Delaware | 56-1986428 | |
(State of incorporation) | (I.R.S. Employer Identification No.) |
PART I | Financial Information | |||||
Item 1. | Financial Statements | Page | ||||
Notes to Financial Statements | ||||||
1 | — | |||||
2 | — | |||||
3 | — | |||||
4 | — | |||||
5 | — | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) | |||||
Item 3. | ||||||
Item 4. | ||||||
PART II | Other Information | |||||
Item 1. | ||||||
Item 1A. | ||||||
Item 2. | ||||||
Item 6. | ||||||
Summary Financial Data | ||||||||||||||||||||||||||
% Change | ||||||||||||||||||||||||||
Quarter ended | Sep 30, 2016 from | Nine months ended | ||||||||||||||||||||||||
($ in thousands, except per share data) | Sep 30, 2016 | Jun 30, 2016 | Sep 30, 2015 | Jun 30, 2016 | Sep 30, 2015 | Sep 30, 2016 | Sep 30, 2015 | % Change | ||||||||||||||||||
For the period | ||||||||||||||||||||||||||
Net income | $ | 191,263 | 148,728 | 179,910 | 29 | % | 6 | $ | 485,020 | 487,522 | (1 | )% | ||||||||||||||
Net income applicable to common stock | 186,866 | 144,331 | 175,513 | 29 | 6 | 471,829 | 474,331 | (1 | ) | |||||||||||||||||
Diluted earnings per common share | 8.82 | 11.19 | 13.61 | (21 | ) | (35 | ) | 30.09 | 36.77 | (18 | ) | |||||||||||||||
Profitability ratios | ||||||||||||||||||||||||||
Return on average assets | 3.07 | % | 4.48 | 5.46 | (31 | ) | (44 | ) | 3.80 | % | 5.05 | (25 | ) | |||||||||||||
Return on average stockholders’ equity | 3.74 | 4.81 | 5.76 | (22 | ) | (35 | ) | 4.29 | 5.26 | (18 | ) | |||||||||||||||
Average stockholders’ equity to average assets | 82.10 | 93.16 | 94.84 | (12 | ) | (13 | ) | 88.53 | 96.08 | (8 | ) | |||||||||||||||
Common dividend payout ratio (1) | 71.54 | 96.96 | 82.66 | (26 | ) | (13 | ) | 93.09 | 89.61 | 4 | ||||||||||||||||
Dividend coverage ratio (2) | 3,659 | 3,594 | 3,653 | 2 | — | 3,659 | 3,653 | — | ||||||||||||||||||
Total revenue | $ | 231,348 | 170,168 | 172,868 | 36 | 34 | $ | 568,235 | 508,042 | 12 | ||||||||||||||||
Average loans | 20,648,080 | 13,013,458 | 13,047,478 | 59 | 58 | 15,538,275 | 12,730,005 | 22 | ||||||||||||||||||
Average assets | 24,765,989 | 13,357,024 | 13,062,408 | 85 | 90 | 17,065,674 | 12,906,830 | 32 | ||||||||||||||||||
Net interest margin | 3.62 | % | 5.02 | 5.23 | (28 | ) | (31 | ) | 4.34 | % | 5.24 | (17 | ) | |||||||||||||
Net loan charge-offs | $ | 3,203 | 5,726 | 8,881 | (44 | ) | (64 | ) | $ | 15,362 | 26,321 | (42 | ) | |||||||||||||
As a percentage of average total loans (annualized) | 0.06 | % | 0.18 | 0.27 | (67 | ) | (78 | ) | 0.13 | % | 0.28 | (54 | ) | |||||||||||||
At period end | ||||||||||||||||||||||||||
Loans, net of unearned income | $ | 33,501,153 | 14,028,200 | 13,151,348 | 139 | 155 | $ | 33,501,153 | 13,151,348 | 155 | ||||||||||||||||
Allowance for loan losses | 130,715 | 117,422 | 130,839 | 11 | — | 130,715 | 130,839 | — | ||||||||||||||||||
As a percentage of total loans | 0.39 | % | 0.84 | 0.99 | (54 | ) | (61 | ) | 0.39 | % | 0.99 | (61 | ) | |||||||||||||
Assets | $ | 33,763,620 | 14,049,883 | 13,159,059 | 140 | 157 | $ | 33,763,620 | 13,159,059 | 157 | ||||||||||||||||
Total stockholders’ equity | 32,389,786 | 12,417,870 | 12,405,848 | 161 | 161 | 32,389,786 | 12,405,848 | 161 | ||||||||||||||||||
Total nonaccrual loans and foreclosed assets | 231,660 | 245,224 | 286,797 | (6 | ) | (19 | ) | 231,660 | 286,797 | (19 | ) | |||||||||||||||
As a percentage of total loans | 0.69 | % | 1.75 | 2.18 | (61 | ) | (68 | ) | 0.69 | % | 2.18 | (68 | ) | |||||||||||||
Loans 90 days or more past due and still accruing (3) | $ | 6,102 | 7,769 | 9,258 | (21 | ) | (34 | ) | $ | 6,102 | 9,258 | (34 | ) |
(1) | Dividends declared per common share as a percentage of earnings per common share. |
(2) | The dividend coverage ratio is considered a non-GAAP financial measure. Management believes the dividend coverage ratio is a useful financial measure because the certificate of designation for the Series A preferred stock limits, among other matters, our ability to pay dividends on our common stock or make any payment of interest or principal on our line of credit with Wells Fargo Bank, National Association, if the dividend coverage ratio for the four prior fiscal quarters is less than 150%. The dividend coverage ratio is expressed as a percentage and calculated by dividing the four prior fiscal quarters' GAAP net income, excluding gains (or losses) from sales of property (consistent with the National Association of Real Estate Investment Trusts definition of “funds from operations”), by the amount that would be required to pay annual dividends on the Series A and Series B preferred stock. |
(3) | The carrying value of purchased credit-impaired (PCI) loans contractually 90 days or more past due is excluded. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms. |
OVERVIEW |
Earnings Performance |
Quarter ended September 30, | |||||||||||||||||||||
2016 | 2015 | ||||||||||||||||||||
(in thousands) | Average balance | Interest income/expense | Yields/rates | Average balance | Interest income/expense | Yields/rates | |||||||||||||||
Earning assets | |||||||||||||||||||||
Commercial loans | $ | 2,746,255 | 17,283 | 2.50 | % | $ | 2,807,226 | 17,330 | 2.45 | % | |||||||||||
Real estate 1-4 family mortgage loans | 17,901,825 | 203,343 | 4.54 | 10,240,252 | 154,237 | 6.00 | |||||||||||||||
Interest-bearing deposits in banks and other interest-earning assets | 4,017,299 | 4,064 | 0.40 | — | — | — | |||||||||||||||
Total interest-earning assets | $ | 24,665,379 | 224,690 | 3.64 | $ | 13,047,478 | 171,567 | 5.24 | |||||||||||||
Funding sources | |||||||||||||||||||||
Line of credit with Bank | $ | 952,778 | 1,272 | 0.53 | $ | 393,326 | 377 | 0.38 | |||||||||||||
Total interest-bearing liabilities | $ | 952,778 | 1,272 | 0.53 | $ | 393,326 | 377 | 0.38 | |||||||||||||
Net interest margin and net interest income | $ | 223,418 | 3.62 | % | $ | 171,190 | 5.23 | % | |||||||||||||
Nine months ended September 30, | |||||||||||||||||||||
2016 | 2015 | ||||||||||||||||||||
(in thousands) | Average balance | Interest income/expense | Yields/rates | Average balance | Interest income/expense | Yields/rates | |||||||||||||||
Earning assets | |||||||||||||||||||||
Commercial loans | $ | 2,699,636 | 50,893 | 2.52 | % | $ | 2,977,755 | 53,546 | 2.40 | % | |||||||||||
Real estate 1-4 family mortgage loans | 12,838,639 | 499,168 | 5.19 | 9,752,250 | 452,562 | 6.20 | |||||||||||||||
Interest-bearing deposits in banks and other interest-earning assets | 1,432,722 | 4,303 | 0.40 | 160,280 | 304 | 0.25 | |||||||||||||||
Total interest-earning assets | $ | 16,970,997 | 554,364 | 4.36 | $ | 12,890,285 | 506,412 | 5.25 | |||||||||||||
Funding sources | |||||||||||||||||||||
Line of credit with Bank | $ | 523,884 | 2,029 | 0.52 | $ | 226,344 | 644 | 0.38 | |||||||||||||
Total interest-bearing liabilities | $ | 523,884 | 2,029 | 0.52 | $ | 226,344 | 644 | 0.38 | |||||||||||||
Net interest margin and net interest income | $ | 552,335 | 4.34 | % | $ | 505,768 | 5.24 | % |
Balance Sheet Analysis |
Risk Management |
Loans outstanding | Weighted average maturity in years | |||||||||
(in thousands) | Sep 30, 2016 | Dec 31, 2015 | Sep 30, 2016 | Dec 31, 2015 | ||||||
Commercial: | ||||||||||
Commercial and industrial | $ | 9,606 | 46,712 | 0.7 | 0.8 | |||||
Secured by real estate | 4,248,472 | 2,871,021 | 3.5 | 3.1 | ||||||
Total commercial | 4,258,078 | 2,917,733 | 3.5 | 3.0 | ||||||
Consumer: | ||||||||||
Real estate 1-4 family first mortgage | 28,080,674 | 8,950,429 | 25.4 | 23.0 | ||||||
Real estate 1-4 family junior lien mortgage | 1,162,401 | 1,388,018 | 15.9 | 16.2 | ||||||
Total consumer | 29,243,075 | 10,338,447 | 25.0 | 22.1 | ||||||
Total loans | $ | 33,501,153 | 13,256,180 | 22.3 | 17.9 |
September 30, 2016 | |||||||||||||||
(in thousands) | Commercial | Real estate 1-4 family first mortgage | Real estate 1-4 family junior lien mortgage | Total | % of total loans | ||||||||||
California | $ | 1,835,978 | 9,849,042 | 13,675 | 11,698,695 | 35 | % | ||||||||
New York | 16,533 | 2,402,423 | 68,779 | 2,487,735 | 7 | ||||||||||
Washington | 273,569 | 1,669,957 | 1,520 | 1,945,046 | 6 | ||||||||||
Virginia | 74,913 | 1,484,136 | 117,957 | 1,677,006 | 5 | ||||||||||
Florida | 417,089 | 1,074,093 | 153,335 | 1,644,517 | 5 | ||||||||||
All other states | 1,639,996 | 11,601,023 | 807,135 | 14,048,154 | 42 | ||||||||||
Total loans | $ | 4,258,078 | 28,080,674 | 1,162,401 | 33,501,153 | 100 | % |
September 30, 2016 | ||||||
(in thousands) | Total CSRE loans | % of total CSRE loans | ||||
By state: | ||||||
California | $ | 1,835,978 | 43 | % | ||
Florida | 413,926 | 10 | ||||
Washington | 273,569 | 6 | ||||
Utah | 215,765 | 5 | ||||
Oregon | 186,405 | 4 | ||||
All other states | 1,322,829 | 32 | ||||
Total loans | $ | 4,248,472 | 100 | % | ||
By property type: | ||||||
Office buildings | $ | 1,102,389 | 26 | % | ||
Shopping centers | 796,014 | 19 | ||||
Warehouses | 636,652 | 15 | ||||
5+ multifamily residences | 569,234 | 13 | ||||
Retail establishments (restaurants, stores) | 482,118 | 11 | ||||
Mini-storage | 173,523 | 4 | ||||
Motels/hotels | 122,883 | 3 | ||||
Manufacturing plants | 86,503 | 2 | ||||
Research and development | 68,186 | 2 | ||||
Commercial/industrial (non-residential) | 57,079 | 1 | ||||
Other | 153,891 | 4 | ||||
Total loans | $ | 4,248,472 | 100 | % |
September 30, 2016 | ||||||
(in thousands) | Real estate 1-4 family mortgage | Current CLTV ratio (1) | ||||
California | $ | 9,862,717 | 54 | % | ||
New York | 2,471,202 | 65 | ||||
Washington | 1,671,477 | 64 | ||||
Virginia | 1,602,093 | 66 | ||||
Pennsylvania | 1,269,775 | 65 | ||||
All other states | 12,365,811 | 64 | ||||
Total loans | $ | 29,243,075 | 61 | % |
(1) | Collateral values are generally determined using AVMs and are updated quarterly. AVMs are computer-based tools used to estimate market values of homes based on processing large volumes of market data including market comparables and price trends for local market areas. |
Outstanding balance | % of loans 30 days or more past due (1) | Loss (recovery) rate (annualized) quarter ended (1) | ||||||||||||||||||||||
(in thousands) | Sep 30, 2016 | Dec 31, 2015 | Sep 30, 2016 | Dec 31, 2015 | Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | |||||||||||||||
California | $ | 9,849,236 | 616,333 | 0.04 | % | 1.09 | — | — | (0.04 | ) | — | — | ||||||||||||
New York | 2,402,056 | 718,933 | 0.54 | 2.04 | 0.02 | 0.03 | 0.02 | 0.08 | 0.07 | |||||||||||||||
Texas | 1,200,708 | 553,577 | 0.36 | 0.68 | 0.01 | 0.03 | 0.02 | (0.01 | ) | 0.03 | ||||||||||||||
Washington | 1,670,125 | 504,538 | 0.10 | 0.12 | — | — | (0.05 | ) | (0.03 | ) | — | |||||||||||||
Virginia | 1,483,239 | 638,886 | 0.60 | 2.30 | 0.10 | 0.05 | 0.12 | 0.08 | 0.04 | |||||||||||||||
Other | 11,462,038 | 5,901,048 | 1.08 | 2.58 | 0.13 | 0.24 | 0.22 | 0.19 | 0.36 | |||||||||||||||
Total | 28,067,402 | 8,933,315 | 0.56 | % | 2.16 | 0.06 | 0.16 | 0.15 | 0.14 | 0.25 | ||||||||||||||
PCI | 13,272 | 17,114 | ||||||||||||||||||||||
Total first mortgages | $ | 28,080,674 | 8,950,429 |
(1) | September 30, 2016 reflects $19.1 billion of high quality consumer loans acquired in the Third Quarter 2016 Loan Acquisitions. |
Outstanding balance | % of loans 30 days or more past due | Loss (recovery) rate (annualized) quarter ended | ||||||||||||||||||||
(in thousands) | Sep 30, 2016 | Dec 31, 2015 | Sep 30, 2016 | Dec 31, 2015 | Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | |||||||||||||
New Jersey | $ | 242,357 | 281,657 | 4.97 | % | 5.38 | 0.66 | 1.27 | 0.84 | 0.81 | 1.73 | |||||||||||
Pennsylvania | 179,460 | 212,776 | 4.34 | 5.57 | 0.66 | 0.86 | 0.64 | 0.21 | 1.32 | |||||||||||||
Florida | 153,499 | 185,249 | 2.90 | 3.16 | (0.55 | ) | 0.52 | 1.00 | 0.78 | 0.41 | ||||||||||||
Virginia | 117,672 | 141,687 | 3.30 | 4.29 | 0.33 | 0.91 | 1.55 | 1.02 | 0.83 | |||||||||||||
Georgia | 86,040 | 106,239 | 2.04 | 3.27 | (0.08 | ) | 0.26 | 0.38 | 2.75 | 0.54 | ||||||||||||
Other | 381,896 | 457,178 | 4.32 | 4.71 | 0.25 | 0.26 | 1.08 | 1.06 | 0.57 | |||||||||||||
Total | 1,160,924 | 1,384,786 | 4.00 | % | 4.62 | 0.27 | 0.66 | 0.95 | 0.97 | 0.92 | ||||||||||||
PCI | 1,477 | 3,232 | ||||||||||||||||||||
Total junior lien mortgages | $ | 1,162,401 | 1,388,018 |
• | the full and timely collection of interest or principal becomes uncertain (generally based on an assessment of the borrower's financial condition and the adequacy of collateral, if any); |
• | they are 90 days (120 days with respect to real estate 1-4 family first and junior lien mortgages) past due for interest |
• | part of the principal balance has been charged off; |
• | for junior lien mortgages, we have evidence that the related first lien mortgage may be 120 days past due or in the process of foreclosure regardless of the junior lien delinquency status; or |
• | consumer loans are discharged in bankruptcy, regardless of their delinquency status. |
(in thousands) | Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | ||||||||||
Nonaccrual loans: | |||||||||||||||
Commercial: | |||||||||||||||
Commercial and industrial | $ | — | — | — | — | — | |||||||||
Secured by real estate | 2,378 | 2,783 | 3,733 | 1,706 | 9,164 | ||||||||||
Total commercial | 2,378 | 2,783 | 3,733 | 1,706 | 9,164 | ||||||||||
Consumer: | |||||||||||||||
Real estate 1-4 family first mortgage | 175,086 | 182,814 | 196,967 | 201,531 | 206,821 | ||||||||||
Real estate 1-4 family junior lien mortgage | 50,812 | 55,874 | 62,316 | 64,718 | 69,656 | ||||||||||
Total consumer | 225,898 | 238,688 | 259,283 | 266,249 | 276,477 | ||||||||||
Total nonaccrual loans (1) | 228,276 | 241,471 | 263,016 | 267,955 | 285,641 | ||||||||||
Foreclosed assets | 3,384 | 3,753 | 3,854 | 1,996 | 1,156 | ||||||||||
Total nonperforming assets | $ | 231,660 | 245,224 | 266,870 | 269,951 | 286,797 | |||||||||
As a percentage of total loans (2) | 0.69 | % | 1.75 | 2.14 | 2.04 | 2.18 |
(1) | Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms. |
(2) | Decrease at September 30, 2016, reflects $21.0 billion of high quality loans acquired in the Third Quarter 2016 Loan Acquisitions. |
Quarter ended | |||||||||||||||
(in thousands) | Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | ||||||||||
Commercial: | |||||||||||||||
Balance, beginning of period | $ | 2,783 | 3,733 | 1,706 | 9,164 | 10,404 | |||||||||
Inflows | 2,128 | 48 | 2,253 | 954 | 141 | ||||||||||
Outflows | (2,533 | ) | (998 | ) | (226 | ) | (8,412 | ) | (1,381 | ) | |||||
Balance, end of period | 2,378 | 2,783 | 3,733 | 1,706 | 9,164 | ||||||||||
Consumer: | |||||||||||||||
Balance, beginning of period | 238,688 | 259,283 | 266,249 | 276,477 | 297,649 | ||||||||||
Inflows | 31,770 | 34,964 | 38,049 | 38,736 | 33,731 | ||||||||||
Outflows: | |||||||||||||||
Returned to accruing | (18,158 | ) | (24,507 | ) | (16,798 | ) | (21,503 | ) | (24,834 | ) | |||||
Foreclosures | (3,762 | ) | (5,212 | ) | (3,177 | ) | (3,403 | ) | (1,418 | ) | |||||
Charge-offs | (5,670 | ) | (9,696 | ) | (8,179 | ) | (8,340 | ) | (11,245 | ) | |||||
Payment, sales and other | (16,970 | ) | (16,144 | ) | (16,861 | ) | (15,718 | ) | (17,406 | ) | |||||
Total outflows | (44,560 | ) | (55,559 | ) | (45,015 | ) | (48,964 | ) | (54,903 | ) | |||||
Balance, end of period | 225,898 | 238,688 | 259,283 | 266,249 | 276,477 | ||||||||||
Total nonaccrual loans | $ | 228,276 | 241,471 | 263,016 | 267,955 | 285,641 |
(in thousands) | Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | ||||||||||
Commercial: | |||||||||||||||
Commercial and industrial | $ | — | — | — | — | — | |||||||||
Real estate mortgage | 3,285 | 3,443 | 4,395 | 2,534 | 3,870 | ||||||||||
Total commercial TDRs | 3,285 | 3,443 | 4,395 | 2,534 | 3,870 | ||||||||||
Consumer: | |||||||||||||||
Real estate 1-4 family first mortgage | 350,324 | 358,337 | 366,492 | 371,605 | 377,080 | ||||||||||
Real estate 1-4 family junior lien mortgage | 102,423 | 107,280 | 109,306 | 112,597 | 114,491 | ||||||||||
Trial modifications | 12,876 | 12,217 | 14,693 | 15,663 | 14,257 | ||||||||||
Total consumer TDRs | 465,623 | 477,834 | 490,491 | 499,865 | 505,828 | ||||||||||
Total TDRs | $ | 468,908 | 481,277 | 494,886 | 502,399 | 509,698 | |||||||||
TDRs on nonaccrual status | $ | 144,723 | 150,789 | 159,021 | 159,998 | 162,115 | |||||||||
TDRs on accrual status | 324,185 | 330,488 | 335,865 | 342,401 | 347,583 | ||||||||||
Total TDRs | $ | 468,908 | 481,277 | 494,886 | 502,399 | 509,698 |
Quarter ended | |||||||||||||||
(in thousands) | Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | ||||||||||
Commercial: | |||||||||||||||
Balance, beginning of period | $ | 3,443 | 4,395 | 2,534 | 3,870 | 4,073 | |||||||||
Inflows (1) | 2,106 | — | 1,885 | — | — | ||||||||||
Outflows (2) | (2,264 | ) | (952 | ) | (24 | ) | (1,336 | ) | (203 | ) | |||||
Balance, end of period | 3,285 | 3,443 | 4,395 | 2,534 | 3,870 | ||||||||||
Consumer: | |||||||||||||||
Balance, beginning of period | 477,834 | 490,491 | 499,865 | 505,828 | 512,264 | ||||||||||
Inflows (1) | 8,429 | 10,060 | 10,876 | 9,989 | 12,631 | ||||||||||
Outflows: | |||||||||||||||
Charge-offs | (2,301 | ) | (1,959 | ) | (2,685 | ) | (3,003 | ) | (2,910 | ) | |||||
Foreclosures | (658 | ) | (2,339 | ) | (1,599 | ) | (1,284 | ) | (811 | ) | |||||
Payments, sales and other (2) | (18,340 | ) | (15,943 | ) | (14,995 | ) | (13,072 | ) | (14,115 | ) | |||||
Net change in trial modifications (3) | 659 | (2,476 | ) | (971 | ) | 1,407 | (1,231 | ) | |||||||
Balance, end of period | 465,623 | 477,834 | 490,491 | 499,865 | 505,828 | ||||||||||
Total TDRs | $ | 468,908 | 481,277 | 494,886 | 502,399 | 509,698 |
(1) | Inflows include loans that both modify and resolve within the period as well as advances on loans that modified in a prior period. |
(2) | Other outflows include normal amortization/accretion of loan basis adjustments. No loans were removed from TDR classification in the quarters ended September 30, June 30, and March 31, 2016, and December 31, and September 30, 2015, as a result of being refinanced or restructured at market terms and qualifying as new loans. |
(3) | Net change in trial modifications includes: inflows of new TDRs entering the trial payment period, net of outflows for modifications that either (i) successfully perform and enter into a permanent modification, or (ii) did not successfully perform according to the terms of the trial period plan and are subsequently charged-off, foreclosed upon or otherwise resolved. Our experience is that most of the mortgages that enter a trial payment period program are successful in completing the program requirements. |
(in thousands) | Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | ||||||||||
Commercial: | |||||||||||||||
Commercial and industrial | $ | — | — | — | — | — | |||||||||
Secured by real estate | — | — | — | 2,252 | — | ||||||||||
Total commercial | — | — | — | 2,252 | — | ||||||||||
Consumer: | |||||||||||||||
Real estate 1-4 family first mortgage | 3,633 | 5,476 | 5,001 | 8,365 | 6,139 | ||||||||||
Real estate 1-4 family junior lien mortgage | 2,469 | 2,293 | 2,056 | 2,462 | 3,119 | ||||||||||
Total consumer | 6,102 | 7,769 | 7,057 | 10,827 | 9,258 | ||||||||||
Total | $ | 6,102 | 7,769 | 7,057 | 13,079 | 9,258 |
(1) | PCI loans of $2.3 million, $2.4 million, $3.1 million, $4.4 million and $4.6 million at September 30, June 30, and March 31, 2016, and December 31, and September 30, 2015, respectively, are excluded from this disclosure even though they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms. |
Quarter ended | ||||||||||||||||||||||||||||||||||
Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | ||||||||||||||||||||||||||||||
($ in thousands) | Net loan charge- offs | % of avg. loans (1) (2) | Net loan charge- offs | % of avg. loans (1) | Net loan charge- offs | % of avg. loans (1) | Net loan charge- offs | % of avg. loans (1) | Net loan charge- offs | % of avg. loans (1) | ||||||||||||||||||||||||
Total commercial | $ | (48 | ) | (0.01 | )% | $ | (1 | ) | — | % | $ | (18 | ) | — | % | $ | (467 | ) | (0.07 | )% | $ | (178 | ) | (0.03 | )% | |||||||||
Consumer: | ||||||||||||||||||||||||||||||||||
Real estate 1-4 family first mortgage | 2,426 | 0.06 | 3,630 | 0.16 | 3,281 | 0.15 | 3,030 | 0.14 | 5,556 | 0.25 | ||||||||||||||||||||||||
Real estate 1-4 family junior lien mortgage | 825 | 0.27 | 2,097 | 0.66 | 3,170 | 0.94 | 3,486 | 0.97 | 3,503 | 0.92 | ||||||||||||||||||||||||
Total consumer | 3,251 | 0.07 | 5,727 | 0.22 | 6,451 | 0.26 | 6,516 | 0.25 | 9,059 | 0.35 | ||||||||||||||||||||||||
Total | $ | 3,203 | 0.06 | % | $ | 5,726 | 0.18 | % | $ | 6,433 | 0.20 | % | $ | 6,049 | 0.18 | % | $ | 8,881 | 0.27 | % | ||||||||||||||
(1) | Quarterly net charge-offs (net recoveries) as a percentage of average loans are annualized. |
(2) | Decrease at September 30, 2016 reflects $21.0 billion of high quality loans acquired in the Third Quarter 2016 Loan Acquisitions. |
Quarter ended | ||||||||||||||||||||||||||||||||||
Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | ||||||||||||||||||||||||||||||
(in thousands) | ACL | Loans as % of total loans | ACL | Loans as % of total loans | ACL | Loans as % of total loans | ACL | Loans as % of total loans | ACL | Loans as % of total loans | ||||||||||||||||||||||||
Commercial: | ||||||||||||||||||||||||||||||||||
Commercial and industrial | $ | 443 | — | % | $ | 642 | — | % | $ | 639 | — | % | $ | 669 | — | % | $ | 813 | — | % | ||||||||||||||
Secured by real estate | 26,807 | 13 | 14,366 | 18 | 17,138 | 21 | 17,007 | 22 | 17,880 | 20 | ||||||||||||||||||||||||
Total commercial | 27,250 | 13 | 15,008 | 18 | 17,777 | 21 | 17,676 | 22 | 18,693 | 20 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||
Real estate 1-4 family first mortgage | 65,003 | 84 | 56,648 | 73 | 56,160 | 68 | 56,689 | 68 | 60,582 | 68 | ||||||||||||||||||||||||
Real estate 1-4 family junior lien mortgage | 39,713 | 3 | 46,374 | 9 | 45,516 | 11 | 47,173 | 10 | 52,194 | 12 | ||||||||||||||||||||||||
Total consumer | 104,716 | 87 | 103,022 | 82 | 101,676 | 79 | 103,862 | 78 | 112,776 | 80 | ||||||||||||||||||||||||
Total | $ | 131,966 | 100 | % | $ | 118,030 | 100 | % | $ | 119,453 | 100 | % | $ | 121,538 | 100 | % | $ | 131,469 | 100 | % |
Quarter ended | |||||||||||||||
(in thousands) | Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | Dec 31, 2015 | Sep 30, 2015 | ||||||||||
Components: | |||||||||||||||
Allowance for loan losses | $ | 130,715 | 117,422 | 118,773 | 120,866 | 130,839 | |||||||||
Allowance for unfunded credit commitments | 1,251 | 608 | 680 | 672 | 630 | ||||||||||
Allowance for credit losses | $ | 131,966 | 118,030 | 119,453 | 121,538 | 131,469 | |||||||||
Allowance for loan losses as a percentage of total loans (1) | 0.39 | % | 0.84 | 0.95 | 0.91 | 0.99 | |||||||||
Allowance for loan losses as a percentage of annualized net charge-offs | 1,025.78 | 509.83 | 459.07 | 503.58 | 371.37 | ||||||||||
Allowance for credit losses as a percentage of total loans (1) | 0.39 | 0.84 | 0.96 | 0.92 | 1.00 | ||||||||||
Allowance for credit losses as a percentage of total nonaccrual loans | 57.81 | 48.88 | 45.42 | 45.36 | 46.03 |
(1) | Decrease at September 30, 2016 reflects $21.0 billion of high quality loans acquired in the Third Quarter 2016 Loan Acquisitions. |
Critical Accounting Policy |
Current Accounting Developments |
Standard | Description | Effective date and financial statement impact |
Accounting Standards Update (ASU or Update) 2016-15 – Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments | The Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for reporting in the Statement of Cash Flows. | The Update is effective for us in first quarter 2018 with retrospective application. We are evaluating the impact the Update will have on our financial statements. |
ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments | The Update changes the accounting for credit losses on loans by requiring a current expected credit loss (CECL) approach to determine the allowance for credit losses. CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. Also, the Update eliminates the existing guidance for purchased credit-impaired (PCI) loans, but requires an allowance for purchased financial assets with more than insignificant deterioration since origination. | The guidance is effective for us in first quarter 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted beginning in first quarter 2019. While we are evaluating the impact the Update will have on our financial statements, we expect the Update will result in an increase in the allowance for credit losses given the change to estimated losses for the estimated life of the financial asset. The amount of the increase will be impacted by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time. |
ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities | The Update amends the accounting, presentation, and disclosure of certain financial instruments, including financial instruments measured at amortized cost. | The Update is effective for us in first quarter 2018 and should be applied with a cumulative-effect adjustment to the balance sheet as of the beginning of the adoption period. Early adoption is prohibited for the amendments applicable to us. We are evaluating the impact of the Update on our financial statements. |
ASU 2014-09 - Revenue from Contracts With Customers (Topic 606) and subsequent related Updates | The Update modifies the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations. | In August 2015, the FASB issued ASU 2015-14 (Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date), which defers the effective date of ASU 2014-09 to first quarter 2018. Early adoption is permitted in first quarter 2017. Predominantly all of our revenue is from net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the update. We continue to evaluate the impact of the Update to our noninterest income and on our presentation and disclosures. We expect to adopt the update in first quarter 2018 with a cumulative-effect adjustment to opening retained earnings. |
Forward-Looking Statements |
• | economic conditions that affect the general economy, housing prices, the job market, consumer confidence and spending habits, including our borrowers’ prepayment and repayment of our loans; |
• | losses relating to Hurricane Matthew, including as to our consumer and commercial loan portfolios, the extent of damage or loss to our collateral for loans in our portfolios or the unavailability of adequate insurance coverage or government assistance for our borrowers; |
• | the effect of the current low interest rate environment or changes in interest rates on our net interest income; |
• | the level and volatility of the capital markets, interest rates, currency values and other market indices that affect the value of our assets and liabilities; |
• | the effect of political conditions and geopolitical events; |
• | losses relating to natural disasters, including, with respect to our loan portfolio, damage or loss to the collateral |
• | adverse developments in the availability of desirable investment opportunities, whether they are due to competition, regulation or otherwise; |
• | the extent of loan modification efforts, as well as the effects of regulatory requirements or guidance regarding loan modifications; |
• | the availability and cost of both credit and capital; |
• | investor sentiment and confidence in the financial markets; |
• | our reputation and the reputation of Wells Fargo and the Bank, including negative effects from the Bank's retail banking sales practices matter; |
• | financial services reform and the impact of other current, pending and future legislation, regulation and legal actions applicable to us, the Bank or Wells Fargo, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and related regulations, and the final definition of qualified mortgage issued by the Consumer Financial Protection Bureau; |
• | changes in accounting standards, rules and interpretations; |
• | various monetary and fiscal policies and regulations of the U.S. and foreign governments; |
• | a failure in or breach of our, the Bank’s or Wells Fargo’s operational or security systems or infrastructure, or those of third party vendors and other security providers, including as a result of cyber attacks; and |
• | the other factors described in “Risk Factors” in the 2015 Form 10-K. |
Risk Factors |
Disclosure Controls and Procedures |
Internal Control Over Financial Reporting |
• | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company; |
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Wells Fargo Real Estate Investment Corporation | ||||||||||||
Statement of Income (Unaudited) | ||||||||||||
Quarter ended September 30, | Nine months ended September 30, | |||||||||||
(in thousands, except per share amounts) | 2016 | 2015 | 2016 | 2015 | ||||||||
Interest income | $ | 224,690 | 171,567 | 554,364 | 506,412 | |||||||
Interest expense | 1,272 | 377 | 2,029 | 644 | ||||||||
Net interest income | 223,418 | 171,190 | 552,335 | 505,768 | ||||||||
Provision (reversal of provision) for credit losses | 18,743 | (23,023 | ) | 30,174 | (23,914 | ) | ||||||
Net interest income after provision for credit losses | 204,675 | 194,213 | 522,161 | 529,682 | ||||||||
Noninterest income | ||||||||||||
Pledge fees | 8,715 | 1,538 | 16,457 | 1,856 | ||||||||
Other | (785 | ) | 140 | (557 | ) | 418 | ||||||
Total noninterest income | 7,930 | 1,678 | 15,900 | 2,274 | ||||||||
Noninterest expense | ||||||||||||
Loan servicing costs | 13,309 | 9,080 | 30,855 | 26,622 | ||||||||
Management fees | 4,441 | 2,871 | 11,843 | 8,328 | ||||||||
Foreclosed assets | 3,174 | 3,772 | 9,627 | 8,676 | ||||||||
Other | 418 | 258 | 716 | 808 | ||||||||
Total noninterest expense | 21,342 | 15,981 | 53,041 | 44,434 | ||||||||
Net income | 191,263 | 179,910 | 485,020 | 487,522 | ||||||||
Comprehensive income | 191,263 | 179,910 | 485,020 | 487,522 | ||||||||
Dividends on preferred stock | 4,397 | 4,397 | 13,191 | 13,191 | ||||||||
Net income applicable to common stock | $ | 186,866 | 175,513 | 471,829 | 474,331 | |||||||
Per common share information | ||||||||||||
Earnings per common share | $ | 8.82 | 13.61 | 30.09 | 36.77 | |||||||
Diluted earnings per common share | 8.82 | 13.61 | 30.09 | 36.77 | ||||||||
Dividends declared per common share | 6.31 | 11.25 | 28.01 | 32.95 | ||||||||
Average common shares outstanding | 21,179 | 12,900 | 15,680 | 12,900 | ||||||||
Diluted average common shares outstanding | 21,179 | 12,900 | 15,680 | 12,900 |
Wells Fargo Real Estate Investment Corporation | ||||||
Balance Sheet | ||||||
(in thousands, except shares) | Sep 30, 2016 | Dec 31, 2015 | ||||
Assets | (Unaudited) | |||||
Cash and cash equivalents | $ | — | — | |||
Loans, net of unearned income | 33,501,153 | 13,256,180 | ||||
Allowance for loan losses | (130,715 | ) | (120,866 | ) | ||
Net loans | 33,370,438 | 13,135,314 | ||||
Accounts receivable - affiliates, net | 302,171 | 70,982 | ||||
Other assets | 91,011 | 38,572 | ||||
Total assets | $ | 33,763,620 | 13,244,868 | |||
Liabilities | ||||||
Line of credit with Bank | $ | 1,369,954 | 828,149 | |||
Other liabilities | 3,880 | 3,812 | ||||
Total liabilities | 1,373,834 | 831,961 | ||||
Stockholders’ Equity | ||||||
Preferred stock | 110 | 110 | ||||
Common stock – $0.01 par value, authorized 100,000,000 shares; issued and outstanding 34,058,028 and 12,900,000 shares | 341 | 129 | ||||
Additional paid-in capital | 32,550,660 | 12,550,822 | ||||
Retained earnings (deficit) | (161,325 | ) | (138,154 | ) | ||
Total stockholders’ equity | 32,389,786 | 12,412,907 | ||||
Total liabilities and stockholders’ equity | $ | 33,763,620 | 13,244,868 |
Wells Fargo Real Estate Investment Corporation | |||||||||||||||
Statement of Changes in Stockholders’ Equity (Unaudited) | |||||||||||||||
(in thousands, except per share data) | Preferred stock | Common stock | Additional paid-in capital | Retained earnings (deficit) | Total stockholders’ equity | ||||||||||
Balance, December 31, 2014 | $ | 110 | 129 | 12,550,822 | (194,544 | ) | 12,356,517 | ||||||||
Net income | — | — | — | 487,522 | 487,522 | ||||||||||
Cash dividends | |||||||||||||||
Series A preferred stock at $1.20 per share | — | — | — | (13,148 | ) | (13,148 | ) | ||||||||
Series B preferred stock at $63.75 per share | — | — | — | (43 | ) | (43 | ) | ||||||||
Common stock at $32.95 per share | — | — | — | (425,000 | ) | (425,000 | ) | ||||||||
Balance, September 30, 2015 | $ | 110 | 129 | 12,550,822 | (145,213 | ) | 12,405,848 | ||||||||
Balance, December 31, 2015 | $ | 110 | 129 | 12,550,822 | (138,154 | ) | 12,412,907 | ||||||||
Net income | — | — | — | 485,020 | 485,020 | ||||||||||
Common stock issued | — | 212 | 19,999,838 | — | 20,000,050 | ||||||||||
Cash dividends | |||||||||||||||
Series A preferred stock at $1.20 per share | — | — | — | (13,148 | ) | (13,148 | ) | ||||||||
Series B preferred stock at $63.75 per share | — | — | — | (43 | ) | (43 | ) | ||||||||
Common stock at $28.01 per share | — | — | — | (495,000 | ) | (495,000 | ) | ||||||||
Balance, September 30, 2016 | $ | 110 | 341 | 32,550,660 | (161,325 | ) | 32,389,786 |
Wells Fargo Real Estate Investment Corporation | ||||||
Statement of Cash Flows (Unaudited) | ||||||
Nine months ended September 30, | ||||||
(in thousands) | 2016 | 2015 | ||||
Cash flows from operating activities: | ||||||
Net income | $ | 485,020 | 487,522 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Net accretion of adjustments on loans | (42,538 | ) | (62,904 | ) | ||
Provision (reversal of provision) for credit losses | 30,174 | (23,914 | ) | |||
Other operating activities, net | (67,753 | ) | (10,495 | ) | ||
Net cash provided by operating activities | 404,903 | 390,209 | ||||
Cash flows from investing activities: | ||||||
Increase (decrease) in cash realized from | ||||||
Loans: | ||||||
Acquisitions | (23,339,146 | ) | (2,495,142 | ) | ||
Proceeds from payments and sales | 2,900,579 | 2,291,261 | ||||
Net cash used by investing activities | (20,438,567 | ) | (203,881 | ) | ||
Cash flows from financing activities: | ||||||
Increase (decrease) in cash realized from | ||||||
Draws on line of credit with Bank | 3,146,666 | 1,348,643 | ||||
Repayments of line of credit with Bank | (2,604,861 | ) | (1,095,758 | ) | ||
Common stock issued | 20,000,050 | — | ||||
Cash dividends paid | (508,191 | ) | (439,213 | ) | ||
Net cash provided (used) by financing activities | 20,033,664 | (186,328 | ) | |||
Net change in cash and cash equivalents | — | — | ||||
Cash and cash equivalents at beginning of period | — | — | ||||
Cash and cash equivalents at end of period | $ | — | — | |||
Supplemental cash flow disclosures: | ||||||
Change in noncash items: | ||||||
Transfers from loans to foreclosed assets | $ | 11,920 | 8,472 |
Note 1: Summary of Significant Accounting Policies |
• | Accounting Standards Update (ASU or Update) 2015-01, |
• | ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments |
Note 2: Loans and Allowance for Credit Losses |
(in thousands) | Sep 30, 2016 | Dec 31, 2015 | ||||
Commercial: | ||||||
Commercial and industrial | $ | 9,606 | 46,712 | |||
Secured by real estate | 4,248,472 | 2,871,021 | ||||
Total commercial | 4,258,078 | 2,917,733 | ||||
Consumer: | ||||||
Real estate 1-4 family first mortgage | 28,080,674 | 8,950,429 | ||||
Real estate 1-4 family junior lien mortgage | 1,162,401 | 1,388,018 | ||||
Total consumer | 29,243,075 | 10,338,447 | ||||
Total loans | $ | 33,501,153 | 13,256,180 |
2016 | 2015 | |||||||||||||||||
(in thousands) | Commercial | Consumer | Total | Commercial | Consumer | Total | ||||||||||||
Quarter ended September 30, | ||||||||||||||||||
Loan acquisitions | $ | 1,907,228 | 19,117,991 | 21,025,219 | — | 794,475 | 794,475 | |||||||||||
Loan sales | — | (198,549 | ) | (198,549 | ) | — | (3,457 | ) | (3,457 | ) | ||||||||
Nine months ended September 30, | ||||||||||||||||||
Loan acquisitions | $ | 1,907,228 | 21,431,918 | 23,339,146 | — | 2,495,142 | 2,495,142 | |||||||||||
Loan sales | (128 | ) | (203,634 | ) | (203,762 | ) | (550 | ) | (9,441 | ) | (9,991 | ) |
Quarter ended September 30, | Nine months ended September 30, | |||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||
Balance, beginning of period | $ | 118,030 | 164,494 | 121,538 | 185,174 | |||||||
Provision (reversal of provision) for credit losses | 18,743 | (23,023 | ) | 30,174 | (23,914 | ) | ||||||
Interest income on certain impaired loans (1) | (1,604 | ) | (1,121 | ) | (4,384 | ) | (3,470 | ) | ||||
Loan charge-offs: | ||||||||||||
Commercial: | ||||||||||||
Commercial and industrial | — | — | — | — | ||||||||
Secured by real estate | — | (113 | ) | (10 | ) | (476 | ) | |||||
Total commercial | — | (113 | ) | (10 | ) | (476 | ) | |||||
Consumer: | ||||||||||||
Real estate 1-4 family first mortgage | (4,246 | ) | (6,757 | ) | (13,602 | ) | (17,110 | ) | ||||
Real estate 1-4 family junior lien mortgage | (4,468 | ) | (6,684 | ) | (16,424 | ) | (22,329 | ) | ||||
Total consumer | (8,714 | ) | (13,441 | ) | (30,026 | ) | (39,439 | ) | ||||
Total loan charge-offs | (8,714 | ) | (13,554 | ) | (30,036 | ) | (39,915 | ) | ||||
Loan recoveries: | ||||||||||||
Commercial: | ||||||||||||
Commercial and industrial | — | — | — | — | ||||||||
Secured by real estate | 48 | 291 | 77 | 300 | ||||||||
Total commercial | 48 | 291 | 77 | 300 | ||||||||
Consumer: | ||||||||||||
Real estate 1-4 family first mortgage | 1,820 | 1,201 | 4,265 | 3,789 | ||||||||
Real estate 1-4 family junior lien mortgage | 3,643 | 3,181 | 10,332 | 9,505 | ||||||||
Total consumer | 5,463 | 4,382 | 14,597 | 13,294 | ||||||||
Total loan recoveries | 5,511 | 4,673 | 14,674 | 13,594 | ||||||||
Net loan charge-offs | (3,203 | ) | (8,881 | ) | (15,362 | ) | (26,321 | ) | ||||
Balance, end of period | $ | 131,966 | 131,469 | 131,966 | 131,469 | |||||||
Components: | ||||||||||||
Allowance for loan losses | $ | 130,715 | 130,839 | 130,715 | 130,839 | |||||||
Allowance for unfunded credit commitments | 1,251 | 630 | 1,251 | 630 | ||||||||
Allowance for credit losses | $ | 131,966 | 131,469 | 131,966 | 131,469 | |||||||
Net loan charge-offs (annualized) as a percentage of average total loans | 0.06 | % | 0.27 | 0.13 | 0.28 | |||||||
Allowance for loan losses as a percentage of total loans | 0.39 | 0.99 | 0.39 | 0.99 | ||||||||
Allowance for credit losses as a percentage of total loans | 0.39 | 1.00 | 0.39 | 1.00 |
(1) | Certain impaired loans with an allowance calculated by discounting expected cash flows using the loan’s effective interest rate over the remaining life of the loan recognize changes in allowance attributable to the passage of time as interest income. |
2016 | 2015 | ||||||||||||||||||
(in thousands) | Commercial | Consumer | Total | Commercial | Consumer | Total | |||||||||||||
Quarter ended September 30, | |||||||||||||||||||
Balance, beginning of period | $ | 15,008 | 103,022 | 118,030 | 18,806 | 145,688 | 164,494 | ||||||||||||
Provision (reversal of provision) for credit losses | 12,194 | 6,549 | 18,743 | (291 | ) | (22,732 | ) | (23,023 | ) | ||||||||||
Interest income on certain impaired loans | — | (1,604 | ) | (1,604 | ) | — | (1,121 | ) | (1,121 | ) | |||||||||
Loan charge-offs | — | (8,714 | ) | (8,714 | ) | (113 | ) | (13,441 | ) | (13,554 | ) | ||||||||
Loan recoveries | 48 | 5,463 | 5,511 | 291 | 4,382 | 4,673 | |||||||||||||
Net loan charge-offs | 48 | (3,251 | ) | (3,203 | ) | 178 | (9,059 | ) | (8,881 | ) | |||||||||
Balance, end of period | $ | 27,250 | 104,716 | 131,966 | 18,693 | 112,776 | 131,469 | ||||||||||||
Nine months ended September 30, | |||||||||||||||||||
Balance, beginning of period | $ | 17,676 | 103,862 | 121,538 | 19,476 | 165,698 | 185,174 | ||||||||||||
Provision (reversal of provision) for credit losses | 9,507 | 20,667 | 30,174 | (607 | ) | (23,307 | ) | (23,914 | ) | ||||||||||
Interest income on certain impaired loans | — | (4,384 | ) | (4,384 | ) | — | (3,470 | ) | (3,470 | ) | |||||||||
Loan charge-offs | (10 | ) | (30,026 | ) | (30,036 | ) | (476 | ) | (39,439 | ) | (39,915 | ) | |||||||
Loan recoveries | 77 | 14,597 | 14,674 | 300 | 13,294 | 13,594 | |||||||||||||
Net loan charge-offs | 67 | (15,429 | ) | (15,362 | ) | (176 | ) | (26,145 | ) | (26,321 | ) | ||||||||
Balance, end of period | $ | 27,250 | 104,716 | 131,966 | 18,693 | 112,776 | 131,469 |
Allowance for credit losses | Recorded investment in loans | |||||||||||||||||
(in thousands) | Commercial | Consumer | Total | Commercial | Consumer | Total | ||||||||||||
September 30, 2016 | ||||||||||||||||||
Collectively evaluated (1) | $ | 26,024 | 30,222 | 56,246 | 4,253,638 | 28,762,703 | 33,016,341 | |||||||||||
Individually evaluated (2) | 1,226 | 74,494 | 75,720 | 3,285 | 465,623 | 468,908 | ||||||||||||
Purchased credit-impaired (PCI) (3) | — | — | — | 1,155 | 14,749 | 15,904 | ||||||||||||
Total | $ | 27,250 | 104,716 | 131,966 | 4,258,078 | 29,243,075 | 33,501,153 | |||||||||||
December 31, 2015 | ||||||||||||||||||
Collectively evaluated (1) | $ | 16,893 | 30,187 | 47,080 | 2,913,168 | 9,818,236 | 12,731,404 | |||||||||||
Individually evaluated (2) | 783 | 73,675 | 74,458 | 3,378 | 499,865 | 503,243 | ||||||||||||
PCI (3) | — | — | — | 1,187 | 20,346 | 21,533 | ||||||||||||
Total | $ | 17,676 | 103,862 | 121,538 | 2,917,733 | 10,338,447 | 13,256,180 |
(1) | Represents loans collectively evaluated for impairment in accordance with Accounting Standards Codification (ASC) 450-20, Loss Contingencies (formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans. |
(2) | Represents loans individually evaluated for impairment in accordance with ASC 310-10, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans. |
(3) | Represents the allowance and related loan carrying value determined in accordance with ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality (formerly SOP 03-3) and pursuant to amendments by ASU 2010-20 regarding allowance for PCI loans. |
(in thousands) | Commercial and industrial | Secured by real estate | Total | ||||||
September 30, 2016 | |||||||||
By risk category: | |||||||||
Pass | $ | 9,606 | 4,239,726 | 4,249,332 | |||||
Criticized | — | 8,746 | 8,746 | ||||||
Total commercial loans | $ | 9,606 | 4,248,472 | 4,258,078 | |||||
December 31, 2015 | |||||||||
By risk category: | |||||||||
Pass | $ | 46,712 | 2,848,613 | 2,895,325 | |||||
Criticized | — | 22,408 | 22,408 | ||||||
Total commercial loans | $ | 46,712 | 2,871,021 | 2,917,733 |
(in thousands) | Commercial and industrial | Secured by real estate | Total | ||||||
September 30, 2016 | |||||||||
By delinquency status: | |||||||||
Current-29 days past due (DPD) and still accruing | $ | 9,606 | 4,238,527 | 4,248,133 | |||||
30-89 DPD and still accruing | — | 6,592 | 6,592 | ||||||
90+ DPD and still accruing | — | 975 | 975 | ||||||
Nonaccrual loans | — | 2,378 | 2,378 | ||||||
Total commercial loans | $ | 9,606 | 4,248,472 | 4,258,078 | |||||
December 31, 2015 | |||||||||
By delinquency status: | |||||||||
Current-29 DPD and still accruing | $ | 46,712 | 2,866,076 | 2,912,788 | |||||
30-89 DPD and still accruing | — | 12 | 12 | ||||||
90+ DPD and still accruing | — | 3,227 | 3,227 | ||||||
Nonaccrual loans | — | 1,706 | 1,706 | ||||||
Total commercial loans | $ | 46,712 | 2,871,021 | 2,917,733 |
(in thousands) | Real estate 1-4 family first mortgage | Real estate 1-4 family junior lien mortgage | Total | ||||||
September 30, 2016 | |||||||||
By delinquency status: | |||||||||
Current-29 DPD | $ | 27,943,198 | 1,118,357 | 29,061,555 | |||||
30-59 DPD | 39,008 | 14,057 | 53,065 | ||||||
60-89 DPD | 14,242 | 7,885 | 22,127 | ||||||
90-119 DPD | 8,792 | 4,959 | 13,751 | ||||||
120-179 DPD | 11,063 | 4,229 | 15,292 | ||||||
180+ DPD | 72,764 | 16,157 | 88,921 | ||||||
Remaining PCI accounting adjustments | (8,393 | ) | (3,243 | ) | (11,636 | ) | |||
Total consumer loans | $ | 28,080,674 | 1,162,401 | 29,243,075 | |||||
December 31, 2015 | |||||||||
By delinquency status: | |||||||||
Current-29 DPD | $ | 8,776,254 | 1,328,855 | 10,105,109 | |||||
30-59 DPD | 42,987 | 19,275 | 62,262 | ||||||
60-89 DPD | 24,004 | 9,049 | 33,053 | ||||||
90-119 DPD | 14,201 | 5,100 | 19,301 | ||||||
120-179 DPD | 14,976 | 6,804 | 21,780 | ||||||
180+ DPD | 88,064 | 21,952 | 110,016 | ||||||
Remaining PCI accounting adjustments | (10,057 | ) | (3,017 | ) | (13,074 | ) | |||
Total consumer loans | $ | 8,950,429 | 1,388,018 | 10,338,447 |
(in thousands) | Real estate 1-4 family first mortgage | Real estate 1-4 family junior lien mortgage | Total | ||||||
September 30, 2016 | |||||||||
By FICO: | |||||||||
< 600 | $ | 244,791 | 122,872 | 367,663 | |||||
600-639 | 187,591 | 82,890 | 270,481 | ||||||
640-679 | 482,580 | 138,833 | 621,413 | ||||||
680-719 | 1,257,445 | 207,950 | 1,465,395 | ||||||
720-759 | 4,050,105 | 233,002 | 4,283,107 | ||||||
760-799 | 13,931,253 | 242,464 | 14,173,717 | ||||||
800+ | 7,796,472 | 123,402 | 7,919,874 | ||||||
No FICO available | 138,830 | 14,231 | 153,061 | ||||||
Remaining PCI accounting adjustments | (8,393 | ) | (3,243 | ) | (11,636 | ) | |||
Total consumer loans | $ | 28,080,674 | 1,162,401 | 29,243,075 | |||||
December 31, 2015 | |||||||||
By FICO: | |||||||||
< 600 | $ | 262,799 | 141,809 | 404,608 | |||||
600-639 | 214,494 | 108,603 | 323,097 | ||||||
640-679 | 431,433 | 181,071 | 612,504 | ||||||
680-719 | 860,106 | 239,838 | 1,099,944 | ||||||
720-759 | 1,433,933 | 270,970 | 1,704,903 | ||||||
760-799 | 3,696,156 | 282,387 | 3,978,543 | ||||||
800+ | 1,952,028 | 146,248 | 2,098,276 | ||||||
No FICO available | 109,537 | 20,109 | 129,646 | ||||||
Remaining PCI accounting adjustments | (10,057 | ) | (3,017 | ) | (13,074 | ) | |||
Total consumer loans | $ | 8,950,429 | 1,388,018 | 10,338,447 |
(in thousands) | Real estate 1-4 family first mortgage by LTV | Real estate 1-4 family junior lien mortgage by CLTV | Total | ||||||
September 30, 2016 | |||||||||
By LTV/CLTV: | |||||||||
0-60% | $ | 12,713,736 | 350,702 | 13,064,438 | |||||
60.01-80% | 13,265,944 | 305,088 | 13,571,032 | ||||||
80.01-100% | 1,823,872 | 291,137 | 2,115,009 | ||||||
100.01-120% (1) | 170,994 | 145,176 | 316,170 | ||||||
> 120% (1) | 93,322 | 71,782 | 165,104 | ||||||
No LTV/CLTV available | 21,199 | 1,759 | 22,958 | ||||||
Remaining PCI accounting adjustments | (8,393 | ) | (3,243 | ) | (11,636 | ) | |||
Total consumer loans | $ | 28,080,674 | 1,162,401 | 29,243,075 | |||||
December 31, 2015 | |||||||||
By LTV/CLTV: | |||||||||
0-60% | $ | 4,408,951 | 381,782 | 4,790,733 | |||||
60.01-80% | 3,628,951 | 355,758 | 3,984,709 | ||||||
80.01-100% | 718,484 | 352,406 | 1,070,890 | ||||||
100.01-120% (1) | 125,295 | 196,760 | 322,055 | ||||||
> 120% (1) | 55,217 | 101,808 | 157,025 | ||||||
No LTV/CLTV available | 23,588 | 2,521 | 26,109 | ||||||
Remaining PCI accounting adjustments | (10,057 | ) | (3,017 | ) | (13,074 | ) | |||
Total consumer loans | $ | 8,950,429 | 1,388,018 | 10,338,447 |
(1) | Reflects total loan balances with LTV/CLTV amounts in excess of 100%. In the event of default, the loss content would generally be limited to only the amount in excess of 100% LTV/CLTV. |
(in thousands) | Sep 30, 2016 | Dec 31, 2015 | ||||
Commercial: | ||||||
Commercial and industrial | $ | — | — | |||
Secured by real estate | 2,378 | 1,706 | ||||
Total commercial | 2,378 | 1,706 | ||||
Consumer: | ||||||
Real estate 1-4 family first mortgage | 175,086 | 201,531 | ||||
Real estate 1-4 family junior lien mortgage | 50,812 | 64,718 | ||||
Total consumer | 225,898 | 266,249 | ||||
Total nonaccrual loans (excluding PCI) | $ | 228,276 | 267,955 |
(in thousands) | Sep 30, 2016 | Dec 31, 2015 | ||||
Commercial: | ||||||
Commercial and industrial | $ | — | — | |||
Secured by real estate | — | 2,252 | ||||
Total commercial | — | 2,252 | ||||
Consumer: | ||||||
Real estate 1-4 family first mortgage | 3,633 | 8,365 | ||||
Real estate 1-4 family junior lien mortgage | 2,469 | 2,462 | ||||
Total consumer | 6,102 | 10,827 | ||||
Total past due (excluding PCI) | $ | 6,102 | 13,079 |
Recorded investment | ||||||||||||
(in thousands) | Unpaid principal balance | Impaired loans | Impaired loans with related allowance for credit losses | Related allowance for credit losses | ||||||||
September 30, 2016 | ||||||||||||
Commercial: | ||||||||||||
Commercial and industrial | $ | — | — | — | — | |||||||
Secured by real estate | 3,711 | 3,285 | 3,285 | 1,226 | ||||||||
Total commercial | 3,711 | 3,285 | 3,285 | 1,226 | ||||||||
Consumer: | ||||||||||||
Real estate 1-4 family first mortgage | 431,398 | 359,829 | 251,512 | 50,365 | ||||||||
Real estate 1-4 family junior lien mortgage | 117,324 | 105,794 | 86,819 | 24,129 | ||||||||
Total consumer | 548,722 | 465,623 | 338,331 | 74,494 | ||||||||
Total impaired loans (excluding PCI) | $ | 552,433 | 468,908 | 341,616 | 75,720 | |||||||
December 31, 2015 | ||||||||||||
Commercial: | ||||||||||||
Commercial and industrial | $ | — | — | — | — | |||||||
Secured by real estate | 4,097 | 3,378 | 3,378 | 783 | ||||||||
Total commercial | 4,097 | 3,378 | 3,378 | 783 | ||||||||
Consumer: | ||||||||||||
Real estate 1-4 family first mortgage | 461,186 | 382,596 | 256,669 | 44,077 | ||||||||
Real estate 1-4 family junior lien mortgage | 130,787 | 117,269 | 96,511 | 29,598 | ||||||||
Total consumer | 591,973 | 499,865 | 353,180 | 73,675 | ||||||||
Total impaired loans (excluding PCI) | $ | 596,070 | 503,243 | 356,558 | 74,458 |
Quarter ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
(in thousands) | Average recorded investment | Recognized interest income | Average recorded investment | Recognized interest income | Average recorded investment | Recognized interest income | Average recorded investment | Recognized interest income | |||||||||||||||||
Commercial: | |||||||||||||||||||||||||
Commercial and industrial | $ | — | — | — | — | — | — | — | — | ||||||||||||||||
Secured by real estate | 3,358 | 11 | 11,351 | 821 | 3,828 | 60 | 8,170 | 898 | |||||||||||||||||
Total commercial | 3,358 | 11 | 11,351 | 821 | 3,828 | 60 | 8,170 | 898 | |||||||||||||||||
Consumer: | |||||||||||||||||||||||||
Real estate 1-4 family first mortgage | 363,593 | 5,867 | 388,609 | 5,681 | 372,254 | 17,120 | 392,712 | 17,183 | |||||||||||||||||
Real estate 1-4 family junior lien mortgage | 107,935 | 2,240 | 119,882 | 2,370 | 111,742 | 6,935 | 121,797 | 7,146 | |||||||||||||||||
Total consumer | 471,528 | 8,107 | 508,491 | 8,051 | 483,996 | 24,055 | 514,509 | 24,329 | |||||||||||||||||
Total impaired loans | $ | 474,886 | 8,118 | 519,842 | 8,872 | 487,824 | 24,115 | 522,679 | 25,227 | ||||||||||||||||
Interest income: | |||||||||||||||||||||||||
Cash basis of accounting | $ | 2,511 | 3,381 | 7,443 | 8,580 | ||||||||||||||||||||
Other (1) | 5,607 | 5,491 | 16,672 | 16,647 | |||||||||||||||||||||
Total interest income | $ | 8,118 | 8,872 | 24,115 | 25,227 |
(1) | Includes interest recognized on accruing TDRs, interest recognized related to certain impaired loans which have an allowance calculated using discounting, and amortization of purchase accounting adjustments related to certain impaired loans. |
Primary modification type (1) | Financial effects of modifications | |||||||||||||||||||||
(in thousands) | Principal (2) | Interest rate reduction | Other concessions (3) | Total | Charge- offs (4) | Weighted average interest rate reduction | Recorded investment related to interest rate reduction (5) | |||||||||||||||
Quarter ended September 30, 2016 | ||||||||||||||||||||||
Commercial: | ||||||||||||||||||||||
Commercial and industrial | $ | — | — | — | — | — | — | % | $ | — | ||||||||||||
Secured by real estate | — | — | 2,106 | 2,106 | — | — | — | |||||||||||||||
Total commercial | — | — | 2,106 | 2,106 | — | — | — | |||||||||||||||
Consumer: | ||||||||||||||||||||||
Real estate 1-4 family first mortgage | 2,079 | 3,107 | 3,267 | 8,453 | 258 | 3.48 | 5,110 | |||||||||||||||
Real estate 1-4 family junior lien mortgage | 111 | 738 | 866 | 1,715 | 437 | 3.88 | 848 | |||||||||||||||
Trial modifications (6) | — | — | 1,181 | 1,181 | — | — | — | |||||||||||||||
Total consumer | 2,190 | 3,845 | 5,314 | 11,349 | 695 | 3.54 | 5,958 | |||||||||||||||
Total | $ | 2,190 | 3,845 | 7,420 | 13,455 | 695 | 3.54 | % | $ | 5,958 | ||||||||||||
Quarter ended September 30, 2015 | ||||||||||||||||||||||
Commercial: | ||||||||||||||||||||||
Commercial and industrial | $ | — | — | — | — | — | — | % | $ | — | ||||||||||||
Secured by real estate | — | — | — | — | — | — | — | |||||||||||||||
Total commercial | — | — | — | — | — | — | — | |||||||||||||||
Consumer: | ||||||||||||||||||||||
Real estate 1-4 family first mortgage | 3,588 | 5,887 | 4,657 | 14,132 | 485 | 3.68 | 8,825 | |||||||||||||||
Real estate 1-4 family junior lien mortgage | 704 | 1,441 | 974 | 3,119 | 552 | 4.58 | 2,089 | |||||||||||||||
Trial modifications (6) | — | — | (350 | ) | (350 | ) | — | — | — | |||||||||||||
Total consumer | 4,292 | 7,328 | 5,281 | 16,901 | 1,037 | 3.85 | 10,914 | |||||||||||||||
Total | $ | 4,292 | 7,328 | 5,281 | 16,901 | 1,037 | 3.85 | % | $ | 10,914 |
Primary modification type (1) | Financial effects of modifications | |||||||||||||||||||||
(in thousands) | Principal (2) | Interest rate reduction | Other concessions (3) | Total | Charge- offs (4) | Weighted average interest rate reduction | Recorded investment related to interest rate reduction (5) | |||||||||||||||
Nine months ended September 30, 2016 | ||||||||||||||||||||||
Commercial: | ||||||||||||||||||||||
Commercial and industrial | $ | — | — | — | — | — | — | % | $ | — | ||||||||||||
Secured by real estate | — | — | 3,954 | 3,954 | — | — | — | |||||||||||||||
Total commercial | — | — | 3,954 | 3,954 | — | — | — | |||||||||||||||
Consumer: | ||||||||||||||||||||||
Real estate 1-4 family first mortgage | 5,914 | 8,086 | 13,137 | 27,137 | 1,297 | 3.48 | 12,798 | |||||||||||||||
Real estate 1-4 family junior lien mortgage | 794 | 3,425 | 3,211 | 7,430 | 1,478 | 3.82 | 4,012 | |||||||||||||||
Trial modifications (6) | — | — | (1,133 | ) | (1,133 | ) | — | — | — | |||||||||||||
Total consumer | 6,708 | 11,511 | 15,215 | 33,434 | 2,775 | 3.56 | 16,810 | |||||||||||||||
Total | $ | 6,708 | 11,511 | 19,169 | 37,388 | 2,775 | 3.56 | % | $ | 16,810 | ||||||||||||
Nine months ended September 30, 2015 | ||||||||||||||||||||||
Commercial: | ||||||||||||||||||||||
Commercial and industrial | $ | — | — | — | — | — | — | % | $ | — | ||||||||||||
Secured by real estate | — | — | 3,884 | 3,884 | — | — | — | |||||||||||||||
Total commercial | — | — | 3,884 | 3,884 | — | — | — | |||||||||||||||
Consumer: | ||||||||||||||||||||||
Real estate 1-4 family first mortgage | 7,796 | 16,405 | 14,418 | 38,619 | 1,655 | 3.46 | 22,467 | |||||||||||||||
Real estate 1-4 family junior lien mortgage | 1,401 | 3,716 | 3,816 | 8,933 | 1,484 | 4.98 | 4,747 | |||||||||||||||
Trial modifications (6) | — | — | 1,634 | 1,634 | — | — | — | |||||||||||||||
Total consumer | 9,197 | 20,121 | 19,868 | 49,186 | 3,139 | 3.73 | 27,214 | |||||||||||||||
Total | $ | 9,197 | 20,121 | 23,752 | 53,070 | 3,139 | 3.73 | % | $ | 27,214 |
(1) | Amounts represent the recorded investment in loans after recognizing the effects of the TDR, if any. TDRs may have multiple types of concessions, but are presented only once in the first modification type based on the order presented in the table above. The reported amounts include loans remodified of $2.7 million and $5.2 million for the quarters ended September 30, 2016 and 2015, and $6.9 million and $13.2 million for the nine months ended September 30, 2016 and 2015, respectively. |
(2) | Principal modifications include principal forgiveness at the time of the modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with a zero percent contractual interest rate. |
(3) | Other concessions include loan renewals, term extensions and other interest and noninterest adjustments, but exclude modifications that also forgive principal and/or reduce the interest rate. |
(4) | Charge-offs include write-downs of the investment in the loan in the period it is contractually modified. The amount of charge-off will differ from the modification terms if the loan has been charged down prior to the modification based on our policies. In addition, there may be cases where we have a charge-off/down with no legal principal modification. Modifications resulted in legally forgiving principal (actual, contingent or deferred) of $290 thousand and $1.1 million for the quarters ended September 30, 2016 and 2015, and $1.0 million and $2.3 million for the nine months ended September 30, 2016 and 2015, respectively. |
(5) | Reflects the effect of reduced interest rates on loans with an interest rate concession as one of their concession types, which includes loans reported as a principal primary modification type that also have an interest rate concession. |
(6) | Trial modifications are granted a delay in payments due under the original terms during the trial payment period. However, these loans continue to advance through delinquency status and accrue interest according to their original terms. Any subsequent permanent modification generally includes interest rate related concessions; however, the exact concession type and resulting financial effect are usually not known until the loan is permanently modified. Trial modifications for the period are presented net of previously reported trial modifications that became permanent in the current period. |
Recorded investment of defaults | ||||||||||||
Quarter ended September 30, | Nine months ended September 30, | |||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||
Commercial: | ||||||||||||
Commercial and industrial | $ | — | — | — | — | |||||||
Secured by real estate | — | — | 807 | — | ||||||||
Total commercial | — | — | 807 | — | ||||||||
Consumer: | ||||||||||||
Real estate 1-4 family first mortgage | 835 | 1,797 | 1,759 | 4,264 | ||||||||
Real estate 1-4 family junior lien mortgage | 573 | 383 | 885 | 814 | ||||||||
Total consumer | 1,408 | 2,180 | 2,644 | 5,078 | ||||||||
Total | $ | 1,408 | 2,180 | 3,451 | 5,078 |
Note 3: Fair Values of Assets and Liabilities |
Carrying amount | Estimated fair value | ||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
September 30, 2016 | |||||||||||||||
Financial assets | |||||||||||||||
Cash and cash equivalents (1) | $ | — | — | — | — | — | |||||||||
Loans, net (2) | 33,370,438 | — | — | 34,842,564 | 34,842,564 | ||||||||||
Financial liabilities | |||||||||||||||
Line of credit with Bank (1) | 1,369,954 | — | — | 1,369,954 | 1,369,954 | ||||||||||
December 31, 2015 | |||||||||||||||
Financial assets | |||||||||||||||
Cash and cash equivalents (1) | $ | — | — | — | — | — | |||||||||
Loans, net (2) | 13,135,314 | — | — | 13,892,807 | 13,892,807 | ||||||||||
Financial liabilities | |||||||||||||||
Line of credit with Bank (1) | 828,149 | — | — | 828,149 | 828,149 |
(1) | Amounts consist of financial instruments for which carrying value approximates fair value. |
(2) | Carrying amount reflects net discount and allowance for loan losses. |
Note 4: Common and Preferred Stock |
Liquidation preference per share | Shares authorized | Shares issued and outstanding | Par value per share | Carrying value | |||||||||||||
September 30, 2016 | |||||||||||||||||
Preferred stock: | |||||||||||||||||
Series A | |||||||||||||||||
6.375%, Cumulative, Perpetual Series A Preferred Stock | $ | 25 | 11,000,000 | 11,000,000 | $ | 0.01 | 110,000 | ||||||||||
Series B | |||||||||||||||||
$85 Annual Dividend Per Share, Cumulative, Perpetual Series B Preferred Stock | 1,000 | 1,000 | 667 | 0.01 | 7 | ||||||||||||
Common stock | 100,000,000 | 34,058,028 | 0.01 | 340,580 | |||||||||||||
Total | 111,001,000 | 45,058,695 | $ | 450,587 | |||||||||||||
December 31, 2015 | |||||||||||||||||
Preferred stock: | |||||||||||||||||
Series A | |||||||||||||||||
6.375%, Cumulative, Perpetual Series A Preferred Stock | $ | 25 | 11,000,000 | 11,000,000 | $ | 0.01 | 110,000 | ||||||||||
Series B | |||||||||||||||||
$85 Annual Dividend Per Share, Cumulative, Perpetual Series B Preferred Stock | 1,000 | 1,000 | 667 | 0.01 | 7 | ||||||||||||
Common stock | 100,000,000 | 12,900,000 | 0.01 | 129,000 | |||||||||||||
Total | 111,001,000 | 23,900,667 | $ | 239,007 |
Note 5: Transactions With Related Parties |
Quarter ended September 30, | Nine months ended September 30, | |||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||
Income statement data | ||||||||||||
Interest income: | ||||||||||||
Net accretion of adjustments on loans | $ | 4,694 | 20,926 | 42,538 | 62,904 | |||||||
Interest on deposits | 4,064 | — | 4,303 | 304 | ||||||||
Total interest income | 8,758 | 20,926 | 46,841 | 63,208 | ||||||||
Pledge fees | 8,715 | 1,538 | 16,457 | 1,856 | ||||||||
Interest expense | 1,272 | 377 | 2,029 | 644 | ||||||||
Loan servicing costs | 13,308 | 9,074 | 30,848 | 26,598 | ||||||||
Management fees | 4,441 | 2,871 | 11,843 | 8,328 |
(in thousands) | Sep 30, 2016 | Dec 31, 2015 | ||||
Balance sheet related data | ||||||
Loan acquisitions (year-to-date) | $ | 23,339,146 | 3,303,296 | |||
Proceeds from common stock issuance | 20,000,050 | — | ||||
Loan sales (year-to-date) | (203,762 | ) | (11,751 | ) | ||
Pledged loans (carrying value) (1) | 21,484,462 | 5,760,284 | ||||
Foreclosed asset sales (year-to-date) | (8,493 | ) | (11,137 | ) | ||
Line of credit with Bank | 1,369,954 | 828,149 | ||||
Accounts receivable - affiliates, net | 302,171 | 70,982 |
(1) | The fair value of pledged loans was approximately $22.4 billion and $6.1 billion at September 30, 2016 and December 31, 2015, respectively. |
Wells Fargo Real Estate Investment Corporation | ||
By: | /s/ RICHARD D. LEVY | |
Richard D. Levy Executive Vice President and Controller (Principal Accounting Officer) |
Exhibit No. | Description | Location | ||
(3)(a) | Amended and Restated Certificate of Incorporation. | Incorporated by reference to Exhibit (3)(a) to WFREIC’s Annual Report on Form 10-K for the year ended December 31, 2014. | ||
(3)(b) | Bylaws. | Incorporated by reference to Exhibit 3.3 to WFREIC’s Registration Statement on Form S-11 No. 333-198948 filed November 18, 2014. | ||
(12) | Computations of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends. | Filed herewith. | ||
(31)(a) | Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed herewith. | ||
(31)(b) | Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed herewith. | ||
(32)(a) | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Filed herewith. | ||
(32)(b) | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Filed herewith. | ||
(101.Ins) | XBRL Instance Document | Filed herewith. | ||
(101.Sch) | XBRL Taxonomy Extension Schema Document | Filed herewith. | ||
(101.Cal) | XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith. | ||
(101.Lab) | XBRL Taxonomy Extension Label Linkbase Document | Filed herewith. | ||
(101.Pre) | XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith. | ||
(101.Def) | XBRL Taxonomy Extension Definitions Linkbase Document | Filed herewith. |
Wells Fargo Real Estate Investment Corporation | ||||||||||||
Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends | ||||||||||||
Quarter ended September 30, | Nine months ended September 30, | |||||||||||
(in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||
Excluding interest on deposits (1) | ||||||||||||
Income before income taxes | $ | 191,263 | 179,910 | 485,020 | 487,522 | |||||||
Fixed charges, excluding preferred dividends and capitalized interest | 1,272 | 377 | 2,029 | 644 | ||||||||
Earnings | $ | 192,535 | 180,287 | 487,049 | 488,166 | |||||||
Interest expense | $ | 1,272 | 377 | 2,029 | 644 | |||||||
Estimated interest component of net rental expense | — | — | — | — | ||||||||
Preferred dividends | 4,397 | 4,397 | 13,191 | 13,191 | ||||||||
Capitalized interest | — | — | — | — | ||||||||
Fixed charges and preferred dividends | $ | 5,669 | 4,774 | 15,220 | 13,835 | |||||||
Ratio of earnings to fixed charges and preferred dividends (2) | 33.96 | 37.76 | 32.00 | 35.28 | ||||||||
(1) | As defined in Item 503(d) of Regulation S-K. |
(2) | These computations are included herein in compliance with Securities and Exchange Commission regulations. However, management believes that fixed charge ratios are not meaningful measures for the business of Wells Fargo Real Estate Investment Corporation. For example, even if there was no change in net income, the ratios would decline if interest income and interest expense increase by the same amount due to an increase in the level of interest rates or, conversely, they would increase if interest income and interest expense decrease by the same amount due to a decrease in the level of interest rates. |
1. | I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016, of Wells Fargo Real Estate Investment Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ MICHAEL J. LOUGHLIN | ||
Michael J. Loughlin | ||
Chief Executive Officer | ||
Date: | November 7, 2016 |
1. | I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016, of Wells Fargo Real Estate Investment Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ JOHN R. SHREWSBERRY | ||
John R. Shrewsberry | ||
Chief Financial Officer | ||
Date: | November 7, 2016 |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of WFREIC. |
/s/ MICHAEL J. LOUGHLIN | |
Michael J. Loughlin | |
Chief Executive Officer | |
November 7, 2016 |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of WFREIC. |
/s/ JOHN R. SHREWSBERRY | |
John R. Shrewsberry | |
Chief Financial Officer | |
November 7, 2016 |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Oct. 31, 2016 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | Wells Fargo Real Estate Investment Corp. | |
Entity Central Index Key | 0001616093 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q3 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 34,058,028 |
Statement of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Interest income | $ 224,690 | $ 171,567 | $ 554,364 | $ 506,412 |
Interest expense | 1,272 | 377 | 2,029 | 644 |
Net interest income | 223,418 | 171,190 | 552,335 | 505,768 |
Provision (reversal of provision) for credit losses | 18,743 | (23,023) | 30,174 | (23,914) |
Net interest income after provision for credit losses | 204,675 | 194,213 | 522,161 | 529,682 |
Noninterest income | ||||
Pledge fees | 8,715 | 1,538 | 16,457 | 1,856 |
Other fees | (785) | 140 | (557) | 418 |
Total noninterest income | 7,930 | 1,678 | 15,900 | 2,274 |
Noninterest expense | ||||
Loan servicing costs | 13,309 | 9,080 | 30,855 | 26,622 |
Management fees | 4,441 | 2,871 | 11,843 | 8,328 |
Foreclosed assets | 3,174 | 3,772 | 9,627 | 8,676 |
Other | 418 | 258 | 716 | 808 |
Total noninterest expense | 21,342 | 15,981 | 53,041 | 44,434 |
Net income | 191,263 | 179,910 | 485,020 | 487,522 |
Comprehensive income | 191,263 | 179,910 | 485,020 | 487,522 |
Dividends on preferred stock | 4,397 | 4,397 | 13,191 | 13,191 |
Net income applicable to common stock | $ 186,866 | $ 175,513 | $ 471,829 | $ 474,331 |
Per common share information | ||||
Earnings per common share (in dollars per share) | $ 8.82 | $ 13.61 | $ 30.09 | $ 36.77 |
Diluted earnings per common share (in dollars per share) | 8.82 | 13.61 | 30.09 | 36.77 |
Dividends declared per common share (in dollars per share) | $ 6.31 | $ 11.25 | $ 28.01 | $ 32.95 |
Average common shares outstanding (in shares) | 21,179 | 12,900 | 15,680 | 12,900 |
Diluted average common shares outstanding (in shares) | 21,179 | 12,900 | 15,680 | 12,900 |
Balance Sheet - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Assets | ||
Cash and cash equivalents | $ 0 | $ 0 |
Loans, net of unearned income | 33,501,153 | 13,256,180 |
Allowance for loan losses | (130,715) | (120,866) |
Net loans | 33,370,438 | 13,135,314 |
Accounts receivable - affiliates, net | 302,171 | 70,982 |
Other assets | 91,011 | 38,572 |
Total assets | 33,763,620 | 13,244,868 |
Liabilities | ||
Line of credit with Bank | 1,369,954 | 828,149 |
Other liabilities | 3,880 | 3,812 |
Total liabilities | 1,373,834 | 831,961 |
Stockholders’ Equity | ||
Preferred stock | 110 | 110 |
Common stock – $0.01 par value, authorized 100,000,000 shares; issued and outstanding 34,058,028 and 12,900,000 shares | 341 | 129 |
Additional paid-in capital | 32,550,660 | 12,550,822 |
Retained earnings (deficit) | (161,325) | (138,154) |
Total stockholders’ equity | 32,389,786 | 12,412,907 |
Total liabilities and stockholders’ equity | $ 33,763,620 | $ 13,244,868 |
Balance Sheet (Parenthetical) - $ / shares |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Stockholders’ Equity | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common Stock, Shares, Outstanding | 34,058,028 | 12,900,000 |
Common stock, shares issued | 34,058,028 | 12,900,000 |
Statement of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands |
Total |
Series A Preferred Stock [Member] |
Series B Preferred Stock [Member] |
Preferred Stock [Member] |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings (Deficit) [Member] |
Retained Earnings (Deficit) [Member]
Series A Preferred Stock [Member]
|
Retained Earnings (Deficit) [Member]
Series B Preferred Stock [Member]
|
---|---|---|---|---|---|---|---|---|---|
Beginning balance at Dec. 31, 2014 | $ 12,356,517 | $ 110 | $ 129 | $ 12,550,822 | $ (194,544) | ||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||
Net income | 487,522 | 487,522 | |||||||
Cash dividends | |||||||||
Preferred securities | $ (13,148) | $ (43) | $ (13,148) | $ (43) | |||||
Common stock | (425,000) | (425,000) | |||||||
Ending balance at Sep. 30, 2015 | 12,405,848 | 110 | 129 | 12,550,822 | (145,213) | ||||
Beginning balance at Dec. 31, 2015 | 12,412,907 | 110 | 129 | 12,550,822 | (138,154) | ||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||
Net income | 485,020 | 485,020 | |||||||
Common stock issued | 20,000,050 | 212 | 19,999,838 | 0 | |||||
Cash dividends | |||||||||
Preferred securities | $ (13,148) | $ (43) | $ (13,148) | $ (43) | |||||
Common stock | (495,000) | (495,000) | |||||||
Ending balance at Sep. 30, 2016 | $ 32,389,786 | $ 110 | $ 341 | $ 32,550,660 | $ (161,325) |
Statement of Changes in Stockholders' Equity (Parenthetical) (Unaudited) - $ / shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Common stock, dividend per share (in dollars per share) | $ 28.01 | $ 32.95 |
Series A Preferred Stock [Member] | ||
Preferred stock, dividend per share (in dollars per share) | 1.20 | 1.20 |
Series B Preferred Stock [Member] | ||
Preferred stock, dividend per share (in dollars per share) | $ 63.75 | $ 63.75 |
Summary of Significant Accounting Policies |
9 Months Ended | |||||||||||
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Sep. 30, 2016 | ||||||||||||
Accounting Policies [Abstract] | ||||||||||||
Summary of Significant Accounting Policies |
Wells Fargo Real Estate Investment Corporation (the Company, we, our or us) is an indirect subsidiary of both Wells Fargo & Company (Wells Fargo) and Wells Fargo Bank, National Association (the Bank). The Company, a Delaware corporation, has operated as a real estate investment trust (REIT) since its formation in 1996. The accounting and reporting policies of the Company are in accordance with U.S. generally accepted accounting principles (GAAP). For discussion of our significant accounting policies, see Note 1 (Summary of Significant Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2015 (2015 Form 10-K). There were no material changes to these policies in the first nine months of 2016. The preparation of the financial statements in accordance with GAAP requires management to make estimates based on assumptions about future economic and market conditions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period and the related disclosures. Although our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual future conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates related to the allowance for credit losses (Note 2 (Loans and Allowance for Credit Losses)). Actual results could differ from those estimates. These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The results of operations in the interim financial statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our 2015 Form 10-K. Accounting Standards Adopted in 2016 In first quarter 2016, we adopted the following new accounting guidance:
Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 removes the concept of extraordinary items from GAAP and eliminates the requirement for extraordinary items to be separately presented in the statement of income. We adopted the Update in first quarter 2016 with prospective application. The Update did not impact our financial statements. Accounting Standards with Retrospective Application The following accounting pronouncement has been issued by the FASB but is not yet effective:
ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for reporting in the Statement of Cash Flows. The Update is effective for us in first quarter 2018 with retrospective application. We are evaluating the impact the Update will have on our financial statements. Subsequent Events We have evaluated the effects of events that have occurred subsequent to September 30, 2016. There were no material subsequent events requiring adjustment to the financial statements or disclosure in the Notes to Financial Statements. During the first week of October 2016, Hurricane Matthew caused destruction along the coasts of Florida, Georgia, South Carolina and North Carolina and resulted in, among other things, property damage for our customers and the closing of many businesses. We are currently assessing the impact to our customers and our business as a result of Hurricane Matthew. The financial impact to us is expected to relate to our consumer and commercial real estate loan portfolios and will depend on a number of factors, including the types of loans most affected by the hurricane, the extent of damage to our collateral, the extent of available insurance coverage, the availability of government assistance for our borrowers, and whether our borrowers’ ability to repay their loans has been diminished. |
Loans and Allowance for Credit Losses |
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Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and Allowance for Credit Losses |
The Company acquires loans originated or purchased by the Bank. In order to maintain our status as a REIT, the composition of the loans is highly concentrated in real estate. The majority of our loans are concentrated in California, New York, Washington, Virginia and Florida. These markets include approximately 58% of our total loan balance at September 30, 2016. The following table presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include a total net addition of $76.1 million at September 30, 2016 and a net reduction of $301.3 million at December 31, 2015, for unamortized premiums and discounts.
The following table summarizes the proceeds paid or received from the Bank for acquisitions and sales of loans, respectively.
Commitments to Lend The contract or notional amount of commercial loan commitments to extend credit was $551.7 million at September 30, 2016 and $399.5 million at December 31, 2015. Pledged Loans See Note 5 (Transactions With Related Parties) for additional details on our agreement with the Bank to pledge loans. Allowance for Credit Losses The following table presents the allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments.
The following table summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments.
The following table disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.
Credit Quality We monitor credit quality by evaluating various attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. The following sections provide the credit quality indicators we most closely monitor. The credit quality indicators are generally based on information as of our financial statement date, with the exception of updated Fair Isaac Corporation (FICO) scores and updated loan-to-value (LTV)/combined LTV (CLTV). We obtain FICO scores at loan origination and the scores are generally updated at least quarterly, except in limited circumstances, including compliance with the Fair Credit Reporting Act (FCRA). Generally, the LTV and CLTV indicators are updated in the second month of each quarter, with updates no older than June 30, 2016. COMMERCIAL CREDIT QUALITY INDICATORS In addition to monitoring commercial loan concentration risk, we manage a consistent process for assessing commercial loan credit quality. Generally commercial loans are subject to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to Pass and Criticized categories. The Criticized category includes Special Mention, Substandard, and Doubtful categories which are defined by bank regulatory agencies. The table below provides a breakdown of outstanding commercial loans by risk category.
The following table provides past due information for commercial loans, which we monitor as part of our credit risk management practices.
CONSUMER CREDIT QUALITY INDICATORS We have various classes of consumer loans that present unique risks. Loan delinquency, FICO credit scores and LTV/CLTV for loan types are common credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the allowance for credit losses for the consumer portfolio segment. The majority of our loss estimation techniques used for the allowance for credit losses rely on delinquency matrix models or delinquency roll rate models. Therefore, delinquency is an important indicator of credit quality and the establishment of our allowance for credit losses. The following table provides the outstanding balances of our consumer portfolio by delinquency status.
The following table provides a breakdown of our consumer portfolio by FICO. FICO is not available for certain loan types and may not be obtained if we deem it unnecessary due to strong collateral and other borrower attributes.
LTV refers to the ratio comparing the loan’s unpaid principal balance to the property’s collateral value. CLTV refers to the combination of first mortgage and junior lien mortgage ratios. LTVs and CLTVs are updated quarterly using a cascade approach which first uses values provided by automated valuation models (AVMs) for the property. If an AVM is not available, then the value is estimated using the original appraised value adjusted by the change in Home Price Index (HPI) for the property location. If an HPI is not available, the original appraised value is used. The HPI value is normally the only method considered for high value properties, generally with an original value of $1 million or more, as the AVM values have proven less accurate for these properties. The following table shows the most updated LTV and CLTV distribution of the real estate 1-4 family first and junior lien mortgage loan portfolios. We consider the trends in residential real estate markets as we monitor credit risk and establish our allowance for credit losses. In the event of a default, any loss should be limited to the portion of the loan amount in excess of the net realizable value of the underlying real estate collateral value. Certain loans do not have an LTV or CLTV due to industry data availability and portfolios acquired from or serviced by other institutions.
NONACCRUAL LOANS The following table provides loans on nonaccrual status. PCI loans are excluded from this table due to the existence of the accretable yield.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Certain loans 90 days or more past due as to interest or principal are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $2.3 million at September 30, 2016, and $4.4 million at December 31, 2015, are excluded from this disclosure even though they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms. The following table shows non-PCI loans 90 days or more past due and still accruing.
Impaired Loans The table below summarizes key information for impaired loans. Our impaired loans predominantly include loans on nonaccrual status in the commercial portfolio segment and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans generally have estimated losses which are included in the allowance for credit losses. We have impaired loans with no allowance for credit losses when loss content has been previously recognized through charge-offs and we do not anticipate additional charge-offs or losses, or certain loans are currently performing in accordance with their terms and for which no loss has been estimated. Impaired loans exclude PCI loans. The table below includes trial modifications that totaled $12.9 million at September 30, 2016 and $15.7 million at December 31, 2015.
The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.
Troubled Debt Restructuring (TDRs) When, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession for other than an insignificant period of time to a borrower that we would not otherwise consider, the related loan is classified as a TDR, the balance of which totaled $468.9 million and $502.4 million at September 30, 2016 and December 31, 2015, respectively. We do not consider any loans modified through a loan resolution such as foreclosure or short sale to be a TDR. We may require some consumer borrowers experiencing financial difficulty to make trial payments generally for a period of three to four months, according to the terms of a planned permanent modification, to determine if they can perform according to those terms. These arrangements represent trial modifications, which we classify and account for as TDRs. While loans are in trial payment programs, their original terms are not considered modified and they continue to advance through delinquency status and accrue interest according to their original terms. Most of the planned modifications for these arrangements involve interest rate reductions; however, the exact concession type and resulting financial effect are usually not finalized and do not take effect until the loan is permanently modified. The trial period terms are developed in accordance with our proprietary programs or the U.S. Treasury’s Making Homes Affordable programs for real estate 1-4 family first lien (i.e. Home Affordable Modification Program - HAMP) and junior lien (i.e. Second Lien Modification Program - 2MP) mortgage loans. At September 30, 2016, the loans in trial modification period were $6.2 million under HAMP, $774 thousand under 2MP and $5.9 million under proprietary programs, compared with $7.4 million, $663 thousand and $7.6 million at December 31, 2015, respectively. Trial modifications with a recorded investment of $4.9 million at September 30, 2016, and $5.8 million at December 31, 2015, were accruing loans and $8.0 million and $9.9 million, respectively, were nonaccruing loans. Our experience is that most of the mortgages that enter a trial payment period program are successful in completing the program requirements and are then permanently modified at the end of the trial period. As previously discussed, our allowance process considers the impact of those modifications that are probable to occur including the associated credit cost and related re-default risk. For those loans that may be modified more than once, the following table reflects each modification that occurred during the period. Loans that both modify and pay off within the period, as well as changes in recorded investment during the period for loans modified in prior periods, are not included in the table.
The table below summarizes permanent modification TDRs that have defaulted in the current period within 12 months of their permanent modification date. We report these defaulted TDRs based on a payment default definition of 90 days past due for the commercial portfolio segment and 60 days past due for the consumer portfolio segment.
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Fair Values of Assets and Liabilities |
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Fair Values of Assets and Liabilities |
We use fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. We did not elect the fair value option for any financial instruments as permitted in FASB ASC 825, Financial Instruments, which allows companies to elect to carry certain financial instruments at fair value with corresponding changes in fair value reported in the results of operations. As of September 30, 2016 and December 31, 2015, assets measured at fair value on a nonrecurring basis were less than 1% of total assets. See Note 1 (Summary of Significant Accounting Policies) in our 2015 Form 10-K for additional information about our fair value measurement policies and methods. Disclosures about Fair Value of Financial Instruments The table below is a summary of fair value estimates by level for financial instruments. The carrying amounts in the following table are recorded in the balance sheet under the indicated captions. We have not included assets and liabilities that are not financial instruments in our disclosure, such as other assets and other liabilities. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.
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Common and Preferred Stock |
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Common and Preferred Stock |
The following table provides details of our authorized common and preferred stock.
In the event that the Company is liquidated or dissolved, the holders of the Series A and Series B preferred stock will be entitled to a liquidation preference for each security plus any authorized, declared and unpaid dividends that will be paid prior to any payments to common stockholders. With respect to the payment of dividends and liquidation preference, the Series A preferred stock ranks on parity with Series B preferred stock and senior to the Company’s common stock. The Company may issue additional shares of common stock to affiliates of Wells Fargo without further action by the Series A or Series B stockholders. Additional information related to Series A and B preferred stock is included in Note 5 (Common and Preferred Stock) to Financial Statements in our 2015 Form 10-K. On August 26, 2016, the Company issued and sold 21.2 million shares of the Company’s common stock, par value $0.01 per share, for an aggregate purchase price of $20.0 billion. The shares were sold to affiliates of the Company. The Company used the proceeds from the issuance to acquire REIT Qualified Assets (as described in the our Annual Report on Form 10-K for the year ended December 31, 2015) from affiliates. Following the issuance, indirect wholly-owned subsidiaries of Wells Fargo Bank, N.A. continue to own 100% of the Company’s common stock. |
Transactions With Related Parties |
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Transactions With Related Parties |
The Company engages in various transactions and agreements with affiliated parties in the ordinary course of business. Due to the common ownership of the Company and the affiliated parties by Wells Fargo, these transactions and agreements may reflect circumstances and considerations that could differ from those conducted with unaffiliated parties. The principal items related to transactions with affiliated parties included in the accompanying statement of income and balance sheet are described in the table and narrative below.
Loans We acquire and sell loans to and from the Bank. The acquisitions and sales are transacted at fair value resulting in acquisition discounts and premiums or gains and losses on sales. The net acquisition discount accretion is reported within interest income. Gains or losses on sales of loans are included within noninterest income. We may pledge our loans in an aggregate amount not exceeding 80% of our total assets at any time as collateral on behalf of the Bank for the Bank’s access to secured borrowing facilities through the Federal Home Loan Banks or the discount window of Federal Reserve Banks. In exchange for the pledge of our loan assets, the Bank will pay us a fee that is consistent with market terms. At September 30, 2016 and September 30, 2015, the fee was equal to an annual rate of 28 basis points (0.28%) and 11 basis points (0.11%), respectively, as applied to the unpaid principal balance of pledged loans on a monthly basis. Such fee may be renegotiated by us and the Bank from time to time. Loan Servicing Costs The loans in our portfolio are predominantly serviced by the Bank pursuant to the terms of participation and servicing and assignment agreements. In some instances, the Bank has delegated servicing responsibility to third parties that are not affiliated with us or the Bank. Depending on the loan type, the monthly servicing fee charges are based in part on (a) outstanding principal balances, (b) a flat fee per month, or (c) a total loan commitment amount. Management Fees We pay the Bank a management fee to reimburse for general overhead expenses, including allocations of technology support and a combination of finance and accounting, risk management and other general overhead expenses incurred on our behalf. Management fees are calculated based on Wells Fargo’s total allocable costs multiplied by a formula. The formula is based on our proportion of Wells Fargo’s consolidated: (1) full-time equivalent employees, (2) total average assets and (3) total revenue. Deposits Interest income earned on deposits is included in interest income. Our cash management process includes applying operating cash flows to reduce any outstanding balance on our line of credit with the Bank. Operating cash flows are settled through our affiliate accounts receivable/payable process. Upon settlement cash received is either applied to reduce our line of credit outstanding or retained as a deposit with the Bank. Foreclosed Assets We sell foreclosed assets back to the Bank from time to time at estimated fair value. Line of Credit We have a revolving line of credit with the Bank, pursuant to which we can borrow up to $2.2 billion at a rate of interest equal to the average federal funds rate plus 12.5 basis points (0.125%). Accounts Receivable - Affiliates, Net Accounts receivable from or payable to the Bank or its affiliates result from intercompany transactions which include net loan pay-downs, interest receipts, and other transactions, including those transactions noted herein, which have not yet settled. |
Summary of Significant Accounting Policies (Policies) |
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Sep. 30, 2016 | |||||
Significant Accounting Policies [Line Items] | |||||
Nature of Operations | Wells Fargo Real Estate Investment Corporation (the Company, we, our or us) is an indirect subsidiary of both Wells Fargo & Company (Wells Fargo) and Wells Fargo Bank, National Association (the Bank). The Company, a Delaware corporation, has operated as a real estate investment trust (REIT) since its formation in 1996. |
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Use of Estimates | The accounting and reporting policies of the Company are in accordance with U.S. generally accepted accounting principles (GAAP). For discussion of our significant accounting policies, see Note 1 (Summary of Significant Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2015 (2015 Form 10-K). There were no material changes to these policies in the first nine months of 2016. The preparation of the financial statements in accordance with GAAP requires management to make estimates based on assumptions about future economic and market conditions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period and the related disclosures. Although our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual future conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates related to the allowance for credit losses (Note 2 (Loans and Allowance for Credit Losses)). Actual results could differ from those estimates. |
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Comparability of Prior Year Financial Data | These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The results of operations in the interim financial statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our 2015 Form 10-K. |
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Accounting Standards Adopted in 2016 | Accounting Standards Adopted in 2016 In first quarter 2016, we adopted the following new accounting guidance:
Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. |
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Subsequent Events | We have evaluated the effects of events that have occurred subsequent to September 30, 2016. There were no material subsequent events requiring adjustment to the financial statements or disclosure in the Notes to Financial Statements. |
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Accounting Standards Update 2015-01 [Member] | |||||
Significant Accounting Policies [Line Items] | |||||
Accounting Standards Adopted in 2016 | ASU 2015-01 removes the concept of extraordinary items from GAAP and eliminates the requirement for extraordinary items to be separately presented in the statement of income. We adopted the Update in first quarter 2016 with prospective application. The Update did not impact our financial statements. |
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Accounting Standards Update 2016-15 [Member] | |||||
Significant Accounting Policies [Line Items] | |||||
Accounting Standards with Retrospective Application [Policy Text Block] | Accounting Standards with Retrospective Application The following accounting pronouncement has been issued by the FASB but is not yet effective:
ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for reporting in the Statement of Cash Flows. The Update is effective for us in first quarter 2018 with retrospective application. We are evaluating the impact the Update will have on our financial statements. |
Loans and Allowance for Credit Losses (Tables) |
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Loans and Allowance for Credit Losses, Loans Outstanding | The following table presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include a total net addition of $76.1 million at September 30, 2016 and a net reduction of $301.3 million at December 31, 2015, for unamortized premiums and discounts.
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Loans and Allowance for Credit Losses, Significant Activity | The following table summarizes the proceeds paid or received from the Bank for acquisitions and sales of loans, respectively.
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Loans and Allowance for Credit Losses, Allowance for Credit Losses | The following table presents the allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments.
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Loans and Allowance for Credit Losses, Allowance Activity by Portfolio Segment | The following table summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments.
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Loans and Allowance for Credit Losses, by Impairment Methodology | The following table disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.
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Loans and Allowance for Credit Losses, Loans by Credit Quality Indicator, Commercial | The table below provides a breakdown of outstanding commercial loans by risk category.
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Loans and Allowance for Credit Losses, Loans by Delinquency Status, Commercial | The following table provides past due information for commercial loans, which we monitor as part of our credit risk management practices.
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Loans and Allowance for Credit Losses, Loans by Delinquency Status, Consumer | The following table provides the outstanding balances of our consumer portfolio by delinquency status.
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Loans and allowance for Credit Losses, Loans by FICO Score, Consumer | The following table provides a breakdown of our consumer portfolio by FICO. FICO is not available for certain loan types and may not be obtained if we deem it unnecessary due to strong collateral and other borrower attributes.
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Loans and Allowance for Credit Losses, Loans by Loan to Value Ratio, Consumer | The following table shows the most updated LTV and CLTV distribution of the real estate 1-4 family first and junior lien mortgage loan portfolios. We consider the trends in residential real estate markets as we monitor credit risk and establish our allowance for credit losses. In the event of a default, any loss should be limited to the portion of the loan amount in excess of the net realizable value of the underlying real estate collateral value. Certain loans do not have an LTV or CLTV due to industry data availability and portfolios acquired from or serviced by other institutions.
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Loans and Allowance for Credit Losses, Nonaccrual Loans | The following table provides loans on nonaccrual status. PCI loans are excluded from this table due to the existence of the accretable yield.
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Loans and Allowance for Credit Losses, 90 days Past Due but Still Accruing Loans | The following table shows non-PCI loans 90 days or more past due and still accruing.
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Loans and Allowance for Credit Losses, Impaired Loans | The table below includes trial modifications that totaled $12.9 million at September 30, 2016 and $15.7 million at December 31, 2015.
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Loans and Allowance for Credit Losses, Impaired Loans, Average Recorded Investment and Interest Income | The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.
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Loans and Allowance for Credit Losses, Troubled Debt Restructurings, Modification by Type | For those loans that may be modified more than once, the following table reflects each modification that occurred during the period. Loans that both modify and pay off within the period, as well as changes in recorded investment during the period for loans modified in prior periods, are not included in the table.
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Loans and Allowance for Credit Losses, Troubled Debt Restructuring, Current Defaults | The table below summarizes permanent modification TDRs that have defaulted in the current period within 12 months of their permanent modification date. We report these defaulted TDRs based on a payment default definition of 90 days past due for the commercial portfolio segment and 60 days past due for the consumer portfolio segment.
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Fair Values of Assets and Liabilities (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Assets and Liabilities, Fair Value, Estimated for Financial Instruments Not Carried at Fair Value | The table below is a summary of fair value estimates by level for financial instruments. The carrying amounts in the following table are recorded in the balance sheet under the indicated captions. We have not included assets and liabilities that are not financial instruments in our disclosure, such as other assets and other liabilities. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.
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Common and Preferred Stock (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common and Preferred Stock, Summary of preferred stock and common stock | The following table provides details of our authorized common and preferred stock.
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Transactions with Related Parties (Tables) |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with Related Parties | The principal items related to transactions with affiliated parties included in the accompanying statement of income and balance sheet are described in the table and narrative below.
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Loans and Allowance for Credit Losses, Significant Activity (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
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Loans and Allowance for Credit Losses Significant Activity [Abstract] | |||||
Loan acquisitions | $ 21,025,219 | $ 794,475 | $ 23,339,146 | $ 2,495,142 | |
Loan sales | (198,549) | (3,457) | (203,762) | (9,991) | |
Total commercial [Member] | |||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||
Unused Commitments to Extend Credit | 551,700 | 551,700 | $ 399,500 | ||
Loans and Allowance for Credit Losses Significant Activity [Abstract] | |||||
Loan acquisitions | 1,907,228 | 0 | 1,907,228 | 0 | |
Loan sales | 0 | 0 | (128) | (550) | |
Total consumer [Member] | |||||
Loans and Allowance for Credit Losses Significant Activity [Abstract] | |||||
Loan acquisitions | 19,117,991 | 794,475 | 21,431,918 | 2,495,142 | |
Loan sales | $ (198,549) | $ (3,457) | $ (203,634) | $ (9,441) |
Loans and Allowance for Credit Losses, Nonaccrual (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Nonaccrual Loans [Abstract] | ||
Nonaccrual loans | $ 228,276 | $ 267,955 |
Total commercial [Member] | ||
Nonaccrual Loans [Abstract] | ||
Nonaccrual loans | 2,378 | 1,706 |
Commercial and industrial [Member] | ||
Nonaccrual Loans [Abstract] | ||
Nonaccrual loans | 0 | 0 |
Secured by real estate [Member] | ||
Nonaccrual Loans [Abstract] | ||
Nonaccrual loans | 2,378 | 1,706 |
Total consumer [Member] | ||
Nonaccrual Loans [Abstract] | ||
Nonaccrual loans | 225,898 | 266,249 |
Real estate 1-4 family first mortgage [Member] | ||
Nonaccrual Loans [Abstract] | ||
Nonaccrual loans | 175,086 | 201,531 |
Real estate 1-4 family junior lien mortgage [Member] | ||
Nonaccrual Loans [Abstract] | ||
Nonaccrual loans | $ 50,812 | $ 64,718 |
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