Wintrust Financial Corporation Reports Second Quarter 2020 Net Income of $21.7 million and Year-to-Date Net Income of $84.5 million

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ROSEMONT, Ill., July 21, 2020 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation (Wintrust or the Company) (Nasdaq: WTFC) announced net income of $21.7 million or $0.34 per diluted common share for the second quarter of 2020, a decrease in diluted earnings per common share of 67.3% compared to the prior quarter and a decrease of 75.4% compared to the second quarter of 2019. The Company recorded net income of $84.5 million or $1.38 per diluted common share for the first six months of 2020 compared to net income of $170.6 million or $2.91 per diluted common share for the same period of 2019.

Highlights of the Second Quarter of 2020:
Comparative information to the first quarter of 2020

  • Total assets increased by $4.7 billion, including $3.3 billion of Paycheck Protection Program ("PPP") loans, net of fees.

  • Total loans increased by $3.6 billion, including $3.3 billion of PPP loans, net of fees.
    ° Lines of credit utilization declined to approximately 49% at June 30, 2020 as compared to approximately 56% at March 31, 2020.

  • Total deposits increased by $4.2 billion, primarily related to both PPP lending and organic growth of retail deposits.

  • Net interest income increased by $1.7 million as the impact of a $5.1 billion increase in average earning assets was partially offset by a 39 basis point decline in net interest margin. The decline in net interest margin was largely due to declining interest rates and excess shortterm liquidity on the balance sheet.

  • The loans to deposits ratio ended the second quarter of 2020 at 88.1% as compared to 88.4% at prior quarter end. Excluding PPP loans, the loans to deposits ratio ended the second quarter of 2020 at 78.7%.

  • Mortgage banking revenue increased by $54.0 million to $102.3 million for the second quarter of 2020 as compared to $48.3 million in the prior quarter.
    ° Loans originated for sale in the second quarter of 2020 totaled $2.2 billion as compared to $1.2 billion in the prior quarter.
    ° Recorded a decrease 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 $7.4 million in the second quarter of 2020 as compared to a decline of $10.4 million in the prior quarter.
    ° Accrued $7.2 million of additional contingent consideration expense related to the previous acquisitions of mortgage operations in the second quarter of 2020 as compared to $329,000 in the prior quarter, which was recorded in other non-interest expense.

  • Provision for credit losses of $135.1 million in the second quarter of 2020. Provision for credit losses increased by $82.1 million from $53.0 million in the first quarter of 2020. The increased provision for credit losses expense in the second quarter of 2020 was primarily related to generally deteriorating forecasted economic conditions impacted by the COVID-19 pandemic which are an input in the Company's Current Expected Credit Loss ("CECL") models.

  • Recorded net charge-offs of $15.4 million in the second quarter of 2020, of which $9.5 million were previously reserved for, as compared to net charge-offs of $5.3 million in the first quarter of 2020.

  • Non-performing assets totaled $198.5 million as of June 30, 2020, or 0.46% of total assets, as compared to $190.4 million, or 0.49% of total assets, as of the prior quarter end.

  • The allowance for credit losses on our core loan portfolio is approximately 1.85% of the outstanding balance as of June 30, 2020, up from 1.26% as of the prior quarter end.

  • Incurred acquisition related costs of $4.9 million in the second quarter of 2020 as compared to $1.7 million in the first quarter of 2020.

Other highlights of the second quarter of 2020

  • Paid $2.6 million of COVID-19 related salary incentives to non-executive personnel.

  • Originated $3.4 billion of PPP loans which generated net fees of $91.0 million to be recognized over the estimated life of the PPP loans. Fees are recognized on a level yield basis which incorporates estimates of the timing of customer requested forgiveness, Small Business Administration ("SBA") approval of forgiveness and the repayment timing from the SBA.

  • Recorded COVID-19 related loan modifications for customers with aggregate outstanding balances of approximately $1.7 billion or 9% of total loans, excluding PPP loans and premium finance receivables. The modifications primarily changed terms to interest-only payments or full payment deferrals.

  • Completed a preferred stock issuance which generated proceeds of $278.4 million, net of the underwriting discount, which contributed to increasing estimated Tier 1 and Total Capital ratios to 10.1% and 12.8%, respectively.

Edward J. Wehmer, Founder and Chief Executive Officer, commented, "I am very proud of the extraordinary effort put forth by our employees to support our customers and our communities amid the challenges of COVID-19. Wintrust reported net income of $21.7 million for the second quarter of 2020, down from $62.8 million in the first quarter of 2020. However, pre-tax income, excluding provision for credit losses and MSR valuation adjustments (non-GAAP), increased by $22.7 million over the previous quarter and $35.0 million over the second quarter of 2019. The Company experienced strong balance sheet growth as total assets were $4.7 billion higher than the prior quarter end and $9.9 billion higher than the end of the second quarter of 2019. The second quarter of 2020 was characterized by significant balance sheet growth, declining net interest margin, strong mortgage banking revenue, increased provision for credit losses and a continued focus to increase franchise value in our market area."

Mr. Wehmer continued, "The Company grew total loans by $3.6 billion in the second quarter of 2020 including $3.3 billion related to PPP lending. The Company experienced significant growth in its commercial insurance premium finance and life insurance premium finance receivable portfolios partially offset by a decline in its commercial portfolio. Growth in the commercial insurance premium finance portfolio was in part due to hardening insurance market conditions driving the average size of new commercial insurance premium finance receivables to approximately $38,000 in the second quarter as compared to $31,000 in the first quarter of 2020. The decline in the commercial loan portfolio is primarily attributed to paydowns in the second quarter of 2020 related to both existing customers receiving PPP loans and repayment of balances that were drawn in the first quarter of 2020. As a result, credit line utilization was approximately 49% at June 30, 2020 as compared to approximately 56% at March 31, 2020. Total deposits increased by $4.2 billion as compared to the first quarter of 2020 including $2.6 billion of non-interest bearing deposit growth primarily related to PPP lending. In addition, the Company continued to grow organic retail deposits including its MaxSafe TM deposit products which grew by $482 million in the second quarter of 2020. Our loans to deposits ratio ended the quarter at 88.1% and we are confident that we have sufficient liquidity to meet customer loan demand."

Mr. Wehmer commented, "Net interest income increased in the second quarter of 2020 primarily due to earning asset growth but was partially offset by a 39 basis point decline in the net interest margin. The decline in net interest margin was primarily due to downward repricing of variable rate loans and an increase in interest bearing cash balances, partially offset by favorable repricing of interest bearing deposits and accretion of PPP fees. At this point, the majority of our variable rate loan portfolio has repriced to reflect the low interest rate environment. As such, excluding the impact of PPP fees, we expect to be able to mitigate potential future loan yield compression with improvement in pricing on interest bearing deposits. Further, to the extent we identify prudent opportunities to deploy excess liquidity, we may be able to improve net interest margin."

Mr. Wehmer noted, Our mortgage banking business delivered a record quarter of mortgage banking revenue in light of the demand associated with historically low long-term interest rates. Loan volumes originated for sale in the second quarter of 2020 were $2.2 billion, as compared to $1.2 billion in the first quarter of 2020. As a result of increases in both current and forecasted revenues given the favorable mortgage banking environment, the Company recorded increased contingent consideration expense related to the previous acquisitions of mortgage operations. Additionally, the Company recorded a $7.4 million decrease 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. We are leveraging efficiencies in our delivery channels and staffing strategies to keep pace with unprecedented demand. The strong quarter of mortgage performance contributed to reporting a 0.93% net overhead ratio for the second quarter of 2020. We believe the third quarter of 2020 will provide another strong quarter for mortgage banking production."

Commenting on credit quality, Mr. Wehmer stated, "The Company recorded provision for credit losses of $135.1 million in the second quarter primarily related to generally deteriorating forecasted economic conditions impacted by the COVID-19 pandemic. Net charge-offs totaled $15.4 million in the second quarter of 2020, of which $9.5 million were previously reserved for, as compared to $5.3 million in the first quarter of 2020. The level of non-performing assets increased by $8.1 million to $198.5 million. The allowance for credit losses on our core loan portfolio is approximately 1.85% of the outstanding balance. We believe that the Companys reserves remain appropriate and we remain diligent in our review of credit."

Mindful of the challenges ahead, Mr. Wehmer noted, "We leverage robust capital and liquidity management frameworks, which include stress testing processes, to assess and monitor risk and inform decision making. In the second quarter of 2020, we completed a preferred stock issuance to bolster our capital position. We believe the Company has adequate liquidity and capital to effectively manage through the COVID-19 pandemic."

Mr. Wehmer concluded, "We remain committed to supporting our community, including the well-being and safety of our customers and employees. We believe that our opportunities for both internal and external growth remain consistently strong and were particularly enhanced as a result of our successful participation in PPP lending. However, we continue to carefully monitor the COVID-19 pandemic and evaluate the impact that it could have on the economy, our customers and our business. We remain focused on navigating the current environment by actively monitoring and managing our credit portfolio."

The graphs below illustrate certain financial highlights of the second quarter of 2020. See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 for additional information with respect to non-GAAP financial measures/ratios, including the reconciliations to the corresponding GAAP financial measures/ratios.

A PDF accompanying this announcement can be found at  http://ml.globenewswire.com/Resource/Download/33d15dc8-146d-4f4d-b842-5c498ea282c9

SUMMARY OF RESULTS:

BALANCE SHEET

Total asset growth of $4.7 billion in the second quarter of 2020 was primarily comprised of a $3.6 billion increase in loans and a $2.1 billion increase in interest bearing deposits with banks, partially offset by a $513 million decrease in investment securities and a $502 million decrease in trade date securities receivables. The Company believes that the $4.0 billion of interest bearing deposits with banks held as of June 30, 2020 provides more than sufficient liquidity to operate its business plan.

Total liabilities grew by $4.5 billion in the second quarter of 2020 resulting primarily from a $4.2 billion increase in total deposits. The increase in deposits included $2.6 billion of non-interest bearing deposit growth primarily related to PPP funding. In addition, the Company successfully grew deposits in the second quarter through organic retail channels including continued success of MaxSafe TM deposit products which grew by $482 million in the second quarter. Our loans to deposits ratio ended the quarter at 88.1%. 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.

For more information regarding changes in the Companys balance sheet, see Consolidated Statements of Condition and Tables 1 through 3 in this report.

NET INTEREST INCOME

For the second quarter of 2020, net interest income totaled $263.1 million, an increase of $1.7 million as compared to the first quarter of 2020 and a decrease of $3.1 million as compared to the second quarter of 2019. The $1.7 million increase in net interest income in the second quarter of 2020 compared to the first quarter of 2020 was attributable to the impact of a $5.1 billion increase in average earning assets. This impact was partially offset by a 39 basis point decline in net interest margin.

Net interest margin was 2.73% (2.74% on a fully taxable-equivalent basis, non-GAAP) during the second quarter of 2020 compared to 3.12% (3.14% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2020 and 3.62% (3.64% on a fully taxable-equivalent basis, non-GAAP) during the second quarter of 2019. The 39 basis point decrease in net interest margin in the second quarter of 2020 as compared to the first quarter of 2020 was attributable to a 68 basis point decline in the yield on earnings assets and a seven basis point decrease in the net free funds contribution partially offset by a 36 basis point decrease in the rate paid on interest bearing liabilities. The 68 basis point decline in the yield on earning assets in the second quarter as compared to the first quarter of 2020 was primarily due to a 60 basis point decline in the yield on loans along with an increased balance and reduced yield on interest bearing cash. The 36 basis point decrease in the rate paid on interest bearing liabilities in the second quarter as compared to the prior quarter is primarily due to a 39 basis point decrease in the rate paid on interest bearing deposits as management initiated various deposit rate reductions given the decreased interest rate environment.

For more information regarding net interest income, see Tables 4 through 8 in this report.

ASSET QUALITY

The allowance for credit losses totaled $373.2 million as of June 30, 2020 an increase of $119.7 million as compared to $253.5 million as of March 31, 2020. A summary of the allowance for loan losses calculated for the loan components in the core loan portfolio, the niche and consumer loan portfolio and purchased loan portfolio as of June 30, 2020 and March 31, 2020 is shown on Table 12 of this report.

The provision for credit losses totaled $135.1 million for the second quarter of 2020 compared to $53.0 million for the first quarter of 2020 and $24.6 million for the second quarter of 2019.  The increased provision for credit losses expense in the second quarter was primarily related to generally deteriorating forecasted economic conditions impacted by the COVID-19 pandemic. Specifically, the negative impact of the COVID-19 pandemic on the projected commercial real-estate price index materially impacted the modeled losses from the commercial real-estate portfolio. Management believes the allowance for credit losses is appropriate to account for expected credit losses. The CECL standard requires the Company to estimate expected credit losses over the life of the Companys financial assets at a certain point in time. There can be no assurances, however, that future losses will not significantly exceed the amounts provided for, thereby affecting future results of operations. For more information regarding the provision for credit losses, see Table 11 in this report.

Net charge-offs totaled $15.4 million in the second quarter of 2020, a $10.1 million increase from $5.3 million in the first quarter of 2020 and a $6.9 million decrease from $22.3 million in the second quarter of 2019. Net charge-offs as a percentage of average total loans, in the second quarter of 2020 totaled 20 basis points on an annualized basis compared to eight basis points on an annualized basis in the first quarter of 2020 and 36 basis points on an annualized basis in the second quarter of 2019. For more information regarding net charge-offs, see Table 10 in this report.

As of June 30, 2020, $79.3 million of all loans, or 0.3%, were 60 to 89 days past due and $166.4 million, or 0.5%, were 30 to 59 days (or one payment) past due. As of March 31, 2020, $33.0 million of all loans, or 0.1%, were 60 to 89 days past due and $262.7 million, or 0.9%, 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 Companys internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis.

The Companys home equity and residential loan portfolios continue to exhibit low delinquency rates as of June 30, 2020. Home equity loans at June 30, 2020 that are current with regard to the contractual terms of the loan agreement represent 98.2% of the total home equity portfolio. Residential real estate loans at June 30, 2020 that are current with regards to the contractual terms of the loan agreements comprised 98.2% of total residential real estate loans outstanding. For more information regarding past due loans, see Table 13 in this report.

In the second quarter of 2020, the Company recorded $1.7 billion of COVID-19 related loan modifications. These loan modifications were comprised primarily of $882.1 million commercial loans and $822.6 million commercial real-estate loans. The modifications primarily changed terms to interest-only payments or full payment deferrals.

Prior to January 1, 2020, purchased credit impaired ("PCI") loans were aggregated into pools by common risk characteristics for accounting purposes, including recognition of interest income on a pool basis. Measurement of any allowance for loan losses on these loans were offset by the remaining credit discount related to the pool.  As a result of the implementation of CECL, beginning in the first quarter of 2020, PCI loans transitioned to a classification of purchased financial assets with credit deterioration ("PCD"), which no longer maintains the prior pools and related accounting concepts. Measurement of any allowance for loan losses on PCD loans is no longer offset by the remaining discount, resulting in additional allowance being recognized at January 1, 2020 through a cumulative effect adjustment to retained earnings. See Table 10 for information on this increase at transition. Additionally, recognition of interest income on PCD loans is considered at the individual asset level following the Company's accrual policies, instead of based upon the entire pool of loans. Due to the first quarter of 2020 adoption of CECL, the Company included $30.3 million in non-performing PCD loans in total non-performing loans as of June 30, 2020.

The ratio of non-performing assets to total assets was 0.46% as of June 30, 2020, compared to 0.49% at March 31, 2020, and 0.40% at June 30, 2019. Non-performing assets totaled $198.5 million at June 30, 2020, compared to $190.4 million at March 31, 2020 and $133.5 million at June 30, 2019. Non-performing loans totaled $188.3 million, or 0.60% of total loans, at June 30, 2020 compared to $179.4 million, or 0.65% of total loans, at March 31, 2020 and $113.4 million, or 0.45% of total loans, at June 30, 2019. The increase in non-performing loans in the second quarter of 2020 as compared to the prior quarter is primarily due to a $14.5 million increase in total non-performing premium finance receivable balances. State emergency orders and pandemic delays on processing of return premiums, which serve as our collateral, contributed to the increase in 90 day past due premium finance receivables. Other real estate owned ("OREO") of $10.2 million at June 30, 2020 decreased by $829,000 compared to $11.0 million at March 31, 2020 and decreased $9.6 million compared to $19.8 million at June 30, 2019. Management is pursuing the resolution of all non-performing assets. At this time, management believes 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 decreased by $3.3 million during the second quarter of 2020 as compared to the first quarter of 2020 primarily due to decreased asset management fees, trust fees and brokerage commissions. Declines in asset management and trust fees are  primarily due to volatile equity markets since year end. Brokerage commissions were negatively impacted in the second quarter of 2020 due to lower transactional volume as compared to the prior quarter. 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 increased by $54.0 million in the second quarter of 2020 as compared to the first quarter of 2020, primarily as a result of a $1.0 billion increase in loans originated for sale.  Loans originated for sale were $2.2 billion in the second quarter of 2020 as compared to $1.2 billion in the first quarter of 2020. The percentage of origination volume from refinancing activities was 70% in the second quarter of 2020 as compared to 63% in the first quarter of 2020. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market.

During the second quarter of 2020, the fair value of the mortgage servicing rights portfolio increased primarily due to increased capitalization of $20.4 million during the second quarter. This increase was partially offset by a negative fair value adjustment of $8.0 million as well as a reduction in value of $8.7 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 gain of $589,000 on the interest rate swaps held as economic hedges against the mortgage servicing rights primarily related to the mark to market valuation adjustment which was recorded in mortgage banking revenue. During the second quarter of 2020, the Company terminated the interest rate swaps. No economic hedges were outstanding relative to the mortgage servicing rights portfolio at the end of the second quarter of 2020.

The net gains recognized on investment securities in the second quarter of 2020 were $808,000 as compared to a net loss of $4.4 million in the first quarter of 2020. The gains recorded in the second quarter of 2020 primarily relate to unrealized gains on market sensitive securities held by the Company.

Other non-interest income decreased by $3.6 million in the second quarter of 2020 as compared to the first quarter of 2020 primarily due to lower card and merchant services based fees, gains realized on the sales of loan and leases in the first quarter of 2020 and losses on investment partnerships in the second quarter.  These decreases were partially offset by market gains on BOLI investments related to non-qualified deferred compensation accounts recorded in BOLI income.

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 $17.4 million in the second quarter of 2020 as compared to the first quarter of 2020. The $17.4 million increase is comprised of an increase of $14.6 million in commissions and incentive compensation and an increase of $5.8 million in salaries expense partially offset by a $3.0 million decrease in employee benefits expense. The increase in commissions and incentive compensation is primarily due to increased origination volume associated with the Company's mortgage business. The increase in salaries expense is primarily related to COVID-19 related salary incentives, the impact of a full quarter of annual merit increases, increased staffing to support mortgage origination and an increase in costs related to deferred compensation plans impacted by market returns of related BOLI investments.

Data processing expenses totaled $10.4 million in the second quarter of 2020, an increase of $2.0 million as compared to the first quarter of 2020. The increase in the second quarter relates primarily to conversion costs of $4.5 million associated with the Countryside Bank acquisition as compared to $1.4 million of acquisition related conversion costs in the prior quarter. No additional material conversion charges are anticipated related to any completed acquisitions.

Advertising and marketing expenses in the second quarter of 2020 decreased by $3.2 million as compared to the first quarter of 2020 primarily related to lower sports sponsorship costs due to shortened or canceled seasons. 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 $7.1 million in the second quarter of 2020, an increase of $2.9 million as compared to the first quarter of 2020. This increase is primarily due to higher assessment rates impacted by declines in the Tier 1 Leverage Ratio at the Company's bank affiliates as a result of asset growth, including PPP loans.

Miscellaneous expense in the second quarter of 2020 increased $3.6 million as compared to the first quarter of 2020. The increase in the second quarter is primarily due to $7.2 million of contingent consideration expense accrued in the second quarter, as compared to $329,000 in the prior quarter, related to the previous acquisitions of mortgage operations. The increase in the contingent consideration accrual is a result of higher anticipated payments resulting from increases in both current and forecasted revenues related to the acquired businesses due to the favorable mortgage banking environment. 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 $9.0 million in the second quarter of 2020 compared to $24.3 million in the first quarter of 2020 and $28.7 million in the second quarter of 2019. The effective tax rates were 29.46% in the second quarter of 2020 compared to 27.87% in the first quarter of 2020 and 26.06% in the second quarter of 2019.

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 second quarter of 2020, this unit expanded its loan and deposit portfolios. However, the banking segment also experienced net interest margin compression in part due to low and declining interest rates and possession of excess short-term liquidity.

Mortgage banking revenue was $102.3 million for the second quarter of 2020 an increase of $54.0 million as compared to the first quarter of 2020 primarily due to increased mortgage demand associated with historically low long-term interest rates. Services charges on deposit accounts totaled $10.4 million in the second quarter of 2020 a decrease of $845,000 as compared to the first quarter of 2020 primarily due to lower overdraft fees. The Company's gross commercial and commercial real estate loan pipelines remained strong as of June 30, 2020. Before the impact of scheduled payments and prepayments, gross commercial and commercial real estate loan pipelines were estimated to be approximately $1.1 billion to $1.2 billion at June 30, 2020. When adjusted for the probability of closing, the pipelines were estimated to be approximately $700 million to $800 million at June 30, 2020.

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, as well as value-added, out-sourced administrative services and other services. Originations within the insurance premium financing receivables portfolio were $3.1 billion during the second quarter of 2020 and average balances increased by $422.7 million as compared to the first quarter of 2020. Growth in the commercial insurance premium finance portfolio was in part due to hardening insurance market conditions driving the average size of new commercial insurance premium finance receivables to approximately $38,000 in the second quarter as compared to $31,000 in the first quarter of 2020. The increase in average balances was more than offset by margin compression in this portfolio resulting in a $4.2 million decrease in interest income attributed to the lower market rates of interest associated with the insurance premium finance receivables portfolio. The Company's leasing business grew during the second quarter of 2020, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing by $231.2 million to $2.0 billion at the end of the second quarter of 2020. Revenues from the Company's out-sourced administrative services business were $933,000 in the second quarter of 2020, a decrease of $179,000 from the first quarter of 2020.

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 decreased by $3.3 million in the second quarter of 2020 compared to the first quarter of 2020, totaling $22.6 million in the second period. Declines in asset management and trust fees are  primarily due to volatile equity markets since year end. Brokerage commissions were negatively impacted in the second quarter of 2020 due to lower transactional volume as compared to the prior quarter.  At June 30, 2020, the Companys wealth management subsidiaries had approximately $27.0 billion of assets under administration, which included $3.9 billion of assets owned by the Company and its subsidiary banks, representing a $2.0 billion increase from the $25.0 billion of assets under administration at March 31, 2020.

ITEMS IMPACTING COMPARATIVE FINANCIAL RESULTS

Paycheck Protection Program

On March 27, 2020, the President of the United States signed the CARES Act which authorized the SBA to guarantee loans under the PPP for small businesses who meet the necessary eligibility requirements in order to keep their workers on the payroll. The Company began accepting applications on April 3, 2020. As of June 30, 2020, the Company secured authorization from the SBA and funded over 11,000 PPP loans with a carrying balance of approximately $3.3 billion.

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 $201 million in deposits. The Company recorded goodwill of approximately $19 million on the acquisition.

On May 24, 2019, the Company completed its acquisition of Rush-Oak Corporation ("ROC"). ROC was the parent company 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.

Adoption of New Credit Losses Accounting Standard

Beginning in 2020, the Company adopted the new current expected credit losses standard, or CECL, which impacted the measurement of the Companys allowance for credit losses (including the allowance for unfunded lending-related commitments). CECL replaced the previous incurred loss methodology, which delayed recognition until such loss was 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, were considered in-scope of the standard and required a measurement of the allowance for credit loss, the most significant impact of CECL remains within the Companys loan portfolios and related lending commitments. For more information regarding the adoption of CECL, see the "Asset Quality" section and the asset quality Tables 10-14 in this report.

WINTRUST FINANCIAL CORPORATION

Key Operating Measures

Wintrusts key operating measures and growth rates for the second quarter of 2020, as compared to the first quarter of 2020 (sequential quarter) and second quarter of 2019 (linked quarter), are shown in the table below:

 

 

 

 

 

 

 

% or (4)
basis point  (bp) change from
1st Quarter
2020

 

% or
basis point  (bp)
change from
2nd Quarter
2019

 

 

Three Months Ended

 

(Dollars in thousands, except per share data)

 

Jun 30, 2020

 

Mar 31, 2020

 

Jun 30, 2019

 

Net income

 

$

21,659

 

 

$

62,812

 

 

$

81,466

 

(66

)

%

 

(73

)

%

Pre-tax income, excluding provision for credit losses (non-GAAP) (2)

 

165,756

 

 

140,044

 

 

134,753

 

18

 

 

 

23

 

 

Pre-tax income, excluding provision for credit losses and MSR valuation adjustments (non-GAAP) (2)

 

173,149

 

 

150,441

 

 

138,138

 

15

 

 

 

25

 

 

Net income per common share diluted

 

0.34

 

 

1.04

 

 

1.38

 

(67

)

 

 

(75

)

 

Net revenue (1)

 

425,124

 

 

374,685

 

 

364,360

 

13

 

 

 

17

 

 

Net interest income

 

263,131

 

 

261,443

 

 

266,202

 

1

 

 

 

(1

)

 

Net interest margin

 

2.73

%

 

3.12

%

 

3.62

%

(39

)

bp

 

(89

)

bp

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

 

2.74

 

 

3.14

 

 

3.64

 

(40

)

 

 

(90

)

 

Net overhead ratio (3)

 

0.93

 

 

1.33

 

 

1.64

 

(40

)

 

 

(71

)

 

Return on average assets

 

0.21

 

 

0.69

 

 

1.02

 

(48

)

 

 

(81

)

 

Return on average common equity

 

2.17

 

 

6.82

 

 

9.68

 

(465

)

 

 

(751

)

 

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

 

2.95

 

 

8.73

 

 

12.28

 

(578

)

 

 

(933

)

 

At end of period

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

43,540,017

 

 

$

38,799,847

 

 

$

33,641,769

 

49

 

%

 

29

 

%

Total loans (5)

 

31,402,903

 

 

27,807,321

 

 

25,304,659

 

52

 

 

 

24

 

 

Total deposits

 

35,651,874

 

 

31,461,660

 

 

27,518,815

 

54

 

 

 

30

 

 

Total shareholders equity

 

3,990,218

 

 

3,700,393

 

 

3,446,950

 

32

 

 

 

16

 

 

  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 Companys 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

Six Months Ended

(Dollars in thousands, except per share data)

 

Jun 30,
2020

 

Mar 31,
2020

 

Dec 31,
2019

 

Sep 30,
2019

 

Jun 30,
2019

Jun 30,
2020

 

Jun 30,
2019

Selected Financial Condition Data (at end of period):

 

 

 

Total assets

 

$

43,540,017

 

 

$

38,799,847

 

 

$

36,620,583

 

 

$

34,911,902

 

 

$

33,641,769

 

 

 

 

Total loans (1)

 

31,402,903

 

 

27,807,321

 

 

26,800,290

 

 

25,710,171

 

 

25,304,659

 

 

 

 

Total deposits

 

35,651,874

 

 

31,461,660

 

 

30,107,138

 

 

28,710,379

 

 

27,518,815

 

 

 

 

Junior subordinated debentures

 

253,566

 

 

253,566

 

 

253,566

 

 

253,566

 

 

253,566

 

 

 

 

Total shareholders equity

 

3,990,218

 

 

3,700,393

 

 

3,691,250

 

 

3,540,325

 

 

3,446,950

 

 

 

 

Selected Statements of Income Data:

 

 

 

Net interest income

 

$

263,131

 

 

$

261,443

 

 

$

261,879

 

 

$

264,852

 

 

$

266,202

 

$

524,574

 

 

$

528,188

 

Net revenue (2)

 

425,124

 

 

374,685

 

 

374,099

 

 

379,989

 

 

364,360

 

799,809

 

 

708,003

 

Net income

 

21,659

 

 

62,812

 

 

85,964

 

 

99,121

 

 

81,466

 

84,471

 

 

170,612

 

Pre-tax income, excluding provision for credit losses (non-GAAP) (3)

 

165,756

 

 

140,044

 

 

124,508

 

 

145,435

 

 

134,753

 

305,800

 

 

264,022

 

Pre-tax income, excluding provision for credit losses and MSR valuation adjustments (non-GAAP) (3)

 

173,149

 

 

150,441

 

 

122,662

 

 

149,411

 

 

138,138

 

323,590

 

 

276,151

 

Net income per common share Basic

 

0.34

 

 

1.05

 

 

1.46

 

 

1.71

 

 

1.40

 

1.40

 

 

2.94

 

Net income per common share Diluted

 

0.34

 

 

1.04

 

 

1.44

 

 

1.69

 

 

1.38

 

1.38

 

 

2.91

 

Selected Financial Ratios and Other Data:

 

 

 

Performance Ratios:

 

 

 

Net interest margin

 

2.73

%

 

3.12

%

 

3.17

%

 

3.37

%

 

3.62

%

2.91

%

 

3.66

%

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

 

2.74

 

 

3.14

 

 

3.19

 

 

3.39

 

 

3.64

 

2.93

 

 

3.68

 

Non-interest income to average assets

 

1.55

 

 

1.24

 

 

1.25

 

 

1.35

 

 

1.23

 

1.41

 

 

1.15

 

Non-interest expense to average assets

 

2.48

 

 

2.58

 

 

2.78

 

 

2.74

 

 

2.87

 

2.53

 

 

2.83

 

Net overhead ratio (4)

 

0.93

 

 

1.33

 

 

1.53

 

 

1.40

 

 

1.64

 

1.12

 

 

1.68

 

Return on average assets

 

0.21

 

 

0.69

 

 

0.96

 

 

1.16

 

 

1.02

 

0.43

 

 

1.09

 

Return on average common equity

 

2.17

 

 

6.82

 

 

9.52

 

 

11.42

 

 

9.68

 

4.48

 

 

10.37

 

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

 

2.95

 

 

8.73

 

 

12.17

 

 

14.36

 

 

12.28

 

5.81

 

 

13.19

 

Average total assets

 

$

42,042,729

 

 

$

36,625,490

 

 

$

35,645,190

 

 

$

33,954,592

 

 

$

32,055,769

 

$

39,334,109

 

 

$

31,638,289

 

Average total shareholders equity

 

3,908,846

 

 

3,710,169

 

 

3,622,184

 

 

3,496,714

 

 

3,414,340

 

3,809,508

 

 

3,362,000

 

Average loans to average deposits ratio

 

87.8

%

 

90.1

%

 

88.8

%

 

90.6

%

 

93.9

%

88.9

%

 

93.3

%

Period-end loans to deposits ratio

 

88.1

 

 

88.4

 

 

89.0

 

 

89.6

 

 

92.0

 

 

 

 

Common Share Data at end of period:

 

 

 

Market price per common share

 

$

43.62

 

 

$

32.86

 

 

$

70.90

 

 

$

64.63

 

 

$

73.16

 

 

 

 

Book value per common share

 

62.14

 

 

62.13

 

 

61.68

 

 

60.24

 

 

58.62

 

 

 

 

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

 

50.23

 

 

50.18

 

 

49.70

 

 

49.16

 

 

47.48

 

 

 

 

Common shares outstanding

 

57,573,672

 

 

57,545,352

 

 

57,821,891

 

 

56,698,429

 

 

56,667,846

 

 

 

 

Other Data at end of period:

 

 

 

Tier 1 leverage ratio (5)

 

8.1

%

 

8.5

%

 

8.7

%

 

8.8

%

 

9.1

%

 

 

 

Risk-based capital ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital ratio (5)

 

10.1

 

 

9.3

 

 

9.6

 

 

9.7

 

 

9.6

 

 

 

 

Common equity tier 1 capital ratio (5)

 

8.8

 

 

8.9

 

 

9.2

 

 

9.3

 

 

9.2

 

 

 

 

Total capital ratio (5)

 

12.8

 

 

11.9

 

 

12.2

 

 

12.4

 

 

12.4

 

 

 

 

Allowance for credit losses (6)

 

$

373,174

 

 

$

253,482

 

 

$

158,461

 

 

$

163,273

 

 

$

161,901

 

 

 

 

Allowance for loan and unfunded lending-related commitment losses to total loans

 

1.19

%

 

0.91

%

 

0.59

%

 

0.64

%

 

0.64

%

 

 

 

Number of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank subsidiaries

 

15

 

 

15

 

 

15

 

 

15

 

 

15

 

 

 

 

Banking offices

 

186

 

 

187

 

 

187

 

 

174

 

 

172

 

 

 

 

  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 periods 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. Effective January 1, 2020, the allowance for credit losses also includes the allowance for investment securities as a result of the adoption of Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

 

 

(Unaudited)

 

(Unaudited)

 

 

 

(Unaudited)

 

(Unaudited)

 

 

Jun 30,

 

Mar 31,

 

Dec 31,

 

Sep 30,

 

Jun 30,

(In thousands)

 

2020

 

2020

 

2019

 

2019

 

2019

Assets

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

344,999

 

 

$

349,118

 

 

$

286,167

 

 

$

448,755

 

 

$

300,934

 

Federal funds sold and securities purchased under resale agreements

 

58

 

 

309

 

 

309

 

 

59

 

 

58

 

Interest bearing deposits with banks

 

4,015,072

 

 

1,943,743

 

 

2,164,560

 

 

2,260,806

 

 

1,437,105

 

Available-for-sale securities, at fair value

 

3,194,961

 

 

3,570,959

 

 

3,106,214

 

 

2,270,059

 

 

2,186,154

 

Held-to-maturity securities, at amortized cost

 

728,465

 

 

865,376

 

 

1,134,400

 

 

1,095,802

 

 

1,191,634

 

Trading account securities

 

890

 

 

2,257

 

 

1,068

 

 

3,204

 

 

2,430

 

Equity securities with readily determinable fair value

 

52,460

 

 

47,310

 

 

50,840

 

 

46,086

 

 

44,319

 

Federal Home Loan Bank and Federal Reserve Bank stock

 

135,571

 

 

134,546

 

 

100,739

 

 

92,714

 

 

92,026

 

Brokerage customer receivables

 

14,623

 

 

16,293

 

 

16,573

 

 

14,943

 

 

13,569

 

Mortgage loans held-for-sale

 

833,163

 

 

656,934

 

 

377,313

 

 

464,727

 

 

394,975

 

Loans, net of unearned income

 

31,402,903

 

 

27,807,321

 

 

26,800,290

 

 

25,710,171

 

 

25,304,659

 

Allowance for loan losses

 

(313,510

)

 

(216,050

)

 

(156,828

)

 

(161,763

)

 

(160,421

)

Net loans

 

31,089,393

 

 

27,591,271

 

 

26,643,462

 

 

25,548,408

 

 

25,144,238

 

Premises and equipment, net

 

769,909

 

 

764,583

 

 

754,328

 

 

721,856

 

 

711,214

 

Lease investments, net

 

237,040

 

 

207,147

 

 

231,192

 

 

228,647

 

 

230,111

 

Accrued interest receivable and other assets

 

1,437,832

 

 

1,460,168

 

 

1,061,141

 

 

1,087,864

 

 

1,023,896

 

Trade date securities receivable

 

 

 

502,207

 

 

 

 

 

 

237,607

 

Goodwill

 

644,213

 

 

643,441

 

 

645,220

 

 

584,315

 

 

584,911

 

Other intangible assets

 

41,368

 

 

44,185

 

 

47,057

 

 

43,657

 

 

46,588

 

Total assets

 

$

43,540,017

 

 

$

38,799,847

 

 

$

36,620,583

 

 

$

34,911,902

 

 

$

33,641,769

 

Liabilities and Shareholders Equity

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Non-interest bearing

 

$

10,204,791

 

 

$

7,556,755

 

 

$

7,216,758

 

 

$

7,067,960 $6,719,958 Interest bearing 25,447,083 23,904,905 22,890,380 21,642,419 20,798,857 Total deposits 35,651,874 31,461,660 30,107,138 28,710,379 27,518,815 Federal Home Loan Bank advances 1,228,416 1,174,894 674,870 574,847 574,823 Other borrowings 508,535 487,503 418,174 410,488 418,057 Subordinated notes 436,298 436,179 436,095 435,979 436,021 Junior subordinated debentures 253,566 253,566 253,566 253,566 253,566 Trade date securities payable — — 226 — Accrued interest payable and other liabilities 1,471,110 1,285,652 1,039,490 986,092 993,537 Total liabilities 39,549,799 35,099,454 32,929,333 31,371,577 30,194,819 Shareholders’ Equity: Preferred stock 412,500 125,000 125,000 125,000 125,000 Common stock 58,294 58,266 57,951 56,825 56,794 Surplus 1,643,864 1,652,063 1,650,278 1,574,011 1,569,969 Treasury stock (44,891) (44,891) (6,931) (6,799) (6,650)Retained earnings 1,921,048 1,917,558 1,899,630 1,830,165 1,747,266 Accumulated other comprehensive loss (597) (7,603) (34,678) (38,877) (45,429)Total shareholders’ equity 3,990,218 3,700,393 3,691,250 3,540,325 3,446,950 Total liabilities and shareholders’ equity $43,540,017 $38,799,847 $36,620,583 $34,911,902 $33,641,769

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended

Six Months Ended

(In thousands, except per share data)

Jun 30,
2020

Mar 31,
2020

Dec 31,
2019

Sep 30,
2019

Jun 30,
2019

Jun 30,
2020

Jun 30,
2019

Interest income

Interest and fees on loans

$

294,746

$

301,839

$

308,055

$

314,277

$

309,161

$

596,585

$

606,148

Mortgage loans held-for-sale

4,764

3,165

3,201

3,478

3,104

7,929

5,313

Interest bearing deposits with banks

1,310

4,768

8,971

10,326

5,206

6,078

10,506

Federal funds sold and securities purchased under resale agreements

16

86

390

310

102

Investment securities

27,105

32,467

27,611

24,758

27,721

59,572

55,677

Trading account securities

13

7

6

20

5

20

13

Federal Home Loan Bank and Federal Reserve Bank stock