Agenda - Council - 11/13/2012 - Laserfiche WebLink

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Loans and Leases Loans and leases make up a portfolio that the Bank has the intent and the ability to hold for the foreseeable future or until maturity or payoff. The Bank's loans and lease portfolio is divided into two portfolio segments, which are the same segments used by the Bank to detennine the allowance for credit losses, commercial and consumer. The portfolio segments are well diversified by borrower, collateral and industry. The Bank further disaggregates its portfolio segments into various classes of loans for purposes of monitoring and assessing credit risk as described below. Commercial Loans The Bank disaggregates the commercial loan portfolio into the following classes: • Loans to businesses for commercial, industrial and professional purposes ("Commercial & industrial"); • Loans that are secured by real estate properties ("Commercial real estate"); • Loans secured by real estate to finance land development and construction of industrial, commercial, residential or faun building ("Construction"); • Indirect and direct leases to finance commercial equipment purchases ("Equipment leases"); • Loans to finance agricultural production and other loans to fanners ("Agriculture"). Consumer Loans The Bank disaggregates the consumer loan portfolio into the following classes: • Consumer loans and leases such as autos, marine, recreational vehicles, personal lines of credit and credit cards ("Installments and lines"); • Closed -end loans secured by first and junior liens on 1-4 family residential properties ("Residential secured — closed -end"); • Revolving, open-end loans secured by 1-4 family residential properties ("Residential secured — revolving, open-end"). Loans that the Bank originates are recorded at the principal amount outstanding, net of unamortized deferred loan origination fees and costs. Loans purchased by the Bank are initially measured at fair value at the date of acquisition at a premium or discount, as appropriate. At the time of acquisition, the seller's estimate for expected credit losses is not carried over or recorded by the Bank as a credit loss allowance against the loans (see Allowance for Credit Losses below). Net deferred fees or costs and premiums and discounts are recognized in earnings over the contractual tern of the loans, adjusted for actual prepayments, using the interest method or on a straight line basis for revolving loans. Interest income is accrued unless the loan is determined to be impaired and placed on nonaccrual status (see Nonaccrual Loans and Leases below). The Bank recognizes unaccreted or unamortized fees, costs, premiums and discounts on loans and leases paid in full as a component of interest income. Direct financing leases are carried at the aggregate of lease payments receivable plus estimated residual value less unearned income. Unearned income on financing leases is accreted over the lives of the leases to provide a constant periodic rate of return on the net investment in the lease. The Bank reviews commercial lease residual values at least annually and recognizes residual value impairments that are deemed to be other -than -temporary through earnings. The Bank also charges other loan and lease fees consisting of delinquent payment charges and servicing fees, including fees for servicing loans sold to third parties, and recognizes such fees as income when earned. -8- 2011 Bank of the West Annual Report