NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The interim consolidated financial statements of Wintrust Financial Corporation and its subsidiaries (collectively, “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, 2020 (“2020 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 credit losses, including the allowance for loan losses, the allowance for unfunded commitment losses and the allowance for held-to-maturity securities losses, 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 2020 Form 10-K.
(2) Recent Accounting Developments
Legislation and Regulations Issued as a Result of the COVID-19 Pandemic
On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act" or the "Act"), which provides entities with optional temporary relief from certain accounting and financial reporting requirements under U.S. GAAP.
Section 4013 of the CARES Act allows financial institutions to suspend application of certain current troubled debt restructuring ("TDR") accounting guidance under Accounting Standards Codification (“ASC”) 310-40 for loan modifications related to the COVID-19 pandemic made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 national emergency, provided certain criteria are met. This relief can be applied to loan modifications for borrowers that were not more than 30 days past due as of December 31, 2019 and to loan modifications that defer or delay the payment of principal or interest, or change the interest rate on the loan. On December 27, 2020, the Consolidated Appropriations Act, 2021 (the "CAA"), which combined stimulus relief for the COVID-19 pandemic with an omnibus spending bill for the 2021 fiscal year, was signed by the President of the United States. The CAA included extension of TDR accounting relief provided under the CARES Act to January 1, 2022. The Company chose to apply this relief to eligible loan modifications.
The business tax provisions of the Act include temporary changes to income and non-income based tax laws, including immediate recovery of qualified improvement property costs and acceleration of Alternative Minimum Tax (AMT) credits. These provisions did not have a material impact on the Company's deferred taxes.
In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide separate relief, specifically indicating that if a modification is either short-term (e.g., six months) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not considered to be experiencing financial difficulty and thus does not represent a TDR under ASC 310-40. Additionally, in August 2020, regulators issued the Joint Statement on Additional Loan Accommodations
Related to the COVID-19 pandemic to provide prudent risk management and consumer protection principles for financial institutions to consider while working with borrowers as loans near the end of initial loan accommodation periods applicable during the COVID-19 pandemic. The Company continues to prudently work with borrowers negatively impacted by the COVID-19 pandemic while managing credit risks and recognizing appropriate allowance for credit losses on its loan portfolio.
Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848),” which provides temporary optional relief for contracts modified as a result of reference rate reform meeting certain modification criteria, generally allowing an entity to account for contract modifications occurring due to reference rate reform as an event that does not require contract remeasurement or reassessment of a previous accounting determination at the modification date. The guidance also includes temporary optional expedients intended to provide relief from various hedge effectiveness requirements for hedging relationships affected by reference rate reform, provided certain criteria are met, and allows a one-time election to sell or transfer to either available-for-sale or trading any held-to-maturity ("HTM") debt securities that refer to an interest rate affected by reference rate reform and were classified as HTM prior to January 1, 2020. Additionally, in January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope,” which provided additional clarification that certain optional expedients and exceptions noted above apply to derivative instruments that use an interest rate for margining, discounting or contract price alignment that is modified as a result of reference rate reform. This guidance was effective upon issuance and can be applied prospectively, with certain exceptions, through December 31, 2022.
In November 2020, federal and state banking regulators issued the “Interagency Policy Statement on Reference Rates for Loans" to reiterate that a specific replacement rate for loans impacted by reference rate reform has not been endorsed and entities may utilize any replacement reference rate determined to be appropriate based on its funding model and customer needs. As discussed in the “Interagency Policy Statement on Reference Rates for Loans," fallback language should be included in lending contracts to provide for use of a robust fallback rate if the initial reference rate is discontinued. Additionally, federal banking regulators issued the "Interagency Statement on LIBOR Transition" acknowledging that the administrator of USD LIBOR benchmarks has announced it will consult on its intention to cease the publication of the one week and two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. On March 5, 2021, the administrator of USD LIBOR benchmarks confirmed these dates and will cease publication of USD LIBOR tenors accordingly. As discussed in the "Interagency Statement on LIBOR Transition," regulators encouraged banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021, in order to facilitate an orderly, safe and sound LIBOR transition. The Company continues to monitor efforts and evaluate the impact of reference rate reform on its consolidated financial statements.
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," to simplify the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, "Income Taxes". The guidance also improved consistent application by clarifying and amending existing guidance from ASC 740. The Company adopted ASU No. 2019-12 as of January 1, 2021. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Investment Securities
In January 2020, the FASB issued ASU No. 2020-01, “Clarifying the Interactions Between Investments-Equity Securities (ASC Topic 321), Investments-Equity Method and Joint Ventures (ASC Topic 323), and Derivatives and Hedging (ASC Topic 815),” which amended ASC 323, Investments-Equity Method & Joint Ventures to clarify that an entity should consider observable transactions that require it to either apply or discontinue using the equity method of accounting for purposes of applying the measurement alternative in accordance with ASC 321, Investments-Equity Securities, immediately before applying or discontinuing the equity method under ASC 323.
The guidance also amended ASC 815, Derivatives & Hedging, to clarify that, when determining the accounting for certain nonderivative forward contracts and purchased options, an entity should not consider how to account for the resulting investments upon eventual settlement or exercise, and that an entity should evaluate the remaining characteristics in accordance with ASC 815 to determine the accounting for those forward contracts and purchased options.
The Company adopted ASU No. 2020-01 as of January 1, 2021 under a prospective approach. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Codification Improvements
In October 2020, the FASB issued ASU No. 2020-08, “Codification Improvements to Subtopic 310-20, Receivables — Nonrefundable Fees and Other Costs,” clarifying that, for each reporting period, an entity should reevaluate whether a callable debt security with multiple call dates is within the scope of ASC 310-20, which was amended to require amortization of any premium to the next call date. The next call date was defined as the first date when a call option at a specified price becomes exercisable. The Company adopted ASU No. 2020-08 as of January 1, 2021 under a prospective approach. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Additionally, the FASB issued ASU No. 2020-10, “Codification Improvements,” in October 2020 to improve the consistency of the Codification by adding or moving disclosure-specific guidance contained in the Other Presentation Matters section to the appropriate Disclosure Section for various Topics. The Company adopted ASU No. 2020-10 as of January 1, 2021 under a retrospective approach. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
SEC Amendments to Financial Disclosures about Acquired and Disposed Businesses
In May 2020, the SEC issued a final rule on “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” which provides for specific disclosure changes, including revising the investment and income significance tests, conforming the significance threshold and tests for a disposed business to those used for an acquired business, permitting abbreviated financial statements for certain acquisitions of a component of an entity, and reducing the maximum number of years for which financial statements are required for acquired businesses from three years to two years, among other amendments. This guidance was effective on January 1, 2021.
Debt
In August 2020, the FASB issued ASU No. 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which includes provisions for reducing the number of accounting models used in accounting for convertible debt instruments and convertible preferred stock, amending derivatives and earnings-per-share (EPS) guidance and expanding disclosures for convertible debt instruments and EPS. This guidance is effective for fiscal years beginning after December 15, 2021, including interim periods therein, and is to be applied under either a full or modified retrospective approach. Early adoption is permitted. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements.
SEC Update of Statistical Disclosures for Bank and Savings and Loan Registrants
In September 2020, the SEC issued a final rule on the “Update of Statistical Disclosures for Bank and Savings and Loan Registrants,” which adopts rules to update statistical disclosure requirements for banking registrants. The amendments update and expand the disclosures that registrants are required to provide, codify certain Industry Guide 3 disclosure items and eliminate other Guide 3 disclosures that overlap with SEC rules, GAAP or IFRS standards. In addition, Guide 3 is being rescinded and replaced with a new subpart of Regulation S-K. The SEC ruling is applicable to fiscal years beginning after December 15, 2021 and early compliance is permitted. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements.
(3) 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.
(4) Investment Securities
The following tables are a summary of the investment securities portfolios as of the dates shown:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
64,999
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
65,001
|
|
|
U.S. Government agencies
|
77,908
|
|
|
3,618
|
|
|
—
|
|
|
81,526
|
|
|
Municipal
|
143,711
|
|
|
4,761
|
|
|
(172)
|
|
|
148,300
|
|
|
Corporate notes:
|
|
|
|
|
|
|
|
|
Financial issuers
|
91,806
|
|
|
461
|
|
|
(935)
|
|
|
91,332
|
|
|
Other
|
1,000
|
|
|
17
|
|
|
—
|
|
|
1,017
|
|
|
Mortgage-backed: (1)
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
2,007,092
|
|
|
52,855
|
|
|
(26,038)
|
|
|
2,033,909
|
|
|
Collateralized mortgage obligations
|
9,411
|
|
|
253
|
|
|
—
|
|
|
9,664
|
|
|
Total available-for-sale securities
|
$
|
2,395,927
|
|
|
$
|
61,967
|
|
|
$
|
(27,145)
|
|
|
$
|
2,430,749
|
|
|
Held-to-maturity securities
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
$
|
176,160
|
|
|
$
|
1,644
|
|
|
$
|
(7,230)
|
|
|
$
|
170,574
|
|
|
Municipal
|
197,865
|
|
|
10,713
|
|
|
(535)
|
|
|
208,043
|
|
|
Mortgage-backed securities
|
1,737,115
|
|
|
265
|
|
|
(49,114)
|
|
|
1,688,266
|
|
|
Corporate notes
|
55,378
|
|
|
—
|
|
|
(1,196)
|
|
|
54,182
|
|
|
Total held-to-maturity securities
|
$
|
2,166,518
|
|
|
$
|
12,622
|
|
|
$
|
(58,075)
|
|
|
$
|
2,121,065
|
|
|
Less: Allowance for credit losses
|
(99)
|
|
|
|
|
|
|
|
|
Held-to-maturity securities, net of allowance for credit losses
|
$
|
2,166,419
|
|
|
|
|
|
|
|
|
Equity securities with readily determinable fair value
|
$
|
86,121
|
|
|
$
|
5,362
|
|
|
$
|
(1,145)
|
|
|
$
|
90,338
|
|
(1)Consisting entirely of residential mortgage-backed securities, none of which are subprime.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
(Dollars in thousands)
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
304,956
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
304,971
|
|
|
U.S. Government agencies
|
80,074
|
|
|
4,439
|
|
|
—
|
|
|
84,513
|
|
|
Municipal
|
141,244
|
|
|
5,707
|
|
|
(41)
|
|
|
146,910
|
|
|
Corporate notes:
|
|
|
|
|
|
|
|
|
Financial issuers
|
91,786
|
|
|
1,363
|
|
|
(2,764)
|
|
|
90,385
|
|
|
Other
|
1,000
|
|
|
20
|
|
|
—
|
|
|
1,020
|
|
|
Mortgage-backed: (1)
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
2,330,332
|
|
|
86,721
|
|
|
(15)
|
|
|
2,417,038
|
|
|
Collateralized mortgage obligations
|
10,689
|
|
|
313
|
|
|
—
|
|
|
11,002
|
|
|
Total available-for-sale securities
|
$
|
2,960,081
|
|
|
$
|
98,578
|
|
|
$
|
(2,820)
|
|
|
$
|
3,055,839
|
|
|
Held-to-maturity securities
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
$
|
177,959
|
|
|
$
|
2,552
|
|
|
$
|
—
|
|
|
$
|
180,511
|
|
|
Municipal
|
200,707
|
|
|
12,232
|
|
|
(214)
|
|
|
212,725
|
|
|
Mortgage-backed securities
|
200,531
|
|
|
—
|
|
|
—
|
|
|
200,531
|
|
|
Total held-to-maturity securities
|
$
|
579,197
|
|
|
$
|
14,784
|
|
|
$
|
(214)
|
|
|
$
|
593,767
|
|
|
Less: Allowance for credit losses
|
(59)
|
|
|
|
|
|
|
|
|
Held-to-maturity securities, net of allowance for credit losses
|
$
|
579,138
|
|
|
|
|
|
|
|
|
Equity securities with readily determinable fair value
|
$
|
87,618
|
|
|
$
|
3,674
|
|
|
$
|
(430)
|
|
|
$
|
90,862
|
|
(1)Consisting entirely of residential mortgage-backed securities, none of which are subprime.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
(Dollars in thousands)
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
120,404
|
|
|
$
|
1,266
|
|
|
$
|
—
|
|
|
$
|
121,670
|
|
|
U.S. Government agencies
|
362,969
|
|
|
5,674
|
|
|
—
|
|
|
368,643
|
|
|
Municipal
|
143,273
|
|
|
3,571
|
|
|
(235)
|
|
|
146,609
|
|
|
Corporate notes:
|
|
|
|
|
|
|
|
|
Financial issuers
|
111,718
|
|
|
90
|
|
|
(11,821)
|
|
|
99,987
|
|
|
Other
|
1,000
|
|
|
31
|
|
|
—
|
|
|
1,031
|
|
|
Mortgage-backed: (1)
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
2,697,264
|
|
|
111,275
|
|
|
(4)
|
|
|
2,808,535
|
|
|
Collateralized mortgage obligations
|
24,077
|
|
|
416
|
|
|
(9)
|
|
|
24,484
|
|
|
Total available-for-sale securities
|
$
|
3,460,705
|
|
|
$
|
122,323
|
|
|
$
|
(12,069)
|
|
|
$
|
3,570,959
|
|
|
Held-to-maturity securities
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
$
|
646,976
|
|
|
$
|
5,996
|
|
|
$
|
(4)
|
|
|
$
|
652,968
|
|
|
Municipal
|
$
|
218,470
|
|
|
7,909
|
|
|
(155)
|
|
|
226,224
|
|
|
Total held-to-maturity securities
|
$
|
865,446
|
|
|
$
|
13,905
|
|
|
$
|
(159)
|
|
|
$
|
879,192
|
|
|
Less: Allowance for credit losses
|
(70)
|
|
|
|
|
|
|
|
|
Held-to-maturity securities, net of allowance for credit losses
|
$
|
865,376
|
|
|
|
|
|
|
|
|
Equity securities with readily determinable fair value
|
$
|
48,060
|
|
|
$
|
781
|
|
|
$
|
(1,531)
|
|
|
$
|
47,310
|
|
(1)Consisting entirely of residential mortgage-backed securities, none of which are subprime.
Equity securities without readily determinable fair values totaled $33.3 million as of March 31, 2021. 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 monitors its equity investments without readily determinable fair values
to identify potential transactions that may indicate an observable price change in orderly transactions for the identical or a similar investment of the same issuer, requiring adjustment to its carrying amount. The Company recorded no upward and no downward adjustments related to such observable price changes for the three months ended March 31, 2021. The Company conducts a quarterly assessment of its equity securities without 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. During the three months ended March 31, 2021, the Company recorded $30,000 of impairment of equity securities without readily determinable fair values.
The following table presents the portion of the Company’s available-for-sale investment securities portfolios that have gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at March 31, 2021:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuous unrealized
losses existing for
less than 12 months
|
|
Continuous unrealized
losses existing for
greater than 12 months
|
|
Total
|
|
(Dollars in thousands)
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
U.S. Government agencies
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Municipal
|
24,326
|
|
|
(168)
|
|
|
110
|
|
|
(4)
|
|
|
24,436
|
|
|
(172)
|
|
|
Corporate notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial issuers
|
14,850
|
|
|
(150)
|
|
|
48,196
|
|
|
(785)
|
|
|
63,046
|
|
|
(935)
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Mortgage-backed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
571,821
|
|
|
(26,037)
|
|
|
61
|
|
|
(1)
|
|
|
571,882
|
|
|
(26,038)
|
|
|
Collateralized mortgage obligations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total available-for-sale securities
|
$
|
610,997
|
|
|
$
|
(26,355)
|
|
|
$
|
48,367
|
|
|
$
|
(790)
|
|
|
$
|
659,364
|
|
|
$
|
(27,145)
|
|
The Company conducts a regular assessment of its investment securities to determine whether securities are experiencing credit losses. Factors for consideration include the nature of the securities, credit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows, market conditions and the Company’s ability to hold the securities through the anticipated recovery period.
The Company does not consider available-for-sale securities with unrealized losses at March 31, 2021 to be experiencing credit losses and recognized no resulting allowance for credit losses for such individually assessed credit losses. 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. Available-for-sale securities with continuous unrealized losses existing for more than twelve months were primarily corporate notes.
See Note 6—Allowance for Credit Losses for further discussion regarding any credit losses associated with held-to-maturity securities at March 31, 2021.
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)
|
2021
|
|
2020
|
|
|
|
|
|
Realized gains on investment securities
|
$
|
216
|
|
|
$
|
496
|
|
|
|
|
|
|
Realized losses on investment securities
|
(6)
|
|
|
(5)
|
|
|
|
|
|
|
Net realized gains on investment securities
|
210
|
|
|
491
|
|
|
|
|
|
|
Unrealized gains on equity securities with readily determinable fair value
|
1,875
|
|
|
—
|
|
|
|
|
|
|
Unrealized losses on equity securities with readily determinable fair value
|
(901)
|
|
|
(3,546)
|
|
|
|
|
|
|
Net unrealized gains (losses) on equity securities with readily determinable fair value
|
974
|
|
|
(3,546)
|
|
|
|
|
|
|
Upward adjustments of equity securities without readily determinable fair values
|
—
|
|
|
393
|
|
|
|
|
|
|
Downward adjustments of equity securities without readily determinable fair values
|
—
|
|
|
—
|
|
|
|
|
|
|
Impairment of equity securities without readily determinable fair values
|
(30)
|
|
|
(1,697)
|
|
|
|
|
|
|
Adjustment and impairment, net, of equity securities without readily determinable fair values
|
(30)
|
|
|
(1,304)
|
|
|
|
|
|
|
Gains (losses) on investment securities, net
|
$
|
1,154
|
|
|
$
|
(4,359)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of available-for-sale securities(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of equity securities with readily determinable fair value
|
1,509
|
|
|
30
|
|
|
|
|
|
|
Proceeds from sales and capital distributions of equity securities without readily determinable fair value
|
386
|
|
|
288
|
|
|
|
|
|
(1)Includes proceeds from available-for-sale securities sold in accordance with written covered call options sold to a third party.
The amortized cost and fair value of available-for-sale and held-to-maturity investment securities as of March 31, 2021, December 31, 2020 and March 31, 2020, 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, 2021
|
|
December 31, 2020
|
|
March 31, 2020
|
|
(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
|
$
|
100,140
|
|
|
$
|
100,361
|
|
|
$
|
343,601
|
|
|
$
|
343,846
|
|
|
$
|
186,538
|
|
|
$
|
187,789
|
|
|
Due in one to five years
|
76,104
|
|
|
78,291
|
|
|
67,901
|
|
|
70,334
|
|
|
70,812
|
|
|
71,825
|
|
|
Due in five to ten years
|
110,125
|
|
|
110,928
|
|
|
111,886
|
|
|
112,178
|
|
|
174,262
|
|
|
164,479
|
|
|
Due after ten years
|
93,055
|
|
|
97,596
|
|
|
95,672
|
|
|
101,441
|
|
|
307,752
|
|
|
313,847
|
|
|
Mortgage-backed
|
2,016,503
|
|
|
2,043,573
|
|
|
2,341,021
|
|
|
2,428,040
|
|
|
2,721,341
|
|
|
2,833,019
|
|
|
Total available-for-sale securities
|
$
|
2,395,927
|
|
|
$
|
2,430,749
|
|
|
$
|
2,960,081
|
|
|
$
|
3,055,839
|
|
|
$
|
3,460,705
|
|
|
$
|
3,570,959
|
|
|
Held-to-maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
$
|
6,812
|
|
|
$
|
6,863
|
|
|
$
|
7,138
|
|
|
$
|
7,186
|
|
|
$
|
5,310
|
|
|
$
|
5,333
|
|
|
Due in one to five years
|
50,318
|
|
|
50,734
|
|
|
22,217
|
|
|
23,068
|
|
|
23,801
|
|
|
24,158
|
|
|
Due in five to ten years
|
184,677
|
|
|
191,539
|
|
|
150,621
|
|
|
159,293
|
|
|
143,783
|
|
|
148,746
|
|
|
Due after ten years
|
187,596
|
|
|
183,663
|
|
|
198,690
|
|
|
203,689
|
|
|
692,552
|
|
|
700,955
|
|
|
Mortgage-backed
|
1,737,115
|
|
|
1,688,266
|
|
|
200,531
|
|
|
200,531
|
|
|
—
|
|
|
—
|
|
|
Total held-to-maturity securities
|
$
|
2,166,518
|
|
|
$
|
2,121,065
|
|
|
$
|
579,197
|
|
|
$
|
593,767
|
|
|
$
|
865,446
|
|
|
$
|
879,192
|
|
|
Less: Allowance for credit losses
|
(99)
|
|
|
|
|
(59)
|
|
|
|
|
(70)
|
|
|
|
|
Held-to-maturity securities, net of allowance for credit losses
|
$
|
2,166,419
|
|
|
|
|
$
|
579,138
|
|
|
|
|
$
|
865,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities having a carrying value of $2.1 billion at March 31, 2021 as well as securities having a carrying value of $2.4 billion and $1.5 billion at December 31, 2020 and March 31, 2020, respectively, were pledged as collateral for public deposits, trust deposits, Federal Home Loan Bank ("FHLB") advances and available lines of credit, securities sold under repurchase
agreements and derivatives. At March 31, 2021, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.
(5) 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)
|
2021
|
|
2020
|
|
2020
|
|
Balance:
|
|
|
|
|
|
|
Commercial
|
$
|
12,708,207
|
|
|
$
|
11,955,967
|
|
|
$
|
9,025,886
|
|
|
Commercial real estate
|
8,544,779
|
|
|
8,494,132
|
|
|
8,185,531
|
|
|
Home equity
|
390,253
|
|
|
425,263
|
|
|
494,655
|
|
|
Residential real estate
|
1,421,973
|
|
|
1,259,598
|
|
|
1,377,389
|
|
|
Premium finance receivables
|
|
|
|
|
|
|
Commercial insurance
|
3,958,543
|
|
|
4,054,489
|
|
|
3,465,055
|
|
|
Life insurance
|
6,111,495
|
|
|
5,857,436
|
|
|
5,221,639
|
|
|
Consumer and other
|
35,983
|
|
|
32,188
|
|
|
37,166
|
|
|
Total loans, net of unearned income
|
$
|
33,171,233
|
|
|
$
|
32,079,073
|
|
|
$
|
27,807,321
|
|
|
Mix:
|
|
|
|
|
|
|
Commercial
|
38
|
%
|
|
37
|
%
|
|
32
|
%
|
|
Commercial real estate
|
26
|
|
|
26
|
|
|
29
|
|
|
Home equity
|
1
|
|
|
1
|
|
|
2
|
|
|
Residential real estate
|
4
|
|
|
5
|
|
|
5
|
|
|
Premium finance receivables
|
|
|
|
|
|
|
Commercial insurance
|
12
|
|
|
13
|
|
|
13
|
|
|
Life insurance
|
19
|
|
|
18
|
|
|
19
|
|
|
Consumer and other
|
0
|
|
|
0
|
|
|
0
|
|
|
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, which, for the commercial and commercial real estate portfolios, are located primarily within the geographic market areas that the banks serve. Various niche lending businesses, including lease finance and franchise lending, operate on a national level. Additionally, to provide short-term relief due to macroeconomic deterioration from the COVID-19 pandemic to small businesses within such market areas, the Company originated loans through the Paycheck Protection Program ("PPP"), an expansion of guaranteed lending under Section 7(a) of the Small Business Act within the CARES Act. As of March 31, 2021, the Company's commercial portfolio included approximately $3.3 billion of such PPP loans. 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 $114.4 million at March 31, 2021, $113.1 million at December 31, 2020 and $115.2 million at March 31, 2020.
Total loans, excluding PCD loans, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $(32.2) million at March 31, 2021, $(3.2) million at December 31, 2020 and $11.1 million at March 31, 2020. Net deferred fees as of March 31, 2021 includes $64.6 million of net deferred fees paid by the Small Business Administration ("SBA") for loans originated under the PPP. As PPP loans share similar characteristics (loan terms), and prepayments are considered probable and can reasonably be estimated due to terms of the program, the Company considers estimated future principal prepayments in recognizing such deferred fees for determining a constant effective yield on the portfolio of loans.
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.
(6) Allowance for Credit Losses
In accordance with ASC 326, the Company is required to measure the allowance for credit losses of financial assets with similar risk characteristics on a collective or pooled basis. In considering the segmentation of financial assets measured at amortized cost into pools, the Company considered various risk characteristics in its analysis. Generally, the segmentation utilized represents the level at which the Company develops and documents its systematic methodology to determine the allowance for credit losses for the financial asset held at amortized cost, specifically the Company's loan portfolio and debt securities classified as held-to-maturity. Below is a summary of the Company's loan portfolio segments and major debt security types:
Commercial loans, including PPP loans: The Company makes commercial loans for many purposes, including working capital lines and leasing arrangements, that are generally renewable annually and supported by business assets, personal guarantees and additional collateral. Underlying collateral includes receivables, inventory, enterprise value and the assets of the business. Commercial business lending is generally considered to involve a slightly higher degree of risk than traditional consumer bank lending. This portfolio includes a range of industries, including manufacturing, restaurants, franchise, professional services, equipment finance and leasing, mortgage warehouse lending and industrial.
The Company also originates loans through the PPP. Administered by the SBA, the PPP provides short-term relief primarily related to the disruption from COVID-19 to companies and non-profits that meet the SBA’s definition of an eligible small business. Under the program, the SBA will forgive all or a portion of the loan if, during a certain period, loans are used for qualifying expenses. If all or a portion of the loan is not forgiven, the borrower is responsible for repayment. PPP loans are fully guaranteed by the SBA, including any portion not forgiven. The SBA guarantee exists at the inception of the loan and throughout its life and is not separated from the loan if the loan is subsequently sold or transferred. As it is not considered a freestanding contract, the Company considers the impact of the SBA guarantee when measuring the allowance for credit losses.
Commercial real estate loans, including construction and development, and non-construction: The Company's commercial real estate loans are generally secured by a first mortgage lien and assignment of rents on the underlying property. Since most of the Company's bank branches are located in the Chicago metropolitan area and southern Wisconsin, a significant portion of the Company's commercial real estate loan portfolio is located in this region. As the risks and circumstances of such loans in construction phase vary from that of non-construction commercial real estate loans, the Company assessed the allowance for credit losses separately for these two segments.
Home equity loans: The Company's home equity loans and lines of credit are primarily originated by each of the bank subsidiaries in their local markets where there is a strong understanding of the underlying real estate value. The Company's banks monitor and manage these loans, and conduct an automated review of all home equity loans and lines of credit at least twice per year. The banks subsidiaries use this information to manage loans that may be higher risk and to determine whether to obtain additional credit information or updated property valuations. In a limited number of cases, the Company may issue home equity credit together with first mortgage financing, and requests for such financing are evaluated on a combined basis.
Residential real estate loans: The Company's residential real estate portfolio includes one- to four-family fixed and adjustable rate mortgages with repricing terms generally from one to three years, construction loans to individuals and bridge financing loans for qualifying customers. The Company's residential mortgages relate to properties located principally in the Chicago metropolitan area and southern Wisconsin or vacation homes owned by local residents. Due to interest rate risk considerations, the Company generally sells in the secondary market loans originated with long-term fixed rates, however, certain of these loans may be retained within the banks’ own portfolios where they are non-agency conforming, or where the terms of the loans make them favorable to retain. The Company believes that since this loan portfolio consists primarily of locally originated loans, and since the majority of the borrowers are longer-term customers with lower LTV ratios, the Company faces a relatively low risk of borrower default and delinquency. It is not the Company's current practice to underwrite, and there are no plans to underwrite subprime, Alt A, no or little documentation loans, or option ARM loans.
Premium finance receivables: The Company makes loans to businesses to finance the insurance premiums they pay on their commercial insurance policies. The loans are indirectly originated by working through independent medium and large insurance agents and brokers located throughout the United States and Canada. The insurance premiums financed are primarily for commercial customers’ purchases of liability, property and casualty and other commercial insurance. This lending involves relatively rapid turnover of the loan portfolio and high volume of loan originations. The Company performs ongoing credit and other reviews of the agents and brokers to mitigate against the risk of fraud.
The Company also originates life insurance premium finance receivables. These loans are originated directly with the borrowers with assistance from life insurance carriers, independent insurance agents, financial advisors and legal counsel. The life
insurance policy is the primary form of collateral. In addition, these loans often are secured with a letter of credit, marketable securities or certificates of deposit. In some cases, the Company may make a loan that has a partially unsecured position.
Consumer and other loans: Included in the consumer and other loan category is a wide variety of personal and consumer loans to individuals. The Company originates consumer loans in order to provide a wider range of financial services to their customers. Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk than mortgage loans due to the type and nature of the collateral.
U.S. government agency securities: This security type includes debt obligations of certain government-sponsored entities of the U.S. government such as the Federal Home Loan Bank, Federal Agricultural Mortgage Corporation, Federal Farm Credit Banks Funding Corporation and Fannie Mae. Such securities often contain an explicit or implicit guarantee of the U.S. government.
Municipal securities: The Company's municipal securities portfolio include bond issues for various municipal government entities located throughout the United States, including the Chicago metropolitan area and southern Wisconsin, some of which are privately placed and non-rated. Though the risk of loss is typically low, including within the Company, default history exists on municipal securities within the United States.
Mortgage-backed securities: This security type includes debt obligations supported by pools of individual mortgage loans and issued by certain government-sponsored entities of the U.S. government such as Freddie Mac and Fannie Mae. Such securities are considered to contain an implicit guarantee of the U.S. government.
Corporate notes: The Company's corporate notes portfolio includes bond issues for various public companies representing a diversified population of industries. The risk of loss in this portfolio is considered low based on the characteristics of the investments, including the Company’s own past history with similar investments.
In accordance with ASC 326, the Company elected to not measure an allowance for credit losses on accrued interest as such accrued interest is written off in a timely manner when deemed uncollectible. Any such write-off of accrued interest will reverse previously recognized interest income. In addition, the Company elected to not include accrued interest within presentation and disclosures of the carrying amount of financial assets held at amortized cost. This election is applicable to the various disclosures included within the Company's financial statements. Accrued interest related to financial assets held at amortized cost is included within accrued interest receivable and other assets within the Company's Consolidated Statements of Condition and totaled $128.8 million at March 31, 2021, $121.9 million at December 31, 2020 and $116.4 million at March 31, 2020.
The tables below show the aging of the Company’s loan portfolio by the segmentation noted above at March 31, 2021, December 31, 2020 and March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
|
90+ days and still accruing
|
|
60-89 days past due
|
|
30-59 days past due
|
|
|
|
|
|
(In thousands)
|
Nonaccrual
|
|
|
|
|
Current
|
|
Total Loans
|
|
Loan Balances (includes PCD):
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, industrial and other, excluding PPP loans
|
$
|
22,459
|
|
|
$
|
—
|
|
|
$
|
13,292
|
|
|
$
|
35,535
|
|
|
$
|
9,343,939
|
|
|
$
|
9,415,225
|
|
|
Commercial PPP loans
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
3,292,976
|
|
|
3,292,982
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
2,673
|
|
|
—
|
|
|
499
|
|
|
23,967
|
|
|
1,326,185
|
|
|
1,353,324
|
|
|
Non-construction
|
31,707
|
|
|
—
|
|
|
7,657
|
|
|
46,201
|
|
|
7,105,890
|
|
|
7,191,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
5,536
|
|
|
—
|
|
|
492
|
|
|
780
|
|
|
383,445
|
|
|
390,253
|
|
|
Residential real estate
|
21,553
|
|
|
—
|
|
|
944
|
|
|
13,768
|
|
|
1,385,708
|
|
|
1,421,973
|
|
|
Premium finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial insurance loans
|
9,690
|
|
|
4,592
|
|
|
5,113
|
|
|
16,552
|
|
|
3,922,596
|
|
|
3,958,543
|
|
|
Life insurance loans
|
—
|
|
|
191
|
|
|
—
|
|
|
14,821
|
|
|
6,096,483
|
|
|
6,111,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
497
|
|
|
161
|
|
|
8
|
|
|
74
|
|
|
35,243
|
|
|
35,983
|
|
|
Total loans, net of unearned income
|
$
|
94,115
|
|
|
$
|
4,944
|
|
|
$
|
28,005
|
|
|
$
|
151,704
|
|
|
$
|
32,892,465
|
|
|
$
|
33,171,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
90+ days and still accruing
|
|
60-89 days past due
|
|
30-59 days past due
|
|
|
|
|
|
(In thousands)
|
Nonaccrual
|
|
|
|
|
Current
|
|
Total Loans
|
|
Loan Balances (includes PCD):
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, industrial and other, excluding PPP loans
|
$
|
21,743
|
|
|
$
|
307
|
|
|
$
|
6,900
|
|
|
$
|
44,345
|
|
|
$
|
9,166,751
|
|
|
$
|
9,240,046
|
|
|
Commercial PPP loans
|
—
|
|
|
—
|
|
|
—
|
|
|
36
|
|
|
2,715,885
|
|
|
2,715,921
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
5,633
|
|
|
—
|
|
|
—
|
|
|
5,344
|
|
|
1,360,825
|
|
|
1,371,802
|
|
|
Non-construction
|
40,474
|
|
|
—
|
|
|
5,178
|
|
|
26,772
|
|
|
7,049,906
|
|
|
7,122,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
6,529
|
|
|
—
|
|
|
47
|
|
|
637
|
|
|
418,050
|
|
|
425,263
|
|
|
Residential real estate
|
26,071
|
|
|
—
|
|
|
1,635
|
|
|
12,584
|
|
|
1,219,308
|
|
|
1,259,598
|
|
|
Premium finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial insurance loans
|
13,264
|
|
|
12,792
|
|
|
6,798
|
|
|
18,809
|
|
|
4,002,826
|
|
|
4,054,489
|
|
|
Life insurance loans
|
—
|
|
|
—
|
|
|
21,003
|
|
|
30,465
|
|
|
5,805,968
|
|
|
5,857,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
436
|
|
|
264
|
|
|
24
|
|
|
136
|
|
|
31,328
|
|
|
32,188
|
|
|
Total loans, net of unearned income
|
$
|
114,150
|
|
|
$
|
13,363
|
|
|
$
|
41,585
|
|
|
$
|
139,128
|
|
|
$
|
31,770,847
|
|
|
$
|
32,079,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
|
90+ days and still accruing
|
|
60-89 days past due
|
|
30-59 days past due
|
|
|
|
|
|
(In thousands)
|
Nonaccrual
|
|
|
|
|
Current
|
|
Total Loans
|
|
Loan Balances (includes PCD):
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, industrial and other, excluding PPP loans
|
$
|
49,916
|
|
|
$
|
1,241
|
|
|
$
|
8,873
|
|
|
$
|
86,129
|
|
|
$
|
8,879,727
|
|
|
$
|
9,025,886
|
|
|
Commercial PPP loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
7,422
|
|
|
147
|
|
|
1,859
|
|
|
16,938
|
|
|
1,274,987
|
|
|
1,301,353
|
|
|
Non-construction
|
55,408
|
|
|
369
|
|
|
8,353
|
|
|
58,130
|
|
|
6,761,918
|
|
|
6,884,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
7,243
|
|
|
—
|
|
|
214
|
|
|
2,096
|
|
|
485,102
|
|
|
494,655
|
|
|
Residential real estate
|
18,965
|
|
|
605
|
|
|
345
|
|
|
28,983
|
|
|
1,328,491
|
|
|
1,377,389
|
|
|
Premium finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial insurance loans
|
21,058
|
|
|
16,505
|
|
|
10,327
|
|
|
32,811
|
|
|
3,384,354
|
|
|
3,465,055
|
|
|
Life insurance loans
|
—
|
|
|
—
|
|
|
2,403
|
|
|
37,374
|
|
|
5,181,862
|
|
|
5,221,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
403
|
|
|
78
|
|
|
625
|
|
|
207
|
|
|
35,853
|
|
|
37,166
|
|
|
Total loans, net of unearned income
|
$
|
160,415
|
|
|
$
|
18,945
|
|
|
$
|
32,999
|
|
|
$
|
262,668
|
|
|
$
|
27,332,294
|
|
|
$
|
27,807,321
|
|
Credit Quality Indicators
Credit quality indicators, specifically the Company's internal risk rating systems, reflect how the Company monitors credit losses and represents factors used by the Company when measuring the allowance for credit losses. The following discusses the Company's credit quality indicators by financial asset.
Loan portfolios
The Company's ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, the Company operates a credit risk rating system under which 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. These credit risk ratings are also an important aspect of the Company's allowance for credit losses measurement methodology. The credit risk rating structure and classifications are shown below:
Pass (risk rating 1 to 5): Based on various factors (liquidity, leverage, etc.), the Company believes asset quality is acceptable and is deemed to not require additional monitoring by the Company.
Special mention (risk rating 6): Assets in this category are currently protected, potentially weak, but not to the point of substandard classification. Loss potential is moderate if corrective action is not taken.
Substandard accrual (risk rating 7): Assets in this category have well defined weaknesses that jeopardize the liquidation of the debt. Loss potential is distinct but with no discernible impairment.
Substandard nonaccrual/doubtful (risk rating 8 and 9): Assets have all the weaknesses in those classified “substandard accrual” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, improbable.
Loss/fully charged-off (risk rating 10): Assets in this category are considered fully uncollectible. As such, these assets have no carrying balance on the Company's Consolidated Statements of Condition.
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 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 portion of the outstanding loan balance may be deemed uncollectible and, as a result, no longer share similar risk characteristics as its related pool. If that is the case, the individual loan is considered collateral dependent and individually assessed for an allowance for credit loss. The Company’s individual assessment 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 or a charge-off. If the Company determines 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. In determining the appropriate charge-off for collateral-dependent loans, the Company considers the results of appraisals for the associated collateral.
The table below shows the Company’s loan portfolio by credit quality indicator and year of origination at March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
Year of Origination
|
|
|
Revolving
|
|
Total
|
|
(In thousands)
|
2021
|
2020
|
2019
|
2018
|
2017
|
Prior
|
|
Revolving
|
to Term
|
|
Loans
|
|
Loan Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, industrial and other
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
574,195
|
|
$
|
1,951,426
|
|
$
|
1,158,699
|
|
$
|
840,181
|
|
$
|
611,479
|
|
$
|
742,116
|
|
|
$
|
2,908,239
|
|
$
|
4,925
|
|
|
$
|
8,791,260
|
|
|
Special mention
|
965
|
|
27,786
|
|
83,315
|
|
38,930
|
|
33,116
|
|
24,760
|
|
|
86,729
|
|
36
|
|
|
295,637
|
|
|
Substandard accrual
|
22,738
|
|
19,675
|
|
65,902
|
|
71,312
|
|
25,052
|
|
61,313
|
|
|
39,766
|
|
111
|
|
|
305,869
|
|
|
Substandard nonaccrual/doubtful
|
—
|
|
1,887
|
|
1,770
|
|
2,117
|
|
2,078
|
|
14,074
|
|
|
533
|
|
—
|
|
|
22,459
|
|
|
Total commercial, industrial and other
|
$
|
597,898
|
|
$
|
2,000,774
|
|
$
|
1,309,686
|
|
$
|
952,540
|
|
$
|
671,725
|
|
$
|
842,263
|
|
|
$
|
3,035,267
|
|
$
|
5,072
|
|
|
$
|
9,415,225
|
|
|
Commercial PPP
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
1,242,766
|
|
$
|
2,049,342
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
3,292,108
|
|
|
Special mention
|
874
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
874
|
|
|
Substandard accrual
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Substandard nonaccrual/doubtful
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Total commercial PPP
|
$
|
1,243,640
|
|
$
|
2,049,342
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
3,292,982
|
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
40,266
|
|
$
|
346,452
|
|
$
|
433,184
|
|
$
|
196,502
|
|
$
|
89,377
|
|
$
|
109,596
|
|
|
$
|
29,747
|
|
$
|
—
|
|
|
$
|
1,245,124
|
|
|
Special mention
|
282
|
|
11,935
|
|
16,864
|
|
21,075
|
|
24,465
|
|
4,068
|
|
|
—
|
|
—
|
|
|
78,689
|
|
|
Substandard accrual
|
—
|
|
—
|
|
1,207
|
|
21,872
|
|
2,929
|
|
678
|
|
|
152
|
|
—
|
|
|
26,838
|
|
|
Substandard nonaccrual/doubtful
|
—
|
|
—
|
|
—
|
|
1,571
|
|
—
|
|
1,102
|
|
|
—
|
|
—
|
|
|
2,673
|
|
|
Total construction and development
|
$
|
40,548
|
|
$
|
358,387
|
|
$
|
451,255
|
|
$
|
241,020
|
|
$
|
116,771
|
|
$
|
115,444
|
|
|
$
|
29,899
|
|
$
|
—
|
|
|
$
|
1,353,324
|
|
|
Non-construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
249,241
|
|
$
|
1,295,535
|
|
$
|
1,030,111
|
|
$
|
816,725
|
|
$
|
772,702
|
|
$
|
2,189,960
|
|
|
$
|
184,304
|
|
$
|
244
|
|
|
$
|
6,538,822
|
|
|
Special mention
|
3,875
|
|
9,905
|
|
65,413
|
|
66,860
|
|
69,759
|
|
220,549
|
|
|
—
|
|
—
|
|
|
436,361
|
|
|
Substandard accrual
|
—
|
|
2,023
|
|
42,238
|
|
9,358
|
|
21,352
|
|
109,584
|
|
|
10
|
|
—
|
|
|
184,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard nonaccrual/doubtful
|
—
|
|
—
|
|
266
|
|
1,221
|
|
2,131
|
|
28,089
|
|
|
—
|
|
—
|
|
|
31,707
|
|
|
Total non-construction
|
$
|
253,116
|
|
$
|
1,307,463
|
|
$
|
1,138,028
|
|
$
|
894,164
|
|
$
|
865,944
|
|
$
|
2,548,182
|
|
|
$
|
184,314
|
|
$
|
244
|
|
|
$
|
7,191,455
|
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
—
|
|
$
|
44
|
|
$
|
—
|
|
$
|
47
|
|
$
|
28
|
|
$
|
7,082
|
|
|
$
|
356,197
|
|
$
|
—
|
|
|
$
|
363,398
|
|
|
Special mention
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,103
|
|
|
4,905
|
|
245
|
|
|
7,253
|
|
|
Substandard accrual
|
—
|
|
—
|
|
—
|
|
317
|
|
—
|
|
11,953
|
|
|
1,053
|
|
743
|
|
|
14,066
|
|
|
Substandard nonaccrual/doubtful
|
—
|
|
—
|
|
—
|
|
—
|
|
157
|
|
3,799
|
|
|
1,580
|
|
—
|
|
|
5,536
|
|
|
Total home equity
|
$
|
—
|
|
$
|
44
|
|
$
|
—
|
|
$
|
364
|
|
$
|
185
|
|
$
|
24,937
|
|
|
$
|
363,735
|
|
$
|
988
|
|
|
$
|
390,253
|
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
301,904
|
|
$
|
346,823
|
|
$
|
265,543
|
|
$
|
100,023
|
|
$
|
115,609
|
|
$
|
240,205
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
1,370,107
|
|
|
Special mention
|
80
|
|
302
|
|
237
|
|
2,017
|
|
2,163
|
|
8,467
|
|
|
—
|
|
—
|
|
|
13,266
|
|
|
Substandard accrual
|
291
|
|
2,304
|
|
1,025
|
|
897
|
|
2,300
|
|
10,230
|
|
|
—
|
|
—
|
|
|
17,047
|
|
|
Substandard nonaccrual/doubtful
|
—
|
|
186
|
|
1,121
|
|
745
|
|
5,034
|
|
14,467
|
|
|
—
|
|
—
|
|
|
21,553
|
|
|
Total residential real estate
|
$
|
302,275
|
|
$
|
349,615
|
|
$
|
267,926
|
|
$
|
103,682
|
|
$
|
125,106
|
|
$
|
273,369
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
1,421,973
|
|
|
Premium finance receivables - commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
2,001,412
|
|
$
|
1,896,547
|
|
$
|
27,366
|
|
$
|
2,961
|
|
$
|
54
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
3,928,340
|
|
|
Special mention
|
8,051
|
|
11,093
|
|
8
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
19,152
|
|
|
Substandard accrual
|
1
|
|
1,267
|
|
13
|
|
80
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
1,361
|
|
|
Substandard nonaccrual/doubtful
|
512
|
|
7,898
|
|
1,252
|
|
28
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
9,690
|
|
|
Total premium finance receivables - commercial
|
$
|
2,009,976
|
|
$
|
1,916,805
|
|
$
|
28,639
|
|
$
|
3,069
|
|
$
|
54
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
3,958,543
|
|
|
Premium finance receivables - life
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
112,896
|
|
$
|
636,815
|
|
$
|
658,163
|
|
$
|
620,034
|
|
$
|
678,197
|
|
$
|
3,404,823
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
6,110,928
|
|
|
Special mention
|
—
|
|
—
|
|
—
|
|
—
|
|
567
|
|
—
|
|
|
—
|
|
—
|
|
|
567
|
|
|
Substandard accrual
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Substandard nonaccrual/doubtful
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Total premium finance receivables - life
|
$
|
112,896
|
|
$
|
636,815
|
|
$
|
658,163
|
|
$
|
620,034
|
|
$
|
678,764
|
|
$
|
3,404,823
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
6,111,495
|
|
|
Consumer and other
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
1,204
|
|
$
|
1,955
|
|
$
|
1,749
|
|
$
|
1,389
|
|
$
|
179
|
|
$
|
14,366
|
|
|
$
|
14,206
|
|
$
|
—
|
|
|
$
|
35,048
|
|
|
Special mention
|
3
|
|
10
|
|
19
|
|
—
|
|
86
|
|
91
|
|
|
6
|
|
—
|
|
|
215
|
|
|
Substandard accrual
|
—
|
|
4
|
|
1
|
|
—
|
|
—
|
|
215
|
|
|
3
|
|
—
|
|
|
223
|
|
|
Substandard nonaccrual/doubtful
|
—
|
|
1
|
|
—
|
|
104
|
|
—
|
|
392
|
|
|
—
|
|
—
|
|
|
497
|
|
|
Total consumer and other
|
$
|
1,207
|
|
$
|
1,970
|
|
$
|
1,769
|
|
$
|
1,493
|
|
$
|
265
|
|
$
|
15,064
|
|
|
$
|
14,215
|
|
$
|
—
|
|
|
$
|
35,983
|
|
|
Total loans (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
4,523,884
|
|
$
|
8,524,939
|
|
$
|
3,574,815
|
|
$
|
2,577,862
|
|
$
|
2,267,625
|
|
$
|
6,708,148
|
|
|
$
|
3,492,693
|
|
$
|
5,169
|
|
|
$
|
31,675,135
|
|
|
Special mention
|
14,130
|
|
61,031
|
|
165,856
|
|
128,882
|
|
130,156
|
|
260,038
|
|
|
91,640
|
|
281
|
|
|
852,014
|
|
|
Substandard accrual
|
23,030
|
|
25,273
|
|
110,386
|
|
103,836
|
|
51,633
|
|
193,973
|
|
|
40,984
|
|
854
|
|
|
549,969
|
|
|
Substandard nonaccrual/doubtful
|
512
|
|
9,972
|
|
4,409
|
|
5,786
|
|
9,400
|
|
61,923
|
|
|
2,113
|
|
—
|
|
|
94,115
|
|
|
Total loans
|
$
|
4,561,556
|
|
$
|
8,621,215
|
|
$
|
3,855,466
|
|
$
|
2,816,366
|
|
$
|
2,458,814
|
|
$
|
7,224,082
|
|
|
$
|
3,627,430
|
|
$
|
6,304
|
|
|
$
|
33,171,233
|
|
(1)Includes $164.7 million of loans with COVID-19 related modifications that migrated from pass as of March 1, 2020 to special mention or substandard accrual as of March 31, 2021. These loans were further qualitatively evaluated as a part of the measurement of the allowance for credit losses as of March 31, 2021.
Held-to-maturity debt securities
The Company conducts an assessment of its investment securities, including those classified as held-to-maturity, at the time of purchase and on at least an annual basis to ensure such investment securities remain within appropriate levels of risk and continue to perform satisfactorily in fulfilling its obligations. The Company considers, among other factors, the nature of the securities and credit ratings or financial condition of the issuer. If available, the Company obtains a credit rating for issuers from a Nationally Recognized Statistical Rating Organization (“NRSRO”) for consideration. If no such rating is available for an issuer, the Company performs an internal rating based on the scale utilized within the loan portfolio as discussed above. For purposes of the table below, the Company has converted any issuer rating from an NRSRO into the Company’s internal ratings based on Investment Policy and review by the Company’s management.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
Year of Origination
|
|
Total
|
|
(In thousands)
|
2021
|
2020
|
2019
|
2018
|
2017
|
Prior
|
|
Balance
|
|
Amortized Cost Balances:
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
|
|
|
|
|
|
|
|
1-4 internal grade
|
$
|
97,786
|
|
$
|
25,000
|
|
$
|
—
|
|
$
|
50,000
|
|
$
|
—
|
|
$
|
3,374
|
|
|
$
|
176,160
|
|
|
5-7 internal grade
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
8-10 internal grade
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
Total U.S. government agencies
|
$
|
97,786
|
|
$
|
25,000
|
|
$
|
—
|
|
$
|
50,000
|
|
$
|
—
|
|
$
|
3,374
|
|
|
$
|
176,160
|
|
|
Municipal
|
|
|
|
|
|
|
|
|
|
1-4 internal grade
|
$
|
1,377
|
|
$
|
—
|
|
$
|
161
|
|
$
|
7,549
|
|
$
|
43,603
|
|
$
|
145,175
|
|
|
$
|
197,865
|
|
|
5-7 internal grade
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
8-10 internal grade
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
Total municipal
|
$
|
1,377
|
|
$
|
—
|
|
$
|
161
|
|
$
|
7,549
|
|
$
|
43,603
|
|
$
|
145,175
|
|
|
$
|
197,865
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
1-4 internal grade
|
$
|
1,737,115
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
1,737,115
|
|
|
5-7 internal grade
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
8-10 internal grade
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
Total mortgage-backed securities
|
$
|
1,737,115
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
1,737,115
|
|
|
Corporate notes
|
|
|
|
|
|
|
|
|
|
1-4 internal grade
|
$
|
—
|
|
$
|
13,661
|
|
$
|
7,462
|
|
$
|
3,325
|
|
$
|
3,282
|
|
$
|
27,648
|
|
|
$
|
55,378
|
|
|
5-7 internal grade
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
8-10 internal grade
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
Total corporate notes
|
$
|
—
|
|
$
|
13,661
|
|
$
|
7,462
|
|
$
|
3,325
|
|
$
|
3,282
|
|
$
|
27,648
|
|
|
$
|
55,378
|
|
|
Total held-to-maturity securities
|
|
|
|
|
|
|
|
$
|
2,166,518
|
|
|
Less: Allowance for credit losses
|
|
|
|
|
|
|
|
(99)
|
|
|
Held-to-maturity securities, net of allowance for credit losses
|
|
|
|
|
|
|
|
$
|
2,166,419
|
|
Measurement of Allowance for Credit Losses
The Company's allowance for credit losses consists of the allowance for loan losses, the allowance for unfunded commitment losses and the allowance for held-to-maturity debt security losses. In accordance with ASC 326, the Company measures the allowance for credit losses at the time of origination or purchase of a financial asset, representing an estimate of lifetime expected credit losses on the related asset. When developing its estimate, the Company considers available information relevant to assessing the collectability of cash flows, from both internal and external sources. Historical credit loss experience is one input in the estimation process as well as inputs relevant to current conditions and reasonable and supportable forecasts. In considering past events, the Company considers the relevance, or lack thereof, of historical information due to changes in such things as financial asset underwriting or collection practices, and changes in portfolio mix due to changing business plans and strategies. In considering current conditions and forecasts, the Company considers both the current economic environment and the forecasted direction of the economic environment with emphasis on those factors deemed relevant to or driving changes in expected credit losses. As significant judgment is required, the review of the appropriateness of the allowance for credit losses is performed quarterly by various committees with participation by the Company's executive management.
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|
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|
|
March 31,
|
|
|
|
December 31,
|
|
|
|
March 31,
|
|
(In thousands)
|
|
2021
|
|
|
|
2020
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
277,709
|
|
|
|
|
$
|
319,374
|
|
|
|
|
$
|
216,050
|
|
|
Allowance for unfunded lending-related commitments losses
|
|
43,500
|
|
|
|
|
60,536
|
|
|
|
|
37,362
|
|
|
Allowance for loan losses and unfunded lending-related commitments losses
|
|
321,209
|
|
|
|
|
379,910
|
|
|
|
|
253,412
|
|
|
Allowance for held-to-maturity securities losses
|
|
99
|
|
|
|
|
59
|
|
|
|
|
70
|
|
|
Allowance for credit losses
|
|
$
|
321,308
|
|
|
|
|
$
|
379,969
|
|
|
|
|
$
|
253,482
|
|
The allowance for credit losses is measured on a collective or pooled basis when similar risk characteristics exist, based upon the segmentation discussed above. The Company utilizes modeling methodologies that estimate lifetime credit loss rates on each pool, including methodologies estimating the probability of default and loss given default on specific segments. Historical credit loss history is adjusted for reasonable and supportable forecasts developed by the Company on a quantitative or qualitative basis and incorporates third party economic forecasts. Reasonable and supportable forecasts consider the macroeconomic factors that are most relevant to evaluating and predicting expected credit losses in the Company's financial assets. Currently, the Company utilizes an eight quarter forecast period using a single macroeconomic scenario provided by a
third-party and reviewed within the Company's governance structure. For periods beyond the ability to develop reasonable and supportable forecasts, the Company reverts to historical loss rates at an input level, straight-line over a four quarter reversion period. Expected credit losses are measured over the contractual term of the financial asset with consideration of expected prepayments. Expected extensions, renewals or modifications of the financial asset are only considered when either 1) the expected extension, renewal or modification is contained within the existing agreement and is not unconditionally cancelable, or 2) the expected extension, renewal or modification is reasonably expected to result in a TDR. The methodologies discussed above are applied to both current asset balances on the Company's Consolidated Statements of Condition and off-balance sheet commitments (i.e. unfunded lending-related commitments).
Assets that do not share similar risk characteristics with a pool are assessed for the allowance for credit losses on an individual basis. These typically include assets experiencing financial difficulties, including assets rated as substandard nonaccrual and doubtful as well as assets currently classified or expected to be classified as TDRs. If foreclosure is probable or the asset is considered collateral-dependent, expected credit losses are measured based upon the fair value of the underlying collateral adjusted for selling costs, if appropriate. Underlying collateral across the Company's segments consist primarily of real estate, land and construction assets as well as general business assets of the borrower. As of March 31, 2021, substandard nonaccrual loans totaling $56.8 million in carrying balance had no related allowance for credit losses. For certain accruing current and expected TDRs, expected credit losses are measured based upon the present value of future cash flows of the modified asset terms compared to the amortized cost of the asset. Considering accounting relief provided under Section 4013 of the CARES Act, loans identified as being reasonably expected to be modified into TDRs in the future totaled $198,000 as of March 31, 2021.
The Company does not measure an allowance for credit losses on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when assets are placed on nonaccrual status.
Loan portfolios
A summary of activity in the allowance for credit losses, specifically for the loan portfolio (i.e. allowance for loan losses and allowance for unfunded commitment losses), for the three months ended March 31, 2021 and 2020 is as follows.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
|
Commercial Real Estate
|
|
Home Equity
|
|
Residential Real Estate
|
|
Premium Finance Receivables
|
|
Consumer and Other
|
|
Total Loans
|
|
(In thousands)
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses at beginning of period
|
$
|
94,212
|
|
|
$
|
243,603
|
|
|
$
|
11,437
|
|
|
$
|
12,459
|
|
|
$
|
17,777
|
|
|
$
|
422
|
|
|
$
|
379,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
30
|
|
|
Charge-offs
|
(11,781)
|
|
|
(980)
|
|
|
—
|
|
|
(2)
|
|
|
(3,239)
|
|
|
(114)
|
|
|
(16,116)
|
|
|
Recoveries
|
452
|
|
|
200
|
|
|
101
|
|
|
204
|
|
|
1,782
|
|
|
32
|
|
|
2,771
|
|
|
Provision for credit losses
|
12,757
|
|
|
(61,031)
|
|
|
(156)
|
|
|
1,581
|
|
|
1,127
|
|
|
336
|
|
|
(45,386)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses at period end
|
$
|
95,640
|
|
|
$
|
181,792
|
|
|
$
|
11,382
|
|
|
$
|
14,242
|
|
|
$
|
17,477
|
|
|
$
|
676
|
|
|
$
|
321,209
|
|
|
Individually measured
|
$
|
5,046
|
|
|
$
|
2,042
|
|
|
$
|
338
|
|
|
$
|
822
|
|
|
$
|
—
|
|
|
$
|
81
|
|
|
$
|
8,329
|
|
|
Collectively measured
|
90,594
|
|
|
179,750
|
|
|
11,044
|
|
|
13,420
|
|
|
17,477
|
|
|
595
|
|
|
312,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at period end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually measured
|
$
|
30,144
|
|
|
$
|
43,858
|
|
|
$
|
21,167
|
|
|
$
|
28,675
|
|
|
$
|
—
|
|
|
$
|
560
|
|
|
$
|
124,404
|
|
|
Collectively measured
|
12,678,063
|
|
|
8,500,921
|
|
|
369,086
|
|
|
1,341,382
|
|
|
10,070,038
|
|
|
35,423
|
|
|
32,994,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held at fair value
|
—
|
|
|
—
|
|
|
—
|
|
|
51,916
|
|
|
—
|
|
|
—
|
|
|
51,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
Commercial
|
|
Commercial Real Estate
|
|
Home Equity
|
|
Residential Real Estate
|
|
Premium Finance Receivables
|
|
Consumer and Other
|
|
Total Loans
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses at beginning of period
|
$
|
64,920
|
|
|
$
|
68,511
|
|
|
$
|
3,878
|
|
|
$
|
9,800
|
|
|
$
|
9,647
|
|
|
$
|
1,705
|
|
|
$
|
158,461
|
|
|
Cumulative effect adjustment from the adoption of ASU 2016-13
|
9,039
|
|
|
32,064
|
|
|
9,061
|
|
|
3,002
|
|
|
(4,959)
|
|
|
(863)
|
|
|
47,344
|
|
|
Other adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(73)
|
|
|
—
|
|
|
(73)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
(2,153)
|
|
|
(570)
|
|
|
(1,001)
|
|
|
(401)
|
|
|
(3,184)
|
|
|
(128)
|
|
|
(7,437)
|
|
|
Recoveries
|
384
|
|
|
263
|
|
|
294
|
|
|
60
|
|
|
1,110
|
|
|
41
|
|
|
2,152
|
|
|
Provision for credit losses
|
35,156
|
|
|
12,528
|
|
|
162
|
|
|
89
|
|
|
5,339
|
|
|
(309)
|
|
|
52,965
|
|
|
Allowance for credit losses at period end
|
$
|
107,346
|
|
|
$
|
112,796
|
|
|
$
|
12,394
|
|
|
$
|
12,550
|
|
|
$
|
7,880
|
|
|
$
|
446
|
|
|
$
|
253,412
|
|
|
Individually measured
|
$
|
12,524
|
|
|
$
|
9,108
|
|
|
$
|
290
|
|
|
$
|
466
|
|
|
$
|
—
|
|
|
$
|
104
|
|
|
$
|
22,492
|
|
|
Collectively measured
|
94,822
|
|
|
103,688
|
|
|
12,104
|
|
|
12,084
|
|
|
7,880
|
|
|
342
|
|
|
230,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at period end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually measured
|
$
|
56,416
|
|
|
$
|
80,873
|
|
|
$
|
23,060
|
|
|
$
|
27,854
|
|
|
$
|
—
|
|
|
$
|
537
|
|
|
$
|
188,740
|
|
|
Collectively measured
|
8,969,470
|
|
|
8,104,658
|
|
|
471,595
|
|
|
1,207,268
|
|
|
8,686,694
|
|
|
36,629
|
|
|
27,476,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held at fair value
|
—
|
|
|
—
|
|
|
—
|
|
|
142,267
|
|
|
—
|
|
|
—
|
|
|
142,267
|
|
At January 1, 2020, the Company adopted ASU 2016-13, which replaced the previous incurred loss methodology for measuring the allowance for credit losses with a lifetime expected loss methodology. At adoption, the allowance for credit losses related to loans and lending agreements increased approximately $47.3 million, including an increase of approximately $33.2 million recorded to the allowance for unfunded commitment losses within accrued interest and other liabilities on the Company's Consolidated Statements of Condition, with an offsetting amount recorded directly to retained earnings, net of taxes. The remaining $14.2 million cumulative effect adjustment was recorded to the allowance for loan losses, presented separately on the Company's Consolidated Statements of Condition. Of the amount recorded to the allowance for loan losses, $11.0 million related to PCD loans with such offsetting amount added directly to the carrying balance of the loans and the remaining $3.2 million not related to PCD loans recorded directly to retained earnings, net of taxes, on the Company's Consolidated Statements of Condition.
For the three months ended March 31, 2021 and 2020, the Company recognized approximately $(45.4) million and $53.0 million of provision for credit losses, respectively, related to loans and lending agreements. The decreased provision was primarily the result of improvements in the forecasted macroeconomic conditions created by the COVID-19 pandemic, and the resulting impact on the Company's macroeconomic forecasts of key model inputs (most notably, Commercial Real Estate Price Index and Baa corporate credit spreads) as well as improvements in characteristics of the Company's loan portfolios. While uncertainties remain regarding expected economic recovery, macroeconomic forecasts as of March 31, 2021 assume that the impact of those uncertainties is less severe compared to that assumed at December 31, 2020. Other key drivers of provision for credit losses in these portfolios include, but are not limited to, net new loan growth and loan risk rating migration. Net charge-offs in the three month period ending March 31, 2021, totaled $13.3 million.
Held-to-maturity debt securities
At January 1, 2020, the Company established an allowance for credit losses on its held-to-maturity debt securities totaling approximately $74,000, which is presented as a reduction to the amortized cost basis of held-to-maturity securities on the Company's Consolidated Statements of Condition. Such adjustment was recorded directly to the Company's retained earnings, net of taxes. For the three month period ended March 31, 2021, the Company recognized approximately $39,000 of provision for credit losses related to held-to-maturity securities.
TDRs
At March 31, 2021, the Company had $56.6 million in loans modified in TDRs. The $56.6 million in TDRs represents 273 credits in which economic concessions were granted to certain borrowers to better align the terms of their loans with their current ability to pay.
The Company’s approach to restructuring loans is built on its credit risk rating system, which requires credit management personnel to assign a credit risk rating to each loan. In each case, the loan officer is responsible for recommending a credit risk rating for each loan and ensuring the credit risk ratings are appropriate. These credit risk ratings are then reviewed and approved 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
credit risk rating scale is one through ten with higher scores indicating higher risk. In the case of loans rated six or worse following modification, the Company’s Managed Assets Division evaluates the loan and the credit risk rating and determines that the loan has been restructured to be reasonably assured of repayment and of performance according to the modified terms and is supported by a current, well-documented credit assessment of the borrower’s financial condition and prospects for repayment under the revised terms.
A modification of a loan with an existing credit risk rating of 6 or worse or a modification of any other credit, which will result in a restructured credit risk rating of 6 or worse must be reviewed for possible TDR classification. In that event, the Company’s Managed Assets Division conducts an overall credit and collateral review. A modification of a loan is considered to be a TDR if both (1) the borrower is experiencing financial difficulty and (2) for economic or legal reasons, the bank grants a concession to a borrower that it would not otherwise consider. The modification of a loan where the credit risk rating is 5 or better after such modification is not considered to be a TDR. Based on the Company’s credit risk rating system, it considers that borrowers whose credit risk rating is 5 or better are not experiencing financial difficulties and therefore, are not considered TDRs.
All credits determined to be a TDR will continue to be classified as a TDR in all subsequent periods, unless the borrower has been in compliance with the loan’s modified terms for a period of six months (including over a calendar year-end) and the current interest rate represents a market rate at the time of restructuring. The Managed Assets Division, in consultation with the respective loan officer, determines whether the modified interest rate represented a current market rate at the time of restructuring. Using knowledge of current market conditions and rates, competitive pricing on recent loan originations, and an assessment of various characteristics of the modified loan (including collateral position and payment history), an appropriate market rate for a new borrower with similar risk is determined. If the modified interest rate meets or exceeds this market rate for a new borrower with similar risk, the modified interest rate represents a market rate at the time of restructuring. Additionally, before removing a loan from TDR classification, a review of the current or previously measured impairment on the loan and any concerns related to future performance by the borrower is conducted. If concerns exist about the future ability of the borrower to meet its obligations under the loans based on a credit review by the Managed Assets Division, the TDR classification is not removed from the loan.
TDRs are individually assessed at the time of the modification and on a quarterly basis to measure an allowance for credit loss. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan's original rate, or for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a reserve. Each TDR was individually assessed at March 31, 2021 and approximately $2.5 million of reserve was present and appropriately reserved for through the Company’s reserving methodology in the Company’s allowance for credit losses.
TDRs may arise when, due to financial difficulties experienced by the borrower, the Company obtains through physical possession one or more collateral assets in satisfaction of all or part of an existing credit. Once possession is obtained, the Company reclassifies the appropriate portion of the remaining balance of the credit from loans to OREO, which is included within other assets in the Consolidated Statements of Condition. For any residential real estate property collateralizing a consumer mortgage loan, the Company is considered to possess the related collateral only if legal title is obtained upon completion of foreclosure, or the borrower conveys all interest in the residential real estate property to the Company through completion of a deed in lieu of foreclosure or similar legal agreement. At March 31, 2021, the Company had $4.0 million of foreclosed residential real estate properties included within OREO. Furthermore, the recorded investment in residential mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $13.8 million and $10.6 million at March 31, 2021 and 2020, respectively.
The tables below present a summary of the post-modification balance of loans restructured during the three months ended March 31, 2021 and 2020, respectively, which represent TDRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
(Dollars in thousands)
|
|
Total (1)(2)
|
|
Extension at
Below Market
Terms (2)
|
|
Reduction of Interest
Rate (2)
|
|
Modification to
Interest-only
Payments (2)
|
|
Forgiveness of Debt(2)
|
|
|
Count
|
|
Balance
|
|
Count
|
|
Balance
|
|
Count
|
|
Balance
|
|
Count
|
|
Balance
|
|
Count
|
|
Balance
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, industrial and other
|
|
2
|
|
|
$
|
151
|
|
|
2
|
|
|
$
|
151
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-construction
|
|
2
|
|
|
237
|
|
|
2
|
|
|
237
|
|
|
1
|
|
|
113
|
|
|
1
|
|
|
113
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate and other
|
|
16
|
|
|
1,738
|
|
|
16
|
|
|
1,738
|
|
|
9
|
|
|
1,290
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total loans
|
|
20
|
|
|
$
|
2,126
|
|
|
20
|
|
|
$
|
2,126
|
|
|
10
|
|
|
$
|
1,403
|
|
|
1
|
|
|
$
|
113
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
(Dollars in thousands)
|
|
Total (1)(2)
|
|
Extension at
Below Market
Terms (2)
|
|
Reduction of Interest
Rate (2)
|
|
Modification to
Interest-only
Payments (2)
|
|
Forgiveness of Debt(2)
|
|
|
Count
|
|
Balance
|
|
Count
|
|
Balance
|
|
Count
|
|
Balance
|
|
Count
|
|
Balance
|
|
Count
|
|
Balance
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, industrial and other
|
|
5
|
|
|
$
|
5,602
|
|
|
3
|
|
|
$
|
4,316
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
1
|
|
|
$
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-construction
|
|
13
|
|
|
16,053
|
|
|
11
|
|
|
13,511
|
|
|
3
|
|
|
921
|
|
|
5
|
|
|
3,463
|
|
|
—
|
|
|
—
|
|
|
Residential real estate and other
|
|
20
|
|
|
2,142
|
|
|
12
|
|
|
1,890
|
|
|
5
|
|
|
786
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total loans
|
|
38
|
|
|
$
|
23,797
|
|
|
26
|
|
|
$
|
19,717
|
|
|
8
|
|
|
$
|
1,707
|
|
|
5
|
|
|
$
|
3,463
|
|
|
1
|
|
|
$
|
432
|
|
(1)TDRs may have more than one modification representing a concession. As such, TDRs during the period may be represented in more than one of the categories noted above.
(2)Balances represent the recorded investment in the loan at the time of the restructuring.
During the three months ended March 31, 2021, 20 loans totaling $2.1 million were determined to be TDRs, compared to 38 loans totaling $23.8 million during the three months ended March 31, 2020. Of these loans extended at below market terms, the weighted average extension had a term of approximately 110 months during the quarter ended March 31, 2021 compared to eight months for the quarter ended March 31, 2020. Further, the weighted average decrease in the stated interest rate for loans with a reduction of interest rate during the period was approximately 127 basis points and 173 basis points during the three months ended March 31, 2021 and 2020, respectively. Interest-only payment terms were approximately six months and 21 months during the three months ended March 31, 2021 and 2020, respectively. Additionally, no principal balances were forgiven during the quarter ended March 31, 2021 and $453,000 of principal balances were forgiven in the quarter ended March 31, 2020.
The following table presents a summary of all loans restructured in TDRs during the twelve months ended March 31, 2021 and 2020, and such loans that were in payment default under the restructured terms during the respective periods below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
As of March 31, 2021
|
|
Three Months Ended
March 31, 2021
|
|
|
|
As of March 31, 2020
|
Three Months Ended
March 31, 2020
|
|
Total (1)(3)
|
|
Payments in Default (2)(3)
|
|
|
|
Payments in Default (2)(3)
|
Payments in Default (2)(3)
|
|
Count
|
|
Balance
|
|
Count
|
|
Balance
|
|
|
|
|
|
Count
|
|
Balance
|
Count
|
|
Balance
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, industrial and other
|
18
|
|
|
$
|
6,910
|
|
|
5
|
|
|
$
|
1,496
|
|
|
|
|
|
|
20
|
|
|
$
|
13,013
|
|
8
|
|
|
$
|
4,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-construction
|
7
|
|
|
3,466
|
|
|
3
|
|
|
3,121
|
|
|
|
|
|
|
19
|
|
|
22,770
|
|
3
|
|
|
758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate and other
|
81
|
|
|
13,825
|
|
|
5
|
|
|
596
|
|
|
|
|
|
|
145
|
|
|
17,863
|
|
11
|
|
|
2,510
|
|
|
Total loans
|
106
|
|
|
$
|
24,201
|
|
|
13
|
|
|
$
|
5,213
|
|
|
|
|
|
|
184
|
|
|
$
|
53,646
|
|
22
|
|
|
$
|
8,104
|
|
(1)Total TDRs represent all loans restructured in TDRs during the previous twelve months from the date indicated.
(2)TDRs considered to be in payment default are over 30 days past-due subsequent to the restructuring.
(3)Balances represent the recorded investment in the loan at the time of the restructuring.
(7) Goodwill and Other Intangible Assets
A summary of the Company’s goodwill assets by reporting unit is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
December 31,
2020
|
|
Goodwill
Acquired
|
|
Impairment
Loss
|
|
Goodwill Adjustments
|
|
March 31,
2021
|
|
Community banking
|
$
|
536,396
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
536,396
|
|
|
Specialty finance
|
39,938
|
|
|
—
|
|
|
—
|
|
|
310
|
|
|
40,248
|
|
|
Wealth management
|
69,373
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
69,373
|
|
|
Total
|
$
|
645,707
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
310
|
|
|
$
|
646,017
|
|
The specialty finance unit’s goodwill increased $310,000 in the first three months of 2021 as a result of foreign currency translation adjustments related to the Canadian acquisitions.
The Company assesses each reporting unit’s goodwill for impairment on at least an annual basis and considers potential indicators of impairment at each reporting date between annual goodwill impairment tests. At October 1, 2020, the Company utilized a quantitative approach for its annual goodwill impairment tests of the banking, specialty finance and wealth management reporting units and determined that no impairment existed at that time.
At each reporting date between annual goodwill impairment tests, the Company considers potential indicators of impairment. Given the current economic uncertainty and volatility surrounding COVID-19, the Company assessed whether such events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value. Impairment indicators considered include the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting units; performance of the Company’s stock and other relevant events. The Company further considered the amount by which fair value exceeded book value for each reporting unit in its most recent quantitative analysis and sensitivities performed.
At the conclusion of this assessment of all reporting units, the Company determined that as of March 31, 2021, it was more likely than not that the fair value of all reporting units exceeded the respective carrying value of such reporting unit.
A summary of intangible assets as of the dates shown and the expected amortization of finite-lived intangible assets as of March 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
|
Community banking segment:
|
|
|
|
|
|
|
Core deposit intangibles with finite lives:
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
55,206
|
|
|
$
|
55,206
|
|
|
$
|
55,206
|
|
|
Accumulated amortization
|
(34,099)
|
|
|
(32,680)
|
|
|
(28,024)
|
|
|
Net carrying amount
|
$
|
21,107
|
|
|
$
|
22,526
|
|
|
$
|
27,182
|
|
|
Trademark with indefinite lives:
|
|
|
|
|
|
|
Carrying amount
|
5,800
|
|
|
5,800
|
|
|
5,800
|
|
|
Total net carrying amount
|
$
|
26,907
|
|
|
$
|
28,326
|
|
|
$
|
32,982
|
|
|
Specialty finance segment:
|
|
|
|
|
|
|
Customer list intangibles with finite lives:
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
1,968
|
|
|
$
|
1,966
|
|
|
$
|
1,956
|
|
|
Accumulated amortization
|
(1,665)
|
|
|
(1,644)
|
|
|
(1,574)
|
|
|
Net carrying amount
|
$
|
303
|
|
|
$
|
322
|
|
|
$
|
382
|
|
|
Wealth management segment:
|
|
|
|
|
|
|
Customer list and other intangibles with finite lives:
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
20,430
|
|
|
$
|
20,430
|
|
|
$
|
20,430
|
|
|
Accumulated amortization
|
(13,605)
|
|
|
(13,038)
|
|
|
(9,609)
|
|
|
Net carrying amount
|
$
|
6,825
|
|
|
$
|
7,392
|
|
|
$
|
10,821
|
|
|
Total intangible assets:
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
83,404
|
|
|
$
|
83,402
|
|
|
$
|
83,392
|
|
|
Accumulated amortization
|
(49,369)
|
|
|
(47,362)
|
|
|
(39,207)
|
|
|
Total intangible assets, net
|
$
|
34,035
|
|
|
$
|
36,040
|
|
|
$
|
44,185
|
|
|
|
|
|
|
|
|
|
Estimated amortization
|
|
|
Actual in three months ended March 31, 2021
|
$
|
2,007
|
|
|
Estimated remaining in 2021
|
5,685
|
|
|
Estimated—2022
|
6,135
|
|
|
Estimated—2023
|
4,670
|
|
|
Estimated—2024
|
3,263
|
|
|
Estimated—2025
|
2,552
|
|
The core deposit intangibles recognized in connection with prior bank acquisitions are amortized over a ten-year period on an accelerated basis. The customer list intangibles recognized in connection with the purchase of life insurance premium finance
assets in 2009 are being amortized over an 18-year period on an accelerated basis. The customer list and other intangibles recognized in connection with prior acquisitions within the wealth management segment are being amortized over a period of up to ten years on a straight-line basis. Indefinite-lived intangible assets consist of certain trade and domain names recognized in connection with the acquisition of Veterans First Mortgage in 2018. As indefinite-lived intangible assets are not amortized, the Company assesses impairment on at least an annual basis.
Total amortization expense associated with finite-lived intangibles totaled approximately $2.0 million and $2.9 million for the three months ended March 31, 2021 and 2020, respectively.
(8) Mortgage Servicing Rights (“MSRs”)
The following is a summary of the changes in the carrying value of MSRs, accounted for at fair value, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
2020
|
|
|
|
|
|
Balance at beginning of the period
|
|
$
|
92,081
|
|
|
$
|
85,638
|
|
|
|
|
|
|
Additions from loans sold with servicing retained
|
|
24,616
|
|
|
9,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimate of changes in fair value due to:
|
|
|
|
|
|
|
|
|
|
Early buyout options (“EBO”) exercised
|
|
(258)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payoffs and paydowns
|
|
(10,168)
|
|
|
(7,024)
|
|
|
|
|
|
|
Changes in valuation inputs or assumptions
|
|
18,045
|
|
|
(14,557)
|
|
|
|
|
|
|
Fair value at end of the period
|
|
$
|
124,316
|
|
|
$
|
73,504
|
|
|
|
|
|
|
Unpaid principal balance of mortgage loans serviced for others
|
|
$
|
11,530,676
|
|
|
$
|
8,314,634
|
|
|
|
|
|
The Company recognizes MSR assets upon the sale of residential real estate loans to external third parties when it retains the obligation to service the loans and the servicing fee is more than adequate compensation. The initial recognition of MSR assets from loans sold with servicing retained and subsequent changes in fair value of all MSRs are recognized in mortgage banking revenue. MSRs are subject to changes in value from actual and expected prepayment of the underlying loans.
The estimation of fair value related to MSRs is partly impacted by the Company exercising its EBO on eligible loans previously sold to the Government National Mortgage Association (“GNMA”). Under such optional repurchase program, financial institutions acting as servicers are allowed to buy back from the securitized loan pool individual delinquent mortgage loans meeting certain criteria for which the institution was the original transferor of such loans. At the option of the servicer and without prior authorization from GNMA, the servicer may repurchase such delinquent loans for an amount equal to the remaining principal balance of the loan. At the time of such repurchase, any MSR value related to such loans is derecognized.
Starting in 2019, the Company periodically purchased options for the right to purchase securities not currently held within the banks’ investment portfolios and entered into interest rate swaps in which the Company elected to not designate such derivatives as hedging instruments. These option and swap transactions were designed primarily to economically hedge a portion of the fair value adjustments related to MSRs. During the second quarter of 2020, the Company terminated these interest rate swaps. There were no such options or interest rate swaps outstanding as of March 31, 2021. For more information regarding these hedges, see Note 14 - Derivative Financial Instruments in Item 1 of this report.
The MSR asset fair value is determined by using a discounted cash flow model that incorporates the objective characteristics of the portfolio as well as subjective valuation parameters that purchasers of servicing would apply to such portfolios sold into the secondary market. The subjective factors include loan prepayment speeds, discount rates, servicing costs and other economic factors. The Company uses a third party to assist in the valuation of MSRs.
(9) Deposits
The following table is a summary of deposits as of the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
|
Balance:
|
|
|
|
|
|
|
Non-interest-bearing
|
$
|
12,297,337
|
|
|
$
|
11,748,455
|
|
|
$
|
7,556,755
|
|
|
NOW and interest-bearing demand deposits
|
3,562,312
|
|
|
3,349,021
|
|
|
3,181,159
|
|
|
Wealth management deposits
|
4,274,527
|
|
|
4,138,712
|
|
|
3,936,968
|
|
|
Money market
|
9,236,434
|
|
|
9,348,806
|
|
|
8,114,659
|
|
|
Savings
|
3,690,892
|
|
|
3,531,029
|
|
|
3,282,340
|
|
|
Time certificates of deposit
|
4,811,150
|
|
|
4,976,628
|
|
|
5,389,779
|
|
|
Total deposits
|
$
|
37,872,652
|
|
|
$
|
37,092,651
|
|
|
$
|
31,461,660
|
|
|
Mix:
|
|
|
|
|
|
|
Non-interest-bearing
|
32
|
%
|
|
32
|
%
|
|
24
|
%
|
|
NOW and interest-bearing demand deposits
|
9
|
|
|
9
|
|
|
10
|
|
|
Wealth management deposits
|
11
|
|
|
11
|
|
|
13
|
|
|
Money market
|
25
|
|
|
25
|
|
|
26
|
|
|
Savings
|
10
|
|
|
10
|
|
|
10
|
|
|
Time certificates of deposit
|
13
|
|
|
13
|
|
|
17
|
|
|
Total deposits
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Wealth management deposits represent deposit balances (primarily money market accounts) at the Company’s subsidiary banks from brokerage customers of Wintrust Investments, LLC (“Wintrust Investments”), Chicago Deferred Exchange Company (“CDEC”), trust and asset management customers of the Company and brokerage customers from unaffiliated companies.
(10) FHLB Advances, Other Borrowings and Subordinated Notes
The following table is a summary of FHLB advances, other borrowings and subordinated notes as of the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
|
FHLB advances
|
$
|
1,228,436
|
|
|
$
|
1,228,429
|
|
|
$
|
1,174,894
|
|
|
Other borrowings:
|
|
|
|
|
|
|
Notes payable
|
96,363
|
|
|
101,710
|
|
|
167,746
|
|
|
Short-term borrowings
|
12,416
|
|
|
11,366
|
|
|
12,127
|
|
|
Other
|
64,659
|
|
|
65,108
|
|
|
66,266
|
|
|
Secured borrowings
|
343,439
|
|
|
340,744
|
|
|
241,364
|
|
|
Total other borrowings
|
516,877
|
|
|
518,928
|
|
|
487,503
|
|
|
Subordinated notes
|
436,595
|
|
|
436,506
|
|
|
436,179
|
|
|
Total FHLB advances, other borrowings and subordinated notes
|
$
|
2,181,908
|
|
|
$
|
2,183,863
|
|
|
$
|
2,098,576
|
|
FHLB Advances
FHLB advances consist of obligations of the banks and are collateralized by qualifying commercial and residential real estate and home equity loans and certain securities. FHLB advances are stated at par value of the debt adjusted for unamortized prepayment fees paid at the time of prior restructurings of FHLB advances, unamortized fair value adjustments recorded in connection with advances acquired through acquisitions and debt issuance costs.
Notes Payable
On September 18, 2018, the Company established a $150.0 million term facility ("Term Facility"), which is part of a $200.0 million loan agreement ("Credit Agreement") with unaffiliated banks. The Credit Agreement consists of the Term Facility with
an original outstanding balance of $150.0 million and a $50.0 million revolving credit facility ("Revolving Credit Facility"). At March 31, 2021, the Company had a notes payable balance of $96.4 million under the Term Facility. The Term Facility is stated at par of the current outstanding balance of the debt adjusted for unamortized costs paid by the Company in relation to the debt issuance. The Company was contractually required to borrow the entire amount of the Term Facility on September 18, 2018 and all such borrowings must be repaid by September 18, 2023. Beginning December 31, 2018, the Company is required to make quarterly payments of principal plus interest on the Term Facility. At March 31, 2021, the Company had no outstanding balance under the Revolving Credit Facility. Unamortized costs paid by the Company in relation to the issuance of the Revolving Credit Facility are classified in other assets on the Consolidated Statements of Condition.
An amendment to the Credit Agreement was executed on and effective as of September 15, 2020. The amendment provided for, among other things, extension of the maturity date under the Revolving Credit Facility to September 14, 2021, revision of certain financial covenants; and the addition of a mechanism to replace LIBOR with an alternate benchmark rate.
Borrowings under the amended Credit Agreement that are considered “Base Rate Loans” bear interest at a rate equal to the sum of (1) 60 basis points (in the case of a borrowing under the Revolving Credit Facility) or 75 basis points (in the case of a borrowing under the Term Facility) plus (2) the highest of (a) the federal funds rate plus 50 basis points, (b) the lender's prime rate, or (c) the Eurodollar Rate (as defined below) that would be applicable for an interest period of one month plus 100 basis points. Borrowings under the agreement that are considered “Eurodollar Rate Loans” bear interest at a rate equal to the sum of (1) 135 basis points (in the case of a borrowing under the Revolving Credit Facility) or 125 basis points (in the case of a borrowing under the Term Facility) plus (2) the LIBOR rate for the applicable period, as adjusted for statutory reserve requirements for eurocurrency liabilities (the “Eurodollar Rate”). A commitment fee is payable quarterly equal to 0.30% of the actual daily amount by which the lenders' commitment under the Revolving Credit Facility exceeded the amount outstanding under such facility.
Borrowings under the amended Credit Agreement are secured by pledges of and first priority perfected security interests in the Company's equity interest in its bank subsidiaries and contain several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on dividends and other indebtedness. In September 2020, the required levels to maintain for certain restrictive covenants within the Credit Agreement were amended. At March 31, 2021, the Company was in compliance with all such covenants. The Revolving Credit Facility and the Term Facility are available to be utilized, as needed, to provide capital to fund continued growth at the Company’s banks and to serve as an interim source of funds for acquisitions, common stock repurchases or other general corporate purposes.
Short-term Borrowings
Short-term borrowings include securities sold under repurchase agreements and federal funds purchased. These borrowings totaled $12.4 million at March 31, 2021 compared to $11.4 million at December 31, 2020 and $12.1 million at March 31, 2020. At March 31, 2021, December 31, 2020 and March 31, 2020, securities sold under repurchase agreements represent $12.4 million, $11.4 million and $12.1 million, respectively, of customer sweep accounts in connection with master repurchase agreements at the banks. The Company records securities sold under repurchase agreements at their gross value and does not offset positions on the Consolidated Statements of Condition. As of March 31, 2021, the Company had pledged securities related to its customer balances in sweep accounts of $20.6 million. Securities pledged for customer balances in sweep accounts and short-term borrowings from brokers are maintained under the Company’s control and consist of mortgage-backed securities. These securities are included in the available-for-sale portfolio as reflected on the Company’s Consolidated Statements of Condition.
The following is a summary of these securities pledged as of March 31, 2021 disaggregated by investment category and maturity of the related customer sweep account, and reconciled to the outstanding balance of securities sold under repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Overnight Sweep Collateral
|
|
Available-for-sale securities pledged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
20,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total collateral pledged
|
|
20,580
|
|
|
Excess collateral
|
|
8,164
|
|
|
Securities sold under repurchase agreements
|
|
$
|
12,416
|
|
Other Borrowings
Other borrowings at March 31, 2021 represent a fixed-rate promissory note issued by the Company in June 2017 and amended in March 2020 ("Fixed-Rate Promissory Note") related to and secured by three office buildings owned by the Company. At March 31, 2021, the Fixed-Rate Promissory Note had a balance of $64.7 million compared to $65.1 million at December 31, 2020 and $66.3 million at March 31, 2020. Under the Fixed-Rate Promissory Note, during the three months ended March 31, 2020, the Company made monthly principal payments and paid interest at a fixed rate of 3.36%. An amendment to the Fixed-Rate Promissory Note was executed on and effective as of March 31, 2020. The amendment increased the principal amount to $66.4 million, reduced the interest rate to 3.00% and extended the maturity date to March 31, 2025. The Fixed-Rate Promissory Note contains several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on dividends and indebtedness. At March 31, 2021, the Company was in compliance with all such covenants.
Secured Borrowings
Secured borrowings at March 31, 2021 primarily represents transactions to sell an undivided co-ownership interest in all receivables owed to the Company's subsidiary, First Insurance Funding of Canada ("FIFC Canada"). In December 2014, FIFC Canada sold such interest to an unrelated third party in exchange for a cash payment of approximately C$150 million pursuant to a receivables purchase agreement (“Receivables Purchase Agreement”). The Receivables Purchase Agreement was amended in December 2015, effectively extending the maturity date from December 15, 2015 to December 15, 2017. Additionally, at that time, the unrelated third party paid an additional C$10 million, which increased the total payments to C$160 million. The Receivables Purchase Agreement was again amended in December 2017, effectively extending the maturity date from December 15, 2017 to December 16, 2019. Additionally, in December 2017, the unrelated third party paid an additional C$10 million, which increased the total payments to C$170 million. In June 2018, the unrelated third party paid an additional C$20 million, which increased the total payments to C$190 million. The Receivables Purchase Agreement was again amended in February 2019, effectively extending the maturity date from December 16, 2019 to December 15, 2020. Additionally, in February 2019, the unrelated third party paid an additional C$20 million, which increased the total payments to C$210 million. In May 2019, the unrelated third party paid an additional C$70 million, which increased the total payments to C$280 million. In January 2020, the unrelated third party paid an additional C$40 million, which increased the total payments to C$320 million, and the Receivables Purchase Agreement was amended to effectively extend the maturity date from December 15, 2020 to December 15, 2021. In May 2020, the unrelated third party paid an additional C$100 million, which increased the total payments to C$420 million. In January 2021, the Receivables Purchase Agreement was amended to effectively extend the maturity date from December 15, 2021 to December 15, 2022. These transactions were not considered sales of receivables and, as such, related proceeds received are reflected on the Company’s Consolidated Statements of Condition as a secured borrowing owed to the unrelated third party, net of unamortized debt issuance costs, and translated to the Company’s reporting currency as of the respective date. At March 31, 2021, the translated balance of the secured borrowing totaled $334.1 million compared to $329.9 million at December 31, 2020 and $227.4 million at March 31, 2020. Additionally, the interest rate under the Receivables Purchase Agreement at March 31, 2021 was 1.1015%. The remaining $9.4 million within secured borrowings at March 31, 2021 represents other sold interests in certain loans by the Company that were not considered sales and, as such, related proceeds received are reflected on the Company’s Consolidated Statements of Condition as a secured borrowing owed to the various unrelated third parties.
Subordinated Notes
At March 31, 2021, the Company had outstanding subordinated notes totaling $436.6 million compared to $436.5 million and $436.2 million outstanding at December 31, 2020 and March 31, 2020, respectively. During the second quarter of 2019, the Company issued $300.0 million of subordinated notes, receiving $296.7 million in net proceeds. The subordinated notes have a stated interest rate of 4.85% and mature in June 2029. In 2014, the Company issued $140.0 million of subordinated notes receiving $139.1 million in net proceeds. The subordinated notes have a stated interest rate of 5.00% and mature in June 2024. Subordinated notes are stated at par adjusted for unamortized issuance costs paid related to such debt.
(11) Junior Subordinated Debentures
As of March 31, 2021, the Company owned 100% of the common securities of eleven trusts, Wintrust Capital Trust III, Wintrust Statutory Trust IV, Wintrust Statutory Trust V, Wintrust Capital Trust VII, Wintrust Capital Trust VIII, Wintrust Capital Trust IX, Northview Capital Trust I, Town Bankshares Capital Trust I, First Northwest Capital Trust I, Suburban Illinois Capital Trust II, and Community Financial Shares Statutory Trust II (the “Trusts”) set up to provide long-term financing. The Northview, Town, First Northwest, Suburban, and Community Financial Shares capital trusts were acquired as part of the acquisitions of Northview Financial Corporation, Town Bankshares, Ltd., First Northwest Bancorp, Inc., Suburban
Illinois Bancorp, Inc. and Community Financial Shares, Inc., respectively. The Trusts were formed for purposes of issuing trust preferred securities to third-party investors and investing the proceeds from the issuance of the trust preferred securities and common securities solely in junior subordinated debentures issued by the Company (or assumed by the Company in connection with an acquisition), with the same maturities and interest rates as the trust preferred securities. The junior subordinated debentures are the sole assets of the Trusts. In each Trust, the common securities represent approximately 3% of the junior subordinated debentures and the trust preferred securities represent approximately 97% of the junior subordinated debentures.
The Trusts are reported in the Company’s consolidated financial statements as unconsolidated subsidiaries. Accordingly, in the Consolidated Statements of Condition, the junior subordinated debentures issued by the Company to the Trusts are reported as liabilities and the common securities of the Trusts, all of which are owned by the Company, are included in investment securities.
The following table provides a summary of the Company’s junior subordinated debentures as of March 31, 2021. The junior subordinated debentures represent the par value of the obligations owed to the Trusts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Common
Securities
|
|
Trust
Preferred
Securities
|
|
Junior
Subordinated
Debentures
|
|
Rate
Structure
|
|
Contractual rate
at 3/31/2021
|
|
Issue
Date
|
|
Maturity
Date
|
|
Earliest
Redemption
Date
|
|
Wintrust Capital Trust III
|
$
|
774
|
|
|
$
|
25,000
|
|
|
$
|
25,774
|
|
|
L+3.25
|
|
3.49
|
%
|
|
04/2003
|
|
04/2033
|
|
04/2008
|
|
Wintrust Statutory Trust IV
|
619
|
|
|
20,000
|
|
|
20,619
|
|
|
L+2.80
|
|
3.00
|
%
|
|
12/2003
|
|
12/2033
|
|
12/2008
|
|
Wintrust Statutory Trust V
|
1,238
|
|
|
40,000
|
|
|
41,238
|
|
|
L+2.60
|
|
2.80
|
%
|
|
05/2004
|
|
05/2034
|
|
06/2009
|
|
Wintrust Capital Trust VII
|
1,550
|
|
|
50,000
|
|
|
51,550
|
|
|
L+1.95
|
|
2.13
|
%
|
|
12/2004
|
|
03/2035
|
|
03/2010
|
|
Wintrust Capital Trust VIII
|
1,238
|
|
|
25,000
|
|
|
26,238
|
|
|
L+1.45
|
|
1.65
|
%
|
|
08/2005
|
|
09/2035
|
|
09/2010
|
|
Wintrust Capital Trust IX
|
1,547
|
|
|
50,000
|
|
|
51,547
|
|
|
L+1.63
|
|
1.81
|
%
|
|
09/2006
|
|
09/2036
|
|
09/2011
|
|
Northview Capital Trust I
|
186
|
|
|
6,000
|
|
|
6,186
|
|
|
L+3.00
|
|
3.21
|
%
|
|
08/2003
|
|
11/2033
|
|
08/2008
|
|
Town Bankshares Capital Trust I
|
186
|
|
|
6,000
|
|
|
6,186
|
|
|
L+3.00
|
|
3.21
|
%
|
|
08/2003
|
|
11/2033
|
|
08/2008
|
|
First Northwest Capital Trust I
|
155
|
|
|
5,000
|
|
|
5,155
|
|
|
L+3.00
|
|
3.20
|
%
|
|
05/2004
|
|
05/2034
|
|
05/2009
|
|
Suburban Illinois Capital Trust II
|
464
|
|
|
15,000
|
|
|
15,464
|
|
|
L+1.75
|
|
1.93
|
%
|
|
12/2006
|
|
12/2036
|
|
12/2011
|
|
Community Financial Shares Statutory Trust II
|
109
|
|
|
3,500
|
|
|
3,609
|
|
|
L+1.62
|
|
1.80
|
%
|
|
06/2007
|
|
09/2037
|
|
06/2012
|
|
Total
|
|
|
|
|
$
|
253,566
|
|
|
|
|
2.39
|
%
|
|
|
|
|
|
|
The junior subordinated debentures totaled $253.6 million at March 31, 2021, December 31, 2020 and March 31, 2020.
The interest rates on the variable rate junior subordinated debentures are based on the three-month LIBOR rate and reset on a quarterly basis. At March 31, 2021, the weighted average contractual interest rate on the junior subordinated debentures was 2.39%. The Company entered into interest rate swaps with an aggregate notional value of $210.0 million to hedge the variable cash flows on certain junior subordinated debentures. The hedge-adjusted contractual interest rate on the junior subordinated debentures as of March 31, 2021, was 3.98%. Distributions on the common and preferred securities issued by the Trusts are payable quarterly at a rate per annum equal to the interest rates being earned by the Trusts on the junior subordinated debentures. Interest expense on the junior subordinated debentures is deductible for income tax purposes.
The Company has guaranteed the payment of distributions and payments upon liquidation or redemption of the trust preferred securities, in each case to the extent of funds held by the Trusts. The Company and the Trusts believe that, taken together, the obligations of the Company under the guarantees, the junior subordinated debentures, and other related agreements provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of all of the obligations of the Trusts under the trust preferred securities. Subject to certain limitations, the Company has the right to defer the payment of interest on the junior subordinated debentures at any time, or from time to time, for a period not to exceed 20 consecutive quarters. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption. The junior subordinated debentures are redeemable in whole or in part prior to maturity at any time after the earliest redemption dates shown in the table, and earlier at the discretion of the Company if certain conditions are met, and, in any event, only after the Company has obtained Federal Reserve Bank ("FRB") approval, if then required under applicable guidelines or regulations.
At March 31, 2021, the Company included $245.5 million of the junior subordinated debentures, net of common securities, in Tier 2 regulatory capital.
(12) Revenue from Contracts with Customers
Disaggregation of Revenue
The following table presents revenue from contracts with customers, disaggregated by the revenue source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Three Months Ended
|
|
|
|
Revenue from contracts with customers
|
|
Location in income statement
|
March 31,
2021
|
|
March 31,
2020
|
|
|
|
|
|
Brokerage and insurance product commissions
|
|
Wealth management
|
$
|
5,040
|
|
|
$
|
5,281
|
|
|
|
|
|
|
Trust
|
|
Wealth management
|
5,017
|
|
|
5,291
|
|
|
|
|
|
|
Asset management
|
|
Wealth management
|
19,252
|
|
|
15,369
|
|
|
|
|
|
|
Total wealth management
|
|
|
29,309
|
|
|
25,941
|
|
|
|
|
|
|
Mortgage broker fees
|
|
Mortgage banking
|
76
|
|
|
53
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
Service charges on deposit accounts
|
12,036
|
|
|
11,265
|
|
|
|
|
|
|
Administrative services
|
|
Other non-interest income
|
1,256
|
|
|
1,112
|
|
|
|
|
|
|
Card related fees
|
|
Other non-interest income
|
1,774
|
|
|
2,106
|
|
|
|
|
|
|
Other deposit related fees
|
|
Other non-interest income
|
3,317
|
|
|
3,178
|
|
|
|
|
|
|
Total revenue from contracts with customers
|
|
|
$
|
47,768
|
|
|
$
|
43,655
|
|
|
|
|
|
Wealth Management Revenue
Wealth management revenue is comprised of brokerage and insurance product commissions, managed money fees and trust and asset management revenue of the Company's four wealth management subsidiaries: Wintrust Investments, Great Lakes Advisors, LLC ("GLA"), The Chicago Trust Company, N.A. ("CTC") and CDEC. All wealth management revenue is recognized in the wealth management segment.
Brokerage and insurance product commissions consists primarily of commissions earned from trade execution services on behalf of customers and from selling mutual funds, insurance and other investment products to customers. For trade execution services, the Company recognizes commissions and receives payment from the brokerage customers at the point of transaction execution. Commissions received from the investment or insurance product providers are recognized at the point of sale of the product. The Company also receives trail and other commissions from providers for certain plans. These are generally based on qualifying account values and are recognized once the performance obligation, specific to each provider, is satisfied on a monthly, quarterly or annual basis.
Trust revenue is earned primarily from trust and custody services that are generally performed over time as well as fees earned on funds held during the facilitation of tax-deferred like-kind exchange transactions. Revenue is determined periodically based on a schedule of fees applied to the value of each customer account using a time-elapsed method to measure progress toward complete satisfaction of the performance obligation. Fees are typically billed on a calendar month or quarter basis in advance or in arrears depending upon the contract. Upfront fees received related to the facilitation of tax-deferred like-kind exchange transactions are deferred until the transaction is completed. Additional fees earned for certain extraordinary services performed on behalf of the customers are recognized when the service has been performed.
Asset management revenue is earned from money management and advisory services that are performed over time. Revenue is based primarily on the market value of assets under management or administration using a time-elapsed method to measure progress toward complete satisfaction of the performance obligation. Fees are typically billed on a calendar month or quarter basis in advance or in arrears depending upon the contract. Certain programs provide the customer with an option of paying fees as a percentage of the account value or incurring commission charges for each trade similar to brokerage and insurance product commissions. Trade commissions and any other fees received for additional services are recognized at a point in time once the performance obligation is satisfied.
Mortgage Broker Fees
For customers desiring a mortgage product not currently offered by the Company, the Company may refer such customers and, with permission, direct such customers' applications to certain third party mortgage brokers. Mortgage broker fees are received from these brokers for such customer referrals upon settlement of the underlying mortgage. The Company's entitlement to the consideration is contingent on the settlement of the mortgage which is highly susceptible to factors outside of the Company's influence, such as third party broker's underwriting requirements. Also, the uncertainty surrounding the consideration could be resolved in varying lengths of time, dependent upon the third party brokers. Therefore, mortgage broker fees are recognized at the settlement of the underlying mortgage when the consideration is received. Broker fees are recognized in the community banking segment.
Service Charges on Deposit Accounts
Service charges on deposit accounts include fees charged to deposit customers for various services, including account analysis services, and are based on factors such as the size and type of customer, type of product and number of transactions. The fees are based on a standard schedule of fees and, depending on the nature of the service performed, the service is performed at a point in time or over a period of a month. When the service is performed at a point in time, the Company recognizes and receives revenue when the service has been performed. When the service is performed over a period of a month, the Company recognizes and receives revenue in the month the service has been performed. Service charges on deposit accounts are recognized in the community banking segment.
Administrative Services
Administrative services revenue is earned from providing outsourced administrative services, such as data processing of payrolls, billing and cash management services, to temporary staffing service clients located throughout the United States. Fees are charged periodically (typically a payroll cycle) and computed in accordance with the contractually determined rate applied to the total gross billings administered for the period. The revenue is recognized over the period using a time-elapsed method to measure progress toward complete satisfaction of the performance obligation. Other fees are charged on a per occurrence basis as the service is provided in the billing cycle. The Company has certain contracts with customers to perform outsourced administrative services and short-term accounts receivable financing. For these contracts, the total fee is allocated between the administrative services revenue and interest income during the client onboarding process based on the specific client and services provided. Administrative services revenue is recognized in the specialty finance segment.
Card and Other Deposit Related Fees
Card related fees include interchange and merchant revenue, and fees related to debit and credit cards. Interchange revenue is related to the Company issued debit cards. Other deposit related fees primarily include pay by phone processing fees, ATM and safe deposit box fees, check order charges and foreign currency related fees. Card and deposit related fees are generally based on volume of transactions and are recognized at the point in time when the service has been performed. For any consideration that is constrained, the revenue is recognized once the uncertainty is known. Upfront fees received from certain contracts are recognized on a straight line basis over the term of the contract. Card and deposit related fees are recognized in the community banking segment.
Contract Balances
The following table provides information about contract assets, contract liabilities and receivables from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
|
Contract assets
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities
|
|
|
$
|
1,818
|
|
|
$
|
1,548
|
|
|
$
|
728
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage broker fees receivable
|
|
|
$
|
31
|
|
|
$
|
20
|
|
|
$
|
11
|
|
|
Administrative services receivable
|
|
|
215
|
|
|
64
|
|
|
214
|
|
|
Wealth management receivable
|
|
|
11,315
|
|
|
10,144
|
|
|
8,218
|
|
|
Card related fees receivable
|
|
|
1,075
|
|
|
783
|
|
|
422
|
|
|
Total receivables from contracts with customer
|
|
|
$
|
12,636
|
|
|
$
|
11,011
|
|
|
$
|
8,865
|
|
Contract liabilities represent upfront fees that the Company received at inception of certain contracts. The revenue recognized that was included in the contract liability balance at beginning of the period totaled $414,000 and $628,000 for the three months ended March 31, 2021 and 2020, respectively. Receivables are recognized in the period the Company provides services and when the Company's right to consideration is unconditional. Card related fee receivable is the result of volume based fee that the Company receives from a customer on an annual basis in the second quarter of each year. Payment terms on other invoiced amounts are typically 30 days or less. Contract liabilities and receivables from contracts with customers are included within the accrued interest payable and other liabilities and accrued interest receivable and other assets line items, respectively, in the Consolidated Statements of Condition.
Transaction price allocated to the remaining performance obligations
For contracts with an original expected length of more than one year, the following table presents the estimated future timing of recognition of upfront fees related to card and deposit related fees. These upfront fees represent performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Estimated remaining in 2021
|
|
|
|
|
$
|
668
|
|
|
Estimated—2022
|
|
|
|
|
400
|
|
|
Estimated—2023
|
|
|
|
|
400
|
|
|
Estimated—2024
|
|
|
|
|
250
|
|
|
Estimated—2025
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
1,818
|
|
Practical Expedients and Exemptions
The Company does not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised service to a customer and when the customer pays for that service is one year or less.
The Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.
(13) Segment Information
The Company’s operations consist of three primary segments: community banking, specialty finance and wealth management.
The three reportable segments are strategic business units that are separately managed as they offer different products and services and have different marketing strategies. In addition, each segment’s customer base has varying characteristics and each segment has a different regulatory environment. While the Company’s management monitors each of the fifteen bank subsidiaries’ operations and profitability separately, these subsidiaries have been aggregated into one reportable operating segment due to the similarities in products and services, customer base, operations, profitability measures, and economic characteristics.
For purposes of internal segment profitability, management allocates certain intersegment and parent company balances. Management allocates a portion of revenues to the specialty finance segment related to loans and leases originated by the specialty finance segment and sold or assigned to the community banking segment. Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates a portion of the net interest income earned by the community banking segment on deposit balances of customers of the wealth management segment to the wealth management segment. See Note 9 — Deposits, for more information on these deposits. Finally, expenses incurred at the Wintrust parent company are allocated to each segment based on each segment's risk-weighted assets.
The segment financial information provided in the following table has been derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. The accounting policies of the segments are substantially similar to those described in “Summary of Significant Accounting Policies” in Note 1 of the Company’s 2020 Form 10-K. The Company evaluates segment performance based on after-tax profit or loss and other appropriate profitability measures common to each segment.
The following is a summary of certain operating information for reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
$ Change in
Contribution
|
|
% Change in
Contribution
|
|
(Dollars in thousands)
|
March 31,
2021
|
|
March 31,
2020
|
|
|
Net interest income:
|
|
|
|
|
|
|
|
|
Community Banking
|
$
|
203,489
|
|
|
$
|
206,835
|
|
|
$
|
(3,346)
|
|
|
(2)
|
%
|
|
Specialty Finance
|
44,899
|
|
|
40,712
|
|
|
4,187
|
|
|
10
|
|
|
Wealth Management
|
7,449
|
|
|
7,792
|
|
|
(343)
|
|
|
(4)
|
|
|
Total Operating Segments
|
255,837
|
|
|
255,339
|
|
|
498
|
|
|
—
|
|
|
Intersegment Eliminations
|
6,058
|
|
|
6,104
|
|
|
(46)
|
|
|
(1)
|
|
|
Consolidated net interest income
|
$
|
261,895
|
|
|
$
|
261,443
|
|
|
$
|
452
|
|
|
—
|
%
|
|
Provision for credit losses:
|
|
|
|
|
|
|
|
|
Community Banking
|
$
|
(46,572)
|
|
|
$
|
51,677
|
|
|
$
|
(98,249)
|
|
|
(190)
|
%
|
|
Specialty Finance
|
1,225
|
|
|
1,284
|
|
|
(59)
|
|
|
(5)
|
|
|
Wealth Management
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total Operating Segments
|
(45,347)
|
|
|
52,961
|
|
|
(98,308)
|
|
|
(186)
|
|
|
Intersegment Eliminations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Consolidated provision for credit losses
|
$
|
(45,347)
|
|
|
$
|
52,961
|
|
|
$
|
(98,308)
|
|
|
(186)
|
%
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
Community Banking
|
$
|
147,268
|
|
|
$
|
81,003
|
|
|
$
|
66,265
|
|
|
82
|
%
|
|
Specialty Finance
|
23,109
|
|
|
21,308
|
|
|
1,801
|
|
|
8
|
|
|
Wealth Management
|
30,251
|
|
|
24,130
|
|
|
6,121
|
|
|
25
|
|
|
Total Operating Segments
|
200,628
|
|
|
126,441
|
|
|
74,187
|
|
|
59
|
|
|
Intersegment Eliminations
|
(14,122)
|
|
|
(13,199)
|
|
|
(923)
|
|
|
7
|
|
|
Consolidated non-interest income
|
$
|
186,506
|
|
|
$
|
113,242
|
|
|
$
|
73,264
|
|
|
65
|
%
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
Community Banking
|
$
|
350,757
|
|
|
$
|
287,838
|
|
|
$
|
62,919
|
|
|
22
|
%
|
|
Specialty Finance
|
68,008
|
|
|
62,020
|
|
|
5,988
|
|
|
10
|
|
|
Wealth Management
|
37,700
|
|
|
31,922
|
|
|
5,778
|
|
|
18
|
|
|
Total Operating Segments
|
456,465
|
|
|
381,780
|
|
|
74,685
|
|
|
20
|
|
|
Intersegment Eliminations
|
(8,064)
|
|
|
(7,095)
|
|
|
(969)
|
|
|
14
|
|
|
Consolidated net revenue
|
$
|
448,401
|
|
|
$
|
374,685
|
|
|
$
|
73,716
|
|
|
20
|
%
|
|
Segment profit:
|
|
|
|
|
|
|
|
|
Community Banking
|
$
|
121,801
|
|
|
$
|
34,589
|
|
|
$
|
87,212
|
|
|
252
|
%
|
|
Specialty Finance
|
23,903
|
|
|
22,133
|
|
|
1,770
|
|
|
8
|
|
|
Wealth Management
|
7,444
|
|
|
6,090
|
|
|
1,354
|
|
|
22
|
|
|
Consolidated net income
|
$
|
153,148
|
|
|
$
|
62,812
|
|
|
$
|
90,336
|
|
|
144
|
%
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
Community Banking
|
$
|
37,102,603
|
|
|
$
|
31,499,899
|
|
|
$
|
5,602,704
|
|
|
18
|
%
|
|
Specialty Finance
|
7,174,269
|
|
|
6,133,548
|
|
|
1,040,721
|
|
|
17
|
|
|
Wealth Management
|
1,405,330
|
|
|
1,166,400
|
|
|
238,930
|
|
|
20
|
|
|
Consolidated total assets
|
$
|
45,682,202
|
|
|
$
|
38,799,847
|
|
|
$
|
6,882,355
|
|
|
18
|
%
|
(14) Derivative Financial Instruments
The Company primarily enters into derivative financial instruments as part of its strategy to manage its exposure to changes in interest rates. Derivative instruments represent contracts between parties that result in one party delivering cash to the other party based on a notional amount and an underlying term (such as a rate, security price or price index) as specified in the contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying term. Derivatives are also implicit in certain contracts and commitments.
The derivative financial instruments currently used by the Company to manage its exposure to interest rate risk include: (1) interest rate swaps and collars to manage the interest rate risk of certain fixed and variable rate assets and variable rate liabilities; (2) interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market; (3) forward commitments for the future delivery of such mortgage loans to protect the Company from adverse changes in interest rates and corresponding changes in the value of mortgage loans held-for-sale; (4) covered call options to economically hedge specific investment securities and receive fee income effectively enhancing the overall yield on such securities to compensate for net interest margin compression; and (5) options and swaps to economically hedge a portion of the
fair value adjustments related to the Company's mortgage servicing rights portfolio. The Company also enters into derivatives (typically interest rate swaps) with certain qualified borrowers to facilitate the borrowers’ risk management strategies and concurrently enters into mirror-image derivatives with a third party counterparty, effectively making a market in the derivatives for such borrowers. Additionally, the Company enters into foreign currency contracts to manage foreign exchange risk associated with certain foreign currency denominated assets.
The Company recognizes derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. The Company records derivative assets and derivative liabilities on the Consolidated Statements of Condition within accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively. Changes in the fair value of derivative financial instruments are either recognized in income or in shareholders’ equity as a component of accumulated other comprehensive income or loss depending on whether the derivative financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge.
Changes in fair values of derivatives accounted for as fair value hedges are recorded in income in the same period and in the same income statement line as changes in the fair values of the hedged items that relate to the hedged risk(s). Changes in fair values of derivative financial instruments accounted for as cash flow hedges are recorded as a component of accumulated other comprehensive income or loss, net of deferred taxes, and reclassified to earnings when the hedged transaction affects earnings. Changes in fair values of derivative financial instruments not designated in a hedging relationship pursuant to ASC 815 are reported in non-interest income during the period of the change. Derivative financial instruments are valued by a third party and are corroborated by comparison with valuations provided by the respective counterparties. Fair values of certain mortgage banking derivatives (interest rate lock commitments and forward commitments to sell mortgage loans) are estimated based on changes in mortgage interest rates from the date of the loan commitment. The fair value of foreign currency derivatives is computed based on changes in foreign currency rates stated in the contract compared to those prevailing at the measurement date.
The table below presents the fair value of the Company’s derivative financial instruments as of March 31, 2021, December 31, 2020 and March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
|
|
|
|
(In thousands)
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
|
Derivatives designated as hedging instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives designated as Cash Flow Hedges
|
$
|
50,420
|
|
|
$
|
8,182
|
|
|
$
|
—
|
|
|
$
|
31,161
|
|
|
$
|
39,715
|
|
|
$
|
57,274
|
|
|
Interest rate derivatives designated as Fair Value Hedges
|
121
|
|
|
—
|
|
|
—
|
|
|
9,569
|
|
|
14,520
|
|
|
16,123
|
|
|
Total derivatives designated as hedging instruments under ASC 815
|
$
|
50,541
|
|
|
$
|
8,182
|
|
|
$
|
—
|
|
|
$
|
40,730
|
|
|
$
|
54,235
|
|
|
$
|
73,397
|
|
|
Derivatives not designated as hedging instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
155,695
|
|
|
$
|
221,205
|
|
|
$
|
259,986
|
|
|
$
|
155,361
|
|
|
$
|
221,608
|
|
|
$
|
256,193
|
|
|
Interest rate lock commitments
|
44,313
|
|
|
48,925
|
|
|
39,816
|
|
|
1,342
|
|
|
—
|
|
|
1,105
|
|
|
Forward commitments to sell mortgage loans
|
2,920
|
|
|
—
|
|
|
1,514
|
|
|
3,283
|
|
|
12,510
|
|
|
36,872
|
|
|
Foreign exchange contracts
|
40
|
|
|
111
|
|
|
52
|
|
|
42
|
|
|
112
|
|
|
53
|
|
|
Total derivatives not designated as hedging instruments under ASC 815
|
$
|
202,968
|
|
|
$
|
270,241
|
|
|
$
|
301,368
|
|
|
$
|
160,028
|
|
|
$
|
234,230
|
|
|
$
|
294,223
|
|
|
Total Derivatives
|
$
|
253,509
|
|
|
$
|
278,423
|
|
|
$
|
301,368
|
|
|
$
|
200,758
|
|
|
$
|
288,465
|
|
|
$
|
367,620
|
|
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to net interest income and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of amounts in which the interest rate specified in the contract exceeds the agreed upon cap strike price or the payment of amounts in which the interest rate specified in the contract is below the agreed upon floor strike price at the end of each period.
As of March 31, 2021, the Company had 27 interest rate swap derivatives designated as cash flow hedges of variable rate deposits and certain junior subordinated debentures, and one interest rate collar derivative designated as a cash flow hedge of the Company's variable rate Term Facility. When the relationship between the hedged item and hedging instrument is highly effective at achieving offsetting changes in cash flows attributable to the hedged risk, changes in the fair value of these cash flow hedges are recorded in accumulated other comprehensive income or loss and are subsequently reclassified to interest expense as interest payments are made on such variable rate deposits. The changes in fair value (net of tax) are separately disclosed in the Consolidated Statements of Comprehensive Income.
The table below provides details on these cash flow hedges, summarized by derivative type and maturity, as of March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
(In thousands)
|
Notional
|
|
Fair Value
|
|
Maturity Date
|
Amount
|
|
Asset (Liability)
|
|
Interest Rate Swaps:
|
|
|
|
|
October 2021
|
$
|
25,000
|
|
|
$
|
(286)
|
|
|
November 2021
|
20,000
|
|
|
(287)
|
|
|
December 2021
|
165,000
|
|
|
(2,614)
|
|
|
March 2022
|
500,000
|
|
|
(220)
|
|
|
May 2022
|
370,000
|
|
|
(7,884)
|
|
|
June 2022
|
160,000
|
|
|
(3,652)
|
|
|
July 2022
|
230,000
|
|
|
(5,359)
|
|
|
August 2022
|
235,000
|
|
|
(5,944)
|
|
|
March 2023
|
250,000
|
|
|
(300)
|
|
|
April 2024
|
250,000
|
|
|
598
|
|
|
July 2027 (1)
|
1,000,000
|
|
|
49,823
|
|
|
Interest Rate Collars:
|
|
|
|
|
September 2023
|
96,429
|
|
|
(4,616)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Flow Hedges
|
$
|
3,301,429
|
|
|
$
|
19,259
|
|
(1)Interest rate swaps effective starting in July 2022.
A rollforward of the amounts in accumulated other comprehensive income or loss related to interest rate derivatives designated as cash flow hedges follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(In thousands)
|
|
|
|
|
March 31,
2021
|
|
March 31,
2020
|
|
Unrealized loss at beginning of period
|
|
|
|
|
$
|
(31,533)
|
|
|
$
|
(17,943)
|
|
|
Amount reclassified from accumulated other comprehensive income to interest expense on deposits, other borrowings and junior subordinated debentures
|
|
|
|
|
6,696
|
|
|
1,090
|
|
|
Amount of income (loss) recognized in other comprehensive income
|
|
|
|
|
44,096
|
|
|
(39,783)
|
|
|
Unrealized gain (loss) at end of period
|
|
|
|
|
$
|
19,259
|
|
|
$
|
(56,636)
|
|
As of March 31, 2021, the Company estimates that during the next twelve months $19.9 million will be reclassified from accumulated other comprehensive income or loss as an increase to interest expense.
Fair Value Hedges of Interest Rate Risk
Interest rate swaps designated as fair value hedges involve the payment of fixed amounts to a counterparty in exchange for the Company receiving variable payments over the life of the agreements without the exchange of the underlying notional amount. As of March 31, 2021, the Company has 17 interest rate swaps with an aggregate notional amount of $167.5 million that were designated as fair value hedges primarily associated with fixed rate commercial and industrial and commercial real estate loans as well as life insurance premium finance receivables.
For derivatives designated and that qualify as fair value hedges, the net gain or loss from the entire change in the fair value of the derivative instrument is recognized in the same income statement line item as the earnings effect, including the net gain or loss, of the hedged item (interest income earned on fixed rate loans) when the hedged item affects earnings.
The following table presents the carrying amount of the hedged assets/(liabilities) and the cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/(liabilities) that are designated as a fair value hedge accounting relationship as of March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
(In thousands)
Derivatives in Fair Value
Hedging Relationships
|
Location in the Statement of Condition
|
|
Carrying Amount of the Hedged Assets/(Liabilities)
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
|
|
|
Cumulative Amount of Fair Value Hedging Adjustment Remaining for any Hedged Assets (Liabilities) for which Hedge Accounting has been Discontinued
|
|
Interest rate swaps
|
Loans, net of unearned income
|
|
$
|
175,605
|
|
|
$
|
9,262
|
|
|
|
$
|
(157)
|
|
|
|
Available-for-sale debt securities
|
|
1,303
|
|
|
94
|
|
|
|
—
|
|
The following table presents the loss or gain recognized related to derivative instruments that are designated as fair value hedges for the respective period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
Derivatives in Fair Value Hedging Relationships
|
Location of (Loss)/Gain Recognized
in Income on Derivative
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2021
|
|
Interest rate swaps
|
Interest and fees on loans
|
|
|
|
$
|
(13)
|
|
|
|
Interest income - investment securities
|
|
|
|
—
|
|
Non-Designated Hedges
The Company does not use derivatives for speculative purposes. Derivatives not designated as accounting hedges are used to manage the Company’s economic exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of ASC 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
Interest Rate Derivatives—Periodically, the Company may purchase interest rate cap derivatives designed to act as an economic hedge of the risk of the negative impact on its fixed-rate loan portfolios from rising interest rates, most notably the LIBOR index. As of March 31, 2021, the Company held interest rate caps with an aggregate notional value of $1.0 billion.
Additionally, the Company has interest rate derivatives, including swaps and option products, resulting from a service the Company provides to certain qualified borrowers. The Company’s banking subsidiaries execute certain derivative products (typically interest rate swaps) directly with qualified commercial borrowers to facilitate their respective risk management strategies. For example, these arrangements allow the Company’s commercial borrowers to effectively convert a variable rate loan to a fixed rate. In order to minimize the Company’s exposure on these transactions, the Company simultaneously executes offsetting derivatives with third parties. In most cases, the offsetting derivatives have mirror-image terms, which result in the positions’ changes in fair value substantially offsetting through earnings each period. However, to the extent that the derivatives are not a mirror-image and because of differences in counterparty credit risk, changes in fair value will not completely offset resulting in some earnings impact each period. Changes in the fair value of these derivatives are included in other non-interest income. At March 31, 2021, the Company had interest rate derivative transactions with an aggregate notional amount of approximately $9.0 billion (all interest rate swaps and caps with customers and third parties) related to this program. These interest rate derivatives had maturity dates ranging from April 2021 to February 2045.
Mortgage Banking Derivatives—These derivatives include interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. It is the Company’s practice to enter into forward commitments for the future delivery of a portion of our residential mortgage loan production when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale. The Company’s mortgage banking derivatives have not been designated as being in hedge relationships. At March 31, 2021, the Company had forward commitments to sell mortgage loans with an aggregate notional amount of approximately $2.3 billion and interest rate lock commitments with an aggregate notional amount of approximately $1.1 billion. The fair values of these derivatives were
estimated based on changes in mortgage rates from the dates of the commitments. Changes in the fair value of these mortgage banking derivatives are included in mortgage banking revenue.
Foreign Currency Derivatives—These derivatives include foreign currency contracts used to manage the foreign exchange risk associated with foreign currency denominated assets and transactions. Foreign currency contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. As a result of fluctuations in foreign currencies, the U.S. dollar-equivalent value of the foreign currency denominated assets or forecasted transactions increase or decrease. Gains or losses on the derivative instruments related to these foreign currency denominated assets or forecasted transactions are expected to substantially offset this variability. As of March 31, 2021, the Company held foreign currency derivatives with an aggregate notional amount of approximately $3.8 million.
Other Derivatives—Periodically, the Company will sell options to a bank or dealer for the right to purchase certain securities held within the banks’ investment portfolios (covered call options). These option transactions are designed primarily to mitigate overall interest rate risk and to increase the total return associated with the investment securities portfolio. These options do not qualify as accounting hedges pursuant to ASC 815, and, accordingly, changes in fair value of these contracts are recognized as other non-interest income. There were no covered call options outstanding as of March 31, 2021, December 31, 2020 or March 31, 2020.
Periodically, the Company will purchase options for the right to purchase securities not currently held within the banks' investment portfolios or enter into interest rate swaps in which the Company elects to not designate such derivatives as hedging instruments. These option and swap transactions are designed primarily to economically hedge a portion of the fair value adjustments related to the Company's mortgage servicing rights portfolio. The gain or loss associated with these derivative contracts are included in mortgage banking revenue. There were no such options or swaps outstanding as of March 31, 2021.
Amounts included in the Consolidated Statements of Income related to derivative instruments not designated in hedge relationships were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Three Months Ended
|
|
Derivative
|
Location in income statement
|
|
|
|
|
|
March 31,
2021
|
|
March 31,
2020
|
|
Interest rate swaps and caps
|
Trading gains (losses), net
|
|
|
|
|
|
$
|
428
|
|
|
$
|
(428)
|
|
|
Mortgage banking derivatives
|
Mortgage banking revenue
|
|
|
|
|
|
(17,479)
|
|
|
17,267
|
|
|
Foreign exchange contracts
|
Trading gains (losses), net
|
|
|
|
|
|
(5)
|
|
|
(4)
|
|
|
Covered call options
|
Fees from covered call options
|
|
|
|
|
|
—
|
|
|
2,292
|
|
|
Derivative contract held as economic hedge on MSRs
|
Mortgage banking revenue
|
|
|
|
|
|
—
|
|
|
4,160
|
|
Credit Risk
Derivative instruments have inherent risks, primarily market risk and credit risk. Market risk is associated with changes in interest rates and credit risk relates to the risk that the counterparty will fail to perform according to the terms of the agreement. The amounts potentially subject to market and credit risks are the streams of interest payments under the contracts and the market value of the derivative instrument and not the notional principal amounts used to express the volume of the transactions. Market and credit risks are managed and monitored as part of the Company's overall asset-liability management process, except that the credit risk related to derivatives entered into with certain qualified borrowers is managed through the Company's standard loan underwriting process since these derivatives are secured through collateral provided by the loan agreements. Actual exposures are monitored against various types of credit limits established to contain risk within parameters. When deemed necessary, appropriate types and amounts of collateral are obtained to minimize credit exposure.
The Company has agreements with certain of its interest rate derivative counterparties that contain cross-default provisions, which provide that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain of its derivative counterparties that contain a provision allowing the counterparty to terminate the derivative positions if the Company fails to maintain its status as a well or adequately capitalized institution, which would require the Company to settle its obligations under the agreements. As of March 31, 2021, the fair value of interest rate derivatives in a net liability position that were subject to such agreements, which includes accrued interest related to these agreements, was $131.4 million. If the Company had breached any of these provisions and the derivatives were terminated as a result, the Company would have been required to settle its obligations under the agreements at the termination value and would
have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.
The Company is also exposed to the credit risk of its commercial borrowers who are counterparties to interest rate derivatives with the banks. This counterparty risk related to the commercial borrowers is managed and monitored through the banks' standard underwriting process applicable to loans since these derivatives are secured through collateral provided by the loan agreement. The counterparty risk associated with the mirror-image swaps executed with third parties is monitored and managed in connection with the Company's overall asset liability management process.
The Company records interest rate derivatives subject to master netting agreements at their gross value and does not offset derivative assets and liabilities on the Consolidated Statements of Condition. The tables below summarize the Company's interest rate derivatives and offsetting positions as of the dates shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
Fair Value
|
|
Fair Value
|
|
(In thousands)
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
|
Gross Amounts Recognized
|
$
|
206,236
|
|
|
$
|
229,387
|
|
|
$
|
259,986
|
|
|
$
|
196,091
|
|
|
$
|
275,843
|
|
|
$
|
329,590
|
|
|
Less: Amounts offset in the Statements of Financial Condition
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net amount presented in the Statements of Financial Condition
|
$
|
206,236
|
|
|
$
|
229,387
|
|
|
$
|
259,986
|
|
|
$
|
196,091
|
|
|
$
|
275,843
|
|
|
$
|
329,590
|
|
|
Gross amounts not offset in the Statements of Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting Derivative Positions
|
(60,593)
|
|
|
(8,647)
|
|
|
(1,048)
|
|
|
(60,593)
|
|
|
(8,647)
|
|
|
(1,048)
|
|
|
Collateral Posted
|
—
|
|
|
—
|
|
|
—
|
|
|
(125,818)
|
|
|
(266,832)
|
|
|
(328,542)
|
|
|
Net Credit Exposure
|
$
|
145,643
|
|
|
$
|
220,740
|
|
|
$
|
258,938
|
|
|
$
|
9,680
|
|
|
$
|
364
|
|
|
$
|
—
|
|
(15) Fair Values of Assets and Liabilities
The Company measures, monitors and discloses certain of its assets and liabilities on a fair value basis. These financial assets and financial liabilities are measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:
•Level 1—unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2—inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•Level 3—significant unobservable inputs that reflect the Company’s own assumptions that market participants would use in pricing the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
A financial instrument’s categorization within the above valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the assets or liabilities. The following is a description of the valuation methodologies used for the Company’s assets and liabilities measured at fair value on a recurring basis.
Available-for-sale debt securities, trading account securities and equity securities with readily determinable fair value—Fair values for available-for-sale debt securities, trading account securities and equity securities with readily determinable fair value are typically based on prices obtained from independent pricing vendors. Securities measured with these valuation techniques are generally classified as Level 2 of the fair value hierarchy. Typically, standard inputs such as benchmark yields, reported trades for similar securities, issuer spreads, benchmark securities, bids, offers and reference data including market research publications are used to fair value these securities. When these inputs are not available, broker/dealer quotes may be obtained by the vendor to determine the fair value of the security. We review the vendor’s pricing methodologies to determine if
observable market information is being used, versus unobservable inputs. Fair value measurements using significant inputs that are unobservable in the market due to limited activity or a less liquid market are classified as Level 3 in the fair value hierarchy. The fair value of U.S. Treasury securities and certain equity securities with readily determinable fair value are based on unadjusted quoted prices in active markets for identical securities. As such, these securities are classified as Level 1 in the fair value hierarchy.
The Company’s Investment Operations Department is responsible for the valuation of Level 3 available-for-sale debt securities. The methodology and variables used as inputs in pricing Level 3 securities are derived from a combination of observable and unobservable inputs. The unobservable inputs are determined through internal assumptions that may vary from period to period due to external factors, such as market movement and credit rating adjustments.
At March 31, 2021, the Company classified $101.7 million of municipal securities as Level 3. These municipal securities are bond issues for various municipal government entities primarily located in the Chicago metropolitan area and southern Wisconsin and are privately placed, non-rated bonds without CUSIP numbers. The Company also classified $1.8 million of U.S. Government agency securities as Level 3 at March 31, 2021. The Company’s methodology for pricing these securities focuses on three distinct inputs: equivalent rating, yield and other pricing terms. To determine the rating for a given non-rated investment debt security, the Investment Operations Department references a rated, publicly issued bond by the same issuer if available. A reduction is then applied to the rating obtained from the comparable bond, as the Company believes if liquidated, a non-rated bond would be valued less than a similar bond with a verifiable rating. The reduction applied by the Company is one complete rating grade (i.e. a “AA” rating for a comparable bond would be reduced to “A” for the Company’s valuation). For bond issues without comparable bond proxies, a rating of "BBB" was assigned. In the first quarter of 2021, all of the ratings derived by the Investment Operations Department using the above process were “BBB” or better. The fair value measurement noted above is sensitive to the rating input, as a higher rating typically results in an increased valuation. The remaining pricing inputs used in the bond valuation are observable. Based on the rating determined in the above process, Investment Operations obtains a corresponding current market yield curve available to market participants. Other terms including coupon, maturity date, redemption price, number of coupon payments per year, and accrual method are obtained from the individual bond term sheets. Certain municipal bonds held by the Company at March 31, 2021 are continuously callable. When valuing these bonds, the fair value is capped at par value as the Company assumes a market participant would not pay more than par for a continuously callable bond. To determine the rating for the U.S. Government agency securities, the Investment Operations Department assigned a “AAA” rating as it is guaranteed by the U.S. government.
Mortgage loans held-for-sale—The fair value of mortgage loans held-for-sale is determined by reference to investor price sheets for loan products with similar characteristics. As such, these loans are classified as Level 2 in the fair value hierarchy.
Loans held-for-investment—The fair value for loans in which the Company elected the fair value option is estimated by discounting future scheduled cash flows for the specific loan through maturity, adjusted for estimated credit losses and prepayments. The Company uses a discount rate based on the actual coupon rate of the underlying loan. At March 31, 2021, the Company classified $6.4 million of loans held-for-investment as Level 3. The weighted average discount rate used as an input to value these loans at March 31, 2021 was 2.38% with discount rates applied ranging from 2%-3%. The higher the rate utilized to discount estimated future cash flows, the lower the fair value measurement. As noted above, the fair value estimate also includes assumptions of prepayment speeds and credit losses. The Company included a prepayments speed assumption of 12.99% at March 31, 2021. Prepayment speeds are inversely related to the fair value of these loans as an increase in prepayment speeds results in a decreased valuation. Additionally, the weighted average credit discount used as an input to value the specific loans was 0.26% with credit loss discount ranging from 0%-3% at March 31, 2021.
MSRs—Fair value for MSRs is determined utilizing a valuation model which calculates the fair value of each servicing rights based on the present value of estimated future cash flows. The Company uses a discount rate commensurate with the risk associated with each servicing rights, given current market conditions. At March 31, 2021, the Company classified $124.3 million of MSRs as Level 3. The weighted average discount rate used as an input to value the pool of MSRs at March 31, 2021 was 9.88% with discount rates applied ranging from 3%-19%. The higher the rate utilized to discount estimated future cash flows, the lower the fair value measurement. The fair value of MSRs was also estimated based on other assumptions including prepayment speeds and the cost to service. Prepayment speeds ranged from 6%-92% or a weighted average prepayment speed of 12.99%. Further, for current and delinquent loans, the Company assumed a weighted average cost of servicing of $76 and $354, respectively, per loan. Prepayment speeds and the cost to service are both inversely related to the fair value of MSRs as an increase in prepayment speeds or the cost to service results in a decreased valuation. See Note 8 - Mortgage Servicing Rights (“MSRs”) for further discussion of MSRs.
Derivative instruments—The Company’s derivative instruments include interest rate swaps, caps and collars, commitments to fund mortgages for sale into the secondary market (interest rate locks), forward commitments to end investors for the sale of
mortgage loans and foreign currency contracts. Interest rate swaps, caps and collars are valued by a third party, using models that primarily use market observable inputs, such as yield curves, and are classified as Level 2 in the fair value hierarchy. The credit risk associated with derivative financial instruments that are subject to master netting agreements is measured on a net basis by counterparty portfolio. The fair value for mortgage-related derivatives is based on changes in mortgage rates from the date of the commitments. The fair value of foreign currency derivatives is computed based on change in foreign currency rates stated in the contract compared to those prevailing at the measurement date.
At March 31, 2021, the Company classified $25.6 million of derivative assets related to interest rate locks as Level 3. The fair value of interest rate locks is based on prices obtained for loans with similar characteristics from third parties, adjusted for the pull-through rate, which represents the Company’s best estimate of the likelihood that a committed loan will ultimately fund. The weighted-average pull-through rate at March 31, 2021 was 86% with pull-through rates applied ranging from 14% to 100%. Pull-through rates are directly related to the fair value of interest rate locks as an increase in the pull-through rate results in an increased valuation.
Nonqualified deferred compensation assets—The underlying assets relating to the nonqualified deferred compensation plan are included in a trust and primarily consist of non-exchange traded institutional funds which are priced based by an independent third party service. These assets are classified as Level 2 in the fair value hierarchy.
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
(In thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
65,001
|
|
|
$
|
65,001
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
U.S. Government agencies
|
81,526
|
|
|
—
|
|
|
79,742
|
|
|
1,784
|
|
|
Municipal
|
148,300
|
|
|
—
|
|
|
46,552
|
|
|
101,748
|
|
|
Corporate notes
|
92,349
|
|
|
—
|
|
|
92,349
|
|
|
—
|
|
|
Mortgage-backed
|
2,043,573
|
|
|
—
|
|
|
2,043,573
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Trading account securities
|
951
|
|
|
—
|
|
|
951
|
|
|
—
|
|
|
Equity securities with readily determinable fair value
|
90,338
|
|
|
82,272
|
|
|
8,066
|
|
|
—
|
|
|
Mortgage loans held-for-sale
|
1,260,193
|
|
|
—
|
|
|
1,260,193
|
|
|
—
|
|
|
Loans held-for-investment
|
51,916
|
|
|
—
|
|
|
45,508
|
|
|
6,408
|
|
|
MSRs
|
124,316
|
|
|
—
|
|
|
—
|
|
|
124,316
|
|
|
Nonqualified deferred compensation assets
|
15,891
|
|
|
—
|
|
|
15,891
|
|
|
—
|
|
|
Derivative assets
|
253,509
|
|
|
—
|
|
|
227,875
|
|
|
25,634
|
|
|
Total
|
$
|
4,227,863
|
|
|
$
|
147,273
|
|
|
$
|
3,820,700
|
|
|
$
|
259,890
|
|
|
Derivative liabilities
|
$
|
200,758
|
|
|
$
|
—
|
|
|
$
|
200,758
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(In thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
304,971
|
|
|
$
|
304,971
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
U.S. Government agencies
|
|
84,513
|
|
|
—
|
|
|
82,547
|
|
|
1,966
|
|
|
Municipal
|
|
146,910
|
|
|
—
|
|
|
37,034
|
|
|
109,876
|
|
|
Corporate notes
|
|
91,405
|
|
|
—
|
|
|
91,405
|
|
|
—
|
|
|
Mortgage-backed
|
|
2,428,040
|
|
|
—
|
|
|
2,428,040
|
|
|
—
|
|
|
Trading account securities
|
|
671
|
|
|
—
|
|
|
671
|
|
|
—
|
|
|
Equity securities with readily determinable fair value
|
|
90,862
|
|
|
82,796
|
|
|
8,066
|
|
|
—
|
|
|
Mortgage loans held-for-sale
|
|
1,272,090
|
|
|
—
|
|
|
1,272,090
|
|
|
—
|
|
|
Loans held-for-investment
|
|
55,134
|
|
|
—
|
|
|
44,854
|
|
|
10,280
|
|
|
MSRs
|
|
92,081
|
|
|
—
|
|
|
—
|
|
|
92,081
|
|
|
Nonqualified deferred compensation assets
|
|
15,398
|
|
|
—
|
|
|
15,398
|
|
|
—
|
|
|
Derivative assets
|
|
278,423
|
|
|
—
|
|
|
230,332
|
|
|
48,091
|
|
|
Total
|
|
$
|
4,860,498
|
|
|
$
|
387,767
|
|
|
$
|
4,210,437
|
|
|
$
|
262,294
|
|
|
Derivative liabilities
|
|
$
|
288,465
|
|
|
$
|
—
|
|
|
$
|
288,465
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
(In thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
121,670
|
|
|
$
|
121,670
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
U.S. Government agencies
|
368,643
|
|
|
—
|
|
|
366,186
|
|
|
2,457
|
|
|
Municipal
|
146,609
|
|
|
—
|
|
|
33,342
|
|
|
113,267
|
|
|
Corporate notes
|
101,018
|
|
|
—
|
|
|
101,018
|
|
|
—
|
|
|
Mortgage-backed
|
2,833,019
|
|
|
—
|
|
|
2,833,019
|
|
|
—
|
|
|
Trading account securities
|
2,257
|
|
|
—
|
|
|
2,257
|
|
|
—
|
|
|
Equity securities with readily determinable fair value
|
47,310
|
|
|
39,244
|
|
|
8,066
|
|
|
—
|
|
|
Mortgage loans held-for-sale
|
656,934
|
|
|
—
|
|
|
656,934
|
|
|
—
|
|
|
Loans held-for-investment
|
142,267
|
|
|
—
|
|
|
132,699
|
|
|
9,568
|
|
|
MSRs
|
73,504
|
|
|
—
|
|
|
—
|
|
|
73,504
|
|
|
Nonqualified deferred compensation assets
|
12,253
|
|
|
—
|
|
|
12,253
|
|
|
—
|
|
|
Derivative assets
|
301,368
|
|
|
—
|
|
|
261,552
|
|
|
39,816
|
|
|
Total
|
$
|
4,806,852
|
|
|
$
|
160,914
|
|
|
$
|
4,407,326
|
|
|
$
|
238,612
|
|
|
Derivative liabilities
|
$
|
367,620
|
|
|
$
|
—
|
|
|
$
|
367,620
|
|
|
$
|
—
|
|
The aggregate remaining contractual principal balance outstanding as of March 31, 2021, December 31, 2020 and March 31, 2020 for mortgage loans held-for-sale measured at fair value under ASC 825 was $1.2 billion, $1.2 billion and $618.7 million, respectively, while the aggregate fair value of mortgage loans held-for-sale was $1.3 billion, $1.3 billion and $656.9 million, for the same respective periods, as shown in the above tables. There were $115.2 million of loans past due greater than 90 days and still accruing in the mortgage loans held-for-sale portfolio as of March 31, 2021 compared to $134.1 million as of December 31, 2020 and $358,000 as of March 31, 2020. All of the loans past due greater than 90 days and still accruing as of March 31, 2021 were individual delinquent mortgage loans bought back from GNMA at the unconditional option of the Company as servicer for those loans.
The changes in Level 3 assets measured at fair value on a recurring basis during the three months ended March 31, 2021 and 2020 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
Loans held-for- investment
|
|
Mortgage
servicing rights
|
|
Derivative assets
|
|
(In thousands)
|
Municipal
|
|
|
|
|
|
|
Balance at January 1, 2021
|
$
|
109,876
|
|
|
|
|
$
|
1,966
|
|
|
$
|
10,280
|
|
|
$
|
92,081
|
|
|
$
|
48,091
|
|
|
Total net gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (1)
|
—
|
|
|
|
|
—
|
|
|
(530)
|
|
|
32,235
|
|
|
(22,457)
|
|
|
Other comprehensive income (loss)
|
(2,068)
|
|
|
|
|
(24)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Purchases
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuances
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Sales
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Settlements
|
(6,060)
|
|
|
|
|
(158)
|
|
|
(3,918)
|
|
|
—
|
|
|
—
|
|
|
Net transfers into/(out of) Level 3
|
—
|
|
|
|
|
—
|
|
|
576
|
|
|
—
|
|
|
—
|
|
|
Balance at March 31, 2021
|
$
|
101,748
|
|
|
|
|
$
|
1,784
|
|
|
$
|
6,408
|
|
|
$
|
124,316
|
|
|
$
|
25,634
|
|
(1)Changes in the balance of MSRs and derivative assets related to fair value adjustments are recorded as components of mortgage banking revenue. Changes in the balance of loans held-for-investment related to fair value adjustments are recorded as other non-interest income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
Loans held-for- investment
|
|
Mortgage
servicing rights
|
|
Derivative assets
|
|
(In thousands)
|
Municipal
|
|
|
|
|
|
|
Balance at January 1, 2020
|
$
|
111,950
|
|
|
|
|
$
|
2,646
|
|
|
$
|
9,620
|
|
|
$
|
85,638
|
|
|
$
|
2,631
|
|
|
Total net gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (1)
|
—
|
|
|
|
|
—
|
|
|
(78)
|
|
|
(12,134)
|
|
|
37,185
|
|
|
Other comprehensive income (loss)
|
(1,249)
|
|
|
|
|
(32)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Purchases
|
5,875
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuances
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Sales
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Settlements
|
(3,309)
|
|
|
|
|
(157)
|
|
|
(96)
|
|
|
—
|
|
|
—
|
|
|
Net transfers into/(out of) Level 3
|
—
|
|
|
|
|
—
|
|
|
122
|
|
|
—
|
|
|
—
|
|
|
Balance at March 31, 2020
|
$
|
113,267
|
|
|
|
|
$
|
2,457
|
|
|
$
|
9,568
|
|
|
$
|
73,504
|
|
|
$
|
39,816
|
|
(1)Changes in the balance of MSRs and derivative assets related to fair value adjustments are recorded as components of mortgage banking revenue. Changes in the balance of loans held-for-investment related to fair value adjustments are recorded as other non-interest income.
Also, the Company may be required, from time to time, to measure certain other assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from impairment charges on individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at the end of the period, the following table provides the carrying value of the related individual assets or portfolios at March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
Three Months Ended March 31, 2021
Fair Value Losses Recognized, net
|
|
|
|
(In thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
Individually assessed loans - foreclosure probable and collateral-dependent
|
$
|
87,757
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87,757
|
|
|
$
|
12,548
|
|
|
|
|
Other real estate owned (1)
|
15,813
|
|
|
—
|
|
|
—
|
|
|
15,813
|
|
|
170
|
|
|
|
|
Total
|
$
|
103,570
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103,570
|
|
|
$
|
12,718
|
|
|
|
(1)Fair value losses recognized, net on other real estate owned include valuation adjustments and charge-offs during the respective period.
Individually assessed loans—In accordance with ASC 326, the allowance for credit losses for loans and other financial assets held at amortized cost should be measured on a collective or pooled basis when such assets exhibit similar risk characteristics. In instances in which a financial asset does not exhibit similar risk characteristics to a pool, the Company is required to measure such allowance for credit losses on an individual asset basis. For the Company's loan portfolio, nonaccrual loans and TDRs are considered to not exhibit similar risk characteristics as pools and thus are individually assessed. Credit losses are measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the fair value of the underlying collateral. Individually assessed loans are considered a fair value measurement where an allowance for credit loss is established based on the fair value of collateral. Appraised values on relevant real estate properties, which may require adjustments to market-based valuation inputs, are generally used on foreclosure probable and collateral-dependent loans within the real estate portfolios.
The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 inputs of individually assessed loans. For more information on individually assessed loans refer to Note 6 – Allowance for Credit Losses. At March 31, 2021, the Company had $124.4 million of individually assessed loans classified as Level 3. Of the $124.4 million of individually assessed loans, $87.8 million were measured at fair value based on the underlying collateral of the loan as shown in the table above. The remaining $36.6 million were valued based on discounted cash flows in accordance with ASC 310.
Other real estate owned —Other real estate owned is comprised of real estate acquired in partial or full satisfaction of loans and is included in other assets. Other real estate owned is recorded at its estimated fair value less estimated selling costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs charged to the allowance for loan losses. Subsequent changes in value are reported as adjustments to the carrying amount and are recorded in other non-interest expense. Gains and losses upon sale, if any, are also charged to other non-interest expense. Fair value is generally based on third party appraisals and internal estimates that are adjusted by a discount representing the estimated cost of sale and is therefore considered a Level 3 valuation.
The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 inputs for other real estate owned. At March 31, 2021, the Company had $15.8 million of other real estate owned classified as Level 3. The unobservable
input applied to other real estate owned relates to the 10% reduction to the appraisal value representing the estimated cost of sale of the foreclosed property. A higher discount for the estimated cost of sale results in a decreased carrying value.
The valuation techniques and significant unobservable inputs used to measure both recurring and non-recurring Level 3 fair value measurements at March 31, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Fair Value
|
|
Valuation Methodology
|
|
Significant Unobservable Input
|
|
Range
of Inputs
|
|
Weighted
Average
of Inputs
|
|
Impact to valuation
from an increased or
higher input value
|
|
Measured at fair value on a recurring basis:
|
|
Municipal Securities
|
$
|
101,748
|
|
|
Bond pricing
|
|
Equivalent rating
|
|
BBB-AA+
|
|
N/A
|
|
Increase
|
|
U.S. Government agencies
|
1,784
|
|
|
Bond pricing
|
|
Equivalent rating
|
|
AAA
|
|
AAA
|
|
Increase
|
|
Loans held-for-investment
|
6,408
|
|
|
Discounted cash flows
|
|
Discount rate
|
|
2%-3%
|
|
2.38%
|
|
Decrease
|
|
|
|
|
|
|
Credit discount
|
|
0%-3%
|
|
0.26%
|
|
Decrease
|
|
|
|
|
|
|
Constant prepayment rate (CPR)
|
|
12.99%
|
|
12.99%
|
|
Decrease
|
|
MSRs
|
124,316
|
|
|
Discounted cash flows
|
|
Discount rate
|
|
3%-19%
|
|
9.88%
|
|
Decrease
|
|
|
|
|
|
|
Constant prepayment rate (CPR)
|
|
6%-92%
|
|
12.99%
|
|
Decrease
|
|
|
|
|
|
|
Cost of servicing
|
|
$70-$200
|
|
$76
|
|
Decrease
|
|
|
|
|
|
|
Cost of servicing - delinquent
|
|
$200-$1,000
|
|
$354
|
|
Decrease
|
|
Derivatives
|
25,634
|
|
|
Discounted cash flows
|
|
Pull-through rate
|
|
14%-100%
|
|
86.39%
|
|
Increase
|
|
Measured at fair value on a non-recurring basis:
|
|
Individually assessed loans - foreclosure probable and collateral-dependent
|
$
|
87,757
|
|
|
Appraisal value
|
|
Appraisal adjustment - cost of sale
|
|
10%
|
|
10.00%
|
|
Decrease
|
|
Other real estate owned
|
15,813
|
|
|
Appraisal value
|
|
Appraisal adjustment - cost of sale
|
|
10%
|
|
10.00%
|
|
Decrease
|
The Company is required under applicable accounting guidance to report the fair value of all financial instruments on the Consolidated Statements of Condition, including those financial instruments carried at cost. The table below presents the carrying amounts and estimated fair values of the Company’s financial instruments as of the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2021
|
|
At December 31, 2020
|
|
At March 31, 2020
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
(In thousands)
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
426,377
|
|
|
$
|
426,377
|
|
|
$
|
322,474
|
|
|
$
|
322,474
|
|
|
$
|
349,427
|
|
|
$
|
349,427
|
|
|
Interest-bearing deposits with banks
|
3,348,794
|
|
|
3,348,794
|
|
|
4,802,527
|
|
|
4,802,527
|
|
|
1,943,743
|
|
|
1,943,743
|
|
|
Available-for-sale securities
|
2,430,749
|
|
|
2,430,749
|
|
|
3,055,839
|
|
|
3,055,839
|
|
|
3,570,959
|
|
|
3,570,959
|
|
|
Held-to-maturity securities
|
2,166,419
|
|
|
2,121,065
|
|
|
579,138
|
|
|
593,767
|
|
|
865,376
|
|
|
879,192
|
|
|
Trading account securities
|
951
|
|
|
951
|
|
|
671
|
|
|
671
|
|
|
2,257
|
|
|
2,257
|
|
|
Equity securities with readily determinable fair value
|
90,338
|
|
|
90,338
|
|
|
90,862
|
|
|
90,862
|
|
|
47,310
|
|
|
47,310
|
|
|
FHLB and FRB stock, at cost
|
135,881
|
|
|
135,881
|
|
|
135,588
|
|
|
135,588
|
|
|
134,546
|
|
|
134,546
|
|
|
Brokerage customer receivables
|
19,056
|
|
|
19,056
|
|
|
17,436
|
|
|
17,436
|
|
|
16,293
|
|
|
16,293
|
|
|
Mortgage loans held-for-sale, at fair value
|
1,260,193
|
|
|
1,260,193
|
|
|
1,272,090
|
|
|
1,272,090
|
|
|
656,934
|
|
|
656,934
|
|
|
Loans held-for-investment, at fair value
|
51,916
|
|
|
51,916
|
|
|
55,134
|
|
|
55,134
|
|
|
142,267
|
|
|
142,267
|
|
|
Loans held-for-investment, at amortized cost
|
33,119,317
|
|
|
33,066,760
|
|
|
32,023,939
|
|
|
31,871,683
|
|
|
27,665,054
|
|
|
27,469,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified deferred compensation assets
|
15,891
|
|
|
15,891
|
|
|
15,398
|
|
|
15,398
|
|
|
12,253
|
|
|
12,253
|
|
|
Derivative assets
|
253,509
|
|
|
253,509
|
|
|
278,423
|
|
|
278,423
|
|
|
301,368
|
|
|
301,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable and other
|
281,020
|
|
|
281,020
|
|
|
272,339
|
|
|
272,339
|
|
|
275,499
|
|
|
275,499
|
|
|
Total financial assets
|
$
|
43,600,411
|
|
|
$
|
43,502,500
|
|
|
$
|
42,921,858
|
|
|
$
|
42,784,231
|
|
|
$
|
35,983,286
|
|
|
$
|
35,801,537
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-maturity deposits
|
$
|
33,061,502
|
|
|
$
|
33,061,502
|
|
|
$
|
32,116,023
|
|
|
$
|
32,116,023
|
|
|
$
|
26,071,881
|
|
|
$
|
26,071,881
|
|
|
Deposits with stated maturities
|
4,811,150
|
|
|
4,801,257
|
|
|
4,976,628
|
|
|
4,969,849
|
|
|
5,389,779
|
|
|
5,394,523
|
|
|
FHLB advances
|
1,228,436
|
|
|
1,121,269
|
|
|
1,228,429
|
|
|
1,172,315
|
|
|
1,174,894
|
|
|
1,130,327
|
|
|
Other borrowings
|
516,877
|
|
|
516,877
|
|
|
518,928
|
|
|
518,928
|
|
|
487,503
|
|
|
487,503
|
|
|
Subordinated notes
|
436,595
|
|
|
458,832
|
|
|
436,506
|
|
|
473,093
|
|
|
436,179
|
|
|
487,745
|
|
|
Junior subordinated debentures
|
253,566
|
|
|
208,132
|
|
|
253,566
|
|
|
204,713
|
|
|
253,566
|
|
|
224,523
|
|
|
Derivative liabilities
|
200,758
|
|
|
200,758
|
|
|
288,465
|
|
|
288,465
|
|
|
367,620
|
|
|
367,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
19,940
|
|
|
19,940
|
|
|
15,645
|
|
|
15,645
|
|
|
27,696
|
|
|
27,696
|
|
|
Total financial liabilities
|
$
|
40,528,824
|
|
|
$
|
40,388,567
|
|
|
$
|
39,834,190
|
|
|
$
|
39,759,031
|
|
|
$
|
34,209,118
|
|
|
$
|
34,191,818
|
|
Not all the financial instruments listed in the table above are subject to the disclosure provisions of ASC Topic 820, as certain assets and liabilities result in their carrying value approximating fair value. These include cash and cash equivalents, interest bearing deposits with banks, brokerage customer receivables, FHLB and FRB stock, accrued interest receivable and accrued interest payable and non-maturity deposits.
The following methods and assumptions were used by the Company in estimating fair values of financial instruments that were not previously disclosed.
Held-to-maturity securities. Held-to-maturity securities include U.S. Government-sponsored agency securities and municipal bonds issued by various municipal government entities primarily located in the Chicago metropolitan area and southern Wisconsin. Fair values for held-to-maturity securities are typically based on prices obtained from independent pricing vendors. In accordance with ASC 820, the Company has generally categorized these held-to-maturity securities as a Level 2 fair value measurement. Fair values for certain other held-to-maturity securities are based on the bond pricing methodology discussed previously related to certain available-for-sale securities. In accordance with ASC 820, the Company has categorized these held-to-maturity securities as a Level 3 fair value measurement.
Loans held-for-investment, at amortized cost. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are analyzed by type such as commercial, residential real estate, etc. Each category is further segmented by interest rate type (fixed and variable) and term. For variable-rate loans that reprice frequently, estimated fair values are based on carrying values. The fair value of residential loans is based on secondary market sources for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value for other fixed rate loans is estimated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect credit and interest rate
risks inherent in the loan. In accordance with ASC 820, the Company has categorized loans as a Level 3 fair value measurement.
Deposits with stated maturities. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently in effect for deposits of similar remaining maturities. In accordance with ASC 820, the Company has categorized deposits with stated maturities as a Level 3 fair value measurement.
FHLB advances. The fair value of FHLB advances is obtained from the FHLB which uses a discounted cash flow analysis based on current market rates of similar maturity debt securities to discount cash flows. In accordance with ASC 820, the Company has categorized FHLB advances as a Level 3 fair value measurement.
Subordinated notes. The fair value of the subordinated notes is based on a market price obtained from an independent pricing vendor. In accordance with ASC 820, the Company has categorized subordinated notes as a Level 2 fair value measurement.
Junior subordinated debentures. The fair value of the junior subordinated debentures is based on the discounted value of contractual cash flows. In accordance with ASC 820, the Company has categorized junior subordinated debentures as a Level 3 fair value measurement.
(16) Stock-Based Compensation Plans
In May 2015, the Company’s shareholders approved the 2015 Stock Incentive Plan (“the 2015 Plan”) which provides for the issuance of up to 5,485,000 shares of common stock. The 2015 Plan replaced the 2007 Stock Incentive Plan (“the 2007 Plan”) which replaced the 1997 Stock Incentive Plan (“the 1997 Plan”). The 2015 Plan, the 2007 Plan and the 1997 Plan are collectively referred to as “the Plans.” The 2015 Plan has substantially similar terms to the 2007 Plan and the 1997 Plan. Awards granted under the Plans for which common shares are not issued by reason of cancellation, forfeiture, lapse of such award or settlement of such award in cash, are again available under the 2015 Plan. All grants made after the approval of the 2015 Plan are made pursuant to the 2015 Plan. As of March 31, 2021, approximately 951,000 shares were available for future grants assuming the maximum number of shares are issued for the performance awards outstanding. The Plans cover substantially all employees of Wintrust. The Compensation Committee of the Board of Directors administers all stock-based compensation programs and authorizes all awards granted pursuant to the Plans.
The Plans permit the grant of incentive stock options, non-qualified stock options, stock appreciation rights, stock awards, restricted share or unit awards, performance awards and other incentive awards valued in whole or in part by reference to the Company’s common stock, all on a stand alone, combination or tandem basis. The Company historically awarded stock-based compensation in the form of time-vested non-qualified stock options and time-vested restricted share unit awards (“restricted shares”). The grants of options provide for the purchase of shares of the Company’s common stock at the fair market value of the stock on the date the options are granted. Stock options generally vest ratably over periods of three to five years and have a maximum term of seven years from the date of grant. Restricted shares entitle the holders to receive, at no cost, shares of the Company’s common stock. Restricted shares generally vest over periods of one to five years from the date of grant.
Beginning in 2011, the Company has awarded annual grants under the Long-Term Incentive Program (“LTIP”), which is administered under the Plans. The LTIP is designed in part to align the interests of management with the interests of shareholders, foster retention, create a long-term focus based on sustainable results and provide participants with a target long-term incentive opportunity. LTIP grants in 2021 consisted of a combination of performance-based stock awards with a performance condition metric, performance-based stock awards with a market condition metric and time vested restricted shares, and in 2020 consisted of a combination of performance-based stock awards and performance-based cash awards (both with a performance condition metric) and time vested restricted shares. LTIP grants from 2017 through 2019 consisted of a combination of performance-based stock awards and performance-based cash awards, and prior to 2017, nonqualified stock options were in the mix of award types. Stock options granted under the LTIP have a term of seven years and generally vested equally over three years based on continued service. Performance-based stock and cash awards granted under the LTIP are contingent upon the achievement of pre-established long-term performance goals set in advance by the Compensation Committee over a three-year period starting at the beginning of each calendar year. Performance-based stock awards with a market condition metric are contingent on the total shareholder return performance over a three-year period starting at the beginning of each calendar year relative to the KBW Regional Bank Index. These performance awards are granted at a target level, and based on the Company’s achievement of the pre-established long-term goals, the actual payouts can range from 0% to a maximum of 150% of the target award. The awards typically vest in the quarter after the end of the performance period upon certification of the payout by the Compensation Committee of the Board of Directors. Holders of performance-based stock awards are entitled to receive, at no cost, the shares earned based on the achievement of the pre-established long-term goals.
Holders of restricted share awards and performance-based stock awards received under the Plans are not entitled to vote or receive cash dividends (or cash payments equal to the cash dividends) on the underlying common shares until the awards are vested and shares are issued. Shares that are vested but not issuable pursuant to deferred compensation arrangements accrue additional shares based on the value of dividends otherwise paid. Except in limited circumstances, these awards are canceled upon termination of employment without any payment of consideration by the Company.
Stock-based compensation is measured as the fair value of an award on the date of grant, and the measured cost is recognized over the period which the recipient is required to provide service in exchange for the award. The fair value of restricted share and performance-based stock awards with a performance condition metric is determined based on the average of the high and low trading prices on the grant date. The fair value of performance stock awards with a market condition metric is estimated using a Monte Carlo simulation model and the fair value of stock options is estimated using a Black-Scholes option-pricing model. The Monte Carlo simulation model and the Black-Scholes option-pricing model require the input of highly subjective assumptions and are sensitive to changes in the award's expected life and the price volatility of the underlying stock, which can materially affect the fair value estimates. Management periodically reviews and adjusts the assumptions used to calculate the fair value of such awards when granted. No options have been granted since 2016.
Stock based compensation is recognized based upon the number of awards that are ultimately expected to vest, taking into account expected forfeitures. In addition, for performance-based awards with a performance metric, an estimate is made of the number of shares expected to vest as a result of actual performance against the performance criteria in the award to determine the amount of compensation expense to recognize. The estimate is re-evaluated quarterly and total compensation expense is adjusted for any change in estimate in the current period. Stock-based compensation expense recognized in the Consolidated Statements of Income was $2.9 million in the first quarter of 2021 and $(2.8) million in the first quarter of 2020.
A summary of the Company's stock option activity for the three months ended March 31, 2021 and March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Common
Shares
|
|
Weighted
Average
Strike Price
|
|
Remaining
Contractual
Term (1)
|
|
Intrinsic
Value (2)
(in thousands)
|
|
Outstanding at January 1, 2021
|
520,663
|
|
|
$
|
42.47
|
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
(208,579)
|
|
|
42.96
|
|
|
|
|
|
|
Forfeited or canceled
|
(590)
|
|
|
46.86
|
|
|
|
|
|
|
Outstanding at March 31, 2021
|
311,494
|
|
|
$
|
42.14
|
|
|
1.8
|
|
$
|
10,485
|
|
|
Exercisable at March 31, 2021
|
309,945
|
|
|
$
|
42.11
|
|
|
1.8
|
|
$
|
10,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Common
Shares
|
|
Weighted
Average
Strike Price
|
|
Remaining
Contractual
Term (1)
|
|
Intrinsic
Value (2)
(in thousands)
|
|
Outstanding at January 1, 2020
|
755,332
|
|
|
$
|
42.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
(94,653)
|
|
|
38.69
|
|
|
|
|
|
|
Forfeited or canceled
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding at March 31, 2020
|
660,679
|
|
|
$
|
42.97
|
|
|
2.5
|
|
$
|
—
|
|
|
Exercisable at March 31, 2020
|
650,456
|
|
|
$
|
42.95
|
|
|
2.4
|
|
$
|
1
|
|
(1)Represents the remaining weighted average contractual life in years.
(2)Aggregate intrinsic value represents the total pre-tax intrinsic value (i.e., the difference between the Company's stock price on the last trading day of the quarter and the option exercise price, multiplied by the number of shares) that would have been received by the option holders if they had exercised their options on the last day of the quarter. Options with exercise prices above the stock price on the last trading day of the quarter are excluded from the calculation of intrinsic value. The intrinsic value will change based on the fair market value of the Company's stock.
The aggregate intrinsic value of options exercised during the three months ended March 31, 2021 and March 31, 2020, was $6.6 million and $2.7 million, respectively. Cash received from option exercises under the Plans for the three months ended March 31, 2021 and March 31, 2020 was $9.0 million and $3.7 million, respectively.
A summary of the Plans' restricted share activity for the three months ended March 31, 2021 and March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
Three months ended March 31, 2020
|
|
Restricted Shares
|
Common
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Common
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Outstanding at January 1
|
234,794
|
|
|
$
|
59.02
|
|
|
144,328
|
|
|
$
|
60.37
|
|
|
Granted
|
257,189
|
|
|
62.79
|
|
|
99,963
|
|
|
64.10
|
|
|
Vested and issued
|
(7,104)
|
|
|
78.13
|
|
|
(9,633)
|
|
|
75.69
|
|
|
Forfeited or canceled
|
(849)
|
|
|
63.44
|
|
|
(3,538)
|
|
|
81.89
|
|
|
Outstanding at March 31
|
484,030
|
|
|
$
|
60.73
|
|
|
231,120
|
|
|
$
|
61.02
|
|
|
Vested, but not issuable at March 31
|
94,348
|
|
|
$
|
52.21
|
|
|
92,244
|
|
|
$
|
52.23
|
|
A summary of the Plans' performance-based stock award activity, based on the target level of the awards, for the three months ended March 31, 2021 and March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
Three months ended March 31, 2020
|
|
Performance-based Stock
|
Common
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Common
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Outstanding at January 1
|
482,608
|
|
|
$
|
71.15
|
|
|
465,515
|
|
|
$
|
74.37
|
|
|
Granted
|
206,465
|
|
|
58.85
|
|
|
166,547
|
|
|
64.10
|
|
|
Added by performance factor at vesting
|
—
|
|
|
—
|
|
|
48,831
|
|
|
72.59
|
|
|
Vested and issued
|
—
|
|
|
—
|
|
|
(180,596)
|
|
|
72.59
|
|
|
Expired, canceled or forfeited
|
(125,622)
|
|
|
87.88
|
|
|
(6,071)
|
|
|
73.66
|
|
|
Outstanding at March 31
|
563,451
|
|
|
$
|
62.91
|
|
|
494,226
|
|
|
$
|
71.39
|
|
|
Vested, but deferred at March 31
|
34,748
|
|
|
$
|
43.28
|
|
|
34,166
|
|
|
$
|
43.27
|
|
(17) Shareholders’ Equity and Earnings Per Share
Series D Preferred Stock
In June 2015, the Company issued and sold 5,000,000 shares of fixed-to-floating non-cumulative perpetual preferred stock, Series D, liquidation preference $25 per share (the “Series D Preferred Stock”) for $125.0 million in a public offering. When, as and if declared, dividends on the Series D Preferred Stock are payable quarterly in arrears at a fixed rate of 6.50% per annum from the original issuance date to, but excluding, July 15, 2025, and from (and including) that date at a floating rate equal to three-month LIBOR plus a spread of 4.06% per annum.
Series E Preferred Stock
In May 2020, the Company issued 11,500 shares of fixed-rate reset non-cumulative perpetual preferred stock, Series E, liquidation preference $25,000 per share (the “Series E Preferred Stock”) as part of a $287.5 million public offering of 11,500,000 depositary shares, each representing a 1/1,000th interest in a share of Series E Preferred Stock. When, as and if declared, dividends on the Series E Preferred Stock are payable quarterly in arrears at a fixed rate of 6.875% per annum starting on October 15, 2020.
Other
At the January 2021 Board of Directors meeting, a quarterly cash dividend of $0.31 per share ($1.24 on an annualized basis) was declared. It was paid on February 25, 2021 to shareholders of record as of February 11, 2021.
Accumulated Other Comprehensive Income (Loss)
The following tables summarize the components of other comprehensive income (loss), including the related income tax effects, and the related amount reclassified to net income for the periods presented (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Unrealized
Gains (Losses)
on Securities
|
|
Accumulated
Unrealized (Losses) Gains on
Derivative
Instruments
|
|
Accumulated
Foreign
Currency
Translation
Adjustments
|
|
Total
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at January 1, 2021
|
$
|
70,737
|
|
|
$
|
(23,090)
|
|
|
$
|
(32,265)
|
|
|
$
|
15,382
|
|
|
Other comprehensive (loss) income during the period, net of tax, before reclassifications
|
(44,519)
|
|
|
32,345
|
|
|
2,180
|
|
|
(9,994)
|
|
|
Amount reclassified from accumulated other comprehensive income (loss) into net income, net of tax
|
(154)
|
|
|
4,912
|
|
|
—
|
|
|
4,758
|
|
|
Amount reclassified from accumulated other comprehensive income (loss) related to amortization of unrealized gains on investment securities transferred to held-to-maturity from available-for-sale, net of tax
|
(42)
|
|
|
—
|
|
|
—
|
|
|
(42)
|
|
|
Net other comprehensive (loss) income during the period, net of tax
|
$
|
(44,715)
|
|
|
$
|
37,257
|
|
|
$
|
2,180
|
|
|
$
|
(5,278)
|
|
|
Balance at March 31, 2021
|
$
|
26,022
|
|
|
$
|
14,167
|
|
|
$
|
(30,085)
|
|
|
$
|
10,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020
|
$
|
14,982
|
|
|
$
|
(13,141)
|
|
|
$
|
(36,519)
|
|
|
$
|
(34,678)
|
|
|
Other comprehensive income (loss) during the period, net of tax, before reclassifications
|
67,007
|
|
|
(29,170)
|
|
|
(11,145)
|
|
|
26,692
|
|
|
Amount reclassified from accumulated other comprehensive income (loss) into net income, net of tax
|
(359)
|
|
|
799
|
|
|
—
|
|
|
440
|
|
|
Amount reclassified from accumulated other comprehensive income (loss) related to amortization of unrealized gains on investment securities transferred to held-to-maturity from available-for-sale, net of tax
|
(57)
|
|
|
—
|
|
|
—
|
|
|
(57)
|
|
|
Net other comprehensive income (loss) during the period, net of tax
|
$
|
66,591
|
|
|
$
|
(28,371)
|
|
|
$
|
(11,145)
|
|
|
$
|
27,075
|
|
|
Balance at March 31, 2020
|
$
|
81,573
|
|
|
$
|
(41,512)
|
|
|
$
|
(47,664)
|
|
|
$
|
(7,603)
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss) for the
|
|
|
|
Details Regarding the Component of Accumulated Other Comprehensive Income (Loss)
|
|
Three Months Ended
|
|
|
|
Impacted Line on the
Consolidated Statements of Income
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
Accumulated unrealized gains on securities
|
|
|
|
|
|
|
|
|
|
|
|
Gains included in net income
|
|
$
|
210
|
|
|
$
|
491
|
|
|
|
|
|
|
Gains (losses) on investment securities, net
|
|
|
|
210
|
|
|
491
|
|
|
|
|
|
|
Income before taxes
|
|
Tax effect
|
|
(56)
|
|
|
(132)
|
|
|
|
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
154
|
|
|
$
|
359
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated unrealized gains on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified to interest expense on deposits
|
|
$
|
4,897
|
|
|
$
|
559
|
|
|
|
|
|
|
Interest on deposits
|
|
Amount reclassified to interest expense on other borrowings
|
|
669
|
|
|
292
|
|
|
|
|
|
|
Interest on other borrowings
|
|
Amount reclassified to interest expense on junior subordinated debentures
|
|
1,130
|
|
|
239
|
|
|
|
|
|
|
Interest on junior subordinated debentures
|
|
|
|
(6,696)
|
|
|
(1,090)
|
|
|
|
|
|
|
Income before taxes
|
|
Tax effect
|
|
1,784
|
|
|
291
|
|
|
|
|
|
|
Income tax expense
|
|
Net of tax
|
|
$
|
(4,912)
|
|
|
$
|
(799)
|
|
|
|
|
|
|
Net income
|
Earnings per Share
The following table shows the computation of basic and diluted earnings per share for the periods indicated:
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|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
(In thousands, except per share data)
|
|
|
March 31,
2021
|
|
March 31,
2020
|
|
|
|
|
|
Net income
|
|
|
$
|
153,148
|
|
|
$
|
62,812
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
6,991
|
|
|
2,050
|
|
|
|
|
|
|
Net income applicable to common shares
|
(A)
|
|
$
|
146,157
|
|
|
$
|
60,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
(B)
|
|
56,904
|
|
|
57,620
|
|
|
|
|
|
|
Effect of dilutive potential common shares
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents
|
|
|
681
|
|
|
575
|
|
|
|
|
|
|
Weighted average common shares and effect of dilutive potential common shares
|
(C)
|
|
57,585
|
|
|
58,195
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
(A/B)
|
|
$
|
2.57
|
|
|
$
|
1.05
|
|
|
|
|
|
|
Diluted
|
(A/C)
|
|
$
|
2.54
|
|
|
$
|
1.04
|
|
|
|
|
|
Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants and shares to be issued under the Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, being treated as if they had been either exercised or issued, computed by application of the treasury stock method. While potentially dilutive common shares are typically included in the computation of diluted earnings per share, potentially dilutive common shares are excluded from this computation in periods in which the effect would reduce the loss per share or increase the income per share.
(18) Subsequent Events
On April 23, 2021, the Company and Greenwoods Financial Group, Inc., the parent company of The Greenwood’s State Bank (“Greenwoods”), announced the closing of the previously announced branch purchase and assumption transaction for three southwestern Wisconsin branch locations of Town Bank, N.A., the Company’s wholly-owned subsidiary. The three branches subject to the transaction are located in Albany, Darlington and Monroe, Wisconsin. Through this transaction, Greenwoods assumed approximately $77.4 million of deposits and acquired the branch facilities and various other assets.
ITEM 2