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Section 1: 10-Q (10-Q)

ASB-2015.6.30 10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
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  ý    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  ý    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
 
ý
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  ý
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at July 29, 2015, was 150,212,293.

1

Table of Contents    

ASSOCIATED BANC-CORP
TABLE OF CONTENTS
 
 
 
Page No.
PART I. Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents    

PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements:
ASSOCIATED BANC-CORP
Consolidated Balance Sheets
 
June 30, 2015
(Unaudited)
 
December 31, 2014 (Audited)
 
(In Thousands, except share and per share data)
ASSETS
 
 
 
Cash and due from banks
$
375,369

 
$
444,113

Interest-bearing deposits in other financial institutions
101,573

 
571,924

Federal funds sold and securities purchased under agreements to resell
39,850

 
16,030

Investment securities held to maturity, at amortized cost
532,382

 
404,455

Investment securities available for sale, at fair value
5,407,998

 
5,396,812

Federal Home Loan Bank ("FHLB") and Federal Reserve Bank stocks, at cost
160,765

 
189,107

Loans held for sale
151,146

 
154,935

Loans
18,303,252

 
17,593,846

Allowance for loan losses
(261,538
)
 
(266,302
)
Loans, net
18,041,714

 
17,327,544

Premises and equipment, net
274,338

 
274,688

Goodwill
968,844

 
929,168

Other intangible assets, net
79,055

 
67,582

Trading assets
35,386

 
35,163

Other assets
1,016,725

 
1,010,253

Total assets
$
27,185,145

 
$
26,821,774

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Noninterest-bearing demand deposits
$
4,332,171

 
$
4,505,272

Interest-bearing deposits
14,937,392

 
14,258,232

Total deposits
19,269,563

 
18,763,504

Federal funds purchased and securities sold under agreements to repurchase
689,699

 
493,991

Other short-term funding
905,837

 
574,297

Long-term funding
3,179,734

 
3,930,117

Trading liabilities
37,169

 
37,329

Accrued expenses and other liabilities
198,752

 
222,285

Total liabilities
24,280,754

 
24,021,523

Stockholders’ equity
 
 
 
Preferred equity
122,015

 
59,727

Common stock
1,642

 
1,665

Surplus
1,450,200

 
1,484,933

Retained earnings
1,538,684

 
1,497,818

Accumulated other comprehensive income (loss)
2,594

 
(4,850
)
Treasury stock, at cost
(210,744
)
 
(239,042
)
Total stockholders’ equity
2,904,391

 
2,800,251

Total liabilities and stockholders’ equity
$
27,185,145

 
$
26,821,774

Preferred shares issued
125,660

 
61,356

Preferred shares authorized (par value $1.00 per share)
750,000

 
750,000

Common shares issued
164,200,068

 
166,544,252

Common shares authorized (par value $0.01 per share)
250,000,000

 
250,000,000

Treasury shares of common stock
13,337,783

 
15,002,318

See accompanying notes to consolidated financial statements.


3
Table of Contents

Item 1: Financial Statements Continued:

ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In Thousands, except per share data)
INTEREST INCOME
 
 
 
 
 
 
 
Interest and fees on loans
$
152,417

 
$
146,629

 
$
304,362

 
$
290,016

Interest and dividends on investment securities:
 
 
 
 
 
 
 
Taxable
23,868

 
26,109

 
48,960

 
52,366

Tax exempt
7,565

 
7,030

 
15,452

 
14,001

Other interest
1,771

 
1,862

 
3,463

 
3,311

Total interest income
185,621

 
181,630

 
372,237

 
359,694

INTEREST EXPENSE
 
 
 
 
 
 
 
Interest on deposits
8,141

 
6,195

 
15,760

 
12,354

Interest on Federal funds purchased and securities sold under agreements to repurchase
235

 
306

 
466

 
611

Interest on other short-term funding
115

 
280

 
196

 
396

Interest on long-term funding
10,642

 
6,146

 
21,514

 
12,657

Total interest expense
19,133

 
12,927

 
37,936

 
26,018

NET INTEREST INCOME
166,488

 
168,703

 
334,301

 
333,676

Provision for credit losses
5,000

 
5,000

 
9,500

 
10,000

Net interest income after provision for credit losses
161,488

 
163,703

 
324,801

 
323,676

NONINTEREST INCOME
 
 
 
 
 
 
 
Trust service fees
12,515

 
12,017

 
24,602

 
23,728

Service charges on deposit accounts
15,703

 
17,412

 
31,509

 
33,812

Card-based and other nondeposit fees
13,597

 
12,577

 
26,013

 
25,086

Insurance commissions
20,077

 
13,651

 
39,805

 
25,968

Brokerage and annuity commissions
4,192

 
4,520

 
7,875

 
8,553

Mortgage banking, net
9,941

 
5,362

 
17,349

 
11,723

Capital market fees, net
2,692

 
2,099

 
5,159

 
4,421

Bank owned life insurance income
2,381

 
3,011

 
5,256

 
7,331

Asset gains, net
1,893

 
899

 
2,989

 
1,627

Investment securities gains, net
1,242

 
34

 
1,242

 
412

Other
2,288

 
665

 
4,798

 
3,107

Total noninterest income
86,521

 
72,247

 
166,597

 
145,768

NONINTEREST EXPENSE
 
 
 
 
 
 
 
Personnel expense
102,986

 
97,793

 
203,138

 
195,491

Occupancy
14,308

 
13,785

 
31,991

 
29,345

Equipment
5,739

 
6,227

 
11,511

 
12,503

Technology
16,354

 
14,594

 
31,912

 
27,318

Business development and advertising
6,829

 
5,077

 
12,156

 
10,139

Other intangible amortization
888

 
991

 
1,689

 
1,982

Loan expense
3,681

 
3,620

 
6,677

 
6,407

Legal and professional fees
4,344

 
4,436

 
8,882

 
8,624

Foreclosure / OREO expense
1,303

 
1,575

 
2,728

 
3,471

FDIC expense
6,000

 
4,945

 
12,500

 
9,946

Other
14,384

 
14,882

 
27,887

 
30,357

Total noninterest expense
176,816

 
167,925

 
351,071

 
335,583

Income before income taxes
71,193

 
68,025

 
140,327

 
133,861

Income tax expense
21,793

 
21,660

 
44,255

 
42,297

Net income
49,400

 
46,365

 
96,072

 
91,564

Preferred stock dividends
1,545

 
1,278

 
2,773

 
2,522

Net income available to common equity
$
47,855

 
$
45,087

 
$
93,299

 
$
89,042

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.28

 
$
0.62

 
$
0.55

Diluted
$
0.31

 
$
0.28

 
$
0.61

 
$
0.55

Average common shares outstanding:
 
 
 
 
 
 
 
Basic
149,903

 
159,940

 
149,986

 
160,699

Diluted
151,108

 
160,838

 
151,129

 
161,513

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
 June 30,
 
Six Months Ended
 June 30,
 
2015
 
2014
 
2015
 
2014
 
($ in Thousands)
Net income
$
49,400

 
$
46,365

 
$
96,072

 
$
91,564

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Investment securities available for sale:
 
 
 
 
 
 
 
Net unrealized gains (losses)
(35,224
)
 
35,557

 
12,194

 
56,184

Reclassification adjustment for net gains realized in net income
(1,242
)
 
(34
)
 
(1,242
)
 
(412
)
Income tax (expense) benefit
13,923

 
(13,655
)
 
(4,182
)
 
(21,441
)
Other comprehensive income (loss) on investment securities available for sale
(22,543
)
 
21,868

 
6,770

 
34,331

Defined benefit pension and postretirement obligations:
 
 
 
 
 
 
 
Amortization of prior service cost
12

 
15

 
25

 
30

Amortization of actuarial losses
533

 
316

 
1,065

 
632

Income tax expense
(208
)
 
(128
)
 
(416
)
 
(255
)
Other comprehensive income on pension and postretirement obligations
337

 
203

 
674

 
407

Total other comprehensive income (loss)
(22,206
)
 
22,071

 
7,444

 
34,738

Comprehensive income
$
27,194

 
$
68,436

 
$
103,516

 
$
126,302

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, 2013
$
61,862

 
$
1,750

 
$
1,617,990

 
$
1,392,508

 
$
(24,244
)
 
$
(158,576
)
 
$
2,891,290

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
91,564

 
—

 
—

 
91,564

Other comprehensive income
—

 
—

 
—

 
—

 
34,738

 
—

 
34,738

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
126,302

Common stock issued:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation plans, net
—

 
—

 
1,071

 
(19,735
)
 
—

 
27,027

 
8,363

Purchase of treasury stock
—

 
—

 
—

 
—

 
—

 
(72,647
)
 
(72,647
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.18 per share
—

 
—

 
—

 
(29,175
)
 
—

 
—

 
(29,175
)
Preferred stock
—

 
—

 
—

 
(2,522
)
 
—

 
—

 
(2,522
)
Purchase of preferred stock
(838
)
 
—

 
—

 
(122
)
 
—

 
—

 
(960
)
Stock-based compensation expense, net
—

 
—

 
8,468

 
—

 
—

 
—

 
8,468

Tax benefit of stock-based compensation
—

 
—

 
827

 
—

 
—

 
—

 
827

Balance, June 30, 2014
$
61,024

 
$
1,750

 
$
1,628,356

 
$
1,432,518

 
$
10,494

 
$
(204,196
)
 
$
2,929,946

Balance, December 31, 2014
$
59,727

 
$
1,665

 
$
1,484,933

 
$
1,497,818

 
$
(4,850
)
 
$
(239,042
)
 
$
2,800,251

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
96,072

 
—

 
—

 
96,072

Other comprehensive income
—

 
—

 
—

 
—

 
7,444

 
—

 
7,444

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
103,516

Common stock issued:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation plans, net
—

 
—

 
2,051

 
(21,145
)
 
—

 
32,798

 
13,704

Acquisition of Ahmann & Martin Co.
—

 
26

 
43,504

 
—

 
—

 
—

 
43,530

Purchase of common stock returned to authorized but unissued
—

 
(49
)
 
(92,951
)
 
—

 
—

 
—

 
(93,000
)
Purchase of treasury stock
—

 
—

 
—

 
—

 
—

 
(4,500
)
 
(4,500
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.20 per share
—

 
—

 
—

 
(30,508
)
 
—

 
—

 
(30,508
)
Preferred stock
—

 
—

 
—

 
(2,773
)
 
—

 
—

 
(2,773
)
Issuance of preferred stock
62,966

 
—

 
—

 
—

 
—

 
—

 
62,966

Purchase of preferred stock
(678
)
 
—

 
—

 
(74
)
 
—

 
—

 
(752
)
Other
—

 
—

 
—

 
(706
)
 
—

 
—

 
(706
)
Stock-based compensation expense, net
—

 
—

 
10,879

 
—

 
—

 
—

 
10,879

Tax benefit of stock-based compensation
—

 
—

 
1,784

 
—

 
—

 
—

 
1,784

Balance, June 30, 2015
$
122,015

 
$
1,642

 
$
1,450,200

 
$
1,538,684

 
$
2,594

 
$
(210,744
)
 
$
2,904,391

See accompanying notes to consolidated financial statements.

6
Table of Contents

Item 1: Financial Statements Continued:

ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows(Unaudited) 
 
Six Months Ended June 30,
 
2015
 
2014
 
($ in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
96,072

 
$
91,564

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
9,500

 
10,000

Depreciation and amortization
24,232

 
25,834

Addition to (recovery of) valuation allowance on mortgage servicing rights, net
(465
)
 
119

Amortization of mortgage servicing rights
6,147

 
5,545

Amortization of other intangible assets
1,689

 
1,982

Amortization and accretion on earning assets, funding, and other, net
19,457

 
13,788

Tax impact of stock based compensation
1,784

 
827

Gain on sales of investment securities, net
(1,242
)
 
(412
)
Gain on sales of assets and impairment write-downs, net
(2,989
)
 
(1,627
)
Gain on mortgage banking activities, net
(8,000
)
 
(8,169
)
Mortgage loans originated and acquired for sale
(619,202
)
 
(479,449
)
Proceeds from sales of mortgage loans held for sale
599,262

 
478,688

Increase (decrease) in interest receivable
808

 
(1,617
)
Increase (decrease) in interest payable
5,596

 
(880
)
Net change in other assets and other liabilities
(19,819
)
 
(19,677
)
Net cash provided by operating activities
112,830

 
116,516

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net increase in loans
(703,636
)
 
(1,166,685
)
Purchases of:
 
 
 
Available for sale securities
(1,702,678
)
 
(673,073
)
Held to maturity securities
(133,976
)
 
(70,581
)
FHLB stock
(14,172
)
 
(4,997
)
Premises, equipment, and software, net of disposals
(26,232
)
 
(19,365
)
Other assets
(8,183
)
 
(461
)
Proceeds from:
 
 
 
Sales of available for sale securities
1,065,328

 
80,362

Sale of FHLB stock
42,514

 
—

Prepayments, calls, and maturities of available for sale securities
620,320

 
373,692

Prepayments, calls, and maturities of held to maturity securities
6,290

 
5,670

Prepayments, calls, and maturities of other assets
10,465

 
17,913

Net cash received in acquisition
1,132

 
—

Net cash used in investing activities
(842,828
)
 
(1,457,525
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net increase in deposits
506,059

 
49,092

Net increase in short-term funding
527,248

 
1,596,245

Repayment of long-term funding
(1,000,017
)
 
(155,018
)
Proceeds from issuance of long-term funding
250,000

 
—

Purchase of common stock returned to authorized but unissued
(93,000
)
 
—

Purchase of treasury stock
(4,500
)
 
(72,647
)
Proceeds from issuance of preferred stock
62,966

 
—

Purchase of preferred stock
(752
)
 
(960
)
Cash dividends on common stock
(30,508
)
 
(29,175
)
Cash dividends on preferred stock
(2,773
)
 
(2,522
)
Net cash provided by financing activities
214,723

 
1,385,015

Net increase (decrease) in cash and cash equivalents
(515,275
)
 
44,006

Cash and cash equivalents at beginning of period
1,032,067

 
602,245

Cash and cash equivalents at end of period
$
516,792

 
$
646,251

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
32,123

 
$
26,971

Cash paid for income taxes
40,473

 
38,667

Loans and bank premises transferred to other real estate owned
3,117

 
12,049

Capitalized mortgage servicing rights
6,729

 
3,720

Acquisition:
 
 
 
     Fair value of assets acquired, including cash and cash equivalents
4,590

 
—

     Fair value ascribed to goodwill and intangible assets
51,791

 
—

     Fair value of liabilities assumed
12,851

 
—

     Common stock issued in acquisition
43,530

 
—

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 2014 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.
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 loan losses, goodwill impairment assessment, mortgage servicing rights valuation, and income taxes. Management has evaluated subsequent events for potential recognition or disclosure.
NOTE 2: Acquisition
On February 17, 2015, the Corporation acquired Ahmann & Martin Co., a risk and employee benefits consulting firm based in Minnesota. The firm merged into Associated Financial Group, LLC the Corporation's insurance brokerage subsidiary. The Corporation's acquisition of Ahmann & Martin Co. enhances the Corporation's ability to offer clients unique, comprehensive solutions to meet their insurance and financial risk management needs. The transaction was valued at approximately $48 million with the opportunity to increase the consideration by $8 million should certain contingencies be met over a defined period.
The transaction was accounted for using the acquisition method of accounting and as such, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair value on the acquisition date. Goodwill from the acquisition represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is not deductible for tax purposes. As a result of the acquisition, the Corporation recorded goodwill of approximately $40 million and other intangible assets of approximately $12 million. Goodwill was assigned to the Corporation's Community, Consumer, and Business segment.
During the second quarter of 2015, the Corporation made acquisition valuation adjustments impacting certain assets acquired in connection with the acquisition of Ahmann & Martin Co. As a result of these adjustments, our consolidated balance sheet as of June 30, 2015 reflects a $70,000 increase in goodwill and a $500,000 increase in other intangible assets when compared to previously reported amounts. See Note 8 for additional information on goodwill and other intangible assets.
NOTE 3: New Accounting Pronouncements Adopted
In June 2015, the FASB issued a technical corrections and improvements accounting standards update which makes minor amendments to the FASB Accounting Standards Codification. The four general topics covered in the guidance include: (1) amendments related to differences between original guidance and the codification, (2) guidance clarification and reference corrections, (3) simplification, and (4) minor improvements. The amendments that require transition guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments that require transition guidance are not applicable to the Corporation. All other amendments were effective upon the issuance of this update in June 2015. The Corporation adopted the accounting standard during the second quarter of 2015, as required, with no material impact on its results of operations, financial position, or liquidity.
In May 2015, the FASB issued an amendment to its current guidance regarding pushdown accounting for newly acquired businesses. The amendment eliminates the SEC guidance on pushdown accounting from the Accounting Standard Codification. The amendments align the FASB’s codification with the related material in the SEC's staff accounting bulletin (SAB) No. 115. SAB 115 rescinds portions of the interpretive guidance included in the SEC's Staff Accounting Bulletins series and brings existing guidance into conformity with ASU 2014-17, Pushdown Accounting, which provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the

8
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acquired entity. The Corporation adopted the accounting standard during the second quarter of 2015, as required, with no material impact on its results of operations, financial position, or liquidity.
In August 2014, the FASB issued an amendment to clarify how creditors are to classify certain government-guaranteed mortgage loans upon foreclosure. This amendment requires that a mortgage loan be derecognized and a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separate from the loan before foreclosure and (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under the claim and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. This amendment was effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2014. The Corporation adopted the accounting standard on a prospective basis during the first quarter of 2015, as required, with no material impact on its results of operations, financial position, or liquidity.

In June 2014, the FASB issued an amendment to clarify the current accounting and disclosures for certain repurchase agreements. The amendments in this update require two accounting changes: (1) change the accounting for repurchase-to-maturity transactions to secured borrowing accounting and (2) require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments in this update also require additional disclosures for certain transactions on the transfer of financial assets, as well as new disclosures for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings. This amendment was effective for public business entities for the first interim or annual period beginning after December 15, 2014. The Corporation adopted the accounting standard during the first quarter of 2015, as required, with no material impact on its results of operations, financial position, or liquidity. See Note 9 for the new repurchase agreement disclosures.
In January 2014, the FASB issued an amendment to clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar agreement. In addition, the amendments require interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure in accordance with local requirements of the applicable jurisdiction. This amendment was effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Corporation adopted the accounting standard using the prospective transition method during the first quarter of 2015, as required, with no material impact on its results of operations, financial position, or liquidity.
In January 2014, the FASB issued an amendment which permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). For those investments in qualified affordable housing projects not accounted for using the proportional method, the investment should be accounted for as an equity method investment or a cost method investment. The decision to apply the proportional amortization method of accounting is an accounting policy decision that should be applied consistently to all qualifying affordable housing project investments rather than a decision to be applied to individual investments. This amendment should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. This amendment was effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Corporation made an accounting policy election to use the proportional amortization method for investments in qualified affordable housing projects during the first quarter of 2015, which had no material impact on the results of operations, financial position, or liquidity.

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NOTE 4: 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 instruments (outstanding stock options, unvested restricted stock, and outstanding stock warrants). Presented below are the calculations for basic and diluted earnings per common share.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
(In Thousands, except per share data)
Net income
$
49,400

 
$
46,365

 
$
96,072

 
$
91,564

Preferred stock dividends
(1,545
)
 
(1,278
)
 
(2,773
)
 
(2,522
)
Net income available to common equity
$
47,855

 
$
45,087

 
$
93,299

 
$
89,042

Common shareholder dividends
(15,056
)
 
(14,393
)
 
(30,222
)
 
(28,881
)
Dividends on unvested share-based payment awards
(172
)
 
(143
)
 
(286
)
 
(294
)
Undistributed earnings
$
32,627

 
$
30,551

 
$
62,791

 
$
59,867

Undistributed earnings allocated to common shareholders
$
32,262

 
$
30,247

 
$
62,148

 
$
59,375

Undistributed earnings allocated to unvested share-based payment awards
365

 
304

 
643

 
492

Undistributed earnings
$
32,627

 
$
30,551

 
$
62,791

 
$
59,867

Basic
 
 
 
 
 
 
 
Distributed earnings to common shareholders
$
15,056

 
$
14,393

 
$
30,222

 
$
28,881

Undistributed earnings allocated to common shareholders
32,262

 
30,247

 
62,148

 
59,375

Total common shareholders earnings, basic
$
47,318

 
$
44,640

 
$
92,370

 
$
88,256

Diluted
 
 
 
 
 
 
 
Distributed earnings to common shareholders
$
15,056

 
$
14,393

 
$
30,222

 
$
28,881

Undistributed earnings allocated to common shareholders
32,262

 
30,247

 
62,148

 
59,375

Total common shareholders earnings, diluted
$
47,318

 
$
44,640

 
$
92,370

 
$
88,256

Weighted average common shares outstanding
149,903

 
159,940

 
149,986

 
160,699

Effect of dilutive common stock instruments
1,205

 
898

 
1,143

 
814

Diluted weighted average common shares outstanding
151,108

 
160,838

 
151,129

 
161,513

Basic earnings per common share
$
0.32

 
$
0.28

 
$
0.62

 
$
0.55

Diluted earnings per common share
$
0.31

 
$
0.28

 
$
0.61

 
$
0.55

Options to purchase approximately 1 million common shares were outstanding for both the three and six months ended June 30, 2015, 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 and 2 million common shares were outstanding for the three and six months ended June 30, 2014, respectively, but excluded from the calculation of diluted earnings per common share as the effect would have been anti-dilutive.
NOTE 5: Stock-Based Compensation
At June 30, 2015, the Corporation had one active 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 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”).

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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 awards 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 six months of 2015 and full year 2014.
 
2015
 
2014
Dividend yield
2.00
%
 
2.00
%
Risk-free interest rate
2.00
%
 
2.00
%
Weighted average expected volatility
20.00
%
 
20.00
%
Weighted average expected life
6 years

 
6 years

Weighted average per share fair value of options
$3.08
 
$3.00
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.
A summary of the Corporation’s stock option activity for the year ended December 31, 2014 and for the six months ended June 30, 2015, is presented below.
Stock Options
Shares
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining
Contractual Term
 
Aggregate Intrinsic
Value
(000s)
Outstanding at December 31, 2013
8,034,243

 
$18.37
 
 
 
 
Granted
1,389,452

 
$17.45
 
 
 
 
Exercised
(933,143
)
 
$13.77
 
 
 
 
Forfeited or expired
(643,214
)
 
$23.50
 
 
 
 
Outstanding at December 31, 2014
7,847,338

 
$18.34
 
5.79
 
$
23,986

Options exercisable at December 31, 2014
5,076,676

 
$19.96
 
4.41
 
$
14,953

Granted
1,348,504

 
$17.95
 
 
 
 
Exercised
(901,828
)
 
$13.92
 
 
 
 
Forfeited or expired
(748,088
)
 
$27.58
 
 
 
 
Outstanding at June 30, 2015
7,545,926

 
$17.90
 
6.30
 
$
30,532

Options exercisable at June 30, 2015
5,049,508

 
$18.27
 
4.98
 
$
22,722


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The following table summarizes information about the Corporation’s nonvested stock option activity for the year ended December 31, 2014, and for the six months ended June 30, 2015.
Nonvested Stock Options
Shares
 
Weighted Average
Grant Date Fair Value
Nonvested at December 31, 2013
3,110,523

 
$4.69
Granted
1,389,452

 
$3.00
Vested
(1,522,152
)
 
$4.92
Forfeited
(207,161
)
 
$4.38
Nonvested at December 31, 2014
2,770,662

 
$3.74
Granted
1,348,504

 
$3.08
Vested
(1,425,483
)
 
$4.22
Forfeited
(197,265
)
 
$3.27
Nonvested at June 30, 2015
2,496,418

 
$3.15
Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock option. For the six months ended June 30, 2015, the intrinsic value of stock options exercised was $5 million. For the year ended December 31, 2014, the intrinsic value of stock options exercised was $4 million. The total fair value of stock options that vested was $6 million for the six months ended June 30, 2015 and $7 million for the year ended December 31, 2014. The Corporation recognized compensation expense for the vesting of stock options of $2 million and $3 million for the six months ended June 30, 2015 and 2014, respectively. For the full year 2014, the Corporation recognized compensation expense of $6 million for the vesting of stock options. Included in compensation expense for the six months ended June 30, 2015 was approximately $520,000 of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At June 30, 2015, 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.
The following table summarizes information about the Corporation’s restricted stock awards activity for the year ended December 31, 2014, and for six months ended June 30, 2015.
Restricted Stock
Shares
 
Weighted Average
Grant Date Fair Value
Outstanding at December 31, 2013
1,511,765

 
$13.92
Granted
1,177,168

 
$17.35
Vested
(538,877
)
 
$14.12
Forfeited
(167,930
)
 
$15.26
Outstanding at December 31, 2014
1,982,126

 
$15.79
Granted
1,146,398

 
$18.04
Vested
(677,112
)
 
$15.54
Forfeited
(123,040
)
 
$16.65
Outstanding at June 30, 2015
2,328,372

 
$17.00
Restricted stock awards granted during 2014 and 2015 will vest ratably over a four year period. Expense for restricted stock awards of approximately $9 million and $5 million was recognized for the six months ended June 30, 2015 and 2014, respectively. The Corporation recognized approximately $10 million of expense for restricted stock awards for the full year 2014. Included in compensation expense for the six months ended June 30, 2015 was approximately $1 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $30 million of unrecognized compensation expense related to restricted stock awards at June 30, 2015 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 6: Investment Securities
Investment securities are classified as held to maturity or available for sale at the time of purchase. The majority of the Corporation's investment securities are mortgage-related securities issued by government-sponsored enterprises ("GSE") such as the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”), and the Federal Home Loan Mortgage Corporation (“FHLMC”). The amortized cost and fair values of investment securities available for sale and held to maturity were as follows.
June 30, 2015:
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair value
 
($ in Thousands)
Investment securities available for sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$
999

 
$
2

 
$
—

 
$
1,001

Obligations of state and political subdivisions ("municipal securities")
451,577

 
18,576

 
(50
)
 
470,103

Residential mortgage-related securities:
 
 
 
 
 
 
 
FNMA / FHLMC
2,207,339

 
52,006

 
(7,718
)
 
2,251,627

GNMA
905,728

 
1,876

 
(5,520
)
 
902,084

Private-label
1,926

 
1

 
(10
)
 
1,917

GNMA commercial mortgage-related securities
1,794,286

 
3,803

 
(23,527
)
 
1,774,562

Other securities (debt and equity)
6,638

 
66

 
—

 
6,704

Total investment securities available for sale
$
5,368,493

 
$
76,330

 
$
(36,825
)
 
$
5,407,998

Investment securities held to maturity:
 
 
 
 
 
 
 
Municipal securities
$
532,382

 
$
4,360

 
$
(6,288
)
 
$
530,454

Total investment securities held to maturity
$
532,382

 
$
4,360

 
$
(6,288
)
 
$
530,454

December 31, 2014:
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair value
 
($ in Thousands)
Investment securities available for sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$
999

 
$
—

 
$
(1
)
 
$
998

Municipal securities
560,839

 
21,869

 
(29
)
 
582,679

Residential mortgage-related securities:
 
 
 
 
 
 
 
FNMA / FHLMC
3,534,240

 
59,640

 
(30,423
)
 
3,563,457

GNMA
165,863

 
1,596

 
(127
)
 
167,332

Private-label
2,297

 
7

 
(10
)
 
2,294

GNMA commercial mortgage-related securities
1,097,913

 
1,922

 
(25,942
)
 
1,073,893

Other securities (debt and equity)
6,108

 
51

 
—

 
6,159

Total investment securities available for sale
$
5,368,259

 
$
85,085

 
$
(56,532
)
 
$
5,396,812

Investment securities held to maturity:
 
 
 
 
 
 
 
Municipal securities
$
404,455

 
$
9,444

 
$
(832
)
 
$
413,067

Total investment securities held to maturity
$
404,455

 
$
9,444

 
$
(832
)
 
$
413,067



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The amortized cost and fair values of investment securities available for sale and held to maturity at June 30, 2015, 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
$
23,394

 
$
23,632

 
$
—

 
$
—

Due after one year through five years
245,147

 
256,811

 
2,481

 
2,513

Due after five years through ten years
190,071

 
196,705

 
127,117

 
127,465

Due after ten years
584

 
604

 
402,784

 
400,476

Total debt securities
459,196

 
477,752

 
532,382

 
530,454

Residential mortgage-related securities:
 
 
 
 
 
 
 
FNMA / FHLMC
2,207,339

 
2,251,627

 
—

 
—

GNMA
905,728

 
902,084

 
 
 
 
Private-label
1,926

 
1,917

 
—

 
—

GSE commercial mortgage-related securities
1,794,286

 
1,774,562

 
—

 
—

Equity securities
18

 
56

 
—

 
—

Total investment securities
$
5,368,493

 
$
5,407,998

 
$
532,382

 
$
530,454

Ratio of Fair Value to Amortized Cost
 
 
100.7
%
 
 
 
99.6
%
During the second quarter of 2015, the Corporation restructured its investment portfolio and sold over $1 billion of FNMA and FHLMC mortgage-related securities and reinvested into GNMA mortgage-related securities, generating a $1 million net gain on sale. This restructuring lowered risk weighted assets and related capital requirements, while improving the liquidity of the investment portfolio.
 
Six Months Ended June 30,
 
Year Ended December 31,
 
2015
 
2014
 
2014
 
 
 
($ in Thousands)
 
 
Gross gains
$
5,251

 
$
1,102

 
$
1,184

Gross losses
(4,009
)
 
(690
)
 
(690
)
    Investment securities gains, net
$
1,242

 
$
412

 
$
494

Proceeds from sales of investment securities
$
1,065,328

 
$
80,362

 
$
102,011

The following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2015.
 
Less than 12 months
 
12 months or more
 
Total
June 30, 2015
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
18

 
$
(47
)
 
$
8,022

 
1

 
$
(3
)
 
$
186

 
$
(50
)
 
$
8,208

Residential mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GSE
62

 
(6,719
)
 
1,015,136

 
20

 
(6,519
)
 
387,416

 
(13,238
)
 
1,402,552

Private-label
2

 
(9
)
 
1,825

 
2

 
(1
)
 
21

 
(10
)
 
1,846

GSE commercial mortgage-related securities
29

 
(5,043
)
 
858,144

 
20

 
(18,484
)
 
446,382

 
(23,527
)
 
1,304,526

Total
 
 
$
(11,818
)
 
$
1,883,127

 
 
 
$
(25,007
)
 
$
834,005

 
$
(36,825
)
 
$
2,717,132

Investment securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
623

 
$
(5,824
)
 
$
303,766

 
21

 
$
(464
)
 
$
9,346

 
$
(6,288
)
 
$
313,112

Total
 
 
$
(5,824
)
 
$
303,766

 
 
 
$
(464
)
 
$
9,346

 
$
(6,288
)
 
$
313,112


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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, 2014.
 
Less than 12 months
 
12 months or more
 
Total
December 31, 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

 
$
(1
)
 
$
998

 
—

 
$
—

 
$
—

 
$
(1
)
 
$
998

Municipal securities
6

 
(9
)
 
3,374

 
6

 
(20
)
 
2,133

 
(29
)
 
5,507

Residential mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GSE
16

 
(1,404
)
 
333,713

 
56

 
(29,146
)
 
1,256,533

 
(30,550
)
 
1,590,246

Private-label
1

 
(9
)
 
1,772

 
2

 
(1
)
 
27

 
(10
)
 
1,799

GSE commercial mortgage-related securities
9

 
(1,766
)
 
329,982

 
20

 
(24,176
)
 
460,425

 
(25,942
)
 
790,407

Total
 
 
$
(3,189
)
 
$
669,839

 
 
 
$
(53,343
)
 
$
1,719,118

 
$
(56,532
)
 
$
2,388,957

Investment securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
74

 
$
(216
)
 
$
31,924

 
85

 
$
(616
)
 
$
38,915

 
$
(832
)
 
$
70,839

Total
 
 
$
(216
)
 
$
31,924

 
 
 
$
(616
)
 
$
38,915

 
$
(832
)
 
$
70,839

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. The Corporation may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds, and the value of any underlying collateral for certain securities.
Based on the Corporation’s evaluation, management does not believe any unrealized loss at June 30, 2015 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 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 slight reduction in the level of intermediate term interest rates from December 31, 2014 to June 30, 2015. Since December 31, 2014, the three-year and five-year U.S. Treasury note rates declined 7 basis points ("bp") and 1 bp, respectively.
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 $88 million and $118 million at June 30, 2015 and December 31, 2014, respectively, and Federal Reserve Bank stock of $73 million and $71 million at June 30, 2015 and December 31, 2014, respectively. During second quarter of 2015, the Corporation sold $43 million of excess FHLB stock.

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NOTE 7: Loans, Allowance for Credit Losses, and Credit Quality
The period end loan composition was as follows.
 
June 30,
2015
 
December 31,
2014
 
($ in Thousands)
Commercial and industrial
$
6,208,192

 
$
5,905,902

Commercial real estate - owner occupied
978,183

 
1,007,937

Lease financing
46,900

 
51,529

Commercial and business lending
7,233,275

 
6,965,368

Commercial real estate - investor
3,126,440

 
3,056,485

Real estate construction
1,092,308

 
1,008,956

Commercial real estate lending
4,218,748

 
4,065,441

Total commercial
11,452,023

 
11,030,809

Home equity
1,530,463

 
1,636,058

Installment and credit cards
430,823

 
454,219

Residential mortgage
4,889,943

 
4,472,760

Total consumer
6,851,229

 
6,563,037

Total loans
$
18,303,252

 
$
17,593,846

A summary of the changes in the allowance for credit losses was as follows. 
 
Six Months Ended
June 30, 2015
 
Year Ended
December 31, 2014
 
($ in Thousands)
Allowance for Loan Losses:
 
 
 
Balance at beginning of period
$
266,302

 
$
268,315

Provision for loan losses
9,500

 
13,000

Charge offs
(27,807
)
 
(44,096
)
Recoveries
13,543

 
29,083

Net charge offs
(14,264
)
 
(15,013
)
Balance at end of period
$
261,538

 
$
266,302

Allowance for Unfunded Commitments:
 
 
 
Balance at beginning of period
$
24,900

 
$
21,900

Provision for unfunded commitments
—

 
3,000

Balance at end of period
$
24,900

 
$
24,900

Allowance for Credit Losses
$
286,438

 
$
291,202

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 13 for additional information on the allowance for unfunded commitments.

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Table of Contents    

A summary of the changes in the allowance for loan losses by portfolio segment for the six months ended June 30, 2015, 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, 2014
$
116,025

 
$
16,510

 
$
1,610

 
$
46,333

 
$
20,999

 
$
30,359

 
$
6,435

 
$
28,031

 
$
266,302

Provision for loan losses
7,855

 
4,583

 
(128
)
 
(3,199
)
 
(530
)
 
(319
)
 
1,214

 
24

 
9,500

Charge offs
(13,012
)
 
(2,249
)
 
—

 
(3,430
)
 
(447
)
 
(4,387
)
 
(1,928
)
 
(2,354
)
 
(27,807