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Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments
 3 Months Ended
Mar. 31, 2012
Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments  
Loans, Allowance for Loan and Lease Losses, and Reserve for Off-Balance Sheet Credit Commitments

Note 6. 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

 

 

 

 

 

March 31,

 

December 31,

 

(in thousands)

 

2012

 

2011

 

Commercial

 

$

5,175,396

 

$

4,846,594

 

Commercial real estate mortgages

 

2,213,114

 

2,110,749

 

Residential mortgages

 

3,805,807

 

3,763,218

 

Real estate construction

 

313,409

 

315,609

 

Equity lines of credit

 

715,997

 

741,081

 

Installment

 

125,793

 

132,647

 

Lease financing

 

398,386

 

399,487

 

Loans and leases, excluding covered loans

 

12,747,902

 

12,309,385

 

Less: Allowance for loan and lease losses

 

(266,077

)

(262,557

)

Loans and leases, excluding covered loans, net

 

12,481,825

 

12,046,828

 

 

 

 

 

 

 

Covered loans

 

1,397,156

 

1,481,854

 

Less: Allowance for loan losses

 

(61,471

)

(64,565

)

Covered loans, net

 

1,335,685

 

1,417,289

 

 

 

 

 

 

 

Total loans and leases

 

$

14,145,058

 

$

13,791,239

 

Total loans and leases, net

 

$

13,817,510

 

$

13,464,117

 

 

The loan amounts above include unamortized fees, net of deferred costs, of $8.2 million and $7.5 million as of March 31, 2012 and December 31, 2011, respectively.

 

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. The Company’s lending activities are predominantly in California, and to a lesser extent, New York and Nevada. Excluding covered loans, at March 31, 2012, California represented 82 percent of total loans outstanding and Nevada and New York represented 3 percent and 6 percent, respectively. The remaining 9 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 March 31, 2012, the five states with the largest concentration were California (39 percent), Texas (11 percent), Nevada (7 percent), New York (5 percent) and Arizona (4 percent). The remaining 34 percent of total covered loans outstanding represented other states.

 

Covered Loans

 

Covered loans represent loans acquired from the FDIC that are subject to loss-sharing agreements. Covered loans were $1.40 billion as of March 31, 2012 and $1.48 billion as of December 31, 2011. Covered loans, net of allowance for loan losses, were $1.34 billion at March 31, 2012 and $1.42 billion at December 31, 2011.

 

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

 

 

 

March 31,

 

December 31,

 

(in thousands)

 

2012

 

2011

 

Commercial

 

$

22,395

 

$

30,911

 

Commercial real estate mortgages

 

1,219,923

 

1,288,352

 

Residential mortgages

 

13,378

 

14,931

 

Real estate construction

 

135,065

 

140,992

 

Equity lines of credit

 

5,210

 

5,167

 

Installment

 

1,185

 

1,501

 

Covered loans

 

1,397,156

 

1,481,854

 

Less: Allowance for loan losses

 

(61,471

)

(64,565

)

Covered loans, net

 

$

1,335,685

 

$

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 Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“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.

 

Changes in the accretable yield for acquired impaired loans were as follows for the three months ended March 31, 2012 and 2011:

 

 

 

For the three months ended
March 31,

 

(in thousands)

 

2012

 

2011

 

Balance, beginning of period

 

$

436,374

 

$

562,826

 

Accretion

 

(22,225

)

(27,572

)

Reclassifications to nonaccretable yield

 

(21,468

)

(2,448

)

Disposals and other

 

(16,213

)

(11,248

)

Balance, end of period

 

$

376,468

 

$

521,558

 

 

At acquisition date, the Company recorded an indemnification asset for its FDIC-assisted acquisitions. The FDIC indemnification asset represents the present value of the expected reimbursement from the FDIC related to expected losses on acquired loans, OREO and unfunded commitments. The FDIC indemnification asset from all FDIC-assisted acquisitions was $185.4 million at March 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 Company accounts for the credit risk associated with lending activities through its allowance for loan and lease losses, reserve for off-balance sheet credit commitments and provision for credit losses. The provision is the expense recognized in the consolidated statements of income to adjust the allowance and reserve to the levels deemed appropriate by management, as determined through application of the Company’s allowance methodology procedures. The provision for credit losses reflects management’s judgment of the adequacy of the allowance for loan and lease losses and the reserve for off-balance sheet credit commitments. It is determined through quarterly analytical reviews of the loan and commitment portfolios and consideration of such other factors as the Company’s loan and lease loss experience, trends in problem loans, concentrations of credit risk, underlying collateral values, and current economic conditions, as well as the results of the Company’s ongoing credit review process. As conditions change, the Company’s level of provisioning and the allowance for loan and lease losses and reserve for off-balance sheet credit commitments may change.

 

For commercial, non-homogenous loans that are not impaired, the Bank derives loss factors via a process that begins with estimates of probable losses inherent in the portfolio based upon various statistical analyses. The factors considered in the analysis include loan type, migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, as well as analyses that reflect current trends and conditions. Each portfolio of smaller balance homogeneous loans, including residential first mortgages, installment, revolving credit and most other consumer loans, is collectively evaluated for loss potential. Management also establishes a qualitative reserve that considers overall portfolio indicators, including current and historical credit losses; delinquent, nonperforming and criticized loans; portfolio concentrations, trends in volumes and terms of loans; and economic trends in the broad market and in specific industries.

 

The allowance for loan and lease losses attributed to impaired loans considers all available evidence, including as appropriate, the probability that a specific loan will default, the expected exposure of a loan at default, an estimate of loss given default, the present value of expected future cash flows discounted using the loan’s contractual effective rate, the secondary market value of the loan and the fair value of collateral.

 

The quantitative portion of the allowance for loan and lease losses is adjusted for qualitative factors to account for model imprecision and to incorporate the range of probable outcomes inherent in the estimates used for the allowance. The qualitative portion of the allowance attempts to incorporate the risks inherent in the portfolio, economic uncertainties, competition, regulatory requirements and other subjective factors including industry trends, changes in underwriting standards, and existence of concentrations.

 

The relative significance of risk considerations vary by portfolio segment. For commercial loans, the primary risk consideration is a borrower’s ability to generate sufficient cash flows to repay their loan. Secondary considerations include the creditworthiness of guarantors and the valuation of collateral. In addition to the creditworthiness of a borrower, the type and location of real estate collateral is an important risk factor for commercial real estate and real estate construction loans. The primary risk considerations for consumer loans are a borrower’s personal cash flow and liquidity, as well as collateral value.

 

Generally, commercial, commercial real estate and real estate construction loans are charged off immediately when it is determined that advances to the borrower are in excess of the calculated current fair value of the collateral or if a borrower is deemed incapable of repayment of unsecured debt, there is little or no prospect for near term improvement and no realistic strengthening action of significance pending. Consumer loans are charged-off based on delinquency, ranging from 60 days for overdrafts to 180 days for secured consumer loans, or earlier when it is determined that the loan is uncollectible due to a triggering event, such as bankruptcy, fraud or death.

 

The following tables provide a summary of activity in the allowance for loan and lease losses and the period-end recorded investment balances of loans evaluated for impairment, excluding covered loans, for the three months ended March 31, 2012 and 2011. Activity is provided by loan type 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 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)

 

(4,161

)

1,285

 

268

 

(1,355

)

162

 

(438

)

3,269

 

(970

)

Charge-offs

 

(8,917

)

(692

)

(554

)

(1,601

)

(189

)

(209

)

—

 

(12,162

)

Recoveries

 

14,200

 

26

 

60

 

1,705

 

35

 

626

 

—

 

16,652

 

Net (charge-offs) recoveries

 

5,283

 

(666

)

(494

)

104

 

(154

)

417

 

—

 

4,490

 

Ending balance

 

$

84,087

 

$

46,586

 

$

13,803

 

$

22,096

 

$

8,032

 

$

1,938

 

$

89,535

 

$

266,077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance of allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

3,335

 

$

1,019

 

$

331

 

$

9,395

 

$

38

 

$

—

 

$

—

 

$

14,118

 

Collectively evaluated for impairment

 

80,752

 

45,567

 

13,472

 

12,701

 

7,994

 

1,938

 

89,535

 

251,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, excluding covered loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance of loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, excluding covered loans

 

$

5,573,782

 

$

2,213,114

 

$

3,805,807

 

$

313,409

 

$

715,997

 

$

125,793

 

$

—

 

$

12,747,902

 

Individually evaluated for impairment

 

40,415

 

22,306

 

13,000

 

67,686

 

6,980

 

550

 

—

 

150,937

 

Collectively evaluated for impairment

 

5,533,367

 

2,190,808

 

3,792,807

 

245,723

 

709,017

 

125,243

 

—

 

12,596,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 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)

 

(4,853

)

(11,209

)

(2,611

)

(7,957

)

(27

)

1,716

 

24,763

 

(178

)

Charge-offs

 

(3,238

)

(2,799

)

(647

)

(566

)

(793

)

(324

)

—

 

(8,367

)

Recoveries

 

1,301

 

9,011

 

32

 

4,392

 

36

 

122

 

—

 

14,894

 

Net (charge-offs) recoveries

 

(1,937

)

6,212

 

(615

)

3,826

 

(757

)

(202

)

—

 

6,527

 

Ending balance

 

$

75,661

 

$

47,519

 

$

13,527

 

$

36,693

 

$

6,445

 

$

5,445

 

$

78,066

 

$

263,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance of allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

2,291

 

$

1,060

 

$

384

 

$

334

 

$

72

 

$

4,514

 

$

—

 

$

8,655

 

Collectively evaluated for impairment

 

73,370

 

46,459

 

13,143

 

36,359

 

6,373

 

931

 

78,066

 

254,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, excluding covered loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance of loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases, excluding covered loans

 

$

4,468,177

 

$

1,902,862

 

$

3,603,058

 

$

415,241

 

$

733,567

 

$

146,779

 

$

—

 

$

11,269,684

 

Individually evaluated for impairment

 

14,431

 

25,790

 

12,476

 

81,604

 

4,249

 

6,938

 

—

 

145,488

 

Collectively evaluated for impairment

 

4,453,746

 

1,877,072

 

3,590,582

 

333,637

 

729,318

 

139,841

 

—

 

11,124,196

 

 

(1)

Includes lease financing loans.

(2)

Provision for credit losses in the allowance rollforward for the three months ended March 31, 2012 includes total transfers from the reserve for off-balance sheet credit commitments of $1.0 million. Provision for credit losses for the three months ended March 31, 2011 includes total transfers to the reserve for off-balance sheet credit commitments of $0.2 million. There was no other provision for credit losses recognized for the three months ended March 31, 2012 and 2011.

 

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 three months ended March 31, 2012 and 2011:

 

 

 

For the three months ended
March 31,

 

(in thousands)

 

2012

 

2011

 

Balance, beginning of period

 

$

23,097

 

$

21,529

 

Transfers from allowance for loan and lease losses

 

970

 

178

 

Balance, end of period

 

$

24,067

 

21,707

 

 

Impaired Loans and Leases

 

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

 

 

 

 

 

Unpaid

 

 

 

For the three months ended
March 31, 2012

 

(in thousands)

 

Recorded
Investment

 

Contractual
Principal
Balance

 

Related
Allowance

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

27,822

 

$

36,069

 

$

—

 

$

18,988

 

$

—

 

Commercial real estate mortgages

 

14,008

 

19,022

 

—

 

16,938

 

69

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

2,666

 

3,194

 

—

 

3,080

 

—

 

Variable

 

6,567

 

7,240

 

—

 

5,128

 

—

 

Total residential mortgages

 

9,233

 

10,434

 

—

 

8,208

 

—

 

Real estate construction:

 

 

 

 

 

 

 

 

 

 

 

Construction

 

21,045

 

34,381

 

—

 

24,240

 

116

 

Land

 

24,090

 

27,340

 

—

 

26,541

 

—

 

Total real estate construction

 

45,135

 

61,721

 

—

 

50,781

 

116

 

Equity lines of credit

 

6,035

 

7,185

 

—

 

5,688

 

—

 

Installment:

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

550

 

927

 

—

 

604

 

—

 

Total installment

 

550

 

927

 

—

 

604

 

—

 

Lease financing

 

—

 

—

 

—

 

14

 

—

 

Total with no related allowance

 

$

102,783

 

$

135,358

 

$

—

 

$

101,221

 

$

185

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

12,593

 

$

17,643

 

$

3,335

 

$

14,110

 

$

—

 

Commercial real estate mortgages

 

8,298

 

8,715

 

1,019

 

9,555

 

—

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

2,341

 

2,367

 

287

 

1,428

 

—

 

Variable

 

1,426

 

1,476

 

44

 

1,438

 

—

 

Total residential mortgages

 

3,767

 

3,843

 

331

 

2,866

 

—

 

Real estate construction:

 

 

 

 

 

 

 

 

 

 

 

Land

 

22,551

 

34,312

 

9,395

 

20,968

 

—

 

Total real estate construction

 

22,551

 

34,312

 

9,395

 

20,968

 

—

 

Equity lines of credit

 

945

 

985

 

38

 

1,119

 

—

 

Total with an allowance

 

$

48,154

 

$

65,498

 

$

14,118

 

$

48,618

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired loans by type:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

40,415

 

$

53,712

 

$

3,335

 

$

33,098

 

$

—

 

Commercial real estate mortgages

 

22,306

 

27,737

 

1,019

 

26,493

 

69

 

Residential mortgages

 

13,000

 

14,277

 

331

 

11,074

 

—

 

Real estate construction

 

67,686

 

96,033

 

9,395

 

71,749

 

116

 

Equity lines of credit

 

6,980

 

8,170

 

38

 

6,807

 

—

 

Installment

 

550

 

927

 

—

 

604

 

—

 

Lease financing

 

—

 

—

 

—

 

14

 

—

 

Total impaired loans

 

$

150,937

 

$

200,856

 

$

14,118

 

$

149,839

 

$

185

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

 

 

 

Contractual

 

 

 

 

 

 

 

 

 

 

Recorded

 

Principal

 

Related

 

 

 

 

 

 

(in thousands)

 

Investment

 

Balance (1)

 

Allowance

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

10,153

 

$

11,588

 

$

—

 

 

 

 

 

 

Commercial real estate mortgages

 

19,867

 

23,983

 

—

 

 

 

 

 

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

3,493

 

4,035

 

—

 

 

 

 

 

 

Variable

 

3,689

 

4,000

 

—

 

 

 

 

 

 

Total residential mortgages

 

7,182

 

8,035

 

—

 

 

 

 

 

 

Real estate construction:

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

27,435

 

40,605

 

—

 

 

 

 

 

 

Land

 

28,991

 

32,335

 

—

 

 

 

 

 

 

Total real estate construction

 

56,426

 

72,940

 

—

 

 

 

 

 

 

Equity lines of credit

 

5,341

 

6,325

 

—

 

 

 

 

 

 

Installment:

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

658

 

976

 

—

 

 

 

 

 

 

Total installment

 

658

 

976

 

—

 

 

 

 

 

 

Lease financing

 

28

 

5,225

 

—

 

 

 

 

 

 

Total with no related allowance

 

$

99,655

 

$

129,072

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

15,627

 

$

21,377

 

$

7,135

 

 

 

 

 

 

Commercial real estate mortgages

 

10,811

 

11,215

 

1,551

 

 

 

 

 

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

515

 

535

 

40

 

 

 

 

 

 

Variable

 

1,449

 

1,476

 

68

 

 

 

 

 

 

Total residential mortgages

 

1,964

 

2,011

 

108

 

 

 

 

 

 

Real estate construction:

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

19,385

 

29,381

 

4,377

 

 

 

 

 

 

Total real estate construction

 

19,385

 

29,381

 

4,377

 

 

 

 

 

 

Equity lines of credit

 

1,292

 

1,461

 

91

 

 

 

 

 

 

Total with an allowance

 

$

49,079

 

$

65,445

 

$

13,262

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired loans by type:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

25,780

 

$

32,965

 

$

7,135

 

 

 

 

 

 

Commercial real estate mortgages

 

30,678

 

35,198

 

1,551

 

 

 

 

 

 

Residential mortgages

 

9,146

 

10,046

 

108

 

 

 

 

 

 

Real estate construction

 

75,811

 

102,321

 

4,377

 

 

 

 

 

 

Equity lines of credit

 

6,633

 

7,786

 

91

 

 

 

 

 

 

Installment

 

658

 

976

 

—

 

 

 

 

 

 

Lease financing

 

28

 

5,225

 

—

 

 

 

 

 

 

Total impaired loans

 

$

148,734

 

$

194,517

 

$

13,262

 

 

 

 

 

 

 

(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.

 

 

 

 

 

Unpaid

 

 

 

For the three months ended
March 31, 2011

 

(in thousands)

 

Recorded
Investment

 

Contractual
Principal
Balance (1)

 

Related
Allowance

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

March 31, 2011

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

6,400

 

$

15,721

 

$

—

 

$

6,848

 

$

—

 

Commercial real estate mortgages

 

18,491

 

24,047

 

—

 

20,994

 

130

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

6,238

 

7,324

 

—

 

8,590

 

145

 

Variable

 

3,271

 

3,280

 

—

 

3,659

 

10

 

Total residential mortgages

 

9,509

 

10,604

 

—

 

12,249

 

155

 

Real estate construction:

 

 

 

 

 

 

 

 

 

 

 

Construction

 

49,258

 

83,788

 

—

 

62,518

 

230

 

Land

 

23,528

 

24,296

 

—

 

23,630

 

—

 

Total real estate construction

 

72,786

 

108,084

 

—

 

86,148

 

230

 

Equity lines of credit

 

3,292

 

3,830

 

—

 

3,149

 

—

 

Installment:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

—

 

—

 

—

 

569

 

—

 

Consumer

 

41

 

41

 

—

 

41

 

—

 

Total installment

 

41

 

41

 

—

 

610

 

—

 

Lease financing

 

1,108

 

6,243

 

—

 

554

 

99

 

Total with no related allowance

 

$

111,627

 

$

168,570

 

$

—

 

$

130,552

 

$

614

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

6,923

 

$

16,314

 

$

2,291

 

$

7,745

 

$

—

 

Commercial real estate mortgages

 

7,299

 

8,386

 

1,060

 

13,219

 

—

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

1,553

 

1,549

 

103

 

1,060

 

—

 

Variable

 

1,414

 

1,508

 

281

 

1,424

 

—

 

Total residential mortgages

 

2,967

 

3,057

 

384

 

2,484

 

—

 

Real estate construction:

 

 

 

 

 

 

 

 

 

 

 

Construction

 

8,818

 

8,991

 

334

 

8,834

 

—

 

Total real estate construction

 

8,818

 

8,991

 

334

 

8,834

 

—

 

Equity lines of credit

 

957

 

963

 

72

 

1,412

 

3

 

Installment:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

6,897

 

7,417

 

4,514

 

3,448

 

—

 

Total installment

 

6,897

 

7,417

 

4,514

 

3,448

 

—

 

Total with an allowance

 

$

33,861

 

$

45,128

 

$

8,655

 

$

37,142

 

$

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired loans by type:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

13,323

 

$

32,035

 

$

2,291

 

$

14,593

 

$

—

 

Commercial real estate mortgages

 

25,790

 

32,433

 

1,060

 

34,213

 

130

 

Residential mortgages

 

12,476

 

13,661

 

384

 

14,733

 

155

 

Real estate construction

 

81,604

 

117,075

 

334

 

94,982

 

230

 

Equity lines of credit

 

4,249

 

4,793

 

72

 

4,561

 

3

 

Installment

 

6,938

 

7,458

 

4,514

 

4,058

 

—

 

Lease financing

 

1,108

 

6,243

 

—

 

554

 

99

 

Total impaired loans

 

$

145,488

 

$

213,698

 

$

8,655

 

$

167,694

 

$

617

 

 

(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.

 

Additional detail on the components of impaired loans, excluding covered loans, is provided below:

 

(in thousands)

 

March 31,
2012

 

December 31,
2011

 

Nonaccrual loans (1)

 

$

104,441

 

$

101,873

 

Troubled debt restructured loans on accrual

 

46,111

 

46,647

 

Deferred fees, accrued interest, and premiums and discounts, net

 

385

 

214

 

Total recorded investment in impaired loans, excluding covered loans

 

$

150,937

 

$

148,734

 

 

(1)

Impaired loans exclude $8.4 million and $10.2 million of nonaccrual loans under $500,000 that are not individually evaluated for impairment at March 31, 2011 and December 31, 2011, respectively.

 

Impaired loans at March 31, 2012 and December 31, 2011 included $46.1 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 three months ended March 31, 2012:

 

 

 

For the three months ended March 31, 2012

 

(in thousands)

 

Number
of
Contracts

 

Pre-Modification
Outstanding
Principal

 

Period-End
Outstanding
Principal

 

Financial
Effects (1)

 

Commercial

 

5

 

$

16,982

 

$

16,903

 

$

—

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

Fixed

 

1

 

655

 

655

 

—

 

Real estate construction:

 

 

 

 

 

 

 

 

 

Construction

 

1

 

5,532

 

5,532

 

—

 

Total troubled debt restructured loans

 

7

 

$

23,169

 

$

23,090

 

$

—

 

 

(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 troubled debt restructured (“TDR”) loans that subsequently defaulted during the three months ended March 31, 2012, that had been modified as a troubled debt restructuring during the 12 months prior to their default:

 

(in thousands)

 

Number of
Contracts

 

Period-End
Outstanding
Principal

 

Period-End
Specific
Reserve

 

Commercial

 

1

 

$

26

 

$

10

 

Real estate construction:

 

 

 

 

 

 

 

Land

 

2

 

6,339

 

3,318

 

Total TDR loans that subsequently defaulted

 

3

 

$

6,365

 

$

3,328

 

 

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 $23.2 million were modified in troubled debt restructurings during the three months ended March 31, 2012. The concessions granted in the restructurings completed in 2012 largely consisted of interest rate concessions on commercial and construction loans. The unpaid principal balance of TDR loans was $88.1 million, before specific reserves of $4.5 million, at March 31, 2012 and $89.4 million, before specific reserves of $1.7 million, at December 31, 2011. 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 three months ended March 31, 2012, two land loans and one commercial loan that had been restructured within the preceding 12 months were not performing in accordance with their new terms. One land loan comprises the majority of the $6.4 million balance of restructured loans that subsequently defaulted. This loan went into technical default when the borrower failed to sell the collateral by the date specified in the restructuring agreement. All other TDR loans were performing in accordance with their restructured terms at March 31, 2012. As of March 31, 2012, there were no commitments to lend additional funds on restructured loans.

 

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 March 31, 2012 and December 31, 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

 

March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

10,267

 

$

980

 

$

7

 

$

19,584

 

$

30,838

 

$

5,144,558

 

$

5,175,396

 

Commercial real estate mortgages

 

3,953

 

—

 

—

 

21,071

 

25,024

 

2,188,090

 

2,213,114

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

525

 

—

 

379

 

5,657

 

6,561

 

1,531,537

 

1,538,098

 

Variable

 

—

 

1,519

 

—

 

7,971

 

9,490

 

2,258,219

 

2,267,709

 

Total residential mortgages

 

525

 

1,519

 

379

 

13,628

 

16,051

 

3,789,756

 

3,805,807

 

Real estate construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

—

 

—

 

—

 

15,453

 

15,453

 

206,184

 

221,637

 

Land

 

16,288

 

—

 

—

 

33,511

 

49,799

 

41,973

 

91,772

 

Total real estate construction

 

16,288

 

—

 

—

 

48,964

 

65,252

 

248,157

 

313,409

 

Equity lines of credit

 

248

 

74

 

268

 

8,831

 

9,421

 

706,576

 

715,997

 

Installment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

—

 

—

 

—

 

—

 

—

 

489

 

489

 

Consumer

 

137

 

400

 

—

 

729

 

1,266

 

124,038

 

125,304

 

Total installment

 

137

 

400

 

—

 

729

 

1,266

 

124,527

 

125,793

 

Lease financing

 

—

 

—

 

—

 

—

 

—

 

398,386

 

398,386

 

Total

 

$

31,418

 

$

2,973

 

$

654

 

$

112,807

 

$

147,852

 

$

12,600,050

 

$

12,747,902

 

 

(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, 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

 

 

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 tables provide a summary of the loan and lease portfolio, excluding covered loans, by loan type and credit quality classification as of March 31, 2012 and December 31, 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.

 

 

 

March 31, 2012

 

December 31, 2011

 

(in thousands)

 

Nonclassified

 

Classified

 

Total

 

Nonclassified

 

Classified

 

Total

 

Commercial

 

$

5,068,902

 

$

106,494

 

$

5,175,396

 

$

4,732,663

 

$

113,931

 

$

4,846,594

 

Commercial real estate mortgages

 

2,080,452

 

132,662

 

2,213,114

 

1,930,001

 

180,748

 

2,110,749

 

Residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

1,526,029

 

12,069

 

1,538,098

 

1,565,420

 

16,376

 

1,581,796

 

Variable

 

2,257,505

 

10,204

 

2,267,709

 

2,163,458

 

17,964

 

2,181,422

 

Total residential mortgages

 

3,783,534

 

22,273

 

3,805,807

 

3,728,878

 

34,340

 

3,763,218

 

Real estate construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

165,761

 

55,876

 

221,637

 

147,916

 

69,945

 

217,861

 

Land

 

39,579

 

52,193

 

91,772

 

43,717

 

54,031

 

97,748

 

Total real estate construction

 

205,340

 

108,069

 

313,409

 

191,633

 

123,976

 

315,609

 

Equity lines of credit

 

700,363

 

15,634

 

715,997

 

724,045

 

17,036

 

741,081

 

Installment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

489

 

—

 

489

 

601

 

4

 

605

 

Consumer

 

124,094

 

1,210

 

125,304

 

130,921

 

1,121

 

132,042

 

Total installment

 

124,583

 

1,210

 

125,793

 

131,522

 

1,125

 

132,647

 

Lease financing

 

395,497

 

2,889

 

398,386

 

396,256

 

3,231

 

399,487

 

Total

 

$

12,358,671

 

$

389,231

 

$

12,747,902

 

$

11,834,998

 

$

474,387

 

$

12,309,385

 

 

Credit Quality on Covered Loans

 

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

 

 

 

For the three months ended
March 31,

 

(in thousands)

 

2012

 

2011

 

Balance, beginning of period

 

$

64,565

 

$

67,389

 

Provision for losses

 

7,466

 

19,116

 

Reduction in allowance due to loan removals

 

(10,560

)

(4,489

)

Balance, end of period

 

$

61,471

 

$

82,016

 

 

The allowance for loan losses on covered loans was $61.5 million, $64.6 million and $82.0 million as of March 31, 2012, December 31, 2011 and March 31, 2011, respectively. The Company recorded provision expense of $7.5 million and $19.1 million on covered loans for the three months ended March 31, 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 forecasts, though overall estimated credit losses decreased as compared with previous expectations. The revisions of the loss 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 loan losses on covered loans is reduced for any loan removals. A loan is removed when it 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 March 31, 2012 and December 31, 2011, there were no acquired impaired covered loans accounted for under ASC 310-30 that were on nonaccrual status. 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 March 31, 2012 and December 31, 2011.

 

At March 31, 2012, covered loans that were 30 to 89 days delinquent totaled $59.4 million and covered loans that were 90 days or more past due on accrual status totaled $265.2 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.