Toggle SGML Header (+)


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

10-Q





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the quarterly period ended March 31, 2016
¨
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  þ        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  þ        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  þ
Accelerated filer  ¨
 
 
Non-accelerated filer  ¨
Smaller reporting company ¨ 
(Do not check if a 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  þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at April 27, 2016, was 150,136,403.

.


1




ASSOCIATED BANC-CORP
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2




PART I - FINANCIAL INFORMATION
ITEM 1.
Financial Statements:
ASSOCIATED BANC-CORP
Consolidated Balance Sheets
 
March 31, 2016
 
December 31, 2015
 
(Unaudited)
 
(Audited)
 
(In Thousands, except share and per share data)
ASSETS
 
 
 
Cash and due from banks
$
287,183

 
$
374,921

Interest-bearing deposits in other financial institutions
68,025

 
79,764

Federal funds sold and securities purchased under agreements to resell
20,200

 
19,000

Investment securities held to maturity, at amortized cost
1,176,821

 
1,168,230

Investment securities available for sale, at fair value
4,905,841

 
4,967,414

Federal Home Loan Bank and Federal Reserve Bank stocks, at cost
181,853

 
147,240

Loans held for sale
128,339

 
124,915

Loans
19,227,240

 
18,714,343

Allowance for loan losses
(277,370
)
 
(274,264
)
Loans, net
18,949,870

 
18,440,079

Premises and equipment, net
331,711

 
267,606

Goodwill
971,951

 
968,844

Mortgage servicing rights, net
59,414

 
61,341

Other intangible assets
16,966

 
16,458

Trading assets
53,087

 
32,192

Other assets(1)
1,027,606

 
1,043,831

Total assets
$
28,178,867

 
$
27,711,835

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Noninterest-bearing demand deposits
$
5,272,685

 
$
5,562,466

Interest-bearing deposits
15,412,775

 
15,445,199

Total deposits
20,685,460

 
21,007,665

Federal funds purchased and securities sold under agreements to repurchase
583,247

 
431,438

Other short-term funding
834,161

 
402,978

Long-term funding(1)
2,861,316

 
2,676,164

Trading liabilities
55,223

 
33,430

Accrued expenses and other liabilities
176,962

 
222,914

Total liabilities
25,196,369

 
24,774,589

Stockholders’ equity
 
 
 
Preferred equity
120,347

 
121,379

Common equity:
 
 
 
Common stock
1,630

 
1,642

Surplus
1,447,368

 
1,458,522

Retained earnings
1,599,835

 
1,593,239

Accumulated other comprehensive income (loss)
2,167

 
(32,616
)
Treasury stock, at cost
(188,849
)
 
(204,920
)
Total common equity
2,862,151

 
2,815,867

Total stockholders’ equity
2,982,498

 
2,937,246

Total liabilities and stockholders’ equity
$
28,178,867

 
$
27,711,835

Preferred shares issued
124,054

 
125,114

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

 
750,000

Common shares issued
163,030,209

 
164,200,068

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

 
250,000,000

Treasury shares of common stock
12,036,645

 
12,960,636

(1)
During the first quarter of 2016, the Corporation adopted a new accounting standard related to simplifying the presentation of debt issuance costs.  Under this new accounting standard, debt issuance costs are still capitalized; however, they are reflected on the balance sheet with the related debt issued rather than within other assets.  All prior periods have been restated to reflect this change in presentation. See Note 3 for additional information on this new accounting standard.
See accompanying notes to consolidated financial statements.

3



Item 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income (Unaudited)
 
Three months ended March 31,
 
2016
 
2015
 
(In Thousands, except per share data)
INTEREST INCOME
 
Interest and fees on loans
$
159,656

 
$
151,945

Interest and dividends on investment securities:
 
 
 
Taxable
25,516

 
25,092

Tax-exempt
7,830

 
7,887

Other interest
1,067

 
1,692

Total interest income
194,069

 
186,616

INTEREST EXPENSE
 
 
 
Interest on deposits
11,766

 
7,619

Interest on Federal funds purchased and securities sold under agreements to repurchase
296

 
231

Interest on other short-term funding
515

 
81

Interest on long-term funding
9,505

 
10,872

Total interest expense
22,082

 
18,803

NET INTEREST INCOME
171,987

 
167,813

Provision for credit losses
20,000

 
4,500

Net interest income after provision for credit losses
151,987

 
163,313

NONINTEREST INCOME
 
 
 
Trust service fees
11,447

 
12,087

Service charges on deposit accounts
16,273

 
15,806

Card-based and other nondeposit fees
11,991

 
12,416

Insurance commissions
21,382

 
19,728

Brokerage and annuity commissions
3,794

 
3,683

Mortgage banking, net
4,204

 
7,408

Capital market fees, net
3,538

 
2,467

Bank owned life insurance income
4,770

 
2,875

Asset gains, net(1)
524

 
833

Investment securities gains, net
3,098

 

Other
2,171

 
2,510

Total noninterest income
83,192

 
79,813

NONINTEREST EXPENSE
 
 
 
Personnel expense
101,398

 
100,152

Occupancy
13,802

 
17,683

Equipment
5,446

 
5,772

Technology
14,264

 
15,558

Business development and advertising
8,211

 
5,327

Other intangible amortization
504

 
801

Loan expense
3,221

 
2,996

Legal and professional fees
5,025

 
4,538

Foreclosure / OREO expense, net(1)
1,877

 
1,162

FDIC expense
7,750

 
6,500

Other
12,473

 
13,503

Total noninterest expense
173,971

 
173,992

Income before income taxes
61,208

 
69,134

Income tax expense
18,674

 
22,462

Net income
42,534

 
46,672

Preferred stock dividends
2,198

 
1,228

Net income available to common equity
$
40,336

 
$
45,444

Earnings per common share:
 
 
 
Basic
$
0.27

 
$
0.30

Diluted
$
0.27

 
$
0.30

Average common shares outstanding:
 
 
 
Basic
148,601

 
150,070

Diluted
149,454

 
151,164

(1)
During the first quarter of 2016, the consolidated statements of income were modified from prior periods' presentation to conform with the current period presentation, which reflect OREO gains/losses as a component of Foreclosure / OREO expense, net. In prior periods' presentation, OREO gains / losses were reported as a component of asset gains (losses), net. All prior periods have been restated to reflect this change in presentation.
See accompanying notes to consolidated financial statements.

4



Item 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Comprehensive Income (Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
($ in Thousands)
Net income
$
42,534

 
$
46,672

Other comprehensive income, net of tax:
 
 
 
Investment securities available for sale:
 
 
 
Net unrealized gains
60,422

 
47,418

Amortization of net unrealized gains on available for sale securities transferred to held to maturity securities
(1,572
)
 

Reclassification adjustment for net gains realized in net income
(3,098
)
 

Income tax expense
(21,275
)
 
(18,105
)
Other comprehensive income on investment securities available for sale
34,477

 
29,313

Defined benefit pension and postretirement obligations:
 
 
 
Amortization of prior service cost
13

 
13

Amortization of actuarial losses
482

 
532

Income tax expense
(189
)
 
(208
)
Other comprehensive income on pension and postretirement obligations
306

 
337

Total other comprehensive income
34,783

 
29,650

Comprehensive income
$
77,317

 
$
76,322


See accompanying notes to consolidated financial statements.


5



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, 2014
$
59,727

 
$
1,665

 
$
1,484,933

 
$
1,497,818

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

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
46,672

 

 

 
46,672

Other comprehensive income

 

 

 

 
29,650

 

 
29,650

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
76,322

Common stock issued:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation plans, net

 

 
304

 
(18,015
)
 

 
23,947

 
6,236

Acquisition of Ahmann & Martin Co.

 
26

 
43,504

 

 

 

 
43,530

Purchase of common stock returned to authorized but unissued

 
(17
)
 
(29,983
)
 

 

 

 
(30,000
)
Purchase of treasury stock

 

 

 

 

 
(4,105
)
 
(4,105
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.10 per share

 

 

 
(15,280
)
 

 

 
(15,280
)
Preferred stock

 

 

 
(1,228
)
 

 

 
(1,228
)
Stock-based compensation expense, net

 

 
5,774

 

 

 

 
5,774

Tax impact of stock-based compensation

 

 
638

 

 

 

 
638

Balance, March 31, 2015
$
59,727

 
$
1,674

 
$
1,505,170

 
$
1,509,967

 
$
24,800

 
$
(219,200
)
 
$
2,882,138

Balance, December 31, 2015
$
121,379

 
$
1,642

 
$
1,458,522

 
$
1,593,239

 
$
(32,616
)
 
$
(204,920
)
 
$
2,937,246

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
42,534

 

 

 
42,534

Other comprehensive income

 

 

 

 
34,783

 

 
34,783

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
77,317

Common stock issued:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation plans, net

 

 
613

 
(17,271
)
 

 
18,863

 
2,205

Purchase of common stock returned to authorized but unissued

 
(12
)
 
(19,995
)
 

 

 

 
(20,007
)
Purchase of treasury stock

 

 

 

 

 
(2,792
)
 
(2,792
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.11 per share

 

 

 
(16,409
)
 

 

 
(16,409
)
Preferred stock

 

 

 
(2,198
)
 

 

 
(2,198
)
Purchase of preferred stock
(1,032
)
 

 

 
(60
)
 

 

 
(1,092
)
Stock-based compensation expense, net

 

 
8,066

 

 

 

 
8,066

Tax benefit of stock-based compensation

 

 
162

 

 

 

 
162

Balance, March 31, 2016
$
120,347

 
$
1,630

 
$
1,447,368

 
$
1,599,835

 
$
2,167

 
$
(188,849
)
 
$
2,982,498

See accompanying notes to consolidated financial statements.

6



Item 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows (Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
 
($ in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
42,534

 
$
46,672

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
    Provision for credit losses
20,000

 
4,500

    Depreciation and amortization
11,060

 
12,268

    Addition to valuation allowance on mortgage servicing rights, net
909

 
243

    Amortization of mortgage servicing rights
2,874

 
3,179

    Amortization of other intangible assets
504

 
801

    Amortization and accretion on earning assets, funding, and other, net
10,692

 
9,863

    Tax impact of stock based compensation
162

 
638

    Gain on sales of investment securities, net
(3,098
)
 

    Gain on sales of assets and impairment write-downs, net
(524
)
 
(833
)
    Gain on mortgage banking activities, net
(3,106
)
 
(3,141
)
    Mortgage loans originated and acquired for sale
(193,849
)
 
(268,296
)
    Proceeds from sales of mortgage loans held for sale
221,764

 
238,399

    Decrease in interest receivable
(5,180
)
 
(2,186
)
    Decrease in interest payable
(6,121
)
 
(948
)
    Commercial loans held for sale
(30,089
)
 

    Net change in other assets and other liabilities
(46,160
)
 
(29,848
)
Net cash provided by operating activities
22,372

 
11,311

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net increase in loans
(531,891
)
 
(368,794
)
Purchases of:
 
 
 
Available for sale securities
(182,895
)
 
(202,615
)
  Held to maturity securities
(28,570
)
 
(36,788
)
Federal Home Loan Bank and Federal Reserve Bank stocks
(34,613
)
 
(115
)
  Premises, equipment, and software, net of disposals
(70,685
)
 
(13,944
)
  Other assets
(1,226
)
 
(1,207
)
Proceeds from:
 
 
 
  Sales of available for sale securities
119,379

 
289

  Prepayments, calls, and maturities of available for sale investment securities
180,458

 
282,835

  Prepayments, calls, and maturities of held to maturity investment securities
15,029

 
5,155

  Sales, prepayments, calls, and maturities of other assets
9,566

 

  Net cash (paid) received in acquisition
(685
)
 
1,202

Net cash used in investing activities
(526,133
)
 
(333,982
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in deposits
(322,205
)
 
1,088,088

Net increase (decrease) in short-term funding
582,992

 
(405,751
)
Repayment of long-term funding
(430,010
)
 
(500,009
)
Proceeds from issuance of long-term funding
615,000

 

Proceeds from issuance of common stock for stock-based compensation plans
2,205

 
6,236

Purchase of preferred stock
(1,092
)
 

Purchase of common stock returned to authorized but unissued
(20,007
)
 
(30,000
)
Purchase of treasury stock
(2,792
)
 
(4,105
)
Cash dividends on common stock
(16,409
)
 
(15,280
)
Cash dividends on preferred stock
(2,198
)
 
(1,228
)
Net cash provided by financing activities
405,484

 
137,951

Net increase (decrease) in cash and cash equivalents
(98,277
)
 
(184,720
)
Cash and cash equivalents at beginning of period
473,685

 
1,032,067

Cash and cash equivalents at end of period
$
375,408

 
$
847,347

Supplemental disclosures of cash flow information:
 
 
 
   Cash paid for interest
$
28,041

 
$
19,643

   Cash paid for income taxes
1,167

 

   Loans and bank premises transferred to other real estate owned
3,160

 
2,104

   Capitalized mortgage servicing rights
1,856

 
3,010

Acquisition:
 
 
 
   Fair value of assets acquired, including cash and cash equivalents
522

 
5,160

   Fair value ascribed to goodwill and intangible assets
4,119

 
51,221

   Fair value of liabilities assumed
1,423

 
12,851

   Common stock issued in acquisition

 
43,530

See accompanying notes to consolidated financial statements.

7



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 the Corporation's 2015 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.
During the first quarter of 2016, the consolidated statements of income were modified from prior periods' presentation to conform with the current period presentation, which reflects OREO gains / losses as a component of Foreclosure / OREO expense, net. In prior periods' presentation, OREO gains/losses were reported as a component of asset gains (losses), net. All prior periods have been restated to reflect this change.
During the first quarter of 2016, the Corporation combined the lease financing portfolio with the commercial and industrial portfolio for disclosure purposes. All prior periods have been restated to reflect this change in presentation.
Note 2 Acquisitions
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. See Note 8 for additional information on goodwill and other intangible assets.
During the first quarter of 2016, the Corporation completed two small insurance acquisitions to complement its existing insurance and benefits related products and services provided by Associated Financial Group, LLC. The Corporation recorded goodwill of $3 million and other intangibles of $1 million related to these insurance acquisitions.
Note 3 New Accounting Pronouncements Adopted
In September 2015, the FASB issued an amendment to simplify the accounting for measurement adjustments to prior business combinations. The amendment requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer must record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.

8



The amendment also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This amendment was effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Corporation adopted the accounting standard during the first quarter of 2016, as required, and with no material impact on its results of operations, financial position, or liquidity.
In May 2015, the FASB issued an amendment to eliminate the requirement to categorize investments measured using the net asset value per share ("NAV") practical expedient in the fair value hierarchy table. Entities will be required to disclose the fair value of investments measured using the NAV practical expedient so that financial statement users can reconcile amounts reported in the fair value hierarchy table to amounts reported on the balance sheet. The Corporation adopted the accounting standard during the first quarter of 2016, as required, with no material impact on its results of operations, financial position, or liquidity.
In April 2015, the FASB issued an amendment to provide guidance to customers about whether a cloud computing arrangement included a software license. If the cloud computing arrangement includes a software license, then the customer should account for the software license element consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This amendment was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The Corporation adopted the accounting standard on a prospective basis during the first quarter of 2016, as required, and with no material impact on its results of operations, financial position, or liquidity.
In April 2015, the FASB issued an amendment to simplify the presentation of debt issuance costs. This amendment requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB expanded this amendment to include SEC staff views related to debt issuance costs associated with line-of-credit arrangements. The SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This amendment required retrospective application and was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Corporation adopted the accounting standard during the first quarter of 2016. All prior periods have been restated to reflect this change in presentation, resulting in a $3 million reduction to other assets and a corresponding $3 million reduction to long-term funding on the balance sheet compared to the amounts originally reported at December 31, 2015. See "Consolidated Balance Sheets" and Note 9 for additional information on the reclassification of debt issuance costs.
In February 2015, the FASB issued an amendment to modify existing consolidation guidance for reporting companies that are required to evaluate whether they should consolidate legal entities. The new standard will place more emphasis on risk of loss when determining a controlling financial interest. Frequency in the application of related-party guidance for determining a controlling financial interest will be reduced. Also, consolidation conclusions for public and private companies among several industries that make use of limited partnerships or VIEs will be changed. This amendment was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Corporation adopted the accounting standard during the first quarter of 2016, as required, and with no material impact on its results of operations, financial position, or liquidity.
In January 2015, the FASB issued an amendment to eliminate from U.S. GAAP the concept of extraordinary items. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. This amended guidance will prohibit separate disclosure of extraordinary items in the income statement. This amendment was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Corporation adopted the accounting standard during the first quarter of 2016, as required, with no material impact.
In June 2014, the FASB issued an amendment to the stock compensation accounting guidance to clarify that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. This amendment was effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2015. The Corporation adopted the accounting standard on a prospective basis during the first quarter of 2016, as required, with no material impact on its results of operations, financial position, or liquidity.

9



Note 4 Earnings Per Common Share
Earnings per common 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 awards, and outstanding common stock warrants). Presented below are the calculations for basic and diluted earnings per common share.
 
For the Three Months Ended March 31,
 
2016
 
2015
 
(In thousands, except per share data)
Net income
$
42,534

 
$
46,672

Preferred stock dividends
(2,198
)
 
(1,228
)
Net income available to common equity
$
40,336

 
$
45,444

Common shareholder dividends
(16,203
)
 
(15,166
)
Unvested share-based payment awards
(206
)
 
(114
)
Undistributed earnings
$
23,927

 
$
30,164

Undistributed earnings allocated to common shareholders
23,686

 
29,886

Undistributed earnings allocated to unvested share-based payment awards
241

 
278

Undistributed earnings
$
23,927

 
$
30,164

Basic
 
 
 
Distributed earnings to common shareholders
$
16,203

 
$
15,166

Undistributed earnings allocated to common shareholders
23,686

 
29,886

Total common shareholders earnings, basic
$
39,889

 
$
45,052

Diluted
 
 
 
Distributed earnings to common shareholders
$
16,203

 
$
15,166

Undistributed earnings allocated to common shareholders
23,686

 
29,886

Total common shareholders earnings, diluted
$
39,889

 
$
45,052

Weighted average common shares outstanding
148,601

 
150,070

Effect of dilutive common stock awards
853

 
1,094

Diluted weighted average common shares outstanding
149,454

 
151,164

Basic earnings per common share
$
0.27

 
$
0.30

Diluted earnings per common share
$
0.27

 
$
0.30

Options to purchase approximately 3 million and 2 million shares were outstanding for the three months ended March 31, 2016 and 2015, respectively, but excluded from the calculation of diluted earnings per common share as the effect would have been anti-dilutive. Warrants to purchase approximately 4 million shares were outstanding for both three months ended March 31, 2016 and 2015, but excluded from the calculation of diluted earnings per common shares as the effect would have been anti-dilutive.
Note 5 Stock-Based Compensation
Stock-Based Compensation Plan:
In March 2013, the Board of Directors, with subsequent approval of the Corporation’s shareholders, approved the adoption of the 2013 Incentive Compensation Plan (“2013 Plan”). Under the 2013 Plan, options are generally exercisable up to 10 years from the date of grant, have an exercise price that is equal to the closing price of the Corporation’s stock on the grant date, and vest ratably over four years, while service-based restricted stock awards vest ratably over four years and performance-based restricted stock awards vest over the three year performance period.
The Corporation 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

10



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”).
Accounting for Stock-Based Compensation:
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. For retirement eligible colleagues, 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 three months of 2016 and full year 2015.
 
2016
 
2015
Dividend yield
2.50
%
 
2.00
%
Risk-free interest rate
2.00
%
 
2.00
%
Weighted average expected volatility
25.00
%
 
20.00
%
Weighted average expected life
5.5 years

 
6.0 years

Weighted average per share fair value of options
$3.36
 
$3.08
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-based compensation expense to be recognized in future periods.
A summary of the Corporation’s stock option activity for the year ended December 31, 2015, and the three month ended March 31, 2016 is presented below.
Stock Options
Shares
 
Weighted Average
Exercise Price
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value (000s)
Outstanding at December 31, 2014
7,847,338

 
$
18.34

 
 
 
 
Granted
1,348,504

 
17.95

 
 
 
 
Exercised
(1,351,646
)
 
13.90

 
 
 
 
Forfeited or expired
(1,215,053
)
 
29.13

 
 
 
 
Outstanding at December 31, 2015
6,629,143

 
$
17.22

 
6.24
 
$
18,730

Options Exercisable at December 31, 2015
4,190,245

 
$
17.25

 
4.93
 
$
14,873

Granted
1,302,298

 
$
17.45

 
 
 
 
Exercised
(96,602
)
 
13.60

 
 
 
 
Forfeited or expired
(48,190
)
 
17.75

 
 
 
 
Outstanding at March 31, 2016
7,786,649

 
$
17.30

 
6.61
 
$
14,682

Options Exercisable at March 31, 2016
4,907,257

 
$
17.22

 
5.18
 
$
12,950


11



The following table summarizes information about the Corporation’s nonvested stock option activity for the year ended December 31, 2015, and for the three months ended March 31, 2016.
Nonvested Stock Options
Shares
 
Weighted Average Grant Date Fair Value
Nonvested at December 31, 2014
2,770,662

 
$
3.74

Granted
1,348,504

 
3.08

Vested
(1,459,709
)
 
4.19

Forfeited
(220,559
)
 
3.28

Nonvested at December 31, 2015
2,438,898

 
$
3.15

Granted
1,302,298

 
3.36

Vested
(813,614
)
 
3.25

Forfeited
(48,190
)
 
3.20

Nonvested at March 31, 2016
2,879,392

 
$
3.21

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 three months ended March 31, 2016, the intrinsic value of stock options exercised was approximately $420,000. For the year ended December 31, 2015 the intrinsic value of the stock options exercised was $7 million. The total fair value of stock options that vested were $3 million and $6 million, respectively, for the three months ended March 31, 2016 and for the year ended December 31, 2015. The Corporation recognized compensation expense for the vesting of stock options of over $1 million and $4 million for the three month ended March 31, 2016 and year ended December 31, 2015, respectively. Included in compensation expense for 2016 was approximately $857,000 of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At March 31, 2016, the Corporation had $8 million of unrecognized compensation expense related to stock options that is expected to be recognized over the remaining requisite service periods that extend predominantly through the fourth quarter 2019.
The following table summarizes information about the Corporation’s restricted stock activity for the year ended December 31, 2015, and for the three months ended March 31, 2016.
Restricted Stock
Shares
 
Weighted Average
Grant Date Fair Value
Outstanding at December 31, 2014
1,982,126

 
$
15.79

Granted
1,173,847

 
18.09

Vested
(709,582
)
 
15.62

Forfeited
(196,363
)
 
16.87

Outstanding at December 31, 2015
2,250,028

 
$
17.03

Granted
1,041,985

 
16.37

Vested
(732,553
)
 
16.46

Forfeited
(34,299
)
 
17.69

Outstanding at March 31, 2016
2,525,161

 
$
16.91

The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant. Performance-based restricted stock awards granted during 2015 and 2016 will vest ratably over a three year period, while service-based restricted stock awards granted during 2015 and 2016 will vest ratably over a four year period. Expense for restricted stock awards of approximately $7 million and $15 million was recorded for the three months ended March 31, 2016 and year ended December 31, 2015, respectively. Included in compensation expense for 2016 was approximately $2 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $33 million of unrecognized compensation costs related to restricted stock awards at March 31, 2016, that is expected to be recognized over the remaining requisite service periods that extend predominantly through fourth quarter 2019.
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.

12



Note 6 Investment Securities
Investment securities are generally classified as available for sale or held to maturity at the time of purchase. The majority of the Corporation's investment securities are mortgage-related securities issued by the Government National Mortgage Association (“GNMA”) or government-sponsored enterprises ("GSE") such as the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). The amortized cost and fair values of securities available for sale and held to maturity were as follows.
 
March 31, 2016
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
 
($ in Thousands)
 
Investment securities available for sale:
 
 
 
 
 
 
 
 
U. S. Treasury securities
$
1,000

 
$

 
$

 
$
1,000

 
Residential mortgage-related securities:
 
 
 
 
 
 
 
 
FNMA / FHLMC
1,268,929

 
35,321

 
(846
)
 
1,303,404

 
GNMA
1,536,248

 
11,086

 
(79
)
 
1,547,255

 
Private-label
1,535

 

 
(23
)
 
1,512

 
GNMA commercial mortgage-related securities
2,053,540

 
5,855

 
(11,530
)
 
2,047,865

 
Other securities (debt and equity)
4,718

 
87

 

 
4,805

 
Total investment securities available for sale
$
4,865,970

 
$
52,349

 
$
(12,478
)
 
$
4,905,841

 
Investment securities held to maturity:
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
$
1,054,757

 
$
25,972

 
$
(146
)
 
$
1,080,583

 
Residential mortgage-related securities:
 
 
 
 
 
 
 
 
FNMA / FHLMC
40,404

 
797

 
(180
)
 
41,021

 
GNMA
81,660

 
1,086

 
(5
)
 
82,741

 
Total investment securities held to maturity
$
1,176,821

 
$
27,855

 
$
(331
)
 
$
1,204,345

 
December 31, 2015
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
 
 
 
($ in Thousands)
 
Investment securities available for sale:
 
 
 
 
 
 
 
 
U. S. Treasury securities
$
999

 
$

 
$
(2
)
 
$
997

 
Residential mortgage-related securities:
 
 
 
 
 
 
 
 
FNMA / FHLMC
1,388,995

 
33,791

 
(8,160
)
 
1,414,626

 
GNMA
1,605,956

 
507

 
(16,460
)
 
1,590,003

 
Private-label
1,722

 
1

 
(14
)
 
1,709

 
GNMA commercial mortgage-related securities
1,982,477

 
1,334

 
(28,501
)
 
1,955,310

 
Other securities (debt and equity)
4,718

 
51

 

 
4,769

 
Total investment securities available for sale
$
4,984,867

 
$
35,684

 
$
(53,137
)
 
$
4,967,414

 
Investment securities held to maturity:
 
 
 
 
 
 
 
 
Municipal securities
$
1,043,767

 
$
16,803

 
$
(339
)
 
$
1,060,231

 
Residential mortgage-related securities:
 
 
 
 
 
 
 
 
FNMA / FHLMC
41,469

 
513

 
(645
)
 
41,337

 
GNMA
82,994

 
189

 
(309
)
 
82,874

 
Total investment securities held to maturity
$
1,168,230

 
$
17,505

 
$
(1,293
)
 
$
1,184,442


13



The amortized cost and fair values of investment securities available for sale and held to maturity at March 31, 2016, 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
$
2,500

 
$
2,530

 
$
46,749

 
$
32,151

Due after one year through five years
3,200

 
3,200

 
243,423

 
255,338

Due after five years through ten years

 

 
245,683

 
255,755

Due after ten years

 

 
518,902

 
537,339

Total debt securities
5,700

 
5,730

 
1,054,757

 
1,080,583

Residential mortgage-related securities:
 
 
 
 
 
 
 
FNMA / FHLMC
1,268,929

 
1,303,404

 
40,404

 
41,021

GNMA
1,536,248

 
1,547,255

 
81,660

 
82,741

Private-label
1,535

 
1,512

 

 

GNMA commercial mortgage-related securities
2,053,540

 
2,047,865

 

 

Equity securities
18

 
75

 

 

Total investment securities
$
4,865,970

 
$
4,905,841

 
$
1,176,821

 
$
1,204,345

Ratio of Fair Value to Amortized Cost
 
 
100.8
%
 
 
 
102.3
%
During the first three months of 2016, the Corporation continued to restructure its investment securities portfolio and sold approximately $119 million of FNMA and FHLMC mortgage-related securities and reinvested into GNMA mortgage-related securities, generating a $3 million net gain on sale. This restructuring lowered risk weighted assets and related capital requirements.
 
Three Months Ended March 31,
 
2016
 
2015
 
($ in Thousands)
Gross gains
$
3,287

 
$

Gross losses
(189
)
 

Investment securities gains, net
$
3,098

 
$

Proceeds from sales of investment securities
$
119,379

 
$
289

Pledged securities with a carrying value of approximately $2.7 billion and $3.2 billion at March 31, 2016, and December 31, 2015, respectively, were pledged to secure certain deposits or for other purposes as required or permitted by law.

14



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 individual securities have been in a continuous unrealized loss position, at March 31, 2016.
 
Less than 12 months
 
12 months or more
 
Total
March 31, 2016
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC

 
$

 
$

 
12

 
$
(846
)
 
$
258,670

 
$
(846
)
 
$
258,670

GNMA
2

 
(79
)
 
41,913

 

 

 

 
(79
)
 
41,913

Private-label
1

 
(1
)
 
76

 
3

 
(22
)
 
1,382

 
(23
)
 
1,458

GNMA commercial mortgage-related securities
20

 
(1,390
)
 
558,620

 
21

 
(10,140
)
 
448,861

 
(11,530
)
 
1,007,481

Total
23

 
$
(1,470
)
 
$
600,609

 
36

 
$
(11,008
)
 
$
708,913

 
$
(12,478
)
 
$
1,309,522

Investment securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
20

 
$
(75
)
 
$
10,029

 
17

 
$
(71
)
 
$
5,599

 
$
(146
)
 
$
15,628

Residential mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
1

 
(3
)
 
1,180

 
5

 
(177
)
 
13,587

 
(180
)
 
14,767

GNMA

 

 

 
1

 
(5
)
 
1,548

 
(5
)
 
1,548

Total
21

 
$
(78
)
 
$
11,209

 
23

 
$
(253
)
 
$
20,734

 
$
(331
)
 
$
31,943

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, 2015.
 
Less than 12 months
 
12 months or more
 
Total
December 31, 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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
1

 
$
(2
)
 
$
997

 

 
$

 
$

 
$
(2
)
 
$
997

Residential mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
17

 
(1,548
)
 
220,852

 
14

 
(6,612
)
 
338,186

 
(8,160
)
 
559,038

GNMA
46

 
(16,460
)
 
1,434,484

 

 

 

 
(16,460
)
 
1,434,484

Private-label
1

 
(1
)
 
83

 
3

 
(13
)
 
1,565

 
(14
)
 
1,648

GNMA commercial mortgage-related securities
40

 
(9,610
)
 
1,132,844

 
21

 
(18,891
)
 
448,218

 
(28,501
)
 
1,581,062

Total
105

 
$
(27,621
)
 
$
2,789,260

 
38

 
$
(25,516
)
 
$
787,969

 
$
(53,137
)
 
$
3,577,229

Investment securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
53

 
$
(146
)
 
$
23,137

 
24

 
$
(193
)
 
$
9,254

 
$
(339
)
 
$
32,391

Residential mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
10

 
(177
)
 
12,754

 
3

 
(468
)
 
11,106

 
(645
)
 
23,860

GNMA
21

 
(201
)
 
45,499

 
3

 
(108
)
 
6,797

 
(309
)
 
52,296

Total
84

 
$
(524
)
 
$
81,390

 
30

 
$
(769
)
 
$
27,157

 
$
(1,293
)
 
$
108,547

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.
Based on the Corporation’s evaluation, management does not believe any unrealized loss at March 31, 2016, 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

15



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 reduction in unrealized losses at March 31, 2016 is due to the reduction in overall interest rates.  The U.S. Treasury 3-year and 5-year rates dropped by 44 basis points ("bp") and 55 bp, respectively, from December 31, 2015.
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. At March 31, 2016, and December 31, 2015, the Corporation had FHLB stock of $108 million and $74 million, respectively, reflecting the overall increase in FHLB short-term and long-term funding. The Corporation had Federal Reserve Bank stock of $73 million at both March 31, 2016 and December 31, 2015, respectively.
Note 7 Loans
The period end loan composition was as follows.
 
March 31,
2016
 
December 31,
2015
 
($ in Thousands)
Commercial and industrial
$
6,511,648

 
$
6,190,683

Commercial real estate — owner occupied
917,285

 
918,212

Commercial and business lending
7,428,933

 
7,108,895

Commercial real estate — investor
3,276,733

 
3,234,266

Real estate construction
1,184,398

 
1,162,145

Commercial real estate lending
4,461,131

 
4,396,411

Total commercial
11,890,064

 
11,505,306

Residential mortgage
5,944,457

 
5,783,267

Home equity
982,994

 
1,005,802

Other consumer
409,725

 
419,968

Total consumer
7,337,176

 
7,209,037

Total loans
$
19,227,240

 
$
18,714,343


16



The following table presents commercial and consumer loans by credit quality indicator at March 31, 2016.
 
Pass
 
Special Mention
 
Potential Problem
 
Nonaccrual
 
Total
 
($ in Thousands)
Commercial and industrial
$
5,713,979

 
$
272,090

 
$
328,464

 
$
197,115

 
$
6,511,648

Commercial real estate - owner occupied
834,879

 
31,856

 
41,107

 
9,443

 
917,285

Commercial and business lending
6,548,858

 
303,946

 
369,571

 
206,558

 
7,428,933

Commercial real estate - investor
3,208,338

 
30,680

 
25,385

 
12,330

 
3,276,733

Real estate construction
1,180,914

 
222

 
2,422

 
840

 
1,184,398

Commercial real estate lending
4,389,252

 
30,902

 
27,807

 
13,170

 
4,461,131

Total commercial
10,938,110

 
334,848

 
397,378

 
219,728

 
11,890,064

Residential mortgage
5,883,743

 
5,014

 
3,488

 
52,212

 
5,944,457

Home equity
967,267

 
1,446

 
209

 
14,072

 
982,994

Other consumer
408,819

 
523

 

 
383

 
409,725

Total consumer
7,259,829

 
6,983

 
3,697

 
66,667

 
7,337,176

Total
$
18,197,939

 
$
341,831

 
$
401,075

 
$
286,395

 
$
19,227,240

The following table presents commercial and consumer loans by credit quality indicator at December 31, 2015. 
 
Pass
 
Special Mention
 
Potential Problem
 
Nonaccrual
 
Total
 
($ in Thousands)
Commercial and industrial
$
5,522,809

 
$
341,169

 
$
233,130

 
$
93,575

 
$
6,190,683

Commercial real estate - owner occupied
835,572

 
38,885

 
35,706

 
8,049

 
918,212

Commercial and business lending
6,358,381

 
380,054

 
268,836

 
101,624

 
7,108,895

Commercial real estate - investor
3,153,703

 
45,976

 
25,944

 
8,643

 
3,234,266

Real estate construction
1,157,034

 
252

 
3,919

 
940

 
1,162,145

Commercial real estate lending
4,310,737

 
46,228

 
29,863

 
9,583

 
4,396,411

Total commercial
10,669,118

 
426,282

 
298,699

 
111,207

 
11,505,306

Residential mortgage
5,727,437

 
1,552

 
2,796

 
51,482

 
5,783,267

Home equity
988,574

 
1,762

 
222

 
15,244

 
1,005,802

Other consumer
419,087

 
556

 

 
325

 
419,968

Total consumer
7,135,098

 
3,870

 
3,018

 
67,051

 
7,209,037

Total
$
17,804,216

 
$
430,152

 
$
301,717

 
$
178,258

 
$
18,714,343

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 loan losses, allowance for unfunded commitments, 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 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 nonaccrual loans 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.

17



The following table presents loans by past due status at March 31, 2016.
 
Current
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90 Days or
More
Past Due (a)
 
Nonaccrual (b)
 
Total
 
($ in Thousands)
Commercial and industrial
$
6,311,415

 
$
2,665

 
$
236

 
$
217

 
$
197,115

 
$
6,511,648

Commercial real estate - owner occupied
907,322

 
520

 

 

 
9,443

 
917,285

Commercial and business lending
7,218,737

 
3,185

 
236

 
217

 
206,558

 
7,428,933

Commercial real estate - investor
3,263,331

 
748

 
324

 

 
12,330

 
3,276,733

Real estate construction
1,183,143

 
415

 

 

 
840

 
1,184,398

Commercial real estate lending
4,446,474

 
1,163