8-K
WINTRUST FINANCIAL CORP (WTFC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 20, 2021
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
| Illinois | 001-35077 | 36-3873352 | ||
|---|---|---|---|---|
| (State or other jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer<br>Identification No.) | ||
| 9700 W. Higgins Road, Suite 800 | Rosemont | Illinois | 60018 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (847) 939-9000
Not Applicable
(Former name or former address, if changed since last year)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | | --- | --- || ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | | --- | --- || ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | | --- | --- || ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | | --- | --- || Title of Each Class | Ticker Symbol | Name of Each Exchange on Which Registered | | --- | --- | --- | | Common Stock, no par value | WTFC | The NASDAQ Global Select Market | | Series D Preferred Stock, no par value | WTFCM | The NASDAQ Global Select Market | | Depositary Shares, Each Representing a 1/1,000th Interest in a Share of | WTFCP | The NASDAQ Global Select Market | | 6.875% Fixed-Rate Reset Non-Cumulative Perpetual Series E<br>Preferred Stock, no par value | | |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition
The information in this Current Report is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
On January 20, 2021, Wintrust Financial Corporation (the “Company”) announced earnings for the fourth quarter of 2020 and posted on its website the Fourth Quarter 2020 Earnings Release Presentation. Copies of the press release relating to the Company’s earnings results and the related presentation are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively. Certain supplemental information relating to non-GAAP financial measures reported in the attached press release and presentation is included on pages 37 through 39 of Exhibit 99.1 and pages 18 through 19 of Exhibit 99.2.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
| Exhibit | |
|---|---|
| 99.1 | Fourth Quarter 2020 Earnings Release dated January 20, 2021 |
| 99.2 | Fourth Quarter 2020 Earnings Release Presentation dated January 20, 2021 |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| WINTRUST FINANCIAL CORPORATION<br>(Registrant) | |
|---|---|
| By: | /s/ David L. Stoehr |
| David L. Stoehr<br>Executive Vice President and<br> Chief Financial Officer |
Date: January 20, 2021
INDEX TO EXHIBITS
| Exhibit | |
|---|---|
| 99.1 | Fourth Quarter 2020 Earnings Release dated January 20, 2021 |
| 99.2 | Fourth Quarter 2020 Earnings Release Presentation dated January 20, 2021 |
4
Document
Exhibit 99.1
Wintrust Financial Corporation
9700 W. Higgins Road, Suite 800, Rosemont, Illinois 60018
News Release
| FOR IMMEDIATE RELEASE | January 20, 2021 |
|---|
FOR MORE INFORMATION CONTACT:
Edward J. Wehmer, Founder & Chief Executive Officer
David A. Dykstra, Vice Chairman & Chief Operating Officer
(847) 939-9000
Web site address: www.wintrust.com
Wintrust Financial Corporation Reports Fourth Quarter 2020 Net Income of $101.2 million and Full-Year 2020 Net Income of $293.0 million
ROSEMONT, ILLINOIS – Wintrust Financial Corporation (“Wintrust”, “the Company”, "we" or "our") (Nasdaq: WTFC) announced net income of $101.2 million or $1.63 per diluted common share for the fourth quarter of 2020, a decrease in diluted earnings per common share of 2% compared to the third quarter of 2020 and an increase of 13% compared to the fourth quarter of 2019. The Company recorded net income of $293.0 million or $4.68 per diluted common share for the year ended December 31, 2020 compared to net income of $355.7 million or $6.03 per diluted common share for the same period of 2019.
Highlights of the Fourth Quarter of 2020:
Comparative information to the third quarter of 2020
•Total assets increased by $1.3 billion.
•Total loans, excluding Paycheck Protection Program ("PPP") loans, increased by $607 million primarily due to growth in commercial loans and life insurance premium finance receivables. This growth also included a $71 million net increase in residential real estate loans for investment as the Company decided to allocate a portion of its current and future mortgage production for investment.
◦In addition, during the fourth quarter of 2020, the Company exercised its early buy-out option on $248 million of eligible loans previously sold to the Government National Mortgage Association ("GNMA") recorded in mortgage loans held-for-sale. See Table 1 for more information.
◦PPP loans originated in 2020 declined by $663 million in the fourth quarter of 2020 primarily as a result of processing forgiveness payments. As of January 15, 2021, approximately 23% of PPP loan balances originated in 2020 have been forgiven, approximately 45% of balances are in the forgiveness review or submission process, and approximately 32% of balances have yet to apply.
•Total deposits increased by $1.2 billion, notwithstanding the return of approximately $666 million in wholesale deposits during the fourth quarter of 2020.
•Net interest income increased by $3.5 million primarily due to a reduction in the rate on interest-bearing deposits and loan growth.
◦The rate on interest-bearing deposits declined by 10 basis points in the fourth quarter of 2020 as compared to the third quarter of 2020. This improvement more than offset a two basis point decline in the yield on total loans in the fourth quarter of 2020 as compared to the third quarter of 2020.
◦The Company recognized $16.8 million of PPP loan fee accretion in the fourth quarter of 2020 as compared to $17.4 million in the third quarter of 2020 on PPP loans originated in 2020. As of December 31, 2020, the Company had approximately $32.5 million of PPP loan fees that have yet to be recognized in income.
•The loans to deposits ratio ended the fourth quarter of 2020 at 86.5% as compared to 89.7% as of September 30, 2020. Excluding PPP loans, the loans to deposits ratio ended the fourth quarter of 2020 at 79.2%.
•Mortgage banking revenue decreased by $21.7 million to $86.8 million for the fourth quarter of 2020 as compared to $108.5 million in the prior quarter.
•Outstanding COVID-19 related loan modifications for customers totaled approximately $345 million or 1.2% of total loans, excluding PPP loans, as of December 31, 2020 as compared to $413 million or 1.4% as of September 30, 2020.
•Provision for credit losses totaled $1.2 million in the fourth quarter of 2020 as compared to $25.0 million in the third quarter of 2020.
•Recorded net charge-offs of $10.3 million in the fourth quarter of 2020, of which $5.9 million were reserves on individually assessed loans as of the prior quarter end, as compared to net charge-offs of $9.3 million in the third quarter of 2020. Net charge-offs as a percentage of average total loans, totaled 13 basis points in the fourth quarter of 2020 on an annualized basis compared to 12 basis points on an annualized basis in the third quarter of 2020.
•The allowance for credit losses on our core loan portfolio is approximately 1.82% of the outstanding balance as of December 31, 2020, down from 1.88% as of September 30, 2020. See Table 12 for more information.
•Non-performing loans declined by $45.6 million, or 26%, and totaled $127.5 million, or 0.40% of total loans, as of December 31, 2020 as compared to $173.1 million, or 0.54% of total loans, as of September 30, 2020.
Other items of note from the fourth quarter of 2020
•The following items had a $13.2 million unfavorable pre-tax income impact on the fourth quarter of 2020:
•Recorded a decrease in the value of mortgage servicing rights related to changes in fair value model assumptions of $5.2 million in the fourth quarter of 2020 as compared to a decrease of $3.0 million in the third quarter of 2020.
•Accrued $6.6 million of contingent consideration expense in the fourth quarter of 2020 related to the previous acquisition of mortgage operations as compared to $6.3 million in the third quarter of 2020, which was recorded in other non-interest expense.
•Recorded an impairment charge of $1.4 million in occupancy expense related to the planned closure of 10 bank branches.
•Repurchased 974,150 shares of our common stock at a cost of $54.9 million, or an average price of $56.40 per share.
Edward J. Wehmer, Founder and Chief Executive Officer, commented, "Wintrust reported net income of $101.2 million for the fourth quarter of 2020, down from $107.3 million in the third quarter of 2020. The fourth quarter of 2020 was characterized by significant loan growth, increased net interest income, strong mortgage banking revenue, a significant reduction in non-performing loans and a continued focus to increase franchise value in our market area."
Reflecting on the year, Mr. Wehmer stated, "I am very appreciative of our staff's tireless efforts to make the best of a difficult year. The year offered many challenges and I could not be more proud of our results. Pre-tax income, excluding provision for credit losses (non-GAAP), increased by 13% to $604 million in 2020 as compared to $534 million in 2019. We finished 2020 with a lot of momentum and look forward to serving our communities and being responsive to our customers in the new year."
Mr. Wehmer continued, "The Company experienced significant loan growth, excluding PPP loans, in the fourth quarter of 2020, including growth in its commercial, commercial real estate, residential real estate loans for investment and life insurance premium finance receivable portfolios. In addition, the Company supplemented loan growth by exercising its early buy-out option on eligible GNMA loans. The majority of the loan growth was in the latter part of the quarter as total period end loans, excluding PPP loans, were $678 million higher than average total loans, excluding PPP loans, in the fourth quarter of 2020. Our loan pipelines remain strong and we expect to continue to grow loans in 2021 without compromising our credit standards. Total deposits increased by $1.2 billion as compared to the third quarter of 2020 even with the return of approximately $666 million in wholesale deposits. Additionally, the mix of deposit growth during the quarter was favorable evidenced by $1.3 billion of growth in non-interest bearing deposits. We continue to emphasize growing our franchise, including gathering low cost deposits, which we believe will drive value in the long term. Our loans to deposits ratio ended the quarter at 86.5% and we believe that we have sufficient liquidity to meet customer loan demand."
Mr. Wehmer commented, "Net interest income increased in the fourth quarter of 2020 primarily due to lower interest expense on interest-bearing deposits and loan growth. The rate on interest-bearing deposits declined 10 basis points in the fourth quarter of 2020 as compared to the third quarter of 2020. This improvement more than offset a two basis point decline in the yield on total loans in the fourth quarter of 2020 as compared to the third quarter of 2020. PPP loan fee accretion was relatively flat as the Company recognized $16.8 million of PPP loan fee accretion in the fourth quarter of 2020 as compared to $17.4 million in the third quarter of 2020. The three basis point decline in the net interest margin in the fourth quarter of 2020 as compared to the third quarter of 2020 was primarily due to increased levels of liquidity as average interest-bearing cash increased by $1.0 billion. We have accumulated excess liquidity in recent quarters and believe that, if conditions allow for suitable deployment of such excess liquidity, we could potentially increase our net interest margin by 15 to 30 basis points, depending on the mix of earning assets of such reinvestment."
Mr. Wehmer noted, “Our mortgage banking business delivered another strong 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 fourth quarter of 2020 were $2.4 billion, up from $2.2 billion in the third quarter of 2020. Production revenue decreased during the quarter as the origination pipeline declined as compared to the end of the third quarter of 2020. This decline was partially due to the Company increasing its allocation of pipeline to originations for investment in order to increase earning assets on the balance sheet. Additionally, the Company recorded a $5.2 million decline in the value of mortgage servicing rights related to changes in fair value model assumptions. 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 1.12% net overhead ratio for the
fourth quarter of 2020. We believe the first quarter of 2021 will provide another strong quarter for mortgage banking production."
Commenting on credit quality, Mr. Wehmer stated, "The Company recorded provision for credit losses of $1.2 million reflecting improvement in credit quality in the fourth quarter of 2020. We expended significant effort in the quarter diligently reviewing and addressing our credit portfolio. The Company's population of loans with a rating below "pass" as of December 31, 2020 declined by $273 million, or 14%, as compared to the prior quarter end primarily due to a note sale, pay-offs and risk rating upgrades. The level of non-performing loans decreased by $45.6 million primarily due to non-performing loan pay-offs. Additionally, net charge-offs remained relatively low totaling $10.3 million in the fourth quarter of 2020 as compared to $9.3 million in the third quarter of 2020. The allowance for credit losses on our core loan portfolio as of December 31, 2020 is approximately 1.82% of the outstanding balance. We believe that the Company’s reserves remain appropriate and we remain diligent in our review of credit."
Mr. Wehmer added, "In addition to the previously announced sale of three branches in southwestern Wisconsin, we continue to review our branch footprint and have initiated plans to close an additional 10 branches. These are predominantly smaller locations in close proximity to other Wintrust locations. As such, we do not expect any material attrition or customer disruption. We expect the noted branches to close prior to the end of the second quarter and the branch sale in Wisconsin to close in the second quarter. In the fourth quarter of 2020, we recorded an impairment charge of $1.4 million associated with the closing of the 10 locations. Collectively, the reduction of 13 locations represents approximately 7% of the Wintrust retail banking locations and will result in a reduction in expenses of approximately $5 million annually on an ongoing basis. It is important to note that while we see increased use of electronic services and are investing heavily in digital capabilities to allow clients to choose how they want to be served, Wintrust will continue to selectively open branches in areas where we are not represented."
Mr. Wehmer concluded, "We remain committed to supporting our community, including the well-being and safety of our customers and employees. We are participating in the latest round of PPP having opened our application portal on January 11, 2021. As of January 19, 2021, we have received approximately 5,400 applications aggregating in excess of $1.1 billion of loans with associated fees of approximately $44 million. We are focused on taking advantage of market opportunities to prudently deploy excess liquidity into earning assets. In particular, we expect to grow PPP loans, organic loans, residential real estate loans for investment and investment securities while maintaining an interest rate sensitive asset portfolio. We continue to evaluate our operating expense base to enhance future profitability. We also 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 fourth quarter of 2020 as well as historical financial performance. 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.
*Net Change in Niche Loans: Includes activity for premium finance receivables and indirect consumer loans.
SUMMARY OF RESULTS:
BALANCE SHEET
Total asset growth of $1.3 billion in the fourth quarter of 2020 was primarily comprised of a $977 million increase in interest-bearing deposits with banks, a $312 million increase in mortgage loans held-for-sale, and a $128 million increase in investment securities, partially offset by a $56 million decrease in loans. The Company believes that the $4.8 billion of interest-bearing deposits with banks held as of December 31, 2020 provides more than sufficient liquidity to operate its business plan.
The $56 million decrease in loans was primarily a result of processing forgiveness payments, as PPP loans declined by $663 million in the fourth quarter of 2020. Total loans, excluding PPP loans, increased by $607 million primarily due to growth in commercial loans and life insurance premium finance receivables. This growth also included a $71 million net increase in residential real estate loans for investment as the Company decided to allocate a portion of its current and future mortgage production for investment.
Total liabilities increased $1.3 billion in the fourth quarter of 2020 resulting primarily from a $1.2 billion increase in total deposits, which included the return of approximately $666 million in wholesale deposits. The increase in deposits was primarily due to a $1.3 billion increase in non-interest-bearing deposits. Our loans to deposits ratio ended the quarter at 86.5%. 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 Company’s balance sheet, see Consolidated Statements of Condition and Tables 1 through 3 in this report.
NET INTEREST INCOME
For the fourth quarter of 2020, net interest income totaled $259.4 million, an increase of $3.5 million as compared to the third quarter of 2020 and a decrease of $2.5 million as compared to the fourth quarter of 2019. The $3.5 million increase in net interest income in the fourth quarter of 2020 compared to the third quarter of 2020 was primarily due to a 10 basis point decline in the rate on interest-bearing deposits in the fourth quarter of 2020 and loan growth.
Net interest margin was 2.53% (2.54% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2020 compared to 2.56% (2.57% on a fully taxable-equivalent basis, non-GAAP) during the third quarter of 2020 and 3.17% (3.19% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2019. The three basis point decrease in net interest margin in the fourth quarter of 2020 as compared to the third quarter of 2020 was attributable to a 10 basis point decline in the yield on earning assets and a two basis point decrease in the net free funds contribution partially offset by a nine basis point decrease in the rate paid on interest-bearing liabilities. The 10 basis point decline in the yield on earning assets in the fourth quarter of 2020 as compared to the third quarter of 2020 was primarily due to a $1.0 billion increase in average interest-bearing deposits with banks and cash equivalents. The decrease in the rate paid on interest-bearing liabilities in the fourth quarter of 2020 as compared to the prior quarter is primarily due to a 10 basis point decrease in the rate paid on interest-bearing deposits as management initiated various deposit rate reductions given the low 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 $380.0 million as of December 31, 2020, a decrease of $9.0 million as compared to $389.0 million as of September 30, 2020. The allowance for credit losses decreased primarily due to portfolio changes and was partially offset by changes in the macroeconomic forecasted conditions. The Commercial, Industrial and Other portfolio realized a decrease in the allowance for credit losses as compared to the prior quarter-end, which was primarily driven by improving portfolio credit characteristics. There was an increase in the allowance for credit losses in the Commercial Real Estate portfolios driven by deterioration in the Commercial Real Estate Price Index forecast, partially offset by improvement in Baa Corporate Credit Spreads. Other key drivers of allowance for credit losses changes in these portfolios include, but are not limited to, decreases in COVID-19 related loan modifications and loan risk rating migration.
The provision for credit losses totaled $1.2 million for the fourth quarter of 2020 compared to $25.0 million for the third quarter of 2020 and $7.8 million for the fourth quarter of 2019. For more information regarding the provision for credit losses, see Table 11 in this report.
Management believes the allowance for credit losses is appropriate to account for expected credit losses. The Current Expected Credit Losses ("CECL") standard requires the Company to estimate expected credit losses over the life of the Company’s 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. A summary of the allowance for credit losses calculated for the loan components in the core loan portfolio, the niche and consumer loan portfolio and the purchased loan portfolio as of December 31, 2020 and September 30, 2020 is shown on Table 12 of this report.
Net charge-offs totaled $10.3 million in the fourth quarter of 2020, a $1.0 million increase from $9.3 million in the third quarter of 2020 and a $2.4 million decrease from $12.7 million in the fourth quarter of 2019. Net charge-offs as a percentage of average total loans, totaled 13 basis points in the fourth quarter of 2020 on an annualized basis compared to 12 basis points on an annualized basis in the third quarter of 2020 and 19 basis points on an annualized basis in the fourth quarter of 2019. For more information regarding net charge-offs, see Table 10 in this report.
As of December 31, 2020, $41.6 million of all loans, or 0.1%, were 60 to 89 days past due and $139.1 million, or 0.4%, were 30 to 59 days (or one payment) past due. As of September 30, 2020, $49.9 million of all loans, or 0.2%, were 60 to 89 days past due and $186.5 million, or 0.6%, 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 real estate loan portfolios continue to exhibit low delinquency rates as of December 31, 2020. Home equity loans at December 31, 2020 that are current with regard to the contractual terms of the loan agreement represent 98.3% of the total home equity portfolio. Residential real estate loans at December 31, 2020 that are current with regards to the contractual terms of the loan agreements comprised 96.8% of total residential real estate loans outstanding. For more information regarding past due loans, see Table 13 in this report.
Outstanding COVID-19 related loan modifications for customers totaled approximately $345 million or 1.2% of total loans, excluding PPP loans as of December 31, 2020 as compared to $413 million or 1.4% as of September 30, 2020 and $1.7 billion or 6.2% as of June 30, 2020. The outstanding modifications primarily changed terms to interest-only payments.
The ratio of non-performing assets to total assets was 0.32% as of December 31, 2020, compared to 0.42% at September 30, 2020, and 0.36% at December 31, 2019. Non-performing assets totaled $144.1 million at December 31, 2020, compared to $182.3 million at September 30, 2020 and $132.8 million at December 31, 2019. Non-performing loans totaled $127.5 million, or 0.40% of total loans, at December 31, 2020 compared to $173.1 million, or 0.54% of total loans, at September 30, 2020 and $117.6 million, or 0.44% of total loans, at December 31, 2019. The decrease in non-performing loans as of December 31, 2020 as compared to September 30, 2020 is primarily due to $30.1 million in payments received throughout the quarter. The payment activity was primarily driven by sales of underlying real property collateral, sales of operating businesses, and refinance activity. Other real estate owned ("OREO") of $16.6 million at December 31, 2020 increased by $7.4 million compared to $9.2 million at September 30, 2020 and increased $1.4 million compared to $15.2 million at December 31, 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 increased by $1.8 million during the fourth quarter of 2020 as compared to the third quarter of 2020 primarily due to increased trust and asset management fees and brokerage commissions. Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors, the brokerage commissions, managed money fees and insurance product commissions at Wintrust Investments and fees from tax-deferred like-kind exchange services provided by the Chicago Deferred Exchange Company.
Mortgage banking revenue decreased by $21.7 million in the fourth quarter of 2020 as compared to the third quarter of 2020, primarily due to a $23.3 million decrease in production revenue. Production revenue decreased as origination pipelines designated for sale declined as compared to the prior quarter, due in part to the Company's intention to retain more loans for investment. Loans originated for sale were $2.4 billion in the fourth quarter of 2020, an increase of $124.7 million as compared to the third quarter of 2020. The percentage of origination volume from refinancing activities was 65% in the fourth quarter of 2020 as compared to 59% in the third 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 fourth quarter of 2020, the fair value of the mortgage servicing rights portfolio increased primarily due to the capitalization of $20.3 million of servicing rights during the fourth quarter of 2020. This increase was partially offset by a negative fair value adjustment of $5.2 million as well as a reduction in value of $9.0 million due to payoffs and paydowns of the existing portfolio. No economic hedges were outstanding relative to the mortgage servicing rights portfolio during the third or fourth quarter of 2020.
Other non-interest income increased by $6.4 million in the fourth quarter of 2020 as compared to the third quarter of 2020 primarily due to increased bank owned life insurance ("BOLI") revenue and income on partnership investments.
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 $7.1 million in the fourth quarter of 2020 as compared to the third quarter of 2020. The $7.1 million increase is comprised of an increase of $3.9 million in commissions and incentive compensation, an increase of $3.7 million in salaries expense, partially offset by a decrease of $520,000 in employee benefits expense.
The increase in commissions and incentive compensation is primarily due to increased commissions expense from higher levels of mortgage loan originations in the current quarter. The increase in salaries expense is primarily related to increased staffing costs to support mortgage origination and investment in technology related services to satisfy customer demands and create efficiencies in operations.
Occupancy expense totaled $19.7 million in the fourth quarter of 2020, an increase of $3.9 million as compared to the third quarter of 2020. This increase is primarily associated with an impairment charge of $1.4 million related to the planned closure of 10 bank branches, increased real estate tax assessment estimates and a higher level of utility charges.
Equipment expense totaled $20.6 million in the fourth quarter of 2020, an increase of $3.3 million as compared to the third quarter of 2020. This increase is primarily due to increased software licensing expenses.
Advertising and Marketing expense totaled $9.9 million in the fourth quarter of 2020, an increase of $2.0 million as compared to the third quarter of 2020. The increase in the fourth quarter relates primarily to increased digital advertising campaigns and corporate sponsorship costs. Marketing costs are incurred to promote the Company's brand, commercial banking capabilities and 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.
Miscellaneous expense in the fourth quarter of 2020 increased by $302,000 as compared to the third quarter of 2020. The fourth quarter of 2020 included $6.6 million of contingent consideration expense related to the previous acquisition of mortgage operations as compared to $6.3 million in the prior quarter. The liability for contingent consideration expense related to the previous acquisition of mortgage operations is based upon forward looking mortgage origination volumes and the estimated profitability of that operation. Should those assumptions change going forward, the liability may need to be increased or decreased. The contractual period covering contingent consideration ends in January 2023 and the final two years of the contract contemplate a lower ratio of contingent consideration relative to financial performance. As a result, the Company does not expect to have material adjustments to the contingent consideration liability in future periods. Miscellaneous expense also 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 $33.5 million in the fourth quarter of 2020 compared to $30.0 million in the third quarter of 2020 and $30.7 million in the fourth quarter of 2019. The effective tax rates were 24.87% in the fourth quarter of 2020 compared to 21.83% in the third quarter of 2020 and 26.33% in the fourth quarter of 2019. The effective tax rate in the third quarter of 2020 reflects the impact of a $9.0 million state income tax benefit related to the settlement of an uncertain tax position.
BUSINESS UNIT SUMMARY
Community Banking
Through its community banking unit, the Company provides banking and financial services primarily to individuals, small to mid-sized businesses, local governmental units and institutional clients residing primarily in the local areas the Company services. In the fourth quarter of 2020, this unit expanded its loan portfolio, excluding PPP loans, and its deposit portfolio. However, the banking segment also experienced net interest margin compression primarily due to increased levels of liquidity as average interest bearing cash increased by $1.0 billion in the fourth quarter of 2020 as compared to the third quarter of 2020.
Mortgage banking revenue was $86.8 million for the fourth quarter of 2020, a decrease of $21.7 million as compared to the third quarter of 2020 primarily due to a $23.3 million decrease in production revenue as origination pipelines declined as compared to the prior quarter. Service charges on deposit accounts totaled $11.8 million in the fourth quarter of 2020, an increase of $344,000 as compared to the third quarter of 2020 primarily due to higher account analysis and overdraft fees. The Company's gross commercial and commercial real estate loan pipelines remained strong as of December 31, 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 $1.3 billion at December 31, 2020. When adjusted for the probability of closing, the pipelines were estimated to be approximately $650 million to $750 million at December 31, 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, accounts receivable financing and value-added, out-sourced administrative services and other services. Originations within the insurance premium financing receivables portfolio were $2.9 billion during the fourth quarter of 2020 and average balances increased by $49.9 million as compared to the third quarter of 2020. The increase in average balances was more than offset by margin compression in this portfolio resulting in a $3.6 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 fourth quarter of 2020, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing by $95.2 million to $2.1 billion at the end of the fourth quarter of 2020. Revenues from the Company's out-sourced administrative services business were $1.3 million in the fourth quarter of 2020, an increase of $186,000 from the third 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 totaled $26.8 million in the fourth quarter of 2020, an increase of $1.8 million compared to the third quarter of 2020. Increases in asset management fees were primarily due to favorable equity market performance during the fourth quarter of 2020. At December 31, 2020, the Company’s wealth management subsidiaries had approximately $30.1 billion of assets under administration, which included $3.5 billion of assets owned by the Company and its subsidiary banks, representing a $1.9 billion increase from the $28.2 billion of assets under administration at September 30, 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 Small Business Administration ("SBA") to guarantee loans under the PPP for small businesses who met the necessary eligibility requirements in order to keep their workers on the payroll. The Company began accepting applications on April 3, 2020. From such date through the end of 2020, the Company secured authorization from the SBA for and funded over 12,000 PPP loans with a carrying balance of approximately $3.4 billion. As of December 31, 2020, the carrying balance of such loans was reduced to approximately $2.7 billion primarily resulting from forgiveness by the SBA.
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 CECL standard, which impacted the measurement of the Company’s 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 Company’s 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
Selected Financial Highlights
| Three Months Ended | Years Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands, except per share data) | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Dec 31, 2020 | Dec 31, 2019 | ||||||||||||||
| Selected Financial Condition Data (at end of period): | |||||||||||||||||||||
| Total assets | $ | 45,080,768 | $ | 43,731,718 | $ | 43,540,017 | $ | 38,799,847 | $ | 36,620,583 | |||||||||||
| Total loans (1) | 32,079,073 | 32,135,555 | 31,402,903 | 27,807,321 | 26,800,290 | ||||||||||||||||
| Total deposits | 37,092,651 | 35,844,422 | 35,651,874 | 31,461,660 | 30,107,138 | ||||||||||||||||
| Junior subordinated debentures | 253,566 | 253,566 | 253,566 | 253,566 | 253,566 | ||||||||||||||||
| Total shareholders’ equity | 4,115,995 | 4,074,089 | 3,990,218 | 3,700,393 | 3,691,250 | ||||||||||||||||
| Selected Statements of Income Data: | |||||||||||||||||||||
| Net interest income | $ | 259,397 | $ | 255,936 | $ | 263,131 | $ | 261,443 | $ | 261,879 | $ | 1,039,907 | $ | 1,054,919 | |||||||
| Net revenue (2) | 417,758 | 426,529 | 425,124 | 374,685 | 374,099 | 1,644,096 | 1,462,091 | ||||||||||||||
| Net income | 101,204 | 107,315 | 21,659 | 62,812 | 85,964 | 292,990 | 355,697 | ||||||||||||||
| Pre-tax income, excluding provision for credit losses (non-GAAP) (3) | 135,891 | 162,310 | 165,756 | 140,044 | 124,508 | 604,001 | 533,965 | ||||||||||||||
| Net income per common share – Basic | 1.64 | 1.68 | 0.34 | 1.05 | 1.46 | 4.72 | 6.11 | ||||||||||||||
| Net income per common share – Diluted | 1.63 | 1.67 | 0.34 | 1.04 | 1.44 | 4.68 | 6.03 | ||||||||||||||
| Selected Financial Ratios and Other Data: | |||||||||||||||||||||
| Performance Ratios: | |||||||||||||||||||||
| Net interest margin | 2.53 | % | 2.56 | % | 2.73 | % | 3.12 | % | 3.17 | % | 2.72 | % | 3.45 | % | |||||||
| Net interest margin - fully taxable equivalent (non-GAAP) (3) | 2.54 | 2.57 | 2.74 | 3.14 | 3.19 | 2.73 | 3.47 | ||||||||||||||
| Non-interest income to average assets | 1.44 | 1.58 | 1.55 | 1.24 | 1.25 | 1.46 | 1.23 | ||||||||||||||
| Non-interest expense to average assets | 2.56 | 2.45 | 2.48 | 2.58 | 2.78 | 2.51 | 2.79 | ||||||||||||||
| Net overhead ratio (4) | 1.12 | 0.87 | 0.93 | 1.33 | 1.53 | 1.05 | 1.57 | ||||||||||||||
| Return on average assets | 0.92 | 0.99 | 0.21 | 0.69 | 0.96 | 0.71 | 1.07 | ||||||||||||||
| Return on average common equity | 10.30 | 10.66 | 2.17 | 6.82 | 9.52 | 7.50 | 10.41 | ||||||||||||||
| Return on average tangible common equity (non-GAAP) (3) | 12.95 | 13.43 | 2.95 | 8.73 | 12.17 | 9.54 | 13.22 | ||||||||||||||
| Average total assets | $ | 43,810,005 | $ | 42,962,844 | $ | 42,042,729 | $ | 36,625,490 | $ | 35,645,190 | $ | 41,371,339 | $ | 33,232,083 | |||||||
| Average total shareholders’ equity | 4,050,286 | 4,034,902 | 3,908,846 | 3,710,169 | 3,622,184 | 3,926,688 | 3,461,535 | ||||||||||||||
| Average loans to average deposits ratio | 87.8 | % | 89.6 | % | 87.8 | % | 90.1 | % | 88.8 | % | 88.8 | % | 91.4 | % | |||||||
| Period-end loans to deposits ratio | 86.5 | 89.7 | 88.1 | 88.4 | 89.0 | ||||||||||||||||
| Common Share Data at end of period: | |||||||||||||||||||||
| Market price per common share | $ | 61.09 | $ | 40.05 | $ | 43.62 | $ | 32.86 | $ | 70.90 | |||||||||||
| Book value per common share | 65.24 | 63.57 | 62.14 | 62.13 | 61.68 | ||||||||||||||||
| Tangible book value per common share (non-GAAP) (3) | 53.23 | 51.70 | 50.23 | 50.18 | 49.70 | ||||||||||||||||
| Common shares outstanding | 56,769,625 | 57,601,991 | 57,573,672 | 57,545,352 | 57,821,891 | ||||||||||||||||
| Other Data at end of period: | |||||||||||||||||||||
| Tier 1 leverage ratio (5) | 8.1 | % | 8.2 | % | 8.1 | % | 8.5 | % | 8.7 | % | |||||||||||
| Risk-based capital ratios: | |||||||||||||||||||||
| Tier 1 capital ratio (5) | 10.0 | 10.2 | 10.1 | 9.3 | 9.6 | ||||||||||||||||
| Common equity tier 1 capital ratio(5) | 8.8 | 9.0 | 8.8 | 8.9 | 9.2 | ||||||||||||||||
| Total capital ratio (5) | 12.6 | 12.9 | 12.8 | 11.9 | 12.2 | ||||||||||||||||
| Allowance for credit losses (6) | $ | 379,969 | $ | 388,971 | $ | 373,174 | $ | 253,482 | $ | 158,461 | |||||||||||
| Allowance for loan and unfunded lending-related commitment losses to total loans | 1.18 | % | 1.21 | % | 1.19 | % | 0.91 | % | 0.59 | % | |||||||||||
| Number of: | |||||||||||||||||||||
| Bank subsidiaries | 15 | 15 | 15 | 15 | 15 | ||||||||||||||||
| Banking offices | 181 | 182 | 186 | 187 | 187 |
(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. 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
Key Operating Measures
Wintrust’s key operating measures and growth rates for the fourth quarter of 2020, as compared to the third quarter of 2020 (sequential quarter) and fourth quarter of 2019 (linked quarter), are shown in the table below:
| % or(1)<br><br>basis point (bp) change from<br><br>3rd Quarter<br><br>2020 | % or<br>basis point (bp)<br>change from<br>4th Quarter<br>2019 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | |||||||||||||
| (Dollars in thousands, except per share data) | Dec 31, 2020 | Sep 30, 2020 | Dec 31, 2019 | ||||||||||
| Net income | $ | 101,204 | $ | 107,315 | $ | 85,964 | (6) | % | 18 | % | |||
| Pre-tax income, excluding provision for credit losses (non-GAAP) (2) | 135,891 | 162,310 | 124,508 | (16) | 9 | ||||||||
| Net income per common share – diluted | 1.63 | 1.67 | 1.44 | (2) | 13 | ||||||||
| Net revenue (3) | 417,758 | 426,529 | 374,099 | (2) | 12 | ||||||||
| Net interest income | 259,397 | 255,936 | 261,879 | 1 | (1) | ||||||||
| Net interest margin | 2.53 | % | 2.56 | % | 3.17 | % | (3) | bps | (64) | bps | |||
| Net interest margin - fully taxable equivalent (non-GAAP) (2) | 2.54 | 2.57 | 3.19 | (3) | (65) | ||||||||
| Net overhead ratio (4) | 1.12 | 0.87 | 1.53 | 25 | (41) | ||||||||
| Return on average assets | 0.92 | 0.99 | 0.96 | (7) | (4) | ||||||||
| Return on average common equity | 10.30 | 10.66 | 9.52 | (36) | 78 | ||||||||
| Return on average tangible common equity (non-GAAP) (2) | 12.95 | 13.43 | 12.17 | (48) | 78 | ||||||||
| At end of period | |||||||||||||
| Total assets | $ | 45,080,768 | $ | 43,731,718 | $ | 36,620,583 | 12 | % | 23 | % | |||
| Total loans (5) | 32,079,073 | 32,135,555 | 26,800,290 | (1) | 20 | ||||||||
| Total deposits | 37,092,651 | 35,844,422 | 30,107,138 | 16 | 23 | ||||||||
| Total shareholders’ equity | 4,115,995 | 4,074,089 | 3,691,250 | 13 | 12 |
(1)Period-end balance sheet percentage changes are annualized.
(2)See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 for additional information on this performance measure/ratio.
(3)Net revenue is net interest income plus non-interest income.
(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 average total assets. A lower ratio indicates a higher degree of efficiency.
(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 AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | ||||||
| (In thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | |||||
| Assets | ||||||||||
| Cash and due from banks | $ | 322,415 | $ | 308,639 | $ | 344,999 | $ | 349,118 | $ | 286,167 |
| Federal funds sold and securities purchased under resale agreements | 59 | 56 | 58 | 309 | 309 | |||||
| Interest-bearing deposits with banks | 4,802,527 | 3,825,823 | 4,015,072 | 1,943,743 | 2,164,560 | |||||
| Available-for-sale securities, at fair value | 3,055,839 | 2,946,459 | 3,194,961 | 3,570,959 | 3,106,214 | |||||
| Held-to-maturity securities, at amortized cost | 579,138 | 560,267 | 728,465 | 865,376 | 1,134,400 | |||||
| Trading account securities | 671 | 1,720 | 890 | 2,257 | 1,068 | |||||
| Equity securities with readily determinable fair value | 90,862 | 54,398 | 52,460 | 47,310 | 50,840 | |||||
| Federal Home Loan Bank and Federal Reserve Bank stock | 135,588 | 135,568 | 135,571 | 134,546 | 100,739 | |||||
| Brokerage customer receivables | 17,436 | 16,818 | 14,623 | 16,293 | 16,573 | |||||
| Mortgage loans held-for-sale | 1,272,090 | 959,671 | 833,163 | 656,934 | 377,313 | |||||
| Loans, net of unearned income | 32,079,073 | 32,135,555 | 31,402,903 | 27,807,321 | 26,800,290 | |||||
| Allowance for loan losses | (319,374) | (325,959) | (313,510) | (216,050) | (156,828) | |||||
| Net loans | 31,759,699 | 31,809,596 | 31,089,393 | 27,591,271 | 26,643,462 | |||||
| Premises and equipment, net | 768,808 | 774,288 | 769,909 | 764,583 | 754,328 | |||||
| Lease investments, net | 242,434 | 230,373 | 237,040 | 207,147 | 231,192 | |||||
| Accrued interest receivable and other assets | 1,351,455 | 1,424,728 | 1,437,832 | 1,460,168 | 1,061,141 | |||||
| Trade date securities receivable | — | — | — | 502,207 | — | |||||
| Goodwill | 645,707 | 644,644 | 644,213 | 643,441 | 645,220 | |||||
| Other intangible assets | 36,040 | 38,670 | 41,368 | 44,185 | 47,057 | |||||
| Total assets | $ | 45,080,768 | $ | 43,731,718 | $ | 43,540,017 | $ | 38,799,847 | $ | 36,620,583 |
| Liabilities and Shareholders’ Equity | ||||||||||
| Deposits: | ||||||||||
| Non-interest bearing | $ | 11,748,455 | $ | 10,409,747 | $ | 10,204,791 | $ | 7,556,755 | $ | 7,216,758 |
| Interest bearing | 25,344,196 | 25,434,675 | 25,447,083 | 23,904,905 | 22,890,380 | |||||
| Total deposits | 37,092,651 | 35,844,422 | 35,651,874 | 31,461,660 | 30,107,138 | |||||
| Federal Home Loan Bank advances | 1,228,429 | 1,228,422 | 1,228,416 | 1,174,894 | 674,870 | |||||
| Other borrowings | 518,928 | 507,395 | 508,535 | 487,503 | 418,174 | |||||
| Subordinated notes | 436,506 | 436,385 | 436,298 | 436,179 | 436,095 | |||||
| Junior subordinated debentures | 253,566 | 253,566 | 253,566 | 253,566 | 253,566 | |||||
| Trade date securities payable | 200,907 | — | — | — | — | |||||
| Accrued interest payable and other liabilities | 1,233,786 | 1,387,439 | 1,471,110 | 1,285,652 | 1,039,490 | |||||
| Total liabilities | 40,964,773 | 39,657,629 | 39,549,799 | 35,099,454 | 32,929,333 | |||||
| Shareholders’ Equity: | ||||||||||
| Preferred stock | 412,500 | 412,500 | 412,500 | 125,000 | 125,000 | |||||
| Common stock | 58,473 | 58,323 | 58,294 | 58,266 | 57,951 | |||||
| Surplus | 1,649,990 | 1,647,049 | 1,643,864 | 1,652,063 | 1,650,278 | |||||
| Treasury stock | (100,363) | (44,891) | (44,891) | (44,891) | (6,931) | |||||
| Retained earnings | 2,080,013 | 2,001,949 | 1,921,048 | 1,917,558 | 1,899,630 | |||||
| Accumulated other comprehensive income (loss) | 15,382 | (841) | (597) | (7,603) | (34,678) | |||||
| Total shareholders’ equity | 4,115,995 | 4,074,089 | 3,990,218 | 3,700,393 | 3,691,250 | |||||
| Total liabilities and shareholders’ equity | $ | 45,080,768 | $ | 43,731,718 | $ | 43,540,017 | $ | 38,799,847 | $ | 36,620,583 |
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Three Months Ended | Years Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except per share data) | Dec 31, 2020 | Sep 30,<br>2020 | Jun 30,<br>2020 | Mar 31, 2020 | Dec 31, 2019 | Dec 31, 2020 | Dec 31, 2019 | |||||||
| Interest income | ||||||||||||||
| Interest and fees on loans | $ | 280,185 | $ | 280,479 | $ | 294,746 | $ | 301,839 | $ | 308,055 | $ | 1,157,249 | $ | 1,228,480 |
| Mortgage loans held-for-sale | 6,357 | 5,791 | 4,764 | 3,165 | 3,201 | 20,077 | 11,992 | |||||||
| Interest-bearing deposits with banks | 1,294 | 1,181 | 1,310 | 4,768 | 8,971 | 8,553 | 29,803 | |||||||
| Federal funds sold and securities purchased under resale agreements | — | — | 16 | 86 | 390 | 102 | 700 | |||||||
| Investment securities | 18,243 | 21,819 | 27,105 | 32,467 | 27,611 | 99,634 | 108,046 | |||||||
| Trading account securities | 11 | 6 | 13 | 7 | 6 | 37 | 39 | |||||||
| Federal Home Loan Bank and Federal Reserve Bank stock | 1,775 | 1,774 | 1,765 | 1,577 | 1,328 | 6,891 | 5,416 | |||||||
| Brokerage customer receivables | 116 | 106 | 97 | 158 | 169 | 477 | 666 | |||||||
| Total interest income | 307,981 | 311,156 | 329,816 | 344,067 | 349,731 | 1,293,020 | 1,385,142 | |||||||
| Interest expense | ||||||||||||||
| Interest on deposits | 32,602 | 39,084 | 50,057 | 67,435 | 74,724 | 189,178 | 278,892 | |||||||
| Interest on Federal Home Loan Bank advances | 4,952 | 4,947 | 4,934 | 3,360 | 1,461 | 18,193 | 9,878 | |||||||
| Interest on other borrowings | 2,779 | 3,012 | 3,436 | 3,546 | 3,273 | 12,773 | 13,897 | |||||||
| Interest on subordinated notes | 5,509 | 5,474 | 5,506 | 5,472 | 5,504 | 21,961 | 15,555 | |||||||
| Interest on junior subordinated debentures | 2,742 | 2,703 | 2,752 | 2,811 | 2,890 | 11,008 | 12,001 | |||||||
| Total interest expense | 48,584 | 55,220 | 66,685 | 82,624 | 87,852 | 253,113 | 330,223 | |||||||
| Net interest income | 259,397 | 255,936 | 263,131 | 261,443 | 261,879 | 1,039,907 | 1,054,919 | |||||||
| Provision for credit losses | 1,180 | 25,026 | 135,053 | 52,961 | 7,826 | 214,220 | 53,864 | |||||||
| Net interest income after provision for credit losses | 258,217 | 230,910 | 128,078 | 208,482 | 254,053 | 825,687 | 1,001,055 | |||||||
| Non-interest income | ||||||||||||||
| Wealth management | 26,802 | 24,957 | 22,636 | 25,941 | 24,999 | 100,336 | 97,114 | |||||||
| Mortgage banking | 86,819 | 108,544 | 102,324 | 48,326 | 47,860 | 346,013 | 154,293 | |||||||
| Service charges on deposit accounts | 11,841 | 11,497 | 10,420 | 11,265 | 10,973 | 45,023 | 39,070 | |||||||
| Gains (losses) on investment securities, net | 1,214 | 411 | 808 | (4,359) | 587 | (1,926) | 3,525 | |||||||
| Fees from covered call options | — | — | — | 2,292 | 1,243 | 2,292 | 3,670 | |||||||
| Trading (losses) gains, net | (102) | 183 | (634) | (451) | 46 | (1,004) | (158) | |||||||
| Operating lease income, net | 12,118 | 11,717 | 11,785 | 11,984 | 12,487 | 47,604 | 47,041 | |||||||
| Other | 19,669 | 13,284 | 14,654 | 18,244 | 14,025 | 65,851 | 62,617 | |||||||
| Total non-interest income | 158,361 | 170,593 | 161,993 | 113,242 | 112,220 | 604,189 | 407,172 | |||||||
| Non-interest expense | ||||||||||||||
| Salaries and employee benefits | 171,116 | 164,042 | 154,156 | 136,762 | 145,941 | 626,076 | 546,420 | |||||||
| Equipment | 20,565 | 17,251 | 15,846 | 14,834 | 14,485 | 68,496 | 52,328 | |||||||
| Operating lease equipment depreciation | 9,938 | 9,425 | 9,292 | 9,260 | 9,766 | 37,915 | 35,760 | |||||||
| Occupancy, net | 19,687 | 15,830 | 16,893 | 17,547 | 17,132 | 69,957 | 64,289 | |||||||
| Data processing | 5,728 | 5,689 | 10,406 | 8,373 | 7,569 | 30,196 | 27,820 | |||||||
| Advertising and marketing | 9,850 | 7,880 | 7,704 | 10,862 | 12,517 | 36,296 | 48,595 | |||||||
| Professional fees | 6,530 | 6,488 | 7,687 | 6,721 | 7,650 | 27,426 | 27,471 | |||||||
| Amortization of other intangible assets | 2,634 | 2,701 | 2,820 | 2,863 | 3,017 | 11,018 | 11,844 | |||||||
| FDIC insurance | 7,016 | 6,772 | 7,081 | 4,135 | 1,348 | 25,004 | 9,199 | |||||||
| OREO expense, net | (114) | (168) | 237 | (876) | 536 | (921) | 3,628 | |||||||
| Other | 28,917 | 28,309 | 27,246 | 24,160 | 29,630 | 108,632 | 100,772 | |||||||
| Total non-interest expense | 281,867 | 264,219 | 259,368 | 234,641 | 249,591 | 1,040,095 | 928,126 | |||||||
| Income before taxes | 134,711 | 137,284 | 30,703 | 87,083 | 116,682 | 389,781 | 480,101 | |||||||
| Income tax expense | 33,507 | 29,969 | 9,044 | 24,271 | 30,718 | 96,791 | 124,404 | |||||||
| Net income | $ | 101,204 | $ | 107,315 | $ | 21,659 | $ | 62,812 | $ | 85,964 | $ | 292,990 | $ | 355,697 |
| Preferred stock dividends | 6,991 | 10,286 | 2,050 | 2,050 | 2,050 | 21,377 | 8,200 | |||||||
| Net income applicable to common shares | $ | 94,213 | $ | 97,029 | $ | 19,609 | $ | 60,762 | $ | 83,914 | $ | 271,613 | $ | 347,497 |
| Net income per common share - Basic | $ | 1.64 | $ | 1.68 | $ | 0.34 | $ | 1.05 | $ | 1.46 | $ | 4.72 | $ | 6.11 |
| Net income per common share - Diluted | $ | 1.63 | $ | 1.67 | $ | 0.34 | $ | 1.04 | $ | 1.44 | $ | 4.68 | $ | 6.03 |
| Cash dividends declared per common share | $ | 0.28 | $ | 0.28 | $ | 0.28 | $ | 0.28 | $ | 0.25 | $ | 1.12 | $ | 1.00 |
| Weighted average common shares outstanding | 57,309 | 57,597 | 57,567 | 57,620 | 57,538 | 57,523 | 56,857 | |||||||
| Dilutive potential common shares | 588 | 449 | 414 | 575 | 874 | 496 | 762 | |||||||
| Average common shares and dilutive common shares | 57,897 | 58,046 | 57,981 | 58,195 | 58,412 | 58,019 | 57,619 |
TABLE 1: LOAN PORTFOLIO MIX AND GROWTH RATES AND COMMERCIAL REAL ESTATE BY STATE
| % Growth From | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2020 (1) | Dec 31, 2019 | ||||||||||||
| Balance: | |||||||||||||||||||
| Mortgage loans held-for-sale, excluding early buy-out exercised loans guaranteed by U.S. Government Agencies | $ | 927,307 | $ | 862,924 | $ | 814,667 | $ | 642,386 | $ | 361,309 | 30 | % | 157 | % | |||||
| Mortgage loans held-for-sale, early buy-out exercised loans guaranteed by U.S. Government Agencies | 344,783 | 96,747 | 18,496 | 14,548 | 16,004 | 1020 | 2054 | ||||||||||||
| Total mortgage loans held-for-sale | $ | 1,272,090 | $ | 959,671 | $ | 833,163 | $ | 656,934 | $ | 377,313 | 130 | % | 237 | % | |||||
| Commercial | |||||||||||||||||||
| Commercial, industrial, and other | $ | 9,240,046 | $ | 8,897,986 | $ | 8,523,864 | $ | 9,025,886 | $ | 8,285,920 | 15 | % | 12 | % | |||||
| Commercial PPP loans | 2,715,921 | 3,379,013 | 3,335,368 | — | — | (78) | 100 | ||||||||||||
| Commercial real estate | |||||||||||||||||||
| Construction and development | 1,371,802 | 1,333,149 | 1,285,282 | 1,237,274 | 1,200,783 | 12 | 14 | ||||||||||||
| Non-construction | 7,122,330 | 7,089,993 | 6,915,463 | 6,948,257 | 6,819,493 | 2 | 4 | ||||||||||||
| Home equity | 425,263 | 446,274 | 466,596 | 494,655 | 513,066 | (19) | (17) | ||||||||||||
| Residential real estate | |||||||||||||||||||
| Residential real estate loans for investment | 1,214,744 | 1,143,908 | 1,186,768 | 1,244,690 | 1,231,123 | 25 | (1) | ||||||||||||
| Residential mortgage loans, early buy-out eligible loans guaranteed by U.S. Government Agencies | 44,854 | 240,902 | 240,661 | 132,699 | 123,098 | (324) | (64) | ||||||||||||
| Premium Finance receivables | |||||||||||||||||||
| Commercial insurance | 4,054,489 | 4,060,144 | 3,999,774 | 3,465,055 | 3,442,027 | (1) | 18 | ||||||||||||
| Life insurance | 5,857,436 | 5,488,832 | 5,400,802 | 5,221,639 | 5,074,602 | 27 | 15 | ||||||||||||
| Consumer and other | 32,188 | 55,354 | 48,325 | 37,166 | 110,178 | (166) | (71) | ||||||||||||
| Total loans, net of unearned income | $ | 32,079,073 | $ | 32,135,555 | $ | 31,402,903 | $ | 27,807,321 | $ | 26,800,290 | (1) | % | 20 | % | |||||
| Mix: | |||||||||||||||||||
| Mortgage loans held-for-sale, excluding early buy-out exercised loans guaranteed by U.S. Government Agencies | 73 | % | 90 | % | 98 | % | 98 | % | 96 | % | |||||||||
| Mortgage loans held-for-sale, early buy-out exercised loans guaranteed by U.S. Government Agencies | 27 | 10 | 2 | 2 | 4 | ||||||||||||||
| Total mortgage loans held-for-sale | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||
| Commercial | |||||||||||||||||||
| Commercial, industrial, and other | 29 | % | 28 | % | 28 | % | 32 | % | 31 | % | |||||||||
| Commercial PPP loans | 8 | 11 | 11 | — | — | ||||||||||||||
| Commercial real estate | |||||||||||||||||||
| Construction and development | 4 | 4 | 4 | 4 | 4 | ||||||||||||||
| Non-construction | 22 | 22 | 22 | 25 | 26 | ||||||||||||||
| Home equity | 1 | 1 | 1 | 2 | 2 | ||||||||||||||
| Residential real estate | |||||||||||||||||||
| Residential real estate loans for investment | 4 | 3 | 3 | 4 | 5 | ||||||||||||||
| Residential mortgage loans, early buy-out eligible loans guaranteed by U.S. Government Agencies | 1 | 1 | 1 | 1 | 0 | ||||||||||||||
| Premium Finance receivables | |||||||||||||||||||
| Commercial insurance | 13 | 13 | 13 | 13 | 13 | ||||||||||||||
| Life insurance | 18 | 17 | 17 | 19 | 19 | ||||||||||||||
| Consumer and other | 0 | 0 | 0 | 0 | 0 | ||||||||||||||
| Total loans, net of unearned income | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
(1)Annualized.
| Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| % of<br>Total<br>Balance | % of<br>Total<br>Balance | % of<br>Total<br>Balance | % of<br>Total<br>Balance | % of<br>Total<br>Balance | ||||||||||||||||||
| (Dollars in thousands) | Balance | Balance | Balance | Balance | Balance | |||||||||||||||||
| Commercial real estate - collateral location by state: | ||||||||||||||||||||||
| Illinois | $ | 6,243,651 | 73.5 | % | $ | 6,270,584 | 74.4 | % | $ | 6,198,486 | 75.6 | % | $ | 6,171,606 | 75.4 | % | $ | 6,176,353 | 77.0 | % | ||
| Wisconsin | 779,390 | 9.2 | 783,241 | 9.3 | 760,839 | 9.3 | 793,145 | 9.7 | 744,975 | 9.3 | ||||||||||||
| Total primary markets | $ | 7,023,041 | 82.7 | % | $ | 7,053,825 | 83.7 | % | $ | 6,959,325 | 84.9 | % | $ | 6,964,751 | 85.1 | % | $ | 6,921,328 | 86.3 | % | ||
| Indiana | 301,177 | 3.5 | 265,905 | 3.2 | 249,423 | 3.0 | 249,680 | 3.1 | 218,963 | 2.7 | ||||||||||||
| Florida | 131,259 | 1.5 | 133,602 | 1.6 | 133,810 | 1.6 | 126,786 | 1.5 | 114,629 | 1.4 | ||||||||||||
| Arizona | 63,494 | 0.8 | 79,086 | 0.9 | 78,135 | 1.0 | 72,214 | 0.9 | 64,022 | 0.8 | ||||||||||||
| California | 85,624 | 1.0 | 82,852 | 1.0 | 81,634 | 1.0 | 63,883 | 0.8 | 64,345 | 0.8 | ||||||||||||
| Texas | 79,406 | 0.9 | 55,229 | 0.7 | 48,082 | 0.6 | 59,647 | 0.8 | 29,586 | 0.5 | ||||||||||||
| Other | 810,131 | 9.6 | 752,643 | 8.9 | 650,336 | 7.9 | 648,570 | 7.8 | 607,403 | 7.5 | ||||||||||||
| Total commercial real estate | $ | 8,494,132 | 100 | % | $ | 8,423,142 | 100 | % | $ | 8,200,745 | 100 | % | $ | 8,185,531 | 100 | % | $ | 8,020,276 | 100 | % |
TABLE 2: DEPOSIT PORTFOLIO MIX AND GROWTH RATES
| % Growth From | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2020 (1) | Dec 31, 2019 | ||||||||||||
| Balance: | |||||||||||||||||||
| Non-interest bearing | $ | 11,748,455 | $ | 10,409,747 | $ | 10,204,791 | $ | 7,556,755 | $ | 7,216,758 | 51 | % | 63 | % | |||||
| NOW and interest-bearing demand deposits | 3,349,021 | 3,294,071 | 3,440,348 | 3,181,159 | 3,093,159 | 7 | 8 | ||||||||||||
| Wealth management deposits (2) | 4,138,712 | 4,235,583 | 4,433,020 | 3,936,968 | 3,123,063 | (9) | 33 | ||||||||||||
| Money market | 9,348,806 | 9,423,653 | 9,288,976 | 8,114,659 | 7,854,189 | (3) | 19 | ||||||||||||
| Savings | 3,531,029 | 3,415,073 | 3,447,352 | 3,282,340 | 3,196,698 | 14 | 10 | ||||||||||||
| Time certificates of deposit | 4,976,628 | 5,066,295 | 4,837,387 | 5,389,779 | 5,623,271 | (7) | (11) | ||||||||||||
| Total deposits | $ | 37,092,651 | $ | 35,844,422 | $ | 35,651,874 | $ | 31,461,660 | $ | 30,107,138 | 14 | % | 23 | % | |||||
| Mix: | |||||||||||||||||||
| Non-interest bearing | 32 | % | 29 | % | 29 | % | 24 | % | 24 | % | |||||||||
| NOW and interest-bearing demand deposits | 9 | 9 | 10 | 10 | 10 | ||||||||||||||
| Wealth management deposits (2) | 11 | 12 | 12 | 13 | 10 | ||||||||||||||
| Money market | 25 | 26 | 25 | 26 | 26 | ||||||||||||||
| Savings | 10 | 10 | 10 | 10 | 11 | ||||||||||||||
| Time certificates of deposit | 13 | 14 | 14 | 17 | 19 | ||||||||||||||
| Total deposits | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
(1)Annualized.
(2)Represents deposit balances of the Company’s subsidiary banks from brokerage customers of Wintrust Investments, Chicago Deferred Exchange Company, LLC ("CDEC"), trust and asset management customers of the Company and brokerage customers from unaffiliated companies which have been placed into deposit accounts.
TABLE 3: TIME CERTIFICATES OF DEPOSIT MATURITY/RE-PRICING ANALYSIS
As of December 31, 2020
| (Dollars in thousands) | Total Time<br>Certificates of<br>Deposit | Weighted-Average<br><br>Rate of Maturing<br><br>Time Certificates<br><br>of Deposit (1) | ||
|---|---|---|---|---|
| 1-3 months | $ | 872,282 | 1.74 | % |
| 4-6 months | 1,327,476 | 1.82 | ||
| 7-9 months | 948,251 | 1.57 | ||
| 10-12 months | 760,907 | 1.19 | ||
| 13-18 months | 628,017 | 0.85 | ||
| 19-24 months | 224,885 | 0.98 | ||
| 24+ months | 214,810 | 1.02 | ||
| Total | $ | 4,976,628 | 1.47 | % |
(1)Weighted-average rate excludes the impact of purchase accounting fair value adjustments.
TABLE 4: QUARTERLY AVERAGE BALANCES
| Average Balance for three months ended, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | ||||||
| (In thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | |||||
| Interest-bearing deposits with banks and cash equivalents (1) | $ | 4,381,040 | $ | 3,411,164 | $ | 3,240,167 | $ | 1,418,809 | $ | 2,206,251 |
| Investment securities (2) | 3,534,594 | 3,789,422 | 4,309,471 | 4,780,709 | 3,909,699 | |||||
| FHLB and FRB stock | 135,569 | 135,567 | 135,360 | 114,829 | 94,843 | |||||
| Liquidity management assets (3) | 8,051,203 | 7,336,153 | 7,684,998 | 6,314,347 | 6,210,793 | |||||
| Other earning assets (3)(4) | 18,716 | 16,656 | 16,917 | 19,166 | 18,353 | |||||
| Mortgage loans held-for-sale | 893,395 | 822,908 | 705,702 | 403,262 | 381,878 | |||||
| Loans, net of unearned income (3)(5) | 31,783,279 | 31,634,608 | 30,336,626 | 26,936,728 | 26,137,722 | |||||
| Total earning assets (3) | 40,746,593 | 39,810,325 | 38,744,243 | 33,673,503 | 32,748,746 | |||||
| Allowance for loan and investment security losses (6) | (336,139) | (321,732) | (222,485) | (176,291) | (167,759) | |||||
| Cash and due from banks | 344,536 | 345,438 | 352,423 | 321,982 | 316,631 | |||||
| Other assets | 3,055,015 | 3,128,813 | 3,168,548 | 2,806,296 | 2,747,572 | |||||
| Total assets | $ | 43,810,005 | $ | 42,962,844 | $ | 42,042,729 | $ | 36,625,490 | $ | 35,645,190 |
| NOW and interest-bearing demand deposits | $ | 3,320,527 | $ | 3,435,089 | $ | 3,323,124 | $ | 3,113,733 | $ | 3,016,991 |
| Wealth management deposits | 4,066,948 | 4,239,300 | 4,380,996 | 2,838,719 | 2,934,292 | |||||
| Money market accounts | 9,435,344 | 9,332,668 | 8,727,966 | 7,990,775 | 7,647,635 | |||||
| Savings accounts | 3,413,388 | 3,419,586 | 3,394,480 | 3,189,835 | 3,028,763 | |||||
| Time deposits | 5,043,558 | 4,900,839 | 5,104,701 | 5,526,407 | 5,682,449 | |||||
| Interest-bearing deposits | 25,279,765 | 25,327,482 | 24,931,267 | 22,659,469 | 22,310,130 | |||||
| Federal Home Loan Bank advances | 1,228,425 | 1,228,421 | 1,214,375 | 951,613 | 596,594 | |||||
| Other borrowings | 510,725 | 512,787 | 493,350 | 469,577 | 415,092 | |||||
| Subordinated notes | 436,433 | 436,323 | 436,226 | 436,119 | 436,025 | |||||
| Junior subordinated debentures | 253,566 | 253,566 | 253,566 | 253,566 | 253,566 | |||||
| Total interest-bearing liabilities | 27,708,914 | 27,758,579 | 27,328,784 | 24,770,344 | 24,011,407 | |||||
| Non-interest-bearing deposits | 10,874,912 | 9,988,769 | 9,607,528 | 7,235,177 | 7,128,166 | |||||
| Other liabilities | 1,175,893 | 1,180,594 | 1,197,571 | 909,800 | 883,433 | |||||
| Equity | 4,050,286 | 4,034,902 | 3,908,846 | 3,710,169 | 3,622,184 | |||||
| Total liabilities and shareholders’ equity | $ | 43,810,005 | $ | 42,962,844 | $ | 42,042,729 | $ | 36,625,490 | $ | 35,645,190 |
| Net free funds/contribution (7) | $ | 13,037,679 | $ | 12,051,746 | $ | 11,415,459 | $ | 8,903,159 | $ | 8,737,339 |
(1)Includes interest-bearing deposits from banks, federal funds sold and securities purchased under resale agreements.
(2)Investment securities includes investment securities classified as available-for-sale and held-to-maturity, and equity securities with readily determinable fair values. Equity securities without readily determinable fair values are included within other assets.
(3)See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 for additional information on this performance measure/ratio.
(4)Other earning assets include brokerage customer receivables and trading account securities.
(5)Loans, net of unearned income, include non-accrual loans.
(6)Effective January 1, 2020 this includes the allowance for investment security losses as a result of the adoption of ASU 2016-13, Financial Instruments - Credit Losses.
(7)Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
TABLE 5: QUARTERLY NET INTEREST INCOME
| Net Interest Income for three months ended, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | ||||||
| (In thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | |||||
| Interest income: | ||||||||||
| Interest-bearing deposits with banks and cash equivalents | $ | 1,294 | $ | 1,181 | $ | 1,326 | $ | 4,854 | $ | 9,361 |
| Investment securities | 18,773 | 22,365 | 27,643 | 33,018 | 28,184 | |||||
| FHLB and FRB stock | 1,775 | 1,774 | 1,765 | 1,577 | 1,328 | |||||
| Liquidity management assets (1) | 21,842 | 25,320 | 30,734 | 39,449 | 38,873 | |||||
| Other earning assets (1) | 130 | 113 | 113 | 167 | 176 | |||||
| Mortgage loans held-for-sale | 6,357 | 5,791 | 4,764 | 3,165 | 3,201 | |||||
| Loans, net of unearned income (1) | 280,509 | 280,960 | 295,322 | 302,699 | 308,947 | |||||
| Total interest income | $ | 308,838 | $ | 312,184 | $ | 330,933 | $ | 345,480 | $ | 351,197 |
| Interest expense: | ||||||||||
| NOW and interest-bearing demand deposits | $ | 1,074 | $ | 1,342 | $ | 1,561 | $ | 3,665 | $ | 4,622 |
| Wealth management deposits | 7,436 | 7,662 | 7,244 | 6,935 | 7,867 | |||||
| Money market accounts | 3,740 | 7,245 | 13,140 | 22,363 | 25,603 | |||||
| Savings accounts | 773 | 2,104 | 3,840 | 5,790 | 6,145 | |||||
| Time deposits | 19,579 | 20,731 | 24,272 | 28,682 | 30,487 | |||||
| Interest-bearing deposits | 32,602 | 39,084 | 50,057 | 67,435 | 74,724 | |||||
| Federal Home Loan Bank advances | 4,952 | 4,947 | 4,934 | 3,360 | 1,461 | |||||
| Other borrowings | 2,779 | 3,012 | 3,436 | 3,546 | 3,273 | |||||
| Subordinated notes | 5,509 | 5,474 | 5,506 | 5,472 | 5,504 | |||||
| Junior subordinated debentures | 2,742 | 2,703 | 2,752 | 2,811 | 2,890 | |||||
| Total interest expense | $ | 48,584 | $ | 55,220 | $ | 66,685 | $ | 82,624 | $ | 87,852 |
| Less: Fully taxable-equivalent adjustment | (857) | (1,028) | (1,117) | (1,413) | (1,466) | |||||
| Net interest income (GAAP) (2) | 259,397 | 255,936 | 263,131 | 261,443 | 261,879 | |||||
| Fully taxable-equivalent adjustment | 857 | 1,028 | 1,117 | 1,413 | 1,466 | |||||
| Net interest income, fully taxable-equivalent (non-GAAP) (2) | $ | 260,254 | $ | 256,964 | $ | 264,248 | $ | 262,856 | $ | 263,345 |
(1)Interest income on tax-advantaged loans, trading securities and investment securities reflects a taxable-equivalent adjustment based on the marginal federal corporate tax rate in effect as of the applicable period.
(2)See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 for additional information on this performance measure/ratio.
TABLE 6: QUARTERLY NET INTEREST MARGIN
| Net Interest Margin for three months ended, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2020 | Sep 30, 2020 | Jun 30,<br>2020 | Mar 31, 2020 | Dec 31,<br>2019 | ||||||
| Yield earned on: | ||||||||||
| Interest-bearing deposits with banks and cash equivalents | 0.12 | % | 0.14 | % | 0.16 | % | 1.38 | % | 1.68 | % |
| Investment securities | 2.11 | 2.35 | 2.58 | 2.78 | 2.86 | |||||
| FHLB and FRB stock | 5.21 | 5.21 | 5.24 | 5.52 | 5.55 | |||||
| Liquidity management assets | 1.08 | 1.37 | 1.61 | 2.51 | 2.48 | |||||
| Other earning assets | 2.79 | 2.71 | 2.71 | 3.50 | 3.83 | |||||
| Mortgage loans held-for-sale | 2.83 | 2.80 | 2.72 | 3.16 | 3.33 | |||||
| Loans, net of unearned income | 3.51 | 3.53 | 3.92 | 4.52 | 4.69 | |||||
| Total earning assets | 3.02 | % | 3.12 | % | 3.44 | % | 4.13 | % | 4.25 | % |
| Rate paid on: | ||||||||||
| NOW and interest-bearing demand deposits | 0.13 | % | 0.16 | % | 0.19 | % | 0.47 | % | 0.61 | % |
| Wealth management deposits | 0.73 | 0.72 | 0.67 | 0.98 | 1.06 | |||||
| Money market accounts | 0.16 | 0.31 | 0.61 | 1.13 | 1.33 | |||||
| Savings accounts | 0.09 | 0.24 | 0.45 | 0.73 | 0.80 | |||||
| Time deposits | 1.54 | 1.68 | 1.91 | 2.09 | 2.13 | |||||
| Interest-bearing deposits | 0.51 | 0.61 | 0.81 | 1.20 | 1.33 | |||||
| Federal Home Loan Bank advances | 1.60 | 1.60 | 1.63 | 1.42 | 0.97 | |||||
| Other borrowings | 2.16 | 2.34 | 2.80 | 3.04 | 3.13 | |||||
| Subordinated notes | 5.05 | 5.02 | 5.05 | 5.02 | 5.05 | |||||
| Junior subordinated debentures | 4.23 | 4.17 | 4.29 | 4.39 | 4.46 | |||||
| Total interest-bearing liabilities | 0.70 | % | 0.79 | % | 0.98 | % | 1.34 | % | 1.45 | % |
| Interest rate spread (1)(2) | 2.32 | % | 2.33 | % | 2.46 | % | 2.79 | % | 2.80 | % |
| Less: Fully taxable-equivalent adjustment | (0.01) | (0.01) | (0.01) | (0.02) | (0.02) | |||||
| Net free funds/contribution (3) | 0.22 | 0.24 | 0.28 | 0.35 | 0.39 | |||||
| Net interest margin (GAAP) (2) | 2.53 | % | 2.56 | % | 2.73 | % | 3.12 | % | 3.17 | % |
| Fully taxable-equivalent adjustment | 0.01 | 0.01 | 0.01 | 0.02 | 0.02 | |||||
| Net interest margin, fully taxable-equivalent (non-GAAP) (2) | 2.54 | % | 2.57 | % | 2.74 | % | 3.14 | % | 3.19 | % |
(1)Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
(2)See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 for additional information on this performance measure/ratio.
(3)Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
TABLE 7: YEAR-TO-DATE AVERAGE BALANCES, AND NET INTEREST INCOME AND MARGIN
| Average Balance<br>for years ended, | Interest<br>for years ended, | Yield/Rate<br>for years ended, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Dec 31, 2020 | Dec 31,<br>2019 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2020 | Dec 31, 2019 | ||||||
| Interest-bearing deposits with banks and cash equivalents (1) | $ | 3,117,075 | $ | 1,494,418 | $ | 8,655 | $ | 30,503 | 0.28 | % | 2.04 | % |
| Investment securities (2) | 4,101,136 | 3,651,091 | 101,799 | 110,326 | 2.48 | 3.02 | ||||||
| FHLB and FRB stock | 130,360 | 96,924 | 6,891 | 5,416 | 5.29 | 5.59 | ||||||
| Liquidity management assets (3)(4) | $ | 7,348,571 | $ | 5,242,433 | $ | 117,345 | $ | 146,245 | 1.60 | % | 2.79 | % |
| Other earning assets (3)(4)(5) | 17,863 | 16,385 | 523 | 714 | 2.94 | 4.36 | ||||||
| Mortgage loans held-for-sale | 707,147 | 308,645 | 20,077 | 11,992 | 2.84 | 3.89 | ||||||
| Loans, net of unearned income (3)(4)(6) | 30,181,204 | 24,986,736 | 1,159,490 | 1,232,415 | 3.84 | 4.93 | ||||||
| Total earning assets (4) | $ | 38,254,785 | $ | 30,554,199 | $ | 1,297,435 | $ | 1,391,366 | 3.39 | % | 4.55 | % |
| Allowance for loan and investment security losses (7) | (264,516) | (164,587) | ||||||||||
| Cash and due from banks | 341,116 | 292,807 | ||||||||||
| Other assets | 3,039,954 | 2,549,664 | ||||||||||
| Total assets | $ | 41,371,339 | $ | 33,232,083 | ||||||||
| NOW and interest-bearing demand deposits | $ | 3,298,554 | $ | 2,903,441 | $ | 7,642 | $ | 20,079 | 0.23 | % | 0.69 | % |
| Wealth management deposits | 3,882,975 | 2,761,936 | 29,277 | 31,121 | 0.75 | 1.13 | ||||||
| Money market accounts | 8,874,488 | 6,659,376 | 46,488 | 91,940 | 0.52 | 1.38 | ||||||
| Savings accounts | 3,354,662 | 2,834,381 | 12,507 | 20,975 | 0.37 | 0.74 | ||||||
| Time deposits | 5,142,938 | 5,467,192 | 93,264 | 114,777 | 1.81 | 2.10 | ||||||
| Interest-bearing deposits | $ | 24,553,617 | $ | 20,626,326 | $ | 189,178 | $ | 278,892 | 0.77 | % | 1.35 | % |
| Federal Home Loan Bank advances | 1,156,106 | 658,669 | 18,193 | 9,878 | 1.57 | 1.50 | ||||||
| Other borrowings | 496,693 | 428,834 | 12,773 | 13,897 | 2.57 | 3.24 | ||||||
| Subordinated notes | 436,275 | 309,178 | 21,961 | 15,555 | 5.03 | 5.03 | ||||||
| Junior subordinated debentures | 253,566 | 253,566 | 11,008 | 12,001 | 4.27 | 4.67 | ||||||
| Total interest-bearing liabilities | $ | 26,896,257 | $ | 22,276,573 | $ | 253,113 | $ | 330,223 | 0.94 | % | 1.48 | % |
| Non-interest-bearing deposits | 9,432,090 | 6,711,298 | ||||||||||
| Other liabilities | 1,116,304 | 782,677 | ||||||||||
| Equity | 3,926,688 | 3,461,535 | ||||||||||
| Total liabilities and shareholders’ equity | $ | 41,371,339 | $ | 33,232,083 | ||||||||
| Interest rate spread (4)(8) | 2.45 | % | 3.07 | % | ||||||||
| Less: Fully taxable-equivalent adjustment | (4,415) | (6,224) | (0.01) | (0.02) | ||||||||
| Net free funds/contribution (9) | $ | 11,358,528 | $ | 8,277,626 | 0.28 | 0.40 | ||||||
| Net interest income/ margin (GAAP) (4) | $ | 1,039,907 | 1,054,919 | 2.72 | % | 3.45 | % | |||||
| Fully taxable-equivalent adjustment | 4,415 | 6,224 | 0.01 | 0.02 | ||||||||
| Net interest income/ margin, fully taxable-equivalent (non-GAAP) (4) | $ | 1,044,322 | $ | 1,061,143 | 2.73 | % | 3.47 | % |
(1)Includes interest-bearing deposits from banks, federal funds sold and securities purchased under resale agreements.
(2)Investment securities includes investment securities classified as available-for-sale and held-to-maturity, and equity securities with readily determinable fair values. Equity securities without readily determinable fair values are included within other assets.
(3)Interest income on tax-advantaged loans, trading securities and investment securities reflects a taxable-equivalent adjustment based on a marginal federal corporate tax rate in effect as of the applicable period.
(4)See “Supplemental Non-GAAP Financial Measures/Ratios” at Table 18 for additional information on this performance ratio.
(5)Other earning assets include brokerage customer receivables and trading account securities.
(6)Loans, net of unearned income, include non-accrual loans.
(7)Effective January 1, 2020 this includes the allowance for investment security losses as a result of the adoption of ASU 2016-13, Financial Instruments - Credit Losses.
(8)Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
(9)Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
TABLE 8: INTEREST RATE SENSITIVITY
As an ongoing part of its financial strategy, the Company attempts to manage the impact of fluctuations in market interest rates on net interest income. Management measures its exposure to changes in interest rates by modeling many different interest rate scenarios.
The following interest rate scenarios display the percentage change in net interest income over a one-year time horizon assuming increases of 100 and 200 basis points and a decrease of 100 basis points. The Static Shock Scenario results incorporate actual cash flows and repricing characteristics for balance sheet instruments following an instantaneous, parallel change in market rates based upon a static (i.e. no growth or constant) balance sheet. Conversely, the Ramp Scenario results incorporate management’s projections of future volume and pricing of each of the product lines following a gradual, parallel change in market rates over twelve months. Actual results may differ from these simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. The interest rate sensitivity for both the Static Shock and Ramp Scenario is as follows:
| Static Shock Scenario | +200 <br>Basis <br>Points | +100<br> Basis<br> Points | -100 <br>Basis<br> Points | |||
|---|---|---|---|---|---|---|
| Dec 31, 2020 | 25.0 | % | 11.6 | % | (7.9) | % |
| Sep 30, 2020 | 23.4 | 10.9 | (8.1) | |||
| Jun 30, 2020 | 25.9 | 12.6 | (8.3) | |||
| Mar 31, 2020 | 22.5 | 10.6 | (9.4) | |||
| Dec 31, 2019 | 18.6 | 9.7 | (10.9) | |||
| Ramp Scenario | +200<br>Basis<br>Points | +100<br>Basis<br>Points | -100<br>Basis<br>Points | |||
| --- | --- | --- | --- | --- | --- | --- |
| Dec 31, 2020 | 11.4 | % | 5.7 | % | (3.3) | % |
| Sep 30, 2020 | 10.7 | 5.2 | (3.5) | |||
| Jun 30, 2020 | 13.0 | 6.7 | (3.2) | |||
| Mar 31, 2020 | 7.7 | 3.7 | (3.8) | |||
| Dec 31, 2019 | 9.3 | 4.8 | (5.0) |
TABLE 9: MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES
| Loans repricing or maturity period | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| As of December 31, 2020 | One year or less | From one to five years | Over five years | ||||||
| (In thousands) | Total | ||||||||
| Commercial | |||||||||
| Fixed rate | $ | 372,909 | $ | 1,878,763 | $ | 804,397 | $ | 3,056,069 | |
| Fixed Rate - PPP | — | 2,715,921 | — | 2,715,921 | |||||
| Variable rate | 6,180,119 | 3,735 | 123 | 6,183,977 | |||||
| Total commercial | $ | 6,553,028 | $ | 4,598,419 | $ | 804,520 | $ | 11,955,967 | |
| Commercial real estate | |||||||||
| Fixed rate | 557,819 | 2,087,351 | 377,779 | 3,022,949 | |||||
| Variable rate | 5,435,402 | 35,781 | — | 5,471,183 | |||||
| Total commercial real estate | $ | 5,993,221 | $ | 2,123,132 | $ | 377,779 | $ | 8,494,132 | |
| Home equity | |||||||||
| Fixed rate | 14,710 | 8,882 | 25 | 23,617 | |||||
| Variable rate | 401,646 | — | — | 401,646 | |||||
| Total home equity | $ | 416,356 | $ | 8,882 | $ | 25 | $ | 425,263 | |
| Residential real estate | |||||||||
| Fixed rate | 31,179 | 11,061 | 384,420 | 426,660 | |||||
| Variable rate | 60,121 | 319,347 | 453,470 | 832,938 | |||||
| Total residential real estate | $ | 91,300 | $ | 330,408 | $ | 837,890 | $ | 1,259,598 | |
| Premium finance receivables - commercial | |||||||||
| Fixed rate | 3,967,351 | 87,138 | — | 4,054,489 | |||||
| Variable rate | — | — | — | — | |||||
| Total premium finance receivables - commercial | $ | 3,967,351 | $ | 87,138 | $ | — | $ | 4,054,489 | |
| Premium finance receivables - life insurance | |||||||||
| Fixed rate | 12,424 | 299,640 | 18,931 | 330,995 | |||||
| Variable rate | 5,526,441 | — | — | 5,526,441 | |||||
| Total premium finance receivables - life insurance | $ | 5,538,865 | $ | 299,640 | $ | 18,931 | $ | 5,857,436 | |
| Consumer and other | |||||||||
| Fixed rate | 8,696 | 5,031 | 1,392 | 15,119 | |||||
| Variable rate | 17,069 | — | — | 17,069 | |||||
| Total consumer and other | $ | 25,765 | $ | 5,031 | $ | 1,392 | $ | 32,188 | |
| Total per category | |||||||||
| Fixed rate | 4,965,088 | 4,377,866 | 1,586,944 | 10,929,898 | |||||
| Fixed rate - PPP | — | 2,715,921 | — | 2,715,921 | |||||
| Variable rate | 17,620,798 | 358,863 | 453,593 | 18,433,254 | |||||
| Total loans, net of unearned income | $ | 22,585,886 | $ | 7,452,650 | $ | 2,040,537 | $ | 32,079,073 | |
| Variable Rate Loan Pricing by Index: | |||||||||
| Prime | $ | 2,324,385 | |||||||
| One- month LIBOR | 9,338,592 | ||||||||
| Three- month LIBOR | 394,592 | ||||||||
| Twelve- month LIBOR | 6,112,979 | ||||||||
| Other | 262,706 | ||||||||
| Total variable rate | $ | 18,433,254 |
Source: Bloomberg
As noted in the table on the previous page, the majority of the Company’s portfolio is tied to LIBOR indices which, as shown in the table above, do not mirror the same changes as the Prime rate which has historically moved when the Federal Reserve raises or lowers interest rates. Specifically, the Company has $9.3 billion of variable rate loans tied to one-month LIBOR and $6.1 billion of variable rate loans tied to twelve-month LIBOR. The above chart shows:
| Basis Point (bp) Change in | ||||||
|---|---|---|---|---|---|---|
| Prime | 1-month<br>LIBOR | 12-month<br>LIBOR | ||||
| Fourth Quarter 2020 | 0 | bp | -1 | bp | -2 | bps |
| Third Quarter 2020 | 0 | -1 | -19 | |||
| Second Quarter 2020 | 0 | -83 | -45 | |||
| First Quarter 2020 | -150 | -77 | -100 | |||
| Fourth Quarter 2019 | -25 | -26 | -3 |
TABLE 10: ALLOWANCE FOR CREDIT LOSSES
| Three Months Ended | Years Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | Dec 31, | Dec 31, | |||||||||||||||
| (Dollars in thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Allowance for credit losses at beginning of period | $ | 388,971 | $ | 373,174 | $ | 253,482 | $ | 158,461 | $ | 163,273 | $ | 158,461 | $ | 154,164 | |||||||
| Cumulative effect adjustment from the adoption of ASU 2016-13 | — | — | — | 47,418 | — | 47,418 | — | ||||||||||||||
| Provision for credit losses | 1,180 | 25,026 | 135,053 | 52,961 | 7,826 | 214,220 | 53,864 | ||||||||||||||
| Other adjustments | 155 | 55 | 42 | (73) | 30 | 179 | (21) | ||||||||||||||
| Charge-offs: | |||||||||||||||||||||
| Commercial | 5,184 | 5,270 | 5,686 | 2,153 | 11,222 | 18,293 | 35,880 | ||||||||||||||
| Commercial real estate | 6,637 | 1,529 | 7,224 | 570 | 533 | 15,960 | 5,402 | ||||||||||||||
| Home equity | 683 | 138 | 239 | 1,001 | 1,330 | 2,061 | 3,702 | ||||||||||||||
| Residential real estate | 114 | 83 | 293 | 401 | 483 | 891 | 798 | ||||||||||||||
| Premium finance receivables | 4,214 | 4,640 | 3,434 | 3,184 | 3,817 | 15,472 | 12,902 | ||||||||||||||
| Consumer and other | 198 | 103 | 99 | 128 | 167 | 528 | 522 | ||||||||||||||
| Total charge-offs | 17,030 | 11,763 | 16,975 | 7,437 | 17,552 | 53,205 | 59,206 | ||||||||||||||
| Recoveries: | |||||||||||||||||||||
| Commercial | 4,168 | 428 | 112 | 384 | 1,871 | 5,092 | 2,845 | ||||||||||||||
| Commercial real estate | 904 | 175 | 493 | 263 | 1,404 | 1,835 | 2,516 | ||||||||||||||
| Home equity | 77 | 111 | 46 | 294 | 166 | 528 | 479 | ||||||||||||||
| Residential real estate | 69 | 25 | 30 | 60 | 50 | 184 | 422 | ||||||||||||||
| Premium finance receivables | 1,445 | 1,720 | 833 | 1,110 | 1,350 | 5,108 | 3,203 | ||||||||||||||
| Consumer and other | 30 | 20 | 58 | 41 | 43 | 149 | 195 | ||||||||||||||
| Total recoveries | 6,693 | 2,479 | 1,572 | 2,152 | 4,884 | 12,896 | 9,660 | ||||||||||||||
| Net charge-offs | (10,337) | (9,284) | (15,403) | (5,285) | (12,668) | (40,309) | (49,546) | ||||||||||||||
| Allowance for credit losses at period end | $ | 379,969 | $ | 388,971 | $ | 373,174 | $ | 253,482 | $ | 158,461 | $ | 379,969 | $ | 158,461 | |||||||
| Annualized net charge-offs by category as a percentage of its own respective category’s average: | |||||||||||||||||||||
| Commercial | 0.03 | % | 0.16 | % | 0.20 | % | 0.08 | % | 0.46 | % | 0.12 | % | 0.41 | % | |||||||
| Commercial real estate | 0.27 | 0.06 | 0.33 | 0.02 | (0.04) | 0.17 | 0.04 | ||||||||||||||
| Home equity | 0.55 | 0.02 | 0.16 | 0.57 | 0.89 | 0.33 | 0.61 | ||||||||||||||
| Residential real estate | 0.02 | 0.02 | 0.09 | 0.11 | 0.14 | 0.06 | 0.04 | ||||||||||||||
| Premium finance receivables | 0.11 | 0.12 | 0.12 | 0.10 | 0.12 | 0.11 | 0.12 | ||||||||||||||
| Consumer and other | 0.78 | 0.49 | 0.25 | 0.56 | 0.41 | 0.52 | 0.29 | ||||||||||||||
| Total loans, net of unearned income | 0.13 | % | 0.12 | % | 0.20 | % | 0.08 | % | 0.19 | % | 0.13 | % | 0.20 | % | |||||||
| Net charge-offs as a percentage of the provision for credit losses | 876.02 | % | 37.10 | % | 11.41 | % | 9.98 | % | 161.87 | % | 18.82 | % | 91.99 | % | |||||||
| Loans at period-end | $ | 32,079,073 | $ | 32,135,555 | $ | 31,402,903 | $ | 27,807,321 | $ | 26,800,290 | |||||||||||
| Allowance for loan losses as a percentage of loans at period end | 1.00 | % | 1.01 | % | 1.00 | % | 0.78 | % | 0.59 | % | |||||||||||
| Allowance for loan and unfunded lending-related commitment losses as a percentage of loans at period end | 1.18 | 1.21 | 1.19 | 0.91 | 0.59 | ||||||||||||||||
| Allowance for loan and unfunded lending-related commitment losses as a percentage of loans at period end, excluding PPP loans | 1.29 | 1.35 | 1.33 | 0.91 | 0.59 |
TABLE 11: ALLOWANCE AND PROVISION FOR CREDIT LOSSES BY COMPONENT
| Three Months Ended | Years Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | Dec 31, | Dec 31, | ||||||||
| (In thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | 2020 | 2019 | |||||||
| Provision for loan losses | $ | 3,597 | $ | 21,678 | $ | 112,822 | $ | 50,396 | $ | 7,704 | $ | 188,493 | $ | 53,626 |
| Provision for unfunded lending-related commitments losses | (2,413) | 3,350 | 22,236 | 2,569 | 122 | 25,742 | 238 | |||||||
| Provision for held-to-maturity securities losses | (4) | (2) | (5) | (4) | — | (15) | — | |||||||
| Provision for credit losses | $ | 1,180 | $ | 25,026 | $ | 135,053 | $ | 52,961 | $ | 7,826 | $ | 214,220 | $ | 53,864 |
| Allowance for loan losses | $ | 319,374 | $ | 325,959 | $ | 313,510 | $ | 216,050 | $ | 156,828 | ||||
| Allowance for unfunded lending-related commitments losses | 60,536 | 62,949 | 59,599 | 37,362 | 1,633 | |||||||||
| Allowance for loan losses and unfunded lending-related commitments losses | 379,910 | 388,908 | 373,109 | 253,412 | 158,461 | |||||||||
| Allowance for held-to-maturity securities losses | 59 | 63 | 65 | 70 | — | |||||||||
| Allowance for credit losses | $ | 379,969 | $ | 388,971 | $ | 373,174 | $ | 253,482 | $ | 158,461 |
TABLE 12: ALLOWANCE BY LOAN PORTFOLIO
The table below summarizes the calculation of allowance for loan losses and allowance for unfunded lending-related commitments losses for the Company’s core, niche and consumer and purchased loan portfolios, as of December 31, 2020 and September 30, 2020.
| As of Dec 31, 2020 | As of Sep 30, 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Recorded<br>Investment | Calculated<br>Allowance | % of its<br>category’s balance | Recorded<br>Investment | Calculated<br>Allowance | % of its<br>category’s balance | ||||||
| Commercial: | ||||||||||||
| Commercial, industrial and other, excluding PPP loans | $ | 9,162,327 | $ | 92,777 | 1.01 | % | $ | 8,808,467 | $ | 110,045 | 1.25 | % |
| Commercial real estate: | ||||||||||||
| Construction and development | 1,344,653 | 77,463 | 5.76 | 1,270,235 | 73,565 | 5.79 | ||||||
| Non-construction | 6,775,195 | 150,637 | 2.22 | 6,708,538 | 141,249 | 2.11 | ||||||
| Home equity | 395,248 | 11,027 | 2.79 | 412,162 | 11,216 | 2.72 | ||||||
| Residential real estate | 1,195,271 | 11,948 | 1.00 | 1,309,209 | 11,165 | 0.85 | ||||||
| Total core loan portfolio | $ | 18,872,694 | $ | 343,852 | 1.82 | % | $ | 18,508,611 | $ | 347,240 | 1.88 | % |
| Commercial PPP loans | $ | 2,715,921 | $ | 2 | 0.00 | % | $ | 3,379,013 | $ | 3 | 0.00 | % |
| Premium finance receivables | ||||||||||||
| Commercial insurance loans | 4,054,489 | 17,267 | 0.43 | 4,060,144 | 17,378 | 0.43 | ||||||
| Life insurance loans | 5,741,639 | 510 | 0.01 | 5,376,403 | 478 | 0.01 | ||||||
| Consumer and other | 30,133 | 290 | 0.96 | 53,191 | 555 | 1.04 | ||||||
| Total niche and consumer loan portfolio | $ | 12,542,182 | $ | 18,069 | 0.14 | % | $ | 12,868,751 | $ | 18,414 | 0.14 | % |
| Purchased commercial | $ | 77,719 | $ | 1,433 | 1.84 | % | $ | 89,519 | $ | 2,846 | 3.18 | % |
| Purchased commercial real estate | 374,284 | 15,503 | 4.14 | 444,369 | 19,196 | 4.32 | ||||||
| Purchased home equity | 30,015 | 410 | 1.37 | 34,112 | 461 | 1.35 | ||||||
| Purchased residential real estate | 64,327 | 511 | 0.79 | 75,601 | 625 | 0.83 | ||||||
| Purchased life insurance loans | 115,797 | — | — | 112,429 | — | — | ||||||
| Purchased consumer and other | 2,055 | 132 | 6.42 | 2,163 | 126 | 5.83 | ||||||
| Total purchased loan portfolio | $ | 664,197 | $ | 17,989 | 2.71 | % | $ | 758,193 | $ | 23,254 | 3.07 | % |
| Total loans, net of unearned income | $ | 32,079,073 | $ | 379,910 | 1.18 | % | $ | 32,135,555 | $ | 388,908 | 1.21 | % |
| Total loans, net of unearned income, excluding PPP loans | $ | 29,363,152 | $ | 379,908 | 1.29 | % | $ | 28,756,542 | $ | 388,905 | 1.35 | % |
TABLE 13: LOAN PORTFOLIO AGING
| (Dollars in thousands) | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| Loan Balances: | ||||||||||
| Commercial | ||||||||||
| Nonaccrual | $ | 21,743 | $ | 42,036 | $ | 42,882 | $ | 49,916 | $ | 37,224 |
| 90+ days and still accruing | 307 | — | 1,374 | 1,241 | 1,855 | |||||
| 60-89 days past due | 6,900 | 2,168 | 8,952 | 8,873 | 3,275 | |||||
| 30-59 days past due | 44,381 | 48,271 | 23,720 | 86,129 | 77,324 | |||||
| Current | 11,882,636 | 12,184,524 | 11,782,304 | 8,879,727 | 8,166,242 | |||||
| Total commercial | $ | 11,955,967 | $ | 12,276,999 | $ | 11,859,232 | $ | 9,025,886 | $ | 8,285,920 |
| Commercial real estate | ||||||||||
| Nonaccrual | $ | 46,107 | $ | 68,815 | $ | 64,557 | $ | 62,830 | $ | 26,113 |
| 90+ days and still accruing | — | — | — | 516 | 14,946 | |||||
| 60-89 days past due | 5,178 | 8,299 | 26,480 | 10,212 | 31,546 | |||||
| 30-59 days past due | 32,116 | 53,462 | 75,528 | 75,068 | 97,567 | |||||
| Current | 8,410,731 | 8,292,566 | 8,034,180 | 8,036,905 | 7,850,104 | |||||
| Total commercial real estate | $ | 8,494,132 | $ | 8,423,142 | $ | 8,200,745 | 8,185,531 | $ | 8,020,276 | |
| Home equity | ||||||||||
| Nonaccrual | $ | 6,529 | $ | 6,329 | $ | 7,261 | $ | 7,243 | $ | 7,363 |
| 90+ days and still accruing | — | — | — | — | — | |||||
| 60-89 days past due | 47 | 70 | — | 214 | 454 | |||||
| 30-59 days past due | 637 | 1,148 | 1,296 | 2,096 | 3,533 | |||||
| Current | 418,050 | 438,727 | 458,039 | 485,102 | 501,716 | |||||
| Total home equity | $ | 425,263 | $ | 446,274 | $ | 466,596 | $ | 494,655 | $ | 513,066 |
| Residential real estate | ||||||||||
| Nonaccrual | $ | 26,071 | $ | 22,069 | $ | 19,529 | $ | 18,965 | $ | 13,797 |
| 90+ days and still accruing | — | — | — | 605 | 5,771 | |||||
| 60-89 days past due | 1,635 | 814 | 1,506 | 345 | 3,089 | |||||
| 30-59 days past due | 12,584 | 2,443 | 4,400 | 28,983 | 18,041 | |||||
| Current | 1,219,308 | 1,359,484 | 1,401,994 | 1,328,491 | 1,313,523 | |||||
| Total residential real estate | $ | 1,259,598 | $ | 1,384,810 | $ | 1,427,429 | $ | 1,377,389 | $ | 1,354,221 |
| Premium finance receivables | ||||||||||
| Nonaccrual | $ | 13,264 | $ | 21,080 | $ | 16,460 | $ | 21,058 | $ | 21,180 |
| 90+ days and still accruing | 12,792 | 12,177 | 35,638 | 16,505 | 11,517 | |||||
| 60-89 days past due | 27,801 | 38,286 | 42,353 | 12,730 | 12,119 | |||||
| 30-59 days past due | 49,274 | 80,732 | 61,160 | 70,185 | 51,342 | |||||
| Current | 9,808,794 | 9,396,701 | 9,244,965 | 8,566,216 | 8,420,471 | |||||
| Total premium finance receivables | $ | 9,911,925 | $ | 9,548,976 | $ | 9,400,576 | $ | 8,686,694 | $ | 8,516,629 |
| Consumer and other | ||||||||||
| Nonaccrual | $ | 436 | $ | 422 | $ | 427 | $ | 403 | $ | 231 |
| 90+ days and still accruing | 264 | 175 | 156 | 78 | 287 | |||||
| 60-89 days past due | 24 | 273 | 4 | 625 | 40 | |||||
| 30-59 days past due | 136 | 493 | 281 | 207 | 344 | |||||
| Current | 31,328 | 53,991 | 47,457 | 35,853 | 109,276 | |||||
| Total consumer and other | $ | 32,188 | $ | 55,354 | $ | 48,325 | $ | 37,166 | $ | 110,178 |
| Total loans, net of unearned income | ||||||||||
| Nonaccrual | $ | 114,150 | $ | 160,751 | $ | 151,116 | $ | 160,415 | $ | 105,908 |
| 90+ days and still accruing | 13,363 | 12,352 | 37,168 | 18,945 | 34,376 | |||||
| 60-89 days past due | 41,585 | 49,910 | 79,295 | 32,999 | 50,523 | |||||
| 30-59 days past due | 139,128 | 186,549 | 166,385 | 262,668 | 248,151 | |||||
| Current | 31,770,847 | 31,725,993 | 30,968,939 | 27,332,294 | 26,361,332 | |||||
| Total loans, net of unearned income | $ | 32,079,073 | $ | 32,135,555 | $ | 31,402,903 | $ | 27,807,321 | $ | 26,800,290 |
TABLE 14: NON-PERFORMING ASSETS AND TROUBLED DEBT RESTRUCTURINGS ("TDRs")
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2020 | 2020 | 2020 | 2020(1) | 2019 | ||||||||||
| Loans past due greater than 90 days and still accruing (2): | |||||||||||||||
| Commercial | $ | 307 | $ | — | $ | 1,374 | $ | 1,241 | $ | — | |||||
| Commercial real estate | — | — | — | 516 | — | ||||||||||
| Home equity | — | — | — | — | — | ||||||||||
| Residential real estate | — | — | — | 605 | — | ||||||||||
| Premium finance receivables | 12,792 | 12,177 | 35,638 | 16,505 | 11,517 | ||||||||||
| Consumer and other | 264 | 175 | 156 | 78 | 163 | ||||||||||
| Total loans past due greater than 90 days and still accruing | 13,363 | 12,352 | 37,168 | 18,945 | 11,680 | ||||||||||
| Non-accrual loans: | |||||||||||||||
| Commercial | 21,743 | 42,036 | 42,882 | 49,916 | 37,224 | ||||||||||
| Commercial real estate | 46,107 | 68,815 | 64,557 | 62,830 | 26,113 | ||||||||||
| Home equity | 6,529 | 6,329 | 7,261 | 7,243 | 7,363 | ||||||||||
| Residential real estate | 26,071 | 22,069 | 19,529 | 18,965 | 13,797 | ||||||||||
| Premium finance receivables | 13,264 | 21,080 | 16,460 | 21,058 | 21,180 | ||||||||||
| Consumer and other | 436 | 422 | 427 | 403 | 231 | ||||||||||
| Total non-accrual loans | 114,150 | 160,751 | 151,116 | 160,415 | 105,908 | ||||||||||
| Total non-performing loans: | |||||||||||||||
| Commercial | 22,050 | 42,036 | 44,256 | 51,157 | 37,224 | ||||||||||
| Commercial real estate | 46,107 | 68,815 | 64,557 | 63,346 | 26,113 | ||||||||||
| Home equity | 6,529 | 6,329 | 7,261 | 7,243 | 7,363 | ||||||||||
| Residential real estate | 26,071 | 22,069 | 19,529 | 19,570 | 13,797 | ||||||||||
| Premium finance receivables | 26,056 | 33,257 | 52,098 | 37,563 | 32,697 | ||||||||||
| Consumer and other | 700 | 597 | 583 | 481 | 394 | ||||||||||
| Total non-performing loans | $ | 127,513 | $ | 173,103 | $ | 188,284 | $ | 179,360 | $ | 117,588 | |||||
| Other real estate owned | 9,711 | 2,891 | 2,409 | 2,701 | 5,208 | ||||||||||
| Other real estate owned - from acquisitions | 6,847 | 6,326 | 7,788 | 8,325 | 9,963 | ||||||||||
| Other repossessed assets | — | — | — | — | 4 | ||||||||||
| Total non-performing assets | $ | 144,071 | $ | 182,320 | $ | 198,481 | $ | 190,386 | $ | 132,763 | |||||
| Accruing TDRs not included within non-performing assets | $ | 47,023 | $ | 46,410 | $ | 48,609 | $ | 47,049 | $ | 36,725 | |||||
| Total non-performing loans by category as a percent of its own respective category’s period-end balance: | |||||||||||||||
| Commercial | 0.18 | % | 0.34 | % | 0.37 | % | 0.57 | % | 0.45 | % | |||||
| Commercial real estate | 0.54 | 0.82 | 0.79 | 0.77 | 0.33 | ||||||||||
| Home equity | 1.54 | 1.42 | 1.56 | 1.46 | 1.44 | ||||||||||
| Residential real estate | 2.07 | 1.59 | 1.37 | 1.42 | 1.02 | ||||||||||
| Premium finance receivables | 0.26 | 0.35 | 0.55 | 0.43 | 0.39 | ||||||||||
| Consumer and other | 2.17 | 1.08 | 1.21 | 1.29 | 0.36 | ||||||||||
| Total loans, net of unearned income | 0.40 | % | 0.54 | % | 0.60 | % | 0.65 | % | 0.44 | % | |||||
| Total non-performing assets as a percentage of total assets | 0.32 | % | 0.42 | % | 0.46 | % | 0.49 | % | 0.36 | % | |||||
| Allowance for credit losses as a percentage of non-accrual loans | 332.82 | % | 241.93 | % | 246.90 | % | 157.97 | % | 149.62 | % |
(1)Prior to the adoption of ASU 2016-13, acquired loans with evidence of credit quality deterioration (purchased credit deteriorated loans, or "PCD loans") were excluded from non-performing loans. PCD loans that meet the definition of non-accrual or are greater than 90 days past-due and still accruing interest are now included in non-performing loans and resulted in a $37.3 million increase in non-accrual loans upon adoption of ASU 2016-13 as of January 1, 2020.
(2)As of December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 2019, no TDRs were past due greater than 90 days and still accruing interest.
Non-performing Loans Rollforward
| Three Months Ended | Years Ended | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | Dec 31, | Dec 31, | ||||||||||||
| (In thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | 2020 | 2019 | |||||||||||
| Balance at beginning of period | $ | 173,103 | $ | 188,284 | $ | 179,360 | $ | 117,588 | $ | 114,284 | $ | 117,588 | $ | 113,234 | ||||
| Additions from becoming non-performing in the respective period | 13,224 | 19,771 | 20,803 | 32,195 | 30,977 | 85,993 | 96,355 | |||||||||||
| Additions from the adoption of ASU 2016-13 | — | — | — | 37,285 | — | 37,285 | — | |||||||||||
| Return to performing status | (1,000) | (6,202) | (2,566) | (486) | (243) | (10,254) | (14,774) | |||||||||||
| Payments received | (30,146) | (3,733) | (11,201) | (7,949) | (19,380) | (53,029) | (45,168) | |||||||||||
| Transfer to OREO and other repossessed assets | (12,662) | (598) | — | (1,297) | — | (14,557) | (3,061) | |||||||||||
| Charge-offs | (7,817) | (6,583) | (12,884) | (2,551) | (11,798) | (29,835) | (39,591) | |||||||||||
| Net change for niche loans (1) | (7,189) | (17,836) | 14,772 | 4,575 | 3,748 | (5,678) | 10,593 | |||||||||||
| Balance at end of period | $ | 127,513 | $ | 173,103 | $ | 188,284 | $ | 179,360 | $ | 117,588 | $ | 127,513 | $ | 117,588 |
(1)This includes activity for premium finance receivables and indirect consumer loans.
TDRs
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | |||||
| Accruing TDRs: | ||||||||||
| Commercial | $ | 7,699 | $ | 7,863 | $ | 5,338 | $ | 6,500 | $ | 4,905 |
| Commercial real estate | 10,549 | 10,846 | 19,106 | 18,043 | 9,754 | |||||
| Residential real estate and other | 28,775 | 27,701 | 24,165 | 22,506 | 22,066 | |||||
| Total accrual | $ | 47,023 | $ | 46,410 | $ | 48,609 | $ | 47,049 | $ | 36,725 |
| Non-accrual TDRs: (1) | ||||||||||
| Commercial | $ | 10,491 | $ | 13,132 | $ | 20,788 | $ | 17,206 | $ | 13,834 |
| Commercial real estate | 6,177 | 13,601 | 8,545 | 14,420 | 7,119 | |||||
| Residential real estate and other | 4,501 | 5,392 | 5,606 | 4,962 | 6,158 | |||||
| Total non-accrual | $ | 21,169 | $ | 32,125 | $ | 34,939 | $ | 36,588 | $ | 27,111 |
| Total TDRs: | ||||||||||
| Commercial | $ | 18,190 | $ | 20,995 | $ | 26,126 | $ | 23,706 | $ | 18,739 |
| Commercial real estate | 16,726 | 24,447 | 27,651 | 32,463 | 16,873 | |||||
| Residential real estate and other | 33,276 | 33,093 | 29,771 | 27,468 | 28,224 | |||||
| Total TDRs | $ | 68,192 | $ | 78,535 | $ | 83,548 | $ | 83,637 | $ | 63,836 |
(1)Included in total non-performing loans.
Other Real Estate Owned
| Three Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | ||||||
| (In thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | |||||
| Balance at beginning of period | $ | 9,217 | $ | 10,197 | $ | 11,026 | $ | 15,171 | $ | 17,482 |
| Disposals/resolved | (3,839) | (1,532) | (612) | (4,793) | (4,860) | |||||
| Transfers in at fair value, less costs to sell | 11,508 | 777 | — | 954 | 936 | |||||
| Additions from acquisition | — | — | — | — | 2,179 | |||||
| Fair value adjustments | (328) | (225) | (217) | (306) | (566) | |||||
| Balance at end of period | $ | 16,558 | $ | 9,217 | $ | 10,197 | $ | 11,026 | $ | 15,171 |
| Period End | ||||||||||
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | ||||||
| Balance by Property Type: | 2020 | 2020 | 2020 | 2020 | 2019 | |||||
| Residential real estate | $ | 2,324 | $ | 1,839 | $ | 1,382 | $ | 1,684 | $ | 1,016 |
| Residential real estate development | 1,691 | — | — | — | 810 | |||||
| Commercial real estate | 12,543 | 7,378 | 8,815 | 9,342 | 13,345 | |||||
| Total | $ | 16,558 | $ | 9,217 | $ | 10,197 | $ | 11,026 | $ | 15,171 |
TABLE 15: NON-INTEREST INCOME
| Three Months Ended | Q4 2020 compared to Q3 2020 | Q4 2020 compared to Q4 2019 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | ||||||||||||
| (Dollars in thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | Change | % Change | Change | % Change | |||||||
| Brokerage | $ | 4,740 | $ | 4,563 | $ | 4,147 | $ | 5,281 | $ | 4,859 | 4 | % | (2) | % | ||
| Trust and asset management | 22,062 | 20,394 | 18,489 | 20,660 | 20,140 | 1,668 | 8 | 1,922 | 10 | |||||||
| Total wealth management | 26,802 | 24,957 | 22,636 | 25,941 | 24,999 | 1,845 | 7 | 1,803 | 7 | |||||||
| Mortgage banking | 86,819 | 108,544 | 102,324 | 48,326 | 47,860 | (21,725) | (20) | 38,959 | 81 | |||||||
| Service charges on deposit accounts | 11,841 | 11,497 | 10,420 | 11,265 | 10,973 | 344 | 3 | 868 | 8 | |||||||
| Gains (losses) on investment securities, net | 1,214 | 411 | 808 | (4,359) | 587 | 803 | NM | 627 | NM | |||||||
| Fees from covered call options | — | — | — | 2,292 | 1,243 | — | NM | (1,243) | (100) | |||||||
| Trading (losses) gains, net | (102) | 183 | (634) | (451) | 46 | (285) | NM | (148) | NM | |||||||
| Operating lease income, net | 12,118 | 11,717 | 11,785 | 11,984 | 12,487 | 401 | 3 | (369) | (3) | |||||||
| Other: | ||||||||||||||||
| Interest rate swap fees | 4,930 | 4,029 | 5,693 | 6,066 | 2,206 | 901 | 22 | 2,724 | NM | |||||||
| BOLI | 2,846 | 1,218 | 1,950 | (1,284) | 1,377 | 1,628 | 134 | 1,469 | NM | |||||||
| Administrative services | 1,263 | 1,077 | 933 | 1,112 | 1,072 | 186 | 17 | 191 | 18 | |||||||
| Foreign currency remeasurement (losses) gains | (208) | (54) | (208) | (151) | 261 | (154) | NM | (469) | NM | |||||||
| Early pay-offs of capital leases | 118 | 165 | 275 | 74 | 24 | (47) | (28) | 94 | NM | |||||||
| Miscellaneous | 10,720 | 6,849 | 6,011 | 12,427 | 9,085 | 3,871 | 57 | 1,635 | 18 | |||||||
| Total Other | 19,669 | 13,284 | 14,654 | 18,244 | 14,025 | 6,385 | 48 | 5,644 | 40 | |||||||
| Total Non-Interest Income | $ | 158,361 | $ | 170,593 | $ | 161,993 | $ | 113,242 | $ | 112,220 | (7) | % | 41 | % |
All values are in US Dollars.
NM - Not meaningful.
| Years Ended | |||||||
|---|---|---|---|---|---|---|---|
| Dec 31, | Dec 31, | % | |||||
| (Dollars in thousands) | 2020 | 2019 | Change | Change | |||
| Brokerage | $ | 18,731 | $ | 18,825 | 0 | % | |
| Trust and asset management | 81,605 | 78,289 | 3,316 | 4 | |||
| Total wealth management | 100,336 | 97,114 | 3,222 | 3 | |||
| Mortgage banking | 346,013 | 154,293 | 191,720 | 124 | |||
| Service charges on deposit accounts | 45,023 | 39,070 | 5,953 | 15 | |||
| (Losses) gains on investment securities, net | (1,926) | 3,525 | (5,451) | NM | |||
| Fees from covered call options | 2,292 | 3,670 | (1,378) | (38) | |||
| Trading losses, net | (1,004) | (158) | (846) | NM | |||
| Operating lease income, net | 47,604 | 47,041 | 563 | 1 | |||
| Other: | |||||||
| Interest rate swap fees | 20,718 | 13,072 | 7,646 | 58 | |||
| BOLI | 4,730 | 4,947 | (217) | (4) | |||
| Administrative services | 4,385 | 4,197 | 188 | 4 | |||
| Foreign currency remeasurement (loss) gain | (621) | 783 | (1,404) | NM | |||
| Early pay-offs of leases | 632 | 35 | 597 | NM | |||
| Miscellaneous | 36,007 | 39,583 | (3,576) | (9) | |||
| Total Other | 65,851 | 62,617 | 3,234 | 5 | |||
| Total Non-Interest Income | $ | 604,189 | $ | 407,172 | 48 | % |
All values are in US Dollars.
NM - Not meaningful.
TABLE 16: MORTGAGE BANKING
| Three Months Ended | Years Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Dec 31,<br>2020 | Sep 30,<br>2020 | Jun 30,<br>2020 | Mar 31,<br>2020 | Dec 31,<br>2019 | Dec 31,<br>2020 | Dec 31,<br>2019 | ||||||||||||||
| Originations: | |||||||||||||||||||||
| Retail originations | $ | 1,757,093 | $ | 1,590,699 | $ | 1,588,932 | $ | 773,144 | $ | 782,122 | $ | 5,709,868 | $ | 2,730,865 | |||||||
| Correspondent originations | — | — | — | — | 4,024 | — | 385,729 | ||||||||||||||
| Veterans First originations | 594,151 | 635,876 | 621,878 | 442,957 | 459,236 | 2,294,862 | 1,381,327 | ||||||||||||||
| Total originations for sale (A) | $ | 2,351,244 | $ | 2,226,575 | $ | 2,210,810 | $ | 1,216,101 | $ | 1,245,382 | $ | 8,004,730 | $ | 4,497,921 | |||||||
| Originations for investment | 192,107 | 73,711 | 56,954 | 73,727 | 105,911 | 396,499 | 460,734 | ||||||||||||||
| Total originations | $ | 2,543,351 | $ | 2,300,286 | $ | 2,267,764 | $ | 1,289,828 | $ | 1,351,293 | $ | 8,401,229 | $ | 4,958,655 | |||||||
| Purchases as a percentage of originations for sale | 35 | % | 41 | % | 30 | % | 37 | % | 40 | % | 35 | % | 52 | % | |||||||
| Refinances as a percentage of originations for sale | 65 | 59 | 70 | 63 | 60 | 65 | 48 | ||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||
| Production Margin: | |||||||||||||||||||||
| Production revenue (B) (1) | $ | 70,886 | $ | 94,148 | $ | 93,433 | $ | 49,327 | $ | 34,622 | $ | 307,794 | $ | 122,047 | |||||||
| Production margin (B / A) | 3.01 | % | 4.23 | % | 4.23 | % | 4.06 | % | 2.78 | % | 3.85 | % | 2.71 | % | |||||||
| Mortgage Servicing: | |||||||||||||||||||||
| Loans serviced for others (C) | $ | 10,833,135 | $ | 10,139,878 | $ | 9,188,285 | $ | 8,314,634 | $ | 8,243,251 | |||||||||||
| MSRs, at fair value (D) | 92,081 | 86,907 | 77,203 | 73,504 | 85,638 | ||||||||||||||||
| Percentage of MSRs to loans serviced for others (D / C) | 0.85 | % | 0.86 | % | 0.84 | % | 0.88 | % | 1.04 | % | |||||||||||
| Servicing income | $ | 9,829 | $ | 8,118 | $ | 6,908 | $ | 7,031 | $ | 6,247 | $ | 31,886 | $ | 23,156 | |||||||
| Components of MSR: | |||||||||||||||||||||
| MSR - current period capitalization | $ | 20,343 | $ | 20,936 | $ | 20,351 | $ | 9,447 | $ | 14,532 | $ | 71,077 | $ | 44,943 | |||||||
| MSR - collection of expected cash flows - paydowns | (688) | (590) | (419) | (547) | (483) | (2,244) | (1,901) | ||||||||||||||
| MSR - collection of expected cash flows - payoffs | (8,335) | (7,272) | (8,252) | (6,476) | (6,325) | (30,335) | (18,217) | ||||||||||||||
| Valuation: | |||||||||||||||||||||
| MSR - changes in fair value model assumptions | (5,223) | (3,002) | (7,982) | (14,557) | 2,329 | (30,764) | (14,778) | ||||||||||||||
| Gain (loss) on derivative contract held as an economic hedge, net | — | — | 589 | 4,160 | (483) | 4,749 | 519 | ||||||||||||||
| MSR valuation adjustment, net of gain/(loss) on derivative contract held as an economic hedge | $ | (5,223) | $ | (3,002) | $ | (7,393) | $ | (10,397) | $ | 1,846 | $ | (26,015) | $ | (14,259) | |||||||
| Summary of Mortgage Banking Revenue: | |||||||||||||||||||||
| Production revenue (1) | $ | 70,886 | $ | 94,148 | $ | 93,433 | $ | 49,327 | $ | 34,622 | $ | 307,794 | $ | 122,047 | |||||||
| Servicing income | 9,829 | 8,118 | 6,908 | 7,031 | 6,247 | 31,886 | 23,156 | ||||||||||||||
| MSR activity | 6,097 | 10,072 | 4,287 | (7,973) | 9,570 | 12,483 | 10,566 | ||||||||||||||
| Other | 7 | (3,794) | (2,304) | (59) | (2,579) | (6,150) | (1,476) | ||||||||||||||
| Total mortgage banking revenue | $ | 86,819 | $ | 108,544 | $ | 102,324 | $ | 48,326 | $ | 47,860 | $ | 346,013 | $ | 154,293 |
(1)Production revenue represents revenue earned from the origination and subsequent sale of mortgages, including gains on loans sold and fees from originations, changes in derivative activity, processing and other related activities, and excludes servicing fees, changes in the fair value of servicing rights and changes to the mortgage recourse obligation and other non-production revenue.
TABLE 17: NON-INTEREST EXPENSE
| Three Months Ended | Q4 2020 compared to Q3 2020 | Q4 2020 compared to Q4 2019 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | ||||||||||||
| (Dollars in thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | Change | % Change | Change | % Change | |||||||
| Salaries and employee benefits: | ||||||||||||||||
| Salaries | $ | 93,535 | $ | 89,849 | $ | 87,105 | $ | 81,286 | $ | 82,888 | 4 | % | 13 | % | ||
| Commissions and incentive compensation | 52,383 | 48,475 | 46,151 | 31,575 | 40,226 | 3,908 | 8 | 12,157 | 30 | |||||||
| Benefits | 25,198 | 25,718 | 20,900 | 23,901 | 22,827 | (520) | (2) | 2,371 | 10 | |||||||
| Total salaries and employee benefits | 171,116 | 164,042 | 154,156 | 136,762 | 145,941 | 7,074 | 4 | 25,175 | 17 | |||||||
| Equipment | 20,565 | 17,251 | 15,846 | 14,834 | 14,485 | 3,314 | 19 | 6,080 | 42 | |||||||
| Operating lease equipment depreciation | 9,938 | 9,425 | 9,292 | 9,260 | 9,766 | 513 | 5 | 172 | 2 | |||||||
| Occupancy, net | 19,687 | 15,830 | 16,893 | 17,547 | 17,132 | 3,857 | 24 | 2,555 | 15 | |||||||
| Data processing | 5,728 | 5,689 | 10,406 | 8,373 | 7,569 | 39 | 1 | (1,841) | (24) | |||||||
| Advertising and marketing | 9,850 | 7,880 | 7,704 | 10,862 | 12,517 | 1,970 | 25 | (2,667) | (21) | |||||||
| Professional fees | 6,530 | 6,488 | 7,687 | 6,721 | 7,650 | 42 | 1 | (1,120) | (15) | |||||||
| Amortization of other intangible assets | 2,634 | 2,701 | 2,820 | 2,863 | 3,017 | (67) | (2) | (383) | (13) | |||||||
| FDIC insurance | 7,016 | 6,772 | 7,081 | 4,135 | 1,348 | 244 | 4 | 5,668 | NM | |||||||
| OREO expense, net | (114) | (168) | 237 | (876) | 536 | 54 | (32) | (650) | NM | |||||||
| Other: | ||||||||||||||||
| Commissions - 3rd party brokers | 764 | 778 | 707 | 865 | 717 | (14) | (2) | 47 | 7 | |||||||
| Postage | 1,849 | 1,529 | 1,591 | 1,949 | 2,220 | 320 | 21 | (371) | (17) | |||||||
| Miscellaneous | 26,304 | 26,002 | 24,948 | 21,346 | 26,693 | 302 | 1 | (389) | (1) | |||||||
| Total other | 28,917 | 28,309 | 27,246 | 24,160 | 29,630 | 608 | 2 | (713) | (2) | |||||||
| Total Non-Interest Expense | $ | 281,867 | $ | 264,219 | $ | 259,368 | $ | 234,641 | $ | 249,591 | 7 | % | 13 | % |
All values are in US Dollars.
NM - Not meaningful.
| Years Ended | |||||||
|---|---|---|---|---|---|---|---|
| Dec 31, | Dec 31, | % | |||||
| (Dollars in thousands) | 2020 | 2019 | Change | Change | |||
| Salaries and employee benefits: | |||||||
| Salaries | $ | 351,775 | $ | 310,352 | 13 | % | |
| Commissions and incentive compensation | 178,584 | 148,600 | 29,984 | 20 | |||
| Benefits | 95,717 | 87,468 | 8,249 | 9 | |||
| Total salaries and employee benefits | 626,076 | 546,420 | 79,656 | 15 | |||
| Equipment | 68,496 | 52,328 | 16,168 | 31 | |||
| Operating lease equipment depreciation | 37,915 | 35,760 | 2,155 | 6 | |||
| Occupancy, net | 69,957 | 64,289 | 5,668 | 9 | |||
| Data processing | 30,196 | 27,820 | 2,376 | 9 | |||
| Advertising and marketing | 36,296 | 48,595 | (12,299) | (25) | |||
| Professional fees | 27,426 | 27,471 | (45) | 0 | |||
| Amortization of other intangible assets | 11,018 | 11,844 | (826) | (7) | |||
| FDIC insurance | 25,004 | 9,199 | 15,805 | NM | |||
| OREO expense, net | (921) | 3,628 | (4,549) | NM | |||
| Other: | |||||||
| Commissions - 3rd party brokers | 3,114 | 2,918 | 196 | 7 | |||
| Postage | 6,918 | 9,597 | (2,679) | (28) | |||
| Miscellaneous | 98,600 | 88,257 | 10,343 | 12 | |||
| Total other | 108,632 | 100,772 | 7,860 | 8 | |||
| Total Non-Interest Expense | $ | 1,040,095 | $ | 928,126 | 12 | % |
All values are in US Dollars.
NM - Not meaningful.
TABLE 18: SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES/RATIOS
The accounting and reporting policies of Wintrust conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. These include taxable-equivalent net interest income (including its individual components), taxable-equivalent net interest margin (including its individual components), the taxable-equivalent efficiency ratio, tangible common equity ratio, tangible book value per common share, return on average tangible common equity and pre-tax income, excluding provision for credit losses. Management believes that these measures and ratios provide users of the Company’s financial information a more meaningful view of the performance of the Company's interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.
Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a fully taxable-equivalent basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses), measures how much it costs to produce one dollar of revenue. Securities gains or losses are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity ratio and tangible book value per common share as useful measurements of the Company’s equity. The Company references the return on average tangible common equity as a measurement of profitability. Management considers pre-tax income, excluding provision for credit losses, as a useful measurement of the Company's core net income.
| Three Months Ended | Years Ended | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | Dec 31, | Dec 31, | |||||||||||||||||||||||||||||||||||
| (Dollars and shares in thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||
| Reconciliation of Non-GAAP Net Interest Margin and Efficiency Ratio: | |||||||||||||||||||||||||||||||||||||||||
| (A) Interest Income (GAAP) | $ | 307,981 | $ | 311,156 | $ | 329,816 | $ | 344,067 | $ | 349,731 | $ | 1,293,020 | $ | 1,385,142 | |||||||||||||||||||||||||||
| Taxable-equivalent adjustment: | |||||||||||||||||||||||||||||||||||||||||
| - Loans | 324 | 481 | 576 | 860 | 892 | 2,241 | 3,935 | ||||||||||||||||||||||||||||||||||
| - Liquidity Management Assets | 530 | 546 | 538 | 551 | 573 | 2,165 | 2,280 | ||||||||||||||||||||||||||||||||||
| - Other Earning Assets | 3 | 1 | 3 | 2 | 1 | 9 | 9 | ||||||||||||||||||||||||||||||||||
| (B) Interest Income (non-GAAP) | $ | 308,838 | $ | 312,184 | $ | 330,933 | $ | 345,480 | $ | 351,197 | $ | 1,297,435 | $ | 1,391,366 | |||||||||||||||||||||||||||
| (C) Interest Expense (GAAP) | $ | 48,584 | $ | 55,220 | $ | 66,685 | $ | 82,624 | $ | 87,852 | $ | 253,113 | $ | 330,223 | |||||||||||||||||||||||||||
| (D) Net Interest Income (GAAP) (A minus C) | $ | 259,397 | $ | 255,936 | $ | 263,131 | $ | 261,443 | $ | 261,879 | $ | 1,039,907 | $ | 1,054,919 | |||||||||||||||||||||||||||
| (E) Net Interest Income (non-GAAP) (B minus C) | $ | 260,254 | $ | 256,964 | $ | 264,248 | $ | 262,856 | $ | 263,345 | $ | 1,044,322 | $ | 1,061,143 | |||||||||||||||||||||||||||
| Net interest margin (GAAP) | 2.53 | % | 2.56 | % | 2.73 | % | 3.12 | % | 3.17 | % | 2.72 | % | 3.45 | % | |||||||||||||||||||||||||||
| Net interest margin, fully taxable-equivalent (non-GAAP) | 2.54 | % | 2.57 | % | 2.74 | % | 3.14 | % | 3.19 | % | 2.73 | % | 3.47 | % | |||||||||||||||||||||||||||
| (F) Non-interest income | $ | 158,361 | $ | 170,593 | $ | 161,993 | $ | 113,242 | $ | 112,220 | $ | 604,189 | $ | 407,172 | |||||||||||||||||||||||||||
| (G) Gains (losses) on investment securities, net | 1,214 | 411 | 808 | (4,359) | 587 | (1,926) | 3,525 | ||||||||||||||||||||||||||||||||||
| (H) Non-interest expense | 281,867 | 264,219 | 259,368 | 234,641 | 249,591 | 1,040,095 | 928,126 | ||||||||||||||||||||||||||||||||||
| Efficiency ratio (H/(D+F-G)) | 67.67 | % | 62.01 | % | 61.13 | % | 61.90 | % | 66.82 | % | 63.19 | % | 63.63 | % | |||||||||||||||||||||||||||
| Efficiency ratio (non-GAAP) (H/(E+F-G)) | 67.53 | % | 61.86 | % | 60.97 | % | 61.67 | % | 66.56 | % | 63.02 | % | 63.36 | % | |||||||||||||||||||||||||||
| Reconciliation of Non-GAAP Tangible Common Equity Ratio: | |||||||||||||||||||||||||||||||||||||||||
| Total shareholders’ equity (GAAP) | $ | 4,115,995 | $ | 4,074,089 | $ | 3,990,218 | $ | 3,700,393 | $ | 3,691,250 | |||||||||||||||||||||||||||||||
| Less: Non-convertible preferred stock (GAAP) | (412,500) | (412,500) | (412,500) | (125,000) | (125,000) | ||||||||||||||||||||||||||||||||||||
| Less: Intangible assets (GAAP) | (681,747) | (683,314) | (685,581) | (687,626) | (692,277) | ||||||||||||||||||||||||||||||||||||
| (I) Total tangible common shareholders’ equity (non-GAAP) | $ | 3,021,748 | $ | 2,978,275 | $ | 2,892,137 | $ | 2,887,767 | $ | 2,873,973 | |||||||||||||||||||||||||||||||
| (J) Total assets (GAAP) | $ | 45,080,768 | $ | 43,731,718 | $ | 43,540,017 | $ | 38,799,847 | $ | 36,620,583 | |||||||||||||||||||||||||||||||
| Less: Intangible assets (GAAP) | (681,747) | (683,314) | (685,581) | (687,626) | (692,277) | ||||||||||||||||||||||||||||||||||||
| (K) Total tangible assets (non-GAAP) | $ | 44,399,021 | $ | 43,048,404 | $ | 42,854,436 | $ | 38,112,221 | $ | 35,928,306 | |||||||||||||||||||||||||||||||
| Common equity to assets ratio (GAAP) (L/J) | 8.2 | % | 8.4 | % | 8.2 | % | 9.2 | % | 9.7 | % | |||||||||||||||||||||||||||||||
| Tangible common equity ratio (non-GAAP) (I/K) | 6.8 | % | 6.9 | % | 6.7 | % | 7.6 | % | 8.0 | % | |||||||||||||||||||||||||||||||
| Three Months Ended | Years Ended | ||||||||||||||||||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||||||||||
| Dec 31, | Sep 30, | Jun 30, | Mar 31, | Dec 31, | Dec 31, | Dec 31, | |||||||||||||||||||||||||||||||||||
| (Dollars and shares in thousands) | 2020 | 2020 | 2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||
| Reconciliation of Non-GAAP Tangible Book Value per Common Share: | |||||||||||||||||||||||||||||||||||||||||
| Total shareholders’ equity | $ | 4,115,995 | $ | 4,074,089 | $ | 3,990,218 | $ | 3,700,393 | $ | 3,691,250 | |||||||||||||||||||||||||||||||
| Less: Preferred stock | (412,500) | (412,500) | (412,500) | (125,000) | (125,000) | ||||||||||||||||||||||||||||||||||||
| (L) Total common equity | $ | 3,703,495 | $ | 3,661,589 | $ | 3,577,718 | $ | 3,575,393 | $ | 3,566,250 | |||||||||||||||||||||||||||||||
| (M) Actual common shares outstanding | 56,770 | 57,602 | 57,574 | 57,545 | 57,822 | ||||||||||||||||||||||||||||||||||||
| Book value per common share (L/M) | $ | 65.24 | $ | 63.57 | $ | 62.14 | $ | 62.13 | $ | 61.68 | |||||||||||||||||||||||||||||||
| Tangible book value per common share (non-GAAP) (I/M) | $ | 53.23 | $ | 51.70 | $ | 50.23 | $ | 50.18 | $ | 49.70 | |||||||||||||||||||||||||||||||
| Reconciliation of Non-GAAP Return on Average Tangible Common Equity: | |||||||||||||||||||||||||||||||||||||||||
| (N) Net income applicable to common shares | $ | 94,213 | $ | 97,029 | $ | 19,609 | $ | 60,762 | $ | 83,914 | $ | 271,613 | $ | 347,497 | |||||||||||||||||||||||||||
| Add: Intangible asset amortization | 2,634 | 2,701 | 2,820 | 2,863 | 3,017 | 11,018 | 11,844 | ||||||||||||||||||||||||||||||||||
| Less: Tax effect of intangible asset amortization | (656) | (589) | (832) | (799) | (793) | (2,732) | (3,068) | ||||||||||||||||||||||||||||||||||
| After-tax intangible asset amortization | 1,978 | 2,112 | 1,988 | 2,064 | 2,224 | 8,286 | 8,776 | ||||||||||||||||||||||||||||||||||
| (O) Tangible net income applicable to common shares (non-GAAP) | $ | 96,191 | $ | 99,141 | $ | 21,597 | $ | 62,826 | $ | 86,138 | $ | 279,899 | $ | 356,273 | |||||||||||||||||||||||||||
| Total average shareholders' equity | $ | 4,050,286 | $ | 4,034,902 | $ | 3,908,846 | $ | 3,710,169 | $ | 3,622,184 | $ | 3,926,688 | $ | 3,461,535 | |||||||||||||||||||||||||||
| Less: Average preferred stock | (412,500) | (412,500) | (273,489) | (125,000) | (125,000) | (306,455) | (125,000) | ||||||||||||||||||||||||||||||||||
| (P) Total average common shareholders' equity | $ | 3,637,786 | $ | 3,622,402 | $ | 3,635,357 | $ | 3,585,169 | $ | 3,497,184 | $ | 3,620,233 | $ | 3,336,535 | |||||||||||||||||||||||||||
| Less: Average intangible assets | (682,290) | (684,717) | (686,526) | (690,777) | (689,286) | (686,064) | (641,802) | ||||||||||||||||||||||||||||||||||
| (Q) Total average tangible common shareholders’ equity (non-GAAP) | $ | 2,955,496 | $ | 2,937,685 | $ | 2,948,831 | $ | 2,894,392 | $ | 2,807,898 | $ | 2,934,169 | $ | 2,694,733 | |||||||||||||||||||||||||||
| Return on average common equity, annualized (N/P) | 10.30 | % | 10.66 | % | 2.17 | % | 6.82 | % | 9.52 | % | 7.50 | % | 10.41 | % | |||||||||||||||||||||||||||
| Return on average tangible common equity, annualized (non-GAAP) (O/Q) | 12.95 | % | 13.43 | % | 2.95 | % | 8.73 | % | 12.17 | % | 9.54 | % | 13.22 | % | |||||||||||||||||||||||||||
| Reconciliation of Non-GAAP Pre-Tax, Pre-Provision Income: | |||||||||||||||||||||||||||||||||||||||||
| Income before taxes | $ | 134,711 | $ | 137,284 | $ | 30,703 | $ | 87,083 | $ | 116,682 | $ | 389,781 | $ | 480,101 | |||||||||||||||||||||||||||
| Add: Provision for credit losses | 1,180 | 25,026 | 135,053 | 52,961 | 7,826 | 214,220 | 53,864 | ||||||||||||||||||||||||||||||||||
| Pre-tax income, excluding provision for credit losses (non-GAAP) | $ | 135,891 | $ | 162,310 | $ | 165,756 | $ | 140,044 | $ | 124,508 | $ | 604,001 | $ | 533,965 | Reconciliation of Non-GAAP Pre-Tax, Pre-Provision Income: | Years Ended | |||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||||||||||||||||||||
| Dec 31, | Dec 31, | Dec 31, | Dec 31, | Dec 31, | Dec 31, | Dec 31, | Dec 31, | Dec 31, | |||||||||||||||||||||||||||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||||||||||||||
| Income before taxes | $ | 460,133 | $ | 389,997 | $ | 331,854 | $ | 251,765 | $ | 246,431 | $ | 224,440 | $ | 180,132 | $ | 128,033 | $ | 100,807 | |||||||||||||||||||||||
| Add: Provision for credit losses | 34,832 | 29,768 | 34,084 | 32,942 | 20,537 | 46,033 | 76,436 | 102,638 | 124,664 | ||||||||||||||||||||||||||||||||
| Pre-tax income, excluding provision for credit losses (non-GAAP) | $ | 494,965 | $ | 419,765 | $ | 365,938 | $ | 284,707 | $ | 266,968 | $ | 270,473 | $ | 256,568 | $ | 230,671 | $ | 225,471 |
WINTRUST SUBSIDIARIES AND LOCATIONS
Wintrust is a financial holding company whose common stock is traded on the Nasdaq Global Select Market (Nasdaq: WTFC). Its 15 community bank subsidiaries are: Lake Forest Bank & Trust Company, N.A., Hinsdale Bank & Trust Company, N.A., Wintrust Bank, N.A., in Chicago, Libertyville Bank & Trust Company, N.A., Barrington Bank & Trust Company, N.A., Crystal Lake Bank & Trust Company, N.A., Northbrook Bank & Trust Company, N.A., Schaumburg Bank & Trust Company, N.A., Village Bank & Trust, N.A., in Arlington Heights, Beverly Bank & Trust Company, N.A. in Chicago, Wheaton Bank & Trust Company, N.A., State Bank of The Lakes, N.A., in Antioch, Old Plank Trail Community Bank, N.A. in New Lenox, St. Charles Bank & Trust Company, N.A. and Town Bank, N.A., in Hartland, Wisconsin.
In addition to the locations noted above, the banks also operate facilities in Illinois in Addison, Algonquin, Aurora, Bloomingdale, Bolingbrook, Buffalo Grove, Burbank, Cary, Clarendon Hills, Crete, Countryside, Darien, Deerfield, Des Plaines, Downers Grove, Elgin, Elk Grove Village, Elmhurst, Evanston, Evergreen Park, Frankfort, Geneva, Glen Ellyn, Glencoe, Glenview, Gurnee, Grayslake, Hanover Park, Highland Park, Highwood, Hoffman Estates, Homer Glen, Itasca, Joliet, Lake Bluff, Lake Villa, Lansing, Lemont, Lindenhurst, Lynwood, Markham, Maywood, McHenry, Mokena, Mount Prospect, Mundelein, Naperville, North Chicago, Northfield, Norridge, Oak Lawn, Oak Brook, Orland Park, Palatine, Park Ridge, Prospect Heights, Ravinia, Riverside, Rolling Meadows, Round Lake Beach, Shorewood, Skokie, South Holland, Spring Grove, Steger, Stone Park, Vernon Hills, Wauconda, Waukegan, Western Springs, Willowbrook, Wilmette, Winnetka and Wood Dale, and in Wisconsin in Albany, Burlington, Clinton, Darlington, Delafield, Delavan, Elm Grove, Genoa City, Kenosha, Lake Geneva, Madison, Menomonee Falls, Milwaukee, Monroe, Pewaukee, Racine, Sharon, Wales, Walworth and Wind Lake, and in Dyer, Indiana and in Naples, Florida.
Additionally, the Company operates various non-bank business units:
•FIRST Insurance Funding, a division of Lake Forest Bank & Trust Company, N.A., and Wintrust Life Finance, a division of Lake Forest Bank & Trust Company, N.A., serve commercial and life insurance loan customers, respectively, throughout the United States.
•First Insurance Funding of Canada serves commercial insurance loan customers throughout Canada.
•Tricom, Inc. of Milwaukee provides high-yielding, short-term accounts receivable financing and value-added out-sourced administrative services, such as data processing of payrolls, billing and cash management services, to temporary staffing service clients located throughout the United States.
•Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A., engages primarily in the origination and purchase of residential mortgages for sale into the secondary market through origination offices located throughout the United States. Loans are also originated nationwide through relationships with wholesale and correspondent offices.
•Wintrust Investments, LLC is a broker-dealer providing a full range of private client and brokerage services to clients and correspondent banks located primarily in the Midwest.
•Great Lakes Advisors LLC provides money management services and advisory services to individual accounts.
•The Chicago Trust Company, N.A., a trust subsidiary, allows Wintrust to service customers’ trust and investment needs at each banking location.
•Wintrust Asset Finance offers direct leasing opportunities.
•CDEC provides Qualified Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, such as the impacts of the COVID-19 pandemic, and which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2019 Annual Report on Form 10-K and in any of the Company’s subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management’s long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company’s business and growth strategies, including future acquisitions of banks,
specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:
•the severity, magnitude and duration of the COVID-19 pandemic and the direct and indirect impact of such pandemic, as well as responses to the pandemic by the government, businesses and consumers, on our operations and personnel, commercial activity and demand across our business and our customers’ businesses;
•the disruption of global, national, state and local economies associated with the COVID-19 pandemic, which could affect the Company’s liquidity and capital positions, impair the ability of our borrowers to repay outstanding loans, impair collateral values and further increase our allowance for credit losses;
•the impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges;
•economic conditions that affect the economy, housing prices, the job market and other factors that may adversely affect the Company’s liquidity and the performance of its loan portfolios, particularly in the markets in which it operates;
•negative effects suffered by us or our customers resulting from changes in U.S. trade policies;
•the extent of defaults and losses on the Company’s loan portfolio, which may require further increases in its allowance for credit losses;
•estimates of fair value of certain of the Company’s assets and liabilities, which could change in value significantly from period to period;
•the financial success and economic viability of the borrowers of our commercial loans;
•commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin;
•the extent of commercial and consumer delinquencies and declines in real estate values, which may require further increases in the Company’s allowance for credit losses;
•inaccurate assumptions in our analytical and forecasting models used to manage our loan portfolio;
•changes in the level and volatility of interest rates, the capital markets and other market indices (including developments and volatility arising from or related to the COVID-19 pandemic) that may affect, among other things, the Company’s liquidity and the value of its assets and liabilities;
•a prolonged period of near zero interest rates or potentially negative interest rates, either broadly or for some types of instruments, which may affect the Company’s net interest income and net interest margin, and which could materially adversely affect the Company’s profitability;
•competitive pressures in the financial services business which may affect the pricing of the Company’s loan and deposit products as well as its services (including wealth management services), which may result in loss of market share and reduced income from deposits, loans, advisory fees and income from other products;
•failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of the Company’s recent or future acquisitions;
•unexpected difficulties and losses related to FDIC-assisted acquisitions;
•harm to the Company’s reputation;
•any negative perception of the Company’s financial strength;
•ability of the Company to raise additional capital on acceptable terms when needed;
•disruption in capital markets, which may lower fair values for the Company’s investment portfolio;
•ability of the Company to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations and to manage risks associated therewith;
•failure or breaches of our security systems or infrastructure, or those of third parties;
•security breaches, including denial of service attacks, hacking, social engineering attacks, malware intrusion or data corruption attempts and identity theft;
•adverse effects on our information technology systems resulting from failures, human error or cyberattacks;
•adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors;
•increased costs as a result of protecting our customers from the impact of stolen debit card information;
•accuracy and completeness of information the Company receives about customers and counterparties to make credit decisions;
•ability of the Company to attract and retain senior management experienced in the banking and financial services industries;
•environmental liability risk associated with lending activities;
•the impact of any claims or legal actions to which the Company is subject, including any effect on our reputation;
•losses incurred in connection with repurchases and indemnification payments related to mortgages and increases in reserves associated therewith;
•the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank;
•the soundness of other financial institutions;
•the expenses and delayed returns inherent in opening new branches and de novo banks;
•liabilities, potential customer loss or reputational harm related to closings of existing branches;
•examinations and challenges by tax authorities, and any unanticipated impact of the Tax Act;
•changes in accounting standards, rules and interpretations such as the new CECL standard and related changes to address the impact of COVID-19, and the impact on the Company’s financial statements;
•the ability of the Company to receive dividends from its subsidiaries;
•uncertainty about the discontinued use of LIBOR and transition to an alternative rate;
•a decrease in the Company’s capital ratios, including as a result of declines in the value of its loan portfolios, or otherwise;
•legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies, including those changes that are in response to the COVID-19 pandemic, including without limitation the CARES Act, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act, and the rules and regulations that may be promulgated thereunder;
•a lowering of our credit rating;
•changes in U.S. monetary policy and changes to the Federal Reserve’s balance sheet, including changes in response to the COVID-19 pandemic or otherwise;
•regulatory restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business;
•increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the regulatory environment;
•the impact of heightened capital requirements;
•increases in the Company’s FDIC insurance premiums, or the collection of special assessments by the FDIC;
•delinquencies or fraud with respect to the Company’s premium finance business;
•credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company’s premium finance loans;
•the Company’s ability to comply with covenants under its credit facility; and
•fluctuations in the stock market, which may have an adverse impact on the Company’s wealth management business and brokerage operation.
Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Any such statement speaks only as of the date the statement was made or as of such date that may be referenced within the statement. The Company undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events after the date of the press release. Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission and in its press releases.
CONFERENCE CALL, WEBCAST AND REPLAY
The Company will hold a conference call on Thursday, January 21, 2021 at 10:00 a.m. (Central Time) regarding fourth quarter and full year 2020 results. Individuals interested in listening should call (877) 363-5049 and enter Conference ID #9780585. A simultaneous audio-only webcast and replay of the conference call as well as an accompanying slide presentation may be accessed via the Company’s website at https://www.wintrust.com, Investor Relations, Investor News and Events, Presentations & Conference Calls. The text of the fourth quarter and full year 2020 earnings press release will be available on the home page of the Company’s website at https://www.wintrust.com and at the Investor Relations, Investor News and Events, Press Releases link on its website.
42
q42020earningspresentati
Earnings Release Presentation Q4 2020 Wintrust Financial Corporation
2 ROA3 • Total loans, excluding Paycheck Protection Program ("PPP") loans, increased by $607 million primarily due to growth in commercial loans and life insurance premium finance receivables. • Total deposits increased by $1.2 billion, not withstanding the return of approximately $666 million in wholesale deposits during the fourth quarter of 2020. • Net interest income increased by $3.5 million primarily due to a reduction in the rate on interest- bearing deposits and loan growth. • Provision for credit losses totaled $1.2 million in the fourth quarter of 2020 as compared to $25.0 million in the third quarter of 2020. • Recorded net charge-offs of $10.3 million in the fourth quarter of 2020, as compared to net charge-offs of $9.3 million in the third quarter of 2020. Net charge-offs as a percentage of average total loans, totaled 13 basis points in the fourth quarter of 2020 on an annualized basis compared to 12 basis points on an annualized basis in the third quarter of 2020. • Mortgage banking revenue decreased by $21.7 million to $86.8 million for the fourth quarter of 2020 as compared to $108.5 million in the prior quarter. • Outstanding COVID-19 related loan modifications for customers totaled approximately $345 million or 1.2% of total loans, excluding PPP loans, as of December 31, 2020 as compared to $413 million or 1.4% as of September 30, 2020. • The following items had a $13.2 million unfavorable pre-tax income impact on the fourth quarter of 2020: ◦ Recorded a decrease in the value of mortgage servicing rights related to changes in fair value model assumptions of $5.2 million in the fourth quarter of 2020 as compared to a decline of $3.0 million in the prior quarter. ◦ Accrued $6.6 million of contingent consideration expense in the fourth quarter of 2020 related to the previous acquisition of mortgage operations as compared to $6.3 million in the third quarter of 2020, which was recorded in other non-interest expense. ◦ Recorded an impairment charge of $1.4 million related to the planned closure of 10 bank branches. • Repurchased 974,150 shares of our common stock at a cost of $54.9 million, or an average price of $56.40 per share. $32.1 billion $1.63 Q4 2020 Highlights Other items of note from the Fourth Quarter 2020 Performance Highlights (Q4 2020) $101.2 million Net Income Diluted EPS1 0.92% ROA3 10.30% ROE4 $45.1 billion Total Assets Total Loans $37.1 billion Total Deposits $+1.3 billion Total Assets $(0.1) billion $+1.2 billion Total Loans Total Deposits $(6.1) million Net Income $(0.04) Diluted EPS1 -7 bps2 -36 bps2 ROE4 1.12% 67.53% Net Overhead Ratio Efficiency Ratio (Non-GAAP5) +567 bps2 Efficiency Ratio (Non-GAAP5) +25 bps2 Net Overhead Ratio Fourth Quarter 2020 Highlights as compared to Third Quarter 2020vs. Q3 2020 As of 12/31/2020 vs. 9/30/2020 67.67% Efficiency Ratio (GAAP) +566 bps2 Efficiency Ratio (GAAP) 4 ROE: Return on Average Common Equity 1 Diluted EPS: Net Income Per Common Share - Diluted 3 ROA: Return on Average Assets 5See Non-GAAP reconciliation on pg. 18 2 Bps: Basis Points
3 Earnings Summary Net Income & ROA ($ in Millions) Diluted EPS Key Observations Condensed Income Statement Difference vs. Current QCurrent Q • Pre-Provision Net Revenue increased by $15.5 million compared to the prior quarter and $10.8 million as compared to Q4 2019 • $86.0 $62.8 $21.7 $107.3 $101.2 0.96% 0.69% 0.21% 0.99% 0.92% Net Income ROA Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 $1.44 $1.04 $0.34 $1.67 $1.63 Diluted EPS Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Pre-Tax Income, excluding Provision for Credit Losses - 5 Year Trend (Non-GAAP3) ($ in Millions) $365.9 $419.8 $495.0 $534.0 $604.0 Pre-Tax Income, excluding Provision for Credit Losses 2016 2017 2018 2019 2020 3 See Non-GAAP reconciliation on pg. 19 Thousands ($) Q4 2020 Q3 2020 Q4 2019 Net Interest Income $259,397 $3,461 $(2,482) Non-Interest Income $158,361 $(12,232) $46,141 Net Revenue $417,758 $(8,771) $43,659 Non-Interest Expense $281,867 $17,648 $32,276 Pre-Provision Net Revenue $135,891 $(26,419) $11,383 Provision For Credit Losses $1,180 $(23,846) $(6,646) Income Before Taxes $134,711 $(2,573) $18,029 Income Tax Expense1 $33,507 $3,538 $2,789 Net Income $101,204 $(6,111) $15,240 Preferred Stock Dividends2 $6,991 $(3,295) $4,941 Net Income Available to Common Shares $94,213 $(2,816) $10,299 Diluted EPS $1.63 $(0.04) $0.19 ROA 0.92% -7 bps -4 bps ROE 10.30% -36 bps 78 bps 2 Preferred dividends were $7.0 million in Q4 2020. Recorded preferred dividends of $10.3 million in Q3 2020 including dividends declared for Q3 2020 as well as a stub period related to the issuance of preferred stock in Q2 2020. 1 Q3 2020 had a $9.0 million state income tax benefit.
4 $32,136 $342 $(663) $71 $(21) $71 $(196) $(6) $369 $(24) $32,079 9/30/2020 Commercial excl. PPP Commercial PPP Commercial Real Estate Home Equity Residential Real Estate loans for investment Residential mortgage loans, early buy-out eligible loans guaranteed by U.S. Government Agencies Premium Finance Receivables - Commercial Premium Finance Receivables - Life Insurance Consumer & Other 12/31/2020 Loan Portfolio Total Loans ($ in Billions) Total Loans as of 12/31/2020 vs. 9/30/2020 ($ in Millions) Key Observations • Total loans, excluding PPP loans, increased by $607 million primarily due to growth in commercial loans and life insurance premium finance receivables. This growth also included a $71 million net increase in residential real estate loans for investment as the Company decided to allocate a portion of its current and future mortgage production for investment. • In addition, during Q4 2020, the Company exercised its early buyout option on $248 million of eligible loans previously sold to the Government National Mortgage Association ("GNMA") recorded in mortgage loans held-for-sale. • 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 $1.3 billion at December 31, 2020. When adjusted for the probability of closing, the pipelines were estimated to be approximately $650 million to $750 million at December 31, 2020. $26.8 $27.8 $31.4 $32.1 $32.1 4.69% 4.52% 3.92% 3.53% 3.51% Total Loans Average Total Loan Yield 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 29% 8% 26% 1% 5% 13% 18% Commercial excl. PPP Commercial PPP Commercial Real Estate Home Equity Residential Real Estate Premium Finance Receivables - Commercial Premium Finance Receivables - Life Insurance Year-over-Year Change $5.3B or 20% Loan Composition (as of 12/31/2020)
5 • Total deposits increased by $1.2 billion from the prior quarter end, which included the return of approximately $666 million in wholesale deposits. • Rate paid on average interest-bearing deposits decreased 10 basis points from the prior quarter. • Non-interest bearing deposits increased $1.3 billion from the prior quarter-end and comprise 32% of total deposits. • The loans to deposits ratio ended the current quarter at 86.5% as compared to 89.7% at prior quarter end. $35,844 $1,339 $55 $(97) $(75) $116 $(89) $37,093 9/30 /202 0 Non -Int eres t Be arin g NO W a nd I nter est Bea ring DD A We alth Ma nag eme nt D epo sits Mo ney Ma rke t Sav ings Tim e C erti fica tes of D epo sit 12/3 1/20 20 Deposit Portfolio Total Deposits ($ in Billions) Total Deposits as of 12/31/2020 vs. 9/30/2020 ($ in Millions)Deposit Composition (as of 12/31/2020) Key Observations $30.1 $31.5 $35.7 $35.8 $37.1 1.33% 1.20% 0.81% 0.61% 0.51% Total Deposits Rate Paid on Average Total Interest-Bearing Deposits 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 32% 9% 11% 25% 10% 13% Non-interest Bearing NOW and Interest-Bearing DDA Wealth Management Deposits Money Market Savings Time Certificates of Deposit Year-over-Year Change $7.0B or 23%
6 3.17% 3.12% 2.73% 2.56% 2.53% 3.19% 3.14% 2.74% 2.57% 2.54% 4.25% 4.13% 3.44% 3.12% 3.02% 0.39% 0.35% 0.28% 0.24% 0.22% 1.45% 1.34% 0.98% 0.79% 0.70% Net Interest Margin (GAAP) Net Interest Margin, Fully Taxable-Equivalent (Non-GAAP ) Earning Assets Yield Net Free Funds Contribution Rate on Interest Bearing Liabilities Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Net Interest Margin • Q4 2020 net interest income totaled $259.4 million. ◦ An increase of $3.5 million as compared to Q3 2020 and a decrease of $2.5 million as compared to Q4 2019. • Net interest margin (Non-GAAP1) decreased by 3 bps from the prior quarter: ◦ Yield on earning assets down 10 bps. ◦ Interest bearing liability rate down 9 bps. ◦ Net free funds down 2 bps. Net Interest Margin, Fully Taxable-Equivalent (Non-GAAP1) Key Observations Net Interest Margin (Quarterly Trends) 2.57% (0.1)% 0.09% (0.02)% 2.54% Q3 202 0 Ear ning Ass et Y ield Inte rest Bea ring Lia bilit y R ate Net Fre e Fu nds Q4 202 0 1 See Non-GAAP reconciliation on pg. 18 1 2.57% (0.10)% 0.09% (0.02)% 2.54% Q3 202 0 Ear ning Ass et Y ield Inte rest Bea ring Lia bilit y R ate Net Fre e Fu nds Q4 202 0 • Q4 2020 net interest income totaled $259.4 million. ◦ A decrease of $3.5 million as compared to Q3 2020 and a decrease of $2.5 million as compared to Q4 2019. • Net interest margin (Non-GAAP1) decreased by 3 bps from the prior quarter: ◦ Earning assets yield down 10 bps. ◦ Interest bearing liability rate down 9 bps. ◦ Net free funds down 2 bps.
7 Liquidity • We have accumulated excess liquidity in recent quarters and believe that, if conditions allow for suitable deployment of such excess liquidity, we could potentially increase our net interest margin by 15 to 30 basis points, depending on the mix of earning assets of such reinvestment. Key Observation Total Average Interest-Bearing Deposits with Banks and Cash Equivalents as a Percentage of Total Average Earning Assets ($ in Billions) $2.2 $1.4 $3.2 $3.4 $4.41.68% 1.38% 0.16% 0.14% 0.12% Average Balance Yield Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Interest-Bearing Deposits with Banks and Cash Equivalents Equivalents $32.7 $33.7 $38.7 $39.8 $40.7 $2.2 $1.4 $3.2 $3.4 $4.4 6.7% 4.2% 8.4% 8.6% 10.8% Total Average Earning Assets Total Average Interest-Bearing Cash Total Average Interest-Bearing Deposits with Banks and Cash Equivalents as a % of Total Average Earning Assets Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020
8 $158.5 $253.5 $373.2 $389.0 $380.0 0.59% 0.91% 1.19% 1.21% 1.18% Total Allowance for Credit Losses Total Allowance for Credit Losses as a % of Total Loans 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Credit Quality • The Company estimates an increase to the allowance for credit losses of approximately 30% to 50% at adoption related to its loan portfolios and related lending commitments. Approximately 80% of the estimated increase is related to: ◦ Additions to existing reserves for unfunded lending-related commitments due to the consideration under CECL of expected utilization by the Company's borrowers over the life of such commitments. ◦ Establishment of reserves for acquired loans which previously considered credit discounts. The Company estimates an insignificant impact at adoption of measuring an allowance for credit losses for other in-scope assets (e.g. held-to-maturity debt securities). Allowance for Credit Losses at Period-End ($ in Millions) Non-Performing Loans ("NPLs") ($ in Millions) Total Provision for Credit Losses and Net Charge-Offs ("NCOs") ($ in Millions) Loan Portfolio by Credit Quality Indicator ($ in Thousands) $117.6 $179.4 $188.3 $173.1 $127.5 0.44% 0.65% 0.60% 0.54% 0.40% NPLs $ NPLs as a % of Total Loans 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 $12.7 $5.3 $15.4 $9.3 $10.3$7.8 $53.0 $135.1 $25.0 $1.2 0.19% 0.08% 0.20% 0.12% 0.13% NCOs $ Total Provision for Credit Losses Annualized NCOs as a % of Average Total Loans Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 $7.8 $53.0 $135.1 $25.0 $1.2 161.87% 9.98% 11.41% 37.10% Total Provision for Credit Losses Net Charge-Offs as a % of the Provision for Credit Losses 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 $7.8 $53 $135.1 $0 $0 $— $— $— $— $—$7.8 $53.0 $135.1 161.9% 10.0% 11.4% 37.1% 876.0% Provision for credit losses - PCD Provision for credit losses - non PCD Net charge-offs as a percentage of the provision for credit losses Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Incurred Loss Method CECL Incurred Loss Method CECL Q4 2020 Q3 2020 Increase/Decrease Pass $ 30,400,906 $ 30,184,423 $ 216,483 Special Mention 964,072 1,152,316 (188,244) Substandard Accrual 599,945 638,065 (38,120) Substandard Nonaccrual/Doubtful 114,150 160,751 (46,601) Total Loans $ 32,079,073 $ 32,135,555 $ (56,482) Q4 2020 Key Observations The key drivers of the shift in credit quality mix include: • Note sale executed during Q4 2020. • Payments received, especially in the Non-Performing Loan portfolio. • Risk rating upgrades as a result of improved credit performance. • New volume increasing balances of pass-rated credits.
9 Non-Performing Loan Roll-Forward $173.1 $13.2 $(30.1) $(12.7) $(7.8) $(7.2) $(1.0) $127.5 9/30/2020 New NPLs Pay-offs and Payments Received Transfer to OREO Charge-Offs Net Change in Niche Loans Return to Performing Status 12/31/2020 Non-Performing Loan Balances ($ in Millions) - 12/31/2020 vs. 9/30/2020 Q4 2020 Key Observations • Key driver in the reduction of non-performing loans was payoff of loans, driven by the following: ◦ Sales of underlying real property collateral; ◦ Sales of operating businesses; and ◦ Refinance activity. 1 OREO: Other Real Estate Owned 1 2 2 Net Change in Niche Loans: Includes activity for premium finance receivables and indirect consumer loans
10 $388,971 $(21,448) $12,446 $379,969 9/30/2020 12/31/2020 • Stabilizing macroeconomic indicators and market conditions • Continuing governmental monetary and fiscal support • Substantial liquidity in the market • Future expectations regarding current and former COVID-19 loan modifications • Low exposure to industries with the highest risk factors • High touch relationships with commercial and consumer borrowers • Economic Inputs ◦ Baa Credit Spread ◦ Commercial Real-Estate Price Index ◦ GDP ◦ Dow Jones Total Stock Market Index • Portfolio Characteristics ◦ Risk Ratings ◦ Life of Loan Credit Quality - CECL Allowance for Credit Losses ($ in Thousands) - 12/31/2020 vs. 9/30/2020 Key Observations • CECL Day 1 transition adjustment • Includes ACL for loans and leases, off- balance sheet credit exposures and debt securities • New volume and run-off • Changes in credit quality • Aging of existing portfolio • Shifts in segmentation mix • Changes in specific reserves • Model imprecision • Net charge-offs • Changes due to macroeconomic conditions Day 1 Adjustment Portfolio Changes Economic Factors • Baa Corporate credit spread generally narrows in the 8-Quarter Reasonable and Supportable ("R&S") time period. • Commercial Real Estate Price Index declines through Q1 2022 and then remains relatively flat for the remainder of the R&S time period. • Real GDP growth rate stays above potential GDP growth rate of 1.44% in 2021 and 1.7% in 2022. • Dow Jones U.S. Total Stock Market Index remains volatile but increases throughout the R&S time period. • The amount of Allowance for Credit Losses was negatively impacted due to ongoing concerns related to COVID-19 primarily related to the Commercial Real Estate Price Index. Macroeconomic Scenario Key Model Inputs Qualitative Considerations
11 Retail: 40.2% Franchise: 59.8% Credit Quality - COVID-19 Related Modified Loans Interest Only: 56.8% Full Payment Deferral: 22.9% Line Increases: 13.3% All Other: 7.0% COVID-19 Related Modified Loans as of 12/31/2020 COVID-19 Related Modified Loan Types ($ shown in Millions) Loan Balance as of 9/30/20 Loan Balance as of 12/31/20 Difference Interest Only $223 $196 -$27 Full Payment Deferral $117 $79 -$38 Line Increases $29 $46 $17 All Other $44 $24 -$20 Total $413 $345 -$68 COVID-19 Related Modified Loans Trend ($ in Millions) • COVID-19 related modified loan balances decreased $1.3 billion or 77.4% in the fourth quarter of 2020 as compared to the prior quarter. • Full Payment Deferral loans make up 11.2% of COVID-19 related modified loans as of September 30, 2020, down notably from the 39.3% as of June 30, 2020. • Full Payment Deferral COVID-19 related modified loans had the single greatest drop of all the categories at 85.8% in the fourth quarter of 2020 as compared to the prior quarter. 1 Excludes Premium Finance modifications of $12MM as of June 30, 2020 and $21MM as of September 30, 2020. Chart data below as of 12/31/2020 Commercial Real Estate Retail has COVID-19 related modified loans as a percentage of its portfolio balance of 2.2%. Commercial Real Estate Retail comprises 4.1% of the Total Loan Portfolio excluding PPP Loans. $413 $437 $431 $466 $322 $318 $272 $299 $304 $283 $275 $303 $329 $287 $345 1.4% 1.5% 1.5% 1.6% 1.1% 1.1% 1.0% 1.0% 1.1% 1.0% 1.0% 1.1% 1.1% 1.0% 1.2% Total COVID-19 Related Modified Loans Total COVID-19 Related Loan Modifications as a % of Total Loans excl. PPP 09 /30 /20 10 /05 /20 10 /12 /20 10 /19 /20 10 /26 /20 11 /02 /20 11 /09 /20 11 /16 /20 11 /23 /20 11 /30 /20 12 /07 /20 12 /14 /20 12 /21 /20 12 /28 /20 12 /31 /20 1 Total Loans excludes PPP loans 1 1 Total Loans excludes $2.7 billion of PPP loans at 12/31/2020 and $3.4 billion at 9/30/2020
12 1 PCD: Purchased Credit Deteriorated loans Commercial and Commercial Real Estate Portfolio Loan Portfolio Mix, Growth, and COVID-19 Related Modified Loans as of 12/31/2020 and 9/30/2020 (Commercial and Commercial Real Estate Portfolio) As of As of Increase/ COVID-19 Related Modified Loans as of 12/31/2020 COVID-19 Related Modified Loans as a % of Total Balance as of 12/31/2020(Dollars in thousands) 12/31/2020 9/30/2020 (Decrease) Commercial: Commercial and industrial $ 4,639,597 $ 4,540,576 $ 99,021 $ 133,033 2.9 % PPP 2,715,921 3,379,013 (663,092) — — % Franchise 1,023,027 964,150 58,877 38,490 3.8 % Mortgage warehouse lines of credit 567,389 503,371 64,018 — — % Community Advantage - homeowner associations 265,082 252,638 12,444 — — % Asset-based lending 721,666 705,588 16,078 3,954 0.5 % Municipal 474,103 477,343 (3,240) — — % Leases 1,288,374 1,214,988 73,386 20,173 1.6 % Other 251,490 224,697 26,793 — — % Commercial, industrial, and other - PCD1 9,318 14,635 (5,317) 270 2.9 % Total Commercial: $ 11,955,967 $ 12,276,999 $ (321,032) $ 195,920 1.6 % Commercial real-estate: Residential construction $ 86,167 $ 91,836 $ (5,669) $ — — % Commercial construction 1,039,982 998,144 41,838 19,806 1.9 % Land 237,073 222,109 14,964 4,067 1.7 % Office 1,125,906 1,151,425 (25,519) 11,172 1.0 % Industrial 1,120,700 1,108,353 12,347 7,269 0.6 % Retail 1,192,759 1,137,889 54,870 25,890 2.2 % Multi-family 1,641,216 1,588,037 53,179 4,513 0.3 % Mixed use and other 1,952,569 1,995,711 (43,142) 62,774 3.2 % Commercial real-estate - PCD1 97,760 129,638 (31,878) 831 0.9 % Total Commercial real-estate: $ 8,494,132 $ 8,423,142 $ 70,990 $ 136,322 1.6 % Total Commercial and Commercial real-estate $ 20,450,099 $ 20,700,141 $ (250,042) $ 332,242 1.6 %
13 • Restaurants & Food Services make up 4.1% of Total Loans excluding PPP loans and is primarily made up of Quick Service Restaurants ("QSRs"). Outstanding COVID-19 related loan modifications in Restaurants & Food Services modifications increased to 8.1% as of December 31, 2020 from 6.7% as of September 30, 2020. • Quick Service Restaurants outstanding COVID-19 related loan modifications were $37 million or 0.1% of Total Loans excluding PPP loans as of December 31, 2020. • Hotels & Accommodation make up 0.6% of Total Loans excluding PPP loans. 17.2% of Hotels & Accommodation had outstanding COVID-19 related modifications as of December 31, 2020. The Hotels & Accommodation portfolio remains under stress due to the pandemic. Key Observations Select High Impact Industries 8.3% Credit Quality - COVID-19 - Select High Impact Industries Key Observations Other Loans 91.7% Total loans of $32.1 billion 1 Total Loans excludes $2.7 billion of PPP loans at 12/31/2020 and $3.4 billion at 9/30/2020 Total Loan Mix1 as of 9/30/2020: Select High Impact Industries Select High Impact Industries September 30, 2020 December 31, 2020 As of 9/30/2020 As of 12/31/2020 Industry $ shown in Millions Loan Balance % of Total Loans1 Total Commitment Balance Loan Balance % of Total Loans1 Total Commitment Balance COVID-19 Related Modified Loan Balances Loan Balance % with COVID-19 Related Modifications COVID-19 Related Modified Loan Balances Loan Balance % with COVID-19 Related Modifications Arts Entertainment & Recreation $231 0.8% $310 $249 0.8% $344 $11 4.8% $32 12.9% Dentists, Doctors, & Hospitals $432 1.5% $556 $406 1.4% $546 $12 2.8% $0 —% Hotels & Accommodation $187 0.7% $188 $186 0.6% $186 $25 13.4% $32 17.2% Nursing Home & Senior Living $230 0.8% $294 $237 0.8% $305 $0 —% $0 —% Oil & Gas $24 0.1% $25 $22 0.1% $22 $4 16.7% $4 18.2% Restaurants & Food Services $1,171 4.1% $1,385 $1,199 4.1% $1,432 $79 6.7% $97 8.1% Social Services $104 0.4% $147 $96 0.3% $140 $3 2.9% $3 3.1% Total $2,379 8.3% $2,905 $2,395 8.2% $2,975 $134 5.6% $168 7.0%
14 Non-Interest Income ($ in Millions) $112.2 $113.2 $162.0 $170.6 $158.4 $25.0 $25.9 $22.6 $25.0 $26.8 $47.9 $48.3 $102.3 $108.5 $86.8$12.5 $12.0 $11.8 $11.7 $12.1 $11.0 $11.3 $10.4 $11.5 $11.8 $15.8 $15.7 $14.9 $13.9 $20.9 Wealth Management Mortgage Banking Operating Lease Income, net Service Charges on Deposits Other Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Non-Interest Income Wealth Management Revenue ($ in Millions) • Non-interest income totaled $158.4 million: ◦ A decrease of $12.2 million as compared to Q3 2020 and an increase of $46.1 million as compared to Q4 2019. • Mortgage banking revenue decreased by $21.7 million in the fourth quarter of 2020 as compared to the third quarter of 2020. ◦ Loans originated for sale were $2.4 billion at the end of the fourth quarter of 2020, an increase of $124.7 million as compared to the third quarter of 2020. • Wealth management income increased $1.8 million as compared to Q3 2020 primarily due to increased trust and asset management fees and brokerage commissions. Key Observations 1 Other NII - includes Interest Rate Swap Fees, BOLI, Administrative Services, FX Remeasurement Gains/(Losses), Early Pay-Offs of Capital Leases, Gains/(losses) on investment securities, net, Fees from covered call options, Trading gains/(losses), net and Miscellaneous. 1 $25.0 $25.9 $22.6 $25.0 $26.8 $20.1 $20.6 $18.5 $20.4 $22.1 $4.9 $5.3 $4.1 $4.6 $4.7 $27.6 $25.0 $27.0 $28.2 $30.1 Trust and Asset Management Brokerage Assets Under Administration ($ in Billions) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Operating Lease Income, Net ($ in Millions) $12.5 $12.0 $11.8 $11.7 $12.1 $231.2 $207.1 $237.0 $230.4 $242.4 Operating Lease Income, Net Lease Investments, Net (Period-End Balance) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020
15 $47.938 $(8.7)$(7.9)$(9.0) $2.3 $(14.6)$(8.0)$(3.0)$(5.2) $34.7 $49.3 $93.4$94.1$70.9 $3.7 $7.0 $(104.1)$(77.0) $14.5 $9.4 $(0.5) MSR - Payoffs/Paydowns MSR - Change in Fair Value Model Assumptions Production Revenue Servicing Income & Other MSR Capitalization MSR Hedging Gains (Losses) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Mortgage Banking Production Revenue ($ in Millions) MSR1 Value and Loans Serviced for Others ($ in Millions) Originations for Sale ($ in Millions) Key Observations • Loans originated for sale in the fourth quarter of 2020 totaled $2.4 billion as compared to $2.2 billion in the prior quarter. • Production margin declined to 3.01% in the fourth quarter of 2020 as compared to 4.23% in the third quarter of 2020. ◦ Production revenue decreased in the fourth quarter of 2020 due to an approximately $500 million decline in outstanding mortgage pipeline as of December 31, 2020 as compared to prior quarter end. ▪ This decline was partially due to the Company increasing originations allocated for investment by approximately $200 million in an effort to increase earning assets on the balance sheet. % of MSRs to Loans Serviced for Others Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 1.04% 0.88% 0.84% 0.86% 0.85% 1 MSR: Mortgage Servicing Right LOGIC IN MORTGAGE BANKING REVENUE NEEDS TO BE MODIFIED Mortgage banking production revenue decreased by $23.3 million as mortgage originations for sale totaled $2.4 billion in the fourth quarter of 2020 as compared to $2.2 billion in the third quarter of 2020. $34.6 $49.3 $93.4 $94.1 $70.9 2.78% 4.06% 4.23% 4.23% 3.01% Production Revenue Production Margin Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 $85.6 $73.5 $77.2 $86.9 $92.1 $8,243 $8,315 $9,188 $10,140 $10,833 MSRs, at fair value Loans Serviced for Others Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 $1,245 $1,216 $2,211 $2,227 $2,351 $782 $773 $1,589 $1,591 $1,757$4 $459 $443 $622 $636 $594 Retail Originations Correspondent Originations Veterans First Originations Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020
16 $249.6 $234.6 $259.4 $264.2 $281.9 $145.9 $136.8 $154.2 $164.0 $171.1 $14.5 $14.8 $15.8 $17.3 $20.6$17.1 $17.5 $16.9 $15.8 $19.7 $12.5 $10.9 $7.7 $7.9 $9.9 $9.8 $9.3 $9.3 $9.4 $9.9 $7.7 $6.7 $7.7 $6.5 $6.5 $7.6 $8.4 $10.4 $5.7 $5.7$34.5 $30.2 $37.4 $37.6 $38.5 Salaries and Employee Benefits Equipment Occupancy, net Advertising and Marketing Operating Lease Equipment Professional Fees Data Processing Other Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 1.53% 1.33% 0.93% 0.87% 1.12% 66.56% 61.67% 60.97% 61.86% 67.53% Net Overhead Ratio Efficiency Ratio (Non-GAAP ) Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Non-Interest Expense Trending Non-Interest Expense ($ in Millions) Q4 2020 Key Observations • Salary and employee benefits increase comprised of: ◦ $3.9 million increase in commissions and incentive compensation. ◦ $3.7 million increase in salaries. ◦ $0.5 million decrease in employee benefits expense. • Occupancy expense increase of $3.9 million relates primarily to an impairment charge of $1.4 million related to the planned closure of 10 bank branches, increased real estate tax assessment estimates and a higher level of utility charges. • Equipment increase of $3.3 million relates primarily due to increased software licensing expenses. 1 Other NIE - includes amortization of other intangible assets, FDIC insurance, OREO expense, net, Commissions (3rd Party Brokers), Postage and Miscellaneous Non-Interest Expense - Current Quarter vs. Prior Quarter ($ in Millions) $264.2 $7.1 $3.3 $3.9 $2.0 $1.4 $281.9 Q3 2020 Salaries and Employee Benefits Equipment Occupancy, net Advertising and marketing All Other Expenses Q4 2020 1 Expense Management Ratios 2 3 2 Net Overhead Ratio - 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. 3 See Non-GAAP reconciliation on pg.18
17 7.0% 8.5% 10.5% 4.50% 6.00% 8.00% 2.50% 2.50% 2.50% 8.8% 10.0% 12.6% Minimum Requirement Product Conservation Buffer WTFC Capital Q4 2020 Key Observations Strong Capital Levels • Tangible book value per common share increased $1.53 from the prior quarter-end and increased $3.53 or 7.1% from Q4 2019. • Repurchased 974,150 shares of our common stock at a cost of $54.9 million, or an average price of $56.40 per share. • Preferred dividends were $7.0 million in Q4 2020. Recorded preferred dividends of $10.3 million in Q3 2020 including dividends declared for Q3 2020 as well as a stub period related to the issuance of preferred stock in Q2 2020. • Risk-based capital ratios were not impacted by PPP as PPP loans are 0% risk weighted assets. However, the Tier 1 Leverage Ratio remains negatively impacted by significant growth in Total Assets related to the increase in PPP loans. • Q4 2020 dividend of $0.28 per common share up 12% from Q4 2019. 2 See Non-GAAP reconciliation on pg.19 Capital Adequacy Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Common equity tier 1 capital ratio1 9.2% 8.9% 8.8% 9.0% 8.8% Tier 1 capital ratio1 9.6% 9.3% 10.1% 10.2% 10.0% Total capital ratio1 12.2% 11.9% 12.8% 12.9% 12.6% Tier 1 leverage ratio1 8.7% 8.5% 8.1% 8.2% 8.1% Tangible book value per common share (Non-GAAP2) $49.70 $50.18 $50.23 $51.70 $53.23 Estimated Excess Capital Above Conservation Buffer ($ in Millions)Common equity tier 1 capital1 Tier 1 capital ratio1 Total capital ratio1 $631 $526 $736 1 Ratios for Q4 2020 are estimated
18 Three Months Ended Years Ended Reconciliation of Non-GAAP Net Interest Margin and Efficiency Ratio ($ in Thousands): December 31, September 30, June 30, March 31, December 31, December 31, December 31, 2020 2020 2020 2020 2019 2020 2019 (A) Interest Income (GAAP) $ 307,981 $ 311,156 $ 329,816 $ 344,067 $ 349,731 $ 1,293,020 $ 1,385,142 Taxable-equivalent adjustment: - Loans 324 481 576 860 892 2,241 3,935 - Liquidity Management Assets 530 546 538 551 573 2,165 2,280 - Other Earning Assets 3 1 3 2 1 9 9 (B) Interest Income (non-GAAP) $ 308,838 $ 312,184 $ 330,933 $ 345,480 $ 351,197 $ 1,297,435 $ 1,391,366 (C) Interest Expense (GAAP) $ 48,584 $ 55,220 $ 66,685 $ 82,624 $ 87,852 $ 253,113 $ 330,223 (D) Net Interest Income (GAAP) (A minus C) $ 259,397 $ 255,936 $ 263,131 $ 261,443 $ 261,879 $ 1,039,907 $ 1,054,919 (E) Net Interest Income (non-GAAP) (B minus C) $ 260,254 $ 256,964 $ 264,248 $ 262,856 $ 263,345 $ 1,044,322 $ 1,061,143 Net interest margin (GAAP) 2.53% 2.56% 2.73% 3.12% 3.17% 2.72% 3.45% Net interest margin, fully taxable-equivalent (non-GAAP) 2.54% 2.57% 2.74% 3.14% 3.19% 2.73% 3.47% (F) Non-interest income $ 158,361 $ 170,593 $ 161,993 $ 113,242 $ 112,220 $ 604,189 $ 407,172 (G) Gains (losses) on investment securities, net 1,214 411 808 (4,359) 587 (1,926) 3,525 (H) Non-interest expense 281,867 264,219 259,368 234,641 249,591 1,040,095 928,126 Efficiency ratio (H/(D+F-G)) 67.67% 62.01% 61.13% 61.90% 66.82% 63.19% 63.63% Efficiency ratio (non-GAAP) (H/(E+F-G)) 67.53% 61.86% 60.97% 61.67% 66.56% 63.02% 63.36% Non-GAAP Reconciliation The accounting and reporting policies of Wintrust conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non- GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. Management believes that these measures and ratios provide users of the Company’s financial information a more meaningful view of the performance of the Company's interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.
19 Three Months Ended Reconciliation of Non-GAAP Tangible Common Equity ($'s and Shares in Thousands): December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019 Total shareholders’ equity (GAAP) $ 4,115,995 $ 4,074,089 $ 3,990,218 $ 3,700,393 $ 3,691,250 Less: Non-convertible preferred stock (GAAP) (412,500) (412,500) (412,500) (125,000) (125,000) Less: Intangible assets (GAAP) (681,747) (683,314) (685,581) (687,626) (692,277) (I) Total tangible common shareholders’ equity (non- GAAP) $ 3,021,748 $ 2,978,275 $ 2,892,137 $ 2,887,767 $ 2,873,973 Reconciliation of Non-GAAP Tangible Book Value per Common Share ($'s and Shares in Thousands): Total shareholders’ equity $ 4,115,995 $ 4,074,089 $ 3,990,218 $ 3,700,393 $ 3,691,250 Less: Preferred stock (412,500) (412,500) (412,500) (125,000) (125,000) (L) Total common equity $ 3,703,495 $ 3,661,589 $ 3,577,718 $ 3,575,393 $ 3,566,250 (M) Actual common shares outstanding 56,770 57,602 57,574 57,545 57,822 Book value per common share (L/M) $65.24 $63.57 $62.14 $62.13 $61.68 Tangible book value per common share (non-GAAP) (I/M) $53.23 $51.70 $50.23 $50.18 $49.70 Non-GAAP Reconciliation The accounting and reporting policies of Wintrust conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non- GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. Management believes that these measures and ratios provide users of the Company’s financial information a more meaningful view of the performance of the Company's interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently. Years Ended Reconciliation of Non-GAAP Pre-Tax, Pre-Provision Income ($ in Thousands): December 31, December 31, December 31, December 31, December 31, 2020 2019 2018 2017 2016 Income before taxes $ 389,781 $ 480,101 $ 460,133 $ 389,997 $ 331,854 Add: Provision for credit losses 214,220 53,864 34,832 29,768 34,084 Pre-tax income, excluding provision for credit losses (non- GAAP) $ 604,001 $ 533,965 $ 494,965 $ 419,765 $ 365,938
20 This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, such as the impacts of the COVID-19 pandemic, and which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2019 Annual Report on Form 10-K and in any of the Company’s subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management’s long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company’s business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following: • the severity, magnitude and duration of the COVID-19 pandemic and the direct and indirect impact of such pandemic, as well as responses to the pandemic by the government, businesses and consumers, on our operations and personnel, commercial activity and demand across our business and our customers’ businesses; • the disruption of global, national, state and local economies associated with the COVID-19 pandemic, which could affect the Company’s liquidity and capital positions, impair the ability of our borrowers to repay outstanding loans, impair collateral values and further increase our allowance for credit losses; • the impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges; • economic conditions that affect the economy, housing prices, the job market and other factors that may adversely affect the Company’s liquidity and the performance of its loan portfolios, particularly in the markets in which it operates; • negative effects suffered by us or our customers resulting from changes in U.S. trade policies; • the extent of defaults and losses on the Company’s loan portfolio, which may require further increases in its allowance for credit losses; • estimates of fair value of certain of the Company’s assets and liabilities, which could change in value significantly from period to period; • the financial success and economic viability of the borrowers of our commercial loans; • commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin; • the extent of commercial and consumer delinquencies and declines in real estate values, which may require further increases in the Company’s allowance for credit losses; • inaccurate assumptions in our analytical and forecasting models used to manage our loan portfolio; • changes in the level and volatility of interest rates, the capital markets and other market indices (including developments and volatility arising from or related to the COVID-19 pandemic) that may affect, among other things, the Company’s liquidity and the value of its assets and liabilities; • a prolonged period of near zero interest rates or potentially negative interest rates, either broadly or for some types of instruments, which may affect the Company’s net interest income and net interest margin, and which could materially adversely affect the Company’s profitability; • competitive pressures in the financial services business which may affect the pricing of the Company’s loan and deposit products as well as its services (including wealth management services), which may result in loss of market share and reduced income from deposits, loans, advisory fees and income from other products; • failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of the Company’s recent or future acquisitions; • unexpected difficulties and losses related to FDIC-assisted acquisitions; • harm to the Company’s reputation; • any negative perception of the Company’s financial strength; • ability of the Company to raise additional capital on acceptable terms when needed; • disruption in capital markets, which may lower fair values for the Company’s investment portfolio; Forward-Looking Statements
21 • ability of the Company to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations and to manage risks associated therewith; • failure or breaches of our security systems or infrastructure, or those of third parties; • security breaches, including denial of service attacks, hacking, social engineering attacks, malware intrusion or data corruption attempts and identity theft; • adverse effects on our information technology systems resulting from failures, human error or cyberattacks; • adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors; • increased costs as a result of protecting our customers from the impact of stolen debit card information; • accuracy and completeness of information the Company receives about customers and counterparties to make credit decisions; • ability of the Company to attract and retain senior management experienced in the banking and financial services industries; • environmental liability risk associated with lending activities; • the impact of any claims or legal actions to which the Company is subject, including any effect on our reputation; • losses incurred in connection with repurchases and indemnification payments related to mortgages and increases in reserves associated therewith; • the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank; • the soundness of other financial institutions; • the expenses and delayed returns inherent in opening new branches and de novo banks; • liabilities, potential customer loss or reputational harm related to closings of existing branches; • examinations and challenges by tax authorities, and any unanticipated impact of the Tax Act; • changes in accounting standards, rules and interpretations such as the new CECL standard and related changes to address the impact of COVID-19, and the impact on the Company’s financial statements; • the ability of the Company to receive dividends from its subsidiaries; • uncertainty about the discontinued use of LIBOR and transition to an alternative rate; • a decrease in the Company’s capital ratios, including as a result of declines in the value of its loan portfolios, or otherwise; • legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies, including those changes that are in response to the COVID-19 pandemic, including without limitation the CARES Act, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act, and the rules and regulations that may be promulgated thereunder; • a lowering of our credit rating; • changes in U.S. monetary policy and changes to the Federal Reserve’s balance sheet, including changes in response to the COVID-19 pandemic or otherwise; • regulatory restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business; • increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the regulatory environment; • the impact of heightened capital requirements; • increases in the Company’s FDIC insurance premiums, or the collection of special assessments by the FDIC; • delinquencies or fraud with respect to the Company’s premium finance business; • credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company’s premium finance loans; • the Company’s ability to comply with covenants under its credit facility; and • fluctuations in the stock market, which may have an adverse impact on the Company’s wealth management business and brokerage operation. • ability of the Company to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations and to manage risks associated therewith; Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward- looking statement made by the Company. Any such statement speaks only as of the date the statement was made or as of such date that may be referenced within the statement. The Company undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events after the date of the press release. Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission and in its press releases. Forward-Looking Statements