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

6 Months Ended

Jun. 30, 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

	June 30,			December 31,
(in thousands)	2012			2011
Commercial	$	5,379,489		$	4,846,594
Commercial real estate mortgages	2,424,333			2,110,749
Residential mortgages	3,822,630			3,763,218
Real estate construction	301,829			315,609
Equity lines of credit	741,270			741,081
Installment	130,200			132,647
Lease financing	707,458			399,487
Loans and leases, excluding covered loans	13,507,209			12,309,385
Less: Allowance for loan and lease losses	(269,534		)	(262,557		)
Loans and leases, excluding covered loans, net	13,237,675			12,046,828
Covered loans	1,260,135			1,481,854
Less: Allowance for loan losses	(43,147		)	(64,565		)
Covered loans, net	1,216,988			1,417,289
Total loans and leases	$	14,767,344		$	13,791,239
Total loans and leases, net	$	14,454,663		$	13,464,117

The loan amounts above include unamortized fees, net of deferred costs, of $5.0 million and $7.5 million as of June 30, 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. 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 June 30, 2012, California represented 81 percent of total loans outstanding and New York and Nevada represented 7 percent and 3 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 June 30, 2012, the five states with the largest concentration were California (39 percent), Texas (12 percent), Nevada (8 percent), Arizona (4 percent) and Ohio (4 percent). The remaining 33 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 $1.26 billion as of June 30, 2012 and $1.48 billion as of December 31, 2011. Covered loans, net of allowance for loan losses, were $1.22 billion at June 30, 2012 and $1.42 billion at December 31, 2011.

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

	June 30,			December 31,
(in thousands)	2012			2011
Commercial	$	22,772		$	30,911
Commercial real estate mortgages	1,135,071			1,288,352
Residential mortgages	5,766			14,931
Real estate construction	90,196			140,992
Equity lines of credit	5,265			5,167
Installment	1,065			1,501
Covered loans	1,260,135			1,481,854
Less: Allowance for loan losses	(43,147		)	(64,565		)
Covered loans, net	$	1,216,988		$	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.

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 six months ended June 30, 2012 and 2011:

	For the six months ended June 30,
(in thousands)	2012			2011
Balance, beginning of period	$	436,374		$	562,826
Additions	—			10,871
Accretion	(43,085		)	(54,558		)
Reclassifications (to) from nonaccretable yield	(10,212		)	13,461
Disposals and other	(36,944		)	(27,127		)
Balance, end of period	$	346,133		$	505,473

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 accretable yield to nonaccretable yield during 2012 was principally driven by negative changes in future cash flows, both timing and amount, which were primarily a result of 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 $170.7 million at June 30, 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 and six months ended June 30, 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 June 30, 2012
Allowance for loan and lease losses:
Beginning balance	$	84,087		$	46,586		$	13,803		$	22,096		$	8,032		$	1,938		$	89,535		$	266,077
Provision for credit losses (2)	1,228			(51		)	(846		)	326			386			100			(427		)	716
Charge-offs	(1,302		)	(181		)	(749		)	(7,858		)	(846		)	(617		)	—			(11,553		)
Recoveries	9,394			1,294			206			3,019			38			343			—			14,294
Net (charge-offs) recoveries	8,092			1,113			(543		)	(4,839		)	(808		)	(274		)	—			2,741
Ending balance	$	93,407		$	47,648		$	12,414		$	17,583		$	7,610		$	1,764		$	89,108		$	269,534
Six months ended June 30, 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)	(2,933		)	1,234			(578		)	(1,029		)	548			(338		)	2,842			(254		)
Charge-offs	(10,219		)	(873		)	(1,303		)	(9,459		)	(1,035		)	(826		)	—			(23,715		)
Recoveries	23,594			1,320			266			4,724			73			969			—			30,946
Net (charge-offs) recoveries	13,375			447			(1,037		)	(4,735		)	(962		)	143			—			7,231
Ending balance	$	93,407		$	47,648		$	12,414		$	17,583		$	7,610		$	1,764		$	89,108		$	269,534
Ending balance of allowance:
Individually evaluated for impairment	$	2,850		$	2,282		$	398		$	1,866		$	154		$	—		$	—		$	7,550
Collectively evaluated for impairment	90,557			45,366			12,016			15,717			7,456			1,764			89,108			261,984
Loans and leases, excluding covered loans
Ending balance of loans and leases:
Loans and leases, excluding covered loans	$	6,086,947		$	2,424,333		$	3,822,630		$	301,829		$	741,270		$	130,200		$	—		$	13,507,209
Individually evaluated for impairment	43,144			45,491			13,634			66,529			4,434			550			—			173,782
Collectively evaluated for impairment	6,043,803			2,378,842			3,808,996			235,300			736,836			129,650			—			13,333,427

(1)

Includes lease financing loans.

(2)

Provision for credit losses in the allowance rollforward for the three months ended June 30, 2012 includes total provision expense of $1.0 million and total transfers to the reserve for off-balance sheet credit commitments of $0.3 million. Provision for credit losses for the six months ended June 30, 2012 includes total provision expense of $1.0 million and total transfers to the reserve for off-balance sheet credit commitments of $1.3 million.

(in thousands)	Commercial (1)			Commercial Real Estate Mortgages			Residential Mortgages			Real Estate Construction			Equity Lines of Credit			Installment			Unallocated		Total
Three months ended June 30, 2011
Allowance for loan and lease losses:
Beginning balance	$	75,661		$	47,519		$	13,527		$	36,693		$	6,445		$	5,445		$	78,066	$	263,356
Provision for credit losses (2)	7,440			272			(401		)	(7,815		)	343			(3,600		)	2,143		(1,618		)
Charge-offs	(3,446		)	(98		)	(375		)	(1,897		)	(128		)	(131		)	—		(6,075		)
Recoveries	6,062			1,367			122			2,474			8			237			—		10,270
Net charge-offs (recoveries)	2,616			1,269			(253		)	577			(120		)	106			—		4,195
Ending balance	$	85,717		$	49,060		$	12,873		$	29,455		$	6,668		$	1,951		$	80,209	$	265,933
Six months ended June 30, 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)	2,587			(10,937		)	(3,012		)	(15,772		)	316			(1,884		)	26,906		(1,796		)
Charge-offs	(6,684		)	(2,897		)	(1,022		)	(2,463		)	(921		)	(455		)	—		(14,442		)
Recoveries	7,363			10,378			154			6,866			44			359			—		25,164
Net charge-offs (recoveries)	679			7,481			(868		)	4,403			(877		)	(96		)	—		10,722
Ending balance	$	85,717		$	49,060		$	12,873		$	29,455		$	6,668		$	1,951		$	80,209	$	265,933
Ending balance of allowance:
Individually evaluated for impairment	$	7,605		$	1,150		$	56		$	1,853		$	404		$	—		$	—	$	11,068
Collectively evaluated for impairment	78,112			47,910			12,817			27,602			6,264			1,951			80,209		254,865
Loans and leases, excluding covered loans
Ending balance of loans and leases:
Loans and leases excluding covered loans	$	4,800,252		$	1,930,269		$	3,710,765		$	355,014		$	735,899		$	130,924		$	—	$	11,663,123
Individually evaluated for impairment	19,236			23,769			12,536			60,630			4,522			41			—		120,734
Collectively evaluated for impairment	4,781,016			1,906,500			3,698,229			294,384			731,377			130,883			—		11,542,389

(1)	Includes lease financing loans.
(2)	There was no provision for credit losses for the three and six months ended June 30, 2011. Net transfers to the reserve for off-balance sheet credit commitments were $1.6 million and $1.8 million for the three and six months ended June 30, 2011, respectively.

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 and six months ended June 30, 2012 and 2011:

	For the three months ended June 30,				For the six months ended June 30,
(in thousands)	2012		2011		2012		2011
Balance, beginning of period	$	24,067	$	21,707	$	23,097	$	21,529
Transfers from allowance for loan and lease losses	284		1,618		1,254		1,796
Balance, end of period	$	24,351	23,325		$	24,351	23,325

Impaired Loans and Leases

Information on impaired loans, excluding covered loans, at June 30, 2012, December 31, 2011 and June 30, 2011 is provided in the following tables:

			Unpaid				For the three months ended June 30, 2012				For the six months ended June 30, 2012
(in thousands)	Recorded Investment		Contractual Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest  Income Recognized
June 30, 2012
With no related allowance recorded:
Commercial	$	32,378	$	43,247	$	—	$	30,100	$	—	$	23,451	$	—
Commercial real estate mortgages	28,368		33,107		—		21,188		55		20,748		124
Residential mortgages:
Fixed	1,830		2,518		—		2,248		—		2,663		—
Variable	6,257		6,688		—		6,412		39		5,504		39
Total residential mortgages	8,087		9,206		—		8,660		39		8,167		39
Real estate construction:
Construction	38,828		52,209		—		29,937		126		29,103		242
Land	18,936		22,101		—		21,513		—		24,006		—
Total real estate construction	57,764		74,310		—		51,450		126		53,109		242
Equity lines of credit	3,207		4,245				4,621		—		4,861		—
Installment:
Consumer	550		927		—		550		—		586		—
Total installment	550		927		—		550		—		586		—
Lease financing	—		—		—		—		—		9
Total with no related allowance	$	130,354	$	165,042	$	—	$	116,569	$	220	$	110,931	$	405
With an allowance recorded:
Commercial	$	10,766	$	11,591	$	2,850	$	11,680	$	—	$	12,995	$	—
Commercial real estate mortgages	17,123		18,266		2,282		12,711		—		12,077		—
Residential mortgages:
Fixed	2,291		2,353		236		2,316		—		1,716		—
Variable	3,256		3,951		162		2,341		—		2,044		—
Total residential mortgages	5,547		6,304		398		4,657		—		3,760		—
Real estate construction:
Land	8,765		18,575		1,866		15,658		—		16,900		—
Total real estate construction	8,765		18,575		1,866		15,658		—		16,900		—
Equity lines of credit	1,227		1,421		154		1,086		—		1,155		—
Total with an allowance	$	43,428	$	56,157	$	7,550	$	45,792	$	—	$	46,887	$	—
Total impaired loans by type:
Commercial	$	43,144	$	54,838	$	2,850	$	41,780	$	—	$	36,446	$	—
Commercial real estate mortgages	45,491		51,373		2,282		33,899		55		32,825		124
Residential mortgages	13,634		15,510		398		13,317		39		11,927		39
Real estate construction	66,529		92,885		1,866		67,108		126		70,009		242
Equity lines of credit	4,434		5,666		154		5,707		—		6,016		—
Installment	550		927		—		550		—		586		—
Lease financing	—		—		—		—		—		9		—
Total impaired loans	$	173,782	$	221,199	$	7,550	$	162,361	$	220	$	157,818	$	405

(in thousands)	Recorded Investment		Unpaid Contractual Principal Balance (1)		Related 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 June 30, 2011				For the six months ended June 30, 2011
(in thousands)	Recorded Investment		Contractual Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
June 30, 2011
With no related allowance recorded:
Commercial	$	4,007	$	23,764	$	—	$	5,204	$	—	$	5,901	$	—
Commercial real estate mortgages	14,610		21,607		—		16,550		60		18,866		190
Residential mortgages:
Fixed	7,834		8,678		—		7,036		17		8,338		162
Variable	4,163		4,595		—		3,717		24		3,827		34
Total residential mortgages	11,997		13,273		—		10,753		41		12,165		196
Real estate construction:
Construction	39,184		73,136		—		44,221		175		54,740		405
Land	11,271		15,100		—		17,400		—		19,510		—
Total real estate construction	50,455		88,236		—		61,621		175		74,250		405
Equity lines of credit	2,420		2,551		—		2,856		—		2,906		—
Installment:
Consumer	41		41		—		41		—		41		—
Total installment	41		41		—		41		—		41		—
Lease financing	762		6,279		—		935		—		1,002		99
Total with no related allowance	$	84,292	$	155,751	$	—	$	97,960	$	276	$	115,131	$	890
With an allowance recorded:
Commercial	$	14,467	$	46,222	$	7,605	$	10,695	$	—	$	9,986	$	—
Commercial real estate mortgages	9,159		10,960		1,150		8,229		—		11,866		—
Residential mortgages:
Fixed	539		549		56		1,046		—		886		—
Variable	—		—		—		707		—		950		—
Total residential mortgages	539		549		56		1,753		—		1,836		—
Real estate construction:
Construction	—		—		—		4,409		—		5,889		—
Land	10,175		10,700		1,853		5,087		—		3,392		—
Total real estate construction	10,175		10,700		1,853		9,496		—		9,281		—
Equity lines of credit	2,102		2,555		404		1,530		3		1,642		6
Installment:
Commercial	—		—		—		3,448		—		2,299
Total installment	—		—		—		3,448		—		2,299		—
Lease financing	—		—		—		—		—		285
Total with an allowance	$	36,442	$	70,986	$	11,068	$	35,151	$	3	$	37,195	$	6
Total impaired loans by type:
Commercial	$	18,474	$	69,986	$	7,605	$	15,899	$	—	$	15,887	$	—
Commercial real estate mortgages	23,769		32,567		1,150		24,779		60		30,732		190
Residential mortgages	12,536		13,822		56		12,506		41		14,001		196
Real estate construction	60,630		98,936		1,853		71,117		175		83,531		405
Equity lines of credit	4,522		5,106		404		4,386		3		4,548		6
Installment	41		41		—		3,489		—		2,340		—
Lease financing	762		6,279		—		935		—		1,287		99
Total impaired loans	$	120,734	$	226,737	$	11,068	$	133,111	$	279	$	152,326	$	896

(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.

Impaired loans at June 30, 2012 and December 31, 2011 included $72.8 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 tables provide a summary of loans modified in a troubled debt restructuring during the three and six months ended June 30, 2012:

(in thousands)	Number of Contracts	Pre-Modification Outstanding Principal		Period-End Outstanding Principal		Financial Effects (1)
Three months ended June 30, 2012
Commercial	4	$	18,179	$	18,148	$	—
Commercial real estate mortgages	2	15,832		15,832		—
Real estate construction:
Construction	2	9,325		9,325		—
Total troubled debt restructured loans	8	$	43,336	$	43,305	$	—
Six months ended June 30, 2012
Commercial	9	$	35,161	$	32,351	$	—
Commercial real estate mortgages	2	15,832		15,832		—
Residential mortgages:
Fixed	1	655		—		—
Real estate construction:
Construction	3	14,857		14,458		—
Total troubled debt restructured loans	15	$	66,505	$	62,641	$	—

(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 six months ended June 30, 2012, that had been modified as a troubled debt restructuring during the 12 months prior to their default:

	For the three months ended June 30, 2012					For the six months ended June 30, 2012
(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	2	$	4,327	$	277	3	$	4,341	$	277
Real estate construction:
Land	—	—		—		2	1,371		—
Total loans that subsequently defaulted	2	$	4,327	$	277	5	$	5,712	$	277

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 $43.3 million and $66.5 million were modified in troubled debt restructurings during the three and six months ended June 30, 2012. 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 $113.7 million, before specific reserves of $2.6 million, at June 30, 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 $66.4 million of additions that were partially offset by $35.9 million of payments received. The remaining change in TDR loans was a result of charge-offs and loans that were removed from TDR status. 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 six months ended June 30, 2012, three commercial loans and two land loans that had been restructured within the preceding 12 months were not performing in accordance with their new terms. The defaults were primarily due to missed or late payments. Additionally, a land 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 June 30, 2012. As of June 30, 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 June 30, 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
June 30, 2012
Commercial	$	6,864	$	2,218	$	—	$	18,936	$	28,018	$	5,351,471	$	5,379,489
Commercial real estate mortgages	21,290		20,859		—		28,780		70,929		2,353,404		2,424,333
Residential mortgages:
Fixed	—		—		1,244		5,000		6,244		1,493,281		1,499,525
Variable	—		—		—		9,064		9,064		2,314,041		2,323,105
Total residential mortgages	—		—		1,244		14,064		15,308		3,807,322		3,822,630
Real estate construction:
Construction	1,717		—		—		15,126		16,843		219,930		236,773
Land	—		—		—		14,550		14,550		50,506		65,056
Total real estate construction	1,717		—		—		29,676		31,393		270,436		301,829
Equity lines of credit	520		—		322		6,505		7,347		733,923		741,270
Installment:
Commercial	—		—		—		—		—		467		467
Consumer	37		—		—		575		612		129,121		129,733
Total installment	37		—		—		575		612		129,588		130,200
Lease financing	61		158		499		120		838		706,620		707,458
Total	$	30,489	$	23,235	$	2,065	$	98,656	$	154,445	$	13,352,764	$	13,507,209

(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 June 30, 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.

	June 30, 2012						December 31, 2011
(in thousands)	Nonclassified		Classified		Total		Nonclassified		Classified		Total
Commercial	$	5,224,293	$	155,196	$	5,379,489	$	4,732,663	$	113,931	$	4,846,594
Commercial real estate mortgages	2,269,348		154,985		2,424,333		1,930,001		180,748		2,110,749
Residential mortgages:
Fixed	1,484,559		14,966		1,499,525		1,565,420		16,376		1,581,796
Variable	2,310,241		12,864		2,323,105		2,163,458		17,964		2,181,422
Total residential mortgages	3,794,800		27,830		3,822,630		3,728,878		34,340		3,763,218
Real estate construction:
Construction	177,950		58,823		236,773		147,916		69,945		217,861
Land	33,350		31,706		65,056		43,717		54,031		97,748
Total real estate construction	211,300		90,529		301,829		191,633		123,976		315,609
Equity lines of credit	721,715		19,555		741,270		724,045		17,036		741,081
Installment:
Commercial	467		—		467		601		4		605
Consumer	129,072		661		129,733		130,921		1,121		132,042
Total installment	129,539		661		130,200		131,522		1,125		132,647
Lease financing	703,518		3,940		707,458		396,256		3,231		399,487
Total	$	13,054,513	$	452,696	$	13,507,209	$	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 June 30,						For the six months ended June 30,
(in thousands)	2012			2011			2012			2011
Balance, beginning of period	$	61,471		$	82,016		$	64,565		$	67,389
Provision for losses	13,293			1,716			20,759			20,832
Reduction in allowance due to loan removals	(31,617		)	(16,103		)	(42,177		)	(20,592		)
Balance, end of period	$	43,147		$	67,629		$	43,147		$	67,629

The allowance for loan losses on covered loans was $43.1 million, $64.6 million and $67.6 million as of June 30, 2012, December 31, 2011 and June 30, 2011, respectively. The Company recorded provision expense of $13.3 million and $20.8 million on covered loans for the three and six months ended June 30, 2012, respectively, and $1.7 million and $20.8 million for the three and six months ended June 30, 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. 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 June 30, 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 June 30, 2012 and December 31, 2011.

At June 30, 2012, covered loans that were 30 to 89 days delinquent totaled $17.3 million and covered loans that were 90 days or more past due on accrual status totaled $190.0 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.