10-Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________________
FORM 10-Q
_________________________________________
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
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):
 
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, 48,560,301 shares, as of April 30, 2016
 


Table of Contents

TABLE OF CONTENTS
 
 
 
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.
 


Table of Contents

PART I
ITEM 1. FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
 
(Unaudited)
 
 
 
(Unaudited)
(In thousands, except share data)
March 31,
2016
 
December 31,
2015
 
March 31,
2015
Assets
 
 
 
 
 
Cash and due from banks
$
208,480

 
$
271,454

 
$
286,743

Federal funds sold and securities purchased under resale agreements
3,820

 
4,341

 
4,129

Interest bearing deposits with banks
817,013

 
607,782

 
697,799

Available-for-sale securities, at fair value
770,983

 
1,716,388

 
1,721,030

Held-to-maturity securities, at amortized cost ($924.3 million and $878.1 million fair value at March 31, 2016 and December 31, 2015, respectively)
911,715

 
884,826

 

Trading account securities
2,116

 
448

 
7,811

Federal Home Loan Bank and Federal Reserve Bank stock
113,222

 
101,581

 
92,948

Brokerage customer receivables
28,266

 
27,631

 
25,287

Mortgage loans held-for-sale
314,554

 
388,038

 
446,355

Loans, net of unearned income, excluding covered loans
17,446,413

 
17,118,117

 
14,953,059

Covered loans
138,848

 
148,673

 
209,694

Total loans
17,585,261

 
17,266,790

 
15,162,753

Less: Allowance for loan losses
110,171

 
105,400

 
94,446

Less: Allowance for covered loan losses
2,507

 
3,026

 
1,878

Net loans
17,472,583

 
17,158,364

 
15,066,429

Premises and equipment, net
591,608

 
592,256

 
559,281

Lease investments, net
89,337

 
63,170

 
383

FDIC indemnification asset

 

 
10,224

Accrued interest receivable and other assets
647,853

 
597,099

 
526,029

Trade date securities receivable
1,008,613

 

 
488,063

Goodwill
484,280

 
471,761

 
420,197

Other intangible assets
23,725

 
24,209

 
18,858

Total assets
$
23,488,168

 
$
22,909,348

 
$
20,371,566

Liabilities and Shareholders’ Equity
 
 
 
 
 
Deposits:
 
 
 
 
 
Non-interest bearing
$
5,205,410

 
$
4,836,420

 
$
3,779,609

Interest bearing
14,011,661

 
13,803,214

 
13,159,160

Total deposits
19,217,071

 
18,639,634

 
16,938,769

Federal Home Loan Bank advances
799,482

 
853,431

 
406,839

Other borrowings
253,126

 
265,785

 
186,716

Subordinated notes
138,888

 
138,861

 
138,782

Junior subordinated debentures
253,566

 
268,566

 
249,493

Trade date securities payable

 
538

 
2,929

Accrued interest payable and other liabilities
407,593

 
390,259

 
316,964

Total liabilities
21,069,726

 
20,557,074

 
18,240,492

Shareholders’ Equity:
 
 
 
 
 
Preferred stock, no par value; 20,000,000 shares authorized:
 
 
 
 
 
Series C - $1,000 liquidation value; 126,257 shares issued and outstanding at March 31, 2016, 126,287 shares issued and outstanding at December 31, 2015, and 126,427 shares issued and outstanding at March 31, 2015
126,257

 
126,287

 
126,427

Series D - $25 liquidation value; 5,000,000 shares issued and outstanding at March 31, 2016 and December 31, 2015 and no shares issued and outstanding at March 31, 2015
125,000

 
125,000

 

Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at March 31, 2016, December 31, 2015 and March 31, 2015; 48,608,559 shares issued at March 31, 2016, 48,468,894 shares issued at December 31, 2015 and 47,474,721 shares issued at March 31, 2015
48,608

 
48,469

 
47,475

Surplus
1,194,750

 
1,190,988

 
1,156,542

Treasury stock, at cost, 89,561 shares at March 31, 2016, 85,615 shares at December 31, 2015, and 85,113 shares at March 31, 2015
(4,145
)
 
(3,973
)
 
(3,948
)
Retained earnings
967,882

 
928,211

 
835,669

Accumulated other comprehensive loss
(39,910
)
 
(62,708
)
 
(31,091
)
Total shareholders’ equity
2,418,442

 
2,352,274

 
2,131,074

Total liabilities and shareholders’ equity
$
23,488,168

 
$
22,909,348

 
$
20,371,566

See accompanying notes to unaudited consolidated financial statements.

1

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
Three Months Ended
(In thousands, except per share data)
March 31, 2016
 
March 31, 2015
Interest income
 
 
 
Interest and fees on loans
$
173,127

 
$
154,676

Interest bearing deposits with banks
746

 
316

Federal funds sold and securities purchased under resale agreements
1

 
2

Investment securities
17,190

 
14,400

Trading account securities
11

 
13

Federal Home Loan Bank and Federal Reserve Bank stock
937

 
769

Brokerage customer receivables
219

 
181

Total interest income
192,231

 
170,357

Interest expense
 
 
 
Interest on deposits
12,781

 
11,814

Interest on Federal Home Loan Bank advances
2,886

 
2,156

Interest on other borrowings
1,058

 
788

Interest on subordinated notes
1,777

 
1,775

Interest on junior subordinated debentures
2,220

 
1,933

Total interest expense
20,722

 
18,466

Net interest income
171,509

 
151,891

Provision for credit losses
8,034

 
6,079

Net interest income after provision for credit losses
163,475

 
145,812

Non-interest income
 
 
 
Wealth management
18,320

 
18,100

Mortgage banking
21,735

 
27,800

Service charges on deposit accounts
7,406

 
6,297

Gains on available-for-sale securities, net
1,325

 
524

Fees from covered call options
1,712

 
4,360

Trading losses, net
(168
)
 
(477
)
Operating lease income, net
2,806

 
65

Other
15,616

 
7,872

Total non-interest income
68,752

 
64,541

Non-interest expense
 
 
 
Salaries and employee benefits
95,811

 
90,130

Equipment
8,767

 
7,779

Operating lease equipment depreciation
2,050

 
57

Occupancy, net
11,948

 
12,351

Data processing
6,519

 
5,448

Advertising and marketing
3,779

 
3,907

Professional fees
4,059

 
4,664

Amortization of other intangible assets
1,298

 
1,013

FDIC insurance
3,613

 
2,987

OREO expense, net
560

 
1,411

Other
15,326

 
17,571

Total non-interest expense
153,730

 
147,318

Income before taxes
78,497

 
63,035

Income tax expense
29,386

 
23,983

Net income
$
49,111

 
$
39,052

Preferred stock dividends and discount accretion
3,628

 
1,581

Net income applicable to common shares
$
45,483

 
$
37,471

Net income per common share—Basic
$
0.94

 
$
0.79

Net income per common share—Diluted
$
0.90

 
$
0.76

Cash dividends declared per common share
$
0.12

 
$
0.11

Weighted average common shares outstanding
48,448

 
47,239

Dilutive potential common shares
3,820

 
4,233

Average common shares and dilutive common shares
52,268

 
51,472

See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
Three Months Ended
(In thousands)
March 31,
2016
 
March 31,
2015
Net income
$
49,111

 
$
39,052

Unrealized gains on securities
 
 
 
Before tax
25,176

 
26,276

Tax effect
(9,988
)
 
(10,331
)
Net of tax
15,188

 
15,945

Reclassification of net gains included in net income
 
 
 
Before tax
1,325

 
524

Tax effect
(521
)
 
(206
)
Net of tax
804

 
318

Reclassification of amortization of unrealized losses on investment securities transferred to held-to-maturity from available-for-sale
 
 
 
Before tax
(3,425
)
 

Tax effect
1,339

 

Net of tax
(2,086
)
 

Net unrealized gains on securities
16,470

 
15,627

Unrealized gains (losses) on derivative instruments
 
 
 
Before tax
478

 
(561
)
Tax effect
(188
)
 
220

Net unrealized gains (losses) on derivative instruments
290

 
(341
)
Foreign currency adjustment
 
 
 
Before tax
8,347

 
(12,290
)
Tax effect
(2,309
)
 
3,245

Net foreign currency adjustment
6,038

 
(9,045
)
Total other comprehensive income
22,798

 
6,241

Comprehensive income
$
71,909

 
$
45,293

See accompanying notes to unaudited consolidated financial statements.

3

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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, 2015
$
126,467

 
$
46,881

 
$
1,133,955

 
$
(3,549
)
 
$
803,400

 
$
(37,332
)
 
$
2,069,822

Net income

 

 

 

 
39,052

 

 
39,052

Other comprehensive income, net of tax

 

 

 

 

 
6,241

 
6,241

Cash dividends declared on common stock

 

 

 

 
(5,202
)
 

 
(5,202
)
Dividends on preferred stock

 

 

 

 
(1,581
)
 

 
(1,581
)
Stock-based compensation

 

 
2,271

 

 

 

 
2,271

Conversion of Series C preferred stock to common stock
(40
)
 
1

 
39

 

 

 

 

Common stock issued for:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions

 
422

 
18,582

 

 

 

 
19,004

Exercise of stock options and warrants

 
52

 
535

 
(130
)
 

 

 
457

Restricted stock awards

 
84

 
329

 
(269
)
 

 

 
144

Employee stock purchase plan

 
15

 
666

 

 

 

 
681

Director compensation plan

 
20

 
165

 

 

 

 
185

Balance at March 31, 2015
$
126,427

 
$
47,475

 
$
1,156,542

 
$
(3,948
)
 
$
835,669

 
$
(31,091
)
 
$
2,131,074

Balance at January 1, 2016
$
251,287

 
$
48,469

 
$
1,190,988

 
$
(3,973
)
 
$
928,211

 
$
(62,708
)
 
$
2,352,274

Net income

 

 

 

 
49,111

 

 
49,111

Other comprehensive income, net of tax

 

 

 

 

 
22,798

 
22,798

Cash dividends declared on common stock

 

 

 

 
(5,812
)
 

 
(5,812
)
Dividends on preferred stock

 

 

 

 
(3,628
)
 

 
(3,628
)
Stock-based compensation

 

 
2,484

 

 

 

 
2,484

Conversion of Series C preferred stock to common stock
(30
)
 
1

 
29

 

 

 

 

Common stock issued for:
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options and warrants

 
17

 
124

 

 

 

 
141

Restricted stock awards

 
82

 
106

 
(172
)
 

 

 
16

Employee stock purchase plan

 
14

 
634

 

 

 

 
648

Director compensation plan

 
25

 
385

 

 

 

 
410

Balance at March 31, 2016
$
251,257

 
$
48,608

 
$
1,194,750

 
$
(4,145
)
 
$
967,882

 
$
(39,910
)
 
$
2,418,442

See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Three Months Ended
(In thousands)
March 31,
2016
 
March 31,
2015
Operating Activities:
 
 
 
Net income
$
49,111

 
$
39,052

Adjustments to reconcile net income to net cash provided by (used for) operating activities
 
 
 
Provision for credit losses
8,034

 
6,079

Depreciation, amortization and accretion, net
13,610

 
9,077

Stock-based compensation expense
2,484

 
2,271

Excess tax benefits from stock-based compensation arrangements
(193
)
 
(471
)
Net amortization of premium on securities
632

 
845

Accretion of discount on loans
(8,276
)
 
(7,583
)
Mortgage servicing rights fair value change, net
(1,036
)
 
514

Originations and purchases of mortgage loans held-for-sale
(736,648
)
 
(941,651
)
Proceeds from sales of mortgage loans held-for-sale
826,419

 
867,194

Bank owned life insurance, net of claims
(472
)
 
(766
)
Increase in trading securities, net
(1,668
)
 
(6,605
)
Net increase in brokerage customer receivables
(635
)
 
(1,066
)
Gains on mortgage loans sold
(16,287
)
 
(20,608
)
Gains on available-for-sale securities, net
(1,325
)
 
(524
)
Gains on early extinguishment of debt
(4,305
)
 

Losses on sales of premises and equipment, net
21

 
81

Net gains on sales and fair value adjustments of other real estate owned
(119
)
 
(549
)
Increase in accrued interest receivable and other assets, net
(75,172
)
 
(20,964
)
Increase (decrease) in accrued interest payable and other liabilities, net
12,187

 
(48,874
)
Net Cash Provided by (Used for) Operating Activities
66,362

 
(124,548
)
Investing Activities:
 
 
 
Proceeds from maturities of available-for-sale securities
26,128

 
122,163

Proceeds from maturities of held-to-maturity securities
181

 

Proceeds from sales of available-for-sale securities
3,201

 
635,532

Proceeds from calls of held-to-maturity securities
98,243

 

Purchases of available-for-sale securities
(39,267
)
 
(629,008
)
Purchases of held-to-maturity securities
(125,208
)
 

Purchase of Federal Home Loan Bank and Federal Reserve Bank stock, net
(11,641
)
 
(1,366
)
Net cash (paid) received for acquisitions
(17,452
)
 
12,004

Proceeds from sales of other real estate owned
10,341

 
11,733

Proceeds received from (payments provided to) the FDIC related to reimbursements on covered assets
363

 
(2,056
)
Net (increase) decrease in interest bearing deposits with banks
(204,994
)
 
300,706

Net increase in loans
(248,893
)
 
(399,939
)
Purchases of premises and equipment, net
(8,677
)
 
(5,902
)
Net Cash (Used for) Provided by Investing Activities
(517,675
)
 
43,867

Financing Activities:
 
 
 
Increase in deposit accounts
477,466

 
486,960

Decrease in other borrowings, net
(12,700
)
 
(20,327
)
Decrease in Federal Home Loan Bank advances, net
(58,466
)
 
(321,565
)
Redemption of junior subordinated debentures, net
(10,695
)
 

Excess tax benefits from stock-based compensation arrangements
193

 
471

Issuance of common shares resulting from the exercise of stock options and the employee stock purchase plan
1,632

 
2,489

Common stock repurchases
(172
)
 
(399
)
Dividends paid
(9,440
)
 
(6,783
)
Net Cash Provided by Financing Activities
387,818

 
140,846

Net (Decrease) Increase in Cash and Cash Equivalents
(63,495
)
 
60,165

Cash and Cash Equivalents at Beginning of Period
275,795

 
230,707

Cash and Cash Equivalents at End of Period
$
212,300

 
$
290,872

See accompanying notes to unaudited consolidated financial statements.

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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, 2015 (“2015 Form 10-K”). Operating results reported for the three-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 the Company's significant accounting policies are included in Note 1 - “Summary of Significant Accounting Policies” of the 2015 Form 10-K.

(2) Recent Accounting Developments

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.

In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)", to clarify the implementation guidance within ASU No. 2014-09 surrounding principal versus agent considerations and its impact on revenue recognition. Additionally, in April 2016, the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing", to also clarify the implementation guidance within ASU No. 2014-09 related to these two topics. Like ASU No. 2014-09, this guidance is 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

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extraordinary items related to separately classifying, presenting and disclosing certain events and transactions that meet the criteria for that concept. This guidance was effective for fiscal years beginning after December 15, 2015 and did not 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 was effective for fiscal years beginning after December 15, 2015 and did not have a material impact on the Company's 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 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 was effective for fiscal years beginning after December 15, 2015 and was applied retrospectively within the Company’s consolidated financial statements. For December 31, 2015 and March 31, 2015, the Company reclassified as a direct reduction to the related debt balance $7.8 million and $10.7 million, respectively, of debt issuance costs that were previously presented as accrued interest receivable and other assets on the Consolidated Statements of Condition.

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 was effective for fiscal years beginning after December 15, 2015 and did not have a material impact on the Company’s consolidated financial statements.

Financial Instruments

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," to improve the accounting for financial instruments. This ASU requires    equity investments with readily determinable fair values to be measured at fair value with changes recognized in net income regardless of classification. For equity investments without a readily determinable fair value, the value of the investment would be measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer instead of fair value, unless a qualitative assessment indicates impairment. Additionally, this ASU requires the separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. This guidance is effective for fiscal years beginning after December 15, 2017 and is to be applied prospectively with a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

Leases

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," to improve transparency and comparability across entities regarding leasing arrangements. This ASU requires the recognition of a separate lease liability representing the required lease payments over the lease term and a separate lease asset representing the right to use the underlying asset during the same

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lease term. Additionally, this ASU provides clarification regarding the identification of certain components of contracts that would represent a lease as well as requires additional disclosures to the notes of the financial statements. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to be applied under a modified retrospective approach, including the option to apply certain practical expedients. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

Derivatives

In March 2016, the FASB issued ASU No. 2016-05, "Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships," to clarify guidance surrounding the effect on an existing hedging relationship of a change in the counterparty to a derivative instrument that has been designated as a hedging instrument. This ASU states that a change in counterparty to such derivative instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and is to be applied either under a prospective or a modified retrospective approach. The Company does not expect this guidance to have a material impact on the Company's consolidated financial statements.

Equity Method Investments

In March 2016, the FASB issued ASU No. 2016-07, "Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting," to simplify the accounting for investments qualifying for the use of the equity method of accounting. This ASU eliminates the requirement to retroactively adopt the equity method of accounting when an investment qualifies for such method as a result of an increase in the level of ownership interest or degree of influence. The ASU requires the equity method investor add the cost of acquiring the additional interest to the current basis and adopt the equity method of accounting as of that date going forward. Additionally, for available-for-sale equity securities that become qualified for equity method accounting, the ASU requires the related unrealized holding gains or losses included in accumulated other comprehensive income be recognized in earnings at the date the investment qualifies for such accounting. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and is to be applied under a prospective approach. The Company does not expect this guidance to have a material impact on the Company's consolidated financial statements.

Employee Share-Based Compensation

In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," to simplify the accounting for several areas of share-based payment transactions. This includes the recognition of all excess tax benefits and tax deficiencies as income tax expense instead of surplus, the classification on the statement of cash flows of excess tax benefits and taxes paid when the employer withholds shares for tax-withholding purposes. Additionally, related to forfeitures, the ASU provides the option to estimate the number of awards that are expected to vest or account for forfeitures as they occur. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and is to be applied under a modified retrospective and retrospective approach based upon the specific amendment of the ASU. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

(3) Business Combinations

Non-FDIC Assisted Bank Acquisitions

On March 31, 2016, the Company acquired Generations Bancorp, Inc ("Generations"). Generations was the parent company of Foundations Bank, which had one banking location in Pewaukee, Wisconsin. Foundations Bank was merged into the Company's wholly-owned subsidiary Town Bank. The Company acquired assets with a fair value of approximately $134.2 million, including approximately $67.5 million of loans, and assumed deposits with a fair value of approximately $100.1 million. Additionally, the Company recorded goodwill of $11.3 million on the acquisition. Certain purchase price allocations for Generations are preliminary. The final determination of the amounts is not expected to result in material changes to recorded amounts.

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 $27.6 million on the acquisition.


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Table of Contents

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 $18.6 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 $117.9 million, including approximately $51.6 million of loans, and assumed deposits with a fair value of approximately $101.0 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 $16.8 million 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 and these liabilities are contractual payables to 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.


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Table of Contents

The following table summarizes the activity in the Company’s FDIC indemnification (liability) asset during the periods indicated:
 
Three Months Ended
(Dollars in thousands)
March 31,
2016
 
March 31,
2015
Balance at beginning of period
$
(6,100
)
 
$
11,846

Additions from acquisitions

 

Additions from reimbursable expenses
82

 
1,575

Amortization
(101
)
 
(1,260
)
Changes in expected reimbursements from the FDIC for changes in expected credit losses
(3,547
)
 
(3,993
)
(Payments received from) provided to the FDIC
(363
)
 
2,056

Balance at end of period
$
(10,029
)
 
$
10,224


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 additional 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.


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Table of Contents

(5) Investment Securities

The following tables are a summary of the available-for-sale and held-to-maturity securities portfolios as of the dates shown:
 
March 31, 2016
(Dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available-for-sale securities
 
 
 
 
 
 
 
U.S. Treasury
$
117,105

 
$
22

 
$
(38
)
 
$
117,089

U.S. Government agencies
93,990

 
194

 
(12
)
 
94,172

Municipal
118,187

 
3,232

 
(224
)
 
121,195

Corporate notes:
 
 
 
 
 
 
 
Financial issuers
78,048

 
1,492

 
(1,830
)
 
77,710

Other
2,500

 
3

 

 
2,503

Mortgage-backed: (1)
 
 
 
 
 
 
 
Mortgage-backed securities
262,109

 
3,795

 
(1,900
)
 
264,004

Collateralized mortgage obligations
38,565

 
324

 
(198
)
 
38,691

Equity securities
51,402

 
4,585

 
(368
)
 
55,619

Total available-for-sale securities
$
761,906

 
$
13,647

 
$
(4,570
)
 
$
770,983

Held-to-maturity securities
 
 
 
 
 
 
 
U.S. Government agencies
$
712,732

 
$
11,569

 
$
(1,455
)
 
$
722,846

Municipal
198,983

 
2,672

 
(157
)
 
201,498

Total held-to-maturity securities
$
911,715

 
$
14,241

 
$
(1,612
)
 
$
924,344

 
December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
(Dollars in thousands)
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
U.S. Treasury
$
312,282

 
$

 
$
(5,553
)
 
$
306,729

U.S. Government agencies
70,313

 
198

 
(275
)
 
70,236

Municipal
105,702

 
3,249

 
(356
)
 
108,595

Corporate notes:
 
 
 
 
 
 
 
Financial issuers
80,014

 
1,510

 
(1,481
)
 
80,043

Other
1,500

 
4

 
(2
)
 
1,502

Mortgage-backed: (1)
 
 
 
 
 
 
 
Mortgage-backed securities
1,069,680

 
3,834

 
(21,004
)
 
1,052,510

Collateralized mortgage obligations
40,421

 
172

 
(506
)
 
40,087

Equity securities
51,380

 
5,799

 
(493
)
 
56,686

Total available-for-sale securities
$
1,731,292

 
$
14,766

 
$
(29,670
)
 
$
1,716,388

Held-to-maturity securities
 
 
 
 
 
 
 
U.S. Government agencies
$
687,302

 
$
4

 
$
(7,144
)
 
$
680,162

Municipal
197,524

 
867

 
(442
)
 
197,949

Total held-to-maturity securities
$
884,826

 
$
871

 
$
(7,586
)
 
$
878,111

 
March 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
(Dollars in thousands)
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
U.S. Treasury
$
273,173

 
$
148

 
$
(1,847
)
 
$
271,474

U.S. Government agencies
665,177

 
5,348

 
(8,732
)
 
661,793

Municipal
264,949

 
6,485

 
(1,522
)
 
269,912

Corporate notes:
 
 
 
 
 
 
 
Financial issuers
129,360

 
1,965

 
(1,321
)
 
130,004

Other
3,759

 
52

 
(1
)
 
3,810

Mortgage-backed: (1)
 
 
 
 
 
 
 
Mortgage-backed securities
280,679

 
5,983

 
(2,529
)
 
284,133

Collateralized mortgage obligations
45,299

 
435

 
(276
)
 
45,458

Equity securities
48,717

 
5,979

 
(250
)
 
54,446

Total available-for-sale securities
$
1,711,113

 
$
26,395

 
$
(16,478
)
 
$
1,721,030

Held-to-maturity securities
 
 
 
 
 
 
 
U.S. Government agencies
$

 
$

 
$

 
$

Municipal

 

 

 

Total held-to-maturity securities
$

 
$

 
$

 
$

(1)
Consisting entirely of residential mortgage-backed securities, none of which are subprime.


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Table of Contents

In the fourth quarter of 2015, the Company transferred $862.7 million of investment securities with an unrealized loss of $14.4 million from the available-for-sale classification to the held-to-maturity classification. No investment securities were transferred from the available-for-sale classification to the held-to-maturity classification in the first quarter of 2016.

The following table presents the portion of the Company’s available-for-sale and held-to-maturity securities portfolios which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at March 31, 2016:
 
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
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
75,049

 
$
(38
)
 
$

 
$

 
$
75,049

 
$
(38
)
U.S. Government agencies
13,982

 
(10
)
 
1,833

 
(2
)
 
15,815

 
(12
)
Municipal
18,399

 
(40
)
 
6,977

 
(184
)
 
25,376

 
(224
)
Corporate notes:
 
 
 
 
 
 
 
 
 
 
 
Financial issuers
22,952

 
(237
)
 
34,367

 
(1,593
)
 
57,319

 
(1,830
)
Other

 

 

 

 

 

Mortgage-backed:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
2,038

 
(3
)
 
122,371

 
(1,897
)
 
124,409

 
(1,900
)
Collateralized mortgage obligations
4,880

 
(42
)
 
7,803

 
(156
)
 
12,683

 
(198
)
Equity securities
3,964

 
(55
)
 
8,599

 
(313
)
 
12,563

 
(368
)
Total available-for-sale securities
$
141,264

 
$
(425
)
 
$
181,950

 
$
(4,145
)
 
$
323,214

 
$
(4,570
)
Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies
$
208,405

 
$
(1,455
)
 
$

 
$

 
$
208,405

 
$
(1,455
)
Municipal
15,919

 
(125
)
 
4,917

 
(32
)
 
20,836

 
(157
)
Total held-to-maturity securities
$
224,324

 
$
(1,580
)
 
$
4,917

 
$
(32
)
 
$
229,241

 
$
(1,612
)

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 March 31, 2016 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 notes and mortgage-backed securities. Unrealized losses recognized on corporate notes and mortgage-backed securities are the result of increases in yields for similar types of securities.

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 March 31,
(Dollars in thousands)
2016
 
2015
Realized gains
$
2,550

 
$
553

Realized losses
(1,225
)
 
(29
)
Net realized gains
$
1,325

 
$
524

Other than temporary impairment charges

 

Gains on available-for-sale securities, net
$
1,325

 
$
524

Proceeds from sales of available-for-sale securities
$
3,201

 
$
635,532


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Table of Contents

The amortized cost and fair value of securities as of March 31, 2016, December 31, 2015 and March 31, 2015, 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:
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
(Dollars in thousands)
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
$
208,518

 
$
208,641

 
$
160,856

 
$
160,756

 
$
151,585

 
$
151,854

Due in one to five years
158,668

 
158,804

 
166,550

 
166,468

 
249,861

 
250,483

Due in five to ten years
28,970

 
31,363

 
228,652

 
225,699

 
837,926

 
836,598

Due after ten years
13,674

 
13,861

 
13,753

 
14,182

 
97,046

 
98,058

Mortgage-backed
300,674

 
302,695

 
1,110,101

 
1,092,597

 
325,978

 
329,591

Equity securities
51,402

 
55,619

 
51,380

 
56,686

 
48,717

 
54,446

Total available-for-sale securities
$
761,906

 
$
770,983

 
$
1,731,292

 
$
1,716,388

 
$
1,711,113

 
$
1,721,030

Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
$

 
$

 
$

 
$

 
$

 
$

Due in one to five years
24,319

 
24,448

 
19,208

 
19,156

 

 

Due in five to ten years
65,879

 
66,432

 
96,454

 
96,091

 

 

Due after ten years
821,517

 
833,464

 
769,164

 
762,864

 

 

Total held-to-maturity securities
$
911,715

 
$
924,344

 
$
884,826

 
$
878,111

 
$

 
$

Securities having a fair value of $1.2 billion at March 31, 2016 as well as securities having a carrying value of $1.2 billion and $1.1 billion at December 31, 2015 and March 31, 2015, respectively, were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At March 31, 2016, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.

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Table of Contents

(6) Loans

The following table shows the Company’s loan portfolio by category as of the dates shown:
 
March 31,
 
December 31,
 
March 31,
(Dollars in thousands)
2016
 
2015
 
2015
Balance:
 
 
 
 
 
Commercial
$
4,890,246

 
$
4,713,909

 
$
4,211,932

Commercial real estate
5,737,959

 
5,529,289

 
4,710,486

Home equity
774,342

 
784,675

 
709,283

Residential real estate
626,043

 
607,451

 
495,925

Premium finance receivables—commercial
2,320,987

 
2,374,921

 
2,319,623

Premium finance receivables—life insurance
2,976,934

 
2,961,496

 
2,375,654

Consumer and other
119,902

 
146,376

 
130,156

Total loans, net of unearned income, excluding covered loans
$
17,446,413

 
$
17,118,117

 
$
14,953,059

Covered loans
138,848

 
148,673

 
209,694

Total loans
$
17,585,261

 
$
17,266,790

 
$
15,162,753

Mix:
 
 
 
 
 
Commercial
28
%
 
27
%
 
28
%
Commercial real estate
32

 
32

 
31

Home equity
4

 
5

 
5

Residential real estate
4

 
3

 
3

Premium finance receivables—commercial
13

 
14

 
15

Premium finance receivables—life insurance
17

 
17

 
16

Consumer and other
1

 
1

 
1

Total loans, net of unearned income, excluding covered loans
99
%
 
99
%
 
99
%
Covered loans
1

 
1

 
1

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 $56.9 million at March 31, 2016, $56.7 million at December 31, 2015 and $48.1 million at March 31, 2015, 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 $(8.9) million at March 31, 2016, $(9.2) million at December 31, 2015 and $(3.7) million at March 31, 2015. The net credit balance at these dates, is primarily the result of purchase accounting adjustments related to acquisitions in 2016 and 2015.

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.

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Table of Contents

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:
 
March 31, 2016
 
December 31, 2015
 
Unpaid
Principal
 
Carrying
 
Unpaid
Principal
 
Carrying
(Dollars in thousands)
Balance
 
Value
 
Balance
 
Value
Bank acquisitions
$
331,354

 
$
276,012

 
$
326,470

 
$
271,260

Life insurance premium finance loans acquisition
299,915

 
296,138

 
372,738

 
368,292


The following table provides estimated details as of the date of acquisition on loans acquired in 2016 with evidence of credit quality deterioration since origination:
(Dollars in thousands)
Foundations
Contractually required payments including interest
$
19,350

Less: Nonaccretable difference
3,640

   Cash flows expected to be collected (1)  
$
15,710

Less: Accretable yield
1,141

    Fair value of PCI loans acquired
$
14,569


(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 March 31, 2016.

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
(Dollars in thousands)
March 31,
2016

March 31,
2015
Accretable yield, beginning balance
$
63,902

 
$
79,102

Acquisitions
1,141

 
898

Accretable yield amortized to interest income
(5,457
)
 
(6,105
)
Accretable yield amortized to indemnification asset (1)
(2,171
)
 
(3,576
)
Reclassification from non-accretable difference (2)
4,193

 
1,103

Decreases in interest cash flows due to payments and changes in interest rates
(2,390
)
 
(1,224
)
Accretable yield, ending balance (3)
$
59,218

 
$
70,198

(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 March 31, 2016, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $4.8 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.

Accretion to interest income accounted for under ASC 310-30 totaled $5.5 million and $6.1 million in the first quarter of 2016 and 2015, respectively. These amounts include accretion from both covered and non-covered loans, and are both included within interest and fees on loans in the Consolidated Statements of Income.

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Table of Contents

(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 March 31, 2016December 31, 2015 and March 31, 2015:
As of March 31, 2016
 
 
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, industrial and other
$
12,370

 
$
338

 
$
3,228

 
$
25,608

 
$
3,363,011

 
$
3,404,555

Franchise

 

 

 
1,400

 
273,158

 
274,558

Mortgage warehouse lines of credit

 

 

 
1,491

 
192,244

 
193,735

Asset-based lending
3

 

 
117

 
10,597

 
737,184

 
747,901

Leases

 

 

 
5,177

 
244,241

 
249,418

PCI - commercial (1)

 
1,893

 

 
128

 
18,058

 
20,079

Total commercial
12,373

 
2,231

 
3,345

 
44,401

 
4,827,896

 
4,890,246

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Construction
273

 

 

 
2,023

 
389,026

 
391,322

Land
1,746

 

 

 

 
93,834

 
95,580

Office
7,729

 
1,260

 
980

 
12,571

 
865,954

 
888,494

Industrial
10,960

 

 

 
3,935

 
728,061

 
742,956

Retail
1,633

 

 
2,397

 
2,657

 
890,780

 
897,467

Multi-family
287

 

 
655

 
2,047

 
760,084

 
763,073

Mixed use and other
4,368

 

 
187

 
12,312

 
1,778,850

 
1,795,717

PCI - commercial real estate (1)

 
24,738

 
1,573

 
10,344

 
126,695

 
163,350

Total commercial real estate
26,996

 
25,998

 
5,792

 
45,889

 
5,633,284

 
5,737,959

Home equity
9,365

 

 
791

 
4,474

 
759,712

 
774,342

Residential real estate, including PCI
11,964

 
406

 
193

 
10,108

 
603,372

 
626,043

Premium finance receivables
 
 
 
 
 
 
 
 
 
 
 
Commercial insurance loans
15,350

 
9,548

 
5,583

 
15,086

 
2,275,420

 
2,320,987

Life insurance loans

 
1,641

 
3,432

 
198

 
2,675,525

 
2,680,796

PCI - life insurance loans (1)

 

 

 

 
296,138

 
296,138

Consumer and other, including PCI
484

 
245

 
118

 
364

 
118,691

 
119,902

Total loans, net of unearned income, excluding covered loans
$
76,532

 
$
40,069

 
$
19,254

 
$
120,520

 
$
17,190,038

 
$
17,446,413

Covered loans
5,324

 
7,995

 
349

 
6,491

 
118,689

 
138,848

Total loans, net of unearned income
$
81,856

 
$
48,064

 
$
19,603

 
$
127,011

 
$
17,308,727

 
$
17,585,261

As of December 31, 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