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Wintrust Financial Corp.$62.66($1.21)(1.89%)

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 Wintrust Financial Corporation Reports Record Full-Year 2018 Net Income of $343.2 million, an Increase of 33% Over Prior Year and Fourth Quarter 2018 Net Income of $79.7 million, an Increase of 16% Over Prior Year
   Tuesday, January 22, 2019 5:31:00 PM ET

ROSEMONT, Ill., Jan. 22, 2019 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation (“Wintrust” or “the Company”) (Nasdaq: WTFC) announced record net income of $343.2 million or $5.86 per diluted common share for the year ended December 31, 2018 compared to net income of $257.7 million or $4.40 per diluted common share for the same period of 2017. The Company recorded net income of $79.7 million or $1.35 per diluted common share for the fourth quarter of 2018 compared to net income of $91.9 million or $1.57 per diluted common share for the third quarter of 2018 and $68.8 million or $1.17 per diluted common share for the fourth quarter of 2017.



Highlights of the Fourth Quarter of 2018 *:                

  • Total period-end loans increased by $697 million from the prior quarter. The increase included $119 million of loans acquired in relation to the previously-announced acquisition of certain assets and assumption of certain liabilities of American Enterprise Bank ("AEB") completed in early December.
  • Total deposits increased by $1.2 billion from the prior quarter. This increase included $151 million of deposits assumed in relation to AEB as well as additional incremental deposits generated subsequent to the previously-announced acquisition of Elektra Holding Company, LLC ("Elektra"), the parent company of Chicago Deferred Exchange Company, LLC ("CDEC"), offset by a reduction in brokered funds.
  • Period-end total loans outstanding ended the year $657 million higher than total average loans outstanding during the fourth quarter of 2018, providing positive momentum for net interest income in the first quarter of 2019.
  • Net interest margin increased by two basis points from the prior quarter which combined with $580 million of average earning asset growth created an increase in net interest income of $6.5 million from the prior quarter.
  • Market volatility and recent acquisitions resulted in the following items negatively impacting fourth quarter 2018 pre-tax earnings:
    • An $8.5 million negative fair value adjustment recognized on mortgage servicing rights related to changes in valuation assumptions and pay-offs contributed to mortgage banking revenue decreasing by $17.8 million compared to the third quarter of 2018.  Production revenue decreased due to lower origination volumes and lower revenue margins.
    • Recognized unrealized losses on equity securities of $2.6 million.
    • Recognized a $1.1 million foreign currency remeasurement loss, primarily related to weakness in Canadian currency.
    • Incurred $1.6 million of acquisition-related expenses.
  • Non-performing assets decreased by $17.5 million, now representing 0.44% of total assets. Non-performing loans decreased by $14.0 million while other real-estate owned decreased $3.5 million compared to the end of the third quarter of 2018.
  • Opened one new branch in the Brighton Park neighborhood of Chicago, Illinois, increasing our total branches to 167 locations.

* See "Supplemental Financial Measures/Ratios" on pages 10-11 for more information on non-GAAP measures.

Edward J. Wehmer, President and Chief Executive Officer, commented, "Wintrust reported record net income of $343.2 million for the year ended December 31, 2018, the eighth consecutive year of record net income.  Net income was $79.7 million for the fourth quarter of 2018, down from the third quarter of 2018 primarily due to market related adjustments resulting from quickly declining interest rates and lower equity markets late in the year.   These market related adjustments and acquisition-related expenses incurred in the fourth quarter negatively impacted our net overhead ratio by 18 basis points.   During the fourth quarter, total assets and deposits grew by over $1 billion while we leveraged acquisitions to enhance our deposit mix.  A substantial amount of the balance sheet growth occurred near the end of the quarter, which positions us well for the first quarter of 2019.  Additionally, we improved our net interest margin by two basis points and have seen deposit costs stabilizing.  The improvement in our funding mix should allow for further net interest margin expansion in the first quarter of 2019."

Mr. Wehmer continued, "We experienced strong loan growth in our commercial, commercial real-estate and premium finance receivables portfolios during the fourth quarter, increasing our total loans outstanding by $697 million.  Our loan pipelines remain consistently strong, and reflect opportunities to continue to grow loan balances during 2019.  Deposit growth outpaced loan growth during the fourth quarter, lowering our loan to deposit ratio to 91.3% at year-end.  Organic deposit growth in the fourth quarter occurred across all deposit categories, except time certificates of deposit.  The previously mentioned CDEC acquisition allowed the Company to bring $1.1 billion of low cost funding into our banks.  The new deposit source was utilized to optimize the balance sheet by reducing outstanding wholesale funding positions, including $696 million of wholesale wealth management deposits, $75 million of maturing brokered CDs and $200 million of short-term Federal Home Loan Bank advances.  We believe that we can continue to grow the CDEC deposit base which will further drive down the Company’s loan to deposit ratio to our desired operating range and enable us to expand our investment portfolio if opportunities and market conditions that meet our standards arise."

Commenting on credit quality, Mr. Wehmer noted, "During the fourth quarter of 2018, the Company continued its practice of addressing and resolving non-performing credits in a timely fashion.  Total non-performing assets declined $17.5 million during the fourth quarter, dropping to 0.44% of total assets.  Both non-performing loans and other real-estate owned declined during the quarter.  Additionally, near-term 60 to 89 day delinquent loans declined to $34.2 million or only 0.1% of total loans in the fourth quarter of 2018.  The allowance for loan losses as a percentage of non-performing loans ended the year at 135%.  Net charge-offs for the fourth quarter were 12 basis points of total average loan balances with full year net charge-offs at a historically low level of nine basis points of total average loan balances.  We believe that the Company’s reserves remain appropriate.  The Company begins 2019 with credit quality in a very strong position but will continue to be diligent in its review of credit."

Mr. Wehmer further commented, “Our mortgage banking and wealth management businesses were both impacted by volatile markets in the fourth quarter.  Mortgage banking revenue decreased $17.8 million.  The mortgage origination environment in the fourth quarter was challenging as normal seasonality was further pressured by declining demand leading to lower origination volumes and production margins.  Origination volumes decreased to $927.8 million, down from $1.2 billion in the third quarter.  Home purchase activity continues to make up the bulk of our originations accounting for 71% of origination volumes in the fourth quarter. For much of the fourth quarter, mortgage rates increased, however, during the closing weeks of 2018, a sudden shift downward in rates contributed to the negative fair value adjustment on our mortgage servicing rights portfolio of $8.5 million related to changes in valuation assumptions and pay-offs.  We continue to focus on efficiencies in our delivery channels and our operating costs in our mortgage banking area.  Our wealth management businesses experienced headwinds in the fourth quarter due to declining equity prices.  Despite these headwinds, wealth management revenue was essentially flat to the third quarter of 2018."

Turning to the future, Mr. Wehmer stated, “As 2019 begins, we expect our growth engines to continue their momentum.  We expect continued organic growth in all areas of our businesses.  Total period-end loans outstanding exceeded fourth quarter total average loans by $657 million, providing momentum for net interest income into the first quarter of 2019.  Net interest margin is expected to improve in first quarter of 2019 fueled by the CDEC acquisition and stabilizing retail deposit costs.  We will continue to take a steady and measured approach to achieving our main objectives of growing franchise value, increasing profitability, leveraging our expense infrastructure and continuing to increase shareholder value.  Evaluating strategic acquisitions and organic branch growth will also be a part of our overall growth strategy with the continued goal of becoming Chicago’s bank and Wisconsin’s bank.  We believe our opportunities for both internal growth and external growth remain consistently strong."

The graphs below illustrate certain highlights of the fourth quarter of 2018 and the year ended December 31, 2018.

http://resource.globenewswire.com/Resource/Download/34219f8f-0c04-4502-9e45-6f5f0582ff85

Wintrust’s key operating measures and growth rates for the fourth quarter of 2018, as compared to the sequential and linked quarters, are shown in the table below:

        % or(4)
basis point  (bp)
change from

3rd Quarter
2018
 % or
basis point  (bp)
change from
4th Quarter
2017
  Three Months Ended  
(Dollars in thousands) December 31,
 2018
 September 30,
 2018
 December 31,
 2017
  
Net income $79,657  $91,948  $68,781  (13)% 16 %
Net income per common share – diluted $1.35  $1.57  $1.17  (14)% 15 %
Net revenue (1) $329,396  $347,493  $300,137  (5)% 10 %
Net interest income 254,088  247,563  219,099  3 % 16 %
Net interest margin 3.61% 3.59% 3.45% 2 bp 16 bp
Net interest margin - fully taxable equivalent (non-GAAP) (2) 3.63% 3.61% 3.49% 2 bp 14 bp
Net overhead ratio (3) 1.79% 1.53% 1.69% 26 bp 10 bp
Return on average assets 1.05% 1.24% 1.00% (19)bp 5 bp
Return on average common equity 10.01% 11.86% 9.39% (185)bp 62 bp
Return on average tangible common equity (non-GAAP) (2) 12.48% 14.64% 11.65% (216)bp 83 bp
At end of period            
Total assets $31,241,521  $30,142,731  $27,915,970  14 % 12 %
Total loans (5) 23,820,691  23,123,951  21,640,797  12 % 10 %
Total deposits 26,094,678  24,916,715  23,183,347  19 % 13 %
Total shareholders’ equity 3,267,570  3,179,822  2,976,939  11 % 10 %

(1) Net revenue is net interest income plus non-interest income. 
(2) See "Supplemental Financial Measures/Ratios" for additional information on this performance measure/ratio. 
(3) The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period's average total assets. A lower ratio indicates a higher degree of efficiency. 
(4) Period-end balance sheet percentage changes are annualized. 
(5) Excludes mortgage loans held-for-sale.

Certain returns, yields, performance ratios, or quarterly growth rates are “annualized” in this presentation to represent an annual time period. This is done for analytical purposes to better discern for decision-making purposes underlying performance trends when compared to full-year or year-over-year amounts. For example, a 5% growth rate for a quarter would represent an annualized 20% growth rate. Additional supplemental financial information showing quarterly trends can be found on the Company’s website at www.wintrust.com  by choosing “Financial Reports” under the “Investor Relations” heading, and then choosing “Financial Highlights.”

 

WINTRUST FINANCIAL CORPORATION
Selected Financial Highlights

  Three Months Ended Years Ended
(Dollars in thousands, except per share data) December 31,
 2018
 September 30,
 2018
 December 31,
 2017
 December 31,
 2018
 December 31,
 2017
Selected Financial Condition Data (at end of period):          
Total assets $31,241,521  $30,142,731  $27,915,970     
Total loans (7) 23,820,691  23,123,951  21,640,797     
Total deposits 26,094,678  24,916,715  23,183,347     
Junior subordinated debentures 253,566  253,566  253,566     
Total shareholders’ equity 3,267,570  3,179,822  2,976,939     
Selected Statements of Income Data:          
Net interest income $254,088  $247,563  $219,099  $964,903  $832,076 
Net revenue (1) 329,396  347,493  300,137  1,321,053  1,151,582 
Net income 79,657  91,948  68,781  343,166  257,682 
Net income per common share – Basic $1.38  $1.59  $1.19  $5.95  $4.53 
Net income per common share – Diluted $1.35  $1.57  $1.17  $5.86  $4.40 
Selected Financial Ratios and Other Data:          
Performance Ratios:          
Net interest margin 3.61% 3.59% 3.45% 3.59% 3.41%
Net interest margin - fully taxable equivalent (non-GAAP) (2) 3.63% 3.61% 3.49% 3.61% 3.44%
Non-interest income to average assets 0.99% 1.34% 1.18% 1.23% 1.21%
Non-interest expense to average assets 2.78% 2.87% 2.87% 2.85% 2.78%
Net overhead ratio (3) 1.79% 1.53% 1.69% 1.62% 1.56%
Return on average assets 1.05% 1.24% 1.00% 1.18% 0.98%
Return on average common equity 10.01% 11.86% 9.39% 11.26% 9.26%
Return on average tangible common equity (non-GAAP) (2) 12.48% 14.64% 11.65% 13.95% 11.63%
Average total assets $30,179,887  $29,525,109  $27,179,484  $29,028,420  $26,369,702 
Average total shareholders’ equity 3,200,654  3,131,943  2,942,999  3,098,740  2,842,081 
Average loans to average deposits ratio (excluding covered loans) 92.4% 92.2% 92.3% 93.7% 92.7%
Period-end loans to deposits ratio (excluding covered loans) 91.3% 92.8% 93.3%    
Common Share Data at end of period:          
Market price per common share $66.49  $84.94  $82.37     
Book value per common share (2) $55.71  $54.19  $50.96     
Tangible common book value per share (2) $44.73  $44.16  $41.68     
Common shares outstanding 56,407,558  56,377,169  55,965,207     
Other Data at end of period:(6)          
Leverage Ratio (4) 9.1% 9.3% 9.3%    
Tier 1 capital to risk-weighted assets (4) 9.6% 10.0% 9.9%    
Common equity Tier 1 capital to risk-weighted assets (4) 9.2% 9.5% 9.4%    
Total capital to risk-weighted assets (4) 11.6% 12.0% 12.0%    
Allowance for credit losses (5) $154,164  $151,001  $139,174     
Non-performing loans 113,234  127,227  90,162     
Allowance for credit losses to total loans (5) 0.65% 0.65% 0.64%    
Non-performing loans to total loans 0.48% 0.55% 0.42%    
Number of:          
Bank subsidiaries 15  15  15     
Banking offices 167  166  157     

(1) Net revenue includes net interest income and non-interest income. 
(2) See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio. 
(3) The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency. 
(4) Capital ratios for current quarter-end are estimated. 
(5) The allowance for credit losses includes both the allowance for loan losses and the allowance for unfunded lending-related commitments, but excludes the allowance for covered loan losses. 
(6) Asset quality ratios exclude covered loans. 
(7) Excludes mortgage loans held-for-sale.

 

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

  (Unaudited) (Unaudited)  
(In thousands) December 31,
 2018
 September 30,
 2018
 December 31,
 2017
Assets      
Cash and due from banks $392,142  $279,936  $277,534 
Federal funds sold and securities purchased under resale agreements 58  57  57 
Interest bearing deposits with banks 1,099,594  1,137,044  1,063,242 
Available-for-sale securities, at fair value 2,126,081  2,164,985  1,803,666 
Held-to-maturity securities, at amortized cost 1,067,439  966,438  826,449 
Trading account securities 1,692  688  995 
Equity securities with readily determinable fair value 34,717  36,414   
Federal Home Loan Bank and Federal Reserve Bank stock 91,354  99,998  89,989 
Brokerage customer receivables 12,609  15,649  26,431 
Mortgage loans held-for-sale 264,070  338,111  313,592 
Loans, net of unearned income 23,820,691  23,123,951  21,640,797 
Allowance for loan losses (152,770) (149,756) (137,905)
Net loans 23,667,921  22,974,195  21,502,892 
Premises and equipment, net 671,169  664,469  621,895 
Lease investments, net 233,208  199,241  212,335 
Accrued interest receivable and other assets 696,707  700,568  567,374 
Trade date securities receivable 263,523    90,014 
Goodwill and other intangible assets 619,237  564,938  519,505 
Total assets $31,241,521  $30,142,731  $27,915,970 
Liabilities and Shareholders’ Equity      
Deposits:      
Non-interest bearing $6,569,880  $6,399,213  $6,792,497 
Interest bearing 19,524,798  18,517,502  16,390,850 
 Total deposits 26,094,678  24,916,715  23,183,347 
Federal Home Loan Bank advances 426,326  615,000  559,663 
Other borrowings 393,855  373,571  266,123 
Subordinated notes 139,210  139,172  139,088 
Junior subordinated debentures 253,566  253,566  253,566 
Accrued interest payable and other liabilities 666,316  664,885  537,244 
Total liabilities 27,973,951  26,962,909  24,939,031 
Shareholders’ Equity:      
Preferred stock 125,000  125,000  125,000 
Common stock 56,518  56,486  56,068 
Surplus 1,557,984  1,553,353  1,529,035 
Treasury stock (5,634) (5,547) (4,986)
Retained earnings 1,610,574  1,543,680  1,313,657 
Accumulated other comprehensive loss (76,872) (93,150) (41,835)
Total shareholders’ equity 3,267,570  3,179,822  2,976,939 
Total liabilities and shareholders’ equity $31,241,521  $30,142,731  $27,915,970 

 

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

 
 Three Months Ended Years Ended
(In thousands, except per share data)December 31,
 2018
 September 30,
 2018
 December 31,
 2017
 December 31,
 2018
 December 31,
 2017
Interest income         
Interest and fees on loans$283,311  $271,134  $226,447  $1,044,502  $856,549 
Mortgage loans held-for-sale3,409  5,285  3,291  15,738  12,332 
Interest bearing deposits with banks5,628  5,423  2,723  17,090  9,252 
Federal funds sold and securities purchased under resale agreements      1  2 
Investment securities26,656  21,710  18,160  87,382  63,315 
Trading account securities14  11  2  43  25 
Federal Home Loan Bank and Federal Reserve Bank stock1,343  1,235  1,067  5,331  4,370 
Brokerage customer receivables235  164  150  723  623 
Total interest income320,596  304,962  251,840  1,170,810  946,468 
Interest expense         
Interest on deposits55,975  48,736  24,930  166,553  83,326 
Interest on Federal Home Loan Bank advances2,563  1,947  2,124  12,412  8,798 
Interest on other borrowings3,199  2,003  1,600  8,599  5,370 
Interest on subordinated notes1,788  1,773  1,786  7,121  7,116 
Interest on junior subordinated debentures2,983  2,940  2,301  11,222  9,782 
Total interest expense66,508  57,399  32,741  205,907  114,392 
Net interest income254,088  247,563  219,099  964,903  832,076 
Provision for credit losses10,401  11,042  7,772  34,832  29,768 
Net interest income after provision for credit losses243,687  236,521  211,327  930,071  802,308 
Non-interest income         
Wealth management22,726  22,634  21,910  90,963  81,766 
Mortgage banking24,182  42,014  27,411  136,990  113,472 
Service charges on deposit accounts9,065  9,331  8,907  36,404  34,513 
(Losses) gains on investment securities, net(2,649) 90  14  (2,898) 45 
Fees from covered call options626  627  1,610  3,519  4,402 
Trading (losses) gains, net(155) (61) 24  11  (845)
Operating lease income, net10,882  9,132  8,598  38,451  29,646 
Other10,631  16,163  12,564  52,710  56,507 
Total non-interest income75,308  99,930  81,038  356,150  319,506 
Non-interest expense         
Salaries and employee benefits122,111  123,855  118,009  480,077  430,078 
Equipment11,523  10,827  9,500  42,949  38,358 
Operating lease equipment depreciation8,462  7,370  7,015  29,305  24,107 
Occupancy, net15,980  14,404  14,154  57,814  52,920 
Data processing8,447  9,335  7,915  35,027  31,495 
Advertising and marketing9,414  11,120  7,382  41,140  30,830 
Professional fees9,259  9,914  8,879  32,306  27,835 
Amortization of other intangible assets1,407  1,163  1,028  4,571  4,401 
FDIC insurance4,044  4,205  4,324  17,209  16,231 
OREO expense, net1,618  596  599  6,120  3,593 
Other19,068  20,848  17,775  79,570  71,969 
Total non-interest expense211,333  213,637  196,580  826,088  731,817 
Income before taxes107,662  122,814  95,785  460,133  389,997 
Income tax expense28,005  30,866  27,004  116,967  132,315 
Net income$79,657  $91,948  $68,781  $343,166  $257,682 
Preferred stock dividends2,050  2,050  2,050  8,200  9,778 
Net income applicable to common shares$77,607  $89,898  $66,731  $334,966  $247,904 
Net income per common share - Basic$1.38  $1.59  $1.19  $5.95  $4.53 
Net income per common share - Diluted$1.35  $1.57  $1.17  $5.86  $4.40 
Cash dividends declared per common share$0.19  $0.19  $0.14  $0.76  $0.56 
Weighted average common shares outstanding56,395  56,366  55,924  56,300  54,703 
Dilutive potential common shares892  918  1,010  908  1,983 
Average common shares and dilutive common shares57,287  57,284  56,934  57,208  56,686 

 

EARNINGS PER SHARE

The following table shows the computation of basic and diluted earnings per share for the periods indicated:

   Three Months Ended Years Ended
(In thousands, except per share data)  December 31,
 2018
 September 30,
 2018
 December 31,
 2017
 December 31,
 2018
 December 31,
 2017
Net income  $79,657  $91,948  $68,781  $343,166  $257,682 
Less: Preferred stock dividends  2,050  2,050  2,050  8,200  9,778 
Net income applicable to common shares—Basic(A) 77,607  89,898  66,731  334,966  247,904 
Add: Dividends on convertible preferred stock, if dilutive          1,578 
Net income applicable to common shares—Diluted(B) 77,607  89,898  66,731  334,966  249,482 
Weighted average common shares outstanding(C) 56,395  56,366  55,924  56,300  54,703 
Effect of dilutive potential common shares:           
Common stock equivalents  892  918  1,010  908  998 
Convertible preferred stock, if dilutive          985 
Weighted average common shares and effect of dilutive potential common shares(D) 57,287  57,284  56,934  57,208  56,686 
Net income per common share:           
Basic(A/C) $1.38  $1.59  $1.19  $5.95  $4.53 
Diluted(B/D) $1.35  $1.57  $1.17  $5.86  $4.40 

Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants, the Company’s convertible preferred stock 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. For diluted earnings per share, net income applicable to common shares can be affected by the conversion of the Company’s convertible preferred stock. Where the effect of this conversion would reduce the loss per share or increase the income per share for a period, net income applicable to common shares is not adjusted by the associated preferred dividends. On April 25, 2017, 2,073 shares of the Series C Preferred Stock were converted at the option of the respective holder into 51,244 shares of the Company's common stock, pursuant to the terms of the Series C Preferred Stock. On April 27, 2017, the Company caused a mandatory conversion of its outstanding 124,184 shares of Series C Preferred Stock into 3,069,828 shares of the Company's common stock at a conversion rate of 24.72 shares of common stock per share of Series C Preferred Stock. Cash was paid in lieu of fractional shares for an amount considered insignificant.

SUPPLEMENTAL FINANCIAL MEASURES/RATIOS

The accounting and reporting policies of Wintrust conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. These include taxable-equivalent net interest income (including its individual components), taxable-equivalent net interest margin (including its individual components), the taxable-equivalent efficiency ratio, tangible common equity ratio, tangible common book value per share and return on average tangible common equity. Management believes that these measures and ratios provide users of the Company’s financial information a more meaningful view of the performance of the Company's interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.

Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses), measures how much it costs to produce one dollar of revenue. Securities gains or losses are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity ratio and tangible book value per common share as useful measurements of the Company’s equity.  The Company references the return on average tangible common equity as a measurement of profitability.

The following table presents a reconciliation of certain non-GAAP performance measures and ratios used by the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP financial measures for the last five quarters.

 Three Months Ended Years Ended
 December 31, September 30, June 30, March 31, December 31, December 31, December 31,
(Dollars and shares in thousands)2018 2018 2018 2018 2017 2018 2017
Calculation of Net Interest Margin and Efficiency Ratio             
(A) Interest Income (GAAP)$320,596  $304,962  $284,047  $261,205  $251,840  $1,170,810  $946,468 
Taxable-equivalent adjustment:             
 - Loans980  941  812  670  1,106  3,403  3,760 
 - Liquidity Management Assets586  575  566  531  1,019  2,258  3,713 
 - Other Earning Assets4  3  1  3  2  11  14 
(B) Interest Income - FTE$322,166  $306,481  $285,426  $262,409  $253,967  $1,176,482  $953,955 
(C) Interest Expense (GAAP)66,508  57,399  45,877  36,123  32,741  205,907  114,392 
(D) Net Interest Income - FTE (B minus C)$255,658  $249,082  $239,549  $226,286  $221,226  $970,575  $839,563 
(E) Net Interest Income (GAAP) (A minus C)$254,088  $247,563  $238,170  $225,082  $219,099  $964,903  $832,076 
Net interest margin (GAAP-derived)3.61% 3.59% 3.61% 3.54% 3.45% 3.59% 3.41%
Net interest margin - FTE3.63% 3.61% 3.63% 3.56% 3.49% 3.61% 3.44%
(F) Non-interest income$75,308  $99,930  $95,233  $85,679  $81,038  $356,150  $319,506 
(G) (Losses) gains on investment securities, net(2,649) 90  12  (351) 14  (2,898) 45 
(H) Non-interest expense211,333  213,637  206,769  194,349  196,580  826,088  731,817 
Efficiency ratio (H/(E+F-G))63.65% 61.50% 62.02% 62.47% 65.50% 62.40% 63.55%
Efficiency ratio - FTE (H/(D+F-G))63.35% 61.23% 61.76% 62.23% 65.04% 62.13% 63.14%
Calculation of Tangible Common Equity ratio (at period end)             
Total shareholders’ equity$3,267,570  $3,179,822  $3,106,871  $3,031,250  $2,976,939     
Less: Non-convertible preferred stock(125,000) (125,000) (125,000) (125,000) (125,000)    
Less: Intangible assets(619,237) (564,938) (531,371) (533,910) (519,505)    
(I) Total tangible common shareholders’ equity$2,523,333  $2,489,884  $2,450,500  $2,372,340  $2,332,434     
Total assets$31,241,521  $30,142,731  $29,464,588  $28,456,772  $27,915,970     
Less: Intangible assets(619,237) (564,938) (531,371) (533,910) (519,505)    
(J) Total tangible assets$30,622,284  $29,577,793  $28,933,217  $27,922,862  $27,396,465     
Tangible common equity ratio (I/J)8.2% 8.4% 8.5% 8.5% 8.5%    
Calculation of book value per share             
Total shareholders’ equity$3,267,570  $3,179,822  $3,106,871  $3,031,250  $2,976,939     
Less: Preferred stock(125,000) (125,000) (125,000) (125,000) (125,000)    
(K) Total common equity$3,142,570  $3,054,822  $2,981,871  $2,906,250  $2,851,939     
(L) Actual common shares outstanding56,408  56,377  56,329  56,256  55,965     
Book value per common share (K/L)$55.71  $54.19  $52.94  $51.66  $50.96     
Tangible common book value per share (I/L)$44.73  $44.16  $43.50  $42.17  $41.68     

 

Calculation of return on average common equity             
(M) Net income applicable to common shares$77,607  $89,898  $87,530  $79,931  $66,731  $334,966  $247,904 
Add: After-tax intangible asset amortization1,041  871  734  761  738  3,407  2,907 
(N) Tangible net income applicable to common shares$78,648  $90,769  $88,264  $80,692  $67,469  $338,373  $250,811 
Total average shareholders' equity$3,200,654  $3,131,943  $3,064,154  $2,995,592  $2,942,999  $3,098,740  $2,842,081 
Less: Average preferred stock(125,000) (125,000) (125,000) (125,000) (125,000) (125,000) (165,114)
(O) Total average common shareholders' equity$3,075,654  $3,006,943  $2,939,154  $2,870,592  $2,817,999  $2,973,740  $2,676,967 
Less: Average intangible assets(574,757) (547,552) (533,496) (536,676) (519,626) (548,223) (519,910)
(P) Total average tangible common shareholders’ equity$2,500,897  $2,459,391  $2,405,658  $2,333,916  $2,298,373  $2,425,517  $2,157,057 
Return on average common equity, annualized  (M/O)10.01% 11.86% 11.94% 11.29% 9.39% 11.26% 9.26%
Return on average tangible common equity, annualized (N/P)12.48% 14.64% 14.72% 14.02% 11.65% 13.95% 11.63%

 

BUSINESS UNIT SUMMARY

Community Banking

Through its community banking unit, the Company provides banking and financial services primarily to individuals, small to mid-sized businesses, local governmental units and institutional clients residing primarily in the local areas the Company services. In the fourth quarter of 2018, revenue within this unit was primarily driven by increased net interest income due to increased earning assets and a higher net interest margin. The net interest margin increased in the fourth quarter of 2018 compared to the third quarter of 2018 primarily as a result of higher yields within the loan portfolio. Mortgage banking revenue decreased by $17.8 million from $42.0 million for the third quarter of 2018 to $24.2 million for the fourth quarter of 2018. The lower revenue was primarily due to to lower origination volumes, lower revenue margins and a $8.5 million negative fair value adjustment recognized on mortgage servicing rights related to changes in valuation assumptions and pay-offs. Originations during the current period decreased to $927.8 million from $1.2 billion in the third quarter of 2018. Home purchases represented 71% of loan origination volume for the fourth quarter of 2018. The Company's gross commercial and commercial real estate loan pipelines remain strong. Before the impact of scheduled payments and prepayments, at December 31, 2018, gross commercial and commercial real estate loan pipelines totaled $1.1 billion, or $671.1 million when adjusted for the probability of closing, compared to $1.1 billion, or $693.5 million when adjusted for the probability of closing, at September 30, 2018.

Specialty Finance

Through its specialty finance unit, the Company offers financing of insurance premiums for businesses and individuals, equipment financing through structured loans and lease products to customers in a variety of industries and accounts receivable financing, value-added, out-sourced administrative services, and other services. In the fourth quarter of 2018, the specialty finance unit experienced higher revenue as a result of increased volumes and higher yields within its insurance premium financing receivables portfolio. Originations of $2.1 billion during the fourth quarter of 2018 resulted in a $25.1 million increase in average balances. The increase in average balances along with higher yields on these loans resulted in a $2.8 million increase in interest income attributed to this portfolio. The Company's leasing business showed steady growth during the fourth quarter of 2018, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing $132.7 million to $1.2 billion at the end of the fourth quarter of 2018. Revenues from the Company's out-sourced administrative services business remained steady, totaling approximately $1.3 million in the fourth quarter of 2018 and $1.1 million in the third quarter of 2018.

Wealth Management

Through four separate subsidiaries within its wealth management unit, the Company offers a full range of wealth management services, including trust and investment services, tax-deferred like-kind exchange services, asset management, securities brokerage services and 401(k) and retirement plan services. Wealth management revenue remained flat in the fourth quarter of 2018 compared to the third quarter of 2018, totaling $22.7 million in the current period. At December 31, 2018, the Company’s wealth management subsidiaries had approximately $24.2 billion of assets under administration, which includes $3.6 billion of assets owned by the Company and its subsidiary banks, representing a $1.8 billion decrease from the $26.0 billion of assets under administration at September 30, 2018. The decrease in the fourth quarter of 2018 was primarily due to the impact of market conditions on the value of assets under administration. In December, the Company acquired CDEC, which provides Qualified Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031.

 

LOANS

Loan Portfolio Mix and Growth Rates

        % Growth
(Dollars in thousands) December 31,
 2018
 September 30,
 2018
 December 31,
 2017
 From (1)
September 30,
2018
 From
December 31,
2017
Balance:          
Commercial $7,828,538  $7,473,958  $6,787,677  19% 15%
Commercial real estate 6,933,252  6,746,774  6,580,618  11  5 
Home equity 552,343  578,844  663,045  (18) (17)
Residential real estate 1,002,464  924,250  832,120  34  20 
Premium finance receivables - commercial 2,841,659  2,885,327  2,634,565  (6) 8 
Premium finance receivables - life insurance 4,541,794  4,398,971  4,035,059  13  13 
Consumer and other 120,641  115,827  107,713  16  12 
Total loans, net of unearned income $23,820,691  $23,123,951  $21,640,797  12% 10%
Mix:          
Commercial 33% 32% 31%    
Commercial real estate 29  29  30     
Home equity 2  3  3     
Residential real estate 4  4  4     
Premium finance receivables - commercial 12  12  12     
Premium finance receivables - life insurance 19  19  19     
Consumer and other 1  1  1     
Total loans, net of unearned income 100% 100% 100%    

(1) Annualized

 

Commercial and Commercial Real Estate Loan Portfolios

  As of December 31, 2018
    % of
Total
Balance
 Nonaccrual > 90 Days
Past Due
and Still
Accruing
 Allowance
For Loan
Losses
Allocation
    
(Dollars in thousands) Balance 
Commercial:          
Commercial, industrial and other $5,120,096  34.6% $34,298  $  $46,586 
Franchise 948,979  6.4  16,051    8,919 
Mortgage warehouse lines of credit 144,199  1.0      1,162 
Asset-based lending 1,026,056  7.0  635    9,138 
Leases 565,680  3.8      1,502 
PCI - commercial loans (1) 23,528  0.2    3,313  519 
Total commercial $7,828,538  53.0% $50,984  $3,313  $67,826 
Commercial Real Estate:          
Construction $760,824  5.2% $1,554  $  $8,999 
Land 141,481  1.0  107    3,953 
Office 939,322  6.4  3,629    6,239 
Industrial 902,248  6.1  285    6,088 
Retail 892,478  6.0  10,753    9,338 
Multi-family 976,560  6.6  311    9,395 
Mixed use and other 2,205,195  14.9  2,490    16,210 
PCI - commercial real estate (1) 115,144  0.8    6,241  45 
Total commercial real estate $6,933,252  47.0% $19,129  $6,241  $60,267 
Total commercial and commercial real estate $14,761,790  100.0% $70,113  $9,554  $128,093 
           
Commercial real estate - collateral location by state:          
Illinois $5,336,454  77.0%      
Wisconsin 684,425  9.9       
Total primary markets $6,020,879  86.9%      
Indiana 169,817  2.4       
Florida 52,237  0.8       
Michigan 40,110  0.6       
Other (no individual state greater than 0.6%) 650,209  9.3       
Total $6,933,252  100.0%      

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

 

DEPOSITS

Deposit Portfolio Mix and Growth Rates

        % Growth
(Dollars in thousands) December 31,
 2018
 September 30,
 2018
 December 31,
 2017
 From (1)
September 30,
2018
 From
December 31,
2017
Balance:          
Non-interest bearing $6,569,880  $6,399,213  $6,792,497  11% (3)%
NOW and interest bearing demand deposits 2,897,133  2,512,259  2,315,055  61  25 
Wealth management deposits (2) 2,996,764  2,520,120  2,323,699  75  29 
Money market 5,704,866  5,429,921  4,515,353  20  26 
Savings 2,665,194  2,595,164  2,829,373  11  (6)
Time certificates of deposit 5,260,841  5,460,038  4,407,370  (14) 19 
Total deposits $26,094,678  $24,916,715  $23,183,347  19% 13%
Mix:          
Non-interest bearing 25% 26% 29%    
NOW and interest bearing demand deposits 11  10  10     
Wealth management deposits (2) 12  10  10     
Money market 22  22  20     
Savings 10  10  12     
Time certificates of deposit 20  22  19     
Total deposits 100% 100% 100%    

(1) Annualized 
(2) Represents deposit balances of the Company’s subsidiary banks from brokerage customers of Wintrust Investments, CDEC, trust and asset management customers of the Company and brokerage customers from unaffiliated companies which have been placed into deposit accounts.

 

Time Certificates of Deposit
Maturity/Re-pricing Analysis
As of December 31, 2018

(Dollars in thousands) CDARs &
Brokered
Certificates
  of Deposit (1)
 MaxSafe
Certificates
  of Deposit (1)
 Variable Rate
Certificates
  of Deposit (2)
 Other Fixed
Rate
Certificates
  of Deposit (1)
 Total Time
Certificates of
Deposit
 Weighted-
Average

Rate of
Maturing

Time
Certificates

  of Deposit (3)
1-3 months $59  $31,471  $102,531  $847,039  $981,100  1.39%
4-6 months 249  30,229    862,207  892,685  1.59%
7-9 months 75,077  24,145    666,487  765,709  1.76%
10-12 months   12,813    563,031  575,844  1.75%
13-18 months   19,315    941,117  960,432  2.10%
19-24 months   14,684    274,076  288,760  2.42%
24+ months 1,000  10,228    785,083  796,311  2.60%
Total $76,385  $142,885  $102,531  $4,939,040  $5,260,841  1.88%

(1) This category of certificates of deposit is shown by contractual maturity date. 
(2) This category includes variable rate certificates of deposit and savings certificates with the majority repricing on at least a monthly basis. 
(3) Weighted-average rate excludes the impact of purchase accounting fair value adjustments.

 

NET INTEREST INCOME

The following table presents a summary of Wintrust’s average balances, net interest income and related net interest margins, calculated on a fully tax-equivalent basis, for the fourth quarter of 2018 compared to the third quarter of 2018 (sequential quarters) and fourth quarter of 2017 (linked quarters), respectively:

 Average Balance
for three months ended,
 Interest
for three months ended,
 Yield/Rate
for three months ended,
(Dollars in thousands)December 31,
 2018
 September 30,
 2018
 December 31,
 2017
 December 31,
 2018
 September 30,
 2018
 December 31,
 2017
 December 31,
 2018
 September 30,
 2018
 December 31,
 2017
Interest-bearing deposits with banks and cash equivalents(1)$1,042,860  $998,004  $914,319  $5,628  $5,423  $2,723  2.14% 2.16% 1.18%
Investment securities(2)3,347,496  3,046,272  2,736,253  27,242  22,285  19,179  3.23  2.90  2.78 
FHLB and FRB stock98,084  88,335  82,092  1,343  1,235  1,067  5.43  5.54  5.15 
Liquidity management assets(3)(8)$4,488,440  $4,132,611  $3,732,664  $34,213  $28,943  $22,969  3.02% 2.78% 2.44%
Other earning assets(3)(4)(8)16,204  17,862  26,955  253  178  154  6.19  3.95  2.27 
Mortgage loans held-for-sale265,717  380,235  335,385  3,409  5,285  3,291  5.09  5.51  3.89 
Loans, net of unearned
income(3)(5)(8)
23,164,154  22,823,378  21,080,984  284,291  272,075  227,467  4.87  4.73  4.28 
Covered loans    6,025      86      5.66 
Total earning assets(8)$27,934,515  $27,354,086  $25,182,013  $322,166  $306,481  $253,967  4.58% 4.45% 4.00%
Allowance for loan and covered loan losses(154,438) (148,503) (138,584)            
Cash and due from banks271,403  268,006  244,097             
Other assets2,128,407  2,051,520  1,891,958             
Total assets$30,179,887  $29,525,109  $27,179,484             
                  
NOW and interest bearing demand deposits$2,671,283  $2,519,445  $2,284,576  $4,007  $2,479  $1,407  0.60% 0.39% 0.24%
Wealth management deposits2,289,904  2,517,141  2,005,197  7,119  8,287  4,059  1.23  1.31  0.80 
Money market accounts5,632,268  5,369,324  4,611,515  16,936  13,260  4,154  1.19  0.98  0.36 
Savings accounts2,553,133  2,672,077  2,741,621  3,096  2,907  2,716  0.48  0.43  0.39 
Time deposits5,381,029  5,214,637  4,581,464  24,817  21,803  12,594  1.83  1.66  1.09 
Interest-bearing deposits$18,527,617  $18,292,624  $16,224,373  $55,975  $48,736  $24,930  1.20% 1.06% 0.61%
Federal Home Loan Bank advances551,846  429,739  324,748  2,563  1,947  2,124  1.84  1.80  2.59 
Other borrowings385,878  268,278  255,972  3,199  2,003  1,600  3.29  2.96  2.48 
Subordinated notes139,186  139,155  139,065  1,788  1,773  1,786  5.14  5.10  5.14 
Junior subordinated debentures253,566  253,566  253,566  2,983  2,940  2,301  4.60  4.54  3.55 
Total interest-bearing liabilities$19,858,093  $19,383,362  $17,197,724  $66,508  $57,399  $32,741  1.33% 1.17% 0.75%
Non-interest bearing deposits6,542,228  6,461,195  6,605,553             
Other liabilities578,912  548,609  433,208             
Equity3,200,654  3,131,943  2,942,999             
Total liabilities and shareholders’ equity$30,179,887  $29,525,109  $27,179,484             
Interest rate spread(6)(8)            3.25% 3.28% 3.25%
Less:  Fully tax-equivalent adjustment      (1,570) (1,519) (2,127) (0.02) (0.02) (0.04)
Net free funds/contribution(7)$8,076,422  $7,970,724  $7,984,289        0.38  0.33  0.24 
Net interest income/ margin(8)  (GAAP)      $254,088  $247,563  $219,099  3.61% 3.59% 3.45%
Fully tax-equivalent adjustment      1,570  1,519  2,127  0.02  0.02  0.04 
Net interest income/ margin - FTE (8)      $255,658  $249,082  $221,226  3.63% 3.61% 3.49%

(1) Includes interest-bearing deposits from banks, federal funds sold and securities purchased under resale agreements. 
(2) Investment securities includes investment securities classified as available-for-sale and held-to-maturity, and equity securities with readily determinable fair values. Equity securities without readily determinable fair values are included within other assets. 
(3) Interest income on tax-advantaged loans, trading securities and investment securities reflects a tax-equivalent adjustment based on the marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the three months ended December 31, 2018, September 30, 2018 and December 31, 2017 were $1.6 million, $1.5 million and $2.1 million, respectively. 
(4) Other earning assets include brokerage customer receivables and trading account securities. 
(5) Loans, net of unearned income, include non-accrual loans. 
(6) Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities. 
(7) Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities. 
(8) See “Supplemental Financial Measures/Ratios” for additional information on this performance ratio.

For the fourth quarter of 2018, net interest income totaled $254.1 million, an increase of $6.5 million as compared to the third quarter of 2018 and an increase of $35.0 million as compared to the fourth quarter of 2017. Net interest margin was 3.61% (3.63% on a fully tax-equivalent basis) during the fourth quarter of 2018 compared to 3.59% (3.61% on a fully tax-equivalent basis) during the third quarter of 2018 and 3.45% (3.49% on a fully tax-equivalent basis) during the fourth quarter of 2017. The $6.5 million increase in net interest income in the fourth quarter of 2018 compared to the third quarter of 2018 was attributable to a $2.6 million increase from higher levels of earning assets and a $3.9 million increase due to a higher net interest margin during the period.

The following table presents a summary of Wintrust's average balances, net interest income and related interest margins, calculated on a fully tax-equivalent basis, for year ended December 31, 2018 compared to year ended December 31, 2017:

 Average Balance
for year ended,
 Interest
for year ended,
 Yield/Rate
for year ended,
(Dollars in thousands)December 31,
 2018
 December 31,
 2017
 December 31,
 2018
 December 31,
 2017
 December 31,
 2018
 December 31,
 2017
Interest-bearing deposits with banks and cash equivalents (1)$888,671  $856,020  $17,091  $9,254  1.92% 1.08%
Investment securities (2)3,045,555  2,590,260  89,640  67,028  2.94  2.59 
FHLB and FRB stock101,681  89,333  5,331  4,370  5.24  4.89 
Liquidity management assets(3)(8)$4,035,907  $3,535,613  $112,062  $80,652  2.78% 2.28%
Other earning assets(3)(4)(8)20,681  25,951  777  662  3.75  2.55 
Mortgage loans held-for-sale332,863  319,147  15,738  12,332  4.73  3.86 
Loans, net of unearned income(3)(5)(8)22,500,482  20,469,799  1,047,905  858,058  4.66  4.19 
Covered loans  40,665    2,251    5.54 
Total earning assets(8)$26,889,933  $24,391,175  $1,176,482  $953,955  4.38% 3.91%
Allowance for loan and covered loan losses(148,342) (133,432)        
Cash and due from banks266,086  239,638         
Other assets2,020,743  1,872,321         
Total assets$29,028,420  $26,369,702         
            
NOW and interest bearing demand deposits$2,436,791  $2,402,254  $9,773  $5,027  0.40% 0.21%
Wealth management deposits2,356,145  2,125,177  27,839  13,952  1.18  0.66 
Money market accounts5,105,244  4,482,137  42,973  12,588  0.84  0.28 
Savings accounts2,684,661  2,471,663  11,444  7,715  0.43  0.31 
Time deposits4,872,590  4,423,067  74,524  44,044  1.53  1.00 
Interest-bearing deposits$17,455,431  $15,904,298  $166,553  $83,326  0.95% 0.52%
Federal Home Loan Bank advances713,539  380,412  12,412  8,798  1.74  2.31 
Other borrowings289,615  255,136  8,599  5,370  2.97  2.10 
Subordinated notes139,140  139,022  7,121  7,116  5.12  5.12 
Junior subordinated debentures253,566  253,566  11,222  9,782  4.37  3.81 
Total interest-bearing liabilities$18,851,291  $16,932,434  $205,907  $114,392  1.09% 0.67%
Non-interest bearing deposits6,545,251  6,182,048         
Other liabilities533,138  413,139         
Equity3,098,740  2,842,081         
Total liabilities and shareholders’ equity$29,028,420  $26,369,702         
Interest rate spread(6)(8)        3.29% 3.24%
Less:  Fully tax-equivalent adjustment    (5,672) (7,487) (0.02) (0.03)
Net free funds/contribution(7)$8,038,642  $7,458,741      0.32  0.20 
Net interest income/ margin(8)  (GAAP)    $964,903  $832,076  3.59% 3.41%
Fully tax-equivalent adjustment    5,672  7,487  0.02  0.03 
Net interest income/ margin - FTE (8)    $970,575  $839,563  3.61% 3.44%

(1) Includes interest-bearing deposits from banks, federal funds sold and securities purchased under resale agreements. 
(2) Investment securities includes investment securities classified as available-for-sale and held-to-maturity, and equity securities with readily determinable fair values. Equity securities without readily determinable fair values are included within other assets. 
(3) Interest income on tax-advantaged loans, trading securities and investment securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the twelve months ended December 31, 2018 and 2017 were $5.7 million and $7.5 million respectively. 
(4) Other earning assets include brokerage customer receivables and trading account securities. 
(5) Loans, net of unearned income, include non-accrual loans. 
(6) Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities. 
(7) Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities. 
(8) See “Supplemental Financial Measures/Ratios” for additional information on this performance ratio.

For the year ended December 31, 2018, net interest income totaled $964.9 million, an increase of $132.8 million as compared to the year ended December 31, 2017. Net interest margin was 3.59% (3.61% on a fully tax-equivalent basis) for the year ended December 31, 2018 compared to 3.41% (3.44% on a fully tax-equivalent basis) for the year ended December 31, 2017. The $132.8 million increase in net interest income in the year ended 2018 compared to the same period of 2017 was attributable to a $81.5 million increase from higher levels of earning assets and a $51.3 million increase from rising rates.

Interest Rate Sensitivity

As an ongoing part of its financial strategy, the Company attempts to manage the impact of fluctuations in market interest rates on net interest income. Management measures its exposure to changes in interest rates by modeling many different interest rate scenarios.

The following interest rate scenarios display the percentage change in net interest income over a one-year time horizon assuming increases of 100 and 200 basis points and a decrease of 100 basis points. The Static Shock Scenario results incorporate actual cash flows and repricing characteristics for balance sheet instruments following an instantaneous, parallel change in market rates based upon a static (i.e. no growth or constant) balance sheet. Conversely, the Ramp Scenario results incorporate management’s projections of future volume and pricing of each of the product lines following a gradual, parallel change in market rates over twelve months.  Actual results may differ from these simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. The interest rate sensitivity for both the Static Shock and Ramp Scenario at December 31, 2018, September 30, 2018 and December 31, 2017 is as follows:

      
Static Shock Scenario +200
Basis 
Points
 +100
 Basis
 Points
 -100
Basis
 Points
December 31, 2018 15.6% 7.9% (8.6)%
September 30, 2018 18.1% 9.1% (10.0)%
December 31, 2017 17.7% 9.0% (11.8)%

 

Ramp Scenario+200
Basis
Points
 +100
Basis
Points
 -100
Basis
Points
December 31, 20187.4% 3.8% (3.6)%
September 30, 20188.5% 4.3% (4.2)%
December 31, 20178.9% 4.6% (5.1)%

These results indicate that the Company has positioned its balance sheet to benefit from a rise in interest rates.  This analysis also indicates that the Company would benefit to a greater magnitude should a rise in interest rates be significant (i.e., 200 basis points) and immediate (Static Shock Scenario).

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table classifies the loan portfolio at December 31, 2018 by date at which the loans reprice or mature, and the type of rate exposure:

As of December 31, 2018One year or less From one to five
years
 Over five years  
(Dollars in thousands)   Total
Commercial       
Fixed rate$154,368  $1,105,414  $665,595  $1,925,377 
Variable rate5,896,481  6,531  149  5,903,161 
Total commercial$6,050,849  $1,111,945  $665,744  $7,828,538 
Commercial real estate       
Fixed rate369,120  1,930,892  315,343  2,615,355 
Variable rate4,288,293  29,455  149  4,317,897 
Total commercial real estate$4,657,413  $1,960,347  $315,492  $6,933,252 
Home equity       
Fixed rate11,712  15,125  18,543  45,380 
Variable rate506,963      506,963 
Total home equity$518,675  $15,125  $18,543  $552,343 
Residential real estate       
Fixed rate30,724  22,568  229,433  282,725 
Variable rate55,329  303,383  361,027  719,739 
Total residential real estate$86,053  $325,951  $590,460  $1,002,464 
Premium finance receivables - commercial       
Fixed rate2,762,211  79,448    2,841,659 
Variable rate       
Total premium finance receivables - commercial$2,762,211  $79,448  $  $2,841,659 
Premium finance receivables - life insurance       
Fixed rate15,303  10,977  3,690  29,970 
Variable rate4,511,824      4,511,824 
Total premium finance receivables - life insurance$4,527,127  $10,977  $3,690  $4,541,794 
Consumer and other       
Fixed rate75,263  10,312  2,176  87,751 
Variable rate32,848  42    32,890 
Total consumer and other$108,111  $10,354  $2,176  $120,641 
Total per category       
Fixed rate3,418,701  3,174,736  1,234,780  7,828,217 
Variable rate15,291,738  339,411  361,325  15,992,474 
Total loans, net of unearned income$18,710,439  $3,514,147  $1,596,105  $23,820,691 
Variable Rate Loan Pricing by Index:       
Prime$2,480,764       
One- month LIBOR8,076,230       
Three- month LIBOR458,994       
Twelve- month LIBOR4,741,121       
Other235,365       
Total variable rate$15,992,474       

http://resource.globenewswire.com/Resource/Download/23ff1660-84db-4ebe-8d4a-50f6b99bed74

Source: Bloomberg

As noted in the table on the previous page, the majority of the Company’s portfolio is tied to LIBOR indices which, as shown in the table above, do not mirror the same increases as the Prime rate when the Federal Reserve raises interest rates.  Specifically, the Company has $8.1 billion of variable rate loans tied to one-month LIBOR and $4.7 billion of variable rate loans tied to twelve-month LIBOR. The above chart shows:

  Changes in
  Prime 1-month
LIBOR
 12-month
LIBOR
First Quarter 2018 +25 bps +32 bps +55 bps
Second Quarter 2018 +25 bps +21 bps +10 bps
Third Quarter 2018 +25 bps +17 bps +16 bps
Fourth Quarter 2018 +25 bps +24 bps +9 bps

 

NON-INTEREST INCOME

The following table presents non-interest income by category for the periods presented:

  Three Months Ended        
  December 31, September 30, December 31, Q4 2018 compared to
Q3 2018
 Q4 2018 compared to
Q4 2017
(Dollars in thousands) 2018 2018 2017 $ Change % Change $ Change % Change
Brokerage $4,997  $5,579  $6,067  $(582) (10)% $(1,070) (18)%
Trust and asset management 17,729  17,055  15,843  674  4  1,886  12 
Total wealth management $22,726  $22,634  $21,910  $92  % $816  4%
Mortgage banking 24,182  42,014  27,411  (17,832) (42) (3,229) (12)
Service charges on deposit accounts 9,065  9,331  8,907  (266) (3) 158  2 
(Losses) gains on investment securities, net (2,649) 90  14  (2,739) NM  (2,663) NM 
Fees from covered call options 626  627  1,610  (1)   (984) (61)
Trading (losses) gains, net (155) (61) 24  (94) NM  (179) NM 
Operating lease income, net 10,882  9,132  8,598  1,750  19  2,284  27 
Other:              
Interest rate swap fees 2,602  2,359  1,963  243  10  639  33 
BOLI (466) 3,190  754  (3,656) NM  (1,220) NM 
Administrative services 1,260  1,099  1,103  161  15  157  14 
Early pay-offs of capital leases 3  11  7  (8) (73) (4) (57)
Miscellaneous 7,232  9,504  8,737  (2,272) (24) (1,505) (17)
Total Other $10,631  $16,163  $12,564  $(5,532) (34)% $(1,933) (15)%
Total Non-Interest Income $75,308  $99,930  $81,038  $(24,622) (25)% $(5,730) (7)%

 

  Years Ended    
  December 31, December 31, $ %
(Dollars in thousands) 2018 2017 Change Change
Brokerage $22,391  $22,863  $(472) (2)%
Trust and asset management 68,572  58,903  9,669  16 
Total wealth management $90,963  $81,766  $9,197  11%
Mortgage banking 136,990  113,472  23,518  21 
Service charges on deposit accounts 36,404  34,513  1,891  5 
(Losses) gains on investment securities, net (2,898) 45  (2,943) NM 
Fees from covered call options 3,519  4,402  (883) (20)
Trading gains (losses), net 11  (845) 856  NM 
Operating lease income, net 38,451  29,646  8,805  30 
Other:        
Interest rate swap fees 11,027  7,379  3,648  49 
BOLI 4,982  3,524  1,458  41 
Administrative services 4,625  4,165  460  11 
Early pay-offs of capital leases 601  1,228  (627) (51)
Miscellaneous 31,475  40,211  (8,736) (22)
Total Other $52,710  $56,507  $(3,797) (7)%
Total Non-Interest Income $356,150  $319,506  $36,644  11%

NM - Not meaningful

Notable contributions to the change in non-interest income are as follows:

The decrease in mortgage banking revenue in the fourth quarter of 2018 as compared to the third quarter of 2018 resulted primarily from lower origination volumes, lower revenue margins and a $8.5 million negative fair value adjustment recognized on mortgage servicing rights related to changes in valuation assumptions and pay-offs. Mortgage loans originated or purchased for sale totaled $927.8 million in the fourth quarter of 2018 as compared to $1.2 billion in the third quarter of 2018 and $879.4 million in the fourth quarter of 2017. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. Mortgage revenue is also impacted by changes in the fair value of mortgage servicing rights ("MSRs") as the Company does not hedge this change in fair value. Additionally, through the acquisition of Veterans First, the Company acquired approximately $13.8 million of MSRs in the first quarter of 2018. The Company records MSRs at fair value on a recurring basis. The table below presents additional selected information regarding mortgage banking revenue for the respective periods.

  Three Months Ended Years Ended
(Dollars in thousands) December 31,
 2018
 September 30,
 2018
 December 31,
 2017
 December 31,
 2018
 December 31,
 2017
Originations:          
Retail originations $463,196  $642,213  $744,496  $2,412,232  $3,142,824 
Correspondent originations 289,101  310,446  134,904  848,997  549,261 
Veterans First originations 175,483  199,774    694,209   
Total originations (A) $927,780  $1,152,433  $879,400  $3,955,438  $3,692,085 
           
Purchases as a percentage of originations 71% 76% 67% 75% 75%
Refinances as a percentage of originations 29  24  33  25  25 
Total 100% 100% 100% 100% 100%
           
Production Margin:          
Production revenue (B) (1) $18,657  $25,253  $20,603  $92,250  $90,458 
Production margin (B / A) 2.01% 2.19% 2.34% 2.33% 2.45%
           
Mortgage Servicing:          
Loans serviced for others (C) $6,545,870  $5,904,300  $2,929,133     
MSRs, at fair value (D) 75,183  74,530  33,676     
Percentage of MSRs to loans serviced for others (D / C) 1.15% 1.26% 1.15%    
           
Components of Mortgage Banking Revenue:          
Production revenue $18,657  $25,253  $20,603  $92,250  $90,458 
MSR - current period capitalization 9,683  11,340  5,179  33,071  18,341 
MSR - collection of expected cash flows - paydowns (2) (496) (282)   (1,910)  
MSR - collection of expected cash flows - payoffs (896) (799) (963) (3,129) (2,595)
MSR - changes in fair value model assumptions (7,638) 1,077  46  (331) (1,173)
Servicing income 4,917  3,942  1,942  15,268  6,417 
Other (45) 1,483  604  1,771  2,024 
Total mortgage banking revenue $24,182  $42,014  $27,411  $136,990  $113,472 

(1) Production revenue represents revenue earned from the origination and subsequent sale of mortgages, including gains on loans sold and fees from originations, processing and other related activities, and excludes servicing fees, changes in the fair value of servicing rights and changes to the mortgage recourse obligation. 
(2) Change in MSR value due to collection of expected cash flows from paydowns and payoffs in 2017 is combined and shown in total in the payoff line.  The component detail is not available for 2017.

The net losses recognized in the fourth quarter of 2018 on investment securities are primarily due to $2.6 million of unrealized losses on equity securities held by the Company, including a large cap value mutual fund.

The increase in operating lease income in the fourth quarter of 2018 compared to the third quarter of 2018 is primarily related to growth in business from the Company's leasing divisions during the period.

The Company has typically written call options with terms of less than three months against certain U.S. Treasury and agency securities held in its portfolio for liquidity and other purposes. Management has entered into these transactions with the goal of economically hedging security positions and enhancing its overall return on its investment portfolio by using fees generated from these options to compensate for net interest margin compression. These option transactions are designed to mitigate overall interest rate risk and do not qualify as hedges pursuant to accounting guidance. There were no outstanding call option contracts at December 31, 2018, September 30, 2018 or December 31, 2017.

The decrease in BOLI income was primarily the result of higher income in the third quarter of 2018 due to death benefits received during that period on certain insurance policies and lower market returns during the fourth quarter of 2018 on certain investments supporting deferred compensation plan benefits.

The decrease in miscellaneous non-interest income in the fourth quarter of 2018 as compared to the third quarter of 2018 is primarily due to negative adjustments from foreign currency remeasurement and losses from investments in partnerships.

NON-INTEREST EXPENSE

The following table presents non-interest expense by category for the periods presented:

  Three Months Ended        
  December 31, September 30, December 31, Q4 2018 compared to
Q3 2018
 Q4 2018 compared to
Q4 2017
(Dollars in thousands) 2018 2018 2017 $ Change % Change $ Change % Change
Salaries and employee benefits:              
Salaries $67,708  $69,893  $58,239  $(2,185) (3)% $9,469  16%
Commissions and incentive compensation 33,656  34,046  40,723  (390) (1) (7,067) (17)
Benefits 20,747  19,916  19,047  831  4  1,700  9 
Total salaries and employee benefits 122,111  123,855  118,009  (1,744) (1) 4,102  3 
Equipment 11,523  10,827  9,500  696  6  2,023  21 
Operating lease equipment depreciation 8,462  7,370  7,015  1,092  15  1,447  21 
Occupancy, net 15,980  14,404  14,154  1,576  11  1,826  13 
Data processing 8,447  9,335  7,915  (888) (10) 532  7 
Advertising and marketing 9,414  11,120  7,382  (1,706) (15) 2,032  28 
Professional fees 9,259  9,914  8,879  (655) (7) 380  4 
Amortization of other intangible assets 1,407  1,163  1,028  244  21  379  37 
FDIC insurance 4,044  4,205  4,324  (161) (4) (280) (6)
OREO expense, net 1,618  596  599  1,022  NM  1,019  NM 
Other:              
Commissions - 3rd party brokers 779  1,059  1,057  (280) (26) (278) (26)
Postage 2,047  2,205  1,427  (158) (7) 620  43 
Miscellaneous 16,242  17,584  15,291  (1,342) (8) 951  6 
Total other 19,068  20,848  17,775  (1,780) (9) 1,293  7 
Total Non-Interest Expense $211,333  $213,637  $196,580  $(2,304) (1)% $14,753  8%

 

  Years Ended    
  December 31, December 31, $ %
(Dollars in thousands) 2018 2017 Change Change
Salaries and employee benefits:        
Salaries $266,563  $226,151  $40,412  18%
Commissions and incentive compensation 135,558  133,511  2,047  2 
Benefits 77,956  70,416  7,540  11 
Total salaries and employee benefits 480,077  430,078  49,999  12 
Equipment 42,949  38,358  4,591  12 
Operating lease equipment depreciation 29,305  24,107  5,198  22 
Occupancy, net 57,814  52,920  4,894  9 
Data processing 35,027  31,495  3,532  11 
Advertising and marketing 41,140  30,830  10,310  33 
Professional fees 32,306  27,835  4,471  16 
Amortization of other intangible assets 4,571  4,401  170  4 
FDIC insurance 17,209  16,231  978  6 
OREO expense, net 6,120  3,593  2,527  70 
Other:        
Commissions - 3rd party brokers 4,264  4,178  86  2 
Postage 8,685  6,763  1,922  28 
Miscellaneous 66,621  61,028  5,593  9 
Total other 79,570  71,969  7,601  11 
Total Non-Interest Expense $826,088  $731,817  $94,271  13%

Notable contributions to the change in non-interest expense are as follows:

Salaries and employee benefits expense decreased in the fourth quarter of 2018 compared to the third quarter of 2018 primarily as a result of lower commissions related to mortgage loan originations, higher salary deferrals related to loan origination costs and a reduction in costs related to deferred compensation plans impacted by market returns of related BOLI investments.

The increase in operating lease equipment depreciation in the fourth quarter of 2018 compared to the third quarter of 2018 is primarily related to growth in business from the Company's leasing divisions during the period.

The decrease in advertising and marketing expenses during the fourth quarter of 2018 compared to the third quarter of 2018 is primarily related to lower expenses for community advertisements and sponsorships. Marketing costs are incurred to promote the Company's brand, commercial banking capabilities, the Company's various products, to attract loans and deposits and to announce new branch openings as well as the expansion of the Company's non-bank businesses. The level of marketing expenditures depends on the timing of sponsorship programs and type of marketing programs utilized which are determined based on the market area, targeted audience, competition and various other factors.

INCOME TAXES

The Company recorded income tax expense of $28.0 million in the fourth quarter of 2018 compared to $30.9 million in the third quarter of 2018 and $27.0 million in the fourth quarter of 2017. The effective tax rates were 26.01% in the fourth quarter of 2018, 25.13% in the third quarter of 2018 and 28.19% in the fourth quarter of 2017. For the year ended December 31, 2018, the Company recorded income tax expense of $117.0 million (25.42% effective tax rate) compared to $132.3 million (33.93% effective tax rate) for the same period of 2017. The lower effective tax rate for the 2018 year-to-date period as compared to the same period of 2017 was primarily due to the reduction of the federal corporate income tax rate effective in 2018 as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017. During the fourth quarter of 2017, the Company recorded a provisional tax benefit of $7.6 million related to the enactment of the Tax Cuts and Jobs Act, and during the third quarter of 2018, the Company finalized the provisional amounts and recorded an additional net tax benefit of $1.2 million. The effective tax rates were also impacted by excess tax benefits related to share-based compensation. These excess tax benefits were $160,000 in the fourth quarter of 2018 and $370,000 in the third quarter of 2018, compared to $1.2 million in the fourth quarter of 2017. Excess tax benefits were $3.9 million and $6.2 million for the years ended 2018 and 2017, respectively. Excess tax benefits are expected to be higher in the first quarter when the majority of the Company's share-based awards vest, and will fluctuate throughout the year based on the Company's stock price and timing of employee stock option exercises and vesting of other share-based awards.

ASSET QUALITY

Allowance for Credit Losses, excluding covered loans

  Three Months Ended Years Ended
  December 31, September 30, December 31, December 31, December 31,
(Dollars in thousands) 2018 2018 2017 2018 2017
Allowance for loan losses at beginning of period $149,756  $143,402  $133,119  $137,905  $122,291 
Provision for credit losses 10,401  11,042  7,772  34,832  29,982 
Other adjustments (1) (79) (18) 698  (181) 573 
Reclassification (to) from allowance for unfunded lending-related commitments (150) (2) 7  (126) 69 
Charge-offs:          
Commercial 6,416  3,219  1,340  14,532  5,159 
Commercial real estate 219  208  1,001  1,395  4,236 
Home equity 715  561  728  2,245  3,952 
Residential real estate 267  337  542  1,355  1,284 
Premium finance receivables - commercial 1,741  2,512  2,314  12,228  7,335 
Premium finance receivables - life insurance          
Consumer and other 148  144  207  880  729 
Total charge-offs 9,506  6,981  6,132  32,635  22,695 
Recoveries:          
Commercial 225  304  235  1,457  1,870 
Commercial real estate 1,364  193  1,037  5,631  2,190 
Home equity 105  142  359  541  746 
Residential real estate 47  466  165  2,075  452 
Premium finance receivables - commercial 567  1,142  613  3,069  2,128 
Premium finance receivables - life insurance          
Consumer and other 40  66  32  202  299 
Total recoveries 2,348  2,313  2,441  12,975  7,685 
Net charge-offs (7,158) (4,668) (3,691) (19,660) (15,010)
Allowance for loan losses at period end $152,770  $149,756  $137,905  $152,770  $137,905 
Allowance for unfunded lending-related commitments at period end 1,394  1,245  1,269  1,394  1,269 
Allowance for credit losses at period end $154,164  $151,001  $139,174  $154,164  $139,174 
Annualized net charge-offs (recoveries) by category as a percentage of its own respective category’s average:          
Commercial 0.33% 0.16% 0.07% 0.18% 0.05%
Commercial real estate (0.07) 0.00  0.00  (0.06) 0.03 
Home equity 0.43  0.28  0.22  0.28  0.46 
Residential real estate 0.10  (0.06) 0.18  (0.08) 0.11 
Premium finance receivables - commercial 0.16  0.19  0.26  0.33  0.20 
Premium finance receivables - life insurance 0.00  0.00  0.00  0.00  0.00 
Consumer and other 0.30  0.23  0.52  0.50  0.34 
Total loans, net of unearned income, excluding covered loans 0.12% 0.08% 0.07% 0.09% 0.07%
Net charge-offs as a percentage of the provision for credit losses 68.82% 42.27% 47.49% 56.44% 50.06%
Loans at period-end, excluding covered loans $23,820,691  $23,123,951  $21,640,797     
Allowance for loan losses as a percentage of loans at period end 0.64% 0.65% 0.64%    
Allowance for credit losses as a percentage of loans at period end 0.65% 0.65% 0.64%    

(1) Includes $742,000 of allowance for covered loan losses reclassified as a result of the termination of all existing loss share agreements with the FDIC during the fourth quarter of 2017.

The allowance for credit losses, excluding the allowance for covered loan losses, is comprised of the allowance for loan losses and the allowance for unfunded lending-related commitments. The allowance for loan losses is a reserve against loan amounts that are actually funded and outstanding while the allowance for unfunded lending-related commitments (separate liability account) relates to certain amounts that Wintrust is committed to lend but for which funds have not yet been disbursed. The provision for credit losses, excluding the provision for covered loan losses, may contain both a component related to funded loans (provision for loan losses) and a component related to lending-related commitments (provision for unfunded loan commitments and letters of credit).

Net charge-offs as a percentage of loans, excluding covered loans, for the fourth quarter of 2018 totaled 12 basis points on an annualized basis compared to eight basis points on an annualized basis in the third quarter of 2018 and seven basis points on an annualized basis in the fourth quarter of 2017.  Net charge-offs totaled $7.2 million in the fourth quarter of 2018, a $2.5 million increase from $4.7 million in the third quarter of 2018 and a $3.5 million increase from $3.7 million in the fourth quarter of 2017. The increase in net charge-offs in the fourth quarter of 2018 compared to third quarter of 2018 is primarily the result of higher charge-offs within the commercial portfolio during the current period. The provision for credit losses, excluding the provision for covered loan losses, totaled $10.4 million for the fourth quarter of 2018 compared to $11.0 million for the third quarter of 2018 and $7.8 million for the fourth quarter of 2017.

Management believes the allowance for credit losses is appropriate to provide for inherent losses in the portfolio. There can be no assurances, however, that future losses will not exceed the amounts provided for, thereby affecting future results of operations. The amount of future additions to the allowance for credit losses will be dependent upon management’s assessment of the appropriateness of the allowance based on its evaluation of economic conditions, changes in real estate values, interest rates, the regulatory environment, the level of past-due and non-performing loans and other factors.

The Company also provided a provision for covered loan losses on covered loans when applicable.

The following table presents the provision for credit losses by component for the periods presented, including covered loans:

  Three Months Ended Years Ended
  December 31, September 30, December 31, December 31, December 31,
(Dollars in thousands) 2018 2018 2017 2018 2017
Provision for loan losses $10,251  $11,040  $7,779  $34,706  $30,051 
Provision for unfunded lending-related commitments 150  2  (7) 126  (69)
Provision for covered loan losses         (214)
Provision for credit losses $10,401  $11,042  $7,772  $34,832  $29,768 

The tables below summarize the calculation of allowance for loan losses for the Company’s core loan portfolio and consumer, niche and purchased loan portfolio, excluding covered loans, as of December 31, 2018 and September 30, 2018.

  As of December 31, 2018
  Recorded Calculated As a percentage
of its own respective
(Dollars in thousands) Investment Allowance category’s balance
Commercial:(1)      
Commercial and industrial $4,339,618  $42,948  0.99%
Asset-based lending 1,025,805  9,138  0.89 
Tax exempt 495,896  3,150  0.64 
Leases 556,808  1,502  0.27 
Commercial real estate:(1)      
Residential construction 39,569  773  1.95 
Commercial construction 715,260  8,203  1.15 
Land 140,409  3,953  2.82 
Office 903,559  6,235  0.69 
Industrial 867,676  6,083  0.70 
Retail 856,114  9,312  1.09 
Multi-family 933,362  9,386  1.01 
Mixed use and other 2,120,361  16,183  0.76 
Home equity(1) 518,814  8,428  1.62 
Residential real estate(1) 975,750  7,001  0.72 
Total core loan portfolio $14,489,001  $132,295  0.91%
Commercial:      
Franchise $885,882  $8,772  0.99%
Mortgage warehouse lines of credit 144,199  1,162  0.81 
Community Advantage - homeowner associations 180,757  453  0.25 
Aircraft 12,218  17  0.14 
Purchased non-covered commercial loans (2) 187,355  684  0.37 
Commercial real estate:      
Purchased non-covered commercial real estate (2) 356,942  139  0.04 
Purchased non-covered home equity (2) 33,529  79  0.24 
Purchased non-covered residential real estate (2) 26,714  193  0.72 
Premium finance receivables      
U.S. commercial insurance loans 2,504,515  5,629  0.22 
Canada commercial insurance loans (2) 337,144  515  0.15 
Life insurance loans (1) 4,373,891  1,571  0.04 
Purchased life insurance loans (2) 167,903     
Consumer and other (1) 117,251  1,258  1.07 
Purchased non-covered consumer and other (2) 3,390  3  0.09 
Total consumer, niche and purchased loan portfolio $9,331,690  $20,475  0.22%
Total loans, net of unearned income, excluding covered loans $23,820,691  $152,770  0.64%

(1) Excludes purchased loans reported in accordance with ASC 310-20 and ASC 310-30.
(2) Purchased loans represent loans reported in accordance with ASC 310-20 and ASC 310-30.

  As of September 30, 2018
  Recorded Calculated As a percentage
of its own respective
(Dollars in thousands) Investment Allowance category’s balance
Commercial:(1)      
Commercial and industrial $4,073,911  $41,543  1.02%
Asset-based lending 1,032,850  9,389  0.91 
Tax exempt 478,547  3,098  0.65 
Leases 500,052  1,338  0.27 
Commercial real estate:(1)      
Residential construction 39,289  784  2.00 
Commercial construction 754,842  8,452  1.12 
Land 117,616  3,814  3.24 
Office 909,517  6,332  0.70 
Industrial 853,351  5,995  0.70 
Retail 852,351  8,152  0.96 
Multi-family 891,654  8,891  1.00 
Mixed use and other 2,009,861  15,671  0.78 
Home equity(1) 538,209  9,051  1.68 
Residential real estate(1) 887,336  6,121  0.69 
Total core loan portfolio $13,939,386  $128,631  0.92%
Commercial:      
Franchise $866,885  $8,879  1.02%
Mortgage warehouse lines of credit 171,860  1,350  0.79 
Community Advantage - homeowner associations 166,941  442  0.26 
Aircraft 2,498  4  0.16 
Purchased non-covered commercial loans (2) 180,414  702  0.39 
Commercial real estate:      
Purchased non-covered commercial real estate (2) 318,293  156  0.05 
Purchased non-covered home equity (2) 40,635  92  0.23 
Purchased non-covered residential real estate (2) 36,914  170  0.46 
Premium finance receivables      
U.S. commercial insurance loans 2,532,584  6,027  0.24 
Canada commercial insurance loans (2) 352,743  541  0.15 
Life insurance loans (1) 4,225,481  1,606  0.04 
Purchased life insurance loans (2) 173,490     
Consumer and other (1) 113,320  1,153  1.02 
Purchased non-covered consumer and other (2) 2,507  3  0.10 
Total consumer, niche and purchased loan portfolio $9,184,565  $21,125  0.23%
Total loans, net of unearned income, excluding covered loans $23,123,951  $149,756  0.65%

(1) Excludes purchased loans reported in accordance with ASC 310-20 and ASC 310-30.
(2) Purchased loans represent loans reported in accordance with ASC 310-20 and ASC 310-30.

As part of the regular quarterly review performed by management to determine if the Company’s allowance for loan losses is appropriate, an analysis is prepared on the loan portfolio based upon a breakout of core loans and consumer, niche and purchased loans. A summary of the allowance for loan losses calculated for the loan components in both the core loan portfolio and the consumer, niche and purchased loan portfolio was shown on the preceding tables as of December 31, 2018 and September 30, 2018.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. In accordance with accounting guidance, credit deterioration on purchased loans is recorded as a credit discount at the time of purchase.

In addition to the $152.8 million of allowance for loan losses, there is $6.7 million of non-accretable credit discount on purchased loans reported in accordance with ASC 310-30 that is available to absorb credit losses.

The tables below show the aging of the Company’s loan portfolio at December 31, 2018 and September 30, 2018:

    90+ days 60-89 30-59    
As of December 31, 2018   and still days past days past    
(Dollars in thousands) Nonaccrual accruing due due Current Total Loans
Loan Balances:            
Commercial (1) $50,984  $3,313  $1,651  $34,861  $7,737,729  $7,828,538 
Commercial real estate (1) 19,129  6,241  10,826  51,566  6,845,490  6,933,252 
Home equity 7,147    131  3,105  541,960  552,343 
Residential real estate (1) 16,383  1,292  1,692  6,171  976,926  1,002,464 
Premium finance receivables - commercial 11,335  7,799  11,382  15,085  2,796,058  2,841,659 
Premium finance receivables - life insurance (1)     8,407  24,628  4,508,759  4,541,794 
Consumer and other (1) 348  227  87  733  119,246  120,641 
Total loans, net of unearned income $105,326  $18,872  $34,176  $136,149  $23,526,168  $23,820,691 

 

As of December 31, 2018
Aging as a % of Loan Balance
 Nonaccrual 90+ days
and still
accruing
 60-89
days past
due
 30-59
days past
due
 Current Total Loans
Commercial (1) 0.7% % % 0.4% 98.9% 100.0%
Commercial real estate (1) 0.3  0.1  0.2  0.7  98.7  100.0 
Home equity 1.3      0.6  98.1  100.0 
Residential real estate (1) 1.6  0.1  0.2  0.6  97.5  100.0 
Premium finance receivables - commercial 0.4  0.3  0.4  0.5  98.4  100.0 
Premium finance receivables - life insurance (1)     0.2  0.5  99.3  100.0 
Consumer and other (1) 0.3  0.2  0.1  0.6  98.8  100.0 
Total loans, net of unearned income 0.4% 0.1% 0.1% 0.6% 98.8% 100.0%

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

    90+ days 60-89 30-59    
As of September 30, 2018   and still days past days past    
(Dollars in thousands) Nonaccrual accruing due due Current Total Loans
Loan Balances:            
Commercial (1) $58,587  $8,494  $6,140  $25,614  $7,375,123  $7,473,958 
Commercial real estate (1) 17,515  5,578  27,040  44,084  6,652,557  6,746,774 
Home equity 8,523     1,075  3,478  565,768  578,844 
Residential real estate (1) 16,062  1,865  1,714  603  904,006  924,250 
Premium finance receivables - commercial 13,802  7,028  5,945  13,239  2,845,313  2,885,327 
Premium finance receivables - life insurance (1)       22,016  4,376,955  4,398,971 
Consumer and other (1) 355  295  430  329  114,418  115,827 
Total loans, net of unearned income $114,844  $23,260  $42,344  $109,363  $22,834,140  $23,123,951 

 

As of September 30, 2018
Aging as a % of Loan Balance:
 Nonaccrual 90+ days
and still
accruing
 60-89
days past
due
 30-59
days past
due
 Current Total Loans
Commercial (1) 0.8% 0.1% 0.1% 0.3% 98.7% 100.0%
Commercial real estate (1) 0.3  0.1  0.4  0.7  98.5  100.0 
Home equity 1.5    0.2  0.6  97.7  100.0 
Residential real estate (1) 1.7  0.2  0.2  0.1  97.8  100.0 
Premium finance receivables - commercial 0.5  0.2  0.2  0.5  98.6  100.0 
Premium finance receivables - life insurance (1)       0.5  99.5  100.0 
Consumer and other (1) 0.3  0.3  0.4  0.3  98.7  100.0 
Total loans, net of unearned income 0.5% 0.1% 0.2% 0.5% 98.7% 100.0%

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

As of December 31, 2018, $34.2 million of all loans, or 0.1%, were 60 to 89 days past due and $136.1 million, or 0.6%, were 30 to 59 days (or one payment) past due. As of September 30, 2018, $42.3 million of all loans, or 0.2%, were 60 to 89 days past due and $109.4 million, or 0.5%, were 30 to 59 days (or one payment) past due. The majority of the commercial and commercial real estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis. All loans within the life insurance premium financing portfolio shown as 60 to 89 days and 30 to 59 days past due (four and nine credits, respectively) remain fully secured.

The Company’s home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at December 31, 2018 that are current with regard to the contractual terms of the loan agreement represent 98.1% of the total home equity portfolio. Residential real estate loans at December 31, 2018 that are current with regards to the contractual terms of the loan agreements comprise 97.5% of total residential real estate loans outstanding.

Non-performing Assets

The following table sets forth Wintrust’s non-performing assets and troubled debt restructurings ("TDRs") performing under the contractual terms of the loan agreement, excluding PCI loans, at the dates indicated.

  December 31, September 30, December 31,
(Dollars in thousands) 2018 2018 2017(3)
Loans past due greater than 90 days and still accruing(1):      
Commercial $  $5,122  $ 
Commercial real estate      
Home equity      
Residential real estate     3,278 
Premium finance receivables - commercial 7,799  7,028  9,242 
Premium finance receivables - life insurance      
Consumer and other 109  233  40 
Total loans past due greater than 90 days and still accruing 7,908  12,383  12,560 
Non-accrual loans(2):      
Commercial 50,984  58,587  15,696 
Commercial real estate 19,129  17,515  22,048 
Home equity 7,147  8,523  8,978 
Residential real estate 16,383  16,062  17,977 
Premium finance receivables - commercial 11,335  13,802  12,163 
Premium finance receivables - life insurance      
Consumer and other 348  355  740 
Total non-accrual loans 105,326  114,844  77,602 
Total non-performing loans:      
Commercial 50,984  63,709  15,696 
Commercial real estate 19,129  17,515  22,048 
Home equity 7,147  8,523  8,978 
Residential real estate 16,383  16,062  21,255 
Premium finance receivables - commercial 19,134  20,830  21,405 
Premium finance receivables - life insurance      
Consumer and other 457  588  780 
Total non-performing loans $113,234  $127,227  $90,162 
Other real estate owned 11,968  14,924  20,244 
Other real estate owned - from acquisitions 12,852  13,379  20,402 
Other repossessed assets 280  294  153 
Total non-performing assets $138,334  $155,824  $130,961 
TDRs performing under the contractual terms of the loan agreement $33,281  $31,487  $39,683 
Total non-performing loans by category as a percent of its own respective category’s period-end balance:      
Commercial 0.65% 0.85% 0.23%
Commercial real estate 0.28  0.26  0.34 
Home equity 1.29  1.47  1.35 
Residential real estate 1.63  1.74  2.55 
Premium finance receivables - commercial 0.67  0.72  0.81 
Premium finance receivables - life insurance      
Consumer and other 0.38  0.51  0.72 
Total loans, net of unearned income 0.48% 0.55% 0.42%
Total non-performing assets as a percentage of total assets 0.44% 0.52% 0.47%
Allowance for loan losses as a percentage of total non-performing loans 134.92% 117.71% 152.95%

(1) Loans past due greater than 90 days and still accruing interest included TDRs totaling $5.1 million as of September 30, 2018. As of December 31, 2018 and December 31, 2017, no TDRs were past due greater than 90 days and still accruing interest. 
(2) Non-accrual loans included TDRs totaling $32.8 million, $34.7 million and $10.1 million as of December 31, 2018, September 30, 2018 and December 31, 2017, respectively.
(3) Includes $2.6 million of non-performing loans and $2.9 million of other real estate owned reclassified from covered assets as a result of the termination  of all existing loss share agreements with the FDIC during the fourth quarter of 2017.

The ratio of non-performing assets to total assets was 0.44% as of December 31, 2018, compared to 0.52% at September 30, 2018, and 0.47% at December 31, 2017. Non-performing assets, excluding PCI loans, totaled $138.3 million at December 31, 2018, compared to $155.8 million at September 30, 2018 and $131.0 million at December 31, 2017. Non-performing loans, excluding PCI loans, totaled $113.2 million, or 0.48% of total loans, at December 31, 2018 compared to $127.2 million, or 0.55% of total loans, at September 30, 2018 and $90.2 million, or 0.42% of total loans, at December 31, 2017. OREO of $24.8 million at December 31, 2018 decreased $3.5 million compared to $28.3 million at September 30, 2018 and decreased $15.8 million compared to $40.6 million at December 31, 2017.

Management is pursuing the resolution of all credits in this category. At this time, management believes reserves are appropriate to absorb inherent losses and OREO is appropriately valued at the lower of carrying value or fair value less estimated costs to sell.

Nonperforming Loans Rollforward

The table below presents a summary of the changes in the balance of non-performing loans, excluding PCI loans, for the periods presented:

  Three Months Ended Years Ended
  December 31, September 30, December 31, December 31, December 31,
(Dollars in thousands) 2018 2018 2017 2018 2017
Balance at beginning of period $127,227  $83,282  $77,983  $90,162  $87,454 
Additions, net, from non-covered portfolio 18,553  56,864  25,619  92,428  55,738 
Additions, net, from covered non-performing loans subsequent to loss share expiration     2,572    2,572 
Return to performing status (6,155) (3,782) (426) (14,449) (3,596)
Payments received (16,437) (6,212) (4,271) (29,807) (27,202)
Transfer to OREO and other repossessed assets (970) (659) (3,960) (7,138) (9,236)
Charge-offs (7,161) (3,108) (2,443) (15,792) (10,362)
Net change for niche loans (1) (1,823) 842  (4,912) (2,170) (5,206)
Balance at end of period $113,234  $127,227  $90,162  $113,234  $90,162 

(1) This includes activity for premium finance receivables and indirect consumer loans.

TDRs

The table below presents a summary of TDRs as of the respective date, presented by loan category and accrual status:

  December 31, September 30, December 31,
(Dollars in thousands) 2018 2018 2017
Accruing TDRs:      
Commercial $8,545  $8,794  $19,917 
Commercial real estate 13,895  14,160  16,160 
Residential real estate and other 10,841  8,533  3,606 
Total accrual $33,281  $31,487  $39,683 
Non-accrual TDRs: (1)      
Commercial $27,774  $30,452  $4,000 
Commercial real estate 1,552  1,326  1,340 
Residential real estate and other 3,495  2,954  4,763 
Total non-accrual $32,821  $34,732  $10,103 
Total TDRs:      
Commercial $36,319  $39,246  $23,917 
Commercial real estate 15,447  15,486  17,500 
Residential real estate and other 14,336  11,487  8,369 
Total TDRs $66,102  $66,219  $49,786 
Weighted-average contractual interest rate of TDRs 5.54% 5.48% 4.40%

(1) Included in total non-performing loans.

Other Real Estate Owned

The table below presents a summary of other real estate owned, excluding covered other real estate owned, as of December 31, 2018, September 30, 2018 and December 31, 2017, and shows the activity for the respective period and the balance for each property type:

  Three Months Ended
  December 31, September 30, December 31,
(Dollars in thousands) 2018 2018 2017
Balance at beginning of period $28,303  $35,331  $37,378 
Disposals/resolved (3,848) (7,291) (6,107)
Transfers in at fair value, less costs to sell 997  349  6,733 
Transfers in from covered OREO subsequent to loss share expiration     2,851 
Additions from acquisition 160  1,418   
Fair value adjustments (792) (1,504) (209)
Balance at end of period $24,820  $28,303  $40,646 
       
  Period End
  December 31, September 30, December 31,
Balance by Property Type 2018 2018 2017
Residential real estate $3,446  $3,735  $7,515 
Residential real estate development 1,426  1,952  2,221 
Commercial real estate 19,948  22,616  30,910 
Total $24,820  $28,303  $40,646 

Items Impacting Comparative Financial Results:

Acquisitions

On December 14, 2018, the Company acquired Elektra, the parent company of CDEC. CDEC is a provider of Qualified Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031.  CDEC has successfully facilitated more than 8,000 like-kind exchanges in the past decade for taxpayers nationwide.  These transactions typically generate customer deposits during the period following the sale of the property until such proceeds are used to purchase a replacement property.  During 2018, deposits from CDEC customers averaged over $1 billion.
               
On December 7, 2018, the Company completed its acquisition of certain assets and the assumption of certain liabilities of AEB. Through this asset acquisition, the Company acquired approximately $164 million in assets, including approximately $119 million in loans, and approximately $151 million in deposits.

On August 1, 2018, the Company completed its acquisition of Chicago Shore Corporation ("CSC"). CSC was the parent company of Delaware Place Bank. Through this business combination, the Company acquired Delaware Place Bank's one banking location in Chicago, Illinois, approximately $283 million in assets, including approximately $152 million in loans, and approximately $213 million in deposits.

On January 4, 2018, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of Veterans First, in a business combination. The Company also acquired mortgage servicing rights assets from Veterans First on approximately 10,000 loans, totaling an estimated $1.6 billion in unpaid principal balance. Veterans First is a consumer direct lender with three offices, operating two in Salt Lake City and one in San Diego, and originated in excess of $800 million in loans in 2017.

On February 14, 2017, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of American Homestead Mortgage, LLC ("AHM"), in a business combination. AHM is located in Montana's Flathead Valley and originated approximately $55 million of residential mortgage loans in 2016.

Termination of Loss Share Agreements

On October 16, 2017, the Company entered in agreements with the FDIC that terminated all existing loss share agreements with the FDIC.  The loss share agreements were related to the Company’s acquisition of assets and assumption of liabilities of eight failed banks through FDIC assisted transactions in 2010, 2011 and 2012.

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

Approximately $0.2 million of the remaining net indemnification liabilities that were scheduled to be amortized against future earnings did not occur for the remainder of the fourth quarter of 2017. Additionally, $0.8 million, $0.8 million and $0.7 million each year in 2018, 2019 and 2020, respectively, of previously scheduled amortization will not occur.

The termination of the FDIC loss share agreements has no effect on yields of the loans that were previously covered under these agreements.  Subsequent to this transaction, the Company is solely responsible for all future charge-offs, recoveries, gains, losses and expenses related to the previously covered assets as the FDIC will no longer share in those amounts.

WINTRUST SUBSIDIARIES AND LOCATIONS

Wintrust is a financial holding company whose common stock is traded on the Nasdaq Global Select Market (Nasdaq: WTFC). Its 15 community bank subsidiaries are: Lake Forest Bank & Trust Company, N.A., Hinsdale Bank & Trust Company, Wintrust Bank in Chicago, Libertyville Bank & Trust Company, Barrington Bank & Trust Company, N.A., Crystal Lake Bank & Trust Company, N.A., Northbrook Bank & Trust Company, Schaumburg Bank & Trust Company, N.A., Village Bank & Trust in Arlington Heights, Beverly Bank & Trust Company, N.A. in Chicago, Wheaton Bank & Trust Company, State Bank of The Lakes in Antioch, Old Plank Trail Community Bank, N.A. in New Lenox, St. Charles Bank & Trust Company and Town Bank in Hartland, Wisconsin.

The banks also operate facilities in Illinois in Addison, Algonquin, Aurora, Bloomingdale, Buffalo Grove, Cary, Clarendon Hills, Crete, Deerfield, Des Plaines, Downers Grove, Elgin, Elk Grove Village, Elmhurst, Evanston, Evergreen Park, Frankfort, Geneva, Glen Ellyn, Glencoe, Glenview, Gurnee, Grayslake, Hanover Park, Highland Park, Highwood, Hoffman Estates, Island Lake, Itasca, Joliet, Lake Bluff, Lake Villa, Lansing, Lemont, Lindenhurst, Lynwood, Markham, McHenry, Mokena, Mount Prospect, Mundelein, Naperville, North Chicago, Northfield, Norridge, Oak Lawn, Orland Park, Palatine, Park Ridge, Prospect Heights, Ravinia, Riverside, Rogers Park, Rolling Meadows, Roselle, Round Lake Beach, Shorewood, Skokie, South Holland, Spring Grove, Steger, Stone Park, Vernon Hills, Wauconda, Western Springs, Willowbrook, Wilmette, Winnetka and Wood Dale and in Albany, Burlington, Clinton, Darlington, Delafield, Delavan, Elm Grove, Genoa City, Kenosha, Lake Geneva, Madison, Menomonee Falls, Milwaukee, Monroe, Pewaukee, Racine, Sharon, Wales, Walworth and Wind Lake, Wisconsin and Dyer, Indiana.

Additionally, the Company operates various non-bank business units:

  • FIRST Insurance Funding, a division of Lake Forest Bank & Trust Company, N.A., and Wintrust Life Finance, a division of Lake Forest Bank & Trust Company, N.A., serve commercial and life insurance loan customers, respectively, throughout the United States.
  • First Insurance Funding of Canada serves commercial insurance loan customers throughout Canada.
  • Tricom, Inc. of Milwaukee provides high-yielding, short-term accounts receivable financing and value-added out-sourced administrative services, such as data processing of payrolls, billing and cash management services, to temporary staffing service clients located throughout the United States.
  • Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A., engages primarily in the origination and purchase of residential mortgages for sale into the secondary market through origination offices located throughout the United States. Loans are also originated nationwide through relationships with wholesale and correspondent offices.
  • Wintrust Investments, LLC is a broker-dealer providing a full range of private client and brokerage services to clients and correspondent banks located primarily in the Midwest.
  • Great Lakes Advisors LLC provides money management services and advisory services to individual accounts.
  • The Chicago Trust Company, a trust subsidiary, allows Wintrust to service customers’ trust and investment needs at each banking location.
  • Wintrust Asset Finance offers direct leasing opportunities.
  • CDEC provides Qualified Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031.

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2017 Annual Report on Form 10-K and in any of the Company’s subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management’s long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company’s business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:

  • economic conditions that affect the economy, housing prices, the job market and other factors that may adversely affect the Company’s liquidity and the performance of its loan portfolios, particularly in the markets in which it operates;
  • the extent of defaults and losses on the Company’s loan portfolio, which may require further increases in its allowance for credit losses;
  • estimates of fair value of certain of the Company’s assets and liabilities, which could change in value significantly from period to period;
  • the financial success and economic viability of the borrowers of our commercial loans;
  • commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin;
  • the extent of commercial and consumer delinquencies and declines in real estate values, which may require further increases in the Company’s  allowance for loan and lease losses;
  • inaccurate assumptions in our analytical and forecasting models used to manage our loan portfolio;
  • changes in the level and volatility of interest rates, the capital markets and other market indices that may affect, among other things, the Company’s liquidity and the value of its assets and liabilities;
  • competitive pressures in the financial services business which may affect the pricing of the Company’s loan and deposit products as well as its services (including wealth management services), which may result in loss of market share and reduced income from deposits, loans, advisory fees and income from other products;
  • failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of the Company’s recent or future acquisitions;
  • unexpected difficulties and losses related to FDIC-assisted acquisitions;
  • harm to the Company’s reputation;
  • any negative perception of the Company’s financial strength;
  • ability of the Company to raise additional capital on acceptable terms when needed;
  • disruption in capital markets, which may lower fair values for the Company’s investment portfolio;
  • ability of the Company to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations and to manage risks associated therewith;
  • failure or breaches of our security systems or infrastructure, or those of third parties;
  • security breaches, including denial of service attacks, hacking, social engineering attacks, malware intrusion or data corruption attempts and identity theft;
  • adverse effects on our information technology systems resulting from failures, human error or cyberattacks;
  • adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors;
  • increased costs as a result of protecting our customers from the impact of stolen debit card information;
  • accuracy and completeness of information the Company receives about customers and counterparties to make credit decisions;
  • ability of the Company to attract and retain senior management experienced in the banking and financial services industries;
  • environmental liability risk associated with lending activities;
  • the impact of any claims or legal actions to which the Company is subject, including any effect on our reputation;
  • losses incurred in connection with repurchases and indemnification payments related to mortgages and increases in reserves associated therewith;
  • the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank;
  • the soundness of other financial institutions;
  • the expenses and delayed returns inherent in opening new branches and de novo banks;
  • examinations and challenges by tax authorities, and any unanticipated impact of the Tax Act;
  • changes in accounting standards, rules and interpretations such as the new CECL standard, and the impact on the Company’s financial statements;
  • the ability of the Company to receive dividends from its subsidiaries;
  • uncertainty about the future of LIBOR;
  • a decrease in the Company’s capital ratios, including as a result of declines in the value of its loan portfolios, or otherwise;
  • legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies;
  • a lowering of our credit rating;
  • changes in U.S. monetary policy and changes to the Federal Reserve’s balance sheet as a result of the end of its program of quantitative easing or otherwise;
  • restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business resulting from the Dodd-Frank Act;
  • increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the regulatory environment;
  • the impact of heightened capital requirements;
  • increases in the Company’s FDIC insurance premiums, or the collection of special assessments by the FDIC;
  • delinquencies or fraud with respect to the Company’s premium finance business;
  • credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company’s premium finance loans;
  • the Company’s ability to comply with covenants under its credit facility; and
  • fluctuations in the stock market, which may have an adverse impact on the Company’s wealth management business and brokerage operation.

Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Any such statement speaks only as of the date the statement was made or as of such date that may be referenced within the statement. The Company undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events after the date of the press release. Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission and in its press releases.

CONFERENCE CALL, WEB CAST AND REPLAY

The Company will hold a conference call at 9:00 a.m. (Central Time) on Wednesday, January 23, 2019 regarding fourth quarter and full year 2018 results. Individuals interested in listening should call (877) 363-5049 and enter Conference ID #3897075. A simultaneous audio-only web cast and replay of the conference call may be accessed via the Company’s website at http://www.wintrust.com , Investor Relations, Investor News and Events, Presentations & Conference Calls. The text of the fourth quarter and full year 2018 earnings press release will be available on the home page of the Company’s website at http://www.wintrust.com  and at the Investor Relations, Investor News and Events, Press Releases link on its website.

 

WINTRUST FINANCIAL CORPORATION

Supplemental Financial Information

5 Quarter Trends


WINTRUST FINANCIAL CORPORATION - Supplemental Financial Information
Selected Financial Highlights - 5 Quarter Trends
(Dollars in thousands, except per share data)

  Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
  2018 2018 2018 2018 2017
Selected Financial Condition Data (at end of period):          
Total assets $31,241,521  $30,142,731  $29,464,588  $28,456,772  $27,915,970 
Total loans (7) 23,820,691  23,123,951  22,610,560  22,062,134  21,640,797 
Total deposits 26,094,678  24,916,715  24,365,479  23,279,327  23,183,347 
Junior subordinated debentures 253,566  253,566  253,566  253,566  253,566 
Total shareholders’ equity 3,267,570  3,179,822  3,106,871  3,031,250  2,976,939 
Selected Statements of Income Data:          
Net interest income 254,088  247,563  238,170  225,082  219,099 
Net revenue (1) 329,396  347,493  333,403  310,761  300,137 
Net income 79,657  91,948  89,580  81,981  68,781 
Net income per common share – Basic $1.38  $1.59  $1.55  $1.42  $1.19 
Net income per common share – Diluted $1.35  $1.57  $1.53  $1.40  $1.17 
Selected Financial Ratios and Other Data:          
Performance Ratios:          
Net interest margin 3.61% 3.59% 3.61% 3.54% 3.45%
Net interest margin - fully taxable equivalent (non-GAAP) (2) 3.63% 3.61% 3.63% 3.56% 3.49%
Non-interest income to average assets 0.99% 1.34% 1.34% 1.25% 1.18%
Non-interest expense to average assets 2.78% 2.87% 2.90% 2.83% 2.87%
Net overhead ratio (3) 1.79% 1.53% 1.57% 1.58% 1.69%
Return on average assets 1.05% 1.24% 1.26% 1.20% 1.00%
Return on average common equity 10.01% 11.86% 11.94% 11.29% 9.39%
Return on average tangible common equity (non-GAAP) (2) 12.48% 14.64% 14.72% 14.02% 11.65%
Average total assets $30,179,887  $29,525,109  $28,567,579  $27,809,597  $27,179,484 
Average total shareholders’ equity 3,200,654  3,131,943  3,064,154  2,995,592  2,942,999 
Average loans to average deposits ratio (excluding covered loans) 92.4% 92.2% 95.5% 95.2% 92.3%
Period-end loans to deposits ratio (excluding covered loans) 91.3  92.8  92.8  94.8  93.3 
Common Share Data at end of period:          
Market price per common share $66.49  $84.94  $87.05  $86.05  $82.37 
Book value per common share (2) $55.71  $54.19  $52.94  $51.66  $50.96 
Tangible common book value per share (2) $44.73  $44.16  $43.50  $42.17  $41.68 
Common shares outstanding 56,407,558  56,377,169  56,329,276  56,256,498  55,965,207 
Other Data at end of period:(6)          
Leverage Ratio(4) 9.1% 9.3% 9.4% 9.3% 9.3%
Tier 1 Capital to risk-weighted assets (4) 9.6% 10.0% 10.0% 10.0% 9.9%
Common equity Tier 1 capital to risk-weighted assets (4) 9.2% 9.5% 9.6% 9.5% 9.4%
Total capital to risk-weighted assets (4) 11.6% 12.0% 12.1% 12.0% 12.0%
Allowance for credit losses (5) $154,164  $151,001  $144,645  $140,746  $139,174 
Non-performing loans 113,234  127,227  83,282  89,690  90,162 
Allowance for credit losses to total loans (5) 0.65% 0.65% 0.64% 0.64% 0.64%
Non-performing loans to total loans 0.48% 0.55% 0.37% 0.41% 0.42%
Number of:          
Bank subsidiaries 15  15  15  15  15 
Banking offices 167  166  162  157  157 

(1) Net revenue includes net interest income and non-interest income. 
(2) See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio. 
(3) The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency. 
(4) Capital ratios for current quarter-end are estimated. 
(5) The allowance for credit losses includes both the allowance for loan losses and the allowance for unfunded lending-related commitments, but excluding the allowance for covered loan losses. 
(6) Asset quality ratios exclude covered loans. 
(7) Excludes mortgage loans held-for-sale.

 

WINTRUST FINANCIAL CORPORATION - SUPPLEMENTAL FINANCIAL INFORMATION
Consolidated Statements of Condition - 5 Quarter Trends

  (Unaudited) (Unaudited) (Unaudited) (Unaudited)  
  December 31, September 30, June 30, March 31, December 31,
(In thousands) 2018 2018 2018 2018 2017
Assets          
Cash and due from banks $392,142  $279,936  $304,580  $231,407  $277,534 
Federal funds sold and securities purchased under resale agreements 58  57  62  57  57 
Interest bearing deposits with banks 1,099,594  1,137,044  1,221,407  980,380  1,063,242 
Available-for-sale securities, at fair value 2,126,081  2,164,985  1,940,787  1,895,688  1,803,666 
Held-to-maturity securities, at amortized cost 1,067,439  966,438  890,834  892,937  826,449 
Trading account securities 1,692  688  862  1,682  995 
Equity securities with readily determinable fair value 34,717  36,414  37,839  37,832   
Federal Home Loan Bank and Federal Reserve Bank stock 91,354  99,998  96,699  104,956  89,989 
Brokerage customer receivables 12,609  15,649  16,649  24,531  26,431 
Mortgage loans held-for-sale 264,070  338,111  455,712  411,505  313,592 
Loans, net of unearned income 23,820,691  23,123,951  22,610,560  22,062,134  21,640,797 
Allowance for loan losses (152,770) (149,756) (143,402) (139,503) (137,905)
Net loans 23,667,921  22,974,195  22,467,158  21,922,631  21,502,892 
Premises and equipment, net 671,169  664,469  639,345  626,687  621,895 
Lease investments, net 233,208  199,241  194,160  190,775  212,335 
Accrued interest receivable and other assets 696,707  700,568  666,673  601,794  567,374 
Trade date securities receivable 263,523    450    90,014 
Goodwill and other intangible assets 619,237  564,938  531,371  533,910  519,505 
Total assets $31,241,521  $30,142,731  $29,464,588  $28,456,772  $27,915,970 
Liabilities and Shareholders’ Equity          
Deposits:          
Non-interest bearing $6,569,880  $6,399,213  $6,520,724  $6,612,319  $6,792,497 
Interest bearing 19,524,798  18,517,502  17,844,755  16,667,008  16,390,850 
Total deposits 26,094,678  24,916,715  24,365,479  23,279,327  23,183,347 
Federal Home Loan Bank advances 426,326  615,000  667,000  915,000  559,663 
Other borrowings 393,855  373,571  255,701  247,092  266,123 
Subordinated notes 139,210  139,172  139,148  139,111  139,088 
Junior subordinated debentures 253,566  253,566  253,566  253,566  253,566 
Accrued interest payable and other liabilities 666,316  664,885  676,823  591,426  537,244 
Total liabilities 27,973,951  26,962,909  26,357,717  25,425,522  24,939,031 
Shareholders’ Equity:          
Preferred stock 125,000  125,000  125,000  125,000  125,000 
Common stock 56,518  56,486  56,437  56,364  56,068 
Surplus 1,557,984  1,553,353  1,547,511  1,540,673  1,529,035 
Treasury stock (5,634) (5,547) (5,355) (5,355) (4,986)
Retained earnings 1,610,574  1,543,680  1,464,494  1,387,663  1,313,657 
Accumulated other comprehensive loss (76,872) (93,150) (81,216) (73,095) (41,835)
Total shareholders’ equity 3,267,570  3,179,822  3,106,871  3,031,250  2,976,939 
Total liabilities and shareholders’ equity $31,241,521  $30,142,731  $29,464,588  $28,456,772  $27,915,970 

 

WINTRUST FINANCIAL CORPORATION - SUPPLEMENTAL FINANCIAL INFORMATION
Consolidated Statements of Income (Unaudited) - 5 Quarter Trends

  Three Months Ended
  December 31, September 30, June 30, March 31, December 31,
(In thousands, except per share data) 2018 2018 2018 2018 2017
Interest income          
Interest and fees on loans 283,311  271,134  255,063  234,994  226,447 
Mortgage loans held-for-sale 3,409  5,285  4,226  2,818  3,291 
Interest bearing deposits with banks 5,628  5,423  3,243  2,796  2,723 
Federal funds sold and securities purchased under resale agreements     1     
Investment securities 26,656  21,710  19,888  19,128  18,160 
Trading account securities 14  11  4  14  2 
Federal Home Loan Bank and Federal Reserve Bank stock 1,343  1,235  1,455  1,298  1,067 
Brokerage customer receivables 235  164  167  157  150 
Total interest income 320,596  304,962  284,047  261,205  251,840 
Interest expense          
Interest on deposits 55,975  48,736  35,293  26,549  24,930 
Interest on Federal Home Loan Bank advances 2,563  1,947  4,263  3,639  2,124 
Interest on other borrowings 3,199  2,003  1,698  1,699  1,600