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)	2013			2012
Commercial	$	6,452,477		$	6,211,353
Commercial real estate mortgages	2,937,457			2,829,694
Residential mortgages	4,027,741			3,962,205
Real estate construction	247,114			222,780
Home equity loans and lines of credit	696,679			711,750
Installment	137,545			142,793
Lease financing	717,893			737,720
Loans and leases, excluding covered loans	15,216,906			14,818,295
Less: Allowance for loan and lease losses	(282,328		)	(277,888		)
Loans and leases, excluding covered loans, net	14,934,578			14,540,407

Covered loans	951,917			1,031,004
Less: Allowance for loan losses	(42,354		)	(44,781		)
Covered loans, net	909,563			986,223

Total loans and leases	$	16,168,823		$	15,849,299
Total loans and leases, net	$	15,844,141		$	15,526,630

The loan amounts above include unamortized fees, net of deferred costs, of $6.2 million and $5.9 million as of March 31, 2013 and December 31, 2012, 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 March 31, 2013, California represented 79 percent of total loans outstanding and New York and Nevada represented 7 percent and 2 percent, respectively. The remaining 12 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, 2013, the five states with the largest concentration were California (37 percent), Texas (11 percent), Nevada (7 percent), Ohio (5 percent) and New York (4 percent). The remaining 36 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 $951.9 million as of March 31, 2013 and $1.03 billion as of December 31, 2012. Covered loans, net of allowance for loan losses, were $909.6 million at March 31, 2013 and $986.2 million at December 31, 2012.

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

	March 31,			December 31,
(in thousands)	2013			2012
Commercial	$	9,611		$	10,561
Commercial real estate mortgages	863,161			931,758
Residential mortgages	5,619			5,652
Real estate construction	69,380			78,554
Home equity loans and lines of credit	3,499			3,790
Installment	647			689
Covered loans	951,917			1,031,004
Less: Allowance for loan losses	(42,354		)	(44,781		)
Covered loans, net	$	909,563		$	986,223

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.

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 three months ended March 31, 2013 and 2012:

	March 31,
(in thousands)	2013			2012
Balance, beginning of period	$	295,813		$	436,374
Accretion	(16,198		)	(22,225		)
Reclassifications from (to) nonaccretable yield	2,063			(21,468		)
Disposals and other	(13,290		)	(16,213		)
Balance, end of period	$	268,388		$	376,468

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 2013 was principally driven by positive timing changes in cash flows, resulting mainly 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 $142.9 million at March 31, 2013 and $150.0 million at December 31, 2012.

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.

The relative significance of risk considerations used in measuring the allowance for loan and lease losses will 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.

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. 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, and regulatory requirements and other subjective factors such as changes in underwriting standards. It also 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.

A portion of the allowance for loan and lease losses is attributed to impaired loans that are individually measured for impairment. This measurement 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 allowance for loan and lease losses is decreased by the amount of charge-offs and increased by the amount of recoveries. 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 is a summary of activity in the allowance for loan and lease losses and period-end recorded investment balances of loans evaluated for impairment, excluding covered loans, for the three months ended March 31, 2013 and 2012. 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			Home Equity Loans and Lines of Credit			Installment			Unallocated		Total

Three months ended March 31, 2013

Allowance for loan and lease losses:
Beginning balance	$	104,156		$	48,240		$	10,499		$	13,130		$	7,243		$	1,847		$	92,773	$	277,888
Provision for credit losses (2)	6,068			4,251			(3,201		)	(5,920		)	(2,303		)	(771		)	1,508		(368		)
Charge-offs	(1,362		)	(45		)	(105		)	—			(240		)	(271		)	—		(2,023		)
Recoveries	3,535			48			37			2,666			128			417			—		6,831
Net (charge-offs) recoveries	2,173			3			(68		)	2,666			(112		)	146			—		4,808
Ending balance	$	112,397		$	52,494		$	7,230		$	9,876		$	4,828		$	1,222		$	94,281	$	282,328

Ending balance of allowance:
Individually evaluated for impairment	$	869		$	1,148		$	—		$	867		$	—		$	—		$	—	$	2,884
Collectively evaluated for impairment	111,528			51,346			7,230			9,009			4,828			1,222			94,281		279,444

Loans and leases, excluding covered loans
Ending balance of loans and leases:
Loans and leases, excluding covered loans	$	7,170,370		$	2,937,457		$	4,027,741		$	247,114		$	696,679		$	137,545		$	—	$	15,216,906
Individually evaluated for impairment	26,639			42,747			7,963			44,346			2,140			—			—		123,835
Collectively evaluated for impairment	7,143,731			2,894,710			4,019,778			202,768			694,539			137,545			—		15,093,071

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

(1) Includes lease financing loans.

(2) Provision for credit losses in the allowance rollforward for the three months ended March 31, 2013 and 2012 includes total transfers from the reserve for off-balance sheet credit commitments of $0.4 million and $1.0 million, respectively. There was no other provision for credit losses recognized for the three months ended March 31, 2013 and 2012.

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, 2013 and 2012:

	For the three months ended March 31,
(in thousands)	2013		2012
Balance, beginning of period	$	24,837	$	23,097
Transfers from allowance for loan and lease losses	368		970
Balance, end of period	$	25,205	24,067

Impaired Loans and Leases

Information on impaired loans, excluding covered loans, at March 31, 2013, December 31, 2012 and March 31, 2012 is provided in the following tables:

			Unpaid				For the three months ended March 31, 2013
			Contractual				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(in thousands)	Investment		Balance		Allowance		Investment		Recognized
March 31, 2013
With no related allowance recorded:
Commercial	$	19,066	$	19,602	$	—	$	18,914	$	419
Commercial real estate mortgages	29,403		34,927		—		36,142		235
Residential mortgages:
Fixed	3,917		4,246		—		3,699		18
Variable	4,046		4,354		—		4,456		14
Total residential mortgages	7,963		8,600		—		8,155		32
Real estate construction:
Construction	19,332		29,787		—		19,547		330
Land	12,164		24,071		—		18,956		34
Total real estate construction	31,496		53,858		—		38,503		364
Home equity loans and lines of credit	2,140		3,373		—		2,851		—
Installment:
Consumer	—		—		—		225		—
Total installment	—		—		—		225		—
Total with no related allowance	$	90,068	$	120,360	$	—	$	104,790	$	1,050

With an allowance recorded:
Commercial	$	7,573	$	7,608	$	869	$	7,544	$	46
Commercial real estate mortgages	13,344		13,689		1,148		11,773		168
Residential mortgages:
Fixed	—		—		—		232		—
Total residential mortgages	—		—		—		232		—
Real estate construction:
Land	12,850		13,165		867		6,425		213
Total real estate construction	12,850		13,165		867		6,425		213
Home equity loans and lines of credit	—		—		—		450		—
Total with an allowance	$	33,767	$	34,462	$	2,884	$	26,424	$	427

Total impaired loans by type:
Commercial	$	26,639	$	27,210	$	869	$	26,458	$	465
Commercial real estate mortgages	42,747		48,616		1,148		47,915		403
Residential mortgages	7,963		8,600		—		8,387		32
Real estate construction	44,346		67,023		867		44,928		577
Home equity loans and lines of credit	2,140		3,373		—		3,301		—
Installment	—		—		—		225		—
Total impaired loans	$	123,835	$	154,822	$	2,884	$	131,214	$	1,477

(in thousands)	Recorded Investment		Unpaid Contractual Principal Balance		Related Allowance
December 31, 2012
With no related allowance recorded:
Commercial	$	18,761	$	24,135	$	—
Commercial real estate mortgages	42,882		49,110		—
Residential mortgages:
Fixed	3,482		3,757		—
Variable	4,865		5,437		—
Total residential mortgages	8,347		9,194		—
Real estate construction:
Construction	19,762		33,267		—
Land	25,748		41,016		—
Total real estate construction	45,510		74,283		—
Home equity loans and lines of credit	3,562		4,660		—
Installment:
Consumer	449		927		—
Total installment	449		927		—
Total with no related allowance	$	119,511	$	162,309	$	—

With an allowance recorded:
Commercial	$	7,516	$	8,038	$	952
Commercial real estate mortgages	10,203		10,783		1,326
Residential mortgages:
Fixed	463		507		9
Total residential mortgages	463		507		9
Home equity loans and lines of credit	899		965		116
Total with an allowance	$	19,081	$	20,293	$	2,403

Total impaired loans by type:
Commercial	$	26,277	$	32,173	$	952
Commercial real estate mortgages	53,085		59,893		1,326
Residential mortgages	8,810		9,701		9
Real estate construction	45,510		74,283		—
Home equity loans and lines of credit	4,461		5,625		116
Installment	449		927		—
Total impaired loans	$	138,592	$	182,602	$	2,403

			Unpaid				For the three months ended March 31, 2012
			Contractual				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(in thousands)	Investment		Balance		Allowance		Investment		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
Home equity loans and 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		—
Home equity loans and 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
Home equity loans and 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

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 March 31, 2013, impaired loans included $7.2 million of loans previously reported as impaired that are less than $1 million.

Impaired loans at March 31, 2013 and December 31, 2012 included $49.6 million and $48.8 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 months ended March 31, 2013 and 2012:

(in thousands)	Number of Contracts	Pre-Modification Outstanding Principal		Period-End Outstanding Principal		Financial Effects (1)
Three months ended March 31, 2013
Commercial	4	$	1,727	$	1,704	$	—
Home equity loans and lines of credit	1	345		345		—
Total troubled debt restructured loans	5	2,072		2,049		—

Three months ended March 31, 2012
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, 2013 and 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
Three months ended March 31, 2013
Commercial	2	$	1,886	$	—
Home equity loans and lines of credit	1	145		—
Total loans that subsequently defaulted	3	$	2,031	$	—

Three months ended March 31, 2012
Commercial	1	$	26	$	10
Real estate construction:
Land	2	6,339		3,318
Total 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 that it would not otherwise consider. Loans with pre-modification outstanding balances totaling $2.1 million and $23.2 million were modified in troubled debt restructurings during the three months ended March 31, 2013 and 2012, respectively. The concessions granted in the restructurings completed in 2013 largely consisted of maturity extensions and interest rate modifications.

The unpaid principal balance of TDR loans was $81.7 million, before specific reserves of $2.4 million, at March 31, 2013 and $94.9 million, before specific reserves of $1.7 million, at December 31, 2012. The net decrease in TDR loans from the prior year-end was primarily attributable to $14.4 million of loans restructured in an A/B note structure in the prior year that are performing in accordance with their restructured terms. Loans restructured in an A/B note restructuring are not reported as TDR loans in years after the restructuring if the restructuring agreement specifies an interest rate equal to or greater than the rate the lender was willing to accept at the time of restructuring for a new loan with comparable risk, and the loan is performing based on the terms in the restructuring agreement. In an A/B restructuring, the original note is separated into two notes where the A note represents the portion of the original loan that is expected to be fully paid, and the B note is the portion of the loan that is expected to be uncollectible. The B note is charged-off at the time of restructuring. The remaining change in TDR loans during the period was a result of the addition of new loans that were largely offset by payments received on existing TDR loans. 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, 2013, two commercial loans and one equity line of credit that had been restructured within the preceding 12 months were not performing in accordance with their modified terms. The defaults were primarily due to missed or late payments. All other TDR loans were performing in accordance with their restructured terms at March 31, 2013. As of March 31, 2013, commitments to lend additional funds on restructured loans totaled $1.2 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 March 31, 2013 and December 31, 2012 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, 2013
Commercial	$	7,929	$	347	$	—	$	7,292	$	15,568	$	6,436,909	$	6,452,477
Commercial real estate mortgages	16,960		—		—		23,066		40,026		2,897,431		2,937,457
Residential mortgages:
Fixed	—		233		1,033		4,579		5,845		1,436,801		1,442,646
Variable	—		—		—		4,557		4,557		2,580,538		2,585,095
Total residential mortgages	—		233		1,033		9,136		10,402		4,017,339		4,027,741
Real estate construction:
Construction	—		—		—		14,602		14,602		178,677		193,279
Land	3,537		—		—		25,006		28,543		25,292		53,835
Total real estate construction	3,537		—		—		39,608		43,145		203,969		247,114
Home equity loans and lines of credit	3,749		—		630		4,103		8,482		688,197		696,679
Installment:
Commercial	—		—		—		—		—		503		503
Consumer	138		17		—		70		225		136,817		137,042
Total installment	138		17		—		70		225		137,320		137,545
Lease financing	4,071		6		25		—		4,102		713,791		717,893
Total	$	36,384	$	603	$	1,688	$	83,275	$	121,950	$	15,094,956	$	15,216,906

(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
Home equity loans and 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

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, 2013 and December 31, 2012. 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, 2013						December 31, 2012
(in thousands)	Nonclassified		Classified		Total		Nonclassified		Classified		Total
Commercial	$	6,322,914	$	129,563	$	6,452,477	$	6,073,459	$	137,894	$	6,211,353
Commercial real estate mortgages	2,821,000		116,457		2,937,457		2,705,469		124,225		2,829,694
Residential mortgages:
Fixed	1,419,798		22,848		1,442,646		1,449,270		16,204		1,465,474
Variable	2,569,427		15,668		2,585,095		2,479,449		17,282		2,496,731
Total residential mortgages	3,989,225		38,516		4,027,741		3,928,719		33,486		3,962,205
Real estate construction:
Construction	148,050		45,229		193,279		119,189		46,426		165,615
Land	24,989		28,846		53,835		27,492		29,673		57,165
Total real estate construction	173,039		74,075		247,114		146,681		76,099		222,780
Home equity loans and lines of credit	667,718		28,961		696,679		685,011		26,739		711,750
Installment:
Commercial	503		—		503		437		—		437
Consumer	136,925		117		137,042		141,662		694		142,356
Total installment	137,428		117		137,545		142,099		694		142,793
Lease financing	714,292		3,601		717,893		733,803		3,917		737,720
Total	$	14,825,616	$	391,290	$	15,216,906	$	14,415,241	$	403,054	$	14,818,295

Credit Quality on Covered Loans

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

	For the three months ended March 31,
(in thousands)	2013			2012
Balance, beginning of period	$	44,781		$	64,565
Provision for losses	9,892			7,466
Reduction in allowance due to loan removals	(12,319		)	(10,560		)
Balance, end of period	$	42,354		$	61,471

The allowance for losses on covered loans was $42.4 million, $44.8 million and $61.5 million as of March 31, 2013, December 31, 2012 and March 31, 2012, respectively. The Company recorded provision expense of $9.9 million and $7.5 million on covered loans for the three months ended March 31, 2013 and 2012, 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 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. There were no covered loans that were on nonaccrual status or considered impaired as of March 31, 2013 and December 31, 2012.

At March 31, 2013, covered loans that were 30 to 89 days delinquent totaled $42.6 million and covered loans that were 90 days or more past due on accrual status totaled $102.3 million. 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.