Wintrust Financial Corporation Reports First Quarter 2019 Net Income of $89.1 million, An Increase of 9% Over Prior Year Quarter

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ROSEMONT, Ill., April 15, 2019 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation (“Wintrust” or “the Company”) (WTFC) announced net income of $89.1 million or $1.52 per diluted common share for the first quarter of 2019, an increase in diluted earnings per share of 13% compared to the prior quarter and 9% compared to the first quarter of 2018.

Highlights of the First Quarter of 2019:

  • Net interest margin increased by nine basis points from the prior quarter as the yield on earning assets increased by 16 basis points partially offset by a seven basis point increase on the rate paid on interest bearing liabilities.

  • Total loans increased by $394 million from the prior quarter.

  • Total deposits increased by $710 million from the prior quarter.

  • Non-performing assets to total assets declined by one basis point and now comprise 0.43% of total assets.

  • Recorded nine basis points of annualized net charge-offs down from 12 basis points in the prior quarter.

  • Market and interest rate volatility resulted in the following items impacting first quarter 2019 pre-tax earnings:
    ° An $8.7 million negative fair value adjustment recognized on mortgage servicing rights related to changes in valuation assumptions.
    ° Recognized unrealized gains on equity securities of $1.4 million.
    ° Recognized a $464,000 foreign currency remeasurement gain, primarily related to changes in the Canadian currency.

  • Incurred a $1.0 million non-tax-deductible settlement recorded within miscellaneous non-interest expense.

  • Mortgage banking revenue declined by $6.0 million primarily due to lower production revenue and mortgage servicing rights capitalization as mortgage originations for sale totaled $678.5 million in the first quarter of 2019 as compared to $927.8 million in the fourth quarter of 2018.

  • Opened branches in Naples, Florida and the Fulton Market neighborhood of Chicago, as well as completed the acquisition of a Milwaukee branch from PyraMax Bank, FSB.

  • Announced an agreement to buy Rush-Oak Corporation, the parent company of Oak Bank.

Edward J. Wehmer, President and Chief Executive Officer, commented, "Wintrust reported net income of $89.1 million for the first quarter of 2019, up from $79.7 million in the fourth quarter of 2018. The Company experienced strong balance sheet growth as total assets were $1.1 billion higher than the prior quarter end and $3.9 billion higher than the first quarter of 2018. The first quarter was characterized by net interest margin expansion, loan and deposit growth, stable credit quality, market volatility impacting the mortgage division and cost control."

Mr. Wehmer continued, "Net interest margin for the Company increased considerably as earning assets benefited from the increase in short term interest rates in late 2018. Additionally, the Company managed deposits costs which continued to moderate as the rate paid on interest bearing deposits increased by nine basis points from the prior quarter or a calculated beta of 36% on the December 2018 rate hike. While this quarter demonstrates the benefit of Wintrust having maintained a rate sensitive position, the Company has taken action in recent quarters to reduce the asset sensitivity of its balance sheet given the recent increase in rates. Given the shape of the interest rate curve and projected interest rate environment, we expect some pressure on net interest margin in the upcoming quarter. Growing low cost deposits in our market area remains a significant focus of the Company which we believe will be the key in mitigating net interest margin compression."

Mr. Wehmer added, "We experienced strong loan growth in our commercial and commercial premium finance receivables portfolios during the first quarter, increasing our total loans outstanding by $394 million. Our loan pipelines remain consistently strong, and reflect opportunities to continue to grow loans across most of our portfolio segments. Deposits grew by $710 million in the first quarter, lowering our loans to deposits ratio to 90.3%. We expect that we will be able to grow our retail and commercial deposit base while further supplementing deposit growth with deposits generated from the 1031 exchanges facilitated by our Chicago Deferred Exchange Company subsidiary."

Commenting on credit quality, Mr. Wehmer noted, "During the first quarter of 2019, the Company continued its practice of addressing and resolving non-performing credits in a timely fashion. Total non-performing assets increased slightly by $1.0 million during the first quarter, but declined to 0.43% of total assets. Non-performing loans increased by $4.4 million while other real-estate owned declined by $3.3 million during the quarter. Additionally, near-term 60 to 89 day delinquent loans declined to $19.2 million or only 0.1% of total loans in the first quarter of 2019. The allowance for loan losses as a percentage of non-performing loans remained flat to the prior quarter at 135%. As a percentage of average total loans, annualized net charge-offs for the first quarter were nine basis points down from 12 basis points in the prior quarter. We believe that the Company’s reserves remain appropriate and we remain diligent in our review of credit."

Mr. Wehmer further commented, “Our mortgage banking business was impacted by seasonal demand in the first quarter as loan volumes originated for sale decreased to $678.5 million, down from $927.8 million in the fourth quarter of 2018. The decline in origination volume resulted in lower production revenue and a decrease in mortgage servicing rights capitalization revenue. Declining long-term interest rates led to an increase in refinance activity, however home purchase activity continues to make up the majority of our originations accounting for 67% of loan volumes originated for sale in the first quarter. The decrease in long-term mortgage rates resulted in a negative fair value adjustment on our mortgage servicing rights portfolio of $8.7 million related to changes in valuation assumptions as compared to a $7.6 million negative fair value adjustment in the fourth quarter of 2018. These valuation adjustments negatively impacted the net overhead ratio by 11 basis points in the first quarter of 2019 and 10 basis points in the fourth quarter of 2018. We continue to focus on efficiencies in our delivery channels and our operating costs in our mortgage banking area. We believe that the lower mortgage rate outlook bodes well for mortgage origination demand in future quarters."

Turning to the future, Mr. Wehmer stated, “We believe 2019 got off to a strong start as we grew assets significantly while expanding net interest margin, maintaining strong credit quality and managing operating costs. We expect continued organic growth in all areas of our businesses. We will remain diligent in monitoring changes to the interest rate environment and managing the balance sheet to maximize net interest margin and net income. 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, like the announced acquisition of Oak Bank, 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 first quarter of 2019.

http://ml.globenewswire.com/Resource/Download/00fe74d7-f93f-4e19-ab97-d67e97fd6911

Wintrust’s key operating measures and growth rates for the first quarter of 2019, as compared to the fourth quarter of 2018 (sequential quarter) and first quarter of 2018 (linked quarter), are shown in the table below:

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

4th Quarter
2018

% or
basis point (bp)
change from
1st Quarter
2018

Three Months Ended

(Dollars in thousands)

March 31,
2019

December 31,
2018

March 31,
2018

Net income

$

89,146

$

79,657

$

81,981

12

%

9

%

Net income per common share – diluted

$

1.52

$

1.35

$

1.40

13

%

9

%

Net revenue (1)

$

343,643

$

329,396

$

310,761

4

%

11

%

Net interest income

261,986

254,088

225,082

3

%

16

%

Net interest margin

3.70

%

3.61

%

3.54

%

9

bp

16

bp

Net interest margin - fully taxable equivalent (non-GAAP) (2)

3.72

%

3.63

%

3.56

%

9

bp

16

bp

Net overhead ratio (3)

1.72

%

1.79

%

1.58

%

(7)

bp

14

bp

Return on average assets

1.16

%

1.05

%

1.20

%

11

bp

(4)

bp

Return on average common equity

11.09

%

10.01

%

11.29

%

108

bp

(20)

bp

Return on average tangible common equity (non-GAAP) (2)

14.14

%

12.48

%

14.02

%

166

bp

12

bp

At end of period

Total assets

$

32,358,621

$

31,244,849

$

28,456,772

14

%

14

%

Total loans (5)

24,214,629

23,820,691

22,062,134

7

%

10

%

Total deposits

26,804,742

26,094,678

23,279,327

11

%

15

%

Total shareholders’ equity

3,371,972

3,267,570

3,031,250

13

%

11

%

(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

(Dollars in thousands, except per share data)

March 31,
2019

December 31,
2018

March 31,
2018

Selected Financial Condition Data (at end of period):

Total assets

$

32,358,621

$

31,244,849

$

28,456,772

Total loans (1)

24,214,629

23,820,691

22,062,134

Total deposits

26,804,742

26,094,678

23,279,327

Junior subordinated debentures

253,566

253,566

253,566

Total shareholders’ equity

3,371,972

3,267,570

3,031,250

Selected Statements of Income Data:

Net interest income

$

261,986

$

254,088

$

225,082

Net revenue (2)

343,643

329,396

310,761

Net income

89,146

79,657

81,981

Net income per common share – Basic

$

1.54

$

1.38

$

1.42

Net income per common share – Diluted

$

1.52

$

1.35

$

1.40

Selected Financial Ratios and Other Data:

Performance Ratios:

Net interest margin

3.70

%

3.61

%

3.54

%

Net interest margin - fully taxable equivalent (non-GAAP) (3)

3.72

%

3.63

%

3.56

%

Non-interest income to average assets

1.06

%

0.99

%

1.25

%

Non-interest expense to average assets

2.79

%

2.78

%

2.83

%

Net overhead ratio (4)

1.72

%

1.79

%

1.58

%

Return on average assets

1.16

%

1.05

%

1.20

%

Return on average common equity

11.09

%

10.01

%

11.29

%

Return on average tangible common equity (non-GAAP) (3)

14.14

%

12.48

%

14.02

%

Average total assets

$

31,216,171

$

30,179,887

$

27,809,597

Average total shareholders’ equity

3,309,078

3,200,654

2,995,592

Average loans to average deposits ratio

92.7

%

92.4

%

95.2

%

Period-end loans to deposits ratio

90.3

%

91.3

%

94.8

%

Common Share Data at end of period:

Market price per common share

$

67.33

$

66.49

$

86.05

Book value per common share

$

57.33

$

55.71

$

51.66

Tangible book value per common share (non-GAAP) (3)

$

46.38

$

44.67

$

42.17

Common shares outstanding

56,638,968

56,407,558

56,256,498

Other Data at end of period:

Leverage Ratio (5)

9.1

%

9.1

%

9.3

%

Tier 1 capital to risk-weighted assets (5)

9.7

%

9.7

%

10.0

%

Common equity Tier 1 capital to risk-weighted assets (5)

9.3

%

9.3

%

9.5

%

Total capital to risk-weighted assets (5)

11.6

%

11.6

%

12.0

%

Allowance for credit losses (6)

$

159,622

$

154,164

$

140,746

Non-performing loans

117,586

113,234

89,690

Allowance for credit losses to total loans (6)

0.66

%

0.65

%

0.64

%

Non-performing loans to total loans

0.49

%

0.48

%

0.41

%

Number of:

Bank subsidiaries

15

15

15

Banking offices

170

167

157

(1) Excludes mortgage loans held-for-sale.

(2) Net revenue includes net interest income and non-interest income.

(3) See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.

(4) 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.

(5) Capital ratios for current quarter-end are estimated.

(6) The allowance for credit losses includes both the allowance for loan losses and the allowance for unfunded lending-related commitments.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

(Unaudited)

(Unaudited)

(In thousands)

March 31,
2019

December 31,
2018

March 31,
2018

Assets

Cash and due from banks

$

270,765

$

392,142

$

231,407

Federal funds sold and securities purchased under resale agreements

58

58

57

Interest bearing deposits with banks

1,609,852

1,099,594

980,380

Available-for-sale securities, at fair value

2,185,782

2,126,081

1,895,688

Held-to-maturity securities, at amortized cost

1,051,542

1,067,439

892,937

Trading account securities

559

1,692

1,682

Equity securities with readily determinable fair value

47,653

34,717

37,832

Federal Home Loan Bank and Federal Reserve Bank stock

89,013

91,354

104,956

Brokerage customer receivables

14,219

12,609

24,531

Mortgage loans held-for-sale

248,557

264,070

411,505

Loans, net of unearned income

24,214,629

23,820,691

22,062,134

Allowance for loan losses

(158,212

)

(152,770

)

(139,503

)

Net loans

24,056,417

23,667,921

21,922,631

Premises and equipment, net

676,037

671,169

626,687

Lease investments, net

224,240

233,208

190,775

Accrued interest receivable and other assets

888,492

696,707

601,794

Trade date securities receivable

375,211

263,523

Goodwill

573,658

573,141

511,497

Other intangible assets

46,566

49,424

22,413

Total assets

$

32,358,621

$

31,244,849

$

28,456,772

Liabilities and Shareholders’ Equity

Deposits:

Non-interest bearing

$

6,353,456

$

6,569,880

$

6,612,319

Interest bearing

20,451,286

19,524,798

16,667,008

Total deposits

26,804,742

26,094,678

23,279,327

Federal Home Loan Bank advances

576,353

426,326

915,000

Other borrowings

372,194

393,855

247,092

Subordinated notes

139,235

139,210

139,111

Junior subordinated debentures

253,566

253,566

253,566

Accrued interest payable and other liabilities

840,559

669,644

591,426

Total liabilities

28,986,649

27,977,279

25,425,522

Shareholders’ Equity:

Preferred stock

125,000

125,000

125,000

Common stock

56,765

56,518

56,364

Surplus

1,565,185

1,557,984

1,540,673

Treasury stock

(6,650

)

(5,634

)

(5,355

)

Retained earnings

1,682,016

1,610,574

1,387,663

Accumulated other comprehensive loss

(50,344

)

(76,872

)

(73,095

)

Total shareholders’ equity

3,371,972

3,267,570

3,031,250

Total liabilities and shareholders’ equity

$

32,358,621

$

31,244,849

$

28,456,772

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended

(In thousands, except per share data)

March 31,
2019

December 31,
2018

March 31,
2018

Interest income

Interest and fees on loans

$

296,987

$

283,311

$

234,994

Mortgage loans held-for-sale

2,209

3,409

2,818

Interest bearing deposits with banks

5,300

5,628

2,796

Federal funds sold and securities purchased under resale agreements

Investment securities

27,956

26,656

19,128

Trading account securities

8

14

14

Federal Home Loan Bank and Federal Reserve Bank stock

1,355

1,343

1,298

Brokerage customer receivables

155

235

157

Total interest income

333,970

320,596

261,205

Interest expense

Interest on deposits

60,976

55,975

26,549

Interest on Federal Home Loan Bank advances

2,450

2,563

3,639

Interest on other borrowings

3,633

3,199

1,699

Interest on subordinated notes

1,775

1,788

1,773

Interest on junior subordinated debentures

3,150

2,983

2,463

Total interest expense

71,984

66,508

36,123

Net interest income

261,986

254,088

225,082

Provision for credit losses

10,624

10,401

8,346

Net interest income after provision for credit losses

251,362

243,687

216,736

Non-interest income

Wealth management

23,977

22,726

22,986

Mortgage banking

18,158

24,182

30,960

Service charges on deposit accounts

8,848

9,065

8,857

Gains (losses) on investment securities, net

1,364

(2,649

)

(351

)

Fees from covered call options

1,784

626

1,597

Trading (losses) gains, net

(171

)

(155

)

103

Operating lease income, net

10,796

10,882

9,691

Other

16,901

10,631

11,836

Total non-interest income

81,657

75,308

85,679

Non-interest expense

Salaries and employee benefits

125,723

122,111

112,436

Equipment

11,770

11,523

10,072

Operating lease equipment depreciation

8,319

8,462

6,533

Occupancy, net

16,245

15,980

13,767

Data processing

7,525

8,447

8,493

Advertising and marketing

9,858

9,414

8,824

Professional fees

5,556

9,259

6,649

Amortization of other intangible assets

2,942

1,407

1,004

FDIC insurance

3,576

4,044

4,362

OREO expense, net

632

1,618

2,926

Other

22,228

19,068

19,283

Total non-interest expense

214,374

211,333

194,349

Income before taxes

118,645

107,662

108,066

Income tax expense

29,499

28,005

26,085

Net income

$

89,146

$

79,657

$

81,981

Preferred stock dividends

2,050

2,050

2,050

Net income applicable to common shares

$

87,096

$

77,607

$

79,931

Net income per common share - Basic

$

1.54

$

1.38

$

1.42

Net income per common share - Diluted

$

1.52

$

1.35

$

1.40

Cash dividends declared per common share

$

0.25

$

0.19

$

0.19

Weighted average common shares outstanding

56,529

56,395

56,137

Dilutive potential common shares

699

892

888

Average common shares and dilutive common shares

57,228

57,287

57,025

EARNINGS PER SHARE

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

Three Months Ended

(In thousands, except per share data)

March 31,
2019

December 31,
2018

March 31,
2018

Net income

$

89,146

$

79,657

$

81,981

Less: Preferred stock dividends

2,050

2,050

2,050

Net income applicable to common shares

(A)

87,096

77,607

79,931

Weighted average common shares outstanding

(B)

56,529

56,395

56,137

Effect of dilutive potential common shares:

Common stock equivalents

699

892

888

Weighted average common shares and effect of dilutive potential common shares

(C)

57,228

57,287

57,025

Net income per common share:

Basic

(A/B)

$

1.54

$

1.38

$

1.42

Diluted

(A/C)

$

1.52

$

1.35

$

1.40

Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants, and shares to be issued under the Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, being treated as if they had been either exercised or issued, computed by application of the treasury stock method. While potentially dilutive common shares are typically included in the computation of diluted earnings per share, potentially dilutive common shares are excluded from this computation in periods in which the effect would reduce the loss per share or increase the income per share.

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 book value per common 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 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 fully taxable-equivalent 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

March 31,

December 31,

September 30,

June 30,

March 31,

(Dollars and shares in thousands)

2019

2018

2018

2018

2018

Calculation of Net Interest Margin and Efficiency Ratio

(A) Interest Income (GAAP)

$

333,970

$

320,596

$

304,962

$

284,047

$

261,205

Taxable-equivalent adjustment:

- Loans

1,034

980

941

812

670

- Liquidity Management Assets

565

586

575

566

531

- Other Earning Assets

2

4

3

1

3

(B) Interest Income (non-GAAP)

$

335,571

$

322,166

$

306,481

$

285,426

$

262,409

(C) Interest Expense (GAAP)

$

71,984

$

66,508

$

57,399

$

45,877

$

36,123

(D) Net Interest Income (GAAP) (A minus C)

$

261,986

$

254,088

$

247,563

$

238,170

$

225,082

(E) Net Interest Income (non-GAAP) (B minus C)

$

263,587

$

255,658

$

249,082

$

239,549

$

226,286

Net interest margin (GAAP)

3.70

%

3.61

%

3.59

%

3.61

%

3.54

%

Net interest margin (non-GAAP)

3.72

%

3.63

%

3.61

%

3.63

%

3.56

%

(F) Non-interest income

$

81,657

$

75,308

$

99,930

$

95,233

$

85,679

(G) Gains (losses) on investment securities, net

1,364

(2,649

)

90

12

(351

)

(H) Non-interest expense

214,374

211,333

213,637

206,769

194,349

Efficiency ratio (H/(D+F-G))

62.63

%

63.65

%

61.50

%

62.02

%

62.47

%

Efficiency ratio (non-GAAP) (H/(E+F-G))

62.34

%

63.35

%

61.23

%

61.76

%

62.23

%

Calculation of Tangible Common Equity Ratio (at period end)

Total shareholders’ equity

$

3,371,972

$

3,267,570

$

3,179,822

$

3,106,871

$

3,031,250

Less: Non-convertible preferred stock

(125,000

)

(125,000

)

(125,000

)

(125,000

)

(125,000

)

Less: Intangible assets

(620,224

)

(622,565

)

(564,938

)

(531,371

)

(533,910

)

(I) Total tangible common shareholders’ equity

$

2,626,748

$

2,520,005

$

2,489,884

$

2,450,500

$

2,372,340

(J) Total assets

$

32,358,621

$

31,244,849

$

30,142,731

$

29,464,588

$

28,456,772

Less: Intangible assets

(620,224

)

(622,565

)

(564,938

)

(531,371

)

(533,910

)

(K) Total tangible assets

$

31,738,397

$

30,622,284

$

29,577,793

$

28,933,217

$

27,922,862

Common equity to assets ratio (GAAP) (L/J)

10.0

%

10.1

%

10.1

%

10.1

%

10.2

%

Tangible common equity ratio (non-GAAP) (I/K)

8.3

%

8.2

%

8.4

%

8.5

%

8.5

%

Calculation of Tangible Book Value per Common Share

Total shareholders’ equity

$

3,371,972

$

3,267,570

$

3,179,822

$

3,106,871

$

3,031,250

Less: Preferred stock

(125,000

)

(125,000

)

(125,000

)

(125,000

)

(125,000

)

(L) Total common equity

$

3,246,972

$

3,142,570

$

3,054,822

$

2,981,871

$

2,906,250

(M) Actual common shares outstanding

56,639

56,408

56,377

56,329

56,256

Book value per common share (L/M)

$

57.33

$

55.71

$

54.19

$

52.94

$

51.66

Tangible book value per common share (non-GAAP) (I/M)

$

46.38

$

44.67

$

44.16

$

43.50

$

42.17

Calculation of Return on Average Tangible Common Equity

(N) Net income applicable to common shares

$

87,096

$

77,607

$

89,898

$

87,530

$

79,931

Add: Intangible asset amortization

2,942

1,407

1,163

997

1,004

Less: Tax effect of intangible asset amortization

(731

)

(366

)

(292

)

(263

)

(243

)

After-tax intangible asset amortization

2,211

1,041

871

734

761

(O) Tangible net income applicable to common shares (non-GAAP)

$

89,307

$

78,648

$

90,769

$

88,264

$

80,692

Total average shareholders' equity

$

3,309,078

$

3,200,654

$

3,131,943

$

3,064,154

$

2,995,592

Less: Average preferred stock

(125,000

)

(125,000

)

(125,000

)

(125,000

)

(125,000

)

(P) Total average common shareholders' equity

$

3,184,078

$

3,075,654

$

3,006,943

$

2,939,154

$

2,870,592

Less: Average intangible assets

(622,240

)

(574,757

)

(547,552

)

(533,496

)

(536,676

)

(Q) Total average tangible common shareholders’ equity (non-GAAP)

$

2,561,838

$

2,500,897

$

2,459,391

$

2,405,658

$

2,333,916

Return on average common equity, annualized (N/P)

11.09

%

10.01

%

11.86

%

11.94

%

11.29

%

Return on average tangible common equity, annualized (non-GAAP) (O/Q)

14.14

%

12.48

%

14.64

%

14.72

%

14.02

%

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 first quarter of 2019, revenue within this unit was primarily driven by increased net interest income due to increased earning assets and a higher net interest margin, partially offset by the impact of having two fewer days in the period. The net interest margin increased in the first quarter of 2019 compared to the fourth quarter of 2018 primarily as a result of higher yields within the loan portfolio. Mortgage banking revenue decreased by $6.0 million from $24.2 million for the fourth quarter of 2018 to $18.2 million for the first quarter of 2019. The lower revenue was primarily due to to lower origination volumes, negative fair value adjustments recognized on mortgage servicing rights related to changes in valuation assumptions and pay-offs, partially offset by higher production margins. Mortgage loans originated for sale during the current period decreased to $678.5 million from $927.8 million in the fourth quarter of 2018. Home purchases represented 67% of loan volume originated for sale for the first quarter of 2019. The Company's gross commercial and commercial real estate loan pipelines remain strong. Before the impact of scheduled payments and prepayments, at March 31, 2019, gross commercial and commercial real estate loan pipelines totaled $1.3 billion, or $812.9 million when adjusted for the probability of closing, compared to $1.1 billion, or $671.1 million when adjusted for the probability of closing, at December 31, 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 first quarter of 2019, the specialty finance unit experienced higher revenue as a result of increased volumes and higher yields within its insurance premium financing receivables portfolio. Originations within the insurance premium financing receivables portfolio were $2.1 billion during the first quarter of 2019 and average balances increased by $186.1 million. The increase in average balances along with higher yields on these loans resulted in a $5.9 million increase in interest income attributed to this portfolio. The Company's leasing business showed steady growth during the first quarter of 2019, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing $65.4 million to $1.3 billion at the end of the first quarter of 2019. Revenues from the Company's out-sourced administrative services business remained relatively steady, totaling approximately $1.0 million in the first quarter of 2019 and $1.3 million in the fourth 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 increased by $1.3 million in the first quarter of 2019 compared to the fourth quarter of 2018, totaling $24.0 million in the current period. At March 31, 2019, the Company’s wealth management subsidiaries had approximately $25.1 billion of assets under administration, which includes $3.7 billion of assets owned by the Company and its subsidiary banks, representing a $883.1 million increase from the $24.2 billion of assets under administration at December 31, 2018. The increase in the first quarter of 2019 was primarily due to the impact of market conditions on the value of assets under administration. Tax-deferred like-kind exchange services provided by CDEC, our Qualified Intermediary for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031, resulted in average deposit balances from these transactions totaling $821.1 million during the first quarter of 2019.

LOANS

Loan Portfolio Mix and Growth Rates

% Growth

(Dollars in thousands)

March 31,
2019

December 31,
2018

March 31,
2018

From (1)
December 31,
2018

From
March 31,
2018

Balance:

Commercial

$

7,994,191

$

7,828,538

$

7,060,871

9

%

13

%

Commercial real estate

6,973,505

6,933,252

6,633,520

2

5

Home equity

528,448

552,343

626,547

(18

)

(16

)

Residential real estate

1,053,524

1,002,464

869,104

21

21

Premium finance receivables - commercial

2,988,788

2,841,659

2,576,150

21

16

Premium finance receivables - life insurance

4,555,369

4,541,794

4,189,961

1

9

Consumer and other

120,804

120,641

105,981

1

14

Total loans, net of unearned income

$

24,214,629

$

23,820,691

$

22,062,134

7

%

10

%

Mix:

Commercial

33

%

33

%

32

%

Commercial real estate

29

29

30

Home equity

2

2

3

Residential real estate

4

4

4

Premium finance receivables - commercial

12

12

12

Premium finance receivables - life insurance

19

19

19

Consumer and other

1

1

Total loans, net of unearned income

100

%

100

%

100

%

(1) Annualized.


Commercial and Commercial Real Estate Loan Portfolios

As of March 31, 2019

% 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

$

5,250,953

35.0

%

$

38,858

$

$

50,178

Franchise

879,906

5.9

15,799

12,055

Mortgage warehouse lines of credit

174,284

1.2

1,399

Asset-based lending

1,040,834

7.0

1,135

8,868

Leases

622,884

4.2

1,675

PCI - commercial loans (1)

25,330

0.1

2,499

463

Total commercial

$

7,994,191

53.4

%

$

55,792

$

2,499

$

74,638

Commercial Real Estate:

Construction

$

803,669

5.4

%

$

1,030

$

$

9,142

Land

147,701

1.0

54

4,194

Office

926,375

6.2

4,482

6,267

Industrial

964,960

6.4

267

6,534

Retail

895,267

6.0

7,645

6,065

Multi-family

1,117,385

7.5

303

10,875

Mixed use and other

2,007,487

13.4

2,152

14,653

PCI - commercial real estate (1)

110,661

0.7

4,265

120

Total commercial real estate

$

6,973,505

46.6

%

$

15,933

$

4,265

$

57,850

Total commercial and commercial real estate

$

14,967,696

100.0

%

$

71,725

$

6,764

$

132,488

Commercial real estate - collateral location by state:

Illinois

$

5,331,784

76.5

%

Wisconsin

758,097

10.9

Total primary markets

$

6,089,881

87.4

%

Indiana

175,350

2.5

Florida

55,528

0.8

Arizona

61,375

0.9

Michigan

35,650

0.5

California

67,545

1.0

Other

488,176

6.9

Total

$

6,973,505

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)

March 31,
2019

December 31,
2018

March 31,
2018

From (1)
December 31,
2018

From
March 31,
2018

Balance:

Non-interest bearing

$

6,353,456

$

6,569,880

$

6,612,319

(13

)%

(4

)%

NOW and interest bearing demand deposits

2,948,576

2,897,133

2,315,122

7

27

Wealth management deposits (2)

3,328,781

2,996,764

2,495,134

45

33

Money market

6,093,596

5,704,866

4,617,122

28

32

Savings

2,729,626

2,665,194

2,901,504

10

(6

)

Time certificates of deposit

5,350,707

5,260,841

4,338,126

7

23

Total deposits

$

26,804,742

$

26,094,678

$

23,279,327

11

%

15

%

Mix:

Non-interest bearing

24

%

25

%

28

%

NOW and interest bearing demand deposits

11

11

10

Wealth management deposits (2)

12

12

11

Money market

23

22

20

Savings

10

10

12

Time certificates of deposit

20

20

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 March 31, 2019

(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

$

249

$

32,771

$

99,466

$

874,080

$

1,006,566

1.52

%

4-6 months

75,064

30,871

701,663

807,598

1.74

%

7-9 months

13,019

583,211

596,230

1.80

%

10-12 months

22,078

686,059

708,137

1.98

%

13-18 months

7,181

909,809

916,990

2.24

%

19-24 months

15,942

459,659

475,601

2.70

%

24+ months

1,000

9,496

829,089

839,585

2.65

%

Total

$

76,313

$

131,358

$

99,466

$

5,043,570

$

5,350,707

2.05

%

(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 first quarter of 2019 compared to the fourth quarter of 2018 (sequential quarter) and first quarter of 2018 (linked quarter), respectively:

Average Balance
for three months ended,

Interest
for three months ended,

Yield/Rate
for three months ended,

(Dollars in thousands)

March 31,
2019

December 31,
2018

March 31,
2018

March 31,
2019

December 31,
2018

March 31,
2018

March 31,
2019

December 31,
2018

March 31,
2018

Interest-bearing deposits with banks and cash equivalents (1)

$

897,629

$

1,042,860

$

749,973

$

5,300

$

5,628

$

2,796

2.39

%

2.14

%

1.51

%

Investment securities (2)

3,630,577

3,347,496

2,892,617

28,521

27,242

19,659

3.19

3.23

2.76

FHLB and FRB stock

94,882

98,084

105,414

1,355

1,343

1,298

5.79

5.43

4.99

Liquidity management assets (3)(8)

$

4,623,088

$

4,488,440

$

3,748,004

$

35,176

$

34,213

$

23,753

3.09

%

3.02

%

2.57

%

Other earning assets (3)(4)(8)

13,591

16,204

27,571

165

253

174

4.91

6.19

2.56

Mortgage loans held-for-sale

188,190

265,717

281,181

2,209

3,409

2,818

4.76

5.09

4.06

Loans, net of unearned income (3)(5)(8)

23,880,916

23,164,154

21,711,342

298,021

284,291

235,664

5.06

4.87

4.40

Total earning assets (8)

$

28,705,785

$

27,934,515

$

25,768,098

$

335,571

$

322,166

$

262,409

4.74

%

4.58

%

4.13

%

Allowance for loan losses

(157,782

)

(154,438

)

(143,108

)

Cash and due from banks

283,019

271,403

254,489

Other assets

2,385,149

2,128,407

1,930,118

Total assets

$

31,216,171

$

30,179,887

$

27,809,597

NOW and interest bearing demand deposits

$

2,803,338

$

2,671,283

$

2,255,692

$

4,613

$

4,007

$

1,386

0.67

%

0.60

%

0.25

%

Wealth management deposits

2,614,035

2,289,904

2,250,139

7,000

7,119

5,441

1.09

1.23

0.98

Money market accounts

5,915,525

5,632,268

4,520,620

19,460

16,936

4,667

1.33

1.19

0.42

Savings accounts

2,715,422

2,553,133

2,813,772

4,249

3,096

2,732

0.63

0.48

0.39

Time deposits

5,267,796

5,381,029

4,322,111

25,654

24,817

12,323

1.98

1.83

1.16

Interest-bearing deposits

$

19,316,116

$

18,527,617

$

16,162,334

$

60,976

$

55,975

$

26,549

1.29

%

1.20

%

0.67

%

Federal Home Loan Bank advances

594,335

551,846

872,811

2,450

2,563

3,639

1.67

1.84

1.69

Other borrowings

465,571

385,878

263,125

3,633

3,199

1,699

3.16

3.29

2.62

Subordinated notes

139,217

139,186

139,094

1,775

1,788

1,773

5.10

5.14

5.10

Junior subordinated debentures

253,566

253,566

253,566

3,150

2,983

2,463

4.97

4.60

3.89

Total interest-bearing liabilities

$

20,768,805

$

19,858,093

$

17,690,930

$

71,984

$

66,508

$

36,123

1.40

%

1.33

%

0.83

%

Non-interest bearing deposits

6,444,378

6,542,228

6,639,845

Other liabilities

693,910

578,912

483,230

Equity

3,309,078

3,200,654

2,995,592

Total liabilities and shareholders’ equity

$

31,216,171

$

30,179,887

$

27,809,597

Interest rate spread (6)(8)

3.34

%

3.25

%

3.30

%

Less: Fully tax-equivalent adjustment

(1,601

)

(1,570

)

(1,204

)

(0.02

)

(0.02

)

(0.02

)

Net free funds/contribution (7)

$

7,936,980

$

8,076,422

$

8,077,168

0.38

0.38

0.26

Net interest income/ margin (GAAP) (8)

$

261,986

$

254,088

$

225,082

3.70

%

3.61

%

3.54

%

Fully tax-equivalent adjustment

1,601

1,570

1,204

0.02

0.02

0.02

Net interest income/ margin (non-GAAP) (8)

$

263,587

$

255,658

$

226,286

3.72

%

3.63

%

3.56

%

(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 March 31, 2019, December 31, 2018 and March 31, 2018 were $1.6 million, $1.6 million and $1.2 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 first quarter of 2019, net interest income totaled $262.0 million, an increase of $7.9 million as compared to the fourth quarter of 2018 and an increase of $36.9 million as compared to the first quarter of 2018. Net interest margin was 3.70% (3.72% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2019 compared to 3.61% (3.63% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2018 and 3.54% (3.56% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2018. The $7.9 million increase in net interest income in the first quarter of 2019 compared to the fourth quarter of 2018 was attributable to a $5.5 million increase from higher levels of earning assets and a $8.0 million increase due to a higher net interest margin, partially offset by a $5.6 million decrease due to two less days in the quarter.

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 March 31, 2019, December 31, 2018 and March 31, 2018 is as follows:

Static Shock Scenario

+200
Basis
Points

+100
Basis
Points

-100
Basis
Points

March 31, 2019

14.9

%

7.8

%

(8.5

)%

December 31, 2018

15.6

%

7.9

%

(8.6

)%

March 31, 2018

18.8

%

9.7

%

(11.6

)%

Ramp Scenario

+200
Basis
Points

+100
Basis
Points

-100
Basis
Points

March 31, 2019

6.7

%

3.5

%

(3.3

)%

December 31, 2018

7.4

%

3.8

%

(3.6

)%

March 31, 2018

9.0

%

4.6

%

(4.8

)%

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 March 31, 2019 by date at which the loans reprice or mature, and the type of rate exposure:

As of March 31, 2019

One year or less

From one to five years

Over five years

(Dollars in thousands)

Total

Commercial

Fixed rate

$

164,370

$

1,149,701

$

755,402

$

2,069,473

Variable rate

5,917,650

6,923

145

5,924,718

Total commercial

$

6,082,020

$

1,156,624

$

755,547

$

7,994,191

Commercial real estate

Fixed rate

419,045

1,956,704

332,469

2,708,218

Variable rate

4,237,177

28,102

8

4,265,287

Total commercial real estate

$

4,656,222

$

1,984,806

$

332,477

$

6,973,505

Home equity

Fixed rate

16,272

12,934

4,981

34,187

Variable rate

494,261

494,261

Total home equity

$

510,533

$

12,934

$

4,981

$

528,448

Residential real estate

Fixed rate

30,648

20,501

235,107

286,256

Variable rate

49,860

314,090

403,318

767,268

Total residential real estate

$

80,508

$

334,591

$

638,425

$

1,053,524

Premium finance receivables - commercial

Fixed rate

2,928,872

59,916

2,988,788

Variable rate

Total premium finance receivables - commercial

$

2,928,872

$

59,916

$

$

2,988,788

Premium finance receivables - life insurance

Fixed rate

19,925

66,737

6,087

92,749

Variable rate

4,462,620

4,462,620

Total premium finance receivables - life insurance

$

4,482,545

$

66,737

$

6,087

$

4,555,369

Consumer and other

Fixed rate

80,068

11,236

2,072

93,376

Variable rate

27,387

41

27,428

Total consumer and other

$

107,455

$

11,277

$

2,072

$

120,804

Total per category

Fixed rate

3,659,200

3,277,729

1,336,118

8,273,047

Variable rate

15,188,955

349,156

403,471

15,941,582

Total loans, net of unearned income

$

18,848,155

$

3,626,885

$

1,739,589

$

24,214,629

Variable Rate Loan Pricing by Index:

Prime

$

2,307,308

One- month LIBOR

8,188,860

Three- month LIBOR

381,204

Twelve- month LIBOR

4,836,490

Other

227,720

Total variable rate

$

15,941,582

http://ml.globenewswire.com/Resource/Download/56f85e52-e126-403a-9736-e900730297bc

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 $8.2 billion of variable rate loans tied to one-month LIBOR and $4.8 billion of variable rate loans tied to twelve-month LIBOR. The above chart shows:

Changes in

Prime

1-month
LIBOR

12-month
LIBOR

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

First Quarter 2019

+0 bps

-1 bps

-30 bps

NON-INTEREST INCOME

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

Three Months Ended

March 31,

December 31,

March 31,

Q1 2019 compared to
Q4 2018

Q1 2019 compared to
Q1 2018

(Dollars in thousands)

2019

2018

2018

$ Change

% Change

$ Change

% Change

Brokerage

$

4,516

$

4,997

$

6,031

$

(481

)

(10

)%

$

(1,515

)

(25

)%

Trust and asset management

19,461

17,729

16,955

1,732

10

2,506

15

Total wealth management

$

23,977

$

22,726

$

22,986

$

1,251

6

%

$

991

4

%

Mortgage banking

18,158

24,182

30,960

(6,024

)

(25

)

(12,802

)

(41

)

Service charges on deposit accounts

8,848

9,065

8,857

(217

)

(2

)

(9

)

Gains (losses) on investment securities, net

1,364

(2,649

)

(351

)

4,013

N

M

1,715

N

M

Fees from covered call options

1,784

626

1,597

1,158

N

M

187

12

Trading (losses) gains, net

(171

)

(155

)

103

(16

)

10

(274

)

N

M

Operating lease income, net

10,796

10,882

9,691

(86

)

(1

)

1,105

11

Other:

Interest rate swap fees

2,831

2,602

2,237

229

9

594

27

BOLI

1,591

(466

)

714

2,057

N

M

877

N

M

Administrative services

1,030

1,260

1,061

(230

)

(18

)

(31

)

(3

)

Foreign currency remeasurement gains (losses)

464

(1,149

)

(328

)

1,613

N

M

792

N

M

Early pay-offs of capital leases

5

3

33

2

67

(28

)

(85

)

Miscellaneous

10,980

8,381

8,119

2,599

31

2,861

35

Total Other

$

16,901

$

10,631

$

11,836

$

6,270

59

%

$

5,065

43

%

Total Non-Interest Income

$

81,657

$

75,308

$

85,679

$

6,349

8

%

$

(4,022

)

(5

)%

NM - Not meaningful.


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

The increase in wealth management revenue during the current period as compared to the fourth quarter of 2018 is primarily attributable to higher fees on tax-deferred like-kind exchange services and market appreciation related to managed money accounts with fees based on assets under management. Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors, the brokerage commissions, managed money fees and insurance product commissions at Wintrust Investments and fees from tax-deferred like-kind exchange services provided by CDEC.

The decrease in mortgage banking revenue in the first quarter of 2019 as compared to the fourth quarter of 2018 resulted primarily from lower origination volumes and negative fair value adjustments recognized on mortgage servicing rights related to changes in valuation assumptions and pay-offs, partially offset by higher production margins. Mortgage loans originated for sale totaled $678.5 million in the first quarter of 2019 as compared to $927.8 million in the fourth quarter of 2018 and $778.9 million in the first quarter of 2018. 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. 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

(Dollars in thousands)

March 31,
2019

December 31,
2018

March 31,
2018

Originations:

Retail originations

$

365,602

$

463,196

$

539,911

Correspondent originations

148,100

289,101

126,464

Veterans First originations

164,762

175,483

112,477

Total originations for sale (A)

$

678,464

$

927,780

$

778,852

Originations for investment

93,689

93,275

43,249

Total originations

$

772,153

$

1,021,055

$

822,101

Purchases as a percentage of originations for sale

67

%

71

%

73

%

Refinances as a percentage of originations for sale

33

29

27

Total

100

%

100

%

100

%

Production Margin:

Production revenue (B) (1)

$

16,606

$

18,657

$

20,526

Production margin (B / A)

2.45

%

2.01

%

2.64

%

Mortgage Servicing:

Loans serviced for others (C)

$

7,014,269

$

6,545,870

$

4,795,335

MSRs, at fair value (D)

71,022

75,183

54,572

Percentage of MSRs to loans serviced for others (D / C)

1.01

%

1.15

%

1.14

%

Components of Mortgage Banking Revenue:

Production revenue

$

16,606

$

18,657

$

20,526

MSR - current period capitalization

6,580

9,683

4,159

MSR - collection of expected cash flows - paydowns

(505

)

(496

)

(443

)

MSR - collection of expected cash flows - payoffs

(1,492

)

(896

)

(759

)

MSR - changes in fair value model assumptions

(8,744

)

(7,638

)

4,133

Servicing income

5,460

4,917

2,905

Other

253

(45

)

439

Total mortgage banking revenue

$

18,158

$

24,182

$

30,960

(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.


The net gains and net losses recognized on investment securities in the first quarter of 2019 and fourth quarter of 2018, respectively, were primarily due to unrealized gains and losses recognized on equity securities held by the Company, including a large cap value mutual fund.

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 March 31, 2019, December 31, 2018 or March 31, 2018.

The increase in BOLI income was primarily the result of higher market returns during the first quarter of 2019 on certain investments supporting deferred compensation plan benefits.

The increase in miscellaneous non-interest income in the first quarter of 2019 as compared to the fourth quarter of 2018 is primarily due to income from investments in partnerships and positive adjustments from foreign currency remeasurement of the Company's Canadian subsidiary.

NON-INTEREST EXPENSE

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

Three Months Ended

March 31,

December 31,

March 31,

Q1 2019 compared to
Q4 2018

Q1 2019 compared to
Q1 2018

(Dollars in thousands)

2019

2018

2018

$ Change

% Change

$ Change

% Change

Salaries and employee benefits:

Salaries

$

74,037

$

67,708

$

61,986

$

6,329

9

%

$

12,051

19

%

Commissions and incentive compensation

31,599

33,656

31,949

(2,057

)

(6

)

(350

)

(1

)

Benefits

20,087

20,747

18,501

(660

)

(3

)

1,586

9

Total salaries and employee benefits

125,723

122,111

112,436

3,612

3

13,287

12

Equipment

11,770

11,523

10,072

247

2

1,698

17

Operating lease equipment depreciation

8,319

8,462

6,533

(143

)

(2

)

1,786

27

Occupancy, net

16,245

15,980

13,767

265

2

2,478

18

Data processing

7,525

8,447

8,493

(922

)

(11

)

(968

)

(11

)

Advertising and marketing

9,858

9,414

8,824

444

5

1,034

12

Professional fees

5,556

9,259

6,649

(3,703

)

(40

)

(1,093

)

(16

)

Amortization of other intangible assets

2,942

1,407

1,004

1,535

N

M

1,938

N

M

FDIC insurance

3,576

4,044

4,362

(468

)

(12

)

(786

)

(18

)

OREO expense, net

632

1,618

2,926

(986

)

(61

)

(2,294

)

(78

)

Other:

Commissions - 3rd party brokers

718

779

1,252

(61

)

(8

)

(534

)

(43

)

Postage

2,450

2,047

1,866

403

20

584

31

Miscellaneous

19,060

16,242

16,165

2,818

17

2,895

18

Total other

22,228

19,068

19,283

3,160

17

2,945

15

Total Non-Interest Expense

$

214,374

$

211,333

$

194,349

$

3,041

1

%

$

20,025

10

%

NM - Not meaningful.


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

Salaries and employee benefits expense increased in the first quarter of 2019 compared to the fourth quarter of 2018 primarily as a result of lower salary deferrals related to loan origination costs and an increase in costs related to deferred compensation plans impacted by market returns of related BOLI investments.

Professional fees decreased in the first quarter of 2019 compared to the fourth quarter of 2018 primarily due to lower legal and consulting fees during the current period.

The increase in amortization of intangible assets in the first quarter of 2019 compared to the fourth quarter of 2018 was primarily due to the amortization of certain acquired intangible assets related to the acquisition of CDEC in mid-December of 2018.

Other miscellaneous expense increased during the first quarter of 2019 compared to the fourth quarter of 2018 as a result of various other expenses, including a $1.0 million non-tax-deductible settlement in the first quarter of 2019.

INCOME TAXES

The Company recorded income tax expense of $29.5 million in the first quarter of 2019 compared to $28.0 million in the fourth quarter of 2018 and $26.1 million in the first quarter of 2018. The effective tax rates were 24.86% in the first quarter of 2019, 26.01% in the fourth quarter of 2018 and 24.14% in the first quarter of 2018. The effective tax rates were impacted by excess tax benefits related to share-based compensation. These excess tax benefits were $1.6 million in the first quarter of 2019 compared to $160,000 in the fourth quarter of 2018 and $2.6 million in the first quarter of 2018. Excess tax benefits are expected to be higher in the first quarter when the majority of the Company's shared-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

Three Months Ended

March 31,

December 31,

March 31,

(Dollars in thousands)

2019

2018

2018

Allowance for loan losses at beginning of period

$

152,770

$

149,756

$

137,905

Provision for credit losses

10,624

10,401

8,346

Other adjustments

(27

)

(79

)

(40

)

Reclassification (to) from allowance for unfunded lending-related commitments

(16

)

(150

)

26

Charge-offs:

Commercial

503

6,416

2,687

Commercial real estate

3,734

219

813

Home equity

88

715

357

Residential real estate

3

267

571

Premium finance receivables - commercial

2,210

1,741

4,721

Premium finance receivables - life insurance

Consumer and other

102

148

129

Total charge-offs

6,640

9,506

9,278

Recoveries:

Commercial

318

225

262

Commercial real estate

480

1,364

1,687

Home equity

62

105

123

Residential real estate

29

47

40

Premium finance receivables - commercial

556

567

385

Premium finance receivables - life insurance

Consumer and other

56

40

47

Total recoveries

1,501

2,348

2,544

Net charge-offs

(5,139

)

(7,158

)

(6,734

)

Allowance for loan losses at period end

$

158,212

$

152,770

$

139,503

Allowance for unfunded lending-related commitments at period end

1,410

1,394

1,243

Allowance for credit losses at period end

$

159,622

$

154,164

$

140,746

Annualized net charge-offs (recoveries) by category as a percentage of its own respective category’s average:

Commercial

0.01

%

0.33

%

0.14

%

Commercial real estate

0.19

(0.07

)

(0.05

)

Home equity

0.02

0.43

0.15

Residential real estate

(0.01

)

0.10

0.26

Premium finance receivables - commercial

0.23

0.16

0.68

Premium finance receivables - life insurance

0.00

0.00

0.00

Consumer and other

0.16

0.30

0.26

Total loans, net of unearned income

0.09

%

0.12

%

0.13

%

Net charge-offs as a percentage of the provision for credit losses

48.37

%

68.82

%

80.69

%

Loans at period-end

$

24,214,629

$

23,820,691

$

22,062,134

Allowance for loan losses as a percentage of loans at period end

0.65

%

0.64

%

0.63

%

Allowance for credit losses as a percentage of loans at period end

0.66

%

0.65

%

0.64

%

The allowance for credit 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 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, for the first quarter of 2019 totaled nine basis points on an annualized basis compared to 12 basis points on an annualized basis in the fourth quarter of 2018 and 13 basis points on an annualized basis in the first quarter of 2018. Net charge-offs totaled $5.1 million in the first quarter of 2019, a $2.0 million decrease from $7.2 million in the fourth quarter of 2018 and a $1.6 million decrease from $6.7 million in the first quarter of 2018. The decrease in net charge-offs in the first quarter of 2019 compared to fourth quarter of 2018 is primarily the result of lower charge-offs within the commercial portfolio, partially offset by an increase in charge-offs within the commercial real estate portfolio, during the current period. The provision for credit losses, totaled $10.6 million for the first quarter of 2019 compared to $10.4 million for the fourth quarter of 2018 and $8.3 million for the first quarter of 2018.

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 following table presents the provision for credit losses by component for the periods presented:

Three Months Ended

March 31,

December 31,

March 31,

(Dollars in thousands)

2019

2018

2018

Provision for loan losses

$

10,608

$

10,251

$

8,372

Provision for unfunded lending-related commitments

16

150

(26

)

Provision for credit losses

$

10,624

$

10,401

$

8,346

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, as of March 31, 2019 and December 31, 2018.

As of March 31, 2019

Recorded

Calculated

As a percentage
of its own respective

(Dollars in thousands)

Investment

Allowance

category’s balance

Commercial:(1)

Commercial and industrial

$

4,460,202

$

46,436

1.04

%

Asset-based lending

1,037,632

8,868

0.85

Tax exempt

514,789

3,255

0.63

Leases

615,015

1,675

0.27

Commercial real estate:(1)

Residential construction

38,986

879

2.25

Commercial construction

759,826

8,240

1.08

Land

146,654

4,194

2.86

Office

891,365

6,266

0.70

Industrial

931,343

6,532

0.70

Retail

863,435

6,065

0.70

Multi-family

1,073,431

10,874

1.01

Mixed use and other

1,931,079

14,641

0.76

Home equity(1)

500,636

8,584

1.71

Residential real estate(1)

1,027,586

7,524

0.73

Total core loan portfolio

$

14,791,979

$

134,033

0.91

%

Commercial:

Franchise

$

834,911

$

11,975

1.43

%

Mortgage warehouse lines of credit

174,284

1,399

0.80

Community Advantage - homeowner associations

185,488

465

0.25

Aircraft

11,491

15

0.13

Purchased commercial loans (2)

160,379

550

0.34

Commercial real estate:

Purchased commercial real estate (2)

337,386

159

0.05

Purchased home equity (2)

27,812

43

0.15

Purchased residential real estate (2)

25,938

106

0.41

Premium finance receivables

U.S. commercial insurance loans

2,620,703

6,251

0.24

Canada commercial insurance loans (2)

368,085

592

0.16

Life insurance loans (1)

4,389,599

1,376

0.03

Purchased life insurance loans (2)

165,770

Consumer and other (1)

117,561

1,246

1.06

Purchased consumer and other (2)

3,243

2

0.06

Total consumer, niche and purchased loan portfolio

$

9,422,650

$

24,179

0.26

%

Total loans, net of unearned income

$

24,214,629

$

158,212

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 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 commercial loans (2)

187,355

684

0.37

Commercial real estate:

Purchased commercial real estate (2)

356,942

139

0.04

Purchased home equity (2)

33,529

79

0.24

Purchased 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 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

$

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 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 March 31, 2019 and December 31, 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 $158.2 million of allowance for loan losses, there is $6.1 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 March 31, 2019 and December 31, 2018:

90+ days

60-89

30-59

As of March 31, 2019

and still

days past

days past

(Dollars in thousands)

Nonaccrual

accruing

due

due

Current

Total Loans

Loan Balances:

Commercial (1)

$

55,792

$

2,499

$

1,787

$

49,700

$

7,884,413

$

7,994,191

Commercial real estate (1)

15,933

4,265

5,612

54,872

6,892,823

6,973,505

Home equity

7,885

810

4,315

515,438

528,448

Residential real estate (1)

15,879

1,481

509

11,112

1,024,543

1,053,524

Premium finance receivables - commercial

14,797

6,558

5,628

20,767

2,941,038

2,988,788

Premium finance receivables - life insurance (1)

168

4,788

35,046

4,515,367

4,555,369

Consumer and other (1)

326

280

47

350

119,801

120,804

Total loans, net of unearned income

$

110,612

$

15,251

$

19,181

$

176,162

$

23,893,423

$

24,214,629

As of March 31, 2019
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

%

0.0

%

0.0

%

0.6

%

98.7

%

100.0

%

Commercial real estate (1)

0.2

0.1

0.1

0.8

98.8

100.0

Home equity

1.5

0.2

0.8

97.5

100.0

Residential real estate (1)

1.5

0.1

0.0

1.1

97.3

100.0

Premium finance receivables - commercial

0.5

0.2

0.2

0.7

98.4

100.0

Premium finance receivables - life insurance (1)

0.0

0.1

0.8

99.1

100.0

Consumer and other (1)

0.3

0.2

0.0

0.3

99.2

100.0

Total loans, net of unearned income

0.5

%

0.1

%

0.1

%

0.7

%

98.6

%

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 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

%

0.0

%

0.0

%

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

0.0

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

%