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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 September 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 October 30, 2014, was 151,985,246.

 

 

 


Table of Contents

ASSOCIATED BANC-CORP

TABLE OF CONTENTS

 

     Page No.  

PART I. Financial Information

  

Item 1. Financial Statements (Unaudited):

  

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

     3   

Consolidated Statements of Income — Three and Nine Months Ended September 30, 2014 and 2013

     4   

Consolidated Statements of Comprehensive Income —Three and Nine Months Ended September  30, 2014 and 2013

     5   

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

     6   

Consolidated Statements of Cash Flows — Nine Months Ended September 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

     53   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     84   

Item 4. Controls and Procedures

     84   

PART II. Other Information

  

Item 1. Legal Proceedings

     85   

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

     86   

Item 6. Exhibits

     86   

Signatures

     87   

 

2


Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements:

ASSOCIATED BANC-CORP

Consolidated Balance Sheets

 

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

ASSETS

    

Cash and due from banks

   $ 381,287     $ 455,482  

Interest-bearing deposits in other financial institutions

     74,945       126,018  

Federal funds sold and securities purchased under agreements to resell

     18,320       20,745  

Investment securities held to maturity, at amortized cost

     301,941       175,210  

Investment securities available for sale, at fair value

     5,345,422       5,250,585  

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

     188,875       181,249  

Loans held for sale

     141,672       64,738  

Loans

     17,159,090       15,896,261  

Allowance for loan losses

     (266,262     (268,315
  

 

 

   

 

 

 

Loans, net

     16,892,828       15,627,946  

Premises and equipment, net

     272,283       270,890  

Goodwill

     929,168       929,168  

Other intangible assets, net

     69,201       74,464  

Trading assets

     34,005       43,728  

Other assets

     1,003,875       1,006,697  
  

 

 

   

 

 

 

Total assets

   $ 25,653,822     $ 24,226,920  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Noninterest-bearing demand deposits

   $ 4,302,454     $ 4,626,312  

Interest-bearing deposits

     13,898,804       12,640,855  
  

 

 

   

 

 

 

Total deposits

     18,201,258       17,267,167  

Federal funds purchased and securities sold under agreements to repurchase

     765,641       475,442  

Other short-term funding

     664,539       265,484  

Long-term funding

     2,931,547       3,087,267  

Trading liabilities

     36,003       46,470  

Accrued expenses and other liabilities

     185,256       193,800  
  

 

 

   

 

 

 

Total liabilities

     22,784,244       21,335,630  

Stockholders’ equity

    

Preferred equity

     61,024       61,862  

Common stock

     1,719       1,750  

Surplus

     1,583,032       1,617,990  

Retained earnings

     1,466,525       1,392,508  

Accumulated other comprehensive loss

     (1,725     (24,244

Treasury stock, at cost

     (240,997     (158,576
  

 

 

   

 

 

 

Total stockholders’ equity

     2,869,578       2,891,290  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 25,653,822     $ 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

     171,888,747       175,012,686  

Common shares authorized (par value $0.01 per share)

     250,000,000       250,000,000  

Treasury shares of common stock

     15,126,171       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 September 30,     Nine Months Ended September 30,  
     2014      2013     2014      2013  
     (In Thousands, except per share data)  

INTEREST INCOME

          

Interest and fees on loans

   $ 152,030      $ 146,219     $ 442,046      $ 438,642  

Interest and dividends on investment securities

          

Taxable

     25,037        21,544       77,403        64,603  

Tax exempt

     7,483        6,711       21,484        20,461  

Other interest

     1,503        1,260       4,814        3,740  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest income

     186,053        175,734       545,747        527,446  

INTEREST EXPENSE

          

Interest on deposits

     6,621        7,617       18,975        23,927  

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

     390        308       1,001        1,051  

Interest on other short-term funding

     233        434       629        1,291  

Interest on long-term funding

     6,179        6,866       18,836        22,833  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense

     13,423        15,225       39,441        49,102  
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INTEREST INCOME

     172,630        160,509       506,306        478,344  

Provision for credit losses

     1,000        (800     11,000        7,800  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provision for credit losses

     171,630        161,309       495,306        470,544  

NONINTEREST INCOME

          

Trust service fees

     12,218        11,380       35,946        33,695  

Service charges on deposit accounts

     17,961        18,407       51,773        52,679  

Card-based and other nondeposit fees

     12,407        12,688       37,493        37,229  

Insurance commissions

     7,860        11,356       33,828        32,750  

Brokerage and annuity commissions

     4,040        3,792       12,593        10,996  

Mortgage banking, net

     6,669        3,542       18,392        40,570  

Capital market fees, net

     2,939        2,652       7,360        10,309  

Bank owned life insurance income

     3,506        2,817       10,837        9,068  

Asset gains, net

     4,934        1,934       6,561        2,726  

Investment securities gains, net

     57        248       469        582  

Other

     2,317        2,100       5,424        6,622  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total noninterest income

     74,908        70,916       220,676        237,226  

NONINTEREST EXPENSE

          

Personnel expense

     97,650        98,102       293,141        295,800  

Occupancy

     13,743        14,758       43,088        44,725  

Equipment

     6,133        6,213       18,636        18,842  

Technology

     13,573        12,323       40,891        36,482  

Business development and advertising

     7,467        5,947       17,606        15,512  

Other intangible asset amortization

     990        1,010       2,972        3,032  

Loan expense

     3,813        3,157       10,220        9,485  

Legal and professional fees

     4,604        3,482       13,228        14,310  

Losses other than loans

     677        (600     1,602        283  

Foreclosure / OREO expense

     2,083        2,515       5,554        7,239  

FDIC expense

     6,859        4,755       16,805        14,582  

Other

     14,261        13,509       43,693        41,190  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total noninterest expense

     171,853        165,171       507,436        501,482  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before income taxes

     74,685        67,054       208,546        206,288  

Income tax expense

     24,478        21,396       66,775        65,354  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

     50,207        45,658       141,771        140,934  

Preferred stock dividends

     1,255        1,285       3,777        3,885  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income available to common equity

   $ 48,952      $ 44,373     $ 137,994      $ 137,049  
  

 

 

    

 

 

   

 

 

    

 

 

 

Earnings per common share:

          

Basic

   $ 0.31      $ 0.27     $ 0.86      $ 0.82  

Diluted

   $ 0.31      $ 0.27     $ 0.85      $ 0.82  

Average common shares outstanding:

          

Basic

     155,925        164,954       159,090        166,586  

Diluted

     156,991        165,443       159,993        166,760  

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

ITEM 1: Financial Statements Continued:

 

ASSOCIATED BANC-CORP

Consolidated Statements of Comprehensive Income

(Unaudited)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2014     2013     2014     2013  
     ($ in Thousands)  

Net income

   $ 50,207     $ 45,658     $ 141,771     $ 140,934  

Other comprehensive income (loss), net of tax:

        

Investment securities available for sale:

        

Net unrealized gains (losses)

     (20,123     (20,558     36,061       (142,318

Reclassification adjustment for net gains realized in net income

     (57     (248     (469     (582

Income tax (expense) benefit

     7,757       8,031       (13,684     55,169  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (12,423     (12,775     21,908       (87,731

Defined benefit pension and postretirement obligations:

        

Amortization of prior service cost

     15       17       45       52  

Amortization of actuarial losses

     317       1,073       949       3,218  

Income tax expense

     (128     (420     (383     (1,262
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income on pension and postretirement obligations

     204       670       611       2,008  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     (12,219     (12,105     22,519       (85,723
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 37,988     $ 33,553     $ 164,290     $ 55,211  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     —         —         —         140,934       —         —         140,934  

Other comprehensive loss

     —         —         —         —         (85,723     —         (85,723
              

 

 

 

Comprehensive income

                 55,211  
              

 

 

 

Common stock issued:

              

Stock-based compensation plans, net

     —         —         564       (17,057     —         23,368       6,875  

Purchase of treasury stock

     —         —         —         —         —         (93,294     (93,294

Cash dividends:

              

Common stock, $0.24 per share

     —         —         —         (40,223     —         —         (40,223

Preferred stock

     —         —         —         (3,885     —         —         (3,885

Purchase of preferred stock

     (535     —         —         (82     —         —         (617

Stock-based compensation expense, net

     —         —         11,368       —         —         —         11,368  

Tax benefit of stock options

     —         —         448       —         —         —         448  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2013

   $ 62,737     $ 1,750     $ 1,614,516     $ 1,361,498     $ (37,120   $ (131,099   $ 2,872,282  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     —         —         —         141,771       —         —         141,771  

Other comprehensive income

     —         —         —         —         22,519       —         22,519  
              

 

 

 

Comprehensive income

                 164,290  
              

 

 

 

Common stock issued:

              

Stock-based compensation plans, net

     —         —         1,863       (20,556     —         29,824       11,131  

Purchase of common stock returned to authorized but unissued

     —         (31     (50,467     —         —         50,498       —    

Purchase of treasury stock

     —         —         —         —         —         (162,743     (162,743

Cash dividends:

              

Common stock, $0.27 per share

     —         —           (43,299     —         —         (43,299

Preferred stock

     —         —         —         (3,777     —         —         (3,777

Purchase of preferred stock

     (838     —         —         (122     —         —         (960

Stock-based compensation expense, net

     —         —         12,462       —         —         —         12,462  

Tax benefit of stock options

     —         —         1,184       —         —         —         1,184  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2014

   $ 61,024     $ 1,719     $ 1,583,032     $ 1,466,525     $ (1,725   $ (240,997   $ 2,869,578  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

     Nine Months Ended September 30,  
     2014     2013  
     ($ in Thousands)  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 141,771     $ 140,934  

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

    

Provision for credit losses

     11,000       7,800  

Depreciation and amortization

     38,023       36,738  

Recovery of valuation allowance on mortgage servicing rights, net

     (89     (14,097

Amortization of mortgage servicing rights

     8,224       12,479  

Amortization of other intangible assets

     2,972       3,032  

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

     21,647       36,973  

Tax impact of stock based compensation

     1,184       448  

Gain on sales of investment securities, net

     (469     (582

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

     (6,561     (2,726

Gain on mortgage banking activities, net

     (11,668     (31,539

Mortgage loans originated and acquired for sale

     (777,532     (1,977,357

Proceeds from sales of mortgage loans held for sale

     735,565       2,152,286  

Pension contributions

     (21,270     (28,000

(Increase) decrease in interest receivable

     (3,301     739  

Decrease in interest payable

     (6,451     (8,293

Net change in other assets and other liabilities

     (2,333     42,721  
  

 

 

   

 

 

 

Net cash provided by operating activities

     130,712       371,556  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Net increase in loans

     (1,292,718     (233,755

Purchases of:

    

Available for sale securities

     (808,899     (1,305,155

Held to maturity securities

     (126,602     (85,453

FHLB stock

     (7,626     (28,520

Premises, equipment, and software, net of disposals

     (35,507     (49,139

Other assets

     (2,460     (1,401

Proceeds from:

    

Sales of available for sale securities

     101,987       135,809  

Prepayments, calls, and maturities of available for sale securities

     620,606       1,082,290  

Prepayments, calls, and maturities of held to maturity securities

     6,170       —    

FHLB stock

     —         14,399  

Prepayments, calls, and maturities of other assets

     29,136       30,857  
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,515,913     (440,068
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Net increase in deposits

     934,091       1,398,043  

Net increase (decrease) in short-term funding

     689,254       (700,059

Repayment of long-term funding

     (155,058     (400,156

Purchase of preferred stock

     (960     (617

Cash dividends on common stock

     (43,299     (40,223

Cash dividends on preferred stock

     (3,777     (3,885

Purchase of treasury stock

     (162,743     (93,294
  

 

 

   

 

 

 

Net cash provided by financing activities

     1,257,508       159,809  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (127,693     91,297  

Cash and cash equivalents at beginning of period

     602,245       737,873  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 474,552     $ 829,170  
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash paid for interest

   $ 46,026     $ 57,310  

Cash paid for income taxes

     57,167       29,700  

Loans and bank premises transferred to other real estate owned

     17,125       21,962  

Capitalized mortgage servicing rights

     5,844       15,968  
  

 

 

   

 

 

 

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.

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.

 

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

Net income

   $ 50,207     $ 45,658     $ 141,771     $ 140,934  

Preferred stock dividends

     (1,255     (1,285     (3,777     (3,885
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common equity

   $ 48,952     $ 44,373     $ 137,994     $ 137,049  
  

 

 

   

 

 

   

 

 

   

 

 

 

Common shareholder dividends

     (13,983     (13,167     (42,864     (39,849

Dividends on unvested share-based payment awards

     (140     (100     (435     (374
  

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed earnings

   $ 34,829     $ 31,106     $ 94,695     $ 96,826  
  

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed earnings allocated to common shareholders

     34,481       30,873       93,862       96,112  

Undistributed earnings allocated to unvested share-based payment awards

     348       233       833       714  
  

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed earnings

   $ 34,829     $ 31,106     $ 94,695     $ 96,826  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic

        

Distributed earnings to common shareholders

   $ 13,983     $ 13,167     $ 42,864     $ 39,849  

Undistributed earnings allocated to common shareholders

     34,481       30,873       93,862       96,112  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total common shareholders earnings, basic

   $ 48,464     $ 44,040     $ 136,726     $ 135,961  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

        

Distributed earnings to common shareholders

   $ 13,983     $ 13,167     $ 42,864     $ 39,849  

Undistributed earnings allocated to common shareholders

     34,481       30,873       93,862       96,112  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total common shareholders earnings, diluted

   $ 48,464     $ 44,040     $ 136,726     $ 135,961  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

     155,925       164,954       159,090       166,586  

Effect of dilutive common stock awards

     1,066       489       903       174  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average common shares outstanding

     156,991       165,443       159,993       166,760  

Basic earnings per common share

   $ 0.31     $ 0.27     $ 0.86     $ 0.82  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.31     $ 0.27     $ 0.85     $ 0.82  
  

 

 

   

 

 

   

 

 

   

 

 

 

Options to purchase approximately 2 million and 3 million shares were outstanding for the three and nine months ended September 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 nine months ended September 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 September 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 also issues restricted common stock and restricted common stock units to certain key employees (collectively referred to as “restricted stock awards”) under this plan. 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, relative total shareholder return, and continued employment or meeting the requirements for retirement. The plan provides that restricted stock awards and stock options will immediately become fully vested upon retirement from the Corporation of those colleagues whose retirement meets the early retirement or normal retirement definitions under the plan (“retirement eligible colleagues”).

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. Beginning with the 2014 grants, expenses related to stock options and restricted stock are fully recognized on the date the colleague meets the definition of normal or early retirement. 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 nine 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.

 

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

 

Stock Options

   Shares     Weighted Average
Exercise Price
     Weighted Average
Remaining
Contractual Term
     Aggregate Intrinsic
Value

(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

     (754,470     13.74        

Forfeited or expired

     (589,238     24.36        
  

 

 

   

 

 

       

Outstanding at September 30, 2014

     8,079,987     $ 18.21        6.12      $ 17,762  
  

 

 

   

 

 

       

Options exercisable at September 30, 2014

     5,225,930     $ 19.78        4.79        11,624  
  

 

 

   

 

 

       

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

 

Stock Options

   Shares     Weighted Average
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

     (1,492,733     4.95  

Forfeited

     (153,185     4.41  
  

 

 

   

Nonvested at September 30, 2014

     2,854,057     $ 3.75  
  

 

 

   

The intrinsic value of stock options exercised for the nine months ended September 30, 2014 was $3 million and $2 million for the year ended December 31, 2013, respectively. The total fair value of stock options that vested was $7 million for the first nine months of 2014 and $9 million for the year ended December 31, 2013. For the nine months ended September 30, 2014 and 2013, the Corporation recognized compensation expense for the vesting of stock options of $5 million and $6 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 September 30, 2014, the Corporation had $6 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 nine months ended September 30, 2014.

 

Restricted Stock

   Shares     Weighted Average
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

     1,158,711       17.41  

Vested

     (526,784     14.13  

Forfeited

     (124,222     15.06  
  

 

 

   

Outstanding at September 30, 2014

     2,019,470     $ 15.80  
  

 

 

   

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 $8 million and $6 million was recognized for the nine months ended September 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 $1.1 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $24 million of unrecognized compensation costs related to restricted stock awards at September 30, 2014 that is expected to be recognized over the remaining requisite service periods that extend predominantly through fourth quarter 2018.

The Corporation has the ability to issue shares from treasury 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.

 

September 30, 2014:

   Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
    Fair value  
     ($ in Thousands)  

Investment securities available for sale:

          

U.S. Treasury securities

   $ 999      $ —        $ (3   $ 996  

Obligations of state and political subdivisions (municipal securities)

     588,255        26,229        (48     614,436  

Residential mortgage-related securities:

          

Government-sponsored enterprise (“GSE”)

     3,725,218        59,047        (43,225     3,741,040  

Private-label

     2,475        9        (2     2,482  

GNMA commercial mortgage-related securities

     1,007,068        1,751        (28,217     980,602  

Other securities (debt and equity)

     5,806        60        —         5,866  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investment securities available for sale

   $ 5,329,821      $ 87,096      $ (71,495   $ 5,345,422  
  

 

 

    

 

 

    

 

 

   

 

 

 

Investment securities held to maturity:

          

Obligations of state and political subdivisions (municipal securities)

   $ 301,941      $ 6,875      $ (934   $ 307,882  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investment securities held to maturity

   $ 301,941      $ 6,875      $ (934   $ 307,882  
  

 

 

    

 

 

    

 

 

   

 

 

 

December 31, 2013:

   Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
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  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(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.

 

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The amortized cost and fair values of investment securities available for sale and held to maturity at September 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

   $ 28,053      $ 28,232     $ —        $ —    

Due after one year through five years

     224,059        236,326       765        774  

Due after five years through ten years

     333,788        347,187       105,931        106,998  

Due after ten years

     9,142        9,480       195,245        200,110  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

     595,042        621,225       301,941        307,882  

Residential mortgage-related securities:

          

GSE

     3,725,218        3,741,040       —          —    

Private-label

     2,475        2,482       —          —    

GNMA commercial mortgage-related securities

     1,007,068        980,602       —          —    

Equity securities

     18        73       —          —    
  

 

 

    

 

 

   

 

 

    

 

 

 

Total investment securities

   $ 5,329,821      $ 5,345,422     $ 301,941      $ 307,882  
  

 

 

    

 

 

   

 

 

    

 

 

 

Ratio of Fair Value to Amortized Cost

        100.3         102.0 

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 September 30, 2014.

 

     Less than 12 months      12 months or more      Total  

September 30, 2014:

   Number of
Securities
     Unrealized
Losses
    Fair
Value
     Number of
Securities
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
    Fair
Value
 
            ($ in Thousands)  

Investment securities available for sale:

                    

U.S. Treasury securities

     1      $ (3   $ 996        —        $ —       $ —        $ (3   $ 996  

Obligations of state and political subdivisions (municipal securities)

     5        (1   $ 1,799        13        (47   $ 5,647        (48   $ 7,446  

Residential mortgage-related securities:

                    

GSE

     30        (1,472     331,085        64        (41,753     1,389,945        (43,225     1,721,030  

Private-label

     1        (1     1,889        2        (1     30        (2     1,919  

GNMA commercial mortgage-related securities

     12        (1,927     363,315        15        (26,290     390,443        (28,217     753,758  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

Total

      $ (3,404   $ 699,084         $ (68,091   $ 1,786,065      $ (71,495   $ 2,485,149  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

Investment securities held to maturity:

                    

Obligations of state and political subdivisions (municipal securities)

     39      $ (55   $ 14,443        119      $ (879   $ 55,522      $ (934   $ 69,965  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

Total

      $ (55   $ 14,443         $ (879   $ 55,522      $ (934   $ 69,965  
     

 

 

   

 

 

       

 

 

   

 

 

    

 

 

   

 

 

 

 

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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  

December 31, 2013:

   Number of
Securities
     Unrealized
Losses
    Fair
Value
     Number of
Securities
     Unrealized
Losses
    Fair
Value
     Unrealized
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.

Based on the Corporation’s evaluation, management does not believe any unrealized loss at September 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 unrealized losses reported for municipal securities relate to various state and local political subdivisions and school districts. 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 September 30, 2014, as well as spread compression on mortgage-related and municipal securities, which increased the fair value of investment securities.

 

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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 nine months ended September 30, 2014, respectively.

 

     Private-label
Mortgage-Related
Securities
    Trust Preferred
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 or abandoned

     —         6,279       6,279  
  

 

 

   

 

 

   

 

 

 

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

   $ —       $ —       $ —    
  

 

 

   

 

 

   

 

 

 

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 $118 million at September 30, 2014 and $110 million at December 31, 2013 and Federal Reserve Bank stock of $71 million at both September 30, 2014 and December 31, 2013.

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

The period end loan composition was as follows.

 

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

Commercial and industrial

   $ 5,603,899      $ 4,822,680  

Commercial real estate - owner occupied

     1,014,335        1,114,715  

Lease financing

     52,600        55,483  
  

 

 

    

 

 

 

Commercial and business lending

     6,670,834        5,992,878  

Commercial real estate - investor

     3,043,361        2,939,456  

Real estate construction

     982,426        896,248  
  

 

 

    

 

 

 

Commercial real estate lending

     4,025,787        3,835,704  
  

 

 

    

 

 

 

Total commercial

     10,696,621        9,828,582  

Home equity

     1,676,525        1,825,014  

Installment and credit cards

     459,682        407,074  

Residential mortgage

     4,326,262        3,835,591  
  

 

 

    

 

 

 

Total consumer

     6,462,469        6,067,679  
  

 

 

    

 

 

 

Total loans

   $ 17,159,090      $ 15,896,261  
  

 

 

    

 

 

 

 

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Table of Contents

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

 

     Nine Months Ended
September 30, 2014
    Year Ended
December 31, 2013
 
     ($ in Thousands)  

Allowance for Loan Losses:

    

Balance at beginning of period

   $ 268,315     $ 297,409  

Provision for loan losses

     8,500       10,000  

Charge offs

     (35,318     (88,061

Recoveries

     24,765       48,967  
  

 

 

   

 

 

 

Net charge offs

     (10,553     (39,094
  

 

 

   

 

 

 

Balance at end of period

   $ 266,262     $ 268,315  
  

 

 

   

 

 

 

Allowance for Unfunded Commitments:

    

Balance at beginning of period

   $ 21,900     $ 21,800  

Provision for unfunded commitments

     2,500       100  
  

 

 

   

 

 

 

Balance at end of period

   $ 24,400     $ 21,900  
  

 

 

   

 

 

 

Allowance for Credit Losses

   $ 290,662     $ 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 for unfunded commitments 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 nine months ended September 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

     18,700       1,098       777       (14,292     (3,831     1,278       3,486       1,284       8,500  

Charge offs

     (11,421     (2,963     (29     (4,358     (1,761     (9,713     (1,751     (3,322     (35,318

Recoveries

     9,501       1,427       6       9,693       503       2,546       481       608       24,765  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at Sep 30, 2014

   $ 121,281     $ 19,038     $ 2,361     $ 49,199     $ 18,329     $ 26,307     $ 4,632     $ 25,115     $ 266,262  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses:

                  

Ending balance impaired loans individually evaluated for impairment

   $ 14,006     $ 1,672     $ 735     $ 1,829     $ 1,140     $ 11     $ —       $ 588     $ 19,981  

Ending balance impaired loans collectively evaluated for impairment

   $ 3,590     $ 2,404     $ 4     $ 2,429     $ 1,021     $ 12,480     $ 339     $ 11,503     $ 33,770  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

   $ 17,596     $ 4,076     $ 739     $ 4,258     $ 2,161     $ 12,491     $ 339     $ 12,091     $ 53,751  

Ending balance all other loans collectively evaluated for impairment

   $ 103,685     $ 14,962     $ 1,622     $ 44,941     $ 16,168     $ 13,816     $ 4,293     $ 13,024     $ 212,511  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 121,281     $ 19,038     $ 2,361     $ 49,199     $ 18,329     $ 26,307     $ 4,632     $ 25,115     $ 266,262  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

                  

Ending balance impaired loans individually evaluated for impairment

   $ 45,242     $ 17,927     $ 1,938     $ 21,204     $ 6,026     $ 1,025     $ —       $ 10,390     $ 103,752  

Ending balance impaired loans collectively evaluated for impairment

   $ 42,856     $ 17,987     $ 9     $ 28,342     $ 2,966     $ 30,818     $ 1,759     $ 60,252     $ 184,989  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

   $ 88,098     $ 35,914     $ 1,947     $ 49,546     $ 8,992     $ 31,843     $ 1,759     $ 70,642     $ 288,741  

Ending balance all other loans collectively evaluated for impairment

   $ 5,515,801     $ 978,421     $ 50,653     $ 2,993,815     $ 973,434     $ 1,644,682     $ 457,923     $ 4,255,620     $ 16,870,349  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 5,603,899     $ 1,014,335     $ 52,600     $ 3,043,361     $ 982,426     $ 1,676,525     $ 459,682     $ 4,326,262     $ 17,159,090  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 September 30, 2014.

 

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

Commercial and industrial

   $ 5,268,521      $ 113,864      $ 133,416      $ 88,098      $ 5,603,899  

Commercial real estate - owner occupied

     900,306        29,107        49,008        35,914        1,014,335  

Lease financing

     45,506        1,360        3,787        1,947        52,600  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     6,214,333        144,331        186,211        125,959        6,670,834  

Commercial real estate - investor

     2,930,817        34,524        28,474        49,546        3,043,361  

Real estate construction

     967,914        3,293        2,227        8,992        982,426  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     3,898,731        37,817        30,701        58,538        4,025,787  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

   $ 10,113,064      $ 182,148      $ 216,912      $ 184,497      $ 10,696,621  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 September 30, 2014.

 

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

Home equity

   $ 1,633,033      $ 10,738      $ 911      $ 31,843      $ 1,676,525  

Installment and credit cards

     456,101        1,818        4        1,759        459,682  

Residential mortgage

     4,250,223        3,231        2,166        70,642        4,326,262  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

   $ 6,339,357      $ 15,787      $ 3,081      $ 104,244      $ 6,462,469  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 September 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

   $ 2,035      $ 1,912      $ 269      $ 4,216      $ 5,548,540      $ 5,552,756  

Commercial real estate - owner occupied

     1,024        1,651        —          2,675        987,320        989,995  

Lease financing

     —          —          —          —          50,653        50,653  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     3,059        3,563        269        6,891        6,586,513        6,593,404  

Commercial real estate - investor

     15,869        —          —          15,869        3,002,386        3,018,255  

Real estate construction

     299        100        —          399        973,840        974,239  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     16,168        100        —          16,268        3,976,226        3,992,494  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     19,227        3,663        269        23,159        10,562,739        10,585,898  

Home equity

     7,999        2,739        —          10,738        1,644,526        1,655,264  

Installment and credit cards

     1,106        712        1,369        3,187        455,842        459,029  

Residential mortgage

     2,944        287        52        3,283        4,271,478        4,274,761  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     12,049        3,738        1,421        17,208        6,371,846        6,389,054  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total accruing loans

   $ 31,276      $ 7,401      $ 1,690      $ 40,367      $ 16,934,585      $ 16,974,952  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans

                 

Commercial and industrial

   $ 2,061      $ 1,254      $ 7,633      $ 10,948      $ 40,195      $ 51,143  

Commercial real estate - owner occupied

     429        582        10,159        11,170        13,170        24,340  

Lease financing

     —          —          550        550        1,397        1,947  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     2,490        1,836        18,342        22,668        54,762        77,430  

Commercial real estate - investor

     140        685        8,418        9,243        15,863        25,106  

Real estate construction

     64        56        1,061        1,181        7,006        8,187  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     204        741        9,479        10,424        22,869        33,293  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     2,694        2,577        27,821        33,092        77,631        110,723  

Home equity

     1,606        2,067        10,607        14,280        6,981        21,261  

Installment and credit cards

     57        49        138        244        409        653  

Residential mortgage

     3,934        2,657        22,117        28,708        22,793        51,501  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     5,597        4,773        32,862        43,232        30,183        73,415  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans **

   $ 8,291      $ 7,350      $ 60,683      $ 76,324      $ 107,814      $ 184,138  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

                 

Commercial and industrial

   $ 4,096      $ 3,166      $ 7,902      $ 15,164      $ 5,588,735      $ 5,603,899  

Commercial real estate - owner occupied

     1,453        2,233        10,159        13,845        1,000,490        1,014,335  

Lease financing

     —          —          550        550        52,050        52,600  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     5,549        5,399        18,611        29,559        6,641,275        6,670,834  

Commercial real estate - investor

     16,009        685        8,418        25,112        3,018,249        3,043,361  

Real estate construction

     363        156        1,061        1,580        980,846        982,426  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     16,372        841        9,479        26,692        3,999,095        4,025,787  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     21,921        6,240        28,090        56,251        10,640,370        10,696,621  

Home equity

     9,605        4,806        10,607        25,018        1,651,507        1,676,525  

Installment and credit cards

     1,163        761        1,507        3,431        456,251        459,682  

Residential mortgage

     6,878        2,944        22,169        31,991        4,294,271        4,326,262  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     17,646        8,511        34,283        60,440        6,402,029        6,462,469  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 39,567      $ 14,751      $ 62,373      $ 116,691      $ 17,042,399      $ 17,159,090  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* The recorded investment in loans past due 90 days or more and still accruing totaled $2 million at September 30, 2014 (the same as the reported balances for the accruing loans noted above).
** The percent of nonaccrual loans which are current was 59% at September 30, 2014.

 

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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).
** The percent of nonaccrual loans which are current was 42% at December 31, 2013.

 

23


Table of Contents

The following table presents impaired loans at September 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

   $ 74,410      $ 76,852      $ 17,596      $ 74,470      $ 2,548  

Commercial real estate - owner occupied

     23,250        25,849        4,076        24,412        585  

Lease financing

     1,946        1,946        739        2,074        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     99,606        104,647        22,411        100,956        3,133  

Commercial real estate - investor

     38,566        42,836        4,258        40,288        988  

Real estate construction

     5,778        8,576        2,161        6,702        158  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     44,344        51,412        6,419        46,990        1,146  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     143,950        156,059        28,830        147,946        4,279  

Home equity

     30,996        34,392        12,491        31,842        1,105  

Installment and credit cards

     1,759        1,979        339        1,864        41  

Residential mortgage

     62,916        67,457        12,091        63,920        1,526  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     95,671        103,828        24,921        97,626        2,672  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 239,621      $ 259,887      $ 53,751      $ 245,572      $ 6,951  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans with no related allowance

              

Commercial and industrial

   $ 13,688      $ 21,230      $ —        $ 16,781      $ 46  

Commercial real estate - owner occupied

     12,664        14,996        —          13,775        36  

Lease financing

     1        —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     26,353        36,226        —          30,556        82  

Commercial real estate - investor

     10,980        17,169        —          12,556        133  

Real estate construction

     3,214        3,904        —          3,313        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     14,194        21,073        —          15,869        133  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     40,547        57,299        —          46,425        215  

Home equity

     847        859        —          864        15  

Installment and credit cards

     —          —          —          —          —    

Residential mortgage

     7,726        7,845        —          7,774        104  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     8,573        8,704        —          8,638        119  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 49,120      $ 66,003      $ —        $ 55,063      $ 334  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

              

Commercial and industrial

   $ 88,098      $ 98,082      $ 17,596      $ 91,251      $ 2,594  

Commercial real estate - owner occupied

     35,914        40,845        4,076        38,187        621  

Lease financing

     1,947        1,946        739        2,074        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and business lending

     125,959        140,873        22,411        131,512        3,215  

Commercial real estate - investor

     49,546        60,005        4,258        52,844        1,121  

Real estate construction

     8,992        12,480        2,161        10,015        158  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate lending

     58,538        72,485        6,419        62,859        1,279  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     184,497        213,358        28,830        194,371        4,494  

Home equity

     31,843        35,251        12,491        32,706        1,120  

Installment and credit cards

     1,759        1,979        339        1,864        41  

Residential mortgage

     70,642        75,302        12,091        71,694        1,630  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     104,244        112,532        24,921        106,264        2,791  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans(b)

   $ 288,741      $ 325,890      $ 53,751      $ 300,635      $ 7,285  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Interest income recognized included $4 million of interest income recognized on accruing restructured loans for the nine months ended September 30, 2014.
(b) The implied fair value mark on all impaired loans at September 30, 2014, was 72% of their unpaid principal balance. 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 implied fair value mark on all impaired loans at December 31, 2013, was 71% of their unpaid principal balance. The fair value mark is calculated as the recorded investment, net of the related allowance, divided by the unpaid principal balance.

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

 

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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 repayment 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 to 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 $26 million recorded investment in loans modified in a troubled debt restructuring for the nine months ended September 30, 2014, of which $10 million were in accrual status and $16 million were in nonaccrual pending a sustained period of repayment.

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.

 

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

Commercial and industrial

   $ 36,956      $ 4,759      $ 32,517      $ 6,900  

Commercial real estate - owner occupied

     11,574        8,031        13,009        10,999  

Commercial real estate - investor

     24,439        17,472        44,946        18,069  

Real estate construction

     805        2,833        3,793        2,065  

Home equity

     10,582        6,729        9,633        5,419  

Installment and credit cards

     1,106        230        246        451  

Residential mortgage

     19,141        23,260        19,841        15,682  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 104,603      $ 63,314      $ 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 nine months ended September 30, 2014, and the recorded investment and unpaid principal balance as of September 30, 2014.

 

     Three Months Ended September 30, 2014      Nine Months Ended September 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

     10      $ 7,383      $ 7,384        13      $ 7,695      $ 7,707  

Commercial real estate - owner occupied

     —          —          —          2        1,123        1,260  

Commercial real estate - investor

     3        5,603        5,918        4        6,096        6,425  

Real estate construction

     1        8        8        2        14        14  

Home equity

     42        1,428        1,486        94        3,407        3,593  

Installment and credit cards

     2        25        25        3        34        45  

Residential mortgage

     45        4,057        4,347        85        8,004        8,555  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     103      $ 18,504      $ 19,168        203      $ 26,373      $ 27,599  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 nine months ended September 30, 2013, and the recorded investment and unpaid principal balance as of September 30, 2013.

 

     Three Months Ended September 30, 2013      Nine Months Ended September 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

     19      $ 5,479      $ 6,384        58      $ 11,379      $ 14,028  

Commercial real estate - owner occupied

     7        3,373        3,488        17        9,313        9,596  

Commercial real estate - investor

     10        1,222        1,304        18        5,013        5,320  

Real estate construction

     3        227        248        9        2,006        2,084  

Home equity

     16        933        985        74        4,149        4,554  

Installment

     —          —          —          2        187        193  

Residential mortgage

     19        1,664        1,826        71        6,744        7,619  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     74      $ 12,898      $ 14,235        249      $ 38,791      $ 43,394  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 nine months ended September 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 for the three and nine months ended September 30, 2014, primarily included maturity date extensions, interest rate concessions, payment schedule modifications, non-reaffirmed Chapter 7 bankruptcies, or a combination of these concessions.

 

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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 nine months ended September 30, 2014, as well as the recorded investment in these restructured loans as of September 30, 2014.

 

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

Commercial and industrial

     —        $ —          1      $ 52  

Commercial real estate - owner occupied

     —          —          2        203  

Commercial real estate - investor

     1        493        2        1,613  

Real estate construction

     —          —          1        160  

Home equity

     12        367        25        939  

Installment and credit cards

     1        10        3        34  

Residential mortgage

     18        1,502        50        4,743  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     32      $ 2,372        84      $ 7,744  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 nine months ended September 30, 2013, as well as the recorded investment in these restructured loans as of September 30, 2013.

 

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

Commercial and industrial

     8      $ 506        18      $ 1,626  

Commercial real estate - owner occupied

     2        464        4        578  

Commercial real estate - investor

     1        405        5        1,992  

Real estate construction

     1        118        2        158  

Home equity

     4        147        12        699  

Residential mortgage

     8        1,150        15        2,385  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     24      $ 2,790        56      $ 7,438  
  

 

 

    

 

 

    

 

 

    

 

 

 

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