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NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES
12 Months Ended
Dec. 31, 2012
NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES  
NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES

8.             NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES

 

The following is a summary of year-end loans receivable, excluding covered loans (“non-covered loans”):

 

 

 

December 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Residential:

 

 

 

 

 

Single-family

 

  $

2,187,323

 

  $

1,796,635

 

Multifamily

 

900,708

 

933,168

 

Total residential

 

3,088,031

 

2,729,803

 

Commercial Real Estate (“CRE”):

 

 

 

 

 

Income producing

 

3,644,035

 

3,487,866

 

Construction

 

121,589

 

171,410

 

Land

 

129,071

 

173,089

 

Total CRE

 

3,894,695

 

3,832,365

 

Commercial and Industrial (“C&I”):

 

 

 

 

 

Commercial business

 

3,569,388

 

2,655,917

 

Trade finance

 

661,877

 

486,555

 

Total C&I

 

4,231,265

 

3,142,472

 

Consumer:

 

 

 

 

 

Student loans

 

475,799

 

306,325

 

Other consumer

 

269,083

 

277,461

 

Total consumer

 

744,882

 

583,786

 

Total gross loans receivable, excluding covered loans

 

11,958,873

 

10,288,426

 

Unearned fees, premiums, and discounts, net

 

(19,301

)

(16,762

)

Allowance for loan losses, excluding covered loans

 

(229,382

)

(209,876

)

Loans receivable, excluding covered loans, net

 

  $

11,710,190

 

  $

10,061,788

 

 

Accrued interest on covered and non-covered loans receivable amounted to $76.8 million and $68.5 million at December 31, 2012 and 2011, respectively.

 

At December 31, 2012 and 2011, covered and non-covered loans receivable totaling $8.88 billion and $8.65 billion, respectively, were pledged to secure borrowings from the FHLB and the Federal Reserve Bank.

 

The Bank offers both fixed and adjustable rate (“ARM”) first mortgage loans secured by one-to-four unit residential properties located in its primary lending areas. The Bank originated $735.3 million and $924.3 million in new residential single-family loans during 2012 and 2011, respectively.

 

The Bank also offers both fixed and ARM residential multifamily loan programs. For the years ended December 31, 2012 and 2011, the Bank originated $128.4 million and $80.5 million, respectively, in multifamily residential loans. The Bank primarily offers ARM multifamily loan programs that have six-month, three-year, or five-year initial fixed periods. The Bank originates single-family residential loans where limited verification or documentation of borrower’s income is obtained. However, such loans are originated at an original loan to value ratio of below 65%. The Bank considers all of the single-family and multifamily loans originated to be prime loans and underwriting criteria include minimum FICO scores, maximum loan-to-value ratios and minimum debt coverage ratios, as applicable. The Bank has single-family loans with interest-only features which represents approximately less than 1% of total single-family loans at both December 31, 2012 and December 31, 2011. Additionally, the Bank has residential loans that were purchased several years ago that permit different repayment options. For these loans, there is the potential for negative amortization if the borrower chooses so. These residential loans that permit different repayment options represent approximately less than 1%, of total residential loans at both December 31, 2012 and December 31, 2011. None of these loans were negatively amortizing as of December 31, 2012 and December 31, 2011.

 

In addition to residential lending, the Bank’s lending activities also include commercial real estate, commercial and industrial, and consumer lending.  Our CRE lending activities include loans to finance income-producing properties and also construction and land loans.  Our C&I lending activities include commercial business financing for small and middle-market businesses in a wide spectrum of industries.  Included in commercial business loans are loans for working capital, accounts receivable lines, inventory lines, small business administration loans and lease financing.  We also offer a variety of international trade finance services and products, including letters of credit, revolving lines of credit, import loans, bankers’ acceptances, working capital lines, domestic purchase financing and pre-export financing. Consumer loans are primarily comprised of fully guaranteed student loans, home equity lines of credit and auto loans.

 

All of the loans that the Bank originates are subject to its underwriting guidelines and loan origination standards. Management believes that the Bank’s underwriting criteria and procedures adequately consider the unique risks which may come from these products. The Bank conducts a variety of quality control procedures and periodic audits to ensure compliance with its origination standards, including criteria for lending and legal requirements.

 

Credit Risk and Concentrations—The Bank has a concentration of real estate loans in California, including the areas of Los Angeles, Riverside, San Bernardino and Orange counties. As of December 31, 2012, the Company had $3.89 billion in non-covered commercial real estate loans and $3.09 billion in non-covered residential loans, of which approximately 89% are secured by real properties located in California. Potential further deterioration in the real estate market generally and residential homes in particular could result in additional loan charge-offs and provisions for loan losses in the future, which could have a material adverse effect on the Company’s financial condition, net income and capital. In addition, although most of the Company’s trade finance activities are related to trade with Asian countries, the majority of our loans are made to companies domiciled in the United States. A substantial portion of this business involves California based customers engaged in import activities as well as some export activities. We also offer export-import financing to various domestic and foreign customers. Certain trade finance loans may be guaranteed by the Export-Import Bank of the United States or the Export-Import Bank of China.

 

Purchased Loans—During 2012, the Company purchased loans with an unpaid principal balance of $591.2 million and a carrying amount of $564.8 million. 94% of these loans are student loans which are guaranteed by the U.S. Department of Education and pose limited credit risk.

 

Loans Held for Sale—Loans held for sale totaled $174.3 million and $278.6 million as of December 31, 2012 and 2011, respectively. Loans held for sale are recorded at the lower of cost or fair market value. Fair market value, if lower than cost is determined based on valuations obtained from market participants or the value of the underlying collateral. As of December 31, 2012, approximately 96% of these loans were student loans. During 2012, in total, loans receivable of $144.1 million were reclassified to loans held for sale. Some of these loans were purchased by the Company with the intent to be held for investment; however, subsequent to their purchase, the Company’s intent for these loans changed and they were consequently reclassified to loans held for sale. The remainder of loans were immediately classified as loans held for sale. Proceeds from sales of loans held for sale were $351.9 million in 2012, resulting in net gains on sale of $14.6 million. Proceeds from sales of loans held for sale were $652.7 million in 2011, resulting in net gains on sale of $14.5 million. During 2010, proceeds from sales of loans held for sale were $409.5 million resulting in net gains on sale of $18.5 million.

 

Credit Quality Indicators—Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes review of all sources of repayment, the borrower’s current payment performance/delinquency, the borrower’s current financial and liquidity status, and all other relevant information.  For single family residential loans payment performance/delinquency is the driving indicator for the risk ratings. However, the risk ratings remain the overall credit quality indicator for the Company as well as the credit quality indicator utilized for estimating the appropriate allowance for loan losses. The Company utilizes an eight grade risk rating system, where a higher grade represents a higher level of credit risk. The eight grade risk rating system can be generally classified by the following categories: Pass or Watch, Special Mention, Substandard, Doubtful and Loss. The risk ratings reflect the relative strength of the sources of repayment.

 

Pass or Watch loans are generally considered to have sufficient sources of repayment in order to repay the loan in full in accordance with all terms and conditions. These borrowers may have some credit risk that requires monitoring, but full repayment is expected. Special Mention loans are considered to have potential weaknesses that warrant closer attention by management. Special Mention is considered a transitory grade and generally, the Company does not grade a loan as Special Mention for longer than six months. If any potential weaknesses are resolved, the loan is upgraded to a Pass or Watch grade. If negative trends in the borrower’s financial status or other information is presented that indicates the repayment sources may become inadequate, the loan is downgraded to a Substandard grade. Substandard loans are considered to have well-defined weaknesses that jeopardize the full and timely repayment of the loan. Substandard loans have a distinct possibility of loss if the deficiencies are not corrected. Additionally, when management has assessed a potential for loss but a distinct possibility of loss is not recognizable, the loan is still classified as Substandard. Doubtful loans have insufficient sources of repayment and a high probability of loss. Loss loans are considered to be uncollectible and of such little value that they are no longer considered bankable assets. These internal risk ratings are reviewed routinely and adjusted due to changes in borrower status and likelihood of loan repayment. The tables below present the non-covered loan portfolio by credit quality indicator as of December 31, 2012 and 2011. As of December 31, 2012, non-covered loans graded Substandard and Doubtful have decreased by $27.0 million, or 5% from December 31, 2011. There were no Loss grade loans as of December 31, 2012 and 2011.

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

Pass/Watch

 

Mention

 

Substandard

 

Doubtful

 

Total

 

 

 

(In thousands)

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

Single-family

 

  $

2,163,918

 

  $

5,131

 

  $

18,274

 

  $

 

  $

2,187,323

 

Multifamily

 

781,552

 

13,510

 

105,646

 

 

900,708

 

CRE:

 

 

 

 

 

 

 

 

 

 

 

Income producing

 

3,416,142

 

42,222

 

185,671

 

 

3,644,035

 

Construction

 

63,008

 

16,885

 

41,696

 

 

121,589

 

Land

 

79,085

 

13,232

 

36,754

 

 

129,071

 

C&I:

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

3,380,212

 

69,687

 

119,489

 

 

3,569,388

 

Trade finance

 

632,617

 

24,778

 

4,482

 

 

661,877

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Student loans

 

475,799

 

 

 

 

475,799

 

Other consumer

 

261,136

 

1,115

 

6,832

 

 

269,083

 

Total

 

  $

11,253,469

 

  $

186,560

 

  $

518,844

 

  $

 

  $

11,958,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

Pass/Watch

 

Mention

 

Substandard

 

Doubtful

 

Total

 

 

 

(In thousands)

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

Single-family

 

  $

1,768,149

 

  $

11,239

 

  $

17,247

 

  $

 

  $

1,796,635

 

Multifamily

 

810,458

 

25,531

 

97,179

 

 

933,168

 

CRE:

 

 

 

 

 

 

 

 

 

 

 

Income producing

 

3,211,386

 

63,066

 

213,414

 

 

3,487,866

 

Construction

 

109,184

 

 

62,226

 

 

171,410

 

Land

 

125,534

 

7,954

 

39,601

 

 

173,089

 

C&I:

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

2,492,904

 

62,409

 

100,357

 

247

 

2,655,917

 

Trade finance

 

467,822

 

7,161

 

11,572

 

 

486,555

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Student loans

 

305,880

 

188

 

257

 

 

306,325

 

Other consumer

 

273,692

 

 

3,769

 

 

277,461

 

Total

 

  $

9,565,009

 

  $

177,548

 

  $

545,622

 

  $

247

 

  $

10,288,426

 

 

Nonaccrual and Past Due Loans—Loans are tracked by the number of days borrower payments are past due. The table below presents an age analysis of nonaccrual and past due non-covered loans and loans held for sale, segregated by class of loans, as of December 31, 2012 and 2011:

 

 

 

Accruing

 

Accruing

 

Total

 

Nonaccrual

 

Nonaccrual

 

Total

 

 

 

 

 

 

 

Loans

 

Loans

 

Accruing

 

Loans Less

 

Loans

 

Nonaccrual

 

 

 

 

 

 

 

30-59 Days

 

60-89 Days

 

Past Due

 

Than 90 Days

 

90 or More

 

Past Due

 

Current

 

 

 

 

 

Past Due

 

Past Due

 

Loans

 

Past Due

 

Days Past Due

 

Loans

 

Loans

 

Total

 

 

 

(In thousands)

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single-family

 

  $

4,820

 

  $

2,244

 

  $

7,064

 

  $

1,301

 

  $

9,809

 

  $

11,110

 

  $

2,169,149

 

  $

2,187,323

 

Multifamily

 

7,127

 

924

 

8,051

 

6,788

 

11,052

 

17,840

 

874,817

 

900,708

 

CRE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income producing

 

18,118

 

4,731

 

22,849

 

9,485

 

8,354

 

17,839

 

3,603,347

 

3,644,035

 

Construction

 

 

 

 

 

27,039

 

27,039

 

94,550

 

121,589

 

Land

 

 

 

 

637

 

3,984

 

4,621

 

124,450

 

129,071

 

C&I:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

3,293

 

316

 

3,609

 

8,068

 

14,740

 

22,808

 

3,542,971

 

3,569,388

 

Trade finance

 

500

 

 

500

 

429

 

2,003

 

2,432

 

658,945

 

661,877

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Student loans

 

71

 

 

71

 

 

 

 

475,728

 

475,799

 

Other consumer

 

485

 

968

 

1,453

 

499

 

3,921

 

4,420

 

263,210

 

269,083

 

Loans held for sale

 

 

 

 

 

 

 

174,317

 

174,317

 

Total

 

  $

34,414

 

  $

9,183

 

  $

43,597

 

  $

27,207

 

  $

80,902

 

  $

108,109

 

  $

11,981,484

 

12,133,190

 

Unearned fees, premiums and discounts, net

 

 

 

 

 

 

 

 

 

(19,301

)

Total recorded investment in non-covered loans and loans held for sale

 

 

 

 

 

 

 

 

 

  $

12,113,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruing

 

Accruing

 

Total

 

Nonaccrual

 

Nonaccrual

 

Total

 

 

 

 

 

 

 

Loans

 

Loans

 

Accruing

 

Loans Less

 

Loans

 

Nonaccrual

 

 

 

 

 

 

 

30-59 Days

 

60-89 Days

 

Past Due

 

Than 90 Days

 

90 or More

 

Past Due

 

Current

 

 

 

 

 

Past Due

 

Past Due

 

Loans

 

Past Due

 

Days Past Due

 

Loans

 

Loans

 

Total

 

 

 

(In thousands)

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single-family

 

  $

6,991

 

  $

1,198

 

  $

8,189

 

  $

 

  $

3,569

 

  $

3,569

 

  $

1,784,877

 

  $

1,796,635

 

Multifamily

 

6,366

 

745

 

7,111

 

6,889

 

11,306

 

18,195

 

907,862

 

933,168

 

CRE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income producing

 

18,179

 

1,549

 

19,728

 

6,885

 

25,690

 

32,575

 

3,435,563

 

3,487,866

 

Construction

 

 

 

 

26,482

 

14,688

 

41,170

 

130,240

 

171,410

 

Land

 

 

573

 

573

 

1,136

 

9,589

 

10,725

 

161,791

 

173,089

 

C&I:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

342

 

2,957

 

3,299

 

4,394

 

6,843

 

11,237

 

2,641,381

 

2,655,917

 

Trade finance

 

 

 

 

 

 

 

486,555

 

486,555

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Student loans

 

109

 

188

 

297

 

 

257

 

257

 

305,771

 

306,325

 

Other consumer

 

1,130

 

 

1,130

 

 

2,249

 

2,249

 

274,082

 

277,461

 

Loans held for sale

 

 

 

 

 

25,655

 

25,655

 

252,948

 

278,603

 

Total

 

  $

33,117

 

  $

7,210

 

  $

40,327

 

  $

45,786

 

  $

99,846

 

  $

145,632

 

  $

10,381,070

 

10,567,029

 

Unearned fees, premiums and discounts, net

 

 

 

 

 

 

 

 

 

(16,762

)

Total recorded investment in non-covered loans and loans held for sale

 

 

 

 

 

 

 

 

 

  $

10,550,267

 

 

Generally, loans 90 or more days past due are placed on nonaccrual status, at which point interest accrual is discontinued and all unpaid accrued interest is reversed against interest income. Additionally, loans that are not 90 or more days past due but have identified deficiencies, including delinquent TDR loans, are also put on nonaccrual status. Nonaccrual loans totaled $108.1 million and $145.6 million at December 31, 2012 and 2011, respectively. Loans not 90 or more days past due totaled $27.2 million and $45.8 million as of December 31, 2012 and 2011, respectively, were included in non-covered nonaccrual loans.

 

The following is a summary of interest income foregone on nonaccrual loans:

 

 

 

For the Year Ended December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

(In thousands)

 

Interest income that would have been recognized had nonaccrual loans performed in accordance with their original terms

 

  $

7,206

 

  $

9,384

 

  $

12,689

 

Less: Interest income recognized on nonaccrual loans on a cash basis

 

(2,269

)

(3,519

)

(7,880

)

Interest income foregone on nonaccrual loans

 

  $

4,937

 

  $

5,865

 

  $

4,809

 

 

Troubled debt restructurings — A troubled debt restructuring (“TDR”) is a modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a below-market change in the stated interest rate, reduction in the loan balance or accrued interest, extension of the maturity date with a stated interest rate lower than the current market rate or note splits referred to as A/B notes. In A/B note restructurings, the original note is bifurcated into two notes where the A note represents the portion of the original loan which allows for acceptable loan-to-value and debt coverage on the collateral and is expected to be collected in full and the B note represents the portion of the original loan where there is a shortfall in value and is fully charged-off.  The A/B note balance is comprised of the A note balances only.  A notes are not disclosed as TDRs in years after the restructuring if the restructuring agreement specifies an interest rate equal to or greater than the rate that the Bank was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan is not impaired based on the terms specified by the restructuring agreement.

 

TDRs may be designated as performing or nonperforming. A TDR may be designated as performing if the loan has demonstrated sustained performance under the modified terms. The period of sustained performance may include the periods prior to modification if prior performance met or exceeded the modified terms. For nonperforming restructured loans, the loan will remain on nonaccrual status until the borrower demonstrates a sustained period of performance, generally six consecutive months of payments. The Company had $94.6 million and $99.6 million in total performing restructured loans as of December 31, 2012 and 2011, respectively. Nonperforming restructured loans were $10.0 million and $38.9 million at December 31, 2012 and 2011, respectively. Included as TDRs were $34.8 million and $22.8 million of performing A/B notes as of December 31, 2012 and 2011, respectively.  All TDRs are included in the balance of impaired loans.

 

The following table provides information on loans modified as of December 31, 2012 that were modified as TDRs during the year ended December 31, 2012 and loans modified as of December 31, 2011 that were modified as TDRs during the year ended December 31, 2011:

 

 

 

Loans Modified as TDRs During the

 

 

 

Year Ended December 31, 2012

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

 

Number

 

Outstanding

 

Outstanding

 

 

 

 

 

of

 

Recorded

 

Recorded

 

Financial

 

 

 

Contracts

 

Investment

 

Investment (1)

 

Impact (2)

 

 

 

(Dollars in thousands)

 

Residential:

 

 

 

 

 

 

 

 

 

Single-family

 

12

 

  $

6,227

 

  $

5,556

 

  $

938

 

Multifamily

 

16

 

  $

28,736

 

  $

28,153

 

  $

3,344

 

CRE:

 

 

 

 

 

 

 

 

 

Income producing

 

8

 

  $

10,118

 

  $

8,162

 

  $

1,169

 

Construction

 

 

  $

 

  $

 

  $

 

Land

 

3

 

  $

1,610

 

  $

1,059

 

  $

395

 

C&I:

 

 

 

 

 

 

 

 

 

Commercial business

 

14

 

  $

5,101

 

  $

4,374

 

  $

560

 

Trade finance

 

2

 

  $

2,510

 

  $

579

 

  $

1,506

 

Consumer:

 

 

 

 

 

 

 

 

 

Student loans

 

 

  $

 

  $

 

  $

 

Other consumer

 

1

 

  $

108

 

  $

108

 

  $

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Modified as TDRs During the

 

 

 

Year Ended December 31, 2011

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

 

Number

 

Outstanding

 

Outstanding

 

 

 

 

 

of

 

Recorded

 

Recorded

 

Financial

 

 

 

Contracts

 

Investment

 

Investment (1)

 

Impact (2)

 

 

 

(Dollars in thousands)

 

Residential:

 

 

 

 

 

 

 

 

 

Single-family

 

13

 

  $

3,102

 

  $

2,972

 

  $

665

 

Multifamily

 

15

 

  $

6,442

 

  $

4,903

 

  $

1,279

 

CRE:

 

 

 

 

 

 

 

 

 

Income producing

 

11

 

  $

32,404

 

  $

29,933

 

  $

4,983

 

Construction

 

3

 

  $

3,740

 

  $

4,221

 

  $

220

 

Land

 

11

 

  $

35,554

 

  $

34,381

 

  $

4,279

 

C&I:

 

 

 

 

 

 

 

 

 

Commercial business

 

24

 

  $

18,247

 

  $

16,706

 

  $

4,443

 

Trade finance

 

1

 

  $

4,127

 

  $

4,127

 

  $

 

Consumer:

 

 

 

 

 

 

 

 

 

Student loans

 

 

  $

 

  $

 

  $

 

Other consumer

 

 

  $

 

  $

 

  $

 

 

(1)                   Includes subsequent payments after modification and reflects the balance as of December 31, 2012 and 2011.

 

(2)                   The financial impact includes chargeoffs and specific reserves at modification date.

 

TDRs are individually evaluated and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulty in order to maximize the bank’s recovery. As of December 31, 2012, modifications of residential TDRs, including single and multi-family loans, primarily included principal and/or interest deferments, rate reductions, extensions, other principal adjustments and/or A/B note splits. A/B note splits result in a partial charge-off or loss for the bank at the modification date. For the year ended December 31, 2012, residential TDRs modified using principal and/or interest deferment and/or rate reductions totaled $12.7 million as of December 31, 2012. For the year ended December 31, 2012 residential TDRs modified using extensions, A/B note splits and/or other principal adjustments totaled $21.0 million as of December 31, 2012. Commercial real estate TDRs, including income producing, construction and land loans, were primarily modified through A/B note splits, principal reductions, extensions, and/or non-market interest rate changes with an impact of a partial charge-off or loss for the bank and reduction of interest collected over the life of the loan. Commercial real estate TDRs modified through A/B note splits, principal reductions, extensions and/or non-market interest changes totaled $9.2 million as of December 31, 2012. Commercial and industrial TDRs, including commercial business and trade finance loans, were restructured in various ways, including forbearance payments, principal reductions, principal and/or interest deferment and/or maturity extensions with an impact of both a reduction of interest collected over the life of the loan and/or an extended time period for collection of principal and interest, for a total of $5.0 million as of December 31, 2012. Consumer TDRs, including home equity lines of credit and other consumer loans, were restructured through principal deferments. Consumer TDRs modified through principal deferment totaled $108 thousand as of December 31, 2012.

 

As of December 31, 2011, modifications of residential TDRs, including single and multi-family loans, primarily included non-market interest rate reductions, maturity extensions and A/B note splits. A/B note splits result in a partial chargeoff or loss for the bank at the modification date. For the year ended December 31, 2011 residential TDRs modified using non-market interest rate reductions, maturity extensions and/or A/B note splits totaled $7.9 million, as of December 31, 2011. Commercial real estate TDRs, including income producing, construction and land loans, were primarily modified through A/B note splits, maturity extensions, forbearance payments and/or non-market interest rate changes with an impact of a partial chargeoff or loss for the bank and reduction of interest collected over the life of the loan. For the year ended December 31, 2011, Commercial real estate TDRs modified through A/B note splits and/or maturity extensions totaled $40.6 million as of December 31, 2011. For the year ended December 31, 2011, Commercial real estate TDRs modified through forbearance payments and/or non-market interest changes totaled $27.9 million as of December 31, 2011. Commercial and industrial TDRs, including commercial business and trade finance loans, were restructured in various ways, including A/B note splits, non-market interest rate changes and/or maturity extensions with an impact of both a reduction of interest collected over the life of the loan and/or an extended time period for collection of principal and interest, for a total of $20.8 million as of December 31, 2011.

 

Performing TDRs at December 31, 2012 were comprised of $43.5 million in residential loans, $47.4 million in commercial real estate loans, $3.6 million in commercial and industrial loans and $108 thousand in consumer loans. Nonperforming TDRs at December 31, 2012 were comprised of $5.1 million in residential loans, $1.9 million in commercial real estate loans and $3.0 million in commercial and industrial loans. Performing TDRs at December 31, 2011 were comprised of $19.1 million in residential loans, $60.2 million in commercial real estate loans and $20.3 million in commercial and industrial loans. Nonperforming TDRs at December 31, 2011 were comprised of $2.7 million in residential loans, $34.6 million in commercial real estate loans and $1.6 million in commercial and industrial loans.

 

Subsequent to restructuring, a TDR that becomes delinquent, generally beyond 30 days for commercial and industrial, and commercial real estate and consumer loans, and beyond 90 days for residential loans, becomes nonaccrual and is considered to have defaulted. The following table provides information on TDRs that subsequently defaulted as of December 31, 2012 for the year ended December 31, 2012 and TDRs that subsequently defaulted as of December 31, 2011 for the year ended December 31, 2011.

 

 

 

Loans Modified as TDRs that Subsequently Defaulted

 

 

 

During the Year Ended December 31,

 

 

 

2012

 

2011

 

 

 

Number of

 

Recorded

 

Number of

 

Recorded

 

 

 

Contracts

 

Investment (1)

 

Contracts

 

Investment

 

 

 

(Dollars in thousands)

 

Residential:

 

 

 

 

 

 

 

 

 

Single-family

 

2

 

  $

2,830

 

 

  $

 

Multifamily

 

1

 

  $

378

 

 

  $

 

CRE:

 

 

 

 

 

 

 

 

 

Income producing

 

1

 

  $

271

 

 

  $

 

Construction

 

 

  $

 

1

 

  $

890

 

Land

 

 

  $

 

1

 

  $

11,695

 

C&I:

 

 

 

 

 

 

 

 

 

Commercial business

 

2

 

  $

33

 

2

 

  $

307

 

Trade finance

 

 

  $

 

 

  $

 

Consumer:

 

 

 

 

 

 

 

 

 

Student loans

 

 

  $

 

 

  $

 

Other consumer

 

 

  $

 

 

  $

 

 

(1)

Included in the year ended December 31, 2012 table is $271 thousand of recorded investment which has been transferred to REO and is not included in the total loans receivable balance as of December 31, 2012.

 

All TDRs are included in the impaired loan quarterly valuation allowance process.  See the sections below Impaired Loans and Allowance for Loan Losses for the complete discussion. All portfolio segments of TDRs are reviewed for necessary specific reserves in the same manner as impaired loans of the same portfolio segment which have not been identified as TDRs. The modification of the terms of each TDR is considered in the current impairment analysis of the respective TDR. For all portfolio segments of delinquent TDRs and when the restructured loan is less than the recorded investment in the loan, the deficiency is charged-off against the allowance for loan losses. If the loan is a performing TDR the deficiency is included in the specific allowance, as appropriate. As of December 31, 2012 and 2011, the allowance for loan losses associated with TDRs was $8.7 million and $10.5 million for performing TDRs and $203 thousand and $139 thousand for nonperforming TDRs, respectively.

 

As a result of adopting the amendments in ASU 2011-02, the Company reassessed all restructurings that occurred on or after the beginning of the current fiscal year (January 1, 2011) for identification as TDRs. The Company identified as TDRs certain loan receivables for which the allowance for credit losses had previously been measured under the general allowance for credit losses methodology. Upon identifying those loan receivables as TDRs, the Company identified them as impaired under the guidance in Section 310-10-35. The amendments in ASU 2011-02 require prospective application of the impairment measurement guidance in Section 310-10-35 for those receivables newly identified as impaired. At the end of the first interim period of adoption (September 30, 2011), the recorded investment in receivables for which the allowance for credit losses was previously measured under the general allowance for credit losses methodology and are now impaired under Section 310-10-35 was $17.8 million, and the allowance for credit losses associated with those loan receivables, on the basis of a current evaluation of loss, was $2.2 million.

 

Impaired Loans — A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all scheduled payments of principal or interest due according to the original contractual terms of the loan agreement. Impaired loans include non-covered loans held for investment on nonaccrual status, regardless of the collateral coverage, and loans modified in a TDR.

 

The Bank’s loans are grouped into heterogeneous and homogeneous (mostly consumer loans) categories. The Bank considers loans to be impaired if, based on current information and events, it is probable the Bank will not be able to collect all amounts due according to the original contractual terms of the loan agreement. Nonaccrual loans and performing troubled debt restructurings in the heterogeneous category are selected and evaluated for impairment on an individual basis. For loans determined to be impaired, the bank utilizes the most applicable asset valuation method for the loan from the following valuation methods: fair value of collateral less costs to sell, present value of expected future cash flows, or the loan’s observable market price. When the value of an impaired loan is less than the recorded investment in the loan and the loan is classified as nonperforming, the deficiency is charged-off against the allowance for loan losses. Generally, if the loan is less than 90 days past due or in process of modification, the deficiency will be recorded as a specific reserve.

 

At December 31, 2012 and 2011, impaired non-covered loans totaled $200.5 million and $219.6 million, respectively. Impaired non-covered loans as of December 31, 2012 and 2011 are set forth in the following tables. The interest income recognized on impaired loans, excluding performing TDRs, is recognized on a cash basis when received.

 

 

 

 

Unpaid
Principal
Balance

 

 

 

Recorded
Investment
With No
Allowance

 

 

 

Recorded
Investment
With
Allowance

 

 

 

Total
Recorded
Investment 
(2)

 

 

 

Related
Allowance

 

 

 

Average
Recorded
Investment

 

 

 

Interest
Income
Recognized 
(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the year ended December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single-family

 

 

$

19,318

 

 

 

$

15,610

 

 

 

$

2,598

 

 

 

$

18,208

 

 

 

$

721

 

 

 

$

19,094

 

 

 

$

88

 

Multifamily

 

 

57,464

 

 

 

45,511

 

 

 

8,756

 

 

 

54,267

 

 

 

2,410

 

 

 

54,707

 

 

 

403

 

CRE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income producing

 

 

59,574

 

 

 

47,019

 

 

 

7,656

 

 

 

54,675

 

 

 

2,559

 

 

 

57,854

 

 

 

304

 

Construction

 

 

30,815

 

 

 

25,530

 

 

 

1,509

 

 

 

27,039

 

 

 

142

 

 

 

22,696

 

 

 

723

 

Land

 

 

20,317

 

 

 

6,132

 

 

 

8,995

 

 

 

15,127

 

 

 

2,860

 

 

 

17,769

 

 

 

76

 

C&I:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

38,630

 

 

 

20,235

 

 

 

3,835

 

 

 

24,070

 

 

 

2,835

 

 

 

33,343

 

 

 

614

 

Trade finance

 

 

4,124

 

 

 

2,582

 

 

 

 

 

 

2,582

 

 

 

 

 

 

3,863

 

 

 

48

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Student loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

4,798

 

 

 

4,528

 

 

 

 

 

 

4,528

 

 

 

 

 

 

4,631

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

$

235,040

 

 

 

$

167,147

 

 

 

$

33,349

 

 

 

$

200,496

 

 

 

$

11,527

 

 

 

$

213,957

 

 

 

$

2,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid
Principal
Balance

 

 

 

Recorded
Investment
With No
Allowance

 

 

 

Recorded
Investment
With
Allowance

 

 

 

Total
Recorded
Investment 
(2)

 

 

 

Related
Allowance

 

 

 

Average
Recorded
Investment

 

 

 

Interest
Income
Recognized 
(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the year ended December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single-family

 

 

$

10,248

 

 

 

$

6,578

 

 

 

$

2,535

 

 

 

$

9,113

 

 

 

$

1,131

 

 

 

$

9,408

 

 

 

$

65

 

Multifamily

 

 

37,450

 

 

 

28,272

 

 

 

3,520

 

 

 

31,792

 

 

 

1,124

 

 

 

35,855

 

 

 

473

 

CRE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income producing

 

 

69,664

 

 

 

55,701

 

 

 

7,941

 

 

 

63,642

 

 

 

1,187

 

 

 

68,087

 

 

 

1,030

 

Construction

 

 

75,714

 

 

 

45,413

 

 

 

1,067

 

 

 

46,480

 

 

 

815

 

 

 

64,398

 

 

 

1,099

 

Land

 

 

40,615

 

 

 

25,806

 

 

 

8,692

 

 

 

34,498

 

 

 

3,949

 

 

 

36,002

 

 

 

341

 

C&I:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

38,857

 

 

 

20,772

 

 

 

6,650

 

 

 

27,422

 

 

 

4,835

 

 

 

32,033

 

 

 

484

 

Trade finance

 

 

4,127

 

 

 

4,127

 

 

 

 

 

 

4,127

 

 

 

 

 

 

4,127

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Student loans

 

 

257

 

 

 

257

 

 

 

 

 

 

257

 

 

 

 

 

 

257

 

 

 

 

Other consumer

 

 

2,249

 

 

 

2,249

 

 

 

 

 

 

2,249

 

 

 

 

 

 

2,251

 

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

$

279,181

 

 

 

$

189,175

 

 

 

$

30,405

 

 

 

$

219,580

 

 

 

$

13,041

 

 

 

$

252,418

 

 

 

$

3,519

 

 

(1)                                        Excludes interest from performing TDRs.

 

(2)                                        Includes $29.6 million and $18.9 million of loans at December 31, 2012 and 2011, respectively, accounted for under ASC 310-10, of which some loans have additional partial balances accounted for under ASC 310-30.

 

Allowance for Loan Losses

 

The allowance consists of specific reserves and a general reserve. The Bank segregates loans into heterogeneous and homogeneous (mostly consumer loans) categories. Impaired loans in the heterogeneous category are subject to specific reserves. Loans in the homogeneous category, as well as non-impaired loans in the heterogeneous category, are evaluated as part of the general reserve. The general reserve is calculated by utilizing both quantitative and qualitative factors. There are different qualitative risks for the loans in each portfolio segment. As of December 31, 2012, the Residential and CRE segments’ predominant risk characteristic is the collateral and the geographic location of the property collateralizing the loan. The risk is qualitatively assessed based on the change in the real estate market in those geographic areas. The C&I segment’s predominant risk characteristics are global cash flows of the guarantors and businesses we lend to and economic and market conditions. Consumer loans, excluding the student loan portfolio guaranteed by the U.S. Department of Education, are largely comprised of home equity lines of credit, for which the predominant risk characteristic is the real estate collateral securing the loan.

 

Our methodology to determine the allowance is based on a classification migration model and qualitative considerations. The migration analysis examines pools of loans having similar characteristics and analyzes their loss rates over a historical period. We utilize historical loss factors derived from trends and losses associated with each pool over a specified period of time. Based on this process, we assign loss factors to each loan grade within each pool of loans. Loss rates derived by the migration model are based predominantly on historical loss trends that may not be entirely indicative of the actual or inherent loss potential. As such, we utilize qualitative and environmental factors as adjusting mechanisms to supplement the historical results of the classification migration model. Qualitative considerations include, but are not limited to, prevailing economic or market conditions, relative risk profiles of various loan segments, volume concentrations, growth trends, delinquency and nonaccrual status, problem loan trends, and geographic concentrations. Qualitative and environmental factors are reflected as percentage adjustments and are added to the historical loss rates derived from the classified asset migration model to determine the appropriate allowance amount for each loan pool.

 

Covered LoansAs of the respective acquisition dates, WFIB’s and UCB’s loan portfolios included unfunded commitments for commercial lines of credit, construction draws and other lending activity. The total commitment outstanding as of the respective acquisition dates is covered under the shared-loss agreements. However, any additional advances on these loans subsequent to acquisition date are not accounted for under ASC 310-30. As additional advances on these commitments have occurred, the Bank has considered these amounts in the allowance for loan losses calculation. As of December 31, 2012 and 2011, $5.2 million, or 2.2% and $6.6 million, or 3.1%, of the total allowance is allocated to the allowance for loan losses on covered loans. The covered loans acquired are, and will continue to be, subject to the Bank’s internal and external credit review and monitoring. Credit deterioration, if any, beyond the respective acquisition date fair value amounts of the covered loans under ASC 310-30 will be separately measured and accounted for under ASC 310-30. If required, the establishment of an allowance for covered loans accounted for under ASC 310-30 will result in a charge to earnings with a partially offsetting noninterest income item reflected in the increase to the FDIC indemnification asset or receivable. As of December 31, 2012 and 2011, there is no allowance for the covered loans accounted for under ASC 310-30 due to deterioration of credit quality.

 

During 2012, the Company recorded $6.5 million of charge-offs on several covered loans outside of the scope of ASC 310-30. The resulting provision on covered loans for 2012 was $5.0 million. The charge-offs are within our loan segments as follows: $5.0 million of commercial and industrial loans and $1.5 million of commercial real estate loans. The $6.5 million of net charge-offs was mainly related to three specific covered loans. As these loans are covered under loss-sharing agreements with the FDIC, the Company recorded income of $5.2 million or 80% of the charge-off amount of $6.5 million in noninterest income as a net increase in the FDIC receivable, resulting in a net impact to earnings for the year of ($1.3) million. There were no charge-offs for covered loans during 2011.

 

The Company recorded $65.2 million in total loan loss provisions during 2012, as compared to $95.0 million and $200.2 million during 2011 and 2010, respectively. It is the Company’s policy to promptly charge-off the amount of impairment on a loan which represents the difference between the outstanding loan balance and the fair value of the collateral or discounted cash flow.  Recoveries are recorded when payment is received on loans that were previously charged-off through the allowance for loan losses. During 2012, the Company recorded $48.7 million in total net charge-offs in comparison to $112.1 million during 2011. The following table details activity in the allowance for loan losses, for both non-covered and covered loans, by portfolio segment for the year ended December 31, 2012 and 2011. Allocation of a portion of the allowance to one segment of the loan portfolio does not preclude its availability to absorb losses in other segments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Covered

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subject to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for

 

 

 

 

 

 

 

 

 

 

Residential

 

 

CRE

 

 

C&I

 

 

Consumer

 

 

Loan Losses(1)

 

 

Unallocated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Year Ended December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

$

52,180

 

 

$

66,457

 

 

$

87,020

 

 

$

4,219

 

 

$

6,647

 

 

$

 

 

$

216,523

 

Provision for loan losses

 

 

3,255

 

 

20,977

 

 

35,204

 

 

2,295

 

 

5,016

 

 

(1,563

)

 

65,184

 

Allowance for unfunded loan commitments and letters of credit

 

 

 

 

 

 

 

 

 

 

 

 

1,563

 

 

1,563

 

Charge-offs

 

 

(7,700

)

 

(27,060

)

 

(21,818

)

 

(1,824

)

 

(6,510

)

 

 

 

(64,912

)

Recoveries

 

 

1,614

 

 

9,482

 

 

4,970

 

 

111

 

 

 

 

 

 

16,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs

 

 

(6,086

)

 

(17,578

)

 

(16,848

)

 

(1,713

)

 

(6,510

)

 

 

 

(48,735

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

 

$

49,349

 

 

$

69,856

 

 

$

105,376

 

 

$

4,801

 

 

$

5,153

 

 

$

 

 

$

234,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

 

$

3,131

 

 

$

5,561

 

 

$

2,835

 

 

$

 

 

$

 

 

$

 

 

$

11,527

 

Loans collectively evaluated for impairment

 

 

46,218

 

 

64,295

 

 

102,541

 

 

4,801

 

 

5,153

 

 

 

 

223,008

 

Covered loans acquired with deteriorated credit quality (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

 

$

49,349

 

 

$

69,856

 

 

$

105,376

 

 

$

4,801

 

 

$

5,153

 

 

$

 

 

$

234,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Covered

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subject to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for

 

 

 

 

 

 

 

 

 

 

Residential

 

 

CRE

 

 

C&I

 

 

Consumer

 

 

Loan Losses(1)

 

 

Unallocated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Year Ended December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

$

49,491

 

 

$

117,752

 

 

$

59,737

 

 

$

3,428

 

 

$

4,225

 

 

$

 

 

$

234,633

 

Provision for loan losses

 

 

15,416

 

 

22,817

 

 

50,848

 

 

2,455

 

 

2,422

 

 

1,048

 

 

95,006

 

Allowance for unfunded loan commitments and letters of credit

 

 

 

 

 

 

 

 

 

 

 

 

(1,048

)

 

(1,048

)

Charge-offs

 

 

(13,323

)

 

(78,803

)

 

(30,606

)

 

(1,959

)

 

 

 

 

 

(124,691

)

Recoveries

 

 

596

 

 

4,691

 

 

7,041

 

 

295

 

 

 

 

 

 

12,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs

 

 

(12,727

)

 

(74,112

)

 

(23,565

)

 

(1,664

)

 

 

 

 

 

(112,068

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

 

$

52,180

 

 

$

66,457

 

 

$

87,020

 

 

$

4,219

 

 

$

6,647

 

 

$

 

 

$

216,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

 

$

2,255

 

 

$

5,951

 

 

$

4,835

 

 

$

 

 

$

 

 

$

 

 

$

13,041

 

Loans collectively evaluated for impairment

 

 

49,925

 

 

60,506

 

 

82,185

 

 

4,219

 

 

6,647

 

 

 

 

203,482

 

Covered loans acquired with deteriorated credit quality (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

 

$

52,180

 

 

$

66,457

 

 

$

87,020

 

 

$

4,219

 

 

$

6,647

 

 

$

 

 

$

216,523

 

 

(1)                                        This allowance is related to drawdowns on commitments that were in existence as of the acquisition dates of WFIB and UCB and, therefore, are covered under the shared-loss agreements with the FDIC. Allowance on these subsequent drawdowns is accounted for as part of the allowance for loan losses.

 

(2)                                        The Company has elected to account for all covered loans acquired in the FDIC-assisted acquisitions under ASC 310-30.

 

The Company’s recorded investment in total loans receivable as of December 31, 2012 and 2011 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Covered Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subject to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for

 

 

 

 

 

 

 

Residential

 

 

CRE

 

 

C&I

 

 

Consumer

 

 

Loan Losses

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

 

$

72,475

 

 

$

96,841

 

 

$

26,652

 

 

$

4,528

 

 

$

 

 

$

200,496

 

Covered loans individually evaluated for impairment(2)

 

 

 

 

 

 

 

 

 

 

5,237

 

 

5,237

 

Loans collectively evaluated for impairment

 

 

3,015,556

 

 

3,797,854

 

 

4,204,613

 

 

740,354

 

 

426,448

 

 

12,184,825

 

Covered loans acquired with deteriorated credit quality(1)

 

 

976,969

 

 

1,727,159

 

 

261,622

 

 

53,521

 

 

 

 

3,019,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

 

$

4,065,000

 

 

$

5,621,854

 

 

$

4,492,887

 

 

$

798,403

 

 

$

431,685

 

 

$

15,409,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Covered Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subject to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for

 

 

 

 

 

 

 

Residential

 

 

CRE

 

 

C&I

 

 

Consumer

 

 

Loan Losses

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

 

$

43,395

 

 

$

143,631

 

 

$

31,338

 

 

$

2,249

 

 

$

 

 

$

220,613

 

Covered loans individually evaluated for impairment(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans collectively evaluated for impairment

 

 

2,686,408

 

 

3,688,734

 

 

3,111,135

 

 

581,536

 

 

583,804

 

 

10,651,617

 

Covered loans acquired with deteriorated credit quality (1)

 

 

1,331,615

 

 

2,322,062

 

 

413,479

 

 

67,124

 

 

 

 

4,134,280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

 

$

4,061,418

 

 

$

6,154,427

 

 

$

3,555,952

 

 

$

650,909

 

 

$

583,804

 

 

$

15,006,510

 

 

 

(1)                The Company has elected to account for all covered loans acquired in the FDIC-assisted acquisitions under ASC 310-30. The total principal balance is presented and excludes the purchase discount and any additional advances subsequent to acquisition date.

 

(2)                Includes $29.6 million and $18.9 million of loans at December 31, 2012 and 2011, respectively, accounted for under ASC 310-10, of which some loans have additional partial balances accounted for under ASC 310-30.

 

Allowance for Unfunded Loan Commitments, Off-Balance Sheet Credit Exposures and Recourse Provisions—The allowance for unfunded loan commitments, off-balance sheet credit exposures and recourse provisions is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to these unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. As of December 31, 2012 and 2011, the allowance for unfunded loan commitments, off-balance sheet credit exposures, and recourse provisions amounted to $9.4 million and $11.0 million, respectively. Net adjustments to the allowance for unfunded loan commitments, off-balance sheet credit exposures, and recourse provisions are included in the provision for loan losses.

 

Loans serviced for others amounted to $1.65 billion and $2.10 billion at December 31, 2012 and 2011, respectively. These represent loans that have either been sold or securitized for which the Bank continues to provide servicing and has limited recourse. The majority of these loans are residential and CRE at December 31, 2012 and 2011. Of the total allowance for unfunded loan commitments, off-balance sheet credit exposures and recourse provisions, $4.8 million and $4.4 million pertain to these loans as of December 31, 2012 and 2011, respectively. These loans are maintained off-balance sheet and are not included in the loans receivable balance.