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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended: SeptemberJune 30, 20202021
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to | |
Commission file number: 001-31343
Associated Banc-Corp
(Exact name of registrant as specified in its charter)
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Wisconsin | | 39-1098068 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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433 Main Street | | |
Green Bay, | Wisconsin | | 54301 |
(Address of principal executive offices) | | (Zip Code) |
(920) 491-7500
(Registrant’s telephone number, including area code)
(not applicable)
(Former name, former address and former fiscal year, if changed since last report)
Securities Registered Pursuant to Section 12(b) of the act:
| | | | | | | | |
Title of each class | Trading symbol | Name of each exchange on which registered |
Common stock, par value $0.01 per share | ASB | New York Stock Exchange |
Depositary Shrs, each representing 1/40th intrst in a shr of 6.125% Non-Cum. Perp Pref Stock, Srs C | ASB PrC | New York Stock Exchange |
Depositary Shrs, each representing 1/40th intrst in a shr of 5.375% Non-Cum. Perp Pref Stock, Srs D | ASB PrD | New York Stock Exchange |
Depositary Shrs, each representing 1/40th intrst in a shr of 5.875% Non-Cum. Perp Pref Stock, Srs E | ASB PrE | New York Stock Exchange |
Depositary Shrs, each representing 1/40th intrst in a shr of 5.625% Non-Cum. Perp Pref Stock, Srs F | ASB PrF | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☑ | | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | |
| Emerging growth company | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at October 27, 2020July 26, 2021 was 153,589,914.152,967,324.
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ASSOCIATED BANC-CORP |
Table of Contents |
| | | | | |
ASSOCIATED BANC-CORP |
Commonly Used Acronyms and Abbreviations |
The following listing provides a reference of common acronyms and abbreviations used throughout the document: |
| | | | | |
ABRC | Associated Benefits & Risk Consulting, the Corporation's insurance division which was sold on June 30, 2020 |
ABS | Asset Backed Securities |
ACL | Allowance for Credit Losses on Loans and Investments |
ACLL | Allowance for Credit Losses on Loans |
| |
AFS | Available for Sale |
ALCO | Asset / Liability Committee |
ARRC | Alternative Reference Rate Committee |
ASC | Accounting Standards Codification |
Associated / Corporation / our / us / we | Associated Banc-Corp collectively with all of its subsidiaries and affiliates |
Associated Bank / the Bank | Associated Bank, National Association |
ASU | Accounting Standards Update |
| |
Basel III | International framework established by the Basel Committee on Banking Supervision for the regulation of capital and liquidity |
bp | basis point(s) |
CARES Act | Coronavirus Aid, Relief, and Economic Security Act |
CDs | Certificates of Deposit |
CDIs | Core Deposit Intangibles |
CECL | Current Expected Credit Losses |
CET1 | Common Equity Tier 1 |
| |
CMO | Collateralized Mortgage Obligation |
CRA | Community Reinvestment Act |
CRE | Commercial Real Estate |
| |
EAR | Earnings at Risk |
Economic Aid Act | Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act |
| |
Exchange Act | Securities Exchange Act of 1934, as amended |
FASB | Financial Accounting Standards Board |
FDIC | Federal Deposit Insurance Corporation |
Federal Reserve | Board of Governors of the Federal Reserve System |
FFELP | Federal Family Education Loan Program |
FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage Corporation |
FICO | Fair Isaac Corporation, provider of a broad-based risk score to aid in credit decisions |
First Staunton | First Staunton Bancshares, Incorporated |
FNMA | Federal National Mortgage Association |
| |
FOMCFTEs | Federal Open Market CommitteeFull-time equivalent employees |
FTP | Funds Transfer Pricing |
GAAP | Generally Accepted Accounting Principles |
GNMA | Government National Mortgage Association |
GSEs | Government-Sponsored Enterprises |
HuntingtonHTM | The Huntington National Bank, a subsidiary of Huntington Bancshares IncorporatedHeld to Maturity |
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| |
LIBOR | London Interbank Offered Rate |
LTV | Loan-to-Value |
MBS | Mortgage-Backed Securities |
MSLP | Main Street Lending Program |
MSRs | Mortgage Servicing Rights |
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MVE | Market Value of Equity |
Net Free Funds | Noninterest-bearing sources of funds |
NII | Net Interest Income |
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NPAs | Nonperforming Assets |
OCC | Office of the Comptroller of the Currency |
| |
OREO | Other Real Estate Owned |
Parent Company | Associated Banc-Corp individually |
PCD | Purchased Credit Deteriorated |
PPP | Paycheck Protection Program |
PPPLF | Paycheck Protection Program Liquidity Facility |
RAP | Retirement Account Plan - the Corporation's noncontributory defined benefit retirement plan |
Repurchase Agreements | Securities sold under agreements to repurchase |
Restricted Stock Awards | Restricted common stock and restricted common stock units to certain key employees |
Retirement Eligible Colleagues | Colleagues whose retirement meets the early retirement or normal retirement definitions under the applicable equity compensation plan |
Rockefeller | Rockefeller Capital Management |
S&P | Standard & Poor's |
SBA | Small Business Administration |
SEC | U.S. Securities and Exchange Commission |
Series C Preferred Stock | The Corporation's 6.125% Non-Cumulative Perpetual Preferred Stock, Series C, liquidation preference $1,000 per share |
Series D Preferred Stock | The Corporation's 5.375% Non-Cumulative Perpetual Preferred Stock, Series D, liquidation preference $1,000 per share |
Series E Preferred Stock | The Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series E, liquidation preference $1,000 per share |
Series F Preferred Stock | The Corporation's 5.625% Non-Cumulative Perpetual Preferred Stock, Series F, liquidation preference $1,000 per share |
SOFR | Secured Overnight Finance Rate |
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TDR | Troubled Debt Restructuring |
USI | USI Insurance Services LLC |
Whitnell | Whitnell & Co. |
YTD | Year-to-Date |
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PART I - FINANCIAL INFORMATION |
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ITEM 1. | Financial Statements: |
ASSOCIATED BANC-CORP
Consolidated Balance Sheets
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
(In Thousands, except share and per share data) | (Unaudited) | | (Audited) |
Assets | | | |
Cash and due from banks | $ | 401,151 | | | $ | 373,380 | |
Interest-bearing deposits in other financial institutions | 712,416 | | | 207,624 | |
Federal funds sold and securities purchased under agreements to resell | 95 | | | 7,740 | |
Investment securities held to maturity, net, at amortized cost(a) | 1,990,870 | | | 2,205,083 | |
Investment securities available for sale, at fair value | 3,258,360 | | | 3,262,586 | |
Equity securities | 15,090 | | | 15,090 | |
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost | 168,280 | | | 227,347 | |
Residential loans held for sale | 130,139 | | | 136,280 | |
Commercial loans held for sale | 19,360 | | | 15,000 | |
Loans | 25,003,753 | | | 22,821,440 | |
Allowance for loan losses(a) | (384,711) | | | (201,371) | |
Loans, net | 24,619,041 | | | 22,620,068 | |
Bank and corporate owned life insurance | 679,257 | | | 671,948 | |
Tax credit and other investments | 314,066 | | | 279,969 | |
| | | |
Premises and equipment, net | 422,222 | | | 435,284 | |
Goodwill | 1,107,902 | | | 1,176,230 | |
Mortgage servicing rights, net | 45,261 | | | 67,306 | |
Other intangible assets, net | 70,507 | | | 88,301 | |
| | | |
Interest receivable | 91,612 | | | 91,196 | |
Other assets | 653,117 | | | 506,046 | |
Total assets | $ | 34,698,746 | | | $ | 32,386,478 | |
Liabilities and Stockholders' Equity | | | |
Noninterest-bearing demand deposits | $ | 7,489,048 | | | $ | 5,450,709 | |
Interest-bearing deposits | 19,223,500 | | | 18,328,355 | |
Total deposits | 26,712,547 | | | 23,779,064 | |
Federal funds purchased and securities sold under agreements to repurchase | 155,329 | | | 433,097 | |
Commercial paper | 50,987 | | | 32,016 | |
PPPLF | 1,022,217 | | | 0 | |
FHLB advances | 1,706,763 | | | 3,180,967 | |
Other long-term funding | 549,201 | | | 549,343 | |
| | | |
Allowance for unfunded commitments(a) | 57,276 | | | 21,907 | |
Accrued expenses and other liabilities(a) | 398,991 | | | 467,961 | |
Total liabilities | 30,653,313 | | | 28,464,355 | |
Stockholders’ Equity | | | |
Preferred equity | 353,637 | | | 256,716 | |
Common equity | | | |
Common stock | 1,752 | | | 1,752 | |
Surplus | 1,717,186 | | | 1,716,431 | |
Retained earnings(a) | 2,424,992 | | | 2,380,867 | |
Accumulated other comprehensive income (loss) | 3,995 | | | (33,183) | |
Treasury stock, at cost | (456,129) | | | (400,460) | |
Total common equity | 3,691,796 | | | 3,665,407 | |
Total stockholders’ equity | 4,045,433 | | | 3,922,124 | |
Total liabilities and stockholders’ equity | $ | 34,698,746 | | | $ | 32,386,478 | |
Preferred shares authorized (par value $1.00 per share) | 750,000 | | | 750,000 | |
Preferred shares issued and outstanding | 364,458 | | | 264,458 | |
Common shares authorized (par value $0.01 per share) | 250,000,000 | | | 250,000,000 | |
Common shares issued | 175,216,409 | | | 175,216,409 | |
Common shares outstanding | 153,551,692 | | | 157,171,247 | |
| | | | | | | | |
| June 30, 2021 | December 31, 2020 |
(In Thousands, except share and per share data) | (Unaudited) | (Audited) |
Assets | | |
Cash and due from banks | $ | 406,994 | | $ | 416,154 | |
Interest-bearing deposits in other financial institutions | 1,340,385 | | 298,759 | |
Federal funds sold and securities purchased under agreements to resell | 25,000 | | 1,135 | |
Investment securities AFS, at fair value | 3,323,346 | | 3,085,441 | |
Investment securities HTM, net, at amortized cost | 1,799,834 | | 1,878,938 | |
Equity securities | 17,144 | | 15,106 | |
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost | 168,281 | | 168,280 | |
Residential loans held for sale | 160,547 | | 129,158 | |
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Loans | 23,947,536 | | 24,451,724 | |
Allowance for loan losses | (318,811) | | (383,702) | |
Loans, net | 23,628,725 | | 24,068,022 | |
Tax credit and other investments | 294,220 | | 297,232 | |
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Premises and equipment, net | 398,050 | | 418,914 | |
Bank and corporate owned life insurance | 682,709 | | 679,647 | |
Goodwill | 1,104,992 | | 1,109,300 | |
Other intangible assets, net | 62,498 | | 68,254 | |
Mortgage servicing rights, net | 48,335 | | 41,961 | |
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Interest receivable | 81,797 | | 90,263 | |
Other assets | 609,766 | | 653,219 | |
Total assets | $ | 34,152,625 | | $ | 33,419,783 | |
Liabilities and Stockholders' Equity | | |
Noninterest-bearing demand deposits | $ | 7,999,143 | | $ | 7,661,728 | |
Interest-bearing deposits | 19,265,157 | | 18,820,753 | |
Total deposits | 27,264,299 | | 26,482,481 | |
Federal funds purchased and securities sold under agreements to repurchase | 170,419 | | 192,971 | |
Commercial paper | 55,785 | | 59,346 | |
| | |
FHLB advances | 1,619,826 | | 1,632,723 | |
Other long-term funding | 549,024 | | 549,465 | |
| | |
Allowance for unfunded commitments | 45,276 | | 47,776 | |
Accrued expenses and other liabilities | 337,942 | | 364,088 | |
Total liabilities | 30,042,573 | | 29,328,850 | |
Stockholders’ Equity | | |
Preferred equity | 290,200 | | 353,512 | |
Common equity | | |
Common stock | 1,752 | | 1,752 | |
Surplus | 1,708,246 | | 1,720,329 | |
Retained earnings | 2,576,766 | | 2,458,920 | |
Accumulated other comprehensive income (loss) | 2,889 | | 12,618 | |
Treasury stock, at cost | (469,801) | | (456,198) | |
Total common equity | 3,819,852 | | 3,737,421 | |
Total stockholders’ equity | 4,110,052 | | 4,090,933 | |
Total liabilities and stockholders’ equity | $ | 34,152,625 | | $ | 33,419,783 | |
Preferred shares authorized (par value $1.00 per share) | 750,000 | | 750,000 | |
Preferred shares issued and outstanding | 299,458 | | 364,458 | |
Common shares authorized (par value $0.01 per share) | 250,000,000 | | 250,000,000 | |
Common shares issued | 175,216,409 | | 175,216,409 | |
Common shares outstanding | 152,864,579 | | 153,540,224 | |
Numbers may not sum due to rounding.
(a) See Note 3 Summary of Significant Accounting Policies for additional details on the adoption of ASU 2016-13.
See accompanying notes to consolidated financial statements.
Item 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income (Unaudited)
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, | | | | |
(In Thousands, except per share data) | 2020 | 2019 | 2020 | 2019 | | | | |
Interest income | | | | | | | | |
Interest and fees on loans | $ | 182,625 | | $ | 248,579 | | $ | 599,306 | | $ | 768,216 | | | | | |
Interest and dividends on investment securities | | | | | | | | |
Taxable | 13,689 | | 23,485 | | 50,064 | | 79,248 | | | | | |
Tax-exempt | 14,523 | | 14,491 | | 44,021 | | 42,950 | | | | | |
Other interest | 2,238 | | 4,865 | | 7,774 | | 13,086 | | | | | |
Total interest income | 213,075 | | 291,420 | | 701,165 | | 903,500 | | | | | |
Interest expense | | | | | | | | |
Interest on deposits | 10,033 | | 61,585 | | 59,877 | | 191,408 | | | | | |
Interest on federal funds purchased and securities sold under agreements to repurchase | 34 | | 145 | | 454 | | 1,058 | | | | | |
Interest on other short-term funding | 5 | | 30 | | 46 | | 113 | | | | | |
Interest on PPPLF | 899 | | 0 | | 1,574 | | 0 | | | | | |
Interest on FHLB advances | 14,375 | | 15,896 | | 47,471 | | 53,194 | | | | | |
Interest on long-term funding | 5,580 | | 7,398 | | 16,780 | | 22,196 | | | | | |
Total interest expense | 30,925 | | 85,054 | | 126,201 | | 267,969 | | | | | |
Net interest income | 182,150 | | 206,365 | | 574,964 | | 635,532 | | | | | |
Provision for credit losses | 43,009 | | 2,000 | | 157,009 | | 16,000 | | | | | |
Net interest income after provision for credit losses | 139,141 | | 204,365 | | 417,954 | | 619,532 | | | | | |
Noninterest income | | | | | | | | |
Wealth management fees(a) | 21,152 | | 21,015 | | 62,884 | | 61,885 | | | | | |
Service charges and deposit account fees | 14,283 | | 16,561 | | 40,989 | | 47,102 | | | | | |
Card-based fees | 10,195 | | 10,456 | | 28,685 | | 29,848 | | | | | |
Other fee-based revenue | 4,968 | | 5,085 | | 14,240 | | 14,246 | | | | | |
Capital markets, net | 7,222 | | 4,300 | | 22,067 | | 12,215 | | | | | |
Mortgage banking, net | 12,636 | | 10,940 | | 31,043 | | 25,118 | | | | | |
Bank and corporate owned life insurance | 3,074 | | 4,337 | | 9,793 | | 11,482 | | | | | |
Insurance commissions and fess | 114 | | 20,954 | | 45,153 | | 69,403 | | | | | |
Asset gains (losses), net(b) | (339) | | 877 | | 156,945 | | 2,316 | | | | | |
Investment securities gains (losses), net | 7 | | 3,788 | | 9,222 | | 5,931 | | | | | |
Other | 2,232 | | 2,537 | | 7,321 | | 8,344 | | | | | |
Total noninterest income | 75,545 | | 100,850 | | 428,342 | | 287,890 | | | | | |
Noninterest expense | | | | | | | | |
Personnel | 108,567 | | 123,170 | | 334,117 | | 366,449 | | | | | |
Technology | 19,666 | | 20,572 | | 61,639 | | 59,698 | | | | | |
Occupancy | 17,854 | | 15,164 | | 48,386 | | 45,466 | | | | | |
Business development and advertising | 3,626 | | 7,991 | | 13,007 | | 21,284 | | | | | |
Equipment | 5,399 | | 6,335 | | 16,150 | | 17,580 | | | | | |
Legal and professional | 5,591 | | 5,724 | | 15,809 | | 14,342 | | | | | |
Loan and foreclosure costs | 2,118 | | 1,638 | | 8,842 | | 5,599 | | | | | |
FDIC assessment | 3,900 | | 4,000 | | 14,650 | | 12,250 | | | | | |
Other intangible amortization | 2,253 | | 2,686 | | 7,939 | | 7,237 | | | | | |
Acquisition related costs(c) | 218 | | 1,629 | | 2,457 | | 5,995 | | | | | |
Loss on prepayments of FHLB advances | 44,650 | | 0 | | 44,650 | | 0 | | | | | |
Other | 13,745 | | 12,021 | | 35,537 | | 34,479 | | | | | |
Total noninterest expense | 227,587 | | 200,930 | | 603,184 | | 590,380 | | | | | |
Income (loss) before income taxes | (12,900) | | 104,286 | | 243,112 | | 317,042 | | | | | |
Income tax expense (benefit) | (58,114) | | 20,947 | | 3,342 | | 62,356 | | | | | |
Net income | 45,214 | | 83,339 | | 239,769 | | 254,686 | | | | | |
Preferred stock dividends | 5,207 | | 3,801 | | 13,152 | | 11,402 | | | | | |
Net income available to common equity | $ | 40,007 | | $ | 79,539 | | $ | 226,618 | | $ | 243,285 | | | | | |
Earnings per common share | | | | | | | | |
Basic | $ | 0.26 | | $ | 0.50 | | $ | 1.47 | | $ | 1.49 | | | | | |
Diluted | $ | 0.26 | | $ | 0.49 | | $ | 1.46 | | $ | 1.48 | | | | | |
Average common shares outstanding | | | | | | | | |
Basic | 152,440 | | 159,126 | | 153,175 | | 161,727 | | | | | |
Diluted | 153,194 | | 160,382 | | 153,914 | | 163,061 | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, | |
(In Thousands, except per share data) | 2021 | 2020 | 2021 | 2020 | |
Interest income | | | | | |
Interest and fees on loans | $ | 174,228 | | $ | 191,895 | | $ | 348,277 | | $ | 416,681 | | |
Interest and dividends on investment securities | | | | | |
Taxable | 8,840 | | 16,103 | | 15,855 | | 36,375 | | |
Tax-exempt | 14,366 | | 14,616 | | 28,528 | | 29,498 | | |
Other interest | 1,826 | | 2,231 | | 3,521 | | 5,535 | | |
Total interest income | 199,260 | | 224,845 | | 396,180 | | 488,090 | | |
Interest expense | | | | | |
Interest on deposits | 4,609 | | 13,178 | | 10,519 | | 49,844 | | |
Interest on federal funds purchased and securities sold under agreements to repurchase | 30 | | 51 | | 55 | | 420 | | |
Interest on other short-term funding | 7 | | 5 | | 13 | | 40 | | |
Interest on PPPLF | 0 | | 676 | | 0 | | 676 | | |
Interest on FHLB advances | 9,524 | | 15,470 | | 19,017 | | 33,096 | | |
Interest on long-term funding | 5,575 | | 5,593 | | 11,160 | | 11,200 | | |
Total interest expense | 19,745 | | 34,973 | | 40,764 | | 95,276 | | |
Net interest income | 179,515 | | 189,872 | | 355,416 | | 392,814 | | |
Provision for credit losses | (35,004) | | 61,000 | | (58,009) | | 114,001 | | |
Net interest income after provision for credit losses | 214,519 | | 128,872 | | 413,425 | | 278,813 | | |
Noninterest income | | | | | |
Wealth management fees | 22,706 | | 20,916 | | 45,120 | | 41,732 | | |
Service charges and deposit account fees | 15,549 | | 11,484 | | 30,404 | | 26,706 | | |
Card-based fees | 10,982 | | 8,893 | | 20,725 | | 18,490 | | |
Other fee-based revenue | 4,244 | | 4,774 | | 8,840 | | 9,272 | | |
Capital markets, net | 5,696 | | 6,910 | | 13,814 | | 14,845 | | |
Mortgage banking, net | 8,128 | | 12,263 | | 32,054 | | 18,407 | | |
Bank and corporate owned life insurance | 3,088 | | 3,625 | | 5,791 | | 6,719 | | |
Insurance commissions and fees | 86 | | 22,430 | | 161 | | 45,038 | | |
Asset gains (losses), net(a) | (14) | | 157,361 | | 4,796 | | 157,284 | | |
Investment securities gains (losses), net | 24 | | 3,096 | | (16) | | 9,214 | | |
Gains on sale of branches, net(b) | 36 | | 0 | | 1,038 | | 0 | | |
Other | 2,918 | | 2,737 | | 6,059 | | 5,090 | | |
Total noninterest income | 73,443 | | 254,490 | | 168,786 | | 352,796 | | |
Noninterest expense | | | | | |
Personnel | 106,994 | | 111,350 | | 211,020 | | 225,551 | | |
Technology | 20,236 | | 21,174 | | 40,975 | | 41,973 | | |
Occupancy | 14,679 | | 14,464 | | 30,835 | | 30,532 | | |
Business development and advertising | 4,970 | | 3,556 | | 9,366 | | 9,382 | | |
Equipment | 5,481 | | 5,312 | | 10,999 | | 10,751 | | |
Legal and professional | 6,661 | | 5,058 | | 13,191 | | 10,217 | | |
Loan and foreclosure costs | 2,671 | | 3,605 | | 4,891 | | 6,725 | | |
FDIC assessment | 3,600 | | 5,250 | | 8,350 | | 10,750 | | |
Other intangible amortization | 2,203 | | 2,872 | | 4,439 | | 5,686 | | |
| | | | | |
Other | 6,979 | | 10,766 | | 15,755 | | 24,030 | | |
Total noninterest expense | 174,475 | | 183,407 | | 349,821 | | 375,598 | | |
Income (loss) before income taxes | 113,487 | | 199,955 | | 232,389 | | 256,012 | | |
Income tax expense (benefit) | 22,480 | | 51,238 | | 47,082 | | 61,457 | | |
Net income | 91,007 | | 148,718 | | 185,307 | | 194,555 | | |
Preferred stock dividends | 4,875 | | 4,144 | | 10,082 | | 7,945 | | |
Net income available to common equity | $ | 86,131 | | $ | 144,573 | | $ | 175,226 | | $ | 186,611 | | |
Earnings per common share | | | | | |
Basic | $ | 0.56 | | $ | 0.94 | | $ | 1.14 | | $ | 1.21 | | |
Diluted | $ | 0.56 | | $ | 0.94 | | $ | 1.13 | | $ | 1.20 | | |
Average common shares outstanding | | | | | |
Basic | 152,042 | | 152,393 | | 152,198 | | 153,547 | | |
Diluted | 153,381 | | 153,150 | | 153,473 | | 154,360 | | |
Numbers may not sum due to rounding.
(a) Includes trust, asset management, brokerage,Both the three and annuity fees.
(b) The ninesix months ended SeptemberJune 30, 2020 includesinclude a gain of $163 million from the sale of ABRC. The nine months ended September 30, 2019 includes less than $1 million
(b) Includes the deposit premium on the sale of Huntington related asset losses.
(c) Includes Huntingtonbranches net of miscellaneous costs to sell. See Note 2 Acquisitions and Dispositions for additional details on the branch and First Staunton acquisition related costs only.sales.
See accompanying notes to consolidated financial statements.
Item 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Comprehensive Income (Unaudited)
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
($ in Thousands) | 2020 | 2019 | | 2020 | 2019 |
| |
Net income | $ | 45,214 | | $ | 83,339 | | | $ | 239,769 | | $ | 254,686 | |
Other comprehensive income, net of tax | | | | | |
Investment securities available for sale | | | | | |
Net unrealized gains (losses) | 5,840 | | 33,173 | | | 53,900 | | 123,139 | |
Amortization of net unrealized (gains) losses on available for sale securities transferred to held to maturity securities | 1,296 | | (8) | | | 2,628 | | 279 | |
Reclassification adjustment for net losses (gains) realized in net income | (7) | | (3,788) | | | (9,222) | | (5,931) | |
| | | | | |
| | | | | |
Income tax (expense) benefit | (1,786) | | (7,410) | | | (11,852) | | (29,651) | |
Other comprehensive income (loss) on investment securities available for sale | 5,342 | | 21,967 | | | 35,454 | | 87,836 | |
Defined benefit pension and postretirement obligations | | | | | |
Amortization of prior service cost | (36) | | (36) | | | (111) | | (111) | |
Amortization of actuarial loss (gain) | 1,313 | | 229 | | | 2,923 | | 357 | |
| | | | | |
Income tax (expense) benefit | (703) | | (49) | | | (1,088) | | (62) | |
Other comprehensive income (loss) on pension and postretirement obligations | 573 | | 144 | | | 1,724 | | 184 | |
Total other comprehensive income (loss) | 5,916 | | 22,111 | | | 37,178 | | 88,020 | |
Comprehensive income | $ | 51,130 | | $ | 105,450 | | | $ | 276,948 | | $ | 342,706 | |
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
| |
Net income | $ | 91,007 | | $ | 148,718 | | $ | 185,307 | | $ | 194,555 | |
Other comprehensive income (loss), net of tax | | | | |
Investment securities AFS | | | | |
Net unrealized gains (losses) | 7,978 | | 21,641 | | (16,002) | | 48,060 | |
Amortization of net unrealized (gains) losses on AFS securities transferred to HTM securities | 645 | | 776 | | 1,163 | | 1,332 | |
Reclassification adjustment for net losses (gains) realized in net income | (24) | | (3,096) | | 16 | | (9,214) | |
| | | | |
| | | | |
Income tax (expense) benefit | (2,277) | | (4,841) | | 3,574 | | (10,066) | |
Other comprehensive income (loss) on investment securities AFS | 6,322 | | 14,481 | | (11,249) | | 30,112 | |
Defined benefit pension and postretirement obligations | | | | |
Amortization of prior service cost | (37) | | (38) | | (74) | | (75) | |
Amortization of actuarial loss (gain) | 1,050 | | 803 | | 2,100 | | 1,610 | |
| | | | |
Income tax (expense) benefit | (253) | | (192) | | (506) | | (385) | |
Other comprehensive income (loss) on pension and postretirement obligations | 760 | | 573 | | 1,519 | | 1,150 | |
Total other comprehensive income (loss) | 7,082 | | 15,054 | | (9,729) | | 31,263 | |
Comprehensive income | $ | 98,088 | | $ | 163,772 | | $ | 175,578 | | $ | 225,818 | |
Numbers may not sum due to rounding.
See accompanying notes to consolidated financial statements.
Item 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Changes in Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | |
(In Thousands, except per share data) | Preferred Equity | Common Stock | Surplus | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total |
Balance, December 31, 2019 | $ | 256,716 | | $ | 1,752 | | $ | 1,716,431 | | $ | 2,380,867 | | $ | (33,183) | | $ | (400,460) | | $ | 3,922,124 | |
Cumulative effect of ASU 2016-13 adoption (CECL) | — | | — | | — | | (98,337) | | — | | — | | (98,337) | |
Total shareholder's equity at beginning of period, as adjusted | 256,716 | | 1,752 | | 1,716,431 | | 2,282,530 | | (33,183) | | (400,460) | | 3,823,787 | |
Comprehensive income | | | | | | | |
Net income | — | | — | | — | | 45,838 | | — | | — | | 45,838 | |
Other comprehensive income (loss) | — | | — | | — | | — | | 16,209 | | — | | 16,209 | |
Comprehensive income | | | | | | | 62,046 | |
Common stock issued | | | | | | | |
Stock-based compensation plans, net | — | | — | | (20,659) | | — | | — | | 23,555 | | 2,896 | |
| | | | | | | |
| | | | | | | |
Purchase of treasury stock, open market purchases | — | | — | | — | | — | | — | | (71,255) | | (71,255) | |
Purchase of treasury stock, stock-based compensation plans | — | | — | | — | | — | | — | | (5,555) | | (5,555) | |
Cash dividends | | | | | | | |
Common stock, $0.18 per share | — | | — | | — | | (28,392) | | — | | — | | (28,392) | |
Preferred stock(a) | — | | — | | — | | (3,801) | | — | | — | | (3,801) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Stock-based compensation expense, net | — | | — | | 10,744 | | — | | — | | — | | 10,744 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance, March 31, 2020 | $ | 256,716 | | $ | 1,752 | | $ | 1,706,516 | | $ | 2,296,176 | | $ | (16,974) | | $ | (453,714) | | $ | 3,790,471 | |
| | | | | | | |
Comprehensive income: | | | | | | | |
Net income | — | | — | | — | | 148,718 | | — | | — | | 148,718 | |
Other comprehensive income (loss) | — | | — | | — | | — | | 15,054 | | — | | 15,054 | |
Comprehensive income | | | | | | | 163,772 | |
Common stock issued: | | | | | | | |
Stock-based compensation plans, net | — | | — | | 1,523 | | — | | — | | (1,350) | | 173 | |
| | | | | | | |
Purchase of treasury stock, stock-based compensation plans | — | | — | | — | | — | | — | | 7 | | 7 | |
Cash dividends: | | | | | | | |
Common stock, $0.18 per share | — | | — | | — | | (27,889) | | — | | — | | (27,889) | |
Preferred stock(b) | — | | — | | — | | (4,144) | | — | | — | | (4,144) | |
Issuance of preferred stock | 97,129 | | — | | — | | — | | — | | — | | 97,129 | |
Stock-based compensation expense, net | — | | — | | 4,939 | | — | | — | | — | | 4,939 | |
Balance, June 30, 2020 | $ | 353,846 | | $ | 1,752 | | $ | 1,712,978 | | $ | 2,412,859 | | $ | (1,920) | | $ | (455,057) | | $ | 4,024,457 | |
| | | | | | | |
Comprehensive income: | | | | | | | |
Net income | — | | — | | — | | 45,214 | | — | | — | | 45,214 | |
Other comprehensive income (loss) | — | | — | | — | | — | | 5,916 | | — | | 5,916 | |
Comprehensive income | | | | | | | 51,130 | |
Common stock issued: | | | | | | | |
Stock-based compensation plans, net | — | | — | | 706 | | — | | — | | (610) | | 95 | |
| | | | | | | |
Purchase of treasury stock, stock-based compensation plans | — | | — | | — | | — | | — | | (462) | | (462) | |
Cash dividends: | | | | | | | |
Common stock, $0.18 per share | — | | — | | — | | (27,875) | | — | | — | | (27,875) | |
Preferred stock(c) | — | | — | | — | | (5,207) | | — | | — | | (5,207) | |
Issuance of preferred stock | (208) | | — | | — | | — | | — | | — | | (208) | |
Stock-based compensation expense, net | — | | — | | 3,502 | | — | | — | | — | | 3,502 | |
Balance, September 30, 2020 | $ | 353,637 | | $ | 1,752 | | $ | 1,717,186 | | $ | 2,424,992 | | $ | 3,995 | | $ | (456,129) | | $ | 4,045,433 | |
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
(In Thousands, except per share data) | Preferred Equity | Common Stock | Surplus | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total |
Balance, December 31, 2020 | $ | 353,512 | | $ | 1,752 | | $ | 1,720,329 | | $ | 2,458,920 | | $ | 12,618 | | $ | (456,198) | | $ | 4,090,933 | |
| | | | | | | |
| | | | | | | |
Comprehensive income | | | | | | | |
Net income | — | | — | | — | | 94,301 | | — | | — | | 94,301 | |
Other comprehensive income (loss) | — | | — | | — | | — | | (16,811) | | — | | (16,811) | |
Comprehensive income | | | | | | | 77,490 | |
Common stock issued | | | | | | | |
Stock-based compensation plans, net | — | | — | | (16,986) | | — | | — | | 27,542 | | 10,556 | |
| | | | | | | |
| | | | | | | |
Purchase of treasury stock, open market purchases | — | | — | | — | | — | | — | | (17,973) | | (17,973) | |
Purchase of treasury stock, stock-based compensation plans | — | | — | | — | | — | | — | | (3,593) | | (3,593) | |
Cash dividends | | | | | | | |
Common stock, $0.18 per share | — | | — | | — | | (27,870) | | — | | — | | (27,870) | |
Preferred stock(a) | — | | — | | — | | (5,207) | | — | | — | | (5,207) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Stock-based compensation expense, net | — | | — | | 3,444 | | — | | — | | — | | 3,444 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance, March 31, 2021 | $ | 353,512 | | $ | 1,752 | | $ | 1,706,786 | | $ | 2,520,144 | | $ | (4,193) | | $ | (450,222) | | $ | 4,127,780 | |
| | | | | | | |
Comprehensive income: | | | | | | | |
Net income | — | | — | | — | | 91,007 | | — | | — | | 91,007 | |
Other comprehensive income (loss) | — | | — | | — | | — | | 7,082 | | — | | 7,082 | |
Comprehensive income | | | | | | | 98,088 | |
Common stock issued: | | | | | | | |
Stock-based compensation plans, net | — | | — | | (3,632) | | — | | — | | 11,250 | | 7,618 | |
Purchase of treasury stock, open market purchases | — | | — | | — | | — | | — | | (29,972) | | (29,972) | |
Purchase of treasury stock, stock-based compensation plans | — | | — | | — | | — | | — | | (856) | | (856) | |
Cash dividends: | | | | | | | |
Common stock, $0.18 per share | — | | — | | — | | (27,822) | | — | | — | | (27,822) | |
Preferred stock(b) | — | | — | | — | | (4,875) | | — | | — | | (4,875) | |
| | | | | | | |
Redemption of preferred stock | (63,313) | | — | | — | | (1,687) | | — | | — | | (65,000) | |
Stock-based compensation expense, net | — | | — | | 5,092 | | — | | — | | — | | 5,092 | |
Balance, June 30, 2021 | $ | 290,200 | | $ | 1,752 | | $ | 1,708,246 | | $ | 2,576,766 | | $ | 2,889 | | $ | (469,801) | | $ | 4,110,052 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Numbers may not sum due to rounding.
(a) Series C, $0.3828125 per share; Series D, $0.3359375 per share; Series E, $0.3671875 per share; and Series F, $0.3515625 per share.
(b) Series C, $0.3197115 per share; Series D, $0.3359375 per share; Series E, $0.3671875 per share; and Series F, $0.3515625 per share.
| | | | | | | | | | | | | | | | | | | | | | | |
(In Thousands, except per share data) | Preferred Equity | Common Stock | Surplus | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total |
Balance, December 31, 2019 | $ | 256,716 | | $ | 1,752 | | $ | 1,716,431 | | $ | 2,380,867 | | $ | (33,183) | | $ | (400,460) | | $ | 3,922,124 | |
Cumulative effect of ASU 2016-13 adoption (CECL) | — | | — | | — | | (98,337) | | — | | — | | (98,337) | |
Total shareholder's equity at beginning of period, as adjusted | 256,716 | | 1,752 | | 1,716,431 | | 2,282,530 | | (33,183) | | (400,460) | | 3,823,787 | |
Comprehensive income | | | | | | | |
Net income | — | | — | | — | | 45,838 | | — | | — | | 45,838 | |
Other comprehensive income (loss) | — | | — | | — | | — | | 16,209 | | — | | 16,209 | |
| | | | | | | |
Comprehensive income | | | | | | | 62,046 | |
Common stock issued | | | | | | | |
Stock-based compensation plans, net | — | | — | | (20,659) | | 0 | | — | | 23,555 | | 2,896 | |
| | | | | | | |
| | | | | | | |
Purchase of treasury stock, open market purchases | — | | — | | — | | — | | — | | (71,255) | | (71,255) | |
Purchase of treasury stock, stock-based compensation plans | — | | — | | — | | — | | — | | (5,555) | | (5,555) | |
Cash dividends | | | | | | | |
Common stock, $0.18 per share | — | | — | | — | | (28,392) | | — | | — | | (28,392) | |
Preferred stock(a) | — | | — | | — | | (3,801) | | — | | — | | (3,801) | |
| | | | | | | |
| | | | | | | |
Stock-based compensation expense, net | — | | — | | 10,744 | | — | | — | | — | | 10,744 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance, March 31, 2020 | $ | 256,716 | | $ | 1,752 | | $ | 1,706,516 | | $ | 2,296,176 | | $ | (16,974) | | $ | (453,714) | | $ | 3,790,471 | |
| | | | | | | |
Comprehensive income: | | | | | | | |
Net income | — | | — | | — | | 148,718 | | — | | — | | 148,718 | |
Other comprehensive income (loss) | — | | — | | — | | — | | 15,054 | | — | | 15,054 | |
Comprehensive income | | | | | | | 163,772 | |
Common stock issued: | | | | | | | |
Stock-based compensation plans, net | — | | — | | 1,523 | | 0 | | — | | (1,350) | | 173 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Purchase of treasury stock, stock-based compensation plans | — | | — | | — | | — | | — | | 7 | | 7 | |
Cash dividends: | | | | | | | |
Common stock, $0.18 per share | — | | — | | — | | (27,889) | | — | | — | | (27,889) | |
Preferred stock(b) | — | | — | | — | | (4,144) | | — | | — | | (4,144) | |
Issuance of preferred stock | 97,129 | | — | | — | | — | | — | | — | | 97,129 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Stock-based compensation expense, net | — | | — | | 4,939 | | — | | — | | — | | 4,939 | |
| | | | | | | |
Balance, June 30, 2020 | $ | 353,846 | | $ | 1,752 | | $ | 1,712,978 | | $ | 2,412,859 | | $ | (1,920) | | $ | (455,057) | | $ | 4,024,457 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Numbers may not sum due to rounding.(a) Series C, $0.3828125 per share; Series D, $0.3359375 per share; and Series E, $0.3671875 per share.
(b) Series C, $0.3828125 per share; Series D, $0.3359375 per share; Series E, $0.3671875 per share; and Series F, $0.0849931 per share.
(c) Series C, $0.3828125 per share; Series D, $0.3359375 per share; Series E, $0.3671875 per share; and Series F, $0.3515625 per share.
| | | | | | | | | | | | | | | | | | | | | | | |
(In Thousands, except per share data) | Preferred Equity | Common Stock | Surplus | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total |
Balance, December 31, 2018 | $ | 256,716 | | $ | 1,752 | | $ | 1,712,615 | | $ | 2,181,414 | | $ | (124,972) | | $ | (246,638) | | $ | 3,780,888 | |
Comprehensive income | | | | | | | |
Net income | — | | — | | — | | 86,686 | | — | | — | | 86,686 | |
Other comprehensive income (loss) | — | | — | | — | | — | | 21,597 | | — | | 21,597 | |
| | | | | | | |
Comprehensive income | | | | | | | 108,283 | |
Common stock issued | | | | | | | |
Stock-based compensation plans, net | — | | — | | (32,220) | | 0 | | — | | 39,265 | | 7,045 | |
| | | | | | | |
| | | | | | | |
Purchase of treasury stock, open market purchases | — | | — | | — | | — | | — | | (29,999) | | (29,999) | |
Purchase of treasury stock, stock-based compensation plans | — | | — | | — | | — | | — | | (7,468) | | (7,468) | |
Cash dividends | | | | | | | |
Common stock, $0.17 per share | — | | — | | — | | (28,183) | | — | | — | | (28,183) | |
Preferred stock(a) | — | | — | | — | | (3,801) | | — | | — | | (3,801) | |
| | | | | | | |
| | | | | | | |
Stock-based compensation expense, net | — | | — | | 9,397 | | — | | — | | — | | 9,397 | |
| | | | | | | |
| | | | | | | |
Other | — | | — | | — | | (293) | | — | | — | | (293) | |
Balance, March 31, 2019 | $ | 256,716 | | $ | 1,752 | | $ | 1,689,792 | | $ | 2,235,824 | | $ | (103,375) | | $ | (244,840) | | $ | 3,835,870 | |
| | | | | | | |
Comprehensive income: | | | | | | | |
Net income | — | | — | | — | | 84,661 | | — | | — | | 84,661 | |
Other comprehensive income (loss) | — | | — | | — | | — | | 44,311 | | — | | 44,311 | |
Comprehensive income | | | | | | | 128,972 | |
Common stock issued: | | | | | | | |
Stock-based compensation plans, net | — | | — | | (211) | | 0 | | — | | 1,038 | | 827 | |
| | | | | | | |
| | | | | | | |
Purchase of treasury stock, open market purchases | — | | — | | — | | — | | — | | (39,602) | | (39,602) | |
Purchase of treasury stock, stock-based compensation plans | — | | — | | — | | — | | — | | (831) | | (831) | |
Cash dividends: | | | | | | | |
Common stock, $0.17 per share | — | | — | | — | | (27,776) | | — | | — | | (27,776) | |
Preferred stock(a) | — | | — | | — | | (3,801) | | — | | — | | (3,801) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Stock-based compensation expense, net | — | | — | | 6,134 | | — | | — | | — | | 6,134 | |
| | | | | | | |
Balance, June 30, 2019 | $ | 256,716 | | $ | 1,752 | | $ | 1,695,715 | | $ | 2,288,909 | | $ | (59,063) | | $ | (284,235) | | $ | 3,899,794 | |
| | | | | | | |
Comprehensive income: | | | | | | | |
Net income | — | | — | | — | | 83,339 | | — | | — | | 83,339 | |
Other comprehensive income (loss) | — | | — | | — | | — | | 22,111 | | — | | 22,111 | |
Comprehensive income | | | | | | | 105,450 | |
Common stock issued: | | | | | | | |
Stock-based compensation plans, net | — | | — | | 12,561 | | 0 | | — | | (11,363) | | 1,198 | |
Purchase of treasury stock, open market purchases | — | | — | | — | | — | | — | | (59,999) | | (59,999) | |
Purchase of treasury stock, stock-based compensation plans | — | | — | | — | | — | | — | | (194) | | (194) | |
Cash dividends: | | | | | | | |
Common stock, $0.17 per share | — | | — | | — | | (27,289) | | — | | — | | (27,289) | |
Preferred stock(a) | — | | — | | — | | (3,801) | | — | | — | | (3,801) | |
Stock-based compensation expense, net | — | | — | | 5,696 | | — | | — | | — | | 5,696 | |
Balance, September 30, 2019 | $ | 256,716 | | $ | 1,752 | | $ | 1,713,971 | | $ | 2,341,158 | | $ | (36,953) | | $ | (355,791) | | $ | 3,920,855 | |
Numbers may not sum due to rounding.
(a) Series C, $0.3828125 per share; Series D, $0.3359375 per share; and Series E, $0.3671875 per share.
See accompanying notes to consolidated financial statements.
Item 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in Thousands) | 2020 | | 2019 |
Cash Flow From Operating Activities | | | |
Net income | $ | 239,769 | | | $ | 254,686 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | |
Provision for credit losses | 157,009 | | | 16,000 | |
Depreciation and amortization | 38,707 | | | 43,704 | |
Addition to (recovery of) valuation allowance on mortgage servicing rights, net | 18,481 | | | 177 | |
Amortization of mortgage servicing rights | 16,416 | | | 8,749 | |
Amortization of other intangible assets | 7,939 | | | 7,237 | |
Amortization and accretion on earning assets, funding, and other, net | 21,748 | | | 17,607 | |
Net amortization of tax credit investments | 18,988 | | | 15,512 | |
Losses (gains) on sales of investment securities, net | (9,222) | | | (5,931) | |
Asset (gains) losses, net | (156,945) | | | (2,316) | |
(Gain) loss on mortgage banking activities, net | (43,889) | | | (15,966) | |
Mortgage loans originated and acquired for sale | (1,319,034) | | | (824,289) | |
Proceeds from sales of mortgage loans held for sale | 1,620,777 | | | 1,048,729 | |
| | | |
Changes in certain assets and liabilities | | | |
(Increase) decrease in interest receivable | (415) | | | 2,476 | |
Increase (decrease) in interest payable | (12,735) | | | 589 | |
Increase (decrease) in expense payable | (32,892) | | | (15,932) | |
(Increase) decrease in net derivative position | (133,165) | | | (109,948) | |
Increase (decrease) in unsettled trades | 1,000 | | | 2,577 | |
(Increase) decrease in net income tax position | (58,002) | | | 33,770 | |
Net change in other assets and other liabilities | 48,525 | | | (7,446) | |
Net cash provided by (used in) operating activities | 423,060 | | | 469,986 | |
Cash Flow From Investing Activities | | | |
Net increase in loans | (2,170,320) | | | (72,644) | |
Purchases of | | | |
Available for sale securities | (1,368,124) | | | (460,124) | |
Held to maturity securities | (109,824) | | | (322,590) | |
Federal Home Loan Bank and Federal Reserve Bank stocks | (84,152) | | | (214,554) | |
Premises, equipment, and software, net of disposals | (34,440) | | | (50,385) | |
Other intangibles | (200) | | | 0 | |
Proceeds from | | | |
Sales of available for sale securities | 626,283 | | | 1,367,450 | |
| | | |
Sale of Federal Home Loan Bank and Federal Reserve Bank stocks | 144,000 | | | 257,646 | |
Prepayments, calls, and maturities of available for sale investment securities | 893,157 | | | 400,648 | |
Prepayments, calls, and maturities of held to maturity investment securities | 323,175 | | | 168,378 | |
Sales, prepayments, calls, and maturities of other assets | 18,457 | | | 6,674 | |
Net cash received in ABRC sale | 256,511 | | | 0 | |
Net change in tax credit and alternative investments | (35,630) | | | (50,117) | |
Net cash (paid) received in acquisition | (31,518) | | | 551,250 | |
Net cash provided by (used in) investing activities | (1,572,625) | | | 1,581,631 | |
Cash Flow From Financing Activities | | | |
Net increase (decrease) in deposits | 2,495,229 | | | (1,200,004) | |
Net increase (decrease) in short-term funding | (284,655) | | | (48,630) | |
Net increase (decrease) in short-term FHLB advances | (520,000) | | | (685,000) | |
Repayment of long-term FHLB advances | (966,777) | | | (763,036) | |
Proceeds from long-term FHLB advances | 4,000 | | | 751,573 | |
| | | |
| | | |
Proceeds from PPPLF | 1,022,217 | | | 0 | |
Repayment of finance lease principal | (1,044) | | | 0 | |
Proceeds from issuance of preferred shares | 96,921 | | | 0 | |
Proceeds from issuance of common stock for stock-based compensation plans | 3,165 | | | 9,070 | |
| | | |
| | | |
| | | |
| | | |
Purchase of treasury stock, open market purchases | (71,255) | | | (129,600) | |
Purchase of treasury stock, stock-based compensation plans | (6,010) | | | (8,493) | |
Cash dividends on common stock | (84,156) | | | (83,248) | |
Cash dividends on preferred stock | (13,152) | | | (11,402) | |
Net cash provided by (used in) financing activities | 1,674,484 | | | (2,168,770) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 524,918 | | | (117,154) | |
Cash, cash equivalents, and restricted cash at beginning of period | 588,744 | | | 876,698 | |
Cash, cash equivalents, and restricted cash at end of period | $ | 1,113,663 | | | $ | 759,545 | |
| | | | | | | | |
| Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 |
Cash Flow From Operating Activities | | |
Net income | $ | 185,307 | | $ | 194,555 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities | | |
Provision for credit losses | (58,009) | | 114,001 | |
Depreciation and amortization | 24,200 | | 29,119 | |
Addition to (recovery of) valuation allowance on mortgage servicing rights, net | (10,239) | | 17,029 | |
Amortization of mortgage servicing rights | 11,352 | | 10,043 | |
Amortization of other intangible assets | 4,439 | | 5,686 | |
Amortization and accretion on earning assets, funding, and other, net | 10,796 | | 14,060 | |
Net amortization of tax credit investments | 16,552 | | 13,661 | |
Losses (gains) on sales of investment securities, net | 16 | | (9,214) | |
Asset (gains) losses, net | (4,796) | | (157,284) | |
(Gains) losses on sale of branch, net | (1,038) | | 0 | |
(Gain) loss on mortgage banking activities, net | (24,008) | | (26,545) | |
Mortgage loans originated and acquired for sale | (889,315) | | (860,674) | |
Proceeds from sales of mortgage loans held for sale | 884,581 | | 1,022,268 | |
| | |
Changes in certain assets and liabilities | | |
(Increase) decrease in interest receivable | 8,466 | | 4,099 | |
Increase (decrease) in interest payable | (4,907) | | (3,682) | |
Increase (decrease) in expense payable | 11,274 | | (49,911) | |
(Increase) decrease in net derivative position | 56,833 | | (138,961) | |
Increase (decrease) in unsettled trades | 0 | | 20,515 | |
(Increase) decrease in net income tax position | (27,779) | | 18,606 | |
Net change in other assets and other liabilities | 36,476 | | 68,750 | |
Net cash provided by (used in) operating activities | 230,202 | | 286,120 | |
Cash Flow From Investing Activities | | |
Net decrease (increase) in loans | 478,170 | | (1,912,941) | |
Purchases of | | |
AFS securities | (1,162,109) | | (867,693) | |
HTM securities | (81,368) | | (65,563) | |
Federal Home Loan Bank and Federal Reserve Bank stocks | (1) | | (78,153) | |
Premises, equipment, and software, net of disposals | (19,706) | | (22,577) | |
Other intangibles | 0 | | (200) | |
Proceeds from | | |
Sales of securities | 158,743 | | 626,276 | |
| | |
Sale of Federal Home Loan Bank and Federal Reserve Bank stocks | 0 | | 100,000 | |
Prepayments, calls, and maturities of AFS investment securities | 699,584 | | 499,025 | |
Prepayments, calls, and maturities of HTM investment securities | 195,107 | | 191,953 | |
Sales, prepayments, calls, and maturities of other assets | 12,421 | | 12,728 | |
Net cash received in business segment sale | 2,415 | | 256,571 | |
Net change in tax credit and alternative investments | (34,200) | | (30,276) | |
Net cash (paid) received in acquisition | 0 | | (31,518) | |
Net cash provided by (used in) investing activities | 249,056 | | (1,322,370) | |
Cash Flow From Financing Activities | | |
Net increase (decrease) in deposits | 813,098 | | 2,334,002 | |
Net decrease in deposits due to branch sales | (31,083) | | 0 | |
Net increase (decrease) in short-term funding | (26,112) | | (309,144) | |
Net increase (decrease) in short-term FHLB advances | 0 | | (520,000) | |
Repayment of long-term FHLB advances | (18,049) | | (16,583) | |
Proceeds from long-term FHLB advances | 5,251 | | 4,000 | |
| | |
| | |
Proceeds from PPPLF | 0 | | 1,009,760 | |
(Repayment) proceeds of finance lease principal | (1,035) | | (1,007) | |
Proceeds from issuance of preferred shares | 0 | | 97,129 | |
Proceeds from issuance of common stock for stock-based compensation plans | 18,174 | | 3,069 | |
Redemption of preferred shares | (65,000) | | 0 | |
| | |
| | |
| | |
Purchase of treasury stock, open market purchases | (47,945) | | (71,255) | |
Purchase of treasury stock, stock-based compensation plans | (4,450) | | (5,548) | |
Cash dividends on common stock | (55,693) | | (56,281) | |
Cash dividends on preferred stock | (10,082) | | (7,945) | |
Net cash provided by (used in) financing activities | 577,074 | | 2,460,197 | |
Net increase (decrease) in cash and cash equivalents | 1,056,332 | | 1,423,947 | |
Cash and cash equivalents at beginning of period | 716,048 | | 588,744 | |
Cash and cash equivalents at end of period(a) | $ | 1,772,379 | | $ | 2,012,691 | |
Numbers may not sum due to rounding.
See accompanying notes(a) No restricted cash due to consolidated financial statements.the Federal Reserve reducing the required reserve ratio to zero
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows (Unaudited) | | | | | | | | |
| Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 |
Supplemental disclosures of cash flow information | | |
Cash paid for interest | $ | 44,782 | | $ | 97,929 | |
Cash paid for (received from) income and franchise taxes | 54,179 | | 3,318 | |
Loans and bank premises transferred to OREO | 18,535 | | 5,212 | |
Capitalized mortgage servicing rights | 7,488 | | 9,169 | |
Loans transferred into held for sale from portfolio, net | 9,970 | | 201,827 | |
Unsettled trades to purchase securities | 0 | | 20,515 | |
Acquisition | | |
Fair value of assets acquired, including cash and cash equivalents | 0 | | 459,235 | |
Fair value ascribed to goodwill and intangible assets | 0 | | 20,793 | |
Fair value of liabilities assumed | 0 | | 480,028 | |
| | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in Thousands) | 2020 | | 2019 |
Supplemental disclosures of cash flow information | | | |
Cash paid for interest | $ | 137,423 | | | $ | 266,192 | |
Cash paid for (received from) income and franchise taxes | 17,682 | | | 38,979 | |
Loans and bank premises transferred to OREO | 12,599 | | | 7,374 | |
Capitalized mortgage servicing rights | 11,495 | | | 8,900 | |
Loans transferred into held for sale from portfolio, net | 260,856 | | | 326,476 | |
Unsettled trades to purchase securities | 1,000 | | | 2,577 | |
Acquisition | | | |
Fair value of assets acquired, including cash and cash equivalents | 457,878 | | | 695,848 | |
Fair value ascribed to goodwill and intangible assets | 22,150 | | | 29,837 | |
Fair value of liabilities assumed | 480,028 | | | 725,764 | |
Equity issued in (adjustments related to) acquisition | 0 | | | (79) | |
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same sum amounts shown on the consolidated statements of cash flows:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in Thousands) | 2020 | | 2019 |
Cash and cash equivalents | $ | 1,113,663 | | | $ | 562,798 | |
Restricted cash | 0 | | | 196,747 | |
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | 1,113,663 | | | $ | 759,545 | |
Amounts included in restricted cash represent required reserve balances with the Federal Reserve Bank, which is included in interest-bearing deposits in other financial institutions on the face of the consolidated balance sheets. At September 30, 2020, the Corporation had no restricted cash due to the Federal Reserve reducing the required ratios to zero percent.
Item 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Notes to Consolidated Financial Statements
These interim consolidated financial statements have been prepared according to the rules and regulations of the SEC and, therefore, certain information and footnote disclosures normally presented in accordance with GAAP have been omitted or abbreviated. The information contained on the consolidated financial statements and footnotes in Associated Banc-Corp's 20192020 Annual Report on Form 10-K should be referred to in connection with the reading of these unaudited interim financial statements.
Note 1 Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and comprehensive income, changes in stockholders’ equity, and cash flows of the Corporation and Parent Company for the periods presented, and all such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of all subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the determination of the ACLL, goodwill impairment assessment, MSRs valuation, and income taxes. Management has evaluated subsequent events for potential recognition or disclosure.
Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes.
Note 2 Acquisitions and Dispositions
Acquisitions:
The Corporation has not had any acquisitions during the first six months of 2021.
2020
First Staunton Acquisition
On February 14, 2020, the Corporation completed its acquisition of First Staunton. The purchase price was based on an assumed 4% deposit premium at announcement. The conversion of the branches was completed simultaneously with the close of the transaction, expanding the Bank's presence into 9 new Metro-East St. Louis communities. As a result of the acquisition and other consolidations, a net of 7 branch locations were added.
The First Staunton acquisition constituted a business combination. The acquisition has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair value on the acquisition date. The determination of estimated fair values required management to make certain estimates that are subjective in nature and may require adjustments upon the availability of new information regarding facts and circumstances which existed at the date of acquisition (i.e., appraisals) for up to a year following the acquisition. The Corporation continues to review information relating to events or circumstances existing at the acquisition date. Management anticipates that this review could result in adjustments to the acquisition date valuation amounts presented herein but does not anticipate that these adjustments will be material.
The Corporation recorded approximately $15 million in goodwill related to the First Staunton acquisition during the first quarter of 2020, however the Corporation subsequently reduced goodwill by $2 million during the second quarter of 2020. Upon review of information relating to events and circumstances existing at the acquisition date, and in accordance with applicable accounting guidance, the Corporation remeasured select previously reported fair value amounts. The adjustment to goodwill was driven by an update that increased the fair value of MSRs acquired.acquisition. Goodwill created by the acquisition is not tax deductible. See Note 8 for additional information on goodwill, as well as the carrying amount and amortization of CDI assets related to the First Staunton acquisition.
The following table presents the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date related to the First Staunton acquisition:
| | | | | | | | |
($ in Thousands) | Purchase Accounting Adjustments | February 14, 2020 |
Assets | | |
Cash and cash equivalents | $ | 0 | | $ | 44,782 | |
Investment securities available for sale | (24) | | 98,743 | |
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost | 0 | | 781 | |
Loans | (4,808) | | 369,741 | |
Premises and equipment, net | (3,005) | | 4,865 | |
Bank owned life insurance | 9 | | 6,770 | |
Goodwill | | 13,414 | |
Core deposit intangibles (included in other intangible assets, net on the face of the consolidated balance sheets) | 7,379 | | 7,379 | |
OREO (included in other assets on the face of the consolidated balance sheets) | 670 | | 762 | |
Other assets | 4,193 | | 9,090 | |
Total assets | | $ | 556,328 | |
Liabilities | | |
Deposits | $ | 1,285 | | $ | 438,684 | |
Other borrowings | 61 | | 34,613 | |
Accrued expenses and other liabilities | 179 | | 6,730 | |
Total liabilities | | $ | 480,028 | |
Total consideration paid | | $ | 76,300 | |
| | | | | | | | |
($ in Thousands) | Purchase Accounting Adjustments | February 14, 2020 |
Assets | | |
Cash and cash equivalents | $ | 0 | | $ | 44,782 | |
Investment securities AFS | (24) | | 98,743 | |
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost | 0 | | 781 | |
Loans | (4,808) | | 369,741 | |
Premises and equipment, net | (3,005) | | 4,865 | |
Bank owned life insurance | 9 | | 6,770 | |
Goodwill | | 14,812 | |
Core deposit intangibles (included in other intangible assets, net on the face of the consolidated balance sheets) | 7,379 | | 7,379 | |
OREO (included in other assets on the face of the consolidated balance sheets) | 670 | | 762 | |
Other assets | 2,795 | | 7,692 | |
Total assets | | $ | 556,328 | |
Liabilities | | |
Deposits | $ | 1,285 | | $ | 438,684 | |
Other borrowings | 61 | | 34,613 | |
Accrued expenses and other liabilities | 179 | | 6,730 | |
Total liabilities | | $ | 480,028 | |
Total consideration paid | | $ | 76,300 | |
For a description of methods used to determine the fair value of significant assets and liabilities presented on the balance sheet above, see Assumptions section of this Note.
The Corporation has purchased loans with the First Staunton acquisition, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.origination (PCD). The carrying amount of those loans is as follows:
| | | | | | |
($ in Thousands) | February 14, 2020 | |
Purchase price of loans at acquisition | $ | 77,221 | | |
Allowance for credit losses at acquisition | 3,504 | | |
Non-credit discount/(premium) at acquisition | (951) | | |
Par value of acquired loans at acquisition | $ | 79,774 | | |
There wereThe Corporation acquired 0 PCD securities.
Huntington Wisconsin Branch Acquisition
On June 14, 2019, the Corporation completed its acquisition of the Wisconsin branches of Huntington. The Corporation paid a 4% premium on acquired deposits. The conversion of the branches happened simultaneouslysecurities in connection with the close of the transaction and the acquisition expanded the Bank's presence into 13 new Wisconsin communities. As a result of the acquisition and other consolidations, a net of 14 branch locations were added.
The Huntington branch acquisition constituted a business combination. The acquisition has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair value on the acquisition date. The determination of estimated fair values required management to make certain estimates that are subjective in nature and may require adjustments upon the availability of new information regarding facts and circumstances which existed at the date of acquisition (i.e., appraisals) for up to a year following the acquisition.
The Corporation recorded approximately $7 million in goodwill related to the Huntington branch acquisition during the second quarter of 2019 and approximately $210,000 during the third quarter of 2019. Upon review of information relating to events and circumstances existing at the acquisition date, and in accordance with applicable accounting guidance, the Corporation remeasured select previously reported fair value amounts. The adjustment to goodwill was driven by an update that decreased the fair value of furniture acquired. Goodwill created by the acquisition is tax deductible. See Note 8 for additional information on goodwill.
The following table presents the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date related to Huntington branch acquisition:
| | | | | | | | |
($ in Thousands) | Purchase Accounting Adjustments | June 14, 2019 |
Assets | | |
Cash and cash equivalents | $ | 0 | | $ | 551,250 | |
| | |
| | |
Loans | (1,552) | | 116,346 | |
Premises and equipment, net | 4,800 | | 22,430 | |
| | |
Goodwill | | 7,286 | |
Core deposit intangibles (included in other intangible assets, net on the face of the consolidated balance sheets) | 22,630 | | 22,630 | |
OREO (included in other assets on the face of the consolidated balance sheets) | (2,561) | | 5,263 | |
Other assets | 0 | | 559 | |
Total assets | | $ | 725,764 | |
Liabilities | | |
Deposits | $ | 156 | | $ | 725,173 | |
| | |
Other liabilities | 70 | | 590 | |
Total liabilities | | $ | 725,764 | |
| | |
| | |
Assumptions
Investment Securities: The fair value of investments on the date of acquisition was determined utilizing an external third party broker opinion of the market value.
Loans: Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, amortization status and current discount rates. For the non-credit (interest and liquidity) premium, loans were grouped together according to similar characteristics when applying various valuation techniques. For the credit discount, loans were also grouped based on whether they had more than insignificant deterioration in credit since origination.
CDIs: This intangible asset represents the value of the relationships with deposit customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds, and the interest costs associated with customer deposits. The CDIs will beare being amortized on a straight-line basis over 10 years.
Time Deposits: The fair value for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the contractual interest rates on such time deposits.
FHLB Borrowings: The fair value of FHLB advances areis estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments.
Dispositions:
Completed:2021
On March 1, 2021, the Corporation closed on the sale of its wealth management subsidiary, Whitnell, to Rockefeller for a purchase price of $8 million. Associated Benefits & Risk Consultingreported a first quarter 2021 pre-tax gain of approximately $2 million, included in asset gains (losses), net on the consolidated statements of income, in conjunction with the sale.
On February 26, 2021, the Bank completed the sale of one branch located in Monroe, Wisconsin to Summit Credit Union. Under the terms of the transaction, Associated Bank sold $31 million in total deposits and no loans. Associated Bank received an approximately 4% purchase premium on deposits transferred.
2020
On June 30, 2020, the Corporation announced that it had closedcompleted the previously announced sale of ABRC to USI. Under the terms of the agreement, the purchase price wasUSI for $266 million in cash. Associated recorded a second quarter 2020 pre-tax book gain of approximately $163 million in conjunction with the sale.
Pending:
During the third quarter ofOn December 11, 2020, the Corporation announced branchBank completed the sale transactions. With the continued migration to mobile and online channels along with declining foot traffic, the Corporation has a reduced need of branches in our distribution strategy. As a result of the pending sales, the Corporation transferred the related branch real estate to OREO and wrote the value down to fair value.
On September 11, 2020, Associated Bank entered into a definitive agreement with Morton Community Bank to sell 5 branches in Peoria, IL.Illinois to Morton Community Bank. Under the terms of the transaction, Associatedthe Bank expects to sell approximately $208 million in total deposits
and no loans. Associated Bank will be receiving a 4% purchase premium on deposits transferred. The sale is expected to close in December 2020. With the sale of these branches, Associated Bank will exit the Peoria Community Market.
On September 12, 2020, Associated Bank entered into an agreement with Royal Bank to sell 2 branches in southwest Wisconsin. Under the terms of the transaction, Associated Bank expects to sell approximately $56sold $180 million in total deposits and no loans. Associated Bank will be receivingreceived a 4% purchase premium on deposits transferred. With the sale of these branches, the Bank exited the Peoria market.
On December 11, 2020, the Bank completed the sale of 2 branches in southwest Wisconsin to Royal Bank. Under the terms of the transaction, Associated Bank sold $53 million in total deposits and no loans. Associated Bank received a 4% purchase premium on deposits transferred in the Prairie du Chien and Richland Center branches. This sale is expected to close in December 2020.
On September 22, 2020, Associated Bank entered into an agreement with Summit Credit Union to sell 1 branch located in Monroe, Wisconsin. Under the terms of the transaction, Associated Bank expects to sell approximately $38 million in total deposits and no loans. Associated Bank will be receiving a 4% purchase premium on deposits transferred. This sale is expected to close in the first quarter of 2021.
Note 3 Summary of Significant Accounting Policies
The accounting and reporting policies of the Corporation conform to U.S. GAAP and to general practice within the financial services industry. A discussion of these policies can be found in Note 1 Summary of Significant Accounting Policies included in the Corporation’s 20192020 Annual Report on Form 10-K. As a result of adopting ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) and strategic branch optimization initiatives, thereThere have been no changes to the Corporation's significant accounting policies since December 31, 2019, which are described below.2020.
Investment Securities
Management measures expected credit losses on held to maturity securities on a collective basis by major security type. Accrued interest receivable on held to maturity securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts and is included in investment securities held to maturity, net on the consolidated balance sheets.
For available for sale securities, the Corporation evaluates whether any decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses on investments is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses on investments is recognized in other comprehensive income.
Changes in the allowance for credit losses on investments are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the available for sale security is uncollectible or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available for sale debt securities is excluded from the estimate of credit losses.
Allowance for Credit Losses on Loans
The level of the allowance for loan losses represents management's estimate of an amount appropriate to provide for lifetime credit losses in the loan portfolio at the balance sheet date. The methodology applied by the Corporation is designed to assess the appropriateness of the allowance for loan losses within the Corporation's loan segmentation as well as management’s ongoing review and grading of the loan portfolio into criticized loan categories. The methodology focuses on evaluation of several factors, including but not limited to: evaluation of facts and issues related to specific loans, management's ongoing review and grading of the loan portfolio using a dual risk rating system consisting of probability of default and loss given default models, which are based on loan grades for commercial loans and credit reports for consumer loans applied based on portfolio segmentation leveraging industry breakouts in Commercial and Industrial (C&I) and property types in Commercial Real Estate (CRE) for commercial loans and loan types for consumer loans, consideration of historical credit loss and delinquency experience on each portfolio category, trends in past due and nonaccrual loans, the level of potential problem loans, the risk characteristics of the various classifications of loans, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions and economic forecasts, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential loan losses. The Corporation utilizes the Moody's Baseline economic forecast in the allowance model and applies that forecast over a reasonable and supportable period with reversion to historical losses. For additional detail on the reasonable and supportable period and reversion assumptions, see Note 7. The Company estimates the lifetime expected loss using prepayment assumptions over the
projected lifetime cash flow of the loans. Potential problem loans are generally defined by management to include loans rated as substandard by management. Assessing these numerous factors involves significant judgment. The provision for loan losses is predominantly a function of the result of the methodology and other qualitative and quantitative factors used to determine the allowance for loan losses.
Management individually analyzes loans that do not share similar risk characteristics to other loans in the portfolio. Management has determined that commercial loan relationships that have nonaccrual status or commercial and retail loans that have had their terms restructured in a TDR meet this definition. Probable TDRs are loans the Corporation has reviewed individually to determine whether there is a high likelihood that the loans will default and will require restructuring in the near future. Probable TDRs could be classified as Pass, Special Mention, Potential Problem or Nonaccrual within the Corporation's credit quality analysis depending on the specific circumstances surrounding the individual credits. Accrued interest receivable on loans is excluded from the estimate of credit losses.
The allowance for unfunded commitments leverages the same methodology utilized to measure the allowance for loan losses. The Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. See Note 7 for additional information on the ACLL and Note 12 for additional information on the allowance for unfunded commitments.
A portion of the ACLL is comprised of adjustments for qualitative factors not reflected in the quantitative model.
OREO
OREO is included in other assets on the consolidated balance sheets and is comprised of property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure, and loans classified as in-substance foreclosure. OREO is recorded at the fair value of the underlying property collateral, less estimated selling costs. This fair value becomes the new cost basis for the foreclosed asset. The initial write-down, if any, will be recorded as a charge off against the allowance for loan losses. Any subsequent write-downs to reflect current fair value, as well as gains and losses on disposition and revenues and expenses incurred in maintaining such properties, are expensed as incurred. OREO also includes bank premises formerly but no longer used for banking, property originally acquired for future expansion but no longer intended to be used for that purpose, and property currently held for sale. Banking premises are transferred at the lower of carrying value or fair value, less estimated selling costs and any write-down is expensed as incurred.
Impact of adopting ASU 2016-13 Financial Instruments - Credit Losses (Topic 326)
The following table illustrates the adoption impact:
| | | | | | | | | | | | | | |
| December 31, 2019 | January 1, 2020 |
($ in Thousands) | Allowance for Loan Losses | Allowance for Unfunded Commitments | CECL Day 1 Adjustment | ACLL Beginning Balance |
Commercial and industrial | $ | 91,133 | | $ | 12,276 | | $ | 48,921 | | $ | 152,330 | |
Commercial real estate - owner occupied | 10,284 | | 127 | | (1,851) | | 8,560 | |
Commercial and business lending | 101,417 | | 12,403 | | 47,070 | | 160,890 | |
Commercial real estate - investor | 40,514 | | 530 | | 2,287 | | 43,331 | |
Real estate construction | 24,915 | | 7,532 | | 25,814 | | 58,261 | |
Commercial real estate lending | 65,428 | | 8,062 | | 28,101 | | 101,591 | |
Total Commercial | 166,846 | | 20,465 | | 75,171 | | 262,482 | |
Residential mortgage | 16,960 | | 0 | | 33,215 | | 50,175 | |
Home equity | 10,926 | | 1,038 | | 14,240 | | 26,204 | |
Other consumer | 6,639 | | 405 | | 8,520 | | 15,564 | |
Total consumer | 34,525 | | 1,443 | | 55,975 | | 91,943 | |
Total loans | $ | 201,371 | | $ | 21,907 | | $ | 131,147 | | $ | 354,425 | |
The allowance for credit losses on held to maturity securities was approximately $61,000 at January 1, 2020, attributable entirely to the Corporation's municipal securities.
At January 1, 2020, the adoption of ASU 2016-13 resulted in an increase to the allowance for loan losses of $112 million and an increase to the allowance for unfunded commitments of $19 million for a total increase to the ACLL of $131 million. A corresponding after tax decrease to common equity of $98 million was recorded along with a deferred tax asset of $33 million.
New Accounting Pronouncements Adopted
| | | | | | | | | | | | | | | | | | | | |
Standard | | Description | | Date of adoption | | Effect on financial statements |
ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
| | The FASB issued an amendment to replace the current incurred loss impairment methodology. Under the new guidance, entities will be required to measure expected credit losses by utilizing forward-looking information to assess an entity's ACL. The guidance also requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. This amendment was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities should apply the amendment by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2018-19 was issued to clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. ASU 2019-04 was issued and provided entities alternatives for measurement of accrued interest receivable, clarified the steps entities should take when recording the transfer of loans or debt securities between measurement classifications or categories and clarifies that entities should include expected recoveries on financial assets. ASU 2019-05 was issued to provide entities that have certain instruments within the scope of Subtopic 320-20 with an option to irrevocably elect the fair value option in Subtopic 825-10. ASU 2020-02 was issued to further explain the measurement of current expected credit losses and the development, governance, and documentation of a systematic methodology. | | 1st Quarter 2020 | | The Corporation has adopted the Update using a modified retrospective approach. The Corporation has developed a CECL allowance model which calculates reserves over the life of the loan and is largely driven by portfolio characteristics, risk-grading, economic outlook, and key methodology assumptions. Those assumptions are based upon the existing probability of default and loss given default framework. At adoption, the Corporation utilized a single economic forecast over a 2-year reasonable and supportable forecast period. In the second year, the Corporation used straight-line reversion to historical losses. The Corporation recorded a $131 million adjustment to the ACL related to the adoption of this standard, which includes $61 thousand related to the held to maturity investment securities portfolio. The Corporation has elected to maintain pools accounted for under Subtopic 310-30 at adoption. The Corporation has elected to utilize the 2019 Capital Transition Relief for initial adoption, as well as the 2020 Capital Transition Relief as permitted under applicable regulations. The total impact at adoption equates to an approximately 29 bp net, after tax, reduction in the tangible common equity ratio. Results for the periods after January 1, 2020 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards. |
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| | | | | | |
ASU 2018-13 Fair Value Measurement2019-12 Income Taxes (Topic 820): Disclosure Framework—Changes to740)-Simplifying the Disclosure RequirementsAccounting for Fair Value MeasurementIncome Taxes | | The FASB issued anthis amendment to add, modify, and remove disclosure requirements on fair value measurementssimplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 820, Fair Value Measurement, based on the FASB Concepts Statement "Conceptual Framework for Financial Reporting," including the consideration of costs and benefits.740. The amendment wasalso improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this Update were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses,2020. Early adoption of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date.amendment was permitted. | | 1st Quarter 20202021 | | The Corporation has evaluated and determined it has an immaterialAdoption of this amendment did not have a material impact with minor changes in presentation.on the Corporation's results of operation, financial position or liquidity. |
ASU 2017-04 Intangibles - Goodwill2020-08 Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other (Topic 350): Simplifying the Test for Goodwill ImpairmentCosts | | The FASB issued anthis amendment to simplify the subsequent quantitative measurement of goodwill by eliminating step two from the goodwill impairment test. Instead,clarify that an entity will perform only step oneshould reevaluate whether a callable debt security is within the scope of its quantitative goodwill impairment test by comparing the fair value of aparagraph 310-20-35-33 for each reporting unit with its carrying amount, and then recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity will still have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative step one impairment test is necessary. This amendment wasperiod. The amendments in this Update were effective for annual orfiscal years, and interim goodwill impairment tests inperiods within those fiscal years, beginning after December 15, 2019. Entities should apply2020. Early adoption of the amendment prospectively.amendments was not permitted. | | 1st Quarter 20202021 | | There has been noAdoption of this amendment did not have a material impact on the Corporation's results of operations,operation, financial position andor liquidity. The Corporation performs its annual impairment testing in May. |
| | | | | | | | | | | | | | | | | | | | |
Standard | | Description | | Date of adoption | | Effect on financial statements |
ASU 2020-03 Codification Improvements to Financial Instruments | | The FASB issued an amendment to further clarify that all entities are required to provide the fair value option disclosures in paragraphs 825-10-50-24 through 50-32. The amendment also states that paragraphs 820-10-35-2A(g) and 820-10-35-18L are to include the phrase nonfinancial items accounted for as derivatives under Topic 815 to be consistent with the previous amendments to Section 820-10-35 that were made by ASU No. 2018-09, Codification Improvements. The amendment also clarifies that the disclosure requirements in Topic 320 apply to the disclosure requirements in Topic 942 for depository and lending institutions along with improving the understandability of the guidance relating to subtopic 470-50 and subtopic 820-10. Lastly, the amendment clarifies that the contractual term of a net investment in a lease determined in accordance with Topic 842 should be the contractual term used to measure expected credit losses under Topic 326 and that when an entity regains control of financial assets sold, an ACL should be recorded in accordance with Topic 326. | | 1st Quarter 2020 | | The Corporation has evaluated and determined it has an immaterial impact. |
ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | | The FASB issued an amendment to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. | | 1st Quarter 2020 | | The Corporation has evaluated the impact of the Update and determined the expedients provided allow for simpler, more streamlined modifications to the financial instruments referencing LIBOR. A small population of loans have been modified under the new standard. |
Future Accounting Pronouncements
The expected impact ofThere are no applicable accounting pronouncements recently issued or proposed butthat have not yet required to bebeen adopted are displayed inby the table below:
| | | | | | | | | | | | | | | | | | | | |
Standard | | Description | | Date of anticipated adoption | | Effect on financial statements |
ASU 2018-14 Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans | | The FASB issued an amendment to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments also added requirements to disclose the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendment also clarifies the disclosure requirements in paragraph 715-20-50-3, which states that certain information for defined benefit pension plans should be disclosed. The amendments in this Update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendment is effective for fiscal years ending after December 15, 2020. Entities should apply the amendments in this Update on a retrospective basis to all periods presented. Early adoption is permitted. | | 1st Quarter 2021 | | The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity. |
ASU 2020-01 Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)
Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 | | The FASB issued an amendment to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments also clarify that for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options. | | 1st Quarter 2021 | | The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity. |
Corporation.
Note 4 Earnings Per Common Share
Earnings per common share are calculated utilizing the two-class method. Basic earnings per common share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding adjusted for the dilutive effect of common stock awards (outstanding stock options and unvested restricted stock awards). Presented below are the calculations for basic and diluted earnings per common share:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Nine Months Ended September 30, |
(In Thousands, except per share data) | 2020 | | 2019 | | | | | 2020 | | 2019 |
Net income | $ | 45,214 | | | $ | 83,339 | | | | | | $ | 239,769 | | | $ | 254,686 | |
Preferred stock dividends | (5,207) | | | (3,801) | | | | | | (13,152) | | | (11,402) | |
Net income available to common equity | $ | 40,007 | | | $ | 79,539 | | | | | | $ | 226,618 | | | $ | 243,285 | |
Common shareholder dividends | (27,676) | | | (27,091) | | | | | | (83,607) | | | (82,741) | |
Unvested share-based payment awards | (199) | | | (198) | | | | | | (549) | | | (506) | |
Undistributed earnings | $ | 12,133 | | | $ | 52,250 | | | | | | $ | 142,462 | | | $ | 160,037 | |
Undistributed earnings allocated to common shareholders | $ | 12,045 | | | $ | 51,870 | | | | | | $ | 141,426 | | | $ | 158,970 | |
Undistributed earnings allocated to unvested share-based payment awards | 87 | | | 380 | | | | | | 1,036 | | | 1,067 | |
Undistributed earnings | $ | 12,133 | | | $ | 52,250 | | | | | | $ | 142,462 | | | $ | 160,037 | |
Basic | | | | | | | | | | |
Distributed earnings to common shareholders | $ | 27,676 | | | $ | 27,091 | | | | | | $ | 83,607 | | | $ | 82,741 | |
Undistributed earnings allocated to common shareholders | 12,045 | | | 51,870 | | | | | | 141,426 | | | 158,970 | |
Total common shareholders earnings, basic | $ | 39,721 | | | $ | 78,961 | | | | | | $ | 225,032 | | | $ | 241,711 | |
Diluted | | | | | | | | | | |
Distributed earnings to common shareholders | $ | 27,676 | | | $ | 27,091 | | | | | | $ | 83,607 | | | $ | 82,741 | |
Undistributed earnings allocated to common shareholders | 12,045 | | | 51,870 | | | | | | 141,426 | | | 158,970 | |
Total common shareholders earnings, diluted | $ | 39,721 | | | $ | 78,961 | | | | | | $ | 225,032 | | | $ | 241,711 | |
Weighted average common shares outstanding | 152,440 | | | 159,126 | | | | | | 153,175 | | | 161,727 | |
Effect of dilutive common stock awards | 754 | | | 1,256 | | | | | | 739 | | | 1,334 | |
| | | | | | | | | | |
Diluted weighted average common shares outstanding | 153,194 | | | 160,382 | | | | | | 153,914 | | | 163,061 | |
Basic earnings per common share | $ | 0.26 | | | $ | 0.50 | | | | | | $ | 1.47 | | | $ | 1.49 | |
Diluted earnings per common share | $ | 0.26 | | | $ | 0.49 | | | | | | $ | 1.46 | | | $ | 1.48 | |
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In Thousands, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
Net income | $ | 91,007 | | | $ | 148,718 | | | $ | 185,307 | | | $ | 194,555 | |
Preferred stock dividends | (4,875) | | | (4,144) | | | (10,082) | | | (7,945) | |
Net income available to common equity | $ | 86,131 | | | $ | 144,573 | | | $ | 175,226 | | | $ | 186,611 | |
Common shareholder dividends | (27,620) | | | (27,667) | | | (55,280) | | | (55,931) | |
Unvested share-based payment awards | (203) | | | (222) | | | (412) | | | (351) | |
Undistributed earnings | $ | 58,309 | | | $ | 116,684 | | | $ | 119,533 | | | $ | 130,329 | |
Undistributed earnings allocated to common shareholders | $ | 57,887 | | | $ | 115,750 | | | $ | 118,722 | | | $ | 129,377 | |
Undistributed earnings allocated to unvested share-based payment awards | 422 | | | 934 | | | 810 | | | 953 | |
Undistributed earnings | $ | 58,309 | | | $ | 116,684 | | | $ | 119,533 | | | $ | 130,329 | |
Basic | | | | | | | |
Distributed earnings to common shareholders | $ | 27,620 | | | $ | 27,667 | | | $ | 55,280 | | | $ | 55,931 | |
Undistributed earnings allocated to common shareholders | 57,887 | | | 115,750 | | | 118,722 | | | 129,377 | |
Total common shareholders earnings, basic | $ | 85,506 | | | $ | 143,417 | | | $ | 174,002 | | | $ | 185,307 | |
Diluted | | | | | | | |
Distributed earnings to common shareholders | $ | 27,620 | | | $ | 27,667 | | | $ | 55,280 | | | $ | 55,931 | |
Undistributed earnings allocated to common shareholders | 57,887 | | | 115,750 | | | 118,722 | | | 129,377 | |
Total common shareholders earnings, diluted | $ | 85,506 | | | $ | 143,417 | | | $ | 174,002 | | | $ | 185,307 | |
Weighted average common shares outstanding | 152,042 | | | 152,393 | | | 152,198 | | | 153,547 | |
Effect of dilutive common stock awards | 1,339 | | | 757 | | | 1,275 | | | 813 | |
| | | | | | | |
Diluted weighted average common shares outstanding | 153,381 | | | 153,150 | | | 153,473 | | | 154,360 | |
Basic earnings per common share | $ | 0.56 | | | $ | 0.94 | | | $ | 1.14 | | | $ | 1.21 | |
Diluted earnings per common share | $ | 0.56 | | | $ | 0.94 | | | $ | 1.13 | | | $ | 1.20 | |
Non-dilutive common stock options of approximately 83 million and 38 million for the three months ended SeptemberJune 30, 2021 and 2020, respectively, and 2019, respectively,3 million and 7 million and 3 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, were excluded from the earnings per common share calculation.
Note 5 Stock-Based Compensation
The fair value of stock options granted is estimated on the date of grant using a Black-Scholes option pricing model, while the fair value of restricted stock awards is their fair market value on the date of grant. The fair values of stock options and restricted stock awards (including restricted stock units) are amortized as compensation expense on a straight-line basis over the vesting period of the grants. For colleagues who meet the definition of retirement eligible under the 2017 Incentive Compensation Plan and the 2020 Incentive Compensation Plan, expenses related to stock options and restricted stock awards are fully recognized on the date the colleague meets the definition of normal or early retirement. Compensation expense recognized is included in personnel expense on the consolidated statements of income.
Assumptions are used in estimating the fair value of stock options granted. The weighted average expected life of the stock option represents the period of time stock options are expected to be outstanding and is estimated using historical data of stock option exercises and forfeitures. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the implied volatility of the Corporation’s stock.
The Corporation did not grant stock options in the first six months of 2021. The following assumptions were used in estimating the fair value for options granted infor the first nine months of 2020 and full year 2019:2020: | | | | | | | | | | | |
| | | 2020 |
Dividend yield | | | 3.50 | % |
Risk-free interest rate | | | 1.60 | % |
Weighted average expected volatility | | | 21.00 | % |
Weighted average expected life | | | 5.75 years |
Weighted average per share fair value of options | | | $2.39 |
| | | | | | | | | | | |
| 2020 | | 2019 |
Dividend yield | 3.50 | % | | 3.30 | % |
Risk-free interest rate | 1.60 | % | | 2.60 | % |
Weighted average expected volatility | 21.00 | % | | 24.00 | % |
Weighted average expected life | 5.75 years | | 5.75 years |
Weighted average per share fair value of options | $2.39 | | $4.00 |
A summary of the Corporation’s stock option activity for the ninesix months ended SeptemberJune 30, 20202021 is presented below:
| | | | | | | | | | | | | | |
Stock Options | Shares(a) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value(a) |
Outstanding at December 31, 2019 | 5,543 | | $ | 20.13 | | 6.25 years | $ | 16,043 | |
Granted | 1,697 | | 18.43 | | | |
Exercised | (117) | | 13.89 | | | |
Forfeited or expired | (306) | | 21.48 | | | |
Outstanding at September 30, 2020 | 6,817 | | $ | 19.75 | | 6.47 years | $ | 18 | |
Options Exercisable at September 30, 2020 | 4,203 | | $ | 19.21 | | 5.07 years | $ | 18 | |
| | | | | | | | | | | | | | |
Stock Options | Shares(a) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value(a) |
Outstanding at December 31, 2020 | 6,473 | | $ | 19.77 | | 6.23 years | $ | 2,005 | |
| | | | |
Exercised | 1,085 | | 16.44 | | | |
Forfeited or expired | 80 | | 23.24 | | | |
Outstanding at June 30, 2021 | 5,308 | | $ | 20.40 | | 6.25 years | $ | 8,456 | |
Options Exercisable at June 30, 2021 | 3,725 | | $ | 20.52 | | 5.43 years | $ | 6,407 | |
(a) In thousands
Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock option. For the ninesix months ended SeptemberJune 30, 2020,2021, the intrinsic value of stock options exercised was $6 million compared to less than $1 million compared to $3 million for the ninesix months ended SeptemberJune 30, 2019.2020. The total fair value of stock options vested was $4$3 million for both the ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.
The Corporation recognized compensation expense for the vesting of stock options of approximately $755,000 for the six months ended June 30, 2021, compared to $3 million for the ninesix months ended SeptemberJune 30, 2020, compared to $4 million for the nine months ended September 30, 2019.2020. Included in compensation expense for 20202021 was approximately $2 million of expense$65,000 for the accelerated vesting of stock options granted to retirement eligible colleagues. At SeptemberJune 30, 2020,2021, the Corporation had approximately $4$2 million of unrecognized compensation expense related to stock options that is expected to be recognized over the remaining requisite service periods that extend predominately through the first quarter of 2024.2024.
The Corporation also has issued time-based and performance-based restricted stock awards under the 2017 Incentive Compensation Plan and subsequent 2020 Incentive Compensation Plan. Performance awards are based on performance goals of earnings per share and total shareholder return with vesting ranging from a minimum of 0% to a maximum of 150% of the target award. Performance awards are valued utilizing a Monte Carlo simulation model to estimate fair value of the awards at the grant date.
The following table summarizes information about the Corporation’s restricted stock awards activity for the ninesix months ended SeptemberJune 30, 2020:
| | | | | | | | | | | |
Restricted Stock Awards | Shares(a) | | Weighted Average Grant Date Fair Value |
Outstanding at December 31, 2019 | 2,393 | | | $ | 22.39 | |
Granted | 1,043 | | | 18.21 | |
Vested | (905) | | | 22.64 | |
Forfeited | (146) | | | 20.65 | |
Outstanding at September 30, 2020 | 2,385 | | | $ | 20.56 | |
2021: | | | | | | | | | | | |
Restricted Stock Awards | Shares(a) | | Weighted Average Grant Date Fair Value |
Outstanding at December 31, 2020 | 2,293 | | | $ | 20.70 | |
Granted | 1,200 | | | 20.17 | |
Vested | 789 | | | 21.23 | |
Forfeited | 34 | | | 23.32 | |
Outstanding at June 30, 2021 | 2,670 | | | $ | 19.96 | |
(a) In thousands
The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant's award agreement. Performance-based restricted stock awards granted during 20192020 and 20202021 will vest ratably over acliff-vest after the three year performance period of three years.has ended. Service-based restricted stock awards granted during 20192020 and 20202021 will vest ratably over a period of four years. Expense for restricted stock awards issued of approximately $15$8 million was recorded for the ninesix months ended SeptemberJune 30, 20202021 and $18$12 million was recorded for the ninesix months ended SeptemberJune 30, 2019.2020. Included in compensation expense for the first ninesix months of 20202021 was approximately $6$2 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $18$28 million of unrecognized compensation costs related to restricted stock awards at SeptemberJune 30, 20202021 that are expected to be recognized over the remaining requisite service periods that extend predominately through the first quarter of 2024.2025.
At the Corporation’s 2020 Annual Meeting of Shareholders held on April 28, 2020, the Corporation’s shareholders approved the Associated Banc-Corp 2020 Incentive Compensation Plan, which provides for various types of awards to the Company’s executive officers, employees, consultants and non-employee directors, including, among others, stock options, restricted stock, restricted stock units and performance units.
The Corporation has the ability to issue shares from treasury or new shares upon the exercise of stock options or the granting of restricted stock awards. The Board of Directors has authorized management to repurchase shares of the Corporation’s common stock in the market, to be made available for issuance in connection with the Corporation’s employee incentive plans and for other corporate purposes. The repurchase of shares, if any, will be based on market and investment opportunities, capital levels, growth prospects, and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities. On March 13, 2020, the Corporation suspended its share repurchase program and expects the program to remain suspended for the remainder of 2020.
Note 6 Investment Securities
Investment securities are classified as available for sale, held to maturity,AFS, HTM, or equity on the consolidated balance sheets at the time of purchase. The amortized cost and fair values of securities available for saleAFS and held to maturityHTM at SeptemberJune 30, 20202021 were as follows:
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($ in Thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Fair Value |
|
|
Investment securities available for sale | | | | |
U. S. Treasury securities | $ | 26,541 | | $ | 108 | | $ | 0 | | $ | 26,650 | |
Agency securities | 24,983 | | 50 | | 0 | | 25,033 | |
Obligations of state and political subdivisions (municipal securities) | 450,174 | | 24,521 | | 0 | | 474,695 | |
Residential mortgage-related securities | | | | |
FNMA / FHLMC | 1,267,003 | | 9,554 | | (94) | | 1,276,463 | |
GNMA | 399,490 | | 7,823 | | 0 | | 407,313 | |
| | | | |
Commercial mortgage-related securities | | | | |
FNMA / FHLMC | 19,724 | | 2,153 | | 0 | | 21,877 | |
GNMA | 670,573 | | 17,805 | | 0 | | 688,378 | |
Asset backed securities | | | | |
FFELP | 332,398 | | 0 | | (6,556) | | 325,843 | |
SBA | 9,159 | | 0 | | (48) | | 9,111 | |
| | | | |
Other debt securities | 3,000 | | 0 | | (3) | | 2,997 | |
Total investment securities available for sale | $ | 3,203,046 | | $ | 62,015 | | $ | (6,701) | | $ | 3,258,360 | |
Investment securities held to maturity | | | | |
U. S. Treasury securities | $ | 999 | | $ | 31 | | $ | 0 | | $ | 1,030 | |
Obligations of state and political subdivisions (municipal securities) | 1,444,325 | | 115,343 | | (368) | | 1,559,300 | |
Residential mortgage-related securities | | | | |
FNMA / FHLMC | 63,142 | | 3,147 | | 0 | | 66,289 | |
GNMA | 159,455 | | 5,217 | | 0 | | 164,672 | |
Commercial mortgage-related securities | | | | |
FNMA/FHLMC | 11,220 | | 0 | | 0 | | 11,220 | |
GNMA | 311,798 | | 10,142 | | 0 | | 321,941 | |
Total investment securities held to maturity | $ | 1,990,940 | | $ | 133,880 | | $ | (368) | | $ | 2,124,452 | |
| | | | | | | | | | | | | | |
($ in Thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Fair Value |
|
|
Investment securities AFS | | | | |
U. S. Treasury securities | $ | 124,216 | | $ | 498 | | $ | (181) | | $ | 124,533 | |
Agency securities | 15,000 | | 0 | | (9) | | 14,991 | |
Obligations of state and political subdivisions (municipal securities) | 398,617 | | 21,992 | | 0 | | 420,609 | |
Residential mortgage-related securities | | | | |
FNMA / FHLMC | 2,049,513 | | 11,681 | | (3,285) | | 2,057,909 | |
GNMA | 90,956 | | 3,011 | | 0 | | 93,967 | |
| | | | |
Commercial mortgage-related securities | | | | |
FNMA / FHLMC | 93,693 | | 2,647 | | (632) | | 95,708 | |
GNMA | 284,815 | | 4,777 | | 0 | | 289,593 | |
Asset backed securities | | | | |
FFELP | 214,904 | | 914 | | (354) | | 215,464 | |
SBA | 7,575 | | 46 | | (48) | | 7,573 | |
| | | | |
Other debt securities | 3,000 | | 0 | | 0 | | 3,000 | |
Total investment securities AFS | $ | 3,282,290 | | $ | 45,566 | | $ | (4,509) | | $ | 3,323,346 | |
Investment securities HTM | | | | |
U. S. Treasury securities | $ | 1,000 | | $ | 13 | | $ | 0 | | $ | 1,013 | |
Obligations of state and political subdivisions (municipal securities) | 1,479,375 | | 121,908 | | (190) | | 1,601,093 | |
Residential mortgage-related securities | | | | |
FNMA / FHLMC | 41,505 | | 2,151 | | 0 | | 43,656 | |
GNMA | 66,979 | | 2,618 | | 0 | | 69,597 | |
Commercial mortgage-related securities | | | | |
FNMA/FHLMC | 63,668 | | 515 | | (591) | | 63,591 | |
GNMA | 147,366 | | 4,225 | | 0 | | 151,591 | |
Total investment securities HTM | $ | 1,799,893 | | $ | 131,430 | | $ | (781) | | $ | 1,930,541 | |
The amortized cost and fair values of securities available for saleAFS and held to maturityHTM at December 31, 20192020 were as follows: | | | | | | | | | | | | | | |
($ in Thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Fair Value |
|
|
Investment securities AFS | | | | |
U. S. Treasury securities | $ | 26,436 | | $ | 95 | | $ | 0 | | $ | 26,531 | |
Agency securities | 24,985 | | 53 | | 0 | | 25,038 | |
Obligations of state and political subdivisions (municipal securities) | 425,057 | | 25,605 | | 0 | | 450,662 | |
Residential mortgage-related securities | | | | |
FNMA / FHLMC | 1,448,806 | | 12,935 | | (500) | | 1,461,241 | |
GNMA | 231,364 | | 4,176 | | (3) | | 235,537 | |
| | | | |
Commercial mortgage-related securities | | | | |
FNMA / FHLMC | 19,654 | | 3,250 | | 0 | | 22,904 | |
GNMA | 511,429 | | 13,327 | | 0 | | 524,756 | |
Asset backed securities | | | | |
FFELP | 329,030 | | 1,172 | | (3,013) | | 327,189 | |
SBA | 8,637 | | 0 | | (53) | | 8,584 | |
Other debt securities | 3,000 | | 0 | | 0 | | 3,000 | |
Total investment securities AFS | $ | 3,028,399 | | $ | 60,612 | | $ | (3,570) | | $ | 3,085,441 | |
Investment securities HTM | | | | |
U. S. Treasury securities | $ | 999 | | $ | 25 | | $ | 0 | | $ | 1,024 | |
Obligations of state and political subdivisions (municipal securities) | 1,441,900 | | 133,544 | | 0 | | 1,575,445 | |
Residential mortgage-related securities | | | | |
FNMA / FHLMC | 54,599 | | 2,891 | | 0 | | 57,490 | |
GNMA | 114,553 | | 4,260 | | 0 | | 118,813 | |
Commercial mortgage-related securities | | | | |
FNMA / FHLMC | 11,211 | | 0 | | 0 | | 11,211 | |
GNMA | 255,742 | | 9,218 | | 0 | | 264,960 | |
Total investment securities HTM | $ | 1,879,005 | | $ | 149,938 | | $ | 0 | | $ | 2,028,943 | |
| | | | | | | | | | | | | | |
($ in Thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Fair Value |
|
|
Investment securities available for sale | | | | |
| | | | |
Obligations of state and political subdivisions (municipal securities) | $ | 529,908 | | $ | 16,269 | | $ | (18) | | $ | 546,160 | |
Residential mortgage-related securities | | | | |
FNMA / FHLMC | 131,158 | | 1,562 | | (59) | | 132,660 | |
GNMA | 982,941 | | 3,887 | | (1,689) | | 985,139 | |
| | | | |
Commercial mortgage-related securities | | | | |
FNMA / FHLMC | 19,929 | | 1,799 | | 0 | | 21,728 | |
GNMA | 1,314,836 | | 7,403 | | (12,032) | | 1,310,207 | |
FFELP asset backed securities | 270,178 | | 0 | | (6,485) | | 263,693 | |
| | | | |
Other debt securities | 3,000 | | 0 | | 0 | | 3,000 | |
Total investment securities available for sale | $ | 3,251,950 | | $ | 30,920 | | $ | (20,284) | | $ | 3,262,586 | |
Investment securities held to maturity | | | | |
U. S. Treasury securities | $ | 999 | | $ | 19 | | $ | 0 | | $ | 1,018 | |
Obligations of state and political subdivisions (municipal securities) | 1,418,569 | | 69,775 | | (1,118) | | 1,487,227 | |
Residential mortgage-related securities | | | | |
FNMA / FHLMC | 81,676 | | 1,759 | | (15) | | 83,420 | |
GNMA | 269,523 | | 1,882 | | (1,108) | | 270,296 | |
GNMA commercial mortgage-related securities | 434,317 | | 6,308 | | (6,122) | | 434,503 | |
Total investment securities held to maturity | $ | 2,205,083 | | $ | 79,744 | | $ | (8,363) | | $ | 2,276,465 | |
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The expected maturities of investment securities available for saleAFS and held to maturityHTM at SeptemberJune 30, 20202021, are shown below:
| | | | | | | | | | | | | | |
| Available for Sale | Held to Maturity |
($ in Thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value |
Due in one year or less | $ | 8,343 | | $ | 8,350 | | $ | 28,957 | | $ | 29,140 | |
Due after one year through five years | 82,198 | | 82,964 | | 63,630 | | 65,751 | |
Due after five years through ten years | 344,172 | | 362,247 | | 161,769 | | 170,223 | |
Due after ten years | 69,987 | | 75,815 | | 1,190,968 | | 1,295,217 | |
Total debt securities | 504,699 | | 529,375 | | 1,445,325 | | 1,560,331 | |
Residential mortgage-related securities | | | | |
FNMA / FHLMC | 1,267,003 | | 1,276,463 | | 63,142 | | 66,289 | |
GNMA | 399,490 | | 407,313 | | 159,455 | | 164,672 | |
| | | | |
Commercial mortgage-related securities | | | | |
FNMA / FHLMC | 19,724 | | 21,877 | | 11,220 | | 11,220 | |
GNMA | 670,573 | | 688,378 | | 311,798 | | 321,941 | |
Asset backed securities | | | | |
FFELP | 332,398 | | 325,843 | | 0 | | 0 | |
SBA | 9,159 | | 9,111 | | 0 | | 0 | |
| | | | |
Total investment securities | $ | 3,203,046 | | $ | 3,258,360 | | $ | 1,990,940 | | $ | 2,124,452 | |
Ratio of fair value to amortized cost | | 101.7 | % | | 106.7 | % |
| | | | | | | | | | | | | | |
| AFS | HTM |
($ in Thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value |
Due in one year or less | $ | 6,278 | | $ | 6,285 | | $ | 29,227 | | $ | 29,460 | |
Due after one year through five years | 77,593 | | 78,211 | | 42,396 | | 43,855 | |
Due after five years through ten years | 419,367 | | 436,807 | | 175,687 | | 184,271 | |
Due after ten years | 37,595 | | 41,829 | | 1,233,065 | | 1,344,520 | |
Total debt securities | 540,833 | | 563,132 | | 1,480,375 | | 1,602,106 | |
Residential mortgage-related securities | | | | |
FNMA / FHLMC | 2,049,513 | | 2,057,909 | | 41,505 | | 43,656 | |
GNMA | 90,956 | | 93,967 | | 66,979 | | 69,597 | |
| | | | |
Commercial mortgage-related securities | | | | |
FNMA / FHLMC | 93,693 | | 95,708 | | 63,668 | | 63,591 | |
GNMA | 284,815 | | 289,593 | | 147,366 | | 151,591 | |
Asset backed securities | | | | |
FFELP | 214,904 | | 215,464 | | 0 | | 0 | |
SBA | 7,575 | | 7,573 | | 0 | | 0 | |
| | | | |
Total investment securities | $ | 3,282,290 | | $ | 3,323,346 | | $ | 1,799,893 | | $ | 1,930,541 | |
Ratio of fair value to amortized cost | | 101.3 | % | | 107.3 | % |
On a quarterly basis, the Corporation refreshes the credit quality of each held to maturityHTM security. The following table summarizes the credit quality indicators of held to maturityHTM securities at amortized cost at SeptemberJune 30, 2021: | | | | | | | | | | | | | | | | | | | | |
($ in Thousands) | AAA | AA | A | | | | Not Rated | Total |
U. S. Treasury securities | $ | 1,000 | | $ | 0 | | $ | 0 | | | | | $ | 0 | | $ | 1,000 | |
Obligations of state and political subdivisions (municipal securities) | 600,671 | | 867,638 | | 10,872 | | | | | 194 | | 1,479,375 | |
Residential mortgage-related securities | | | | | | | | |
FNMA / FHLMC | 41,505 | | 0 | | 0 | | | | | 0 | | 41,505 | |
GNMA | 66,979 | | 0 | | 0 | | | | | 0 | | 66,979 | |
Commercial mortgage-related securities | | | | | | | | |
FNMA / FHLMC | 63,668 | | 0 | | 0 | | | | | 0 | | 63,668 | |
GNMA | 147,366 | | 0 | | 0 | | | | | 0 | | 147,366 | |
Total HTM securities | $ | 921,188 | | $ | 867,638 | | $ | 10,872 | | | | | $ | 194 | | $ | 1,799,893 | |
The following table summarizes the credit quality indicators of HTM securities at amortized cost at December 31, 2020: | | | | | | | | | | | | | | | | | | |
($ in Thousands) | AAA | AA | A | | | | | Total |
U. S. Treasury securities | $ | 999 | | $ | 0 | | $ | 0 | | | | | | $ | 999 | |
Obligations of state and political subdivisions (municipal securities) | 567,252 | | 860,607 | | 14,041 | | | | | | 1,441,900 | |
Residential mortgage-related securities | | | | | | | | |
FNMA / FHLMC | 54,599 | | 0 | | 0 | | | | | | 54,599 | |
GNMA | 114,553 | | 0 | | 0 | | | | | | 114,553 | |
Commercial mortgage-related securities | | | | | | | | |
FNMA / FHLMC | 11,211 | | 0 | | 0 | | | | | | 11,211 | |
GNMA | 255,742 | | 0 | | 0 | | | | | | 255,742 | |
Total HTM securities | $ | 1,004,357 | | $ | 860,607 | | $ | 14,041 | | | | | | $ | 1,879,005 | |
| | | | | | | | | | | | | | | | | |
($ in Thousands) | AAA | AA | A | | | | Total |
U. S. Treasury securities | $ | 999 | | $ | 0 | | $ | 0 | | | | | $ | 999 | |
Obligations of state and political subdivisions (municipal securities) | 567,468 | | 860,465 | | 16,393 | | | | | 1,444,325 | |
Residential mortgage-related securities | | | | | | | |
FNMA/FHLMC | 63,142 | | 0 | | 0 | | | | | 63,142 | |
GNMA | 159,455 | | 0 | | 0 | | | | | 159,455 | |
Commercial mortgage-related securities | | | | | | | |
FNMA/FHLMC | 11,220 | | 0 | | 0 | | | | | 11,220 | |
GNMA | 311,798 | | 0 | | 0 | | | | | 311,798 | |
Total held to maturity securities | $ | 1,114,082 | | $ | 860,465 | | $ | 16,393 | | | | | $ | 1,990,940 | |
Investment securities gains (losses), net includes proceeds from the sale of investment securities as well as any applicable write-ups or write-downs of investment securities. The proceeds from the sale of investment securities for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020, are shown below: | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
Gross gains on AFS securities | $ | 386 | | $ | 3,106 | | $ | 421 | | $ | 9,304 | |
| | | | |
| | | | |
Gross (losses) on AFS securities | (362) | | (11) | | (437) | | (90) | |
| | | | |
| | | | |
| | | | |
Investment securities gains (losses), net | $ | 24 | | $ | 3,096 | | $ | (16) | | $ | 9,214 | |
Proceeds from sales of investment securities | $ | 107,412 | | $ | 261,037 | | $ | 158,708 | | $ | 626,276 | |
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
($ in Thousands) | 2020 | 2019 | 2020 | 2019 |
Gross gains on available for sale securities | $ | 7 | | $ | 4,013 | | $ | 9,312 | | $ | 6,347 | |
Gross gains on held to maturity securities | 0 | | 0 | | 0 | | 0 | |
Total gains | 7 | | 4,013 | | 9,312 | | 6,347 | |
Gross (losses) on available for sale securities | 0 | | (225) | | (90) | | (13,861) | |
Gross (losses) on held to maturity securities | 0 | | 0 | | 0 | | 0 | |
Total (losses) | 0 | | (225) | | (90) | | (13,861) | |
Write-up of equity securities without readily determinable fair values | 0 | | 0 | | 0 | | 13,444 | |
Investment securities gains (losses), net | $ | 7 | | $ | 3,788 | | $ | 9,222 | | $ | 5,931 | |
Proceeds from sales of investment securities | $ | 8 | | $ | 433,222 | | $ | 626,283 | | $ | 1,367,450 | |
During the second quarter of 2021, the Corporation sold $107 million of lower yielding FFELP student loan asset backed securities at a slight gain and reinvested the proceeds into higher yielding mortgage backed securities. During the first quarter of 2021, the Corporation sold $51 million of lower yielding U.S. Treasury and Agency securities at a slight loss to take advantage of the steeper yield curve by reinvesting the proceeds into similar but higher yielding, longer duration securities.During the second quarter of 2020, the Corporation sold $261 million of less liquid securities at a gain of $3 million, reinvesting the proceeds into more liquid securities in order to further improve portfolio liquidity. During the first quarter of 2020, the Corporation sold $281 million of primarily prepayment sensitive mortgage-related securities at a gain of $6 million. Additionally, in February 2020, the Corporation sold $84 million of certain securities acquired in the First Staunton acquisition that did not fit the parameters of the Corporation's current investment strategy.
During the first nine months of 2019, the Corporation made a one-time election to transfer municipal securities with an amortized cost of $692 million from held to maturity to available for sale, as permitted by the adoption of ASU 2019-04. The Corporation sold $1.2 billion of taxable floating rate ABS and shorter duration MBS, and CMO Agency securities, with the proceeds utilized to pay down borrowings and to reinvest into higher yielding Agency related mortgage securities with slightly longer durations, repositioning the portfolio for a stable to declining rate environment. The Corporation also donated 42,039 shares of Visa Class B restricted shares to the Corporation's Charitable Remainder Trust during the second quarter of 2019, and the subsequent sale of those shares by the Trust resulted in an observable market price. As a result, the Corporation wrote up its remaining 77,000 Visa Class B restricted shares to fair value. Based on the existing transfer restriction and the uncertainty of covered litigation, the shares were previously carried at a zero cost basis.
Investment securities with a carrying value of approximately $1.8 billion and $2.6$1.6 billion at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, were pledged to secure certain deposits or for other purposes as required or permitted by law.
Accrued interest receivable on held to maturityHTM securities totaled $13 million and $16$14 million at Septemberboth June 30, 20202021 and December 31, 2019, respectively.2020. Accrued interest receivable on available for saleAFS securities totaled $9$7 million and $10$8 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. Accrued interest receivable on both held to maturityHTM and available for saleAFS securities is included in interest receivable on the consolidated balance sheets. There was 0 interest income reversed for investments going into nonaccrual at Septemberboth June 30, 2020 or December 31, 2019.2021 and 2020.
A security is considered past due once it is 30 days past due under the terms of the agreement. At Septemberboth June 30, 2021 and December 31, 2020, the Corporation had 0 past due held to maturityHTM securities.
The allowance for credit losses on held to maturityHTM securities was approximately $70,000$58,000 at SeptemberJune 30, 2021 and approximately $67,000 at December 31, 2020,attributable entirely to the Corporation's municipal securities, included in investment securities held to maturity,HTM, net, at amortized cost on the consolidated balance sheets.sheets. The Corporation also holds U.S. Treasury, municipal and residential mortgage-related securities issued by
the U.S. government or a GSEwhich are backed by the full faith and credit of the U.S. government and, as a result, no allowance for credit losses has been recorded related to these securities.
The following represents gross unrealized losses and the related fair value of investment securities available for saleAFS and held to maturity,HTM, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position, at SeptemberJune 30, 2020:2021: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | 12 months or more | Total |
($ in Thousands) | Number of Securities | Unrealized (Losses) | Fair Value | Number of Securities | Unrealized (Losses) | Fair Value | Unrealized (Losses) | Fair Value |
Investment securities AFS | | | | | | | | |
U.S. Treasury securities | 2 | | $ | (181) | | $ | 9,743 | | 0 | | 0 | | $ | 0 | | $ | (181) | | $ | 9,743 | |
Agency securities | 1 | | (9) | | 14,991 | | 0 | | 0 | | 0 | | (9) | | 14,991 | |
| | | | | | | | |
| | | | | | | | |
FNMA / FHLMC residential mortgage-related securities | 17 | | (3,285) | | 604,030 | | 0 | | 0 | | 0 | | (3,285) | | 604,030 | |
| | | | | | | | |
| | | | | | | | |
Commercial mortgage-related securities | | | | | | | | |
FNMA / FHLMC | 1 | | (632) | | 39,472 | | 0 | | 0 | | 0 | | (632) | | 39,472 | |
GNMA | 2 | | 0 | | 34 | | 0 | | 0 | | 0 | | 0 | | 34 | |
Asset backed securities | | | | | | | | |
FFELP | 2 | | (36) | | 23,835 | | 9 | | (318) | | 72,947 | | (354) | | 96,782 | |
SBA | 0 | | 0 | | 0 | | 9 | | (48) | | 4,642 | | (48) | | 4,642 | |
| | | | | | | | |
| | | | | | | | |
Total | 25 | | $ | (4,143) | | $ | 692,103 | | 18 | | $ | (366) | | $ | 77,589 | | $ | (4,509) | | $ | 769,692 | |
Investment securities HTM | | | | | | | | |
Obligations of state and political subdivisions (municipal securities) | 11 | | $ | (190) | | $ | 18,891 | | 0 | | $ | 0 | | $ | 0 | | $ | (190) | | $ | 18,891 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
FNMA / FHLMC commercial mortgage-related securities | 6 | | (591) | | 42,530 | | 0 | | 0 | | 0 | | (591) | | 42,530 | |
| | | | | | | | |
Total | 17 | | $ | (781) | | $ | 61,422 | | 0 | | $ | 0 | | $ | 0 | | $ | (781) | | $ | 61,422 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | 12 months or more | Total |
($ in Thousands) | Number of Securities | Unrealized (Losses) | Fair Value | Number of Securities | Unrealized (Losses) | Fair Value | Unrealized (Losses) | Fair Value |
Investment securities available for sale | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Residential mortgage-related securities | | | | | | | | |
FNMA / FHLMC | 5 | | $ | (94) | | $ | 77,157 | | 0 | | $ | 0 | | $ | 0 | | $ | (94) | | $ | 77,157 | |
GNMA | 1 | | 0 | | 424 | | 0 | | 0 | | 0 | | 0 | | 424 | |
| | | | | | | | |
| | | | | | | | |
Asset backed securities | | | | | | | | |
FFELP | 5 | | (837) | | 93,134 | | 20 | | (5,719) | | 232,709 | | (6,556) | | 325,843 | |
SBA | 15 | | (48) | | 8,953 | | 0 | | 0 | | 0 | | (48) | | 8,953 | |
Other debt securities | 3 | | (3) | | 2,997 | | 0 | | 0 | | 0 | | (3) | | 2,997 | |
| | | | | | | | |
Total | 29 | | $ | (982) | | $ | 182,665 | | 20 | | $ | (5,719) | | $ | 232,709 | | $ | (6,701) | | $ | 415,374 | |
Investment securities held to maturity | | | | | | | | |
Obligations of state and political subdivisions (municipal securities) | 10 | | $ | (368) | | $ | 25,895 | | 0 | | $ | 0 | | $ | 0 | | $ | (368) | | $ | 25,895 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total | 10 | | $ | (368) | | $ | 25,895 | | 0 | | $ | 0 | | $ | 0 | | $ | (368) | | $ | 25,895 | |
For comparative purposes, the following represents gross unrealized losses and the related fair value of investment securities available for saleAFS and held to maturity,HTM, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | 12 months or more | Total |
($ in Thousands) | Number of Securities | Unrealized (Losses) | Fair Value | Number of Securities | Unrealized (Losses) | Fair Value | Unrealized (Losses) | Fair Value |
Investment securities available for sale | | | | | | | | |
| | | | | | | | |
Obligations of state and political subdivisions (municipal securities) | 4 | | $ | (18) | | $ | 1,225 | | 0 | | $ | 0 | | $ | 0 | | $ | (18) | | $ | 1,225 | |
Residential mortgage-related securities | | | | | | | | |
FNMA / FHLMC | 0 | | 0 | | 0 | | 4 | | (59) | | 34,807 | | (59) | | 34,807 | |
GNMA | 18 | | (924) | | 322,394 | | 3 | | (766) | | 79,461 | | (1,689) | | 401,856 | |
| | | | | | | | |
GNMA commercial mortgage-related securities | 22 | | (810) | | 258,218 | | 42 | | (11,222) | | 621,307 | | (12,032) | | 879,524 | |
FFELP asset backed securities | 19 | | (6,092) | | 250,780 | | 2 | | (393) | | 12,913 | | (6,485) | | 263,693 | |
Other debt securities | 2 | | 0 | | 2,000 | | 0 | | 0 | | 0 | | 0 | | 2,000 | |
| | | | | | | | |
Total | 65 | | $ | (7,843) | | $ | 834,616 | | 51 | | $ | (12,440) | | $ | 748,487 | | $ | (20,284) | | $ | 1,583,104 | |
Investment securities held to maturity | | | | | | | | |
Obligations of state and political subdivisions (municipal securities) | 52 | | $ | (1,105) | | $ | 77,562 | | 6 | | $ | (13) | | $ | 2,378 | | $ | (1,118) | | $ | 79,940 | |
Residential mortgage-related securities | | | | | | | | |
FNMA / FHLMC | 1 | | (6) | | 1,242 | | 1 | | (9) | | 833 | | (15) | | 2,075 | |
GNMA | 12 | | (1,059) | | 187,261 | | 8 | | (49) | | 6,587 | | (1,108) | | 193,849 | |
GNMA commercial mortgage-related securities | 2 | | (29) | | 26,202 | | 21 | | (6,093) | | 357,733 | | (6,122) | | 383,935 | |
Total | 67 | | $ | (2,199) | | $ | 292,267 | | 36 | | $ | (6,164) | | $ | 367,532 | | $ | (8,363) | | $ | 659,799 | |
2020: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | 12 months or more | Total |
($ in Thousands) | Number of Securities | Unrealized (Losses) | Fair Value | Number of Securities | Unrealized (Losses) | Fair Value | Unrealized (Losses) | Fair Value |
Investment securities AFS | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Residential mortgage-related securities | | | | | | | | |
FNMA / FHLMC | 7 | | $ | (500) | | $ | 163,002 | | 0 | | $ | 0 | | $ | 0 | | $ | (500) | | $ | 163,002 | |
GNMA | 2 | | (3) | | 9,784 | | 0 | | 0 | | 0 | | (3) | | 9,784 | |
| | | | | | | | |
GNMA commercial mortgage-related securities | 1 | | 0 | | 287 | | 0 | | 0 | | 0 | | 0 | | 287 | |
Asset backed securities | | | | | | | | |
FFELP | 1 | | (129) | | 9,267 | | 16 | | (2,885) | | 178,681 | | (3,013) | | 187,948 | |
SBA | 14 | | (53) | | 8,379 | | 0 | | 0 | | 0 | | (53) | | 8,379 | |
Other debt securities | 2 | | 0 | | 2,000 | | 0 | | 0 | | 0 | | 0 | | 2,000 | |
| | | | | | | | |
Total | 27 | | $ | (685) | | $ | 192,720 | | 16 | | $ | (2,885) | | $ | 178,681 | | $ | (3,570) | | $ | 371,400 | |
Investment securities HTM | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
GNMA residential mortgage-related securities | 1 | | $ | 0 | | $ | 325 | | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 325 | |
| | | | | | | | |
Total | 1 | | $ | 0 | | $ | 325 | | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 325 | |
The Corporation reviews the available for saleAFS investment securities portfolio on a quarterly basis to monitor its credit exposure. A determination as to whether a security’s decline in fair value is the result of credit risk takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Corporation may consider in thethis impairment analysis include the extent to which the security has been in an unrealized loss position, the change in security rating, financial condition and near-term prospects of the issuer, as well as the security and industry specific economic conditions.
Based on the Corporation’s evaluation, management does not believe any available for sale securities in an unrealized loss positionlosses at SeptemberJune 30, 20202021 represent credit deterioration as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions. The fair value of municipal securities, which pertains to various state and local
political subdivisions and school districts, has increased due to the decrease in overall interest rates, resulting in lower unrealized losses at September 30, 2020. The U.S. Treasury 3 year and 5 year rates decreasedincreased by 14629 bp and 14151 bp, respectively, from December 31, 2019.2020. The Corporation does not intend to sell nor does it believe that it will be required to sell the securities in an unrealized loss position before recovery of their amortized cost basis.
FHLB and Federal Reserve Bank stocks: The Corporation is required to maintain Federal Reserve Bank stock and FHLB stock as a member of both the Federal Reserve System and the FHLB, and in amounts as required by these institutions. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other marketable equity securities and their fair value is equal to amortized cost. At September 30, 2020 and December 31, 2019, theThe Corporation had FHLB stock of $82 million at both June 30, 2021 and $149 million, respectively.December 31, 2020. The Corporation had Federal Reserve Bank stock of $87 million and $78 million at Septemberboth June 30, 20202021 and December 31, 2019, respectively.2020. Accrued interest receivable on FHLB stock totaled $1 millionapproximately $952,000 and $2 million$972,000 at SeptemberJune 30, 20202021 and December 31, 2019.2020, respectively. There was approximately $149,000 of0 accrued interest receivable on Federal Reserve Bank stock at Septemberboth June 30, 20202021 and NaN at December 31, 2019.2020. Accrued interest receivable on both FHLB stock and Federal Reserve Bank stock is included in interest receivable on the consolidated balance sheets.
Equity Securities
Equity securities with readily determinable fair values: The Corporation's portfolio of equity securities with readily determinable fair values is primarily comprised of CRA Qualified Investment mutual funds.funds and a money market mutual fund. At both SeptemberJune 30, 20202021 and December 31, 2019,2020, the Corporation had equity securities with readily determinable fair values of $3 million and $2 million.million, respectively.
Equity securities without readily determinable fair values: The Corporation's portfolio of equity securities without readily determinable fair values primarily consists of 77,996 Visa Class B restricted shares, 77,000 of which the Corporation received in 2008 as part of Visa's initial public offering and carried at fair value after the Corporation donated 42,039 Visa Class B restricted shares to the Corporation's Charitable Remainder Trust during the second quarter of 2019, with the subsequent sale of those shares resulting in an observable market price after the shares were previously carried at a zero cost basis. During the first quarter of 2020, the Corporation also acquired 996 Visa Class B restricted shares from the acquisition of First Staunton, and those shares are carried at a zero cost basis due to the lack of an observable market price since the time of acquisition. The Corporation had equity securities without readily determinable fair values of $14 million at June 30, 2021 and $13 million at both September 30, 2020 and December 31, 2019.2020.
Note 7 Loans
The period end loan composition was as follows:
| | | | | | | | | | | |
($ in Thousands) | September 30, 2020 | | December 31, 2019 |
PPP | $ | 1,022,217 | | | $ | 0 | |
Commercial and industrial | 7,933,404 | | | 7,354,594 | |
Commercial real estate — owner occupied | 904,997 | | | 911,265 | |
Commercial and business lending | 9,860,618 | | | 8,265,858 | |
Commercial real estate — investor | 4,320,926 | | | 3,794,517 | |
Real estate construction | 1,859,609 | | | 1,420,900 | |
Commercial real estate lending | 6,180,536 | | | 5,215,417 | |
Total commercial | 16,041,154 | | | 13,481,275 | |
Residential mortgage | 7,885,523 | | | 8,136,980 | |
Home equity | 761,593 | | | 852,025 | |
Other consumer | 315,483 | | | 351,159 | |
Total consumer | 8,962,599 | | | 9,340,164 | |
Total loans | $ | 25,003,753 | | | $ | 22,821,440 | |
| | | | | | | | |
($ in Thousands) | June 30, 2021 | December 31, 2020 |
PPP | $ | 405,482 | | $ | 767,757 | |
Commercial and industrial | 7,909,119 | | 7,701,422 | |
Commercial real estate — owner occupied | 880,755 | | 900,912 | |
Commercial and business lending | 9,195,355 | | 9,370,091 | |
Commercial real estate — investor | 4,300,651 | | 4,342,584 | |
Real estate construction | 1,880,897 | | 1,840,417 | |
Commercial real estate lending | 6,181,549 | | 6,183,001 | |
Total commercial | 15,376,904 | | 15,553,091 | |
Residential mortgage | 7,638,372 | | 7,878,324 | |
Home equity | 631,783 | | 707,255 | |
Other consumer | 300,477 | | 313,054 | |
Total consumer | 8,570,632 | | 8,898,632 | |
Total loans | $ | 23,947,536 | | $ | 24,451,724 | |
Accrued interest receivable on loans totaled $67$59 million at SeptemberJune 30, 2020,2021, and $63$66 million at December 31, 20192020, and is included in interest receivable on the consolidated balance sheets. Interest accrued but not received for loans placed on nonaccrual is reversed against interest income. The amount of accrued interest reversed totaled $1 millionapproximately $140,000 and $2 million$238,000 for the three and ninesix months ended SeptemberJune 30, 2020, respectively.
2021, respectively, and approximately $1 million for both the three and six months ended June 30, 2020.
The following table presents commercial and consumer loans by credit quality indicator by vintage year at SeptemberJune 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Term Loans Amortized Cost Basis by Origination Year(a) | |
($ in Thousands) | Rev Loans Converted to Term(a) | | Rev Loans Amortized Cost Basis | YTD 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total |
PPP:(b) | | | | | | | | | | |
Risk rating: | | | | | | | | | | |
Pass | $ | 0 | | | $ | 0 | | $ | 995,646 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 995,646 | |
Special Mention | 0 | | | 0 | | 7,409 | | 0 | | 0 | | 0 | | 0 | | 0 | | 7,409 | |
Potential Problem | 0 | | | 0 | | 19,161 | | 0 | | 0 | | 0 | | 0 | | 0 | | 19,161 | |
| | | | | | | | | | |
PPP | $ | 0 | | | $ | 0 | | $ | 1,022,217 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 1,022,217 | |
Commercial and industrial: | | | | | | | | | | |
Risk rating: | | | | | | | | | | |
Pass | $ | 4,904 | | | $ | 2,031,744 | | $ | 1,102,032 | | $ | 1,581,019 | | $ | 1,430,036 | | $ | 545,931 | | $ | 326,862 | | $ | 518,950 | | $ | 7,536,572 | |
Special Mention | 0 | | | 9,424 | | 13,594 | | 61,594 | | 48,357 | | 22 | | 13,783 | | 0 | | 146,774 | |
Potential Problem(c) | 3,089 | | | 10,580 | | 21,483 | | 18,101 | | 81,580 | | 2,369 | | 8,031 | | 2,015 | | 144,159 | |
Nonaccrual(d) | 568 | | | 200 | | 1,571 | | 6,761 | | 15,728 | | 44,933 | | 29,193 | | 7,513 | | 105,899 | |
Commercial and industrial | $ | 8,562 | | | $ | 2,051,948 | | $ | 1,138,680 | | $ | 1,667,475 | | $ | 1,575,701 | | $ | 593,255 | | $ | 377,868 | | $ | 528,478 | | $ | 7,933,404 | |
Commercial real estate - owner occupied: | | | | | | | | | | |
Risk rating: | | | | | | | | | | |
Pass | $ | 1,150 | | | $ | 18,912 | | $ | 120,161 | | $ | 236,928 | | $ | 137,669 | | $ | 106,305 | | $ | 155,023 | | $ | 90,750 | | $ | 865,748 | |
Special Mention | 0 | | | 0 | | 2,420 | | 2,410 | | 1,106 | | 556 | | 2,671 | | 5,236 | | 14,398 | |
Potential Problem | 0 | | | 2,593 | | 678 | | 7,804 | | 1,354 | | 1,135 | | 5,127 | | 4,117 | | 22,808 | |
Nonaccrual | 0 | | | 0 | | 168 | | 0 | | 371 | | 326 | | 0 | | 1,177 | | 2,043 | |
Commercial real estate - owner occupied | $ | 1,150 | | | $ | 21,505 | | $ | 123,426 | | $ | 247,142 | | $ | 140,499 | | $ | 108,323 | | $ | 162,821 | | $ | 101,280 | | $ | 904,997 | |
Commercial and business lending: | | | | | | | | | | |
Risk rating: | | | | | | | | | | |
Pass | $ | 6,054 | | | $ | 2,050,656 | | $ | 2,217,839 | | $ | 1,817,947 | | $ | 1,567,704 | | $ | 652,236 | | $ | 481,885 | | $ | 609,700 | | $ | 9,397,966 | |
Special Mention | 0 | | | 9,424 | | 23,423 | | 64,004 | | 49,462 | | 578 | | 16,454 | | 5,236 | | 168,582 | |
Potential Problem(c) | 3,089 | | | 13,173 | | 41,323 | | 25,905 | | 82,934 | | 3,504 | | 13,158 | | 6,132 | | 186,129 | |
Nonaccrual(d) | 568 | | | 200 | | 1,739 | | 6,761 | | 16,099 | | 45,259 | | 29,193 | | 8,690 | | 107,941 | |
Commercial and business lending | $ | 9,712 | | | $ | 2,073,453 | | $ | 2,284,323 | | $ | 1,914,617 | | $ | 1,716,200 | | $ | 701,578 | | $ | 540,690 | | $ | 629,759 | | $ | 9,860,618 | |
Commercial real estate - investor: | | | | | | | | | | |
Risk rating: | | | | | | | | | | |
Pass | $ | 84 | | | $ | 189,623 | | $ | 1,082,792 | | $ | 1,030,772 | | $ | 781,592 | | $ | 321,341 | | $ | 350,582 | | $ | 245,290 | | $ | 4,001,992 | |
Special Mention | 0 | | | 0 | | 57,701 | | 53,145 | | 12,408 | | 13,439 | | 29,818 | | 1,506 | | 168,018 | |
Potential Problem | 0 | | | 854 | | 16,032 | | 18,026 | | 11,424 | | 14,733 | | 265 | | 39,124 | | 100,459 | |
Nonaccrual | 19,964 | | | 0 | | 1,018 | | 48,691 | | 446 | | 0 | | 0 | | 304 | | 50,458 | |
Commercial real estate - investor | $ | 20,049 | | | $ | 190,477 | | $ | 1,157,543 | | $ | 1,150,634 | | $ | 805,870 | | $ | 349,513 | | $ | 380,665 | | $ | 286,224 | | $ | 4,320,926 | |
Real estate construction: | | | | | | | | | | |
Risk rating: | | | | | | | | | | |
Pass | $ | 1,151 | | | $ | 45,347 | | $ | 545,859 | | $ | 772,861 | | $ | 376,567 | | $ | 69,025 | | $ | 2,588 | | $ | 19,928 | | $ | 1,832,176 | |
Special Mention | 0 | | | 0 | | 411 | | 0 | | 24,437 | | 0 | | 0 | | 16 | | 24,863 | |
Potential Problem | 0 | | | 0 | | 127 | | 0 | | 355 | | 1,557 | | 95 | | 45 | | 2,178 | |
Nonaccrual | 0 | | | 0 | | 12 | | 0 | | 0 | | 0 | | 0 | | 380 | | 392 | |
Real estate construction | $ | 1,151 | | | $ | 45,347 | | $ | 546,409 | | $ | 772,861 | | $ | 401,358 | | $ | 70,582 | | $ | 2,683 | | $ | 20,369 | | $ | 1,859,609 | |
Commercial real estate lending: | | | | | | | | | | |
Risk rating: | | | | | | | | | | |
Pass | $ | 1,236 | | | $ | 234,970 | | $ | 1,628,651 | | $ | 1,803,633 | | $ | 1,158,158 | | $ | 390,366 | | $ | 353,170 | | $ | 265,219 | | $ | 5,834,167 | |
Special Mention | 0 | | | 0 | | 58,112 | | 53,145 | | 36,845 | | 13,439 | | 29,818 | | 1,522 | | 192,881 | |
Potential Problem | 0 | | | 854 | | 16,159 | | 18,026 | | 11,779 | | 16,289 | | 360 | | 39,169 | | 102,637 | |
Nonaccrual | 19,964 | | | 0 | | 1,030 | | 48,691 | | 446 | | 0 | | 0 | | 684 | | 50,850 | |
Commercial real estate lending | $ | 21,200 | | | $ | 235,823 | | $ | 1,703,952 | | $ | 1,923,495 | | $ | 1,207,229 | | $ | 420,095 | | $ | 383,348 | | $ | 306,593 | | $ | 6,180,536 | |
2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Term Loans Amortized Cost Basis by Origination Year(a) | |
($ in Thousands) | Rev Loans Converted to Term(a) | Rev Loans Amortized Cost Basis | YTD 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total |
PPP:(b) | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 0 | | $ | 0 | | $ | 282,722 | | $ | 113,640 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 396,362 | |
Special Mention | 0 | | 0 | | 212 | | 212 | | 0 | | 0 | | 0 | | 0 | | 424 | |
Potential Problem | 0 | | 0 | | 7,958 | | 737 | | 0 | | 0 | | 0 | | 0 | | 8,695 | |
| | | | | | | | | |
PPP | $ | 0 | | $ | 0 | | $ | 290,892 | | $ | 114,589 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 405,482 | |
Commercial and industrial: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 2,084 | | $ | 2,381,324 | | $ | 1,116,185 | | $ | 1,135,991 | | $ | 1,179,056 | | $ | 946,719 | | $ | 290,980 | | $ | 651,006 | | $ | 7,701,262 | |
Special Mention | 0 | | 445 | | 13,162 | | 13,582 | | 56,423 | | 28,681 | | 109 | | 10 | | 112,412 | |
Potential Problem | 3,011 | | 28,181 | | 4,007 | | 7,754 | | 19,395 | | 14,985 | | 1,075 | | 1,668 | | 77,064 | |
Nonaccrual | 32 | | 0 | | 0 | | 231 | | 725 | | 16,205 | | 138 | | 1,081 | | 18,380 | |
Commercial and industrial | $ | 5,126 | | $ | 2,409,950 | | $ | 1,133,354 | | $ | 1,157,558 | | $ | 1,255,599 | | $ | 1,006,590 | | $ | 292,303 | | $ | 653,765 | | $ | 7,909,119 | |
Commercial real estate - owner occupied: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 11,768 | | $ | 25,900 | | $ | 106,833 | | $ | 179,316 | | $ | 201,438 | | $ | 124,160 | | $ | 67,086 | | $ | 154,611 | | $ | 859,345 | |
Special Mention | 0 | | 0 | | 0 | | 3,223 | | 0 | | 0 | | 97 | | 255 | | 3,575 | |
Potential Problem | 0 | | 580 | | 366 | | 6,274 | | 797 | | 769 | | 2,999 | | 6,044 | | 17,828 | |
Nonaccrual | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 7 | | 7 | |
Commercial real estate - owner occupied | $ | 11,768 | | $ | 26,480 | | $ | 107,198 | | $ | 188,813 | | $ | 202,235 | | $ | 124,929 | | $ | 70,182 | | $ | 160,918 | | $ | 880,755 | |
Commercial and business lending: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 13,852 | | $ | 2,407,225 | | $ | 1,505,741 | | $ | 1,428,948 | | $ | 1,380,495 | | $ | 1,070,879 | | $ | 358,066 | | $ | 805,617 | | $ | 8,956,970 | |
Special Mention | 0 | | 445 | | 13,374 | | 17,017 | | 56,423 | | 28,681 | | 206 | | 265 | | 116,411 | |
Potential Problem | 3,011 | | 28,761 | | 12,330 | | 14,765 | | 20,191 | | 15,754 | | 4,074 | | 7,712 | | 103,587 | |
Nonaccrual | 32 | | 0 | | 0 | | 231 | | 725 | | 16,205 | | 138 | | 1,089 | | 18,387 | |
Commercial and business lending | $ | 16,894 | | $ | 2,436,431 | | $ | 1,531,444 | | $ | 1,460,960 | | $ | 1,457,834 | | $ | 1,131,519 | | $ | 362,484 | | $ | 814,683 | | $ | 9,195,355 | |
Commercial real estate - investor: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 32,109 | | $ | 108,396 | | $ | 659,581 | | $ | 1,001,096 | | $ | 1,027,913 | | $ | 581,600 | | $ | 193,334 | | $ | 362,007 | | $ | 3,933,926 | |
Special Mention | 0 | | 0 | | 30,901 | | 65,075 | | 84,483 | | 29,100 | | 10,418 | | 12,132 | | 232,109 | |
Potential Problem | 799 | | 0 | | 6,738 | | 25,879 | | 4,917 | | 15,417 | | 4,519 | | 14,144 | | 71,613 | |
Nonaccrual | 0 | | 0 | | 12,504 | | 21,138 | | 9,763 | | 19,372 | | 0 | | 227 | | 63,003 | |
Commercial real estate - investor | $ | 32,908 | | $ | 108,396 | | $ | 709,724 | | $ | 1,113,188 | | $ | 1,127,075 | | $ | 645,489 | | $ | 208,270 | | $ | 388,511 | | $ | 4,300,651 | |
Real estate construction: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 5,734 | | $ | 31,184 | | $ | 338,231 | | $ | 771,306 | | $ | 512,719 | | $ | 151,219 | | $ | 21,386 | | $ | 14,671 | | $ | 1,840,716 | |
Special Mention | 0 | | 0 | | 0 | | 0 | | 7,542 | | 15,885 | | 42 | | 2 | | 23,470 | |
Potential Problem | 0 | | 0 | | 11 | | 128 | | 16,237 | | 0 | | 0 | | 89 | | 16,465 | |
Nonaccrual | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 247 | | 247 | |
Real estate construction | $ | 5,734 | | $ | 31,184 | | $ | 338,242 | | $ | 771,433 | | $ | 536,497 | | $ | 167,104 | | $ | 21,427 | | $ | 15,009 | | $ | 1,880,897 | |
Commercial real estate lending: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 37,843 | | $ | 139,580 | | $ | 997,812 | | $ | 1,772,402 | | $ | 1,540,632 | | $ | 732,819 | | $ | 214,719 | | $ | 376,679 | | $ | 5,774,642 | |
Special Mention | 0 | | 0 | | 30,901 | | 65,075 | | 92,025 | | 44,985 | | 10,459 | | 12,134 | | 255,579 | |
Potential Problem | 799 | | 0 | | 6,749 | | 26,007 | | 21,153 | | 15,417 | | 4,519 | | 14,233 | | 88,078 | |
Nonaccrual | 0 | | 0 | | 12,504 | | 21,138 | | 9,763 | | 19,372 | | 0 | | 474 | | 63,250 | |
Commercial real estate lending | $ | 38,642 | | $ | 139,580 | | $ | 1,047,966 | | $ | 1,884,621 | | $ | 1,663,572 | | $ | 812,593 | | $ | 229,697 | | $ | 403,520 | | $ | 6,181,549 | |
| | | Term Loans Amortized Cost Basis by Origination Year(a) | | | Term Loans Amortized Cost Basis by Origination Year(a) | |
($ in Thousands) | ($ in Thousands) | Rev Loans Converted to Term(a) | | Rev Loans Amortized Cost Basis | YTD 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total | ($ in Thousands) | Rev Loans Converted to Term(a) | Rev Loans Amortized Cost Basis | YTD 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total |
Total commercial: | Total commercial: | | Total commercial: | |
Risk rating: | Risk rating: | | Risk rating: | |
Pass | Pass | $ | 7,290 | | | $ | 2,285,626 | | $ | 3,846,490 | | $ | 3,621,580 | | $ | 2,725,863 | | $ | 1,042,603 | | $ | 835,055 | | $ | 874,918 | | $ | 15,232,134 | | Pass | $ | 51,695 | | $ | 2,546,805 | | $ | 2,503,553 | | $ | 3,201,349 | | $ | 2,921,126 | | $ | 1,803,698 | | $ | 572,785 | | $ | 1,182,296 | | $ | 14,731,612 | |
Special Mention | Special Mention | 0 | | | 9,424 | | 81,534 | | 117,150 | | 86,307 | | 14,017 | | 46,272 | | 6,758 | | 361,463 | | Special Mention | 0 | | 445 | | 44,274 | | 82,092 | | 148,447 | | 73,666 | | 10,666 | | 12,399 | | 371,990 | |
Potential Problem | Potential Problem | 3,089 | | | 14,027 | | 57,482 | | 43,931 | | 94,713 | | 19,793 | | 13,518 | | 45,301 | | 288,766 | | Potential Problem | 3,810 | | 28,761 | | 19,079 | | 40,772 | | 41,345 | | 31,171 | | 8,593 | | 21,945 | | 191,665 | |
Nonaccrual | Nonaccrual | 20,533 | | | 200 | | 2,769 | | 55,451 | | 16,546 | | 45,259 | | 29,193 | | 9,374 | | 158,792 | | Nonaccrual | 32 | | 0 | | 12,504 | | 21,368 | | 10,488 | | 35,577 | | 138 | | 1,563 | | 81,637 | |
Total commercial | Total commercial | $ | 30,912 | | | $ | 2,309,277 | | $ | 3,988,275 | | $ | 3,838,112 | | $ | 2,923,428 | | $ | 1,121,672 | | $ | 924,038 | | $ | 936,352 | | $ | 16,041,154 | | Total commercial | $ | 55,536 | | $ | 2,576,011 | | $ | 2,579,410 | | $ | 3,345,581 | | $ | 3,121,406 | | $ | 1,944,111 | | $ | 592,182 | | $ | 1,218,202 | | $ | 15,376,904 | |
Residential mortgage: | Residential mortgage: | | | | Residential mortgage: | |
Risk rating: | Risk rating: | | Risk rating: | |
Pass | Pass | $ | 0 | | | $ | 0 | | $ | 1,585,703 | | $ | 1,608,973 | | $ | 685,384 | | $ | 1,119,248 | | $ | 1,025,378 | | $ | 1,794,997 | | $ | 7,819,683 | | Pass | $ | 0 | | $ | 0 | | $ | 958,932 | | $ | 2,127,161 | | $ | 1,164,371 | | $ | 498,556 | | $ | 791,985 | | $ | 2,036,364 | | $ | 7,577,370 | |
Special Mention | Special Mention | 0 | | | 0 | | 684 | | 0 | | 37 | | 0 | | 0 | | 392 | | 1,113 | | Special Mention | 0 | | 0 | | 299 | | 0 | | 0 | | 420 | | 0 | | 464 | | 1,183 | |
Potential Problem | Potential Problem | 0 | | | 0 | | 695 | | 663 | | 137 | | 0 | | 206 | | 694 | | 2,396 | | Potential Problem | 0 | | 0 | | 319 | | 378 | | 561 | | 731 | | 124 | | 911 | | 3,024 | |
Nonaccrual | Nonaccrual | 0 | | | 0 | | 2,292 | | 3,282 | | 5,624 | | 8,243 | | 10,334 | | 32,557 | | 62,331 | | Nonaccrual | 0 | | 0 | | 245 | | 1,907 | | 3,328 | | 5,582 | | 6,715 | | 39,018 | | 56,795 | |
Residential mortgage | Residential mortgage | $ | 0 | | | $ | 0 | | $ | 1,589,374 | | $ | 1,612,918 | | $ | 691,182 | | $ | 1,127,490 | | $ | 1,035,918 | | $ | 1,828,640 | | $ | 7,885,523 | | Residential mortgage | $ | 0 | | $ | 0 | | $ | 959,795 | | $ | 2,129,446 | | $ | 1,168,260 | | $ | 505,289 | | $ | 798,824 | | $ | 2,076,757 | | $ | 7,638,372 | |
Home equity: | Home equity: | | | | Home equity: | |
Risk rating: | Risk rating: | | Risk rating: | |
Pass | Pass | $ | 10,470 | | | $ | 610,660 | | $ | 2,041 | | $ | 14,679 | | $ | 18,022 | | $ | 13,415 | | $ | 6,700 | | $ | 83,761 | | $ | 749,277 | | Pass | $ | 3,403 | | $ | 517,872 | | $ | 191 | | $ | 1,852 | | $ | 9,887 | | $ | 11,545 | | $ | 9,371 | | $ | 70,719 | | $ | 621,438 | |
Special Mention | Special Mention | 107 | | | 39 | | 0 | | 0 | | 0 | | 0 | | 0 | | 369 | | 408 | | Special Mention | 12 | | 25 | | 0 | | 0 | | 31 | | 14 | | 0 | | 200 | | 270 | |
Potential Problem | Potential Problem | 0 | | | 1,632 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 1,632 | | Potential Problem | 1,162 | | 233 | | 10 | | 0 | | 1,152 | | 18 | | 0 | | 146 | | 1,558 | |
Nonaccrual | Nonaccrual | 972 | | | 606 | | 421 | | 361 | | 523 | | 353 | | 230 | | 7,782 | | 10,277 | | Nonaccrual | 320 | | 59 | | 10 | | 377 | | 163 | | 350 | | 349 | | 7,209 | | 8,517 | |
Home equity | Home equity | $ | 11,549 | | | $ | 612,936 | | $ | 2,462 | | $ | 15,040 | | $ | 18,545 | | $ | 13,768 | | $ | 6,930 | | $ | 91,912 | | $ | 761,593 | | Home equity | $ | 4,896 | | $ | 518,189 | | $ | 211 | | $ | 2,229 | | $ | 11,233 | | $ | 11,927 | | $ | 9,720 | | $ | 78,275 | | $ | 631,783 | |
Other consumer: | Other consumer: | | | | Other consumer: | |
Risk rating: | Risk rating: | | Risk rating: | |
Pass | Pass | $ | 27 | | | $ | 164,453 | | $ | 7,298 | | $ | 11,505 | | $ | 4,438 | | $ | 2,259 | | $ | 1,475 | | $ | 123,487 | | $ | 314,916 | | Pass | $ | 487 | | $ | 159,450 | | $ | 5,542 | | $ | 8,478 | | $ | 8,354 | | $ | 2,777 | | $ | 1,182 | | $ | 114,125 | | $ | 299,908 | |
Special Mention | Special Mention | 5 | | | 369 | | 0 | | 0 | | 0 | | 0 | | 3 | | 5 | | 377 | | Special Mention | 1 | | 369 | | 0 | | 0 | | 13 | | 0 | | 0 | | 1 | | 383 | |
| Nonaccrual | Nonaccrual | 2 | | | 23 | | 1 | | 63 | | 5 | | 6 | | 74 | | 19 | | 190 | | Nonaccrual | 4 | | 62 | | 0 | | 15 | | 49 | | 16 | | 19 | | 25 | | 186 | |
Other consumer | Other consumer | $ | 34 | | | $ | 164,845 | | $ | 7,298 | | $ | 11,568 | | $ | 4,443 | | $ | 2,265 | | $ | 1,551 | | $ | 123,511 | | $ | 315,483 | | Other consumer | $ | 491 | | $ | 159,881 | | $ | 5,542 | | $ | 8,493 | | $ | 8,416 | | $ | 2,793 | | $ | 1,201 | | $ | 114,151 | | $ | 300,477 | |
Total consumer: | Total consumer: | | | | Total consumer: | |
Risk rating: | Risk rating: | | Risk rating: | |
Pass | Pass | $ | 10,497 | | | $ | 775,112 | | $ | 1,595,042 | | $ | 1,635,157 | | $ | 707,843 | | $ | 1,134,922 | | $ | 1,033,553 | | $ | 2,002,246 | | $ | 8,883,875 | | Pass | $ | 3,890 | | $ | 677,322 | | $ | 964,665 | | $ | 2,137,491 | | $ | 1,182,613 | | $ | 512,878 | | $ | 802,538 | | $ | 2,221,208 | | $ | 8,498,715 | |
Special Mention | Special Mention | 112 | | | 408 | | 684 | | 0 | | 37 | | 0 | | 3 | | 766 | | 1,898 | | Special Mention | 12 | | 394 | | 299 | | 0 | | 44 | | 434 | | 0 | | 666 | | 1,836 | |
Potential Problem | Potential Problem | 0 | | | 1,632 | | 695 | | 663 | | 137 | | 0 | | 206 | | 694 | | 4,028 | | Potential Problem | 1,162 | | 233 | | 329 | | 378 | | 1,712 | | 749 | | 124 | | 1,057 | | 4,583 | |
Nonaccrual | Nonaccrual | 974 | | | 629 | | 2,713 | | 3,706 | | 6,153 | | 8,602 | | 10,638 | | 40,357 | | 72,798 | | Nonaccrual | 324 | | 121 | | 254 | | 2,299 | | 3,540 | | 5,949 | | 7,083 | | 46,252 | | 65,498 | |
Total consumer | Total consumer | $ | 11,583 | | | $ | 777,781 | | $ | 1,599,134 | | $ | 1,639,527 | | $ | 714,171 | | $ | 1,143,524 | | $ | 1,044,399 | | $ | 2,044,063 | | $ | 8,962,599 | | Total consumer | $ | 5,388 | | $ | 678,070 | | $ | 965,547 | | $ | 2,140,168 | | $ | 1,187,909 | | $ | 520,010 | | $ | 809,745 | | $ | 2,269,183 | | $ | 8,570,632 | |
Total loans: | Total loans: | | | | Total loans: | |
Risk rating: | Risk rating: | | Risk rating: | |
Pass(c) | Pass(c) | $ | 17,787 | | | $ | 3,060,738 | | $ | 5,441,532 | | $ | 5,256,737 | | $ | 3,433,706 | | $ | 2,177,524 | | $ | 1,868,608 | | $ | 2,877,164 | | $ | 24,116,009 | | Pass(c) | $ | 55,585 | | $ | 3,224,127 | | $ | 3,468,217 | | $ | 5,338,840 | | $ | 4,103,739 | | $ | 2,316,576 | | $ | 1,375,323 | | $ | 3,403,504 | | $ | 23,230,327 | |
Special Mention | Special Mention | 112 | | | 9,832 | | 82,219 | | 117,150 | | 86,344 | | 14,017 | | 46,275 | | 7,524 | | 363,361 | | Special Mention | 12 | | 839 | | 44,573 | | 82,092 | | 148,491 | | 74,100 | | 10,666 | | 13,064 | | 373,826 | |
Potential Problem | Potential Problem | 3,089 | | | 15,659 | | 58,177 | | 44,595 | | 94,850 | | 19,793 | | 13,724 | | 45,996 | | 292,794 | | Potential Problem | 4,972 | | 28,994 | | 19,409 | | 41,150 | | 43,057 | | 31,920 | | 8,717 | | 23,002 | | 196,248 | |
Nonaccrual | Nonaccrual | 21,507 | | | 829 | | 5,482 | | 59,157 | | 22,698 | | 53,861 | | 39,830 | | 49,731 | | 231,590 | | Nonaccrual | 355 | | 121 | | 12,758 | | 23,667 | | 14,028 | | 41,526 | | 7,221 | | 47,814 | | 147,135 | |
Total loans | Total loans | $ | 42,495 | | | $ | 3,087,058 | | $ | 5,587,409 | | $ | 5,477,639 | | $ | 3,637,599 | | $ | 2,265,196 | | $ | 1,968,437 | | $ | 2,980,415 | | $ | 25,003,753 | | Total loans | $ | 60,924 | | $ | 3,254,081 | | $ | 3,544,958 | | $ | 5,485,750 | | $ | 4,309,315 | | $ | 2,464,122 | | $ | 1,401,926 | | $ | 3,487,385 | | $ | 23,947,536 | |
(a) Revolving loans converted to term loans are also reported in their year of originationorigination.
(b) The Corporation’s policy is to assign risk ratings at the borrower level. PPP loans are 100% guaranteed by the SBA and therefore the Corporation considers these loans to have a risk profile similar to pass rated loans.
(c) Includes $60 million of oil and gas related loansAccruing TDRs are included in pass unless otherwise rated as special mention.
(d) Includes $8 million of oil and gas related loans
The following table presents commercial and consumer loans by credit quality indicator by vintage year at December 31, 20192020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Term Loans Amortized Cost Basis by Origination Year(a) | |
($ in Thousands) | Rev Loans Converted to Term(a) | Rev Loans Amortized Cost Basis | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total |
PPP:(b) | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 0 | | $ | 0 | | $ | 745,767 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 745,767 | |
Special Mention | 0 | | 0 | | 3,988 | | 0 | | 0 | | 0 | | 0 | | 0 | | 3,988 | |
Potential Problem | 0 | | 0 | | 18,002 | | 0 | | 0 | | 0 | | 0 | | 0 | | 18,002 | |
| | | | | | | | | |
PPP | $ | 0 | | $ | 0 | | $ | 767,757 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 767,757 | |
Commercial and industrial: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 4,628 | | $ | 2,177,138 | | $ | 1,389,260 | | $ | 1,435,519 | | $ | 1,182,302 | | $ | 483,957 | | $ | 305,998 | | $ | 453,734 | | $ | 7,427,908 | |
Special Mention | 0 | | 10,159 | | 2,719 | | 39,854 | | 37,042 | | 113 | | 215 | | 67 | | 90,169 | |
Potential Problem | 2,565 | | 7,237 | | 19,331 | | 28,413 | | 56,580 | | 2,269 | | 6,477 | | 1,179 | | 121,487 | |
Nonaccrual | 16,852 | | 0 | | 6,238 | | 5,789 | | 17,014 | | 16,623 | | 8,781 | | 7,414 | | 61,859 | |
Commercial and industrial | $ | 24,045 | | $ | 2,194,534 | | $ | 1,417,548 | | $ | 1,509,575 | | $ | 1,292,938 | | $ | 502,962 | | $ | 321,471 | | $ | 462,394 | | $ | 7,701,422 | |
Commercial real estate - owner occupied: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 1,150 | | $ | 18,022 | | $ | 185,861 | | $ | 209,069 | | $ | 128,360 | | $ | 99,546 | | $ | 147,366 | | $ | 79,111 | | $ | 867,335 | |
Special Mention | 0 | | 113 | | 1,882 | | 3,122 | | 300 | | 658 | | 264 | | 0 | | 6,339 | |
Potential Problem | 0 | | 3,486 | | 4,104 | | 8,916 | | 0 | | 1,490 | | 4,437 | | 3,747 | | 26,179 | |
Nonaccrual | 0 | | 0 | | 0 | | 0 | | 0 | | 318 | | 0 | | 740 | | 1,058 | |
Commercial real estate - owner occupied | $ | 1,150 | | $ | 21,621 | | $ | 191,847 | | $ | 221,107 | | $ | 128,660 | | $ | 102,012 | | $ | 152,067 | | $ | 83,598 | | $ | 900,912 | |
Commercial and business lending: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 5,778 | | $ | 2,195,160 | | $ | 2,320,888 | | $ | 1,644,588 | | $ | 1,310,662 | | $ | 583,503 | | $ | 453,364 | | $ | 532,845 | | $ | 9,041,009 | |
Special Mention | 0 | | 10,272 | | 8,589 | | 42,976 | | 37,342 | | 771 | | 479 | | 67 | | 100,496 | |
Potential Problem | 2,565 | | 10,723 | | 41,437 | | 37,329 | | 56,580 | | 3,759 | | 10,915 | | 4,926 | | 165,668 | |
Nonaccrual | 16,852 | | 0 | | 6,238 | | 5,789 | | 17,014 | | 16,941 | | 8,781 | | 8,154 | | 62,917 | |
Commercial and business lending | $ | 25,195 | | $ | 2,216,154 | | $ | 2,377,152 | | $ | 1,730,682 | | $ | 1,421,598 | | $ | 604,974 | | $ | 473,539 | | $ | 545,992 | | $ | 9,370,091 | |
Commercial real estate - investor: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 10,971 | | $ | 171,497 | | $ | 1,249,644 | | $ | 976,332 | | $ | 720,237 | | $ | 271,987 | | $ | 341,658 | | $ | 211,360 | | $ | 3,942,714 | |
Special Mention | 0 | | 0 | | 90,235 | | 97,333 | | 12,339 | | 0 | | 21,882 | | 8,465 | | 230,254 | |
Potential Problem | 0 | | 838 | | 16,343 | | 13,575 | | 30,911 | | 2,279 | | 239 | | 27,209 | | 91,396 | |
Nonaccrual | 19,803 | | 0 | | 10,141 | | 53,056 | | 446 | | 14,267 | | 0 | | 309 | | 78,220 | |
Commercial real estate - investor | $ | 30,774 | | $ | 172,335 | | $ | 1,366,364 | | $ | 1,140,297 | | $ | 763,933 | | $ | 288,533 | | $ | 363,779 | | $ | 247,343 | | $ | 4,342,584 | |
Real estate construction: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 776 | | $ | 47,880 | | $ | 645,925 | | $ | 738,561 | | $ | 294,910 | | $ | 25,219 | | $ | 2,420 | | $ | 16,768 | | $ | 1,771,682 | |
Special Mention | 0 | | 0 | | 487 | | 494 | | 48,283 | | 42 | | 0 | | 30 | | 49,336 | |
Potential Problem | 0 | | 0 | | 135 | | 0 | | 18,803 | | 0 | | 93 | | 15 | | 19,046 | |
Nonaccrual | 0 | | 0 | | 0 | | 0 | | 0 | | 16 | | 0 | | 338 | | 353 | |
Real estate construction | $ | 776 | | $ | 47,880 | | $ | 646,547 | | $ | 739,055 | | $ | 361,996 | | $ | 25,277 | | $ | 2,513 | | $ | 17,150 | | $ | 1,840,417 | |
Commercial real estate lending: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 11,746 | | $ | 219,377 | | $ | 1,895,569 | | $ | 1,714,893 | | $ | 1,015,146 | | $ | 297,205 | | $ | 344,078 | | $ | 228,127 | | $ | 5,714,396 | |
Special Mention | 0 | | 0 | | 90,722 | | 97,827 | | 60,622 | | 42 | | 21,882 | | 8,494 | | 279,590 | |
Potential Problem | 0 | | 838 | | 16,479 | | 13,575 | | 49,714 | | 2,279 | | 332 | | 27,224 | | 110,442 | |
Nonaccrual | 19,803 | | 0 | | 10,141 | | 53,056 | | 446 | | 14,283 | | 0 | | 647 | | 78,573 | |
Commercial real estate lending | $ | 31,549 | | $ | 220,215 | | $ | 2,012,911 | | $ | 1,879,352 | | $ | 1,125,929 | | $ | 313,810 | | $ | 366,292 | | $ | 264,493 | | $ | 6,183,001 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in Thousands) | Pass | | Special Mention | | Potential Problem | | Nonaccrual | | Total |
Commercial and industrial | $ | 7,118,448 | | | $ | 79,525 | | | $ | 110,308 | | | $ | 46,312 | | | $ | 7,354,594 | |
Commercial real estate - owner occupied | 866,193 | | | 25,115 | | | 19,889 | | | 67 | | | 911,265 | |
Commercial and business lending | 7,984,641 | | | 104,641 | | | 130,197 | | | 46,380 | | | 8,265,858 | |
Commercial real estate - investor | 3,620,785 | | | 139,873 | | | 29,449 | | | 4,409 | | | 3,794,517 | |
Real estate construction | 1,420,374 | | | 33 | | | 0 | | | 493 | | | 1,420,900 | |
Commercial real estate lending | 5,041,159 | | | 139,906 | | | 29,449 | | | 4,902 | | | 5,215,417 | |
Total commercial | 13,025,800 | | | 244,547 | | | 159,646 | | | 51,282 | | | 13,481,275 | |
Residential mortgage | 8,077,122 | | | 563 | | | 1,451 | | | 57,844 | | | 8,136,980 | |
Home equity | 841,757 | | | 1,164 | | | 0 | | | 9,104 | | | 852,025 | |
Other consumer | 350,260 | | | 748 | | | 0 | | | 152 | | | 351,159 | |
Total consumer | 9,269,139 | | | 2,475 | | | 1,451 | | | 67,099 | | | 9,340,164 | |
Total loans | $ | 22,294,939 | | | $ | 247,022 | | | $ | 161,097 | | | $ | 118,380 | | | $ | 22,821,440 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Term Loans Amortized Cost Basis by Origination Year(a) | |
($ in Thousands) | Rev Loans Converted to Term(a) | Rev Loans Amortized Cost Basis | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total |
Total commercial: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 17,524 | | $ | 2,414,537 | | $ | 4,216,457 | | $ | 3,359,482 | | $ | 2,325,808 | | $ | 880,708 | | $ | 797,441 | | $ | 760,973 | | $ | 14,755,405 | |
Special Mention | 0 | | 10,272 | | 99,311 | | 140,803 | | 97,964 | | 813 | | 22,361 | | 8,562 | | 380,086 | |
Potential Problem | 2,565 | | 11,561 | | 57,916 | | 50,905 | | 106,295 | | 6,038 | | 11,247 | | 32,150 | | 276,111 | |
Nonaccrual | 36,655 | | 0 | | 16,379 | | 58,845 | | 17,460 | | 31,224 | | 8,781 | | 8,801 | | 141,490 | |
Total commercial | $ | 56,745 | | $ | 2,436,370 | | $ | 4,390,063 | | $ | 3,610,033 | | $ | 2,547,526 | | $ | 918,783 | | $ | 839,831 | | $ | 810,485 | | $ | 15,553,091 | |
Residential mortgage: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 0 | | $ | 0 | | $ | 2,185,240 | | $ | 1,490,589 | | $ | 615,118 | | $ | 998,072 | | $ | 911,797 | | $ | 1,612,971 | | $ | 7,813,788 | |
Special Mention | 0 | | 0 | | 0 | | 355 | | 330 | | 102 | | 126 | | 537 | | 1,450 | |
Potential Problem | 0 | | 0 | | 1,200 | | 689 | | 652 | | 0 | | 179 | | 1,028 | | 3,749 | |
Nonaccrual | 0 | | 0 | | 1,478 | | 2,271 | | 5,882 | | 7,116 | | 11,003 | | 31,587 | | 59,337 | |
Residential mortgage | $ | 0 | | $ | 0 | | $ | 2,187,918 | | $ | 1,493,903 | | $ | 621,983 | | $ | 1,005,290 | | $ | 923,105 | | $ | 1,646,124 | | $ | 7,878,324 | |
Home equity: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 10,224 | | $ | 569,389 | | $ | 2,057 | | $ | 12,968 | | $ | 15,792 | | $ | 11,594 | | $ | 5,803 | | $ | 76,165 | | $ | 693,767 | |
Special Mention | 596 | | 631 | | 0 | | 39 | | 14 | | 39 | | 4 | | 804 | | 1,532 | |
Potential Problem | 0 | | 1,922 | | 0 | | 0 | | 0 | | 0 | | 0 | | 146 | | 2,068 | |
Nonaccrual | 1,600 | | 100 | | 965 | | 134 | | 410 | | 319 | | 711 | | 7,249 | | 9,888 | |
Home equity | $ | 12,421 | | $ | 572,041 | | $ | 3,022 | | $ | 13,141 | | $ | 16,216 | | $ | 11,952 | | $ | 6,518 | | $ | 84,364 | | $ | 707,255 | |
Other consumer: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 70 | | $ | 165,114 | | $ | 9,525 | | $ | 10,309 | | $ | 3,987 | | $ | 1,872 | | $ | 1,185 | | $ | 120,425 | | $ | 312,416 | |
Special Mention | 5 | | 438 | | 13 | | 16 | | 11 | | 4 | | 7 | | 8 | | 498 | |
| | | | | | | | | |
Nonaccrual | 5 | | 33 | | 9 | | 49 | | 21 | | 10 | | 0 | | 18 | | 140 | |
Other consumer | $ | 81 | | $ | 165,585 | | $ | 9,547 | | $ | 10,374 | | $ | 4,019 | | $ | 1,886 | | $ | 1,192 | | $ | 120,451 | | $ | 313,054 | |
Total consumer: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass | $ | 10,294 | | $ | 734,502 | | $ | 2,196,822 | | $ | 1,513,865 | | $ | 634,897 | | $ | 1,011,539 | | $ | 918,785 | | $ | 1,809,561 | | $ | 8,819,971 | |
Special Mention | 602 | | 1,069 | | 13 | | 410 | | 356 | | 145 | | 137 | | 1,349 | | 3,480 | |
Potential Problem | 0 | | 1,922 | | 1,200 | | 689 | | 652 | | 0 | | 179 | | 1,174 | | 5,817 | |
Nonaccrual | 1,605 | | 133 | | 2,452 | | 2,454 | | 6,313 | | 7,445 | | 11,714 | | 38,854 | | 69,364 | |
Total consumer | $ | 12,501 | | $ | 737,626 | | $ | 2,200,487 | | $ | 1,517,417 | | $ | 642,218 | | $ | 1,019,128 | | $ | 930,816 | | $ | 1,850,939 | | $ | 8,898,632 | |
Total loans: | | | | | | | | | |
Risk rating: | | | | | | | | | |
Pass (c) | $ | 27,819 | | $ | 3,149,039 | | $ | 6,413,278 | | $ | 4,873,347 | | $ | 2,960,705 | | $ | 1,892,247 | | $ | 1,716,226 | | $ | 2,570,534 | | $ | 23,575,376 | |
Special Mention | 602 | | 11,341 | | 99,324 | | 141,213 | | 98,320 | | 958 | | 22,498 | | 9,911 | | 383,566 | |
Potential Problem | 2,565 | | 13,483 | | 59,116 | | 51,593 | | 106,947 | | 6,038 | | 11,426 | | 33,324 | | 281,928 | |
Nonaccrual | 38,260 | | 133 | | 18,831 | | 61,298 | | 23,773 | | 38,669 | | 20,496 | | 47,655 | | 210,854 | |
Total loans | $ | 69,246 | | $ | 3,173,996 | | $ | 6,590,550 | | $ | 5,127,451 | | $ | 3,189,745 | | $ | 1,937,912 | | $ | 1,770,647 | | $ | 2,661,424 | | $ | 24,451,724 | |
(a) Revolving loans converted to term loans are also reported in their year of origination.
(b) The Corporation’s policy is to assign risk ratings at the borrower level. PPP loans are 100% guaranteed by the SBA and therefore the Corporation considers these loans to have a risk profile similar to pass rated loans.
(c) Accruing TDRs are included in pass unless otherwise rated as special mention.
Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, and appropriate policies for allowance for loan losses, allowance for unfunded commitments, nonaccrual loans, and charge off policies.offs.
For commercial loans, management has determined the pass credit quality indicator to include credits exhibiting acceptable financial statements, cash flow, and leverage. If any risk exists, it is mitigated by the loan structure, collateral, monitoring, or control. For consumer loans, performing loans include credits performing in accordance with the original contractual terms.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Special mention credits have potential weaknesses that deserve management’s attention.warrant specific attention from management. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credit. Potential problem loans are considered inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged. These loans generally have a well-defined weakness, or weaknesses, which may jeopardize liquidation of the debt, and are characterized by the distinct possibility the Corporation will sustain some loss if the deficiencies are not corrected. Management has determined commercial loan relationships in nonaccrual status, and commercial and consumer loan relationships with their terms restructured in a TDR, meet the criteria to be individually evaluated. Commercial loans classified as special mention, potential problem, and nonaccrual are reviewed at a minimum on a quarterly basis, while pass andcredits, which are performing rated credits, are generally reviewed on an annual basis or more frequently if the loan renewal is less than one year or if otherwise warranted.
The following table presents loans by past due status at SeptemberJune 30, 2020:2021: | | | | | | | | | | | | | | | | | | | | |
| Accruing | | |
($ in Thousands) | Current(a) | 30-59 Days Past Due | 60-89 Days Past Due | 90+ Days Past Due | Nonaccrual(b)(c) | Total |
PPP | $ | 405,482 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 405,482 | |
Commercial and industrial | 7,890,277 | | 80 | | 179 | | 203 | | 18,380 | | 7,909,119 | |
Commercial real estate - owner occupied | 880,700 | | 47 | | 0 | | 0 | | 7 | | 880,755 | |
Commercial and business lending | 9,176,459 | | 127 | | 179 | | 203 | | 18,387 | | 9,195,355 | |
Commercial real estate - investor | 4,237,257 | | 391 | | 0 | | — | | 63,003 | | 4,300,651 | |
Real estate construction | 1,880,533 | | 115 | | 2 | | 0 | | 247 | | 1,880,897 | |
Commercial real estate lending | 6,117,791 | | 507 | | 2 | | 0 | | 63,250 | | 6,181,549 | |
Total commercial | 15,294,250 | | 634 | | 180 | | 203 | | 81,637 | | 15,376,904 | |
Residential mortgage | 7,576,418 | | 4,524 | | 491 | | 144 | | 56,795 | | 7,638,372 | |
Home equity | 620,794 | | 2,202 | | 270 | | 0 | | 8,517 | | 631,783 | |
Other consumer | 298,261 | | 649 | | 425 | | 955 | | 186 | | 300,477 | |
Total consumer | 8,495,473 | | 7,375 | | 1,186 | | 1,099 | | 65,498 | | 8,570,632 | |
Total loans | $ | 23,789,723 | | $ | 8,009 | | $ | 1,367 | | $ | 1,302 | | $ | 147,135 | | $ | 23,947,536 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accruing | | | | |
($ in Thousands) | Current(a) | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Nonaccrual(b)(c) | | Total |
PPP | $ | 1,022,217 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,022,217 | |
Commercial and industrial | 7,826,445 | | | 115 | | | 183 | | | 763 | | | 105,899 | | | 7,933,404 | |
Commercial real estate - owner occupied | 902,085 | | | 870 | | | 0 | | | 0 | | | 2,043 | | | 904,997 | |
Commercial and business lending | 9,750,747 | | | 984 | | | 183 | | | 763 | | | 107,941 | | | 9,860,618 | |
Commercial real estate - investor | 4,270,059 | | | 409 | | | 0 | | | 0 | | | 50,458 | | | 4,320,926 | |
Real estate construction | 1,859,106 | | | 95 | | | 16 | | | 0 | | | 392 | | | 1,859,609 | |
Commercial real estate lending | 6,129,165 | | | 504 | | | 16 | | | 0 | | | 50,850 | | | 6,180,536 | |
Total commercial | 15,879,912 | | | 1,488 | | | 199 | | | 763 | | | 158,792 | | | 16,041,154 | |
Residential mortgage | 7,816,986 | | | 5,793 | | | 392 | | | 22 | | | 62,331 | | | 7,885,523 | |
Home equity | 745,563 | | | 5,201 | | | 408 | | | 145 | | | 10,277 | | | 761,593 | |
Other consumer | 313,017 | | | 949 | | | 402 | | | 925 | | | 190 | | | 315,483 | |
Total consumer | 8,875,566 | | | 11,943 | | | 1,201 | | | 1,091 | | | 72,798 | | | 8,962,599 | |
Total loans | $ | 24,755,478 | | | $ | 13,431 | | | $ | 1,400 | | | $ | 1,854 | | | $ | 231,590 | | | $ | 25,003,753 | |
(a)Any loans deferred loans related toin connection with the COVID-19 pandemic are considered current in accordance with Section 4013 of the CARES Act.
(b) Of the total nonaccrual loans, $186$97 million, or 80%66%, were current with respect to payment at SeptemberJune 30, 2020.2021.
(c) NaN interest income was recognized on nonaccrual loans for both the three and ninesix months ended SeptemberJune 30, 2020.2021. In addition, there were $40$5 million of nonaccrual loans for which there was no related ACLL at SeptemberJune 30, 2020.2021.
The following table presents loans by past due status at December 31,
2019:2020: | | | | | | | | | | | | | | | | | | | | |
| Accruing | | |
($ in Thousands) | Current(a) | 30-59 Days Past Due | 60-89 Days Past Due | 90+ Days Past Due | Nonaccrual(b)(c) | Total |
PPP | $ | 767,757 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 767,757 | |
Commercial and industrial | 7,633,269 | | 2,819 | | 3,300 | | 175 | | 61,859 | | 7,701,422 | |
Commercial real estate - owner occupied | 899,480 | | 158 | | 215 | | 0 | | 1,058 | | 900,912 | |
Commercial and business lending | 9,300,506 | | 2,977 | | 3,516 | | 175 | | 62,917 | | 9,370,091 | |
Commercial real estate - investor | 4,251,571 | | 1,024 | | 11,769 | | 0 | | 78,220 | | 4,342,584 | |
Real estate construction | 1,839,073 | | 991 | | 0 | | 0 | | 353 | | 1,840,417 | |
Commercial real estate lending | 6,090,644 | | 2,015 | | 11,769 | | 0 | | 78,573 | | 6,183,001 | |
Total commercial | 15,391,150 | | 4,992 | | 15,284 | | 175 | | 141,490 | | 15,553,091 | |
Residential mortgage | 7,808,294 | | 8,975 | | 1,410 | | 308 | | 59,337 | | 7,878,324 | |
Home equity | 692,565 | | 3,071 | | 1,731 | | 0 | | 9,888 | | 707,255 | |
Other consumer | 310,200 | | 1,039 | | 560 | | 1,115 | | 140 | | 313,054 | |
Total consumer | 8,811,060 | | 13,085 | | 3,701 | | 1,423 | | 69,364 | | 8,898,632 | |
Total loans | $ | 24,202,209 | | $ | 18,077 | | $ | 18,985 | | $ | 1,598 | | $ | 210,854 | | $ | 24,451,724 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accruing | | | | |
($ in Thousands) | Current | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90 Days or More Past Due | | Nonaccrual(a) | | Total |
Commercial and industrial | $ | 7,307,118 | | | $ | 576 | | | $ | 245 | | | $ | 342 | | | $ | 46,312 | | | $ | 7,354,594 | |
Commercial real estate - owner occupied | 909,828 | | | 1,369 | | | 0 | | | 0 | | | 67 | | | 911,265 | |
Commercial and business lending | 8,216,947 | | | 1,945 | | | 245 | | | 342 | | | 46,380 | | | 8,265,858 | |
Commercial real estate - investor | 3,788,296 | | | 1,812 | | | 0 | | | 0 | | | 4,409 | | | 3,794,517 | |
Real estate construction | 1,420,310 | | | 64 | | | 33 | | | 0 | | | 493 | | | 1,420,900 | |
Commercial real estate lending | 5,208,606 | | | 1,876 | | | 33 | | | 0 | | | 4,902 | | | 5,215,417 | |
Total commercial | 13,425,552 | | | 3,821 | | | 278 | | | 342 | | | 51,282 | | | 13,481,275 | |
Residential mortgage | 8,069,863 | | | 8,749 | | | 525 | | | 0 | | | 57,844 | | | 8,136,980 | |
Home equity | 837,274 | | | 4,483 | | | 1,164 | | | 0 | | | 9,104 | | | 852,025 | |
Other consumer | 347,007 | | | 1,135 | | | 949 | | | 1,917 | | | 152 | | | 351,159 | |
Total consumer | 9,254,144 | | | 14,366 | | | 2,638 | | | 1,917 | | | 67,099 | | | 9,340,164 | |
Total loans | $ | 22,679,696 | | | $ | 18,188 | | | $ | 2,916 | | | $ | 2,259 | | | $ | 118,380 | | | $ | 22,821,440 | |
(a) Any loans deferred in connection with the COVID-19 pandemic are considered current in accordance with Section 4013 of the CARES Act.(a)(b) Of the total nonaccrual loans, $48128 million, or 41%61%, were current with respect to payment at December 31, 2019.2020.
(c) NaN interest income was recognized on nonaccrual loans for the year ended December 31, 2020. In addition, there were $28 million of nonaccrual loans for which there was no related ACLL at December 31, 2020.
The following table presents impaired loans individually evaluated under ASC Topic 310, excluding $2 million of purchased credit-impaired loans, at December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in Thousands) | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized |
Loans with a related allowance | | | | | | | | | |
Commercial and industrial | $ | 47,249 | | | $ | 63,346 | | | $ | 12,010 | | | $ | 45,290 | | | $ | 1,832 | |
Commercial real estate — owner occupied | 1,676 | | | 1,682 | | | 19 | | | 1,774 | | | 88 | |
Commercial and business lending | 48,924 | | | 65,028 | | | 12,029 | | | 47,064 | | | 1,919 | |
Commercial real estate — investor | 928 | | | 2,104 | | | 15 | | | 950 | | | 15 | |
Real estate construction | 477 | | | 559 | | | 67 | | | 494 | | | 30 | |
Commercial real estate lending | 1,405 | | | 2,663 | | | 82 | | | 1,445 | | | 45 | |
Total commercial | 50,329 | | | 67,691 | | | 12,111 | | | 48,509 | | | 1,965 | |
Residential mortgage | 21,450 | | | 22,625 | | | 2,740 | | | 23,721 | | | 856 | |
Home equity | 3,076 | | | 3,468 | | | 1,190 | | | 3,756 | | | 191 | |
Other consumer | 1,247 | | | 1,249 | | | 125 | | | 1,250 | | | 1 | |
Total consumer | 25,773 | | | 27,342 | | | 4,055 | | | 28,726 | | | 1,047 | |
Total loans with a related allowance | $ | 76,102 | | | $ | 95,033 | | | $ | 16,165 | | | $ | 77,235 | | | $ | 3,012 | |
Loans with no related allowance | | | | | | | | | |
Commercial and industrial | $ | 14,787 | | | $ | 33,438 | | | $ | 0 | | | $ | 20,502 | | | $ | 63 | |
Commercial real estate — owner occupied | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial and business lending | 14,787 | | | 33,438 | | | 0 | | | 20,502 | | | 63 | |
Commercial real estate — investor | 3,705 | | | 3,705 | | | 0 | | | 3,980 | | | 159 | |
Real estate construction | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial real estate lending | 3,705 | | | 3,705 | | | 0 | | | 3,980 | | | 159 | |
Total commercial | 18,491 | | | 37,142 | | | 0 | | | 24,482 | | | 222 | |
Residential mortgage | 14,104 | | | 14,461 | | | 0 | | | 10,962 | | | 373 | |
Home equity | 1,346 | | | 1,383 | | | 0 | | | 1,017 | | | 21 | |
Other consumer | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total consumer | 15,450 | | | 15,845 | | | 0 | | | 11,979 | | | 394 | |
Total loans with no related allowance | $ | 33,941 | | | $ | 52,987 | | | $ | 0 | | | $ | 36,462 | | | $ | 616 | |
Total | | | | | | | | | |
Commercial and industrial | $ | 62,035 | | | $ | 96,784 | | | $ | 12,010 | | | $ | 65,792 | | | $ | 1,895 | |
Commercial real estate — owner occupied | 1,676 | | | 1,682 | | | 19 | | | 1,774 | | | 88 | |
Commercial and business lending | 63,711 | | | 98,466 | | | 12,029 | | | 67,566 | | | 1,982 | |
Commercial real estate — investor | 4,633 | | | 5,808 | | | 15 | | | 4,931 | | | 174 | |
Real estate construction | 477 | | | 559 | | | 67 | | | 494 | | | 30 | |
Commercial real estate lending | 5,110 | | | 6,367 | | | 82 | | | 5,425 | | | 204 | |
Total commercial | 68,820 | | | 104,833 | | | 12,111 | | | 72,991 | | | 2,186 | |
Residential mortgage | 35,554 | | | 37,087 | | | 2,740 | | | 34,683 | | | 1,229 | |
Home equity | 4,422 | | | 4,851 | | | 1,190 | | | 4,773 | | | 211 | |
Other consumer | 1,247 | | | 1,249 | | | 125 | | | 1,250 | | | 1 | |
Total consumer | 41,223 | | | 43,187 | | | 4,055 | | | 40,706 | | | 1,441 | |
Total loans(a) | $ | 110,043 | | | $ | 148,020 | | | $ | 16,165 | | | $ | 113,697 | | | $ | 3,628 | |
(a) The net recorded investment (defined as recorded investment, net of the related allowance) of the impaired loans represented 63% of the unpaid principal balance at December 31, 2019.
Troubled Debt Restructurings
Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty.
The following table presents nonaccrual and performing restructured loans by loan portfolio:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 | | |
($ in Thousands) | Performing Restructured Loans | | Nonaccrual Restructured Loans(a) | | Performing Restructured Loans | | Nonaccrual Restructured Loans(a) | | | | |
| | | | | | | | | | | |
Commercial and industrial | $ | 16,002 | | | $ | 7,827 | | | $ | 16,678 | | | $ | 7,376 | | | | | |
Commercial real estate — owner occupied | 1,389 | | | 168 | | | 1,676 | | | 0 | | | | | |
Commercial real estate — investor | 635 | | | 0 | | | 293 | | | 0 | | | | | |
Real estate construction | 382 | | | 98 | | | 298 | | | 179 | | | | | |
Residential mortgage | 5,378 | | | 14,535 | | | 3,955 | | | 13,035 | | | | | |
Home equity | 1,889 | | | 1,216 | | | 1,896 | | | 1,904 | | | | | |
Other consumer | 1,218 | | | 0 | | | 1,246 | | | 1 | | | | | |
Total restructured loans(b) | $ | 26,891 | | | $ | 23,844 | | | $ | 26,041 | | | $ | 22,494 | | | | | |
| | | | | | | | | | | | | | | | | | |
| June 30, 2021 | December 31, 2020 | | |
($ in Thousands) | Performing Restructured Loans | Nonaccrual Restructured Loans(a) | Performing Restructured Loans | Nonaccrual Restructured Loans(a) | | | | |
| | | | | | | | |
Commercial and industrial | $ | 11,569 | | $ | 1,699 | | $ | 12,713 | | $ | 6,967 | | | | | |
Commercial real estate — owner occupied | 1,225 | | 0 | | 1,711 | | 0 | | | | | |
Commercial real estate — investor | 13,306 | | 213 | | 26,435 | | 225 | | | | | |
Real estate construction | 253 | | 108 | | 260 | | 111 | | | | | |
Residential mortgage | 12,227 | | 14,029 | | 7,825 | | 11,509 | | | | | |
Home equity | 2,451 | | 1,189 | | 1,957 | | 1,379 | | | | | |
Other consumer | 904 | | 0 | | 1,191 | | 0 | | | | | |
Total restructured loans(b) | $ | 41,935 | | $ | 17,237 | | $ | 52,092 | | $ | 20,190 | | | | | |
(a) Nonaccrual restructured loans have been included within nonaccrual loans.
(b) Does not include any restructured loans related to the COVID-19 pandemic in accordance with Section 4013 of the CARES Act.
The Corporation had a recorded investment of $9$10 million in loans modified in a TDRas TDRs during the ninesix months ended SeptemberJune 30, 2020,2021, of which $3$5 million were in accrual status, included in pass or special mention based on their risk rating within the credit quality tables, and $6$5 million were in nonaccrual within the credit quality tables, pending a sustained period of repayment. Short-term loan modifications made in good faith to help ease the adverse effects of the COVID-19 pandemic are not categorized as TDRs in accordance with regulatory guidance.the CARES Act. The following table provides the number of loans modified in a TDR by loan portfolio, the recorded investment, and unpaid principal balance for the ninesix months ended SeptemberJune 30, 20202021 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 |
($ in Thousands) | Number of Loans | | Recorded Investment(a) | | Unpaid Principal Balance(b) | | Number of Loans | | Recorded Investment(a) | | Unpaid Principal Balance(b) |
| | | | | | | | | | | |
Commercial and industrial | 3 | | | $ | 1,250 | | | $ | 1,324 | | | 1 | | | $ | 185 | | | $ | 185 | |
Commercial real estate — owner occupied | 2 | | | 453 | | | 751 | | | 0 | | | 0 | | | 0 | |
Commercial real estate — investor | 1 | | | 530 | | | 530 | | | 0 | | | 0 | | | 0 | |
Real estate construction | 1 | | | 102 | | | 102 | | | 0 | | | 0 | | | 0 | |
Residential mortgage | 32 | | | 5,789 | | | 5,870 | | | 47 | | | 6,785 | | | 6,863 | |
Home equity | 18 | | | 676 | | | 702 | | | 18 | | | 520 | | | 520 | |
Other consumer | 0 | | | 0 | | | 0 | | | 1 | | | 9 | | | 9 | |
Total loans modified | 57 | | | $ | 8,800 | | | $ | 9,280 | | | 67 | | | $ | 7,500 | | | $ | 7,577 | |
2020: | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
($ in Thousands) | Number of Loans | Recorded Investment(a) | Unpaid Principal Balance(b) | Number of Loans | Recorded Investment(a) | Unpaid Principal Balance(b) |
| | | | | | |
Commercial and industrial | 2 | | $ | 128 | | $ | 129 | | 2 | | $ | 1,112 | | $ | 1,140 | |
Commercial real estate — owner occupied | 0 | | 0 | | 0 | | 1 | | 288 | | 319 | |
Commercial real estate — investor | 4 | | 1,690 | | 1,690 | | 1 | | 395 | | 1,705 | |
Real estate construction | 0 | | 0 | | 0 | | 1 | | 102 | | 102 | |
Residential mortgage | 37 | | 7,424 | | 7,450 | | 24 | | 5,163 | | 5,237 | |
Home equity | 4 | | 566 | | 603 | | 15 | | 471 | | 483 | |
| | | | | | |
Total loans modified | 47 | | $ | 9,808 | | $ | 9,871 | | 44 | | $ | 7,531 | | $ | 8,986 | |
(a) Represents post-modification outstanding recorded investment.
(b) Represents pre-modification outstanding recorded investment.
Restructured loan modifications may include payment schedule modifications, interest rate concessions, maturity date extensions, modification of note structure (A/B Note), non-reaffirmed Chapter 7 bankruptcies, principal reduction, or some combination of these concessions. During the ninesix months ended SeptemberJune 30, 2020,2021, restructured loan modifications of commercial loans primarily included maturity date extensions and payment schedule modifications. Restructured loan modifications of consumer loans primarily included maturity date extensions, interest rate concessions, non-reaffirmed Chapter 7 bankruptcies, or a combination of these concessions for the ninesix months ended SeptemberJune 30, 2020.2021.
The following table provides the number of loans modified in a TDR during the previous twelve months which subsequently defaulted during the ninesix months ended SeptemberJune 30, 20202021 and 20192020, and the recorded investment in these restructured loans as of SeptemberJune 30, 20202021 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 |
($ in Thousands) | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Commercial real estate — investor | 0 | | | $ | 0 | | | 1 | | | $ | 461 | |
| | | | | | | |
Residential mortgage | 5 | | | 1,036 | | | 27 | | | 4,528 | |
Home equity | 4 | | | 208 | | | 19 | | | 538 | |
| | | | | | | |
Total loans modified | 9 | | | $ | 1,244 | | | 47 | | | $ | 5,526 | |
| | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
($ in Thousands) | Number of Loans | Recorded Investment | Number of Loans | Recorded Investment |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Residential mortgage | 1 | | 97 | | 5 | | 1,036 | |
Home equity | 0 | | 0 | | 4 | | 208 | |
| | | | |
Total loans modified | 1 | | $ | 97 | | 9 | | $ | 1,244 | |
All loans modified in a TDR are individually evaluated for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a subsequent payment default, are considered in the determination of an appropriate level of the ACLL.
The Corporation analyzes loans for classification as a probable TDR. This analysis includes identifying customers that are showing possible liquidity issues in the near term without reasonable access to alternative sources of capital. At adoption of ASU 2016-13 on January 1, 2020,June 30, 2021, the Corporation had $114$19 million in loans meeting this classification compared to $73$68 million at September 30,December 31, 2020. Of the loans classified as probable TDRs at SeptemberJune 30, 2020, all of them are within2021, the oilentire $19 million was related to the commercial and gasindustrial portfolio.
Allowance for Credit Losses on Loans
The ACLL is comprised of the allowance for loan losses and the allowance for unfunded commitments. The level of the ACLL represents management’s estimate of an amount appropriate to provide for expected lifetime credit losses in the loan portfolio at the balance sheet date. The expected lifetime credit losses are the product of multiplying the Corporation's estimates of probability of default, loss given default, and the individual loan level exposure at default on an undiscounted basis. A main factor in the determination of the ACLL is the economic forecast. The Corporation utilized the Moody's baseline forecast, updated during September 2020,June 2021, in the allowance model. The forecast is applied over a 12 year reasonable and supportable period with immediatestraight-line reversion to the historical losses. The Corporation changedlosses over the reversion assumptions duringsecond year of the first quarter of 2020 from straight-line over 1 year to immediate reversion due to the uncertainty within the economic forecasts due to COVID-19.period. The allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit). See Note 12 for additional information on the change in the allowance for unfunded commitments.
The following table presents a summary of the changes in the ACLL by portfolio segment for the ninesix months ended SeptemberJune 30, 2020:2021: | | | | | | | | | | | | | | | | | | | | | | | | |
($ in Thousands) | December 31, 2020 | Charge offs | Recoveries | Net Charge offs | | Provision for credit losses | June 30, 2021 | ACLL / Loans |
Allowance for loan losses | | | | | | | |
PPP | $ | 531 | | $ | 0 | | $ | 0 | | $ | 0 | | | $ | (299) | | $ | 232 | | |
Commercial and industrial | 142,793 | | (3,723) | | 6,423 | | 2,700 | | | (41,178) | | 104,315 | | |
Commercial real estate — owner occupied | 11,274 | | 0 | | 9 | | 9 | | | 1,023 | | 12,306 | | |
Commercial and business lending | 154,598 | | (3,723) | | 6,432 | | 2,709 | | | (40,454) | | 116,853 | | |
Commercial real estate — investor | 93,435 | | (14,340) | | 2,865 | | (11,475) | | | 1,410 | | 83,371 | | |
Real estate construction | 59,193 | | (3) | | 54 | | 52 | | | (10,023) | | 49,221 | | |
Commercial real estate lending | 152,629 | | (14,342) | | 2,919 | | (11,423) | | | (8,613) | | 132,592 | | |
Total commercial | 307,226 | | (18,065) | | 9,350 | | (8,715) | | | (49,067) | | 249,445 | | |
Residential mortgage | 42,996 | | (554) | | 222 | | (332) | | | 566 | | 43,230 | | |
Home equity | 18,849 | | (535) | | 1,216 | | 681 | | | (4,464) | | 15,066 | | |
Other consumer | 14,630 | | (1,700) | | 675 | | (1,025) | | | (2,535) | | 11,069 | | |
Total consumer | 76,475 | | (2,790) | | 2,114 | | (676) | | | (6,433) | | 69,366 | | |
Total loans | $ | 383,702 | | $ | (20,855) | | $ | 11,464 | | $ | (9,391) | | | $ | (55,500) | | $ | 318,811 | | |
Allowance for unfunded commitments | | | | | | | |
| | | | | | | | |
Commercial and industrial | 22,311 | | — | | — | | — | | | (1,151) | | 21,161 | | |
Commercial real estate — owner occupied | 266 | | — | | — | | — | | | 140 | | 406 | | |
Commercial and business lending | 22,577 | | — | | — | | — | | | (1,011) | | 21,566 | | |
Commercial real estate — investor | 636 | | — | | — | | — | | | 87 | | 723 | | |
Real estate construction | 18,887 | | — | | — | | — | | | (1,267) | | 17,620 | | |
Commercial real estate lending | 19,523 | | — | | — | | — | | | (1,180) | | 18,343 | | |
Total commercial | 42,101 | | — | | — | | — | | | (2,191) | | 39,910 | | |
| | | | | | | | |
Home equity | 3,118 | | — | | — | | — | | | (172) | | 2,946 | | |
Other consumer | 2,557 | | — | | — | | — | | | (137) | | 2,420 | | |
Total consumer | 5,675 | | — | | — | | — | | | (309) | | 5,366 | | |
Total loans | $ | 47,776 | | $ | — | | $ | — | | $ | — | | | $ | (2,500) | | $ | 45,276 | | |
Allowance for credit losses on loans | | | | | | | |
PPP | $ | 531 | | $ | 0 | | $ | 0 | | $ | 0 | | | $ | (299) | | $ | 232 | | 0.06 | % |
Commercial and industrial | 165,105 | | (3,723) | | 6,423 | | 2,700 | | | (42,328) | | 125,476 | | 1.59 | % |
Commercial real estate — owner occupied | 11,539 | | 0 | | 9 | | 9 | | | 1,163 | | 12,711 | | 1.44 | % |
Commercial and business lending | 177,175 | | (3,723) | | 6,432 | | 2,709 | | | (41,465) | | 138,419 | | 1.51 | % |
Commercial real estate — investor | 94,071 | | (14,340) | | 2,865 | | (11,475) | | | 1,497 | | 84,093 | | 1.96 | % |
Real estate construction | 78,080 | | (3) | | 54 | | 52 | | | (11,290) | | 66,842 | | 3.55 | % |
Commercial real estate lending | 172,152 | | (14,342) | | 2,919 | | (11,423) | | | (9,793) | | 150,936 | | 2.44 | % |
Total commercial | 349,327 | | (18,065) | | 9,350 | | (8,715) | | | (51,257) | | 289,355 | | 1.88 | % |
Residential mortgage | 42,996 | | (554) | | 222 | | (332) | | | 566 | | 43,230 | | 0.57 | % |
Home equity | 21,967 | | (535) | | 1,216 | | 681 | | | (4,636) | | 18,012 | | 2.85 | % |
Other consumer | 17,187 | | (1,700) | | 675 | | (1,025) | | | (2,672) | | 13,489 | | 4.49 | % |
Total consumer | 82,150 | | (2,790) | | 2,114 | | (676) | | | (6,743) | | 74,731 | | 0.87 | % |
Total loans | $ | 431,478 | | $ | (20,855) | | $ | 11,464 | | $ | (9,391) | | | $ | (58,000) | | $ | 364,087 | | 1.52 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in Thousands) | Dec. 31, 2019 | Cumulative effect of ASU 2016-13 adoption (CECL) | Jan. 1, 2020 | Charge offs | Recoveries | Net Charge offs | Gross up of allowance for PCD loans at acquisition | Provision recorded at acquisition | Provision for loan losses | Sept. 30, 2020 | ACLL / Loans |
Allowance for loan losses | | | | | | | | | |
PPP | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 968 | | $ | 968 | | |
Commercial and industrial | 91,133 | | 52,919 | | 144,052 | | (70,011) | | 5,210 | | (64,802) | | 293 | | 408 | | 87,840 | | 167,793 | | |
Commercial real estate — owner occupied | 10,284 | | (1,851) | | 8,433 | | (419) | | 4 | | (415) | | 890 | | 255 | | 2,027 | | 11,190 | | |
Commercial and business lending | 101,417 | | 51,068 | | 152,485 | | (70,430) | | 5,213 | | (65,216) | | 1,183 | | 663 | | 90,836 | | 179,951 | | |
Commercial real estate — investor | 40,514 | | 2,041 | | 42,555 | | (4,224) | | 643 | | (3,581) | | 753 | | 472 | | 50,004 | | 90,201 | | |
Real estate construction | 24,915 | | 7,467 | | 32,382 | | (42) | | 30 | | (12) | | 435 | | 492 | | 3,823 | | 37,119 | | |
Commercial real estate lending | 65,429 | | 9,508 | | 74,937 | | (4,266) | | 673 | | (3,593) | | 1,188 | | 964 | | 53,827 | | 127,321 | | |
Total commercial | 166,846 | | 60,576 | | 227,422 | | (74,696) | | 5,887 | | (68,810) | | 2,371 | | 1,627 | | 144,662 | | 307,272 | | |
Residential mortgage | 16,960 | | 33,215 | | 50,175 | | (1,615) | | 409 | | (1,206) | | 651 | | 403 | | (6,382) | | 43,640 | | |
Home equity | 10,926 | | 11,649 | | 22,575 | | (1,551) | | 1,476 | | (76) | | 422 | | 374 | | (3,935) | | 19,361 | | |
Other consumer | 6,639 | | 7,016 | | 13,655 | | (3,875) | | 845 | | (3,030) | | 61 | | 140 | | 3,612 | | 14,438 | | |
Total consumer | 34,525 | | 51,880 | | 86,405 | | (7,042) | | 2,730 | | (4,311) | | 1,134 | | 917 | | (6,705) | | 77,440 | | |
Total loans | $ | 201,371 | | $ | 112,457 | | $ | 313,828 | | $ | (81,738) | | $ | 8,617 | | $ | (73,121) | | $ | 3,504 | | $ | 2,543 | | $ | 137,957 | | $ | 384,711 | | |
Allowance for unfunded commitments | | | | | | | | | |
| | | | | | | | | | | |
Commercial and industrial | 12,276 | | (3,998) | | 8,278 | | — | | — | | — | | — | | 61 | | 12,851 | | 21,190 | | |
Commercial real estate — owner occupied | 127 | | 0 | | 127 | | — | | — | | — | | — | | 4 | | 434 | | 564 | | |
Commercial and business lending | 12,403 | | (3,998) | | 8,405 | | — | | — | | — | | — | | 65 | | 13,285 | | 21,754 | | |
Commercial real estate — investor | 530 | | 246 | | 776 | | — | | — | | — | | — | | 2 | | (58) | | 719 | | |
Real estate construction | 7,532 | | 18,347 | | 25,879 | | | — | | — | | — | | 45 | | 2,703 | | 28,626 | | |
Commercial real estate lending | 8,062 | | 18,593 | | 26,655 | | — | | — | | — | | — | | 47 | | 2,644 | | 29,345 | | |
Total commercial | 20,465 | | 14,595 | | 35,060 | | — | | — | | — | | — | | 112 | | 15,929 | | 51,100 | | |
| | | | | | | | | | | |
Home equity | 1,038 | | 2,591 | | 3,629 | | — | | — | | — | | — | | 66 | | (106) | | 3,588 | | |
Other consumer | 405 | | 1,504 | | 1,909 | | — | | — | | — | | — | | 0 | | 676 | | 2,585 | | |
Total consumer | 1,443 | | 4,095 | | 5,538 | | — | | — | | — | | — | | 66 | | 571 | | 6,176 | | |
Total loans | $ | 21,907 | | $ | 18,690 | | $ | 40,597 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 179 | | $ | 16,500 | | $ | 57,276 | | |
Allowance for credit losses on loans | | | | | | | | | |
PPP | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 968 | | $ | 968 | | 0.09 | % |
Commercial and industrial | 103,409 | | 48,921 | | 152,330 | | (70,011) | | 5,210 | | (64,802) | | 293 | | 469 | | 100,691 | | 188,983 | | 2.38 | % |
Commercial real estate — owner occupied | 10,411 | | (1,851) | | 8,560 | | (419) | | 4 | | (415) | | 890 | | 259 | | 2,461 | | 11,755 | | 1.30 | % |
Commercial and business lending | 113,820 | | 47,070 | | 160,890 | | (70,430) | | 5,213 | | (65,216) | | 1,183 | | 728 | | 104,120 | | 201,706 | | 2.05 | % |
Commercial real estate — investor | 41,044 | | 2,287 | | 43,331 | | (4,224) | | 643 | | (3,581) | | 753 | | 474 | | 49,945 | | 90,921 | | 2.10 | % |
Real estate construction | 32,447 | | 25,814 | | 58,261 | | (42) | | 30 | | (12) | | 435 | | 537 | | 6,525 | | 65,745 | | 3.54 | % |
Commercial real estate lending | 73,490 | | 28,101 | | 101,591 | | (4,266) | | 673 | | (3,593) | | 1,188 | | 1,011 | | 56,471 | | 156,667 | | 2.53 | % |
Total commercial | 187,311 | | 75,171 | | 262,482 | | (74,696) | | 5,887 | | (68,810) | | 2,371 | | 1,739 | | 160,591 | | 358,372 | | 2.23 | % |
Residential mortgage | 16,960 | | 33,215 | | 50,175 | | (1,615) | | 409 | | (1,206) | | 651 | | 403 | | (6,380) | | 43,643 | | 0.55 | % |
Home equity | 11,964 | | 14,240 | | 26,204 | | (1,551) | | 1,476 | | (76) | | 422 | | 440 | | (4,041) | | 22,949 | | 3.01 | % |
Other consumer | 7,044 | | 8,520 | | 15,564 | | (3,875) | | 845 | | (3,030) | | 61 | | 140 | | 4,287 | | 17,023 | | 5.40 | % |
Total consumer | 35,968 | | 55,975 | | 91,943 | | (7,042) | | 2,730 | | (4,311) | | 1,134 | | 983 | | (6,134) | | 83,616 | | 0.93 | % |
Total loans | $ | 223,278 | | $ | 131,147 | | $ | 354,425 | | $ | (81,738) | | $ | 8,617 | | $ | (73,121) | | $ | 3,504 | | $ | 2,722 | | $ | 154,457 | | $ | 441,988 | | 1.77 | % |
The following table presents detailsa summary of the allowance for loan losses segregatedchanges in the ACLL by loan portfolio segment as offor the year ended December 31, 2019, calculated in accordance with prior incurred loss methodology applicable under ASC Topic 310:
| | | | | | | | | | | | | | | | | | | | |
($ in Thousands) | December 31, 2018 | Charge offs | Recoveries | Net Charge offs | Provision for loan losses | December 31, 2019 |
Allowance for loan losses | | | | | | |
Commercial and industrial | $ | 108,835 | | $ | (63,315) | | $ | 11,875 | | $ | (51,441) | | $ | 33,738 | | $ | 91,133 | |
Commercial real estate — owner occupied | 9,255 | | (222) | | 2,795 | | 2,573 | | (1,543) | | 10,284 | |
Commercial and business lending | 118,090 | | (63,537) | | 14,670 | | (48,868) | | 32,195 | | 101,417 | |
Commercial real estate — investor | 40,844 | | 0 | | 31 | | 31 | | (361) | | 40,514 | |
Real estate construction | 28,240 | | (60) | | 302 | | 243 | | (3,568) | | 24,915 | |
Commercial real estate lending | 69,084 | | (60) | | 333 | | 274 | | (3,929) | | 65,429 | |
Total commercial | 187,174 | | (63,597) | | 15,003 | | (48,594) | | 28,266 | | 166,846 | |
Residential mortgage | 25,595 | | (3,322) | | 692 | | (2,630) | | (6,005) | | 16,960 | |
Home equity | 19,266 | | (1,846) | | 2,599 | | 753 | | (9,093) | | 10,926 | |
Other consumer | 5,988 | | (5,548) | | 868 | | (4,681) | | 5,332 | | 6,639 | |
Total consumer | 50,849 | | (10,716) | | 4,159 | | (6,558) | | (9,766) | | 34,525 | |
Total loans | $ | 238,023 | | $ | (74,313) | | $ | 19,161 | | $ | (55,152) | | $ | 18,500 | | $ | 201,371 | |
2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in Thousands) | Dec. 31, 2019 | Cumulative effect of ASU 2016-13 adoption (CECL) | Jan. 1, 2020 | Charge offs | Recoveries | Net Charge offs | Gross up of allowance for PCD loans at acquisition | Provision recorded at acquisition | Provision for credit losses | Dec. 31, 2020 | ACLL / Loans |
Allowance for loan losses | | | | | | | | | |
PPP | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 531 | | $ | 531 | | |
Commercial and industrial | 91,133 | | 52,919 | | 144,052 | | (80,320) | | 7,004 | | (73,316) | | 293 | | 408 | | 71,355 | | 142,793 | | |
Commercial real estate — owner occupied | 10,284 | | (1,851) | | 8,433 | | (419) | | 147 | | (272) | | 890 | | 255 | | 1,967 | | 11,274 | | |
Commercial and business lending | 101,417 | | 51,068 | | 152,485 | | (80,739) | | 7,151 | | (73,588) | | 1,183 | | 663 | | 73,853 | | 154,598 | | |
Commercial real estate — investor | 40,514 | | 2,041 | | 42,555 | | (22,920) | | 643 | | (22,277) | | 753 | | 472 | | 71,933 | | 93,435 | | |
Real estate construction | 24,915 | | 7,467 | | 32,382 | | (19) | | 49 | | 31 | | 435 | | 492 | | 25,854 | | 59,193 | | |
Commercial real estate lending | 65,428 | | 9,508 | | 74,937 | | (22,938) | | 692 | | (22,246) | | 1,188 | | 964 | | 97,787 | | 152,629 | | |
Total commercial | 166,846 | | 60,576 | | 227,422 | | (103,677) | | 7,844 | | (95,834) | | 2,371 | | 1,627 | | 171,641 | | 307,226 | | |
Residential mortgage | 16,960 | | 33,215 | | 50,175 | | (1,867) | | 500 | | (1,367) | | 651 | | 403 | | (6,864) | | 42,996 | | |
Home equity | 10,926 | | 11,649 | | 22,575 | | (1,719) | | 1,978 | | 259 | | 422 | | 374 | | (4,781) | | 18,849 | | |
Other consumer | 6,639 | | 7,016 | | 13,655 | | (4,790) | | 1,101 | | (3,689) | | 61 | | 140 | | 4,462 | | 14,630 | | |
Total consumer | 34,525 | | 51,880 | | 86,405 | | (8,376) | | 3,579 | | (4,797) | | 1,134 | | 917 | | (7,183) | | 76,475 | | |
Total loans | $ | 201,371 | | $ | 112,457 | | $ | 313,828 | | $ | (112,053) | | $ | 11,422 | | $ | (100,631) | | $ | 3,504 | | $ | 2,543 | | $ | 164,457 | | $ | 383,702 | | |
Allowance for unfunded commitments | | | | | | | | | |
| | | | | | | | | | | |
Commercial and industrial | 12,276 | | (3,998) | | 8,278 | | — | | — | | — | | — | | 61 | | 13,972 | | 22,311 | | |
Commercial real estate — owner occupied | 127 | | 0 | | 127 | | — | | — | | — | | — | | 4 | | 135 | | 266 | | |
Commercial and business lending | 12,403 | | (3,998) | | 8,405 | | — | | — | | — | | — | | 65 | | 14,108 | | 22,577 | | |
Commercial real estate — investor | 530 | | 246 | | 776 | | — | | — | | — | | — | | 2 | | (141) | | 636 | | |
Real estate construction | 7,532 | | 18,347 | | 25,879 | | — | | — | | — | | — | | 45 | | (7,038) | | 18,887 | | |
Commercial real estate lending | 8,062 | | 18,593 | | 26,655 | | — | | — | | — | | — | | 47 | | (7,179) | | 19,523 | | |
Total commercial | 20,465 | | 14,595 | | 35,060 | | — | | — | | — | | — | | 112 | | 6,929 | | 42,101 | | |
| | | | | | | | | | | |
Home equity | 1,038 | | 2,591 | | 3,629 | | — | | — | | — | | — | | 66 | | (577) | | 3,118 | | |
Other consumer | 405 | | 1,504 | | 1,909 | | — | | — | | — | | — | | 0 | | 649 | | 2,557 | | |
Total consumer | 1,443 | | 4,095 | | 5,538 | | — | | — | | — | | — | | 66 | | 72 | | 5,675 | | |
Total loans | $ | 21,907 | | $ | 18,690 | | $ | 40,597 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 179 | | $ | 7,000 | | $ | 47,776 | | |
Allowance for credit losses on loans | | | | | | | | | |
PPP | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 531 | | $ | 531 | | 0.07 | % |
Commercial and industrial | 103,409 | | 48,921 | | 152,330 | | (80,320) | | 7,004 | | (73,316) | | 293 | | 469 | | 85,327 | | 165,105 | | 2.14 | % |
Commercial real estate — owner occupied | 10,411 | | (1,851) | | 8,560 | | (419) | | 147 | | (272) | | 890 | | 259 | | 2,102 | | 11,539 | | 1.28 | % |
Commercial and business lending | 113,820 | | 47,070 | | 160,890 | | (80,739) | | 7,151 | | (73,588) | | 1,183 | | 728 | | 87,961 | | 177,175 | | 1.89 | % |
Commercial real estate — investor | 41,044 | | 2,287 | | 43,331 | | (22,920) | | 643 | | (22,277) | | 753 | | 474 | | 71,792 | | 94,071 | | 2.17 | % |
Real estate construction | 32,447 | | 25,814 | | 58,261 | | (19) | | 49 | | 31 | | 435 | | 537 | | 18,816 | | 78,080 | | 4.24 | % |
Commercial real estate lending | 73,490 | | 28,101 | | 101,591 | | (22,938) | | 692 | | (22,246) | | 1,188 | | 1,011 | | 90,608 | | 172,152 | | 2.78 | % |
Total commercial | 187,311 | | 75,171 | | 262,482 | | (103,677) | | 7,844 | | (95,834) | | 2,371 | | 1,739 | | 178,569 | | 349,327 | | 2.25 | % |
Residential mortgage | 16,960 | | 33,215 | | 50,175 | | (1,867) | | 500 | | (1,367) | | 651 | | 403 | | (6,864) | | 42,996 | | 0.55 | % |
Home equity | 11,964 | | 14,240 | | 26,204 | | (1,719) | | 1,978 | | 259 | | 422 | | 440 | | (5,358) | | 21,967 | | 3.11 | % |
Other consumer | 7,044 | | 8,520 | | 15,564 | | (4,790) | | 1,101 | | (3,689) | | 61 | | 140 | | 5,111 | | 17,187 | | 5.49 | % |
Total consumer | 35,968 | | 55,975 | | 91,943 | | (8,376) | | 3,579 | | (4,797) | | 1,134 | | 983 | | (7,112) | | 82,150 | | 0.92 | % |
Total loans | $ | 223,278 | | $ | 131,147 | | $ | 354,425 | | $ | (112,053) | | $ | 11,422 | | $ | (100,631) | | $ | 3,504 | | $ | 2,722 | | $ | 171,457 | | $ | 431,478 | | 1.76 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for loan losses | | Loans |
($ in Thousands) | Individually evaluated for impairment | Collectively evaluated for impairment | Total allowance for loan losses | | Individually evaluated for impairment | Collectively evaluated for impairment | Acquired and accounted for under ASC 310-30(a) | Total loans |
Commercial and industrial | $ | 12,010 | | $ | 79,123 | | $ | 91,133 | | | $ | 62,035 | | $ | 7,292,217 | | $ | 342 | | $ | 7,354,594 | |
Commercial real estate — owner occupied | 19 | | 10,265 | | 10,284 | | | 1,676 | | 909,010 | | 579 | | 911,265 | |
Commercial and business lending | 12,029 | | 89,388 | | 101,417 | | | 63,711 | | 8,201,227 | | 921 | | 8,265,858 | |
Commercial real estate — investor | 15 | | 40,498 | | 40,514 | | | 4,633 | | 3,789,755 | | 129 | | 3,794,517 | |
Real estate construction | 67 | | 24,848 | | 24,915 | | | 477 | | 1,420,416 | | 7 | | 1,420,900 | |
Commercial real estate lending | 82 | | 65,346 | | 65,429 | | | 5,110 | | 5,210,171 | | 136 | | 5,215,417 | |
Total commercial | 12,111 | | 154,734 | | 166,846 | | | 68,821 | | 13,411,398 | | 1,057 | | 13,481,275 | |
Residential mortgage | 2,740 | | 14,220 | | 16,960 | | | 35,554 | | 8,100,958 | | 469 | | 8,136,980 | |
Home equity | 1,190 | | 9,737 | | 10,926 | | | 4,422 | | 847,577 | | 26 | | 852,025 | |
Other consumer | 125 | | 6,514 | | 6,639 | | | 1,247 | | 349,912 | | 0 | | 351,159 | |
Total consumer | 4,055 | | 30,471 | | 34,525 | | | 41,223 | | 9,298,447 | | 495 | | 9,340,164 | |
Total loans | $ | 16,165 | | $ | 185,205 | | $ | 201,371 | | | $ | 110,043 | | $ | 22,709,845 | | $ | 1,552 | | $ | 22,821,440 | |
(a) Loans acquired in business combinations and accounted for under ASC Subtopic 310-30 "Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality."
Loans Acquired in Acquisitions
Loans acquired in a business combination after January 1, 2020 are recorded in accordance with ASC Topic 326. See Note 2 Acquisitions and Dispositions for more information on loans acquired in a business combination. After January 1, 2020, acquired loans were segregated into two types:
•PCD loans are loans demonstrating more than insignificant credit deterioration since origination and are accounted for with ASC 326-30. Under this guidance, the credit mark on acquired assets grosses up the allowance for loan losses and the amortized cost of the loan.
•Non-PCD loans are accounted for in accordance with ASC Topic 310-20 "Nonrefundable Fees and Other Costs" as these loans do not show evidence of credit deterioration since origination.
Loans acquired in a business combination prior to January 1, 2020 were recorded at estimated fair value on their purchase date without a carryover of the related The allowance for loan losses. Prior to January 1, 2020, acquiredlosses on these loans were segregated into two types:is recorded through provision for credit losses on the consolidated statements of income at acquisition.
•PerformingPCD loans wereare loans demonstrating more than insignificant credit deterioration and are accounted for in accordance with ASC Topic 310-20 "Nonrefundable Fees326-30. Under this guidance, the credit mark on acquired assets grosses up the ACLL and Other Costs" as these loans do not have evidencethe amortized cost of credit deterioration since origination.
•Nonperforming loans were accounted for in accordance with ASC Topic 310-30 as they displayed significant credit deterioration since origination.the loan.
Note 8 Goodwill and Other Intangible Assets
Goodwill
Goodwill is not amortized but is instead subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
The Corporation conducted its most recent annual impairment testing in May 2020,2021, utilizing a quantitativequalitative assessment. Factors that management considered in this assessment included macroeconomic conditions, industry and market considerations, overall financial performance of goodwill impairment which included determining the estimated fair value ofCorporation and each reporting unit utilizing an equally weighted combination of discounted cash flow(both current and market-based approaches,projected), changes in management strategy, and comparing that fair value to each reporting unit’s carrying amount (including goodwill). An impairment loss is recognized ifchanges in the composition or carrying amount of a reporting unit exceeds its fair value.net assets. In addition, management considered the changes in both the Corporation's common stock price and in the overall bank common stock index (based on the S&P 400 Regional Bank Sub-Industry Index), as well as the Corporation's earnings per common share trend over the past year. Based on the quantitative assessment,these assessments, management concluded that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore based on thea step one quantitative analysis no impairment was not required. There have been no events since the May 20202021 impairment testing that have changed the Corporation's impairment assessment conclusion. There were no impairment charges recorded in 20192020 or the first ninesix months of 2020.
Each of the valuation techniques employed by the Company requires significant assumptions. Depending upon the specific approach, assumptions are made regarding the economic environment, expected net interest margins, growth rates, discount rates for cash flows, asset quality metrics, control premiums, and price-to-forward earnings multiples. Changes to any one of these assumptions could result in significantly different results. A sustained decline in the Company’s expected future cash flows or estimated growth rates, or a prolonged decline in the price of the Company’s common stock due to further deterioration in the economic environment, may necessitate additional interim testing, which could result in an impairment charge to goodwill in future reporting periods.2021.
At Septemberboth June 30, 20202021 and December 31, 2019,2020, the Corporation had goodwill of $1.1 billion and $1.2 billion, respectively. Therebillion. During the first quarter of 2021, there was an increasea reduction of $13$4 million relating to the First Staunton acquisition, and an $82 million reductionof goodwill related to the dispositionsale of ABRC.Whitnell.
Other Intangible Assets
The Corporation has other intangible assets that are amortized, consisting of CDIs other intangibles, and MSRs. Other intangibles decreased $19 million from December 31, 2019, primarily driven by a $17 million decrease due to the disposition of ABRC. For CDIs and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows:
| | | | | | | | | | | |
($ in Thousands) | Nine Months Ended September 30, 2020 | | Year Ended December 31, 2019 |
Core deposit intangibles | | | |
Gross carrying amount at the beginning of the year | $ | 80,730 | | | $ | 58,100 | |
Additions during the period | 7,379 | | | 22,630 | |
Accumulated amortization | (19,003) | | | (12,456) | |
Net book value | $ | 69,107 | | | $ | 68,274 | |
Amortization during the year | $ | 6,547 | | | $ | 7,130 | |
Other intangibles | | | |
Gross carrying amount at the beginning of the year | $ | 38,970 | | | $ | 44,887 | |
Additions during the period | 200 | | | 0 | |
Reductions due to sale | (17,435) | | | (217) | |
Accumulated amortization | (20,335) | | | (24,643) | |
Net book value | $ | 1,400 | | | $ | 20,027 | |
Amortization during the year | $ | 1,393 | | | $ | 2,818 | |
| | | | | | | | |
($ in Thousands) | Six Months Ended June 30, 2021 | Year Ended December 31, 2020 |
Core deposit intangibles | | |
Gross carrying amount at the beginning of the year | $ | 88,109 | | $ | 80,730 | |
Additions during the period | 0 | | 7,379 | |
Accumulated amortization | (25,611) | | (21,205) | |
Net book value | $ | 62,498 | | $ | 66,904 | |
Amortization during the year | $ | 4,405 | | $ | 8,749 | |
Other intangibles | | |
Gross carrying amount at the beginning of the year | $ | 2,000 | | $ | 38,970 | |
Additions during the period | 0 | | 200 | |
Reductions due to sale | (1,317) | | (17,435) | |
Accumulated amortization | (683) | | (20,385) | |
Net book value | $ | 0 | | $ | 1,350 | |
Amortization during the year | $ | 33 | | $ | 1,443 | |
Mortgage Servicing Rights
The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. MSRs are amortized in proportion to and over the period of estimated net servicing income and assessed for impairment at each reporting date.
The Corporation evaluates its MSRs asset for impairment at minimum on a quarterly basis. Impairment is assessed based on fair value at each reporting date using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). As mortgage interest rates fall, prepayment speeds are usually faster and the value of the MSRs asset generally decreases, requiring additional valuation reserve. Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the MSRs asset generally increases, requiring less valuation reserve. A valuation allowance is established, through a charge to earnings, to the extent the amortized cost of the MSRs exceeds the estimated fair value by stratification. During the first nine months of 2020, the Corporation recognized temporary impairment of $18 million driven by decreasing interest rates. If it is later determined that all or a portion of the temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is recognized as a write-down of the MSRs asset and the related valuation allowance (to the extent a valuation allowance is available) and then against earnings. A direct write-down permanently reduces the carrying value of the MSRs asset and valuation allowance, precluding subsequent recoveries. See Note 12 for a discussion of the recourse provisions on sold residential mortgage loans. See Note 13 which further discusses fair value measurement relative to the MSRs asset.
A summary of changes in the balance of the MSRs asset and the MSRs valuation allowance is as follows:
| | | | | | | | | | | |
($ in Thousands) | Nine Months Ended September 30, 2020 | | Year Ended December 31, 2019 |
Mortgage servicing rights | | | |
Mortgage servicing rights at beginning of period | $ | 67,607 | | | $ | 68,433 | |
Additions from acquisition | 1,357 | | | 0 | |
Additions | 11,495 | | | 11,606 | |
Amortization | (16,416) | | | (12,432) | |
Mortgage servicing rights at end of period | $ | 64,043 | | | $ | 67,607 | |
Valuation allowance at beginning of period | $ | (302) | | | $ | (239) | |
(Additions) recoveries, net | (18,481) | | | (63) | |
Valuation allowance at end of period | $ | (18,782) | | | $ | (302) | |
Mortgage servicing rights, net | $ | 45,261 | | | $ | 67,306 | |
Fair value of mortgage servicing rights | $ | 45,303 | | | $ | 72,532 | |
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”) | $ | 8,218,839 | | | $ | 8,488,969 | |
Mortgage servicing rights, net to servicing portfolio | 0.55 | % | | 0.79 | % |
Mortgage servicing rights expense(a) | $ | 34,897 | | | $ | 12,494 | |
| | | | | | | | |
($ in Thousands) | Six Months Ended June 30, 2021 | Year Ended December 31, 2020 |
Mortgage servicing rights | | |
Mortgage servicing rights at beginning of period | $ | 59,967 | | $ | 67,607 | |
Additions from acquisition | 0 | | 1,357 | |
Additions | 7,488 | | 13,667 | |
Amortization | (11,352) | | (22,664) | |
Mortgage servicing rights at end of period | $ | 56,103 | | $ | 59,967 | |
Valuation allowance at beginning of period | $ | (18,006) | | $ | (302) | |
(Additions) recoveries, net | 10,239 | | (17,704) | |
Valuation allowance at end of period | $ | (7,768) | | $ | (18,006) | |
Mortgage servicing rights, net | $ | 48,335 | | $ | 41,961 | |
Fair value of mortgage servicing rights | $ | 48,378 | | $ | 41,990 | |
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”) | $ | 7,149,619 | | $ | 7,743,956 | |
Mortgage servicing rights, net to servicing portfolio | 0.68 | % | 0.54 | % |
Mortgage servicing rights expense(a) | $ | 1,113 | | $ | 40,369 | |
(a) Includes the amortization of mortgage servicing rights and additions / recoveries to the valuation allowance of mortgage servicing rights, and is a component of mortgage banking, net on the consolidated statements of income.
The projections of amortization expense are based on existing asset balances, the current interest rate environment, and prepayment speeds as of SeptemberJune 30, 2020.2021. The actual amortization expense the Corporation recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements, and events or circumstances that indicate the carrying amount of an asset may not be recoverable. The following table shows the estimated future amortization expense for amortizing intangible assets:
| | | | | | | | | | | | | | | | | |
($ in Thousands) | Core Deposit Intangibles | | Other Intangibles | | Mortgage Servicing Rights |
Three Months Ending December 31, 2020 | $ | 2,203 | | | $ | 50 | | | $ | 4,245 | |
2021 | 8,811 | | | 200 | | | 15,333 | |
2022 | 8,811 | | | 200 | | | 10,935 | |
2023 | 8,811 | | | 200 | | | 8,030 | |
2024 | 8,811 | | | 200 | | | 6,095 | |
2025 | 8,811 | | | 200 | | | 4,764 | |
Beyond 2025 | 22,849 | | | 350 | | | 14,640 | |
Total Estimated Amortization Expense | $ | 69,107 | | | $ | 1,400 | | | $ | 64,043 | |
| | | | | | | | | |
($ in Thousands) | Core Deposit Intangibles | | Mortgage Servicing Rights |
Six Months Ending December 31, 2021 | $ | 4,405 | | | $ | 5,834 | |
2022 | 8,811 | | | 11,451 | |
2023 | 8,811 | | | 8,823 | |
2024 | 8,811 | | | 6,926 | |
2025 | 8,811 | | | 5,512 | |
2026 | 8,811 | | | 4,440 | |
Beyond 2026 | 14,038 | | | 13,118 | |
Total Estimated Amortization Expense | $ | 62,498 | | | $ | 56,103 | |
Note 9 Short and Long-Term Funding
The following table presents the components of short-term funding (funding with original contractual maturities of one year or less), and long-term funding (funding with original contractual maturities greater than one year), and FHLB advances (funding based on original contractual maturities):
| | | | | | | | |
($ in Thousands) | September 30, 2020 | December 31, 2019 |
Short-Term Funding | | |
Federal funds purchased | $ | 7,575 | | $ | 362,000 | |
Securities sold under agreements to repurchase | 147,754 | | 71,097 | |
Federal funds purchased and securities sold under agreements to repurchase | 155,329 | | 433,097 | |
Commercial paper | 50,987 | | 32,016 | |
Total short-term funding | $ | 206,316 | | $ | 465,113 | |
Long-Term Funding | | |
| | |
Bank senior notes, at par, due 2021 | $ | 300,000 | | $ | 300,000 | |
Corporation subordinated notes, at par, due 2025 | 250,000 | | 250,000 | |
PPPLF | 1,022,217 | | 0 | |
Finance leases | 1,165 | | 2,209 | |
Capitalized costs | (1,964) | | (2,866) | |
Total long-term funding | 1,571,418 | | 549,343 | |
Total short and long-term funding, excluding FHLB advances | $ | 1,777,735 | | $ | 1,014,456 | |
FHLB Advances | | |
Short-term FHLB advances | $ | 0 | | $ | 520,000 | |
Long-term FHLB advances | 1,706,763 | | 2,660,967 | |
Total FHLB advances | $ | 1,706,763 | | $ | 3,180,967 | |
| | |
Total short and long-term funding | $ | 3,484,498 | | $ | 4,195,422 | |
| | | | | | | | |
($ in Thousands) | June 30, 2021 | December 31, 2020 |
Short-Term Funding | | |
Federal funds purchased | $ | 45 | | $ | 7,070 | |
Securities sold under agreements to repurchase | 170,374 | | 185,901 | |
Federal funds purchased and securities sold under agreements to repurchase | 170,419 | | 192,971 | |
Commercial paper | 55,785 | | 59,346 | |
Total short-term funding | $ | 226,205 | | $ | 252,317 | |
Long-Term Funding | | |
| | |
Bank senior notes, at par, due 2021 | $ | 300,000 | | $ | 300,000 | |
Corporation subordinated notes, at par, due 2025 | 250,000 | | 250,000 | |
| | |
Finance leases | 93 | | 1,128 | |
Capitalized costs | (1,069) | | (1,663) | |
| | |
FHLB advances | 1,619,826 | | 1,632,723 | |
Total long-term funding | 2,168,851 | | 2,182,188 | |
| | |
| | |
| | |
| | |
Total short and long-term funding | $ | 2,395,055 | | $ | 2,434,505 | |
Securities Sold Under Agreements to Repurchase ("Repurchase Agreements")
The Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Corporation may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Corporation to repurchase the assets. The obligation to repurchase the securities is reflected as a liability on the Corporation’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts (i.e., there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities). See Note 11 for additional disclosures on balance sheet offsetting.
The Corporation utilizes securities sold under agreements to repurchase to facilitate the needs of its customers. As of SeptemberJune 30, 2020,2021, the Corporation pledged agency mortgage-related securities with a fair value of $246$260 million as collateral for the repurchase agreements. Securities pledged as collateral under repurchase agreements are maintained with the Corporation's safekeeping agents and are monitored on a daily basis due to the market risk of fair value changes in the underlying securities. The Corporation generally pledges excess securities to ensure there is sufficient collateral to satisfy short-term fluctuations in both the repurchase agreement balances and the fair value of the underlying securities.
The remaining contractual maturity of the securities sold under agreements to repurchase on the consolidated balance sheets as of SeptemberJune 30, 20202021 and December 31, 20192020 are presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Remaining Contractual Maturity of the Agreements |
($ in Thousands) | Overnight and Continuous | | Up to 30 days | | 30-90 days | | Greater than 90 days | | Total |
September 30, 2020 | | | | | | | | | |
Repurchase agreements | | | | | | | | | |
Agency mortgage-related securities | $ | 147,754 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 147,754 | |
Total | $ | 147,754 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 147,754 | |
December 31, 2019 | | | | | | | | | |
Repurchase agreements | | | | | | | | | |
Agency mortgage-related securities | $ | 71,097 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 71,097 | |
Total | $ | 71,097 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 71,097 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Remaining Contractual Maturity of the Agreements |
($ in Thousands) | Overnight and Continuous | | Up to 30 days | | 30-90 days | | Greater than 90 days | | Total |
June 30, 2021 | | | | | | | | | |
Repurchase agreements | | | | | | | | | |
Agency mortgage-related securities | $ | 170,374 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 170,374 | |
Total | $ | 170,374 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 170,374 | |
December 31, 2020 | | | | | | | | | |
Repurchase agreements | | | | | | | | | |
Agency mortgage-related securities | $ | 185,901 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 185,901 | |
Total | $ | 185,901 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 185,901 | |
Long-Term Funding
Senior Notes
In August 2018, the Bank issued $300 million of senior notes, due August 2021, and callable July 2021. The senior notes have a fixed coupon interest rate of 3.50% and were issued at a discount. The Bank redeemed all of the senior notes on July 13, 2021, the initial redemption date under the terms of the notes.
Subordinated Notes
In November 2014, the Corporation issued $250 million of 10-year subordinated notes, due January 2025, and callable October 2024. The subordinated notes have a fixed coupon interest rate of 4.25% and were issued at a discount.
Paycheck Protection Program Liquidity Facility
In connection with the funding of PPP loans, the Corporation has utilized the PPPLF. These borrowings from the Federal Reserve Bank match the term of the underlying loan, which has been pledged to secure the borrowings, with original terms of two or five years. The rate of this funding is 0.35%. The Corporation began submitting PPP forgiveness applications to the SBA on behalf of our customers on September 14, 2020. Forgiveness payments from the SBA began to be received early in the fourth quarter. The Corporation believes we will receive a modest amount of forgiveness payments yet in 2020, with the majority to be received in 2021, therefore the expected maturity is less than the contractual terms of two or five years.
Finance Leases
In connection with the construction of a new branchesbranch in Oshkosh, and Eau Claire, Wisconsin, the Corporation entered into a land leaseslease with optionsthe option to purchase the underlying land for a fixed price, which the Corporation now expects to exercise. The finance leases havelease has a fixed interest ratesrate of approximately 1.00%1.07%. See Note 18 for additional disclosure regarding the Corporation’s leases.
FHLB Advances
At September 30, 2020, the Corporation had $1.7 billion of FHLB advances, down $1.5 billion, or 46%, from December 31, 2019. This is primarily due to the Corporation's prepayment of $950 million in long-term FHLB advances in the third quarter of 2020. As a result, the Corporation incurred a $45 million loss on the prepayment. In addition, short-term FHLB advances decreased $520 million from December 31, 2019.
Note 10 Derivative and Hedging Activities
The Corporation is exposed to certain risk arising from both its business operations and economic conditions. The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Corporation's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation's known or expected cash receipts and its known or expected cash payments principally related to the Corporation's assets.
The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. The Corporation is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. To mitigate the counterparty risk, contracts generally contain language outlining collateral pledging requirements for each counterparty. For non-centrally cleared derivatives, collateral must be posted when the market value exceeds certain mutually agreed upon threshold limits. Securities and cash are often pledged as collateral. The Corporation pledged $75$73 million and $72 million of investment securities as collateral at SeptemberJune 30, 2020,2021, and pledged $57 million of investment securities as collateral at December 31, 2019.2020, respectively. At SeptemberJune 30, 2020,2021, the Corporation posted $30$28 million of cash collateral compared to $14$31 million at December 31, 2019.2020.
Federal regulations require the Corporation to clear all LIBOR interest rate swaps through a clearing house, if possible. For derivatives cleared through central clearing houses, the variation margin payments are legally characterized as daily settlements of the derivative rather than collateral. The Corporation's clearing agent for interest rate derivative contracts that are centrally cleared through the Chicago Mercantile Exchange (CME) and the London Clearing House (LCH) settles the variation margin daily. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial reporting purposes. Depending on the net position, the fair value is reported in other assets or
accrued expenses and other liabilities on the consolidated balance sheets. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument.
Fair Value Hedges of Interest Rate Risk
The Corporation is exposed to changes in the fair value of certain of its pools of prepayable fixed-rate assets due to changes in benchmark interest rates. The Corporation used interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involved the payment of fixed-rate amounts to a counterparty in exchange for the Corporation receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk were recognized in interest income. During the fourth quarter of 2019, the Corporation terminated the outstanding fair value hedges.
Derivatives to Accommodate Customer Needs
The Corporation also facilitates customer borrowing activity by entering into various derivative contracts which are designated as free standing derivative contracts. Free standing derivative products are entered into primarily for the benefit of commercial customers seeking to manage their exposures to interest rate risk, foreign currency, and commodity prices. These derivative contracts are not designated against specific assets and liabilities on the consolidated balance sheets or forecasted transactions and, therefore, do not qualify for hedge accounting treatment. Such derivative contracts are carried at fair value in other assets and accrued expenses and other liabilities on the consolidated balance sheets with changes in the fair value recorded as a component of capital markets, net, and typically include interest rate-related instruments (swaps and caps), foreign currency exchange forwards, and commodity contracts. See Note 11 for additional information and disclosures on balance sheet offsetting.
Interest rate-related instruments: The Corporation provides interest rate risk management services to commercial customers, primarily forward interest rate swaps and caps. The Corporation’s market risk from unfavorable movements in interest rates related to these derivative contracts is generally economically hedged by concurrently entering into offsetting derivative contracts. The offsetting derivative contracts have identical notional values, terms, and indices.
Foreign currency exchange forwards: The Corporation provides foreign currency exchange services to customers, primarily forward contracts. The Corporation's customers enter into a foreign currency exchange forward with the Corporation as a means
for them to mitigate exchange rate risk. The Corporation mitigates its risk by then entering into an offsetting foreign currency exchange derivative contract.
Commodity contracts: Commodity contracts are entered into primarily for the benefit of commercial customers seeking to manage their exposure to fluctuating commodity prices. The Corporation mitigates its risk by then entering into an offsetting commodity derivative contract.
Mortgage Derivatives
Interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded in other assets and accrued expenses and other liabilities on the consolidated balance sheets with the changes in fair value recorded as a component of mortgage banking, net.
The following table presents the total notional amounts and gross fair values of the Company’s derivatives, as well as the balance sheet netting adjustments as of SeptemberJune 30, 20202021 and December 31, 2019.2020. The derivative assets and liabilities are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into consideration the effects of legally enforceable master netting agreements and cash collateral received or paid as of SeptemberJune 30, 20202021 and December 31, 2019.2020. The resulting net derivative asset and liability fair values are included in other assets and accrued expenses and other liabilities, respectively, on the consolidated balance sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | December 31, 2020 |
| | Asset | Liability | Asset | Liability |
($ in Thousands) | | Notional Amount | Fair Value | Notional Amount | Fair Value | Notional Amount | Fair Value | Notional Amount | Fair Value |
Not designated as hedging instruments | | | | | | | | | |
Interest rate-related instruments | | $ | 3,716,697 | | $ | 125,879 | | $ | 3,716,697 | | $ | 23,115 | | $ | 3,639,679 | | $ | 192,518 | | $ | 3,639,679 | | $ | 25,680 | |
Foreign currency exchange forwards | | 476,479 | | 3,747 | | 465,165 | | 3,556 | | 411,292 | | 4,909 | | 398,890 | | 4,836 | |
Commodity contracts | | 33,320 | | 9,593 | | 33,519 | | 9,393 | | 87,547 | | 12,486 | | 83,214 | | 11,155 | |
Mortgage banking(a) | | 266,193 | | 6,543 | | 397,000 | | 430 | | 226,818 | | 9,624 | | 335,500 | | 2,046 | |
| | | | | | | | |
Gross derivatives before netting | | | $ | 145,762 | | | $ | 36,494 | | | $ | 219,537 | | | $ | 43,716 | |
Less: Legally enforceable master netting agreements | 1,456 | | | 1,456 | | | 1,936 | | | 1,936 | |
Less: Cash collateral pledged/received | 534 | | | 25,000 | | | 10,879 | | | 25,625 | |
Total derivative instruments, after netting | $ | 143,772 | | | $ | 10,039 | | | $ | 206,722 | | | $ | 16,155 | |
Table of Contents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | Asset | Liability | | Asset | Liability |
($ in Thousands) | | Notional Amount | Fair Value | Notional Amount | Fair Value | | Notional Amount | Fair Value | Notional Amount | Fair Value |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Not designated as hedging instruments | | | | | | | | | | |
| | | | | | | | |
Interest rate-related instruments | | $ | 3,731,752 | | $ | 225,912 | | $ | 3,731,752 | | $ | 28,960 | | | $ | 3,029,877 | | $ | 77,024 | | $ | 3,029,877 | | $ | 13,073 | |
Foreign currency exchange forwards | | 431,862 | | 4,710 | | 422,645 | | 4,563 | | | 272,636 | | 4,226 | | 264,653 | | 4,048 | |
Commodity contracts | | 132,055 | | 25,935 | | 127,597 | | 24,476 | | | 255,089 | | 20,528 | | 255,165 | | 19,624 | |
| | | | | | | | | | |
Mortgage banking(a)(b) | | 171,871 | | 7,888 | | 264,000 | | 0 | | | 255,291 | | 2,527 | | 263,000 | | 710 | |
| | | | | | | | | | |
| | | | | | | | | |
Gross derivatives before netting | | | $ | 264,445 | | | $ | 57,999 | | | | $ | 104,305 | | | $ | 37,455 | |
Less: Legally enforceable master netting agreements | 2,524 | | | 2,524 | | | | 10,410 | | | 10,410 | |
Less: Cash collateral pledged/received | 24,837 | | | 28,363 | | | | 1,408 | | | 11,365 | |
Total derivative instruments, after netting | $ | 237,084 | | | $ | 27,112 | | | | $ | 92,487 | | | $ | 15,680 | |
(a) Mortgage derivative assets include interest rate lock commitments and mortgage derivative liabilities include forward commitments.
(b) Includes $108 thousand forward commitment fair value.
The Corporation terminated its $500 million fair value hedge during the fourth quarter of 2019. At SeptemberJune 30, 2020,2021, the amortized cost basis of the closed portfolios which had previously been used in the terminated hedging relationship was $674$486 million and is included in loans and investment securities, available for sale, at fair value on the consolidated balance sheets. This amount includes $4$2 million of hedging adjustments on the discontinued hedging relationships.
The table below identifies the effect of fair value hedge accounting on the Corporation's consolidated statements of income for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019:2020: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships |
| Three Months Ended June 30, | Six Months Ended June 30, |
| 2021 | 2020 | 2021 | 2020 |
($ in Thousands) | Interest Income | Other Income (Expense) | Interest Income | Other Income (Expense) | Interest Income | Other Income (Expense) | Interest Income | Other Income (Expense) |
Total amounts of income and expense line items presented on the consolidated statements of income in which the effects of the fair value hedge is recorded | $ | (352) | | $ | 0 | | $ | (542) | | $ | 0 | | $ | (837) | | $ | 0 | | $ | (864) | | $ | (262) | |
The effects of fair value hedging: Gain or (loss) on fair value hedging relationships in Subtopic 815-20 | | | | | | | | |
Interest contracts | | | | | | | | |
Hedged items | (352) | | 0 | | (542) | | 0 | | (837) | | 0 | | (864) | | (262) | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2020 | 2019 | 2020 | 2019 |
($ in Thousands) | Interest Income | Other Income (Expense) | Interest Income | Other Income (Expense) | Interest Income | Other Income (Expense) | Interest Income | Other Income (Expense) |
Total amounts of income and expense line items presented on the consolidated statements of income in which the effects of the fair value hedge is recorded | $ | (481) | | $ | 0 | | $ | (59) | | $ | 0 | | $ | (1,345) | | $ | (262) | | $ | 160 | | $ | 0 | |
The effects of fair value hedging: Gain or (loss) on fair value hedging relationships in Subtopic 815-20 | | | | | | | | |
Interest contracts | | | | | | | | |
Hedged items | (481) | | 0 | | 452 | | 0 | | (1,345) | | (262) | | 6,674 | | 0 | |
Derivatives designated as hedging instruments(a) | 0 | | 0 | | (511) | | 0 | | 0 | | 0 | | (6,514) | | 0 | |
(a) Includes net settlements on the derivatives.
The table below identifies the effect of derivatives not designated as hedging instruments on the Corporation's consolidated statements of income for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Income Category of Gain / (Loss) Recognized in Income | Three Months Ended September 30, | Nine Months Ended September 30, |
($ in Thousands) | 2020 | | 2019 | 2020 | | 2019 |
Derivative Instruments | | | | | | | |
Interest rate-related instruments — customer and mirror, net | Capital markets, net | $ | 507 | | | $ | (619) | | $ | (2,648) | | | $ | (2,309) | |
Foreign currency exchange forwards | Capital markets, net | 49 | | | 72 | | (31) | | | 284 | |
Commodity contracts | Capital markets, net | (86) | | | 208 | | 555 | | | (2,037) | |
Interest rate lock commitments (mortgage) | Mortgage banking, net | (4,948) | | | (2,851) | | 5,361 | | | (191) | |
Forward commitments (mortgage) | Mortgage banking, net | 1,293 | | | 1,313 | | 710 | | | 1,482 | |
2020: | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Income Category of Gain / (Loss) Recognized in Income | Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
Derivative Instruments | | | | | |
Interest rate-related instruments — customer and mirror, net | Capital markets, net | $ | (950) | | $ | (65) | | $ | 1,989 | | $ | (3,155) | |
Foreign currency exchange forwards | Capital markets, net | (25) | | 41 | | 118 | | (81) | |
Commodity contracts | Capital markets, net | (512) | | (105) | | (1,132) | | 641 | |
Interest rate lock commitments (mortgage) | Mortgage banking, net | (373) | | 382 | | (3,081) | | 10,310 | |
Forward commitments (mortgage) | Mortgage banking, net | 4,685 | | 9,679 | | (1,616) | | (582) | |
Note 11 Balance Sheet Offsetting
Interest Rate-Related Instruments, Commodity Contracts, and Foreign Exchange Forwards (“Interest, Commodity, and Foreign Exchange Agreements”)
The Corporation enters into interest rate-related instruments to facilitate the interest rate risk management strategies of commercial customers, commodity contracts to manage commercial customers' exposure to fluctuating commodity prices, and foreign exchange forwards to manage customers' exposure to fluctuating foreign exchange rates. The Corporation mitigates these risks by entering into equal and offsetting agreements with highly rated third-party financial institutions. The Corporation is party to master netting arrangements with its financial institution counterparties that create single net settlements of all legal claims or obligations to pay or receive the net amount of settlement of the individual interest, commodity, and foreign exchange agreements. Collateral, usually in the form of investment securities and cash, is posted by the counterparty with net liability positions in accordance with contract thresholds. Derivatives subject to a legally enforceable master netting agreement are reported on a net basis, net of cash collateral, in other assets and accrued expenses and other liabilities, on the face of the consolidated balance sheets. See Note 10 for additional information on the Corporation’s derivative and hedging activities.
Securities Sold Under Agreements to Repurchase (“Repurchase Agreements”)
The Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. These repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities (i.e., there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities). The right of set-off for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Corporation be in default (e.g., fails to make an interest payment to the counterparty). In addition, the Corporation does not enter into reverse repurchase agreements; therefore, there is no such offsetting to be done with the repurchase agreements. See Note 9 for additional disclosures on repurchase agreements.
The following table presents the interest rate, commodity, and foreign exchange assets and liabilities subject to an enforceable master netting arrangement. The interest, commodity and foreign exchange agreements the Corporation has with its commercial customers are not subject to an enforceable master netting arrangement and are therefore excluded from this table:
| | | | | | | | | | | | | | | | | | | | |
| Gross Amounts Recognized | Gross Amounts Subject to Master Netting Arrangements Offset on the Consolidated Balance Sheets | Net Amounts Presented on the Consolidated Balance Sheets | Gross Amounts Not Offset on the Consolidated Balance Sheets | |
($ in Thousands) | Derivative Liabilities Offset | Cash Collateral Received | Net Amount |
Derivative assets | | | | | | |
June 30, 2021 | $ | 1,990 | | $ | (1,456) | | $ | (534) | | $ | 0 | | $ | 0 | | $ | 0 | |
December 31, 2020 | 13,441 | | (1,936) | | (10,879) | | 626 | | 0 | | 626 | |
|
| Gross Amounts Recognized | Gross Amounts Subject to Master Netting Arrangements Offset on the Consolidated Balance Sheets | Net Amounts Presented on the Consolidated Balance Sheets | Gross Amounts Not Offset on the Consolidated Balance Sheets | |
($ in Thousands) | Derivative Assets Offset | Cash Collateral Pledged | Net Amount |
Derivative liabilities | | | | | | |
June 30, 2021 | $ | 27,432 | | $ | (1,456) | | $ | (25,000) | | $ | 977 | | $ | 0 | | $ | 977 | |
December 31, 2020 | 27,951 | | (1,936) | | (25,625) | | 390 | | 0 | | 390 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Amounts Recognized | | Gross Amounts Subject to Master Netting Arrangements Offset on the Consolidated Balance Sheets | | Net Amounts Presented on the Consolidated Balance Sheets | | Investment Securities Received | | |
($ in Thousands) | Derivative Assets Offset | | Cash Collateral Received | | | Net amount |
Derivative assets | | | | | | | | | | | |
September 30, 2020 | $ | 27,408 | | | $ | (2,524) | | | $ | (24,837) | | | $ | 47 | | | $ | 0 | | | $ | 47 | |
December 31, 2019 | 11,864 | | | (10,410) | | | (1,408) | | | 45 | | | 0 | | | 45 | |
|
| Gross Amounts Recognized | | Gross Amounts Subject to Master Netting Arrangements Offset on the Consolidated Balance Sheets | | Net Amounts Presented on the Consolidated Balance Sheets | | Investment Securities Pledged | | |
($ in Thousands) | Derivative Liabilities Offset | | Cash Collateral Pledged | | | Net amount |
Derivative liabilities | | | | | | | | | | | |
September 30, 2020 | $ | 31,164 | | | $ | (2,524) | | | $ | (28,363) | | | $ | 277 | | | $ | 0 | | | $ | 277 | |
December 31, 2019 | 22,189 | | | (10,410) | | | (11,365) | | | 413 | | | 0 | | | 413 | |
|
Note 12 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings and Regulatory Matters
The Corporation utilizes a variety of financial instruments in the normal course of business to meet the financial needs of its customers and to manage its own exposure to fluctuations in interest rates. These financial instruments include lending-related and other commitments (see below) as well as derivative instruments (see Note 10). The following is a summary of lending-related commitments:
| | | | | | | | |
($ in Thousands) | September 30, 2020 | December 31, 2019 |
Commitments to extend credit, excluding commitments to originate residential mortgage loans held for sale(a)(b) | $ | 9,582,235 | | $ | 9,024,412 | |
Commercial letters of credit(a) | 6,977 | | 7,081 | |
Standby letters of credit(c) | 252,292 | | 277,969 | |
| | | | | | | | |
($ in Thousands) | June 30, 2021 | December 31, 2020 |
Commitments to extend credit, excluding commitments to originate residential mortgage loans held for sale(a)(b) | $ | 10,274,533 | | $ | 10,010,492 | |
Commercial letters of credit(a) | 5,779 | | 3,642 | |
Standby letters of credit(c) | 251,341 | | 278,798 | |
(a) These off-balance sheet financial instruments are exercisable at the market rate prevailing at the date the underlying transaction will be completed and, thus, are deemed to have 0
current fair value, or the fair value is based on fees currently charged to enter into similar agreements and was not material at SeptemberJune 30, 20202021 or December 31, 2019.2020.
(b) Interest rate lock commitments to originate residential mortgage loans held for sale are considered derivative instruments and are disclosed in Note 10.
(c) The Corporation has established a liability of $2 million and $3 million for Septemberboth June 30, 20202021 and December 31, 2019, respectively,2020, as an estimate of the fair value of these financial instruments.
Lending-related Commitments
As a financial services provider, the Corporation routinely enters into commitments to extend credit. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Corporation, with each customer’s creditworthiness evaluated on a case-by-case basis. The commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to these financial instruments is represented by the contractual amount of those instruments. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the customer. Since a significant portion of commitments to extend credit are subject to specific restrictive loan covenants or may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. An allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb expected lifetime losses related to unfunded commitments (including unfunded loan commitments and letters of credit). The following table presents a summary of the changes in the allowance for unfunded commitments:
| | | | | | | | | | | |
($ in Thousands) | Nine Months Ended September 30, 2020 | | Year Ended December 31, 2019 |
Allowance for Unfunded Commitments | | | |
Balance at beginning of period | $ | 21,907 | | | $ | 24,336 | |
Cumulative effect of ASU 2016-13 adoption (CECL) | 18,690 | | | N/A |
Balance at beginning of period, adjusted | 40,597 | | | 24,336 | |
Provision for unfunded commitments | 16,500 | | | (2,500) | |
Amount recorded at acquisition | 179 | | | 70 | |
Balance at end of period | $ | 57,276 | | | $ | 21,907 | |
The increase is a result of the Day 1 modified retrospective adjustment of $19 million for the adoption of ASU 2016-13. In addition, during the year, there was a $17 million increase to the allowance for unfunded commitments driven by the expected impact of the COVID-19 pandemic within the economic models used in the new expected credit loss methodology. See Note 3 and Note 7 of the notes to consolidated financial statements for additional information on the adoption of ASU 2016-13 and the allowance for unfunded commitments. | | | | | | | | |
($ in Thousands) | Six Months Ended June 30, 2021 | Year Ended December 31, 2020 |
Allowance for Unfunded Commitments | | |
Balance at beginning of period | $ | 47,776 | | $ | 21,907 | |
Cumulative effect of ASU 2016-13 adoption (CECL) | N/A | 18,690 | |
Balance at beginning of period, adjusted | 47,776 | | 40,597 | |
Provision for unfunded commitments | (2,500) | | 7,000 | |
Amount recorded at acquisition | N/A | 179 | |
Balance at end of period | $ | 45,276 | | $ | 47,776 | |
Lending-related commitments include commitments to extend credit, commitments to originate residential mortgage loans held for sale, commercial letters of credit, and standby letters of credit. Commitments to extend credit are legally binding agreements to lend to customers at predetermined interest rates, as long as there is no violation of any condition established in the contracts. Interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments areis recorded in other assets and accrued expenses and other liabilities, respectively, on the consolidated balance sheets. The Corporation’s derivative and hedging activity is further described in Note 10. Commercial and standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party, while standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.
Other Commitments
The Corporation invests in qualified affordable housing projects, federal and state historic projects, new market projects, and opportunity zone funds for the purpose of community reinvestment and obtaining tax credits and other tax benefits. Return on the Corporation's investment in these projects and funds comes in the form of the tax credits and tax losses that pass through to the Corporation, and deferral or elimination of capital gain recognition for tax purposes. The aggregate carrying value of these investments at SeptemberJune 30, 20202021 was $285$271 million, compared to $248$272 million at December 31, 2019,2020, included in tax credit and other investments on the consolidated balance sheets. The Corporation utilizes the proportional amortization method to account for investments in qualified affordable housing projects.
Under the proportional amortization method, the Corporation amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits. The Corporation recognized additional income tax expense attributable to the amortization of investments in qualified affordable housing projects of $18$16 million and $14$12 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $6$8 million and $4$6 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The Corporation's remaining investment in qualified affordable housing projects accounted for under the proportional amortization method totaled $274$269 million at SeptemberJune 30, 20202021 and $234$268 million at December 31, 2019.2020.
The Corporation’s unfunded equity contributions relating to investments in federal and state qualified affordable housing and federal and state historic projects, and new market projects are recorded in accrued expenses and other liabilities on the consolidated balance sheets. The Corporation’s remaining unfunded equity contributions totaled $147$97 million and $123$118 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
For the ninesix months ended SeptemberJune 30, 20202021 and the year ended December 31, 2019,2020, the Corporation did 0t record any impairment related to qualified affordable housing investments.
The Corporation has principal investment commitments to provide capital-based financing to private and public companies through either direct investmentsinvestment in specific companies or through investment funds and partnerships. The timing of future cash requirements to fund such principal investment commitments is generally dependent on the investment cycle, whereby privately held companies are funded by private equity investors and ultimately sold, merged, or taken public through an initial offering, which can vary based on overall market conditions, as well as the nature and type of industry in which the companies operate. The Corporation also invests in loan pools that support CRA loans. The timing of future cash requirements to fund these pools is dependent upon loan demand, which can vary over time. The aggregate carrying value of these investments was $28$23 million and $26$25 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, included in tax credit and other investments on the consolidated balance sheets.
Legal Proceedings
The Corporation is party to various pending and threatened claims and legal proceedings arising in the normal course of business activities, some of which involve claims for substantial amounts. Although there can be no assurance as to the ultimate outcomes, the Corporation believes it has meritorious defenses to the claims asserted against it in its currently outstanding matters and intends to continue to defend itself vigorously with respect to such legal proceedings. The Corporation will consider settlement of cases when, in management’s judgment, it is in the best interests of the Corporation and its shareholders.
On at least a quarterly basis, the Corporation assesses its liabilities and contingencies in connection with all pending or threatened claims and litigation, utilizing the most recent information available. On a matter by matter basis, an accrual for loss is established for those matters which the Corporation believes it is probable that a loss may be incurred and that the amount of such loss can be reasonably estimated. Once established, each accrual is adjusted as appropriate to reflect any subsequent developments. Accordingly, management’s estimate will change from time to time, and actual losses may be more or less than the current estimate. For matters where a loss is not probable, or the amount of the loss cannot be estimated, no accrual is established.
Resolution of legal claims is inherently unpredictable, and in many legal proceedings various factors exacerbate this inherent unpredictability, including where the damages sought are unsubstantiated or indeterminate, it is unclear whether a case brought as a class action will be allowed to proceed on that basis, discovery is not complete, the proceeding is not yet in its final stages, the matters present legal uncertainties, there are significant facts in dispute, there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants), or there is a wide range of potential results.
A lawsuit, Evans et al v. Associated Banc-Corp et al, was filed in the United States District Court for the Eastern District of Wisconsin - Green Bay Division on January 13, 2021 by one current and one former participant in the Associated Banc-Corp 401(k) and Employee Stock Ownership Plan (the “Plan”) as representatives of a putative class. The plaintiffs alleged that Associated Banc-Corp, the Associated Banc-Corp Plan Administrative Committee, and current and past members of such committee during the relevant time period (the “Defendants”) breached their fiduciary duties with respect to the Plan in violation of Employee Retirement Income Security Act of 1974, as amended, by applying an imprudent and inappropriate preference for products associated with Associated Banc-Corp within the Plan, and that the Defendants failed to monitor or control the recordkeeping expenses paid to Associated Trust Company, N.A. On March 18, 2021, the Defendants filed a motion to dismiss. On April 8, 2021, the plaintiffs filed an amended complaint which dropped the record keeping claim, added Associated Trust Company N.A. and Kellogg Asset Management, LLC as defendants, and alleged various breaches of fiduciary duty related to the selection and monitoring of, and the fees charged by, proprietary collective investment trusts. The plaintiffs, in part, seek an accounting and disgorgement of certain profits, as well as certain equitable restitution and equitable monetary relief. The Corporation doesintends to vigorously defend against this lawsuit. It is not believe it is presently subjectpossible for management to any legal proceedingsassess the resolution
probability of a material adverse effect on our business, financial condition, operating resultsoutcome or cash flows.reasonably estimate the amount of any potential loss at this time with respect to this lawsuit.
Regulatory Matters
A variety of consumer products, including mortgage and deposit products, and certain fees and charges related to such products, have come under increased regulatory scrutiny. It is possible that regulatory authorities could bring enforcement actions, including civil money penalties, or take other actions against the Corporation and the Bank in regard to these consumer products. The Bank could also determine of its own accord, or be required by regulators, to refund or otherwise make remediation payments to customers in connection with these products. It is not possible at this time for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss related to such matters.
Mortgage Repurchase Reserve
The Corporation sells residential mortgage loans to investors in the normal course of business. Residential mortgage loans sold to others are predominantly conventional residential first lien mortgages originated under the Corporation's usual underwriting procedures, and are most often sold on a nonrecourse basis, primarily to the GSEs. The Corporation’s agreements to sell residential mortgage loans in the normal course of business usually require certain representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability. Subsequent to being sold, if a material underwriting deficiency or documentation defect is discovered, the Corporation may be obligated to repurchase the loan or reimburse the GSEs for losses incurred (collectively, “make whole requests”). The make whole requests and any related risk of loss under the representations and warranties are largely driven by borrower performance.
As a result of make whole requests, the Corporation has repurchased loans with aggregate principal balances of $7$4 million and $2$10 million for the ninesix months ended SeptemberJune 30, 20202021 and the year ended December 31, 2019,2020, respectively. There were noapproximately $114,000 of loss reimbursement and settlement claims paid for the ninesix months ended SeptemberJune 30, 20202021 and there were no such claims were negligible for
the year ended December 31, 2019.2020. Make whole requests during 20192020 and the first ninesix months of 20202021 generally arose from loans sold during the period of January 1, 2012 to December 31, 2019.2020. Since January 1, 2012, loans sold totaled $14.0$15.3 billion at the time of sale, and consisted primarily of loans sold to GSEs. As of SeptemberJune 30, 2020,2021, approximately $7.2$6.4 billion of these sold loans remain outstanding.
The balance in the mortgage repurchase reserve at the balance sheet date reflects the estimated amount of potential loss the Corporation could incur from repurchasing a loan, as well as loss reimbursements, indemnifications, and other settlement resolutions. The mortgage repurchase reserve, included in accrued expenses and other liabilities on the consolidated balance sheets, was $1 million as of June 30, 2021 and $2 million as of September 30, 2020 and approximately $795,000 as of December 31, 2019.
2020.
The Corporation may also sell residential mortgage loans with limited recourse (limited in that the recourse period ends prior to the loan’s maturity, usually after certain time and / or loan paydown criteria have been met), whereby repurchase could be required if the loan had defined delinquency issues during the limited recourse periods. At SeptemberJune 30, 20202021 and December 31, 2019,2020, there were approximately $47$24 million and $39$36 million, respectively, of residential mortgage loans sold with such recourse risk. There have been limited instances and immaterial historical losses on repurchases for recourse under the limited recourse criteria.
The Corporation has a subordinate position to the FHLB in the credit risk on residential mortgage loans it sold to the FHLB in exchange for a monthly credit enhancement fee. The Corporation has not sold loans to the FHLB with such credit risk retention since February 2005. At SeptemberJune 30, 20202021 and December 31, 2019,2020, there were $36$29 million and $45$33 million, respectively, of such residential mortgage loans with credit risk recourse, upon which there have been negligible historical losses to the Corporation.
Note 13 Fair Value Measurements
Fair value represents the estimated price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (i.e., an exit price concept).
The valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis are described in the Fair Value Measurements note in the Corporation’s 20192020 Annual Report on Form 10-K. There has been one significant change to the methodologies for assets and liabilities measured at fair value on a nonrecurring basis:
Individually Evaluated Loans: The Corporation individually evaluates loans when a commercial loan relationship is in nonaccrual status or when a commercial and consumer loan relationship has its terms restructured in a TDR or when a loan meets the Corporation's definition of a probable TDR. Prior to January 1, 2020, management considered a loan impaired when it was probable that the Corporation would be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. See Note 7 for additional information regarding the Corporation’s individually evaluated loans.
The table below presents the Corporation’s financial instruments measured at fair value on a recurring basis as of SeptemberJune 30, 20202021 and December 31, 2019,2020, aggregated by the level in the fair value hierarchy within which those measurements fall:
| | | | | | | | | | | |
($ in Thousands) | Fair Value Hierarchy | September 30, 2020 | December 31, 2019 |
Assets | | | |
Investment securities available for sale | | | |
U.S. Treasury securities | Level 1 | $ | 26,650 | | $ | 0 | |
Agency securities | Level 2 | 25,033 | | 0 | |
Obligations of state and political subdivisions (municipal securities) | Level 2 | 474,695 | | 546,160 | |
Residential mortgage-related securities | | | |
FNMA / FHLMC | Level 2 | 1,276,463 | | 132,660 | |
GNMA | Level 2 | 407,313 | | 985,139 | |
| | | |
Commercial mortgage-related securities | | | |
FNMA / FHLMC | Level 2 | 21,877 | | 21,728 | |
GNMA | Level 2 | 688,378 | | 1,310,207 | |
Asset backed securities | | | |
FFELP | Level 2 | 325,843 | | 263,693 | |
SBA | Level 2 | 9,111 | | 0 | |
Other debt securities | Level 2 | 2,997 | | 3,000 | |
| | | |
Total investment securities available for sale | Level 1 | $ | 26,650 | | $ | 0 | |
Total investment securities available for sale | Level 2 | 3,231,711 | | 3,262,586 | |
| | | |
Equity securities with readily determinable fair values | Level 1 | 1,646 | | 1,646 | |
Residential loans held for sale | Level 2 | 130,139 | | 136,280 | |
Interest rate-related instruments(a) | Level 2 | 225,912 | | 77,024 | |
Foreign currency exchange forwards(a) | Level 2 | 4,710 | | 4,226 | |
| | | |
Commodity contracts(a) | Level 2 | 25,935 | | 20,528 | |
| | | |
| | | |
Interest rate lock commitments to originate residential mortgage loans held for sale | Level 3 | 7,888 | | 2,527 | |
Liabilities | | | |
Interest rate-related instruments(a) | Level 2 | $ | 28,960 | | $ | 13,073 | |
Foreign currency exchange forwards(a) | Level 2 | 4,563 | | 4,048 | |
Commodity contracts(a) | Level 2 | 24,476 | | 19,624 | |
| | | |
| | | |
Forward commitments to sell residential mortgage loans | Level 3 | 0 | | 710 | |
| | | | | | | | | | | |
($ in Thousands) | Fair Value Hierarchy | June 30, 2021 | December 31, 2020 |
Assets | | | |
Investment securities AFS | | | |
U.S. Treasury securities | Level 1 | $ | 124,533 | | $ | 26,531 | |
Agency securities | Level 2 | 14,991 | | 25,038 | |
Obligations of state and political subdivisions (municipal securities) | Level 2 | 420,609 | | 450,662 | |
Residential mortgage-related securities | | | |
FNMA / FHLMC | Level 2 | 2,057,909 | | 1,461,241 | |
GNMA | Level 2 | 93,967 | | 235,537 | |
| | | |
Commercial mortgage-related securities | | | |
FNMA / FHLMC | Level 2 | 95,708 | | 22,904 | |
GNMA | Level 2 | 289,593 | | 524,756 | |
Asset backed securities | | | |
FFELP | Level 2 | 215,464 | | 327,189 | |
SBA | Level 2 | 7,573 | | 8,584 | |
Other debt securities | Level 2 | 3,000 | | 3,000 | |
| | | |
Total investment securities AFS | Level 1 | $ | 124,533 | | $ | 26,531 | |
Total investment securities AFS | Level 2 | 3,198,813 | | 3,058,910 | |
| | | |
Equity securities with readily determinable fair values | Level 1 | 3,187 | | 1,661 | |
Residential loans held for sale | Level 2 | 160,547 | | 129,158 | |
Interest rate-related instruments(a) | Level 2 | 125,879 | | 192,518 | |
Foreign currency exchange forwards(a) | Level 2 | 3,747 | | 4,909 | |
| | | |
Commodity contracts(a) | Level 2 | 9,593 | | 12,486 | |
| | | |
| | | |
Interest rate lock commitments to originate residential mortgage loans held for sale | Level 3 | 6,543 | | 9,624 | |
| | | |
Liabilities | | | |
Interest rate-related instruments(a) | Level 2 | $ | 23,115 | | $ | 25,680 | |
Foreign currency exchange forwards(a) | Level 2 | 3,556 | | 4,836 | |
Commodity contracts(a) | Level 2 | 9,393 | | 11,155 | |
| | | |
| | | |
Forward commitments to sell residential mortgage loans | Level 3 | 430 | | 2,046 | |
(a) Figures are presented gross before netting. See Note 10 and Note 11 for information relating to the impact of offsetting derivative assets and liabilities and cash collateral with the
same counterparty where there is a legally enforceable master netting agreement in place.
The table below presents a rollforward of the consolidated balance sheets amounts for the ninesix months ended SeptemberJune 30, 20202021 and the year ended December 31, 2019,2020, for the Corporation's mortgage derivatives measured on a recurring basis and classified within Level 3 of the fair value hierarchy:
| | | | | | | | | | | |
($ in Thousands) | Interest rate lock commitments to originate residential mortgage loans held for sale | Forward commitments to sell residential mortgage loans | Total |
Balance December 31, 2018 | $ | 2,208 | | $ | 2,072 | | $ | 140 | |
New production | 24,164 | | (2,367) | | 26,531 | |
Closed loans / settlements | (29,375) | | (5,968) | | (23,407) | |
Other | 5,530 | | 6,973 | | (1,443) | |
Mortgage derivative gain (loss) | 319 | | (1,362) | | 1,681 | |
| | | |
Balance December 31, 2019 | $ | 2,527 | | $ | 710 | | $ | 1,817 | |
New production | $ | 59,550 | | $ | (1,790) | | $ | 61,340 | |
Closed loans / settlements | (60,000) | | (14,169) | | (45,831) | |
Other | 5,703 | | 15,140 | | (9,437) | |
Mortgage derivative gain (loss) | 5,253 | | (819) | | 6,072 | |
| | | |
Balance September 30, 2020 | $ | 7,780 | | $ | (108) | | $ | 7,888 | |
| | | | | | | | | | | |
($ in Thousands) | Interest rate lock commitments to originate residential mortgage loans held for sale | Forward commitments to sell residential mortgage loans | Total |
Balance December 31, 2019 | $ | 2,527 | | $ | 710 | | $ | 1,817 | |
New production | 72,659 | | (3,505) | | 76,164 | |
Closed loans / settlements | (76,001) | | (12,587) | | (63,414) | |
Other | 10,439 | | 17,427 | | (6,988) | |
Mortgage derivative gain (loss) | 7,097 | | 1,335 | | 5,762 | |
| | | |
Balance December 31, 2020 | $ | 9,624 | | $ | 2,046 | | $ | 7,579 | |
New production | $ | 32,014 | | $ | (1,970) | | $ | 33,984 | |
Closed loans / settlements | (30,061) | | 3,118 | | (33,179) | |
Other | (5,034) | | (2,763) | | (2,271) | |
Mortgage derivative gain (loss) | (3,081) | | (1,615) | | (1,465) | |
| | | |
Balance June 30, 2021 | $ | 6,543 | | $ | 430 | | $ | 6,113 | |
The closing ratio on interest rate lock commitments to originate residential mortgage loans held for sale is a Level 3 measurement, and was 88% at SeptemberJune 30, 2020.
The following table presents the carrying value of equity securities without readily determinable fair values still held as of SeptemberJune 30, 20202021 that are measured under the measurement alternative and the related adjustments recorded during the periods
presented for those securities with observable price changes. These securities are included in the nonrecurring fair value tables when applicable price changes are observable. Also shown are the cumulative upward and downward adjustments for the Corporation's equity securities without readily determinable fair values as of SeptemberJune 30, 2020:
2021: | | | | | |
($ in Thousands) | |
Equity securities without readily determinable fair values | |
Carrying value as of December 31, 20192020 | $ | 13,444 | |
Carrying value changes | 0 | |
Additions | 546 | |
Sales | (33) | |
Carrying value as of SeptemberJune 30, 20202021 | $ | 13,44413,958 | |
| |
Cumulative upward carrying value changes between January 1, 2018 and SeptemberJune 30, 20202021 | $ | 13,444 | |
Cumulative downward carrying value changes/impairment between January 1, 2018 and SeptemberJune 30, 20202021 | $ | 0 | |
The table below presents the Corporation’s assets measured at fair value on a nonrecurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall:
| | | | | | | | | | | | | | | | | | | | |
| | | | Consolidated Statements of Income Category of Adjustment Recognized in Income | | Adjustment Recognized on the Consolidated Statements of Income |
($ in Thousands) | Fair Value Hierarchy | | Fair Value |
September 30, 2020 | | | | | | |
Assets | | | | |
| | | | | | |
Individually evaluated loans(a) | Level 3 | | $ | 117,451 | | Provision for credit losses | | $ | (96,856) | |
OREO(b) | Level 2 | | 10,953 | | Other noninterest expense | | (7,339) | |
Mortgage servicing rights | Level 3 | | 45,303 | | Mortgage banking, net | | (18,481) | |
| | | | | | |
| | | | | | |
December 31, 2019 | | | | | | |
Assets | | | | | | |
| | | | | | |
| | | | | | |
Impaired loans(c) | Level 3 | | $ | 45,792 | | Provision for credit losses(d) | | $ | (66,172) | |
OREO(b) | Level 2 | | 3,565 | | Other noninterest expense | | (1,860) | |
Mortgage servicing rights | Level 3 | | 72,532 | | Mortgage banking, net | | (63) | |
Equity securities | Level 3 | | 13,444 | | Investment securities gains (losses), net | | 13,444 | |
| | | | | | | | | | | | | | |
| | | Consolidated Statements of Income Category of Adjustment Recognized in Income | |
($ in Thousands) | Fair Value Hierarchy | Fair Value | Adjustment Recognized on the Consolidated Statements of Income(c) |
June 30, 2021 | | | | |
Assets | | | |
| | | | |
Individually evaluated loans(a) | Level 3 | $ | 81,668 | | Provision for credit losses | $ | (3,230) | |
OREO(b) | Level 2 | 14,197 | | Other noninterest expense / provision for credit losses(d) | 4,567 | |
Mortgage servicing rights | Level 3 | 48,378 | | Mortgage banking, net | 10,239 | |
| | | | |
| | | | |
December 31, 2020 | | | | |
Assets | | | | |
| | | | |
| | | | |
Individually evaluated loans(a) | Level 3 | $ | 138,752 | | Provision for credit losses | $ | 97,519 | |
OREO(b) | Level 2 | 6,125 | | Other noninterest expense | 3,747 | |
Mortgage servicing rights | Level 3 | 41,990 | | Mortgage banking, net | (17,704) | |
| | | | |
(a) Includes probable TDRs which are individually analyzed, net of the related allowance for loancredit losses.
(b) If the fair value of the collateral exceeds the carrying amount of the asset, no charge off or adjustment is necessary, the asset is not considered to be carried at fair value, and is therefore not included in the table.
(c) Represents individually evaluated impaired loans, netIncludes the full year impact on the consolidated statements of income
(d) When a property's value is written down at the related allowance for loan losses.
(d) Representstime it is transferred to OREO, the charge off is booked to the provision for credit losses on individually evaluated impaired loans.
losses. When a property is already in OREO and subsequently written down, the charge off is booked to other noninterest expense.
Certain nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis include the fair value analysis in the goodwill impairment test, and intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment.
The Corporation's significant Level 3 measurements which employ unobservable inputs that are readily quantifiable pertain to MSRs and individually evaluated loans.
The table below presents information about these inputs and further discussion is found above:
| | | | | | | | | | | | | | | | | | | | |
September 30, 2020 | Valuation Technique | Significant Unobservable Input | Range of Inputs | Weighted Average Input Applied |
Mortgage servicing rights | Discounted cash flow | Discount rate | 9% | - | 14% | 9% |
Mortgage servicing rights | Discounted cash flow | Constant prepayment rate | 14% | - | 46% | 20% |
Individually evaluated loans | Appraisals / Discounted cash flow | Collateral / Discount factor | 0% | - | 42% | 37% |
| | | | | | | | | | | | | | | | | | | | |
June 30, 2021 | Valuation Technique | Significant Unobservable Input | Range of Inputs | Weighted Average Input Applied |
Mortgage servicing rights | Discounted cash flow | Discount rate | 9% | - | 14% | 9% |
Mortgage servicing rights | Discounted cash flow | Constant prepayment rate | 9% | - | 43% | 16% |
Individually evaluated loans | Appraisals / Discounted cash flow | Collateral / Discount factor | 34% | - | 53% | 38% |
Fair Value of Financial Instruments
The Corporation is required to disclose estimated fair values for its financial instruments.
Fair value estimates are set forth below for the Corporation’s financial instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
($ in Thousands) | Fair Value Hierarchy Level | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
|
Financial assets | | | | | | | | | |
Cash and due from banks | Level 1 | | $ | 401,151 | | | $ | 401,151 | | | $ | 373,380 | | | $ | 373,380 | |
Interest-bearing deposits in other financial institutions | Level 1 | | 712,416 | | | 712,416 | | | 207,624 | | | 207,624 | |
Federal funds sold and securities purchased under agreements to resell | Level 1 | | 95 | | | 95 | | | 7,740 | | | 7,740 | |
Investment securities held to maturity, net | Level 1 | | 999 | | | 1,030 | | | 999 | | | 1,018 | |
Investment securities held to maturity, net | Level 2 | | 1,989,870 | | | 2,123,351 | | | 2,204,084 | | | 2,275,447 | |
Investment securities available for sale | Level 1 | | 26,650 | | | 26,650 | | | 0 | | | 0 | |
Investment securities available for sale | Level 2 | | 3,231,711 | | | 3,231,711 | | | 3,262,586 | | | 3,262,586 | |
| | | | | | | | | |
Equity securities with readily determinable fair values | Level 1 | | 1,646 | | | 1,646 | | | 1,646 | | | 1,646 | |
Equity securities without readily determinable fair values | Level 3 | | 13,444 | | | 13,444 | | | 13,444 | | | 13,444 | |
FHLB and Federal Reserve Bank stocks | Level 2 | | 168,280 | | | 168,280 | | | 227,347 | | | 227,347 | |
Residential loans held for sale | Level 2 | | 130,139 | | | 130,139 | | | 136,280 | | | 136,280 | |
Commercial loans held for sale | Level 2 | | 19,360 | | | 19,360 | | | 15,000 | | | 15,000 | |
Loans, net | Level 3 | | 24,619,041 | | | 24,532,881 | | | 22,620,068 | | | 22,399,621 | |
Bank and corporate owned life insurance | Level 2 | | 679,257 | | | 679,257 | | | 671,948 | | | 671,948 | |
| | | | | | | | | |
Derivatives (other assets)(a) | Level 2 | | 256,557 | | | 256,557 | | | 101,778 | | | 101,778 | |
Interest rate lock commitments to originate residential mortgage loans held for sale (other assets) | Level 3 | | 7,888 | | | 7,888 | | | 2,527 | | | 2,527 | |
Financial liabilities | | | | | | | | | |
Noninterest-bearing demand, savings, interest-bearing demand, and money market accounts | Level 3 | | $ | 24,685,695 | | | $ | 24,685,695 | | | $ | 21,156,261 | | | $ | 21,156,261 | |
Brokered CDs and other time deposits(b) | Level 2 | | 2,026,852 | | | 2,039,995 | | | 2,622,803 | | | 2,622,803 | |
Short-term funding(c) | Level 2 | | 206,316 | | | 206,316 | | | 465,113 | | | 465,113 | |
Long-term funding (excluding PPPLF) | Level 2 | | 549,201 | | | 589,717 | | | 549,343 | | | 572,873 | |
PPPLF | Level 2 | | 1,022,217 | | | 1,022,399 | | | 0 | | | 0 | |
FHLB advances | Level 2 | | 1,706,763 | | | 1,851,567 | | | 3,180,967 | | | 3,207,793 | |
Standby letters of credit(d) | Level 2 | | 2,489 | | | 2,489 | | | 2,710 | | | 2,710 | |
| | | | | | | | | |
Derivatives (accrued expenses and other liabilities)(a) | Level 2 | | 57,999 | | | 57,999 | | | 36,745 | | | 36,745 | |
Forward commitments to sell residential mortgage loans (accrued expenses and other liabilities) | Level 3 | | 0 | | | 0 | | | 710 | | | 710 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | June 30, 2021 | December 31, 2020 |
($ in Thousands) | Fair Value Hierarchy Level | Carrying Amount | Fair Value | Carrying Amount | Fair Value |
|
Financial assets | | | | | |
Cash and due from banks | Level 1 | $ | 406,994 | | $ | 406,994 | | $ | 416,154 | | $ | 416,154 | |
Interest-bearing deposits in other financial institutions | Level 1 | 1,340,385 | | 1,340,385 | | 298,759 | | 298,759 | |
Federal funds sold and securities purchased under agreements to resell | Level 1 | 25,000 | | 25,000 | | 1,135 | | 1,135 | |
Investment securities AFS | Level 1 | 124,533 | | 124,533 | | 26,531 | | 26,531 | |
Investment securities AFS | Level 2 | 3,198,813 | | 3,198,813 | | 3,058,910 | | 3,058,910 | |
Investment securities HTM, net | Level 1 | 1,000 | | 1,013 | | 999 | | 1,024 | |
Investment securities HTM, net | Level 2 | 1,798,835 | | 1,929,470 | | 1,877,939 | | 2,027,852 | |
| | | | | |
Equity securities with readily determinable fair values | Level 1 | 3,187 | | 3,187 | | 1,661 | | 1,661 | |
Equity securities without readily determinable fair values | Level 3 | 13,958 | | 13,958 | | 13,444 | | 13,444 | |
FHLB and Federal Reserve Bank stocks | Level 2 | 168,281 | | 168,281 | | 168,280 | | 168,280 | |
Residential loans held for sale | Level 2 | 160,547 | | 160,547 | | 129,158 | | 129,158 | |
| | | | | |
Loans, net | Level 3 | 23,628,725 | | 23,601,959 | | 24,068,022 | | 24,012,738 | |
Bank and corporate owned life insurance | Level 2 | 682,709 | | 682,709 | | 679,647 | | 679,647 | |
| | | | | |
Derivatives (other assets)(a) | Level 2 | 139,219 | | 139,219 | | 209,913 | | 209,913 | |
Interest rate lock commitments to originate residential mortgage loans held for sale (other assets) | Level 3 | 6,543 | | 6,543 | | 9,624 | | 9,624 | |
| | | | | |
Financial liabilities | | | | | |
Noninterest-bearing demand, savings, interest-bearing demand, and money market accounts | Level 3 | $ | 25,791,904 | | $ | 25,791,904 | | $ | 24,725,451 | | $ | 24,725,451 | |
Brokered CDs and other time deposits(b) | Level 2 | 1,472,395 | | 1,475,846 | | 1,757,030 | | 1,766,200 | |
Short-term funding | Level 2 | 226,205 | | 226,200 | | 252,317 | | 252,303 | |
FHLB advances | Level 2 | 1,619,826 | | 1,693,728 | | 1,632,723 | | 1,760,727 | |
Other long-term funding | Level 2 | 549,024 | | 570,836 | | 549,465 | | 578,233 | |
| | | | | |
Standby letters of credit(c) | Level 2 | 2,549 | | 2,549 | | 2,731 | | 2,731 | |
| | | | | |
Derivatives (accrued expenses and other liabilities)(a) | Level 2 | 36,065 | | 36,065 | | 41,671 | | 41,671 | |
Forward commitments to sell residential mortgage loans (accrued expenses and other liabilities) | Level 3 | 430 | | 430 | | 2,046 | | 2,046 | |
| | | | | |
(a) Figures are presented gross before netting. See Note 10 and Note 11 for information relating to the impact of offsetting derivative assets and liabilities and cash collateral with the
same counterparty where there is a legally enforceable master netting agreement in place.
(b) When the estimated fair value is less than the carrying value, the carrying value is reported as the fair value.
(c) The carrying amount is a reasonable estimate of fair value for existing short-term funding.
(d) The commitment on standby letters of credit was $252$251 million at SeptemberJune 30, 20202021 and $278$279 million at December 31, 2019.2020. See Note 12 for additional information on the standby
letters of credit and for information on the fair value of lending-related commitments.
Note 14 Retirement Plans
The Corporation has a noncontributory defined benefit retirement account plan, the RAP, covering substantially all employees who meet participation requirements. The benefits are based primarily on years of service and the employee’s compensation paid. Employees of acquired entities generally participate in the RAP after consummation of the business combinations. Any retirement plans of acquired entities are typically merged into the RAP after completion of the mergers, and credit is usually given to employees for years of service at the acquired institution for vesting and eligibility purposes.
The Corporation also provides legacy healthcare access to a limited group of retired employees from a previous acquisition in the Postretirement Plan. There are no other active retiree healthcare plans.
The Huntington branch acquisition closed on June 14, 2019, and the employees gained as a result of the transaction became eligible to participate in the RAP on the same date, with their vesting service credit based on their prior hours of service with Huntington. See Note 2 for additional information on the Huntington branch acquisition.
The First Staunton acquisition closed on February 14, 2020, and the employees who met the required criteria as a result of the transaction became eligible to participate in the RAP on February 15, 2020, with their vesting service credit based on their prior hours of service with First Staunton. See Note 2 for additional information on the First Staunton acquisition.
The components of net periodic pension cost and net periodic benefit cost for the RAP and Postretirement Plan for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 were as follows:
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, | |
($ in Thousands) | 2020 | | 2019 | 2020 | | 2019 | |
Components of Net Periodic Benefit Cost | | | | | | | |
RAP | | | | | | | |
Service cost | $ | 1,853 | | | $ | 1,598 | | $ | 6,183 | | | $ | 5,448 | | |
Interest cost | 2,124 | | | 2,489 | | 6,139 | | | 7,314 | | |
Expected return on plan assets | (6,386) | | | (6,099) | | (19,196) | | | (18,249) | | |
Amortization of prior service cost | (18) | | | (18) | | (55) | | | (55) | | |
Amortization of actuarial loss (gain) | 1,313 | | | 230 | | 2,923 | | | 360 | | |
Total net periodic pension cost | $ | (1,114) | | | $ | (1,800) | | $ | (4,006) | | | $ | (5,183) | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Postretirement Plan | | | | | | | |
Interest cost | $ | 20 | | | $ | 26 | | $ | 59 | | | $ | 78 | | |
Amortization of prior service cost | (19) | | | (19) | | (56) | | | (56) | | |
Amortization of actuarial loss (gain) | 0 | | | (1) | | 0 | | | (3) | | |
Total net periodic benefit cost | $ | 1 | | | $ | 6 | | $ | 2 | | | $ | 19 | | |
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
Components of Net Periodic Benefit Cost | | | | |
RAP | | | | |
Service cost | $ | 2,075 | | $ | 2,165 | | $ | 4,151 | | $ | 4,330 | |
Interest cost | 1,623 | | 2,008 | | 3,245 | | 4,015 | |
Expected return on plan assets | (6,430) | | (6,405) | | (12,861) | | (12,810) | |
Amortization of prior service cost | (18) | | (19) | | (37) | | (38) | |
Amortization of actuarial loss (gain) | 1,050 | | 803 | | 2,100 | | 1,610 | |
Total net periodic pension cost | $ | (1,701) | | $ | (1,449) | | $ | (3,402) | | $ | (2,893) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Postretirement Plan | | | | |
Interest cost | $ | 13 | | $ | 20 | | $ | 26 | | $ | 39 | |
Amortization of prior service cost | (19) | | (19) | | (38) | | (38) | |
| | | | |
Total net periodic benefit cost | $ | (6) | | $ | 1 | | $ | (12) | | $ | 2 | |
The components of net periodic pension cost and net periodic benefit cost, other than the service cost component, are included in the line item other of noninterest expense on the consolidated statements of income. The service cost components are included in personnel on the consolidated statements of income.
The Corporation’s funding policy is to pay at least the minimum amount required by federal law and regulations, with consideration given to the maximum funding amounts allowed. The Corporation regularly reviews the funding of its RAP. There were 0 contributions during the ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.
Note 15 Segment Reporting
The Corporation utilizes a risk-based internal profitability measurement system to provide strategic business unit reporting. The profitability measurement system is based on internal management methodologies designed to produce consistent results and reflect the underlying economics of the units. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer, and the distribution of those products and services are similar. The 3 reportable segments are Corporate and Commercial Specialty; Community, Consumer, and Business; and Risk Management and Shared Services. The financial information of the Corporation’s segments has been compiled utilizing the accounting policies described in the Corporation’s 20192020 Annual Report on Form 10-K and Note 3 in this Quarterly Report on Form 10-Q, with certain exceptions. The more significant of these exceptions are described herein.
The reportable segment results are presented based on the Corporation's internal management accounting process. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to U.S. GAAP. As a result, reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in previously reported segment financial data. Additionally, the information presented is not indicative of how the segments would perform if they operated as independent entities.
To determine financial performance of each segment, the Corporation allocates FTP assignments, the provision for credit losses, certain noninterest expenses, income taxes, and equity to each segment. Allocation methodologies are subject to periodic adjustment as the internal management accounting system is revised, the interest rate environment evolves, and business or product lines within the segments change. Also, because the development and application of these methodologies is a dynamic process, the financial results presented may be periodically reviewed.
The Corporation allocates net interest income using an internal FTP methodology that charges users of funds (assets) and credits providers of funds (liabilities, primarily deposits) based on the maturity, prepayment and / or repricingre-pricing characteristics of the assets and liabilities. The net effect of this allocation is offset in the Risk Management and Shared Services segment to
ensure consolidated totals reflect the Corporation's net interest income. The net FTP allocation is reflected as net intersegment interest income (expense) in the accompanying tables.
A provision for credit provisionlosses is allocated to segments based on the expected long-term annual net charge off rates attributable to the credit risk of loans managed by the segment during the period. In contrast, the level of the consolidated provision for credit losses is determined based on an allowanceACLL model using the methodologies described in Note 3 in this Quarterlythe Corporation’s 2020 Annual Report on
Form 10-Q.10-K. The net effect of the credit provision is recorded in Risk Management and Shared Services. Indirect expenses incurred by certain centralized support areas are allocated to segments based on actual usage (for example, volume measurements) and other criteria. Certain types of administrative expense and bank-wide expense accruals (including amortization of CDIs and other intangible assets associated with acquisitions, acquisition-related costs, and asset gains on disposed business units, loss on prepayment of FHLB advances, and income tax benefits as a result of tax planning strategies)units) are generally not allocated to segments. Income taxes are allocated to segments based on the Corporation’s estimated effective tax rate, with certain segments adjusted for any tax-exempt income or non-deductible expenses. Equity is allocated to the segments based on regulatory capital requirements and in proportion to an assessment of the inherent risks associated with the business of the segment (including interest, credit and operating risk).
A brief description of each business segment is presented below. A more in-depth discussion of these segments can be found in the Segment Reporting footnotenote in the Corporation’s 20192020 Annual Report on Form 10-K.
The Corporate and Commercial Specialty segment serves a wide range of customers including larger businesses, developers, not-for-profits, municipalities, and financial institutions by providing lending and deposit solutions as well as the support to deliver, fund, and manage such banking solutions. In addition, this segment provides a variety of investment, fiduciary, and retirement planning products and services to individuals and small to mid-sized businesses. During the first quarter of 2021, the Corporation sold its wealth management subsidiary Whitnell. The Community, Consumer, and Business segment serves individuals, as well as small and mid-sized businesses, by providing lending and deposit solutions. In addition, the Corporation historically offered insurance and risk consulting services. During the second quarter of 2020, the Corporation sold ABRC. The Risk Management and Shared Services segment includes key shared operational functions and also includes residual revenue and expenses, representing the difference between actual amounts incurred and the amounts allocated to operating segments, including interest rate risk residuals (FTP mismatches) and credit risk and provision residuals (long-term credit charge mismatches). All First Staunton and Huntington branch acquisition related costs,
Information about the gain on sale of ABRC, the loss on the prepayment of FHLB advances, and the income tax benefit from tax planning strategies are included within the Risk Management and Shared Services segment.Corporation’s segments is presented below: | | | | | | | | | | | | | | |
| Corporate and Commercial Specialty |
| Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
Net interest income | $ | 93,366 | | $ | 98,824 | | $ | 186,527 | | $ | 206,577 | |
Net intersegment interest income (expense) | 6,394 | | 6,912 | | 13,078 | | (3,814) | |
Segment net interest income | 99,760 | | 105,736 | | 199,605 | | 202,764 | |
Noninterest income(a) | 38,588 | | 35,115 | | 81,619 | | 73,848 | |
Total revenue | 138,348 | | 140,851 | | 281,224 | | 276,612 | |
Provision for credit losses | 16,429 | | 13,713 | | 33,938 | | 25,885 | |
Noninterest expense | 56,404 | | 53,959 | | 114,129 | | 108,264 | |
Income (loss) before income taxes | 65,514 | | 73,179 | | 133,157 | | 142,464 | |
Income tax expense (benefit) | 11,947 | | 13,724 | | 24,596 | | 26,664 | |
Net income | $ | 53,568 | | $ | 59,456 | | $ | 108,560 | | $ | 115,800 | |
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| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Allocated goodwill | | | $ | 525,836 | | $ | 530,144 | |
During the first quarter of 2020, the Corporation reassigned goodwill of approximately $4 million to the Corporate and Commercial Specialty segment from the Community, Consumer and Business segment as a result of a reorganization of the investment and fiduciary businesses. The goodwill reassigned was attributable to the Corporation's acquisition of Whitnell & Co. in 2017. Also effective in the first quarter of 2020, the marketing business unit, formerly part of the Risk Management and Shared Services segment, was reorganized under the Community, Consumer and Business segment.
During the third quarter of 2020, the retirement plan services business unit, formerly part of the Community, Consumer, and Business segment, was reorganized under the Corporate and Commercial Specialty segment. In addition, the oil and gas business unit, formerly part of the Corporate and Commercial Specialty segment, was reorganized under the Risk Management and Shared Services segment as the Corporation's Credit team manages our exposure to the Corporation's higher-leveraged borrowers.
| | | | | | | | | | | | | | |
| Community, Consumer, and Business |
| Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
Net interest income | $ | 70,150 | | $ | 73,120 | | $ | 138,425 | | $ | 148,047 | |
Net intersegment interest income (expense) | 13,922 | | 14,317 | | 26,797 | | 32,982 | |
Segment net interest income | 84,073 | | 87,437 | | 165,223 | | 181,029 | |
Noninterest income | 31,660 | | 54,133 | | 77,788 | | 107,483 | |
Total revenue | 115,732 | | 141,570 | | 243,011 | | 288,512 | |
Provision for credit losses | 4,565 | | 5,429 | | 9,664 | | 10,537 | |
Noninterest expense | 98,260 | | 119,715 | | 195,607 | | 233,491 | |
Income (loss) before income taxes | 12,907 | | 16,426 | | 37,740 | | 44,483 | |
Income tax expense (benefit) | 2,710 | | 3,450 | | 7,925 | | 9,342 | |
Net income | $ | 10,196 | | $ | 12,977 | | $ | 29,815 | | $ | 35,142 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Allocated goodwill | | | $ | 579,156 | | $ | 577,758 | |
| |
| |
Information about the Corporation’s segments is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate and Commercial Specialty |
| Three Months Ended September 30, | | | Nine Months Ended September 30, |
($ in Thousands) | 2020 | | 2019 | | | 2020 | | 2019 |
Net interest income | $ | 92,033 | | | $ | 111,060 | | | | $ | 298,611 | | | $ | 339,222 | |
Net intersegment interest income (expense) | 6,937 | | | (12,041) | | | | 3,123 | | | (40,863) | |
Segment net interest income | 98,970 | | | 99,020 | | | | 301,734 | | | 298,359 | |
Noninterest income | 37,405 | | | 33,671 | | | | 111,254 | | | 101,135 | |
Total revenue | 136,376 | | | 132,691 | | | | 412,987 | | | 399,495 | |
Credit provision | 15,572 | | | 12,248 | | | | 41,456 | | | 37,417 | |
Noninterest expense | 52,144 | | | 57,946 | | | | 159,471 | | | 174,570 | |
Income (loss) before income taxes | 68,660 | | | 62,497 | | | | 212,060 | | | 187,508 | |
Income tax expense (benefit) | 12,600 | | | 11,249 | | | | 39,461 | | | 35,472 | |
Net income | $ | 56,060 | | | $ | 51,248 | | | | $ | 172,599 | | | $ | 152,036 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Allocated goodwill | | | | | | $ | 530,144 | | | $ | 530,144 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Community, Consumer, and Business |
| Three Months Ended September 30, | | | Nine Months Ended September 30, |
($ in Thousands) | 2020 | | 2019 | | | 2020 | | 2019 |
Net interest income | $ | 73,644 | | | $ | 73,777 | | | | $ | 221,691 | | | $ | 230,476 | |
Net intersegment interest income (expense) | 9,231 | | | 25,437 | | | | 42,213 | | | 68,930 | |
Segment net interest income | 82,875 | | | 99,214 | | | | 263,904 | | | 299,406 | |
Noninterest income | 32,958 | | | 59,934 | | | | 140,442 | | | 171,283 | |
Total revenue | 115,833 | | | 159,148 | | | | 404,345 | | | 470,688 | |
Credit provision | 5,758 | | | 4,631 | | | | 16,296 | | | 13,942 | |
Noninterest expense | 102,100 | | | 118,241 | | | | 335,591 | | | 345,611 | |
Income (loss) before income taxes | 7,975 | | | 36,277 | | | | 52,458 | | | 111,135 | |
Income tax expense (benefit) | 1,675 | | | 7,618 | | | | 11,016 | | | 23,338 | |
Net income | $ | 6,300 | | | $ | 28,658 | | | | $ | 41,442 | | | $ | 87,797 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Allocated goodwill | | | | | | $ | 577,758 | | | $ | 646,086 | |
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| |
| | | | | | | | | | | | | | |
| Risk Management and Shared Services |
| Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
Net interest income | $ | 15,999 | | $ | 17,929 | | $ | 30,464 | | $ | 38,190 | |
Net intersegment interest income (expense) | (20,316) | | (21,229) | | (39,875) | | (29,169) | |
Segment net interest income | (4,318) | | (3,301) | | (9,412) | | 9,021 | |
Noninterest income(b) | 3,195 | | 165,242 | | 9,379 | | 171,465 | |
Total revenue | (1,123) | | 161,941 | | (32) | | 180,486 | |
Provision for credit losses | (55,999) | | 41,858 | | (101,610) | | 77,579 | |
Noninterest expense | 19,810 | | 9,733 | | 40,086 | | 33,843 | |
Income (loss) before income taxes | 35,065 | | 110,350 | | 61,492 | | 69,065 | |
Income tax expense (benefit) | 7,823 | | 34,065 | | 14,560 | | 25,451 | |
Net income | $ | 27,242 | | $ | 76,285 | | $ | 46,932 | | $ | 43,613 | |
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Allocated goodwill | | | $ | 0 | | $ | 0 | |
| | | Risk Management and Shared Services | | Consolidated Total |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | ($ in Thousands) | 2020 | | 2019 | | 2020 | | 2019 | ($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
Net interest income | Net interest income | $ | 16,472 | | | $ | 21,528 | | | $ | 54,662 | | | $ | 65,834 | | Net interest income | $ | 179,515 | | $ | 189,872 | | $ | 355,416 | | $ | 392,814 | |
Net intersegment interest income (expense) | Net intersegment interest income (expense) | (16,167) | | | (13,396) | | | (45,336) | | | (28,067) | | Net intersegment interest income (expense) | 0 | | 0 | | 0 | | 0 | |
Segment net interest income | Segment net interest income | 305 | | | 8,131 | | | 9,326 | | | 37,767 | | Segment net interest income | 179,515 | | 189,872 | | 355,416 | | 392,814 | |
Noninterest income(a)(b) | Noninterest income(a)(b) | 5,182 | | | 7,245 | | | 176,646 | | | 15,472 | | Noninterest income(a)(b) | 73,443 | | 254,490 | | 168,786 | | 352,796 | |
Total revenue | Total revenue | 5,487 | | | 15,376 | | | 185,973 | | | 53,239 | | Total revenue | 252,957 | | 444,362 | | 524,202 | | 745,610 | |
Credit provision | 21,679 | | | (14,879) | | | 99,257 | | | (35,359) | | |
Provision for credit losses | | Provision for credit losses | (35,004) | | 61,000 | | (58,009) | | 114,001 | |
Noninterest expense(b) | Noninterest expense(b) | 73,343 | | | 24,743 | | | 108,122 | | | 70,198 | | Noninterest expense(b) | 174,475 | | 183,407 | | 349,821 | | 375,598 | |
Income (loss) before income taxes | Income (loss) before income taxes | (89,535) | | | 5,512 | | | (21,407) | | | 18,400 | | Income (loss) before income taxes | 113,487 | | 199,955 | | 232,389 | | 256,012 | |
Income tax expense (benefit)(c) | Income tax expense (benefit)(c) | (72,389) | | | 2,080 | | | (47,135) | | | 3,546 | | Income tax expense (benefit)(c) | 22,480 | | 51,238 | | 47,082 | | 61,457 | |
Net income | Net income | $ | (17,146) | | | $ | 3,432 | | | $ | 25,728 | | | $ | 14,854 | | Net income | $ | 91,007 | | $ | 148,718 | | $ | 185,307 | | $ | 194,555 | |
| Allocated goodwill | Allocated goodwill | | $ | 0 | | | $ | 0 | | Allocated goodwill | | $ | 1,104,992 | | $ | 1,107,902 | |
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| Consolidated Total |
| Three Months Ended September 30, | | | Nine Months Ended September 30, |
($ in Thousands) | 2020 | | 2019 | | | 2020 | | 2019 |
Net interest income | $ | 182,150 | | | $ | 206,365 | | | | $ | 574,964 | | | $ | 635,532 | |
Net intersegment interest income (expense) | 0 | | | 0 | | | | 0 | | | 0 | |
Segment net interest income | 182,150 | | | 206,365 | | | | 574,964 | | | 635,532 | |
Noninterest income(a) | 75,545 | | | 100,850 | | | | 428,342 | | | 287,890 | |
Total revenue | 257,695 | | | 307,216 | | | | 1,003,305 | | | 923,422 | |
Credit provision | 43,009 | | | 2,000 | | | | 157,009 | | | 16,000 | |
Noninterest expense(b) | 227,587 | | | 200,930 | | | | 603,184 | | | 590,380 | |
Income (loss) before income taxes | (12,900) | | | 104,286 | | | | 243,112 | | | 317,042 | |
Income tax expense (benefit)c) | (58,114) | | | 20,947 | | | | 3,342 | | | 62,356 | |
Net income | $ | 45,214 | | | $ | 83,339 | | | | $ | 239,769 | | | $ | 254,686 | |
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Allocated goodwill | | | | | | $ | 1,107,902 | | | $ | 1,176,230 | |
(a) For the ninesix months ended SeptemberJune 30, 2021, the Corporation recognized a $2 million pre-tax gain on sale of Whitnell.
(b) For the three and six months ended June 30, 2020, the Corporation recognized a $163 million asset gain related to the sale of ABRC.
(b) For the three months ended September 30, 2020 and 2019, the Risk Management and Shared Services segment included approximately $218 thousand and $2 million respectively, of acquisition related noninterest expense. For the nine months ended September 30, 2020 and 2019, the Risk Management and Shared Services segment included approximately $2 million and $6 million respectively, of acquisition related noninterest expense. For the three and nine months ended September 30, 2020, the Risk Management and Shared Services segment also incurred a $45 million loss on the prepayment of FHLB advances.
(c) The Corporation has recognized $63 million in tax benefits for the nine months ended September 30, 2020, and $49 million for the three months ended September 30, 2020, primarily driven by tax planning strategies which allowed for the recognition of built in capital losses and tax basis step-up yielding this tax benefit.
Note 16 Accumulated Other Comprehensive Income (Loss)
The following tables summarize the components of accumulated other comprehensive income (loss) at SeptemberJune 30, 20202021 and 2019,2020, including changes during the preceding three and ninesix month periods as well as any reclassifications out of accumulated other comprehensive income (loss): | | | | | | | | | | | |
($ in Thousands) | Investment Securities AFS | Defined Benefit Pension and Postretirement Obligations | Accumulated Other Comprehensive Income (Loss) |
Balance December 31, 2020 | $ | 41,325 | | $ | (28,707) | | $ | 12,618 | |
Other comprehensive income (loss) before reclassifications | (16,002) | | 0 | | (16,002) | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | |
Investment securities losses (gains), net | 16 | | 0 | | 16 | |
Personnel expense | 0 | | (74) | | (74) | |
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Other expense | 0 | | 2,100 | | 2,100 | |
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Interest income | 1,163 | | 0 | | 1,163 | |
Income tax (expense) benefit | 3,574 | | (506) | | 3,068 | |
Net other comprehensive income (loss) during period | (11,249) | | 1,519 | | (9,729) | |
Balance June 30, 2021 | $ | 30,076 | | $ | (27,187) | | $ | 2,889 | |
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Balance December 31, 2019 | $ | 3,989 | | $ | (37,172) | | $ | (33,183) | |
Other comprehensive income (loss) before reclassifications | 48,060 | | 0 | | 48,060 | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | |
Investment securities losses (gains), net | (9,214) | | 0 | | (9,214) | |
Personnel expense | 0 | | (75) | | (75) | |
Other expense | 0 | | 1,610 | | 1,610 | |
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Interest income | 1,332 | | 0 | | 1,332 | |
Income tax (expense) benefit | (10,066) | | (385) | | (10,450) | |
Net other comprehensive income (loss) during period | 30,112 | | 1,150 | | 31,263 | |
Balance June 30, 2020 | $ | 34,101 | | $ | (36,021) | | $ | (1,920) | |
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($ in Thousands) | Investment Securities Available For Sale | | Defined Benefit Pension and Postretirement Obligations | | Accumulated Other Comprehensive Income (Loss) |
Balance December 31, 2019 | $ | 3,989 | | | $ | (37,172) | | | $ | (33,183) | |
Other comprehensive income (loss) before reclassifications | 53,900 | | | 0 | | | 53,900 | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | | | |
Investment securities losses (gains), net | (9,222) | | | 0 | | | (9,222) | |
Personnel expense | 0 | | | (111) | | | (111) | |
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Other expense | 0 | | | 2,923 | | | 2,923 | |
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Interest income | 2,628 | | | 0 | | | 2,628 | |
Income tax (expense) benefit | (11,852) | | | (1,088) | | | (12,939) | |
Net other comprehensive income (loss) during period | 35,454 | | | 1,724 | | | 37,178 | |
Balance September 30, 2020 | $ | 39,443 | | | $ | (35,448) | | | $ | 3,995 | |
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Balance December 31, 2018 | $ | (75,643) | | | $ | (49,330) | | | $ | (124,972) | |
Other comprehensive income (loss) before reclassifications | 123,139 | | | 0 | | | 123,139 | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | | | |
Investment securities losses (gains), net | (5,931) | | | 0 | | | (5,931) | |
Personnel expense | 0 | | | (111) | | | (111) | |
Other expense | 0 | | | 357 | | | 357 | |
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Interest income | 279 | | | 0 | | | 279 | |
Income tax (expense) benefit | (29,651) | | | (62) | | | (29,713) | |
Net other comprehensive income (loss) during period | 87,836 | | | 184 | | | 88,020 | |
Balance September 30, 2019 | $ | 12,194 | | | $ | (49,146) | | | $ | (36,953) | |
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| ($ in Thousands) | ($ in Thousands) | Investments Securities Available For Sale | | Defined Benefit Pension and Post Retirement Obligations | | Accumulated Other Comprehensive Income (Loss) | ($ in Thousands) | Investments Securities AFS | Defined Benefit Pension and Post Retirement Obligations | Accumulated Other Comprehensive Income (Loss) |
Balance June 30, 2020 | $ | 34,101 | | | $ | (36,021) | | | $ | (1,920) | | |
Balance March 31, 2021 | | Balance March 31, 2021 | $ | 23,754 | | $ | (27,947) | | $ | (4,193) | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | 5,840 | | | 0 | | | 5,840 | | Other comprehensive income (loss) before reclassifications | 7,978 | | 0 | | 7,978 | |
Amounts reclassified from accumulated other comprehensive income (loss) | Amounts reclassified from accumulated other comprehensive income (loss) | | Amounts reclassified from accumulated other comprehensive income (loss) | |
Investment securities losses (gains), net | Investment securities losses (gains), net | (7) | | | 0 | | | (7) | | Investment securities losses (gains), net | (24) | | 0 | | (24) | |
Personnel expense | Personnel expense | 0 | | | (36) | | | (36) | | Personnel expense | 0 | | (37) | | (37) | |
Other expense | Other expense | 0 | | | 1,313 | | | 1,313 | | Other expense | 0 | | 1,050 | | 1,050 | |
| Interest income | Interest income | 1,296 | | | 0 | | | 1,296 | | Interest income | 645 | | 0 | | 645 | |
Income tax (expense) benefit | Income tax (expense) benefit | (1,786) | | | (703) | | | (2,489) | | Income tax (expense) benefit | (2,277) | | (253) | | (2,530) | |
Net other comprehensive income (loss) during period | Net other comprehensive income (loss) during period | 5,342 | | | 573 | | | 5,916 | | Net other comprehensive income (loss) during period | 6,322 | | 760 | | 7,082 | |
Balance September 30, 2020 | $ | 39,443 | | | $ | (35,448) | | | $ | 3,995 | | |
Balance June 30, 2021 | | Balance June 30, 2021 | $ | 30,076 | | $ | (27,187) | | $ | 2,889 | |
| Balance June 30, 2019 | $ | (9,773) | | | $ | (49,290) | | | $ | (59,063) | | |
Balance March 31, 2020 | | Balance March 31, 2020 | $ | 19,620 | | $ | (36,595) | | $ | (16,974) | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | 33,173 | | | 0 | | | 33,173 | | Other comprehensive income (loss) before reclassifications | 21,641 | | 0 | | 21,641 | |
Amounts reclassified from accumulated other comprehensive income (loss) | Amounts reclassified from accumulated other comprehensive income (loss) | | Amounts reclassified from accumulated other comprehensive income (loss) | |
Investment securities loss (gain), net | (3,788) | | | 0 | | | (3,788) | | |
Investment securities losses (gains), net | | Investment securities losses (gains), net | (3,096) | | 0 | | (3,096) | |
Personnel expense | Personnel expense | 0 | | | (36) | | | (36) | | Personnel expense | 0 | | (38) | | (38) | |
Other expense | Other expense | 0 | | | 229 | | | 229 | | Other expense | 0 | | 803 | | 803 | |
| Interest income | Interest income | (8) | | | 0 | | | (8) | | Interest income | 776 | | 0 | | 776 | |
Income tax (expense) benefit | Income tax (expense) benefit | (7,410) | | | (49) | | | (7,458) | | Income tax (expense) benefit | (4,841) | | (192) | | (5,032) | |
Net other comprehensive income (loss) during period | Net other comprehensive income (loss) during period | 21,967 | | | 144 | | | 22,111 | | Net other comprehensive income (loss) during period | 14,481 | | 573 | | 15,054 | |
Balance September 30, 2019 | $ | 12,194 | | | $ | (49,146) | | | $ | (36,953) | | |
Balance June 30, 2020 | | Balance June 30, 2020 | $ | 34,101 | | $ | (36,021) | | $ | (1,920) | |
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Note 17 Revenue from Contracts with Customers
Revenue from contracts with customers is recognized when obligations under the terms of a contract with the Corporation's customer are satisfied. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We do not have any material significant payment terms as payment is received at or shortly after the satisfaction of the performance obligation.
The Corporation's disaggregated revenue by major source is presented below: | | | | | | | | | | | | | | | | | |
| Corporate and Commercial Specialty | | | |
| Three Months Ended June 30, | Six Months Ended June 30, | | | |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 | | | |
Wealth management fees | $ | 22,706 | | $ | 20,238 | | $ | 45,120 | | $ | 40,345 | | | | |
Service charges and deposit account fees | 4,454 | | 4,307 | | 9,359 | | 7,859 | | | | |
Card-based fees(a) | 391 | | 228 | | 826 | | 743 | | | | |
Insurance commissions and fees | 38 | | 47 | | 61 | | 123 | | | | |
Other revenue | 1,162 | | 294 | | 1,848 | | 1,081 | | | | |
Noninterest income (in-scope of Topic 606) | $ | 28,751 | | $ | 25,114 | | $ | 57,214 | | $ | 50,150 | | | | |
Noninterest income (out-of-scope of Topic 606)(b) | 9,837 | | 10,002 | | 24,404 | | 23,698 | | | | |
Total noninterest income | $ | 38,588 | | $ | 35,115 | | $ | 81,619 | | $ | 73,848 | | | | |
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| Community, Consumer, and Business | | | |
| Three Months Ended June 30, | Six Months Ended June 30, | | | |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 | | | |
Wealth management fees | $ | 0 | | $ | 678 | | $ | 0 | | $ | 1,387 | | | | |
Service charges and deposit account fees | 11,088 | | 7,173 | | 21,023 | | 18,838 | | | | |
Card-based fees(a) | 10,613 | | 8,647 | | 19,937 | | 17,693 | | | | |
Insurance commissions and fees | 46 | | 22,381 | | 96 | | 44,910 | | | | |
Other revenue | 2,047 | | 2,861 | | 5,514 | | 5,147 | | | | |
Noninterest income (in-scope of Topic 606) | $ | 23,793 | | $ | 41,739 | | $ | 46,570 | | $ | 87,974 | | | | |
Noninterest income (out-of-scope of Topic 606) | 7,866 | | 12,394 | | 31,218 | | 19,509 | | | | |
Total noninterest income | $ | 31,660 | | $ | 54,133 | | $ | 77,788 | | $ | 107,483 | | | | |
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| Corporate and Commercial Specialty | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, | | | |
($ in Thousands) | 2020 | 2019 | | 2020 | 2019 | | | |
Wealth management fees(a) | $ | 21,152 | | $ | 20,313 | | | $ | 61,496 | | $ | 59,828 | | | | |
Service charges and deposit account fees | 4,458 | | 3,307 | | | 12,316 | | 10,113 | | | | |
Card-based fees(b) | 474 | | 451 | | | 1,216 | | 1,341 | | | | |
Insurance commissions and fees | 57 | | 109 | | | 179 | | 283 | | | | |
Other revenue | 1,400 | | 690 | | | 2,481 | | 1,743 | | | | |
Noninterest Income (in-scope of Topic 606) | $ | 27,541 | | $ | 24,870 | | | $ | 77,688 | | $ | 73,308 | | | | |
Noninterest Income (out-of-scope of Topic 606) | 9,864 | | 8,801 | | | 33,566 | | 27,827 | | | | |
Total Noninterest Income | $ | 37,405 | | $ | 33,671 | | | $ | 111,254 | | $ | 101,135 | | | | |
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| Community, Consumer, and Business | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, | | | |
($ in Thousands) | 2020 | 2019 | | 2020 | 2019 | | | |
Wealth management fees(a) | $ | 0 | | $ | 792 | | | $ | 1,387 | | $ | 2,148 | | | | |
Service charges and deposit account fees | 9,816 | | 13,243 | | | 28,653 | | 36,945 | | | | |
Card-based fees(b) | 9,699 | | 10,004 | | | 27,392 | | 28,490 | | | | |
Insurance commissions and fees | 55 | | 20,842 | | | 44,965 | | 69,110 | | | | |
Other revenue | 2,168 | | 2,441 | | | 7,315 | | 7,057 | | | | |
Noninterest Income (in-scope of Topic 606) | $ | 21,738 | | $ | 47,322 | | | $ | 109,712 | | $ | 143,750 | | | | |
Noninterest Income (out-of-scope of Topic 606) | 11,220 | | 12,612 | | | 30,730 | | 27,533 | | | | |
Total Noninterest Income | $ | 32,958 | | $ | 59,934 | | | $ | 140,442 | | $ | 171,283 | | | | |
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| Risk Management and Shared Services |
| Three Months Ended September 30, | Nine Months Ended September 30, |
($ in Thousands) | 2020 | 2019 | | 2020 | 2019 |
Wealth management fees(a) | $ | 0 | | $ | (90) | | | $ | 0 | | $ | (90) | |
Service charges and deposit account fees | 10 | | 12 | | | 19 | | 44 | |
Card-based fees(b) | 34 | | 45 | | | 127 | | 143 | |
Insurance commissions and fees | 2 | | 3 | | | 8 | | 10 | |
Other revenue | (82) | | 252 | | | (33) | | 690 | |
Noninterest Income (in-scope of Topic 606) | $ | (36) | | $ | 222 | | | $ | 121 | | $ | 797 | |
Noninterest Income (out-of-scope of Topic 606)(c) | 5,218 | | 7,023 | | | 176,525 | | 14,675 | |
Total Noninterest Income | $ | 5,182 | | $ | 7,245 | | | $ | 176,646 | | $ | 15,472 | |
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| Consolidated Total |
| Three Months Ended September 30, | Nine Months Ended September 30, |
($ in Thousands) | 2020 | 2019 | | 2020 | 2019 |
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Wealth management fees(a) | $ | 21,152 | | $ | 21,015 | | | $ | 62,884 | | $ | 61,885 | |
Service charges and deposit account fees | 14,283 | | 16,561 | | | 40,989 | | 47,102 | |
Card-based fees(b) | 10,207 | | 10,501 | | | 28,735 | | 29,973 | |
Insurance commissions and fees | 114 | | 20,954 | | | 45,153 | | 69,403 | |
Other revenue | 3,487 | | 3,383 | | | 9,763 | | 9,490 | |
Noninterest Income (in-scope of Topic 606) | $ | 49,243 | | $ | 72,414 | | | $ | 187,521 | | $ | 217,853 | |
Noninterest Income (out-of-scope of Topic 606)(c) | 26,302 | | 28,436 | | | 240,821 | | 70,037 | |
Total Noninterest Income | $ | 75,545 | | $ | 100,850 | | | $ | 428,342 | | $ | 287,890 | |
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| Risk Management and Shared Services |
| Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
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Service charges and deposit account fees | $ | 7 | | $ | 4 | | $ | 22 | | $ | 10 | |
Card-based fees(a) | 5 | | 47 | | 9 | | 94 | |
Insurance commissions and fees | 2 | | 3 | | 4 | | 6 | |
Other revenue | 963 | | 26 | | 1,464 | | 49 | |
Noninterest income (in-scope of Topic 606) | $ | 978 | | $ | 80 | | $ | 1,500 | | $ | 158 | |
Noninterest income (out-of-scope of Topic 606)(c) | 2,217 | | 165,161 | | 7,879 | | 171,307 | |
Total noninterest income | $ | 3,195 | | $ | 165,242 | | $ | 9,379 | | $ | 171,465 | |
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| Consolidated Total |
| Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
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Wealth management fees | $ | 22,706 | | $ | 20,916 | | $ | 45,120 | | $ | 41,732 | |
Service charges and deposit account fees | 15,549 | | 11,484 | | 30,404 | | 26,706 | |
Card-based fees(a) | 11,009 | | 8,922 | | 20,773 | | 18,529 | |
Insurance commissions and fees | 86 | | 22,430 | | 161 | | 45,038 | |
Other revenue | 4,173 | | 3,181 | | 8,826 | | 6,277 | |
Noninterest income (in-scope of Topic 606) | $ | 53,522 | | $ | 66,933 | | $ | 105,284 | | $ | 138,282 | |
Noninterest income (out-of-scope of Topic 606)(b)(c) | 19,921 | | 187,557 | | 63,502 | | 214,515 | |
Total noninterest income | $ | 73,443 | | $ | 254,490 | | $ | 168,786 | | $ | 352,796 | |
(a) Includes trust, asset management, brokerage, and annuity fees.
(b) Certain card-based fees are out-of-scope of Topic 606.
(c) The nine(b) For the six months ended SeptemberJune 30, 2021, the Corporation recognized a $2 million pre-tax gain on sale of Whitnell.
(c) Both the three and six months ended June 30, 2020 includesinclude a gain of $163$163 million from the sale of ABRC.
Below is a listing of performance obligations for the Corporation's main revenue streams:
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Revenue Stream | | Noninterest income in-scope of Topic 606 |
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Service charges and deposit account fees | | Service charges and deposit account fees consist of monthly service fees (i.e. business analyzed fees and consumer service charges) and other deposit account related fees. The Corporation's performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based, and therefore, the Corporation's performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges and deposit account fees areis primarily received immediately or in the following month through a direct charge to customers’ accounts. |
Card-based fees(a) | | Card-based fees are primarily comprised of debit and credit card income, ATM fees, and merchant services income. Debit and credit card income is primarily comprised of interchange fees earned whenever the Corporation's debit and credit cards are processed through card payment networks. ATM and merchant fees are largely transactional based, and therefore, the Corporation's performance obligation is satisfied, and related revenue recognized, at a point in time. Payment is typically received immediately or in the following month. |
Trust and asset management fees(b) | | Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Corporation's performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to the customers’ accounts. The Corporation's performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. |
Brokerage commissions and advisory fees(b) | | Brokerage commissions and advisory fees primarily consist of investment advisory, brokerage, retirement services, and annuities. The Corporation's performance obligation for investment advisory services and retirement services is generally satisfied, and the related revenue recognized, over the period in which the services are provided. The performance obligation for annuities is satisfied upon sale of the annuity, and therefore, the related revenue is primarily recognized at the time of sale. PaymentsPayment for these services are typically received immediately or in advance of the service. |
(a) Certain card-based fees are out-of-scope of Topic 606.
(b) Trust and asset management fees and brokerage commissions and advisory fees are included in wealth management fees.
Arrangements with Multiple Performance Obligations
The Corporation's contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the expected cost plus margin.
Practical Expedients
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Using the practical expedient, for contracts with a term of one year or less, the Corporation recognizes incremental costs of obtaining those contracts as an expense when incurred.
Note 18 Leases
The Corporation has operating leases for retail and corporate offices, land, and equipment. The Corporation also has a finance leaseslease for land.
These operating leases have original terms of 1 year or longer with remaining maturities up to 4241 years, some of which include options to extend the lease term. An analysis of the lease options has been completed and any purchase options or optional periods that the Corporation is reasonably likely to extend have been included in the capitalization.
The discount rate used to capitalize the operating leases is the Corporation's FHLB borrowing rate on the date of lease commencement. When determining the rate to discount specific lease obligations, the repayment period and term are considered.
Operating and finance lease costs and cash flows resulting from these leases are presented below:
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | 2021 | 2020 |
Operating lease costs | $ | 2,243 | | $ | 2,631 | | $ | 4,483 | | $ | 5,254 | |
Finance lease costs | 19 | | 31 | | 58 | | 67 | |
Operating lease cash flows | 2,777 | | 2,700 | | 5,740 | | 5,432 | |
Finance lease cash flows | 40 | | 21 | | 80 | | 42 | |
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
($ in Thousands) | 2020 | 2019 | 2020 | 2019 |
Operating Lease Costs(a) | $ | 3,970 | | $ | 2,708 | | $ | 9,224 | | $ | 8,502 | |
Finance Lease Costs | 39 | | 0 | | 115 | | 0 | |
Operating Lease Cash Flows | 2,871 | | 2,968 | | 8,303 | | 8,538 | |
Finance Lease Cash Flows | 40 | | 0 | | 82 | | 0 | |
(a) During the three and nine months ended September 30, 2020, the Corporation recognized approximately $1.5 million of operating lease costs associated with breaking leases on consolidating branches.
The lease classifications on the consolidated balance sheets were as follows:
| | | | | | | | | | | |
($ in Thousands) | Consolidated Balance Sheets Category | June 30, 2021 | December 31, 2020 |
Operating lease right-of-use asset | Premises and equipment | $ | 31,609 | | $ | 31,994 | |
Finance lease right-of-use asset | Other assets | 76 | | 962 | |
Operating lease liability | Accrued expenses and other liabilities | 35,370 | | 36,425 | |
Finance lease liability | Other long-term funding | 93 | | 1,128 | |
| | | | | | | | | | | |
($ in Thousands) | Consolidated Balance Sheets Category | September 30, 2020 | December 31, 2019 |
Amount |
Operating lease right-of-use asset | Premises and equipment | $ | 35,963 | | $ | 45,381 | |
Finance lease right-of-use asset | Other assets | 1,069 | | 2,188 | |
Operating lease liability | Accrued expenses and other liabilities | 40,833 | | 49,292 | |
Finance lease liability | Other long-term funding | 1,165 | | 2,209 | |
The lease payment obligations, weighted-average remaining lease term, and weighted-average discount rate were as follows: | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | December 31, 2020 |
($ in Thousands) | Lease payments | Weighted-average lease term (in years) | Weighted-average discount rate | Lease payments | Weighted-average lease term (in years) | Weighted-average discount rate |
Operating leases | | | | | | |
Equipment | $ | 384 | | 1.99 | 0.45 | % | $ | 386 | | 2.49 | 0.46 | % |
Retail and corporate offices | 32,942 | | 5.67 | 3.19 | % | 34,036 | | 6.04 | 3.33 | % |
Land | 5,949 | | 8.66 | 3.10 | % | 6,385 | | 8.99 | 3.09 | % |
Total operating leases | $ | 39,275 | | 6.07 | 3.15 | % | $ | 40,806 | | 6.45 | 3.27 | % |
Finance leases | | | | | | |
Land | $ | 94 | | 1.17 | 1.07 | % | $ | 1,145 | | 1.65 | 1.05 | % |
Total finance leases | $ | 94 | | 1.17 | 1.07 | % | $ | 1,145 | | 1.65 | 1.05 | % |
| | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | December 31, 2019 |
($ in Thousands) | Lease payments | Weighted-average lease term (in years) | Weighted-average discount rate | Lease payments | Weighted-average lease term (in years) | Weighted-average discount rate |
Operating leases | | | | | | |
Equipment | $ | 386 | | 2.74 | 0.47 | % | $ | 46 | | 0.83 | 2.72 | % |
Retail and corporate offices | 38,593 | | 5.90 | 3.07 | % | 48,940 | | 6.49 | 3.34 | % |
Land | 6,650 | | 9.09 | 3.35 | % | 6,594 | | 9.57 | 3.21 | % |
Total operating leases | $ | 45,630 | | 6.32 | 3.28 | % | $ | 55,580 | | 6.83 | 3.32 | % |
Finance leases | | | | | | |
Land | $ | 1,185 | | 1.89 | 1.05 | % | $ | 4,827 | | 39.67 | 3.99 | % |
Total finance leases | $ | 1,185 | | 1.89 | 1.05 | % | $ | 4,827 | | 39.67 | 3.99 | % |
Contractual lease payment obligations for each of the next five years and thereafter, in addition to a reconciliation to the Corporation’s lease liability, were as follows:
| | | | | | | | | | | |
($ in Thousands) | Operating Leases | Finance Leases | Amount |
Three Months Ending December 31, 2020 | $ | 2,675 | | $ | 40 | | $ | 2,715 | |
2021 | 10,158 | | 172 | | 10,330 | |
2022 | 7,801 | | 973 | | 8,774 | |
2023 | 5,559 | | 0 | | 5,559 | |
2024 | 4,793 | | 0 | | 4,793 | |
Beyond 2024 | 14,643 | | 0 | | 14,643 | |
Total lease payments | $ | 45,630 | | $ | 1,185 | | $ | 46,815 | |
Less: interest | 4,797 | | 20 | | 4,817 | |
Present value of lease payments | $ | 40,833 | | $ | 1,165 | | $ | 41,998 | |
| | | | | | | | | | | |
($ in Thousands) | Operating Leases | Finance Leases | Total Leases |
Six Months Ending December 31, 2021 | $ | 4,921 | | $ | 42 | | $ | 4,964 | |
2022 | 7,984 | | 51 | | 8,035 | |
2023 | 6,050 | | 0 | | 6,050 | |
2024 | 5,274 | | 0 | | 5,274 | |
2025 | 4,110 | | 0 | | 4,110 | |
Beyond 2025 | 10,935 | | 0 | | 10,935 | |
Total lease payments | $ | 39,275 | | $ | 94 | | $ | 39,368 | |
Less: interest | 3,905 | | 1 | | 3,906 | |
Present value of lease payments | $ | 35,370 | | $ | 93 | | $ | 35,463 | |
As of SeptemberJune 30, 20202021 and December 31, 2019,2020, additional operating leases, primarily retail and corporate offices, that havehad not yet commenced total $18totaled $16 million and $16$17 million, respectively. These operatingThe leases that had not yet commenced as of June 30, 2021, will commence between October 2020July 2021 and October 2023 with lease terms of 1 yearsyear to 6 years.
| | | | | |
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
Special Note Regarding Forward-Looking Statements
This report contains statements that may constitute forward-looking statements within the meaning of the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, such as statements other than historical facts contained or incorporated by reference into this report. These forward-looking statements include statements with respect to the Corporation’s financial condition, results of operations, plans, objectives, future performance and business, including statements preceded by, followed by or that include the words “believes,” “expects,” or “anticipates,” references to estimates or similar expressions. Future filings by the Corporation with the SEC, and future statements other than historical facts contained in written material, press releases and oral statements issued by, or on behalf of the Corporation may also constitute forward-looking statements.
All forward-looking statements contained in this report or which may be contained in future statements made for or on behalf of the Corporation are based upon information available at the time the statement is made and the Corporation assumes no obligation to update any forward-looking statements, except as required by federal securities law. Forward-looking statements are subject to significant risks and uncertainties, and the Corporation’s actual results may differ materially from the expected results discussed in such forward-looking statements. Factors that might cause actual results to differ from the results discussed in forward-looking statements include, but are not limited to, the risk factors in Item 1A, Risk Factors, in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019,2020, in the Corporation's Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2020,2021, in Item 1A of Part 2 herein, and as may be described from time to time in the Corporation’s subsequent SEC filings.
Overview
The following discussion and analysis is presented to assist in the understanding and evaluation of the Corporation’s financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements, footnotes, and supplemental financial data appearing elsewhere in this Quarterly Report on Form 10-Q and should be read in conjunction therewith. Management continually evaluates strategic acquisition opportunities and various other strategic alternatives that could involve the sale or acquisition of branches or other assets, or the consolidation or creation of subsidiaries. Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes.
Performance Summary
•Average loans of $24.5$24.3 billion increased $1.3 billion, or 5%,$30 million compared to the first ninesix months of 2019, driven by an increase in2020. The Corporation expects 2021 commercial loan growth, excluding PPP, and CRE loans.of 2% to 4%.
•Average deposits of $25.8$27.1 billion increased $814 million,$1.9 billion, or 3%8%, from the first ninesix months of 2019,2020, driven primarily by government stimulus related inflows.
•Net interest income of $575$355 million decreased $61$37 million, or 10%, from the first ninesix months of 20192020, and net interest margin was 2.54%2.38% compared to 2.86%2.66% for the first ninesix months of 20192020. Both decreases were primarily due to a lower interest rate environment. The Corporation expects the fourth quarter 2020a full year margin of 2.45% to be approximately 2.50%2.55%.
•Provision for credit losses was $157had a benefit of $58 million, compared to provision expense of $16$114 million for the first ninesix months of 2019.2020. The Corporation expects provision to adjust with changes to risk grade, economic conditions, other indications of credit quality, and loan volume.
•Noninterest income of $428$169 million was up $140decreased $184 million, or 49%52%, from the first ninesix months of 2019,2020, primarily due to adriven by the $163 million gain on the sale of ABRC during the second quarter of 2020 partially offset by decreased insurance revenue resulting from the sale of the business.in 2020. The Corporation expects 2021 noninterest income of $315 million to see a$325 million, reflecting strong mortgage activity in the first half of 2021 and continued positive trend in fee revenue throughwealth management strength over the endcourse of 2020.the year.
•Noninterest expense of $603$350 million increased $13decreased $26 million, or 2%7%, from the first ninesix months of 2019 driven by the $45 million loss on prepayment of FHLB advances partially offset by2020, primarily due to a $32 million reductiondecrease in personnel expense.expense of $15 million, or 6%, which was primarily due to having fewer employees as a result of dispositions, and a decrease in other expense of $8 million, or 34%. The Corporation expects noninteresthas withdrawn our prior 2021 total expense of $175 million, including $3 million of restructuring costs,guidance. Total expense for 2021 will reflect growth and efficiency initiatives which are under development and expected to be announced later in the fourththird quarter of 2020 and expects full year2021. Before the impact of such initiatives, we expect total expense for 2021 expenseswould be approximately $695 million to be $685$700 million.
Table 1 Summary Results of Operations: Trends
| | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD | | | | | | | |
($ in Thousands, except per share data) | September 30, 2020 | September 30, 2019 | 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | | |
Net income | $ | 239,769 | | $ | 254,686 | | $ | 45,214 | | $ | 148,718 | | $ | 45,838 | | $ | 72,103 | | $ | 83,339 | | | |
Net income available to common equity | 226,618 | | 243,285 | | 40,007 | | 144,573 | | 42,037 | | 68,303 | | 79,539 | | | |
Earnings per common share - basic | 1.47 | | 1.49 | | 0.26 | | 0.94 | | 0.27 | | 0.43 | | 0.50 | | | |
Earnings per common share - diluted | 1.46 | | 1.48 | | 0.26 | | 0.94 | | 0.27 | | 0.43 | | 0.49 | | | |
Effective tax rate | 1.37 | % | 19.67 | % | N/M | 25.62 | % | 18.23 | % | 19.41 | % | 20.09 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD | | | | | | | |
($ in Thousands, except per share data) | June 30, 2021 | June 30, 2020 | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 2Q20 | | |
Net income | $ | 185,307 | | $ | 194,555 | | $ | 91,007 | | $ | 94,301 | | $ | 67,002 | | $ | 45,214 | | $ | 148,718 | | | |
Net income available to common equity | 175,226 | | 186,611 | | 86,131 | | 89,094 | | 61,795 | | 40,007 | | 144,573 | | | |
Earnings per common share - basic | 1.14 | | 1.21 | | 0.56 | | 0.58 | | 0.40 | | 0.26 | | 0.94 | | | |
Earnings per common share - diluted | 1.13 | | 1.20 | | 0.56 | | 0.58 | | 0.40 | | 0.26 | | 0.94 | | | |
Effective tax rate | 20.26 | % | 24.01 | % | 19.81 | % | 20.69 | % | 20.10 | % | N/M | 25.62 | % | | |
N/M = Not Meaningful
Income Statement Analysis
Net Interest Income
Table 2 Net Interest Income Analysis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | | |
| 2020 | | 2019 | |
($ in Thousands) | Average Balance | Interest Income / Expense | Average Yield / Rate | | Average Balance | Interest Income / Expense | Average Yield / Rate | | | | | |
Assets | | | | | | | | | | | | |
Earning assets | | | | | | | | | | | | |
Loans(a)(b)(c) | | | | | | | | | | | | |
Commercial PPP lending | $ | 624,305 | | $ | 11,012 | | 2.36 | % | | $ | — | | $ | — | | — | % | | | | | |
Commercial and business lending (excl PPP loans) | 8,774,616 | | 201,265 | | 3.06 | % | | 8,500,475 | | 299,621 | | 4.71 | % | | | | | |
Commercial real estate lending | 5,695,281 | | 147,909 | | 3.47 | % | | 5,135,447 | | 196,005 | | 5.10 | % | | | | | |
Total commercial | 15,094,201 | | 360,187 | | 3.19 | % | | 13,635,922 | | 495,626 | | 4.86 | % | | | | | |
Residential mortgage | 8,244,116 | | 194,521 | | 3.15 | % | | 8,360,481 | | 215,329 | | 3.43 | % | | | | | |
Retail | 1,150,916 | | 45,621 | | 5.29 | % | | 1,240,793 | | 58,517 | | 6.29 | % | | | | | |
Total loans | 24,489,234 | | 600,329 | | 3.27 | % | | 23,237,195 | | 769,472 | | 4.42 | % | | | | | |
Investment securities | | | | | | | | | | | | |
Taxable | 3,343,083 | | 50,064 | | 2.00 | % | | 4,507,586 | | 79,248 | | 2.34 | % | | | | | |
Tax-exempt(a) | 1,939,968 | | 55,026 | | 3.78 | % | | 1,902,768 | | 53,687 | | 3.76 | % | | | | | |
Other short-term investments | 1,095,555 | | 7,774 | | 0.95 | % | | 523,010 | | 13,086 | | 3.34 | % | | | | | |
Investments and other | 6,378,606 | | 112,864 | | 2.36 | % | | 6,933,364 | | 146,022 | | 2.81 | % | | | | | |
Total earning assets | 30,867,840 | | $ | 713,193 | | 3.08 | % | | 30,170,560 | | $ | 915,493 | | 4.05 | % | | | | | |
Other assets, net | 3,460,967 | | | | | 3,167,352 | | | | | | | | |
Total assets | $ | 34,328,806 | | | | | $ | 33,337,911 | | | | | | | | |
Liabilities and Stockholders' Equity | | | | | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | | |
Interest-bearing deposits | | | | | | | | | | | | |
Savings | $ | 3,198,244 | | $ | 2,610 | | 0.11 | % | | $ | 2,347,428 | | $ | 5,000 | | 0.28 | % | | | | | |
Interest-bearing demand | 5,530,482 | | 11,281 | | 0.27 | % | | 5,061,561 | | 45,284 | | 1.20 | % | | | | | |
Money market | 6,499,965 | | 14,152 | | 0.29 | % | | 7,144,999 | | 60,509 | | 1.13 | % | | | | | |
Network transaction deposits | 1,502,449 | | 5,750 | | 0.51 | % | | 2,003,179 | | 36,228 | | 2.42 | % | | | | | |
Time deposits | 2,412,985 | | 26,083 | | 1.44 | % | | 3,257,930 | | 44,388 | | 1.82 | % | | | | | |
Total interest-bearing deposits | 19,144,126 | | 59,877 | | 0.42 | % | | 19,815,097 | | 191,408 | | 1.29 | % | | | | | |
Federal funds purchased and securities sold under agreements to repurchase | 179,615 | | 454 | | 0.34 | % | | 124,428 | | 1,058 | | 1.14 | % | | | | | |
Commercial paper | 38,064 | | 35 | | 0.12 | % | | 33,610 | | 113 | | 0.45 | % | | | | | |
PPPLF | 599,368 | | 1,574 | | 0.35 | % | | — | | — | | — | % | | | | | |
Other short-term funding | 5,645 | | 11 | | 0.25 | % | | — | | — | | — | % | | | | | |
FHLB advances | 2,829,680 | | 47,471 | | 2.24 | % | | 3,172,606 | | 53,194 | | 2.24 | % | | | | | |
Long-term funding | 549,088 | | 16,780 | | 4.07 | % | | 796,165 | | 22,196 | | 3.72 | % | | | | | |
Total short and long-term funding | 4,201,461 | | 66,325 | | 2.11 | % | | 4,126,810 | | 76,560 | | 2.48 | % | | | | | |
Total interest-bearing liabilities | 23,345,586 | | $ | 126,201 | | 0.72 | % | | 23,941,907 | | $ | 267,969 | | 1.50 | % | | | | | |
Noninterest-bearing demand deposits | 6,618,058 | | | | | 5,133,573 | | | | | | | | |
Other liabilities | 457,195 | | | | | 404,941 | | | | | | | | |
Stockholders’ equity | 3,907,966 | | | | | 3,857,490 | | | | | | | | |
Total liabilities and stockholders’ equity | $ | 34,328,806 | | | | | $ | 33,337,911 | | | | | | | | |
Interest rate spread | | | 2.36 | % | | | | 2.55 | % | | | | | |
Net free funds | | | 0.18 | % | | | | 0.31 | % | | | | | |
Fully tax-equivalent net interest income and net interest margin ("NIM") | | $ | 586,992 | | 2.54 | % | | | $ | 647,525 | | 2.86 | % | | | | | |
Fully tax-equivalent adjustment | | 12,028 | | | | | 11,993 | | | | | | | |
Net interest income | | $ | 574,964 | | | | | $ | 635,532 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | |
| 2021 | | 2020 | |
($ in Thousands) | Average Balance | Interest Income / Expense | Average Yield / Rate | | Average Balance | Interest Income / Expense | Average Yield / Rate | | | | | |
Assets | | | | | | | | | | | | |
Earning assets | | | | | | | | | | | | |
Loans(a)(b)(c) | | | | | | | | | | | | |
Commercial PPP lending | $ | 753,778 | | $ | 18,949 | | 5.07 | % | | $ | 424,380 | | $ | 4,841 | | 2.29 | % | | | | | |
Commercial and business lending (excl PPP loans) | 8,487,187 | | 107,977 | | 2.56 | % | | 8,786,511 | | 144,314 | | 3.30 | % | | | | | |
Commercial real estate lending | 6,165,433 | | 88,455 | | 2.89 | % | | 5,524,915 | | 103,556 | | 3.77 | % | | | | | |
Total commercial | 15,406,399 | | 215,380 | | 2.82 | % | | 14,735,807 | | 252,711 | | 3.45 | % | | | | | |
Residential mortgage | 7,911,635 | | 110,841 | | 2.80 | % | | 8,338,054 | | 132,821 | | 3.19 | % | | | | | |
Retail | 961,940 | | 22,827 | | 4.76 | % | | 1,175,851 | | 31,841 | | 5.43 | % | | | | | |
Total loans | 24,279,974 | | 349,049 | | 2.89 | % | | 24,249,712 | | 417,372 | | 3.45 | % | | | | | |
Investment securities | | | | | | | | | | | | |
Taxable | 3,099,322 | | 15,855 | | 1.02 | % | | 3,294,669 | | 36,375 | | 2.21 | % | | | | | |
Tax-exempt(a) | 1,927,169 | | 35,945 | | 3.73 | % | | 1,948,320 | | 36,873 | | 3.79 | % | | | | | |
Other short-term investments | 1,381,370 | | 3,521 | | 0.51 | % | | 745,290 | | 5,535 | | 1.49 | % | | | | | |
Investments and other | 6,407,860 | | 55,320 | | 1.73 | % | | 5,988,278 | | 78,783 | | 2.63 | % | | | | | |
Total earning assets | 30,687,834 | | $ | 404,369 | | 2.65 | % | | 30,237,990 | | $ | 496,155 | | 3.29 | % | | | | | |
Other assets, net | 3,345,982 | | | | | 3,473,484 | | | | | | | | |
Total assets | $ | 34,033,816 | | | | | $ | 33,711,474 | | | | | | | | |
Liabilities and Stockholders' Equity | | | | | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | | |
Interest-bearing deposits | | | | | | | | | | | | |
Savings | $ | 3,966,797 | | $ | 689 | | 0.04 | % | | $ | 3,064,440 | | $ | 2,228 | | 0.15 | % | | | | | |
Interest-bearing demand | 5,796,680 | | 2,234 | | 0.08 | % | | 5,376,249 | | 10,197 | | 0.38 | % | | | | | |
Money market | 6,928,898 | | 2,082 | | 0.06 | % | | 6,517,749 | | 12,708 | | 0.39 | % | | | | | |
Network transaction deposits | 994,016 | | 591 | | 0.12 | % | | 1,489,433 | | 5,141 | | 0.69 | % | | | | | |
Time deposits | 1,583,725 | | 4,923 | | 0.63 | % | | 2,553,065 | | 19,569 | | 1.54 | % | | | | | |
Total interest-bearing deposits | 19,270,116 | | 10,519 | | 0.11 | % | | 19,000,936 | | 49,844 | | 0.53 | % | | | | | |
Federal funds purchased and securities sold under agreements to repurchase | 146,941 | | 55 | | 0.08 | % | | 199,477 | | 420 | | 0.42 | % | | | | | |
Commercial paper | 49,026 | | 13 | | 0.05 | % | | 35,904 | | 30 | | 0.17 | % | | | | | |
PPPLF | — | | — | | — | % | | 387,250 | | 676 | | 0.35 | % | | | | | |
Other short-term funding | — | | — | | — | % | | 8,498 | | 11 | | 0.25 | % | | | | | |
FHLB advances | 1,626,114 | | 19,017 | | 2.36 | % | | 3,021,433 | | 33,096 | | 2.20 | % | | | | | |
Long-term funding | 549,402 | | 11,160 | | 4.06 | % | | 549,111 | | 11,200 | | 4.08 | % | | | | | |
Total short and long-term funding | 2,371,483 | | 30,245 | | 2.56 | % | | 4,201,674 | | 45,432 | | 2.17 | % | | | | | |
Total interest-bearing liabilities | 21,641,598 | | $ | 40,764 | | 0.38 | % | | 23,202,610 | | $ | 95,276 | | 0.83 | % | | | | | |
Noninterest-bearing demand deposits | 7,869,320 | | | | | 6,216,631 | | | | | | | | |
Other liabilities | 405,519 | | | | | 448,074 | | | | | | | | |
Stockholders’ equity | 4,117,378 | | | | | 3,844,158 | | | | | | | | |
Total liabilities and stockholders’ equity | $ | 34,033,816 | | | | | $ | 33,711,474 | | | | | | | | |
Interest rate spread | | | 2.27 | % | | | | 2.46 | % | | | | | |
Net free funds | | | 0.11 | % | | | | 0.20 | % | | | | | |
Fully tax-equivalent net interest income and net interest margin ("NIM") | | $ | 363,605 | | 2.38 | % | | | $ | 400,879 | | 2.66 | % | | | | | |
Fully tax-equivalent adjustment | | 8,189 | | | | | 8,066 | | | | | | | |
Net interest income | | $ | 355,416 | | | | | $ | 392,814 | | | | | | | |
(a) The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21% and is net of the effects of certain disallowed interest deductions.(b) Nonaccrual loans and loans held for sale have been included in the average balances.
(c) Interest income includes amortization of net deferred loan origination costs and net accreted purchase loan discount.
Table 2 Net Interest Income Analysis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2020 | | June 30, 2020 | | September 30, 2019 |
($ in Thousands) | Average Balance | Interest Income / Expense | Average Yield / Rate | | Average Balance | Interest Income / Expense | Average Yield / Rate | | Average Balance | Interest Income / Expense | Average Yield / Rate |
Assets | | | | | | | | | | | |
Earning assets | | | | | | | | | | | |
Loans(a)(b)(c) | | | | | | | | | | | |
Commercial PPP lending | $ | 1,019,808 | | $ | 6,172 | | 2.41 | % | | $ | 848,761 | | $ | 4,841 | | 2.29 | % | | $ | — | | $ | — | | — | % |
Commercial and business lending (excl PPP loans) | 8,751,083 | | 56,951 | | 2.59 | % | | 9,192,910 | | 64,097 | | 2.80 | % | | 8,502,268 | | 96,327 | | 4.49 | % |
Commercial real estate lending | 6,032,308 | | 44,354 | | 2.93 | % | | 5,720,262 | | 46,057 | | 3.24 | % | | 5,157,031 | | 64,058 | | 4.92 | % |
Total commercial | 15,803,199 | | 107,476 | | 2.71 | % | | 15,761,933 | | 114,995 | | 2.93 | % | | 13,659,299 | | 160,386 | | 4.66 | % |
Residential mortgage | 8,058,283 | | 61,701 | | 3.06 | % | | 8,271,757 | | 62,860 | | 3.04 | % | | 8,337,230 | | 68,656 | | 3.29 | % |
Retail | 1,101,589 | | 13,780 | | 4.99 | % | | 1,157,116 | | 14,368 | | 4.98 | % | | 1,255,540 | | 20,066 | | 6.38 | % |
Total loans | 24,963,071 | | 182,957 | | 2.92 | % | | 25,190,806 | | 192,223 | | 3.06 | % | | 23,252,068 | | 249,108 | | 4.26 | % |
Investment securities | | | | | | | | | | | |
Taxable | 3,438,858 | | 13,689 | | 1.59 | % | | 3,129,113 | | 16,103 | | 2.06 | % | | 4,032,027 | | 23,485 | | 2.33 | % |
Tax-exempt(a) | 1,923,445 | | 18,154 | | 3.78 | % | | 1,922,392 | | 18,270 | | 3.80 | % | | 1,918,661 | | 18,114 | | 3.78 | % |
Other short-term investments | 1,788,471 | | 2,238 | | 0.50 | % | | 1,016,976 | | 2,231 | | 0.88 | % | | 619,334 | | 4,865 | | 3.12 | % |
Investments and other | 7,150,775 | | 34,081 | | 1.90 | % | | 6,068,481 | | 36,604 | | 2.41 | % | | 6,570,022 | | 46,464 | | 2.83 | % |
Total earning assets | 32,113,847 | | $ | 217,038 | | 2.70 | % | | 31,259,287 | | $ | 228,826 | | 2.94 | % | | 29,822,090 | | $ | 295,572 | | 3.94 | % |
Other assets, net | 3,436,512 | | | | | 3,586,656 | | | | | 3,331,910 | | | |
Total assets | $ | 35,550,359 | | | | | $ | 34,845,943 | | | | | $ | 33,154,000 | | | |
Liabilities and Stockholders' equity | | | | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | |
Interest-bearing deposits | | | | | | | | | | | |
Savings | $ | 3,462,942 | | $ | 382 | | 0.04 | % | | $ | 3,260,040 | | $ | 429 | | 0.05 | % | | $ | 2,618,188 | | $ | 2,164 | | 0.33 | % |
Interest-bearing demand | 5,835,597 | | 1,085 | | 0.07 | % | | 5,445,267 | | 1,442 | | 0.11 | % | | 5,452,674 | | 16,055 | | 1.17 | % |
Money market | 6,464,784 | | 1,444 | | 0.09 | % | | 6,496,841 | | 1,902 | | 0.12 | % | | 6,933,230 | | 18,839 | | 1.08 | % |
Network transaction deposits | 1,528,199 | | 609 | | 0.16 | % | | 1,544,737 | | 539 | | 0.14 | % | | 1,764,961 | | 10,147 | | 2.28 | % |
Time deposits | 2,135,870 | | 6,513 | | 1.21 | % | | 2,469,899 | | 8,866 | | 1.44 | % | | 3,107,670 | | 14,381 | | 1.84 | % |
Total interest-bearing deposits | 19,427,392 | | 10,033 | | 0.21 | % | | 19,216,785 | | 13,178 | | 0.28 | % | | 19,876,723 | | 61,585 | | 1.23 | % |
Federal funds purchased and securities sold under agreements to repurchase | 140,321 | | 34 | | 0.10 | % | | 204,548 | | 51 | | 0.10 | % | | 81,285 | | 145 | | 0.71 | % |
Commercial paper | 42,338 | | 5 | | 0.05 | % | | 37,526 | | 5 | | 0.05 | % | | 28,721 | | 30 | | 0.41 | % |
PPPLF | 1,018,994 | | 899 | | 0.35 | % | | 774,500 | | 676 | | 0.35 | % | | — | | — | | — | % |
| | | | | | | | | | | |
FHLB advances | 2,450,344 | | 14,375 | | 2.33 | % | | 2,810,867 | | 15,470 | | 2.21 | % | | 2,716,946 | | 15,896 | | 2.32 | % |
Long-term funding | 549,042 | | 5,580 | | 4.06 | % | | 548,757 | | 5,593 | | 4.08 | % | | 796,561 | | 7,398 | | 3.71 | % |
Total short and long-term funding | 4,201,039 | | 20,892 | | 1.98 | % | | 4,376,199 | | 21,795 | | 2.00 | % | | 3,623,513 | | 23,469 | | 2.58 | % |
Total interest-bearing liabilities | 23,628,431 | | $ | 30,925 | | 0.52 | % | | 23,592,983 | | $ | 34,973 | | 0.60 | % | | 23,500,235 | | $ | 85,054 | | 1.44 | % |
Noninterest-bearing demand deposits | 7,412,186 | | | | | 6,926,401 | | | | | 5,324,481 | | | |
Other liabilities | 475,310 | | | | | 480,041 | | | | | 425,810 | | | |
Stockholders’ Equity | 4,034,432 | | | | | 3,846,517 | | | | | 3,903,474 | | | |
Total liabilities and stockholders’ equity | $ | 35,550,359 | | | | | $ | 34,845,943 | | | | | $ | 33,154,000 | | | |
Interest rate spread | | | 2.18 | % | | | | 2.34 | % | | | | 2.50 | % |
Net free funds | | | 0.13 | % | | | | 0.15 | % | | | | 0.31 | % |
Fully tax-equivalent net interest income and net interest margin ("NIM") | | $ | 186,112 | | 2.31 | % | | | $ | 193,853 | | 2.49 | % | | | $ | 210,517 | | 2.81 | % |
Fully tax-equivalent adjustment | | 3,963 | | | | | 3,981 | | | | | 4,152 | | |
Net interest income | | $ | 182,150 | | | | | $ | 189,872 | | | | | $ | 206,365 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2021 | | March 31, 2021 | | June 30, 2020 |
($ in Thousands) | Average Balance | Interest Income / Expense | Average Yield / Rate | | Average Balance | Interest Income / Expense | Average Yield / Rate | | Average Balance | Interest Income / Expense | Average Yield / Rate |
Assets | | | | | | | | | | | |
Earning assets | | | | | | | | | | | |
Loans(a)(b)(c) | | | | | | | | | | | |
Commercial PPP lending | $ | 701,440 | | $ | 10,048 | | 5.75 | % | | $ | 806,699 | | $ | 8,900 | | 4.47 | % | | $ | 848,761 | | $ | 4,841 | | 2.29 | % |
Commercial and business lending (excl PPP loans) | 8,437,624 | | 53,886 | | 2.56 | % | | 8,537,301 | | 54,091 | | 2.57 | % | | 9,192,910 | | 64,097 | | 2.80 | % |
Commercial real estate lending | 6,159,728 | | 44,139 | | 2.87 | % | | 6,171,202 | | 44,315 | | 2.91 | % | | 5,720,262 | | 46,057 | | 3.24 | % |
Total commercial | 15,298,792 | | 108,073 | | 2.83 | % | | 15,515,202 | | 107,307 | | 2.80 | % | | 15,761,933 | | 114,995 | | 2.93 | % |
Residential mortgage | 7,861,139 | | 55,337 | | 2.82 | % | | 7,962,691 | | 55,504 | | 2.79 | % | | 8,271,757 | | 62,860 | | 3.04 | % |
Retail | 938,682 | | 11,197 | | 4.78 | % | | 985,456 | | 11,630 | | 4.75 | % | | 1,157,116 | | 14,368 | | 4.98 | % |
Total loans | 24,098,614 | | 174,607 | | 2.90 | % | | 24,463,349 | | 174,442 | | 2.88 | % | | 25,190,806 | | 192,223 | | 3.06 | % |
Investment securities | | | | | | | | | | | |
Taxable | 3,220,825 | | 8,840 | | 1.10 | % | | 2,976,469 | | 7,014 | | 0.94 | % | | 3,129,113 | | 16,103 | | 2.06 | % |
Tax-exempt(a) | 1,953,696 | | 18,101 | | 3.71 | % | | 1,900,346 | | 17,844 | | 3.76 | % | | 1,922,392 | | 18,270 | | 3.80 | % |
Other short-term investments | 1,766,615 | | 1,826 | | 0.41 | % | | 991,844 | | 1,694 | | 0.69 | % | | 1,016,976 | | 2,231 | | 0.88 | % |
Investments and other | 6,941,135 | | 28,767 | | 1.66 | % | | 5,868,659 | | 26,553 | | 1.81 | % | | 6,068,481 | | 36,604 | | 2.41 | % |
Total earning assets | 31,039,749 | | $ | 203,375 | | 2.62 | % | | 30,332,008 | | $ | 200,994 | | 2.67 | % | | 31,259,287 | | $ | 228,826 | | 2.94 | % |
Other assets, net | 3,339,898 | | | | | 3,352,135 | | | | | 3,586,656 | | | |
Total assets | $ | 34,379,647 | | | | | $ | 33,684,143 | | | | | $ | 34,845,943 | | | |
Liabilities and Stockholders' equity | | | | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | |
Interest-bearing deposits | | | | | | | | | | | |
Savings | $ | 4,121,553 | | $ | 357 | | 0.03 | % | | $ | 3,810,321 | | $ | 332 | | 0.04 | % | | $ | 3,260,040 | | $ | 429 | | 0.05 | % |
Interest-bearing demand | 5,879,173 | | 1,057 | | 0.07 | % | | 5,713,270 | | 1,178 | | 0.08 | % | | 5,445,267 | | 1,442 | | 0.11 | % |
Money market | 6,981,482 | | 1,023 | | 0.06 | % | | 6,875,730 | | 1,059 | | 0.06 | % | | 6,496,841 | | 1,902 | | 0.12 | % |
Network transaction deposits | 908,869 | | 264 | | 0.12 | % | | 1,080,109 | | 327 | | 0.12 | % | | 1,544,737 | | 539 | | 0.14 | % |
Time deposits | 1,509,705 | | 1,909 | | 0.51 | % | | 1,658,568 | | 3,014 | | 0.74 | % | | 2,469,899 | | 8,866 | | 1.44 | % |
Total interest-bearing deposits | 19,400,781 | | 4,609 | | 0.10 | % | | 19,137,998 | | 5,909 | | 0.13 | % | | 19,216,785 | | 13,178 | | 0.28 | % |
Federal funds purchased and securities sold under agreements to repurchase | 157,619 | | 30 | | 0.08 | % | | 136,144 | | 26 | | 0.08 | % | | 204,548 | | 51 | | 0.10 | % |
Commercial paper | 55,209 | | 7 | | 0.05 | % | | 42,774 | | 6 | | 0.05 | % | | 37,526 | | 5 | | 0.05 | % |
PPPLF | — | | — | | — | % | | — | | — | | — | % | | 774,500 | | 676 | | 0.35 | % |
| | | | | | | | | | | |
FHLB advances | 1,620,397 | | 9,524 | | 2.36 | % | | 1,631,895 | | 9,493 | | 2.36 | % | | 2,810,867 | | 15,470 | | 2.21 | % |
Long-term funding | 549,222 | | 5,575 | | 4.06 | % | | 549,585 | | 5,585 | | 4.07 | % | | 548,757 | | 5,593 | | 4.08 | % |
Total short and long-term funding | 2,382,446 | | 15,136 | | 2.55 | % | | 2,360,397 | | 15,109 | | 2.58 | % | | 4,376,199 | | 21,795 | | 2.00 | % |
Total interest-bearing liabilities | 21,783,227 | | $ | 19,745 | | 0.36 | % | | 21,498,395 | | $ | 21,018 | | 0.40 | % | | 23,592,983 | | $ | 34,973 | | 0.60 | % |
Noninterest-bearing demand deposits | 8,069,851 | | | | | 7,666,561 | | | | | 6,926,401 | | | |
Other liabilities | 395,950 | | | | | 415,195 | | | | | 480,041 | | | |
Stockholders’ Equity | 4,130,618 | | | | | 4,103,991 | | | | | 3,846,517 | | | |
Total liabilities and stockholders’ equity | $ | 34,379,647 | | | | | $ | 33,684,143 | | | | | $ | 34,845,943 | | | |
Interest rate spread | | | 2.26 | % | | | | 2.27 | % | | | | 2.34 | % |
Net free funds | | | 0.11 | % | | | | 0.12 | % | | | | 0.15 | % |
Fully tax-equivalent net interest income and net interest margin ("NIM") | | $ | 183,629 | | 2.37 | % | | | $ | 179,976 | | 2.39 | % | | | $ | 193,853 | | 2.49 | % |
Fully tax-equivalent adjustment | | 4,115 | | | | | 4,074 | | | | | 3,981 | | |
Net interest income | | $ | 179,515 | | | | | $ | 175,902 | | | | | $ | 189,872 | | |
(a) The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21% and is net of the effects of certain disallowed interest deductions.(b) Nonaccrual loans and loans held for sale have been included in the average balances.
(c) Interest income includes amortization of net deferred loan origination costs and net accreted purchase loan discount.
Notable Contributions to the Change in Net Interest Income
• Average loans of $24.5$24.3 billion increased $1.3 billion, or 5%,$30 million compared to the first ninesix months of 2019 primarily driven by PPP loan originations beginning in April, which increased average loans by $624 million. In addition, CRE loans increased $560 million, or 11%, from the first nine months of 2019 driven by the continued funding of loans previously in the pipeline and slowed loan payoffs.
•Taxable investment securities decreased $1.2 billion, or 26%, as the Corporation repositioned its balance sheet in a lower rate environment.2020.
•Net interest income on the consolidated statements of income (which excludes the fully tax-equivalent adjustment) was $575$355 million for the first ninesix months of 20202021 compared to $636$393 million for the first ninesix months of 2019.2020. Fully tax-equivalent net interest income of $587$364 million for the first ninesix months of 20202021 was $61$37 million, or 9%, lower than the first ninesix months of 2019.2020. The net interest margin for the first ninesix months of 20202021 was 2.54%2.38% compared to 2.86%2.66% for the first ninesix months of 2019.2020. The decreases were attributable to a lower interest rate environment and increased liquidity primarily due to deposit growth related to governmentmonetary and fiscal stimulus money. To lessen the impact of the lower rate environment, the Corporation began requiring LIBOR floors in all applicable loan restructurings, renewals of existing loan transactions, and any new loan transactions.programs. See sections Interest Rate Risk and Quantitative and Qualitative Disclosures about Market Risk for a discussion of interest rate risk and market risk.
• Average interest-bearing liabilities of $23.3$21.6 billion for the first ninesix months of 20202021 were down $596$1.6 billion, or 7%, compared to the first six months of 2020. On average, FHLB advances decreased $1.4 billion, or 46%, primarily driven by the Corporation's prepayment of $950 million in FHLB advances during the third quarter of 2020. Interest-bearing deposits increased $269 million, or 2%, versus the first nine months of 2019. On average, interest-bearing deposits decreased $671 million, or 3%1%, primarily driven by an increase in low cost deposits partially offset by decreases in higher cost deposits such as network, time and money market accounts.deposits. Average noninterest-bearing demand deposits of $6.6$7.9 billion for the first ninesix months of 20202021 were up $1.5$1.7 billion, or 29%27%, versus the first ninesix months of 2019. This increase is primarily attributed2020. Government stimulus programs have led to customers holding proceeds from government stimulus programs in theirhigher deposit accounts. On the funding side, PPPLF funding increased $599 million, partially offset by a decrease in long-term funding of $247 million, or 31%, primarily due to the redemption of $250 million of senior notes in October 2019.balances.
• The cost of interest-bearing liabilities was 0.72%0.38% for the first ninesix months of 2021, which was a 45 bp drop from the first six months of 2020, which was 78 bp lower than the first nine months of 2019. The decrease was primarily due to a 87 bp decrease in the cost of average interest-bearing deposits to 0.42%, primarily attributedattributable to the federal funds rate decreases over the last year.which occurred in March 2020.
•The Federal Reserve lowered the federal funds target interest rate by 175 bp since the end of the third quarter of 2019, to a range of 0.00% to 0.25%, at in March 2020, which has remained constant through the end of the thirdsecond quarter of 2020, compared to a range of 1.75% to 2.00% at the end of the third quarter of 2019.2021.
Provision for Credit Losses
The provision for credit losses is predominantly a function of the Corporation’s reserving methodology and judgments as to other qualitative and quantitative factors used to determine the appropriate level of the allowance for loan losses and the allowance for unfunded commitments,ACLL, which focuses on changes in the size and character of the loan portfolio, changes in levels of individually evaluated and other nonaccrual loans, historical losses and delinquencies in each portfolio category, the level of loans sold or transferred to held for sale, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions and economic forecasts, the fair value of underlying collateral, and other factors which could affect potential credit losses. The forecast the Corporation used for SeptemberJune 30, 20202021 was the Moody's baseline scenario from September 2020June 2021 over a 12 year reasonable and supportable period with immediatestraight-line reversion to historical losses.losses over the second year of the period. See additional discussion under the sections titled, Loans, Credit Risk, Nonperforming Assets, and Allowance for Credit Losses.Losses on Loans.
Noninterest Income
Table 3 Noninterest Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD | | | | | | | 3Q20 Change vs |
($ in Thousands, except as noted) | September 30, 2020 | September 30, 2019 | YTD % Change | 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | 2Q20 | 3Q19 |
Wealth management fees(a) | $ | 62,884 | | $ | 61,885 | | 2 | % | $ | 21,152 | | $ | 20,916 | | $ | 20,816 | | $ | 21,582 | | $ | 21,015 | | 1 | % | 1 | % |
Service charges and deposit account fees | 40,989 | | 47,102 | | (13) | % | 14,283 | | 11,484 | | 15,222 | | 16,032 | | 16,561 | | 24 | % | (14) | % |
Card-based fees | 28,685 | | 29,848 | | (4) | % | 10,195 | | 8,893 | | 9,597 | | 9,906 | | 10,456 | | 15 | % | (2) | % |
Other fee-based revenue | 14,240 | | 14,246 | | — | % | 4,968 | | 4,774 | | 4,497 | | 4,696 | | 5,085 | | 4 | % | (2) | % |
Total fee-based revenue | 146,798 | | 153,082 | | (4) | % | 50,598 | | 46,068 | | 50,132 | | 52,217 | | 53,117 | | 10 | % | (5) | % |
Capital markets, net | 22,067 | | 12,215 | | 81 | % | 7,222 | | 6,910 | | 7,935 | | 7,647 | | 4,300 | | 5 | % | 68 | % |
Mortgage servicing fees, net(b) | 324 | | 8,037 | | (96) | % | (957) | | (781) | | 2,062 | | 2,104 | | 2,473 | | 23 | % | N/M |
Gains (losses) and fair value adjustments on loans held for sale | 45,267 | | 12,803 | | N/M | 14,536 | | 20,976 | | 9,756 | | 4,542 | | 4,043 | | (31) | % | N/M |
Fair value adjustment on portfolio loans transferred to held for sale | 3,932 | | 4,456 | | (12) | % | 509 | | — | | 3,423 | | — | | 4,456 | | N/M | (89) | % |
Mortgage servicing rights (impairment) recovery | (18,481) | | (177) | | N/M | (1,451) | | (7,932) | | (9,098) | | 114 | | (31) | | (82) | % | N/M |
Mortgage banking, net | 31,043 | | 25,118 | | 24 | % | 12,636 | | 12,263 | | 6,143 | | 6,760 | | 10,940 | | 3 | % | 16 | % |
Bank and corporate owned life insurance | 9,793 | | 11,482 | | (15) | % | 3,074 | | 3,625 | | 3,094 | | 3,364 | | 4,337 | | (15) | % | (29) | % |
Insurance commissions and fees | 45,153 | | 69,403 | | (35) | % | 114 | | 22,430 | | 22,608 | | 19,701 | | 20,954 | | (99) | % | (99) | % |
Other | 7,321 | | 8,344 | | (12) | % | 2,232 | | 2,737 | | 2,352 | | 2,822 | | 2,537 | | (18) | % | (12) | % |
Subtotal | 262,175 | | 279,644 | | (6) | % | 75,877 | | 94,034 | | 92,264 | | 92,510 | | 96,185 | | (19) | % | (21) | % |
Asset gains (losses), net(c) | 156,945 | | 2,316 | | N/M | (339) | | 157,361 | | (77) | | 398 | | 877 | | (100) | % | (139) | % |
Investment securities gains(losses), net | 9,222 | | 5,931 | | 55 | % | 7 | | 3,096 | | 6,118 | | 26 | | 3,788 | | (100) | % | (100) | % |
Total noninterest income | $ | 428,342 | | $ | 287,890 | | 49 | % | $ | 75,545 | | $ | 254,490 | | $ | 98,306 | | $ | 92,934 | | $ | 100,850 | | (70) | % | (25) | % |
Mortgage loans originated for sale during period | $ | 1,319,034 | | $ | 824,289 | | 60 | % | $ | 458,361 | | $ | 550,419 | | $ | 310,254 | | $ | 266,503 | | $ | 365,108 | | (17) | % | 26 | % |
Mortgage loan settlements during period | 1,620,777 | | 1,048,729 | | 55 | % | 598,509 | | 725,003 | | 297,265 | | 268,348 | | 616,630 | | (17) | % | (3) | % |
Mortgage portfolio loans transferred to held for sale during period | 269,119 | | 242,382 | | 11 | % | 69,532 | | — | | 199,587 | | — | | 242,382 | | N/M | (71) | % |
Assets under management, at market value(d) | 12,195 | | 11,604 | | 5 | % | 12,195 | | 11,755 | | 10,454 | | 12,104 | | 11,604 | | 4 | % | 5 | % |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD | | | | | | | 2Q21 Changes vs |
($ in Thousands, except as noted) | June 30, 2021 | June 30, 2020 | YTD % Change | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 2Q20 | 1Q21 | 2Q20 |
Wealth management fees | $ | 45,120 | | $ | 41,732 | | 8 | % | $ | 22,706 | | $ | 22,414 | | $ | 22,073 | | $ | 21,152 | | $ | 20,916 | | 1 | % | 9 | % |
Service charges and deposit account fees | 30,404 | | 26,706 | | 14 | % | 15,549 | | 14,855 | | 15,318 | | 14,283 | | 11,484 | | 5 | % | 35 | % |
Card-based fees | 20,725 | | 18,490 | | 12 | % | 10,982 | | 9,743 | | 9,848 | | 10,195 | | 8,893 | | 13 | % | 23 | % |
Other fee-based revenue | 8,840 | | 9,272 | | (5) | % | 4,244 | | 4,596 | | 4,998 | | 4,968 | | 4,774 | | (8) | % | (11) | % |
Total fee-based revenue | 105,089 | | 96,200 | | 9 | % | 53,480 | | 51,608 | | 52,237 | | 50,598 | | 46,068 | | 4 | % | 16 | % |
Capital markets, net | 13,814 | | 14,845 | | (7) | % | 5,696 | | 8,118 | | 5,898 | | 7,222 | | 6,910 | | (30) | % | (18) | % |
Mortgage servicing fees, net(a) | (1,552) | | 1,282 | | N/M | (155) | | (1,397) | | (973) | | (957) | | (781) | | 89 | % | (80) | % |
Gains (losses) and fair value adjustments on loans held for sale | 23,367 | | 30,732 | | (24) | % | 8,623 | | 14,744 | | 14,733 | | 14,536 | | 20,976 | | (42) | % | (59) | % |
Fair value adjustment on portfolio loans transferred to held for sale | — | | 3,423 | | (100) | % | — | | — | | — | | 509 | | — | | N/M | N/M |
Mortgage servicing rights (impairment) recovery | 10,239 | | (17,029) | | N/M | (340) | | 10,578 | | 776 | | (1,451) | | (7,932) | | N/M | (96) | % |
Mortgage banking, net | 32,054 | | 18,407 | | 74 | % | 8,128 | | 23,925 | | 14,537 | | 12,636 | | 12,263 | | (66) | % | (34) | % |
Bank and corporate owned life insurance | 5,791 | | 6,719 | | (14) | % | 3,088 | | 2,702 | | 3,978 | | 3,074 | | 3,625 | | 14 | % | (15) | % |
Insurance commissions and fees | 161 | | 45,038 | | (100) | % | 86 | | 76 | | 92 | | 114 | | 22,430 | | 13 | % | (100) | % |
Other | 6,059 | | 5,090 | | 19 | % | 2,918 | | 3,141 | | 2,879 | | 2,232 | | 2,737 | | (7) | % | 7 | % |
Subtotal | 162,968 | | 186,298 | | (13) | % | 73,397 | | 89,570 | | 79,621 | | 75,877 | | 94,034 | | (18) | % | (22) | % |
Asset gains (losses), net | 4,796 | | 157,284 | | (97) | % | (14) | | 4,809 | | (1,356) | | (339) | | 157,361 | | N/M | N/M |
Investment securities gains(losses), net | (16) | | 9,214 | | N/M | 24 | | (39) | | — | | 7 | | 3,096 | | N/M | (99) | % |
Gain/loss on the sale of branches, net | 1,038 | | — | | N/M | 36 | | 1,002 | | 7,449 | | — | | — | | (96) | % | N/M |
Total noninterest income | $ | 168,786 | | $ | 352,796 | | (52) | % | $ | 73,443 | | $ | 95,343 | | $ | 85,714 | | $ | 75,545 | | $ | 254,490 | | (23) | % | (71) | % |
Mortgage loans originated for sale during period | $ | 889,315 | | $ | 860,674 | | 3 | % | $ | 476,670 | | $ | 412,645 | | $ | 323,101 | | $ | 458,361 | | $ | 550,419 | | 16 | % | (13) | % |
Mortgage loan settlements during period | 884,581 | | 1,022,268 | | (13) | % | 484,446 | | 400,135 | | 338,794 | | 598,509 | | 725,003 | | 21 | % | (33) | % |
Mortgage portfolio loans transferred to held for sale during period | — | | 199,587 | | (100) | % | — | | — | | — | | 69,532 | | — | | N/M | N/M |
Assets under management, at market value(b) | | | | 13,141 | | 12,553 | | 13,314 | | 12,195 | | 11,755 | | 5 | % | 12 | % |
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N/M = Not Meaningful
(a) Includes trust, asset management, brokerage, and annuity fees.
(b) Includes mortgage origination and servicing fees, net of mortgage servicing rights amortization.
(c) YTD September 30, 2020 and 2Q20 include a gain of $163 million from the sale of ABRC. YTD September 30, 2019 include less than $1 million of Huntington related asset losses.
(d)
(b) $ in millions. Excludes assets held in brokerage accounts.
Notable Contributions to the Change in Noninterest Income
•Mortgage banking, net was up $14 million from the first six months of 2020 due to a $10 million recovery of MSRs impairment during the year as a result of market rates recovering, compared to impairment of $17 million during the first six months of 2020. Gain on sale of loans is lower due to lower mortgage settlements as well as contracting margins on the loans sold.
•Asset gains (losses), net was down $152 million from the first six months of 2020, driven by a gain of $163 million from the sale of ABRC during the second quarter of 2020, offset by a gain of $2 million from the sale of Whitnell and gains of $3 million from private equity investments during the first six months of 2021.
•Insurance commissioncommissions and fees was down $24$45 million or 35%from the first ninesix months of 2019,2020, driven by the sale of ABRC during the second quarter of 2020.
•Asset gains (losses), net was up $155 million from2020 which largely eliminated the first nine monthssource of 2019, driven by a gain of $163 million from the sale of ABRC.
•Capital markets, net was up $10 million, or 81%, from the first nine months of 2019, driven by higher interest rate swap fees.
•Mortgage banking, net was up $6 million, or 24%, from the first nine months of 2019. During the first nine months of 2020, there was a $32 million increase in gains and fair value adjustments on loans held for sale driven by higher refinance activity due to the lower rate environment, partially offset by an increase of $18 million in MSRs impairment driven by lower rates.noninterest income.
•Service charges and deposit account fees was down $6were up $4 million or 13%, from the first ninesix months of 2019 due2020 as a result of service charges that were waived during 2020 in response to fee waivers during the COVID-19 pandemic. The Corporation resumed charging these fees during the third quarter of 2020.
Noninterest Expense
Table 4 Noninterest Expense
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| YTD | | | 3Q20 Change vs |
($ in Thousands) | Sept 30, 2020 | Sept 30, 2019 | YTD % Change | 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | 2Q20 | 3Q19 |
Personnel | $ | 334,117 | | $ | 366,449 | | (9) | % | $ | 108,567 | | $ | 111,350 | | $ | 114,200 | | $ | 120,614 | | $ | 123,170 | | (2) | % | (12) | % |
Technology | 61,639 | | 59,698 | | 3 | % | 19,666 | | 21,174 | | 20,799 | | 22,731 | | 20,572 | | (7) | % | (4) | % |
Occupancy | 48,386 | | 45,466 | | 6 | % | 17,854 | | 14,464 | | 16,069 | | 16,933 | | 15,164 | | 23 | % | 18 | % |
Business development and advertising | 13,007 | | 21,284 | | (39) | % | 3,626 | | 3,556 | | 5,826 | | 8,316 | | 7,991 | | 2 | % | (55) | % |
Equipment | 16,150 | | 17,580 | | (8) | % | 5,399 | | 5,312 | | 5,439 | | 5,970 | | 6,335 | | 2 | % | (15) | % |
Legal and professional | 15,809 | | 14,342 | | 10 | % | 5,591 | | 5,058 | | 5,160 | | 5,559 | | 5,724 | | 11 | % | (2) | % |
Loan and foreclosure costs | 8,842 | | 5,599 | | 58 | % | 2,118 | | 3,605 | | 3,120 | | 3,262 | | 1,638 | | (41) | % | 29 | % |
FDIC assessment | 14,650 | | 12,250 | | 20 | % | 3,900 | | 5,250 | | 5,500 | | 4,000 | | 4,000 | | (26) | % | (3) | % |
Other intangible amortization | 7,939 | | 7,237 | | 10 | % | 2,253 | | 2,872 | | 2,814 | | 2,712 | | 2,686 | | (22) | % | (16) | % |
Acquisition related costs(a) | 2,457 | | 5,995 | | (59) | % | 218 | | 518 | | 1,721 | | 1,325 | | 1,629 | | (58) | % | (87) | % |
Loss on prepayments of FHLB advances | 44,650 | | — | | N/M | 44,650 | | — | | — | | — | | — | | N/M | N/M |
Other | 35,537 | | 34,479 | | 3 | % | 13,745 | | 10,249 | | 11,543 | | 12,187 | | 12,021 | | 34 | % | 14 | % |
Total noninterest expense | $ | 603,184 | | $ | 590,380 | | 2 | % | $ | 227,587 | | $ | 183,407 | | $ | 192,191 | | $ | 203,609 | | $ | 200,930 | | 24 | % | 13 | % |
Average full-time equivalent employees(b) | 4,568 | | 4,703 | | (3) | % | 4,374 | | 4,701 | | 4,631 | | 4,696 | | 4,782 | | (7) | % | (9) | % |
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| YTD | | | 2Q21 Change vs |
($ in Thousands) | June 30, 2021 | June 30, 2020 | YTD % Change | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 2Q20 | 1Q21 | 2Q20 |
Personnel | $ | 211,020 | | $ | 225,551 | | (6) | % | $ | 106,994 | | $ | 104,026 | | $ | 98,033 | | $ | 108,567 | | $ | 111,350 | | 3 | % | (4) | % |
Technology | 40,975 | | 41,973 | | (2) | % | 20,236 | | 20,740 | | 19,574 | | 19,666 | | 21,174 | | (2) | % | (4) | % |
Occupancy | 30,835 | | 30,532 | | 1 | % | 14,679 | | 16,156 | | 15,678 | | 17,854 | | 14,464 | | (9) | % | 1 | % |
Business development and advertising | 9,366 | | 9,382 | | — | % | 4,970 | | 4,395 | | 5,421 | | 3,626 | | 3,556 | | 13 | % | 40 | % |
Equipment | 10,999 | | 10,751 | | 2 | % | 5,481 | | 5,518 | | 5,555 | | 5,399 | | 5,312 | | (1) | % | 3 | % |
Legal and professional | 13,191 | | 10,217 | | 29 | % | 6,661 | | 6,530 | | 5,737 | | 5,591 | | 5,058 | | 2 | % | 32 | % |
Loan and foreclosure costs | 4,891 | | 6,725 | | (27) | % | 2,671 | | 2,220 | | 3,758 | | 2,118 | | 3,605 | | 20 | % | (26) | % |
FDIC assessment | 8,350 | | 10,750 | | (22) | % | 3,600 | | 4,750 | | 5,700 | | 3,900 | | 5,250 | | (24) | % | (31) | % |
Other intangible amortization | 4,439 | | 5,686 | | (22) | % | 2,203 | | 2,236 | | 2,253 | | 2,253 | | 2,872 | | (1) | % | (23) | % |
Loss on prepayments of FHLB advances | — | | — | | N/M | — | | — | | — | | 44,650 | | — | | N/M | N/M |
Other | 15,755 | | 24,030 | | (34) | % | 6,979 | | 8,775 | | 11,141 | | 13,963 | | 10,766 | | (20) | % | (35) | % |
Total noninterest expense | $ | 349,821 | | $ | 375,598 | | (7) | % | $ | 174,475 | | $ | 175,347 | | $ | 172,850 | | $ | 227,587 | | $ | 183,407 | | — | % | (5) | % |
Average FTEs(a) | 4,005 | | 4,666 | | (14) | % | 3,990 | | 4,020 | | 4,134 | | 4,374 | | 4,701 | | (1) | % | (15) | % |
N/M = Not Meaningful
(a) Includes Huntington branch and First Staunton acquisition related costs only(b) Average full-time equivalent employeesFTEs without overtime
Notable Contributions to the Change in Noninterest Expense
•Personnel expense decreased $32$15 million or 9%, from the first ninesix months of 2019,2020, primarily drivendue to having fewer employees as a result of the sales of ABRC and Whitnell, corporate restructurings, and branch sales, partially offset by a decreasean increase in funding for the management incentive plan.
•Business developmentLegal and advertising expense decreased $8 million, or 39%, from the first nine months of 2019, primarily driven by reductions in travel and entertainment costs and special event sponsorships, largely due to the COVID-19 pandemic.
•Loan and foreclosure costsprofessional expenses increased $3 million or 58%, fromas a result of consulting costs associated with processing the first nine months of 2019, driven by an increase in legal fees pertaining to loan collections due to fewer recoveries of previous expenses during 2020.
•During the third quarter of 2020, the Corporation prepaid $950 million of long-term FHLB advances and incurred a loss of $45 million on the prepayment.elevated mortgage volumes.
Income Taxes
The Corporation recognized income tax expense of $3$47 million for the ninesix months ended SeptemberJune 30, 2020,2021, compared to income tax expense of $62$61 million for the ninesix months ended SeptemberJune 30, 2019.2020. The Corporation's effective tax rate was 1.37%20.26% for the first ninesix months of 2020,2021, compared to an effective tax rate of 19.67%24.01% for the first ninesix months of 2019.2020. The lowerdecreases in effective tax rate and income tax expense during the first ninesix months of 2020 was2021 were primarily driven by tax planning strategies which allowed for the recognition of built in capital losses and tax basis step-up yielding a tax benefit of $63 million, partially offset by the gain on sale of ABRC. TheseABRC, partially offset by tax planning strategies, were successfully completed inboth of which occurred during the thirdsecond quarter of 2020. With the successful completion of these tax planning strategies, we expect theThe Corporation expects a full year 2020 effective tax rate of 19% to be21%, assuming no change in the low to mid-single digits.
statutory corporate tax rate.
Income tax expense recorded on the consolidated statements of income involves the interpretation and application of certain accounting pronouncements and federal and state tax laws and regulations, and is, therefore, considered a critical accounting policy. The Corporation is subject to examination by various taxing authorities. Examination by taxing authorities may impact the amount of tax expense and / or reserve for uncertainty in income taxes if their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations. See section Critical Accounting Policies, in the Corporation’s 20192020 Annual Report on Form 10-K for additional information on income taxes.
Balance Sheet Analysis
•At SeptemberJune 30, 2020,2021, total assets were $34.7$34.2 billion, up $2.3 billion,$733 million, or 7%2%, from December 31, 20192020 and up $2.1down $1.3 billion, or 6%4%, from SeptemberJune 30, 2019.2020.
•Interest bearing deposits in other financial institutions were $1.3 billion at June 30, 2021, up $1.0 billion from December 31, 2020 due to excess reserves being held at the Federal Reserve, but down $229 million, or 15%, from June 30, 2020.
•Loans of $25.0$23.9 billion at SeptemberJune 30, 20202021 were up $2.2 billion,down $504 million, or 10%2%, from both December 31, 20192020 and Septemberdown $885 million, or 4%, from June 30, 2019 partially driven by a $1.0 billion increase in PPP loans originated largely during the second quarter of 2020. In addition, the Corporation saw an increase in CRE loans. 2020The Corporation added $370 million in loans from the First Staunton acquisition during the first quarter of 2020.. See Note 7 Loans for additional details.
•At SeptemberJune 30, 2020,2021, total deposits of $26.7$27.3 billion were up $2.9 billion,$782 million, or 12%3%, from December 31, 20192020 and were up $2.3 billion$713 million, or 9%3%, from SeptemberJune 30, 2019. During the first quarter of 2020, the Corporation assumed $439 million of deposits from the First Staunton acquisition. In addition, the balance increases were primarily due2020. Government stimulus programs have led to customers holding proceeds from government stimulus programs in theirhigher deposit accounts. Seebalances. See section Deposits and Customer Funding for additional information on deposits.
•At September 30, 2020, FHLB advances of $1.7were $1.6 billion decreased $1.5at both June 30, 2021 and December 31, 2020, but down $1.0 billion, or 46%39%, from December 31, 2019 and $1.2 billion, or 41%, from SeptemberJune 30, 2019,2020, primarily driven by the Corporation's prepayment of $950 million in long-term FHLB advances during the third quarter of 2020. In addition, the Corporation saw a decrease in short-term FHLB advances. See Note 9 Short and Long-Term Funding for additional details.
•At SeptemberPreferred equity was $290 million at June 30, 2021, down $63 million, or 18%, from December 31, 2020, and down $64 million, or 18% from June 30, 2020, PPPLF was $1.0 billion largely due toas a result of the fundingredemption of PPP loansthe Corporation's Series C Preferred Stock during the second quarter of 2020. See Note 9 Short and Long-Term Funding for additional details.
•On January 1, 2020, the Corporation adopted ASU 2016-13 using the modified retrospective approach which resulted in an increase to the allowance for loan losses of $112 million and an increase to the allowance for unfunded commitments of $19 million for a total increase to the ACLL of $131 million. A corresponding after tax decrease to common equity of $98 million was recorded along with a deferred tax asset of $33 million.
•At September 30, 2020, preferred equity was $354 million, up $97 million, or 38%, from both December 31, 2019 and September 30, 2019. On June 9, 2020, the Corporation issued $100 million, or $97 million net of issuance costs, of 5.625% Non-Cumulative Perpetual Preferred Stock, Series F.2021.
Loans
Table 5 Period End Loan Composition
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| September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
($ in Thousands) | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total |
PPP | $ | 1,022,217 | | | 4 | % | | $ | 1,012,033 | | | 4 | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | — | | | — | % |
Commercial and industrial | 7,933,404 | | | 32 | % | | 7,968,709 | | | 32 | % | | 8,517,974 | | | 35 | % | | 7,354,594 | | | 32 | % | | 7,495,623 | | | 33 | % |
Commercial real estate — owner occupied | 904,997 | | | 4 | % | | 914,385 | | | 4 | % | | 940,687 | | | 4 | % | | 911,265 | | | 4 | % | | 915,524 | | | 4 | % |
Commercial and business lending | 9,860,618 | | | 39 | % | | 9,895,127 | | | 40 | % | | 9,458,661 | | | 39 | % | | 8,265,858 | | | 36 | % | | 8,411,147 | | | 37 | % |
Commercial real estate — investor | 4,320,926 | | | 17 | % | | 4,174,125 | | | 17 | % | | 4,038,036 | | | 17 | % | | 3,794,517 | | | 17 | % | | 3,803,277 | | | 17 | % |
Real estate construction | 1,859,609 | | | 7 | % | | 1,708,189 | | | 7 | % | | 1,544,858 | | | 6 | % | | 1,420,900 | | | 6 | % | | 1,356,508 | | | 6 | % |
Commercial real estate lending | 6,180,536 | | | 25 | % | | 5,882,314 | | | 24 | % | | 5,582,894 | | | 23 | % | | 5,215,417 | | | 23 | % | | 5,159,784 | | | 23 | % |
Total commercial | 16,041,154 | | | 64 | % | | 15,777,441 | | | 64 | % | | 15,041,555 | | | 62 | % | | 13,481,275 | | | 59 | % | | 13,570,932 | | | 60 | % |
Residential mortgage | 7,885,523 | | | 32 | % | | 7,933,518 | | | 32 | % | | 8,132,417 | | | 33 | % | | 8,136,980 | | | 36 | % | | 7,954,801 | | | 35 | % |
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Home Equity | 761,593 | | | 3 | % | | 795,671 | | | 3 | % | | 844,901 | | | 3 | % | | 852,025 | | | 4 | % | | 879,642 | | | 4 | % |
Other consumer | 315,483 | | | 1 | % | | 326,040 | | | 1 | % | | 346,761 | | | 1 | % | | 351,159 | | | 2 | % | | 349,335 | | | 2 | % |
Total consumer | 8,962,599 | | | 36 | % | | 9,055,230 | | | 36 | % | | 9,324,079 | | | 38 | % | | 9,340,164 | | | 41 | % | | 9,183,778 | | | 40 | % |
Total loans | $ | 25,003,753 | | | 100 | % | | $ | 24,832,671 | | | 100 | % | | $ | 24,365,633 | | | 100 | % | | $ | 22,821,440 | | | 100 | % | | $ | 22,754,710 | | | 100 | % |
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| June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 |
($ in Thousands) | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total |
PPP | $ | 405,482 | | 2 | % | $ | 836,566 | | 3 | % | $ | 767,757 | | 3 | % | $ | 1,022,217 | | 4 | % | $ | 1,012,033 | | 4 | % |
Commercial and industrial | 7,909,119 | | 33 | % | 7,664,501 | | 32 | % | 7,701,422 | | 31 | % | 7,933,404 | | 32 | % | 7,968,709 | | 32 | % |
Commercial real estate — owner occupied | 880,755 | | 4 | % | 883,237 | | 4 | % | 900,912 | | 4 | % | 904,997 | | 4 | % | 914,385 | | 4 | % |
Commercial and business lending | 9,195,355 | | 38 | % | 9,384,303 | | 39 | % | 9,370,091 | | 38 | % | 9,860,618 | | 39 | % | 9,895,127 | | 40 | % |
Commercial real estate — investor | 4,300,651 | | 18 | % | 4,260,706 | | 18 | % | 4,342,584 | | 18 | % | 4,320,926 | | 17 | % | 4,174,125 | | 17 | % |
Real estate construction | 1,880,897 | | 8 | % | 1,882,299 | | 8 | % | 1,840,417 | | 8 | % | 1,859,609 | | 7 | % | 1,708,189 | | 7 | % |
Commercial real estate lending | 6,181,549 | | 26 | % | 6,143,004 | | 25 | % | 6,183,001 | | 25 | % | 6,180,536 | | 25 | % | 5,882,314 | | 24 | % |
Total commercial | 15,376,904 | | 64 | % | 15,527,307 | | 64 | % | 15,553,091 | | 64 | % | 16,041,154 | | 64 | % | 15,777,441 | | 64 | % |
Residential mortgage | 7,638,372 | | 32 | % | 7,685,218 | | 32 | % | 7,878,324 | | 32 | % | 7,885,523 | | 32 | % | 7,933,518 | | 32 | % |
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Home equity | 631,783 | | 3 | % | 651,647 | | 3 | % | 707,255 | | 3 | % | 761,593 | | 3 | % | 795,671 | | 3 | % |
Other consumer | 300,477 | | 1 | % | 298,156 | | 1 | % | 313,054 | | 1 | % | 315,483 | | 1 | % | 326,040 | | 1 | % |
Total consumer | 8,570,632 | | 36 | % | 8,635,020 | | 36 | % | 8,898,632 | | 36 | % | 8,962,599 | | 36 | % | 9,055,230 | | 36 | % |
Total loans | $ | 23,947,536 | | 100 | % | $ | 24,162,328 | | 100 | % | $ | 24,451,724 | | 100 | % | $ | 25,003,753 | | 100 | % | $ | 24,832,671 | | 100 | % |
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The Corporation has long-term guidelines relative to the proportion of Commercial and Business, Commercial Real Estate,CRE, and Consumer loansloan commitments within the overall loan portfolio, with each targeted to represent 30-40%30 to 40% of the overall loan portfolio. The targeted long-term guidelines were unchanged during 20192020 and the first ninesix months of 2020.2021. Furthermore, certain sub-asset classes within the respective portfolios are further defined and dollar limitations are placed on these sub-portfolios. These
guidelines and limits are reviewed quarterly and approved annually by the Enterprise Risk Committee of the Corporation’s Board of Directors. These guidelines and limits are designed to create balance and diversification within the loan portfolios.
The Corporation’s loan distribution and interest rate sensitivity as of SeptemberJune 30, 20202021 are summarized in the following table:
Table 6 Loan Distribution and Interest Rate Sensitivity
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($ in Thousands) | Within 1 Year(a) | | 1-5 Years | | After 5 Years | | Total | | % of Total |
PPP | $ | — | | | $ | 1,022,217 | | | $ | — | | | $ | 1,022,217 | | | 4 | % |
Commercial and industrial | 7,377,493 | | | 441,045 | | | 114,867 | | | 7,933,404 | | | 32 | % |
Commercial real estate — owner occupied | 479,130 | | | 242,001 | | | 183,866 | | | 904,997 | | | 4 | % |
Commercial real estate — investor | 3,894,842 | | | 330,267 | | | 95,816 | | | 4,320,926 | | | 17 | % |
Real estate construction | 1,786,215 | | | 58,198 | | | 15,196 | | | 1,859,609 | | | 7 | % |
Residential Mortgage - Adjustable(b) | 591,957 | | | 1,880,665 | | | 2,015,084 | | | 4,487,706 | | | 18 | % |
Residential Mortgage - Fixed | 44,429 | | | 83,413 | | | 3,269,974 | | | 3,397,817 | | | 14 | % |
Home Equity | 34,463 | | | 106,261 | | | 620,870 | | | 761,593 | | | 3 | % |
Other Consumer | 39,701 | | | 60,774 | | | 215,008 | | | 315,483 | | | 1 | % |
Total Loans | $ | 14,248,230 | | | $ | 4,224,842 | | | $ | 6,530,682 | | | $ | 25,003,753 | | | 100 | % |
Fixed rate | $ | 5,841,503 | | | $ | 2,082,450 | | | $ | 3,860,305 | | | $ | 11,784,258 | | | 47 | % |
Floating or adjustable rate | 8,406,726 | | | 2,142,392 | | | 2,670,377 | | | 13,219,495 | | | 53 | % |
Total | $ | 14,248,230 | | | $ | 4,224,842 | | | $ | 6,530,682 | | | $ | 25,003,753 | | | 100 | % |
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($ in Thousands) | Within 1 Year(a) | 1-5 Years | After 5 Years | Total | % of Total |
PPP | $ | 112,201 | | $ | 293,281 | | $ | — | | $ | 405,482 | | 2 | % |
Commercial and industrial | 7,334,662 | | 468,339 | | 106,118 | | 7,909,119 | | 33 | % |
Commercial real estate — owner occupied | 495,599 | | 242,888 | | 142,268 | | 880,755 | | 4 | % |
Commercial real estate — investor | 3,906,286 | | 294,497 | | 99,869 | | 4,300,651 | | 18 | % |
Real estate construction | 1,817,985 | | 52,043 | | 10,869 | | 1,880,897 | | 8 | % |
Residential mortgage - Adjustable(b) | 469,632 | | 904,575 | | 1,628,026 | | 3,002,233 | | 13 | % |
Residential mortgage - Fixed | 38,837 | | 92,418 | | 4,504,884 | | 4,636,139 | | 19 | % |
Home equity | 27,454 | | 83,983 | | 520,346 | | 631,783 | | 3 | % |
Other consumer | 44,475 | | 57,954 | | 198,048 | | 300,477 | | 1 | % |
Total loans | $ | 14,247,131 | | $ | 2,489,977 | | $ | 7,210,427 | | $ | 23,947,536 | | 100 | % |
Fixed rate | $ | 5,321,872 | | $ | 1,379,252 | | $ | 5,038,815 | | $ | 11,739,940 | | 49 | % |
Floating or adjustable rate | 8,925,259 | | 1,110,724 | | 2,171,612 | | 12,207,596 | | 51 | % |
Total | $ | 14,247,131 | | $ | 2,489,977 | | $ | 7,210,427 | | $ | 23,947,536 | | 100 | % |
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(a) Demand loans, past due loans, overdrafts, and credit cards are reported in the “Within 1 Year” category.
(b) Based on contractual loan terms for adjustable rate mortgages; does not factor in early prepayments or amortization.
At SeptemberJune 30, 2020, $19.12021, $17.5 billion, or 76%73%, of the loans outstanding were floating rate, adjustable rate, re-pricing within one year, or maturing within one year.
Credit Risk
An active credit risk management process is used for commercial loans to ensure that sound and consistent credit decisions are made. Credit risk is controlled by detailed underwriting procedures, comprehensive loan administration, and periodic review of borrowers’ outstanding loans and commitments. Borrower relationships are formally reviewed and graded on an ongoing basis for early identification of potential problems. Further analysis by customer, industry, and geographic location are performed to monitor trends, financial performance, and concentrations. See Note 7 Loans of the notes to consolidated financial statements for additional information on managing overall credit quality.
The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within the Corporation's branch footprint. Significant loan concentrations are considered to exist when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At SeptemberJune 30, 2020,2021, no significant concentrations existed in the Corporation’s portfolio in excess of 10% of total loans.
Commercial and business lending: The commercial and business lending classification primarily includes commercial loans to large corporations, middle market companies, small businesses, and lease financing.
Table 7 Largest Commercial and Business Lending Industry Group Exposures
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September 30, 2020 | % of Total Loans | % of Total Commercial and Business Lending |
Power and Utilities | 7 | % | 18 | % |
Manufacturing and Wholesale Trade | 7 | % | 17 | % |
Finance and Insurance | 7 | % | 17 | % |
Real Estate | 5 | % | 12 | % |
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June 30, 2021 | % of Total Loans | % of Total Commercial and Business Lending |
Finance and Insurance | 7 | % | 19 | % |
Utilities | 7 | % | 18 | % |
Manufacturing and Wholesale Trade | 7 | % | 17 | % |
Real Estate | 5 | % | 14 | % |
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The remaining commercial and business lending portfolio is spread over a diverse range of industries, none of which exceed 2% of total loans.
The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any. Currently, a higher risk segment of the commercial and business lending portfolio is loans to borrowers supporting oil and gas exploration and production, which are further discussed under oil and gas lending below.
Oil and gas lending: The Corporation provided reserve based loans to oil and gas exploration and production firms. The oil and gas portfolio is in run-off and no new oil and gas loans have been originated since February 2019. At September 30, 2020, the oil and gas portfolio was comprised of 30 credits, totaling $333 million of outstanding balances, which represents less than 2% of the Corporation's total loans. The decrease in balances from both December 31, 2019 and September 30, 2019 continues to be driven by a purposeful reduction in exposure to the Corporation's higher-leveraged borrowers.
The Corporation's oil and gas lending team is based in Houston and focuses on serving the funding needs of small and mid-sized companies in the upstream oil and gas business. The oil and gas loans are first lien, reserve-based, and borrowing base dependent lines of credit. The portfolio is diversified across all major U.S. geographic basins and is diversified by product line with approximately 58% in oil and 42% in gas at September 30, 2020. Borrowing base re-determinations for the portfolio are generally completed twice a year and are based on detailed engineering reports and discounted cash flow analysis.
The following table summarizes information about the Corporation's oil and gas loan portfolio.
Table 8 Oil and Gas Loan Portfolio
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($ in Millions) | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
Pass | $ | 242 | | | $ | 294 | | | $ | 361 | | | $ | 408 | | | $ | 493 | |
Special mention | 23 | | | 24 | | | 10 | | | 9 | | | 20 | |
Potential problem | 60 | | | 63 | | | 67 | | | 43 | | | 32 | |
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Nonaccrual | 8 | | | 50 | | | 29 | | | 23 | | | 36 | |
Total oil and gas related loans | $ | 333 | | | $ | 432 | | | $ | 466 | | | $ | 484 | | | $ | 582 | |
Quarter net charge offs/(recoveries) | $ | 20 | | | $ | 25 | | | $ | 9 | | | $ | 10 | | | $ | 21 | |
Oil and gas related allowance for loan losses | 49 | | | 82 | | | 75 | | | 12 | | | 21 | |
Oil and gas related ACLL on loans | 51 | | | 84 | | | 78 | | | 13 | | | 22 | |
Oil and gas allowance for loan losses to total oil and gas loans | N/A | | N/A | | N/A | | 2.6 | % | | 3.7 | % |
Oil and gas ACLL to total oil and gas loans | 15.3 | % | | 19.4 | % | | 16.6 | % | | 2.7 | % | | 3.8 | % |
•The increase in the ACLL attributable to oil and gas related credits (included within the commercial and industrial ACLL) from both December 31, 2019 and September 30, 2019 is driven by the expected impact of the COVID-19 pandemic within the economic models used in the new expected credit loss methodology. The decrease from June 30, 2020 was primarily due to runoff in the portfolio as the Corporation continues to reduce exposure to its higher-leveraged borrowers.
The adoption impact of ASU 2016-13 for oil and gas loans was included within the commercial and industrial line item of the adoption table in Note 3 Summary of Significant Accounting Policies. The following table provides a summary of the changes in the ACLL in the Corporation's oil and gas loan portfolio as a result of adopting ASU 2016-13.
Table 9 Oil and Gas Impact of Adopting ASU 2016-13
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| December 31, 2019 | January 1, 2020 |
($ in Millions) | Allowance for Loan Loss | Allowance for Unfunded Commitment | CECL Day 1 Adjustment | ACLL |
Oil and Gas | $ | 12 | | $ | 1 | | $ | 55 | | $ | 69 | |
The following tables provide a summary of the changes in ACLL in the Corporation's oil and gas loan portfolio at September 30, 2020 and a summary of the changes in allowance for loan losses in the Corporation's oil and gas loan portfolio at December 31, 2019:
Table 10 Allowance for Credit Losses on Oil and Gas Loans
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($ in Millions) | Dec. 31, 2019 | Cumulative effect of ASU 2016-13 adoption (CECL) | Jan. 1, 2020 | Charge offs | Recoveries | Net Charge offs | Provision for loan losses | Sep. 30, 2020 | ACLL / Loans |
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Allowance for loan losses | $ | 12 | | $ | 53 | | $ | 66 | | $ | (55) | | $ | 2 | | $ | (53) | | $ | 36 | | $ | 49 | | |
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Allowance for unfunded commitments | 1 | | 2 | | 3 | | — | | — | | — | | (1) | | 2 | | |
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Allowance for credit losses on loans | $ | 13 | | $ | 55 | | $ | 69 | | $ | (55) | | $ | 2 | | $ | (53) | | $ | 35 | | $ | 51 | | 15.3 | % |
Table 11 Allowance for Loan Losses on Oil and Gas Loans
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($ in Millions) | Dec. 31, 2018 | Charge offs | Recoveries | Net Charge offs | Provision for loan losses | Dec. 31, 2019 |
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Allowance for loan losses | $ | 12 | | $ | (50) | | $ | 5 | | $ | (44) | | $ | 45 | | $ | 12 | |
Commercial real estate - investor: Commercial real estate-investorCRE-investor is comprised of loans secured by various non-owner occupied or investor income producing property types.
Table 128 Largest Commercial Real Estate Investor Property Type Exposures
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September 30, 2020 | % of Total Loans | % of Total Commercial Real Estate - Investor |
Multi-Family | 5 | % | 31 | % |
Office | 4 | % | 24 | % |
Retail | 4 | % | 21 | % |
Industrial | 3 | % | 17 | % |
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June 30, 2021 | % of Total Loans | % of Total Commercial Real Estate - Investor |
Multi-Family | 6 | % | 31 | % |
Office | 4 | % | 24 | % |
Retail | 3 | % | 18 | % |
Industrial | 3 | % | 17 | % |
The remaining commercial real estate-investorCRE-investor portfolio is spread over various other property types, none of which exceed 2% of total loans.
Credit risk is managed in a similar manner to commercial and business lending by employing sound underwriting guidelines, lending primarily to borrowers in local markets and businesses, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationship on an ongoing basis.
Real estate construction: Real estate construction loans are primarily short-term or interim loans that provide financing for the acquisition or development of commercial income properties, multi-family projects, or residential development, both single family and condominium. Real estate construction loans are made to developers and project managers who are generally well known to the Corporation and have prior successful project experience. The credit risk associated with real estate construction loans is generally confined to specific geographic areas but is also influenced by general economic conditions. The Corporation controls the credit risk on these types of loans by making loans in familiar markets to developers, reviewing the merits of individual projects, controlling loan structure, and monitoring project progress and construction advances.
Table 139 Largest Real Estate Construction Property Type Exposures
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September 30, 2020 | % of Total Loans | % of Total Real Estate Construction |
Multi-Family | 3 | % | 34 | % |
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June 30, 2021 | % of Total Loans | % of Total Real Estate Construction |
Multi-Family | 3 | % | 37 | % |
The remaining real estate construction portfolio is spread over various other property types, none of which exceed 2% of total loans.
The Corporation’s current lending standards for commercial real estateCRE and real estate construction lending are determined by property type and specifically address many criteria, including: maximum loan amounts, maximum LTV, requirements for pre-leasing and / or presales, minimum borrower equity, and maximum loan-to-cost. Currently, the maximum standard for LTV is 80%, with lower limits established for certain higher risk types, such as raw land that has a 50% LTV maximum. The Corporation’s LTV guidelines are in compliance with regulatory supervisory limits. In most cases, for real estate construction
loans, the loan amounts include interest reserves, which are built into the loans and sized to fund loan payments through construction and lease up and / or sell out.
Residential mortgages: Residential mortgage loans are primarily first lien home mortgages with a maximum loan-to-collateral value without credit enhancement (e.g. private mortgage insurance) of 80%. The residential mortgage portfolio is focused primarily in the Corporation's three-state branch footprint, with approximately 88% of the outstanding loan balances in the Corporation's branch footprint at SeptemberJune 30, 2020.2021. The majority of the on balance sheet residential mortgage portfolio consists of LIBOR or constant maturity treasury based, hybrid, adjustable rate mortgage loans with initial fixed rate terms of 3, 5, 7, or 10 years. The rates on these mortgages adjust based upon the movement in the underlying index which is then added to a margin and rounded to the nearest 0.125%. That result is then subjected to any periodic caps to produce the borrower's interest rate for the coming term.
In 2014, the Financial Stability Oversight Council and Financial Stability Board raised concerns about the reliability and robustness of LIBOR and called for the development of alternative interest rate benchmarks. The Alternative Reference Rates Committee,ARRC, through authority from the Board of Governors of the Federal Reserve, System, have selected the Secured Overnight Financing RateSOFR as the alternative rate and developed a paced transition plan which addresses the risk that LIBOR may not exist beyond the end of 2021. There are still many components of this plan which have not been fully decided or implemented in the industry. As a result, the Corporation is reaching out to certain borrowers offering an opportunity to refinance or modify their loanloans to avoid any uncertainty around the LIBOR transition. Performing borrowers can modify or refinance to a fixed interest rate or an adjustable rate mortgage tied to the one-year treasury adjusted to a constant maturity of one-year with an appropriate margin. This provides the bankBank and borrower with greater certainty around the loan structure.
The Corporation generally retains certain fixed-rate residential real estate mortgages in its loan portfolio, including retail and private banking jumbo mortgages and CRA-related mortgages. As part of management’s historical practice of originating and servicing residential mortgage loans, generally the Corporation’s 30 year, agency conforming, fixed-rate residential real estate mortgage loans have been sold in the secondary market with servicing rights retained. Subject to management’s analysis of the current interest rate environment, among other market factors, the Corporation may choose to retain 30 year mortgage loan production on its balance sheet. During the nine months ended September 30, 2020, the Corporation sold approximately $260 million of residential portfolio loans, in order to reduce the Corporation's exposure to prepayment risk in the current low rate environment. See section Loans for additional information on loans.
The Corporation’s underwriting and risk-based pricing guidelines for residential mortgage loans include minimum borrower FICO and maximum LTV of the property securing the loan. Residential mortgage products generally are underwritten using FHLMC and FNMA secondary marketing guidelines.
Home equity: Home equity consists of both home equity lines of credit and closed-end home equity loans. The Corporation’s credit risk monitoring guidelines for home equity is based on an ongoing review of loan delinquency status, as well as a quarterly review of FICO score deterioration and property devaluation. The Corporation does not routinely obtain appraisals on performing loans to update LTV ratios after origination; however, the Corporation monitors the local housing markets by reviewing the various home price indices and incorporates the impact of the changing market conditions in its ongoing credit monitoring process. For junior lien home equity loans, the Corporation is unable to track the performance of the first lien loan if it does not own or service the first lien loan. However, the Corporation obtains a refreshed FICO score on a quarterly basis and monitors this as part of its assessment of the home equity portfolio.
The Corporation’s underwriting and risk-based pricing guidelines for home equity lines of credit and loans consist of a combination of both borrower FICO and the original cumulative LTV against the property securing the loan. During the second quarter of 2020, in the volatile economic environment, the Corporation reduced its exposure by reducing its maximum LTV on home equity lines of credit from 90% to 80%, among other changes, while maintaining the minimum acceptable FICO at 670. The Corporation's current home equity line of credit offering is priced based on floating rate indices and generally allows 10 years of interest-only payments followed by a 20-year amortization of the outstanding balance. During the third quarter of 2020, based upon an analysis of market conditions and uncertainty around the timing and scope of the anticipated economic recovery, the Corporation temporarily suspended new applications for home equity lines of credit. TheDue to improving economic conditions, the Corporation has significantly curtailed its offerings of fixed-rate, closed-endresumed applications for home equity loans.lines of credit in the first quarter of 2021. The loans in the Corporation's portfolio generally have an original term of 20 years with principal and interest payments required. See section Loans for additional information on loans.
Other consumer: Other consumer consists of student loans, short-term and other personal installment loans, and credit cards. The Corporation had $121$112 million and $136$118 million of student loans at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, the majority of which are government guaranteed. As a result of the COVID-19 pandemic and the passage of the CARES Act, government guaranteed student loans had been placed on an administrative forbearance through September 30, 2020. Subsequently, on August 8, 2020, President Donald Trump directed the Secretary of Education to continue to suspend
loan payments, stop collections, and waive interest on U.S. Department of Education held federal student loans through December 31, 2020. On December 4, 2020, the relief measures were extended through January 31, 2021, and on January 20, 2021, President Biden extended the federal student loan relief through September 30, 2021. Credit risk for non-government guaranteed student loans, short-term personal installment loans, and credit cards is influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery of these smaller consumer loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guarantee positions. The student loan portfolio is in run-off and no new student loans are being originated.
COVID-19 Update:
Beginning on April 3, 2020, the Corporation began originating SBA loans under the PPP, which are included in commercial and business lending loans, to help businesses keep their workforce employed and cover other working capital needs during the COVID-19 pandemic. All complete eligible applications for the PPP have been processed in the order in which they have been received. The Corporation has fully funded the PPP loans by drawing from the PPPLF, established under the CARES Act. The Corporation began submitting PPP forgiveness applications to the SBA on behalf of our customers on September 14, 2020. Forgiveness payments from the SBA began to be received early in the fourth quarter.quarter of 2020. On December 27, 2020, the Economic Aid Act was signed into law, which included another round of PPP funding. The Corporation believes we will receive a modest amountbegan originating the new round of forgiveness payments yetPPP loans in 2020, with the majority to be received inJanuary 2021.
The following table summarizes the balance segmentation of the PPP loans and associated deferred fees as of SeptemberJune 30, 2020:2021:
Table 1410 Paycheck Protection Program Loan Segmentation
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($ in Thousands) | Originated Loans | Originated Balance | Outstanding Balance | Impacted Jobs |
>=$2,000,000 | 99 | | $ | 335,534 | | $ | 302,399 | | 26,688 | |
< $2,000,000 And > $350,000 | 485 | | 386,062 | | 378,435 | | 37,274 | |
<=$350,000 | 7,495 | | 343,895 | | 341,382 | | 50,468 | |
Total | 8,079 | | $ | 1,065,491 | | $ | 1,022,217 | | 114,430 | |
For consumers, the Corporation suspended certain transaction and late fees; initiated consumer and mortgage loan payment deferral and credit card payment relief programs; and suspended foreclosures and repossessions. The Corporation began collecting these fees again during the third quarter of 2020.
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| Round 1 & 2 | | Round 3 | | Total | |
| Originated Loans | Originated Balance | Outstanding Balance | | Originated Loans | Originated Balance | Outstanding Balance | | Outstanding Balance | |
($ in Thousands) | |
>=$2,000,000 | 99 | | $ | 335,534 | | $ | 66,418 | | | 11 | | $ | 22,000 | | $ | 20,000 | | | $ | 86,418 | | |
< $2,000,000 And > $350,000 | 485 | | 386,245 | | 17,749 | | | 158 | | 118,491 | | 109,675 | | | 127,425 | | |
<=$350,000 | 7,495 | | 344,032 | | 30,422 | | | 5,332 | | 188,514 | | 161,217 | | | 191,638 | | |
Total | 8,079 | | $ | 1,065,811 | | $ | 114,589 | | | 5,501 | | $ | 329,004 | | $ | 290,892 | | | $ | 405,482 | | |
Deferred fees | | | $ | 1,034 | | | | | $ | 14,438 | | | $ | 15,472 | | |
The following table summarizes loan forbearances outstanding in response to the COVID-19 pandemic as of SeptemberJune 30, 20202021 as a result of the loan forbearance and credit card payment relief program:
Table 1511 COVID-19 Loan Forbearances
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($ in Thousands) | Number of Loans | | Outstanding Balance |
Commercial and business lending | 136 | | $ | 57,525 | |
Commercial real estate | 69 | | 228,729 | |
Total consumer | 1,439 | | 375,794 | |
Total | 1,644 | | $ | 662,048 | |
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($ in Thousands) | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 |
Total commercial | $ | 15,185 | | $ | 17,636 | | $ | 30,744 | | $ | 310,377 | | $ | 863,090 | |
Total consumer | 4,376 | | 19,724 | | 47,835 | | 375,794 | | 724,921 | |
Total | $ | 19,561 | | $ | 37,360 | | $ | 78,579 | | $ | 686,171 | | $ | 1,588,011 | |
Nonperforming Assets
Management is committed to a proactive nonaccrual and problem loan identification philosophy. This philosophy is implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to ensure that problem loans are identified quickly and the risk of loss is minimized. Table 1612 provides detailed information regarding NPAs, which include nonaccrual loans, OREO, and other NPAs:
Table 12 Nonperforming Assets
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($ in Thousands) | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
Nonperforming assets | |
| | | | | | | | | |
Commercial and industrial | $ | 105,899 | | | $ | 80,239 | | | $ | 58,854 | | | $ | 46,312 | | | $ | 56,536 | |
Commercial real estate — owner occupied | 2,043 | | | 1,932 | | | 1,838 | | | 67 | | | 68 | |
Commercial and business lending | 107,941 | | | 82,171 | | | 60,692 | | | 46,380 | | | 56,604 | |
Commercial real estate — investor | 50,458 | | | 11,172 | | | 1,091 | | | 4,409 | | | 4,800 | |
Real estate construction | 392 | | | 503 | | | 486 | | | 493 | | | 542 | |
Commercial real estate lending | 50,850 | | | 11,675 | | | 1,577 | | | 4,902 | | | 5,342 | |
Total commercial | 158,792 | | | 93,846 | | | 62,269 | | | 51,282 | | | 61,946 | |
Residential mortgage | 62,331 | | | 66,656 | | | 64,855 | | | 57,844 | | | 57,056 | |
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Home equity | 10,277 | | | 10,829 | | | 9,378 | | | 9,104 | | | 9,828 | |
Other consumer | 190 | | | 276 | | | 215 | | | 152 | | | 109 | |
Total consumer | 72,798 | | | 77,761 | | | 74,448 | | | 67,099 | | | 66,993 | |
Total nonaccrual loans | 231,590 | | | 171,607 | | | 136,717 | | | 118,380 | | | 128,939 | |
Commercial real estate owned | 2,113 | | | 2,968 | | | 3,105 | | | 3,530 | | | 3,603 | |
Residential real estate owned | 1,535 | | | 3,573 | | | 5,994 | | | 5,696 | | | 4,791 | |
Bank properties real estate owned | 15,335 | | | 13,723 | | | 13,431 | | | 11,874 | | | 11,230 | |
OREO | 18,983 | | | 20,264 | | | 22,530 | | | 21,101 | | | 19,625 | |
Other nonperforming assets | 909 | | | 909 | | | 6,004 | | | 6,004 | | | 6,004 | |
Total nonperforming assets | $ | 251,481 | | | $ | 192,780 | | | $ | 165,251 | | | $ | 145,485 | | | $ | 154,568 | |
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Accruing loans past due 90 days or more | | | | | | | | | |
Commercial | $ | 763 | | | $ | 385 | | | $ | 436 | | | $ | 342 | | | $ | 266 | |
Consumer | 1,091 | | | 1,081 | | | 1,819 | | | 1,917 | | | 1,720 | |
Total accruing loans past due 90 days or more | $ | 1,854 | | | $ | 1,466 | | | $ | 2,255 | | | $ | 2,259 | | | $ | 1,986 | |
Restructured loans (accruing)(a) | | | | | | | | | |
Commercial | $ | 18,407 | | | $ | 18,189 | | | $ | 18,767 | | | $ | 18,944 | | | $ | 17,842 | |
Consumer | 8,485 | | | 7,114 | | | 7,618 | | | 7,097 | | | 6,487 | |
Total restructured loans (accruing) | $ | 26,891 | | | $ | 25,303 | | | $ | 26,384 | | | $ | 26,041 | | | $ | 24,329 | |
Nonaccrual restructured loans (included in nonaccrual loans) | $ | 23,844 | | | $ | 25,362 | | | $ | 24,204 | | | $ | 22,494 | | | $ | 16,293 | |
Ratios | | | | | | | | | |
Nonaccrual loans to total loans | 0.93 | % | | 0.69 | % | | 0.56 | % | | 0.52 | % | | 0.57 | % |
NPAs to total loans plus OREO | 1.01 | % | | 0.78 | % | | 0.68 | % | | 0.64 | % | | 0.68 | % |
NPAs to total assets | 0.72 | % | | 0.54 | % | | 0.49 | % | | 0.45 | % | | 0.47 | % |
Allowance for loan losses to nonaccrual loans | N/A | | N/A | | N/A | | 170.10 | % | | 166.30 | % |
Allowance for credit losses on loans to nonaccrual loans | 190.85 | % | | 249.74 | % | | 288.24 | % | | 188.61 | % | | 184.07 | % |
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($ in Thousands) | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 |
Nonperforming assets | |
| | | | | |
Commercial and industrial | $ | 18,380 | | $ | 33,192 | | $ | 61,859 | | $ | 105,899 | | $ | 80,239 | |
Commercial real estate — owner occupied | 7 | | 7 | | 1,058 | | 2,043 | | 1,932 | |
Commercial and business lending | 18,387 | | 33,200 | | 62,917 | | 107,941 | | 82,171 | |
Commercial real estate — investor | 63,003 | | 58,485 | | 78,220 | | 50,458 | | 11,172 | |
Real estate construction | 247 | | 327 | | 353 | | 392 | | 503 | |
Commercial real estate lending | 63,250 | | 58,813 | | 78,573 | | 50,850 | | 11,675 | |
Total commercial | 81,637 | | 92,012 | | 141,490 | | 158,792 | | 93,846 | |
Residential mortgage | 56,795 | | 61,256 | | 59,337 | | 62,331 | | 66,656 | |
Home equity | 8,517 | | 9,792 | | 9,888 | | 10,277 | | 10,829 | |
Other consumer | 186 | | 231 | | 140 | | 190 | | 276 | |
Total consumer | 65,498 | | 71,280 | | 69,364 | | 72,798 | | 77,761 | |
Total nonaccrual loans | 147,135 | | 163,292 | | 210,854 | | 231,590 | | 171,607 | |
Commercial real estate owned | 1,318 | | 2,092 | | 2,185 | | 2,113 | | 2,968 | |
Residential real estate owned | 2,438 | | 1,501 | | 1,194 | | 1,535 | | 3,573 | |
Bank properties real estate owned | 20,244 | | 20,995 | | 10,889 | | 15,335 | | 13,723 | |
OREO | 24,000 | | 24,588 | | 14,269 | | 18,983 | | 20,264 | |
Other nonperforming assets | — | | — | | — | | 909 | | 909 | |
Total nonperforming assets | $ | 171,135 | | $ | 187,880 | | $ | 225,123 | | $ | 251,481 | | $ | 192,780 | |
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| | | | | |
Accruing loans past due 90 days or more | | | | | |
Commercial | $ | 203 | | $ | 190 | | $ | 175 | | $ | 763 | | $ | 385 | |
Consumer | 1,099 | | 1,485 | | 1,423 | | 1,091 | | 1,081 | |
Total accruing loans past due 90 days or more | $ | 1,302 | | $ | 1,675 | | $ | 1,598 | | $ | 1,854 | | $ | 1,466 | |
Restructured loans (accruing)(a) | | | | | |
Commercial | $ | 26,353 | | $ | 27,356 | | $ | 41,119 | | $ | 18,407 | | $ | 18,189 | |
Consumer | 15,582 | | 13,464 | | 10,973 | | 8,485 | | 7,114 | |
Total restructured loans (accruing) | $ | 41,935 | | $ | 40,820 | | $ | 52,092 | | $ | 26,891 | | $ | 25,303 | |
Nonaccrual restructured loans (included in nonaccrual loans) | $ | 17,237 | | $ | 17,624 | | $ | 20,190 | | $ | 23,844 | | $ | 25,362 | |
Ratios | | | | | |
Nonaccrual loans to total loans | 0.61 | % | 0.68 | % | 0.86 | % | 0.93 | % | 0.69 | % |
NPAs to total loans plus OREO | 0.71 | % | 0.78 | % | 0.92 | % | 1.01 | % | 0.78 | % |
NPAs to total assets | 0.50 | % | 0.54 | % | 0.67 | % | 0.72 | % | 0.54 | % |
| | | | | |
Allowance for credit losses on loans to nonaccrual loans | 247.45 | % | 247.23 | % | 204.63 | % | 190.85 | % | 249.74 | % |
(a) Does not include any restructured loans related to COVID-19 in accordance with Section 4013 of the CARES Act.
Table 1612 Nonperforming Assets (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in Thousands) | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
Accruing loans 30-89 days past due | | | |
| | | | | | | | | |
Commercial and industrial | $ | 298 | | | $ | 716 | | | $ | 976 | | | $ | 821 | | | $ | 426 | |
Commercial real estate — owner occupied | 870 | | | 199 | | | 51 | | | 1,369 | | | 2,646 | |
Commercial and business lending | 1,167 | | | 916 | | | 1,027 | | | 2,190 | | | 3,073 | |
Commercial real estate — investor | 409 | | | 13,874 | | | 14,462 | | | 1,812 | | | 636 | |
Real estate construction | 111 | | | 385 | | | 179 | | | 97 | | | 595 | |
Commercial real estate lending | 520 | | | 14,260 | | | 14,641 | | | 1,909 | | | 1,232 | |
Total commercial | 1,687 | | | 15,175 | | | 15,668 | | | 4,099 | | | 4,304 | |
Residential mortgage | 6,185 | | | 3,023 | | | 10,102 | | | 9,274 | | | 8,063 | |
| | | | | | | | | |
| | | | | | | | | |
Home equity | 5,609 | | | 3,108 | | | 7,001 | | | 5,647 | | | 4,798 | |
Other consumer | 1,351 | | | 1,482 | | | 1,777 | | | 2,083 | | | 2,203 | |
Total consumer | 13,144 | | | 7,613 | | | 18,879 | | | 17,005 | | | 15,063 | |
Total accruing loans 30-89 days past due | $ | 14,831 | | | $ | 22,788 | | | $ | 34,547 | | | $ | 21,104 | | | $ | 19,367 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Potential problem loans | | | | | | | | | |
PPP(a) | $ | 19,161 | | | $ | 19,161 | | | $ | — | | | $ | — | | | $ | — | |
Commercial and industrial | 144,159 | | | 176,270 | | | 149,747 | | | 110,308 | | | 59,427 | |
Commercial real estate — owner occupied | 22,808 | | | 15,919 | | | 15,802 | | | 19,889 | | | 22,624 | |
Commercial and business lending | 186,129 | | | 211,350 | | | 165,550 | | | 130,197 | | | 82,051 | |
Commercial real estate — investor | 100,459 | | | 88,237 | | | 61,030 | | | 29,449 | | | 49,353 | |
Real estate construction | 2,178 | | | 2,170 | | | 1,753 | | | — | | | 544 | |
Commercial real estate lending | 102,637 | | | 90,407 | | | 62,783 | | | 29,449 | | | 49,897 | |
Total commercial | 288,766 | | | 301,758 | | | 228,333 | | | 159,646 | | | 131,948 | |
Residential mortgage | 2,396 | | | 3,157 | | | 3,322 | | | 1,451 | | | 1,242 | |
| | | | | | | | | |
| | | | | | | | | |
Home equity | 1,632 | | | 1,921 | | | 2,238 | | | — | | | — | |
| | | | | | | | | |
Total consumer | 4,028 | | | 5,078 | | | 5,559 | | | 1,451 | | | 1,242 | |
Total potential problem loans | $ | 292,794 | | | $ | 306,836 | | | $ | 233,892 | | | $ | 161,097 | | | $ | 133,189 | |
| | | | | | | | | | | | | | | | | |
($ in Thousands) | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 |
Accruing loans 30-89 days past due | | |
| | | | | |
Commercial and industrial | $ | 258 | | $ | 526 | | $ | 6,119 | | $ | 298 | | $ | 716 | |
Commercial real estate — owner occupied | 47 | | — | | 373 | | 870 | | 199 | |
Commercial and business lending | 306 | | 526 | | 6,492 | | 1,167 | | 916 | |
Commercial real estate — investor | 391 | | 5,999 | | 12,793 | | 409 | | 13,874 | |
Real estate construction | 117 | | 977 | | 991 | | 111 | | 385 | |
Commercial real estate lending | 509 | | 6,976 | | 13,784 | | 520 | | 14,260 | |
Total commercial | 814 | | 7,502 | | 20,276 | | 1,687 | | 15,175 | |
Residential mortgage | 5,015 | | 3,973 | | 10,385 | | 6,185 | | 3,023 | |
| | | | | |
| | | | | |
Home equity | 2,472 | | 2,352 | | 4,802 | | 5,609 | | 3,108 | |
Other consumer | 1,075 | | 1,270 | | 1,599 | | 1,351 | | 1,482 | |
Total consumer | 8,562 | | 7,594 | | 16,786 | | 13,144 | | 7,613 | |
Total accruing loans 30-89 days past due | $ | 9,376 | | $ | 15,097 | | $ | 37,062 | | $ | 14,831 | | $ | 22,788 | |
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| | | | | |
| | | | | |
| | | | | |
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| | | | | |
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| | | | | |
Potential problem loans | | | | | |
PPP(a) | $ | 8,695 | | $ | 22,398 | | $ | 18,002 | | $ | 19,161 | | $ | 19,161 | |
Commercial and industrial | 77,064 | | 122,143 | | 121,487 | | 144,159 | | 176,270 | |
Commercial real estate — owner occupied | 17,828 | | 15,965 | | 26,179 | | 22,808 | | 15,919 | |
Commercial and business lending | 103,587 | | 160,506 | | 165,668 | | 186,129 | | 211,350 | |
Commercial real estate — investor | 71,613 | | 85,752 | | 91,396 | | 100,459 | | 88,237 | |
Real estate construction | 16,465 | | 13,977 | | 19,046 | | 2,178 | | 2,170 | |
Commercial real estate lending | 88,078 | | 99,728 | | 110,442 | | 102,637 | | 90,407 | |
Total commercial | 191,665 | | 260,234 | | 276,111 | | 288,766 | | 301,758 | |
Residential mortgage | 3,024 | | 2,524 | | 3,749 | | 2,396 | | 3,157 | |
Home equity | 1,558 | | 1,729 | | 2,068 | | 1,632 | | 1,921 | |
| | | | | |
Total consumer | 4,583 | | 4,254 | | 5,817 | | 4,028 | | 5,078 | |
Total potential problem loans | $ | 196,248 | | $ | 264,488 | | $ | 281,928 | | $ | 292,794 | | $ | 306,836 | |
(a) The Corporation’s policy is to assign risk ratings at the borrower level. PPP loans are 100% guaranteed by the SBA and therefore the Corporation considers these loans to have a
risk profile similar to pass rated loans.Nonaccrual loans: Nonaccrual loans are considered to be one indicator of potential future loan losses. See Note 7 Loans of the notes to consolidated financial statements for additional nonaccrual loan disclosures. See also sections Credit Risk and Allowance for Credit Losses.Losses on Loans.
Accruing loans past due 90 days or more: Loans past due 90 days or more but still accruing interest are classified as such where the underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection.
Restructured loans: Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. See also Note 7 Loans of the notes to consolidated financial statements for additional restructured loans disclosures.
Potential problem loans: The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the allowance for loan losses.ACLL. Potential problem loans are generally defined by management to include loans rated as substandard by management but that are not individuallycollectively evaluated (i.e.,(not nonaccrual loans andor accruing TDRs); however, there are circumstances present to create doubt as to the ability of the borrower to comply with present repayment terms. The decision of management to include performing loans in potential problem loans does not necessarily mean that the Corporation expects losses to occur, but that management recognizes a higher degree of risk associated with these loans.
OREO: Management actively seeks to ensure OREO properties held are monitored to minimize the Corporation’s risk of loss.
Other nonperforming assets: The asset balance as of September 30,During 2020, represents the Bank's units ofCorporation wrote off the ownership interest in an oil and gas limited liability companies as a result of acompany it had received in partial settlement of a debt. During the second quarter of 2020, the Corporation wrote the value for one of the ownership interests down to the fair market value, resulting in a $5 million asset loss. These investments are included in tax credit and other investments on the consolidated balance sheets.
Allowance for Credit Losses on Loans
Credit risks within the loan portfolio are inherently different for each loan type. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and ongoing review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and the minimization of loan losses. Credit risk management for each loan type is discussed in the section entitled Credit Risk. See Note 7 Loans of the notes to consolidated financial statements for additional disclosures on the ACLL.
To assess the appropriateness of the ACLL, the Corporation focuses on the evaluation of many factors, including but not limited to: evaluation of facts and issues related to specific loans, management’s ongoing review and grading of the loan portfolio, credit report refreshes, consideration of historical loan loss and delinquency experience on each portfolio category, trends in past due and nonaccrual loans, the level of potential problem loans, the risk characteristics of the various classifications of loan segments, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions and economic forecasts, the fair value of underlying collateral, funding assumptions on lines, and other qualitative and quantitative factors which could affect potential credit losses. The Corporation utilized the Moody's baseline forecast for September 2020June 2021 in the allowance model. The forecast is applied over a 12 year reasonable and supportable period with immediatestraight-line reversion to historical losses due toover the length and depthsecond year of the pandemic.period. Assessing these factors involves significant judgment. Because each of the criteria used is subject to change, the ACLL is not necessarily indicative of the trend of future credit losses on loans in any particular segment. Therefore, management considers the ACLL a critical accounting policy, see section Critical Accounting Policies for additional information on the ACLL. See section Nonperforming Assets for a detailed discussion on asset quality. See also Note 7 Loans of the notes to consolidated financial statements for additional ACLL disclosures. Table 5 provides information on loan growth and period end loan composition, Table 1612 provides additional information regarding NPAs, and Table 1713 and Table 1814 provide additional information regarding activity in the ACLL.
The loan segmentation used in calculating the ACLL at SeptemberJune 30, 20202021 and December 31, 20192020 was generally comparable. The methodology to calculate the ACLL consists of the following components: a valuation allowance estimate is established for commercial and consumer loans determined by the Corporation to be individually evaluated, using discounted cash flows, estimated fair value of underlying collateral, and / and/or other data available. Loans are segmented for criticized loan pools by loan type as well as for non-criticized loan pools by loan type, primarily based on historical loss rates after considering loan type, historical loss and delinquency experience, credit quality, and industry classifications. Loans that have been criticized are considered to have a higher risk of default than non-criticized loans, as circumstances were present to support the lower loan grade, warranting higher loss factors. The loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks. Additionally, management allocates ACLL to absorb losses that may not be provided for by the other components due to qualitative factors evaluated by management, such as limitations within the credit risk grading process, known current economic or business conditions that may not yet show in trends, industry or other concentrations with current issues that impose higher inherent risks than are reflected in the loss factors, and other relevant considerations. The total allowance is available to absorb losses from any segment of the loan portfolio.
Table 1713 Allowance for Credit Losses on Loans
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| YTD | | Quarter Ended |
($ in Thousands) | September 30, 2020 | September 30, 2019 | | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 |
Allowance for Loan Losses | | | | | | | | |
Balance at beginning of period | $ | 201,371 | | $ | 238,023 | | | $ | 363,803 | | $ | 337,793 | | $ | 201,371 | | $ | 214,425 | | $ | 233,659 | |
Cumulative effect of ASU 2016-13 adoption (CECL) | 112,457 | | N/A | | N/A | N/A | 112,457 | | N/A | N/A |
Balance at beginning of period, adjusted | 313,828 | | 238,023 | | | 363,803 | | 337,793 | | 313,828 | | 214,425 | | 233,659 | |
Provision for loan losses | 137,957 | | 17,500 | | | 50,500 | | 52,500 | | 34,957 | | 1,000 | | 1,000 | |
Provision for loan losses recorded at acquisition | 2,543 | | N/A | | N/A | N/A | 2,543 | | N/A | N/A |
Gross up of allowance for PCD loans at acquisition | 3,504 | | N/A | | N/A | N/A | 3,504 | | N/A | N/A |
Charge offs | (81,738) | | (57,560) | | | (34,079) | | (28,351) | | (19,308) | | (16,752) | | (26,313) | |
Recoveries | 8,617 | | 16,462 | | | 4,488 | | 1,861 | | 2,268 | | 2,699 | | 6,079 | |
Net (charge offs) recoveries | (73,121) | | (41,098) | | | (29,592) | | (26,490) | | (17,040) | | (14,054) | | (20,234) | |
Balance at end of period | $ | 384,711 | | $ | 214,425 | | | $ | 384,711 | | $ | 363,803 | | $ | 337,793 | | $ | 201,371 | | $ | 214,425 | |
Allowance for Unfunded Commitments | | | | | | | | |
Balance at beginning of period | $ | 21,907 | | $ | 24,336 | | | $ | 64,776 | | $ | 56,276 | | $ | 21,907 | | $ | 22,907 | | $ | 21,907 | |
Cumulative effect of ASU 2016-13 adoption (CECL) | 18,690 | | N/A | | N/A | N/A | 18,690 | | N/A | N/A |
Balance at beginning of period, adjusted | 40,597 | | 24,336 | | | 64,776 | | 56,276 | | 40,597 | | 22,907 | | 21,907 | |
Provision for unfunded commitments | 16,500 | | (1,500) | | | (7,500) | | 8,500 | | 15,500 | | (1,000) | | 1,000 | |
Amount recorded at acquisition | 179 | | 70 | | | — | | — | | 179 | | — | | — | |
Balance at end of period | $ | 57,276 | | $ | 22,907 | | | $ | 57,276 | | $ | 64,776 | | $ | 56,276 | | $ | 21,907 | | $ | 22,907 | |
Allowance for credit losses on loans(a) | $ | 441,988 | | $ | 237,331 | | | $ | 441,988 | | $ | 428,579 | | $ | 394,069 | | $ | 223,278 | | $ | 237,331 | |
Provision for credit losses on loans(b)(c) | 157,000 | | 16,000 | | | 43,000 | | 61,000 | | 53,000 | | — | | 2,000 | |
Net loan (charge offs) recoveries | | | | | | | | |
| | | | | | | | |
Commercial and industrial | $ | (64,802) | | $ | (39,523) | | | $ | (24,834) | | $ | (24,919) | | $ | (15,049) | | $ | (11,917) | | $ | (19,918) | |
Commercial real estate — owner occupied | (415) | | 2,573 | | | (416) | | 1 | | — | | — | | 1,483 | |
Commercial and business lending | (65,216) | | (36,950) | | | (25,249) | | (24,919) | | (15,048) | | (11,917) | | (18,435) | |
Commercial real estate — investor | (3,581) | | 31 | | | (3,609) | | 28 | | — | | — | | (3) | |
Real estate construction | (12) | | 170 | | | (21) | | (3) | | 11 | | 72 | | 20 | |
Commercial real estate lending | (3,593) | | 202 | | | (3,630) | | 25 | | 11 | | 72 | | 17 | |
Total commercial | (68,810) | | (36,749) | | | (28,879) | | (24,893) | | (15,037) | | (11,845) | | (18,418) | |
Residential mortgage | (1,206) | | (1,215) | | | (79) | | (215) | | (912) | | (1,415) | | (393) | |
| | | | | | | | |
| | | | | | | | |
Home equity | (76) | | 273 | | | 156 | | (303) | | 71 | | 480 | | (275) | |
Other consumer | (3,030) | | (3,407) | | | (790) | | (1,078) | | (1,162) | | (1,274) | | (1,148) | |
Total consumer | (4,311) | | (4,349) | | | (712) | | (1,596) | | (2,003) | | (2,208) | | (1,816) | |
Total net (charge offs) recoveries | $ | (73,121) | | $ | (41,098) | | | $ | (29,592) | | $ | (26,490) | | $ | (17,040) | | $ | (14,054) | | $ | (20,234) | |
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| | | | | | | | |
Ratios | | | | | | | | |
Allowance for loan losses to total loans | N/A | 0.94 | % | | N/A | N/A | N/A | 0.88 | % | 0.94 | % |
Allowance for credit losses on loans to total loans | 1.77 | % | 1.04 | % | | 1.77 | % | 1.73 | % | 1.62 | % | 0.98 | % | 1.04 | % |
Allowance for loan losses to net charge offs (annualized) | N/A | 3.9x | | N/A | N/A | N/A | 3.6x | 2.7x |
Allowance for credit losses on loans to net charge offs (annualized) | 4.5x | 4.3x | | 3.8x | 4.0x | 5.7x | 4.0x | 3.0x |
(a) Excludes approximately $70,000 of allowance for held to maturity investment securities.
(b) Includes the provision for loan losses and the provision for unfunded commitments.
(c) The three and nine months ended September 30, 2020 exclude approximately $9,000 of provision for held to maturity investment securities and the three months ended March 31, 2020 excludes less than $1,000 of provision for held to maturity investment securities.
| | | | | | | | | | | | | | | | | | | | | | | |
| YTD | Quarter Ended |
($ in Thousands) | June 30, 2021 | June 30, 2020 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 |
Allowance for Loan Losses | | | | | | | |
Balance at beginning of period | $ | 383,702 | | $ | 201,371 | | $ | 352,938 | | $ | 383,702 | | $ | 384,711 | | $ | 363,803 | | $ | 337,793 | |
Cumulative effect of ASU 2016-13 adoption (CECL) | N/A | 112,457 | | N/A | N/A | N/A | N/A | N/A |
Balance at beginning of period, adjusted | 383,702 | | 313,828 | | 352,938 | | 383,702 | | 384,711 | | 363,803 | | 337,793 | |
Provision for loan losses | (55,500) | | 87,457 | | (29,500) | | (26,000) | | 26,500 | | 50,500 | | 52,500 | |
Provision for loan losses recorded at acquisition | N/A | 2,543 | | N/A | N/A | N/A | N/A | N/A |
Gross up of allowance for PCD loans at acquisition | N/A | 3,504 | | N/A | N/A | N/A | N/A | N/A |
Charge offs | (20,855) | | (47,659) | | (7,681) | | (13,174) | | (30,315) | | (34,079) | | (28,351) | |
Recoveries | 11,464 | | 4,129 | | 3,054 | | 8,410 | | 2,805 | | 4,488 | | 1,861 | |
Net (charge offs) recoveries | (9,391) | | (43,530) | | (4,628) | | (4,764) | | (27,510) | | (29,592) | | (26,490) | |
Balance at end of period | $ | 318,811 | | $ | 363,803 | | $ | 318,811 | | $ | 352,938 | | $ | 383,702 | | $ | 384,711 | | $ | 363,803 | |
Allowance for Unfunded Commitments | | | | | | | |
Balance at beginning of period | $ | 47,776 | | $ | 21,907 | | $ | 50,776 | | $ | 47,776 | | $ | 57,276 | | $ | 64,776 | | $ | 56,276 | |
Cumulative effect of ASU 2016-13 adoption (CECL) | N/A | 18,690 | | N/A | N/A | N/A | N/A | N/A |
Balance at beginning of period, adjusted | 47,776 | | 40,597 | | 50,776 | | 47,776 | | 57,276 | | 64,776 | | 56,276 | |
Provision for unfunded commitments | (2,500) | | 24,000 | | (5,500) | | 3,000 | | (9,500) | | (7,500) | | 8,500 | |
Amount recorded at acquisition | — | | 179 | | — | | — | | — | | — | | — | |
Balance at end of period | $ | 45,276 | | $ | 64,776 | | $ | 45,276 | | $ | 50,776 | | $ | 47,776 | | $ | 57,276 | | $ | 64,776 | |
Allowance for credit losses on loans | $ | 364,087 | | $ | 428,579 | | $ | 364,087 | | $ | 403,714 | | $ | 431,478 | | $ | 441,988 | | $ | 428,579 | |
Provision for credit losses on loans | (58,000) | | 114,000 | | (35,000) | | (23,000) | | 17,000 | | 43,000 | | 61,000 | |
Net loan (charge offs) recoveries | | | | | | | |
| | | | | | | |
Commercial and industrial | $ | 2,700 | | $ | (39,968) | | $ | 1,333 | | $ | 1,367 | | $ | (8,514) | | $ | (24,834) | | $ | (24,919) | |
Commercial real estate — owner occupied | 9 | | 1 | | 5 | | 4 | | 143 | | (416) | | 1 | |
Commercial and business lending | 2,709 | | (39,967) | | 1,338 | | 1,370 | | (8,371) | | (25,249) | | (24,919) | |
Commercial real estate — investor | (11,475) | | 28 | | (5,589) | | (5,886) | | (18,696) | | (3,609) | | 28 | |
Real estate construction | 52 | | 8 | | 23 | | 29 | | 43 | | (21) | | (3) | |
Commercial real estate lending | (11,423) | | 36 | | (5,566) | | (5,857) | | (18,653) | | (3,630) | | 25 | |
Total commercial | (8,715) | | (39,931) | | (4,228) | | (4,487) | | (27,024) | | (28,879) | | (24,893) | |
Residential mortgage | (332) | | (1,127) | | (223) | | (109) | | (162) | | (79) | | (215) | |
| | | | | | | |
| | | | | | | |
Home equity | 681 | | (232) | | 337 | | 344 | | 335 | | 156 | | (303) | |
Other consumer | (1,025) | | (2,240) | | (514) | | (511) | | (659) | | (790) | | (1,078) | |
Total consumer | (676) | | (3,599) | | (400) | | (277) | | (486) | | (712) | | (1,596) | |
Total net (charge offs) recoveries | $ | (9,391) | | $ | (43,530) | | $ | (4,628) | | $ | (4,764) | | $ | (27,510) | | $ | (29,592) | | $ | (26,490) | |
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Ratios | | | | | | | |
| | | | | | | |
Allowance for credit losses on loans to total loans | 1.52 | % | 1.73 | % | 1.52 | % | 1.67 | % | 1.76 | % | 1.77 | % | 1.73 | % |
| | | | | | | |
Allowance for credit losses on loans to net charge offs (annualized) | 19.2x | 4.9x | 19.6x | 20.9x | 3.9x | 3.8x | 4.0x |
Loan Evaluation Method for ACLL | | | | | | | |
Individually evaluated for impairment | | | $ | 29,352 | | $ | 43,262 | | $ | 79,831 | | $ | 88,030 | | $ | 81,243 | |
Collectively evaluated for impairment | | | 334,734 | | 360,452 | | 351,646 | | 353,957 | | 347,336 | |
Total ACLL | | | $ | 364,087 | | $ | 403,714 | | $ | 431,478 | | $ | 441,988 | | $ | 428,579 | |
Loan Balance | | | | | | | |
Individually evaluated for impairment | | | $ | 141,817 | | $ | 180,006 | | $ | 259,497 | | $ | 256,536 | | $ | 218,293 | |
Collectively evaluated for impairment | | | 23,805,719 | | 23,982,321 | | 24,192,227 | | 24,747,216 | | 24,614,378 | |
Total loan balance | | | $ | 23,947,536 | | $ | 24,162,328 | | $ | 24,451,724 | | $ | 25,003,753 | | $ | 24,832,671 | |
Table 1814 Annualized net (charge offs) recoveriesNet (Charge Offs) Recoveries(a)
| | | YTD | | Quarter Ended | | YTD | Quarter Ended |
(In basis points) | (In basis points) | September 30, 2020 | September 30, 2019 | | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (In basis points) | June 30, 2021 | June 30, 2020 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 |
Net loan (charge offs) recoveries | Net loan (charge offs) recoveries | | Net loan (charge offs) recoveries | |
| Commercial and industrial | Commercial and industrial | (108) | | (70) | | | (126) | | (121) | | (81) | | (65) | | (104) | | Commercial and industrial | 7 | | (102) | | 7 | | 7 | | (45) | | (126) | | (121) | |
Commercial real estate — owner occupied | Commercial real estate — owner occupied | (6) | | 37 | | | (18) | | — | | — | | — | | 63 | | Commercial real estate — owner occupied | — | | — | | — | | — | | 6 | | (18) | | — | |
Commercial and business lending | Commercial and business lending | (93) | | (58) | | | (103) | | (100) | | (72) | | (58) | | (86) | | Commercial and business lending | 6 | | (87) | | 6 | | 6 | | (35) | | (103) | | (100) | |
Commercial real estate — investor | Commercial real estate — investor | (12) | | — | | | (34) | | — | | — | | — | | — | | Commercial real estate — investor | (54) | | — | | (52) | | (55) | | (173) | | (34) | | — | |
Real estate construction | Real estate construction | — | | 2 | | | — | | — | | — | | 2 | | 1 | | Real estate construction | 1 | | — | | 1 | | 1 | | 1 | | — | | — | |
Commercial real estate lending | Commercial real estate lending | (8) | | 1 | | | (24) | | — | | — | | 1 | | — | | Commercial real estate lending | (37) | | — | | (36) | | (38) | | (121) | | (24) | | — | |
Total commercial | Total commercial | (61) | | (36) | | | (73) | | (64) | | (44) | | (35) | | (53) | | Total commercial | (11) | | (54) | | (11) | | (12) | | (69) | | (73) | | (64) | |
Residential mortgage | Residential mortgage | (2) | | (2) | | | — | | (1) | | (4) | | (7) | | (2) | | Residential mortgage | (1) | | (3) | | (1) | | (1) | | (1) | | — | | (1) | |
Home equity | Home equity | (1) | | 4 | | | 8 | | (15) | | 3 | | 22 | | (12) | | Home equity | 21 | | (6) | | 21 | | 21 | | 18 | | 8 | | (15) | |
Other consumer | Other consumer | (120) | | (128) | | | (98) | | (128) | | (134) | | (145) | | (129) | | Other consumer | (69) | | (131) | | (69) | | (68) | | (83) | | (98) | | (128) | |
Total consumer | Total consumer | (6) | | (6) | | | (3) | | (7) | | (8) | | (9) | | (8) | | Total consumer | (2) | | (8) | | (2) | | (1) | | (2) | | (3) | | (7) | |
Total net (charge offs) recoveries | Total net (charge offs) recoveries | (40) | | (24) | | | (47) | | (42) | | (29) | | (24) | | (35) | | Total net (charge offs) recoveries | (8) | | (36) | | (8) | | (8) | | (44) | | (47) | | (42) | |
|
(a) Annualized ratio of net charge offs to average loans by loan type.
The following table illustrates the effect of the Day 1 adoption of ASU 2016-13 as well as the quarterly increase for the first three quarters of 2020 in the ACLL as of September 30, 2020:
Table 19 Allowance for Credit Losses on Loans by Loan Portfolio
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in Thousands) | December 31, 2019 | CECL Day 1 Adjustment | ACLL Beginning Balance | Net ACLL Build | March 31, 2020 | Net ACLL Build | June 30, 2020 | Net ACLL Build | September 30, 2020 | ACLL / Loans |
PPP | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 808 | | $ | 808 | | $ | 160 | | $ | 968 | | 0.09 | % |
Commercial and industrial | 103,409 | | 48,921 | | 152,330 | | 36,458 | | 188,788 | | 6,367 | | 195,155 | | (6,171) | | 188,983 | | 2.38 | % |
Commercial real estate - owner occupied | 10,411 | | (1,851) | | 8,560 | | 1,993 | | 10,553 | | (15) | | 10,538 | | 1,215 | | 11,755 | | 1.30 | % |
Commercial and business lending | 113,820 | | 47,070 | | 160,890 | | 38,451 | | 199,342 | | 7,159 | | 206,501 | | (4,795) | | 201,706 | | 2.05 | % |
Commercial real estate - investor | 41,044 | | 2,287 | | 43,331 | | (785) | | 42,546 | | 16,524 | | 59,070 | | 31,850 | | 90,921 | | 2.10 | % |
Real estate construction | 32,447 | | 25,814 | | 58,261 | | 7,428 | | 65,688 | | 10,585 | | 76,273 | | (10,528) | | 65,745 | | 3.54 | % |
Commercial real estate lending | 73,490 | | 28,101 | | 101,591 | | 6,643 | | 108,235 | | 27,109 | | 135,343 | | 21,323 | | 156,667 | | 2.53 | % |
Total Commercial | 187,311 | | 75,171 | | 262,482 | | 45,094 | | 307,577 | | 34,269 | | 341,844 | | 16,527 | | 358,372 | | 2.23 | % |
Residential mortgage | 16,960 | | 33,215 | | 50,175 | | (6,227) | | 43,947 | | (121) | | 43,826 | | (183) | | 43,643 | | 0.55 | % |
Home equity | 11,964 | | 14,240 | | 26,204 | | 39 | | 26,244 | | (936) | | 25,308 | | (2,359) | | 22,949 | | 3.01 | % |
Other consumer | 7,044 | | 8,520 | | 15,564 | | 737 | | 16,302 | | 1,299 | | 17,601 | | (578) | | 17,023 | | 5.40 | % |
Total consumer | 35,968 | | 55,975 | | 91,943 | | (5,450) | | 86,493 | | 242 | | 86,735 | | (3,120) | | 83,616 | | 0.93 | % |
Total allowance for credit losses on loans | $ | 223,278 | | $ | 131,147 | | $ | 354,425 | | $ | 39,643 | | $ | 394,069 | | $ | 34,510 | | $ | 428,579 | | $ | 13,408 | | $ | 441,988 | | 1.77 | % |
Notable Contributions to the Change in the Allowance for Credit Losses on Loans
•Total loans increased $2.2 billion,decreased $504 million, or 10%2%, from both December 31, 20192020 and Septemberdecreased $885 million, or 4%, from June 30, 2019,2020. The decreases from December 31, 2020 and June 30, 2020 were primarily driven by increasesdecreases in PPP loans and commercial real estate lending. In addition, the Corporation added $370 millionresidential mortgage loans. The decrease from June 30, 2020 was partially offset by an increase in loans from the First Staunton acquisition during the first quarter of 2020.CRE loans. See section Loans for additional information on the changes in the loan portfolio and see section Credit Risk for discussion about credit risk management for each loan type.
•Potential problem loans increased $132decreased $86 million, or 82%30%, from December 31, 20192020, and increased $160decreased $111 million, or 120%36%, from SeptemberJune 30, 2019,2020. The decreases from December 31, 2020 and June 30, 2020 were primarily due to increasesdriven by decreases in commercial and industrial and commercial real estate - investor
loans, stemming in part from the effects of COVID-19.lending. See Table 1612 for additional information on the changes inregarding potential problem loans.
•Total nonaccrual loans increased $113decreased $64 million, or 96%30%, from December 31, 20192020, and increased $103decreased $24 million, or 80%14%, from SeptemberJune 30, 2019.2020. The increases weredecrease from December 31, 2020 was primarily due to decreases in CRE and commercial and industrial lending. The decrease from June 30, 2020 was primarily driven by a decrease in commercial and industrial lending, which was partially offset by an increase in CRE lending. As economic conditions trended downward in 2020, due to the COVID-19 pandemic, nonaccrual commercial & industrial loans andincreased. As economic conditions have been improving throughout 2021, nonaccrual commercial real estate - investor loans stemming in part from the effects of COVID-19.have decreased. See Note 7 Loans of the notes to consolidated financial statements and Table 1612 for additional disclosures on the changes in asset quality.
•YTD net charge offs increased $32decreased $34 million, or 78%, from SeptemberJune 30, 2019,2020, primarily driven by oildecreased charge off amounts in commercial and gasindustrial loans, partially offset by higher charge offs.off amounts in CRE lending due to COVID-19 related impacts in that industry. See Table 8, Table 17,13 and Table 1814 for additional information regardingon the activity in the ACLL.
Management believes the level of ACLL to be appropriate at SeptemberJune 30, 2020.2021.
Deposits and Customer Funding
The following table summarizes the composition of our deposits and customer funding:
Table 2015 Period End Deposit and Customer Funding Composition
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
($ in Thousands) | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total |
Noninterest-bearing demand | $ | 7,489,048 | | | 28 | % | | $ | 7,573,942 | | | 29 | % | | $ | 6,107,386 | | | 24 | % | | $ | 5,450,709 | | | 23 | % | | $ | 5,503,223 | | | 23 | % |
Savings | 3,529,423 | | | 13 | % | | 3,394,930 | | | 13 | % | | 3,033,039 | | | 12 | % | | 2,735,036 | | | 12 | % | | 2,643,950 | | | 11 | % |
Interest-bearing demand | 5,979,449 | | | 22 | % | | 5,847,349 | | | 22 | % | | 6,170,071 | | | 24 | % | | 5,329,717 | | | 22 | % | | 5,434,955 | | | 22 | % |
Money market | 7,687,775 | | | 29 | % | | 7,486,319 | | | 28 | % | | 7,717,739 | | | 30 | % | | 7,640,798 | | | 32 | % | | 7,930,676 | | | 32 | % |
Brokered CDs | — | | | — | % | | 4,225 | | | — | % | | 65,000 | | | — | % | | 5,964 | | | — | % | | 16,266 | | | — | % |
Other time | 2,026,852 | | | 8 | % | | 2,244,680 | | | 8 | % | | 2,568,345 | | | 10 | % | | 2,616,839 | | | 11 | % | | 2,893,493 | | | 12 | % |
Total deposits | $ | 26,712,547 | | | 100 | % | | $ | 26,551,444 | | | 100 | % | | $ | 25,661,580 | | | 100 | % | | $ | 23,779,064 | | | 100 | % | | $ | 24,422,562 | | | 100 | % |
Customer funding(a) | 198,741 | | | | | 178,398 | | | | | 142,174 | | | | | 103,113 | | | | | 108,369 | | | |
Total deposits and customer funding | $ | 26,911,289 | | | | | $ | 26,729,842 | | | | | $ | 25,803,754 | | | | | $ | 23,882,177 | | | | | $ | 24,530,932 | | | |
Network transaction deposits(b) | $ | 1,390,778 | | | | | $ | 1,496,958 | | | | | $ | 1,731,996 | | | | | $ | 1,336,286 | | | | | $ | 1,527,910 | | | |
| | | | | | | | | | | | | | | | | | | |
Net deposits and customer funding (total deposits and customer funding, excluding Brokered CDs and network transaction deposits) | $ | 25,520,511 | | | | | $ | 25,228,660 | | | | | $ | 24,006,758 | | | | | $ | 22,539,927 | | | | | $ | 22,986,756 | | | |
| | | | | | | | | | | | | | | | | | | |
Time deposits of more than $250,000 | $ | 463,739 | | | | | $ | 559,434 | | | | | $ | 756,195 | | | | | $ | 861,183 | | | | | $ | 1,074,990 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 |
($ in Thousands) | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total |
Noninterest-bearing demand | $ | 7,999,143 | | 29 | % | $ | 8,496,194 | | 31 | % | $ | 7,661,728 | | 29 | % | $ | 7,489,048 | | 28 | % | $ | 7,573,942 | | 29 | % |
Savings | 4,182,651 | | 15 | % | 4,032,830 | | 15 | % | 3,650,085 | | 14 | % | 3,529,423 | | 13 | % | 3,394,930 | | 13 | % |
Interest-bearing demand | 5,969,285 | | 22 | % | 5,748,353 | | 21 | % | 6,090,869 | | 23 | % | 5,979,449 | | 22 | % | 5,847,349 | | 22 | % |
Money market | 7,640,825 | | 28 | % | 7,838,437 | | 28 | % | 7,322,769 | | 28 | % | 7,687,775 | | 29 | % | 7,486,319 | | 28 | % |
Time deposits (excluding brokered CDs) | 1,472,395 | | 5 | % | 1,561,352 | | 6 | % | 1,757,030 | | 7 | % | 2,026,852 | | 8 | % | 2,244,680 | | 8 | % |
Brokered CDs | — | | — | % | — | | — | % | — | | — | % | — | | — | % | 4,225 | | — | % |
Total deposits | $ | 27,264,299 | | 100 | % | $ | 27,677,166 | | 100 | % | $ | 26,482,481 | | 100 | % | $ | 26,712,547 | | 100 | % | $ | 26,551,444 | | 100 | % |
Customer funding(a) | 226,160 | | | 182,228 | | | 245,247 | | | 198,741 | | | 178,398 | | |
Total deposits and customer funding | $ | 27,490,459 | | | $ | 27,859,394 | | | $ | 26,727,727 | | | $ | 26,911,289 | | | $ | 26,729,842 | | |
Network transaction deposits(b) | $ | 871,603 | | | $ | 1,054,634 | | | $ | 1,197,093 | | | $ | 1,390,778 | | | $ | 1,496,958 | | |
| | | | | | | | | | |
Net deposits and customer funding (total deposits and customer funding, excluding Brokered CDs and network transaction deposits) | $ | 26,618,856 | | | $ | 26,804,761 | | | $ | 25,530,634 | | | $ | 25,520,511 | | | $ | 25,228,660 | | |
| | | | | | | | | | |
Time deposits of more than $250,000 | $ | 232,035 | | | $ | 246,037 | | | $ | 341,068 | | | $ | 463,739 | | | $ | 559,434 | | |
(a) Securities sold under agreement to repurchase and commercial paper.
(b) Included above in interest-bearing demand and money market.
•DepositsTotal deposits, which are the Corporation’sCorporation's largest source of funds.
•Total depositsfunds, increased $2.9 billion,$782 million, or 12%3%, from December 31, 20192020, and increased $2.3 billion,$713 million, or 9%3%, from SeptemberJune 30, 20192020, primarily driven by customers holding proceeds from government stimulus programs in their deposit accounts. In addition, on February 14, 2020, the Corporation assumed $439 million in deposits from the acquisition of First Staunton.
•Noninterest-bearing deposits increased $2.0 billion, or 37%, from December 31, 2019, and increased $2.0 billion, or 36%, from September 30, 2019 and savings accounts increased $794 million, or 29%, from December 31, 2019 and increased $885 million, or 33%, from September 30, 2019. These increases were primarily due to government stimulus program inflows.
•Time deposits (excluding brokered CDs) decreased $596$285 million, or 23%16%, from December 31, 20192020, and decreased $883$772 million, or 30%34%, from SeptemberJune 30, 20192020, due to higher priced time deposits rolling off as they mature.
•Non-maturity deposit accounts, comprised of savings, money market, and demand (both interest and noninterest-bearing) accounts, comprised 92%95% of the Corporation's total deposits at SeptemberJune 30, 2020.2021.
•Included in the above amounts were $1.4 billion$872 million of network deposits, primarily sourced from other financial institutions and intermediaries. These represented 5%3% of the Corporation's total deposits at SeptemberJune 30, 2020.2021. Network deposits increased $54decreased $325 million, or 4%27%, from December 31, 2019, but2020, and decreased $137$625 million, or 9%42%, from SeptemberJune 30, 2019.2020.
Liquidity
The objective of liquidity risk management is to ensure that the Corporation has the ability to generate sufficient cash or cash equivalents in a timely and cost effective manner to satisfy the cash flow requirements of depositors and borrowers and to meet its other commitments as they become due. The Corporation’s liquidity risk management process is designed to identify, measure, and manage the Corporation’s funding and liquidity risk to meet its daily funding needs in the ordinary course of business, as well as to address expected and unexpected changes in its funding requirements. The Corporation engages in various activities to manage its liquidity risk, including diversifying its funding sources, stress testing, and holding readily-marketable assets which can be used as a source of liquidity, if needed.
The Corporation performs dynamic scenario analysis in accordance with industry best practices. Measures have been established to ensure the Corporation has sufficient high quality short-term liquidity to meet cash flow requirements under stressed scenarios. In addition, the Corporation also reviews static measures such as deposit funding as a percentage of total assets and liquid asset levels. Strong capital ratios, credit quality, and core earnings are also essential to maintaining cost effective access to wholesale funding markets. At SeptemberJune 30, 2020,2021, the Corporation was in compliance with its internal liquidity objectives and hashad sufficient asset-based liquidity to meet its obligations under a stressed scenario.
The Corporation maintains diverse and readily available liquidity sources, including:
•Investment securities, which are an important tool to the Corporation’s liquidity objective and can be pledged or sold to enhance liquidity, if necessary. See Note 6 Investment Securities of the notes to consolidated financial statements for additional information on the Corporation's investment securities portfolio, including pledged investment securities.
•Pledgeable loan collateral, which is eligible collateral with both the Federal Reserve Bank and the FHLB under established lines of credit. Based on the amount of collateral pledged, the FHLB established a collateral value from which the Bank may draw advances against the collateral. The collateral is also used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Bank. As of SeptemberJune 30, 2020,2021, the Bank had $5.1$5.3 billion available for future advances. The Federal Reserve Bank also establishes a collateral value of assets to support borrowings from the discount window. As of SeptemberJune 30, 2020,2021, the Bank had $943$684 million available for discount window borrowings.
•A $200 million Parent Company commercial paper program, of which $51$56 million was outstanding as of SeptemberJune 30, 2020.2021.
•Dividends and service fees from subsidiaries, as well as the proceeds from issuance of capital, which are also funding sources for the Parent Company.
•Equity issuances by the Parent Company; the Corporation has filed a shelf registration statement with the SEC under which the Parent Company may, from time to time, offer shares of the Corporation’s common stock in connection with acquisitions of businesses, assets, or securities of other companies.
•Other issuances by the Parent Company; the Corporation also has filed amaintains on file with the SEC an updated universal shelf registration statement, with the SEC, under which the Parent Company may offer the following securities, either separately or in units: debt securities, preferred stock, depositary shares, common stock, and warrants.
•Bank issuances; the Bank may also issue institutional CDs, network transaction deposits, and brokered CDs.
•Global Bank Note Program issuances; the Bank has implemented the program pursuant to which it may from time to time offer up to $2.0 billion aggregate principal amount of its unsecured senior and subordinated notes. In August 2018,The Bank redeemed all of the Bank issued $300 million of senior notes due Auguston July 13, 2021, and callable July 2021.the initial redemption date under the terms of the notes.
Credit ratings relate to the Corporation’s ability to issue debt securities and the cost to borrow money, and should not be viewed as an indication of future stock performance or a recommendation to buy, sell, or hold securities. Adverse changes in these factors could result in a negative change in credit ratings and impact not only the ability to raise funds in the capital markets but also the cost of these funds. The credit ratings of the Parent Company and the Bank at SeptemberJune 30, 20202021 are displayed below:
Table 2116 Credit Ratings
| | | | | | | | | | | |
| Moody’s | | S&P |
Bank short-term deposits | P-1 | | - |
Bank long-term deposits/issuer | A1 | | BBB+ |
Corporation commercial paper | P-2 | | - |
Corporation long-term senior debt/issuer | Baa1 | | BBB |
Outlook | Negative | | Stable |
For the six months ended June 30, 2021, net cash provided by operating activities, investing activities and financing activities was $230 million, $249 million, and $577 million, respectively, for a net increase in cash and cash equivalents of $1.1 billion since year-end 2020. At June 30, 2021, assets of $34.2 billion increased $733 million, or 2%, from year-end 2020, primarily driven by a $1.0 billion increase in interest-bearing deposits in other financial institutions, partially offset by a $504 million, or 2%, decrease in loans. On the funding side, deposits of $27.3 billion increased $782 million, or 3%, from year-end related to deposit inflows from government stimulus programs.
For the ninesix months ended SeptemberJune 30, 2020, net cash provided by operating activities and financing activities was $423$286 million and $1.7$2.5 billion, respectively, while net cash used in investing activities was $1.6$1.3 billion, for a net increase in cash and cash equivalents and restricted cash of $525 million since$1.4 billion from year-end 2019. At SeptemberJune 30, 2020, assets of $34.7$35.5 billion increased $2.3$3.1 billion, or 7%10%, from year-end 2019, primarily driven bydue to a $2.2$2.0 billion, or 10%9%, increase in loans. Onloans, driven by the Corporation adding $1.0 billion in PPP loans and customers drawing on their lines to enhance their liquidity in response to the uncertainty surrounding the COVID-19 pandemic. Additionally, on February 14, 2020, the Corporation added $370 million in loans from the First Staunton acquisition and at September 30, 2020 the Corporation had $1.0 billion in PPP loans that were originated throughout the year, largely in the second quarter of 2020.acquisition. On the funding side, deposits of $26.7$26.6 billion increased $2.9$2.8 billion, or 12%, from year-end. Onyear-end 2019 as advances on customer's loans were
deposited into their deposit accounts, increasing their liquidity. Additionally, on February 14, 2020, the Corporation assumed $439 million of deposits from the First Staunton acquisition. In addition, the increase in balances was due to customers holding proceeds from government stimulus programs in their deposit accounts.
For the nine months ended September 30, 2019, net cash provided by operating activities, and investing activities was $470 million, and $1.6 billion, respectively, while financing activities used net cash of $2.2 billion for a net decrease in cash, cash equivalents, and restricted cash of $117 million since year-end 2018. At September 30, 2019, assets of $32.6 billion decreased $1.0 billion, or 3%, from year-end 2018, primarily driven by a $511 million, or 13% decrease in available for sale investment securities, and a $540 million, or 20%, decrease in held to maturity securities. On June 14, 2019, the Corporation added $116 million in loans from the Huntington branch acquisition. On the funding side, deposits of $24.4 billion decreased $475 million, or 2%, from year-end. On June 14, 2019, the Corporation assumed $725 million of deposits from the Huntington branch acquisition. As a result of the acquisition, the Corporation was able to reduce higher cost brokered CDs and network deposits. FHLB advances of $2.9 billion decreased $697 million, or 19%, from year-end 2018.
Quantitative and Qualitative Disclosures about Market Risk
Market risk and interest rate risk are managed centrally. Market risk is the potential for loss arising from adverse changes in the fair value of fixed income securities, equity securities, other earning assets and derivative financial instruments as a result of changes in interest rates or other factors. Interest rate risk is the potential for reduced net interest income resulting from adverse changes in the level of interest rates. As a financial institution that engages in transactions involving an array of financial products, the Corporation is exposed to both market risk and interest rate risk. In addition to market risk, interest rate risk is measured and managed through a number of methods. The Corporation uses financial modeling simulation techniques that measure the sensitivity of future earnings due to changing rate environments to measure interest rate risk.
Policies established by the Corporation’s ALCO and approved by the Board of Directors are intended to limit these risks. The Board has delegated day-to-day responsibility for managing market and interest rate risk to ALCO. The primary objectives of market risk management isare to minimize any adverse effect that changes in market risk factors may have on net interest income and to offset the risk of price changes for certain assets recorded at fair value.
Interest Rate Risk
The primary goal of interest rate risk management is to control exposure to interest rate risk within policy limits approved by the Board of Directors. These limits and guidelines reflect the Corporation's risk appetite for interest rate risk over both short-term and long-term horizons. No interest rate limit breaches occurred during the first ninesix months of 2020.2021.
The major sources of the Corporation's non-trading interest rate risk are timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, and the potential exercise of explicit or embedded options. We measure these risks and their impact by identifying and quantifying exposures through the use of sophisticated simulation and valuation models which are employed by management to understand NII at risk, interest rate
sensitive EAR, and MVE at risk. The Corporation’s interest rate risk profile is such that a higher or steeper yield curve adds to income while a flatter yield curve is relatively neutral, and a lower or inverted yield curve generally has a negative impact on earnings. The Corporation's EAR profile is asset sensitive at SeptemberJune 30, 2020.2021.
For further discussion of the Corporation's interest rate risk and corresponding key assumptions, see the Interest Rate Risk section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation’s 20192020 Annual Report on Form 10-K.
The sensitivity analysis included below is measured as a percentage change in NII and EAR due to gradual moves in benchmark interest rates from a baseline scenario over 12 months. We evaluate the sensitivity using: 1) a dynamic forecast incorporating expected growth in the balance sheet, and 2) a static forecast where the current balance sheet is held constant.
While a gradual shift in interest rates was used in this analysis to provide an estimate of exposure under a probable scenario, an instantaneous shift in interest rates would have a much more significant impact.
Table 2217 Estimated % Change in Rate Sensitive Earnings at Risk Over 12 Months
| | | | | | | | | | | | | | | | | | | | | | | |
| Dynamic Forecast September 30, 2020 | | Static Forecast September 30, 2020 | | Dynamic Forecast December 31, 2019 | | Static Forecast December 31, 2019 |
Gradual Rate Change | | | | | | | |
100 bp increase in interest rates | 5.8 | % | | 5.8 | % | | 4.0 | % | | 3.7 | % |
200 bp increase in interest rates | 11.8 | % | | 11.5 | % | | 7.4 | % | | 6.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Dynamic Forecast June 30, 2021 | | Static Forecast June 30, 2021 | | Dynamic Forecast December 31, 2020 | | Static Forecast December 31, 2020 |
Gradual Rate Change | | | | | | | |
100 bp increase in interest rates | 6.5 | % | | 6.3 | % | | 6.2 | % | | 6.3 | % |
200 bp increase in interest rates | 13.5 | % | | 12.9 | % | | 12.8 | % | | 12.7 | % |
At SeptemberJune 30, 2020,2021, the MVE profile indicates an increase in net balance sheet value due to instantaneous upward changes in rates.
Table 2318 Market Value of Equity Sensitivity
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Instantaneous Rate Change | | | |
100 bp increase in interest rates | 1.7 | % | | (0.5) | % |
200 bp increase in interest rates | 2.9 | % | | (2.1) | % |
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Instantaneous Rate Change | | | |
100 bp increase in interest rates | 0.8 | % | | 1.9 | % |
200 bp increase in interest rates | 1.2 | % | | 2.8 | % |
Since MVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in MVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year).
Further, MVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changes in product spreads that could mitigate the adverse impact of changes in interest rates.
The above NII, EAR, and MVE measures do not include all actions that management may undertake to manage this risk in response to anticipated changes in interest rates.
Contractual Obligations, Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities
The following table summarizes significant contractual obligations and other commitments at SeptemberJune 30, 2020,2021, at those amounts contractually due to the recipient, including any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.
Table 2419 Contractual Obligations and Other Commitments
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in Thousands) | One Year or Less | | One to Three Years | | Three to Five Years | | Over Five Years | | Total |
Time deposits | $ | 1,604,065 | | | $ | 335,633 | | | $ | 87,143 | | | $ | 11 | | | $ | 2,026,852 | |
Short-term funding | 206,316 | | | — | | | — | | | — | | | 206,316 | |
FHLB advances | 91,768 | | | 9,961 | | | 1,000,633 | | | 604,401 | | | 1,706,763 | |
PPPLF | — | | | 1,000,145 | | | 22,073 | | | — | | | 1,022,217 | |
Other long-term funding | 299,243 | | | 155 | | | 249,803 | | | — | | | 549,201 | |
| | | | | | | | | |
Operating leases | 9,250 | | | 12,589 | | | 8,135 | | | 10,859 | | | 40,833 | |
Commitments to extend credit | 4,556,350 | | | 3,753,792 | | | 1,357,817 | | | 178,277 | | | 9,846,235 | |
Total | $ | 6,766,992 | | | $ | 5,112,274 | | | $ | 2,725,604 | | | $ | 793,548 | | | $ | 15,398,417 | |
| | | | | | | | | | | | | | | | | |
($ in Thousands) | One Year or Less | One to Three Years | Three to Five Years | Over Five Years | Total |
Time deposits | $ | 1,112,212 | | $ | 308,882 | | $ | 51,296 | | $ | 5 | | $ | 1,472,395 | |
Short-term funding | 226,205 | | — | | — | | — | | 226,205 | |
FHLB advances | 7,848 | | 7,202 | | 1,001,406 | | 603,370 | | 1,619,826 | |
| | | | | |
Other long-term funding | 300,009 | | 9 | | 249,007 | | — | | 549,024 | |
| | | | | |
Operating leases | 8,360 | | 10,948 | | 7,570 | | 8,490 | | 35,370 | |
Commitments to extend credit | 5,535,132 | | 3,587,917 | | 1,408,389 | | 140,096 | | 10,671,533 | |
Total | $ | 7,189,765 | | $ | 3,914,959 | | $ | 2,717,668 | | $ | 751,961 | | $ | 14,574,353 | |
The Corporation utilizes a variety of financial instruments in the normal course of business to meet the financial needs of its customers and to manage its own exposure to fluctuations in interest rates. These financial instruments include lending-related commitments and derivative instruments. A discussion of the Corporation’s derivative instruments at SeptemberJune 30, 20202021 is included in Note 10 Derivative and Hedging Activities of the notes to consolidated financial statements. A discussion of the Corporation’s lending-related commitments is included in Note 12 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings and Regulatory Matters of the notes to consolidated financial statements. See Note 9 Short and Long-Term Funding of the notes to consolidated financial statements for additional information on the Corporation’s short-term funding, FHLB advances, PPPLF, and long-term funding. See also Note 18 Leases of the notes to consolidated financial statements for additional information on the Corporation's operating leases.
Capital
Management actively reviews capital strategies for the Corporation and each of its subsidiaries in light of perceived business risks, future growth opportunities, industry standards, and compliance with regulatory requirements. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, stability of earnings, changing competitive forces, economic condition in markets served, and strength of management. At SeptemberJune 30, 2020,2021, the capital ratios of the Corporation and its banking subsidiaries were in excess of regulatory minimum requirements. The Corporation’s capital ratios are summarized in the following table.
Table 2520 Capital Ratios
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD | | Quarter Ended |
($ in Thousands) | September 30, 2020 | September 30, 2019 | | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 |
Risk-based Capital(a) | | | | | | | | |
CET1 | | | | $ | 2,671,739 | | $ | 2,651,286 | | $ | 2,421,135 | | $ | 2,480,698 | | $ | 2,482,394 | |
Tier 1 capital | | | | 3,024,710 | | 3,004,424 | | 2,676,951 | | 2,736,776 | | 2,738,708 | |
Total capital | | | | 3,601,705 | | 3,577,757 | | 3,249,807 | | 3,208,625 | | 3,224,538 | |
Total risk-weighted assets | | | | 26,141,710 | | 25,864,463 | | 25,866,140 | | 24,296,382 | | 24,312,727 | |
CET1 capital ratio | | | | 10.22 | % | 10.25 | % | 9.36 | % | 10.21 | % | 10.21 | % |
Tier 1 capital ratio | | | | 11.57 | % | 11.62 | % | 10.35 | % | 11.26 | % | 11.26 | % |
Total capital ratio | | | | 13.78 | % | 13.83 | % | 12.56 | % | 13.21 | % | 13.26 | % |
Tier 1 leverage ratio | | | | 9.02 | % | 9.08 | % | 8.50 | % | 8.83 | % | 8.57 | % |
Selected Equity and Performance Ratios | | | | | | | | |
Total stockholders’ equity / assets | | | | 11.66 | % | 11.34 | % | 11.18 | % | 12.11 | % | 12.03 | % |
Dividend payout ratio(b) | 36.73 | % | 34.23 | % | | 69.23 | % | 19.15 | % | 66.67 | % | 41.86 | % | 34.00 | % |
Return on average assets(c) | 0.93 | % | 1.02 | % | | 0.51 | % | 1.72 | % | 0.57 | % | 0.89 | % | 1.00 | % |
Noninterest expense / average assets(c) | 2.35 | % | 2.37 | % | | 2.55 | % | 2.12 | % | 2.37 | % | 2.51 | % | 2.40 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| YTD | Quarter Ended |
($ in Thousands) | June 30, 2021 | June 30, 2020 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 |
Risk-based Capital(a) | | | | | | | |
CET1 | | | $ | 2,790,392 | | $ | 2,759,473 | | $ | 2,706,010 | | $ | 2,671,739 | | $ | 2,651,286 | |
Tier 1 capital | | | 3,080,015 | | 3,112,239 | | 3,058,809 | | 3,024,710 | | 3,004,424 | |
Total capital | | | 3,655,411 | | 3,682,720 | | 3,632,807 | | 3,601,705 | | 3,577,757 | |
Total risk-weighted assets | | | 26,072,881 | | 25,640,395 | | 25,903,415 | | 26,141,710 | | 25,864,463 | |
Modified CECL transitional amount | | | 100,776 | | 110,683 | | 117,624 | | 120,251 | | 116,899 | |
CET1 capital ratio | | | 10.70 | % | 10.76 | % | 10.45 | % | 10.22 | % | 10.25 | % |
Tier 1 capital ratio | | | 11.81 | % | 12.14 | % | 11.81 | % | 11.57 | % | 11.62 | % |
Total capital ratio | | | 14.02 | % | 14.36 | % | 14.02 | % | 13.78 | % | 13.83 | % |
Tier 1 leverage ratio | | | 9.23 | % | 9.53 | % | 9.37 | % | 9.02 | % | 9.08 | % |
Selected Equity and Performance Ratios | | | | | | | |
Total stockholders’ equity / assets | | | 12.03 | % | 11.94 | % | 12.24 | % | 11.66 | % | 11.34 | % |
Dividend payout ratio(b) | 31.58 | % | 29.75 | % | 32.14 | % | 31.03 | % | 45.00 | % | 69.23 | % | 19.15 | % |
Return on average assets | 1.10 | % | 1.16 | % | 1.06 | % | 1.14 | % | 0.78 | % | 0.51 | % | 1.72 | % |
Annualized noninterest expense / average assets | 2.07 | % | 2.24 | % | 2.04 | % | 2.11 | % | 2.02 | % | 2.55 | % | 2.12 | % |
(a) The Federal Reserve establishes regulatory capital requirements, including well-capitalized standards for the Corporation. The Corporation follows Basel III, subject to certain
transition provisions. These regulatory capital measurements are used by management, regulators, investors, and analysts to assess, monitor and compare the quality and
composition of the Corporation's capital with the capital of other financial services companies.
(b) Ratio is based upon basic earnings per common share.
(c) Annualized.
See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, for information on the shares repurchased during the thirdsecond quarter of 2020, which consistedentirely of repurchases related to tax withholding on equity compensation with no open market purchases due to the suspension of the share repurchase program on March 13, 2020.2021.
During the second quarter of 2020,2021, the Corporation completed the issuance of 4.0 million depositary shares each representing a 1/40th interest in a share of 5.625% Non-Cumulative Perpetualredeemed all outstanding Series C Preferred Stock, Series F, for net proceeds of approximately $97 million.
In February 2019, the federal bank regulatory agencies issued a final rule (the "2019 CECL Rule") that revised certain capital regulations to account for changes to credit loss accounting under GAAP. The rule included a transition option that allows banking organizations to phase in, over a three-year period, the day-one impact of CECL adoption on regulatory capital ratios. In March 2020, the federal bank regulatory agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides an option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period. The Corporation has elected to utilize the CECL Transition Provision granted by the banking regulators. Under these provisions, the Day 1 capital impact relating to the adoption of ASU 2016-13 and 25% of the difference between the period end ACL and the Day 1 ACL will be 100% deferred for 2 years, and then phased in over the next 3 years. At September 30, 2020, the Corporation had a modified CECL transitional amount of $120$65 million.
Non-GAAP Measures
Table 2621 Non-GAAP Measures
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD | | Quarter Ended |
($ in Thousands) | September 30, 2020 | September 30, 2019 | | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 |
Selected Equity and Performance Ratios(a)(b) | | | | | | | | |
Tangible common equity / tangible assets | | | | 7.50 | % | 7.25 | % | 6.90 | % | 7.71 | % | 7.65 | % |
Return on average equity | 8.20 | % | 8.83 | % | | 4.46 | % | 15.55 | % | 4.80 | % | 7.31 | % | 8.47 | % |
Return on average tangible common equity | 12.79 | % | 13.86 | % | | 6.36 | % | 25.45 | % | 7.31 | % | 11.33 | % | 13.27 | % |
Return on average common equity Tier 1 | 11.97 | % | 13.15 | % | | 5.98 | % | 23.71 | % | 6.84 | % | 10.94 | % | 12.78 | % |
| | | | | | | | |
Return on average tangible assets | 0.97 | % | 1.06 | % | | 0.52 | % | 1.78 | % | 0.59 | % | 0.93 | % | 1.04 | % |
Average stockholders' equity / average assets | 11.38 | % | 11.57 | % | | 11.35 | % | 11.04 | % | 11.79 | % | 12.16 | % | 11.77 | % |
Tangible Common Equity Reconciliation(a) | | | | | | | | |
Common equity | | | | $ | 3,691,796 | | $ | 3,670,612 | | $ | 3,533,755 | | $ | 3,665,407 | | $ | 3,664,139 | |
Goodwill and other intangible assets, net | | | | (1,178,409) | | (1,180,661) | | (1,284,111) | | (1,264,531) | | (1,267,319) | |
Tangible common equity | | | | $ | 2,513,387 | | $ | 2,489,951 | | $ | 2,249,644 | | $ | 2,400,876 | | $ | 2,396,820 | |
Tangible Assets Reconciliation(a) | | | | | | | | |
Total assets | | | | $ | 34,698,746 | | $ | 35,501,464 | | $ | 33,908,056 | | $ | 32,386,478 | | $ | 32,596,460 | |
Goodwill and other intangible assets, net | | | | (1,178,409) | | (1,180,661) | | (1,284,111) | | (1,264,531) | | (1,267,319) | |
Tangible assets | | | | $ | 33,520,337 | | $ | 34,320,803 | | $ | 32,623,944 | | $ | 31,121,947 | | $ | 31,329,141 | |
Average Tangible Common Equity and Average Common Equity Tier 1 Reconciliation(a)(b) | | | | | | | | |
Common equity | $ | 3,610,864 | | $ | 3,600,774 | | | $ | 3,680,687 | | $ | 3,566,293 | | $ | 3,585,083 | | $ | 3,657,823 | | $ | 3,646,758 | |
Goodwill and other intangible assets, net | (1,244,147) | | (1,253,484) | | | (1,179,796) | | (1,281,176) | | (1,272,175) | | (1,266,117) | | (1,268,960) | |
Tangible common equity | 2,366,717 | | 2,347,290 | | | 2,500,891 | | 2,285,117 | | 2,312,908 | | 2,391,706 | | 2,377,798 | |
Modified CECL transitional amount | 112,441 | | N/A | | 120,228 | | 115,272 | | 101,340 | | N/A | N/A |
Accumulated other comprehensive loss (income) | 4,762 | | 79,775 | | | (3,682) | | 7,663 | | 10,398 | | 36,810 | | 42,224 | |
Deferred tax assets (liabilities), net | 44,516 | | 46,713 | | | 42,183 | | 44,777 | | 46,635 | | 47,774 | | 48,772 | |
Average common equity Tier 1 | $ | 2,528,436 | | $ | 2,473,778 | | | $ | 2,659,620 | | $ | 2,452,829 | | $ | 2,471,281 | | $ | 2,476,290 | | $ | 2,468,794 | |
Average Tangible Assets Reconciliation(a) | | | | | | | | |
Total assets | $ | 34,328,806 | | $ | 33,337,911 | | | $ | 35,550,359 | | $ | 34,845,943 | | $ | 32,577,005 | | $ | 32,182,183 | | $ | 33,154,000 | |
Goodwill and other intangible assets, net | (1,244,147) | | (1,253,484) | | | (1,179,796) | | (1,281,176) | | (1,272,175) | | (1,266,117) | | (1,268,960) | |
Tangible assets | $ | 33,084,660 | | $ | 32,084,428 | | | $ | 34,370,563 | | $ | 33,564,768 | | $ | 31,304,829 | | $ | 30,916,066 | | $ | 31,885,039 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Efficiency Ratio Reconciliation(c) | | | | | | | | |
Federal Reserve efficiency ratio | 62.34 | % | 64.18 | % | | 85.41 | % | 43.49 | % | 70.37 | % | 69.14 | % | 66.55 | % |
Fully tax-equivalent adjustment | (0.75) | % | (0.83) | % | | (1.29) | % | (0.39) | % | (0.96) | % | (0.91) | % | (0.90) | % |
Other intangible amortization | (0.80) | % | (0.79) | % | | (0.87) | % | (0.65) | % | (0.95) | % | (0.93) | % | (0.89) | % |
Fully tax-equivalent efficiency ratio | 60.80 | % | 62.58 | % | | 83.25 | % | 42.46 | % | 68.47 | % | 67.32 | % | 64.78 | % |
Acquisition related costs adjustment(d) | (0.24) | % | (0.65) | % | | (0.08) | % | (0.12) | % | (0.58) | % | (0.45) | % | (0.53) | % |
Provision for unfunded commitments adjustment | (1.64) | % | 0.16 | % | | 2.87 | % | (1.91) | % | (5.18) | % | 0.34 | % | (0.33) | % |
Asset gains (losses), net adjustment | 10.89 | % | 0.16 | % | | (0.11) | % | 22.10 | % | (0.02) | % | 0.09 | % | 0.18 | % |
3Q 2020 Initiatives(e) | (7.07) | % | — | % | | (22.90) | % | — | % | — | % | — | % | — | % |
Adjusted efficiency ratio | 62.74 | % | 62.24 | % | | 63.00 | % | 62.53 | % | 62.70 | % | 67.30 | % | 64.11 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| YTD | Quarter Ended |
($ in Thousands) | June 30, 2021 | June 30, 2020 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 |
Selected equity and performance ratios(a)(b) | | | | | | | |
Tangible common equity / tangible assets | | | 8.04 | % | 7.80 | % | 7.94 | % | 7.50 | % | 7.25 | % |
Return on average equity | 9.08 | % | 10.18 | % | 8.84 | % | 9.32 | % | 6.58 | % | 4.46 | % | 15.55 | % |
Return on average tangible common equity | 13.60 | % | 16.32 | % | 13.19 | % | 14.03 | % | 9.75 | % | 6.36 | % | 25.45 | % |
Return on average CET1 | 12.87 | % | 15.24 | % | 12.51 | % | 13.25 | % | 9.16 | % | 5.98 | % | 23.71 | % |
| | | | | | | |
Return on average tangible assets | 1.14 | % | 1.21 | % | 1.10 | % | 1.18 | % | 0.81 | % | 0.52 | % | 1.78 | % |
Average stockholders' equity / average assets | 12.10 | % | 11.40 | % | 12.01 | % | 12.18 | % | 11.90 | % | 11.35 | % | 11.04 | % |
Tangible common equity reconciliation(a) | | | | | | | |
Common equity | | | $ | 3,819,852 | | $ | 3,774,268 | | $ | 3,737,421 | | $ | 3,691,796 | | $ | 3,670,612 | |
Goodwill and other intangible assets, net | | | (1,167,491) | | (1,169,694) | | (1,177,554) | | (1,178,409) | | (1,180,661) | |
Tangible common equity | | | $ | 2,652,361 | | $ | 2,604,575 | | $ | 2,559,867 | | $ | 2,513,387 | | $ | 2,489,951 | |
Tangible Assets Reconciliation(a) | | | | | | | |
Total assets | | | $ | 34,152,625 | | $ | 34,575,255 | | $ | 33,419,783 | | $ | 34,698,746 | | $ | 35,501,464 | |
Goodwill and other intangible assets, net | | | (1,167,491) | | (1,169,694) | | (1,177,554) | | (1,178,409) | | (1,180,661) | |
Tangible assets | | | $ | 32,985,134 | | $ | 33,405,561 | | $ | 32,242,230 | | $ | 33,520,337 | | $ | 34,320,803 | |
Average tangible common equity and average CET1 reconciliation(a)(b) | | | | | | | |
Common equity | $ | 3,769,463 | | $ | 3,575,688 | | $ | 3,788,237 | | $ | 3,750,479 | | $ | 3,699,957 | | $ | 3,680,687 | | $ | 3,566,293 | |
Goodwill and other intangible assets, net | (1,171,679) | | (1,276,675) | | (1,168,774) | | (1,174,617) | | (1,178,165) | | (1,179,796) | | (1,281,176) | |
Tangible common equity | 2,597,783 | | 2,299,013 | | 2,619,464 | | 2,575,862 | | 2,521,792 | | 2,500,891 | | 2,285,117 | |
Modified CECL transitional amount | 110,778 | | 108,505 | | 105,961 | | 115,649 | | 122,828 | | 120,228 | | 115,272 | |
Accumulated other comprehensive loss (income) | (4,218) | | 9,030 | | (3,111) | | (5,337) | | (3,668) | | (3,682) | | 7,663 | |
Deferred tax assets (liabilities), net | 40,260 | | 45,553 | | 39,915 | | 40,608 | | 41,578 | | 42,183 | | 44,777 | |
Average CET1 | $ | 2,744,603 | | $ | 2,462,101 | | $ | 2,762,229 | | $ | 2,726,782 | | $ | 2,682,530 | | $ | 2,659,620 | | $ | 2,452,829 | |
Average tangible assets reconciliation(a) | | | | | | | |
Total assets | $ | 34,033,816 | | $ | 33,711,474 | | $ | 34,379,647 | | $ | 33,684,143 | | $ | 34,075,792 | | $ | 35,550,359 | | $ | 34,845,943 | |
Goodwill and other intangible assets, net | (1,171,679) | | (1,276,675) | | (1,168,774) | | (1,174,617) | | (1,178,165) | | (1,179,796) | | (1,281,176) | |
Tangible assets | $ | 32,862,137 | | $ | 32,434,799 | | $ | 33,210,873 | | $ | 32,509,526 | | $ | 32,897,626 | | $ | 34,370,563 | | $ | 33,564,768 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Efficiency ratio reconciliation(c) | | | | | | | |
Federal Reserve efficiency ratio | 66.26 | % | 54.26 | % | 66.81 | % | 65.74 | % | 59.68 | % | 85.41 | % | 43.49 | % |
Fully tax-equivalent adjustment | (1.02) | % | (0.59) | % | (1.07) | % | (0.97) | % | (0.84) | % | (1.29) | % | (0.39) | % |
Other intangible amortization | (0.85) | % | (0.77) | % | (0.87) | % | (0.82) | % | (0.82) | % | (0.87) | % | (0.65) | % |
Fully tax-equivalent efficiency ratio | 64.40 | % | 52.91 | % | 64.88 | % | 63.96 | % | 58.02 | % | 83.25 | % | 42.46 | % |
Acquisition related costs adjustment | (0.01) | % | (0.30) | % | — | % | (0.01) | % | — | % | (0.08) | % | (0.12) | % |
Provision for unfunded commitments adjustment | 0.47 | % | (3.22) | % | 2.14 | % | (1.09) | % | 3.42 | % | 2.87 | % | (1.91) | % |
Asset gains (losses), net adjustment | 0.59 | % | 13.23 | % | — | % | 1.12 | % | (0.30) | % | (0.11) | % | 22.10 | % |
Branch Sales | 0.13 | % | — | % | 0.01 | % | 0.24 | % | 1.68 | % | — | % | — | % |
3Q 2020 Initiatives(d) | — | % | — | % | — | % | — | % | — | % | (22.90) | % | — | % |
Adjusted efficiency ratio | 65.58 | % | 62.62 | % | 67.02 | % | 64.21 | % | 62.83 | % | 63.02 | % | 62.53 | % |
(a) The ratio tangible common equity to tangible assets excludes goodwill and other intangible assets, net. This financial measure has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength.
(b) The Federal Reserve establishes regulatory capital requirements, including well-capitalized standards for the Corporation. The Corporation follows Basel III, subject to certain transition provisions. These regulatory capital measurements are used by management, regulators, investors, and analysts to assess, monitor and compare the quality and composition of the Corporation'sour capital with the capital of other financial services companies.
(c) The efficiency ratio as defined by the Federal Reserve guidance is noninterest expense (which includes the provision for unfunded commitments) divided by the sum of net interest income plus noninterest income, excluding investment securities gains / losses, net. The fully tax-equivalent efficiency ratio is noninterest expense (which includes the provision for unfunded commitments), excluding other intangible amortization, divided by the sum of fully tax-equivalent net interest income plus noninterest income, excluding investment securities gains / losses, net. The adjusted efficiency ratio is noninterest expense, which excludes the provision for unfunded commitments, other intangible amortization, acquisition related costs, and 3Q 2020 initiatives, divided by the sum of fully tax-equivalent net interest income plus noninterest income, excluding investment securities gains (losses), net, acquisition related costs, and asset gains (losses), net, and gain on sale of branches, net. Management believes the adjusted efficiency ratio is a meaningful measure as it enhances the comparability of net interest income arising from taxable and tax-exempt sources and provides a better measure as to how the Corporation is managing its income and expenses by adjusting for acquisition related costs, provision for unfunded commitments, 3Q 2020 initiatives, and asset gains (losses), net.net, branch sales, and third quarter of 2020 initiatives.
(d) 2020 periods include First Staunton acquisition related costs, while 2019 periods include Huntington branch and First Staunton acquisition related costs.
(e) 3QThird quarter of 2020 initiatives consistconsisted of cost saving efforts that were executed during the quarter.third quarter of 2020. These initiatives included a $45 million loss on prepayment of FHLB advances, $10 million in severance, and $5$6 million in write-downs related to branch sales and lease breakage related to announced branch consolidations.
Sequential Quarter Results
The Corporation reported net income of $45$91 million for the thirdsecond quarter of 2020,2021, compared to net income of $94 million for the first quarter of 2021. Net income available to common equity was $86 million for the second quarter of 2021, or $0.56 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the first quarter of 2021 was $89 million, or $0.58 for both basic and diluted earnings per common share (see Table 1).
Fully tax-equivalent net interest income for the second quarter of 2021 was $184 million, $4 million, or 2%, higher than the first quarter of 2021. The net interest margin in the second quarter of 2021 was down 2 bp to 2.37%. Average earning assets increased $708 million, or 2%, to $31.0 billion in the second quarter of 2021, with an increase of $1.1 billion in investments and other largely driven by an increase in interest-bearing deposits in other financial institutions, while average loans decreased $365 million. On the funding side, non-interest bearing demand deposits and total interest-bearing deposits increased $403 million and $263 million, respectively, primarily driven by customers holding proceeds from government stimulus programs in their deposit accounts (see Table 2).
The provision for credit losses had a release of $35 million for the second quarter of 2021, compared to a release of $23 million for the first quarter of 2021 (see Table 13). See discussion under sections: Provision for Credit Losses, Nonperforming Assets, and Allowance for Credit Losses on Loans.
Noninterest income for the second quarter of 2021 was $73 million, down $22 million, or 23%, from the first quarter of 2021, primarily due to the decrease of $16 million in mortgage banking, net, driven by an $11 million recovery of MSRs impairment during the first quarter of 2021 (see Table 3).
For the second quarter of 2021, the Corporation recognized income tax expense of $22 million, compared to income tax expense of $25 million for the first quarter of 2021. The lower income tax expense during the second quarter of 2021 compared to the first quarter of 2021 was primarily driven by a decrease in income before taxes. See Income Taxes section for a detailed discussion on income taxes.
Comparable Quarter Results
The Corporation reported net income of $91 million for the second quarter of 2021, compared to $149 million for the second quarter of 2020. Net income available to common equity was $40$86 million for the thirdsecond quarter of 2020,2021, or $0.26$0.56 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the second quarter of 2020 was $145 million, or $0.94 for both basic and diluted earnings per common share (see Table 1).
Fully tax-equivalent net interest income for the thirdsecond quarter of 20202021 was $186$184 million, $8$10 million, or 4%5%, lower than the second quarter of 2020. The net interest margin between the comparable quarters was down 12 bp, to 2.37% in the thirdsecond quarter of 20202021. The decrease in net interest income and net interest margin was down 18 bpdue to 2.31%.a lower interest rate environment. Average earning assets increased $855decreased $220 million, or 3%1%, to $32.1$31.0 billion in the thirdsecond quarter of 2020 primarily2021 as average loans decreased $1.1 billion, partially offset by an increase of $873 million in investments and other, driven by excess funds invested at the Federal Reserve Bank which negatively impacted margin.higher interest-bearing deposits in other financial institutions. On the funding side, average interest-bearing deposits were up $211increased $184 million, or 1%, and noninterest bearing deposits were up $486 million, or 7%, primarilyfrom the second quarter of 2020, due to customers holding proceeds from government stimulus programslower cost deposit increases, partially offset by a decrease in their deposit accounts. In addition, PPPLF borrowingshigher cost deposits. Average noninterest-bearing deposits increased $244 million while FHLB advances$1.1 billion, or 17%, to $8.1 billion. Average short and long-term funding decreased $361 million,$2.0 billion, or 13%46%, primarily driven by decreases in PPPLF, which were paid in full in the fourth quarter of 2020, and the Corporation's prepayment of $950 million ofin long-term FHLB advances during the third quarter of 2020 (see Table 2).
The provision for credit losses was $43had a release of $35 million for the thirdsecond quarter of 2020,2021, compared to $61 million inprovision expense for the second quarter of 2020, as a result of improving credit quality within the loan portfolio and an improving economic forecast (see Table 17)13). See discussion under sections: Provision for Credit Losses, Nonperforming Assets, and Allowance for Credit Losses on Loans.
Noninterest income for the thirdsecond quarter of 2020 decreased $1792021 was $73 million, fromdown $181 million, or 71%, compared to the second quarter of 2020, primarily due to athe $163 million gain on sale of ABRC during the second quarter of 2020 and loweralong with the related reduction of insurance revenue related toin subsequent quarters after the sale of ABRC (see Table 3).
Noninterest expense increased $44decreased $9 million, or 24%5%, to $228$174 million for the second quarter of 2021, , due to incurring a $45$4 million, loss on the prepayment of FHLB advances during the third quarter. In addition, or 4%, decrease in personnel expense decreased quarter over quarter from the sale of ABRC partially offset by elevated severance from the announced restructurings during the third quarter of 2020 (seeand a $4 million decrease in other expense (see Table 4).
ForThe Corporation recognized income tax expense of $22 million for the thirdsecond quarter of 2020, the Corporation recognized an income tax benefit of $58 million,2021, compared to income tax expense of $51 million for the second quarter of 2020. The lowerdecrease in income tax expense during the third quarter of 2020 compared to the second quarter of 2020 was primarily driven by less income before taxes as a result of the second quarter gain on sale of ABRC, and the execution of tax planning strategies which allowed for the recognition of built in capital losses and a tax basis step-up yielding a change in the tax benefit of $35 million quarter over quarter. See Income Taxes section for a detailed discussion on income taxes.
Comparable Quarter Results
The Corporation reported net income of $45 million for the third quarter of 2020, compared to $83 million for the third quarter of 2019. Net income available to common equity was $40 million for the third quarter of 2020, or $0.26 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the third quarter of 2019 was $80 million, or $0.50 for basic earnings per share and $0.49 for diluted earnings per common share (see Table 1).
Fully tax-equivalent net interest income for the third quarter of 2020 was $186 million, $24 million, or 12%, lower than the third quarter of 2019. The net interest margin between the comparable quarters was down 50 bp, to 2.31% in the third quarter of 2020. The decrease in net interest income and net interest margin was due to a lower interest rate environment. Average earning assets increased $2.3 billion, or 8%, to $32.1 billion in the third quarter of 2020 as the Corporation added PPP loans during the second and third quarters of 2020. Additionally, excess funds invested at the Federal Reserve increased which negatively impacted net interest margin. On the funding side, average interest-bearing deposits decreased $449 million, or 2%, from the third quarter of 2019, due to decreases in higher cost deposits. Average noninterest-bearing deposits increased $2.1 billion, or 39% to $7.4 billion. Average short and long-term funding increased $578 million, or 16%, partially due to an increase in PPPLF borrowings offset partially by decreases in both FHLB advances and long-term funding (see Table 2).
The provision for credit losses was $43 million for the third quarter of 2020, compared to $2 million for the third quarter of 2019 (see Table 17). See discussion under sections: Provision for Credit Losses, Nonperforming Assets, and Allowance for Credit Losses on Loans.
Noninterest income for the third quarter of 2020 was $76 million, down $25 million. or 25%, compared to the third quarter of 2019, primarily due to minimal insurance revenue due to the sale of ABRC in the second quarter of 2020 (see Table 3).
Noninterest expense increased $27 million, or 13%, to $228 million for the third quarter of 2020, due to a $45 million lossgain on the prepayment of FHLB advances, partially offset by a $15 million, or 12%, decrease in personnel expense primarily related
to the sale of ABRC, partially offset by elevated severance from the announced restructurings during the third quarter of 2020 (see Table 4).
The Corporation recognized an income tax benefit of $58 million for the third quarter of 2020, compared to income tax expense of $21 million for the third quarter of 2019. Income tax expense is lower than the comparable quarter primarily driven by less income before taxes, and the execution of tax planning strategies which allowed for the recognition of built in capital losses and a tax basis step-up yielding a decrease in tax expense of $49 millionoccurred during the thirdsecond quarter of 2020. See section Income Taxes for a detailed discussion on income taxes.
Segment Review
As discussed in Note 15 Segment Reporting of the notes to consolidated financial statements, the Corporation’s reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer, and the distribution of those products and services are similar. The reportable segments are Corporate and Commercial Specialty; Community, Consumer and Business; and Risk Management and Shared Services.
Table 2722 Selected Segment Financial Data
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
($ in Thousands) | 2020 | 2019 | % Change | | 2020 | 2019 | % Change |
Corporate and Commercial Specialty | | | | | | | |
Total revenue | $ | 136,376 | | $ | 132,691 | | 3 | % | | $ | 412,987 | | $ | 399,495 | | 3 | % |
Credit provision | 15,572 | | 12,248 | | 27 | % | | 41,456 | | 37,417 | | 11 | % |
Noninterest expense | 52,144 | | 57,946 | | (10) | % | | 159,471 | | 174,570 | | (9) | % |
Income tax expense (benefit) | 12,600 | | 11,249 | | 12 | % | | 39,461 | | 35,472 | | 11 | % |
Average earning assets | 14,614,788 | | 12,887,424 | | 13 | % | | 14,064,225 | | 12,796,836 | | 10 | % |
Average loans | 14,681,690 | | 12,952,246 | | 13 | % | | 14,124,838 | | 12,853,566 | | 10 | % |
Average deposits | 9,631,000 | | 9,985,041 | | (4) | % | | 9,387,212 | | 9,930,193 | | (5) | % |
Average allocated capital (Average CET1)(a) | 1,468,341 | | 1,294,617 | | 13 | % | | 1,414,696 | | 1,281,093 | | 10 | % |
Return on average allocated capital (ROCET1)(a) | 15.19 | % | 15.71 | % | (52) | bp | | 16.30 | % | 15.87 | % | 43 bp |
Community, Consumer, and Business | | | | | | | |
Total revenue | $ | 115,833 | | $ | 159,148 | | (27) | % | | $ | 404,345 | | $ | 470,688 | | (14) | % |
Credit provision | 5,758 | | 4,631 | | 24 | % | | 16,296 | | 13,942 | | 17 | % |
Noninterest expense | 102,100 | | 118,241 | | (14) | % | | 335,591 | | 345,611 | | (3) | % |
Income tax expense (benefit) | 1,675 | | 7,618 | | (78) | % | | 11,016 | | 23,338 | | (53) | % |
Average earning assets | 9,482,677 | | 9,285,506 | | 2 | % | | 9,522,498 | | 9,270,774 | | 3 | % |
Average loans | 9,414,194 | | 9,217,874 | | 2 | % | | 9,457,405 | | 9,205,289 | | 3 | % |
Average deposits | 15,577,322 | | 13,369,386 | | 17 | % | | 14,753,893 | | 12,762,492 | | 16 | % |
Average allocated capital (Average CET1)(a) | 507,233 | | 543,473 | | (7) | % | | 543,377 | | 545,760 | | — | % |
Return on average allocated capital (ROCET1)(a) | 4.94 | % | 20.92 | % | N/M | | 10.19 | % | 21.51 | % | N/M |
Risk Management and Shared Services | | | | | | | |
Total revenue(c) | $ | 5,487 | | $ | 15,376 | | (64) | % | | $ | 185,973 | | $ | 53,239 | | N/M |
Credit provision | 21,679 | | (14,879) | | N/M | | 99,257 | | (35,359) | | N/M |
Noninterest expense(b) | 73,343 | | 24,743 | | 196 | % | | 108,122 | | 70,198 | | 54 | % |
Income tax expense (benefit)(d) | (72,389) | | 2,080 | | N/M | | (47,135) | | 3,546 | | N/M |
Average earning assets | 8,016,381 | | 7,649,160 | | 5 | % | | 7,281,117 | | 8,102,949 | | (10) | % |
Average loans | 867,187 | | 1,081,948 | | (20) | % | | 906,992 | | 1,178,341 | | (23) | % |
Average deposits | 1,631,256 | | 1,846,776 | | (12) | % | | 1,621,079 | | 2,255,985 | | (28) | % |
Average allocated capital (Average CET1)(a) | 684,046 | | 630,704 | | 8 | % | | 570,363 | | 646,925 | | (12) | % |
Return on average allocated capital (ROCET1)(a) | (13.00) | % | (0.23) | % | N/M | | 6.03 | % | 0.71 | % | N/M |
Consolidated Total | | | | | | | |
Total revenue(c) | $ | 257,695 | | $ | 307,216 | | (16) | % | | $ | 1,003,305 | | $ | 923,422 | | 9 | % |
Return on average allocated capital (ROCET1)(a) | 5.98 | % | 12.78 | % | N/M | | 11.97 | % | 13.15 | % | (118) | bp |
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
($ in Thousands) | 2021 | 2020 | % Change | 2021 | 2020 | % Change |
Corporate and Commercial Specialty | | | | | | |
Total revenue(a) | $ | 138,348 | | $ | 140,851 | | (2) | % | $ | 281,224 | | $ | 276,612 | | 2 | % |
Provision for credit losses | 16,429 | | 13,713 | | 20 | % | 33,938 | | 25,885 | | 31 | % |
Noninterest expense | 56,404 | | 53,959 | | 5 | % | 114,129 | | 108,264 | | 5 | % |
Income tax expense (benefit) | 11,947 | | 13,724 | | (13) | % | 24,596 | | 26,664 | | (8) | % |
Net income | 53,568 | | 59,456 | | (10) | % | 108,560 | | 115,800 | | (6) | % |
Average earning assets | 14,538,852 | | 14,642,872 | | (1) | % | 14,584,138 | | 13,848,154 | | 5 | % |
Average loans | 14,537,694 | | 14,641,074 | | (1) | % | 14,583,426 | | 13,843,352 | | 5 | % |
Average deposits | 9,711,779 | | 9,499,973 | | 2 | % | 9,637,137 | | 9,263,979 | | 4 | % |
Average allocated capital (Average CET1)(b) | 1,473,247 | | 1,446,863 | | 2 | % | 1,470,604 | | 1,387,578 | | 6 | % |
Return on average allocated capital (ROCET1)(b) | 14.58 | % | 16.53 | % | -195 bp | 14.89 | % | 16.78 | % | -189 bp |
Community, Consumer, and Business | | | | | | |
Total revenue | $ | 115,732 | | $ | 141,570 | | (18) | % | $ | 243,011 | | $ | 288,512 | | (16) | % |
Provision for credit losses | 4,565 | | 5,429 | | (16) | % | 9,664 | | 10,537 | | (8) | % |
Noninterest expense | 98,260 | | 119,715 | | (18) | % | 195,607 | | 233,491 | | (16) | % |
Income tax expense (benefit) | 2,710 | | 3,450 | | (21) | % | 7,925 | | 9,342 | | (15) | % |
Net income | 10,196 | | 12,977 | | (21) | % | 29,815 | | 35,142 | | (15) | % |
Average earning assets | 8,865,352 | | 9,629,146 | | (8) | % | 8,949,433 | | 9,479,247 | | (6) | % |
Average loans | 8,865,352 | | 9,629,146 | | (8) | % | 8,949,433 | | 9,479,247 | | (6) | % |
Average deposits | 16,760,607 | | 14,983,891 | | 12 | % | 16,422,614 | | 14,337,654 | | 15 | % |
Average allocated capital (Average CET1)(b) | 477,208 | | 573,607 | | (17) | % | 487,860 | | 561,648 | | (13) | % |
Return on average allocated capital (ROCET1)(b) | 8.57 | % | 9.10 | % | -53 bp | 12.32 | % | 12.58 | % | -26 bp |
Risk Management and Shared Services | | | | | | |
Total revenue(c) | $ | (1,123) | | $ | 161,941 | | N/M | $ | (32) | | $ | 180,486 | | N/M |
Provision for credit losses | (55,999) | | 41,858 | | N/M | (101,610) | | 77,579 | | N/M |
Noninterest expense | 19,810 | | 9,733 | | 104 | % | 40,086 | | 33,843 | | 18 | % |
Income tax expense (benefit) | 7,823 | | 34,065 | | (77) | % | 14,560 | | 25,451 | | (43) | % |
Net income | 27,242 | | 76,285 | | (64) | % | 46,932 | | 43,613 | | 8 | % |
Average earning assets | 7,635,545 | | 6,987,269 | | 9 | % | 7,154,263 | | 6,910,589 | | 4 | % |
Average loans | 695,568 | | 920,586 | | (24) | % | 747,114 | | 927,113 | | (19) | % |
Average deposits | 998,246 | | 1,659,322 | | (40) | % | 1,079,684 | | 1,615,934 | | (33) | % |
Average allocated capital (Average CET1)(b) | 811,773 | | 432,359 | | 88 | % | 786,139 | | 512,875 | | 53 | % |
Return on average allocated capital (ROCET1)(b) | 11.05 | % | 67.11 | % | N/M | 12.04 | % | 13.99 | % | -195 bp |
Consolidated Total | | | | | | |
Total revenue(a)(c) | $ | 252,957 | | $ | 444,362 | | (43) | % | $ | 524,202 | | $ | 745,610 | | (30) | % |
Return on average allocated capital (ROCET1)(b) | 12.51 | % | 23.71 | % | N/M | 12.87 | % | 15.24 | % | N/M |
N/M = Not meaningful
(a) For the six months ended June 30, 2021, the Corporation recognized a $2 million pre-tax gain on sale of Whitnell.
(b) The Federal Reserve establishes capital adequacy requirements for the Corporation, including common equity Tier 1.CET1. For segment reporting purposes, the return on common equity Tier 1CET1 ("ROCET1") reflects
return on average allocated common equity Tier 1.CET1. The ROCET1 for the Risk Management and Shared Services segment and the Consolidated Total is inclusive of the annualized effect of the
preferred stock dividends. Please refer to Table 26 for a reconciliation of non-GAAP financial measures to GAAP financial measures.
(b)
(c) For the three months ended September 30, 2020 and 2019, the Risk Management and Shared Services segment included approximately $218 thousand and $2 million respectively, of acquisition related noninterest expense. For the nine months ended September 30, 2020 and 2019, the Risk Management and Shared Services segment included approximately $2 million and $6 million respectively, of acquisition related noninterest expense. Forboth the three and ninesix months ended September 30, 2020, the Risk Management and Shared Services segment also incurred a $45 million loss on the prepayment of FHLB advances.
(c) For the nine months ended SeptemberJune 30, 2020, the Corporation recognized a $163 million asset gain related to the sale of ABRC.
(d) The Corporation has recognized $63 million in tax benefits for the nine months ended September 30, 2020, and $49 million for the three months ended September 30, 2020, primarily driven by tax planning strategies which allowed for the recognition
Notable Changes in Segment Financial Data
The Corporate and Commercial Specialty segment consists of lending and deposit solutions to larger businesses, developers, not-for-profits, municipalities, and financial institutions, and the support to deliver, fund, and manage such banking solutions. In addition, this segment provides a variety of investment, fiduciary, and retirement planning products and services to individuals and small to mid-sized businesses. During the first quarter of 2021, the Corporation sold its wealth management subsidiary Whitnell.
•Revenue increased $4$5 million, or 3%2%, from the six months ended June 30, 2020, driven by higher fee-based revenue which was partially offset by lower segment net interest income largely driven by the current interest rate environment. Revenue decreased $3 million, or 2%, from the three months ended SeptemberJune 30, 2019, and2020, driven by decreased segment net interest income as a result of the current interest rate environment partially offset by higher fee-based revenue.
•Provision for credit losses increased $13$8 million, or 3%31%, from the first nine months of 2019. The increase from the ninesix months ended 2019 was primarily driven by a $9 million increase in capital market fees, which were driven by higher interest rate swap fees.
•Noninterest expense decreased $6June 30, 2020 and increased $3 million, or 10%20%, from the three months ended SeptemberJune 30, 2019, and decreased $15 million, or 9%, from2020, as a result of the first nine months of 2019. The decrease fromlong term annual net charge off rates attributable to the first nine months of 2019 was mainly driven by an $11 million decrease in personnel expense primarily related to a decrease in the funding for the management incentive plan.current portfolio.
•Average loans increased $1.7 billion,$740 million, or 13%5%, from the six months ended June 30, 2020, primarily driven by a $579 million increase in CRE loans, but average loans decreased $103 million, or 1%, from the three months ended SeptemberJune 30, 2019, and increased $1.3 billion, or 10%, from the first nine months of 2019, primarily driven by2020 largely due to decreasing PPP loans and growth in CRE loans.loan balances.
The Community, Consumer, and Business segment consists of lending, deposit solutions, and historically offered ancillary financial services, primarily insurance and risk consulting, to individuals and small to mid-sized businesses.
•Revenue decreased $43$46 million, or 27%16%, from the six months ended June 30, 2020 and decreased $26 million, or 18%, from the three months ended SeptemberJune 30, 2019, and decreased $66 million, or 14%, from the first nine months of 2019. The decrease from the nine months ended 2019 was2020, primarily due to a decrease in segment net interest income of $36 million which was largely driven by the current interest rate environment, along with a $24 million decrease in insurance commissions and fees which can be attributed toas a result of the sale of ABRC.ABRC which occurred during the second quarter of 2020.
•Noninterest expense decreased $16$38 million, or 14%16%, from the six months ended June 30, 2020, and decreased $21 million, or 18%, from the three months ended SeptemberJune 30, 2019, and decreased $10 million, or 3%, from the first nine months of 2019,2020, primarily driven by a $10 million decrease in personnel expense, which was largely driven bydue to a reduction in FTEs as a result of branch consolidations and the sale of ABRC.
•Average deposits increased $2.2 billion,loans decreased $530 million, or 17%6%, from the six months ended June 30, 2020, and decreased $764 million, or 8%, from the three months ended SeptemberJune 30, 2019, and2020, primarily driven by a decrease in residential mortgages as a result of higher refinances.
•Average deposits increased $2.0$2.1 billion, or 16%15%, from the first ninesix months of 2019,ended June 30, 2020, and increased $1.8 billion, or 12%, from the three months ended June 30, 2020. The increase was primarily driven by customers holding proceeds from government stimulus programs in their deposit accounts.programs.
The Risk Management and Shared Services segment includes key shared Corporate functions, Parent Company activity, intersegment eliminations, and residual revenues and expenses.
•Revenues decreased $10$181 million or 64%,from the six months ended June 30, 2020, and decreased $163 million from the three months ended SeptemberJune 30, 2019, but increased $133 million from the first nine months of 2019,2020, primarily driven by athe $163 million asset gain on sale of ABRC.ABRC which occurred during the second quarter of 2020.
•Credit provision increased $37Provision for credit losses decreased $179 million from the six months ended June 30, 2020, and decreased $98 million from the three months ended SeptemberJune 30, 2019, and increased $135 million from the first nine months of 2019,2020, as a result of the expected impact of the COVID-19 pandemicimproving credit quality within the loan portfolio and an improving economic models used in the new expected credit loss methodology.forecast.
•Noninterest expense increased $49$6 million, or 18%, from the six months ended June 30, 2020, primarily related to lower corporate overhead credits as a result of the sale of ABRC. Noninterest expense increased $10 million, or 104%, from the three months ended SeptemberJune 30, 2019, and increased $38 million, or 54%, from the first nine months of 2019. The increase from the first nine months of 2019 was mainly2020, primarily driven by a $45 million FHLB prepayment fee, which was partially offset by a $12 million decrease in personnel expense related to a decreasean increase in the funding for the management incentive plan.plan and lower corporate overhead credits as a result of the sale of ABRC.
•Income tax expense decreased $74 million from the three months ended September 30, 2019, and decreased $51 million from the first nine months of 2019. The lower tax expense from the first nine months of 2019 was due to tax planning strategies, which led to a $63 million tax benefit.
•Average loans decreased $215 million, or 20%, from the three months ended September 30, 2019, and decreased $271 million, or 23%, from the first nine months of 2019. The decrease from the first nine months of 2019 was mainly driven by a decrease in oil and gas lending.
•Average deposits decreased $216$536 million, or 12%33%, from the six months ended June 30, 2020, and decreased $661 million, or 40%, from the three months ended SeptemberJune 30, 2019, and decreased $635 million, or 28%, from the first nine months of 2019,2020. The decreases were primarily driven by a decrease in higher cost network and time deposit accounts.deposits.
Critical Accounting Policies
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the determination of the ACLL, goodwill impairment assessment, MSRs valuation, and income taxes. A discussion of these policies can be found in the Critical Accounting Policies section in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation’s 20192020 Annual Report on Form 10-K. There hashave been one changeno changes in the Corporation's application of critical accounting policies since December 31, 2019 driven by the adoption of ASU 2016-13.
Allowance for Credit Losses on Loans: Management’s evaluation process used to determine the appropriateness of the ACLL is subject to the use of estimates, assumptions, and judgments. The evaluation process combines many factors: management’s ongoing review and grading of the loan portfolio using a dual risk rating system leveraging probability of default and loss given default, consideration of historical loan loss and delinquency experience, trends in past due and nonaccrual loans, risk characteristics of the various classifications of loans, concentrations of loans to specific borrowers or industries, existing economic conditions and forecasts, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect future credit losses. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ACLL, could change significantly. The Corporation uses Moody's baseline economic forecast within its model. As an integral part of their examination process, various regulatory agencies also review the ACLL. Such agencies may require additions to the ACLL or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. The Corporation believes the level of the ACLL is appropriate. See Note 3 Summary of Significant Accounting Policies and Note 7 Loans of the notes to consolidated financial statements as well as the Allowance for Credit Losses section.2020.
Recent Developments
On October 8, 2020, the SBA released a streamlined loan forgiveness application for PPP loans totaling $50,000 or less. This release is expected to simplify the forgiveness application and allow for quicker receipt of paydowns of small balance PPP loans. As of October 8, 2020, the Corporation holds approximately 5,500 loans totaling $95 million that fall under the threshold defined by the SBA in the streamlined application.
On OctoberJuly 27, 2020,2021, the Corporation’s Board of Directors declared a regular quarterly cash dividend of $0.18$0.20 per common share, payable on DecemberSeptember 15, 20202021 to shareholders of record at the close of business on DecemberSeptember 1, 2020. The Board2021. This is an increase of Directors also declared a regular$0.02 from the previous quarterly cash dividend of $0.3828125$0.18 per depositary share on Associated's 6.125% Series C Perpetual Preferred Stock, payable on December 15, 2020 to shareholders of record at the close of business on December 1, 2020.common share. The Board of Directors also declared a regular quarterly cash dividend of $0.3359375 per depositary share on Associated's 5.375% Series D Perpetual Preferred Stock, payable on DecemberSeptember 15, 20202021 to shareholders of record at the close of business on DecemberSeptember 1, 2020.2021. The Board of Directors also declared a regular quarterly cash dividend of $0.3671875 per depositary share on Associated's 5.875% Series E Perpetual Preferred Stock, payable on DecemberSeptember 15, 20202021 to shareholders of record at the close of business on DecemberSeptember 1, 2020.2021. The Board of Directors also declared a regular quarterly cash dividend of $0.3515625 per depositary share on Associated's 5.625% Series F Perpetual Preferred Stock, payable on DecemberSeptember 15, 20202021 to shareholders of record at the close of business on DecemberSeptember 1, 2020.2021.
| | | | | |
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
Information required by this item is set forth in Item 2 under the captions Quantitative and Qualitative Disclosures about Market Risk and Interest Rate Risk.
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ITEM 4. | Controls and Procedures |
The Corporation maintains disclosure controls and procedures as required under Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended, that are designed to ensure that information required to be disclosed in the Corporation's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of SeptemberJune 30, 2020,2021, the Corporation’s management carried out an evaluation, under the supervision and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the foregoing, its Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of SeptemberJune 30, 2020.2021.
No changes were made to the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act of 1934) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
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PART II - OTHER INFORMATION |
The information required by this item is set forth in Part I, Item 1 under Note 12 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings and Regulatory Matters of the notes to consolidated financial statements.
The following risk factors supplement the Risk Factors described in the Corporation’s 20192020 Annual Report on Form 10-K and in the Corporation's Quarterly Reports on Form 10-Q for the periods ended March 31, and June 30, 2020, and should be read in conjunction therewith
The coronavirus disease (COVID-19) pandemic has resultedChanges in significant deterioration and disruptionthe federal, state, or local tax laws may negatively impact our financial performance. On March 31, 2021, President Biden unveiled his infrastructure plan, which includes a proposal to increase the federal corporate tax rate from 21% to 28% as part of a package of tax reforms to help fund the spending proposals in national and local economic conditions and record levels of unemployment, which may have a material impact on our business, financial condition or results of operations. The COVID-19 pandemic is creating extensive disruptions to the global economy, to businesses, and toplan. If adopted as proposed, the lives of individuals throughout the world. Federal and state governments are taking unprecedented actions to contain the spreadincrease of the disease, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief. Although in various locations some of the activity restrictions listed above have been relaxed with progressive success, in many geographies the number of individuals diagnosed with COVID-19 has significantly increased causing a freezing or even reversal of the relaxation of activity restrictions. The cessation of stay-at-home orders in Wisconsin, Illinois, and Minnesota, and the relaxation of various activity restrictions, have resulted in an increased number of positive COVID-19 cases in these geographies. For example, recent reports have indicated that Wisconsin, Illinois and Minnesota all suffered their highest number of reported daily COVID-19 cases on October 16, 2020. This resurgence has heightened pressure on state officials to reverse the relaxation of activity restrictions, which causes further uncertain economic conditions and could lead again to a shutdown of businesses and operations.
The uncertain economic conditions and various activity restrictions due to COVID-19 have resulted in an extremely challenging operating environment for many businesses, and the complete shutdown of others, as well as record levels of unemployment. The national unemploymentcorporate tax rate was 7.9% as of September 2020, which while down from 11.1% in June 2020, remains significantly higher than the pre-pandemic 3.6% in January 2020. Further, the Federal Pandemic Unemployment Compensation, which under Section 2104 of the CARES Act allows for additional payments to covered individuals of up to $600 per week, expired as of July 31, 2020 and it is uncertain whether and to what extent the benefit will be renewed by Congress.
The COVID-19 pandemic is rapidly evolving and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken currently or in the future by governmental authorities in response to the pandemic. And while there have been trillions of dollars in economic stimulus packages initiated by the Federal Reserve and the federal government, including the $2 trillion CARES Act, as expanded by the Paycheck Protection Program and Health Care Enhancement Act, in an effort to counteract the significant economic disruption from COVID-19, there can be no assurance that these packages will be sufficient, or produce positive results quickly enough, to stimulate the economy, and additional governmental stimulus and related interventions may be needed. Accordingly, the Corporation will be operating under uncertain economic conditions for a lengthy period of time.
Additionally the COVID-19 pandemic has significantly affected the financial markets and has resulted in a number of Federal Reserve actions. To help address these issues, the FOMC reduced the benchmark federal funds rate to a target range of 0% to 0.25%, the lowest since the 2008 economic crisis, and the yields on 10 and 30-year treasury notes have declined to historic lows. At its June and July meetings, the FOMC continued its commitment to this approach, indicating that the target federal funds rate would remain at current levels until the economy is in position to achieve the FOMC's maximum-employment and price stability goals. At its September meeting, the FOMC confirmed its continued commitment to maintaining this approach, indicating that while financial conditions have improved since the summer months, additional stimulus from the federal government is essential to our economy's recovery. In addition, in order to support the flow of credit to households and businesses, the Federal Reserve indicated that it will continue to increase its holdings of U.S. Treasury securities and agency residential and commercial MBS to sustain proper functioning of the financial markets. The reductions in interest rates, especially if prolonged, could adversely affect our net interest income, net interest spread and net interest margin. Further, the overall impact of COVID-19 on the financial markets could result in a significant decline in the market value of the Corporation's common stock, which may cause us to perform a goodwill impairment test in between annual tests. If that impairment test indicates that the fair value of any of our reporting units is less than its carrying amount, we may be required to record a goodwill impairment charge, which could adversely affect our results of operations. The full impactoperations in future periods. Congress is expected to debate the adoption of an infrastructure initiative in the COVID-19
pandemic on our business activities as a resultcoming weeks and months; however, the prospects and timing for the enactment of new government and regulatory policies, programs and guidelines,any such legislation, as well as market reactions to such activities, remains uncertain.
Because there have been no comparable recent global pandemics that resulted in a similar global impact, we do not yet knowits specific provisions, including funding options, and the full extent of COVID-19's effectsits potential impact on our business,results of operations or the global economy as a whole. Any future development will be highly uncertain andif enacted, cannot be predicted at this time.
Cyberattacks, including those targeting critical infrastructure sectors, have become more frequent and sophisticated. Critical infrastructure sectors, including financial services, increasingly have been the scopetargets of cyberattacks, including attacks emanating from foreign countries such as the attack on the information technology company SolarWinds, which affected many Fortune 500 companies as well as U.S. government agencies. Attacks involving large financial institutions, including denial of service attacks designed to disrupt external customer-facing services, nation state cyberattacks and durationransomware attacks designed to deny organizations access to key internal resources or systems, and targeted social engineering and email attacks designed to allow unauthorized persons to obtain access to an institution’s information systems and data or that of its customers are becoming more common and increasingly sophisticated and can be difficult to prevent. Reports of ransomware incidents specifically have increased by approximately 300% since the pandemic, the effectivenessstart of our remote working arrangements, third party providers' ability to support our operations,2020 and any further action taken by governmental authorities and other third partiesinformation technology software supply chain attacks, including those involving financial institutions, also have increased during this period, some of which have resulted in responsetemporary, but impactful, disruptions to the pandemic. The uncertain future developmentfunctioning of this crisis could materially and adversely affect our business,critical infrastructure sectors or the operations operating results, financial condition, liquidity or capital levels.
Regulatory and governmental actions to mitigate the impact of COVID-19 on borrowers, including required loan forbearances and restrictions on evictions, could result in a material decline in our earnings. There have been a number of recent bank regulatory actions and legislative changes intended to help mitigate the adverse economic impact of COVID-19 on borrowers, including mandates requiringspecific institutions. In addition, cybersecurity risks for financial institutions to work constructively with borrowers affected by COVID-19. In addition, the governors of many states in which we do business or in which our borrowers and loan collateral are located have issued temporary bans on evictions and foreclosures. Although Wisconsin and Minnesota's temporary ban on all residential and commercial evictions and foreclosures have expired, Illinois has extended its ban through October 17, 2020, and there is mounting pressure on governors and localities to take further relief action. In addition, we have implemented the following programs to assist our borrowers and other customers in mitigating the impact of COVID-19: consumer and commercial loan and credit card deferral programs, suspension and reassessment of certain transaction and late fees, and the suspension of foreclosures and repossessions.
At the federal level, Section 4022 of the CARES Act allows, until the earlier of December 31, 2020 or the date the national emergency declared by the President terminates, borrowers with federally-backed one-to-four family mortgage loans experiencing a financial hardship due to COVID-19 to request forbearance, regardless of delinquency status, for up to 360 days. Section 4022 also prohibited servicers of federally-backed mortgage loans from initiating foreclosures during the 60-day period beginning March 18, 2020. Further, on August 27, 2020, the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac would extend their single-family moratorium on foreclosures and evictions through December 31, 2020. In addition, under Section 4023 of the CARES Act, until the earlier of December 31, 2020 and the date the national emergency declared by the President terminates, borrowers with federally-backed multifamily mortgage loans whose payments were current as of February 1, 2020, but who have since experienced financial hardship due to COVID-19, may request a forbearance for up to 90 days. Borrowers receiving such forbearance may not evict or charge late fees to tenants for its duration. These regulatory and legislative actions may be expanded, extended and amended as the pandemic and its economic impact develop.
As a result of the forbearance and mitigation programs described above, we have experienced a significant decline in borrower loan payments, which may continue into the future and have a material impact on our earnings.
We expect our loan portfolios to be significantly affected by the response to COVID-19 and our allowance for credit losses on loans may not be sufficient to cover losses in our portfolios. The economic shutdown in response to COVID-19 has resulted in a significant increase in delinquencies and loans on non-accrual status across all of our loan portfolios, particularly our commercial loan portfolio as certain industries have been particularly hard-hit by the COVID-19 pandemic, which has adversely affected the ability of many of our borrowers to repay their loans. As of September 30, 2020, our commercial loan portfolio includes $2.1 billion, representing 8.4% of total loans, to borrowers in key industries which may see elevated riskevolved as a result of the current economic dynamics. These key exposures include: $1.1 billionuse of loansnew technologies, devices and delivery channels to retailerstransmit data and shopping centers, $333 million to oil & gas producers, $247 million of loans to borrowers inconduct financial transactions, while the hotel industry, $116 million to restaurant related borrowers,ongoing and approximately $266 million across various exposures, which have been significantly impactedwidespread remote work environment necessitated by the COVID-19 pandemic. The elevated unemployment rate will continuepandemic has subjected institutions to have a significant adverse impact onadditional cybersecurity vulnerabilities and risks.
Any successful cyberattack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information or that compromises our ability to function could severely damage our reputation, erode confidence in the security of our residentialsystems, products and multi-family borrowers to repay their loans.
As a result of our evaluation of the current and expected impacts of COVID-19 on our loan portfolios, our loan losses and delinquencies have significantly exceeded what we anticipated when our ACLL was established at the end of 2019. As a result, we have increased our ACLL by $219 million to $442 million for the first nine months of 2020, compared to $223 million at the end of 2019. As the economic impact due to COVID-19 continues and there are no assurances as to how long it will be before the COVID-19 pandemic abates and economic activity can begin to resume to pre-COVID-19 pandemic levels, there is no assurance that we will not need to significantly add to our loan loss reserves in future periods.
We have originated a significant number of loans under the SBA’s Paycheck Protection Program, which may result in a large number of such loans remaining on our consolidated balance sheets at a very low yield for an extended period of time. We are a significant participant as a lender under the SBA’s PPP established under the CARES Act. The PPP authorizes financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profit organizations. These loans carry an interest rate of 1% per annum and a maturity of 2 years for loans originated prior to June 5, 2020 and 5 years for
loans originated on or after June 5th. The PPP provides that such loans may be forgiven if the borrowers meet certain requirements with respect to maintaining employee headcount and payroll and the use of the loan proceeds after the loan is originated. If not forgiven, these loans will be guaranteed by the SBA under the SBA’s section 7(a) program. As of September 30, 2020, we had PPP loans with outstanding balances of $1.0 billion. In light of the speed at which the PPP was implemented, particularly dueservices, expose us to the “first come first served” naturerisk of the program, the loans originated under this program may present potential fraud risk, increasing the risk that loan forgiveness may not be obtained by the borrowers and that the guaranty may not be honored. In addition, there is risk that the borrowers may not qualify for the loan forgiveness feature due to the conduct of the borrower after the loan is originated. Further, although the SBA has recently streamlined the loan forgiveness process for loans $50,000 or less, it has taken longer than initially anticipated for the SBA to finalize the forgiveness processes. Thus, absent regulatory relief, extended forbearance waiting times due to SBA-related delays are likely. These factors may result in us having to hold a significant amount of these low-yield loans on our books for a significant period of time. Additionally, the PPP loans are not secured by an interest in a borrower's assets or otherwise backed by personal guarantees. We will continue to face increased operational demands and pressures as we monitor and service our book of PPP loans, process applications for loan forgiveness and pursue recourse under the SBA guarantees and against borrowers for PPP loan defaults.
The OCC has also recently issued guidance encouraging banks to follow prudent banking practices consistent with safety and soundness principles in making PPP loans, including by thoroughly documenting the bank's decisions when setting eligibility criteria, establishing a process for considering applications and approving or denying PPP loan applications, as well as identifying and tracking PPP loan volumes. The guidance also states that, in exercising supervisory and enforcement responsibilities in this area, the OCC will take into account the unique circumstances resulting from the national emergency and good faith efforts to comply with applicable legal requirements. Thus, while the PPP guidelines provide that lenders may rely on borrower representations and certifications regarding eligibility with respect to PPP loans and do not need to verify information provided, the OCC guidance makes clear that banks are still expected to prudently underwrite, document and track PPP loans in a manner consistent with safe and sound banking practices and could face supervisory or enforcement risks in failing to do so. As a result of participation in the PPP, we may be subject to litigation and claims by borrowers under the PPP loans that we have made, as well as investigationliability, disrupt our operations and scrutiny by our regulators, Congress, the SBA, the U.S. Treasury Department and other government agencies.
Regardless of whether these claims and investigations are founded or unfounded, if such claims and investigations are not resolved in a timely manner favorable to us, they may result in significant costs and liabilities (including increased legal and professional services costs) and/or adversely affect the market perception of us and our products and services.
Also, we have registered as a lender in the MSLP, which is a program among the many financing and liquidity programs that the Federal Reserve, on its own and in cooperation with the Department of the Treasury, has established. The MSLP is intended to keep credit flowing to small and mid-sized businesses that were in sound financial condition before the coronavirus pandemic but now need financing to maintain operations. MSLP lenders retain 5% of such loans, with the remaining 95% being participated to a special purpose vehicle established for the program. The interest rate on MSLP loans currently is one- or three-month LIBOR plus 3%. Although the MSLP provides for deferral of interest and principal payments, unlike the PPP it does not provide loan forgiveness or any other government guaranty on the 5% retention amount. Participation in the MSLP may also present credit and other operational risks that cannot currently be estimated.
Risks Related to Oil and Gas Industry
We may be adversely affected by declines in oil prices. Ongoing volatility in the oil and gas markets has compressed margins for many U.S.-based oil producers and others in the oil and gas industry. Our oil and gas portfolio is comprised of 30 credits made to small and mid-sized companies. These borrowers are likely to be adversely affected by price volatility or a downturn in oil and gas prices. During the first quarter of 2020, there was a drastic decrease in crude oil prices as a result of the reported dispute between Russia and Saudi Arabia regarding oil production levels, which could result in a material adverse impact on such borrowers. Although there was a rise in crude oil prices during the second quarter, the evolving nature of the global COVID-19 pandemic has resulted in volatile global demand for oil and gas. As of September 30, 2020, our oil and gas loan exposure was $498 million of commitments with $333 million outstanding, representing less than 2% of our loan portfolio. The ACLL related to this portfolio was 15.3% at September 30, 2020, compared to 19.4% at June 30, 2020. A significant deterioration in our oil and gas loans could cause a significant increase in nonaccrual loans. An increase in nonaccrual loans could result in a loss of interest income from these loans, one or more additional increases in the provision for credit losses, and an increase in loan charge offs, all of which could have a material adverse effect on our business. Any successful cyberattack may also subject the Corporation to regulatory investigations, litigation or enforcement, or require the payment of regulatory fines or penalties or undertaking of costly remediation efforts with respect to third parties affected by a cybersecurity incident, all or any of which could adversely affect the Corporation’s business, financial condition andor results of operations.operations and damage its reputation.
Recent actions by the Biden Administration regarding competition in the financial services and technology sectors may adversely impact our business. On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy (the “Executive Order”). Among other initiatives, the Executive Order (i) encourages the federal banking agencies to review their current merger oversight practices under the Bank Holding Company Act of 1956, as amended, and the Bank Merger Act and, within 180 days of the date of the Executive Order, adopt a plan for revitalization of such practices; and (ii) directs the Bureau of Consumer Financial Protection (the “CFPB”) to commence or continue a rulemaking to facilitate the portability of consumer financial transaction data for the purpose of providing consumers with greater flexibility in switching financial institutions and using innovative financial products.
Although the scope and substance of any action by the federal banking agencies in response to the directives set forth in the Executive Order cannot be predicted at this time, the potential for increased regulatory scrutiny of bank mergers and acquisitions may adversely affect the marketplace for such transactions in the near- to medium-term and could result in our acquisitions in future periods being delayed, impeded or restricted in certain respects due to enhanced regulatory review processes. Similarly, although the CFPB has published principles for consumer-authorized financial data sharing and aggregation, we cannot predict the scope, substance or timing of any future CFPB rulemaking regarding the portability of financial transaction data in response to the Executive Order. The impact of any such rulemaking on the conduct of our customers also cannot be predicted. However, the adoption of any such rule could result in increased volatility of consumer accounts and expose the Corporation to additional operational, strategic, regulatory and compliance risks.
We are subject to environmental, social and governance risks that could adversely affect our reputation and the market price of Contentsour securities. The Corporation is subject to a variety of risks arising from environmental, social and governance matters or “ESG” matters. ESG matters include climate risk, hiring practices, the diversity of our work force, and racial and social justice issues involving our personnel, customers and third parties with whom we otherwise do business. Risks arising from ESG matters may adversely affect, among other things, our reputation and the market price of our securities.
We may be exposed to negative publicity based on the identity and activities of those to whom we lend and with which we otherwise do business and the public’s view of the approach and performance of our customers and business partners with respect to ESG matters, as well as the public’s perception of our own performance and record. Any such negative publicity could arise from adverse news coverage in traditional media and could also spread through the use of social media platforms. The Corporation’s relationships and reputation with its existing and prospective customers and third parties with which we do business could be damaged if we were to become the subject of any such negative publicity. This, in turn, could have an adverse effect on our ability to attract and retain customers and employees and could have a negative impact on the market price for securities.
Further, investors have begun to consider the steps taken and resources allocated by financial institutions and other commercial organizations to address ESG matters when making investment and operational decisions. Certain investors are beginning to incorporate the business risks of climate change and the adequacy of companies’ responses to the risks posed by climate change and other ESG matters into their investment theses. These shifts in investing priorities may result in adverse effects on the market price of our securities to the extent that investors determine that the Corporation has not made sufficient progress on ESG matters.
The leadership of each of the Federal Reserve Board and the U.S. Treasury Department have indicated increased expectations of larger financial institutions to measure, monitor and manage climate related risk as part of their enterprise risk management processes. To the extent these expectations develop into new regulations or supervisory guidance, we would expect to experience increased compliance costs and other compliance-related risks.
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ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the thirdsecond quarter of 2020,2021, the Corporation repurchased approximately $470,000$31 million of common stock, consisting entirelyincluding $30 million of open market purchases and approximately $856,000 of repurchases related to tax withholding on equity compensation, with no open market purchases due to the suspensionor approximately 1.4 million shares, of the share repurchase program.common stock. The repurchase details are presented in the table below:
Common Stock Purchases
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| Total Number of Shares Purchased(a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(b) |
Period | | | | | | | |
| | | | | | | |
July 1, 2020 - July 31, 2020 | 21,229 | | | $ | 13.54 | | | — | | | — | |
August 1, 2020 - August 31, 2020 | 4,382 | | | 13.91 | | | — | | | — | |
September 1, 2020 - September 30, 2020 | 9,199 | | | 13.17 | | | — | | | — | |
Total | 34,810 | | | $ | 13.49 | | | — | | | 8,922,429 | |
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| Total Number of Shares Purchased(a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(b) |
Period | | | | |
| | | | |
April 1, 2021 - April 30, 2021 | 137,515 | | $ | 22.12 | | 135,767 | | — | |
May 1, 2021 - May 31, 2021 | 1,180,339 | | 22.89 | | 1,178,183 | | — | |
June 1, 2021 - June 30, 2021 | 33,437 | | 22.99 | | — | | — | |
Total | 1,351,291 | | $ | 22.81 | | 1,313,950 | | 3,157,042 | |
(a) During the thirdsecond quarter of 2020,2021, the Corporation repurchased 34,81037,341 common shares for minimum tax withholding settlements on equity compensation. These purchases do not
count against the maximum number of shares that may yet be purchased under the Board of Directors’ authorization.authorization described below.
(b) On December 10, 2019, the Board of Directors authorized the repurchase of up to $150 million of the Corporation's common stock. The repurchase authorization was in addition to the previous authorized repurchases. At SeptemberJune 30, 2020,2021, there remained approximately $113$65 million authorized to be repurchased in the aggregate. Approximately 8.93.2 million shares of common stock remained available
to be repurchased under this Board authorization givenbased on the closing share price on SeptemberJune 30, 2020.
2021.
Repurchases under such authorizationsBoard authorized repurchase programs are subject to any necessary regulatory approvals and other limitations and may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchases, or similar facilities. On March 13, 2020, the Corporation suspended the share repurchase program and expects the program to remain suspended for the remainder of 2020.
Preferred Stock Purchases
During the thirdsecond quarter of 2020,2021, the Corporation did not repurchase any shares of preferred stock.
On August 28, 2015, the Board of Directors authorized the repurchase of up to $10 million ofredeemed all outstanding depositary shares of the Corporation's Series C Preferred Stock, but did not repurchase any other shares of which all of such depository shares remained available to repurchase as of September 30, 2020. Using the closing stock price on September 30, 2020 of $25.67, a total of approximately 390,000 shares remained available to be repurchased under the previously approved Board authorizations.preferred stock.
On July 25, 2017, the Board of Directors authorized the repurchase of up to $15 million of depositary shares of the Corporation's Series D Preferred Stock, of which approximately $14 million remained available to repurchase as of SeptemberJune 30, 2020.
2021. Using the closing stock price on SeptemberJune 30, 20202021 of $25.55,$25.48, a total of approximately 566,000567,000 shares remained available to be repurchased under the previously approved Board authorizations.
The repurchase of depositary shares is based on market and investment opportunities, capital levels, growth prospects, and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.
(a) Exhibits:
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Exhibit (101), Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Income, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Changes in Stockholders’ Equity, (v) Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. |
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.
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| | ASSOCIATED BANC-CORP |
| | (Registrant) |
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Date: OctoberJuly 29, 20202021 | | /s/ Philip B. FlynnAndrew J. Harmening |
| | Philip B. FlynnAndrew J. Harmening |
| | President and Chief Executive Officer |
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Date: OctoberJuly 29, 20202021 | | /s/ Christopher J. Del Moral-Niles |
| | Christopher J. Del Moral-Niles |
| | Chief Financial Officer |
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Date: OctoberJuly 29, 20202021 | | /s/ Tammy C. Stadler |
| | Tammy C. Stadler |
| | PrincipalChief Accounting Officer |