Loans and Allowance for Loan Losses

Major classifications within the Company’s held to maturity loan portfolio at June 30, 2012 and December 31, 2011 are as follows:



(In thousands)	June 30, 2012		December 31, 2011
Commercial:
Business	$	2,993,067	$	2,808,265
Real estate – construction and land	346,048		386,598
Real estate – business	2,190,838		2,180,100
Personal Banking:
Real estate – personal	1,501,170		1,428,777
Consumer	1,162,532		1,114,889
Revolving home equity	447,601		463,587
Consumer credit card	732,388		788,701
Overdrafts	3,271		6,561
Total loans	$	9,376,915	$	9,177,478

At June 30, 2012, loans of $3.1 billion were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $1.2 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings.

Allowance for loan losses

A summary of the activity in the allowance for loan losses during the three and six months ended June 30, 2012 follows:



	For the Three Months Ended June 30							For the Six Months Ended June 30
(In thousands)	Commercial			Personal Banking		Total		Commercial			Personal Banking		Total
Balance at beginning of period	$	117,474		$	64,058	$	181,532	$	122,497		$	62,035	$	184,532
Provision	(4,448		)	9,663		5,215		(7,646		)	21,026		13,380
Deductions:
Loans charged off	3,179			13,841		17,020		5,707			27,230		32,937
Less recoveries on loans	4,824			3,982		8,806		5,527			8,031		13,558
Net loans charged off	(1,645		)	9,859		8,214		180			19,199		19,379
Balance June 30, 2012	$	114,671		$	63,862	$	178,533	$	114,671		$	63,862	$	178,533

A summary of the activity in the allowance for loan losses during the three and six months ended June 30, 2011 follows:



	For the Three Months Ended June 30						For the Six Months Ended June 30
(In thousands)	Commercial		Personal Banking		Total		Commercial		Personal Banking		Total
Balance at beginning of period	$	128,351	$	66,187	$	194,538	$	119,946	$	77,592	$	197,538
Provision	1,815		10,373		12,188		15,280		12,697		27,977
Deductions:
Loans charged off	3,946		15,656		19,602		10,310		32,681		42,991
Less recoveries on loans	1,043		3,371		4,414		2,347		6,667		9,014
Net loans charged off	2,903		12,285		15,188		7,963		26,014		33,977
Balance June 30, 2011	$	127,263	$	64,275	$	191,538	$	127,263	$	64,275	$	191,538

The following table shows the balance in the allowance for loan losses and the related loan balance at June 30, 2012 and December 31, 2011, disaggregated on the basis of impairment methodology. Impaired loans evaluated under ASC 310-10-35 include loans on non-accrual status, which are individually evaluated for impairment, and other impaired loans discussed below, which are deemed to have similar risk characteristics and are collectively evaluated. All other loans are collectively evaluated for impairment under ASC 450-20.



	Impaired Loans				All Other Loans
(In thousands)	Allowance for Loan Losses		Loans Outstanding		Allowance for Loan Losses		Loans Outstanding
June 30, 2012
Commercial	$	6,624	$	108,916	$	108,047	$	5,421,037
Personal Banking	2,046		26,979		61,816		3,819,983
Total	$	8,670	$	135,895	$	169,863	$	9,241,020
December 31, 2011
Commercial	$	6,668	$	108,167	$	115,829	$	5,266,796
Personal Banking	4,090		31,088		57,945		3,771,427
Total	$	10,758	$	139,255	$	173,774	$	9,038,223

Impaired loans

The table below shows the Company’s investment in impaired loans at June 30, 2012 and December 31, 2011. These loans consist of loans on non-accrual status and other restructured loans whose terms have been modified and classified as troubled debt restructurings under ASC 310-40. The restructured loans have been extended to borrowers who are experiencing financial difficulty and who have been granted a concession. They are largely comprised of certain business, construction and business real estate loans classified as substandard. Upon maturity, the loans renewed at interest rates that were judged not to be market rates for new debt with similar risk, and as a result were classified as troubled debt restructurings. These loans totaled $57.2 million at June 30, 2012 and $41.3 million at December 31, 2011. These restructured loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. Restructured loans also include certain credit card loans under various debt management and assistance programs, which totaled $16.5 million at June 30, 2012 and $22.4 million at December 31, 2011.



(In thousands)	June 30, 2012		Dec. 31, 2011
Non-accrual loans	$	62,177	$	75,482
Restructured loans (accruing)	73,718		63,773
Total impaired loans	$	135,895	$	139,255

The following table provides additional information about impaired loans held by the Company at June 30, 2012 and December 31, 2011, segregated between loans for which an allowance for credit losses has been provided and loans for which no allowance has been provided.



(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
June 30, 2012
With no related allowance recorded:
Business	$	9,704	$	11,756	$	—
Real estate – construction and land	10,796		18,841		—
Real estate – business	11,642		15,558		—
Real estate – personal	750		773		—
Revolving home equity	511		843		—
	$	33,403	$	47,771	$	—
With an allowance recorded:
Business	$	28,453	$	31,912	$	2,488
Real estate – construction and land	29,191		44,523		2,664
Real estate – business	19,130		24,226		1,472
Real estate – personal	7,551		10,701		673
Consumer	1,559		1,599		42
Revolving home equity	118		367		4
Consumer credit card	16,490		16,490		1,327
	$	102,492	$	129,818	$	8,670
Total	$	135,895	$	177,589	$	8,670
December 31, 2011
With no related allowance recorded:
Business	$	19,759	$	22,497	$	—
Real estate – construction and land	8,391		22,746		—
Real estate – business	6,853		9,312		—
Real estate – personal	793		793		—
	$	35,796	$	55,348	$	—
With an allowance recorded:
Business	$	15,604	$	19,286	$	1,500
Real estate – construction and land	37,387		47,516		2,580
Real estate – business	20,173		24,799		2,588
Real estate – personal	7,867		10,671		795
Consumer credit card	22,428		22,428		3,295
	$	103,459	$	124,700	$	10,758
Total	$	139,255	$	180,048	$	10,758

Total average impaired loans for the three and six month periods ending June 30, 2012 and 2011, respectively, are shown in the table below.



(In thousands)	Commercial		Personal Banking		Total
Average Impaired Loans:
For the Three Months Ended June 30, 2012
Non-accrual loans	$	58,662	$	7,165	$	65,827
Restructured loans (accruing)	50,102		20,324		70,426
Total	$	108,764	$	27,489	$	136,253
For the Six Months Ended June 30, 2012
Non-accrual loans	$	63,113	$	7,287	$	70,400
Restructured loans (accruing)	45,164		21,939		67,103
Total	$	108,277	$	29,226	$	137,503
For the Three Months Ended June 30, 2011
Non-accrual loans	$	69,104	$	7,063	$	76,167
Restructured loans (accruing)	46,037		21,679		67,716
Total	$	115,141	$	28,742	$	143,883
For the Six Months ended June 30, 2011
Non-accrual loans	$	72,186	$	7,045	$	79,231
Restructured loans (accruing)	44,495		21,107		65,602
Total	$	116,681	$	28,152	$	144,833

The table below shows interest income recognized during the three and six month periods ending June 30, 2012 and 2011 for impaired loans held at the end of each respective period. This interest relates to accruing restructured loans, as discussed above.



	For the Three Months Ended June 30				For the Six Months Ended June 30
(In thousands)	2012		2011		2012		2011
Interest income recognized on impaired loans:
Business	$	236	$	85	$	471	$	170
Real estate – construction and land	249		186		498		373
Real estate – business	105		204		210		407
Real estate – personal	9		7		17		14
Consumer	19		—		38		—
Revolving home equity	1		—		1		—
Consumer credit card	321		447		642		894
Total	$	940	$	929	$	1,877	$	1,858

Delinquent and non-accrual loans

The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at June 30, 2012 and December 31, 2011.



(In thousands)	Current or Less Than 30 Days Past Due		30 – 89 Days Past Due		90 Days Past Due and Still Accruing		Non-accrual		Total
June 30, 2012
Commercial:
Business	$	2,972,009	$	6,416	$	519	$	14,123	$	2,993,067
Real estate – construction and land	326,022		1,828		—		18,198		346,048
Real estate – business	2,168,201		1,083		—		21,554		2,190,838
Personal Banking:
Real estate – personal	1,481,713		10,106		1,735		7,616		1,501,170
Consumer	1,151,696		9,280		1,425		131		1,162,532
Revolving home equity	445,096		1,270		680		555		447,601
Consumer credit card	716,799		8,651		6,938		—		732,388
Overdrafts	2,839		432		—		—		3,271
Total	$	9,264,375	$	39,066	$	11,297	$	62,177	$	9,376,915
December 31, 2011
Commercial:
Business	$	2,777,578	$	4,368	$	595	$	25,724	$	2,808,265
Real estate – construction and land	362,592		1,113		121		22,772		386,598
Real estate – business	2,151,822		8,875		29		19,374		2,180,100
Personal Banking:
Real estate – personal	1,406,449		11,671		3,045		7,612		1,428,777
Consumer	1,096,742		15,917		2,230		—		1,114,889
Revolving home equity	461,941		1,003		643		—		463,587
Consumer credit card	769,922		10,484		8,295		—		788,701
Overdrafts	6,173		388		—		—		6,561
Total	$	9,033,219	$	53,819	$	14,958	$	75,482	$	9,177,478

Credit quality

The following table provides information about the credit quality of the Commercial loan portfolio, using the Company’s internal rating system as an indicator. The internal rating system is a series of grades reflecting management’s risk assessment, based on its analysis of the borrower’s financial condition. The “pass” category consists of a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is attached to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment.



Commercial Loans
(In thousands)	Business		Real Estate-Construction		Real Estate- Business		Total
June 30, 2012
Pass	$	2,857,378	$	278,895	$	2,038,169	$	5,174,442
Special mention	65,052		5,739		49,057		119,848
Substandard	56,514		43,216		82,058		181,788
Non-accrual	14,123		18,198		21,554		53,875
Total	$	2,993,067	$	346,048	$	2,190,838	$	5,529,953
December 31, 2011
Pass	$	2,669,868	$	304,408	$	1,994,391	$	4,968,667
Special mention	37,460		4,722		52,683		94,865
Substandard	75,213		54,696		113,652		243,561
Non-accrual	25,724		22,772		19,374		67,870
Total	$	2,808,265	$	386,598	$	2,180,100	$	5,374,963

The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above Delinquency section. In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a borrower's financial history. The bank normally obtains a FICO score at the loan's origination and renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain loans for which FICO scores are not obtained because the loans are related to commercial activity. At June 30, 2012, these were comprised of $219.9 million in personal real estate loans and $140.2 million in consumer loans, or 9.4% of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at June 30, 2012 and December 31, 2011 by FICO score.



Personal Banking Loans
	% of Loan Category
	Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card
June 30, 2012
FICO score:
Under 600	3.0	%	7.4	%	2.4	%	4.7	%
600 - 659	4.2		11.3		5.7		11.6
660 - 719	11.7		24.1		16.2		32.3
720 - 779	30.2		25.8		29.7		28.4
780 and Over	50.9		31.4		46.0		23.0
Total	100.0	%	100.0	%	100.0	%	100.0	%
December 31, 2011
FICO score:
Under 600	3.4	%	8.4	%	2.6	%	4.9	%
600 - 659	4.1		11.0		4.9		11.2
660 - 719	12.2		23.2		15.1		31.0
720 - 779	29.2		26.0		26.3		29.0
780 and Over	51.1		31.4		51.1		23.9
Total	100.0	%	100.0	%	100.0	%	100.0	%

Troubled debt restructurings

As mentioned above, the Company's impaired loans include loans which have been classified as troubled debt restructurings. The majority of troubled debt restructurings are classified as such upon renewal when the contractual interest rate of the new loan, which may be greater or less than the rate on the previous loan, was not judged to be a market rate for debt with similar risk. As a result, the financial effects of the modifications cannot readily be quantified. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due under the modified terms will be collected. Other restructured loans consist mainly of performing commercial loans and consumer credit loans under debt management programs, as mentioned above. The following table shows the outstanding balances at June 30, 2012 of loans classified as troubled debt restructurings, in addition to the outstanding balances of these restructured loans which the Company considers to have been in default at any time during the previous twelve months. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal.



(In thousands)	June 30, 2012		Balance 90 days past due at any time during previous 12 months
Commercial:
Business	$	33,687	$	—
Real estate - construction and land	35,649		10,140
Real estate - business	13,221		1,765
Personal Banking:
Real estate - personal	2,852		553
Consumer	1,428		119
Revolving home equity	73		—
Consumer credit card	16,491		1,126
Total restructured loans	$	103,401	$	13,703

The determination of the allowance for loan losses related to troubled debt restructurings depends on the collectability of principal and interest, according to the repayment terms. As mentioned above, the majority of troubled debt restructurings were classified as such when the loans were renewed at an interest rate not judged to be market, and as such, the modified terms did not change estimated collectability under the terms of the contract. The allowance for loan losses for troubled debt restructurings on non-accrual status is determined by individual evaluation using the same process as loans on non-accrual status which are not classified as troubled debt restructurings. Those restructured loans which management expects to collect under contractual terms, and which are maintained on accruing status, are generally risk-rated as substandard. The allowance for loan losses related to accruing restructured loans is determined by collective evaluation because the loans have similar risk characteristics. Collective evaluation, which is the same process used for other substandard loans, considers historical loss experience and current economic factors.

If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for loan loss continues to be determined based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If a substandard, accruing, troubled debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for loan loss is determined based on individual evaluation.

The Company had commitments of $9.5 million at June 30, 2012 to lend additional funds to borrowers with restructured loans.

The Company’s holdings of foreclosed real estate totaled $20.1 million and $18.3 million at June 30, 2012 and December 31, 2011, respectively. Personal property acquired in repossession, generally autos and marine and recreational vehicles, totaled $2.8 million and $4.2 million at June 30, 2012 and December 31, 2011, respectively. These assets are carried at the lower of the amount recorded at acquisition date or the current fair value less estimated costs to sell.