Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

or

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9861

 

 

M&T BANK CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

New York		16-0968385
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One M & T Plaza Buffalo, New York		14203
(Address of principal executive offices)		(Zip Code)

(716) 842-5445

(Registrant’s telephone number, including area code)

 

 

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.    x  Yes    ¨  No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		x		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Number of shares of the registrant’s Common Stock, $0.50 par value, outstanding as of the close of business on July 31, 2013: 130,037,423 shares.

 

 

 

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Table of Contents

M&T BANK CORPORATION

FORM 10-Q

For the Quarterly Period Ended June 30, 2013

 

Table of Contents of Information Required in Report		Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEET - June 30, 2013 and December 31, 2012			3
CONSOLIDATED STATEMENT OF INCOME - Three and six months ended June 30, 2013 and 2012			4
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - Three and six months ended June 30, 2013 and 2012			5
CONSOLIDATED STATEMENT OF CASH FLOWS - Six months ended June 30, 2013 and 2012			6
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY - Six months ended June 30, 2013 and 2012			7
NOTES TO FINANCIAL STATEMENTS			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			58
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			105
Item 4. Controls and Procedures.			105
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.			105
Item 1A. Risk Factors.			105
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			106
Item 3. Defaults Upon Senior Securities.			106
Item 4. Mine Safety Disclosures.			106
Item 5. Other Information.			106
Item 6. Exhibits.			107
SIGNATURES			107
EXHIBIT INDEX			108

 

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (Unaudited)

 

				June 30,				December 31,
Dollars in thousands, except per share				2013				2012
Assets
		Cash and due from banks		$	1,350,015				1,983,615
		Interest-bearing deposits at banks			2,555,354				129,945
		Federal funds sold			124,487				3,000
		Trading account			378,235				488,966
		Investment securities (includes pledged securities that can be sold or repledged of $1,724,073 at June 30, 2013; $1,801,842 at December 31, 2012)
		Available for sale (cost: $2,985,526 at June 30, 2013; $4,643,070 at December 31, 2012)			3,085,086				4,739,437
		Held to maturity (fair value: $1,737,578 at June 30, 2013; $976,883 at December 31, 2012)			1,819,691				1,032,276
		Other (fair value: $305,749 at June 30, 2013; $302,648 at December 31, 2012)			305,749				302,648
		Total investment securities			5,210,526				6,074,361
		Loans and leases			66,197,178				66,790,186
		Unearned discount			(225,312	)			(219,229	)
		Loans and leases, net of unearned discount			65,971,866				66,570,957
		Allowance for credit losses			(927,065	)			(925,860	)
		Loans and leases, net			65,044,801				65,645,097
		Premises and equipment			595,536				594,652
		Goodwill			3,524,625				3,524,625
		Core deposit and other intangible assets			89,918				115,763
		Accrued interest and other assets			4,355,508				4,448,779
		Total assets		$	83,229,005				83,008,803
Liabilities
		Noninterest-bearing deposits		$	24,074,815				24,240,802
		NOW accounts			1,791,995				1,979,619
		Savings deposits			35,455,693				33,783,947
		Time deposits			4,054,524				4,562,366
		Deposits at Cayman Islands office			284,443				1,044,519
		Total deposits			65,661,470				65,611,253
		Federal funds purchased and agreements to repurchase securities			307,740				1,074,482
		Accrued interest and other liabilities			1,421,067				1,512,717
		Long-term borrowings			5,122,398				4,607,758
		Total liabilities			72,512,675				72,806,210
Shareholders’ equity		Preferred stock, $1.00 par, 1,000,000 shares authorized; Issued and outstanding: Liquidation preference of $1,000 per share: 381,500 shares at June 30, 2013 and December 31, 2012; Liquidation preference of $10,000 per share: 50,000 shares at June 30, 2013 and December 31, 2012			876,796				872,500
		Common stock, $.50 par, 250,000,000 shares authorized, 129,416,718 shares issued at June 30, 2013; 128,176,912 shares issued at December 31, 2012			64,709				64,088
		Common stock issuable, 46,813 shares at June 30, 2013; 57,409 shares at December 31, 2012			2,860				3,473
		Additional paid-in capital			3,112,666				3,025,520
		Retained earnings			6,887,070				6,477,276
		Accumulated other comprehensive income (loss), net			(227,771	)			(240,264	)
		Total shareholders’ equity			10,716,330				10,202,593
		Total liabilities and shareholders’ equity		$	83,229,005				83,008,803

 

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

 

				Three months ended June 30								Six months ended June 30
In thousands, except per share				2013				2012				2013				2012
Interest income		Loans and leases, including fees		$	705,395				674,549			$	1,387,850				1,323,063
		Deposits at banks			1,455				767				1,722				980
		Federal funds sold			45				8				62				11
		Agreements to resell securities			1				—				10				—
		Trading account			241				318				879				635
		Investment securities
		Fully taxable			41,293				59,724				86,053				122,688
		Exempt from federal taxes			1,777				2,020				3,606				4,104
		Total interest income			750,207				737,386				1,480,182				1,451,481
Interest expense		NOW accounts			321				424				643				707
		Savings deposits			13,790				16,940				27,827				35,123
		Time deposits			7,484				12,354				15,680				25,863
		Deposits at Cayman Islands office			200				232				588				445
		Short-term borrowings			96				348				327				651
		Long-term borrowings			50,729				59,105				101,480				120,320
		Total interest expense			72,620				89,403				146,545				183,109
		Net interest income			677,587				647,983				1,333,637				1,268,372
		Provision for credit losses			57,000				60,000				95,000				109,000
		Net interest income after provision for credit losses			620,587				587,983				1,238,637				1,159,372
Other income		Mortgage banking revenues			91,262				69,514				184,365				125,706
		Service charges on deposit accounts			111,717				110,982				222,666				219,871
		Trust income			124,728				122,275				246,331				239,228
		Brokerage services income			17,258				16,172				32,969				30,073
		Trading account and foreign exchange gains			9,224				6,238				18,151				16,809
		Gain (loss) on bank investment securities			56,457				(408	)			56,457				(363	)
		Total other-than-temporary impairment (“OTTI”) losses			—				(4,072	)			(1,884	)			(24,112	)
		Portion of OTTI losses recognized in other comprehensive income (before taxes)			—				(12,101	)			(7,916	)			(3,547	)
		Net OTTI losses recognized in earnings			—				(16,173	)			(9,800	)			(27,659	)
		Equity in earnings of Bayview Lending Group LLC			(2,453	)			(6,635	)			(6,109	)			(11,387	)
		Other revenues from operations			100,496				89,685				196,541				176,095
		Total other income			508,689				391,650				941,571				768,373
Other expense		Salaries and employee benefits			323,136				323,686				679,687				669,784
		Equipment and net occupancy			64,278				65,376				129,437				130,419
		Printing, postage and supplies			10,298				11,368				20,997				23,240
		Amortization of core deposit and other intangible assets			12,502				15,907				25,845				32,681
		FDIC assessments			17,695				24,962				37,133				53,911
		Other costs of operations			170,682				186,093				341,088				357,052
		Total other expense			598,591				627,392				1,234,187				1,267,087
		Income before taxes			530,685				352,241				946,021				660,658
		Income taxes			182,219				118,861				323,442				220,815
		Net income		$	348,466				233,380			$	622,579				439,843
		Net income available to common shareholders
		Basic		$	328,538				214,709			$	583,597				402,947
		Diluted			328,557				214,716				583,633				402,958
		Net income per common share
		Basic		$	2.56				1.71			$	4.56				3.21
		Diluted			2.55				1.71				4.53				3.20
		Cash dividends per common share		$	.70				.70			$	1.40				1.40
		Average common shares outstanding
		Basic			128,252				125,488				127,962				125,354
		Diluted			129,017				125,897				128,828				125,756

 

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

 

		Three months ended June 30								Six months ended June 30
In thousands		2013				2012				2013				2012
Net income		$	348,466				233,380			$	622,579				439,843
Other comprehensive income, net of tax and reclassification adjustments:
Net unrealized gains (losses) on investment securities			(6,722	)			49,289				3,357				69,371
Reclassification to income for amortization of gains on terminated cash flow hedges			—				(42	)			—				(112	)
Foreign currency translation adjustment			(114	)			(533	)			(1,046	)			(131	)
Defined benefit plans liability adjustment			5,018				4,695				10,182				9,464
Total other comprehensive income			(1,818	)			53,409				12,493				78,592
Total comprehensive income		$	346,648				286,789			$	635,072				518,435

 

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

				Six months ended June 30
In thousands				2013				2012
Cash flows from operating activities		Net income		$	622,579				439,843
		Adjustments to reconcile net income to net cash provided by operating activities
		Provision for credit losses			95,000				109,000
		Depreciation and amortization of premises and equipment			43,354				41,762
		Amortization of capitalized servicing rights			30,653				28,773
		Amortization of core deposit and other intangible assets			25,845				32,681
		Provision for deferred income taxes			30,373				12,064
		Asset write-downs			15,043				39,676
		Net gain on sales of assets			(59,134	)			(3,786	)
		Net change in accrued interest receivable, payable			(1,131	)			1,731
		Net change in other accrued income and expense			20,336				(35,590	)
		Net change in loans originated for sale			(220,784	)			(33,964	)
		Net change in trading account assets and liabilities			14,362				12,438
		Net cash provided by operating activities			616,496				644,628
Cash flows from investing activities		Proceeds from sales of investment securities
		Available for sale			1,081,496				48,873
		Other			5,439				45,374
		Proceeds from maturities of investment securities
		Available for sale			652,074				741,571
		Held to maturity			141,255				157,849
		Purchases of investment securities
		Available for sale			(39,411	)			(19,808	)
		Held to maturity			(11,252	)			(269,854	)
		Other			(8,540	)			(13,269	)
		Net increase in loans and leases			(228,853	)			(2,805,640	)
		Net increase in interest-bearing deposits at banks			(2,425,409	)			(914,757	)
		Other investments, net			(3,936	)			(5,436	)
		Capital expenditures, net			(43,663	)			(46,892	)
		Proceeds from sales of real estate acquired in settlement of loans			35,456				64,735
		Other, net			53,842				(38,849	)
		Net cash used by investing activities			(791,502	)			(3,056,103	)
Cash flows from financing activities		Net increase in deposits			54,101				3,162,352
		Net increase (decrease) in short-term borrowings			(766,742	)			193,515
		Proceeds from long-term borrowings			799,760				—
		Payments on long-term borrowings			(257,178	)			(1,006,539	)
		Dividends paid - common			(181,842	)			(179,446	)
		Dividends paid - preferred			(26,725	)			(26,725	)
		Other, net			41,519				238,752
		Net cash provided (used) by financing activities			(337,107	)			2,381,909
		Net decrease in cash and cash equivalents			(512,113	)			(29,566	)
		Cash and cash equivalents at beginning of period			1,986,615				1,452,397
		Cash and cash equivalents at end of period		$	1,474,502				1,422,831
Supplemental disclosure of cash flow information		Interest received during the period		$	1,459,142				1,457,310
		Interest paid during the period			151,737				192,666
		Income taxes paid during the period			226,406				204,249
Supplemental schedule of noncash investing and financing activities		Securitization of residential mortgage loans allocated to
		Held to maturity investment securities		$	917,045				—
		Capitalized servicing rights			8,907				—
		Real estate acquired in settlement of loans			15,502				26,623

 

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M&T BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

 

In thousands, except per share		Preferred stock				Common stock				Common stock issuable				Additional paid-in capital				Retained earnings				Accumulated other comprehensive income (loss), net				Total
2012
Balance - January 1, 2012		$	864,585				62,842				4,072				2,828,986				5,867,165				(356,441	)			9,271,209
Total comprehensive income			—				—				—				—				439,843				78,592				518,435
Preferred stock cash dividends			—				—				—				—				(26,725	)			—				(26,725	)
Amortization of preferred stock discount			3,848				—				—				—				(3,848	)			—				—
Stock-based compensation plans:
Compensation expense, net			—				216				—				18,289				—				—				18,505
Exercises of stock options, net			—				227				—				24,912				—				—				25,139
Directors’ stock plan			—				4				—				764				—				—				768
Deferred compensation plans, net, including dividend equivalents			—				5				(643	)			549				(80	)			—				(169	)
Other			—				—				—				1,016				—				—				1,016
Common stock cash dividends - $1.40 per share			—				—				—				—				(178,271	)			—				(178,271	)
Balance - June 30, 2012		$	868,433				63,294				3,429				2,874,516				6,098,084				(277,849	)			9,629,907
2013
Balance - January 1, 2013		$	872,500				64,088				3,473				3,025,520				6,477,276				(240,264	)			10,202,593
Total comprehensive income			—				—				—				—				622,579				12,493				635,072
Preferred stock cash dividends			—				—				—				—				(26,725	)			—				(26,725	)
Amortization of preferred stock discount			4,296				—				—				—				(4,296	)			—				—
Exercise of 407,542 Series C stock warrants into 186,589 shares of common stock			—				93				—				(93	)			—				—				—
Stock-based compensation plans:
Compensation expense, net			—				153				—				21,056				—				—				21,209
Exercises of stock options, net			—				366				—				63,505				—				—				63,871
Directors’ stock plan			—				4				—				793				—				—				797
Deferred compensation plans, net, including dividend equivalents			—				5				(613	)			564				(66	)			—				(110	)
Other			—				—				—				1,321				—				—				1,321
Common stock cash dividends - $1.40 per share			—				—				—				—				(181,698	)			—				(181,698	)
Balance - June 30, 2013		$	876,796				64,709				2,860				3,112,666				6,887,070				(227,771	)			10,716,330

 

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NOTES TO FINANCIAL STATEMENTS

 

1.	Significant accounting policies

The consolidated financial statements of M&T Bank Corporation (“M&T”) and subsidiaries (“the Company”) were compiled in accordance with generally accepted accounting principles (“GAAP”) using the accounting policies set forth in note 1 of Notes to Financial Statements included in the 2012 Annual Report. In the opinion of management, all adjustments necessary for a fair presentation have been made and were all of a normal recurring nature.

 

2.	Acquisitions

On August 27, 2012, M&T announced that it had entered into a definitive agreement with Hudson City Bancorp, Inc. (“Hudson City”), headquartered in Paramus, New Jersey, under which Hudson City would be acquired by M&T. Pursuant to the terms of the agreement, Hudson City shareholders will receive consideration for each common share of Hudson City in an amount valued at .08403 of an M&T share in the form of either M&T common stock or cash, based on the election of each Hudson City shareholder, subject to proration as specified in the merger agreement (which provides for an aggregate split of total consideration of 60% common stock of M&T and 40% cash). As of June 30, 2013, total consideration to be paid was valued at approximately $4.7 billion. At June 30, 2013, Hudson City had $39.7 billion of assets, including $25.3 billion of loans and $10.6 billion of investment securities, and $35.0 billion of liabilities, including $22.6 billion of deposits. The merger has received the approval of the common shareholders of M&T and Hudson City. However, the merger is subject to a number of other conditions, including regulatory approvals.

On April 12, 2013, M&T announced that additional time would be required to obtain a regulatory determination on the applications for the proposed merger with Hudson City. M&T learned that the Federal Reserve Bank of New York (“Federal Reserve Bank”) identified certain concerns with the Company’s procedures, systems and processes related to the Company’s Bank Secrecy Act and anti-money-laundering compliance program. On June 17, 2013, M&T and Manufacturers and Traders Trust Company (“M&T Bank”), M&T’s principal banking subsidiary, entered into a written agreement with the Federal Reserve Bank. Under the terms of the agreement, M&T and M&T Bank are required to submit to the Federal Reserve Bank a revised compliance risk management program designed to ensure compliance with anti-money-laundering laws and regulations and to take certain other steps to enhance their compliance practices. M&T has commenced a major initiative, including the hiring of outside consulting firms, intended to fully address the Federal Reserve Bank’s concerns. In view of the potential timeframe required to implement this initiative, demonstrate its efficacy to the satisfaction of the Federal Reserve Bank and otherwise meet any other regulatory requirements that may be imposed in connection with these matters, M&T and Hudson City extended the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed from August 27, 2013 to January 31, 2014. There can be no assurances that the merger will be completed by that date.

In connection with the pending acquisition, the Company incurred merger-related expenses related to preparing for systems conversions and other costs of integrating and conforming acquired operations with and into the Company. Those expenses consisted largely of professional services and other temporary help fees associated with planning for the conversion of systems and/or integration of operations; initial marketing and promotion expenses designed to introduce M&T Bank to its new customers; travel costs; and printing, postage, supplies and other costs of planning for the transaction and commencing operations in new markets and offices.

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

2.	Acquisitions, continued

 

A summary of merger-related expenses in 2013 associated with the pending Hudson City acquisition and in 2012 associated with the May 16, 2011 acquisition of Wilmington Trust Corporation (“Wilmington Trust”) included in the consolidated statement of income follows:

 

		Three months ended								Six months ended
		June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
		(in thousands)
Salaries and employee benefits		$	300				3,024			$	836				4,997
Equipment and net occupancy			489				—				690				15
Printing, postage and supplies			998				—				1,825				—
Other costs of operations			5,845				4,127				9,013				4,867
		$	7,632				7,151			$	12,364				9,879

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3.	Investment securities

The amortized cost and estimated fair value of investment securities were as follows:

 

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Estimated fair value
		(in thousands)
June 30, 2013
Investment securities available for sale:
U.S. Treasury and federal agencies		$	37,486				622				—			$	38,108
Obligations of states and political subdivisions			18,874				364				7				19,231
Mortgage-backed securities:
Government issued or guaranteed			2,612,466				83,452				1,025				2,694,893
Privately issued			4,771				525				24				5,272
Collateralized debt obligations			42,911				18,140				1,135				59,916
Other debt securities			136,841				1,760				20,650				117,951
Equity securities			132,177				18,230				692				149,715
			2,985,526				123,093				23,533				3,085,086
Investment securities held to maturity:
Obligations of states and political subdivisions			177,824				4,355				73				182,106
Mortgage-backed securities:
Government issued or guaranteed			1,401,569				12,517				30,841				1,383,245
Privately issued			230,625				22				68,093				162,554
Other debt securities			9,673				—				—				9,673
			1,819,691				16,894				99,007				1,737,578
Other securities			305,749				—				—				305,749
Total		$	5,110,966				139,987				122,540			$	5,128,413
December 31, 2012
Investment securities available for sale:
U.S. Treasury and federal agencies		$	38,422				922				—			$	39,344
Obligations of states and political subdivisions			20,375				534				8				20,901
Mortgage-backed securities:
Government issued or guaranteed			3,163,210				208,060				229				3,371,041
Privately issued			1,142,287				7,272				125,673				1,023,886
Collateralized debt obligations			43,228				19,663				1,022				61,869
Other debt securities			136,603				2,247				26,900				111,950
Equity securities			98,945				14,921				3,420				110,446
			4,643,070				253,619				157,252				4,739,437
Investment securities held to maturity:
Obligations of states and political subdivisions			182,103				7,647				27				189,723
Mortgage-backed securities:
Government issued or guaranteed			597,340				31,727				—				629,067
Privately issued			242,378				160				94,900				147,638
Other debt securities			10,455				—				—				10,455
			1,032,276				39,534				94,927				976,883
Other securities			302,648				—				—				302,648
Total		$	5,977,994				293,153				252,179			$	6,018,968

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3.	Investment securities, continued

 

Gross realized gains on investment securities were $116 million for the three-month and six-month periods ended June 30, 2013. During the second quarter of 2013, the Company sold its holdings of Visa Class B shares for a gain of approximately $90 million and its holdings of MasterCard Class B shares for a gain of $13 million. Gross realized losses on investment securities were $60 million for the three-month and six-month periods ended June 30, 2013. During the second quarter of 2013, the Company sold substantially all of its privately issued mortgage-backed securities held in the available-for-sale investment securities portfolio. In total, $1.0 billion of such securities were sold for a net loss of approximately $46 million. Gross realized gains and losses from sales of investment securities were not significant for the three-month and six-month periods ended June 30, 2012.

The Company recognized $10 million of pre-tax other-than-temporary impairment (“OTTI”) losses during the six months ended June 30, 2013 and $16 million and $28 million during the three months and six months ended June 30, 2012, respectively, related to privately issued mortgage-backed securities. There were no other-than-temporary impairment losses during the second quarter of 2013. The impairment charges were recognized in light of deterioration of real estate values and a rise in delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. The OTTI losses represented management’s estimate of credit losses inherent in the debt securities considering projected cash flows using assumptions for delinquency rates, loss severities, and other estimates of future collateral performance.

Changes in credit losses associated with debt securities for which OTTI losses have been recognized in earnings for the three months and six months ended June 30, 2013 and 2012 follows:

 

		Three months ended June 30
		2013				2012
		(in thousands)
Beginning balance		$	187,114				267,473
Additions for credit losses not previously recognized			—				16,173
Reductions for realized losses			(186,320	)			(19,449	)
Ending balance		$	794				264,197
		Six months ended June 30
		2013				2012
		(in thousands)
Beginning balance		$	197,809				285,399
Additions for credit losses not previously recognized			9,800				27,659
Reductions for realized losses			(206,815	)			(48,861	)
Ending balance		$	794				264,197

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3.	Investment securities, continued

 

At June 30, 2013, the amortized cost and estimated fair value of debt securities by contractual maturity were as follows:

 

		Amortized cost				Estimated fair value
		(in thousands)
Debt securities available for sale:
Due in one year or less		$	25,043				25,170
Due after one year through five years			21,020				21,951
Due after five years through ten years			8,772				9,189
Due after ten years			181,277				178,896
			236,112				235,206
Mortgage-backed securities available for sale			2,617,237				2,700,165
		$	2,853,349				2,935,371
Debt securities held to maturity:
Due in one year or less		$	24,360				24,490
Due after one year through five years			61,785				63,641
Due after five years through ten years			91,679				93,975
Due after ten years			9,673				9,673
			187,497				191,779
Mortgage-backed securities held to maturity			1,632,194				1,545,799
		$	1,819,691				1,737,578

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3.	Investment securities, continued

 

A summary of investment securities that as of June 30, 2013 and December 31, 2012 had been in a continuous unrealized loss position for less than twelve months and those that had been in a continuous unrealized loss position for twelve months or longer follows:

 

		Less than 12 months								12 months or more
		Fair value				Unrealized losses				Fair value				Unrealized losses
		(in thousands)
June 30, 2013
Investment securities available for sale:
Obligations of states and political subdivisions		$	—				—				676				(7	)
Mortgage-backed securities:
Government issued or guaranteed			199,273				(886	)			7,012				(139	)
Privately issued			326				(17	)			124				(7	)
Collateralized debt obligations			—				—				5,955				(1,135	)
Other debt securities			4,804				(18	)			102,116				(20,632	)
Equity securities			2,450				(692	)			—				—
			206,853				(1,613	)			115,883				(21,920	)
Investment securities held to maturity:
Obligations of states and political subdivisions			11,734				(54	)			1,558				(19	)
Mortgage-backed securities:
Government issued or guaranteed			1,080,577				(30,841	)			—				—
Privately issued			—				—				162,395				(68,093	)
			1,092,311				(30,895	)			163,953				(68,112	)
Total		$	1,299,164				(32,508	)			279,836				(90,032	)
December 31, 2012
Investment securities available for sale:
Obligations of states and political subdivisions		$	166				(1	)			683				(7	)
Mortgage-backed securities:
Government issued or guaranteed			12,107				(65	)			8,804				(164	)
Privately issued			121,487				(692	)			774,328				(124,981	)
Collateralized debt obligations			—				—				6,043				(1,022	)
Other debt securities			—				—				95,685				(26,900	)
Equity securities			5,535				(1,295	)			2,956				(2,125	)
			139,295				(2,053	)			888,499				(155,199	)
Investment securities held to maturity:
Obligations of states and political subdivisions			1,026				(5	)			3,558				(22	)
Privately issued mortgage-backed securities			—				—				147,273				(94,900	)
			1,026				(5	)			150,831				(94,922	)
Total		$	140,321				(2,058	)			1,039,330				(250,121	)

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

3.	Investment securities, continued

 

The Company owned 278 individual investment securities with aggregate gross unrealized losses of $123 million at June 30, 2013. Approximately $68 million of the unrealized losses pertained to privately issued mortgage-backed securities with a cost basis of $231 million. The Company also had $22 million of unrealized losses on trust preferred securities issued by financial institutions and securities backed by trust preferred securities having a cost basis of $135 million. Based on a review of each of the remaining securities in the investment securities portfolio at June 30, 2013 the Company concluded that it expected to recover the amortized cost basis of its investment. As of June 30, 2013, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its impaired investment securities. At June 30, 2013, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $306 million of cost method investment securities.

 

4.	Loans and leases and the allowance for credit losses

The outstanding principal balance and the carrying amount of acquired loans that were recorded at fair value at the acquisition date that is included in the consolidated balance sheet is as follows:

 

		June 30,				December 31,
		2013				2012
		(in thousands)
Outstanding principal balance		$	5,690,165				6,705,120
Carrying amount:
Commercial, financial, leasing, etc.			752,761				928,107
Commercial real estate			2,102,757				2,567,050
Residential real estate			641,734				707,309
Consumer			1,417,358				1,637,887
		$	4,914,610				5,840,353

Purchased impaired loans included in the table above totaled $395 million at June 30, 2013 and $447 million at December 31, 2012, representing less than 1% of the Company’s assets as of each date. A summary of changes in the accretable yield for acquired loans for the three months and six months ended June 30, 2013 and 2012 follows:

 

		Three months ended June 30
		2013								2012
		Purchased impaired				Other acquired				Purchased impaired				Other acquired
		(in thousands)
Balance at beginning of period		$	33,728				577,609			$	22,565				747,466
Interest income			(9,747	)			(67,539	)			(9,621	)			(80,249	)
Reclassifications from (to) nonaccretable balance, net			31,168				111,702				42,655				97,165
Other (a)			—				321				—				(31,221	)
Balance at end of period		$	55,149				622,093			$	55,599				733,161

 

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4.	Loans and leases and the allowance for credit losses, continued

 

		Six months ended June 30
		2013								2012
		Purchased				Other				Purchased				Other
		impaired				acquired				impaired				acquired
		(in thousands)
Balance at beginning of period		$	42,252				638,272			$	30,805				807,960
Interest income			(18,451	)			(129,286	)			(17,285	)			(153,972	)
Reclassifications from (to) nonaccretable balance, net			31,348				122,519				42,079				98,165
Other (a)			—				(9,412	)			—				(18,992	)
Balance at end of period		$	55,149				622,093			$	55,599				733,161

 

(a)	Other changes in expected cash flows including changes in interest rates and prepayment assumptions.

A summary of current, past due and nonaccrual loans as of June 30, 2013 and December 31, 2012 were as follows:

 

		Current				30-89 Days past due				90 Days or more past due and accruing								Purchased impaired (b)				Nonaccrual				Total
										Non- acquired				Acquired (a)
		(in thousands)
June 30, 2013
Commercial, financial, leasing, etc.		$	17,803,206				41,516				5,701				9,902				16,734				144,753			$	18,021,812
Real estate:
Commercial			21,646,755				132,454				14,397				43,916				110,026				197,987				22,145,535
Residential builder and developer			796,756				15,226				3,291				11,343				151,369				132,621				1,110,606
Other commercial construction			2,709,159				17,789				79				16,339				78,373				38,514				2,860,253
Residential			9,039,263				298,767				312,703				46,900				35,534				254,033				9,987,200
Residential Alt-A			305,693				21,464				—				—				—				85,392				412,549
Consumer:
Home equity lines and loans			6,039,668				33,205				—				26,615				2,661				70,488				6,172,637
Automobile			2,467,882				32,752				—				168				—				20,533				2,521,335
Other			2,678,668				35,887				4,296				503				—				20,585				2,739,939
Total		$	63,487,050				629,060				340,467				155,686				394,697				964,906			$	65,971,866

 

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4.	Loans and leases and the allowance for credit losses, continued

 

		Current				30-89 Days past due				90 Days or more past due and accruing								Purchased impaired (b)				Nonaccrual				Total
										Non- acquired				Acquired (a)
		(in thousands)
December 31, 2012
Commercial, financial, leasing, etc.		$	17,511,052				62,479				23,490				10,587				17,437				151,908			$	17,776,953
Real estate:
Commercial			21,759,997				118,249				13,111				54,995				132,962				193,859				22,273,173
Residential builder and developer			757,311				35,419				3,258				23,909				187,764				181,865				1,189,526
Other commercial construction			2,379,953				35,274				509				9,572				68,971				36,812				2,531,091
Residential			9,811,956				337,969				313,184				45,124				36,769				249,314				10,794,316
Residential Alt-A			331,021				19,692				—				—				—				95,808				446,521
Consumer:
Home equity lines and loans			6,199,591				40,759				—				20,318				3,211				58,071				6,321,950
Automobile			2,442,502				40,461				—				251				—				25,107				2,508,321
Other			2,661,432				40,599				4,845				1,798				—				20,432				2,729,106
Total		$	63,854,815				730,901				358,397				166,554				447,114				1,013,176			$	66,570,957

 

(a)	Acquired loans that were recorded at fair value at acquisition date. This category does not include purchased impaired loans that are presented separately.

(b)	Accruing loans that were impaired at acquisition date and were recorded at fair value.

One-to-four family residential mortgage loans originated for sale were $809 million and $1.2 billion at June 30, 2013 and December 31, 2012, respectively. Additionally, approximately $1.0 billion of one-to-four family residential mortgage loans in the Company’s loan portfolio at June 30, 2013 are anticipated to be securitized with Ginnie Mae in the third quarter of 2013 with the Company retaining the substantial majority of such securities. Commercial mortgage loans held for sale were $133 million at June 30, 2013 and $200 million at December 31, 2012. In the third quarter of 2013, the Company anticipates securitizing up to approximately $1.5 billion of consumer loans through securitization transactions.

Changes in the allowance for credit losses for the three months ended June 30, 2013 were as follows:

 

		Commercial, Financial,				Real Estate
		Leasing, etc.				Commercial				Residential				Consumer				Unallocated				Total
		(in thousands)
Beginning balance		$	257,851				328,016				90,122				176,793				74,335			$	927,117
Provision for credit losses			55,647				(10,913	)			(1,438	)			13,707				(3	)			57,000
Net charge-offs
Charge-offs			(46,312	)			(4,204	)			(5,092	)			(21,018	)			—				(76,626	)
Recoveries			1,681				11,365				1,719				4,809				—				19,574
Net charge-offs			(44,631	)			7,161				(3,373	)			(16,209	)			—				(57,052	)
Ending balance		$	268,867				324,264				85,311				174,291				74,332			$	927,065

 

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4.	Loans and leases and the allowance for credit losses, continued

 

Changes in the allowance for credit losses for the three months ended June 30, 2012 were as follows:

 

		Commercial, Financial,				Real Estate
		Leasing, etc.				Commercial				Residential				Consumer				Unallocated				Total
		(in thousands)
Beginning balance		$	239,273				356,554				97,301				142,912				72,966			$	909,006
Provision for credit losses			19,103				(3,309	)			5,587				38,427				192				60,000
Net charge-offs
Charge-offs			(16,078	)			(13,056	)			(11,407	)			(23,621	)			—				(64,162	)
Recoveries			2,430				1,332				1,788				6,634				—				12,184
Net charge-offs			(13,648	)			(11,724	)			(9,619	)			(16,987	)			—				(51,978	)
Ending balance		$	244,728				341,521				93,269				164,352				73,158			$	917,028

Changes in the allowance for credit losses for the six months ended June 30, 2013 were as follows:

 

		Commercial, Financial,				Real Estate
		Leasing, etc.				Commercial				Residential				Consumer				Unallocated				Total
		(in thousands)
Beginning balance		$	246,759				337,101				88,807				179,418				73,775			$	925,860
Provision for credit losses			73,527				(11,225	)			3,598				28,543				557				95,000
Net charge-offs
Charge-offs			(55,856	)			(13,792	)			(13,263	)			(42,663	)			—				(125,574	)
Recoveries			4,437				12,180				6,169				8,993				—				31,779
Net charge-offs			(51,419	)			(1,612	)			(7,094	)			(33,670	)			—				(93,795	)
Ending balance		$	268,867				324,264				85,311				174,291				74,332			$	927,065

Changes in the allowance for credit losses for the six months ended June 30, 2012 were as follows:

 

		Commercial, Financial,				Real Estate
		Leasing, etc.				Commercial				Residential				Consumer				Unallocated				Total
		(in thousands)
Beginning balance		$	234,022				367,637				91,915				143,121				71,595			$	908,290
Provision for credit losses			29,224				(5,569	)			21,817				61,965				1,563				109,000
Net charge-offs
Charge-offs			(24,115	)			(23,596	)			(24,125	)			(52,602	)			—				(124,438	)
Recoveries			5,597				3,049				3,662				11,868				—				24,176
Net charge-offs			(18,518	)			(20,547	)			(20,463	)			(40,734	)			—				(100,262	)
Ending balance		$	244,728				341,521				93,269				164,352				73,158			$	917,028

Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any loan or lease type.

 

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4.	Loans and leases and the allowance for credit losses, continued

 

In establishing the allowance for credit losses, the Company estimates losses attributable to specific troubled credits identified through both normal and detailed or intensified credit review processes and also estimates losses inherent in other loans and leases on a collective basis. For purposes of determining the level of the allowance for credit losses, the Company evaluates its loan and lease portfolio by loan type. The amounts of loss components in the Company’s loan and lease portfolios are determined through a loan by loan analysis of larger balance commercial and commercial real estate loans that are in nonaccrual status and by applying loss factors to groups of loan balances based on loan type and management’s classification of such loans under the Company’s loan grading system. Measurement of the specific loss components is typically based on expected future cash flows, collateral values and other factors that may impact the borrower’s ability to pay. In determining the allowance for credit losses, the Company utilizes a loan grading system which is applied to commercial and commercial real estate credits on an individual loan basis. Loan officers are responsible for continually assigning grades to these loans based on standards outlined in the Company’s Credit Policy. Internal loan grades are also monitored by the Company’s loan review department to ensure consistency and strict adherence to the prescribed standards. Loan grades are assigned loss component factors that reflect the Company’s loss estimate for each group of loans and leases. Factors considered in assigning loan grades and loss component factors include borrower-specific information related to expected future cash flows and operating results, collateral values, geographic location, financial condition and performance, payment status, and other information; levels of and trends in portfolio charge-offs and recoveries; levels of and trends in portfolio delinquencies and impaired loans; changes in the risk profile of specific portfolios; trends in volume and terms of loans; effects of changes in credit concentrations; and observed trends and practices in the banking industry. As updated appraisals are obtained on individual loans or other events in the market place indicate that collateral values have significantly changed, individual loan grades are adjusted as appropriate. Changes in other factors cited may also lead to loan grade changes at any time. Except for consumer and residential mortgage loans that are considered smaller balance homogenous loans and acquired loans that are evaluated on an aggregated basis, the Company considers a loan to be impaired for purposes of applying GAAP when, based on current information and events, it is probable that the Company will be unable to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. Regardless of loan type, the Company considers a loan to be impaired if it qualifies as a troubled debt restructuring. Modified loans, including smaller balance homogenous loans, that are considered to be troubled debt restructurings are evaluated for impairment giving consideration to the impact of the modified loan terms on the present value of the loan’s expected cash flows.

 

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4.	Loans and leases and the allowance for credit losses, continued

 

The following tables provide information with respect to loans and leases that were considered impaired as of June 30, 2013 and December 31, 2012 and for the three months and six months ended June 30, 2013 and June 30, 2012:

 

		June 30, 2013												December 31, 2012
		Recorded investment				Unpaid principal balance				Related allowance				Recorded investment				Unpaid principal balance				Related allowance
		(in thousands)
With an allowance recorded:
Commercial, financial, leasing, etc.		$	125,204				170,473				36,451				127,282				149,534				33,829
Real estate:
Commercial			120,882				145,010				20,373				121,542				143,846				23,641
Residential builder and developer			67,993				110,390				9,153				115,306				216,218				25,661
Other commercial construction			75,076				78,138				3,085				73,544				76,869				6,836
Residential			104,150				122,430				6,647				103,451				121,819				3,521
Residential Alt-A			119,247				132,105				16,000				128,891				141,940				17,000
Consumer:
Home equity lines and loans			12,524				13,708				2,387				12,360				13,567				2,254
Automobile			43,702				43,702				12,246				49,210				49,210				14,273
Other			15,698				15,698				5,833				14,408				14,408				5,667
			684,476				831,654				112,175				745,994				927,411				132,682
With no related allowance recorded:
Commercial, financial, leasing, etc.			26,986				38,026				—				32,631				42,199				—
Real estate:
Commercial			83,364				105,406				—				78,380				100,337				—
Residential builder and developer			72,367				113,350				—				74,307				105,438				—
Other commercial construction			21,188				21,836				—				23,018				23,532				—
Residential			81,832				92,676				—				86,342				96,448				—
Residential Alt-A			30,813				57,558				—				31,354				58,768				—
			316,550				428,852				—				326,032				426,722				—
Total:
Commercial, financial, leasing, etc.			152,190				208,499				36,451				159,913				191,733				33,829
Real estate:
Commercial			204,246				250,416				20,373				199,922				244,183				23,641
Residential builder and developer			140,360				223,740				9,153				189,613				321,656				25,661
Other commercial construction			96,264				99,974				3,085				96,562				100,401				6,836
Residential			185,982				215,106				6,647				189,793				218,267				3,521
Residential Alt-A			150,060				189,663				16,000				160,245				200,708				17,000
Consumer:
Home equity lines and loans			12,524				13,708				2,387				12,360				13,567				2,254
Automobile			43,702				43,702				12,246				49,210				49,210				14,273
Other			15,698				15,698				5,833				14,408				14,408				5,667
Total		$	1,001,026				1,260,506				112,175				1,072,026				1,354,133				132,682

 

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4.	Loans and leases and the allowance for credit losses, continued

 

		Three months ended June 30, 2013												Three months ended June 30, 2012
						Interest income recognized												Interest income recognized
		Average recorded investment				Total				Cash basis				Average recorded investment				Total				Cash basis
		(in thousands)
Commercial, financial, leasing, etc.		$	183,544				3,408				3,408				161,311				743				743
Real estate:
Commercial			201,236				409				409				180,199				1,238				1,238
Residential builder and developer			162,567				518				384				262,254				385				252
Other commercial construction			97,975				2,479				2,479				109,037				4,840				4,840
Residential			185,751				1,934				1,401				127,258				1,315				810
Residential Alt-A			151,977				1,670				516				174,181				1,753				527
Consumer:
Home equity lines and loans			12,619				165				39				11,237				164				46
Automobile			44,641				740				131				52,200				871				190
Other			15,564				156				49				9,877				106				47
Total		$	1,055,874				11,479				8,816				1,087,554				11,415				8,693
		Six months ended June 30, 2013												Six months ended June 30, 2012
						Interest income recognized												Interest income recognized
		Average recorded investment				Total				Cash basis				Average recorded investment				Total				Cash basis
		(in thousands)
Commercial, financial, leasing, etc.		$	172,637				5,842				5,842				164,779				1,152				1,152
Real estate:
Commercial			197,546				712				712				179,213				1,556				1,556
Residential builder and developer			173,535				658				449				271,903				726				431
Other commercial construction			98,160				3,114				3,114				107,151				5,010				5,010
Residential			186,582				3,404				2,323				126,880				2,657				1,688
Residential Alt-A			154,461				3,410				1,107				177,623				3,596				1,073
Consumer:
Home equity lines and loans			12,544				332				78				10,593				330				88
Automobile			46,134				1,516				277				52,799				1,769				368
Other			15,261				307				103				9,080				199				86
Total		$	1,056,860				19,295				14,005				1,100,021				16,995				11,452

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4.	Loans and leases and the allowance for credit losses, continued

 

In accordance with the previously described policies, the Company utilizes a loan grading system that is applied to all commercial loans and commercial real estate loans. Loan grades are utilized to differentiate risk within the portfolio and consider the expectations of default for each loan. Commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible “pass” loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses. Loans with an elevated level of credit risk are classified as “criticized” and are ascribed a higher loss factor when determining the allowance for credit losses. Criticized loans may be classified as “nonaccrual” if the Company no longer expects to collect all amounts according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more. All larger balance criticized commercial and commercial real estate loans are individually reviewed by centralized loan review personnel each quarter to determine the appropriateness of the assigned loan grade, including whether the loan should be reported as accruing or nonaccruing. Smaller balance criticized loans are analyzed by business line risk management areas to ensure proper loan grade classification. Furthermore, criticized nonaccrual commercial loans and commercial real estate loans are considered impaired and, as a result, specific loss allowances on such loans are established within the allowance for credit losses to the extent appropriate in each individual instance. The following table summarizes the loan grades applied to the various classes of the Company’s commercial and commercial real estate loans.

 

						Real Estate
		Commercial, Financial, Leasing, etc.				Commercial				Residential Builder and Developer				Other Commercial Construction
		(in thousands)
June 30, 2013
Pass		$	17,177,447				21,237,559				889,978				2,761,618
Criticized accrual			699,612				709,989				88,007				60,121
Criticized nonaccrual			144,753				197,987				132,621				38,514
Total		$	18,021,812				22,145,535				1,110,606				2,860,253
December 31, 2012
Pass		$	16,889,753				21,275,182				922,141				2,307,436
Criticized accrual			735,292				804,132				85,520				186,843
Criticized nonaccrual			151,908				193,859				181,865				36,812
Total		$	17,776,953				22,273,173				1,189,526				2,531,091

In determining the allowance for credit losses, residential real estate loans and consumer loans are generally evaluated collectively after considering such factors as payment performance and recent loss experience and trends, which are mainly driven by current collateral values in the market place as well as the amount of loan defaults. Loss rates on such loans are determined by reference to recent charge-off history and are evaluated (and adjusted if deemed appropriate) through consideration of other factors including near-term forecasted loss estimates developed by the Company’s Credit Department. In arriving at such forecasts, the Company considers the current estimated fair value of its collateral based on geographical adjustments for home price depreciation/appreciation and overall borrower repayment performance. With regard to collateral values, the realizability of such values by the Company contemplates repayment of the original balance of any first lien position prior to recovering amounts on a second lien position. However, residential real estate loans and outstanding balances of home equity loans and lines of credit that are more than 150 days past due are generally evaluated for collectibility on a loan-by-loan basis giving consideration to estimated collateral values.

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4.	Loans and leases and the allowance for credit losses, continued

 

The Company also measures additional losses for purchased impaired loans when it is probable that the Company will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. The determination of the allocated portion of the allowance for credit losses is very subjective. Given that inherent subjectivity and potential imprecision involved in determining the allocated portion of the allowance for credit losses, the Company also provides an inherent unallocated portion of the allowance. The unallocated portion of the allowance is intended to recognize probable losses that are not otherwise identifiable and includes management’s subjective determination of amounts necessary to provide for the possible use of imprecise estimates in determining the allocated portion of the allowance. Therefore, the level of the unallocated portion of the allowance is primarily reflective of the inherent imprecision in the various calculations used in determining the allocated portion of the allowance for credit losses. Other factors that could also lead to changes in the unallocated portion include the effects of expansion into new markets for which the Company does not have the same degree of familiarity and experience regarding portfolio performance in changing market conditions, the introduction of new loan and lease product types, and other risks associated with the Company’s loan portfolio that may not be specifically identifiable.

The allocation of the allowance for credit losses summarized on the basis of the Company’s impairment methodology was as follows:

 

		Commercial, Financial,				Real Estate
		Leasing, etc.				Commercial				Residential				Consumer				Total
		(in thousands)
June 30, 2013
Individually evaluated for impairment		$	36,451				31,798				22,628				20,466			$	111,343
Collectively evaluated for impairment			230,309				291,365				60,989				152,602				735,265
Purchased impaired			2,107				1,101				1,694				1,223				6,125
Allocated		$	268,867				324,264				85,311				174,291				852,733
Unallocated																			74,332
Total																		$	927,065
December 31, 2012
Individually evaluated for impairment		$	33,669				55,291				20,502				22,194			$	131,656
Collectively evaluated for impairment			212,930				280,789				66,684				156,661				717,064
Purchased impaired			160				1,021				1,621				563				3,365
Allocated		$	246,759				337,101				88,807				179,418				852,085
Unallocated																			73,775
Total																		$	925,860

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4.	Loans and leases and the allowance for credit losses, continued

 

The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology was as follows:

 

		Commercial, Financial,				Real Estate
		Leasing, etc.				Commercial				Residential				Consumer				Total
		(in thousands)
June 30, 2013
Individually evaluated for impairment		$	152,190				434,945				335,481				71,924			$	994,540
Collectively evaluated for impairment			17,852,888				25,341,681				10,028,734				11,359,326				64,582,629
Purchased impaired			16,734				339,768				35,534				2,661				394,697
Total		$	18,021,812				26,116,394				10,399,749				11,433,911			$	65,971,866
December 31, 2012
Individually evaluated for impairment		$	159,761				480,335				349,477				75,978			$	1,065,551
Collectively evaluated for impairment			17,599,755				25,123,758				10,854,591				11,480,188				65,058,292
Purchased impaired			17,437				389,697				36,769				3,211				447,114
Total		$	17,776,953				25,993,790				11,240,837				11,559,377			$	66,570,957

During the normal course of business, the Company modifies loans to maximize recovery efforts. If the borrower is experiencing financial difficulty and a concession is granted, the Company considers such modifications as troubled debt restructurings and classifies those loans as either nonaccrual loans or renegotiated loans. The types of concessions that the Company grants typically include principal deferrals and interest rate concessions, but may also include other types of concessions.

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4.	Loans and leases and the allowance for credit losses, continued

 

The tables below summarize the Company’s loan modification activities that were considered troubled debt restructurings for the three months ended June 30, 2013 and 2012:

 

						Recorded investment								Financial effects of modification
Three months ended June 30, 2013		Number				Pre- modification				Post- modification				Recorded investment (a)				Interest (b)
		(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral			15			$	4,870			$	4,822			$	(48	)		$	—
Other			1				1,460				1,657				197				—
Combination of concession types			2				1,490				980				(510	)			—
Real estate:
Commercial
Principal deferral			5				15,549				15,530				(19	)			—
Residential builder and developer
Principal deferral			7				17,496				16,722				(774	)			—
Other			1				4,039				3,888				(151	)			—
Combination of concession types			2				13,879				13,823				(56	)			(535	)
Other commercial construction
Principal deferral			2				364				363				(1	)			—
Residential
Principal deferral			8				1,216				1,358				142				—
Combination of concession types			18				69,210				65,890				(3,320	)			(186	)
Residential Alt-A
Principal deferral			1				99				102				3				—
Combination of concession types			8				1,187				1,294				107				(278	)
Consumer:
Home equity lines and loans
Principal deferral			2				101				103				2				—
Interest rate reduction			1				99				99				—				(8	)
Other			1				106				106				—				—
Combination of concession types			8				406				406				—				(64	)
Automobile
Principal deferral			117				1,629				1,629				—				—
Interest rate reduction			7				104				104				—				(10	)
Other			28				73				73				—				—
Combination of concession types			62				1,044				1,044				—				(87	)
Other
Principal deferral			14				185				185				—				—
Interest rate reduction			1				12				12				—				(2	)
Combination of concession types			30				707				707				—				(234	)
Total			341			$	135,325			$	130,897			$	(4,428	)		$	(1,404	)

 

(a)	Financial effects impacting the recorded investment included principal payments or advances, charge-offs and capitalized escrow arrearages.

(b)	Represents the present value of interest rate concessions discounted at the effective rate of the original loan.

 

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NOTES TO FINANCIAL STATEMENTS, CONTINUED

 

4.	Loans and leases and the allowance for credit losses, continued

 

						Recorded investment								Financial effects of modification
Three months ended June 30, 2012		Number				Pre- modification				Post- modification				Recorded investment (a)				Interest (b)
		(dollars in thousands)
Commercial, financial, leasing, etc.
Principal deferral			9			$	10,392			$	9,061			$	(1,331	)		$	—
Other			2				1,995				1,954				(41	)			—
Real estate:
Commercial
Principal deferral			1				2,011				1,999				(12	)			—
Interest rate reduction			1				383				430				47				(89	)
Combination of concession types			4				1,210				1,231				21				(256	)
Residential builder and developer
Principal deferral			3				2,503				2,503				—				—
Other commercial construction
Principal deferral			3				60,888				60,898				10				—
Residential
Principal deferral			7				1,059				1,087				28				—
Combination of concession types			11				2,049				2,098				49				(65	)
Residential Alt-A
Principal deferral			1				153				158				5				—
Combination of concession types			7				1,509				1,543				34				(44	)
Consumer:
Home equity lines and loans
Principal deferral			9				734				734				—				—
Combination of concession types			4				480				480				—				(123	)
Automobile
Principal deferral			196				2,700				2,700				—				—
Interest rate reduction