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Wintrust Financial Corporation Reports Record Full-Year 2019 Net Income of $355.7 million and Fourth Quarter 2019 Net Income of $86.0 million, up 8% from the Fourth Quarter 2018

ROSEMONT, Ill., Jan. 21, 2020 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation (“Wintrust” or “the Company”) (WTFC) announced record net income of $355.7 million or $6.03 per diluted common share for the year ended December 31, 2019 compared to net income of $343.2 million or $5.86 per diluted common share for the same period of 2018.  The Company recorded net income of $86.0 million or $1.44 per diluted common share for the fourth quarter of 2019, a decrease in diluted earnings per common share of 14.8% compared to the prior quarter and an increase of 6.7% compared to the fourth quarter of 2018.

Highlights of the Fourth Quarter of 2019:
Comparative information to the third quarter of 2019

  • Total assets increased by $1.7 billion, including $240 million from the acquisition of STC Capital Bancshares and $607 million from the acquisition of SBC, Incorporated, or 19% on an annualized basis.
  • Total loans increased by $1.1 billion, including $164 million from the acquisition of STC Capital Bancshares and $418 million from the acquisition of SBC, Incorporated, or 17% on an annualized basis.
  • Total deposits increased by $1.4 billion, including $194 million from the acquisition of STC Capital Bancshares and $496 million from the acquisition of SBC, Incorporated, or 19% on an annualized basis. The increase was net of a $201 million reduction in brokered deposits.
  • Mortgage banking production revenue decreased by $6.3 million as mortgage loans originated for sale totaled $1.2 billion in the fourth quarter of 2019 as compared to $1.4 billion in the third quarter of 2019.
  • Net interest income decreased by $3.0 million as a 20 basis point decline in net interest margin was partially offset by a $1.5 billion increase in average earning assets.
  • Recorded net charge-offs of $12.7 million in the fourth quarter of 2019 as compared to $9.4 million in the third quarter of 2019. The $12.7 million includes a $5.3 million charge-off of a commercial loan, which was fully reserved for in prior quarters.
  • The ratio of non-performing assets to total assets declined by two basis points to 0.36%.

Other highlights of the fourth quarter of 2019

  • Recorded a $2.8 million reduction to FDIC insurance expense related to assessment credits received from the FDIC. The Company received $3.9 million of assessment credits from the FDIC in the third quarter of 2019. 
  • Recorded an increase in the value of mortgage servicing rights related to changes in fair value model assumptions, net of derivative contract activity held as an economic hedge, of $1.8 million.
  • Incurred acquisition related costs of $2.4 million in the fourth quarter of 2019 as compared to $1.3 million in the third quarter of 2019.
  • Recognized various non-operating charges totaling $5.4 million. This includes expenses related to a litigation settlement, loan remediation, contingent consideration related to previous acquisitions of certain mortgage businesses, pension plan terminations, operating lease impairment and losses on partnership investments.
  • Announced approval of a stock buyback program which authorizes the repurchase of up to $125 million in common shares.

Expansion activity

  • Opened two new branches in the Chicago suburbs located in Palatine and Maywood, Illinois.
  • Completed the previously announced acquisition of STC Bancshares Corp., the parent company of STC Capital Bank.
  • Completed the previously announced acquisition of SBC, Incorporated, the parent company of Countryside Bank.

Edward J. Wehmer, President and Chief Executive Officer, commented, "As the decade closes, I reflect back on the recent history of Wintrust and I am proud of the franchise that we have built. In the last 10 years, Wintrust has experienced significant growth and has become a household name in the Chicago and Milwaukee areas. Wintrust now boasts the largest deposit base in the Chicago market area among locally headquartered banks which is a product of our consistent growth strategy that has yielded 12% compound annual growth in assets, loans and deposits over the past 10 years. Additionally, the last nine years of the decade reported record annual net income. Admittedly, 2019 was not what we expected with respect to our profitability goals. However, 2019 was a success with respect to our efforts to increase market share and household penetration in our market areas and continue to establish Wintrust as a reliable partner with excellent customer service. We believe that our core operating tenants that have produced the success that we have experienced over the past 10 years will continue to serve us favorably as we seek to grow strategically in 2020 and beyond."

Transitioning to the current quarter, Mr. Wehmer proceeded, "Wintrust reported net income of $86.0 million for the fourth quarter of 2019, down from $99.1 million in the third quarter of 2019 and record annual net income of $355.7 million in 2019 as compared to $343.2 million in 2018. The Company experienced strong balance sheet growth as total assets were $1.7 billion higher than the prior quarter end and $5.4 billion higher than at the fourth quarter of 2018. The fourth quarter was characterized by strong balance sheet growth, decreased net interest margin, decreased mortgage banking revenue, stable credit quality, and a continued focus to increase franchise value in our market area."

Mr. Wehmer continued, "The Company experienced deposit growth of $1.4 billion in the fourth quarter of 2019 which was net of a reduction of $201 million in brokered deposits to optimize our funding base. Non-brokered deposits now comprise approximately 97% of total deposits. Additionally, the Company grew total loans by $1.1 billion with growth diversified across various loan portfolios including the commercial, commercial real estate, life insurance premium finance receivables and residential real estate portfolios. We remain aggressive in growing quality assets that meet our standards and will seek to fund that by expanding deposit market share and household penetration."

Mr. Wehmer commented, "Net interest margin declined by 20 basis points in the fourth quarter of 2019 as compared to the third quarter of 2019 primarily due to downward repricing of variable rate loans partially offset by improvement in deposit pricing. Given the relatively stable short-term outlook on interest rates, we expect to hold loan yields steady while continuing to reduce our interest bearing deposit costs. Additionally, we expect to deploy the excess liquidity gathered in the third and fourth quarters of 2019 to enhance net interest income. As always, we will strive to grow without a commensurate increase in expenses to enhance our net overhead ratio which was 1.53% in the fourth quarter of 2019."

Mr. Wehmer noted, “Our mortgage banking business production decreased in the current quarter as loan volumes originated for sale decreased to $1.2 billion from $1.4 billion in the third quarter of 2019. The decrease in origination volumes was primarily attributed to the seasonal purchase market decline which was partially mitigated by elevated refinancing activity. Our mortgage servicing rights portfolio increased by $10.1 million primarily due to the capitalization of retained servicing rights of $14.5 million partially offset by a $6.8 million reduction related to payoffs and paydowns. We recorded a $1.8 million increase due to changes in fair value assumptions, net of derivative contract activity held as an economic hedge. We continue to focus on efficiencies in our delivery channels and our operating costs in our mortgage banking area. We believe that the mortgage rate outlook in the first quarter of 2020 will continue to result in elevated refinancing activity, which will supplement the seasonally challenging purchase market."

Commenting on credit quality, Mr. Wehmer stated, "Overall credit quality metrics were positive in the fourth quarter of 2019. The Company recorded net charge-offs of $12.7 million in the fourth quarter of 2019 as compared to $9.4 million in the third quarter of 2019. The $12.7 million of net charge-offs in the current quarter includes a $5.3 million charge-off of a commercial loan, which was fully reserved for in prior quarters. Although we experienced elevated charge-offs in the second quarter of 2019, net charge-offs for the year of 2019 were 20 basis points. The ratio of non-performing assets as a percent of total assets declined by two basis points to a historically low level of 0.36%.  We believe that the Company’s reserves remain appropriate and we remain diligent in our review of credit."

Turning to the future, Mr. Wehmer stated, “We have experienced significant franchise growth in 2019 and believe that our opportunities for both internal and external growth remain consistently strong. Total period end loans were $663 million higher than average total loans in the current quarter which provides momentum into the first quarter of 2020. We plan to continue our steady and measured approach to achieve our main objectives of growing franchise value, increasing profitability, leveraging our expense infrastructure and continuing to increase shareholder value. Evaluating strategic acquisitions, like the completed acquisitions of STC Bancshares Corp. and SBC, Incorporated, as well as focusing on organic branch growth will continue to be a part of our overall growth strategy with the goal of becoming Chicago’s bank and Wisconsin’s bank."

The graphs below illustrate the annual trend of certain financial highlights, including the 10 year compound annual growth rate ("CAGR").

Graphs available at the following link:
http://ml.globenewswire.com/Resource/Download/ee80b169-0adb-4a48-bc91-93f46e6dc982

SUMMARY OF RESULTS:

BALANCE SHEET

Total assets grew by $1.7 billion in the fourth quarter of 2019 primarily due to a $1.1 billion increase in loans and an $836 million increase in available for sale securities, partially offset by a reduction in liquidity. The increase in assets and loans include acquired balances of $847 million and $582 million, respectively. The Company believes that the $2.2 billion of interest bearing deposits with banks held as of December 31, 2019 is more than sufficient liquidity to operate its business plan. Excess liquidity is expected to be deployed in future quarters to enhance net interest income.

Total liabilities grew by $1.6 billion in the fourth quarter of 2019 primarily comprised of a $1.4 billion increase in total deposits of which $690 million related to acquisitions. The Company successfully grew deposits in the fourth quarter through organic retail channels, acquisitions and its wealth management segment. In addition, the total deposit growth was net of a $201 million reduction in brokered deposits. Management believes in substantially funding the Company's balance sheet with core deposits and utilizes brokered or wholesale funding sources as appropriate to manage its liquidity position as well as for interest rate risk management purposes. Non-brokered deposits now comprise approximately 97% of total deposits.

For more information regarding changes in the Company’s balance sheet, see Consolidated Statements of Condition and Tables 1 through 4 in this report.

NET INTEREST INCOME

For the fourth quarter of 2019, net interest income totaled $261.9 million, a decrease of $3.0 million as compared to the third quarter of 2019 and an increase of $7.8 million as compared to the fourth quarter of 2018. The $3.0 million decrease in net interest income in the fourth quarter of 2019 compared to the third quarter of 2019 was attributable to the impact of a 20 basis point decline in net interest margin. This impact was partially offset by $1.5 billion of growth in average earning assets.

Net interest margin was 3.17% (3.19% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2019 compared to 3.37% (3.39% on a fully taxable-equivalent basis, non-GAAP) during the third quarter of 2019 and 3.61% (3.63% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2018. The 20 basis point decrease in net interest margin in the fourth quarter of 2019 as compared to the third quarter of 2019 was attributable to a 28 basis point decline in the yield on earnings assets and three basis point decrease in the net free funds contribution partially offset by an 11 basis point decrease in the rate paid on interest bearing liabilities. The 28 basis point decline in the yield on earning assets in the current quarter as compared to the third quarter of 2019 was primarily due to a 24 basis point decline in the yield on loans along with lower yields on interest bearing cash. The 11 basis point decrease in the rate paid on interest bearing liabilities in the current quarter as compared to the prior quarter is primarily due to a 10 basis point decrease in the rate paid on interest bearing deposits as management initiated various deposit rate reductions given the recent decrease in the interest rate environment.

For the full twelve months of 2019, net interest income totaled $1.1 billion, an increase of $90.0 million as compared to the full twelve months of 2018. Net interest margin was 3.45% (3.47% on a fully taxable-equivalent basis, non-GAAP) for the full twelve months of 2019 compared to 3.59% (3.61% on a fully taxable-equivalent basis, non-GAAP) for the full twelve months of 2018.

For more information regarding net interest income, see Tables 5 through 10 in this report.

ASSET QUALITY

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 average total loans, in the fourth quarter of 2019 totaled 19 basis points on an annualized basis compared to 15 basis points on an annualized basis in the third quarter of 2019 and 12 basis points on an annualized basis in the fourth quarter of 2018. Net charge-offs totaled $12.7 million in the fourth quarter of 2019, a $3.3 million increase from $9.4 million in the third quarter of 2019 and a $5.5 million increase from $7.2 million in the fourth quarter of 2018. The $12.7 million of net charge-offs in the current quarter includes a $5.3 million charge-off of a commercial loan, which was fully reserved for in prior quarters. The provision for credit losses totaled $7.8 million for the fourth quarter of 2019 compared to $10.8 million for the third quarter of 2019 and $10.4 million for the fourth quarter of 2018. For more information regarding net charge-offs, see Table 11 in this report.

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.

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 as of December 31, 2019 and September 30, 2019 is shown on Table 12 of this report.

As of December 31, 2019, $50.5 million of all loans, or 0.2%, were 60 to 89 days past due and $248.2 million, or 0.9%, were 30 to 59 days (or one payment) past due. As of September 30, 2019, $51.1 million of all loans, or 0.2%, were 60 to 89 days past due and $134.2 million, or 0.5%, were 30 to 59 days (or one payment) past due. Many 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.

The Company’s home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at December 31, 2019 that are current with regard to the contractual terms of the loan agreement represent 97.8% of the total home equity portfolio. Residential real estate loans at December 31, 2019 that are current with regards to the contractual terms of the loan agreements comprise 97.1% of total residential real estate loans outstanding. For more information regarding past due loans, see Table 13 in this report.

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 $156.8 million of allowance for loan losses, there was $11.6 million of non-accretable credit discount on purchased loans reported in accordance with ASC 310-30 that is available to absorb credit losses as of December 31, 2019.

The ratio of non-performing assets to total assets was 0.36% as of December 31, 2019, compared to 0.38% at September 30, 2019, and 0.44% at December 31, 2018. Non-performing assets, excluding PCI loans, totaled $132.8 million at December 31, 2019, compared to $132.0 million at September 30, 2019 and $138.3 million at December 31, 2018. Non-performing loans, excluding PCI loans, totaled $117.6 million, or 0.44% of total loans, at December 31, 2019 compared to $114.3 million, or 0.44% of total loans, at September 30, 2019 and $113.2 million, or 0.48% of total loans, at December 31, 2018. Other real estate owned ("OREO") of $15.2 million at December 31, 2019 decreased $2.3 million compared to $17.5 million at September 30, 2019 and decreased $9.6 million compared to $24.8 million at December 31, 2018. Management is pursuing the resolution of all non-performing assets. 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. For more information regarding non-performing assets, see Table 14 in this report.

NON-INTEREST INCOME

Wealth management revenue increased by $1.0 million during the fourth quarter of 2019 as compared to the third quarter of 2019 primarily due to increased asset management revenue. 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 the Chicago Deferred Exchange Company.

Mortgage banking revenue decreased by $3.0 million in the fourth quarter of 2019 as compared to the third quarter of 2019, primarily as a result of lower production revenues, partially offset by an increase in the fair value of the mortgage servicing rights portfolio in the fourth quarter of 2019. Production revenue decreased by $6.3 million in the fourth quarter of 2019 as compared to the third quarter of 2019 primarily due to a decrease in origination volumes. The decrease in origination volumes was primarily attributed to the seasonal purchase market decline which was partially mitigated by elevated refinancing activity. The percentage of origination volume from refinancing activities was 60% in the fourth quarter of 2019 as compared to 52% in the third quarter of 2019. Production margin declined from 2.88% in the third quarter of 2019 to 2.78% in the fourth quarter of 2019. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market.

During the fourth quarter of 2019, the fair value of the mortgage servicing rights portfolio increased as retained servicing rights led to the capitalization of $14.5 million along with a positive fair value adjustment of $2.3 million partially offset by a reduction in value of $6.8 million due to payoffs and paydowns of the existing portfolio. The Company entered into interest rate swaps at the beginning of the fourth quarter of 2019 to economically hedge a portion of the potential negative fair value changes recorded in earnings related to its mortgage servicing rights portfolio. The Company recorded a loss of $483,000 on the interest rate swaps held as economic hedges against the mortgage servicing rights primarily related to the mark to market at year end which was recorded in mortgage banking revenue.

The net gains recognized on investment securities in the fourth quarter of 2019 were $587,000 as compared to $710,000 in third quarter of 2019. The gains recorded in the fourth quarter of 2019 relate to unrealized gains recognized on equity securities held by the Company.

Other non-interest income decreased by $3.5 million in the fourth quarter of 2019 as compared to the third quarter of 2019 primarily due to decreased income from investments in partnerships and interest rate swap fees.

For more information regarding non-interest income, see Tables 15 and 16 in this report.

NON-INTEREST EXPENSE

Salaries and employee benefits expense increased by $4.9 million in the fourth quarter of 2019 as compared to the third quarter of 2019. The $4.9 million increase is comprised of an increase of $4.8 million in salaries expense and $159,000 in benefits expense, partially offset by a decrease of $63,000 in commissions and incentive compensation. The increase in salaries and employee benefits expense is primarily due to increased staffing as the Company grows, $1.0 million of higher acquisition related costs and $487,000 of costs to terminate two pension plans.

Equipment expense totaled $14.5 million in the fourth quarter of 2019, an increase of $1.2 million as compared to the third quarter of 2019. The increase in the current quarter relates primarily to increased software depreciation expenses.

Advertising and marketing expenses in the fourth quarter of 2019 decreased by $858,000 as compared to the third quarter of 2019 primarily related to lower corporate sponsorship costs. 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 utilized which are determined based on the market area, targeted audience, competition and various other factors.

FDIC insurance expense totaled $1.3 million in the fourth quarter of 2019, an increase of $1.2 million as compared to the third quarter of 2019. In the current quarter, the Company recorded a $2.8 million reduction to FDIC insurance expense related to assessment credits received from the FDIC. The Company received $3.9 million of assessment credits from the FDIC in the third quarter of 2019.

Occupancy expense totaled $17.1 million in the fourth quarter of 2019, an increase of $2.1 million as compared to the third quarter of 2019. The increase in the current quarter relates primarily to increased expenses due to acquired locations, property tax expense and rental expense.

Miscellaneous expense in the fourth quarter of 2019 increased $5.6 million as compared to the third quarter of 2019. The increase in the current quarter as compared to the third quarter of 2019 is primarily due to a litigation settlement, contingent consideration related to previous acquisitions of certain mortgage businesses and overlapping telecommunication charges. Miscellaneous expense includes ATM expenses, correspondent bank charges, directors' fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses and lending origination costs that are not deferred.

For more information regarding non-interest expense, see Table 17 in this report.

INCOME TAXES

The Company recorded income tax expense of $30.7 million in the fourth quarter of 2019 compared to $35.5 million in the third quarter of 2019 and $28.0 million in the fourth quarter of 2018. The effective tax rates were 26.33% in the fourth quarter of 2019 compared to 26.36% in the third quarter of 2019 and 26.01% in the fourth quarter of 2018. During the twelve months of 2019, the Company recorded income tax expense of $124.4 million compared to $117.0 million for the twelve months of 2018. The effective tax rates were 25.91% for the twelve months of 2019 and 25.42% for the twelve months of 2018.

The year-to-date effective tax rates were impacted by excess tax benefits related to share-based compensation. These excess tax benefits were $1.8 million in the twelve months of 2019 and $3.9 million in the twelve months of 2018. Excess tax benefits 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.

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 2019, this unit expanded its loan and deposit portfolios. However, the banking segment also experienced net interest margin compression in part due to current market conditions.

Mortgage banking revenue was $47.9 million for the fourth quarter of 2019 a decrease from $50.9 million for the third quarter of 2019. Services charges on deposit accounts totaled $11.0 million in the fourth quarter of 2019 an increase of $1.0 million as compared to the third quarter of 2019 primarily due to higher account analysis fees. The Company's gross commercial and commercial real estate loan pipelines remain strong. Before the impact of scheduled payments and prepayments, gross commercial and commercial real estate loan pipelines were estimated to be approximately $1.0 billion to $1.1 billion at December 31, 2019. When adjusted for the probability of closing, the pipelines were estimated to be approximately $650 million to $720 million at December 31, 2019.

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. Originations within the insurance premium financing receivables portfolio were $2.5 billion during the fourth quarter of 2019 and average balances increased by $217.4 million as compared to the third quarter of 2019. The increase in average balances was more than offset by margin compression in this portfolio resulting in a $2.4 million decrease in interest income attributed to the insurance premium finance receivables portfolio. The Company's leasing business grew during the fourth quarter of 2019, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing $123.8 million to $1.6 billion at the end of the fourth quarter of 2019. Revenues from the Company's out-sourced administrative services business remained flat at $1.1 million in the third quarter of 2019 and fourth quarter of 2019.

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 $1.0 million in the fourth quarter of 2019 compared to the third quarter of 2019, totaling $25.0 million in the current period. At December 31, 2019, the Company’s wealth management subsidiaries had approximately $27.6 billion of assets under administration, which included $4.2 billion of assets owned by the Company and its subsidiary banks, representing a $1.5 billion increase from the $26.1 billion of assets under administration at September 30, 2019. Successful new business development efforts and favorable equity markets have contributed to growth in revenue and assets under management.

ITEMS IMPACTING COMPARATIVE FINANCIAL RESULTS

Acquisitions

On November 1, 2019, the Company completed its acquisition of SBC, Incorporated (“SBC”). SBC was the parent company of Countryside Bank. Through this business combination, the Company acquired Countryside Bank's six banking offices located in Countryside, Burbank, Darien, Homer Glen, Oak Brook and Chicago, Illinois. As of the acquisition date, the Company acquired approximately $620 million in assets, including approximately $423 million in loans, and approximately $508 million in deposits. The Company recorded goodwill of approximately $40 million on the acquisition.

On October 7, 2019, the Company completed its acquisition of STC Bancshares Corp. (“STC”). STC was the parent company of STC Capital Bank. Through this business combination, the Company acquired STC Capital Bank's five banking offices located in the communities of St. Charles, Geneva and South Elgin, Illinois. As of the acquisition date, the Company acquired approximately $250 million in assets, including approximately $174 million in loans, and approximately $202 million in deposits. The Company recorded goodwill of approximately $19 million on the acquisition.

On May 24, 2019, the Company completed its acquisition of Oak Bank. Through this business combination, the Company acquired Oak Bank's one banking location in Chicago, Illinois. As of the acquisition date, the Company acquired approximately $223 million in assets, including approximately $125 million in loans, and approximately $161 million in deposits. The Company recorded goodwill of approximately $12 million on the acquisition.

On December 14, 2018, the Company acquired Elektra Holding Company, LLC, the parent company of Chicago Deferred Exchange Company, LLC ("CDEC"). CDEC is a provider of Qualified Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031. CDEC has successfully facilitated more than 8,000 like-kind exchanges in the past decade for taxpayers nationwide. These transactions typically generate customer deposits during the period following the sale of the property until such proceeds are used to purchase a replacement property. The Company recorded goodwill of approximately $37 million on the acquisition.

On December 7, 2018, the Company completed its acquisition of certain assets and the assumption of certain liabilities of American Enterprise Bank. Through this asset acquisition, the Company acquired approximately $164 million in assets, including approximately $119 million in loans, and approximately $151 million in deposits, as of the acquisition date.

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. As of the acquisition date, the Company acquired approximately $283 million in assets, including approximately $153 million in loans, and approximately $213 million in deposits. The Company recorded goodwill of approximately $27 million on the acquisition.

On January 4, 2018, the Company acquired iFreedom Direct Corporation DBA Veterans First Mortgage ("Veterans First") with assets including mortgage-servicing-rights on approximately 10,000 loans, totaling an estimated $2 billion in unpaid principal balance, as of the acquisition date. The Company recorded goodwill of approximately $9 million on the acquisition.

ITEMS IMPACTING FINANCIAL RESULTS IN FUTURE PERIODS

Adoption of New Credit Losses Accounting Standard

Beginning in 2020, the Company is adopting the new current expected credit losses standard, or CECL, which impacts the measurement of the Company’s allowance for credit losses (including the allowance for unfunded lending-related commitments). CECL replaces the previous incurred loss methodology, which delays recognition until such loss is probable, with a methodology that reflects an estimate of lifetime expected credit losses considering current economic condition and forecasts. Though other assets, including investment securities and other receivables, are considered in-scope of the standard and will require a measurement of the allowance for credit loss, the most significant impact of CECL remains within the Company’s loan portfolios and related lending commitments.

Based upon the Company’s current composition of assets as well as current considerations of existing and expected future economic conditions, the Company estimates an increase to the allowance for credit losses of approximately 30% to 50% at adoption related to its loan portfolios and related lending commitments. Approximately 80% of the estimated increase is related to additions to existing reserves for unfunded lending-related commitments due to the consideration under CECL of expected utilization by the Company's borrowers over the life of such commitments, as well as for acquired loans, which previously considered credit discounts. The Company estimates an insignificant impact at adoption of measuring an allowance for credit losses for the other in-scope assets noted above. The adjustment at adoption on January 1, 2020 is recognized as an adjustment to the balance sheet (retained earnings or the related asset basis dependent upon whether the asset is purchased credit deteriorated from a prior acquisition). After adoption, adjustments to the allowance for credit losses will primarily be recorded as provision for credit losses on the Company’s income statement. The estimate of the allowance for credit losses is highly dependent upon considerations of current and expected economic conditions, which may result in earnings volatility across economic cycles.

WINTRUST FINANCIAL CORPORATION
Key Operating Measures

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

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

3nd Quarter
2019
  % or
basis point  (bp)
change from
4rd Quarter
2018
  Three Months Ended  
(Dollars in thousands, except per share data) Dec 31, 2019   Sep 30, 2019   Dec 31, 2018  
Net income $ 85,964     $ 99,121     $ 79,657   (13 )%   8 %
Net income per common share – diluted 1.44     1.69     1.35   (15 )   7  
Net revenue (1) 374,099     379,989     329,396   (2 )   14  
Net interest income 261,879     264,852     254,088   (1 )   3  
Net interest margin 3.17 %   3.37 %   3.61 % (20 )bp   (44 )bp
Net interest margin - fully taxable equivalent (non-GAAP) (2) 3.19     3.39     3.63   (20 )   (44 )
Net overhead ratio (3) 1.53     1.40     1.79   13     (26 )
Return on average assets 0.96     1.16     1.05   (20 )   (9 )
Return on average common equity 9.52     11.42     10.01   (190 )   (49 )
Return on average tangible common equity (non-GAAP) (2) 12.17     14.36     12.48   (219 )   (31 )
At end of period                
Total assets $ 36,620,583     $ 34,911,902     $ 31,244,849   19 %   17 %
Total loans (5) 26,800,290     25,710,171     23,820,691   17     13  
Total deposits 30,107,138     28,710,379     26,094,678   19     15  
Total shareholders’ equity 3,691,250     3,540,325     3,267,570   17     13  


(1) Net revenue is net interest income plus non-interest income.
(2) See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 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) Dec 31, 2019   Sep 30, 2019   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018 Dec 31, 2019   Dec 31, 2018
Selected Financial Condition Data (at end of period):      
Total assets $ 36,620,583     $ 34,911,902     $ 33,641,769     $ 32,358,621     $ 31,244,849        
Total loans (1) 26,800,290     25,710,171     25,304,659     24,214,629     23,820,691        
Total deposits 30,107,138     28,710,379     27,518,815     26,804,742     26,094,678        
Junior subordinated debentures 253,566     253,566     253,566     253,566     253,566        
Total shareholders’ equity 3,691,250     3,540,325     3,446,950     3,371,972     3,267,570        
Selected Statements of Income Data:      
Net interest income $ 261,879     $ 264,852     $ 266,202     $ 261,986     $ 254,088   $ 1,054,919     $ 964,903  
Net revenue (2) 374,099     379,989     364,360     343,643     329,396   1,462,091     1,321,053  
Net income 85,964     99,121     81,466     89,146     79,657   355,697     343,166  
Net income per common share – Basic 1.46     1.71     1.40     1.54     1.38   6.11     5.95  
Net income per common share – Diluted 1.44     1.69     1.38     1.52     1.35   6.03     5.86  
Selected Financial Ratios and Other Data:      
Performance Ratios:      
Net interest margin 3.17 %   3.37 %   3.62 %   3.70 %   3.61 % 3.45 %   3.59 %
Net interest margin - fully taxable equivalent (non-GAAP) (3) 3.19     3.39     3.64     3.72     3.63   3.47     3.61  
Non-interest income to average assets 1.25     1.35     1.23     1.06     0.99   1.23     1.23  
Non-interest expense to average assets 2.78     2.74     2.87     2.79     2.78   2.79     2.85  
Net overhead ratio (4) 1.53     1.40     1.64     1.72     1.79   1.57     1.62  
Return on average assets 0.96     1.16     1.02     1.16     1.05   1.07     1.18  
Return on average common equity 9.52     11.42     9.68     11.09     10.01   10.41     11.26  
Return on average tangible common equity (non-GAAP) (3) 12.17     14.36     12.28     14.14     12.48   13.22     13.95  
Average total assets $ 35,645,190     $ 33,954,592     $ 32,055,769     $ 31,216,171     $ 30,179,887   $ 33,232,083     $ 29,028,420  
Average total shareholders’ equity 3,622,184     3,496,714     3,414,340     3,309,078     3,200,654   3,461,535     3,098,740  
Average loans to average deposits ratio 88.8 %   90.6 %   93.9 %   92.7 %   92.4 % 91.4 %   93.7 %
Period-end loans to deposits ratio 89.0     89.6     92.0     90.3     91.3        
Common Share Data at end of period:      
Market price per common share $ 70.90     $ 64.63     $ 73.16     $ 67.33     $ 66.49        
Book value per common share 61.68     60.24     58.62     57.33     55.71        
Tangible book value per common share (non-GAAP) (3) 49.70     49.16     47.48     46.38     44.67        
Common shares outstanding 57,821,891     56,698,429     56,667,846     56,638,968     56,407,558        
Other Data at end of period:      
Tier 1 leverage ratio (5) 8.6 %   8.8 %   9.1 %   9.1 %   9.1 %      
Risk-based capital ratios:                        
Tier 1 capital ratio (5) 9.5     9.7     9.6     9.8     9.7        
Common equity tier 1 capital ratio(5) 9.2     9.3     9.2     9.3     9.3        
Total capital ratio (5) 12.1     12.4     12.4     11.7     11.6        
Allowance for credit losses (6) $ 158,461     $ 163,273     $ 161,901     $ 159,622     $ 154,164        
Non-performing loans 117,588     114,284     113,447     117,586     113,234        
Allowance for credit losses to total loans (6) 0.59 %   0.64 %   0.64 %   0.66 %   0.65 %      
Non-performing loans to total loans 0.44     0.44     0.45     0.49     0.48        
Number of:                        
Bank subsidiaries 15     15     15     15     15        
Banking offices 187     174     172     170     167        


(1) Excludes mortgage loans held-for-sale.
(2) Net revenue includes net interest income and non-interest income.
(3) See “Supplemental Non-GAAP Financial Measures/Ratios” at Table 18 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)   (Unaudited)   (Unaudited)    
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,
(In thousands) 2019   2019   2019   2019   2018
Assets                  
Cash and due from banks $ 286,167     $ 448,755     $ 300,934     $ 270,765     $ 392,142  
Federal funds sold and securities purchased under resale agreements 309     59     58     58     58  
Interest bearing deposits with banks 2,164,560     2,260,806     1,437,105     1,609,852     1,099,594  
Available-for-sale securities, at fair value 3,106,214     2,270,059     2,186,154     2,185,782     2,126,081  
Held-to-maturity securities, at amortized cost 1,134,400     1,095,802     1,191,634     1,051,542     1,067,439  
Trading account securities 1,068     3,204     2,430     559     1,692  
Equity securities with readily determinable fair value 50,840     46,086     44,319     47,653     34,717  
Federal Home Loan Bank and Federal Reserve Bank stock 100,739     92,714     92,026     89,013     91,354  
Brokerage customer receivables 16,573     14,943     13,569     14,219     12,609  
Mortgage loans held-for-sale 377,313     464,727     394,975     248,557     264,070  
Loans, net of unearned income 26,800,290     25,710,171     25,304,659     24,214,629     23,820,691  
Allowance for loan losses (156,828 )   (161,763 )   (160,421 )   (158,212 )   (152,770 )
Net loans 26,643,462     25,548,408     25,144,238     24,056,417     23,667,921  
Premises and equipment, net 754,328     721,856     711,214     676,037     671,169  
Lease investments, net 231,192     228,647     230,111     224,240     233,208  
Accrued interest receivable and other assets 1,061,141     1,087,864     1,023,896     888,492     696,707  
Trade date securities receivable         237,607     375,211     263,523  
Goodwill 645,220     584,315     584,911     573,658     573,141  
Other intangible assets 47,057     43,657     46,588     46,566     49,424  
Total assets $ 36,620,583     $ 34,911,902     $ 33,641,769     $ 32,358,621     $ 31,244,849  
Liabilities and Shareholders’ Equity                  
Deposits:                  
Non-interest bearing $ 7,216,758     $ 7,067,960     $ 6,719,958     $ 6,353,456     $ 6,569,880  
Interest bearing 22,890,380     21,642,419     20,798,857     20,451,286     19,524,798  
Total deposits 30,107,138     28,710,379     27,518,815     26,804,742     26,094,678  
Federal Home Loan Bank advances 674,870     574,847     574,823     576,353     426,326  
Other borrowings 418,174     410,488     418,057     372,194     393,855  
Subordinated notes 436,095     435,979     436,021     139,235     139,210  
Junior subordinated debentures 253,566     253,566     253,566     253,566     253,566  
Trade date securities payable     226              
Accrued interest payable and other liabilities 1,039,490     986,092     993,537     840,559     669,644  
Total liabilities 32,929,333     31,371,577     30,194,819     28,986,649     27,977,279  
Shareholders’ Equity:                  
Preferred stock 125,000     125,000     125,000     125,000     125,000  
Common stock 57,951     56,825     56,794     56,765     56,518  
Surplus 1,650,278     1,574,011     1,569,969     1,565,185     1,557,984  
Treasury stock (6,931 )   (6,799 )   (6,650 )   (6,650 )   (5,634 )
Retained earnings 1,899,630     1,830,165     1,747,266     1,682,016     1,610,574  
Accumulated other comprehensive loss (34,678 )   (38,877 )   (45,429 )   (50,344 )   (76,872 )
Total shareholders’ equity 3,691,250     3,540,325     3,446,950     3,371,972     3,267,570  
Total liabilities and shareholders’ equity $ 36,620,583     $ 34,911,902     $ 33,641,769     $ 32,358,621     $ 31,244,849  


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

  Three Months Ended   Years Ended
(In thousands, except per share data) Dec 31, 2019   Sep 30, 2019   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018   Dec 31, 2019   Dec 31, 2018
Interest income                          
Interest and fees on loans $ 308,055     $ 314,277     $ 309,161     $ 296,987     $ 283,311     $ 1,228,480     $ 1,044,502  
Mortgage loans held-for-sale 3,201     3,478     3,104     2,209     3,409     11,992     15,738  
Interest bearing deposits with banks 8,971     10,326     5,206     5,300     5,628     29,803     17,090  
Federal funds sold and securities purchased under resale agreements 390     310                 700     1  
Investment securities 27,611     24,758     27,721     27,956     26,656     108,046     87,382  
Trading account securities 6     20     5     8     14     39     43  
Federal Home Loan Bank and Federal Reserve Bank stock 1,328     1,294     1,439     1,355     1,343     5,416     5,331  
Brokerage customer receivables 169     164     178     155     235     666     723  
Total interest income 349,731     354,627     346,814     333,970     320,596     1,385,142     1,170,810  
Interest expense                          
Interest on deposits 74,724     76,168     67,024     60,976     55,975     278,892     166,553  
Interest on Federal Home Loan Bank advances 1,461     1,774     4,193     2,450     2,563     9,878     12,412  
Interest on other borrowings 3,273     3,466     3,525     3,633     3,199     13,897     8,599  
Interest on subordinated notes 5,504     5,470     2,806     1,775     1,788     15,555     7,121  
Interest on junior subordinated debentures 2,890     2,897     3,064     3,150     2,983     12,001     11,222  
Total interest expense 87,852     89,775     80,612     71,984     66,508     330,223     205,907  
Net interest income 261,879     264,852     266,202     261,986     254,088     1,054,919     964,903  
Provision for credit losses 7,826     10,834     24,580     10,624     10,401     53,864     34,832  
Net interest income after provision for credit losses 254,053     254,018     241,622     251,362     243,687     1,001,055     930,071  
Non-interest income                          
Wealth management 24,999     23,999     24,139     23,977     22,726     97,114     90,963  
Mortgage banking 47,860     50,864     37,411     18,158     24,182     154,293     136,990  
Service charges on deposit accounts 10,973     9,972     9,277     8,848     9,065     39,070     36,404  
Gains (losses) on investment securities, net 587     710     864     1,364     (2,649 )   3,525     (2,898 )
Fees from covered call options 1,243         643     1,784     626     3,670     3,519  
Trading gains (losses), net 46     11     (44 )   (171 )   (155 )   (158 )   11  
Operating lease income, net 12,487     12,025     11,733     10,796     10,882     47,041     38,451  
Other 14,025     17,556     14,135     16,901     10,631     62,617     52,710  
Total non-interest income 112,220     115,137     98,158     81,657     75,308     407,172     356,150  
Non-interest expense                          
Salaries and employee benefits 145,941     141,024     133,732     125,723     122,111     546,420     480,077  
Equipment 14,485     13,314     12,759     11,770     11,523     52,328     42,949  
Operating lease equipment 9,766     8,907     8,768     8,319     8,462     35,760     29,305  
Occupancy, net 17,132     14,991     15,921     16,245     15,980     64,289     57,814  
Data processing 7,569     6,522     6,204     7,525     8,447     27,820     35,027  
Advertising and marketing 12,517     13,375     12,845     9,858     9,414     48,595     41,140  
Professional fees 7,650     8,037     6,228     5,556     9,259     27,471     32,306  
Amortization of other intangible assets 3,017     2,928     2,957     2,942     1,407     11,844     4,571  
FDIC insurance 1,348     148     4,127     3,576     4,044     9,199     17,209  
OREO expense, net 536     1,170     1,290     632     1,618     3,628     6,120  
Other 29,630     24,138     24,776     22,228     19,068     100,772     79,570  
Total non-interest expense 249,591     234,554     229,607     214,374     211,333     928,126     826,088  
Income before taxes 116,682     134,601     110,173     118,645     107,662     480,101     460,133  
Income tax expense 30,718     35,480     28,707     29,499     28,005     124,404     116,967  
Net income $ 85,964     $ 99,121     $ 81,466     $ 89,146     $ 79,657     $ 355,697     $ 343,166  
Preferred stock dividends 2,050     2,050     2,050     2,050     2,050     8,200     8,200  
Net income applicable to common shares $ 83,914     $ 97,071     $ 79,416     $ 87,096     $ 77,607     $ 347,497     $ 334,966  
Net income per common share - Basic $ 1.46     $ 1.71     $ 1.40     $ 1.54     $ 1.38     $ 6.11     $ 5.95  
Net income per common share - Diluted $ 1.44     $ 1.69     $ 1.38     $ 1.52     $ 1.35     $ 6.03     $ 5.86  
Cash dividends declared per common share $ 0.25     $ 0.25     $ 0.25     $ 0.25     $ 0.19     $ 1.00     $ 0.76  
Weighted average common shares outstanding 57,538     56,690     56,662     56,529     56,395     56,857     56,300  
Dilutive potential common shares 874     773     699     699     892     762     908  
Average common shares and dilutive common shares 58,412     57,463     57,361     57,228     57,287     57,619     57,208  


TABLE 1: LOAN PORTFOLIO MIX AND GROWTH RATES

                    % Growth From
(Dollars in thousands) Dec 31, 2019   Sep 30, 2019   Jun 30, 2019   Mar 31, 2019   Dec 31, 2018 Sep 30, 2019(1)   Dec 31, 2018
Balance:                        
Commercial $ 8,285,920     $ 8,195,602     $ 8,270,774     $ 7,994,191     $ 7,828,538   4 %   6 %
Commercial real estate 8,020,276     7,448,667     7,276,244     6,973,505     6,933,252   30     16  
Home equity 513,066     512,303     527,370     528,448     552,343   1     (7 )
Residential real estate 1,354,221     1,218,666     1,118,178     1,053,524     1,002,464   44     35  
Premium finance receivables - commercial 3,442,027     3,449,950     3,368,423     2,988,788     2,841,659   (1 )   21  
Premium finance receivables - life insurance 5,074,602     4,795,496     4,634,478     4,555,369     4,541,794   23     12  
Consumer and other 110,178     89,487     109,192     120,804     120,641   92     (9 )
Total loans, net of unearned income $ 26,800,290     $ 25,710,171     $ 25,304,659     $ 24,214,629     $ 23,820,691   17 %   13 %
Mix:                        
Commercial 31 %   32 %   33 %   33 %   33 %      
Commercial real estate 30     29     29     29     29        
Home equity 2     2     2     2     2        
Residential real estate 5     5     4     4     4        
Premium finance receivables - commercial 13     13     13     12     12        
Premium finance receivables - life insurance 19     19     18     19     19        
Consumer and other         1     1     1        
Total loans, net of unearned income 100 %   100 %   100 %   100 %   100 %      
(1) Annualized.


TABLE 2: COMMERCIAL AND COMMERCIAL REAL ESTATE LOAN PORTFOLIOS

...
  As of December 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 $ 5,159,805     31.7 %   $ 33,983     $     $ 44,230  
Franchise 937,482     5.7     2,391         7,976  
Mortgage warehouse lines of credit 292,781     1.8             2,166  
Asset-based lending 989,018     6.1     128         7,871  
Leases 878,528     5.4     722         2,647  
PCI - commercial loans (1) 28,306     0.2         1,855     30  
Total commercial $ 8,285,920     50.9 %   $ 37,224     $ 1,855     $ 64,920  
Commercial Real Estate:                  
Construction $ 1,023,300     6.3 %   $ 1,030     $     $ 10,006  
Land 177,483     1.1     1,082