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Section 1: 10-Q (FORM 10-Q)

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2014

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: 001-31343

 

 

Associated Banc-Corp

(Exact name of registrant as specified in its charter)

 

 

 

Wisconsin   39-1098068

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

433 Main Street, Green Bay, Wisconsin   54301
(Address of principal executive offices)   (Zip Code)

(920) 491-7500

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

 

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 Website, 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   ¨  (Do not check if smaller reporting company)    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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at July 31, 2014, was 154,864,826.

 

 

 


Table of Contents

ASSOCIATED BANC-CORP

TABLE OF CONTENTS

 

     Page No.  

PART I. Financial Information

  

Item 1. Financial Statements (Unaudited):

  

Consolidated Balance Sheets — June 30, 2014 and December 31, 2013

     3   

Consolidated Statements of Income — Three and Six Months Ended June 30, 2014 and 2013

     4   

Consolidated Statements of Comprehensive Income —Three and Six Months Ended June 30, 2014 and 2013

     5   

Consolidated Statements of Changes in Stockholders’ Equity — Six Months Ended June  30, 2014 and 2013

     6   

Consolidated Statements of Cash Flows — Six Months Ended June 30, 2014 and 2013

     7   

Notes to Consolidated Financial Statements

     8   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     51   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     82   

Item 4. Controls and Procedures

     82   

PART II. Other Information

  

Item 1. Legal Proceedings

     82   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     83   

Item 6. Exhibits

     83   

Signatures

     84   

 

2


Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements:

ASSOCIATED BANC-CORP

Consolidated Balance Sheets

 

     June 30,
2014
(Unaudited)
    December 31,
2013
(Audited)
 
     (In Thousands, except share and per share data)  

ASSETS

    

Cash and due from banks

   $ 549,883     $ 455,482  

Interest-bearing deposits in other financial institutions

     78,233       126,018  

Federal funds sold and securities purchased under agreements to resell

     18,135       20,745  

Investment securities held to maturity, at amortized cost

     246,050       175,210  

Investment securities available for sale, at fair value

     5,506,379       5,250,585  

Federal Home Loan Bank and Federal Reserve Bank stocks, at cost

     186,247       181,249  

Loans held for sale

     78,657       64,738  

Loans

     17,045,052       15,896,261  

Allowance for loan losses

     (271,851     (268,315
  

 

 

   

 

 

 

Loans, net

     16,773,201       15,627,946  

Premises and equipment, net

     264,735       270,890  

Goodwill

     929,168       929,168  

Other intangible assets, net

     70,538       74,464  

Trading assets

     40,630       43,728  

Other assets

     985,930       1,006,697  
  

 

 

   

 

 

 

Total assets

   $ 25,727,786     $ 24,226,920  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Noninterest-bearing demand deposits

   $ 4,211,057     $ 4,626,312  

Interest-bearing deposits

     13,105,202       12,640,855  
  

 

 

   

 

 

 

Total deposits

     17,316,259       17,267,167  

Federal funds purchased and securities sold under agreements to repurchase

     959,051       475,442  

Other short-term funding

     1,378,120       265,484  

Long-term funding

     2,931,809       3,087,267  

Trading liabilities

     43,311       46,470  

Accrued expenses and other liabilities

     169,290       193,800  
  

 

 

   

 

 

 

Total liabilities

     22,797,840       21,335,630  

Stockholders’ equity

    

Preferred equity

     61,024       61,862  

Common stock

     1,750       1,750  

Surplus

     1,628,356       1,617,990  

Retained earnings

     1,432,518       1,392,508  

Accumulated other comprehensive income (loss)

     10,494       (24,244

Treasury stock, at cost

     (204,196     (158,576
  

 

 

   

 

 

 

Total stockholders’ equity

     2,929,946       2,891,290  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 25,727,786     $ 24,226,920  
  

 

 

   

 

 

 

Preferred shares issued

     62,689       63,549  

Preferred shares authorized (par value $1.00 per share)

     750,000       750,000  

Common shares issued

     175,012,686       175,012,686  

Common shares authorized (par value $0.01 per share)

     250,000,000       250,000,000  

Treasury shares of common stock

     13,464,882       10,874,182  

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

ITEM 1. Financial Statements Continued:

 

ASSOCIATED BANC-CORP

Consolidated Statements of Income

(Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2014      2013     2014      2013  
     (In Thousands, except per share data)  

INTEREST INCOME

          

Interest and fees on loans

   $ 146,629      $ 146,896     $ 290,016      $ 292,423  

Interest and dividends on investment securities

          

Taxable

     26,109        21,446       52,366        43,059  

Tax exempt

     7,030        6,785       14,001        13,750  

Other interest

     1,862        1,233       3,311        2,480  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest income

     181,630        176,360       359,694        351,712  

INTEREST EXPENSE

          

Interest on deposits

     6,195        7,769       12,354        16,310  

Interest on Federal funds purchased and securities sold under agreements to repurchase

     306        333       611        743  

Interest on other short-term funding

     280        525       396        857  

Interest on long-term funding

     6,146        7,551       12,657        15,967  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense

     12,927        16,178       26,018        33,877  
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INTEREST INCOME

     168,703        160,182       333,676        317,835  

Provision for credit losses

     5,000        5,300       10,000        8,600  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provision for credit losses

     163,703        154,882       323,676        309,235  

NONINTEREST INCOME

          

Trust service fees

     12,017        11,405       23,728        22,315  

Service charges on deposit accounts

     17,412        17,443       33,812        34,272  

Card-based and other nondeposit fees

     12,577        12,591       25,086        24,541  

Insurance commissions

     13,651        9,631       25,968        21,394  

Brokerage and annuity commissions

     4,520        3,688       8,553        7,204  

Mortgage banking, net

     5,362        19,263       11,723        37,028  

Capital market fees, net

     2,099        5,074       4,421        7,657  

Bank owned life insurance income

     3,011        3,281       7,331        6,251  

Asset gains (losses), net

     899        (44     1,627        792  

Investment securities gains, net

     34        34       412        334  

Other

     665        1,944       3,107        4,522  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total noninterest income

     72,247        84,310       145,768        166,310  

NONINTEREST EXPENSE

          

Personnel expense

     97,793        99,791       195,491        197,698  

Occupancy

     13,785        14,305       29,345        29,967  

Equipment

     6,227        6,462       12,503        12,629  

Technology

     14,594        12,651       27,318        24,159  

Business development and advertising

     5,077        5,028       10,139        9,565  

Other intangible asset amortization

     991        1,011       1,982        2,022  

Loan expense

     3,620        3,044       6,407        6,328  

Legal and professional fees

     4,436        5,483       8,624        10,828  

Losses other than loans

     381        499       925        883  

Foreclosure / OREO expense

     1,575        2,302       3,471        4,724  

FDIC expense

     4,945        4,395       9,946        9,827  

Other

     14,501        13,725       29,432        27,681  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total noninterest expense

     167,925        168,696       335,583        336,311  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before income taxes

     68,025        70,496       133,861        139,234  

Income tax expense

     21,660        22,608       42,297        43,958  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

     46,365        47,888       91,564        95,276  

Preferred stock dividends

     1,278        1,300       2,522        2,600  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income available to common equity

   $ 45,087      $ 46,588     $ 89,042      $ 92,676  
  

 

 

    

 

 

   

 

 

    

 

 

 

Earnings per common share:

          

Basic

   $ 0.28      $ 0.28     $ 0.55      $ 0.55  

Diluted

   $ 0.28      $ 0.28     $ 0.55      $ 0.55  

Average common shares outstanding:

          

Basic

     159,940        166,605       160,699        167,415  

Diluted

     160,838        166,748       161,513        167,552  

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

ITEM 1. Financial Statements Continued:

 

ASSOCIATED BANC-CORP

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2014     2013     2014     2013  
     ($ in Thousands)  

Net income

   $ 46,365     $ 47,888     $ 91,564     $ 95,276  

Other comprehensive income (loss), net of tax:

        

Investment securities available for sale:

        

Net unrealized gains (losses)

     35,557       (111,829     56,184       (121,760

Reclassification adjustment for net gains realized in net income

     (34     (34     (412     (334

Income tax (expense) benefit

     (13,655     43,188       (21,441     47,138  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) on investment securities available for sale

     21,868       (68,675     34,331       (74,956

Defined benefit pension and postretirement obligations:

        

Amortization of prior service cost

     15       17       30       35  

Amortization of actuarial losses

     316       1,073       632       2,145  

Income tax expense

     (128     (421     (255     (842
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income on pension and postretirement obligations

     203       669       407       1,338  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     22,071       (68,006     34,738       (73,618
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 68,436     $ (20,118   $ 126,302     $ 21,658  
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

ITEM 1. Financial Statements Continued:

 

ASSOCIATED BANC-CORP

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

     Preferred
Equity
    Common
Stock
     Surplus      Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Treasury
Stock
    Total  
     ($ in Thousands, except per share data)  

Balance, December 31, 2012

   $ 63,272     $ 1,750      $ 1,602,136      $ 1,281,811     $ 48,603     $ (61,173   $ 2,936,399  

Comprehensive income:

                

Net income

     —         —           —           95,276       —          —          95,276  

Other comprehensive loss

     —          —           —           —          (73,618     —          (73,618
                

 

 

 

Comprehensive income

                   21,658  
                

 

 

 

Common stock issued:

                

Stock-based compensation plans, net

     —          —           387        (16,793     —          20,401       3,995  

Purchase of treasury stock

     —          —           —           —          —          (63,239     (63,239

Cash dividends:

                

Common stock, $0.16 per share

     —          —           —           (26,957     —          —          (26,957

Preferred stock

     —          —           —           (2,600     —          —          (2,600

Stock-based compensation expense, net

     —          —           7,571        —          —          —          7,571  

Tax benefit of stock options

     —          —           149        —          —          —          149  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

   $ 63,272     $ 1,750      $ 1,610,243      $ 1,330,737     $ (25,015   $ (104,011   $ 2,876,976  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2013

   $ 61,862     $ 1,750      $ 1,617,990      $ 1,392,508     $ (24,244   $ (158,576   $ 2,891,290  

Comprehensive income:

                

Net income

     —          —           —           91,564       —          —          91,564  

Other comprehensive income

     —          —           —           —          34,738       —          34,738  
                

 

 

 

Comprehensive income

                   126,302  
                

 

 

 

Common stock issued:

                

Stock-based compensation plans, net

     —          —           1,071        (19,735     —          27,027       8,363  

Purchase of treasury stock

     —          —           —           —          —          (72,647     (72,647

Cash dividends:

                

Common stock, $0.18 per share

     —          —           —           (29,175     —          —          (29,175

Preferred stock

     —          —           —           (2,522     —          —          (2,522

Purchase of preferred stock

     (838     —           —           (122     —          —          (960

Stock-based compensation expense, net

     —          —           8,468        —          —          —          8,468  

Tax benefit of stock options

     —          —           827        —          —          —          827  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2014

   $ 61,024     $ 1,750      $ 1,628,356      $ 1,432,518     $ 10,494     $ (204,196   $ 2,929,946  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

ITEM 1. Financial Statements Continued:

 

ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows

(Unaudited)

 

     Six Months Ended June 30,  
     2014     2013  
     ($ in Thousands)  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 91,564     $ 95,276  

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

    

Provision for credit losses

     10,000       8,600  

Depreciation and amortization

     25,834       24,016  

Addition to (recovery of) valuation allowance on mortgage servicing rights, net

     119       (13,282

Amortization of mortgage servicing rights

     5,545       9,191  

Amortization of other intangible assets

     1,982       2,022  

Amortization and accretion on earning assets, funding, and other, net

     13,788       26,294  

Tax impact of stock based compensation

     827       149  

Gain on sales of investment securities, net

     (412     (334

Gain on sales of assets and impairment write-downs, net

     (1,627     (792

Gain on mortgage banking activities, net

     (8,169     (14,808

Mortgage loans originated and acquired for sale

     (479,449     (1,463,808

Proceeds from sales of mortgage loans held for sale

     478,688       1,525,083  

Pension contributions

     —          (10,000

Increase in interest receivable

     (1,617     (2,581

Decrease in interest payable

     (880     (1,177

Net change in other assets and other liabilities

     (19,677     9,312  
  

 

 

   

 

 

 

Net cash provided by operating activities

     116,516       193,161  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Net increase in loans

     (1,166,685     (392,504

Purchases of:

    

Available for sale securities

     (673,073     (911,453

Premises, equipment, and software, net of disposals

     (19,365     (31,548

FHLB stock

     (4,997     (28,399

Held to maturity securities

     (70,581     (36,181

Other assets

     (461     (884

Proceeds from:

    

Sales of available for sale securities

     80,362       64,055  

Prepayments, calls, and maturities of available for sale securities

     373,692       775,952  

Prepayments, calls, and maturities of held to maturity securities

     5,670       —     

FHLB stock

     —          14,399  

Prepayments, calls, and maturities of other assets

     17,913       21,100  

Sales of loans originated for investment

     —          12,172  
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,457,525     (513,291
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Net increase in deposits

     49,092       192,571  

Net increase in short-term funding

     1,596,245       437,561  

Repayment of long-term funding

     (155,018     (400,110

Purchase of preferred stock

     (960     —     

Cash dividends on common stock

     (29,175     (26,957

Cash dividends on preferred stock

     (2,522     (2,600

Purchase of treasury stock

     (72,647     (63,239
  

 

 

   

 

 

 

Net cash provided by financing activities

     1,385,015       137,226  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     44,006       (182,904

Cash and cash equivalents at beginning of period

     602,245       737,873  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 646,251     $ 554,969  
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash paid for interest

   $ 26,971     $ 34,997  

Cash paid for income taxes

     38,667       20,419  

Loans and bank premises transferred to other real estate owned

     12,049       14,716  

Capitalized mortgage servicing rights

     3,720       11,367  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

7


Table of Contents

ITEM 1. Financial Statements Continued:

 

ASSOCIATED BANC-CORP

Notes to Consolidated Financial Statements

These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with U.S. generally accepted accounting principles have been omitted or abbreviated. The information contained in the consolidated financial statements and footnotes in Associated Banc-Corp’s 2013 annual report on Form 10-K, should be referred to in connection with the reading of these unaudited interim financial statements.

NOTE 1: Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and comprehensive income, changes in stockholders’ equity, and cash flows of Associated Banc-Corp (individually referred to herein as the “Parent Company,” and together with all of its subsidiaries and affiliates, collectively referred to herein as the “Corporation”) for the periods presented, and all such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of all subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

Certain amounts in the consolidated financial statements of prior periods have been reclassified to conform with the current period’s presentation. The consolidated statements of income were modified from prior periods’ presentation to conform with the current period presentation, which shows a new provision for credit losses line item comprised of the provision for loan losses and the provision for unfunded commitments. In prior periods’ presentation, the provision for unfunded commitments was reported as a component of losses other than loans in the consolidated statements of income. The presentation of the consolidated balance sheets remains unchanged with the allowance for loan losses presented as a valuation allowance with the related loan asset, while the allowance for unfunded commitments is included in accrued expenses and other liabilities.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the determination of the allowance for credit losses, goodwill impairment assessment, mortgage servicing rights valuation, and income taxes. Management has evaluated subsequent events for potential recognition or disclosure.

NOTE 2: New Accounting Pronouncements Adopted

In July 2013, the FASB issued an amendment to clarify the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and should be applied prospectively. The Corporation adopted the accounting standard during the first quarter of 2014, as required, with no material impact on its results of operations, financial position, or liquidity.

 

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NOTE 3: Earnings Per Common Share

Earnings per share are calculated utilizing the two-class method. Basic earnings per common share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding adjusted for the dilutive effect of common stock awards (outstanding stock options, unvested restricted stock, and outstanding stock warrants). Presented below are the calculations for basic and diluted earnings per common share.

 

     For the Three Months Ended     For the Six Months Ended  
     June 30     June 30  
     2014     2013     2014     2013  
     (In Thousands, except per share data)  

Net income

   $ 46,365     $ 47,888     $ 91,564     $ 95,276  

Preferred stock dividends

     (1,278     (1,300     (2,522     (2,600
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common equity

   $ 45,087     $ 46,588     $ 89,042     $ 92,676  
  

 

 

   

 

 

   

 

 

   

 

 

 

Common shareholder dividends

     (14,393     (13,305     (28,881     (26,682

Dividends on unvested share-based payment awards

     (143     (168     (294     (275
  

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed earnings

   $ 30,551     $ 33,115     $ 59,867     $ 65,719  
  

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed earnings allocated to common shareholders

     30,247       32,864       59,375       65,239  

Undistributed earnings allocated to unvested share-based payment awards

     304       251       492       480  
  

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed earnings

   $ 30,551     $ 33,115     $ 59,867     $ 65,719  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic

        

Distributed earnings to common shareholders

   $ 14,393     $ 13,305     $ 28,881     $ 26,682  

Undistributed earnings allocated to common shareholders

     30,247       32,864       59,375       65,239  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total common shareholders earnings, basic

   $ 44,640     $ 46,169     $ 88,256     $ 91,921  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

        

Distributed earnings to common shareholders

   $ 14,393     $ 13,305     $ 28,881     $ 26,682  

Undistributed earnings allocated to common shareholders

     30,247       32,864       59,375       65,239  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total common shareholders earnings, diluted

   $ 44,640     $ 46,169     $ 88,256     $ 91,921  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

     159,940       166,605       160,699       167,415  

Effect of dilutive common stock awards

     898       143       814       137  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average common shares outstanding

     160,838       166,748       161,513       167,552  

Basic earnings per common share

   $ 0.28     $ 0.28     $ 0.55     $ 0.55  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.28     $ 0.28     $ 0.55     $ 0.55  
  

 

 

   

 

 

   

 

 

   

 

 

 

Options to purchase approximately 3 million and 2 million shares were outstanding for the three and six months ended June 30, 2014, respectively, but excluded from the calculation of diluted earnings per common share as the effect would have been anti-dilutive. Options to purchase approximately 3 million shares were outstanding for both the three and six months ended June 30, 2013, but excluded from the calculation of diluted earnings per common share as the effect would have been anti-dilutive.

 

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NOTE 4: Stock-Based Compensation

At June 30, 2014, the Corporation had one stock-based compensation plan, the 2013 Incentive Compensation Plan. All stock options granted under this plan have an exercise price that is equal to the closing price of the Corporation’s stock on the grant date.

The Corporation may issue restricted common stock and restricted common stock units to certain key employees (collectively referred to as “restricted stock awards”). The shares of restricted stock are restricted as to transfer, but are not restricted as to dividend payment or voting rights. Restricted stock units receive dividend equivalents but do not have voting rights. The transfer restrictions primarily lapse over three or four years, depending upon whether the awards are service-based or performance-based. Service-based awards are contingent upon continued employment or meeting the requirements for retirement, and performance-based awards are based on earnings per share performance goals, total shareholder return, and continued employment or meeting the requirements for retirement.

The fair value of stock options granted is estimated on the date of grant using a Black-Scholes option pricing model, while the fair value of restricted stock awards is their fair market value on the date of grant. The fair values of stock options and restricted stock awards are amortized as compensation expense on a straight-line basis over the vesting period of the grants. Compensation expense recognized is included in personnel expense in the consolidated statements of income.

Assumptions are used in estimating the fair value of stock options granted. The weighted average expected life of the stock option represents the period of time that stock options are expected to be outstanding and is estimated using historical data of stock option exercises and forfeitures. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the implied volatility of the Corporation’s stock. The following assumptions were used in estimating the fair value for options granted in the first six months of 2014 and full year 2013.

 

     2014     2013  

Dividend yield

     2.00     2.00

Risk-free interest rate

     2.00     0.99

Weighted average expected volatility

     20.00     34.35

Weighted average expected life

     6 years        6 years   

Weighted average per share fair value of options

   $ 3.00     $ 3.80  

The Corporation is required to estimate potential forfeitures of stock grants and adjust compensation expense recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods. The plan provides that restricted common stock and stock options will immediately become fully vested upon retirement from the Corporation of those colleagues whose retirements meet the early retirement or normal retirement definitions under the plan (“retirement eligible colleagues”).

 

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A summary of the Corporation’s stock option activity for the year ended December 31, 2013 and for the six months ended June 30, 2014, is presented below.

 

                  Weighted Average      Aggregate Intrinsic  
           Weighted Average      Remaining      Value  

Stock Options

   Shares     Exercise Price      Contractual Term      (000s)  

Outstanding at December 31, 2012

     8,640,558     $ 18.88        

Granted

     1,020,979       14.02        

Exercised

     (642,202     13.43        

Forfeited or expired

     (985,092     21.49        
  

 

 

   

 

 

       

Outstanding at December 31, 2013

     8,034,243     $ 18.37        6.03      $ 20,838  
  

 

 

   

 

 

       

Options exercisable at December 31, 2013

     4,923,720     $ 21.48        4.62        8,580  
  

 

 

   

 

 

       

Outstanding at December 31, 2013

     8,034,243     $ 18.37        

Granted

     1,389,452       17.45        

Exercised

     (554,339     13.76        

Forfeited or expired

     (511,411     25.19        
  

 

 

   

 

 

       

Outstanding at June 30, 2014

     8,357,945     $ 18.11        6.40      $ 22,723  
  

 

 

   

 

 

       

Options exercisable at June 30, 2014

     5,434,125     $ 19.61        5.10        14,646  
  

 

 

   

 

 

       

The following table summarizes information about the Corporation’s nonvested stock option activity for the year ended December 31, 2013, and for the six months ended June 30, 2014.

 

           Weighted Average  

Stock Options

   Shares     Grant Date Fair Value  

Nonvested at December 31, 2012

     4,036,595     $ 5.11  

Granted

     1,020,979       3.80  

Vested

     (1,680,981     5.10  

Forfeited

     (266,070     5.05  
  

 

 

   

Nonvested at December 31, 2013

     3,110,523     $ 4.69  
  

 

 

   

Granted

     1,389,452       3.00  

Vested

     (1,476,283     4.95  

Forfeited

     (99,872     4.44  
  

 

 

   

Nonvested at June 30, 2014

     2,923,820     $ 3.76  
  

 

 

   

For both the six months ended June 30, 2014 and the year ended December 31, 2013, the intrinsic value of stock options exercised was $2 million. The total fair value of stock options that vested was $7 million for the first six months of 2014 and $9 million for the year ended December 31, 2013. For the six months ended June 30, 2014 and 2013, the Corporation recognized compensation expense for the vesting of stock options of $3 million and $4 million, respectively. For the full year 2013, the Corporation recognized compensation expense of $8 million for the vesting of stock options. Included in compensation expense for 2014 was approximately $250,000 of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At June 30, 2014, the Corporation had $8 million of unrecognized compensation expense related to stock options that is expected to be recognized over the remaining requisite service periods that extend predominantly through fourth quarter 2018.

 

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The following table summarizes information about the Corporation’s restricted stock awards activity for the year ended December 31, 2013, and for the six months ended June 30, 2014.

 

           Weighted Average  

Restricted Stock

   Shares     Grant Date Fair Value  

Outstanding at December 31, 2012

     932,425     $ 13.60  

Granted

     1,276,868       14.03  

Vested

     (626,480     13.68  

Forfeited

     (71,048     13.92  
  

 

 

   

Outstanding at December 31, 2013

     1,511,765     $ 13.92  
  

 

 

   

Granted

     1,135,580       17.41  

Vested

     (518,017     14.10  

Forfeited

     (68,333     14.62  
  

 

 

   

Outstanding at June 30, 2014

     2,060,995     $ 15.77  
  

 

 

   

The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant. Restricted stock awards granted during 2013 to executive officers will vest ratably over a three year period, while restricted stock awards granted during 2014 will vest ratably over a four year period. Restricted stock awards granted to non-executives during 2014 and 2013 will vest ratably over a four year period. Expense for restricted stock awards of approximately $5 million and $4 million was recognized for the six months ended June 30, 2014 and 2013, respectively. The Corporation recognized approximately $7 million of expense for restricted stock awards for the full year 2013. Included in compensation expense for 2014 was approximately $950,000 of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $27 million of unrecognized compensation costs related to restricted stock awards at June 30, 2014 that is expected to be recognized over the remaining requisite service periods that extend predominantly through fourth quarter 2018.

The Corporation issues shares from treasury, when available, or new shares upon the exercise of stock options or the granting of restricted stock awards. The Board of Directors has authorized management to repurchase shares of the Corporation’s common stock each quarter in the market, to be made available for issuance in connection with the Corporation’s employee incentive plans and for other corporate purposes. The repurchase of shares will be based on market and investment opportunities, capital levels, growth prospects, and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.

 

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NOTE 5: Investment Securities

The amortized cost and fair values of investment securities available for sale and held to maturity were as follows.

 

            Gross      Gross        
     Amortized      unrealized      unrealized        

June 30, 2014:

   cost      gains      losses     Fair value  
     ($ in Thousands)  

Investment securities available for sale:

          

U.S. Treasury securities

   $ 1,000      $      $     $ 1,000  

Obligations of state and political subdivisions (municipal securities)

     626,798        27,344        (102     654,040  

Residential mortgage-related securities:

          

Government-sponsored enterprise (“GSE”)

     3,852,274        69,798        (40,151     3,881,921  

Private-label

     2,597        18        (1     2,614  

GNMA commercial mortgage-related securities

     961,507        2,516        (23,681     940,342  

Asset-backed securities (1)

     19,396               (1     19,395  

Other securities (debt and equity)

     7,026        41              7,067  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investment securities available for sale

   $ 5,470,598      $ 99,717      $ (63,936   $ 5,506,379  
  

 

 

    

 

 

    

 

 

   

 

 

 

Investment securities held to maturity:

          

Obligations of state and political subdivisions (municipal securities)

   $ 246,050      $ 4,645      $ (1,466   $ 249,229  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investment securities held to maturity

   $ 246,050      $ 4,645      $ (1,466   $ 249,229  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) The asset-backed securities position is largely comprised of senior, floating rate, tranches of student loan securities issued by SLM Corp and guaranteed under the Federal Family Education Loan Program.

 

            Gross      Gross        
     Amortized      unrealized      unrealized        

December 31, 2013:

   cost      gains      losses     Fair value  
     ($ in Thousands)  

Investment securities available for sale:

          

U.S. Treasury securities

   $ 1,001      $ 1      $ —       $ 1,002  

Obligations of state and political subdivisions (municipal securities)

     653,758        23,855        (1,533     676,080  

Residential mortgage-related securities:

          

GSE

     3,855,467        61,542        (78,579     3,838,430  

Private-label

     3,035        16        (37     3,014  

GNMA commercial mortgage-related securities

     673,555        1,764        (27,842     647,477  

Asset-backed securities (1)

     23,049        10        —         23,059  

Other securities (debt and equity)

     60,711        855        (43     61,523  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investment securities available for sale

   $ 5,270,576      $ 88,043      $ (108,034   $ 5,250,585  
  

 

 

    

 

 

    

 

 

   

 

 

 

Investment securities held to maturity:

          

Obligations of state and political subdivisions (municipal securities)

   $ 175,210      $ 401      $ (5,722   $ 169,889  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investment securities held to maturity

   $ 175,210      $ 401      $ (5,722   $ 169,889  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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The amortized cost and fair values of investment securities available for sale and held to maturity at June 30, 2014, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

     Available for Sale     Held to Maturity  
($ in Thousands)    Amortized Cost      Fair Value     Amortized Cost      Fair Value  

Due in one year or less

   $ 22,819      $ 23,062     $ 500      $ 501  

Due after one year through five years

     227,162        238,489       229        230  

Due after five years through ten years

     375,089        390,394       94,136        94,505  

Due after ten years

     9,736        10,112       151,185        153,993  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

     634,806        662,057       246,050        249,229  

Residential mortgage-related securities:

          

GSE

     3,852,274        3,881,921       —          —    

Private-label

     2,597        2,614       —          —    

GNMA commercial mortgage-related securities

     961,507        940,342       —          —    

Asset-backed securities

     19,396        19,395       —          —    

Equity securities

     18        50       —          —    
  

 

 

    

 

 

   

 

 

    

 

 

 

Total investment securities

   $ 5,470,598      $ 5,506,379     $ 246,050      $ 249,229  
  

 

 

    

 

 

   

 

 

    

 

 

 

Ratio of Fair Value to Amortized Cost

        100.7        101.3

The following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2014.

 

     Less than 12 months      12 months or more      Total  
     Number of      Unrealized     Fair      Number of      Unrealized     Fair      Unrealized     Fair  

June 30, 2014:

   Securities      Losses     Value      Securities      Losses     Value      Losses     Value  
            ($ in Thousands)  

Investment securities available for sale:

                    

Obligations of state and political subdivisions (municipal securities)

     13      $ (11   $ 5,281        21      $ (91   $ 9,066      $ (102   $ 14,347  

Residential mortgage-related securities:

                    

GSE

     8        (131     47,505        63        (40,020     1,452,736        (40,151     1,500,241  

Private-label

     —          —         —          2        (1     34        (1     34  

GNMA commercial mortgage-related securities

     9        (1,081     216,723        15        (22,600     396,357        (23,681     613,080  

Asset backed securities

     2        (1     19,395        —          —         —          (1     19,395  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

Total

      $ (1,224   $ 288,904         $ (62,712   $ 1,858,193      $ (63,936   $ 2,147,097  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

Investment securities held to maturity:

                    

Obligations of state and political subdivisions (municipal securities)

     44      $ (168   $ 19,880        132      $ (1,298   $ 59,720      $ (1,466   $ 79,600  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

Total

      $ (168   $ 19,880         $ (1,298   $ 59,720      $ (1,466   $ 79,600  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

 

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For comparative purposes, the following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2013.

 

            Less than 12 months             12 months or more      Total  
     Number                   Number                            
     of      Unrealized            of      Unrealized            Unrealized        

December 31, 2013:

   Securities      Losses     Fair Value      Securities      Losses     Fair Value      Losses     Fair Value  
            ($ in Thousands)  

Investment securities available for sale:

                    

Obligations of state and political subdivisions (municipal securities)

     113      $ (1,525   $ 47,044        1      $ (8   $ 273      $ (1,533   $ 47,317  

Residential mortgage-related securities:

                    

GSE

     106        (57,393     1,887,784        15        (21,186     421,082        (78,579     2,308,866  

Private-label

     2        (37     2,105        1        —         35        (37     2,140  

GNMA commercial mortgage-related securities

     19        (23,854     443,462        1        (3,988     45,950        (27,842     489,412  

Other debt securities

     5        (43     6,452        —          —         —          (43     6,452  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

Total

      $ (82,852   $ 2,386,847         $ (25,182   $ 467,340      $ (108,034   $ 2,854,187  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

Investment securities held to maturity:

                    

Obligations of state and political subdivisions (municipal securities)

     298      $ (5,339   $ 124,435        10      $ (383   $ 5,010      $ (5,722   $ 129,445  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

Total

      $ (5,339   $ 124,435         $ (383   $ 5,010      $ (5,722   $ 129,445  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

The Corporation reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. A determination as to whether a security’s decline in fair value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Corporation may consider in the other-than-temporary impairment analysis include, the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, financial condition and near-term prospects of the issuer, as well as security and industry specific economic conditions. In addition, with regards to its debt securities, the Corporation may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds, and the value of any underlying collateral. For certain debt securities in unrealized loss positions, the Corporation prepares cash flow analyses to compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

Based on the Corporation’s evaluation, management does not believe any unrealized loss at June 30, 2014 represents an other-than-temporary impairment as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions, and not credit deterioration. The unrealized losses reported for residential mortgage-related securities relate to private-label residential mortgage-related securities as well as residential mortgage-related securities issued by government-sponsored enterprises such as the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). The unrealized losses reported for commercial mortgage-related securities relate to securities issued by GNMA. The Corporation currently does not intend to sell nor does it believe that it will be required to sell the securities contained in the above unrealized losses table before recovery of their amortized cost basis. The improvement in the unrealized loss position of the investment securities portfolio was due to a reduction in the overall level of interest rates from December 31, 2013 to June 30, 2014, as well as spread compression on mortgage-related and municipal securities, which increased the fair value of investment securities.

 

15


Table of Contents

The following is a summary of the credit loss portion of other-than-temporary impairment recognized in earnings on debt securities for the year ended December 31, 2013 and the six months ended June 30, 2014, respectively.

 

     Private-label              
     Mortgage-
Related
    Trust Preferred        
     Securities     Debt Securities     Total  
     ($ in Thousands)  

Balance of credit-related other-than-temporary impairment at December 31, 2012

   $ (532   $ (6,336   $ (6,868

Reduction due to credit impaired securities sold

     532       57       589  
  

 

 

   

 

 

   

 

 

 

Balance of credit-related other-than-temporary impairment at December 31, 2013

   $ —       $ (6,279   $ (6,279

Reduction due to credit impaired securities sold

     —         4,279       4,279  
  

 

 

   

 

 

   

 

 

 

Balance of credit-related other-than-temporary impairment at June 30, 2014

   $ —       $ (2,000   $ (2,000
  

 

 

   

 

 

   

 

 

 

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stocks: The Corporation is required to maintain Federal Reserve stock and FHLB stock as a member of both the Federal Reserve System and the FHLB, and in amounts as required by these institutions. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other marketable equity securities and their fair value is equal to amortized cost. The Corporation had FHLB stock of $115 million at June 30, 2014 and $110 million at December 31, 2013 and Federal Reserve Bank stock of $71 million at both June 30, 2014 and December 31, 2013.

The Corporation reviewed these securities for impairment, including but not limited to, consideration of operating performance, the severity and duration of market value declines, as well as its liquidity and funding position. After evaluating all of these considerations, the Corporation believes the cost of these investments will be recovered and no impairment has been recorded on these securities during 2013 or the first six months of 2014.

NOTE 6: Loans, Allowance for Credit Losses, and Credit Quality

The period end loan composition was as follows.

 

     June 30,      December 31,  
     2014      2013  
     ($ in Thousands)  

Commercial and industrial

   $ 5,616,205      $ 4,822,680  

Commercial real estate—owner occupied

     1,070,463        1,114,715  

Lease financing

     51,873        55,483  
  

 

 

    

 

 

 

Commercial and business lending

     6,738,541        5,992,878  

Commercial real estate—investor

     2,990,732        2,939,456  

Real estate construction

     1,000,421        896,248  
  

 

 

    

 

 

 

Commercial real estate lending

     3,991,153        3,835,704  
  

 

 

    

 

 

 

Total commercial

     10,729,694        9,828,582  

Home equity

     1,713,372        1,825,014  

Installment and credit cards

     469,203        407,074  

Residential mortgage

     4,132,783        3,835,591  
  

 

 

    

 

 

 

Total consumer

     6,315,358        6,067,679  
  

 

 

    

 

 

 

Total loans

   $ 17,045,052      $ 15,896,261  
  

 

 

    

 

 

 

 

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Table of Contents

A summary of the changes in the allowance for credit losses was as follows.

 

     Six Months Ended     Year Ended  
     June 30, 2014     December 31, 2013  
     ($ in Thousands)  

Allowance for Loan Losses:

    

Balance at beginning of period

   $ 268,315     $ 297,409  

Provision for loan losses

     11,500       10,000  

Charge offs

     (20,468     (88,061

Recoveries

     12,504       48,967  
  

 

 

   

 

 

 

Net charge offs

     (7,964     (39,094
  

 

 

   

 

 

 

Balance at end of period

   $ 271,851     $ 268,315  
  

 

 

   

 

 

 

Allowance for Unfunded Commitments:

    

Balance at beginning of period

   $ 21,900     $ 21,800  

Provision for unfunded commitments

     (1,500     100  
  

 

 

   

 

 

 

Balance at end of period

   $ 20,400     $ 21,900  
  

 

 

   

 

 

 

Allowance for Credit Losses

   $ 292,251     $ 290,215  
  

 

 

   

 

 

 

The level of the allowance for loan losses represents management’s estimate of an amount appropriate to provide for probable credit losses in the loan portfolio at the balance sheet date. In general, the change in the allowance for loan losses is a function of a number of factors, including but not limited to changes in the loan portfolio, net charge offs, trends in past due and impaired loans, and the level of potential problem loans. Management considers the allowance for loan losses a critical accounting policy, as assessing these numerous factors involves significant judgment.

The allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit) and is included in accrued expenses and other liabilities on the consolidated balance sheets. The determination of the appropriate level of the allowance is based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience and credit risk grading of the loan. Net adjustments to the allowance for unfunded commitments are included in provision for credit losses in the consolidated statements of income. See Note 12 for additional information on the allowance for unfunded commitments.

 

17


Table of Contents

A summary of the changes in the allowance for loan losses by portfolio segment for the six months ended June 30, 2014, was as follows.

 

$ in Thousands   Commercial
and
industrial
    Commercial
real
estate - owner
occupied
    Lease
financing
    Commercial
real
estate - investor
    Real
estate
construction
    Home
equity
    Installment
and credit
cards
    Residential
mortgage
    Total  

Balance at Dec 31, 2013

  $ 104,501     $ 19,476     $ 1,607     $ 58,156     $ 23,418     $ 32,196     $ 2,416     $ 26,545     $ 268,315  

Provision for loan losses

    18,684       1,638       674       (6,232     (3,092     133       (628     323       11,500  

Charge offs

    (7,912     (437     (29     (775     (1,232     (7,056     (690     (2,337     (20,468

Recoveries

    6,564       1,111       —         2,045       324       1,833       330       297       12,504  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at Jun 30, 2014

  $ 121,837     $ 21,788     $ 2,252     $ 53,194     $ 19,418     $ 27,106     $ 1,428     $ 24,828     $ 271,851  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses:

                 

Ending balance impaired loans individually evaluated for impairment

  $ 8,329     $ 2,524     $ 620     $ 3,598     $ 162     $ 5     $ —       $ 27     $ 15,265  

Ending balance impaired loans collectively evaluated for impairment

  $ 2,985     $ 2,312     $ 3     $ 3,520     $ 1,368     $ 11,668     $ 282     $ 11,082     $ 33,220  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 11,314     $ 4,836     $ 623     $ 7,118     $ 1,530     $ 11,673     $ 282     $ 11,109     $ 48,485  

Ending balance all other loans collectively evaluated for impairment

  $ 110,523     $ 16,952     $ 1,629     $ 46,076     $ 17,888     $ 15,433     $ 1,146     $ 13,719     $ 223,366  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 121,837     $ 21,788     $ 2,252     $ 53,194     $ 19,418     $ 27,106     $ 1,428     $ 24,828     $ 271,851  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

                 

Ending balance impaired loans individually evaluated for impairment

  $ 34,371     $ 24,998     $ 1,532     $ 23,958     $ 4,045     $ 1,039     $ —       $ 10,069     $ 100,012  

Ending balance impaired loans collectively evaluated for impairment

  $ 35,324     $ 18,895     $ 9     $ 45,935     $ 4,167     $ 30,278     $ 1,956     $ 57,031     $ 193,595  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 69,695     $ 43,893     $ 1,541     $ 69,893     $ 8,212     $ 31,317     $ 1,956     $ 67,100     $ 293,607  

Ending balance all other loans collectively evaluated for impairment

  $ 5,546,510     $ 1,026,570     $ 50,332     $ 2,920,839     $ 992,209     $ 1,682,055     $ 467,247     $ 4,065,683     $ 16,751,445  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 5,616,205     $ 1,070,463     $ 51,873     $ 2,990,732     $ 1,000,421     $ 1,713,372     $ 469,203     $ 4,132,783     $ 17,045,052  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The allocation methodology used by the Corporation includes allocations for specifically identified impaired loans and loss factor allocations (used for both criticized and non-criticized loan categories), with a component primarily based on historical loss rates and a component primarily based on other qualitative factors. Management allocates the allowance for loan losses by pools of risk within each loan portfolio. The allocation of the allowance for loan losses by loan portfolio is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular category. The total allowance for loan losses is available to absorb losses from any segment of the loan portfolio.

 

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Table of Contents

For comparison purposes, a summary of the changes in the allowance for loan losses by portfolio segment for the year ended December 31, 2013, was as follows.

 

$ in Thousands   Commercial
and
industrial
    Commercial
real
estate - owner
occupied
    Lease
financing
    Commercial
real
estate - investor
    Real
estate
construction
    Home
equity
    Installment     Residential
mortgage
    Total  

Balance at Dec 31, 2012

  $ 97,852     $ 27,389     $ 3,024     $ 63,181     $ 20,741     $ 56,826     $ 4,299     $ 24,097     $ 297,409  

Provision for loan losses

    12,930       (1,778     (1,429     (2,140     541       (8,213     (2,127     12,216       10,000  

Charge offs

    (35,146     (6,474     (206     (9,846     (3,375     (20,629     (1,389     (10,996     (88,061

Recoveries

    28,865       339       218       6,961       5,511       4,212       1,633       1,228       48,967  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at Dec 31, 2013

  $ 104,501     $ 19,476     $ 1,607     $ 58,156     $ 23,418     $ 32,196     $ 2,416     $ 26,545     $ 268,315  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses:

                 

Ending balance impaired loans individually evaluated for impairment

  $ 7,994     $ 1,019     $ —       $ 3,932     $ 254     $ 123     $ —       $ 315     $ 13,637  

Ending balance impaired loans collectively evaluated for impairment

  $ 3,923     $ 1,936     $ 29     $ 3,963     $ 2,162     $ 13,866     $ 487     $ 11,872     $ 38,238  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 11,917     $ 2,955     $ 29     $ 7,895     $ 2,416     $ 13,989     $ 487     $ 12,187     $ 51,875  

Ending balance all other loans collectively evaluated for impairment

  $ 92,584     $ 16,521     $ 1,578     $ 50,261     $ 21,002     $ 18,207     $ 1,929     $ 14,358     $ 216,440  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 104,501     $ 19,476     $ 1,607     $ 58,156     $ 23,418     $ 32,196     $ 2,416     $ 26,545     $ 268,315  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

                 

Ending balance impaired loans individually evaluated for impairment

  $ 29,343     $ 24,744     $ —       $ 32,367     $ 3,777     $ 929     $ —       $ 10,526     $ 101,686  

Ending balance impaired loans collectively evaluated for impairment

  $ 40,893     $ 17,929     $ 69     $ 50,175     $ 6,483     $ 33,871     $ 1,360     $ 56,947     $ 207,727  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 70,236     $ 42,673     $ 69     $ 82,542     $ 10,260     $ 34,800     $ 1,360     $ 67,473     $ 309,413  

Ending balance all other loans collectively evaluated for impairment

  $ 4,752,444     $ 1,072,042     $ 55,414     $ 2,856,914     $ 885,988     $ 1,790,214     $ 405,714     $ 3,768,118     $ 15,586,848  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 4,822,680     $ 1,114,715     $ 55,483     $ 2,939,456     $ 896,248     $ 1,825,014     $ 407,074     $ 3,835,591     $ 15,896,261  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


Table of Contents

The following table presents commercial loans by credit quality indicator at June 30, 2014.

 

     Pass      Special
Mention
     Potential
Problem
     Impaired      Total  
     ($ in Thousands)  

Commercial and industrial

   $ 5,230,000      $ 129,259      $ 187,251      $ 69,695      $ 5,616,205  

Commercial real estate—owner occupied

     928,380        40,433        57,757        43,893        1,070,463  

Lease financing

     46,724        1,328        2,280        1,541        51,873  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     6,205,104        171,020        247,288        115,129        6,738,541  

Commercial real estate—investor

     2,843,155        45,781        31,903        69,893        2,990,732  

Real estate construction

     984,294        3,442        4,473        8,212        1,000,421  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     3,827,449        49,223        36,376        78,105        3,991,153  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

   $ 10,032,553      $ 220,243      $ 283,664      $ 193,234      $ 10,729,694  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
The following table presents commercial loans by credit quality indicator at December 31, 2013.   
     Pass      Special
Mention
     Potential
Problem
     Impaired      Total  
     ($ in Thousands)  

Commercial and industrial

   $ 4,485,160      $ 153,615      $ 113,669      $ 70,236      $ 4,822,680  

Commercial real estate—owner occupied

     959,849        55,404        56,789        42,673        1,114,715  

Lease financing

     52,733        897        1,784        69        55,483  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     5,497,742        209,916        172,242        112,978        5,992,878  

Commercial real estate—investor

     2,740,255        64,230        52,429        82,542        2,939,456  

Real estate construction

     877,911        2,814        5,263        10,260        896,248  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     3,618,166        67,044        57,692        92,802        3,835,704  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

   $ 9,115,908      $ 276,960      $ 229,934      $ 205,780      $ 9,828,582  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents consumer loans by credit quality indicator at June 30, 2014.

 

     Performing      30-89 Days
Past Due
     Potential
Problem
     Impaired      Total  
     ($ in Thousands)  

Home equity

   $ 1,670,147      $ 10,809      $ 1,099      $ 31,317      $ 1,713,372  

Installment and credit cards

     464,669        1,734        844        1,956        469,203  

Residential mortgage

     4,056,168        7,070        2,445        67,100        4,132,783  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

   $ 6,190,984      $ 19,613      $ 4,388      $ 100,373      $ 6,315,358  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
The following table presents consumer loans by credit quality indicator at December 31, 2013.   
     Performing      30-89 Days
Past Due
     Potential
Problem
     Impaired      Total  
     ($ in Thousands)  

Home equity

   $ 1,777,421      $ 10,680      $ 2,113      $ 34,800      $ 1,825,014  

Installment

     404,514        1,150        50        1,360        407,074  

Residential mortgage

     3,758,688        6,118        3,312        67,473        3,835,591  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

   $ 5,940,623      $ 17,948      $ 5,475      $ 103,633      $ 6,067,679  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, and appropriate allowance for credit losses, nonaccrual and charge off policies.

For commercial loans, management has determined the pass credit quality indicator to include credits that exhibit acceptable financial statements, cash flow, and leverage. If any risk exists, it is mitigated by the loan structure, collateral, monitoring, or control. For consumer loans, performing loans include credits that are performing in accordance with the original contractual terms. Loans are

 

20


Table of Contents

considered past due if the required principal and interest payments have not been received as of the date such payments were due. Special mention credits have potential weaknesses that deserve management’s attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credit. Potential problem loans are considered inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged. These loans generally have a well-defined weakness, or weaknesses that may jeopardize liquidation of the debt and are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Lastly, management considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management has determined that commercial and consumer loan relationships that have nonaccrual status or have had their terms restructured in a troubled debt restructuring meet this impaired loan definition. Commercial loans classified as special mention, potential problem, and impaired are reviewed at a minimum on a quarterly basis, while pass and performing rated credits are reviewed on an annual basis or more frequently if the loan renewal is less than one year or if otherwise warranted.

 

21


Table of Contents

The following table presents loans by past due status at June 30, 2014.

 

     30-59 Days
Past Due
     60-89 Days
Past Due
     90 Days or More
Past Due *
     Total Past Due      Current      Total  
     ($ in Thousands)  

Accruing loans

                 

Commercial and industrial

   $ 1,447      $ 1,072      $ 289      $ 2,808      $ 5,572,551      $ 5,575,359  

Commercial real estate—owner occupied

     3,087        3,236        —          6,323        1,032,415        1,038,738  

Lease financing

     —          556        —          556        49,776        50,332  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     4,534        4,864        289        9,687        6,654,742        6,664,429  

Commercial real estate—investor

     772        2,222        —          2,994        2,959,603        2,962,597  

Real estate construction

     258        —          —          258        993,175        993,433  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     1,030        2,222        —          3,252        3,952,778        3,956,030  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     5,564        7,086        289        12,939        10,607,520        10,620,459  

Home equity

     8,299        2,510        —          10,809        1,681,690        1,692,499  

Installment and credit cards

     1,054        680        1,435        3,169        465,263        468,432  

Residential mortgage

     6,954        116        53        7,123        4,077,313        4,084,436  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     16,307        3,306        1,488        21,101        6,224,266        6,245,367  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total accruing loans

   $ 21,871      $ 10,392      $ 1,777      $ 34,040      $ 16,831,786      $ 16,865,826  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans

                 

Commercial and industrial

   $ 772      $ 1,575      $ 4,775      $ 7,122      $ 33,724      $ 40,846  

Commercial real estate—owner occupied

     807        184        12,684        13,675        18,050        31,725  

Lease financing

     —          1,532        9        1,541        —          1,541  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     1,579        3,291        17,468        22,338        51,774        74,112  

Commercial real estate—investor

     —          1,238        14,616        15,854        12,281        28,135  

Real estate construction

     178        51        1,776        2,005        4,983        6,988  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     178        1,289        16,392        17,859        17,264        35,123  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     1,757        4,580        33,860        40,197        69,038        109,235  

Home equity

     1,631        1,936        10,214        13,781        7,092        20,873  

Installment and credit cards

     97        40        216        353        418        771  

Residential mortgage

     3,014        5,440        21,676        30,130        18,217        48,347  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     4,742        7,416        32,106        44,264        25,727        69,991  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans

   $ 6,499      $ 11,996      $ 65,966      $ 84,461      $ 94,765      $ 179,226  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

                 

Commercial and industrial

   $ 2,219      $ 2,647      $ 5,064      $ 9,930      $ 5,606,275      $ 5,616,205  

Commercial real estate—owner occupied

     3,894        3,420        12,684        19,998        1,050,465        1,070,463  

Lease financing

     —          2,088        9        2,097        49,776        51,873  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     6,113        8,155        17,757        32,025        6,706,516        6,738,541  

Commercial real estate—investor

     772        3,460        14,616        18,848        2,971,884        2,990,732  

Real estate construction

     436        51        1,776        2,263        998,158        1,000,421  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     1,208        3,511        16,392        21,111        3,970,042        3,991,153  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     7,321        11,666        34,149        53,136        10,676,558        10,729,694  

Home equity

     9,930        4,446        10,214        24,590        1,688,782        1,713,372  

Installment and credit cards

     1,151        720        1,651        3,522        465,681        469,203  

Residential mortgage

     9,968        5,556        21,729        37,253        4,095,530        4,132,783  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     21,049        10,722        33,594        65,365        6,249,993        6,315,358  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 28,370      $ 22,388      $ 67,743      $ 118,501      $ 16,926,551      $ 17,045,052  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* The recorded investment in loans past due 90 days or more and still accruing totaled $2 million at June 30, 2014 (the same as the reported balances for the accruing loans noted above).

 

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Table of Contents

The following table presents loans by past due status at December 31, 2013.

 

     30-59 Days
Past Due
     60-89 Days
Past Due
     90 Days or More
Past Due *
     Total Past Due      Current      Total  
     ($ in Thousands)  

Accruing loans

                 

Commercial and industrial

   $ 3,390      $ 3,436      $ 1,199      $ 8,025      $ 4,776,936      $ 4,784,961  

Commercial real estate—owner occupied

     1,015        2,091        —          3,106        1,081,945        1,085,051  

Lease financing

     —          —          —          —          55,414        55,414  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     4,405        5,527        1,199        11,131        5,914,295        5,925,426  

Commercial real estate—investor

     9,081        14,134        —          23,215        2,878,645        2,901,860  

Real estate construction

     836        1,118        —          1,954        887,827        889,781  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     9,917        15,252        —          25,169        3,766,472        3,791,641  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     14,322        20,779        1,199        36,300        9,680,767        9,717,067  

Home equity

     8,611        2,069        346        11,026        1,788,821        1,799,847  

Installment

     885        265        637        1,787        404,173        405,960  

Residential mortgage

     5,253        865        168        6,286        3,781,673        3,787,959  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     14,749        3,199        1,151        19,099        5,974,667        5,993,766  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total accruing loans

   $ 29,071      $ 23,978      $ 2,350      $ 55,399      $ 15,655,434      $ 15,710,833  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans

                 

Commercial and industrial

   $ 998      $ 1,764      $ 9,765      $ 12,527      $ 25,192      $ 37,719  

Commercial real estate—owner occupied

     2,482        1,724        11,125        15,331        14,333        29,664  

Lease financing

     —          —          69        69        —          69  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     3,480        3,488        20,959        27,927        39,525        67,452  

Commercial real estate—investor

     3,408        899        20,466        24,773        12,823        37,596  

Real estate construction

     2,376        —          2,267        4,643        1,824        6,467  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     5,784        899        22,733        29,416        14,647        44,063  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     9,264        4,387        43,692        57,343        54,172        111,515  

Home equity

     1,725        1,635        14,331        17,691        7,476        25,167  

Installment

     129        24        289        442        672        1,114  

Residential mortgage

     3,199        3,257        26,201        32,657        14,975        47,632  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     5,053        4,916        40,821        50,790        23,123        73,913  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans

   $ 14,317      $ 9,303      $ 84,513      $ 108,133      $ 77,295      $ 185,428  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

                 

Commercial and industrial

   $ 4,388      $ 5,200      $ 10,964      $ 20,552      $ 4,802,128      $ 4,822,680  

Commercial real estate—owner occupied

     3,497        3,815        11,125        18,437        1,096,278        1,114,715  

Lease financing

     —          —          69        69        55,414        55,483  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     7,885        9,015        22,158        39,058        5,953,820        5,992,878  

Commercial real estate—investor

     12,489        15,033        20,466        47,988        2,891,468        2,939,456  

Real estate construction

     3,212        1,118        2,267        6,597        889,651        896,248  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     15,701        16,151        22,733        54,585        3,781,119        3,835,704  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     23,586        25,166        44,891        93,643        9,734,939        9,828,582  

Home equity

     10,336        3,704        14,677        28,717        1,796,297        1,825,014  

Installment

     1,014        289        926        2,229        404,845        407,074  

Residential mortgage

     8,452        4,122        26,369        38,943        3,796,648        3,835,591  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     19,802        8,115        41,972        69,889        5,997,790        6,067,679  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 43,388      $ 33,281      $ 86,863      $ 163,532      $ 15,732,729      $ 15,896,261  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* The recorded investment in loans past due 90 days or more and still accruing totaled $2 million at December 31, 2013 (the same as the reported balances for the accruing loans noted above).

 

23


Table of Contents

The following table presents impaired loans at June 30, 2014.

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     YTD
Average
Recorded
Investment
     YTD Interest
Income
Recognized(a)
 
     ($ in Thousands)  

Loans with a related allowance

              

Commercial and industrial

   $ 61,673      $ 68,860      $ 11,314      $ 63,375      $ 574  

Commercial real estate—owner occupied

     26,477        29,237        4,836        27,144        380  

Lease financing

     1,541        1,541        623        1,548        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     89,691        99,638        16,773        92,067        954  

Commercial real estate—investor

     60,614        64,582        7,118        61,367        1,126  

Real estate construction

     6,407        10,249        1,530        6,847        53  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     67,021        74,831        8,648        68,214        1,179  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     156,712        174,469        25,421        160,281        2,133  

Home equity

     30,456        34,346        11,673        31,114        704  

Installment and credit cards

     1,956        2,180        282        2,033        30  

Residential mortgage

     58,169        62,548        11,109        58,824        888  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     90,581        99,074        23,064        91,971        1,622  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 247,293      $ 273,543      $ 48,485      $ 252,252      $ 3,755  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans with no related allowance

              

Commercial and industrial

   $ 8,022      $ 13,598      $ —        $ 9,749      $ 9  

Commercial real estate—owner occupied

     17,416        20,810        —          17,867        35  

Lease financing

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     25,438        34,408        —          27,616        44  

Commercial real estate—investor

     9,279        13,400        —          9,406        44  

Real estate construction

     1,805        2,953        —          2,379        24  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     11,084        16,353        —          11,785        68  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     36,522        50,761        —          39,401        112  

Home equity

     861        865        —          869        14  

Installment and credit cards

     —          —          —          —          —    

Residential mortgage

     8,931        9,050        —          8,971        59  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     9,792        9,915        —          9,840        73  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 46,314      $ 60,676      $ —        $ 49,241      $ 185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

              

Commercial and industrial

   $ 69,695      $ 82,458      $ 11,314      $ 73,124      $ 583  

Commercial real estate—owner occupied

     43,893        50,047        4,836        45,011        415  

Lease financing

     1,541        1,541        623        1,548        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     115,129        134,046        16,773        119,683        998  

Commercial real estate—investor

     69,893        77,982        7,118        70,773        1,170  

Real estate construction

     8,212        13,202        1,530        9,226        77  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     78,105        91,184        8,648        79,999        1,247  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     193,234        225,230        25,421        199,682        2,245  

Home equity

     31,317        35,211        11,673        31,983        718  

Installment and credit cards

     1,956        2,180        282        2,033        30  

Residential mortgage

     67,100        71,598        11,109        67,795        947  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     100,373        108,989        23,064        101,811        1,695  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans(b)

   $ 293,607      $ 334,219      $ 48,485      $ 301,493      $ 3,940  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Interest income recognized included $3 million of interest income recognized on accruing restructured loans for the six months ended June 30, 2014.
(b) The fair value mark on impaired loans at June 30, 2014, was 73%. The fair value mark is calculated as the recorded investment, net of the related allowance, divided by the unpaid principal balance.

 

24


Table of Contents

The following table presents impaired loans at December 31, 2013.

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     YTD
Average
Recorded
Investment
     YTD Interest
Income
Recognized
(a)
 
     ($ in Thousands)  

Loans with a related allowance

  

Commercial and industrial

   $ 57,857      $ 65,443      $ 11,917      $ 61,000      $ 1,741  

Commercial real estate—owner occupied

     22,651        25,072        2,955        24,549        995  

Lease financing

     69        69        29        76        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     80,577        90,584        14,901        85,625        2,736  

Commercial real estate—investor

     64,647        68,228        7,895        68,776        2,735  

Real estate construction

     8,815        12,535        2,416        9,796        236  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     73,462        80,763        10,311        78,572        2,971  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     154,039        171,347        25,212        164,197        5,707  

Home equity

     34,707        40,344        13,989        36,623        1,518  

Installment

     1,360        1,676        487        1,753        100  

Residential mortgage

     60,157        69,699        12,187        62,211        1,861  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     96,224        111,719        26,663        100,587        3,479  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 250,263      $ 283,066      $ 51,875      $ 264,784      $ 9,186  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans with no related allowance

              

Commercial and industrial

   $ 12,379      $ 19,556      $ —        $ 14,291      $ 306  

Commercial real estate—owner occupied

     20,022        22,831        —          20,602        315  

Lease financing

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     32,401        42,387        —          34,893        621  

Commercial real estate—investor

     17,895        25,449        —          19,354        130  

Real estate construction

     1,445        1,853        —          1,576        13  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     19,340        27,302        —          20,930        143  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     51,741        69,689        —          55,823        764  

Home equity

     93        92        —          94        2  

Installment

     —          —          —          —          —    

Residential mortgage

     7,316        8,847        —          7,321        185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     7,409        8,939        —          7,415        187  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 59,150      $ 78,628      $ —        $ 63,238      $ 951  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

              

Commercial and industrial

   $ 70,236      $ 84,999      $ 11,917      $ 75,291      $ 2,047  

Commercial real estate—owner occupied

     42,673        47,903        2,955        45,151        1,310  

Lease financing

     69        69        29        76        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     112,978        132,971        14,901        120,518        3,357  

Commercial real estate—investor

     82,542        93,677        7,895        88,130        2,865  

Real estate construction

     10,260        14,388        2,416        11,372        249  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     92,802        108,065        10,311        99,502        3,114  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     205,780        241,036        25,212        220,020        6,471  

Home equity

     34,800        40,436        13,989        36,717        1,520  

Installment

     1,360        1,676        487        1,753        100  

Residential mortgage

     67,473        78,546        12,187        69,532        2,046  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     103,633        120,658        26,663        108,002        3,666  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans (b)

   $ 309,413      $ 361,694      $ 51,875      $ 328,022      $ 10,137  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Interest income recognized included $6 million of interest income recognized on accruing restructured loans for the year ended December 31, 2013.
(b) The fair value mark on impaired loans at December 31, 2013, was 71%. The fair value mark is calculated as the recorded investment, net of the related allowance, divided by the unpaid principal balance.

 

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Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments, unless the loan is well secured and in the process of collection. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed, amortization of related deferred loan fees or costs is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal and interest of the loan is collectible. If collectability of the principal and interest is in doubt, payments received are applied to loan principal.

While an asset is in nonaccrual status, some or all of the cash interest payments received may be treated as interest income on a cash basis as long as the remaining recorded investment in the asset (i.e., after charge off of identified losses, if any) is deemed to be fully collectible. The determination as to the ultimate collectability of the asset’s remaining recorded investment must be supported by a current, well documented credit evaluation of the borrower’s financial condition and prospects for repayment, including consideration of the borrower’s sustained historical repayment performance and other relevant factors. A nonaccrual loan is returned to accrual status when all delinquent principal and interest payments become current in accordance with the terms of the loan agreement, the borrower has demonstrated a period of sustained performance, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. A sustained period of repayment performance generally would be a minimum of six months.

Troubled Debt Restructurings (“Restructured Loans”):

Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. The concessions granted generally involve the modification of terms of the loan, such as changes in payment schedule or interest rate, which generally would not otherwise be considered. Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Nonaccrual restructured loans are included and treated with all other nonaccrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings, which are considered and accounted for as impaired loans. Generally, restructured loans remain on nonaccrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned or maintained on accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status. The Corporation had a $17 million recorded investment in loans modified in a troubled debt restructuring for the six months ended June 30, 2014, of which $2 million were in accrual status and $15 million were in nonaccrual pending a sustained period of repayment.

As of June 30, 2014 and December 31, 2013, there were $72 million and $60 million, respectively, of nonaccrual restructured loans, and $114 million and $124 million, respectively, of performing restructured loans, included within impaired loans. All restructured loans are considered impaired in the calendar year of restructuring. In subsequent years, a restructured loan may cease being classified as impaired if the loan was modified at a market rate and has performed according to the modified terms for at least six months. A loan that has been modified at a below market rate will return to performing status if it satisfies the six month performance requirement; however, it will remain classified as a restructured loan. The following table presents nonaccrual and performing restructured loans by loan portfolio.

 

     June 30, 2014      December 31, 2013  
     Performing
Restructured
Loans
     Nonaccrual
Restructured
Loans *
     Performing
Restructured
Loans
     Nonaccrual
Restructured
Loans *
 
     ($ in Thousands)  

Commercial and industrial

   $ 28,849      $ 8,150      $ 32,517      $ 6,900  

Commercial real estate—owner occupied

     12,168        15,126        13,009        10,999  

Commercial real estate—investor

     41,758        15,627        44,946        18,069  

Real estate construction

     1,224        3,028        3,793        2,065  

Home equity

     10,444        6,736        9,633        5,419  

Installment and credit cards

     1,185        249        246        451  

Residential mortgage

     18,753        23,472        19,841        15,682  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 114,381      $ 72,388      $ 123,985      $ 59,585  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

* Nonaccrual restructured loans have been included with nonaccrual loans.

 

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The following table provides the number of loans modified in a troubled debt restructuring by loan portfolio during the three and six months ended June 30, 2014, and the recorded investment and unpaid principal balance as of June 30, 2014.

 

     Three Months Ended June 30, 2014      Six Months Ended June 30, 2014  
     Number of
Loans
     Recorded
Investment (1)
     Unpaid
Principal
Balance (2)
     Number of
Loans
     Recorded
Investment (1)
     Unpaid
Principal
Balance (2)
 
     ($ in Thousands)  

Commercial and industrial

     3      $ 526      $ 534        11      $ 3,889      $ 7,736  

Commercial real estate—owner occupied

     1        894        894        5        6,096        6,652  

Commercial real estate—investor

     —          —          —          1        493        508  

Real estate construction

     1        6        6        1        6        6  

Home equity

     35        1,630        1,723        62        2,476        2,693  

Installment and credit cards

     1        16        16        2        25        35  

Residential mortgage

     28        1,942        2,435        48        4,430        5,103  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     69      $ 5,014      $ 5,608        130      $ 17,415      $ 22,733  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Represents post-modification outstanding recorded investment.
(2) Represents pre-modification outstanding recorded investment.

The following table provides the number of loans modified in a troubled debt restructuring by loan portfolio during the three and six months ended June 30, 2013, and the recorded investment and unpaid principal balance as of June 30, 2013.

 

     Three Months Ended June 30, 2013      Six Months Ended June 30, 2013  
     Number of
Loans
     Recorded
Investment (1)
     Unpaid
Principal
Balance (2)
     Number of
Loans
     Recorded
Investment (1)
     Unpaid
Principal
Balance (2)
 
     ($ in Thousands)  

Commercial and industrial

     25      $ 4,323      $ 4,414        43      $ 6,401      $ 8,074  

Commercial real estate—owner occupied

     7        4,086        4,194        10        6,270        6,388  

Commercial real estate—investor

     3        1,801        1,948        8        3,822        4,029  

Real estate construction

     2        51        80        7        2,004        2,057  

Home equity

     29        2,114        2,640        62        3,580        4,192  

Installment

     1        34        34        2        199        202  

Residential mortgage

     26        3,482        3,879        56        5,365        6,072  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     93      $ 15,891      $ 17,189        188      $ 27,641      $ 31,014  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Represents post-modification outstanding recorded investment.
(2) Represents pre-modification outstanding recorded investment.

Restructured loan modifications may include payment schedule modifications, interest rate concessions, maturity date extensions, modification of note structure (A/B Note), non-reaffirmed Chapter 7 bankruptcies, principal reduction, or some combination of these concessions. During the three and six months ended June 30, 2014, restructured loan modifications of commercial and industrial, commercial real estate and real estate construction loans primarily included maturity date extensions and payment schedule modifications. Restructured loan modifications of home equity and residential mortgage loans primarily included maturity date extensions, interest rate concessions, payment schedule modifications, non-reaffirmed Chapter 7 bankruptcies, or a combination of these concessions for the three and six months ended June 30, 2014.

 

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The following table provides the number of loans modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2014, as well as the recorded investment in these restructured loans as of June 30, 2014.

 

    Three Months Ended June 30, 2014     Six Months Ended June 30, 2014  
    Number of Loans     Recorded Investment     Number of Loans     Recorded Investment  
    ($ in Thousands)  

Commercial and industrial

    2     $ 135       2     $ 135  

Commercial real estate—owner occupied

    2       612       2       612  

Commercial real estate—investor

    1       1,291       1       1,291  

Real estate construction

    —          —         1       161  

Home equity

    13       414       18       651  

Installment and credit cards

    1       16       2       25  

Residential mortgage

    20       1,565       32       3,334  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    39     $ 4,033       58     $ 6,209  
 

 

 

   

 

 

   

 

 

   

 

 

 

The following table provides the number of loans modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2013, as well as the recorded investment in these restructured loans as of June 30, 2013.

 

    Three Months Ended June 30, 2013     Six Months Ended June 30, 2013  
    Number of Loans     Recorded Investment     Number of Loans     Recorded Investment  
    ($ in Thousands)  

Commercial and industrial

    15     $ 711       22     $ 1,798  

Commercial real estate—owner occupied

    2       43       3       115  

Commercial real estate—investor

    2       82       5       1,598  

Real estate construction

    2       41       2       41  

Home equity

    10       633       13       740  

Residential mortgage

    7       952       10       1,405  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    38     $ 2,462       55     $ 5,697  
 

 

 

   

 

 

   

 

 

   

 

 

 

All loans modified in a troubled debt restructuring are evaluated for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a subsequent payment default, is considered in the determination of an appropriate level of the allowance for loan losses.

 

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NOTE 7: Goodwill and Other Intangible Assets

Goodwill: Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of each reporting unit is calculated and compared to the recorded book value, “step one.” If the calculated fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of a reporting unit exceeds its calculated fair value, the impairment test continues (“step two”) by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value is computed by adjusting all assets and liabilities of the reporting unit to current fair value with the offset adjustment to goodwill. The adjusted goodwill balance is the implied fair value of the goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill.

The Corporation conducted its annual impairment testing in May 2014, utilizing a qualitative assessment. Factors that management considered in this assessment included macroeconomic conditions, industry and market considerations, overall financial performance of the Corporation and each reporting unit (both current and projected), changes in management strategy, and changes in the composition or carrying amount of net assets. In addition, management considered the increases in both the Corporation’s common stock price and in the overall bank common stock index (based on the Nasdaq bank index), as well as the Corporation’s earnings per common share trend over the past year. Based on these assessments, management concluded that the 2014 annual qualitative impairment assessment indicated that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, a step one quantitative analysis was not required. There were no impairment charges recorded in 2013 or through June 30, 2014.

At June 30, 2014, the Corporation had goodwill of $929 million, including goodwill of $428 million assigned to the Corporate and Commercial Banking reporting unit and goodwill of $501 million assigned to the Community and Consumer Banking reporting unit. There was no change in the carrying amount of goodwill for the six months ended June 30, 2014, and the year ended December 31, 2013.

Other Intangible Assets: The Corporation has other intangible assets that are amortized, consisting of core deposit intangibles, other intangibles (primarily related to customer relationships acquired in connection with the Corporation’s insurance agency acquisitions), and mortgage servicing rights. For core deposit intangibles and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows.

 

     Six Months Ended     Year Ended  
     June 30, 2014     December 31, 2013  
     ($ in Thousands)  

Core deposit intangibles:

    

Gross carrying amount

   $ 36,230     $ 36,230  

Accumulated amortization

     (33,107     (31,565
  

 

 

   

 

 

 

Net book value

   $ 3,123     $ 4,665  
  

 

 

   

 

 

 

Amortization during the period

   $ 1,542     $ 3,122  

Other intangibles:

    

Gross carrying amount

   $ 19,283     $ 19,283  

Accumulated amortization

     (13,204     (12,764
  

 

 

   

 

 

 

Net book value

   $ 6,079     $ 6,519  
  

 

 

   

 

 

 

Amortization during the period

   $ 440     $ 921  

The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. Upon sale, a mortgage servicing rights asset is capitalized, which represents the then current fair value of future net cash flows expected to be realized for performing servicing activities. Mortgage servicing rights, when purchased, are initially recorded at fair

 

29


Table of Contents

value. As the Corporation has not elected to subsequently measure any class of servicing assets under the fair value measurement method, the Corporation follows the amortization method. Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income, and assessed for impairment at each reporting date. Mortgage servicing rights are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value, and are included in other intangible assets, net, in the consolidated balance sheets.

The Corporation periodically evaluates its mortgage servicing rights asset for impairment. Impairment is assessed based on fair value at each reporting date using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). As mortgage interest rates fall, prepayment speeds are usually faster and the value of the mortgage servicing rights asset generally decreases, requiring additional valuation reserve. Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the mortgage servicing rights asset generally increases, requiring less valuation reserve. A valuation allowance is established, through a charge to earnings, to the extent the amortized cost of the mortgage servicing rights exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is recognized as a write-down of the mortgage servicing rights asset and the related valuation allowance (to the extent a valuation allowance is available) and then against earnings. A direct write-down permanently reduces the carrying value of the mortgage servicing rights asset and valuation allowance, precluding subsequent recoveries. See Note 12 for a discussion of the recourse provisions on sold residential mortgage loans. See Note 13 which further discusses fair value measurement relative to the mortgage servicing rights asset.

A summary of changes in the balance of the mortgage servicing rights asset and the mortgage servicing rights valuation allowance was as follows.

 

     Six Months Ended     Year Ended  
     June 30, 2014     December 31, 2013  
     ($ in Thousands)  

Mortgage servicing rights:

    

Mortgage servicing rights at beginning of period

   $ 64,193     $ 61,425  

Additions

     3,720       18,256  

Amortization

     (5,545     (15,488
  

 

 

   

 

 

 

Mortgage servicing rights at end of period

   $ 62,368     $ 64,193  
  

 

 

   

 

 

 

Valuation allowance at beginning of period

     (913     (15,476

(Additions) recoveries, net

     (119     14,563  
  

 

 

   

 

 

 

Valuation allowance at end of period

     (1,032     (913
  

 

 

   

 

 

 

Mortgage servicing rights, net

   $ 61,336     $ 63,280  
  

 

 

   

 

 

 

Fair value of mortgage servicing rights

   $ 67,699     $ 74,444  

Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)

     8,052,000       8,084,000  

Mortgage servicing rights, net to servicing portfolio

     0.76      0.78 

Mortgage servicing rights expense (1)

   $ 5,664     $ 925  

 

(1) Includes the amortization of mortgage servicing rights and additions/recoveries to the valuation allowance of mortgage servicing rights, and is a component of mortgage banking, net, in the consolidated statements of income.

&nb