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Wintrust Financial Corporation Reports Second Quarter 2019 Net Income of $81.5 million and Year-to-Date Net Income of $170.6 million

ROSEMONT, Ill., July 15, 2019 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation (“Wintrust” or “the Company”) (WTFC) announced net income of $81.5 million or $1.38 per diluted common share for the second quarter of 2019, a decrease in diluted earnings per common share of 9.2% compared to the prior quarter and 9.8% compared to the second quarter of 2018. The Company recorded net income of $170.6 million or $2.91 per diluted common share for the first six months of 2019 compared to net income of $171.6 million or $2.93 per diluted common share for the same period of 2018.

Highlights of the Second Quarter of 2019:
Comparative information to the first quarter of 2019

  • Total assets increased by $1.3 billion, including $220 million from the acquisition of Rush-Oak Corporation ("ROC"), the parent company of Oak Bank (the "Oak Bank Acquisition"), or 16% on an annualized basis.
  • Total loans increased by $1.1 billion, including $114 million from the Oak Bank Acquisition, or 18% on an annualized basis.
  • Total deposits increased by $714 million, including $158 million from the Oak Bank Acquisition, or 11% on an annualized basis.
  • Net interest income increased by $4.2 million as the impact of a $797 million increase in average earning assets was partially offset by an eight basis point decline in net interest margin.
  • Mortgage banking production revenue increased by $13.3 million as mortgage originations for sale totaled $1.2 billion in the second quarter of 2019 as compared to $678 million in the first quarter of 2019.

Other highlights of the second quarter of 2019

  • Total period end loans were $751 million higher than average total loans in the current quarter.
  • Recorded the following activity related to mortgage servicing rights:
    • Current period capitalization of $9.8 million;
    • Reduction in value related to payoffs and paydowns of $4.1 million; and
    • Reduction in value related to changes in fair value model assumptions, net of derivative contract activity held as an economic hedge, of $3.4 million.
  • Recognized $24.6 million of provision for credit losses and $22.3 million of net charge-offs, of which $15.2 million of provision for credit losses and $18.4 million of net charge-offs related to three credits.
  • Completed a subordinated debt issuance which generated proceeds of $297.5 million, net of the underwriting discount, and contributed to increase the total capital ratio to approximately 12.3%.
  • Opened a new branch in Waukegan, Illinois, as well as completed the Oak Bank Acquisition, with one branch in the city of Chicago.
  • Announced an agreement to acquire STC Bancshares Corp., the parent company of STC Capital Bank, which is expected to close in the third quarter of 2019.

Edward J. Wehmer, President and Chief Executive Officer, commented, "Wintrust reported net income of $81.5 million for the second quarter of 2019, down from $89.1 million in the first quarter of 2019. The Company experienced strong balance sheet growth as total assets were $1.3 billion higher than the prior quarter end and $4.2 billion higher than the second quarter of 2018. The second quarter was characterized by strong balance sheet growth,  increased mortgage banking revenue, resolution of problem credits, and a continued focus to increase franchise value in our market area."

Mr. Wehmer continued, "This quarter demonstrated our asset-driven mentality as we generated high quality assets while leveraging our retail banking footprint to grow core deposit funding. The Company experienced significant loan growth in the quarter as total loans grew by $1.1 billion and the yield on loans remained relatively flat to the prior quarter. Additionally, the loan growth was diversified across various loan portfolios as we experienced growth of $380 million of commercial premium finance receivables, $303 million of commercial real estate loans and $277 million of commercial loans. Total deposits increased by $714 million in the current quarter although the rate on interest bearing deposits increased by eight basis points.  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 noted, “Our mortgage banking business production increased dramatically in the current quarter as loan volumes originated for sale increased to $1.2 billion from $678 million in the first quarter of 2019.  The favorable increase in origination volume was a result of the seasonal purchase market combined with increased refinance activity due to the declining interest rate environment. Declining long-term interest rates also contributed to a $4.1 million reduction in our mortgage servicing rights portfolio related to payoffs and paydowns as well as a $3.4 million reduction due to changes in fair value assumptions, net of hedging gain.  However, those declines were more than offset by capitalization of retained servicing rights of $9.8 million in the current quarter. 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 bodes well for mortgage origination demand in future quarters."

Commenting on credit quality, Mr. Wehmer stated, "During the current quarter, the Company recorded $24.6 million of provision for credit losses and $22.3 million of net charge-offs, of which $15.2 million of provision for credit losses and $18.4 million of net charge-offs related to three credits. This contributed to a four basis point reduction in non-performing loans as a percent of total loans to 0.45%. The Company recorded additional provision expense during the current quarter in recognition of the significant loan growth as well as certain specific reserves on other non-performing loans. We believe that the Company’s reserves remain appropriate and we remain diligent in our review of credit. We do not believe that the charges taken during the current quarter represent any pervasive issues that may have broader implications on the credit quality of our loan portfolio."

Turning to the future, Mr. Wehmer stated, “We have experienced significant franchise growth in the first two quarters of 2019 and believe that our opportunities for both internal and external growth remain consistently strong. Total period-end loans exceeded total average loans by $751 million in the current quarter, providing momentum for an increase in net interest income in the third quarter of 2019 despite market conditions that are applying pressure to the net interest margin. We plan to continue to emphasize core deposit growth and we will remain diligent in monitoring the interest rate environment to ensure that we react quickly in adjusting deposit pricing in the event of further interest rate reductions. We plan to continue in 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 Oak Bank Acquisition and the announced acquisition of STC Bancshares Corp., and 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 certain highlights of the second quarter of 2019.

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*See Table 16 in this report for the MSR Valuation Adjustment, net of gain on derivative contract held as an economic hedge.

SUMMARY OF RESULTS:

BALANCE SHEET

Total assets grew by $1.3 billion in the second quarter of 2019 primarily driven by $1.1 billion of loan growth as well as an increase in mortgage loans held-for-sale of $146.4 million.  There were no material additions to the Company's investment portfolio during the current quarter due to the lack of acceptable financial returns given the current interest rate environment.  The Company held $1.4 billion of interest bearing cash as of June 30, 2019 in order to maintain adequate liquidity.

Total liabilities grew by $1.2 billion in the second quarter of 2019 primarily comprised of growth in total deposits of $714.1 million and an increase of $296.8 million in subordinated notes. Management believes in substantially funding the 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 Company’s balance sheet, see Consolidated Statements of Condition and Tables 1 through 4 in this report.

NET INTEREST INCOME

For the second quarter of 2019, net interest income totaled $266.2 million, an increase of $4.2 million as compared to the first quarter of 2019 and an increase of $28.0 million as compared to the second quarter of 2018. The $4.2 million increase in net interest income in the second quarter of 2019 compared to the first quarter of 2019 was attributable to a $6.6 million increase related to balance sheet growth and a $2.9 million increase from one more day in the quarter partially offset by a $5.3 million decrease due to a reduction in net interest margin.

Net interest margin was 3.62% (3.64% on a fully taxable-equivalent basis, non-GAAP) during the second quarter of 2019 compared to 3.70% (3.72% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2019 and 3.61% (3.63% on a fully taxable-equivalent basis, non-GAAP) during the second quarter of 2018. The eight basis point decrease in net interest margin in the second quarter of 2019 as compared to the first quarter of 2019 is primarily due to an increase in the rate on interest bearing liabilities of 11 basis points partially offset by a three basis point increase in the contribution of net free funds.  The 11 basis point increase in the rate on interest bearing liabilities was primarily due to an eight basis point increase in deposit pricing related to promotional efforts to expand our market penetration, including at new branches. Additionally, the rate on interest bearing liabilities was negatively impacted by three basis points due to a higher mix of wholesale borrowings including the subordinated debt issuance in the current quarter and the utilization of Federal Home Loan Bank borrowings to fund asset growth.  The yield on earning assets remained unchanged in the second quarter as compared to first quarter as the yield on loans remained relatively consistent quarter over quarter.

For the first six months of 2019, net interest income totaled $528.2 million, an increase of $64.9 million as compared to the first six months of 2018. Net interest margin was 3.66% (3.68% on a fully taxable-equivalent basis) for the first six months of 2019 compared to 3.58% (3.60% on a fully taxable-equivalent basis) for the first six 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 second quarter of 2019 totaled 36 basis points on an annualized basis compared to nine basis points on an annualized basis in the first quarter of 2019 and two basis points on an annualized basis in the second quarter of 2018.  Net charge-offs totaled $22.3 million in the second quarter of 2019, a $17.2 million increase from $5.1 million in the first quarter of 2019 and a $21.2 million increase from $1.1 million in the second quarter of 2018.  The provision for credit losses totaled $24.6 million for the second quarter of 2019 compared to $10.6 million for the first quarter of 2019 and $5.0 million for the second quarter of 2018. Of the $24.6 million of provision for credit losses and $22.3 million of net charge-offs recognized in the current quarter, $18.4 million of net charge-offs and $15.2 million of provision expense, respectively, related to three credits.  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. The amount of future additions to the allowance for credit losses will be dependent upon management’s assessment of the appropriateness of the allowance based on its evaluation of economic conditions, changes in real estate values, interest rates, the regulatory environment, the level of past-due and non-performing loans and other factors.

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 June 30, 2019 and March 31, 2019 is shown on Table 12 of this report.

As of June 30, 2019, $54.9 million of all loans, or 0.2%, were 60 to 89 days past due and $129.1 million, or 0.5%, were 30 to 59 days (or one payment) past due. As of March 31, 2019, $19.2 million of all loans, or 0.1%, were 60 to 89 days past due and $176.2 million, or 0.7%, 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 June 30, 2019 that are current with regard to the contractual terms of the loan agreement represent 97.9% of the total home equity portfolio. Residential real estate loans at June 30, 2019 that are current with regards to the contractual terms of the loan agreements comprise 98.2% 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 $160.4 million of allowance for loan losses, there was $6.9 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 June 30, 2019.

The ratio of non-performing assets to total assets was 0.40% as of June 30, 2019, compared to 0.43% at March 31, 2019, and 0.40% at June 30, 2018. Non-performing assets, excluding PCI loans, totaled $133.5 million at June 30, 2019, compared to $139.4 million at March 31, 2019 and $118.9 million at June 30, 2018. Non-performing loans, excluding PCI loans, totaled $113.4 million, or 0.45% of total loans, at June 30, 2019 compared to $117.6 million, or 0.49% of total loans, at March 31, 2019 and $83.3 million, or 0.37% of total loans, at June 30, 2018. Other real estate owned ("OREO") of $19.8 million at June 30, 2019 decreased $1.7 million compared to $21.5 million at March 31, 2019 and decreased $15.5 million compared to $35.3 million at June 30, 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 $162,000 during the second quarter of 2019 as compared to the first quarter of 2019 primarily due to increased brokerage commissions and asset management fees. 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 $19.3 million in the second quarter of 2019 as compared to the first quarter of 2019 primarily as a result of higher production revenues and an increase in the fair value of the mortgage servicing rights portfolio in the second quarter of 2019.  Production revenue increased by $13.3 million in the second quarter of 2019 as compared to the first quarter of 2019 primarily due to a significant increase in origination volumes as a result of the seasonal purchase market and increased refinancing activity.  The percentage of origination volume from refinancing activities was 37% in the second quarter of 2019 as compared to 33% in the first 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 second quarter of 2019, the fair value of the mortgage servicing rights portfolio increased as retained servicing rights led to the capitalization of $9.8 million partially offset by negative fair value adjustments of $4.3 million and a reduction in value of $4.1 million due to payoffs and paydowns of the existing portfolio. The Company purchased an option at the beginning of the second 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 option was exercised during the current quarter resulting in a net gain of $920,000 which was recorded in mortgage banking revenue.

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

The Company recorded $643,000 of fees from covered call options in the second quarter of 2019 as compared to $1.8 million in the first quarter of 2019.  The Company has typically written call options with terms of less than three months against certain U.S. Treasury and agency securities held in its portfolio for liquidity and other purposes. Management has entered into these transactions with the goal of economically hedging security positions and enhancing its overall return on its investment portfolio by using fees generated from these options to compensate for net interest margin compression. These option transactions are designed to mitigate overall interest rate risk and do not qualify as hedges pursuant to accounting guidance. There were no outstanding call option contracts at June 30, 2019, March 31, 2019 or June 30, 2018.

Miscellaneous non-interest income decreased by $2.3 million in the second quarter of 2019 as compared to the first quarter of 2019 primarily due to reduced income from investments in partnerships.

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 $8.0 million in the second quarter of 2019 as compared to the first quarter of 2019. The $8.0 million increase is comprised of an increase of $1.3 million in salaries expense, $4.9 million in commissions and incentive compensation and $1.8 million in benefits expense.  The increase in salaries expense is primarily due to increased staffing as the Company grows, including additional salaries from the Oak Bank Acquisition as well as a full quarter impact of annual merit increases that were effective in February.  Commissions and incentive compensation increased in the current quarter primarily related to the increased volume of mortgage originations for sale.  The increase in benefits expense relates primarily to increases in employee insurance expense in the current quarter.

Equipment expense totaled $12.8 million in the second quarter of 2019, an increase of $1.0 million as compared to the first quarter of 2019. The increase in the current quarter relates primarily to increased software depreciation and licensing expenses and maintenance and repairs.

Data processing expenses decreased by $1.3 million in the second quarter of 2019 as compared to the first quarter of 2019 primarily due to the realization of a full quarter impact of favorable contract negotiations on various data processing contracts which were completed in the first quarter of 2019.

Advertising and marketing expenses in the second quarter of 2019 increased by $3.0 million as compared to the first quarter of 2019 primarily related to higher corporate sponsorship costs, which are typically higher in the spring and summer due to our marketing efforts related to baseball sponsorships, as well as increased spending related to deposit generation and brand awareness to grow our loan and deposit portfolios.

Miscellaneous expenses increased by $2.4 million during the second quarter of 2019 as compared to the first quarter of 2019 primarily as a result of loan expenses and travel and entertainment expenses. Miscellaneous expense includes ATM expenses, correspondent bank charges, directors' fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses, operating losses and lending origination costs that are not deferred.

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

INCOME TAXES

The Company recorded income tax expense of $28.7 million in the second quarter of 2019 compared to $29.5 million in the first quarter of 2019 and $32.0 million in the second quarter of 2018. The effective tax rates were 26.06% in the second quarter of 2019 compared to 24.86% in the first quarter of 2019 and 26.33% in the second quarter of 2018. During the first six months of 2019, the Company recorded income tax expense of $58.2 million compared to $58.1 million for the first six months of 2018. The effective tax rates were 25.44% for the first six months of 2019 and 25.30% for the first six months of 2018.

The quarterly and year-to-date effective tax rates were impacted by excess tax benefits related to share-based compensation. These excess tax benefits were $69,000 in the second quarter of 2019 and $1.6 million in the first quarter of 2019 compared to $712,000 in the second quarter of 2018 and $2.6 million in the first quarter of 2018. Excess tax benefits are expected to be higher in the first quarter when the majority of the Company's shared-based awards vest, and will fluctuate throughout the year based on the Company's stock price and timing of employee stock option exercises and vesting of other share-based awards.

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 2019, revenue within this unit was primarily driven by increased net interest income due to increased earning assets and one additional day in the second quarter, partially offset by higher rates on interest bearing liabilities.  Mortgage banking revenue increased significantly from $18.2 million for the first quarter of 2019 to $37.4 million for the second quarter of 2019. Services charges on deposit accounts totaled $9.3 million in the second quarter of 2019 an increase of $429,000 as compared to the first 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 $1.2 billion to $1.3 billion at June 30, 2019. When adjusted for the probability of closing, the pipelines were estimated to be approximately $750 million to $800 million at June 30, 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. In the second quarter of 2019, the specialty finance unit experienced higher revenue primarily as a result of increased volumes and higher yields within its insurance premium financing receivables portfolio. Originations within the insurance premium financing receivables portfolio were $2.4 billion during the second quarter of 2019 and average balances increased by $228.0 million as compared to the first quarter of 2019. The increase in average balances along with higher yields on these loans resulted in a $5.2 million increase in interest income attributed to the insurance premium finance receivables portfolio. The Company's leasing business grew during the second quarter of 2019, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing $80.4 million to $1.4 billion at the end of the second quarter of 2019. Revenues from the Company's out-sourced administrative services business remained relatively steady, totaling approximately $1.0 million in both the first quarter and the second 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 $162,000 in the second quarter of 2019 compared to the first quarter of 2019, totaling $24.1 million in the current period. At June 30, 2019, the Company’s wealth management subsidiaries had approximately $25.9 billion of assets under administration, which included $3.6 billion of assets owned by the Company and its subsidiary banks, representing a $772.9 million increase from the $25.1 billion of assets under administration at March 31, 2019. The increase in the second quarter of 2019 was primarily due to market appreciation as well as increased business.

ITEMS IMPACTING COMPARATIVE FINANCIAL RESULTS

Acquisitions

On May 24, 2019, the Company completed the Oak Bank Acquisition. Through this business combination, the Company acquired Oak Bank's one banking location in Chicago, Illinois, as well as approximately $223.8 million in assets, including approximately $126.1 million in loans, and approximately $161.2 million in deposits. The Company recorded goodwill of $10.7 million on the acquisition.

On December 14, 2018, the Company acquired Elektra Holding Company, LLC ("Elektra"), 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 $37.6 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 ("AEB"). Through this asset acquisition, the Company acquired approximately $164.0 million in assets, including approximately $119.3 million in loans, and approximately $150.8 million in deposits.

On August 1, 2018, the Company completed its acquisition of Chicago Shore Corporation ("CSC"). CSC was the parent company of Delaware Place Bank. Through this business combination, the Company acquired Delaware Place Bank's one banking location in Chicago, Illinois as well as approximately $282.8 million in assets, including approximately $152.7 million in loans, and approximately $213.1 million in deposits. The Company recorded goodwill of $26.6 million on the acquisition.

On January 4, 2018, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of Veterans First, in a business combination. The Company also acquired mortgage servicing rights assets from Veterans First on approximately 10,000 loans, totaling an estimated $1.6 billion in unpaid principal balance. Veterans First is a consumer direct lender with two offices, operating one in Salt Lake City and one in San Diego. The Company recorded goodwill of $9.1 million on the acquisition.

WINTRUST FINANCIAL CORPORATION

Key Operating Measures

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

              % or(4)
basis point  (bp) change from
1st Quarter
2019
  % or
basis point  (bp)
change from
2nd Quarter
2018
    Three Months Ended  
(Dollars in thousands, except per share data)   June 30,
 2019
  March 31,
 2019
  June 30,
 2018
 
Net income   $ 81,466     $ 89,146     $ 89,580   (9 ) %   (9 ) %
Net income per common share – diluted   1.38     1.52     1.53   (9 )     (10 )  
Net revenue (1)   364,360     343,643     333,403   6       9    
Net interest income   266,202     261,986     238,170   2       12    
Net interest margin   3.62 %   3.70 %   3.61 % (8 ) bp   1   bp
Net interest margin - fully taxable equivalent (non-GAAP) (2)   3.64     3.72     3.63   (8 )     1    
Net overhead ratio (3)   1.64     1.72     1.57   (8 )     7    
Return on average assets   1.02     1.16     1.26   (14 )     (24 )  
Return on average common equity   9.68     11.09     11.94   (141 )     (226 )  
Return on average tangible common equity (non-GAAP) (2)   12.28     14.14     14.72   (186 )     (244 )  
At end of period                      
Total assets   $ 33,641,769     $ 32,358,621     $ 29,464,588   16   %   14   %
Total loans (5)   25,304,659     24,214,629     22,610,560   18       12    
Total deposits   27,518,815     26,804,742     24,365,479   11       13    
Total shareholders’ equity   3,446,950     3,371,972     3,106,871   9       11    
  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 Six Months Ended
(Dollars in thousands, except per share data)   June 30,
 2019
  March 31,
 2019
  December 31,
 2018
  September 30,
 2018
  June 30,
 2018
June 30,
 2019
  June 30,
 2018
Selected Financial Condition Data (at end of period):                                              
Total assets   $ 33,641,769     $ 32,358,621     $ 31,244,849     $ 30,142,731     $ 29,464,588        
Total loans (1)   25,304,659     24,214,629     23,820,691     23,123,951     22,610,560        
Total deposits   27,518,815     26,804,742     26,094,678     24,916,715     24,365,479        
Junior subordinated debentures   253,566     253,566     253,566     253,566     253,566        
Total shareholders’ equity   3,446,950     3,371,972     3,267,570     3,179,822     3,106,871        
Selected Statements of Income Data:      
Net interest income   $ 266,202     $ 261,986     $ 254,088     $ 247,563     $ 238,170   $ 528,188     $ 463,252  
Net revenue (2)   364,360     343,643     329,396     347,493     333,403   708,003     644,164  
Net income   81,466     89,146     79,657     91,948     89,580   170,612     171,561  
Net income per common share – Basic   1.40     1.54     1.38     1.59     1.55   2.94     2.98  
Net income per common share – Diluted   1.38     1.52     1.35     1.57     1.53   2.91     2.93  
Selected Financial Ratios and Other Data:      
Performance Ratios:      
Net interest margin   3.62 %   3.70 %   3.61 %   3.59 %   3.61 % 3.66 %   3.58 %
Net interest margin - fully taxable equivalent (non-GAAP) (3)   3.64     3.72     3.63     3.61     3.63   3.68     3.60  
Non-interest income to average assets   1.23     1.06     0.99     1.34     1.34   1.15     1.29  
Non-interest expense to average assets   2.87     2.79     2.78     2.87     2.90   2.83     2.87  
Net overhead ratio (4)   1.64     1.72     1.79     1.53     1.57   1.68     1.58  
Return on average assets   1.02     1.16     1.05     1.24     1.26   1.09     1.23  
Return on average common equity   9.68     11.09     10.01     11.86     11.94   10.37     11.62  
Return on average tangible common equity (non-GAAP) (3)   12.28     14.14     12.48     14.64     14.72   13.19     14.38  
Average total assets   $ 32,055,769     $ 31,216,171     $ 30,179,887     $ 29,525,109     $ 28,567,579   $ 31,638,289     $ 28,190,683  
Average total shareholders’ equity   3,414,340     3,309,078     3,200,654     3,131,943     3,064,154   3,362,000     3,030,062  
Average loans to average deposits ratio   93.9 %   92.7 %   92.4 %   92.2 %   95.5 % 93.3 %   95.3 %
Period-end loans to deposits ratio   92.0     90.3     91.3     92.8     92.8        
Common Share Data at end of period:      
Market price per common share   $ 73.16     $ 67.33     $ 66.49     $ 84.94     $ 87.05        
Book value per common share   58.62     57.33     55.71     54.19     52.94        
Tangible book value per common share (non-GAAP) (3)   47.48     46.38     44.67     44.16     43.50        
Common shares outstanding   56,667,846     56,638,968     56,407,558     56,377,169     56,329,276        
Other Data at end of period:      
Tier 1 leverage ratio (5)   9.1 %   9.1 %   9.1 %   9.3 %   9.4 %      
Risk-based capital ratios:                          
Tier 1 capital ratio (5)   9.6     9.8     9.7     10.0     10.0        
Common equity tier 1 capital ratio(5)   9.2     9.3     9.3     9.5     9.6        
Total capital ratio (5)   12.3     11.7     11.6     12.0     12.1        
Allowance for credit losses (6)   $ 161,901     $ 159,622     $ 154,164     $ 151,001     $ 144,645        
Non-performing loans   113,447     117,586     113,234     127,227     83,282        
Allowance for credit losses to total loans (6)   0.64 %   0.66 %   0.65 %   0.65 %   0.64 %      
Non-performing loans to total loans   0.45     0.49     0.48     0.55     0.37        
Number of:                          
Bank subsidiaries   15     15     15     15     15        
Banking offices   172     170     167     166     162        
  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)  
      June 30,       March 31,       December 31,       September 30,       June 30,  
(In thousands)     2019       2019       2018       2018       2018  
Assets                                        
                                         
Cash and due from banks   $ 300,934     $ 270,765     $ 392,142     $ 279,936     $ 304,580  
Federal funds sold and securities purchased under resale agreements   58     58     58     57     62  
Interest bearing deposits with banks   1,437,105     1,609,852     1,099,594     1,137,044     1,221,407  
Available-for-sale securities, at fair value   2,186,154     2,185,782     2,126,081     2,164,985     1,940,787  
Held-to-maturity securities, at amortized cost   1,191,634     1,051,542     1,067,439     966,438     890,834  
Trading account securities   2,430     559     1,692     688     862  
Equity securities with readily determinable fair value   44,319     47,653     34,717     36,414     37,839  
Federal Home Loan Bank and Federal Reserve Bank stock   92,026     89,013     91,354     99,998     96,699  
Brokerage customer receivables   13,569     14,219     12,609     15,649     16,649  
Mortgage loans held-for-sale   394,975     248,557     264,070     338,111     455,712  
Loans, net of unearned income   25,304,659     24,214,629     23,820,691     23,123,951     22,610,560  
Allowance for loan losses   (160,421 )   (158,212 )   (152,770 )   (149,756 )   (143,402 )
Net loans   25,144,238     24,056,417     23,667,921     22,974,195     22,467,158  
Premises and equipment, net   711,214     676,037     671,169     664,469     639,345  
Lease investments, net   230,111     224,240     233,208     199,241     194,160  
Accrued interest receivable and other assets   1,023,896     888,492     696,707     700,568     666,673  
Trade date securities receivable   237,607     375,211     263,523         450  
Goodwill   584,911     573,658     573,141     537,560     509,957  
Other intangible assets   46,588     46,566     49,424     27,378     21,414  
Total assets   $ 33,641,769     $ 32,358,621     $ 31,244,849     $ 30,142,731     $ 29,464,588  
Liabilities and Shareholders’ Equity                    
Deposits:                    
Non-interest bearing   $ 6,719,958     $ 6,353,456     $ 6,569,880     $ 6,399,213     $ 6,520,724  
Interest bearing   20,798,857     20,451,286     19,524,798     18,517,502     17,844,755  
 Total deposits   27,518,815     26,804,742     26,094,678     24,916,715     24,365,479  
Federal Home Loan Bank advances   574,823     576,353     426,326     615,000     667,000  
Other borrowings   418,057     372,194     393,855     373,571     255,701  
Subordinated notes   436,021     139,235     139,210     139,172     139,148  
Junior subordinated debentures   253,566     253,566     253,566     253,566     253,566  
Accrued interest payable and other liabilities   993,537     840,559     669,644     664,885     676,823  
Total liabilities   30,194,819     28,986,649     27,977,279     26,962,909     26,357,717  
Shareholders’ Equity:                    
Preferred stock   125,000     125,000     125,000     125,000     125,000  
Common stock   56,794     56,765     56,518     56,486     56,437  
Surplus   1,569,969     1,565,185     1,557,984     1,553,353     1,547,511  
Treasury stock   (6,650 )   (6,650 )   (5,634 )   (5,547 )   (5,355 )
Retained earnings   1,747,266     1,682,016     1,610,574     1,543,680     1,464,494  
Accumulated other comprehensive loss   (45,429 )   (50,344 )   (76,872 )   (93,150 )   (81,216 )
Total shareholders’ equity   3,446,950     3,371,972     3,267,570     3,179,822     3,106,871  
Total liabilities and shareholders’ equity   $ 33,641,769     $ 32,358,621     $ 31,244,849     $ 30,142,731     $ 29,464,588  


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

  Three Months Ended   Six Months Ended
(In thousands, except per share data) June 30,
 2019
  March 31,
 2019
  December 31,
 2018
  September 30,
 2018
  June 30,
 2018
  June 30,
 2019
  June 30,
 2018
Interest income                          
Interest and fees on loans $ 309,161     $ 296,987     $ 283,311     $ 271,134     $ 255,063     $ 606,148     $ 490,057  
Mortgage loans held-for-sale 3,104     2,209     3,409     5,285     4,226     5,313     7,044  
Interest bearing deposits with banks 5,206     5,300     5,628     5,423     3,243     10,506     6,039  
Federal funds sold and securities purchased under resale agreements                 1         1  
Investment securities 27,721     27,956     26,656     21,710     19,888     55,677     39,016  
Trading account securities 5     8     14     11     4     13     18  
Federal Home Loan Bank and Federal Reserve Bank stock 1,439     1,355     1,343     1,235     1,455     2,794     2,753  
Brokerage customer receivables 178     155     235     164     167     333     324  
Total interest income 346,814     333,970     320,596     304,962     284,047     680,784     545,252  
Interest expense                          
Interest on deposits 67,024     60,976     55,975     48,736     35,293     128,000     61,842  
Interest on Federal Home Loan Bank advances 4,193     2,450     2,563     1,947     4,263     6,643     7,902  
Interest on other borrowings 3,525     3,633     3,199     2,003     1,698     7,158     3,397  
Interest on subordinated notes 2,806     1,775     1,788     1,773     1,787     4,581     3,560  
Interest on junior subordinated debentures 3,064     3,150     2,983     2,940     2,836     6,214     5,299  
Total interest expense 80,612     71,984     66,508     57,399     45,877     152,596     82,000  
Net interest income 266,202     261,986     254,088     247,563     238,170     528,188     463,252  
Provision for credit losses 24,580     10,624     10,401     11,042     5,043     35,204     13,389  
Net interest income after provision for credit losses 241,622     251,362     243,687     236,521     233,127     492,984     449,863  
Non-interest income                                  
Wealth management 24,139     23,977     22,726     22,634     22,617     48,116     45,603  
Mortgage banking 37,411     18,158     24,182     42,014     39,834     55,569     70,794  
Service charges on deposit accounts 9,277     8,848     9,065     9,331     9,151     18,125     18,008  
Gains (losses) on investment securities, net 864     1,364     (2,649 )   90     12     2,228     (339 )
Fees from covered call options 643     1,784     626     627     669     2,427     2,266  
Trading (losses) gains, net (44 )   (171 )   (155 )   (61 )   124     (215 )   227  
Operating lease income, net 11,733     10,796     10,882     9,132     8,746     22,529     18,437  
Other 14,135     16,901     10,631     16,163     14,080     31,036     25,916  
Total non-interest income 98,158     81,657     75,308     99,930     95,233     179,815     180,912  
Non-interest expense                          
Salaries and employee benefits 133,732     125,723     122,111     123,855     121,675     259,455     234,111  
Equipment 12,759     11,770     11,523     10,827     10,527     24,529     20,599  
Operating lease equipment depreciation 8,768     8,319     8,462     7,370     6,940     17,087     13,473  
Occupancy, net 15,921     16,245     15,980     14,404     13,663     32,166     27,430  
Data processing 6,204     7,525     8,447     9,335     8,752     13,729     17,245  
Advertising and marketing 12,845     9,858     9,414     11,120     11,782     22,703     20,606  
Professional fees 6,228     5,556     9,259     9,914     6,484     11,784     13,133  
Amortization of other intangible assets 2,957     2,942     1,407     1,163     997     5,899     2,001  
FDIC insurance 4,127     3,576     4,044     4,205     4,598     7,703     8,960  
OREO expense, net 1,290     632     1,618     596     980     1,922     3,906  
Other 24,776     22,228     19,068     20,848     20,371     47,004     39,654  
Total non-interest expense 229,607     214,374     211,333     213,637     206,769     443,981     401,118  
Income before taxes 110,173     118,645     107,662     122,814     121,591     228,818     229,657  
Income tax expense 28,707     29,499     28,005     30,866     32,011     58,206     58,096  
Net income $ 81,466     $ 89,146     $ 79,657     $ 91,948     $ 89,580     $ 170,612     $ 171,561  
Preferred stock dividends 2,050     2,050     2,050     2,050     2,050     4,100     4,100  
Net income applicable to common shares $ 79,416     $ 87,096     $ 77,607     $ 89,898     $ 87,530     $ 166,512     $ 167,461  
Net income per common share - Basic $ 1.40     $ 1.54     $ 1.38     $ 1.59     $ 1.55     $ 2.94     $ 2.98  
Net income per common share - Diluted $ 1.38     $ 1.52     $ 1.35     $ 1.57     $ 1.53     $ 2.91     $ 2.93  
Cash dividends declared per common share $ 0.25     $ 0.25     $ 0.19     $ 0.19     $ 0.19     $ 0.50     $ 0.38  
Weighted average common shares outstanding 56,662     56,529     56,395     56,366     56,299     56,596     56,218  
Dilutive potential common shares 699     699     892     918     928     700     909  
Average common shares and dilutive common shares 57,361     57,228     57,287     57,284     57,227     57,296     57,127  

 

TABLE 1: LOAN PORTFOLIO MIX AND GROWTH RATES

                    % Growth From
(Dollars in thousands) June 30,
 2019
  March 31,
 2019
  December 31,
 2018
  September 30,
 2018
  June 30,
 2018
December 31, 2018 (1)   June 30,
 2018
Balance:                        
Commercial $ 8,270,774     $ 7,994,191     $ 7,828,538     $ 7,473,958     $ 7,289,060   11 %   13 %
Commercial real estate 7,276,244     6,973,505     6,933,252     6,746,774     6,575,084   10     11  
Home equity 527,370     528,448     552,343     578,844     593,500   (9 )   (11 )
Residential real estate 1,118,178     1,053,524     1,002,464     924,250     895,470   23     25  
Premium finance receivables - commercial 3,368,423     2,988,788     2,841,659     2,885,327     2,833,452   37     19  
Premium finance receivables - life insurance 4,634,478     4,555,369     4,541,794     4,398,971     4,302,288   4     8  
Consumer and other 109,192     120,804     120,641     115,827     121,706   (19 )   (10 )
Total loans, net of unearned income $ 25,304,659     $ 24,214,629     $ 23,820,691     $ 23,123,951     $ 22,610,560   13 %   12 %
Mix:                        
Commercial 33 %   33 %   33 %   32 %   32 %      
Commercial real estate 29     29     29     29     29        
Home equity 2     2     2     3     3        
Residential real estate 4     4     4     4     4        
Premium finance receivables - commercial 13     12     12     12     12        
Premium finance receivables - life insurance 18     19     19     19     19        
Consumer and other 1     1     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 June 30, 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 $ 5,295,775     34.0 %   $ 35,902     $ 488     $ 52,756  
Franchise 926,521     6.0     11,076         8,314  
Mortgage warehouse lines of credit 275,170     1.8             2,195  
Asset-based lending 1,068,226     6.9     568         9,335  
Leases 680,757     4.4     58         1,879  
PCI - commercial loans (1) 24,325     0.2         1,451     414  
Total commercial $ 8,270,774     53.3 %   $ 47,604     $ 1,939     $ 74,893  
Commercial Real Estate:                  
Construction $ 838,499     5.3 %   $ 1,030     $     $ 9,343  
Land 145,639     0.9     1,226         4,193  
Office 957,218     6.2     8,981         9,778  
Industrial 956,530     6.2     368         6,591  
Retail 976,201     6.3     6,867         6,515  
Multi-family 1,240,067     8.0     296         11,983  
Mixed use and other 2,035,099     13.0     2,107         14,813