Note 7. Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments

The following is a summary of the major categories of loans:

Loans and Leases

(in thousands)	December 31, 2012			December 31, 2011

Commercial	$	6,211,353		$	4,846,594
Commercial real estate mortgages		2,829,694			2,110,749
Residential mortgages		3,962,205			3,763,218
Real estate construction		222,780			315,609
Equity lines of credit		711,750			741,081
Installment		142,793			132,647
Lease financing		737,720			399,487

Loans and leases, excluding covered loans		14,818,295			12,309,385
Less: Allowance for loan and lease losses		(277,888	)		(262,557	)

Loans and leases, excluding covered loans, net		14,540,407			12,046,828
Covered loans		1,031,004			1,481,854
Less: Allowance for loan losses		(44,781	)		(64,565	)

Covered loans, net		986,223			1,417,289

Total loans and leases	$	15,849,299		$	13,791,239

Total loans and leases, net	$	15,526,630		$	13,464,117

The loan amounts above include unamortized fees, net of deferred costs, of $5.9 million and $7.5 million as of December 31, 2012 and 2011, respectively.

In the normal course of business, the Bank makes loans to executive officers and directors and to companies and individuals affiliated with or guaranteed by officers and directors of the Company and the Bank. These loans were made in the ordinary course of business at rates and terms no more favorable than those offered to others with a similar credit standing. The aggregate dollar amounts of these loans were $87.9 million and $58.7 million at December 31, 2012 and 2011, respectively. During 2012, new loans and advances totaled $104.3 million and repayments totaled $74.1 million. Interest income recognized on these loans amounted to $2.2 million, $2.6 million and $2.1 million during 2012, 2011 and 2010, respectively. At December 31, 2012, none of these loans was past due or on nonaccrual status. Based on analysis of information presently known to management about the loans to officers and directors and their affiliates, management believes all have the ability to comply with the present loan repayment terms.

Concentrations of credit risk arise when a number of clients are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Although, the Company's lending activities are predominantly in California, and to a lesser extent, New York and Nevada, the Company has various specialty lending businesses that lend to businesses located throughout the United States of America. Excluding covered loans, at December 31, 2012, California represented 80 percent of total loans outstanding and New York and Nevada represented 7 percent and 2 percent, respectively. The remaining 11 percent of total loans outstanding represented other states. Although the Company has a diversified loan portfolio, a substantial portion of the loan portfolio and credit performance depends on the economic stability of Southern California. Credit performance also depends, to a lesser extent, on economic conditions in the San Francisco Bay area, New York and Nevada. Within the Company's covered loan portfolio at December 31, 2012, the five states with the largest concentration were California (38 percent), Texas (12 percent), Nevada (8 percent), Ohio (4 percent) and New York (4 percent). The remaining 34 percent of total covered loans outstanding represented other states.

The Company has pledged eligible residential first mortgages, equity lines of credit and commercial loans totaling $6.27 billion as collateral for its borrowing facility at the FHLB.

Covered Loans

Covered loans represent loans acquired from the FDIC that are subject to loss-sharing agreements. Covered loans were $1.03 billion at December 31, 2012 and $1.48 billion at December 31, 2011. Covered loans, net of allowance for loan losses, were $986.2 million at December 31, 2012 and $1.42 billion at December 31, 2011.

The following is a summary of the major categories of covered loans:

(in thousands)	December 31, 2012			December 31, 2011

Commercial	$	10,561		$	30,911
Commercial real estate mortgages		931,758			1,288,352
Residential mortgages		5,652			14,931
Real estate construction		78,554			140,992
Equity lines of credit		3,790			5,167
Installment		689			1,501

Covered loans		1,031,004			1,481,854
Less: Allowance for loan losses		(44,781	)		(64,565	)

Covered loans, net	$	986,223		$	1,417,289

The Company evaluated the acquired loans from its FDIC-assisted acquisitions and concluded that all loans, with the exception of a small population of acquired loans, would be accounted for under ASC 310-30. Loans are accounted for under ASC 310-30 when there is evidence of credit deterioration since origination and for which it is probable, at acquisition, that the Company would be unable to collect all contractually required payments. Interest income is recognized on all acquired impaired loans through accretion of the difference between the carrying amount of the loans and their expected cash flows.

As of NCB's acquisition date in 2011, the estimates of the contractually required payments receivable for all acquired impaired covered loans of NCB were $107.4 million, the cash flows expected to be collected were $66.2 million, and the fair value of the acquired impaired loans was $55.3 million. The above amounts were determined based on the estimated performance over the remaining life of the underlying loans, which included the effects of estimated prepayments. Fair value of the acquired loans included estimated credit losses.

The excess of cash flows expected to be collected over the carrying value of the underlying acquired impaired loans is referred to as the accretable yield. This amount is not reported in the consolidated balance sheets, but is accreted into interest income at a level yield over the remaining estimated lives of the underlying pools of loans. Changes in the accretable yield for acquired impaired loans were as follows for the years ended December 31, 2012 and 2011:

	For the year ended December 31,

(in thousands)	2012			2011
Balance, beginning of period	$	436,374		$	562,826
Additions		—			10,871
Accretion		(79,839	)		(104,056	)
Reclassifications from nonaccretable yield		11,664			33,704
Disposals and other		(72,386	)		(66,971	)

Balance, end of period	$	295,813		$	436,374

The factors that most significantly affect estimates of cash flows expected to be collected, and accordingly the accretable yield balance, include: (i) changes in credit assumptions, including both credit loss amounts and timing; (ii) changes in prepayment assumptions; and (iii) changes in interest rates for variable-rate loans. Reclassifications between accretable yield and nonaccretable yield may vary from period to period as the Company periodically updates its cash flow projections. The reclassification of nonaccretable yield to accretable yield during 2012 was principally driven by positive changes in cash flows, both timing and amount, resulting from changes in credit assumptions.

The Company recorded an indemnification asset related to its FDIC-assisted acquisitions, which represents the present value of the expected reimbursement from the FDIC for expected losses on acquired loans, OREO and unfunded commitments. The FDIC indemnification asset from all FDIC-assisted acquisitions was $150.0 million at December 31, 2012 and $204.3 million at December 31, 2011.

Credit Quality on Loans and Leases, Excluding Covered Loans

Allowance for Loan and Lease Losses and Reserve for Off-Balance Sheet Credit Commitments

The following is a summary of activity in the allowance for loan and lease losses and ending balances of loans evaluated for impairment, excluding covered loans, for the years ended December 31, 2012 and 2011. Activity is provided by loan portfolio segment which is consistent with the Company's methodology for determining the allowance for loan and lease losses.

(in thousands)	Commercial (1)			Commercial Real Estate Mortgages			Residential Mortgages			Real Estate Construction			Equity Lines of Credit			Installment			Unallocated		Total

Year ended December 31, 2012
Allowance for loan and lease losses:
Beginning balance	$	82,965		$	45,967		$	14,029		$	23,347		$	8,024		$	1,959		$	86,266	$	262,557
Provision for credit losses (2)		10,750			2,357			(1,951	)		(8,757	)		382			(1,028	)		6,507		8,260
Charge-offs		(24,407	)		(1,611	)		(2,402	)		(9,769	)		(1,258	)		(1,066	)		—		(40,513	)
Recoveries		34,848			1,527			823			8,309			95			1,982			—		47,584

Net (charge-offs) recoveries		10,441			(84	)		(1,579	)		(1,460	)		(1,163	)		916			—		7,071

Ending balance	$	104,156		$	48,240		$	10,499		$	13,130		$	7,243		$	1,847		$	92,773	$	277,888

Ending balance of allowance:
Individually evaluated for impairment	$	952		$	1,326		$	9		$	—		$	116		$	—		$	—	$	2,403
Collectively evaluated for impairment		103,204			46,914			10,490			13,130			7,127			1,847			92,773		275,485
Loans and leases, excluding covered loans
Ending balance of loans and leases:
Loans and leases, excluding covered loans	$	6,949,073		$	2,829,694		$	3,962,205		$	222,780		$	711,750		$	142,793		$	—	$	14,818,295
Individually evaluated for impairment		26,277			53,085			8,810			45,510			4,461			449			—		138,592
Collectively evaluated for impairment		6,922,796			2,776,609			3,953,395			177,270			707,289			142,344			—		14,679,703

(1): Includes lease financing loans.
(2): Provision for credit losses in the allowance rollforward for 2012 includes total provision expense of $10.0 million, net of total transfers to the reserve for off-balance sheet credit commitments of $1.7 million.

(in thousands)	Commercial (1)			Commercial Real Estate Mortgages			Residential Mortgages			Real Estate Construction			Equity Lines of Credit			Installment			Unallocated		Total

Year ended December 31, 2011
Allowance for loan and lease losses:
Beginning balance	$	82,451		$	52,516		$	16,753		$	40,824		$	7,229		$	3,931		$	53,303	$	257,007
Provision for credit losses (2)		15,284			(13,491	)		(1,641	)		(22,507	)		2,561			(2,237	)		32,963		10,932
Charge-offs		(30,512	)		(4,573	)		(1,475	)		(8,897	)		(1,834	)		(914	)		—		(48,205	)
Recoveries		15,742			11,515			392			13,927			68			1,179			—		42,823

Net (charge-offs) recoveries		(14,770	)		6,942			(1,083	)		5,030			(1,766	)		265			—		(5,382	)

Ending balance	$	82,965		$	45,967		$	14,029		$	23,347		$	8,024		$	1,959		$	86,266	$	262,557

Ending balance of allowance:
Individually evaluated for impairment	$	7,135		$	1,551		$	108		$	4,377		$	91		$	—		$	—	$	13,262
Collectively evaluated for impairment		75,830			44,416			13,921			18,970			7,933			1,959			86,266		249,295
Loans and leases, excluding covered loans
Ending balance of loans and leases:
Loans and leases, excluding covered loans	$	5,246,081		$	2,110,749		$	3,763,218		$	315,609		$	741,081		$	132,647		$	—	$	12,309,385
Individually evaluated for impairment		25,808			30,678			9,146			75,811			6,633			658			—		148,734
Collectively evaluated for impairment		5,220,273			2,080,071			3,754,072			239,798			734,448			131,989			—		12,160,651

(1): Includes lease financing loans.
(2): Provision for credit losses in the allowance rollforward for 2011 includes total provision expense of $12.5 million, net of total transfers to the reserve for off-balance sheet credit commitments of $1.6 million.

Off-balance sheet credit exposures include loan commitments and letters of credit. The following table provides a summary of activity in the reserve for off-balance sheet credit commitments for the years ended December 31, 2012 and 2011:

	For the year ended December 31,

(in thousands)	2012		2011
Balance, beginning of the year	$	23,097	$	21,529
Transfers from allowance for loan and lease losses		1,740		1,568

Balance, end of the year	$	24,837	$	23,097

Impaired Loans and Leases

Information on impaired loans, excluding covered loans, at December 31, 2012 and 2011 is provided in the following tables:

(in thousands)	Recorded Investment		Unpaid Contractual Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized

Year ended December 31, 2012
With no related allowance recorded:
Commercial	$	18,761	$	24,135	$	—	$	23,538	$	—
Commercial real estate mortgages		42,882		49,110		—		29,190		189
Residential mortgages:
Fixed		3,482		3,757		—		3,134		—
Variable		4,865		5,437		—		4,981		48

Total residential mortgages		8,347		9,194		—		8,115		48

Real estate construction:
Construction		19,762		33,267		—		27,303		692
Land		25,748		41,016		—		23,361		265

Total real estate construction		45,510		74,283		—		50,664		957

Equity lines of credit		3,562		4,660		—		4,288		—
Installment:
Consumer		449		927		—		531		—

Total installment		449		927		—		531		—

Lease financing		—		—		—		6		—

Total with no related allowance	$	119,511	$	162,309	$	—	$	116,332	$	1,194

With an allowance recorded:
Commercial	$	7,516	$	8,038	$	952	$	10,532	$	—
Commercial real estate mortgages		10,203		10,783		1,326		12,765		—
Residential mortgages:
Fixed		463		507		9		1,568		—
Variable		—		—		—		1,503		4

Total residential mortgages		463		507		9		3,071		4

Real estate construction:
Land		—		—		—		11,760		—

Total real estate construction		—		—		—		11,760		—

Equity lines of credit		899		965		116		1,112		—

Total with an allowance	$	19,081	$	20,293	$	2,403	$	39,240	$	4

Total impaired loans by type:
Commercial	$	26,277	$	32,173	$	952	$	34,070	$	—
Commercial real estate mortgages		53,085		59,893		1,326		41,955		189
Residential mortgages		8,810		9,701		9		11,186		52
Real estate construction		45,510		74,283		—		62,424		957
Equity lines of credit		4,461		5,625		116		5,400		—
Installment		449		927		—		531		—
Lease financing		—		—		—		6		—

Total impaired loans	$	138,592	$	182,602	$	2,403	$	155,572	$	1,198

(in thousands)	Recorded Investment		Unpaid Contractual Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized

Year ended December 31, 2011
With no related allowance recorded:
Commercial	$	10,153	$	11,588	$	—	$	6,525	$	—
Commercial real estate mortgages		19,867		23,983		—		18,585		269
Residential mortgages:
Fixed		3,493		4,035		—		6,592		170
Variable		3,689		4,000		—		3,796		54

Total residential mortgages		7,182		8,035		—		10,388		224

Real estate construction:
Construction		27,435		40,605		—		47,710		787
Land		28,991		32,335		—		22,252		—

Total real estate construction		56,426		72,940		—		69,962		787

Equity lines of credit		5,341		6,325		—		3,951		—
Installment:
Consumer		658		976		—		287		—

Total installment		658		976		—		287		—

Lease financing		28		5,225		—		699		98

Total with no related allowance	$	99,655	$	129,072	$	—	$	110,397	$	1,378

With an allowance recorded:
Commercial	$	15,627	$	21,377	$	7,135	$	14,477	$	—
Commercial real estate mortgages		10,811		11,215		1,551		11,169		—
Residential mortgages:
Fixed		515		535		40		740		—
Variable		1,449		1,476		68		1,153		—

Total residential mortgages		1,964		2,011		108		1,893		—

Real estate construction:
Construction		—		—		—		3,534		—
Land		19,385		29,381		4,377		8,298		—

Total real estate construction		19,385		29,381		4,377		11,832		—

Equity lines of credit		1,292		1,461		91		1,435		6
Installment:
Commercial		—		—		—		1,380		—

Total installment		—		—		—		1,380		—

Lease financing		—		—		—		171		—

Total with an allowance	$	49,079	$	65,445	$	13,262	$	42,357	$	6

Total impaired loans by type:
Commercial	$	25,780	$	32,965	$	7,135	$	21,002	$	—
Commercial real estate mortgages		30,678		35,198		1,551		29,754		269
Residential mortgages		9,146		10,046		108		12,281		224
Real estate construction		75,811		102,321		4,377		81,794		787
Equity lines of credit		6,633		7,786		91		5,386		6
Installment		658		976		—		1,667		—
Lease financing		28		5,225		—		870		98

Total impaired loans	$	148,734	$	194,517	$	13,262	$	152,754	$	1,384

(1): The table has been revised to present unpaid contractual principal balances, whereas the Company had previously disclosed unpaid contractual principal balances that were net of charge-offs.

Effective July 1, 2012, the Company increased the outstanding loan amount under which nonperforming loans are individually evaluated for impairment from $500,000 or greater to $1 million or greater. For borrowers with multiple loans totaling $1 million or more, this threshold is applied at the total relationship level. Loans under $1 million will be measured for impairment using historical loss factors. Loans under $1 million that were previously reported as impaired at June 30, 2012 will continue to be reported as impaired until the collection of principal and interest is no longer in doubt, or the loans are paid or charged-off. At December 31, 2012, impaired loans included $9.3 million of loans previously reported as impaired that are less than $1 million.

Impaired loans at December 31, 2012 and 2011 included $48.8 million and $46.6 million, respectively, of restructured loans that are on accrual status. With the exception of restructured loans on accrual status and a limited number of loans on cash basis nonaccrual for which the full collection of principal and interest is expected, interest income is not recognized on impaired loans until the principal balance of these loans is paid off.

Troubled Debt Restructured Loans

The following table provides a summary of loans modified in a troubled debt restructuring during the year ended December 31, 2012:

(in thousands)		Pre-Modification Outstanding Principal		Period-End Outstanding Principal		Financial Effects (1)

Year ended December 31, 2012
Commercial	20	$	38,371	$	19,671	$	10,528
Commercial real estate mortgages	2		15,833		16,287		—
Residential mortgages:
Fixed	4		2,233		1,068		485
Real estate construction:
Construction	3		14,857		4,633		—
Land	1		8,420		7,918		264

Total real estate construction	4		23,277		12,551		264

Equity lines of credit	1		256		146		—

Total troubled debt restructured loans	31	$	79,970	$	49,723	$	11,277

Year ended December 31, 2011
Commercial	12	$	12,305	$	12,111	$	1,490
Commercial real estate mortgages	5		12,908		12,899		—
Residential mortgages:
Variable	1		969		933		—
Real estate construction:
Construction	6		26,814		26,814		—
Land	6		29,153		29,042		1,813

Total real estate construction	12		55,967		55,856		1,813

Lease financing	9		765		—		—

Total troubled debt restructured loans	39	$	82,914	$	81,799	$	3,303

(1): Financial effects are comprised of charge-offs and specific reserves recognized on TDR loans at modification date.

The following table provides a summary of TDR loans that subsequently defaulted during the year ended December 31, 2012 that had been modified as a troubled debt restructuring during the 12 months prior to their default:

	Year ended December 31, 2012						Year ended December 31, 2011

(in thousands)	Number of Contracts		Period-End Outstanding Principal		Period-End Specific Reserve		Number of Contracts		Period-End Outstanding Principal		Period-End Specific Reserve
Commercial		6	$	689	$	300		1	$	45	$	1
Commercial real estate mortgages		1		13,802		—		—		—		—
Real estate construction:
Land		2		420		—		2		6,339		—

Total loans that subsequently defaulted		9	$	14,911	$	300		3	$	6,384	$	1

A restructuring constitutes a troubled debt restructuring when a lender, for reasons related to a borrower's financial difficulties, grants a concession to the borrower it would not otherwise consider. Loans with pre-modification outstanding balances totaling $80.0 million and $82.9 million were modified in troubled debt restructurings during the years ended December 31, 2012 and 2011, respectively. The concessions granted in the restructurings completed in 2012 largely consisted of interest rate concessions and modification of payment terms to interest only. The unpaid principal balance of TDR loans was $94.9 million, before specific reserves of $1.7 million, at December 31, 2012, and $89.4 million, before specific reserves of $1.7 million, at December 31, 2011. The net increase in TDR loans from the prior year-end was attributable to $78.8 million of additions that were partially offset by $61.3 million of payments received and $15.5 million of charge-offs. The remaining change in TDR loans was a result of other adjustments. Loans modified in troubled debt restructurings are impaired loans at the time of restructuring and subject to the same measurement criteria as all other impaired loans.

During the year ended December 31, 2012, six commercial loans, two land loans and one commercial real estate loan that had been restructured within the preceding 12 months subsequently defaulted. The defaults were primarily due to missed or late payments. As of December 31, 2012, four of the commercial loans had paid off and one land loan was charged-off. All other TDR loans were performing in accordance with their restructured terms at December 31, 2012. As of December 31, 2012, commitments to lend additional funds on restructured loans totaled $3.7 million.

Past Due and Nonaccrual Loans and Leases

Loans are considered past due following the date when either interest or principal is contractually due and unpaid. The following tables provide a summary of past due and nonaccrual loans, excluding covered loans, at December 31, 2012 and 2011 based upon the length of time the loans have been past due:

(in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days and Accruing		Nonaccrual		Total Past Due and Nonaccrual Loans		Current		Total Loans and Leases

December 31, 2012
Commercial	$	6,207	$	4,219	$	602	$	9,087	$	20,115	$	6,191,238	$	6,211,353
Commercial real estate mortgages		16,968		3,249		—		33,198		53,415		2,776,279		2,829,694
Residential mortgages:
Fixed		—		1,969		379		4,902		7,250		1,458,224		1,465,474
Variable		—		—		—		4,701		4,701		2,492,030		2,496,731

Total residential mortgages		—		1,969		379		9,603		11,951		3,950,254		3,962,205

Real estate construction:
Construction		—		—		—		15,067		15,067		150,548		165,615
Land		—		859		—		25,815		26,674		30,491		57,165

Total real estate construction		—		859		—		40,882		41,741		181,039		222,780

Equity lines of credit		3,407		480		—		6,424		10,311		701,439		711,750
Installment:
Commercial		—		—		—		—		—		437		437
Consumer		58		35		—		473		566		141,790		142,356

Total installment		58		35		—		473		566		142,227		142,793

Lease financing		2,633		2		—		120		2,755		734,965		737,720

Total	$	29,273	$	10,813	$	981	$	99,787	$	140,854	$	14,677,441	$	14,818,295

December 31, 2011
Commercial	$	6,817	$	1,003	$	—	$	19,888	$	27,708	$	4,818,886	$	4,846,594
Commercial real estate mortgages		5,838		—		—		21,948		27,786		2,082,963		2,110,749
Residential mortgages:
Fixed		662		525		379		5,572		7,138		1,574,658		1,581,796
Variable		—		2,983		—		4,199		7,182		2,174,240		2,181,422

Total residential mortgages		662		3,508		379		9,771		14,320		3,748,898		3,763,218

Real estate construction:
Construction		—		—		—		15,582		15,582		202,279		217,861
Land		—		—		—		35,294		35,294		62,454		97,748

Total real estate construction		—		—		—		50,876		50,876		264,733		315,609

Equity lines of credit		—		—		74		8,669		8,743		732,338		741,081
Installment:
Commercial		—		—		—		4		4		601		605
Consumer		150		—		—		870		1,020		131,022		132,042

Total installment		150		—		—		874		1,024		131,623		132,647

Lease financing		—		—		—		—		—		399,487		399,487

Total	$	13,467	$	4,511	$	453	$	112,026	$	130,457	$	12,178,928	$	12,309,385

The following table provides a summary of contractual interest foregone on nonaccrual loans, excluding covered loans, for 2012, 2011 and 2010:

	December 31,

(in thousands)	2012			2011			2010
Interest income that would have been recognized had nonaccrual loans performed in accordance with their original terms	$	8,549		$	15,465		$	17,869
Less: Interest income recognized on nonaccrual loans on a cash basis		(1,446	)		(1,494	)		(1,689	)

Interest income foregone on nonaccrual loans	$	7,103		$	13,971		$	16,180

Credit Quality Monitoring

The Company closely monitors and assesses credit quality and credit risk in the loan and lease portfolio on an ongoing basis. Loan risk classifications are continuously reviewed and updated. The following table provides a summary of the loan and lease portfolio, excluding covered loans, by loan type and credit quality classification as of December 31, 2012 and 2011. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those loans that are classified as substandard or doubtful consistent with regulatory guidelines.

	December 31, 2012						December 31, 2011

(in thousands)	Nonclassified		Classified		Total		Nonclassified		Classified		Total
Commercial	$	6,073,459	$	137,894	$	6,211,353	$	4,732,663	$	113,931	$	4,846,594
Commercial real estate mortgages		2,705,469		124,225		2,829,694		1,930,001		180,748		2,110,749
Residential mortgages:
Fixed		1,449,270		16,204		1,465,474		1,565,420		16,376		1,581,796
Variable		2,479,449		17,282		2,496,731		2,163,458		17,964		2,181,422

Total residential mortgages		3,928,719		33,486		3,962,205		3,728,878		34,340		3,763,218

Real estate construction:
Construction		119,189		46,426		165,615		147,916		69,945		217,861
Land		27,492		29,673		57,165		43,717		54,031		97,748

Total real estate construction		146,681		76,099		222,780		191,633		123,976		315,609

Equity lines of credit		685,011		26,739		711,750		724,045		17,036		741,081
Installment:
Commercial		437		—		437		601		4		605
Consumer		141,662		694		142,356		130,921		1,121		132,042

Total installment		142,099		694		142,793		131,522		1,125		132,647

Lease financing		733,803		3,917		737,720		396,256		3,231		399,487

Total	$	14,415,241	$	403,054	$	14,818,295	$	11,834,998	$	474,387	$	12,309,385

Credit Quality on Covered Loans

The following is a summary of activity in the allowance for losses on covered loans:

	For the year ended December 31,

(in thousands)	2012			2011
Balance, beginning of period	$	64,565		$	67,389
Provision for losses		45,346			43,646
Charge-offs		—			(325	)
Reduction in allowance due to loan removals		(65,130	)		(46,145	)

Balance, end of period	$	44,781		$	64,565

The allowance for losses on covered loans was $44.8 million and $64.6 million as of December 31, 2012 and 2011, respectively. The Company recorded provision expense of $45.3 million and $43.6 million on covered loans in 2012 and 2011, respectively. The Company updates its cash flow projections for covered loans accounted for under ASC 310-30 on a quarterly basis, and may recognize provision expense and an allowance for loan losses as a result of that analysis. The loss on covered loans is the result of changes in expected cash flows, both amount and timing, due to loan payments and the Company's revised loss and prepayment forecasts. The revisions of the loss and prepayment forecasts were based on the results of management's review of the credit quality of the outstanding covered loans and the analysis of the loan performance data since the acquisition of covered loans. The allowance for losses on covered loans is reduced for any loan removals, which occur when a loan has been fully paid-off, fully charged off, sold or transferred to OREO.

Covered loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. If the timing and amount of future cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income is not recognized until the timing and amount of future cash flows can be reasonably estimated. At December 31, 2012 and 2011, there were no acquired impaired covered loans accounted for under ASC 310-30 that were on nonaccrual status. There were no covered loans outside the scope of ASC 310-30 that were on nonaccrual status or considered impaired as of December 31, 2012. Of the population of covered loans that are accounted for outside the scope of ASC 310-30, the Company had $0.4 million of acquired covered loans that were on nonaccrual status and were considered to be impaired as of December 31, 2011.

At December 31, 2012, covered loans that were 30 to 89 days delinquent totaled $43.4 million and covered loans that were 90 days or more past due on accrual status totaled $112.4 million. At December 31, 2011, covered loans that were 30 to 89 days delinquent totaled $49.1 million and covered loans that were 90 days or more past due on accrual status totaled $330.2 million.