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Section 1: 10-Q (10-Q)

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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, 2019
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, 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, 56,663,096 shares, as of April 30, 2019
 


Table of Contents

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


Table of Contents

PART I
ITEM 1. FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
 
(Unaudited)
 
 
 
(Unaudited)
(In thousands, except share data)
March 31,
2019
 
December 31,
2018
 
March 31,
2018
Assets
 
 
 
 
 
Cash and due from banks
$
270,765

 
$
392,142

 
$
231,407

Federal funds sold and securities purchased under resale agreements
58

 
58

 
57

Interest bearing deposits with banks
1,609,852

 
1,099,594

 
980,380

Available-for-sale securities, at fair value
2,185,782

 
2,126,081

 
1,895,688

Held-to-maturity securities, at amortized cost ($1.0 billion, $1.0 billion and $862.5 million fair value at March 31, 2019, December 31, 2018, and March 31, 2018 respectively)
1,051,542

 
1,067,439

 
892,937

Trading account securities
559

 
1,692

 
1,682

Equity securities with readily determinable fair value
47,653

 
34,717

 
37,832

Federal Home Loan Bank and Federal Reserve Bank stock
89,013

 
91,354

 
104,956

Brokerage customer receivables
14,219

 
12,609

 
24,531

Mortgage loans held-for-sale, at fair value
248,557

 
264,070

 
411,505

Loans, net of unearned income
24,214,629

 
23,820,691

 
22,062,134

Allowance for loan losses
(158,212
)
 
(152,770
)
 
(139,503
)
Net loans
24,056,417

 
23,667,921

 
21,922,631

Premises and equipment, net
676,037

 
671,169

 
626,687

Lease investments, net
224,240

 
233,208

 
190,775

Accrued interest receivable and other assets
888,492

 
696,707

 
601,794

Trade date securities receivable
375,211

 
263,523

 

Goodwill
573,658

 
573,141

 
511,497

Other intangible assets
46,566

 
49,424

 
22,413

Total assets
$
32,358,621

 
$
31,244,849

 
$
28,456,772

Liabilities and Shareholders’ Equity
 
 
 
 
 
Deposits:
 
 
 
 
 
Non-interest bearing
$
6,353,456

 
$
6,569,880

 
$
6,612,319

Interest bearing
20,451,286

 
19,524,798

 
16,667,008

Total deposits
26,804,742

 
26,094,678

 
23,279,327

Federal Home Loan Bank advances
576,353

 
426,326

 
915,000

Other borrowings
372,194

 
393,855

 
247,092

Subordinated notes
139,235

 
139,210

 
139,111

Junior subordinated debentures
253,566

 
253,566

 
253,566

Accrued interest payable and other liabilities
840,559

 
669,644

 
591,426

Total liabilities
28,986,649

 
27,977,279

 
25,425,522

Shareholders’ Equity:
 
 
 
 
 
Preferred stock, no par value; 20,000,000 shares authorized at March 31, 2019, December 31, 2018 and March 31, 2018; Series D - $25 liquidation value; 5,000,000 shares issued and outstanding at March 31, 2019, December 31, 2018 and March 31, 2018
125,000

 
125,000

 
125,000

Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at March 31, 2019, December 31, 2018 and March 31, 2018; 56,765,450 shares issued at March 31, 2019, 56,518,119 shares issued at December 31, 2018 and 56,363,786 shares issued at March 31, 2018
56,765

 
56,518

 
56,364

Surplus
1,565,185

 
1,557,984

 
1,540,673

Treasury stock, at cost, 126,482 shares at March 31, 2019, 110,561 shares at December 31, 2018, and 107,288 shares at March 31, 2018
(6,650
)
 
(5,634
)
 
(5,355
)
Retained earnings
1,682,016

 
1,610,574

 
1,387,663

Accumulated other comprehensive loss
(50,344
)
 
(76,872
)
 
(73,095
)
Total shareholders’ equity
3,371,972

 
3,267,570

 
3,031,250

Total liabilities and shareholders’ equity
$
32,358,621

 
$
31,244,849

 
$
28,456,772

See accompanying notes to unaudited consolidated financial statements.

1

Table of Contents

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
Three Months Ended
(In thousands, except per share data)
March 31,
2019
 
March 31,
2018
Interest income
 
 
 
Interest and fees on loans
$
296,987

 
$
234,994

Mortgage loans held-for-sale
2,209

 
2,818

Interest bearing deposits with banks
5,300

 
2,796

Investment securities
27,956

 
19,128

Trading account securities
8

 
14

Federal Home Loan Bank and Federal Reserve Bank stock
1,355

 
1,298

Brokerage customer receivables
155

 
157

Total interest income
333,970

 
261,205

Interest expense
 
 
 
Interest on deposits
60,976

 
26,549

Interest on Federal Home Loan Bank advances
2,450

 
3,639

Interest on other borrowings
3,633

 
1,699

Interest on subordinated notes
1,775

 
1,773

Interest on junior subordinated debentures
3,150

 
2,463

Total interest expense
71,984

 
36,123

Net interest income
261,986

 
225,082

Provision for credit losses
10,624

 
8,346

Net interest income after provision for credit losses
251,362

 
216,736

Non-interest income
 
 
 
Wealth management
23,977

 
22,986

Mortgage banking
18,158

 
30,960

Service charges on deposit accounts
8,848

 
8,857

Gains (losses) on investment securities, net
1,364

 
(351
)
Fees from covered call options
1,784

 
1,597

Trading (losses) gains, net
(171
)
 
103

Operating lease income, net
10,796

 
9,691

Other
16,901

 
11,836

Total non-interest income
81,657

 
85,679

Non-interest expense
 
 
 
Salaries and employee benefits
125,723

 
112,436

Equipment
11,770

 
10,072

Operating lease equipment depreciation
8,319

 
6,533

Occupancy, net
16,245

 
13,767

Data processing
7,525

 
8,493

Advertising and marketing
9,858

 
8,824

Professional fees
5,556

 
6,649

Amortization of other intangible assets
2,942

 
1,004

FDIC insurance
3,576

 
4,362

OREO expense, net
632

 
2,926

Other
22,228

 
19,283

Total non-interest expense
214,374

 
194,349

Income before taxes
118,645

 
108,066

Income tax expense
29,499

 
26,085

Net income
$
89,146

 
$
81,981

Preferred stock dividends
2,050

 
2,050

Net income applicable to common shares
$
87,096

 
$
79,931

Net income per common share—Basic
$
1.54

 
$
1.42

Net income per common share—Diluted
$
1.52

 
$
1.40

Cash dividends declared per common share
$
0.25

 
$
0.19

Weighted average common shares outstanding
56,529

 
56,137

Dilutive potential common shares
699

 
888

Average common shares and dilutive common shares
57,228

 
57,025

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
(In thousands)
March 31,
2019
 
March 31,
2018
Net income
$
89,146

 
$
81,981

Unrealized gains (losses) on available-for-sale securities
 
 
 
Before tax
38,275

 
(36,184
)
Tax effect
(10,319
)
 
9,710

Net of tax
27,956

 
(26,474
)
Reclassification of net losses on available-for-sale securities included in net income
 
 
 
Before tax
(67
)
 
(975
)
Tax effect
18

 
262

Net of tax
(49
)
 
(713
)
Reclassification of amortization of unrealized net gains (losses) on investment securities transferred to held-to-maturity from available-for-sale
 
 
 
Before tax
144

 
(4
)
Tax effect
(41
)
 
1

Net of tax
103

 
(3
)
Net unrealized gains (losses) on available-for-sale securities
27,902

 
(25,758
)
Unrealized (losses) gains on derivative instruments
 
 
 
Before tax
(4,996
)
 
3,075

Tax effect
1,345

 
(826
)
Net unrealized (losses) gains on derivative instruments
(3,651
)
 
2,249

Foreign currency adjustment
 
 
 
Before tax
2,891

 
(3,853
)
Tax effect
(614
)
 
956

Net foreign currency adjustment
2,277

 
(2,897
)
Total other comprehensive income (loss)
26,528

 
(26,406
)
Comprehensive income
$
115,674

 
$
55,575

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, 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"):
 
 
 
 
 
 
 
 
 
 
 
 
 
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, $0.19 per share

 

 

 

 
(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

Balance at January 1, 2019
$
125,000

 
$
56,518

 
$
1,557,984

 
$
(5,634
)
 
$
1,610,574

 
$
(76,872
)
 
$
3,267,570

Cumulative effect adjustment from the adoption of ASU:
 
 
 
 
 
 
 
 
 
 
 
 
 
 ASU 2017-08

 

 

 

 
(1,531
)
 

 
(1,531
)
Net income

 

 

 

 
89,146

 

 
89,146

Other comprehensive income, net of tax

 

 

 

 

 
26,528

 
26,528

Cash dividends declared on common stock, $0.25 per share

 

 

 

 
(14,123
)
 

 
(14,123
)
Dividends on preferred stock

 

 

 

 
(2,050
)
 

 
(2,050
)
Stock-based compensation

 

 
3,318

 

 

 

 
3,318

Common stock issued for:
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options and warrants

 
79

 
2,864

 
(575
)
 

 

 
2,368

Restricted stock awards

 
139

 
(139
)
 
(441
)
 

 

 
(441
)
Employee stock purchase plan

 
11

 
672

 

 

 

 
683

Director compensation plan

 
18

 
486

 

 

 

 
504

Balance at March 31, 2019
$
125,000

 
$
56,765

 
$
1,565,185

 
$
(6,650
)
 
$
1,682,016

 
$
(50,344
)
 
$
3,371,972

See accompanying notes to unaudited consolidated financial statements.

4

Table of Contents


WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Three Months Ended
(In thousands)
March 31,
2019
 
March 31,
2018
Operating Activities:
 
 
 
Net income
$
89,146

 
$
81,981

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Provision for credit losses
10,624

 
8,346

Depreciation, amortization and accretion, net
21,197

 
15,883

Stock-based compensation expense
3,318

 
3,683

Net amortization of premium on securities
1,367

 
1,071

Accretion of discount on loans
(5,162
)
 
(4,927
)
Mortgage servicing rights fair value change, net
10,741

 
(2,931
)
Originations and purchases of mortgage loans held-for-sale
(678,464
)
 
(778,852
)
Proceeds from sales of mortgage loans held-for-sale
705,785

 
696,336

Bank owned life insurance ("BOLI") income
(1,591
)
 
(714
)
Decrease (increase) in trading securities, net
1,133

 
(687
)
Net (increase) decrease in brokerage customer receivables
(1,610
)
 
1,900

Gains on mortgage loans sold
(18,388
)
 
(18,917
)
(Gains) losses on investment securities, net
(1,364
)
 
351

(Gains) losses on sales of premises and equipment, net
(5
)
 
25

Net losses on sales and fair value adjustments of other real estate owned
186

 
2,387

(Increase) decrease in accrued interest receivable and other assets, net
(29,914
)
 
4,434

(Decrease) increase in accrued interest payable and other liabilities, net
(19,314
)
 
12,857

Net Cash Provided by Operating Activities
87,685

 
22,226

Investing Activities:
 
 
 
Proceeds from maturities and calls of available-for-sale securities
168,575

 
47,463

Proceeds from maturities and calls of held-to-maturity securities
45,173

 
4,270

Proceeds from sales of available-for-sale securities
263,456

 
210,891

Proceeds from sales and capital distributions of equity securities without readily determinable fair value
220

 

Purchases of available-for-sale securities
(566,376
)
 
(333,999
)
Purchases of held-to-maturity securities
(31,643
)
 
(70,988
)
Purchases of equity securities with readily determinable fair value
(11,505
)
 

Purchases of equity securities without readily determinable fair value
(623
)
 
(1,801
)
Redemption (purchases) of Federal Home Loan Bank and Federal Reserve Bank stock, net
2,341

 
(14,967
)
Distributions from investments in partnerships, net
363

 
132

Net cash paid in business combinations

 
(18,708
)
Proceeds from sales of other real estate owned
2,758

 
3,679

Net (increase) decrease in interest bearing deposits with banks
(510,517
)
 
81,162

Net increase in loans
(380,214
)
 
(394,433
)
Purchases of premises and equipment, net
(13,608
)
 
(11,580
)
Net Cash Used for Investing Activities
(1,031,600
)
 
(498,879
)
Financing Activities:
 
 
 
Increase in deposit accounts
710,061

 
95,988

Decrease in subordinated notes and other borrowings, net
(24,463
)
 
(15,631
)
Increase in Federal Home Loan Bank advances, net
149,999

 
355,000

Issuance of common shares resulting from the exercise of stock options, employee stock purchase plan and conversion of common stock warrants
4,130

 
8,251

Common stock repurchases for tax withholdings related to stock-based compensation
(1,016
)
 
(369
)
Dividends paid
(16,173
)
 
(12,713
)
Net Cash Provided by Financing Activities
822,538

 
430,526

Net Decrease in Cash and Cash Equivalents
(121,377
)
 
(46,127
)
Cash and Cash Equivalents at Beginning of Period
392,200

 
277,591

Cash and Cash Equivalents at End of Period
$
270,823

 
$
231,464

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 interim 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 interim consolidated financial statements.

The accompanying interim 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 interim 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, 2018 (“2018 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 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 2018 Form 10-K.

(2) Recent Accounting Developments

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.

The FASB has continued to issue various updates to clarify and improve specific areas of ASU No. 2016-02. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” to clarify the implementation guidance within ASU No. 2016-02 surrounding narrow aspects of Topic 842, including lessee reassessment of lease classifications, the rate implicit in a lease, lessor reassessment of lease terms and purchase options and variable lease payments that depend on an index or a rate. Also, in July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” to clarify the implementation guidance within ASU No. 2016-02 surrounding comparative period reporting requirements for initial adoption as well as separating lease and non-lease components in a contract and allocating consideration in the contract to the separate components. Also, in December 2018, the FASB issued ASU No. 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors,” to clarify the implementation guidance within ASU No. 2016-02 surrounding specific aspects of lessor accounting. In March 2019, the FASB issued ASU No. 2019-01, “Codification Improvements to Topic 842, Leases,” to clarify the implementation guidance within ASU No. 2016-02 surrounding aspects of Topic 842, including determining the fair value of the underlying asset by lessors that are not manufacturers or dealers, presentation on the statement of cash flows, and transition disclosures related to Topic 250, Accounting Changes and Error Corrections.


6

Table of Contents

The Company adopted ASU No. 2016-02 and all subsequent updates issued to clarify and improve specific areas of this ASU as of January 1, 2019. The Company elected an optional transition method to apply the new guidance at the date of adoption (i.e. January 1, 2019) and continue applying current lease accounting guidance for comparative periods (i.e. fiscal periods in 2018). As a result, as of January 1, 2019, the Company recognized a separate lease liability and right of use asset of approximately $199.4 million and $170.6 million, respectively, for leasing arrangements in which the Company is a lessee. The difference in the separate lease liability and right of use asset represents any remaining amounts related to prepayments, payment deferrals and lease incentives as of January 1, 2019. As of March 31, 2019, the separate lease liability and right of use asset was $196.9 million and $165.8 million, respectively. The separate liability and asset are included within accrued interest payable and other liabilities and accrued interest receivable and other assets, respectively, within the Company's Consolidated Statements of Condition. The leasing arrangements requiring recognition on the Consolidated Statements of Condition primarily related to certain banking facilities under operating lease agreements as well as other leasing arrangements in which the Company has the right of use of specific signage related to sponsorships and other agreements and certain automatic teller machines and other equipment. The Company utilized the following other transition elections and practical expedients:

For lessee arrangements of certain classes of underlying assets, including banking facilities and equipment, the Company elected the practical expedient to not separate non-lease components from lease components and instead to account for each separate lease and non-lease component as a single lease component.
For lessor arrangements that meet certain criteria (leasing of space in owned facilities), the Company elected the practical expedient to account for each separate lease and non-lease component as a single lease component.
A package of practical expedients applied to leases existing prior to the effective date that must all be elected together and allow a Company to not reassess:
whether any expiring or existing contracts are or contain a lease;
lease classification for any expired or existing leases; and
whether initial direct costs for any expired or existing leases qualify for capitalization.
A practical expedient that permits the Company to continue applying its current policy for accounting for expired or existing land easements.
An accounting policy election for short-term leases (i.e. terms of 12 months or less with no purchase option expected to be exercised) to apply accounting similar to ASC 840, specifically to not recognize separate lease liabilities and right of use assets.

As noted above, in accordance with ASU No. 2016-02 and all subsequent updates, the Company recognized a separate lease liability and right of use asset related to leasing arrangements in which the Company is the lessee of the identified asset. These lease arrangements include primarily the use of certain buildings, retail space and office space for the the Company's operations and are considered operating leases. The underlying agreements of these arrangements often require fixed payments on a monthly basis. These fixed payments are included as consideration when measuring the separate lease liability and right of use asset noted above. Other payments are made on a monthly basis for certain items that are considered variable, including payments for insurance, real estate taxes and maintenance. Additionally, underlying agreements often have an initial period of use followed by certain extension periods. The Company considers such extensions for purposes of lease classification and the measurement of the separate lease liability and right of use asset. If the Company is reasonably certain to elect to extend the leasing arrangement, the lease term would include these periods for the purposes noted above. As a lessee, the Company cannot readily determine the rate implicit in the lease. As a result, the Company uses its incremental borrowing rate when measuring the separate lease liability and right of use asset. The Company estimated the incremental borrowing rate as the rate of interest that would be paid to borrow on a collateralized basis over a similar term in a similar economic environment.


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Table of Contents

The following tables provide a summary of lease costs and future required fixed payments related to the Company's leasing arrangements in which it is the lessee:

 
 
Three Months Ended
(Dollars in thousands)
 
March 31,
2019
Operating lease cost
 
$
6,095

Short-term lease cost
 
181

Variable lease cost
 
776

Sublease income
 
(83
)
Total lease cost
 
$
6,969

 
 
 
Cash paid for amounts included in the measurement of operating lease liabilities
 
$
5,763

Weighted average remaining lease term - operating leases
 
13.8 years

Weighted average discount rate - operating leases
 
3.96
%
(Dollars in thousands)
 
Payments
Remaining in 2019
 
$
19,657

2020
 
22,596

2021
 
20,860

2022
 
20,104

2023
 
18,084

2024
 
17,167

2025 and thereafter
 
146,202

Total minimum future amounts
 
$
264,670

Impact of measuring the lease liability on a discounted basis
 
(67,817
)
Total lease liability
 
$
196,853


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 held-to-maturity debt securities and 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 FASB has continued to issue various updates to clarify and improve specific areas of ASU No. 2016-13. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” to clarify the implementation guidance within ASU No. 2016-13 surrounding narrow aspects of Topic 326, including the impact of the guidance on operating lease receivables. Like ASU No. 2016-13, 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 has continued its efforts in implementation of ASU No. 2016-13 and all subsequent updates issued to clarify and improve specific areas of this ASU. At this time, the Company is finalizing potential accounting policy elections and modeling methodologies for estimating expected credit losses using reasonable and supportable forecast information. Additionally, the Company is utilizing certain historical data and a previously selected platform to build, store, execute and determine the financial impact. Controls and processes are also being designed for the continued implementation process and after the effective date.


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Table of Contents

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.

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. The Company adopted ASU No. 2017-08 as of January 1, 2019 under a modified retrospective approach. As a result, the Company recognized a cumulative effect adjustment of $1.5 million representing the accelerated amortization of premiums on certain callable debt securities directly to retained earnings on the Company's Consolidated Statements of Condition.

Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurement,” to modify disclosure requirements on fair value measurements and inputs. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is to be applied prospectively or retrospectively depending upon the disclosure requirement. Early adoption is permitted. The Company does not expect this guidance to have a material impact on the Company's consolidated financial statements.

Intangibles

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with similar requirements related to implementation costs incurred to develop or obtain internal-use software. In addition, the amendment requires any capitalized implementation costs related to a hosting arrangement to be expensed over the term of the hosting arrangement. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is to be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

Codification Improvements

In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”. The FASB has continued to issue various updates to clarify and improve specific areas of ASU No. 2016-01, ASU No. 2016-13, and ASU No. 2017-12. Amendments related to ASU No. 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and can be early adopted, under a modified retrospective approach, since the Company has already adopted ASU No. 2016-01. Since the Company has not yet adopted ASU No. 2016-13, the effective dates and transition requirements for the amendments related to ASU No. 2019-04 are the same as the effective dates and transition requirements in ASU No. 2016-13 described above. Amendments related to ASU No. 2017-12 are effective as of the beginning of the first annual period beginning after the issuance date of ASU No. 2019-04 and can be early adopted since the Company has already adopted ASU No. 2017-12. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.


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Table of Contents

(3) Business Combinations and Asset Acquisitions

Bank Acquisitions

On December 7, 2018, the Company completed its acquisition of certain assets and the assumption of certain liabilities of American Enterprise Bank ("AEB"). Through this asset acquisition, the Company acquired approximately $164.0 million in assets, including approximately $119.3 million in loans, and approximately $150.8 million in deposits.

On August 1, 2018, the Company completed its acquisition of Chicago Shore Corporation ("CSC"). CSC was the parent company of Delaware Place Bank. Through this business combination, the Company acquired Delaware Place Bank’s one banking location in Chicago, Illinois, approximately $282.8 million in assets, including approximately $152.7 million in loans, and approximately $213.1 million in deposits. Additionally, the Company recorded goodwill of $26.5 million on the acquisition.

Mortgage Banking Acquisitions

On January 4, 2018, the Company acquired iFreedom Direct Corporation DBA Veterans First Mortgage ("Veterans First") with assets including mortgage-servicing-rights on approximately 10,000 loans, totaling an estimated $1.6 billion in unpaid principal balance. The Company recorded goodwill of $9.1 million on the acquisition.

Wealth Management Acquisitions

On December 14, 2018, the Company acquired Elektra Holding Company, LLC ("Elektra"), the parent company of Chicago Deferred Exchange Company, LLC ("CDEC"). CDEC is a provider of Qualified Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031. CDEC has successfully facilitated more than 8,000 like-kind exchanges in the past decade for taxpayers nationwide. These transactions typically generate customer deposits during the period following the sale of the property until such proceeds are used to purchase a replacement property. The Company recoded goodwill of $37.6 million on the acquisition.

Purchased Credit Impaired ("PCI") Loans

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. 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. These items are included within the Company’s Consolidated Statements of Condition as cash and due from banks, and federal funds sold and securities purchased under resale agreements.

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Table of Contents

(5) Investment Securities

The following tables are a summary of the investment securities portfolios as of the dates shown:
 
March 31, 2019
(Dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Available-for-sale securities
 
 
 
 
 
 
 
U.S. Treasury
$
126,236

 
$
579

 
$
(97
)
 
$
126,718

U.S. Government agencies
129,258

 
1,431

 
(2
)
 
130,687

Municipal
132,870

 
3,701

 
(218
)
 
136,353

Corporate notes:
 
 
 
 
 
 
 
Financial issuers
97,072

 
63

 
(4,802
)
 
92,333

Other
1,000

 

 

 
1,000

Mortgage-backed: (1)
 
 
 
 
 
 
 
Mortgage-backed securities
1,677,903

 
6,041

 
(27,662
)
 
1,656,282

Collateralized mortgage obligations
42,514

 
293

 
(398
)
 
42,409

Total available-for-sale securities
$
2,206,853

 
$
12,108

 
$
(33,179
)
 
$
2,185,782

Held-to-maturity securities
 
 
 
 
 
 
 
U.S. Government agencies
$
806,293

 
$
1,945

 
$
(14,580
)
 
$
793,658

Municipal
245,249

 
3,669

 
(881
)
 
248,037

Total held-to-maturity securities
$
1,051,542

 
$
5,614

 
$
(15,461
)
 
$
1,041,695

Equity securities with readily determinable fair value
$
45,915

 
$
2,708

 
$
(970
)
 
$
47,653


 
December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
(Dollars in thousands)
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
U.S. Treasury
$
126,199

 
$
391

 
$
(186
)
 
$
126,404

U.S. Government agencies
139,420

 
917

 
(30
)
 
140,307

Municipal
136,831

 
2,427

 
(768
)
 
138,490

Corporate notes:
 
 
 
 
 
 
 
Financial issuers
97,079

 
35

 
(7,069
)
 
90,045

Other
1,000

 

 

 
1,000

Mortgage-backed: (1)
 
 
 
 
 
 
 
Mortgage-backed securities
1,641,146

 
2,510

 
(57,317
)
 
1,586,339

Collateralized mortgage obligations
43,819

 
500

 
(823
)
 
43,496

Total available-for-sale securities
$
2,185,494

 
$
6,780

 
$
(66,193
)
 
$
2,126,081

Held-to-maturity securities
 
 
 
 
 
 
 
U.S. Government agencies
$
814,864

 
$
1,141

 
$
(28,576
)
 
$
787,429

Municipal
252,575

 
1,100

 
(5,008
)
 
248,667

Total held-to-maturity securities
$
1,067,439

 
$
2,241

 
$
(33,584
)
 
$
1,036,096

Equity securities with readily determinable fair value
$
34,410

 
$
1,532

 
$
(1,225
)
 
$
34,717

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


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Table of Contents

 
March 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
(Dollars in thousands)
 
 
 
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

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
$
34,230

 
$
4,670

 
$
(1,068
)
 
$
37,832

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

Equity securities without readily determinable fair values totaled $27.0 million as of March 31, 2019. 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. The Company recorded no upward or downward adjustments on such securities in the first quarter of 2019 related to observable price changes in orderly transactions for the identical or a similar investment of the same issuer. 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, 2019:
 
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
$

 
$

 
$
24,908

 
$
(97
)
 
$
24,908

 
$
(97
)
U.S. Government agencies

 

 
208

 
(2
)
 
208

 
(2
)
Municipal
6,448

 
(12
)
 
15,087

 
(206
)
 
21,535

 
(218
)
Corporate notes:
 
 
 
 
 
 
 
 
 
 
 
Financial issuers
9,987

 
(11
)
 
72,283

 
(4,791
)
 
82,270

 
(4,802
)
Other

 

 

 

 

 

Mortgage-backed:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities

 

 
1,315,030

 
(27,662
)
 
1,315,030

 
(27,662
)
Collateralized mortgage obligations

 

 
13,708

 
(398
)
 
13,708

 
(398
)
Total available-for-sale securities
$
16,435

 
$
(23
)
 
$
1,441,224

 
$
(33,156
)
 
$
1,457,659

 
$
(33,179
)
Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies
$

 
$

 
$
403,196

 
$
(14,580
)
 
$
403,196

 
$
(14,580
)
Municipal
7,951

 
(111
)
 
50,196

 
(770
)
 
58,147

 
(881
)
Total held-to-maturity securities
$
7,951

 
$
(111
)
 
$
453,392

 
$
(15,350
)
 
$
461,343

 
$
(15,461
)


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Table of Contents

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

The Company does not consider securities with unrealized losses at March 31, 2019 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 corporate notes.

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

 
Three months ended March 31,
(Dollars in thousands)
2019
 
2018
Realized gains on investment securities
$
17

 
$

Realized losses on investment securities
(84
)
 
(975
)
Net realized losses on investment securities
(67
)
 
$
(975
)
Unrealized gains on equity securities with readily determinable fair value
1,431

 
1,873

Unrealized losses on equity securities with readily determinable fair value

 
(843
)
Net unrealized gains on equity securities with readily determinable fair value
1,431

 
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

 

Gains (losses) on investment securities, net
$
1,364

 
$
(351
)
Proceeds from sales of available-for-sale securities
$
263,456

 
$
210,891

Proceeds from sales of equity securities with readily determinable fair value

 

Proceeds from sales and capital distributions of equity securities without readily determinable fair value
220

 


During the three months ended March 31, 2019, the Company recorded no of impairment of equity securities without readily determinable fair values. 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.


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Table of Contents

The amortized cost and fair value of available-for-sale and held-to-maturity investment securities as of March 31, 2019, December 31, 2018 and March 31, 2018, 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, 2019
 
December 31, 2018
 
March 31, 2018
(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
$
68,996

 
$
69,060

 
$
82,206

 
$
82,153

 
$
180,899

 
$
180,333

Due in one to five years
171,058

 
172,673

 
168,855

 
169,307

 
90,073

 
89,953

Due in five to ten years
116,901

 
113,825

 
121,129

 
115,206

 
116,909

 
116,517

Due after ten years
129,481

 
131,533

 
128,339

 
129,580

 
8,730

 
8,732

Mortgage-backed
1,720,417

 
1,698,691

 
1,684,965

 
1,629,835

 
1,566,257

 
1,500,153

Total available-for-sale securities
$
2,206,853

 
$
2,185,782

 
$
2,185,494

 
$
2,126,081

 
$
1,962,868

 
$
1,895,688

Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
$
9,134

 
$
9,112

 
$
10,009

 
$
9,979

 
$
3,786

 
$
3,775

Due in one to five years
27,477

 
27,539

 
29,436

 
28,995

 
34,495

 
33,994

Due in five to ten years
301,971

 
302,066

 
295,897

 
290,206

 
210,705

 
205,823

Due after ten years
712,960

 
702,978

 
732,097

 
706,916

 
643,951

 
618,935

Total held-to-maturity securities
$
1,051,542

 
$
1,041,695

 
$
1,067,439

 
$
1,036,096

 
$
892,937

 
$
862,527


Securities having a fair value of $1.7 billion at March 31, 2019 as well as securities having a fair value of $1.7 billion and $1.5 billion at December 31, 2018 and March 31, 2018, 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, 2019, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.

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Table of Contents

(6) Loans

The following table shows the Company’s loan portfolio by category as of the dates shown:
 
March 31,
 
December 31,
 
March 31,
(Dollars in thousands)
2019
 
2018
 
2018
Balance:
 
 
 
 
 
Commercial
$
7,994,191

 
$
7,828,538

 
$
7,060,871

Commercial real estate
6,973,505

 
6,933,252

 
6,633,520

Home equity
528,448

 
552,343

 
626,547

Residential real estate
1,053,524

 
1,002,464

 
869,104

Premium finance receivables—commercial
2,988,788

 
2,841,659

 
2,576,150

Premium finance receivables—life insurance
4,555,369

 
4,541,794

 
4,189,961

Consumer and other
120,804

 
120,641

 
105,981

Total loans, net of unearned income
$
24,214,629

 
$
23,820,691

 
$
22,062,134

Mix:
 
 
 
 
 
Commercial
33
%
 
33
%
 
32
%
Commercial real estate
29

 
29

 
30

Home equity
2

 
2

 
3

Residential real estate
4

 
4

 
4

Premium finance receivables—commercial
12

 
12

 
12

Premium finance receivables—life insurance
19

 
19

 
19

Consumer and other
1

 
1

 

Total loans, net of unearned income
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 $110.0 million at March 31, 2019, $112.9 million at December 31, 2018 and $85.4 million at March 31, 2018.

Total loans, excluding PCI loans, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $6.4 million at March 31, 2019, $4.5 million at December 31, 2018 and $9.4 million at March 31, 2018. 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.

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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, 2019
 
December 31, 2018
 
(Dollars in thousands)
Unpaid
Principal
Balance
 
Carrying
Value
 
Unpaid
Principal
Balance
 
Carrying
Value
 
 
PCI loans
$
334,654

 
$
313,221

 
$
341,555

 
$
318,394


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, 2019.

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,
2019
 
March 31,
2018
Accretable yield, beginning balance
$
34,876

 
$
36,565

Acquisitions

 

Accretable yield amortized to interest income
(3,829
)
 
(4,619
)
Reclassification from non-accretable difference (1)
1,574

 
1,556

Increases in interest cash flows due to payments and changes in interest rates
1,471

 
2,190

Accretable yield, ending balance
$
34,092

 
$
35,692

(1)
Reclassification is the result of subsequent increases in expected principal cash flows.

Accretion to interest income accounted for under ASC 310-30 totaled $3.8 million and $4.6 million in the first quarter of 2019 and 2018, respectively. These amounts are included within interest and fees on loans in the Consolidated Statements of Income.


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Table of Contents

(7) Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans

The tables below show the aging of the Company’s loan portfolio at March 31, 2019December 31, 2018 and March 31, 2018:
As of March 31, 2019
 
 
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
$
38,858

 
$

 
$
1,787

 
$
38,094

 
$
5,172,214

 
$
5,250,953

Franchise
15,799

 

 

 
534

 
863,573

 
879,906

Mortgage warehouse lines of credit

 

 

 

 
174,284

 
174,284

Asset-based lending
1,135

 

 

 
7,821

 
1,031,878

 
1,040,834

Leases

 

 

 
2,796

 
620,088

 
622,884

PCI - commercial (1)

 
2,499

 

 
455

 
22,376

 
25,330

Total commercial
55,792

 
2,499

 
1,787

 
49,700

 
7,884,413

 
7,994,191

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Construction
1,030

 

 
496

 
3,877

 
798,266

 
803,669

Land
54

 

 

 
3,888

 
143,759

 
147,701

Office
4,482

 

 

 
3,364

 
918,529

 
926,375

Industrial
267

 

 
1,039

 
10,643

 
953,011

 
964,960

Retail
7,645

 

 

 
8,149

 
879,473

 
895,267

Multi-family
303

 

 
187

 
675

 
1,116,220

 
1,117,385

Mixed use and other
2,152

 

 
1,084

 
17,243

 
1,987,008

 
2,007,487

PCI - commercial real estate (1)

 
4,265

 
2,806

 
7,033

 
96,557

 
110,661

Total commercial real estate
15,933

 
4,265

 
5,612

 
54,872

 
6,892,823

 
6,973,505

Home equity
7,885

 

 
810

 
4,315

 
515,438

 
528,448

Residential real estate, including PCI
15,879

 
1,481

 
509

 
11,112

 
1,024,543

 
1,053,524

Premium finance receivables
 
 
 
 
 
 
 
 
 
 
 
Commercial insurance loans
14,797

 
6,558

 
5,628

 
20,767

 
2,941,038

 
2,988,788

Life insurance loans

 
168

 
4,788

 
35,046

 
4,349,597

 
4,389,599

PCI - life insurance loans (1)

 

 

 

 
165,770

 
165,770

Consumer and other, including PCI
326

 
280

 
47

 
350

 
119,801

 
120,804

Total loans, net of unearned income
$
110,612

 
$
15,251

 
$
19,181

 
$
176,162

 
$
23,893,423

 
$
24,214,629


As of December 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
$
34,298

 
$

 
$
1,451

 
$
21,618

 
$
5,062,729

 
$