Edgar Filing: WINTRUST FINANCIAL CORP

Document

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, 2018



¨	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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth 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	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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, 56,282,928 shares, as of April 30, 2018

Table of Contents

TABLE OF CONTENTS



		Page
	PART I. — FINANCIAL INFORMATION
ITEM 1.	Financial Statements	1
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	55
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	90
ITEM 4.	Controls and Procedures	92
	PART II. — OTHER INFORMATION
ITEM 1.	Legal Proceedings	93
ITEM 1A.	Risk Factors	93
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	94
ITEM 3.	Defaults Upon Senior Securities	NA
ITEM 4.	Mine Safety Disclosures	NA
ITEM 5.	Other Information	NA
ITEM 6.	Exhibits	94
	Signatures	95

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, 2018			December 31, 2017			March 31, 2017
Assets
Cash and due from banks	$	231,407		$	277,534		$	214,102
Federal funds sold and securities purchased under resale agreements	57			57			3,046
Interest bearing deposits with banks	980,380			1,063,242			1,007,468
Available-for-sale securities, at fair value	1,895,688			1,803,666			1,803,733
Held-to-maturity securities, at amortized cost ($862.5 million, $812.5 million and $647.9 million fair value at March 31, 2018, December 31, 2017 and March 31, 2017 respectively)	892,937			826,449			667,764
Trading account securities	1,682			995			714
Equity securities with readily determinable fair value	37,832			—			—
Federal Home Loan Bank and Federal Reserve Bank stock	104,956			89,989			78,904
Brokerage customer receivables	24,531			26,431			23,171
Mortgage loans held-for-sale, at fair value	411,505			313,592			288,964
Loans, net of unearned income, excluding covered loans	22,062,134			21,640,797			19,931,058
Covered loans	—			—			52,359
Total loans	22,062,134			21,640,797			19,983,417
Allowance for loan losses	(139,503		)	(137,905		)	(125,819		)
Allowance for covered loan losses	—			—			(1,319		)
Net loans	21,922,631			21,502,892			19,856,279
Premises and equipment, net	626,687			621,895			598,746
Lease investments, net	190,775			212,335			155,233
Accrued interest receivable and other assets	601,794			567,374			560,741
Trade date securities receivable	—			90,014			—
Goodwill	511,497			501,884			499,341
Other intangible assets	22,413			17,621			20,687
Total assets	$	28,456,772		$	27,915,970		$	25,778,893
Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing	$	6,612,319		$	6,792,497		$	5,790,579
Interest bearing	16,667,008			16,390,850			15,939,862
Total deposits	23,279,327			23,183,347			21,730,441
Federal Home Loan Bank advances	915,000			559,663			227,585
Other borrowings	247,092			266,123			238,787
Subordinated notes	139,111			139,088			138,993
Junior subordinated debentures	253,566			253,566			253,566
Accrued interest payable and other liabilities	591,426			537,244			424,538
Total liabilities	25,425,522			24,939,031			23,013,910
Shareholders’ Equity:
Preferred stock, no par value; 20,000,000 shares authorized:
Series C - $1,000 liquidation value; no shares issued and outstanding at March 31, 2018 and December 31, 2017 and 126,257 shares issued and outstanding at March 31, 2017	—			—			126,257
Series D - $25 liquidation value; 5,000,000 shares issued and outstanding at March 31, 2018, December 31, 2017 and March 31, 2017	125,000			125,000			125,000
Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at March 31, 2018, December 31, 2017 and March 31, 2017; 56,363,786 shares issued at March 31, 2018, 56,068,220 shares issued at December 31, 2017 and 52,605,401 shares issued at March 31, 2017	56,364			56,068			52,605
Surplus	1,540,673			1,529,035			1,381,886
Treasury stock, at cost, 107,288 shares at March 31, 2018, 103,013 shares at December 31, 2017, and 101,738 shares at March 31, 2017	(5,355		)	(4,986		)	(4,884		)
Retained earnings	1,387,663			1,313,657			1,143,943
Accumulated other comprehensive loss	(73,095		)	(41,835		)	(59,824		)
Total shareholders’ equity	3,031,250			2,976,939			2,764,983
Total liabilities and shareholders’ equity	$	28,456,772		$	27,915,970		$	25,778,893

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended
(In thousands, except per share data)	March 31, 2018			March 31, 2017
Interest income
Interest and fees on loans	$	234,994		$	196,916
Mortgage loans held-for-sale	2,818			2,398
Interest bearing deposits with banks	2,796			1,623
Federal funds sold and securities purchased under resale agreements	—			1
Investment securities	19,128			13,573
Trading account securities	14			11
Federal Home Loan Bank and Federal Reserve Bank stock	1,298			1,070
Brokerage customer receivables	157			167
Total interest income	261,205			215,759
Interest expense
Interest on deposits	26,549			16,270
Interest on Federal Home Loan Bank advances	3,639			1,590
Interest on other borrowings	1,699			1,139
Interest on subordinated notes	1,773			1,772
Interest on junior subordinated debentures	2,463			2,408
Total interest expense	36,123			23,179
Net interest income	225,082			192,580
Provision for credit losses	8,346			5,209
Net interest income after provision for credit losses	216,736			187,371
Non-interest income
Wealth management	22,986			20,148
Mortgage banking	30,960			21,938
Service charges on deposit accounts	8,857			8,265
Losses on investment securities, net	(351		)	(55		)
Fees from covered call options	1,597			759
Trading gains (losses), net	103			(320		)
Operating lease income, net	9,691			5,782
Other	11,836			12,248
Total non-interest income	85,679			68,765
Non-interest expense
Salaries and employee benefits	112,436			99,316
Equipment	10,072			9,002
Operating lease equipment depreciation	6,533			4,636
Occupancy, net	13,767			13,101
Data processing	8,493			7,925
Advertising and marketing	8,824			5,150
Professional fees	6,649			4,660
Amortization of other intangible assets	1,004			1,164
FDIC insurance	4,362			4,156
OREO expense, net	2,926			1,665
Other	19,283			17,343
Total non-interest expense	194,349			168,118
Income before taxes	108,066			88,018
Income tax expense	26,085			29,640
Net income	$	81,981		$	58,378
Preferred stock dividends	2,050			3,628
Net income applicable to common shares	$	79,931		$	54,750
Net income per common share—Basic	$	1.42		$	1.05
Net income per common share—Diluted	$	1.40		$	1.00
Cash dividends declared per common share	$	0.19		$	0.14
Weighted average common shares outstanding	56,137			52,267
Dilutive potential common shares	888			4,160
Average common shares and dilutive common shares	57,025			56,427

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Three Months Ended
(In thousands)	March 31, 2018			March 31, 2017
Net income	$	81,981		$	58,378
Unrealized (losses) gains on available-for-sale securities
Before tax	(36,184		)	7,379
Tax effect	9,710			(2,900		)
Net of tax	(26,474		)	4,479
Reclassification of net losses on available-for-sale securities included in net income
Before tax	(975		)	(55		)
Tax effect	262			21
Net of tax	(713		)	(34		)
Reclassification of amortization of unrealized gains and losses on investment securities transferred to held-to-maturity from available-for-sale
Before tax	(4		)	1,428
Tax effect	1			(561		)
Net of tax	(3		)	867
Net unrealized (losses) gains on available-for-sale securities	(25,758		)	3,646
Unrealized gains on derivative instruments
Before tax	3,075			1,615
Tax effect	(826		)	(634		)
Net unrealized gains on derivative instruments	2,249			981
Foreign currency adjustment
Before tax	(3,853		)	1,215
Tax effect	956			(338		)
Net foreign currency adjustment	(2,897		)	877
Total other comprehensive (loss) income	(26,406		)	5,504
Comprehensive income	$	55,575		$	63,882

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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, 2017	$	251,257	$	51,978	$	1,365,781		$	(4,589	)	$	1,096,518		$	(65,328	)	$	2,695,617
Net income	—		—		—			—			58,378			—			58,378
Other comprehensive income, net of tax	—		—		—			—			—			5,504			5,504
Cash dividends declared on common stock	—		—		—			—			(7,325		)	—			(7,325		)
Dividends on preferred stock	—		—		—			—			(3,628		)	—			(3,628		)
Stock-based compensation	—		—		2,918			—			—			—			2,918
Common stock issued for:
Exercise of stock options and warrants	—		512		12,272			—			—			—			12,784
Restricted stock awards	—		74		(74		)	(295		)	—			—			(295		)
Employee stock purchase plan	—		9		615			—			—			—			624
Director compensation plan	—		32		374			—			—			—			406
Balance at March 31, 2017	$	251,257	$	52,605	$	1,381,886		$	(4,884	)	$	1,143,943		$	(59,824	)	$	2,764,983
Balance at January 1, 2018	$	125,000	$	56,068	$	1,529,035		$	(4,986	)	$	1,313,657		$	(41,835	)	$	2,976,939
Cumulative effect adjustment from the adoption of:
Accounting Standards Update (“ASU”) 2016-01	—		—		—			—			1,880			(1,880		)	—
ASU 2017-12	—		—		—			—			(116		)	—			(116		)
ASU 2018-02	—		—		—			—			2,974			(2,974		)	—
Net income	—		—		—			—			81,981			—			81,981
Other comprehensive loss, net of tax	—		—		—			—			—			(26,406		)	(26,406		)
Cash dividends declared on common stock	—		—		—			—			(10,663		)	—			(10,663		)
Dividends on preferred stock	—		—		—			—			(2,050		)	—			(2,050		)
Stock-based compensation	—		—		3,683			—			—			—			3,683
Common stock issued for:
Exercise of stock options and warrants	—		179		7,017			—			—			—			7,196
Restricted stock awards	—		90		(90		)	(369		)	—			—			(369		)
Employee stock purchase plan	—		8		622			—			—			—			630
Director compensation plan	—		19		406			—			—			—			425
Balance at March 31, 2018	$	125,000	$	56,364	$	1,540,673		$	(5,355	)	$	1,387,663		$	(73,095	)	$	3,031,250

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Three Months Ended
(In thousands)	March 31, 2018			March 31, 2017
Operating Activities:
Net income	$	81,981		$	58,378
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses	8,346			5,209
Depreciation, amortization and accretion, net	15,883			14,437
Stock-based compensation expense	3,683			2,918
Net amortization of premium on securities	1,071			1,732
Accretion of discount on loans	(4,927		)	(6,439		)
Mortgage servicing rights fair value change, net	(2,931		)	789
Originations and purchases of mortgage loans held-for-sale	(778,852		)	(722,467		)
Proceeds from sales of mortgage loans held-for-sale	696,336			867,924
Bank owned life insurance ("BOLI") income	(714		)	(985		)
(Increase) decrease in trading securities, net	(687		)	1,275
Net decrease in brokerage customer receivables	1,900			2,010
Gains on mortgage loans sold	(18,917		)	(16,047		)
Losses on investment securities, net	351			55
Losses (gains) on sales of premises and equipment, net	25			(163		)
Net losses on sales and fair value adjustments of other real estate owned	2,387			828
Decrease in accrued interest receivable and other assets, net	4,566			3,635
Increase (decrease) in accrued interest payable and other liabilities, net	12,857			(82,290		)
Net Cash Provided by Operating Activities	22,358			130,799
Investing Activities:
Proceeds from maturities of available-for-sale securities	47,463			43,688
Proceeds from maturities of held-to-maturity securities	129			258
Proceeds from sales and calls of available-for-sale securities	210,891			6,005
Proceeds from calls of held-to-maturity securities	4,141			51,060
Proceeds from sales of equity securities with readily determinable fair value	—			—
Proceeds from sales of equity securities without readily determinable fair value	—			—
Purchases of available-for-sale securities	(333,999		)	(124,227		)
Purchases of held-to-maturity securities	(70,988		)	(84,890		)
Purchases of equity securities with readily determinable fair value	—			—
Purchases of equity securities without readily determinable fair value	(1,801		)	—
(Purchase) redemption of Federal Home Loan Bank and Federal Reserve Bank stock, net	(14,967		)	54,590
Net cash paid in business combinations	(18,708		)	(284		)
Proceeds from sales of other real estate owned	3,679			3,961
Proceeds received from the FDIC related to reimbursements on covered assets	—			386
Net decrease (increase) in interest bearing deposits with banks	81,162			(27,011		)
Net increase in loans	(394,433		)	(219,047		)
Purchases of premises and equipment, net	(11,580		)	(10,823		)
Net Cash Used for Investing Activities	(499,011		)	(306,334		)
Financing Activities:
Increase in deposit accounts	95,988			71,862
Decrease in subordinated notes and other borrowings, net	(15,631		)	(23,732		)
Increase in Federal Home Loan Bank advances, net	355,000			73,000
Cash payments to settle contingent consideration liabilities recognized in business combinations	—			(1,058		)
Issuance of common shares resulting from the exercise of stock options, employee stock purchase plan and conversion of common stock warrants	8,251			13,814
Common stock repurchases for tax withholdings related to stock-based compensation	(369		)	(295		)
Dividends paid	(12,713		)	(10,953		)
Net Cash Provided by Financing Activities	430,526			122,638
Net Decrease in Cash and Cash Equivalents	(46,127		)	(52,897		)
Cash and Cash Equivalents at Beginning of Period	277,591			270,045
Cash and Cash Equivalents at End of Period	$	231,464		$	217,148

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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 unaudited 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, 2017 (“2017 Form 10-K”). Operating results reported for the period 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 2017 Form 10-K.

(2) Recent Accounting Developments

Revenue Recognition

In May 2014, the Financial Accounting Standards Board ("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 resulted in the guidance becoming effective for the Company as of January 1, 2018.

The FASB 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. In May 2016 and December 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” and ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” to clarify specific aspects of implementation, including the collectability criterion, exclusion of sales taxes collected from a transaction price, noncash

Table of Contents

consideration, contract modifications, completed contracts at transition, the applicability of loan guarantee fees, impairment of capitalized contract costs and certain disclosure requirements. In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,” to clarify the implementation guidance within ASU No. 2014-09 surrounding transfers of nonfinancial assets, including partial sales of such assets, and its impact on revenue recognition. Like ASU No. 2014-09, this guidance became effective for the Company starting January 1, 2018.

The Company adopted ASU No. 2014-09 and all subsequent updates issued to clarify and improve specific areas of this ASU as of January 1, 2018. As certain significant revenue sources related to financial instruments such as interest income are considered not in-scope, the new guidance did not have a significant impact on the Company's consolidated financial statements. Revenue sources impacted by the new guidance include brokerage and trust and asset management fees from the wealth management business unit, card-based fees, deposit-related fees and other non-interest income. During implementation, the Company reviewed specific contracts with customers across these various sources of revenue. Reviews of such contracts assisted in identifying any characteristics of such contracts that could result in a change in the Company's current practices for recognition of revenue and recognition of costs incurred to obtain or fulfill such contracts. After review of such contracts, the Company identified no indication within the terms of such contracts that a change in the Company's current practices and accounting policies was necessary. The Company elected to adopt the new guidance using the modified retrospective approach applied to all contracts as of the date of initial application at January 1, 2018. Electing the modified retrospective approach resulted in no cumulative effect adjustment to the opening balance of retained earnings at the date of initial application. Additional disclosures have been added in accordance with the new guidance. See Note 13 – Revenue from Contracts with Customers for discussion of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

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 securities with readily determinable fair values to be measured at fair value with changes recognized in net income. Such equity securities with readily determinable fair values are no longer classified as available-for-sale securities or trading securities within the consolidated financial statements of an entity. For equity securities without a readily determinable fair value, the value of the equity securities may be elected to 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.

The Company adopted this guidance as of January 1, 2018. For equity securities with a readily determinable fair value, this guidance was applied under a modified retrospective approach with a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. As of January 1, 2018, the Company reclassified approximately $1.9 million from accumulated other comprehensive income, related to previously recognized unrealized gains, net of deferred taxes, from equity securities with readily determinable fair values, to retained earnings. Equity securities with readily determinable fair values are now prospectively presented separate from available-for-sale securities and trading securities within the Company's Consolidated Statements of Condition. Additionally, for the three months ended March 31, 2018, the Company recognized $1.0 million of unrealized gains from equity securities with readily determinable fair values directly to earnings. For equity securities without a readily determinable fair value, the Company elected to measure such investments 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, unless a qualitative assessment indicates impairment, which was applied prospectively. Equity securities without readily determinable fair values are included within accrued interest receivable and other assets within the Company's Consolidated Statements of Condition. See Note 5 - Investment Securities for further discussion of equity securities with and without readily determinable fair values.

In January 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” to clarify certain aspects of the guidance issued in ASU No. 2016-01, including aspects of equity securities without a readily determinable fair value. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years beginning after June 15, 2018. Early adoption is permitted. As these clarifications did not have a material impact on the Company's consolidated financial statements, the Company elected to early adopt this guidance as of January 1, 2018.

Table of Contents

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 discounted lease payments over the lease term and a separate lease asset representing the right to use the underlying asset during the same lease term. Further, 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. Additionally, in January 2018, the FASB issued ASU No. 2018-01, "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842," to permit an entity to elect an optional practical expedient to not evaluate under Topic 842 land easements that exist or expired before the entity's adoption of Topic 842 and that were not previously accounted for as leases under existing accounting guidance. 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. Excluding any impact from the clarification of contracts representing a lease, the Company expects to recognize separate lease liabilities and right to use assets for the amounts related to certain facilities under operating lease agreements disclosed in Note 15 - Minimum Lease Commitments in the 2017 Form 10-K. Additionally, the Company does not expect to significantly change operating lease agreements prior to adoption. The Company has established a committee consisting of individuals from various areas of the Company tasked with transitioning the Company to the new guidance requirements. Additionally, the Company has begun obtaining and reviewing lease agreements across its various business units to determine any additional potential impact.

Derivatives

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” to improve the financial reporting of hedging relationships to better align the economic results of an entity’s risk management activities and disclosures within its financial statements. In addition, this ASU makes certain targeted improvements to simplify the application of the hedge accounting, including to derivative instruments as well as allow a one-time election to reclassify fixed-rate, prepayable debt securities from a held-to-maturity classification to an available-for-sale classification. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Guidance related to existing cash flow hedges and, if elected, fair value hedges is to be applied under a modified retrospective approach and guidance related to amended presentation and disclosures is to be applied under a prospective approach.

Early adoption is permitted as of the beginning of an annual period that has not been issued or made available for issuance. The Company elected to early adopt this guidance as of January 1, 2018. See Note 15 - Derivative Financial Instruments for further discussion of early adoption of this guidance. The impact of early adoption on the financial statements included the following:

•

As allowed under the guidance, for certain existing derivative instruments designated as fair value hedges, the Company transitioned the measurement methodology for the related hedged item (loans) to be in accordance with the guidance without dedesignation of the hedging relationship. This resulted in a negative cumulative basis adjustment to loans of $116,000 with a corresponding adjustment to retained earnings.


•	No fixed-rate, prepayable held-to-maturity securities were transferred to an available-for-sale classification.

•

The entire change in the hedging instrument included in the assessment of hedge effectiveness of fair value hedges is presented in the same income statement line as the current impact of the effective portion of such hedge, or interest income and interest expense for interest rate hedging. The Company has previously recognized this ineffectiveness within non-interest income. For the first quarter of 2018, the Company recognized $45,000 of such change in interest income related to hedge effectiveness.

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 an allowance for credit losses for all financial assets measured under the amortized cost basis, including 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.

Table of Contents

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. Specifically, the Company has established a committee consisting of individuals from the various areas of the Company tasked with transitioning to the new requirements. At this time, the Company is reviewing potential methodologies for estimating expected credit losses using reasonable and supportable forecast information, has identified certain historical data and system requirements and has reviewed options for platforms to build, store, execute and review the financial impact.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force),” to clarify the presentation of specific types of cash flow receipts and payments, including the payment of debt prepayment or debt extinguishment costs, contingent consideration cash payments paid subsequent to the acquisition date and proceeds from settlement of BOLI policies. This guidance became effective as of January 1, 2018 and was applied under a retrospective approach resulting in additional disclosure, including cash payments made to settle contingent consideration liabilities recognized in prior business combinations.

In November 2016, the FASB issued ASU No. 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force),” to clarify the classification and presentation of changes in restricted cash on the statement of cash flows. This guidance became effective as of January 1, 2018 and did not have a material impact on the Company.

Income Taxes

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” to improve the accounting for intra-entity transfers of assets other than inventory. This ASU allows the recognition of current and deferred income taxes for such transfers prior to the subsequent sale of the transferred assets to an outside party. Initial recognition of current and deferred income taxes is currently prohibited for intra-entity transfers of assets other than inventory. This guidance became effective as of January 1, 2018 and did not have a material impact on the Company.

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and the Company recognized a provisional tax benefit of $7.6 million in 2017 to reflect the impact of the Tax Act, primarily reflecting estimated effects of a lower federal income tax rate on its net deferred tax liabilities and a transition tax due on the deferred earnings of the Company's Canadian subsidiary. Estimates were made in good faith and may change as additional information and interpretive guidance regarding provisions of the Tax Act become available. Staff Accounting Bulletin 118 provides a measurement period, not to extend beyond one year from the date of enactment, during which a company may complete the accounting for the impacts of the Tax Act. No adjustments were made to the provisional amounts in the first quarter of 2018 and the Company expects to complete the accounting for the impacts of the Tax Act in the fourth quarter of 2018.

Business Combinations

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” to improve such definition and, as a result, assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations. The definition of a business impacts many areas of accounting including acquisitions, disposals, goodwill and consolidation. This guidance became effective as of January 1, 2018 and was applied under a prospective approach. See Note 3 - Business Combinations for further discussion of business combinations including the acquisition of certain assets and assumption of certain liabilities of the mortgage banking business of iFreedom Direct Corporation DBA Veterans First Mortgage ("Veterans First") during the current period.

Goodwill

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” to simplify the subsequent measurement of goodwill. When the carrying amount of a reporting unit exceeds its fair value, an entity would no longer be required to determine goodwill impairment by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit was acquired in a business combination. Goodwill impairment would be recognized according to the excess of the carrying amount of the reporting unit over the calculated fair value of such unit. 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 prospective approach. The Company does not expect this guidance to have a material impact on the Company's consolidated financial statements.

Table of Contents

Compensation

In March 2017, the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” to improve the presentation of net periodic pension cost and net periodic post-retirement benefit cost. An entity will be required to report the service cost component of such costs in the same line item or items as other compensation costs related to services rendered. Additionally, only the service cost component will be eligible for capitalization when applicable. This guidance became effective as of January 1, 2018 and was applied under a retrospective approach related to presentation of the service cost component and a prospective approach related to capitalization of such costs. Adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,” to clarify when modification accounting is appropriate for changes to the terms and conditions of a share-based payment award. An entity will be required to account for such changes as a modification unless certain criteria is met. This guidance became effective as of January 1, 2018 and was applied under a prospective approach for awards modified on or after the adoption date. Adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

Amortization of Premium on Certain Debt Securities

In March 2017, the FASB issued ASU No. 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities,” to amend the amortization period for certain purchased callable debt securities held at a premium. The amortization period for such securities will be shortened to the earliest call date. 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. Early adoption is permitted as of the beginning of an annual period that has not been issued or made available for issuance. The Company did not early adopt this guidance as of January 1, 2018. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

Accumulated Other Comprehensive Income (Loss)

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” to allow a reclassification from accumulated other comprehensive income to retained earnings related to the stranded tax effects within other comprehensive income resulting from the Federal income tax rate reduction in the Tax Act. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to be applied either in the period of adoption or retrospectively to each period or periods in which the effect of the Tax Act is recognized.

Early adoption is permitted as of the beginning of an annual period that has not been issued or made available for issuance. The Company elected to early adopt this guidance as of January 1, 2018 and applied such reclassification in the current period (period of adoption). As of January 1, 2018, the Company reclassified a stranded credit of $3.0 million from accumulated other comprehensive income to retained earnings. The Company has a policy for releasing the income tax effects from accumulated other comprehensive income using an individual security approach.

(3) Business Combinations

FDIC-Assisted Transactions

From 2010 to 2012, 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 comprised the majority of the assets acquired in nearly all of these FDIC-assisted transactions, of which eight such transactions were subject to loss sharing agreements with the FDIC whereby the FDIC 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 required the Company to reimburse the FDIC for actual losses on covered assets that were 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 during periods subject to such agreements.

As of dates subject to such agreements, the loans covered by the loss share agreements were classified and presented as covered loans and the estimated reimbursable losses were 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 only recognized a

Table of Contents

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 covered realized losses on loans, foreclosed real estate and certain other assets and required the Company to record loss share assets and liabilities that were measured separately from the loan portfolios because they were not contractually embedded in the loans and were not transferable with the loans had the Company chosen 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 were recorded as FDIC indemnification assets and other liabilities, respectively, on the Consolidated Statements of Condition as of dates covered by loss share agreements. Subsequent to the acquisition date, reimbursements received from the FDIC for actual incurred losses reduced the FDIC indemnification assets. Reductions to expected losses, to the extent such reductions to expected losses were the result of an improvement to the actual or expected cash flows from the covered assets, also reduced the FDIC indemnification assets and, if necessary, increased any loss share liability when necessary reductions exceeded the current value of the FDIC indemnification assets. In accordance with the clawback provision noted above, the Company was required to reimburse the FDIC when actual losses were less than certain thresholds established for each loss share agreement. The balance of these estimated reimbursements in accordance with clawback provisions and any related amortization were adjusted periodically for changes in the expected losses on covered assets. On the Consolidated Statements of Condition as of dates subject to loss share agreements, estimated reimbursements from clawback provisions were recorded as a reduction to the FDIC indemnification asset or, if necessary, an increase to the loss share liability, which was included within accrued interest payable and other liabilities. In the second quarter of 2017, the Company recorded a $4.9 million reduction to the estimated loss share liability as a result of an adjustment related to such clawback provisions. Although these assets were contractual receivables from the FDIC and these liabilities were contractual payables to the FDIC, there were no contractual interest rates. Additional expected losses, to the extent such expected losses resulted in recognition of an allowance for covered loan losses, increased the FDIC indemnification asset or reduced the FDIC indemnification liability. The corresponding amortization was recorded as a component of non-interest income on the Consolidated Statements of Income during periods covered by loss share agreements.

The following table summarizes the activity in the Company’s FDIC indemnification liability during the period indicated:



	Three Months Ended
(Dollars in thousands)	March 31, 2017
Balance at beginning of period	$	16,701
Reductions from reimbursable expenses	(82		)
Amortization	244
Changes in expected reimbursements from the FDIC for changes in expected credit losses and reimbursable expenses	1,014
Payments received from the FDIC	386
Balance at end of period	$	18,263

On October 16, 2017, the Company entered into agreements with the FDIC that terminate all existing loss share agreements with the FDIC. Under the terms of the agreements, the Company made a net payment of $15.2 million to the FDIC as consideration for the early termination of the loss share agreements. The Company recorded a pre-tax gain of approximately $0.4 million in the fourth quarter of 2017 to write off the remaining loss share asset, relieve the claw-back liability and recognize the payment to the FDIC.

Mortgage Banking Acquisitions

On January 4, 2018, the Company acquired Veterans First. The Company also acquired mortgage-servicing-rights assets from Veterans First on approximately 10,000 loans, totaling an estimated $1.6 billion in unpaid principal balance. The Company recorded goodwill of $10.2 million on the acquisition.

On February 14, 2017, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of American Homestead Mortgage, LLC ("AHM"). The Company recorded goodwill of $999,000 on the acquisition.

Table of Contents

Purchased Credit Impaired ("PCI") Loans

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. For PCI loans, 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 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. 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 investment securities portfolios as of the dates shown:



	March 31, 2018
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities
U.S. Treasury	$	25,022	$	—	$	(295	)	$	24,727
U.S. Government agencies	149,899		—		(563		)	149,336
Municipal	120,396		2,218		(856		)	121,758
Corporate notes:
Financial issuers	100,294		16		(1,595		)	98,715
Other	1,000		—		(1		)	999
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	1,510,421		169		(64,077		)	1,446,513
Collateralized mortgage obligations	55,836		7		(2,203		)	53,640
Equity securities ⁽²⁾	—		—		—			—
Total available-for-sale securities	$	1,962,868	$	2,410	$	(69,590	)	$	1,895,688
Held-to-maturity securities
U.S. Government agencies	$	639,442	$	—	$	(25,891	)	$	613,551
Municipal	253,495		939		(5,458		)	248,976
Total held-to-maturity securities	$	892,937	$	939	$	(31,349	)	$	862,527
Equity securities with readily determinable fair value ⁽²⁾	$	34,230	$	4,670	$	(1,068	)	$	37,832

Table of Contents



	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities
U.S. Treasury	$	144,904	$	—	$	(1,082	)	$	143,822
U.S. Government agencies	157,638		2		(725		)	156,915
Municipal	113,197		2,712		(557		)	115,352
Corporate notes:
Financial issuers	30,309		43		(301		)	30,051
Other	1,000		—		(1		)	999
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	1,291,695		446		(31,955		)	1,260,186
Collateralized mortgage obligations	60,092		64		(617		)	59,539
Equity securities ⁽²⁾	34,234		3,357		(789		)	36,802
Total available-for-sale securities	$	1,833,069	$	6,624	$	(36,027	)	$	1,803,666
Held-to-maturity securities
U.S. Government agencies	$	579,062	$	23	$	(14,066	)	$	565,019
Municipal	247,387		2,668		(2,558		)	247,497
Total held-to-maturity securities	$	826,449	$	2,691	$	(16,624	)	$	812,516


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


(2)	As a result of the adoption of ASU No. 2016-01 effective January 1, 2018, equity securities with readily determinable fair value are no longer presented within available-for-sale securities and are now presented as equity securities with readily determinable fair values in the Company's Consolidated Statements of Condition for the current period.



	March 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities
U.S. Treasury	$	142,772	$	—	$	(616	)	$	142,156
U.S. Government agencies	178,475		31		(677		)	177,829
Municipal	125,061		2,878		(376		)	127,563
Corporate notes:
Financial issuers	65,306		107		(986		)	64,427
Other	1,000		—		(3		)	997
Mortgage-backed: ⁽¹⁾
Mortgage-backed securities	1,256,497		302		(46,423		)	1,210,376
Collateralized mortgage obligations	46,035		78		(445		)	45,668
Equity securities ⁽²⁾	32,634		3,106		(1,023		)	34,717
Total available-for-sale securities	$	1,847,780	$	6,502	$	(50,549	)	$	1,803,733
Held-to-maturity securities
U.S. Government agencies	$	465,891	$	115	$	(18,664	)	$	447,342
Municipal	201,873		1,114		(2,434		)	200,553
Total held-to-maturity securities	$	667,764	$	1,229	$	(21,098	)	$	647,895


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


(2)	As a result of the adoption of ASU No. 2016-01 effective January 1, 2018, equity securities with readily determinable fair value are no longer presented within available-for-sale securities and are now presented as equity securities with readily determinable fair values in the Company's Consolidated Statements of Condition for the current period.

Equity securities without readily determinable fair values totaled $25.2 million as of March 31, 2018. Equity securities without readily determinable fair values are included as part of accrued interest receivable and other assets in the Company's Consolidated Statements of Condition. In accordance with the adoption of ASU No. 2016-01, in the first quarter of 2018, the Company recorded an upward adjustment on such securities of $131,000 related to observable price changes in orderly transactions for the identical

Table of Contents

or a similar investment of the same issuer. No downward adjustment of equity securities without readily determinable fair values was recorded during the current period. The Company monitors its equity investments without a readily determinable fair values to identify potential transactions that may indicate an observable price change requiring adjustment to its carrying amount.

The following table presents the portion of the Company’s available-for-sale and held-to-maturity investment 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, 2018:



	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	$	24,727	$	(295	)	$	—	$	—		$	24,727	$	(295	)
U.S. Government agencies	14,742		(104		)	134,594		(459		)	149,336		(563		)
Municipal	35,225		(494		)	13,794		(362		)	49,019		(856		)
Corporate notes:
Financial issuers	73,037		(1,294		)	5,665		(301		)	78,702		(1,595		)
Other	—		—			999		(1		)	999		(1		)
Mortgage-backed:
Mortgage-backed securities	495,082		(12,177		)	945,641		(51,900		)	1,440,723		(64,077		)
Collateralized mortgage obligations	39,939		(1,672		)	12,342		(531		)	52,281		(2,203		)
Total available-for-sale securities	$	682,752	$	(16,036	)	$	1,113,035	$	(53,554	)	$	1,795,787	$	(69,590	)
Held-to-maturity securities
U.S. Government agencies	$	311,150	$	(7,688	)	$	292,800	$	(18,203	)	$	603,950	$	(25,891	)
Municipal	160,027		(3,563		)	49,129		(1,895		)	209,156		(5,458		)
Total held-to-maturity securities	$	471,177	$	(11,251	)	$	341,929	$	(20,098	)	$	813,106	$	(31,349	)

The Company conducts a regular assessment of its available-for-sale and held-to-maturity 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 available-for-sale and held-to-maturity securities with unrealized losses at March 31, 2018 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 mortgage-backed securities, U.S. government agency securities and municipal securities.

Table of Contents

The following table provides information as to the amount of gross gains and losses, adjustments and impairment on investment securities and proceeds received through the sale or call of investment securities:



	Three months ended March 31,
(Dollars in thousands)	2018			2017
Realized gains on available-for-sale debt securities	$	—		$	—
Realized losses on available-for-sale debt securities	(975		)	(55		)
Net realized losses on available-for-sale debt securities	(975		)	$	(55	)
Unrealized gains on equity securities with readily determinable fair value	1,873			—
Unrealized losses on equity securities with readily determinable fair value	(843		)	—
Net unrealized gains on equity securities with readily determinable fair value	1,030			—
Upward adjustments of equity securities without readily determinable fair values	131			—
Downward adjustments of equity securities without readily determinable fair values	—			—
Impairment of equity securities without readily determinable fair values	(537		)	—
Adjustment and impairment, net, of equity securities without readily determinable fair values	(406		)	—
Other than temporary impairment charges	—			—
Losses on investment securities, net	$	(351	)	$	(55	)
Proceeds from sales and calls of available-for-sale securities	$	210,891		$	6,005
Proceeds from calls of held-to-maturity securities	4,141			51,060
Proceeds from sales of equity securities with readily determinable fair value	—			—
Proceeds from sales of equity securities without readily determinable fair value	—			—

During the three months ending March 31, 2018, the Company recorded impairment of equity securities without readily determinable fair values totaling $537,000. The Company conducts a quarterly assessment of its equity securities without a readily determinable fair values to determine whether impairment exists in such securities, considering, among other factors, the nature of the securities, financial condition of the issuer and expected future cash flows.

Table of Contents

The amortized cost and fair value of available-for-sale and held-to-maturity investment securities as of March 31, 2018, December 31, 2017 and March 31, 2017, 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, 2018				December 31, 2017				March 31, 2017
(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	$	180,899	$	180,333	$	300,833	$	299,285	$	142,323	$	142,001
Due in one to five years	90,073		89,953		97,019		97,326		320,945		320,278
Due in five to ten years	116,909		116,517		33,947		35,029		39,520		40,519
Due after ten years	8,730		8,732		15,249		15,499		9,826		10,174
Mortgage-backed	1,566,257		1,500,153		1,351,787		1,319,725		1,302,532		1,256,044
Equity securities ⁽¹⁾	—		—		34,234		36,802		32,634		34,717
Total available-for-sale securities	$	1,962,868	$	1,895,688	$	1,833,069	$	1,803,666	$	1,847,780	$	1,803,733
Held-to-maturity securities
Due in one year or less	$	3,786	$	3,775	$	170	$	171	$	—	$	—
Due in one to five years	34,495		33,994		38,392		38,012		32,771		32,525
Due in five to ten years	210,705		205,823		205,227		203,680		70,533		69,348
Due after ten years	643,951		618,935		582,660		570,653		564,460		546,022
Total held-to-maturity securities	$	892,937	$	862,527	$	826,449	$	812,516	$	667,764	$	647,895


(1)	As a result of the adoption of ASU No. 2016-01 effective January 1, 2018, equity securities with readily determinable fair value are no longer presented within available-for-sale securities and are now presented as equity securities with readily determinable fair values in the Company's Consolidated Statements of Condition for the current period.

Securities having a fair value of $1.5 billion at March 31, 2018 as well as securities having a fair value of $1.7 billion and $1.3 billion at December 31, 2017 and March 31, 2017, respectively, were pledged as collateral for public deposits, trust deposits, Federal Home Loan Bank ("FHLB") advances, securities sold under repurchase agreements and derivatives. At March 31, 2018, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.

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)	2018			2017			2017
Balance:
Commercial	$	7,060,871		$	6,787,677		$	6,081,489
Commercial real estate	6,633,520			6,580,618			6,261,682
Home equity	626,547			663,045			708,258
Residential real estate	869,104			832,120			720,608
Premium finance receivables—commercial	2,576,150			2,634,565			2,446,946
Premium finance receivables—life insurance	4,189,961			4,035,059			3,593,563
Consumer and other	105,981			107,713			118,512
Total loans, net of unearned income, excluding covered loans	$	22,062,134		$	21,640,797		$	19,931,058
Covered loans	—			—			52,359
Total loans	$	22,062,134		$	21,640,797		$	19,983,417
Mix:
Commercial	32		%	31		%	30		%
Commercial real estate	30			30			31
Home equity	3			3			4
Residential real estate	4			4			4
Premium finance receivables—commercial	12			12			12
Premium finance receivables—life insurance	19			19			18
Consumer and other	—			1			1
Total loans, net of unearned income, excluding covered loans	100		%	100		%	100		%
Covered loans	—			—			—
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 $85.4 million at March 31, 2018, $87.0 million at December 31, 2017 and $72.4 million at March 31, 2017.

Total loans, excluding PCI loans, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $9.4 million at March 31, 2018, $9.3 million at December 31, 2017 and $4.6 million at March 31, 2017. PCI loans are recorded net of credit discounts. See “Acquired Loan Information at Acquisition - PCI Loans” below.

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.

Table of Contents

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 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, 2018

December 31, 2017

(Dollars in thousands)

Unpaid

Principal

Balance

Carrying

Value

Unpaid
Principal
Balance

Carrying
Value

PCI loans

348,102

325,745

375,237

350,690

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, 2018.

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, 2018			March 31, 2017
Accretable yield, beginning balance	$	36,565		$	49,408
Acquisitions	—			531
Accretable yield amortized to interest income	(4,619		)	(5,599		)
Accretable yield amortized to indemnification asset/liability ⁽¹⁾	—			(354		)
Reclassification from non-accretable difference ⁽²⁾	1,556			2,535
Increases (decreases) in interest cash flows due to payments and changes in interest rates	2,190			(759		)
Accretable yield, ending balance	$	35,692		$	45,762


(1)	Represents the portion of the current period accreted yield, resulting from lower expected losses, applied to reduce the loss share indemnification asset or increase the loss share indemnification liability.


(2)	Reclassification is the result of subsequent increases in expected principal cash flows.

Accretion to interest income accounted for under ASC 310-30 totaled $4.6 million and $5.6 million in the first quarter of 2018 and 2017, 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.

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, 2018, December 31, 2017 and March 31, 2017:



As of March 31, 2018			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	$	10,051	$	—	$	594	$	31,475	$	4,518,760	$	4,560,880
Franchise	2,401		—		44		1,203		931,710		935,358
Mortgage warehouse lines of credit	—		—		—		5,771		157,699		163,470
Asset-based lending	1,194		—		47		12,611		963,883		977,735
Leases	361		—		—		3,170		410,667		414,198
PCI - commercial ⁽¹⁾	—		856		86		3		8,285		9,230
Total commercial	14,007		856		771		54,233		6,991,004		7,060,871
Commercial real estate:
Construction	3,139		—		—		9,576		802,921		815,636
Land	182		—		—		4,527		117,981		122,690
Office	474		—		925		11,466		878,206		891,071
Industrial	1,427		—		823		5,027		898,867		906,144
Retail	12,274		—		—		4,785		878,563		895,622
Multi-family	19		—		—		328		931,008		931,355
Mixed use and other	4,310		—		192		13,626		1,937,328		1,955,456
PCI - commercial real estate ⁽¹⁾	—		3,107		1,623		9,134		101,682		115,546
Total commercial real estate	21,825		3,107		3,563		58,469		6,546,556		6,633,520
Home equity	9,828		—		1,505		4,033		611,181		626,547
Residential real estate, including PCI	17,214		1,437		229		8,808		841,416		869,104
Premium finance receivables
Commercial insurance loans	17,342		8,547		6,543		17,756		2,525,962		2,576,150
Life insurance loans	—		—		5,125		11,420		3,986,181		4,002,726
PCI - life insurance loans ⁽¹⁾	—		—		—		—		187,235		187,235
Consumer and other, including PCI	720		269		216		291		104,485		105,981
Total loans, net of unearned income	$	80,936	$	14,216	$	17,952