Note 6 - Past Due Loans, Allowance For Credit Losses, and Impaired Loans

12 Months Ended

Dec. 31, 2011

Allowance for Credit Losses [Text Block]

6.           PAST DUE LOANS, ALLOWANCE FOR CREDIT LOSSES, AND IMPAIRED LOANS

Past Due and Non-accrual Loans

The following table presents an aging analysis of the Company’s past due loans as of December 31, 2011 and 2010. The aging is determined without regard to accrual status. The table also presents non-performing loans, consisting of non-accrual loans (most of which are past due) and loans 90 days or more past due and still accruing interest, as of each balance sheet date.

Aging Analysis of Past Due Loans and Non-Performing Loans by Class

(Dollar amounts in thousands)

	Aging Analysis (Accruing and Non-accrual)										Non-performing Loans
	Current		30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Total Loans		Non- accrual Loans		90 Days Past Due Loans, Still Accruing Interest
December 31, 2011
Commercial and industrial	$	1,415,165	$	13,731	$	29,550	$	43,281	$	1,458,446	$	44,152	$	4,991
Agricultural		242,727		30		1,019		1,049		243,776		1,019		-
Commercial real estate:
Office, retail, and industrial		1,276,920		2,931		19,231		22,162		1,299,082		30,043		1,040
Multi-family		281,943		1,121		5,272		6,393		288,336		6,487		-
Residential construction		87,606		2,164		16,066		18,230		105,836		18,076		-
Commercial construction		129,310		320		15,279		15,599		144,909		23,347		-
Other commercial real estate		849,066		6,372		32,708		39,080		888,146		51,447		1,707
Total commercial real estate		2,624,845		12,908		88,556		101,464		2,726,309		129,400		2,747
Total corporate loans		4,282,737		26,669		119,125		145,794		4,428,531		174,571		7,738
Home equity		402,842		6,112		7,240		13,352		416,194		7,407		1,138
1-4 family mortgages		192,646		3,712		4,741		8,453		201,099		5,322		-
Installment loans		41,288		625		376		1,001		42,289		25		351
Total consumer loans		636,776		10,449		12,357		22,806		659,582		12,754		1,489
Total loans, excluding covered loans		4,919,513		37,118		131,482		168,600		5,088,113		187,325		9,227
Covered loans		195,289		7,853		57,360		65,213		260,502		19,879		43,347
Total loans	$	5,114,802	$	44,971	$	188,842	$	233,813	$	5,348,615	$	207,204	$	52,574
December 31, 2010
Commercial and industrial	$	1,428,841	$	7,706	$	29,356	$	37,062	$	1,465,903	$	50,088	$	1,552
Agricultural		225,007		65		2,684		2,749		227,756		2,497		187
Commercial real estate:
Office, retail, and industrial		1,183,952		4,009		15,652		19,661		1,203,613		19,573		-
Multi-family		345,018		2,811		2,033		4,844		349,862		6,203		-
Residential construction		139,499		1,320		33,871		35,191		174,690		52,122		200
Commercial construction		140,044		4,000		20,428		24,428		164,472		28,685		-
Other commercial real estate		813,333		9,091		33,933		43,024		856,357		40,605		345
Total commercial real estate		2,621,846		21,231		105,917		127,148		2,748,994		147,188		545
Total corporate loans		4,275,694		29,002		137,957		166,959		4,442,653		199,773		2,284
Home equity		431,446		4,715		9,082		13,797		445,243		7,948		1,870
1-4 family mortgages		154,999		2,523		3,368		5,891		160,890		3,902		4
Installment loans		50,899		742		133		875		51,774		159		86
Total consumer loans		637,344		7,980		12,583		20,563		657,907		12,009		1,960
Total loans, excluding covered loans		4,913,038		36,982		150,540		187,522		5,100,560		211,782		4,244
Covered loans		268,934		18,445		84,350		102,795		371,729		-		84,350
Total loans	$	5,181,972	$	55,427	$	234,890	$	290,317	$	5,472,289	$	211,782	$	88,594

Allowance for Credit Losses

The Company maintains an allowance for credit losses at a level believed adequate by management to absorb probable losses inherent in the loan portfolio.

Allowance for Credit Losses

(Dollar amounts in thousands)

	Years Ended December 31,
	2011			2010			2009
Balance at beginning of year	$	145,072		$	144,808		$	93,869
Loans charged-off		(111,576	)		(155,330	)		(168,038	)
Recoveries of loans previously charged-off		7,884			8,245			3,305
Net loans charged-off		(103,692	)		(147,085	)		(164,733	)
Provision for loan losses		80,582			147,349			215,672
Balance at end of year	$	121,962		$	145,072		$	144,808
Allowance for loan losses	$	119,462		$	142,572		$	144,808
Reserve for unfunded commitments		2,500			2,500			-
Total allowance for credit losses	$	121,962		$	145,072		$	144,808

Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)

	Commercial, Industrial, and Agricultural			Office, Retail, and Industrial			Multi- Family			Residential Construction			Other Commercial Real Estate			Consumer			Covered Loans			Total Allowance
Balance at January 1, 2009	$	22,189		$	22,048		$	2,680		$	32,910		$	7,927		$	6,115		$	-		$	93,869
Loans charged-off		(57,083	)		(7,869	)		(3,485	)		(63,045	)		(22,033	)		(14,523	)		-			(168,038	)
Recoveries of loans previously charged-off		1,899			13			2			403			516			472			-			3,305
Net loans charged-off		(55,184	)		(7,856	)		(3,483	)		(62,642	)		(21,517	)		(14,051	)		-			(164,733	)
Provision for loan losses		87,447			5,972			5,358			62,810			34,674			19,411			-			215,672
Balance at December 31, 2009		54,452			20,164			4,555			33,078			21,084			11,475			-			144,808
Loans charged-off		(37,130	)		(10,322	)		(2,788	)		(55,611	)		(37,225	)		(10,640	)		(1,614	)		(155,330	)
Recoveries of loans previously charged-off		5,227			612			363			770			494			740			39			8,245
Net loans charged-off		(31,903	)		(9,710	)		(2,425	)		(54,841	)		(36,731	)		(9,900	)		(1,575	)		(147,085	)
Provision for loan losses		26,996			10,304			1,866			49,696			45,516			11,396			1,575			147,349
Balance at December 31, 2010		49,545			20,758			3,996			27,933			29,869			12,971			-			145,072
Loans charged-off		(32,750	)		(8,193	)		(14,584	)		(13,895	)		(21,712	)		(10,531	)		(9,911	)		(111,576	)
Recoveries of loans previously charged-off		3,493			79			410			2,830			642			430			-			7,884
Net loans charged-off		(29,257	)		(8,114	)		(14,174	)		(11,065	)		(21,070	)		(10,101	)		(9,911	)		(103,692	)
Provision for loan losses		25,729			3,368			15,245			(2,305	)		15,672			11,973			10,900			80,582
Balance at December 31, 2011	$	46,017		$	16,012		$	5,067		$	14,563		$	24,471		$	14,843		$	989		$	121,962

Impaired Loans

A portion of the Company’s allowance for credit losses is allocated to loans deemed impaired. Impaired loans consist of corporate non-accrual loans and TDRs. Smaller homogeneous loans, such as home equity, 1-4 family mortgages, and installment loans, are not individually assessed for impairment.

Impaired Loans

(Dollar amounts in thousands)

	December 31,
	2011		2010
Impaired loans individually evaluated for impairment:
Impaired loans with a specific reserve for credit losses (1)	$	76,397	$	13,790
Impaired loans with no specific reserve (2)		83,090		173,534
Total impaired loans individually evaluated for impairment		159,487		187,324
Corporate non-accrual loans not individually evaluated for impairment (3)		15,084		12,449
Total corporate non-accrual loans		174,571		199,773
TDRs, still accruing interest		17,864		22,371
Total impaired loans	$	192,435	$	222,144
Valuation allowance related to impaired loans	$	26,095	$	6,343

	Years Ended December 31,
	2011		2010		2009
Average recorded investment in impaired loans	$	172,314	$	203,118	$	217,872
Interest income recognized on impaired loans (4)	$	596	$	244	$	157

(1)	These impaired loans require a valuation allowance because the present value of expected future cash flows or the estimated value of the related collateral less estimated selling costs is less than the recorded investment in the loans.
(2)	No specific reserve for credit losses is allocated to these loans since they are deemed to be sufficiently collateralized or had charge-offs.
(3)	These are loans with balances under a specified threshold.
(4)	Recorded using the cash basis of accounting.

The table below provides a break-down of loans and the related allowance for credit losses by portfolio segment. Loans individually evaluated for impairment include corporate non-accrual loans with the exception of certain loans with balances under a specified threshold.

The present value of any decreases in expected cash flows of covered loans after the purchase date is recognized by recording a charge-off through the allowance for loan losses. Since most covered loans are accounted for as purchased impaired loans and the carrying values of those loans are periodically adjusted for any changes in expected future cash flows, they are not included in the calculation of the allowance for credit losses and are not displayed in this table.

Loans and Related Allowance for Credit Losses by Portfolio Segment

(Dollar amounts in thousands)

	Loans						Allowance For Credit Losses
	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total		Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
December 31, 2011
Commercial, industrial, and agricultural	$	37,385	$	1,664,837	$	1,702,222	$	14,827	$	31,190	$	46,017
Commercial real estate:
Office, retail, and industrial		28,216		1,270,866		1,299,082		1,507		14,505		16,012
Multi-family		5,589		282,747		288,336		20		5,047		5,067
Residential construction		17,378		88,458		105,836		2,502		12,061		14,563
Other commercial real estate		70,919		962,136		1,033,055		7,239		17,232		24,471
Total commercial real estate		122,102		2,604,207		2,726,309		11,268		48,845		60,113
Total corporate loans		159,487		4,269,044		4,428,531		26,095		80,035		106,130
Consumer		-		659,582		659,582		-		14,843		14,843
Total loans, excluding covered loans		159,487		4,928,626		5,088,113		26,095		94,878		120,973
Covered loans (1)		-		45,451		45,451		-		989		989
Total loans included in the calculation of the allowance for credit losses	$	159,487	$	4,974,077	$	5,133,564	$	26,095	$	95,867	$	121,962
December 31, 2010
Commercial, industrial, and agricultural	$	43,365	$	1,650,294	$	1,693,659	$	2,650	$	46,895	$	49,545
Commercial real estate:
Office, retail, and industrial		18,076		1,185,537		1,203,613		-		20,758		20,758
Multi-family		5,696		344,166		349,862		497		3,499		3,996
Residential construction		51,269		123,421		174,690		-		27,933		27,933
Other commercial real estate		68,918		951,911		1,020,829		3,196		26,673		29,869
Total commercial real estate		143,959		2,605,035		2,748,994		3,693		78,863		82,556
Total corporate loans		187,324		4,255,329		4,442,653		6,343		125,758		132,101
Consumer		-		657,907		657,907		-		12,971		12,971
Total	$	187,324	$	4,913,236	$	5,100,560	$	6,343	$	138,729	$	145,072

(1) These are open-end consumer loans that are not categorized as purchased impaired loans.

Loans are analyzed on an individual basis when the internal credit rating is at or below a predetermined classification and the loan exceeds a fixed dollar amount. The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2011 and December 31, 2010.

Impaired Loans Individually Evaluated by Class

(Dollar amounts in thousands)

	December 31, 2011								Year Ended December 31, 2011
	Recorded Investment In						Allowance		Average		Interest
	Loans with No Specific Reserve		Loans with a Specific Reserve		Unpaid Principal Balance		for Credit Losses Allocated		Recorded Investment Balance		Income Recognized (1)
Commercial and industrial	$	10,801	$	26,028	$	58,591	$	14,827	$	44,449	$	326
Agricultural		556		-		556		-		1,515		-
Commercial real estate:
Office, retail, and industrial		11,897		16,319		33,785		1,507		33,038		81
Multi-family		5,072		517		11,265		20		13,619		44
Residential construction		9,718		7,660		33,124		2,502		31,068		69
Commercial construction		19,019		3,790		28,534		758		31,445		-
Other commercial real estate		26,027		22,083		70,868		6,481		17,180		76
Total commercial real estate		71,733		50,369		177,576		11,268		126,350		270
Total impaired loans individually evaluated for impairment	$	83,090	$	76,397	$	236,723	$	26,095	$	172,314	$	596

	December 31, 2010								Year Ended December 31, 2010
	Recorded Investment In				Unpaid Principal Balance		Allowance for Credit Losses Allocated		Average Recorded Investment Balance		Interest Income Recognized (1)
	Loans with No Specific Reserve		Loans with a Specific Reserve
Commercial and industrial	$	40,715	$	2,650	$	53,353	$	2,650	$	37,502	$	67
Agricultural		2,447		-		2,982		-		2,098		1
Commercial real estate:
Office, retail, and industrial		18,076		-		26,193		-		26,517		-
Multi-family		4,565		1,131		7,322		497		8,068		-
Residential construction		51,269		-		129,698		-		83,189		119
Commercial construction		28,685		-		38,404		-		28,709		-
Other commercial real estate		27,777		10,009		60,465		3,196		17,035		57
Total commercial real estate		130,372		11,140		262,082		3,693		163,518		176
Total impaired loans individually evaluated for impairment	$	173,534	$	13,790	$	318,417	$	6,343	$	203,118	$	244

(1) Recorded using the cash basis of accounting.

TDRs

TDRs are loans for which the original contractual terms of the loans have been modified and both of the following conditions exist: (i) the restructuring constitutes a concession (including forgiveness of principal or interest) and (ii) the borrower is experiencing financial difficulties. Loans are not classified as TDRs when the modification is short-term or results in only an insignificant delay or shortfall in the payments to be received. The Company’s TDRs are determined on a case-by-case basis in connection with ongoing loan collection processes.

TDRs by Class

(Dollar amounts in thousands)

	As of December 31, 2011						As of December 31, 2010
	Accruing (1)		Non-accrual (2)		Total		Accruing (1)		Non-accrual (2)		Total
Commercial and industrial	$	1,451	$	897	$	2,348	$	5,456	$	17,948	$	23,404
Agricultural		-		-		-		1,986		-		1,986
Commercial real estate:
Office, retail, and industrial		1,742		-		1,742		2,053		-		2,053
Multi-family		11,107		1,758		12,865		103		3,090		3,193
Residential construction		-		-		-		-		8,323		8,323
Commercial construction		-		14,006		14,006		-		-		-
Other commercial real estate		227		11,417		11,644		4,831		2,398		7,229
Total commercial real estate		13,076		27,181		40,257		6,987		13,811		20,798
Total corporate loans		14,527		28,078		42,605		14,429		31,759		46,188
Home equity		1,093		471		1,564		2,644		589		3,233
1-4 family mortgages		2,089		1,293		3,382		5,298		1,405		6,703
Installment loans		155		-		155		-		-		-
Total consumer loans		3,337		1,764		5,101		7,942		1,994		9,936
Total loans	$	17,864	$	29,842	$	47,706	$	22,371	$	33,753	$	56,124

(1)	These loans are still accruing interest.
(2)	These loans are included in non-accrual loans in the preceding tables.

Loan modifications are generally performed at the request of the individual borrower and may include reduction in interest rates, changes in payments, and maturity date extensions. Although the Company does not have formal, standardized loan modification programs for its commercial or consumer loan portfolios, it participates in the U.S. Department of the Treasury (the “Treasury”)’s Home Affordable Modification Program (“HAMP”) and complies with Regulation Z, the Federal Truth in Lending Act. HAMP gives qualifying homeowners an opportunity to refinance into more affordable monthly payments with the Treasury compensating the Company for a portion of the reduction in monthly amounts due from borrowers participating in this program.

The following table presents a summary of loans that were restructured during the year ended December 31, 2011.

TDRs Restructured During the Year

(Dollar amounts in thousands)

	Year Ended December 31, 2011
	Number of Loans		Pre- Modification Recorded Investment		Principal Charged-off(1)			Funds Disbursed		Interest and Escrow Capitalized		Post- Modification Recorded Investment
Commercial and industrial		10	$	886	$	-		$	-	$	7	$	893
Agricultural		-		-		-			-		-		-
Commercial real estate:
Office, retail and industrial		3		3,407		-			293		9		3,709
Multi-family		1		14,107		(3,000	)		-		-		11,107
Residential construction		-		-		-			-		-		-
Commercial construction		1		17,508		-			-		-		17,508
Other commercial real estate		1		174		-			-		74		248
Total commercial real estate		6		35,196		(3,000	)		293		83		32,572
Total corporate loans		16		36,082		(3,000	)		293		90		33,465
Home equity		9		523		-			-		15		538
1-4 family mortgages		11		1,440		-			-		79		1,519
Installment loans		1		151		-			-		4		155
Total consumer loans		21		2,114		-			-		98		2,212
Total loans restructured		37	$	38,196	$	(3,000	)	$	293	$	188	$	35,677
TDRs, still accruing interest (2)		34	$	20,466	$	(3,000	)	$	293	$	111	$	17,850
TDRs included in non-accrual (3)		3		17,750		-			-		77		17,827
Total		37	$	38,196	$	(3,000	)	$	293	$	188	$	35,677

(1)	The Company restructured this loan into two separate notes and charged-off one of the notes. Since the borrower demonstrated an ongoing ability to comply with the restructured terms of the remaining note, the restructured loan is classified as an accruing loan.
(2)	These loans are still accruing interest as of December 31, 2011.
(3)	These loans are included in non-accrual loans as of December 31, 2011.

The specific reserve portion of the allowance for loan losses on TDRs for all segments of loans is determined by estimating the value of the loan. This is determined by discounting the restructured cash flows at the original effective rate of the loan before modification or is based on the fair value of the underlying collateral less costs to sell, if repayment of the loan is collateral-dependent. If the resulting amount is less than the recorded book value, the Company either establishes a valuation allowance (i.e. specific reserve) as a component of the allowance for loan losses or charges off the impaired balance if it determines that such amount is a confirmed loss. As of December 31, 2011, one of the restructured loans had a $94,000 valuation reserve. No restructured loans had valuation reserves as of December 31, 2010.

The allowance for loan losses also includes an allowance based on a loss migration analysis for each loan category for loans that are not individually evaluated for impairment. All loans charged-off, including TDRs charged-off, are factored into this calculation by portfolio segment.

The following table presents TDRs that had charge-offs during the year ended December 31, 2011. These loans defaulted within twelve months of being restructured, resulting in a principal charge-off during 2011. None of these loans accrued interest during the year ended December 31, 2011.

TDRs That Defaulted Within Twelve Months of Being Restructured

(Dollar amounts in thousands)

	Year Ended December 31, 2011
	Number of Loans		Pre- Charge-off Recorded Investment		Principal Charged-off			Post- Charge-off Recorded Investment
Commercial and industrial		7	$	1,163	$	(552	)	$	611
Agricultural		-		-		-			-
Commercial real estate:
Office, retail and industrial		1		397		(397	)		-
Multi-family		13		4,590		(1,324	)		3,266
Residential construction		4		4,295		(2,106	)		2,189
Commercial construction		1		17,508		(3,502	)		14,006
Other commercial real estate		2		823		(435	)		388
Total commercial real estate		21		27,613		(7,764	)		19,849
Total corporate loans		28		28,776		(8,316	)		20,460
Home equity		6		430		(333	)		97
1-4 family mortgages		4		482		(241	)		241
Installment loans		-		-		-			-
Total consumer loans		10		912		(574	)		338
Total TDRs with charge-offs		38	$	29,688	$	(8,890	)	$	20,798
TDRs, still accruing interest		-	$	-	$	-		$	-
TDRs included in non-accrual		38		29,688		(8,890	)		20,798
Total		38	$	29,688	$	(8,890	)	$	20,798

There were no commitments to lend additional funds to borrowers with TDRs as of December 31, 2011.

Credit Quality Indicators

Corporate loans and commitments are assessed for risk and assigned ratings based on various characteristics, such as the borrower’s cash flow, leverage, collateral, management characteristics, and other factors. Ratings for commercial credits are reviewed periodically. Consumer loans are assessed for credit quality based on the delinquency status of the loan. The assessment of consumer loans is completed at the end of each reporting period.

Credit Quality Indicators by Class, Excluding Covered Loans

 (Dollar amounts in thousands)

	Pass		Special Mention (1)		Substandard (2)		Non-accrual (3)		Total
December 31, 2011
Commercial and industrial	$	1,308,812	$	57,866	$	47,616	$	44,152	$	1,458,446
Agricultural		232,270		10,487		-		1,019		243,776
Commercial real estate:
Office, retail, and industrial		1,147,026		78,578		43,435		30,043		1,299,082
Multi-family		275,031		5,803		1,015		6,487		288,336
Residential construction		48,806		27,198		11,756		18,076		105,836
Commercial construction		92,568		23,587		5,407		23,347		144,909
Other commercial real estate		746,213		73,058		17,428		51,447		888,146
Total commercial real estate		2,309,644		208,224		79,041		129,400		2,726,309
Total corporate loans	$	3,850,726	$	276,577	$	126,657	$	174,571	$	4,428,531
December 31, 2010
Commercial and industrial	$	1,303,142	$	83,259	$	29,414	$	50,088	$	1,465,903
Agricultural		209,317		15,667		275		2,497		227,756
Commercial real estate:
Office, retail, and industrial		1,026,124		123,800		34,116		19,573		1,203,613
Multi-family		307,845		20,643		15,171		6,203		349,862
Residential construction		57,209		35,950		29,409		52,122		174,690
Commercial construction		85,305		35,750		14,732		28,685		164,472
Other commercial real estate		697,971		89,247		28,534		40,605		856,357
Total commercial real estate		2,174,454		305,390		121,962		147,188		2,748,994
Total corporate loans	$	3,686,913	$	404,316	$	151,651	$	199,773	$	4,442,653

	Performing		Non-accrual		Total
December 31, 2011
Home equity	$	408,787	$	7,407	$	416,194
1-4 family mortgages		195,777		5,322		201,099
Installment loans		42,264		25		42,289
Total consumer loans	$	646,828	$	12,754	$	659,582
December 31, 2010
Home equity	$	437,295	$	7,948	$	445,243
1-4 family mortgages		156,988		3,902		160,890
Installment loans		51,615		159		51,774
Total consumer loans	$	645,898	$	12,009	$	657,907

(1)	Loans categorized as special mention exhibit potential weaknesses that require the close attention of management. If left uncorrected, these potential weaknesses may result in the deterioration of repayment prospects at some future date.
(2)	Loans categorized as substandard continue to accrue interest, but exhibit a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt. The loans continue to accrue interest because they are well secured and collection of principal and interest is expected within a reasonable time.
(3)	Loans categorized as non-accrual exhibit a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt and are characterized by the distinct possibility that the Company could sustain some loss if the deficiencies are not corrected. These loans have been placed on non-accrual status.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to ensure repayment of loans and mitigate loss exposure. As part of the underwriting process, the Company examines current and projected cash flows to determine the ability of the borrower to repay his obligation as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and usually incorporate a personal guarantee. However, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent upon the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those standards and processes specific to real estate loans. Except for construction loans, these loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent upon the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate market or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location within the greater suburban metropolitan Chicago market and contiguous markets. Management monitors and evaluates commercial real estate loans based on cash flow, collateral, geography, and risk grade criteria.

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analyses of absorption and lease rates, and financial analyses of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. Construction loans often involve the disbursement of substantial funds with repayment primarily dependent upon the success of the completed project. Sources of repayment for these types of loans may be permanent loans from long-term lenders, sales of developed property, or an interim loan commitment until permanent financing is obtained. Generally, these loans have a higher risk profile than other real estate loans due to their repayment being sensitive to real estate values, interest rate changes, governmental regulation of real property, demand and supply of alternative real estate, the availability of long-term financing, and changes in general economic conditions.

Consumer loans are centrally underwritten utilizing the FICO credit scoring. This is a credit score developed by Fair Isaac Corporation that is used by many mortgage lenders. It uses a risk-based system to determine the probability that a borrower may default on financial obligations to the lender. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include, but are not limited to, loan-to-value and affordability ratios, risk-based pricing strategies, and documentation requirements.