10-Q 1 fmbi0331201510-q.htm 10-Q FMBI 03.31.2015 10-Q




 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
 
FORM 10-Q
(Mark One)
[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2015
 
 
 
or
 
 
[ ]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________ to __________.

Commission File Number 0-10967
_______________
 
FIRST MIDWEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
36-3161078
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
One Pierce Place, Suite 1500
Itasca, Illinois 60143-9768
(Address of principal executive offices) (zip code)
______________________
Registrant’s telephone number, including area code: (630) 875-7450
______________________

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [X]
 
Accelerated filer [ ]
Non-accelerated filer [ ]
 
Smaller reporting company [ ]
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].

As of April 30, 2015, there were 77,966,225 shares of common stock, $.01 par value, outstanding.
 




FIRST MIDWEST BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
 
Page
Part I.
 
FINANCIAL INFORMATION
 
 
Item 1.
 
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
  and Results of Operations
 
Item 3.
 
 
Item 4.
 
 
Part II.
 
 
 
Item 1.
 
 
Item 1A.
 
 
Item 2.
 
 
Item 6.
 

2




PART I. FINANCIAL INFORMATION (Unaudited)
ITEM 1. FINANCIAL STATEMENTS
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in thousands, except per share data)
 
 
 
 
 
March 31,
2015
 
December 31,
2014
Assets
 
 
 
 
(Unaudited)
 
 
Cash and due from banks
 
$
126,450

 
$
117,315

Interest-bearing deposits in other banks
 
492,607

 
488,947

Trading securities, at fair value
 
18,374

 
17,460

Securities available-for-sale, at fair value
 
1,151,603

 
1,187,009

Securities held-to-maturity, at amortized cost
 
25,861

 
26,555

Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, at cost
 
38,748

 
37,558

Loans, excluding covered loans
 
6,741,521

 
6,657,418

Covered loans
 
62,830

 
79,435

Allowance for loan and covered loan losses
 
(70,990
)
 
(72,694
)
Net loans
 
6,733,361

 
6,664,159

Other real estate owned ("OREO"), excluding covered OREO
 
26,042

 
26,898

Covered OREO
 
7,309

 
8,068

Federal Deposit Insurance Corporation ("FDIC") indemnification asset
 
8,540

 
8,452

Premises, furniture, and equipment, net
 
128,698

 
131,109

Investment in bank-owned life insurance ("BOLI")
 
207,190

 
206,498

Goodwill and other intangible assets
 
333,202

 
334,199

Accrued interest receivable and other assets
 
200,611

 
190,912

Total assets
 
$
9,498,596

 
$
9,445,139

Liabilities
 
 
 
 
Noninterest-bearing deposits
 
$
2,339,492

 
$
2,301,757

Interest-bearing deposits
 
5,575,187

 
5,586,001

Total deposits
 
7,914,679

 
7,887,758

Borrowed funds
 
131,200

 
137,994

Senior and subordinated debt
 
200,954

 
200,869

Accrued interest payable and other liabilities
 
135,813

 
117,743

Total liabilities
 
8,382,646

 
8,344,364

Stockholders’ Equity
 
 
 
 
Common stock
 
882

 
882

Additional paid-in capital
 
441,689

 
449,798

Retained earnings
 
912,387

 
899,516

Accumulated other comprehensive loss, net of tax
 
(12,805
)
 
(15,855
)
Treasury stock, at cost
 
(226,203
)
 
(233,566
)
Total stockholders’ equity
 
1,115,950

 
1,100,775

Total liabilities and stockholders’ equity
 
$
9,498,596

 
$
9,445,139

 
 
 
 
 
 
 
 
 
March 31, 2015
 
December 31, 2014
 
Preferred
 
Common
 
Preferred
 
Common
 
Shares
 
Shares
 
Shares
 
Shares
 
 
 
 
 
 
 
 
Par value per share
$

 
$
0.01

 
$

 
$
0.01

Shares authorized
1,000

 
150,000

 
1,000

 
150,000

Shares issued

 
88,228

 

 
88,228

Shares outstanding

 
77,957

 

 
77,695

Treasury shares

 
10,271

 

 
10,533

 
See accompanying notes to the unaudited condensed consolidated financial statements.


3




FIRST MIDWEST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
 
Quarters Ended 
 March 31,
 
 
2015
 
2014
Interest Income
 
 
 
 
Loans
 
$
73,397

 
$
60,940

Investment securities
 
8,293

 
8,005

Other short-term investments
 
779

 
745

Total interest income
 
82,469

 
69,690

Interest Expense
 
 
 
 
Deposits
 
2,525

 
2,597

Borrowed funds
 
18

 
383

Senior and subordinated debt
 
3,144

 
3,015

Total interest expense
 
5,687

 
5,995

Net interest income
 
76,782

 
63,695

Provision for loan and covered loan losses
 
6,552

 
1,441

Net interest income after provision for loan and covered loan losses
 
70,230

 
62,254

Noninterest Income
 
 
 
 
Service charges on deposit accounts
 
9,271

 
8,020

Wealth management fees
 
7,014

 
6,457

Card-based fees
 
6,402

 
5,335

Mortgage banking income
 
1,123

 
1,115

Other service charges, commissions, and fees
 
4,831

 
4,122

Net securities gains
 
512

 
1,073

Other income
 
1,948

 
1,128

Total noninterest income
 
31,101

 
27,250

Noninterest Expense
 
 
 
 
Salaries and employee benefits
 
40,716

 
33,491

Net occupancy and equipment expense
 
10,436

 
9,391

Professional services
 
5,109

 
5,389

Technology and related costs
 
3,687

 
3,074

Net OREO expense
 
1,204

 
1,556

Other expenses
 
11,505

 
10,767

Total noninterest expense
 
72,657

 
63,668

Income before income tax expense
 
28,674

 
25,836

Income tax expense
 
8,792

 
8,172

Net income
 
$
19,882

 
$
17,664

Per Common Share Data
 
 
 
 
Basic earnings per common share
 
$
0.26

 
$
0.24

Diluted earnings per common share
 
$
0.26

 
$
0.24

Dividends declared per common share
 
$
0.09

 
$
0.07

Weighted-average common shares outstanding
 
76,918

 
74,147

Weighted-average diluted common shares outstanding
 
76,930

 
74,159

 
See accompanying notes to the unaudited condensed consolidated financial statements.

4




FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
(Unaudited)
 
Quarters Ended 
 March 31,
 
2015
 
2014
Net income
$
19,882

 
$
17,664

Securities available-for-sale
 
 
 
Unrealized holding gains:
 
 
 
Before tax
6,312

 
12,690

Tax effect
(2,528
)
 
(5,036
)
Net of tax
3,784

 
7,654

Reclassification of net gains included in net income:
 
 
Before tax
512

 
1,073

Tax effect
(209
)
 
(439
)
Net of tax
303

 
634

Net unrealized holding gains
3,481

 
7,020

Derivative instruments
 
 
 
Unrealized holding losses:
 
 
 
Before tax
(719
)
 

Tax effect
288

 

Net of tax
(431
)
 

Total other comprehensive income
3,050

 
7,020

Total comprehensive income
$
22,932

 
$
24,684



 
Accumulated
Unrealized
Gain (Loss)
on Securities
Available-
for-Sale
 
Accumulated Unrealized Loss on Derivative Instruments
 
Unrecognized
Net Pension
Costs
 
Total
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2013
$
(20,419
)
 
$

 
$
(6,373
)
 
$
(26,792
)
Other comprehensive income
7,020

 

 

 
7,020

Balance at March 31, 2014
$
(13,399
)
 
$

 
$
(6,373
)
 
$
(19,772
)
Balance at December 31, 2014
$
(2,950
)
 
$
(1,138
)
 
$
(11,767
)
 
$
(15,855
)
Other comprehensive income (loss)
3,481

 
(431
)
 

 
3,050

Balance at March 31, 2015
$
531

 
$
(1,569
)
 
$
(11,767
)
 
$
(12,805
)
 
See accompanying notes to the unaudited condensed consolidated financial statements.


5




FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands, except per share data)
(Unaudited)
 
Common
Shares
Outstanding
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
Balance at December 31, 2013
75,071

 
$
858

 
$
414,293

 
$
853,740

 
$
(26,792
)
 
$
(240,657
)
 
$
1,001,442

Comprehensive income

 

 

 
17,664

 
7,020

 

 
24,684

Common dividends declared
($0.07 per common share)

 

 

 
(5,272
)
 

 

 
(5,272
)
Share-based compensation expense

 

 
1,476

 

 

 

 
1,476

Restricted stock activity
195

 

 
(9,717
)
 

 

 
7,742

 
(1,975
)
Treasury stock issued to
benefit plans

 

 
(43
)
 

 

 
113

 
70

Balance at March 31, 2014
75,266

 
$
858

 
$
406,009

 
$
866,132

 
$
(19,772
)
 
$
(232,802
)
 
$
1,020,425

Balance at December 31, 2014
77,695

 
$
882

 
$
449,798

 
$
899,516

 
$
(15,855
)
 
$
(233,566
)
 
$
1,100,775

Comprehensive income

 

 

 
19,882

 
3,050

 

 
22,932

Common dividends declared
($0.09 per common share)

 

 

 
(7,011
)
 

 

 
(7,011
)
Share-based compensation expense

 

 
1,700

 

 

 

 
1,700

Restricted stock activity
264

 

 
(9,784
)
 

 

 
7,311

 
(2,473
)
Treasury stock issued to
  benefit plans
(2
)
 

 
(25
)
 

 

 
52

 
27

Balance at March 31, 2015
77,957

 
$
882

 
$
441,689

 
$
912,387

 
$
(12,805
)
 
$
(226,203
)
 
$
1,115,950

 
See accompanying notes to the unaudited condensed consolidated financial statements.

6




FIRST MIDWEST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
 
 
Quarters Ended
March 31,
 
 
2015
 
2014
Net cash provided by operating activities
 
$
34,890

 
$
21,541

Investing Activities
 
 
 
 
Proceeds from maturities, repayments, and calls of securities available-for-sale
 
58,236

 
47,810

Proceeds from sales of securities available-for-sale
 
36,193

 
1,698

Purchases of securities available-for-sale
 
(53,974
)
 
(6,142
)
Proceeds from maturities, repayments, and calls of securities held-to-maturity
 
1,720

 
1,924

Purchases of securities held-to-maturity
 
(1,026
)
 
(853
)
Net purchases of FHLB stock
 
(1,190
)
 

Net increase in loans
 
(75,935
)
 
(107,700
)
Premiums paid for BOLI, net of claims
 
191

 
(16
)
Proceeds from sales of OREO
 
2,708

 
5,865

Proceeds from sales of premises, furniture, and equipment
 
195

 
18

Purchases of premises, furniture, and equipment
 
(1,215
)
 
(1,954
)
Net cash used in investing activities
 
(34,097
)
 
(59,350
)
Financing Activities
 
 
 
 
Net increase in deposit accounts
 
26,921

 
50,656

Net decrease in borrowed funds
 
(6,794
)
 
(643
)
Cash dividends paid
 
(6,218
)
 
(5,258
)
Restricted stock activity
 
(2,700
)
 
(2,653
)
Excess tax benefit related to share-based compensation
 
793

 
778

Net cash provided by financing activities
 
12,002

 
42,880

Net increase in cash and cash equivalents
 
12,795

 
5,071

Cash and cash equivalents at beginning of period
 
606,262

 
587,241

Cash and cash equivalents at end of period
 
$
619,057

 
$
592,312

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
Income taxes paid
 
$
3,096

 
$
2,993

Interest paid to depositors and creditors
 
2,862

 
3,142

Dividends declared, but unpaid
 
7,011

 
5,272

Non-cash transfers of loans to OREO
 
1,038

 
2,562

 
See accompanying notes to the unaudited condensed consolidated financial statements.

7




NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – The accompanying unaudited condensed consolidated interim financial statements of First Midwest Bancorp, Inc. (the "Company"), a Delaware corporation, were prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q and reflect all adjustments that management deems necessary for the fair presentation of the financial position and results of operations for the periods presented. The results of operations for the quarter ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. The accompanying quarterly statements do not include certain information and note disclosures required by GAAP for complete annual financial statements. Therefore, these financial statements should be read in conjunction with the Company’s 2014 Annual Report on Form 10-K ("2014 10-K"). The Company uses the accrual basis of accounting for financial reporting purposes. Certain reclassifications were made to prior year amounts to conform to the current year presentation.
Principles of Consolidation – The accompanying condensed consolidated financial statements include the financial position and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. Assets held in a fiduciary or agency capacity are not assets of the Company or its subsidiaries and are not included in the condensed consolidated financial statements.
Use of Estimates – The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Although these estimates and assumptions are based on the best available information, actual results could differ from those estimates.
The accounting policies related to business combinations, loans, the allowance for credit losses, the FDIC indemnification asset, and derivative financial instruments are presented below. For a summary of all other significant accounting policies, see Note 1, "Summary of Significant Accounting Policies," in the Company’s 2014 10-K.
Business Combinations – Business combinations are accounted for under the acquisition method of accounting. Assets acquired and liabilities assumed are recorded at their estimated fair values as of the date of acquisition, with any excess of the purchase price of the acquisition over the fair value of the identifiable net tangible and intangible assets acquired recorded as goodwill. Alternatively, a gain is recorded if the fair value of assets purchased exceeds the fair value of liabilities assumed and consideration paid. The results of operations of the acquired business are included in the Condensed Consolidated Statements of Income from the effective date of the acquisition.
Loans – Loans held-for-investment are loans that the Company intends to hold until they are paid in full and are carried at the principal amount outstanding, including certain net deferred loan origination fees. Interest income on loans is accrued based on principal amounts outstanding. Loan origination fees, commitment fees, and certain direct loan origination costs are deferred, and the net amount is amortized as a yield adjustment over the contractual life of the related loans or commitments and included in interest income. Fees related to standby letters of credit are amortized into fee income over the contractual life of the commitment. Other credit-related fees are recognized as fee income when earned. Loans held-for-sale are carried at the lower of aggregate cost or fair value and included in other assets in the Consolidated Statements of Financial Condition.
Acquired and Covered Loans – Covered loans consist of loans acquired by the Company in FDIC-assisted transactions, the majority of which are covered by loss share agreements with the FDIC (the "FDIC Agreements"), under which the FDIC reimburses the Company for the majority of the losses and eligible expenses related to these assets during the coverage period. Acquired loans consist of all other loans that were acquired in business combinations that are not covered by FDIC Agreements. No allowance for credit losses is recorded on acquired and covered loans at the acquisition date since business combination accounting requires that they are recorded at fair value. Certain acquired loans that have renewed subsequent to the respective acquisition dates are no longer classified as acquired loans. Instead, they are included with our loan population that is allocated an allowance in accordance with our allowance for loan losses methodology.
Acquired and covered loans are separated into (i) non-purchased credit impaired ("Non-PCI") and (ii) purchased credit impaired ("PCI") loans. Non-PCI loans include loans that did not have evidence of credit deterioration since origination at the acquisition date. PCI loans include loans that had evidence of credit deterioration since origination and for which it was probable at acquisition that the Company would not collect all contractually required principal and interest payments. Evidence of credit deterioration

8




was evaluated using various indicators, such as past due and non-accrual status. Other key considerations included past performance of the institutions' credit underwriting standards, completeness and accuracy of credit files, maintenance of risk ratings, and age of appraisals. Leases and revolving loans do not qualify to be accounted for as PCI loans.
The acquisition adjustment related to Non-PCI loans is amortized into interest income over the contractual life of the related loans. As the acquisition adjustment is accreted into income over future periods, an allowance for credit losses will be established as necessary to reflect credit deterioration since the acquisition date.
PCI loans are accounted for based on estimates of expected future cash flows. To estimate the fair value, the Company generally aggregates purchased consumer loans and certain smaller balance commercial loans into pools of loans with common risk characteristics, such as delinquency status, credit score, and internal risk ratings. The fair values of larger balance commercial loans are estimated on an individual basis. Expected future cash flows in excess of the fair value of loans at the purchase date ("accretable yield") are recorded as interest income over the life of the loans if the timing and amount of the expected future cash flows can be reasonably estimated. The non-accretable yield represents the difference between contractually required payments and the expected future cash flows determined at acquisition. Subsequent increases in expected future cash flows are offset against the allowance for credit losses to the extent an allowance has been established or otherwise recognized as interest income prospectively. The present value of any decreases in expected future cash flows is recognized by recording a charge-off through the allowance for loan and covered loan losses or providing an allowance for loan and covered loan losses.
90-Days Past Due Loans –The Company’s accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is sufficiently collateralized and in the process of renewal or collection.
Non-accrual Loans Generally, corporate loans are placed on non-accrual status (i) when either principal or interest payments become 90 days or more past due unless the credit is sufficiently collateralized and in the process of renewal or collection or (ii) when an individual analysis of a borrower’s creditworthiness warrants a downgrade to non-accrual regardless of past due status. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged against the allowance for loan losses. After the loan is placed on non-accrual, all debt service payments are applied to the principal on the loan. Future interest income may only be recorded on a cash basis after recovery of principal is reasonably assured. Non-accrual loans are returned to accrual status when the financial position of the borrower and other relevant factors indicate that the Company will collect all principal and interest.
Commercial loans and loans secured by real estate are charged-off when deemed uncollectible. A loss is recorded if the net realizable value of the underlying collateral is less than the outstanding principal and interest. Consumer loans that are not secured by real estate are subject to mandatory charge-off at a specified delinquency date and are usually not classified as non-accrual prior to being charged-off. Closed-end consumer loans, which include installment, automobile, and single payment loans, are usually charged-off no later than the end of the month in which the loan becomes 120 days past due.
PCI loans are generally considered accruing loans unless reasonable estimates of the timing and amount of expected future cash flows cannot be determined. Loans without reasonable future cash flow estimates are classified as non-accrual loans, and interest income is not recognized on those loans until the timing and amount of the expected future cash flows can be reasonably determined.
Troubled Debt Restructurings ("TDRs") – A restructuring is considered a TDR when (i) the borrower is experiencing financial difficulties and (ii) the creditor grants a concession, such as forgiveness of principal, reduction of the interest rate, changes in payments, or extension of the maturity date. Loans are not classified as TDRs when the modification is short-term or results in an insignificant delay in payments. The Company’s TDRs are determined on a case-by-case basis.
The Company does not accrue interest on a TDR unless it believes collection of all principal and interest under the modified terms is reasonably assured. For a TDR to begin accruing interest, the borrower must demonstrate some level of past performance and the future capacity to perform under the modified terms. Generally, six months of consecutive payment performance under the restructured terms is required before a TDR is returned to accrual status. However, the period could vary depending on the individual facts and circumstances of the loan. An evaluation of the borrower’s current creditworthiness is used to assess the borrower’s capacity to repay the loan under the modified terms. This evaluation includes an estimate of expected future cash flows, evidence of strong financial position, and estimates of the value of collateral, if applicable. For TDRs to be removed from TDR status in the calendar year after the restructuring, the loans must (i) have an interest rate and terms that reflect market conditions at the time of restructuring, and (ii) be in compliance with the modified terms. If the loan was restructured at below market rates and terms, it continues to be separately reported as restructured until it is paid in full or charged-off.
Impaired Loans – Impaired loans consist of corporate non-accrual loans and TDRs. A loan is considered impaired when it is probable that the Company will not collect all contractual principal and interest. With the exception of accruing TDRs, impaired loans are classified as non-accrual and are exclusive of smaller homogeneous loans, such as home equity, 1-4 family mortgages, and installment loans. Impaired loans with balances under a specified threshold are not individually evaluated for impairment. For all other impaired loans, impairment is measured by comparing the estimated value of the loan to the recorded book value.

9




The value of collateral-dependent loans is based on the fair value of the underlying collateral, less costs to sell. The value of other loans is measured using the present value of expected future cash flows discounted at the loan’s initial effective interest rate.
Allowance for Credit Losses – The allowance for credit losses is comprised of the allowance for loan losses, the allowance for covered loan losses, and the reserve for unfunded commitments, and is maintained by management at a level believed adequate to absorb estimated losses inherent in the existing loan portfolio. Determination of the allowance for credit losses is subjective since it requires significant estimates and management judgment, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans, consideration of current economic trends, and other factors.
Loans deemed to be uncollectible are charged-off against the allowance for loan and covered loan losses, while recoveries of amounts previously charged-off are credited to the allowance for loan and covered loan losses. Additions to the allowance for loan and covered loan losses are charged to expense through the provision for loan and covered loan losses. The amount of provision depends on a number of factors, including net charge-off levels, loan growth, changes in the composition of the loan portfolio, and the Company’s assessment of the allowance for loan and covered loan losses based on the methodology discussed below.
Allowance for Loan Losses The allowance for loan losses consists of (i) specific reserves for individual loans where the recorded investment exceeds the value, (ii) an allowance based on a loss migration analysis that uses historical credit loss experience for each loan category, and (iii) an allowance based on other internal and external qualitative factors.
The specific reserves component of the allowance for loan losses is based on a periodic analysis of impaired loans exceeding a fixed dollar amount. If the value of an impaired loan is less than the recorded book value, the Company either establishes a valuation allowance (i.e., a specific reserve) equal to the excess of the book value over the value of the loan as a component of the allowance for loan losses or charges off the amount if it is a confirmed loss.
The general reserve component is based on a loss migration analysis, which examines actual loss experience by loan category for a rolling 8-quarter period and the related internal risk rating for corporate loans. The loss migration analysis is updated quarterly primarily using actual loss experience. This component is then adjusted based on management’s consideration of many internal and external qualitative factors, including:
Changes in the composition of the loan portfolio, trends in the volume of loans, and trends in delinquent and non-accrual loans that could indicate that historical trends do not reflect current conditions.
Changes in credit policies and procedures, such as underwriting standards and collection, charge-off, and recovery practices.
Changes in the experience, ability, and depth of credit management and other relevant staff.
Changes in the quality of the Company’s loan review system and Board of Directors oversight.
The effect of any concentration of credit and changes in the level of concentrations, such as loan type or risk rating.
Changes in the value of the underlying collateral for collateral-dependent loans.
Changes in the national and local economy that affect the collectability of various segments of the portfolio.
The effect of other external factors, such as competition and legal and regulatory requirements, on the Company’s loan portfolio.
Allowance for Covered Loan Losses The Company’s allowance for covered loan losses reflects the difference between the carrying value and the discounted expected future cash flows of the covered PCI loans. On a periodic basis, the adequacy of this allowance is determined through a re-estimation of expected future cash flows on all the outstanding covered PCI loans using either a probability of default/loss given default ("PD/LGD") methodology or a specific review methodology. The PD/LGD model is a loss model that estimates expected future cash flows using a probability of default curve and loss given default estimates.
Reserve for Unfunded Commitments The Company also maintains a reserve for unfunded commitments, including letters of credit, for the risk of loss inherent in these arrangements. The reserve for unfunded commitments is estimated using the loss migration analysis from the allowance for loan losses, adjusted for probabilities of future funding requirements. The reserve for unfunded commitments is included in other liabilities in the Consolidated Statements of Financial Condition.
The establishment of the allowance for credit losses involves a high degree of judgment given the difficulty of assessing the factors impacting loan repayment and estimating the timing and amount of losses. While management utilizes its best judgment and information available, the adequacy of the allowance for credit losses depends on a variety of factors beyond the Company’s control, including the performance of its loan portfolio, the economy, changes in interest rates and property values, and the interpretation of loan risk classifications by regulatory authorities.
FDIC Indemnification Asset – The majority of loans and OREO acquired through FDIC-assisted transactions are covered by the FDIC Agreements, under which the FDIC reimburses the Company for the majority of the losses and eligible expenses related to these assets during the indemnification period. The FDIC indemnification asset represents the present value of future expected reimbursements from the FDIC. Since the indemnified items are covered loans and covered OREO, which are initially measured

10




at fair value, the FDIC indemnification asset is also initially measured at fair value by discounting the expected future cash flows to be received from the FDIC. These expected future cash flows are estimated by multiplying estimated losses on covered PCI loans and covered OREO by the reimbursement rates in the FDIC Agreements.
The balance of the FDIC indemnification asset is adjusted periodically to reflect changes in expected future cash flows. Decreases in estimated reimbursements from the FDIC are recorded prospectively through amortization and increases in estimated reimbursements from the FDIC are recognized by an increase in the carrying value of the indemnification asset. Payments from the FDIC for reimbursement of losses result in a reduction of the FDIC indemnification asset.
Derivative Financial Instruments – To provide derivative products to customers and in the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy to minimize significant unplanned fluctuations in earnings and expected future cash flows caused by interest rate volatility. All derivative instruments are recorded at fair value as either other assets or other liabilities in the Consolidated Statements of Financial Condition. Subsequent changes in a derivative’s fair value are recognized in earnings unless specific hedge accounting criteria are met.
On the date the Company enters into a derivative contract, the derivative is designated as a fair value hedge, a cash flow hedge, or a non-hedge derivative instrument. Fair value hedges are designed to mitigate exposure to changes in the fair value of an asset or liability attributable to a particular risk, such as interest rate risk. Cash flow hedges are designed to mitigate exposure to variability in expected future cash flows to be received or paid related to an asset, liability, or other type of forecasted transaction. The Company formally documents all relationships between hedging instruments and hedged items, including its risk management objective and strategy at inception.
At the hedge’s inception and quarterly thereafter, a formal assessment is performed to determine the effectiveness of the derivative in offsetting changes in the fair values or expected future cash flows of the hedged items in the current period and prospectively. If a derivative instrument designated as a hedge is terminated or ceases to be highly effective, hedge accounting is discontinued prospectively, and the gain or loss is amortized into earnings. For fair value hedges, the gain or loss is amortized over the remaining life of the hedged asset or liability. For cash flow hedges, the gain or loss is amortized over the same period that the forecasted hedged transactions impact earnings. If the hedged item is disposed of, any fair value adjustments are included in the gain or loss from the disposition of the hedged item. If the forecasted transaction is no longer probable, the gain or loss is included in earnings immediately.
For fair value hedges, changes in the fair value of the derivative instruments, as well as changes in the fair value of the hedged item, are recognized in earnings. For cash flow hedges, the effective portion of the change in fair value of the derivative instrument is reported as a component of accumulated other comprehensive loss and is reclassified to earnings when the hedged transaction is reflected in earnings.
Ineffectiveness is calculated based on the change in fair value of the hedged item compared with the change in fair value of the hedging instrument. For all types of hedges, any ineffectiveness in the hedging relationship is recognized in earnings during the period the ineffectiveness occurs.


11




2.  RECENT ACCOUNTING PRONOUNCEMENTS
Adopted Accounting Pronouncements
Receivables - Troubled Debt Restructurings by Creditors: In January of 2014, the Financial Accounting Standards Board ("FASB") issued guidance to clarify when an in substance repossession or foreclosure occurs and an entity is considered to have received physical possession of the residential real estate property such that a loan receivable should be derecognized and the real estate property recognized. Additionally, the guidance requires interim and annual disclosure of the amount of foreclosed residential real estate property held by the entity and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The guidance is effective for annual and interim periods beginning after December 15, 2014. The adoption of this guidance on January 1, 2015 did not materially impact the Company's financial condition, results of operations, or liquidity.
Receivables - Troubled Debt Restructurings by Creditors: In August of 2014, the FASB issued guidance that requires an entity to derecognize a mortgage loan and recognize a separate other receivable upon foreclosure if (i) the loan has a government guarantee that is not separable from the loan before foreclosure, (ii) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on that guarantee, and the creditor has the ability to recover under that claim, and (iii) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. The separate other receivable is to be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The guidance is effective for annual and interim reporting periods beginning after December 15, 2014. The adoption of this guidance on January 1, 2015 did not materially impact the Company's financial condition, results of operations, or liquidity.
Recent Accounting Pronouncements
Revenue from Contracts with Customers: In May of 2014, the FASB issued guidance that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2016, and must be applied either retrospectively or using the modified retrospective approach. Management is evaluating the new guidance, but does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern: In August of 2014, the FASB issued guidance that requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. The guidance is effective for annual and interim periods beginning after December 15, 2016. Management does not expect the adoption of this guidance will materially impact the Company's financial condition, results of operations, or liquidity.

12




3.  SECURITIES
Securities are classified as held-to-maturity, trading, or available-for-sale at the time of purchase. Securities classified as held-to-maturity are securities for which management has the positive intent and ability to hold to maturity and are stated at cost.
The Company’s trading securities consist of diversified investment securities reported at fair value that are held in a grantor trust under deferred compensation arrangements in which plan participants may direct amounts earned to be invested in securities other than Company stock. Net trading gains represent changes in the fair value of the trading securities portfolio and are included in other noninterest income, and the related expense resulting from changes in the Company's obligation to participants is included in salaries and employee benefits in the Condensed Consolidated Statements of Income.
All other securities are classified as available-for-sale and are carried at fair value with unrealized gains and losses, net of related deferred income taxes, recorded in stockholders’ equity as a separate component of accumulated other comprehensive loss.
A summary of the Company's securities portfolio by category and maturity is presented in the following tables.
Securities Portfolio
(Dollar amounts in thousands)
 
As of March 31, 2015
 
As of December 31, 2014
 
Amortized Cost
 
Gross Unrealized
 
Fair
 Value
 
Amortized Cost
 
Gross Unrealized
 
Fair
 Value
 
 
Gains
 
Losses
 
 
 
Gains
 
Losses
 
Securities Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities
$
24,350

 
$
357

 
$

 
$
24,707

 
$
30,297

 
$
144

 
$
(10
)
 
$
30,431

Collateralized mortgage
  obligations ("CMOs")
524,090

 
3,730

 
(3,756
)
 
524,064

 
538,882

 
2,256

 
(6,982
)
 
534,156

Other mortgage-backed
  securities ("MBSs")
145,846

 
4,891

 
(91
)
 
150,646

 
155,443

 
4,632

 
(310
)
 
159,765

Municipal securities
403,474

 
10,198

 
(554
)
 
413,118

 
414,255

 
10,583

 
(1,018
)
 
423,820

Trust preferred
  collateralized debt
  obligations ("CDOs")
48,357

 
810

 
(15,239
)
 
33,928

 
48,502

 
152

 
(14,880
)
 
33,774

Corporate debt securities
1,725

 
67

 

 
1,792

 
1,719

 
83

 

 
1,802

Equity securities
3,274

 
89

 
(15
)
 
3,348

 
3,224

 
72

 
(35
)
 
3,261

Total available-
  for-sale securities
$
1,151,116

 
$
20,142

 
$
(19,655
)
 
$
1,151,603

 
$
1,192,322

 
$
17,922

 
$
(23,235
)
 
$
1,187,009

Securities Held-to-Maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
$
25,861

 
$
1,310

 
$

 
$
27,171

 
$
26,555

 
$
1,115

 
$

 
$
27,670

Trading Securities
 
 
 
 
 
 
$
18,374

 
 
 
 
 
 
 
$
17,460


Remaining Contractual Maturity of Securities
(Dollar amounts in thousands)
 
As of March 31, 2015
 
Available-for-Sale
 
Held-to-Maturity
 
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
One year or less
$
140,114

 
$
138,835

 
$
3,513

 
$
3,691

After one year to five years
105,125

 
104,166

 
8,451

 
8,879

After five years to ten years
182,290

 
180,626

 
5,194

 
5,457

After ten years
50,377

 
49,918

 
8,703

 
9,144

Securities that do not have a single contractual maturity date
673,210

 
678,058

 

 

Total
$
1,151,116

 
$
1,151,603

 
$
25,861

 
$
27,171


13




The carrying value of securities available-for-sale that were pledged to secure deposits or for other purposes as permitted or required by law totaled $704.0 million at March 31, 2015 and $779.4 million at December 31, 2014. No securities held-to-maturity were pledged as of March 31, 2015 or December 31, 2014.
Purchases and sales of securities are recognized on a trade date basis. Realized securities gains or losses are reported in net securities gains in the Condensed Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. The following table presents net realized gains on securities.
Securities Gains (Losses)
(Dollar amounts in thousands)
 
Quarters Ended 
 March 31,
 
2015
 
2014
Gains (losses) on sales of securities:
 
 
 
Gross realized gains
$
650

 
$
1,101

Gross realized losses
(138
)
 

Net realized gains on sales of securities
512

 
1,101

Non-cash impairment charges:
 
 
 
Other-than-temporary securities impairment ("OTTI")

 
(28
)
Net non-cash impairment charges

 
(28
)
Net realized gains
$
512

 
$
1,073

Net trading gains (1)
$
419

 
$
191


(1) 
All net trading gains relate to trading securities still held as of March 31, 2015 and March 31, 2014 and are included in other income in the Condensed Consolidated Statement of Income.
Accounting guidance requires that the credit portion of an OTTI charge be recognized through income. If a decline in fair value below carrying value is not attributable to credit deterioration and the Company does not intend to sell the security or believe it would not be more likely than not required to sell the security prior to recovery, the Company records the non-credit related portion of the decline in fair value in other comprehensive income.
The following table presents a rollforward of life-to-date OTTI recognized in earnings related to all available-for-sale securities held by the Company for the quarters ended March 31, 2015 and 2014. The majority of the beginning and ending balance of OTTI relates to CDOs currently held by the Company.
Changes in OTTI Recognized in Earnings
(Dollar amounts in thousands)
 
Quarters Ended 
 March 31,
 
2015
 
2014
Beginning balance
$
23,880

 
$
32,422

OTTI included in earnings (1):
 
 
 
Losses on securities that previously had OTTI

 
28

Reduction for sales of securities (2)
(171
)
 

Ending balance
$
23,709

 
$
32,450


(1) 
Included in net securities gains in the Condensed Consolidated Statements of Income.
(2) 
During the quarter ended March 31, 2015, we sold one CMO with a carrying value of $1.3 million that had OTTI of $171,000 that was previously recognized in earnings.

14




The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of March 31, 2015 and December 31, 2014.
Securities in an Unrealized Loss Position
(Dollar amounts in thousands)
 
 
 
Less Than 12 Months
 
Greater Than 12 Months
 
Total
 
Number of
Securities
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
As of March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
CMOs
59

 
$
32,270

 
$
63

 
$
229,474

 
$
3,693

 
$
261,744

 
$
3,756

MBSs
5

 
154

 
2

 
21,243

 
89

 
21,397

 
91

Municipal securities
82

 
4,317

 
49

 
41,255

 
505

 
45,572

 
554

CDOs
7

 
1,878

 
24

 
22,318

 
15,215

 
24,196

 
15,239

Equity securities
1

 

 

 
2,303

 
15

 
2,303

 
15

Total
154

 
$
38,619

 
$
138

 
$
316,593

 
$
19,517

 
$
355,212

 
$
19,655

As of December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities
1

 
$
1,943

 
$
10

 
$

 
$

 
$
1,943

 
$
10

CMOs
87

 
61,321

 
559

 
284,327

 
6,423

 
345,648

 
6,982

MBSs
11

 
1,113

 
1

 
39,043

 
309

 
40,156

 
310

Municipal securities
91

 
1,317

 
9

 
53,987

 
1,009

 
55,304

 
1,018

CDOs
4

 

 

 
22,791

 
14,880

 
22,791

 
14,880

Equity securities
1

 

 

 
2,270

 
35

 
2,270

 
35

Total
195

 
$
65,694

 
$
579

 
$
402,418

 
$
22,656

 
$
468,112

 
$
23,235

Substantially all of the Company’s CMOs and other MBSs are either backed by U.S. government-owned agencies or issued by U.S. government-sponsored enterprises. Municipal securities are issued by municipal authorities, and the majority are supported by third party insurance or some other form of credit enhancement. Management does not believe any of these securities with unrealized losses as of March 31, 2015 represent OTTI related to credit deterioration. These unrealized losses are attributed to changes in interest rates and temporary market movements. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell them before recovery of their amortized cost basis, which may be at maturity.
The unrealized losses on CDOs as of March 31, 2015 reflect changes in market activity for these securities. Management does not believe these unrealized losses represent OTTI related to credit deterioration. In addition, the Company does not intend to sell the CDOs with unrealized losses within a short period of time, and the Company does not believe it is more likely than not that it will be required to sell them before recovery of their amortized cost basis, which may be at maturity. Significant judgment is required to calculate the fair value of the CDOs, all of which are pooled. For a detailed discussion of the CDO valuation methodology, see Note 11, "Fair Value."

15




4.  LOANS
Loans Held-for-Investment
The following table presents the Company's loans held-for-investment by class.
Loan Portfolio
(Dollar amounts in thousands)
 
March 31,
2015
 
December 31,
2014
Commercial and industrial
$
2,318,058

 
$
2,253,556

Agricultural
368,836

 
358,249

Commercial real estate:
 
 
 
Office, retail, and industrial
1,443,562

 
1,478,379

Multi-family
560,800

 
564,421

Construction
191,104

 
204,236

Other commercial real estate
881,026

 
887,897

Total commercial real estate
3,076,492

 
3,134,933

Total corporate loans
5,763,386

 
5,746,738

Home equity
599,543

 
543,185

1-4 family mortgages
285,758

 
291,463

Installment
92,834

 
76,032

Total consumer loans
978,135

 
910,680

Total loans, excluding covered loans
6,741,521

 
6,657,418

Covered loans (1)
62,830

 
79,435

Total loans
$
6,804,351

 
$
6,736,853

Deferred loan fees included in total loans
$
4,087

 
$
3,922

Overdrawn demand deposits included in total loans
2,141

 
3,438


(1) 
For information on covered loans, see Note 5, "Acquired and Covered Loans."
The Company primarily lends to community-based and mid-sized businesses, commercial real estate customers, and consumers in its markets. Within these areas, the Company diversifies its loan portfolio by loan type, industry, and borrower.
It is the Company’s policy to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with state lending laws, the Company’s lending standards, and credit monitoring and remediation procedures. A discussion of risk characteristics relevant to each portfolio segment is presented in Note 5, "Loans" to the Consolidated Financial Statements in the Company’s 2014 10-K.

16




Loan Sales
The table below summarizes the Company's loan sales for the quarters ended March 31, 2015 and 2014.
Loan Sales
(Dollar amounts in thousands)
 
Quarters Ended 
 March 31,
 
2015
 
2014
Corporate loans
 
 
 
Proceeds from sales
$
945

 
$

Less book value of loans sold
945

 

Net gains on sales of corporate loans

 

1-4 family mortgage loans
 
 
 
Proceeds from sales
35,582

 
51,900

Less book value of loans sold:
 
 
 
Loans originated with intent to sell
34,496

 
15,458

Loans held-for-investment

 
35,369

Total book value of loans sold
34,496

 
50,827

Net gains on sales of 1-4 family mortgages
1,086

 
1,073

Total net gains on loan sales
$
1,086

 
$
1,073

The Company retained servicing responsibilities for a portion of the 1-4 family mortgage loans sold and collects servicing fees equal to a percentage of the outstanding principal balance. The Company also retained limited recourse for credit losses on the sold loans. A description of the recourse obligation is presented in Note 10, "Commitments, Guarantees, and Contingent Liabilities."
5.  ACQUIRED AND COVERED LOANS
Acquired loans consist primarily of loans that were acquired in business combinations that are not covered by the FDIC Agreements. These loans are included in loans, excluding covered loans, in the Consolidated Statements of Financial Condition. Covered loans consist of loans acquired by the Company in multiple FDIC-assisted transactions. Most loans and OREO acquired in three of those transactions are covered by the FDIC Agreements. The significant accounting policies related to acquired and covered loans, which are classified as PCI and Non-PCI, and the related FDIC indemnification asset are presented in Note 1, "Summary of Significant Accounting Policies."
Effective January 1, 2015, the losses on non-residential mortgage loans and OREO related to one FDIC-assisted transaction are no longer covered under the FDIC Agreements. Accordingly, these non-residential loans and OREO, which totaled $5.1 million at March 31, 2015, were reclassified from covered loans to loans, excluding covered loans. The losses on residential mortgage loans and OREO will continue to be covered under the FDIC Agreements through December 31, 2019. Losses related to non-residential mortgage loans and OREO in two other FDIC-assisted transactions will no longer be covered under the FDIC Agreements effective on July 1, 2015 and October 1, 2015, and residential mortgage loans and OREO will continue to be covered through June 30, 2020 and September 30, 2020.
During the first quarter of 2015, $30.8 million of acquired loans were renewed and no longer classified as acquired loans. See Note 1 "Summary of Significant Accounting Policies" for detail regarding renewed acquired loans.

17




The following table presents PCI and Non-PCI, loans as of March 31, 2015 and December 31, 2014.
Acquired and Covered Loans
(Dollar amounts in thousands)
 
As of March 31, 2015
 
As of December 31, 2014
 
PCI
 
Non-PCI
 
Total
 
PCI
 
Non-PCI
 
Total
Acquired loans
$
37,616

 
$
652,736

 
$
690,352

 
$
28,712

 
$
714,836

 
$
743,548

Covered loans
38,970

 
23,860

 
62,830

 
54,682

 
24,753

 
79,435

Total acquired and covered loans
$
76,586

 
$
676,596

 
$
753,182

 
$
83,394

 
$
739,589

 
$
822,983

In connection with the FDIC Agreements, the Company recorded an indemnification asset. To maintain eligibility for the loss share reimbursement, the Company is required to follow certain servicing procedures as specified in the FDIC Agreements. The Company was in compliance with those requirements as of March 31, 2015 and December 31, 2014.
A rollforward of the carrying value of the FDIC indemnification asset for the quarters ended March 31, 2015 and 2014 is presented in the following table.
Changes in the FDIC Indemnification Asset
(Dollar amounts in thousands)
 
Quarters Ended 
 March 31,
 
2015
 
2014
Beginning balance
$
8,452

 
$
16,585

Amortization
(458
)
 
(1,316
)
Change in expected reimbursements from the FDIC for changes
  in expected credit losses
934

 
1,161

Payments received from the FDIC
(388
)
 
(893
)
Ending balance
$
8,540

 
$
15,537

Changes in the accretable yield for acquired and covered PCI loans were as follows.
Changes in Accretable Yield
(Dollar amounts in thousands)
 
Quarters Ended 
 March 31,
 
2015
 
2014
Beginning balances
$
28,244

 
$
36,792

Accretion
(2,663
)
 
(3,510
)
Other (1)
839

 
(1,272
)
Ending balance
$
26,420

 
$
32,010


(1) 
Decreases result from the resolution of certain loans occurring earlier than anticipated while increases represent a rise in the expected future cash flows to be collected over the remaining estimated life of the underlying portfolio.

18




6.  PAST DUE LOANS, ALLOWANCE FOR CREDIT LOSSES, IMPAIRED LOANS, AND TDRS
Past Due and Non-accrual Loans
The following table presents an aging analysis of the Company’s past due loans as of March 31, 2015 and December 31, 2014. The aging is determined without regard to accrual status. The table also presents non-performing loans, consisting of non-accrual loans (the majority of which are past due) and loans 90 days or more past due and still accruing interest, as of each balance sheet date.
Aging Analysis of Past Due Loans and Non-performing Loans by Class
(Dollar amounts in thousands)
 
Aging Analysis (Accruing and Non-accrual)
 
 
Non-performing Loans
 
Current
 
30-89 Days
Past Due
 
90 Days or
More Past
Due
 
Total
Past Due
 
Total
Loans
 
 
Non-
accrual
Loans
 
90 Days Past Due Loans, Still Accruing Interest
As of March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
2,301,730

 
$
12,128

 
$
4,200

 
$
16,328

 
$
2,318,058

 
 
$
12,913

 
$
1,452

Agricultural
368,505

 

 
331

 
331

 
368,836

 
 
358

 

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office, retail, and industrial
1,430,272

 
2,064

 
11,226

 
13,290

 
1,443,562

 
 
11,363

 
738

Multi-family
557,665

 
2,557

 
578

 
3,135

 
560,800

 
 
700

 
169

Construction
184,070

 

 
7,034

 
7,034

 
191,104

 
 
7,488

 
53

Other commercial real estate
870,026

 
5,780

 
5,220

 
11,000

 
881,026

 
 
5,915

 
602

Total commercial real
  estate
3,042,033

 
10,401

 
24,058

 
34,459

 
3,076,492

 
 
25,466

 
1,562

Total corporate loans
5,712,268

 
22,529

 
28,589

 
51,118

 
5,763,386

 
 
38,737

 
3,014

Home equity
592,994

 
2,852

 
3,697

 
6,549

 
599,543

 
 
5,483

 
248

1-4 family mortgages
282,374

 
1,680

 
1,704

 
3,384

 
285,758

 
 
3,819

 
228

Installment
92,224

 
498

 
112

 
610

 
92,834

 
 
38

 
74

Total consumer loans
967,592

 
5,030

 
5,513

 
10,543

 
978,135

 
 
9,340

 
550

Total loans, excluding
  covered loans
6,679,860

 
27,559

 
34,102

 
61,661

 
6,741,521

 
 
48,077

 
3,564

Covered loans
52,754

 
633

 
9,443

 
10,076

 
62,830

 
 
4,570

 
6,390

Total loans
$
6,732,614

 
$
28,192

 
$
43,545

 
$
71,737

 
$
6,804,351

 
 
$
52,647

 
$
9,954

As of December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
2,230,947

 
$
19,505

 
$
3,104

 
$
22,609

 
$
2,253,556

 
 
$
22,693

 
$
205

Agricultural
355,982

 
1,934

 
333

 
2,267

 
358,249

 
 
360

 

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office, retail, and industrial
1,463,724

 
2,340

 
12,315

 
14,655

 
1,478,379

 
 
12,939

 
76

Multi-family
562,625

 
1,261

 
535

 
1,796

 
564,421

 
 
754

 
83

Construction
197,255

 

 
6,981

 
6,981

 
204,236

 
 
6,981

 

Other commercial real estate
876,609

 
5,412

 
5,876

 
11,288

 
887,897

 
 
6,970

 
438

Total commercial real
  estate
3,100,213

 
9,013

 
25,707

 
34,720

 
3,134,933

 
 
27,644

 
597

Total corporate loans
5,687,142

 
30,452

 
29,144

 
59,596

 
5,746,738

 
 
50,697

 
802

Home equity
535,587

 
3,216

 
4,382

 
7,598

 
543,185

 
 
6,290

 
145

1-4 family mortgages
287,892

 
2,246

 
1,325

 
3,571

 
291,463

 
 
2,941

 
166

Installment
75,428

 
506

 
98

 
604

 
76,032

 
 
43

 
60

Total consumer loans
898,907

 
5,968

 
5,805

 
11,773

 
910,680

 
 
9,274

 
371

Total loans, excluding
  covered loans
6,586,049

 
36,420

 
34,949

 
71,369

 
6,657,418

 
 
59,971

 
1,173

Covered loans
66,331

 
2,714

 
10,390

 
13,104

 
79,435

 
 
6,186

 
5,002

Total loans
$
6,652,380

 
$
39,134

 
$
45,339

 
$
84,473

 
$
6,736,853

 
 
$
66,157

 
$
6,175



19




Allowance for Credit Losses
The Company maintains an allowance for credit losses at a level deemed adequate by management to absorb probable losses inherent in the loan portfolio. See Note 1, "Summary of Significant Accounting Policies," for the accounting policy for the allowance for credit losses. A rollforward of the allowance for credit losses by portfolio segment for the quarters ended March 31, 2015 and 2014 is presented in the table below.
Allowance for Credit Losses by Portfolio Segment
(Dollar amounts in thousands)
 
Commercial,
Industrial,
and
Agricultural
 
Office,
Retail, and
Industrial
 
Multi-
Family
 
Construction
 
Other
Commercial
Real Estate
 
Consumer
 
Covered
Loans
 
Reserve for
Unfunded
Commitments
 
Total
Allowance
Quarter ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
29,458

 
$
10,992

 
$
2,249

 
$
2,297

 
$
8,327

 
$
12,145

 
$
7,226

 
$
1,816

 
$
74,510

Charge-offs
(7,449
)
 
(156
)
 
(28
)
 

 
(1,317
)
 
(800
)
 
(303
)
 

 
(10,053
)
Recoveries
792

 
322

 
4

 
17

 
266

 
321

 
75

 

 
1,797

Net charge-offs
(6,657
)
 
166

 
(24
)
 
17

 
(1,051
)
 
(479
)
 
(228
)
 

 
(8,256
)
Provision for loan
  and covered loan
  losses and other
9,295

 
(327
)
 
130

 
(238
)
 
(978
)
 
(11
)
 
(1,319
)
 

 
6,552

Ending balance
$
32,096

 
$
10,831

 
$
2,355

 
$
2,076

 
$
6,298

 
$
11,655

 
$
5,679

 
$
1,816

 
$
72,806

Quarter ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
30,381

 
$
10,405

 
$
2,017

 
$
6,316

 
$
10,817

 
$
13,010

 
$
12,559

 
$
1,616

 
$
87,121

Charge-offs
(3,680
)
 
(1,083
)
 
(90
)
 
(661
)
 
(1,771
)
 
(2,028
)
 
(245
)
 

 
(9,558
)
Recoveries
2,160

 
58

 
1

 
158

 
144

 
138

 
585

 

 
3,244

Net charge-offs
(1,520
)
 
(1,025
)
 
(89
)
 
(503
)
 
(1,627
)
 
(1,890
)
 
340

 

 
(6,314
)
Provision for loan
  and covered loan
  losses and other
(1,569
)
 
3,726

 
40

 
(157
)
 
46

 
825

 
(1,470
)
 

 
1,441

Ending balance
$
27,292

 
$
13,106

 
$
1,968

 
$
5,656

 
$
9,236

 
$
11,945

 
$
11,429

 
$
1,616

 
$
82,248




20




The table below provides a breakdown of loans and the related allowance for credit losses by portfolio segment as of March 31, 2015 and December 31, 2014.
Loans and Related Allowance for Credit Losses by Portfolio Segment
(Dollar amounts in thousands)
 
Loans
 
Allowance for Credit Losses
 
Individually
Evaluated
for
Impairment
 
Collectively
Evaluated
for
Impairment
 
PCI
 
Total
 
Individually
Evaluated
for
Impairment
 
Collectively
Evaluated
for
Impairment
 
PCI
 
Total
As of March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, industrial, and
  agricultural
$
10,098

 
$
2,672,555

 
$
4,241

 
$
2,686,894

 
$
3,739

 
$
28,131

 
$
226

 
$
32,096

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office, retail, and industrial
10,672

 
1,422,548

 
10,342

 
1,443,562

 
1,008

 
9,823

 

 
10,831

Multi-family
684

 
557,728

 
2,388

 
560,800

 

 
2,355

 

 
2,355

Construction
6,671

 
180,083

 
4,350

 
191,104

 

 
1,813

 
263

 
2,076

Other commercial real estate
2,737

 
872,277

 
6,012