WTFC-2013.09.30-10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________
FORM 10-Q
_________________________________________
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| |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2013
OR
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| |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-35077
_____________________________________
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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| |
Illinois | 36-3873352 |
(State of incorporation or organization) | (I.R.S. Employer Identification No.) |
9700 W. Higgins Road, Suite 800
Rosemont, Illinois 60018
(Address of principal executive offices)
(847) 939-9000
(Registrant’s telephone number, including area code)
______________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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| | | | | | | |
Large accelerated filer | | þ | | | Accelerated filer | | ¨ |
Non-accelerated filer | | ¨ | (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock — no par value, 39,933,549 shares, as of October 31, 2013
TABLE OF CONTENTS
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| | Page |
| PART I. — FINANCIAL INFORMATION | |
ITEM 1. | | |
ITEM 2. | | |
ITEM 3. | | |
ITEM 4. | | |
| PART II. — OTHER INFORMATION | |
ITEM 1. | | |
ITEM 1A. | | |
ITEM 2. | | |
ITEM 3. | Defaults Upon Senior Securities | NA |
ITEM 4. | Mine Safety Disclosures | NA |
ITEM 5. | Other Information | NA |
ITEM 6. | | |
| | |
PART I
ITEM 1. FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION |
| | | | | | | | | | | |
| (Unaudited) | | | | (Unaudited) |
(In thousands, except share data) | September 30, 2013 | | December 31, 2012 | | September 30, 2012 |
Assets | | | | | |
Cash and due from banks | $ | 322,866 |
| | $ | 284,731 |
| | $ | 186,752 |
|
Federal funds sold and securities purchased under resale agreements | 7,771 |
| | 30,297 |
| | 26,062 |
|
Interest-bearing deposits with other banks | 681,834 |
| | 1,035,743 |
| | 934,430 |
|
Available-for-sale securities, at fair value | 1,781,883 |
| | 1,796,076 |
| | 1,256,768 |
|
Trading account securities | 259 |
| | 583 |
| | 635 |
|
Federal Home Loan Bank and Federal Reserve Bank stock | 76,755 |
| | 79,564 |
| | 80,687 |
|
Brokerage customer receivables | 29,253 |
| | 24,864 |
| | 30,633 |
|
Mortgage loans held-for-sale, at fair value | 329,186 |
| | 385,033 |
| | 548,300 |
|
Mortgage loans held-for-sale, at lower of cost or market | 5,159 |
| | 27,167 |
| | 21,685 |
|
Loans, net of unearned income, excluding covered loans | 12,581,039 |
| | 11,828,943 |
| | 11,489,900 |
|
Covered loans | 415,988 |
| | 560,087 |
| | 657,525 |
|
Total loans | 12,997,027 |
| | 12,389,030 |
| | 12,147,425 |
|
Less: Allowance for loan losses | 107,188 |
| | 107,351 |
| | 112,287 |
|
Less: Allowance for covered loan losses | 12,924 |
| | 13,454 |
| | 21,926 |
|
Net loans | 12,876,915 |
| | 12,268,225 |
| | 12,013,212 |
|
Premises and equipment, net | 517,942 |
| | 501,205 |
| | 461,905 |
|
FDIC indemnification asset | 100,313 |
| | 208,160 |
| | 238,305 |
|
Accrued interest receivable and other assets | 576,121 |
| | 511,617 |
| | 557,884 |
|
Trade date securities receivable | — |
| | — |
| | 307,295 |
|
Goodwill | 357,309 |
| | 345,401 |
| | 331,634 |
|
Other intangible assets | 18,982 |
| | 20,947 |
| | 22,405 |
|
Total assets | $ | 17,682,548 |
| | $ | 17,519,613 |
| | $ | 17,018,592 |
|
Liabilities and Shareholders’ Equity | | | | | |
Deposits: | | | | | |
Non-interest bearing | $ | 2,622,518 |
| | $ | 2,396,264 |
| | $ | 2,162,215 |
|
Interest bearing | 12,024,928 |
| | 12,032,280 |
| | 11,685,750 |
|
Total deposits | 14,647,446 |
| | 14,428,544 |
| | 13,847,965 |
|
Notes payable | 1,546 |
| | 2,093 |
| | 2,275 |
|
Federal Home Loan Bank advances | 387,852 |
| | 414,122 |
| | 414,211 |
|
Other borrowings | 246,870 |
| | 274,411 |
| | 377,229 |
|
Secured borrowings—owed to securitization investors | — |
| | — |
| | — |
|
Subordinated notes | 10,000 |
| | 15,000 |
| | 15,000 |
|
Junior subordinated debentures | 249,493 |
| | 249,493 |
| | 249,493 |
|
Trade date securities payable | — |
| | — |
| | 412 |
|
Accrued interest payable and other liabilities | 265,775 |
| | 331,245 |
| | 350,707 |
|
Total liabilities | 15,808,982 |
| | 15,714,908 |
| | 15,257,292 |
|
Shareholders’ Equity: | | | | | |
Preferred stock, no par value; 20,000,000 shares authorized: | | | | | |
Series A - $1,000 liquidation value; No shares issued and outstanding at September 30, 2013, and 50,000 shares issued and outstanding at December 31, 2012 and September 30, 2012 | — |
| | 49,906 |
| | 49,871 |
|
Series C - $1,000 liquidation value; 126,500 shares issued and outstanding at September 30, 2013, December 31, 2012 and September 30, 2012 | 126,500 |
| | 126,500 |
| | 126,500 |
|
Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at September 30, 2013, December 31, 2012, and September 30, 2012; 39,992,300 shares issued at September 30, 2013, 37,107,684 shares issued at December 31, 2012, and 36,647,154 shares issued at September 30, 2012 | 39,992 |
| | 37,108 |
| | 36,647 |
|
Surplus | 1,118,550 |
| | 1,036,295 |
| | 1,018,417 |
|
Treasury stock, at cost, 261,257 shares at September 30, 2013, 249,329 shares at December 31, 2012, and 239,373 shares at September 30, 2012 | (8,290 | ) | | (7,838 | ) | | (7,490 | ) |
Retained earnings | 643,228 |
| | 555,023 |
| | 527,550 |
|
Accumulated other comprehensive (loss) income | (46,414 | ) | | 7,711 |
| | 9,805 |
|
Total shareholders’ equity | 1,873,566 |
| | 1,804,705 |
| | 1,761,300 |
|
Total liabilities and shareholders’ equity | $ | 17,682,548 |
| | $ | 17,519,613 |
| | $ | 17,018,592 |
|
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands, except per share data) | 2013 | | 2012 | | 2013 | | 2012 |
Interest income | | | | | | | |
Interest and fees on loans | $ | 150,810 |
| | $ | 149,271 |
| | $ | 438,907 |
| | $ | 436,926 |
|
Interest bearing deposits with banks | 229 |
| | 362 |
| | 1,209 |
| | 813 |
|
Federal funds sold and securities purchased under resale agreements | 4 |
| | 7 |
| | 23 |
| | 25 |
|
Securities | 9,224 |
| | 7,691 |
| | 27,335 |
| | 30,048 |
|
Trading account securities | 14 |
| | 3 |
| | 27 |
| | 22 |
|
Federal Home Loan Bank and Federal Reserve Bank stock | 687 |
| | 649 |
| | 2,064 |
| | 1,894 |
|
Brokerage customer receivables | 200 |
| | 218 |
| | 562 |
| | 650 |
|
Total interest income | 161,168 |
| | 158,201 |
| | 470,127 |
| | 470,378 |
|
Interest expense | | | | | | | |
Interest on deposits | 12,524 |
| | 16,794 |
| | 40,703 |
| | 52,097 |
|
Interest on Federal Home Loan Bank advances | 2,729 |
| | 2,817 |
| | 8,314 |
| | 9,268 |
|
Interest on notes payable and other borrowings | 910 |
| | 2,024 |
| | 3,196 |
| | 7,400 |
|
Interest on secured borrowings—owed to securitization investors | — |
| | 795 |
| | — |
| | 5,087 |
|
Interest on subordinated notes | 40 |
| | 67 |
| | 151 |
| | 362 |
|
Interest on junior subordinated debentures | 3,183 |
| | 3,129 |
| | 9,444 |
| | 9,424 |
|
Total interest expense | 19,386 |
| | 25,626 |
| | 61,808 |
| | 83,638 |
|
Net interest income | 141,782 |
| | 132,575 |
| | 408,319 |
| | 386,740 |
|
Provision for credit losses | 11,114 |
| | 18,799 |
| | 42,183 |
| | 56,890 |
|
Net interest income after provision for credit losses | 130,668 |
| | 113,776 |
| | 366,136 |
| | 329,850 |
|
Non-interest income | | | | | | | |
Wealth management | 16,057 |
| | 13,252 |
| | 46,777 |
| | 39,046 |
|
Mortgage banking | 25,682 |
| | 31,127 |
| | 87,561 |
| | 75,268 |
|
Service charges on deposit accounts | 5,308 |
| | 4,235 |
| | 15,136 |
| | 12,437 |
|
Gains on available-for-sale securities, net | 75 |
| | 409 |
| | 328 |
| | 2,334 |
|
Fees from covered call options | 285 |
| | 2,083 |
| | 2,917 |
| | 8,320 |
|
Gain on bargain purchases, net | — |
| | 6,633 |
| | — |
| | 7,418 |
|
Trading (losses) gains, net | (1,655 | ) | | (998 | ) | | 1,170 |
| | (1,780 | ) |
Other | 8,910 |
| | 6,204 |
| | 22,147 |
| | 17,860 |
|
Total non-interest income | 54,662 |
| | 62,945 |
| | 176,036 |
| | 160,903 |
|
Non-interest expense | | | | | | | |
Salaries and employee benefits | 78,007 |
| | 75,280 |
| | 234,745 |
| | 212,449 |
|
Equipment | 6,593 |
| | 5,888 |
| | 19,190 |
| | 16,754 |
|
Occupancy, net | 9,079 |
| | 8,024 |
| | 26,639 |
| | 23,814 |
|
Data processing | 4,884 |
| | 4,103 |
| | 13,841 |
| | 11,561 |
|
Advertising and marketing | 2,772 |
| | 2,528 |
| | 7,534 |
| | 6,713 |
|
Professional fees | 3,378 |
| | 4,653 |
| | 10,790 |
| | 12,104 |
|
Amortization of other intangible assets | 1,154 |
| | 1,078 |
| | 3,438 |
| | 3,216 |
|
FDIC insurance | 3,245 |
| | 3,549 |
| | 9,692 |
| | 10,383 |
|
OREO expense, net | 2,499 |
| | 3,808 |
| | 3,163 |
| | 16,834 |
|
Other | 15,637 |
| | 15,637 |
| | 46,522 |
| | 45,664 |
|
Total non-interest expense | 127,248 |
| | 124,548 |
| | 375,554 |
| | 359,492 |
|
Income before taxes | 58,082 |
| | 52,173 |
| | 166,618 |
| | 131,261 |
|
Income tax expense | 22,519 |
| | 19,871 |
| | 64,696 |
| | 50,154 |
|
Net income | $ | 35,563 |
| | $ | 32,302 |
| | $ | 101,922 |
| | $ | 81,107 |
|
Preferred stock dividends and discount accretion | $ | 1,581 |
| | $ | 2,616 |
| | $ | 6,814 |
| | $ | 6,477 |
|
Net income applicable to common shares | $ | 33,982 |
| | $ | 29,686 |
| | $ | 95,108 |
| | $ | 74,630 |
|
Net income per common share—Basic | $ | 0.86 |
| | $ | 0.82 |
| | $ | 2.51 |
| | $ | 2.06 |
|
Net income per common share—Diluted | $ | 0.71 |
| | $ | 0.66 |
| | $ | 2.05 |
| | $ | 1.70 |
|
Cash dividends declared per common share | $ | 0.09 |
| | $ | 0.09 |
| | $ | 0.18 |
| | $ | 0.18 |
|
Weighted average common shares outstanding | 39,331 |
| | 36,381 |
| | 37,939 |
| | 36,305 |
|
Dilutive potential common shares | 10,823 |
| | 12,295 |
| | 11,763 |
| | 11,292 |
|
Average common shares and dilutive common shares | 50,154 |
| | 48,676 |
| | 49,702 |
| | 47,597 |
|
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2013 | | 2012 | | 2013 | | 2012 |
Net income | $ | 35,563 |
| | $ | 32,302 |
| | $ | 101,922 |
| | $ | 81,107 |
|
Unrealized (losses) gains on securities | | | | | | | |
Before tax | (2,419 | ) | | 3,921 |
| | (81,337 | ) | | 8,661 |
|
Tax effect | 959 |
| | (1,563 | ) | | 32,106 |
| | (3,447 | ) |
Net of tax | (1,460 | ) | | 2,358 |
| | (49,231 | ) | | 5,214 |
|
Less: Reclassification of net gains included in net income | | | | | | | |
Before tax | 75 |
| | 409 |
| | 328 |
| | 2,334 |
|
Tax effect | (30 | ) | | (162 | ) | | (131 | ) | | (934 | ) |
Net of tax | 45 |
| | 247 |
| | 197 |
| | 1,400 |
|
Net unrealized (losses) gains on securities | (1,505 | ) | | 2,111 |
| | (49,428 | ) | | 3,814 |
|
Unrealized gains (losses) on derivative instruments | | | | | | | |
Before tax | 647 |
| | (293 | ) | | 4,290 |
| | 1,439 |
|
Tax effect | (257 | ) | | 119 |
| | (1,708 | ) | | (568 | ) |
Net unrealized gains (losses) on derivative instruments | 390 |
| | (174 | ) | | 2,582 |
| | 871 |
|
Foreign currency translation adjustment | | | | | | | |
Before tax | 4,970 |
| | 8,438 |
| | (9,575 | ) | | 11,139 |
|
Tax effect | (1,065 | ) | | (2,541 | ) | | 2,296 |
| | (3,141 | ) |
Net foreign currency translation adjustment | 3,905 |
| | 5,897 |
| | (7,279 | ) | | 7,998 |
|
Total other comprehensive income (loss) | 2,790 |
| | 7,834 |
| | (54,125 | ) | | 12,683 |
|
Comprehensive income | $ | 38,353 |
| | $ | 40,136 |
| | $ | 47,797 |
| | $ | 93,790 |
|
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Preferred stock | | Common stock | | Surplus | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total shareholders’ equity |
Balance at December 31, 2011 | $ | 49,768 |
| | $ | 35,982 |
| | $ | 1,001,316 |
| | $ | (112 | ) | | $ | 459,457 |
| | $ | (2,878 | ) | | $ | 1,543,533 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 81,107 |
| | — |
| | 81,107 |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 12,683 |
| | 12,683 |
|
Cash dividends declared on common stock | — |
| | — |
| | — |
| | — |
| | (6,537 | ) | | — |
| | (6,537 | ) |
Dividends on preferred stock | — |
| | — |
| | — |
| | — |
| | (6,374 | ) | | — |
| | (6,374 | ) |
Accretion on preferred stock | 103 |
| | — |
| | — |
| | — |
| | (103 | ) | | — |
| | — |
|
Stock-based compensation | — |
| | — |
| | 7,260 |
| | — |
| | — |
| | — |
| | 7,260 |
|
Issuance of Series C preferred stock | 126,500 |
| | — |
| | (3,810 | ) | | — |
| | — |
| | — |
| | 122,690 |
|
Common stock issued for: | | | | | | | | | | | | | |
Acquisitions | — |
| | 26 |
| | 868 |
| | — |
| | — |
| | — |
| | 894 |
|
Exercise of stock options and warrants | — |
| | 439 |
| | 10,050 |
| | (6,391 | ) | | — |
| | — |
| | 4,098 |
|
Restricted stock awards | — |
| | 123 |
| | (152 | ) | | (987 | ) | | — |
| | — |
| | (1,016 | ) |
Employee stock purchase plan | — |
| | 55 |
| | 1,777 |
| | — |
| | — |
| | — |
| | 1,832 |
|
Director compensation plan | — |
| | 22 |
| | 1,108 |
| | — |
| | — |
| | — |
| | 1,130 |
|
Balance at September 30, 2012 | $ | 176,371 |
| | $ | 36,647 |
| | $ | 1,018,417 |
| | $ | (7,490 | ) | | $ | 527,550 |
| | $ | 9,805 |
| | $ | 1,761,300 |
|
Balance at December 31, 2012 | $ | 176,406 |
| | $ | 37,108 |
| | $ | 1,036,295 |
| | $ | (7,838 | ) | | $ | 555,023 |
| | $ | 7,711 |
| | $ | 1,804,705 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 101,922 |
| | — |
| | 101,922 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (54,125 | ) | | (54,125 | ) |
Cash dividends declared on common stock | — |
| | — |
| | — |
| | — |
| | (6,903 | ) | | — |
| | (6,903 | ) |
Dividends on preferred stock | — |
| | — |
| | — |
| | — |
| | (6,744 | ) | | — |
| | (6,744 | ) |
Accretion on preferred stock | 70 |
| | — |
| | — |
| | — |
| | (70 | ) | | — |
| | — |
|
Conversion of Series A preferred stock to common stock | (49,976 | ) | | 1,944 |
| | 48,032 |
| | — |
| | — |
| | — |
| | — |
|
Stock-based compensation | — |
| | — |
| | 6,598 |
| | — |
| | — |
| | — |
| | 6,598 |
|
Common stock issued for: | | | | | | | | | | | | | |
Acquisitions | — |
| | 648 |
| | 22,422 |
| | — |
| | — |
| | — |
| | 23,070 |
|
Exercise of stock options and warrants | — |
| | 79 |
| | 2,161 |
| | (214 | ) | | — |
| | — |
| | 2,026 |
|
Restricted stock awards | — |
| | 135 |
| | 140 |
| | (238 | ) | | — |
| | — |
| | 37 |
|
Employee stock purchase plan | — |
| | 47 |
| | 1,801 |
| | — |
| | — |
| | — |
| | 1,848 |
|
Director compensation plan | — |
| | 31 |
| | 1,101 |
| | — |
| | — |
| | — |
| | 1,132 |
|
Balance at September 30, 2013 | $ | 126,500 |
| | $ | 39,992 |
| | $ | 1,118,550 |
| | $ | (8,290 | ) | | $ | 643,228 |
| | $ | (46,414 | ) | | $ | 1,873,566 |
|
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| | | | | | | |
| Nine Months Ended |
| September 30, |
(In thousands) | 2013 | | 2012 |
Operating Activities: | | | |
Net income | $ | 101,922 |
| | $ | 81,107 |
|
Adjustments to reconcile net income to net cash provided by operating activities | | | |
Provision for credit losses | 42,183 |
| | 56,890 |
|
Depreciation and amortization | 21,061 |
| | 17,624 |
|
Stock-based compensation expense | 6,598 |
| | 7,260 |
|
Tax benefit from stock-based compensation arrangements | 188 |
| | 1,279 |
|
Excess tax benefits from stock-based compensation arrangements | (349 | ) | | (868 | ) |
Net amortization of premium on securities | 1,534 |
| | 4,745 |
|
Mortgage servicing rights fair value change and amortization, net | (1,373 | ) | | (3,469 | ) |
Originations and purchases of mortgage loans held-for-sale | (2,966,058 | ) | | (2,688,002 | ) |
Proceeds from sales of mortgage loans held-for-sale | 3,108,405 |
| | 2,498,525 |
|
Bank owned life insurance income, net of claims | (2,372 | ) | | (2,234 | ) |
Decrease in trading securities, net | 324 |
| | 1,855 |
|
Net increase in brokerage customer receivables | (4,389 | ) | | (2,708 | ) |
Gains on mortgage loans sold | (64,492 | ) | | (59,984 | ) |
Gains on available-for-sale securities, net | (328 | ) | | (2,334 | ) |
Gain on bargain purchases, net | — |
| | (7,418 | ) |
(Gain) loss on sales of premises and equipment, net | (375 | ) | | 702 |
|
Net (gain) loss on sales and fair value adjustments of other real estate owned | (1,323 | ) | | 12,306 |
|
Decrease (increase) in accrued interest receivable and other assets, net | 29,542 |
| | (13,335 | ) |
(Decrease) increase in accrued interest payable and other liabilities, net | (50,290 | ) | | 140,857 |
|
Net Cash Provided by Operating Activities | 220,408 |
| | 42,798 |
|
Investing Activities: | | | |
Proceeds from maturities of available-for-sale securities | 169,139 |
| | 473,331 |
|
Proceeds from sales of available-for-sale securities | 129,537 |
| | 2,059,154 |
|
Purchases of available-for-sale securities | (240,640 | ) | | (2,079,665 | ) |
Net cash (paid) received for acquisitions | (9,350 | ) | | 30,220 |
|
Divestiture of operations | (149,100 | ) | | — |
|
Proceeds from sales of other real estate owned | 76,506 |
| | 65,902 |
|
Proceeds received from the FDIC related to reimbursements on covered assets | 47,408 |
| | 152,594 |
|
Net decrease (increase) in interest-bearing deposits with banks | 412,638 |
| | (113,963 | ) |
Net increase in loans | (589,402 | ) | | (774,437 | ) |
Purchases of premises and equipment, net | (24,239 | ) | | (45,533 | ) |
Net Cash Used for Investing Activities | (177,503 | ) | | (232,397 | ) |
Financing Activities: | | | |
Increase in deposit accounts | 39,575 |
| | 914,513 |
|
Decrease in other borrowings, net | (29,009 | ) | | (118,552 | ) |
Decrease in Federal Home Loan Bank advances, net | (26,000 | ) | | (60,000 | ) |
Repayment of subordinated notes | (5,000 | ) | | (20,000 | ) |
Payoff of secured borrowing | — |
| | (600,000 | ) |
Excess tax benefits from stock-based compensation arrangements | 349 |
| | 868 |
|
Net proceeds from issuance of Series C preferred stock | — |
| | 122,690 |
|
Issuance of common shares resulting from exercise of stock options, employee stock purchase plan and conversion of common stock warrants | 5,307 |
| | 12,143 |
|
Common stock repurchases | (452 | ) | | (7,378 | ) |
Dividends paid | (12,066 | ) | | (11,575 | ) |
Net Cash (Used for) Provided by Financing Activities | (27,296 | ) | | 232,709 |
|
Net Increase in Cash and Cash Equivalents | 15,609 |
| | 43,110 |
|
Cash and Cash Equivalents at Beginning of Period | 315,028 |
| | 169,704 |
|
Cash and Cash Equivalents at End of Period | $ | 330,637 |
| | $ | 212,814 |
|
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The consolidated financial statements of Wintrust Financial Corporation and Subsidiaries (“Wintrust” or “the Company”) presented herein are unaudited, but in the opinion of management reflect all necessary adjustments of a normal or recurring nature for a fair presentation of results as of the dates and for the periods covered by the consolidated financial statements.
The accompanying consolidated financial statements are unaudited and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations or cash flows in accordance with U.S. generally accepted accounting principles ("GAAP"). The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”). Operating results reported for the three-month and nine-month periods are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.
The preparation of the financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities. Management believes that the estimates made are reasonable, however, changes in estimates may be required if economic or other conditions develop differently from management’s expectations. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses, allowance for covered loan losses and the allowance for losses on lending-related commitments, loans acquired with evidence of credit quality deterioration since origination, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Descriptions of our significant accounting policies are included in Note 1 - “Summary of Significant Accounting Policies” of the Company’s 2012 Form 10-K.
(2) Recent Accounting Developments
Accumulated Other Comprehensive Income Reporting by Component
In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” which adds disclosures to make reporting of accumulated other comprehensive income more informative. Specifically, the new guidance requires a Company to identify amounts reclassified out of other comprehensive income by component. The guidance is effective for fiscal years beginning after December 15, 2012. The Company has included the required disclosures by disclosing the reclassification amounts related to its securities, derivatives and foreign currency translation components. Other than requiring additional disclosures, adoption of this guidance did not have a material impact on our consolidated financial statements. See Note 17 - Shareholders' Equity and Earnings Per Share, for further information.
Balance Sheet Offsetting
In January 2013, the FASB issued ASU No. 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” to address the disclosure requirements within ASU No. 2011-11, "Disclosures about Offsetting Assets and Liabilities". ASU 2011-11 requires disclosure showing the Company's gross and net positions for derivatives and financial transactions that are either offset in accordance with GAAP or are subject to a master netting or similar agreement. The guidance is effective for fiscal years beginning on or after January 1, 2013. The Company has included required disclosures for the current and comparative periods as required by the new guidance. Other than requiring additional disclosures, adoption of this guidance did not have a material impact on our consolidated financial statements. See Note 14 - Derivative Financial Instruments, for further information.
(3) Business Combinations
FDIC-Assisted Transactions
In 2010 and 2011, the Company acquired the banking operations, including the acquisition of certain assets and the assumption of liabilities, of six financial institutions in FDIC-assisted transactions.
Since January 1, 2012, the Company has acquired the banking operations, including the acquisition of certain assets and the assumption of liabilities, of three financial institutions in FDIC-assisted transactions. The following table presents details related to these three transactions:
|
| | | | | | | | | | | |
(Dollars in thousands) | Charter National | | Second Federal | | First United Bank |
Date of acquisition | February 10, 2012 | | July 20, 2012 | | September 28, 2012 |
Fair value of assets acquired, at the acquisition date | $ | 92,355 |
| | $ | 171,625 |
| | $ | 328,408 |
|
Fair value of loans acquired, at the acquisition date | 45,555 |
| | — |
| | 77,964 |
|
Fair value of liabilities assumed, at the acquisition date | 91,570 |
| | 171,582 |
| | 321,734 |
|
Fair value of reimbursable losses, at the acquisition date(1) | 13,164 |
| | — |
| | 67,190 |
|
Gain on bargain purchase recognized | 785 |
| | 43 |
| | 6,675 |
|
(1) As no assets subject to loss sharing agreements were acquired in the acquisition of Second Federal, there was no fair value of reimbursable losses.
Loans comprise the majority of the assets acquired in nearly all of these FDIC-assisted transactions since 2010, most of which are subject to loss sharing agreements with the FDIC whereby the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, other real estate owned (“OREO”), and certain other assets. Additionally, the loss share agreements with the FDIC require the Company to reimburse the FDIC in the event that actual losses on covered assets are lower than the original loss estimates agreed upon with the FDIC with respect of such assets in the loss share agreements. The Company refers to the loans subject to these loss-sharing agreements as “covered loans” and uses the term “covered assets” to refer to covered loans, covered OREO and certain other covered assets. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing the FDIC reimbursement of covered asset losses.
On their respective acquisition dates in 2012, the Company announced that its wholly-owned subsidiary banks, Old Plank Trail Community Bank, N.A. ("Old Plank Trail Bank"), Hinsdale Bank and Trust Company ("Hinsdale Bank") and Barrington Bank and Trust Company, N.A. ("Barrington Bank"), acquired certain assets and liabilities and the banking operations of First United Bank of Crete, Illinois ("First United Bank"), Second Federal Savings and Loan Association of Chicago ("Second Federal") and Charter National Bank and Trust (“Charter National”), respectively, in FDIC-assisted transactions. The loans covered by the loss sharing agreements are classified and presented as covered loans and the estimated reimbursable losses are recorded as an FDIC indemnification asset in the Consolidated Statements of Condition. The Company recorded the acquired assets and liabilities at their estimated fair values at the acquisition date. The fair value for loans reflected expected credit losses at the acquisition date. Therefore, the Company will only recognize a provision for credit losses and charge-offs on the acquired loans for any further credit deterioration subsequent to the acquisition date. See Note 7 — Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion of the allowance on covered loans.
The loss share agreements with the FDIC cover realized losses on loans, foreclosed real estate and certain other assets. These loss share assets are measured separately from the loan portfolios because they are not contractually embedded in the loans and are not transferable with the loans should the Company choose to dispose of them. Fair values at the acquisition dates were estimated based on projected cash flows available for loss-share based on the credit adjustments estimated for each loan pool and the loss share percentages. The loss share assets are also separately measured from the related loans and foreclosed real estate and recorded as FDIC indemnification assets on the Consolidated Statements of Condition. Subsequent to the acquisition date, reimbursements received from the FDIC for actual incurred losses will reduce the FDIC indemnification assets. Reductions to expected losses, to the extent such reductions to expected losses are the result of an improvement to the actual or expected cash flows from the covered assets, will also reduce the FDIC indemnification assets. Although these assets are contractual receivables from the FDIC, there are no contractual interest rates. Additions to expected losses will require an increase to the allowance for loan losses and a corresponding increase to the FDIC indemnification assets. The corresponding accretion is recorded as a component of non-interest income on the Consolidated Statements of Income.
The following table summarizes the activity in the Company’s FDIC indemnification asset during the periods indicated:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(Dollars in thousands) | September 30, 2013 | | September 30, 2012 | | September 30, 2013 | | September 30, 2012 |
Balance at beginning of period | $ | 137,681 |
| | $ | 222,568 |
| | $ | 208,160 |
| | $ | 344,251 |
|
Additions from acquisitions | — |
| | 65,100 |
| | — |
| | 78,264 |
|
Additions from reimbursable expenses | 3,062 |
| | 5,669 |
| | 10,922 |
| | 18,646 |
|
Amortization | (1,763 | ) | | (1,139 | ) | | (5,884 | ) | | (3,919 | ) |
Changes in expected reimbursements from the FDIC for changes in expected credit losses | (12,742 | ) | | (16,579 | ) | | (65,477 | ) | | (46,343 | ) |
Payments received from the FDIC | (25,925 | ) | | (37,314 | ) | | (47,408 | ) | | (152,594 | ) |
Balance at end of period | $ | 100,313 |
| | $ | 238,305 |
| | $ | 100,313 |
| | $ | 238,305 |
|
Divestiture of Previous FDIC-Assisted Acquisition
On February 1, 2013, the Company completed the divestiture of the deposits and current banking operations of Second Federal to an unaffiliated financial institution. Through this transaction, the Company divested approximately $149 million of related deposits.
Other Recent Bank Acquisitions
On May 1, 2013, the Company completed its acquisition of First Lansing Bancorp, Inc. ("FLB"). FLB was the parent company of First National Bank of Illinois ("FNBI"), which operated seven banking locations in the south and southwest suburbs of Chicago, as well as one location in northwest Indiana. As part of this transaction, FNBI was merged into Old Plank Trail Bank. The Company acquired assets with a fair value of approximately $373.4 million, including approximately $123.0 million of loans, and assumed liabilities with a fair value of approximately $334.7 million, including approximately $331.4 million of deposits. Additionally, the Company recorded goodwill of $14.0 million on the acquisition.
On December 12, 2012, the Company acquired HPK Financial Corporation ("HPK"). HPK was the parent company of Hyde Park Bank & Trust Company ("Hyde Park Bank"), which operated two banking locations in the Hyde Park neighborhood of Chicago, Illinois. As part of this transaction, Hyde Park Bank was merged into the Company's wholly-owned subsidiary bank, Beverly Bank & Trust Company, N.A. ("Beverly Bank"). The Company acquired assets with a fair value of approximately $371.6 million, including approximately $118.5 million of loans, and assumed liabilities with a fair value of approximately $344.1 million, including approximately $243.8 million of deposits. Additionally, the Company recorded goodwill of $12.6 million on the acquisition.
On April 13, 2012, the Company acquired a branch of Suburban Bank & Trust Company (“Suburban”) located in Orland Park, Illinois. Through this transaction, the Company acquired approximately $52 million of deposits and $3 million of loans. The Company recorded goodwill of $1.5 million on the branch acquisition.
See Note 18—Subsequent Events for discussion regarding the Company's announcements in October 2013 of the acquisition of certain assets and assumption of certain liabilities of Surety Financial Services ("Surety") and the completion of its previously announced acquisition of Diamond Bancorp, Inc. ("Diamond").
Specialty Finance Acquisition
On June 8, 2012, the Company completed its acquisition of Macquarie Premium Funding Inc., the Canadian insurance premium funding business of Macquarie Group. Through this transaction, the Company acquired approximately $213 million of gross premium finance receivables. The Company recorded goodwill of approximately $21.9 million at the time of the acquisition.
Wealth Management Acquisitions
On March 30, 2012, the Company’s wholly-owned subsidiary, The Chicago Trust Company, N.A. (“CTC”), acquired the trust operations of Suburban. Through this transaction, CTC acquired trust accounts having assets under administration of approximately $160 million, in addition to land trust accounts. The Company recorded goodwill of $1.8 million on the trust operations acquisition.
Purchased loans with evidence of credit quality deterioration since origination
Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. Expected future cash flows at the purchase date in excess of the fair value of loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable (“accretable yield”). The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference and represents probable losses in the portfolio.
In determining the acquisition date fair value of purchased impaired loans, and in subsequent accounting, the Company aggregates these purchased loans into pools of loans by common risk characteristics, such as credit risk rating and loan type. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.
The Company purchased a portfolio of life insurance premium finance receivables in 2009. These purchased life insurance premium finance receivables are valued on an individual basis with the accretable component being recognized into interest income using the effective yield method over the estimated remaining life of the loans. The non-accretable portion is evaluated each quarter and if the loans’ credit related conditions improve, a portion is transferred to the accretable component and accreted over future periods. In the event a specific loan prepays in whole, any remaining accretable and non-accretable discount is recognized in income immediately. If credit related conditions deteriorate, an allowance related to these loans will be established as part of the provision for credit losses.
See Note 6—Loans, for more information on loans acquired with evidence of credit quality deterioration since origination.
(4) Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company considers cash and cash equivalents to include cash on hand, cash items in the process of collection, non-interest bearing amounts due from correspondent banks, federal funds sold and securities purchased under resale agreements with original maturities of three months or less.
(5) Available-For-Sale Securities
The following tables are a summary of the available-for-sale securities portfolio as of the dates shown:
|
| | | | | | | | | | | | | | | |
| September 30, 2013 |
(Dollars in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. Treasury | $ | 225,190 |
| | $ | 150 |
| | $ | (14,438 | ) | | $ | 210,902 |
|
U.S. Government agencies | 954,050 |
| | 2,213 |
| | (43,574 | ) | | 912,689 |
|
Municipal | 152,010 |
| | 1,983 |
| | (3,346 | ) | | 150,647 |
|
Corporate notes and other: | | | | | | | |
Financial issuers | 132,320 |
| | 2,252 |
| | (2,513 | ) | | 132,059 |
|
Other | 7,011 |
| | 126 |
| | (15 | ) | | 7,122 |
|
Mortgage-backed: (1) | | | | | | | |
Mortgage-backed securities | 268,166 |
| | 4,157 |
| | (12,861 | ) | | 259,462 |
|
Collateralized mortgage obligations | 60,001 |
| | 458 |
| | (728 | ) | | 59,731 |
|
Other equity securities | 53,837 |
| | 1,097 |
| | (5,663 | ) | | 49,271 |
|
Total available-for-sale securities | $ | 1,852,585 |
| | $ | 12,436 |
| | $ | (83,138 | ) | | $ | 1,781,883 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2012 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
(Dollars in thousands) | | | |
U.S. Treasury | $ | 220,226 |
| | $ | 198 |
| | $ | (937 | ) | | $ | 219,487 |
|
U.S. Government agencies | 986,186 |
| | 4,839 |
| | (986 | ) | | 990,039 |
|
Municipal | 107,868 |
| | 2,899 |
| | (296 | ) | | 110,471 |
|
Corporate notes and other: | | | | | | | |
Financial issuers | 142,205 |
| | 2,452 |
| | (3,982 | ) | | 140,675 |
|
Other | 13,911 |
| | 220 |
| | — |
| | 14,131 |
|
Mortgage-backed: (1) | | | | | | | |
Mortgage-backed securities | 188,485 |
| | 8,805 |
| | (30 | ) | | 197,260 |
|
Collateralized mortgage obligations | 73,386 |
| | 928 |
| | — |
| | 74,314 |
|
Other equity securities | 52,846 |
| | 215 |
| | (3,362 | ) | | 49,699 |
|
Total available-for-sale securities | $ | 1,785,113 |
| | $ | 20,556 |
| | $ | (9,593 | ) | | $ | 1,796,076 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2012 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
(Dollars in thousands) | | | |
U.S. Treasury | $ | 25,045 |
| | $ | 211 |
| | $ | — |
| | $ | 25,256 |
|
U.S. Government agencies | 626,725 |
| | 3,833 |
| | (2,374 | ) | | 628,184 |
|
Municipal | 96,696 |
| | 2,711 |
| | (23 | ) | | 99,384 |
|
Corporate notes and other: | | | | | | | |
Financial issuers | 142,158 |
| | 2,550 |
| | (5,170 | ) | | 139,538 |
|
Other | 17,200 |
| | 251 |
| | — |
| | 17,451 |
|
Mortgage-backed: (1) | | | | | | | |
Mortgage-backed securities | 225,393 |
| | 13,733 |
| | — |
| | 239,126 |
|
Collateralized mortgage obligations | 66,422 |
| | 690 |
| | — |
| | 67,112 |
|
Other equity securities | 43,737 |
| | 216 |
| | (3,236 | ) | | 40,717 |
|
Total available-for-sale securities | $ | 1,243,376 |
| | $ | 24,195 |
| | $ | (10,803 | ) | | $ | 1,256,768 |
|
| |
(1) | Consisting entirely of residential mortgage-backed securities, none of which are subprime. |
The following table presents the portion of the Company’s available-for-sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at September 30, 2013:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Continuous unrealized losses existing for less than 12 months | | Continuous unrealized losses existing for greater than 12 months | | Total |
(Dollars in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
U.S. Treasury | $ | 185,734 |
| | $ | (14,438 | ) | | $ | — |
| | $ | — |
| | $ | 185,734 |
| | $ | (14,438 | ) |
U.S. Government agencies | 413,113 |
| | (37,142 | ) | | 60,240 |
| | (6,432 | ) | | 473,353 |
| | (43,574 | ) |
Municipal | 78,209 |
| | (3,342 | ) | | 696 |
| | (4 | ) | | 78,905 |
| | (3,346 | ) |
Corporate notes and other: | | | | | | | | | | | |
Financial issuers | 16,530 |
| | (232 | ) | | 63,661 |
| | (2,281 | ) | | 80,191 |
| | (2,513 | ) |
Other | 985 |
| | (15 | ) | | — |
| | — |
| | 985 |
| | (15 | ) |
Mortgage-backed: | | | | | | | | | | | |
Mortgage-backed securities | 175,261 |
| | (12,861 | ) | | — |
| | — |
| | 175,261 |
| | (12,861 | ) |
Collateralized mortgage obligations | 33,511 |
| | (728 | ) | | — |
| | — |
| | 33,511 |
| | (728 | ) |
Other equity securities | 14,507 |
| | (614 | ) | | 20,350 |
| | (5,049 | ) | | 34,857 |
| | (5,663 | ) |
Total | $ | 917,850 |
| | $ | (69,372 | ) | | $ | 144,947 |
| | $ | (13,766 | ) | | $ | 1,062,797 |
| | $ | (83,138 | ) |
The Company conducts a regular assessment of its investment securities to determine whether securities are other-than-temporarily impaired considering, among other factors, the nature of the securities, credit ratings or financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows, market conditions and the Company’s ability to hold the securities through the anticipated recovery period.
The Company does not consider securities with unrealized losses at September 30, 2013 to be other-than-temporarily impaired. The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost bases, which may be the maturity dates of the securities. The unrealized losses within each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase. Securities with continuous unrealized losses existing for more than twelve months were primarily corporate securities of financial issuers, agency bonds and auction rate securities included in other equity securities. The corporate securities of financial issuers in this category were comprised primarily of investment grade securities including six fixed-to-floating rate bonds and three trust-preferred securities. Additionally, a review of the issuers indicated that they all have strong capital ratios.
The following table provides information as to the amount of gross gains and gross losses realized and proceeds received through the sales of available-for-sale investment securities:
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(Dollars in thousands) | 2013 | | 2012 | | 2013 | | 2012 |
Realized gains | $ | 118 |
| | $ | 413 |
| | $ | 434 |
| | $ | 2,350 |
|
Realized losses | (43 | ) | | (4 | ) | | (106 | ) | | (16 | ) |
Net realized gains | $ | 75 |
| | $ | 409 |
| | $ | 328 |
| | $ | 2,334 |
|
Other than temporary impairment charges | — |
| | — |
| | — |
| | — |
|
Gains on available-for-sale securities, net | $ | 75 |
| | $ | 409 |
| | $ | 328 |
| | $ | 2,334 |
|
Proceeds from sales of available-for-sale securities | $ | 45,078 |
| | $ | 694,608 |
| | $ | 129,537 |
| | $ | 2,059,154 |
|
The amortized cost and fair value of securities as of September 30, 2013, December 31, 2012 and September 30, 2012, by contractual maturity, are shown in the following table. Contractual maturities may differ from actual maturities as borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Mortgage-backed securities are not included in the maturity categories in the following maturity summary as actual maturities may differ from contractual maturities because the underlying mortgages may be called or prepaid without penalties:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2013 | | December 31, 2012 | | September 30, 2012 |
(Dollars in thousands) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in one year or less | $ | 285,746 |
| | $ | 286,066 |
| | $ | 188,594 |
| | $ | 189,015 |
| | $ | 83,658 |
| | $ | 83,863 |
|
Due in one to five years | 316,076 |
| | 316,474 |
| | 419,588 |
| | 419,654 |
| | 471,863 |
| | 471,747 |
|
Due in five to ten years | 344,742 |
| | 328,895 |
| | 361,037 |
| | 362,135 |
| | 135,580 |
| | 137,116 |
|
Due after ten years | 524,017 |
| | 481,984 |
| | 501,177 |
| | 503,999 |
| | 216,723 |
| | 217,087 |
|
Mortgage-backed | 328,167 |
| | 319,193 |
| | 261,871 |
| | 271,574 |
| | 291,815 |
| | 306,238 |
|
Other equity securities | 53,837 |
| | 49,271 |
| | 52,846 |
| | 49,699 |
| | 43,737 |
| | 40,717 |
|
Total available-for-sale securities | $ | 1,852,585 |
| | $ | 1,781,883 |
| | $ | 1,785,113 |
| | $ | 1,796,076 |
| | $ | 1,243,376 |
| | $ | 1,256,768 |
|
Securities having a carrying value of $1.2 billion at September 30, 2013 and $1.1 billion at both December 31, 2012 and September 30, 2012, were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At September 30, 2013, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.
(6) Loans
The following table shows the Company’s loan portfolio by category as of the dates shown:
|
| | | | | | | | | | | |
| September 30, | | December 31, | | September 30, |
(Dollars in thousands) | 2013 | | 2012 | | 2012 |
Balance: | | | | | |
Commercial | $ | 3,109,121 |
| | $ | 2,914,798 |
| | $ | 2,771,053 |
|
Commercial real-estate | 4,146,110 |
| | 3,864,118 |
| | 3,699,712 |
|
Home equity | 736,620 |
| | 788,474 |
| | 807,592 |
|
Residential real-estate | 397,707 |
| | 367,213 |
| | 376,678 |
|
Premium finance receivables—commercial | 2,150,481 |
| | 1,987,856 |
| | 1,982,945 |
|
Premium finance receivables—life insurance | 1,869,739 |
| | 1,725,166 |
| | 1,665,620 |
|
Indirect consumer | 57,236 |
| | 77,333 |
| | 77,378 |
|
Consumer and other | 114,025 |
| | 103,985 |
| | 108,922 |
|
Total loans, net of unearned income, excluding covered loans | $ | 12,581,039 |
| | $ | 11,828,943 |
| | $ | 11,489,900 |
|
Covered loans | 415,988 |
| | 560,087 |
| | 657,525 |
|
Total loans | $ | 12,997,027 |
| | $ | 12,389,030 |
| | $ | 12,147,425 |
|
Mix: | | | | | |
Commercial | 24 | % | | 24 | % | | 23 | % |
Commercial real-estate | 32 |
| | 31 |
| | 30 |
|
Home equity | 6 |
| | 6 |
| | 7 |
|
Residential real-estate | 3 |
| | 3 |
| | 3 |
|
Premium finance receivables—commercial | 16 |
| | 16 |
| | 16 |
|
Premium finance receivables—life insurance | 14 |
| | 14 |
| | 14 |
|
Indirect consumer | 1 |
| | 1 |
| | 1 |
|
Consumer and other | 1 |
| | 1 |
| | 1 |
|
Total loans, net of unearned income, excluding covered loans | 97 | % | | 96 | % | | 95 | % |
Covered loans | 3 |
| | 4 |
| | 5 |
|
Total loans | 100 | % | | 100 | % | | 100 | % |
Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $40.6 million at September 30, 2013, $41.1 million at December 31, 2012 and $39.5 million at September 30,
2012, respectively. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in 2009 as well as the covered loans acquired in the FDIC-assisted acquisitions are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.
Total loans, excluding loans acquired with evidence of credit quality deterioration since origination, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $(1.5) million at September 30, 2013, $13.2 million at December 31, 2012 and $14.3 million at September 30, 2012. The net credit balance at September 30, 2013 is primarily the result of purchase accounting adjustments related to the acquisition of FNBI during the second quarter of 2013.
The Company’s loan portfolio is generally comprised of loans to consumers and small to medium-sized businesses located within the geographic market areas that the banks serve. The premium finance receivables portfolios are made to customers throughout the United States and Canada and the majority of the indirect consumer loans were generated through a network of local automobile dealers. The Company strives to maintain a loan portfolio that is diverse in terms of loan type, industry, borrower and geographic concentrations. Such diversification reduces the exposure to economic downturns that may occur in different segments of the economy or in different industries.
It is the policy of the Company to review each prospective credit in order to determine the appropriateness and, when required, the adequacy of security or collateral necessary to obtain when making a loan. The type of collateral, when required, will vary from liquid assets to real estate. The Company seeks to ensure access to collateral, in the event of default, through adherence to state lending laws and the Company’s credit monitoring procedures.
Acquired Loan Information at Acquisition—Loans with evidence of credit quality deterioration since origination
As part of our previous acquisitions, we acquired loans for which there was evidence of credit quality deterioration since origination and we determined that it was probable that the Company would be unable to collect all contractually required principal and interest payments.
The following table presents the unpaid principal balance and carrying value for these acquired loans:
|
| | | | | | | | | | | | | | | |
| September 30, 2013 | | December 31, 2012 |
| Unpaid Principal | | Carrying | | Unpaid Principal | | Carrying |
(Dollars in thousands) | Balance | | Value | | Balance | | Value |
Bank acquisitions | $ | 496,355 |
| | $ | 380,733 |
| | $ | 674,868 |
| | $ | 503,837 |
|
Life insurance premium finance loans acquisition | 475,711 |
| | 459,883 |
| | 536,503 |
| | 514,459 |
|
For loans acquired with evidence of credit quality deterioration since origination as a result of acquisitions during the nine months ended September 30, 2013, the following table provides estimated details on these loans at the date of acquisition:
|
| | | |
(Dollars in thousands) | FNBI |
Contractually required payments including interest | $ | 32,022 |
|
Less: Nonaccretable difference | 8,890 |
|
Cash flows expected to be collected (1) | 23,132 |
|
Less: Accretable yield | 2,055 |
|
Fair value of loans acquired with evidence of credit quality deterioration since origination | $ | 21,077 |
|
| |
(1) | Represents undiscounted expected principal and interest cash flows at acquisition. |
See Note 7—Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion regarding the allowance for loan losses associated with loans acquired with evidence of credit quality deterioration since origination at September 30, 2013.
Accretable Yield Activity
Changes in expected cash flows may vary from period to period as the Company periodically updates its cash flow model assumptions for loans acquired with evidence of credit quality deterioration since origination. The factors that most significantly affect the estimates of gross cash flows expected to be collected, and accordingly the accretable yield, include changes in the benchmark interest rate indices for variable-rate products and changes in prepayment assumptions and loss estimates. The following table provides activity for the accretable yield of loans acquired with evidence of credit quality deterioration since origination:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2013 | | Three Months Ended September 30, 2012 |
(Dollars in thousands) | Bank Acquisitions | | Life Insurance Premium Finance Loans | | Bank Acquisitions | | Life Insurance Premium Finance Loans |
Accretable yield, beginning balance | $ | 130,856 |
| | $ | 10,287 |
| | $ | 171,801 |
| | $ | 14,626 |
|
Acquisitions | — |
| | — |
| | 6,052 |
| | — |
|
Accretable yield amortized to interest income | (9,056 | ) | | (1,943 | ) | | (12,266 | ) | | (2,309 | ) |
Accretable yield amortized to indemnification asset (1) | (8,279 | ) | | — |
| | (16,472 | ) | | — |
|
Reclassification from non-accretable difference (2) | 8,703 |
| | 234 |
| | 4,636 |
| | 2,951 |
|
(Decreases) increases in interest cash flows due to payments and changes in interest rates | (5,194 | ) | | 235 |
| | (1,951 | ) | | 158 |
|
Accretable yield, ending balance (3) | $ | 117,030 |
| | $ | 8,813 |
| | $ | 151,800 |
| | $ | 15,426 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2013 | | Nine Months Ended September 30, 2012 |
(Dollars in thousands) | Bank Acquisitions | | Life Insurance Premium Finance Loans | | Bank Acquisitions | | Life Insurance Premium Finance Loans |
Accretable yield, beginning balance | $ | 143,224 |
| | $ | 13,055 |
| | $ | 173,120 |
| | $ | 18,861 |
|
Acquisitions | 1,977 |
| | — |
| | 8,340 |
| | — |
|
Accretable yield amortized to interest income | (27,980 | ) | | (6,216 | ) | | (40,545 | ) | | (8,795 | ) |
Accretable yield amortized to indemnification asset (1) | (28,891 | ) | | — |
| | (55,912 | ) | | — |
|
Reclassification from non-accretable difference (2) | 44,907 |
| | 1,241 |
| | 53,827 |
| | 4,096 |
|
(Decreases) increases in interest cash flows due to payments and changes in interest rates | (16,207 | ) | | 733 |
| | 12,970 |
| | 1,264 |
|
Accretable yield, ending balance (3) | $ | 117,030 |
| | $ | 8,813 |
| | $ | 151,800 |
| | $ | 15,426 |
|
| |
(1) | Represents the portion of the current period accreted yield, resulting from lower expected losses, applied to reduce the loss share indemnification asset. |
| |
(2) | Reclassification is the result of subsequent increases in expected principal cash flows. |
| |
(3) | As of September 30, 2013, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $40.5 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income. |
(7) Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans
The tables below show the aging of the Company’s loan portfolio at September 30, 2013, December 31, 2012 and September 30, 2012:
|
| | | | | | | | | | | | | | | | | | | | | | | |
As of September 30, 2013 | | | 90+ days and still accruing | | 60-89 days past due | | 30-59 days past due | | | | |
(Dollars in thousands) | Nonaccrual | | | | | Current | | Total Loans |
Loan Balances: | | | | | | | | | | | |
Commercial | | | | | | | | | | | |
Commercial and industrial | $ | 15,283 |
| | $ | 190 |
| | $ | 3,585 |
| | $ | 15,261 |
| | $ | 1,688,232 |
| | $ | 1,722,551 |
|
Franchise | — |
| | — |
| | 113 |
| | — |
| | 213,215 |
| | 213,328 |
|
Mortgage warehouse lines of credit | — |
| | — |
| | — |
| | — |
| | 71,383 |
| | 71,383 |
|
Community Advantage—homeowners association | — |
| | — |
| | — |
| | — |
| | 90,504 |
| | 90,504 |
|
Aircraft | — |
| | — |
| | — |
| | — |
| | 12,601 |
| | 12,601 |
|
Asset-based lending | 2,364 |
| | — |
| | 693 |
| | 3,926 |
| | 732,585 |
| | 739,568 |
|
Tax exempt | — |
| | — |
| | — |
| | — |
| | 148,103 |
| | 148,103 |
|
Leases | — |
| | — |
| | — |
| | — |
| | 101,654 |
| | 101,654 |
|
Other | — |
| | — |
| | — |
| | — |
| | 90 |
| |