Document
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________________
FORM 10-Q
_________________________________________
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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):
 
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, 51,771,192 shares, as of October 31, 2016
 


Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
PART I. — FINANCIAL INFORMATION
 
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
 
PART II. — OTHER INFORMATION
 
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
Defaults Upon Senior Securities
NA
ITEM 4.
Mine Safety Disclosures
NA
ITEM 5.
Other Information
NA
ITEM 6.
 


Table of Contents

PART I
ITEM 1. FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
 
(Unaudited)
 
 
 
(Unaudited)
(In thousands, except share data)
September 30,
2016
 
December 31,
2015
 
September 30,
2015
Assets
 
 
 
 
 
Cash and due from banks
$
242,825

 
$
271,454

 
$
247,341

Federal funds sold and securities purchased under resale agreements
4,122

 
4,341

 
3,314

Interest bearing deposits with banks
816,104

 
607,782

 
701,106

Available-for-sale securities, at fair value
1,650,096

 
1,716,388

 
2,214,281

Held-to-maturity securities, at amortized cost ($942.7 million and $878.1 million fair value at September 30, 2016 and December 31, 2015, respectively)
932,767

 
884,826

 

Trading account securities
1,092

 
448

 
3,312

Federal Home Loan Bank and Federal Reserve Bank stock
129,630

 
101,581

 
90,308

Brokerage customer receivables
25,511

 
27,631

 
28,293

Mortgage loans held-for-sale
559,634

 
388,038

 
347,005

Loans, net of unearned income, excluding covered loans
19,101,261

 
17,118,117

 
16,316,211

Covered loans
95,940

 
148,673

 
168,609

Total loans
19,197,201

 
17,266,790

 
16,484,820

Allowance for loan losses
(117,693
)
 
(105,400
)
 
(102,996
)
Allowance for covered loan losses
(1,422
)
 
(3,026
)
 
(2,918
)
Net loans
19,078,086

 
17,158,364

 
16,378,906

Premises and equipment, net
597,263

 
592,256

 
587,348

Lease investments, net
116,355

 
63,170

 
29,111

Accrued interest receivable and other assets
660,923

 
597,099

 
629,211

Trade date securities receivable
677

 

 
277,981

Goodwill
485,938

 
471,761

 
472,166

Other intangible assets
20,736

 
24,209

 
25,533

Total assets
$
25,321,759

 
$
22,909,348

 
$
22,035,216

Liabilities and Shareholders’ Equity
 
 
 
 
 
Deposits:
 
 
 
 
 
Non-interest bearing
$
5,711,042

 
$
4,836,420

 
$
4,705,994

Interest bearing
15,436,613

 
13,803,214

 
13,522,475

Total deposits
21,147,655

 
18,639,634

 
18,228,469

Federal Home Loan Bank advances
419,632

 
853,431

 
443,955

Other borrowings
241,366

 
265,785

 
259,805

Subordinated notes
138,943

 
138,861

 
138,834

Junior subordinated debentures
253,566

 
268,566

 
268,566

Trade date securities payable

 
538

 
617

Accrued interest payable and other liabilities
446,123

 
390,259

 
359,234

Total liabilities
22,647,285

 
20,557,074

 
19,699,480

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 September 30, 2016, 126,287 shares issued and outstanding at December 31, 2015, and 126,312 shares issued and outstanding at September 30, 2015
126,257

 
126,287

 
126,312

Series D - $25 liquidation value; 5,000,000 shares issued and outstanding at September 30, 2016, December 31, 2015 and September 30, 2015
125,000

 
125,000

 
125,000

Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at September 30, 2016, December 31, 2015 and September 30, 2015; 51,811,204 shares issued at September 30, 2016, 48,468,894 shares issued at December 31, 2015 and 48,422,294 shares issued at September 30, 2015
51,811

 
48,469

 
48,422

Surplus
1,356,759

 
1,190,988

 
1,187,407

Treasury stock, at cost, 96,521 shares at September 30, 2016, 85,615 shares at December 31, 2015, and 85,424 shares at September 30, 2015
(4,522
)
 
(3,973
)
 
(3,964
)
Retained earnings
1,051,748

 
928,211

 
901,652

Accumulated other comprehensive loss
(32,579
)
 
(62,708
)
 
(49,093
)
Total shareholders’ equity
2,674,474

 
2,352,274

 
2,335,736

Total liabilities and shareholders’ equity
$
25,321,759

 
$
22,909,348

 
$
22,035,216

See accompanying notes to unaudited consolidated financial statements.

1

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share data)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Interest income
 
 
 
 
 
 
 
Interest and fees on loans
$
190,189

 
$
167,831

 
$
541,846

 
$
482,330

Interest bearing deposits with banks
1,156

 
372

 
2,695

 
993

Federal funds sold and securities purchased under resale agreements
1

 
1

 
3

 
4

Investment securities
15,496

 
16,130

 
49,084

 
44,601

Trading account securities
18

 
19

 
43

 
83

Federal Home Loan Bank and Federal Reserve Bank stock
1,094

 
821

 
3,143

 
2,375

Brokerage customer receivables
195

 
205

 
630

 
591

Total interest income
208,149

 
185,379

 
597,444

 
530,977

Interest expense
 
 
 
 
 
 
 
Interest on deposits
15,621

 
12,436

 
41,996

 
36,246

Interest on Federal Home Loan Bank advances
2,577

 
2,458

 
8,447

 
6,426

Interest on other borrowings
1,137

 
1,045

 
3,281

 
2,620

Interest on subordinated notes
1,778

 
1,776

 
5,332

 
5,328

Interest on junior subordinated debentures
2,400

 
2,124

 
6,973

 
6,034

Total interest expense
23,513

 
19,839

 
66,029

 
56,654

Net interest income
184,636

 
165,540

 
531,415

 
474,323

Provision for credit losses
9,571

 
8,322

 
26,734

 
23,883

Net interest income after provision for credit losses
175,065

 
157,218

 
504,681

 
450,440

Non-interest income
 
 
 
 
 
 
 
Wealth management
19,334

 
18,243

 
56,506

 
54,819

Mortgage banking
34,712

 
27,887

 
93,254

 
91,694

Service charges on deposit accounts
8,024

 
7,403

 
23,156

 
20,174

Gains (losses) on investment securities, net
3,305

 
(98
)
 
6,070

 
402

Fees from covered call options
3,633

 
2,810

 
9,994

 
11,735

Trading (losses) gains, net
(432
)
 
(135
)
 
(916
)
 
(452
)
Operating lease income, net
4,459

 
613

 
11,270

 
755

Other
13,569

 
8,230

 
40,821

 
27,380

Total non-interest income
86,604

 
64,953

 
240,155

 
206,507

Non-interest expense
 
 
 
 
 
 
 
Salaries and employee benefits
103,718

 
97,749

 
300,423

 
282,300

Equipment
9,449

 
8,456

 
27,523

 
24,090

Operating lease equipment depreciation
3,605

 
431

 
9,040

 
547

Occupancy, net
12,767

 
12,066

 
36,658

 
35,818

Data processing
7,432

 
8,127

 
21,089

 
19,656

Advertising and marketing
7,365

 
6,237

 
18,085

 
16,550

Professional fees
5,508

 
4,100

 
14,986

 
13,838

Amortization of other intangible assets
1,085

 
1,350

 
3,631

 
3,297

FDIC insurance
3,686

 
3,035

 
11,339

 
9,069

OREO expense, net
1,436

 
(367
)
 
3,344

 
1,885

Other
20,564

 
18,790

 
55,196

 
54,539

Total non-interest expense
176,615

 
159,974

 
501,314

 
461,589

Income before taxes
85,054

 
62,197

 
243,522

 
195,358

Income tax expense
31,939

 
23,842

 
91,255

 
74,120

Net income
$
53,115

 
$
38,355

 
$
152,267

 
$
121,238

Preferred stock dividends and discount accretion
3,628

 
4,079

 
10,884

 
7,240

Net income applicable to common shares
$
49,487

 
$
34,276

 
$
141,383

 
$
113,998

Net income per common share—Basic
$
0.96

 
$
0.71

 
$
2.84

 
$
2.39

Net income per common share—Diluted
$
0.92

 
$
0.69

 
$
2.72

 
$
2.29

Cash dividends declared per common share
$
0.12

 
$
0.11

 
$
0.36

 
$
0.33

Weighted average common shares outstanding
51,679

 
48,158

 
49,763

 
47,658

Dilutive potential common shares
4,047

 
4,049

 
3,931

 
4,141

Average common shares and dilutive common shares
55,726

 
52,207

 
53,694

 
51,799

See accompanying notes to unaudited consolidated financial statements.

2

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Net income
$
53,115

 
$
38,355

 
$
152,267

 
$
121,238

Unrealized gains (losses) on securities
 
 
 
 
 
 

Before tax
2,525

 
31,268

 
33,669

 
4,144

Tax effect
(993
)
 
(12,273
)
 
(13,225
)
 
(1,645
)
Net of tax
1,532

 
18,995

 
20,444

 
2,499

Reclassification of net gains (losses) included in net income
 
 
 
 
 
 
 
Before tax
3,305

 
(98
)
 
6,070

 
402

Tax effect
(1,300
)
 
38

 
(2,386
)
 
(158
)
Net of tax
2,005

 
(60
)
 
3,684

 
244

Reclassification of amortization of unrealized losses on investment securities transferred to held-to-maturity from available-for-sale
 
 
 
 
 
 
 
Before tax
(3,781
)
 

 
(11,038
)
 

Tax effect
1,486

 

 
4,331

 

Net of tax
(2,295
)
 

 
(6,707
)
 

Net unrealized gains (losses) on securities
1,822

 
19,055

 
23,467

 
2,255

Unrealized gains (losses) on derivative instruments
 
 
 
 
 
 
 
Before tax
2,773

 
99

 
2,728

 
(247
)
Tax effect
(1,090
)
 
(39
)
 
(1,072
)
 
97

Net unrealized gains (losses) on derivative instruments
1,683

 
60

 
1,656

 
(150
)
Foreign currency adjustment
 
 
 
 
 
 
 
Before tax
(2,237
)
 
(8,682
)
 
6,966

 
(18,900
)
Tax effect
593

 
2,345

 
(1,960
)
 
5,034

Net foreign currency adjustment
(1,644
)
 
(6,337
)
 
5,006

 
(13,866
)
Total other comprehensive income (loss)
1,861

 
12,778

 
30,129

 
(11,761
)
Comprehensive income
$
54,976

 
$
51,133

 
$
182,396

 
$
109,477

See accompanying notes to unaudited consolidated financial statements.

3

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, 2015
$
126,467

 
$
46,881

 
$
1,133,955

 
$
(3,549
)
 
$
803,400

 
$
(37,332
)
 
$
2,069,822

Net income

 

 

 

 
121,238

 

 
121,238

Other comprehensive loss, net of tax

 

 

 

 

 
(11,761
)
 
(11,761
)
Cash dividends declared on common stock

 

 

 

 
(15,746
)
 

 
(15,746
)
Dividends on preferred stock

 

 

 

 
(7,240
)
 

 
(7,240
)
Stock-based compensation

 

 
7,817

 

 

 

 
7,817

Issuance of Series D preferred stock
125,000

 

 
(4,158
)
 

 

 

 
120,842

Conversion of Series C preferred stock to common stock
(155
)
 
4

 
151

 

 

 

 

Common stock issued for:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions

 
811

 
37,912

 

 

 

 
38,723

Exercise of stock options and warrants

 
564

 
8,141

 
(130
)
 

 

 
8,575

Restricted stock awards

 
99

 
382

 
(285
)
 

 

 
196

Employee stock purchase plan

 
43

 
1,997

 

 

 

 
2,040

Director compensation plan

 
20

 
1,210

 

 

 

 
1,230

Balance at September 30, 2015
$
251,312

 
$
48,422

 
$
1,187,407

 
$
(3,964
)
 
$
901,652

 
$
(49,093
)
 
$
2,335,736

Balance at January 1, 2016
$
251,287

 
$
48,469

 
$
1,190,988

 
$
(3,973
)
 
$
928,211

 
$
(62,708
)
 
$
2,352,274

Net income

 

 

 

 
152,267

 

 
152,267

Other comprehensive income, net of tax

 

 

 

 

 
30,129

 
30,129

Cash dividends declared on common stock

 

 

 

 
(17,846
)
 

 
(17,846
)
Dividends on preferred stock

 

 

 

 
(10,884
)
 

 
(10,884
)
Stock-based compensation

 

 
6,778

 

 

 

 
6,778

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

 
185

 
5,965

 
(377
)
 

 

 
5,773

Restricted stock awards

 
88

 
121

 
(172
)
 

 

 
37

Employee stock purchase plan

 
43

 
1,890

 

 

 

 
1,933

Director compensation plan

 
25

 
1,165

 

 

 

 
1,190

Balance at September 30, 2016
$
251,257

 
$
51,811

 
$
1,356,759

 
$
(4,522
)
 
$
1,051,748

 
$
(32,579
)
 
$
2,674,474

See accompanying notes to unaudited consolidated financial statements.

4

Table of Contents


WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Nine Months Ended
(In thousands)
September 30,
2016
 
September 30,
2015
Operating Activities:
 
 
 
Net income
$
152,267

 
$
121,238

Adjustments to reconcile net income to net cash used for operating activities
 
 
 
Provision for credit losses
26,734

 
23,883

Depreciation, amortization and accretion, net
38,798

 
28,017

Stock-based compensation expense
6,778

 
7,817

Excess tax benefits from stock-based compensation arrangements
(399
)
 
(660
)
Net amortization of premium on securities
3,728

 
2,576

Accretion of discount on loans
(23,416
)
 
(25,061
)
Mortgage servicing rights fair value change, net
(4,810
)
 
641

Originations and purchases of mortgage loans held-for-sale
(3,208,468
)
 
(3,094,901
)
Proceeds from sales of mortgage loans held-for-sale
3,111,318

 
3,182,623

Bank owned life insurance ("BOLI"), net of claims
(2,613
)
 
(1,683
)
Increase in trading securities, net
(644
)
 
(2,106
)
Net decrease (increase) in brokerage customer receivables
2,120

 
(4,072
)
Gains on mortgage loans sold
(74,446
)
 
(83,437
)
Gains on investment securities, net
(6,070
)
 
(402
)
Gains on early extinguishment of debt
(4,305
)
 

(Gains) losses on sales of premises and equipment, net
(89
)
 
512

Net losses (gains) on sales and fair value adjustments of other real estate owned
935

 
(585
)
Increase in accrued interest receivable and other assets, net
(131,504
)
 
(113,805
)
Increase (decrease) in accrued interest payable and other liabilities, net
31,082

 
(28,717
)
Net Cash (Used for) Provided by Operating Activities
(83,004
)
 
11,878

Investing Activities:
 
 
 
Proceeds from maturities of available-for-sale securities
1,128,428

 
397,832

Proceeds from maturities of held-to-maturity securities
502

 

Proceeds from sales and calls of available-for-sale securities
2,186,662

 
1,216,860

Proceeds from calls of held-to-maturity securities
423,866

 

Purchases of available-for-sale securities
(3,169,020
)
 
(1,584,282
)
Purchases of held-to-maturity securities
(472,803
)
 

(Purchase) redemption of Federal Home Loan Bank and Federal Reserve Bank stock, net
(28,049
)
 
1,274

Net cash paid in business combinations
(578,315
)
 
(15,428
)
Proceeds from sales of other real estate owned
29,223

 
34,936

Proceeds received from the FDIC related to reimbursements on covered assets
2,124

 
1,697

Net (increase) decrease in interest bearing deposits with banks
(204,085
)
 
438,072

Net increase in loans
(1,303,218
)
 
(1,286,736
)
Redemption of BOLI
659

 
2,701

Purchases of premises and equipment, net
(28,276
)
 
(29,375
)
Net Cash Used for Investing Activities
(2,012,302
)
 
(822,449
)
Financing Activities:
 
 
 
Increase in deposit accounts
2,408,216

 
970,090

(Decrease) increase in other borrowings, net
(24,545
)
 
38,775

Decrease in Federal Home Loan Bank advances, net
(440,257
)
 
(293,360
)
Proceeds from the issuance of common stock, net
152,823

 

Proceeds from the issuance of preferred stock, net

 
120,842

Redemption of junior subordinated debentures, net
(10,695
)
 

Excess tax benefits from stock-based compensation arrangements
399

 
660

Issuance of common shares resulting from the exercise of stock options and the employee stock purchase plan
9,796

 
14,413

Common stock repurchases
(549
)
 
(415
)
Dividends paid
(28,730
)
 
(20,486
)
Net Cash Provided by Financing Activities
2,066,458

 
830,519

Net (Decrease) Increase in Cash and Cash Equivalents
(28,848
)
 
19,948

Cash and Cash Equivalents at Beginning of Period
275,795

 
230,707

Cash and Cash Equivalents at End of Period
$
246,947

 
$
250,655

See accompanying notes to unaudited consolidated financial statements.

5

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 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 nine-month periods are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.

The preparation of the financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities. Management believes that the estimates made are reasonable, however, changes in estimates may be required if economic or other conditions develop differently from management’s expectations. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses, allowance for covered loan losses and the allowance for losses on lending-related commitments, loans acquired with evidence of credit quality deterioration since origination, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Descriptions of 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 sales 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.

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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.

In October 2016, the FASB issued ASU No. 2016-17, "Consolidation (Topic 810): Interest Held through Related Parties That Are under Common Control," to amend guidance from ASU No. 2015-02 regarding how a reporting entity treats indirect interests in a variable interest entity ("VIE") held through related parties under common control when determining whether the reporting entity is the primary beneficiary of such VIE. 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 retrospective approach. The Company does not expect this guidance to 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 September 30, 2015, the Company reclassified as a direct reduction to the related debt balance $7.8 million and $8.7 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

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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.





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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.

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 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and is to be applied under a retrospective approach, if practicable. The Company does not expect this guidance to have a material impact on the Company's consolidated financial statements.

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 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and is to be applied under a modified retrospective approach through cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

(3) Business Combinations

Non-FDIC Assisted Bank Acquisitions

On August 19, 2016, the Company, through its wholly-owned subsidiary Lake Forest Bank & Trust Company ("Lake Forest Bank"), acquired approximately $560.9 million in performing loans and related relationships from an affiliate of GE Capital Franchise Finance. The loans are to franchise operators (primarily quick service restaurant concepts) in the Midwest and in the Western portion of the United States.

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 $67.4 million of loans, and assumed deposits with a fair value of approximately $100.2 million. Additionally, the Company recorded goodwill of $11.5 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

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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 other 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.






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The following table summarizes the activity in the Company’s FDIC indemnification (liability) asset during the periods indicated:
 
Three Months Ended
 
Nine Months Ended
(Dollars in thousands)
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Balance at beginning of period
$
(11,729
)
 
$
3,429

 
$
(6,100
)
 
$
11,846

Additions from acquisitions

 

 

 

Additions from reimbursable expenses
21

 
1,039

 
752

 
3,548

Accretion (amortization)
4

 
(718
)
 
(189
)
 
(3,184
)
Changes in expected reimbursements from the FDIC for changes in expected credit losses
(4,537
)
 
(5,236
)
 
(10,284
)
 
(13,546
)
Payments received from the FDIC
(1,704
)
 
(1,547
)
 
(2,124
)
 
(1,697
)
Balance at end of period
$
(17,945
)
 
$
(3,033
)
 
$
(17,945
)
 
$
(3,033
)

PCI Loans

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. Expected future cash flows at the purchase date in excess of the fair value of loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable (“accretable yield”). The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference and represents probable losses in the portfolio.

In determining the acquisition date fair value of PCI loans, and in subsequent accounting, the Company aggregates these purchased loans into pools of loans by common risk characteristics, such as credit risk rating and loan type. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.

The Company purchased a portfolio of life insurance premium finance receivables in 2009. These purchased life insurance premium finance receivables are valued on an individual basis with the accretable component being recognized into interest income using the effective yield method over the estimated remaining life of the loans. The non-accretable portion is evaluated each quarter and if the loans’ credit related conditions improve, a portion is transferred to the accretable component and accreted over future periods. In the event a specific loan prepays in whole, any remaining accretable and non-accretable discount is recognized in income immediately. If credit related conditions deteriorate, an allowance related to these loans will be established as part of the provision for credit losses.

See Note 6—Loans, for additional information on PCI loans.

(4) Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company considers cash and cash equivalents to include cash on hand, cash items in the process of collection, non-interest bearing amounts due from correspondent banks, federal funds sold and securities purchased under resale agreements with original maturities of three months or less.


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(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:
 
September 30, 2016
(Dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available-for-sale securities
 
 
 
 
 
 
 
U.S. Treasury
$
30,017

 
$
19

 
$

 
$
30,036

U.S. Government agencies
93,561

 
163

 
(41
)
 
93,683

Municipal
106,033

 
3,395

 
(147
)
 
109,281

Corporate notes:
 
 
 
 
 
 
 
Financial issuers
65,215

 
299

 
(1,311
)
 
64,203

Other
1,000

 

 

 
1,000

Mortgage-backed: (1)
 
 
 
 
 
 
 
Mortgage-backed securities
1,257,070

 
7,958

 
(54
)
 
1,264,974

Collateralized mortgage obligations
35,935

 
304

 
(102
)
 
36,137

Equity securities
48,568

 
2,998

 
(784
)
 
50,782

Total available-for-sale securities
$
1,637,399

 
$
15,136

 
$
(2,439
)
 
$
1,650,096

Held-to-maturity securities
 
 
 
 
 
 
 
U.S. Government agencies
$
729,417

 
$
7,577

 
$
(2,879
)
 
$
734,115

Municipal
203,350

 
5,515

 
(314
)
 
208,551

Total held-to-maturity securities
$
932,767

 
$
13,092

 
$
(3,193
)
 
$
942,666

 
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

 
September 30, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
(Dollars in thousands)
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
U.S. Treasury
$
288,185

 
$
101

 
$
(2,364
)
 
$
285,922

U.S. Government agencies
657,297

 
2,726

 
(15,000
)
 
645,023

Municipal
294,073

 
5,354

 
(2,085
)
 
297,342

Corporate notes:
 
 
 
 
 
 
 
Financial issuers
114,976

 
1,656

 
(1,216
)
 
115,416

Other
1,525

 
6

 
(2
)
 
1,529

Mortgage-backed: (1)
 
 
 
 
 
 
 
Mortgage-backed securities
778,240

 
4,974

 
(10,913
)
 
772,301

Collateralized mortgage obligations
42,724

 
343

 
(323
)
 
42,744

Equity securities
49,356

 
4,993

 
(345
)
 
54,004

Total available-for-sale securities
$
2,226,376

 
$
20,153

 
$
(32,248
)
 
$
2,214,281

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

 
$

 
$

 
$

Municipal

 

 

 

Total held-to-maturity securities
$

 
$

 
$

 
$

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


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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 nine 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 September 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
$

 
$

 
$

 
$

 
$

 
$

U.S. Government agencies
35,173

 
(41
)
 

 

 
35,173

 
(41
)
Municipal
13,062

 
(45
)
 
7,766

 
(102
)
 
20,828

 
(147
)
Corporate notes:
 
 
 
 
 
 
 
 
 
 
 
Financial issuers
10,000

 
(1
)
 
34,650

 
(1,310
)
 
44,650

 
(1,311
)
Other

 

 

 

 

 

Mortgage-backed:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
1,017

 
(22
)
 
4,019

 
(32
)
 
5,036

 
(54
)
Collateralized mortgage obligations
1,255

 
(2
)
 
7,499

 
(100
)
 
8,754

 
(102
)
Equity securities
16,550

 
(481
)
 
8,787

 
(303
)
 
25,337

 
(784
)
Total available-for-sale securities
$
77,057

 
$
(592
)
 
$
62,721

 
$
(1,847
)
 
$
139,778

 
$
(2,439
)
Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies
$
240,400

 
$
(2,879
)
 
$

 
$

 
$
240,400

 
$
(2,879
)
Municipal
11,925

 
(204
)
 
9,239

 
(110
)
 
21,164

 
(314
)
Total held-to-maturity securities
$
252,325

 
$
(3,083
)
 
$
9,239

 
$
(110
)
 
$
261,564

 
$
(3,193
)

The Company conducts a regular assessment of its investment securities to determine whether securities are other-than-temporarily impaired considering, among other factors, the nature of the securities, credit ratings or financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows, market conditions and the Company’s ability to hold the securities through the anticipated recovery period.

The Company does not consider securities with unrealized losses at September 30, 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.















13

Table of Contents

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 September 30,
 
Nine months ended September 30,
(Dollars in thousands)
2016
 
2015
 
2016
 
2015
Realized gains
$
3,429

 
$
87

 
$
7,466

 
$
654

Realized losses
(124
)
 
(185
)
 
(1,396
)
 
(252
)
Net realized gains (losses)
$
3,305

 
$
(98
)
 
$
6,070

 
$
402

Other than temporary impairment charges

 

 

 

Gains (losses) on investment securities, net
$
3,305

 
$
(98
)
 
$
6,070

 
$
402

Proceeds from sales and calls of available-for-sale securities
$
1,114,666

 
$
82,827

 
$
2,186,662

 
$
1,216,860

Proceeds from calls of held-to-maturity securities
141,885

 

 
423,866

 

The amortized cost and fair value of securities as of September 30, 2016, December 31, 2015 and September 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:
 
September 30, 2016
 
December 31, 2015
 
September 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
$
115,227

 
$
115,487

 
$
160,856

 
$
160,756

 
$
164,374

 
$
164,429

Due in one to five years
141,364

 
141,368

 
166,550

 
166,468

 
186,199

 
186,592

Due in five to ten years
28,696

 
31,319

 
228,652

 
225,699

 
343,468

 
342,271

Due after ten years
10,539

 
10,029

 
13,753

 
14,182

 
662,015

 
651,940

Mortgage-backed
1,293,005

 
1,301,111

 
1,110,101

 
1,092,597

 
820,964

 
815,045

Equity securities
48,568

 
50,782

 
51,380

 
56,686

 
49,356

 
54,004

Total available-for-sale securities
$
1,637,399

 
$
1,650,096

 
$
1,731,292

 
$
1,716,388

 
$
2,226,376

 
$
2,214,281

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

 
$

 
$

 
$

 
$

 
$

Due in one to five years
25,927

 
26,023

 
19,208

 
19,156

 

 

Due in five to ten years
64,835

 
65,842

 
96,454

 
96,091

 

 

Due after ten years
842,005

 
850,801

 
769,164

 
762,864

 

 

Total held-to-maturity securities
$
932,767

 
$
942,666

 
$
884,826

 
$
878,111

 
$

 
$

Securities having a fair value of $1.4 billion at September 30, 2016 as well as securities having a fair value of $1.2 billion and $1.3 billion at December 31, 2015 and September 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 September 30, 2016, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.

14

Table of Contents

(6) Loans

The following table shows the Company’s loan portfolio by category as of the dates shown:
 
September 30,
 
December 31,
 
September 30,
(Dollars in thousands)
2016
 
2015
 
2015
Balance:
 
 
 
 
 
Commercial
$
5,951,544

 
$
4,713,909

 
$
4,400,185

Commercial real estate
5,908,684

 
5,529,289

 
5,307,566

Home equity
742,868

 
784,675

 
797,465

Residential real estate
663,598

 
607,451

 
571,743

Premium finance receivables—commercial
2,430,233

 
2,374,921

 
2,407,075

Premium finance receivables—life insurance
3,283,359

 
2,961,496

 
2,700,275

Consumer and other
120,975

 
146,376

 
131,902

Total loans, net of unearned income, excluding covered loans
$
19,101,261

 
$
17,118,117

 
$
16,316,211

Covered loans
95,940

 
148,673

 
168,609

Total loans
$
19,197,201

 
$
17,266,790

 
$
16,484,820

Mix:
 
 
 
 
 
Commercial
31
%
 
27
%
 
27
%
Commercial real estate
31

 
32

 
32

Home equity
4

 
5

 
5

Residential real estate
3

 
3

 
3

Premium finance receivables—commercial
13

 
14

 
15

Premium finance receivables—life insurance
17

 
17

 
16

Consumer and other
1

 
1

 
1

Total loans, net of unearned income, excluding covered loans
100
%
 
99
%
 
99
%
Covered loans

 
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 $64.4 million at September 30, 2016, $56.7 million at December 31, 2015 and $53.4 million at September 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 $873,000 at September 30, 2016, $(9.2) million at December 31, 2015 and $(18.8) million at September 30, 2015. The net credit balance at December 31, 2015 and September 30, 2015, is primarily the result of purchase accounting adjustments related to acquisitions in 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.

15

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 we determined that it was probable that the Company would be unable to collect all contractually required principal and interest payments. The following table presents the unpaid principal balance and carrying value for these acquired loans:
 
 
September 30, 2016
 
December 31, 2015
 
(Dollars in thousands)
Unpaid
Principal
Balance
 
Carrying
Value
 
Unpaid
Principal
Balance
 
Carrying
Value
 
 
Bank acquisitions
$
278,862

 
$
233,340

 
$
326,470

 
$
271,260

 
Life insurance premium finance loans acquisition
266,618

 
262,887

 
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 Bank
Contractually required payments including interest
$
20,091

Less: Nonaccretable difference
4,009

   Cash flows expected to be collected