Loans

6 Months Ended

Jun. 30, 2011

4. Loans

Total non-covered and covered loans outstanding as of June 30, 2011, December 31, 2010 and June 30, 2010 were as follows:


	June 30,			December 31,			June 30,
	2011			2010			2010
Commercial loans	$	4,808,305		$	4,527,497		$	4,335,392
Mortgage loans		400,661			403,843			430,550
Installment loans		1,259,072			1,308,860			1,370,400
Home equity loans		738,719			749,378			762,288
Credit card loans		143,828			149,506			146,253
Leases		57,634			63,004			58,555

Total non-covered loans (a)		7,408,219			7,202,088			7,103,438
Allowance for noncovered loan losses		(109,187	)		(114,690	)		(118,343	)

Net non-covered loans		7,299,032			7,087,398			6,985,095
Covered loans (b)		1,755,107			1,976,754			2,259,522
Allowance for covered loan losses		(33,360	)		(13,733	)		—

Net covered loans		1,721,747			1,963,021			2,259,522

Net loans	$	9,020,779		$	9,050,419		$	9,244,617


(a)		Includes acquired, non-covered loans of $192.2 million, $265.5 million, and $323.5 million as of June 30, 2011, December 31, 2010 and June 30, 2010, respectively.

(b)		Includes loss share receivable of $239 million, $289 million and $344 million as of June 30, 2011, December 31, 2010 and June 30, 2010, respectively.

Originated loans are presented net of deferred loan origination fees and costs which amounted to $5.1 million, $3.6 million, and $1.7 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively. Acquired loans, including Covered Loans, are recorded at fair value as of the date of purchase with no allowance for loan loss. As discussed in Note 2 (Business Combinations), the Bank acquired loans with a fair value of $275.6 million on February 19, 2010 in its acquisition of the First Bank branches, and $177.8 million on February 19, 2010 and $1.8 billion on May 14, 2010 in conjunction with the FDIC-assisted acquisitions of George Washington and Midwest, respectively. The loans that were acquired in these FDIC-assisted transactions are covered by Loss Share Agreements which afford the Bank significant loss protection. Loans covered under Loss Share Agreements, including the amounts of expected reimbursements from the FDIC under these agreements, are reported as covered loans in the accompanying consolidated balance sheets.

Acquired Loans

The Corporation evaluates acquired loans for impairment in accordance with the provisions of ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). Acquired loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. Acquired impaired loans are not classified as nonperforming assets at June 30, 2011 as the loans are considered to be performing under ASC 310-30.

All loans acquired in the First Bank acquisition were performing as of the date of acquisition. The difference between the fair value and the outstanding principal balance of the First Bank acquired loans is being accreted to interest income over the remaining term of the loans.

The Corporation has elected to account for all loans acquired in the George Washington and Midwest acquisitions under ASC 310-30 (“Acquired Impaired Loans”) except for $162.6 million of acquired loans with revolving privileges, which are outside the scope of this guidance, and which are being accounted for in accordance with ASC 310 (“Acquired Non-Impaired Loans”). Interest income, through accretion of the difference between the carrying amount of the Acquired Impaired Loans and the expected cash flows, is recognized on all Acquired Impaired Loans. The difference between the fair value of the Acquired Non-Impaired Loans and their outstanding balances is being accreted to interest income over the remaining period the revolving lines are in effect. The outstanding balance, including contractual principal, interest, fees and penalties, of all covered loans accounted for in accordance with ASC 310-30 was $1.9 billion as of June 30, 2011.

The excess of an Acquired Impaired Loan’s cash flows expected to be collected over the initial investment in the loan is represented by the accretable yield. An Acquired Impaired Loan’s contractually required payments in excess of the amount of its cash flows expected to be collected are represented by its nonaccretable balance. The nonaccretable balance represents expected credit impairment on the loans and is only recognized in income if the payments on the loan exceed the recorded fair value of the loan. The majority of the nonaccretable balance on Acquired Impaired Loans is expected to be received through Loss Share Agreements and is recorded as part of the covered loans in the balance sheet.

Over the life of the Acquired Impaired Loans, the Corporation continues to estimate cash flows expected to be collected, which includes the effects of estimated prepayments. The Corporation assesses impairment of Acquired Impaired Loans at each balance sheet date by comparing the net present value of updated cash flows (discounted by the effective yield calculated at the end of the previous accounting period) to the recorded book value. For any increases in cash flows expected to be collected, the Corporation adjusts the amount of accretable yield recognized on a prospective basis over the Acquired Impaired Loan’s or pool’s remaining life. To the extent impairment exists, an allowance for loan loss is established through a charge to provision for loan loss. See Note 5 (Allowance for Loan Losses) for further information.

Changes in the carrying amount of accretable yield for Acquired Impaired Loans were as follows for the quarters and six months ended June 30, 2011 and 2010 and the year ended December 31, 2010:


	Three months ended												Year ended						Six months ended
	June 30, 2011						June 30, 2010						December 31, 2010						June 30, 2011						June 30, 2010
				Carrying						Carrying						Carrying						Carrying						Carrying
	Accretable			Amount of			Accretable			Amount of			Accretable			Amount of			Accretable			Amount of			Accretable			Amount of
	Yield			Loans			Yield			Loans			Yield			Loans			Yield			Loans			Yield			Loans
Balance at beginning of period	$	212,447		$	1,425,758		$	23,307		$	152,224		$	—		$	—		$	227,652		$	1,512,817		$	—		$	—
Loans acquired								236,031			1,640,528			260,751			1,794,593			—			—			260,751			1,794,593
Accretion		(34,237	)		34,237			(16,843	)		16,843			(83,782	)		83,782			(70,124	)		70,124			(17,906	)		17,906
Net Reclassifications from
non-accretable to accretable		18,711			—			(333	)		—			52,253			—			39,958			—			(634	)		—
Payments, received, net		—			(122,074	)		—			(71,093	)		—			(365,558	)		—			(245,020	)		—			(73,997	)
Disposals		(396	)		—			(235	)		—			(1,570	)		—			(961	)		—			(284	)		—
Balance at end of period	$	196,525		$	1,337,921		$	241,927		$	1,738,502		$	227,652		$	1,512,817		$	196,525		$	1,337,921		$	241,927		$	1,738,502

Amortization of the loss share receivable for acquired loans is recognized through interest income and was $9.9 million for the three months ended June 30, 2011 and $21.5 million for the six months ended June 30, 2011.

Credit Quality Disclosures

The quality of the Corporation’s loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Corporation. These credit quality ratings are an important part of the Corporation’s overall credit risk management process and evaluation of the allowance for credit losses (see Note 5 Allowance for Loan Losses).

Generally, loans, except for certain commercial, credit card and mortgage loans, and leases on which payments are past due for 90 days are placed on nonaccrual status, unless those loans are in the process of collection and, in Management’s opinion, are fully secured. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status. When a loan is placed on nonaccrual status, interest deemed uncollectible which had been accrued in prior years is charged against the allowance for loan losses and interest deemed uncollectible accrued in the current year is reversed against interest income. Interest on mortgage loans is accrued until Management deems it uncollectible based upon the specific identification method. Payments subsequently received on nonaccrual loans are generally applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable. This generally requires timely principal and interest payments for a minimum of six consecutive payment cycles. Loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms, and other factors.

The following tables provide a summary of loans by portfolio type, including the delinquency status of those loans that continue to accrue interest and those loans that are nonaccrual.


As of June 30, 2011
													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
Legacy Loans	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing		Loans
Commercial
C&I	$	3,415	$	6,346	$	3,102	$	12,863	$	2,402,784	$	2,415,647	$	202	$	5,168
CRE		8,286		4,848		42,535		55,669		1,917,646		1,973,315		1,900		47,164
Construction		529		2,091		10,150		12,770		240,609		253,379		31		10,495
Leases		—		—		—		—		57,634		57,634		—		—

Consumer
Installment		9,636		3,243		5,055		17,934		1,238,299		1,256,233		739		787
Home Equity Lines		2,086		835		571		3,492		713,297		716,789		571		938
Credit Cards		915		496		797		2,208		141,620		143,828		349		563
Residential Mortgages		9,559		1,560		8,129		19,248		379,942		399,190		3,715		6,663

Total	$	34,426	$	19,419	$	70,339	$	124,184	$	7,091,831	$	7,216,015	$	7,507	$	71,778


													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
Acquired Loans (Noncovered)	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing		Loans
Commercial
C&I	$	177	$	169	$	68	$	414	$	53,807	$	54,221	$	—	$	68
CRE		4,110		309		3,676		8,095		103,648		111,743		2,883		793

Consumer
Installment		3		70		15		88		2,751		2,839		15		—
Home Equity Lines		140		—		19		159		21,771		21,930		19		—
Residential Mortgages		62		—		—		62		1,409		1,471		—		—

Total	$	4,492	$	548	$	3,778	$	8,818	$	183,386	$	192,204	$	2,917	$	861


													≥ 90 Days
	Days Past Due						Total				Total		Past Due and	Nonaccrual
Covered Loans (a)	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing(b)	Loans(b)
Commercial
C&I	$	4,969	$	7,569	$	39,501	$	52,039	$	184,482	$	236,521
CRE		27,684		35,750		205,958		269,392		660,039		929,431
Construction		139		673		73,265		74,077		27,841		101,918

Consumer
Installment		41		33		2,074		2,148		9,379		11,527
Home Equity Lines		1,174		1,428		403		3,005		148,961		151,966
Residential Mortgages		17,105		1,278		9,809		28,192		56,128		84,320

Total	$	51,112	$	46,731	$	331,010	$	428,853	$	1,086,830	$	1,515,683


(a)		Excludes loss share receivable of $239 million as of June 30, 2011.

(b)		Acquired impaired loans were not classified as nonperforming assets at June 30, 2011 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.


As of December 31, 2010
													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
Legacy Loans	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing		Loans
Commercial
C&I	$	5,280	$	7,592	$	12,553	$	25,425	$	1,960,404	$	1,985,829	$	4,692	$	8,368
CRE		10,801		3,832		58,977		73,610		1,953,710		2,027,320		1,908		65,096
Construction		1,490		1,777		18,639		21,906		255,253		277,159		2,795		16,364
Leases		—		—		—		—		63,004		63,004		—		—

Consumer
Installment		14,486		4,491		7,059		26,036		1,279,307		1,305,343		1,929		3,724
Home Equity Lines		2,500		755		744		3,999		722,351		726,350		744		72
Credit Cards		1,570		975		1,337		3,882		145,624		149,506		371		966
Residential Mortgages		10,574		1,665		14,815		27,054		375,022		402,076		8,768		10,004

Total	$	46,701	$	21,087	$	114,124	$	181,912	$	6,754,675	$	6,936,587	$	21,207	$	104,594


													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
Acquired Loans (Noncovered)	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing		Loans
Commercial
C&I	$	1,939	$	511	$	703	$	3,153	$	92,995	$	96,148	$	703	$	—
CRE		493		16,650		38		17,181		123,860		141,041		38		—

Consumer
Installment		40		16		23		79		3,438		3,517		23		—
Home Equity Lines		105		24		46		175		22,853		23,028		46		—
Residential Mortgages		65		—		—		65		1,702		1,767		—		93

Total	$	2,642	$	17,201	$	810	$	20,653	$	244,848	$	265,501	$	810	$	93


													≥ 90 Days
	Days Past Due						Total				Total		Past Due and	Nonaccrual
Covered Loans (a)	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing(b)	Loans(b)
Commercial
C&I	$	5,509	$	2,911	$	70,588	$	79,008	$	180,186	$	259,194
CRE		29,241		16,761		208,820		254,822		763,393		1,018,215
Construction		2,179		2,458		83,969		88,606		28,564		117,170

Consumer
Installment		667		493		36		1,196		10,327		11,523
Home Equity Lines		1,476		738		443		2,657		183,277		185,934
Residential Mortgages		14,975		3,625		12,320		30,920		65,193		96,113

Total	$	54,047	$	26,986	$	376,176	$	457,209	$	1,230,940	$	1,688,149


(a)		Excludes loss share receivable of $289 million as of December 31, 2010.

(b)		Acquired impaired loans were not classified as nonperforming assets at December 31, 2010 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired impaired loans.

At June 30, 2010, the investment in nonaccrual (non-covered) loans was $98.9 million, and loans past due 90 days or more and accruing interest was $36.9 million.

Individual commercial loans are assigned credit risk grades based on an internal assessment of conditions that affect a borrower’s ability to meet its contractual obligation under the loan agreement. The assessment process includes reviewing a borrower’s current financial information, historical payment experience, credit documentation, public information, and other information specific to each borrower.

Commercial loans are reviewed on an annual, quarterly or rotational basis or as Management become aware of information during a borrower’s ability to fulfill its obligation.

The credit-risk grading process for commercial loans is summarized as follows:

“Pass” Loans (Grades 1, 2, 3, 4) are not considered a greater than normal credit risk. Generally, the borrowers have the apparent ability to satisfy obligations to the bank, and the Corporation anticipates insignificant uncollectible amounts based on its individual loan review.

“Special-Mention” Loans (Grade 5) are commercial loans that have identified potential weaknesses that deserve Management’s close attention. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the institution’s credit position.

“Substandard” Loans (Grade 6) are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans so classified have a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt pursuant to the contractual principal and interest terms. Such loans are characterized by the distinct possibility that the Corporation may sustain some loss if the deficiencies are not corrected.

“Doubtful” Loans (Grade 7) have all the weaknesses inherent in those classified as substandard, with the added characteristic that existing facts, conditions, and values make collection or liquidation in full highly improbable. Such loans are currently managed separately to determine the highest recovery alternatives.

“Loss” Loans (Grade 8) are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. These loans are charged off when loss is identified.

The following tables provide a summary of loans by portfolio type and the Corporation’s internal credit quality rating:


As of June 30, 2011
	Commercial
Legacy Loans	C&I		CRE		Construction		Leases
Grade 1	$	47,596	$	10,844	$	1,361	$	—
Grade 2		98,521		2,786		—		—
Grade 3		439,392		231,142		25,797		4,451
Grade 4		1,743,893		1,510,966		198,203		53,177
Grade 5		41,771		90,629		7,027		—
Grade 6		44,474		126,796		20,991		6
Grade 7		—		152		—		—
Grade 8		—		—		—		—

	$	2,415,647	$	1,973,315	$	253,379	$	57,634


	Consumer
			Home				Residential
	Installment		Equity Lines		Credit Cards		Mortgages
Current	$	1,238,299	$	713,297	$	141,620	$	379,942
30-59 Days Past Due		9,636		2,086		915		9,559
60-89 Days Past Due		3,243		835		496		1,560
≥ 90 Days Past Due		5,055		571		797		8,129

	$	1,256,233	$	716,789	$	143,828	$	399,190


	Commercial
Acquired Loans (Noncovered)	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2		—		—		—		—
Grade 3		335		1,977		—		—
Grade 4		52,235		105,292		—		—
Grade 5		863		—		—		—
Grade 6		788		4,474		—		—
Grade 7		—		—		—		—
Grade 8		—		—		—		—

	$	54,221	$	111,743	$	—	$	—


	Consumer
			Home				Residential
	Installment		Equity Lines		Credit Cards		Mortgages
Current	$	2,751	$	21,771	$	—	$	1,409
30-59 Days Past Due		3		140		—		62
60-89 Days Past Due		70		—		—		—
≥ 90 Days Past Due		15		19		—		—

	$	2,839	$	21,930	$	—	$	1,471


	Commercial
Covered Loans	C&I		CRE		Construction		Leases
Grade 1	$	923	$	—	$	—	$	—
Grade 2		445		—		—		—
Grade 3		4,033		2,659		—		—
Grade 4		98,395		378,213		4,679		—
Grade 5		45,824		191,595		2,551		—
Grade 6		85,410		341,158		84,576		—
Grade 7		1,491		15,806		10,112		—
Grade 8		—		—		—		—

	$	236,521	$	929,431	$	101,918	$	—


	Consumer
			Home				Residential
	Installment		Equity Lines		Credit Cards		Mortgages
Current	$	9,379	$	148,961	$	—	$	56,128
30-59 Days Past Due		41		1,174		—		17,105
60-89 Days Past Due		33		1,428		—		1,278
≥ 90 Days Past Due		2,074		403		—		9,809

	$	11,527	$	151,966	$	—	$	84,320


As of December 31, 2010
	Commercial
Legacy Loans	C&I		CRE		Construction		Leases
Grade 1	$	66,802	$	13,387	$	3,301	$	8,069
Grade 2		64,740		4,462		6,700		—
Grade 3		260,351		278,274		39,986		11,414
Grade 4		1,476,930		1,486,620		188,949		43,210
Grade 5		61,284		87,155		8,055		311
Grade 6		55,720		157,422		30,168		—
Grade 7		2		—		—		—
Grade 8		—		—		—		—

	$	1,985,829	$	2,027,320	$	277,159	$	63,004


	Consumer
			Home				Residential
	Installment		Equity Lines		Credit Cards		Mortgages
Current	$	1,279,307	$	722,351	$	145,624	$	375,022
30-59 Days Past Due		14,486		2,500		1,570		10,574
60-89 Days Past Due		4,491		755		975		1,665
≥ 90 Days Past Due		7,059		744		1,337		14,815

	$	1,305,343	$	726,350	$	149,506	$	402,076


	Commercial
Acquired Loans (Noncovered)	C&I		CRE		Construction		Leases
Grade 2		—		—		—		—
Grade 3		451		5,934		—		—
Grade 4		95,392		133,613		—		—
Grade 5		5		—		—		—
Grade 6		300		1,494		—		—
Grade 7		—		—		—		—
Grade 8		—		—		—		—

	$	96,148	$	141,041	$	—	$	—


	Consumer
			Home				Residential
	Installment		Equity Lines		Credit Cards		Mortgages
Current	$	3,438	$	22,853	$	—	$	1,702
30-59 Days Past Due		40		105		—		65
60-89 Days Past Due		16		24		—		—
≥ 90 Days Past Due		23		46		—		—

	$	3,517	$	23,028	$	—	$	1,767


	Commercial
Covered Loans	C&I		CRE		Construction		Leases
Grade 1	$	641	$	—	$	—	$	—
Grade 2		—		—		—		—
Grade 3		3,045		1,337		—		—
Grade 4		111,792		430,553		4,262		—
Grade 5		63,624		221,020		3,260		—
Grade 6		67,253		317,134		69,998		—
Grade 7		12,839		48,171		39,650		—
Grade 8		—		—		—		—

	$	259,194	$	1,018,215	$	117,170	$	—


	Consumer
			Home				Residential
	Installment		Equity Lines		Credit Cards		Mortgages
Current	$	10,327	$	183,277	$	—	$	65,193
30-59 Days Past Due		667		1,476		—		14,975
60-89 Days Past Due		493		738		—		3,625
≥ 90 Days Past Due		36		443		—		12,320

	$	11,523	$	185,934	$	—	$	96,113