Document
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 June 30, 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):
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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, 51,671,067 shares, as of July 31, 2016
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) | June 30, 2016 | | December 31, 2015 | | June 30, 2015 |
Assets | | | | | |
Cash and due from banks | $ | 267,551 |
| | $ | 271,454 |
| | $ | 248,094 |
|
Federal funds sold and securities purchased under resale agreements | 4,024 |
| | 4,341 |
| | 4,115 |
|
Interest bearing deposits with banks | 693,269 |
| | 607,782 |
| | 591,721 |
|
Available-for-sale securities, at fair value | 637,663 |
| | 1,716,388 |
| | 2,162,061 |
|
Held-to-maturity securities, at amortized cost ($1.0 billion and $878.1 million fair value at June 30, 2016 and December 31, 2015, respectively) | 992,211 |
| | 884,826 |
| | — |
|
Trading account securities | 3,613 |
| | 448 |
| | 1,597 |
|
Federal Home Loan Bank and Federal Reserve Bank stock | 121,319 |
| | 101,581 |
| | 89,818 |
|
Brokerage customer receivables | 26,866 |
| | 27,631 |
| | 29,753 |
|
Mortgage loans held-for-sale | 554,256 |
| | 388,038 |
| | 497,283 |
|
Loans, net of unearned income, excluding covered loans | 18,174,655 |
| | 17,118,117 |
| | 15,513,650 |
|
Covered loans | 105,248 |
| | 148,673 |
| | 193,410 |
|
Total loans | 18,279,903 |
| | 17,266,790 |
| | 15,707,060 |
|
Allowance for loan losses | (114,356 | ) | | (105,400 | ) | | (100,204 | ) |
Allowance for covered loan losses | (2,412 | ) | | (3,026 | ) | | (2,215 | ) |
Net loans | 18,163,135 |
| | 17,158,364 |
| | 15,604,641 |
|
Premises and equipment, net | 595,792 |
| | 592,256 |
| | 571,498 |
|
Lease investments, net | 103,749 |
| | 63,170 |
| | 13,447 |
|
FDIC indemnification asset | — |
| | — |
| | 3,429 |
|
Accrued interest receivable and other assets | 670,014 |
| | 597,099 |
| | 533,175 |
|
Trade date securities receivable | 1,079,238 |
| | — |
| | — |
|
Goodwill | 486,095 |
| | 471,761 |
| | 421,646 |
|
Other intangible assets | 21,821 |
| | 24,209 |
| | 17,924 |
|
Total assets | $ | 24,420,616 |
| | $ | 22,909,348 |
| | $ | 20,790,202 |
|
Liabilities and Shareholders’ Equity | | | | | |
Deposits: | | | | | |
Non-interest bearing | $ | 5,367,672 |
| | $ | 4,836,420 |
| | $ | 3,910,310 |
|
Interest bearing | 14,674,078 |
| | 13,803,214 |
| | 13,172,108 |
|
Total deposits | 20,041,750 |
| | 18,639,634 |
| | 17,082,418 |
|
Federal Home Loan Bank advances | 588,055 |
| | 853,431 |
| | 435,721 |
|
Other borrowings | 252,611 |
| | 265,785 |
| | 261,674 |
|
Subordinated notes | 138,915 |
| | 138,861 |
| | 138,808 |
|
Junior subordinated debentures | 253,566 |
| | 268,566 |
| | 249,493 |
|
Trade date securities payable | 40,000 |
| | 538 |
| | — |
|
Accrued interest payable and other liabilities | 482,124 |
| | 390,259 |
| | 357,106 |
|
Total liabilities | 21,797,021 |
| | 20,557,074 |
| | 18,525,220 |
|
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 June 30, 2016, 126,287 shares issued and outstanding at December 31, 2015, and 126,312 shares issued and outstanding at June 30, 2015 | 126,257 |
| | 126,287 |
| | 126,312 |
|
Series D - $25 liquidation value; 5,000,000 shares issued and outstanding at June 30, 2016, December 31, 2015 and June 30, 2015 | 125,000 |
| | 125,000 |
| | 125,000 |
|
Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at June 30, 2016, December 31, 2015 and June 30, 2015; 51,708,585 shares issued at June 30, 2016, 48,468,894 shares issued at December 31, 2015 and 47,762,681 shares issued at June 30, 2015 | 51,708 |
| | 48,469 |
| | 47,763 |
|
Surplus | 1,350,751 |
| | 1,190,988 |
| | 1,159,052 |
|
Treasury stock, at cost, 89,430 shares at June 30, 2016, 85,615 shares at December 31, 2015, and 85,424 shares at June 30, 2015 | (4,145 | ) | | (3,973 | ) | | (3,964 | ) |
Retained earnings | 1,008,464 |
| | 928,211 |
| | 872,690 |
|
Accumulated other comprehensive loss | (34,440 | ) | | (62,708 | ) | | (61,871 | ) |
Total shareholders’ equity | 2,623,595 |
| | 2,352,274 |
| | 2,264,982 |
|
Total liabilities and shareholders’ equity | $ | 24,420,616 |
| | $ | 22,909,348 |
| | $ | 20,790,202 |
|
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
(In thousands, except per share data) | June 30, 2016 | | June 30, 2015 | | June 30, 2016 | | June 30, 2015 |
Interest income | | | | | | | |
Interest and fees on loans | $ | 178,530 |
| | $ | 159,823 |
| | $ | 351,657 |
| | $ | 314,499 |
|
Interest bearing deposits with banks | 793 |
| | 305 |
| | 1,539 |
| | 621 |
|
Federal funds sold and securities purchased under resale agreements | 1 |
| | 1 |
| | 2 |
| | 3 |
|
Investment securities | 16,398 |
| | 14,071 |
| | 33,588 |
| | 28,471 |
|
Trading account securities | 14 |
| | 51 |
| | 25 |
| | 64 |
|
Federal Home Loan Bank and Federal Reserve Bank stock | 1,112 |
| | 785 |
| | 2,049 |
| | 1,554 |
|
Brokerage customer receivables | 216 |
| | 205 |
| | 435 |
| | 386 |
|
Total interest income | 197,064 |
| | 175,241 |
| | 389,295 |
| | 345,598 |
|
Interest expense | | | | | | | |
Interest on deposits | 13,594 |
| | 11,996 |
| | 26,375 |
| | 23,810 |
|
Interest on Federal Home Loan Bank advances | 2,984 |
| | 1,812 |
| | 5,870 |
| | 3,968 |
|
Interest on other borrowings | 1,086 |
| | 787 |
| | 2,144 |
| | 1,575 |
|
Interest on subordinated notes | 1,777 |
| | 1,777 |
| | 3,554 |
| | 3,552 |
|
Interest on junior subordinated debentures | 2,353 |
| | 1,977 |
| | 4,573 |
| | 3,910 |
|
Total interest expense | 21,794 |
| | 18,349 |
| | 42,516 |
| | 36,815 |
|
Net interest income | 175,270 |
| | 156,892 |
| | 346,779 |
| | 308,783 |
|
Provision for credit losses | 9,129 |
| | 9,482 |
| | 17,163 |
| | 15,561 |
|
Net interest income after provision for credit losses | 166,141 |
| | 147,410 |
| | 329,616 |
| | 293,222 |
|
Non-interest income | | | | | | | |
Wealth management | 18,852 |
| | 18,476 |
| | 37,172 |
| | 36,576 |
|
Mortgage banking | 36,807 |
| | 36,007 |
| | 58,542 |
| | 63,807 |
|
Service charges on deposit accounts | 7,726 |
| | 6,474 |
| | 15,132 |
| | 12,771 |
|
Gains (losses) on investment securities, net | 1,440 |
| | (24 | ) | | 2,765 |
| | 500 |
|
Fees from covered call options | 4,649 |
| | 4,565 |
| | 6,361 |
| | 8,925 |
|
Trading (losses) gains, net | (316 | ) | | 160 |
| | (484 | ) | | (317 | ) |
Operating lease income, net | 4,005 |
| | 77 |
| | 6,811 |
| | 142 |
|
Other | 11,636 |
| | 11,278 |
| | 27,252 |
| | 19,150 |
|
Total non-interest income | 84,799 |
| | 77,013 |
| | 153,551 |
| | 141,554 |
|
Non-interest expense | | | | | | | |
Salaries and employee benefits | 100,894 |
| | 94,421 |
| | 196,705 |
| | 184,551 |
|
Equipment | 9,307 |
| | 7,855 |
| | 18,074 |
| | 15,634 |
|
Operating lease equipment depreciation | 3,385 |
| | 59 |
| | 5,435 |
| | 116 |
|
Occupancy, net | 11,943 |
| | 11,401 |
| | 23,891 |
| | 23,752 |
|
Data processing | 7,138 |
| | 6,081 |
| | 13,657 |
| | 11,529 |
|
Advertising and marketing | 6,941 |
| | 6,406 |
| | 10,720 |
| | 10,313 |
|
Professional fees | 5,419 |
| | 5,074 |
| | 9,478 |
| | 9,738 |
|
Amortization of other intangible assets | 1,248 |
| | 934 |
| | 2,546 |
| | 1,947 |
|
FDIC insurance | 4,040 |
| | 3,047 |
| | 7,653 |
| | 6,034 |
|
OREO expense, net | 1,348 |
| | 841 |
| | 1,908 |
| | 2,252 |
|
Other | 19,306 |
| | 18,178 |
| | 34,632 |
| | 35,749 |
|
Total non-interest expense | 170,969 |
| | 154,297 |
| | 324,699 |
| | 301,615 |
|
Income before taxes | 79,971 |
| | 70,126 |
| | 158,468 |
| | 133,161 |
|
Income tax expense | 29,930 |
| | 26,295 |
| | 59,316 |
| | 50,278 |
|
Net income | $ | 50,041 |
| | $ | 43,831 |
| | $ | 99,152 |
| | $ | 82,883 |
|
Preferred stock dividends and discount accretion | 3,628 |
| | 1,580 |
| | 7,256 |
| | 3,161 |
|
Net income applicable to common shares | $ | 46,413 |
| | $ | 42,251 |
| | $ | 91,896 |
| | $ | 79,722 |
|
Net income per common share—Basic | $ | 0.94 |
| | $ | 0.89 |
| | $ | 1.88 |
| | $ | 1.68 |
|
Net income per common share—Diluted | $ | 0.90 |
| | $ | 0.85 |
| | $ | 1.80 |
| | $ | 1.61 |
|
Cash dividends declared per common share | $ | 0.12 |
| | $ | 0.11 |
| | $ | 0.24 |
| | $ | 0.22 |
|
Weighted average common shares outstanding | 49,140 |
| | 47,567 |
| | 48,794 |
| | 47,404 |
|
Dilutive potential common shares | 3,965 |
| | 4,156 |
| | 3,887 |
| | 4,220 |
|
Average common shares and dilutive common shares | 53,105 |
| | 51,723 |
| | 52,681 |
| | 51,624 |
|
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
(In thousands) | June 30, 2016 | | June 30, 2015 | | June 30, 2016 | | June 30, 2015 |
Net income | $ | 50,041 |
| | $ | 43,831 |
| | $ | 99,152 |
| | $ | 82,883 |
|
Unrealized gains (losses) on securities | | | | | | | |
Before tax | 5,968 |
| | (53,400 | ) | | 31,144 |
| | (27,124 | ) |
Tax effect | (2,244 | ) | | 20,959 |
| | (12,232 | ) | | 10,628 |
|
Net of tax | 3,724 |
| | (32,441 | ) | | 18,912 |
| | (16,496 | ) |
Reclassification of net gains (losses) included in net income | | | | | | | |
Before tax | 1,440 |
| | (24 | ) | | 2,765 |
| | 500 |
|
Tax effect | (565 | ) | | 10 |
| | (1,086 | ) | | (196 | ) |
Net of tax | 875 |
| | (14 | ) | | 1,679 |
| | 304 |
|
Reclassification of amortization of unrealized losses on investment securities transferred to held-to-maturity from available-for-sale | | | | | | | |
Before tax | (3,832 | ) | | — |
| | (7,257 | ) | | — |
|
Tax effect | 1,506 |
| | — |
| | 2,845 |
| | — |
|
Net of tax | (2,326 | ) | | — |
| | (4,412 | ) | | — |
|
Net unrealized gains (losses) on securities | 5,175 |
| | (32,427 | ) | | 21,645 |
| | (16,800 | ) |
Unrealized (losses) gains on derivative instruments | | | | | | | |
Before tax | (523 | ) | | 215 |
| | (45 | ) | | (346 | ) |
Tax effect | 206 |
| | (84 | ) | | 18 |
| | 136 |
|
Net unrealized (losses) gains on derivative instruments | (317 | ) | | 131 |
| | (27 | ) | | (210 | ) |
Foreign currency adjustment | | | | | | | |
Before tax | 856 |
| | 2,072 |
| | 9,203 |
| | (10,218 | ) |
Tax effect | (244 | ) | | (556 | ) | | (2,553 | ) | | 2,689 |
|
Net foreign currency adjustment | 612 |
| | 1,516 |
| | 6,650 |
| | (7,529 | ) |
Total other comprehensive income (loss) | 5,470 |
| | (30,780 | ) | | 28,268 |
| | (24,539 | ) |
Comprehensive income | $ | 55,511 |
| | $ | 13,051 |
| | $ | 127,420 |
| | $ | 58,344 |
|
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, 2015 | $ | 126,467 |
| | $ | 46,881 |
| | $ | 1,133,955 |
| | $ | (3,549 | ) | | $ | 803,400 |
| | $ | (37,332 | ) | | $ | 2,069,822 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 82,883 |
| | — |
| | 82,883 |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (24,539 | ) | | (24,539 | ) |
Cash dividends declared on common stock | — |
| | — |
| | — |
| | — |
| | (10,432 | ) | | — |
| | (10,432 | ) |
Dividends on preferred stock | — |
| | — |
| | — |
| | — |
| | (3,161 | ) | | — |
| | (3,161 | ) |
Stock-based compensation | — |
| | — |
| | 5,286 |
| | — |
| | — |
| | — |
| | 5,286 |
|
Issuance of Series D preferred stock | 125,000 |
| | — |
| | (3,849 | ) | | — |
| | — |
| | — |
| | 121,151 |
|
Conversion of Series C preferred stock to common stock | (155 | ) | | 4 |
| | 151 |
| | — |
| | — |
| | — |
| | — |
|
Common stock issued for: | | | | | | | | | | | | | |
Acquisitions | — |
| | 422 |
| | 18,749 |
| | — |
| | — |
| | — |
| | 19,171 |
|
Exercise of stock options and warrants | — |
| | 312 |
| | 2,266 |
| | (130 | ) | | — |
| | — |
| | 2,448 |
|
Restricted stock awards | — |
| | 93 |
| | 352 |
| | (285 | ) | | — |
| | — |
| | 160 |
|
Employee stock purchase plan | — |
| | 31 |
| | 1,360 |
| | — |
| | — |
| | — |
| | 1,391 |
|
Director compensation plan | — |
| | 20 |
| | 782 |
| | — |
| | — |
| | — |
| | 802 |
|
Balance at June 30, 2015 | $ | 251,312 |
| | $ | 47,763 |
| | $ | 1,159,052 |
| | $ | (3,964 | ) | | $ | 872,690 |
| | $ | (61,871 | ) | | $ | 2,264,982 |
|
Balance at January 1, 2016 | $ | 251,287 |
| | $ | 48,469 |
| | $ | 1,190,988 |
| | $ | (3,973 | ) | | $ | 928,211 |
| | $ | (62,708 | ) | | $ | 2,352,274 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 99,152 |
| | — |
| | 99,152 |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 28,268 |
| | 28,268 |
|
Cash dividends declared on common stock | — |
| | — |
| | — |
| | — |
| | (11,643 | ) | | — |
| | (11,643 | ) |
Dividends on preferred stock | — |
| | — |
| | — |
| | — |
| | (7,256 | ) | | — |
| | (7,256 | ) |
Stock-based compensation | — |
| | — |
| | 4,752 |
| | — |
| | — |
| | — |
| | 4,752 |
|
Conversion of Series C preferred stock to common stock | (30 | ) | | 1 |
| | 29 |
| | — |
| | — |
| | — |
| | — |
|
Common stock issued for: | | | | | | | | | | | | | |
New issuance, net of costs | — |
| | 3,000 |
| | 149,823 |
| | — |
| | — |
| | — |
| | 152,823 |
|
Exercise of stock options and warrants | — |
| | 97 |
| | 2,991 |
| | — |
| | — |
| | — |
| | 3,088 |
|
Restricted stock awards | — |
| | 87 |
| | 114 |
| | (172 | ) | | — |
| | — |
| | 29 |
|
Employee stock purchase plan | — |
| | 29 |
| | 1,270 |
| | — |
| | — |
| | — |
| | 1,299 |
|
Director compensation plan | — |
| | 25 |
| | 784 |
| | — |
| | — |
| | — |
| | 809 |
|
Balance at June 30, 2016 | $ | 251,257 |
| | $ | 51,708 |
| | $ | 1,350,751 |
| | $ | (4,145 | ) | | $ | 1,008,464 |
| | $ | (34,440 | ) | | $ | 2,623,595 |
|
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| | | | | | | |
| Six Months Ended |
(In thousands) | June 30, 2016 | | June 30, 2015 |
Operating Activities: | | | |
Net income | $ | 99,152 |
| | $ | 82,883 |
|
Adjustments to reconcile net income to net cash used for operating activities | | | |
Provision for credit losses | 17,163 |
| | 15,561 |
|
Depreciation, amortization and accretion, net | 27,296 |
| | 17,908 |
|
Stock-based compensation expense | 4,752 |
| | 5,286 |
|
Excess tax benefits from stock-based compensation arrangements | (267 | ) | | (476 | ) |
Net amortization of premium on securities | 1,840 |
| | 205 |
|
Accretion of discount on loans | (15,849 | ) | | (15,887 | ) |
Mortgage servicing rights fair value change, net | (4,291 | ) | | 258 |
|
Originations and purchases of mortgage loans held-for-sale | (1,948,890 | ) | | (2,121,237 | ) |
Proceeds from sales of mortgage loans held-for-sale | 1,825,686 |
| | 2,034,173 |
|
Bank owned life insurance, net of claims | (1,729 | ) | | (1,470 | ) |
Increase in trading securities, net | (3,165 | ) | | (391 | ) |
Net decrease (increase) in brokerage customer receivables | 765 |
| | (5,532 | ) |
Gains on mortgage loans sold | (43,014 | ) | | (58,929 | ) |
Gains on investment securities, net | (2,765 | ) | | (500 | ) |
Gains on early extinguishment of debt | (4,305 | ) | | — |
|
Losses on sales of premises and equipment, net | 3 |
| | 403 |
|
Net losses on sales and fair value adjustments of other real estate owned | 322 |
| | 430 |
|
Increase in accrued interest receivable and other assets, net | (116,118 | ) | | (42,642 | ) |
Increase in accrued interest payable and other liabilities, net | 70,756 |
| | 17,757 |
|
Net Cash Used for Operating Activities | (92,658 | ) | | (72,200 | ) |
Investing Activities: | | | |
Proceeds from maturities of available-for-sale securities | 529,463 |
| | 335,286 |
|
Proceeds from maturities of held-to-maturity securities | 319 |
| | — |
|
Proceeds from sales and calls of available-for-sale securities | 1,071,996 |
| | 1,134,033 |
|
Proceeds from calls of held-to-maturity securities | 281,981 |
| | — |
|
Purchases of available-for-sale securities | (1,526,467 | ) | | (1,353,356 | ) |
Purchases of held-to-maturity securities | (350,078 | ) | | — |
|
(Purchase) redemption of Federal Home Loan Bank and Federal Reserve Bank stock, net | (19,738 | ) | | 1,764 |
|
Net cash (paid) received for acquisitions | (18,133 | ) | | 12,004 |
|
Proceeds from sales of other real estate owned | 19,455 |
| | 24,444 |
|
Proceeds received from the FDIC related to reimbursements on covered assets | 420 |
| | 150 |
|
Net (increase) decrease in interest bearing deposits with banks | (81,250 | ) | | 406,784 |
|
Net increase in loans | (942,958 | ) | | (949,907 | ) |
Redemption of bank owned life insurance | 659 |
| | 2,701 |
|
Purchases of premises and equipment, net | (24,235 | ) | | (25,478 | ) |
Net Cash Used for Investing Activities | (1,058,566 | ) | | (411,575 | ) |
Financing Activities: | | | |
Increase in deposit accounts | 1,302,188 |
| | 630,785 |
|
(Decrease) increase in other borrowings, net | (13,249 | ) | | 54,645 |
|
Decrease in Federal Home Loan Bank advances, net | (271,025 | ) | | (293,584 | ) |
Proceeds from the issuance of common stock, net | 152,823 |
| | — |
|
Proceeds from the issuance of preferred stock, net | — |
| | 121,151 |
|
Redemption of junior subordinated debentures, net | (10,695 | ) | | — |
|
Excess tax benefits from stock-based compensation arrangements | 267 |
| | 476 |
|
Issuance of common shares resulting from the exercise of stock options and the employee stock purchase plan | 5,766 |
| | 5,812 |
|
Common stock repurchases | (172 | ) | | (415 | ) |
Dividends paid | (18,899 | ) | | (13,593 | ) |
Net Cash Provided by Financing Activities | 1,147,004 |
| | 505,277 |
|
Net (Decrease) Increase in Cash and Cash Equivalents | (4,220 | ) | | 21,502 |
|
Cash and Cash Equivalents at Beginning of Period | 275,795 |
| | 230,707 |
|
Cash and Cash Equivalents at End of Period | $ | 271,575 |
| | $ | 252,209 |
|
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, 2015 (“2015 Form 10-K”). Operating results reported for the three-month and six-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.
The FASB has continued to issue various Updates to clarify and improve specific areas of ASU No. 2014-09. 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. 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. In May 2016, the FASB issued ASU No. 2016-11, "Revenue Recognition (Topic 605) and Derivative and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting," to remove certain areas of SEC Staff Guidance from those specific Topics. Additionally, in May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients," to clarify specific aspects of implementation, including the collectibility criterion, exclusion of sale taxes collected from a transaction price, noncash consideration, contract modifications and completed contracts at transition. 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 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 June 30, 2015, the Company reclassified as a direct reduction to the related debt balance $7.8 million and $9.7 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 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.
Allowance for Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," to replace the current incurred loss methodology for recognizing credit losses, which delays recognition until it is probable a loss has been incurred, with a methodology that reflects an estimate of all expected credit losses and considers additional reasonable and supportable forecasted information when determining credit loss estimates. This impacts the calculation of the allowance for credit losses for all financial assets measured under the amortized cost basis, including purchased credit impaired ("PCI") loans at the time of and subsequent to acquisition. Additionally, credit losses related to available-for-sale debt securities would be recorded through the allowance for credit losses and not as a direct adjustment to the amortized cost of
the securities. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is to be applied under a modified retrospective approach. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements as well as the impact on current systems and processes.
(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 $131.0 million, including approximately $67.5 million of loans, and assumed deposits with a fair value of approximately $100.2 million. Additionally, the Company recorded goodwill of $11.4 million on the acquisition.
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.
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 or liability 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 or reduce the FDIC indemnification liability. 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 | | Six Months Ended |
(Dollars in thousands) | June 30, 2016 | | June 30, 2015 | | June 30, 2016 | | June 30, 2015 |
Balance at beginning of period | $ | (10,029 | ) | | $ | 10,224 |
| | $ | (6,100 | ) | | $ | 11,846 |
|
Additions from acquisitions | — |
| | — |
| | — |
| | — |
|
Additions from reimbursable expenses | 649 |
| | 934 |
| | 731 |
| | 2,509 |
|
Amortization | (92 | ) | | (1,206 | ) | | (193 | ) | | (2,466 | ) |
Changes in expected reimbursements from the FDIC for changes in expected credit losses | (2,200 | ) | | (4,317 | ) | | (5,747 | ) | | (8,310 | ) |
(Payments received from) provided to the FDIC | (57 | ) | | (2,206 | ) | | (420 | ) | | (150 | ) |
Balance at end of period | $ | (11,729 | ) | | $ | 3,429 |
| | $ | (11,729 | ) | | $ | 3,429 |
|
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.
(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:
|
| | | | | | | | | | | | | | | |
| June 30, 2016 |
(Dollars in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available-for-sale securities | | | | | | | |
U.S. Treasury | $ | 122,296 |
| | $ | 35 |
| | $ | (1 | ) | | $ | 122,330 |
|
U.S. Government agencies | 69,678 |
| | 238 |
| | — |
| | 69,916 |
|
Municipal | 108,179 |
| | 3,588 |
| | (127 | ) | | 111,640 |
|
Corporate notes: | | | | | | | |
Financial issuers | 68,097 |
| | 1,502 |
| | (1,411 | ) | | 68,188 |
|
Other | 1,500 |
| | 2 |
| | — |
| | 1,502 |
|
Mortgage-backed: (1) | | | | | | | |
Mortgage-backed securities | 162,593 |
| | 4,280 |
| | (150 | ) | | 166,723 |
|
Collateralized mortgage obligations | 40,419 |
| | 457 |
| | (91 | ) | | 40,785 |
|
Equity securities | 51,426 |
| | 5,544 |
| | (391 | ) | | 56,579 |
|
Total available-for-sale securities | $ | 624,188 |
| | $ | 15,646 |
| | $ | (2,171 | ) | | $ | 637,663 |
|
Held-to-maturity securities | | | | | | | |
U.S. Government agencies | $ | 789,482 |
| | $ | 11,861 |
| | $ | (647 | ) | | $ | 800,696 |
|
Municipal | 202,729 |
| | 6,967 |
| | (213 | ) | | 209,483 |
|
Total held-to-maturity securities | $ | 992,211 |
| | $ | 18,828 |
| | $ | (860 | ) | | $ | 1,010,179 |
|
|
| | | | | | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | | | | | | | | |
| June 30, 2015 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
(Dollars in thousands) | | | |
Available-for-sale securities | | | | | | | |
U.S. Treasury | $ | 288,196 |
| | $ | 138 |
| | $ | (7,173 | ) | | $ | 281,161 |
|
U.S. Government agencies | 651,737 |
| | 2,074 |
| | (25,151 | ) | | 628,660 |
|
Municipal | 269,562 |
| | 4,222 |
| | (3,994 | ) | | 269,790 |
|
Corporate notes: | | | | | | | |
Financial issuers | 124,924 |
| | 1,773 |
| | (1,289 | ) | | 125,408 |
|
Other | 2,726 |
| | 9 |
| | (2 | ) | | 2,733 |
|
Mortgage-backed: (1) | | | | | | | |
Mortgage-backed securities | 777,087 |
| | 4,053 |
| | (23,499 | ) | | 757,641 |
|
Collateralized mortgage obligations | 42,550 |
| | 342 |
| | (432 | ) | | 42,460 |
|
Equity securities | 48,740 |
| | 5,876 |
| | (408 | ) | | 54,208 |
|
Total available-for-sale securities | $ | 2,205,522 |
| | $ | 18,487 |
| | $ | (61,948 | ) | | $ | 2,162,061 |
|
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. |
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 six months 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 June 30, 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 | $ | 2,250 |
| | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | 2,250 |
| | $ | (1 | ) |
U.S. Government agencies | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Municipal | 10,789 |
| | (16 | ) | | 7,701 |
| | (111 | ) | | 18,490 |
| | (127 | ) |
Corporate notes: | | | | | | | | | | | |
Financial issuers | 19,822 |
| | (178 | ) | | 24,727 |
| | (1,233 | ) | | 44,549 |
| | (1,411 | ) |
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Mortgage-backed: | | | | | | | | | | | |
Mortgage-backed securities | — |
| | — |
| | 4,089 |
| | (150 | ) | | 4,089 |
| | (150 | ) |
Collateralized mortgage obligations | 2,528 |
| | (15 | ) | | 6,433 |
| | (76 | ) | | 8,961 |
| | (91 | ) |
Equity securities | 1,897 |
| | (121 | ) | | 8,791 |
| | (270 | ) | | 10,688 |
| | (391 | ) |
Total available-for-sale securities | $ | 37,286 |
| | $ | (331 | ) | | $ | 51,741 |
| | $ | (1,840 | ) | | $ | 89,027 |
| | $ | (2,171 | ) |
Held-to-maturity securities | | | | | | | | | | | |
U.S. Government agencies | $ | 134,808 |
| | $ | (647 | ) | | $ | — |
| | $ | — |
| | $ | 134,808 |
| | $ | (647 | ) |
Municipal | 12,172 |
| | (172 | ) | | 3,313 |
| | (41 | ) | | 15,485 |
| | (213 | ) |
Total held-to-maturity securities | $ | 146,980 |
| | $ | (819 | ) | | $ | 3,313 |
| | $ | (41 | ) | | $ | 150,293 |
| | $ | (860 | ) |
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 June 30, 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 sale or call of investment securities:
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(Dollars in thousands) | 2016 | | 2015 | | 2016 | | 2015 |
Realized gains | $ | 1,487 |
| | $ | 14 |
| | $ | 4,037 |
| | $ | 567 |
|
Realized losses | (47 | ) | | (38 | ) | | (1,272 | ) | | (67 | ) |
Net realized gains (losses) | $ | 1,440 |
| | $ | (24 | ) | | $ | 2,765 |
| | $ | 500 |
|
Other than temporary impairment charges | — |
| | — |
| | — |
| | — |
|
Gains (losses) on investment securities, net | $ | 1,440 |
| | $ | (24 | ) | | $ | 2,765 |
| | $ | 500 |
|
Proceeds from sales and calls of available-for-sale securities | $ | 1,068,795 |
| | $ | 498,501 |
| | $ | 1,071,996 |
| | $ | 1,134,033 |
|
Proceeds from calls of held-to-maturity securities | 183,738 |
| | — |
| | 281,981 |
| | — |
|
The amortized cost and fair value of securities as of June 30, 2016, December 31, 2015 and June 30, 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:
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| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 | | June 30, 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 | $ | 214,917 |
| | $ | 215,290 |
| | $ | 160,856 |
| | $ | 160,756 |
| | $ | 141,792 |
| | $ | 141,897 |
|
Due in one to five years | 113,263 |
| | 113,395 |
| | 166,550 |
| | 166,468 |
| | 261,285 |
| | 261,146 |
|
Due in five to ten years | 28,111 |
| | 30,870 |
| | 228,652 |
| | 225,699 |
| | 291,451 |
| | 285,192 |
|
Due after ten years | 13,459 |
| | 14,021 |
| | 13,753 |
| | 14,182 |
| | 642,617 |
| | 619,517 |
|
Mortgage-backed | 203,012 |
| | 207,508 |
| | 1,110,101 |
| | 1,092,597 |
| | 819,637 |
| | 800,101 |
|
Equity securities | 51,426 |
| | 56,579 |
| | 51,380 |
| | 56,686 |
| | 48,740 |
| | 54,208 |
|
Total available-for-sale securities | $ | 624,188 |
| | $ | 637,663 |
| | $ | 1,731,292 |
| | $ | 1,716,388 |
| | $ | 2,205,522 |
| | $ | 2,162,061 |
|
Held-to-maturity securities | | | | | | | | | | | |
Due in one year or less | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Due in one to five years | 27,505 |
| | 27,738 |
| | 19,208 |
| | 19,156 |
| | — |
| | — |
|
Due in five to ten years | 68,691 |
| | 70,121 |
| | 96,454 |
| | 96,091 |
| | — |
| | — |
|
Due after ten years | 896,015 |
| | 912,320 |
| | 769,164 |
| | 762,864 |
| | — |
| | — |
|
Total held-to-maturity securities | $ | 992,211 |
| | $ | 1,010,179 |
| | $ | 884,826 |
| | $ | 878,111 |
| | $ | — |
| | $ | — |
|
Securities having a fair value of $1.4 billion at June 30, 2016 as well as securities having a carrying value of $1.2 billion and $1.1 billion at December 31, 2015 and June 30, 2015, respectively, were pledged as collateral for public deposits, trust deposits, Federal Home Loan Bank ("FHLB") advances, securities sold under repurchase agreements and derivatives. At June 30, 2016, 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:
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| | | | | | | | | | | |
| June 30, | | December 31, | | June 30, |
(Dollars in thousands) | 2016 | | 2015 | | 2015 |
Balance: | | | | | |
Commercial | $ | 5,144,533 |
| | $ | 4,713,909 |
| | $ | 4,330,344 |
|
Commercial real estate | 5,848,334 |
| | 5,529,289 |
| | 4,850,590 |
|
Home equity | 760,904 |
| | 784,675 |
| | 712,350 |
|
Residential real estate | 653,664 |
| | 607,451 |
| | 503,015 |
|
Premium finance receivables—commercial | 2,478,280 |
| | 2,374,921 |
| | 2,460,408 |
|
Premium finance receivables—life insurance | 3,161,562 |
| | 2,961,496 |
| | 2,537,475 |
|
Consumer and other | 127,378 |
| | 146,376 |
| | 119,468 |
|
Total loans, net of unearned income, excluding covered loans | $ | 18,174,655 |
| | $ | 17,118,117 |
| | $ | 15,513,650 |
|
Covered loans | 105,248 |
| | 148,673 |
| | 193,410 |
|
Total loans | $ | 18,279,903 |
| | $ | 17,266,790 |
| | $ | 15,707,060 |
|
Mix: | | | | | |
Commercial | 28 | % | | 27 | % | | 27 | % |
Commercial real estate | 31 |
| | 32 |
| | 31 |
|
Home equity | 4 |
| | 5 |
| | 5 |
|
Residential real estate | 4 |
| | 3 |
| | 3 |
|
Premium finance receivables—commercial | 14 |
| | 14 |
| | 16 |
|
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 $64.1 million at June 30, 2016, $56.7 million at December 31, 2015 and $53.7 million at June 30, 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 $(5.0) million at June 30, 2016, $(9.2) million at December 31, 2015 and $1.7 million at June 30, 2015. The net credit balance at June 30, 2016 and December 31, 2015, 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.
Acquired Loan Information at Acquisition—PCI Loans
As part of the Company's previous acquisitions, the Company 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:
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| | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Unpaid Principal | | Carrying | | Unpaid Principal | | Carrying |
(Dollars in thousands) | Balance | | Value | | Balance | | Value |
Bank acquisitions | $ | 306,706 |
| | $ | 256,083 |
| | $ | 326,470 |
| | $ | 271,260 |
|
Life insurance premium finance loans acquisition | 295,337 |
| | 291,602 |
| | 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 | $ | 20,100 |
|
Less: Nonaccretable difference | 3,728 |
|
Cash flows expected to be collected (1) | $ | 16,372 |
|
Less: Accretable yield | 1,266 |
|
Fair value of PCI loans acquired | $ | 15,106 |
|
(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 June 30, 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: