Commitments and Contingencies

9 Months Ended

Sep. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

Commitments and Guarantees

Commitments to Extend Credit

To accommodate the financial needs of its customers, the Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The credit risk associated with these instruments is essentially the same as that involved in extending loans to customers and is subject to the Corporation's normal credit approval policies. The Corporation maintains an allowance to cover probable credit losses inherent in lending-related commitments. The reserve for unfunded lending commitments at September 30, 2015, December 31, 2014, and September 30, 2014, included in “accrued expenses and other liabilities” on the Consolidated Balance Sheets, was $3.6 million, $5.8 million, and $7.0 million, respectively.

The Corporation's credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.



Unused commitments to extend credit
(In thousands)		September 30, 2015		December 31, 2014		September 30, 2014
	Commercial	$	3,877,004	$	3,748,690	$	3,640,755
	Consumer	2,405,928		2,387,623		2,361,476
	Total unused commitments to extend credit	$	6,282,932	$	6,136,313	$	6,002,231

Unused Commitments to Extend Credit. Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Corporation.

Loan commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets. Additional information is provided in Note 8 (Derivatives and Hedging Activities).

Guarantees

The Corporation is a guarantor in certain agreements with third parties. The Corporation's maximum credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.



Financial guarantees
(In thousands)		September 30, 2015		December 31, 2014		September 30, 2014
	Standby letters of credit	$	243,071	$	242,390	$	227,835
	Loans sold with recourse	22,467		45,071		43,260
	Total financial guarantees	$	265,538	$	287,461	$	271,095

Standby Letters of Credit. Standby letters of credit obligate the Corporation to pay a specified third party when a customer fails to repay an outstanding loan or debt instrument, or fails to perform some contractual nonfinancial obligation. The Corporation has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit. Collateral held varies, but may include marketable securities, equipment, inventory, and real estate. Except for short-term guarantees of $132.7 million at September 30, 2015, the remaining guarantees extend in varying amounts through 2022.

Loans Sold with Recourse. The Corporation regularly sells service retained residential mortgage loans to GSEs as part of its mortgage banking activities. The Corporation provides customary representation and warranties to the GSEs in conjunction with these sales. These representations and warranties generally require the Corporation to repurchase assets if it is subsequently determined that a loan did not meet specified criteria, such as a documentation deficiency or rescission of mortgage insurance. If the Corporation is unable to cure or refute a repurchase request, the Corporation is generally obligated to repurchase the loan or otherwise reimburse the counterparty for losses. The Corporation also sells service released residential mortgage loans to other investors which contain early payment default recourse provisions. As of September 30, 2015, December 31, 2014, and September 30, 2014, the Corporation had sold $15.8 million, $38.1 million, and $33.0 million, respectively, of outstanding residential mortgage loans to GSEs and other investors with recourse provisions. The Corporation had reserved $6.5 million, $7.3 million, and $7.6 million as of September 30, 2015, December 31, 2014, and September 30, 2014, respectively, for estimated losses from representation and warranty obligations and early payment default recourse provisions.

Due to prior acquisitions, as of September 30, 2015, the Corporation continued to service approximately $3.7 million in manufactured housing loans that were sold with recourse and had reserved $1.1 million for potential losses from these manufactured housing loans.

The total reserve associated with loans sold with recourse was approximately $7.6 million, $8.4 million, and $8.7 million as of September 30, 2015, December 31, 2014, and September 30, 2014, respectively, and is included in accrued taxes, expenses and other liabilities on the Consolidated Balance Sheets. The Corporation's reserve reflects Management's best estimate of losses. The Corporation's reserving methodology uses current information about investor repurchase requests, and assumptions about repurchase mix and loss severity, based upon the Corporation's most recent loss trends. The Corporation also considers qualitative factors that may result in anticipated losses differing from historical loss trends, such as loan vintage, underwriting characteristics and macroeconomic trends.

Changes in the repurchase reserves for the three and nine months ended September 30, 2015 and 2014 are as follows:



	Three Months Ended September 30, 2015
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	6,650		$	1,128	$	7,778
Net increase/(decrease) to reserve	122			1		123
Net realized (losses)/gains	(322		)	—		(322		)
Balance at end of period	$	6,450		$	1,129	$	7,579



	Three Months Ended September 30, 2014
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchased reserve
Balance at beginning of period	$	7,900		$	1,122	$	9,022
Net increase/(decrease) to reserve	250			—		250
Net realized (losses)/gains	(600		)	—		(600		)
Balance at end of period	$	7,550		$	1,122	$	8,672



	Nine Months Ended September 30, 2015
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	7,250		$	1,124	$	8,374
Net increase/(decrease) to reserve	83			1		84
Net realized (losses) /gains	(883		)	4		(879		)
Balance at end of period	$	6,450		$	1,129	$	7,579



	Nine Months Ended September 30, 2014
(In thousands)	Reserve on residential mortgage loans			Reserve on manufactured housing loans		Total repurchase reserve
Balance at beginning of period	$	8,737		$	1,114	$	9,851
Net increase/(decrease) to reserve	3,007			8		3,015
Net realized (losses)/gains	(4,194		)	—		(4,194		)
Balance at end of period	$	7,550		$	1,122	$	8,672

Litigation

In the normal course of business, the Corporation and its subsidiaries are at all times subject to pending and threatened legal actions, some for which the relief or damages sought are substantial. Based on information currently available, consultation with counsel, available insurance coverage and established reserves, Management believes that the eventual outcome of all claims against the Corporation and its subsidiaries will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position or results of operations. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations for a particular period. The Corporation has not established any reserves with respect to any of this disclosed litigation because it is not possible to determine (i) whether a liability has been incurred; or (ii) an estimate of the ultimate or minimum amount of such liability.

Reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, including almost all of the class action lawsuits, it is not possible to determine whether a liability will be incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time.

Overdraft Litigation

Commencing in December 2010, two separate lawsuits were filed in the Summit County Court of Common Pleas and the Lake County Court of Common Pleas against the Corporation and the Bank. The complaints were brought as putative class actions on behalf of Ohio residents who maintained a checking account at the Bank and who incurred one or more overdraft fees as a result of the alleged re-sequencing of debit transactions. The lawsuit that had been filed in Summit County Court of Common Pleas was dismissed without prejudice on July 11, 2011. The remaining suit in Lake County seeks actual damages, disgorgement of overdraft fees, punitive damages, interest, injunctive relief and attorney fees. In December 2012, the trial court issued an order certifying a proposed class and the Bank and Corporation appealed the order to the Eleventh District Court of Appeals. In September 2013, the Eleventh District Court of Appeals affirmed in part and reversed in part the trial court's class certification order, and remanded the case back to the trial court for further consideration, in particular with respect to the class definition. On October 9, 2013, the Bank and Corporation filed with the Eleventh District Court of Appeals an application for reconsideration and application for consideration en banc. On November 20, 2013, the Eleventh District denied those applications. On December 4, 2013, the Bank and Corporation filed a notice of appeal with the Ohio Supreme Court, and on January 3, 2014, they filed with the Ohio Supreme Court a memorandum in support of the Court's exercising its jurisdiction and accepting the appeal. The plaintiffs filed an opposition, and, on April 24, 2014, the Ohio Supreme Court declined to accept jurisdiction. On August 6, 2014, the Bank and Corporation filed a motion asking the trial court to stay the lawsuit pending arbitration of claims subject to an arbitration agreement. That motion has been fully briefed and is awaiting a decision by the court. On August 25, 2014, the parties stipulated to a revised class definition (without affecting the pending motion to stay), and an order approving that stipulation is awaiting court approval.

CRBC 401(k) Litigation

Participants in the Citizens Republic Bancorp 401(k) Plan filed a lawsuit in the United States Court for the Eastern District of Michigan in 2011, alleging that Citizens and certain of its officers and directors violated the Employee Retirement Income Security Act by offering Citizens common stock as an investment alternative in the Plan during periods when it was imprudent to do so and by failing to adequately monitor fiduciaries responsible for administering the Plan. The lawsuit, captioned Kidd v. Citizens Republic Bancorp, Inc. et al., Case No. 2:11-cv-11709, asserts claims for monetary and injunctive relief on behalf of a purported class of participants and beneficiaries in the Plan who held Citizens stock in their Plan accounts during the period from April 17, 2008 to "the present." In April 2014, the court denied the defendants' motion to dismiss the second amended complaint.