FORM 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

COMMISSION FILE NUMBER 001-12307

ZIONS BANCORPORATION

(Exact name of registrant as specified in its charter)

 

UTAH   87-0227400

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

ONE SOUTH MAIN, 15TH FLOOR

SALT LAKE CITY, UTAH

  84133
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (801) 524-4787

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock, without par value, outstanding at April 30, 2012    184,197,207 shares


Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES

INDEX

 

              Page  

PART  I.    FINANCIAL INFORMATION

  
 

ITEM 1.

  

Financial Statements (Unaudited)

  
    

Consolidated Balance Sheets

     3   
    

Consolidated Statements of Income

     4   
    

Consolidated Statements of Comprehensive Income

     5   
    

Consolidated Statements of Changes in Shareholders’ Equity

     5   
    

Consolidated Statements of Cash Flows

     6   
    

Notes to Consolidated Financial Statements

     7   
 

ITEM 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     53   
 

ITEM 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     95   
 

ITEM 4.

  

Controls and Procedures

     96   

PART II.    OTHER INFORMATION

  
 

ITEM 1.

  

Legal Proceedings

     96   
 

ITEM 1A.

  

Risk Factors

     96   
 

ITEM 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     96   
 

ITEM 6.

  

Exhibits

     96   

SIGNATURES

     99   


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS (Unaudited)

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

     March 31,     December 31,  
(In thousands, except share amounts)    2012     2011  
     (Unaudited)        

ASSETS

    

Cash and due from banks

   $ 1,082,186      $ 1,224,350   

Money market investments:

    

Interest-bearing deposits

     7,629,399        7,020,895   

Federal funds sold and security resell agreements

     52,634        102,159   

Investment securities:

    

Held-to-maturity, at adjusted cost (approximate fair value $728,479 and $729,974)

     797,149        807,804   

Available-for-sale, at fair value

     3,223,086        3,230,795   

Trading account, at fair value

     19,033        40,273   
  

 

 

   

 

 

 
     4,039,268        4,078,872   

Loans held for sale

     184,579        201,590   

Loans, net of unearned income and fees:

    

Loans and leases

     35,903,475        36,393,782   

FDIC-supported loans

     687,126        750,870   
  

 

 

   

 

 

 
     36,590,601        37,144,652   

Less allowance for loan losses

     1,010,059        1,049,958   
  

 

 

   

 

 

 

Loans, net of allowance

     35,580,542        36,094,694   

Other noninterest-bearing investments

     875,037        865,231   

Premises and equipment, net

     715,815        719,276   

Goodwill

     1,015,129        1,015,129   

Core deposit and other intangibles

     63,538        67,830   

Other real estate owned

     158,592        153,178   

Other assets

     1,499,588        1,605,905   
  

 

 

   

 

 

 
   $ 52,896,307      $ 53,149,109   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Deposits:

    

Noninterest-bearing demand

   $ 16,185,140      $ 16,110,857   

Interest-bearing:

    

Savings and NOW

     7,406,910        7,159,101   

Money market

     14,813,495        14,616,740   

Time

     3,326,717        3,413,550   

Foreign

     1,366,826        1,575,361   
  

 

 

   

 

 

 
     43,099,088        42,875,609   

Securities sold, not yet purchased

     47,404        44,486   

Federal funds purchased and security repurchase agreements

     486,808        608,098   

Other short-term borrowings

     19,839        70,273   

Long-term debt

     2,283,121        1,954,462   

Reserve for unfunded lending commitments

     98,718        102,422   

Other liabilities

     474,551        510,531   
  

 

 

   

 

 

 

Total liabilities

     46,509,529        46,165,881   
  

 

 

   

 

 

 

Shareholders’ equity:

    

Preferred stock, without par value, authorized 4,400,000 shares

     1,737,633        2,377,560   

Common stock, without par value; authorized 350,000,000 shares; issued and outstanding
184,228,178 and 184,135,388 shares

     4,162,522        4,163,242   

Retained earnings

     1,060,525        1,036,590   

Accumulated other comprehensive income (loss)

     (571,567     (592,084
  

 

 

   

 

 

 

Controlling interest shareholders’ equity

     6,389,113        6,985,308   

Noncontrolling interests

     (2,335     (2,080
  

 

 

   

 

 

 

Total shareholders’ equity

     6,386,778        6,983,228   
  

 

 

   

 

 

 
   $ 52,896,307      $ 53,149,109   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

(In thousands, except per share amounts)

 

   Three Months Ended
March  31,
 
     2012     2011  

Interest income:

    

Interest and fees on loans

   $ 486,615      $ 518,157   

Interest on money market investments

     4,628        2,843   

Interest on securities:

    

Held-to-maturity

     8,959        8,664   

Available-for-sale

     23,158        22,276   

Trading account

     338        452   
  

 

 

   

 

 

 

Total interest income

     523,698        552,392   
  

 

 

   

 

 

 

Interest expense:

    

Interest on deposits

     23,413        36,484   

Interest on short-term borrowings

     779        2,180   

Interest on long-term debt

     57,207        89,872   
  

 

 

   

 

 

 

Total interest expense

     81,399        128,536   
  

 

 

   

 

 

 

Net interest income

     442,299        423,856   

Provision for loan losses

     15,664        60,000   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     426,635        363,856   
  

 

 

   

 

 

 

Noninterest income:

    

Service charges and fees on deposit accounts

     43,532        44,530   

Other service charges, commissions and fees

     34,226        41,685   

Trust and wealth management income

     6,374        6,754   

Capital markets and foreign exchange

     5,734        7,214   

Dividends and other investment income

     9,480        8,028   

Loan sales and servicing income

     8,352        6,013   

Fair value and nonhedge derivative income (loss)

     (4,400     1,220   

Equity securities gains, net

     9,145        897   

Fixed income securities gains (losses), net

     720        (59

Impairment losses on investment securities:

    

Impairment losses on investment securities

     (18,273     (3,105

Noncredit-related losses on securities not expected to be sold (recognized in
other comprehensive income)

     8,064          
  

 

 

   

 

 

 

Net impairment losses on investment securities

     (10,209     (3,105

Other

     4,045        20,966   
  

 

 

   

 

 

 

Total noninterest income

     106,999        134,143   
  

 

 

   

 

 

 

Noninterest expense:

    

Salaries and employee benefits

     224,634        215,010   

Occupancy, net

     27,951        28,010   

Furniture and equipment

     26,792        25,662   

Other real estate expense

     7,810        24,167   

Credit-related expense

     13,485        14,913   

Provision for unfunded lending commitments

     (3,704     (9,540

Legal and professional services

     11,096        6,689   

Advertising

     5,807        6,911   

FDIC premiums

     10,919        24,101   

Amortization of core deposit and other intangibles

     4,291        5,701   

Other

     63,291        66,751   
  

 

 

   

 

 

 

Total noninterest expense

     392,372        408,375   
  

 

 

   

 

 

 

Income before income taxes

     141,262        89,624   

Income taxes

     51,859        37,033   
  

 

 

   

 

 

 

Net income

     89,403        52,591   

Net loss applicable to noncontrolling interests

     (273     (226
  

 

 

   

 

 

 

Net income applicable to controlling interest

     89,676        52,817   

Preferred stock dividends

     (64,187     (38,050
  

 

 

   

 

 

 

Net earnings applicable to common shareholders

   $ 25,489      $ 14,767   
  

 

 

   

 

 

 

Weighted average common shares outstanding during the period:

    

Basic shares

     182,798        181,707   

Diluted shares

     182,964        181,998   

Net earnings per common share:

    

Basic

   $ 0.14      $ 0.08   

Diluted

     0.14        0.08   

See accompanying notes to consolidated financial statements.

 

 

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ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
March  31,
 
     2012     2011  

Net income

   $ 89,403      $ 52,591   

Other comprehensive income (loss), net of tax:

    

Net realized and unrealized holding gains (losses) on investments

     22,614        (31,788

Reclassification for net losses on investments included in earnings

     5,798        1,954   

Noncredit-related impairment losses on securities not expected to be sold

     (4,980       

Accretion of securities with noncredit-related impairment losses not expected to be sold

     165        26   

Net unrealized losses on derivative instruments

     (3,080     (8,059
  

 

 

   

 

 

 

Other comprehensive income (loss)

     20,517        (37,867
  

 

 

   

 

 

 

Comprehensive income

     109,920        14,724   

Comprehensive loss applicable to noncontrolling interests

     (273     (226
  

 

 

   

 

 

 

Comprehensive income applicable to controlling interest

   $ 110,193      $ 14,950   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

(In thousands, except per share amounts)   Preferred
stock
    Common stock    

Retained

   

Accumulated

other

comprehensive

   

Noncontrolling

   

Total

shareholders’

 
      Shares     Amount     earnings     income (loss)     interests     equity  

Balance at December 31, 2011

  $ 2,377,560        184,135,388      $ 4,163,242      $ 1,036,590      $ (592,084   $ (2,080   $ 6,983,228   

Net income (loss) for the period

          89,676          (273     89,403   

Other comprehensive income

            20,517          20,517   

Preferred stock redemption

    (700,000               (700,000 )  

Subordinated debt converted to preferred stock

    34,839          (5,065           29,774   

Net activity under employee plans and related tax benefits

      92,790        4,345              4,345   

Dividends on preferred stock

    25,234            (64,187         (38,953

Dividends on common stock, $0.01 per share

          (1,843         (1,843

Change in deferred compensation

          289            289   

Other changes in noncontrolling interests

              18        18   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

  $ 1,737,633        184,228,178      $ 4,162,522      $ 1,060,525      $ (571,567   $ (2,335   $ 6,386,778   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2010

  $ 2,056,672        182,784,086      $ 4,163,619      $ 889,284      $ (461,296   $ (1,065   $ 6,647,214   

Net income (loss) for the period

          52,817          (226     52,591   

Other comprehensive loss

            (37,867       (37,867

Subordinated debt converted to preferred stock

    100,454          (14,605           85,849   

Issuance of common stock

      1,067,540        25,048              25,048   

Net activity under employee plans and related tax benefits

      2,860        4,307              4,307   

Dividends on preferred stock

    5,273            (38,050         (32,777

Dividends on common stock, $0.01 per share

          (1,824         (1,824

Change in deferred compensation

          2,020            2,020   

Other changes in noncontrolling interests

              26        26   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

  $ 2,162,399        183,854,486      $ 4,178,369      $ 904,247      $ (499,163   $ (1,265   $ 6,744,587   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(In thousands)

 

   Three Months Ended
March  31,
 
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income for the period

   $ 89,403      $ 52,591   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Net impairment losses on investment securities

     10,209        3,105   

Provision for credit losses

     11,960        50,460   

Depreciation and amortization

     57,143        89,806   

Deferred income tax expense

     19,685        53,790   

Net increase (decrease) in trading securities

     21,240        (7,882

Net decrease in loans held for sale

     20,913        28,471   

Net write-down of and losses from sales of other real estate owned

     7,832        19,750   

Change in other liabilities

     (18,799     (36,824

Change in other assets

     50,425        18,154   

Other, net

     (21,916     (2,200
  

 

 

   

 

 

 

Net cash provided by operating activities

     248,095        269,221   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Net increase in short term investments

     (558,979     (50,207

Proceeds from maturities and paydowns of investment securities held-to-maturity

     20,579        29,108   

Purchases of investment securities held-to-maturity

     (9,277     (5,493

Proceeds from sales, maturities, and paydowns of investment securities available-for-sale

     440,982        302,250   

Purchases of investment securities available-for-sale

     (406,303     (279,886

Proceeds from sales of loans and leases

     26,309        1,082   

Net loan and lease collections (originations)

     415,411        (44,811

Net decrease in other noninterest-bearing investments

     5,729        4,796   

Net purchases of premises and equipment

     (15,162     (20,185

Proceeds from sales of other real estate owned

     39,399        91,841   

Net cash paid for sale of branch

     (22,568       
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (63,880     28,495   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Net increase (decrease) in deposits

     252,837        (342,542

Net change in short-term funds borrowed

     (168,831     80,092   

Proceeds from issuance of long-term debt

     332,750          

Repayments of long-term debt

     (141     (156

Cash paid for preferred stock redemption

     (700,000       

Proceeds from issuance of common stock

     342        25,212   

Dividends paid on common and preferred stock

     (40,796     (34,601

Other, net

     (2,540     (707
  

 

 

   

 

 

 

Net cash used in financing activities

     (326,379     (272,702
  

 

 

   

 

 

 

Net increase (decrease) in cash and due from banks

     (142,164     25,014   

Cash and due from banks at beginning of period

     1,224,350        924,126   
  

 

 

   

 

 

 

Cash and due from banks at end of period

   $ 1,082,186      $ 949,140   
  

 

 

   

 

 

 

Cash paid for interest

   $ 62,789      $ 91,281   

Net cash refund received for income taxes

     (21,668     (108

See accompanying notes to consolidated financial statements.

 

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Table of Contents

ZIONS BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2012

 

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Zions Bancorporation (“the Parent”) and its majority-owned subsidiaries (collectively “the Company,” “Zions,” “we,” “our,” “us”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. References to GAAP as promulgated by the Financial Accounting Standards Board (“FASB”) are made according to sections of the Accounting Standards Codification (“ASC”) and to Accounting Standards Updates (“ASU”). Certain prior period amounts have been reclassified to conform to the current period presentation.

Operating results for the three-month periods ended March 31, 2012 and 2011 are not necessarily indicative of the results that may be expected in future periods. The consolidated balance sheet at December 31, 2011 is from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s 2011 Annual Report on Form 10-K.

The Company provides a full range of banking and related services through banking subsidiaries in ten Western and Southwestern states as follows: Zions First National Bank (“Zions Bank”), in Utah and Idaho; California Bank & Trust (“CB&T”); Amegy Corporation (“Amegy”) and its subsidiary, Amegy Bank, in Texas; National Bank of Arizona (“NBA”); Nevada State Bank (“NSB”); Vectra Bank Colorado (“Vectra”), in Colorado and New Mexico; The Commerce Bank of Washington (“TCBW”); and The Commerce Bank of Oregon (“TCBO”). The Parent also owns and operates certain nonbank subsidiaries that engage in wealth management and other financial related services.

 

2. CERTAIN RECENT ACCOUNTING PRONOUNCEMENTS

In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. This new guidance under ASC 210, Balance Sheet, provides convergence to International Financial Reporting Standards (“IFRS”) to provide common disclosure requirements for the offsetting of financial instruments. Existing GAAP guidance allowing balance sheet offsetting, including industry-specific guidance, remains unchanged. The new guidance is effective on a retrospective basis, including all prior periods presented, for interim and annual periods beginning on or after January 1, 2013. Management is currently evaluating the impact this new guidance may have on the disclosures in the Company’s financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. This new accounting guidance under ASC 220, Comprehensive Income, provides convergence to IFRS and no longer allows presentation of other comprehensive income (“OCI”) in the statement of changes in shareholders’ equity. We adopted this new guidance effective January 1, 2012 as required and elected to present OCI in a separate statement consecutive to the statement of income. There was otherwise no effect on the accompanying financial statements.

 

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ZIONS BANCORPORATION AND SUBSIDIARIES

 

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This ASU under ASC 220 defers the requirements of ASU 2011-05 to display reclassification adjustments for each component of OCI in both net income and OCI and to present the components of OCI in interim financial statements. During 2012, the FASB has indicated it will reconsider the reclassification requirements and the timing of their implementation. Management is currently evaluating the impact this ASU will have on the disclosures in the Company’s financial statements.

In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The primary feature of this new accounting guidance under ASC 860, Transfers and Servicing, relates to the criteria that determine whether a sale or a secured borrowing occurred based on the transferor’s maintenance of effective control over the transferred financial assets. The new guidance focuses on the transferor’s contractual rights and obligations with respect to the transferred financial assets and not on the transferor’s ability to perform under those rights and obligations. Accordingly, the collateral maintenance requirement is eliminated by ASU 2011-3 from the assessment of effective control. We adopted this new guidance effective January 1, 2012 as required. There was no material effect on the accompanying financial statements.

Additional recent accounting pronouncements are discussed where applicable in the Notes to Consolidated Financial Statements.

 

3. SUPPLEMENTAL CASH FLOW INFORMATION

Noncash activities are summarized as follows:

 

     Three Months Ended  
(In thousands)    March 31,  
     2012      2011  

Loans transferred to other real estate owned

   $ 52,575       $ 89,529   

Beneficial conversion feature transferred from common stock to preferred stock as a result of subordinated debt conversions

     5,065         14,605   

Subordinated debt converted to preferred stock

     29,774         85,849   

 

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ZIONS BANCORPORATION AND SUBSIDIARIES

 

4. INVESTMENT SECURITIES

Investment securities are summarized as follows:

 

     March 31, 2012  
            Recognized in OCI 1             Not recognized in OCI         

(In thousands)

 

   Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
     Carrying
value
     Gross
unrealized
gains
     Gross
unrealized
losses
     Estimated
fair
value
 

Held-to-maturity

                    

Municipal securities

   $ 553,388       $       $       $ 553,388       $ 15,237       $ 842       $ 567,783   

Asset-backed securities:

                    

Trust preferred securities – banks and insurance

     262,852                 40,105         222,747         664         75,955         147,456   

Other

     24,209                 3,295         20,914         448         8,222         13,140   

Other debt securities

     100                         100                         100   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 840,549       $       $ 43,400       $ 797,149       $ 16,349       $ 85,019       $ 728,479   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale

                    

U.S. Treasury securities

   $ 4,355       $ 277       $       $ 4,632             $ 4,632   

U.S. Government agencies and

  corporations:

                    

Agency securities

     134,673         4,447         142         138,978               138,978   

Agency guaranteed mortgage-backed securities

     504,359         18,757         47         523,069               523,069   

Small Business Administration loan-backed securities

     1,203,808         15,507         2,992         1,216,323               1,216,323   

Municipal securities

     117,673         3,565         1,698         119,540               119,540   

Asset-backed securities:

                    

Trust preferred securities – banks and insurance

     1,770,741         18,959         853,471         936,229               936,229   

Trust preferred securities – real estate investment trusts

     40,300                 24,300         16,000               16,000   

Auction rate securities

     41,402         182         711         40,873               40,873   

Other

     55,648         1,037         10,025         46,660               46,660   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 
     3,872,959         62,731         893,386         3,042,304               3,042,304   

Mutual funds and stock

     180,625         157                 180,782               180,782   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 
   $ 4,053,584       $ 62,888       $ 893,386       $ 3,223,086             $ 3,223,086   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 

 

     December 31, 2011  
            Recognized in OCI 1             Not recognized in OCI         

(In thousands)

 

   Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
     Carrying
value
     Gross
unrealized
gains
     Gross
unrealized
losses
     Estimated
fair
value
 

Held-to-maturity

                    

Municipal securities

   $ 564,468       $       $       $ 564,468       $ 8,807       $ 1,083       $ 572,192   

Asset-backed securities:

                    

Trust preferred securities – banks and insurance

     262,853                 40,546         222,307         207         78,191         144,323   

Other

     24,310                 3,381         20,929         303         7,868         13,364   

Other debt securities

     100                         100                 5         95   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 851,731       $       $ 43,927       $ 807,804       $ 9,317       $ 87,147       $ 729,974   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale

                    

U.S. Treasury securities

   $ 4,330       $ 304       $       $ 4,634             $ 4,634   

U.S. Government agencies and

  corporations:

                    

Agency securities

     153,179         5,423         122         158,480               158,480   

Agency guaranteed mortgage-backed securities

     535,228         18,211         102         553,337               553,337   

Small Business Administration loan-backed securities

     1,153,039         12,119         4,496         1,160,662               1,160,662   

Municipal securities

     120,677         3,191         1,700         122,168               122,168   

Asset-backed securities:

                    

Trust preferred securities – banks and insurance

     1,794,427         15,792         880,509         929,710               929,710   

Trust preferred securities – real estate investment trusts

     40,259                 21,614         18,645               18,645   

Auction rate securities

     71,338         164         1,482         70,020               70,020   

Other

     64,646         1,028         15,302         50,372               50,372   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 
     3,937,123         56,232         925,327         3,068,028               3,068,028   

Mutual funds and other

     162,606         167         6         162,767               162,767   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 
   $ 4,099,729       $ 56,399       $ 925,333       $ 3,230,795             $ 3,230,795   
  

 

 

    

 

 

    

 

 

    

 

 

          

 

 

 

 

1

The gross unrealized losses recognized in OCI resulted from a previous transfer of AFS securities to HTM.

 

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The amortized cost and estimated fair value of investment debt securities are shown subsequently as of March 31, 2012 by expected maturity distribution for structured asset-backed collateralized debt obligations (“ABS CDOs”) and by contractual maturity distribution for other debt securities. Actual maturities may differ from expected or contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:

 

     Held-to-maturity      Available-for-sale  

(In thousands)

 

   Amortized
cost
     Estimated
fair
value
     Amortized
cost
     Estimated
fair
value
 

Due in one year or less

   $ 60,284       $ 60,756       $ 441,617       $ 414,938   

Due after one year through five years

     200,100         198,165         1,098,717         1,001,431   

Due after five years through ten years

     176,697         156,520         741,375         641,147   

Due after ten years

     403,468         313,038         1,591,250         984,788   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 840,549       $ 728,479       $ 3,872,959       $ 3,042,304   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following is a summary of the amount of gross unrealized losses for debt securities and the estimated fair value by length of time the securities have been in an unrealized loss position:

 

     March 31, 2012  
     Less than 12 months      12 months or more      Total  

(In thousands)

 

   Gross
unrealized
losses
     Estimated
fair
value
     Gross
unrealized
losses
     Estimated
fair
value
     Gross
unrealized
losses
     Estimated
fair
value
 

Held-to-maturity

                 

Municipal securities

   $ 287       $ 8,471       $ 555       $ 18,711       $ 842       $ 27,182   

Asset-backed securities:

                 

Trust preferred securities – banks and insurance

                     116,060         147,151         116,060         147,151   

Other

                     11,517         12,091         11,517         12,091   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 287       $ 8,471       $ 128,132       $ 177,953       $ 128,419       $ 186,424   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale

                 

U.S. Government agencies and corporations:

                 

Agency securities

   $ 77       $ 22,442       $ 65       $ 3,823       $ 142       $ 26,265   

Agency guaranteed mortgage-backed securities

     44         10,224         3         587         47         10,811   

Small Business Administration loan-backed securities

     576         106,460         2,416         262,749         2,992         369,209   

Municipal securities

     45         2,546         1,653         12,027         1,698         14,573   

Asset-backed securities:

                 

Trust preferred securities – banks and insurance

     302         37,960         853,169         707,424         853,471         745,384   

Trust preferred securities – real estate investment trusts

                     24,300         16,001         24,300         16,001   

Auction rate securities

     129         10,007         582         16,824         711         26,831   

Other

                     10,025         15,331         10,025         15,331   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,173       $ 189,639       $ 892,213       $ 1,034,766       $ 893,386       $ 1,224,405   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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     December 31, 2011  
     Less than 12 months      12 months or more      Total  
     Gross      Estimated      Gross      Estimated      Gross      Estimated  
(In thousands)    unrealized      fair      unrealized      fair      unrealized      fair  
     losses      value      losses      value      losses      value  

Held-to-maturity

                 

Municipal securities

   $ 415       $ 10,855       $ 668       $ 22,188       $ 1,083       $ 33,043   

Asset-backed securities:

                 

Trust preferred securities – banks and insurance

                     118,737         144,053         118,737         144,053   

Other

                     11,249         13,364         11,249         13,364   

Other debt securities

     5         95                         5         95   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 420       $ 10,950       $ 130,654       $ 179,605       $ 131,074       $ 190,555   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale

                 

U.S. Government agencies and corporations:

                 

Agency securities

   $ 60       $ 13,308       $ 62       $ 3,880       $ 122       $ 17,188   

Agency guaranteed mortgage-backed securities

     102         52,267                         102         52,267   

Small Business Administration loan-backed securities

     1,783         260,865         2,713         191,339         4,496         452,204   

Municipal securities

     1,305         15,011         395         4,023         1,700         19,034   

Asset-backed securities:

                 

Trust preferred securities – banks and insurance

                     880,509         695,365         880,509         695,365   

Trust preferred securities – real estate investment trusts

                     21,614         18,645         21,614         18,645   

Auction rate securities

     158         27,998         1,324         34,115         1,482         62,113   

Other

                     15,302         18,585         15,302         18,585   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     3,408         369,449         921,919         965,952         925,327         1,335,401   

Mutual funds and other

     6         167                         6         167   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,414       $ 369,616       $ 921,919       $ 965,952       $ 925,333       $ 1,335,568   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2012 and December 31, 2011, respectively, 64 and 72 held-to-maturity (“HTM”) and 423 and 525 available-for-sale (“AFS”) investment securities were in an unrealized loss position.

Other-Than-Temporary Impairment

We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date. Under these circumstances, OTTI is considered to have occurred if (1) we intend to sell the security; (2) it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.

Credit-related OTTI is recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in OCI. Noncredit-related OTTI is based on other factors, including illiquidity. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI. For securities classified as HTM, the amount of noncredit-related OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods.

Our 2011 Annual Report on Form 10-K describes in more detail our OTTI evaluation process. The following summarizes the conclusions from our OTTI evaluation for those security types that have significant gross unrealized losses at March 31, 2012:

OTTI – Asset-Backed Securities

Trust preferred securities – banks and insurance: These CDO securities are interests in variable rate pools of trust preferred securities related to banks and insurance companies (“collateral issuers”). They

 

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are rated by one or more Nationally Recognized Statistical Rating Organizations (“NRSROs”), which are rating agencies registered with the Securities and Exchange Commission (“SEC”). They were purchased generally at par. The primary drivers that have given rise to the unrealized losses on CDOs with bank and insurance collateral are listed below:

 

  1) Market yield requirements for bank CDO securities remain very high. The credit crisis resulted in significant utilization of both the unique five-year deferral option each collateral issuer maintains during the life of the CDO and the ability of junior CDO bonds to defer the payment of current interest. The resulting increase in the rate of return demanded by the market for trust preferred CDOs remains dramatically higher than the effective interest rates. All structured product fair values, including bank CDOs, deteriorated significantly during the credit crisis, generally reaching a low in mid-2009. Prices for some structured products, other than bank CDOs, have since rebounded as the crucial unknowns related to value became resolved and as trading increased in these securities. Unlike these other structured products, CDO tranches backed by bank trust preferred securities continue to have unresolved questions surrounding collateral behavior, specifically including, but not limited to, the future number, size and timing of bank failures, and of allowed deferrals and subsequent resumption of payment of contractual interest.

 

  2) Structural features of the collateral make these CDO tranches difficult for market participants to model. The first feature unique to bank CDOs is the interest deferral feature previously discussed. During the credit crisis starting in 2008, certain banks within our CDO pools have exercised this prerogative. The extent to which these deferrals either transition to default or alternatively come current prior to the five-year deadline is extremely difficult for market participants to assess. Our CDO pools include banks which first exercised this deferral option in the second quarter of 2008. At March 31, 2012, 45 banks in our CDO pools had come current after a period of deferral, while 224 were deferring, but remained within the allowed deferral period.

A second structural feature that is difficult to model is the payment in kind (“PIK”) feature which provides that upon reaching certain levels of collateral default or deferral, certain junior CDO tranches will not receive current interest but will instead have the interest amount that is unpaid be capitalized or deferred. The cash flow that would otherwise be paid to the junior CDO securities and the income notes is instead used to pay down the principal balance of the most senior CDO securities. If the current market yield required by market participants equaled the effective interest rate of a security, a market participant should be indifferent between receiving current interest and capitalizing and compounding interest for later payment. However, given the difference between current market rates and effective interest rates of the securities, market participants are not indifferent. The delay in payment caused by PIKing results in lower security fair values even if PIKing is projected to be fully cured. This feature is difficult to model and assess. It increases the risk premium the market applies to these securities.

 

  3) Ratings are generally below-investment-grade for even some of the most senior tranches. Rating agency opinions can vary significantly on a CDO tranche. The presence of a below-investment-grade rating by even a single rating agency will severely limit the pool of buyers, which causes greater illiquidity and therefore most likely a higher implicit discount rate/lower price with regard to that CDO tranche.

 

  4) There is a lack of consistent disclosure by each CDO’s trustee of the identity of collateral issuers; in addition, complex structures make projecting tranche return profiles difficult for non-specialists in the product.

 

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  5) At purchase, the expectation of cash flow variability was limited. As a result of the credit crisis, we have seen extreme variability of collateral performance both compared to expectations and between different pools.

Our ongoing review of these securities determined that OTTI should be recorded for the three months ended March 31, 2012.

Trust preferred securities – real estate investment trusts (“REITs”): These CDO securities are variable rate pools of trust preferred securities primarily related to REITs, and are rated by one or more NRSROs. They were purchased generally at par. Unrealized losses were caused mainly by severe deterioration in mortgage REITs and homebuilder credit in addition to the same factors previously discussed for banks and insurance CDOs. Based on our review, no OTTI for these securities was recorded for the three months ended March 31, 2012.

Other asset-backed securities: Most of these CDO securities were purchased in 2009 from Lockhart at their carrying values and then adjusted to fair value. Certain of these CDOs consist of ABS CDOs (also known as diversified structured finance CDOs). Unrealized losses since acquisition were caused mainly by deterioration in collateral quality and widening of credit spreads for asset backed securities. Based on our review, no OTTI for these securities was recorded for the three months ended March 31, 2012.

OTTI – U.S. Government Agencies and Corporations

Small Business Administration (“SBA”) Loan-Backed Securities: These securities were generally purchased at premiums with maturities from five to 25 years and have principal cash flows guaranteed by the SBA. Because the decline in fair value is not attributable to credit quality, no OTTI for these securities was recorded for the three months ended March 31, 2012.

The following is a tabular rollforward of the total amount of credit-related OTTI, including amounts recognized in earnings:

 

     Three Months Ended     Three Months Ended  
(In thousands)    March 31, 2012     March 31, 2011  
     HTM     AFS     Total     HTM     AFS     Total  

Balance of credit-related OTTI at beginning of period

   $ (6,126   $ (314,860   $ (320,986   $ (5,357   $ (335,682   $ (341,039

Additions recognized in earnings during the period:

            

Credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis 1

            (10,209     (10,209            (3,105     (3,105
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal of amounts recognized in earnings

            (10,209     (10,209            (3,105     (3,105

Reductions for securities sold during the period

       16,853        16,853          26,434        26,434   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance of credit-related OTTI at end of period

   $ (6,126   $ (308,216   $ (314,342   $ (5,357   $ (312,353   $ (317,710
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1

Relates to additional impairment on securities previously impaired.

To determine the credit component of OTTI for all security types, we utilize projected cash flows as the best estimate of fair value. These cash flows are credit adjusted using, among other things, assumptions for default probability assigned to each portion of performing collateral. The credit adjusted cash flows are discounted at a security specific coupon rate to identify any OTTI, and then at a market rate for valuation purposes.

For those securities with credit-related OTTI recognized in the statement of income for the three months ended March 31, 2012 and 2011, any amounts of noncredit-related OTTI recognized in OCI are related to AFS securities.

 

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Nontaxable interest income on securities was $4.8 million and $5.8 million for the three months ended March 31, 2012 and 2011, respectively.

The following summarizes gains and losses, including OTTI, that were recognized in the statement of income:

 

     Three Months Ended  
     March 31, 2012     March 31, 2011  
(In thousands)    Gross      Gross     Gross      Gross  
     gains      losses     gains      losses  

Investment securities:

          

Held-to-maturity

   $ 49       $      $ 46       $   

Available-for-sale

     6,459         15,997        3,519         6,729   

Other noninterest-bearing investments:

          

Nonmarketable equity securities

     9,203         58        1,068         171   
  

 

 

    

 

 

   

 

 

    

 

 

 
     15,711         16,055        4,633         6,900   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net losses

      $ (344      $ (2,267
     

 

 

      

 

 

 

Statement of income information:

          

Net impairment losses on investment securities

      $ (10,209      $ (3,105

Equity securities gains, net

        9,145           897   

Fixed income securities gains (losses), net

        720           (59
     

 

 

      

 

 

 

Net losses

      $ (344      $ (2,267
     

 

 

      

 

 

 

Gains and losses on the sale of securities are recognized using the specific identification method and recorded in noninterest income.

Securities with a carrying value of $1.2 billion at March 31, 2012 and $1.5 billion at December 31, 2011 were pledged to secure public and trust deposits, advances, and for other purposes as required by law. Securities are also pledged as collateral for security repurchase agreements.

 

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5. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans and Loans Held for Sale

Loans are summarized as follows according to major portfolio segment and specific loan class:

 

(In thousands)

 

   March 31,
2012
     December 31,
2011
 

Loans held for sale

   $ 184,579       $ 201,590   
  

 

 

    

 

 

 

Commercial:

     

Commercial and industrial

   $ 10,157,262       $ 10,334,858   

Leasing

     393,916         379,709   

Owner occupied

     7,886,448         8,158,556   

Municipal

     440,747         441,241   
  

 

 

    

 

 

 

Total commercial

     18,878,373         19,314,364   

Commercial real estate:

     

Construction and land development

     2,100,344         2,264,909   

Term

     8,069,966         7,883,434   
  

 

 

    

 

 

 

Total commercial real estate

     10,170,310         10,148,343   

Consumer:

     

Home equity credit line

     2,167,099         2,187,428   

1-4 family residential

     3,874,533         3,921,216   

Construction and other consumer real estate

     316,257         305,873   

Bankcard and other revolving plans

     273,591         291,018   

Other

     223,312         225,540   
  

 

 

    

 

 

 

Total consumer

     6,854,792         6,931,075   

FDIC-supported loans

     687,126         750,870   
  

 

 

    

 

 

 

Total loans

   $ 36,590,601       $ 37,144,652   
  

 

 

    

 

 

 

FDIC-supported loans were acquired during 2009 and are indemnified by the Federal Deposit Insurance Corporation (“FDIC”) under loss sharing agreements. The FDIC-supported loan balances presented in the accompanying schedules include purchased credit-impaired loans accounted for at their carrying values rather than their outstanding balances. See subsequent discussion under Purchased Loans.

Loan balances are presented net of unearned income and fees, which amounted to $128.7 million at March 31, 2012 and $133.1 million at December 31, 2011.

Owner occupied and commercial real estate loans include unamortized premiums of approximately $69.2 million at March 31, 2012 and $73.4 million at December 31, 2011.

Municipal loans generally include loans to municipalities with the debt service being repaid from general funds or pledged revenues of the municipal entity, or to private commercial entities or 501(c)(3) not-for-profit entities utilizing a pass-through municipal entity to achieve favorable tax treatment.

Loans with a carrying value of approximately $20.7 billion at March 31, 2012 and $21.1 billion at December 31, 2011 have been made available for pledging at the Federal Reserve and various Federal Home Loan Banks as collateral for current and potential borrowings.

We sold loans totaling $426 million and $458 million for the three months ended March 31, 2012 and 2011, respectively, that were previously classified as loans held for sale. Amounts added to loans held for sale during these periods were $408 million and $434 million. Income from loans sold, excluding servicing, for these same periods was $6.0 million and $3.1 million.

 

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Allowance for Credit Losses

The allowance for credit losses (“ACL”) consists of the allowance for loan and lease losses (“ALLL,” also referred to as the allowance for loan losses) and the reserve for unfunded lending commitments (“RULC”).

Allowance for Loan and Lease Losses

The ALLL represents our estimate of probable and estimable losses inherent in the loan and lease portfolio as of the balance sheet date. Losses are charged to the ALLL when recognized. Generally, commercial loans are charged off or charged down at the point at which they are determined to be uncollectible in whole or in part, or when 180 days past due unless the loan is well secured and in the process of collection. Consumer loans are either charged off or charged down to net realizable value no later than the month in which they become 180 days past due. Closed-end loans that are not secured by residential real estate are either charged off or charged down to net realizable value no later than the month in which they become 120 days past due. We establish the amount of the ALLL by analyzing the portfolio at least quarterly, and we adjust the provisions for loan losses so the ALLL is at an appropriate level at the balance sheet date.

We determine our ALLL as the best estimate within a range of estimated losses. The methodologies we use to estimate the ALLL depend upon the impairment status and portfolio segment of the loan. The methodology for impaired loans is discussed subsequently. For the commercial and commercial real estate segments, we use a comprehensive loan grading system to assign probability of default and loss given default grades to each loan. The credit quality indicators discussed subsequently are based on this grading system. Probability of default and loss given default grades are based on both financial and statistical models and loan officers’ judgment. We create groupings of these grades for each subsidiary bank and loan class and calculate historic loss rates using a loss migration analysis that attributes historic realized losses to historic loan grades over the most recent 60 months.

For the consumer loan segment, we use roll rate models to forecast probable inherent losses. Roll rate models measure the rate at which consumer loans migrate from one delinquency category to the next worse delinquency category, and eventually to loss. We estimate roll rates for consumer loans using recent delinquency and loss experience. These roll rates are then applied to current delinquency levels to estimate probable inherent losses.

For FDIC-supported loans purchased with evidence of credit deterioration, we determine the ALLL according to separate accounting guidance. The accounting for these loans, including the allowance calculation, is described in the Purchased Loans section following.

After applying historic loss experience, as described above, we review the quantitatively derived level of ALLL for each segment using qualitative criteria. We track various risk factors that influence our judgment regarding the level of the ALLL across the portfolio segments. Primary qualitative and environmental factors that may not be reflected in our quantitative models include:

 

   

Asset quality trends

 

   

Risk management and loan administration practices

 

   

Risk identification practices

 

   

Effect of changes in the nature and volume of the portfolio

 

   

Existence and effect of any portfolio concentrations

 

   

National economic and business conditions

 

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Regional and local economic and business conditions

 

   

Data availability and applicability

We review changes in these factors to ensure that changes in the level of the ALLL are directionally consistent with changes in these factors. The magnitude of the impact of these factors on our qualitative assessment of the ALLL changes from quarter to quarter according to the extent these factors are already reflected in historic loss rates and according to the extent these factors diverge from one another. We also consider the uncertainty inherent in the estimation process when evaluating the ALLL.

Reserve for Unfunded Lending Commitments

The Company also estimates a reserve for potential losses associated with off-balance sheet commitments and standby letters of credit. We determine the RULC using the same procedures and methodologies that we use for the ALLL. The loss factors used in the RULC are the same as the loss factors used in the ALLL, and the qualitative adjustments used in the RULC are the same as the qualitative adjustments used in the ALLL. We adjust the Company’s unfunded lending commitments that are not unconditionally cancelable to an outstanding amount equivalent using credit conversion factors and we apply the loss factors to the outstanding equivalents.

Changes in the allowance for credit losses are summarized as follows:

 

     Three Months Ended March 31, 2012  

(In thousands)

 

   Commercial     Commercial
real estate
    Consumer     FDIC-
supported 1
    Total  

Allowance for loan losses:

          

Balance at beginning of period

   $ 627,825      $ 275,546      $ 123,115      $ 23,472      $ 1,049,958   

Additions:

          

Provision for loan losses

     27,165        (12,139     (48     686        15,664   

Adjustment for FDIC-supported loans

           (1,057     (1,057

Deductions:

          

Gross loan and lease charge-offs

     (33,477     (27,011     (17,009     (2,517     (80,014

Recoveries

     9,656        12,348        3,043        461        25,508   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loan and lease charge-offs

     (23,821     (14,663     (13,966     (2,056     (54,506
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 631,169      $ 248,744      $ 109,101      $ 21,045      $ 1,010,059   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded lending commitments:

          

Balance at beginning of period

   $ 77,232      $ 23,572      $ 1,618      $      $ 102,422   

Provision charged (credited) to earnings

     (5,230     2,227        (701            (3,704
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 72,002      $ 25,799      $ 917      $      $ 98,718   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses at end of period:

          

Allowance for loan losses

   $ 631,169      $ 248,744      $ 109,101      $ 21,045      $ 1,010,059   

Reserve for unfunded lending commitments

     72,002        25,799        917               98,718   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

   $ 703,171      $ 274,543      $ 110,018      $ 21,045      $ 1,108,777   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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$18,878,373 $18,878,373 $18,878,373 $18,878,373 $18,878,373
     Three Months Ended March 31, 2011  

(In thousands)

 

   Commercial     Commercial
real estate
    Consumer     FDIC-
supported 1
    Total  

Allowance for loan losses:

          

Balance at beginning of period

   $ 761,107      $ 487,235      $ 154,326      $ 37,673      $ 1,440,341   

Additions:

          

Provision for loan losses

     (19,725     61,862        15,956        1,907        60,000   

Adjustment for FDIC-supported loans

           (9,048     (9,048

Deductions:

          

Gross loan and lease charge-offs

     (59,383     (73,380     (26,321     (8,884     (167,968

Net charge-offs recoverable from FDIC

           4,534        4,534   

Recoveries

     12,091        4,797        4,149        904        21,941   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loan and lease charge-offs

     (47,292     (68,583     (22,172     (3,446     (141,493
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 694,090      $ 480,514      $ 148,110      $ 27,086      $ 1,349,800   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reserve for unfunded lending commitments:

          

Balance at beginning of period

   $ 83,352      $ 26,373      $ 1,983      $      $ 111,708   

Provision charged (credited) to earnings

     (8,923     (73     (544            (9,540
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 74,429      $ 26,300      $ 1,439      $      $ 102,168   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses at end of period:

          

Allowance for loan losses

   $ 694,090      $ 480,514      $ 148,110      $ 27,086      $ 1,349,800   

Reserve for unfunded lending commitments

     74,429        26,300        1,439               102,168   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for credit losses

   $ 768,519      $ 506,814      $ 149,549      $ 27,086      $ 1,451,968   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1 The Purchased Loans section following contains further discussion related to FDIC-supported loans.

The ALLL and outstanding loan balances according to the Company’s impairment method are summarized as follows:

 

$18,878,373 $18,878,373 $18,878,373 $18,878,373 $18,878,373
     March 31, 2012  
(In thousands)    Commercial      Commercial
real estate
     Consumer      FDIC-
supported
     Total  

Allowance for loan losses:

              

Individually evaluated for impairment

   $ 31,115       $ 16,437       $ 9,634       $ 563       $ 57,749   

Collectively evaluated for impairment

     600,054         232,307         99,467         13,802         945,630   

Purchased loans with evidence of credit deterioration

                             6,680         6,680   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 631,169       $ 248,744       $ 109,101       $ 21,045       $ 1,010,059   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding loan balances:

              

Individually evaluated for impairment

   $ 383,848       $ 572,479       $ 104,527       $ 2,086       $ 1,062,940   

Collectively evaluated for impairment

     18,494,525         9,597,831         6,750,265         581,369         35,423,990   

Purchased loans with evidence of credit deterioration

                             103,671         103,671   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,878,373       $ 10,170,310       $ 6,854,792       $ 687,126       $ 36,590,601   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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$18,878,373 $18,878,373 $18,878,373 $18,878,373 $18,878,373
     December 31, 2011  

(In thousands)

 

   Commercial      Commercial
real estate
     Consumer      FDIC-
supported
     Total  

Allowance for loan losses:

              

Individually evaluated for impairment

   $ 11,456       $ 20,971       $ 8,995       $ 623       $ 42,045   

Collectively evaluated for impairment

     616,369         254,575         114,120         16,830         1,001,894   

Purchased loans with evidence of credit deterioration

                             6,019         6,019   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 627,825       $ 275,546       $ 123,115       $ 23,472       $ 1,049,958   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding loan balances:

              

Individually evaluated for impairment

   $ 349,662       $ 668,022       $ 113,798       $ 2,701       $ 1,134,183   

Collectively evaluated for impairment

     18,964,702         9,480,321         6,817,277         637,962         35,900,262   

Purchased loans with evidence of credit deterioration

                             110,207         110,207   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 19,314,364       $ 10,148,343       $ 6,931,075       $ 750,870       $ 37,144,652   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual and Past Due Loans

Loans are generally placed on nonaccrual status when payment in full of principal and interest is not expected, or the loan is 90 days or more past due as to principal or interest, unless the loan is both well secured and in the process of collection. Factors we consider in determining whether a loan is placed on nonaccrual include delinquency status, collateral value, borrower or guarantor financial statement information, bankruptcy status, and other information which would indicate that the full and timely collection of interest and principal is uncertain.

A nonaccrual loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement; the loan, if secured, is well secured; the borrower has paid according to the contractual terms for a minimum of six months; and analysis of the borrower indicates a reasonable assurance of the ability to maintain payments. Payments received on nonaccrual loans are applied as a reduction to the principal outstanding.

Closed-end loans with payments scheduled monthly are reported as past due when the borrower is in arrears for two or more monthly payments. Similarly, open-end credit such as charge-card plans and other revolving credit plans are reported as past due when the minimum payment has not been made for two or more billing cycles. Other multi-payment obligations (i.e., quarterly, semiannual, etc.), single payment, and demand notes are reported as past due when either principal or interest is due and unpaid for a period of 30 days or more.

 

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Nonaccrual loans are summarized as follows:

 

(In thousands)

 

   March 31,
2012
     December 31,
2011
 

Loans held for sale

   $ 30       $ 18,216   
  

 

 

    

 

 

 

Commercial:

     

Commercial and industrial

   $ 149,337       $ 126,468   

Leasing

     1,343         1,546   

Owner occupied

     245,348         239,203   

Municipal

               
  

 

 

    

 

 

 

Total commercial

     396,028         367,217   

Commercial real estate:

     

Construction and land development

     147,640         219,837   

Term

     190,272         156,165   
  

 

 

    

 

 

 

Total commercial real estate

     337,912         376,002   

Consumer:

     

Home equity credit line

     17,425         18,376   

1-4 family residential

     86,910         90,857   

Construction and other consumer real estate

     8,060         12,096   

Bankcard and other revolving plans

     537         346   

Other

     2,641         2,498   
  

 

 

    

 

 

 

Total consumer loans

     115,573         124,173   

FDIC-supported loans

     22,623         24,267   
  

 

 

    

 

 

 

Total

   $ 872,136       $ 891,659   
  

 

 

    

 

 

 

Past due loans (accruing and nonaccruing) are summarized as follows:

 

     March 31, 2012  

(In thousands)

 

   Current      30-89 days
past  due
     90+ days
past  due
     Total
past  due
     Total
loans
     Accruing
loans
90+ days
past due
     Nonaccrual
loans
that are
current1
 

Loans held for sale

   $ 184,579       $       $       $       $ 184,579       $       $ 30   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial:

                    

Commercial and industrial

   $ 10,005,362       $ 75,593       $ 76,307       $ 151,900       $ 10,157,262       $ 16,825       $ 64,254   

Leasing

     393,061         783         72         855         393,916                 1,234   

Owner occupied

     7,679,180         81,076         126,192         207,268         7,886,448         13,837         101,876   

Municipal

     440,747                                 440,747                   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     18,518,350         157,452         202,571         360,023         18,878,373         30,662         167,364   

Commercial real estate:

                    

Construction and land development

     2,015,353         17,204         67,787         84,991         2,100,344         1,966         71,841   

Term

     7,921,052         49,320         99,594         148,914         8,069,966         3,182         78,243   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     9,936,405         66,524         167,381         233,905         10,170,310         5,148         150,084   

Consumer:

                    

Home equity credit line

     2,151,906         5,979         9,214         15,193         2,167,099                 4,888   

1-4 family residential

     3,793,501         27,789         53,243         81,032         3,874,533         727         28,982   

Construction and other consumer real estate

     311,639         2,041         2,577         4,618         316,257         184         5,153   

Bankcard and other revolving plans

     269,570         2,227         1,794         4,021         273,591         1,451         179   

Other

     220,139         1,004         2,169         3,173         223,312                 294   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loans

     6,746,755         39,040         68,997         108,037         6,854,792         2,362         39,496   

FDIC-supported loans

     579,075         15,682         92,369         108,051         687,126         76,945         5,416   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 35,780,585       $ 278,698       $ 531,318       $ 810,016       $ 36,590,601       $ 115,117       $ 362,360   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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     December 31, 2011  

(In thousands)

 

   Current      30-89 days
past  due
     90+ days
past  due
     Total
past due
     Total
loans
     Accruing
loans
90+ days
past due
     Nonaccrual
loans
that are
current1
 

Loans held for sale

   $ 183,344       $       $ 18,246       $ 18,246       $ 201,590       $ 30       $   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial:

                    

Commercial and industrial

   $ 10,198,434       $ 62,153       $ 74,271       $ 136,424       $ 10,334,858       $ 4,966       $ 47,939   

Leasing

     377,914         1,634         161         1,795         379,709                 1,319   

Owner occupied

     7,953,280         93,763         111,513         205,276         8,158,556         3,230         85,495   

Municipal

     441,241                                 441,241                   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     18,970,869         157,550         185,945         343,495         19,314,364         8,196         134,753   

Commercial real estate:

                    

Construction and land development

     2,137,544         21,562         105,803         127,365         2,264,909         2,471         107,991   

Term

     7,770,268         51,592         61,574         113,166         7,883,434         4,170         88,451   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     9,907,812         73,154         167,377         240,531         10,148,343         6,641         196,442   

Consumer:

                    

Home equity credit line

     2,169,190         8,669         9,569         18,238         2,187,428                 5,542   

1-4 family residential

     3,846,012         18,985         56,219         75,204         3,921,216         2,833         32,067   

Construction and other consumer real estate

     294,371         5,008         6,494         11,502         305,873         136         4,773   

Bankcard and other revolving plans

     287,541         1,984         1,493         3,477         291,018         1,309         122   

Other

     221,575         1,995         1,970         3,965         225,540                 372   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loans

     6,818,689         36,641         75,745         112,386         6,931,075         4,278         42,876   

FDIC-supported loans

     634,113         27,791         88,966         116,757         750,870         74,611         6,812   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 36,331,483       $ 295,136       $ 518,033       $ 813,169       $ 37,144,652       $ 93,726       $ 380,883   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

Represents nonaccrual loans that are not past due more than 30 days; however, full payment of principal and interest is still not expected.

Credit Quality Indicators

In addition to the past due and nonaccrual criteria, we also analyze loans using a loan grading system. We generally assign internal grades to loans with commitments less than $500,000 based on the performance of those loans. Performance-based grades follow our definitions of Pass, Special Mention, Substandard, and Doubtful, which are consistent with published definitions of regulatory risk classifications.

Definitions of Pass, Special Mention, Substandard, and Doubtful are summarized as follows:

Pass: A Pass asset is higher quality and does not fit any of the other categories described below. The likelihood of loss is considered remote.

Special Mention: A Special Mention asset has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the bank is currently protected and loss is considered unlikely and not imminent.

Substandard: A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have well defined weaknesses and are characterized by the distinct possibility that the bank may sustain some loss if deficiencies are not corrected.

Doubtful: A Doubtful asset has all the weaknesses inherent in a Substandard asset with the added characteristics that the weaknesses make collection or liquidation in full highly questionable.

We generally assign internal grades to commercial and commercial real estate loans with commitments equal

 

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to or greater than $500,000 based on financial/statistical models and loan officer judgment. For these larger loans, we assign one of fourteen probability of default grades (in order of declining credit quality) and one of twelve loss-given-default grades. The first ten of the fourteen probability of default grades indicate a Pass grade. The remaining four grades are: Special Mention, Substandard, Doubtful, and Loss. Loss indicates that the outstanding balance has been charged-off. We evaluate our credit quality information such as risk grades at least quarterly, or as soon as we identify information that might warrant an upgrade or downgrade. Risk grades are then updated as necessary.

For consumer loans, we generally assign internal risk grades similar to those described previously based on payment performance. These are generally assigned with either a Pass or Substandard grade and are reviewed as we identify information that might warrant an upgrade or downgrade.

Outstanding loan balances (accruing and nonaccruing) categorized by these credit quality indicators are summarized as follows:

 

     March 31, 2012  
(In thousands)    Pass      Special
Mention
     Sub-
standard
     Doubtful      Total
loans
     Total
allowance
 

Loans held for sale

   $ 183,963       $ 30       $ 586       $       $ 184,579       $   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial:

                 

Commercial and industrial

   $ 9,476,937       $ 272,739       $ 394,577       $ 13,009       $ 10,157,262      

Leasing

     381,236         4,601         8,079                 393,916      

Owner occupied

     7,122,814         190,785         562,243         10,606         7,886,448      

Municipal

     425,387         15,360                         440,747      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     17,406,374         483,485         964,899         23,615         18,878,373       $ 631,169   

Commercial real estate:

                 

Construction and land development

     1,573,304         199,607         323,423         4,010         2,100,344      

Term

     7,271,226         256,897         534,762         7,081         8,069,966      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     8,844,530         456,504         858,185         11,091         10,170,310         248,744   

Consumer:

                 

Home equity credit line

     2,114,658         101         52,296         44         2,167,099      

1-4 family residential

     3,737,361         2,632         134,317         223         3,874,533      

Construction and other consumer real estate

     289,848         12,058         12,699         1,652         316,257      

Bankcard and other revolving plans

     261,711         3,593         8,287                 273,591      

Other

     217,801                 5,511                 223,312      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loans

     6,621,379         18,384         213,110         1,919         6,854,792         109,101   

FDIC-supported loans

     444,230         33,102         209,792         2         687,126         21,045   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 33,316,513       $ 991,475       $ 2,245,986       $ 36,627       $ 36,590,601       $ 1,010,059   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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ZIONS BANCORPORATION AND SUBSIDIARIES

 

     December 31, 2011  
(In thousands)    Pass      Special
Mention
     Sub-
standard
     Doubtful      Total
loans
     Total
allowance
 

Loans held for sale

   $ 182,626       $       $ 18,964       $       $ 201,590       $   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial:

                 

Commercial and industrial

   $ 9,612,143       $ 271,845       $ 442,139       $ 8,731       $ 10,334,858      

Leasing

     362,711         5,878         11,120                 379,709      

Owner occupied

     7,481,207         184,821         486,584         5,944         8,158,556      

Municipal

     425,807         15,434                         441,241      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     17,881,868         477,978         939,843         14,675         19,314,364       $ 627,825   

Commercial real estate:

                 

Construction and land development

     1,647,741         187,323         426,152         3,693         2,264,909      

Term

     7,243,678         196,377         437,390         5,989         7,883,434      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     8,891,419         383,700         863,542         9,682         10,148,343         275,546   

Consumer:

                 

Home equity credit line

     2,136,190         106         51,089         43         2,187,428      

1-4 family residential

     3,788,958         5,736         126,277         245         3,921,216      

Construction and other consumer real estate

     274,712         12,206         16,967         1,988         305,873      

Bankcard and other revolving plans

     278,767         3,832         8,419                 291,018      

Other

     221,114         163         4,256         7         225,540      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loans

     6,699,741         22,043         207,008         2,283         6,931,075         123,115   

FDIC-supported loans

     499,956         35,877         215,031         6         750,870         23,472   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 33,972,984       $ 919,598       $ 2,225,424       $ 26,646       $ 37,144,652       $ 1,049,958   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled interest payments. If a nonaccrual loan has a balance greater than $1 million or if a loan is a troubled debt restructuring (“TDR”), including TDRs that subsequently default, we evaluate the loan for impairment and estimate a specific reserve for the loan for all portfolio segments under applicable accounting guidance. Smaller nonaccrual loans are pooled for ALLL estimation purposes.

When a loan is impaired, we estimate a specific reserve for the loan based on the projected present value of the loan’s future cash flows discounted at the loan’s effective interest rate, the observable market price of the loan, or the fair value of the loan’s underlying collateral less the cost to sell. The process of estimating future cash flows also incorporates the same determining factors discussed previously under nonaccrual loans. When we base the impairment amount on the fair value of the loan’s underlying collateral, we generally charge off the portion of the balance that is impaired, such that these loans do not have a specific reserve in the ALLL. Payments received on impaired loans that are accruing are recognized in interest income, according to the contractual loan agreement. Payments received on impaired loans that are on nonaccrual are not recognized in interest income, but are applied as a reduction to the principal outstanding. Payments are recognized when cash is received.

 

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ZIONS BANCORPORATION AND SUBSIDIARIES

 

Information on impaired loans individually evaluated is summarized as follows, including the average recorded investment and interest income recognized for the three months ended March 31, 2012 and 2011:

 

     March 31, 2012  

(In thousands)

   Unpaid
principal
balance
     Recorded investment      Total
recorded
investment
     Related
allowance
 
      with no
allowance
     with
allowance
       

Commercial:

              

Commercial and industrial

   $ 232,638       $ 60,627       $ 116,854       $ 177,481       $ 24,219   

Owner occupied

     238,737         123,793         82,574         206,367         6,896   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     471,375         184,420         199,428         383,848         31,115   

Commercial real estate:

              

Construction and land development

     303,480         146,158         88,335         234,493         5,108   

Term

     404,556         200,648         137,338         337,986         11,329   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     708,036         346,806         225,673         572,479         16,437   

Consumer:

              

Home equity credit line

     1,178         376         710         1,086         147   

1-4 family residential

     111,985         47,497         46,472         93,969         8,726   

Construction and other consumer real estate

     8,518         2,551         4,257         6,808         710   

Other

     2,685         1,223         1,441         2,664         51   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer loans

     124,366         51,647         52,880         104,527         9,634   

FDIC-supported loans

     237,124         25,888         79,869         105,757         7,243   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,540,901       $ 608,761       $ 557,850       $ 1,166,611       $ 64,429   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended
March 31, 2012
    Three Months Ended
March 31, 2011
 
(In thousands)    Average
recorded
investment
     Interest
income
recognized
    Average
recorded
investment
     Interest
income
recognized
 

Commercial:

          

Commercial and industrial

   $ 178,428       $ 888      $ 210,610       $ 563   

Owner occupied

     204,469         600        321,311         686   

Municipal

                    1,983           
  

 

 

    

 

 

   

 

 

    

 

 

 

Total commercial

     382,897         1,488        533,904         1,249   

Commercial real estate:

          

Construction and land development

     257,194         1,562        583,756         1,424   

Term

     346,399         1,973        416,262         1,759   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total commercial real estate

     603,593         3,535        1,000,018         3,183   

Consumer:

          

Home equity credit line

     1,280         1        1,956