2. Loans and Allowance for Loan Losses

Major classifications within the Company's held to maturity loan portfolio at September 30, 2011 and December 31, 2010 are as follows:




(In thousands)	Sept. 30, 2011		Dec. 31, 2010
Commercial:
Business	$	2,769,255	$	2,957,043
Real estate – construction and land	397,598		460,853
Real estate – business	2,138,813		2,065,837
Personal Banking:
Real estate – personal	1,428,492		1,440,386
Consumer	1,105,785		1,164,327
Revolving home equity	466,946		477,518
Consumer credit card	752,458		831,035
Overdrafts	13,776		13,983
Total loans	$	9,073,123	$	9,410,982

At September 30, 2011, loans of $3.0 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 nine months ended September 30, 2011 follows:




	For the Three Months						For the Nine Months
	Ended September 30						Ended September 30
(In thousands)	Commercial		Personal Banking		Total		Commercial		Personal Banking		Total
Balance at beginning of period	$	127,263	$	64,275	$	191,538	$	119,946	$	77,592	$	197,538
Provision	1,503		9,892		11,395		16,783		22,589		39,372
Deductions:
Loans charged off	4,047		14,831		18,878		14,357		47,512		61,869
Less recoveries on loans	514		3,469		3,983		2,861		10,136		12,997
Net loans charged off	3,533		11,362		14,895		11,496		37,376		48,872
Balance at September 30, 2011	$	125,233	$	62,805	$	188,038	$	125,233	$	62,805	$	188,038

A summary of the activity in the allowance for loan losses during the three and nine months ended September 30, 2010 follows:




(In thousands)	For the Three Months Ended September 30		For the Nine Months Ended September 30
Balance at beginning of period	$	197,538	$	194,480
Provision for loan losses	21,844		78,353
Deductions:
Loans charged off	26,079		88,417
Less recoveries on loans	4,235		13,122
Net loans charged off	21,844		75,295
Balance at September 30, 2010	$	197,538	$	197,538

The following table shows the balance in the allowance for loan losses and the related loan balance at September 30, 2011 and December 31, 2010, 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 deemed to have similar risk characteristics, which are collectively evaluated. All other loans are collectively evaluated for impairment under ASC 450-20.




(In thousands)	Commercial		Personal Banking		Total
September 30, 2011
Allowance for loan losses:
Impaired loans	$	6,409	$	3,687	$	10,096
All other loans	118,824		59,118		177,942
Loans outstanding:
Impaired loans	109,712		30,336		140,048
All other loans	5,195,954		3,737,121		8,933,075
December 31, 2010
Allowance for loan losses:
Impaired loans	$	6,127	$	3,243	$	9,370
All other loans	113,819		74,349		188,168
Loans outstanding:
Impaired loans	118,532		26,828		145,360
All other loans	5,365,201		3,900,421		9,265,622

Impaired loans

The table below shows the Company's investment in impaired loans at September 30, 2011 and December 31, 2010. 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 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 $42.0 million and $41.3 million at September 30, 2011 and December 31, 2010, respectively. 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. Troubled debt restructurings also include certain credit card loans under various debt management and assistance programs, which totaled $22.1 million at September 30, 2011 and $18.8 million at December 31, 2010.




(In thousands)	Sept. 30, 2011		Dec. 31, 2010
Non-accrual loans	$	75,912	$	85,275
Restructured loans (accruing)	64,136		60,085
Total impaired loans	$	140,048	$	145,360

The following table provides additional information about impaired loans held by the Company at September 30, 2011 and December 31, 2010, segregated between loans for which an allowance for credit losses has been provided and loans for which no allowance has been provided.




							Interest Income Recognized * For the Period Ended
							September 30, 2011
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Three Months		Nine Months
September 30, 2011
With no related allowance recorded:
Business	$	21,547	$	22,878	$	—	$	—	$	—
Real estate – construction and land	7,637		25,775		—		—		—
Real estate – business	6,104		8,224		—		—		—
Real estate – personal	61		61		—		—		—
	$	35,349	$	56,938	$	—	$	—	$	—
With an allowance recorded:
Business	$	14,865	$	19,104	$	1,313	$	72	$	217
Real estate – construction and land	36,677		51,349		2,552		192		575
Real estate – business	22,882		27,192		2,544		174		522
Real estate – personal	8,128		10,696		764		8		24
Consumer credit card	22,147		22,147		2,923		484		1,451
	$	104,699	$	130,488	$	10,096	$	930	$	2,789
Total	$	140,048	$	187,426	$	10,096	$	930	$	2,789
December 31, 2010
With no related allowance recorded:
Business	$	3,544	$	5,095	$	—
Real estate – construction and land	30,979		55,790		—
Real estate – business	4,245		5,295		—
Real estate – personal	755		755		—
	$	39,523	$	66,935	$	—
With an allowance recorded:
Business	$	18,464	$	21,106	$	1,665
Real estate – construction and land	39,719		52,587		2,538
Real estate – business	21,581		25,713		1,924
Real estate – personal	7,294		9,489		936
Consumer credit card	18,779		18,779		2,307
	$	105,837	$	127,674	$	9,370
Total	$	145,360	$	194,609	$	9,370

* Represents interest income recognized on impaired loans held at September 30, 2011. Interest shown is interest recognized on accruing restructured loans as noted above.

Total average impaired loans, shown in the table below, were $140.8 million and $143.5 million, respectively, during the three and nine month periods ended September 30, 2011, compared to total average impaired loans of $173.0 million during the entire year ended December 31, 2010.




(In thousands)	Commercial		Personal Banking		Total
Average impaired loans:
For the three months ended September 30, 2011
Non-accrual loans	$	68,554	$	7,733	$	76,287
Restructured loans (accruing)	41,993		22,522		64,515
Total	$	110,547	$	30,255	$	140,802
For the nine months ended September 30, 2011
Non-accrual loans	$	70,962	$	7,277	$	78,239
Restructured loans (accruing)	43,652		21,584		65,236
Total	$	114,614	$	28,861	$	143,475

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 September 30, 2011 and December 31, 2010. As shown below, the September 30, 2011 balance of business real estate loans past due 30-89 days grew $47.8 million as compared to December 31, 2010. This increase was largely due to six loans with balances ranging from $4.0 million to $12.0 million that were renewed or for which payment was received in October 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
September 30, 2011
Commercial:
Business	$	2,738,215	$	4,030	$	676	$	26,334	$	2,769,255
Real estate – construction and land	364,757		5,837		697		26,307		397,598
Real estate – business	2,060,992		56,611		5,262		15,948		2,138,813
Personal Banking:
Real estate – personal	1,403,167		15,422		2,580		7,323		1,428,492
Consumer	1,091,709		12,011		2,065		—		1,105,785
Revolving home equity	464,739		1,382		825		—		466,946
Consumer credit card	734,431		10,028		7,999		—		752,458
Overdrafts	13,381		395		—		—		13,776
Total	$	8,871,391	$	105,716	$	20,104	$	75,912	$	9,073,123
December 31, 2010
Commercial:
Business	$	2,927,403	$	19,853	$	854	$	8,933	$	2,957,043
Real estate – construction and land	400,420		7,464		217		52,752		460,853
Real estate – business	2,040,794		8,801		—		16,242		2,065,837
Personal Banking:
Real estate – personal	1,413,905		15,579		3,554		7,348		1,440,386
Consumer	1,145,561		15,899		2,867		—		1,164,327
Revolving home equity	475,764		929		825		—		477,518
Consumer credit card	806,373		12,513		12,149		—		831,035
Overdrafts	13,555		428		—		—		13,983
Total	$	9,223,775	$	81,466	$	20,466	$	85,275	$	9,410,982

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 information below was updated as of September 30, 2011 and December 31, 2010 for this 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 material 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
September 30, 2011
Pass	$	2,614,530	$	304,192	$	1,941,388	$	4,860,110
Special mention	54,141		9,949		69,918		134,008
Substandard	74,250		57,150		111,559		242,959
Non-accrual	26,334		26,307		15,948		68,589
Total	$	2,769,255	$	397,598	$	2,138,813	$	5,305,666
December 31, 2010
Pass	$	2,801,328	$	327,167	$	1,878,005	$	5,006,500
Special mention	67,142		29,345		77,527		174,014
Substandard	79,640		51,589		94,063		225,292
Non-accrual	8,933		52,752		16,242		77,927
Total	$	2,957,043	$	460,853	$	2,065,837	$	5,483,733

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 person'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 approximately $350 million in consumer and personal real estate loans, or 9% of the Personal Banking portfolio, for which FICO scores are not obtained because they are related to commerical activity. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at September 30, 2011 by FICO score.




Personal Banking Loans
	% of Loan Category
(In thousands)	Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card
September 30, 2011
FICO score:
Under 600	3.4	%	8.6	%	2.7	%	5.0	%
600 - 659	4.7		10.4		4.8		11.3
660 - 719	11.8		22.7		15.3		31.0
720 - 780	30.4		26.5		27.2		29.4
Over 780	49.7		31.8		50.0		23.3
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 table below shows the outstanding balance of loans classified as troubled debt restructurings at September 30, 2011, in addition to the period end balances of 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)	September 30, 2011		Balance 90 days past due at any time during previous 12 months
Commercial:
Business	$	19,079	$	—
Real estate - construction and land	39,119		11,805
Real estate-business	18,467		1,595
Personal Banking:
Real estate personal	2,217		—
Consumer credit card	22,147		5,317
Total restructured loans	$	101,029	$	18,717

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, including collateral adequacy, 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 $9.1 million at September 30, 2011 to lend additional funds to borrowers with restructured loans.

Loans held for sale

In addition to the portfolio of loans which are intended to be held to maturity, the Company originates loans which it intends to sell in secondary markets. Loans classified as held for sale primarily consist of loans originated to students while attending colleges and universities. Most of this portfolio was sold in 2010 under contracts with the Federal Department of Education and various student loan agencies. Significant future student loan originations are not anticipated, because under statutory requirements effective July 1, 2010, the Company is prohibited from making federally guaranteed student loans. Also included as held for sale are certain fixed rate residential mortgage loans which are sold in the secondary market, generally within three months of origination. The following table presents information about loans held for sale, including an impairment valuation allowance resulting from declines in fair value below cost, which is further discussed in Note 13 on Fair Value Measurements.




(In thousands)	Sept. 30, 2011			Dec. 31, 2010
Balance outstanding:
Student loans, at cost	$	37,315		$	53,901
Residential mortgage loans, at cost	2,437			10,419
Valuation allowance on student loans	(176		)	(569		)
Total loans held for sale, at lower of cost or fair value	$	39,576		$	63,751

	For the Nine Months Ended September 30
(In thousands)	2011			2010
Net gains on sales:
Student loans	$	382		$	5,347
Residential mortgage loans	1,172			1,309
Total gains on sales of loans held for sale, net	$	1,554		$	6,656

The Company's holdings of foreclosed real estate totaled $23.8 million and $12.0 million at September 30, 2011 and December 31, 2010, respectively. Personal property acquired in repossession, generally autos and marine and recreational vehicles, totaled $4.1 million and $10.4 million at September 30, 2011 and December 31, 2010, 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.