10-Q
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, 2015
OR
|
| |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-35077
_____________________________________
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
|
| |
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, 48,367,147 shares, as of October 31, 2015
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, 2015 | | December 31, 2014 | | September 30, 2014 |
Assets | | | | | |
Cash and due from banks | $ | 247,341 |
| | $ | 225,136 |
| | $ | 260,694 |
|
Federal funds sold and securities purchased under resale agreements | 3,314 |
| | 5,571 |
| | 26,722 |
|
Interest bearing deposits with banks | 701,106 |
| | 998,437 |
| | 620,370 |
|
Available-for-sale securities, at fair value | 2,214,281 |
| | 1,792,078 |
| | 1,782,648 |
|
Trading account securities | 3,312 |
| | 1,206 |
| | 6,015 |
|
Federal Home Loan Bank and Federal Reserve Bank stock | 90,308 |
| | 91,582 |
| | 80,951 |
|
Brokerage customer receivables | 28,293 |
| | 24,221 |
| | 26,624 |
|
Mortgage loans held-for-sale, at fair value | 347,005 |
| | 351,290 |
| | 363,303 |
|
Loans, net of unearned income, excluding covered loans | 16,316,211 |
| | 14,409,398 |
| | 14,052,059 |
|
Covered loans | 168,609 |
| | 226,709 |
| | 254,605 |
|
Total loans | 16,484,820 |
| | 14,636,107 |
| | 14,306,664 |
|
Less: Allowance for loan losses | 102,996 |
| | 91,705 |
| | 91,019 |
|
Less: Allowance for covered loan losses | 2,918 |
| | 2,131 |
| | 2,655 |
|
Net loans | 16,378,906 |
| | 14,542,271 |
| | 14,212,990 |
|
Premises and equipment, net | 587,348 |
| | 555,228 |
| | 555,241 |
|
FDIC indemnification asset | — |
| | 11,846 |
| | 27,359 |
|
Accrued interest receivable and other assets | 667,036 |
| | 501,882 |
| | 494,213 |
|
Trade date securities receivable | 277,981 |
| | 485,534 |
| | 285,627 |
|
Goodwill | 472,166 |
| | 405,634 |
| | 406,604 |
|
Other intangible assets | 25,533 |
| | 18,811 |
| | 19,984 |
|
Total assets | $ | 22,043,930 |
| | $ | 20,010,727 |
| | $ | 19,169,345 |
|
Liabilities and Shareholders’ Equity | | | | | |
Deposits: | | | | | |
Non-interest bearing | $ | 4,705,994 |
| | $ | 3,518,685 |
| | $ | 3,253,477 |
|
Interest bearing | 13,522,475 |
| | 12,763,159 |
| | 12,811,769 |
|
Total deposits | 18,228,469 |
| | 16,281,844 |
| | 16,065,246 |
|
Federal Home Loan Bank advances | 451,330 |
| | 733,050 |
| | 347,500 |
|
Other borrowings | 259,978 |
| | 196,465 |
| | 51,483 |
|
Subordinated notes | 140,000 |
| | 140,000 |
| | 140,000 |
|
Junior subordinated debentures | 268,566 |
| | 249,493 |
| | 249,493 |
|
Trade date securities payable | 617 |
| | 3,828 |
| | — |
|
Accrued interest payable and other liabilities | 359,234 |
| | 336,225 |
| | 287,115 |
|
Total liabilities | 19,708,194 |
| | 17,940,905 |
| | 17,140,837 |
|
Shareholders’ Equity: | | | | | |
Preferred stock, no par value; 20,000,000 shares authorized: | | | | | |
Series C - $1,000 liquidation value; 126,312 shares issued and outstanding at September 30, 2015 and 126,467 shares issued and outstanding at December 31, 2014, and September 30, 2014 | 126,312 |
| | 126,467 |
| | 126,467 |
|
Series D - $25 liquidation value; 5,000,000 shares issued and outstanding at September 30, 2015 and no shares issued and outstanding at December 31, 2014 and September 30, 2014 | 125,000 |
| | — |
| | — |
|
Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at September 30, 2015, December 31, 2014, and September 30, 2014; 48,422,294 shares issued at September 30, 2015, 46,881,108 shares issued at December 31, 2014, and 46,766,420 shares issued at September 30, 2014 | 48,422 |
| | 46,881 |
| | 46,766 |
|
Surplus | 1,187,407 |
| | 1,133,955 |
| | 1,129,975 |
|
Treasury stock, at cost, 85,424 shares at September 30, 2015, 76,053 shares at December 31, 2014, and 75,373 shares at September 30, 2014 | (3,964 | ) | | (3,549 | ) | | (3,519 | ) |
Retained earnings | 901,652 |
| | 803,400 |
| | 771,519 |
|
Accumulated other comprehensive loss | (49,093 | ) | | (37,332 | ) | | (42,700 | ) |
Total shareholders’ equity | 2,335,736 |
| | 2,069,822 |
| | 2,028,508 |
|
Total liabilities and shareholders’ equity | $ | 22,043,930 |
| | $ | 20,010,727 |
| | $ | 19,169,345 |
|
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands, except per share data) | September 30, 2015 | | September 30, 2014 | | September 30, 2015 | | September 30, 2014 |
Interest income | | | | | | | |
Interest and fees on loans | $ | 167,831 |
| | $ | 156,534 |
| | $ | 482,330 |
| | $ | 455,548 |
|
Interest bearing deposits with banks | 372 |
| | 409 |
| | 993 |
| | 977 |
|
Federal funds sold and securities purchased under resale agreements | 1 |
| | 12 |
| | 4 |
| | 22 |
|
Available-for-sale securities | 16,130 |
| | 12,767 |
| | 44,601 |
| | 39,190 |
|
Trading account securities | 19 |
| | 20 |
| | 83 |
| | 34 |
|
Federal Home Loan Bank and Federal Reserve Bank stock | 821 |
| | 733 |
| | 2,375 |
| | 2,171 |
|
Brokerage customer receivables | 205 |
| | 201 |
| | 591 |
| | 610 |
|
Total interest income | 185,379 |
| | 170,676 |
| | 530,977 |
| | 498,552 |
|
Interest expense | | | | | | | |
Interest on deposits | 12,436 |
| | 12,298 |
| | 36,246 |
| | 35,980 |
|
Interest on Federal Home Loan Bank advances | 2,458 |
| | 2,641 |
| | 6,426 |
| | 7,989 |
|
Interest on other borrowings | 1,045 |
| | 200 |
| | 2,620 |
| | 1,460 |
|
Interest on subordinated notes | 1,776 |
| | 1,776 |
| | 5,328 |
| | 2,130 |
|
Interest on junior subordinated debentures | 2,124 |
| | 2,091 |
| | 6,034 |
| | 6,137 |
|
Total interest expense | 19,839 |
| | 19,006 |
| | 56,654 |
| | 53,696 |
|
Net interest income | 165,540 |
| | 151,670 |
| | 474,323 |
| | 444,856 |
|
Provision for credit losses | 8,322 |
| | 5,864 |
| | 23,883 |
| | 14,404 |
|
Net interest income after provision for credit losses | 157,218 |
| | 145,806 |
| | 450,440 |
| | 430,452 |
|
Non-interest income | | | | | | | |
Wealth management | 18,243 |
| | 17,659 |
| | 54,819 |
| | 52,694 |
|
Mortgage banking | 27,887 |
| | 26,691 |
| | 91,694 |
| | 66,923 |
|
Service charges on deposit accounts | 7,403 |
| | 6,084 |
| | 20,174 |
| | 17,118 |
|
(Losses) gains on available-for-sale securities, net | (98 | ) | | (153 | ) | | 402 |
| | (522 | ) |
Fees from covered call options | 2,810 |
| | 2,107 |
| | 11,735 |
| | 4,893 |
|
Trading (losses) gains, net | (135 | ) | | 293 |
| | (452 | ) | | (1,102 | ) |
Other | 8,843 |
| | 5,271 |
| | 28,135 |
| | 17,579 |
|
Total non-interest income | 64,953 |
| | 57,952 |
| | 206,507 |
| | 157,583 |
|
Non-interest expense | | | | | | | |
Salaries and employee benefits | 97,749 |
| | 85,976 |
| | 282,300 |
| | 247,873 |
|
Equipment | 8,887 |
| | 7,570 |
| | 24,637 |
| | 22,196 |
|
Occupancy, net | 12,066 |
| | 10,446 |
| | 35,818 |
| | 31,289 |
|
Data processing | 8,127 |
| | 4,765 |
| | 19,656 |
| | 14,023 |
|
Advertising and marketing | 6,237 |
| | 3,528 |
| | 16,550 |
| | 9,902 |
|
Professional fees | 4,100 |
| | 4,035 |
| | 13,838 |
| | 11,535 |
|
Amortization of other intangible assets | 1,350 |
| | 1,202 |
| | 3,297 |
| | 3,521 |
|
FDIC insurance | 3,035 |
| | 3,211 |
| | 9,069 |
| | 9,358 |
|
OREO expense, net | (367 | ) | | 581 |
| | 1,885 |
| | 7,047 |
|
Other | 18,790 |
| | 17,186 |
| | 54,539 |
| | 46,662 |
|
Total non-interest expense | 159,974 |
| | 138,500 |
| | 461,589 |
| | 403,406 |
|
Income before taxes | 62,197 |
| | 65,258 |
| | 195,358 |
| | 184,629 |
|
Income tax expense | 23,842 |
| | 25,034 |
| | 74,120 |
| | 71,364 |
|
Net income | $ | 38,355 |
| | $ | 40,224 |
| | $ | 121,238 |
| | $ | 113,265 |
|
Preferred stock dividends and discount accretion | 4,079 |
| | 1,581 |
| | 7,240 |
| | 4,743 |
|
Net income applicable to common shares | $ | 34,276 |
| | $ | 38,643 |
| | $ | 113,998 |
| | $ | 108,522 |
|
Net income per common share—Basic | $ | 0.71 |
| | $ | 0.83 |
| | $ | 2.39 |
| | $ | 2.34 |
|
Net income per common share—Diluted | $ | 0.69 |
| | $ | 0.79 |
| | $ | 2.29 |
| | $ | 2.23 |
|
Cash dividends declared per common share | $ | 0.11 |
| | $ | 0.10 |
| | $ | 0.33 |
| | $ | 0.30 |
|
Weighted average common shares outstanding | 48,158 |
| | 46,639 |
| | 47,658 |
| | 46,453 |
|
Dilutive potential common shares | 4,049 |
| | 4,241 |
| | 4,141 |
| | 4,349 |
|
Average common shares and dilutive common shares | 52,207 |
| | 50,880 |
| | 51,799 |
| | 50,802 |
|
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 |
(In thousands) | September 30, 2015 | | September 30, 2014 | | September 30, 2015 | | September 30, 2014 |
Net income | $ | 38,355 |
| | $ | 40,224 |
| | $ | 121,238 |
| | $ | 113,265 |
|
Unrealized gains on securities | | | | | | | |
Before tax | 31,268 |
| | 1,345 |
| | 4,144 |
| | 49,920 |
|
Tax effect | (12,273 | ) | | (533 | ) | | (1,645 | ) | | (19,669 | ) |
Net of tax | 18,995 |
| | 812 |
| | 2,499 |
| | 30,251 |
|
Less: Reclassification of net (losses) gains included in net income | | | | | | | |
Before tax | (98 | ) | | (153 | ) | | 402 |
| | (522 | ) |
Tax effect | 38 |
| | 62 |
| | (158 | ) | | 208 |
|
Net of tax | (60 | ) | | (91 | ) | | 244 |
| | (314 | ) |
Net unrealized gains on securities | 19,055 |
| | 903 |
| | 2,255 |
| | 30,565 |
|
Unrealized gains (losses) on derivative instruments | | | | | | | |
Before tax | 99 |
| | 971 |
| | (247 | ) | | 247 |
|
Tax effect | (39 | ) | | (386 | ) | | 97 |
| | (98 | ) |
Net unrealized gains (losses) on derivative instruments | 60 |
| | 585 |
| | (150 | ) | | 149 |
|
Foreign currency translation adjustment | | | | | | | |
Before tax | (8,682 | ) | | (13,062 | ) | | (18,900 | ) | | (13,976 | ) |
Tax effect | 2,345 |
| | 3,377 |
| | 5,034 |
| | 3,598 |
|
Net foreign currency translation adjustment | (6,337 | ) | | (9,685 | ) | | (13,866 | ) | | (10,378 | ) |
Total other comprehensive income (loss) | 12,778 |
| | (8,197 | ) | | (11,761 | ) | | 20,336 |
|
Comprehensive income | $ | 51,133 |
| | $ | 32,027 |
| | $ | 109,477 |
| | $ | 133,601 |
|
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 loss | | Total shareholders’ equity |
Balance at January 1, 2014 | $ | 126,477 |
| | $ | 46,181 |
| | $ | 1,117,032 |
| | $ | (3,000 | ) | | $ | 676,935 |
| | $ | (63,036 | ) | | $ | 1,900,589 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 113,265 |
| | — |
| | 113,265 |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 20,336 |
| | 20,336 |
|
Cash dividends declared on common stock | — |
| | — |
| | — |
| | — |
| | (13,938 | ) | | — |
| | (13,938 | ) |
Dividends on preferred stock | — |
| | — |
| | — |
| | — |
| | (4,743 | ) | | — |
| | (4,743 | ) |
Stock-based compensation | — |
| | — |
| | 5,754 |
| | — |
| | — |
| | — |
| | 5,754 |
|
Conversion of Series C preferred stock to common stock | (10 | ) | | 1 |
| | 9 |
| | — |
| | — |
| | — |
| | — |
|
Common stock issued for: | | | | | | | | | | | | | |
Exercise of stock options and warrants | — |
| | 450 |
| | 3,797 |
| | (313 | ) | | — |
| | — |
| | 3,934 |
|
Restricted stock awards | — |
| | 67 |
| | 151 |
| | (206 | ) | | — |
| | — |
| | 12 |
|
Employee stock purchase plan | — |
| | 47 |
| | 2,086 |
| | — |
| | — |
| | — |
| | 2,133 |
|
Director compensation plan | — |
| | 20 |
| | 1,146 |
| | — |
| | — |
| | — |
| | 1,166 |
|
Balance at September 30, 2014 | $ | 126,467 |
| | $ | 46,766 |
| | $ | 1,129,975 |
| | $ | (3,519 | ) | | $ | 771,519 |
| | $ | (42,700 | ) | | $ | 2,028,508 |
|
Balance at January 1, 2015 | $ | 126,467 |
| | $ | 46,881 |
| | $ | 1,133,955 |
| | $ | (3,549 | ) | | $ | 803,400 |
| | $ | (37,332 | ) | | $ | 2,069,822 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 121,238 |
| | — |
| | 121,238 |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (11,761 | ) | | (11,761 | ) |
Cash dividends declared on common stock | — |
| | — |
| | — |
| | — |
| | (15,746 | ) | | — |
| | (15,746 | ) |
Dividends on preferred stock | — |
| | — |
| | — |
| | — |
| | (7,240 | ) | | — |
| | (7,240 | ) |
Stock-based compensation | — |
| | — |
| | 7,817 |
| | — |
| | — |
| | — |
| | 7,817 |
|
Issuance of Series D preferred stock | 125,000 |
| | — |
| | (4,158 | ) | | — |
| | — |
| | — |
| | 120,842 |
|
Conversion of Series C preferred stock to common stock | (155 | ) | | 4 |
| | 151 |
| | — |
| | — |
| | — |
| | — |
|
Common stock issued for: | | | | | | | | | | | | | |
Acquisitions | — |
| | 811 |
| | 37,912 |
| | — |
| | — |
| | — |
| | 38,723 |
|
Exercise of stock options and warrants | — |
| | 564 |
| | 8,141 |
| | (130 | ) | | — |
| | — |
| | 8,575 |
|
Restricted stock awards | — |
| | 99 |
| | 382 |
| | (285 | ) | | — |
| | — |
| | 196 |
|
Employee stock purchase plan | — |
| | 43 |
| | 1,997 |
| | — |
| | — |
| | — |
| | 2,040 |
|
Director compensation plan | — |
| | 20 |
| | 1,210 |
| | — |
| | — |
| | — |
| | 1,230 |
|
Balance at September 30, 2015 | $ | 251,312 |
| | $ | 48,422 |
| | $ | 1,187,407 |
| | $ | (3,964 | ) | | $ | 901,652 |
| | $ | (49,093 | ) | | $ | 2,335,736 |
|
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| | | | | | | |
| Nine Months Ended |
(In thousands) | September 30, 2015 | | September 30, 2014 |
Operating Activities: | | | |
Net income | $ | 121,238 |
| | $ | 113,265 |
|
Adjustments to reconcile net income to net cash provided by operating activities | | | |
Provision for credit losses | 23,883 |
| | 14,404 |
|
Depreciation and amortization | 24,975 |
| | 23,952 |
|
Stock-based compensation expense | 7,817 |
| | 5,754 |
|
Excess tax benefits from stock-based compensation arrangements | (660 | ) | | (339 | ) |
Net amortization of premium on securities | 2,576 |
| | 4,733 |
|
Mortgage servicing rights fair value change, net | 641 |
| | 706 |
|
Originations and purchases of mortgage loans held-for-sale | (3,094,901 | ) | | (2,272,919 | ) |
Proceeds from sales of mortgage loans held-for-sale | 3,182,623 |
| | 2,299,103 |
|
Bank owned life insurance, net of claims | (1,683 | ) | | (2,039 | ) |
Increase in trading securities, net | (2,106 | ) | | (5,518 | ) |
Net (increase) decrease in brokerage customer receivables | (4,072 | ) | | 4,329 |
|
Gains on mortgage loans sold | (83,437 | ) | | (55,160 | ) |
(Gains) losses on available-for-sale securities, net | (402 | ) | | 522 |
|
Losses on sales of premises and equipment, net | 512 |
| | 664 |
|
Net (gains) losses on sales and fair value adjustments of other real estate owned | (585 | ) | | 2,628 |
|
(Increase) decrease in accrued interest receivable and other assets, net | (110,632 | ) | | 82,159 |
|
Decrease in accrued interest payable and other liabilities, net | (28,717 | ) | | (55,874 | ) |
Net Cash Provided by Operating Activities | 37,070 |
| | 160,370 |
|
Investing Activities: | | | |
Proceeds from maturities of available-for-sale securities | 397,832 |
| | 222,434 |
|
Proceeds from sales of available-for-sale securities | 1,216,860 |
| | 578,594 |
|
Purchases of available-for-sale securities | (1,584,282 | ) | | (944,281 | ) |
Redemption (purchase) of Federal Home Loan Bank and Federal Reserve Bank stock, net | 1,274 |
| | (1,690 | ) |
Net cash (paid) received for acquisitions | (15,428 | ) | | 228,946 |
|
Proceeds from sales of other real estate owned | 34,936 |
| | 73,940 |
|
Proceeds received from the FDIC related to reimbursements on covered assets | 1,697 |
| | 17,652 |
|
Net decrease (increase) in interest bearing deposits with banks | 438,072 |
| | (124,796 | ) |
Net increase in loans | (1,311,797 | ) | | (1,011,889 | ) |
Redemption of bank owned life insurance | 2,701 |
| | — |
|
Purchases of premises and equipment, net | (29,375 | ) | | (30,982 | ) |
Net Cash Used for Investing Activities | (847,510 | ) | | (992,072 | ) |
Financing Activities: | | | |
Increase in deposit accounts | 970,090 |
| | 1,000,603 |
|
Increase (decrease) in other borrowings, net | 38,644 |
| | (203,621 | ) |
Decrease in Federal Home Loan Bank advances, net | (293,360 | ) | | (70,000 | ) |
Proceeds from the issuance of preferred stock, net | 120,842 |
| | — |
|
Proceeds from the issuance of subordinated notes, net | — |
| | 139,090 |
|
Excess tax benefits from stock-based compensation arrangements | 660 |
| | 339 |
|
Issuance of common shares resulting from the exercise of stock options and the employee stock purchase plan | 14,413 |
| | 8,043 |
|
Common stock repurchases | (415 | ) | | (519 | ) |
Dividends paid | (20,486 | ) | | (18,681 | ) |
Net Cash Provided by Financing Activities | 830,388 |
| | 855,254 |
|
Net Increase in Cash and Cash Equivalents | 19,948 |
| | 23,552 |
|
Cash and Cash Equivalents at Beginning of Period | 230,707 |
| | 263,864 |
|
Cash and Cash Equivalents at End of Period | $ | 250,655 |
| | $ | 287,416 |
|
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, 2014 (“2014 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 2014 Form 10-K.
(2) Recent Accounting Developments
Accounting for Investments in Qualified Affordable Housing Projects
In January 2014, the FASB issued ASU No. 2014-01, “Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects,” to provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that invest in affordable housing projects that qualify for the low-income housing tax credit. This ASU permits a new accounting treatment, if certain conditions are met, which allows the Company to amortize the initial cost of an investment in proportion to the amount of tax credits and other tax benefits received with recognition of the investment performance in income tax expense. The Company adopted this new guidance beginning January 1, 2015. The guidance did not have a material impact on the Company's consolidated financial statements.
Repossession of Residential Real Estate Collateral
In January 2014, the FASB issued ASU No. 2014-04, “Receivables - Troubled Debt Restructurings by Creditors (Topic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” to address diversity in practice and clarify guidance regarding the accounting for an in-substance repossession or foreclosure of residential real estate collateral. This ASU clarifies that an in-substance repossession or foreclosure occurs upon either the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or the borrower conveying all interest in the residential real estate property to the creditor. Additionally, this ASU requires disclosure of both the amount of foreclosed residential real estate property held by the Company and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. The Company adopted this new guidance beginning January 1, 2015. The guidance did not have a material impact on the Company's consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, which created "Revenue from Contracts with Customers (Topic 606), to clarify the principles for recognizing revenue and develop a common revenue standard for customer contracts. This ASU provides guidance regarding how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also added a new subtopic to the codification, ASC 340-40, "Other Assets and Deferred Costs: Contracts with Customers" to provide guidance on costs related to obtaining and fulfilling a customer contract. Furthermore, the new standard requires disclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. At the time ASU No. 2014-09 was issued, the guidance was effective for fiscal years beginning after December 15, 2016. In July 2015, the FASB approved a deferral of the effective date by one year, which would result in the guidance becoming effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
Extraordinary and Unusual Items
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items,” to eliminate the concept of extraordinary items related to separately classifying, presenting and disclosing certain events and transactions that meet the criteria for that concept. This guidance is effective for fiscal years beginning after December 15, 2015 and is to be applied either prospectively or retrospectively. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements.
Consolidation
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance is effective for fiscal years beginning after December 15, 2015 and is to be applied retrospectively. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
Debt Issuance Costs
In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," to clarify the presentation of debt issuance costs within the balance sheet. This ASU requires that an entity present debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the carrying amount of that debt liability, not as a separate asset. The ASU does not affect the current guidance for the recognition and measurement for these debt issuance costs. Additionally, in August 2015, the FASB issued ASU No. 2015-15, "Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting," to further clarify the the presentation of debt issuance costs related to line-of-credit agreements. This ASU states the SEC would not object to an entity deferring and presenting debt issuance costs related to line-of-credit agreements as an asset on the balance sheet and subsequently amortizing these costs ratably over the term of the agreement, regardless of any outstanding borrowing under the line-of-credit agreement. This guidance is effective for fiscal years beginning after December 15, 2015 and is to be applied retrospectively. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements.
Business Combinations
In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments," to simplify the accounting for subsequent adjustments made to provisional amounts recognized at the acquisition date of a business combination. This ASU eliminates the requirement to retrospectively account for these adjustment for all prior periods impacted. The acquirer is required to recognize these adjustments identified during the measurement period in the reporting period in which the adjustment amount is determined. Additionally, the ASU requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment had been recognized at the acquisition date. This guidance is effective for fiscal years beginning after December 15, 2015 and is to be applied prospectively. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements.
(3) Business Combinations
Non-FDIC Assisted Bank Acquisitions
On July 24, 2015, the Company acquired Community Financial Shares, Inc ("CFIS"). CFIS was the parent company of Community Bank - Wheaton/Glen Ellyn ("CBWGE"), which had four banking locations. CBWGE was merged into the Company's wholly-
owned subsidiary Wheaton Bank & Trust Company ("Wheaton Bank"). The Company acquired assets with a fair value of approximately $350.5 million, including approximately $159.5 million of loans, and assumed deposits with a fair value of approximately $290.0 million. Additionally, the Company recorded goodwill of $27.5 million on the acquisition.
On July 17, 2015, the Company acquired Suburban Illinois Bancorp, Inc. ("Suburban"). Suburban was the parent company of Suburban Bank & Trust Company ("SBT"), which operated ten banking locations. SBT was merged into the Company's wholly-owned subsidiary Hinsdale Bank & Trust Company ("Hinsdale Bank"). The Company acquired assets with a fair value of approximately $494.7 million, including approximately $257.8 million of loans, and assumed deposits with a fair value of approximately $416.7 million. Additionally, the Company recorded goodwill of $18.8 million on the acquisition.
On July 1, 2015, the Company, through its wholly-owned subsidiary Wintrust Bank, acquired North Bank, which had two banking locations. The Company acquired assets with a fair value of $101.0 million, including approximately $51.6 million of loans, and assumed deposits with a fair value of approximately $100.3 million. Additionally, the Company recorded goodwill of $6.7 million on the acquisition.
On January 16, 2015, the Company acquired Delavan Bancshares, Inc. ("Delavan"). Delavan was the parent company of Community Bank CBD, which had four banking locations. Community Bank CBD was merged into the Company's wholly-owned subsidiary Town Bank. The Company acquired assets with a fair value of approximately $224.1 million, including approximately $128.0 million of loans, and assumed liabilities with a fair value of approximately $186.4 million, including approximately $170.2 million of deposits. Additionally the Company recorded goodwill of $16.3 million on the acquisition.
On August 8, 2014, the Company, through its wholly-owned subsidiary Town Bank, acquired eleven branch offices and deposits of Talmer Bank & Trust. Subsequent to this date, the Company acquired loans from these branches as well. In total, the Company acquired assets with a fair value of approximately $361.3 million, including approximately $41.5 million of loans, and assumed liabilities with a fair value of approximately $361.3 million, including approximately $354.9 million of deposits. Additionally, the Company recorded goodwill of $9.7 million on the acquisition.
On July 11, 2014 the Company, through its wholly-owned subsidiary Town Bank, acquired the Pewaukee, Wisconsin branch of THE National Bank. The Company acquired assets with a fair value of approximately $94.1 million, including approximately $75.0 million of loans, and assumed deposits with a fair value of approximately $36.2 million. Additionally, the Company recorded goodwill of $16.3 million on the acquisition.
On May 16, 2014, the Company, through its wholly-owned subsidiary Hinsdale Bank acquired the Stone Park branch office and certain related deposits of Urban Partnership Bank ("UPB"). The Company assumed liabilities with a fair value of approximately $5.5 million, including approximately $5.4 million of deposits. Additionally, the Company recorded goodwill of $678,000 on the acquisition.
FDIC-Assisted Transactions
Since 2010, the Company acquired the banking operations, including the acquisition of certain assets and the assumption of liabilities, of nine financial institutions in FDIC-assisted transactions. Loans comprise the majority of the assets acquired in nearly all of these FDIC-assisted transactions, 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, clawback provisions within these 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.
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 and require the Company to record loss share assets and liabilities that 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 and liabilities are recorded as FDIC indemnification assets and other liabilities, respectively, 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 and, if necessary, increase any loss share liability when necessary reductions exceed the current value of the FDIC indemnification assets. In accordance with the clawback provision noted above, the Company may be required to reimburse the FDIC when actual losses are less than certain thresholds established for each lose share agreement. The balance of these estimated reimbursements in accordance with clawback provisions and any related amortization are adjusted periodically for changes in the expected losses on covered assets. On the Consolidated Statements of Condition, estimated reimbursements from clawback provisions are recorded as a reduction to the FDIC indemnification asset or, if necessary, an increase to the loss share liability, which is included within accrued interest payable and other liabilities. Although these assets are contractual receivables from the FDIC, there are no contractual interest rates. Additional expected losses, to the extent such expected losses result in recognition of an allowance for covered loan losses, will increase the FDIC indemnification asset. The corresponding amortization 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 (liability) asset during the periods indicated:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(Dollars in thousands) | September 30, 2015 | | September 30, 2014 | | September 30, 2015 | | September 30, 2014 |
Balance at beginning of period | $ | 3,429 |
| | $ | 46,115 |
| | $ | 11,846 |
| | $ | 85,672 |
|
Additions from acquisitions | — |
| | — |
| | — |
| | — |
|
Additions from reimbursable expenses | 1,039 |
| | 1,584 |
| | 3,548 |
| | 4,933 |
|
Amortization | (718 | ) | | (1,382 | ) | | (3,184 | ) | | (4,441 | ) |
Changes in expected reimbursements from the FDIC for changes in expected credit losses | (5,236 | ) | | (12,124 | ) | | (13,546 | ) | | (41,153 | ) |
Payments received from the FDIC | (1,547 | ) | | (6,834 | ) | | (1,697 | ) | | (17,652 | ) |
Balance at end of period | $ | (3,033 | ) | | $ | 27,359 |
| | $ | (3,033 | ) | | $ | 27,359 |
|
Specialty Finance Acquisition
On April 28, 2014, the Company, through its wholly-owned subsidiary, First Insurance Funding of Canada, Inc., acquired Policy Billing Services Inc. and Equity Premium Finance Inc., two affiliated Canadian insurance premium funding and payment services companies. Through this transaction, the Company acquired approximately $7.4 million of premium finance receivables. The Company recorded goodwill of approximately $6.5 million on the acquisition.
Purchased Credit Impaired ("PCI") Loans
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 PCI 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 PCI loans.
(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, 2015 |
(Dollars in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. Treasury | $ | 288,185 |
| | $ | 101 |
| | $ | (2,364 | ) | | $ | 285,922 |
|
U.S. Government agencies | 657,297 |
| | 2,726 |
| | (15,000 | ) | | 645,023 |
|
Municipal | 294,073 |
| | 5,354 |
| | (2,085 | ) | | 297,342 |
|
Corporate notes: | | | | | | | |
Financial issuers | 114,976 |
| | 1,656 |
| | (1,216 | ) | | 115,416 |
|
Other | 1,525 |
| | 6 |
| | (2 | ) | | 1,529 |
|
Mortgage-backed: (1) | | | | | | | |
Mortgage-backed securities | 778,240 |
| | 4,974 |
| | (10,913 | ) | | 772,301 |
|
Collateralized mortgage obligations | 42,724 |
| | 343 |
| | (323 | ) | | 42,744 |
|
Equity securities | 49,356 |
| | 4,993 |
| | (345 | ) | | 54,004 |
|
Total available-for-sale securities | $ | 2,226,376 |
| | $ | 20,153 |
| | $ | (32,248 | ) | | $ | 2,214,281 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2014 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
(Dollars in thousands) | | | |
U.S. Treasury | $ | 388,713 |
| | $ | 84 |
| | $ | (6,992 | ) | | $ | 381,805 |
|
U.S. Government agencies | 686,106 |
| | 4,113 |
| | (21,903 | ) | | 668,316 |
|
Municipal | 234,951 |
| | 5,318 |
| | (1,740 | ) | | 238,529 |
|
Corporate notes: | | | | | | | |
Financial issuers | 129,309 |
| | 2,006 |
| | (1,557 | ) | | 129,758 |
|
Other | 3,766 |
| | 55 |
| | — |
| | 3,821 |
|
Mortgage-backed: (1) | | | | | | | |
Mortgage-backed securities | 271,129 |
| | 5,448 |
| | (4,928 | ) | | 271,649 |
|
Collateralized mortgage obligations | 47,347 |
| | 249 |
| | (535 | ) | | 47,061 |
|
Equity securities | 46,592 |
| | 4,872 |
| | (325 | ) | | 51,139 |
|
Total available-for-sale securities | $ | 1,807,913 |
| | $ | 22,145 |
| | $ | (37,980 | ) | | $ | 1,792,078 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2014 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
(Dollars in thousands) | | | |
U.S. Treasury | $ | 388,873 |
| | $ | 372 |
| | $ | (10,984 | ) | | $ | 378,261 |
|
U.S. Government agencies | 771,255 |
| | 3,866 |
| | (35,369 | ) | | 739,752 |
|
Municipal | 184,015 |
| | 4,969 |
| | (1,881 | ) | | 187,103 |
|
Corporate notes: | | | | | | | |
Financial issuers | 129,259 |
| | 2,252 |
| | (1,208 | ) | | 130,303 |
|
Other | 3,773 |
| | 79 |
| | — |
| | 3,852 |
|
Mortgage-backed: (1) | | | | | | | |
Mortgage-backed securities | 246,354 |
| | 4,303 |
| | (8,938 | ) | | 241,719 |
|
Collateralized mortgage obligations | 49,909 |
| | 357 |
| | (763 | ) | | 49,503 |
|
Equity securities | 47,595 |
| | 4,958 |
| | (398 | ) | | 52,155 |
|
Total available-for-sale securities | $ | 1,821,033 |
| | $ | 21,156 |
| | $ | (59,541 | ) | | $ | 1,782,648 |
|
| |
(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, 2015:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | $ | 202,795 |
| | $ | (2,364 | ) | | $ | — |
| | $ | — |
| | $ | 202,795 |
| | $ | (2,364 | ) |
U.S. Government agencies | 218,297 |
| | (4,932 | ) | | 251,654 |
| | (10,068 | ) | | 469,951 |
| | (15,000 | ) |
Municipal | 68,140 |
| | (964 | ) | | 37,002 |
| | (1,121 | ) | | 105,142 |
| | (2,085 | ) |
Corporate notes: | | | | | | | | | | | |
Financial issuers | 23,052 |
| | (152 | ) | | 44,894 |
| | (1,064 | ) | | 67,946 |
| | (1,216 | ) |
Other | 999 |
| | (2 | ) | | — |
| | — |
| | 999 |
| | (2 | ) |
Mortgage-backed: | | | | | | | | | | | |
Mortgage-backed securities | 519,631 |
| | (7,011 | ) | | 120,261 |
| | (3,902 | ) | | 639,892 |
| | (10,913 | ) |
Collateralized mortgage obligations | 7,167 |
| | (63 | ) | | 9,620 |
| | (260 | ) | | 16,787 |
| | (323 | ) |
Equity securities | 2,957 |
| | (12 | ) | | 8,557 |
| | (333 | ) | | 11,514 |
| | (345 | ) |
Total | $ | 1,043,038 |
| | $ | (15,500 | ) | | $ | 471,988 |
| | $ | (16,748 | ) | | $ | 1,515,026 |
| | $ | (32,248 | ) |
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, 2015 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 agency bonds and mortgage-backed securities. Unrealized losses recognized on agency bonds and mortgage-backed securities are the result of increases in yields for similar types of securities which also have a longer duration and maturity.
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) | 2015 | | 2014 | | 2015 | | 2014 |
Realized gains | $ | 87 |
| | $ | 179 |
| | $ | 654 |
| | $ | 333 |
|
Realized losses | (185 | ) | | (332 | ) | | (252 | ) | | (855 | ) |
Net realized (losses) gains | $ | (98 | ) | | $ | (153 | ) | | $ | 402 |
| | $ | (522 | ) |
Other than temporary impairment charges | — |
| | — |
| | — |
| | — |
|
(Losses) gains on available-for-sale securities, net | $ | (98 | ) | | $ | (153 | ) | | $ | 402 |
| | $ | (522 | ) |
Proceeds from sales of available-for-sale securities | $ | 82,827 |
| | $ | 382,552 |
| | $ | 1,216,860 |
| | $ | 578,594 |
|
The amortized cost and fair value of securities as of September 30, 2015, December 31, 2014 and September 30, 2014, 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, 2015 | | December 31, 2014 | | September 30, 2014 |
(Dollars in thousands) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in one year or less | $ | 164,374 |
| | $ | 164,429 |
| | $ | 285,596 |
| | $ | 285,889 |
| | $ | 216,244 |
| | $ | 216,582 |
|
Due in one to five years | 186,199 |
| | 186,592 |
| | 172,647 |
| | 172,885 |
| | 309,914 |
| | 310,917 |
|
Due in five to ten years | 343,468 |
| | 342,271 |
| | 331,389 |
| | 325,644 |
| | 327,505 |
| | 317,654 |
|
Due after ten years | 662,015 |
| | 651,940 |
| | 653,213 |
| | 637,811 |
| | 623,512 |
| | 594,118 |
|
Mortgage-backed | 820,964 |
| | 815,045 |
| | 318,476 |
| | 318,710 |
| | 296,263 |
| | 291,222 |
|
Equity securities | 49,356 |
| | 54,004 |
| | 46,592 |
| | 51,139 |
| | 47,595 |
| | 52,155 |
|
Total available-for-sale securities | $ | 2,226,376 |
| | $ | 2,214,281 |
| | $ | 1,807,913 |
| | $ | 1,792,078 |
| | $ | 1,821,033 |
| | $ | 1,782,648 |
|
Securities having a carrying value of $1.3 billion at September 30, 2015 as well as securities having a carrying value of $1.1 billion at December 31, 2014 and September 30, 2014, were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At September 30, 2015, 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) | 2015 | | 2014 | | 2014 |
Balance: | | | | | |
Commercial | $ | 4,400,185 |
| | $ | 3,924,394 |
| | $ | 3,689,671 |
|
Commercial real estate | 5,307,566 |
| | 4,505,753 |
| | 4,510,375 |
|
Home equity | 797,465 |
| | 716,293 |
| | 720,058 |
|
Residential real estate | 571,743 |
| | 483,542 |
| | 470,319 |
|
Premium finance receivables—commercial | 2,407,075 |
| | 2,350,833 |
| | 2,377,892 |
|
Premium finance receivables—life insurance | 2,700,275 |
| | 2,277,571 |
| | 2,134,405 |
|
Consumer and other | 131,902 |
| | 151,012 |
| | 149,339 |
|
Total loans, net of unearned income, excluding covered loans | $ | 16,316,211 |
| | $ | 14,409,398 |
| | $ | 14,052,059 |
|
Covered loans | 168,609 |
| | 226,709 |
| | 254,605 |
|
Total loans | $ | 16,484,820 |
| | $ | 14,636,107 |
| | $ | 14,306,664 |
|
Mix: | | | | | |
Commercial | 27 | % | | 26 | % | | 26 | % |
Commercial real estate | 32 |
| | 31 |
| | 31 |
|
Home equity | 5 |
| | 5 |
| | 5 |
|
Residential real estate | 3 |
| | 3 |
| | 3 |
|
Premium finance receivables—commercial | 15 |
| | 16 |
| | 17 |
|
Premium finance receivables—life insurance | 16 |
| | 16 |
| | 15 |
|
Consumer and other | 1 |
| | 1 |
| | 1 |
|
Total loans, net of unearned income, excluding covered loans | 99 | % | | 98 | % | | 98 | % |
Covered loans | 1 |
| | 2 |
| | 2 |
|
Total loans | 100 | % | | 100 | % | | 100 | % |
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. 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.
Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $53.4 million at September 30, 2015, $46.9 million at December 31, 2014 and $44.8 million at September 30, 2014, respectively. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in 2009 as well as PCI loans are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.
Total loans, excluding PCI loans, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $(18.8) million at September 30, 2015, $330,000 at December 31, 2014 and $(6.3) million at September 30, 2014. The net credit balance at September 30, 2015 and September 30, 2014, is primarily the result of purchase accounting adjustments related to acquisitions in 2015 and 2014, respectively.
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—PCI Loans
As part of our previous acquisitions, we acquired loans for which there was evidence of credit quality deterioration since origination (PCI loans) 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, 2015 | | December 31, 2014 |
| Unpaid Principal | | Carrying | | Unpaid Principal | | Carrying |
(Dollars in thousands) | Balance | | Value | | Balance | | Value |
Bank acquisitions | $ | 356,615 |
| | $ | 295,801 |
| | $ | 285,809 |
| | $ | 227,229 |
|
Life insurance premium finance loans acquisition | 378,040 |
| | 373,586 |
| | 399,665 |
| | 393,479 |
|
The following table provides estimated details as of the date of acquisition on loans acquired in 2015 with evidence of credit quality deterioration since origination:
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | North Bank | | CBWGE | | Suburban | | Delavan |
Contractually required payments including interest | $ | 8,563 |
| | $ | 38,656 |
| | $ | 95,804 |
| | $ | 15,791 |
|
Less: Nonaccretable difference | 1,027 |
| | 4,437 |
| | 13,888 |
| | 1,442 |
|
Cash flows expected to be collected (1) | 7,536 |
| | 34,219 |
| | 81,916 |
| | 14,349 |
|
Less: Accretable yield | 866 |
| | 2,895 |
| | 5,334 |
| | 898 |
|
Fair value of PCI loans acquired | 6,670 |
| | 31,324 |
| | 76,582 |
| | 13,451 |
|
(1) Represents undiscounted expected principal and interest cash 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 PCI loans at September 30, 2015.
Accretable Yield Activity - PCI Loans
Changes in expected cash flows may vary from period to period as the Company periodically updates its cash flow model assumptions for PCI loans. 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 PCI loans:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(Dollars in thousands) | September 30, 2015 |
| September 30, 2014 |
| September 30, 2015 |
| September 30, 2014 |
Accretable yield, beginning balance | $ | 63,643 |
| | $ | 97,281 |
| | $ | 79,102 |
| | $ | 115,909 |
|
Acquisitions | 9,095 |
| | — |
| | 9,993 |
| | — |
|
Accretable yield amortized to interest income | (5,939 | ) | | (7,847 | ) | | (18,359 | ) | | (28,438 | ) |
Accretable yield amortized to indemnification asset (1) | (3,280 | ) | | (8,784 | ) | | (10,945 | ) | | (25,593 | ) |
Reclassification from non-accretable difference (2) | 2,298 |
| | 2,584 |
| | 5,154 |
| | 29,092 |
|
Increases (decreases) in interest cash flows due to payments and changes in interest rates | (610 | ) | | 4,675 |
| | 262 |
| | (3,061 | ) |
Accretable yield, ending balance (3) | $ | 65,207 |
| | $ | 87,909 |
| | $ | 65,207 |
| | $ | 87,909 |
|
| |
(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, 2015, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $10.0 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income. |
Accretion to interest income from acquired loans totaled $5.9 million and $7.8 million in the third quarter of 2015 and 2014, respectively. For the nine months ended September 30, 2015 and 2014, the Company recorded accretion to interest income of $18.4 million and $28.4 million, respectively. These amounts include accretion from both covered and non-covered loans, and are included together within interest and fees on loans in the Consolidated Statements of 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, 2015, December 31, 2014 and September 30, 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | |
As of September 30, 2015 | | | 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 | $ | 12,006 |
| | $ | — |
| | $ | 2,731 |
| | $ | 9,331 |
| | $ | 2,622,207 |
| | $ | 2,646,275 |
|
Franchise | — |
| | — |
| | 80 |
| | 376 |
| | 221,545 |
| | 222,001 |
|
Mortgage warehouse lines of credit | — |
| | — |
| | — |
| | — |
| | 136,614 |
| | 136,614 |
|
Community Advantage—homeowners association | — |
| | — |
| | 44 |
| | — |
| | 123,165 |
| | 123,209 |
|
Aircraft | — |
| | — |
| | — |
| | 378 |
| | 5,993 |
| | 6,371 |
|
Asset-based lending | 12 |
| | — |
| | 1,313 |
| | 247 |
| | 800,798 |
| | 802,370 |
|
Tax exempt | — |
| | — |
| | — |
| | — |
| | 232,667 |
| | 232,667 |
|
Leases | — |
| | — |
| | — |
| | 89 |
| | 205,697 |
| | 205,786 |
|
Other | — |
| | — |
| | — |
| | — |
| | 1,953 |
| | 1,953 |
|
PCI - commercial (1) | — |
| | 217 |
| | — |
| | 39 |
| | 22,683 |
| | 22,939 |
|
Total commercial | 12,018 |
| | 217 |
| | 4,168 |
| | 10,460 |
| | 4,373,322 |
| | 4,400,185 |
|
Commercial real estate: | | | | | | | | | | | |
Residential construction | — |
| | — |
| | — |
| | 1,141 |
| | 60,130 |
| | 61,271 |
|
Commercial construction | 31 |
| | — |
| | — |
| | 2,394 |
| | 283,538 |
| | 285,963 |
|
Land | 1,756 |
| | — |
| | — |
| | 2,207 |
| | 75,113 |
| | 79,076 |
|
Office | 4,045 |
| | — |
| | 10,861 |
| | 2,362 |
| | 773,043 |
| | 790,311 |
|
Industrial | 11,637 |
| | — |
| | 786 |
| | 897 |
| | 622,804 |
| | 636,124 |
|
Retail | 2,022 |
| | — |
| | 1,536 |
| | 821 |
| | 781,463 |
| | 785,842 |
|
Multi-family | 1,525 |
| | — |
| | 512 |
| | 744 |
| | 684,878 |
| | 687,659 |
|
Mixed use and other | 7,601 |
| | — |
| | 2,340 |
| | 12,871 |
| | |