Asset quality – Non-covered loan portfolio

Non-covered, non-performing assets were $99.6 million, or 0.86% of total assets, as of September 30, 2012, compared to $116.9 million, or 1.01% of total assets as of June 30, 2012, and $146.4 million, or 1.24% of total assets as of September 30, 2011. Of this amount, as of September 30, 2012, $73.7 million represented non-accrual loans, $6.6 million represented loans past due greater than 90 days and still accruing interest, and $19.3 million was other real estate owned (“OREO”).

Non-covered, classified assets were $348.8 million as of September 30, 2012, compared to $351.7 million as of June 30, 2012, and $457.6 million as of September 30, 2011. Total non-covered, classified assets have declined 1% since the prior quarter and have declined 24% since the same period of the prior year. Classified assets include non-performing assets, as well as performing assets rated substandard or worse.

The Company has aggressively charged-down impaired assets to their disposition values, and the assets are expected to be resolved at those levels, absent further declines in market prices. As of September 30, 2012, the non-covered, non-performing assets of $99.6 million have been written down by 35%, or $52.9 million, from their current par balance of $152.5 million.

The provision for non-covered loan losses for the third quarter of 2012 was $7.1 million, representing a 7% increase from the prior quarter, and a 22% decrease from the same period of the prior year. The modest increase in provision expense in the current quarter over the prior quarter largely relates to the non-covered loan growth of $144 million, partially offset by improved quality of the loan portfolio. The decrease in provision and allowance for non-covered loan and lease losses from the same period of the prior year reflects the continued improvement and stabilization of credit quality, including less net charge-offs and the decline of classified and non-performing loans.

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