Note 5. 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)	2015			2014
Commercial	$	9,455,621		$	9,360,976
Commercial real estate mortgages	3,737,137			3,539,703
Residential mortgages	5,299,947			5,106,803
Real estate construction	794,274			710,224
Home equity loans and lines of credit	791,731			785,796
Installment	186,076			184,613
Lease financing	645,569			649,091
Loans and leases, excluding covered loans	20,910,355			20,337,206
Less: Allowance for loan and lease losses	(308,858		)	(310,149		)
Loans and leases, excluding covered loans, net	20,601,497			20,027,057

Covered loans	480,236			510,979
Less: Allowance for loan losses	(9,752		)	(8,608		)
Covered loans, net	470,484			502,371

Total loans and leases	$	21,390,591		$	20,848,185
Total loans and leases, net	$	21,071,981		$	20,529,428

The loan amounts above include unamortized fees, net of deferred costs, of $0.1 million as of March 31, 2015 and deferred costs, net of unamortized fees, of $0.2 million as of December 31, 2014.

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, the Company has various specialty lending businesses that lend to businesses located throughout the United States of America and in certain foreign countries to facilitate trade finance activities. Excluding covered loans, at March 31, 2015, California represented 73 percent of total loans outstanding and New York represented 9 percent. The remaining 18 percent of total loans outstanding represented other states and countries. 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 and New York.

Within the Company’s covered loan portfolio at March 31, 2015, the five states with the largest concentration were California (32 percent), Texas (12 percent), Nevada (6 percent), Arizona (6 percent) and Ohio (6 percent). The remaining 38 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 $480.2 million at March 31, 2015 and $511.0 million at December 31, 2014. Covered loans, net of allowance for loan losses, were $470.5 million at March 31, 2015 and $502.4 million at December 31, 2014.

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

	March 31,			December 31,
(in thousands)	2015			2014
Commercial	$	2,153		$	1,969
Commercial real estate mortgages	453,647			481,689
Residential mortgages	3,715			4,455
Real estate construction	16,813			18,790
Home equity loans and lines of credit	3,655			3,820
Installment	253			256
Covered loans	480,236			510,979
Less: Allowance for loan losses	(9,752		)	(8,608		)
Covered loans, net	$	470,484		$	502,371

The following table provides information on covered loans and loss-sharing terms by acquired entity:

(in thousands)	Imperial Capital Bank		1st Pacific Bank		Sun West Bank		Nevada Commerce Bank		Total
Carrying value of covered loans as of:
March 31, 2015	$	429,570	$	22,787	$	8,497	$	19,382	$	480,236
December 31, 2014	456,177		23,895		9,353		21,554		510,979

As of March 31, 2015:
FDIC indemnification asset	$	38,935	$	1,596	$	276	$	2,449	$	43,256
FDIC clawback liability	—		13,159		2,599		205		15,963

Expiration date of FDIC loss sharing:
Commercial (1)	12/31/2016		6/30/2015		6/30/2015		6/30/2016
Residential	12/31/2019		5/31/2020		5/31/2020		4/30/2021

Termination date of FDIC loss-sharing agreements:
Commercial (1)	12/19/2017		5/8/2018		5/29/2018		6/30/2019
Residential	12/31/2019		5/31/2020		5/31/2020		4/30/2021

(1)

The Company is subject to sharing 80 percent of its recoveries with the FDIC up to the last day of the quarter in which the termination dates of the commercial loss-sharing agreements occur.

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 Accounting Standards Codification (“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 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, 2015 and 2014:

	For the three months ended March 31,
(in thousands)	2015			2014
Balance, beginning of period	$	168,469		$	219,018
Accretion	(9,876		)	(12,528		)
Reclassifications from nonaccretable difference	4,816			4,305
Disposals and other	(8,853		)	(8,704		)
Balance, end of period	$	154,556		$	202,091

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 difference may vary from period to period as the Company periodically updates its cash flow projections. The reclassification of nonaccretable difference to accretable yield during 2015 was principally driven by positive 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 difference between the carrying value of the FDIC indemnification asset and the undiscounted cash flow that the Company expects to collect from the FDIC is accreted or amortized into noninterest income up until the expiration date of the FDIC loss sharing. Refer to the preceding table for a list of expiration dates of FDIC loss sharing by acquired entity. The FDIC indemnification asset is reviewed on a quarterly basis and adjusted based on changes in cash flow projections. The FDIC indemnification asset from all FDIC-assisted acquisitions was $43.3 million at March 31, 2015 and $50.5 million at December 31, 2014.

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. 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 Company derives loss factors for each risk grade and loan type 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 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 Company has a qualitative factor matrix to determine the amount of reserves needed for judgmental factors that are not attributable to or reflected in the quantitative model. The methodology to determine the qualitative reserves includes segmenting the Company’s portfolio into three loan categories: commercial real estate secured, commercial and consumer. The qualitative reserve factors are separated into numerically informed and judgmental categories. Numerically informed factors are linked to defined macroeconomic or bank specific criteria, such as portfolio growth, problem loan trends and concentrations. Judgmental factors are based on the Company’s assessment of factors that include, but are not limited to, the legal and regulatory environment, internal systems and procedures, and entry into a new business. Each factor is assigned a risk level and a risk weight in points which is aggregated to determine the level of qualitative reserves. The factors are updated quarterly to reflect changing conditions.

A portion of the allowance for loan and lease losses is attributed to impaired loans that are individually measured for impairment. This measurement is based on the present value of expected future cash flows discounted using the loan’s contractual effective rate, the fair value of collateral or the secondary market value of the loan.

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 and 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, 2015 and 2014. 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			Qualitative			Total

Three months ended March 31, 2015

Allowance for loan and lease losses:
Beginning balance	$	115,855		$	44,745		$	10,296		$	9,115		$	6,609		$	2,228		$	121,301		$	310,149
Charge-offs	(2,825		)	—			—			—			—			(277		)	—			(3,102		)
Recoveries	1,116			1,160			39			87			38			220			—			2,660
Net (charge-offs) recoveries	(1,709		)	1,160			39			87			38			(57		)	—			(442		)
(Reversal of) provision for credit losses	6,520			1,112			(368		)	1,032			(286		)	(18		)	(7,992		)	—
Transfers to reserve for off-balance sheet credit commitments	—			—			—			—			—			—			(849		)	(849		)
Ending balance	$	120,666		$	47,017		$	9,967		$	10,234		$	6,361		$	2,153		$	112,460		$	308,858

Ending balance of allowance:
Individually evaluated for impairment	$	471		$	273		$	40		$	—		$	—		$	—		$	—		$	784
Collectively evaluated for impairment	120,195			46,744			9,927			10,234			6,361			2,153			112,460			308,074

Loans and leases, excluding covered loans
Ending balance of loans and leases:
Loans and leases, excluding covered loans	$	10,101,190		$	3,737,137		$	5,299,947		$	794,274		$	791,731		$	186,076		$	—		$	20,910,355
Individually evaluated for impairment	7,600			22,879			11,655			8,979			935			—			—			52,048
Collectively evaluated for impairment	10,093,590			3,714,258			5,288,292			785,295			790,796			186,076			—			20,858,307

Three months ended March 31, 2014

Allowance for loan and lease losses:
Beginning balance	$	117,103		$	50,678		$	11,540		$	6,351		$	6,677		$	1,842		$	108,393		$	302,584
Charge-offs	(1,959		)	(5		)	(482		)	—			(16		)	(46		)	—			(2,508		)
Recoveries	1,732			100			35			4,388			159			264			—			6,678
Net (charge-offs) recoveries	(227		)	95			(447		)	4,388			143			218			—			4,170
(Reversal of) provision for credit losses	4,698			588			502			(4,271		)	(401		)	(236		)	(880		)	—
Transfers to reserve for off-balance sheet credit commitments	—			—			—			—			—			—			(964		)	(964		)
Ending balance	$	121,574		$	51,361		$	11,595		$	6,468		$	6,419		$	1,824		$	106,549		$	305,790

Ending balance of allowance:
Individually evaluated for impairment	$	2,557		$	300		$	—		$	—		$	—		$	—		$	—		$	2,857
Collectively evaluated for impairment	119,017			51,061			11,595			6,468			6,419			1,824			106,549			302,933

Loans and leases, excluding covered loans
Ending balance of loans and leases:
Loans and leases, excluding covered loans	$	8,557,041		$	3,280,868		$	4,682,055		$	389,188		$	691,338		$	150,895		$	—		$	17,751,385
Individually evaluated for impairment	28,683			41,924			7,904			18,788			3,447			—			—			100,746
Collectively evaluated for impairment	8,528,358			3,238,944			4,674,151			370,400			687,891			150,895			—			17,650,639

(1)

Includes lease financing loans.

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, 2015 and 2014:

	For the three months ended March 31,
(in thousands)	2015		2014
Balance, beginning of period	$	27,811	$	33,944
Transfers from allowance for loan and lease losses	849		964
Balance, end of period	$	28,660	$	34,908

The reserve for off-balance sheet credit commitments increased $0.8 million during the three months ended March 31, 2015. The increase was due to normal fluctuations in the amount of reserves required due to changes in the composition, amount and quality of risk ratings of borrowers associated with the off-balance sheet commitments. Increases and decreases in the reserve for off-balance sheet credit commitments are reflected as an allocation of provision expense from or to the allowance for loan and lease losses.

Impaired Loans and Leases

The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once a loan is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate, except that if the loan is collateral dependent, the impairment is measured by using the fair value of the loan’s collateral. As a final alternative, the observable market price of the debt may be used to assess impairment. Nonperforming loans greater than $1 million are individually evaluated for impairment based upon the borrower’s overall financial condition, resources, and payment record, and the prospects for support from any financially responsible guarantors. For borrowers with multiple loans totaling $1 million or more, this threshold is applied at the total relationship level. Loans under $1 million are measured for impairment using historical loss factors. When the measurement of the impaired loan is less than the recorded amount of the loan, an impairment is recognized by creating a valuation allowance with a corresponding charge to the allowance for loan and lease losses or by adjusting an existing valuation allowance for the impaired loan.

Information on impaired loans, excluding covered loans, at March 31, 2015, December 31, 2014 and March 31, 2014 is provided in the following tables:

			Unpaid				For the three months ended March 31, 2015
(in thousands)	Recorded Investment		Contractual Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
March 31, 2015
With no related allowance recorded:
Commercial	$	1,449	$	1,637	$	—	$	5,172	$	5
Commercial real estate mortgages	17,838		18,762		—		18,848		208
Residential mortgages:
Fixed	7,720		7,980		—		7,738		10
Variable	—		—		—		112		—
Total residential mortgages	7,720		7,980		—		7,850		10
Real estate construction:
Land	8,979		11,119		—		7,794		62
Total real estate construction	8,979		11,119		—		7,794		62
Home equity loans and lines of credit	935		2,043		—		1,602		—
Total with no related allowance	$	36,921	$	41,541	$	—	$	41,266	$	285

With an allowance recorded:
Commercial	$	6,151	$	11,425	$	471	$	6,310	$	17
Commercial real estate mortgages	5,041		5,375		273		5,113		71
Residential mortgages:
Variable	3,935		3,926		40		3,946		26
Total residential mortgages	3,935		3,926		40		3,946		26
Total with an allowance	$	15,127	$	20,726	$	784	$	15,369	$	114
Total impaired loans by type:
Commercial	$	7,600	$	13,062	$	471	$	11,482	$	22
Commercial real estate mortgages	22,879		24,137		273		23,961		279
Residential mortgages	11,655		11,906		40		11,796		36
Real estate construction	8,979		11,119		—		7,794		62
Home equity loans and lines of credit	935		2,043		—		1,602		—
Total impaired loans	$	52,048	$	62,267	$	784	$	56,635	$	399

(in thousands)	Recorded Investment		Unpaid Contractual Principal Balance		Related Allowance
December 31, 2014
With no related allowance recorded:
Commercial	$	8,894	$	9,182	$	—
Commercial real estate mortgages	19,858		22,416		—
Residential mortgages:
Fixed	7,756		7,994		—
Variable	224		262		—
Total residential mortgages	7,980		8,256		—
Real estate construction:
Land	6,609		8,758		—
Total real estate construction	6,609		8,758		—
Home equity loans and lines of credit	2,270		3,375		—
Total with no related allowance	$	45,611	$	51,987	$	—

With an allowance recorded:
Commercial	$	6,470	$	8,878	$	399
Commercial real estate mortgages	5,184		5,526		281
Residential mortgages:
Variable	3,957		3,948		48
Total residential mortgages	3,957		3,948		48
Total with an allowance	$	15,611	$	18,352	$	728

Total impaired loans by type:
Commercial	$	15,364	$	18,060	$	399
Commercial real estate mortgages	25,042		27,942		281
Residential mortgages	11,937		12,204		48
Real estate construction	6,609		8,758		—
Home equity loans and lines of credit	2,270		3,375		—
Total impaired loans	$	61,222	$	70,339	$	728

			Unpaid				For the three months ended March 31, 2014
(in thousands)	Recorded Investment		Contractual Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized

March 31, 2014
With no related allowance recorded:
Commercial	$	11,257	$	11,920	$	—	$	14,489	$	137
Commercial real estate mortgages	36,562		39,660		—		34,666		438
Residential mortgages:
Fixed	4,888		5,051		—		3,512		10
Variable	3,016		3,618		—		4,209		14
Total residential mortgages	7,904		8,669		—		7,721		24
Real estate construction:
Construction	5,484		6,766		—		5,484		55
Land	13,304		26,800		—		13,458		34
Total real estate construction	18,788		33,566		—		18,942		89
Home equity loans and lines of credit	3,447		4,505		—		2,888		—
Installment:
Consumer	—		—		—		8		—
Total installment	—		—		—		8		—
Total with no related allowance	$	77,958	$	98,320	$	—	$	78,714	$	688

With an allowance recorded:
Commercial	$	17,426	$	19,663	$	2,557	$	15,781	$	—
Commercial real estate mortgages	5,362		5,734		300		5,373		44
Residential mortgages:
Variable	—		—		—		837		—
Total residential mortgages	—		—		—		837		—
Total with an allowance	$	22,788	$	25,397	$	2,857	$	21,991	$	44

Total impaired loans by type:
Commercial	$	28,683	$	31,583	$	2,557	$	30,270	$	137
Commercial real estate mortgages	41,924		45,394		300		40,039		482
Residential mortgages	7,904		8,669		—		8,558		24
Real estate construction	18,788		33,566		—		18,942		89
Home equity loans and lines of credit	3,447		4,505		—		2,888		—
Installment	—		—		—		8		—
Total impaired loans	$	100,746	$	123,717	$	2,857	$	100,705	$	732

Impaired loans at March 31, 2015 and December 31, 2014 included $28.9 million and $30.6 million, respectively, of 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, 2015 and 2014:

(in thousands)	Number of Contracts	Pre-Modification Outstanding Principal		Period-End Outstanding Principal		Financial Effects (1)
Three months ended March 31, 2015
Home equity loans and lines of credit	1	$	87	$	85	$	—
Total troubled debt restructured loans	1	$	87	$	85	$	—

Three months ended March 31, 2014
Commercial	2	$	4,098	$	4,071	$	—
Residential mortgages:
Variable	1	676		676		—
Total troubled debt restructured loans	3	$	4,774	$	4,747	$	—

(1)

Financial effects are comprised of charge-offs and specific reserves recognized on troubled debt restructured (“TDR”) loans at modification date.

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 $0.1 million and $4.8 million were modified in troubled debt restructurings during the three months ended March 31, 2015 and 2014, respectively.

The unpaid principal balance of TDR loans was $30.0 million, before specific reserves of $0.8 million, at March 31, 2015 and $34.3 million, before specific reserves of $0.7 million, at December 31, 2014. The net decrease in TDR loans from December 31, 2014 was primarily attributable to a $2.6 million charge-off on an existing TDR loan and payoffs and payments received on existing TDR loans totaling $1.8 million. These decreases were partially offset by additions totaling $0.1 million. 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.

The following table provides a summary of TDR loans that subsequently defaulted during the three months ended March 31, 2015 that had been modified as a troubled debt restructuring during the 12 months prior to their default. A TDR loan is considered to be in default when payments are 90 days or more past due. The Company had no TDR loans that subsequently defaulted during the three months ended March 31, 2014.

	For three months ended March 31, 2015
(in thousands)	Number of Contracts	Period-End Outstanding Principal		Period-End Specific Reserve
Commercial real estate mortgages	1	$	73	$	—

All other TDR loans were performing in accordance with their restructured terms at March 31, 2015. As of March 31, 2015, there were no outstanding 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, 2015 and December 31, 2014 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, 2015
Commercial	$	4,130	$	5,586	$	—	$	8,192	$	17,908	$	9,437,713	$	9,455,621
Commercial real estate mortgages	185		—		—		2,901		3,086		3,734,051		3,737,137
Residential mortgages:
Fixed	—		618		379		10,793		11,790		1,466,330		1,478,120
Variable	—		3,985		—		1,339		5,324		3,816,503		3,821,827
Total residential mortgages	—		4,603		379		12,132		17,114		5,282,833		5,299,947
Real estate construction:
Construction	—		—		—		—		—		766,840		766,840
Land	—		—		—		6,598		6,598		20,836		27,434
Total real estate construction	—		—		—		6,598		6,598		787,676		794,274
Home equity loans and lines of credit	—		350		240		3,507		4,097		787,634		791,731
Installment:
Commercial	—		—		—		—		—		249		249
Consumer	206		52		409		39		706		185,121		185,827
Total installment	206		52		409		39		706		185,370		186,076
Lease financing	703		—		—		7		710		644,859		645,569
Total	$	5,224	$	10,591	$	1,028	$	33,376	$	50,219	$	20,860,136	$	20,910,355

December 31, 2014
Commercial	$	8,462	$	325	$	148	$	15,096	$	24,031	$	9,336,945	$	9,360,976
Commercial real estate mortgages	693		—		—		3,575		4,268		3,535,435		3,539,703
Residential mortgages:
Fixed	—		309		921		10,365		11,595		1,390,357		1,401,952
Variable	—		1,165		—		1,578		2,743		3,702,108		3,704,851
Total residential mortgages	—		1,474		921		11,943		14,338		5,092,465		5,106,803
Real estate construction:
Construction	—		—		—		—		—		686,990		686,990
Land	—		—		—		6,598		6,598		16,636		23,234
Total real estate construction	—		—		—		6,598		6,598		703,626		710,224
Home equity loans and lines of credit	—		39		100		4,864		5,003		780,793		785,796
Installment:
Commercial	—		—		—		—		—		298		298
Consumer	324		113		346		84		867		183,448		184,315
Total installment	324		113		346		84		867		183,746		184,613
Lease financing	321		152		—		7		480		648,611		649,091
Total	$	9,800	$	2,103	$	1,515	$	42,167	$	55,585	$	20,281,621	$	20,337,206

Credit Quality Monitoring

The Company closely monitors and assesses credit quality and credit risk in the loan and lease portfolio on an ongoing basis. Loan risk classifications are continuously reviewed and updated. The following table provides a summary of the loan and lease portfolio, excluding covered loans, by loan type and credit quality classification as of March 31, 2015 and December 31, 2014. 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, 2015						December 31, 2014
(in thousands)	Nonclassified		Classified		Total		Nonclassified		Classified		Total
Commercial	$	9,383,150	$	72,471	$	9,455,621	$	9,304,636	$	56,340	$	9,360,976
Commercial real estate mortgages	3,697,901		39,236		3,737,137		3,511,229		28,474		3,539,703
Residential mortgages:
Fixed	1,456,060		22,060		1,478,120		1,375,175		26,777		1,401,952
Variable	3,792,414		29,413		3,821,827		3,675,723		29,128		3,704,851
Total residential mortgages	5,248,474		51,473		5,299,947		5,050,898		55,905		5,106,803
Real estate construction:
Construction	763,016		3,824		766,840		679,744		7,246		686,990
Land	18,475		8,959		27,434		16,636		6,598		23,234
Total real estate construction	781,491		12,783		794,274		696,380		13,844		710,224
Home equity loans and lines of credit	763,760		27,971		791,731		754,694		31,102		785,796
Installment:
Commercial	249		—		249		298		—		298
Consumer	185,152		675		185,827		183,190		1,125		184,315
Total installment	185,401		675		186,076		183,488		1,125		184,613
Lease financing	641,343		4,226		645,569		645,049		4,042		649,091
Total	$	20,701,520	$	208,835	$	20,910,355	$	20,146,374	$	190,832	$	20,337,206

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)	2015		2014
Balance, beginning of period	$	8,608	$	15,922
Provision for losses	497		4,655
Change in allowance due to loan removals	647		(2,138		)
Balance, end of period	$	9,752	$	18,439

The allowance for losses on covered loans was $9.8 million, $8.6 million and $18.4 million as of March 31, 2015, December 31, 2014 and March 31, 2014, respectively. The Company recorded provision expense of $0.5 million and $4.7 million during the three months ended March 31, 2015 and 2014, 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 or reversal of provision for loan losses as a result of that analysis. The provision expense or reversal of provision for losses on covered loans is the result of changes in expected cash flows, both amount and timing, due to actual loan performance and the Company’s revised loan loss and prepayment forecasts. The revisions of these forecasts were based on the results of management’s review of market conditions, the credit quality of outstanding covered loans and the analysis of loan performance data since the acquisition of covered loans. The allowance for losses on covered loans is adjusted 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 as of March 31, 2015 and December 31, 2014.

At March 31, 2015, covered loans that were 30 to 89 days delinquent totaled $12.5 million and covered loans that were 90 days or more past due on accrual status totaled $22.1 million. At December 31, 2014, covered loans that were 30 to 89 days delinquent totaled $7.4 million and covered loans that were 90 days or more past due on accrual status totaled $28.3 million.