XFRA:WF2 Wintrust Financial Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

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.)

727 North Bank Lane

Lake Forest, Illinois 60045

(Address of principal executive offices)

(847) 615-4096

(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  x    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  x    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   x    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  x

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, 36,318,332 shares, as of April 30, 2012

 

 

 


Table of Contents

TABLE OF CONTENTS

PART I. — FINANCIAL INFORMATION

 

          Page  

ITEM 1.

  Financial Statements.      1   

ITEM 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations.      48   

ITEM 3.

  Quantitative and Qualitative Disclosures About Market Risk.      92   

ITEM 4.

  Controls and Procedures.      94   
PART II. — OTHER INFORMATION   

ITEM 1.

  Legal Proceedings.      NA   

ITEM 1A.

  Risk Factors.      94   

ITEM 2.

  Unregistered Sales of Equity Securities and Use of Proceeds.      94   

ITEM 3.

  Defaults Upon Senior Securities.      NA   

ITEM 4.

  Mine Safety Disclosures.      NA   

ITEM 5.

  Other Information.      NA   

ITEM 6.

  Exhibits.      95   

.

  Signatures.      96   


Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

 

(In thousands, except share data)

   (Unaudited)
March 31,
2012
    December 31,
2011
    (Unaudited)
March 31,
2011
 

Assets

      

Cash and due from banks

   $ 146,014      $ 148,012      $ 140,919   

Federal funds sold and securities purchased under resale agreements

     14,588        21,692        33,575   

Interest-bearing deposits with other banks (balance restricted for securitization investors of $529,418 at March 31, 2012, $272,592 at December 31, 2011, and $35,630 at March 31, 2011)

     900,755        749,287        946,193   

Available-for-sale securities, at fair value

     1,869,344        1,291,797        1,710,321   

Trading account securities

     1,140        2,490        2,229   

Federal Home Loan Bank and Federal Reserve Bank stock

     88,216        100,434        85,144   

Brokerage customer receivables

     31,085        27,925        25,361   

Mortgage loans held-for-sale, at fair value

     339,600        306,838        92,151   

Mortgage loans held-for-sale, at lower of cost or market

     10,728        13,686        2,335   

Loans, net of unearned income, excluding covered loans

     10,717,384        10,521,377        9,561,802   

Covered loans

     691,220        651,368        431,299   
  

 

 

   

 

 

   

 

 

 

Total loans

     11,408,604        11,172,745        9,993,101   

Less: Allowance for loan losses

     111,023        110,381        115,049   

Less: Allowance for covered loan losses

     17,735        12,977        4,844   
  

 

 

   

 

 

   

 

 

 

Net loans (balance restricted for securitization investors of $156,132 at March 31, 2012, $411,532 at December 31, 2011, and $647,793 at March 31, 2011)

     11,279,846        11,049,387        9,873,208   

Premises and equipment, net

     434,700        431,512        369,785   

FDIC indemnification asset

     263,212        344,251        124,785   

Accrued interest receivable and other assets

     463,394        444,912        394,292   

Trade date securities receivable

     —          634,047        —     

Goodwill

     307,295        305,468        281,940   

Other intangible assets

     22,101        22,070        12,056   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 16,172,018      $ 15,893,808      $ 14,094,294   
  

 

 

   

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

      

Deposits:

      

Non-interest bearing

   $ 1,901,753      $ 1,785,433      $ 1,279,256   

Interest bearing

     10,764,100        10,521,834        9,635,913   
  

 

 

   

 

 

   

 

 

 

Total deposits

     12,665,853        12,307,267        10,915,169   

Notes payable

     52,639        52,822        1,000   

Federal Home Loan Bank advances

     466,391        474,481        423,500   

Other borrowings

     411,037        443,753        250,032   

Secured borrowings - owed to securitization investors

     428,000        600,000        600,000   

Subordinated notes

     35,000        35,000        50,000   

Junior subordinated debentures

     249,493        249,493        249,493   

Trade date securities payable

     —          47        10,000   

Accrued interest payable and other liabilities

     175,684        187,412        141,847   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     14,484,097        14,350,275        12,641,041   
  

 

 

   

 

 

   

 

 

 

Shareholders’ Equity:

      

Preferred stock, no par value; 20,000,000 shares authorized:

      

Series A - $1,000 liquidation value; 50,000 shares issued and outstanding at March 31, 2012, December 31, 2011 and March 31, 2011

     49,802        49,768        49,672   

Series C - $1,000 liquidation value; 126,500 shares issued and outstanding at March 31, 2012, and no shares issued and outstanding at December 31, 2011 and March 31, 2011

     126,500        —          —     

Common stock, no par value; $1.00 stated value; 60,000,000 shares authorized; 36,521,562 shares issued at March 31, 2012, 35,981,950 shares issued at December 31, 2011, and 34,947,251 shares issued at March 31, 2011

     36,522        35,982        34,947   

Surplus

     1,008,326        1,001,316        967,587   

Treasury stock, at cost, 232,182 shares at March 31, 2012, 3,601 shares at December 31, 2011, and 1,069 shares at March 31, 2011

     (6,559     (112     (74

Retained earnings

     478,160        459,457        404,580   

Accumulated other comprehensive loss

     (4,830     (2,878     (3,459
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     1,687,921        1,543,533        1,453,253   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 16,172,018      $ 15,893,808      $ 14,094,294   
  

 

 

   

 

 

   

 

 

 

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
March 31,
 

(In thousands, except per share data)

   2012      2011  

Interest income

     

Interest and fees on loans

   $ 143,555       $ 136,543   

Interest bearing deposits with banks

     248         936   

Federal funds sold and securities purchased under resale agreements

     12         32   

Securities

     11,847         9,540   

Trading account securities

     9         13   

Federal Home Loan Bank and Federal Reserve Bank stock

     604         550   

Brokerage customer receivables

     211         166   
  

 

 

    

 

 

 

Total interest income

     156,486         147,780   
  

 

 

    

 

 

 

Interest expense

     

Interest on deposits

     18,030         23,956   

Interest on Federal Home Loan Bank advances

     3,584         3,958   

Interest on notes payable and other borrowings

     3,102         2,630   

Interest on secured borrowings - owed to securitization investors

     2,549         3,040   

Interest on subordinated notes

     169         212   

Interest on junior subordinated debentures

     3,157         4,370   
  

 

 

    

 

 

 

Total interest expense

     30,591         38,166   
  

 

 

    

 

 

 

Net interest income

     125,895         109,614   

Provision for credit losses

     17,400         25,344   
  

 

 

    

 

 

 

Net interest income after provision for credit losses

     108,495         84,270   
  

 

 

    

 

 

 

Non-interest income

     

Wealth management

     12,401         10,236   

Mortgage banking

     18,534         11,631   

Service charges on deposit accounts

     4,208         3,311   

Gains on available-for-sale securities, net

     816         106   

Gain on bargain purchases

     840         9,838   

Trading gains (losses)

     146         (440

Other

     10,078         6,205   
  

 

 

    

 

 

 

Total non-interest income

     47,023         40,887   
  

 

 

    

 

 

 

Non-interest expense

     

Salaries and employee benefits

     69,030         56,099   

Equipment

     5,400         4,264   

Occupancy, net

     8,062         6,505   

Data processing

     3,618         3,523   

Advertising and marketing

     2,006         1,614   

Professional fees

     3,604         3,546   

Amortization of other intangible assets

     1,049         689   

FDIC insurance

     3,357         4,518   

OREO expenses, net

     7,178         5,808   

Other

     14,455         11,543   
  

 

 

    

 

 

 

Total non-interest expense

     117,759         98,109   
  

 

 

    

 

 

 

Income before taxes

     37,759         27,048   

Income tax expense

     14,549         10,646   
  

 

 

    

 

 

 

Net income

   $ 23,210       $ 16,402   
  

 

 

    

 

 

 

Preferred stock dividends and discount accretion

   $ 1,246       $ 1,031   
  

 

 

    

 

 

 

Net income applicable to common shares

   $ 21,964       $ 15,371   
  

 

 

    

 

 

 

Net income per common share - Basic

   $ 0.61       $ 0.44   
  

 

 

    

 

 

 

Net income per common share - Diluted

   $ 0.50       $ 0.36   
  

 

 

    

 

 

 

Cash dividends declared per common share

   $ 0.09       $ 0.09   
  

 

 

    

 

 

 

Weighted average common shares outstanding

     36,207         34,928   

Dilutive potential common shares

     7,530         7,794   
  

 

 

    

 

 

 

Average common shares and dilutive common shares

     43,737         42,722   
  

 

 

    

 

 

 

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
March 31,
 

(In thousands)

   2012     2011  

Net income

   $ 23,210      $ 16,402   

Unrealized gains (losses) on securities

    

Before tax

     (3,219     1,370   

Tax effect

     1,276        (558
  

 

 

   

 

 

 

Net of tax

     (1,943     812   
  

 

 

   

 

 

 

Reclassification of net gains included in net income

    

Before tax

     816        106   

Tax effect

     (327     (43
  

 

 

   

 

 

 

Net of tax

     489        63   
  

 

 

   

 

 

 

Net unrealized gains (losses) on securities

     (2,432     749   
  

 

 

   

 

 

 

Unrealized gains on derivative instruments

    

Before tax

     796        2,121   

Tax effect

     (316     (817
  

 

 

   

 

 

 

Net of tax

     480        1,304   
  

 

 

   

 

 

 

Total other comprehensive income (loss)

     (1,952     2,053   
  

 

 

   

 

 

 

Comprehensive income

   $ 21,258      $ 18,455   
  

 

 

   

 

 

 

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
income (loss)
    Total
shareholder’s
equity
 

Balance at December 31, 2010

   $ 49,640       $ 34,864       $ 965,203      $ —        $ 392,354      $ (5,512   $ 1,436,549   

Net income

     —           —           —          —          16,402        —          16,402   

Other comprehensive income, net of tax

     —           —           —          —          —          2,053        2,053   

Cash dividends declared on common stock

     —           —           —          —          (3,145     —          (3,145

Dividends on preferred stock

     —           —           —          —          (999     —          (999

Accretion on preferred stock

     32         —           —          —          (32     —          —     

Common stock repurchases

     —           —           —          (74     —          —          (74

Stock-based compensation

     —           —           1,094        —          —          —          1,094   

Common stock issued for:

                

Exercise of stock options and warrants

     —           33         546        —          —          —          579   

Restricted stock awards

     —           12         (16     —          —          —          (4

Employee stock purchase plan

     —           13         423        —          —          —          436   

Director compensation plan

     —           25         337        —          —          —          362   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

   $ 49,672       $ 34,947       $ 967,587      $ (74   $ 404,580      $ (3,459   $ 1,453,253   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

   $ 49,768       $ 35,982       $ 1,001,316      $ (112   $ 459,457      $ (2,878   $ 1,543,533   

Net income

     —           —           —          —          23,210        —          23,210   

Other comprehensive income, net of tax

     —           —           —          —          —          (1,952     (1,952

Cash dividends declared on common stock

     —           —           —          —          (3,261     —          (3,261

Dividends on preferred stock

     —           —           —          —          (1,212     —          (1,212

Accretion on preferred stock

     34         —           —          —          (34     —          —     

Stock-based compensation

     —           —           2,289        —          —          —          2,289   

Issuance of Series C preferred stock

     126,500         —           (3,810     —          —          —          122,690   

Common stock issued for:

                

Exercise of stock options and warrants

     —           407         7,822        (5,592     —          —          2,637   

Restricted stock awards

     —           94         (94     (855     —          —          (855

Employee stock purchase plan

     —           17         465        —          —          —          482   

Director compensation plan

     —           22         338        —          —          —          360   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

   $ 176,302       $ 36,522       $ 1,008,326      $ (6,559   $ 478,160      $ (4,830   $ 1,687,921   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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
March 31,
 

(In thousands)

   2012     2011  

Operating Activities:

    

Net income

   $ 23,210      $ 16,402   

Adjustments to reconcile net income to net cash provided by operating activities

    

Provision for credit losses

     17,400        25,344   

Depreciation and amortization

     5,627        5,551   

Stock-based compensation expense

     2,289        1,094   

Tax benefit from stock-based compensation arrangements

     12        235   

Excess tax benefits from stock-based compensation arrangements

     (643     (194

Net (accretion) amortization of (discount) premium on securities

     (2,092     4,176   

Mortgage servicing rights fair value change and amortization, net

     (514     (140

Originations and purchases of mortgage loans held-for-sale

     (714,655     (562,088

Proceeds from sales of mortgage loans held-for-sale

     699,315        843,209   

Bank owned life insurance income, net of claims

     (919     (876

Decrease in trading securities, net

     1,350        2,650   

Net increase in brokerage customer receivables

     (3,160     (812

Gains on mortgage loans sold

     (14,464     (4,160

Gains on available-for-sale securities, net

     (816     (106

Gain on bargain purchases

     (840     (9,838

Debt defeasance costs

     848        —     

Loss on sales of premises and equipment, net

     12        —     

Decrease in accrued interest receivable and other assets, net

     107,929        47,043   

Decrease in accrued interest payable and other liabilities, net

     (11,689     (16,406
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     108,200        351,084   
  

 

 

   

 

 

 

Investing Activities:

    

Proceeds from maturities of available-for-sale securities

     280,110        284,469   

Proceeds from sales of available-for-sale securities

     737,369        50,142   

Purchases of available-for-sale securities

     (952,853     (541,199

Net cash received for acquisitions

     8,191        21,371   

Net increase in interest-bearing deposits with banks

     (151,033     (56,222

Net (increase) decrease in loans

     (206,246     17,691   

Purchases of premises and equipment, net

     (8,501     (10,557
  

 

 

   

 

 

 

Net Cash Used for Investing Activities

     (292,963     (234,305
  

 

 

   

 

 

 

Financing Activities:

    

Increase (decrease) in deposit accounts

     269,326        (100,938

Decrease in other borrowings, net

     (34,141     (10,808

Decrease in Federal Home Loan Bank advances, net

     (8,000     —     

Excess tax benefits from stock-based compensation arrangements

     643        194   

Net proceeds from issuance of preferred stock

     122,690        —     

Debt defeasance

     (172,848     —     

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

     8,699        905   

Common stock repurchases

     (6,447     (74

Dividends paid

     (4,261     (4,144
  

 

 

   

 

 

 

Net Cash Provided by (Used for) Financing Activities

     175,661        (114,865
  

 

 

   

 

 

 

Net (Decrease) Increase in Cash and Cash Equivalents

     (9,102     1,914   

Cash and Cash Equivalents at Beginning of Period

     169,704        172,580   
  

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

   $ 160,602      $ 174,494   
  

 

 

   

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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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. 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, 2011 (“2011 Form 10-K”). Operating results reported for the three-month period are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.

The preparation of the financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities. Management believes that the estimates made are reasonable, however, changes in estimates may be required if economic or other conditions develop differently from management’s expectations. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses, allowance for covered loan losses and the allowance for losses on lending-related commitments, loans acquired with evidence of credit quality deterioration since origination, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Descriptions of our significant accounting policies are included in Note 1 “Summary of Significant Accounting Policies” of the Company’s 2011 Form 10-K.

(2) Recent Accounting Developments

Goodwill Impairment Testing

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment,” which presents a qualitative approach to test goodwill for impairment. This ASU provides entities the option to assess qualitative factors to determine if impairment of goodwill exists. If examination of the qualitative factors yields a determination that it is not more likely than not that impairment exists, then it is not necessary for the Company to perform the two-step impairment test. This guidance is effective for fiscal periods beginning after December 15, 2011. As such, the Company will consider this guidance in conjunction with its goodwill impairment testing in 2012. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Presentation of Comprehensive Income

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” which amends the presentation formats permitted for reporting other comprehensive income. This ASU no longer allows other comprehensive income to be presented as part of the statement of changes in shareholder’s equity. Entities must present other comprehensive income and its components in a single statement along with net income or in a separate, consecutive statement of other comprehensive income. This guidance is effective for fiscal and interim periods beginning after December 15, 2011. However, in December 2011, the FASB issued ASU No. 2011-12 “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” which deferred the ASU No. 2011-05 provision requiring companies to present reclassification adjustments for each component of other comprehensive income in both net income and other comprehensive income on the face of the financial statements. This deferral does not change the requirement to present items of net income, other comprehensive income and total comprehensive income in either a continuous statement or consecutive statements as of the effective date noted above. The Company adopted ASU No. 2011-05 in the first quarter of 2012 and is including separate consolidated statements of comprehensive income in accordance with the above guidance.

Amended Guidance for Fair Value Measurement and Disclosure

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” which amends the language used to describe U.S. GAAP requirements for measuring fair value and for disclosing information about fair value measurements. The amended language

 

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seeks to clarify the application of existing guidance as well as change the measurement and disclosure of a few specific items. The principles changed include measurement of financial instruments that are managed within a portfolio and application of premiums and discounts in fair value measurement. The new guidance will also require additional disclosures including expanded disclosures for measurements categorized within level three of the fair value hierarchy, disclosures for nonfinancial assets at fair value and disclosure displaying the fair value hierarchy by level for items in the statement of financial position that are not measured at fair value but for which a fair value is required to be disclosed. The guidance is effective during interim and annual periods beginning after December 15, 2011. The Company adopted this guidance in the first quarter of 2012 and is including additional disclosures to address the topics presented within this ASU. See Footnote 15 - “Fair Value of Assets and Liabilities” for the additional disclosures.

Changes to the Effective Control Assessment in Accounting for Transfers

In April 2011, the FASB issued ASU No. 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements,” which amends the criteria used to determine when an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements. The changes presented in this ASU are intended to improve the accounting for these transactions by removing the criterion requiring the transferor to have the ability to repurchase or redeem the transferred financial assets from the assessment of effective control. The guidance in this update is effective for the first interim or annual period beginning on or after December 15, 2011 and should be applied prospectively. The adoption of this guidance in the first quarter of 2012 did not have a material impact on the Company’s consolidated financial statements.

(3) Business Combinations

FDIC-Assisted Transactions

Since April 2010, the Company has acquired the banking operations, including the acquisition of certain assets and the assumption of liabilities, of seven financial institutions in FDIC-assisted transactions.

The following table presents details related to these transactions:

 

(Dollars in thousands)

   Lincoln
Park
     Wheatland      Ravenswood      Community First
Bank - Chicago
     The Bank of
Commerce
     First
Chicago
     Charter
National
 

Date of acquisition

    
 
April 23,
2010
  
  
    
 
April 23,
2010
  
  
    
 
August 6,
2010
  
  
    
 
February 4,
2011
  
  
    
 
March 25,
2011
  
  
    
 
July 8,
2011
  
  
    
 
February 10,
2012
  
  

Fair value of assets acquired, at the acquisition date

   $ 157,078       $ 343,870       $ 173,919       $ 50,891       $ 173,986       $ 768,873       $ 92,409   

Fair value of loans acquired, at the acquisition date

     103,420         175,277         97,956         27,332         77,887         330,203         45,555   

Fair value of liabilities assumed, at the acquisition date

     192,018         415,560         122,943         49,779         168,472         741,508         91,570   

Loans comprise the majority of the assets acquired in these 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, the 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. On February 10, 2012, the Company announced that its wholly-owned subsidiary bank, Barrington Bank, acquired certain assets and liabilities and the banking operations of Charter National Bank and Trust (“Charter National”) in an FDIC-assisted transaction. At the acquisition date, the Company estimated the fair value of the reimbursable losses to be approximately $13.2 million. In 2011, the Company estimated the fair value of the reimbursable losses to be approximately $273.3 million for the First Chicago Bank & Trust (“First Chicago”) acquisition, $48.9 million for The Bank of Commerce (“TBOC”) acquisition and $6.7 million for the Community First Bank-Chicago (“CFBC”) acquisition, at their respective acquisition dates. For the three acquisitions subject to loss share agreements in 2010, the Company estimated the fair value of the reimbursable losses to be approximately $44.0 million for the Ravenswood Bank (“Ravenswood”) acquisition, and $113.8 million for the Lincoln Park Savings Bank (“Lincoln Park”) and Wheatland Bank (“Wheatland”) acquisitions. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing the FDIC reimbursement of covered asset losses.

The loans covered by the loss sharing agreements are classified and presented as covered loans and the estimated reimbursable losses are recorded as an FDIC indemnification asset in the Consolidated Statements of Condition. The Company recorded the acquired assets and liabilities at their estimated fair values at the acquisition date. The fair value for loans reflected expected credit losses at the acquisition date. Therefore, the Company will only recognize a provision for credit losses and charge-offs on the acquired loans for any further credit deterioration. 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 Charter National acquisition resulted in bargain purchase gain of approximately $840,000. The 2011 transactions resulted in bargain purchase gains of a total of $38.0 million, including $27.4 million for First Chicago, $8.6 million for TBOC and $2.0 million for CFBC, and are shown as a component of non-

 

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interest income on the Company’s Consolidated Statements of Income. In 2010, FDIC-assisted transactions resulted in bargain purchase gains of a total of $33.3 million, including $6.8 million for Ravenswood, $22.3 million for Wheatland, and $4.2 million for Lincoln Park.

As stated above, in conjunction with FDIC-assisted transactions, the Company entered into loss share agreements with the FDIC. These agreements cover realized losses on loans, foreclosed real estate and certain other assets. These loss share assets 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 are also separately measured from the related loans and foreclosed real estate and recorded as FDIC indemnification assets 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. Although these assets are contractual receivables from the FDIC, there are no contractual interest rates. Additions to expected losses will require an increase to the allowance for loan losses and a corresponding increase to the FDIC indemnification assets. The corresponding accretion is recorded as a component of non-interest income on the Consolidated Statements of Income.

The following table summarizes the activity in the Company’s FDIC indemnification asset during the periods indicated:

 

     Three Months Ended  

(Dollars in thousands)

   March 31,
2012
    March 31,
2011
 

Balance at beginning of period

   $ 344,251      $ 118,182   

Additions

     20,028        51,159   

Accretion

     (1,576     359   

Changes in expected reimbursements from the FDIC for changes in expected credit losses

     (17,213     (9,406

Payments received from the FDIC

     (82,278     (35,509
  

 

 

   

 

 

 

Balance at end of period

   $ 263,212      $ 124,785   
  

 

 

   

 

 

 

Other Bank Acquisitions – 2011

On September 30, 2011, the Company acquired Elgin State Bancorp, Inc. (“ESBI”). ESBI was the parent company of Elgin State Bank, which operated three banking locations in Elgin, Illinois. As part of this transaction, Elgin State Bank was merged into the Company’s wholly-owned subsidiary bank, St. Charles Bank & Trust Company (“St. Charles”). St. Charles acquired assets with a fair value of approximately $263.2 million, including $146.7 million of loans, and assumed liabilities with a fair value of approximately $248.4 million, including $241.1 million of deposits. Additionally, the Company recorded goodwill of $5.0 million on the acquisition.

Wealth Management Acquisitions

On March 30, 2012, the Company’s wholly-owned subsidiary, The Chicago Trust Company, N.A. (“CTC”), completed its previously announced acquisition of the trust operations of Suburban Bank & Trust Company (“Suburban”). Through this transaction, CTC acquired trust accounts having assets under administration of approximately $160 million, in addition to land trust accounts. The Company recorded goodwill of $1.8 million on the acquisition. Certain purchase price allocations for the trust operations of Suburban are preliminary. The final allocation is not expected to result in material changes.

On July 1, 2011, the Company acquired Great Lakes Advisors, Inc. (“Great Lakes Advisors”), a Chicago-based investment manager with approximately $2.4 billion in assets under management. The Company acquired assets with a fair value of approximately $26.0 million and assumed liabilities with a fair value of approximately $8.8 million. The Company recorded goodwill of $15.7 million on the acquisition.

Mortgage Banking Acquisitions

On April 13, 2011, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of River City Mortgage, LLC (“River City”) of Bloomington, Minnesota. Licensed to originate loans in five states, and with offices in Minnesota, Nebraska and North Dakota, River City originated nearly $500 million in mortgage loans in 2010.

On February 3, 2011, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of Woodfield Planning Corporation (“Woodfield”) of Rolling Meadows, Illinois. With offices in Rolling Meadows, Illinois and Crystal Lake, Illinois, Woodfield originated approximately $180 million in mortgage loans in 2010.

 

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Purchased loans with evidence of credit quality deterioration since origination

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 purchased impaired 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 more information on loans acquired with evidence of credit quality deterioration since origination.

(4) Cash and Cash Equivalents

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

 

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Table of Contents

(5) Available-for-sale Securities

The following tables are a summary of the available-for-sale securities portfolio as of the dates shown:

 

     March 31, 2012  

(Dollars in thousands)

   Amortized
Cost
     Gross
unrealized
gains
     Gross
unrealized
losses
    Fair
Value
 

U.S. Treasury

   $ 23,063       $ 128       $ (2   $ 23,189   

U.S. Government agencies

     682,847         4,082         (4,149     682,780   

Municipal

     67,970         1,963         (18     69,915   

Corporate notes and other:

          

Financial issuers

     148,492         2,569         (9,044     142,017   

Other

     26,475         329         (5     26,799   

Mortgage-backed: (1)

          

Agency

     846,380         11,866         (806     857,440   

Non-agency CMOs

     28,423         286         (1     28,708   

Other equity securities

     42,664         111         (4,279     38,496   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 1,866,314       $ 21,334       $ (18,304   $ 1,869,344   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     December 31, 2011  

(Dollars in thousands)

   Amortized
Cost
     Gross
unrealized
gains
     Gross
unrealized
losses
    Fair
Value
 

U.S. Treasury

   $ 16,028       $ 145       $ —        $ 16,173   

U.S. Government agencies

     760,533         5,596         (213     765,916   

Municipal

     57,962         2,159         (23     60,098   

Corporate notes and other:

          

Financial issuers

     149,229         1,914         (8,499     142,644   

Other

     27,070         287         (65     27,292   

Mortgage-backed: (1)

          

Agency

     206,549         12,078         (15     218,612   

Non-agency CMOs

     29,767         175         (3     29,939   

Other equity securities

     37,595         48         (6,520     31,123   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 1,284,733       $ 22,402       $ (15,338   $ 1,291,797   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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

The following table presents the portion of the Company’s available-for-sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at March 31, 2012:

 

     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
 

U.S. Treasury

   $ 1,998       $ (2   $ —         $ —        $ 1,998       $ (2

U.S. Government agencies

     349,222         (4,149     —           —          349,222         (4,149

Municipal

     6,249         (18     —           —          6,249         (18

Corporate notes and other:

               

Financial issuers

     48,590         (4,654     51,556         (4,390     100,146         (9,044

Other

     1,085         (5     —           —          1,085         (5

Mortgage-backed:

               

Agency

     657,358         (806     —           —          657,358         (806

Non-agency CMOs

     907         (1     —           —          907         (1

Other equity securities

     26,121         (4,279     —           —          26,121         (4,279
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 1,091,530       $ (13,914   $ 51,556       $ (4,390   $ 1,143,086       $ (18,304
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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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, 2012 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 securities of financial issuers. The corporate securities of financial issuers in this category were comprised of four fixed-to-floating rate bonds and three trust-preferred securities, all of which continue to be considered investment grade. Additionally, a review of the issuers indicated that they each have strong capital ratios.

The following table provides information as to the amount of gross gains and gross losses realized and proceeds received through the sales of available-for-sale investment securities:

 

     Three Months Ended March 31,  

(Dollars in thousands)

   2012     2011  

Realized gains

   $ 828      $ 106   

Realized losses

     (12     —     
  

 

 

   

 

 

 

Net realized gains

   $ 816      $ 106   

Other than temporary impairment charges

     —          —     
  

 

 

   

 

 

 

Gains on available- for-sale securities, net

   $ 816      $ 106   
  

 

 

   

 

 

 

Proceeds from sales of available-for-sale securities

   $ 737,369      $ 50,142   
  

 

 

   

 

 

 

The amortized cost and fair value of securities as of March 31, 2012 and December 31, 2011, 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, 2012      December 31, 2011  

(Dollars in thousands)

   Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 

Due in one year or less

   $ 79,980       $ 80,351       $ 121,400       $ 121,662   

Due in one to five years

     496,724         494,391         532,828         530,632   

Due in five to ten years

     106,545         105,856         95,279         95,508   

Due after ten years

     265,598         264,102         261,315         264,321   

Mortgage-backed

     874,803         886,148         236,316         248,551   

Other equity securities

     42,664         38,496         37,595         31,123   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 1,866,314       $ 1,869,344       $ 1,284,733       $ 1,291,797   
  

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2012 and December 31, 2011, securities having a carrying value of $1.1 billion, which include securities traded but not yet settled, were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At March 31, 2012, 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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(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)

   2012     2011     2011  

Balance:

      

Commercial

   $ 2,544,456      $ 2,498,313      $ 1,937,561   

Commercial real-estate

     3,585,760        3,514,261        3,356,562   

Home equity

     840,364        862,345        891,332   

Residential real-estate

     361,327        350,289        344,909   

Premium finance receivables - commercial

     1,512,630        1,412,454        1,337,851   

Premium finance receivables - life insurance

     1,693,763        1,695,225        1,539,521   

Indirect consumer

     67,445        64,545        52,379   

Consumer and other

     111,639        123,945        101,687   
  

 

 

   

 

 

   

 

 

 

Total loans, net of unearned income, excluding covered loans

   $ 10,717,384      $ 10,521,377      $ 9,561,802   

Covered loans

     691,220        651,368        431,299   
  

 

 

   

 

 

   

 

 

 

Total loans

   $ 11,408,604      $ 11,172,745      $ 9,993,101   
  

 

 

   

 

 

   

 

 

 

Mix:

      

Commercial

     22     22     19

Commercial real-estate

     32        31        34   

Home equity

     7        8        9   

Residential real-estate

     3        3        4   

Premium finance receivables - commercial

     13        13        13   

Premium finance receivables - life insurance

     15        15        15   

Indirect consumer

     1        1        1   

Consumer and other

     1        1        1   
  

 

 

   

 

 

   

 

 

 

Total loans, net of unearned income, excluding covered loans

     94     94     96

Covered loans

     6        6        4   
  

 

 

   

 

 

   

 

 

 

Total loans

     100     100     100
  

 

 

   

 

 

   

 

 

 

Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $36.8 million at March 31, 2012, and $34.6 million at December 31, 2011 and at March 31, 2011, respectively. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in 2009 as well as the covered loans acquired in the FDIC-assisted acquisitions starting in 2010 are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.

Indirect consumer loans include auto, boat and other indirect consumer loans. Total loans, excluding loans acquired with evidence of credit quality deterioration since origination, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $12.6 million at March 31, 2012, $12.8 million at December 31, 2011 and $11.5 million at March 31, 2011.

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 Company serves. The premium finance receivables portfolios are made to customers on a national basis and the majority of the indirect consumer loans were generated through a network of local automobile dealers. As a result, 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.

It is the policy of the Company to review each prospective credit in order to determine the appropriateness and, when required, the adequacy of security or collateral necessary to obtain when making a loan. The type of collateral, when required, will vary from liquid assets to real estate. The Company seeks to ensure access to collateral, in the event of default, through adherence to state lending laws and the Company’s credit monitoring procedures.

Acquired Loan Information at Acquisition — Loans with evidence of credit quality deterioration since origination

As part of our acquisition of a portfolio of life insurance premium finance loans in 2009 as well as the bank acquisitions starting in 2010, we acquired loans for which there was evidence of credit quality deterioration since origination and we determined that it was probable that the Company would be unable to collect all contractually required principal and interest payments.

 

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The following table presents the unpaid principal balance and carrying value for loans acquired with evidence of credit quality deterioration since origination:

 

     March 31, 2012      December 31, 2011  

(Dollars in thousands)

   Unpaid
Principal
Balance
     Carrying
Value
     Unpaid
Principal
Balance
     Carrying
Value
 

Bank acquisitions

     849,194         622,859         866,874         596,946   

Life insurance premium finance loans acquisition

     590,152         560,404         632,878         598,463   

For loans acquired with evidence of credit quality deterioration since origination as a result of acquisitions during the three months ended March 31, 2012, the following table provides estimated details on these loans at the date of acquisition:

 

(Dollars in thousands)

   Charter
National
 

Contractually required payments including interest

   $ 40,475   

Less: Nonaccretable difference

     11,855   
  

 

 

 

Cash flows expected to be collected (1)

     28,620   

Less: Accretable yield

     2,288   
  

 

 

 

Fair value of loans acquired with evidence of credit quality deterioration since origination

   $ 26,332   
  

 

 

 

 

(1) Represents undiscounted expected principal and interest cash flows at acquisition.

See Note 7 – Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion regarding the allowance for loan losses associated with loans acquired with evidence of credit quality deterioration since origination at March 31, 2012.

Accretable Yield Activity

Changes in expected cash flows may vary from period to period as the Company periodically updates its cash flow model assumptions for loans acquired with evidence of credit quality deterioration since origination. 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. The following table provides activity for the accretable yield of loans acquired with evidence of credit quality deterioration since origination:

 

     Three Months Ended
March 31, 2012
    Three Months Ended
March 31, 2011
 

(Dollars in thousands)

   Bank
Acquisitions
    Life Insurance
Premium
Finance Loans
    Bank
Acquisitions
    Life Insurance
Premium
Finance Loans
 

Accretable yield, beginning balance

   $ 173,120      $ 18,861      $ 39,809      $ 33,315   

Acquisitions

     2,288        —          7,107        —     

Accretable yield amortized to interest income

     (14,892     (3,737     (7,072     (9,052

Accretable yield amortized to indemnification asset (1)

     (21,377       (7,087     —     

Reclassification from non-accretable difference (2)

     41,601        —          48,844        184   

Increases in interest cash flows due to payments and changes in interest rates

     1,482        724        9,731        1,096   
  

 

 

   

 

 

   

 

 

   

 

 

 

Accretable yield, ending balance

   $ 182,222      $ 15,848      $ 91,332      $ 25,543   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Represents the portion of the current period accreted yield, resulting from lower expected losses, applied to reduce the loss share indemnification asset.
(2) Reclassification is the result of subsequent increases in expected principal cash flows.

 

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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, 2012, December 31, 2011 and March 31, 2011:

 

As of March 31, 2012

(Dollars in thousands)

   Nonaccrual      90+ days
and still
accruing
     60-89
days past
due
     30-59
days past
due
     Current      Total Loans  

Loan Balances:

                 

Commercial

                 

Commercial and industrial

   $ 17,392       $ —         $ 9,210       $ 24,634       $ 1,454,783       $ 1,506,019   

Franchise

     1,792         —           —           100         167,385         169,277   

Mortgage warehouse lines of credit

     —           —           —           —           136,438         136,438   

Community Advantage - homeowners association

     —           —           —           —           75,786         75,786   

Aircraft

     260         —           428         1,189         18,014         19,891   

Asset-based lending

     391         —           926         970         472,524         474,811   

Municipal

     —           —           —           —           76,885         76,885   

Leases

     —           —           —           11         77,660         77,671   

Other

     —           —           —           —           1,733         1,733   

Purchased non-covered commercial (1)

     —           424         1,063         —           4,458         5,945   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     19,835         424         11,627         26,904         2,485,666         2,544,456   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real-estate:

                 

Residential construction

     1,807         —           —           4,469         49,835         56,111   

Commercial construction

     2,389         —           3,100         —           159,230         164,719   

Land

     25,306         —           6,606         6,833         145,297         184,042   

Office

     8,534         —           4,310         5,471         542,393         560,708   

Industrial

     1,864         —           6,683         10,101         572,255         590,903   

Retail

     7,323         73         —           8,797         511,884         528,077   

Multi-family

     3,708         —           1,496         4,691         315,043         324,938   

Mixed use and other

     11,773         —           17,745         30,689         1,063,733         1,123,940   

Purchased non-covered commercial real-estate (1)

     —           2,959         301         1,601         47,461         52,322   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real-estate

     62,704         3,032         40,241         72,652         3,407,131         3,585,760   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Home equity

     12,881         —           2,049         6,576         818,858         840,364   

Residential real estate

     5,329         —           453         13,530         341,358         360,670   

Purchased non-covered residential real estate (1)

     —           —           —           —           657         657   

Premium finance receivables

                 

Commercial insurance loans

     7,650         4,619         3,360         17,612         1,479,389         1,512,630   

Life insurance loans

     —           —           —           389         1,132,970         1,133,359   

Purchased life insurance loans (1)

     —           —           —           —           560,404         560,404   

Indirect consumer

     152         257         53         317         66,666         67,445   

Consumer and other

     121         —           20         1,601         109,723         111,465   

Purchased non-covered consumer and other (1)

     —           —           —           —           174         174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, net of unearned income, excluding covered loans

   $ 108,672       $ 8,332       $ 57,803       $ 139,581       $ 10,402,996       $ 10,717,384   

Covered loans

     —           182,011         20,254         28,249         460,706         691,220   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, net of unearned income

   $ 108,672       $ 190,343       $ 78,057       $ 167,830       $ 10,863,702       $ 11,408,604   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

 

14


Table of Contents

As of December 31, 2011

(Dollars in thousands)

   Nonaccrual      90+ days
and still
accruing
     60-89
days past
due
     30-59
days past
due
     Current      Total Loans  

Loan Balances:

                 

Commercial

                 

Commercial and industrial

   $ 16,154       $ —         $ 7,496       $ 15,797       $ 1,411,004       $ 1,450,451   

Franchise

     1,792         —           —           —           140,983         142,775   

Mortgage warehouse lines of credit

     —           —           —           —           180,450         180,450   

Community Advantage - homeowners association

     —           —           —           —           77,504         77,504   

Aircraft

     —           —           709         170         19,518         20,397   

Asset-based lending

     1,072         —           749         11,026         452,890         465,737   

Municipal

     —           —           —           —           78,319         78,319   

Leases

     —           —           —           431         71,703         72,134   

Other

     —           —           —           —           2,125         2,125   

Purchased non-covered commercial (1)

     —           589         74         —           7,758         8,421   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     19,018         589         9,028         27,424         2,442,254         2,498,313   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real-estate

                 

Residential construction

     1,993         —           4,982         1,721         57,115         65,811   

Commercial construction

     2,158         —           —           150         167,568         169,876   

Land

     31,547         —           4,100         6,772         136,112         178,531   

Office

     10,614         —           2,622         930         540,280         554,446   

Industrial

     2,002         —           508         4,863         548,429         555,802   

Retail

     5,366         —           5,268         8,651         517,444         536,729   

Multi-family

     4,736         —           3,880         347         305,594         314,557   

Mixed use and other

     8,092         —           7,163         20,814         1,050,585         1,086,654   

Purchased non-covered commercial real-estate (1)

     —           2,198         —           252         49,405         51,855   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real-estate

     66,508         2,198         28,523         44,500         3,372,532         3,514,261   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Home equity

     14,164         —           1,351         3,262         843,568         862,345   

Residential real estate

     6,619         —           2,343         3,112         337,522         349,596   

Purchased non-covered residential real estate (1)

     —           —           —           —           693         693   

Premium finance receivables

                 

Commercial insurance loans

     7,755         5,281         3,850         13,787         1,381,781         1,412,454   

Life insurance loans

     54         —           —           423         1,096,285         1,096,762   

Purchased life insurance loans (1)

     —           —           —           —           598,463         598,463   

Indirect consumer

     138         314         113         551         63,429         64,545   

Consumer and other

     233         —           170         1,070         122,393         123,866   

Purchased non-covered consumer and other (1)

     —           —           —           2         77         79   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, net of unearned income, excluding covered loans

   $ 114,489       $ 8,382       $ 45,378       $ 94,131       $ 10,258,997       $ 10,521,377   

Covered loans

     —           174,727         25,507         24,799         426,335         651,368   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, net of unearned income

   $ 114,489       $ 183,109       $ 70,885       $ 118,930       $ 10,685,332       $ 11,172,745   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

 

15


Table of Contents

As of March 31, 2011

(Dollars in thousands)

   Nonaccrual      90+ days
and still
accruing
     60-89
days past
due
     30-59
days past
due
     Current      Total Loans  

Loan Balances:

                 

Commercial

                 

Commercial and industrial

   $ 24,277       $ 150       $ 3,233       $ 9,201       $ 1,240,796       $ 1,277,657   

Franchise

     1,792         —           —           —           112,584         114,376   

Mortgage warehouse lines of credit

     —           —           —           —           33,482         33,482   

Community Advantage - homeowners association

     —           —           —           —           75,948         75,948   

Aircraft

     74         —           —           —           22,243         22,317   

Asset-based lending

     —           —           216         2,355         299,328         301,899   

Municipal

     —           —           —           —           60,376         60,376   

Leases

     14         —           —           88         51,404         51,506   

Other

     —           —           —           —           —           —     

Purchased non-covered commercial (1)

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     26,157         150         3,449         11,644         1,896,161         1,937,561   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real-estate

                 

Residential construction

     7,891         —           1,057         3,587         78,832         91,367   

Commercial construction

     1,396         692         2,469         680         116,311         121,548   

Land

     26,974         —           7,366         12,455         183,419         230,214   

Office

     17,945         —           1,705         3,059         534,558         557,267   

Industrial

     1,251         524         1,672         8,499         483,690         495,636   

Retail

     12,824         —           4,994         5,810         499,486         523,114   

Multi-family

     5,968         —           1,107         5,059         281,729         293,863   

Mixed use and other

     19,752         781         7,187         19,835         995,998         1,043,553   

Purchased non-covered commercial real-estate (1)

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real-estate

     94,001         1,997         27,557         58,984         3,174,023         3,356,562   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Home equity

     11,184         —           3,366         6,603         870,179         891,332   

Residential real estate

     4,909         —           918         5,174         333,908         344,909   

Purchased non-covered residential real estate (1)

     —           —           —           —           —           —     

Premium finance receivables

                 

Commercial insurance loans

     9,550         6,319         4,433         14,428         1,303,121         1,337,851   

Life insurance loans

     342         —           1,130         5,580         857,393         864,445   

Purchased life insurance loans (1)

     —           —           —           —           675,076         675,076   

Indirect consumer

     320         310         182         657         50,910         52,379   

Consumer and other

     147         1         185         394         100,960         101,687   

Purchased non-covered consumer and other (1)

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, net of unearned income, excluding covered loans

   $ 146,610       $ 8,777       $ 41,220       $ 103,464       $ 9,261,731       $ 9,561,802   

Covered loans

     —           116,298         5,288         24,855         284,858         431,299   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, net of unearned income

   $ 146,610       $ 125,075       $ 46,508       $ 128,319       $ 9,546,589       $ 9,993,101   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.

Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, we operate a credit risk rating system under which our credit management personnel assign a credit risk rating (1 to 10 rating) to each loan at the time of origination and review loans on a regular basis.

Each loan officer is responsible for monitoring his or her loan portfolio, recommending a credit risk rating for each loan in his or her portfolio and ensuring the credit risk ratings are appropriate. These credit risk ratings are then ratified by the bank’s chief credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors including: a borrower’s financial strength, cash flow coverage, collateral protection and guarantees.

The Company’s Problem Loan Reporting system automatically includes all loans with credit risk ratings of 6 through 9. This system is designed to provide an on-going detailed tracking mechanism for each problem loan. Once management determines that a loan has deteriorated to a point where it has a credit risk rating of 6 or worse, the Company’s Managed Asset Division performs an overall credit and collateral review. As part of this review, all underlying collateral is identified and the valuation methodology is analyzed and tracked. As a result of this initial review by the Company’s Managed Asset Division, the credit risk rating is reviewed and a

 

16


Table of Contents

portion of the outstanding loan balance may be deemed uncollectible or an impairment reserve may be established. The Company’s impairment analysis utilizes an independent re-appraisal of the collateral (unless such a third-party evaluation is not possible due to the unique nature of the collateral, such as a closely-held business or thinly traded securities). In the case of commercial real estate collateral, an independent third party appraisal is ordered by the Company’s Real Estate Services Group to determine if there has been any change in the underlying collateral value. These independent appraisals are reviewed by the Real Estate Services Group and sometimes by independent third party valuation experts and may be adjusted depending upon market conditions.

Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to non-accrual status, a charge-off or the establishment of a specific impairment reserve. If we determine that a loan amount, or portion thereof, is uncollectible, the loan’s credit risk rating is immediately downgraded to an 8 or 9 and the uncollectible amount is charged-off. Any loan that has a partial charge-off continues to be assigned a credit risk rating of an 8 or 9 for the duration of time that a balance remains outstanding. The Company undertakes a thorough and ongoing analysis to determine if additional impairment and/or charge-offs are appropriate and to begin a workout plan for the credit to minimize actual losses.

If, based on current information and events, it is probable that the Company will be unable to collect all amounts due to it according to the contractual terms of the loan agreement, a specific impairment reserve is established. In determining the appropriate charge-off for collateral-dependent loans, the Company considers the results of appraisals for the associated collateral.

Non-performing loans include all non-accrual loans (8 and 9 risk ratings) as well as loans 90 days past due and still accruing interest, excluding loans acquired with evidence of credit quality deterioration since origination. The remainder of the portfolio not classified as non-performing are considered performing under the contractual terms of the loan agreement. The following table presents the recorded investment based on performance of loans by class, excluding covered loans, per the most recent analysis at March 31, 2012, December 31, 2011, and March 31, 2011:

 

     Performing      Non-performing      Total  

(Dollars in thousands)

   March 31,
2012
     December 31,
2011
     March 31,
2011
     March 31,
2012
     December 31,
2011
     March 31,
2011
     March 31,
2012
     December 31,
2011
     March 31,
2011
 

Loan Balances:

                          

Commercial

                          

Commercial and industrial

   $ 1,488,627       $ 1,434,297       $ 1,253,230       $ 17,392       $ 16,154       $ 24,427       $ 1,506,019       $ 1,450,451       $ 1,277,657   

Franchise

     167,485         140,983         112,584         1,792         1,792         1,792         169,277         142,775         114,376   

Mortgage warehouse lines of credit

     136,438         180,450         33,482         —           —           —           136,438         180,450         33,482   

Community Advantage - homeowners association

     75,786         77,504         75,948         —           —           —           75,786         77,504         75,948   

Aircraft

     19,631         20,397         22,243         260         —           74         19,891         20,397         22,317   

Asset-based lending

     474,420         464,665         301,899         391         1,072         —           474,811         465,737         301,899   

Municipal

     76,885         78,319         60,376         —           —           —           76,885         78,319         60,376   

Leases

     77,671         72,134         51,492         —           —           14         77,671         72,134         51,506   

Other

     1,733         2,125         —           —           —           —           1,733         2,125         —     

Purchased non-covered commercial (1)

     5,945         8,421         —           —           —           —           5,945         8,421         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     2,524,621         2,479,295         1,911,254         19,835         19,018         26,307         2,544,456         2,498,313         1,937,561   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real-estate

                          

Residential construction

     54,304         63,818         83,476         1,807         1,993         7,891         56,111         65,811         91,367   

Commercial construction

     162,330         167,718         119,460         2,389         2,158         2,088         164,719         169,876         121,548   

Land

     158,736         146,984         203,240         25,306         31,547         26,974         184,042         178,531         230,214   

Office

     552,174         543,832         539,322         8,534         10,614         17,945         560,708         554,446         557,267   

Industrial

     589,039         553,800         493,861         1,864         2,002         1,775         590,903         555,802         495,636   

Retail

     520,681         531,363         510,290         7,396         5,366         12,824         528,077         536,729         523,114   

Multi-family

     321,230         309,821         287,895         3,708         4,736         5,968         324,938         314,557         293,863   

Mixed use and other

     1,112,167         1,078,562         1,023,020         11,773         8,092         20,533         1,123,940         1,086,654         1,043,553   

Purchased non-covered commercial real-estate (1)

     52,322         51,855         —           —           —           —           52,322         51,855         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real-estate

     3,522,983         3,447,753         3,260,564         62,777         66,508         95,998         3,585,760         3,514,261         3,356,562   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Home equity

     827,483         848,181         880,148         12,881         14,164         11,184         840,364         862,345         891,332   

Residential real estate

     355,341         342,977         340,000         5,329         6,619         4,909         360,670         349,596         344,909   

Purchased non-covered residential real estate (1)

     657         693         —           —           —           —           657         693         —     

Premium finance receivables

                          

Commercial insurance loans

     1,500,361         1,399,418         1,321,982         12,269         13,036         15,869         1,512,630         1,412,454         1,337,851   

Life insurance loans

     1,133,359         1,096,708         864,103         —           54         342         1,133,359         1,096,762         864,445   

Purchased life insurance loans (1)

     560,404         598,463         675,076         —           —           —           560,404         598,463         675,076   

Indirect consumer

     67,036         64,093         51,749         409         452         630         67,445         64,545         52,379   

Consumer and other

     111,344         123,633         101,539         121         233         148         111,465         123,866         101,687   

Purchased non-covered consumer and other (1)

     174         79         —           —           —           —           174         79         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, net of unearned income, excluding covered loans

   $ 10,603,763       $ 10,401,293       $ 9,406,415       $ 113,621       $ 120,084       $ 155,387       $ 10,717,384       $ 10,521,377       $ 9,561,802   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Purchased loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30.

 

17


Table of Contents

A summary of activity in the allowance for credit losses by loan portfolio (excluding covered loans) for the three months ended March 31, 2012 and 2011 is as follows:

 

2,509,353 2,509,353 2,509,353 2,509,353 2,509,353 2,509,353 2,509,353 2,509,353
Three Months Ended March 31, 2012                                              Total,  

(Dollars in thousands)

   Commercial     Commercial
Real-estate
    Home
Equity
    Residential
Real-estate
    Premium
Finance
Receivable
    Indirect
Consumer
    Consumer
and Other
    Excluding
Covered
Loans
 

Allowance for credit losses

                

Allowance for loan losses at beginning of period

   $ 31,237      $ 56,405      $ 7,712      $ 5,028      $ 7,214      $ 645      $ 2,140      $ 110,381   

Other adjustments

   $ (3   $ (222   $ 1      $ (14   $ —        $ —        $ —          (238

Reclassification to/from allowance for unfunded lending-related commitments

     45        107        —          —          —          —          —          152   

Charge-offs

     (3,262     (8,229     (2,590     (175     (850     (51     (310     (15,467

Recoveries

     257        131        162        2        298        30        161        1,041   

Provision for credit losses

     4,945        5,760        2,635        710        1,446        19        (361     15,154   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses at period end

   $ 33,219      $ 53,952      $ 7,920      $ 5,551      $ 8,108      $ 643      $ 1,630      $ 111,023   

Allowance for unfunded lending-related commitments at period end

   $ —        $ 13,078      $ —        $ —        $ —        $ —        $ —        $ 13,078   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses at period end

   $ 33,219      $ 67,030      $ 7,920      $ 5,551      $ 8,108      $ 643      $ 1,630      $ 124,101   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Individually evaluated for impairment

     3,705        25,336        3,056        1,362        —          7        1        33,467   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Collectively evaluated for impairment

     29,514        41,694        4,864        4,189        8,108        636        1,629        90,634   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans acquired with deteriorated credit quality

     —          —          —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans at period end

                

Individually evaluated for impairment

   $ 29,158      $ 197,221      $ 14,495      $ 10,791      $ —        $ 77      $ 221      $ 251,963   

Collectively evaluated for impairment