M&T Bank Corporation
M&T BANK CORP (Form: 10-Q, Received: 08/08/2013 17:21:57)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9861

 

 

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

New York   16-0968385

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

One M & T Plaza

Buffalo, New York

  14203
(Address of principal executive offices)   (Zip Code)

(716) 842-5445

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     ¨   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x   Yes     ¨   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     x   No

Number of shares of the registrant’s Common Stock, $0.50 par value, outstanding as of the close of business on July 31, 2013: 130,037,423 shares.

 

 

 


Table of Contents

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended June 30, 2013

 

Table of Contents of Information Required in Report

   Page  

Part I. FINANCIAL INFORMATION

  

Item 1. Financial Statements.

  

CONSOLIDATED BALANCE SHEET - June 30, 2013 and December 31, 2012

     3   

CONSOLIDATED STATEMENT OF INCOME - Three and six months ended June 30, 2013 and 2012

     4   

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - Three and six months ended June 30, 2013 and 2012

     5   

CONSOLIDATED STATEMENT OF CASH FLOWS - Six months ended June 30, 2013 and 2012

     6   

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY - Six months ended June 30, 2013 and 2012

     7   

NOTES TO FINANCIAL STATEMENTS

     8   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     58   

Item 3. Quantitative and Qualitative Disclosures About Market Risk .

     105   

Item 4. Controls and Procedures .

     105   

Part II. OTHER INFORMATION

  

Item 1. Legal Proceedings .

     105   

Item 1A. Risk Factors .

     105   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .

     106   

Item 3. Defaults Upon Senior Securities .

     106   

Item 4. Mine Safety Disclosures .

     106   

Item 5. Other Information .

     106   

Item 6. Exhibits .

     107   

SIGNATURES

     107   

EXHIBIT INDEX

     108   

 

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)

 

         June 30,     December 31,  

Dollars in thousands, except per share

   2013     2012  

Assets

      
 

Cash and due from banks

   $ 1,350,015        1,983,615   
 

Interest-bearing deposits at banks

     2,555,354        129,945   
 

Federal funds sold

     124,487        3,000   
 

Trading account

     378,235        488,966   
 

Investment securities (includes pledged securities that can be sold or repledged of $1,724,073 at June 30, 2013; $1,801,842 at December 31, 2012)

    
 

Available for sale (cost: $2,985,526 at June 30, 2013; $4,643,070 at December 31, 2012)

     3,085,086        4,739,437   
 

Held to maturity (fair value: $1,737,578 at June 30, 2013; $976,883 at December 31, 2012)

     1,819,691        1,032,276   
 

Other (fair value: $305,749 at June 30, 2013; $302,648 at December 31, 2012)

     305,749        302,648   
    

 

 

   

 

 

 
 

Total investment securities

     5,210,526        6,074,361   
    

 

 

   

 

 

 
 

Loans and leases

     66,197,178        66,790,186   
 

Unearned discount

     (225,312     (219,229
    

 

 

   

 

 

 
 

Loans and leases, net of unearned discount

     65,971,866        66,570,957   
 

Allowance for credit losses

     (927,065     (925,860
    

 

 

   

 

 

 
 

Loans and leases, net

     65,044,801        65,645,097   
    

 

 

   

 

 

 
 

Premises and equipment

     595,536        594,652   
 

Goodwill

     3,524,625        3,524,625   
 

Core deposit and other intangible assets

     89,918        115,763   
 

Accrued interest and other assets

     4,355,508        4,448,779   
    

 

 

   

 

 

 
 

Total assets

   $ 83,229,005        83,008,803   
    

 

 

   

 

 

 

Liabilities

      
 

Noninterest-bearing deposits

   $ 24,074,815        24,240,802   
 

NOW accounts

     1,791,995        1,979,619   
 

Savings deposits

     35,455,693        33,783,947   
 

Time deposits

     4,054,524        4,562,366   
 

Deposits at Cayman Islands office

     284,443        1,044,519   
    

 

 

   

 

 

 
 

Total deposits

     65,661,470        65,611,253   
    

 

 

   

 

 

 
 

Federal funds purchased and agreements to repurchase securities

     307,740        1,074,482   
 

Accrued interest and other liabilities

     1,421,067        1,512,717   
 

Long-term borrowings

     5,122,398        4,607,758   
    

 

 

   

 

 

 
 

Total liabilities

     72,512,675        72,806,210   
    

 

 

   

 

 

 

Shareholders’ equity

 

Preferred stock, $1.00 par, 1,000,000 shares authorized; Issued and outstanding: Liquidation preference of $1,000 per share: 381,500 shares at June 30, 2013 and December 31, 2012; Liquidation preference of $10,000 per share: 50,000 shares at June 30, 2013 and December 31, 2012

     876,796        872,500   
 

Common stock, $.50 par, 250,000,000 shares authorized, 129,416,718 shares issued at June 30, 2013; 128,176,912 shares issued at December 31, 2012

     64,709        64,088   
 

Common stock issuable, 46,813 shares at June 30, 2013; 57,409 shares at December 31, 2012

     2,860        3,473   
 

Additional paid-in capital

     3,112,666        3,025,520   
 

Retained earnings

     6,887,070        6,477,276   
 

Accumulated other comprehensive income (loss), net

     (227,771     (240,264
    

 

 

   

 

 

 
 

Total shareholders’ equity

     10,716,330        10,202,593   
    

 

 

   

 

 

 
 

Total liabilities and shareholders’ equity

   $ 83,229,005        83,008,803   
    

 

 

   

 

 

 

 

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Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

 

          Three months ended June 30     Six months ended June 30  

In thousands, except per share

   2013     2012     2013     2012  

Interest income

   Loans and leases, including fees    $ 705,395        674,549      $ 1,387,850        1,323,063   
   Deposits at banks      1,455        767        1,722        980   
   Federal funds sold      45        8        62        11   
   Agreements to resell securities      1        —          10        —     
   Trading account      241        318        879        635   
   Investment securities         
       Fully taxable      41,293        59,724        86,053        122,688   
       Exempt from federal taxes      1,777        2,020        3,606        4,104   
     

 

 

   

 

 

   

 

 

   

 

 

 
           Total interest income      750,207        737,386        1,480,182        1,451,481   
     

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

   NOW accounts      321        424        643        707   
   Savings deposits      13,790        16,940        27,827        35,123   
   Time deposits      7,484        12,354        15,680        25,863   
   Deposits at Cayman Islands office      200        232        588        445   
   Short-term borrowings      96        348        327        651   
   Long-term borrowings      50,729        59,105        101,480        120,320   
     

 

 

   

 

 

   

 

 

   

 

 

 
           Total interest expense      72,620        89,403        146,545        183,109   
     

 

 

   

 

 

   

 

 

   

 

 

 
   Net interest income      677,587        647,983        1,333,637        1,268,372   
   Provision for credit losses      57,000        60,000        95,000        109,000   
     

 

 

   

 

 

   

 

 

   

 

 

 
   Net interest income after provision for credit losses      620,587        587,983        1,238,637        1,159,372   
     

 

 

   

 

 

   

 

 

   

 

 

 

Other income

   Mortgage banking revenues      91,262        69,514        184,365        125,706   
   Service charges on deposit accounts      111,717        110,982        222,666        219,871   
   Trust income      124,728        122,275        246,331        239,228   
   Brokerage services income      17,258        16,172        32,969        30,073   
   Trading account and foreign exchange gains      9,224        6,238        18,151        16,809   
   Gain (loss) on bank investment securities      56,457        (408     56,457        (363
   Total other-than-temporary impairment (“OTTI”) losses      —          (4,072     (1,884     (24,112
  

Portion of OTTI losses recognized in other comprehensive income (before taxes)

     —          (12,101     (7,916     (3,547
     

 

 

   

 

 

   

 

 

   

 

 

 
           Net OTTI losses recognized in earnings      —          (16,173     (9,800     (27,659
     

 

 

   

 

 

   

 

 

   

 

 

 
   Equity in earnings of Bayview Lending Group LLC      (2,453     (6,635     (6,109     (11,387
   Other revenues from operations      100,496        89,685        196,541        176,095   
     

 

 

   

 

 

   

 

 

   

 

 

 
           Total other income      508,689        391,650        941,571        768,373   
     

 

 

   

 

 

   

 

 

   

 

 

 

Other expense

   Salaries and employee benefits      323,136        323,686        679,687        669,784   
   Equipment and net occupancy      64,278        65,376        129,437        130,419   
   Printing, postage and supplies      10,298        11,368        20,997        23,240   
   Amortization of core deposit and other intangible assets      12,502        15,907        25,845        32,681   
   FDIC assessments      17,695        24,962        37,133        53,911   
   Other costs of operations      170,682        186,093        341,088        357,052   
     

 

 

   

 

 

   

 

 

   

 

 

 
           Total other expense      598,591        627,392        1,234,187        1,267,087   
     

 

 

   

 

 

   

 

 

   

 

 

 
   Income before taxes      530,685        352,241        946,021        660,658   
   Income taxes      182,219        118,861        323,442        220,815   
     

 

 

   

 

 

   

 

 

   

 

 

 
   Net income    $ 348,466        233,380      $ 622,579        439,843   
     

 

 

   

 

 

   

 

 

   

 

 

 
   Net income available to common shareholders         
           Basic    $ 328,538        214,709      $ 583,597        402,947   
           Diluted      328,557        214,716        583,633        402,958   
   Net income per common share         
           Basic    $ 2.56        1.71      $ 4.56        3.21   
           Diluted      2.55        1.71        4.53        3.20   
   Cash dividends per common share    $ .70        .70      $ 1.40        1.40   
   Average common shares outstanding         
           Basic      128,252        125,488        127,962        125,354   
           Diluted      129,017        125,897        128,828        125,756   

 

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Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

 

     Three months ended June 30     Six months ended June 30  

In thousands

   2013     2012     2013     2012  

Net income

   $ 348,466        233,380      $ 622,579        439,843   

Other comprehensive income, net of tax and reclassification adjustments:

        

Net unrealized gains (losses) on investment securities

     (6,722     49,289        3,357        69,371   

Reclassification to income for amortization of gains on terminated cash flow hedges

     —          (42     —          (112

Foreign currency translation adjustment

     (114     (533     (1,046     (131

Defined benefit plans liability adjustment

     5,018        4,695        10,182        9,464   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

     (1,818     53,409        12,493        78,592   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 346,648        286,789      $ 635,072        518,435   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

         Six months ended June 30  

In thousands

   2013     2012  

Cash flows from operating activities

 

Net income

   $ 622,579        439,843   
 

Adjustments to reconcile net income to net cash provided by operating activities

    
 

Provision for credit losses

     95,000        109,000   
 

Depreciation and amortization of premises and equipment

     43,354        41,762   
 

Amortization of capitalized servicing rights

     30,653        28,773   
 

Amortization of core deposit and other intangible assets

     25,845        32,681   
 

Provision for deferred income taxes

     30,373        12,064   
 

Asset write-downs

     15,043        39,676   
 

Net gain on sales of assets

     (59,134     (3,786
 

Net change in accrued interest receivable, payable

     (1,131     1,731   
 

Net change in other accrued income and expense

     20,336        (35,590
 

Net change in loans originated for sale

     (220,784     (33,964
 

Net change in trading account assets and liabilities

     14,362        12,438   
    

 

 

   

 

 

 
 

Net cash provided by operating activities

     616,496        644,628   
    

 

 

   

 

 

 

Cash flows from investing activities

 

Proceeds from sales of investment securities

    
 

Available for sale

     1,081,496        48,873   
 

Other

     5,439        45,374   
 

Proceeds from maturities of investment securities

    
 

Available for sale

     652,074        741,571   
 

Held to maturity

     141,255        157,849   
 

Purchases of investment securities

    
 

Available for sale

     (39,411     (19,808
 

Held to maturity

     (11,252     (269,854
 

Other

     (8,540     (13,269
 

Net increase in loans and leases

     (228,853     (2,805,640
 

Net increase in interest-bearing deposits at banks

     (2,425,409     (914,757
 

Other investments, net

     (3,936     (5,436
 

Capital expenditures, net

     (43,663     (46,892
 

Proceeds from sales of real estate acquired in settlement of loans

     35,456        64,735   
 

Other, net

     53,842        (38,849
    

 

 

   

 

 

 
 

Net cash used by investing activities

     (791,502     (3,056,103
    

 

 

   

 

 

 

Cash flows from financing activities

 

Net increase in deposits

     54,101        3,162,352   
 

Net increase (decrease) in short-term borrowings

     (766,742     193,515   
 

Proceeds from long-term borrowings

     799,760        —     
 

Payments on long-term borrowings

     (257,178     (1,006,539
 

Dividends paid - common

     (181,842     (179,446
 

Dividends paid - preferred

     (26,725     (26,725
 

Other, net

     41,519        238,752   
    

 

 

   

 

 

 
 

Net cash provided (used) by financing activities

     (337,107     2,381,909   
    

 

 

   

 

 

 
 

Net decrease in cash and cash equivalents

     (512,113     (29,566
 

Cash and cash equivalents at beginning of period

     1,986,615        1,452,397   
    

 

 

   

 

 

 
 

Cash and cash equivalents at end of period

   $ 1,474,502        1,422,831   
    

 

 

   

 

 

 

Supplemental disclosure of cash flow information

 

Interest received during the period

   $ 1,459,142        1,457,310   
 

Interest paid during the period

     151,737        192,666   
 

Income taxes paid during the period

     226,406        204,249   

Supplemental schedule of noncash investing and financing activities

 

Securitization of residential mortgage loans allocated to

    
 

Held to maturity investment securities

   $ 917,045        —     
 

Capitalized servicing rights

     8,907        —     
 

Real estate acquired in settlement of loans

     15,502        26,623   

 

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Table of Contents

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

 

In thousands, except per share

   Preferred
stock
     Common
stock
     Common
stock
issuable
    Additional
paid-in
capital
    Retained
earnings
    Accumulated
other
comprehensive
income

(loss), net
    Total  

2012

                

Balance - January 1, 2012

   $ 864,585         62,842         4,072        2,828,986        5,867,165        (356,441     9,271,209   

Total comprehensive income

     —           —           —          —          439,843        78,592        518,435   

Preferred stock cash dividends

     —           —           —          —          (26,725     —          (26,725

Amortization of preferred stock discount

     3,848         —           —          —          (3,848     —          —     

Stock-based compensation plans:

                

Compensation expense, net

     —           216         —          18,289        —          —          18,505   

Exercises of stock options, net

     —           227         —          24,912        —          —          25,139   

Directors’ stock plan

     —           4         —          764        —          —          768   

Deferred compensation plans, net, including dividend equivalents

     —           5         (643     549        (80     —          (169

Other

     —           —           —          1,016        —          —          1,016   

Common stock cash dividends - $1.40 per share

     —           —           —          —          (178,271     —          (178,271
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance - June 30, 2012

   $ 868,433         63,294         3,429        2,874,516        6,098,084        (277,849     9,629,907   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2013

                

Balance - January 1, 2013

   $ 872,500         64,088         3,473        3,025,520        6,477,276        (240,264     10,202,593   

Total comprehensive income

     —           —           —          —          622,579        12,493        635,072   

Preferred stock cash dividends

     —           —           —          —          (26,725     —          (26,725

Amortization of preferred stock discount

     4,296         —           —          —          (4,296     —          —     

Exercise of 407,542 Series C stock warrants into 186,589 shares of common stock

     —           93         —          (93     —          —          —     

Stock-based compensation plans:

                

Compensation expense, net

     —           153         —          21,056        —          —          21,209   

Exercises of stock options, net

     —           366         —          63,505        —          —          63,871   

Directors’ stock plan

     —           4         —          793        —          —          797   

Deferred compensation plans, net, including dividend equivalents

     —           5         (613     564        (66     —          (110

Other

     —           —           —          1,321        —          —          1,321   

Common stock cash dividends - $1.40 per share

     —           —           —          —          (181,698     —          (181,698
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance - June 30, 2013

   $ 876,796         64,709         2,860        3,112,666        6,887,070        (227,771     10,716,330   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

NOTES TO FINANCIAL STATEMENTS

 

1. Significant accounting policies

The consolidated financial statements of M&T Bank Corporation (“M&T”) and subsidiaries (“the Company”) were compiled in accordance with generally accepted accounting principles (“GAAP”) using the accounting policies set forth in note 1 of Notes to Financial Statements included in the 2012 Annual Report. In the opinion of management, all adjustments necessary for a fair presentation have been made and were all of a normal recurring nature.

 

2. Acquisitions

On August 27, 2012, M&T announced that it had entered into a definitive agreement with Hudson City Bancorp, Inc. (“Hudson City”), headquartered in Paramus, New Jersey, under which Hudson City would be acquired by M&T. Pursuant to the terms of the agreement, Hudson City shareholders will receive consideration for each common share of Hudson City in an amount valued at .08403 of an M&T share in the form of either M&T common stock or cash, based on the election of each Hudson City shareholder, subject to proration as specified in the merger agreement (which provides for an aggregate split of total consideration of 60% common stock of M&T and 40% cash). As of June 30, 2013, total consideration to be paid was valued at approximately $4.7 billion. At June 30, 2013, Hudson City had $39.7 billion of assets, including $25.3 billion of loans and $10.6 billion of investment securities, and $35.0 billion of liabilities, including $22.6 billion of deposits. The merger has received the approval of the common shareholders of M&T and Hudson City. However, the merger is subject to a number of other conditions, including regulatory approvals.

On April 12, 2013, M&T announced that additional time would be required to obtain a regulatory determination on the applications for the proposed merger with Hudson City. M&T learned that the Federal Reserve Bank of New York (“Federal Reserve Bank”) identified certain concerns with the Company’s procedures, systems and processes related to the Company’s Bank Secrecy Act and anti-money-laundering compliance program. On June 17, 2013, M&T and Manufacturers and Traders Trust Company (“M&T Bank”), M&T’s principal banking subsidiary, entered into a written agreement with the Federal Reserve Bank. Under the terms of the agreement, M&T and M&T Bank are required to submit to the Federal Reserve Bank a revised compliance risk management program designed to ensure compliance with anti-money-laundering laws and regulations and to take certain other steps to enhance their compliance practices. M&T has commenced a major initiative, including the hiring of outside consulting firms, intended to fully address the Federal Reserve Bank’s concerns. In view of the potential timeframe required to implement this initiative, demonstrate its efficacy to the satisfaction of the Federal Reserve Bank and otherwise meet any other regulatory requirements that may be imposed in connection with these matters, M&T and Hudson City extended the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed from August 27, 2013 to January 31, 2014. There can be no assurances that the merger will be completed by that date.

In connection with the pending acquisition, the Company incurred merger-related expenses related to preparing for systems conversions and other costs of integrating and conforming acquired operations with and into the Company. Those expenses consisted largely of professional services and other temporary help fees associated with planning for the conversion of systems and/or integration of operations; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; travel costs; and printing, postage, supplies and other costs of planning for the transaction and commencing operations in new markets and offices.

 

-8-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

2. Acquisitions, continued

 

A summary of merger-related expenses in 2013 associated with the pending Hudson City acquisition and in 2012 associated with the May 16, 2011 acquisition of Wilmington Trust Corporation (“Wilmington Trust”) included in the consolidated statement of income follows:

 

     Three months ended      Six months ended  
     June 30,
2013
     June 30,
2012
     June 30,
2013
     June 30,
2012
 
     (in thousands)  

Salaries and employee benefits

   $ 300         3,024       $ 836         4,997   

Equipment and net occupancy

     489         —           690         15   

Printing, postage and supplies

     998         —           1,825         —     

Other costs of operations

     5,845         4,127         9,013         4,867   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 7,632         7,151       $ 12,364         9,879   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

-9-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Investment securities

The amortized cost and estimated fair value of investment securities were as follows:

 

     Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
     Estimated fair
value
 
     (in thousands)  

June 30, 2013

           

Investment securities available for sale:

           

U.S. Treasury and federal agencies

   $ 37,486         622         —         $ 38,108   

Obligations of states and political subdivisions

     18,874         364         7         19,231   

Mortgage-backed securities:

           

Government issued or guaranteed

     2,612,466         83,452         1,025         2,694,893   

Privately issued

     4,771         525         24         5,272   

Collateralized debt obligations

     42,911         18,140         1,135         59,916   

Other debt securities

     136,841         1,760         20,650         117,951   

Equity securities

     132,177         18,230         692         149,715   
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,985,526         123,093         23,533         3,085,086   
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment securities held to maturity:

           

Obligations of states and political subdivisions

     177,824         4,355         73         182,106   

Mortgage-backed securities:

           

Government issued or guaranteed

     1,401,569         12,517         30,841         1,383,245   

Privately issued

     230,625         22         68,093         162,554   

Other debt securities

     9,673         —           —           9,673   
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,819,691         16,894         99,007         1,737,578   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other securities

     305,749         —           —           305,749   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,110,966         139,987         122,540       $ 5,128,413   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2012

           

Investment securities available for sale:

           

U.S. Treasury and federal agencies

   $ 38,422         922         —         $ 39,344   

Obligations of states and political subdivisions

     20,375         534         8         20,901   

Mortgage-backed securities:

           

Government issued or guaranteed

     3,163,210         208,060         229         3,371,041   

Privately issued

     1,142,287         7,272         125,673         1,023,886   

Collateralized debt obligations

     43,228         19,663         1,022         61,869   

Other debt securities

     136,603         2,247         26,900         111,950   

Equity securities

     98,945         14,921         3,420         110,446   
  

 

 

    

 

 

    

 

 

    

 

 

 
     4,643,070         253,619         157,252         4,739,437   
  

 

 

    

 

 

    

 

 

    

 

 

 

Investment securities held to maturity:

           

Obligations of states and political subdivisions

     182,103         7,647         27         189,723   

Mortgage-backed securities:

           

Government issued or guaranteed

     597,340         31,727         —           629,067   

Privately issued

     242,378         160         94,900         147,638   

Other debt securities

     10,455         —           —           10,455   
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,032,276         39,534         94,927         976,883   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other securities

     302,648         —           —           302,648   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,977,994         293,153         252,179       $ 6,018,968   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

-10-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Investment securities, continued

 

Gross realized gains on investment securities were $116 million for the three-month and six-month periods ended June 30, 2013. During the second quarter of 2013, the Company sold its holdings of Visa Class B shares for a gain of approximately $90 million and its holdings of MasterCard Class B shares for a gain of $13 million. Gross realized losses on investment securities were $60 million for the three-month and six-month periods ended June 30, 2013. During the second quarter of 2013, the Company sold substantially all of its privately issued mortgage-backed securities held in the available-for-sale investment securities portfolio. In total, $1.0 billion of such securities were sold for a net loss of approximately $46 million. Gross realized gains and losses from sales of investment securities were not significant for the three-month and six-month periods ended June 30, 2012.

The Company recognized $10 million of pre-tax other-than-temporary impairment (“OTTI”) losses during the six months ended June 30, 2013 and $16 million and $28 million during the three months and six months ended June 30, 2012, respectively, related to privately issued mortgage-backed securities. There were no other-than-temporary impairment losses during the second quarter of 2013. The impairment charges were recognized in light of deterioration of real estate values and a rise in delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. The OTTI losses represented management’s estimate of credit losses inherent in the debt securities considering projected cash flows using assumptions for delinquency rates, loss severities, and other estimates of future collateral performance.

Changes in credit losses associated with debt securities for which OTTI losses have been recognized in earnings for the three months and six months ended June 30, 2013 and 2012 follows:

 

     Three months ended June 30  
     2013     2012  
     (in thousands)  

Beginning balance

   $ 187,114        267,473   

Additions for credit losses not previously recognized

     —          16,173   

Reductions for realized losses

     (186,320     (19,449
  

 

 

   

 

 

 

Ending balance

   $ 794        264,197   
  

 

 

   

 

 

 
     Six months ended June 30  
     2013     2012  
     (in thousands)  

Beginning balance

   $ 197,809        285,399   

Additions for credit losses not previously recognized

     9,800        27,659   

Reductions for realized losses

     (206,815     (48,861
  

 

 

   

 

 

 

Ending balance

   $ 794        264,197   
  

 

 

   

 

 

 

 

-11-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Investment securities, continued

 

At June 30, 2013, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:

 

     Amortized
cost
     Estimated
fair value
 
     (in thousands)  

Debt securities available for sale:

     

Due in one year or less

   $ 25,043         25,170   

Due after one year through five years

     21,020         21,951   

Due after five years through ten years

     8,772         9,189   

Due after ten years

     181,277         178,896   
  

 

 

    

 

 

 
     236,112         235,206   

Mortgage-backed securities available for sale

     2,617,237         2,700,165   
  

 

 

    

 

 

 
   $ 2,853,349         2,935,371   
  

 

 

    

 

 

 

Debt securities held to maturity:

     

Due in one year or less

   $ 24,360         24,490   

Due after one year through five years

     61,785         63,641   

Due after five years through ten years

     91,679         93,975   

Due after ten years

     9,673         9,673   
  

 

 

    

 

 

 
     187,497         191,779   

Mortgage-backed securities held to maturity

     1,632,194         1,545,799   
  

 

 

    

 

 

 
   $ 1,819,691         1,737,578   
  

 

 

    

 

 

 

 

-12-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Investment securities, continued

 

A summary of investment securities that as of June 30, 2013 and December 31, 2012 had been in a continuous unrealized loss position for less than twelve months and those that had been in a continuous unrealized loss position for twelve months or longer follows:

 

     Less than 12 months     12 months or more  
     Fair value      Unrealized
losses
    Fair value      Unrealized
losses
 
     (in thousands)  

June 30, 2013

          

Investment securities available for sale:

          

Obligations of states and political subdivisions

   $ —           —          676         (7

Mortgage-backed securities:

          

Government issued or guaranteed

     199,273         (886     7,012         (139

Privately issued

     326         (17     124         (7

Collateralized debt obligations

     —           —          5,955         (1,135

Other debt securities

     4,804         (18     102,116         (20,632

Equity securities

     2,450         (692     —           —     
  

 

 

    

 

 

   

 

 

    

 

 

 
     206,853         (1,613     115,883         (21,920
  

 

 

    

 

 

   

 

 

    

 

 

 

Investment securities held to maturity:

          

Obligations of states and political subdivisions

     11,734         (54     1,558         (19

Mortgage-backed securities:

          

Government issued or guaranteed

     1,080,577         (30,841     —           —     

Privately issued

     —           —          162,395         (68,093
  

 

 

    

 

 

   

 

 

    

 

 

 
     1,092,311         (30,895     163,953         (68,112
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 1,299,164         (32,508     279,836         (90,032
  

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2012

          

Investment securities available for sale:

          

Obligations of states and political subdivisions

   $ 166         (1     683         (7

Mortgage-backed securities:

          

Government issued or guaranteed

     12,107         (65     8,804         (164

Privately issued

     121,487         (692     774,328         (124,981

Collateralized debt obligations

     —           —          6,043         (1,022

Other debt securities

     —           —          95,685         (26,900

Equity securities

     5,535         (1,295     2,956         (2,125
  

 

 

    

 

 

   

 

 

    

 

 

 
     139,295         (2,053     888,499         (155,199
  

 

 

    

 

 

   

 

 

    

 

 

 

Investment securities held to maturity:

          

Obligations of states and political subdivisions

     1,026         (5     3,558         (22

Privately issued mortgage-backed securities

     —           —          147,273         (94,900
  

 

 

    

 

 

   

 

 

    

 

 

 
     1,026         (5     150,831         (94,922
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 140,321         (2,058     1,039,330         (250,121
  

 

 

    

 

 

   

 

 

    

 

 

 

 

-13-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3. Investment securities, continued

 

The Company owned 278 individual investment securities with aggregate gross unrealized losses of $123 million at June 30, 2013. Approximately $68 million of the unrealized losses pertained to privately issued mortgage-backed securities with a cost basis of $231 million. The Company also had $22 million of unrealized losses on trust preferred securities issued by financial institutions and securities backed by trust preferred securities having a cost basis of $135 million. Based on a review of each of the remaining securities in the investment securities portfolio at June 30, 2013 the Company concluded that it expected to recover the amortized cost basis of its investment. As of June 30, 2013, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its impaired investment securities. At June 30, 2013, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $306 million of cost method investment securities.

 

4. Loans and leases and the allowance for credit losses

The outstanding principal balance and the carrying amount of acquired loans that were recorded at fair value at the acquisition date that is included in the consolidated balance sheet is as follows:

 

     June 30,      December 31,  
     2013      2012  
     (in thousands)  

Outstanding principal balance

   $ 5,690,165         6,705,120   

Carrying amount:

     

Commercial, financial, leasing, etc.

     752,761         928,107   

Commercial real estate

     2,102,757         2,567,050   

Residential real estate

     641,734         707,309   

Consumer

     1,417,358         1,637,887   
  

 

 

    

 

 

 
   $ 4,914,610         5,840,353   
  

 

 

    

 

 

 

Purchased impaired loans included in the table above totaled $395 million at June 30, 2013 and $447 million at December 31, 2012, representing less than 1% of the Company’s assets as of each date. A summary of changes in the accretable yield for acquired loans for the three months and six months ended June 30, 2013 and 2012 follows:

 

     Three months ended June 30  
     2013     2012  
     Purchased
impaired
    Other
acquired
    Purchased
impaired
    Other
acquired
 
     (in thousands)  

Balance at beginning of period

   $ 33,728        577,609      $ 22,565        747,466   

Interest income

     (9,747     (67,539     (9,621     (80,249

Reclassifications from (to) nonaccretable balance, net

     31,168        111,702        42,655        97,165   

Other (a)

     —          321        —          (31,221
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 55,149        622,093      $ 55,599        733,161   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

-14-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4. Loans and leases and the allowance for credit losses, continued

 

     Six months ended June 30  
     2013     2012  
     Purchased     Other     Purchased     Other  
     impaired     acquired     impaired     acquired  
     (in thousands)  

Balance at beginning of period

   $ 42,252        638,272      $ 30,805        807,960   

Interest income

     (18,451     (129,286     (17,285     (153,972

Reclassifications from (to) nonaccretable balance, net

     31,348        122,519        42,079        98,165   

Other (a)

     —          (9,412     —          (18,992
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 55,149        622,093      $ 55,599        733,161   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

( a) Other changes in expected cash flows including changes in interest rates and prepayment assumptions.

A summary of current, past due and nonaccrual loans as of June 30, 2013 and December 31, 2012 were as follows:

 

     Current      30-89
Days

past due
     90 Days or
more past
due and accruing
     Purchased
impaired

(b)
     Nonaccrual      Total  
         Non-
acquired
     Acquired
(a)
          
     (in thousands)  

June 30, 2013

                    

Commercial, financial, leasing, etc.

   $ 17,803,206         41,516         5,701         9,902         16,734         144,753       $ 18,021,812   

Real estate:

                 

Commercial

     21,646,755         132,454         14,397         43,916         110,026         197,987         22,145,535   

Residential builder and developer

     796,756         15,226         3,291         11,343         151,369         132,621         1,110,606   

Other commercial construction

     2,709,159         17,789         79         16,339         78,373         38,514         2,860,253   

Residential

     9,039,263         298,767         312,703         46,900         35,534         254,033         9,987,200   

Residential Alt-A

     305,693         21,464         —           —           —           85,392         412,549   

Consumer:

                 

Home equity lines and loans

     6,039,668         33,205         —           26,615         2,661         70,488         6,172,637   

Automobile

     2,467,882         32,752         —           168         —           20,533         2,521,335   

Other

     2,678,668         35,887         4,296         503         —           20,585         2,739,939   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 63,487,050         629,060         340,467         155,686         394,697         964,906       $ 65,971,866   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-15-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4. Loans and leases and the allowance for credit losses, continued

 

     Current      30-89
Days

past due
     90 Days or
more past
due and accruing
     Purchased
impaired

(b)
     Nonaccrual      Total  
         Non-
acquired
     Acquired
(a)
          
     (in thousands)  

December 31, 2012

              

Commercial, financial, leasing, etc.

   $ 17,511,052         62,479         23,490         10,587         17,437         151,908       $ 17,776,953   

Real estate:

                 

Commercial

     21,759,997         118,249         13,111         54,995         132,962         193,859         22,273,173   

Residential builder and developer

     757,311         35,419         3,258         23,909         187,764         181,865         1,189,526   

Other commercial construction

     2,379,953         35,274         509         9,572         68,971         36,812         2,531,091   

Residential

     9,811,956         337,969         313,184         45,124         36,769         249,314         10,794,316   

Residential Alt-A

     331,021         19,692         —           —           —           95,808         446,521   

Consumer:

                    

Home equity lines and loans

     6,199,591         40,759         —           20,318         3,211         58,071         6,321,950   

Automobile

     2,442,502         40,461         —           251         —           25,107         2,508,321   

Other

     2,661,432         40,599         4,845         1,798         —           20,432         2,729,106   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 63,854,815         730,901         358,397         166,554         447,114         1,013,176       $ 66,570,957   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Acquired loans that were recorded at fair value at acquisition date. This category does not include purchased impaired loans that are presented separately.
(b) Accruing loans that were impaired at acquisition date and were recorded at fair value.

One-to-four family residential mortgage loans originated for sale were $809 million and $1.2 billion at June 30, 2013 and December 31, 2012, respectively. Additionally, approximately $1.0 billion of one-to-four family residential mortgage loans in the Company’s loan portfolio at June 30, 2013 are anticipated to be securitized with Ginnie Mae in the third quarter of 2013 with the Company retaining the substantial majority of such securities. Commercial mortgage loans held for sale were $133 million at June 30, 2013 and $200 million at December 31, 2012. In the third quarter of 2013, the Company anticipates securitizing up to approximately $1.5 billion of consumer loans through securitization transactions.

Changes in the allowance for credit losses for the three months ended June 30, 2013 were as follows:

 

     Commercial,
Financial,
    Real Estate                    
     Leasing, etc.     Commercial     Residential     Consumer     Unallocated     Total  
     (in thousands)  

Beginning balance

   $ 257,851        328,016        90,122        176,793        74,335      $ 927,117   

Provision for credit losses

     55,647        (10,913     (1,438     13,707        (3     57,000   

Net charge-offs

            

Charge-offs

     (46,312     (4,204     (5,092     (21,018     —          (76,626

Recoveries

     1,681        11,365        1,719        4,809        —          19,574   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (44,631     7,161        (3,373     (16,209     —          (57,052
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 268,867        324,264        85,311        174,291        74,332      $ 927,065   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

-16-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4. Loans and leases and the allowance for credit losses, continued

 

Changes in the allowance for credit losses for the three months ended June 30, 2012 were as follows:

 

     Commercial,
Financial,
    Real Estate                     
     Leasing, etc.     Commercial     Residential     Consumer     Unallocated      Total  
     (in thousands)  

Beginning balance

   $ 239,273        356,554        97,301        142,912        72,966       $ 909,006   

Provision for credit losses

     19,103        (3,309     5,587        38,427        192         60,000   

Net charge-offs

             

Charge-offs

     (16,078     (13,056     (11,407     (23,621     —           (64,162

Recoveries

     2,430        1,332        1,788        6,634        —           12,184   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net charge-offs

     (13,648     (11,724     (9,619     (16,987     —           (51,978
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance

   $ 244,728        341,521        93,269        164,352        73,158       $ 917,028   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Changes in the allowance for credit losses for the six months ended June 30, 2013 were as follows:

 

     Commercial,
Financial,
    Real Estate                     
     Leasing, etc.     Commercial     Residential     Consumer     Unallocated      Total  
     (in thousands)  

Beginning balance

   $ 246,759        337,101        88,807        179,418        73,775       $ 925,860   

Provision for credit losses

     73,527        (11,225     3,598        28,543        557         95,000   

Net charge-offs

             

Charge-offs

     (55,856     (13,792     (13,263     (42,663     —           (125,574

Recoveries

     4,437        12,180        6,169        8,993        —           31,779   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net charge-offs

     (51,419     (1,612     (7,094     (33,670     —           (93,795
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance

   $ 268,867        324,264        85,311        174,291        74,332       $ 927,065   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Changes in the allowance for credit losses for the six months ended June 30, 2012 were as follows:

 

     Commercial,
Financial,
    Real Estate                     
     Leasing, etc.     Commercial     Residential     Consumer     Unallocated      Total  
     (in thousands)  

Beginning balance

   $ 234,022        367,637        91,915        143,121        71,595       $ 908,290   

Provision for credit losses

     29,224        (5,569     21,817        61,965        1,563         109,000   

Net charge-offs

             

Charge-offs

     (24,115     (23,596     (24,125     (52,602     —           (124,438

Recoveries

     5,597        3,049        3,662        11,868        —           24,176   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net charge-offs

     (18,518     (20,547     (20,463     (40,734     —           (100,262
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Ending balance

   $ 244,728        341,521        93,269        164,352        73,158       $ 917,028   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any loan or lease type.

 

-17-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4. Loans and leases and the allowance for credit losses, continued

 

In establishing the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and detailed or intensified credit review processes and also estimates losses inherent in other loans and leases on a collective basis. For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolio by loan type. The amounts of loss components in the Company’s loan and lease portfolios are determined through a loan by loan analysis of larger balance commercial and commercial real estate loans that are in nonaccrual status and by applying loss factors to groups of loan balances based on loan type and management’s classification of such loans under the Company’s loan grading system. Measurement of the specific loss components is typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. In determining the allowance for credit losses, the Company utilizes a loan grading system which is applied to commercial and commercial real estate credits on an individual loan basis. Loan officers are responsible for continually assigning grades to these loans based on standards outlined in the Company’s Credit Policy. Internal loan grades are also monitored by the Company’s loan review department to ensure consistency and strict adherence to the prescribed standards. Loan grades are assigned loss component factors that reflect the Company’s loss estimate for each group of loans and leases. Factors considered in assigning loan grades and loss component factors include borrower-specific information related to expected future cash flows and operating results, collateral values, geographic location, financial condition and performance, payment status, and other information; levels of and trends in portfolio charge-offs and recoveries; levels of and trends in portfolio delinquencies and impaired loans; changes in the risk profile of specific portfolios; trends in volume and terms of loans; effects of changes in credit concentrations; and observed trends and practices in the banking industry. As updated appraisals are obtained on individual loans or other events in the market place indicate that collateral values have significantly changed, individual loan grades are adjusted as appropriate. Changes in other factors cited may also lead to loan grade changes at any time. Except for consumer and residential mortgage loans that are considered smaller balance homogenous loans and acquired loans that are evaluated on an aggregated basis, the Company considers a loan to be impaired for purposes of applying GAAP when, based on current information and events, it is probable that the Company will be unable to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. Regardless of loan type, the Company considers a loan to be impaired if it qualifies as a troubled debt restructuring. Modified loans, including smaller balance homogenous loans, that are considered to be troubled debt restructurings are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows.

 

-18-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4. Loans and leases and the allowance for credit losses, continued

 

The following tables provide information with respect to loans and leases that were considered impaired as of June 30, 2013 and December 31, 2012 and for the three months and six months ended June 30, 2013 and June 30, 2012:

 

     June 30, 2013      December 31, 2012  
     Recorded
investment
     Unpaid
principal

balance
     Related
allowance
     Recorded
investment
     Unpaid
principal
balance
     Related
allowance
 
     (in thousands)  

With an allowance recorded:

                 

Commercial, financial, leasing, etc.

   $ 125,204         170,473         36,451         127,282         149,534         33,829   

Real estate:

                 

Commercial

     120,882         145,010         20,373         121,542         143,846         23,641   

Residential builder and developer

     67,993         110,390         9,153         115,306         216,218         25,661   

Other commercial construction

     75,076         78,138         3,085         73,544         76,869         6,836   

Residential

     104,150         122,430         6,647         103,451         121,819         3,521   

Residential Alt-A

     119,247         132,105         16,000         128,891         141,940         17,000   

Consumer:

                 

Home equity lines and loans

     12,524         13,708         2,387         12,360         13,567         2,254   

Automobile

     43,702         43,702         12,246         49,210         49,210         14,273   

Other

     15,698         15,698         5,833         14,408         14,408         5,667   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     684,476         831,654         112,175         745,994         927,411         132,682   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

With no related allowance recorded:

                 

Commercial, financial, leasing, etc.

     26,986         38,026         —           32,631         42,199         —     

Real estate:

                 

Commercial

     83,364         105,406         —           78,380         100,337         —     

Residential builder and developer

     72,367         113,350         —           74,307         105,438         —     

Other commercial construction

     21,188         21,836         —           23,018         23,532         —     

Residential

     81,832         92,676         —           86,342         96,448         —     

Residential Alt-A

     30,813         57,558         —           31,354         58,768         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     316,550         428,852         —           326,032         426,722         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total:

                 

Commercial, financial, leasing, etc.

     152,190         208,499         36,451         159,913         191,733         33,829   

Real estate:

                 

Commercial

     204,246         250,416         20,373         199,922         244,183         23,641   

Residential builder and developer

     140,360         223,740         9,153         189,613         321,656         25,661   

Other commercial construction

     96,264         99,974         3,085         96,562         100,401         6,836   

Residential

     185,982         215,106         6,647         189,793         218,267         3,521   

Residential Alt-A

     150,060         189,663         16,000         160,245         200,708         17,000   

Consumer:

                 

Home equity lines and loans

     12,524         13,708         2,387         12,360         13,567         2,254   

Automobile

     43,702         43,702         12,246         49,210         49,210         14,273   

Other

     15,698         15,698         5,833         14,408         14,408         5,667   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,001,026         1,260,506         112,175         1,072,026         1,354,133         132,682   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-19-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4. Loans and leases and the allowance for credit losses, continued

 

     Three months ended
June 30, 2013
     Three months ended
June 30, 2012
 
            Interest income
recognized
            Interest income
recognized
 
     Average
recorded
investment
     Total      Cash
basis
     Average
recorded
investment
     Total      Cash
basis
 
     (in thousands)  

Commercial, financial, leasing, etc.

   $ 183,544         3,408         3,408         161,311         743         743   

Real estate:

                 

Commercial

     201,236         409         409         180,199         1,238         1,238   

Residential builder and developer

     162,567         518         384         262,254         385         252   

Other commercial construction

     97,975         2,479         2,479         109,037         4,840         4,840   

Residential

     185,751         1,934         1,401         127,258         1,315         810   

Residential Alt-A

     151,977         1,670         516         174,181         1,753         527   

Consumer:

                 

Home equity lines and loans

     12,619         165         39         11,237         164         46   

Automobile

     44,641         740         131         52,200         871         190   

Other

     15,564         156         49         9,877         106         47   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,055,874         11,479         8,816         1,087,554         11,415         8,693   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Six months ended
June 30, 2013
     Six months ended
June 30, 2012
 
            Interest income
recognized
            Interest income
recognized
 
     Average
recorded
investment
     Total      Cash
basis
     Average
recorded
investment
     Total      Cash
basis
 
     (in thousands)  

Commercial, financial, leasing, etc.

   $ 172,637         5,842         5,842         164,779         1,152         1,152   

Real estate:

                 

Commercial

     197,546         712         712         179,213         1,556         1,556   

Residential builder and developer

     173,535         658         449         271,903         726         431   

Other commercial construction

     98,160         3,114         3,114         107,151         5,010         5,010   

Residential

     186,582         3,404         2,323         126,880         2,657         1,688   

Residential Alt-A

     154,461         3,410         1,107         177,623         3,596         1,073   

Consumer:

                 

Home equity lines and loans

     12,544         332         78         10,593         330         88   

Automobile

     46,134         1,516         277         52,799         1,769         368   

Other

     15,261         307         103         9,080         199         86   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,056,860         19,295         14,005         1,100,021         16,995         11,452   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-20-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4. Loans and leases and the allowance for credit losses, continued

 

In accordance with the previously described policies, the Company utilizes a loan grading system that is applied to all commercial loans and commercial real estate loans. Loan grades are utilized to differentiate risk within the portfolio and consider the expectations of default for each loan. Commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. All larger balance criticized commercial and commercial real estate loans are individually reviewed by centralized loan review personnel each quarter to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing. Smaller balance criticized loans are analyzed by business line risk management areas to ensure proper loan grade classification. Furthermore, criticized nonaccrual commercial loans and commercial real estate loans are considered impaired and, as a result, specific loss allowances on such loans are established within the allowance for credit losses to the extent appropriate in each individual instance. The following table summarizes the loan grades applied to the various classes of the Company’s commercial and commercial real estate loans.

 

            Real Estate  
     Commercial,
Financial,
Leasing, etc.
     Commercial      Residential
Builder and
Developer
     Other
Commercial
Construction
 
     (in thousands)  

June 30, 2013

        

Pass

   $ 17,177,447         21,237,559         889,978         2,761,618   

Criticized accrual

     699,612         709,989         88,007         60,121   

Criticized nonaccrual

     144,753         197,987         132,621         38,514   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,021,812         22,145,535         1,110,606         2,860,253   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2012

        

Pass

   $ 16,889,753         21,275,182         922,141         2,307,436   

Criticized accrual

     735,292         804,132         85,520         186,843   

Criticized nonaccrual

     151,908         193,859         181,865         36,812   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,776,953         22,273,173         1,189,526         2,531,091   
  

 

 

    

 

 

    

 

 

    

 

 

 

In determining the allowance for credit losses, residential real estate loans and consumer loans are generally evaluated collectively after considering such factors as payment performance and recent loss experience and trends, which are mainly driven by current collateral values in the market place as well as the amount of loan defaults. Loss rates on such loans are determined by reference to recent charge-off history and are evaluated (and adjusted if deemed appropriate) through consideration of other factors including near-term forecasted loss estimates developed by the Company’s Credit Department. In arriving at such forecasts, the Company considers the current estimated fair value of its collateral based on geographical adjustments for home price depreciation/appreciation and overall borrower repayment performance. With regard to collateral values, the realizability of such values by the Company contemplates repayment of the original balance of any first lien position prior to recovering amounts on a second lien position. However, residential real estate loans and outstanding balances of home equity loans and lines of credit that are more than 150 days past due are generally evaluated for collectibility on a loan-by-loan basis giving consideration to estimated collateral values.

 

-21-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4. Loans and leases and the allowance for credit losses, continued

 

The Company also measures additional losses for purchased impaired loans when it is probable that the Company will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. The determination of the allocated portion of the allowance for credit losses is very subjective. Given that inherent subjectivity and potential imprecision involved in determining the allocated portion of the allowance for credit losses, the Company also provides an inherent unallocated portion of the allowance. The unallocated portion of the allowance is intended to recognize probable losses that are not otherwise identifiable and includes management’s subjective determination of amounts necessary to provide for the possible use of imprecise estimates in determining the allocated portion of the allowance. Therefore, the level of the unallocated portion of the allowance is primarily reflective of the inherent imprecision in the various calculations used in determining the allocated portion of the allowance for credit losses. Other factors that could also lead to changes in the unallocated portion include the effects of expansion into new markets for which the Company does not have the same degree of familiarity and experience regarding portfolio performance in changing market conditions, the introduction of new loan and lease product types, and other risks associated with the Company’s loan portfolio that may not be specifically identifiable.

The allocation of the allowance for credit losses summarized on the basis of the Company’s impairment methodology was as follows:

 

    

Commercial,

Financial,

     Real Estate                
     Leasing, etc.      Commercial      Residential      Consumer      Total  
     (in thousands)  

June 30, 2013

              

Individually evaluated for impairment

   $ 36,451         31,798         22,628         20,466       $ 111,343   

Collectively evaluated for impairment

     230,309         291,365         60,989         152,602         735,265   

Purchased impaired

     2,107         1,101         1,694         1,223         6,125   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Allocated

   $ 268,867         324,264         85,311         174,291         852,733   
  

 

 

    

 

 

    

 

 

    

 

 

    

Unallocated

              74,332   
              

 

 

 

Total

            $ 927,065   
              

 

 

 

December 31, 2012

           

Individually evaluated for impairment

   $ 33,669         55,291         20,502         22,194       $ 131,656   

Collectively evaluated for impairment

     212,930         280,789         66,684         156,661         717,064   

Purchased impaired

     160         1,021         1,621         563         3,365   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Allocated

   $ 246,759         337,101         88,807         179,418         852,085   
  

 

 

    

 

 

    

 

 

    

 

 

    

Unallocated

              73,775   
              

 

 

 

Total

            $ 925,860   
              

 

 

 

 

-22-


Table of Contents

NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4. Loans and leases and the allowance for credit losses, continued

 

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology was as follows:

 

    

Commercial,

Financial,

     Real Estate                
     Leasing, etc.      Commercial      Residential      Consumer      Total  
     (in thousands)  

June 30, 2013

              

Individually evaluated for impairment

   $ 152,190         434,945         335,481         71,924       $ 994,540   

Collectively evaluated for impairment

     17,852,888         25,341,681         10,028,734         11,359,326         64,582,629   

Purchased impaired

     16,734         339,768         35,534         2,661         394,697   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,021,812         26,116,394         10,399,749         11,433,911       $ 65,971,866   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2012

           

Individually evaluated for impairment

   $ 159,761         480,335         349,477