Income Statement Analysis
Net Interest Income
Table 2 Net Interest Income
Analysis
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Quarter ended
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March 31, 2018
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December 31, 2017
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March 31, 2017
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Average
Balance
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Interest
Income /
Expense
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Average
Yield /
Rate
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Average
Balance
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Interest
Income /
Expense
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Average
Yield /
Rate
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Average
Balance
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Interest
Income /
Expense
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Average
Yield /
Rate
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($ in Thousands)
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Assets
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Earning assets
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Loans
(1) (2) (3)
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Commercial and business lending
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$
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7,313,621
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$
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74,706
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4.14
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%
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$
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7,178,384
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$
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68,440
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3.79
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%
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$
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7,199,481
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$
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60,680
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3.42
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%
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Commercial real estate lending
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5,399,429
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61,504
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4.62
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%
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4,873,889
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49,744
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4.05
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%
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4,999,994
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45,135
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3.66
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%
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Total commercial
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12,713,050
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136,210
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4.34
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%
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12,052,273
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118,184
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3.89
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%
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12,199,475
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105,815
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3.52
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%
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Residential mortgage
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8,010,381
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66,402
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3.32
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%
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7,546,288
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59,979
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3.18
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%
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6,564,600
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53,306
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3.25
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%
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Retail
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1,355,098
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17,852
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5.29
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%
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1,265,055
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16,853
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5.31
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%
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1,308,650
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15,450
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4.74
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%
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Total loans
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22,078,529
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220,464
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4.03
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%
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20,863,616
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195,016
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3.72
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%
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20,072,725
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174,571
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3.51
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%
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Investment securities
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Taxable
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5,576,826
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30,104
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2.16
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%
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4,986,279
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25,614
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2.05
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%
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4,830,421
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23,475
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1.94
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%
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Tax-exempt
(1)
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1,312,913
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11,613
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3.54
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%
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1,206,078
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12,909
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4.28
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%
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1,138,010
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12,438
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4.37
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%
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Other short-term investments
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313,864
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2,177
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2.80
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%
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382,762
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2,138
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2.22
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%
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298,158
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1,536
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2.08
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%
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Investments and other
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7,203,603
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43,894
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2.44
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%
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6,575,119
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40,661
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2.47
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%
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6,266,589
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37,449
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2.39
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%
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Total earning assets
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29,282,132
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$
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264,358
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3.64
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%
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27,438,735
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$
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235,677
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3.42
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%
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26,339,314
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$
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212,020
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3.24
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%
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Other assets, net
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2,884,248
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2,542,484
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2,441,013
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Total assets
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$
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32,166,380
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$
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29,981,219
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$
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28,780,327
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Liabilities and Stockholders equity
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Interest-bearing liabilities
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Interest-bearing deposits
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Savings
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$
|
1,722,665
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$
|
202
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0.05
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%
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$
|
1,554,639
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$
|
209
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0.05
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%
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$
|
1,465,811
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$
|
188
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0.05
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%
|
Interest-bearing demand
|
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4,712,115
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8,553
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0.74
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%
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4,462,725
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7,462
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0.66
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%
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4,251,357
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4,210
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|
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0.40
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%
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Money market
|
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9,415,869
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17,827
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|
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0.77
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%
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|
|
8,743,614
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|
14,274
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|
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0.65
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%
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|
9,169,141
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9,388
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0.42
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%
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Time deposits
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2,715,292
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6,830
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|
|
1.02
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%
|
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|
2,354,828
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|
|
|
6,198
|
|
|
|
1.04
|
%
|
|
|
1,613,331
|
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|
|
3,138
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|
|
|
0.79
|
%
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Total interest-bearing deposits
|
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|
18,565,941
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|
33,412
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0.73
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%
|
|
|
17,115,806
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|
|
|
28,143
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|
|
0.65
|
%
|
|
|
16,499,640
|
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|
|
16,924
|
|
|
|
0.42
|
%
|
Federal funds purchased and securities sold under agreements to repurchase
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|
275,578
|
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|
|
522
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|
|
0.77
|
%
|
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|
279,817
|
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|
|
420
|
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|
|
0.60
|
%
|
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|
495,311
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|
|
515
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|
0.42
|
%
|
Other short-term funding
|
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|
884,633
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|
|
3,005
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|
|
1.38
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%
|
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|
600,492
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|
|
1,731
|
|
|
|
1.14
|
%
|
|
|
683,306
|
|
|
|
1,080
|
|
|
|
0.64
|
%
|
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|
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|
Total short-term funding
|
|
|
1,160,211
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|
|
3,527
|
|
|
|
1.23
|
%
|
|
|
880,309
|
|
|
|
2,151
|
|
|
|
0.97
|
%
|
|
|
1,178,617
|
|
|
|
1,595
|
|
|
|
0.55
|
%
|
Long-term funding
|
|
|
3,422,947
|
|
|
|
14,722
|
|
|
|
1.74
|
%
|
|
|
3,332,140
|
|
|
|
13,023
|
|
|
|
1.55
|
%
|
|
|
2,761,850
|
|
|
|
7,996
|
|
|
|
1.17
|
%
|
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|
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|
|
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|
Total short and long-term funding
|
|
|
4,583,158
|
|
|
|
18,249
|
|
|
|
1.61
|
%
|
|
|
4,212,449
|
|
|
|
15,174
|
|
|
|
1.43
|
%
|
|
|
3,940,467
|
|
|
|
9,591
|
|
|
|
0.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
23,149,099
|
|
|
$
|
51,661
|
|
|
|
0.90
|
%
|
|
|
21,328,255
|
|
|
$
|
43,317
|
|
|
|
0.81
|
%
|
|
|
20,440,107
|
|
|
$
|
26,515
|
|
|
|
0.52
|
%
|
Noninterest-bearing demand deposits
|
|
|
5,084,957
|
|
|
|
|
|
|
|
|
|
|
|
5,133,977
|
|
|
|
|
|
|
|
|
|
|
|
4,966,082
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
395,008
|
|
|
|
|
|
|
|
|
|
|
|
302,981
|
|
|
|
|
|
|
|
|
|
|
|
250,747
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
3,537,316
|
|
|
|
|
|
|
|
|
|
|
|
3,216,006
|
|
|
|
|
|
|
|
|
|
|
|
3,123,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
32,166,380
|
|
|
|
|
|
|
|
|
|
|
$
|
29,981,219
|
|
|
|
|
|
|
|
|
|
|
$
|
28,780,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.74
|
%
|
|
|
|
|
|
|
|
|
|
|
2.61
|
%
|
|
|
|
|
|
|
|
|
|
|
2.72
|
%
|
Net free funds
|
|
|
|
|
|
|
|
|
|
|
0.18
|
%
|
|
|
|
|
|
|
|
|
|
|
0.18
|
%
|
|
|
|
|
|
|
|
|
|
|
0.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully
tax-equivalent
net interest income and net interest
margin
|
|
|
|
|
|
$
|
212,697
|
|
|
|
2.92
|
%
|
|
|
|
|
|
$
|
192,360
|
|
|
|
2.79
|
%
|
|
|
|
|
|
$
|
185,505
|
|
|
|
2.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully
tax-equivalent
adjustment
|
|
|
|
|
|
|
2,826
|
|
|
|
|
|
|
|
|
|
|
|
5,355
|
|
|
|
|
|
|
|
|
|
|
|
5,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
209,871
|
|
|
|
|
|
|
|
|
|
|
$
|
187,005
|
|
|
|
|
|
|
|
|
|
|
$
|
180,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Mutual net accreted purchase loan discount
|
|
|
|
|
|
$
|
6,076
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
(1)
|
Beginning in 2018, 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. Prior to 2018, the yield on
tax-exempt
loans and securities was computed on a fully
tax-equivalent
basis
using a tax rate of 35% and was net of the effects of certain disallowed interest deductions.
|
(2)
|
Nonaccrual loans and loans held for sale have been included in the average balances.
|
(3)
|
Interest income includes amortization of net deferred loan origination costs and net accreted purchase loan discount.
|
4
Notable Contributions to the Change in Net Interest Income
|
|
|
Net interest income in the consolidated statements of income (which excludes the fully
tax-equivalent
adjustment) was $210 million for the first three months of 2018 compared
to $180 million for the first three months of 2017. The primary reason for increased net interest income and earning assets from last year was the acquisition of Bank Mutual in February 2018. See sections Interest Rate Risk and Quantitative and
Qualitative Disclosures about Market Risk, for a discussion of interest rate risk and market risk.
|
|
|
|
Fully
tax-equivalent
net interest income of $213 million for the first three months of 2018 was $27 million higher than the first three months of 2017.
|
|
|
|
Accreted income from the acquisition of the Bank Mutual loan portfolio contributed $6 million to net interest income for the first quarter of 2018. Approximately $2 million of the accreted income was from
prepayments and other adjustments.
|
|
|
|
Average earning assets of $29.3 billion for the first three months of 2018 were $2.9 billion, or 11%, higher than the first three months of 2017. Average loans increased $2.0 billion, or 10% primarily due
to an increase of $1.4 billion, or 22% in residential mortgage loans.
|
|
|
|
Average interest-bearing liabilities of $23.1 billion for the first three months of 2018 were up $2.7 billion, or 13% versus the first three months of 2017. On average, interest-bearing deposits increased
$2.1 billion and long-term funding increased $661 million from the first three months of 2017.
|
|
|
|
The net interest margin for the first three months of 2018 was 2.92%, compared to 2.84% for the first three months of 2017.
|
|
|
|
The cost of interest-bearing liabilities was 0.90% for the first three months of 2018, which was 38 bps higher than the first three months of 2017. The increase was primarily due to a 31 bp increase in the cost of
average interest-bearing deposits (to 0.73%) and a 68 bp increase in the cost of short-term funding (to 1.23%), both primarily due to increases in the Federal Reserve interest rate.
|
|
|
|
The Federal Reserve increased the targeted federal funds rate on March 21, 2018, to a range of 1.50% to 1.75% which compares to a range of 0.75% to 1.00% at the end of the first quarter of 2017. The Federal Reserve
has indicated that it expects gradual increases in the Federal Funds rate. However, the timing and magnitude of any such increases are uncertain and will depend on domestic and global economic conditions.
|
Provision for Credit Losses
There was no provision for
credit losses (which includes the provision for loan losses and the provision for unfunded commitments) for the three months ended March 31, 2018, compared to $9 million for the three months ended March 31, 2017. Net charge offs were
$9 million (representing 0.17% of average loans) for the three months ended March 31, 2018, compared to $6 million (representing 0.11% of average loans) for the three months ended March 31, 2017. The ratio of the allowance for
loan losses to total loans was 1.13% for March 31, 2018 and 1.40% for March 31, 2017.
The provision for credit losses is predominantly a
function of the Corporations reserving methodology and judgments as to other qualitative and quantitative factors used to determine the appropriate level of the allowance for loan losses and the allowance for unfunded commitments, which
focuses on changes in the size and character of the loan portfolio, changes in levels of impaired and other nonaccrual loans, historical losses and delinquencies in each portfolio category, the level of loans sold or transferred to held for sale,
the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other factors which could affect potential credit losses. See additional
discussion under sections, Loans, Credit Risk, Nonperforming Assets, and Allowance for Credit Losses.
5
Noninterest Income
Table 3 Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q18 Change vs
|
|
($ in Thousands)
|
|
1Q18
|
|
|
4Q17
|
|
|
3Q17
|
|
|
2Q17
|
|
|
1Q17
|
|
|
4Q17
|
|
|
1Q17
|
|
Insurance commissions and fees
|
|
$
|
22,648
|
|
|
$
|
19,186
|
|
|
$
|
19,815
|
|
|
$
|
20,853
|
|
|
$
|
21,620
|
|
|
|
18
|
%
|
|
|
5
|
%
|
Service charges and deposit account fees
|
|
|
16,420
|
|
|
|
15,773
|
|
|
|
16,268
|
|
|
|
16,030
|
|
|
|
16,356
|
|
|
|
4
|
%
|
|
|
|
%
|
Card-based and loan fees
|
|
|
13,422
|
|
|
|
13,840
|
|
|
|
12,619
|
|
|
|
13,764
|
|
|
|
12,465
|
|
|
|
(3
|
)%
|
|
|
8
|
%
|
Trust and asset management fees
|
|
|
13,369
|
|
|
|
13,125
|
|
|
|
12,785
|
|
|
|
12,346
|
|
|
|
11,935
|
|
|
|
2
|
%
|
|
|
12
|
%
|
Brokerage commissions and fees
|
|
|
7,273
|
|
|
|
6,864
|
|
|
|
4,392
|
|
|
|
4,346
|
|
|
|
4,333
|
|
|
|
6
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core
fee-based
revenue
|
|
|
73,132
|
|
|
|
68,788
|
|
|
|
65,879
|
|
|
|
67,339
|
|
|
|
66,709
|
|
|
|
6
|
%
|
|
|
10
|
%
|
Mortgage banking income
|
|
|
8,219
|
|
|
|
5,507
|
|
|
|
9,147
|
|
|
|
7,692
|
|
|
|
7,273
|
|
|
|
49
|
%
|
|
|
13
|
%
|
Mortgage servicing rights (expense)
|
|
|
1,849
|
|
|
|
2,337
|
|
|
|
2,563
|
|
|
|
2,665
|
|
|
|
2,694
|
|
|
|
(21
|
)%
|
|
|
(31
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking, net
|
|
|
6,370
|
|
|
|
3,169
|
|
|
|
6,585
|
|
|
|
5,027
|
|
|
|
4,579
|
|
|
|
101
|
%
|
|
|
39
|
%
|
Capital markets, net
|
|
|
5,306
|
|
|
|
7,107
|
|
|
|
4,610
|
|
|
|
4,042
|
|
|
|
3,883
|
|
|
|
(25
|
)%
|
|
|
37
|
%
|
Bank and corporate owned life insurance
|
|
|
3,187
|
|
|
|
3,156
|
|
|
|
6,580
|
|
|
|
3,899
|
|
|
|
2,615
|
|
|
|
1
|
%
|
|
|
22
|
%
|
Other
|
|
|
2,492
|
|
|
|
2,777
|
|
|
|
2,254
|
|
|
|
2,213
|
|
|
|
2,279
|
|
|
|
(10
|
)%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
90,487
|
|
|
|
84,997
|
|
|
|
85,908
|
|
|
|
82,520
|
|
|
|
80,065
|
|
|
|
6
|
%
|
|
|
13
|
%
|
Asset gains(losses), net
|
|
|
(107
|
)
|
|
|
(528
|
)
|
|
|
(16
|
)
|
|
|
(466
|
)
|
|
|
(234
|
)
|
|
|
(80
|
)%
|
|
|
(54
|
)%
|
Investment securities gains(losses), net
|
|
|
|
|
|
|
75
|
|
|
|
3
|
|
|
|
356
|
|
|
|
|
|
|
|
(100
|
)%
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
90,380
|
|
|
$
|
84,544
|
|
|
$
|
85,895
|
|
|
$
|
82,410
|
|
|
$
|
79,831
|
|
|
|
7
|
%
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans originated for sale during period
|
|
$
|
197,603
|
|
|
$
|
249,222
|
|
|
$
|
245,851
|
|
|
$
|
119,004
|
|
|
$
|
101,280
|
|
|
|
(21
|
)%
|
|
|
95
|
%
|
Mortgage loan settlements during period
|
|
$
|
187,624
|
|
|
$
|
268,254
|
|
|
$
|
187,568
|
|
|
$
|
167,550
|
|
|
$
|
196,578
|
|
|
|
(30
|
)%
|
|
|
(5
|
)%
|
Assets under management, at market value
(a)
|
|
$
|
10,540
|
|
|
$
|
10,555
|
|
|
$
|
9,243
|
|
|
$
|
8,997
|
|
|
$
|
8,716
|
|
|
|
0
|
%
|
|
|
21
|
%
|
(a)
|
$ in millions. Excludes assets held in brokerage firms
|
Notable Contributions to the Change in Noninterest
Income
|
|
|
Fee-based
revenue was $73 million, an increase of $6 million (10%) compared to the first three months of 2017. Within fee based revenue, brokerage commissions and
fees increased $3 million (68%), primarily due to the acquisition of Whitnell & Co in the fourth quarter of 2017. In addition, trust and asset management fees increased $1 million (12%), primarily due to an increase in assets
under management.
|
|
|
|
Net mortgage banking income for the first three months of 2018 was $6 million, up $2 million (39%) from the first three months of 2017, primarily due to the Corporations strategy to hold mortgages on
balance sheet during the first quarter of 2017.
|
6
Noninterest Expense
Table 4 Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q18 Change vs
|
|
($ in Thousands)
|
|
1Q18
|
|
|
4Q17
|
|
|
3Q17
|
|
|
2Q17
|
|
|
1Q17
|
|
|
4Q17
|
|
|
1Q17
|
|
Personnel
(2)
|
|
$
|
117,685
|
|
|
$
|
107,031
|
|
|
$
|
108,098
|
|
|
$
|
107,066
|
|
|
$
|
106,782
|
|
|
|
10
|
%
|
|
|
10
|
%
|
Occupancy
|
|
|
15,357
|
|
|
|
13,497
|
|
|
|
12,294
|
|
|
|
12,832
|
|
|
|
15,219
|
|
|
|
14
|
%
|
|
|
1
|
%
|
Technology
|
|
|
17,715
|
|
|
|
17,878
|
|
|
|
15,233
|
|
|
|
15,473
|
|
|
|
14,420
|
|
|
|
(1
|
)%
|
|
|
23
|
%
|
Equipment
|
|
|
5,556
|
|
|
|
5,250
|
|
|
|
5,232
|
|
|
|
5,234
|
|
|
|
5,485
|
|
|
|
6
|
%
|
|
|
1
|
%
|
Business development and advertising
|
|
|
6,693
|
|
|
|
8,195
|
|
|
|
7,764
|
|
|
|
7,152
|
|
|
|
5,835
|
|
|
|
(18
|
)%
|
|
|
15
|
%
|
Legal and professional
|
|
|
5,413
|
|
|
|
6,384
|
|
|
|
6,248
|
|
|
|
5,711
|
|
|
|
4,166
|
|
|
|
(15
|
)%
|
|
|
30
|
%
|
Card Issuance and loan costs
|
|
|
3,304
|
|
|
|
2,836
|
|
|
|
3,330
|
|
|
|
2,974
|
|
|
|
2,620
|
|
|
|
17
|
%
|
|
|
26
|
%
|
Foreclosure / OREO expense, net
|
|
|
723
|
|
|
|
1,285
|
|
|
|
906
|
|
|
|
1,182
|
|
|
|
1,505
|
|
|
|
(44
|
)%
|
|
|
(52
|
)%
|
FDIC assessment
|
|
|
8,250
|
|
|
|
7,500
|
|
|
|
7,800
|
|
|
|
8,000
|
|
|
|
8,000
|
|
|
|
10
|
%
|
|
|
3
|
%
|
Other intangible amortization
|
|
|
1,525
|
|
|
|
500
|
|
|
|
450
|
|
|
|
496
|
|
|
|
513
|
|
|
|
205
|
%
|
|
|
197
|
%
|
Acquisition related costs
(1)
|
|
|
20,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M
|
|
|
|
N/M
|
|
Other
(2)
|
|
|
10,140
|
|
|
|
11,343
|
|
|
|
10,072
|
|
|
|
10,196
|
|
|
|
9,146
|
|
|
|
(11
|
)%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
$
|
212,965
|
|
|
$
|
181,699
|
|
|
$
|
177,427
|
|
|
$
|
176,316
|
|
|
$
|
173,691
|
|
|
|
17
|
%
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes Bank Mutual acquisition-related costs only.
|
(2)
|
During the first quarter of 2018, the Corporation adopted a new accounting standard related to the presentation of net periodic pension cost and net periodic postretirement benefit cost which required the disaggregation
of the service cost component from the other components of net benefit cost and net periodic postretirement benefit cost. Under this new accounting standard, the other components of net benefit cost and net periodic postretirement benefit cost were
reclassified from personnel expense to other noninterest expense. All prior periods have been restated to reflect this change in presentation.
|
Notable Contributions to the Change in Noninterest Expense
|
|
|
Personnel expense (which includes salary-related expenses and fringe benefit expenses) was $118 million for the first three months of 2018, up $11 million (10%) from the first three months of 2017, primarily
driven by the additional cost of Bank Mutual staff.
|
|
|
|
All other nonpersonnel noninterest expense on a combined basis was $95 million, up $25 million compared to the first three months of 2017. The increase was primarily driven by $21 million of acquisition
related costs pertaining to Bank Mutual. In addition, technology expense increased $3 million (23%) from the first three months of 2017, driven by investments in technology solutions that meet evolving customer needs and improve operational
efficiency.
|
Income Taxes
The
Corporation recognized income tax expense of $18 million for the three months ended March 31, 2018, compared to income tax expense of $21 million for the three months ended March 31, 2017. The change in income tax expense was due
primarily to a decrease in federal corporate income tax rates from 35% to 21% coupled with an increase in
pre-tax
book income. The effective tax rate was 20.43% for the first three months of 2018, compared to
an effective tax rate of 27.31% for the first three months of 2017.
Income tax expense recorded in 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 Corporations 2017 Annual Report on Form
10-K
for additional information on income taxes.
7
Balance Sheet Analysis
|
|
|
At March 31, 2018, total assets were $33.4 billion, up $2.9 billion (9%) from December 31, 2017 and up $4.3 billion (15%) from March 31, 2017. On February 1, 2018, the Corporation
added $2.8 billion of assets as a result of the Bank Mutual acquisition.
|
|
|
|
Loans of $22.8 billion at March 31, 2018 were up $2.0 billion (10%) from December 31, 2017 and were up $2.7 billion (13%) from March 31, 2017. On February 1, 2018, the Corporation
added $1.9 billion of loans as a result of the Bank Mutual acquisition. See section Loans for additional information on loans.
|
|
|
|
At March 31, 2018, total deposits of $23.8 billion were up $1.0 billion (5%) from December 31, 2017 and were up $2.0 billion (9%) from March 31, 2017. On February 1, 2018, the
Corporation assumed $1.8 billion of deposits as a result of the Bank Mutual acquisition. These inflows were partially offset by seasonal deposit outflows. See section Deposits and Customer Funding for additional information on deposits.
|
|
|
|
Short and long-term funding of $5.4 billion increased $1.3 billion (32%) from December 31, 2017 and increased $1.5 billion (40%) from March 31, 2017. During the quarter, the Corporation reduced
network transaction deposits with lower costs, fixed rate, short-term FHLB advances.
|
Loans
Table 5 Period End Loan Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
(a)
|
|
|
December 31, 2017
|
|
|
September 30, 2017
|
|
|
June 30, 2017
|
|
|
March 31, 2017
|
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
|
($ in Thousands)
|
|
Commercial and industrial
|
|
$
|
6,756,983
|
|
|
|
30
|
%
|
|
$
|
6,399,693
|
|
|
|
31
|
%
|
|
$
|
6,534,660
|
|
|
|
31
|
%
|
|
$
|
6,571,000
|
|
|
|
32
|
%
|
|
$
|
6,300,646
|
|
|
|
31
|
%
|
Commercial real estate owner occupied
|
|
|
900,913
|
|
|
|
4
|
%
|
|
|
802,209
|
|
|
|
4
|
%
|
|
|
827,064
|
|
|
|
4
|
%
|
|
|
845,336
|
|
|
|
4
|
%
|
|
|
878,391
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and business lending
|
|
|
7,657,896
|
|
|
|
34
|
%
|
|
|
7,201,902
|
|
|
|
35
|
%
|
|
|
7,361,724
|
|
|
|
35
|
%
|
|
|
7,416,336
|
|
|
|
36
|
%
|
|
|
7,179,037
|
|
|
|
35
|
%
|
Commercial real estate investor
|
|
|
4,077,671
|
|
|
|
18
|
%
|
|
|
3,315,254
|
|
|
|
16
|
%
|
|
|
3,345,536
|
|
|
|
16
|
%
|
|
|
3,329,585
|
|
|
|
16
|
%
|
|
|
3,415,355
|
|
|
|
17
|
%
|
Real estate construction
|
|
|
1,579,778
|
|
|
|
7
|
%
|
|
|
1,451,684
|
|
|
|
7
|
%
|
|
|
1,552,135
|
|
|
|
8
|
%
|
|
|
1,651,805
|
|
|
|
8
|
%
|
|
|
1,553,205
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate lending
|
|
|
5,657,449
|
|
|
|
25
|
%
|
|
|
4,766,938
|
|
|
|
23
|
%
|
|
|
4,897,671
|
|
|
|
24
|
%
|
|
|
4,981,390
|
|
|
|
24
|
%
|
|
|
4,968,560
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
13,315,345
|
|
|
|
58
|
%
|
|
|
11,968,840
|
|
|
|
58
|
%
|
|
|
12,259,395
|
|
|
|
59
|
%
|
|
|
12,397,726
|
|
|
|
60
|
%
|
|
|
12,147,597
|
|
|
|
60
|
%
|
Residential mortgage
|
|
|
8,197,223
|
|
|
|
36
|
%
|
|
|
7,546,534
|
|
|
|
36
|
%
|
|
|
7,408,471
|
|
|
|
35
|
%
|
|
|
7,115,457
|
|
|
|
34
|
%
|
|
|
6,715,282
|
|
|
|
33
|
%
|
Home equity
|
|
|
923,470
|
|
|
|
4
|
%
|
|
|
883,804
|
|
|
|
4
|
%
|
|
|
890,130
|
|
|
|
4
|
%
|
|
|
897,111
|
|
|
|
4
|
%
|
|
|
911,969
|
|
|
|
5
|
%
|
Other consumer
|
|
|
374,453
|
|
|
|
2
|
%
|
|
|
385,813
|
|
|
|
2
|
%
|
|
|
373,464
|
|
|
|
2
|
%
|
|
|
372,775
|
|
|
|
2
|
%
|
|
|
372,835
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
9,495,146
|
|
|
|
42
|
%
|
|
|
8,816,151
|
|
|
|
42
|
%
|
|
|
8,672,065
|
|
|
|
41
|
%
|
|
|
8,385,343
|
|
|
|
40
|
%
|
|
|
8,000,086
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
22,810,491
|
|
|
|
100
|
%
|
|
$
|
20,784,991
|
|
|
|
100
|
%
|
|
$
|
20,931,460
|
|
|
|
100
|
%
|
|
$
|
20,783,069
|
|
|
|
100
|
%
|
|
$
|
20,147,683
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes $15 million of purchased credit-impaired loans
|
The Corporation has long-term guidelines relative to the proportion of Commercial and Business, Commercial Real Estate, and Consumer loans within the overall
loan portfolio, with each targeted to represent
30-40%
of the overall loan portfolio. The targeted long-term guidelines were unchanged during 2017 and the first three months of 2018. Furthermore, certain
sub-asset
classes within the respective portfolios were further defined and dollar limitations were placed on these
sub-portfolios.
These guidelines and limits are reviewed
quarterly and approved annually by the Enterprise Risk Committee of the Corporations Board of Directors. These guidelines and limits are designed to create balance and diversification within the loan portfolios.
8
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, for additional information on managing overall credit quality.
The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within our 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 March 31, 2018, no significant concentrations existed
in the Corporations 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 and small businesses and lease financing. At March 31, 2018, the largest industry group within the commercial and business lending category were
manufacturing and wholesale trade, which represented 8% of total loans and 25% of the total commercial and business lending portfolio. The next largest industry group within the commercial and business lending category included the power and
utilities portfolio, which represented 5% of total loans and represented 14% of the total commercial and business lending portfolio at March 31, 2018. The credit risk related to commercial loans is largely influenced by general economic
conditions and the resulting impact on a borrowers 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 provides reserve
based loans to oil and gas exploration and production firms. At March 31, 2018, the oil and gas portfolio was comprised of 56 credits, totaling $657 million of outstanding balances. The Corporations oil and gas lending team is based
in Houston and focuses on serving the funding needs of small and
mid-sized
companies in the upstream oil and gas business. The oil and gas loans are generally first lien, reserve-based, and borrowing base
dependent lines of credit. A small portion of the portfolio is in a second lien position to which the Corporation also holds the first lien position. The portfolio is diversified across all major U.S. geographic basins. The portfolio is diversified
by product line with approximately 60% in oil and 40% in gas at March 31, 2018. Borrowing base
re-determinations
for the portfolio are completed at least twice a year and are based on detailed engineering
reports and discounted cash flow analysis.
The following table summarizes information about the Corporations oil and gas loan portfolio.
Table 6 Oil and Gas Loan Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
September 30, 2017
|
|
|
June 30, 2017
|
|
|
March 31, 2017
|
|
|
|
($ in Millions)
|
|
Pass
|
|
$
|
548
|
|
|
$
|
483
|
|
|
$
|
446
|
|
|
$
|
411
|
|
|
$
|
405
|
|
Special mention
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
8
|
|
Potential problem
|
|
|
40
|
|
|
|
40
|
|
|
|
39
|
|
|
|
37
|
|
|
|
78
|
|
Nonaccrual
|
|
|
69
|
|
|
|
77
|
|
|
|
92
|
|
|
|
114
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil and gas related loans
|
|
$
|
657
|
|
|
$
|
600
|
|
|
$
|
577
|
|
|
$
|
601
|
|
|
$
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter net charge offs
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
12
|
|
|
$
|
6
|
|
Oil and gas related allowance
|
|
$
|
19
|
|
|
$
|
27
|
|
|
$
|
30
|
|
|
$
|
33
|
|
|
$
|
42
|
|
Oil and gas related allowance ratio
|
|
|
2.9
|
%
|
|
|
4.5
|
%
|
|
|
5.2
|
%
|
|
|
5.4
|
%
|
|
|
6.7
|
%
|
During 2017, the market stabilized leading to improvements across the oil and gas portfolio. At March 31, 2018,
nonaccrual oil and gas related loans totaled approximately $69 million, representing 11% of the oil and gas loan portfolio, a decrease of $8 million from December 31, 2017.
9
Commercial real estate - investor:
Commercial real estate-investor is comprised of loans secured by
various
non-owner
occupied or investor income producing property types. At March 31, 2018, the two largest property type exposures within the commercial real estate-investor portfolio were loans secured
by multi-family properties, which represented 7% of total loans and 36% of the total commercial real estate-investor portfolio and loans secured by retail properties which represented 4% of total loans and 24% of the total commercial real
estate-investor portfolio. 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 borrowers 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.
The Corporations current lending
standards for commercial real estate and real estate construction lending are determined by property type and specifically address many criteria, including: maximum loan amounts, maximum
loan-to-value
(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 Corporations 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.
Table 7 Commercial Loan Distribution and Interest Rate Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Within 1 Year
(a)
|
|
|
1-5 Years
|
|
|
After 5 Years
|
|
|
Total
|
|
|
% of Total
|
|
|
|
($ in Thousands)
|
|
Commercial and industrial
|
|
$
|
5,998,575
|
|
|
$
|
555,894
|
|
|
$
|
202,514
|
|
|
$
|
6,756,983
|
|
|
|
51
|
%
|
Commercial real estate investor
|
|
|
3,217,012
|
|
|
|
762,322
|
|
|
|
98,338
|
|
|
|
4,077,671
|
|
|
|
31
|
%
|
Commercial real estate owner occupied
|
|
|
458,193
|
|
|
|
296,889
|
|
|
|
145,832
|
|
|
|
900,913
|
|
|
|
7
|
%
|
Real estate construction
|
|
|
1,428,741
|
|
|
|
113,082
|
|
|
|
37,954
|
|
|
|
1,579,778
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,102,520
|
|
|
$
|
1,728,186
|
|
|
$
|
484,638
|
|
|
$
|
13,315,345
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
4,604,032
|
|
|
$
|
983,927
|
|
|
$
|
371,720
|
|
|
$
|
5,959,679
|
|
|
|
45
|
%
|
Floating or adjustable rate
|
|
|
6,498,490
|
|
|
|
744,259
|
|
|
|
112,917
|
|
|
|
7,355,666
|
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,102,522
|
|
|
$
|
1,728,186
|
|
|
$
|
484,637
|
|
|
$
|
13,315,345
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent by maturity distribution
|
|
|
83
|
%
|
|
|
13
|
%
|
|
|
4
|
%
|
|
|
100
|
%
|
|
|
|
|
(a)
|
Demand loans, past due loans, and overdrafts are reported in the Within 1 Year category.
|
The
total commercial loans that were floating or adjustable rate was $7.4 billion (55%) at March 31, 2018. Including the $4.6 billion of fixed rate loans due within one year, 90% of the commercial loan portfolio noted above matures,
re-prices,
or resets within one year.
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%. At March 31, 2018, the residential mortgage portfolio was comprised of $2.9 billion of fixed-rate residential real
estate mortgages and $5.3 billion of variable-rate residential real estate mortgages, compared to $2.6 billion of fixed-rate mortgages and $4.9 billion variable-rate mortgages at December 31, 2017. The residential mortgage
portfolio is focused primarily in our three-state branch footprint, with approximately 88% of the outstanding loan balances in our branch footprint at March 31, 2018. The majority of the on balance sheet residential mortgage portfolio consists
of hybrid, adjustable rate mortgage loans with initial fixed rate terms of 3, 5, 7, or 10 years.
Based upon outstanding balances at March 31, 2018,
the following table presents the next contractual repricing year for the Corporations adjustable rate mortgage portfolio.
10
Table 8 Adjustable Rate Mortgage Repricing
(a)
|
|
|
|
|
|
|
|
|
|
|
$ in Thousands
|
|
|
% to Total
|
|
2018
|
|
$
|
388,772
|
|
|
|
7
|
%
|
2019
|
|
|
584,096
|
|
|
|
11
|
%
|
2020
|
|
|
636,717
|
|
|
|
12
|
%
|
2021
|
|
|
741,288
|
|
|
|
14
|
%
|
2022
|
|
|
813,785
|
|
|
|
15
|
%
|
Thereafter
|
|
|
2,106,599
|
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
Total adjustable rate mortgages
|
|
$
|
5,271,257
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
(a)
|
Based on contractual loan terms for 3/1, 5/1, 7/1, and 10/1 adjustable rate mortgages; does not factor in early prepayments or amortization.
|
The Corporation also 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 managements historical practice of originating and servicing residential mortgage loans, generally the Corporations 30 year, agency conforming,
fixed-rate residential real estate mortgage loans were sold in the secondary market with servicing rights retained. Subject to managements 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.
The Corporations 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
Corporations 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 Corporations underwriting and risk-based
pricing guidelines for home equity lines and loans consist of a combination of both borrower FICO and the original cumulative LTV against the property securing the loan. Currently, our policy sets the maximum acceptable LTV at 90% and the
minimum acceptable FICO at 670. The Corporations 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. The Corporation has significantly curtailed its offerings of fixed-rate, closed end home equity loans. The loans in the Corporations portfolio
generally have an original term of 20 years with principal and interest payments required.
Based upon outstanding balances at March 31, 2018, the
following table presents the periods when home equity lines of credit revolving periods are scheduled to end.
Table 9 Home Equity Line of Credit -
Revolving Period End Dates
|
|
|
|
|
|
|
|
|
|
|
$ in Thousands
|
|
|
% of Total
|
|
Less than 5 years
|
|
$
|
93,578
|
|
|
|
9
|
%
|
5 to 10 years
|
|
|
287,038
|
|
|
|
29
|
%
|
Over 10 years
|
|
|
617,525
|
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
Total home equity revolving lines of credit
|
|
$
|
998,141
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
11
Other consumer:
Other consumer consists of student loans, short-term and other personal installment loans
and credit cards. The Corporation had $181 million and $183 million of student loans at March 31, 2018, and December 31, 2017, respectively, the majority of which are government guaranteed. Credit risk for
non-government
guaranteed student, short-term and personal installment loans and credit cards is influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan
collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery of these smaller consumer loans. Credit risk is primarily controlled by
reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guarantee positions. The student loan portfolio is in
run-off
and no new student loans are
being originated.
12
Nonperforming Assets
Management is committed to a proactive nonaccrual and problem loan identification philosophy. This philosophy is implemented through the ongoing monitoring and
review of all pools of risk in the loan portfolio to ensure that problem loans are identified quickly and the risk of loss is minimized. Table 10 provides detailed information regarding nonperforming assets, which include nonaccrual loans and other
real estate owned, and other nonperforming assets.
Table 10 Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
|
($ in Thousands)
|
|
Nonperforming assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
102,667
|
|
|
$
|
112,786
|
|
|
$
|
122,284
|
|
|
$
|
141,475
|
|
|
$
|
164,891
|
|
Commercial real estate owner occupied
|
|
|
20,636
|
|
|
|
22,740
|
|
|
|
15,598
|
|
|
|
15,800
|
|
|
|
17,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and business lending
|
|
|
123,303
|
|
|
|
135,526
|
|
|
|
137,882
|
|
|
|
157,275
|
|
|
|
182,816
|
|
Commercial real estate investor
|
|
|
15,574
|
|
|
|
4,729
|
|
|
|
3,543
|
|
|
|
7,206
|
|
|
|
8,273
|
|
Real estate construction
|
|
|
1,219
|
|
|
|
974
|
|
|
|
1,540
|
|
|
|
1,717
|
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate lending
|
|
|
16,793
|
|
|
|
5,703
|
|
|
|
5,083
|
|
|
|
8,923
|
|
|
|
9,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
140,096
|
|
|
|
141,229
|
|
|
|
142,965
|
|
|
|
166,198
|
|
|
|
192,336
|
|
Residential mortgage
|
|
|
55,100
|
|
|
|
53,632
|
|
|
|
54,654
|
|
|
|
51,975
|
|
|
|
54,183
|
|
Home equity
|
|
|
13,218
|
|
|
|
13,514
|
|
|
|
12,639
|
|
|
|
13,482
|
|
|
|
13,212
|
|
Other consumer
|
|
|
139
|
|
|
|
171
|
|
|
|
259
|
|
|
|
233
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
68,456
|
|
|
|
67,317
|
|
|
|
67,552
|
|
|
|
65,690
|
|
|
|
67,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
208,553
|
|
|
|
208,546
|
|
|
|
210,517
|
|
|
|
231,888
|
|
|
|
259,991
|
|
Commercial real estate owned
|
|
|
7,511
|
|
|
|
6,735
|
|
|
|
5,098
|
|
|
|
4,825
|
|
|
|
5,599
|
|
Residential real estate owned
|
|
|
5,806
|
|
|
|
5,873
|
|
|
|
3,385
|
|
|
|
2,957
|
|
|
|
1,941
|
|
Bank properties real estate owned
|
|
|
3,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned (OREO)
|
|
|
16,919
|
|
|
|
12,608
|
|
|
|
8,483
|
|
|
|
7,782
|
|
|
|
7,540
|
|
Other nonperforming assets
|
|
|
7,117
|
|
|
|
7,418
|
|
|
|
7,418
|
|
|
|
7,418
|
|
|
|
7,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets (NPAs)
|
|
$
|
232,589
|
|
|
$
|
228,572
|
|
|
$
|
226,418
|
|
|
$
|
247,088
|
|
|
$
|
274,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans past due 90 days or more
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
505
|
|
|
$
|
418
|
|
|
$
|
308
|
|
|
$
|
248
|
|
|
$
|
258
|
|
Consumer
|
|
|
2,888
|
|
|
|
1,449
|
|
|
|
1,303
|
|
|
|
1,287
|
|
|
|
1,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing loans past due 90 days or more
|
|
$
|
3,393
|
|
|
$
|
1,867
|
|
|
$
|
1,611
|
|
|
$
|
1,535
|
|
|
$
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans (accruing)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
47,460
|
|
|
$
|
48,735
|
|
|
$
|
51,259
|
|
|
$
|
50,634
|
|
|
$
|
51,274
|
|
Consumer
|
|
|
29,041
|
|
|
|
25,883
|
|
|
|
25,919
|
|
|
|
26,691
|
|
|
|
27,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans (accruing)
|
|
$
|
76,501
|
|
|
$
|
74,618
|
|
|
$
|
77,178
|
|
|
$
|
77,325
|
|
|
$
|
79,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual restructured loans (included in nonaccrual loans)
|
|
$
|
23,827
|
|
|
$
|
23,486
|
|
|
$
|
33,520
|
|
|
$
|
51,715
|
|
|
$
|
78,902
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans to total loans
|
|
|
0.91
|
%
|
|
|
1.00
|
%
|
|
|
1.01
|
%
|
|
|
1.12
|
%
|
|
|
1.29
|
%
|
NPAs to total loans plus OREO
|
|
|
1.02
|
%
|
|
|
1.10
|
%
|
|
|
1.08
|
%
|
|
|
1.19
|
%
|
|
|
1.36
|
%
|
NPAs to total assets
|
|
|
0.70
|
%
|
|
|
0.75
|
%
|
|
|
0.75
|
%
|
|
|
0.83
|
%
|
|
|
0.94
|
%
|
Allowance for loan losses to nonaccrual loans
|
|
|
123.26
|
%
|
|
|
127.49
|
%
|
|
|
131.37
|
%
|
|
|
121.22
|
%
|
|
|
108.72
|
%
|
13
Table 11 Nonperforming Assets (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
|
($ in Thousands)
|
|
Accruing loans
30-89 days
past due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
880
|
|
|
$
|
271
|
|
|
$
|
1,378
|
|
|
$
|
1,255
|
|
|
$
|
1,675
|
|
Commercial real estate owner occupied
|
|
|
511
|
|
|
|
48
|
|
|
|
1,522
|
|
|
|
1,284
|
|
|
|
970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and business lending
|
|
|
1,391
|
|
|
|
319
|
|
|
|
2,900
|
|
|
|
2,539
|
|
|
|
2,645
|
|
Commercial real estate investor
|
|
|
240
|
|
|
|
374
|
|
|
|
1,109
|
|
|
|
899
|
|
|
|
1,122
|
|
Real estate construction
|
|
|
490
|
|
|
|
251
|
|
|
|
700
|
|
|
|
135
|
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate lending
|
|
|
730
|
|
|
|
625
|
|
|
|
1,809
|
|
|
|
1,034
|
|
|
|
1,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
2,121
|
|
|
|
944
|
|
|
|
4,709
|
|
|
|
3,573
|
|
|
|
4,198
|
|
Residential mortgage
|
|
|
15,133
|
|
|
|
9,552
|
|
|
|
8,870
|
|
|
|
9,165
|
|
|
|
7,243
|
|
Home equity
|
|
|
5,868
|
|
|
|
6,825
|
|
|
|
7,191
|
|
|
|
5,924
|
|
|
|
4,512
|
|
Other consumer
|
|
|
1,811
|
|
|
|
2,007
|
|
|
|
1,686
|
|
|
|
1,746
|
|
|
|
1,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
22,812
|
|
|
|
18,384
|
|
|
|
17,747
|
|
|
|
16,835
|
|
|
|
13,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing loans
30-89 days
past due
|
|
$
|
24,934
|
|
|
$
|
19,328
|
|
|
$
|
22,456
|
|
|
$
|
20,408
|
|
|
$
|
17,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential problem loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
196,766
|
|
|
$
|
113,778
|
|
|
$
|
153,779
|
|
|
$
|
142,607
|
|
|
$
|
218,930
|
|
Commercial real estate owner occupied
|
|
|
34,410
|
|
|
|
41,997
|
|
|
|
57,468
|
|
|
|
60,724
|
|
|
|
58,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and business lending
|
|
|
231,176
|
|
|
|
155,775
|
|
|
|
211,247
|
|
|
|
203,331
|
|
|
|
277,924
|
|
Commercial real estate investor
|
|
|
46,970
|
|
|
|
19,291
|
|
|
|
46,770
|
|
|
|
48,569
|
|
|
|
49,217
|
|
Real estate construction
|
|
|
1,695
|
|
|
|
|
|
|
|
118
|
|
|
|
8,901
|
|
|
|
10,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate lending
|
|
|
48,665
|
|
|
|
19,291
|
|
|
|
46,888
|
|
|
|
57,470
|
|
|
|
59,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
279,841
|
|
|
|
175,066
|
|
|
|
258,135
|
|
|
|
260,801
|
|
|
|
337,282
|
|
Residential mortgage
|
|
|
2,155
|
|
|
|
1,616
|
|
|
|
650
|
|
|
|
1,576
|
|
|
|
2,155
|
|
Home equity
|
|
|
188
|
|
|
|
195
|
|
|
|
124
|
|
|
|
208
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
2,343
|
|
|
|
1,811
|
|
|
|
774
|
|
|
|
1,784
|
|
|
|
2,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total potential problem loans
|
|
$
|
282,184
|
|
|
$
|
176,877
|
|
|
$
|
258,909
|
|
|
$
|
262,585
|
|
|
$
|
339,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. The ratio of nonaccrual loans to total loans at March 31, 2018 was 0.91%, as compared to 1.00% at December 31, 2017 and 1.29% at
March 31, 2017. See also sections Credit Risk and Allowance for Credit Losses.
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. Accruing loans 90
days or more past due at March 31, 2018 increased $2 million from both December 31, 2017 and March 31, 2017 as a result of the acquisition of Bank Mutual.
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. Potential problem loans are generally
defined by management to include loans rated as substandard by management but that are not considered impaired (i.e., nonaccrual loans and accruing troubled debt restructurings); 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
Corporations risk of loss.
14
Other nonperforming assets:
The asset represents the Banks ownership interest in a profit
participation agreement in an entity created to own certain oil and gas assets obtained as a result of bankruptcy and liquidation of a borrower in partial satisfaction of their loan.
Allowance for Credit Losses
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 minimization of loan losses. Credit risk management for each loan type is discussed in the section entitled
Credit Risk. See Note 7 Loans, for additional disclosures on the allowance for credit losses.
To assess the appropriateness of the allowance for loan
losses, an allocation methodology is applied by the Corporation which focuses on evaluation of many factors, including but not limited to: evaluation of facts and issues related to specific loans, managements ongoing review and grading of the
loan portfolio, 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
loans, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which
could affect potential credit losses. Assessing these factors involves significant judgment. Because each of the criteria used is subject to change, the allowance for loan losses is not necessarily indicative of the trend of future loan losses in
any particular category. Therefore, management considers the allowance for loan losses a critical accounting policySee section Critical Accounting Policies, in the Corporations 2017 Annual Report on Form
10-K
for additional information on the allowance for loan losses. 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 allowance for loan losses disclosures. Table 5 provides information on loan growth and period end loan composition, Table 10 provides additional information regarding nonperforming assets, and Table 12 and Table 13 provide
additional information regarding activity in the allowance for loan losses.
The methodology used for the allocation of the allowance for loan losses at
March 31, 2018 and December 31, 2017 was generally comparable, whereby the Corporation segregated its loss factors (used for both criticized and
non-criticized
loans) into a component primarily based
on historical loss rates and a component primarily based on other qualitative factors that are probable to affect loan collectability. The allocation methodology consists of the following components: First, a valuation allowance estimate is
established for specifically identified commercial and consumer loans determined by the Corporation to be impaired, using discounted cash flows, estimated fair value of underlying collateral, and / or other data available. Second, management
allocates the allowance for loan losses with loss factors, 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, and industry statistics. 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. Lastly, management allocates allowance for loan losses to absorb unrecognized losses that may not be provided for by the other components due to other 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.
15
Table 12 Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
|
($ in Thousands)
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
265,880
|
|
|
$
|
276,551
|
|
|
$
|
281,101
|
|
|
$
|
282,672
|
|
|
$
|
278,335
|
|
Provision for loan losses
|
|
|
500
|
|
|
|
|
|
|
|
6,000
|
|
|
|
11,000
|
|
|
|
10,000
|
|
Charge offs
|
|
|
(12,155
|
)
|
|
|
(14,289
|
)
|
|
|
(14,727
|
)
|
|
|
(15,376
|
)
|
|
|
(11,854
|
)
|
Recoveries
|
|
|
2,832
|
|
|
|
3,618
|
|
|
|
4,177
|
|
|
|
2,805
|
|
|
|
6,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge offs
|
|
|
(9,323
|
)
|
|
|
(10,671
|
)
|
|
|
(10,550
|
)
|
|
|
(12,571
|
)
|
|
|
(5,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
257,058
|
|
|
$
|
265,880
|
|
|
$
|
276,551
|
|
|
$
|
281,101
|
|
|
$
|
282,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Unfunded Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
24,400
|
|
|
$
|
24,400
|
|
|
$
|
25,400
|
|
|
$
|
24,400
|
|
|
$
|
25,400
|
|
Provision for unfunded commitments
|
|
|
(500
|
)
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
Amount recorded at acquisition
|
|
|
2,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
26,336
|
|
|
$
|
24,400
|
|
|
$
|
24,400
|
|
|
$
|
25,400
|
|
|
$
|
24,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
(a)
|
|
$
|
283,394
|
|
|
$
|
290,280
|
|
|
$
|
300,951
|
|
|
$
|
306,501
|
|
|
$
|
307,072
|
|
Provision for credit losses
(b)
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
12,000
|
|
|
|
9,000
|
|
Net loan (charge offs) recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
(6,599
|
)
|
|
$
|
(8,212
|
)
|
|
$
|
(9,442
|
)
|
|
$
|
(11,046
|
)
|
|
$
|
(4,368
|
)
|
Commercial real estate owner occupied
|
|
|
(1,025
|
)
|
|
|
(246
|
)
|
|
|
13
|
|
|
|
43
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and business lending
|
|
|
(7,624
|
)
|
|
|
(8,458
|
)
|
|
|
(9,429
|
)
|
|
|
(11,003
|
)
|
|
|
(4,349
|
)
|
Commercial real estate investor
|
|
|
8
|
|
|
|
(164
|
)
|
|
|
55
|
|
|
|
(126
|
)
|
|
|
(514
|
)
|
Real estate construction
|
|
|
189
|
|
|
|
(365
|
)
|
|
|
(150
|
)
|
|
|
(26
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate lending
|
|
|
197
|
|
|
|
(529
|
)
|
|
|
(95
|
)
|
|
|
(152
|
)
|
|
|
(503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
(7,427
|
)
|
|
|
(8,987
|
)
|
|
|
(9,524
|
)
|
|
|
(11,155
|
)
|
|
|
(4,852
|
)
|
Residential mortgage
|
|
|
(131
|
)
|
|
|
(966
|
)
|
|
|
(26
|
)
|
|
|
(564
|
)
|
|
|
(128
|
)
|
Home equity
|
|
|
(677
|
)
|
|
|
330
|
|
|
|
(87
|
)
|
|
|
54
|
|
|
|
173
|
|
Other consumer
|
|
|
(1,088
|
)
|
|
|
(1,048
|
)
|
|
|
(913
|
)
|
|
|
(906
|
)
|
|
|
(856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
(1,896
|
)
|
|
|
(1,684
|
)
|
|
|
(1,026
|
)
|
|
|
(1,416
|
)
|
|
|
(811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge offs
|
|
$
|
(9,323
|
)
|
|
$
|
(10,671
|
)
|
|
$
|
(10,550
|
)
|
|
$
|
(12,571
|
)
|
|
$
|
(5,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans
|
|
|
1.13
|
%
|
|
|
1.28
|
%
|
|
|
1.32
|
%
|
|
|
1.35
|
%
|
|
|
1.40
|
%
|
Allowance for loan losses to net charge offs (annualized)
|
|
|
6.8
|
x
|
|
|
6.3
|
x
|
|
|
6.6
|
x
|
|
|
5.6
|
x
|
|
|
12.3
|
x
|
(a)
|
Includes the allowance for loan losses and the allowance for unfunded commitments.
|
(b)
|
Includes the provision for loan losses and the provision for unfunded commitments.
|
16
Table 13 Annualized net (charge offs) recoveries
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in basis points)
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
Net loan (charge offs) recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
(41
|
)
|
|
|
(51
|
)
|
|
|
(58
|
)
|
|
|
(69
|
)
|
|
|
(28
|
)
|
Commercial real estate owner occupied
|
|
|
(48
|
)
|
|
|
(12
|
)
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and business lending
|
|
|
(42
|
)
|
|
|
(47
|
)
|
|
|
(51
|
)
|
|
|
(60
|
)
|
|
|
(24
|
)
|
Commercial real estate investor
|
|
|
N/M
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(6
|
)
|
Real estate construction
|
|
|
5
|
|
|
|
(10
|
)
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate lending
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
(24
|
)
|
|
|
(30
|
)
|
|
|
(31
|
)
|
|
|
(36
|
)
|
|
|
(16
|
)
|
Residential mortgage
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
N/M
|
|
|
|
(3
|
)
|
|
|
(1
|
)
|
Home equity
|
|
|
(28
|
)
|
|
|
15
|
|
|
|
(4
|
)
|
|
|
2
|
|
|
|
8
|
|
Other consumer
|
|
|
(115
|
)
|
|
|
(109
|
)
|
|
|
(97
|
)
|
|
|
(98
|
)
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
(7
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge offs
|
|
|
(17
|
)
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
|
(25
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Annualized ratio of net charge offs to average loans by loan type.
|
At March 31, 2018, the allowance for credit losses was $283 million, compared to
$290 million at December 31, 2017 and $307 million at March 31, 2017. At March 31, 2018, the allowance for loan losses to total loans was 1.13% and covered 123.26% of nonaccrual loans, compared to 1.28% and 127.49%,
respectively, at December 31, 2017 and 1.40% and 108.72%, respectively, at March 31, 2017. Management believes the level of allowance for loan losses to be appropriate at March 31, 2018.
Notable Contributions to the Change in Allowance for Credit Loss
|
|
|
Total loans increased $2.0 billion (10%) for the first three months of 2018, including a $679 million (8%) increase in total consumer. Compared to March 31, 2017, total loans increased $2.7 billion
(13%), including a $1.5 billion (19%) increase in total consumer, a $689 million (14%) increase in commercial real estate lending, and a $479 million (7%) increase in commercial and business lending. 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.
|
|
|
|
Total nonaccrual loans were relatively unchanged for the first three months of 2018, but decreased $51 million from March 31, 2017, primarily due to migration in the oil and gas related credits. See also Note
7 Loans, of the notes to consolidated financial statements and section Nonperforming Assets for additional disclosures on the changes in asset quality.
|
|
|
|
Potential problem loans increased $105 million from December 31, 2017 primarily due to the downward migration of general commercial related credits and the addition of Bank Mutual loans. However, potential
problem loans decreased $57 million from March 31, 2017, primarily due to improvements in general commercial related credits and migration in oil and gas related credits, respectively. See Table 10, for additional information on the
changes in potential problem loans.
|
|
|
|
Net charge offs decreased $1 million from December 31, 2017, but increased $4 million from the first three months of 2017, primarily due to an increase in charge offs outside the oil and gas portfolio.
See Table 12 and Table 13 for additional information regarding the activity in the allowance for loan losses.
|
|
|
|
The allowance for loan losses attributable to oil and gas related credits (included within the commercial and industrial allowance for loan losses) was $19 million at March 31, 2018, compared to
$27 million at December 31, 2017 and $42 million at March 31, 2017. See also Oil and gas lending within the Credit Risk section for additional disclosure.
|
17
Deposits and Customer Funding
Table 14 Period End Deposit and Customer Funding Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
September 30,
2017
|
|
|
June 30, 2017
|
|
|
March 31, 2017
|
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
Noninterest-bearing demand
|
|
$
|
5,458,473
|
|
|
|
23
|
%
|
|
$
|
5,478,416
|
|
|
|
24
|
%
|
|
$
|
5,177,734
|
|
|
|
23
|
%
|
|
$
|
5,038,162
|
|
|
|
23
|
%
|
|
$
|
5,338,212
|
|
|
|
25
|
%
|
Savings
|
|
|
1,883,638
|
|
|
|
8
|
%
|
|
|
1,524,992
|
|
|
|
7
|
%
|
|
|
1,544,037
|
|
|
|
7
|
%
|
|
|
1,552,820
|
|
|
|
7
|
%
|
|
|
1,530,155
|
|
|
|
7
|
%
|
Interest-bearing demand
|
|
|
4,719,566
|
|
|
|
20
|
%
|
|
|
4,603,157
|
|
|
|
20
|
%
|
|
|
4,990,891
|
|
|
|
22
|
%
|
|
|
3,858,739
|
|
|
|
18
|
%
|
|
|
4,736,236
|
|
|
|
22
|
%
|
Money market
|
|
|
9,086,553
|
|
|
|
38
|
%
|
|
|
8,830,328
|
|
|
|
39
|
%
|
|
|
8,299,512
|
|
|
|
37
|
%
|
|
|
9,228,129
|
|
|
|
43
|
%
|
|
|
8,608,523
|
|
|
|
39
|
%
|
Brokered CDs
|
|
|
44,503
|
|
|
|
|
%
|
|
|
18,609
|
|
|
|
|
%
|
|
|
3,554
|
|
|
|
|
%
|
|
|
131,184
|
|
|
|
1
|
%
|
|
|
54,993
|
|
|
|
|
%
|
Other time
|
|
|
2,632,869
|
|
|
|
11
|
%
|
|
|
2,330,460
|
|
|
|
10
|
%
|
|
|
2,317,723
|
|
|
|
11
|
%
|
|
|
1,809,146
|
|
|
|
8
|
%
|
|
|
1,559,916
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
23,825,602
|
|
|
|
100
|
%
|
|
$
|
22,785,962
|
|
|
|
100
|
%
|
|
$
|
22,333,451
|
|
|
|
100
|
%
|
|
$
|
21,618,180
|
|
|
|
100
|
%
|
|
$
|
21,828,035
|
|
|
|
100
|
%
|
Customer funding
(a)
|
|
|
297,289
|
|
|
|
|
|
|
|
250,332
|
|
|
|
|
|
|
|
324,042
|
|
|
|
|
|
|
|
360,131
|
|
|
|
|
|
|
|
448,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits and customer funding
|
|
$
|
24,122,891
|
|
|
|
|
|
|
$
|
23,036,294
|
|
|
|
|
|
|
$
|
22,657,493
|
|
|
|
|
|
|
$
|
21,978,311
|
|
|
|
|
|
|
$
|
22,276,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network transaction deposits
(b)
|
|
$
|
2,244,739
|
|
|
|
|
|
|
$
|
2,520,968
|
|
|
|
|
|
|
$
|
2,622,787
|
|
|
|
|
|
|
$
|
3,220,956
|
|
|
|
|
|
|
$
|
3,417,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deposits and customer funding
(total
deposits and customer funding, excluding Brokered CDs and network transaction deposits)
|
|
$
|
21,833,649
|
|
|
|
|
|
|
$
|
20,496,717
|
|
|
|
|
|
|
$
|
20,031,152
|
|
|
|
|
|
|
$
|
18,626,171
|
|
|
|
|
|
|
$
|
18,804,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits of more than $250,000
|
|
$
|
906,727
|
|
|
|
|
|
|
$
|
1,056,172
|
|
|
|
|
|
|
$
|
1,009,097
|
|
|
|
|
|
|
$
|
477,043
|
|
|
|
|
|
|
$
|
244,641
|
|
|
|
|
|
(a)
|
Securities sold under agreement to repurchase and commercial paper.
|
(b)
|
Included above in interest-bearing demand and money market.
|
|
|
|
Deposits are the Corporations largest source of funds.
|
|
|
|
Total deposits increased $1.0 billion (5%) from December 31, 2017 primarily due to the acquisition of Bank Mutual partially offset by seasonal deposit outflows and increased $2.0 billion (9%) from
March 31, 2017.
|
|
|
|
Non-maturity
deposit accounts, comprised of savings, money market, and demand (both interest and noninterest-bearing demand) accounts accounted for 89% of our total deposits at
March 31, 2018.
|
|
|
|
Included in the above amounts were $2.2 billion of network deposits, primarily sourced from other financial institutions and intermediaries. These represented 9% of our total deposits at March 31, 2018.
|
18
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 Corporations liquidity risk management process is designed to identify, measure, and manage the
Corporations 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 percent 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 March 31, 2018, the Corporation was in compliance with its internal liquidity objectives and has
sufficient asset-based liquidity to meet its obligations under a stressed scenario.
The Corporation maintains diverse and readily available liquidity
sources, including:
|
|
|
Investment securities are an important tool to the Corporations 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 Corporations investment securities portfolio, including investment securities pledged.
|
|
|
|
The Bank pledges eligible loans to both the Federal Reserve Bank and the FHLB as collateral to establish lines of credit and borrow from these entities. Based on the amount of collateral pledged, the FHLB established a
collateral value from which the Bank may draw advances against the collateral. Also, the collateral is used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Bank. As of March 31, 2018, the Bank had
$2.4 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 March 31, 2018, the Bank had $2.2 billion available for discount
window borrowings.
|
|
|
|
The Parent Company has a $200 million commercial paper program, of which, $82 million was outstanding as of March 31, 2018.
|
|
|
|
Dividends and service fees from subsidiaries, as well as the proceeds from issuance of capital, are funding sources for the Parent Company.
|
|
|
|
The Parent Company has filed a shelf registration statement with the SEC under which the Parent Company may, from time to time, offer shares of the Corporations common stock in connection with acquisitions of
businesses, assets or securities of other companies.
|
|
|
|
The Parent Company also has filed a 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.
|
|
|
|
The Bank may also issue institutional certificates of deposit, network transaction deposits, and brokered certificates of deposit.
|
Credit ratings relate to the Corporations 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 Associated Bank at March 31, 2018 are displayed below.
19
Table 15 Credit Ratings
|
|
|
|
|
|
|
|
|
|
|
Moodys
|
|
|
S&P
(a)
|
|
Associated Bank short-term deposits
|
|
|
P-1
|
|
|
|
|
|
Associated Bank long-term
|
|
|
A1
|
|
|
|
BBB+
|
|
Corporation short-term
|
|
|
P-2
|
|
|
|
|
|
Corporation long-term
|
|
|
Baa1
|
|
|
|
BBB
|
|
Outlook
|
|
|
Stable
|
|
|
|
Stable
|
|
For the three months ended March 31, 2018, net cash provided by operating
activities and financing activities was $43 million and $24 million, respectively, while investing activities used net cash of $350 million, for a net decrease in cash and cash equivalents of $283 million since
year-end
2017. At March 31, 2018, assets of $33.4 billion increased $2.9 billion compared to
year-end
2017. On the funding side, deposits of $23.8 billion
increased by $1.0 billion when compared to
year-end
2017.
For the three months ended March 31, 2017,
net cash provided by operating activities was $162 million, while financing and investing activities used net cash of $82 million and $32 million, respectively, for a net increase in cash and cash equivalents of $47 million since
year-end
2016. During the first three months of 2017, assets of $29.1 billion were relatively unchanged compared to
year-end
2016. On the funding side, deposits of
$21.8 billion were also relatively unchanged compared to
year-end
2016.
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 Corporations Asset / Liability Committee (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 is 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 our risk appetite for interest rate risk over both short-term and long-term horizons. No limit
breaches occurred during the first three months of 2018.
The major sources of our
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 net interest income (NII) at risk, interest rate sensitive earnings
at risk (EAR), and market value of equity (MVE) at risk. The Corporations 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. Based on current rate expectations for a flattening yield curve, our earnings at risk profile is neutral at March 31, 2018. While the modeled outcome of instantaneous and sustained parallel
rate shocks of 100 bps or more indicate asset sensitivity, which would provide increased earnings, we see a low probability of a sustained parallel shift occurring in the near term.
20
For further discussion of the Corporations interest rate risk and corresponding key assumptions, see the
Interest Rate Risk section of Managements Discussion and Analysis of Financial Condition and Results of Operations included in the Corporations 2017 Annual Report on Form
10-K.
The sensitivity analysis included below is measured as a percentage change in NII and EAR due to instantaneous moves in benchmark interest rates from a
baseline scenario. 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.
Table 16 Estimated % Change in Net Interest Income Over 12 Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated % Change in Rate Sensitive Earnings at Risk (EAR) Over 12 Months
|
|
|
|
Dynamic Forecast
March 31, 2018
|
|
|
Static Forecast
March 31, 2018
|
|
|
Dynamic Forecast
December 31, 2017
|
|
|
Static Forecast
December 31, 2017
|
|
Instantaneous Rate Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 bp increase in interest rates
|
|
|
2.6
|
%
|
|
|
1.7
|
%
|
|
|
2.5
|
%
|
|
|
2.7
|
%
|
200 bp increase in interest rates
|
|
|
5.0
|
%
|
|
|
3.3
|
%
|
|
|
4.6
|
%
|
|
|
4.9
|
%
|
At March 31, 2018, the MVE profile indicates a decline in net balance sheet value due to instantaneous upward changes in
rates.
Table 17 Market Value of Equity Sensitivity
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Instantaneous Rate Change
|
|
|
|
|
|
|
|
|
100 bp increase in interest rates
|
|
|
(3.4
|
)%
|
|
|
(3.1
|
)%
|
200 bp increase in interest rates
|
|
|
(6.9
|
)%
|
|
|
(6.7
|
)%
|
While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under
an extremely adverse scenario, the Corporation believes that a gradual shift in interest rates would have a much more modest impact. 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 changing 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
Table 18 Contractual Obligations and Other Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
One Year
or Less
|
|
|
One to
Three Years
|
|
|
Three to
Five Years
|
|
|
Over
Five Years
|
|
|
Total
|
|
|
|
($ in Thousands)
|
|
Time deposits
|
|
$
|
1,893,417
|
|
|
$
|
643,818
|
|
|
$
|
138,198
|
|
|
$
|
1,939
|
|
|
$
|
2,677,372
|
|
Short-term funding
|
|
|
2,146,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,146,374
|
|
Long-term funding
|
|
|
1,500,010
|
|
|
|
499,987
|
|
|
|
150,451
|
|
|
|
1,082,890
|
|
|
|
3,233,338
|
|
Operating leases
|
|
|
9,815
|
|
|
|
18,572
|
|
|
|
13,881
|
|
|
|
22,447
|
|
|
|
64,715
|
|
Commitments to extend credit
|
|
|
4,589,376
|
|
|
|
2,654,980
|
|
|
|
1,381,952
|
|
|
|
167,822
|
|
|
|
8,794,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,138,992
|
|
|
$
|
3,817,357
|
|
|
$
|
1,684,482
|
|
|
$
|
1,275,098
|
|
|
$
|
16,915,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
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 Corporations derivative
instruments at March 31, 2018, is included in Note 10, Derivative and Hedging Activities, of the notes to consolidated financial statements. A discussion of the Corporations 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 also Note 9, Short and Long-Term Funding, of the notes to consolidated financial
statements for additional information on the Corporations short-term and long-term funding.
Table 18 summarizes significant contractual obligations
and other commitments at March 31, 2018, at those amounts contractually due to the recipient, including any premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.
22
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 March 31, 2018, the capital ratios of the Corporation and its banking subsidiaries were in excess of regulatory minimum requirements. The Corporations capital ratios are
summarized in Table 19.
Table 19 Capital Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q18
|
|
|
4Q17
|
|
|
3Q17
|
|
|
2Q17
|
|
|
1Q17
|
|
|
|
($ in Thousands)
|
|
Risk-based Capital
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1
|
|
$
|
2,473,677
|
|
|
$
|
2,171,508
|
|
|
$
|
2,144,325
|
|
|
$
|
2,130,238
|
|
|
$
|
2,085,309
|
|
Tier 1 capital
|
|
|
2,632,912
|
|
|
|
2,331,245
|
|
|
|
2,304,037
|
|
|
|
2,289,831
|
|
|
|
2,244,863
|
|
Total capital
|
|
|
3,164,362
|
|
|
|
2,848,851
|
|
|
|
2,823,097
|
|
|
|
2,808,049
|
|
|
|
2,757,310
|
|
Total risk-weighted assets
|
|
|
23,535,483
|
|
|
|
21,544,463
|
|
|
|
21,657,286
|
|
|
|
21,590,134
|
|
|
|
21,128,672
|
|
Common equity Tier 1 capital ratio
|
|
|
10.51
|
%
|
|
|
10.08
|
%
|
|
|
9.90
|
%
|
|
|
9.87
|
%
|
|
|
9.87
|
%
|
Tier 1 capital ratio
|
|
|
11.19
|
%
|
|
|
10.82
|
%
|
|
|
10.64
|
%
|
|
|
10.61
|
%
|
|
|
10.62
|
%
|
Total capital ratio
|
|
|
13.45
|
%
|
|
|
13.22
|
%
|
|
|
13.04
|
%
|
|
|
13.01
|
%
|
|
|
13.05
|
%
|
Tier 1 leverage ratio
|
|
|
8.48
|
%
|
|
|
8.02
|
%
|
|
|
7.93
|
%
|
|
|
8.09
|
%
|
|
|
8.05
|
%
|
Selected Equity and Performance Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity / assets
|
|
|
11.13
|
%
|
|
|
10.62
|
%
|
|
|
10.66
|
%
|
|
|
10.72
|
%
|
|
|
10.80
|
%
|
Dividend payout ratio
(b)
|
|
|
36.59
|
%
|
|
|
45.16
|
%
|
|
|
29.27
|
%
|
|
|
33.33
|
%
|
|
|
33.33
|
%
|
(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 our capital with the capital of other financial services companies. See Table 20 for a reconciliation of
common equity Tier 1 and average common equity Tier 1.
|
(b)
|
Ratio is based upon basic earnings per common share.
|
23
Non-GAAP
Measures
Table 20
Non-GAAP
Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
|
($ in Thousands)
|
|
Selected Equity and Performance
Ratios
(a)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity / tangible assets
|
|
|
7.22
|
%
|
|
|
7.07
|
%
|
|
|
7.08
|
%
|
|
|
7.11
|
%
|
|
|
7.10
|
%
|
Return on average equity
|
|
|
7.96
|
%
|
|
|
6.17
|
%
|
|
|
8.10
|
%
|
|
|
7.35
|
%
|
|
|
7.31
|
%
|
Return on average tangible common equity
|
|
|
11.99
|
%
|
|
|
9.16
|
%
|
|
|
12.20
|
%
|
|
|
11.06
|
%
|
|
|
11.07
|
%
|
Return on average Common equity Tier 1
|
|
|
11.39
|
%
|
|
|
8.77
|
%
|
|
|
11.73
|
%
|
|
|
10.63
|
%
|
|
|
10.61
|
%
|
Return on average assets
|
|
|
0.88
|
%
|
|
|
0.66
|
%
|
|
|
0.86
|
%
|
|
|
0.80
|
%
|
|
|
0.79
|
%
|
Average stockholders equity / average assets
|
|
|
11.00
|
%
|
|
|
10.73
|
%
|
|
|
10.63
|
%
|
|
|
10.84
|
%
|
|
|
10.85
|
%
|
Tangible Common Equity and Common Equity Tier 1 Reconciliation
(a) (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity
|
|
$
|
3,552,846
|
|
|
$
|
3,077,514
|
|
|
$
|
3,043,672
|
|
|
$
|
3,031,573
|
|
|
$
|
2,984,865
|
|
Goodwill and other intangible assets, net
|
|
|
(1,232,870
|
)
|
|
|
(991,819
|
)
|
|
|
(986,086
|
)
|
|
|
(986,536
|
)
|
|
|
(987,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity
|
|
|
2,319,977
|
|
|
|
2,085,695
|
|
|
|
2,057,586
|
|
|
|
2,045,037
|
|
|
|
1,997,833
|
|
Less: Accumulated other comprehensive income / loss
|
|
|
107,673
|
|
|
|
62,758
|
|
|
|
54,288
|
|
|
|
53,470
|
|
|
|
56,344
|
|
Less: Deferred tax assets/deferred tax liabilities, net
|
|
|
46,027
|
|
|
|
23,055
|
|
|
|
32,451
|
|
|
|
31,731
|
|
|
|
31,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1
|
|
$
|
2,473,677
|
|
|
$
|
2,171,508
|
|
|
$
|
2,144,325
|
|
|
$
|
2,130,238
|
|
|
$
|
2,085,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible Assets Reconciliation
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
33,366,505
|
|
|
$
|
30,483,594
|
|
|
$
|
30,064,547
|
|
|
$
|
29,769,025
|
|
|
$
|
29,109,857
|
|
Goodwill and other intangible assets, net
|
|
|
(1,232,870
|
)
|
|
|
(991,819
|
)
|
|
|
(986,086
|
)
|
|
|
(986,536
|
)
|
|
|
(987,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible assets
|
|
$
|
32,133,636
|
|
|
$
|
29,491,775
|
|
|
$
|
29,078,461
|
|
|
$
|
28,782,489
|
|
|
$
|
28,122,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Tangible Common Equity and Average Common Equity Tier 1 Reconciliation
(a) (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity
|
|
$
|
3,377,388
|
|
|
$
|
3,056,077
|
|
|
$
|
3,024,918
|
|
|
$
|
3,005,209
|
|
|
$
|
2,963,462
|
|
Goodwill and other intangible assets, net
|
|
|
(1,107,503
|
)
|
|
|
(991,955
|
)
|
|
|
(986,342
|
)
|
|
|
(986,826
|
)
|
|
|
(987,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity
|
|
|
2,269,885
|
|
|
|
2,064,121
|
|
|
|
2,038,576
|
|
|
|
2,018,383
|
|
|
|
1,976,327
|
|
Less: Accumulated other comprehensive income / loss
|
|
|
89,105
|
|
|
|
61,937
|
|
|
|
49,164
|
|
|
|
50,148
|
|
|
|
54,234
|
|
Less: Deferred tax assets/deferred tax liabilities, net
|
|
|
30,943
|
|
|
|
29,386
|
|
|
|
31,935
|
|
|
|
31,294
|
|
|
|
31,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common equity Tier 1
|
|
$
|
2,389,933
|
|
|
$
|
2,155,444
|
|
|
$
|
2,119,675
|
|
|
$
|
2,099,825
|
|
|
$
|
2,061,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency Ratio Reconciliation
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve efficiency ratio
|
|
|
70.76
|
%
|
|
|
66.93
|
%
|
|
|
63.92
|
%
|
|
|
66.69
|
%
|
|
|
66.39
|
%
|
Fully
tax-equivalent
adjustment
|
|
|
(0.66
|
)%
|
|
|
(1.30
|
)%
|
|
|
(1.21
|
)%
|
|
|
(1.30
|
)%
|
|
|
(1.30
|
)%
|
Other intangible amortization
|
|
|
(0.51
|
)%
|
|
|
(0.18
|
)%
|
|
|
(0.16
|
)%
|
|
|
(0.18
|
)%
|
|
|
(0.20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully
tax-equivalent
efficiency ratio
|
|
|
69.60
|
%
|
|
|
65.45
|
%
|
|
|
62.55
|
%
|
|
|
65.21
|
%
|
|
|
64.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The ratio tangible common equity to tangible assets excludes goodwill and other intangible assets, net, which is a
non-GAAP
financial measure. 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 our 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. Management believes the fully
tax-equivalent
efficiency ratio, which adjusts net interest income for the
tax-favored
status of certain loans and investment securities, to be the preferred industry
measurement as it enhances the comparability of net interest income arising from taxable and
tax-exempt
sources.
|
See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, for additional information on the shares repurchased during the first
quarter of 2018.
24
Sequential Quarter Results
The Corporation reported net income of $69 million for the first quarter of 2018, compared to net income of $50 million for the fourth quarter of
2017. Net income available to common equity was $67 million for the first quarter of 2018 or $0.41 for basic and $0.40 diluted earnings per common share. Comparatively, net income available to common equity for the fourth quarter of 2017 was
$48 million, or net income of $0.31 for both basic and diluted earnings per common share, respectively (see Table 1).
Fully
tax-equivalent
net interest income for the first quarter of 2018 was $213 million, $20 million higher from the fourth quarter of 2017. The net interest margin in the first quarter of 2018 was up 13 bp, to
2.92%. Average earning assets increased $1.8 billion to $29.3 billion in the first quarter of 2018, with average loans up $1.2 billion, while average investments and other short-term investments were up $622 million. On the
funding side, average interest-bearing deposits were up $1.5 billion, while noninterest-bearing demand deposits were down $56 million. Average short and long-term funding increased $371 million (see Table 2).
The provision for credit losses was zero for the first quarter of 2018, and the fourth quarter of 2017 (see Table 12). See discussion under sections:
Provision for Credit Losses, Nonperforming Assets, and Allowance for Credit Losses.
Noninterest income for the first quarter of 2018 increased
$6 million (7%) to $90 million versus the fourth quarter of 2017.
Fee-based
revenue increased $4 million (6%) from the fourth quarter of 2017, primarily due to insurance commissions and fees.
Mortgage banking, net, was up $3 million (101%) from the fourth quarter of 2017 as the Corporation resumed its historical practice of originating loans for sale in the secondary market.
Noninterest expense increased $31 million (17%) to $213 million. Personnel expense was $118 million for the first quarter of 2018, up
$11 million (10%) from the fourth quarter of 2017. Occupancy expense increased $2 million (14%) from the fourth quarter of 2017. Legal and professional fees were $5 million, down $2 million (25%) from the fourth quarter of 2017.
Bank Mutual acquisition related costs were $21 million for the first quarter of 2018.
For the first quarter of 2018, the Corporation recognized
income tax expense of $18 million, compared to income tax expense of $40 million for the fourth quarter of 2017, primarily driven by the Tax Cut and Jobs Act signed into law on December 22, 2017. The effective tax rate was 20.43% and
44.34% for the first quarter of 2018 and the fourth quarter of 2017, respectively. See Income Taxes section for a detailed discussion on income taxes.
Comparable Quarter Results
The Corporation reported net
income of $69 million for the first quarter of 2018, compared to $56 million for the first quarter of 2017. Net income available to common equity was $67 million for the first quarter of 2018, or $0.41 for basic earnings per common
share. Comparatively, net income available to common equity for the first quarter of 2017 was $54 million, or $0.36 for basic earnings per common share (see Table 1).
Fully
tax-equivalent
net interest income for the first quarter of 2018 was $213 million, $27 million higher
than the first quarter of 2017. The net interest margin between the comparable quarters was up 8 bp, to 2.92%, in the first quarter of 2018. Average earning assets increased $2.9 billion to $29.3 billion in the first quarter of 2018, with
average loans increased $2.0 billion (predominantly due to the Bank Mutual acquisition). On the funding side, average interest-bearing deposits increased $2.1 billion, while noninterest-bearing demand deposits increased $112 million
from the first quarter of 2017. Average short and long-term funding increased $643 million (see Table 2).
The provision for credit losses was zero
for the first quarter of 2018, down $9 million from the first quarter of 2017. See discussion under sections: Provision for Credit Losses, Nonperforming Assets, and Allowance for Credit Losses.
Noninterest income for the first quarter of 2018 of $90 million was up $11 million (13%) compared to first quarter of 2017. Net mortgage banking
income for the first quarter of 2018 was up $2 million (39%) compared to the first quarter of 2017. Brokerage commissions and fees was up $3 million (68%), primarily driven by increased investment advisory fees compared to the first
quarter of 2017.
25
On a comparable quarter basis, noninterest expense increased $39 million (23%) to $213 million for the
first quarter of 2018. Bank Mutual acquisition related costs were $21 million for the first quarter of 2018. Personnel expense was $118 million for the first quarter of 2018, up $11 million (10%) from the first quarter of 2017,
primarily driven by the additional cost of Bank Mutual staff. Technology expense increased $3 million (24%) to $18 million in the first quarter of 2018, driven by investments in technology solutions that meet evolving customer needs and
improve operational efficiency.
The Corporation recognized income tax expense of $18 million for the first quarter of 2018, compared to income tax
expense of $21 million for first quarter of 2017. The effective tax rate was 20.43% and 27.31% for the first quarter of 2018 and 2017, respectively. See Income Taxes section for a detailed discussion on income taxes.
Segment Review
As discussed in Note 15 Segment Reporting
of the notes to consolidated financial statements, the Corporations 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.
FTP is an important tool for managing the
Corporations balance sheet structure and measuring risk-adjusted profitability. By appropriately allocating the cost of funding and contingent liquidity to business units, the FTP process improves product pricing, which influences the volume
and terms of new business and helps to optimize the risk / reward profile of the balance sheet. This process helps align the Corporations funding and contingent liquidity risk with its risk appetite and complements broader liquidity and
interest rate risk management programs. FTP methodologies are designed to promote more resilient, sustainable business models and centralize the management of funding and contingent liquidity risks. Through FTP, the Corporation transfers these risks
to a central management function that can take advantage of natural
off-sets,
centralized hedging activities, and a broader view of these risks across business units.
Comparable Quarter Segment Review
The Corporate and
Commercial Specialty segment had net income of $47 million for the first quarter of 2018, up $13 million from the comparable quarter in 2017. Segment revenue increased $7 million compared to first quarter of 2017, primarily due to
growth in average loan balances and increases in the Federal Reserve interest rate. The credit provision decreased $1 million to $11 million for the first quarter of 2018. Average loan balances were $11.4 billion for the first quarter
of 2018, up $625 million from an average balance of $10.8 billion for first quarter of 2017. Average deposit balances were $8.1 billion for the first quarter of 2018, up $1.6 billion from the comparable quarter of 2017. Average
allocated capital increased $56 million to $1.2 billion for first quarter of 2018.
The Community, Consumer, and Business segment had net income
of $36 million for the first quarter of 2018, up $14 million compared to first quarter of 2017. Segment revenue increased $24 million to $178 million for the first quarter of 2018, primarily due to a $15 million increase in
net interest income and $9 million increase in noninterest income. Total noninterest expense for the first quarter of 2018 was $127 million, up $11 million from the comparable quarter of 2017, primarily due to an increase in personnel
expense. Average loan balances were $10.1 billion for the first quarter of 2018, up $1.0 billion from the comparable quarter of 2017. Average deposits were $13.1 billion for the first quarter of 2018, up $1.8 billion from average
deposits of $11.3 billion for the comparable quarter of 2017. Average allocated capital increased $56 million compared to the first quarter of 2017.
The Risk Management and Shared Services segment had a net loss of $14 million for the first quarter of 2018. Segment revenue was $14 million in the
first quarter of 2018, an increase of $9 million from the comparable quarter of 2017, primarily due to an increase in net interest income. The credit provision decreased $8 million. Total noninterest expense for the first quarter of 2018
was $47 million, up $26 million from the comparable quarter of 2017, primarily driven by $21 million of acquisition related costs and certain unallocated expenses related to Bank Mutual shared services and operations prior to system
conversion in late June 2018. Average deposits were $2.5 billion for first quarter of 2018, down $1.2 billion versus the comparable quarter of 2017 primarily driven by a $1.2 billion decrease in network transaction deposits. Average
allocated capital increased $215 million to $586 million for first quarter of 2018.
26
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 allowance for loan losses, goodwill impairment assessment, mortgage servicing rights valuation, and income taxes. A discussion of these policies can be found in the Critical Accounting Policies section in Managements Discussion and
Analysis of Financial Condition and Results of Operations included in the Corporations 2017 Annual Report on Form
10-K.
There have been no changes in the Corporations application of critical
accounting policies since December 31, 2017.
27
Future Accounting Pronouncements
New accounting policies adopted by the Corporation are discussed in Note 3 Summary of Significant Accounting Policies, of the notes to consolidated financial
statements. The expected impact of accounting pronouncements recently issued or proposed but not yet required to be adopted are displayed in the table below.
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Standard
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Description
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Date of
adoption
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Effect on financial statements
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ASU
2017-04
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
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The FASB issued an amendment to simplify the subsequent quantitative measurement of goodwill by eliminating step two from the goodwill impairment test. Instead, an entity will perform only step one of its quantitative goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting units 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 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Entities should apply the amendment prospectively. Early adoption is permitted, including in an interim
period, for impairment tests performed after January 1, 2017. The Corporation has not had to perform a step one quantitative analysis since 2012, which concluded no impairment was necessary.
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2nd Quarter 2020, consistent with the Corporations annual impairment test in May of each year.
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The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity.
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ASU
2016-13
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
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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
entitys allowance for credit losses. 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 is 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. Early adoption is permitted.
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1st Quarter 2020
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The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity. A cross-functional team has been established to assess and implement the standard.
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ASU
2016-02
Leases (Topic 842)
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The FASB issued an amendment to provide transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This
amendment will require lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessees obligation to make lease payments arising from a lease,
measured on a discounted basis; and 2) a
right-of-use
asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset
for the lease term. Under the new guidance, lessor accounting is largely unchanged. This amendment is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Entities are required to
recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These
practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee
options to extend or terminate a lease or to purchase the underlying asset. Early adoption is permitted. ASU
2018-01
amendment permits an entity to elect an optional transition practical expedient to not
evaluate under Topic 842 land easements that exist or expired before the entitys adoption of Topic 842.
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1st Quarter 2019
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The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity. A cross-functional team has been established to assess and implement the standard.
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Recent Developments
On April 24, 2018, the Corporations Board of Directors declared a regular quarterly cash dividend of $0.15 per common share, payable on
June 15, 2018, to shareholders of record at the close of business on June 1, 2018. The Board of Directors also declared a regular quarterly cash dividend of $0.3828125 per depositary share on Associateds 6.125% Series C Perpetual
Preferred Stock, payable on June 15, 2018, to shareholders of record at the close of business on June 1, 2018. The Board of Directors also declared a regular quarterly cash dividend of $0.3359375 per depositary share on Associateds
5.375% Series D Perpetual Preferred Stock, payable on June 15, 2018, to shareholders of record at the close of business on June 1, 2018.
In
addition, the Board of Directors authorized the repurchase of up to $100 million of the Corporations common stock. This repurchase authorization is in addition to the authority remaining under the previous program. Repurchases under such
programs are subject to regulatory limitations and may occur from time to time in open market purchases, block transactions, accelerated share repurchase programs or similar facilities.
In April 2018, the Corporation entered into two pay fix and receive floating rate interest rate swaps totaling $250 million notional amount. Combining
these swaps with the $250 million notional amount of swaps entered into in the first quarter of 2018, the Corporation as of April 2018 has a total of $500 million notional amount pay fix and receive floating rate interest rate swaps with
the objective of synthetically converting fixed rate assets to floating rate assets that will benefit the Corporation in a rising rate environment.
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