Note 7. Loans

Purchased Credit-Impaired (“PCI”) loans, which include loans acquired in FDIC-assisted transactions (“covered loans”) subject to loss-sharing agreements, are loans acquired at a discount that is due, in part, to credit quality. The detail of the loan portfolio as of June 30, 2012 and December 31, 2011 was as follows:


	June 30, 2012						December 31, 2011
	Non-PCI		PCI				Non-PCI		PCI
	Loans		Loans		Total		Loans		Loans		Total
	(in thousands)
Non-covered loans:
Commercial and industrial	$	1,883,867	$	281,789	$	2,165,656	$	1,878,387	$	-	$	1,878,387
Commercial real estate:
Commercial real estate		3,719,989		721,037		4,441,026		3,574,089		-		3,574,089
Construction		368,705		42,934		411,639		411,003		-		411,003

Total commercial real estate loans		4,088,694		763,971		4,852,665		3,985,092		-		3,985,092

Residential mortgage		2,727,114		17,987		2,745,101		2,285,590		-		2,285,590
Consumer:
Home equity		450,710		49,039		499,749		469,604		-		469,604
Automobile		778,181		-		778,181		772,490		-		772,490
Other consumer		154,299		1,664		155,963		136,634		-		136,634

Total consumer loans		1,383,190		50,703		1,433,893		1,378,728		-		1,378,728

Total non-covered loans	$	10,082,865	$	1,114,450	$	11,197,315	$	9,527,797	$	-	$	9,527,797


Covered loans:
Commercial and industrial	$	-	$	64,468	$	64,468	$	-	$	83,742	$	83,742
Commercial real estate		-		136,404		136,404		-		160,651		160,651
Construction		-		7,074		7,074		-		6,974		6,974
Residential mortgage		-		14,802		14,802		-		15,546		15,546
Consumer		-		3,789		3,789		-		4,931		4,931

Total covered loans		-		226,537		226,537		-		271,844		271,844

Total loans	$	10,082,865	$	1,340,987	$	11,423,852	$	9,527,797	$	271,844	$	9,799,641

Total non-covered loans are net of unearned discount and deferred loan fees totaling $1.2 million and $7.5 million at June 30, 2012 and December 31, 2011, respectively. The outstanding contractual principal balances for non-covered PCI loans and covered loans totaled $1.2 billion and $365.1 million at June 30, 2012, respectively, and $399.6 million for covered loans at December 31, 2011.

There were no sales of loans, other than from the held for sale loan portfolio, or transfers from loans held for investment to loans held for sale during the six months ended June 30, 2012 and 2011.

Purchased Credit-Impaired Loans (Including Covered Loans)

PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses), and aggregated and accounted for as pools of loans based on common risk characteristics. The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the covered loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each pool. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or a valuation allowance. Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loan pools.

The following table presents information regarding the estimates of the contractually required payments, the cash flows expected to be collected, and the estimated fair value of the PCI loans acquired in the State Bancorp (see Note 3) acquisition as of January 1, 2012 and PCI loans purchased from another financial institution as of March 28, 2012:


	January 1, 2012		March 28, 2012
	(in thousands)
Contractually required principal and interest	$	1,333,686	$	144,357
Contractual cash flows not expected to be collected (non-accretable difference)		(66,467)		(9,111)

Expected cash flows to be collected		1,267,219		135,246
Interest component of expected cash flows (accretable yield)		(168,271)		(17,991)

Fair value of acquired loans	$	1,098,948	$	117,255

The following table presents changes in the accretable yield for PCI loans during the three and six months ended June 30, 2012 and 2011:


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(in thousands)

Balance, beginning of period	$	229,802	$	109,435	$	66,724	$	101,052
Acquisitions		-		-		186,262		-
Accretion		(20,385)		(8,706)		(43,569)		(16,518)
Net reclassification from non-accretable difference		-		788		-		16,983

Balance, end of period	$	209,417	$	101,517	$	209,417	$	101,517

The net reclassification from the non-accretable difference in the table above is due to increases in expected cash flows for certain pools of covered loans and is recognized prospectively as an adjustment to the yield over the life of the individual pools.

FDIC Loss-Share Receivable

The receivable arising from the loss-sharing agreements (referred to as the “FDIC loss-share receivable” on our consolidated statements of financial condition) is measured separately from the covered loan portfolio because the agreements are not contractually part of the covered loans and are not transferable should the Bank choose to dispose of the covered loans.

Changes in FDIC loss-share receivable for three and six months ended June 30, 2012 and 2011 were as follows:


	Three Months ended				Six Months ended
	June 30,				June 30,
	2012		2011		2012		2011
	(in thousands)
Balance, beginning of the period	$	69,928	$	90,642	$	74,390	$	89,359
Discount accretion of the present value at the acquisition dates		81		145		162		291
Effect of additional cash flows on covered loans (prospective recognition)		(2,231)		(2,760)		(3,868)		(5,278)
(Decrease) increase due to (recovery) impairment on covered loans		-		(747)		-		16,932
Other reimbursable expenses		1,088		693		2,554		1,621
Reimbursements from the FDIC		(3,165)		(7,794)		(7,537)		(22,746)
Other		(5,960)		-		(5,960)		-

Balance, end of the period	$	59,741	$	80,179	$	59,741	$	80,179

The aggregate effect of changes in the FDIC loss-share receivable was a reduction in non-interest income of $7.0 million and $2.7 million for the three months ended June 30, 2012 and 2011, respectively, and a $7.1 million reduction and a $13.6 million increase to non-interest income for the six months ended June 30, 2012 and 2011, respectively. The second quarter and the first six months of 2012 reductions in non-interest income included $6.0 million related to the FDIC’s portion of the estimated losses on unused lines of credit assumed in the FDIC-assisted transactions, which have expired. Other non-interest income for the three and six months ended June 30, 2012 included $7.4 million for the reversal of the estimated losses on the expired lines of credit.

Loan Portfolio Risk Elements and Credit Risk Management

Credit risk management. For all of its loan types discussed below, Valley adheres to a credit policy designed to minimize credit risk while generating the maximum income given the level of risk. Management reviews and approves these policies and procedures on a regular basis with subsequent approval by the Board of Directors annually. Credit authority relating to a significant dollar percentage of the overall portfolio is centralized and controlled by the Credit Risk Management Division and by the Credit Committee. A reporting system supplements the management review process by providing management with frequent reports concerning loan production, loan quality, concentrations of credit, loan delinquencies, non-performing, and potential problem loans. Loan portfolio diversification is an important factor utilized by Valley to manage its risk across business sectors and through cyclical economic circumstances.

Commercial and industrial loans. A significant proportion of Valley’s commercial and industrial loan portfolio is granted to long standing customers of proven ability, strong repayment performance, and high character. Underwriting standards are designed to assess the borrower’s ability to generate recurring cash flow sufficient to meet the debt service requirements of loans granted. While such recurring cash flow serves as the primary source of repayment, a significant number of the loans are collateralized by borrower assets intended to serve as a secondary source of repayment should the need arise. Anticipated cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value, or in the case of loans secured by accounts receivable, the ability of the borrower to collect all amounts due from its customers. Short-term loans may be made on an unsecured basis based on a borrower’s financial strength and past performance. Valley, in most cases, will obtain the personal guarantee of the borrower’s principals to mitigate the risk. Unsecured loans, when made, are generally granted to the Bank’s most credit worthy borrowers. Unsecured commercial and industrial loans totaled $395.5 million and $337.7 million at June 30, 2012 and December 31, 2011, respectively.

Commercial real estate loans. Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real property. Loans generally involve larger principal balances and longer repayment periods as compared to commercial and industrial loans. Repayment of most loans is dependent upon the cash flow generated from the property securing the loan or the business that occupies the property. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy and accordingly conservative loan to value ratios are required at origination, as well as stress tested to evaluate the impact of market changes relating to key underwriting elements. The properties securing the commercial real estate portfolio represent diverse types, with most properties located within Valley’s primary markets.

Construction loans. With respect to loans to developers and builders, Valley originates and manages construction loans structured on either a revolving or non-revolving basis, depending on the nature of the underlying development project. These loans are generally secured by the real estate to be developed and may also be secured by additional real estate to mitigate the risk. Non-revolving construction loans often involve the disbursement of substantially all committed funds with repayment substantially dependent on the successful completion and sale, or lease, of the project. Sources of repayment for these types of loans may be from pre-committed permanent loans from other lenders, sales of developed property, or an interim loan commitment from Valley until permanent financing is obtained elsewhere. Revolving construction loans (generally relating to single family residential construction) are controlled with loan advances dependent upon the presale of housing units financed. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential mortgages. Valley originates residential, first mortgage loans based on underwriting standards that generally comply with Fannie Mae and/or Freddie Mac requirements. Appraisals and valuations of real estate collateral are contracted directly with independent appraisers or from valuation services and not through appraisal management companies. The Bank’s appraisal management policy and procedure is in accordance with regulatory requirements and guidance issued by the Bank’s primary regulator. Credit scoring, using FICO® and other proprietary, credit scoring models is employed in the ultimate, judgmental credit decision by Valley’s underwriting staff. Valley does not use third party contract underwriting services. Residential mortgage loans include fixed and variable interest rate loans secured by one to four family homes generally located in northern and central New Jersey, the New York City metropolitan area, and eastern Pennsylvania. Valley’s ability to be repaid on such loans is closely linked to the economic and real estate market conditions in this region. In deciding whether to originate each residential mortgage, Valley considers the qualifications of the borrower as well as the value of the underlying property.

Home equity loans. Home equity lending consists of both fixed and variable interest rate products. Valley mainly provides home equity loans to its residential mortgage customers within the footprint of its primary lending territory. Valley generally will not exceed a combined (i.e., first and second mortgage) loan-to-value ratio of 75 percent when originating a home equity loan.

Automobile loans. Valley uses both judgmental and scoring systems in the credit decision process for automobile loans. Automobile originations (including light truck and sport utility vehicles) are largely produced via indirect channels, originated through approved automobile dealers. Automotive collateral is generally a depreciating asset and there are times in the life of an automobile loan where the amount owed on a vehicle may exceed its collateral value. Additionally, automobile charge-offs will vary based on strength or weakness in the used vehicle market, original advance rate, when in the life cycle of a loan a default occurs and the condition of the collateral being liquidated. Where permitted by law, and subject to the limitations of the bankruptcy code, deficiency judgments are sought and acted upon to ultimately collect all money owed, even when a default resulted in a loss at collateral liquidation. Valley uses a third party to actively track collision and comprehensive risk insurance required of the borrower on the automobile and this third party provides coverage to Valley in the event of an uninsured collateral loss.

Other consumer loans. Valley’s other consumer loan portfolio includes direct consumer term loans, both secured and unsecured. The other consumer loan portfolio includes minor exposures in credit card loans, personal lines of credit, personal loans and loans secured by cash surrender value of life insurance. Valley believes the aggregate risk exposure of these loans and lines of credit was not significant at June 30, 2012. Unsecured consumer loans totaled approximately $85.2 million and $66.5 million, including $8.5 million and $9.1 million of credit card loans, at June 30, 2012 and December 31, 2011, respectively.

Credit Quality

The following tables present past due, non-accrual and current loans (excluding PCI loans, which are accounted for on a pool basis) by loan portfolio class at June 30, 2012 and December 31, 2011:


	Past Due and Non-Accrual Loans
	30-89 Days Past Due Loans		Accruing Loans 90 Days Or More Past Due		Non-Accrual Loans		Total Past Due Loans		Current Non-PCI Loans		Total Non-PCI Loans
	(in thousands)
June 30, 2012

Commercial and industrial	$	2,275	$	512	$	12,652	$	15,439	$	1,868,428	$	1,883,867
Commercial real estate:
Commercial real estate		11,483		-		61,864		73,347		3,646,642		3,719,989
Construction		270		-		16,502		16,772		351,933		368,705

Total commercial real estate loans		11,753		-		78,366		90,119		3,998,575		4,088,694

Residential mortgage		10,148		727		32,045		42,920		2,684,194		2,727,114
Consumer loans:
Home equity		557		-		2,070		2,627		448,083		450,710
Automobile		5,055		223		373		5,651		772,530		778,181
Other consumer		260		23		722		1,005		153,294		154,299

Total consumer loans		5,872		246		3,165		9,283		1,373,907		1,383,190

Total	$	30,048	$	1,485	$	126,228	$	157,761	$	9,925,104	$	10,082,865


	Past Due and Non-Accrual Loans
	30-89 Days Past Due Loans		Accruing Loans 90 Days Or More Past Due		Non-Accrual Loans		Total Past Due Loans		Current Non-PCI Loans		Total Non-PCI Loans
	(in thousands)
December 31, 2011

Commercial and industrial	$	4,347	$	657	$	26,648	$	31,652	$	1,846,735	$	1,878,387
Commercial real estate:
Commercial real estate		13,115		422		42,186		55,723		3,518,366		3,574,089
Construction		2,652		1,823		19,874		24,349		386,654		411,003

Total commercial real estate loans		15,767		2,245		62,060		80,072		3,905,020		3,985,092

Residential mortgage		8,496		763		31,646		40,905		2,244,685		2,285,590
Consumer loans:
Home equity		989		13		2,700		3,702		465,902		469,604
Automobile		7,794		303		461		8,558		763,932		772,490
Other consumer		192		35		749		976		135,658		136,634

Total consumer loans		8,975		351		3,910		13,236		1,365,492		1,378,728

Total	$	37,585	$	4,016	$	124,264	$	165,865	$	9,361,932	$	9,527,797

Impaired loans. Impaired loans, consisting of non-accrual commercial and industrial loans and commercial real estate loans over $250 thousand and all loans which were modified in troubled debt restructurings, are individually evaluated for impairment. PCI loans are not classified as impaired loans because they are accounted for on a pool basis. The following tables present the information about impaired loans by loan portfolio class at June 30, 2012 and December 31, 2011:


	Recorded		Recorded				Unpaid
	Investment		Investment		Total		Contractual
	With No Related		With Related		Recorded		Principal		Related
	Allowance		Allowance		Investment		Balance		Allowance
	(in thousands)
June 30, 2012
Commercial and industrial	$	5,793	$	38,592	$	44,385	$	53,201	$	8,185
Commercial real estate:
Commercial real estate		36,304		75,814		112,118		124,615		9,914
Construction		7,282		16,324		23,606		26,714		1,121

Total commercial real estate loans		43,586		92,138		135,724		151,329		11,035

Residential mortgage		3,920		17,092		21,012		22,839		2,777
Consumer loans:
Home equity		-		272		272		272		22

Total consumer loans		-		272		272		272		22

Total	$	53,299	$	148,094	$	201,393	$	227,641	$	22,019


December 31, 2011
Commercial and industrial	$	6,193	$	48,665	$	54,858	$	71,111	$	11,105
Commercial real estate:
Commercial real estate		26,741		56,978		83,719		91,448		7,108
Construction		4,253		19,998		24,251		28,066		1,408

Total commercial real estate loans		30,994		76,976		107,970		119,514		8,516

Residential mortgage		998		20,007		21,005		22,032		3,577
Consumer loans:
Home equity		-		242		242		242		45

Total consumer loans		-		242		242		242		45

Total	$	38,185	$	145,890	$	184,075	$	212,899	$	23,243

The following tables present, by loan portfolio class, the average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2012 and 2011:


	Three Months Ended June 30,
	2012				2011
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
	(in thousands)
Commercial and industrial	$	48,888	$	339	$	38,274	$	256
Commercial real estate:
Commercial real estate		98,077		302		71,384		689
Construction		21,412		37		34,809		96

Total commercial real estate loans		119,489		339		106,193		785

Residential mortgage		21,179		238		18,226		173
Consumer loans:
Home equity		274		3		82		2

Total consumer loans		274		3		82		2

Total	$	189,830	$	919	$	162,775	$	1,216


	Six Months Ended June 30,
	2012				2011
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
			(in thousands)


Commercial and industrial	$	52,094	$	748	$	38,158	$	739
Commercial real estate:
Commercial real estate		95,004		991		67,054		1,356
Construction		21,742		86		34,296		262

Total commercial real estate loans		116,746		1,077		101,350		1,618

Residential mortgage		20,889		374		18,304		381
Consumer loans:
Home equity		277		7		82		3

Total consumer loans		277		7		82		3

Total	$	190,006	$	2,206	$	157,894	$	2,741

Interest income recognized on a cash basis, included in the table above was immaterial for the three and six months ended June 30, 2012 and 2011.

Troubled debt restructured loans. From time to time, Valley may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled debt restructured loan (“TDR”). Valley’s PCI loans are excluded from the TDR disclosures below because they are evaluated for impairment on a pool by pool basis. When an individual PCI loan within a pool is modified as a TDR, it is not removed from its pool.

The majority of the concessions made for TDRs involve lowering the monthly payments on loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. The concessions rarely result in the forgiveness of principal or accrued interest. In addition, Valley frequently obtains additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms and Valley’s underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

Performing TDRs (not reported as non-accrual loans) totaled $113.6 million and $101.0 million as of June 30, 2012 and December 31, 2011, respectively. Non-performing TDRs totaled $27.8 million and $15.5 million as of June 30, 2012 and December 31, 2011, respectively. All TDRs are classified as impaired loans and are included in the impaired loan disclosures above.

The following tables present non-PCI loans, by loan portfolio class that were modified as TDRs during the three and six months ended June 30, 2012 and 2011. The pre-modification and post-modification outstanding recorded investments disclosed in the table below represent the loan carrying amounts immediately prior to the modification and the post modification carrying amounts at June 30, 2012 and 2011, respectively.


	Three Months Ended June 30, 2012						Three Months Ended June 30, 2011
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
Commercial and industrial*		8	$	18,278	$	16,623		12	$	4,461	$	4,437
Commercial real estate:
Commercial real estate		8		33,677		33,487		1		6,628		6,617
Construction		2		4,557		4,254		1		1,350		1,314

Total commercial real estate		10		38,234		37,741		2		7,978		7,931
Residential mortgage		9		2,926		2,919		-		-		-

Total		27	$	59,438	$	57,283		14	$	12,439	$	12,368


	Six Months Ended June 30, 2012						Six Months Ended June 30, 2011
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
Commercial and industrial*		13	$	19,700	$	17,574		17	$	7,485	$	7,415
Commercial real estate:
Commercial real estate		14		35,726		35,453		2		8,987		8,945
Construction		4		6,711		5,278		1		1,350		1,314

Total commercial real estate		18		42,437		40,731		3		10,337		10,259
Residential mortgage		13		3,778		3,767		-		-		-
Consumer		2		69		67		-		-		-

Total		46	$	65,984	$	62,139		20	$	17,822	$	17,674

*	Includes 6 finance leases with pre and post-modification outstanding recorded investments totaling $272 thousand and $250 thousand, respectively, for both three and six months ended June 30, 2011. There were no material modifications to finance leases during 2012.

The majority of the TDR concessions made during the three and six months ended June 30, 2012, and 2011 involved an extension of the loan term and/or an interest rate reduction. The TDRs presented in the table above had allocated specific reserves for loan losses totaling $9.5 million and $1.9 million at June 30, 2012 and 2011, respectively. These specific reserves are included in the allowance for loan losses for loans individually evaluated for impairment disclosed in Note 8. There were no charge-offs resulting from loans modified as TDRs during the three and six months ended June 30, 2012 and 2011.

The following table presents non-PCI loans modified as TDRs within the previous 12 months from, and for which there was a payment default (90 days or more past due) during the three and six months ended June 30, 2012:


Troubled Debt	Three Months Ended June 30, 2012				Six Months Ended June 30, 2012
Restructurings Subsequently Defaulted	Number of Contracts		Recorded Investment		Number of Contracts	Recorded Investment
	($ in thousands)
Commercial and industrial		-	$	-	1	$	646
Commercial real estate		-		-	1		1,108
Residential mortgage		2		321	3		643

Total		2	$	321	5	$	2,397

Credit quality indicators. Valley utilizes an internal loan classification system as a means of reporting problem loans within commercial and industrial, commercial real estate, and construction loan portfolio classes. Under Valley’s internal risk rating system, loan relationships could be classified as “Special Mention”, “Substandard”, “Doubtful”, and “Loss.” Substandard loans include loans that exhibit well-defined weakness and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged-off immediately to the allowance for loan losses. Loans that do not currently pose a sufficient risk to warrant classification in one of the aforementioned categories, but pose weaknesses that deserve management’s close attention are deemed to be Special Mention. Loans rated as “Pass” loans do not currently pose any identified risk and can range from the highest to average quality, depending on the degree of potential risk. Risk ratings are updated any time the situation warrants.

The following table presents the risk category of loans (excluding PCI loans) by class of loans based on the most recent analysis performed at June 30, 2012 and December 31, 2011.


Credit exposure -			Special
by internally assigned risk rating	Pass		Mention		Substandard		Doubtful		Total
	(in thousands)
June 30, 2012
Commercial and industrial	$	1,716,927	$	75,355	$	91,357	$	228	$	1,883,867
Commercial real estate		3,487,111		62,373		170,505		-		3,719,989
Construction		304,710		35,321		28,488		186		368,705

Total	$	5,508,748	$	173,049	$	290,350	$	414	$	5,972,561

December 31, 2011
Commercial and industrial	$	1,669,943	$	95,726	$	112,186	$	532	$	1,878,387
Commercial real estate		3,350,475		82,612		141,002		-		3,574,089
Construction		329,848		42,845		38,114		196		411,003

Total	$	5,350,266	$	221,183	$	291,302	$	728	$	5,863,479

For residential mortgages, automobile, home equity and other consumer loan portfolio classes (excluding PCI loans), Valley also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in those loan classes based on payment activity as of June 30, 2012 and December 31, 2011:


Credit exposure -	Performing		Non-Performing		Total
by payment activity	Loans		Loans		Loans
	(in thousands)
June 30, 2012
Residential mortgage	$	2,695,069	$	32,045	$	2,727,114
Home equity		448,640		2,070		450,710
Automobile		777,808		373		778,181
Other consumer		153,577		722		154,299

Total	$	4,075,094	$	35,210	$	4,110,304

December 31, 2011
Residential mortgage	$	2,253,944	$	31,646	$	2,285,590
Home equity		466,904		2,700		469,604
Automobile		772,029		461		772,490
Other consumer		135,885		749		136,634

Total	$	3,628,762	$	35,556	$	3,664,318

Valley evaluates the credit quality of its PCI loan pools based on the expectation of the underlying cash flows of each pool, derived from the aging status and by payment activity of individual loans within the pool. The following table presents the recorded investment in PCI loans by class based on individual loan payment activity as of June 30, 2012 and December 31, 2011.


Credit exposure - by payment activity	Performing Loans		Non-Performing Loans		Total PCI Loans
			(in thousands)
June 30, 2012
Commercial and industrial	$	336,106	$	10,150	$	346,257
Commercial real estate		801,365		56,076		857,441
Construction		37,172		12,836		50,008
Residential mortgage		26,965		5,823		32,789
Consumer		52,980		1,512		54,492

Total	$	1,254,588	$	86,397	$	1,340,987

December 31, 2011
Commercial and industrial	$	67,424	$	16,318	$	83,742
Commercial real estate		112,047		48,604		160,651
Construction		623		6,351		6,974
Residential mortgage		10,118		5,428		15,546
Consumer		4,931		-		4,931

Total	$	195,143	$	76,701	$	271,844