pass or Substandard grade and are reviewed as we identify information that might warrant an upgrade or downgrade.

Outstanding loan balances (accruing and nonaccruing) categorized by these credit quality indicators are summarized as follows:



	June 30, 2012
(In thousands)	Pass		Special Mention		Sub- standard		Doubtful		Total loans		Total allowance
Loans held for sale	$	138,633	$	—	$	612	$	—	$	139,245	$	—
Commercial:
Commercial and industrial	$	9,750,389	$	275,392	$	343,102	$	13,793	$	10,382,676
Leasing	395,595		3,232		7,675		—		406,502
Owner occupied	7,104,691		154,787		544,520		6,638		7,810,636
Municipal	465,266		11,402		—		—		476,668
Total commercial	17,715,941		444,813		895,297		20,431		19,076,482		$	616,359
Commercial real estate:
Construction and land development	1,655,632		162,031		280,118		1,283		2,099,064
Term	7,328,172		200,661		475,965		6,483		8,011,281
Total commercial real estate	8,983,804		362,692		756,083		7,766		10,110,345		232,049
Consumer:
Home equity credit line	2,134,373		103		46,333		48		2,180,857
1-4 family residential	3,889,904		2,613		126,126		215		4,018,858
Construction and other consumer real estate	303,565		12,127		10,644		1,531		327,867
Bankcard and other revolving plans	272,140		3,553		8,419		—		284,112
Other	227,976		—		4,607		—		232,583
Total consumer loans	6,827,958		18,396		196,129		1,794		7,044,277		102,391
FDIC-supported loans	409,492		25,297		207,457		—		642,246		20,917
Total	$	33,937,195	$	851,198	$	2,054,966	$	29,991	$	36,873,350	$	971,716



	December 31, 2011
(In thousands)	Pass		Special Mention		Sub- standard		Doubtful		Total loans		Total allowance
Loans held for sale	$	182,626	$	—	$	18,964	$	—	$	201,590	$	—
Commercial:
Commercial and industrial	$	9,612,143	$	271,845	$	442,139	$	8,731	$	10,334,858
Leasing	362,711		5,878		11,120		—		379,709
Owner occupied	7,481,207		184,821		486,584		5,944		8,158,556
Municipal	425,807		15,434		—		—		441,241
Total commercial	17,881,868		477,978		939,843		14,675		19,314,364		$	627,825
Commercial real estate:
Construction and land development	1,647,741		187,323		426,152		3,693		2,264,909
Term	7,243,678		196,377		437,390		5,989		7,883,434
Total commercial real estate	8,891,419		383,700		863,542		9,682		10,148,343		275,546
Consumer:
Home equity credit line	2,136,190		106		51,089		43		2,187,428
1-4 family residential	3,788,958		5,736		126,277		245		3,921,216
Construction and other consumer real estate	274,712		12,206		16,967		1,988		305,873
Bankcard and other revolving plans	278,767		3,832		8,419		—		291,018
Other	221,114		163		4,256		7		225,540
Total consumer loans	6,699,741		22,043		207,008		2,283		6,931,075		123,115
FDIC-supported loans	499,956		35,877		215,031		6		750,870		23,472
Total	$	33,972,984	$	919,598	$	2,225,424	$	26,646	$	37,144,652	$	1,049,958

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled interest payments. If a nonaccrual loan has a balance greater than $1 million or if a loan is a troubled debt restructuring (“TDR”), including TDRs that subsequently default, we evaluate the loan for impairment and estimate a specific reserve for the loan for all portfolio segments under applicable accounting guidance. Smaller nonaccrual loans are pooled for ALLL estimation purposes.

When a loan is impaired, we estimate a specific reserve for the loan based on the projected present value of the loan’s future cash flows discounted at the loan’s effective interest rate, the observable market price of the loan, or the fair value of the loan’s underlying collateral less the cost to sell. The process of estimating future cash flows also incorporates the same determining factors discussed previously under nonaccrual loans. When we base the impairment amount on the fair value of the loan’s underlying collateral, we generally charge off the portion of the balance that is impaired, such that these loans do not have a specific reserve in the ALLL. Payments received on impaired loans that are accruing are recognized in interest income, according to the contractual loan agreement. Payments received on impaired loans that are on nonaccrual are not recognized in interest income, but are applied as a reduction to the principal outstanding. Payments are recognized when cash is received.

Information on impaired loans individually evaluated is summarized as follows, including the average recorded investment and interest income recognized for the three and six months ended June 30, 2012 and 2011:



	June 30, 2012
(In thousands)	Unpaid principal balance		Recorded investment				Total recorded investment		Related allowance
			with no allowance		with allowance
Commercial:
Commercial and industrial	$	218,406	$	35,361	$	128,168	$	163,529	$	23,015
Owner occupied	234,421		102,753		102,469		205,222		11,419
Total commercial	452,827		138,114		230,637		368,751		34,434
Commercial real estate:
Construction and land development	277,856		97,965		125,876		223,841		7,932
Term	341,484		106,839		175,222		282,061		16,209
Total commercial real estate	619,340		204,804		301,098		505,902		24,141
Consumer:
Home equity credit line	1,526		729		28		757		1
1-4 family residential	110,449		40,053		55,382		95,435		11,151
Construction and other consumer real estate	9,331		3,124		3,967		7,091		766
Bankcard and other revolving plans	294		—		294		294		124
Other	2,638		2,192		—		2,192		—
Total consumer loans	124,238		46,098		59,671		105,769		12,042
FDIC-supported loans	210,936		39,450		59,165		98,615		5,493
Total	$	1,407,341	$	428,466	$	650,571	$	1,079,037	$	76,110



	December 31, 2011
(In thousands)	Unpaid principal balance		Recorded investment				Total recorded investment		Related allowance
			with no allowance		with allowance
Commercial:
Commercial and industrial	$	212,263	$	69,492	$	66,438	$	135,930	$	6,373
Owner occupied	258,173		135,555		78,177		213,732		5,083
Total commercial	470,436		205,047		144,615		349,662		11,456
Commercial real estate:
Construction and land development	405,499		178,113		136,634		314,747		8,925
Term	414,998		187,345		165,930		353,275		12,046
Total commercial real estate	820,497		365,458		302,564		668,022		20,971
Consumer:
Home equity credit line	1,955		384		1,469		1,853		411
1-4 family residential	116,498		58,392		39,960		98,352		7,555
Construction and other consumer real estate	13,340		4,537		6,188		10,725		1,026
Bankcard and other revolving plans	—		—		—		—		—
Other	2,889		2,840		28		2,868		3
Total consumer loans	134,682		66,153		47,645		113,798		8,995
FDIC-supported loans	353,195		47,736		65,188		112,924		6,642
Total	$	1,778,810	$	684,394	$	560,012	$	1,244,406	$	48,064



	Three Months Ended June 30, 2012					Six Months Ended June 30, 2012
(In thousands)	Average recorded investment		Interest income recognized			Average recorded investment		Interest income recognized
Commercial:
Commercial and industrial	$	163,397	$	820		$	158,783	$	1,509
Owner occupied	196,213		644			179,503		1,176
Total commercial	359,610		1,464			338,286		2,685
Commercial real estate:
Construction and land development	218,087		1,385			207,418		2,940
Term	268,798		1,416			255,229		2,789
Total commercial real estate	486,885		2,801			462,647		5,729
Consumer:
Home equity credit line	906		2			998		4
1-4 family residential	93,188		437			86,799		758
Construction and other consumer real estate	7,079		43			6,763		88
Bankcard and other revolving plans	98		—			49		—
Other	1,550		—			2,105		—
Total consumer loans	102,821		482			96,714		850
FDIC-supported loans	102,503		11,288		¹	106,570		20,148		¹
Total	$	1,051,819	$	16,035		$	1,004,217	$	29,412



	Three Months Ended June 30, 2011					Six Months Ended June 30, 2011
(In thousands)	Average recorded investment		Interest income recognized			Average recorded investment		Interest income recognized
Commercial:
Commercial and industrial	$	191,826	$	496		$	201,990	$	1,140
Leasing	129		—			66		—
Owner occupied	300,560		777			312,113		1,432
Municipal	5,898		—			2,949		—
Total commercial	498,413		1,273			517,118		2,572
Commercial real estate:
Construction and land development	489,695		1,212			536,495		2,574
Term	393,803		1,717			407,506		4,299
Total commercial real estate	883,498		2,929			944,001		6,873
Consumer:
Home equity credit line	708		—			1,332		1
1-4 family residential	105,397		310			107,666		624
Construction and other consumer real estate	10,778		8			13,382		22
Bankcard and other revolving plans	10		—			31		—
Other	3,932		—			3,829		—
Total consumer loans	120,825		318			126,240		647
FDIC-supported loans	148,272		14,217		¹	161,557		28,503		¹
Total	$	1,651,008	$	18,737		$	1,748,916	$	38,595

¹The balance of interest income recognized results primarily from accretion of interest income on impaired FDIC-supported loans.

Modified and Restructured Loans

Loans may be modified in the normal course of business for competitive reasons or to strengthen the Company’s position. Loan modifications and restructurings may also occur when the borrower experiences financial difficulty and needs temporary or permanent relief from the original contractual terms of the loan. These modifications are structured on a loan-by-loan basis, and depending on the circumstances, may include extended payment terms, a modified interest rate, forgiveness of principal, or other concessions. Loans that have been modified to accommodate a borrower who is experiencing financial difficulties, and for which the Company has granted a concession that it would not otherwise consider, are considered TDRs.

We consider many factors in determining whether to agree to a loan modification involving concessions, and seek a solution that will both minimize potential loss to the Company and attempt to help the borrower. We evaluate borrowers’ current and forecasted future cash flows, their ability and willingness to make current contractual or proposed modified payments, the value of the underlying collateral (if applicable), the possibility of obtaining additional security or guarantees, and the potential costs related to a repossession or foreclosure and the subsequent sale of the collateral.

TDRs are classified as either accrual or nonaccrual loans. A loan on nonaccrual and restructured as a TDR will remain on nonaccrual status until the borrower has proven the ability to perform under the modified structure for a minimum of six months, and there is evidence that such payments can and are likely to continue as agreed. Performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual at the time of restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. A TDR loan that specifies an interest rate that at the time of the restructuring is greater than or equal to the rate the bank is willing to accept for a new loan with comparable risk may not be reported as a TDR or an impaired loan in the calendar years subsequent to the restructuring if it is in compliance with its modified terms.

Selected information on TDRs that includes the recorded investment on an accruing and nonaccruing basis by loan class and modification type is summarized in the following table. This information reflects all TDRs at June 30, 2012 and December 31, 2011:



	June 30, 2012
	Recorded investment resulting from the following modification types:
(In thousands)	Interest rate below market		Maturity or term extension		Principal forgiveness		Payment deferral		Other¹		Multiple modification types²		Total
Accruing
Commercial:
Commercial and industrial	$	280	$	5,382	$	—	$	3,846	$	27,194	$	19,608	$	56,310
Owner occupied	1,316		15,230		—		5,704		4,542		13,401		40,193
Total commercial	1,596		20,612		—		9,550		31,736		33,009		96,503
Commercial real estate:
Construction and land development	1,745		26,539		7		59		37,078		47,928		113,356
Term	1,950		1,882		2,990		2,208		27,541		88,515		125,086
Total commercial real estate	3,695		28,421		2,997		2,267		64,619		136,443		238,442
Consumer:
Home equity credit line	194		—		—		—		—		90		284
1-4 family residential	6,174		6,936		1,059		—		3,526		37,867		55,562
Construction and other consumer real estate	156		472		—		—		652		1,289		2,569
Total consumer loans	6,524		7,408		1,059		—		4,178		39,246		58,415
Total accruing	11,815		56,441		4,056		11,817		100,533		208,698		393,360
Nonaccruing
Commercial:
Commercial and industrial	339		5,700		2,643		526		15,600		12,847		37,655
Owner occupied	5,142		1,141		684		8,888		9,994		14,708		40,557
Total commercial	5,481		6,841		3,327		9,414		25,594		27,555		78,212
Commercial real estate:
Construction and land development	16,382		2,487		—		—		8,194		43,426		70,489
Term	4,414		37		—		2,484		11,586		38,780		57,301
Total commercial real estate	20,796		2,524		—		2,484		19,780		82,206		127,790
Consumer:
Home equity credit line	—		—		—		—		—		128		128
1-4 family residential	1,145		48		311		—		848		15,469		17,821
Construction and other consumer real estate	12		1,931		—		—		—		1,380		3,323
Bankcard and other revolving plans	—		294		—		—		—		—		294
Total consumer loans	1,157		2,273		311		—		848		16,977		21,566
Total nonaccruing	27,434		11,638		3,638		11,898		46,222		126,738		227,568
Total	$	39,249	$	68,079	$	7,694	$	23,715	$	146,755	$	335,436	$	620,928



	December 31, 2011
	Recorded investment resulting from the following modification types:
(In thousands)	Interest rate below market		Maturity or term extension		Principal forgiveness		Payment deferral		Other¹		Multiple modification types²		Total
Accruing
Commercial:
Commercial and industrial	$	302	$	7,727	$	—	$	1,955	$	27,370	$	4,517	$	41,871
Owner occupied	1,875		15,224		37		1,008		5,504		20,449		44,097
Total commercial	2,177		22,951		37		2,963		32,874		24,966		85,968
Commercial real estate:
Construction and land development	644		33,284		565		—		28,911		34,862		98,266
Term	2,738		33,885		3,027		23,640		54,031		95,868		213,189
Total commercial real estate	3,382		67,169		3,592		23,640		82,942		130,730		311,455
Consumer:
Home equity credit line	—		—		—		—		32		—		32
1-4 family residential	3,270		1,663		525		—		6,103		34,839		46,400
Construction and other consumer real estate	166		1,444		—		—		635		1,981		4,226
Other	—		28		—		—		—		—		28
Total consumer loans	3,436		3,135		525		—		6,770		36,820		50,686
Total accruing	8,995		93,255		4,154		26,603		122,586		192,516		448,109
Nonaccruing
Commercial:
Commercial and industrial	3,526		6,094		—		1,429		8,384		10,202		29,635
Owner occupied	4,464		1,101		715		6,575		17,070		10,300		40,225
Total commercial	7,990		7,195		715		8,004		25,454		20,502		69,860
Commercial real estate:
Construction and land development	15,088		3,348		19		2,060		7,441		94,502		122,458
Term	3,445		50		—		4,250		4,724		65,316		77,785
Total commercial real estate	18,533		3,398		19		6,310		12,165		159,818		200,243
Consumer:
Home equity credit line	195		—		—		—		253		69		517
1-4 family residential	1,386		85		939		718		1,391		18,476		22,995
Construction and other consumer real estate	18		1,837		—		—		—		355		2,210
Total consumer loans	1,599		1,922		939		718		1,644		18,900		25,722
Total nonaccruing	28,122		12,515		1,673		15,032		39,263		199,220		295,825
Total	$	37,117	$	105,770	$	5,827	$	41,635	$	161,849	$	391,736	$	743,934

¹Includes TDRs that resulted from other modification types including, but not limited to, a legal judgment awarded on different terms, a bankruptcy plan confirmed on different terms, a settlement that includes the delivery of collateral in exchange for debt reduction, etc.

²Includes TDRs that resulted from a combination of any of the previous modification types.

Unused commitments to extend credit on TDRs amounted to approximately $14 million at June 30, 2012 and $9 million at December 31, 2011.

The total recorded investment of all TDRs in which interest rates were modified below market was $185.3 million at June 30, 2012 and $269.9 million at December 31, 2011. These loans are included in the previous table in the columns for interest rate below market and multiple modification types.

The net financial impact on interest income due to interest rate modifications below market for accruing TDRs is summarized in the following schedule:



(In thousands)	Three Months Ended June 30, 2012				Six Months Ended June 30, 2012				Year Ended December 31, 2011
Commercial:
Commercial and industrial	$	(8	)		$	(23	)			$	(46	)
Owner occupied	(329		)		(705		)			(1,650		)
Total commercial	(337		)		(728		)			(1,696		)
Commercial real estate:
Construction and land development	(236		)		(469		)			(244		)
Term	(1,473		)		(3,026		)			(7,096		)
Total commercial real estate	(1,709		)		(3,495		)			(7,340		)
Consumer:
Home equity credit line	(19		)		(34		)			—
1-4 family residential	(3,992		)		(7,841		)			(10,188		)
Construction and other consumer real estate	(107		)		(215		)			(406		)
Total consumer loans	(4,118		)		(8,090		)			(10,594		)
Total decrease to interest income	$	(6,164	)	¹	$	(12,313	)	¹		$	(19,630	)	¹

¹Calculated based on the difference between the modified rate and the premodified rate applied to the recorded investment.

On an ongoing basis, we monitor the performance of all TDRs according to their restructured terms. Subsequent payment default is defined in terms of delinquency, when principal or interest payments are past due 90 days or more for commercial loans, or 60 days or more for consumer loans.

As of June 30, 2012, the recorded investment of accruing and nonaccruing TDRs that had a payment default during the period listed below (and are still in default at period-end) and are within 12 months or less of being modified as TDRs is as follows:



(In thousands)	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012						Year Ended December 31, 2011
	Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total		Accruing		Nonaccruing		Total
Commercial:
Commercial and industrial	$	—	$	114	$	114	$	—	$	1,291	$	1,291	$	35	$	1,700	$	1,735
Owner occupied	—		5,405		5,405		—		5,405		5,405		—		441		441
Total commercial	—		5,519		5,519		—		6,696		6,696		35		2,141		2,176
Commercial real estate:
Construction and land development	—		2,765		2,765		—		2,765		2,765		—		11,667		11,667
Term	—		—		—		—		1,466		1,466		—		5,971		5,971
Total commercial real estate	—		2,765		2,765		—		4,231		4,231		—		17,638		17,638
Consumer:
1-4 family residential	—		—		—		—		526		526		—		2,745		2,745
Total consumer loans	—		—		—		—		526		526		—		2,745		2,745
Total	$	—	$	8,284	$	8,284	$	—	$	11,453	$	11,453	$	35	$	22,524	$	22,559

Note: Total loans modified as TDRs during the 12 months previous to June 30, 2012 were $219.5 million.

Concentrations of Credit Risk

We perform an ongoing analysis of our loan portfolio to evaluate whether there is any significant exposure to any concentrations of credit risk. These potential concentrations include, but are not limited to, individual borrowers, groups of borrowers, industries, geographies, collateral types, sponsors, etc. Such credit risks (whether on- or off-balance sheet) may occur when groups of borrowers or counterparties have similar economic characteristics and are similarly affected by changes in economic or other conditions. Credit risk also includes the loss that would be recognized subsequent to the reporting date if counterparties failed to perform as contracted. Our analysis as of June 30, 2012 concluded that no significant exposure exists from such credit risk concentrations. See Note 6 for a discussion of counterparty risk associated with the Company’s derivative transactions.

Purchased Loans

Background and Accounting

We purchase loans in the ordinary course of business and account for them and the related interest income based on their performing status at the time of acquisition. Purchased credit-impaired (“PCI”) loans have evidence of credit deterioration at the time of acquisition and it is probable that not all contractual payments will be collected. Interest income for PCI loans is accounted for on an expected cash flow basis. Certain other loans acquired by the Company that are not credit-impaired include loans with revolving privileges and are excluded from the PCI tabular disclosures following. Interest income for these loans is accounted for on a contractual cash flow basis. Certain acquired loans with similar characteristics such as risk exposure, type, size, etc., are grouped and accounted for in loan pools.

CB&T and NSB acquired failed banks from the FDIC as receiver and entered into loss sharing agreements with the FDIC for the acquired loans and foreclosed assets. The FDIC assumes 80% of credit losses up to a threshold specified for each acquisition and 95% above the threshold for a period of up to ten years. The loans acquired from the FDIC are presented separately in the Company’s balance sheet as “FDIC-supported loans” and include both PCI and certain other acquired loans.

During the first quarter of 2011, certain FDIC-supported loans charged off at the time of acquisition were determined to be covered by the FDIC loss sharing agreement. The FDIC remitted $18.9 million to the Company, which was recognized in other noninterest income.

Upon acquisition, in accordance with applicable accounting guidance, the acquired loans were recorded at their fair value without a corresponding ALLL. The acquired foreclosed assets and subsequent real estate foreclosures were included with other real estate owned (“OREO”) in the balance sheet and amounted to $19.7 million at June 30, 2012 and $24.3 million at December 31, 2011.

Outstanding Balances and Accretable Yield

The outstanding balances of all required payments and the related carrying amounts for PCI loans are as follows:



(In thousands)	June 30, 2012		December 31, 2011
Commercial	$	274,629	$	321,515
Commercial real estate	453,394		556,197
Consumer	47,597		57,391
Outstanding balance	$	775,620	$	935,103

Carrying amount	$	578,845	$	672,159
ALLL	19,776		21,604
Carrying amount, net	$	559,069	$	650,555

At the time of acquisition of PCI loans, we determine the loan’s contractually required payments in excess of all cash flows expected to be collected as an amount that should not be accreted (nonaccretable difference). With respect to the cash flows expected to be collected, the portion representing the excess of the loan’s expected cash flows over our initial investment (accretable yield) is accreted into interest income on a level yield basis over the remaining expected life of the loan or pool of loans. The effects of estimated prepayments are considered in estimating the expected cash flows.

Certain PCI loans are not accounted for as previously described because the estimation of cash flows to be collected involves a high degree of uncertainty. Under these circumstances, the accounting guidance provides that interest income is recognized on a cash basis similar to the cost recovery methodology for nonaccrual loans. The net carrying amounts in the preceding schedule also include the amounts for these loans, which were approximately $39.7 million at June 30, 2012 and $42.6 million at December 31, 2011.

Changes in the accretable yield for PCI loans were as follows:



(In thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Balance at beginning of period	$	174,004		$	271,736		$	184,679		$	277,005
Accretion	(22,882		)	(31,247		)	(44,415		)	(62,690		)
Reclassification from nonaccretable difference	1,678			2,520			15,547			25,912
Disposals and other	4,240			(810		)	1,229			1,972
Balance at end of period	$	157,040		$	242,199		$	157,040		$	242,199

Note: Amounts have been adjusted based on refinements to the original estimates of the accretable yield. Because of the estimation process required, we expect that additional adjustments to these amounts may be necessary in future periods.

The primary driver of reclassifications to accretable yield from nonaccretable difference resulted from changes in estimated cash flows for the acquired loans and loan pools, as discussed subsequently under changes in cash flow estimates.

ALLL Determination

For all acquired loans, the ALLL is only established for credit deterioration subsequent to the date of acquisition and represents our estimate of the inherent losses in excess of the book value of acquired loans. The ALLL for acquired loans is determined without giving consideration to the amounts recoverable from the FDIC through loss sharing agreements. These amounts recoverable are separately accounted for in the FDIC indemnification asset (“IA”) and are thus presented “gross” in the balance sheet. The FDIC IA is included in other assets in the balance sheet and is discussed subsequently. The ALLL is included in the overall ALLL in the balance sheet. The provision for loan losses is reported net of changes in the amounts recoverable under the loss sharing agreements.

During the three and six months ended June 30, we adjusted the ALLL for acquired loans by recording a (decrease) increase on an adjusted gross basis to the provision for loan losses of $(6.9) million and $(7.3) million in 2012, and $2.9 million and $0.3 million in 2011, respectively. These amounts are net of the ALLL reversals due to increases in estimated cash flows which are discussed subsequently. As separately discussed and in accordance with the loss sharing agreements, portions of the increases to the provision are recoverable from the FDIC and comprise part of the FDIC IA. For the three and six months ended June 30, 2012, these adjustments, before FDIC indemnification, resulted in net recoveries of $7.8 million and $6.7 million, respectively. For the three and six months ended June 30, 2011, they resulted in net charge-offs of $2.5 million and $10.5 million, respectively.

Changes in the provision for loan losses and related ALLL are driven in large part by the same factors that affect the changes in reclassification from nonaccretable difference to accretable yield, as discussed under changes in cash flow estimates.

Changes in Cash Flow Estimates

Over the life of the loan or loan pool, we continue to estimate cash flows expected to be collected. We evaluate quarterly at the balance sheet date whether the estimated present values of these loans using the effective interest rates have decreased below their carrying values. If so, we record a provision for loan losses.

For increases in carrying values that resulted from better-than-expected cash flows, we use such increases first to reverse any existing ALLL. During the three and six months ended June 30, total reversals to the ALLL, including the impact of increases in estimated cash flows, were $7.9 million and $10.6 million in 2012, and $4.8 million and $9.0 million in 2011, respectively. When there is no current ALLL, we increase the amount of accretable yield on a prospective basis over the remaining life of the loan and recognize this increase in interest income. Any related decrease to the FDIC IA is recorded through a charge to other noninterest expense. Changes that increase cash flows have been due primarily to (1) the enhanced economic status of borrowers compared to original evaluations, (2) improvements in the Southern California market where the majority of these loans were originated, and (3) stronger efforts by our credit officers and loan workout professionals to resolve problem loans.

For the three and six months ended June 30, the impact of increased cash flow estimates recognized in the statement of income for acquired loans with no ALLL was approximately $14.8 million and $27.9 million in 2012, and $21.5 million and $40.7 million in 2011, respectively, of additional interest income, and $11.2 million and $21.2 million in 2012, and $15.0 million and $28.1 million in 2011, respectively, of additional other noninterest expense due to the reduction of the FDIC IA.

FDIC Indemnification Asset

The amount of the FDIC IA was initially recorded at fair value using estimated cash flows based on credit adjustments for each loan or loan pool and the loss sharing reimbursement of 80% or 95%, as appropriate. The timing of the cash flows was adjusted to reflect our expectations to receive the FDIC reimbursements within the estimated loss period. Discount rates were based on U.S. Treasury rates or the AAA composite yield on investment grade bonds of similar maturity. As previously discussed, the amount is adjusted as actual loss experience is developed and estimated losses covered under the loss sharing agreements are updated. Estimated loan losses, if any, in excess of the amounts recoverable are reflected as period expenses through the provision for loan losses.

Changes in the FDIC IA were as follows:



(In thousands)	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Balance at beginning of period	$	121,332		$	172,170		$	133,810		$	195,516
Amounts filed with the FDIC and collected or in process	12,495			(6,404		)	11,202			(12,911		)
Net change in asset balance due to reestimation of projected cash flows ¹	(16,660		)	(15,209		)	(27,845		)	(32,048		)
Balance at end of period	$	117,167		$	150,557		$	117,167		$	150,557

Note: Beginning in the latter half of 2011, the FDIC changed its reimbursement process to require that submitted expenses must be paid, not just incurred, to qualify for reimbursement.

¹Negative amounts result from the accretion of loan balances based on increases in cash flow estimates on the underlying indemnified loans.

Any changes to the FDIC IA are recognized immediately in the quarterly period the change in estimated cash flows is determined. All claims submitted to the FDIC have been reimbursed in a timely manner.