XML 144 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
Note 4 - Loans
 12 Months Ended
Dec. 31, 2012
Loans, Notes, Trade and Other Receivables, Excluding Allowance for Credit Losses [Text Block]
4.      LOANS

Loans Held-for-Investment

Loans that the Company intends to hold until they are paid in full or mature are classified as loans held-for-investment. The following table presents the Company’s loans held-for-investment by class.

Loan Portfolio

(Dollar amounts in thousands)

   
December 31,
 
   
2012
   
2011
 
Commercial and industrial
  $ 1,631,474     $ 1,458,446  
Agricultural
    268,618       243,776  
Commercial real estate:
               
Office, retail, and industrial
    1,333,191       1,299,082  
Multi-family
    285,481       288,336  
Residential construction
    61,462       105,836  
Commercial construction
    124,954       144,909  
Other commercial real estate
    773,121       888,146  
Total commercial real estate
    2,578,209       2,726,309  
Total corporate loans
    4,478,301       4,428,531  
Home equity
    390,033       416,194  
1-4 family mortgages
    282,948       201,099  
Installment loans
    38,394       42,289  
Total consumer loans
    711,375       659,582  
Total loans, excluding covered loans
    5,189,676       5,088,113  
Covered loans (1)
    197,894       260,502  
Total loans
  $ 5,387,570     $ 5,348,615  
Deferred loan fees included in total loans
  $ 5,941     $ 7,828  
Overdrawn demand deposits included in total loans
  $ 4,451     $ 2,850  

(1)
For information on covered loans, refer to Note 5, “Covered Assets.”

The Company primarily lends to small and mid-sized businesses, commercial real estate customers, and consumers in the markets in which the Company operates. Within these areas, the Company diversifies its loan portfolio by loan type, industry, and borrower.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate 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 its 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. However, the cash flows of the borrower 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 include 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 a credit score developed by the 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, including loan-to-value and affordability ratios, and risk-based pricing strategies.

Book Value of Loans Pledged

(Dollar amounts in thousands)

   
December 31,
 
   
2012
   
2011
 
Loans pledged to secure:
           
FHLB advances
  $ 721,141     $ 694,944  
Federal term auction facilities
    2,097,021       1,971,801  
Total
  $ 2,818,162     $ 2,666,745  

Loan Sales

The following table presents loan sales for the years ended December 31, 2012, 2011, and 2010.

Loan Sales

 (Dollar amounts in thousands)

   
Proceeds/
Fair Value
   
Book Value
   
Charge-offs (1)
   
Net Gains
on Sales (2)
 
Loan sales in 2012
                       
Bulk loan sales
  $ 94,470     $ 169,577     $ (80,260 )   $ 5,153  
Mortgage loan sales
    52,595       50,326       -       2,269  
Other non-performing loan sales
    4,200       6,587       (2,387 )     -  
Total loan sales in 2012
  $ 151,265     $ 226,490     $ (82,647 )   $ 7,422  
Loan sales in 2011
                               
Non-accrual loan sales
  $ 12,362     $ 17,087     $ (4,725 )   $ -  
Loan sales in 2010
                               
Non-accrual loan sales
  $ 12,540     $ 19,088     $ (6,548 )   $ -  
Potential problem loan sales
    4,000       11,138       (7,138 )     -  
Total loan sales in 2010
  $ 16,540     $ 30,226     $ (13,686 )   $ -  

(1)
Amount represents charge-offs to the allowance for loan losses at the time the loans were identified for sale.
(2)
The net gains on the bulk loan sales represent gains realized subsequent to the transfer to held-for-sale and are included as a separate component of noninterest income in the Consolidated Statements of Income. Net gains on mortgage loan sales are included in other service charges, commissions, and fees in the Consolidated Statements of Income.

Bulk Loan Sales

During the third quarter of 2012, the Company identified certain non-performing and performing potential problem loans for accelerated disposition through multiple bulk loan sales.

The Company determined that the loans met the held-for-sale criteria at September 30, 2012, and transferred them into the held-for-sale category at the lower of the recorded investment in the loan or the estimated fair value of the loan, which resulted in charge-offs to the allowance for loan and covered loan losses. The fair value was determined by the estimated bid price of a potential sale.

The bulk loan sales were completed in the fourth quarter of 2012, and net gains realized on the sales are included as a separate component of noninterest income in the Consolidated Statements of Income. The Company had no loans held-for-sale as of December 31, 2012.

Loans Sold in Bulk Loan Sales During the Year Ended December 31, 2012

 (Dollar amounts in thousands)

   
Carrying Amount of Loans Prior to Transfer to
Held-for-Sale
                   
   
Pass
 
Potential
Problem (1)
 
Non-accrual
 
Total
 
Charge-offs
at Date
of Transfer
 
Net
Payments
Received
 
Loans
Returned to
Held-for-
Investment
 
Proceeds
From
Sales
 
(Losses)
Gains
on Sales
Commercial and industrial
 
$
2,868
 
$
23,858
 
$
21,819
 
$
48,545
 
$
22,508
 
$
1,189
 
$
131
 
$
19,705
 
$
(5,012)
Agricultural
   
-
   
7,411
   
1,308
   
8,719
   
4,356
   
(3)
   
2
   
3,605
   
(759)
Commercial real estate:
                                                     
Office, retail, and industrial
   
4,272
   
24,975
   
20,653
   
49,900
   
23,696
   
360
   
195
   
35,488
   
9,839
Multi-family
   
-
   
2,380
   
1,829
   
4,209
   
1,859
   
166
   
-
   
3,151
   
967
Residential construction
   
-
   
8,066
   
6,900
   
14,966
   
5,690
   
750
   
-
   
7,387
   
(1,139)
Commercial construction
   
-
   
2,032
   
2,026
   
4,058
   
1,850
   
-
   
-
   
1,687
   
(521)
Other commercial real estate
   
855
   
29,602
   
9,903
   
40,360
   
19,438
   
(20)
   
129
   
22,464
   
1,651
Total commercial real estate
   
5,127
   
67,055
   
41,311
   
113,493
   
52,533
   
1,256
   
324
   
70,177
   
10,797
Home equity
   
1,500
   
-
   
57
   
1,557
   
773
   
(4)
   
-
   
829
   
41
1-4 family mortgages
   
160
   
-
   
-
   
160
   
90
   
2
   
-
   
154
   
86
Total consumer loans
   
1,660
   
-
   
57
   
1,717
   
863
   
(2)
   
-
   
983
   
127
Total loans sold in bulk loan sales
 
$
9,655
 
$
98,324
 
$
64,495
 
$
172,474
 
$
80,260
 
$
2,440
 
$
457
 
$
94,470
   
5,153

(1)
Potential problem loans include loans categorized as substandard or special mention. These loans exhibit potential weaknesses that require the close attention of management since these potential weaknesses may result in the deterioration of repayment prospects at some future date. The loans continued to accrue interest because they were well secured and collection of principal and interest was expected within a reasonable time.

Mortgage Loan Sales

During the year ended December 31, 2012, the Company sold $50.3 million in mortgage loans, resulting in a gain of $2.3 million, which is included in other service charges, commissions, and fees in the Consolidated Statements of Income. The Company retained servicing responsibilities for the mortgages and collects servicing fees equal to a percentage of the outstanding principal balance of the loans being serviced. The Company also retained recourse for credit losses on the sold loans. A description of the recourse obligation is presented in Note 20, “Commitments, Guarantees, and Contingent Liabilities.”

Mortgage Servicing Rights

The Company services mortgage loans owned by third parties and collects servicing fees equal to a percentage of the outstanding principal balance of the loans being serviced. Mortgage loans serviced for and owned by third parties are not included in the Consolidated Statements of Condition.

The Company records its mortgage servicing rights at fair value and includes them in other assets in the Consolidated Statements of Financial Condition.

A rollforward of the carrying value of mortgage servicing rights for the three years ended December 31, 2012 is presented in the following table.

Carrying Value of Mortgage Servicing Rights

(Dollar amounts in thousands)

   
Years Ended December 31,
 
   
2012
   
2011
   
2010
 
Balance at the beginning of the year
  $ 929     $ 942     $ 1,238  
New servicing assets
    347       -       -  
Total (losses) gains included in earnings (1):
                       
Due to changes in valuation inputs and assumptions (2)
    (72 )     179       (28 )
Other changes in fair value (3)
    (219 )     (192 )     (268 )
Balance at the end of the year
  $ 985     $ 929     $ 942  
Contractual servicing fees earned during the year (1)
  $ 209     $ 235     $ 301  
Total amount of loans being serviced for the benefit of others, at the end of the year
  $ 109,730     $ 78,594     $ 114,720  

(1)
Included in other service charges, commissions, and fees in the Consolidated Statements of Income and relate to assets still held at the end of the year.
(2)
Principally reflects changes in prepayment speed assumptions.
(3)
Primarily represents changes in expected cash flows over time due to payoffs and paydowns.