Toggle SGML Header (+)


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

Document





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 September 30, 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 October 25, 2016, was 150,469,386.



1




ASSOCIATED BANC-CORP
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2




PART I - FINANCIAL INFORMATION
ITEM 1.
Financial Statements:
ASSOCIATED BANC-CORP
Consolidated Balance Sheets
 
September 30, 2016
 
December 31, 2015
 
(Unaudited)
 
(Audited)
 
(In Thousands, except share and per share data)
ASSETS
 
 
 
Cash and due from banks
$
356,047

 
$
374,921

Interest-bearing deposits in other financial institutions
240,010

 
79,764

Federal funds sold and securities purchased under agreements to resell
14,250

 
19,000

Investment securities held to maturity, at amortized cost
1,253,494

 
1,168,230

Investment securities available for sale, at fair value
4,846,088

 
4,967,414

Federal Home Loan Bank and Federal Reserve Bank stocks, at cost
140,215

 
147,240

Loans held for sale
230,795

 
124,915

Loans
19,844,005

 
18,714,343

Allowance for loan losses
(269,540
)
 
(274,264
)
Loans, net
19,574,465

 
18,440,079

Premises and equipment, net
329,726

 
267,606

Goodwill
971,951

 
968,844

Mortgage servicing rights, net
58,414

 
61,341

Other intangible assets, net
15,902

 
16,458

Trading assets
60,780

 
32,192

Other assets
1,060,627

 
1,043,831

Total assets
$
29,152,764

 
$
27,711,835

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Noninterest-bearing demand deposits
$
5,337,677

 
$
5,562,466

Interest-bearing deposits
16,410,035

 
15,445,199

Total deposits
21,747,712

 
21,007,665

Federal funds purchased and securities sold under agreements to repurchase
698,772

 
431,438

Other short-term funding
541,321

 
402,978

Long-term funding
2,761,635

 
2,676,164

Trading liabilities
62,301

 
33,430

Accrued expenses and other liabilities
243,908

 
222,914

Total liabilities
26,055,649

 
24,774,589

Stockholders’ equity
 
 
 
Preferred equity
159,929

 
121,379

Common equity:
 
 
 
Common stock
1,630

 
1,642

Surplus
1,459,161

 
1,458,522

Retained earnings
1,662,778

 
1,593,239

Accumulated other comprehensive loss
(1,254
)
 
(32,616
)
Treasury stock, at cost
(185,129
)
 
(204,920
)
Total common equity
2,937,186

 
2,815,867

Total stockholders’ equity
3,097,115

 
2,937,246

Total liabilities and stockholders’ equity
$
29,152,764

 
$
27,711,835

Preferred shares issued
165,000

 
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
11,787,605

 
12,960,636

See accompanying notes to consolidated financial statements.

3



Item 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income (Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In Thousands, except per share data)
INTEREST INCOME
 
 
 
 
 
Interest and fees on loans
$
167,350

 
$
155,663

 
$
490,065

 
$
460,025

Interest and dividends on investment securities:
 
 
 
 
 
 
 
Taxable
22,948

 
24,937

 
72,734

 
73,897

Tax-exempt
8,141

 
7,917

 
23,865

 
23,369

Other interest
1,064

 
1,489

 
3,449

 
4,952

Total interest income
199,503

 
190,006

 
590,113

 
562,243

INTEREST EXPENSE
 
 
 
 
 
 
 
Interest on deposits
13,118

 
8,521

 
36,562

 
24,281

Interest on Federal funds purchased and securities sold under agreements to repurchase
326

 
248

 
1,000

 
714

Interest on other short-term funding
296

 
83

 
1,656

 
279

Interest on long-term funding
7,229

 
10,645

 
23,657

 
32,159

Total interest expense
20,969

 
19,497

 
62,875

 
57,433

NET INTEREST INCOME
178,534

 
170,509

 
527,238

 
504,810

Provision for credit losses
21,000

 
8,000

 
55,000

 
17,500

Net interest income after provision for credit losses
157,534

 
162,509

 
472,238

 
487,310

NONINTEREST INCOME
 
 
 
 
 
 
 
Trust service fees
11,700

 
12,273

 
34,656

 
36,875

Service charges on deposit accounts
17,445

 
17,385

 
50,162

 
48,894

Card-based and other nondeposit fees
12,777

 
12,618

 
37,485

 
38,631

Insurance commissions
19,431

 
17,561

 
62,818

 
57,366

Brokerage and annuity commissions
4,155

 
3,809

 
12,047

 
11,684

Mortgage banking, net
18,291

 
6,643

 
26,562

 
23,992

Capital market fees, net
7,012

 
2,170

 
14,343

 
7,329

Bank owned life insurance income
3,290

 
2,448

 
11,033

 
7,704

Asset gains (losses), net
(1,034
)
 
244

 
(853
)
 
2,931

Investment securities gains (losses), net
(13
)
 
2,796

 
6,201

 
4,038

Other
2,180

 
2,118

 
6,140

 
6,916

Total noninterest income
95,234

 
80,065

 
260,594

 
246,360

NONINTEREST EXPENSE
 
 
 
 
 
 
 
Personnel expense
103,819

 
101,134

 
307,346

 
304,272

Occupancy
15,362

 
14,187

 
42,379

 
46,178

Equipment
5,319

 
6,003

 
16,161

 
17,514

Technology
14,173

 
14,748

 
42,887

 
46,660

Business development and advertising
5,251

 
5,964

 
20,053

 
18,120

Other intangible amortization
525

 
885

 
1,568

 
2,574

Loan expense
3,535

 
3,305

 
10,198

 
9,982

Legal and professional fees
4,804

 
4,207

 
14,685

 
13,089

Foreclosure / OREO expense, net
960

 
645

 
4,167

 
3,071

FDIC expense
9,000

 
6,000

 
25,500

 
18,500

Other
12,566

 
14,507

 
38,701

 
42,394

Total noninterest expense
175,314

 
171,585

 
523,645

 
522,354

Income before income taxes
77,454

 
70,989

 
209,187

 
211,316

Income tax expense
23,638

 
21,551

 
63,746

 
65,806

Net income
53,816

 
49,438

 
145,441

 
145,510

Preferred stock dividends
2,188

 
2,184

 
6,555

 
4,957

Net income available to common equity
$
51,628

 
$
47,254

 
$
138,886

 
$
140,553

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.34

 
$
0.31

 
$
0.92

 
$
0.93

Diluted
$
0.34

 
$
0.31

 
$
0.92

 
$
0.92

Average common shares outstanding:
 
 
 
 
 
 
 
Basic
148,708

 
148,614

 
148,607

 
149,524

Diluted
149,973

 
149,799

 
149,645

 
150,704


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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
($ in Thousands)
Net income
$
53,816

 
$
49,438

 
$
145,441

 
$
145,510

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Investment securities available for sale:
 
 
 
 
 
 
 
Net unrealized gains (losses)
(22,894
)
 
22,907

 
59,849

 
35,101

Amortization of net unrealized gains on available for sale securities transferred to held to maturity securities
(1,441
)
 

 
(4,465
)
 

Reclassification adjustment for net (gains) losses realized in net income
13

 
(2,796
)
 
(6,201
)
 
(4,038
)
Income tax (expense) benefit
9,280

 
(7,725
)
 
(18,768
)
 
(11,907
)
Other comprehensive income (loss) on investment securities available for sale
(15,042
)
 
12,386

 
30,415

 
19,156

Defined benefit pension and postretirement obligations:
 
 
 
 
 
 
 
Amortization of prior service cost
(80
)
 
12

 
(55
)
 
37

Amortization of actuarial loss
621

 
627

 
1,586

 
1,692

Income tax expense
(206
)
 
(243
)
 
(584
)
 
(659
)
Other comprehensive income on pension and postretirement obligations
335

 
396

 
947

 
1,070

Total other comprehensive income (loss)
(14,707
)
 
12,782

 
31,362

 
20,226

Comprehensive income
$
39,109

 
$
62,220

 
$
176,803

 
$
165,736


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

 

 

 
145,510

 

 

 
145,510

Other comprehensive income

 

 

 

 
20,226

 

 
20,226

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
165,736

Common stock issued:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation plans, net

 

 
2,880

 
(21,786
)
 

 
34,279

 
15,373

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

 

 

 

 

 
(5,070
)
 
(5,070
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.30 per share

 

 

 
(45,599
)
 

 

 
(45,599
)
Preferred stock

 

 

 
(4,957
)
 

 

 
(4,957
)
Issuance of preferred stock
62,966

 

 

 

 

 

 
62,966

Purchase of preferred stock
(1,209
)
 

 

 
(126
)
 

 

 
(1,335
)
Other
(105
)
 

 

 
(661
)
 

 

 
(766
)
Stock-based compensation expense, net

 

 
14,575

 

 

 

 
14,575

Tax benefit of stock-based compensation

 

 
2,093

 

 

 

 
2,093

Balance, September 30, 2015
$
121,379

 
$
1,642

 
$
1,455,034

 
$
1,570,199

 
$
15,376

 
$
(209,833
)
 
$
2,953,797

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

 

 

 
145,441

 

 

 
145,441

Other comprehensive income

 

 

 

 
31,362

 

 
31,362

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
176,803

Common stock issued:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation plans, net

 

 
1,785

 
(18,070
)
 

 
24,034

 
7,749

Purchase of common stock returned to authorized but unissued

 
(12
)
 
(19,995
)
 

 

 

 
(20,007
)
Purchase of treasury stock

 

 

 

 

 
(4,243
)
 
(4,243
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.33 per share

 

 

 
(49,642
)
 

 

 
(49,642
)
Preferred stock

 

 

 
(6,555
)
 

 

 
(6,555
)
Issuance of preferred stock
97,066

 

 

 

 

 

 
97,066

Redemption of preferred stock
(57,338
)
 

 

 
(1,565
)
 

 

 
(58,903
)
Purchase of preferred stock
(1,178
)
 

 

 
(70
)
 

 

 
(1,248
)
Stock-based compensation expense, net

 

 
18,047

 

 

 

 
18,047

Tax benefit of stock-based compensation

 

 
802

 

 

 

 
802

Balance, September 30, 2016
$
159,929

 
$
1,630

 
$
1,459,161

 
$
1,662,778

 
$
(1,254
)
 
$
(185,129
)
 
$
3,097,115

See accompanying notes to consolidated financial statements.

6



Item 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows (Unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
 
($ in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
145,441

 
$
145,510

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
    Provision for credit losses
55,000

 
17,500

    Depreciation and amortization
34,121

 
35,788

    Addition to (recovery of) valuation allowance on mortgage servicing rights, net
2,486

 
(306
)
    Amortization of mortgage servicing rights
9,142

 
8,902

    Amortization of other intangible assets
1,568

 
2,574

    Amortization and accretion on earning assets, funding, and other, net
34,077

 
29,039

    Tax benefit of stock based compensation
802

 
2,093

    Gain on sales of investment securities, net
(6,201
)
 
(4,038
)
    (Gain) loss on sales of assets and impairment write-downs, net
853

 
(2,931
)
    Gain on mortgage banking activities, net
(21,741
)
 
(15,504
)
    Mortgage loans originated and acquired for sale
(983,930
)
 
(911,133
)
    Proceeds from sales of mortgage loans held for sale
1,147,278

 
941,575

    Increase in interest receivable
(5,809
)
 
(3,404
)
    Decrease in interest payable
(5,994
)
 
(2,642
)
    Net change in other assets and other liabilities
576

 
(19,018
)
Net cash provided by operating activities
407,669

 
224,005

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net increase in loans
(1,461,884
)
 
(935,208
)
Purchases of:
 
 
 
Available for sale securities
(849,466
)
 
(2,075,062
)
  Held to maturity securities
(151,556
)
 
(207,139
)
Federal Home Loan Bank and Federal Reserve Bank stocks
(72,975
)
 
(14,279
)
  Premises, equipment, and software, net of disposals
(90,691
)
 
(36,778
)
  Other assets
(4,628
)
 
(9,903
)
Proceeds from:
 
 
 
  Sales of available for sale securities
359,591

 
1,066,957

  Sales of Federal Home Loan Bank stock
80,000

 
42,514

  Prepayments, calls, and maturities of available for sale investment securities
651,403

 
869,635

  Prepayments, calls, and maturities of held to maturity investment securities
55,579

 
7,190

  Sales, prepayments, calls, and maturities of other assets
19,351

 
17,793

  Net cash (paid) received in acquisition
(685
)
 
1,132

Net cash used in investing activities
(1,465,961
)
 
(1,273,148
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net increase in deposits
740,047

 
1,794,891

Net increase (decrease) in short-term funding
405,677

 
(45,953
)
Repayment of long-term funding
(1,180,027
)
 
(1,500,026
)
Proceeds from issuance of long-term funding
1,265,000

 
250,000

Proceeds from issuance of common stock for stock-based compensation plans
7,749

 
15,373

Proceeds from issuance of preferred stock
97,066

 
62,966

Redemption of preferred stock
(58,903
)
 

Purchase of preferred stock
(1,248
)
 
(1,335
)
Purchase of common stock returned to authorized but unissued
(20,007
)
 
(93,000
)
Purchase of treasury stock
(4,243
)
 
(5,070
)
Cash dividends on common stock
(49,642
)
 
(45,599
)
Cash dividends on preferred stock
(6,555
)
 
(4,957
)
Net cash provided by financing activities
1,194,914

 
427,290

Net increase (decrease) in cash and cash equivalents
136,622

 
(621,853
)
Cash and cash equivalents at beginning of period
473,685

 
1,032,067

Cash and cash equivalents at end of period
$
610,307

 
$
410,214

Supplemental disclosures of cash flow information:
 
 
 
   Cash paid for interest
$
68,371

 
$
59,751

   Cash paid for income and franchise taxes
53,126

 
58,975

   Loans and bank premises transferred to other real estate owned
8,834

 
5,782

   Capitalized mortgage servicing rights
8,701

 
9,853

Loans transferred into held for sale from portfolio, net
256,188

 

   Unsettled trades to sell securities

 
139,286

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

 
4,590

   Fair value ascribed to goodwill and intangible assets
4,119

 
51,791

   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.
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 was merged into Associated Financial Group, LLC ("AFG"), the Corporation's insurance brokerage subsidiary. The Corporation's acquisition of Ahmann & Martin Co. enhanced 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 AFG. The Corporation recorded goodwill of $3 million and other intangibles of $1 million related to these insurance acquisitions.
During the second quarter of 2016, Associated Banc-Corp announced that it has begun rebranding AFG. The rebranding follows the February 2015 acquisition of Ahmann & Martin Co. and two small insurance acquisitions during the first quarter of 2016. On September 12, 2016, Associated Banc-Corp announced the completion of state licensure filings, enabling AFG to officially rebrand its employee benefits, insurance and human resource consulting services business unit from AFG to Associated Benefits and Risk Consulting ("ABRC").
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. 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

8



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 are 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. This amendment required retrospective application and was effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. 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.
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 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. The amended guidance prohibits 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.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share data)
Net income
$
53,816

 
$
49,438

 
$
145,441

 
$
145,510

Preferred stock dividends
(2,188
)
 
(2,184
)
 
(6,555
)
 
(4,957
)
Net income available to common equity
$
51,628

 
$
47,254

 
$
138,886

 
$
140,553

Common shareholder dividends
$
(16,431
)
 
$
(14,927
)
 
$
(49,077
)
 
$
(45,149
)
Unvested share-based payment awards
(177
)
 
(164
)
 
(565
)
 
(450
)
Undistributed earnings
$
35,020

 
$
32,163

 
$
89,244

 
$
94,954

Undistributed earnings allocated to common shareholders
$
34,645

 
$
31,813

 
$
88,294

 
$
93,961

Undistributed earnings allocated to unvested share-based payment awards
375

 
350

 
950

 
993

Undistributed earnings
$
35,020

 
$
32,163

 
$
89,244

 
$
94,954

Basic
 
 
 
 
 
 
 
Distributed earnings to common shareholders
$
16,431

 
$
14,927

 
$
49,077

 
$
45,149

Undistributed earnings allocated to common shareholders
34,645

 
31,813

 
88,294

 
93,961

Total common shareholders earnings, basic
$
51,076

 
$
46,740

 
$
137,371

 
$
139,110

Diluted
 
 
 
 
 
 
 
Distributed earnings to common shareholders
$
16,431

 
$
14,927

 
$
49,077

 
$
45,149

Undistributed earnings allocated to common shareholders
34,645

 
31,813

 
88,294

 
93,961

Total common shareholders earnings, diluted
$
51,076

 
$
46,740

 
$
137,371

 
$
139,110

Weighted average common shares outstanding
148,708

 
148,614

 
148,607

 
149,524

Effect of dilutive common stock awards
1,265

 
1,185

 
1,038

 
1,180

Diluted weighted average common shares outstanding
149,973

 
149,799

 
149,645

 
150,704

Basic earnings per common share
$
0.34

 
$
0.31

 
$
0.92

 
$
0.93

Diluted earnings per common share
$
0.34

 
$
0.31

 
$
0.92

 
$
0.92

Options to purchase approximately 1 million shares were outstanding for both the three and nine months ended September 30, 2016 and September 30, 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 the three and nine months ended September 30, 2016 and 2015, respectively, 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. The 2013 Plan also provides for the issuance of restricted common stock and restricted common stock units to certain key employees (collectively referred to as “restricted stock awards”). The shares of restricted stock are restricted as to transfer, but are not restricted as to dividend payment or voting rights. Restricted stock units receive dividend equivalents but do not have voting rights. The transfer restrictions 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 2013 Plan provides that restricted stock awards and

10



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 nine 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 nine months ended September 30, 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
(466,779
)
 
14.15

 
 
 
 
Forfeited or expired
(181,552
)
 
21.61

 
 
 
 
Outstanding at September 30, 2016
7,283,110

 
$
17.35

 
6.18
 
$
23,503

Options Exercisable at September 30, 2016
4,558,016

 
$
17.31

 
4.76
 
$
17,635

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 nine months ended September 30, 2016, the intrinsic value of stock options exercised was approximately $2 million. 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 nine months ended September 30, 2016 and for the year ended December 31, 2015. The Corporation recognized compensation expense for the vesting of stock options of $3 million and $4 million for the nine months ended September 30, 2016 and year ended December 31, 2015, respectively. Included in compensation expense for the nine months ended September 30, 2016 was approximately $923,000 of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At September 30, 2016, 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 the fourth quarter 2019.

11



The following table summarizes information about the Corporation’s restricted stock activity for the year ended December 31, 2015, and for the nine months ended September 30, 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
1,073,057

 
$
17.48

Vested
(831,433
)
 
16.61

Forfeited
(94,725
)
 
17.60

Outstanding at September 30, 2016
2,396,927

 
$
17.35

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 $15 million was recorded for both the nine months ended September 30, 2016 and for the year ended December 31, 2015. Included in compensation expense for the nine months ended 2016 was approximately $3 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $24 million of unrecognized compensation costs related to restricted stock awards at September 30, 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.
 
September 30, 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

 
$

 
$
1,001

 
Residential mortgage-related securities:
 
 
 
 
 
 
 
 
FNMA / FHLMC
882,951

 
29,941

 
(32
)
 
912,860

 
GNMA
1,798,096

 
14,183

 
(750
)
 
1,811,529

 
Private-label
1,215

 

 
(15
)
 
1,200

 
GNMA commercial mortgage-related securities
2,121,913

 
4,218

 
(11,462
)
 
2,114,669

 
Other securities (debt and equity)
4,718

 
111

 

 
4,829

 
Total investment securities available for sale
$
4,809,893

 
$
48,454

 
$
(12,259
)
 
$
4,846,088

 
Investment securities held to maturity:
 
 
 
 
 
 
 
 
Obligations of state and political subdivisions (municipal securities)
$
1,129,056

 
$
31,897

 
$
(233
)
 
$
1,160,720

 
Residential mortgage-related securities:
 
 
 
 
 
 
 
 
FNMA / FHLMC
38,297

 
1,009

 
(16
)
 
39,290

 
GNMA
86,141

 
1,703

 
(24
)
 
87,820

 
Total investment securities held to maturity
$
1,253,494

 
$
34,609

 
$
(273
)
 
$
1,287,830

 
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 September 30, 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
$
4,500

 
$
4,535

 
$
38,786

 
$
27,004

Due after one year through five years
1,200

 
1,200

 
250,221

 
260,817

Due after five years through ten years

 

 
234,104

 
243,746

Due after ten years

 

 
605,945

 
629,153

Total debt securities
5,700

 
5,735

 
1,129,056

 
1,160,720

Residential mortgage-related securities:
 
 
 
 
 
 
 
FNMA / FHLMC
882,951

 
912,860

 
38,297

 
39,290

GNMA
1,798,096

 
1,811,529

 
86,141

 
87,820

Private-label
1,215

 
1,200

 

 

GNMA commercial mortgage-related securities
2,121,913

 
2,114,669

 

 

Equity securities
18

 
95

 

 

Total investment securities
$
4,809,893

 
$
4,846,088

 
$
1,253,494

 
$
1,287,830

Ratio of Fair Value to Amortized Cost
 
 
100.8
%
 
 
 
102.7
%
During the first nine months of 2016, the Corporation sold approximately $360 million of FNMA and FHLMC mortgage-related securities and reinvested into GNMA mortgage-related securities, generating a $6 million net gain on sale. This sale of FNMA and FHLMC mortgage-related securities and the subsequent purchase of GNMA mortgage-related securities lowered risk weighted assets and related capital requirements.
 
Nine Months Ended September 30,
 
2016
 
2015
 
($ in Thousands)
Gross gains
$
6,403

 
$
8,047

Gross losses
(202
)
 
(4,009
)
Investment securities gains, net
$
6,201

 
$
4,038

Proceeds from sales of investment securities
$
359,591

 
$
1,206,242

Securities with a carrying value of approximately $2.6 billion and $3.2 billion at September 30, 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 September 30, 2016.
 
Less than 12 months
 
12 months or more
 
Total
 
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
3

 
$
(32
)
 
$
14,694

 

 
$

 
$

 
$
(32
)
 
$
14,694

GNMA
8

 
(750
)
 
280,378

 

 

 

 
(750
)
 
280,378

Private-label

 

 

 
1

 
(15
)
 
1,197

 
(15
)
 
1,197

GNMA commercial mortgage-related securities
40

 
(2,035
)
 
828,434

 
21

 
(9,427
)
 
466,898

 
(11,462
)
 
1,295,332

Total
51

 
$
(2,817
)
 
$
1,123,506

 
22

 
$
(9,442
)
 
$
468,095

 
$
(12,259
)
 
$
1,591,601

Investment securities held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
37

 
$
(224
)
 
$
37,317

 
4

 
$
(9
)
 
$
1,842

 
$
(233
)
 
$
39,159

Residential mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FNMA / FHLMC
1

 
(8
)
 
1,108

 
1

 
(8
)
 
6,834

 
(16
)
 
7,942

GNMA
5

 
(24
)
 
6,317

 

 

 

 
(24
)
 
6,317

Total
43

 
$
(256
)
 
$
44,742

 
5

 
$
(17
)
 
$
8,676

 
$
(273
)
 
$
53,418

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
 
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 September 30, 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

15



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 reduction in unrealized losses at September 30, 2016 is due to the reduction in overall interest rates.  The U.S. Treasury 3-year and 5-year rates dropped by 43 basis points ("bp") and 62 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 September 30, 2016, and December 31, 2015, the Corporation had FHLB stock of $65 million and $74 million, respectively. The Corporation had Federal Reserve Bank stock of $75 million and $73 million at September 30, 2016 and December 31, 2015, respectively.
Note 7 Loans
The period end loan composition was as follows.
 
September 30,
2016