UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 For the fiscal year ended December
31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934 For the transition period
from
to
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Commission file number: 0-5519 and
001-31343
ASSOCIATED BANC-CORP
(Exact name of registrant as
specified in its charter)
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Wisconsin
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39-1098068
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1200 Hansen Road
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54304
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Green Bay, Wisconsin
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(Zip Code)
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(Address of principal executive offices)
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Registrants telephone number, including area code:
(920) 491-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
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Title of each class
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Name of each exchange on which registered
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Common stock, par value $0.01 per share
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The Nasdaq Stock Market LLC
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, 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 o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act).
Yes o No þ
As of June 30, 2009, (the last business day of the
registrants most recently completed second fiscal quarter)
the aggregate market value of the voting stock held by
nonaffiliates of the registrant was approximately
$1,578,757,000. This excludes approximately $19,511,000 of
market value representing the outstanding shares of the
registrant owned by all directors and officers who individually,
in certain cases, or collectively, may be deemed affiliates.
This includes approximately $80,967,000 of market value
representing 5.07% of the outstanding shares of the registrant
held in a fiduciary capacity by the trust company subsidiary of
the registrant.
As of January 31, 2010, 172,726,442 shares of common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Document
Proxy Statement for Annual Meeting of
Shareholders on April 28, 2010
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Part of Form 10-K Into Which
Portions of Documents are Incorporated
Part III
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ASSOCIATED
BANC-CORP
2009
FORM 10-K
TABLE OF CONTENTS
2
Special
Note Regarding Forward-Looking Statements
This document, including the documents that are incorporated by
reference, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended (the Securities Act) and Section 21E of
the Exchange Act (the Exchange Act). You can
identify forward-looking statements by words such as
may, hope, will,
should, expect, plan,
anticipate, intend, believe,
estimate, predict,
potential, continue, could,
future, or the negative of those terms or other
words of similar meaning. You should read statements that
contain these words carefully because they discuss our future
expectations or state other forward-looking
information. We believe that it is important to communicate our
future expectations to our investors. Such forward-looking
statements may relate to our financial condition, results of
operations, plans, objectives, future performance, or business
and are based upon the beliefs and assumptions of our management
and the information available to our management at the time
these disclosures are prepared. These forward-looking statements
involve risks and uncertainties that we may not be able to
accurately predict or control and our actual results may differ
materially from the expectations we describe in our
forward-looking statements. Shareholders should be aware that
the occurrence of the events discussed under the heading
Risk Factors in this document and in the information
incorporated by reference herein, could have an adverse effect
on our business, results of operations, and financial condition.
These factors, many of which are beyond our control, include the
following:
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operating, legal, and regulatory risks, including risks relating
to our allowance for loan losses and impairment of goodwill;
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economic, political, and competitive forces affecting our
banking, securities, asset management, insurance, and credit
services businesses;
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integration risks related to acquisitions;
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impact on net interest income from changes in monetary policy
and general economic conditions; and
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the risk that our analyses of these risks and forces could be
incorrect
and/or that
the strategies developed to address them could be unsuccessful.
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For a discussion of these and other risks that may cause actual
results to differ from expectations, refer to the Risk
Factors section of this document. The forward-looking
statements contained or incorporated by reference in this
document relate only to circumstances as of the date on which
the statements are made. We undertake no obligation to update or
revise any forward-looking statements, whether as a result of
new information, future events, or otherwise.
PART I
General
Associated Banc-Corp (individually referred to herein as the
Parent Company and together with all of its
subsidiaries and affiliates, collectively referred to herein as
the Corporation, Associated,
we, us, or our) is a bank
holding company registered pursuant to the Bank Holding Company
Act of 1956, as amended (the BHC Act). We were
incorporated in Wisconsin in 1964 and were inactive until 1969
when permission was received from the Board of Governors of the
Federal Reserve System (the FRB or Federal
Reserve) to acquire three banks. At December 31,
2009, we owned one nationally chartered commercial bank
headquartered in Wisconsin serving local communities within our
three-state footprint (Wisconsin, Illinois, and Minnesota) and,
measured by total assets held at December 31, 2009, were
the second largest commercial bank holding company headquartered
in Wisconsin. At December 31, 2009, we owned one nationally
chartered trust company headquartered in Wisconsin and 29
limited purpose banking and nonbanking subsidiaries either
located in or conducting business primarily in our three-state
footprint, that are closely related or incidental to the
business of banking.
We provide our subsidiaries with leadership, as well as
financial and managerial assistance in areas such as corporate
development, auditing, marketing, legal/compliance, human
resources management, risk management,
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facilities management, security, purchasing, credit
administration, asset and liability management and other
treasury-related activities, budgeting, accounting and other
finance support.
Responsibility for the management of the subsidiaries remains
with their respective boards of directors and officers. Services
rendered to the subsidiaries by us are intended to assist the
management of these subsidiaries to expand the scope of services
offered by them. At December 31, 2009, our bank subsidiary
Associated Bank, National Association (Associated
Bank or the Bank), provided services through
291 banking offices serving approximately 160 communities.
Services
Through our banking subsidiary and various nonbanking
subsidiaries, we provide a broad array of banking and nonbanking
products and services to individuals and businesses in the
communities we serve. We organize our business into two
reportable segments: Banking and Wealth Management. Our banking
and wealth management activities are conducted predominantly in
Wisconsin, Minnesota, and Illinois, and are primarily delivered
through branch facilities in this tri-state area, as well as
supplemented through loan production offices, supermarket
branches, a customer service call center and
24-hour
phone-banking services, an interstate Automated Teller Machine
(ATM) network, and internet banking services. See also
Note 20, Segment Reporting, of the notes to
consolidated financial statements in Part II, Item 8,
Financial Statements and Supplementary Data. As
disclosed in Note 20, the banking segment represented
approximately 91% of total revenues in 2009. Our profitability
is significantly dependent on net interest income, noninterest
income, the level of the provision for loan losses, noninterest
expense, and related income taxes of our banking segment.
Banking consists of lending and deposit gathering (as well as
other banking-related products and services) to businesses,
governments, and consumers, and the support to deliver, fund,
and manage such banking services. We offer a variety of loan and
deposit products to retail customers, including but not limited
to: home equity loans and lines of credit, residential mortgage
loans and mortgage refinancing, education loans, personal and
installment loans, checking, savings, money market deposit
accounts, IRA accounts, certificates of deposit, and safe
deposit boxes. As part of our management of originating and
servicing residential mortgage loans, the majority of our
long-term, fixed-rate residential real estate mortgage loans are
sold in the secondary market with servicing rights retained.
Loans, deposits, and related banking services to businesses
(including small and larger businesses,
governments/municipalities, metro or niche markets, and
companies with specialized lending needs such as floor plan
lending or asset-based lending) primarily include, but are not
limited to: business checking and other business deposit
products, business loans, lines of credit, commercial real
estate financing, construction loans, letters of credit,
revolving credit arrangements, and to a lesser degree, business
credit cards and equipment and machinery leases. To further
support business customers and correspondent financial
institutions, we provide safe deposit and night depository
services, cash management, international banking, as well as
check clearing, safekeeping, and other banking-based services.
Lending involves credit risk. Credit risk is controlled and
monitored through active asset quality management including the
use of lending standards, the thorough review of potential
borrowers in our underwriting process, and active asset quality
administration. Credit risk management is discussed under
Part II, Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, sections Critical Accounting
Policies, Loans, Allowance for Loan
Losses, and Nonperforming Loans, Potential Problem
Loans, and Other Real Estate Owned, and under
Part II, Item 8, Note 1, Summary of
Significant Accounting Policies, and Note 4,
Loans, of the notes to consolidated financial
statements. Also see Item 1A, Risk Factors.
The wealth management segment provides products and a variety of
fiduciary, investment management, advisory and corporate agency
services to assist customers in building, investing, or
protecting their wealth. Customers include individuals,
corporations, small businesses, charitable trusts, endowments,
foundations, and institutional investors. The wealth management
segment is comprised of a full range of personal and business
insurance products and services (including life, property,
casualty, credit and mortgage insurance, fixed annuities, and
employee group benefits consulting and administration);
full-service investment brokerage, variable annuities, and
discount and on-line brokerage; and trust/asset management,
investment management, administration of pension, profit-sharing
and other employee benefit plans, personal trusts, and estate
planning. See also Note 20, Segment Reporting,
of the
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notes to consolidated financial statements in Part II,
Item 8, Financial Statements and Supplementary
Data. As disclosed in Note 20, the wealth management
segment represented approximately 9% of total revenues in 2009,
as defined in the note.
We are not dependent upon a single or a few customers, the loss
of which would have a material adverse effect on us. No material
portion of our business is seasonal.
Employees
At December 31, 2009, we had approximately
4,784 full-time equivalent employees. None of our employees
are represented by unions.
Competition
The financial services industry is highly competitive. We
compete for loans, deposits, and financial services in all of
our principal markets. We compete directly with other bank and
nonbank institutions located within our markets, internet-based
banks, with
out-of-market
banks and bank holding companies that advertise or otherwise
serve our markets, money market and other mutual funds,
brokerage houses, and various other financial institutions.
Additionally, we compete with insurance companies, leasing
companies, regulated small loan companies, credit unions,
governmental agencies, and commercial entities offering
financial services products. Competition involves efforts to
retain current customers and to obtain new loans and deposits,
the scope and type of services offered, interest rates paid on
deposits and charged on loans, as well as other aspects of
banking. We also face direct competition from members of bank
holding company systems that have greater assets and resources
than ours.
Supervision
and Regulation
Financial institutions are highly regulated both at the federal
and state levels. Numerous statutes and regulations affect the
business of the Corporation.
As a registered bank holding company under the BHC Act, we are
regulated and supervised by the FRB. Our nationally chartered
bank subsidiary and our nationally chartered trust subsidiary
are supervised and examined by the Office of the Comptroller of
the Currency (the OCC). All of our subsidiaries that
accept insured deposits are subject to examination by the
Federal Deposit Insurance Corporation (the FDIC).
Capital
Requirements
We are subject to various regulatory capital requirements
administered by the federal banking agencies noted above.
Failure to meet minimum capital requirements could result in
certain mandatory and possible additional discretionary actions
by regulators that, if undertaken, could have a direct material
effect on our financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, we must meet specific capital guidelines that involve
quantitative measures of our assets, liabilities, and certain
off-balance sheet items as calculated under regulatory
accounting policies. Our capital amounts and classification are
also subject to judgments by the regulators regarding
qualitative components, risk weightings, and other factors. We
have consistently maintained regulatory capital ratios at or
above the well capitalized standards. For further detail on
capital and capital ratios see discussion under Part II,
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, sections,
Liquidity and Capital, and under
Part II, Item 8, Note 18, Regulatory
Matters, of the notes to consolidated financial statements.
Under the risk-based capital requirements for bank holding
companies, the minimum requirement for the ratio of total
capital to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) is 8%. At
least half of the total capital (as defined below) is to be
composed of common stockholders equity, retained earnings,
qualifying perpetual preferred stock (in a limited amount in the
case of cumulative preferred stock), minority interests in the
equity accounts of consolidated subsidiaries, and qualifying
trust preferred securities, less goodwill and certain
intangibles (Tier 1 Capital). The remainder of
total capital may consist of qualifying subordinated debt and
redeemable preferred stock, qualifying cumulative perpetual
preferred stock
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and allowance for loan losses (Tier 2 Capital,
and together with Tier 1 Capital, Total
Capital). At December 31, 2009, our Tier 1
Capital ratio was 12.52% and Total Capital ratio was 14.24%.
The Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These requirements
provide for a minimum leverage ratio of Tier 1 Capital to
adjusted average quarterly assets (Leverage Ratio)
equal to 3% for bank holding companies that meet specified
criteria, including having the highest regulatory rating. All
other bank holding companies will generally be required to
maintain a leverage ratio of at least 4%. Our Leverage Ratio at
December 31, 2009, was 8.76%. The guidelines also provide
that bank holding companies experiencing internal growth or
making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels
without significant reliance on intangible assets. Furthermore,
the guidelines indicate that the Federal Reserve will continue
to consider a tangible tier 1 leverage ratio
(deducting all intangibles) in evaluating proposals for
expansion or to engage in new activity. The Federal Reserve has
not advised us of any specific minimum leverage ratio or
tier 1 leverage ratio applicable to us.
Our commercial national bank subsidiary is subject to similar
capital requirements adopted by the OCC. The risk-based capital
requirements identify concentrations of credit risk and certain
risks arising from non-traditional activities, and the
management of those risks, as important factors to consider in
assessing an institutions overall capital adequacy. Other
factors taken into consideration by federal regulators include:
interest rate exposure; liquidity, funding and market risk; the
quality and level of earnings; the quality of loans and
investments; the effectiveness of loan and investment policies;
and managements overall ability to monitor and control
financial and operational risks, including the risks presented
by concentrations of credit and non-traditional activities. On
November 5, 2009, Associated Bank entered into a Memorandum
of Understanding (MOU) with the OCC. The MOU, which
is an informal agreement between the Bank and the OCC, requires
the Bank to develop, implement, and maintain various processes
to improve the Banks risk management of its loan portfolio
and a three-year capital plan providing for maintenance of
specified capital levels discussed below, notification to the
OCC of dividends proposed to be paid to the Corporation, and the
commitment of the Corporation to act as a primary or contingent
source of the Banks capital. Management believes that it
has satisfied a number of the conditions of the MOU and has
commenced the steps necessary to resolve any and all remaining
matters presented therein. The Bank has also agreed with the OCC
that beginning March 31, 2010, until the MOU is no longer
in effect, to maintain minimum capital ratios at specified
levels higher than those otherwise required by applicable
regulations as follows: Tier 1 capital to total average
assets (leverage ratio) 8% and total capital to
risk-weighted assets 12%. At December 31, 2009,
the Banks capital ratios were 8.26% and 13.16%,
respectively.
On January 15, 2010, the Corporation announced it had
closed its underwritten public offering of
44,843,049 shares of its common stock at $11.15 per share.
The net proceeds from the offering were approximately
$478.3 million after deducting underwriting discounts and
commissions and the estimated expenses of the offering. We
believe these proceeds provide us sufficient funds to satisfy
our obligations pursuant to the MOU as a primary or contingent
source of Associated Banks capital.
On July 20, 2007, the federal banking agencies withdrew
their previously announced Basel 1A proposal with respect to
risk-based capital requirements. In so doing, the federal
banking agencies published a revised capital requirements
proposal applicable to all domestic banks, bank holding
companies and savings associations (called the Basel II
Standardized Approach) not otherwise subject to the
Basel II advanced approaches rule. We are not subject to
the Basel II advanced approaches rule. As proposed,
according to the federal banking agencies, the revised rule
would: (i) expand the use of credit ratings for determining
risk weights; (ii) base risk weights for residential
mortgages on
loan-to-value
ratios; (iii) expand the types of financial collateral and
guarantees available to banks to offset credit risk;
(iv) offer more risk-sensitive approaches for recognizing
the benefits of mitigating credit risk; (v) increase the
risk weight for certain short-term commitments;
(vi) improve the risk sensitivity of the risk-based capital
requirements for securitizations and equity investments; and
(vii) institute a risk-based capital requirement for
operational risk. Under the Basel II Standardized Approach,
a covered entity would have to affirmatively opt in
to use such approach by notifying its regulator at least
60 days before the beginning of the calendar quarter in
which it first used the Basel II Standardized Approach; if
such opt-in is not exercised, the entity would remain under the
general risk-based capital rules. Elections to opt in to the
Basel II Standardized Approach by a bank holding company
would also apply to its subsidiary depository institutions. As
of December 31, 2008, the Corporation did not intend to
opt-in to the Basel II Standardized Approach.
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Emergency
Economic Stabilization Act of 2008
On October 3, 2008, President Bush signed into law the
Emergency Economic Stabilization Act of 2008 (EESA),
giving the United States Department of the Treasury
(UST) authority to take certain actions to restore
liquidity and stability to the U.S. banking markets. Based
upon its authority in the EESA, a number of programs to
implement EESA have been announced. Those programs include the
following:
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Capital Purchase Program (CPP). Pursuant to this
program, the UST, on behalf of the US government, purchased
preferred stock, along with warrants to purchase common stock,
from certain financial institutions, including bank holding
companies, savings and loan holding companies and banks or
savings associations not controlled by a holding company. The
investment has a dividend rate of 5% per year, until the fifth
anniversary of the USTs investment and a dividend of 9%
thereafter.
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During the time the UST holds securities issued pursuant to this
program, participating financial institutions are required to
comply with certain provisions regarding executive compensation
and corporate governance. Participation in this program also
imposes certain restrictions upon an institutions
dividends to common shareholders and stock repurchase
activities. As described further herein, we elected to
participate in the CPP and received $525 million pursuant
to the program.
While any senior preferred stock is outstanding, we may pay
dividends on our common stock, provided that all accrued and
unpaid dividends for all past dividend periods on the senior
preferred stock are fully paid. Prior to the third anniversary
of the USTs purchase of the Senior Preferred Stock, unless
the senior preferred stock has been redeemed or the UST has
transferred all of the senior preferred stock to third parties,
the consent of the UST will be required for us to increase our
common stock quarterly dividend above $0.32 per share.
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Temporary Liquidity Guarantee Program. This program contained
both (i) a debt guarantee component (Debt Guarantee
Program), whereby the FDIC will guarantee until
June 30, 2012, the senior unsecured debt issued by eligible
financial institutions between October 14, 2008, and
October 31, 2009 (although a limited, six-month emergency
guarantee facility has been established by the FDIC whereby
certain participating entities can apply to the FDIC for
permission to issue FDIC-guaranteed debt during the period from
October 31, 2009 through April 30, 2010); and
(ii) a transaction account guarantee (TAG)
component (TAG Program), whereby the FDIC will
insure 100% of noninterest bearing deposit transaction accounts
held at eligible financial institutions, such as payment
processing accounts, payroll accounts and working capital
accounts through December 31, 2009. On December 5,
2008, the Corporation opted into both the Debt Guarantee and the
TAG Programs. The Debt Guarantee Program concluded on
October 31, 2009. On August 26, 2009, the FDIC
approved the final rule extending the TAG Program for six months
until June 30, 2010, and increased the applicable TAG
assessment fees during that six month period. The Corporation
did not opt out of the TAG program extension, which is expected
to increase future FDIC insurance costs.
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Temporary increase in deposit insurance coverage. Pursuant to
the EESA, the FDIC temporarily raised the basic limit on federal
deposit insurance coverage from $100,000 to $250,000 per
depositor. The EESA provides that the basic deposit insurance
limit will return to $100,000 after December 31, 2009. The
temporary increase in the basic limit on federal deposit
insurance coverage from $100,000 to $250,000 per depositor has
been extended through December 31, 2013, but is permanent
for certain retirement accounts (including IRAs).
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Banking
Acquisitions
As a bank holding company, we are required to obtain prior
Federal Reserve approval before acquiring more than 5% of the
voting shares, or substantially all of the assets, of a bank
holding company, bank or savings association. In determining
whether to approve a proposed bank acquisition, federal bank
regulators will consider, among other factors, the effect of the
acquisition on competition, the public benefits expected to be
received from the acquisition, the projected capital ratios and
levels on a post-acquisition basis, and the acquiring
institutions record of addressing the credit needs of the
communities it serves, including the needs of low and moderate
income neighborhoods, consistent with the safe and sound
operation of the bank, under the Community Reinvestment Act
(CRA).
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Banking
Subsidiary Dividends
The Parent Company is a legal entity separate and distinct from
its banking and other subsidiaries. A substantial portion of its
revenue comes from dividends paid to us by Associated Bank. As
discussed under section, Capital Requirements,
above, the terms of the MOU require the Bank to notify the OCC
of dividends proposed to be paid to the Parent Company. Prior to
the MOU, the OCCs prior approval was required only if the
total of all dividends declared by a national bank in any
calendar year exceeded the sum of that banks net profits
for that year and its retained net profits for the preceding two
calendar years, less any required transfers to surplus. Federal
law also prohibits national banks from paying dividends that
would be greater than the banks undivided profits after
deducting statutory bad debt in excess of the banks
allowance for loan losses.
Under the foregoing dividend restrictions and restrictions
applicable to our nonbanking subsidiaries, as of
December 31, 2009, our subsidiaries could pay additional
dividends of $37 million to us, without obtaining
affirmative governmental approvals. This amount is not
necessarily indicative of amounts that may be available in
future periods. In 2009, our subsidiaries paid $10 million
in cash dividends to us.
We and our banking subsidiary are subject to various general
regulatory policies and requirements relating to the payment of
dividends, including requirements to maintain adequate capital
above regulatory minimums. The appropriate federal regulatory
authority is authorized to determine under certain circumstances
relating to the financial condition of a bank or bank holding
company that the payment of dividends would be an unsafe or
unsound practice and to prohibit payment thereof. The
appropriate federal regulatory authorities have indicated that
paying dividends that deplete a banks capital base to an
inadequate level would be an unsafe and unsound banking practice
and that banking organizations should generally pay dividends
only out of current operating earnings.
Bank
Holding Company Act Requirements
We are a registered bank holding company under the BHC Act. As a
registered bank holding company, we are subject to regulation,
supervision and examination by the Federal Reserve. In
connection with applicable requirements, bank holding companies
file periodic reports and other information with the Federal
Reserve. In addition to supervision and regulation, the BHC Act
also governs the activities that are permissible to bank holding
companies and their affiliates and permits the Federal Reserve,
in certain circumstances, to issue cease and desist orders and
other enforcement actions against bank holding companies and
their non-banking affiliates to correct and curtail unsafe or
unsound banking practices. Under the BHC Act, bank holding
companies are required to act as a source of financial strength
to each of their subsidiaries pursuant to which such holding
company may be required to commit financial resources to support
such subsidiaries in circumstances when, absent such
requirements, they might not otherwise do so. In addition, bank
holding companies are generally prohibited from acquiring direct
or indirect ownership or control of more than 5% of any class of
voting shares of any company that is not a bank or bank holding
company. The BHC Act also requires the prior approval of the FRB
to enable bank holding companies to acquire direct or indirect
ownership or control of more than 5% of any class of voting
shares of any bank or bank holding company. The BHC Act further
regulates holding company activities, including requirements and
limitations relating to capital, transactions with officers,
directors and affiliates, securities issuances, dividend
payments, inter-affiliate liabilities, extensions of credit, and
expansion through mergers and acquisitions.
The Gramm-Leach-Bliley Act of 1999 significantly amended the BHC
Act. The amendments, among other things, allow certain
qualifying bank holding companies that elect treatment as
financial holding companies to engage in activities
that are financial in nature and that explicitly include the
underwriting and sale of insurance. The Parent Company thus far
has not elected to be treated as a financial holding company.
Bank holding companies that have not elected such treatment
generally must limit their activities to banking activities and
activities that are closely related to banking.
Enforcement
Powers of the Federal Banking Agencies; Prompt Corrective
Action
The federal regulatory authorities have broad authority to
enforce the regulatory requirements imposed on us. In
particular, the provisions of the Federal Deposit Insurance Act
(FDIA), and its implementing regulations carry
greater enforcement powers. Under the FDIA, all commonly
controlled FDIC insured depository institutions may be held
liable for any loss incurred by the FDIC resulting from a
failure of, or any assistance given by the FDIC to,
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any commonly controlled institutions. Pursuant to certain
provisions of the FDIA, the federal regulatory agencies have
broad powers to take prompt corrective action if a depository
institution fails to maintain certain capital levels. Prompt
corrective action may include, without limitation, restricting
our ability to pay dividends, restricting acquisitions or other
activities, and placing limitations on asset growth. At this
time, our capital levels are above the levels at which federal
regulatory authorities could invoke their authority to initiate
any manner of prompt corrective action.
Interstate
Branching
Pursuant to the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (Riegle-Neal Act), an
adequately capitalized and managed bank holding company may
acquire banks in states other than its home state without regard
to the permissibility of such acquisitions under state law, but
remain subject to state requirements that a bank has been
organized and operating for a period of time. Subject to certain
other restrictions, the
Riegle-Neal
Act also authorizes banks to merge across state lines to create
interstate branches. The Riegle-Neal Amendments Act of 1997 and
the Regulatory Relief Act of 2006 provides further guidance on
the application of host state laws to any branch located outside
the host state.
Deposit
Insurance Premiums
The FDIC maintains the Deposit Insurance Fund (DIF)
by assessing depository institutions an insurance premium on a
quarterly basis. The amount of the assessment is a function of
the institutions risk category, of which there are four,
and assessment base. An institutions risk category is
determined according to its supervisory ratings and capital
levels and is used to determine the institutions
assessment rate. The assessment rate for risk categories are
calculated according to a formula, which relies on supervisory
ratings and either certain financial ratios or long-term debt
ratings. An insured banks assessment base is determined by
the balance of its insured deposits. Because the system is
risk-based, it allows banks to pay lower assessments to the FDIC
as their capital level and supervisory ratings improve. By the
same token, if these indicators deteriorate, the institution
will have to pay higher assessments to the FDIC. Currently,
deposit insurance premiums for FDIC-insured institutions range
from 7 to 77.5 basis points per $100 of assessable
deposits. At December 31, 2009, Associated Banks risk
category required a quarterly payment of approximately
4 basis points per $100 of assessable deposits.
Under the FDIA, the FDIC Board has the authority to set the
annual assessment rate range for the various risk categories
within certain regulatory limits and to impose special
assessments upon insured depository institutions when deemed
necessary by the FDICs Board. As part of the Deposit
Insurance Fund Restoration Plan adopted by the FDIC in
October 2008, on February 27, 2009, the FDIC adopted the
final rule modifying the risk-based assessment system, which set
initial base assessment rates between 12 and 45 basis
points, beginning April 1, 2009. The FDIC imposed an
emergency special assessment on June 30, 2009, which was
collected on September 30, 2009. In addition, in September
2009, the FDIC extended the Restoration Plan period to eight
years. On November 12, 2009, the FDIC adopted a final rule
requiring prepayment of 13 quarters of FDIC premiums. Our
required prepayment aggregated $103.4 million in December
2009.
DIF-insured institutions pay a Financing Corporation
(FICO) assessment in order to fund the interest on
bonds issued in the 1980s in connection with the failures in the
thrift industry. For the fourth quarter of 2009, the FICO
assessment is equal to 1.06 basis points for each $100 in
domestic deposits. These assessments will continue until the
bonds mature in 2019.
The FDIC is authorized to conduct examinations of and require
reporting by FDIC-insured institutions. It is also authorized to
terminate a depository banks deposit insurance upon a
finding by the FDIC that the banks financial condition is
unsafe or unsound or that the institution has engaged in unsafe
or unsound practices or has violated any applicable rule,
regulation, order or condition enacted or imposed by the
banks regulatory agency. The termination of deposit
insurance for our national bank subsidiary would have a material
adverse effect on our earnings, operations and financial
condition.
9
Depositor
Preference
Under federal law, deposits and certain claims for
administrative expenses and employee compensation against an
insured depository institution would be afforded a priority over
other general unsecured claims against such an institution,
including federal funds and letters of credit, in the
liquidation or other resolution of such an institution by any
receiver.
Community
Reinvestment Act Requirements
Our national bank subsidiary is subject to periodic CRA review
by our primary federal regulators. The CRA does not establish
specific lending requirements or programs for financial
institutions and does not limit the ability of such institutions
to develop products and services believed best-suited for a
particular community. Note that an institutions CRA
assessment can be used by its regulators in their evaluation of
certain applications, including a merger or the establishment of
a branch office.
Associated Bank underwent a CRA examination by the Comptroller
of the Currency on November 20, 2006, for which it received
a Satisfactory rating.
Privacy
Financial institutions, such as our national bank subsidiary,
are required by statute and regulation to disclose its privacy
policies. In addition, such financial institutions must
appropriately safeguard its customers nonpublic, personal
information.
Anti-Money
Laundering
In 2001, Congress enacted the Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the Patriot Act).
The Patriot Act is designed to deny terrorists and criminals the
ability to obtain access to the United States financial
system and has significant implications for depository
institutions, brokers, dealers, and other businesses involved in
the transfer of money. The Patriot Act mandates financial
services companies to implement additional policies and
procedures with respect to additional measures designed to
address any or all of the following matters: customer
identification programs, money laundering, terrorist financing,
identifying and reporting suspicious activities and currency
transactions, currency crimes, and cooperation between financial
institutions and law enforcement authorities.
Department
of Defense Credit Regulations
On October 1, 2007, the United States Department of Defense
(the DOD) regulations implementing the John Warner
National Defense Authorization Act for fiscal year 2007 became
effective. The regulations impose certain restrictions on
provisions found in agreements for consumer credit products
provided to covered borrowers (generally defined as
active duty service members and their dependents) by
creditors, which term includes our national bank
subsidiary. The regulations impose a new Military Annual
Percentage Rate (MAPR) that must be calculated and
provided to covered borrowers. The MAPR is capped at 36%.
Transactions
with Affiliates
Our national bank subsidiary must comply with Sections 23A
and 23B of the Federal Reserve Act containing certain
restrictions on its transactions with affiliates. In general
terms, these provisions require that transactions between a
banking institution or its subsidiaries and such
institutions affiliates be on terms as favorable to the
institution as transactions with non-affiliates. In addition,
these provisions contain certain restrictions on loans to
affiliates, restricting such loans to a percentage of the
institutions capital. A covered affiliate, for
purposes of these provisions, would include us and any other
company that is under our common control.
Certain transactions with our directors, officers or controlling
persons are also subject to conflicts of interest regulations.
Among other things, these regulations require that loans to such
persons and their related interests be made on terms
substantially the same as for loans to unaffiliated individuals
and must not create an abnormal risk of repayment or other
unfavorable features for the financial institution. See
Note 4, Loans, of the notes to
10
consolidated financial statements in Part II, Item 8,
Financial Statements and Supplementary Data, for
additional information on loans to related parties.
Other
Regulation
Our banking subsidiary is also subject to a variety of other
regulations with respect to the operation of its businesses,
including but not limited to the Truth in Lending Act, the Truth
in Savings Act, the Equal Credit Opportunity Act, the Electronic
Funds Transfer Act, the Fair Housing Act, the Home Mortgage
Disclosure Act, the Fair Debt Collection Practices Act, the Fair
Credit Reporting Act, Expedited Funds Availability
(Regulation CC), Reserve Requirements (Regulation D),
Insider Transactions (Regulation O), Privacy of Consumer
Information (Regulation P), Interest Prohibition on Demand
Deposits (Regulation Q), Margin Stock Loans
(Regulation U), Right To Financial Privacy Act, Flood
Disaster Protection Act, Homeowners Protection Act,
Servicemembers Civil Relief Act, Real Estate Settlement
Procedures Act, Telephone Consumer Protection Act, CAN-SPAM Act,
and Childrens Online Privacy Protection Act. Any change in
these regulations or other applicable regulations.
The laws and regulations to which we are subject are constantly
under review by Congress, the federal regulatory agencies, and
the state authorities. These laws and regulations could be
changed drastically in the future, which could affect our
profitability, our ability to compete effectively, or the
composition of the financial services industry in which we
compete.
Government
Monetary Policies and Economic Controls
Our earnings and growth, as well as the earnings and growth of
the banking industry, are affected by the credit policies of
monetary authorities, including the FRB. An important function
of the Federal Reserve is to regulate the national supply of
bank credit in order to combat recession and curb inflationary
pressures. Among the instruments of monetary policy used by the
Federal Reserve to implement these objectives are open market
operations in U.S. government securities, changes in
reserve requirements against member bank deposits, and changes
in the Federal Reserve discount rate. These means are used in
varying combinations to influence overall growth of bank loans,
investments, and deposits, and may also affect interest rates
charged on loans or paid for deposits. The monetary policies of
the Federal Reserve authorities have had a significant effect on
the operating results of commercial banks in the past and are
expected to continue to have such an effect in the future.
In view of changing conditions in the national economy and in
money markets, as well as the effect of credit policies by
monetary and fiscal authorities, including the Federal Reserve,
no prediction can be made as to possible future changes in
interest rates, deposit levels, and loan demand, or their effect
on our business and earnings or on the financial condition of
our various customers.
Available
Information
We file annual, quarterly, and current reports, proxy
statements, and other information with the SEC. These filings
are available to the public on the Internet at the SECs
web site at www.sec.gov. Shareholders may also read and copy any
document that we file at the SECs public reference rooms
located at 100 F Street, NE, Washington, DC 20549.
Shareholders may call the SEC at
1-800-SEC-0330
for further information on the public reference room.
Our principal Internet address is www.associatedbank.com. We
make available free of charge on or through our website our
annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. In addition,
shareholders may request a copy of any of our filings (excluding
exhibits) at no cost by writing, telephoning, faxing, or
e-mailing us
using the following information: Associated Banc-Corp, Attn:
Shareholder Relations, 1200 Hansen Road, Green Bay, WI 54304;
phone
920-431-8034;
fax
920-431-8037;
or e-mail to
shareholders@associatedbank.com. Our Code of Ethics for
Directors and Executive Officers, Corporate Governance
Guidelines, and Board of Directors committee charters are all
available on our website, www.associatedbank.com/About
Us/Investor Relations/Corporate Governance. We will disclose on
our website amendments to or waivers from our Code of Ethics in
accordance with all applicable laws and regulations. Information
contained on any of our websites is not deemed to be a part of
this Annual Report.
11
An investment in our common stock is subject to risks inherent
to our business. The material risks and uncertainties that
management believes affect us are described below. Before making
an investment decision, you should carefully consider the risks
and uncertainties described below, together with all of the
other information included or incorporated by reference herein.
The risks and uncertainties described below are not the only
ones facing us. Additional risks and uncertainties that
management is not aware of or focused on or that management
currently deems immaterial may also impair our business
operations. This report is qualified in its entirety by these
risk factors. See also, Special Note Regarding
Forward-Looking Statements.
If any of the following risks actually occur, our financial
condition and results of operations could be materially and
adversely affected. If this were to happen, the value of our
common stock could decline significantly, and you could lose all
or part of your investment.
Credit
Risks
We are Subject to Lending Concentration
Risks. As of December 31, 2009,
approximately 62% of our loan portfolio consisted of commercial,
financial, and agricultural, real estate construction,
commercial real estate loans, and lease financing (collectively,
commercial loans). Commercial loans are generally
viewed as having more inherent risk of default than residential
mortgage loans or retail loans. Also, the commercial loan
balance per borrower is typically larger than that for
residential mortgage loans and retail loans, inferring higher
potential losses on an individual loan basis. Because our loan
portfolio contains a number of commercial loans with balances
over $25 million, the deterioration of one or a few of
these loans could cause a significant increase in nonperforming
loans. An increase in nonperforming loans could result in a loss
of interest income from these loans, an increase in the
provision for loan losses, and an increase in loan charge offs,
all of which could have a material adverse effect on our
financial condition and results of operations.
Changes in Economic and Political Conditions could
Adversely Affect Our Earnings, as Our Borrowers Ability to
Repay Loans and the Value of the Collateral Securing Our Loans
Decline. Our success depends, to a certain
extent, upon economic and political conditions, local and
national, as well as governmental monetary policies. Conditions
such as inflation, recession, unemployment, changes in interest
rates, money supply and other factors beyond our control may
adversely affect our asset quality, deposit levels and loan
demand and, therefore, our earnings. Because we have a
significant amount of real estate loans, decreases in real
estate values could adversely affect the value of property used
as collateral. Adverse changes in the economy may also have a
negative effect on the ability of our borrowers to make timely
repayments of their loans, which could have an adverse impact on
our earnings. Consequently, any decline in the economy in our
market area could have a material adverse effect on our
financial condition and results of operations.
Our Allowance for Loan Losses may be
Insufficient. All borrowers carry the
potential to default and our remedies to recover (seizure
and/or sale
of collateral, legal actions, guarantees, etc.) may not fully
satisfy money previously lent. We maintain an allowance for loan
losses, which is a reserve established through a provision for
loan losses charged to expense, which represents
managements best estimate of probable credit losses that
have been incurred within the existing portfolio of loans. The
allowance, in the judgment of management, is necessary to
reserve for estimated loan losses and risks inherent in the loan
portfolio. The level of the allowance for loan losses reflects
managements continuing evaluation of industry
concentrations; specific credit risks; loan loss experience;
current loan portfolio quality; present economic, political, and
regulatory conditions; and unidentified losses inherent in the
current loan portfolio. The determination of the appropriate
level of the allowance for loan losses inherently involves a
high degree of subjectivity and requires us to make significant
estimates of current credit risks using existing qualitative and
quantitative information, all of which may undergo material
changes. Changes in economic conditions affecting borrowers, new
information regarding existing loans, identification of
additional problem loans, and other factors, both within and
outside of our control, may require an increase in the allowance
for loan losses. In addition, bank regulatory agencies
periodically review our allowance for loan losses and may
require an increase in the provision for loan losses or the
recognition of additional loan charge offs, based on judgments
different than those of management. An increase in the allowance
for loan losses results in a decrease in
12
net income, and possibly risk-based capital, and may have a
material adverse effect on our financial condition and results
of operations.
We are Subject to Environmental Liability Risk Associated
with Lending Activities. A significant
portion of our loan portfolio is secured by real property.
During the ordinary course of business, we may foreclose on and
take title to properties securing certain loans. In doing so,
there is a risk that hazardous or toxic substances could be
found on these properties. If hazardous or toxic substances are
found, we may be liable for remediation costs, as well as for
personal injury and property damage. Environmental laws may
require us to incur substantial expenses and may materially
reduce the affected propertys value or limit our ability
to use or sell the affected property. In addition, future laws
or more stringent interpretations or enforcement policies with
respect to existing laws may increase our exposure to
environmental liability. Although we have policies and
procedures to perform an environmental review before initiating
any foreclosure action on real property, these reviews may not
be sufficient to detect all potential environmental hazards. The
remediation costs and any other financial liabilities associated
with an environmental hazard could have a material adverse
effect on our financial condition and results of operations.
Lack of System Integrity or Credit Quality Related to
Funds Settlement could Result in a Financial
Loss. We settle funds on behalf of financial
institutions, other businesses and consumers and receive funds
from clients, card issuers, payment networks and consumers on a
daily basis for a variety of transaction types. Transactions
facilitated by us include debit card, credit card and electronic
bill payment transactions, supporting consumers, financial
institutions and other businesses. These payment activities rely
upon the technology infrastructure that facilitates the
verification of activity with counterparties and the
facilitation of the payment. If the continuity of operations or
integrity of processing were compromised this could result in a
financial loss to us due to a failure in payment facilitation.
In addition, we may issue credit to consumers, financial
institutions or other businesses as part of the funds
settlement. A default on this credit by a counterparty could
result in a financial loss to us.
Financial Services Companies Depend on the Accuracy and
Completeness of Information about Customers and
Counterparties. In deciding whether to extend
credit or enter into other transactions, we may rely on
information furnished by or on behalf of customers and
counterparties, including financial statements, credit reports,
and other financial information. We may also rely on
representations of those customers, counterparties, or other
third parties, such as independent auditors, as to the accuracy
and completeness of that information. Reliance on inaccurate or
misleading financial statements, credit reports, or other
financial information could cause us to enter into unfavorable
transactions, which could have a material adverse effect on our
financial condition and results of operations.
Operational
Risks
Changes in Our Accounting Policies or in Accounting
Standards could Materially Affect How We Report Our Financial
Results and Condition. Our accounting
policies are fundamental to understanding our financial results
and condition. Some of these policies require use of estimates
and assumptions that may affect the value of our assets or
liabilities and financial results. Some of our accounting
policies are critical because they require management to make
difficult, subjective and complex judgments about matters that
are inherently uncertain and because it is likely that
materially different amounts would be reported under different
conditions or using different assumptions. If such estimates or
assumptions underlying our financial statements are incorrect,
we may experience material losses.
From time to time the Financial Accounting Standards Board
(FASB) and the SEC change the financial accounting and reporting
standards or the interpretation of those standards that govern
the preparation of our external financial statements. These
changes are beyond our control, can be hard to predict and could
materially impact how we report our results of operations and
financial condition. We could be required to apply a new or
revised standard retroactively, resulting in our restating prior
period financial statements in material amounts.
Our Internal Controls may be
Ineffective. Management regularly reviews and
updates our internal controls, disclosure controls and
procedures, and corporate governance policies and procedures.
Any system of controls, however well designed and operated, is
based in part on certain assumptions and can provide only
reasonable, not absolute, assurances that the objectives of the
system are met. Any failure or circumvention of our controls and
13
procedures or failure to comply with regulations related to
controls and procedures could have a material adverse effect on
our business, results of operations, and financial condition.
Impairment of Investment Securities, Goodwill, Other
Intangible Assets, or Deferred Tax Assets could Require Charges
to Earnings, Which could Result in a Negative Impact on Our
Results of Operations. In assessing whether
the impairment of investment securities is
other-than-temporary,
management considers the length of time and extent to which the
fair value has been less than cost, the financial condition and
near-term prospects of the issuer, and the intent and ability to
retain our investment in the security for a period of time
sufficient to allow for any anticipated recovery in fair value
in the near term. Under current accounting standards, goodwill
is not amortized but, instead, is subject to impairment tests on
at least an annual basis or more frequently if an event occurs
or circumstances change that reduce the fair value of a
reporting unit below its carrying amount. During 2009, quarterly
impairment tests have been completed and the fair value of the
reporting units exceeded the fair value of their assets and
liabilities. In the event that we conclude that all or a portion
of our goodwill may be impaired, a non-cash charge for the
amount of such impairment would be recorded to earnings. Such a
charge would have no impact on tangible capital. A decline in
our stock price or occurrence of a triggering event following
any of our quarterly earnings releases and prior to the filing
of the periodic report for that period could, under certain
circumstances, cause us to perform a goodwill impairment test
and result in an impairment charge being recorded for that
period which was not reflected in such earnings release. At
December 31, 2009, we had goodwill of $929 million,
representing approximately 34% of stockholders equity, of
which $907 million was assigned to the banking segment and
$22 million was assigned to the wealth management segment.
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. Assessing the need for, or the sufficiency of, a
valuation allowance requires management to evaluate all
available evidence, both negative and positive. Positive
evidence necessary to overcome the negative evidence includes
whether future taxable income in sufficient amounts and
character within the carryback and carryforward periods is
available under the tax law. When negative evidence (e.g.,
cumulative losses in recent years, history of operating loss or
tax credit carryforwards expiring unused) exists, more positive
evidence than negative evidence will be necessary. If the
positive evidence is not sufficient to exceed the negative
evidence, a valuation allowance for deferred tax assets is
established. At December 31, 2009, net deferred tax assets
are approximately $197 million. The impact of each of these
impairment matters could have a material adverse effect on our
business, results of operations, and financial condition.
We may not be Able to Attract and Retain Skilled
People. Our success depends, in large part,
on our ability to attract and retain skilled people. Competition
for the best people in most activities engaged in by us can be
intense, and we may not be able to hire sufficiently skilled
people or to retain them. The unexpected loss of services of one
or more of our key personnel could have a material adverse
impact on our business because of their skills, knowledge of our
markets, years of industry experience, and the difficulty of
promptly finding qualified replacement personnel.
Loss of Key Employees may Disrupt Relationships with
Certain Customers. Our business is primarily
relationship-driven in that many of our key employees have
extensive customer relationships. Loss of a key employee with
such customer relationships may lead to the loss of business if
the customers were to follow that employee to a competitor.
While we believe our relationship with our key producers is
good, we cannot guarantee that all of our key personnel will
remain with our organization. Loss of such key personnel, should
they enter into an employment relationship with one of our
competitors, could result in the loss of some of our customers.
Because the Nature of the Financial Services Business
Involves a High Volume of Transactions, We Face Significant
Operational Risks. We operate in many
different businesses in diverse markets and rely on the ability
of our employees and systems to process a high number of
transactions. Operational risk is the risk of loss resulting
from our operations, including but not limited to, the risk of
fraud by employees or persons outside our company, the execution
of unauthorized transactions by employees, errors relating to
transaction processing and technology, breaches of the internal
control system and compliance requirements, and business
continuation and disaster recovery. This risk of loss also
includes the potential legal actions that could arise as a
result of an operational deficiency or as a result of
noncompliance with applicable regulatory standards, adverse
business decisions or their implementation, and customer
attrition due to potential negative publicity. In the event of a
breakdown in the internal control system, improper operation of
systems or improper employee actions, we could suffer financial
loss, face regulatory action and suffer damage to our reputation.
14
We Rely on Other Companies to Provide Key Components of
Our Business Infrastructure. Third party
vendors provide key components of our business infrastructure
such as internet connections, network access and core
application processing. While we have selected these third party
vendors carefully, we do not control their actions. Any problems
caused by these third parties, including as a result of their
not providing us their services for any reason or their
performing their services poorly, could adversely affect our
ability to deliver products and services to our customers and
otherwise to conduct our business. Replacing these third party
vendors could also entail significant delay and expense.
Revenues from Our Investment Management and Asset
Servicing Businesses are Significant to Our
Earnings. Generating returns that satisfy
clients in a variety of asset classes is important to
maintaining existing business and attracting new business.
Administering or managing assets in accordance with the terms of
governing documents and applicable laws is also important to
client satisfaction. Failure in either of the foregoing areas
can expose us to liability.
Our Information Systems may Experience an Interruption or
Breach in Security. We rely heavily on
communications and information systems to conduct our business.
Any failure, interruption, or breach in security or operational
integrity of these systems could result in failures or
disruptions in our customer relationship management, general
ledger, deposit, loan, and other systems. While we have policies
and procedures designed to prevent or limit the effect of the
failure, interruption, or security breach of our information
systems, we cannot assure you that any such failures,
interruptions, or security breaches will not occur or, if they
do occur, that they will be adequately addressed. The occurrence
of any failures, interruptions, or security breaches of our
information systems could damage our reputation, result in a
loss of customer business, subject us to additional regulatory
scrutiny, or expose us to civil litigation and possible
financial liability, any of which could have a material adverse
effect on our financial condition and results of operations.
The Potential for Business Interruption Exists Throughout
Our Organization. Integral to our performance
is the continued efficacy of our technical systems, operational
infrastructure, relationships with third parties and the vast
array of associates and key executives in our
day-to-day
and ongoing operations. Failure by any or all of these resources
subjects us to risks that may vary in size, scale and scope.
This includes, but is not limited to, operational or technical
failures, ineffectiveness or exposure due to interruption in
third party support as expected, as well as the loss of key
individuals or failure on the part of key individuals to perform
properly. Although management has established policies and
procedures to address such failures, the occurrence of any such
event could have a material adverse effect on our business,
which, in turn, could have a material adverse effect on our
financial condition and results of operations.
New Requirements Under EESA and Changes in the Troubled
Asset Relief Program (TARP) CPP Regulations may
Adversely Affect Our Operations and Financial
Condition. Given the current international,
national and regional economic climate, it is unclear what
effect the provisions of the EESA will have with respect to our
profitability and operations. In addition, the US government,
either through the UST or some other federal agency, may also
advance additional programs that could materially impact our
profitability and operations.
Legal/Compliance
Risks
We are Subject to Extensive Government Regulation and
Supervision. We, primarily through Associated
Bank and certain nonbank subsidiaries, are subject to extensive
federal and state regulation and supervision. Banking
regulations are primarily intended to protect depositors
funds, federal deposit insurance funds, and the banking system
as a whole, not shareholders. These regulations affect our
lending practices, capital structure, investment practices,
dividend policy, and growth, among other things. Congress and
federal regulatory agencies continually review banking laws,
regulations, and policies for possible changes. Changes to
statutes, regulations, or regulatory policies, including changes
in interpretation or implementation of statutes, regulations, or
policies, could affect us in substantial and unpredictable ways.
Such changes could subject us to additional costs, limit the
types of financial services and products we may offer,
and/or
increase the ability of nonbanks to offer competing financial
services and products, among other things. Failure to comply
with laws, regulations, or policies could result in sanctions by
regulatory agencies, civil money penalties,
and/or
reputation damage, which could have a material adverse effect on
15
our business, financial condition, and results of operations.
While we have policies and procedures designed to prevent any
such violations, there can be no assurance that such violations
will not occur.
Regulatory Oversight has Increased. On
November 5, 2009, Associated Bank entered into a Memorandum
of Understanding with the Comptroller of the Currency, its
primary banking regulator. The MOU, which is an informal
agreement between the Bank and the OCC, requires the Bank to
develop, implement, and maintain various processes to improve
the Banks risk management of its loan portfolio and a
three-year capital plan providing for maintenance of specified
capital levels discussed below, notification to the OCC of
dividends proposed to be paid to us, and our commitment to act
as a primary or contingent source of the Banks capital.
Management believes that it has satisfied a number of the
conditions of the MOU and has commenced the steps necessary to
resolve any and all remaining matters presented therein. The
Bank has also agreed with the OCC that beginning March 31,
2010, until the MOU is no longer in effect, to maintain minimum
capital ratios at specified levels higher than those otherwise
required by applicable regulations as follows: Tier 1
capital to total average assets (leverage ratio) 8%
and total capital to risk-weighted assets 12%. At
December 31, 2009, following our contribution of
$100 million to the Banks capital during the fourth
quarter of 2009, the Banks capital ratios were 8.26% and
13.15%, respectively. As a result of the MOU, the Banks
lending activities and capital levels are now subject to
increased regulatory oversight. The terms of the MOU may affect
our liquidity. In connection with the MOU, we committed to serve
as a primary or contingent source of capital to the Bank to
support the maintenance of the specified higher minimum capital
ratios. The dollar amount of this commitment is uncertain at
this time. On December 20, 2009, the Bank entered into a
written agreement with the OCC requiring the Bank to take
corrective action by May 4, 2010 (or such additional time
as the OCC may permit), to avoid an order by the OCC requiring
the Bank to divest its financial subsidiary which engages in
insurance sales. While we believe that the Bank will be able to
take corrective steps by such date and avoid an order of
divestiture, there is no assurance that the Bank will succeed or
be successful in obtaining an extension of such date from the
OCC. We do not believe that a required divestiture of its
financial subsidiary would have a material adverse effect on our
financial condition or operations. An action by any of our or
the Banks regulators could lead to actions by our or the
Banks other regulators.
We are Subject to Examinations and Challenges by Tax
Authorities. We are subject to federal and
state income tax regulations. Income tax regulations are often
complex and require interpretation. Changes in income tax
regulations could negatively impact our results of operations.
In the normal course of business, we are routinely subject to
examinations and challenges from federal and state tax
authorities regarding the amount of taxes due in connection with
investments we have made and the businesses in which we have
engaged. Recently, federal and state taxing authorities have
become increasingly aggressive in challenging tax positions
taken by financial institutions. These tax positions may relate
to tax compliance, sales and use, franchise, gross receipts,
payroll, property and income tax issues, including tax base,
apportionment and tax credit planning. The challenges made by
tax authorities may result in adjustments to the timing or
amount of taxable income or deductions or the allocation of
income among tax jurisdictions. If any such challenges are made
and are not resolved in our favor, they could have a material
adverse effect on our financial condition and results of
operations.
We are Subject to Claims and Litigation Pertaining to
Fiduciary Responsibility. From time to time,
customers make claims and take legal action pertaining to the
performance of our fiduciary responsibilities. Whether customer
claims and legal action related to the performance of our
fiduciary responsibilities are founded or unfounded, if such
claims and legal actions are not resolved in a manner favorable
to us, they may result in significant financial liability
and/or
adversely affect the market perception of us and our products
and services, as well as impact customer demand for those
products and services. Any financial liability or reputation
damage could have a material adverse effect on our business,
which, in turn, could have a material adverse effect on our
financial condition and results of operations.
We may be a Defendant in a Variety of Litigation and Other
Actions, Which may have a Material Adverse Effect on Our
Financial Condition and Results of
Operation. We may be involved from time to
time in a variety of litigation arising out of our business. Our
insurance may not cover all claims that may be asserted against
us, and any claims asserted against us, regardless of merit or
eventual outcome, may harm our reputation. Should the ultimate
judgments or settlements in any litigation exceed our insurance
coverage, they could have a material adverse effect on our
financial condition and results of operation. In addition, we
may not be able to obtain appropriate types or
16
levels of insurance in the future, nor may we be able to obtain
adequate replacement policies with acceptable terms, if at all.
External
Risks
Our Profitability Depends Significantly on Economic
Conditions in the States Within Which We do
Business. Our success depends on the general
economic conditions of the specific local markets in which we
operate. Local economic conditions have a significant impact on
the demand for our products and services, as well as the ability
of our customers to repay loans, on the value of the collateral
securing loans, and the stability of our deposit funding
sources. A significant decline in general local economic
conditions, caused by inflation, recession, unemployment,
changes in securities markets, changes in housing market prices,
or other factors could impact local economic conditions and, in
turn, have a material adverse effect on our financial condition
and results of operations.
The Earnings of Financial Services Companies are
Significantly Affected by General Business and Economic
Conditions. Our operations and profitability
are impacted by general business and economic conditions in the
United States and abroad. These conditions include short-term
and long-term interest rates, inflation, money supply, political
issues, legislative and regulatory changes, fluctuations in both
debt and equity capital markets, broad trends in industry and
finance, and the strength of the United States economy, all of
which are beyond our control. A deterioration in economic
conditions could result in an increase in loan delinquencies and
nonperforming assets, decreases in loan collateral values, and a
decrease in demand for our products and services, among other
things, any of which could have a material adverse impact on our
financial condition and results of operations.
Our Earnings are Significantly Affected by the Fiscal and
Monetary Policies of the Federal Government and its
Agencies. The policies of the Federal Reserve
impact us significantly. The Federal Reserve regulates the
supply of money and credit in the United States. Its policies
directly and indirectly influence the rate of interest earned on
loans and paid on borrowings and interest-bearing deposits and
can also affect the value of financial instruments we hold.
Those policies determine to a significant extent our cost of
funds for lending and investing. Changes in those policies are
beyond our control and are difficult to predict. Federal Reserve
policies can also affect our borrowers, potentially increasing
the risk that they may fail to repay their loans. For example, a
tightening of the money supply by the Federal Reserve could
reduce the demand for a borrowers products and services.
This could adversely affect the borrowers earnings and
ability to repay its loan, which could have a material adverse
effect on our financial condition and results of operation.
We Operate in a Highly Competitive Industry and Market
Area. We face substantial competition in all
areas of our operations from a variety of different competitors,
many of which are larger and may have more financial resources.
Such competitors primarily include national, regional, and
internet banks within the various markets in which we operate.
We also face competition from many other types of financial
institutions, including, without limitation, savings and loans,
credit unions, finance companies, brokerage firms, insurance
companies, and other financial intermediaries. The financial
services industry could become even more competitive as a result
of legislative, regulatory, and technological changes and
continued consolidation. Banks, securities firms, and insurance
companies can merge under the umbrella of a financial holding
company, which can offer virtually any type of financial
service, including banking, securities underwriting, insurance
(both agency and underwriting), and merchant banking. Also,
technology has lowered barriers to entry and made it possible
for nonbanks to offer products and services traditionally
provided by banks, such as automatic transfer and automatic
payment systems. Many of our competitors have fewer regulatory
constraints and may have lower cost structures. Additionally,
due to their size, many competitors may be able to achieve
economies of scale and, as a result, may offer a broader range
of products and services as well as better pricing for those
products and services than we can.
Our ability to compete successfully depends on a number of
factors, including, among other things:
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the ability to develop, maintain, and build upon long-term
customer relationships based on top quality service, high
ethical standards, and safe, sound assets;
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the ability to expand our market position;
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the scope, relevance, and pricing of products and services
offered to meet customer needs and demands;
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the rate at which we introduce new products and services
relative to our competitors;
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customer satisfaction with our level of service; and
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industry and general economic trends.
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Failure to perform in any of these areas could significantly
weaken our competitive position, which could adversely affect
our growth and profitability, which, in turn, could have a
material adverse effect on our financial condition and results
of operations.
Consumers may Decide not to Use Banks to Complete their
Financial Transactions. Technology and other
changes are allowing parties to complete financial transactions
through alternative methods that historically have involved
banks. For example, consumers can now maintain funds that would
have historically been held as bank deposits in brokerage
accounts or mutual funds. Consumers can also complete
transactions such as paying bills
and/or
transferring funds directly without the assistance of banks. The
process of eliminating banks as intermediaries, known as
disintermediation, could result in the loss of fee
income, as well as the loss of customer deposits and the related
income generated from those deposits. The loss of these revenue
streams and the lower cost of deposits as a source of funds
could have a material adverse effect on our financial condition
and results of operations.
Severe Weather, Natural Disasters, Acts of War or
Terrorism, and Other External Events could Significantly Impact
Our Business. Severe weather, natural
disasters, acts of war or terrorism, and other adverse external
events could have a significant impact on our ability to conduct
business. Such events could affect the stability of our deposit
base, impair the ability of borrowers to repay outstanding
loans, impair the value of collateral securing loans, cause
significant property damage, result in loss of revenue
and/or cause
us to incur additional expenses. Although management has
established disaster recovery policies and procedures, the
occurrence of any such event could have a material adverse
effect on our business, which, in turn, could have a material
adverse effect on our financial condition and results of
operations.
Strategic
Risks
Our Financial Condition and Results of Operations could be
Negatively Affected if We Fail to Grow or Fail to Manage Our
Growth Effectively. Our business strategy
includes significant growth plans. We intend to continue
pursuing a profitable growth strategy. Our prospects must be
considered in light of the risks, expenses and difficulties
frequently encountered by companies in significant growth stages
of development. We cannot assure you that we will be able to
expand our market presence in our existing markets or
successfully enter new markets or that any such expansion will
not adversely affect our results of operations. Failure to
manage our growth effectively could have a material adverse
effect on our business, future prospects, financial condition or
results of operations and could adversely affect our ability to
successfully implement our business strategy. Also, if we grow
more slowly than anticipated, our operating results could be
materially adversely affected.
Our ability to grow successfully will depend on a variety of
factors including the continued availability of desirable
business opportunities, the competitive responses from other
financial institutions in our market areas and our ability to
manage our growth. While we believe we have the management
resources and internal systems in place to successfully manage
our future growth, there can be no assurance growth
opportunities will be available or growth will be successfully
managed.
Acquisitions may Disrupt Our Business and Dilute
Stockholder Value. We regularly evaluate
merger and acquisition opportunities and conduct due diligence
activities related to possible transactions with other financial
institutions and financial services companies. As a result,
negotiations may take place and future mergers or acquisitions
involving cash, debt, or equity securities may occur at any
time. We seek merger or acquisition partners that are culturally
similar, have experienced management, and possess either
significant market presence or have potential for improved
profitability through financial management, economies of scale,
or expanded services.
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Acquiring other banks, businesses, or branches involves
potential adverse impact to our financial results and various
other risks commonly associated with acquisitions, including,
among other things:
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difficulty in estimating the value of the target company;
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payment of a premium over book and market values that may dilute
our tangible book value and earnings per share in the short and
long term;
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potential exposure to unknown or contingent liabilities of the
target company;
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exposure to potential asset quality issues of the target company;
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there may be volatility in reported income as goodwill
impairment losses could occur irregularly and in varying amounts;
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difficulty and expense of integrating the operations and
personnel of the target company;
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inability to realize the expected revenue increases, cost
savings, increases in geographic or product presence,
and/or other
projected benefits;
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potential disruption to our business;
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potential diversion of our managements time and attention;
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the possible loss of key employees and customers of the target
company; and
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potential changes in banking or tax laws or regulations that may
affect the target company.
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We Continually Encounter Technological
Change. The financial services industry is
continually undergoing rapid technological change with frequent
introductions of new technology-driven products and services.
The effective use of technology increases efficiency and enables
financial institutions to better serve customers and to reduce
costs. Our future success depends, in part, upon our ability to
address the needs of our customers by using technology to
provide products and services that will satisfy customer
demands, as well as to create additional efficiencies in our
operations. Many of our competitors have substantially greater
resources to invest in technological improvements. We may not be
able to effectively implement new technology-driven products and
services or be successful in marketing these products and
services to our customers. Failure to successfully keep pace
with technological change affecting the financial services
industry could have a material adverse impact on our business
and, in turn, our financial condition and results of operations.
New Lines of Business or New Products and Services may
Subject Us to Additional Risk. From time to
time, we may implement new lines of business or offer new
products and services within existing lines of business. There
are substantial risks and uncertainties associated with these
efforts, particularly in instances where the markets are not
fully developed. In developing and marketing new lines of
business
and/or new
products and services, we may invest significant time and
resources. Initial timetables for the introduction and
development of new lines of business
and/or new
products or services may not be achieved and price and
profitability targets may not prove feasible. External factors,
such as compliance with regulations, competitive alternatives,
and shifting market preferences, may also impact the successful
implementation of a new line of business
and/or a new
product or service. Furthermore, any new line of business
and/or new
product or service could have a significant impact on the
effectiveness of our system of internal controls. Failure to
successfully manage these risks in the development and
implementation of new lines of business
and/or new
products or services could have a material adverse effect on our
business, results of operations and financial condition.
Reputation
Risks
Negative Publicity could Damage Our
Reputation. Reputation risk, or the risk to
our earnings and capital from negative public opinion, is
inherent in our business. Negative public opinion could
adversely affect our ability to keep and attract customers and
expose us to adverse legal and regulatory consequences. Negative
public opinion could result from our actual or alleged conduct
in any number of activities, including lending practices,
corporate governance, regulatory compliance, mergers and
acquisitions, and disclosure, sharing or inadequate protection
of customer information, and from actions taken by government
regulators and community organizations in response
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to that conduct. Because we conduct most of our business under
the Associated Bank brand, negative public opinion
about one business could affect our other businesses.
Unauthorized Disclosure of Sensitive or Confidential
Client or Customer Information, Whether through a Breach of Our
Computer Systems or Otherwise, could Severely Harm Our
Business. As part of our business, we
collect, process and retain sensitive and confidential client
and customer information on our behalf and on behalf of other
third parties. Despite the security measures we have in place,
our facilities and systems, and those of our third party service
providers, may be vulnerable to security breaches, acts of
vandalism, computer viruses, misplaced or lost data, programming
and/or human
errors, or other similar events. Any security breach involving
the misappropriation, loss or other unauthorized disclosure of
confidential customer information, whether by us or by our
vendors, could severely damage our reputation, expose us to the
risk of litigation and liability, disrupt our operations and
have a material adverse effect on our business.
Ethics or Conflict of Interest Issues could Damage Our
Reputation. We have established a Code of
Conduct and related policies and procedures to address the
ethical conduct of business and to avoid potential conflicts of
interest. Any system of controls, however well designed and
operated, is based, in part, on certain assumptions and can
provide only reasonable, not absolute, assurances that the
objectives of the system are met. Any failure or circumvention
of our related controls and procedures or failure to comply with
the established Code of Conduct and Related Party Transaction
Policies and Procedures could have a material adverse effect on
our reputation, business, results of operations,
and/or
financial condition.
Liquidity
Risks
Liquidity is Essential to Our
Businesses. Our liquidity could be impaired
by an inability to access the capital markets or unforeseen
outflows of cash. This situation may arise due to circumstances
that we may be unable to control, such as a general market
disruption or an operational problem that affects third parties
or us. Our credit ratings are important to our liquidity. A
reduction in our credit ratings could adversely affect our
liquidity and competitive position, increase our borrowing
costs, limit our access to the capital markets or trigger
unfavorable contractual obligations.
We Rely on Dividends from Our Subsidiaries for most of Our
Revenue. We are a separate and distinct legal
entity from our banking and other subsidiaries. A substantial
portion of our revenue comes from dividends from our
subsidiaries. These dividends are the principal source of funds
to pay dividends on our common and preferred stock, repurchase
our common stock, and to pay interest and principal on our debt.
Various federal
and/or state
laws and regulations limit the amount of dividends that our
national bank subsidiary and certain nonbank subsidiaries may
pay to us. Also, our right to participate in a distribution of
assets upon a subsidiarys liquidation or reorganization is
subject to the prior claims of the subsidiarys creditors.
In the event our national bank subsidiary is unable to pay
dividends to us, we may not be able to service debt, pay
obligations, or pay dividends on our common and preferred stock.
The inability to receive dividends from our national bank
subsidiary could have a material adverse effect on our business,
financial condition, and results of operations.
Interest
Rate Risks
We are Subject to Interest Rate
Risk. Our earnings and cash flows are largely
dependent upon our net interest income. Interest rates are
highly sensitive to many factors that are beyond our control,
including general economic conditions and policies of various
governmental and regulatory agencies and, in particular, the
Federal Reserve. Changes in monetary policy, including changes
in interest rates, could influence not only the interest we
receive on loans and investments and the amount of interest we
pay on deposits and borrowings, but such changes could also
affect (i) our ability to originate loans and obtain
deposits; (ii) the fair value of our financial assets and
liabilities; and (iii) the average duration of our
mortgage-backed securities portfolio and other interest-earning
assets. If the interest rates paid on deposits and other
borrowings increase at a faster rate than the interest rates
received on loans and other investments, our net interest
income, and therefore earnings, could be adversely affected.
Earnings could also be adversely affected if the interest rates
received on loans and other investments fall more quickly than
the interest rates paid on deposits and other borrowings.
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Although management believes it has implemented effective asset
and liability management strategies, including the limited use
of derivatives as hedging instruments, to reduce the potential
effects of changes in interest rates on our results of
operations, any substantial, unexpected, prolonged change in
market interest rates could have a material adverse effect on
our financial condition and results of operations. Also, our
interest rate risk modeling techniques and assumptions likely
may not fully predict or capture the impact of actual interest
rate changes on our balance sheet.
The Impact of Interest Rates on Our Mortgage Banking
Business can have a Significant Impact on
Revenues. Changes in interest rates can
impact our mortgage related revenues. A decline in mortgage
rates generally increases the demand for mortgage loans as
borrowers refinance, but also generally leads to accelerated
payoffs. Conversely, in a constant or increasing rate
environment, we would expect fewer loans to be refinanced and a
decline in payoffs. Although we use models to assess the impact
of interest rates on mortgage related revenues, the estimates of
revenues produced by these models are dependent on estimates and
assumptions of future loan demand, prepayment speeds and other
factors which may differ from actual subsequent experience.
Changes in Interest Rates could also Reduce the Value of
Our Mortgage Servicing Rights and
Earnings. We have a portfolio of mortgage
servicing rights. A mortgage servicing right (MSR) is the right
to service a mortgage loan (i.e, collect principal, interest,
escrow amounts, etc.) for a fee. We acquire MSRs when we
originate mortgage loans and keep the servicing rights after we
sell or securitize the loans or when we purchase the servicing
rights to mortgage loans originated by other lenders. We carry
MSRs at the lower of amortized cost or estimated fair value.
Fair value is the present value of estimated future net
servicing income, calculated based on a number of variables,
including assumptions about the likelihood of prepayment by
borrowers.
Changes in interest rates can affect prepayment assumptions and,
thus, fair value. When interest rates fall, borrowers are more
likely to prepay their mortgage loans by refinancing them at a
lower rate. As the likelihood of prepayment increases, the fair
value of our MSRs can decrease. Each quarter we evaluate our
MSRs for impairment based on the difference between carrying
amount and fair value at quarter end. If temporary impairment
exists, we establish a valuation allowance through a charge to
earnings for the amount the carrying amount exceeds fair value.
We also evaluate our MSRs for
other-than-temporary
impairment. If we determine that
other-than-temporary
impairment exists, we will recognize a direct write-down of the
carrying value of the MSRs.
Risks
Related to an Investment in Our Common Stock
Our Stock Price can be Volatile. Stock
price volatility may make it more difficult for you to sell your
common stock when you want and at prices you find attractive.
Our stock price can fluctuate widely in response to a variety of
factors including, among other things:
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actual or anticipated variations in quarterly results of
operations or financial condition;
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recommendations by securities analysts;
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operating results and stock price performance of other companies
that investors deem comparable to us;
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news reports relating to trends, concerns, and other issues in
the financial services industry;
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perceptions in the marketplace regarding us
and/or our
competitors;
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new technology used or services offered by competitors;
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significant acquisitions or business combinations, strategic
partnerships, joint ventures, or capital commitments by or
involving us or our competitors;
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failure to integrate acquisitions or realize anticipated
benefits from acquisitions;
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changes in government regulations; and
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geopolitical conditions such as acts or threats of terrorism or
military conflicts.
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General market fluctuations, industry factors, and general
economic and political conditions and events, such as economic
slowdowns or recessions, interest rate changes, or credit loss
trends, could also cause our stock price to decrease regardless
of our operating results.
There may be Future Sales or Other Dilution of Our Equity,
Which may Adversely Affect the Market Price of Our Common
Stock. We are not restricted from issuing
additional common stock, including securities that are
convertible into or exchangeable for, or that represent the
right to receive, common stock. The issuance of additional
shares of common stock or the issuance of convertible securities
would dilute the ownership interest of our existing common
shareholders. The market price of our common stock could decline
as a result of an equity offering, as well as other sales of a
large block of shares of our common stock or similar securities
in the market after an equity offering, or the perception that
such sales could occur.
We are highly regulated, and our regulators could require us to
raise additional common equity in the future. Both we and our
regulators perform a variety of analyses of our assets,
including the preparation of stress case scenarios, and as a
result of those assessments we could determine, or our
regulators could require us, to raise additional capital.
In addition, the exercise of the warrant issued to the UST under
TARP would dilute the ownership interest of our existing
shareholders.
We may Eliminate Dividends on Our Common
Stock. Although we have historically paid a
quarterly cash dividend to the holders of our common stock,
holders of our common stock are not entitled to receive
dividends. Downturns in the domestic and global economies could
cause our board of directors to consider, among other things,
the elimination of dividends paid on our common stock. This
could adversely affect the market price of our common stock. Our
board of directors previously reduced the dividend of our common
stock from $0.32 per share to $0.05 per share, commencing with
the dividend payable in the second quarter of 2009. On
January 8, 2010, our board of directors further reduced the
dividend on our common stock from $0.05 per share to $0.01 per
share, commencing with the dividend payable on February 17,
2010, and our board of directors could in the future decide to
eliminate dividends on our common stock. Because of our
agreements with the UST as part of the CPP under the TARP, prior
to November 21, 2011, or the date on which the USTs
senior preferred stock investment has been fully redeemed or
transferred, if earlier, we may not pay quarterly dividends on
our common stock greater than $0.32 per share without the
USTs consent. In addition, we may not pay dividends on our
common stock unless all accrued and unpaid dividends for all
past dividend periods are fully paid on our outstanding
preferred stock issued to the UST. Furthermore, as a bank
holding company, our ability to pay dividends is subject to the
guidelines of the Federal Reserve regarding capital adequacy and
dividends, and we are required to consult with the Federal
Reserve before declaring or paying any dividends. Dividends also
may be limited as a result of safety and soundness
considerations.
Our Agreements with the UST Under the CPP Impose
Restrictions and Obligations on us that Limit Our Ability to
Increase Dividends, Repurchase Our Common Stock or Preferred
Stock and Access the Equity Capital
Market. In November 2008, we issued preferred
stock and a warrant to purchase our common stock to the UST
under TARP. Prior to November 21, 2011, unless we have
redeemed all of the preferred stock or the UST has transferred
all of the preferred stock to a third party, the consent of the
UST will be required for us to, among other things, pay a
quarterly common stock dividend greater than $0.32 per share or
repurchase our common stock or other preferred stock (with
certain exceptions, including the repurchase of our common stock
to offset share dilution from equity-based employee compensation
awards). We have also granted registration rights and offering
facilitation rights to the UST pursuant to which we have agreed
to lock-up
periods in connection with an offering by the UST of our
securities during which we would be unable to issue equity
securities.
The Common Stock is Equity and is Subordinate to Our
Existing and Future Indebtedness and Preferred Stock and
Effectively Subordinated to All the Indebtedness and Other
Non-Common Equity Claims Against Our
Subsidiaries. Shares of the common stock are
equity interests in us and do not constitute indebtedness. As
such, shares of the common stock will rank junior to all of our
indebtedness and to other non-equity claims against us and our
assets available to satisfy claims against us, including our
liquidation. Additionally, holders of our common stock are
subject to the prior dividend and liquidation rights of holders
of our outstanding preferred stock issued to the UST under TARP.
Our board of directors is authorized to issue additional classes
or series of preferred stock without any action on the part of
the holders of our common stock, and we are permitted to incur
additional debt.
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Upon liquidation, lenders and holders of our debt securities and
preferred stock would receive distributions of our available
assets prior to holders of our common stock. Furthermore, our
right to participate in a distribution of assets upon any of our
subsidiaries liquidation or reorganization is subject to
the prior claims of that subsidiarys creditors, including
holders of any preferred stock of that subsidiary.
Our Articles of Incorporation, as Amended, Amended and
Restated Bylaws, and Certain Banking Laws may have an
Anti-Takeover Effect. Provisions of our
articles of incorporation, as amended, amended and restated
bylaws, and federal banking laws, including regulatory approval
requirements, could make it more difficult for a third party to
acquire us, even if doing so would be perceived to be beneficial
to our shareholders. The combination of these provisions may
prohibit a non-negotiated merger or other business combination,
which, in turn, could adversely affect the market price of our
common stock.
An Investment in Our Common Stock is not an Insured
Deposit. Our common stock is not a bank
deposit and, therefore, is not insured against loss by the FDIC,
any other deposit insurance fund, or by any other public or
private entity. An investment in our common stock is inherently
risky for the reasons described in this Risk Factors
section and elsewhere in this report and is subject to the same
market forces that affect the price of common stock in any
company. As a result, if you acquire our common stock, you may
lose some or all of your investment.
An Entity Holding as Little as a 5% Interest in Our
Outstanding Common Stock could, Under Certain Circumstances, be
Subject to Regulation as a Bank Holding
Company. An entity (including a
group composed of natural persons) owning or
controlling with the power to vote 25% or more of our
outstanding common stock, or 5% or more if such holder otherwise
exercises a controlling influence over us, may be
subject to regulation as a bank holding company in
accordance with the BHC Act. In addition, (1) any bank
holding company or foreign bank with a U.S. presence may be
required to obtain the approval of the Federal Reserve under the
BHC Act to acquire or retain 5% or more of our outstanding
common stock, and (2) any person not otherwise defined as a
company by the BHC Act and its implementing regulations may be
required to obtain the approval of the Federal Reserve under the
Change in Bank Control Act to acquire or retain 10% or more of
our outstanding common stock. Becoming a bank holding company
imposes certain statutory and regulatory restrictions and
obligations, such as providing managerial and financial strength
for its bank subsidiaries. Regulation as a bank holding company
could require the holder to divest all or a portion of the
holders investment in our common stock or such nonbanking
investments that may be deemed impermissible or incompatible
with bank holding company status, such as a material investment
in a company unrelated to banking.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
Our headquarters are located in the Village of Ashwaubenon,
Wisconsin, in a leased facility with approximately
30,000 square feet of office space. The current lease term
expires on August 31, 2011 and there are two one-year
extension periods remaining.
At December 31, 2009, our bank subsidiary occupied 291
banking offices serving approximately 160 different communities
within Illinois, Minnesota, and Wisconsin. The main office of
Associated Bank, National Association, is owned. Most bank
subsidiary branch offices are freestanding buildings that
provide adequate customer parking, including drive-through
facilities of various numbers and types for customer
convenience. Some bank branch offices are in supermarket
locations or in retirement communities. In addition, we own
other real property that, when considered in aggregate, is not
material to our financial position.
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ITEM 3.
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LEGAL
PROCEEDINGS
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In the ordinary course of business, the Corporation may be named
as defendant in or be a party to various pending and threatened
legal proceedings. Since it may not be possible to formulate a
meaningful opinion as to the range of possible outcomes and
plaintiffs ultimate damage claims, management cannot
estimate the specific possible loss or range of loss that may
result from these proceedings. Management believes, based upon
current knowledge, that
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liabilities arising out of any such current proceedings will not
have a material adverse effect on the consolidated financial
position, results of operations or liquidity of the Corporation.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
There were no matters submitted to a vote of security holders
during the fourth quarter of the year ended December 31,
2009.
PART II
|
|
ITEM 5.
|
MARKET
FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Information in response to this item is incorporated by
reference to the discussion of dividend restrictions in
Note 10, Stockholders Equity, of the
notes to consolidated financial statements included under
Item 8 of this report. The Corporations common stock
is traded on the Nasdaq Global Select Market under the symbol
ASBC.
The approximate number of equity security holders of record of
common stock, $.01 par value, as of January 20, 2010,
was 13,450. Certain of the Corporations shares are held in
nominee or street name and the number of
beneficial owners of such shares is approximately 28,900.
Payment of future dividends is within the discretion of the
Board of Directors and will depend, among other factors, on
earnings, capital requirements, and the operating and financial
condition of the Corporation. The Board of Directors makes the
dividend determination on a quarterly basis. The amount of the
annual dividend was $0.47 and $1.27 for 2009 and 2008,
respectively.
On November 21, 2008, we sold 525,000 shares of our
Senior Preferred Stock to the United States Treasury
(UST) pursuant to the Capital Purchase Program
(CPP). While any Senior Preferred Stock is
outstanding, we may pay dividends on our common stock, provided
that all accrued and unpaid dividends for all past dividend
periods on the Senior Preferred Stock are fully paid. Prior to
the third anniversary of the USTs purchase of the Senior
Preferred Stock, unless the Senior Preferred Stock has been
redeemed or the UST has transferred all of the Senior Preferred
Stock to third parties, the consent of the UST will be required
for us to increase our quarterly common stock dividend above
$0.32 per share.
Following are the Corporations monthly common stock
purchases during the fourth quarter of 2009, which are solely in
connection with surrenders for tax withholding related to
restricted stock grants. Our repurchases of common stock are
restricted while any Senior Preferred Stock is outstanding. For
a detailed discussion of the common stock repurchases during
2009 and 2008, see section Capital included under
Part II, Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, of this document and Part II,
Item 8, Note 10, Stockholders
Equity, of the notes to consolidated financial statements
included under Item 8 of this document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number of
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Shares that May Yet
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Part of Publicly
|
|
|
Be Purchased Under
|
|
Period
|
|
Shares Purchased
|
|
|
Paid per Share
|
|
|
Announced Plans
|
|
|
the Plan
|
|
|
October 1 October 31, 2009
|
|
|
448
|
|
|
$
|
12.50
|
|
|
|
|
|
|
|
|
|
November 1 November 30, 2009
|
|
|
97
|
|
|
|
11.91
|
|
|
|
|
|
|
|
|
|
December 1 December 31, 2009
|
|
|
110
|
|
|
|
10.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
655
|
|
|
$
|
11.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2009, the Corporation repurchased
shares for minimum tax withholding settlements on equity
compensation. The effect to the Corporation of this transaction
was an increase in treasury stock and a decrease in cash of
approximately $7,500 in the fourth quarter of 2009.
24
Market
Information
The following represents selected market information of the
Corporation for 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price Range
|
|
|
|
|
|
|
|
|
|
Closing Sales Prices
|
|
|
|
Dividends Paid
|
|
|
Book Value
|
|
|
High
|
|
|
Low
|
|
|
Close
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4th Quarter
|
|
$
|
0.05
|
|
|
$
|
17.42
|
|
|
$
|
13.00
|
|
|
$
|
10.37
|
|
|
$
|
11.01
|
|
3rd Quarter
|
|
|
0.05
|
|
|
|
18.88
|
|
|
|
12.67
|
|
|
|
9.21
|
|
|
|
11.42
|
|
2nd Quarter
|
|
|
0.05
|
|
|
|
18.49
|
|
|
|
19.00
|
|
|
|
12.50
|
|
|
|
12.50
|
|
1st Quarter
|
|
|
0.32
|
|
|
|
18.68
|
|
|
|
21.39
|
|
|
|
10.60
|
|
|
|
15.45
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4th Quarter
|
|
$
|
0.32
|
|
|
$
|
18.54
|
|
|
$
|
24.21
|
|
|
$
|
15.72
|
|
|
$
|
20.93
|
|
3rd Quarter
|
|
|
0.32
|
|
|
|
18.52
|
|
|
|
25.92
|
|
|
|
14.85
|
|
|
|
19.95
|
|
2nd Quarter
|
|
|
0.32
|
|
|
|
18.46
|
|
|
|
29.23
|
|
|
|
19.29
|
|
|
|
19.29
|
|
1st Quarter
|
|
|
0.31
|
|
|
|
18.71
|
|
|
|
28.86
|
|
|
|
22.60
|
|
|
|
26.63
|
|
|
|
|
|
|
|
25
Stock
Price Performance Graph
Set forth below is a line graph (and the underlying data points)
comparing the yearly percentage change in the cumulative total
shareholder return (change in year-end stock price plus
reinvested dividends) on Associateds common stock with the
cumulative total return of the Nasdaq Bank Index and the
S&P 500 Index for the period of five fiscal years
commencing on January 1, 2005, and ending December 31,
2009. The Nasdaq Bank Index is prepared for Nasdaq by the Center
for Research in Securities Prices at the University of Chicago.
The graph assumes that the value of the investment in Common
Stock for each index was $100 on December 31, 2004.
Historical stock price performance shown on the graph is not
necessarily indicative of the future price performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source:Bloomberg
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
Associated Banc-Corp
|
|
|
|
100.0
|
|
|
|
|
101.1
|
|
|
|
|
111.9
|
|
|
|
|
90.8
|
|
|
|
|
74.4
|
|
|
|
|
40.8
|
|
S&P 500
|
|
|
|
100.0
|
|
|
|
|
104.8
|
|
|
|
|
121.2
|
|
|
|
|
127.8
|
|
|
|
|
81.1
|
|
|
|
|
102.2
|
|
Nasdaq Bank Index
|
|
|
|
100.0
|
|
|
|
|
98.0
|
|
|
|
|
111.4
|
|
|
|
|
89.5
|
|
|
|
|
70.6
|
|
|
|
|
59.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Stock Price Performance Graph shall not be deemed
incorporated by reference by any general statement incorporating
by reference this Annual Statement on
Form 10-K
into any filing under the Securities Act or under the Exchange
Act, except to the extent Associated specifically incorporates
this information by reference, and shall not otherwise be deemed
filed under such Acts.
26
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
TABLE 1: EARNINGS SUMMARY AND SELECTED FINANCIAL DATA
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5-Year
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compound
|
|
|
|
|
|
|
2008 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth
|
|
Years Ended December 31,
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Rate(6)
|
|
|
|
|
Interest income
|
|
$
|
981,256
|
|
|
|
(12.9
|
)%
|
|
$
|
1,126,709
|
|
|
$
|
1,275,712
|
|
|
$
|
1,279,379
|
|
|
$
|
1,094,025
|
|
|
|
5.0
|
%
|
Interest expense
|
|
|
255,251
|
|
|
|
(40.7
|
)
|
|
|
430,561
|
|
|
|
631,899
|
|
|
|
609,830
|
|
|
|
421,770
|
|
|
|
3.5
|
|
|
|
|
|
|
|
Net interest income
|
|
|
726,005
|
|
|
|
4.3
|
|
|
|
696,148
|
|
|
|
643,813
|
|
|
|
669,549
|
|
|
|
672,255
|
|
|
|
5.6
|
|
Provision for loan losses
|
|
|
750,645
|
|
|
|
271.5
|
|
|
|
202,058
|
|
|
|
34,509
|
|
|
|
19,056
|
|
|
|
13,019
|
|
|
|
119.7
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
(24,640
|
)
|
|
|
(105.0
|
)
|
|
|
494,090
|
|
|
|
609,304
|
|
|
|
650,493
|
|
|
|
659,236
|
|
|
|
N/M
|
|
Noninterest income
|
|
|
350,961
|
|
|
|
22.9
|
|
|
|
285,650
|
|
|
|
344,781
|
|
|
|
295,501
|
|
|
|
291,086
|
|
|
|
10.8
|
|
Noninterest expense
|
|
|
611,420
|
|
|
|
9.7
|
|
|
|
557,460
|
|
|
|
534,891
|
|
|
|
496,215
|
|
|
|
480,463
|
|
|
|
10.1
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(285,099
|
)
|
|
|
N/M
|
|
|
|
222,280
|
|
|
|
419,194
|
|
|
|
449,779
|
|
|
|
469,859
|
|
|
|
N/M
|
|
Income tax expense (benefit)
|
|
|
(153,240
|
)
|
|
|
N/M
|
|
|
|
53,828
|
|
|
|
133,442
|
|
|
|
133,134
|
|
|
|
149,698
|
|
|
|
N/M
|
|
Net income (loss)
|
|
|
(131,859
|
)
|
|
|
(178.3
|
)
|
|
|
168,452
|
|
|
|
285,752
|
|
|
|
316,645
|
|
|
|
320,161
|
|
|
|
N/M
|
|
Preferred stock dividends and discount accretion
|
|
|
29,348
|
|
|
|
N/M
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M
|
|
|
|
|
|
|
|
Net income (loss) available to common equity
|
|
$
|
(161,207
|
)
|
|
|
(197.6
|
)%
|
|
$
|
165,202
|
|
|
$
|
285,752
|
|
|
$
|
316,645
|
|
|
$
|
320,161
|
|
|
|
N/M
|
|
|
|
|
|
|
|
Taxable equivalent adjustment
|
|
$
|
24,820
|
|
|
|
(10.4
|
)%
|
|
$
|
27,711
|
|
|
$
|
27,259
|
|
|
$
|
26,233
|
|
|
$
|
25,509
|
|
|
|
(0.6
|
)%
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(1)
|
|
$
|
(1.26
|
)
|
|
|
(197.7
|
)%
|
|
$
|
1.29
|
|
|
$
|
2.24
|
|
|
$
|
2.40
|
|
|
$
|
2.45
|
|
|
|
N/M
|
|
Diluted(1)
|
|
|
(1.26
|
)
|
|
|
(197.7
|
)
|
|
|
1.29
|
|
|
|
2.22
|
|
|
|
2.38
|
|
|
|
2.43
|
|
|
|
N/M
|
|
Cash dividends per share(1)
|
|
|
0.47
|
|
|
|
(63.0
|
)
|
|
|
1.27
|
|
|
|
1.22
|
|
|
|
1.14
|
|
|
|
1.06
|
|
|
|
(13.6
|
)
|
Weighted average common shares outstanding(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
127,858
|
|
|
|
0.3
|
|
|
|
127,501
|
|
|
|
127,408
|
|
|
|
132,006
|
|
|
|
130,554
|
|
|
|
2.4
|
|
Diluted
|
|
|
127,858
|
|
|
|
0.1
|
|
|
|
127,775
|
|
|
|
128,374
|
|
|
|
133,035
|
|
|
|
131,870
|
|
|
|
2.1
|
|
SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-End Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
14,128,625
|
|
|
|
(13.2
|
)%
|
|
$
|
16,283,908
|
|
|
$
|
15,516,252
|
|
|
$
|
14,881,526
|
|
|
$
|
15,206,464
|
|
|
|
0.4
|
%
|
Allowance for loan losses
|
|
|
573,533
|
|
|
|
116.1
|
|
|
|
265,378
|
|
|
|
200,570
|
|
|
|
203,481
|
|
|
|
203,404
|
|
|
|
24.8
|
|
Investment securities, available for sale
|
|
|
5,835,533
|
|
|
|
13.5
|
|
|
|
5,143,414
|
|
|
|
3,358,617
|
|
|
|
3,251,025
|
|
|
|
4,450,245
|
|
|
|
4.8
|
|
Total assets
|
|
|
22,874,142
|
|
|
|
(5.4
|
)
|
|
|
24,192,067
|
|
|
|
21,592,083
|
|
|
|
20,861,384
|
|
|
|
22,100,082
|
|
|
|
2.2
|
|
Deposits
|
|
|
16,728,613
|
|
|
|
10.4
|
|
|
|
15,154,796
|
|
|
|
13,973,913
|
|
|
|
14,316,071
|
|
|
|
13,573,089
|
|
|
|
5.5
|
|
Wholesale funding
|
|
|
3,180,851
|
|
|
|
(42.8
|
)
|
|
|
5,565,583
|
|
|
|
5,091,558
|
|
|
|
4,113,827
|
|
|
|
6,014,783
|
|
|
|
(10.5
|
)
|
Stockholders equity
|
|
|
2,738,608
|
|
|
|
(4.8
|
)
|
|
|
2,876,503
|
|
|
|
2,329,705
|
|
|
|
2,245,493
|
|
|
|
2,324,978
|
|
|
|
6.3
|
|
Book value per common share(1)
|
|
|
17.42
|
|
|
|
(6.0
|
)
|
|
|
18.54
|
|
|
|
18.32
|
|
|
|
17.44
|
|
|
|
17.15
|
|
|
|
2.3
|
|
Tangible book value per common share(1)
|
|
|
9.93
|
|
|
|
(9.6
|
)
|
|
|
10.99
|
|
|
|
10.69
|
|
|
|
10.34
|
|
|
|
10.29
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
Average Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
15,595,636
|
|
|
|
(3.0
|
)%
|
|
$
|
16,080,565
|
|
|
$
|
15,132,634
|
|
|
$
|
15,370,090
|
|
|
$
|
14,347,707
|
|
|
|
6.9
|
%
|
Investment securities
|
|
|
5,690,968
|
|
|
|
53.5
|
|
|
|
3,707,549
|
|
|
|
3,480,831
|
|
|
|
3,825,245
|
|
|
|
4,794,708
|
|
|
|
7.4
|
|
Total assets
|
|
|
23,609,471
|
|
|
|
7.1
|
|
|
|
22,037,963
|
|
|
|
20,638,005
|
|
|
|
21,162,099
|
|
|
|
20,921,575
|
|
|
|
7.6
|
|
Deposits
|
|
|
15,959,046
|
|
|
|
15.5
|
|
|
|
13,812,072
|
|
|
|
13,741,803
|
|
|
|
13,623,703
|
|
|
|
12,462,981
|
|
|
|
9.5
|
|
Stockholders equity
|
|
|
2,902,911
|
|
|
|
19.8
|
|
|
|
2,423,332
|
|
|
|
2,253,878
|
|
|
|
2,279,376
|
|
|
|
2,101,389
|
|
|
|
14.1
|
|
|
|
|
|
|
|
Financial Ratios:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity
|
|
|
(4.54
|
)%
|
|
|
(1,149
|
)
|
|
|
6.95
|
%
|
|
|
12.68
|
%
|
|
|
13.89
|
%
|
|
|
15.24
|
%
|
|
|
|
|
Return on average assets
|
|
|
(0.56
|
)
|
|
|
(132
|
)
|
|
|
0.76
|
|
|
|
1.38
|
|
|
|
1.50
|
|
|
|
1.53
|
|
|
|
|
|
Efficiency ratio(3)
|
|
|
55.73
|
|
|
|
332
|
|
|
|
52.41
|
|
|
|
53.92
|
|
|
|
50.31
|
|
|
|
48.99
|
|
|
|
|
|
Net interest margin
|
|
|
3.52
|
|
|
|
(13
|
)
|
|
|
3.65
|
|
|
|
3.60
|
|
|
|
3.62
|
|
|
|
3.64
|
|
|
|
|
|
Stockholders equity to Total assets
|
|
|
11.97
|
|
|
|
8
|
|
|
|
11.89
|
|
|
|
10.79
|
|
|
|
10.76
|
|
|
|
10.52
|
|
|
|
|
|
Tangible stockholders equity to tangible assets(4)
|
|
|
8.12
|
|
|
|
(11
|
)
|
|
|
8.23
|
|
|
|
6.59
|
|
|
|
6.67
|
|
|
|
6.59
|
|
|
|
|
|
Average equity to average assets
|
|
|
12.30
|
|
|
|
130
|
|
|
|
11.00
|
|
|
|
10.92
|
|
|
|
10.77
|
|
|
|
10.04
|
|
|
|
|
|
Dividend payout ratio(5)
|
|
|
N/M
|
|
|
|
N/M
|
|
|
|
98.45
|
|
|
|
54.46
|
|
|
|
47.50
|
|
|
|
43.27
|
|
|
|
|
|
|
|
|
(1)
|
|
Share and per share data adjusted
retroactively for stock splits and stock dividends.
|
|
(2)
|
|
Change in basis points.
|
|
(3)
|
|
See Table 1A for a reconciliation
of this Non-GAAP measure.
|
27
|
|
|
(4)
|
|
Tangible stockholders equity
to tangible assets is stockholders equity excluding
goodwill and other intangible assets divided by assets excluding
goodwill and other intangible assets.
|
|
(5)
|
|
Ratio is based upon basic earnings
per common share.
|
|
(6)
|
|
Base year used in
5-year
compound growth rate is 2004 consolidated financial data.
|
N/M = Not meaningful.
TABLE 1A:
RECONCILIATION OF NON-GAAP MEASURE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Efficiency ratio(a)
|
|
|
57.24
|
|
|
|
53.90
|
|
|
|
54.56
|
|
|
|
51.67
|
|
|
|
50.09
|
|
Taxable equivalent adjustment
|
|
|
(1.30
|
)
|
|
|
(1.41
|
)
|
|
|
(1.48
|
)
|
|
|
(1.37
|
)
|
|
|
(1.30
|
)
|
Asset sale gains / losses, net
|
|
|
(0.21
|
)
|
|
|
(0.08
|
)
|
|
|
0.84
|
|
|
|
0.01
|
|
|
|
0.20
|
|
|
|
|
|
|
|
Efficiency ratio, fully taxable equivalent(b)
|
|
|
55.73
|
|
|
|
52.41
|
|
|
|
53.92
|
|
|
|
50.31
|
|
|
|
48.99
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Efficiency ratio is defined by the
Federal Reserve guidance as noninterest expense divided by the
sum of net interest income plus noninterest income, excluding
investment securities gains, net.
|
|
(b)
|
|
Efficiency ratio, fully taxable
equivalent, is noninterest expense divided by the sum of taxable
equivalent net interest income plus noninterest income,
excluding investment securities gains, net and asset sale gains,
net. This efficiency ratio is presented on a taxable equivalent
basis, which adjusts net interest income for the tax-favored
status of certain loans and investment securities. Management
believes this measure to be the preferred industry measurement
of net interest income as it enhances the comparability of net
interest income arising from taxable and tax-exempt sources and
it excludes non-recurring revenue items (such as investment
securities gains/losses, net and asset sale gains / losses, net).
|
28
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion is managements analysis to assist
in the understanding and evaluation of the consolidated
financial condition and results of operations of the
Corporation. It should be read in conjunction with the
consolidated financial statements and footnotes and the selected
financial data presented elsewhere in this report.
The detailed financial discussion that follows focuses on 2009
results compared to 2008. Discussion of 2008 results compared to
2007 is predominantly in section 2008 Compared to
2007.
The financial discussion that follows may refer to the effect of
the Corporations business combination activity, detailed
under section, Business Combinations, and
Note 2, Business Combinations, of the notes to
consolidated financial statements.
Overview
The Corporation is a bank holding company headquartered in
Wisconsin, providing a diversified range of banking and
nonbanking financial services to individuals and businesses
primarily in its three-state footprint (Wisconsin, Illinois and
Minnesota). The Corporation, principally through its wholly
owned banking subsidiary, provides a wide range of services,
including business and consumer loan and depository services, as
well as other traditional banking services. Through its
nonbanking subsidiaries, the Corporations wealth business
provides a variety of products and services to supplement the
banking business including insurance, brokerage, and trust/asset
management.
The Corporations primary sources of revenue, through its
banking subsidiary, are net interest income (predominantly from
loans and deposits, and also from investment securities and
other funding sources), and noninterest income, particularly
fees and other revenue from financial services provided to
customers or ancillary services tied to loans and deposits.
Business volumes and pricing drive revenue potential, and tend
to be influenced by overall economic factors, including market
interest rates, business spending, consumer confidence, economic
growth, and competitive conditions within the marketplace.
The Corporation experienced challenges during 2009 as the
deteriorating economic and credit environments negatively
affected the Corporations performance. In late 2008, the
Corporation undertook an initiative to enhance the credit
management process. The implementation during 2009 of improved
processes identified during the initiative was led by executive
officers and senior level colleagues. In support of this credit
management initiative, the Corporation significantly increased
staffing within its credit administration function and the Board
of Directors increased its involvement in the credit oversight
process, including the formation of a Risk and Credit Committee
during the second quarter of 2009. Further, a new President and
Chief Executive Officer started on December 1, 2009. Also,
early in 2010, the Corporation raised net proceeds of
approximately $478 million by issuing 44 million
shares of common stock.
Since mid-2007, the banking industry and the securities markets
were materially and adversely affected by significant declines
in the value of nearly all asset classes and by a lack of
liquidity. In addition, the U.S. economy has been in a
recession. The global markets have been characterized by
substantially increased volatility. The Corporations
financial performance generally, and in particular the ability
of borrowers to pay interest on and repay principal of
outstanding loans and the value of collateral securing those
loans, is highly dependent on the economy in our markets. The
current market conditions continue to present unique asset
quality issues for the banking industry (including the ongoing
effects of weak economic conditions; lower commercial and
residential real estate values; and diminished consumer
confidence) and for the Corporation (including elevated net
charge offs and higher nonperforming loan levels compared to the
Corporations longer-term historical experience). In a
depressed real estate market, such as currently exists, the
value of the collateral securing the loans has become one of the
most important factors in determining the appropriate amount of
allowance for estimated loan losses to record at the balance
sheet date.
During 2009, management of the Corporation was intensively
focused on the erosion of the credit environment and the
corresponding deterioration in its credit quality metrics. In
the fourth quarter of 2008, the Corporations efforts
29
to improve its processes to gather and track credit
administration metrics began to produce additional management
information, which has continued to be enhanced throughout 2009.
In addition, process improvements were implemented around credit
evaluations, documentation, enhanced appraisal processes and
credit monitoring. The improved credit processes, combined with
enhanced credit information, have been incorporated into the
methodologies management uses for determining the
appropriateness of the allowance for loan losses. During the
first and second quarters of 2009, we utilized these process
improvements to perform more thorough evaluations of our entire
loan portfolio for appropriate risk grading based on performance
of the borrower or project. During this time we received updated
revenue information, cash flow statements and year-end financial
statements from our customers. This information allowed us to
solidify our judgment of collectability of specific loans.
During our review of credits we determined that collateral
values were generally declining at an unprecedented rate. This
information caused us to increase the frequency of requesting
appraisals on performing loans which we believed were at risk of
a change in status. During the fourth quarter of 2009, these
appraisals were received and reviewed providing further evidence
of the rapid collateral value erosion. This pervasive evidence,
combined with an MOU with the OCC, provided the catalysts that
led the Corporation to perform a deeper review of all larger
collateral dependent loans, resulting in an increase in
impairment, reserves and charge offs during the fourth quarter
of 2009. More specifically, this activity resulted in additional
loans being added to the nonperforming category during the
fourth quarter of 2009 based on concerns of collectability. In
addition to the work performed by credit management, an
independent internal review was performed and the Corporation
retained a third party valuation advisor to assist us in
validating our collateral valuation estimates. In addition to
the collateral value declines in commercial real estate and real
estate construction, the Corporation experienced higher loss
content on many commercial and industrial loans during 2009. The
three largest commercial and industrial charge offs during 2009
totaled $52 million and represented 90% of the related
outstanding loan balances. These loans were either enterprise
value-based or related to the housing industry. In this economic
environment, we are experiencing erosion of collateral
supporting our commercial and industrial loans. These activities
led to our conclusion that an increase in the allowance for loan
losses was appropriate and resulted in the provision for loan
losses for each quarter exceeding the net charge offs for the
quarter. The reserve build in a particular quarter was based on
specific facts received during that quarter. In the fourth
quarter of 2009, the stabilization anticipated based on the
third quarter early delinquency credit metrics did not
materialize, as further collateral declines were greater than
expected, customer financial performance was worse than
expected, the job market and business activity declined and
customer behavior turned more negative in our markets. A record
level of provision for loan losses and charge offs resulted for
2009. Management expects 2010 provision for loan losses and
charge off amounts will be elevated compared to historical
levels.
Net loss available to common equity for 2009 was
$161 million (compared to net income available to common
equity of $165 million for 2008), diluted loss per common
share were $1.26 (versus diluted earnings per common share of
$1.29 for 2008), net interest income was $726 million on a
margin of 3.52% (compared to $696 million on a margin of
3.65% for 2008), and the provision for loan losses was
$751 million with net charge offs to average loans of 2.84%
(compared to a provision of $202 million and a net charge
off ratio of 0.85% for 2008).
Increasing net interest income from profitable growth in loans
and deposits constitutes the Corporations greatest
opportunity for 2010 earnings growth. Yet, this is also subject
to various risks, such as competitive pricing pressures that are
expected to continue in 2010, decreased loan demand, higher
levels of nonaccrual loans, disciplined pricing, changes in
customer behavior relative to loan and deposit products in light
of general economic conditions, and challenges to deposit growth
(as noted below). Short-term interest rates decreased
significantly (400 bp) during 2008, and were at
historically low levels at the end of 2008 and throughout 2009.
This interest rate environment, the declining level of
commercial loan balances, the level of nonperforming loans, and
competitive challenges may cause downward pressure on net
interest income for 2010.
Total loans decreased $2.2 billion (13%) between year-end
2009 and 2008, with declines in most loan categories (including
commercial loans down $1.6 billion and consumer-based loans
down $0.6 billion). On average, loans declined
$0.5 billion (3%) primarily in commercial loans (down
$0.7 billion), while consumer-based loans increased (up
$0.2 billion).
Total deposits grew $1.6 billion (10%) between year-end
2009 and 2008, primarily attributable to higher interest-bearing
demand and money market deposits. On average, total deposits
increased $2.1 billion (16%) over 2008,
30
primarily in money market and noninterest-bearing demand
deposits. Deposit growth remains a key to improving net interest
income and the quality of earnings in 2010. Competition for
deposits remains high. The changes in FDIC insurance have been
beneficial to deposit growth. Future deposit levels may be
affected by changes in these programs. For example, deposits
could be affected by the termination of the TAG Program at
June 30, 2010 (see Part I, Item 1, Section
Emergency Economic Stabilization Act of 2008 for a
detailed discussion of the TAG Program). The Corporation is
continuing to actively grow deposits.
As mentioned earlier, asset quality measures continued to
deteriorate during 2009. At December 31, 2009, the
allowance for loan losses to total loans ratio of 4.06% was
deemed appropriate by management, covering 51% of nonperforming
loans, compared to 1.63% at December 31, 2008, covering 78%
of nonperforming loans. The provision for loan losses was
$751 million for 2009, with net charge offs to average
loans of 2.84% (compared to a provision of $202 million and
a net charge off ratio of 0.85% for 2008). Based on current
market conditions and our continuous monitoring of specific
individual nonperforming and potential problem loans, we
anticipate that net charge offs and provision for loan losses
will remain elevated compared to our historical levels. We
cannot predict the duration of asset quality stress for 2010,
given uncertainty as to the magnitude and scope of economic
weakness in our markets, on our customers, and on underlying
real estate values (residential and commercial).
Noninterest income of $351 million in 2009 was up
$65 million (23%) from 2008, primarily from the change in
gains / losses on investment securities (with 2008
including
other-than-temporary
write-downs of $53 million versus net gains of
$9 million on sales of investment securities in
2009) and higher net mortgage banking income (up
$26 million, led by a $27 million increase in gains on
sales of loans to the secondary market, with secondary mortgage
production of $3.7 billion for 2009 compared to
$1.4 billion for 2008), partially offset by declines in
core fee-based revenue categories (down $8 million or 3%,
and defined as trust service fees, service charges on deposit
accounts, card-based and other nondeposit fees, and retail
commissions). For 2010, core fee-based revenues are expected to
show moderate growth; however, certain revenues may be impacted
by legislative changes being contemplated by the government.
Noninterest expense of $611 million grew $54 million
(10%) over 2008. Personnel expenses were $304 million, down
$5 million or 2% versus 2008, with $5 million (2%)
higher base salaries, commissions, and incentives (principally
due to merit increases between the years) and a $2 million
increase in fringe benefits expense, more than offset by a
$13 million decline in formal / discretionary
bonuses. On average, full time equivalent employees decreased 2%
between 2009 and 2008 (from 5,131 for 2008 to 5,016 for 2009).
Nonpersonnel noninterest expenses on an aggregate basis were up
$59 million or 24% over 2008, primarily due to higher FDIC
insurance expense, elevated foreclosure / OREO related
and loan collection costs, and increased legal and consultant
expense. The efficiency ratio (defined as noninterest expense
divided by total revenue, with total revenue
calculated as the sum of taxable equivalent net interest income
plus noninterest income, excluding net asset and securities
gains) was 55.73% for 2009 and 52.41% for 2008. For 2010, the
Corporation expects continued upward pressure on expenses from
FDIC insurance, foreclosure / OREO expense, and legal
and professional fees.
Performance
Summary
The Corporation recorded a net loss of $131.9 million for
the year ended December 31, 2009, compared to net income of
$168.5 million for the year ended December 31, 2008.
Net loss available to common equity was $161.2 million for
2009, or a net loss of $1.26 for both basic and diluted earnings
per common share. For 2008, net income available to common
equity was $165.2 million, or $1.29 for both basic and
diluted earnings per common share. Earnings for 2009 were
primarily impacted by the higher provision for loan losses
(resulting from continued deterioration in the real estate
markets and the economy). Cash dividends of $0.47 per common
share were paid in 2009, compared to cash dividends of $1.27 per
common share paid in 2008. Key factors behind these results are
discussed below.
|
|
|
|
|
The recent market conditions have been marked with general
economic and industry declines with a pervasive impact on
consumer confidence, business and personal financial
performance, and commercial and residential real estate markets,
resulting in an increase in nonperforming loans, net charge
offs, and provision for loan losses. Nonperforming loans were
$1.1 billion at December 31, 2009, compared to
$341 million at December 31, 2008. Net charge offs
were $442.5 million in 2009 (or 2.84% of average loans)
compared to $137.3 million in 2008 (or 0.85% of average
loans). The provision for loan losses was
|
31
|
|
|
|
|
$750.6 million and $202.1 million, respectively, for
2009 and 2008. At year-end 2009, the allowance for loan losses
represented 4.06% of total loans (covering 51% of nonperforming
loans), compared to 1.63% (covering 78% of nonperforming loans)
at year-end 2008. For additional discussion regarding charge
offs and nonperforming loans see sections, Allowance for
Loan Losses and Nonperforming Loans, Potential
Problem Loans, and Other Real Estate Owned.
|
|
|
|
|
|
At December 31, 2009, total loans were $14.1 billion,
down 13.2% from year-end 2008, primarily in commercial loans.
Total deposits at December 31, 2009, were
$16.7 billion, up 10.4% from year-end 2008, primarily
attributable to higher money market deposits and
interest-bearing demand deposits.
|
|
|
|
Taxable equivalent net interest income was $750.8 million
for 2009, $27.0 million or 3.7% higher than 2008. Taxable
equivalent interest income decreased $148.3 million, while
interest expense decreased by $175.3 million. The increase
in taxable equivalent net interest income was a function of
favorable volume/mix variances (increasing taxable equivalent
net interest income by $53.0 million), partially offset by
unfavorable rate variances (decreasing taxable equivalent net
interest income by $26.0 million). See also section,
Net Interest Income for additional information on
taxable equivalent net interest income and net interest margin.
|
|
|
|
The net interest margin for 2009 was 3.52%, 13 bp lower
than 3.65% in 2008. The reduction in net interest margin was
attributable to a 2 bp decrease in interest rate spread
(the net of a 108 bp decrease in the cost of
interest-bearing liabilities and a 110 bp decrease in the
yield on earning assets) and a 11 bp lower contribution
from net free funds (primarily attributable to lower rates on
interest-bearing liabilities reducing the value of
noninterest-bearing deposits and other net free funds).
|
|
|
|
Noninterest income was $351.0 million for 2009,
$65.3 million or 22.9% higher than 2008. Core fee-based
revenues (including trust service fees, service charges on
deposit accounts, card-based and other nondeposit fees, and
retail commissions) totaled $259.6 million for 2009, down
$8.3 million or 3.1% from $267.9 million for 2008. Net
mortgage banking income was $40.9 million for 2009,
compared to $14.7 million in 2008, an increase of
$26.2 million from 2008, primarily attributable to
$27.2 million increase in the gain on sales of mortgage
loans related to the higher secondary mortgage production
experienced during 2009. Asset and investment securities gains,
net combined were $4.7 million for 2009 (predominantly from
gains on sales of mortgage-related securities, partially offset
by higher losses on sales of other real estate owned), compared
to combined asset and investment securities losses of
$54.2 million for 2008 (primarily attributable to
other-than-temporary
write-downs on investment securities). Collectively, all
remaining noninterest income categories were $45.8 million,
down $11.5 million compared to 2008. For additional
discussion concerning noninterest income see section,
Noninterest Income.
|
|
|
|
Noninterest expense for 2009 was $611.4 million, an
increase of $54.0 million or 9.7% over 2008. FDIC expense
increased $39.4 million, legal and professional fees
increased $5.0 million, and foreclosure / OREO
expenses increased $24.4 million, while personnel expense
was down $5.1 million and collectively all remaining
noninterest expense categories were down $9.7 million
compared to 2008. The efficiency ratio (as defined under
Part II, Item 6, Selected Financial Data)
was 55.73% for 2009 and 52.41% for 2008. For additional
discussion regarding noninterest expense see section,
Noninterest Expense.
|
|
|
|
Income tax benefit for 2009 was $153.2 million, compared to
income tax expense of $53.8 million for 2008. The change in
income tax was primarily due to the decrease in pretax income to
a pretax loss between the years. For additional discussion
concerning income tax see section, Income Taxes.
|
INCOME
STATEMENT ANALYSIS
Net
Interest Income
Net interest income in the consolidated statements of income
(loss) (which excludes the taxable equivalent adjustment) was
$726.0 million in 2009 compared to $696.1 million in
2008. The taxable equivalent adjustments (the adjustments to
bring tax-exempt interest to a level that would yield the same
after-tax income had that income been subject to a taxation
using a 35% tax rate) of $24.8 million and
$27.7 million for 2009 and 2008, respectively, resulted in
fully taxable equivalent net interest income of
$750.8 million in 2009 and $723.8 million in 2008.
32
Net interest income is the primary source of the
Corporations revenue. Net interest income is the
difference between interest income on interest-earning assets,
such as loans and investment securities, and the interest
expense on interest-bearing deposits and other borrowings used
to fund interest-earning and other assets or activities. Net
interest income is affected by changes in interest rates and by
the amount and composition of earning assets and
interest-bearing liabilities, as well as the sensitivity of the
balance sheet to changes in interest rates, including
characteristics such as the fixed or variable nature of the
financial instruments, contractual maturities, repricing
frequencies, and the use of interest rate swaps and caps.
Interest rate spread and net interest margin are utilized to
measure and explain changes in net interest income. Interest
rate spread is the difference between the yield on earning
assets and the rate paid for interest-bearing liabilities that
fund those assets. The net interest margin is expressed as the
percentage of net interest income to average earning assets. The
net interest margin exceeds the interest rate spread because
noninterest-bearing sources of funds (net free
funds), principally noninterest-bearing demand deposits
and stockholders equity, also support earning assets. To
compare tax-exempt asset yields to taxable yields, the yield on
tax-exempt loans and investment securities is computed on a
taxable equivalent basis. Net interest income, interest rate
spread, and net interest margin are discussed on a taxable
equivalent basis.
Table 2 provides average balances of earning assets and
interest-bearing liabilities, the associated interest income and
expense, and the corresponding interest rates earned and paid,
as well as net interest income, interest rate spread, and net
interest margin on a taxable equivalent basis for the three
years ended December 31, 2009. Tables 3 through 5 present
additional information to facilitate the review and discussion
of taxable equivalent net interest income, interest rate spread,
and net interest margin.
Taxable equivalent net interest income of $750.8 million
for 2009 was $27.0 million or 3.7% higher than 2008. The
increase in taxable equivalent net interest income was a
function of favorable volume variances (as balance sheet changes
in both volume and mix increased taxable equivalent net interest
income by $53.0 million), partially offset by unfavorable
interest rate changes (as the impact of changes in the interest
rate environment and product pricing decreased taxable
equivalent net interest income by $26.0 million). The
change in mix and volume of earning assets increased taxable
equivalent interest income by $66.6 million, while the
change in volume and composition of interest-bearing liabilities
increased interest expense by $13.6 million, for a net
favorable volume impact of $53.0 million on taxable
equivalent net interest income. Rate changes on earning assets
reduced interest income by $214.9 million, while changes in
rates on interest-bearing liabilities lowered interest expense
by $188.9 million, for a net unfavorable rate impact of
$26.0 million. See additional discussion in section
Interest Rate Risk.
The net interest margin for 2009 was 3.52%, compared to 3.65% in
2008. The 13 bp reduction in net interest margin was
attributable to a 2 bp decrease in interest rate spread
(the net of a 108 bp decrease in the cost of
interest-bearing liabilities and a 110 bp decrease in the
yield on earning assets), partially offset by 11 bp lower
contribution from net free funds (due principally to lower rates
on interest-bearing liabilities reducing the value of
noninterest-bearing deposits and other net free funds).
While unchanged during 2009, the Federal Reserve lowered
interest rates seven times (for a total interest rate reduction
of 400 bp) during 2008. At December 31, 2009, the
Federal Funds rate was 0.25%, unchanged from December 31,
2008.
For 2009, the yield on average earning assets of 4.72% was
110 bp lower than 2008. Loan yields decreased 111 bp
(to 4.84%), impacted by higher levels of nonaccrual loans, and
commercial and retail loans in particular experienced lower
yields (down 128 bp and 102 bp, respectively) given
the repricing of adjustable rate loans and competitive pricing
pressures in a low interest rate environment. The yield on
securities and short-term investments was down 90 bp to
4.36%, also impacted by the lower interest rate environment and
prepayment speeds of mortgage-related investment securities
purchased at a premium. Overall, earning asset rate changes
reduced interest income by $214.9 million, the combination
of $175.3 million lower interest on loans and
$39.6 million lower interest on securities and short-term
investments.
The cost of average interest-bearing liabilities of 1.45% in
2009 was 108 bp lower than 2008. The average cost of
interest-bearing deposits was 1.23% in 2009, 109 bp lower
than 2008, reflecting the lower rate environment, moderated by
product-focused pricing to retain balances. The cost of
wholesale funding (comprised of short-term
33
borrowings and long-term funding) decreased 90 bp to 2.06%
for 2009, with short-term borrowings down 154 bp (similar
to the change in the average Federal Funds rate) and long-term
funding down 86 bp. The interest-bearing liability rate
changes resulted in $188.9 million lower interest expense,
with $125.6 million attributable to interest-bearing
deposits and $63.3 million due to wholesale funding.
Year-over-year
changes in the average balance sheet were impacted by the
preferred stock issuance of $525 million in the fourth
quarter of 2008 and the levering of the balance sheet through
the investment in mortgage-related securities. As a result,
average earning assets of $21.3 billion in 2009 were
$1.5 billion (8%) higher than 2008. Average investments
grew $2.0 billion as a result of mortgage-related
investment securities purchases. Average loans decreased
$0.5 billion (3.0%), with a $714 million decrease in
commercial loans, partially offset by a $170 million
increase in residential mortgage loans and a $60 million
increase in retail loans. Taxable equivalent interest income in
2009 increased $66.6 million due to earning asset volume
changes, including a $92.2 million increase attributable to
securities and short-term investments, partially offset by a
decrease of $25.6 million attributable to loans.
Average interest-bearing liabilities of $17.7 billion in
2009 were up $0.6 billion (4%) versus 2008, attributable to
higher average deposit balances. On average, interest-bearing
deposits grew $1.7 billion, while average
noninterest-bearing demand deposits (a principal component of
net free funds) increased by $0.4 billion. Average
wholesale funding decreased $1.1 billion, the net of a
$1.3 billion decrease in short-term borrowings and a
$0.2 billion increase in long-term funding. As a percentage
of total average interest-bearing liabilities, interest-bearing
deposits, short-term borrowings, and long-term funding were 74%,
15%, and 11%, respectively, for 2009, compared to 67%, 24%, and
9%, respectively, for 2008. In 2009, interest expense increased
$13.6 million due to volume changes, with a
$23.2 million increase from higher volumes of
interest-bearing deposits, partially offset by a
$9.6 million decrease due to lower wholesale funding.
34
TABLE 2: Average Balances and Interest Rates (interest and
rates on a taxable equivalent basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
ASSETS
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:(1)(2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
9,673,513
|
|
|
$
|
435,054
|
|
|
|
4.50
|
%
|
|
$
|
10,387,727
|
|
|
$
|
600,079
|
|
|
|
5.78
|
%
|
|
$
|
9,807,964
|
|
|
$
|
730,712
|
|
|
|
7.45
|
%
|
Residential mortgage
|
|
|
2,369,719
|
|
|
|
125,475
|
|
|
|
5.29
|
|
|
|
2,200,145
|
|
|
|
129,077
|
|
|
|
5.87
|
|
|
|
2,292,606
|
|
|
|
141,127
|
|
|
|
6.16
|
|
Retail
|
|
|
3,552,404
|
|
|
|
195,078
|
|
|
|
5.49
|
|
|
|
3,492,693
|
|
|
|
227,368
|
|
|
|
6.51
|
|
|
|
3,032,064
|
|
|
|
243,401
|
|
|
|
8.03
|
|
|
|
|
|
|
|
Total loans
|
|
|
15,595,636
|
|
|
|
755,607
|
|
|
|
4.84
|
|
|
|
16,080,565
|
|
|
|
956,524
|
|
|
|
5.95
|
|
|
|
15,132,634
|
|
|
|
1,115,240
|
|
|
|
7.37
|
|
Investment securities:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
4,846,305
|
|
|
|
192,766
|
|
|
|
3.98
|
|
|
|
2,786,302
|
|
|
|
132,994
|
|
|
|
4.77
|
|
|
|
2,567,838
|
|
|
|
122,323
|
|
|
|
4.76
|
|
Tax-exempt(1)
|
|
|
844,663
|
|
|
|
57,277
|
|
|
|
6.78
|
|
|
|
921,247
|
|
|
|
63,574
|
|
|
|
6.90
|
|
|
|
912,993
|
|
|
|
63,836
|
|
|
|
6.99
|
|
Short-term investments
|
|
|
50,778
|
|
|
|
426
|
|
|
|
0.84
|
|
|
|
51,592
|
|
|
|
1,328
|
|
|
|
2.57
|
|
|
|
31,305
|
|
|
|
1,572
|
|
|
|
5.02
|
|
|
|
|
|
|
|
Securities and short-term investments
|
|
|
5,741,746
|
|
|
|
250,469
|
|
|
|
4.36
|
|
|
|
3,759,141
|
|
|
|
197,896
|
|
|
|
5.26
|
|
|
|
3,512,136
|
|
|
|
187,731
|
|
|
|
5.35
|
|
|
|
|
|
|
|
Total earning assets
|
|
$
|
21,337,382
|
|
|
$
|
1,006,076
|
|
|
|
4.72
|
%
|
|
$
|
19,839,706
|
|
|
$
|
1,154,420
|
|
|
|
5.82
|
%
|
|
$
|
18,644,770
|
|
|
$
|
1,302,971
|
|
|
|
6.99
|
%
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(380,224
|
)
|
|
|
|
|
|
|
|
|
|
|
(230,450
|
)
|
|
|
|
|
|
|
|
|
|
|
(203,258
|
)
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
492,794
|
|
|
|
|
|
|
|
|
|
|
|
418,395
|
|
|
|
|
|
|
|
|
|
|
|
346,769
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
2,159,519
|
|
|
|
|
|
|
|
|
|
|
|
2,010,312
|
|
|
|
|
|
|
|
|
|
|
|
1,849,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
23,609,471
|
|
|
|
|
|
|
|
|
|
|
$
|
22,037,963
|
|
|
|
|
|
|
|
|
|
|
$
|
20,638,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
880,544
|
|
|
$
|
1,379
|
|
|
|
0.16
|
%
|
|
$
|
890,811
|
|
|
$
|
4,021
|
|
|
|
0.45
|
%
|
|
$
|
913,143
|
|
|
$
|
4,494
|
|
|
|
0.49
|
%
|
Interest-bearing demand deposits
|
|
|
2,154,745
|
|
|
|
4,794
|
|
|
|
0.22
|
|
|
|
1,752,991
|
|
|
|
15,061
|
|
|
|
0.86
|
|
|
|
1,844,274
|
|
|
|
35,585
|
|
|
|
1.93
|
|
Money market deposits
|
|
|
5,390,782
|
|
|
|
42,978
|
|
|
|
0.80
|
|
|
|
4,231,678
|
|
|
|
79,057
|
|
|
|
1.87
|
|
|
|
3,752,199
|
|
|
|
138,924
|
|
|
|
3.70
|
|
Time deposits, excluding Brokered CDs
|
|
|
3,880,878
|
|
|
|
102,490
|
|
|
|
2.64
|
|
|
|
3,957,174
|
|
|
|
148,294
|
|
|
|
3.75
|
|
|
|
4,340,473
|
|
|
|
197,262
|
|
|
|
4.54
|
|
|
|
|
|
|
|
Total interest-bearing deposits, excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered CDs
|
|
|
12,306,949
|
|
|
|
151,641
|
|
|
|
1.23
|
|
|
|
10,832,654
|
|
|
|
246,433
|
|
|
|
2.27
|
|
|
|
10,850,089
|
|
|
|
376,265
|
|
|
|
3.47
|
|
Brokered CDs
|
|
|
767,424
|
|
|
|
9,233
|
|
|
|
1.20
|
|
|
|
532,805
|
|
|
|
16,873
|
|
|
|
3.17
|
|
|
|
515,705
|
|
|
|
27,088
|
|
|
|
5.25
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
13,074,373
|
|
|
|
160,874
|
|
|
|
1.23
|
|
|
|
11,365,459
|
|
|
|
263,306
|
|
|
|
2.32
|
|
|
|
11,365,794
|
|
|
|
403,353
|
|
|
|
3.55
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,294,423
|
|
|
|
8,837
|
|
|
|
0.68
|
|
|
|
2,330,426
|
|
|
|
51,278
|
|
|
|
2.20
|
|
|
|
1,847,789
|
|
|
|
90,768
|
|
|
|
4.91
|
|
Other short-term borrowings
|
|
|
1,421,338
|
|
|
|
7,362
|
|
|
|
0.52
|
|
|
|
1,722,944
|
|
|
|
35,306
|
|
|
|
2.05
|
|
|
|
860,348
|
|
|
|
43,856
|
|
|
|
5.10
|
|
Long-term funding
|
|
|
1,869,148
|
|
|
|
78,178
|
|
|
|
4.18
|
|
|
|
1,601,003
|
|
|
|
80,671
|
|
|
|
5.04
|
|
|
|
1,812,779
|
|
|
|
93,922
|
|
|
|
5.18
|
|
|
|
|
|
|
|
Total wholesale funding
|
|
|
4,584,909
|
|
|
|
94,377
|
|
|
|
2.06
|
|
|
|
5,654,373
|
|
|
|
167,255
|
|
|
|
2.96
|
|
|
|
4,520,916
|
|
|
|
228,546
|
|
|
|
5.06
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
17,659,282
|
|
|
$
|
255,251
|
|
|
|
1.45
|
%
|
|
$
|
17,019,832
|
|
|
$
|
430,561
|
|
|
|
2.53
|
%
|
|
$
|
15,886,710
|
|
|
$
|
631,899
|
|
|
|
3.98
|
%
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
|
2,884,673
|
|
|
|
|
|
|
|
|
|
|
|
2,446,613
|
|
|
|
|
|
|
|
|
|
|
|
2,376,009
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
162,605
|
|
|
|
|
|
|
|
|
|
|
|
148,186
|
|
|
|
|
|
|
|
|
|
|
|
121,408
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
2,902,911
|
|
|
|
|
|
|
|
|
|
|
|
2,423,332
|
|
|
|
|
|
|
|
|
|
|
|
2,253,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
23,609,471
|
|
|
|
|
|
|
|
|
|
|
$
|
22,037,963
|
|
|
|
|
|
|
|
|
|
|
$
|
20,638,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and rate spread(1)
|
|
|
|
|
|
$
|
750,825
|
|
|
|
3.27
|
%
|
|
|
|
|
|
$
|
723,859
|
|
|
|
3.29
|
%
|
|
|
|
|
|
$
|
671,072
|
|
|
|
3.01
|
%
|
|
|
|
|
|
|
Net interest margin(1)
|
|
|
|
|
|
|
|
|
|
|
3.52
|
%
|
|
|
|
|
|
|
|
|
|
|
3.65
|
%
|
|
|
|
|
|
|
|
|
|
|
3.60
|
%
|
|
|
|
|
|
|
Taxable equivalent adjustment
|
|
|
|
|
|
$
|
24,820
|
|
|
|
|
|
|
|
|
|
|
$
|
27,711
|
|
|
|
|
|
|
|
|
|
|
$
|
27,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The yield on tax-exempt loans and
securities is computed on a taxable equivalent basis using a tax
rate of 35% for all periods presented and is 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 net loan
fees.
|
|
(4)
|
|
Federal Home Loan Bank and Federal
Reserve Bank stocks have been included in the average balances.
|
35
TABLE 3:
Rate/Volume Analysis(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Compared to 2008
|
|
|
2008 Compared to 2007
|
|
|
|
Increase (Decrease) Due to
|
|
|
Increase (Decrease) Due to
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
(39,094
|
)
|
|
$
|
(125,931
|
)
|
|
$
|
(165,025
|
)
|
|
$
|
41,172
|
|
|
$
|
(171,805
|
)
|
|
$
|
(130,633
|
)
|
Residential mortgage
|
|
|
9,675
|
|
|
|
(13,277
|
)
|
|
|
(3,602
|
)
|
|
|
(5,568
|
)
|
|
|
(6,482
|
)
|
|
|
(12,050
|
)
|
Retail
|
|
|
3,827
|
|
|
|
(36,117
|
)
|
|
|
(32,290
|
)
|
|
|
33,863
|
|
|
|
(49,896
|
)
|
|
|
(16,033
|
)
|
|
|
|
|
|
|
Total loans
|
|
|
(25,592
|
)
|
|
|
(175,325
|
)
|
|
|
(200,917
|
)
|
|
|
69,467
|
|
|
|
(228,183
|
)
|
|
|
(158,716
|
)
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
97,431
|
|
|
|
(37,659
|
)
|
|
|
59,772
|
|
|
|
11,494
|
|
|
|
(823
|
)
|
|
|
10,671
|
|
Tax-exempt(2)
|
|
|
(5,209
|
)
|
|
|
(1,088
|
)
|
|
|
(6,297
|
)
|
|
|
586
|
|
|
|
(848
|
)
|
|
|
(262
|
)
|
Short-term investments
|
|
|
(20
|
)
|
|
|
(882
|
)
|
|
|
(902
|
)
|
|
|
735
|
|
|
|
(979
|
)
|
|
|
(244
|
)
|
|
|
|
|
|
|
Securities and short-term investments
|
|
|
92,202
|
|
|
|
(39,629
|
)
|
|
|
52,573
|
|
|
|
12,815
|
|
|
|
(2,650
|
)
|
|
|
10,165
|
|
|
|
|
|
|
|
Total earning assets(2)
|
|
$
|
66,610
|
|
|
$
|
(214,954
|
)
|
|
$
|
(148,344
|
)
|
|
$
|
82,282
|
|
|
$
|
(230,833
|
)
|
|
$
|
(148,551
|
)
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
(46
|
)
|
|
$
|
(2,596
|
)
|
|
$
|
(2,642
|
)
|
|
$
|
(108
|
)
|
|
$
|
(365
|
)
|
|
$
|
(473
|
)
|
Interest-bearing demand deposits
|
|
|
2,847
|
|
|
|
(13,114
|
)
|
|
|
(10,267
|
)
|
|
|
(1,681
|
)
|
|
|
(18,843
|
)
|
|
|
(20,524
|
)
|
Money market deposits
|
|
|
17,641
|
|
|
|
(53,720
|
)
|
|
|
(36,079
|
)
|
|
|
15,949
|
|
|
|
(75,816
|
)
|
|
|
(59,867
|
)
|
Time deposits, excluding Brokered CDs
|
|
|
(2,807
|
)
|
|
|
(42,997
|
)
|
|
|
(45,804
|
)
|
|
|
(16,396
|
)
|
|
|
(32,572
|
)
|
|
|
(48,968
|
)
|
|
|
|
|
|
|
Total interest-bearing deposits, excluding Brokered CDs
|
|
|
17,635
|
|
|
|
(112,427
|
)
|
|
|
(94,792
|
)
|
|
|
(2,236
|
)
|
|
|
(127,596
|
)
|
|
|
(129,832
|
)
|
Brokered CDs
|
|
|
5,517
|
|
|
|
(13,157
|
)
|
|
|
(7,640
|
)
|
|
|
871
|
|
|
|
(11,086
|
)
|
|
|
(10,215
|
)
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
23,152
|
|
|
|
(125,584
|
)
|
|
|
(102,432
|
)
|
|
|
(1,365
|
)
|
|
|
(138,682
|
)
|
|
|
(140,047
|
)
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
(16,634
|
)
|
|
|
(25,807
|
)
|
|
|
(42,441
|
)
|
|
|
31,573
|
|
|
|
(71,063
|
)
|
|
|
(39,490
|
)
|
Other short-term borrowings
|
|
|
(5,304
|
)
|
|
|
(22,640
|
)
|
|
|
(27,944
|
)
|
|
|
27,500
|
|
|
|
(36,050
|
)
|
|
|
(8,550
|
)
|
Long-term funding
|
|
|
12,371
|
|
|
|
(14,864
|
)
|
|
|
(2,493
|
)
|
|
|
(10,728
|
)
|
|
|
(2,523
|
)
|
|
|
(13,251
|
)
|
|
|
|
|
|
|
Total wholesale funding
|
|
|
(9,567
|
)
|
|
|
(63,311
|
)
|
|
|
(72,878
|
)
|
|
|
48,345
|
|
|
|
(109,636
|
)
|
|
|
(61,291
|
)
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
13,585
|
|
|
$
|
(188,895
|
)
|
|
$
|
(175,310
|
)
|
|
$
|
46,980
|
|
|
$
|
(248,318
|
)
|
|
$
|
(201,338
|
)
|
|
|
|
|
|
|
Net interest income(2)
|
|
$
|
53,025
|
|
|
$
|
(26,059
|
)
|
|
$
|
26,966
|
|
|
$
|
35,302
|
|
|
$
|
17,485
|
|
|
$
|
52,787
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The change in interest due to both
rate and volume has been allocated in proportion to the
relationship to the dollar amounts of the change in each.
|
|
(2)
|
|
The yield on tax-exempt loans and
securities is computed on a fully taxable equivalent basis using
a tax rate of 35% for all periods presented and is net of the
effects of certain disallowed interest deductions.
|
36
TABLE 4:
Interest Rate Spread and Interest Margin (on a taxable
equivalent basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Average
|
|
|
2008 Average
|
|
|
2007 Average
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
Earning
|
|
|
Yield /
|
|
|
|
|
|
Earning
|
|
|
Yield /
|
|
|
|
|
|
Earning
|
|
|
Yield /
|
|
|
|
Balance
|
|
|
Assets
|
|
|
Rate
|
|
|
Balance
|
|
|
Assets
|
|
|
Rate
|
|
|
Balance
|
|
|
Assets
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
15,595,636
|
|
|
|
73.1
|
%
|
|
|
4.84
|
%
|
|
$
|
16,080,565
|
|
|
|
81.1
|
%
|
|
|
5.95
|
%
|
|
$
|
15,132,634
|
|
|
|
81.2
|
%
|
|
|
7.37
|
%
|
Securities and short-term investments
|
|
|
5,741,746
|
|
|
|
26.9
|
%
|
|
|
4.36
|
%
|
|
|
3,759,141
|
|
|
|
18.9
|
%
|
|
|
5.26
|
%
|
|
|
3,512,136
|
|
|
|
18.8
|
%
|
|
|
5.35
|
%
|
|
|
|
|
|
|
Earning assets
|
|
$
|
21,337,382
|
|
|
|
100.0
|
%
|
|
|
4.72
|
%
|
|
$
|
19,839,706
|
|
|
|
100.0
|
%
|
|
|
5.82
|
%
|
|
$
|
18,644,770
|
|
|
|
100.0
|
%
|
|
|
6.99
|
%
|
|
|
|
|
|
|
Financed by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing funds
|
|
$
|
17,659,282
|
|
|
|
82.8
|
%
|
|
|
1.45
|
%
|
|
$
|
17,019,832
|
|
|
|
85.8
|
%
|
|
|
2.53
|
%
|
|
$
|
15,886,710
|
|
|
|
85.2
|
%
|
|
|
3.98
|
%
|
Noninterest-bearing funds
|
|
|
3,678,100
|
|
|
|
17.2
|
%
|
|
|
|
|
|
|
2,819,874
|
|
|
|
14.2
|
%
|
|
|
|
|
|
|
2,758,060
|
|
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Total funds sources
|
|
$
|
21,337,382
|
|
|
|
100.0
|
%
|
|
|
1.20
|
%
|
|
$
|
19,839,706
|
|
|
|
100.0
|
%
|
|
|
2.17
|
%
|
|
$
|
18,644,770
|
|
|
|
100.0
|
%
|
|
|
3.39
|
%
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.27
|
%
|
|
|
|
|
|
|
|
|
|
|
3.29
|
%
|
|
|
|
|
|
|
|
|
|
|
3.01
|
%
|
Contribution from net free funds
|
|
|
|
|
|
|
|
|
|
|
0.25
|
%
|
|
|
|
|
|
|
|
|
|
|
0.36
|
%
|
|
|
|
|
|
|
|
|
|
|
0.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.52
|
%
|
|
|
|
|
|
|
|
|
|
|
3.65
|
%
|
|
|
|
|
|
|
|
|
|
|
3.60
|
%
|
|
|
|
|
|
|
Average prime rate*
|
|
|
|
|
|
|
|
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
|
5.08
|
%
|
|
|
|
|
|
|
|
|
|
|
8.05
|
%
|
Average federal funds rate*
|
|
|
|
|
|
|
|
|
|
|
0.17
|
%
|
|
|
|
|
|
|
|
|
|
|
1.75
|
%
|
|
|
|
|
|
|
|
|
|
|
4.95
|
%
|
Average spread
|
|
|
|
|
|
|
|
|
|
|
308
|
bp
|
|
|
|
|
|
|
|
|
|
|
333
|
bp
|
|
|
|
|
|
|
|
|
|
|
310
|
bp
|
|
|
|
|
|
|
37
TABLE 5:
Selected Average Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
9,673,513
|
|
|
$
|
10,387,727
|
|
|
$
|
(714,214
|
)
|
|
|
(6.9
|
)%
|
Residential mortgage
|
|
|
2,369,719
|
|
|
|
2,200,145
|
|
|
|
169,574
|
|
|
|
7.7
|
|
Retail
|
|
|
3,552,404
|
|
|
|
3,492,693
|
|
|
|
59,711
|
|
|
|
1.7
|
|
|
|
|
|
|
|
Total loans
|
|
|
15,595,636
|
|
|
|
16,080,565
|
|
|
|
(484,929
|
)
|
|
|
(3.0
|
)
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
4,846,305
|
|
|
|
2,786,302
|
|
|
|
2,060,003
|
|
|
|
73.9
|
|
Tax-exempt
|
|
|
844,663
|
|
|
|
921,247
|
|
|
|
(76,584
|
)
|
|
|
(8.3
|
)
|
Short-term investments
|
|
|
50,778
|
|
|
|
51,592
|
|
|
|
(814
|
)
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
Securities and short-term investments
|
|
|
5,741,746
|
|
|
|
3,759,141
|
|
|
|
1,982,605
|
|
|
|
52.7
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
21,337,382
|
|
|
|
19,839,706
|
|
|
|
1,497,676
|
|
|
|
7.5
|
|
Other assets
|
|
|
2,272,089
|
|
|
|
2,198,257
|
|
|
|
73,832
|
|
|
|
3.4
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
23,609,471
|
|
|
$
|
22,037,963
|
|
|
$
|
1,571,508
|
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
880,544
|
|
|
$
|
890,811
|
|
|
$
|
(10,267
|
)
|
|
|
(1.2
|
)%
|
Interest-bearing demand deposits
|
|
|
2,154,745
|
|
|
|
1,752,991
|
|
|
|
401,754
|
|
|
|
22.9
|
|
Money market deposits
|
|
|
5,390,782
|
|
|
|
4,231,678
|
|
|
|
1,159,104
|
|
|
|
27.4
|
|
Time deposits, excluding Brokered CDs
|
|
|
3,880,878
|
|
|
|
3,957,174
|
|
|
|
(76,296
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
Total interest-bearing deposits, excluding Brokered CDs
|
|
|
12,306,949
|
|
|
|
10,832,654
|
|
|
|
1,474,295
|
|
|
|
13.6
|
|
Brokered CDs
|
|
|
767,424
|
|
|
|
532,805
|
|
|
|
234,619
|
|
|
|
44.0
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
13,074,373
|
|
|
|
11,365,459
|
|
|
|
1,708,914
|
|
|
|
15.0
|
|
Short-term borrowings
|
|
|
2,715,761
|
|
|
|
4,053,370
|
|
|
|
(1,337,609
|
)
|
|
|
(33.0
|
)
|
Long-term funding
|
|
|
1,869,148
|
|
|
|
1,601,003
|
|
|
|
268,145
|
|
|
|
16.7
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
17,659,282
|
|
|
|
17,019,832
|
|
|
|
639,450
|
|
|
|
3.8
|
|
Noninterest-bearing demand deposits
|
|
|
2,884,673
|
|
|
|
2,446,613
|
|
|
|
438,060
|
|
|
|
17.9
|
|
Accrued expenses and other liabilities
|
|
|
162,605
|
|
|
|
148,186
|
|
|
|
14,419
|
|
|
|
9.7
|
|
Stockholders equity
|
|
|
2,902,911
|
|
|
|
2,423,332
|
|
|
|
479,579
|
|
|
|
19.8
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
23,609,471
|
|
|
$
|
22,037,963
|
|
|
$
|
1,571,508
|
|
|
|
7.1
|
%
|
|
|
|
|
|
|
Provision
for Loan Losses
The provision for loan losses in 2009 was $750.6 million,
compared to $202.1 million and $34.5 million for 2008
and 2007, respectively. Net charge offs were $442.5 million
for 2009, compared to $137.3 million for 2008 and
$40.4 million for 2007. Net charge offs as a percent of
average loans were 2.84%, 0.85%, and 0.27% for 2009, 2008, and
2007, respectively. At December 31, 2009, the allowance for
loan losses was $573.5 million. In comparison, the
allowance for loan losses was $265.4 million at
December 31, 2008, and $200.6 million at
December 31, 2007. The ratio of the allowance for loan
losses to total loans was 4.06%, 1.63%, and 1.29% at
December 31, 2009, 2008, and 2007, respectively.
Nonperforming loans at December 31, 2009, were
$1.1 billion, compared to $341 million at
38
December 31, 2008, and $163 million at
December 31, 2007, representing 7.94%, 2.09%, and 1.05% of
total loans, respectively.
The provision for loan 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 which focuses
on changes in the size and character of the loan portfolio,
changes in levels of impaired and other nonperforming loans,
historical losses and delinquencies on each portfolio category,
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, Allowance for Loan Losses, and
Nonperforming Loans, Potential Problem Loans, and Other
Real Estate Owned.
Noninterest
Income
Noninterest income was $351.0 million for 2009, up
$65.3 million or 22.9% from 2008. Core fee-based revenue
(as defined in Table 6 below) was $259.6 million for 2009,
a decrease of $8.3 million or 3.1% versus 2008. Net
mortgage banking income was $40.9 million compared to
$14.7 million for 2008. Net gains / losses on
investment securities and asset sales combined were
$4.7 million for 2009, a favorable change of
$58.9 million versus 2008. All other noninterest income
categories combined were $45.8 million, down
$11.5 million compared to 2008. Fee income
(defined in Table 6 below) as a percentage of total
revenue (defined as taxable equivalent net interest income
plus fee income) was 31.6% for 2009 compared to 32.0% for 2008.
TABLE 6:
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
Years Ended December 31,
|
|
|
Prior Year
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Trust service fees
|
|
$
|
36,009
|
|
|
$
|
38,420
|
|
|
$
|
42,629
|
|
|
|
(6.3
|
)%
|
|
|
(9.9
|
)%
|
Service charges on deposit accounts
|
|
|
116,918
|
|
|
|
118,368
|
|
|
|
101,042
|
|
|
|
(1.2
|
)
|
|
|
17.1
|
|
Card-based and other nondeposit fees
|
|
|
45,977
|
|
|
|
48,540
|
|
|
|
47,558
|
|
|
|
(5.3
|
)
|
|
|
2.1
|
|
Retail commission income
|
|
|
60,678
|
|
|
|
62,588
|
|
|
|
61,645
|
|
|
|
(3.1
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
Core fee-based revenue
|
|
|
259,582
|
|
|
|
267,916
|
|
|
|
252,874
|
|
|
|
(3.1
|
)
|
|
|
5.9
|
|
Mortgage banking income
|
|
|
67,277
|
|
|
|
37,566
|
|
|
|
39,467
|
|
|
|
79.1
|
|
|
|
(4.8
|
)
|
Mortgage servicing rights expense
|
|
|
26,395
|
|
|
|
22,882
|
|
|
|
16,717
|
|
|
|
15.4
|
|
|
|
36.9
|
|
|
|
|
|
|
|
Mortgage banking, net
|
|
|
40,882
|
|
|
|
14,684
|
|
|
|
22,750
|
|
|
|
178.4
|
|
|
|
(35.5
|
)
|
Capital market fees, net
|
|
|
5,536
|
|
|
|
7,390
|
|
|
|
4,896
|
|
|
|
(25.1
|
)
|
|
|
50.9
|
|
Bank owned life insurance (BOLI) income
|
|
|
16,032
|
|
|
|
19,804
|
|
|
|
17,419
|
|
|
|
(19.0
|
)
|
|
|
13.7
|
|
Other
|
|
|
24,226
|
|
|
|
30,065
|
|
|
|
23,061
|
|
|
|
(19.4
|
)
|
|
|
30.4
|
|
|
|
|
|
|
|
Subtotal (fee income)
|
|
|
346,258
|
|
|
|
339,859
|
|
|
|
321,000
|
|
|
|
1.9
|
|
|
|
5.9
|
|
Asset sale gains (losses), net
|
|
|
(4,071
|
)
|
|
|
(1,668
|
)
|
|
|
15,607
|
|
|
|
N/M
|
|
|
|
N/M
|
|
Investment securities gains (losses), net
|
|
|
8,774
|
|
|
|
(52,541
|
)
|
|
|
8,174
|
|
|
|
N/M
|
|
|
|
N/M
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
350,961
|
|
|
$
|
285,650
|
|
|
$
|
344,781
|
|
|
|
22.9
|
%
|
|
|
(17.2
|
)%
|
|
|
|
|
|
|
N/M = not meaningful
Trust service fees for 2009 were $36.0 million, down
$2.4 million (6.3%) from 2008, primarily due to weaker
stock market performance. The
year-to-date
average market value of assets under management was
$5.0 billion and $5.7 billion during 2009 and 2008,
respectively. The market value of assets under management at
December 31, 2009, was $5.3 billion compared to
$5.1 billion at December 31, 2008.
39
Service charges on deposit accounts were $116.9 million,
$1.5 million (1.2%) lower than 2008. The decrease was
primarily attributable to lower nonsufficient
funds / overdraft fees (down $4.6 million to
$79.9 million), partially offset by an increase in service
charges (up $3.1 million to $37.0 million).
Card-based and other nondeposit fees were $46.0 million for
2009, a decrease of $2.6 million (5.3%) from 2008,
principally due to lower commercial and card-related fees.
Retail commissions (which include commissions from insurance and
brokerage product sales) were $60.7 million for 2009, down
$1.9 million (3.1%) compared to 2008, including lower
insurance commissions (down $1.0 million to
$44.0 million), and lower fixed and variable annuity
commissions (down $0.9 million to $9.9 million for
2009), while brokerage was relatively flat.
Net mortgage banking income for 2009 was $40.9 million, up
$26.2 million compared to 2008. Net mortgage banking income
consists of gross mortgage banking income less mortgage
servicing rights expense. Gross mortgage banking income (which
includes servicing fees and the gain or loss on sales of
mortgage loans to the secondary market, related fees, and fair
value marks (collectively gains on sales and related
income)) was $67.3 million in 2009, an increase of
$29.7 million (79.1%) compared to 2008. This
$29.7 million increase between 2009 and 2008 was primarily
attributable to higher gains on sales and related income (up
$27.2 million). Secondary mortgage production was
$3.7 billion for 2009, compared to $1.4 billion for
2008.
Mortgage servicing rights expense includes both the base
amortization of the mortgage servicing rights asset and changes
to the valuation allowance associated with the mortgage
servicing rights asset. Mortgage servicing rights expense is
affected by the size of the servicing portfolio, as well as the
changes in the estimated fair value of the mortgage servicing
rights asset. Mortgage servicing rights expense was
$26.4 million for 2009 compared to $22.9 million for
2008, primarily attributable to $3.5 million higher base
amortization, as the change to the valuation allowance was
relatively unchanged between the years (including a
$6.8 million addition to the valuation reserve in both 2009
and 2008). As mortgage interest rates rise, prepayment speeds
are usually slower and the value of the mortgage servicing
rights asset generally increases, requiring less valuation
reserve. Conversely, as mortgage interest rates fall, prepayment
speeds are usually faster and the value of the mortgage
servicing rights asset generally decreases, requiring additional
valuation reserve.
Mortgage servicing rights, net of any valuation allowance, are
carried in other intangible assets, net, on the consolidated
balance sheets at the lower of amortized cost or estimated fair
value. At December 31, 2009, the net mortgage servicing
rights asset was $63.8 million, representing 83 bp of
the $7.7 billion portfolio of residential mortgage loans
serviced for others, compared to a net mortgage servicing rights
asset of $45.6 million, representing 69 bp of the
$6.6 billion mortgage portfolio serviced for others at
December 31, 2008. Mortgage servicing rights are considered
a critical accounting policy given that estimating their fair
value involves an internal discounted cash flow model and
assumptions that involve judgment, particularly of estimated
prepayment speeds of the underlying mortgages serviced and the
overall level of interest rates. See section Critical
Accounting Policies, as well as Note 1, Summary
of Significant Accounting Policies, of the notes to
consolidated financial statements for the Corporations
accounting policy for mortgage servicing rights and Note 5,
Goodwill and Intangible Assets, of the notes to
consolidated financial statements for additional disclosure.
Capital market fees, net (which include fee income from foreign
currency and interest rate risk related services provided to our
customers) were $5.5 million, a decrease of
$1.9 million compared to 2008, due to a $2.3 million
decrease in interest rate risk related fees, partially offset by
a $0.4 million increase in foreign currency related fees.
BOLI income was $16.0 million, down $3.8 million from
2008, due to the lower interest rates on the underlying assets
of the BOLI investment. Other income was $24.2 million, a
decrease of $5.8 million (19.4%) versus 2008, with 2008
including $5.2 million in gains related to Visa, Inc.
(Visa) matters and an $0.8 million gain on an
ownership interest divestiture.
During 2008, the Visa matters resulted in the Corporation
recording a total gain of $5.2 million, which included a
$3.2 million gain from the mandatory partial redemption of
the Corporations Class B common stock in Visa Inc.
related to Visas initial public offering which was
completed during first quarter 2008 and a $2.0 million gain
(including a $1.5 million gain in the first quarter of 2008
and a $0.5 million gain in the fourth quarter of
2008) and a corresponding receivable (included in other
assets in the consolidated balance sheets) for the
Corporations pro rata interest in the litigation escrow
account established by Visa from which settlements of certain
covered litigation will be paid (Visa may add to this over time
through a defined process which may involve a further redemption
of the
40
Class B common stock). In addition, the Corporation has a
zero basis (i.e., historical cost/carryover basis) in the shares
of unredeemed Visa Class B common stock which are
convertible with limitations into Visa Class A common stock
based on a conversion rate that is subject to change in
accordance with specified terms (including provision of
Visas retrospective responsibility plan which provides
that Class B stockholders will bear the financial impact of
certain covered litigation) and no sooner than the longer of
three years or resolution of covered litigation. During 2009,
the Corporation recorded income of $0.3 million and a
corresponding receivable for the Corporations pro rata
interest in the Visa litigation escrow account. For additional
discussion of Visa matters see section Contractual
Obligation, Commitments, Off-Balance Sheet Arrangements, and
Contingent Liabilities, and Note 14,
Commitments, Off-Balance Sheet Arrangements, and
Contingent Liabilities, of the notes to consolidated
financial statements.
Net asset sale losses were $4.1 million for 2009 (primarily
due to higher losses on sales of other real estate owned),
compared to net asset sale losses of $1.7 million for 2008
(including a $1.2 million gain on the sale of third party
administration business contracts and $2.4 million net
losses on sales of other real estate owned). Net investment
securities gains of $8.8 million for 2009 were attributable
to gains of $14.6 million on the sale of mortgage-related
securities, partially offset by a $2.9 million loss on the
sale of mortgage-related securities and $2.9 million of
credit-related
other-than-temporary
write-downs (including a $2.0 million write-down on a trust
preferred debt security, a $0.4 million write-down on a
non-agency mortgage-related security, and a $0.5 million
write-down on various equity securities). Net investment
securities losses of $52.5 million for 2008 were
attributable to
other-than-temporary
write-downs on the Corporations holding of various
mortgage-related, debt, and equity securities (including a
$31.1 million write-down on a non-agency mortgage-related
security, a $13.2 million write-down on FHLMC and FNMA
preferred stocks, a $6.8 million write-down on trust
preferred debt securities pools, and a $1.4 million
write-down on common equity securities). For additional data see
section, Investment Securities Portfolio, and
Note 1, Summary of Significant Accounting
Policies, and Note 3, Investment
Securities, of the notes to consolidated financial
statements.
Noninterest
Expense
Noninterest expense for 2009 was $611.4 million, an
increase of $54.0 million or 9.7% over 2008. FDIC expense
increased $39.4 million, legal and professional fees
increased $5.0 million, and foreclosure / OREO
expense increased $24.4 million, while personnel expense
was down $5.1 million and collectively all other
noninterest expenses were down $9.7 million compared to
2008.
TABLE 7:
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change From
|
|
|
|
Years Ended December 31,
|
|
|
Prior Year
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Personnel expense
|
|
$
|
304,390
|
|
|
$
|
309,478
|
|
|
$
|
303,428
|
|
|
|
(1.6
|
)%
|
|
|
2.0
|
%
|
Occupancy
|
|
|
49,341
|
|
|
|
50,461
|
|
|
|
46,659
|
|
|
|
(2.2
|
)
|
|
|
8.1
|
|
Equipment
|
|
|
18,385
|
|
|
|
19,123
|
|
|
|
17,908
|
|
|
|
(3.9
|
)
|
|
|
6.8
|
|
Data processing
|
|
|
30,893
|
|
|
|
30,451
|
|
|
|
31,690
|
|
|
|
1.5
|
|
|
|
(3.9
|
)
|
Business development and advertising
|
|
|
18,033
|
|
|
|
21,400
|
|
|
|
19,785
|
|
|
|
(15.7
|
)
|
|
|
8.2
|
|
Stationery and supplies
|
|
|
6,128
|
|
|
|
7,674
|
|
|
|
6,824
|
|
|
|
(20.1
|
)
|
|
|
12.5
|
|
Other intangible asset amortization expense
|
|
|
5,543
|
|
|
|
6,269
|
|
|
|
7,116
|
|
|
|
(11.6
|
)
|
|
|
(11.9
|
)
|
FDIC expense
|
|
|
41,934
|
|
|
|
2,524
|
|
|
|
1,668
|
|
|
|
N/M
|
|
|
|
51.3
|
|
Courier expense
|
|
|
4,691
|
|
|
|
6,153
|
|
|
|
6,786
|
|
|
|
(23.8
|
)
|
|
|
(9.3
|
)
|
Postage expense
|
|
|
7,122
|
|
|
|
7,702
|
|
|
|
7,689
|
|
|
|
(7.5
|
)
|
|
|
0.2
|
|
Legal and professional fees
|
|
|
19,562
|
|
|
|
14,566
|
|
|
|
11,841
|
|
|
|
34.3
|
|
|
|
23.0
|
|
Foreclosure / OREO expense
|
|
|
38,129
|
|
|
|
13,685
|
|
|
|
7,508
|
|
|
|
178.6
|
|
|
|
82.3
|
|
Other
|
|
|
67,269
|
|
|
|
67,974
|
|
|
|
65,989
|
|
|
|
(1.0
|
)
|
|
|
3.0
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
$
|
611,420
|
|
|
$
|
557,460
|
|
|
$
|
534,891
|
|
|
|
9.7
|
%
|
|
|
4.2
|
%
|
|
|
|
|
|
|
Personnel expense to Total noninterest expense
|
|
|
49.8
|
%
|
|
|
55.5
|
%
|
|
|
56.7
|
%
|
|
|
|
|
|
|
|
|
N/M = not meaningful
41
Personnel expense (which includes salary-related expenses and
fringe benefit expenses) was $304.4 million for 2009, down
$5.1 million (1.6%) from 2008. Average full-time equivalent
employees were 5,016 for 2009, down 2.2% from 5,131 for 2008.
Salary-related expenses decreased $7.1 million (2.8%). This
decrease was primarily due to lower
formal / discretionary bonuses (down
$13.5 million), partially offset by higher compensation and
commissions (up $5.6 million, including merit increases
between the years, higher commissions due to current secondary
mortgage production volume, and higher compensation related to
the vesting of stock options and restricted stock grants).
Fringe benefit expenses increased $2.0 million (3.5%),
primarily from higher costs of premium-based benefits (up
$1.7 million).
Compared to 2008, occupancy expense of $49.3 million was
down $1.1 million (2.2%), equipment expense of
$18.4 million was down $0.7 million (3.9%), data
processing of $30.9 million was up $0.4 million
(1.5%), business development and advertising of
$18.0 million was down $3.4 million (15.7%),
stationery and supplies of $6.1 million was down
$1.5 million (20.1%), courier expense of $4.7 million
was down $1.5 million (23.8%), and postage expense of
$7.1 million was down $0.6 million (7.5%), reflecting
efforts to control selected discretionary expenses. Other
intangible asset amortization expense decreased
$0.7 million (11.6%), attributable to the full amortization
of certain intangible assets during 2008. FDIC expense increased
$39.4 million as the assessment rate more than doubled in
January 2009, the one-time assessment credit was exhausted
during the first quarter of 2009, and the second quarter of 2009
included a special assessment of $11.3 million. Legal and
professional expense of $19.6 million increased
$5.0 million (34.3%), primarily due to higher legal and
other professional consultant costs related to increased
foreclosure activities, and other corporate activities and
projects. Foreclosure / OREO expenses of
$38.1 million increased $24.4 million, including a
$9.8 million increase in OREO write-downs (primarily
attributable to an $8 million write-down on a foreclosed
property) and a general rise in foreclosure expenses (impacted
by the continued deterioration of the real estate market). Other
expense of $67.3 million decreased $0.7 million (1.0%)
from 2008, with 2009 including a $10.5 million increase to
the reserve for losses on unfunded commitments compared to a
$2.8 million increase during 2008 (attributable to the
erosion of the credit environment), as well as declines in
miscellaneous other expense categories given the efforts to
control selected discretionary expenses.
Income
Taxes
The Corporation recognized an income tax benefit of
$153.2 million for 2009 compared to income tax expense of
$53.8 million for 2008. The change in income tax was
primarily due to the decrease in pretax income to a pretax loss
between the years. In addition, during 2009, the Corporation
recorded a $19.2 million net decrease in the valuation
allowance on and changes to state deferred tax assets as a
result of the recently enacted Wisconsin combined reporting
legislation.
See Note 1, Summary of Significant Accounting
Policies, of the notes to consolidated financial
statements for the Corporations income tax accounting
policy and section Critical Accounting Policies.
Income tax expense recorded in the consolidated statements of
income (loss) involves interpretation and application of certain
accounting pronouncements and federal and state tax codes, and
is, therefore, considered a critical accounting policy. The
Corporation undergoes examination by various taxing authorities.
Such examinations by taxing authorities may result in changes in
the amount of tax expense or valuation allowance be recognized
when their interpretations differ from those of management,
based on their judgments about information available to them at
the time of their examinations. See Note 13, Income
Taxes, of the notes to consolidated financial statements
for more information.
BALANCE
SHEET ANALYSIS
The Corporations growth comes predominantly from loans and
investment securities. See sections Loans and
Investment Securities Portfolio. The Corporation has
generally financed its growth through increased deposits and
issuance of debt (see sections, Deposits,
Other Funding Sources, and Liquidity),
as well as retention of earnings and the issuance of common and
preferred stock, particularly in the case of certain
acquisitions (see section Capital).
42
Loans
Total loans were $14.1 billion at December 31, 2009, a
decrease of $2.2 billion or 13.2% from December 31,
2008. Commercial loans decreased $1.6 billion (15.3%) to
represent 62% of total loans at the end of 2009, compared to 63%
at year-end 2008. Retail loans were $3.4 billion, down
$0.3 billion (7.8%) and represented 24% of total loans
compared to 23% at December 31, 2008, while residential
mortgage loans decreased $0.3 billion (12.8%) to represent
14% of total loans (unchanged from 14% of total loans for 2008).
TABLE 8:
Loan Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Commercial, financial, and agricultural
|
|
$
|
3,450,632
|
|
|
|
24
|
%
|
|
$
|
4,388,691
|
|
|
|
27
|
%
|
|
$
|
4,281,091
|
|
|
|
28
|
%
|
|
$
|
3,677,573
|
|
|
|
24
|
%
|
|
$
|
3,417,343
|
|
|
|
22
|
%
|
Commercial real estate
|
|
|
3,817,066
|
|
|
|
27
|
|
|
|
3,566,551
|
|
|
|
22
|
|
|
|
3,635,365
|
|
|
|
23
|
|
|
|
3,789,480
|
|
|
|
25
|
|
|
|
4,064,327
|
|
|
|
27
|
|
Real estate construction
|
|
|
1,397,493
|
|
|
|
10
|
|
|
|
2,260,888
|
|
|
|
13
|
|
|
|
2,260,766
|
|
|
|
14
|
|
|
|
2,047,124
|
|
|
|
14
|
|
|
|
1,783,267
|
|
|
|
12
|
|
Lease financing
|
|
|
95,851
|
|
|
|
1
|
|
|
|
122,113
|
|
|
|
1
|
|
|
|
108,794
|
|
|
|
1
|
|
|
|
81,814
|
|
|
|
1
|
|
|
|
61,315
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
8,761,042
|
|
|
|
62
|
|
|
|
10,338,243
|
|
|
|
63
|
|
|
|
10,286,016
|
|
|
|
66
|
|
|
|
9,595,991
|
|
|
|
64
|
|
|
|
9,326,252
|
|
|
|
61
|
|
Home equity
|
|
|
2,546,167
|
|
|
|
18
|
|
|
|
2,883,317
|
|
|
|
18
|
|
|
|
2,269,122
|
|
|
|
15
|
|
|
|
2,164,758
|
|
|
|
15
|
|
|
|
2,025,055
|
|
|
|
13
|
|
Installment
|
|
|
873,568
|
|
|
|
6
|
|
|
|
827,303
|
|
|
|
5
|
|
|
|
841,136
|
|
|
|
5
|
|
|
|
915,747
|
|
|
|
6
|
|
|
|
1,003,938
|
|
|
|
7
|
|
|
|
|
|
|
|
Total retail
|
|
|
3,419,735
|
|
|
|
24
|
|
|
|
3,710,620
|
|
|
|
23
|
|
|
|
3,110,258
|
|
|
|
20
|
|
|
|
3,080,505
|
|
|
|
21
|
|
|
|
3,028,993
|
|
|
|
20
|
|
Residential mortgage
|
|
|
1,947,848
|
|
|
|
14
|
|
|
|
2,235,045
|
|
|
|
14
|
|
|
|
2,119,978
|
|
|
|
14
|
|
|
|
2,205,030
|
|
|
|
15
|
|
|
|
2,851,219
|
|
|
|
19
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
14,128,625
|
|
|
|
100
|
%
|
|
$
|
16,283,908
|
|
|
|
100
|
%
|
|
$
|
15,516,252
|
|
|
|
100
|
%
|
|
$
|
14,881,526
|
|
|
|
100
|
%
|
|
$
|
15,206,464
|
|
|
|
100
|
%
|
|
|
|
|
|
|
Farmland
|
|
$
|
47,514
|
|
|
|
1
|
%
|
|
$
|
57,242
|
|
|
|
1
|
%
|
|
$
|
59,590
|
|
|
|
1
|
%
|
|
$
|
59,220
|
|
|
|
2
|
%
|
|
$
|
62,916
|
|
|
|
1
|
%
|
Multi-family
|
|
|
543,936
|
|
|
|
14
|
|
|
|
496,059
|
|
|
|
14
|
|
|
|
534,679
|
|
|
|
15
|
|
|
|
654,238
|
|
|
|
17
|
|
|
|
754,886
|
|
|
|
19
|
|
Owner occupied(a)
|
|
|
1,198,075
|
|
|
|
32
|
|
|
|
1,239,139
|
|
|
|
35
|
|
|
|
1,293,217
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied(a)
|
|
|
2,027,541
|
|
|
|
53
|
|
|
|
1,774,111
|
|
|
|
50
|
|
|
|
1,747,879
|
|
|
|
48
|
|
|
|
3,076,022
|
|
|
|
81
|
|
|
|
3,246,525
|
|
|
|
80
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
3,817,066
|
|
|
|
100
|
%
|
|
$
|
3,566,551
|
|
|
|
100
|
%
|
|
$
|
3,635,365
|
|
|
|
100
|
%
|
|
$
|
3,789,480
|
|
|
|
100
|
%
|
|
$
|
4,064,327
|
|
|
|
100
|
%
|
|
|
|
|
|
|
1-4 family construction(b)
|
|
$
|
251,307
|
|
|
|
18
|
%
|
|
$
|
423,137
|
|
|
|
19
|
%
|
|
$
|
486,383
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other construction(b)
|
|
|
1,146,186
|
|
|
|
82
|
|
|
|
1,837,751
|
|
|
|
81
|
|
|
|
1,774,383
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
$
|
1,397,493
|
|
|
|
100
|
%
|
|
$
|
2,260,888
|
|
|
|
100
|
%
|
|
$
|
2,260,766
|
|
|
|
100
|
%
|
|
$
|
2,047,124
|
|
|
|
100
|
%
|
|
$
|
1,783,267
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
(a)
|
|
A break-down between owner occupied
and non-owner occupied commercial real estate is not available
for 2006 and 2005.
|
|
(b)
|
|
A break-down between 1-4 family and
all other real estate construction is not available for 2006 and
2005.
|
Commercial loans are generally viewed as having more inherent
risk of default than residential mortgage or retail loans. Also,
the commercial loan balance per borrower is typically larger
than that for residential mortgage and retail loans, inferring
higher potential losses on an individual customer basis.
Commercial loans declined during 2009 as loan demand declined
given the continued deterioration in the economy and the
Corporation further responded to the stricter credit environment
(particularly in commercial real estate) by aggressively
managing risks of certain targeted performing loans and took
charge offs on nonperforming commercial loans.
Commercial, financial, and agricultural loans were
$3.5 billion at the end of 2009, down $938 million
(21.4%) since year-end 2008, and comprised 24% of total loans
outstanding, down from 27% at the end of 2008. The commercial,
financial, and agricultural loan classification primarily
consists of commercial loans to middle market companies and
small businesses. Loans of this type are in a diverse range of
industries. 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. Within the commercial,
financial, and agricultural classification, loans to finance
agricultural production totaled less than 0.5% of total loans
for all periods presented.
43
Commercial real estate primarily includes commercial-based loans
that are secured by multifamily properties and
nonfarm/nonresidential real estate properties. Commercial real
estate totaled $3.8 billion at December 31, 2009, up
$251 million (7.0%) from December 31, 2008, and
comprised 27% of total loans outstanding versus 22% at year-end
2008. Commercial real estate loans involve borrower
characteristics similar to those discussed for commercial,
financial, and agricultural loans and real estate construction
projects. Loans of this type are mainly secured by commercial
income properties or multifamily projects. Credit risk is
managed in a similar manner to commercial, financial, and
agricultural loans and real estate construction 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 loans declined $863 million
(38.2%) to $1.4 billion, representing 10% of the total loan
portfolio at the end of 2009, compared to 13% at the end of
2008. Loans in this classification are primarily short-term or
interim loans that provide financing for the acquisition or
development of commercial income properties, multifamily
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, have prior successful project experience, and
are well capitalized. Projects undertaken by these developers
are carefully reviewed by the Corporation to ensure that they
are economically viable. 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, underwriting the loans to meet the requirements of
institutional investors in the secondary market, reviewing the
merits of individual projects, controlling loan structure, and
monitoring project progress and construction advances.
Retail loans totaled $3.4 billion at December 31,
2009, down $291 million (7.8%) compared to 2008, and
represented 24% of the 2009 year-end loan portfolio versus
23% at year-end 2008. Loans in this classification include home
equity and installment loans. Home equity consists of home
equity lines, as well as home equity loans, some of which are
first lien positions, while installment loans consist of
educational loans, as well as short-term and other personal
installment loans. The Corporation had $615 million and
$506 million of education loans at December 31, 2009
and 2008, respectively, the majority of which are government
guaranteed. Credit risk for these types of loans is generally
greatly 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 on these smaller
retail loans. Credit risk is primarily controlled by reviewing
the creditworthiness of the borrowers, monitoring payment
histories, and taking appropriate collateral and guaranty
positions.
Residential mortgage loans totaled $1.9 billion at the end
of 2009, down $287 million (12.8%) from the prior year and
comprised 14% of total loans outstanding at both year-end 2009
and year-end 2008. Residential mortgage loans include
conventional first lien home mortgages and the Corporation
generally limits the maximum loan to 80% of collateral value
without credit enhancement. As part of its management of
originating and servicing residential mortgage loans, nearly all
of the Corporations long-term, fixed-rate residential real
estate mortgage loans are sold in the secondary market with
servicing rights retained.
Factors that are important to managing overall credit quality
are sound loan underwriting and administration, systematic
monitoring of existing loans and commitments, effective loan
review on an ongoing basis, early identification of potential
problems, an appropriate allowance for loan losses, and sound
nonaccrual and charge off policies.
An active credit risk management process is used for commercial
loans to further 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 analyses by customer, industry, and geographic
location are performed to monitor trends, financial performance,
and concentrations.
The loan portfolio is widely diversified by types of borrowers,
industry groups, and market areas within our core footprint.
Significant loan concentrations are considered to exist for a
financial institution 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
December 31, 2009, no significant concentrations existed in
the Corporations portfolio in excess of 10% of total
loans. However, the Corporation has several areas of larger
exposures (less than
44
10% of total loans) which are being closely monitored, such as
$988 million of Shared National Credits, $626 million
of residential and land development loans, and $137 million
of broker generated home equity loans.
TABLE 9:
Loan Maturity Distribution and Interest Rate
Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity(1)
|
|
|
|
|
|
December 31, 2009
|
|
Within 1 Year(2)
|
|
|
1-5 Years
|
|
|
After 5 Years
|
|
|
Total
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Commercial, financial, and agricultural
|
|
$
|
2,726,863
|
|
|
$
|
568,108
|
|
|
$
|
155,661
|
|
|
$
|
3,450,632
|
|
Real estate construction
|
|
|
1,233,784
|
|
|
|
158,992
|
|
|
|
4,717
|
|
|
|
1,397,493
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,960,647
|
|
|
$
|
727,100
|
|
|
$
|
160,378
|
|
|
$
|
4,848,125
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
910,140
|
|
|
$
|
532,695
|
|
|
$
|
145,366
|
|
|
$
|
1,588,201
|
|
Floating or adjustable rate
|
|
|
3,050,507
|
|
|
|
194,405
|
|
|
|
15,012
|
|
|
|
3,259,924
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,960,647
|
|
|
$
|
727,100
|
|
|
$
|
160,378
|
|
|
$
|
4,848,125
|
|
|
|
|
|
|
|
Percent by maturity distribution
|
|
|
82
|
%
|
|
|
15
|
%
|
|
|
3
|
%
|
|
|
100
|
%
|
|
|
|
(1)
|
|
Based upon scheduled principal
repayments.
|
|
(2)
|
|
Demand loans, past due loans, and
overdrafts are reported in the Within 1 Year
category.
|
Allowance
for Loan 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 on-going 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 briefly in the section entitled Loans.
The level of the allowance for loan losses represents
managements estimate of an amount appropriate to provide
for probable credit losses in the loan portfolio at the balance
sheet date. To assess the appropriateness of the allowance for
loan losses, an allocation methodology is applied by the
Corporation which focuses on evaluation of several 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 nonperforming 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. Therefore, management considers the
allowance for loan losses a critical accounting
policy see section Critical Accounting
Policies and further discussion in this section. See also
managements allowance for loan losses accounting policy in
Note 1, Summary of Significant Accounting
Policies, and Note 4, Loans, of the notes
to consolidated financial statements for additional allowance
for loan losses disclosures. Table 8 provides information on
loan growth and composition, Tables 10 and 11 provide additional
information regarding activity in the allowance for loan losses,
and Table 12 provides additional information regarding
nonperforming loans and assets.
At December 31, 2009, the allowance for loan losses was
$573.5 million, compared to $265.4 million at
December 31, 2008 and $200.6 million at
December 31, 2007. The allowance for loan losses to total
loans was 4.06%, 1.63%, and 1.29% at December 31, 2009,
2008 and 2007, respectively, and the allowance for loan losses
covered 51%, 78% and 123% of nonperforming loans at
December 31, 2009, 2008 and 2007, respectively. The
Corporations estimate of the appropriate allowance for
loan losses does not have a targeted reserve to nonperforming
loan coverage ratio. Managements allowance methodology
includes an impairment analysis on specifically identified
commercial loans defined as impaired by the Corporation, as well
as other qualitative and quantitative factors (including, but
not limited to, historical trends, risk characteristics of the
loan portfolio, changes in the size and character of the loan
portfolio, and existing economic conditions) in determining the
overall appropriate level of the allowance for loan losses.
Changes in the allowance for loan losses are shown in Table 10.
Credit losses, net of recoveries, are deducted from the
allowance for loan losses. A direct increase to the allowance
45
for loan losses comes from acquisitions. Finally, the provision
for loan losses, a charge against earnings, is recorded to bring
the allowance for loan losses to a level that, in
managements judgment, is appropriate to provide for
probable credit losses in the loan portfolio at the balance
sheet date. With the accelerated deterioration of credit quality
during 2009, rising net charge off and nonperforming loan
ratios, and managements assessment of the appropriate
level of the allowance for loan losses, the provision for loan
losses of $750.6 million for 2009 was higher than the 2008
provision of $202.1 million and 2007 provision of
$34.5 million.
The asset quality stress experienced in 2007 and 2008
accelerated considerably during 2009 with the Corporation
experiencing elevated net charge offs and higher nonperforming
loan levels compared to the Corporations historical
trends. Industry issues impacting asset quality during this
period included a general deterioration in economic factors such
as higher and more volatile energy prices, rising unemployment,
the fall of the dollar, and rumors of inflation or recession;
declining commercial and residential real estate markets;
pervasive subprime lending issues; and waning consumer
confidence. While the likelihood of losses that are equal to the
entire recorded investment for a real estate loan is remote,
declining collateral values have significantly contributed to
the elevated levels of nonperforming loans, net charge offs, and
allowance for loan losses, resulting in the increase in the
provision for loan losses that the Corporation has experienced
in recent periods. During this time period, the Corporation has
continued to review its underwriting and risk-based pricing
guidelines for commercial real estate and real estate
construction lending, as well as on new home equity and
residential mortgage loans, to reduce potential exposure within
these portfolio categories.
The Corporations underwriting and risk-based pricing
guidelines for consumer-related real estate loans consist of a
combination of both borrower FICO (credit score) and the
loan-to-value
(LTV) of the property securing the loan. Currently,
for home equity products, the maximum acceptable LTV is 85% for
customers with FICO scores exceeding 710, and 75% LTV for all
other customers. The average FICO score for new home equity
production in 2009 was 764, compared to 765 in 2008, 750 in
2007, 739 in 2006, and 732 in 2005. Residential mortgage
products continue to be underwritten using FHLMC and FNMA
secondary marketing guidelines.
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 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 which has a 50% LTV
maximum. The Corporations LTV guidelines are generally
more conservative than regulatory supervisory limits. In most
cases, for real estate construction loans, the loan amounts used
to determine LTV include interest reserves, which are built into
the loans and sized to carry the projects through construction
and lease up and / or sell out.
Gross charge offs were $452.2 million for 2009,
$145.8 million for 2008, and $47.2 million for 2007,
while recoveries for the corresponding periods were
$9.7 million, $8.5 million, and $6.8 million,
respectively. As a result, net charge offs were
$442.5 million or 2.84% of average loans for 2009, compared
to $137.3 million or 0.85% of average loans for 2008, and
$40.4 million or 0.27% of average loans for 2007 (see Table
10). The 2009 increase in net charge offs of $305 million
was comprised of a $263 million increase in commercial net
charge offs, and a $42 million increase in retail and
residential mortgage net charge offs. The 2009 increase in
commercial net charge offs was mainly attributable to a higher
incidence of large (greater than $2 million) charge offs
within residential and land development loans, and in the
financial institutions and housing-related industries. For 2009,
84% of net charge offs came from commercial loans (and
commercial loans represented 62% of total loans at year-end
2009), compared to 79% for 2008 and 60% for 2007, a result of
the sizable increase in commercial charge offs in both 2009 and
2008. The 2009 increase in retail home equity and residential
mortgage net charge offs was primarily due to the deteriorating
economic conditions and a weak housing market. For 2009, retail
loans (which represent 24% of total loans at year-end
2009) accounted for 13% of net charge offs, down from 19%
for 2008 and 35% for 2007. Residential mortgages (representing
14% of total loans at year-end 2009) accounted for 3% of
2009 net charge offs, compared to 2% and 5% for 2008 and
2007, respectively. Gross charge offs of retail and residential
mortgage loans have been rising over the past three years, as
economic conditions, such as rising unemployment, higher energy,
health and other costs, and a weakening housing market, have
been impacting the consumers borrowing behavior and
ability to pay back debt, while recoveries on these loans have
remained relatively low. Loans charged off are subject to
continuous review, and specific efforts are taken to achieve
maximum recovery of principal, accrued interest, and related
expenses.
46
TABLE 10:
Loan Loss Experience
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Allowance for loan losses, at beginning of year
|
|
$
|
265,378
|
|
|
|
|
|
|
$
|
200,570
|
|
|
|
|
|
|
$
|
203,481
|
|
|
|
|
|
|
$
|
203,404
|
|
|
|
|
|
|
$
|
189,762
|
|
|
|
|
|
Balance related to acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,283
|
|
|
|
|
|
Provision for loan losses
|
|
|
750,645
|
|
|
|
|
|
|
|
202,058
|
|
|
|
|
|
|
|
34,509
|
|
|
|
|
|
|
|
19,056
|
|
|
|
|
|
|
|
13,019
|
|
|
|
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
|
161,260
|
|
|
|
|
|
|
|
45,207
|
|
|
|
|
|
|
|
21,574
|
|
|
|
|
|
|
|
9,562
|
|
|
|
|
|
|
|
9,461
|
|
|
|
|
|
Commercial real estate
|
|
|
57,288
|
|
|
|
|
|
|
|
12,932
|
|
|
|
|
|
|
|
4,427
|
|
|
|
|
|
|
|
1,918
|
|
|
|
|
|
|
|
4,667
|
|
|
|
|
|
Real estate construction
|
|
|
157,752
|
|
|
|
|
|
|
|
55,782
|
|
|
|
|
|
|
|
2,559
|
|
|
|
|
|
|
|
1,287
|
|
|
|
|
|
|
|
612
|
|
|
|
|
|
Lease financing
|
|
|
1,575
|
|
|
|
|
|
|
|
599
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
377,875
|
|
|
|
|
|
|
|
114,520
|
|
|
|
|
|
|
|
28,710
|
|
|
|
|
|
|
|
12,907
|
|
|
|
|
|
|
|
14,999
|
|
|
|
|
|
Home equity
|
|
|
49,674
|
|
|
|
|
|
|
|
20,011
|
|
|
|
|
|
|
|
9,732
|
|
|
|
|
|
|
|
8,251
|
|
|
|
|
|
|
|
3,469
|
|
|
|
|
|
Installment
|
|
|
10,364
|
|
|
|
|
|
|
|
7,546
|
|
|
|
|
|
|
|
6,501
|
|
|
|
|
|
|
|
7,005
|
|
|
|
|
|
|
|
7,052
|
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
60,038
|
|
|
|
|
|
|
|
27,557
|
|
|
|
|
|
|
|
16,233
|
|
|
|
|
|
|
|
15,256
|
|
|
|
|
|
|
|
10,521
|
|
|
|
|
|
Residential mortgage
|
|
|
14,293
|
|
|
|
|
|
|
|
3,749
|
|
|
|
|
|
|
|
2,306
|
|
|
|
|
|
|
|
2,344
|
|
|
|
|
|
|
|
2,223
|
|
|
|
|
|
|
|
|
|
|
|
Total loans charged off
|
|
|
452,206
|
|
|
|
|
|
|
|
145,826
|
|
|
|
|
|
|
|
47,249
|
|
|
|
|
|
|
|
30,507
|
|
|
|
|
|
|
|
27,743
|
|
|
|
|
|
Recoveries of loans previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
|
5,583
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
3,595
|
|
|
|
|
|
|
|
5,489
|
|
|
|
|
|
|
|
3,957
|
|
|
|
|
|
Commercial real estate
|
|
|
1,049
|
|
|
|
|
|
|
|
391
|
|
|
|
|
|
|
|
804
|
|
|
|
|
|
|
|
3,148
|
|
|
|
|
|
|
|
8,317
|
|
|
|
|
|
Real estate construction
|
|
|
555
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
Lease financing
|
|
|
5
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
7,192
|
|
|
|
|
|
|
|
6,493
|
|
|
|
|
|
|
|
4,677
|
|
|
|
|
|
|
|
8,660
|
|
|
|
|
|
|
|
12,311
|
|
|
|
|
|
Home equity
|
|
|
884
|
|
|
|
|
|
|
|
384
|
|
|
|
|
|
|
|
386
|
|
|
|
|
|
|
|
370
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
Installment
|
|
|
1,525
|
|
|
|
|
|
|
|
1,386
|
|
|
|
|
|
|
|
1,530
|
|
|
|
|
|
|
|
1,559
|
|
|
|
|
|
|
|
1,807
|
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
2,409
|
|
|
|
|
|
|
|
1,770
|
|
|
|
|
|
|
|
1,916
|
|
|
|
|
|
|
|
1,929
|
|
|
|
|
|
|
|
2,066
|
|
|
|
|
|
Residential mortgage
|
|
|
115
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
245
|
|
|
|
|
|
|
|
939
|
|
|
|
|
|
|
|
706
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
9,716
|
|
|
|
|
|
|
|
8,576
|
|
|
|
|
|
|
|
6,838
|
|
|
|
|
|
|
|
11,528
|
|
|
|
|
|
|
|
15,083
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge offs
|
|
|
442,490
|
|
|
|
|
|
|
|
137,250
|
|
|
|
|
|
|
|
40,411
|
|
|
|
|
|
|
|
18,979
|
|
|
|
|
|
|
|
12,660
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, at end of year
|
|
$
|
573,533
|
|
|
|
|
|
|
$
|
265,378
|
|
|
|
|
|
|
$
|
200,570
|
|
|
|
|
|
|
$
|
203,481
|
|
|
|
|
|
|
$
|
203,404
|
|
|
|
|
|
|
|
|
|
|
|
Ratios at end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans
|
|
|
4.06
|
%
|
|
|
|
|
|
|
1.63
|
%
|
|
|
|
|
|
|
1.29
|
%
|
|
|
|
|
|
|
1.37
|
%
|
|
|
|
|
|
|
1.34
|
%
|
|
|
|
|
Allowance for loan losses to net charge offs
|
|
|
1.3
|
x
|
|
|
|
|
|
|
1.9
|
x
|
|
|
|
|
|
|
5.0
|
x
|
|
|
|
|
|
|
10.7
|
x
|
|
|
|
|
|
|
16.1
|
x
|
|
|
|
|
|
|
|
|
|
|
Net loan charge offs (recoveries):
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
Commercial, financial, and agricultural
|
|
$
|
155,677
|
|
|
|
401
|
|
|
$
|
39,207
|
|
|
|
90
|
|
|
$
|
17,979
|
|
|
|
46
|
|
|
$
|
4,073
|
|
|
|
12
|
|
|
$
|
5,504
|
|
|
|
18
|
|
Commercial real estate
|
|
|
56,239
|
|
|
|
150
|
|
|
|
12,541
|
|
|
|
35
|
|
|
|
3,623
|
|
|
|
10
|
|
|
|
(1,230
|
)
|
|
|
(3
|
)
|
|
|
(3,650
|
)
|
|
|
(10
|
)
|
Real estate construction
|
|
|
157,197
|
|
|
|
816
|
|
|
|
55,709
|
|
|
|
238
|
|
|
|
2,307
|
|
|
|
11
|
|
|
|
1,287
|
|
|
|
6
|
|
|
|
575
|
|
|
|
4
|
|
Lease financing
|
|
|
1,570
|
|
|
|
144
|
|
|
|
570
|
|
|
|
47
|
|
|
|
124
|
|
|
|
14
|
|
|
|
117
|
|
|
|
16
|
|
|
|
259
|
|
|
|
48
|
|
|
|
|
|
|
|
Total commercial
|
|
|
370,683
|
|
|
|
383
|
|
|
|
108,027
|
|
|
|
104
|
|
|
|
24,033
|
|
|
|
25
|
|
|
|
4,247
|
|
|
|
4
|
|
|
|
2,688
|
|
|
|
3
|
|
Home equity
|
|
|
48,790
|
|
|
|
181
|
|
|
|
19,627
|
|
|
|
74
|
|
|
|
9,346
|
|
|
|
43
|
|
|
|
7,881
|
|
|
|
37
|
|
|
|
3,210
|
|
|
|
17
|
|
Installment
|
|
|
8,839
|
|
|
|
103
|
|
|
|
6,160
|
|
|
|
74
|
|
|
|
4,971
|
|
|
|
57
|
|
|
|
5,446
|
|
|
|
57
|
|
|
|
5,245
|
|
|
|
50
|
|
|
|
|
|
|
|
Total retail
|
|
|
57,629
|
|
|
|
162
|
|
|
|
25,787
|
|
|
|
74
|
|
|
|
14,317
|
|
|
|
47
|
|
|
|
13,327
|
|
|
|
43
|
|
|
|
8,455
|
|
|
|
29
|
|
Residential mortgage
|
|
|
14,178
|
|
|
|
60
|
|
|
|
3,436
|
|
|
|
16
|
|
|
|
2,061
|
|
|
|
9
|
|
|
|
1,405
|
|
|
|
5
|
|
|
|
1,517
|
|
|
|
5
|
|
|
|
|
|
|
|
Total net charge offs
|
|
$
|
442,490
|
|
|
|
284
|
|
|
$
|
137,250
|
|
|
|
85
|
|
|
$
|
40,411
|
|
|
|
27
|
|
|
$
|
18,979
|
|
|
|
12
|
|
|
$
|
12,660
|
|
|
|
9
|
|
|
|
|
|
|
|
(A) Ratio of net charge offs to average loans by
loan type in basis points.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate and Real estate construction net charge
off detail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland
|
|
$
|
146
|
|
|
|
28
|
|
|
$
|
74
|
|
|
|
13
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
42
|
|
|
|
7
|
|
|
$
|
80
|
|
|
|
12
|
|
Multi-family
|
|
|
6,225
|
|
|
|
119
|
|
|
|
1,116
|
|
|
|
22
|
|
|
|
59
|
|
|
|
1
|
|
|
|
(144
|
)
|
|
|
(2
|
)
|
|
|
796
|
|
|
|
10
|
|
Owner occupied(a)
|
|
|
7,352
|
|
|
|
58
|
|
|
|
4,630
|
|
|
|
37
|
|
|
|
3,317
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied(a)
|
|
|
42,516
|
|
|
|
224
|
|
|
|
6,721
|
|
|
|
38
|
|
|
|
246
|
|
|
|
1
|
|
|
|
(1,128
|
)
|
|
|
(4
|
)
|
|
|
(4,526
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
56,239
|
|
|
|
150
|
|
|
$
|
12,541
|
|
|
|
35
|
|
|
$
|
3,623
|
|
|
|
10
|
|
|
$
|
(1,230
|
)
|
|
|
(3
|
)
|
|
$
|
(3,650
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
1-4 family construction(b)
|
|
$
|
38,662
|
|
|
|
748
|
|
|
$
|
21,723
|
|
|
|
178
|
|
|
$
|
1,692
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other construction(b)
|
|
|
118,535
|
|
|
|
1129
|
|
|
|
33,986
|
|
|
|
495
|
|
|
|
615
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
$
|
157,197
|
|
|
|
816
|
|
|
$
|
55,709
|
|
|
|
238
|
|
|
$
|
2,307
|
|
|
|
11
|
|
|
$
|
1,287
|
|
|
|
6
|
|
|
$
|
575
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
A break-down between owner occupied
and non-owner occupied commercial real estate is not available
for 2006 and 2005.
|
|
(b)
|
|
A break-down between 1-4 family and
all other real estate construction is not available for 2006 and
2005.
|
47
TABLE 11:
Allocation of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Allowance allocation:
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
Commercial, financial, & agricultural
|
|
$
|
196,637
|
|
|
|
5.70
|
%
|
|
$
|
103,198
|
|
|
|
2.35
|
%
|
|
$
|
67,941
|
|
|
|
1.59
|
%
|
|
$
|
88,112
|
|
|
|
2.40
|
%
|
|
$
|
85,125
|
|
|
|
2.49
|
%
|
Commercial real estate
|
|
|
162,437
|
|
|
|
4.26
|
|
|
|
58,202
|
|
|
|
1.63
|
|
|
|
71,172
|
|
|
|
1.96
|
|
|
|
65,949
|
|
|
|
1.74
|
|
|
|
67,914
|
|
|
|
1.67
|
|
Real estate construction
|
|
|
118,708
|
|
|
|
8.49
|
|
|
|
65,991
|
|
|
|
2.92
|
|
|
|
24,084
|
|
|
|
1.07
|
|
|
|
17,267
|
|
|
|
0.84
|
|
|
|
13,643
|
|
|
|
0.77
|
|
Lease financing
|
|
|
8,303
|
|
|
|
8.66
|
|
|
|
777
|
|
|
|
0.64
|
|
|
|
732
|
|
|
|
0.67
|
|
|
|
708
|
|
|
|
0.87
|
|
|
|
590
|
|
|
|
0.96
|
|
|
|
|
|
|
|
Total commercial
|
|
|
486,085
|
|
|
|
5.55
|
|
|
|
228,168
|
|
|
|
2.21
|
|
|
|
163,929
|
|
|
|
1.59
|
|
|
|
172,036
|
|
|
|
1.79
|
|
|
|
167,272
|
|
|
|
1.79
|
|
Home equity
|
|
|
43,783
|
|
|
|
1.72
|
|
|
|
20,175
|
|
|
|
0.70
|
|
|
|
20,045
|
|
|
|
0.88
|
|
|
|
10,452
|
|
|
|
0.48
|
|
|
|
11,047
|
|
|
|
0.55
|
|
Installment
|
|
|
11,298
|
|
|
|
1.29
|
|
|
|
6,585
|
|
|
|
0.80
|
|
|
|
5,353
|
|
|
|
0.64
|
|
|
|
10,584
|
|
|
|
1.16
|
|
|
|
12,169
|
|
|
|
1.21
|
|
|
|
|
|
|
|
Total retail
|
|
|
55,081
|
|
|
|
1.61
|
|
|
|
26,760
|
|
|
|
0.72
|
|
|
|
25,398
|
|
|
|
0.82
|
|
|
|
21,036
|
|
|
|
0.68
|
|
|
|
23,216
|
|
|
|
0.77
|
|
Residential mortgage
|
|
|
32,367
|
|
|
|
1.66
|
|
|
|
10,450
|
|
|
|
0.47
|
|
|
|
11,243
|
|
|
|
0.53
|
|
|
|
10,409
|
|
|
|
0.47
|
|
|
|
12,916
|
|
|
|
0.45
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
$
|
573,533
|
|
|
|
4.06
|
%
|
|
$
|
265,378
|
|
|
|
1.63
|
%
|
|
$
|
200,570
|
|
|
|
1.29
|
%
|
|
$
|
203,481
|
|
|
|
1.37
|
%
|
|
$
|
203,404
|
|
|
|
1.34
|
%
|
|
|
|
|
|
|
|
|
|
(B
|
)
|
|
|
(C
|
)
|
|
|
(B
|
)
|
|
|
(C
|
)
|
|
|
(B
|
)
|
|
|
(C
|
)
|
|
|
(B
|
)
|
|
|
(C
|
)
|
|
|
(B
|
)
|
|
|
(C
|
)
|
Commercial, financial, & agricultural
|
|
|
34
|
%
|
|
|
24
|
%
|
|
|
39
|
%
|
|
|
27
|
%
|
|
|
34
|
%
|
|
|
28
|
%
|
|
|
43
|
%
|
|
|
24
|
%
|
|
|
42
|
%
|
|
|
22
|
%
|
Commercial real estate
|
|
|
28
|
|
|
|
27
|
|
|
|
22
|
|
|
|
22
|
|
|
|
35
|
|
|
|
23
|
|
|
|
33
|
|
|
|
25
|
|
|
|
33
|
|
|
|
27
|
|
Real estate construction
|
|
|
21
|
|
|
|
10
|
|
|
|
25
|
|
|
|
13
|
|
|
|
12
|
|
|
|
14
|
|
|
|
9
|
|
|
|
14
|
|
|
|
7
|
|
|
|
12
|
|
Lease financing
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
85
|
|
|
|
62
|
|
|
|
86
|
|
|
|
63
|
|
|
|
81
|
|
|
|
66
|
|
|
|
85
|
|
|
|
64
|
|
|
|
82
|
|
|
|
61
|
|
Home equity
|
|
|
8
|
|
|
|
18
|
|
|
|
8
|
|
|
|
18
|
|
|
|
10
|
|
|
|
15
|
|
|
|
5
|
|
|
|
15
|
|
|
|
6
|
|
|
|
13
|
|
Installment
|
|
|
2
|
|
|
|
6
|
|
|
|
2
|
|
|
|
5
|
|
|
|
3
|
|
|
|
5
|
|
|
|
5
|
|
|
|
6
|
|
|
|
6
|
|
|
|
7
|
|
|
|
|
|
|
|
Total retail
|
|
|
10
|
|
|
|
24
|
|
|
|
10
|
|
|
|
23
|
|
|
|
13
|
|
|
|
20
|
|
|
|
10
|
|
|
|
21
|
|
|
|
12
|
|
|
|
20
|
|
Residential mortgage
|
|
|
5
|
|
|
|
14
|
|
|
|
4
|
|
|
|
14
|
|
|
|
6
|
|
|
|
14
|
|
|
|
5
|
|
|
|
15
|
|
|
|
6
|
|
|
|
19
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
(A)
|
|
Allowance for loan losses category
as a percentage of total loans by category.
|
|
(B)
|
|
Allowance for loan losses category
as a percentage of total allowance for loan losses.
|
|
(C)
|
|
Total loans by category as a
percentage of total loans.
|
Determining the appropriate level of the allowance for loan
losses is a function of evaluating a number of factors,
including but not limited to, changes in the loan portfolio (see
Table 8), net charge offs (see Table 10), nonperforming loans
(see Table 12), and evaluating specific credits. Growth and mix
of loans impacts the overall inherent risk characteristics of
the loan portfolio (see section Loans which
discusses credit risks related to the different loan types).
Total loans were $14.1 billion at December 31, 2009,
down $2.2 billion or 13.2% from December 31, 2008,
including a change in the mix of loans. Retail loans grew to
represent 24% of total loans (compared to 23% and 20% at
year-end 2008 and year-end 2007, respectively), while commercial
loans decreased to represent 62%, 63%, and 66% of total loans at
December 31, 2009, 2008, and 2007, respectively.
Residential mortgage loans were minimally changed, representing
14% of total loans at year-end 2009, 2008, and 2007,
respectively. Nonperforming, potential problem, and criticized
loans have increased over the past year, as there has been
continued stress on borrowers from difficult economic
conditions, higher energy costs, and negative commercial and
residential real estate market issues pervading into many
related businesses. Nonperforming loans increased
$781 million to $1.1 billion (compared to
$341 million at year-end 2008), and grew as a percentage of
total loans (from 2.09% at year-end 2008 to 7.94% at year-end
2009), with commercial and consumer-related nonperforming loans
accountable for $717 million and $64 million,
respectively, of the increase. Nonperforming loans were
$163 million and represented 1.05% of total loans at
December 31, 2007. See Table 12 and section
Nonperforming Loans, Potential Problem Loans, and Other
Real Estate Owned for additional details and discussion.
48
The Corporations process, designed to assess the
appropriateness of the allowance for loan losses, includes an
allocation methodology, as well as managements ongoing
review and grading of the loan portfolio into criticized loan
categories (defined as specific loans warranting either specific
allocation, or a criticized status of special mention,
substandard, doubtful, or loss) and non-criticized loan
categories (which include watch rated loans). In the first
quarter of 2009, the Corporation changed its definition of
criticized loans to exclude watch rated loans to be consistent
with the regulatory definition of criticized loans. The
allocation methodology focuses on 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 nonperforming 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. Because each of the criteria used is
subject to change, the allocation of the allowance for loan
losses is made for analytical purposes and is not necessarily
indicative of the trend of future loan losses in any particular
loan category. The total allowance is available to absorb losses
from any segment of the portfolio. The allocation of the
Corporations allowance for loan losses for the last five
years is shown in Table 11.
The allocation methodology used at December 31, 2009, 2008,
and 2007 was comparable, whereby the Corporation segregated its
loss factors allocations (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 may affect loan collectibility.
Management allocates the allowance for loan losses for credit
losses by pools of risk. First, as reflected in Note 4,
Loans, of the notes to consolidated financial
statements, a valuation allowance estimate is established for
specifically identified commercial and commercial real estate
loans determined to be impaired by the Corporation, using
discounted cash flows, estimated fair value of underlying
collateral,
and/or other
data available. Second, management allocates 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. Loss factors assigned
to criticized and non-criticized loan pools by type were similar
between 2009, 2008, and 2007, but with refinements made in 2009
and 2008 to loss factors assigned to certain criticized and
non-criticized loss factors to align closer to historical loss
levels. And third, 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.
During 2009, management of the Corporation was intensively
focused on the erosion of the credit environment and the
corresponding deterioration in its credit quality metrics. In
the fourth quarter of 2008, the Corporations efforts to
improve its processes to gather and track credit administration
metrics began to produce additional management information,
which has continued to be enhanced throughout 2009. In addition,
process improvements were implemented around credit evaluations,
documentation, enhanced appraisal process and credit monitoring.
The improved credit processes, combined with enhanced credit
information, have been incorporated into the methodologies
management uses for determining the appropriateness of the
allowance for loan losses.
Early in 2009, the Corporation began to identify significant
credit quality issues and deteriorating trends within the
commercial loan portfolio. The main segments of weakness were in
commercial real estate, particularly related to residential
construction lending. During the first and second quarter, as
single family residential and condo construction projects began
to near completion, we began receiving updated sales
projections, which indicated that the absorption rates on many
projects were significantly behind expectations and, therefore,
repayment was becoming more questionable. In addition, we began
to see commercial real estate loans show signs of stress as
retail and office properties cash flow and debt service coverage
ratios were falling. As a result, many of these loans were
downgraded to potential problem loans as real estate
construction potential problem loans grew $169 million or
54% during the first half of 2009 and potential problem
commercial real estate loans grew $218 million or 90%
during that same period. In many cases, these deteriorating
loans also had identified collateral shortfalls or the
49
guarantors ability to support the project from other means
was determined to be unlikely and was therefore moved to
nonperforming status. Real estate construction nonperforming
loans grew by $174 million or 194% and commercial real
estate nonperforming loans grew by $104 million or 166%
during the first half of 2009. We also began to see weakness in
non real estate commercial loans during the first half of 2009,
due to the prolonged economic recession, as borrowers in the
consumer goods, automotive, and construction related industries
began reporting weak financial performance and projecting that
weakness to continue for the rest of 2009. Due to these
conditions, downgrades to potential problem loans and
nonperforming status accelerated, which caused non real estate
commercial potential problem loans to increase $88 million
or 24% and nonperforming loans to increase $85 million or
81% during the first half of 2009. Overall total commercial net
charge offs for the first half of 2009 were $87 million up
$19 million or 28% from the last half of 2008. In addition,
primarily as a result of the significant increases in both
commercial potential problem and nonperforming loans, the level
of allowance for loan losses grew $142 million or 53% to
$407.2 million at June 30, 2009 from
$265.4 million at December 31, 2008.
During the third quarter of 2009, it appeared that the
Corporations credit trends were beginning to stabilize, as
the rate of growth in both commercial potential problem loans
and nonperforming loans slowed considerably from the levels in
the first half of 2009, as total commercial potential problem
loans during the third quarter grew only $148 million or
10% and total nonperforming loans grew only $152 million or
21%. Total commercial loan charge offs for the quarter were
$75 million or approximately $30 million higher than
levels of the first two quarters of 2009. This increase was
almost entirely due to the large charge off ($25 million)
taken during the third quarter on a failed financial
institution. In addition, commercial past due levels improved
again in the third quarter for the second quarter in a row, and
economic metrics such as unemployment appeared to have peaked
during the quarter and actually fell in both Wisconsin and
Minnesota.
However, during the fourth quarter of 2009, a renewed level of
weakness in the commercial real estate market reappeared, as
values continued to decline at a rapid pace, and economic
indicators such as unemployment worsened, with little prospect
for improvement on the immediate horizon. Due to the significant
number of downgrades made in the second quarter, as described
above, and to a lesser extent in the third quarter, the
Corporation ordered a significant number of new appraisals on
our commercial real estate and real estate construction loans
during the last half of 2009. These new appraisal values, along
with other indicators of value (e.g. recent sales, slower
absorption levels) received or observed during the fourth
quarter, indicated a significant decline in value and, as a
result, many potential problem loans were downgraded to
nonperforming status causing commercial real estate and real
estate construction nonperforming loans to increase
$205 million or 40% during the fourth quarter, in addition
to $165 million of charge offs taken on commercial real
estate and real estate construction loans during the fourth
quarter. Non real estate commercial loan credit reviews
performed on our borrowers under stress during the fourth
quarter indicated that an increasing number of borrowers were
now being negatively impacted by the prolonged recession as non
real estate commercial potential problem loans and nonperforming
loans which both grew modestly in the third quarter, increased
$82 million (17%) and $25 million (11%) respectively
during the quarter. Net charge offs for non real estate
commercial loans were $43 million for the quarter, compared
with $58 million in the third quarter, which included a
large $25 million charge off taken on a failed financial
institution, and $20 million in the second quarter and
$36 million in first quarter of 2009.
As discussed above, 2009 was marked by significant declines in
commercial credit quality. Overall during 2009, commercial
potential problem loans increased $641 million or 70%
ending the year at $1.6 billion and commercial
nonperforming loans increased $717 million or 279% ending
the year at $975 million. Commercial net charge offs also
increased significantly, up $263 million (243%), totaling
$371 million in 2009, compared with $108 million in
2008. The portion of the allowance for loan losses allocated to
the commercial portfolios was significantly increased during the
year, up $258 million or 113%, ending the year at
$486 million.
Credit trends for the retail loan portfolios, which consist
primarily of residential first and second lien mortgages,
worsened during 2009 as borrowers were impacted by the higher
levels of unemployment and soft residential real estate markets.
Overall retail potential problem loans increased
$17 million (100%) during 2009 to $34 million at
December 31, 2009, and nonperforming loans increased
$64 million (76%) during 2009 to $147 million at
December 31, 2009. Retail net charge offs increased
$43 million (146%) to $72 million in 2009, compared
with $29 million in 2008. The portion of the allowance for
loan losses allocated to the retail loan portfolios
significantly increased during the year, up $50 million or
135%, ending the year at $87 million.
50
As discussed above, 2009 was marked by significant declines in
both commercial and retail credit quality. Overall during 2009,
total potential problem loans increased $658 million or 70%
ending the year at $1.6 billion and total nonperforming
loans increased $781 million or 229% ending the year at
$1.1 billion. Total net charge offs also increased
significantly, up $305 million (222%), totaling
$442 million in 2009, compared with $137 million in
2008. The allowance for loan losses was increased by
$308 million or 116% during 2009, ending the year at
$574 million. The resulting provision for loan losses for
2009 totaled $751 million compared to $202 for 2008,
representing a $549 million or 271% increase.
At year-end 2009, 74% of the allowance for loan losses was
allocated to criticized loans, which represented 23% of total
loans. Comparatively, at year-end 2008, 64% of the allowance for
loan losses was allocated to criticized loans, which represented
12% of total loans, and at year-end 2007, 56% of the allowance
for loan losses was allocated to criticized loans, which
represented 7% of total loans. During 2009, the mix of
criticized loans migrated toward commercial real estate from
real estate construction, with real estate construction
criticized loans representing 27% of total criticized loans
(compared to 34% at year-end 2008 and 23% at year-end 2007),
commercial real estate criticized loans representing 38% of
total criticized loans (compared to 26% at December 31,
2008 and 39% at December 31, 2007), and commercial,
financial and agricultural criticized loans representing 33% of
total criticized loans (compared to 32% at year-end 2008 and 34%
at year-end 2007). This shift was due in part to the continued
deterioration in the commercial real estate market, and the high
level of real estate construction loan charge offs. See also
section Potential Problem Loans.
Historically, the Corporation has allocated 80% or more of its
allowance for loan losses to total commercial loans, which have
historically represented 60% or more of the total loan
portfolio, and which have been the largest contributor of gross
charge offs. The allocation of the allowance for loan losses by
loan type between 2009 and 2008 was generally consistent with
86% allocated to total commercial loans at year-end 2008
compared to 85% at year-end 2009, and a corresponding increase
in allocation to consumer-based loans combined (from 14% at
year-end 2008 to 15% at year-end 2009), consistent, in part,
with the deteriorating commercial asset quality metrics, as well
as the tightening of underwriting guidelines supporting the
residential mortgage and home equity portfolios. Based on the
deteriorating commercial asset quality metrics,
managements allocation process resulted in a 2009
allocation to commercial loans which remained higher than
historical levels, and was driven by the underlying changing
credit dynamics and trends (e.g., a significant increase in real
estate construction, commercial real estate, and commercial,
financial and agricultural net charge offs versus our historical
trends, a shift in the mix of criticized, potential problem, and
nonperforming loans, and review of the current market
conditions).
The largest portion of the allowance at year-end 2009 was
allocated to commercial, financial and agricultural loans and
was $196.6 million (up $93.4 million), representing
34% of the allowance for loan losses at year-end 2009 (versus
39% at year-end 2008). Although the amount allocated to
commercial, financial and agricultural loans was higher it
represented a lower percentage of the total allowance for loan
losses for 2009, as the level of these loans in criticized
categories remained the same (33% at year-end 2009 versus 32% at
year-end 2008), while there was a decrease in nonperforming
commercial, financial and agricultural loans (21% of total
nonperforming loans at year-end 2009 compared to 31% at year-end
2008), a lower percentage of these loans in potential problem
loans (35% at year-end 2009 versus 39% at year-end 2008), and
comprised a lower percent of total loans (24% at year-end 2009
versus 27% at year-end 2008). The amount allocated to commercial
real estate loans was $162.4 million (up
$104.2 million), representing 28% of the allowance for loan
losses at year-end 2009 versus 22% at year-end 2008. The
increase in the amount allocated to commercial real estate was
attributable to the higher percentage of nonperforming
commercial real estate loans (27% of total nonperforming loans
at year-end 2009 compared to 18% at year-end 2008), a higher
percentage of commercial real estate loans in criticized
categories (38% at December 31, 2009 versus 26% at
December 31, 2008), a higher percentage of these loans in
potential problem loans (37% at year-end 2009 versus 26% at
year-end 2008), as well as an increase as a percentage of total
loan mix (27% at year-end 2009 versus 22% at year-end 2008). At
December 31, 2009, the allowance allocated to real estate
construction was $118.7 million (up $52.7 million),
representing 21% of the allowance for loan losses (versus 25% at
December 31, 2008). Although the amount of allocation for
this portfolio increased, on a relative basis, the allocation to
real estate construction decreased primarily based on a lower
percentage of these loans in criticized categories (from 34% at
year-end 2008 to 27% at year-end 2009), a lower percentage of
these loans in potential problem loans (from 33% at
December 31, 2008 to 25% at December 31, 2009), a
decline in real estate construction loans as a percentage of
total
51
loans (to 10% at year-end 2009 from 13% at year-end 2008), while
nonperforming real estate construction loans increased (37% of
total nonperforming loans at year-end 2009 compared to 26% at
year-end 2008). The allowance allocation to residential mortgage
increased (from 4% at December 31, 2008 to 5% at
December 31, 2009), while the allowance allocation to home
equity remained level (8% at both year-end 2008 and year-end
2009), given the change in residential mortgage and home equity
as a percentage of nonperforming loans and net charge offs. The
allowance allocation to installment loans was unchanged at 2%
for both year-end 2008 and year-end 2009 given the minimal
change in installment loans as a percentage of total loan mix
(6% at year-end 2009 versus 5% year-end 2008), as well as the
small increase in net charge offs and nonperforming installment
loans. The significant decline in the quality of the
Corporations loan portfolios during 2009 resulted in a
likewise, significant increase in net charge offs, provision for
loan losses, and allowance for loan losses for the year.
Management performs ongoing intensive analyses of its loan
portfolios to allow for early identification of customers
experiencing financial difficulties, maintains conservative
underwriting standards, understands the economy in our core
footprint, and considers the trend of deterioration in loan
quality in establishing the level of the allowance for loan
losses. Management believes the level of the allowance for loan
losses is appropriate at December 31, 2009; however, the
level of uncertainty regarding the pace of future credit
deterioration and the length of asset stress, leads management
to believe that it is likely that the levels of net charge offs,
provision for loan losses, nonperforming loans, and potential
problem loans will remain elevated compared to our historical
levels. We cannot predict the duration of asset quality stress
for future periods, given uncertainty as to the magnitude and
scope of economic weakness in our markets, on our customers, and
on underlying real estate values (both residential and
commercial).
The largest portion of the allowance at year-end 2008 was
allocated to commercial, financial and agricultural loans and
was $103.2 million (up $35.3 million), representing
39% of the allowance for loan losses at year-end 2008 (versus
34% at year-end 2007). The additional amount allocated to
commercial, financial and agricultural loans was primarily based
on an increase in nonperforming commercial, financial and
agricultural loans (31% of total nonperforming loans at year-end
2008 compared to 20% at year-end 2007) and a higher
percentage of these loans in potential problem loans (39% at
year-end 2008 versus 32% at year-end 2007), while the percentage
of these loans in criticized categories (32% at year-end 2008
versus 34% at year-end 2007) and as a percent of total
loans (27% at year-end 2008 versus 28% at year-end
2007) was minimally changed. The amount allocated to
commercial real estate loans was $58.2 million (down
$13.0 million), representing 22% of the allowance for loan
losses at year-end 2008 versus 35% at year-end 2007. The
decrease in the amount allocated to commercial real estate was
attributable to the lower percentage of nonperforming commercial
real estate loans (18% of total nonperforming loans at year-end
2008 compared to 22% at year-end 2007) and a lower
percentage of commercial real estate loans in criticized
categories (26% at December 31, 2008 versus 39% at
December 31, 2007), as well as a slight decline as a
percentage of total loan mix (22% at year-end 2008 versus 23% at
year-end 2007). At December 31, 2008, the allowance
allocated to real estate construction was $66.0 million,
representing 25% of the allowance for loan losses (versus 12% at
December 31, 2007). The increase in the allocation to real
estate construction was primarily based on an increase in
nonperforming real estate construction loans (26% of total
nonperforming loans at year-end 2008 compared to 24% at year-end
2007), a higher percentage of these loans in criticized
categories (from 23% at year-end 2007 to 34% at year-end
2008) and a higher percentage of these loans in potential
problem loans (from 22% at December 31, 2007 to 33% at
December 31, 2008), while real estate construction loans
declined as a percentage of total loans (to 13% at year-end 2008
from 14% at year-end 2007). The allowance allocations to
residential mortgage and home equity decreased between 2008 and
2007 (to 4% and 8%, respectively, at year-end 2008 from 6% and
10%, respectively, at year-end 2007), given the decline in
residential mortgage and home equity as a percentage of
nonperforming loans and net charge offs, as well as improvements
attributable to the tightened underwriting guidelines. The
allowance allocation to installment loans decreased from 3% at
year-end 2007 to 2% at year-end 2008 given the minimal change in
installment loans as a percentage of total loan mix (5% at both
year-end 2008 and year-end 2007), as well as the small increase
in net charge offs and nonperforming installment loans.
Consolidated net income could be affected if managements
estimate of the allowance for loan losses is subsequently
materially different, requiring additional or less provision for
loan losses to be recorded. Management carefully considers
numerous detailed and general factors, its assumptions, and the
likelihood of materially different conditions that could alter
its assumptions. While management uses currently available
information to recognize losses on loans, future adjustments to
the allowance for loan losses may be necessary based on newly
received appraisals, updated commercial customer financial
statements, rapidly deteriorating customer cash flow,
52
and changes in economic conditions that affect our customers.
Additionally, larger credit relationships (defined by management
as over $25 million) do not inherently create more risk,
but can create wider fluctuations in net charge offs and asset
quality measures compared to the Corporations longer
historical trends. As an integral part of their examination
process, various federal and state regulatory agencies also
review the allowance for loan losses. These agencies may require
that certain loan balances be classified differently or charged
off when their credit evaluations differ from those of
management, based on their judgments about information available
to them at the time of their examination.
Nonperforming
Loans, Potential Problem Loans, and Other Real Estate
Owned
Management is committed to an aggressive 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 12
provides detailed information regarding nonperforming assets,
which include nonperforming loans and other real estate owned.
Nonperforming loans are considered one indicator of potential
future loan losses. Nonperforming loans are defined as
nonaccrual loans, loans 90 days or more past due but still
accruing, and restructured loans. The Corporation specifically
excludes from its definition of nonperforming loans student loan
balances that are 90 days or more past due and still
accruing and that have contractual government guarantees as to
collection of principal and interest. The Corporation had
approximately $20.6 million, $14.7 million, and
$14.7 million at December 31, 2009, 2008, and 2007,
respectively, of nonperforming student loans.
Loans are generally placed on nonaccrual status when
contractually past due 90 days or more as to interest or
principal payments. Additionally, whenever management becomes
aware of facts or circumstances that may adversely impact the
collectibility of principal or interest on loans, management may
place such loans on nonaccrual status immediately, rather than
delaying such action until the loans become 90 days past
due. Previously accrued and uncollected interest on such loans
is reversed, amortization of related loan fees is suspended, and
income is recorded only to the extent that interest payments are
subsequently received in cash and a determination has been made
that the principal balance of the loan is collectible. If
collectibility of the principal is in doubt, payments received
are applied to loan principal.
Loans past due 90 days or more but still accruing interest
are also included in nonperforming loans. Loans past due
90 days or more but still accruing 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. Also included in nonperforming
loans are loans modified in a troubled debt restructuring (or
restructured loans). Restructured loans involve the
granting of some concession to the borrower involving the
modification of terms of the loan, such as changes in payment
schedule or interest rate, which generally would not be
otherwise considered. Generally, such loans are included in
nonaccrual loans until the customer has attained a sustained
period of repayment performance. During 2009, as a result of the
Corporations continued efforts to support foreclosure
prevention in the markets we serve, the Corporation introduced a
modification program (similar to the government modification
programs available), in which the Corporation works with our
mortgage customers to provide them with an affordable monthly
payment through extension of the maturity date (up to
40 years), reduction in interest rate, and partial
principal forebearance.
53
TABLE 12:
Nonperforming Loans and Other Real Estate Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in Thousands)
|
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
964,888
|
|
|
|
|
|
|
$
|
257,322
|
|
|
|
|
|
|
$
|
105,780
|
|
|
|
|
|
|
$
|
108,129
|
|
|
|
|
|
|
$
|
68,304
|
|
|
|
|
|
Residential mortgage
|
|
|
81,811
|
|
|
|
|
|
|
|
45,146
|
|
|
|
|
|
|
|
33,737
|
|
|
|
|
|
|
|
19,290
|
|
|
|
|
|
|
|
15,912
|
|
|
|
|
|
Retail
|
|
|
31,100
|
|
|
|
|
|
|
|
24,389
|
|
|
|
|
|
|
|
13,011
|
|
|
|
|
|
|
|
9,315
|
|
|
|
|
|
|
|
11,097
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
1,077,799
|
|
|
|
|
|
|
|
326,857
|
|
|
|
|
|
|
|
152,528
|
|
|
|
|
|
|
|
136,734
|
|
|
|
|
|
|
|
95,313
|
|
|
|
|
|
Accruing loans past due 90 days or more:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
9,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,039
|
|
|
|
|
|
|
|
1,631
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
15,587
|
|
|
|
|
|
|
|
13,801
|
|
|
|
|
|
|
|
7,079
|
|
|
|
|
|
|
|
4,094
|
|
|
|
|
|
|
|
3,122
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing loans past due 90 days or more
|
|
|
24,981
|
|
|
|
|
|
|
|
13,811
|
|
|
|
|
|
|
|
10,118
|
|
|
|
|
|
|
|
5,725
|
|
|
|
|
|
|
|
3,270
|
|
|
|
|
|
Restructured loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
Residential mortgage
|
|
|
13,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
5,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructured loans
|
|
|
19,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans (NPLs)
|
|
|
1,121,817
|
|
|
|
|
|
|
|
340,668
|
|
|
|
|
|
|
|
162,646
|
|
|
|
|
|
|
|
142,485
|
|
|
|
|
|
|
|
98,615
|
|
|
|
|
|
Other real estate owned (OREO)
|
|
|
68,441
|
|
|
|
|
|
|
|
48,710
|
|
|
|
|
|
|
|
26,489
|
|
|
|
|
|
|
|
14,417
|
|
|
|
|
|
|
|
11,336
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets (NPAs)
|
|
$
|
1,190,258
|
|
|
|
|
|
|
$
|
389,378
|
|
|
|
|
|
|
$
|
189,135
|
|
|
|
|
|
|
$
|
156,902
|
|
|
|
|
|
|
$
|
109,951
|
|
|
|
|
|
|
|
|
|
|
|
Ratios at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPLs to total loans
|
|
|
7.94
|
%
|
|
|
|
|
|
|
2.09
|
%
|
|
|
|
|
|
|
1.05
|
%
|
|
|
|
|
|
|
0.96
|
%
|
|
|
|
|
|
|
0.65
|
%
|
|
|
|
|
NPAs to total loans plus OREO
|
|
|
8.38
|
%
|
|
|
|
|
|
|
2.38
|
%
|
|
|
|
|
|
|
1.22
|
%
|
|
|
|
|
|
|
1.05
|
%
|
|
|
|
|
|
|
0.72
|
%
|
|
|
|
|
NPAs to total assets
|
|
|
5.20
|
%
|
|
|
|
|
|
|
1.61
|
%
|
|
|
|
|
|
|
0.88
|
%
|
|
|
|
|
|
|
0.75
|
%
|
|
|
|
|
|
|
0.50
|
%
|
|
|
|
|
AFLL to NPLs
|
|
|
51
|
%
|
|
|
|
|
|
|
78
|
%
|
|
|
|
|
|
|
123
|
%
|
|
|
|
|
|
|
143
|
%
|
|
|
|
|
|
|
206
|
%
|
|
|
|
|
AFLL to total loans at end of year
|
|
|
4.06
|
%
|
|
|
|
|
|
|
1.63
|
%
|
|
|
|
|
|
|
1.29
|
%
|
|
|
|
|
|
|
1.37
|
%
|
|
|
|
|
|
|
1.34
|
%
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets by type:
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
Commercial, financial and agricultural
|
|
$
|
234,418
|
|
|
|
7
|
%
|
|
$
|
104,664
|
|
|
|
2
|
%
|
|
$
|
32,610
|
|
|
|
1
|
%
|
|
$
|
40,369
|
|
|
|
1
|
%
|
|
$
|
27,882
|
|
|
|
1
|
%
|
Commercial real estate
|
|
|
307,478
|
|
|
|
8
|
%
|
|
|
62,423
|
|
|
|
2
|
%
|
|
|
35,049
|
|
|
|
1
|
%
|
|
|
37,190
|
|
|
|
1
|
%
|
|
|
24,654
|
|
|
|
1
|
%
|
Real estate construction
|
|
|
413,360
|
|
|
|
30
|
%
|
|
|
90,048
|
|
|
|
4
|
%
|
|
|
39,837
|
|
|
|
2
|
%
|
|
|
32,079
|
|
|
|
2
|
%
|
|
|
15,805
|
|
|
|
1
|
%
|
Leasing
|
|
|
19,506
|
|
|
|
20
|
%
|
|
|
187
|
|
|
|
0
|
%
|
|
|
1,323
|
|
|
|
1
|
%
|
|
|
148
|
|
|
|
0
|
%
|
|
|
143
|
|
|
|
0
|
%
|
|
|
|
|
|
|
Total commercial
|
|
|
974,762
|
|
|
|
11
|
%
|
|
|
257,322
|
|
|
|
2
|
%
|
|
|
108,819
|
|
|
|
1
|
%
|
|
|
109,786
|
|
|
|
1
|
%
|
|
|
68,484
|
|
|
|
1
|
%
|
Home equity
|
|
|
44,257
|
|
|
|
2
|
%
|
|
|
31,035
|
|
|
|
1
|
%
|
|
|
16,209
|
|
|
|
1
|
%
|
|
|
10,044
|
|
|
|
0
|
%
|
|
|
9,072
|
|
|
|
0
|
%
|
Installment
|
|
|
7,577
|
|
|
|
1
|
%
|
|
|
7,155
|
|
|
|
1
|
%
|
|
|
3,881
|
|
|
|
0
|
%
|
|
|
3,365
|
|
|
|
0
|
%
|
|
|
5,147
|
|
|
|
1
|
%
|
|
|
|
|
|
|
Total retail
|
|
|
51,834
|
|
|
|
2
|
%
|
|
|
38,190
|
|
|
|
1
|
%
|
|
|
20,090
|
|
|
|
1
|
%
|
|
|
13,409
|
|
|
|
0
|
%
|
|
|
14,219
|
|
|
|
0
|
%
|
Residential mortgage
|
|
|
95,221
|
|
|
|
5
|
%
|
|
|
45,156
|
|
|
|
2
|
%
|
|
|
33,737
|
|
|
|
2
|
%
|
|
|
19,290
|
|
|
|
1
|
%
|
|
|
15,912
|
|
|
|
1
|
%
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
1,121,817
|
|
|
|
8
|
%
|
|
|
340,668
|
|
|
|
2
|
%
|
|
|
162,646
|
|
|
|
1
|
%
|
|
|
142,485
|
|
|
|
1
|
%
|
|
|
98,615
|
|
|
|
1
|
%
|
Commercial real estate owned
|
|
|
52,468
|
|
|
|
|
|
|
|
28,724
|
|
|
|
|
|
|
|
8,465
|
|
|
|
|
|
|
|
2,390
|
|
|
|
|
|
|
|
2,508
|
|
|
|
|
|
Residential real estate owned
|
|
|
11,572
|
|
|
|
|
|
|
|
15,178
|
|
|
|
|
|
|
|
10,308
|
|
|
|
|
|
|
|
6,382
|
|
|
|
|
|
|
|
4,175
|
|
|
|
|
|
Bank properties real estate owned
|
|
|
4,401
|
|
|
|
|
|
|
|
4,808
|
|
|
|
|
|
|
|
7,716
|
|
|
|
|
|
|
|
5,645
|
|
|
|
|
|
|
|
4,653
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
68,441
|
|
|
|
|
|
|
|
48,710
|
|
|
|
|
|
|
|
26,489
|
|
|
|
|
|
|
|
14,417
|
|
|
|
|
|
|
|
11,336
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
1,190,258
|
|
|
|
|
|
|
$
|
389,378
|
|
|
|
|
|
|
$
|
189,135
|
|
|
|
|
|
|
$
|
156,902
|
|
|
|
|
|
|
$
|
109,951
|
|
|
|
|
|
|
|
|
|
|
|
(A) Ratio of nonperforming loans by type to total loans by type.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate & Real estate construction NPLs
Detail:
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
|
|
(A
|
)
|
Farmland
|
|
$
|
1,524
|
|
|
|
3
|
%
|
|
$
|
36
|
|
|
|
0
|
%
|
|
$
|
616
|
|
|
|
1
|
%
|
|
$
|
472
|
|
|
|
1
|
%
|
|
$
|
503
|
|
|
|
1
|
%
|
Multi-family
|
|
|
17,867
|
|
|
|
3
|
%
|
|
|
10,819
|
|
|
|
2
|
%
|
|
|
4,768
|
|
|
|
1
|
%
|
|
|
7,109
|
|
|
|
1
|
%
|
|
|
7,301
|
|
|
|
1
|
%
|
Owner occupied(a)
|
|
|
61,170
|
|
|
|
5
|
%
|
|
|
22,999
|
|
|
|
2
|
%
|
|
|
14,888
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied(a)
|
|
|
226,917
|
|
|
|
11
|
%
|
|
|
28,569
|
|
|
|
2
|
%
|
|
|
14,777
|
|
|
|
1
|
%
|
|
|
29,609
|
|
|
|
1
|
%
|
|
|
16,850
|
|
|
|
1
|
%
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
307,478
|
|
|
|
8
|
%
|
|
$
|
62,423
|
|
|
|
2
|
%
|
|
$
|
35,049
|
|
|
|
1
|
%
|
|
$
|
37,190
|
|
|
|
1
|
%
|
|
$
|
24,654
|
|
|
|
1
|
%
|
|
|
|
|
|
|
1-4 family construction(b)
|
|
$
|
77,902
|
|
|
|
31
|
%
|
|
$
|
38,727
|
|
|
|
9
|
%
|
|
$
|
11,557
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other construction(b)
|
|
|
335,458
|
|
|
|
29
|
%
|
|
|
51,321
|
|
|
|
3
|
%
|
|
|
28,280
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
$
|
413,360
|
|
|
|
30
|
%
|
|
$
|
90,048
|
|
|
|
4
|
%
|
|
$
|
39,837
|
|
|
|
2
|
%
|
|
$
|
32,079
|
|
|
|
2
|
%
|
|
$
|
15,805
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
(A)
|
|
Ratio of nonperforming loans by
type to total loans by type.
|
|
(a)
|
|
A break-down between owner occupied
and non-owner occupied commercial real estate is not available
for 2006 and 2005.
|
|
(b)
|
|
A break-down between 1-4 family and
all other real estate construction is not available for 2006 and
2005.
|
54
TABLE 12:
Nonperforming Loans and Other Real Estate Owned
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
|
|
|
Loans
30-89 days
past due by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
64,369
|
|
|
$
|
40,109
|
|
|
$
|
44,073
|
|
|
$
|
69,463
|
|
|
$
|
51,617
|
|
Commercial real estate
|
|
|
81,975
|
|
|
|
83,066
|
|
|
|
54,524
|
|
|
|
49,991
|
|
|
|
21,262
|
|
Real estate construction
|
|
|
56,559
|
|
|
|
25,266
|
|
|
|
18,813
|
|
|
|
35,868
|
|
|
|
14,213
|
|
Leasing
|
|
|
823
|
|
|
|
370
|
|
|
|
6,032
|
|
|
|
7
|
|
|
|
127
|
|
|
|
|
|
|
|
Total commercial
|
|
|
203,726
|
|
|
|
148,811
|
|
|
|
123,442
|
|
|
|
155,329
|
|
|
|
87,219
|
|
Home equity
|
|
|
14,304
|
|
|
|
16,606
|
|
|
|
15,323
|
|
|
|
6,208
|
|
|
|
3,610
|
|
Installment
|
|
|
8,499
|
|
|
|
9,733
|
|
|
|
9,030
|
|
|
|
7,281
|
|
|
|
9,301
|
|
|
|
|
|
|
|
Total retail
|
|
|
22,803
|
|
|
|
26,339
|
|
|
|
24,353
|
|
|
|
13,489
|
|
|
|
12,911
|
|
Residential mortgage
|
|
|
14,226
|
|
|
|
14,962
|
|
|
|
9,875
|
|
|
|
16,443
|
|
|
|
12,767
|
|
|
|
|
|
|
|
Total loans past due
30-89 days
|
|
$
|
240,755
|
|
|
$
|
190,112
|
|
|
$
|
157,670
|
|
|
$
|
185,261
|
|
|
$
|
112,897
|
|
|
|
|
|
|
|
Commercial real estate & Real estate construction Past
Due Loan Detail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland
|
|
$
|
1,338
|
|
|
$
|
892
|
|
|
$
|
509
|
|
|
$
|
204
|
|
|
$
|
711
|
|
Multi-family
|
|
|
7,669
|
|
|
|
3,394
|
|
|
|
10,551
|
|
|
|
7,301
|
|
|
|
993
|
|
Owner occupied(a)
|
|
|
30,043
|
|
|
|
13,179
|
|
|
|
22,613
|
|
|
|
|
|
|
|
|
|
Non-owner occupied(a)
|
|
|
42,925
|
|
|
|
65,601
|
|
|
|
20,851
|
|
|
|
42,486
|
|
|
|
19,558
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
81,975
|
|
|
$
|
83,066
|
|
|
$
|
54,524
|
|
|
$
|
49,991
|
|
|
$
|
21,262
|
|
|
|
|
|
|
|
1-4 family construction(b)
|
|
$
|
38,555
|
|
|
$
|
6,150
|
|
|
$
|
3,560
|
|
|
|
|
|
|
|
|
|
All other construction(b)
|
|
|
18,004
|
|
|
|
19,116
|
|
|
|
15,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
$
|
56,559
|
|
|
$
|
25,266
|
|
|
$
|
18,813
|
|
|
$
|
35,868
|
|
|
$
|
14,213
|
|
|
|
|
|
|
|
Potential problem loans by type:(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
563,836
|
|
|
$
|
363,285
|
|
|
$
|
172,734
|
|
|
$
|
164,692
|
|
|
|
|
|
Commercial real estate
|
|
|
598,137
|
|
|
|
243,617
|
|
|
|
230,721
|
|
|
|
203,075
|
|
|
|
|
|
Real estate construction
|
|
|
391,105
|
|
|
|
312,144
|
|
|
|
121,953
|
|
|
|
21,692
|
|
|
|
|
|
Leasing
|
|
|
8,367
|
|
|
|
1,713
|
|
|
|
1,332
|
|
|
|
1,449
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,561,445
|
|
|
|
920,759
|
|
|
|
526,740
|
|
|
|
390,908
|
|
|
|
|
|
Home equity
|
|
|
13,400
|
|
|
|
8,900
|
|
|
|
6,665
|
|
|
|
6,498
|
|
|
|
|
|
Installment
|
|
|
1,524
|
|
|
|
889
|
|
|
|
530
|
|
|
|
1,255
|
|
|
|
|
|
|
|
|
|
|
|
Total retail
|
|
|
14,924
|
|
|
|
9,789
|
|
|
|
7,195
|
|
|
|
7,753
|
|
|
|
|
|
Residential mortgage
|
|
|
19,150
|
|
|
|
7,254
|
|
|
|
11,793
|
|
|
|
6,779
|
|
|
|
|
|
|
|
|
|
|
|
Total potential problem loans
|
|
$
|
1,595,519
|
|
|
$
|
937,802
|
|
|
$
|
545,728
|
|
|
$
|
405,440
|
|
|
$
|
332,961
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
A break-down between owner occupied
and non-owner occupied commercial real estate is not available
for 2006 and 2005.
|
|
(b)
|
|
A break-down between 1-4 family and
all other real estate construction is not available for 2006 and
2005.
|
|
(c)
|
|
A break-down of potential problem
loans by loan type is not available for 2005. See Section,
Potential Problem Loans below for the definition of
potential problem loans.
|
55
The following table shows, for those loans accounted for on a
nonaccrual basis and restructured loans for the years ended as
indicated, the approximate gross interest that would have been
recorded if the loans had been current in accordance with their
original terms and the amount of interest income that was
included in interest income for the period.
TABLE 13:
Foregone Loan Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in Thousands)
|
|
|
Interest income in accordance with original terms
|
|
$
|
70,852
|
|
|
$
|
32,499
|
|
|
$
|
13,704
|
|
Interest income recognized
|
|
|
(41,098
|
)
|
|
|
(13,589
|
)
|
|
|
(5,520
|
)
|
|
|
|
|
|
|
Reduction in interest income
|
|
$
|
29,754
|
|
|
$
|
18,910
|
|
|
$
|
8,184
|
|
|
|
|
|
|
|
Nonperforming loans were $1.122 billion, $341 million,
and $163 million at December 31, 2009, 2008, and 2007,
respectively, reflecting the impact of the economy on the
Corporations customers. The ratio of nonperforming loans
to total loans at the end of 2009 was 7.94%, as compared to
2.09% and 1.05% at December 31, 2008 and 2007,
respectively. The Corporations allowance for loan losses
to nonperforming loans was 51% at year-end 2009, down from 78%
at year-end 2008 and 123% at year-end 2007. Commercial
nonperforming loans represented 87%, 76%, and 67% of total
nonperforming loans at year-end 2009, 2008, and 2007,
respectively, while consumer-related nonperforming loans
(including residential mortgage and retail nonperforming loans)
represented 13%, 24%, and 33%, respectively, for the same
periods.
The recent market conditions have been marked with general
economic and industry declines with a pervasive impact on
consumer confidence, business and personal financial
performance, and commercial and residential real estate markets.
The increase in nonperforming loans was primarily due to the
impact of declining property values, slower sales, longer
holding periods, and rising costs brought on by deteriorating
real estate conditions and the weak economy. As shown in Table
12, total nonperforming loans were up $781 million since
year-end 2008, with commercial nonperforming loans up
$717 million and consumer-related nonperforming loans were
up $64 million. Between 2008 and 2007, total nonperforming
loans increased $178 million, with commercial nonperforming
loans up $148 million, while consumer-related nonperforming
loans increased $30 million. The addition of these larger
individual commercial credit relationships during 2008 and 2009
was the primary cause for the decline in the ratio of the
allowance for loan losses to nonperforming loans. The
Corporations estimate of the appropriate allowance for
loan losses does not have a targeted reserve to nonperforming
loan coverage ratio. However, managements allowance
methodology at December 31, 2009, including an impairment
analysis on specifically identified commercial loans defined by
the Corporation as impaired, incorporated the level of specific
reserves for these larger commercial credit relationships, as
well as other factors, in determining the overall appropriate
level of the allowance for loan losses.
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 in
nonperforming status; 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. The loans that have been reported as potential
problem loans are predominantly commercial loans covering a
diverse range of businesses and real estate property types. At
December 31, 2009, potential problem loans totaled
$1.6 billion, compared to $938 million at
December 31, 2008. The $658 million increase in
potential problem loans since December 31, 2008, was
primarily due to a $355 million increase in commercial real
estate, $201 million increase in commercial, financial, and
agricultural, and a $79 million increase in real estate
construction. The current rise in and level of potential problem
loans highlights managements continued heightened level of
uncertainty of the pace at which a commercial credit may
deteriorate, the duration of asset quality stress, and
uncertainty around the magnitude and scope of economic
56
stress that may be felt by the Corporations customers and
on underlying real estate values (both residential and
commercial).
Other Real Estate Owned: Other real estate owned
increased to $68.4 million at December 31, 2009,
compared to $48.7 million at December 31, 2008 and
$26.5 million at December 31, 2007. The
$19.7 million increase in other real estate owned during
2009 was primarily attributable to a $23.7 million increase
in commercial real estate (with $20.2 million attributable
to 4 larger commercial foreclosures), partially offset by a
$3.6 million decrease in residential real estate owned and
a $0.4 million decrease to bank premises no longer used for
banking and reclassified into other real estate owned. The
$22.2 million increase in other real estate owned during
2008 was predominantly due to a $20.2 million increase in
commercial real estate (largely attributable to a
$15.5 million housing-related commercial property, and
other larger commercial foreclosures primarily across our core
footprint) and a $4.9 million increase in residential real
estate owned, partially offset by a $2.9 million decrease
to bank premises no longer used for banking and reclassified
into other real estate owned (including a $2.7 million
reduction from the sale of a bank property). Net losses on sales
of other real estate owned were $4.9 million,
$2.4 million, and $0.3 million for 2009, 2008, and
2007, respectively. Write-downs on other real estate owned were
$14.4 million (primarily attributable to a
$7.8 million write-down on a foreclosed property which sold
during the fourth quarter of 2009), $4.6 million, and
$0.6 million for 2009, 2008, and 2007, respectively.
Management actively seeks to ensure properties held are
monitored to minimize the Corporations risk of loss.
Investment
Securities Portfolio
The investment securities portfolio is intended to provide the
Corporation with adequate liquidity, flexibility in
asset/liability management, a source of stable income, and is
structured with minimum credit exposure to the Corporation. At
the time of purchase, the Corporation generally classifies its
investment purchases as available for sale, consistent with
these investment objectives, including possible securities sales
in response to changes in interest rates or prepayment risk, the
need to manage liquidity or regulatory capital, and other
factors. Investment securities classified as available for sale
are carried at fair value in the consolidated balance sheet.
At December 31, 2009, the total carrying value of
investment securities was $5.8 billion, up
$692 million or 13.5% compared to December 31, 2008,
and represented 26% of total assets, compared to 21% of total
assets at December 31, 2008. The $692 million increase in
investment securities during 2009 was primarily attributable to
purchases of agency guaranteed mortgage-related securities. On
average, the investment portfolio was $5.7 billion for
2009, up $2.0 billion compared to 2008, and represented 27%
and 19% of average earning assets for 2009 and 2008,
respectively. The total carrying value of investment securities
at December 31, 2007, was $3.4 billion and represented
16% of total assets.
57
TABLE 14:
Investment Securities Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
% of Total
|
|
|
2008
|
|
|
% of Total
|
|
|
2007
|
|
|
% of Total
|
|
|
|
($ in Thousands)
|
|
|
Investment Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
3,896
|
|
|
|
<1
|
%
|
|
$
|
4,985
|
|
|
|
<1
|
%
|
|
$
|
4,923
|
|
|
|
<1
|
%
|
Federal agency securities
|
|
|
41,980
|
|
|
|
1
|
|
|
|
75,816
|
|
|
|
2
|
|
|
|
75,272
|
|
|
|
2
|
|
Obligations of state and political subdivisions
|
|
|
865,111
|
|
|
|
15
|
|
|
|
913,216
|
|
|
|
18
|
|
|
|
964,616
|
|
|
|
29
|
|
Residential mortgage-related securities
|
|
|
4,751,033
|
|
|
|
84
|
|
|
|
4,032,784
|
|
|
|
79
|
|
|
|
2,224,198
|
|
|
|
67
|
|
Other securities (debt and equity)
|
|
|
20,954
|
|
|
|
<1
|
|
|
|
58,272
|
|
|
|
1
|
|
|
|
74,991
|
|
|
|
2
|
|
|
|
|
|
|
|
Total amortized cost
|
|
$
|
5,682,974
|
|
|
|
100
|
%
|
|
$
|
5,085,073
|
|
|
|
100
|
%
|
|
$
|
3,344,000
|
|
|
|
100
|
%
|
|
|
|
|
|
|
Fair Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
3,875
|
|
|
|
<1
|
%
|
|
$
|
4,966
|
|
|
|
<1
|
%
|
|
$
|
4,936
|
|
|
|
<1
|
%
|
Federal agency securities
|
|
|
43,407
|
|
|
|
1
|
|
|
|
77,010
|
|
|
|
2
|
|
|
|
75,676
|
|
|
|
2
|
|
Obligations of state and political subdivisions
|
|
|
885,165
|
|
|
|
15
|
|
|
|
925,603
|
|
|
|
18
|
|
|
|
980,989
|
|
|
|
29
|
|
Residential mortgage-related securities
|
|
|
4,882,519
|
|
|
|
84
|
|
|
|
4,077,431
|
|
|
|
79
|
|
|
|
2,222,103
|
|
|
|
66
|
|
Other securities (debt and equity)
|
|
|
20,567
|
|
|
|
<1
|
|
|
|
58,404
|
|
|
|
1
|
|
|
|
74,913
|
|
|
|
2
|
|
|
|
|
|
|
|
Total fair value and carrying value
|
|
$
|
5,835,533
|
|
|
|
100
|
%
|
|
$
|
5,143,414
|
|
|
|
100
|
%
|
|
$
|
3,358,617
|
|
|
|
100
|
%
|
|
|
|
|
|
|
Net unrealized holding gains
|
|
$
|
152,559
|
|
|
|
|
|
|
$
|
58,341
|
|
|
|
|
|
|
$
|
14,617
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the Corporations securities
portfolio did not contain securities of any single issuer that
were payable from and secured by the same source of revenue or
taxing authority where the aggregate carrying value of such
securities exceeded 10% of stockholders equity or
approximately $274 million.
During 2009, the Corporation recognized credit-related
other-than-temporary
impairment write-downs of $2.9 million, including a
$2.0 million write-down on a trust preferred debt security,
a $0.4 million write-down on a non-agency mortgage-related
security, and a $0.5 million write-down on various equity
securities. The Corporation recognized other-than temporary
write-downs of $52.5 million during 2008, including a
$31.1 million write-down on a non-agency mortgage-related
security, a $13.2 million write-down on FHLMC and FNMA
preferred stocks, a $6.8 million write-down on trust
preferred debt securities pools, and a $1.4 million
write-down on four common equity securities. During 2007, the
Corporation determined a common equity security to have an
other-than-temporary
impairment that resulted in a write-down of $0.9 million.
See Note 1, Summary of Significant Accounting
Policies, and Note 3, Investment
Securities, of the notes to consolidated financial
statements for additional information.
Obligations of State and Political Subdivisions (Municipal
Securities): At December 31, 2009 and 2008, municipal
securities were $885 million and $926 million,
respectively, and represented 15% and 18%, respectively, of
total investment securities based on fair value. Municipal bond
insurance company downgrades have resulted in credit downgrades
in certain municipal securities; however, it has been determined
that due to the granular nature of these obligations (general
obligation, essential services, etc.) it is highly likely we
will be repaid in full. As of December 31, 2009, the total
fair value of municipal securities reflected a net unrealized
gain of approximately $20 million.
Residential Mortgage-related Securities: At December 31,
2009 and 2008, mortgage-related securities (which include
predominantly mortgage-backed securities and collateralized
mortgage obligations (CMOs)) were $4.9 billion and
$4.1 billion, respectively, and represented 84% and 79%,
respectively, of total investment securities based on fair
value. Of the $4.9 billion mortgage-related investment
securities at December 31,
58
2009, $4.8 billion were agency guaranteed. The fair value
of mortgage-related securities is subject to inherent risks
based upon the future performance of the underlying collateral
(i.e. mortgage loans) for these securities, such as prepayment
risk and interest rate changes. The Corporation regularly
assesses valuation and credit quality underlying these
securities. As a result of these risks, and as noted above, the
Corporation recorded a $0.4 million
other-than-temporary
write-down on a non-agency mortgage-related security during 2009
and a $31.1 million
other-than-temporary
write-down on another non-agency mortgage-related security
during the fourth quarter of 2008.
Other Securities (Debt and Equity): At December 31, 2009
and 2008, other securities were $20.6 million and
$58.4 million, respectively, and represented less than 1%
and 1%, respectively, of total investment securities based on
fair value. As of December 31, 2009, other securities of
$20.6 million included debt and equity securities of
$11.4 million and $9.2 million, respectively, compared
to debt and equity securities of $49.4 million and
$9.0 million, respectively, for a total of
$58.4 million at December 31, 2008. Debt securities
include trust preferred debt securities pools, commercial paper,
corporate bonds, and money market mutual funds, while equity
securities include preferred and common equity securities. At
December 31, 2009, the Corporation had $4.1 million of
trust preferred debt securities pools, compared to
$5.6 million at December 31, 2008. The continued
negative sentiment toward banks due to numerous bank failures
has resulted in depressed prices for the Corporations
investments in bank trust preferred debt securities, including
$2.0 million and $6.8 million in
other-than-temporary
write-downs during 2009 and 2008, respectively. Likewise, the
downturn in the economy has resulted in depressed prices for
common equity securities resulting in write-downs of
$0.5 million and $1.4 million in 2009 and 2008,
respectively. All credit sensitive sectors in the investment
portfolio, which include trust preferred securities pools and
common equity securities, have been under severe credit and
liquidity stress which has resulted in distressed prices and the
risk of further write-downs.
Federal Home Loan Bank (FHLB) and Federal Reserve
Bank Stocks: At December 31, 2009, the Corporation had FHLB
stock of $121.1 million and Federal Reserve Bank stock of
$60.2 million, compared to FHLB stock of
$145.9 million and Federal Reserve Bank stock of
$60.1 million at December 31, 2008. The Corporation is
required to maintain Federal Reserve stock and FHLB stock as a
member of both the Federal Reserve System and the FHLB, and in
amounts as required by these institutions. These equity
securities are restricted in that they can only be
sold back to the respective institutions or another member
institution at par. Therefore, they are less liquid than other
tradable equity securities, their fair value is equal to
amortized cost, and no impairment has been recorded on these
securities during 2009, 2008, or 2007.
The FHLB of Chicago announced in October 2007 that it was under
a consensual cease and desist order with its regulator, which
among other things, restricts various future activities of the
FHLB of Chicago. Such restrictions may limit or stop the FHLB
from paying dividends or redeeming stock without prior approval.
The FHLB of Chicago last paid a dividend in the third quarter of
2007. Associated Bank is a member of the FHLB Chicago.
Accounting guidance indicates that an investor in FHLB Chicago
capital stock should recognize impairment if it concludes that
it is not probable that it will ultimately recover the par value
of its shares. The decision of whether impairment exists is a
matter of judgment that should reflect the investors view
of FHLB Chicagos long-term performance, which includes
factors such as its operating performance, the severity and
duration of declines in the market value of its net assets
related to its capital stock amount, its commitment to make
payments required by law or regulation and the level of such
payments in relation to its operating performance, the impact of
legislation and regulatory changes on FHLB Chicago, and
accordingly, on the members of FHLB Chicago and its liquidity
and funding position. During 2009, the Corporation redeemed
$24.9 million of FHLB stock at par. After evaluating all of
these considerations, the Corporation believes the cost of the
investment will be recovered. Future evaluations of these
factors could result in a different conclusion. See also section
Liquidity.
59
TABLE 15:
Investment Securities Portfolio Maturity Distribution
(1) At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities Available for Sale - Maturity
Distribution and Weighted Average Yield
|
|
|
|
|
|
|
|
|
|
After one but
|
|
|
After five but
|
|
|
|
|
|
|
|
|
Mortgage-related
|
|
|
Total
|
|
|
Total
|
|
|
|
Within one year
|
|
|
within five years
|
|
|
within ten years
|
|
|
After ten years
|
|
|
and equity securities
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
U. S. Treasury securities
|
|
$
|
2,900
|
|
|
|
0.23
|
%
|
|
|
996
|
|
|
|
1.31
|
%
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
3,896
|
|
|
|
0.51
|
%
|
|
$
|
3,875
|
|
Federal agency securities
|
|
|
23,000
|
|
|
|
4.40
|
|
|
|
18,980
|
|
|
|
4.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,980
|
|
|
|
4.50
|
|
|
|
43,407
|
|
Obligations of states and political subdivisions(2)
|
|
|
124,193
|
|
|
|
7.63
|
|
|
|
164,225
|
|
|
|
5.96
|
|
|
|
432,172
|
|
|
|
6.01
|
%
|
|
|
144,521
|
|
|
|
5.83
|
%
|
|
|
|
|
|
|
|
|
|
|
865,111
|
|
|
|
6.20
|
|
|
|
885,165
|
|
Other debt securities
|
|
|
6,090
|
|
|
|
1.14
|
|
|
|
1,100
|
|
|
|
2.91
|
|
|
|
|
|
|
|
|
|
|
|
5,723
|
|
|
|
2.67
|
|
|
|
|
|
|
|
|
|
|
|
12,913
|
|
|
|
1.97
|
|
|
|
11,393
|
|
Residential mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,751,033
|
|
|
|
4.45
|
%
|
|
|
4,751,033
|
|
|
|
4.45
|
|
|
|
4,882,519
|
|
Other equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,041
|
|
|
|
(0.10
|
)
|
|
|
8,041
|
|
|
|
(0.10
|
)
|
|
|
9,174
|
|
|
|
|
|
|
|
Total amortized cost
|
|
$
|
156,183
|
|
|
|
6.76
|
%
|
|
$
|
185,301
|
|
|
|
5.78
|
%
|
|
$
|
432,172
|
|
|
|
6.01
|
%
|
|
$
|
150,244
|
|
|
|
5.71
|
%
|
|
$
|
4,759,074
|
|
|
|
4.44
|
%
|
|
$
|
5,682,974
|
|
|
|
4.70
|
%
|
|
$
|
5,835,533
|
|
|
|
|
|
|
|
Total fair value and carrying value
|
|
$
|
158,599
|
|
|
|
|
|
|
$
|
192,418
|
|
|
|
|
|
|
$
|
443,082
|
|
|
|
|
|
|
$
|
149,741
|
|
|
|
|
|
|
$
|
4,891,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,835,533
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Expected maturities will differ
from contractual maturities, as borrowers may have the right to
call or repay obligations with or without call or prepayment
penalties.
|
|
(2)
|
|
Yields on tax-exempt securities are
computed on a taxable equivalent basis using a tax rate of 35%
and have not been adjusted for certain disallowed interest
deductions.
|
Deposits
Deposits are the Corporations largest source of funds.
Selected period-end deposit information is detailed in
Note 7, Deposits, of the notes to consolidated
financial statements, including a maturity distribution of all
time deposits at December 31, 2009. A maturity distribution
of certificates of deposits and other time deposits of $100,000
or more at December 31, 2009 is shown in Table 17. Table 16
summarizes the distribution of average deposit balances. See
also section Liquidity.
The Corporation competes with other bank and nonbank
institutions for deposits, as well as with a growing number of
non-deposit investment alternatives available to depositors,
such as mutual funds, money market funds, annuities, and other
brokerage investment products. Competition for deposits remains
high. Challenges to deposit growth include a usual cyclical
decline in deposits historically experienced during the first
quarter (noted as a challenge since the return of deposit
balances may not be timely or by as much as the outflow), price
changes on deposit products given movements in the rate
environment and other competitive pricing pressures, and
customer choices to higher-costing deposit products or to
non-deposit investment alternatives.
At December 31, 2009, deposits were $16.7 billion, up
$1.6 billion or 10.4% from December 31, 2008,
primarily affected by a $0.9 billion increase in money
market deposits (including a $396 million increase in
network transaction deposits) and a $1.3 billion increase
in interest-bearing demand deposits, partially offset by a
$0.6 billion decrease in brokered certificates of deposit.
In general, since year-end 2008, transaction deposits (total
deposits excluding brokered certificates of deposit and other
time deposits) have increased, while brokered certificates of
deposit and other time deposits have decreased, as customers
shifted to products with greater flexibility and interest-rate
potential. As a result of the factors noted above, money market
deposits grew to represent 35% of total deposits at
December 31, 2009 (compared to 32% at year-end
2008) and interest-bearing demand deposits increased to 18%
of total deposits (versus 12% last year end), while brokered
certificates of deposit decreased to 1% of total deposits
(compared to 5% at year-end 2008) and other time deposits
declined to 21% of total deposits (versus 26% for the prior year
end). Noninterest-bearing demand deposits grew $461 million
or 16.4% to represent 20% of total deposits, compared to 19% of
total deposits at year-end 2008.
On average, deposits were $16.0 billion for 2009, up
$2.1 billion or 15.5% over the average for 2008. Similar to
that seen for period end deposits, the mix of average deposits
was also impacted by the economy and shift in customer
preferences, predominantly toward the product design and pricing
features of money market deposits (up $1.2 billion on
average between 2009 and 2008). For 2009 and 2008 as presented
in Table 16, money market deposits grew to 34% of total average
deposits for 2009, while other time deposits declined to 24% of
total average deposits for 2009.
60
TABLE 16:
Average Deposits Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
% of Total
|
|
|
Amount
|
|
|
% of Total
|
|
|
Amount
|
|
|
% of Total
|
|
|
|
($ in Thousands)
|
|
|
Noninterest-bearing demand deposits
|
|
$
|
2,884,673
|
|
|
|
18
|
%
|
|
$
|
2,446,613
|
|
|
|
18
|
%
|
|
$
|
2,376,009
|
|
|
|
17
|
%
|
Interest-bearing demand deposits
|
|
|
2,154,745
|
|
|
|
13
|
|
|
|
1,752,991
|
|
|
|
13
|
|
|
|
1,844,274
|
|
|
|
13
|
|
Savings deposits
|
|
|
880,544
|
|
|
|
6
|
|
|
|
890,811
|
|
|
|
6
|
|
|
|
913,143
|
|
|
|
7
|
|
Money market deposits
|
|
|
5,390,782
|
|
|
|
34
|
|
|
|
4,231,678
|
|
|
|
30
|
|
|
|
3,752,199
|
|
|
|
27
|
|
Brokered certificates of deposit
|
|
|
767,424
|
|
|
|
5
|
|
|
|
532,805
|
|
|
|
4
|
|
|
|
515,705
|
|
|
|
4
|
|
Other time and certificates of deposit
|
|
|
3,880,878
|
|
|
|
24
|
|
|
|
3,957,174
|
|
|
|
29
|
|
|
|
4,340,473
|
|
|
|
32
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
15,959,046
|
|
|
|
100
|
%
|
|
$
|
13,812,072
|
|
|
|
100
|
%
|
|
$
|
13,741,803
|
|
|
|
100
|
%
|
|
|
|
|
|
|
TABLE 17: Maturity Distribution-Certificates of
Deposit and Other Time Deposits of $100,000 or More
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Total Certificates
|
|
|
|
Certificates
|
|
|
Other
|
|
|
of Deposits and Other
|
|
|
|
of Deposit
|
|
|
Time Deposits
|
|
|
Time Deposits
|
|
|
|
($ in Thousands)
|
|
|
Three months or less
|
|
$
|
212,821
|
|
|
$
|
128,718
|
|
|
$
|
341,539
|
|
Over three months through six months
|
|
|
206,017
|
|
|
|
120,307
|
|
|
|
326,324
|
|
Over six months through twelve months
|
|
|
164,688
|
|
|
|
238,716
|
|
|
|
403,404
|
|
Over twelve months
|
|
|
179,247
|
|
|
|
58,467
|
|
|
|
237,714
|
|
|
|
|
|
|
|
Total
|
|
$
|
762,773
|
|
|
$
|
546,208
|
|
|
$
|
1,308,981
|
|
|
|
|
|
|
|
Other
Funding Sources
Other funding sources, including short-term borrowings and
long-term funding (wholesale funding), were
$3.2 billion at December 31, 2009, down
$2.4 billion from $5.6 billion at December 31,
2008, primarily in short-term borrowings. See also section
Liquidity. Long-term funding at December 31,
2009, was $2.0 billion, an increase of $0.1 billion
from December 31, 2008, with a shift in mix including an
increase of $0.2 billion in long-term repurchase agreements
and a $0.1 billion decrease in long-term FHLB advances. See
Note 9, Long-term Funding, of the notes to
consolidated financial statements for additional information on
long-term funding.
Short-term borrowings are comprised primarily of Federal funds
purchased and securities sold under agreements to repurchase;
Federal Reserve discount window; short-term FHLB advances; and
treasury, tax, and loan notes. Short-term borrowings at
December 31, 2009 were $1.2 billion, $2.5 billion
lower than December 31, 2008 (primarily short-term FHLB
advances and Federal funds purchased and securities sold under
agreements to repurchase). The FHLB advances included in
short-term borrowings are those with original contractual
maturities of less than one year, while the Federal Reserve
funds represent short-term borrowings through the Term Auction
Facility. The treasury, tax, and loan notes are demand notes
representing secured borrowings from the U.S. Treasury,
collateralized by qualifying securities and loans. This funding
program provides funds at the discretion of the
U.S. Treasury that may be called at any time. Many
short-term borrowings, particularly Federal funds purchased and
securities sold under agreements to repurchase, are expected to
be reissued and, therefore, do not represent an immediate need
for cash. See Note 8, Short-term Borrowings, of
the notes to consolidated financial statements for additional
information on short-term borrowings, and Table 18 for specific
disclosure required for major short-term borrowing categories.
61
TABLE 18:
Short-Term Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in Thousands)
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance end of year
|
|
$
|
598,488
|
|
|
$
|
1,590,738
|
|
|
$
|
1,936,430
|
|
Average amounts outstanding during year
|
|
|
1,294,423
|
|
|
|
2,330,426
|
|
|
|
1,847,789
|
|
Maximum month-end amounts outstanding
|
|
|
2,525,461
|
|
|
|
2,658,608
|
|
|
|
2,281,308
|
|
Average interest rates on amounts outstanding at end of year*
|
|
|
1.21
|
%
|
|
|
1.02
|
%
|
|
|
4.25
|
%
|
Average interest rates on amounts outstanding during year*
|
|
|
0.68
|
%
|
|
|
2.20
|
%
|
|
|
4.91
|
%
|
Federal Reserve Term Auction Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance end of year
|
|
$
|
600,000
|
|
|
$
|
500,000
|
|
|
$
|
|
|
Average amounts outstanding during year
|
|
|
942,973
|
|
|
|
596,721
|
|
|
|
70
|
|
Maximum month-end amounts outstanding
|
|
|
1,400,000
|
|
|
|
1,000,000
|
|
|
|
|
|
Average interest rates on amounts outstanding at end of year
|
|
|
0.24
|
%
|
|
|
1.41
|
%
|
|
|
|
|
Average interest rates on amounts outstanding during year
|
|
|
0.25
|
%
|
|
|
2.20
|
%
|
|
|
6.25
|
%
|
|
|
|
*
|
|
As discussed in Note 15,
Derivative and Hedging Activities, of the notes to
consolidated financial statements, the Corporation has entered
into a cash flow hedge to manage the interest rate risk related
to these short-term borrowings.
|
On average, wholesale funding was $4.6 billion for 2009,
down $1.1 billion or 18.9% from 2008, including a
$1.4 billion decrease in short-term borrowings and a
$0.3 billion increase in long-term funding. The mix of
wholesale funding continued to shift in 2009 from short-term
borrowing instruments to long-term funding instruments, with
average long-term funding increasing to 40.8% of wholesale
funding compared to 28.3% in 2008. Long-term funding was up
$0.3 billion, on average, comprised primarily of increases
in long-term repurchase agreements. Within the short-term
borrowing categories, average Federal funds purchased and
securities sold under agreements to repurchase decreased
$1.1 billion, treasury, tax and loan notes decreased
$0.4 billion, and short-term FHLB advances were down
$0.2 billion, while the Federal Reserve discount window
increased $0.3 billion.
Liquidity
The objective of liquidity 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 fall due, including the ability to
pay dividends to shareholders, service debt, invest in
subsidiaries or acquisitions, repurchase common stock, and
satisfy other operating requirements.
Funds are available from a number of basic banking activity
sources, primarily from the core deposit base and from loans and
investment securities repayments and maturities. Additionally,
liquidity is provided from the sale of investment securities,
lines of credit with major banks, the ability to acquire large,
network, and brokered deposits, and the ability to securitize or
package loans for sale. The Corporation regularly evaluates the
creation of additional funding capacity based on market
opportunities and conditions, as well as corporate funding
needs, and is currently exploring options to replace the
subordinated note offering which matures in 2011. The
Corporations capital can be a source of funding and
liquidity as well (see section Capital). The current
volatility and disruptions in the capital markets may impact the
Corporations ability to access certain liquidity sources
in the same manner as the Corporation had in the past.
On January 15, 2010, the Corporation announced it had
closed its underwritten public offering of
44,843,049 shares of its common stock at $11.15 per share.
The net proceeds from the offering were approximately
$478.3 million after deducting underwriting discounts and
commissions and the estimated expenses of the offering. The
Corporation intends to use the net proceeds of this offering,
which will qualify as tangible common equity and Tier 1
capital, to support the Bank and continued growth and for
working capital and other general corporate purposes.
62
The Corporations internal liquidity management framework
includes measurement of several key elements, such as wholesale
funding as a percent of total assets and liquid assets to
short-term wholesale funding. Strong capital ratios, credit
quality, and core earnings are essential to retaining high
credit ratings and, consequently, cost-effective access to the
wholesale funding markets. A downgrade or loss in credit ratings
could have an impact on the Corporations ability to access
wholesale funding at favorable interest rates. As a result,
capital ratios, asset quality measurements, and profitability
ratios are monitored on an ongoing basis as part of the
liquidity management process. At December 31, 2009, the
Corporation was in compliance with its internal liquidity
objectives.
While core deposits and loan and investment securities
repayments are principal sources of liquidity, funding
diversification is another key element of liquidity management.
Diversity is achieved by strategically varying depositor type,
term, funding market, and instrument. The Parent Company and its
subsidiary bank are rated by Moodys and Standard and
Poors (S&P). Credit ratings by these
nationally recognized statistical rating agencies are an
important component of the Corporations liquidity profile.
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. Among other
factors, the credit ratings are based on financial strength,
credit quality and concentrations in the loan portfolio, the
level and volatility of earnings, capital adequacy, the quality
of management, the liquidity of the balance sheet, the
availability of a significant base of core deposits, and the
Corporations ability to access a broad array of wholesale
funding sources. 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 Corporations credit rating was
downgraded by S&P in November 2009 and January 2010 and the
rating agencies continue to have a negative outlook on the
banking industry. The primary impact of these credit rating
downgrades was that unsecured funding has become severely
limited; however, the Corporation has over $5 billion in
secured borrowing capacity available subsequent to these credit
rating downgrades. Ratings are subject to revision or withdrawal
at any time and each rating should be evaluated independently.
The credit ratings of the Parent Company and its subsidiary bank
are displayed below.
TABLE 19:
Credit Ratings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 11, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
S&P
|
|
|
Moodys
|
|
|
S&P
|
|
|
Fitch
|
|
|
Moodys
|
|
|
S&P
|
|
|
Fitch
|
|
|
Bank short-term
|
|
|
B
|
|
|
|
P1
|
|
|
|
A3
|
|
|
|
F3
|
|
|
|
P1
|
|
|
|
A2
|
|
|
|
F1
|
|
Bank long-term
|
|
|
BB+
|
|
|
|
A1
|
|
|
|
BBB-
|
|
|
|
BBB-
|
|
|
|
A1
|
|
|
|
A-
|
|
|
|
A-
|
|
Corporation short-term
|
|
|
B
|
|
|
|
P1
|
|
|
|
B
|
|
|
|
B
|
|
|
|
P1
|
|
|
|
A2
|
|
|
|
F2
|
|
Corporation long-term
|
|
|
BB-
|
|
|
|
A2
|
|
|
|
BB+
|
|
|
|
BB+
|
|
|
|
A2
|
|
|
|
BBB+
|
|
|
|
BBB+
|
|
Subordinated debt long-term
|
|
|
B
|
|
|
|
A3
|
|
|
|
BB-
|
|
|
|
BB
|
|
|
|
A3
|
|
|
|
BBB
|
|
|
|
BBB
|
|
The Corporation has multiple funding sources that could be used
to increase liquidity and provide additional financial
flexibility. In December 2008, the Parent Company filed a
shelf registration under which the Parent Company
may offer any combination of the following securities, either
separately or in units: trust preferred securities, debt
securities, preferred stock, depositary shares, common stock,
and warrants. In May 2002, $175 million of trust preferred
securities were issued, bearing a 7.625% fixed coupon rate. In
September 2008, the Parent Company issued $26 million in a
subordinated note offering, bearing a 9.25% fixed coupon rate,
5-year
no-call provision, and
10-year
maturity, while in August 2001, the Parent Company issued
$200 million in a subordinated note offering, bearing a
6.75% fixed coupon rate and
10-year
maturity. The Parent Company also has a $200 million
commercial paper program, of which, no commercial paper was
outstanding at December 31, 2009. The
availability under the commercial paper program was temporarily
suspended due to the S&P downgrade in November 2009 noted
above.
In November 2008, under the CPP, the Corporation issued
525,000 shares of Senior Preferred Stock (with a par value
of $1.00 per share and a liquidation preference of $1,000 per
share) and a
10-year
warrant to purchase approximately 4.0 million shares of
common stock (Common Stock Warrants), for aggregate
proceeds of $525 million. The allocated carrying value of
the Senior Preferred Stock and Common Stock Warrants on the date
of issuance (based on their relative fair values) was
$507.7 million and $17.3 million, respectively.
Cumulative dividends on the Senior Preferred Stock are payable
at 5% per annum for the first five years and at a rate of 9% per
63
annum thereafter on the liquidation preference of $1,000 per
share. The Common Stock Warrants have a term of 10 years
and are exercisable at any time, in whole or in part, at an
exercise price of $19.77 per share (subject to certain
anti-dilution adjustments). While any Senior Preferred Stock is
outstanding, the Corporation may pay dividends on common stock,
provided that all accrued and unpaid dividends for all past
dividend periods on the Senior Preferred Stock are fully paid.
Prior to the third anniversary of the USTs purchase of the
Senior Preferred Stock, unless the Senior Preferred Stock has
been redeemed or the UST has transferred all of the Senior
Preferred Stock to third parties, the consent of the UST will be
required for the Corporation to pay quarterly dividends on its
common stock greater than $0.32 per share.
While dividends and service fees from subsidiaries and proceeds
from issuance of capital are primary funding sources for the
Parent Company, these sources could be limited or costly (such
as by regulation or subject to the capital needs of its
subsidiaries or by market appetite for bank holding company
stock). Dividends received in cash from subsidiaries totaled
$10 million in 2009, and at December 31, 2009,
$37 million in additional dividends are available to be
paid to the Parent Company by its subsidiaries without obtaining
prior banking regulatory approval, subject to the capital needs
of the Bank. As discussed in Item 1 and below, the
subsidiary bank is subject to regulation and, among other
things, may be limited in its ability to pay dividends or
transfer funds to the Parent Company.
On November 5, 2009, Associated Bank, National Association
(the Bank) entered into a Memorandum of
Understanding (MOU) with the Comptroller of the
Currency (OCC), its primary banking regulator. The
MOU, which is an informal agreement between the Bank and the
OCC, requires the Bank to develop, implement, and maintain
various processes to improve the Banks risk management of
its loan portfolio and a three year capital plan providing for
maintenance of specified capital levels, notification to the OCC
of dividends proposed to be paid to the Corporation and the
commitment of the Corporation to act as a primary or contingent
source of the Banks capital. See section
Capital for additional discussion related to the MOU.
A bank note program associated with Associated Bank was
established during 2000. Under this program, short-term and
long-term debt may be issued. As of December 31, 2009, no
bank notes were outstanding and $225 million was available
under the 2000 bank note program. A new bank note program was
instituted during 2005, of which $2 billion was available
at December 31, 2009. Given the S&P downgrade in
January 2010 noted above, the cost to issue funds under the bank
note program would be cost prohibitive. Associated Bank has also
established federal funds lines with major banks and the ability
to borrow from the Federal Home Loan Bank ($1.0 billion was
outstanding at December 31, 2009). Associated Bank also
issues institutional certificates of deposit, network deposits,
brokered certificates of deposit, and accepts Eurodollar
deposits.
Investment securities are an important tool to the
Corporations liquidity objective. As of December 31,
2009, all investment securities are classified as available for
sale and are reported at fair value on the consolidated balance
sheet. Of the $5.8 billion investment securities portfolio
at December 31, 2009 (representing 26% of total assets),
$2.3 billion was pledged to secure certain deposits or for
other purposes as required or permitted by law.
In addition, the Corporation has $181 million of Federal
Reserve and FHLB stock combined which is restricted
in nature and less liquid than other tradable equity securities
(see section Investment Securities Portfolio and
Note 3, Investment Securities, of the notes to
consolidated financial statements). The FHLB of Chicago
announced in October 2007 that it was under a consensual cease
and desist order with its regulator, which among other things,
restricts various future activities of the FHLB of Chicago. Such
restrictions may limit or stop the FHLB from paying dividends or
redeeming stock without prior approval. The FHLB of Chicago last
paid a dividend in the third quarter of 2007. The Bank is a
member of the FHLB Chicago. Accounting guidance indicates that
an investor in FHLB Chicago capital stock should recognize
impairment if it concludes that it is not probable that it will
ultimately recover the par value of its shares. The decision of
whether impairment exists is a matter of judgment that should
reflect the investors view of FHLB Chicagos
long-term performance, which includes factors such as its
operating performance, the severity and duration of declines in
the market value of its net assets related to its capital stock
amount, its commitment to make payments required by law or
regulation and the level of such payments in relation to its
operating performance, the impact of legislation and regulatory
changes on FHLB Chicago, and accordingly, on the members of FHLB
Chicago and its liquidity and funding position. During 2009, the
Corporation redeemed
64
$24.9 million of FHLB stock at par. After evaluating all of
these considerations, the Corporation believes the cost of the
investment will be recovered.
On November 21, 2008, the FDIC approved the final rule to
provide short-term liquidity relief under the FDICs
Temporary Liquidity Guarantee Program (TLGP). The TLGP has two
components, the Transaction Account Guarantee (TAG)
Program, which provides full deposit insurance coverage for
certain noninterest-bearing transaction deposit accounts and
certain interest-bearing NOW transaction accounts, regardless of
dollar amount, and the Debt Guarantee Program, which guarantees
the payment of certain newly-issued senior unsecured debt issued
by banks. On December 5, 2008, the Corporation opted into
both the TAG and the Debt Guarantee Programs. The Debt Guarantee
Program concluded on October 31, 2009. On August 26,
2009, the FDIC approved the final rule extending the TAG Program
for six months until June 30, 2010, and increased the
applicable TAG assessment fees during that six month period. The
Corporation did not opt out of the TAG Program extension, which
is expected to increase future FDIC insurance costs.
As reflected in Table 21, the Corporation has various financial
obligations, including contractual obligations and other
commitments, which may require future cash payments. The time
deposits with shorter maturities could imply near-term liquidity
risk if such deposit balances do not rollover at maturity into
new time or non-time deposits at the Corporation. However, the
relatively short maturities in time deposits are not out of the
ordinary to the Corporations historical experience of its
customer base preference. As evidenced in Table 16, average
other time and certificates of deposit were 24% of total average
deposits for 2009, compared to 29% and 32% of total average
deposits for 2008 and 2007, respectively. Many short-term
borrowings, also shown in Table 21, particularly Federal funds
purchased and securities sold under agreements to repurchase,
can be reissued and, therefore, do not represent an immediate
need for cash. See additional discussion in sections, Net
Interest Income, Investment Securities
Portfolio, and Interest Rate Risk, and in
Note 3, Investment Securities, of the notes to
consolidated financial statements. As a financial services
provider, the Corporation routinely enters into commitments to
extend credit. While contractual obligations represent future
cash requirements of the Corporation, a significant portion of
commitments to extend credit may expire without being drawn upon.
For the year ended December 31, 2009, net cash provided by
operating and investing activities was $0.1 billion and
$1.0 billion, respectively, while financing activities used
net cash of $0.9 billion, for a net increase in cash and
cash equivalents of $250 million since year-end 2008.
Generally, during 2009, assets decreased to $22.9 billion
(down 5.4%) compared to year-end 2008, including a decrease in
loans (down $2.2 billion), partially offset by an increase
in investment securities (up $0.7 billion). The
$1.6 billion increase in deposits was predominantly used to
fund the change in assets and repay wholesale funding.
For the year ended December 31, 2008, net cash provided by
operating and financing activities was $0.4 billion and
$2.0 billion, respectively, while investing activities used
net cash of $2.5 billion, for a net decrease in cash and
cash equivalents of $16 million since year-end 2007.
Generally, during 2008, net assets increased to
$24.2 billion (up $2.6 billion or 12.0%) compared to
year-end 2007, primarily in investment securities and loans. The
increases in deposits and short-term borrowings, were
predominantly used to fund the asset growth and to provide for
the payment of cash dividends to the Corporations common
stockholders. In addition, the Corporation issued preferred
equity during the fourth quarter of 2008 which was also used to
fund asset growth.
Quantitative
and Qualitative Disclosures about Market Risk
Market risk arises from exposure to changes in interest rates,
exchange rates, commodity prices, and other relevant market rate
or price risk. The Corporation faces market risk in the form of
interest rate risk through other than trading activities. Market
risk from other than trading activities in the form of interest
rate risk is measured and managed through a number of methods.
The Corporation uses financial modeling 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 and approved
by the Board of Directors are intended to limit exposure of
earnings at risk. General interest rate movements are used to
develop sensitivity as the Corporation feels it has no primary
exposure to a specific point on the yield curve. These limits
are based on the Corporations exposure to a 100 bp
and 200 bp immediate and sustained parallel rate move,
either upward or downward.
65
Interest
Rate Risk
In order to measure earnings sensitivity to changing rates, the
Corporation uses three different measurement tools: static gap
analysis, simulation of earnings, and economic value of equity.
These three measurement tools represent static (i.e.,
point-in-time)
measures that do not take into account changes in management
strategies and market conditions, among other factors.
Static gap analysis: The static gap analysis starts with
contractual repricing information for assets, liabilities, and
off-balance sheet instruments. These items are then combined
with repricing estimations for administered rate
(interest-bearing demand deposits, savings, and money market
accounts) and non-rate related products (demand deposit
accounts, other assets, and other liabilities) to create a
baseline repricing balance sheet. In addition to the contractual
information, residential mortgage whole loan products and
mortgage-backed securities are adjusted based on industry
estimates of prepayment speeds that capture the expected
prepayment of principal above the contractual amount based on
how far away the contractual coupon is from market coupon rates.
The following table represents the Corporations
consolidated static gap position as of December 31, 2009.
TABLE 20:
Interest Rate Sensitivity Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Interest Sensitivity Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Within
|
|
|
|
|
|
|
|
|
|
0-90 Days
|
|
|
91-180 Days
|
|
|
181-365 Days
|
|
|
1 Year
|
|
|
Over 1 Year
|
|
|
Total
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
81,238
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81,238
|
|
|
$
|
|
|
|
$
|
81,238
|
|
Investment securities, at fair value
|
|
|
714,770
|
|
|
|
352,262
|
|
|
|
500,405
|
|
|
|
1,567,437
|
|
|
|
4,449,412
|
|
|
|
6,016,849
|
|
Loans
|
|
|
7,343,218
|
|
|
|
670,154
|
|
|
|
1,190,723
|
|
|
|
9,204,095
|
|
|
|
4,924,530
|
|
|
|
14,128,625
|
|
Other earning assets
|
|
|
49,876
|
|
|
|
|
|
|
|
|
|
|
|
49,876
|
|
|
|
|
|
|
|
49,876
|
|
|
|
|
|
|
|
Total earning assets
|
|
$
|
8,189,102
|
|
|
$
|
1,022,416
|
|
|
$
|
1,691,128
|
|
|
$
|
10,902,646
|
|
|
$
|
9,373,942
|
|
|
$
|
20,276,588
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits(1)(2)
|
|
$
|
4,081,085
|
|
|
$
|
2,190,085
|
|
|
$
|
3,359,652
|
|
|
$
|
9,630,822
|
|
|
$
|
6,955,823
|
|
|
$
|
16,586,645
|
|
Other interest-bearing liabilities(2)
|
|
|
1,680,513
|
|
|
|
113,476
|
|
|
|
317,089
|
|
|
|
2,111,078
|
|
|
|
1,211,741
|
|
|
|
3,322,819
|
|
Interest rate swap
|
|
|
(200,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(200,000
|
)
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
5,561,598
|
|
|
$
|
2,303,561
|
|
|
$
|
3,676,741
|
|
|
$
|
11,541,900
|
|
|
$
|
8,367,564
|
|
|
$
|
19,909,464
|
|
|
|
|
|
|
|
Interest sensitivity gap
|
|
|
2,627,504
|
|
|
|
(1,281,145
|
)
|
|
|
(1,985,613
|
)
|
|
|
(639,254
|
)
|
|
|
1,006,378
|
|
|
|
367,124
|
|
Cumulative interest sensitivity gap
|
|
|
2,627,504
|
|
|
|
1,346,359
|
|
|
|
(639,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Month cumulative gap as a percentage of earning assets at
December 31, 2009
|
|
|
13.0
|
%
|
|
|
6.6
|
%
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The interest rate sensitivity
assumptions for demand deposits, savings accounts, money market
accounts, and interest-bearing demand deposit accounts are based
on current and historical experiences regarding portfolio
retention and interest rate repricing behavior. Based on these
experiences, a portion of these balances are considered to be
long-term and fairly stable and are, therefore, included in the
Over 1 Year category.
|
|
(2)
|
|
For analysis purposes, Brokered CDs
of $142 million have been included with other
interest-bearing liabilities and excluded from deposits.
|
The static gap analysis in Table 20 provides a representation of
the Corporations earnings sensitivity to changes in
interest rates. It is a static indicator that may not
necessarily indicate the sensitivity of net interest income in a
changing interest rate environment. As of December 31,
2009, the
12-month
cumulative gap results were within the Corporations
interest rate risk policy.
At December 31, 2008, the Corporation was in an asset
sensitive position. (Asset sensitive means that assets will
reprice faster than liabilities. In a rising rate environment,
an asset sensitive bank will generally benefit.) At
December 31, 2009, the Corporation was in a liability
sensitive position, due to increased short-term funding issued
to support the increase in the investment portfolio. For 2010,
the Corporations objective is to bring the interest rate
profile to an asset sensitive position. However, the interest
rate position is at risk to changes in other factors, such as
66
the slope of the yield curve, competitive pricing pressures,
changes in balance sheet mix from management action
and/or from
customer behavior relative to loan or deposit products. See also
section Net Interest Income.
Interest rate risk of embedded positions (including prepayment
and early withdrawal options, lagged interest rate changes,
administered interest rate products, and cap and floor options
within products) require a more dynamic measuring tool to
capture earnings risk. Earnings simulation and economic value of
equity are used to more completely assess interest rate risk.
Simulation of earnings: Along with the static gap
analysis, determining the sensitivity of short-term future
earnings to a hypothetical plus or minus 100 bp and
200 bp parallel rate shock can be accomplished through the
use of simulation modeling. In addition to the assumptions used
to create the static gap, simulation of earnings included the
modeling of the balance sheet as an ongoing entity. Future
business assumptions involving administered rate products,
prepayments for future rate-sensitive balances, and the
reinvestment of maturing assets and liabilities are included.
These items are then modeled to project net interest income
based on a hypothetical change in interest rates. The resulting
net interest income for the next
12-month
period is compared to the net interest income amount calculated
using flat rates. This difference represents the
Corporations earnings sensitivity to a plus or minus
100 bp parallel rate shock.
The resulting simulations for December 31, 2009, projected
that net interest income would decrease by approximately 0.3% if
rates rose by a 100 bp shock. At December 31, 2008,
the 100 bp shock up was projected to increase net interest
income by approximately 2.1%. As of December 31, 2009, the
simulation of earnings results were within the
Corporations interest rate risk policy.
Economic value of equity: Economic value of equity
is another tool used to measure the impact of interest rates on
the value of assets, liabilities, and off-balance sheet
financial instruments. This measurement is a longer-term
analysis of interest rate risk as it evaluates every cash flow
produced by the current balance sheet.
These results are based solely on immediate and sustained
parallel changes in market rates and do not reflect the earnings
sensitivity that may arise from other factors. These factors may
include changes in the shape of the yield curve, the change in
spread between key market rates, or accounting recognition of
the impairment of certain intangibles. The above results are
also considered to be conservative estimates due to the fact
that no management action to mitigate potential income variances
is included within the simulation process. This action could
include, but would not be limited to, delaying an increase in
deposit rates, extending liabilities, using financial derivative
products to hedge interest rate risk, changing the pricing
characteristics of loans, or changing the growth rate of certain
assets and liabilities. As of December 31, 2009, the
projected changes for the economic value of equity were within
the Corporations interest rate risk policy.
The Corporation uses interest rate derivative financial
instruments as an asset/liability management tool to hedge
mismatches in interest rate exposure indicated by the net
interest income simulation described above. They are used to
modify the Corporations exposures to interest rate
fluctuations and provide more stable spreads between loan yields
and the rate on their funding sources. Interest rate swaps
involve the exchange of fixed- and variable-rate payments
without the exchange of the underlying notional amount on which
the interest payments are calculated. To hedge against rising
interest rates, the Corporation may use interest rate caps.
Counterparties to these interest rate cap agreements pay the
Corporation based on the notional amount and the difference
between current rates and strike rates. To hedge against falling
interest rates, the Corporation may use interest rate floors.
Like caps, counterparties to interest rate floor agreements pay
the Corporation based on the notional amount and the difference
between current rates and strike rates.
The Corporation also enters into various derivative contracts
(i.e. interest rate swaps, caps, collars, and corridors) which
are designated as free standing derivative contracts. These
derivative contracts are not designated against specific assets
and liabilities on the balance sheet or forecasted transactions
and, therefore, do not qualify for hedge accounting treatment.
Free standing derivatives are entered into primarily for the
benefit of commercial customers through providing derivative
products which enables the customer to manage their exposures to
interest rate risk. The Corporations market risk from
unfavorable movements in interest rates related to these
derivative contracts is generally economically hedged by
concurrently entering into offsetting derivative contracts. The
offsetting
67
derivative contracts have identical notional values, terms and
indices. Derivative financial instruments are further discussed
in Note 15, Derivative and Hedging Activities,
of the notes to consolidated financial statements.
Contractual
Obligations, Commitments, Off-Balance Sheet Arrangements, and
Contingent Liabilities
Through the normal course of operations, the Corporation has
entered into certain contractual obligations and other
commitments, including but not limited to those most usually
related to funding of operations through deposits or debt,
commitments to extend credit, derivative contracts to assist
management of interest rate exposure, and to a lesser degree
leases for premises and equipment. Table 21 summarizes
significant contractual obligations and other commitments at
December 31, 2009, at those amounts contractually due to
the recipient, including any unamortized premiums or discounts,
hedge basis adjustments, or other similar carrying value
adjustments. Further discussion of the nature of each obligation
is included in the referenced note to the consolidated financial
statements.
Table 21:
Contractual Obligations and Other Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
One Year
|
|
|
One to
|
|
|
Three to
|
|
|
Over
|
|
|
|
|
At December 31, 2009:
|
|
Reference
|
|
|
or Less
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Time deposits
|
|
|
7
|
|
|
$
|
2,884,358
|
|
|
$
|
705,118
|
|
|
$
|
112,393
|
|
|
$
|
243
|
|
|
$
|
3,702,112
|
|
Short-term borrowings
|
|
|
8
|
|
|
|
1,226,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,226,853
|
|
Long-term funding
|
|
|
9
|
|
|
|
710,000
|
|
|
|
999,837
|
|
|
|
94
|
|
|
|
244,067
|
|
|
|
1,953,998
|
|
Operating leases
|
|
|
6
|
|
|
|
11,587
|
|
|
|
19,680
|
|
|
|
12,978
|
|
|
|
15,845
|
|
|
|
60,090
|
|
Commitments to extend credit
|
|
|
14
|
|
|
|
3,266,311
|
|
|
|
892,671
|
|
|
|
118,968
|
|
|
|
63,334
|
|
|
|
4,341,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
8,099,109
|
|
|
$
|
2,617,306
|
|
|
$
|
244,433
|
|
|
$
|
323,489
|
|
|
$
|
11,284,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation also has obligations under its retirement plans
as described in Note 12, Retirement Plans, of
the notes to consolidated financial statements. To a lesser
degree, the Corporation also has commitments to fund various
investments and other projects as discussed further in
Note 14, Commitments, Off-Balance Sheet Arrangements,
and Contingent Liabilities, of the notes to consolidated
financial statements.
As of December 31, 2009, the net liability for uncertain
tax positions, including associated interest and penalties, was
$22 million. This liability represents an estimate of tax
positions that the Corporation has taken in its tax returns
which may ultimately not be sustained upon examination by the
tax authorities. Since the ultimate amount and timing of any
future cash settlements cannot be predicted with reasonable
certainty, this estimated liability has been excluded from Table
21. See Note 13, Income Taxes, of the notes to
consolidated financial statements for additional information and
disclosure related to uncertain tax positions.
The Corporation may have a variety of financial transactions
that, under generally accepted accounting principles, are either
not recorded on the balance sheet or are recorded on the balance
sheet in amounts that differ from the full contract or notional
amounts.
The Corporations interest rate derivative contracts, under
which the Corporation is required to either receive cash from or
pay cash to counterparties depending on changes in interest
rates applied to notional amounts, are carried at fair value on
the consolidated balance sheet with the fair value representing
the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity
transacts. In addition, the fair value measurement of interest
rate derivative instruments also includes a
nonperformance / credit risk component. Because
neither the derivative assets and liabilities, nor their
notional amounts, represent the amounts that may ultimately be
paid under these contracts, they are not included in Table 21.
Related to the Corporations mortgage derivatives, both of
which are derivatives carried on the consolidated balance sheet
at their fair value (see Note 15, Derivative and
Hedging Activities, of the notes to consolidated financial
statements), the Corporation had outstanding $246 million
interest rate lock commitments to originate residential mortgage
loans held for sale (included in Table 21 as part of commitments
to extend credit) and forward commitments to sell
$336 million of residential mortgage loans to various
investors as of December 31, 2009. For further information
and discussion of derivative contracts, see section
Interest Rate Risk, and Note 1,
68
Summary of Significant Accounting Policies, and
Note 15, Derivative and Hedging Activities, of
the notes to consolidated financial statements.
The Corporation does not have significant off-balance sheet
arrangements such as the use of special-purpose entities or
securitization trusts. Residential mortgage loans sold to others
(i.e., the off-balance sheet loans underlying the mortgage
servicing rights asset) are predominantly conventional
residential first lien mortgages originated under our usual
underwriting procedures, and are most often sold on a
nonrecourse basis. The Corporations agreements to sell
residential mortgage loans in the normal course of business
usually require certain representations and warranties on the
underlying loans sold, related to credit information, loan
documentation, collateral, and insurability, which if
subsequently are untrue or breached, could require the
Corporation to repurchase certain loans affected. Historically,
there have been insignificant instances of repurchase under
representations and warranties. To a much lesser degree, the
Corporation may sell residential mortgage loans with limited
recourse (limited in that the recourse period ends prior to the
loans maturity, usually after certain time
and/or loan
paydown criteria have been met), whereby repurchase could be
required if the loan had defined delinquency issues during the
limited recourse periods. At December 31, 2009, there were
approximately $106 million of residential mortgage loans
sold with such recourse risk, upon which there have been
insignificant instances of repurchase.
In October 2004, the Corporation acquired a thrift. Prior to the
acquisition, this thrift retained a subordinate position to the
FHLB in the credit risk on the underlying residential mortgage
loans it sold to the FHLB in exchange for a monthly credit
enhancement fee. After acquisition, the Corporation no longer
delivered loans to the FHLB under this program. At
December 31, 2009, there were $0.9 billion of such
residential mortgage loans with credit risk recourse, upon which
there have been negligible historical losses.
The Corporation also has standby letters of credit (guarantees
for payment to third parties of specified amounts if customers
fail to pay, carried on-balance sheet at an estimate of their
fair value of $3.1 million) of $474 million, and
commercial letters of credit (off-balance sheet commitments
generally authorizing a third party to draw drafts on us up to a
stated amount and typically having underlying goods shipments as
collateral) of $19 million at December 31, 2009. Given
the erosion of the credit environment during 2009, the
Corporation had a reserve for losses on unfunded commitments
totaling $14.2 million at December 31, 2009, included
in other liabilities on the consolidated balance sheets. Since
most of these commitments, as well as commitments to extend
credit, are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future
cash requirements. See section, Liquidity and
Note 14, Commitments, Off-Balance Sheet Arrangements,
and Contingent Liabilities, of the notes to consolidated
financial statements for further information.
The Corporation has principal investment commitments to provide
capital-based financing to private and public companies through
either direct investments in specific companies or through
investment funds and partnerships. The timing of future cash
requirements to fund such commitments is generally dependent on
the investment cycle, whereby privately held companies are
funded by private equity investors and ultimately sold, merged,
or taken public through an initial offering, which can vary
based on overall market conditions, as well as the nature and
type of industry in which the companies operate. The Corporation
also invests in low-income housing, small-business commercial
real estate, new market tax credit projects, and historic tax
credit projects to promote the revitalization of
low-to-moderate-income
neighborhoods throughout the local communities of its bank
subsidiary. As a limited partner in these unconsolidated
projects, the Corporation is allocated tax credits and
deductions associated with the underlying projects. The
aggregate carrying value of these investments at
December 31, 2009, was $39 million, included in other
assets on the consolidated balance sheets, compared to
$35 million at December 31, 2008. Related to these
investments, the Corporation had remaining commitments to fund
of $15 million at December 31, 2009, and
$21 million at December 31, 2008.
During the fourth quarter of 2007, Visa announced that it had
reached a settlement regarding certain litigation with American
Express totaling $2.1 billion. Visa also disclosed in its
annual report filed during the fourth quarter of 2007, a
$650 million liability related to pending litigation with
Discover Financial Services (Discover), as well as
potential additional exposure for similar pending litigation
related to other lawsuits against Visa (for which Visa has not
recorded a liability). As a result of the indemnification
agreement established as part of Visas restructuring
transactions in October 2007, banks with a membership interest,
including the Corporation, have obligations to
69
share in certain losses with Visa, including these litigation
matters. Accordingly, during the fourth quarter of 2007, the
Corporation recorded a $2.3 million reserve in other
liabilities and a corresponding charge to other noninterest
expense for unfavorable litigation losses related to Visa.
Visa matters during 2008 resulted in the Corporation recording a
total gain of $5.2 million, which included a
$3.2 million gain from the mandatory partial redemption of
the Corporations Class B common stock in Visa Inc.
related to Visas initial public offering which was
completed during first quarter 2008 and a $2.0 million gain
(including a $1.5 million gain in the first quarter of 2008
and a $0.5 million gain in the fourth quarter of
2008) and a corresponding receivable (included in other
assets on the consolidated balance sheets) for the
Corporations pro rata interest in the litigation escrow
account established by Visa from which settlements of certain
covered litigation will be paid (Visa may add to this over time
through a defined process which may involve a further redemption
of the Class B common stock). In addition, the Corporation
has a zero basis (i.e., historical cost/carryover basis) in the
shares of unredeemed Visa Class B common stock which are
convertible with limitations into Visa Class A common stock
based on a conversion rate that is subject to change in
accordance with specified terms (including provision of
Visas retrospective responsibility plan which provides
that Class B stockholders will bear the financial impact of
certain covered litigation) and no sooner than the longer of
three years or resolution of covered litigation. On
October 27, 2008, Visa publicly announced that it had
agreed to settle litigation with Discover for $1.9 billion,
which includes $1.7 billion from the escrow account created
under Visas retrospective responsibility plan and that
would affect the Corporations previously recorded
liability estimate which was based on Visas original
$650 million estimate for the Discover litigation. The
Corporations pro rata share of approximately
$0.5 million in this additional settlement amount was
recognized through other noninterest expense in October 2008
(offsetting the $0.5 million gain recognized in the fourth
quarter of 2008 noted above). In addition, based upon
Visas revised liability estimated for Discover litigation,
during the fourth quarter of 2008 the Corporation recorded a
$0.5 million reduction in the reserve for litigation losses
and a corresponding reduction in the Visa escrow receivable. At
December 31, 2008, the remaining reserve for unfavorable
litigation losses related to Visa was $2.3 million.
During 2009, Visa matters resulted in the Corporation recording
a gain of $0.3 million and a corresponding receivable
(included in other assets in the consolidated balance sheets)
for the Corporations pro rata interest in the litigation
escrow account established by Visa. In addition, based upon
Visas revised liability estimate for the litigation escrow
account, the Corporation recorded a $0.5 million reduction
in the reserve for litigation losses and a corresponding
reduction in the Visa escrow receivable. At December 31,
2009, the remaining reserve for unfavorable litigation losses
related to Visa was $1.8 million. For additional discussion
of Visa matters see section Noninterest Income, and
Note 14, Commitments, Off-Balance Sheet Arrangements,
and Contingent Liabilities, of the notes to consolidated
financial statements.
For certain mortgage loans originated by the Corporation,
borrowers may be required to obtain Private Mortgage Insurance
(PMI) provided by third-party insurers. The Corporation has
entered into reinsurance treaties with certain PMI carriers
which provide, among other things, for a sharing of losses
within a specified range of the total PMI coverage in exchange
for a portion of the PMI premiums. The Corporations
reinsurance treaties typically provide that the Corporation will
assume liability for losses once they exceed 5% of the aggregate
risk exposure up to a maximum of 10% of the aggregate risk
exposure. At December 31, 2009, the Corporations
potential risk exposure was approximately $25 million. As
of January 1, 2009, the Corporation no longer provides
reinsurance coverage for new loans in exchange for a portion of
the PMI premium. The Companys liability for reinsurance
losses, including estimated losses incurred but not yet
reported, was $2.4 million and $0.4 million at
December 31, 2009 or December 31, 2008, respectively.
Capital
Stockholders equity at December 31, 2009, was
$2.7 billion, down $138 million compared to
$2.9 billion at December 31, 2008. Stockholders
equity is also described in Note 10,
Stockholders Equity, of the notes to
consolidated financial statements. The decline in
stockholders equity for 2009 was primarily composed of the
net loss incurred and the payment of cash dividends. Cash
dividends paid in 2009 were $0.47 per common share, compared
with $1.27 per common share in 2008. At December 31, 2009,
stockholders equity included $63.4 million of
accumulated other comprehensive income compared to $55,000 of
accumulated other comprehensive income at December 31,
2008. The $63.4 million improvement in accumulated other
comprehensive
70
income resulted primarily from the change in the unrealized
gain/loss position, net of the tax effect, on securities
available for sale (i.e., from net unrealized gains of
$37 million at December 31, 2008, to net unrealized
gains of $94 million at December 31, 2009), as well as
a $2 million improvement in accumulated other comprehensive
income due to after-tax changes in the funded status of the
Corporations defined benefit pension and postretirement
obligations, and a $4 million unrealized gain on cash flow
hedges, net of the tax effect. Stockholders equity to
assets at December 31, 2009, was 11.97%, compared to 11.89%
at the end of 2008.
TABLE 22:
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In Thousands, except per share data)
|
|
|
Total stockholders equity
|
|
$
|
2,738,608
|
|
|
$
|
2,876,503
|
|
|
$
|
2,329,705
|
|
Tier 1 capital
|
|
|
1,918,238
|
|
|
|
2,117,680
|
|
|
|
1,566,872
|
|
Total capital
|
|
|
2,180,959
|
|
|
|
2,446,597
|
|
|
|
1,888,346
|
|
Market capitalization
|
|
|
1,407,915
|
|
|
|
2,674,059
|
|
|
|
3,444,764
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
17.42
|
|
|
$
|
18.54
|
|
|
$
|
18.32
|
|
Tangible book value per common share
|
|
|
9.93
|
|
|
|
10.99
|
|
|
|
10.69
|
|
Cash dividends per common share
|
|
|
0.47
|
|
|
|
1.27
|
|
|
|
1.22
|
|
Stock price at end of period
|
|
|
11.01
|
|
|
|
20.93
|
|
|
|
27.09
|
|
Low closing price for the period
|
|
|
9.21
|
|
|
|
14.85
|
|
|
|
25.23
|
|
High closing price for the period
|
|
|
21.39
|
|
|
|
29.23
|
|
|
|
35.43
|
|
|
|
|
|
|
|
Total stockholders equity / assets
|
|
|
11.97
|
%
|
|
|
11.89
|
%
|
|
|
10.79
|
%
|
Tangible common equity / tangible assets(1)
|
|
|
5.79
|
|
|
|
6.05
|
|
|
|
6.59
|
|
Tangible stockholders equity / tangible assets(2)
|
|
|
8.12
|
|
|
|
8.23
|
|
|
|
6.59
|
|
Tier 1 common equity / risk-weighted assets(3)
|
|
|
7.85
|
|
|
|
7.90
|
|
|
|
7.88
|
|
Tier 1 leverage ratio
|
|
|
8.76
|
|
|
|
9.75
|
|
|
|
7.83
|
|
Tier 1 risk-based capital ratio
|
|
|
12.52
|
|
|
|
11.91
|
|
|
|
9.06
|
|
Total risk-based capital ratio
|
|
|
14.24
|
|
|
|
13.76
|
|
|
|
10.92
|
|
|
|
|
|
|
|
Common shares outstanding (period end)
|
|
|
127,876
|
|
|
|
127,762
|
|
|
|
127,160
|
|
Basic common shares outstanding (average)
|
|
|
127,858
|
|
|
|
127,501
|
|
|
|
127,408
|
|
Diluted common shares outstanding (average)
|
|
|
127,858
|
|
|
|
127,775
|
|
|
|
128,374
|
|
|
|
|
|
|
|
Common share repurchase activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased under all authorizations during the period,
including settlements(4)
|
|
|
|
|
|
|
|
|
|
|
3,920
|
|
Average per share cost of shares repurchased during the period(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
34.15
|
|
Shares remaining to be repurchased under outstanding block
authorizations at the end of the period
|
|
|
3,855
|
|
|
|
3,855
|
|
|
|
3,855
|
|
|
|
|
(1)
|
|
Tangible common equity to tangible
assets = Common stockholders equity excluding goodwill and
other intangible assets divided by assets excluding goodwill and
other intangible assets. This is a non-GAAP financial measure.
|
|
(2)
|
|
Tangible stockholders equity
to tangible assets = Total stockholders equity excluding
goodwill and other intangible assets divided by assets excluding
goodwill and other intangible assets. This is a non-GAAP
financial measure.
|
|
(3)
|
|
Tier 1 common capital ratio =
Tier 1 capital excluding qualifying perpetual preferred
stock and qualifying trust preferred securities divided by
risk-weighted assets. This is a non-GAAP financial measure.
|
|
(4)
|
|
Does not include shares repurchased
for minimum tax withholding settlements on equity compensation.
|
The Corporation regularly reviews the adequacy of its capital to
ensure that sufficient capital is available for current and
future needs and is in compliance with regulatory guidelines.
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.
71
The Corporation and its bank subsidiary continue to have a
strong capital base. As of December 31, 2009 and 2008, the
tier 1 risk-based capital ratios, total risk-based capital
(tier 1 and tier 2) ratios, and tier 1
leverage ratios for the Corporation and its bank subsidiary were
in excess of regulatory minimum requirements. It is
managements intent to exceed the minimum requisite capital
levels. Regulatory capital ratios for the Corporation and its
significant subsidiary are included in Note 18,
Regulatory Matters, of the notes to consolidated
financial statements.
On November 5, 2009, Associated Bank, National Association
(the Bank) entered into a Memorandum of
Understanding (MOU) with the Comptroller of the
Currency (OCC), its primary banking regulator. The
MOU, which is an informal agreement between the Bank and the
OCC, requires the Bank to develop, implement, and maintain
various processes to improve the Banks risk management of
its loan portfolio and a three year capital plan providing for
maintenance of specified capital levels discussed below,
notification to the OCC of dividends proposed to be paid to the
Corporation and the commitment of the Corporation to act as a
primary or contingent source of the Banks capital.
Management believes that it has satisfied a number of the
conditions of the MOU and has commenced the steps necessary to
resolve any and all remaining matters presented therein. The
Bank has also agreed with the OCC that beginning March 31,
2010, until the MOU is no longer in effect, to maintain minimum
capital ratios at specified levels higher than those otherwise
required by applicable regulations as follows: Tier 1
capital to total average assets (leverage ratio) 8%
and total capital to risk-weighted assets 12%. At
December 31, 2009, the Banks capital ratios were
8.26% and 13.16%, respectively.
The Board of Directors has authorized management to repurchase
shares of the Corporations common stock to be made
available for re-issuance in connection with the
Corporations employee incentive plans
and/or for
other corporate purposes. For the Corporations employee
incentive plans, the Board of Directors authorized the
repurchase of up to 2.0 million shares per quarter, while
under various actions, the Board of Directors authorized the
repurchase of shares, not to exceed specified amounts of the
Corporations outstanding shares per authorization
(block authorizations). During 2008 and 2009, no
shares were repurchased under the block authorizations. At
December 31, 2009, approximately 3.9 million shares
remain authorized to repurchase under the block authorizations.
The repurchase of shares will be based on market opportunities,
capital levels, growth prospects, and other investment
opportunities, and is subject to the restrictions under the CPP.
On October 14, 2008, the UST announced details of the CPP,
whereby the UST makes direct equity investments into qualifying
financial institutions in the form of senior preferred stock and
common stock warrants providing an immediate influx of
Tier 1 capital into the banking system. Participants must
adopt the USTs standards for executive compensation and
corporate governance, for the period during which the UST holds
equity issued under this program.
On November 21, 2008, the Corporation announced that it
sold $525 million of Senior Preferred Stock and related
Common Stock Warrants to the UST under the CPP. Under the CPP,
prior to the third anniversary of the USTs purchase of the
Senior Preferred Stock (November 21, 2011), unless the
Senior Preferred Stock has been redeemed or the UST has
transferred all of the Senior Preferred Stock to third parties,
the consent of the UST will be required for us to redeem,
purchase or acquire any shares of our common stock or other
capital stock or other equity securities of any kind, other than
(i) redemptions, purchases or other acquisitions of the
Senior Preferred Stock; (ii) redemptions, purchases or
other acquisitions of shares of our common stock in connection
with the administration of any employee benefit plan in the
ordinary course of business and consistent with past practice;
and (iii) certain other redemptions, repurchases or other
acquisitions as permitted under the CPP.
On January 15, 2010, the Corporation announced it had
closed its underwritten public offering of
44,843,049 shares of its common stock at $11.15 per share.
The net proceeds from the offering were approximately
$478.3 million after deducting underwriting discounts and
commissions. The Corporation intends to use the net proceeds of
this offering, which will qualify as tangible common equity and
Tier 1 capital, to support continued growth and for working
capital and other general corporate purposes.
Management believes that a strong capital position is necessary
to take advantage of opportunities for profitable geographic and
product expansion, and to provide depositor and investor
confidence. 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 regulatory requirements. It is managements
intent to maintain an optimal capital and leverage mix for
growth and for shareholder return.
72
Segment
Review
As described in Part I, Item I, section
Services, and in Note 20, Segment
Reporting, of the notes to consolidated financial
statements, the Corporations primary reportable segment is
banking. Banking consists of lending and deposit gathering (as
well as other banking-related products and services) to
businesses, governmental units, and consumers and the support to
deliver, fund, and manage such banking services. The
Corporations wealth management segment provides products
and a variety of fiduciary, investment management, advisory, and
Corporate agency services to assist customers in building,
investing, or protecting their wealth, including insurance,
brokerage, and trust/asset management.
Note 20, Segment Reporting, of the notes to
consolidated financial statements, indicates that the banking
segment represents 91% of total revenues in 2009, as defined.
The Corporations profitability is predominantly dependent
on net interest income, noninterest income, the level of the
provision for loan losses, noninterest expense, and taxes of its
banking segment. The consolidated discussion, therefore,
predominantly describes the banking segment results. The
critical accounting policies primarily affect the banking
segment, with the exception of goodwill impairment assessment
and income tax accounting, which affects both the banking and
wealth management segments (see section Critical
Accounting Policies).
The contribution from the wealth management segment compared to
consolidated total revenues (as defined and disclosed in
Note 20, Segment Reporting, of the notes to
consolidated financial statements) was 9%, 10%, and 10%, for
2009, 2008, and 2007, respectively. Wealth management segment
revenues were down $8 million (8%) between 2009 and 2008,
and down $2 million (2%) between 2008 and 2007. Wealth
management segment expenses were down $0.4 million between
2009 and 2008, and down $0.6 million (1%) between 2008 and
2007. Wealth management segment assets (which consist
predominantly of cash equivalents, investments, customer
receivables, goodwill and intangibles) were up $10 million
(9%) between year-end 2009 and 2008, and up $6 million (5%)
between year-end 2008 and 2007. The $8 million decrease in
wealth management segment revenues between 2009 and 2008 was
attributable principally to lower insurance commissions and
trust service fees, while the $2 million decrease in wealth
management segment revenues between 2008 and 2007 was
attributable principally to lower trust service fees. The
$10 million increase in wealth segment assets from 2008 to
2009 and the $6 million increase in wealth management
segment assets from 2007 to 2008 were comprised largely of
higher levels of cash equivalents and investments. The major
components of wealth management revenues are trust fees,
insurance fees and commissions, and brokerage commissions, which
are individually discussed in section Noninterest
Income. The major expenses for the wealth management
segment are personnel expense (between 63% and 65% of expense
for 2009, 2008, and 2007), as well as occupancy, processing, and
other costs, which are covered generally in the consolidated
discussion in section Noninterest Expense. See also
Note 5, Goodwill and Intangible Assets, of the
notes to consolidated financial statements for additional
disclosure.
Fourth
Quarter 2009 Results
Net loss available to common equity for fourth quarter 2009 was
$180.6 million, compared to net income available to common
equity of $13.6 million in the fourth quarter of 2008. For
fourth quarter 2009, basic and diluted loss per common share was
$1.41, compared to basic and diluted earnings per common share
of $0.11, for the fourth quarter of 2008. See Table 23 for
selected quarterly information.
Net interest income for fourth quarter 2009 of $178 million
was $13.4 million lower than fourth quarter 2008 and
taxable equivalent net interest income of $185 million was
$14.1 million lower between the fourth quarter periods.
Volume variances and changes in the mix of earning assets and
interest-bearing liabilities increased taxable equivalent net
interest income by $9.7 million, while unfavorable rate
changes resulted in a $23.8 million decrease (as lower
yields on earning assets decreased taxable equivalent interest
income by $47.3 million, while lower costs on
interest-bearing liabilities decreased interest expense by
$23.5 million).
Average balance sheet changes between the comparable quarters
were impacted by the preferred stock issuance of
$525 million in the fourth quarter of 2008 and the levering
of the balance sheet through the investment in mortgage-related
securities, offset by loan balance declines in 2009. Average
earning assets were $20.5 billion for fourth quarter 2009,
an increase of $0.1 billion over fourth quarter 2008, with
average loans down $1.7 billion, while securities and
short-term investments were up $1.8 billion. The decline in
average loans was comprised primarily of
73
decreases in commercial loans (down $1.3 billion) and home
equity balances (down $0.3 billion). Average
interest-bearing deposits were higher by $1.5 billion and
noninterest-bearing demand deposits were higher by
$0.5 billion between the fourth quarter periods. Average
wholesale funding balances decreased $2.2 billion between
the fourth quarter periods, the net of a $2.4 billion
decrease in short-term borrowings and a $0.2 billion
increase in long-term funding.
While unchanged during 2009, the Federal Reserve lowered rates
by 175 bp during the last three months of 2008, resulting
in an average Federal funds rate for fourth quarter 2009 of
0.25%, 81 bp less than the average rate of 1.06% for fourth
quarter 2008. The net interest margin was 3.59% in the fourth
quarter of 2009, 29 bp lower than the same quarter in 2008,
attributable to a 7 bp decrease in contribution from net
free funds (as lower rates on interest-bearing liabilities
decreased the value of noninterest-bearing deposits and other
net free funds) and a 22 bp decrease in interest rate
spread. The reduction in interest rate spread was the result of
a 98 bp decrease in the yield on earning assets (to 4.59%
in fourth quarter 2009), offset in large part by a 76 bp
decrease in the cost of interest-bearing liabilities (to 1.24%).
The decrease in earning asset yield in fourth quarter 2009 was
attributable primarily to lower loan yields (down 95 bp, to
4.72%), showing significant declines in all loan categories
given higher levels of nonaccrual loans and competitive pricing
pressures in a declining rate environment. The 76 bp
decrease in the cost of interest-bearing liabilities for the
fourth quarter of 2009 was similar to the
year-over-year
decrease in average Federal funds rates, and consisted of lower
rates on interest-bearing deposits (down 95 bp, due to the
lower rate environment and lower CD pricing), offset by
increased wholesale funding costs (up 21 bp). The cost of
short-term borrowings was down 23 bp, while the cost of
long-term funding was down 126 bp.
The provision for loan losses was $394.8 million for fourth
quarter 2009 compared to $65.0 million for fourth quarter
2008, with fourth quarter 2009 provision exceeding net charge
offs by $161.0 million and fourth quarter 2008 provision
exceeding net charge offs by $19.1 million. Net charge offs
were $233.8 million, representing 6.35% of average loans
for fourth quarter 2009, versus $45.9 million, representing
1.12% of average loans, for fourth quarter 2008. See sections,
Loans, Allowance for Loan Losses, and
Nonperforming Loans, Potential Problem Loans, and Other
Real Estate Owned for additional discussion.
Noninterest income in fourth quarter 2009 was $84.7 million
compared to $41.1 million in fourth quarter 2008, primarily
due to a single investment write-down in fourth quarter 2008 of
$31.1 million. Excluding net gains (or losses) on the sales
of assets and investment securities, noninterest income
increased $9.3 million. Core fee-based revenues (as defined
in Table 6) were lower by $0.3 million, while all
other noninterest income categories were up $9.6 million on
a combined basis, due primarily to a $10.4 million increase
in net mortgage banking income. Regarding core-fee based
revenues in the fourth quarter of 2009: trust service fees were
up $1.7 million, with increasing market value of assets
under management; service charges on deposits accounts were
lower by $1.7 million, principally due to lower
nonsufficient funds / overdraft fees; card-based and
other nondeposit fees were relatively flat between the
comparable quarters; and retail commission income was down
$0.3 million. Net mortgage banking income was up
$10.4 million between fourth quarter periods, with gross
mortgage banking income up $3.9 million (primarily
attributable to a $3.2 million favorable change in gains on
mortgage sales) and mortgage servicing rights expense lower by
$6.5 million (with fourth quarter 2009 including a
$0.7 million recovery to the valuation allowance compared
to a $7.2 million addition to the valuation allowance for
fourth quarter 2008, offset by $1.4 million higher base
amortization).
Net losses on investment securities were $0.4 million in
the fourth quarter of 2009, comprised of credit-related
other-than-temporary
write-downs on the Corporations holding of a trust
preferred debt security, a non-agency mortgage-related security
and an equity security, compared to net losses of
$35.3 million in fourth quarter 2008, comprised of
other-than-temporary
write-downs related to a non-agency mortgage-related security,
preferred stock holdings of FHLMC and FNMA, and trust preferred
debt securities pools. Asset sale losses were higher by
$0.5 million in fourth quarter of 2009, primarily due to
increased losses on sales of other real estate owned.
Noninterest expense for the fourth quarter of 2009 was
$159 million, $10.3 million or 6.9% higher than the
fourth quarter of 2008, reflecting higher FDIC expense, and
higher costs related to the increased levels of foreclosure and
problem credits. Personnel expense decreased by
$4.8 million, with salary-related expenses down
$7.4 million, due principally to lower
formal / discretionary bonuses (down
$6.0 million), while fringe benefit expenses increased
$2.6 million, largely due to higher premium-based benefit
costs. All other noninterest expenses combined were
74
$15.1 million or 21.0% higher than the fourth quarter of
2008, including an $8.7 million increase in FDIC expense, a
$10.0 million increase in the reserve for losses on
unfunded commitments (with a $10.5 million increase to the
reserve for losses on unfunded commitments in fourth quarter
2009 compared to a $0.5 million increase in fourth quarter
2008, attributable to the erosion of the credit environment) and
$4.1 million increase in foreclosure / OREO
expenses, partially offset by declines in miscellaneous other
expense categories given the efforts to control selected
discretionary expenses. The efficiency ratio (as defined under
the section, Overview) was 58.63% for the fourth
quarter of 2009 compared to 53.87% for the fourth quarter of
2008.
The corporation recorded an income tax benefit of
$117.5 million for fourth quarter 2009, compared to income
tax expense of $2.2 million for the comparable quarter in
2008. The change in income tax was primarily due to the decrease
in pretax income to a pretax loss between the comparable fourth
quarter periods.
TABLE 23:
Selected Quarterly Financial Data
The following is selected financial data summarizing the results
of operations for each quarter in the years ended
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended
|
|
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
|
|
|
|
|
|
(In Thousands, except per share data)
|
|
|
Interest income
|
|
$
|
230,210
|
|
|
$
|
238,651
|
|
|
$
|
249,910
|
|
|
$
|
262,485
|
|
Interest expense
|
|
|
51,857
|
|
|
|
59,415
|
|
|
|
70,772
|
|
|
|
73,207
|
|
|
|
|
|
|
|
Net interest income
|
|
|
178,353
|
|
|
|
179,236
|
|
|
|
179,138
|
|
|
|
189,278
|
|
Provision for loan losses
|
|
|
394,789
|
|
|
|
95,410
|
|
|
|
155,022
|
|
|
|
105,424
|
|
Investment securities gains (losses), net
|
|
|
(395
|
)
|
|
|
(42
|
)
|
|
|
(1,385
|
)
|
|
|
10,596
|
|
Income (loss) before income taxes
|
|
|
(290,716
|
)
|
|
|
18,024
|
|
|
|
(43,974
|
)
|
|
|
31,567
|
|
Net income (loss) available to common equity
|
|
|
(180,591
|
)
|
|
|
8,652
|
|
|
|
(24,672
|
)
|
|
|
35,404
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
(1.41
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.28
|
|
Diluted earnings (loss) per common share
|
|
$
|
(1.41
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.28
|
|
Basic weighted average common shares outstanding
|
|
|
127,869
|
|
|
|
127,863
|
|
|
|
127,861
|
|
|
|
127,839
|
|
Diluted weighted average common shares outstanding
|
|
|
127,869
|
|
|
|
127,863
|
|
|
|
127,861
|
|
|
|
127,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarter Ended
|
|
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
|
|
|
|
|
|
(In Thousands, except per share data)
|
|
|
Interest income
|
|
$
|
278,869
|
|
|
$
|
271,376
|
|
|
$
|
279,594
|
|
|
$
|
296,870
|
|
Interest expense
|
|
|
87,087
|
|
|
|
104,859
|
|
|
|
106,862
|
|
|
|
131,753
|
|
|
|
|
|
|
|
Net interest income
|
|
|
191,782
|
|
|
|
166,517
|
|
|
|
172,732
|
|
|
|
165,117
|
|
Provision for loan losses
|
|
|
65,044
|
|
|
|
55,011
|
|
|
|
59,001
|
|
|
|
23,002
|
|
Investment securities gains (losses), net
|
|
|
(35,298
|
)
|
|
|
(13,585
|
)
|
|
|
(718
|
)
|
|
|
(2,940
|
)
|
Income before income taxes
|
|
|
19,062
|
|
|
|
50,252
|
|
|
|
64,535
|
|
|
|
88,431
|
|
Net income available to common equity
|
|
|
13,609
|
|
|
|
37,769
|
|
|
|
47,359
|
|
|
|
66,465
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.11
|
|
|
$
|
0.30
|
|
|
$
|
0.37
|
|
|
$
|
0.52
|
|
Diluted earnings per common share
|
|
$
|
0.11
|
|
|
$
|
0.30
|
|
|
$
|
0.37
|
|
|
$
|
0.52
|
|
Basic weighted average common shares outstanding
|
|
|
127,717
|
|
|
|
127,553
|
|
|
|
127,433
|
|
|
|
127,298
|
|
Diluted weighted average common shares outstanding
|
|
|
127,810
|
|
|
|
127,022
|
|
|
|
127,909
|
|
|
|
127,796
|
|
2008
Compared to 2007
The Corporations acquisition activity impacts financial
results between 2008 and 2007, as 2008 includes a full year of
operating results from the First National Bank acquisition,
while 2007 includes seven months of operating results
75
from the First National Bank acquisition. See also section,
Business Combinations, and Note 2,
Business Combinations, of the notes to consolidated
financial statements.
The Corporation recorded net income of $168.5 million for
the year ended December 31, 2008, a decrease of
$117.3 million or 41.0% from 2007. Basic earnings per
common share for 2008 were $1.29, a 42.4% decrease from 2007
basic earnings per common share of $2.24. Earnings per diluted
common share were $1.29, a 41.9% decrease from 2007 diluted
earnings per common share of $2.22. Return on average assets was
0.76% for 2008 compared to 1.38% for 2007. Return on average
equity was 6.95% and 12.68% for 2008 and 2007, respectively.
Cash dividends of $1.27 per common share were paid in 2008, an
increase of 4.1% over 2007. Key factors behind these results are
discussed below.
Taxable equivalent net interest income was $723.9 million
for 2008, $52.8 million or 7.9% higher than 2007. Taxable
equivalent interest income decreased $148.5 million, while
interest expense decreased by $201.3 million. As shown in
Table 3, the $52.8 million increase in taxable equivalent
net interest income was a function of both favorable interest
rate changes and favorable volume/mix variances. The change in
the mix and volume of earning assets increased taxable
equivalent net interest income by $82.3 million, while the
change in volume and composition of interest-bearing liabilities
reduced taxable equivalent net interest income by
$47.0 million, for a net favorable volume impact of
$35.3 million. Rate changes on earning assets decreased
interest income by $230.8 million, while changes in rates
on interest-bearing liabilities lowered interest expense by
$248.3 million, for a net favorable rate impact of
$17.5 million.
The net interest margin for 2008 was 3.65%, 5 bp higher
than 3.60% in 2007. The 5 bp improvement in net interest
margin was attributable to a 28 bp increase in interest
rate spread (the net of a 145 bp decrease in the cost of
interest-bearing liabilities and a 117 bp decrease in the
yield on earning assets), partially offset by 23 bp lower
contribution from net free funds (due principally to lower rates
on interest-bearing liabilities reducing the value of
noninterest-bearing demand deposits and other net free funds).
Year-over-year
changes in the average balance sheet were impacted by the June
2007 acquisition (which added $0.3 billion of both loans
and deposits at June 1, 2007), branch sales
($0.2 billion of deposits) during the second half of 2007,
and stronger loan growth beginning primarily in fourth quarter
2007 and continuing through 2008. As a result, average earning
assets of $19.8 billion in 2008 were $1.2 billion (6%)
higher than 2007. Average loans grew $948 million (6.3%),
with a $580 million increase in commercial loans and a
$461 million increase in retail loans, partially offset by
a $93 million decrease in residential mortgage loans.
Average investments grew $247 million as a result of
mortgage-related investment securities purchases during the
fourth quarter of 2008. Average interest-bearing liabilities of
$17.0 billion in 2008 were up $1.1 billion (7%) versus
2007, attributable to higher wholesale funding balances. Average
interest-bearing deposits were flat, while average
noninterest-bearing demand deposits increased by
$71 million. Given the growth in earning assets, average
wholesale funding increased by $1.1 billion, the net of a
$1.3 billion increase in short-term borrowings and a
$0.2 billion decrease in long-term funding.
At December 31, 2008, total loans were $16.3 billion,
up 4.9% over year-end 2007, led by consumer-based loan growth,
while commercial loan growth was tempered by the credit
environment. Total deposits at December 31, 2008, were
$15.2 billion, up 8.5% from year-end 2007, primarily
attributable to higher network transaction deposits and brokered
CDs.
The time period starting in the second half of 2007 and
continuing throughout 2008, was marked with general economic and
industry declines with a pervasive impact on consumer
confidence, business and personal financial performance, and
commercial and residential real estate markets, resulting in an
increase in nonperforming loans and charge offs. Nonperforming
loans were $341 million at December 31, 2008, compared
to $163 million at December 31, 2007, impacted by
several larger individual commercial credit relationships. Net
charge offs were $137.3 million in 2008 (or 0.85% of
average loans) compared to $40.4 million in 2007 (or 0.27%
of average loans), primarily due to larger specific commercial
charge offs. The provision for loan losses was
$202.1 million and $34.5 million, respectively, for
2008 and 2007. At year-end 2008, the allowance for loan losses
represented 1.63% of total loans (covering 78% of nonperforming
loans), compared to 1.29% (covering 123% of nonperforming loans)
at year-end 2007. See also sections Provision for Loan
Losses, Allowance for Loan Losses, and
Nonperforming Loans, Potential Problem Loans, and Other
Real Estate Owned.
76
As shown in Table 6, noninterest income was $285.7 million
for 2008, $59.1 million or 17.2% lower than 2007. Core
fee-based revenues (including trust service fees, service
charges on deposit accounts, card-based and other nondeposit
fees, and retail commissions) totaled $267.9 million for
2008, up $15.0 million or 5.9% over $252.9 million for
2007, in part due to a combination of increased volumes and
improved pricing. Net mortgage banking income was
$14.7 million for 2008, compared to $22.8 million in
2007, a decrease of $8.1 million from 2007, with 2007
including gains of $8.6 million on bulk servicing sales and
a $1.4 million valuation recovery, while 2008 included a
$7.8 million favorable improvement in the gain on sales of
mortgage loans to the secondary market and related fees and a
$6.8 million addition to the valuation reserve. Asset and
investment securities losses combined were $54.2 million
for 2008 (primarily attributable to
other-than-temporary
write-downs on investment securities), compared to combined
asset and investment securities gains of $23.8 million for
2007 (predominantly from deposit premiums and fixed asset gains
related to the 2007 branch deposit sales).
As shown in Table 7, noninterest expense was $557.5 million
for 2008, up $22.6 million or 4.2% over 2007, impacted in
part by generally rising costs. Personnel expense rose
$6.1 million or 2.0%, while all remaining noninterest
expense categories on a combined basis increased
$16.5 million or 7.1% over 2007. The efficiency ratio (as
defined under section, Overview) was 52.41% for 2008
and 53.92% for 2007.
Income tax expense for 2008 was $53.8 million, compared to
$133.4 million for 2007. The effective tax rate for 2008
was 24.2%, versus 31.8% for 2007. The decline in the effective
tax rate was primarily due to the decrease in income before
taxes, as the level of permanent difference items (such as
tax-exempt interest and dividends) while relatively consistent
between years, had a proportionately greater impact on the
effective tax rate based on lower pre-tax income. Additionally,
the first quarter 2008 resolution of certain tax matters and
changes in estimated exposure of uncertain tax positions,
partially offset by the increase in valuation allowance related
to certain tax assets, resulted in the net reduction of
previously recorded tax liabilities and income tax expense of
approximately $4.4 million in the first quarter of 2008.
Business
Combinations
Management continually evaluates strategic acquisition
opportunities and other various strategic alternatives that
could involve the sale or acquisition of branches or other
assets, or the consolidation or creation of subsidiaries. The
Corporations business combination activity is detailed in
Note 2, Business Combinations, of the notes to
consolidated financial statements. All the Corporations
business combinations since 2002 were accounted for under the
purchase method of accounting; thus, the results of operations
of the acquired institutions prior to their respective
consummation dates were not included in the accompanying
consolidated financial statements. In each acquisition, the
excess cost of the acquisition over the fair value of the net
assets acquired were allocated to the identifiable intangible
assets, if any, with the remainder then allocated to goodwill.
There were no business combinations in 2009 or 2008.
In 2007 there was one completed business combination:
First National Bank of Hudson (First National Bank):
On June 1, 2007, the Corporation consummated its
acquisition of 100% of the outstanding shares of First National
Bank, a $0.4 billion community bank headquartered in
Woodbury, Minnesota. The consummation of the transaction
included the issuance of approximately 1.3 million shares
of common stock and $46.5 million in cash. With the
addition of First National Banks eight locations, the
Corporation expanded its presence in the Greater Twin Cities
area. At acquisition, First National Bank added approximately
$0.3 billion to both loans and deposits. In June 2007, the
Corporation also completed its conversion of First National Bank
onto its centralized operating systems and merged it into its
banking subsidiary, Associated Bank.
Subsequent
Events
On January 8, 2010, the Board of Directors declared a $0.01
per common share dividend payable on February 17, 2010, to
shareholders of record as of February 8, 2010. This cash
dividend has not been reflected in the accompanying consolidated
financial statements.
77
On January 15, 2010, the Corporation announced it had
closed its underwritten public offering of
44,843,049 shares of its common stock at $11.15 per share.
The net proceeds from the offering were approximately
$478.3 million after deducting underwriting discounts and
commissions and the estimated expenses of the offering. The
Corporation intends to use the net proceeds of this offering,
which will qualify as tangible common equity and Tier 1
capital, to support continued growth and for working capital and
other general corporate purposes.
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, derivative financial instruments and hedging
activities, and income taxes.
The consolidated financial statements of the Corporation are
prepared in conformity with U.S. generally accepted
accounting principles and follow general practices within the
industries in which it operates. This preparation requires
management to make estimates, assumptions, and judgments that
affect the amounts reported in the financial statements and
accompanying notes. These estimates, assumptions, and judgments
are based on information available as of the date of the
financial statements; accordingly, as this information changes,
actual results could differ from the estimates, assumptions, and
judgments reflected in the financial statements. Certain
policies inherently have a greater reliance on the use of
estimates, assumptions, and judgments and, as such, have a
greater possibility of producing results that could be
materially different than originally reported. Management
believes the following policies are both important to the
portrayal of the Corporations financial condition and
results of operations and require subjective or complex
judgments and, therefore, management considers the following to
be critical accounting policies. The critical accounting
policies are discussed directly with the Audit Committee of the
Corporations Board of Directors.
Allowance for Loan Losses: Managements
evaluation process used to determine the appropriateness of the
allowance for loan losses is subject to the use of estimates,
assumptions, and judgments. The evaluation process combines
several factors: managements ongoing review and grading of
the loan portfolio, consideration of historical loan loss and
delinquency experience, trends in past due and nonperforming
loans, risk characteristics of the various classifications of
loans, 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 probable credit losses. Because
current economic conditions can change and future events are
inherently difficult to predict, the anticipated amount of
estimated loan losses, and therefore the appropriateness of the
allowance for loan losses, could change significantly. As an
integral part of their examination process, various regulatory
agencies also review the allowance for loan losses. Such
agencies may require that certain loan balances be classified
differently or charged off when their credit evaluations differ
from those of management, based on their judgments about
information available to them at the time of their examination.
The Corporation believes the level of the allowance for loan
losses is appropriate as recorded in the consolidated financial
statements. See Note 1, Summary of Significant
Accounting Policies, and Note 4, Loans,
of the notes to consolidated financial statements and section
Allowance for Loan Losses.
Goodwill Impairment Assessment: Goodwill is not
amortized but, instead, is subject to impairment tests on at
least an annual basis or more frequently if an event occurs or
circumstances change that reduce the fair value of a reporting
unit below its carrying amount. During 2009, quarterly
impairment tests were completed. The step one analysis conducted
for the wealth segment indicated that the estimated fair value
exceeded its carrying value (including goodwill). Therefore, a
step two analysis was not required for this reporting unit. The
step one analysis completed for the banking segment indicated
that the carrying value (including goodwill) of the reporting
unit exceeded its estimated fair value. Therefore, a step two
analysis was performed for this segment, which indicated that
the implied fair value of the goodwill of the banking segment
exceeded the carrying value (including goodwill) and no
impairment charge was recorded in 2009. The Corporation engaged
an independent valuation firm to assist in the computation of
the fair value estimates of each reporting unit as part of its
impairment assessment. The valuation utilized market and income
approach methodologies and applied a weighted average to each in
order to determine the fair value of each reporting unit.
Goodwill impairment testing is considered a critical
accounting
78
estimate as estimates and assumptions are made about
future performance and cash flows, as well as other prevailing
market factors. In the event that we conclude that all or a
portion of our goodwill may be impaired, a noncash charge for
the amount of such impairment would be recorded in earnings.
Such a charge would have no impact on tangible capital. A
decline in our stock price or occurrence of a triggering event
following any of our quarterly earnings releases and prior to
the filing of the periodic report for that period could, under
certain circumstances, cause us to re-perform a goodwill
impairment test and result in an impairment charge being
recorded for that period which was not reflected in such
earnings release.
The impairment testing process is conducted by assigning net
assets and goodwill to each reporting unit. The fair value of
each reporting unit is compared to the recorded book value,
step one. If the fair value of the reporting unit
exceeds its carrying value, goodwill is not considered impaired
and step two is not considered necessary. If the
carrying value of a reporting unit exceeds its fair value, the
impairment test continues (step two) by comparing
the carrying value of the reporting units goodwill to the
implied fair value of goodwill. The implied fair value is
computed by adjusting all assets and liabilities of the
reporting unit to current fair value with the offset adjustment
to goodwill. The adjusted goodwill balance is the implied fair
value of the goodwill. An impairment charge is recognized if the
carrying fair value of goodwill exceeds the implied fair value
of goodwill.
In connection with obtaining an independent third party
valuation, management provides certain information and
assumptions that is utilized in the implied fair value
calculation. Assumptions critical to the process include
discount rates, asset and liability growth rates, and other
income and expense estimates. The Corporation provided the best
information currently available to estimate future performance
for each reporting unit; however, future adjustments to these
projections may be necessary if conditions differ substantially
from the assumptions utilized in making these assumptions.
At December 31, 2009, we had goodwill of $929 million,
representing approximately 34% of stockholders equity, of
which $907 million was assigned to the banking segment and
$22 million was assigned to the wealth management segment.
Mortgage Servicing Rights Valuation: The fair value
of the Corporations mortgage servicing rights asset is
important to the presentation of the consolidated financial
statements since the mortgage servicing rights are carried on
the consolidated balance sheet at the lower of amortized cost or
estimated fair value. Mortgage servicing rights do not trade in
an active open market with readily observable prices. As such,
like other participants in the mortgage banking business, the
Corporation relies on an internal discounted cash flow model to
estimate the fair value of its mortgage servicing rights. The
use of an internal discounted cash flow model involves judgment,
particularly of estimated prepayment speeds of underlying
mortgages serviced and the overall level of interest rates. Loan
type and note interest rate are the predominant risk
characteristics of the underlying loans used to stratify
capitalized mortgage servicing rights for purposes of measuring
impairment. The Corporation periodically reviews the assumptions
underlying the valuation of mortgage servicing rights. In
addition, the Corporation consults periodically with third
parties as to the assumptions used and to determine that the
Corporations valuation is consistent with the third party
valuation. While the Corporation believes that the values
produced by its internal model are indicative of the fair value
of its mortgage servicing rights portfolio, these values can
change significantly depending upon key factors, such as the
then current interest rate environment, estimated prepayment
speeds of the underlying mortgages serviced, and other economic
conditions. The proceeds that might be received should the
Corporation actually consider a sale of some or all of the
mortgage servicing rights portfolio could differ from the
amounts reported at any point in time.
Mortgage servicing rights are carried at the lower of amortized
cost or estimated fair value and are assessed for impairment at
each reporting date. Impairment is assessed based on the fair
value at each reporting date using estimated prepayment speeds
of the underlying mortgage loans serviced and stratifications
based on the risk characteristics of the underlying loans
(predominantly loan type and note interest rate). As mortgage
interest rates fall, prepayment speeds are usually faster and
the value of the mortgage servicing rights asset generally
decreases, requiring additional valuation reserve. Conversely,
as mortgage interest rates rise, prepayment speeds are usually
slower and the value of the mortgage servicing rights asset
generally increases, requiring less valuation reserve. However,
the extent to which interest rates impact the value of the
mortgage servicing rights asset depends, in part, on the
magnitude of the changes in market interest rates and the
differential between the then current market interest
79
rates for mortgage loans and the mortgage interest rates
included in the mortgage servicing portfolio. Management
recognizes that the volatility in the valuation of the mortgage
servicing rights asset will continue. To better understand the
sensitivity of the impact of prepayment speeds on the value of
the mortgage servicing rights asset at December 31, 2009
(holding all other factors unchanged), if prepayment speeds were
to increase 25%, the estimated value of the mortgage servicing
rights asset would have been approximately $6.9 million (or
11%) lower, while if prepayment speeds were to decrease 25%, the
estimated value of the mortgage servicing rights asset would
have been approximately $5.6 million (or 9%) higher. The
Corporation believes the mortgage servicing rights asset is
properly recorded in the consolidated financial statements. See
Note 1, Summary of Significant Accounting
Policies, and Note 5, Goodwill and Intangible
Assets, of the notes to consolidated financial statements
and section Noninterest Income.
Derivative Financial Instruments and Hedging
Activities: In various aspects of its business, the
Corporation uses derivative financial instruments to modify
exposures to changes in interest rates and market prices for
other financial instruments. Derivative instruments are required
to be carried at fair value on the balance sheet with changes in
the fair value recorded directly in earnings. To qualify for and
maintain hedge accounting, the Corporation must meet formal
documentation and effectiveness evaluation requirements both at
the hedges inception and on an ongoing basis. The
application of the hedge accounting policy requires strict
adherence to documentation and effectiveness testing
requirements, judgment in the assessment of hedge effectiveness,
identification of similar hedged item groupings, and measurement
of changes in the fair value of hedged items. If in the future
derivative financial instruments used by the Corporation no
longer qualify for hedge accounting, the impact on the
consolidated results of operations and reported earnings could
be significant. When hedge accounting is discontinued, the
Corporation would continue to carry the derivative on the
balance sheet at its fair value; however, for a cash flow
derivative, changes in its fair value would be recorded in
earnings instead of through other comprehensive income, and for
a fair value derivative, the changes in fair value of the hedged
asset or liability would no longer be recorded through earnings.
See also Note 1, Summary of Significant Accounting
Policies, and Note 15, Derivative and Hedging
Activities, of the notes to consolidated financial
statements and section Interest Rate Risk.
Income Taxes: The assessment of tax assets and
liabilities involves the use of estimates, assumptions,
interpretations, and judgment concerning certain accounting
pronouncements and federal and state tax codes. There can be no
assurance that future events, such as court decisions or
positions of federal and state taxing authorities, will not
differ from managements current assessment, the impact of
which could be significant to the consolidated results of
operations and reported earnings. For financial reporting
purposes, a valuation allowance has been recognized at
December 31, 2009 and 2008, to offset deferred tax assets
related to state net operating loss carryforwards of certain
subsidiaries. The Corporation believes the tax assets and
liabilities are properly recorded in the consolidated financial
statements. However, there is no guarantee that the tax benefits
associated with the remaining deferred tax assets will be fully
realized. We have concluded that it is more likely than not that
the tax benefits associated with the remaining deferred tax
assets will be realized. See Note 1, Summary of
Significant Accounting Policies, and Note 13,
Income Taxes, of the notes to consolidated financial
statements and section Income Taxes.
Future
Accounting Pronouncements
New accounting policies adopted by the Corporation during 2009
are discussed in Note 1, Summary of Significant
Accounting Policies, of the notes to consolidated
financial statements. The expected impact of accounting policies
recently issued or proposed but not yet required to be adopted
are discussed below. To the extent the adoption of new
accounting standards materially affects the Corporations
financial condition, results of operations, or liquidity, the
impacts are discussed in the applicable sections of this
financial review and the notes to consolidated financial
statements.
In June 2009, the Financial Accounting Standards Board
(FASB) issued an accounting standard which will
require a qualitative rather than a quantitative analysis to
determine the primary beneficiary of a variable interest entity
(VIE) for consolidation purposes. The primary
beneficiary of a VIE is the enterprise that has: (1) the
power to direct the activities of the VIE that most
significantly impact the VIEs economic performance, and
(2) the obligation to absorb losses of the VIE that could
potentially be significant to the VIE or the right to receive
benefits of the VIE that could potentially be significant to the
VIE. This accounting standard will be effective as of the
80
beginning of the first annual reporting period beginning after
November 15, 2009. The Corporation will adopt the
accounting standard at the beginning of 2010, as required, with
no material impact on its results of operations, financial
position, and liquidity.
In June 2009, the FASB issued an accounting standard which
amends current generally accepted accounting principles related
to the accounting for transfers and servicing of financial
assets and extinguishments of liabilities, including the removal
of the concept of a qualifying special-purpose entity. This new
accounting standard also clarifies that a transferor must
evaluate whether it has maintained effective control of a
financial asset by considering its continuing direct or indirect
involvement with the transferred financial asset. This
accounting standard will be effective as of the beginning of the
first annual reporting period beginning after November 15,
2009. The Corporation will adopt the accounting standard at the
beginning of 2010, as required, with no material impact on its
results of operations, financial position, and liquidity.
In January 2010, the FASB issued an accounting standard
providing additional guidance relating to fair value measurement
disclosures. Specifically, companies will be required to
separately disclose significant transfers into and out of
Level 1 and Level 2 measurements in the fair value
hierarchy and the reasons for those transfers. Significance
should generally be based on earnings and total assets or
liabilities, or when changes are recognized in other
comprehensive income, based on total equity. Companies may take
different approaches in determining when to recognize such
transfers, including using the actual date of the event or
change in circumstances causing the transfer, or using the
beginning or ending of a reporting period. For Level 3 fair
value measurements, the new guidance requires presentation of
separate information about purchases, sales, issuances and
settlements. Additionally, the FASB also clarified existing fair
value measurement disclosure requirements relating to the level
of disaggregation, inputs, and valuation techniques. This
accounting standard will be effective at the beginning of 2010,
except for the detailed Level 3 disclosures, which will be
effective at the beginning of 2011. The Corporation will adopt
the accounting standard at the beginning of 2010 and 2011, as
required, with no material impact on its results of operations,
financial position, and liquidity, as the standard addresses
financial statement disclosures only.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Information required by this item is set forth in Item 7
under the captions Quantitative and Qualitative
Disclosures about Market Risk and Interest Rate
Risk.
81
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
ASSOCIATED
BANC-CORP
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In Thousands,
|
|
|
|
except share and per
|
|
|
|
share data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
770,816
|
|
|
$
|
533,338
|
|
Interest-bearing deposits in other financial institutions
|
|
|
26,091
|
|
|
|
12,649
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
23,785
|
|
|
|
24,741
|
|
Investment securities available for sale, at fair value
|
|
|
5,835,533
|
|
|
|
5,143,414
|
|
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost
|
|
|
181,316
|
|
|
|
206,003
|
|
Loans held for sale
|
|
|
81,238
|
|
|
|
87,084
|
|
Loans
|
|
|
14,128,625
|
|
|
|
16,283,908
|
|
Allowance for loan losses
|
|
|
(573,533
|
)
|
|
|
(265,378
|
)
|
|
|
Loans, net
|
|
|
13,555,092
|
|
|
|
16,018,530
|
|
Premises and equipment, net
|
|
|
186,564
|
|
|
|
190,942
|
|
Goodwill
|
|
|
929,168
|
|
|
|
929,168
|
|
Other intangible assets, net
|
|
|
92,807
|
|
|
|
80,165
|
|
Other assets
|
|
|
1,191,732
|
|
|
|
966,033
|
|
|
|
Total assets
|
|
$
|
22,874,142
|
|
|
$
|
24,192,067
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
$
|
3,274,973
|
|
|
$
|
2,814,079
|
|
Interest-bearing deposits, excluding Brokered certificates of
deposit
|
|
|
13,311,672
|
|
|
|
11,551,181
|
|
Brokered certificates of deposit
|
|
|
141,968
|
|
|
|
789,536
|
|
|
|
Total deposits
|
|
|
16,728,613
|
|
|
|
15,154,796
|
|
Short-term borrowings
|
|
|
1,226,853
|
|
|
|
3,703,936
|
|
Long-term funding
|
|
|
1,953,998
|
|
|
|
1,861,647
|
|
Accrued expenses and other liabilities
|
|
|
226,070
|
|
|
|
595,185
|
|
|
|
Total liabilities
|
|
|
20,135,534
|
|
|
|
21,315,564
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred equity
|
|
|
511,107
|
|
|
|
508,008
|
|
Common stock
|
|
|
1,284
|
|
|
|
1,281
|
|
Surplus
|
|
|
1,082,335
|
|
|
|
1,073,218
|
|
Retained earnings
|
|
|
1,081,156
|
|
|
|
1,293,941
|
|
Accumulated other comprehensive income
|
|
|
63,432
|
|
|
|
55
|
|
Treasury stock, at cost
|
|
|
(706
|
)
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,738,608
|
|
|
|
2,876,503
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
22,874,142
|
|
|
$
|
24,192,067
|
|
|
|
Preferred shares issued
|
|
|
525,000
|
|
|
|
525,000
|
|
Preferred shares authorized (par value $1.00 per share)
|
|
|
750,000
|
|
|
|
750,000
|
|
Common shares issued
|
|
|
128,428,814
|
|
|
|
128,116,669
|
|
Common shares authorized (par value $0.01 per share)
|
|
|
250,000,000
|
|
|
|
250,000,000
|
|
Treasury shares of common stock
|
|
|
25,251
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
82
ASSOCIATED
BANC-CORP
CONSOLIDATED STATEMENTS OF INCOME
(LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In Thousands, except per share data)
|
|
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
752,265
|
|
|
$
|
952,653
|
|
|
$
|
1,111,919
|
|
Interest and dividends on investment securities and deposits in
other financial institutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
193,031
|
|
|
|
133,471
|
|
|
|
122,961
|
|
Tax-exempt
|
|
|
35,798
|
|
|
|
39,733
|
|
|
|
39,897
|
|
Interest on federal funds sold and securities purchased under
agreements to resell
|
|
|
162
|
|
|
|
852
|
|
|
|
935
|
|
|
|
Total interest income
|
|
|
981,256
|
|
|
|
1,126,709
|
|
|
|
1,275,712
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
160,874
|
|
|
|
263,306
|
|
|
|
403,353
|
|
Interest on short-term borrowings
|
|
|
16,199
|
|
|
|
86,584
|
|
|
|
134,624
|
|
Interest on long-term funding
|
|
|
78,178
|
|
|
|
80,671
|
|
|
|
93,922
|
|
|
|
Total interest expense
|
|
|
255,251
|
|
|
|
430,561
|
|
|
|
631,899
|
|
|
|
NET INTEREST INCOME
|
|
|
726,005
|
|
|
|
696,148
|
|
|
|
643,813
|
|
Provision for loan losses
|
|
|
750,645
|
|
|
|
202,058
|
|
|
|
34,509
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
(24,640
|
)
|
|
|
494,090
|
|
|
|
609,304
|
|
|
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust service fees
|
|
|
36,009
|
|
|
|
38,420
|
|
|
|
42,629
|
|
Service charges on deposit accounts
|
|
|
116,918
|
|
|
|
118,368
|
|
|
|
101,042
|
|
Card-based and other nondeposit fees
|
|
|
45,977
|
|
|
|
48,540
|
|
|
|
47,558
|
|
Retail commission income
|
|
|
60,678
|
|
|
|
62,588
|
|
|
|
61,645
|
|
Mortgage banking, net
|
|
|
40,882
|
|
|
|
14,684
|
|
|
|
22,750
|
|
Capital market fees, net
|
|
|
5,536
|
|
|
|
7,390
|
|
|
|
4,896
|
|
Bank owned life insurance income
|
|
|
16,032
|
|
|
|
19,804
|
|
|
|
17,419
|
|
Asset sale gains (losses), net
|
|
|
(4,071
|
)
|
|
|
(1,668
|
)
|
|
|
15,607
|
|
Investment securities gains (losses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains, net
|
|
|
11,705
|
|
|
|
5
|
|
|
|
9,077
|
|
Other-than-temporary
impairments
|
|
|
(4,406
|
)
|
|
|
(52,546
|
)
|
|
|
(903
|
)
|
Less: Non-credit portion recognized in other comprehensive
income (before taxes)
|
|
|
1,475
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities gains (losses), net
|
|
|
8,774
|
|
|
|
(52,541
|
)
|
|
|
8,174
|
|
Other
|
|
|
24,226
|
|
|
|
30,065
|
|
|
|
23,061
|
|
|
|
Total noninterest income
|
|
|
350,961
|
|
|
|
285,650
|
|
|
|
344,781
|
|
|
|
NONINTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
304,390
|
|
|
|
309,478
|
|
|
|
303,428
|
|
Occupancy
|
|
|
49,341
|
|
|
|
50,461
|
|
|
|
46,659
|
|
Equipment
|
|
|
18,385
|
|
|
|
19,123
|
|
|
|
17,908
|
|
Data processing
|
|
|
30,893
|
|
|
|
30,451
|
|
|
|
31,690
|
|
Business development and advertising
|
|
|
18,033
|
|
|
|
21,400
|
|
|
|
19,785
|
|
Other intangible asset amortization expense
|
|
|
5,543
|
|
|
|
6,269
|
|
|
|
7,116
|
|
Legal and professional fees
|
|
|
19,562
|
|
|
|
14,566
|
|
|
|
11,841
|
|
Foreclosure/OREO expense
|
|
|
38,129
|
|
|
|
13,685
|
|
|
|
7,508
|
|
FDIC expense
|
|
|
41,934
|
|
|
|
2,524
|
|
|
|
1,668
|
|
Other
|
|
|
85,210
|
|
|
|
89,503
|
|
|
|
87,288
|
|
|
|
Total noninterest expense
|
|
|
611,420
|
|
|
|
557,460
|
|
|
|
534,891
|
|
|
|
Income (loss) before income taxes
|
|
|
(285,099
|
)
|
|
|
222,280
|
|
|
|
419,194
|
|
Income tax expense (benefit)
|
|
|
(153,240
|
)
|
|
|
53,828
|
|
|
|
133,442
|
|
|
|
Net income (loss)
|
|
|
(131,859
|
)
|
|
|
168,452
|
|
|
|
285,752
|
|
Preferred stock dividends and discount accretion
|
|
|
29,348
|
|
|
|
3,250
|
|
|
|
|
|
|
|
Net income (loss) available to common equity
|
|
$
|
(161,207
|
)
|
|
$
|
165,202
|
|
|
$
|
285,752
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.26
|
)
|
|
$
|
1.29
|
|
|
$
|
2.24
|
|
Diluted
|
|
$
|
(1.26
|
)
|
|
$
|
1.29
|
|
|
$
|
2.22
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
127,858
|
|
|
|
127,501
|
|
|
|
127,408
|
|
Diluted
|
|
|
127,858
|
|
|
|
127,775
|
|
|
|
128,374
|
|
|
|
See accompanying notes to consolidated financial statements.
83
ASSOCIATED
BANC CORP
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Preferred Equity
|
|
|
Common Stock
|
|
|
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Surplus
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In Thousands, except per share data)
|
|
|
Balance, December 31, 2006
|
|
|
|
|
|
$
|
|
|
|
|
130,426
|
|
|
$
|
1,304
|
|
|
$
|
1,120,934
|
|
|
$
|
1,189,658
|
|
|
$
|
(16,453
|
)
|
|
$
|
(49,950
|
)
|
|
$
|
2,245,493
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,752
|
|
|
|
|
|
|
|
|
|
|
|
285,752
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,955
|
|
|
|
|
|
|
|
13,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends, $1.22 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155,809
|
)
|
|
|
|
|
|
|
|
|
|
|
(155,809
|
)
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business combinations
|
|
|
|
|
|
|
|
|
|
|
1,338
|
|
|
|
14
|
|
|
|
46,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,500
|
|
Stock-based compensation plans, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,092
|
|
|
|
(14,465
|
)
|
|
|
|
|
|
|
35,045
|
|
|
|
21,672
|
|
Purchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(4,011
|
)
|
|
|
(40
|
)
|
|
|
(133,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133,860
|
)
|
Stock-based compensation expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,189
|
|
Tax benefit of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,813
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
127,753
|
|
|
$
|
1,278
|
|
|
$
|
1,040,694
|
|
|
$
|
1,305,136
|
|
|
$
|
(2,498
|
)
|
|
$
|
(14,905
|
)
|
|
$
|
2,329,705
|
|
|
|
|
|
|
|
Adjustment for adoption of EITFs
06-4 and
06-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,515
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,515
|
)
|
|
|
|
|
|
|
Balance, January 1, 2008, as adjusted
|
|
|
|
|
|
$
|
|
|
|
|
127,753
|
|
|
$
|
1,278
|
|
|
$
|
1,040,694
|
|
|
$
|
1,302,621
|
|
|
$
|
(2,498
|
)
|
|
$
|
(14,905
|
)
|
|
$
|
2,327,190
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,452
|
|
|
|
|
|
|
|
|
|
|
|
168,452
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,553
|
|
|
|
|
|
|
|
2,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock
|
|
|
525
|
|
|
|
507,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
507,675
|
|
Issuance of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,325
|
|
Accretion of preferred stock discount
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation plans, net
|
|
|
|
|
|
|
|
|
|
|
363
|
|
|
|
3
|
|
|
|
5,981
|
|
|
|
(11,535
|
)
|
|
|
|
|
|
|
14,905
|
|
|
|
9,354
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $1.27 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162,347
|
)
|
|
|
|
|
|
|
|
|
|
|
(162,347
|
)
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,917
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,917
|
)
|
Stock-based compensation expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,988
|
|
Tax benefit of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,230
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
525
|
|
|
$
|
508,008
|
|
|
|
128,116
|
|
|
$
|
1,281
|
|
|
$
|
1,073,218
|
|
|
$
|
1,293,941
|
|
|
$
|
55
|
|
|
$
|
|
|
|
$
|
2,876,503
|
|
|
|
|
|
|
|
April 1, 2009, adjustment for adoption of accounting
standard related to
other-than-temporary
impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,745
|
|
|
|
(9,745
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131,859
|
)
|
|
|
|
|
|
|
|
|
|
|
(131,859
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,122
|
|
|
|
|
|
|
|
73,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation plans, net
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
3
|
|
|
|
1,157
|
|
|
|
(972
|
)
|
|
|
|
|
|
|
(107
|
)
|
|
|
81
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(599
|
)
|
|
|
(599
|
)
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.47 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,350
|
)
|
|
|
|
|
|
|
|
|
|
|
(60,350
|
)
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,250
|
)
|
|
|
|
|
|
|
|
|
|
|
(26,250
|
)
|
Accretion of preferred stock discount
|
|
|
|
|
|
|
3,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,959
|
|
Tax benefit of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
525
|
|
|
$
|
511,107
|
|
|
|
128,428
|
|
|
$
|
1,284
|
|
|
$
|
1,082,335
|
|
|
$
|
1,081,156
|
|
|
$
|
63,432
|
|
|
$
|
(706
|
)
|
|
$
|
2,738,608
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
84
ASSOCIATED
BANC-CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in Thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(131,859
|
)
|
|
$
|
168,452
|
|
|
$
|
285,752
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
750,645
|
|
|
|
202,058
|
|
|
|
34,509
|
|
Depreciation and amortization
|
|
|
30,623
|
|
|
|
28,941
|
|
|
|
24,826
|
|
Addition to (recovery of) valuation allowance on mortgage
servicing rights, net
|
|
|
6,776
|
|
|
|
6,825
|
|
|
|
(1,350
|
)
|
Amortization of mortgage servicing rights
|
|
|
19,619
|
|
|
|
16,057
|
|
|
|
18,067
|
|
Amortization of intangible assets
|
|
|
5,543
|
|
|
|
6,269
|
|
|
|
7,116
|
|
Amortization and accretion on earning assets, funding, and
other, net
|
|
|
56,734
|
|
|
|
4,878
|
|
|
|
4,546
|
|
Deferred income taxes
|
|
|
(134,827
|
)
|
|
|
(41,552
|
)
|
|
|
9,466
|
|
Tax benefit from exercise of stock options
|
|
|
1
|
|
|
|
2,230
|
|
|
|
1,813
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
(919
|
)
|
|
|
(1,879
|
)
|
(Gain) loss on sales of investment securities, and impairment
write-downs, net
|
|
|
(8,774
|
)
|
|
|
52,541
|
|
|
|
(8,174
|
)
|
(Gain) loss on sales of assets, net
|
|
|
4,071
|
|
|
|
1,668
|
|
|
|
(15,607
|
)
|
Gain on sales of loans held for sale and mortgage servicing
rights, net
|
|
|
(45,926
|
)
|
|
|
(17,726
|
)
|
|
|
(18,492
|
)
|
Mortgage loans originated and acquired for sale
|
|
|
(3,724,441
|
)
|
|
|
(1,413,995
|
)
|
|
|
(1,481,294
|
)
|
Proceeds from sales of mortgage loans held for sale
|
|
|
3,731,633
|
|
|
|
1,416,617
|
|
|
|
1,452,848
|
|
Decrease in interest receivable
|
|
|
10,887
|
|
|
|
10,753
|
|
|
|
7,165
|
|
Decrease in interest payable
|
|
|
(10,734
|
)
|
|
|
(7,435
|
)
|
|
|
(7,512
|
)
|
Net change in other assets and other liabilities
|
|
|
(438,209
|
)
|
|
|
2,194
|
|
|
|
(20,423
|
)
|
|
|
Net cash provided by operating activities
|
|
|
121,762
|
|
|
|
437,856
|
|
|
|
291,377
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (increase) decrease in loans
|
|
|
1,612,146
|
|
|
|
(1,017,570
|
)
|
|
|
(433,388
|
)
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
(3,684,541
|
)
|
|
|
(2,709,851
|
)
|
|
|
(1,461,690
|
)
|
Premises, equipment, and software, net of disposals
|
|
|
(22,794
|
)
|
|
|
(31,471
|
)
|
|
|
(34,815
|
)
|
Bank owned life insurance
|
|
|
|
|
|
|
|
|
|
|
(50,000
|
)
|
Other assets
|
|
|
(6,273
|
)
|
|
|
(9,233
|
)
|
|
|
(13,905
|
)
|
Proceeds from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of investment securities
|
|
|
690,762
|
|
|
|
3,550
|
|
|
|
66,239
|
|
Calls and maturities of investment securities
|
|
|
2,380,569
|
|
|
|
1,198,153
|
|
|
|
1,348,026
|
|
Sales of other assets
|
|
|
56,314
|
|
|
|
83,761
|
|
|
|
367,711
|
|
Net cash paid in business combination
|
|
|
|
|
|
|
|
|
|
|
(33,799
|
)
|
|
|
Net cash provided by (used in) investing activities
|
|
|
1,026,183
|
|
|
|
(2,482,661
|
)
|
|
|
(245,621
|
)
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
1,573,817
|
|
|
|
1,180,882
|
|
|
|
(421,193
|
)
|
Net cash paid in sales of branch deposits
|
|
|
|
|
|
|
|
|
|
|
(212,434
|
)
|
Net increase (decrease) in short-term borrowings
|
|
|
(2,477,083
|
)
|
|
|
477,149
|
|
|
|
1,172,102
|
|
Repayment of long-term funding
|
|
|
(707,597
|
)
|
|
|
(528,395
|
)
|
|
|
(813,000
|
)
|
Proceeds from issuance of long-term funding
|
|
|
800,000
|
|
|
|
525,822
|
|
|
|
600,000
|
|
Proceeds from issuance of preferred stock and common stock
warrants
|
|
|
|
|
|
|
525,000
|
|
|
|
|
|
Cash dividends on common stock
|
|
|
(60,350
|
)
|
|
|
(162,347
|
)
|
|
|
(155,809
|
)
|
Cash dividends on preferred stock
|
|
|
(26,250
|
)
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
81
|
|
|
|
9,354
|
|
|
|
21,672
|
|
Purchase of common stock
|
|
|
(599
|
)
|
|
|
|
|
|
|
(133,860
|
)
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
919
|
|
|
|
1,879
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(897,981
|
)
|
|
|
2,028,384
|
|
|
|
59,357
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
249,964
|
|
|
|
(16,421
|
)
|
|
|
105,113
|
|
Cash and cash equivalents at beginning of year
|
|
|
570,728
|
|
|
|
587,149
|
|
|
|
482,036
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
820,692
|
|
|
$
|
570,728
|
|
|
$
|
587,149
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
265,501
|
|
|
$
|
437,995
|
|
|
$
|
639,411
|
|
Cash paid for income taxes
|
|
|
46,213
|
|
|
|
85,952
|
|
|
|
127,868
|
|
Loans and bank premises transferred to other real estate owned
|
|
|
73,754
|
|
|
|
49,241
|
|
|
|
26,222
|
|
Capitalized mortgage servicing rights
|
|
|
44,580
|
|
|
|
17,263
|
|
|
|
17,136
|
|
Business Combinations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired, including cash and cash
equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
422,600
|
|
Value ascribed to intangibles
|
|
|
|
|
|
|
|
|
|
|
64,341
|
|
Liabilities assumed
|
|
|
|
|
|
|
|
|
|
|
329,400
|
|
|
|
See accompanying notes to consolidated financial statements.
85
ASSOCIATED
BANC-CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008, and 2007
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES:
|
The accounting and reporting policies of the Corporation conform
to U.S. generally accepted accounting principles and to
general practice within the financial services industry. The
following is a description of the more significant of those
policies.
Business
Associated Banc-Corp (individually referred to herein as the
Parent Company and together with all of its
subsidiaries and affiliates, collectively referred to herein as
the Corporation) is a bank holding company
headquartered in Wisconsin. The Corporation provides a full
range of banking and related financial services to individual
and corporate customers through its network of bank and nonbank
subsidiaries. The Corporation is subject to competition from
other financial and non-financial institutions that offer
similar or competing products and services. The Corporation is
regulated by federal and state agencies and is subject to
periodic examinations by those agencies.
Basis of
Financial Statement Presentation
The consolidated financial statements include the accounts of
the Parent Company and its majority-owned subsidiaries.
Investments in unconsolidated entities (none of which are
considered to be variable interest entities in which the
Corporation is the primary beneficiary) are accounted for using
the equity method of accounting when the Corporation has
determined that the equity method is appropriate. Investments
not meeting the criteria for equity method accounting are
accounted for using the cost method of accounting. Investments
in unconsolidated entities are included in other assets, and the
Corporations share of income or loss is recorded in other
noninterest income.
All significant intercompany balances and transactions have been
eliminated in consolidation. Results of operations of companies
purchased are included from the date of acquisition.
Certain amounts in the consolidated financial statements of
prior periods have been reclassified to conform with the current
periods presentation.
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, mortgage servicing rights, derivative financial
instruments and hedging activities, and income taxes.
Management has evaluated subsequent events for potential
recognition or disclosure through February 16, 2010, the
date of the filing of the consolidated financial statements with
the Securities and Exchange Commission.
Investment
Securities Available for Sale
At the time of purchase, investment securities are classified as
available for sale, as management has the intent and ability to
hold such securities for an indefinite period of time, but not
necessarily to maturity. Any decision to sell investment
securities available for sale would be based on various factors,
including, but not limited to, asset/liability management
strategies, changes in interest rates or prepayment risks,
liquidity needs, or regulatory capital considerations.
Investment securities available for sale are carried at fair
value, with unrealized gains and losses, net of related deferred
income taxes, included in stockholders equity as a
separate component of other comprehensive income. Premiums and
discounts are amortized or accreted into interest income over
the estimated life (earlier of call date, maturity, or estimated
life) of the related security, using a prospective method that
approximates level yield. Declines in the fair value of
investment securities available for sale (with certain
exceptions for debt securities noted below) that are deemed to
be
other-than-temporary
are charged to earnings as a realized loss, and a new cost
86
basis for the securities is established. In evaluating
other-than-temporary
impairment, management considers the length of time and extent
to which the fair value has been less than cost, the financial
condition and near-term prospects of the issuer, and the intent
and ability of the Corporation to retain its investment in the
issuer for a period of time sufficient to allow for any
anticipated recovery in fair value in the near term. Declines in
the fair value of debt securities below amortized cost are
deemed to be
other-than-temporary
in circumstances where: (1) the Corporation has the intent
to sell a security; (2) it is more likely than not that the
Corporation will be required to sell the security before
recovery of its amortized cost basis; or (3) the
Corporation does not expect to recover the entire amortized cost
basis of the security. If the Corporation intends to sell a
security or if it is more likely than not that the Corporation
will be required to sell the security before recovery, an
other-than-temporary
impairment write-down is recognized in earnings equal to the
difference between the securitys amortized cost basis and
its fair value. If an entity does not intend to sell the
security or it is not more likely than not that it will be
required to sell the security before recovery, the
other-than-temporary
impairment write-down is separated into an amount representing
credit loss, which is recognized in earnings, and an amount
related to all other factors, which is recognized in other
comprehensive income. Realized securities gains or losses on
securities sales (using specific identification method) and
declines in value judged to be
other-than-temporary
are included in investment securities gains (losses), net, in
the consolidated statements of income (loss). See Note 3
for additional information on investment securities.
Loans
Loans are classified as held for investment when management has
both the intent and ability to hold the loan for the foreseeable
future, or until maturity or payoff. Loans are carried at the
principal amount outstanding, net of any unearned income and
unamortized deferred fees and costs on originated loans. Loan
origination fees and certain direct loan origination costs are
deferred, and the net amount is amortized into net interest
income over the contractual life of the related loans or over
the commitment period as an adjustment of yield.
Management considers a loan to be impaired when it is probable
that the Corporation will be unable to collect all amounts due
according to the original contractual terms of the note
agreement, including both principal and interest. Management has
determined that specific commercial and consumer loan
relationships that have nonaccrual status or have had their
terms restructured in a troubled debt restructuring meet this
definition.
Interest income on loans is based on the principal balance
outstanding computed using the effective interest method. The
accrual of interest income for commercial loans is discontinued
when there is a clear indication that the borrowers cash
flow may not be sufficient to meet payments as they become due,
while the accrual of interest income for retail loans is
discontinued when loans reach specific delinquency levels. Loans
are generally placed on nonaccrual status when contractually
past due 90 days or more as to interest or principal
payments, unless the loan is well secured and in the process of
collection. Additionally, whenever management becomes aware of
facts or circumstances that may adversely impact the
collectibility of principal or interest on loans, it is
managements practice to place such loans on a nonaccrual
status immediately, rather than delaying such action until the
loans become 90 days past due. When a loan is placed on
nonaccrual status, previously accrued and uncollected interest
is reversed, amortization of related deferred loan fees or costs
is suspended, and income is recorded only to the extent that
interest payments are subsequently received in cash and a
determination has been made that the principal balance of the
loan is collectible. If collectibility of the principal is in
doubt, payments received are applied to loan principal. A
nonaccrual loan is returned to accrual status when all
delinquent principal and interest payments become current in
accordance with the terms of the loan agreement, the borrower
has demonstrated a period of sustained performance and the
ultimate collectibility of the total contractual principal and
interest is no longer in doubt.
A loan is accounted for as a troubled debt restructuring if the
Corporation, for economic or legal reasons related to the
borrowers financial condition, grants a significant
concession to the borrower that it would not otherwise consider.
A troubled debt restructuring may involve the receipt of assets
from the debtor in partial or full satisfaction of the loan, or
a modification of terms such as a reduction of the stated
interest rate or face amount of the loan, a reduction of accrued
interest, an extension of the maturity date at a stated interest
rate lower than the current market rate for a new loan with
similar risk, or some combination of these concessions. Troubled
debt restructurings generally remain on nonaccrual status until
a six-month payment history is sustained. See Allowance for Loan
Losses below for further policy discussion and see Note 3
for additional information on loans.
87
Loans
Held for Sale
Loans held for sale, which consist generally of current
production of certain fixed-rate, first-lien residential
mortgage loans, are carried at the lower of cost or estimated
fair value as determined on an aggregate basis. The amount by
which cost exceeds estimated fair value is accounted for as a
market valuation adjustment to the carrying value of the loans.
Changes, if any, in the market valuation adjustment are included
in mortgage banking, net, in the consolidated statements of
income (loss). The carrying value of loans held for sale
included a market valuation adjustment of $0.3 million at
December 31, 2009, while no market valuation adjustment was
necessary at December 31, 2008. Holding costs are treated
as period costs.
Allowance
for Loan Losses
The allowance for loan losses is a reserve for estimated credit
losses on individually evaluated loans determined to be impaired
as well as estimated credit losses inherent in the loan
portfolio, and is based on quarterly evaluations of the
collectibility and historical loss experience of loans. Actual
credit losses, net of recoveries, are deducted from the
allowance for loan losses. A provision for loan losses, which is
a charge against earnings, is recorded to bring the allowance
for loan losses to a level that, in managements judgment,
is adequate to absorb probable losses in the loan portfolio.
The allocation methodology applied by the Corporation, designed
to assess the appropriateness of the allowance for loan losses,
includes an allocation methodology, as well as managements
ongoing review and grading of the loan portfolio into criticized
loan categories (defined as specific loans warranting either
specific allocation, or a criticized status of watch, special
mention, substandard, doubtful, or loss). The allocation
methodology focuses on evaluation of several 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 nonperforming 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. Because each
of the criteria used is subject to change, the allocation of the
allowance for loan losses is made for analytical purposes and is
not necessarily indicative of the trend of future loan losses in
any particular loan category. The total allowance is available
to absorb losses from any segment of the portfolio.
Management, judging current information and events regarding the
borrowers ability to repay their obligations, considers a
loan to be impaired when it is probable that the Corporation
will be unable to collect all amounts due according to the
contractual terms of the note agreement, including both
principal and interest. Management has determined that larger
commercial-oriented loan relationships that have nonaccrual
status or have had their terms restructured in a troubled debt
restructuring meet this definition. When an individual loan is
determined to be impaired, the allowance for loan losses
attributable to the loan is allocated based on managements
estimate of the borrowers ability to repay the loan given
the availability of collateral, other sources of cash flows, as
well as evaluation of legal options available to the
Corporation. The amount of impairment is measured based upon the
present value of expected future cash flows discounted at the
loans effective interest rate, the fair value of the
underlying collateral less applicable selling costs, or the
observable market price of the loan. If foreclosure is probable
or the loan is collateral dependent, impairment is measured
using the fair value of the loans collateral, less costs
to sell. Large groups of homogeneous loans, such as residential
mortgage, home equity and installment loans, are collectively
evaluated for impairment. Interest income on impaired loans is
recorded only to the extent that interest payments are
subsequently received in cash and a determination has been made
that the principal balance of the loan is collectible.
Management believes that the level of the allowance for loan
losses is appropriate. While management uses available
information to recognize losses on loans, future additions to
the allowance for loan losses may be necessary based on changes
in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Corporations allowance for loan
losses. Such agencies may require that certain loan balances be
charged off or downgraded into criticized loan categories when
their credit evaluations differ from those of management based
on their judgments about information available to them at the
88
time of their examinations. See Loans above for further policy
discussion and see Note 4 for additional information on the
allowance for loan losses.
Other
Real Estate Owned
Other real estate owned is included in other assets in the
consolidated balance sheets and is comprised of property
acquired through a foreclosure proceeding or acceptance of a
deed-in-lieu
of foreclosure, and loans classified as in-substance
foreclosure. Other real estate owned is recorded at the lower of
the recorded investment in the loan at the time of acquisition
or the fair value of the underlying property collateral, less
estimated selling costs. Any write-down in the carrying value of
a property at the time of acquisition is charged to the
allowance for loan losses. Any subsequent write-downs to reflect
current fair market value, as well as gains and losses on
disposition and revenues and expenses incurred in maintaining
such properties, are treated as period costs. Other real estate
owned also includes bank premises formerly but no longer used
for banking. Banking premises are transferred at the lower of
carrying value or estimated fair value, less estimated selling
costs. Other real estate owned totaled $68.4 million and
$48.7 million at December 31, 2009 and 2008,
respectively.
Reserve
for Unfunded Commitments
A reserve for unfunded commitments is maintained at a level
believed by management to be sufficient to absorb estimated
probable losses related to unfunded credit facilities (including
unfunded loan commitments and letters of credit) and is included
in other liabilities in the consolidated balance sheets. The
determination of the appropriate level of the reserve is based
upon an evaluation of the unfunded credit facilities, including
an assessment of historical commitment utilization experience
and credit risk grading. Net adjustments to the reserve for
unfunded commitments are included in other noninterest expense
in the consolidated statements of income (loss).
Premises
and Equipment and Software
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed on the straight-line method over the estimated useful
lives of the related assets or the lease term. Maintenance and
repairs are charged to expense as incurred, while additions or
major improvements are capitalized and depreciated over the
estimated useful lives. Estimated useful lives of the assets
range predominantly as follows: 3 to 20 years for land
improvements, 5 to 40 years for buildings, 3 to
5 years for computers, and 3 to 20 years for
furniture, fixtures, and other equipment. Leasehold improvements
are amortized on a straight-line basis over the lesser of the
lease terms or the estimated useful lives of the improvements.
Software, included in other assets in the consolidated balance
sheets, is amortized on a straight-line basis over the lesser of
the contract terms or the estimated useful life of the software.
See Note 6 for additional information on premises and
equipment.
Goodwill
and Intangible Assets
Goodwill and Other Intangible Assets: The excess of the
cost of an acquisition over the fair value of the net assets
acquired consists primarily of goodwill, core deposit
intangibles, and other identifiable intangibles (primarily
related to customer relationships acquired). Core deposit
intangibles have estimated finite lives and are amortized on an
accelerated basis to expense over a
10-year
period. The other intangibles have estimated finite lives and
are amortized on an accelerated basis to expense over their
weighted average life (a weighted average life of 14 years
for both 2009 and 2008). The Corporation reviews long-lived
assets and certain identifiable intangibles for impairment at
least annually, or whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable, in which case an impairment charge would be
recorded.
Goodwill is not amortized but is subject to impairment tests on
at least an annual basis or earlier whenever an event occurs
indicating that goodwill may be impaired. Any impairment of
goodwill or other intangibles will be recognized as an expense
in the period of impairment and such impairment could be
material. The Corporation completes the annual goodwill
impairment test by segment as of May 1 of each year. Note 5
includes a summary of the Corporations goodwill, core
deposit intangibles, and other intangibles.
Mortgage Servicing Rights: The Corporation sells
residential mortgage loans in the secondary market and typically
retains the right to service the loans sold. Upon sale, a
mortgage servicing rights asset is capitalized, which
89
represents the then current fair value of future net cash flows
expected to be realized for performing servicing activities.
Mortgage servicing rights, when purchased, are initially
recorded at fair value. As the Corporation has not elected to
subsequently measure any class of servicing assets under the
fair value measurement method, the Corporation follows the
amortization method. Mortgage servicing rights are amortized in
proportion to and over the period of estimated net servicing
income, and assessed for impairment at each reporting date.
Mortgage servicing rights are carried at the lower of the
initial capitalized amount, net of accumulated amortization, or
estimated fair value, and are included in other intangible
assets, net in the consolidated balance sheets.
The Corporation periodically evaluates its mortgage servicing
rights asset for impairment. Impairment is assessed based on
fair value at each reporting date using estimated prepayment
speeds of the underlying mortgage loans serviced and
stratifications based on the risk characteristics of the
underlying loans (predominantly loan type and note interest
rate). As mortgage interest rates rise, prepayment speeds are
usually slower and the value of the mortgage servicing rights
asset generally increases, requiring less valuation reserve. A
valuation allowance is established, through a charge to
earnings, to the extent the amortized cost of the mortgage
servicing rights exceeds the estimated fair value by
stratification. If it is later determined that all or a portion
of the temporary impairment no longer exists for a
stratification, the valuation is reduced through a recovery to
earnings. An
other-than-temporary
impairment (i.e., recoverability is considered remote when
considering interest rates and loan pay off activity) is
recognized as a write-down of the mortgage servicing rights
asset and the related valuation allowance (to the extent a
valuation allowance is available) and then against earnings. A
direct write- down permanently reduces the carrying value of the
mortgage servicing rights asset and valuation allowance,
precluding subsequent recoveries. See Note 5 for additional
information on mortgage servicing rights.
Income
Taxes
Amounts provided for income tax expense are based on income
reported for financial statement purposes and do not necessarily
represent amounts currently payable under tax laws. Deferred
income taxes, which arise principally from temporary differences
between the amounts reported in the financial statements and the
tax bases of assets and liabilities, are included in the amounts
provided for income taxes. In assessing the realizability of
deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income and tax planning strategies which will create
taxable income during the periods in which those temporary
differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and, if necessary, tax planning strategies in
making this assessment.
The Corporation files a consolidated federal income tax return
and individual or consolidated state income tax returns.
Accordingly, amounts equal to tax benefits of those subsidiaries
having taxable federal losses or credits are offset by other
subsidiaries that incur federal tax liabilities.
It is the Corporations policy to provide for uncertain tax
positions as a part of income tax expense and the related
interest and penalties based upon managements assessment
of whether a tax benefit is more likely than not to be sustained
upon examination by tax authorities. At December 31, 2009
and 2008, the Corporation believes it has appropriately
accounted for any unrecognized tax benefits. To the extent the
Corporation prevails in matters for which a liability for an
unrecognized tax benefit is established or is required to pay
amounts in excess of the liability, the Corporations
effective tax rate in a given financial statement period may be
effected. See Note 13 for additional information on income
taxes.
Derivative
Financial Instruments and Hedging Activities
Derivative instruments, including derivative instruments
embedded in other contracts, are carried at fair value on the
consolidated balance sheets with changes in the fair value
recorded to earnings or accumulated other comprehensive income,
as appropriate. On the date the derivative contract is entered
into, the Corporation designates the derivative as a fair value
hedge (i.e., a hedge of the fair value of a recognized asset or
liability), a cash flow hedge (i.e., a hedge of the variability
of cash flows to be received or paid related to a recognized
asset or liability), or a free-standing derivative instrument.
For a derivative designated as a fair value hedge, the changes
in the fair value of the derivative instrument and the changes
in the fair value of the hedged asset or liability are
recognized in current period earnings
90
as an increase or decrease to the carrying value of the hedged
item on the balance sheet and in the related income statement
account. For a derivative designated as a cash flow hedge, the
effective portions of changes in the fair value of the
derivative instrument are recorded in other comprehensive income
and the ineffective portions of changes in the fair value of a
derivative instrument are recognized in current period earnings
as an adjustment to the related income statement account.
Amounts within accumulated other comprehensive income are
reclassified into earnings in the period the hedged item affects
earnings. If a derivative is designated as a free-standing
derivative instrument, changes in fair value are reported in
current period earnings.
To qualify for and maintain hedge accounting, the Corporation
must meet formal documentation and effectiveness evaluation
requirements both at the hedges inception and on an
ongoing basis. The application of the hedge accounting policy
requires strict adherence to documentation and effectiveness
testing requirements, judgment in the assessment of hedge
effectiveness, identification of similar hedged item groupings,
and measurement of changes in the fair value of hedged items. If
it is determined that a derivative is not highly effective as a
hedge or that it has ceased to be a highly effective hedge, the
Corporation discontinues hedge accounting prospectively. When
hedge accounting is discontinued on a fair value hedge because
it is determined that the derivative no longer qualifies as an
effective hedge, the Corporation continues to carry the
derivative on the consolidated balance sheet at its fair value
and no longer adjusts the hedged asset or liability for changes
in fair value. The adjustment to the carrying amount of the
hedged asset or liability is amortized over the remaining life
of the hedged item, beginning no later than when hedge
accounting ceases. When hedge accounting is discontinued on a
cash flow hedge because it is determined that the derivative no
longer qualifies as an effective hedge, the Corporation records
the changes in the fair value of the derivative in earnings
rather than through accumulated other comprehensive income and
when the cash flows associated with the hedged item are
realized, the gain or loss is reclassified out of other
comprehensive income and included in the same income statement
account of the item being hedged.
The Corporation measures the effectiveness of its hedges, where
applicable, at inception and each quarter on an on-going basis.
For a fair value hedge, the cumulative change in the fair value
of the hedge instrument attributable to the risk being hedged
versus the cumulative fair value change of the hedged item
attributable to the risk being hedged is considered to be the
ineffective portion, which is recorded as an
increase or decrease in the related income statement
classification of the item being hedged (i.e., net interest
income). For a cash flow hedge, the ineffective portions of
changes in the fair value are recognized immediately in the
related income statement account. See Note 15 for
additional information on derivative financial instruments and
hedging activities.
Stock-Based
Compensation
The Corporation recognizes compensation expense for the fair
value of stock grants on a straight-line basis over the vesting
period of the grants. Compensation expense recognized is
included in personnel expense in the consolidated statements of
income (loss).
Cash and
Cash Equivalents
For purposes of the consolidated statements of cash flows, cash
and cash equivalents are considered to include cash and due from
banks, interest-bearing deposits in other financial
institutions, and federal funds sold and securities purchased
under agreements to resell.
Per Share
Computations
Earnings per share are calculated utilizing the two class
method. Basic earnings per share are calculated by dividing the
sum of distributed earnings to common shareholders and
undistributed earnings allocated to common shareholders by the
weighted average number of common shares outstanding. Diluted
earnings per share are calculated by dividing the sum of
distributed earnings to common shareholders and undistributed
earnings allocated to common shareholders by the weighted
average number of shares adjusted for the dilutive effect of
outstanding stock awards (outstanding stock options, unvested
restricted stock, and outstanding stock warrants) and unsettled
share repurchases. Also see Notes 10 and 19.
91
Recent
Accounting Pronouncements
In August 2009, the Financial Accounting Standards Board
(FASB) issued an accounting standard to provide
additional guidance on measuring the fair value of liabilities
under the fair value accounting standards. The quoted price for
the identical liability, when traded as an asset in an active
market, is also a Level 1 measurement for that liability
when no adjustment to the quoted price is required. In the
absence of a Level 1 measurement, a company must use a
valuation technique that uses a quoted price or another
valuation technique, such as using a market or income approach.
This statement is effective for the first interim or annual
reporting period ending after December 15, 2009. The
Corporation adopted the accounting standard in the fourth
quarter of 2009. The adoption of this accounting standard, which
was subsequently codified into Accounting Standards Codification
(ASC) Topic 820, Fair Value Measurements and
Disclosures, had no material impact on the
Corporations results of operations, financial position,
and liquidity.
In June 2009, the FASB issued an accounting standard which
established the Codification to become the single source of
authoritative accounting principles. The standard also provides
the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities
that are presented in conformity with generally accepted
accounting principles in the United States. All guidance
contained in the Codification carries an equal level of
authority. The Codification is not intended to change generally
accepted accounting principles, but is expected to simplify
accounting research by reorganizing current generally accepted
accounting principles into specific accounting topics. The
Corporation adopted this accounting standard in the third
quarter of 2009. The adoption of this accounting standard, which
was subsequently codified into ASC Topic 105, Generally
Accepted Accounting Principles, had no impact on the
Corporations results of operations, financial position,
and liquidity.
In May 2009, the FASB issued an accounting standard intended to
establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
In particular, this accounting standard requires companies to
disclose the date through which they have evaluated subsequent
events and the basis for that date, as to whether it represents
the date the financial statements were issued or were available
to be issued. It also provides guidance regarding circumstances
under which companies should and should not recognize events or
transactions occurring after the balance sheet date in their
financial statements. This accounting standard also includes
disclosure requirements for certain events and transactions that
occurred after the balance sheet date, which were not recognized
in the financial statements. This accounting standard is
effective for interim and annual periods ending after
June 15, 2009. The Corporation adopted this accounting
standard in the second quarter of 2009. The adoption of this
accounting standard, which was subsequently codified into ASC
Topic 855, Subsequent Events, had no material impact
on the Corporations results of operations, financial
position, and liquidity.
In April 2009, the FASB issued an accounting standard which
amended
other-than-temporary
impairment (OTTI) guidance in generally accepted
accounting principles for debt securities by requiring a
write-down when fair value is below amortized cost in
circumstances where: (1) an entity has the intent to sell a
security; (2) it is more likely than not that an entity
will be required to sell the security before recovery of its
amortized cost basis; or (3) an entity does not expect to
recover the entire amortized cost basis of the security. If an
entity intends to sell a security or if it is more likely than
not that the entity will be required to sell the security before
recovery, an OTTI write-down is recognized in earnings equal to
the difference between the securitys amortized cost basis
and its fair value. If an entity does not intend to sell the
security or it is not more likely than not that it will be
required to sell the security before recovery, the OTTI
write-down is separated into an amount representing credit loss,
which is recognized in earnings, and an amount related to all
other factors, which is recognized in other comprehensive
income. This accounting standard does not amend existing
recognition and measurement guidance related to OTTI write-downs
of equity securities. This accounting standard also extends
disclosure requirements related to debt and equity securities to
interim reporting periods. The Corporation adopted this
accounting standard in the second quarter of 2009, and
recognized a net cumulative effect adjustment of
$9.7 million to retained earnings and accumulated other
comprehensive income as of April 1, 2009. See the
Consolidated Statements of Changes in Stockholders Equity
for the impact of the initial adoption and Note 3,
Investment Securities, for additional information
and disclosures concerning this accounting standard, which was
subsequently codified into ASC Topic 320,
InvestmentsDebt and Equity Securities.
92
In April 2009, the FASB issued an accounting standard related to
disclosures about the fair value of financial instruments in
interim reporting periods of publicly traded companies that were
previously only required to be disclosed in annual financial
statements. The Corporation adopted this accounting standard in
the second quarter of 2009. See Note 17, Fair Value
Measurements, for additional disclosures related to this
accounting standard, which was subsequently codified into ASC
Topic 825, Financial Instruments.
In April 2009, the FASB issued an accounting standard which
provided guidance on estimating fair value when the volume and
level of activity for an asset or liability have significantly
decreased and in identifying transactions that are not orderly.
In such instances, the accounting standard provides that
management may determine that further analysis of the
transactions or quoted prices is required, and a significant
adjustment to the transactions or quoted prices may be necessary
to estimate fair value in accordance with generally accepted
accounting principles. The Corporation adopted this accounting
standard in the second quarter of 2009, with no material impact
on its results of operations, financial position, and liquidity.
See Note 17, Fair Value Measurements, for
additional disclosures concerning this accounting standard,
which was subsequently codified into ASC Topic 820, Fair
Value Measurements and Disclosures.
In December 2008, the FASB issued an accounting standard which
requires additional disclosures about assets held in an
employers defined benefit pension or other postretirement
plan including fair values of each major asset category and
level within the fair value hierarchy. This accounting standard
is effective for fiscal years ending after December 15,
2009. The Corporation adopted this accounting standard at the
end of 2009. The adoption of this accounting standard, which was
subsequently codified into ASC Topic 715,
CompensationRetirement Benefits, had no
material impact on the Corporations results of operations,
financial position, and liquidity. See Note 12,
Retirement Plans, for additional disclosures
required under this accounting standard.
In June 2008, the FASB issued an accounting standard which
determined that all outstanding unvested share-based payment
awards with rights to nonforfeitable dividends are considered
participating securities. Because they are considered
participating securities, the Corporation is required to apply
the two-class method in computing basic and diluted earnings per
share. This accounting standard is effective for fiscal years
beginning after December 15, 2008. The Corporation adopted
this accounting standard at the beginning of 2009, as required,
with no material impact on its results of operations, financial
position, and liquidity. See Note 19, Earnings Per
Share, for additional disclosures concerning this
accounting standard, which was subsequently codified into ASC
Topic 260, Earnings per Share.
In March 2008, the FASB issued an accounting standard applicable
to all derivative instruments. This standard provides financial
statement users with increased qualitative, quantitative, and
credit-risk disclosures related to derivative financial
instruments and hedging activities. It requires enhanced
disclosures about how and why an entity uses derivative
instruments; how derivative instruments and related hedged items
are accounted for; and how derivative instruments and related
hedged items affect an entitys financial position,
financial performance, and cash flows. The accounting standard
is to be applied prospectively for interim periods and fiscal
years beginning after November 15, 2008. The Corporation
adopted this accounting standard at the beginning of 2009. See
Note 15, Derivative and Hedging Activities, for
additional disclosures required under this accounting standard,
which was subsequently codified into ASC Topic 815,
Derivatives and Hedging.
In December 2007, the FASB issued an accounting standard which
requires noncontrolling interests to be treated as a separate
component of equity, rather than a liability or other item
outside of equity. This standard also requires the amount of
consolidated net income attributable to the parent and the
noncontrolling interest to be clearly identified and presented
on the face of the income statement. Changes in a parents
ownership interest, as long as the parent retains a controlling
financial interest, must be accounted for as equity
transactions, and should a parent cease to have a controlling
financial interest, the standard requires the parent to
recognize a gain or loss in net income. Expanded disclosures in
the consolidated financial statements are required by this
statement and must clearly identify and distinguish between the
interest of the parents owners and the interests of the
noncontrolling owners of a subsidiary. This accounting standard
is to be applied prospectively for fiscal years beginning on or
after December 15, 2008, with the exception of presentation
and disclosure requirements, which shall be applied
retrospectively for all periods presented. The Corporation
adopted this accounting standard at the beginning of
93
2009. The adoption of this accounting standard, which was
subsequently codified into ASC Topic 810,
Consolidation, had no material impact on the
Corporations results of operations, financial position,
and liquidity.
In December 2007, the FASB issued an accounting standard which
requires an acquirer to recognize identifiable assets acquired,
liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their full fair
values at that date, with limited exceptions. Assets and
liabilities assumed that arise from contractual contingencies as
of the acquisition date must also be measured at their
acquisition-date full fair values. The standard requires the
acquirer to recognize goodwill as of the acquisition date, and
in the case of a bargain purchase business combination, the
acquirer shall recognize a gain. Acquisition-related costs are
to be expensed in the periods in which the costs are incurred
and the services are received. Additional presentation and
disclosure requirements have also been established to enable
financial statement users to evaluate and understand the nature
and financial effects of business combinations. This accounting
standard is to be applied prospectively for acquisition dates on
or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The Corporation
adopted this accounting standard, which was subsequently
codified into ASC Topic 805, Business Combinations,
at the beginning of 2009. The Corporation did not have any
business combination activity for the year ended
December 31, 2009.
|
|
NOTE 2
|
BUSINESS
COMBINATIONS:
|
When valuing acquisitions, the Corporation considers a range of
valuation methodologies, including comparable publicly-traded
companies, comparable precedent transactions, and discounted
cash flow. For each of the acquisitions noted below, the
resulting purchase price exceeded the value of the net assets
acquired. To record the transaction, the Corporation assigns
estimated fair values to the assets acquired, including
identifying and measuring acquired intangible assets, and to
liabilities assumed (using sources of information such as
observable market prices or discounted cash flows). To identify
intangible assets that should be measured, the Corporation
determines if the asset arose from contractual or other legal
rights or if the asset is capable of being separated from the
acquired entity. When valuing identified intangible assets, the
Corporation generally relies on valuation reports by independent
third parties. In each acquisition, the excess cost of the
acquisition over the fair value of the net assets acquired is
allocated to goodwill.
Completed Business Combinations:
First National Bank of Hudson (First National
Bank): On June 1, 2007, the Corporation
consummated its acquisition of 100% of the outstanding shares of
First National Bank, a $0.4 billion community bank
headquartered in Woodbury, Minnesota. The consummation of the
transaction included the issuance of approximately
1.3 million shares of common stock and $46.5 million
in cash. With the addition of First National Banks eight
locations, the Corporation expanded its presence in the Greater
Twin Cities area. At acquisition, First National Bank added
approximately $0.3 billion to both loans and deposits. In
June 2007, the Corporation also completed its conversion of
First National Bank onto its centralized operating systems and
merged it into its banking subsidiary, Associated Bank, National
Association (Associated Bank).
The acquisition was immaterial to the Corporations
consolidated financial results. Goodwill of approximately
$58 million (of which, all is deductible for income taxes)
and a core deposit intangible of approximately $4 million
(with a ten-year estimated life) recognized in the transaction
at acquisition were assigned to the banking segment.
94
|
|
NOTE 3
|
INVESTMENT
SECURITIES:
|
The amortized cost and fair values of securities available for
sale at December 31, 2009 and 2008, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
U. S. Treasury securities
|
|
$
|
3,896
|
|
|
$
|
7
|
|
|
$
|
(28
|
)
|
|
$
|
3,875
|
|
Federal agency securities
|
|
|
41,980
|
|
|
|
1,428
|
|
|
|
(1
|
)
|
|
|
43,407
|
|
Obligations of state and political subdivisions (municipal
securities)
|
|
|
865,111
|
|
|
|
20,960
|
|
|
|
(906
|
)
|
|
|
885,165
|
|
Residential mortgage-related securities
|
|
|
4,751,033
|
|
|
|
144,776
|
|
|
|
(13,290
|
)
|
|
|
4,882,519
|
|
Other securities (debt and equity)
|
|
|
20,954
|
|
|
|
1,274
|
|
|
|
(1,661
|
)
|
|
|
20,567
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
5,682,974
|
|
|
$
|
168,445
|
|
|
$
|
(15,886
|
)
|
|
$
|
5,835,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
U. S. Treasury securities
|
|
$
|
4,985
|
|
|
$
|
10
|
|
|
$
|
(29
|
)
|
|
$
|
4,966
|
|
Federal agency securities
|
|
|
75,816
|
|
|
|
1,195
|
|
|
|
(1
|
)
|
|
|
77,010
|
|
Obligations of state and political subdivisions (municipal
securities)
|
|
|
913,216
|
|
|
|
16,581
|
|
|
|
(4,194
|
)
|
|
|
925,603
|
|
Residential mortgage-related securities
|
|
|
4,032,784
|
|
|
|
54,128
|
|
|
|
(9,481
|
)
|
|
|
4,077,431
|
|
Other securities (debt and equity)
|
|
|
58,272
|
|
|
|
639
|
|
|
|
(507
|
)
|
|
|
58,404
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
5,085,073
|
|
|
$
|
72,553
|
|
|
$
|
(14,212
|
)
|
|
$
|
5,143,414
|
|
|
|
|
|
|
|
The amortized cost and fair values of investment securities
available for sale at December 31, 2009, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Due in one year or less
|
|
$
|
156,183
|
|
|
$
|
158,599
|
|
Due after one year through five years
|
|
|
185,301
|
|
|
|
192,418
|
|
Due after five years through ten years
|
|
|
432,172
|
|
|
|
443,082
|
|
Due after ten years
|
|
|
150,244
|
|
|
|
149,741
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
923,900
|
|
|
|
943,840
|
|
Residential mortgage-related securities
|
|
|
4,751,033
|
|
|
|
4,882,519
|
|
Equity securities
|
|
|
8,041
|
|
|
|
9,174
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
5,682,974
|
|
|
$
|
5,835,533
|
|
|
|
|
|
|
|
Net investment securities gains of $8.8 million for 2009
were attributable to gains of $14.6 million on the sale of
mortgage-related securities, partially offset by a
$2.9 million loss on the sale of mortgage-related
securities and $2.9 million of credit-related
other-than-temporary
write-downs on the Corporations holding of various
investment securities (including a $2.0 million write-down
on a trust preferred debt security, a $0.4 million
write-down on a non-agency mortgage-related security, and a
$0.5 million write-down on various equity securities).
Investment securities losses of $52.5 million for 2008 were
attributable to
other-than-temporary
write-downs on the
95
Corporations holdings of various investment securities
(including a $31.1 million write-down on a non-agency
mortgage-related security, a $13.2 million write-down on
FHLMC and FNMA preferred stocks, a $6.8 million write-down
on trust preferred debt securities pools, and a
$1.4 million write-down on common equity securities). For
2007, the Corporation recognized gross gains of
$9.1 million on sales of equity securities and a
$0.9 million
other-than-temporary
write-down on an equity security.
Total proceeds and gross realized gains and losses from sales
and write-downs of investment securities available for sale
(with
other-than-temporary
write-downs on securities included in gross losses) for each of
the three years ended December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Gross gains
|
|
$
|
14,597
|
|
|
$
|
5
|
|
|
$
|
9,081
|
|
Gross losses
|
|
|
(5,823
|
)
|
|
|
(52,546
|
)
|
|
|
(907
|
)
|
|
|
|
|
|
|
Investment securities gains (losses), net
|
|
$
|
8,774
|
|
|
$
|
(52,541
|
)
|
|
$
|
8,174
|
|
Proceeds from sales of investment securities available for sale
|
|
|
690,762
|
|
|
|
3,550
|
|
|
|
66,239
|
|
Pledged securities with a carrying value of approximately
$2.3 billion and $3.4 billion at December 31,
2009, and December 31, 2008, respectively, were pledged to
secure certain deposits, FHLB advances, or for other purposes as
required or permitted by law.
The following represents gross unrealized losses and the related
fair value of investment securities available for sale,
aggregated by investment category and length of time individual
securities have been in a continuous unrealized loss position,
at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
|
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury securities
|
|
$
|
(28
|
)
|
|
$
|
2,871
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(28
|
)
|
|
$
|
2,871
|
|
Federal agency securities
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
46
|
|
|
|
(1
|
)
|
|
|
46
|
|
Obligations of state and political subdivisions (municipal
securities)
|
|
|
(593
|
)
|
|
|
45,388
|
|
|
|
(313
|
)
|
|
|
8,334
|
|
|
|
(906
|
)
|
|
|
53,722
|
|
Residential mortgage-related securities
|
|
|
(10,507
|
)
|
|
|
184,069
|
|
|
|
(2,783
|
)
|
|
|
41,663
|
|
|
|
(13,290
|
)
|
|
|
225,732
|
|
Other securities (debt and equity)
|
|
|
(1,661
|
)
|
|
|
4,410
|
|
|
|
|
|
|
|
|
|
|
|
(1,661
|
)
|
|
|
4,410
|
|
|
|
|
|
|
|
Total
|
|
$
|
(12,789
|
)
|
|
$
|
236,738
|
|
|
$
|
(3,097
|
)
|
|
$
|
50,043
|
|
|
$
|
(15,886
|
)
|
|
$
|
286,781
|
|
|
|
|
|
|
|
The Corporation reviews the investment securities portfolio on a
quarterly basis to monitor its exposure to
other-than-temporary
impairment that may result due to the current adverse economic
conditions. A determination as to whether a securitys
decline in market value is
other-than-temporary
takes into consideration numerous factors and the relative
significance of any single factor can vary by security. Some
factors the Corporation may consider in the
other-than-temporary
impairment analysis include, the length of time the security has
been in an unrealized loss position, changes in security
ratings, financial condition of the issuer, as well as security
and industry specific economic conditions. In addition, with
regards to its debt securities, the Corporation may also
evaluate payment structure, whether there are defaulted payments
or expected defaults, prepayment speeds, and the value of any
underlying collateral. For certain debt securities in unrealized
loss positions, the Corporation prepares cash flow analyses to
compare the present value of cash flows expected to be collected
from the security with the amortized cost basis of the security.
Based on the Corporations evaluation, management does not
believe any remaining unrealized loss at December 31, 2009,
represents an
other-than-temporary
impairment as these unrealized losses are primarily attributable
to changes in interest rates and the current volatile market
conditions, and not credit deterioration. At December 31,
96
2009, the number of investment securities in an unrealized loss
position for less than 12 months for municipal and
mortgage-related securities was 79 and 15, respectively. For
investment securities in an unrealized loss position for
12 months or more, the number of individual securities in
the municipal and mortgage-related categories was 21 and 34,
respectively. The unrealized losses reported for
mortgage-related securities relate to non-agency
mortgage-related securities as well as mortgage-related
securities issued by government agencies such as the Federal
National Mortgage Association (FNMA) and the Federal
Home Loan Mortgage Corporation (FHLMC). The
Corporation currently does not intend to sell nor does it
believe that it will be required to sell the securities
contained in the above unrealized losses table before recovery
of their amortized cost basis.
The following is a summary of the credit loss portion of
other-than-temporary
impairment recognized in earnings on debt securities during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency
|
|
|
|
|
|
|
|
|
|
Mortgage-Related
|
|
|
Trust Preferred
|
|
|
|
|
|
|
Securities
|
|
|
Debt Securities
|
|
|
Total
|
|
|
|
|
|
|
|
$ in Thousands
|
|
|
Balance of credit-related
other-than-temporary
impairment at April 1, 2009
|
|
$
|
(16,445
|
)
|
|
$
|
(5,027
|
)
|
|
$
|
(21,472
|
)
|
Adjustment for change in cash flows
|
|
|
306
|
|
|
|
|
|
|
|
306
|
|
Credit losses on newly identified impairment
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
Balance of credit-related
other-than-temporary
impairment at June 30, 2009
|
|
$
|
(16,139
|
)
|
|
$
|
(6,027
|
)
|
|
$
|
(22,166
|
)
|
Adjustment for change in cash flows
|
|
|
172
|
|
|
|
|
|
|
|
172
|
|
Credit losses on newly identified impairment
|
|
|
(200
|
)
|
|
|
(900
|
)
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
Balance of credit-related
other-than-temporary
impairment at September 30, 2009
|
|
$
|
(16,167
|
)
|
|
$
|
(6,927
|
)
|
|
$
|
(23,094
|
)
|
Adjustment for change in cash flows
|
|
|
199
|
|
|
|
|
|
|
|
199
|
|
Credit losses on newly identified impairment
|
|
|
(246
|
)
|
|
|
(100
|
)
|
|
|
(346
|
)
|
|
|
|
|
|
|
Balance of credit-related
other-than-temporary
impairment at December 31, 2009
|
|
$
|
(16,214
|
)
|
|
$
|
(7,027
|
)
|
|
$
|
(23,241
|
)
|
|
|
|
|
|
|
For comparative purposes, the following represents gross
unrealized losses and the related fair value of investment
securities available for sale, aggregated by investment category
and length of time that individual securities have been in a
continuous unrealized loss position, at December 31, 2008,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
|
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury securities
|
|
$
|
(29
|
)
|
|
$
|
3,960
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
$
|
3,960
|
|
Federal agency securities
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
52
|
|
|
|
(1
|
)
|
|
|
52
|
|
Obligations of state and political subdivisions (municipal
securities)
|
|
|
(3,645
|
)
|
|
|
128,571
|
|
|
|
(549
|
)
|
|
|
21,752
|
|
|
|
(4,194
|
)
|
|
|
150,323
|
|
Residential mortgage-related securities
|
|
|
(2,240
|
)
|
|
|
268,626
|
|
|
|
(7,241
|
)
|
|
|
140,021
|
|
|
|
(9,481
|
)
|
|
|
408,647
|
|
Other securities (debt and equity)
|
|
|
(445
|
)
|
|
|
3,798
|
|
|
|
(62
|
)
|
|
|
206
|
|
|
|
(507
|
)
|
|
|
4,004
|
|
|
|
|
|
|
|
Total
|
|
$
|
(6,359
|
)
|
|
$
|
404,955
|
|
|
$
|
(7,853
|
)
|
|
$
|
162,031
|
|
|
$
|
(14,212
|
)
|
|
$
|
566,986
|
|
|
|
|
|
|
|
97
Federal Home Loan Bank (FHLB) and Federal Reserve
Bank Stocks: At December 31, 2009, the Corporation had FHLB
stock of $121.1 million and Federal Reserve Bank stock of
$60.2 million, compared to FHLB stock of
$145.9 million and Federal Reserve Bank stock of
$60.1 million at December 31, 2008. During 2009, the
Corporation redeemed $24.9 million of FHLB stock at par.
The Corporation is required to maintain Federal Reserve stock
and FHLB stock as a member of both the Federal Reserve System
and the FHLB, and in amounts as required by these institutions.
These equity securities are restricted in that they
can only be sold back to the respective institutions or another
member institution at par. Therefore, they are less liquid than
other marketable equity securities and their fair value is equal
to amortized cost. During 2009, the Corporation reviewed these
securities for impairment, including but not limited to,
consideration of operating performance, the severity and
duration of market value declines, as well as its liquidity and
funding position. After evaluating all of these considerations,
the Corporation believes the cost of these investments will be
recovered and no impairment has been recorded on these
securities during 2009, 2008, or 2007.
Loans at December 31 are summarized below.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Commercial, financial, and agricultural
|
|
$
|
3,450,632
|
|
|
$
|
4,388,691
|
|
Commercial real estate
|
|
|
3,817,066
|
|
|
|
3,566,551
|
|
Real estate construction
|
|
|
1,397,493
|
|
|
|
2,260,888
|
|
Lease financing
|
|
|
95,851
|
|
|
|
122,113
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
8,761,042
|
|
|
|
10,338,243
|
|
Home equity
|
|
|
2,546,167
|
|
|
|
2,883,317
|
|
Installment
|
|
|
873,568
|
|
|
|
827,303
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
3,419,735
|
|
|
|
3,710,620
|
|
Residential mortgage
|
|
|
1,947,848
|
|
|
|
2,235,045
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
14,128,625
|
|
|
$
|
16,283,908
|
|
|
|
|
|
|
|
|
|
|
A summary of the changes in the allowance for loan losses for
the years indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in Thousands)
|
|
|
Balance at beginning of year
|
|
$
|
265,378
|
|
|
$
|
200,570
|
|
|
$
|
203,481
|
|
Balance related to acquisition
|
|
|
|
|
|
|
|
|
|
|
2,991
|
|
Provision for loan losses
|
|
|
750,645
|
|
|
|
202,058
|
|
|
|
34,509
|
|
Charge offs
|
|
|
(452,206
|
)
|
|
|
(145,826
|
)
|
|
|
(47,249
|
)
|
Recoveries
|
|
|
9,716
|
|
|
|
8,576
|
|
|
|
6,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge offs
|
|
|
(442,490
|
)
|
|
|
(137,250
|
)
|
|
|
(40,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
573,533
|
|
|
$
|
265,378
|
|
|
$
|
200,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents nonperforming loans at December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Nonaccrual loans
|
|
$
|
1,077,799
|
|
|
$
|
326,857
|
|
Accruing loans past due 90 days or more
|
|
|
24,981
|
|
|
|
13,811
|
|
Restructured loans
|
|
|
19,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
$
|
1,121,817
|
|
|
$
|
340,668
|
|
|
|
|
|
|
|
|
|
|
98
Management has determined that specific commercial and consumer
loan relationships that have nonaccrual status or have had their
terms restructured in a troubled debt restructuring are impaired
loans. The following table presents data on impaired loans at
December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Impaired loans for which a valuation allowance has been provided
|
|
$
|
434,240
|
|
|
$
|
120,830
|
|
Impaired loans for which no valuation allowance has been provided
|
|
|
473,946
|
|
|
|
152,324
|
|
|
|
|
|
|
|
|
|
|
Total loans determined to be impaired
|
|
$
|
908,186
|
|
|
$
|
273,154
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses related to impaired loans
|
|
$
|
141,677
|
|
|
$
|
51,511
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the Corporation had recognized
charge offs of $61.6 million on impaired loans for which a
valuation allowance has been provided and charge offs of
$182.6 million on impaired loans for which no valuation
allowance has been provided, resulting in a ratio of allowance
for loan losses and charge offs on impaired loans to total loans
determined to be impaired (including charge offs) of 67%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in Thousands)
|
|
|
For the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average recorded investment in impaired loans
|
|
$
|
542,574
|
|
|
$
|
204,054
|
|
|
$
|
126,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash basis interest income recognized from impaired loans
|
|
$
|
30,661
|
|
|
$
|
12,093
|
|
|
$
|
4,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation has granted loans to their directors, executive
officers, or their related interests. These loans were made on
substantially the same terms, including rates and collateral, as
those prevailing at the time for comparable transactions with
other unrelated customers, and do not involve more than a normal
risk of collection. These loans to related parties are
summarized as follows:
|
|
|
|
|
|
|
2009
|
|
|
|
($ in Thousands)
|
|
|
Balance at beginning of year
|
|
$
|
57,869
|
|
New loans
|
|
|
43,320
|
|
Repayments
|
|
|
(48,306
|
)
|
Changes due to status of executive officers and directors
|
|
|
(4,396
|
)
|
|
|
|
|
|
Balance at end of year
|
|
$
|
48,487
|
|
|
|
|
|
|
The Corporation serves the credit needs of its customers by
offering a wide variety of loan programs to customers, primarily
in our core footprint. The loan portfolio is widely diversified
by types of borrowers, industry groups, and market areas.
Significant loan concentrations are considered to exist for a
financial institution when there are amounts loaned to multiple
numbers of borrowers engaged in similar activities that would
cause them to be similarly impacted by economic or other
conditions. At December 31, 2009, no significant
concentrations existed in the Corporations loan portfolio
in excess of 10% of total loans. However, the Corporation has
several areas of larger exposures (less than 10% of total loans)
which are being closely monitored, such as $988 million of
Shared National Credits, $626 million of residential and
land development loans, and $137 million of broker
generated home equity loans.
|
|
NOTE 5
|
GOODWILL
AND INTANGIBLE ASSETS:
|
Goodwill: Goodwill is not amortized but, instead, is
subject to impairment tests on at least an annual basis.
Consistent with prior years, the Corporation has elected to
conduct its annual impairment testing in May. Due to changes in
the business climate and the resulting decline in financial
services stock prices, during 2009, management also completed
interim reviews of goodwill, including a review as of
December 31, 2009. These interim reviews of goodwill
indicated that the carrying value (including goodwill) of the
banking segment exceeded its estimated fair value. Therefore, a
step two analysis was performed for this segment, which
indicated that the implied fair value of the goodwill of the
banking segment exceeded the carrying value (including
goodwill). Therefore, no impairment charge was recorded. There
99
were no impairment charges recorded in 2009, 2008, or 2007.
However, market valuations of financial services companies
remain depressed relative to book values due to continuing
uncertainty. As a result, management believes it may be
necessary to continue to evaluate goodwill for impairment on a
quarterly basis depending upon current market conditions,
results of operations, and other factors. It is possible that a
future conclusion could be reached that all or a portion of the
Corporations goodwill may be impaired, in which case a
non-cash charge for the amount of such impairment would be
recorded in earnings. Such a charge, if any, would have no
impact on tangible capital and would not affect the
Corporations well-capitalized designation.
At December 31, 2009, goodwill of $907 million is
assigned to the banking segment and goodwill of $22 million
is assigned to the wealth management segment. The
$58 million increase to goodwill during 2007 was
attributable to the June 2007 acquisition of First National
Bank. The change in the carrying amount of goodwill was as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in Thousands)
|
|
|
Balance at beginning of year
|
|
$
|
929,168
|
|
|
$
|
929,168
|
|
|
$
|
871,629
|
|
Goodwill acquired, net of adjustments
|
|
|
|
|
|
|
|
|
|
|
57,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
929,168
|
|
|
$
|
929,168
|
|
|
$
|
929,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets: The Corporation has other
intangible assets that are amortized, consisting of core deposit
intangibles, other intangibles (primarily related to customer
relationships acquired in connection with the Corporations
insurance agency acquisitions), and mortgage servicing rights.
The core deposit intangibles and mortgage servicing rights are
assigned to the Corporations banking segment, while the
other intangibles are assigned to the wealth management segment
as of December 31, 2009.
For core deposit intangibles and other intangibles, changes in
the gross carrying amount, accumulated amortization, and net
book value were as follows. The $0.2 million deduction
during 2008 was attributable to the write-off of unamortized
customer list intangible related to the sale of third party
administration business contracts. The $4 million increase
to core deposit intangibles during 2007 was attributable to the
June 2007 acquisition of First National Bank, while the
$1 million increase to other intangibles was attributable
to the value of check processing contracts purchased in June
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in Thousands)
|
|
|
Core deposit intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
47,748
|
|
|
$
|
47,748
|
|
|
$
|
47,748
|
|
Accumulated amortization
|
|
|
(29,288
|
)
|
|
|
(25,165
|
)
|
|
|
(20,580
|
)
|
|
|
|
|
|
|
Net book value
|
|
$
|
18,460
|
|
|
$
|
22,583
|
|
|
$
|
27,168
|
|
|
|
|
|
|
|
Additions during the year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,385
|
|
Amortization during the year
|
|
|
4,123
|
|
|
|
4,585
|
|
|
|
4,882
|
|
Other intangibles:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
20,433
|
|
|
$
|
20,433
|
|
|
$
|
22,370
|
|
Accumulated amortization
|
|
|
(9,839
|
)
|
|
|
(8,419
|
)
|
|
|
(8,505
|
)
|
|
|
|
|
|
|
Net book value
|
|
$
|
10,594
|
|
|
$
|
12,014
|
|
|
$
|
13,865
|
|
|
|
|
|
|
|
Additions during the year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,150
|
|
Deductions during the year
|
|
|
|
|
|
|
167
|
|
|
|
|
|
Amortization during the year
|
|
|
1,420
|
|
|
|
1,684
|
|
|
|
2,234
|
|
|
|
|
(1)
|
|
Other intangibles of
$1.8 million were fully amortized during 2007 and have been
removed from both the gross carrying amount and the accumulated
amortization for 2008.
|
The Corporation sells residential mortgage loans in the
secondary market and typically retains the right to service the
loans sold. Upon sale, a mortgage servicing rights asset is
capitalized, which represents the then current fair value of
future net cash flows expected to be realized for performing
servicing activities. Mortgage servicing rights,
100
when purchased, are initially recorded at fair value. As the
Corporation has not elected to subsequently measure any class of
servicing assets under the fair value measurement method, the
Corporation follows the amortization method. Mortgage servicing
rights are amortized in proportion to and over the period of
estimated net servicing income, and assessed for impairment at
each reporting date. Mortgage servicing rights are carried at
the lower of the initial capitalized amount, net of accumulated
amortization, or estimated fair value, and are included in other
intangible assets, net in the consolidated balance sheets.
The Corporation periodically evaluates its mortgage servicing
rights asset for impairment. Impairment is assessed based on
fair value at each reporting date using estimated prepayment
speeds of the underlying mortgage loans serviced and
stratifications based on the risk characteristics of the
underlying loans (predominantly loan type and note interest
rate). As mortgage interest rates rise, prepayment speeds are
usually slower and the value of the mortgage servicing rights
asset generally increases, requiring less valuation reserve.
Conversely, as mortgage interest rates fall, prepayment speeds
are usually faster and the value of the mortgage servicing
rights asset generally decreases, requiring additional valuation
reserve. A valuation allowance is established, through a charge
to earnings, to the extent the amortized cost of the mortgage
servicing rights exceeds the estimated fair value by
stratification. If it is later determined that all or a portion
of the temporary impairment no longer exists for a
stratification, the valuation is reduced through a recovery to
earnings. An
other-than-temporary
impairment (i.e., recoverability is considered remote when
considering interest rates and loan pay off activity) is
recognized as a write-down of the mortgage servicing rights
asset and the related valuation allowance (to the extent a
valuation allowance is available) and then against earnings. A
direct write-down permanently reduces the carrying value of the
mortgage servicing rights asset and valuation allowance,
precluding subsequent recoveries. See Note 17 which further
discusses fair value measurement relative to the mortgage
servicing rights asset.
Mortgage servicing rights expense is a component of mortgage
banking, net, in the consolidated statements of income (loss).
The $26.4 million mortgage servicing rights expense for
2009 was comprised of $19.6 million of base amortization
and a $6.8 million addition to the valuation allowance. For
2008, the $22.9 million mortgage servicing rights expense
included $16.1 million base amortization and a
$6.8 million addition to the valuation allowance, while for
2007 the $16.7 million mortgage servicing rights expense
was comprised of base amortization of $18.1 million, net of
a $1.4 million recovery to the valuation allowance.
A summary of changes in the balance of the mortgage servicing
rights asset and the mortgage servicing rights valuation
allowance was as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in Thousands)
|
|
|
Mortgage servicing rights at beginning of year
|
|
$
|
56,025
|
|
|
$
|
54,819
|
|
|
$
|
71,694
|
|
Additions(1)
|
|
|
44,580
|
|
|
|
17,263
|
|
|
|
19,553
|
|
Sale of servicing(2)
|
|
|
|
|
|
|
|
|
|
|
(18,269
|
)
|
Amortization
|
|
|
(19,619
|
)
|
|
|
(16,057
|
)
|
|
|
(18,067
|
)
|
Other-than-temporary
impairment
|
|
|
|
|
|
|
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
Mortgage servicing rights at end of year
|
|
$
|
80,986
|
|
|
$
|
56,025
|
|
|
$
|
54,819
|
|
|
|
|
|
|
|
Valuation allowance at beginning of year
|
|
|
(10,457
|
)
|
|
|
(3,632
|
)
|
|
|
(5,074
|
)
|
(Additions) / Recoveries, net
|
|
|
(6,776
|
)
|
|
|
(6,825
|
)
|
|
|
1,350
|
|
Other-than-temporary
impairment
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
Valuation allowance at end of year
|
|
|
(17,233
|
)
|
|
|
(10,457
|
)
|
|
|
(3,632
|
)
|
|
|
|
|
|
|
Mortgage servicing rights, net
|
|
$
|
63,753
|
|
|
$
|
45,568
|
|
|
$
|
51,187
|
|
|
|
|
|
|
|
Fair value of Mortgage servicing rights
|
|
$
|
66,710
|
|
|
$
|
52,882
|
|
|
$
|
62,815
|
|
Portfolio of residential mortgage loans serviced for others
(2)(3)
|
|
$
|
7,667,000
|
|
|
$
|
6,606,000
|
|
|
$
|
6,403,000
|
|
Mortgage servicing rights, net to Portfolio of residential
mortgage loans serviced for others
|
|
|
0.83
|
%
|
|
|
0.69
|
%
|
|
|
0.80
|
%
|
Mortgage servicing rights expense(4)
|
|
$
|
26,395
|
|
|
$
|
22,882
|
|
|
$
|
16,717
|
|
101
|
|
|
(1)
|
|
Included in the December 31,
2007, additions to mortgage servicing rights was
$2.4 million from First National Bank at acquisition.
|
|
(2)
|
|
In 2007, the Corporation sold
approximately $2.7 billion of its mortgage portfolio
serviced for others with a carrying value of $18.3 million
at an $8.6 million gain, which is included in mortgage
banking, net in the consolidated statements of income (loss).
|
|
(3)
|
|
Included in the December 31,
2007, portfolio of residential mortgage loans serviced for
others was $0.3 billion from First National Bank at
acquisition.
|
|
(4)
|
|
Includes the amortization of
mortgage servicing rights and additions/recoveries to the
valuation allowance of mortgage servicing rights, and is a
component of mortgage banking, net in the consolidated
statements of income (loss).
|
The following table shows the estimated future amortization
expense for amortizing intangible assets. The projections of
amortization expense for the next five years are based on
existing asset balances, the current interest rate environment,
and prepayment speeds as of December 31, 2009. The actual
amortization expense the Corporation recognizes in any given
period may be significantly different depending upon acquisition
or sale activities, changes in interest rates, prepayment
speeds, market conditions, regulatory requirements, and events
or circumstances that indicate the carrying amount of an asset
may not be recoverable.
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense
|
|
Core Deposit Intangibles
|
|
|
Other Intangibles
|
|
|
Mortgage Servicing Rights
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
Year ending December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
3,700
|
|
|
$
|
1,200
|
|
|
$
|
20,100
|
|
2011
|
|
|
3,700
|
|
|
|
1,000
|
|
|
|
16,700
|
|
2012
|
|
|
3,200
|
|
|
|
1,000
|
|
|
|
13,200
|
|
2013
|
|
|
3,100
|
|
|
|
900
|
|
|
|
10,300
|
|
2014
|
|
|
2,900
|
|
|
|
900
|
|
|
|
7,800
|
|
|
|
|
|
|
|
|
|
NOTE 6
|
PREMISES
AND EQUIPMENT:
|
A summary of premises and equipment at December 31 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
Net Book
|
|
|
|
Useful Lives
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
Value
|
|
|
|
($ in Thousands)
|
|
|
Land
|
|
|
|
|
|
$
|
43,770
|
|
|
$
|
|
|
|
$
|
43,770
|
|
|
$
|
44,554
|
|
Land improvements
|
|
|
3 20 years
|
|
|
|
4,983
|
|
|
|
2,619
|
|
|
|
2,364
|
|
|
|
2,444
|
|
Buildings
|
|
|
5 40 years
|
|
|
|
198,676
|
|
|
|
100,105
|
|
|
|
98,571
|
|
|
|
100,466
|
|
Computers
|
|
|
3 5 years
|
|
|
|
37,280
|
|
|
|
29,741
|
|
|
|
7,539
|
|
|
|
7,437
|
|
Furniture, fixtures and other equipment
|
|
|
3 20 years
|
|
|
|
120,381
|
|
|
|
93,294
|
|
|
|
27,087
|
|
|
|
28,789
|
|
Leasehold improvements
|
|
|
5 30 years
|
|
|
|
26,607
|
|
|
|
19,374
|
|
|
|
7,233
|
|
|
|
7,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premises and equipment
|
|
|
|
|
|
$
|
431,697
|
|
|
$
|
245,133
|
|
|
$
|
186,564
|
|
|
$
|
190,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of premises and equipment totaled
$21.8 million in 2009, $22.3 million in 2008, and
$21.7 million in 2007.
The Corporation and certain subsidiaries are obligated under
noncancelable operating leases for other facilities and
equipment, certain of which provide for increased rentals based
upon increases in cost of living adjustments and
102
other operating costs. The approximate minimum annual rentals
and commitments under these noncancelable agreements and leases
with remaining terms in excess of one year are as follows:
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
2010
|
|
$
|
11,587
|
|
2011
|
|
|
10,587
|
|
2012
|
|
|
9,093
|
|
2013
|
|
|
7,349
|
|
2014
|
|
|
5,629
|
|
Thereafter
|
|
|
15,845
|
|
|
|
|
|
|
Total
|
|
$
|
60,090
|
|
|
|
|
|
|
Total rental expense under leases, net of sublease income,
totaled $13.2 million in 2009, $16.8 million in 2008,
and $16.0 million in 2007.
The distribution of deposits at December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Noninterest-bearing demand deposits
|
|
$
|
3,274,973
|
|
|
$
|
2,814,079
|
|
Savings deposits
|
|
|
845,509
|
|
|
|
841,129
|
|
Interest-bearing demand deposits
|
|
|
3,099,358
|
|
|
|
1,796,405
|
|
Money market deposits
|
|
|
5,806,661
|
|
|
|
4,926,088
|
|
Brokered certificates of deposit
|
|
|
141,968
|
|
|
|
789,536
|
|
Other time deposits
|
|
|
3,560,144
|
|
|
|
3,987,559
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
16,728,613
|
|
|
$
|
15,154,796
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more were $1.3 billion and
$1.6 billion at December 31, 2009 and 2008,
respectively.
Aggregate annual maturities of all time deposits at
December 31, 2009, are as follows:
|
|
|
|
|
Maturities During Year Ending December 31,
|
|
($ in Thousands)
|
|
|
2010
|
|
$
|
2,884,358
|
|
2011
|
|
|
357,051
|
|
2012
|
|
|
348,067
|
|
2013
|
|
|
76,471
|
|
2014
|
|
|
35,922
|
|
Thereafter
|
|
|
243
|
|
|
|
|
|
|
Total
|
|
$
|
3,702,112
|
|
|
|
|
|
|
103
|
|
NOTE 8
|
SHORT-TERM
BORROWINGS:
|
Short-term borrowings at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
$
|
598,488
|
|
|
$
|
1,590,738
|
|
Federal Reserve Term Auction Facility
|
|
|
600,000
|
|
|
|
500,000
|
|
FHLB advances
|
|
|
|
|
|
|
1,600,000
|
|
Treasury, tax, and loan notes
|
|
|
28,365
|
|
|
|
13,198
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
$
|
1,226,853
|
|
|
$
|
3,703,936
|
|
|
|
|
|
|
|
The FHLB advances included in short-term borrowings are those
with original contractual maturities of less than one year,
while the Federal Reserve funds represent short-term borrowings
through the Term Auction Facility. The treasury, tax, and loan
notes are demand notes representing secured borrowings from the
U.S. Treasury, collateralized by qualifying securities and
loans.
|
|
NOTE 9
|
LONG-TERM
FUNDING:
|
Long-term funding (funding with original contractual maturities
greater than one year) at December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Federal Home Loan Bank (FHLB) advances
|
|
$
|
1,010,576
|
|
|
$
|
1,118,140
|
|
Repurchase agreements
|
|
|
500,000
|
|
|
|
300,000
|
|
Subordinated debt, net
|
|
|
225,247
|
|
|
|
225,058
|
|
Junior subordinated debentures, net
|
|
|
216,069
|
|
|
|
216,291
|
|
Other borrowed funds
|
|
|
2,106
|
|
|
|
2,158
|
|
|
|
|
|
|
|
Total long-term funding
|
|
$
|
1,953,998
|
|
|
$
|
1,861,647
|
|
|
|
|
|
|
|
FHLB advances: At December 31, 2009, long-term
advances from the FHLB had maturities through 2020 and had
weighted-average interest rates of 2.22% and 3.53% at
December 31, 2009, and 2008, respectively. These advances
had a combination of fixed and variable contractual rates, of
which 100% and 73% were fixed rate at December 31, 2009,
and 2008, respectively. In September 2007, the Corporation
entered into an interest rate swap to hedge the interest rate
risk in the cash flows of a $200 million variable rate,
long-term FHLB advance. The $200 million variable rate,
long-term FHLB advance and the related interest rate swap
matured in June 2009. The fair value of the derivative was a
$3.2 million loss at December 31, 2008.
Repurchase agreements: The long-term repurchase
agreements had maturities through 2011 and had weighted-average
interest rates of 2.60% at December 31, 2009, and 3.27% at
December 31, 2008. These repurchase agreements were 20% and
33% variable rate at December 31, 2009 and 2008,
respectively.
Subordinated debt: In September 2008, the
Corporation issued $26 million of
10-year
subordinated debt with a
5-year
no-call provision, and in August 2001, the Corporation issued
$200 million of
10-year
subordinated debt. The subordinated notes were each issued at a
discount, and the September 2008 debt has a fixed coupon
interest rate of 9.25%, while the August 2001 debt has a fixed
coupon interest rate of 6.75%. Subordinated debt qualifies under
the risk-based capital guidelines as Tier 2 supplementary
capital for regulatory purposes, and is discounted in accordance
with regulations when the debt has five years or less remaining
to maturity.
Junior subordinated debentures: The Corporation has
$180.4 million of junior subordinated debentures
(ASBC Debentures), which carry a fixed rate of
7.625% and mature on June 15, 2032. Beginning May 30,
2007, the Corporation has had the right to redeem the ASBC
Debentures, at par, and none were redeemed during 2009 and 2008.
During 2002, the Corporation entered into interest rate swaps to
hedge the interest rate risk on the ASBC Debentures. These
interest rate swaps were called during the first quarter of
2008. Accordingly, the fair value of the
104
derivative was zero at December 31, 2008 (as the swaps were
terminated), and the $0.8 million fair value gain on the
debt at the time the swaps were terminated is being amortized to
interest expense over the remaining life of the debt. The
carrying value of the ASBC Debentures was $179.7 million at
December 31, 2009 and $179.6 million at
December 31, 2008. With its October 2005 acquisition, the
Corporation acquired variable rate junior subordinated
debentures at a premium (the SFSC Debentures), from
two equal issuances (contractually $30.9 million on a
combined basis), of which one pays a variable rate adjusted
quarterly based on the
90-day LIBOR
plus 2.80% (or 3.08% at December 31, 2009) and matures
April 23, 2034, and the other which pays a variable rate
adjusted quarterly based on the
90-day LIBOR
plus 3.45% (or 3.72% at December 31, 2009) and matures
November 7, 2032. The Corporation has the right to redeem
the SFSC Debentures, at par, on a quarterly basis and none were
redeemed during 2009 and 2008. The carrying value of the SFSC
Debentures was $36.4 million at December 31, 2009 and
$36.7 million at December 31, 2008.
The table below summarizes the maturities of the
Corporations long-term funding at December 31, 2009:
|
|
|
|
|
Year
|
|
($ in Thousands)
|
|
|
2010
|
|
$
|
710,000
|
|
2011
|
|
|
899,762
|
|
2012
|
|
|
100,075
|
|
2013
|
|
|
70
|
|
2014
|
|
|
24
|
|
Thereafter
|
|
|
244,067
|
|
|
|
|
|
|
Total long-term funding
|
|
$
|
1,953,998
|
|
|
|
|
|
|
Under agreements with the Federal Home Loan Bank of Chicago,
FHLB advances (short-term and long-term) are secured by
qualifying mortgages of the subsidiary bank (such as residential
mortgage, residential mortgage loans held for sale, home equity,
and commercial real estate) and by specific investment
securities for certain FHLB advances. At December 31, 2009,
approximately $2.2 billion and $1.0 billion of
residential mortgage and home equity loans, respectively, were
pledged to the FHLB.
|
|
NOTE 10
|
STOCKHOLDERS
EQUITY:
|
Subsequent Event: On January 15, 2010, the
Corporation announced it had closed its underwritten public
offering of 44,843,049 shares of its common stock at $11.15
per share. The net proceeds from the offering were approximately
$478.3 million after deducting underwriting discounts and
commissions and the estimated expenses of the offering. The
Corporation intends to use the net proceeds of this offering,
which will qualify as tangible common equity and Tier 1
capital, to support continued growth and for working capital and
other general corporate purposes.
Preferred Equity: The Corporations Articles of
Incorporation, as amended, authorize the issuance of
750,000 shares of preferred stock at a par value of $1.00
per share. In November 2008, under the CPP, the Corporation
issued 525,000 shares of senior preferred stock (with a par
value of $1.00 per share and a liquidation preference of $1,000
per share) and a
10-year
warrant to purchase approximately 4.0 million shares of
common stock (see section Common Stock Warrants
below for additional information), for aggregate proceeds of
$525 million. The proceeds received were allocated between
the Senior Preferred Stock and the Common Stock Warrants based
upon their relative fair values, which resulted in the recording
of a discount on the Senior Preferred Stock upon issuance that
reflects the value allocated to the Common Stock Warrants. The
discount will be accreted using a level-yield basis over five
years. Upon issuance, the fair values of the Preferred Stock and
Common Stock Warrants (discussed below) were computed as if the
securities were issued on a stand-alone basis. The fair value of
the Preferred Stock was estimated based on the net present value
of the future Preferred Stock cash flows using a discount rate
of 12%. The allocated carrying value of the Senior Preferred
Stock and Common Stock Warrants on the date of issuance (based
on their relative fair values) were $507.7 million and
$17.3 million, respectively. Cumulative dividends on the
Senior Preferred Stock are payable at 5% per annum for the first
five years and at a rate of 9% per annum thereafter on the
liquidation preference of $1,000 per share. The Corporation is
prohibited from paying any dividend with respect to shares of
common stock unless all accrued and unpaid dividends are paid in
full on the Senior Preferred Stock for all past dividend
periods. The Senior Preferred Stock is non-voting, other than
105
class voting rights on matters that could adversely affect the
Senior Preferred Stock. The Senior Preferred Stock is callable
at par after three years. Prior to the end of three years, the
Senior Preferred Stock may be redeemed with the proceeds from
one or more qualified equity offerings of any Tier 1
perpetual preferred or common stock of at least
$131 million (each a Qualified Equity
Offering). The UST may also transfer the Senior Preferred
Stock to a third party at any time.
Common Stock Warrants: The Common Stock Warrants
have a term of 10 years and are exercisable at any time, in
whole or in part, at an exercise price of $19.77 per share
(subject to certain anti-dilution adjustments). The UST may not
exercise or transfer the Common Stock Warrants with respect to
more than half of the initial shares of common stock underlying
the common stock warrants prior to the earlier of (a) the
date on which the Corporation receives aggregate gross proceeds
of not less than $525 million from one or more Qualified
Equity Offerings, and (b) December 31, 2009. The
number of shares of common stock to be delivered upon settlement
of the Common Stock Warrants will be reduced by 50% if the
Corporation receives aggregate gross proceeds of at least
$525 million from one or more Qualified Equity Offerings
prior to December 31, 2009.
Upon issuance, the fair values of the Preferred Stock (discussed
above) and Common Stock Warrants were computed as if the
securities were issued on a stand-alone basis. The fair value of
the Common Stock Warrants was estimated using a Black-Scholes
option pricing model, which incorporates the following
assumptions: weighted average life, risk-free interest rate,
stock price volatility, and dividend yield. The weighted average
expected life of the Common Stock Warrants represents the period
of time that common stock warrants are expected to be
outstanding (consistent with the term of the Common Stock
Warrants). The risk-free interest rate was based on the
U.S. Treasury yield curve in effect at the time of grant.
The expected volatility was based on the historical volatility
of the Corporations stock. The following assumptions were
used in estimating the fair value for the Common Stock Warrants:
a weighted average expected life of 10 years, a risk-free
interest rate of 3.14%, an expected volatility of 32.28%, and a
dividend yield of 5%. Based on these assumptions, the estimated
fair value of the Common Stock Warrants was $2.70 per warrant.
Subsidiary Equity: At December 31, 2009,
subsidiary equity equaled $2.9 billion, of which
approximately $37 million could be paid to the Parent
Company in the form of cash dividends without prior regulatory
approval, subject to the capital needs of each subsidiary. See
Note 18 for additional information on regulatory
requirements for the Bank.
Stock Repurchases: The Board of Directors has
authorized management to repurchase shares of the
Corporations common stock to be made available for
re-issuance in connection with the Corporations employee
incentive plans
and/or for
other corporate purposes. For the Corporations employee
incentive plans, the Board of Directors authorized the
repurchase of up to 2.0 million shares per quarter, while
under various actions, the Board of Directors authorized the
repurchase of shares, not to exceed specified amounts of the
Corporations outstanding shares per authorization
(block authorizations).
During 2009 and 2008, no shares were repurchased under the block
authorizations. At December 31, 2009, approximately
3.9 million shares remain authorized to repurchase under
the block authorizations. The repurchase of shares will be based
on market opportunities, capital levels, growth prospects, and
other investment opportunities, and is subject to the
restrictions under the CPP.
Under the CPP, prior to the third anniversary of the USTs
purchase of the Senior Preferred Stock (November 21, 2011),
unless the Senior Preferred Stock has been redeemed or the UST
has transferred all of the Senior Preferred Stock to third
parties, the consent of the UST will be required for us to
redeem, purchase or acquire any shares of our common stock or
other capital stock or other equity securities of any kind,
other than (i) redemptions, purchases or other acquisitions
of the Senior Preferred Stock; (ii) redemptions, purchases
or other acquisitions of shares of our common stock in
connection with the administration of any employee benefit plan
in the ordinary course of business and consistent with past
practice; and (iii) certain other redemptions, repurchases
or other acquisitions as permitted under the CPP.
106
Other Comprehensive Income: A summary of activity in
accumulated other comprehensive income follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in Thousands)
|
|
|
Net income (loss)
|
|
$
|
(131,859
|
)
|
|
$
|
168,452
|
|
|
$
|
285,752
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses)
|
|
|
113,014
|
|
|
|
(8,817
|
)
|
|
|
24,607
|
|
Reclassification adjustment for net (gains) losses realized in
net income
|
|
|
(8,774
|
)
|
|
|
52,541
|
|
|
|
(8,174
|
)
|
Accretion of investment securities with noncredit-related
impairment losses not expected to be sold
|
|
|
441
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(37,534
|
)
|
|
|
(16,559
|
)
|
|
|
(5,591
|
)
|
|
|
|
|
|
|
Other comprehensive income on investment securities available
for sale
|
|
|
67,147
|
|
|
|
27,165
|
|
|
|
10,842
|
|
Defined benefit pension and postretirement obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss)
|
|
|
2,239
|
|
|
|
(29,593
|
)
|
|
|
6,267
|
|
Prior service cost
|
|
|
|
|
|
|
|
|
|
|
(396
|
)
|
Amortization of prior service cost
|
|
|
467
|
|
|
|
472
|
|
|
|
442
|
|
Amortization of net loss
|
|
|
497
|
|
|
|
231
|
|
|
|
844
|
|
Income tax (expense) benefit
|
|
|
(1,236
|
)
|
|
|
11,556
|
|
|
|
(2,863
|
)
|
|
|
|
|
|
|
Other comprehensive income (loss) on pension and postretirement
obligations
|
|
|
1,967
|
|
|
|
(17,334
|
)
|
|
|
4,294
|
|
Derivatives used in cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses)
|
|
|
7,035
|
|
|
|
(16,679
|
)
|
|
|
(1,606
|
)
|
Reclassification adjustment for net (gains) losses and interest
expense for interest differential on derivative instruments
realized in net income
|
|
|
(309
|
)
|
|
|
4,343
|
|
|
|
(366
|
)
|
Income tax (expense) benefit
|
|
|
(2,718
|
)
|
|
|
5,058
|
|
|
|
791
|
|
|
|
|
|
|
|
Other comprehensive income (loss) on cash flow hedging
relationships
|
|
|
4,008
|
|
|
|
(7,278
|
)
|
|
|
(1,181
|
)
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
73,122
|
|
|
|
2,553
|
|
|
|
13,955
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(58,737
|
)
|
|
$
|
171,005
|
|
|
$
|
299,707
|
|
|
|
|
|
|
|
|
|
NOTE 11
|
STOCK-BASED
COMPENSATION:
|
At December 31, 2009, the Corporation had three stock-based
compensation plans (discussed below). All stock awards granted
under these plans have an exercise price that is established at
the closing price of the Corporations stock on the date
the awards were granted. The stock incentive plans of acquired
companies were terminated as to future option grants at each
respective merger date. Option holders under such plans received
the Corporations common stock, options to buy the
Corporations common stock, or cash, based on the
conversion terms of the various merger agreements.
The Corporation may issue common stock with restrictions to
certain key employees. The shares are restricted as to transfer,
but are not restricted as to dividend payment or voting rights.
The transfer restrictions lapse over one, two, three, or five
years, depending upon whether the awards are salary shares,
service-based or performance-based. Service-based awards are
contingent upon continued employment, and performance-based
awards are based on earnings per share performance goals and
continued employment.
107
Stock-Based Compensation Plans:
In 1987 (as amended subsequently, and most recently in 2005),
the Board of Directors, with subsequent approval of the
Corporations shareholders, approved the Amended and
Restated Long-Term Incentive Stock Plan (Stock
Plan). Options are generally exercisable up to
10 years from the date of grant and vest ratably over three
years. As of December 31, 2009, approximately
0.9 million shares remain available for grants.
The Board of Directors approved the implementation of a
broad-based stock option grant effective July 28, 1999. The
only stock option grant under this was in 1999, which provided
all qualifying employees with an opportunity and an incentive to
buy shares of the Corporation and align their financial interest
with the growth in value of the Corporations shares. This
plan expired during 2009, and as of December 31, 2009,
there are no shares available for grants.
In January 2003 (as amended subsequently, and most recently in
2009), the Board of Directors, with subsequent approval of the
Corporations shareholders, approved the adoption of the
2003 Long-Term Incentive Plan (2003 Plan), which
provides for the granting of options or other stock awards
(e.g., restricted stock awards and salary shares) to key
employees. Options are generally exercisable up to 10 years
from the date of grant and vest ratably over three years. As of
December 31, 2009, approximately 1.8 million shares
remain available for grants.
Accounting for Stock-Based Compensation:
The fair value of stock options granted is estimated on the date
of grant using a Black-Scholes option pricing model, while the
fair value of restricted stock shares and salary shares is their
fair market value on the date of grant. The fair values of stock
grants are amortized as compensation expense on a straight-line
basis over the vesting period of the grants. Compensation
expense recognized is included in personnel expense in the
consolidated statements of income (loss).
Assumptions are used in estimating the fair value of stock
options granted. The weighted average expected life of the stock
option represents the period of time that stock options are
expected to be outstanding and is estimated using historical
data of stock option exercises and forfeitures. The risk-free
interest rate is based on the U.S. Treasury yield curve in
effect at the time of grant. The expected volatility is based on
the historical volatility of the Corporations stock. The
following assumptions were used in estimating the fair value for
options granted in 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Dividend yield
|
|
|
4.95
|
%
|
|
|
5.12
|
%
|
|
|
3.45
|
%
|
Risk-free interest rate
|
|
|
1.87
|
%
|
|
|
2.77
|
%
|
|
|
4.80
|
%
|
Expected volatility
|
|
|
36.00
|
%
|
|
|
21.32
|
%
|
|
|
19.28
|
%
|
Weighted average expected life
|
|
|
6yrs
|
|
|
|
6yrs
|
|
|
|
6 yrs
|
|
Weighted average per share fair value of options
|
|
$
|
3.60
|
|
|
$
|
2.74
|
|
|
$
|
5.99
|
|
The Corporation is required to estimate potential forfeitures of
stock grants and adjust compensation expense recorded
accordingly. The estimate of forfeitures will be adjusted over
the requisite service period to the extent that actual
forfeitures differ, or are expected to differ, from such
estimates. Changes in estimated forfeitures will be recognized
in the period of change and will also impact the amount of stock
compensation expense to be recognized in future periods.
108
A summary of the Corporations stock option activity for
2009, 2008, and 2007, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
Stock Options
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value (000s)
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
6,466,482
|
|
|
$
|
25.91
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,091,645
|
|
|
|
33.72
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(974,440
|
)
|
|
|
23.05
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(264,274
|
)
|
|
|
32.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
6,319,413
|
|
|
$
|
27.43
|
|
|
|
5.78
|
|
|
$
|
(2,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2007
|
|
|
5,289,288
|
|
|
$
|
26.22
|
|
|
|
5.14
|
|
|
$
|
4,603
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
6,319,413
|
|
|
$
|
27.43
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,256,790
|
|
|
|
24.35
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(576,685
|
)
|
|
|
18.20
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(417,816
|
)
|
|
|
30.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
6,581,702
|
|
|
$
|
27.45
|
|
|
|
5.87
|
|
|
$
|
(42,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2008
|
|
|
4,770,537
|
|
|
$
|
27.44
|
|
|
|
4.77
|
|
|
$
|
(31,076
|
)
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
6,581,702
|
|
|
$
|
27.45
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
975,548
|
|
|
|
17.05
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(945
|
)
|
|
|
16.70
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(847,687
|
)
|
|
|
25.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
6,708,618
|
|
|
$
|
26.16
|
|
|
|
5.61
|
|
|
$
|
(101,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2009
|
|
|
4,811,626
|
|
|
$
|
27.73
|
|
|
|
4.50
|
|
|
$
|
(80,445
|
)
|
|
|
|
|
|
|
The following table summarizes information about the
Corporations stock options outstanding at
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
|
Options
|
|
|
Weighted Average
|
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Life (Years)
|
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
|
Range of Exercise Prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$9.26 $15.40
|
|
|
64,105
|
|
|
$
|
12.58
|
|
|
|
6.57
|
|
|
|
|
34,105
|
|
|
$
|
12.53
|
|
$16.84 $19.98
|
|
|
1,562,334
|
|
|
|
17.88
|
|
|
|
5.99
|
|
|
|
|
611,745
|
|
|
|
18.61
|
|
$20.01 $24.89
|
|
|
1,955,462
|
|
|
|
23.47
|
|
|
|
5.31
|
|
|
|
|
1,308,212
|
|
|
|
22.77
|
|
$26.39 $29.46
|
|
|
710,948
|
|
|
|
29.04
|
|
|
|
4.26
|
|
|
|
|
694,778
|
|
|
|
29.06
|
|
$31.17 $34.27
|
|
|
2,415,769
|
|
|
|
33.20
|
|
|
|
5.99
|
|
|
|
|
2,162,786
|
|
|
|
33.12
|
|
|
|
|
|
|
|
TOTAL
|
|
|
6,708,618
|
|
|
$
|
26.16
|
|
|
|
5.61
|
|
|
|
|
4,811,626
|
|
|
$
|
27.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
The following table summarizes information about the
Corporations nonvested stock option activity for 2009,
2008, and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Stock Options
|
|
Shares
|
|
|
Grant Date Fair Value
|
|
|
Nonvested at December 31, 2006
|
|
|
384,706
|
|
|
$
|
6.40
|
|
Granted
|
|
|
1,091,645
|
|
|
|
5.99
|
|
Vested
|
|
|
(333,376
|
)
|
|
|
6.31
|
|
Forfeited
|
|
|
(112,850
|
)
|
|
|
6.07
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
1,030,125
|
|
|
$
|
6.03
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
1,030,125
|
|
|
$
|
6.03
|
|
Granted
|
|
|
1,256,790
|
|
|
|
2.74
|
|
Vested
|
|
|
(337,557
|
)
|
|
|
6.06
|
|
Forfeited
|
|
|
(138,193
|
)
|
|
|
4.66
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
1,811,165
|
|
|
$
|
3.85
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
1,811,165
|
|
|
$
|
3.85
|
|
Granted
|
|
|
975,548
|
|
|
|
3.60
|
|
Vested
|
|
|
(650,629
|
)
|
|
|
4.07
|
|
Forfeited
|
|
|
(239,092
|
)
|
|
|
4.26
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
1,896,992
|
|
|
$
|
3.60
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, the intrinsic value
of stock options exercised was immaterial (less than
$0.1 million), while for the years ended December 31,
2008 and 2007, the intrinsic value of stock options exercised
was $3.8 million and $9.6 million, respectively.
(Intrinsic value represents the amount by which the fair market
value of the underlying stock exceeds the exercise price of the
stock option.) During 2009, less than $0.1 million was
received for the exercise of stock options. The total fair value
of stock options that vested was $2.6 million,
$2.0 million, and $2.1 million, respectively, for the
years ended December 31, 2009, 2008, and 2007. The
Corporation recognized compensation expense of
$3.6 million, $3.0 million, and $2.2 million for
2009, 2008, and 2007, respectively, for the vesting of stock
options. At December 31, 2009, the Corporation had
$3.5 million of unrecognized compensation costs related to
stock options that is expected to be recognized over the
remaining contractual terms that extend predominantly through
fourth quarter 2011.
110
The following table summarizes information about the
Corporations restricted stock share activity for 2009,
2008, and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Restricted Stock
|
|
Shares
|
|
|
Grant Date Fair Value
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
127,900
|
|
|
$
|
32.11
|
|
Granted
|
|
|
118,250
|
|
|
|
33.70
|
|
Vested
|
|
|
(45,716
|
)
|
|
|
31.64
|
|
Forfeited
|
|
|
(35,594
|
)
|
|
|
33.19
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
164,840
|
|
|
$
|
33.14
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
164,840
|
|
|
$
|
33.14
|
|
Granted
|
|
|
265,900
|
|
|
|
24.43
|
|
Vested
|
|
|
(69,074
|
)
|
|
|
32.47
|
|
Forfeited
|
|
|
(7,339
|
)
|
|
|
32.21
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
354,327
|
|
|
$
|
26.75
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
354,327
|
|
|
$
|
26.75
|
|
Granted
|
|
|
371,643
|
|
|
|
16.48
|
|
Vested
|
|
|
(146,320
|
)
|
|
|
27.96
|
|
Forfeited
|
|
|
(52,519
|
)
|
|
|
21.80
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
527,131
|
|
|
$
|
19.67
|
|
|
|
|
|
|
|
|
|
|
The Corporation amortizes the expense related to restricted
stock awards as compensation expense over the requisite vesting
period. Expense for restricted stock awards of approximately
$4.3 million, $4.0 million, and $2.0 million was
recorded for the years ended December 31, 2009, 2008, and
2007, respectively. At December 31, 2009, the Corporation
had $6.2 million of unrecognized compensation costs related
to restricted stock shares that is expected to be recognized
over the remaining requisite service periods that extend
predominantly through fourth quarter 2011.
The Corporation recognizes expense related to salary shares as
compensation expense. Each share is fully vested as of the date
of grant and is subject to restrictions on transfer that lapse
over a period of approximately one year. The Corporation
recognized compensation expense of $0.1 million during 2009.
The Corporation issues shares from treasury, when available, or
new shares upon the exercise of stock options granting of
restricted stock shares, and the granting of salary shares. The
Board of Directors has authorized management to repurchase
shares of the Corporations common stock each quarter in
the market, to be made available for issuance in connection with
the Corporations employee incentive plans and for other
corporate purposes. The repurchase of shares will be based on
market opportunities, capital levels, growth prospects, and
other investment opportunities, and is subject to restrictions
under the CPP.
|
|
NOTE 12
|
RETIREMENT
PLANS:
|
The Corporation has a noncontributory defined benefit retirement
plan (the Retirement Account Plan (RAP)) covering
substantially all full-time employees. The benefits are based
primarily on years of service and the employees
compensation paid. Employees of acquired entities generally
participate in the RAP after consummation of the business
combinations. The plans of acquired entities are typically
merged into the RAP after completion of the mergers, and credit
is usually given to employees for years of service at the
acquired institution for vesting and eligibility purposes. In
connection with the First Federal acquisition in October 2004,
the Corporation assumed the First Federal pension plan (the
First Federal Plan). The First Federal Plan was
frozen on December 31, 2004, and qualified participants in
the First Federal Plan became eligible to participate in the RAP
as of January 1, 2005. Additional discussion and
information on the RAP and the First Federal Plan are
collectively referred to below as the Pension Plan.
111
Associated also provides healthcare access for eligible retired
employees in its Postretirement Plan (the Postretirement
Plan). Retirees who are at least 55 years of age with
5 years of service are eligible to participate in the plan.
Additionally, with the rise in healthcare costs for retirees
under the age of 65, the Corporation changed its postretirement
benefits to include a subsidy for those employees who are at
least age 55 but less than age 65 with at least
15 years of service as of January 1, 2007. The
Corporation has no plan assets attributable to the plan. The
Corporation reserves the right to terminate or make changes to
the plan at any time.
The funded status and amounts recognized in the 2009 and 2008
consolidated balance sheets, as measured on December 31,
2009 and 2008, respectively, for the Pension and Postretirement
Plans were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Plan
|
|
|
Plan
|
|
|
|
Plan
|
|
|
Plan
|
|
|
|
|
|
|
|
2009
|
|
|
2009
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
Change in Fair Value of Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
109,111
|
|
|
$
|
|
|
|
|
$
|
135,931
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
22,105
|
|
|
|
|
|
|
|
|
(27,660
|
)
|
|
|
|
|
Employer contributions
|
|
|
10,000
|
|
|
|
560
|
|
|
|
|
10,000
|
|
|
|
378
|
|
Gross benefits paid
|
|
|
(7,662
|
)
|
|
|
(560
|
)
|
|
|
|
(9,160
|
)
|
|
|
(378
|
)
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
133,554
|
|
|
$
|
|
|
|
|
$
|
109,111
|
|
|
$
|
|
|
|
|
|
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit obligation at beginning of year
|
|
$
|
105,202
|
|
|
$
|
4,562
|
|
|
|
$
|
108,006
|
|
|
$
|
5,188
|
|
Service cost
|
|
|
8,649
|
|
|
|
|
|
|
|
|
9,362
|
|
|
|
|
|
Interest cost
|
|
|
6,261
|
|
|
|
261
|
|
|
|
|
6,174
|
|
|
|
271
|
|
Curtailments, Settlements, Special Termination Benefits
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
7,485
|
|
|
|
166
|
|
|
|
|
(9,327
|
)
|
|
|
(520
|
)
|
Gross benefits paid
|
|
|
(7,662
|
)
|
|
|
(560
|
)
|
|
|
|
(9,160
|
)
|
|
|
(378
|
)
|
|
|
|
|
|
|
Net benefit obligation at end of year
|
|
$
|
119,935
|
|
|
$
|
4,429
|
|
|
|
$
|
105,202
|
|
|
$
|
4,561
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
13,619
|
|
|
$
|
(4,429
|
)
|
|
|
$
|
3,909
|
|
|
$
|
(4,561
|
)
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
13,971
|
|
|
$
|
|
|
|
|
$
|
4,557
|
|
|
$
|
|
|
Current liabilities
|
|
|
|
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
(560
|
)
|
Noncurrent liabilities
|
|
|
(352
|
)
|
|
|
(3,819
|
)
|
|
|
|
(648
|
)
|
|
|
(4,001
|
)
|
|
|
|
|
|
|
Asset (Liability) Recognized in the Consolidated Balance Sheet
|
|
$
|
13,619
|
|
|
$
|
(4,429
|
)
|
|
|
$
|
3,909
|
|
|
$
|
(4,561
|
)
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income,
net of tax, as of December 31, 2009 and 2008 follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Plan
|
|
|
Plan
|
|
|
|
Plan
|
|
|
Plan
|
|
|
|
|
|
|
|
2009
|
|
|
2009
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
Prior service cost
|
|
$
|
365
|
|
|
$
|
589
|
|
|
|
$
|
400
|
|
|
$
|
813
|
|
Net actuarial (gain) loss
|
|
|
25,460
|
|
|
|
(277
|
)
|
|
|
|
27,294
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
Amount not yet recognized in net periodic benefit cost, but
recognized in accumulated other comprehensive income
|
|
$
|
25,825
|
|
|
$
|
312
|
|
|
|
$
|
27,694
|
|
|
$
|
410
|
|
|
|
|
|
|
|
112
Other changes in plan assets and benefit obligations recognized
in other comprehensive income (OCI), net of tax, in
2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
|
Postretirement Plan
|
|
|
|
Pension Plan
|
|
|
|
Postretirement Plan
|
|
|
|
2009
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
Net gain (loss)
|
|
$
|
2,420
|
|
|
|
$
|
(181
|
)
|
|
|
$
|
(30,112
|
)
|
|
|
$
|
519
|
|
Amortization of prior service cost
|
|
|
72
|
|
|
|
|
395
|
|
|
|
|
77
|
|
|
|
|
395
|
|
Amortization of actuarial (gain) loss
|
|
|
551
|
|
|
|
|
(54
|
)
|
|
|
|
258
|
|
|
|
|
(27
|
)
|
Income tax (expense) benefit
|
|
|
(1,174
|
)
|
|
|
|
(62
|
)
|
|
|
|
11,911
|
|
|
|
|
(355
|
)
|
|
|
|
|
|
|
Total Recognized in OCI
|
|
$
|
1,869
|
|
|
|
$
|
98
|
|
|
|
$
|
(17,866
|
)
|
|
|
$
|
532
|
|
|
|
|
|
|
|
The components of net periodic benefit cost for the Pension and
Postretirement Plans for 2009, 2008, and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
2009
|
|
|
2009
|
|
|
|
2008
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
Service cost
|
|
$
|
8,649
|
|
|
$
|
|
|
|
|
$
|
9,362
|
|
|
$
|
|
|
|
|
$
|
9,888
|
|
|
$
|
|
|
Interest cost
|
|
|
6,262
|
|
|
|
261
|
|
|
|
|
6,174
|
|
|
|
271
|
|
|
|
|
5,698
|
|
|
|
294
|
|
Expected return on plan assets
|
|
|
(11,520
|
)
|
|
|
|
|
|
|
|
(11,768
|
)
|
|
|
|
|
|
|
|
(11,269
|
)
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
72
|
|
|
|
395
|
|
|
|
|
77
|
|
|
|
395
|
|
|
|
|
47
|
|
|
|
395
|
|
Actuarial (gain) loss
|
|
|
551
|
|
|
|
(54
|
)
|
|
|
|
258
|
|
|
|
(27
|
)
|
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost
|
|
$
|
4,014
|
|
|
$
|
602
|
|
|
|
$
|
4,103
|
|
|
$
|
639
|
|
|
|
$
|
5,208
|
|
|
$
|
689
|
|
Settlement charge
|
|
|
|
|
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net pension cost
|
|
$
|
4,014
|
|
|
$
|
602
|
|
|
|
$
|
4,370
|
|
|
$
|
639
|
|
|
|
$
|
5,208
|
|
|
$
|
689
|
|
|
|
|
|
|
|
As of December 31, 2009, the estimated actuarial losses and
prior service cost that will be amortized during 2010 from
accumulated other comprehensive income into net periodic benefit
cost for the Pension Plan are $1.6 million and
$0.1 million, respectively. An estimated $0.4 million
in prior service cost is expected to be amortized from
accumulated other comprehensive income into net benefit cost
during 2010 for the Postretirement Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
2009
|
|
|
2009
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
Weighted average assumptions used to determine benefit
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.50
|
%
|
|
|
5.50
|
%
|
|
|
|
6.10
|
%
|
|
|
6.10
|
%
|
Rate of increase in compensation levels
|
|
|
5.00
|
|
|
|
N/A
|
|
|
|
|
5.00
|
|
|
|
N/A
|
|
Weighted average assumptions used to determine net periodic
benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.10
|
%
|
|
|
6.10
|
%
|
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Rate of increase in compensation levels
|
|
|
5.00
|
|
|
|
N/A
|
|
|
|
|
5.00
|
|
|
|
N/A
|
|
Expected long-term rate of return on plan assets
|
|
|
8.25
|
|
|
|
N/A
|
|
|
|
|
8.25
|
|
|
|
N/A
|
|
113
The overall expected long-term rates of return on the Pension
Plan assets were 8.25% as of both December 31, 2009, and
2008, respectively. The expected long-term (more than
20 years) rate of return was estimated using market
benchmarks for equities and bonds applied to the Pension
Plans anticipated asset allocations. The expected return
on equities was computed utilizing a valuation framework, which
projected future returns based on current equity valuations
rather than historical returns. The actual rate of return for
the Pension Plan assets was 20.06% and (19.46%) for 2009 and
2008, respectively.
The Pension Plans investments are exposed to various
risks, such as interest rate, market, and credit risks. Due to
the level of risks associated with certain investments and the
level of uncertainty related to changes in the value of the
investments, it is at least reasonably possible that changes in
risks in the near term could materially affect the amounts
reported. The investment objective for the Pension Plan is to
maximize total return with a tolerance for average risk. The
plan has a diversified portfolio that will provide liquidity,
current income, and growth of income and principal, with
anticipated asset allocation ranges of: equity securities
55-65%, debt
securities
35-45%, and
other cash equivalents 0-5%. Given current market conditions,
the Corporation could be outside of the allocation ranges for
brief periods of time. The asset allocation for the Pension Plan
as of the December 31, 2009 and 2008 measurement dates,
respectively, by asset category were as follows.
|
|
|
|
|
|
|
|
|
Asset Category
|
|
2009
|
|
|
2008
|
|
|
Equity securities
|
|
|
61
|
%
|
|
|
52
|
%
|
Debt securities
|
|
|
38
|
|
|
|
47
|
|
Other
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
As discussed in section Recent Accounting
Pronouncements of Note 1, the Corporation is required
to disclose the estimated fair values for its Pension Plan
assets. The Pension Plan assets include cash equivalents, such
as money market accounts, mutual funds, and
common / collective trust funds (which include
investments in equity and bond securities). Money market
accounts are stated at cost plus accrued interest, mutual funds
are valued at quoted market prices and investments in
common / collective trust funds are valued at the
amount at which units in the funds can be withdrawn. Based on
these inputs, the following table summarizes the fair value of
the Pension Plans investments as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
December 31, 2009
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
Pension Plan Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market account
|
|
$
|
664
|
|
|
$
|
664
|
|
|
$
|
|
|
|
$
|
|
|
Mutual funds
|
|
|
53,032
|
|
|
|
53,032
|
|
|
|
|
|
|
|
|
|
Common / collective trust funds
|
|
|
79,858
|
|
|
|
|
|
|
|
79,858
|
|
|
|
|
|
|
|
|
|
|
|
Total Pension Plan Investments
|
|
$
|
133,554
|
|
|
$
|
53,696
|
|
|
$
|
79,858
|
|
|
$
|
|
|
|
|
|
|
|
|
The Corporations funding policy is to pay at least the
minimum amount required by the funding requirements of federal
law and regulations, with consideration given to the maximum
funding amounts allowed. The Corporation contributed
$10 million to its Pension Plan during both 2009 and 2008.
The Corporation regularly reviews the funding of its Pension
Plans. At this time, the Corporation expects to make a
contribution of up to $10 million in 2010.
114
The projected benefit payments for the Pension and
Postretirement Plans at December 31, 2009, reflecting
expected future services, were as follows. The projected benefit
payments were calculated using the same assumptions as those
used to calculate the benefit obligations listed above.
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
($ in Thousands)
|
|
|
Estimated future benefit payments:
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
18,460
|
|
|
$
|
610
|
|
2011
|
|
|
8,602
|
|
|
|
587
|
|
2012
|
|
|
9,921
|
|
|
|
565
|
|
2013
|
|
|
10,271
|
|
|
|
500
|
|
2014
|
|
|
10,281
|
|
|
|
382
|
|
2015-2019
|
|
|
57,700
|
|
|
|
1,316
|
|
The health care trend rate is an assumption as to how much the
Postretirement Plans medical costs will increase each year
in the future. The health care trend rate assumption for pre-65
coverage is 8% for 2009, and 1% lower in each succeeding year,
to an ultimate rate of 5% for 2012 and future years. The health
care trend rate assumption for post-65 coverage is 9% for 2009,
and 1% lower in each succeeding year, to an ultimate rate of 5%
for 2013 and future years.
A one percentage point change in the assumed health care cost
trend rate would have the following effect.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
100 bp Increase
|
|
100 bp Decrease
|
|
100 bp Increase
|
|
100 bp Decrease
|
|
|
($ in Thousands)
|
|
Effect on total of service and interest cost
|
|
$
|
20
|
|
|
$
|
(19
|
)
|
|
$
|
23
|
|
|
$
|
(21
|
)
|
Effect on postretirement benefit obligation
|
|
$
|
366
|
|
|
$
|
(338
|
)
|
|
$
|
377
|
|
|
$
|
(348
|
)
|
The Corporation also has a 401(k) and Employee Stock Ownership
Plan (the 401(k) plan). The Corporations
contribution is determined by the Compensation and Benefits
Committee of the Board of Directors. Total expense related to
contributions to the 401(k) plan was $7.6 million,
$6.2 million, and $6.1 million in 2009, 2008, and
2007, respectively.
The current and deferred amounts of income tax expense (benefit)
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(45,496
|
)
|
|
$
|
97,707
|
|
|
$
|
120,623
|
|
State
|
|
|
27,083
|
|
|
|
(2,327
|
)
|
|
|
3,353
|
|
|
|
|
|
|
|
Total current
|
|
|
(18,413
|
)
|
|
|
95,380
|
|
|
|
123,976
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(91,136
|
)
|
|
|
(44,986
|
)
|
|
|
7,048
|
|
State
|
|
|
(43,691
|
)
|
|
|
3,434
|
|
|
|
2,418
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(134,827
|
)
|
|
|
(41,552
|
)
|
|
|
9,466
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
(153,240
|
)
|
|
$
|
53,828
|
|
|
$
|
133,442
|
|
|
|
|
|
|
|
115
Temporary differences between the amounts reported in the
financial statements and the tax bases of assets and liabilities
resulted in deferred taxes. Deferred tax assets and liabilities
at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Gross deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
231,553
|
|
|
$
|
108,028
|
|
Allowance for other losses
|
|
|
10,136
|
|
|
|
2,519
|
|
Accrued liabilities
|
|
|
8,180
|
|
|
|
5,424
|
|
Deferred compensation
|
|
|
20,887
|
|
|
|
20,637
|
|
Securities valuation adjustment
|
|
|
17,264
|
|
|
|
23,072
|
|
Benefit of tax loss carryforwards
|
|
|
35,448
|
|
|
|
37,249
|
|
Nonaccrual interest
|
|
|
9,362
|
|
|
|
2,610
|
|
Other
|
|
|
3,327
|
|
|
|
4,328
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
336,157
|
|
|
|
203,867
|
|
Valuation allowance for deferred tax assets
|
|
|
(5,935
|
)
|
|
|
(25,182
|
)
|
|
|
|
|
|
|
|
|
|
330,222
|
|
|
|
178,685
|
|
Gross deferred tax liabilities:
|
|
|
|
|
|
|
|
|
FHLB stock dividends
|
|
|
10,221
|
|
|
|
13,903
|
|
Prepaid expenses
|
|
|
23,646
|
|
|
|
22,621
|
|
Intangible amortization
|
|
|
27,137
|
|
|
|
25,932
|
|
Mortgage banking activity
|
|
|
13,707
|
|
|
|
6,498
|
|
Deferred loan fee income
|
|
|
20,784
|
|
|
|
18,105
|
|
State income taxes
|
|
|
21,497
|
|
|
|
16,569
|
|
Leases
|
|
|
6,103
|
|
|
|
4,046
|
|
Other
|
|
|
10,602
|
|
|
|
9,313
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
133,697
|
|
|
|
116,987
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
196,525
|
|
|
|
61,698
|
|
|
|
|
|
|
|
Tax effect of unrealized loss (gain) related to available for
sale securities
|
|
|
(56,379
|
)
|
|
|
(15,926
|
)
|
Tax effect of unrealized loss related to pension and
postretirement benefits
|
|
|
16,588
|
|
|
|
18,736
|
|
|
|
|
|
|
|
|
|
|
(39,791
|
)
|
|
|
2,810
|
|
|
|
|
|
|
|
Net deferred tax assets including tax effected items
|
|
$
|
156,734
|
|
|
$
|
64,508
|
|
|
|
|
|
|
|
For financial reporting purposes, a valuation allowance has been
recognized to offset deferred tax assets related to state net
operating loss carryforwards of certain subsidiaries. If it is
subsequently determined that all or a portion of these deferred
tax assets will be realized, the tax benefit for these items
will be used to reduce deferred tax expense for that period. In
addition, a valuation allowance has been established through
purchase accounting related to acquired net operating loss
carryforwards. If it is subsequently determined that all or a
portion of these deferred tax assets will be realized, the tax
benefit for these items will be reflected through current period
income.
At December 31, 2009, the valuation allowance for deferred
tax assets of $5.9 million was related to the deferred tax
benefit of specific states tax loss carryforwards of
$35.4 million at certain subsidiaries, while at
December 31, 2008, the valuation allowance for deferred tax
assets of $25.2 million was related to the deferred tax
benefit of specific state tax loss carryforwards of
$37.2 million and certain other state deferred tax assets
of $9 million. The changes in the valuation allowance,
related to a net decrease in the valuation allowance in 2009 as
a result of changes in state
116
tax laws and the expiration of tax statutes and an increase in
the valuation allowance in 2008, relating to an increase in net
operating losses and other state deferred tax assets for 2008,
was as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Valuation allowance for deferred tax assets, beginning of year
|
|
$
|
25,182
|
|
|
$
|
12,082
|
|
Increase (decrease) in current year
|
|
|
(19,247
|
)
|
|
|
13,100
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets, end of year
|
|
$
|
5,935
|
|
|
$
|
25,182
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and,
if necessary, tax planning strategies in making this assessment.
Based upon the projections for future taxable income and tax
planning strategies which will create taxable income over the
period that the deferred tax assets are deductible, management
believes it is more likely than not the Corporation will realize
the benefits of these deductible differences, net of the
existing valuation allowances at December 31, 2009 and 2008.
At December 31, 2009, the Corporation had state net
operating losses of $444 million (of which,
$59 million was acquired from various acquisitions) and
federal net operating losses of $1 million (of which, all
was acquired from various acquisitions) that will expire in the
years 2010 through 2023.
The effective income tax rate differs from the statutory federal
tax rate. The major reasons for this difference were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal income tax rate at statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increases (decreases) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt interest and dividends
|
|
|
5.1
|
|
|
|
(7.3
|
)
|
|
|
(3.9
|
)
|
State income taxes (net of federal income taxes)
|
|
|
3.8
|
|
|
|
0.3
|
|
|
|
0.9
|
|
Bank owned life insurance
|
|
|
1.9
|
|
|
|
(3.1
|
)
|
|
|
(1.4
|
)
|
Valuation Allowance
|
|
|
6.8
|
|
|
|
2.3
|
|
|
|
|
|
Other
|
|
|
1.2
|
|
|
|
(3.0
|
)
|
|
|
1.2
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
53.8
|
%
|
|
|
24.2
|
%
|
|
|
31.8
|
%
|
|
|
|
|
|
|
Savings banks acquired by the Corporation in 1997 and 2004
qualified under provisions of the Internal Revenue Code that
permitted them to deduct from taxable income an allowance for
bad debts that differed from the provision for such losses
charged to income for financial reporting purposes. Accordingly,
no provision for income taxes has been made for
$100.3 million of retained income at December 31,
2009. If income taxes had been provided, the deferred tax
liability would have been approximately $40.3 million.
Management does not expect this amount to become taxable in the
future, therefore, no provision for income taxes has been made.
The Corporation and its subsidiaries file income tax returns in
the U.S. federal jurisdiction and various states
jurisdictions. The Corporations federal income tax returns
are open and subject to examination from the 2006 tax return
year and forward, while the Corporations various state
income tax returns are generally open and subject to examination
from the 1999 and later tax return years based on individual
state statutes of limitation.
117
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Millions)
|
|
|
Balance at beginning of year
|
|
$
|
38
|
|
|
$
|
38
|
|
Changes in tax positions for prior years
|
|
|
(5
|
)
|
|
|
|
|
Additions based on tax positions related to current year
|
|
|
|
|
|
|
9
|
|
Settlements
|
|
|
|
|
|
|
(8
|
)
|
Statute expiration
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
30
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, the total amount of
unrecognized tax benefits that, if recognized, would affect the
effective tax rate was $19 million and $24 million,
respectively.
The Corporation recognizes interest and penalties accrued
related to unrecognized tax benefits in the income tax expense
line of the consolidated statements of income (loss). As of
December 31, 2009, the Corporation had $6 million of
interest and penalties (including $1 million of interest
accrued during 2009) on unrecognized tax benefits of which
$3 million had an impact on the effective tax rate. As of
December 31, 2008, the Corporation had $5 million of
interest and penalties (including $1.8 million of interest
accrued during 2008) on unrecognized tax benefits of which
$2 million had an impact on the effective tax rate.
Management does not anticipate significant adjustments to the
total amount of unrecognized tax benefits within the next twelve
months.
|
|
NOTE 14
|
COMMITMENTS,
OFF-BALANCE SHEET ARRANGEMENTS, AND CONTINGENT
LIABILITIES:
|
The Corporation utilizes a variety of financial instruments in
the normal course of business to meet the financial needs of its
customers and to manage its own exposure to fluctuations in
interest rates. These financial instruments include
lending-related and other commitments (see below) and derivative
instruments (see Note 15). The following is a summary of
lending-related commitments at December 31.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in Thousands)
|
|
|
Commitments to extend credit, excluding commitments to originate
residential mortgage loans held for sale(1)(2)
|
|
$
|
4,095,336
|
|
|
$
|
4,885,011
|
|
Commercial letters of credit(1)
|
|
|
19,248
|
|
|
|
21,121
|
|
Standby letters of credit(3)
|
|
|
473,554
|
|
|
|
563,784
|
|
Purchase obligations(4)
|
|
|
145,248
|
|
|
|
|
|
|
|
|
(1)
|
|
These off-balance sheet financial
instruments are exercisable at the market rate prevailing at the
date the underlying transaction will be completed and, thus, are
deemed to have no current fair value, or the fair value is based
on fees currently charged to enter into similar agreements and
is not material at December 31, 2009 or 2008.
|
|
(2)
|
|
Interest rate lock commitments to
originate residential mortgage loans held for sale are
considered derivative instruments and are disclosed in
Note 15.
|
|
(3)
|
|
The Corporation has established a
liability of $3.1 million and $3.7 million at
December 31, 2009 and 2008, respectively, as an estimate of
the fair value of these financial instruments.
|
|
(4)
|
|
The purchase obligations include
forward commitments to purchase mortgage-related investment
securities issued by government agencies.
|
Lending-related
Commitments
As a financial services provider, the Corporation routinely
enters into commitments to extend credit. Such commitments are
subject to the same credit policies and approval process
accorded to loans made by the Corporation, with each
customers creditworthiness evaluated on a
case-by-case
basis. The commitments generally have fixed expiration dates or
other termination clauses and may require the payment of a fee.
The Corporations exposure to credit loss in the event of
nonperformance by the other party to these financial instruments
is represented by the contractual amount of those instruments.
The amount of collateral obtained, if deemed necessary by the
Corporation upon extension of credit, is based on
managements credit evaluation of the customer. Since a
118
significant portion of commitments to extend credit are subject
to specific restrictive loan covenants or may expire without
being drawn upon, the total commitment amounts do not
necessarily represent future cash flow requirements. As of
December 31, 2009 and December 31, 2008, the
Corporation had a reserve for losses on unfunded commitments
totaling $14.2 million and $3.7 million, respectively,
included in other liabilities on the consolidated balance sheets.
Lending-related commitments include commitments to extend
credit, commitments to originate residential mortgage loans held
for sale, commercial letters of credit, and standby letters of
credit. Commitments to extend credit are agreements to lend to
customers at predetermined interest rates, as long as there is
no violation of any condition established in the contracts.
Interest rate lock commitments to originate residential mortgage
loans held for sale and forward commitments to sell residential
mortgage loans are considered derivative instruments, and the
fair value of these commitments is recorded on the consolidated
balance sheets. The Corporations derivative and hedging
activity is further described in Note 15. Commercial and
standby letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party.
Commercial letters of credit are issued specifically to
facilitate commerce and typically result in the commitment being
drawn on when the underlying transaction is consummated between
the customer and the third party, while standby letters of
credit generally are contingent upon the failure of the customer
to perform according to the terms of the underlying contract
with the third party.
Other
Commitments
The Corporation has principal investment commitments to provide
capital-based financing to private and public companies through
either direct investments in specific companies or through
investment funds and partnerships. The timing of future cash
requirements to fund such commitments is generally dependent on
the investment cycle, whereby privately held companies are
funded by private equity investors and ultimately sold, merged,
or taken public through an initial offering, which can vary
based on overall market conditions, as well as the nature and
type of industry in which the companies operate. The Corporation
also invests in low-income housing, small-business commercial
real estate, new market tax credit projects, and historic tax
credit projects to promote the revitalization of
low-to-moderate-income
neighborhoods throughout the local communities of its bank
subsidiary. As a limited partner in these unconsolidated
projects, the Corporation is allocated tax credits and
deductions associated with the underlying projects. The
aggregate carrying value of these investments at
December 31, 2009, was $39 million, included in other
assets on the consolidated balance sheets, compared to
$35 million at December 31, 2008. Related to these
investments, the Corporation had remaining commitments to fund
of $15 million at December 31, 2009, and
$21 million at December 31, 2008.
Contingent
Liabilities
In the ordinary course of business, the Corporation may be named
as defendant in or be a party to various pending and threatened
legal proceedings. Since it may not be possible to formulate a
meaningful opinion as to the range of possible outcomes and
plaintiffs ultimate damage claims, management cannot
estimate the specific possible loss or range of loss that may
result from these proceedings. Management believes, based upon
current knowledge, that liabilities arising out of any such
current proceedings will not have a material adverse effect on
the consolidated financial position, results of operations or
liquidity of the Corporation.
During the fourth quarter of 2007, Visa, Inc. (Visa)
announced that it had reached a settlement regarding certain
litigation with American Express totaling $2.1 billion.
Visa also disclosed in its annual report filed during the fourth
quarter of 2007, a $650 million liability related to
pending litigation with Discover Financial Services
(Discover), as well as potential additional exposure
for similar pending litigation related to other lawsuits against
Visa (for which Visa has not recorded a liability). As a result
of the indemnification agreement established as part of
Visas restructuring transactions in October 2007, banks
with a membership interest, including the Corporation, have
obligations to share in certain losses with Visa, including
these litigation matters. Accordingly, during the fourth quarter
of 2007, the Corporation recorded a $2.3 million reserve in
other liabilities and a corresponding charge to other
noninterest expense for unfavorable litigation losses related to
Visa.
119
Visa matters during 2008 resulted in the Corporation recording a
total gain of $5.2 million, which included a
$3.2 million gain from the mandatory partial redemption of
the Corporations Class B common stock in Visa Inc.
related to Visas initial public offering which was
completed during first quarter 2008 and a $2.0 million gain
(including a $1.5 million gain in the first quarter of 2008
and a $0.5 million gain in the fourth quarter of
2008) and a corresponding receivable (included in other
assets in the consolidated balance sheets) for the
Corporations pro rata interest in the litigation escrow
account established by Visa from which settlements of certain
covered litigation will be paid (Visa may add to this over time
through a defined process which may involve a further redemption
of the Class B common stock). In addition, the Corporation
has a zero basis (i.e., historical cost/carryover basis) in the
shares of unredeemed Visa Class B common stock which are
convertible with limitations into Visa Class A common stock
based on a conversion rate that is subject to change in
accordance with specified terms (including provision of
Visas retrospective responsibility plan which provides
that Class B stockholders will bear the financial impact of
certain covered litigation) and no sooner than the longer of
three years or resolution of covered litigation. On
October 27, 2008, Visa publicly announced that it had
agreed to settle litigation with Discover for $1.9 billion,
which includes $1.7 billion from the escrow account created
under Visas retrospective responsibility plan and that
would affect the Corporations previously recorded
liability estimate which was based on Visas original
$650 million estimate for the Discover litigation. The
Corporations pro rata share of approximately
$0.5 million in this additional settlement amount was
recognized through other noninterest expense in October 2008
(offsetting the $0.5 million gain recognized in the fourth
quarter of 2008 noted above). In addition, based upon
Visas revised liability estimated for Discover litigation,
during the fourth quarter of 2008 the Corporation recorded a
$0.5 million reduction in the reserve for litigation losses
and a corresponding reduction in the Visa escrow receivable. At
December 31, 2008, the remaining reserve for unfavorable
litigation losses related to Visa was $2.3 million.
During 2009, Visa matters resulted in the Corporation recording
a gain of $0.3 million and a corresponding receivable
(included in other assets in the consolidated balance sheets)
for the Corporations pro rata interest in the litigation
escrow account established by Visa. In addition, based upon
Visas revised liability estimate for the litigation escrow
account, the Corporation recorded a $0.5 million reduction
in the reserve for litigation losses and a corresponding
reduction in the Visa escrow receivable. At December 31,
2009, the remaining reserve for unfavorable litigation losses
related to Visa was $1.8 million.
Residential mortgage loans sold to others are predominantly
conventional residential first lien mortgages originated under
our usual underwriting procedures, and are most often sold on a
nonrecourse basis. The Corporations agreements to sell
residential mortgage loans in the normal course of business
usually require certain representations and warranties on the
underlying loans sold, related to credit information, loan
documentation, collateral, and insurability, which if
subsequently are untrue or breached, could require the
Corporation to repurchase certain loans affected. There have
been insignificant instances of repurchase under representations
and warranties. To a much lesser degree, the Corporation may
sell residential mortgage loans with limited recourse (limited
in that the recourse period ends prior to the loans
maturity, usually after certain time
and/or loan
paydown criteria have been met), whereby repurchase could be
required if the loan had defined delinquency issues during the
limited recourse periods. At December 31, 2009, and
December 31, 2008, there were approximately
$106 million and $77 million, respectively, of
residential mortgage loans sold with such recourse risk, upon
which there have been insignificant instances of repurchase.
Given that the underlying loans delivered to buyers are
predominantly conventional residential first lien mortgages
originated or purchased under our usual underwriting procedures,
and that historical experience shows negligible losses and
insignificant repurchase activity, management believes that
losses and repurchases under the limited recourse provisions
will continue to be insignificant.
In October 2004, the Corporation acquired a thrift. Prior to the
acquisition, this thrift retained a subordinate position to the
FHLB in the credit risk on the underlying residential mortgage
loans it sold to the FHLB in exchange for a monthly credit
enhancement fee. The Corporation has not sold loans to the FHLB
with such credit risk retention since February 2005. At
December 31, 2009 and December 31, 2008, there were
$0.9 billion and $1.3 billion, respectively, of such
residential mortgage loans with credit risk recourse, upon which
there have been negligible historical losses to the Corporation.
At December 31, 2009 and December 31, 2008, the
Corporation provided a credit guarantee on contracts related to
specific commercial loans to unrelated third parties in exchange
for a fee. In the event of a customer default, pursuant to the
credit recourse provided, the Corporation is required to
reimburse the third party. The maximum
120
amount of credit risk, in the event of nonperformance by the
underlying borrowers, is limited to a defined contract
liability. In the event of nonperformance, the Corporation has
rights to the underlying collateral value securing the loan. The
Corporation has an estimated fair value of approximately
$0.2 million and $0.3 million related to these credit
guarantee contracts at December 31, 2009 and
December 30, 2008, respectively, recorded in other
liabilities on the consolidated balance sheets.
For certain mortgage loans originated by the Corporation,
borrowers may be required to obtain Private Mortgage Insurance
(PMI) provided by third-party insurers. The Corporation has
entered into reinsurance treaties with certain PMI carriers
which provide, among other things, for a sharing of losses
within a specified range of the total PMI coverage in exchange
for a portion of the PMI premiums. The Corporations
reinsurance treaties typically provide that the Corporation will
assume liability for losses once they exceed 5% of the aggregate
risk exposure up to a maximum of 10% of the aggregate risk
exposure. At December 31, 2009, the Corporations
potential risk exposure was approximately $25 million. As
of January 1, 2009, the Corporation no longer provides
reinsurance coverage for new loans in exchange for a portion of
the PMI premium. The Companys liability for reinsurance
losses, including estimated losses incurred but not yet
reported, was $2.4 million and $0.4 million at
December 31, 2009 or December 31, 2008, respectively.
|
|
NOTE 15
|
DERIVATIVE
AND HEDGING ACTIVITIES:
|
The Corporation uses derivative instruments primarily to hedge
the variability in interest payments or protect the value of
certain assets and liabilities recorded on its consolidated
balance sheet from changes in interest rates. The predominant
derivative and hedging activities include interest rate swaps,
interest rate caps, interest rate collars, and certain mortgage
banking activities. The contract or notional amount of a
derivative is used to determine, along with the other terms of
the derivative, the amounts to be exchanged between the
counterparties. The Corporation is exposed to credit risk in the
event of nonperformance by counterparties to financial
instruments. To mitigate the counterparty risk, interest rate
swap agreements generally contain language outlining collateral
pledging requirements for each counterparty. Collateral must be
posted when the market value changes exceed certain threshold
limits which are determined from the credit ratings of each
counterparty. The Corporation was required to pledge
$87 million of investment securities and cash equivalents
as collateral at December 31, 2009, and pledged
$71 million of investment securities and cash equivalents
as collateral at December 31, 2008.
The Corporations derivative and hedging instruments are
recorded at fair value on the consolidated balance sheets. See
Note 17, Fair Value Measurements, for
additional fair value information and disclosures.
The table below identifies the balance sheet category and fair
values of the Corporations derivative instruments
designated as cash flow hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Balance Sheet
|
|
|
Weighted Average
|
|
December 31, 2009
|
|
Amount
|
|
|
Fair Value
|
|
|
Category
|
|
|
Receive Rate
|
|
|
Pay Rate
|
|
|
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
|
|
|
Interest rate swap short-term borrowings
|
|
$
|
200,000
|
|
|
$
|
(7,588
|
)
|
|
|
Other liabilities
|
|
|
|
0.12
|
%
|
|
|
3.15
|
%
|
|
|
26 months
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap FHLB advance
|
|
$
|
200,000
|
|
|
$
|
(3,174
|
)
|
|
|
Other liabilities
|
|
|
|
1.38
|
%
|
|
|
4.42
|
%
|
|
|
6 months
|
|
Interest rate swap short-term borrowings
|
|
|
200,000
|
|
|
|
(11,449
|
)
|
|
|
Other liabilities
|
|
|
|
0.15
|
%
|
|
|
3.15
|
%
|
|
|
38 months
|
|
|
|
|
|
|
|
121
The table below identifies the gains and losses recognized on
the Corporations derivative instruments designated as cash
flow hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After Tax
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Amount of
|
|
|
Category of
|
|
Amount of
|
|
|
Category of
|
|
Amount of
|
|
|
|
Gain / (Loss)
|
|
|
Gain / (Loss)
|
|
Gain / (Loss)
|
|
|
Gain / (Loss)
|
|
Gain / (Loss)
|
|
|
|
Recognized in
|
|
|
Reclassified
|
|
Reclassified
|
|
|
Recognized in
|
|
Recognized
|
|
|
|
OCI on
|
|
|
from AOCI into
|
|
from AOCI into
|
|
|
Income on
|
|
in Income on
|
|
|
|
Derivatives
|
|
|
Income
|
|
Income
|
|
|
Derivatives
|
|
Derivatives
|
|
|
|
(Effective
|
|
|
(Effective
|
|
(Effective
|
|
|
(Ineffective
|
|
(Ineffective
|
|
|
|
Portion)
|
|
|
Portion)
|
|
Portion)
|
|
|
Portion)
|
|
Portion)
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
Interest rate swap short-term borrowings
|
|
$
|
4,008
|
|
|
Short-term
borrowings
|
|
$
|
|
|
|
Short-term
borrowings
|
|
$
|
309
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
Interest rate swap short-term borrowings
|
|
$
|
(6,557
|
)
|
|
Short-term
borrowings
|
|
$
|
|
|
|
Short-term
borrowings
|
|
$
|
(315
|
)
|
Interest rate swap FHLB advance
|
|
$
|
(721
|
)
|
|
Long-term
funding
|
|
$
|
|
|
|
Long-term
funding
|
|
$
|
|
|
|
|
|
|
|
|
Cash flow
hedges
The Corporation has variable-rate short-term and long-term
borrowings which expose the Corporation to variability in
interest payments due to changes in interest rates. To manage
the interest rate risk related to the variability of these
interest payments, the Corporation has entered into various
interest rate swap agreements.
During the third quarter of 2008, the Corporation entered into
two interest rate swap agreements which hedge the interest rate
risk in the cash flows of certain short-term, variable-rate
borrowings. In September 2007, the Corporation entered into an
interest rate swap which hedges the interest rate risk in the
cash flows of a long-term, variable-rate FHLB advance, which
matured in June 2009. Hedge effectiveness is determined using
regression analysis. The Corporation recognized combined
ineffectiveness of $0.3 million for full year 2009 (which
decreased interest expense) and $0.3 million for full year
2008 (which increased interest expense) relating to these cash
flow hedge relationships. No components of the derivatives
change in fair value were excluded from the assessment of hedge
effectiveness. Derivative gains and losses reclassified from
accumulated other comprehensive income to current period
earnings are included in interest expense on short-term
borrowings or long-term funding (i.e., the line item in which
the hedged cash flows are recorded). At December 31, 2009,
accumulated other comprehensive income included a deferred
after-tax net loss of $4.5 million related to these
derivatives, compared to a deferred after-tax net loss of
$8.5 million at December 31, 2008. The net after-tax
derivative loss included in accumulated other comprehensive
income at December 31, 2009, is projected to be
reclassified into net interest income in conjunction with the
recognition of interest payments on the variable-rate,
short-term borrowings through September 2011.
Free
Standing Derivatives
The Corporation enters into various derivative contracts which
are designated as free standing derivative contracts. These
derivative contracts are not designated against specific assets
and liabilities on the balance sheet or forecasted transactions
and, therefore, do not qualify for hedge accounting treatment.
Such derivative contracts are carried at fair value on the
consolidated balance sheets with changes in the fair value
recorded as a component of Capital market fees, net, and
typically include interest rate swaps, interest rate caps,
interest rate collars, and interest rate corridors. The net
impact for 2009 was a $1.1 million net loss, compared to a
net loss of $1.5 million for 2008.
Free standing derivatives are entered into primarily for the
benefit of commercial customers through providing derivative
products which enables the customer to manage their exposures to
interest rate risk. The Corporations market risk from
unfavorable movements in interest rates related to these
derivative contracts is generally
122
economically hedged by concurrently entering into offsetting
derivative contracts. The offsetting derivative contracts have
identical notional values, terms and indices.
The table below identifies the balance sheet category and fair
values of the Corporations derivative instruments not
designated as hedging instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Notional
|
|
|
|
|
|
Balance Sheet
|
|
Receive
|
|
|
Pay
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Category
|
|
Rate
|
|
|
Rate
|
|
|
Maturity
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps customer and mirror
|
|
$
|
1,014,078
|
|
|
$
|
46,716
|
|
|
Other assets
|
|
|
2.07
|
%
|
|
|
2.07
|
%
|
|
|
45 months
|
|
Interest rate caps customer and mirror
|
|
|
66,304
|
|
|
|
562
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
39 months
|
|
Interest rate collars customer and mirror
|
|
|
25,840
|
|
|
|
2,064
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
29 months
|
|
Interest rate corridors customer and mirror
|
|
|
20,000
|
|
|
|
103
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
30 months
|
|
Interest rate swaps customer and mirror
|
|
|
1,014,078
|
|
|
|
(49,313
|
)
|
|
Other liabilities
|
|
|
2.07
|
%
|
|
|
2.07
|
%
|
|
|
45 months
|
|
Interest rate caps customer and mirror
|
|
|
66,304
|
|
|
|
(509
|
)
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
39 months
|
|
Interest rate collars customer and mirror
|
|
|
25,840
|
|
|
|
(2,128
|
)
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
29 months
|
|
Interest rate corridors customer and mirror
|
|
|
20,000
|
|
|
|
(97
|
)
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
30 months
|
|
Interest rate lock commitments (mortgage)
|
|
|
336,485
|
|
|
|
4,512
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward commitments (mortgage)
|
|
|
245,948
|
|
|
|
(1,371
|
)
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange forwards
|
|
|
32,271
|
|
|
|
1,221
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange forwards
|
|
|
22,331
|
|
|
|
(671
|
)
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps customer and mirror
|
|
$
|
893,631
|
|
|
$
|
72,769
|
|
|
Other assets
|
|
|
3.02
|
%
|
|
|
3.02
|
%
|
|
|
55 months
|
|
Interest rate caps customer and mirror
|
|
|
46,362
|
|
|
|
4
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
15 months
|
|
Interest rate collars customer and mirror
|
|
|
26,796
|
|
|
|
2,803
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
42 months
|
|
Interest rate swaps customer and mirror
|
|
|
893,631
|
|
|
|
(74,173
|
)
|
|
Other liabilities
|
|
|
3.02
|
%
|
|
|
3.02
|
%
|
|
|
55 months
|
|
Interest rate caps customer and mirror
|
|
|
46,362
|
|
|
|
(4
|
)
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
15 months
|
|
Interest rate collars customer and mirror
|
|
|
26,796
|
|
|
|
(2,897
|
)
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
42 months
|
|
Interest rate lock commitments (mortgage)
|
|
|
508,274
|
|
|
|
6,630
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward commitments (mortgage)
|
|
|
530,537
|
|
|
|
(2,500
|
)
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange forwards
|
|
|
26,843
|
|
|
|
1,420
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange forwards
|
|
|
34,619
|
|
|
|
(1,271
|
)
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
The table below identifies the income statement category of the
gains and losses recognized in income on the Corporations
derivative instruments not designated as hedging instruments.
|
|
|
|
|
|
|
|
|
Income Statement Category of
|
|
Gain / (Loss)
|
|
|
|
Gain / (Loss) Recognized in Income
|
|
Recognized in Income
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
Interest rate swapscustomer and mirror, net
|
|
Capital market fees, net
|
|
$
|
(1,193
|
)
|
Interest rate capscustomer and mirror, net
|
|
Capital market fees, net
|
|
|
53
|
|
Interest rate collarscustomer and mirror, net
|
|
Capital market fees, net
|
|
|
30
|
|
Interest rate corridorscustomer and mirror, net
|
|
Capital market fees, net
|
|
|
6
|
|
Interest rate lock commitments (mortgage)
|
|
Mortgage banking, net
|
|
|
(2,118
|
)
|
Forward commitments (mortgage)
|
|
Mortgage banking, net
|
|
|
1,129
|
|
Foreign exchange forwards
|
|
Capital market fees, net
|
|
|
1,278
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
Interest rate swapscustomer and mirror, net
|
|
Capital market fees, net
|
|
$
|
(1,404
|
)
|
Interest rate capscustomer and mirror, net
|
|
Capital market fees, net
|
|
|
|
|
Interest rate collarscustomer and mirror, net
|
|
Capital market fees, net
|
|
|
(94
|
)
|
Interest rate lock commitments (mortgage)
|
|
Mortgage banking, net
|
|
|
(2,023
|
)
|
Forward commitments (mortgage)
|
|
Mortgage banking, net
|
|
|
7,220
|
|
Foreign exchange forwards
|
|
Capital market fees, net
|
|
|
438
|
|
|
|
|
|
|
|
Mortgage
derivatives
Interest rate lock commitments to originate residential mortgage
loans held for sale and forward commitments to sell residential
mortgage loans are considered derivative instruments, and the
fair value of these commitments is recorded on the consolidated
balance sheets with the changes in fair value recorded as a
component of mortgage banking, net. The fair value of the
mortgage derivatives at December 31, 2009, was a net gain
of $3.1 million, comprised of the net gain of
$4.5 million on interest rate lock commitments to originate
residential mortgage loans held for sale to individual borrowers
of approximately $336 million and the net loss of
$1.4 million on forward commitments to sell residential
mortgage loans to various investors of approximately
$246 million. The fair value of the mortgage derivatives at
December 31, 2008, was a net gain of $4.1 million,
comprised of the net gain of $6.6 million on interest rate
lock commitments to originate residential mortgage loans held
for sale to individual borrowers of approximately
$508 million and the net loss of $2.5 million on
forward commitments to sell residential mortgage loans to
various investors of approximately $531 million.
Foreign
currency derivatives
The Corporation provides foreign exchange services to customers.
The Corporation may enter into a foreign currency forward to
mitigate the exchange rate risk attached to the cash flows of a
loan or as an offsetting contract to a forward entered into as a
service to our customer. At December 31, 2009, the
Corporation had $5 million in notional balances of foreign
currency forwards related to loans, and $25 million in
notional balances of foreign currency forwards related to
customer transactions (with mirror foreign currency forwards of
$25 million), which on a combined basis had a fair value of
$0.5 million net gain. At December 31, 2008, the
Corporation had $8 million in notional balances of foreign
currency forwards related to loans, and $27 million in
notional balances of foreign currency forwards related to
customer transactions (with mirror foreign currency forwards of
$27 million), which on a combined basis had a fair value of
$0.1 million net gain.
124
|
|
NOTE 16
|
PARENT
COMPANY ONLY FINANCIAL INFORMATION:
|
Presented below are condensed financial statements for the
Parent Company:
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
4,021
|
|
|
$
|
194
|
|
Notes receivable from subsidiaries
|
|
|
206,727
|
|
|
|
618,742
|
|
Investment in subsidiaries
|
|
|
2,877,243
|
|
|
|
2,622,275
|
|
Other assets
|
|
|
140,002
|
|
|
|
133,376
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,227,993
|
|
|
$
|
3,374,587
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Long-term funding
|
|
$
|
441,316
|
|
|
$
|
441,349
|
|
Accrued expenses and other liabilities
|
|
|
48,069
|
|
|
|
56,735
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
489,385
|
|
|
|
498,084
|
|
Stockholders equity
|
|
|
2,738,608
|
|
|
|
2,876,503
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,227,993
|
|
|
$
|
3,374,587
|
|
|
|
|
|
|
|
125
STATEMENTS
OF INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
9,900
|
|
|
$
|
133,000
|
|
|
$
|
273,000
|
|
Management and service fees from subsidiaries
|
|
|
44,596
|
|
|
|
69,468
|
|
|
|
64,212
|
|
Interest income on notes receivable
|
|
|
9,543
|
|
|
|
7,050
|
|
|
|
17,830
|
|
Other income
|
|
|
1,429
|
|
|
|
2,395
|
|
|
|
2,287
|
|
|
|
|
|
|
|
Total income
|
|
|
65,468
|
|
|
|
211,913
|
|
|
|
357,329
|
|
|
|
|
|
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on borrowed funds
|
|
|
31,289
|
|
|
|
32,121
|
|
|
|
34,099
|
|
Provision for loan losses
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
29,359
|
|
|
|
42,595
|
|
|
|
36,623
|
|
Other expense
|
|
|
16,416
|
|
|
|
27,557
|
|
|
|
25,563
|
|
|
|
|
|
|
|
Total expense
|
|
|
76,834
|
|
|
|
102,273
|
|
|
|
96,285
|
|
|
|
|
|
|
|
Income (loss) before income tax benefit and equity in
|
|
|
|
|
|
|
|
|
|
|
|
|
undistributed income (loss)
|
|
|
(11,366
|
)
|
|
|
109,640
|
|
|
|
261,044
|
|
Income tax benefit
|
|
|
(4,319
|
)
|
|
|
(5,815
|
)
|
|
|
(4,955
|
)
|
|
|
|
|
|
|
Income (loss) before equity in undistributed net income of
subsidiaries
|
|
|
(7,047
|
)
|
|
|
115,455
|
|
|
|
265,999
|
|
Equity in undistributed net income (loss) of subsidiaries
|
|
|
(124,812
|
)
|
|
|
52,997
|
|
|
|
19,753
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(131,859
|
)
|
|
|
168,452
|
|
|
|
285,752
|
|
Preferred stock dividends and discount accretion
|
|
|
29,348
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common equity
|
|
$
|
(161,207
|
)
|
|
$
|
165,202
|
|
|
$
|
285,752
|
|
|
|
|
|
|
|
126
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(131,859
|
)
|
|
$
|
168,452
|
|
|
$
|
285,752
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in equity in undistributed net income (loss)
of subsidiaries
|
|
|
124,812
|
|
|
|
(52,997
|
)
|
|
|
(19,753
|
)
|
Depreciation and amortization
|
|
|
300
|
|
|
|
357
|
|
|
|
371
|
|
Loss on sales of investment securities, net
|
|
|
477
|
|
|
|
1,429
|
|
|
|
809
|
|
Increase in interest receivable and other assets
|
|
|
(6,164
|
)
|
|
|
(3,393
|
)
|
|
|
(12,181
|
)
|
Increase (decrease) in interest payable and other liabilities
|
|
|
(3,471
|
)
|
|
|
11,665
|
|
|
|
(814
|
)
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
(919
|
)
|
|
|
(1,879
|
)
|
Capital contributed to subsidiaries
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
(95
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(115,905
|
)
|
|
|
124,594
|
|
|
|
252,210
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of investment securities
|
|
|
|
|
|
|
254
|
|
|
|
168
|
|
Purchase of investment securities
|
|
|
|
|
|
|
|
|
|
|
(2,693
|
)
|
Net cash paid in acquisition of subsidiarys stock
|
|
|
(200,000
|
)
|
|
|
|
|
|
|
(46,475
|
)
|
Net (increase) decrease in notes receivable
|
|
|
411,517
|
|
|
|
(486,309
|
)
|
|
|
151,661
|
|
Purchase of other assets, net of disposals
|
|
|
(4,667
|
)
|
|
|
(4,281
|
)
|
|
|
(6,977
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
206,850
|
|
|
|
(490,336
|
)
|
|
|
95,684
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in short-term borrowings
|
|
|
|
|
|
|
(35,000
|
)
|
|
|
(80,000
|
)
|
Net increase in long-term funding
|
|
|
|
|
|
|
25,821
|
|
|
|
|
|
Proceeds from issuance of preferred stock and common stock
warrants
|
|
|
|
|
|
|
525,000
|
|
|
|
|
|
Cash dividends
|
|
|
(86,600
|
)
|
|
|
(162,347
|
)
|
|
|
(155,809
|
)
|
Proceeds from exercise of stock options
|
|
|
81
|
|
|
|
9,354
|
|
|
|
21,672
|
|
Purchase of common stock
|
|
|
(599
|
)
|
|
|
|
|
|
|
(133,860
|
)
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
919
|
|
|
|
1,879
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(87,118
|
)
|
|
|
363,747
|
|
|
|
(346,118
|
)
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,827
|
|
|
|
(1,995
|
)
|
|
|
1,776
|
|
Cash and cash equivalents at beginning of year
|
|
|
194
|
|
|
|
2,189
|
|
|
|
413
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
4,021
|
|
|
$
|
194
|
|
|
$
|
2,189
|
|
|
|
|
|
|
|
|
|
NOTE 17
|
FAIR
VALUE MEASUREMENTS:
|
Fair Value Measurements:
The FASB issued an accounting standard (subsequently codified
into ASC Topic 820, Fair Value Measurements and
Disclosures) which defines fair value, establishes a
framework for measuring fair value, and expands disclosures
about fair value measurements. This accounting standard applies
to reported balances that are required or permitted to be
measured at fair value under existing accounting pronouncements;
accordingly, the standard amends numerous accounting
pronouncements but does not require any new fair value
measurements of reported balances. The standard also emphasizes
that fair value (i.e., the price that would be received in an
orderly transaction that is not a forced liquidation or
distressed sale at the measurement date), among other things, is
based on exit price versus entry price, should include
assumptions about risk such as nonperformance risk in liability
fair
127
values, and is a market-based measurement, not an
entity-specific measurement. When considering the assumptions
that market participants would use in pricing the asset or
liability, this accounting standard establishes a fair value
hierarchy that distinguishes between market participant
assumptions based on market data obtained from sources
independent of the reporting entity (observable inputs that are
classified within Levels 1 and 2 of the hierarchy) and the
reporting entitys own assumptions about market participant
assumptions (unobservable inputs classified within Level 3
of the hierarchy). The fair value hierarchy prioritizes inputs
used to measure fair value into three broad levels.
Level 1 inputs Level 1 inputs utilize
quoted prices (unadjusted) in active markets for identical
assets or liabilities that the Corporation has the ability to
access.
Level 2 inputs Level 2 inputs are inputs
other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or
indirectly. Level 2 inputs may include quoted prices for
similar assets and liabilities in active markets, as well as
inputs that are observable for the asset or liability (other
than quoted prices), such as interest rates, foreign exchange
rates, and yield curves that are observable at commonly quoted
intervals.
Level 3 inputs Level 3 inputs are
unobservable inputs for the asset or liability, which are
typically based on an entitys own assumptions, as there is
little, if any, related market activity.
In instances where the determination of the fair value
measurement is based on inputs from different levels of the fair
value hierarchy, the level in the fair value hierarchy within
which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value
measurement in its entirety. The Corporations assessment
of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.
Following is a description of the valuation methodologies used
for the Corporations more significant instruments measured
on a recurring basis at fair value, including the general
classification of such instruments pursuant to the valuation
hierarchy. While the Corporation considered the unfavorable
impact of recent economic challenges (including but not limited
to weakened economic conditions, disruptions in capital markets,
troubled or failed financial institutions, government
intervention and actions) on quoted market prices for identical
and similar financial instruments, and on inputs or assumptions
used, the Corporation accepted the fair values determined under
its valuation methodologies.
Investment securities available for
sale: Where quoted prices are available in an
active market, investment securities are classified in
Level 1 of the fair value hierarchy. Level 1
investment securities primarily include U.S. Treasury,
Federal agency, and exchange-traded debt and equity securities.
If quoted market prices are not available for the specific
security, then fair values are estimated by using pricing
models, quoted prices of securities with similar characteristics
or discounted cash flows, with consideration given to the nature
of the quote and the relationship of recently evidenced market
activity to the fair value estimate, and are classified in
Level 2 of the fair value hierarchy. Examples of these
investment securities include obligations of state and political
subdivisions, mortgage-related securities, and other debt
securities. Lastly, in certain cases where there is limited
activity or less transparency around inputs to the estimated
fair value, securities are classified within Level 3 of the
fair value hierarchy. To validate the fair value estimates,
assumptions, and controls, the Corporation looks to transactions
for similar instruments and utilizes independent pricing
provided by third-party vendors or brokers and relevant market
indices. While none of these sources are solely indicative of
fair value, they serve as directional indicators for the
appropriateness of the Corporations fair value estimates.
The Corporation has determined that the fair value measures of
its investment securities are classified predominantly within
Level 1 or 2 of the fair value hierarchy. See Note 3,
Investment Securities, for additional disclosure
regarding the Corporations investment securities.
Derivative financial instruments: The
Corporation uses interest rate swaps to manage its interest rate
risk. In addition, the Corporation offers customer interest rate
swaps, caps, collars, and corridors to service our
customers needs, for which the Corporation simultaneously
enters into offsetting derivative financial instruments (i.e.,
mirror interest rate swaps, caps, collars, and corridors) with
third parties to manage its interest rate risk associated with
these financial instruments. The valuation of the
Corporations derivative financial instruments is
determined using discounted cash flow analysis on the expected
cash flows of each derivative and, also includes a
128
nonperformance / credit risk component (credit
valuation adjustment). See Note 15, Derivative and
Hedging Activities, for additional disclosure regarding
the Corporations derivative financial instruments.
The discounted cash flow analysis component in the fair value
measurements reflects the contractual terms of the derivative
financial instruments, including the period to maturity, and
uses observable market-based inputs, including interest rate
curves and implied volatilities. More specifically, the fair
values of interest rate swaps are determined using the market
standard methodology of netting the discounted future fixed cash
receipts (or payments), with the variable cash payments (or
receipts) based on an expectation of future interest rates
(forward curves) derived from observable market interest rate
curves. Likewise, the fair values of interest rate options
(i.e., interest rate caps, collars, and corridors) are
determined using the market standard methodology of discounting
the future expected cash receipts that would occur if variable
interest rates fall below (or rise above) the strike rate of the
floors (or caps), with the variable interest rates used in the
calculation of projected receipts on the floor (or cap) based on
an expectation of future interest rates derived from observable
market interest rate curves and volatilities.
The Corporation also incorporates credit valuation adjustments
to appropriately reflect both its own nonperformance risk and
the respective counterpartys nonperformance risk in the
fair value measurements. In adjusting the fair value of its
derivative financial instruments for the effect of
nonperformance risk, the Corporation has considered the impact
of netting and any applicable credit enhancements, such as
collateral postings, thresholds, mutual puts, and guarantees.
While the Corporation has determined that the majority of the
inputs used to value its derivative financial instruments fall
within Level 2 of the fair value hierarchy, the credit
valuation adjustments utilize Level 3 inputs, such as
estimates of current credit spreads to evaluate the likelihood
of default by itself and its counterparties. The Corporation has
assessed the significance of the impact of the credit valuation
adjustments on the overall valuation of its derivative positions
as of December 31, 2009, and December 31, 2008, and
has determined that the credit valuation adjustments are not
significant to the overall valuation of its derivative financial
instruments. Therefore, the Corporation has determined that the
fair value measures of its derivative financial instruments in
their entirety are classified within Level 2 of the fair
value hierarchy.
Derivative financial instruments (foreign
exchange): The Corporation provides foreign
exchange services to customers. In addition, the Corporation may
enter into a foreign currency forward to mitigate the exchange
rate risk attached to the cash flows of a loan or as an
offsetting contract to a forward entered into as a service to
our customer. The valuation of the Corporations foreign
exchange forwards is determined using quoted prices of foreign
exchange forwards with similar characteristics, with
consideration given to the nature of the quote and the
relationship of recently evidenced market activity to the fair
value estimate, and are classified in Level 2 of the fair
value hierarchy.
Mortgage derivatives: Mortgage derivatives
include interest rate lock commitments to originate residential
mortgage loans held for sale to individual customers and forward
commitments to sell residential mortgage loans to various
investors. The Corporation relies on an internal valuation model
to estimate the fair value of its interest rate lock commitments
to originate residential mortgage loans held for sale, which
includes grouping the interest rate lock commitments by interest
rate and terms, applying an estimated pull-through rate based on
historical experience, and then multiplying by quoted investor
prices determined to be reasonably applicable to the loan
commitment groups based on interest rate, terms, and rate lock
expiration dates of the loan commitment groups. The Corporation
also relies on an internal valuation model to estimate the fair
value of its forward commitments to sell residential mortgage
loans (i.e., an estimate of what the Corporation would receive
or pay to terminate the forward delivery contract based on
market prices for similar financial instruments), which includes
matching specific terms and maturities of the forward
commitments against applicable investor pricing available. While
there are Level 2 and 3 inputs used in the valuation
models, the Corporation has determined that the majority of the
inputs significant in the valuation of both of the mortgage
derivatives fall within Level 3 of the fair value
hierarchy. See Note 15, Derivative and Hedging
Activities, for additional disclosure regarding the
Corporations mortgage derivatives.
Following is a description of the valuation methodologies used
for the Corporations more significant instruments measured
on a nonrecurring basis at the lower of amortized cost or
estimated fair value, including the general classification of
such instruments pursuant to the valuation hierarchy.
129
Loans Held for Sale: Loans held for sale,
which consist generally of current production of certain
fixed-rate, first-lien residential mortgage loans, are carried
at the lower of cost or estimated fair value. The estimated fair
value is based on what secondary markets are currently offering
for portfolios with similar characteristics, which the
Corporation classifies as a Level 2 nonrecurring fair value
measurement.
Impaired Loans: The Corporation considers a
loan impaired when it is probable that the Corporation will be
unable to collect all amounts due according to the contractual
terms of the note agreement, including principal and interest.
Management has determined that commercial-oriented loan
relationships that have nonaccrual status or have had their
terms restructured meet this impaired loan definition, with the
amount of impairment based upon the loans observable
market price, the estimated fair value of the collateral for
collateral-dependent loans, or alternatively, the present value
of the expected future cash flows discounted at the loans
effective interest rate. The use of observable market price or
estimated fair value of collateral on collateral-dependent loans
is considered a fair value measurement subject to the fair value
hierarchy. Appraised values are generally used on real estate
collateral-dependent impaired loans, which the Corporation
classifies as a Level 2 nonrecurring fair value measurement.
Mortgage servicing rights: Mortgage servicing
rights do not trade in an active, open market with readily
observable prices. While sales of mortgage servicing rights do
occur, the precise terms and conditions typically are not
readily available to allow for a quoted price for similar
assets comparison. Accordingly, the Corporation relies on
an internal discounted cash flow model to estimate the fair
value of its mortgage servicing rights. The Corporation uses a
valuation model in conjunction with third party prepayment
assumptions to project mortgage servicing rights cash flows
based on the current interest rate scenario, which is then
discounted to estimate an expected fair value of the mortgage
servicing rights. The valuation model considers portfolio
characteristics of the underlying mortgages, contractually
specified servicing fees, prepayment assumptions, discount rate
assumptions, delinquency rates, late charges, other ancillary
revenue, costs to service, and other economic factors. The
Corporation reassesses and periodically adjusts the underlying
inputs and assumptions used in the model to reflect market
conditions and assumptions that a market participant would
consider in valuing the mortgage servicing rights asset. In
addition, the Corporation compares its fair value estimates and
assumptions to observable market data for mortgage servicing
rights, where available, and to recent market activity and
actual portfolio experience. Due to the nature of the valuation
inputs, mortgage servicing rights are classified within
Level 3 of the fair value hierarchy. The Corporation uses
the amortization method (i.e., lower of amortized cost or
estimated fair value measured on a nonrecurring basis), not fair
value measurement accounting, for its mortgage servicing rights
assets. See Note 5, Goodwill and Other Intangible
Assets, for additional disclosure regarding the
Corporations mortgage servicing rights.
The table below presents the Corporations investment
securities available for sale, derivative financial instruments,
and mortgage derivatives measured at fair value on a recurring
basis as of December 31, 2009, and December 31, 2008,
aggregated by the level in the fair value hierarchy within which
those measurements fall.
Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
3,875
|
|
|
$
|
3,875
|
|
|
$
|
|
|
|
$
|
|
|
Federal agency securities
|
|
|
43,407
|
|
|
|
43,407
|
|
|
|
|
|
|
|
|
|
Obligations of state and political subdivisions
|
|
|
885,165
|
|
|
|
|
|
|
|
885,165
|
|
|
|
|
|
Residential mortgage-related securities
|
|
|
4,882,519
|
|
|
|
|
|
|
|
4,882,519
|
|
|
|
|
|
Other securities (debt and equity)
|
|
|
20,567
|
|
|
|
13,613
|
|
|
|
6,954
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment securities available for sale
|
|
$
|
5,835,533
|
|
|
$
|
60,895
|
|
|
$
|
5,774,638
|
|
|
$
|
|
|
Derivatives (other assets)
|
|
|
55,178
|
|
|
|
|
|
|
|
50,666
|
|
|
|
4,512
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (other liabilities)
|
|
$
|
61,677
|
|
|
|
|
|
|
$
|
60,306
|
|
|
$
|
1,371
|
|
130
Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
December 31, 2008
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
4,966
|
|
|
$
|
4,966
|
|
|
$
|
|
|
|
$
|
|
|
Federal agency securities
|
|
|
77,010
|
|
|
|
77,010
|
|
|
|
|
|
|
|
|
|
Obligations of state and political subdivisions
|
|
|
925,603
|
|
|
|
|
|
|
|
925,603
|
|
|
|
|
|
Residential mortgage-related securities
|
|
|
4,077,431
|
|
|
|
|
|
|
|
4,077,431
|
|
|
|
|
|
Other securities (debt and equity)
|
|
|
58,404
|
|
|
|
31,710
|
|
|
|
26,694
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment securities available for sale
|
|
$
|
5,143,414
|
|
|
$
|
113,686
|
|
|
$
|
5,029,728
|
|
|
$
|
|
|
Derivatives (other assets)
|
|
|
83,626
|
|
|
|
|
|
|
|
76,996
|
|
|
|
6,630
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (other liabilities)
|
|
$
|
95,468
|
|
|
$
|
|
|
|
$
|
92,968
|
|
|
$
|
2,500
|
|
The table below presents a rollforward of the balance sheet
amounts for the years ended December 31, 2009 and 2008, for
financial instruments measured on a recurring basis and
classified within Level 3 of the fair value hierarchy.
|
|
|
|
|
|
|
|
|
Assets and Liabilities Measured at Fair Value
|
|
Using Significant Unobservable Inputs (Level 3)
|
|
|
|
Investment Securities
|
|
|
|
|
|
|
Available for Sale
|
|
|
Derivatives
|
|
|
|
($ in Thousands)
|
|
|
Balance December 31, 2007
|
|
$
|
|
|
|
$
|
(1,067
|
)
|
Total net gains included in income:
|
|
|
|
|
|
|
|
|
Mortgage derivative gain
|
|
|
|
|
|
|
5,197
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
$
|
|
|
|
$
|
4,130
|
|
Net transfer in
|
|
|
2,000
|
|
|
|
|
|
Total net losses included in income:
|
|
|
|
|
|
|
|
|
Net impairment losses on investment securities
|
|
|
(2,000
|
)
|
|
|
|
|
Mortgage derivative loss
|
|
|
|
|
|
|
(989
|
)
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
$
|
|
|
|
$
|
3,141
|
|
|
|
|
|
|
|
In valuing the $2.0 million investment security available
for sale classified within Level 3, the Corporation
incorporated its own assumptions about future cash flows and
discount rates adjusting for credit and liquidity factors. The
Corporation reviewed the underlying collateral and other
relevant data in developing the assumptions for this investment
security, and $2.0 million credit-related
other-than-temporary
impairment was recognized for the year ended December 31,
2009, respectively.
The table below presents the Corporations loans held for
sale, impaired loans, and mortgage servicing rights measured at
fair value on a nonrecurring basis as of December 31, 2009
and 2008, aggregated by the level in the fair value hierarchy
within which those measurements fall.
131
Assets
and Liabilities Measured at Fair Value on a Nonrecurring
Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
December 31, 2009
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
81,238
|
|
|
$
|
|
|
|
$
|
81,238
|
|
|
$
|
|
|
Loans(1)
|
|
|
605,341
|
|
|
|
|
|
|
|
605,341
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
63,753
|
|
|
|
|
|
|
|
|
|
|
|
63,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
December 31, 2008
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
87,084
|
|
|
$
|
|
|
|
$
|
87,084
|
|
|
$
|
|
|
Loans(1)
|
|
|
133,627
|
|
|
|
|
|
|
|
133,627
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
45,568
|
|
|
|
|
|
|
|
|
|
|
|
45,568
|
|
|
|
|
(1)
|
|
Represents collateral-dependent
impaired loans, net, which are included in loans.
|
Certain nonfinancial assets measured at fair value on a
nonrecurring basis include other real estate owned (upon initial
recognition or subsequent impairment), nonfinancial assets and
nonfinancial liabilities measured at fair value in the second
step of a goodwill impairment test, and intangible assets and
other nonfinancial long-lived assets measured at fair value for
impairment assessment.
During 2009, certain other real estate owned, upon initial
recognition, was re-measured and reported at fair value through
a charge off to the allowance for loan losses based upon the
estimated fair value of the other real estate owned. The fair
value of other real estate owned, upon initial recognition, is
estimated using appraised values, which the Corporation
classifies as a Level 2 nonrecurring fair value
measurement. Other real estate owned measured at fair value upon
initial recognition totaled approximately $74 million for
the year ended December 31, 2009. In addition to other real
estate owned measured at fair value upon initial recognition,
the Corporation also recorded write-downs to the balance of
other real estate owned of $14 million to noninterest
expense for the year ended December 31, 2009.
Fair Value of Financial Instruments:
The Corporation is required to disclose estimated fair values
for its financial instruments. Fair value estimates, methods,
and assumptions are set forth below for the Corporations
financial instruments.
132
The estimated fair values of the Corporations financial
instruments at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
|
($ in Thousands)
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
770,816
|
|
|
$
|
770,816
|
|
|
$
|
533,338
|
|
|
$
|
533,338
|
|
Interest-bearing deposits in other financial institutions
|
|
|
26,091
|
|
|
|
26,091
|
|
|
|
12,649
|
|
|
|
12,649
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
23,785
|
|
|
|
23,785
|
|
|
|
24,741
|
|
|
|
24,741
|
|
Accrued interest receivable
|
|
|
87,447
|
|
|
|
87,447
|
|
|
|
98,335
|
|
|
|
98,335
|
|
Interest rate swap, cap, and collar agreements(1)
|
|
|
49,445
|
|
|
|
49,445
|
|
|
|
75,576
|
|
|
|
75,576
|
|
Foreign currency exchange forwards
|
|
|
1,221
|
|
|
|
1,221
|
|
|
|
1,420
|
|
|
|
1,420
|
|
Investment securities available for sale
|
|
|
5,835,533
|
|
|
|
5,835,533
|
|
|
|
5,143,414
|
|
|
|
5,143,414
|
|
Federal Home Loan Bank and Federal Reserve Bank stocks
|
|
|
181,316
|
|
|
|
181,316
|
|
|
|
206,003
|
|
|
|
206,003
|
|
Loans held for sale
|
|
|
81,238
|
|
|
|
81,238
|
|
|
|
87,084
|
|
|
|
87,161
|
|
Loans, net
|
|
|
13,555,092
|
|
|
|
12,167,223
|
|
|
|
16,018,530
|
|
|
|
15,527,838
|
|
Bank owned life insurance
|
|
|
520,751
|
|
|
|
520,751
|
|
|
|
510,663
|
|
|
|
510,663
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
16,728,613
|
|
|
|
16,728,613
|
|
|
|
15,154,796
|
|
|
|
15,154,796
|
|
Accrued interest payable
|
|
|
21,214
|
|
|
|
21,214
|
|
|
|
31,947
|
|
|
|
31,947
|
|
Short-term borrowings
|
|
|
1,226,853
|
|
|
|
1,226,853
|
|
|
|
3,703,936
|
|
|
|
3,703,936
|
|
Long-term funding
|
|
|
1,953,998
|
|
|
|
2,028,042
|
|
|
|
1,861,647
|
|
|
|
1,981,566
|
|
Interest rate swap, cap, and collar agreements(1)
|
|
|
59,635
|
|
|
|
59,635
|
|
|
|
91,697
|
|
|
|
91,697
|
|
Foreign currency exchange forwards
|
|
|
671
|
|
|
|
671
|
|
|
|
1,271
|
|
|
|
1,271
|
|
Standby letters of credit(2)
|
|
|
3,096
|
|
|
|
3,096
|
|
|
|
3,672
|
|
|
|
3,672
|
|
Interest rate lock commitments to originate residential mortgage
loans held for sale
|
|
|
4,512
|
|
|
|
4,512
|
|
|
|
6,630
|
|
|
|
6,630
|
|
Forward commitments to sell residential mortgage loans
|
|
|
(1,371
|
)
|
|
|
(1,371
|
)
|
|
|
(2,500
|
)
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
(1)
|
|
At December 31, 2009 and 2008,
the notional amount of cash flow hedge interest rate swap
agreements was $200 million and $400 million,
respectively. See Note 15 for information on the fair value
of derivative financial instruments.
|
|
(2)
|
|
The commitment on standby letters
of credit was $0.5 and $0.6 billion at December 31,
2009 and 2008, respectively. See Note 14 for additional
information on the standby letters of credit and for information
on the fair value of lending-related commitments.
|
Cash and due from banks, interest-bearing deposits in other
financial institutions, federal funds sold and securities
purchased under agreements to resell, and accrued interest
receivableFor these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Investment securities available for saleThe fair
value of investment securities available for sale is based on
quoted prices in active markets, or if quoted prices are not
available for a specific security, then fair values are
estimated by using pricing models, quoted prices of securities
with similar characteristics, or discounted cash flows.
Federal Home Loan Bank and Federal Reserve Bank
stocksThe carrying amount is a reasonable fair value
estimate for the Federal Reserve Bank and Federal Home Loan Bank
stocks given their restricted nature (i.e., the
stock can only be sold back to the respective institutions
(Federal Home Loan Bank or Federal Reserve Bank) or another
member institution at par).
133
Loans held for saleFair value is estimated using
the prices of the Corporations existing commitments to
sell such loans
and/or the
quoted market prices for commitments to sell similar loans.
Loans, netThe fair value estimation process for the
loan portfolio at December 31, 2009, uses an exit price
concept and reflects discounts the Corporation believes are
consistent with liquidity discounts in the market place, while
the fair value estimation process for the loan portfolio at
December 31, 2008, uses a historical or replacement cost
basis concept (i.e., an entrance price concept). Fair values are
estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as
commercial, financial, and agricultural, real estate
construction, commercial real estate, lease financing,
residential mortgage, home equity, and other installment. The
fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for similar
maturities. In addition, at December 31, 2009, the fair
value analysis included other assumptions to estimate fair
value, intended to approximate those a market participant would
use in an orderly transaction, with adjustments for discount
rates, interest rates, liquidity, and credit spreads, as
appropriate.
Bank owned life insuranceThe fair value of bank
owned life insurance approximates the carrying amount, because
upon liquidation of these investments, the Corporation would
receive the cash surrender value which equals the carrying
amount.
DepositsThe fair value of deposits with no stated
maturity such as noninterest-bearing demand deposits, savings,
interest-bearing demand deposits, and money market accounts, is
equal to the amount payable on demand as of the balance sheet
date. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of
similar remaining maturities. However, if the estimated fair
value of certificates of deposit is less than the carrying
value, the carrying value is reported as the fair value of the
certificates of deposit.
Accrued interest payable and short-term
borrowingsFor these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Long-term fundingRates currently available to the
Corporation for debt with similar terms and remaining maturities
are used to estimate the fair value of existing borrowings.
Interest rate swap, cap, collar, and corridor
agreementsThe fair value of interest rate swap, cap,
collar, and corridor agreements is determined using discounted
cash flow analysis on the expected cash flows of each
derivative. The Corporation also incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance
risk and the respective counterpartys nonperformance risk
in the fair value measurements.
Foreign currency exchange forwardsThe fair value of
the Corporations foreign exchange forwards is determined
using quoted prices of foreign exchange forwards with similar
characteristics, with consideration given to the nature of the
quote and the relationship of recently evidenced market activity
to the fair value estimate.
Standby letters of creditThe fair value of standby
letters of credit represent deferred fees arising from the
related off-balance sheet financial instruments. These deferred
fees approximate the fair value of these instruments and are
based on several factors, including the remaining terms of the
agreement and the credit standing of the customer.
Interest rate lock commitments to originate residential
mortgage loans held for saleThe Corporation relies on
an internal valuation model to estimate the fair value of its
interest rate lock commitments to originate residential mortgage
loans held for sale, which includes grouping the interest rate
lock commitments by interest rate and terms, applying an
estimated pull-through rate based on historical experience, and
then multiplying by quoted investor prices determined to be
reasonably applicable to the loan commitment groups based on
interest rate, terms, and rate lock expiration dates of the loan
commitment groups.
Forward commitments to sell residential mortgage
loansThe Corporation relies on an internal valuation
model to estimate the fair value of its forward commitments to
sell residential mortgage loans (i.e., an estimate of what the
Corporation would receive or pay to terminate the forward
delivery contract based on market prices for similar financial
instruments), which includes matching specific terms and
maturities of the forward commitments against applicable
investor pricing available.
134
LimitationsFair value estimates are made at a
specific point in time, based on relevant market information and
information about the financial instrument. These estimates do
not reflect any premium or discount that could result from
offering for sale at one time the Corporations entire
holdings of a particular financial instrument. Because no market
exists for a significant portion of the Corporations
financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
|
|
NOTE 18
|
REGULATORY
MATTERS:
|
Restrictions
on Cash and Due From Banks
The Corporations bank subsidiary is required to maintain
certain vault cash and reserve balances with the Federal Reserve
Bank to meet specific reserve requirements. These requirements
approximated $7 million at December 31, 2009.
Regulatory
Capital Requirements
The Corporation and its subsidiary bank are subject to various
regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Corporations
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the
Corporation must meet specific capital guidelines that involve
quantitative measures of the Corporations assets,
liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Corporations
capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Corporation to maintain minimum
amounts and ratios (set forth in the table below) of total and
tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of tier 1 capital
(as defined) to average assets (as defined). Management
believes, as of December 31, 2009 and 2008, that the
Corporation meets all capital adequacy requirements to which it
is subject.
As of December 31, 2009 and 2008, the most recent
notifications from the Office of the Comptroller of the Currency
and the Federal Deposit Insurance Corporation categorized the
subsidiary bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as
well capitalized, the subsidiary bank must maintain minimum
total risk-based, tier 1 risk-based, and tier 1
leverage ratios as set forth in the table. There are no
conditions or events since that notification that management
believes have changed the institutions category. The
actual capital amounts and ratios of the Corporation and its
significant subsidiary are presented below. No deductions from
capital were made for interest rate risk in 2009 or 2008.
On November 5, 2009, Associated Bank, National Association
(the Bank) entered into a Memorandum of
Understanding (MOU) with the Comptroller of the
Currency (OCC), its primary banking regulator. The
MOU, which is an informal agreement between the Bank and the
OCC, requires the Bank to develop, implement, and maintain
various processes to improve the Banks risk management of
its loan portfolio and a three year capital plan providing for
maintenance of specified capital levels discussed below,
notification to the OCC of dividends proposed to be paid to the
Corporation and the commitment of the Corporation to act as a
primary or contingent source of the Banks capital.
Management believes that it has satisfied a number of the
conditions of the MOU and has commenced the steps necessary to
resolve any and all remaining matters presented therein. The
Bank has also agreed with the OCC that beginning March 31,
2010, until the MOU is no longer in effect, to maintain minimum
135
capital ratios at specified levels higher than those otherwise
required by applicable regulations as follows: Tier 1
capital to total average assets (leverage ratio)8% and
total capital to risk-weighted assets12%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized
|
|
|
|
|
|
|
|
|
|
For Capital Adequacy
|
|
|
Under Prompt Corrective
|
|
|
|
Actual
|
|
|
Purposes(3)
|
|
|
Action Provisions:(2)
|
|
($ In Thousands)
|
|
Amount
|
|
|
Ratio(1)
|
|
|
Amount
|
|
|
Ratio(1)
|
|
|
Amount
|
|
|
Ratio(1)
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated Banc-Corp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
$
|
2,180,959
|
|
|
|
14.24
|
%
|
|
$
|
1,225,539
|
|
|
|
³8.00
|
%
|
|
|
|
|
|
|
|
|
Tier 1 Capital
|
|
|
1,918,238
|
|
|
|
12.52
|
|
|
|
612,770
|
|
|
|
³4.00
|
%
|
|
|
|
|
|
|
|
|
Leverage
|
|
|
1,918,238
|
|
|
|
8.76
|
|
|
|
875,906
|
|
|
|
³4.00
|
%
|
|
|
|
|
|
|
|
|
Associated Bank, N.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
$
|
1,972,224
|
|
|
|
13.16
|
%
|
|
$
|
1,199,305
|
|
|
|
³8.00
|
%
|
|
$
|
1,499,131
|
|
|
|
³10.00
|
%
|
Tier 1 Capital
|
|
|
1,779,593
|
|
|
|
11.87
|
|
|
|
599,652
|
|
|
|
³4.00
|
%
|
|
|
899,478
|
|
|
|
³
6.00
|
%
|
Leverage
|
|
|
1,779,593
|
|
|
|
8.26
|
|
|
|
861,389
|
|
|
|
³4.00
|
%
|
|
|
1,076,736
|
|
|
|
³
5.00
|
%
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated Banc-Corp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
$
|
2,446,597
|
|
|
|
13.76
|
%
|
|
$
|
1,422,715
|
|
|
|
³8.00
|
%
|
|
|
|
|
|
|
|
|
Tier 1 Capital
|
|
|
2,117,680
|
|
|
|
11.91
|
|
|
|
711,358
|
|
|
|
³4.00
|
%
|
|
|
|
|
|
|
|
|
Leverage
|
|
|
2,117,680
|
|
|
|
9.75
|
|
|
|
869,139
|
|
|
|
³4.00
|
%
|
|
|
|
|
|
|
|
|
Associated Bank, N.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
$
|
1,794,979
|
|
|
|
10.32
|
|
|
$
|
1,391,227
|
|
|
|
³8.00
|
%
|
|
$
|
1,739,033
|
|
|
|
³10.00
|
%
|
Tier 1 Capital
|
|
|
1,576,864
|
|
|
|
9.07
|
|
|
|
695,613
|
|
|
|
³4.00
|
%
|
|
|
1,043,420
|
|
|
|
³
6.00
|
%
|
Leverage
|
|
|
1,576,864
|
|
|
|
7.31
|
|
|
|
862,936
|
|
|
|
³4.00
|
%
|
|
|
1,078,670
|
|
|
|
³
5.00
|
%
|
|
|
|
(1)
|
|
Total Capital ratio is
defined as tier 1 capital plus tier 2 capital divided
by total risk-weighted assets. The Tier 1 Capital ratio is
defined as tier 1 capital divided by total risk-weighted
assets. The leverage ratio is defined as tier 1 capital
divided by the most recent quarters average total assets.
|
|
(2)
|
|
Prompt corrective
action provisions are not applicable at the bank holding company
level.
|
|
(3)
|
|
The Bank has agreed
with the OCC that beginning March 31, 2010, until the MOU
is no longer in effect, to maintain minimum capital ratios at
specified levels higher than those otherwise required by
applicable regulations as follows: Tier 1 capital to total
average assets (leverage ratio)8% and total capital to
risk-weighted assets (total capital ratio)12%.
|
|
|
NOTE 19
|
EARNINGS
PER COMMON SHARE:
|
Earnings per share are calculated utilizing the two-class
method. Basic earnings per share are calculated by dividing the
sum of distributed earnings to common shareholders and
undistributed earnings allocated to common shareholders by the
weighted average number of common shares outstanding. Diluted
earnings per share are calculated by dividing the sum of
distributed earnings to common shareholders and undistributed
earnings allocated to common shareholders by the weighted
average number of shares adjusted for the dilutive effect of
common stock
136
awards (outstanding stock options, unvested restricted stock,
and outstanding stock warrants) and unsettled share repurchases.
Presented below are the calculations for basic and diluted
earnings per common share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net income (loss)
|
|
$
|
(131,859
|
)
|
|
$
|
168,452
|
|
|
$
|
285,752
|
|
Preferred stock dividends and discount accretion
|
|
|
(29,348
|
)
|
|
|
(3,250
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common equity
|
|
$
|
(161,207
|
)
|
|
$
|
165,202
|
|
|
$
|
285,752
|
|
|
|
|
|
|
|
Common shareholder dividends
|
|
|
(60,102
|
)
|
|
|
(161,913
|
)
|
|
|
(155,566
|
)
|
Unvested share-based payment awards
|
|
|
(248
|
)
|
|
|
(434
|
)
|
|
|
(243
|
)
|
|
|
|
|
|
|
Undistributed earnings
|
|
$
|
(221,557
|
)
|
|
$
|
2,855
|
|
|
$
|
129,943
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings to common shareholders
|
|
$
|
60,102
|
|
|
$
|
161,913
|
|
|
$
|
155,566
|
|
Undistributed earnings to common shareholders
|
|
|
(221,557
|
)
|
|
|
2,847
|
|
|
|
129,747
|
|
|
|
|
|
|
|
Total common shareholders earnings, basic
|
|
$
|
(161,455
|
)
|
|
$
|
164,760
|
|
|
$
|
285,313
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings to common shareholders
|
|
$
|
60,102
|
|
|
$
|
161,913
|
|
|
$
|
155,566
|
|
Undistributed earnings to common shareholders
|
|
|
(221,557
|
)
|
|
|
2,847
|
|
|
|
129,747
|
|
|
|
|
|
|
|
Total common shareholders earnings, diluted
|
|
$
|
(161,455
|
)
|
|
$
|
164,760
|
|
|
$
|
285,313
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
127,858
|
|
|
|
127,501
|
|
|
|
127,408
|
|
Effect of dilutive stock awards and unsettled share repurchases
|
|
|
|
|
|
|
274
|
|
|
|
966
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
127,858
|
|
|
|
127,775
|
|
|
|
128,374
|
|
Basic earnings (loss) per common share
|
|
$
|
(1.26
|
)
|
|
$
|
1.29
|
|
|
$
|
2.24
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
(1.26
|
)
|
|
$
|
1.29
|
|
|
$
|
2.22
|
|
|
|
|
|
|
|
As a result of the Corporations reported net loss for the
year ended December 31, 2009, all of the stock options
outstanding were excluded from the computation of diluted
earnings (loss) per common share. Options to purchase
approximately 5 million and 3 million shares were
outstanding at December 31, 2008 and December 31,
2007, respectively, but excluded from the calculation of diluted
earnings per share as the effect would have been anti-dilutive.
|
|
NOTE 20
|
SEGMENT
REPORTING:
|
Selected financial and descriptive information is required to be
provided about reportable operating segments, considering a
management approach concept as the basis for
identifying reportable segments. The management approach is
based on the way that management organizes the segments within
the enterprise for making operating decisions, allocating
resources, and assessing performance. Consequently, the segments
are evident from the structure of the enterprises internal
organization, focusing on financial information that an
enterprises chief operating decision-makers use to make
decisions about the enterprises operating matters.
The Corporations primary segment is banking, conducted
through its bank and lending subsidiaries. For purposes of
segment disclosure, as allowed by the governing accounting
statement, these entities have been combined as one segment that
have similar economic characteristics and the nature of their
products, services, processes, customers, delivery channels, and
regulatory environment are similar. Banking consists of lending
and deposit gathering (as well as other banking-related products
and services) to businesses, governmental units, and consumers
(including mortgages, home equity lending, and card products)
and the support to deliver, fund, and manage such banking
services.
The wealth management segment provides products and a variety of
fiduciary, investment management, advisory, and Corporate agency
services to assist customers in building, investing, or
protecting their wealth, including insurance, brokerage, and
trust/asset management. The other segment includes intersegment
eliminations and residual revenues and expenses, representing
the difference between actual amounts incurred and the amounts
allocated to operating segments. The accounting policies of the
segments are the same as those described in Note 1.
137
During 2009, changes in the organizational structure of the
Corporation led to revised allocation methodologies for
noninterest expense. Prior period expense amounts have been
reclassified to conform to the current period presentation.
Selected segment information is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Management
|
|
|
Other
|
|
|
Total
|
|
|
|
($ in Thousands)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
725,164
|
|
|
$
|
841
|
|
|
$
|
|
|
|
$
|
726,005
|
|
Provision for loan losses
|
|
|
750,645
|
|
|
|
|
|
|
|
|
|
|
|
750,645
|
|
Noninterest income
|
|
|
277,876
|
|
|
|
96,944
|
|
|
|
(4,240
|
)
|
|
|
370,580
|
|
Depreciation and amortization
|
|
|
54,468
|
|
|
|
1,317
|
|
|
|
|
|
|
|
55,785
|
|
Other noninterest expense
|
|
|
499,423
|
|
|
|
80,071
|
|
|
|
(4,240
|
)
|
|
|
575,254
|
|
Income tax expense (benefit)
|
|
|
(159,799
|
)
|
|
|
6,559
|
|
|
|
|
|
|
|
(153,240
|
)
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(141,697
|
)
|
|
$
|
9,838
|
|
|
$
|
|
|
|
$
|
(131,859
|
)
|
|
|
|
|
|
|
Percent of consolidated net income (loss)
|
|
|
N/M
|
|
|
|
N/M
|
|
|
|
N/M
|
|
|
|
N/M
|
|
Total assets
|
|
$
|
22,817,934
|
|
|
$
|
125,687
|
|
|
$
|
(69,479
|
)
|
|
$
|
22,874,142
|
|
|
|
|
|
|
|
Percent of consolidated total assets
|
|
|
100
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
100
|
%
|
Total revenues*
|
|
$
|
1,003,040
|
|
|
$
|
97,785
|
|
|
$
|
(4,240
|
)
|
|
$
|
1,096,585
|
|
Percent of consolidated total revenues
|
|
|
91
|
%
|
|
|
9
|
%
|
|
|
|
%
|
|
|
100
|
%
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
695,370
|
|
|
$
|
778
|
|
|
$
|
|
|
|
$
|
696,148
|
|
Provision for loan losses
|
|
|
202,058
|
|
|
|
|
|
|
|
|
|
|
|
202,058
|
|
Noninterest income
|
|
|
200,515
|
|
|
|
105,043
|
|
|
|
(3,851
|
)
|
|
|
301,707
|
|
Depreciation and amortization
|
|
|
49,799
|
|
|
|
1,468
|
|
|
|
|
|
|
|
51,267
|
|
Other noninterest expense
|
|
|
445,809
|
|
|
|
80,292
|
|
|
|
(3,851
|
)
|
|
|
522,250
|
|
Income tax expense
|
|
|
44,204
|
|
|
|
9,624
|
|
|
|
|
|
|
|
53,828
|
|
|
|
|
|
|
|
Net income
|
|
$
|
154,015
|
|
|
$
|
14,437
|
|
|
$
|
|
|
|
$
|
168,452
|
|
|
|
|
|
|
|
Percent of consolidated net income
|
|
|
91
|
%
|
|
|
9
|
%
|
|
|
|
%
|
|
|
100
|
%
|
Total assets
|
|
$
|
24,133,439
|
|
|
$
|
115,690
|
|
|
$
|
(57,062
|
)
|
|
$
|
24,192,067
|
|
|
|
|
|
|
|
Percent of consolidated total assets
|
|
|
100
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
100
|
%
|
Total revenues*
|
|
$
|
895,885
|
|
|
$
|
105,821
|
|
|
$
|
(3,851
|
)
|
|
$
|
997,855
|
|
Percent of consolidated total revenues
|
|
|
90
|
%
|
|
|
10
|
%
|
|
|
|
%
|
|
|
100
|
%
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
643,306
|
|
|
$
|
507
|
|
|
$
|
|
|
|
$
|
643,813
|
|
Provision for loan losses
|
|
|
34,509
|
|
|
|
|
|
|
|
|
|
|
|
34,509
|
|
Noninterest income
|
|
|
259,259
|
|
|
|
107,473
|
|
|
|
(3,884
|
)
|
|
|
362,848
|
|
Depreciation and amortization
|
|
|
48,314
|
|
|
|
1,695
|
|
|
|
|
|
|
|
50,009
|
|
Other noninterest expense
|
|
|
426,189
|
|
|
|
80,644
|
|
|
|
(3,884
|
)
|
|
|
502,949
|
|
Income tax expense
|
|
|
123,186
|
|
|
|
10,256
|
|
|
|
|
|
|
|
133,442
|
|
|
|
|
|
|
|
Net income
|
|
$
|
270,367
|
|
|
$
|
15,385
|
|
|
$
|
|
|
|
$
|
285,752
|
|
|
|
|
|
|
|
Percent of consolidated net income
|
|
|
95
|
%
|
|
|
5
|
%
|
|
|
|
%
|
|
|
100
|
%
|
Total assets
|
|
$
|
21,527,456
|
|
|
$
|
110,105
|
|
|
$
|
(45,478
|
)
|
|
$
|
21,592,083
|
|
|
|
|
|
|
|
Percent of consolidated total assets
|
|
|
100
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
100
|
%
|
Total revenues*
|
|
$
|
902,565
|
|
|
$
|
107,980
|
|
|
$
|
(3,884
|
)
|
|
$
|
1,006,661
|
|
Percent of consolidated total revenues
|
|
|
90
|
%
|
|
|
10
|
%
|
|
|
|
%
|
|
|
100
|
%
|
N/M = Not meaningful.
|
|
|
*
|
|
Total revenues for this segment
disclosure are defined to be the sum of net interest income plus
noninterest income, net of mortgage servicing rights
amortization.
|
138
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Associated Banc-Corp:
We have audited the accompanying consolidated balance sheets of
Associated Banc-Corp and subsidiaries (the Company) as of
December 31, 2009 and 2008, and the related consolidated
statements of income (loss), changes in stockholders
equity, and cash flows for each of the years in the three-year
period ended December 31, 2009. These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Associated Banc-Corp and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Associated Banc-Corps internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated
February 16, 2010 expressed an unqualified opinion on the
effectiveness of the Companys internal control over
financial reporting.
KPMG LLP
Chicago, Illinois
February 16, 2010
139
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
The Corporation maintains disclosure controls and procedures as
required under
Rule 13a-15(e)
and
Rule 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act), that are designed to
ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms, and that such information is accumulated and communicated
to the Corporations management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure.
As of December 31, 2009, the Corporations management
carried out an evaluation, under the supervision and with the
participation of the Corporations Chief Executive Officer
and Chief Financial Officer, of the effectiveness of its
disclosure controls and procedures. Based on the foregoing, its
Chief Executive Officer and Chief Financial Officer concluded
that the Corporations disclosure controls and procedures
were effective as of December 31, 2009. No changes were
made to the Corporations internal control over financial
reporting (as defined
Rule 13a-15(f)
and
Rule 15d-15(f)
promulgated under the Exchange Act) during the last fiscal
quarter that have materially affected, or are reasonably likely
to materially affect, the Corporations internal control
over financial reporting.
Managements
Annual Report on Internal Control Over Financial
Reporting
Management of Associated Banc-Corp (the Corporation)
is responsible for establishing and maintaining adequate
internal control over financial reporting. The
Corporations internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the
Corporations financial statements for external purposes in
accordance with generally accepted accounting principles.
Internal control over financial reporting is defined in
Rules 13a-15(f)
and
15d-15(f)
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act).
As of December 31, 2009, management assessed the
effectiveness of the Corporations internal control over
financial reporting based on criteria for effective internal
control over financial reporting established in Internal
ControlIntegrated Framework, issued by the Committee
of Sponsoring Organization of the Treadway Commission (COSO).
Based on this assessment, management has determined that the
Corporations internal control over financial reporting as
of December 31, 2009, was effective.
KPMG LLP, the independent registered public accounting firm that
audited the consolidated financial statements of the Corporation
included in this Annual Report on
Form 10-K,
has issued an attestation report on the effectiveness of the
Corporations internal control over financial reporting as
of December 31, 2009. The report, which expresses an
unqualified opinion on the effectiveness of the
Corporations internal control over financial reporting as
of December 31, 2009, is included under the heading
Report of Independent Registered Public Accounting
Firm.
140
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Associated Banc-Corp:
We have audited Associated Banc-Corps (the Company)
internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Associated Banc-Corp maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Associated Banc-Corp and
subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of income (loss), changes in
stockholders equity, and cash flows for each of the years
in the three-year period ended December 31, 2009, and our
report dated February 16, 2010 expressed an unqualified
opinion on those consolidated financial statements.
KPMG LLP
Chicago, Illinois
February 16, 2010
141
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
During November 2009, David A. Baumgarten, Executive Vice
President, Regional Banking, announced his intention to retire
during 2010 from the Corporation and began transitioning his
executive officer responsibilities to other senior executives.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information in the Corporations definitive Proxy
Statement, prepared for the 2010 Annual Meeting of Shareholders,
which contains information concerning directors of the
Corporation under the captions Election of Directors
and Information About the Board of Directors;
information concerning executive officers of the Corporation
under the caption Information About the Executive
Officers,; and information concerning Section 16(a)
compliance under the caption Section 16(a) Beneficial
Ownership Reporting Compliance is incorporated herein by
reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information in the Corporations definitive Proxy
Statement, prepared for the 2010 Annual Meeting of Shareholders,
which contains information concerning this item, under the
caption Executive Compensation, is incorporated
herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information in the Corporations definitive Proxy
Statement, prepared for the 2010 Annual Meeting of Shareholders,
which contains information concerning this item, under the
caption Stock Ownership, is incorporated herein by
reference.
Equity
Compensation Plan Information
The following table provides information as of December 31,
2009, regarding shares outstanding and available for issuance
under the Corporations existing equity compensation plans.
Additional information regarding stock-based compensation is
presented in Note 11, Stock-Based Compensation,
of the notes to consolidated financial statements within
Part II, Item 8, Financial Statements and
Supplementary Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
(a)
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Securities to be
|
|
|
(b)
|
|
|
Under Equity
|
|
|
|
Issued Upon
|
|
|
Weighted-Average
|
|
|
Compensation Plans
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
(excluding
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
securities
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
reflected in column
|
|
Plan Category
|
|
and Rights
|
|
|
and Rights
|
|
|
(a))
|
|
|
Equity compensation plans approved
|
|
|
|
|
|
|
|
|
|
|
|
|
by security holders
|
|
|
6,708,618
|
|
|
$
|
26.16
|
|
|
|
2,735,647
|
|
Equity compensation plans not
|
|
|
|
|
|
|
|
|
|
|
|
|
approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,708,618
|
|
|
$
|
26.16
|
|
|
|
2,735,647
|
|
|
|
|
|
|
|
142
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information in the Corporations definitive Proxy
Statement, prepared for the 2010 Annual Meeting of Shareholders,
which contains information concerning this item under the
caption Related Person Transactions, is incorporated
herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information in the Corporations definitive Proxy
Statement, prepared for the 2010 Annual meeting of Shareholders,
which contains information concerning this item under the
caption Fees Paid to Independent Registered Public
Accounting Firm, is incorporated herein by reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
(a)
|
1 and 2
Financial Statements and Financial Statement Schedules
|
The following financial statements and financial statement
schedules are included under a separate caption Financial
Statements and Supplementary Data in Part II,
Item 8 hereof and are incorporated herein by reference.
Consolidated Balance SheetsDecember 31, 2009 and 2008
Consolidated Statements of Income (Loss)For the Years
Ended December 31, 2009, 2008, and 2007
Consolidated Statements of Changes in Stockholders
EquityFor the Years Ended December 31, 2009, 2008,
and 2007
Consolidated Statements of Cash FlowsFor the Years Ended
December 31, 2009, 2008, and 2007
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
143
|
|
(a)
|
3
Exhibits Required by Item 601 of
Regulation S-K
|
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
|
(3)(a)
|
|
Amended and Restated Articles of Incorporation
|
|
Exhibit (3) to Report on Form 10-Q filed on May 8, 2006
|
(3)(b)
|
|
Articles of Amendment to the Amended and Restated Articles of
Incorporation (TARP Capital Purchase Program Fixed Rate
Cumulative Perpetual Preferred Stock, Series A)
|
|
Exhibit (3.1) to Report on Form 8-K filed on November 21, 2008
|
(3)(c)
|
|
Amended and Restated Bylaws
|
|
Exhibit (3.1) to Report on Form 8-K filed on April 24, 2008
|
(4)
|
|
Instruments Defining the Rights of Security Holders, Including
Indentures
|
|
|
|
|
The Parent Company, by signing this report, agrees to furnish
the SEC, upon its request, a copy of any instrument that defines
the rights of holders of long-term debt of the Corporation and
its consolidated and unconsolidated subsidiaries for which
consolidated or unconsolidated financial statements are required
to be filed and that authorizes a total amount of securities not
in excess of 10% of the total assets of the Corporation on a
consolidated basis
|
|
|
(4)(b)
|
|
Warrant for Purchase of Common Stock, issue date
November 21, 2008 (TARP Capital Purchase Program)
|
|
Exhibit (4.1) to Report on Form 8-K filed on November 21, 2008
|
*(10)(a)
|
|
Associated Banc-Corp 1987 Long-Term Incentive Stock Plan,
Amended and Restated Effective January 1, 2008
|
|
Exhibit (10)(a) to Report on Form 10-K filed on February 26, 2009
|
*(10)(b)
|
|
Associated Banc-Corp 1999 Long-Term Incentive Stock Plan,
Amended and Restated Effective January 1, 2008
|
|
Exhibit (10)(b) to Report on Form 10-K filed on February 26, 2009
|
*(10)(c)
|
|
Associated Banc-Corp 2003 Long-Term Incentive Stock Plan,
Amended and Restated Effective January 1, 2008
|
|
Exhibit (10)(c) to Report on Form 10-K filed on February 26, 2009
|
*(10)(d)
|
|
Form of Incentive Stock Option Agreement Pursuant to Associated
Banc-Corp 2003 Long-Term Incentive Stock Plan, Amended and
Restated Effective January 1, 2008
|
|
Exhibit (10)(d) to Report on Form 10-K filed on February 26, 2009
|
*(10)(e)
|
|
Form of Non Qualified Stock Option Agreement Pursuant to
Associated Banc-Corp 2003 Long-Term Incentive Stock Plan,
Amended and Restated Effective January 1, 2008
|
|
Exhibit (10)(e) to Report on Form 10-K filed on February 26, 2009
|
*(10)(f)
|
|
Form of Restricted Stock AgreementPerformance Based
Restricted Shares Pursuant to Associated Banc-Corp 2003
Long-Term Incentive Stock Plan, Amended and Restated Effective
January 1, 2008
|
|
Exhibit (10)(f) to Report on Form 10-K filed on February 26,
2009
|
144
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
|
*(10)(g)
|
|
Form of Restricted Stock AgreementService Based Restricted
Shares Pursuant to Associated Banc-Corp 2003 Long-Term
Incentive Stock Plan, Amended and Restated Effective
January 1, 2008
|
|
Exhibit (10)(g) to Report on Form 10-K filed on February 26, 2009
|
*(10)(h)
|
|
Associated Banc-Corp Deferred Compensation Plan
|
|
Exhibit (10)(h) to Report on Form 10-K filed on February 26, 2009
|
*(10)(i)
|
|
Associated Banc-Corp Directors Deferred Compensation Plan,
Restated Effective January 1, 2008
|
|
Exhibit (10)(i) to Report on Form 10-K filed on February 26, 2009
|
*(10)(j)
|
|
Associated Banc-Corp Cash Incentive Compensation Plan, Amended
and Restated Effective January 1, 2008
|
|
Exhibit (10)(j) to Report on Form 10-K filed on February 26, 2009
|
*(10)(k)
|
|
Associated Banc-Corp Supplemental Executive Retirement Plan,
Restated Effective January 1, 2008
|
|
Exhibit (10)(k) to Report on Form 10-K filed on February 26, 2009
|
*(10)(l)
|
|
Change of Control Plan of the Corporation, Restated Effective
January 1, 2008
|
|
Exhibit (10)(l) to Report on Form 10-K filed on February 26, 2009
|
(10)(m)
|
|
Letter Agreement, dated November 21, 2008, between
Associated Banc-Corp and the United States Department of the
Treasury, which includes the Securities Purchase Agreement
attached thereto, with respect to the issuance and sale of the
Fixed Rate Cumulative Perpetual Preferred Stock, Series A
and Warrant to purchase Common Stock (TARP Capital Purchase
Program)
|
|
Exhibit (10.1) to Report on Form 8-K filed on November 21, 2008
|
*(10)(n)
|
|
Form of Senior Executive Officer Compensation Waiver (TARP
Capital Purchase Program)
|
|
Exhibit (10.2) to Report on Form 8-K filed on November 21, 2008
|
*(10)(o)
|
|
Form of TARP Capital Purchase Program Compliance, Amendment and
Consent Agreement (including Clawback Policy)
|
|
Exhibit (10.3) to Report on Form 8-K filed on November 21, 2008
|
*(10)(p)
|
|
Separation and General Release Agreement, dated as of
May 15, 2009, by and between Associated Banc-Corp and Lisa
B. Binder
|
|
Exhibit (99.1) to Report on Form 8-K filed on May 15, 2009
|
*(10)(q)
|
|
Employment Agreement, dated November 16, 2009, by and
between Associated Banc-Corp and Philip B. Flynn
|
|
Exhibit (99.1) to Report on Form 8-K filed on November 16, 2009
|
*(10)(r)
|
|
Amendment to Associated Banc-Corp 2003 Long-Term Incentive Stock
Plan effective November 15, 2009
|
|
Exhibit (99.2) to Report on Form 8-K filed on November 16, 2009
|
*(10)(s)
|
|
Form of Restricted Stock Unit Grant Agreement
|
|
Exhibit (99.3) to Report on Form 8-K filed on November 16, 2009
|
*(10)(t)
|
|
Letter Agreement, dated November 25, 2009, by and between
Associated Banc-Corp and Paul S. Beideman
|
|
Exhibit (99.1) to Report on Form 8-K filed on November 27, 2009
|
*(10)(u)
|
|
Form of Restricted Stock Grant Agreement
|
|
Exhibit (99.1) to Report on Form 8-K filed on January 29, 2010
|
(11)
|
|
Statement Re Computation of Per Share Earnings
|
|
See Note 19 in Part II Item 8
|
(21)
|
|
Subsidiaries of Associated Banc-Corp
|
|
Filed herewith
|
145
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
|
|
(23)
|
|
Consent of Independent Registered Public Accounting Firm
|
|
Filed herewith
|
(24)
|
|
Powers of Attorney
|
|
Filed herewith
|
(31.1)
|
|
Certification Under Section 302 of Sarbanes-Oxley by Philip
B. Flynn, Chief Executive Officer
|
|
Filed herewith
|
(31.2)
|
|
Certification Under Section 302 of Sarbanes-Oxley by Joseph
B. Selner, Chief Financial Officer
|
|
Filed herewith
|
(32)
|
|
Certification by the CEO and CFO Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
Sarbanes-Oxley.
|
|
Filed herewith
|
(99.1)
|
|
Certification of Chief Executive Officer Pursuant to
Section 111(b)(4) of the Emergency Economic Stabilization
Act of 2008
|
|
Filed herewith
|
(99.2)
|
|
Certification of Chief Financial Officer Pursuant to
Section 111(b)(4) of the Emergency Economic Stabilization
Act of 2008
|
|
Filed herewith
|
|
|
|
*
|
|
Management contracts and
arrangements.
|
Schedules and exhibits other than those listed are omitted for
the reasons that they are not required, are not applicable or
that equivalent information has been included in the financial
statements, and notes thereto, or elsewhere within.
146
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
ASSOCIATED BANC-CORP
|
|
|
|
Date: February 16, 2010
|
|
By: /s/ PHILIP
B.
FLYNN Philip
B. Flynn
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Philip
B. Flynn
Philip
B. Flynn
President and Chief Executive Officer and Director
|
|
/s/ Eileen
A. Kamerick *
Eileen
A. Kamerick
Director
|
|
|
|
|
|
|
|
|
|
/s/ Joseph
B. Selner
Joseph
B. Selner
Chief Financial Officer
Principal Financial Officer and
Principal Accounting Officer
|
|
/s/ Richard
T. Lommen *
Richard
T. Lommen
Director
|
|
|
|
|
|
|
|
|
|
/s/ Karen
T. Beckwith *
Karen
T. Beckwith
Director
|
|
/s/ John
C. Meng *
John
C. Meng
Director
|
|
|
|
|
|
|
|
|
|
/s/ Ruth
M. Crowley *
Ruth
M. Crowley
Director
|
|
/s/ J.
Douglas Quick *
J.
Douglas Quick
Director
|
|
|
|
|
|
|
|
|
|
/s/ Ronald
R. Harder *
Ronald
R. Harder
Director
|
|
/s/ Carlos
E. Santiago *
Carlos
E. Santiago
Director
|
|
|
|
|
|
|
|
|
|
/s/ William
R. Hutchinson *
William
R. Hutchinson
Chairman
|
|
/s/ John
C. Seramur *
John
C. Seramur
Director
|
|
|
|
|
|
|
|
|
|
*By: /s/ Brian
R. Bodager
Brian
R. Bodager
Attorney-in-Fact
Pursuant to Powers of Attorney filed as Exhibit 24
|
|
|
Date: February 16, 2010
147