Exhibit 99.1
CONSOLIDATED BALANCE SHEETS
FIRSTMERIT CORPORATION AND SUBSIDARIES
(In thousands) (Unaudited, except for December 31, 2015) |
March 31, 2016 |
December 31, 2015 |
March 31, 2015 |
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ASSETS |
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Cash and due from banks |
$ | 331,049 | $ | 380,799 | $ | 426,247 | ||||||
Interest-bearing deposits in banks |
428,848 | 83,018 | 106,178 | |||||||||
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Total cash and cash equivalents |
759,897 | 463,817 | 532,425 | |||||||||
Investment securities: |
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Held-to-maturity |
2,613,700 | 2,674,093 | 2,855,174 | |||||||||
Available-for-sale |
4,104,214 | 3,967,735 | 3,791,059 | |||||||||
Other investments |
148,159 | 148,172 | 148,475 | |||||||||
Loans held for sale |
5,249 | 5,472 | 3,568 | |||||||||
Loans |
16,225,450 | 16,076,945 | 15,490,889 | |||||||||
Allowance for loan losses |
(151,937 | ) | (153,691 | ) | (146,552 | ) | ||||||
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Net loans |
16,073,513 | 15,923,254 | 15,344,337 | |||||||||
Premises and equipment, net |
305,764 | 319,488 | 320,392 | |||||||||
Goodwill |
741,740 | 741,740 | 741,740 | |||||||||
Intangible assets |
58,324 | 60,628 | 68,422 | |||||||||
Covered other real estate |
783 | 2,134 | 40,231 | |||||||||
Accrued interest receivable and other assets |
1,251,306 | 1,218,071 | 1,272,297 | |||||||||
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Total assets |
$ | 26,062,649 | $ | 25,524,604 | $ | 25,118,120 | ||||||
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Deposits: |
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Noninterest-bearing |
$ | 6,055,569 | $ | 5,942,248 | $ | 5,666,752 | ||||||
Interest-bearing |
3,641,216 | 3,476,729 | 3,277,118 | |||||||||
Savings and money market accounts |
9,231,829 | 8,450,123 | 8,610,553 | |||||||||
Certificates and other time deposits |
2,172,752 | 2,238,903 | 2,371,172 | |||||||||
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Total deposits |
21,101,366 | 20,108,003 | 19,925,595 | |||||||||
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Federal funds purchased and securities sold under agreements to repurchase |
719,850 | 1,037,075 | 1,113,371 | |||||||||
Wholesale borrowings |
378,996 | 580,648 | 316,628 | |||||||||
Long-term debt |
519,249 | 505,173 | 512,625 | |||||||||
Accrued taxes, expenses and other liabilities |
345,231 | 353,610 | 361,115 | |||||||||
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Total liabilities |
23,064,692 | 22,584,509 | 22,229,334 | |||||||||
Shareholders equity: |
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5.875% Non-Cumulative Perpetual Preferred Stock, Series A, without par value: authorized 115,000 shares; 100,000 issued |
100,000 | 100,000 | 100,000 | |||||||||
Common Stock warrant |
| | 3,000 | |||||||||
Common Stock, without par value; authorized 300,000,000 shares; issued: March 31, 2016, December 31, 2015 and March 31, 2015 - 170,183,515 shares |
127,937 | 127,937 | 127,937 | |||||||||
Capital surplus |
1,390,516 | 1,386,677 | 1,394,933 | |||||||||
Accumulated other comprehensive loss |
(48,341 | ) | (79,274 | ) | (49,267 | ) | ||||||
Retained earnings |
1,543,976 | 1,519,438 | 1,433,926 | |||||||||
Treasury stock, at cost: March 31, 2016 - 4,463,581; December 31, 2015 - 4,425,927; March 31, 2015 - 4,730,374 shares |
(116,131 | ) | (114,683 | ) | (121,743 | ) | ||||||
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Total shareholders equity |
2,997,957 | 2,940,095 | 2,888,786 | |||||||||
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Total liabilities and shareholders equity |
$ | 26,062,649 | $ | 25,524,604 | $ | 25,118,120 | ||||||
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See accompanying Notes to the Consolidated Financial Statements
1
CONSOLIDATED STATEMENTS OF INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands, except per share amounts) | Three Months Ended March 31, | |||||||
(Unaudited) |
2016 | 2015 | ||||||
Interest income: |
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Loans and loans held for sale |
$ | 162,278 | $ | 161,539 | ||||
Investment securities: |
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Taxable |
33,149 | 31,950 | ||||||
Tax-exempt |
5,261 | 6,026 | ||||||
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Total investment securities interest |
38,410 | 37,976 | ||||||
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Total interest income |
200,688 | 199,515 | ||||||
Interest expense: |
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Deposits: |
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Interest bearing |
929 | 767 | ||||||
Savings and money market accounts |
5,652 | 5,547 | ||||||
Certificates and other time deposits |
3,289 | 2,177 | ||||||
Federal funds purchased and securities sold under agreements to repurchase |
265 | 243 | ||||||
Wholesale borrowings |
1,234 | 1,160 | ||||||
Long-term debt |
4,163 | 3,998 | ||||||
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Total interest expense |
15,532 | 13,892 | ||||||
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Net interest income |
185,156 | 185,623 | ||||||
Provision for loan losses |
7,809 | 8,248 | ||||||
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Net interest income after provision for loan losses |
177,347 | 177,375 | ||||||
Noninterest income: |
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Trust department income |
10,284 | 10,149 | ||||||
Service charges on deposits |
15,586 | 15,668 | ||||||
Credit card fees |
13,578 | 12,649 | ||||||
ATM and other service fees |
6,234 | 6,099 | ||||||
Bank owned life insurance income |
3,696 | 3,592 | ||||||
Investment services and insurance |
3,905 | 3,704 | ||||||
Investment securities gains/(losses), net |
295 | 354 | ||||||
Loan sales and servicing income |
1,852 | 1,600 | ||||||
Other operating income |
11,964 | 12,032 | ||||||
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Total noninterest income |
67,394 | 65,847 | ||||||
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Noninterest expense: |
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Salaries, wages, pension and employee benefits |
85,880 | 90,526 | ||||||
Net occupancy expense |
14,774 | 15,954 | ||||||
Equipment expense |
12,408 | 11,025 | ||||||
Stationery, supplies and postage |
3,619 | 3,528 | ||||||
Bankcard, loan processing and other costs |
11,008 | 11,139 | ||||||
Professional services |
8,351 | 4,010 | ||||||
Amortization of intangibles |
2,304 | 2,598 | ||||||
FDIC insurance expense |
5,445 | 5,167 | ||||||
Other operating expense |
23,174 | 16,705 | ||||||
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Total noninterest expense |
166,963 | 160,652 | ||||||
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Income before income tax expense |
77,778 | 82,570 | ||||||
Income tax expense |
23,642 | 25,431 | ||||||
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Net income |
54,136 | 57,139 | ||||||
Less: Net income allocated to participating shareholders |
387 | 407 | ||||||
Preferred Stock dividends |
1,469 | 1,469 | ||||||
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Net income attributable to common shareholders |
$ | 52,280 | $ | 55,263 | ||||
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Net income used in diluted EPS calculation |
$ | 52,280 | $ | 55,263 | ||||
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Weighted average number of common shares outstanding - basic |
165,745 | 165,411 | ||||||
Weighted average number of common shares outstanding - diluted |
166,239 | 166,003 | ||||||
Basic earnings per common share |
$ | 0.32 | $ | 0.33 | ||||
Diluted earnings per common share |
0.31 | 0.33 | ||||||
Cash dividend per common share |
0.17 | 0.16 |
See accompanying Notes to the Consolidated Financial Statements
2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) | Three Months Ended March 31, 2016 |
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(Unaudited) |
Pretax | Tax | After tax | |||||||||
Net Income |
$ | 77,778 | $ | 23,642 | $ | 54,136 | ||||||
Other comprehensive income/(loss) |
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Unrealized gains and losses on securities available for sale: |
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Changes in unrealized securities holding gains/(losses) |
48,379 | 17,562 | 30,817 | |||||||||
Changes in unrealized securities holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity |
(1,441 | ) | (147 | ) | (1,294 | ) | ||||||
Net losses/(gains) realized on sale of securities reclassified to noninterest income |
295 | 107 | 188 | |||||||||
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Net change in unrealized gains/(losses) on securities available for sale |
47,233 | 17,522 | 29,711 | |||||||||
Pension plans and other postretirement benefits: |
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Amortization of actuarial losses/(gains) |
2,168 | 773 | 1,395 | |||||||||
Amortization of prior service cost reclassified to other noninterest expense |
(260 | ) | (87 | ) | (173 | ) | ||||||
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Net change from defined benefit pension plans |
1,908 | 686 | 1,222 | |||||||||
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Total other comprehensive gains/(losses) |
49,141 | 18,208 | 30,933 | |||||||||
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Comprehensive income |
$ | 126,919 | $ | 41,850 | $ | 85,069 | ||||||
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(In thousands) | Three Months Ended March 31, 2015 |
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(Unaudited) |
Pretax | Tax | After tax | |||||||||
Net Income |
$ | 82,570 | $ | 25,431 | $ | 57,139 | ||||||
Other comprehensive income/(loss) |
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Unrealized gains and losses on securities available for sale: |
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Changes in unrealized securities holding gains/(losses) |
34,117 | 11,941 | 22,176 | |||||||||
Changes in unrealized securities holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity |
(504 | ) | (176 | ) | (328 | ) | ||||||
Net losses/(gains) realized on sale of securities reclassified to noninterest income |
(354 | ) | (124 | ) | (230 | ) | ||||||
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Net change in unrealized gains/(losses) on securities available for sale |
33,259 | 11,641 | 21,618 | |||||||||
Pension plans and other postretirement benefits: |
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Amortization of actuarial losses/(gains) |
1,138 | 398 | 740 | |||||||||
Amortization of prior service cost reclassified to other noninterest expense |
410 | 143 | 267 | |||||||||
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Net change from defined benefit pension plans |
1,548 | 541 | 1,007 | |||||||||
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Total other comprehensive gains/(losses) |
34,807 | 12,182 | 22,625 | |||||||||
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Comprehensive income |
$ | 117,377 | $ | 37,613 | $ | 79,764 | ||||||
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See accompanying Notes to the Consolidated Financial Statements
3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) (Unaudited) |
Preferred Stock |
Common Stock |
Common Stock Warrant |
Capital Surplus |
Accumulated Other Comprehensive Income (Loss) |
Retained Earnings |
Treasury Stock |
Total Shareholders Equity |
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Balance at December 31, 2014 |
$ | 100,000 | $ | 127,937 | $ | 3,000 | $ | 1,393,090 | $ | (71,892 | ) | $ | 1,404,717 | $ | (122,571 | ) | $ | 2,834,281 | ||||||||||||||
Net income |
| | | | | 57,139 | | 57,139 | ||||||||||||||||||||||||
Other comprehensive income |
| | | | 22,625 | | | 22,625 | ||||||||||||||||||||||||
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Comprehensive income |
| | | | 22,625 | 57,139 | | 79,764 | ||||||||||||||||||||||||
Cash dividends - Preferred Stock |
| | | | | (1,469 | ) | | (1,469 | ) | ||||||||||||||||||||||
Cash dividends - Common Stock ($0.16 per share) |
| | | | | (26,461 | ) | | (26,461 | ) | ||||||||||||||||||||||
Nonvested (restricted) shares granted (129,444 shares) |
| | | (2,631 | ) | | | 2,631 | | |||||||||||||||||||||||
Restricted stock activity (66,252 shares) |
| | | 326 | | | (1,296 | ) | (970 | ) | ||||||||||||||||||||||
Deferred compensation trust (163,965 increase in shares) |
| | | 507 | | | (507 | ) | | |||||||||||||||||||||||
Share-based compensation |
| | | 3,641 | | | | 3,641 | ||||||||||||||||||||||||
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Balance at March 31, 2015 |
$ | 100,000 | $ | 127,937 | $ | 3,000 | $ | 1,394,933 | $ | (49,267 | ) | $ | 1,433,926 | $ | (121,743 | ) | $ | 2,888,786 | ||||||||||||||
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Balance at December 31, 2015 |
$ | 100,000 | $ | 127,937 | $ | | $ | 1,386,677 | $ | (79,274 | ) | $ | 1,519,438 | $ | (114,683 | ) | $ | 2,940,095 | ||||||||||||||
Net income |
| | | | | 54,136 | | 54,136 | ||||||||||||||||||||||||
Other comprehensive income |
| | | | 30,933 | | | 30,933 | ||||||||||||||||||||||||
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Comprehensive income |
| | | | 30,933 | 54,136 | | 85,069 | ||||||||||||||||||||||||
Cash dividends - Preferred Stock |
| | | | | (1,469 | ) | | (1,469 | ) | ||||||||||||||||||||||
Cash dividends - Common Stock ($0.17 per share) |
| | | | | (28,129 | ) | | (28,129 | ) | ||||||||||||||||||||||
Nonvested (restricted) shares granted (17,107 shares) |
| | | (364 | ) | | | 364 | | |||||||||||||||||||||||
Restricted stock activity (54,761 shares) |
| | | 272 | | | (1,160 | ) | (888 | ) | ||||||||||||||||||||||
Deferred compensation trust (239,200 increase in shares) |
| | | 652 | | | (652 | ) | | |||||||||||||||||||||||
Share-based compensation |
| | | 3,279 | | | | 3,279 | ||||||||||||||||||||||||
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Balance as of March 31, 2016 |
$ | 100,000 | $ | 127,937 | $ | | $ | 1,390,516 | $ | (48,341 | ) | $ | 1,543,976 | $ | (116,131 | ) | $ | 2,997,957 | ||||||||||||||
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See accompanying Notes to the Consolidated Financial Statements
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
(In thousands) | Three Months Ended March 31, | |||||||
(Unaudited) |
2016 | 2015 | ||||||
Operating Activities |
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Net income |
$ | 54,136 | $ | 57,139 | ||||
Adjustments to reconcile net income to net cash provided and used by operating activities: |
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Provision for loan losses |
7,809 | 8,248 | ||||||
Provision/(benefit) for deferred income taxes |
(292 | ) | (1,663 | ) | ||||
Depreciation and amortization |
16,339 | 14,739 | ||||||
Benefit attributable to FDIC loss share |
269 | 4,227 | ||||||
Accretion of acquired loans |
(17,890 | ) | (26,339 | ) | ||||
Amortization and accretion of investment securities, net |
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Available-for-sale |
2,355 | 2,680 | ||||||
Held-to-maturity |
744 | 814 | ||||||
Losses/(gains) on sales and calls of available-for-sale investment securities, net |
| (354 | ) | |||||
Originations of loans held for sale |
(7,493 | ) | (40,442 | ) | ||||
Proceeds from sales of loans, primarily mortgage loans sold in the secondary markets |
7,920 | 50,868 | ||||||
Gains on sales of loans, net |
(204 | ) | (566 | ) | ||||
Amortization of intangible assets |
2,304 | 2,598 | ||||||
Change in unrealized securities holdings/(losses) |
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Recognition of stock compensation expense |
3,279 | 3,641 | ||||||
Net decrease/(increase) in other assets |
(39,766 | ) | (48,684 | ) | ||||
Net increase/(decrease) in other liabilities |
6,238 | 25,224 | ||||||
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
35,748 | 52,130 | ||||||
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Investing Activities |
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Proceeds from sale of investment securities |
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Available-for-sale |
| 39,302 | ||||||
Held-to-maturity |
| 1,015 | ||||||
Proceeds from prepayments, calls, and maturities of investment securities |
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Available-for-sale |
150,299 | 129,296 | ||||||
Held-to-maturity |
91,890 | 92,241 | ||||||
Other |
| 166 | ||||||
Purchases of investment securities |
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Available-for-sale |
(249,424 | ) | (404,163 | ) | ||||
Held-to-maturity |
(33,669 | ) | (46,164 | ) | ||||
Other |
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Net decrease/(increase) in loans and leases |
(146,288 | ) | (152,359 | ) | ||||
Purchases of premises and equipment |
(58 | ) | (5,795 | ) | ||||
Sales of premises and equipment |
3,582 | 7,965 | ||||||
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NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES |
(183,668 | ) | (338,496 | ) | ||||
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Financing Activities |
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Net increase in demand accounts |
277,808 | 128,320 | ||||||
Net increase/(decrease) in savings and money market accounts |
781,706 | 210,941 | ||||||
Net decrease in certificates and other time deposits |
(66,151 | ) | 81,669 | |||||
Net increase/(decrease) in securities sold under agreements to repurchase |
(317,225 | ) | (159,220 | ) | ||||
Net increase/(decrease) in wholesale borrowings |
(201,652 | ) | (111,443 | ) | ||||
Cash dividends - common |
(28,129 | ) | (26,461 | ) | ||||
Cash dividends - preferred |
(1,469 | ) | (1,469 | ) | ||||
Restricted stock activity |
(888 | ) | (970 | ) | ||||
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NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES |
444,000 | 121,367 | ||||||
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Increase/(Decrease) in cash and cash equivalents |
296,080 | (164,999 | ) | |||||
Cash and cash equivalents at beginning of year |
463,817 | 697,424 | ||||||
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Cash and cash equivalents at end of year |
$ | 759,897 | $ | 532,425 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: |
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Cash paid during the year for: |
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Interest |
$ | 16,197 | $ | 14,036 | ||||
Federal income taxes |
| 2,000 |
See accompanying Notes to the Consolidated Financial Statements
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FIRSTMERIT CORPORATION AND SUBSIDIARIES
FirstMerit Corporation and subsidiaries (the Corporation or we) is a diversified financial services company headquartered in Akron, Ohio with 368 banking offices in the Ohio, Michigan, Wisconsin, Illinois, and Pennsylvania areas. The Corporation provides a complete range of banking and other financial services to consumers and businesses through its core operations.
On January 26, 2016, the Corporation and Huntington Bancshares Incorporated (Huntington) announced the signing of a definitive merger agreement under which the Corporation will merge into a subsidiary of Huntington in a stock and cash transaction. Based on the closing price of Huntingtons common shares on January 25, 2016 of $8.80, the total transaction value is approximately $3.40 billion, including outstanding options and other equity-linked securities.
Under the terms of the definitive agreement, the Corporation will merge with a subsidiary of Huntington Bancshares, and FirstMerit Bank will merge with and into The Huntington National Bank. In conjunction with the closing of the transaction, four independent members of the Corporations Board of Directors will join the Huntington Board, which will be expanded accordingly.
Shareholders of the Corporation will receive 1.72 shares of Huntington common stock, and $5.00 in cash, for each share of the Corporation common stock. The per share consideration is valued at $20.14 per share based on the closing price of Huntington Common Stock on January 25, 2016. The transaction is expected to be completed in the third quarter of 2016, subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Huntington and the Corporation.
1. | Summary of Significant Accounting Policies |
Unless otherwise indicated, defined terms and abbreviations used herein have the meanings set forth in the accompanying Glossary of Acronyms and Abbreviations.
Basis of Presentation - FirstMerit Corporation is a BHC whose principal asset is the Common Stock of its wholly-owned subsidiary, FirstMerit Bank, N. A. The Parent Companys other subsidiaries include Citizens Savings Corporation of Stark County, FirstMerit Capital Trust I, and FirstMerit Risk Management, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
The accounting and reporting policies of the Corporation conform to GAAP and to general practices within the financial services industry.
The Consolidated Balance Sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date. The accompanying unaudited interim financial statements reflect all
6
adjustments (consisting only of normally recurring adjustments) that are, in the opinion of Management, necessary for a fair statement of the results for the interim periods presented. Certain reclassifications of prior years amounts have been made to conform to the current year presentation. Such reclassifications had no effect on net earnings or equity. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules of the SEC. The unaudited consolidated financial statements of the Corporation as of March 31, 2016 and 2015 are not necessarily indicative of the results that may be achieved for the full fiscal year or for any future period. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Corporations Annual Report on Form 10-K for the year ended December 31, 2015 (the 2015 Form 10-K). There have been no significant changes in the current quarter to the Corporations accounting policies as disclosed in the 2015 Form 10-K.
In preparing these accompanying unaudited interim consolidated financial statements, subsequent events were evaluated through the time the consolidated financial statements were issued.
Recently Adopted Accounting Standards
FASB ASU 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. The amendments in ASU 2015-16 require 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. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this update will be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued. The adoption of this guidance did not have a material effect on the Corporations financial position or results of operations.
FASB ASU 2015-5, IntangiblesGoodwill and OtherInternal-Use Software (Subtopic 350-40): Customers Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement 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. The guidance will not change GAAP for a customers accounting for service contracts. In addition, the guidance in this update supersedes 350-40-25-16. Consequently, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The amendments are effective for public business entities for annual and interim periods within those annual periods, beginning after December 15, 2015. An entity can elect to adopt the amendments either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and
7
reason for the change in accounting principle, the transition method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change. The adoption of this guidance did not have a material effect on the Corporations financial position or results of operations.
FASB ASU 2015-2, Amendments to the Consolidation Analysis. The amendments in ASU 2015-02 affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. These amendments modify the current accounting guidance to address limited partnerships and similar entities; certain investments funds, fees paid to a decision maker or service provider, and the impact of fee arrangements and related parties on the primary beneficiary determination. The amendments are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. A reporting entity may apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively. The adoption of this guidance did not have a material effect on the Corporations financial position or results of operations.
FASB ASU 2014 -12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period a consensus of the FASB Emerging Issues Task Force. The amendments in this update clarify that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. Therefore, an entity would not record compensation expense (measured as of the grant date without taking into account the effect of the performance target) related to an award for which transfer to the employee is contingent on the entitys satisfaction of a performance target until it becomes probable that the performance target will be met. The ASU does not contain any new disclosure requirements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. In addition, entities will have the option of applying the guidance either prospectively (i.e., only to awards granted or modified on or after the effective date) or retrospectively. Retrospective application would only apply to awards with performance targets outstanding at or after the beginning of the first annual period presented (i.e., the earliest presented comparative period). The adoption of this guidance did not have a material effect on the Corporations financial position or results of operations.
Recently Issued Accounting Standards
ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This update amends the new revenue recognition guidance on accounting for licenses of intellectual property and identifying performance obligations. The amendments clarify how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will
8
determine whether it recognizes revenue over time or a point in time. The amendments also clarify when a promised good or service is separately identifiable, that is distinct within the context of the contract, and allow entities to disregard items that are immaterial in the context of a contract. The effective date and transition requirements for this update are the same as those of the new standard. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted, but not before December 15, 2016. The amendments can be adopted using either the full retrospective approach or a modified retrospective approach. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.
FASB ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in ASU 2016-09 simplify several aspects of accounting for employee share-based payments including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some areas of the simplification apply only to nonpublic entities. The new guidance will require all income tax effects of awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled and additional paid in capital pools will be eliminated. The guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Companies will be required to account for forfeitures of share-based payments by recognizing forfeitures of awards as they occur or estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as currently required, through an accounting policy election. The guidance will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employers income tax withholding obligation. The guidance requires an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption will be permitted in any interim or annual period for which financial statements have not yet been issued or have not been made available for issuance, however all of the guidance must be adopted in the same period. If early adoption is elected in an interim period, any adjustments should be reflected as of the beginning of the annual period that includes that interim period. The adoption of this guidance is not expected to have a material effect on the Corporations financial position or results of operations.
FASB ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments in ASU 2016-08 are intended to improve the operability and understandability of the implementation guidance by clarifying the following: how an entity should identify the unit of accounting for the principal versus agent evaluation; how the control principle applies to transactions, such as service arrangements; reframes the indicators to focus on a principal rather than an agent, removes the credit risk and commission indicators and clarifies the relationship between the control principle and the indicators; and revises the existing illustrative examples and adds new illustrative examples. For public business entities, the amendments in this update are effective for annual reporting periods
9
beginning after December 15, 2017, with early adoption permitted, but not before December 15, 2016. The amendments can be adopted using either the full retrospective approach or a modified retrospective approach. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.
FASB ASU 2016-07, InvestmentsEquity Method and Joint Ventures (Topic 323), The amendments in this update eliminate the requirement that when an investment qualifies for use of the equity method due to an increase in level of ownership or influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.
FASB ASU 2016-06, Derivatives and Hedging (Topic 815), Contingent Put and Call Options in Debt Instruments. The amendments in this update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. An entity should apply the amendments in this update on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.
FASB ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The amendments in ASU 2016-05 clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20-35-14 through 35-18) continue to be met. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.
10
FASB ASU 2016-02, Leases (Topic 842). The amendments in ASU 2016-02 increase transparency and comparability by requiring a lessee to recognize assets and liabilities for operating and capital leases with lease terms of more than 12 months. Additional qualitative and quantitative requirements disclosures are required to provide additional information to better understand the amount, timing, and uncertainty of cash flows arising from leases. Lessor accounting will remain largely unchanged from current GAAP. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.
FASB ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. The amendments improve financial reporting by providing relevant information about an entitys equity investments and reducing the number of items that are recognized in other comprehensive income. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The adoption of this guidance is not expected to have a material effect on the Corporations financial position or results of operations.
FASB ASU 2014-09, Revenue from Contracts with Customers. In May 2014, the FASB issued new accounting guidance that revises the criteria for determining when to recognize revenue from contracts with customers and expands disclosure requirements. The amendments in this update supersede virtually all existing GAAP revenue recognition guidance, including most industry-specific revenue recognition guidance. The core principle requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 applies to contracts with customers to provide goods and services, with certain exclusions such as lease contracts, financing arrangements, and financial instruments. On July 9, 2015, the FASB decided to delay, by one year, the effective dates, permitting public entities to apply this guidance to annual reporting periods beginning after December 15, 2017, with early adoption permitted, but not before December 15, 2016. The amendments can be adopted using either the full retrospective approach or a modified retrospective approach. There are many aspects of this new accounting guidance that are still being interpreted, and the FASB has recently issued updates to certain aspects of the guidance as noted above. The Corporation is in process of assessing the potential impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.
11
2. | Investment Securities |
The following tables provide the amortized cost and fair value for the major categories of held-to-maturity and available-for-sale securities. Held-to-maturity securities are carried at amortized cost, which reflects historical cost, adjusted for amortization of premiums and accretion of discounts. Available-for-sale securities are carried at fair value with net unrealized gains or losses reported on an after tax basis as a component of OCI in shareholders equity.
March 31, 2016 | ||||||||||||||||
(In thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
Securities available-for-sale |
||||||||||||||||
Debt securities |
||||||||||||||||
U.S. government agency debentures |
$ | 2,500 | $ | 20 | $ | | $ | 2,520 | ||||||||
U.S. states and political subdivisions |
169,281 | 3,894 | (34 | ) | 173,141 | |||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
889,511 | 18,398 | (253 | ) | 907,656 | |||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
181,846 | 2,654 | (252 | ) | 184,248 | |||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
2,214,035 | 20,761 | (8,059 | ) | 2,226,737 | |||||||||||
Non-agency |
4 | | | 4 | ||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
269,197 | 3,976 | (291 | ) | 272,882 | |||||||||||
Asset-backed securities: |
||||||||||||||||
Collateralized loan obligations |
297,885 | 36 | (12,524 | ) | 285,397 | |||||||||||
Corporate debt securities |
61,724 | | (12,968 | ) | 48,756 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total debt securities |
4,085,983 | 49,739 | (34,381 | ) | 4,101,341 | |||||||||||
Equity securities |
||||||||||||||||
Marketable equity securities |
2,873 | | | 2,873 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity securities |
2,873 | | | 2,873 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available-for-sale |
$ | 4,088,856 | $ | 49,739 | $ | (34,381 | ) | $ | 4,104,214 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Securities held-to-maturity |
||||||||||||||||
Debt securities |
||||||||||||||||
U.S. government agency debentures |
$ | 25,000 | $ | 26 | $ | | $ | 25,026 | ||||||||
U.S. states and political subdivisions |
558,795 | 17,285 | (262 | ) | 575,818 | |||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
88,314 | 1,280 | (266 | ) | 89,328 | |||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
489,216 | 10,159 | (212 | ) | 499,163 | |||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
1,113,901 | 2,414 | (14,257 | ) | 1,102,058 | |||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
251,421 | 2,436 | (934 | ) | 252,923 | |||||||||||
Corporate debt securities |
87,053 | 905 | | 87,958 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities held-to-maturity |
$ | 2,613,700 | $ | 34,505 | $ | (15,931 | ) | $ | 2,632,274 | |||||||
|
|
|
|
|
|
|
|
12
December 31, 2015 | ||||||||||||||||
(In thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
Securities available-for-sale |
||||||||||||||||
Debt securities |
||||||||||||||||
U.S. treasury notes & bonds |
$ | 5,001 | $ | | $ | (1 | ) | $ | 5,000 | |||||||
U.S. government agency debentures |
2,500 | | (2 | ) | 2,498 | |||||||||||
U.S. states and political subdivisions |
188,829 | 4,170 | (204 | ) | 192,795 | |||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
900,358 | 11,325 | (5,454 | ) | 906,229 | |||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
173,912 | 220 | (2,023 | ) | 172,109 | |||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
2,155,808 | 2,659 | (30,147 | ) | 2,128,320 | |||||||||||
Non-agency |
4 | | | 4 | ||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
217,008 | 580 | (1,269 | ) | 216,319 | |||||||||||
Asset-backed securities: |
||||||||||||||||
Collateralized loan obligations |
297,831 | 26 | (8,446 | ) | 289,411 | |||||||||||
Corporate debt securities |
61,710 | | (9,481 | ) | 52,229 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total debt securities |
4,002,961 | 18,980 | (57,027 | ) | 3,964,914 | |||||||||||
Equity securities |
||||||||||||||||
Marketable equity securities |
2,821 | | | 2,821 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity securities |
2,821 | | | 2,821 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available-for-sale |
$ | 4,005,782 | $ | 18,980 | $ | (57,027 | ) | $ | 3,967,735 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Securities held-to-maturity |
||||||||||||||||
Debt securities |
||||||||||||||||
U.S. government agency debentures |
25,000 | 19 | | 25,019 | ||||||||||||
U.S. states and political subdivisions |
571,738 | 22,180 | (262 | ) | 593,656 | |||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
507,908 | 4,767 | (2,999 | ) | 509,676 | |||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
64,951 | 294 | (574 | ) | 64,671 | |||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
1,161,340 | 75 | (35,881 | ) | 1,125,534 | |||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
255,359 | 676 | (3,611 | ) | 252,424 | |||||||||||
Corporate debt securities |
87,797 | 364 | (22 | ) | 88,139 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities held-to-maturity |
$ | 2,674,093 | $ | 28,375 | $ | (43,349 | ) | $ | 2,659,119 | |||||||
|
|
|
|
|
|
|
|
13
March 31, 2015 | ||||||||||||||||
(In thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
Securities available-for-sale |
||||||||||||||||
Debt securities |
||||||||||||||||
U.S. government agency debentures |
$ | 2,500 | $ | 13 | $ | | $ | 2,513 | ||||||||
U.S. states and political subdivisions |
208,800 | 6,750 | (386 | ) | 215,164 | |||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
924,453 | 24,799 | (1,949 | ) | 947,303 | |||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
139,789 | 1,231 | (661 | ) | 140,359 | |||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
1,895,112 | 11,305 | (13,857 | ) | 1,892,560 | |||||||||||
Non-agency |
6 | | | 6 | ||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
241,839 | 2,602 | (382 | ) | 244,059 | |||||||||||
Asset-backed securities: |
||||||||||||||||
Collateralized loan obligations |
297,506 | 587 | (4,131 | ) | 293,962 | |||||||||||
Corporate debt securities |
61,668 | | (9,404 | ) | 52,264 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total debt securities |
3,771,673 | 47,287 | (30,770 | ) | 3,788,190 | |||||||||||
Equity Securities |
||||||||||||||||
Marketable equity securities |
2,869 | | | 2,869 | ||||||||||||
Non-marketable equity securities |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity securities |
2,869 | | | 2,869 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available-for-sale |
$ | 3,774,542 | $ | 47,287 | $ | (30,770 | ) | $ | 3,791,059 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Securities held-to-maturity |
||||||||||||||||
Debt securities |
||||||||||||||||
U.S. treasury notes & bonds |
$ | 5,000 | $ | | $ | | $ | 5,000 | ||||||||
U.S. government agency debentures |
25,000 | | (178 | ) | 24,822 | |||||||||||
U.S states and political subdivisions |
523,501 | 8,864 | (1,147 | ) | 531,218 | |||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
577,278 | 10,745 | (1,677 | ) | 586,346 | |||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
57,818 | 765 | (108 | ) | 58,475 | |||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
1,320,215 | 1,959 | (24,846 | ) | 1,297,328 | |||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
256,352 | 1,659 | (3,377 | ) | 254,634 | |||||||||||
Corporate debt securities |
90,010 | 1,079 | | 91,089 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities held-to-maturity |
$ | 2,855,174 | $ | 25,071 | $ | (31,333 | ) | $ | 2,848,912 | |||||||
|
|
|
|
|
|
|
|
14
The Corporations U.S. states and political subdivisions portfolio is composed of general obligation bonds issued by a highly diversified number of states, cities, counties, and school districts. The amortized cost and fair value of the Corporations portfolio of general obligation bonds are summarized by U.S. state in the tables below. As illustrated in the tables below, the aggregate fair value of the Corporations general obligation bonds was greater than $10.0 million in 11 of the 37 U.S. states in which it holds investments.
(Dollars in thousands) |
March 31, 2016 | |||||||||||||||
U.S. State |
# of Issuers | Average Issue Size, Fair Value |
Amortized Cost | Fair Value | ||||||||||||
Michigan |
137 | $ | 1,364 | $ | 180,322 | $ | 186,935 | |||||||||
Ohio |
110 | 1,098 | 117,643 | 120,829 | ||||||||||||
Wisconsin |
61 | 615 | 36,369 | 37,528 | ||||||||||||
Illinois |
53 | 1,840 | 95,228 | 97,511 | ||||||||||||
Texas |
53 | 802 | 41,356 | 42,496 | ||||||||||||
Pennsylvania |
41 | 1,035 | 41,680 | 42,448 | ||||||||||||
New Jersey |
33 | 736 | 23,746 | 24,285 | ||||||||||||
Washington |
29 | 948 | 26,977 | 27,497 | ||||||||||||
Minnesota |
23 | 699 | 15,713 | 16,069 | ||||||||||||
New York |
18 | 617 | 10,819 | 11,104 | ||||||||||||
Missouri |
11 | 1,086 | 11,637 | 11,948 | ||||||||||||
Other |
107 | 756 | 79,847 | 80,899 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total general obligation bonds |
676 | $ | 1,035 | $ | 681,337 | $ | 699,549 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
(Dollars in thousands) |
December 31, 2015 | |||||||||||||||
U.S. State |
# of Issuers | Average Issue Size, Fair Value |
Amortized Cost | Fair Value | ||||||||||||
Michigan |
137 | $ | 1,381 | $ | 180,508 | $ | 189,259 | |||||||||
Ohio |
111 | 1,091 | 116,783 | 121,117 | ||||||||||||
Illinois |
55 | 1,870 | 99,524 | 102,867 | ||||||||||||
Texas |
58 | 807 | 45,818 | 46,805 | ||||||||||||
Wisconsin |
69 | 673 | 44,794 | 46,454 | ||||||||||||
Pennsylvania |
42 | 1,020 | 42,185 | 42,835 | ||||||||||||
Washington |
29 | 950 | 27,080 | 27,548 | ||||||||||||
New Jersey |
35 | 725 | 24,810 | 25,372 | ||||||||||||
Minnesota |
33 | 667 | 21,679 | 22,020 | ||||||||||||
Missouri |
15 | 1,078 | 15,878 | 16,174 | ||||||||||||
New York |
18 | 635 | 11,161 | 11,422 | ||||||||||||
Other |
110 | 759 | 81,815 | 83,477 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total general obligation bonds |
712 | $ | 1,033 | $ | 712,035 | $ | 735,350 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
(Dollars in thousands) |
March 31, 2015 | |||||||||||||||
U.S. State |
# of Issuers | Average Issue Size, Fair Value |
Amortized Cost | Fair Value | ||||||||||||
Michigan |
164 | $ | 857 | $ | 138,091 | $ | 140,620 | |||||||||
Ohio |
136 | 925 | 124,908 | 125,864 | ||||||||||||
Illinois |
62 | 1,841 | 111,649 | 114,150 | ||||||||||||
Wisconsin |
73 | 760 | 53,877 | 55,497 | ||||||||||||
Texas |
63 | 784 | 48,388 | 49,396 | ||||||||||||
Pennsylvania |
46 | 1,018 | 46,085 | 46,816 | ||||||||||||
Washington |
31 | 930 | 28,194 | 28,836 | ||||||||||||
New Jersey |
37 | 747 | 26,724 | 27,623 | ||||||||||||
Minnesota |
35 | 697 | 23,821 | 24,405 | ||||||||||||
Missouri |
15 | 1,098 | 16,032 | 16,472 | ||||||||||||
New York |
19 | 629 | 11,646 | 11,948 | ||||||||||||
Other |
121 | 639 | 76,127 | 77,365 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total general obligation bonds |
802 | $ | 896 | $ | 705,542 | $ | 718,992 | |||||||||
|
|
|
|
|
|
|
|
15
The Corporations investment policy states that municipal securities purchased are to be investment grade and allows for a 20% maximum portfolio concentration in municipal securities with a combined individual state to total municipal outstanding equal to or less than 25%. A municipal security is investment grade if (1) the security has a low risk of default by the obligor and (2) the full and timely payment of principal and interest is expected over the anticipated life of the instrument. The fact that a municipal security is rated by one nationally recognized credit rating agency is indicative, but not sufficient evidence, that a municipal security is investment grade. In all cases, the Corporation considers and documents within a security pre-purchase analysis factors such as capacity to pay, market and economic data, and such other factors as are available and relevant to the security or issuer. Factors to be considered in the ongoing monitoring of municipal securities and in the pre-purchase analysis include soundness of budgetary position and sources of revenue, financial strength, and stability of tax or enterprise revenues. The Corporation also considers spreads to U.S. Treasuries on comparable bonds of similar credit quality, in addition to the above analysis, to assess whether municipal securities are investment grade. The Corporation performs a risk analysis for any security that is downgraded below investment grade to determine if the security should be retained or sold. This risk analysis includes, but is not limited to, discussions with the Corporations credit department as well as third-party municipal credit analysts and review of the nationally recognized credit rating agencys analysis describing the downgrade.
The Corporations evaluation of its municipal bond portfolio at March 31, 2016 did not uncover any facts or circumstances resulting in significantly different credit ratings than those assigned by a nationally recognized credit rating agency.
FRB and FHLB stock constitutes the majority of other investments on the Consolidated Balance Sheets.
(In thousands) |
March 31, 2016 | December 31, 2015 | March 31, 2015 | |||||||||
FRB stock |
$ | 56,083 | $ | 56,083 | $ | 55,681 | ||||||
FHLB stock |
91,714 | 91,714 | 92,381 | |||||||||
Other |
362 | 375 | 413 | |||||||||
|
|
|
|
|
|
|||||||
Total other investments |
$ | 148,159 | $ | 148,172 | $ | 148,475 | ||||||
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|
|
|
|
|
FRB and FHLB stock is classified as a restricted investment, carried at cost and valued based on the ultimate recoverability of par value. Cash and stock dividends received on the stock are reported as interest income. There are no identified events or changes in circumstances that may have a significant adverse effect on these investments carried at cost.
Securities with a carrying value of $3.4 billion, $2.9 billion, and $3.5 billion at March 31, 2016, December 31, 2015, and March 31, 2015, respectively, were pledged to secure trust and public deposits and securities sold under agreements to repurchase and for other purposes required or permitted by law.
16
Realized Gains and Losses
The following table presents the gross realized gains and losses on the sales of those securities that have been included in earnings as a result of those sales. Gains or losses on the sales of available-for-sale securities are recognized upon sale and are determined using the specific identification method.
Three Months Ended March 31, | ||||||||
(In thousands) |
2016 | 2015 | ||||||
Realized gains |
$ | 295 | $ | 392 | ||||
Realized losses |
| (38 | ) | |||||
|
|
|
|
|||||
Net securities (losses)/gains |
$ | 295 | $ | 354 | ||||
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|
|
|
17
Gross Unrealized Losses and Fair Value
The following table presents the gross unrealized losses and fair value of securities by length of time that individual securities had been in a continuous loss position by major categories of available-for-sale and held-to-maturity securities.
March 31, 2016 | ||||||||||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||
(Dollars in thousands) |
Fair Value | Unrealized Losses |
Number Impaired Securities |
Fair Value | Unrealized Losses |
Number Impaired Securities |
Fair Value | Unrealized Losses |
||||||||||||||||||||||||
Securities available-for-sale |
||||||||||||||||||||||||||||||||
Debt securities |
||||||||||||||||||||||||||||||||
U.S. states and political subdivisions |
$ | 2,880 | $ | (14 | ) | 6 | $ | 1,899 | $ | (20 | ) | 4 | $ | 4,779 | $ | (34 | ) | |||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
171 | | 2 | 32,960 | (253 | ) | 3 | 33,131 | (253 | ) | ||||||||||||||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
| | 0 | 12,595 | (252 | ) | 1 | 12,595 | (252 | ) | ||||||||||||||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
96,691 | (568 | ) | 6 | 552,785 | (7,491 | ) | 46 | 649,476 | (8,059 | ) | |||||||||||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
32,200 | (107 | ) | 5 | 22,464 | (184 | ) | 2 | 54,664 | (291 | ) | |||||||||||||||||||||
Asset-backed securities: |
||||||||||||||||||||||||||||||||
Collateralized loan obligations |
149,999 | (6,176 | ) | 27 | 121,596 | (6,348 | ) | 15 | 271,595 | (12,524 | ) | |||||||||||||||||||||
Corporate debt securities |
| | 0 | 48,755 | (12,968 | ) | 8 | 48,755 | (12,968 | ) | ||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total securities available-for-sale |
$ | 281,941 | $ | (6,865 | ) | 46 | $ | 793,054 | $ | (27,516 | ) | 79 | $ | 1,074,995 | $ | (34,381 | ) | |||||||||||||||
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|
|
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|
|
|
|||||||||||||||||
Securities held-to-maturity |
||||||||||||||||||||||||||||||||
Debt securities |
||||||||||||||||||||||||||||||||
U.S. government agency debentures |
$ | | $ | | 0 | $ | | $ | | 0 | $ | | $ | | ||||||||||||||||||
U.S. states and political subdivisions |
4,491 | (21 | ) | 9 | 7,793 | (241 | ) | 10 | 12,284 | (262 | ) | |||||||||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
| | 0 | 62,997 | (212 | ) | 4 | 62,997 | (212 | ) | ||||||||||||||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
13,268 | (263 | ) | 1 | 9,438 | (3 | ) | 1 | 22,706 | (266 | ) | |||||||||||||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
| | 0 | 873,299 | (14,257 | ) | 52 | 873,299 | (14,257 | ) | ||||||||||||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
| | 0 | 80,216 | (934 | ) | 7 | 80,216 | (934 | ) | ||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total securities held-to-maturity |
$ | 17,759 | $ | (284 | ) | 10 | $ | 1,033,743 | $ | (15,647 | ) | 74 | $ | 1,051,502 | $ | (15,931 | ) | |||||||||||||||
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18
December 31, 2015 | ||||||||||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||
(Dollars in thousands) |
Fair Value | Unrealized Losses |
Number Impaired Securities |
Fair Value | Unrealized Losses |
Number Impaired Securities |
Fair Value | Unrealized Losses |
||||||||||||||||||||||||
Securities available-for-sale |
||||||||||||||||||||||||||||||||
Debt securities |
||||||||||||||||||||||||||||||||
U.S government agency debentures |
$ | 2,498 | $ | (2 | ) | 1 | $ | | $ | | 0 | $ | 2,498 | $ | (2 | ) | ||||||||||||||||
U.S. treasury notes and bonds |
5,000 | (1 | ) | 1 | | | 0 | 5,000 | (1 | ) | ||||||||||||||||||||||
U.S. states and political subdivisions |
10,178 | (37 | ) | 20 | 5,899 | (167 | ) | 9 | 16,077 | (204 | ) | |||||||||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
328,156 | (3,026 | ) | 27 | 95,895 | (2,428 | ) | 7 | 424,051 | (5,454 | ) | |||||||||||||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
107,074 | (1,447 | ) | 15 | 12,401 | (576 | ) | 1 | 119,475 | (2,023 | ) | |||||||||||||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
1,130,779 | (10,587 | ) | 78 | 597,403 | (19,560 | ) | 49 | 1,728,182 | (30,147 | ) | |||||||||||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
113,825 | (893 | ) | 12 | 23,400 | (376 | ) | 2 | 137,225 | (1,269 | ) | |||||||||||||||||||||
Asset-backed securities: |
||||||||||||||||||||||||||||||||
Collateralized loan obligations |
151,810 | (3,576 | ) | 26 | 126,422 | (4,870 | ) | 15 | 278,232 | (8,446 | ) | |||||||||||||||||||||
Corporate debt securities |
| | 0 | 52,229 | (9,481 | ) | 8 | 52,229 | (9,481 | ) | ||||||||||||||||||||||
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|
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|
|||||||||||||||||
Total securities available-for-sale |
$ | 1,849,320 | $ | (19,569 | ) | 180 | $ | 913,649 | $ | (37,458 | ) | 91 | $ | 2,762,969 | $ | (57,027 | ) | |||||||||||||||
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|
|
|
|
|
|
|
|||||||||||||||||
Securities held-to-maturity |
||||||||||||||||||||||||||||||||
Debt securities |
||||||||||||||||||||||||||||||||
U.S. states and political subdivisions |
$ | 18,465 | $ | (224 | ) | 21 | $ | 4,174 | $ | (38 | ) | 6 | $ | 22,639 | $ | (262 | ) | |||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
85,738 | (715 | ) | 6 | 97,880 | (2,284 | ) | 6 | 183,618 | (2,999 | ) | |||||||||||||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
34,833 | (346 | ) | 6 | 9,269 | (228 | ) | 1 | 44,102 | (574 | ) | |||||||||||||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
140,514 | (1,225 | ) | 12 | 941,982 | (34,656 | ) | 55 | 1,082,496 | (35,881 | ) | |||||||||||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
71,812 | (384 | ) | 7 | 117,992 | (3,227 | ) | 11 | 189,804 | (3,611 | ) | |||||||||||||||||||||
Corporate debt securities |
19,243 | (22 | ) | 6 | | | 0 | 19,243 | (22 | ) | ||||||||||||||||||||||
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|
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|
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|
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|
|||||||||||||||||
Total securities held-to-maturity |
$ | 370,605 | $ | (2,916 | ) | 58 | $ | 1,171,297 | $ | (40,433 | ) | 79 | $ | 1,541,902 | $ | (43,349 | ) | |||||||||||||||
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19
March 31, 2015 | ||||||||||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||
(Dollars in thousands) |
Fair Value | Unrealized Losses |
Number Impaired Securities |
Fair Value | Unrealized Losses |
Number Impaired Securities |
Fair Value | Unrealized Losses |
||||||||||||||||||||||||
Securities available-for-sale |
||||||||||||||||||||||||||||||||
Debt securities |
||||||||||||||||||||||||||||||||
U.S. states and political subdivisions |
$ | 14,380 | $ | (117 | ) | 23 | $ | 6,004 | $ | (269 | ) | 10 | $ | 20,384 | $ | (386 | ) | |||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
74,517 | (360 | ) | 5 | 108,052 | (1,589 | ) | 8 | 182,569 | (1,949 | ) | |||||||||||||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
49,129 | (175 | ) | 7 | 17,690 | (486 | ) | 2 | 66,819 | (661 | ) | |||||||||||||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
70,574 | (762 | ) | 6 | 745,621 | (13,095 | ) | 53 | 816,195 | (13,857 | ) | |||||||||||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
13,206 | (24 | ) | 2 | 61,132 | (358 | ) | 6 | 74,338 | (382 | ) | |||||||||||||||||||||
Asset-backed securities: |
||||||||||||||||||||||||||||||||
Collateralized loan obligations |
24,087 | (209 | ) | 3 | 181,498 | (3,922 | ) | 27 | 205,585 | (4,131 | ) | |||||||||||||||||||||
Corporate debt securities |
| | 0 | 52,263 | (9,404 | ) | 8 | 52,263 | (9,404 | ) | ||||||||||||||||||||||
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|
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|
|||||||||||||||||
Total securities available-for-sale |
$ | 245,893 | $ | (1,647 | ) | 46 | $ | 1,172,260 | $ | (29,123 | ) | 114 | $ | 1,418,153 | $ | (30,770 | ) | |||||||||||||||
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|
|
|
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|
|
|
|||||||||||||||||
Securities held-to-maturity |
||||||||||||||||||||||||||||||||
Debt securities |
||||||||||||||||||||||||||||||||
U.S. treasury notes & bonds |
$ | 5,000 | $ | | 1 | $ | | $ | | 0 | $ | 5,000 | $ | | ||||||||||||||||||
U.S. government agency debentures |
| | 0 | 24,822 | (178 | ) | 1 | 24,822 | (178 | ) | ||||||||||||||||||||||
U.S. states and political subdivisions |
38,202 | (1,093 | ) | 26 | 4,448 | (54 | ) | 6 | 42,650 | (1,147 | ) | |||||||||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
28,386 | (123 | ) | 2 | 110,329 | (1,554 | ) | 6 | 138,715 | (1,677 | ) | |||||||||||||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
| | 0 | 9,554 | (108 | ) | 1 | 9,554 | (108 | ) | ||||||||||||||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
19,016 | (71 | ) | 1 | 1,095,375 | (24,775 | ) | 56 | 1,114,391 | (24,846 | ) | |||||||||||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||||||||||||||||||
U.S. government agencies |
| | 0 | 144,970 | (3,377 | ) | 13 | 144,970 | (3,377 | ) | ||||||||||||||||||||||
Corporate debt securities |
| | 0 | | | 0 | | | ||||||||||||||||||||||||
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|||||||||||||||||
Total securities held-to-maturity |
$ | 90,604 | $ | (1,287 | ) | 30 | $ | 1,389,498 | $ | (30,046 | ) | 83 | $ | 1,480,102 | $ | (31,333 | ) | |||||||||||||||
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At least quarterly, the Corporation conducts a comprehensive security-level impairment assessment on all securities in an unrealized loss position to determine if OTTI exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. An OTTI loss must be recognized for a debt security in an unrealized loss position if the Corporation intends to sell the security or it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis. In this situation, the amount of loss recognized in income is equal to the difference between the fair value and the amortized cost basis of the security. Even if the Corporation does not expect to sell the security, the Corporation must evaluate the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. The portion of the unrealized loss relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in OCI. Equity securities are also evaluated to determine whether
20
the unrealized loss is expected to be recoverable based on whether evidence exists to support a realizable value equal to or greater than the amortized cost basis. If it is probable that the Corporation will not recover the amortized cost basis, taking into consideration the estimated recovery period and its ability to hold the equity security until recovery, OTTI is recognized.
The security-level assessment is performed on each security, regardless of the classification of the security as available-for-sale or held-to-maturity. The assessments are based on the nature of the securities, the financial condition of the issuer, the extent and duration of the securities, the extent and duration of the loss and whether Management intends to sell or it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis, which may be maturity. For those securities which the assessment shows the Corporation will recover the entire cost basis, Management does not intend to sell these securities and it is not more likely than not that the Corporation will be required to sell them before the anticipated recovery of the amortized cost basis, the gross unrealized losses are recognized in OCI, net of tax.
The investment securities portfolio was in a net unrealized gain position of $33.9 million at March 31, 2016, compared to a net unrealized loss position of $53.0 million at December 31, 2015 and a net unrealized gain position of $10.3 million at March 31, 2015. Gross unrealized losses were $50.3 million as of March 31, 2016, compared to $100.4 million at December 31, 2015, and $62.1 million at March 31, 2015. As of March 31, 2016, gross unrealized losses are concentrated within agency MBS, CLOs, and corporate debt securities. Securities classified as corporate debt would include eight, single issuer, trust preferred securities with stated maturities. Such investments are only 1% of the fair value of the available-for-sale investment portfolio. None of the corporate issuers have deferred paying dividends on their issued trust preferred shares in which the Corporation is invested. The fair values of these investments have been impacted by the market conditions which have caused risk premiums to increase, resulting in the decline in the fair value of the trust preferred securities.
Management believes the Corporation will fully recover the cost of these agency MBSs, CLOs, and corporate debt securities, and it does not intend to sell these securities and it is not more likely than not that it will be required to sell them before the anticipated recovery of the remaining amortized cost basis, which may be maturity. As a result, Management concluded that these securities were not other-than-temporarily impaired at March 31, 2016 and has recognized the total amount of the impairment in OCI, net of tax.
The new Volcker Rule, as originally adopted, may affect the Corporations ability to hold CLOs. As of March 31, 2016, the Corporation holds $285.4 million of CLOs with a gross unrealized loss position of $12.5 million. Management believes that its holdings of CLOs are not ownership interests in covered funds prohibited by the Volcker Rule regulations and, therefore, expects to be able to hold these investments until their stated maturities. Management seeks to maintain a CLO portfolio consistent with the requirements of the Volcker Rule, and new CLO investments are being made in accordance with the strategy.
21
Contractual Maturity of Debt Securities
The following table shows the remaining contractual maturities and contractual yields of debt securities held-to-maturity and available-for-sale as of March 31, 2016. Estimated lives on MBSs may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
(Dollars in thousands) |
U.S. Government agency debentures |
U.S. States and political subdivisions |
Residential mortgage- backed securities - U.S. govt. agencies |
Commercial mortgage- backed securities - U.S. govt. agencies |
Residential collateralized mortgage obligations - U.S. govt. agencies |
Residential collateralized mortgage obligations - non-agency |
Commercial collateralized mortgage obligations - U.S. govt. agencies |
Asset backed securities - collateralized loan obligations |
Corporate debt securities |
Total | Weighted Average Yield |
|||||||||||||||||||||||||||||||||
Securities Available-for-Sale |
||||||||||||||||||||||||||||||||||||||||||||
Remaining maturity: |
||||||||||||||||||||||||||||||||||||||||||||
One year or less |
$ | | $ | 7,120 | $ | 119 | $ | | $ | | $ | | $ | | $ | | $ | | $ | 7,239 | 3.29 | % | ||||||||||||||||||||||
Over one year through five years |
2,520 | 79,686 | 61,444 | 32,937 | 16,015 | 3 | 15,653 | | | 208,258 | 3.80 | % | ||||||||||||||||||||||||||||||||
Over five years through ten years |
| 66,049 | 52,312 | 122,070 | 11,655 | | 110,696 | 204,643 | | 567,425 | 3.06 | % | ||||||||||||||||||||||||||||||||
Over ten years |
| 20,286 | 793,781 | 29,241 | 2,199,067 | 1 | 146,533 | 80,754 | 48,756 | 3,318,419 | 2.11 | % | ||||||||||||||||||||||||||||||||
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Fair Value |
$ | 2,520 | $ | 173,141 | $ | 907,656 | $ | 184,248 | $ | 2,226,737 | $ | 4 | $ | 272,882 | $ | 285,397 | $ | 48,756 | $ | 4,101,341 | 2.33 | % | ||||||||||||||||||||||
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|||||||||||||||||||||||||
Amortized Cost |
$ | 2,500 | $ | 169,281 | $ | 889,511 | $ | 181,846 | $ | 2,214,035 | $ | 4 | $ | 269,197 | $ | 297,885 | $ | 61,724 | $ | 4,085,983 | ||||||||||||||||||||||||
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|||||||||||||||||||||||||
Weighted-Average Yield |
1.25 | % | 5.17 | % | 2.40 | % | 2.15 | % | 2.04 | % | 2.60 | % | 2.21 | % | 3.07 | % | 1.34 | % | 2.33 | % | ||||||||||||||||||||||||
Weighted-Average Maturity (in years) |
2.17 | 1.96 | 3.38 | 4.24 | 3.44 | 0.60 | 4.09 | 6.51 | 11.56 | 3.79 | ||||||||||||||||||||||||||||||||||
Securities Held-to-Maturity |
||||||||||||||||||||||||||||||||||||||||||||
Remaining maturity: |
||||||||||||||||||||||||||||||||||||||||||||
One year or less |
$ | | $ | 65,484 | $ | | $ | | $ | | $ | | $ | | $ | | $ | 22,609 | $ | 88,093 | 2.21 | % | ||||||||||||||||||||||
Over one year through five years |
25,026 | 157,086 | 36,437 | | | | 81,282 | | 65,349 | 365,180 | 2.45 | % | ||||||||||||||||||||||||||||||||
Over five years through ten years |
| 202,251 | 52,891 | 22,567 | | | 40,984 | | | 318,693 | 3.83 | % | ||||||||||||||||||||||||||||||||
Over ten years |
| 150,997 | | 476,596 | 1,102,058 | | 130,657 | | | 1,860,308 | 2.07 | % | ||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||
Fair Value |
$ | 25,026 | $ | 575,818 | $ | 89,328 | $ | 499,163 | $ | 1,102,058 | $ | | $ | 252,923 | $ | | $ | 87,958 | $ | 2,632,274 | 2.34 | % | ||||||||||||||||||||||
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|||||||||||||||||||||||||
Amortized Cost |
$ | 25,000 | $ | 558,795 | $ | 88,314 | $ | 489,216 | $ | 1,113,901 | $ | | $ | 251,421 | $ | | $ | 87,053 | $ | 2,613,700 | ||||||||||||||||||||||||
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|||||||||||||||||||||||||
Weighted-Average Yield |
1.43 | % | 4.22 | % | 2.02 | % | 2.15 | % | 1.60 | % | | % | 2.00 | % | | % | 2.26 | % | 2.34 | % | ||||||||||||||||||||||||
Weighted-Average Maturity (in years) |
0.08 | 4.61 | 3.36 | 3.57 | 3.45 | | 3.85 | | 1.77 | 3.67 |
22
3. | Loans |
Loans outstanding as of March 31, 2016, December 31, 2015, and March 31, 2015, net of unearned income, consisted of the following:
(In thousands) |
March 31, 2016 | December 31, 2015 | March 31, 2015 | |||||||||
Originated loans: |
||||||||||||
Commercial |
$ | 9,100,731 | $ | 9,007,830 | $ | 8,420,765 | ||||||
Residential mortgage |
700,138 | 689,045 | 639,980 | |||||||||
Installment |
3,154,912 | 2,990,349 | 2,500,288 | |||||||||
Home equity |
1,254,709 | 1,248,438 | 1,134,238 | |||||||||
Credit cards |
179,023 | 182,843 | 160,766 | |||||||||
|
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|
|
|
|||||||
Total originated loans |
14,389,513 | 14,118,505 | 12,856,037 | |||||||||
Allowance for originated loan losses |
(102,915 | ) | (105,135 | ) | (97,545 | ) | ||||||
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|
|||||||
Net originated loans |
$ | 14,286,598 | $ | 14,013,370 | $ | 12,758,492 | ||||||
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|
|
|
|||||||
Acquired loans: |
||||||||||||
Commercial |
$ | 628,030 | $ | 677,149 | $ | 1,011,170 | ||||||
Residential mortgage |
308,618 | 324,008 | 378,192 | |||||||||
Installment |
539,313 | 573,372 | 717,693 | |||||||||
Home equity |
157,745 | 168,542 | 217,824 | |||||||||
|
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|
|
|
|
|||||||
Total acquired loans |
1,633,706 | 1,743,071 | 2,324,879 | |||||||||
Allowance for acquired loan losses |
(4,423 | ) | (3,877 | ) | (7,493 | ) | ||||||
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|
|
|
|||||||
Net acquired loans |
$ | 1,629,283 | $ | 1,739,194 | $ | 2,317,386 | ||||||
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|
|||||||
FDIC acquired loans: |
||||||||||||
Commercial |
$ | 122,123 | $ | 129,109 | $ | 179,547 | ||||||
Residential mortgage |
34,594 | 35,568 | 40,470 | |||||||||
Installment |
1,942 | 2,077 | 4,781 | |||||||||
Home equity |
34,136 | 38,668 | 65,170 | |||||||||
Loss share receivable |
9,436 | 9,947 | 20,005 | |||||||||
|
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|
|
|
|
|||||||
Total FDIC acquired loans |
202,231 | 215,369 | 309,973 | |||||||||
Allowance for FDIC acquired loan losses |
(44,599 | ) | (44,679 | ) | (41,514 | ) | ||||||
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|
|
|
|||||||
Net FDIC acquired loans |
$ | 157,632 | $ | 170,690 | $ | 268,459 | ||||||
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|
|
|||||||
Total loans: |
||||||||||||
Commercial |
$ | 9,850,884 | $ | 9,814,088 | $ | 9,611,482 | ||||||
Residential mortgage |
1,043,350 | 1,048,621 | 1,058,642 | |||||||||
Installment |
3,696,167 | 3,565,798 | 3,222,762 | |||||||||
Home equity |
1,446,590 | 1,455,648 | 1,417,232 | |||||||||
Credit cards |
179,023 | 182,843 | 160,766 | |||||||||
Loss share receivable |
9,436 | 9,947 | 20,005 | |||||||||
|
|
|
|
|
|
|||||||
Total loans |
16,225,450 | 16,076,945 | 15,490,889 | |||||||||
Total allowance for loan losses |
(151,937 | ) | (153,691 | ) | (146,552 | ) | ||||||
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|
|
|
|
|||||||
Total Net loans |
$ | 16,073,513 | $ | 15,923,254 | $ | 15,344,337 | ||||||
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|
|
|
|
23
The following describes the distinction between originated, acquired and FDIC acquired loan portfolios and certain significant accounting policies relevant to each of these portfolios.
Originated Loans
Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the simple-interest method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet, except for accrued interest on credit card loans, which is included in the outstanding loan balance. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield. Net deferred loan origination fees and costs amounted to $4.9 million, $4.1 million, and $4.6 million at March 31, 2016, December 31, 2015, and March 31, 2015, respectively.
Acquired Loans
Acquired loans are those purchased in the Citizens acquisition. These loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALL. The acquired loans were segregated as of the Acquisition Date between those considered to be performing (acquired nonimpaired loans) and those with evidence of credit deterioration (acquired impaired loans). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Revolving loans, including lines of credit, are excluded from acquired impaired loan accounting.
Total outstanding acquired impaired loans as of March 31, 2016 and 2015 were $370.6 million and $548.2 million, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for acquired impaired loans were as follows for the three months ended March 31, 2016 and 2015:
Three Months Ended March 31, | ||||||||||||||||
Acquired Impaired Loans | 2016 | 2015 | ||||||||||||||
(In thousands) |
Accretable Yield |
Carrying Amount of Loans |
Accretable Yield |
Carrying Amount of Loans |
||||||||||||
Balance at beginning of period |
$ | 89,823 | $ | 284,709 | $ | 119,450 | $ | 423,209 | ||||||||
Accretion |
(8,902 | ) | 8,902 | (11,218 | ) | 11,218 | ||||||||||
Net reclassifications from nonaccretable to accretable |
7,753 | | 12,995 | | ||||||||||||
Payments received, net |
| (36,459 | ) | | (46,114 | ) | ||||||||||
Disposals |
(3,230 | ) | | (2,471 | ) | | ||||||||||
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|
|||||||||
Balance at end of period |
$ | 85,444 | $ | 257,152 | $ | 118,756 | $ | 388,313 | ||||||||
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24
Cash flows expected to be collected on acquired impaired loans are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary.
Improved cash flow expectations for loans or pools that were impaired in prior periods are recorded first as a reversal of previously recorded impairment and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as an impairment through a provision for loan loss and an increase to the allowance for acquired impaired loans.
During the quarter ended March 31, 2016, there was an overall improvement in cash flow expectations, which resulted in the net reclassification of $7.8 million from the nonaccretable difference to accretable yield. This reclassification was $13.0 million for the three months ended March 31, 2015. The reclassification from the nonaccretable difference to the accretable yield results in prospective yield adjustments on the loan pools.
FDIC Acquired Loans and Related Loss Share Receivable
FDIC acquired loans include loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest. George Washington and Midwest non-single family loss share agreements with the FDIC expired at March 31, 2015 and June 30, 2015, respectively, resulting in $122.1 million of loans no longer being covered as of March 31, 2016. As of March 31, 2016, $70.7 million remained covered by single family loss share agreements.
Changes in the loss share receivable for the three months ended March 31, 2016 and 2015 were as follows:
Loss Share Receivable | Three Months Ended March 31, | |||||||
(In thousands) |
2016 | 2015 | ||||||
Balance at beginning of period |
$ | 9,947 | $ | 22,033 | ||||
Amortization |
(348 | ) | (2,187 | ) | ||||
Increase/(decrease) due to impairment (recapture) on FDIC acquired loans |
269 | 4,227 | ||||||
FDIC reimbursement |
(192 | ) | (4,013 | ) | ||||
FDIC acquired loans paid in full |
(240 | ) | (55 | ) | ||||
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|
|||||
Balance at end of the period (1) |
$ | 9,436 | $ | 20,005 | ||||
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|
|
(1) | As of March 31, 2016, the loss share receivable of $9.4 million was related to single family covered loans. |
25
Total outstanding FDIC acquired impaired loans were $306.6 million and $404.4 million as of March 31, 2016 and 2015, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off. Changes in the carrying amount and accretable yield for FDIC acquired impaired loans were as follows for the three months ended March 31, 2016 and 2015:
Three Months Ended March 31, | ||||||||||||||||
FDIC Acquired Impaired Loans | 2016 | 2015 | ||||||||||||||
(In thousands) |
Accretable Yield |
Carrying Amount of Loans |
Accretable Yield |
Carrying Amount of Loans |
||||||||||||
Balance at beginning of period |
$ | 22,908 | $ | 130,648 | $ | 37,511 | $ | 232,452 | ||||||||
Accretion |
(2,297 | ) | 2,297 | (5,567 | ) | 5,567 | ||||||||||
Net reclassifications between non-accretable and accretable |
1,673 | | (56 | ) | | |||||||||||
Payments received, net |
| (10,811 | ) | | (38,794 | ) | ||||||||||
(Disposals)/Additions |
(158 | ) | | (2,021 | ) | | ||||||||||
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|
|||||||||
Balance at end of period |
$ | 22,126 | $ | 122,134 | $ | 29,867 | $ | 199,225 | ||||||||
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|
The cash flows expected to be collected on covered impaired loans are estimated quarterly in a similar manner as described above for acquired impaired loans. During the quarter ended March 31, 2016, the re-estimation process resulted in a net reclassification of $1.7 million from the nonaccretable difference to accretable yield. This reclassification was $0.1 million for the three months ended March 31, 2015. The reclassification from the nonaccretable difference to the accretable yield results in prospective yield adjustments on the loan pools.
Credit Quality Disclosures
The credit quality of the Corporations loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Corporation. These credit quality ratings are an important part of the Corporations overall credit risk management process and evaluation of the allowance for credit losses.
Generally, loans, except for certain commercial, credit card and mortgage loans, and leases on which payments are past due for 90 days are placed on nonaccrual status, unless those loans are in the process of collection and, in Managements opinion, are fully secured. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status. Acquired and FDIC acquired impaired loans are considered to be accruing and performing even though collection of contractual payments may be in doubt because income continues to be accreted on the loan pool as long as expected cash flows are reasonably estimable.
When a loan is placed on nonaccrual status, interest deemed uncollectible which had been accrued in prior years is charged against the ALL and interest deemed uncollectible accrued in the current year is reversed against interest income. Interest on mortgage loans is accrued until Management deems it uncollectible based upon the specific identification method. Payments subsequently received on nonaccrual loans are generally
26
applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable. This generally requires timely principal and interest payments for a minimum of six consecutive payment cycles. Loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms and other factors.
The following tables provide a summary of loans by portfolio type, including the delinquency status of those loans that continue to accrue interest and those loans that are nonaccrual:
As of March 31, 2016 |
||||||||||||||||||||||||||||||||
(In thousands) | ³ 90 Days | |||||||||||||||||||||||||||||||
Originated Loans |
Days Past Due | Total Past Due |
Current | Total Loans |
Past Due and Accruing (1) |
Nonaccrual Loans |
||||||||||||||||||||||||||
30-59 | 60-89 | ³ 90 | ||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 2,485 | $ | 3,464 | $ | 8,627 | $ | 14,576 | $ | 5,822,739 | $ | 5,837,315 | $ | 274 | $ | 35,500 | ||||||||||||||||
CRE |
3,211 | 1,137 | 17,024 | 21,372 | 2,058,290 | 2,079,662 | 2,420 | 18,216 | ||||||||||||||||||||||||
Construction |
6,891 | | 485 | 7,376 | 663,449 | 670,825 | | 3,010 | ||||||||||||||||||||||||
Leases |
| | | | 512,929 | 512,929 | | | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
13,150 | 2,591 | 3,567 | 19,308 | 3,135,604 | 3,154,912 | 3,178 | 2,554 | ||||||||||||||||||||||||
Home Equity Lines |
1,100 | 897 | 1,757 | 3,754 | 1,250,955 | 1,254,709 | 274 | 2,267 | ||||||||||||||||||||||||
Credit Cards |
857 | 483 | 843 | 2,183 | 176,840 | 179,023 | 339 | 554 | ||||||||||||||||||||||||
Residential Mortgages |
11,278 | 1,544 | 6,801 | 19,623 | 680,515 | 700,138 | 2,876 | 11,600 | ||||||||||||||||||||||||
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|
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|
|
|
|||||||||||||||||
Total |
$ | 38,972 | $ | 10,116 | $ | 39,104 | $ | 88,192 | $ | 14,301,321 | $ | 14,389,513 | $ | 9,361 | $ | 73,701 | ||||||||||||||||
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Acquired Loans |
³ 90 Days | |||||||||||||||||||||||||||||||
Days Past Due | Total | Total | Past Due and | Nonaccrual | ||||||||||||||||||||||||||||
30-59 | 60-89 | ³ 90 | Past Due | Current | Loans | Accruing (3) | Loans (3) | |||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 1,092 | $ | 75 | $ | 1,729 | $ | 2,896 | $ | 227,804 | $ | 230,700 | $ | 145 | $ | 766 | ||||||||||||||||
CRE |
2,580 | 918 | 10,561 | 14,059 | 377,804 | 391,863 | | 4,332 | ||||||||||||||||||||||||
Construction |
| | 718 | 718 | 4,749 | 5,467 | | | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
3,869 | 793 | 633 | 5,295 | 534,018 | 539,313 | 289 | 600 | ||||||||||||||||||||||||
Home Equity Lines |
1,002 | 120 | 470 | 1,592 | 156,153 | 157,745 | 260 | 320 | ||||||||||||||||||||||||
Residential Mortgages |
9,244 | 49 | 4,515 | 13,808 | 294,810 | 308,618 | 1,018 | 980 | ||||||||||||||||||||||||
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|
|
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|
|
|
|
|
|||||||||||||||||
Total |
$ | 17,787 | $ | 1,955 | $ | 18,626 | $ | 38,368 | $ | 1,595,338 | $ | 1,633,706 | $ | 1,712 | $ | 6,998 | ||||||||||||||||
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|||||||||||||||||
FDIC Acquired Loans (2) |
³ 90 Days | |||||||||||||||||||||||||||||||
Days Past Due | Total | Total | Past Due and | Nonaccrual | ||||||||||||||||||||||||||||
30-59 | 60-89 | ³ 90 | Past Due | Current | Loans | Accruing (3) | Loans (3) | |||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | | $ | | $ | 949 | $ | 949 | $ | 30,981 | $ | 31,930 | n/a | n/a | ||||||||||||||||||
CRE |
288 | 344 | 27,699 | 28,331 | 56,973 | 85,304 | n/a | n/a | ||||||||||||||||||||||||
Construction |
| | 3,133 | 3,133 | 1,756 | 4,889 | n/a | n/a | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
| | | | 1,942 | 1,942 | n/a | n/a | ||||||||||||||||||||||||
Home Equity Lines |
1,969 | 46 | 1,693 | 3,708 | 30,428 | 34,136 | n/a | n/a | ||||||||||||||||||||||||
Residential Mortgages |
4,490 | 167 | 2,582 | 7,239 | 27,355 | 34,594 | n/a | n/a | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total |
$ | 6,747 | $ | 557 | $ | 36,056 | $ | 43,360 | $ | 149,435 | $ | 192,795 | n/a | n/a | ||||||||||||||||||
|
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|
|
(1) | Installment loans 90 days or more past due and accruing include $2.3 million of loans guaranteed by the U.S. government as of March 31, 2016. |
(2) | Excludes loss share receivable of $9.4 million as of March 31, 2016. |
(3) | Acquired and FDIC acquired impaired loans were not classified as nonperforming assets at March 31, 2016 as the loans are considered to be performing under ASC 310-30. As a result, interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and FDIC acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and FDIC acquired impaired loans. |
27
As of December 31, 2015 |
||||||||||||||||||||||||||||||||
(In thousands) | ³ 90 Days | |||||||||||||||||||||||||||||||
Originated Loans |
Days Past Due | Total | Total | Past Due and | Nonaccrual | |||||||||||||||||||||||||||
30-59 | 60-89 | ³ 90 | Past Due | Current | Loans | Accruing (1) | Loans | |||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 4,684 | $ | 115 | $ | 8,824 | $ | 13,623 | $ | 5,779,785 | $ | 5,793,408 | $ | 236 | $ | 23,123 | ||||||||||||||||
CRE |
12,880 | | 2,260 | 15,140 | 2,062,204 | 2,077,344 | 153 | 4,503 | ||||||||||||||||||||||||
Construction |
1,360 | | 486 | 1,846 | 643,491 | 645,337 | | 482 | ||||||||||||||||||||||||
Leases |
| | | | 491,741 | 491,741 | | | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
17,934 | 4,828 | 3,920 | 26,682 | 2,963,667 | 2,990,349 | 3,519 | 2,178 | ||||||||||||||||||||||||
Home Equity Lines |
1,952 | 913 | 1,478 | 4,343 | 1,244,095 | 1,248,438 | 513 | 1,674 | ||||||||||||||||||||||||
Credit Cards |
1,449 | 494 | 632 | 2,575 | 180,268 | 182,843 | 725 | 545 | ||||||||||||||||||||||||
Residential Mortgages |
11,099 | 1,519 | 6,693 | 19,311 | 669,734 | 689,045 | 2,876 | 11,600 | ||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 51,358 | $ | 7,869 | $ | 24,293 | $ | 83,520 | $ | 14,034,985 | $ | 14,118,505 | $ | 8,022 | $ | 44,105 | ||||||||||||||||
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|
|
|||||||||||||||||
Acquired Loans |
³ 90 Days | |||||||||||||||||||||||||||||||
Days Past Due | Total | Total | Past Due and | Nonaccrual | ||||||||||||||||||||||||||||
30-59 | 60-89 | ³ 90 | Past Due | Current | Loans | Accruing (3) | Loans (3) | |||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 311 | $ | 31 | $ | 3,336 | $ | 3,678 | $ | 236,467 | $ | 240,145 | $ | 13 | $ | 782 | ||||||||||||||||
CRE |
3,192 | 1,681 | 9,657 | 14,530 | 416,361 | 430,891 | 522 | 4,948 | ||||||||||||||||||||||||
Construction |
| | 733 | 733 | 5,380 | 6,113 | | | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
5,059 | 1,329 | 974 | 7,362 | 566,010 | 573,372 | 236 | 835 | ||||||||||||||||||||||||
Home Equity Lines |
1,365 | 660 | 1,260 | 3,285 | 165,257 | 168,542 | 644 | 514 | ||||||||||||||||||||||||
Residential Mortgages |
8,760 | 567 | 6,792 | 16,119 | 307,889 | 324,008 | 1,681 | 1,166 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 18,687 | $ | 4,268 | $ | 22,752 | $ | 45,707 | $ | 1,697,364 | $ | 1,743,071 | $ | 3,096 | $ | 8,245 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
FDIC Acquired Loans (2) |
³ 90 Days | |||||||||||||||||||||||||||||||
Days Past Due | Total | Total | Past Due and | Nonaccrual | ||||||||||||||||||||||||||||
30-59 | 60-89 | ³ 90 | Past Due | Current | Loans | Accruing (3) | Loans (3) | |||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | | $ | | $ | 1,054 | $ | 1,054 | $ | 34,412 | $ | 35,466 | n/a | n/a | ||||||||||||||||||
CRE |
296 | 354 | 28,501 | 29,151 | 58,623 | 87,774 | n/a | n/a | ||||||||||||||||||||||||
Construction |
| | 3,761 | 3,761 | 2,108 | 5,869 | n/a | n/a | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
| | | | 2,077 | 2,077 | n/a | n/a | ||||||||||||||||||||||||
Home Equity Lines |
2,230 | 52 | 1,917 | 4,199 | 34,469 | 38,668 | n/a | n/a | ||||||||||||||||||||||||
Residential Mortgages |
4,616 | 172 | 2,655 | 7,443 | 28,125 | 35,568 | n/a | n/a | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total |
$ | 7,142 | $ | 578 | $ | 37,888 | $ | 45,608 | $ | 159,814 | $ | 205,422 | n/a | n/a | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Installment loans 90 days or more past due and accruing include $2.3 million of loans guaranteed by the U.S. government as of December 31, 2015. |
(2) | Excludes loss share receivable of $9.9 million as of December 31, 2015. |
(3) | Acquired and FDIC acquired impaired loans were not classified as nonperforming assets at December 31, 2015 as the loans are considered to be performing under ASC 310-30. As a result, interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and FDIC acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and FDIC acquired impaired loans. |
28
As of March 31, 2015 |
||||||||||||||||||||||||||||||||
(In thousands) | ³ 90 Days | |||||||||||||||||||||||||||||||
Originated Loans |
Days Past Due | Total | Total | Past Due and | Nonaccrual | |||||||||||||||||||||||||||
30-59 | 60-89 | ³ 90 | Past Due | Current | Loans | Accruing (1) | Loans | |||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 525 | $ | 515 | $ | 5,846 | $ | 6,886 | $ | 5,311,011 | $ | 5,317,897 | $ | 498 | $ | 18,838 | ||||||||||||||||
CRE |
4,401 | 1,177 | 3,481 | 9,059 | 2,123,958 | 2,133,017 | 150 | 9,640 | ||||||||||||||||||||||||
Construction |
| | | | 580,978 | 580,978 | | | ||||||||||||||||||||||||
Leases |
255 | | | 255 | 388,618 | 388,873 | | | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
11,294 | 3,215 | 4,157 | 18,666 | 2,481,622 | 2,500,288 | 3,332 | 3,016 | ||||||||||||||||||||||||
Home Equity Lines |
1,480 | 323 | 1,395 | 3,198 | 1,131,040 | 1,134,238 | 622 | 1,780 | ||||||||||||||||||||||||
Credit Cards |
654 | 301 | 637 | 1,592 | 159,174 | 160,766 | 312 | 523 | ||||||||||||||||||||||||
Residential Mortgages |
9,236 | 2,515 | 7,402 | 19,153 | 620,827 | 639,980 | 3,000 | 12,288 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 27,845 | $ | 8,046 | $ | 22,918 | $ | 58,809 | $ | 12,797,228 | $ | 12,856,037 | $ | 7,914 | $ | 46,085 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Acquired Loans |
³ 90 Days | |||||||||||||||||||||||||||||||
Days Past Due | Total | Total | Past Due and | Nonaccrual | ||||||||||||||||||||||||||||
30-59 | 60-89 | ³ 90 | Past Due | Current | Loans | Accruing (3) | Loans (3) | |||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 66 | $ | 131 | $ | 5,366 | $ | 5,563 | $ | 415,247 | $ | 420,810 | $ | 44 | $ | 700 | ||||||||||||||||
CRE |
4,507 | 1,380 | 23,420 | 29,307 | 554,765 | 584,072 | 252 | 4,172 | ||||||||||||||||||||||||
Construction |
| | 676 | 676 | 5,612 | 6,288 | | | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
4,859 | 1,322 | 1,121 | 7,302 | 710,391 | 717,693 | 521 | 746 | ||||||||||||||||||||||||
Home Equity Lines |
2,850 | 1,544 | 1,172 | 5,566 | 212,258 | 217,824 | 462 | 639 | ||||||||||||||||||||||||
Residential Mortgages |
9,894 | 590 | 5,250 | 15,734 | 362,458 | 378,192 | 425 | 997 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 22,176 | $ | 4,967 | $ | 37,005 | $ | 64,148 | $ | 2,260,731 | $ | 2,324,879 | $ | 1,704 | $ | 7,254 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
FDIC Acquired Loans (2) |
³ 90 Days | |||||||||||||||||||||||||||||||
Days Past Due | Total | Total | Past Due and | Nonaccrual | ||||||||||||||||||||||||||||
30-59 | 60-89 | ³ 90 | Past Due | Current | Loans | Accruing (3) | Loans (3) | |||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 815 | $ | 144 | $ | 4,566 | $ | 5,525 | $ | 37,289 | $ | 42,814 | n/a | n/a | ||||||||||||||||||
CRE |
413 | 5,218 | 44,023 | 49,654 | 78,254 | 127,908 | n/a | n/a | ||||||||||||||||||||||||
Construction |
| | 6,906 | 6,906 | 1,919 | 8,825 | n/a | n/a | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
| 110 | | 110 | 4,671 | 4,781 | n/a | n/a | ||||||||||||||||||||||||
Home Equity Lines |
2,291 | 564 | 3,651 | 6,506 | 58,664 | 65,170 | n/a | n/a | ||||||||||||||||||||||||
Residential Mortgages |
5,714 | 163 | 3,684 | 9,561 | 30,909 | 40,470 | n/a | n/a | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total |
$ | 9,233 | $ | 6,199 | $ | 62,830 | $ | 78,262 | $ | 211,706 | $ | 289,968 | n/a | n/a | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Installment loans 90 days or more past due and accruing include $2.4 million of loans guaranteed by the U.S. government as of March 31, 2015. |
(2) | Excludes loss share receivable of $20.0 million as of March 31, 2015. |
(3) | Acquired and FDIC acquired impaired loans were not classified as nonperforming assets at March 31, 2015 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and FDIC acquired impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and FDIC acquired impaired loans. |
Individual commercial loans are assigned credit risk grades based on an internal assessment of conditions that affect a borrowers ability to meet its contractual obligation under the loan agreement. The assessment process includes reviewing a borrowers current financial information, historical payment experience, credit documentation, public information, and other information specific to each borrower. Commercial loans are reviewed on an annual, quarterly or rotational basis or as Management becomes aware of information about a borrowers ability to fulfill its obligation. For consumer loans, Management evaluates credit quality based on the aging status of the loan as well as by payment activity, which is presented in the above tables.
29
The credit-risk grading process for commercial loans is summarized as follows:
Pass Loans (Grades 1, 2, 3, 4) are not considered a greater than normal credit risk. Generally, the borrowers have the apparent ability to satisfy obligations to the bank, and the Corporation anticipates insignificant uncollectible amounts based on its individual loan review.
Special Mention Loans (Grade 5) are commercial loans that have identified potential weaknesses that deserve Managements close attention. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the institutions credit position.
Substandard Loans (Grade 6) are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans so classified have a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt pursuant to the contractual principal and interest terms. Such loans are characterized by the distinct possibility that the Corporation may sustain some loss if the deficiencies are not corrected.
Doubtful Loans (Grade 7) have all the weaknesses inherent in those classified as substandard, with the added characteristic that existing facts, conditions, and values make collection or liquidation in full highly improbable. Such loans are currently managed separately to determine the highest recovery alternatives.
30
The following tables provide a summary of commercial loans by portfolio type and the Corporations internal credit quality rating:
As of March 31, 2016 |
||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Originated Loans |
Commercial | |||||||||||||||||||
C&I | CRE | Construction | Leases | Total | ||||||||||||||||
Grade 1 |
$ | 68,185 | $ | 757 | $ | | $ | 12,613 | $ | 81,555 | ||||||||||
Grade 2 |
397,855 | 818 | | 43,507 | 442,180 | |||||||||||||||
Grade 3 |
1,317,058 | 310,816 | 52,039 | 80,042 | 1,759,955 | |||||||||||||||
Grade 4 |
3,762,793 | 1,719,833 | 597,571 | 336,402 | 6,416,599 | |||||||||||||||
Grade 5 |
141,456 | 9,924 | 2,401 | 32,416 | 186,197 | |||||||||||||||
Grade 6 |
146,380 | 37,514 | 18,814 | 7,949 | 210,657 | |||||||||||||||
Grade 7 |
3,588 | | | | 3,588 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 5,837,315 | $ | 2,079,662 | $ | 670,825 | $ | 512,929 | $ | 9,100,731 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Acquired Loans |
Commercial | |||||||||||||||||||
C&I | CRE | Construction | Leases | Total | ||||||||||||||||
Grade 1 |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Grade 2 |
596 | 615 | | | 1,211 | |||||||||||||||
Grade 3 |
27,818 | 23,221 | | | 51,039 | |||||||||||||||
Grade 4 |
169,906 | 327,406 | 4,749 | | 502,061 | |||||||||||||||
Grade 5 |
24,577 | 11,663 | | | 36,240 | |||||||||||||||
Grade 6 |
7,803 | 28,958 | 718 | | 37,479 | |||||||||||||||
Grade 7 |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 230,700 | $ | 391,863 | $ | 5,467 | $ | | $ | 628,030 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
FDIC Acquired Loans |
Commercial | |||||||||||||||||||
C&I | CRE | Construction | Leases | Total | ||||||||||||||||
Grade 1 |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Grade 2 |
965 | | | | 965 | |||||||||||||||
Grade 3 |
| 6,807 | | | 6,807 | |||||||||||||||
Grade 4 |
28,483 | 48,512 | 682 | | 77,677 | |||||||||||||||
Grade 5 |
266 | | | | 266 | |||||||||||||||
Grade 6 |
2,216 | 29,985 | 4,207 | | 36,408 | |||||||||||||||
Grade 7 |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 31,930 | $ | 85,304 | $ | 4,889 | $ | | $ | 122,123 | ||||||||||
|
|
|
|
|
|
|
|
|
|
31
As of December 31, 2015 |
||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Originated Loans |
Commercial | |||||||||||||||||||
C&I | CRE | Construction | Leases | Total | ||||||||||||||||
Grade 1 |
$ | 60,440 | $ | 773 | $ | | $ | 12,732 | $ | 73,945 | ||||||||||
Grade 2 |
353,581 | 831 | | 69,258 | 423,670 | |||||||||||||||
Grade 3 |
1,371,850 | 319,987 | 59,182 | 49,956 | 1,800,975 | |||||||||||||||
Grade 4 |
3,756,333 | 1,697,261 | 569,098 | 344,763 | 6,367,455 | |||||||||||||||
Grade 5 |
124,140 | 18,388 | 7,193 | 7,858 | 157,579 | |||||||||||||||
Grade 6 |
124,483 | 40,105 | 9,864 | 7,174 | 181,626 | |||||||||||||||
Grade 7 |
2,581 | (1 | ) | | | 2,580 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 5,793,408 | $ | 2,077,344 | $ | 645,337 | $ | 491,741 | $ | 9,007,830 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Acquired Loans |
Commercial | |||||||||||||||||||
C&I | CRE | Construction | Leases | Total | ||||||||||||||||
Grade 1 |
$ | 346 | $ | | $ | | $ | | $ | 346 | ||||||||||
Grade 2 |
| | | | | |||||||||||||||
Grade 3 |
15,548 | 27,387 | | | 42,935 | |||||||||||||||
Grade 4 |
200,736 | 361,518 | 5,380 | | 567,634 | |||||||||||||||
Grade 5 |
11,735 | 12,546 | | | 24,281 | |||||||||||||||
Grade 6 |
11,780 | 29,440 | 733 | | 41,953 | |||||||||||||||
Grade 7 |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 240,145 | $ | 430,891 | $ | 6,113 | $ | | $ | 677,149 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
FDIC Acquired Loans |
Commercial | |||||||||||||||||||
C&I | CRE | Construction | Leases | Total | ||||||||||||||||
Grade 1 |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Grade 2 |
1,072 | | | | 1,072 | |||||||||||||||
Grade 3 |
| 7,004 | | | 7,004 | |||||||||||||||
Grade 4 |
31,637 | 49,917 | 819 | | 82,373 | |||||||||||||||
Grade 5 |
295 | | | | 295 | |||||||||||||||
Grade 6 |
2,462 | 30,853 | 5,050 | | 38,365 | |||||||||||||||
Grade 7 |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 35,466 | $ | 87,774 | $ | 5,869 | $ | | $ | 129,109 | ||||||||||
|
|
|
|
|
|
|
|
|
|
32
As of March 31, 2015 |
||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Originated Loans |
Commercial | |||||||||||||||||||
C&I | CRE | Construction | Leases | Total | ||||||||||||||||
Grade 1 |
$ | 59,380 | $ | 667 | $ | | $ | 13,052 | $ | 73,099 | ||||||||||
Grade 2 |
191,008 | 3,368 | | 5,782 | 200,158 | |||||||||||||||
Grade 3 |
1,405,007 | 339,027 | 62,821 | 69,686 | 1,876,541 | |||||||||||||||
Grade 4 |
3,504,600 | 1,724,516 | 516,852 | 297,790 | 6,043,758 | |||||||||||||||
Grade 5 |
103,432 | 29,034 | 942 | 1,307 | 134,715 | |||||||||||||||
Grade 6 |
54,470 | 36,405 | 363 | 1,256 | 92,494 | |||||||||||||||
Grade 7 |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 5,317,897 | $ | 2,133,017 | $ | 580,978 | $ | 388,873 | $ | 8,420,765 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Acquired Loans |
Commercial | |||||||||||||||||||
C&I | CRE | Construction | Leases | Total | ||||||||||||||||
Grade 1 |
$ | 1,069 | $ | | $ | | $ | | $ | 1,069 | ||||||||||
Grade 2 |
| | | | | |||||||||||||||
Grade 3 |
22,875 | 24,834 | | | 47,709 | |||||||||||||||
Grade 4 |
359,751 | 496,213 | 5,612 | | 861,576 | |||||||||||||||
Grade 5 |
15,363 | 21,487 | | | 36,850 | |||||||||||||||
Grade 6 |
21,752 | 41,538 | 676 | | 63,966 | |||||||||||||||
Grade 7 |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 420,810 | $ | 584,072 | $ | 6,288 | $ | | $ | 1,011,170 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
FDIC Acquired Loans |
Commercial | |||||||||||||||||||
C&I | CRE | Construction | Leases | Total | ||||||||||||||||
Grade 1 |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Grade 2 |
1,040 | | | | 1,040 | |||||||||||||||
Grade 3 |
| | | | | |||||||||||||||
Grade 4 |
33,352 | 74,128 | 579 | | 108,059 | |||||||||||||||
Grade 5 |
39 | 2,134 | | | 2,173 | |||||||||||||||
Grade 6 |
8,383 | 51,646 | 8,246 | | 68,275 | |||||||||||||||
Grade 7 |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 42,814 | $ | 127,908 | $ | 8,825 | $ | | $ | 179,547 | ||||||||||
|
|
|
|
|
|
|
|
|
|
4. | Allowance for Loan Losses |
The Corporations Credit Policy Division manages credit risk by establishing common credit policies for its subsidiary bank, participating in approval of its loans, conducting reviews of loan portfolios, providing centralized consumer underwriting, collections and loan operation services, and overseeing loan workouts. The Corporations objective is to minimize losses from its commercial lending activities and to maintain consumer losses at acceptable levels that are stable and consistent with growth and profitability objectives.
The ALL is Managements estimate of the amount of probable credit losses inherent in a loan portfolio at the balance sheet date. The following describes the distinctions in methodology used to estimate the ALL of originated, acquired and FDIC acquired loan portfolios as well as certain significant accounting policies relevant to each category.
33
Allowance for Originated Loan Losses
Management estimates credit losses based on originated individual loans determined to be impaired and on all other loans grouped based on similar risk characteristics. Management also considers internal and external factors such as economic conditions, loan management practices, portfolio monitoring, and other risks, collectively known as qualitative factors, or Q-factors, to estimate credit losses in the loan portfolio. Q-factors are used to reflect changes in the portfolios collectability characteristics not captured by historical loss data.
The Corporations historical loss component is the most significant of the ALL components and is based on historical loss experience by credit-risk grade (for commercial loan pools) and payment status (for mortgage and consumer loan pools). The historical loss experience component of the ALL represents the results of migration analysis of historical net charge-offs for portfolios of loans (including groups of commercial loans within each credit-risk grade and groups of consumer loans by payment status). For measuring loss exposure in a pool of loans, the historical net charge-off or migration experience is utilized to estimate expected losses to be realized from the pool of loans.
If a nonperforming, substandard loan has an outstanding balance of $0.3 million or greater or if a doubtful loan has an outstanding balance of $0.1 million or greater, as determined by the Corporations credit-risk grading process, further analysis is performed to determine the probable loss content and assign a specific allowance to the loan, if deemed appropriate. The ALL relating to originated loans that have become impaired is based on either expected cash flows discounted using the original effective interest rate, the observable market price, or the fair value of the collateral for certain collateral dependent loans.
34
The following tables show activity in the originated ALL, by portfolio segment for the three months ended March 31, 2016 and 2015, as well as the corresponding recorded investment in originated loans at the end of the period:
As of March 31, 2016 |
||||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||
Originated Loans |
C&I | CRE | Construction | Leases | Installment | Home Equity Lines |
Credit Cards |
Residential Mortgages |
Total | |||||||||||||||||||||||||||
Three Months Ended |
|
|||||||||||||||||||||||||||||||||||
Allowance for originated loan losses, beginning balance |
$ | 44,760 | $ | 9,631 | $ | 1,594 | $ | 1,313 | $ | 14,183 | $ | 20,094 | $ | 8,831 | $ | 4,729 | $ | 105,135 | ||||||||||||||||||
Charge-offs |
(3,209 | ) | (109 | ) | | | (6,769 | ) | (1,027 | ) | (1,450 | ) | (450 | ) | (13,014 | ) | ||||||||||||||||||||
Recoveries |
532 | 24 | 2 | 19 | 3,806 | 624 | 357 | 20 | 5,384 | |||||||||||||||||||||||||||
Provision for loan losses |
2,406 | (2,302 | ) | (59 | ) | 167 | 3,444 | (163 | ) | 853 | 1,064 | 5,410 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Allowance for originated loan losses, ending balance |
$ | 44,489 | $ | 7,244 | $ | 1,537 | $ | 1,499 | $ | 14,664 | $ | 19,528 | $ | 8,591 | $ | 5,363 | $ | 102,915 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Ending allowance for originated loan losses balance attributable to loans: |
| |||||||||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 6,194 | $ | 567 | $ | | $ | | $ | 1,081 | $ | 185 | $ | 225 | $ | 1,038 | $ | 9,290 | ||||||||||||||||||
Collectively evaluated for impairment |
38,295 | 6,677 | 1,537 | 1,499 | 13,583 | 19,343 | 8,366 | 4,325 | 93,625 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total ending allowance for originated loan losses balance |
$ | 44,489 | $ | 7,244 | $ | 1,537 | $ | 1,499 | $ | 14,664 | $ | 19,528 | $ | 8,591 | $ | 5,363 | $ | 102,915 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Originated loans: |
| |||||||||||||||||||||||||||||||||||
Originated loans individually evaluated for impairment |
$ | 46,996 | $ | 24,013 | $ | | $ | | $ | 40,134 | $ | 7,720 | $ | 687 | $ | 23,105 | $ | 142,655 | ||||||||||||||||||
Originated loans collectively evaluated for impairment |
5,790,319 | 2,055,649 | 670,825 | 512,929 | 3,114,778 | 1,246,989 | 178,336 | 677,033 | 14,246,858 | |||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total ending originated loan balance |
$ | 5,837,315 | $ | 2,079,662 | $ | 670,825 | $ | 512,929 | $ | 3,154,912 | $ | 1,254,709 | $ | 179,023 | $ | 700,138 | $ | 14,389,513 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|||||||||||||||||||
As of March 31, 2015 |
||||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||
Originated Loans |
C&I | CRE | Construction | Leases | Installment | Home Equity Lines |
Credit Cards |
Residential Mortgages |
Total | |||||||||||||||||||||||||||
Three Months Ended |
|
|||||||||||||||||||||||||||||||||||
Allowance for originated loan losses, beginning balance |
$ | 37,375 | $ | 10,492 | $ | 2,202 | $ | 674 | $ | 12,918 | $ | 19,324 | $ | 7,966 | $ | 4,745 | $ | 95,696 | ||||||||||||||||||
Charge-offs |
(510 | ) | (215 | ) | | | (5,055 | ) | (911 | ) | (1,452 | ) | (424 | ) | (8,567 | ) | ||||||||||||||||||||
Recoveries |
341 | | 1 | 4 | 3,020 | 613 | 366 | 35 | 4,380 | |||||||||||||||||||||||||||
Provision for loan losses |
2,632 | (1,464 | ) | (451 | ) | (49 | ) | 2,475 | 407 | 921 | 1,565 | 6,036 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Allowance for originated loan losses, ending balance |
$ | 39,838 | $ | 8,813 | $ | 1,752 | $ | 629 | $ | 13,358 | $ | 19,433 | $ | 7,801 | $ | 5,921 | $ | 97,545 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Ending allowance for originated loan losses balance attributable to loans: |
| |||||||||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 10,042 | $ | 317 | $ | | $ | | $ | 1,005 | $ | 254 | $ | 263 | $ | 1,416 | $ | 13,297 | ||||||||||||||||||
Collectively evaluated for impairment |
29,796 | 8,496 | 1,752 | 629 | 12,353 | 19,179 | 7,538 | 4,505 | 84,248 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total ending allowance for originated loan losses balance |
$ | 39,838 | $ | 8,813 | $ | 1,752 | $ | 629 | $ | 13,358 | $ | 19,433 | $ | 7,801 | $ | 5,921 | $ | 97,545 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Originated loans: |
| |||||||||||||||||||||||||||||||||||
Originated loans individually evaluated for impairment |
$ | 35,792 | $ | 15,000 | $ | | $ | | $ | 26,882 | $ | 7,632 | $ | 815 | $ | 24,822 | $ | 110,943 | ||||||||||||||||||
Originated loans collectively evaluated for impairment |
5,282,105 | 2,118,017 | 580,978 | 388,873 | 2,473,406 | 1,126,606 | 159,951 | 615,158 | 12,745,094 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total ending originated loan balance |
$ | 5,317,897 | $ | 2,133,017 | $ | 580,978 | $ | 388,873 | $ | 2,500,288 | $ | 1,134,238 | $ | 160,766 | $ | 639,980 | $ | 12,856,037 | ||||||||||||||||||
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|
|
|
|
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|
|
|
35
The following table presents the originated ALL and the recorded investment as of December 31, 2015:
As of December 31, 2015 |
||||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||
Originated Loans |
C&I | CRE | Construction | Leases | Installment | Home Equity Lines |
Credit Cards |
Residential Mortgages |
Total | |||||||||||||||||||||||||||
Ending allowance for originated loan losses balance attributable to loans: |
| |||||||||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 11,837 | $ | 128 | $ | | $ | | $ | 1,009 | $ | 188 | $ | 243 | $ | 944 | $ | 14,349 | ||||||||||||||||||
Collectively evaluated for impairment |
32,923 | 9,503 | 1,594 | 1,313 | 13,174 | 19,906 | 8,588 | 3,785 | 90,786 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total ending allowance for originated loan losses balance |
$ | 44,760 | $ | 9,631 | $ | 1,594 | $ | 1,313 | $ | 14,183 | $ | 20,094 | $ | 8,831 | $ | 4,729 | $ | 105,135 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Originated loans: |
| |||||||||||||||||||||||||||||||||||
Loans individually evaluated for impairment |
$ | 43,818 | $ | 16,614 | $ | | $ | | $ | 36,904 | $ | 7,080 | $ | 717 | $ | 23,905 | $ | 129,038 | ||||||||||||||||||
Loans collectively evaluated for impairment |
5,749,590 | 2,060,730 | 645,337 | 491,741 | 2,953,445 | 1,241,358 | 182,126 | 665,140 | 13,989,467 | |||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total ending originated loan balance |
$ | 5,793,408 | $ | 2,077,344 | $ | 645,337 | $ | 491,741 | $ | 2,990,349 | $ | 1,248,438 | $ | 182,843 | $ | 689,045 | $ | 14,118,505 | ||||||||||||||||||
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Acquired Loan Losses
The Citizens loans were recorded at their fair value as of the Acquisition Date and the prior ALL was eliminated. An ALL for acquired nonimpaired loans is estimated using a methodology similar to that used for originated loans. The allowance determined for each acquired nonimpaired loan is compared to the remaining fair value adjustment for that loan. If the computed allowance is greater, the excess is added to the allowance through a provision for loan losses. If the computed allowance is less, no additional allowance is recognized. As of March 31, 2016, the computed ALL was less than the remaining fair value discount; therefore, no ALL for acquired nonimpaired loans was recorded.
Charge-offs and actual losses on an acquired nonimpaired loan first reduce any remaining fair value discount for that loan. Once a loans discount is depleted, charge-offs and actual losses are applied against the acquired ALL. During the three months ended March 31, 2016 and 2015, provision for loan losses, equal to net charge-offs, of $0.6 million and $2.2 million, respectively, were recorded. Charge-offs on acquired nonimpaired loans were mainly related to consumer loans that were written off in accordance with the Corporations credit policies based on a predetermined number of days past due.
The ALL for acquired impaired loans is determined by comparing the present value of the cash flows expected to be collected to the carrying amount for a given pool of loans. Management reforecasts the estimated cash flows expected to be collected on acquired impaired loans on a quarterly basis. If the present value of expected cash flows for a pool is less than its carrying value, impairment is recognized by an increase in the ALL and a charge to the provision for loan losses. If the present value of expected cash flows for a pool is greater than its carrying value, any previously established ALL is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool. See Note 3 (Loans) for further information on changes in accretable yield.
36
The following table presents activity in the allowance for acquired impaired loan losses for the three months ended March 31, 2016 and 2015:
Allowance for Acquired Impaired Loan Losses |
Three Months Ended March 31, | |||||||
(In thousands) |
2016 | 2015 | ||||||
Balance at beginning of the period |
$ | 3,877 | $ | 7,457 | ||||
Charge-offs |
| | ||||||
Recoveries |
| | ||||||
Provision/(recapture) for loan losses |
546 | 36 | ||||||
|
|
|
|
|||||
Balance at end of the period |
$ | 4,423 | $ | 7,493 | ||||
|
|
|
|
Allowance for FDIC Acquired Loan Losses
The ALL on FDIC acquired nonimpaired loans is estimated similar to acquired loans as described above except any increase to the ALL and provision for loan losses is partially offset by an increase in the loss share receivable for the portion of the losses recoverable under the loss share agreements with the FDIC. As of March 31, 2016, the computed ALL was less than the remaining fair value discount; therefore, no ALL for FDIC acquired nonimpaired loans was recorded.
The following table presents activity in the allowance for FDIC acquired impaired loan losses for the three months ended March 31, 2016 and 2015:
Allowance for FDIC acquired Impaired Loan Losses |
Three Months Ended March 31, | |||||||
(In thousands) |
2016 | 2015 | ||||||
Balance at beginning of the period |
$ | 44,679 | $ | 40,496 | ||||
Net provision/(recapture) of loan losses before benefit attributable to FDIC loss share agreements |
1,537 | 4,225 | ||||||
Net (benefit)/recapture attributable to FDIC loss share agreements |
(269 | ) | (4,227 | ) | ||||
|
|
|
|
|||||
Net provision/(recapture) for loan losses |
1,268 | (2 | ) | |||||
Increase/(decrease) in loss share receivable |
269 | 4,227 | ||||||
Loans charged-off |
(1,617 | ) | (3,207 | ) | ||||
|
|
|
|
|||||
Balance at end of the period |
$ | 44,599 | $ | 41,514 | ||||
|
|
|
|
An acquired or FDIC acquired loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral. In the period of resolution of a nonimpaired loan, any remaining unamortized fair value adjustment is recognized as interest income. In the period of resolution of an impaired loan accounted for on an individual basis, the difference between the carrying amount of the loan and the proceeds received is recognized as a gain or loss within noninterest income. The majority of impaired loans are accounted for within a pool of loans which results in any difference between the proceeds received and the loan carrying amount being deferred as part of the carrying amount of the pool. The accretable amount of the pool remains unaffected from the resolution until the subsequent quarterly cash flow re-estimation. Favorable results from removal of the resolved loan from the pool increase the future accretable yield of the pool, while unfavorable results are recorded as impairment in the quarter of the cash flow
37
re-estimation. Acquired or FDIC acquired impaired loans subject to modification are not removed from a pool even if those loans would otherwise be deemed TDRs as the pool, and not the individual loan, represents the unit of account.
Credit Quality
A loan is considered to be impaired when, based on current events or information, it is probable the Corporation will be unable to collect all amounts due (principal and interest) per the contractual terms of the loan agreement.
Interest income recognized on impaired loans was $0.2 million for the three months ended March 31, 2016, compared to $118.0 thousand for the three months ended March 31, 2015. Interest income which would have been earned in accordance with the original terms was $1.2 million for the three months ended March 31, 2016, compared to $0.9 million for the three months ended March 31, 2015.
Loan impairment is measured based on either the present value of expected future cash flows discounted at the loans effective interest rate, at the observable market price of the loan, or the fair value of the collateral for certain collateral dependent loans. Impaired loans include all nonaccrual commercial, agricultural, construction, and commercial real estate loans, and loans modified as a TDR, regardless of nonperforming status. Acquired and FDIC acquired impaired loans are not considered or reported as impaired loans. Nonimpaired acquired loans that are subsequently placed on nonaccrual status are reported as impaired loans and included in the Troubled Debt Restructurings section below. Acquired loans restructured after acquisition are not considered or reported as TDRs if the loans evidenced credit deterioration as of the date of acquisition and are accounted for in pools.
38
The following tables provide further detail on impaired loans individually evaluated for impairment and the associated ALL. Certain impaired loans do not have a related ALL as the valuation of these impaired loans exceeded the recorded investment.
As of March 31, 2016 |
||||||||||||||||
Originated Loans | Unpaid | Average | ||||||||||||||
(In thousands) |
Recorded Investment |
Principal Balance |
Related Allowance |
Recorded Investment |
||||||||||||
Impaired loans with no related allowance |
||||||||||||||||
Commercial |
||||||||||||||||
C&I |
$ | 32,520 | $ | 38,568 | $ | | $ | 30,827 | ||||||||
CRE |
20,598 | 22,604 | | 13,776 | ||||||||||||
Construction |
| | | | ||||||||||||
Leases |
| | | | ||||||||||||
Consumer |
||||||||||||||||
Installment |
1,236 | 1,493 | | 1,162 | ||||||||||||
Home equity line |
481 | 738 | | 751 | ||||||||||||
Credit card |
13 | 13 | | 20 | ||||||||||||
Residential mortgages |
11,184 | 13,562 | | 11,775 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
66,032 | 76,978 | | 58,311 | ||||||||||||
Impaired loans with a related allowance |
||||||||||||||||
Commercial |
||||||||||||||||
C&I |
14,476 | 14,617 | 6,194 | 14,117 | ||||||||||||
CRE |
3,415 | 3,447 | 567 | 2,435 | ||||||||||||
Construction |
| | | | ||||||||||||
Leases |
| | | | ||||||||||||
Consumer |
||||||||||||||||
Installment |
38,898 | 39,013 | 1,081 | 32,499 | ||||||||||||
Home equity line |
7,239 | 7,239 | 185 | 6,699 | ||||||||||||
Credit card |
674 | 674 | 225 | 725 | ||||||||||||
Residential mortgages |
11,921 | 12,036 | 1,038 | 12,394 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
76,623 | 77,026 | 9,290 | 68,869 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total impaired loans |
$ | 142,655 | $ | 154,004 | $ | 9,290 | $ | 127,180 | ||||||||
|
|
|
|
|
|
|
|
Note 1: These tables exclude loans fully charged off.
Note 2: The differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.
39
As of December 31, 2015 |
||||||||||||||||
Originated Loans | Unpaid | Average | ||||||||||||||
(In thousands) |
Recorded Investment |
Principal Balance |
Related Allowance |
Recorded Investment |
||||||||||||
Impaired loans with no related allowance |
||||||||||||||||
Commercial |
||||||||||||||||
C&I |
$ | 21,066 | $ | 23,854 | $ | | $ | 27,215 | ||||||||
CRE |
15,465 | 17,456 | | 13,031 | ||||||||||||
Construction |
| | | | ||||||||||||
Consumer |
||||||||||||||||
Installment |
1,369 | 1,658 | | 1,807 | ||||||||||||
Home equity line |
670 | 919 | | 999 | ||||||||||||
Credit card |
21 | 21 | | 20 | ||||||||||||
Residential mortgages |
11,550 | 13,901 | | 11,979 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
50,141 | 57,809 | | 55,051 | ||||||||||||
Impaired loans with a related allowance |
||||||||||||||||
Commercial |
||||||||||||||||
C&I |
22,752 | 28,881 | 11,837 | 11,284 | ||||||||||||
CRE |
1,149 | 1,173 | 128 | 3,037 | ||||||||||||
Construction |
| | | | ||||||||||||
Consumer |
||||||||||||||||
Installment |
35,535 | 35,592 | 1,009 | 28,808 | ||||||||||||
Home equity line |
6,410 | 6,411 | 188 | 6,382 | ||||||||||||
Credit card |
696 | 696 | 243 | 757 | ||||||||||||
Residential mortgages |
12,355 | 12,458 | 944 | 12,619 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
78,897 | 85,211 | 14,349 | 62,887 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total impaired loans |
$ | 129,038 | $ | 143,020 | $ | 14,349 | $ | 117,938 | ||||||||
|
|
|
|
|
|
|
|
Note 1: These tables exclude loans fully charged off.
Note 2: The differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.
40
As of March 31, 2015 |
||||||||||||||||
Originated Loans | Unpaid | Average | ||||||||||||||
(In thousands) |
Recorded Investment |
Principal Balance |
Related Allowance |
Recorded Investment |
||||||||||||
Impaired loans with no related allowance |
||||||||||||||||
Commercial |
||||||||||||||||
C&I |
$ | 28,513 | $ | 35,307 | $ | | $ | 25,006 | ||||||||
CRE |
9,343 | 15,478 | | 9,634 | ||||||||||||
Construction |
| | | | ||||||||||||
Consumer |
||||||||||||||||
Installment |
1,846 | 2,428 | | 1,881 | ||||||||||||
Home equity line |
977 | 1,222 | | 987 | ||||||||||||
Credit card |
21 | 21 | | 23 | ||||||||||||
Residential mortgages |
12,424 | 15,125 | | 12,488 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
53,124 | 69,581 | | 50,019 | ||||||||||||
Impaired loans with a related allowance |
||||||||||||||||
Commercial |
||||||||||||||||
C&I |
7,279 | 7,350 | 10,042 | 5,984 | ||||||||||||
CRE |
5,657 | 5,664 | 317 | 5,668 | ||||||||||||
Construction |
| | | | ||||||||||||
Consumer |
||||||||||||||||
Installment |
25,036 | 25,100 | 1,005 | 24,181 | ||||||||||||
Home equity line |
6,655 | 6,655 | 254 | 6,715 | ||||||||||||
Credit card |
794 | 794 | 263 | 823 | ||||||||||||
Residential mortgages |
12,398 | 12,487 | 1,416 | 12,414 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
57,819 | 58,050 | 13,297 | 55,785 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total impaired loans |
$ | 110,943 | $ | 127,631 | $ | 13,297 | $ | 105,804 | ||||||||
|
|
|
|
|
|
|
|
Note 1: These tables exclude loans fully charged off.
Note 2: The differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.
Troubled Debt Restructurings
In certain circumstances, the Corporation may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near term. In most cases, the modification is either a concessionary reduction in interest rate, extension of the maturity date or modification of the adjustable rate provisions of the loan that would otherwise not be considered; however, forgiveness of principal is rarely granted. Concessionary modifications are classified as TDRs unless the modification is short-term, typically less than 90 days. TDRs accrue interest if the borrower complies with the revised terms and conditions and has demonstrated repayment performance at a level commensurate with the modified terms for a minimum of six consecutive payment cycles after the restructuring date. Acquired loans restructured after acquisition are not considered TDRs if the loans evidenced credit deterioration as of the Acquisition Date and are accounted for in pools.
41
The substantial majority of the Corporations residential mortgage TDRs involve reducing the clients loan payment through an interest rate reduction for a set period of time based on the borrowers ability to service the modified loan payment. Modifications of mortgages retained in portfolio are handled using proprietary modification guidelines, or the FDICs Modification Program for residential first mortgages covered by loss share agreements (agreements between the Bank and the FDIC that afford the Bank significant protection against future losses). The Corporation participates in the U.S. Treasurys Home Affordable Modification Program for originated mortgages sold to and serviced for FNMA and FHLMC.
Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial real estate and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. The Corporation has modified certain loans according to provisions in loss share agreements. Losses associated with modifications on these loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under the loss share agreements.
42
The following tables provide the number of loans modified in a TDR and the recorded investment and unpaid principal balance by loan portfolio as of March 31, 2016, December 31, 2015, and March 31, 2015.
As of March 31, 2016 | ||||||||||||
(Dollars in thousands) |
Number of Loans |
Recorded Investment |
Unpaid Principal Balance |
|||||||||
Originated loans |
||||||||||||
Commercial |
||||||||||||
C&I |
27 | $ | 28,160 | $ | 28,980 | |||||||
CRE |
22 | 14,175 | 16,141 | |||||||||
Construction |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total originated commercial |
49 | 42,335 | 45,121 | |||||||||
Consumer |
||||||||||||
Installment |
1,224 | 40,134 | 40,506 | |||||||||
Home equity lines |
253 | 7,720 | 7,977 | |||||||||
Credit card |
201 | 687 | 687 | |||||||||
Residential mortgages |
307 | 23,105 | 25,598 | |||||||||
|
|
|
|
|
|
|||||||
Total originated consumer |
1,985 | 71,646 | 74,768 | |||||||||
|
|
|
|
|
|
|||||||
Total originated loans |
2,034 | $ | 113,981 | $ | 119,889 | |||||||
|
|
|
|
|
|
|||||||
Acquired loans |
||||||||||||
Commercial |
||||||||||||
C&I |
| $ | | $ | | |||||||
CRE |
5 | 3,525 | 3,827 | |||||||||
Construction |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total acquired commercial |
5 | 3,525 | 3,827 | |||||||||
Consumer |
||||||||||||
Installment |
50 | 1,317 | 1,384 | |||||||||
Home equity lines |
171 | 7,508 | 7,572 | |||||||||
Residential mortgages |
31 | 2,050 | 2,277 | |||||||||
|
|
|
|
|
|
|||||||
Total acquired consumer |
252 | 10,875 | 11,233 | |||||||||
|
|
|
|
|
|
|||||||
Total acquired loans |
257 | $ | 14,400 | $ | 15,060 | |||||||
|
|
|
|
|
|
|||||||
FDIC acquired loans |
||||||||||||
Commercial |
||||||||||||
C&I |
| $ | | $ | | |||||||
CRE |
3 | 13,176 | 11,466 | |||||||||
Construction |
1 | 580 | 677 | |||||||||
|
|
|
|
|
|
|||||||
Total FDIC acquired commercial |
4 | 13,756 | 12,143 | |||||||||
Consumer |
||||||||||||
Home equity lines |
76 | 9,627 | 9,642 | |||||||||
Residential mortgages |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total FDIC acquired consumer |
76 | 9,627 | 9,642 | |||||||||
|
|
|
|
|
|
|||||||
Total FDIC acquired loans |
80 | $ | 23,383 | $ | 21,785 | |||||||
|
|
|
|
|
|
|||||||
Total loans |
||||||||||||
Commercial |
||||||||||||
C&I |
27 | $ | 28,160 | $ | 28,980 | |||||||
CRE |
30 | 30,876 | 31,434 | |||||||||
Construction |
1 | 580 | 677 | |||||||||
|
|
|
|
|
|
|||||||
Total commercial |
58 | 59,616 | 61,091 | |||||||||
Consumer |
||||||||||||
Installment |
1,274 | 41,451 | 41,890 | |||||||||
Home equity lines |
500 | 24,855 | 25,191 | |||||||||
Credit card |
201 | 687 | 687 | |||||||||
Residential mortgages |
338 | 25,155 | 27,875 | |||||||||
|
|
|
|
|
|
|||||||
Total consumer |
2,313 | 92,148 | 95,643 | |||||||||
|
|
|
|
|
|
|||||||
Total loans |
2,371 | $ | 151,764 | $ | 156,734 | |||||||
|
|
|
|
|
|
Note 1: For originated loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.
Note 2: For acquired and FDIC acquired loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs and remaining purchase discount.
43
As of December 31, 2015 | ||||||||||||
(Dollars in thousands) |
Number of Loans |
Recorded Investment |
Unpaid Principal Balance |
|||||||||
Originated loans |
||||||||||||
Commercial |
||||||||||||
C&I |
26 | $ | 33,087 | $ | 33,740 | |||||||
CRE |
24 | 14,671 | 16,648 | |||||||||
Construction |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total originated commercial |
50 | 47,758 | 50,388 | |||||||||
Consumer |
||||||||||||
Installment |
1,223 | 36,904 | 37,250 | |||||||||
Home equity lines |
257 | 7,080 | 7,330 | |||||||||
Credit card |
212 | 717 | 717 | |||||||||
Residential mortgages |
312 | 23,905 | 26,359 | |||||||||
|
|
|
|
|
|
|||||||
Total originated consumer |
2,004 | 68,606 | 71,656 | |||||||||
|
|
|
|
|
|
|||||||
Total originated loans |
2,054 | $ | 116,364 | $ | 122,044 | |||||||
|
|
|
|
|
|
|||||||
Acquired loans |
||||||||||||
Commercial |
||||||||||||
C&I |
1 | 7,611 | 7,611 | |||||||||
CRE |
3 | 918 | 1,044 | |||||||||
|
|
|
|
|
|
|||||||
Total acquired commercial |
4 | 8,529 | 8,655 | |||||||||
Consumer |
||||||||||||
Installment |
51 | 1,117 | 1,211 | |||||||||
Home equity lines |
176 | 7,718 | 7,778 | |||||||||
Residential mortgages |
31 | 2,154 | 2,382 | |||||||||
|
|
|
|
|
|
|||||||
Total acquired consumer |
258 | 10,989 | 11,371 | |||||||||
|
|
|
|
|
|
|||||||
Total acquired loans |
262 | $ | 19,518 | $ | 20,026 | |||||||
|
|
|
|
|
|
|||||||
FDIC acquired loans |
||||||||||||
Commercial |
||||||||||||
C&I |
| $ | | $ | | |||||||
CRE |
3 | 14,056 | 12,479 | |||||||||
Construction |
1 | 593 | 682 | |||||||||
|
|
|
|
|
|
|||||||
Total FDIC acquired commercial |
4 | 14,649 | 13,161 | |||||||||
Consumer |
||||||||||||
Home equity lines |
81 | 10,215 | 10,281 | |||||||||
Residential Mortgages |
1 | 182 | 182 | |||||||||
|
|
|
|
|
|
|||||||
Total FDIC acquired consumer |
82 | 10,397 | 10,463 | |||||||||
|
|
|
|
|
|
|||||||
Total FDIC acquired loans |
86 | $ | 25,046 | $ | 23,624 | |||||||
|
|
|
|
|
|
|||||||
Total loans |
||||||||||||
Commercial |
||||||||||||
C&I |
27 | $ | 40,698 | $ | 41,351 | |||||||
CRE |
30 | 29,645 | 30,171 | |||||||||
Construction |
1 | 593 | 682 | |||||||||
|
|
|
|
|
|
|||||||
Total commercial |
58 | 70,936 | 72,204 | |||||||||
Consumer |
||||||||||||
Installment |
1,274 | 38,021 | 38,461 | |||||||||
Home equity lines |
514 | 25,013 | 25,389 | |||||||||
Credit card |
212 | 717 | 717 | |||||||||
Residential mortgages |
344 | 26,241 | 28,923 | |||||||||
|
|
|
|
|
|
|||||||
Total consumer |
2,344 | 89,992 | 93,490 | |||||||||
|
|
|
|
|
|
|||||||
Total loans |
2,402 | $ | 160,928 | $ | 165,694 | |||||||
|
|
|
|
|
|
Note 1: For originated loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.
Note 2: For acquired and FDIC acquired loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs and remaining purchase discount.
44
As of March 31, 2015 | ||||||||||||
(Dollars in thousands) |
Number of Loans |
Recorded Investment |
Unpaid Principal Balance |
|||||||||
Originated loans |
||||||||||||
Commercial |
||||||||||||
C&I |
47 | $ | 16,923 | $ | 23,666 | |||||||
CRE |
64 | 12,076 | 17,325 | |||||||||
Construction |
31 | | | |||||||||
|
|
|
|
|
|
|||||||
Total originated commercial |
142 | 28,999 | 40,991 | |||||||||
Consumer |
||||||||||||
Installment |
1,186 | 26,882 | 27,528 | |||||||||
Home equity lines |
276 | 7,632 | 7,877 | |||||||||
Credit card |
230 | 815 | 815 | |||||||||
Residential mortgages |
316 | 24,822 | 27,612 | |||||||||
|
|
|
|
|
|
|||||||
Total originated consumer |
2,008 | 60,151 | 63,832 | |||||||||
|
|
|
|
|
|
|||||||
Total originated loans |
2,150 | $ | 89,150 | $ | 104,823 | |||||||
|
|
|
|
|
|
|||||||
Acquired loans |
||||||||||||
Commercial |
||||||||||||
C&I |
1 | 2 | 3 | |||||||||
CRE |
3 | 2,453 | 2,635 | |||||||||
|
|
|
|
|
|
|||||||
Total acquired commercial |
4 | 2,455 | 2,638 | |||||||||
Consumer |
||||||||||||
Installment |
51 | 1,195 | 1,281 | |||||||||
Home equity lines |
162 | 7,310 | 7,370 | |||||||||
Residential mortgages |
30 | 2,186 | 2,403 | |||||||||
|
|
|
|
|
|
|||||||
Total acquired consumer |
243 | 10,691 | 11,054 | |||||||||
|
|
|
|
|
|
|||||||
Total acquired loans |
247 | $ | 13,146 | $ | 13,692 | |||||||
|
|
|
|
|
|
|||||||
FDIC acquired loans |
||||||||||||
Commercial |
||||||||||||
C&I |
8 | $ | | $ | 1,355 | |||||||
CRE |
24 | 23,895 | 39,596 | |||||||||
Construction |
9 | 346 | 9,552 | |||||||||
|
|
|
|
|
|
|||||||
Total FDIC acquired commercial |
41 | 24,241 | 50,503 | |||||||||
Consumer |
||||||||||||
Home equity lines |
70 | 8,909 | 8,914 | |||||||||
Residential mortgages |
1 | 185 | 185 | |||||||||
|
|
|
|
|
|
|||||||
Total FDIC acquired consumer |
71 | 9,094 | 9,099 | |||||||||
|
|
|
|
|
|
|||||||
Total FDIC acquired loans |
112 | $ | 33,335 | $ | 59,602 | |||||||
|
|
|
|
|
|
|||||||
Total loans |
||||||||||||
Commercial |
||||||||||||
C&I |
56 | $ | 16,925 | $ | 25,024 | |||||||
CRE |
91 | 38,424 | 59,556 | |||||||||
Construction |
40 | 346 | 9,552 | |||||||||
|
|
|
|
|
|
|||||||
Total commercial |
187 | 55,695 | 94,132 | |||||||||
Consumer |
||||||||||||
Installment |
1,237 | 28,077 | 28,809 | |||||||||
Home equity lines |
508 | 23,851 | 24,161 | |||||||||
Credit card |
230 | 815 | 815 | |||||||||
Residential mortgages |
347 | 27,193 | 30,200 | |||||||||
|
|
|
|
|
|
|||||||
Total consumer |
2,322 | 79,936 | 83,985 | |||||||||
|
|
|
|
|
|
|||||||
Total loans |
2,509 | $ | 135,631 | $ | 178,117 | |||||||
|
|
|
|
|
|
Note 1: For originated loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs.
Note 2: For acquired and FDIC acquired loans, the differences between the recorded investment and unpaid principal balance amounts represent partial charge offs and remaining purchase discount.
45
The pre-modification and post-modification outstanding recorded investments of loans modified as TDRs during the three months ended March 31, 2016 and 2015 were not materially different. Post-modification balances may include capitalization of unpaid accrued interest and fees associated with the modification as well as forgiveness of principal. Loans modified as TDRs during the three months ended March 31, 2016 and 2015 did not involve the forgiveness of principal; accordingly, the Corporation did not record a charge-off at the modification date. Additionally, capitalization of any unpaid accrued interest and fees assessed to loans modified in the three months ended March 31, 2016 and 2015 were not material to the accompanying consolidated financial statements. Specific allowances for loan losses are established for loans whose terms have been modified in a TDR. Specific reserve allocations are generally assessed prior to loans being modified in a TDR, as most of these loans migrate from the Corporations internal watch list and have been specifically allocated for as part of the Corporations normal loan loss provisioning methodology. At March 31, 2016, December 31, 2015, and March 31, 2015, the Corporation had $8.3 million, $7.0 million, and $6.1 million, respectively, in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.
46
The following tables provide a summary of the delinquency status of TDRs along with the specific allowance for loan loss, by loan type, as of March 31, 2016, December 31, 2015, and March 31, 2015, including TDRs that continue to accrue interest and TDRs included in nonperforming assets.
As of March 31, 2016 |
||||||||||||||||||||||||||||||||
Accruing TDRs | Nonaccruing TDRs | Total | Total | |||||||||||||||||||||||||||||
(In thousands) |
Current | Delinquent | Total | Current | Delinquent | Total | TDRs | Allowance | ||||||||||||||||||||||||
Originated loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 13,306 | $ | 1,168 | $ | 14,474 | $ | 7,741 | $ | 5,945 | $ | 13,686 | $ | 28,160 | $ | 6,194 | ||||||||||||||||
CRE |
273 | 2,247 | 2,520 | 765 | 10,890 | 11,655 | 14,175 | 20 | ||||||||||||||||||||||||
Construction |
| | | | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total originated commercial |
13,579 | 3,415 | 16,994 | 8,506 | 16,835 | 25,341 | 42,335 | 6,214 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
38,153 | 600 | 38,753 | 1,342 | 39 | 1,381 | 40,134 | 1,081 | ||||||||||||||||||||||||
Home equity lines |
6,891 | 101 | 6,992 | 713 | 15 | 728 | 7,720 | 185 | ||||||||||||||||||||||||
Credit card |
554 | 111 | 665 | | 22 | 22 | 687 | 225 | ||||||||||||||||||||||||
Residential mortgages |
13,707 | 1,517 | 15,224 | 5,395 | 2,486 | 7,881 | 23,105 | 1,038 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total originated consumer |
59,305 | 2,329 | 61,634 | 7,450 | 2,562 | 10,012 | 71,646 | 2,529 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total originated TDRs |
$ | 72,884 | $ | 5,744 | $ | 78,628 | $ | 15,956 | $ | 19,397 | $ | 35,353 | $ | 113,981 | $ | 8,743 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Acquired loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
CRE |
2,758 | | 2,758 | 665 | 102 | 767 | 3,525 | 29 | ||||||||||||||||||||||||
Construction |
| | | | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total acquired commercial |
2,758 | | 2,758 | 665 | 102 | 767 | 3,525 | 29 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
1,230 | | 1,230 | 87 | | 87 | 1,317 | 42 | ||||||||||||||||||||||||
Home equity lines |
7,281 | 108 | 7,389 | 119 | | 119 | 7,508 | 59 | ||||||||||||||||||||||||
Residential mortgages |
1,156 | 247 | 1,403 | 623 | 24 | 647 | 2,050 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total acquired consumer |
9,667 | 355 | 10,022 | 829 | 24 | 853 | 10,875 | 101 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total acquired TDRs |
$ | 12,425 | $ | 355 | $ | 12,780 | $ | 1,494 | $ | 126 | $ | 1,620 | $ | 14,400 | $ | 130 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
FDIC acquired loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
CRE |
| | | | 13,176 | 13,176 | 13,176 | 2,302 | ||||||||||||||||||||||||
Construction |
| | | 580 | | 580 | 580 | 42 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total FDIC acquired commercial |
| | | 580 | 13,176 | 13,756 | 13,756 | 2,344 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Home equity lines |
9,395 | 181 | 9,576 | 51 | | 51 | 9,627 | 26 | ||||||||||||||||||||||||
Residential mortgages |
| | | | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total FDIC acquired consumer |
9,395 | 181 | 9,576 | 51 | | 51 | 9,627 | 26 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total FDIC acquired TDRs |
$ | 9,395 | $ | 181 | $ | 9,576 | $ | 631 | $ | 13,176 | $ | 13,807 | $ | 23,383 | $ | 2,370 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 13,306 | $ | 1,168 | $ | 14,474 | $ | 7,741 | $ | 5,945 | $ | 13,686 | $ | 28,160 | $ | 6,194 | ||||||||||||||||
CRE |
3,031 | 2,247 | 5,278 | 1,430 | 24,168 | 25,598 | 30,876 | 2,351 | ||||||||||||||||||||||||
Construction |
| | | 580 | | 580 | 580 | 42 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total commercial |
16,337 | 3,415 | 19,752 | 9,751 | 30,113 | 39,864 | 59,616 | 8,587 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
39,383 | 600 | 39,983 | 1,429 | 39 | 1,468 | 41,451 | 1,123 | ||||||||||||||||||||||||
Home equity lines |
23,567 | 390 | 23,957 | 883 | 15 | 898 | 24,855 | 270 | ||||||||||||||||||||||||
Credit card |
554 | 111 | 665 | | 22 | 22 | 687 | 225 | ||||||||||||||||||||||||
Residential mortgages |
14,863 | 1,764 | 16,627 | 6,018 | 2,510 | 8,528 | 25,155 | 1,038 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total consumer |
78,367 | 2,865 | 81,232 | 8,330 | 2,586 | 10,916 | 92,148 | 2,656 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total TDRs |
$ | 94,704 | $ | 6,280 | $ | 100,984 | $ | 18,081 | $ | 32,699 | $ | 50,780 | $ | 151,764 | $ | 11,243 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
As of December 31, 2015 |
||||||||||||||||||||||||||||||||
Accruing TDRs | Nonaccruing TDRs | Total | Total | |||||||||||||||||||||||||||||
(In thousands) |
Current | Delinquent | Total | Current | Delinquent | Total | TDRs | Allowance | ||||||||||||||||||||||||
Originated loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 22,566 | $ | 107 | $ | 22,673 | $ | 4,229 | $ | 6,185 | $ | 10,414 | $ | 33,087 | $ | 6,052 | ||||||||||||||||
CRE |
10,271 | 2,247 | 12,518 | 746 | 1,407 | 2,153 | 14,671 | 20 | ||||||||||||||||||||||||
Construction |
| | | | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total originated commercial |
32,837 | 2,354 | 35,191 | 4,975 | 7,592 | 12,567 | 47,758 | 6,072 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
34,902 | 794 | 35,696 | 1,125 | 83 | 1,208 | 36,904 | 1,009 | ||||||||||||||||||||||||
Home equity lines |
6,511 | 114 | 6,625 | 399 | 56 | 455 | 7,080 | 188 | ||||||||||||||||||||||||
Credit card |
575 | 140 | 715 | | 2 | 2 | 717 | 243 | ||||||||||||||||||||||||
Residential mortgages |
12,869 | 2,896 | 15,765 | 4,611 | 3,529 | 8,140 | 23,905 | 944 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total originated consumer |
54,857 | 3,944 | 58,801 | 6,135 | 3,670 | 9,805 | 68,606 | 2,384 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total originated TDRs |
$ | 87,694 | $ | 6,298 | $ | 93,992 | $ | 11,110 | $ | 11,262 | $ | 22,372 | $ | 116,364 | $ | 8,456 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Acquired loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 7,611 | $ | | $ | 7,611 | $ | | $ | | $ | | $ | 7,611 | $ | | ||||||||||||||||
CRE |
| | | 659 | 259 | 918 | 918 | 201 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total acquired commercial |
7,611 | | 7,611 | 659 | 259 | 918 | 8,529 | 201 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
967 | 126 | 1,093 | 14 | 10 | 24 | 1,117 | 45 | ||||||||||||||||||||||||
Home equity lines |
6,941 | 655 | 7,596 | 122 | | 122 | 7,718 | 70 | ||||||||||||||||||||||||
Residential mortgages |
1,096 | 256 | 1,352 | 802 | | 802 | 2,154 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total acquired consumer |
9,004 | 1,037 | 10,041 | 938 | 10 | 948 | 10,989 | 115 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total acquired TDRs |
$ | 16,615 | $ | 1,037 | $ | 17,652 | $ | 1,597 | $ | 269 | $ | 1,866 | $ | 19,518 | $ | 316 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
FDIC acquired loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
CRE |
| 14,056 | 14,056 | | | | 14,056 | 2,333 | ||||||||||||||||||||||||
Construction |
593 | | 593 | | | | 593 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total FDIC acquired commercial |
593 | 14,056 | 14,649 | | | | 14,649 | 2,333 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Home equity lines |
10,065 | 70 | 10,135 | 6 | 74 | 80 | 10,215 | 23 | ||||||||||||||||||||||||
Residential mortgages |
182 | | 182 | | | | 182 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total FDIC acquired consumer |
10,247 | 70 | 10,317 | 6 | 74 | 80 | 10,397 | 23 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total FDIC acquired TDRs |
$ | 10,840 | $ | 14,126 | $ | 24,966 | $ | 6 | $ | 74 | $ | 80 | $ | 25,046 | $ | 2,356 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 30,177 | $ | 107 | $ | 30,284 | $ | 4,229 | $ | 6,185 | $ | 10,414 | $ | 40,698 | $ | 6,052 | ||||||||||||||||
CRE |
10,271 | 16,303 | 26,574 | 1,405 | 1,666 | 3,071 | 29,645 | 2,554 | ||||||||||||||||||||||||
Construction |
593 | | 593 | | | | 593 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total commercial |
41,041 | 16,410 | 57,451 | 5,634 | 7,851 | 13,485 | 70,936 | 8,606 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
35,869 | 920 | 36,789 | 1,139 | 93 | 1,232 | 38,021 | 1,054 | ||||||||||||||||||||||||
Home equity lines |
23,517 | 839 | 24,356 | 527 | 130 | 657 | 25,013 | 281 | ||||||||||||||||||||||||
Credit card |
575 | 140 | 715 | | 2 | 2 | 717 | 243 | ||||||||||||||||||||||||
Residential mortgages |
14,147 | 3,152 | 17,299 | 5,413 | 3,529 | 8,942 | 26,241 | 944 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total consumer |
74,108 | 5,051 | 79,159 | 7,079 | 3,754 | 10,833 | 89,992 | 2,522 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total TDRs |
$ | 115,149 | $ | 21,461 | $ | 136,610 | $ | 12,713 | $ | 11,605 | $ | 24,318 | $ | 160,928 | $ | 11,128 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
As of March 31, 2015 |
||||||||||||||||||||||||||||||||
Accruing TDRs | Nonaccruing TDRs | Total | Total | |||||||||||||||||||||||||||||
(In thousands) |
Current | Delinquent | Total | Current | Delinquent | Total | TDRs | Allowance | ||||||||||||||||||||||||
Originated loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 16,558 | $ | | $ | 16,558 | $ | | $ | 365 | $ | 365 | $ | 16,923 | $ | 124 | ||||||||||||||||
CRE |
6,031 | 1,493 | 7,524 | 3,724 | 828 | 4,552 | 12,076 | 71 | ||||||||||||||||||||||||
Construction |
| | | | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total originated commercial |
22,589 | 1,493 | 24,082 | 3,724 | 1,193 | 4,917 | 28,999 | 195 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
24,701 | 409 | 25,110 | 1,528 | 244 | 1,772 | 26,882 | 1,005 | ||||||||||||||||||||||||
Home equity lines |
6,680 | 113 | 6,793 | 811 | 28 | 839 | 7,632 | 254 | ||||||||||||||||||||||||
Credit card |
721 | 77 | 798 | | 17 | 17 | 815 | 263 | ||||||||||||||||||||||||
Residential mortgages |
14,299 | 2,286 | 16,585 | 5,020 | 3,217 | 8,237 | 24,822 | 1,416 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total originated consumer |
46,401 | 2,885 | 49,286 | 7,359 | 3,506 | 10,865 | 60,151 | 2,938 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total originated TDRs |
$ | 68,990 | $ | 4,378 | $ | 73,368 | $ | 11,083 | $ | 4,699 | $ | 15,782 | $ | 89,150 | $ | 3,133 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Acquired loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | | $ | | $ | | $ | 2 | $ | | $ | 2 | $ | 2 | $ | 2 | ||||||||||||||||
CRE |
| | | 954 | 1,499 | 2,453 | 2,453 | 135 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total acquired commercial |
| | | 956 | 1,499 | 2,455 | 2,455 | 137 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
1,139 | 33 | 1,172 | 23 | | 23 | 1,195 | 48 | ||||||||||||||||||||||||
Home equity lines |
6,610 | 564 | 7,174 | 136 | | 136 | 7,310 | | ||||||||||||||||||||||||
Residential mortgages |
1,335 | | 1,335 | 616 | 235 | 851 | 2,186 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total acquired consumer |
9,084 | 597 | 9,681 | 775 | 235 | 1,010 | 10,691 | 48 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total acquired TDRs |
$ | 9,084 | $ | 597 | $ | 9,681 | $ | 1,731 | $ | 1,734 | $ | 3,465 | $ | 13,146 | $ | 185 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
FDIC acquired loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
CRE |
| 23,895 | 23,895 | | | | 23,895 | 2,026 | ||||||||||||||||||||||||
Construction |
| 346 | 346 | | | | 346 | 293 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total FDIC acquired commercial |
| 24,241 | 24,241 | | | | 24,241 | 2,319 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Home equity lines |
7,703 | 939 | 8,642 | 267 | | 267 | 8,909 | 24 | ||||||||||||||||||||||||
Residential mortgages |
185 | | 185 | | | | 185 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total FDIC acquired consumer |
7,888 | 939 | 8,827 | 267 | | 267 | 9,094 | 24 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total FDIC acquired TDRs |
$ | 7,888 | $ | 25,180 | $ | 33,068 | $ | 267 | $ | | $ | 267 | $ | 33,335 | $ | 2,343 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total loans |
||||||||||||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
C&I |
$ | 16,558 | $ | | $ | 16,558 | $ | 2 | $ | 365 | $ | 367 | $ | 16,925 | $ | 126 | ||||||||||||||||
CRE |
6,031 | 25,388 | 31,419 | 4,678 | 2,327 | 7,005 | 38,424 | 2,232 | ||||||||||||||||||||||||
Construction |
| 346 | 346 | | | | 346 | 293 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total commercial |
22,589 | 25,734 | 48,323 | 4,680 | 2,692 | 7,372 | 55,695 | 2,651 | ||||||||||||||||||||||||
Consumer |
||||||||||||||||||||||||||||||||
Installment |
25,840 | 442 | 26,282 | 1,551 | 244 | 1,795 | 28,077 | 1,053 | ||||||||||||||||||||||||
Home equity lines |
20,993 | 1,616 | 22,609 | 1,214 | 28 | 1,242 | 23,851 | 278 | ||||||||||||||||||||||||
Credit card |
721 | 77 | 798 | | 17 | 17 | 815 | 263 | ||||||||||||||||||||||||
Residential mortgages |
15,819 | 2,286 | 18,105 | 5,636 | 3,452 | 9,088 | 27,193 | 1,416 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total consumer |
63,373 | 4,421 | 67,794 | 8,401 | 3,741 | 12,142 | 79,936 | 3,010 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total TDRs |
$ | 85,962 | $ | 30,155 | $ | 116,117 | $ | 13,081 | $ | 6,433 | $ | 19,514 | $ | 135,631 | $ | 5,661 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Corporation evaluates the loan for possible further impairment. The ALL may be increased, adjustments may be made in the allocation of the ALL, or partial charge-offs may be taken to further write-down the carrying value of the loan.
On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. In the event of a subsequent default, the ALL continues to be reassessed on the basis of an individual evaluation of the loan.
50
The following tables provide the number of loans modified in a TDR within the previous 12 months that subsequently defaulted during the three months ended March 31, 2016 and March 31, 2015, as well as the amount defaulted in these restructured loans.
Three Months Ended March 31, 2016 | ||||||||
(Dollars in thousands) |
Number of Loans | Amount Defaulted | ||||||
Originated loans |
||||||||
Commercial |
||||||||
C&I |
| $ | | |||||
CRE |
| | ||||||
Construction |
| | ||||||
|
|
|
|
|||||
Total originated commercial |
| | ||||||
Consumer |
||||||||
Installment |
8 | 83 | ||||||
Home equity lines |
| | ||||||
Credit card |
3 | 2 | ||||||
Residential mortgages |
1 | 76 | ||||||
|
|
|
|
|||||
Total originated consumer |
12 | $ | 161 | |||||
|
|
|
|
|||||
FDIC acquired loans |
||||||||
Commercial |
||||||||
C&I |
| $ | | |||||
CRE |
| | ||||||
Construction |
| | ||||||
|
|
|
|
|||||
Total FDIC acquired commercial |
| $ | | |||||
|
|
|
|
|||||
Acquired loans |
||||||||
Commercial |
||||||||
C&I |
| $ | | |||||
CRE |
1 | 255 | ||||||
Construction |
| | ||||||
|
|
|
|
|||||
Total acquired commercial |
1 | $ | 255 | |||||
|
|
|
|
|||||
Consumer |
||||||||
Installment |
2 | 31 | ||||||
Home equity lines |
1 | 14 | ||||||
Residential mortgages |
| | ||||||
|
|
|
|
|||||
Total acquired consumer |
3 | $ | 45 | |||||
|
|
|
|
|||||
Total loans |
||||||||
Commercial |
||||||||
C&I |
| $ | | |||||
CRE |
1 | 255 | ||||||
Construction |
| | ||||||
|
|
|
|
|||||
Total commercial |
1 | 255 | ||||||
Consumer |
||||||||
Installment |
10 | 114 | ||||||
Home equity lines |
1 | 14 | ||||||
Credit card |
3 | 2 | ||||||
Residential mortgages |
1 | 76 | ||||||
|
|
|
|
|||||
Total consumer |
15 | 206 | ||||||
|
|
|
|
|||||
Total |
16 | $ | 461 | |||||
|
|
|
|
51
Three Months Ended March 31, 2015 | ||||||||
(Dollars in thousands) |
Number of Loans | Recorded Investment | ||||||
Originated loans |
||||||||
Commercial |
||||||||
C&I |
| $ | | |||||
CRE |
| | ||||||
Construction |
| | ||||||
|
|
|
|
|||||
Total originated commercial |
| | ||||||
Consumer |
||||||||
Installment |
2 | | ||||||
Home equity lines |
| | ||||||
Credit card |
2 | 17 | ||||||
Residential mortgages |
| | ||||||
|
|
|
|
|||||
Total originated consumer |
4 | $ | 17 | |||||
|
|
|
|
|||||
FDIC acquired loans |
||||||||
Commercial |
||||||||
C&I |
1 | $ | 427 | |||||
CRE |
| | ||||||
Construction |
| | ||||||
|
|
|
|
|||||
Total FDIC acquired commercial |
1 | $ | 427 | |||||
|
|
|
|
|||||
Acquired loans |
||||||||
Commercial |
||||||||
C&I |
1 | $ | 55 | |||||
CRE |
| | ||||||
Construction |
| | ||||||
|
|
|
|
|||||
Total acquired commercial |
1 | $ | 55 | |||||
|
|
|
|
|||||
Total loans |
||||||||
Commercial |
||||||||
C&I |
2 | $ | 482 | |||||
CRE |
| | ||||||
Construction |
| | ||||||
|
|
|
|
|||||
Total commercial |
2 | 482 | ||||||
Consumer |
||||||||
Installment |
2 | | ||||||
Home equity lines |
| | ||||||
Credit card |
2 | 17 | ||||||
Residential mortgages |
| | ||||||
|
|
|
|
|||||
Total consumer |
4 | 17 | ||||||
|
|
|
|
|||||
Total |
6 | $ | 499 | |||||
|
|
|
|
52
5. | Goodwill and Other Intangible Assets |
Goodwill
Goodwill totaled $741.7 million as of March 31, 2016, December 31, 2015, and March 31, 2015. Goodwill is not amortized but is evaluated for impairment on an annual basis at November 30 of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. No events or circumstances since the November 30, 2015 annual impairment test were noted that would indicate it was more likely than not a goodwill impairment exists.
Other Intangible Assets
The Corporation has other intangible assets that are amortized, consisting of core deposit intangibles, lease intangibles and trust relationship intangibles. The following tables show the gross carrying amount, accumulated amortization, and net carrying amount of these intangible assets.
March 31, 2016 | ||||||||||||
(In thousands) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||
Core deposit intangibles (1) |
$ | 82,323 | $ | (30,194 | ) | $ | 52,129 | |||||
Lease intangible |
238 | (220 | ) | 18 | ||||||||
Trust Relationships (2) |
14,000 | (7,823 | ) | 6,177 | ||||||||
|
|
|
|
|
|
|||||||
$ | 96,561 | (38,237 | ) | $ | 58,324 | |||||||
|
|
|
|
|
|
|||||||
December 31, 2015 | ||||||||||||
(In thousands) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||
Core deposit intangibles (1) |
$ | 82,323 | $ | (28,304 | ) | $ | 54,019 | |||||
Lease intangible |
238 | (212 | ) | 26 | ||||||||
Trust Relationships (2) |
14,000 | (7,417 | ) | 6,583 | ||||||||
|
|
|
|
|
|
|||||||
$ | 96,561 | (35,933 | ) | $ | 60,628 | |||||||
|
|
|
|
|
|
|||||||
March 31, 2015 | ||||||||||||
(In thousands) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||
Core deposit intangibles (1) |
$ | 82,323 | $ | (22,073 | ) | $ | 60,250 | |||||
Lease intangible |
238 | (185 | ) | 53 | ||||||||
Trust relationships (2) |
14,000 | (5,881 | ) | 8,119 | ||||||||
|
|
|
|
|
|
|||||||
$ | 96,561 | (28,139 | ) | $ | 68,422 | |||||||
|
|
|
|
|
|
(1) | Core deposit intangibles are amortized on an accelerated basis over their estimated useful lives, which range from 10-15 years. |
(2) | Trust relationship intangibles are amortized on an accelerated basis on their estimated useful lives of 12 years. |
Amortization expense for intangible assets was $2.3 million in the three months ended March 31, 2016, compared to $2.6 million in the three months ended March 31, 2015. Estimated amortization expense for each of the next five years is as follows: remainder of 2016 - $6.9 million; 2017 - $8.2 million; 2018 - $7.3 million; and 2019 - $6.5 million; 2020 - $5.2 million.
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6. | Shareholders Equity |
Common Stock Warrant
On May 13, 2015, the Corporation repurchased a warrant previously issued by Citizens to the U.S. Treasury. The warrant, which entitled the U.S. Treasury to purchase 2,571,998 shares of FirstMerit Common Stock at an adjusted strike price of $17.50, was purchased for $12.2 million. In accordance with GAAP, the Corporation recorded a reduction to capital surplus in the amount of $9.2 million in conjunction with this warrant repurchase that reflected the excess amount paid over the previously stated amount.
Preferred Stock
The Corporation has 7,000,000 shares of authorized Preferred Stock and has designated 115,000 shares of its Preferred Stock as 5.875% Non-Cumulative Perpetual Preferred Stock, Series A. On February 4, 2013, the Corporation issued 100,000 shares of its Non-Cumulative Perpetual Preferred Stock, Series A, which began paying cash dividends on May 4, 2013, quarterly in arrears on the 4th day of February, May, August, and November.
Earnings Per Share
Basic net income per common share is calculated using the two-class method to determine income attributable to common shareholders. Net income attributable to Common Stock is then divided by the weighted-average number of Common Stock outstanding during the period.
Diluted net income per common share is calculated under the more dilutive of either the treasury method or two-class method. Adjustments to the weighted-average number of shares of Common Stock outstanding are made only when such adjustments will dilute earnings per common share. Net income attributable to Common Stock is then divided by the weighted-average number of Common Stock and Common Stock equivalents outstanding during the period.
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The reconciliation between basic and diluted EPS using the two-class method and treasury stock method is presented as follows:
Three Months Ended March 31, | ||||||||
(Dollars in thousands, except per share amounts) |
2016 | 2015 | ||||||
Basic EPS: |
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Net income |
$ | 54,136 | $ | 57,139 | ||||
Less: |
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Cash dividends on 5.875% non-cumulative perpetual series A, Preferred Stock |
1,469 | 1,469 | ||||||
Income allocated to participating securities |
387 | 407 | ||||||
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Net income attributable to common shareholders |
$ | 52,280 | $ | 55,263 | ||||
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Weighted average Common Stock outstanding used in basic EPS |
165,745 | 165,411 | ||||||
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Basic net income per common share |
$ | 0.32 | $ | 0.33 | ||||
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Diluted EPS: |
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Income used in diluted earnings per common share calculation |
$ | 52,280 | $ | 55,263 | ||||
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Weighted average Common Stock outstanding used in basic EPS |
165,745 | 165,411 | ||||||
Add: Common Stock equivalents |
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Employee stock award plans |
494 | 592 | ||||||
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Weighted average Common and Common Stock equivalent shares outstanding |
166,239 | 166,003 | ||||||
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Diluted net income per common share |
$ | 0.31 | $ | 0.33 | ||||
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Common Stock equivalents consist of employee stock award plans. These Common Stock equivalents do not enter into the calculation of diluted EPS if the impact would be anti-dilutive, that is, increase EPS or reduce a loss per share. Antidilutive potential Common Stock for the three months ended March 31, 2016 and 2015 totaled 0.5 million and 0.8 million, respectively.
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7. | Segment Information |
Management monitors the Corporations results by an internal performance measurement system, which provides lines of business results and key performance measures. The profitability measurement system is based on internal financial management practices designed to produce consistent results and reflect the underlying economics of the businesses. The development and application of these methodologies is a dynamic process. Accordingly, these measurement tools and assumptions may be revised periodically to reflect methodological, product, and/or management organizational changes. Further, these tools measure financial results that support the strategic objectives and internal organizational structure of the Corporation. Consequently, the information presented is not necessarily comparable with similar information for other financial institutions.
A description of each business, selected financial performance, and the methodologies used to measure financial performance are presented below.
| Commercial The commercial line of business provides a full range of lending, depository, and related financial services to middle-market corporate, industrial, financial, core business banking, public entities, and leasing clients. Commercial also includes personal business from commercial loan clients in coordination with the Wealth Management segment. Products and services offered include commercial term loans, revolving credit arrangements, asset-based lending, leasing, commercial mortgages, real estate construction lending, letters of credit, treasury management, government banking, international banking, merchant card and other depository products and services. |
| Retail The retail line of business includes consumer lending and deposit gathering, residential mortgage loan origination and servicing, and branch-based small business banking. Retail offers a variety of retail financial products and services including consumer direct and indirect installment loans, debit and credit cards, residential mortgage loans, home equity loans and lines of credit, deposit products, fixed and variable annuities and ATM network services. Deposit products include checking, savings, money market accounts and certificates of deposit. |
| Wealth The wealth line of business offers a broad array of asset management, private banking, financial planning, estate settlement and administration, credit and deposit products and services. Trust and investment services include personal trust and planning, investment management, estate settlement and administration services. Retirement plan services focus on investment management and fiduciary activities. Brokerage and insurance delivers retail mutual funds, other securities, variable and fixed annuities, personal disability and life insurance products and brokerage services. Private banking provides credit, deposit and asset management solutions for affluent clients. |
| Other The other line of business includes activities that are not directly attributable to one of the three principal lines of business. Included in the Other category are the Parent Company, eliminating companies, community development operations, the treasury group, which includes the securities |
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portfolio, wholesale funding and asset liability management activities, and the economic impact of certain assets, capital and support functions not specifically identifiable with the three primary lines of business. |
The accounting policies of the lines of businesses are the same as those of the Corporation described in Note 1 (Summary of Significant Accounting Policies) to the 2015 Form 10-K. Funds transfer pricing is used in the determination of net interest income by assigning a cost for funds used or credit for funds provided to assets and liabilities within each business unit. Assets and liabilities are match-funded based on their maturity, prepayment and/or repricing characteristics. As a result, the three primary lines of business are generally insulated from changes in interest rates. Changes in net interest income due to changes in rates are reported in Other by the treasury group. Capital has been allocated on an economic risk basis. Loans and lines of credit have been allocated capital based upon their respective credit risk. Asset management holdings in the Wealth segment have been allocated capital based upon their respective market risk related to assets under management. Normal business operating risk has been allocated to each line of business by the level of noninterest expense. Mismatches between asset and liability cash flows as well as interest rate risk for mortgage servicing rights and mortgage origination business have been allocated capital based upon their respective asset/liability management risk. The provision for loan loss is allocated based upon the actual net charge-offs of each respective line of business, adjusted for loan growth and changes in risk profile. Noninterest income and expenses directly attributable to a line of business are assigned to that line of business. Expenses for centrally provided services are allocated to the business line by various activity based cost formulas.
Substantially all of the Corporations business is conducted in the United States of America. The following tables present a summary of financial results as of and for the three months ended March 31, 2016 and March 31, 2015:
(In thousands) |
Commercial | Retail | Wealth | Other | FirstMerit Consolidated |
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March 31, 2016 |
QTD | QTD | QTD | QTD | QTD | |||||||||||||||
OPERATIONS: |
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Net interest income/(loss) |
$ | 102,619 | $ | 94,728 | $ | 6,552 | $ | (18,743 | ) | $ | 185,156 | |||||||||
Provision/(recapture) for loan losses |
5,772 | 4,047 | (155 | ) | (1,855 | ) | 7,809 | |||||||||||||
Noninterest income |
21,179 | 23,594 | 14,309 | 8,312 | 67,394 | |||||||||||||||
Noninterest expense |
61,020 | 88,694 | 13,353 | 3,896 | 166,963 | |||||||||||||||
Net income/(loss) |
37,054 | 16,628 | 4,981 | (4,527 | ) | 54,136 | ||||||||||||||
AVERAGES: |
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Assets |
$ | 9,592,202 | $ | 6,232,255 | $ | 305,566 | $ | 9,640,834 | $ | 25,770,857 | ||||||||||
Loans |
9,709,788 | 6,020,757 | 297,143 | 51,759 | 16,079,447 | |||||||||||||||
Earning assets |
10,074,234 | 6,027,689 | 297,143 | 6,491,016 | 22,890,082 | |||||||||||||||
Deposits |
7,478,489 | 11,025,256 | 1,319,711 | 812,209 | 20,635,665 | |||||||||||||||
Economic capital |
1,252,294 | 872,762 | 131,588 | 713,523 | 2,970,167 |
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(In thousands) |
Commercial | Retail | Wealth | Other | FirstMerit Consolidated |
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March 31, 2015 |
QTD | QTD | QTD | QTD | QTD | |||||||||||||||
OPERATIONS: |
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Net interest income/(loss) |
$ | 99,844 | $ | 91,095 | $ | 5,353 | $ | (10,669 | ) | $ | 185,623 | |||||||||
Provision/ (recapture) for loan losses |
(526 | ) | 7,533 | (170 | ) | 1,411 | 8,248 | |||||||||||||
Noninterest income |
22,490 | 21,737 | 13,976 | 7,644 | 65,847 | |||||||||||||||
Noninterest expense |
61,653 | 88,271 | 13,719 | (2,991 | ) | 160,652 | ||||||||||||||
Net income/(loss) |
39,785 | 11,068 | 3,756 | 2,530 | 57,139 | |||||||||||||||
AVERAGES: |
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Assets |
$ | 9,454,218 | $ | 5,845,417 | $ | 302,186 | $ | 9,303,273 | $ | 24,905,094 | ||||||||||
Loans |
9,506,529 | 5,570,590 | 292,016 | 58,046 | 15,427,181 | |||||||||||||||
Earning assets |
9,794,483 | 5,582,849 | 292,016 | 6,431,069 | 22,100,417 | |||||||||||||||
Deposits |
6,886,945 | 11,124,158 | 1,240,960 | 536,862 | 19,788,925 | |||||||||||||||
Economic capital |
848,890 | 479,188 | 55,187 | 1,483,097 | 2,866,362 |
8. | Derivatives and Hedging Activities |
The Corporation, through its mortgage banking and risk management operations, is party to various derivative instruments that are used for asset and liability management and customers financing needs. Derivative instruments are contracts between two or more parties that have a notional amount and underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index or other component. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract.
The predominant derivative and hedging activities include interest rate swaps and certain mortgage banking activities. Generally, these instruments help the Corporation manage exposure to market risk, and meet customer financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors, such as interest rates, market-driven rates and prices or other economic factors. Foreign exchange contracts are entered into to accommodate the needs of customers.
Derivatives Designated in Hedge Relationships
The Corporations fixed rate loans result in exposure to losses in value as interest rates change. The risk management objective for hedging fixed rate loans is to convert the fixed rate received to a floating rate. The Corporation hedges exposure to changes in the fair value of fixed rate loans through the use of swaps. For a qualifying fair value hedge, changes in the value of the derivatives that have been highly effective as hedges are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged.
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At March 31, 2016, December 31, 2015, and March 31, 2015, the notional values or contractual amounts and fair value of the Corporations derivatives designated in hedge relationships were as follows:
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2016 | December 31, 2015 | March 31, 2015 | March 31, 2016 | December 31, 2015 | March 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||
(In thousands) |
Notional/ Contract Amount |
Fair Value (1) |
Notional/ Contract Amount |
Fair Value (1) |
Notional/ Contract Amount |
Fair Value (1) |
Notional/ Contract Amount |
Fair Value (2) |
Notional/ Contract Amount |
Fair Value (2) |
Notional/ Contract Amount |
Fair Value (2) |
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Interest rate swaps: |
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Commercial loan swaps (FRAPS) |
$ | | $ | | $ | | $ | | $ | | $ | | $ | 52,821 | $ | 3,238 | $ | 55,689 | $ | 3,536 | $ | 89,591 | $ | 6,063 | ||||||||||||||||||||||||
Sub debt swap |
250,000 | 22,718 | 250,000 | 8,739 | 250,000 | 12,688 | | | | | | | ||||||||||||||||||||||||||||||||||||
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Fair value hedges |
$ | 250,000 | $ | 22,718 | $ | 250,000 | $ | 8,739 | $ | 250,000 | $ | 12,688 | $ | 52,821 | $ | 3,238 | $ | 55,689 | $ | 3,536 | $ | 89,591 | $ | 6,063 | ||||||||||||||||||||||||
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(1) | Included in Other assets on the Consolidated Balance Sheets |
(2) | Included in Other liabilities on the Consolidated Balance Sheets |
Commercial Loan Swaps. Prior to 2008, the Corporation entered into interest rate swaps with dealer counterparties to convert certain fixed rate loans to variable rate instruments over the terms of the loans (termed by the Corporation as the FRAP Program). These interest rate swaps are designated as fair value hedges and met the criteria to qualify for the short cut method of accounting. Based on this shortcut method of accounting treatment, no ineffectiveness is assumed. The Corporation discontinued originating interest rate swaps under the FRAP Program in February 2008.
Sub Debt Swap. During the fourth quarter of 2014, the Corporation entered into a $250.0 million interest rate swap simultaneously with its long-term debt issuance for interest rate risk management purposes. This interest rate swap effectively modifies the receipt of fixed-rate interest amounts in exchange for floating-rate interest payments over the life of the swap, without an exchange of the underlying principal amount. This interest rate swap was designated as a fair value hedge, and through application of the shortcut method of accounting, there is an assumption that the hedge is effective in offsetting changes in the fair value of the long-term debt due to changes in the U.S. LIBOR swap rate (the designated benchmark interest rate).
Derivatives Not Designated in Hedge Relationships
As of March 31, 2016, December 31, 2015, and March 31, 2015, the notional values or contractual amounts and fair value of the Corporations derivatives not designated in hedge relationships were as follows:
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2016 | December 31, 2015 | March 31, 2015 | March 31, 2016 | December 31, 2015 | March 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||
(In thousands) |
Notional/ Contract Amount |
Fair Value (1) |
Notional/ Contract Amount |
Fair Value (1) |
Notional/ Contract Amount |
Fair Value (1) |
Notional/ Contract Amount |
Fair Value (2) |
Notional/ Contract Amount |
Fair Value (2) |
Notional/ Contract Amount |
Fair Value (2) |
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Interest rate swaps |
$ | 1,850,414 | $ | 75,139 | $ | 1,824,576 | $ | 48,920 | $ | 1,718,850 | $ | 59,147 | $ | 1,850,414 | $ | 75,139 | $ | 1,824,576 | $ | 48,920 | $ | 1,718,850 | $ | 59,147 | ||||||||||||||||||||||||
Mortgage loan commitments |
40,904 | 240 | 20,635 | 149 | 51,937 | 388 | | | | | | | ||||||||||||||||||||||||||||||||||||
Forward sales contracts |
| | | | 7,527 | 82 | 9,659 | 5 | 11,758 | 68 | ||||||||||||||||||||||||||||||||||||||
Credit contracts |
| | | | | | 74,315 | 8 | 73,715 | | 80,047 | | ||||||||||||||||||||||||||||||||||||
Foreign exchange |
15,467 | 452 | 13,671 | 299 | 40,537 | 350 | 8,641 | 154 | 11,706 | 284 | 10,052 | 169 | ||||||||||||||||||||||||||||||||||||
Equity swap |
| | | | | | 36,125 | | 36,631 | | 30,896 | | ||||||||||||||||||||||||||||||||||||
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Total |
$ | 1,906,785 | $ | 75,831 | $ | 1,858,882 | $ | 49,368 | $ | 1,811,324 | $ | 59,885 | $ | 1,977,022 | $ | 75,383 | $ | 1,956,287 | $ | 49,209 | $ | 1,851,603 | $ | 59,384 | ||||||||||||||||||||||||
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(1) | Included in Other assets on the Consolidated Balance Sheets |
(2) | Included in Other liabilities on the Consolidated Balance Sheets |
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Interest Rate Swaps. The Corporations Back-to-Back Program is an interest rate swap program for commercial loan customers that provides the customer with a fixed rate loan while creating a variable rate asset for the Corporation through the customer entering into an interest rate swap with the Corporation on terms that match the loan. The Corporation offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative.
Mortgage banking. In the normal course of business, the Corporation sells originated mortgage loans into the secondary mortgage loan markets. During the period of loan origination and prior to the sale of the loans in the secondary market, the Corporation has exposure to movements in interest rates associated with mortgage loans that are in the mortgage pipeline and the mortgage warehouse. A pipeline loan is one in which the Corporation has entered into a written mortgage loan commitment with a potential borrower that will be held for resale. Once a mortgage loan is closed and funded, it is included within the mortgage warehouse of loans awaiting sale and delivery into the secondary market.
Written loan commitments that relate to the origination of mortgage loans that will be held for resale are considered free-standing derivatives and do not qualify for hedge accounting. Written loan commitments generally have a term of up to 60 days before the closing of the loan. The loan commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that the Corporation will approve the potential borrower for the loan. Therefore, when determining fair value, the Corporation makes estimates of expected fallout (loan commitments not expected to close), using models which consider cumulative historical fallout rates and other factors. In addition, expected net future cash flows related to loan servicing activities are included in the fair value measurement of a written loan commitment.
Written loan commitments in which the borrower has locked in an interest rate result in market risk to the Corporation to the extent market interest rates change from the rate quoted to the borrower. The Corporation economically hedges the risk of changing interest rates associated with its interest rate lock commitments by entering into forward sales contracts.
The Corporations warehouse (mortgage loans held for sale) is subject to changes in fair value, due to fluctuations in interest rates from the loans closing date through the date of sale of the loan into the secondary market. Typically, the fair value of the warehouse declines in value when interest rates increase and rises in value when interest rates decrease. To mitigate this risk, the Corporation enters into forward sales contracts on a significant portion of the warehouse to provide an economic hedge against those changes in fair value. Mortgage loans held for sale and the forward sales contracts were recorded at fair value with ineffective changes in value recorded in current earnings as Loan sales and servicing income.
Credit contracts. The Corporation has bought and sold credit protection in the form of participations in interest rate swaps (swap participations). These swap participations, which meet the definition of credit derivatives, were entered into in the ordinary course of business. Credit derivatives, whereby the Corporation has purchased credit protection, entitles the Corporation to receive a payment from the counterparty when the
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customer fails to make payment on any amounts due to the Corporation. Swap participations whereby the Corporation has purchased credit protection have maturities that range between two to seven years. For swap participations where the Corporation sold credit protection, the Corporation has guaranteed payment in the event that the counterparty experiences a loss on the swap due to a failure to pay by the Corporations commercial loan customer. The Corporation simultaneously entered into reimbursement agreements with the commercial loan customers obligating the customers to reimburse the Corporation for any payments it makes under the swap participations. The Corporation monitors its payment risk on its swap participations by monitoring the creditworthiness of its commercial loan customers, which is based on the normal credit review process the Corporation would have performed had it entered into these derivative instruments directly with the commercial loan customers. Credit derivatives whereby the Corporation has sold credit protection have maturities ranging from less than one year to nine years. The Corporations maximum estimated exposure to sold swap participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was approximately $6.4 million as of March 31, 2016. The fair values of the written swap participations were not material at March 31, 2016, December 31, 2015, and March 31, 2015.
Gains and losses recognized in income on non-designated hedging instruments for the three months ended March 31, 2016 and 2015 are as follows:
Derivatives not designated as hedging instruments |
Location of Gain/(Loss) Recognized in Income on |
Amount of Gain / (Loss) Recognized in Income on Derivatives (In thousands) |
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Three Months Ended March 31, | ||||||||||
2016 | 2015 | |||||||||
Mortgage loan commitments |
Loan sales and servicing income |
$ | 92 | $ | (1,020 | ) | ||||
Forward sales contracts |
Loan sales and servicing income |
(77 | ) | 204 | ||||||
Foreign exchange contracts |
Other operating income |
819 | (877 | ) | ||||||
Equity swap |
Other operating expense |
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Total |
$ | 834 | $ | (1,693 | ) | |||||
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Counterparty Credit Risk
Like other financial instruments, derivatives contain an element of credit risk or the possibility that the Corporation will incur a loss because a counterparty, which may be a bank, a broker-dealer, a derivative clearing organization, or a customer, fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. All derivative contracts may be executed only with exchanges or counterparties approved by the Corporations Board of Directors. Where contracts have been created for customers, the Corporation enters into derivatives with dealers to offset its risk exposure. To manage the credit exposure to exchanges and counterparties, the Corporation generally enters into bilateral collateral agreements with collateral delivery thresholds on all bilateral derivatives. Beyond the threshold levels, collateral in the form of securities made available from the investment portfolio or other forms of collateral acceptable under the bilateral collateral agreements are provided. The threshold levels for each counterparty are approved by the Corporations Board of Directors. The Corporation generally posts collateral in the form of highly rated Government Agency issued bonds or MBS.
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The majority of the Corporations over-the-counter derivative transactions are cleared through a recognized derivative clearing organization (Clearinghouse). For cleared derivatives, the Clearinghouse is the Corporations counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin and the clearing agent notifies the Corporation of the required initial and variation margin. The requirement that the Corporation post initial and variation margin through the clearing agent to the Clearinghouse exposes the Corporation to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral is posted daily through a clearing agent for changes in the value of cleared derivatives.
The fair value of investment securities posted as collateral against derivative liabilities was $45.1 million, $47.2 million, and $53.6 million as of March 31, 2016, December 31, 2015, and March 31, 2015, respectively.
Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting agreements the Corporation has with its financial institution counterparties. These master netting agreements allow the Corporation to settle all derivative contracts held with a single financial institution counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. Collateral, usually in the form of investment securities, is posted by the counterparty in the net liability position in accordance with contract thresholds. The following tables illustrate the potential effect of the Corporations derivative master netting arrangements, by type of financial instrument, on the Corporations statement of financial position as of March 31, 2016, December 31, 2015, and March 31, 2015. The swap agreements the Corporation has in place with its commercial customers are not subject to enforceable master netting arrangements, and, therefore, are excluded from these tables.
As of March 31, 2016 | ||||||||||||||||||||||||
Gross amounts recognized |
Gross amounts offset in the consolidated balance sheet |
Net amounts presented in the consolidated balance sheet |
Gross amounts not offset in the consolidated balance sheet |
Net amount | ||||||||||||||||||||
(In thousands) |
Financial instruments (1) |
Collateral (2) | ||||||||||||||||||||||
Derivative Assets |
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Interest rate swaps - designated |
$ | 22,718 | $ | | $ | 22,718 | $ | | $ | | $ | 22,718 | ||||||||||||
Interest rate swaps - non-designated |
20 | $ | | 20 | (20 | ) | | | ||||||||||||||||
Foreign exchange |
27 | | 27 | (27 | ) | | | |||||||||||||||||
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Total derivative assets |
$ | 22,765 | $ | | $ | 22,765 | $ | (47 | ) | $ | | $ | 22,718 | |||||||||||
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Derivative liabilities |
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Interest rate swaps - designated |
$ | 3,238 | $ | | $ | 3,238 | $ | | $ | (3,238 | ) | $ | | |||||||||||
Interest rate swaps - non-designated |
75,119 | | 75,119 | (20 | ) | (75,099 | ) | | ||||||||||||||||
Foreign exchange |
121 | | 121 | (27 | ) | (94 | ) | | ||||||||||||||||
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Total derivative liabilities |
$ | 78,478 | $ | | $ | 78,478 | $ | (47 | ) | $ | (78,431 | ) | $ | | ||||||||||
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As of December 31, 2015 | ||||||||||||||||||||||||
Gross amounts recognized |
Gross amounts offset in the consolidated balance sheet |
Net amounts presented in the consolidated balance sheet |
Gross amounts not offset in the consolidated balance sheet |
Net amount | ||||||||||||||||||||
(In thousands) |
Financial instruments (1) |
Collateral (2) | ||||||||||||||||||||||
Derivative assets |
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Interest rate swaps - designated |
$ | 8,739 | $ | | $ | 8,739 | $ | | $ | | $ | 8,739 | ||||||||||||
Interest rate swaps - non-designated |
155 | | 155 | (155 | ) | | | |||||||||||||||||
Foreign exchange |
270 | | 270 | (32 | ) | (238 | ) | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total derivative assets |
$ | 9,164 | $ | | $ | 9,164 | $ | (187 | ) | $ | (238 | ) | $ | 8,739 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Derivative liabilities |
||||||||||||||||||||||||
Interest rate swaps - designated |
$ | 3,536 | $ | | $ | 3,536 | $ | | $ | (3,536 | ) | $ | | |||||||||||
Interest rate swaps - non-designated |
48,765 | | 48,765 | (155 | ) | (48,610 | ) | | ||||||||||||||||
Foreign exchange |
32 | | 32 | (32 | ) | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total derivative liabilities |
$ | 52,333 | $ | | $ | 52,333 | $ | (187 | ) | $ | (52,146 | ) | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015 | ||||||||||||||||||||||||
Gross amounts recognized |
Gross amounts offset in the consolidated balance sheet |
Net amounts presented in the consolidated balance sheet |
Gross amounts not offset in the consolidated balance sheet |
Net amount | ||||||||||||||||||||
(In thousands) |
Financial instruments (1) |
Collateral (2) | ||||||||||||||||||||||
Derivative assets |
||||||||||||||||||||||||
Interest rate swaps - designated |
12,688 | | 12,688 | | | 12,688 | ||||||||||||||||||
Interest rate swaps - non-designated |
$ | 67 | $ | | $ | 67 | $ | (67 | ) | $ | | $ | | |||||||||||
Foreign exchange |
219 | | 219 | (47 | ) | (172 | ) | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total derivative assets |
$ | 12,974 | $ | | $ | 12,974 | $ | (114 | ) | $ | (172 | ) | $ | 12,688 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Derivative liabilities |
||||||||||||||||||||||||
Interest rate swaps - designated |
$ | 6,063 | $ | | $ | 6,063 | $ | | $ | (6,063 | ) | $ | | |||||||||||
Interest rate swaps - non-designated |
59,080 | | 59,080 | (67 | ) | (59,013 | ) | | ||||||||||||||||
Foreign exchange |
47 | | 47 | (47 | ) | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total derivative liabilities |
$ | 65,190 | $ | | $ | 65,190 | $ | (114 | ) | $ | (65,076 | ) | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | For derivative assets, this includes any derivative liability fair values that could be offset in the event of counterparty default. For derivative liabilities, this includes any derivative asset fair values that could be offset in the event of counterparty default. |
(2) | For derivate assets, this includes the fair value of collateral received by the Corporation from the counterparty. Securities received as collateral are not included in the Consolidated Balance Sheets unless the counterparty defaults. For derivative liabilities, this includes the fair value of securities pledged by the Corporation to the counterparty. These securities are included in the Consolidated Balance Sheets unless the Corporation defaults. |
63
9. | Benefit Plans |
The Corporation sponsors several qualified and nonqualified pension and other postretirement plans for certain of its employees. The net periodic pension cost is based on estimated values provided by an outside actuary. The components of net periodic benefit cost are as follows:
Pension Benefits | ||||||||
Three Months Ended March 31, | ||||||||
(In thousands) |
2016 | 2015 | ||||||
Service cost |
$ | 198 | $ | 207 | ||||
Interest cost |
3,649 | 3,517 | ||||||
Expected return on assets |
(3,788 | ) | (3,902 | ) | ||||
Amortization of unrecognized prior service costs |
75 | 570 | ||||||
Amortization of actuarial losses/(gains) |
830 | 1,057 | ||||||
|
|
|
|
|||||
Net periodic pension cost |
$ | 964 | $ | 1,449 | ||||
|
|
|
|
Postretirement Benefits | ||||||||
Three Months Ended March 31, | ||||||||
(In thousands) |
2016 | 2015 | ||||||
Service cost |
$ | 26 | $ | 41 | ||||
Interest cost |
64 | 144 | ||||||
Amortization of unrecognized prior service costs |
(636 | ) | (160 | ) | ||||
Amortization of actuarial losses/(gains) |
245 | 81 | ||||||
|
|
|
|
|||||
Net periodic postretirement cost |
$ | (301 | ) | $ | 106 | |||
|
|
|
|
For further information on the Corporations employee benefit plans, refer to Note 13 (Benefit Plans) to the consolidated financial statements in the 2015 Form 10-K.
10. | Fair Value Measurement |
As defined in ASC 820, Fair Value Measurements and Disclosures, fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market or most advantageous market for the asset or liability. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, Management determines the fair value of the Corporations assets and liabilities using valuation models or third-party pricing services. Both of these approaches rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on Managements judgment, assumptions and estimates related to credit quality, liquidity, interest rates and other relevant inputs.
GAAP establishes a three-level valuation hierarchy for determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy, highest ranking to lowest, are as follows:
| Level 1 Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
64
| Level 2 Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
| Level 3 Significant unobservable inputs that reflect a companys own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
The level in the fair value hierarchy ascribed to a fair value measurement in its entirety is based on the lowest level input that is significant to the overall fair value measurement.
Valuation adjustments, such as those pertaining to counterparty and the Corporations own credit quality and liquidity, may be necessary to ensure that assets and liabilities are recorded at fair value. Credit valuation adjustments are made when market pricing does not accurately reflect the counterpartys credit quality. As determined by Management, liquidity valuation adjustments may be made to the fair value of certain assets to reflect the uncertainty in the pricing and trading of the instruments when Management is unable to observe recent market transactions for identical or similar instruments. Liquidity valuation adjustments are based on the following factors:
| the amount of time since the last relevant valuation; |
| whether there is an actual trade or relevant external quote available at the measurement date; and |
| volatility associated with the primary pricing components. |
Management ensures that fair value measurements are accurate and appropriate by relying upon various controls, including:
| an independent review and approval of valuation models; |
| recurring detailed reviews of profit and loss; and |
| a validation of valuation model components against benchmark data and similar products, where possible. |
Management reviews any changes to its valuation methodologies to ensure they are appropriate and justified, and refines valuation methodologies as more market-based data becomes available. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.
Additional information regarding the Corporations accounting policies for determining fair value is provided in Note 1 (Summary of Significant Accounting Policies) under the heading Fair Value Measurements.
65
The following tables present the balance of assets and liabilities measured at fair value on a recurring and nonrecurring basis as of March 31, 2016, December 31, 2015, and March 31, 2015:
Fair Value by Hierarchy | ||||||||||||||||
(In thousands) |
March 31, 2016 | Level 1 | Level 2 | Level 3 | ||||||||||||
Recurring fair value measurement |
||||||||||||||||
Available-for-sale securities: |
||||||||||||||||
Marketable equity securities |
$ | 2,873 | $ | 2,873 | $ | | $ | | ||||||||
U.S. government agency debentures |
2,520 | | 2,520 | | ||||||||||||
U.S. States and political subdivisions |
173,141 | | 173,141 | | ||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
907,656 | | 907,656 | | ||||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
184,248 | | 184,248 | | ||||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
2,226,737 | | 2,226,737 | | ||||||||||||
Non-agency |
4 | | | 4 | ||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
272,882 | | 272,882 | | ||||||||||||
Corporate debt securities |
48,756 | | | 48,756 | ||||||||||||
Asset-backed securities: |
||||||||||||||||
Collateralized loan obligations |
285,397 | | | 285,397 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total available for sale securities |
4,104,214 | 2,873 | 3,767,184 | 334,157 | ||||||||||||
Residential loans held for sale |
5,249 | | 5,249 | | ||||||||||||
Derivative assets: |
||||||||||||||||
Interest rate swaps - fair value hedges |
22,718 | | 22,718 | | ||||||||||||
Interest rate swaps - nondesignated |
75,139 | | 75,139 | | ||||||||||||
Mortgage loan commitments |
240 | | 240 | | ||||||||||||
Foreign exchange |
452 | | 452 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative assets |
98,549 | | 98,549 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fair value of assets (1) |
$ | 4,208,012 | $ | 2,873 | $ | 3,870,982 | $ | 334,157 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities: |
||||||||||||||||
Interest rate swaps - fair value hedges |
$ | 3,238 | $ | | $ | 3,238 | $ | | ||||||||
Interest rate swaps - nondesignated |
75,139 | | 75,139 | | ||||||||||||
Forward sales contracts |
82 | | 82 | | ||||||||||||
Credit contracts |
8 | | 8 | | ||||||||||||
Foreign exchange |
154 | | 154 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative liabilities |
78,621 | | 78,621 | | ||||||||||||
True-up liability |
15,115 | | | 15,115 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fair value of liabilities (1) |
$ | 93,736 | $ | | $ | 78,621 | $ | 15,115 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Nonrecurring fair value measurement |
||||||||||||||||
Mortgage servicing rights (2) |
$ | 17,460 | $ | | $ | | $ | 17,460 | ||||||||
Impaired loans (3) |
86,315 | | | 86,315 | ||||||||||||
Other property (4) |
13,629 | | | 13,629 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total nonrecurring fair value |
$ | 117,404 | $ | | $ | | $ | 117,404 | ||||||||
|
|
|
|
|
|
|
|
(1) | There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the three months ended March 31, 2016. |
(2) | MSRs with a recorded investment of $18.1 million were reduced by a specific valuation allowance totaling $0.9 million to a reported carrying value of $17.3 million resulting in recognition of $0.5 million in expense included in loan sales and servicing income in the three months ended March 31, 2016. |
(3) | At March 31, 2016, collateral dependent impaired loans with a recorded investment of $94.1 million were reduced by specific valuation allowance allocations totaling $7.8 million to a reported net carrying value of $86.3 million. |
(4) | Amounts do not include assets held at cost at March 31, 2016. During the three months ended March 31, 2016, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $2.0 million included in noninterest expense. |
66
Fair Value by Hierarchy | ||||||||||||||||
(In thousands) |
December 31, 2015 | Level 1 | Level 2 | Level 3 | ||||||||||||
Recurring fair value measurement |
||||||||||||||||
Available-for-sale securities: |
||||||||||||||||
Marketable equity securities |
$ | 2,821 | $ | 2,821 | $ | | $ | | ||||||||
U.S treasury notes & bonds |
5,000 | | 5,000 | | ||||||||||||
U.S. government agency debentures |
2,498 | | 2,498 | | ||||||||||||
U.S. States and political subdivisions |
192,795 | | 192,795 | | ||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
906,229 | | 906,229 | | ||||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
172,109 | | 172,109 | | ||||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
2,128,320 | | 2,128,320 | | ||||||||||||
Non-agency |
4 | | | 4 | ||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
216,319 | | 216,319 | | ||||||||||||
Corporate debt securities |
52,229 | | | 52,229 | ||||||||||||
Asset-backed securities |
||||||||||||||||
Collateralized loan obligations |
289,411 | | | 289,411 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total available-for-sale securities |
3,967,735 | 2,821 | 3,623,270 | 341,644 | ||||||||||||
Residential loans held for sale |
5,472 | | 5,472 | | ||||||||||||
Derivative assets: |
||||||||||||||||
Interest rate swaps - fair value hedges |
8,739 | | 8,739 | | ||||||||||||
Interest rate swaps - nondesignated |
48,920 | | 48,920 | | ||||||||||||
Mortgage loan commitments |
149 | | 149 | | ||||||||||||
Foreign exchange |
299 | | 299 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative assets |
58,107 | | 58,107 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fair value of assets (1) |
$ | 4,031,314 | $ | 2,821 | $ | 3,686,849 | $ | 341,644 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities: |
||||||||||||||||
Interest rate swaps - fair value hedges |
$ | 3,536 | $ | | $ | 3,536 | $ | | ||||||||
Interest rate swaps - nondesignated |
48,920 | | 48,920 | | ||||||||||||
Forward sale contracts |
5 | | 5 | | ||||||||||||
Foreign exchange |
284 | | 284 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative liabilities |
52,745 | | 52,745 | | ||||||||||||
True-up liability |
14,750 | | | 14,750 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fair value of liabilities (1) |
$ | 67,495 | $ | | $ | 52,745 | $ | 14,750 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Nonrecurring fair value measurement |
||||||||||||||||
Mortgage servicing rights (2) |
$ | 19,149 | $ | | $ | | $ | 19,149 | ||||||||
Impaired loans (3) |
71,428 | | | 71,428 | ||||||||||||
Other property (4) |
18,576 | | | 18,576 | ||||||||||||
Other real estate covered by loss share (5) |
365 | | | 365 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total nonrecurring fair value |
$ | 109,518 | $ | | $ | | $ | 109,518 | ||||||||
|
|
|
|
|
|
|
|
(1) | There were no transfers between levels 1, 2 or 3 of the fair value hierarchy during the year ended December 31, 2015. |
(2) | MSRs with a recorded investment of $18.9 million were reduced by a specific valuation allowance totaling $0.4 million to a reported carrying value of $18.5 million resulting in a recovery of previously recognized expense of $0.6 million in recoveries included in loans sales and servicing income in the year ended December 31, 2015. |
(3) | At December 31, 2015, collateral dependent impaired loans with a recorded investment of $84.3 million were reduced by specific valuation allowance allocations totaling $12.9 million to a reported net carrying value of $71.4 million. |
(4) | Amounts do not include assets held at cost at December 31, 2015. During the year ended December 31, 2015, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $4.5 million included in noninterest expense. |
(5) | Amounts do not include assets held at cost at December 31, 2015. During the year ended December 31, 2015, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.6 million included in noninterest expense. |
67
Fair Value by Hierarchy | ||||||||||||||||
(In thousands) |
March 31, 2015 | Level 1 | Level 2 | Level 3 | ||||||||||||
Recurring fair value measurement |
||||||||||||||||
Available-for-sale securities: |
||||||||||||||||
Marketable equity securities |
$ | 2,869 | $ | 2,869 | $ | | $ | | ||||||||
U.S. government agency debentures |
2,513 | | 2,513 | | ||||||||||||
U.S. States and political subdivisions |
215,164 | | 215,164 | | ||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
947,303 | | 947,303 | | ||||||||||||
Commercial mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
140,359 | | 140,359 | | ||||||||||||
Residential collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
1,892,560 | | 1,892,560 | | ||||||||||||
Non-agency |
6 | | 1 | 5 | ||||||||||||
Commercial collateralized mortgage-backed securities: |
||||||||||||||||
U.S. government agencies |
244,059 | | 244,059 | | ||||||||||||
Corporate debt securities |
52,264 | | | 52,264 | ||||||||||||
Asset-backed securities: |
||||||||||||||||
Collateralized loan obligations |
293,962 | | | 293,962 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total available-for-sale securities |
3,791,059 | 2,869 | 3,441,959 | 346,231 | ||||||||||||
Residential loans held for sale |
3,568 | | 3,568 | | ||||||||||||
Derivative assets: |
||||||||||||||||
Interest rate swaps - fair value hedges |
12,688 | | 12,688 | | ||||||||||||
Interest rate swaps - nondesignated |
59,147 | | 59,147 | | ||||||||||||
Mortgage loan commitments |
388 | | 388 | | ||||||||||||
Foreign exchange |
350 | | 350 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative assets |
72,573 | | 72,573 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fair value of assets (1) |
$ | 3,867,200 | $ | 2,869 | $ | 3,518,100 | $ | 346,231 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivative liabilities: |
||||||||||||||||
Interest rate swaps - fair value hedges |
$ | 6,063 | $ | | $ | 6,063 | $ | | ||||||||
Interest rate swaps - nondesignated |
59,147 | | 59,147 | | ||||||||||||
Forward sale contracts |
68 | | 68 | | ||||||||||||
Foreign exchange |
169 | | 169 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivative liabilities |
65,447 | | 65,447 | | ||||||||||||
True-up liability |
13,707 | | | 13,707 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fair value of liabilities (1) |
$ | 79,154 | $ | | $ | 65,447 | $ | 13,707 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Nonrecurring fair value measurement |
||||||||||||||||
Mortgage servicing rights (2) |
$ | 20,526 | $ | | $ | | $ | 20,526 | ||||||||
Impaired loans (3) |
63,839 | | | 63,839 | ||||||||||||
Other property (4) |
16,956 | | | 16,956 | ||||||||||||
Other real estate covered by loss share (5) |
7,293 | | | 7,293 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total nonrecurring fair value |
$ | 108,614 | $ | | $ | | $ | 108,614 | ||||||||
|
|
|
|
|
|
|
|
(1) | There were no transfers between levels 1, 2 and 3 of the fair value hierarchy during the three months ended March 31, 2015. |
(2) | MSRs with a recorded investment of $21.5 million were reduced by a specific valuation allowance totaling $1.1 million to a reported carrying value of $20.4 million resulting in recovery of a previously recognized expense of $0.2 million in the three months ended March 31, 2015. |
(3) | At March 31, 2015, collateral dependent impaired loans with a recorded investment of $75.6 million were reduced by specific valuation allowance allocations totaling $11.8 million to a reported net carrying value of $63.8 million. |
(4) | Amounts do not include assets held at cost at March 31, 2015. During the three months ended March 31, 2015, the re-measurement of foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.9 million included in noninterest expense. |
(5) | Amounts do not include assets held at cost at March 31, 2015. During the three months ended March 31, 2015, the re-measurement of covered foreclosed assets at fair value subsequent to initial recognition resulted in losses of $0.3 million included in noninterest expense. |
68
The following section describes the valuation methodologies used by the Corporation to measure financial assets and liabilities at fair value. During the three months ended March 31, 2016 and 2015, there were no significant changes to the valuation techniques used by the Corporation to measure fair value.
Available-for-sale securities. When quoted prices are available in an active market, securities are valued using the quoted price and are classified as Level 1. The quoted prices are not adjusted. Level 1 instruments include money market mutual funds.
Securities are classified as Level 2 if quoted prices for identical securities are not available, and fair value is determined using pricing models by a third-party pricing service. Approximately 92% of the available-for-sale portfolio is Level 2. For the majority of available-for sale securities, the Corporation obtains fair value measurements from an independent third party pricing service. These instruments include: municipal bonds; bonds backed by the U.S. government; corporate bonds; MBS; securities issued by the U.S. Treasury; and certain agency CMOs. The independent pricing service uses industry-standard models to price U.S. government agencies and MBS that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Obligations of state and political subdivisions are valued using a matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. For collateralized mortgage securities, depending on the characteristics of a given tranche, a volatility driven multidimensional static model or Option-Adjusted Spread model is generally used. Substantially all assumptions used by the independent pricing service for securities classified as Level 2 are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.
Securities are classified as Level 3 when there is limited activity in the market for a particular instrument and fair value is determined by obtaining broker quotes. As of March 31, 2016, 8% of the available-for-sale portfolio is Level 3, which consists of single issuer trust preferred securities and CLOs.
The single issuer trust preferred securities are measured at unadjusted prices obtained from the independent pricing service. The independent pricing service prices these instruments through a broker quote when sufficient information, such as cash flows or other security structure or market information, is not available to produce an evaluation. Broker-quoted securities are adjusted by the independent pricing service based solely on the receipt of updated quotes from market makers or broker-dealers recognized as market participants. A list of such issues is compiled by the independent pricing service daily. For broker-quoted issues, the independent pricing service applies a zero spread relationship to the bid-side valuation, resulting in the same values for the mean and ask.
CLO are securitized products where payments from multiple middle-sized and large business loans are pooled together and segregated into different classes of bonds with payments on these bonds based on their
69
priority within the overall deal structure. The markets for such securities are generally characterized by low trading volumes and wide bid-ask spreads, all driven by more limited market participants. Although estimated prices are generally obtained for such securities, the level of market observable assumptions used is limited in the valuation. Specifically, market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level. Accordingly, the securities are currently valued by a third party that primarily utilizes dealer or pricing service prices and, subsequently, verifies this pricing through a disciplined process to ensure proper valuations and to highlight differences in cash flow modeling or other risks to determine if the market perception of the risk of a CLO is beginning to deviate from other similar tranches. This is done by establishing ranges for appropriate pricing yields for each CLO tranche and, using a standardized cash flow scenario, ensuring yields are consistent with expectations.
On a monthly basis, Management validates the pricing methodologies utilized by our independent pricing service to ensure the fair-value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy. Management substantiates the fair values determined for a sample of securities held in portfolio by reviewing the key assumptions used by the independent pricing service to value the securities and comparing the fair values to prices from other independent sources for the same and similar securities. Management analyzes variances and conducts additional research with the independent pricing service, if necessary, and takes appropriate action based on its findings.
Loans held for sale. These loans are regularly traded in active markets through programs offered by FHLMC and FNMA, and observable pricing information is available from market participants. The prices are adjusted as necessary to include any embedded servicing value in the loans and to take into consideration the specific characteristics of certain loans. These adjustments represent unobservable inputs to the valuation but are not considered significant to the fair value of the loans. Accordingly, residential real estate loans held for sale are classified as Level 2.
Impaired loans. Certain impaired collateral dependent loans are reported at fair value less costs to sell the collateral. Collateral values are estimated using Level 3 inputs, consisting of third-party appraisals or price opinions and internal adjustments necessary in the judgment of Management to reflect current market conditions and current operating results for the specific collateral. Collateral may be in the form of real estate or personal property including equipment and inventory. The vast majority of the collateral is real estate. When impaired collateral dependent loans are individually re-measured and reported at fair value of the collateral, less costs to sell, a direct loan charge off to the ALL and/or a specific valuation allowance allocation is recorded.
Other Property. Certain other property which consists of foreclosed assets and properties securing residential and commercial loans, upon initial recognition and transfer from loans, are re-measured and reported at fair value less costs to sell to the property through a charge-off to the ALL based on the fair value of the foreclosed assets. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 3 inputs, consisting of third-party appraisals or price opinions and internal adjustments necessary in the judgment of Management to reflect current market conditions and current operating results for the specific collateral. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down further through a charge to noninterest expense.
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Mortgage Servicing Rights. The Corporation carries its MSRs at lower of cost or fair value, and, therefore, they are subject to fair value measurements on a nonrecurring basis. Since sales of MSRs tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSRs. As such, like other participants in the mortgage banking business, the Corporation relies primarily on a discounted cash flow model, incorporating assumptions about loan prepayment rates, discount rates, servicing costs and other economic factors, to estimate the fair value of its mortgage servicing rights. Since the valuation model uses significant unobservable inputs, the Corporation classifies MSRs within Level 3.
The Corporation utilizes a third-party vendor to perform the modeling to estimate the fair value of its MSRs. The Corporation reviews the estimated fair values and assumptions used by the third party in the model on a quarterly basis. The Corporation also compares the estimates of fair value and assumptions to recent market activity and against its own experience. See Note 11 (Mortgage Servicing Rights and Mortgage Servicing Activity) for further information on MSRs valuation assumptions.
Derivatives. The Corporations derivatives include interest rate swaps and written loan commitments and forward sales contracts related to residential mortgage loan origination activity. Valuations for interest rate swaps are derived from third-party models whose significant inputs are readily observable market parameters, primarily yield curves, with appropriate adjustments for liquidity and credit risk. These fair value measurements are classified as Level 2. The fair values of written loan commitments and forward sales contracts on the associated loans are based on quoted prices for similar loans in the secondary market, consistent with the valuation of residential mortgage loans held for sale. Expected net future cash flows related to loan servicing activities are included in the fair value measurement of written loan commitments. A written loan commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that the Corporation will approve the potential borrower for the loan. Therefore, when determining fair value, the Corporation makes estimates of expected fallout (interest rate locked pipeline loans not expected to close), using models, which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon a fixed rate loan commitment at one lender and enter into a new lower fixed rate loan commitment at another, when a borrower is not approved as an acceptable credit by the lender or for a variety of other non-economic reasons. Fallout is not a significant input to the fair value of the written loan commitments in their entirety. These measurements are classified as Level 2.
Derivative assets are typically secured through securities with financial counterparties or cross collateralization with a borrowing customer. Derivative liabilities are typically secured through the Corporation pledging securities to financial counterparties or, in the case of a borrowing customer, by the right of setoff. The Corporation considers factors such as the likelihood of default by itself and its counterparties, right of setoff, and remaining maturities in determining the appropriate fair value adjustments. All derivative counterparties approved by the Banks Board are regularly reviewed, and appropriate business action is taken to adjust the
71
exposure to certain counterparties, as necessary. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of marketable collateral securing the position. This approach used to estimate impacted exposures to counterparties is also used by the Corporation to estimate its own credit risk on derivative liability positions. To date, no material losses have been incurred due to a counterpartys inability to pay any uncollateralized position. There was no significant change in value of derivative assets and liabilities attributed to credit risk for the three months ended March 31, 2016.
True-up liability. In connection with the George Washington and Midwest FDIC assisted acquisitions in 2010, the Bank has agreed to pay the FDIC should the estimated losses on the acquired loan portfolios as well as servicing fees earned on the acquired loan portfolios not meet thresholds as stated in the loss share agreements (the true-up liability). This contingent consideration is classified as a liability within accrued taxes, expenses and other liabilities on the consolidated balance sheets and is remeasured at fair value each reporting date until the contingency is resolved. The changes in fair value are recognized in earnings in the current period.
An expected value methodology is used as a starting point for determining the fair value of the true-up liability based on the contractual terms prescribed in the loss share agreements. The resulting values under both calculations are discounted over 10 years (the period defined in the loss share agreements) to reflect the uncertainty in the timing and payment of the true-up liability by the Bank to arrive at a net present value. The discount rate used to value the true-up liability was 3.46% and 3.05% as of March 31, 2016 and 2015, respectively. Increasing or decreasing the discount rate by one percentage point would change the liability by approximately $0.6 million and $0.6 million, respectively, as of March 31, 2016.
In accordance with the loss share agreements governing the Midwest acquisition, on July 15, 2020 (the Midwest True-Up Measurement Date), the Bank has agreed to pay to the FDIC half of the amount, if positive, calculated as: (1) 20% of the intrinsic loss estimate of the FDIC (approximately $152 million); minus (2) the sum of (A) 25% of the asset premium paid in connection with the Midwest acquisition (approximately $21 million); plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the Midwest acquisition was $9.6 million, $9.3 million, and $8.6 million as of March 31, 2016, December 31, 2015, and March 31, 2015, respectively.
In accordance with the loss share agreements governing the George Washington acquisition, on April 14, 2020 (the George Washington True-Up Measurement Date), the Bank has agreed to pay to the FDIC 50% of the excess, if any, of (1) 20% of the stated threshold (approximately $34.4 million) less (2) the sum of (A) 25% of the asset discount (approximately $12 million) received in connection with the George Washington acquisition plus (B) 25% of the cumulative shared-loss payments (as defined below) plus (C) the cumulative servicing amount (as defined below). The fair value of the true-up liability associated with the George Washington acquisition was $5.5 million, $5.5 million, and $5.1 million as of March 31, 2016, December 31, 2015, and March 31, 2015, respectively.
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For the purposes of the above calculations, cumulative shared-loss payments means: (i) the aggregate of all of the payments made or payable to the Bank under the loss share agreements minus (ii) the aggregate of all of the payments made or payable to the FDIC. The cumulative servicing amount means the period servicing amounts (as defined in the loss share agreements) for every consecutive twelve-month period prior to and ending on the Midwest and George Washington True-Up Measurement Dates. The cumulative loss share payments and cumulative service amounts are components of the true-up calculations and are estimated each period end based on the expected amount and timing of cash flows of the acquired loan portfolios. See Note 3 (Loans) and Note 4 (Allowance for Loan Losses) for additional information on the estimated cash flows of the acquired loan portfolios.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2016 and 2015 are summarized as follows:
Three Months Ended March 31, | ||||||||||||||||
2016 | 2015 | |||||||||||||||
(In thousands) |
Available- for-sale securities |
True-up liability |
Available- for-sale securities |
True-up liability |
||||||||||||
Balance at beginning of period |
$ | 341,644 | $ | 14,750 | $ | 339,187 | $ | 13,294 | ||||||||
(Gains) losses included in earnings (1) |
| 365 | | 413 | ||||||||||||
Unrealized gains (losses) (2) |
(7,556 | ) | | 6,682 | | |||||||||||
Purchases |
| | | | ||||||||||||
Sales |
| | ||||||||||||||
Settlements |
69 | | 362 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at ending of period |
$ | 334,157 | $ | 15,115 | $ | 346,231 | $ | 13,707 | ||||||||
|
|
|
|
|
|
|
|
(1) | Reported in Other expense |
(2) | Reported in Other comprehensive income (loss) |
Fair Value Option
Residential mortgage loans held for sale are recorded at fair value under fair value option accounting guidance. The election of the fair value option aligns the accounting for these loans with the related hedges. It also eliminates the requirements of the hedge accounting under GAAP.
Interest income on loans held for sale is accrued on the principal outstanding primarily using the simple-interest method. None of these loans were 90 days or more past due, nor were any on nonaccrual as of March 31, 2016, December 31, 2015, and March 31, 2015. The aggregate fair value, contractual balance and gain or loss on loans held for sale was as follows:
(In thousands) |
March 31, 2016 | December 31, 2015 | March 31, 2015 | |||||||||
Aggregate fair value carrying amount |
$ | 5,249 | $ | 5,472 | $ | 3,568 | ||||||
Aggregate unpaid principal / contractual balance |
5,084 | 5,320 | 3,400 | |||||||||
|
|
|
|
|
|
|||||||
Carrying amount over aggregate unpaid principal (1) |
$ | 165 | $ | 152 | $ | 168 | ||||||
|
|
|
|
|
|
(1) | These changes are included in Loan sales and servicing income in the Consolidated Statements of Income. |
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Disclosures about Fair Value of Financial Instruments
The carrying amount and estimated fair value of the Corporations financial instruments that are carried at either fair value or cost as of March 31, 2016, December 31, 2015, and March 31, 2015 are shown in the tables below.
March 31, 2016 | ||||||||||||||||||||
Carrying Amount |
Fair Value | |||||||||||||||||||
(In thousands) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 759,897 | $ | 759,897 | $ | 759,897 | $ | | $ | | ||||||||||
Available-for-sale securities |
4,104,214 | 4,104,214 | 2,873 | 3,767,184 | 334,157 | |||||||||||||||
Held-to-maturity securities |
2,613,700 | 2,632,274 | | 2,632,274 | | |||||||||||||||
Other securities |
148,159 | 148,159 | | 148,159 | | |||||||||||||||
Loans held for sale |
5,249 | 5,249 | | 5,249 | | |||||||||||||||
Net originated loans |
14,286,598 | 14,069,307 | | | 14,069,307 | |||||||||||||||
Net acquired loans |
1,629,283 | 1,681,087 | | | 1,681,087 | |||||||||||||||
Net FDIC acquired loans and loss share receivable |
157,632 | 157,632 | | | 157,632 | |||||||||||||||
Accrued interest receivable |
70,280 | 70,280 | | 70,280 | | |||||||||||||||
Derivatives |
98,549 | 98,549 | | 98,549 | | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
$ | 21,101,366 | $ | 21,109,594 | $ | | $ | 21,109,594 | $ | | ||||||||||
Federal funds purchased and securities sold under agreements to repurchase |
719,850 | 719,850 | | 719,850 | | |||||||||||||||
Wholesale borrowings |
378,996 | 383,432 | | 383,432 | | |||||||||||||||
Long-term debt |
519,249 | 504,468 | | 504,468 | | |||||||||||||||
Accrued interest payable |
10,093 | 10,093 | | 10,093 | | |||||||||||||||
Derivatives |
78,621 | 78,621 | | 78,621 | |
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December 31, 2015 | ||||||||||||||||||||
Carrying Amount |
Fair Value | |||||||||||||||||||
(In thousands) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 463,817 | $ | 463,817 | $ | 463,817 | $ | | $ | | ||||||||||
Available-for-sale securities |
3,967,735 | 3,967,735 | 2,821 | 3,623,270 | 341,644 | |||||||||||||||
Held-to-maturity securities |
2,674,093 | 2,659,119 | | 2,659,119 | | |||||||||||||||
Other securities |
148,172 | 148,172 | | 148,172 | | |||||||||||||||
Loans held for sale |
5,472 | 5,472 | | 5,472 | | |||||||||||||||
Net originated loans |
14,013,370 | 13,795,058 | | | 13,795,058 | |||||||||||||||
Net acquired loans |
1,739,194 | 1,796,314 | | | 1,796,314 | |||||||||||||||
Net FDIC acquired loans and loss share receivable |
170,690 | 170,690 | | | 170,690 | |||||||||||||||
Accrued interest receivable |
67,887 | 67,887 | | 67,887 | | |||||||||||||||
Derivatives |
58,107 | 58,107 | | 58,107 | | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
$ | 20,108,003 | $ | 20,116,298 | $ | | $ | 20,116,298 | $ | | ||||||||||
Federal funds purchased and securities sold under agreements to repurchase |
1,037,075 | 1,037,075 | | 1,037,075 | | |||||||||||||||
Wholesale borrowings |
580,648 | 582,120 | | 582,120 | | |||||||||||||||
Long-term debt |
505,173 | 503,675 | | 503,675 | | |||||||||||||||
Accrued interest payable |
10,758 | 10,758 | | 10,758 | | |||||||||||||||
Derivatives |
52,745 | 52,745 | | 52,745 | |
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March 31, 2015 | ||||||||||||||||||||
Carrying Amount |
Fair Value | |||||||||||||||||||
(In thousands) |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 532,425 | $ | 532,425 | $ | 532,425 | $ | | $ | | ||||||||||
Available-for-sale securities |
3,791,059 | 3,791,059 | 2,869 | 3,441,959 | 346,231 | |||||||||||||||
Held-to-maturity securities |
2,855,174 | 2,848,912 | | 2,848,912 | | |||||||||||||||
Other securities |
148,475 | 148,475 | | 148,475 | | |||||||||||||||
Loans held for sale |
3,568 | 3,568 | | 3,568 | | |||||||||||||||
Net originated loans |
12,758,492 | 12,588,147 | | | 12,588,147 | |||||||||||||||
Net acquired loans |
2,317,386 | 2,393,942 | | | 2,393,942 | |||||||||||||||
Net FDIC acquired loans and loss share receivable |
268,459 | 268,459 | | | 268,459 | |||||||||||||||
Accrued interest receivable |
69,086 | 69,086 | | 69,086 | | |||||||||||||||
Derivatives |
72,573 | 72,573 | | 72,573 | | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
$ | 19,925,595 | $ | 19,932,571 | $ | | $ | 19,932,571 | $ | | ||||||||||
Federal funds purchased and securities sold under agreements to repurchase |
1,113,371 | 1,113,371 | | 1,113,371 | | |||||||||||||||
Wholesale borrowings |
316,628 | 320,180 | | 320,180 | | |||||||||||||||
Long-term debt |
512,625 | 527,018 | | 527,018 | | |||||||||||||||
Accrued interest payable |
9,620 | 9,620 | | 9,620 | | |||||||||||||||
Derivatives |
65,447 | 65,447 | | 65,447 | |
The following methods and assumptions were used to estimate the fair values of each class of financial instrument presented:
Cash and cash equivalents Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value.
Investment securities See Financial Instruments Measured at Fair Value above.
Loans held for sale The majority of loans held for sale are residential mortgage loans which are recorded at fair value. All other loans held for sale are recorded at the lower of cost or market, less costs to sell. See Financial Instruments Measured at Fair Value above.
Net originated loans The originated loan portfolio was segmented based on loan type and repricing characteristics. Carrying values are used to estimate fair values of variable rate loans. A discounted cash flow method was used to estimate the fair value of fixed-rate loans. Discounting was based on the contractual cash flows, and discount rates are based on the quarter-end yield curve plus a spread that reflects current pricing on loans with similar characteristics. If applicable, prepayment assumptions are factored into the fair value determination based on historical experience and current economic conditions.
76
Net acquired and FDIC acquired loans Fair values for acquired and FDIC acquired loans were estimated based on a discounted projected cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.
Loss share receivable This loss sharing asset is measured separately from the related covered assets as it is not contractually embedded in the covered assets and is not transferable with the covered assets should the Bank choose to dispose of them. Fair value was estimated using discounted projected cash flows related to the FDIC loss share agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing and receipt from the FDIC.
Accrued interest receivable The carrying amount is considered a reasonable estimate of fair value.
Mortgage servicing rights See Financial Instruments Measured at Fair Value above.
Deposits The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market accounts and other savings accounts, are established at carrying value because of the customers ability to withdraw funds immediately. A discounted cash flow method is used to estimate the fair value of fixed rate time deposits. Discounting was based on the contractual cash flows and the current rates at which similar deposits with similar remaining maturities would be issued.
Federal funds purchased and securities sold under agreements to repurchase, wholesale borrowings and long-term debt The carrying amount of variable rate borrowings including federal funds purchased approximates the estimated fair value. Quoted market prices or the discounted cash flow method was used to estimate the fair value of the Corporations long-term debt. Discounting was based on the contractual cash flows and the current rate at which debt with similar terms could be issued.
Accrued interest payable The carrying amount is considered a reasonable estimate of fair value.
Derivative assets and liabilities See Financial Instruments Measured at Fair Value above.
True-up liability See Financial Instruments Measured at Fair Value above.
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11. | Mortgage Servicing Rights and Mortgage Servicing Activity |
In the three months ended March 31, 2016 and 2015, the Corporation sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $7.7 million and $50.3 million, respectively, and recognized pretax gains of $0.2 million and $0.6 million, respectively, which are included as a component of loan sales and servicing income. As of March 31, 2016 and 2015, the Corporation retained the related MSRs, for which it receives servicing fees, on $3.3 million and $45.2 million, respectively, of the loans sold.
The Corporation serviced for third parties approximately $2.3 billion of residential mortgage loans at March 31, 2016 and $2.6 billion at March 31, 2015. Loan servicing fees, not including valuation changes included in loan sales and servicing income, were $1.4 million and $1.6 million, respectively, for the three months ended March 31, 2016 and 2015.
Servicing rights are presented within other assets on the accompanying Consolidated Balance Sheets. The retained servicing rights are initially valued at fair value. Since MSRs do not trade in an active market with readily observable prices, the Corporation relies primarily on a discounted cash flow analysis model to estimate the fair value of its MSRs. Additional information can be found in Note 10 (Fair Value Measurement). MSRs are subsequently measured using the amortization method. Accordingly, the MSRs are amortized over the period of, and in proportion to, the estimated net servicing income and is recorded in loan sales and servicing income.
Changes in the carrying amount of MSRs and MSRs valuation allowance are as follows:
Three Months Ended March 31, | ||||||||
(In thousands) |
2016 | 2015 | ||||||
Carrying amount of MSRs |
||||||||
Beginning balance |
$ | 18,938 | $ | 22,011 | ||||
Additions |
28 | 470 | ||||||
Amortization |
(839 | ) | (991 | ) | ||||
|
|
|
|
|||||
Ending balance |
18,127 | 21,490 | ||||||
Valuation Allowance: |
||||||||
Beginning balance |
(399 | ) | (955 | ) | ||||
Recoveries/(Additions) |
(469 | ) | (176 | ) | ||||
|
|
|
|
|||||
Ending balance |
(868 | ) | (1,131 | ) | ||||
|
|
|
|
|||||
MSRs, net carrying balance |
$ | 17,259 | $ | 20,359 | ||||
|
|
|
|
|||||
Fair value at end of period |
$ | 17,460 | $ | 20,526 | ||||
|
|
|
|
On a quarterly basis, the Corporation assesses its capitalized servicing rights for impairment based on their current fair value. For purposes of the impairment, the servicing rights are disaggregated based on loan type and interest rate which are the predominant risk characteristics of the underlying loans. A valuation allowance is established through a charge to earnings to the extent the amortized cost of the MSRs exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for the stratification, the valuation is reduced through a recovery to earnings. No permanent impairment losses were written off against the allowance during the three months ended March 31, 2016 and 2015.
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Key economic assumptions and the sensitivity of the current fair value of the MSRs related to immediate 10% and 25% adverse changes in those assumptions at March 31, 2016 are presented in the following table below. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in the fair value based on 10% variation in the prepayment speed assumption generally cannot be extrapolated because the relationship of the change in the prepayment speed assumption to the change in fair value may not be linear. Also, in the below table, the effect of a variation in the discount rate assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in the discount rates), which might magnify or counteract the sensitivities.
(Dollars in thousands) | ||||
Prepayment speed assumption (annual CPR) |
13.30 | % | ||
Decrease in fair value from 10% adverse change |
$ | 691 | ||
Decrease in fair value from 25% adverse change |
$ | 1,342 | ||
Discount rate assumption |
9.39 | % | ||
Decrease in fair value from 100 basis point adverse change |
$ | 528 | ||
Decrease in fair value from 200 basis point adverse change |
$ | 1,022 | ||
Expected weighted-average life (in months) |
90 |
12. | Commitments and Guarantees |
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Loan commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets. Additional information is provided in Note 10 (Fair Value Measurement). Commitments generally are extended at the then-prevailing interest rates, have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Loan commitments involve credit risk not reflected on the balance sheet. The Corporation mitigates exposure to credit risk with internal controls that guide how applications for credit are reviewed and approved, how credit limits are established and, when necessary, how demands for collateral are made. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Management evaluates the creditworthiness of each prospective borrower on a case-by-case basis and, when appropriate, adjusts the allowance for probable credit losses inherent in all commitments. The reserve for unfunded lending commitments at March 31, 2016, December 31, 2015, and March 31, 2015, included in accrued expenses and other liabilities on the Consolidated Balance Sheets, was $4.9 million, $4.1 million, and $4.3 million, respectively.
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The Corporations credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.
Unused commitments to extend credit
(In thousands) |
March 31, 2016 | December 31, 2015 | March 31, 2015 | |||||||||
Commercial |
$ | 3,609,266 | $ | 3,992,089 | $ | 3,691,193 | ||||||
Consumer |
2,458,973 | 2,393,058 | 2,343,677 | |||||||||
|
|
|
|
|
|
|||||||
Total unused commitments to extend credit |
$ | 6,068,239 | $ | 6,385,147 | $ | 6,034,870 | ||||||
|
|
|
|
|
|
Unused Commitments to Extend Credit. Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Corporation.
Loan commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets. Additional information is provided in Note 8 (Derivatives and Hedging Activities).
Guarantees
The Corporation is a guarantor in certain agreements with third parties. The Corporations maximum credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.
Financial guarantees
(In thousands) |
March 31, 2016 | December 31, 2015 | March 31, 2015 | |||||||||
Standby letters of credit |
$ | 236,642 | $ | 254,703 | $ | 275,736 | ||||||
Loans sold with recourse |
11,781 | 12,902 | 39,996 | |||||||||
|
|
|
|
|
|
|||||||
Total financial guarantees |
$ | 248,423 | $ | 267,605 | $ | 315,732 | ||||||
|
|
|
|
|
|
Standby Letters of Credit. Standby letters of credit obligate the Corporation to pay a specified third party when a customer fails to repay an outstanding loan or debt instrument, or fails to perform some contractual nonfinancial obligation. The Corporation has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit. Collateral held varies, but may include marketable securities, equipment, inventory, and real estate. Except for short-term guarantees of $118.2 million at March 31, 2016, the remaining guarantees extend in varying amounts through 2024.
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Loans Sold with Recourse. The Corporation regularly sells service retained residential mortgage loans to GSEs as part of its mortgage banking activities. The Corporation provides customary representation and warranties to the GSEs in conjunction with these sales. These representations and warranties generally require the Corporation to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the Corporation is unable to cure or refute a repurchase request, the Corporation is generally obligated to repurchase the loan or otherwise reimburse the counterparty for losses. The Corporation also sells service released residential mortgage loans to other investors which contain early payment default recourse provisions. As of March 31, 2016, December 31, 2015, and March 31, 2015, the Corporation had sold $9.2 million, $10.1 million, and $33.1 million, respectively, of outstanding residential mortgage loans to GSEs and other investors with recourse provisions. The Corporation had reserved $2.6 million, $2.7 million, and $6.7 million as of March 31, 2016, December 31, 2015, and March 31, 2015, respectively, for estimated losses from representation and warranty obligations and early payment default recourse provisions.
The reserve associated with loans sold with recourse is included in accrued taxes, expenses and other liabilities on the Consolidated Balance Sheets. The Corporations reserve reflects Managements best estimate of losses. The Corporations reserving methodology uses current information about investor repurchase requests, and assumptions about repurchase mix and loss severity, based upon the Corporations most recent loss trends. The Corporation also considers qualitative factors that may result in anticipated losses differing from historical loss trends, such as loan vintage, underwriting characteristics and macroeconomic trends.
Changes in the repurchase reserves for the three months ended March 31, 2016 and 2015 are as follows:
Three Months Ended March 31, | ||||||||
(In thousands) |
2016 | 2015 | ||||||
Balance at beginning of period |
$ | 2,725 | $ | 7,250 | ||||
Net increase/(decrease) to reserve |
(53 | ) | (402 | ) | ||||
Net realized (losses)/gains |
(47 | ) | (198 | ) | ||||
|
|
|
|
|||||
Balance at end of period |
$ | 2,625 | $ | 6,650 | ||||
|
|
|
|
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Litigation
In the normal course of business, the Corporation and its subsidiaries are at all times subject to pending and threatened legal actions, some for which the relief or damages sought are substantial. Based on information currently available, consultation with counsel, available insurance coverage and established reserves, Management believes that the eventual outcome of all claims against the Corporation and its subsidiaries will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position or results of operations. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations for a particular period. The Corporation has not established any reserves with respect to any of this disclosed litigation because it is not possible to determine (i) whether a liability has been incurred; or (ii) an estimate of the ultimate or minimum amount of such liability.
Reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, including almost all of the class action lawsuits, it is not possible to determine whether a liability will be incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time.
Overdraft Litigation
Commencing in December 2010, two separate lawsuits were filed in the Summit County Court of Common Pleas and the Lake County Court of Common Pleas against the Corporation and the Bank. The complaints were brought as putative class actions on behalf of Ohio residents who maintained a checking account at the Bank and who incurred one or more overdraft fees as a result of the alleged re-sequencing of debit transactions. The lawsuit that had been filed in Summit County Court of Common Pleas was dismissed without prejudice on July 11, 2011. The remaining suit in Lake County seeks actual damages, disgorgement of overdraft fees, punitive damages, interest, injunctive relief and attorney fees. In December 2012, the trial court issued an order certifying a proposed class and the Bank and Corporation appealed the order to the Eleventh District Court of Appeals. In September 2013, the Eleventh District Court of Appeals affirmed in part and reversed in part the trial courts class certification order, and remanded the case back to the trial court for further consideration, in particular with respect to the class definition. On October 9, 2013, the Bank and Corporation filed with the Eleventh District Court of Appeals an application for reconsideration and application for consideration en banc. On November 20, 2013, the Eleventh District denied those applications. On December 4, 2013, the Bank and Corporation filed a notice of appeal with the Ohio Supreme Court, and on January 3, 2014, they filed with the Ohio Supreme Court a memorandum in support of the Courts exercising its jurisdiction and accepting the appeal. The plaintiffs filed an opposition, and, on April 24, 2014, the Ohio Supreme Court declined to accept jurisdiction. On August 6, 2014, the Bank and Corporation filed a motion asking the trial court to stay the lawsuit pending arbitration of claims subject to an arbitration agreement. That motion has been fully briefed and is awaiting a decision by the court. On August 25, 2014, the parties stipulated to a revised class definition (without affecting the pending motion to stay), and an order approving that stipulation is awaiting court approval.
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CRBC 401(k) Litigation
Participants in the Citizens Republic Bancorp 401(k) Plan filed a lawsuit in the United States Court for the Eastern District of Michigan in 2011, alleging that Citizens and certain of its officers and directors violated the Employee Retirement Income Security Act by offering Citizens common stock as an investment alternative in the Plan during periods when it was imprudent to do so and by failing to adequately monitor fiduciaries responsible for administering the Plan. The lawsuit, captioned Kidd v. Citizens Republic Bancorp, Inc. et al., Case No. 2:11-cv-11709, asserts claims for monetary and injunctive relief on behalf of a purported class of participants and beneficiaries in the Plan who held Citizens stock in their Plan accounts during the period from April 17, 2008 to the present. The plaintiffs filed a third amended complaint in November 2015, and the defendants have filed a motion that the complaint be dismissed.
Merger litigation
Five putative derivative and class action lawsuits have been filed by separate shareholders of FirstMerit Corporation (FirstMerit) relating to the proposed merger between Huntington Bancshares, Inc. (Huntington) and FirstMerit. Two of those lawsuits were filed in the Summit County Common Pleas Court, Ohio: W. Patrick Murray v. Huntington Bancshares Incorporated, Case No. CV-2016-02-0917, was filed on February 11, 2016; and The Robinson Family Trust v. Paul Greig, Case No. CV-2016-02-0981, was filed on February 17, 2016 (the State Court Lawsuits). On April 14, 2016, the State Court Lawsuits were consolidated. The State Court Lawsuits consolidated complaint alleges that the individual directors of FirstMerit breached their fiduciary duties by approving a proposed merger that allegedly undervalues FirstMerit, allegedly provides the directors with benefits not afforded FirstMerit shareholders, and allegedly includes deal protection devices to ensure that the proposed merger will be consummated. The consolidated complaint also alleges that the directors approved a Registration Statement on S-4, filed on March 4, 2016, (the Registration Statement) that omits material information about the proposed merger. It also alleges that Huntington aided and abetted the alleged breaches of fiduciary duty. It seeks declaratory and injunctive relief to prevent the consummation of the proposed merger, an award of fees and costs, and other equitable relief.
The other three lawsuits were filed in the United States District Court for the Northern District of Ohio: Wojno v. FirstMerit Corp., Case No. 5:16-cv-461, was filed on February 26, 2016; Wilkinson v. FirstMerit Corp., Case No. 5:16-cv-723, was filed on March 23, 2016; and Hafner v. Greig, Case No 5:16-cv-762, was filed on March 28, 2016 (the Federal Court Lawsuits). On April 8, 2016, the parties to the Federal Court Lawsuits filed a stipulation that, among other things, would consolidate the actions and designate a consolidated complaint. The stipulation remains pending. Each complaint in the Federal Court Lawsuits makes similar allegations to the State Court Lawsuits consolidated complaint, and also alleges that the directors violated Sections 14(a) and 20(a) of the Securities Exchange of 1934 and Rule 14a-9 promulgated thereunder by approving the Registration Statement. The Hafner complaint also alleges that Huntington violated Section 20(a) of the Securities Exchange Act in connection with the Registration Statement. Each complaint in the Federal Court Lawsuits seeks similar relief to the State Court Lawsuits consolidated complaint.
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On April 13, 2016, the defendants in the State Court Lawsuits filed a motion to stay the State Court Lawsuits pending the resolution of the parallel Federal Court Lawsuits. The motion to stay remains pending.
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13. | Changes and Reclassifications Out of Accumulated Other Comprehensive Income |
The following table presents the changes in AOCI by component of comprehensive income for the three months ended March 31, 2016 and 2015:
Three Months Ended March 31, 2016 |
||||||||||||
(In thousands) |
Pretax | Tax | After tax | |||||||||
Unrealized and realized securities gains and losses: |
||||||||||||
Balance at the beginning of the period |
$ | (32,786 | ) | $ | (15,840 | ) | $ | (16,946 | ) | |||
Changes in unrealized securities holding gains/(losses) |
48,379 | 17,562 | 30,817 | |||||||||
Changes in unrealized securities holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity |
(1,441 | ) | (147 | ) | (1,294 | ) | ||||||
Net losses/(gains) realized on sale of securities reclassified to noninterest income |
295 | 107 | 188 | |||||||||
|
|
|
|
|
|
|||||||
Balance at the end of the period |
14,447 | 1,682 | 12,765 | |||||||||
|
|
|
|
|
|
|||||||
Pension plans and other postretirement benefits: |
||||||||||||
Balance at the beginning of the period |
(95,760 | ) | (33,432 | ) | (62,328 | ) | ||||||
|
|
|
|
|
|
|||||||
Current year actual losses/(gains) |
| | | |||||||||
Amortization of actuarial losses/(gains) |
2,168 | 773 | 1,395 | |||||||||
Amortization of prior service cost reclassified to other noninterest expense |
(260 | ) | (87 | ) | (173 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at the end of the period |
(93,852 | ) | (32,746 | ) | (61,106 | ) | ||||||
|
|
|
|
|
|
|||||||
Total Accumulated Other Comprehensive Income |
$ | (79,405 | ) | $ | (31,064 | ) | $ | (48,341 | ) | |||
|
|
|
|
|
|
|||||||
Three Months Ended March 31, 2015 |
||||||||||||
(In thousands) |
Pretax | Tax | After tax | |||||||||
Unrealized and realized securities gains and losses: |
||||||||||||
Balance at the beginning of the period |
$ | (8,531 | ) | $ | (2,985 | ) | $ | (5,546 | ) | |||
Changes in unrealized securities holding gains/(losses) |
34,117 | 11,941 | 22,176 | |||||||||
Changes in unrealized securities holding gains/(losses) that result from securities being transferred from available-for-sale into held-to-maturity |
(504 | ) | (176 | ) | (328 | ) | ||||||
Net losses/(gains) realized on sale of securities reclassified to noninterest income |
(354 | ) | (124 | ) | (230 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at the end of the period |
24,728 | 8,656 | 16,072 | |||||||||
|
|
|
|
|
|
|||||||
Pension plans and other postretirement benefits: |
||||||||||||
Balance at the beginning of the period |
(102,068 | ) | (35,722 | ) | (66,346 | ) | ||||||
|
|
|
|
|
|
|||||||
Amortization of actuarial losses/(gains) |
1,138 | 398 | 740 | |||||||||
Amortization of prior service cost reclassified to other noninterest expense |
410 | 143 | 267 | |||||||||
|
|
|
|
|
|
|||||||
Balance at the end of the period |
(100,520 | ) | (35,181 | ) | (65,339 | ) | ||||||
|
|
|
|
|
|
|||||||
Total Accumulated Other Comprehensive Income |
$ | (75,792 | ) | $ | (26,525 | ) | $ | (49,267 | ) | |||
|
|
|
|
|
|
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The following table presents current period reclassifications out of AOCI by component of comprehensive income for the three months ended March 31, 2016 and 2015:
(In thousands) |
Three Months Ended March 31, 2016 |
Income statement line item presentation | ||||
Realized (gains)/losses on sale of securities |
$ | 295 | Investment securities losses (gains), net | |||
Tax expense (benefit) (36.3%) |
107 | Income tax expense (benefit) | ||||
|
|
|||||
Reclassified amount, net of tax |
$ | 188 | ||||
|
|
|||||
(In thousands) |
Three Months Ended March 31, 2015 |
Income statement line item presentation | ||||
|
|
| ||||
Realized (gains)/losses on sale of securities |
$ | (354 | ) | Investment securities losses (gains), net | ||
Tax expense (benefit) (35%) |
(124 | ) | Income tax expense (benefit) | |||
|
|
|||||
Reclassified amount, net of tax |
$ | (230 | ) | |||
|
|
14. | Subsequent Events |
In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or filed with the SEC. In accordance with applicable accounting standards, all material subsequent events have been either recognized in the financial statements or disclosed in the notes to the financial statements.
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The acronyms and abbreviations identified below are used herein.
Acquisition Date | Citizens Republic Bancorp Inc. acquisition date of April 12, 2013 | Federal Reserve | The Board of Governors of the Federal Reserve System | |||
ALCO | Asset/Liability Management Committee | FHLB | Federal Home Loan Bank, including the Federal Home Loan | |||
ALL | Allowance for loan losses | FHLMC | Federal Home Loan Mortgage Corporation | |||
AOCI | Accumulated other comprehensive income (loss) | FICO | Fair Isaac Corporation | |||
APBO | Accumulated pension benefit obligation | FINRA | Financial Industry Regulatory Authority | |||
ASC | Accounting standards codification | FNMA | Federal National Mortgage Association | |||
ASU | Accounting standards update | FRAP | Fixed Rate Advantage Program | |||
Bank | FirstMerit Bank N.A. | FRB | Federal Reserve Bank | |||
Basel I | Basel Committees 1988 Capital Accord | FSOC | Financial Stability Oversight Council | |||
Basel III | Basel Committee regulatory capital reforms, Third Basel Accord | GAAP | United States generally accepted accounting principles | |||
Basel Committee | Basel Committee on Banking Supervision | GSE | Government sponsored enterprise | |||
BHC | Bank holding company | G-SIFI | Globally Systematically Important Financial Institution | |||
BHCA | Bank Holding Company Act of 1956, as amended | ISDA | International Swaps and Derivatives Association | |||
CCAR | Comprehensive Capital Analysis and Review | LIBOR | London Interbank Offered Rate | |||
CET1 | Common equity tier 1 capital | Management | FirstMerit Corporations Management | |||
CFPB | Consumer Financial Protection Bureau | MBS | Mortgage-backed securities | |||
Citizens | Citizens Republic Bancorp Inc. | MSRs | Mortgage servicing rights | |||
Citizens TARP Preferred | Citizens TARP Preferred issued to the U.S. Treasury as part of the Troubled Assets Relief Program | NASDAQ | The NASDAQ Stock Market LLC | |||
CLO | Collateralized loan obligations | NPR | Notice of Proposal Rulemaking | |||
CMO | Collateralized mortgage obligations | NYSE | New York Stock Exchange | |||
Common Stock | Common Shares, without par value | OCC | Office of the Comptroller of the Currency | |||
Corporation | FirstMerit Corporation and its Subsidiaries | OCI | Other comprehensive income (loss) | |||
CPR | Conditional Prepayment Rate | OREO | Other real estate owned | |||
CRA | The Community Reinvestment Act | OTTI | Other-than-temporary impairment | |||
CRE | Commercial Real Estate | Parent Company | FirstMerit Corporation | |||
Dodd-Frank Act | Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 | Preferred Stock | 5.875% Non-Cumulative Perpetual Preferred Stock, Series A | |||
DIF | Federal Deposit Insurance Fund | RIP | Retirement Investment Plan | |||
DTA | Deferred tax asset | ROA | Return on average assets | |||
DTL | Deferred tax liability | ROE | Return on average equity | |||
EPS | Earnings per share | SEC | United States Securities and Exchange Commission | |||
ERISA | Employee Retirement Income Security Act of 1974 | TARP | Troubled Asset Relief Program | |||
ERM | Enterprise risk management | TDR | Troubled debt restructuring | |||
ESOP | Employee stock ownership plan | TE | Fully taxable equivalent | |||
EVE | Economic value of equity | U.S. Treasury | United States Department of the Treasury | |||
FASB | Financial Accounting Standards Board | UTB | Unrecognized tax balance | |||
FDIA | Federal Deposit Insurance Act | VIE | Variable interest entity | |||
FDIC | The Federal Deposit Insurance Corporation |
87