UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
August 1, 2016
Date of Report (Date of earliest event reported)
HUNTINGTON BANCSHARES INCORPORATED
(Exact name of registrant as specified in its charter)
Commission file number : 1-34073
Maryland | 31-0724920 | |
(State of incorporation) |
(I.R.S. Employer Identification No.) |
|
Huntington Center | ||
41 South High Street | ||
Columbus, Ohio | 43287 | |
(Address of principal executive offices) | (Zip Code) |
(614) 480-8300
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01. Other Events
On January 26, 2016, Huntington Bancshares Incorporated (the Company) announced its planned acquisition of FirstMerit Corporation (FirstMerit). In connection with the planned acquisition of FirstMerit, the following financial statements are provided:
| Consolidated balance sheet of FirstMerit as of March 31, 2016, the related consolidated statements of income, comprehensive income, changes in shareholders equity, and cash flows for the three months ended March 31, 2016, and the notes related thereto; and |
| Consolidated balance sheet of FirstMerit as of June 30, 2016, the related consolidated statements of income, comprehensive income, changes in shareholders equity, and cash flows for the three months and six months ended June 30, 2016, and the notes related thereto. |
The following unaudited pro forma condensed combined financial statements of the Company and FirstMerit are provided:
| Unaudited pro forma condensed combined balance sheet as of June 30, 2016. |
| Unaudited pro forma condensed combined statement of income for the year ended December 31, 2015 and for the six months ended June 30, 2016. |
| Notes to unaudited pro forma condensed combined financial statements. |
The acquisition of FirstMerit has not yet been consummated and there can be no assurance that the transaction will be consummated as contemplated, or at all. For further information relating to the planned acquisition of FirstMerit, please see the Companys current report on Form 8-K filed on January 28, 2016.
Item 9.01. Financial Statements and Exhibits.
(a) | Financial Statements of Business to be Acquired. |
Consolidated balance sheet of FirstMerit as of March 31, 2016, the related consolidated statements of income, comprehensive income, changes in shareholders equity, and cash flows for the three months ended March 31, 2016, and the notes related thereto are filed as Exhibit 99.1 hereto.
Consolidated balance sheet of FirstMerit as of June 30, 2016, the related consolidated statements of income, comprehensive income, changes in shareholders equity, and cash flows for the three months and six months ended June 30, 2016, and the notes related thereto are filed as Exhibit 99.2 hereto.
(b) | Pro Forma Financial Information. |
The Companys and FirstMerits unaudited pro forma condensed combined balance sheet as of June 30, 2016, unaudited pro forma condensed combined statement of income for the year ended December 31, 2015 and for the six months ended June 30, 2016, and the notes related thereto are filed as Exhibit 99.3 hereto.
(d) | Exhibits. |
Exhibit No. |
Description of Exhibit |
|
99.1 | Consolidated balance sheet of FirstMerit Corporation as of March 31, 2016, the related consolidated statements of income, comprehensive income, changes in shareholders equity, and cash flows for the three months ended March 31, 2016, and the notes related thereto. | |
99.2 | Consolidated balance sheet of FirstMerit Corporation as of June 30, 2016, the related consolidated statements of income, comprehensive income, changes in shareholders equity, and cash flows for the three months and six months ended June 30, 2016, and the notes related thereto. | |
99.3 | Unaudited pro forma condensed combined balance sheet of Huntington Bancshares Incorporated and FirstMerit Corporation as of June 30, 2016, unaudited pro forma condensed combined statement of income of Huntington Bancshares Incorporated and FirstMerit Corporation for the year ended December 31, 2015 and for the six months ended June 30, 2016, and the notes related thereto. |
- 2 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HUNTINGTON BANCSHARES INCORPORATED |
||
By: | /s/ Richard A. Cheap | |
|
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Richard A. Cheap | ||
Secretary |
Date: August 1, 2016
- 3 -
EXHIBIT INDEX
Exhibit No. |
Description of Exhibit |
|
99.1 | Consolidated balance sheet of FirstMerit Corporation as of March 31, 2016, the related consolidated statements of income, comprehensive income, changes in shareholders equity, and cash flows for the three months ended March 31, 2016, and the notes related thereto. | |
99.2 | Consolidated balance sheet of FirstMerit Corporation as of June 30, 2016, the related consolidated statements of income, comprehensive income, changes in shareholders equity, and cash flows for the three months and six months ended June 30, 2016, and the notes related thereto. | |
99.3 | Unaudited pro forma condensed combined balance sheet of Huntington Bancshares Incorporated and FirstMerit Corporation as of June 30, 2016, unaudited pro forma condensed combined statement of income of Huntington Bancshares Incorporated and FirstMerit Corporation for the year ended December 31, 2015 and for the six months ended June 30, 2016, and the notes related thereto. |
- 4 -
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 |
|||||||||
ASSETS |
||||||||||||
Cash and due from banks |
$ | 331,049 | $ | 380,799 | $ | 426,247 | ||||||
Interest-bearing deposits in banks |
428,848 | 83,018 | 106,178 | |||||||||
|
|
|
|
|
|
|||||||
Total cash and cash equivalents |
759,897 | 463,817 | 532,425 | |||||||||
Investment securities: |
||||||||||||
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 |
||||||||||||
Deposits: |
||||||||||||
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: |
||||||||||||
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: |
||||||||
Loans and loans held for sale |
$ | 162,278 | $ | 161,539 | ||||
Investment securities: |
||||||||
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: |
||||||||
Deposits: |
||||||||
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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|
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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: |
||||||||
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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|
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Total noninterest income |
67,394 | 65,847 | ||||||
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Noninterest expense: |
||||||||
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 |
|||||||||||
(Unaudited) |
Pretax | Tax | After tax | |||||||||
Net Income |
$ | 77,778 | $ | 23,642 | $ | 54,136 | ||||||
Other comprehensive income/(loss) |
||||||||||||
Unrealized gains and losses on securities available for sale: |
||||||||||||
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: |
||||||||||||
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 |
|||||||||||
(Unaudited) |
Pretax | Tax | After tax | |||||||||
Net Income |
$ | 82,570 | $ | 25,431 | $ | 57,139 | ||||||
Other comprehensive income/(loss) |
||||||||||||
Unrealized gains and losses on securities available for sale: |
||||||||||||
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: |
||||||||||||
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 |
||||||||||||||||||||||||
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
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 | ||||||
|
|
|
|
|
|
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 | ||||
|
|
|
|
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 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total securities available-for-sale |
$ | 281,941 | $ | (6,865 | ) | 46 | $ | 793,054 | $ | (27,516 | ) | 79 | $ | 1,074,995 | $ | (34,381 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
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 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total securities held-to-maturity |
$ | 17,759 | $ | (284 | ) | 10 | $ | 1,033,743 | $ | (15,647 | ) | 74 | $ | 1,051,502 | $ | (15,931 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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: |
&nbsnbsp; | |||||||||||||||||||||||||||||||
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 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total securities available-for-sale |
$ | 1,849,320 | $ | (19,569 | ) | 180 | $ | 913,649 | $ | (37,458 | ) | 91 | $ | 2,762,969 | $ | (57,027 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
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 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total securities held-to-maturity |
$ | 370,605 | $ | (2,916 | ) | 58 | $ | 1,171,297 | $ | (40,433 | ) | 79 | $ | 1,541,902 | $ | (43,349 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total securities available-for-sale |
$ | 245,893 | $ | (1,647 | ) | 46 | $ | 1,172,260 | $ | (29,123 | ) | 114 | $ | 1,418,153 | $ | (30,770 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
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 | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
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 | nbsp; | 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 | | | |