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): April 21, 2020
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><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 |
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 April 21, 2020, Wintrust Financial Corporation (the “Company”) announced earnings for the first quarter of 2020 and posted on its website the First 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 33 through 34 of Exhibit 99.1 and page 14 of Exhibit 99.2.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
| Exhibit | |
|---|---|
| 99.1 | First Quarter 2020 Earnings Release dated April 21, 2020 |
| 99.2 | First Quarter 2020 Earnings Release Presentation dated April 21, 2020 |
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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><br>(Registrant) | |
|---|---|
| By: | /s/ David L. Stoehr |
| David L. Stoehr<br><br>Executive Vice President and<br><br>Chief Financial Officer |
Date: April 21, 2020
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INDEX TO EXHIBITS
| Exhibit | |
|---|---|
| 99.1 | First Quarter 2020 Earnings Release dated April 21, 2020 |
| 99.2 | First Quarter 2020 Earnings Release Presentation dated April 21, 2020 |
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Exhibit
Exhibit 99.1
Wintrust Financial Corporation
9700 W. Higgins Road, Suite 800, Rosemont, Illinois 60018
News Release
| FOR IMMEDIATE RELEASE | April 21, 2020 |
|---|
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 First Quarter 2020 Net Income of $62.8 million
ROSEMONT, ILLINOIS – Wintrust Financial Corporation (“Wintrust” or “the Company”) (Nasdaq: WTFC) announced net income of $62.8 million or $1.04 per diluted common share for the first quarter of 2020, a decrease in diluted earnings per common share of 27.8% compared to the prior quarter and a decrease of 31.6% compared to the first quarter of 2019.
Highlights of the First Quarter of 2020:
Comparative information to the fourth quarter of 2019
| • | Total assets increased by $2.2 billion. |
|---|---|
| • | Total loans increased by $1.0 billion. |
| --- | --- |
| • | Total deposits increased by $1.4 billion. |
| --- | --- |
| • | Net interest income decreased by $436,000 as the impact of a five basis point decline in net interest margin and one less day was partially offset by a $925 million increase in average earning assets. |
| --- | --- |
| • | The allowance for credit losses increased by $95.0 million to $253.5 million as of March 31, 2020 as compared to $158.5 million as of December 31, 2019. The change in allowance for credit losses was due to: |
| --- | --- |
| ▪ | An increase of $47.4 million related to the cumulative effect adjustment from the adoption of the Current Expected Credit Loss ("CECL") standard effective as of January 1, 2020. |
| --- | --- |
| ▪ | Provision for credit losses of $53.0 million in the current quarter. Provision for credit losses increased by $45.2 million from a provision for credit losses of $7.8 million in the fourth quarter of 2019 primarily related to the implementation of CECL and the economic conditions created by the COVID-19 pandemic. |
| --- | --- |
| ▪ | Net charge-offs of $5.3 million in the first quarter of 2020 as compared to $12.7 million in the fourth quarter of 2019. |
| --- | --- |
Other highlights of the first quarter of 2020
| • | Recorded $17.4 million of derivative income associated with mandatory commitments to fund mortgage originations for sale in the current quarter as compared to a $1.0 million derivative loss in the fourth quarter of 2019. Mandatory commitments to fund mortgage originations for sale were $1.4 billion at the end of the first quarter of 2020 as compared to $372 million at the end of the fourth quarter of 2019. |
|---|---|
| • | Recorded a decrease in the value of mortgage servicing rights related to changes in fair value model assumptions, net of derivative contract activity held as an economic hedge, of $10.4 million. |
| --- | --- |
| • | Recognized $4.4 million of net losses on investment securities, primarily as a result of unrealized losses on market sensitive securities. |
| --- | --- |
| • | Incurred acquisition related costs of $1.7 million in the first quarter of 2020 as compared to $2.4 million in the fourth quarter of 2019. |
| --- | --- |
| • | Total period end loans were $871 million higher than average total loans in current quarter. |
| --- | --- |
| • | Repurchased 576,469 shares of common stock at a cost of $37.1 million. At this time, we have temporarily suspended our common stock repurchase program, as an additional prudential measure. |
| --- | --- |
Edward J. Wehmer, Founder and Chief Executive Officer, commented, "I would like to start by thanking all Wintrust employees for their passion and commitment during this difficult time. As the challenges of COVID-19 affect our customers and our communities, we stand ready to be responsive and supportive. I am extremely proud of our successful efforts earlier this month to timely launch the Paycheck Protection Program ("PPP") to provide much needed funding to our small business customers so that they can continue to operate and pay their employees. Our teams worked tirelessly to process approximately 8,900 applications
with a median loan size of approximately $87,500, totaling loan approvals of nearly $3.3 billion through April 17th. We are honored to be part of the solution to the complex problems faced by our clients during the COVID-19 pandemic. We will continue to answer their call throughout this crisis and into the eventual recovery. Please see our previous releases regarding our PPP activity to date. We expect to further participate in the program if additional government funding is approved."
With respect to the current quarter, Mr Wehmer remarked, "Wintrust reported net income of $62.8 million for the first quarter of 2020, down from $86.0 million in the fourth quarter of 2019. However, pre-tax income, excluding provision for credit losses and MSR valuation adjustments (non-GAAP), increased by $27.8 million over the previous quarter and $12.4 million over the first quarter of 2019. The Company experienced strong balance sheet growth as total assets were $2.2 billion higher than the prior quarter end and $6.4 billion higher than the end of the first quarter of 2019. The first quarter was characterized by significant balance sheet growth, stable net interest income, strong mortgage banking revenue, increased provision for credit losses primarily related to the implementation of CECL and the economic conditions created by the COVID-19 pandemic, and a continued focus to increase franchise value in our market area."
Mr. Wehmer continued, "The Company grew total loans by $1.0 billion in the current quarter with growth diversified primarily across various loan portfolios including the commercial, commercial real estate and life insurance premium finance receivable portfolios. Management estimates that nearly half of the growth in the commercial category during the quarter was a result of customer draws on unfunded commitments primarily occurring toward the end of the quarter. We have seen this activity abate after quarter end. Total deposits increased by $1.4 billion as compared to the fourth quarter of 2019 as strong retail deposit growth, including growth in our MaxSafe product, was supplemented by an increase in brokered deposits. Our loans to deposits ratio ended the quarter at 88.4% and we are confident that we have sufficient liquidity to meet customer loan demand."
Mr. Wehmer commented, "Despite one less day in the quarter and modest net interest margin compression, net interest income stayed relatively flat in the first quarter of 2020 as compared to the fourth quarter of 2019. We believe that our ability to increase market share and grow the balance sheet will continue to help mitigate the pressures presented by a lower interest rate environment. The declining interest rate environment contributed to a reduction in loan yields of 17 basis points; however that impact was partially offset by a 13 basis point improvement in the rate paid on interest bearing deposits. As always, we will strive to grow without a commensurate increase in expenses to enhance our net overhead ratio which was 1.33% in the first quarter of 2020."
Mr. Wehmer noted, “Our mortgage banking business delivered a record quarter in increased pipeline in light of the demand associated with historically low long term interest rates. Loan volumes originated for sale in the current quarter were $1.2 billion, similar to the fourth quarter of 2019. However, due to record mortgage applications and interest rate lock volume near the end of the quarter, mandatory commitments to fund mortgage originations for sale were $1.4 billion at the end of the first quarter of 2020 as compared to $372 million at the end of the fourth quarter of 2019. Additionally, the Company recorded a $10.4 million decrease in the value of mortgage servicing rights related to changes in fair value model assumptions, net of derivative contract activity held as an economic hedge. We are leveraging efficiencies in our delivery channels and staffing strategies to keep pace with unprecedented demand. We believe the second quarter of 2020 will provide another strong quarter for mortgage banking production."
Commenting on credit quality, Mr. Wehmer stated, "The Company recorded net charge-offs of $5.3 million in the first quarter of 2020 as compared to $12.7 million in the fourth quarter of 2019. However, provision for credit losses totaled $53.0 million in the first quarter of 2020 as compared to $7.8 million in the fourth quarter of 2019. The elevated provision expense in the current quarter was primarily related to the implementation of the CECL standard and the economic conditions created by the COVID-19 pandemic. Non-performing assets as of the current quarter end totaled $190.4 million, an increase of $57.6 million from the previous quarter end. Due to the adoption of CECL, $35.4 million of the $57.6 million increase relates to purchased financial assets with credit deterioration that were not previously required to be reported as non-performing assets but are now included in non-performing assets. We believe that the Company’s reserves remain appropriate and we remain diligent in our review of credit."
Mindful of the challenges ahead, Mr Wehmer noted, "We leverage robust capital and liquidity management frameworks, which include stress testing processes, to assess and monitor risk and inform decision making. We believe the Company has adequate liquidity and capital to effectively manage through the COVID-19 pandemic. However, we will continue to prudently evaluate and expand liquidity sources, including the possible utilization of the PPP liquidity facility, if necessary."
Mr. Wehmer continued, "Wintrust will continue to practice what we preach in our unwavering commitment to our communities by serving customers via drive up branches, by appointment, telephonically and through digital tools. We believe that we are uniquely positioned by being technologically on par with the big banks, as demonstrated by our PPP efforts, while maintaining the agility and high-touch, personalized service nature of a community bank. We have executed our existing business continuity plan successfully across the Wintrust enterprise and I am proud of our Company's effectiveness in seamlessly adapting to a remote working environment. In addition to our efforts to support our customers, we are also focused on the wellbeing of our colleagues,
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modifying certain health care programs to provide additional benefits during the COVID-19 pandemic, as well as offering other pandemic benefits and compensation premiums to eligible employees."
Mr. Wehmer concluded, "We have experienced significant growth in recent quarters and believe that our opportunities for both internal and external growth remain consistently strong, while we continue to carefully monitor the COVID-19 pandemic and evaluate the impact that it could have on the economy, our customers and our business. We remain focused on navigating the current environment by actively monitoring and managing our credit portfolio."
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The graphs below illustrate certain financial highlights of the first quarter of 2020.
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SUMMARY OF RESULTS:
BALANCE SHEET
Total asset growth of $2.2 billion in the first quarter of 2020 was primarily comprised of a $1.0 billion increase in loans and a $465 million increase in available for sale securities. The Company believes that the $1.9 billion of interest bearing deposits with banks held as of March 31, 2020 provides sufficient liquidity to operate its business plan.
Total liabilities grew by $2.2 billion in the first quarter of 2020 primarily comprised of a $1.4 billion increase in total deposits. The Company successfully grew deposits in the first quarter through organic retail channels, including $282.7 million of growth in our MaxSafe products, that was supplemented by an increase in brokered deposits. Our loans to deposits ratio ended the quarter at 88.4%. 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 first quarter of 2020, net interest income totaled $261.4 million, a decrease of $436,000 as compared to the fourth quarter of 2019 and a decrease of $543,000 as compared to the first quarter of 2019. The $436,000 decrease in net interest income in the first quarter of 2020 compared to the fourth quarter of 2019 was attributable to the impact of a five basis point decline in net interest margin and one less day. This impact was partially offset by $924.8 million of growth in average earning assets.
Net interest margin was 3.12% (3.14% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2020 compared to 3.17% (3.19% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2019 and 3.70% (3.72% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2019. The five basis point decrease in net interest margin in the first quarter of 2020 as compared to the fourth quarter of 2019 was attributable to a 12 basis point decline in the yield on earnings assets and a four basis point decrease in the net free funds contribution partially offset by an 11 basis point decrease in the rate paid on interest bearing liabilities. The 12 basis point decline in the yield on earning assets in the current quarter as compared to the fourth quarter of 2019 was primarily due to a 17 basis point decline in the yield on loans along with lower yields on interest bearing cash. The 11 basis point decrease in the rate paid on interest bearing liabilities in the current quarter as compared to the prior quarter is primarily due to a 13 basis point decrease in the rate paid on interest bearing deposits as management initiated various deposit rate reductions given the recent decrease in the interest rate environment.
For more information regarding net interest income, see Tables 4 through 8 in this report.
ASSET QUALITY
The allowance for credit losses totaled $253.5 million as of March 31, 2020 an increase of $95.0 million as compared to $158.5 million as of December 31, 2019. The increase in allowance for credit losses includes a $47.4 million increase related to the cumulative effect adjustment from the adoption of the CECL standard on January 1, 2020.
The provision for credit losses totaled $53.0 million for the first quarter of 2020 compared to $7.8 million for the fourth quarter of 2019 and $10.6 million for the first quarter of 2019. The elevated provision expense in the current quarter was primarily related to the implementation of the CECL standard and the economic conditions created by the COVID-19 pandemic. Management believes the allowance for credit losses is appropriate to provide for inherent losses in the portfolio. The 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. For more information regarding the provision for credit losses, see Table 10 in this report.
Net charge-offs totaled $5.3 million in the first quarter of 2020, a $7.4 million decrease from $12.7 million in the fourth quarter of 2019 and a $146,000 increase from $5.1 million in the first quarter of 2019. Net charge-offs as a percentage of average total loans, in the first quarter of 2020 totaled eight basis points on an annualized basis compared to 19 basis points on an annualized basis in the fourth quarter of 2019 and nine basis points on an annualized basis in the first quarter of 2019. For more information regarding net charge-offs, see Table 9 in this report.
As part of the regular quarterly review performed by management to determine if the Company’s allowance for loan losses is appropriate, an analysis is prepared on the loan portfolio based upon a breakout of core loans, niche and consumer loans and
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purchased loans. A summary of the allowance for loan losses calculated for the loan components in the core loan portfolio, the niche and consumer loan portfolio and purchased loan portfolio as of March 31, 2020 and December 31, 2019 is shown on Table 11 of this report.
As of March 31, 2020, $33.0 million of all loans, or 0.1%, were 60 to 89 days past due and $262.7 million, or 0.9%, were 30 to 59 days (or one payment) past due. As of December 31, 2019, $50.5 million of all loans, or 0.2%, were 60 to 89 days past due and $248.2 million, or 0.9%, were 30 to 59 days (or one payment) past due. Many of the commercial and commercial real estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis.
The Company’s home equity and residential loan portfolios continue to exhibit low delinquency rates as of March 31, 2020. Home equity loans at March 31, 2020 that are current with regard to the contractual terms of the loan agreement represent 98.1% of the total home equity portfolio. Residential real estate loans at March 31, 2020 that are current with regards to the contractual terms of the loan agreements comprised 96.4% of total residential real estate loans outstanding. For more information regarding past due loans, see Table 12 in this report.
Prior to January 1, 2020, purchased credit impaired ("PCI") loans were aggregated into pools by common risk characteristics for accounting purposes, including recognition of interest income on a pool basis. Measurement of any allowance for loan losses on these loans were offset by the remaining discount related to the pool. As a result of the implementation of CECL, beginning in the first quarter of 2020, PCI loans transitioned to a classification of purchased financial assets with credit deterioration ("PCD"), which no longer maintains the prior pools and related accounting concepts. Measurement of any allowance for loan losses on PCD loans is no longer offset by the remaining discount, resulting in additional allowance being recognized at January 1, 2020 through a cumulative effect adjustment to retained earnings. See Table 9 for information on this increase at transition. Additionally, recognition of interest income on PCD loans is considered at the individual asset level following the Company's accrual policies, instead of based upon the entire pool of loans. Due to the first quarter of 2020 adoption of CECL, the Company included $35.4 million in non-performing PCD loans in total non-performing loans as of March 31, 2020.
The ratio of non-performing assets, excluding PCD assets, to total assets was 0.40% as of March 31, 2020, compared to 0.36% at December 31, 2019, and 0.43% at March 31, 2019. Non-performing assets, excluding PCD assets, totaled $155.0 million at March 31, 2020, compared to $132.8 million at December 31, 2019 and $139.4 million at March 31, 2019. Non-performing loans, excluding PCD loans, totaled $143.9 million, or 0.53% of total loans, at March 31, 2020 compared to $117.6 million, or 0.44% of total loans, at December 31, 2019 and $117.6 million, or 0.49% of total loans, at March 31, 2019. This increase includes a $5.0 million increase in premium finance receivable balances that are past due greater than 90 days and still accruing. The level of past due premium finance receivables is impacted by emergency orders issued by states which extend the grace period for nonpayment of insurance premiums to carriers. Other real estate owned ("OREO") of $11.0 million at March 31, 2020 decreased by $4.2 million compared to $15.2 million at December 31, 2019 and decreased $10.5 million compared to $21.5 million at March 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 13 in this report.
NON-INTEREST INCOME
Wealth management revenue increased by $942,000 during the first quarter of 2020 as compared to the fourth quarter of 2019 primarily due to increased trust 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 increased by $466,000 in the first quarter of 2020 as compared to the fourth quarter of 2019, primarily as a result of increased derivative income associated with mandatory commitments to fund originations for sale, partially offset by a decrease in the fair value of the mortgage servicing rights portfolio. Mandatory commitments to fund originations for sale were $1.4 billion at the end of the first quarter of 2020 as compared to $372.4 million at the end of the fourth quarter of 2019. The percentage of origination volume from refinancing activities was 63% in the first quarter of 2020 as compared to 60% in the fourth quarter of 2019. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market.
During the first quarter of 2020, the fair value of the mortgage servicing rights portfolio decreased primarily due to a negative fair value adjustment of $14.6 million as well as a reduction in value of $7.0 million due to payoffs and paydowns of the existing
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portfolio. The Company entered into interest rate swaps at the beginning of the fourth quarter of 2019 to economically hedge a portion of the potential negative fair value changes recorded in earnings related to its mortgage servicing rights portfolio. The Company recorded a gain of $4.2 million on the interest rate swaps held as economic hedges against the mortgage servicing rights primarily related to the mark to market valuation adjustment at quarter end which was recorded in mortgage banking revenue.
The net losses recognized on investment securities in the first quarter of 2020 were $4.4 million as compared to a gain of $587,000 in the fourth quarter of 2019. The losses recorded in the first quarter of 2020 primarily relate to unrealized losses on market sensitive securities held by the Company.
Other non-interest income increased by $4.2 million in the first quarter of 2020 as compared to the fourth quarter of 2019 primarily due to increased income from interest rate swap fees and net gains related to the sales of loans and leases. These increases were partially offset by market losses on BOLI investments related to non-qualified deferred compensation accounts recorded in BOLI income.
For more information regarding non-interest income, see Tables 14 and 15 in this report.
NON-INTEREST EXPENSE
Salaries and employee benefits expense decreased by $9.2 million in the first quarter of 2020 as compared to the fourth quarter of 2019. The $9.2 million decrease is comprised of a decrease of $8.7 million in commissions and incentive compensation and a decrease of $1.6 million in salaries expense partially offset by $1.1 million increase in employee benefits expense. The decrease in commissions and incentive compensation is primarily due to lower expenses associated with the Company's long term incentive program.
Data processing expenses totaled $8.4 million in the first quarter of 2020, an increase of $804,000 as compared to the fourth quarter of 2019. The increase in the current quarter relates primarily to conversion costs associated with the Countryside Bank acquisition.
Advertising and marketing expenses in the first quarter of 2020 decreased by $1.7 million as compared to the fourth quarter of 2019 primarily related to lower media advertising costs. Marketing costs are incurred to promote the Company's brand, commercial banking capabilities, the Company's various products, to attract loans and deposits and to announce new branch openings as well as the expansion of the Company's non-bank businesses. The level of marketing expenditures depends on the timing of sponsorship programs utilized which are determined based on the market area, targeted audience, competition and various other factors.
FDIC insurance expense totaled $4.1 million in the first quarter of 2020, an increase of $2.8 million as compared to the fourth quarter of 2019. In the prior quarter, the Company recorded a $2.8 million reduction to FDIC insurance expense related to assessment credits received from the FDIC.
In the first quarter of 2020, the Company recorded a $1.3 million gain on sale of an OREO property resulting in net OREO income of $876,000 in the first quarter of 2020. This compares to OREO expense of $536,000 in the prior quarter.
Miscellaneous expense in the first quarter of 2020 decreased $5.3 million as compared to the fourth quarter of 2019. The decrease in the current quarter as compared to the fourth quarter of 2019 is primarily due to charges recognized in the fourth quarter including a litigation settlement, contingent consideration related to previous acquisitions of certain mortgage businesses and overlapping telecommunication charges. Miscellaneous expense includes ATM expenses, correspondent bank charges, directors' fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses and lending origination costs that are not deferred.
For more information regarding non-interest expense, see Table 16 in this report.
INCOME TAXES
The Company recorded income tax expense of $24.3 million in the first quarter of 2020 compared to $30.7 million in the fourth quarter of 2019 and $29.5 million in the first quarter of 2019. The effective tax rates were 27.87% in the first quarter of 2020 compared to 26.33% in the fourth quarter of 2019 and 24.86% in the first quarter of 2019.
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BUSINESS UNIT SUMMARY
Community Banking
Through its community banking unit, the Company provides banking and financial services primarily to individuals, small to mid-sized businesses, local governmental units and institutional clients residing primarily in the local areas the Company services. In the first quarter of 2020, this unit expanded its loan and deposit portfolios. However, the banking segment also experienced net interest margin compression in part due to current market conditions.
Mortgage banking revenue was $48.3 million for the first quarter of 2020 an increase from $47.9 million for the fourth quarter of 2019. Services charges on deposit accounts totaled $11.3 million in the first quarter of 2020 an increase of $292,000 as compared to the fourth quarter of 2019 primarily due to higher account analysis fees. The Company's gross commercial and commercial real estate loan pipelines remained strong as of March 31, 2020. Before the impact of scheduled payments and prepayments, gross commercial and commercial real estate loan pipelines were estimated to be approximately $1.0 billion to $1.1 billion at March 31, 2020. When adjusted for the probability of closing, the pipelines were estimated to be approximately $590 million to $650 million at March 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 and accounts receivable financing, value-added, out-sourced administrative services, and other services. Originations within the insurance premium financing receivables portfolio were $2.5 billion during the first quarter of 2020 and average balances increased by $231.4 million as compared to the fourth quarter of 2019. The increase in average balances was more than offset by margin compression in this portfolio resulting in a $3.0 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 first quarter of 2020, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing by $174.4 million to $1.8 billion at the end of the first quarter of 2020. Revenues from the Company's out-sourced administrative services business were $1.1 million in the first quarter of 2020, unchanged from the fourth quarter of 2019.
Wealth Management
Through four separate subsidiaries within its wealth management unit, the Company offers a full range of wealth management services, including trust and investment services, tax-deferred like-kind exchange services, asset management, securities brokerage services and 401(k) and retirement plan services. Wealth management revenue increased by $942,000 in the first quarter of 2020 compared to the fourth quarter of 2019, totaling $25.9 million in the current period. At March 31, 2020, the Company’s wealth management subsidiaries had approximately $25.0 billion of assets under administration, which included $4.8 billion of assets owned by the Company and its subsidiary banks, representing a $2.6 billion decrease from the $27.6 billion of assets under administration at December 31, 2019. Increased trust fees contributed to the growth in wealth management revenue, while unfavorable equity market performance in the first quarter of 2020 contributed to the decline of assets under administration.
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ITEMS IMPACTING COMPARATIVE FINANCIAL RESULTS
Acquisitions
On November 1, 2019, the Company completed its acquisition of SBC, Incorporated (“SBC”). SBC was the parent company of Countryside Bank. Through this business combination, the Company acquired Countryside Bank's six banking offices located in Countryside, Burbank, Darien, Homer Glen, Oak Brook and Chicago, Illinois. As of the acquisition date, the Company acquired approximately $620 million in assets, including approximately $423 million in loans, and approximately $508 million in deposits. The Company recorded goodwill of approximately $40 million on the acquisition.
On October 7, 2019, the Company completed its acquisition of STC Bancshares Corp. (“STC”). STC was the parent company of STC Capital Bank. Through this business combination, the Company acquired STC Capital Bank's five banking offices located in the communities of St. Charles, Geneva and South Elgin, Illinois. As of the acquisition date, the Company acquired approximately $250 million in assets, including approximately $174 million in loans, and approximately $201 million in deposits. The Company recorded goodwill of approximately $19 million on the acquisition.
On May 24, 2019, the Company completed its acquisition of Rush-Oak Corporation ("ROC"). ROC was the parent company of Oak Bank. Through this business combination, the Company acquired Oak Bank's one banking location in Chicago, Illinois. As of the acquisition date, the Company acquired approximately $223 million in assets, including approximately $125 million in loans, and approximately $161 million in deposits. The Company recorded goodwill of approximately $12 million on the acquisition.
Adoption of New Credit Losses Accounting Standard
Beginning in 2020, the Company adopted the new current expected credit losses standard, or CECL, which impacted the measurement of the 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 9-13 in this report.
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WINTRUST FINANCIAL CORPORATION
Key Operating Measures
Wintrust’s key operating measures and growth rates for the first quarter of 2020, as compared to the fourth quarter of 2019 (sequential quarter) and first quarter of 2019 (linked quarter), are shown in the table below:
| % or^(4)^<br><br>basis point (bp) change from<br><br>4th Quarter<br><br>2019 | % or<br><br>basis point (bp)<br><br>change from<br><br>1st Quarter<br><br>2019 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | |||||||||||||||
| (Dollars in thousands, except per share data) | Mar 31, 2020 | Dec 31, 2019 | Mar 31, 2019 | ||||||||||||
| Net income | $ | 62,812 | $ | 85,964 | $ | 89,146 | (27 | ) | % | (30 | ) | % | |||
| Pre-tax income, excluding provision for credit losses (non-GAAP) ^(2)^ | 140,044 | 124,508 | 129,269 | 12 | 8 | ||||||||||
| Pre-tax income, excluding provision for credit losses and MSR valuation adjustments (non-GAAP) ^(2)^ | 150,441 | 122,662 | 138,013 | 23 | 9 | ||||||||||
| Net income per common share – diluted | 1.04 | 1.44 | 1.52 | (28 | ) | (32 | ) | ||||||||
| Net revenue ^(1)^ | 374,685 | 374,099 | 343,643 | — | 9 | ||||||||||
| Net interest income | 261,443 | 261,879 | 261,986 | — | — | ||||||||||
| Net interest margin | 3.12 | % | 3.17 | % | 3.70 | % | (5 | ) | bp | (58 | ) | bp | |||
| Net interest margin - fully taxable equivalent (non-GAAP) ^(2)^ | 3.14 | 3.19 | 3.72 | (5 | ) | (58 | ) | ||||||||
| Net overhead ratio ^(3)^ | 1.33 | 1.53 | 1.72 | (20 | ) | (39 | ) | ||||||||
| Return on average assets | 0.69 | 0.96 | 1.16 | (27 | ) | (47 | ) | ||||||||
| Return on average common equity | 6.82 | 9.52 | 11.09 | (270 | ) | (427 | ) | ||||||||
| Return on average tangible common equity (non-GAAP) ^(2)^ | 8.73 | 12.17 | 14.14 | (344 | ) | (541 | ) | ||||||||
| At end of period | |||||||||||||||
| Total assets | $ | 38,799,847 | $ | 36,620,583 | $ | 32,358,621 | 24 | % | 20 | % | |||||
| Total loans ^(5)^ | 27,807,321 | 26,800,290 | 24,214,629 | 15 | 15 | ||||||||||
| Total deposits | 31,461,660 | 30,107,138 | 26,804,742 | 18 | 17 | ||||||||||
| Total shareholders’ equity | 3,700,393 | 3,691,250 | 3,371,972 | 1 | 10 | ||||||||||
| (1) | Net revenue is net interest income plus non-interest income. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 17 for additional information on this performance measure/ratio. | ||||||||||||||
| --- | --- | ||||||||||||||
| (3) | The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period's average total assets. A lower ratio indicates a higher degree of efficiency. | ||||||||||||||
| --- | --- | ||||||||||||||
| (4) | Period-end balance sheet percentage changes are annualized. | ||||||||||||||
| --- | --- | ||||||||||||||
| (5) | Excludes mortgage loans held-for-sale. | ||||||||||||||
| --- | --- |
Certain returns, yields, performance ratios, or quarterly growth rates are “annualized” in this presentation to represent an annual time period. This is done for analytical purposes to better discern for decision-making purposes underlying performance trends when compared to full-year or year-over-year amounts. For example, a 5% growth rate for a quarter would represent an annualized 20% growth rate. Additional supplemental financial information showing quarterly trends can be found on the Company’s website at www.wintrust.com by choosing “Financial Reports” under the “Investor Relations” heading, and then choosing “Financial Highlights.”
13
WINTRUST FINANCIAL CORPORATION
| Selected Financial Highlights | Three Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands, except per share data) | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | |||||||||||
| Selected Financial Condition Data (at end of period): | ||||||||||||||||
| Total assets | $ | 38,799,847 | $ | 36,620,583 | $ | 34,911,902 | $ | 33,641,769 | $ | 32,358,621 | ||||||
| Total loans ^(1)^ | 27,807,321 | 26,800,290 | 25,710,171 | 25,304,659 | 24,214,629 | |||||||||||
| Total deposits | 31,461,660 | 30,107,138 | 28,710,379 | 27,518,815 | 26,804,742 | |||||||||||
| Junior subordinated debentures | 253,566 | 253,566 | 253,566 | 253,566 | 253,566 | |||||||||||
| Total shareholders’ equity | 3,700,393 | 3,691,250 | 3,540,325 | 3,446,950 | 3,371,972 | |||||||||||
| Selected Statements of Income Data: | ||||||||||||||||
| Net interest income | $ | 261,443 | $ | 261,879 | $ | 264,852 | $ | 266,202 | $ | 261,986 | ||||||
| Net revenue ^(2)^ | 374,685 | 374,099 | 379,989 | 364,360 | 343,643 | |||||||||||
| Net income | 62,812 | 85,964 | 99,121 | 81,466 | 89,146 | |||||||||||
| Pre-tax income, excluding provision for credit losses (non-GAAP) ^(3)^ | 140,044 | 124,508 | 145,435 | 134,753 | 129,269 | |||||||||||
| Pre-tax income, excluding provision for credit losses and MSR valuation adjustments (non-GAAP) ^(3)^ | 150,441 | 122,662 | 149,411 | 138,138 | 138,013 | |||||||||||
| Net income per common share – Basic | 1.05 | 1.46 | 1.71 | 1.40 | 1.54 | |||||||||||
| Net income per common share – Diluted | 1.04 | 1.44 | 1.69 | 1.38 | 1.52 | |||||||||||
| Selected Financial Ratios and Other Data: | ||||||||||||||||
| Performance Ratios: | ||||||||||||||||
| Net interest margin | 3.12 | % | 3.17 | % | 3.37 | % | 3.62 | % | 3.70 | % | ||||||
| Net interest margin - fully taxable equivalent (non-GAAP) ^(3)^ | 3.14 | 3.19 | 3.39 | 3.64 | 3.72 | |||||||||||
| Non-interest income to average assets | 1.24 | 1.25 | 1.35 | 1.23 | 1.06 | |||||||||||
| Non-interest expense to average assets | 2.58 | 2.78 | 2.74 | 2.87 | 2.79 | |||||||||||
| Net overhead ratio ^(4)^ | 1.33 | 1.53 | 1.40 | 1.64 | 1.72 | |||||||||||
| Return on average assets | 0.69 | 0.96 | 1.16 | 1.02 | 1.16 | |||||||||||
| Return on average common equity | 6.82 | 9.52 | 11.42 | 9.68 | 11.09 | |||||||||||
| Return on average tangible common equity (non-GAAP) ^(3)^ | 8.73 | 12.17 | 14.36 | 12.28 | 14.14 | |||||||||||
| Average total assets | $ | 36,625,490 | $ | 35,645,190 | $ | 33,954,592 | $ | 32,055,769 | $ | 31,216,171 | ||||||
| Average total shareholders’ equity | 3,710,169 | 3,622,184 | 3,496,714 | 3,414,340 | 3,309,078 | |||||||||||
| Average loans to average deposits ratio | 90.1 | % | 88.8 | % | 90.6 | % | 93.9 | % | 92.7 | % | ||||||
| Period-end loans to deposits ratio | 88.4 | 89.0 | 89.6 | 92.0 | 90.3 | |||||||||||
| Common Share Data at end of period: | ||||||||||||||||
| Market price per common share | $ | 32.86 | $ | 70.90 | $ | 64.63 | $ | 73.16 | $ | 67.33 | ||||||
| Book value per common share | 62.13 | 61.68 | 60.24 | 58.62 | 57.33 | |||||||||||
| Tangible book value per common share (non-GAAP) ^(3)^ | 50.18 | 49.70 | 49.16 | 47.48 | 46.38 | |||||||||||
| Common shares outstanding | 57,545,352 | 57,821,891 | 56,698,429 | 56,667,846 | 56,638,968 | |||||||||||
| Other Data at end of period: | ||||||||||||||||
| Tier 1 leverage ratio ^(5)^ | 8.5 | % | 8.7 | % | 8.8 | % | 9.1 | % | 9.1 | % | ||||||
| Risk-based capital ratios: | ||||||||||||||||
| Tier 1 capital ratio ^(5)^ | 9.3 | 9.6 | 9.7 | 9.6 | 9.8 | |||||||||||
| Common equity tier 1 capital ratio^(5)^ | 8.9 | 9.2 | 9.3 | 9.2 | 9.3 | |||||||||||
| Total capital ratio ^(5)^ | 11.9 | 12.2 | 12.4 | 12.4 | 11.7 | |||||||||||
| Allowance for credit losses ^(6)^ | $ | 253,482 | $ | 158,461 | $ | 163,273 | $ | 161,901 | $ | 159,622 | ||||||
| Allowance for loan and unfunded lending-related commitment losses to total loans | 0.91 | % | 0.59 | % | 0.64 | % | 0.64 | % | 0.66 | % | ||||||
| Number of: | ||||||||||||||||
| Bank subsidiaries | 15 | 15 | 15 | 15 | 15 | |||||||||||
| Banking offices | 187 | 187 | 174 | 172 | 170 | |||||||||||
| (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 17 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. | |||||||||||||||
| --- | --- |
14
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | |||||||||||
| (In thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||
| Assets | |||||||||||||||
| Cash and due from banks | $ | 349,118 | $ | 286,167 | $ | 448,755 | $ | 300,934 | $ | 270,765 | |||||
| Federal funds sold and securities purchased under resale agreements | 309 | 309 | 59 | 58 | 58 | ||||||||||
| Interest bearing deposits with banks | 1,943,743 | 2,164,560 | 2,260,806 | 1,437,105 | 1,609,852 | ||||||||||
| Available-for-sale securities, at fair value | 3,570,959 | 3,106,214 | 2,270,059 | 2,186,154 | 2,185,782 | ||||||||||
| Held-to-maturity securities, at amortized cost | 865,376 | 1,134,400 | 1,095,802 | 1,191,634 | 1,051,542 | ||||||||||
| Trading account securities | 2,257 | 1,068 | 3,204 | 2,430 | 559 | ||||||||||
| Equity securities with readily determinable fair value | 47,310 | 50,840 | 46,086 | 44,319 | 47,653 | ||||||||||
| Federal Home Loan Bank and Federal Reserve Bank stock | 134,546 | 100,739 | 92,714 | 92,026 | 89,013 | ||||||||||
| Brokerage customer receivables | 16,293 | 16,573 | 14,943 | 13,569 | 14,219 | ||||||||||
| Mortgage loans held-for-sale | 656,934 | 377,313 | 464,727 | 394,975 | 248,557 | ||||||||||
| Loans, net of unearned income | 27,807,321 | 26,800,290 | 25,710,171 | 25,304,659 | 24,214,629 | ||||||||||
| Allowance for loan losses | (216,050 | ) | (156,828 | ) | (161,763 | ) | (160,421 | ) | (158,212 | ) | |||||
| Net loans | 27,591,271 | 26,643,462 | 25,548,408 | 25,144,238 | 24,056,417 | ||||||||||
| Premises and equipment, net | 764,583 | 754,328 | 721,856 | 711,214 | 676,037 | ||||||||||
| Lease investments, net | 207,147 | 231,192 | 228,647 | 230,111 | 224,240 | ||||||||||
| Accrued interest receivable and other assets | 1,460,168 | 1,061,141 | 1,087,864 | 1,023,896 | 888,492 | ||||||||||
| Trade date securities receivable | 502,207 | — | — | 237,607 | 375,211 | ||||||||||
| Goodwill | 643,441 | 645,220 | 584,315 | 584,911 | 573,658 | ||||||||||
| Other intangible assets | 44,185 | 47,057 | 43,657 | 46,588 | 46,566 | ||||||||||
| Total assets | $ | 38,799,847 | $ | 36,620,583 | $ | 34,911,902 | $ | 33,641,769 | $ | 32,358,621 | |||||
| Liabilities and Shareholders’ Equity | |||||||||||||||
| Deposits: | |||||||||||||||
| Non-interest bearing | $ | 7,556,755 | $ | 7,216,758 | $ | 7,067,960 | $ | 6,719,958 | $ | 6,353,456 | |||||
| Interest bearing | 23,904,905 | 22,890,380 | 21,642,419 | 20,798,857 | 20,451,286 | ||||||||||
| Total deposits | 31,461,660 | 30,107,138 | 28,710,379 | 27,518,815 | 26,804,742 | ||||||||||
| Federal Home Loan Bank advances | 1,174,894 | 674,870 | 574,847 | 574,823 | 576,353 | ||||||||||
| Other borrowings | 487,503 | 418,174 | 410,488 | 418,057 | 372,194 | ||||||||||
| Subordinated notes | 436,179 | 436,095 | 435,979 | 436,021 | 139,235 | ||||||||||
| Junior subordinated debentures | 253,566 | 253,566 | 253,566 | 253,566 | 253,566 | ||||||||||
| Trade date securities payable | — | — | 226 | — | — | ||||||||||
| Accrued interest payable and other liabilities | 1,285,652 | 1,039,490 | 986,092 | 993,537 | 840,559 | ||||||||||
| Total liabilities | 35,099,454 | 32,929,333 | 31,371,577 | 30,194,819 | 28,986,649 | ||||||||||
| Shareholders’ Equity: | |||||||||||||||
| Preferred stock | 125,000 | 125,000 | 125,000 | 125,000 | 125,000 | ||||||||||
| Common stock | 58,266 | 57,951 | 56,825 | 56,794 | 56,765 | ||||||||||
| Surplus | 1,652,063 | 1,650,278 | 1,574,011 | 1,569,969 | 1,565,185 | ||||||||||
| Treasury stock | (44,891 | ) | (6,931 | ) | (6,799 | ) | (6,650 | ) | (6,650 | ) | |||||
| Retained earnings | 1,917,558 | 1,899,630 | 1,830,165 | 1,747,266 | 1,682,016 | ||||||||||
| Accumulated other comprehensive loss | (7,603 | ) | (34,678 | ) | (38,877 | ) | (45,429 | ) | (50,344 | ) | |||||
| Total shareholders’ equity | 3,700,393 | 3,691,250 | 3,540,325 | 3,446,950 | 3,371,972 | ||||||||||
| Total liabilities and shareholders’ equity | $ | 38,799,847 | $ | 36,620,583 | $ | 34,911,902 | $ | 33,641,769 | $ | 32,358,621 |
15
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
| CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | Three Months Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except per share data) | Mar 31, 2020 | Dec 31, <br>2019 | Sep 30, <br>2019 | Jun 30, 2019 | Mar 31, 2019 | |||||||||
| Interest income | ||||||||||||||
| Interest and fees on loans | $ | 301,839 | $ | 308,055 | $ | 314,277 | $ | 309,161 | $ | 296,987 | ||||
| Mortgage loans held-for-sale | 3,165 | 3,201 | 3,478 | 3,104 | 2,209 | |||||||||
| Interest bearing deposits with banks | 4,768 | 8,971 | 10,326 | 5,206 | 5,300 | |||||||||
| Federal funds sold and securities purchased under resale agreements | 86 | 390 | 310 | — | — | |||||||||
| Investment securities | 32,467 | 27,611 | 24,758 | 27,721 | 27,956 | |||||||||
| Trading account securities | 7 | 6 | 20 | 5 | 8 | |||||||||
| Federal Home Loan Bank and Federal Reserve Bank stock | 1,577 | 1,328 | 1,294 | 1,439 | 1,355 | |||||||||
| Brokerage customer receivables | 158 | 169 | 164 | 178 | 155 | |||||||||
| Total interest income | 344,067 | 349,731 | 354,627 | 346,814 | 333,970 | |||||||||
| Interest expense | ||||||||||||||
| Interest on deposits | 67,435 | 74,724 | 76,168 | 67,024 | 60,976 | |||||||||
| Interest on Federal Home Loan Bank advances | 3,360 | 1,461 | 1,774 | 4,193 | 2,450 | |||||||||
| Interest on other borrowings | 3,546 | 3,273 | 3,466 | 3,525 | 3,633 | |||||||||
| Interest on subordinated notes | 5,472 | 5,504 | 5,470 | 2,806 | 1,775 | |||||||||
| Interest on junior subordinated debentures | 2,811 | 2,890 | 2,897 | 3,064 | 3,150 | |||||||||
| Total interest expense | 82,624 | 87,852 | 89,775 | 80,612 | 71,984 | |||||||||
| Net interest income | 261,443 | 261,879 | 264,852 | 266,202 | 261,986 | |||||||||
| Provision for credit losses | 52,961 | 7,826 | 10,834 | 24,580 | 10,624 | |||||||||
| Net interest income after provision for credit losses | 208,482 | 254,053 | 254,018 | 241,622 | 251,362 | |||||||||
| Non-interest income | ||||||||||||||
| Wealth management | 25,941 | 24,999 | 23,999 | 24,139 | 23,977 | |||||||||
| Mortgage banking | 48,326 | 47,860 | 50,864 | 37,411 | 18,158 | |||||||||
| Service charges on deposit accounts | 11,265 | 10,973 | 9,972 | 9,277 | 8,848 | |||||||||
| (Losses) gains on investment securities, net | (4,359 | ) | 587 | 710 | 864 | 1,364 | ||||||||
| Fees from covered call options | 2,292 | 1,243 | — | 643 | 1,784 | |||||||||
| Trading (losses) gains, net | (451 | ) | 46 | 11 | (44 | ) | (171 | ) | ||||||
| Operating lease income, net | 11,984 | 12,487 | 12,025 | 11,733 | 10,796 | |||||||||
| Other | 18,244 | 14,025 | 17,556 | 14,135 | 16,901 | |||||||||
| Total non-interest income | 113,242 | 112,220 | 115,137 | 98,158 | 81,657 | |||||||||
| Non-interest expense | ||||||||||||||
| Salaries and employee benefits | 136,762 | 145,941 | 141,024 | 133,732 | 125,723 | |||||||||
| Equipment | 14,834 | 14,485 | 13,314 | 12,759 | 11,770 | |||||||||
| Operating lease equipment | 9,260 | 9,766 | 8,907 | 8,768 | 8,319 | |||||||||
| Occupancy, net | 17,547 | 17,132 | 14,991 | 15,921 | 16,245 | |||||||||
| Data processing | 8,373 | 7,569 | 6,522 | 6,204 | 7,525 | |||||||||
| Advertising and marketing | 10,862 | 12,517 | 13,375 | 12,845 | 9,858 | |||||||||
| Professional fees | 6,721 | 7,650 | 8,037 | 6,228 | 5,556 | |||||||||
| Amortization of other intangible assets | 2,863 | 3,017 | 2,928 | 2,957 | 2,942 | |||||||||
| FDIC insurance | 4,135 | 1,348 | 148 | 4,127 | 3,576 | |||||||||
| OREO expense, net | (876 | ) | 536 | 1,170 | 1,290 | 632 | ||||||||
| Other | 24,160 | 29,630 | 24,138 | 24,776 | 22,228 | |||||||||
| Total non-interest expense | 234,641 | 249,591 | 234,554 | 229,607 | 214,374 | |||||||||
| Income before taxes | 87,083 | 116,682 | 134,601 | 110,173 | 118,645 | |||||||||
| Income tax expense | 24,271 | 30,718 | 35,480 | 28,707 | 29,499 | |||||||||
| Net income | $ | 62,812 | $ | 85,964 | $ | 99,121 | $ | 81,466 | $ | 89,146 | ||||
| Preferred stock dividends | 2,050 | 2,050 | 2,050 | 2,050 | 2,050 | |||||||||
| Net income applicable to common shares | $ | 60,762 | $ | 83,914 | $ | 97,071 | $ | 79,416 | $ | 87,096 | ||||
| Net income per common share - Basic | $ | 1.05 | $ | 1.46 | $ | 1.71 | $ | 1.40 | $ | 1.54 | ||||
| Net income per common share - Diluted | $ | 1.04 | $ | 1.44 | $ | 1.69 | $ | 1.38 | $ | 1.52 | ||||
| Cash dividends declared per common share | $ | 0.28 | $ | 0.25 | $ | 0.25 | $ | 0.25 | $ | 0.25 | ||||
| Weighted average common shares outstanding | 57,620 | 57,538 | 56,690 | 56,662 | 56,529 | |||||||||
| Dilutive potential common shares | 575 | 874 | 773 | 699 | 699 | |||||||||
| Average common shares and dilutive common shares | 58,195 | 58,412 | 57,463 | 57,361 | 57,228 |
16
TABLE 1: LOAN PORTFOLIO MIX AND GROWTH RATES AND COMMERCIAL REAL ESTATE BY STATE
| % Growth From | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | Dec 31, 2019^(1)^ | Mar 31, 2019 | |||||||||||||||
| Balance: | ||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||
| Commercial, industrial, and other | $ | 8,999,728 | $ | 8,257,614 | $ | 8,180,070 | $ | 8,246,449 | $ | 7,968,861 | 36 | % | 13 | % | ||||||||
| Commercial, industrial, and other - PCD ^(2)^ | 26,158 | 28,306 | 15,532 | 24,325 | 25,330 | (31 | ) | 3 | ||||||||||||||
| Commercial real estate | ||||||||||||||||||||||
| Construction and development | 1,237,274 | 1,200,783 | 1,025,961 | 984,138 | 951,370 | 12 | 30 | |||||||||||||||
| Non-construction | 6,736,706 | 6,582,053 | 6,305,423 | 6,165,115 | 5,911,474 | 9 | 14 | |||||||||||||||
| Commercial real estate - PCD^(2)^ | 211,551 | 237,440 | 117,283 | 126,991 | 110,661 | (44 | ) | 91 | ||||||||||||||
| Home equity | 494,655 | 513,066 | 512,303 | 527,370 | 528,448 | (14 | ) | (6 | ) | |||||||||||||
| Home equity - PCD ^(2)^ | — | — | — | — | — | — | — | |||||||||||||||
| Residential real estate | 1,359,971 | 1,336,093 | 1,208,706 | 1,107,911 | 1,044,739 | 7 | 30 | |||||||||||||||
| Residential real estate - PCD ^(2)^ | 17,418 | 18,128 | 9,960 | 10,267 | 8,785 | (16 | ) | NM | ||||||||||||||
| Premium Finance receivables | ||||||||||||||||||||||
| Commercial insurance | 3,465,055 | 3,442,027 | 3,449,950 | 3,368,423 | 2,988,788 | 3 | 16 | |||||||||||||||
| Life insurance | 5,084,695 | 4,935,320 | 4,654,588 | 4,487,921 | 4,389,599 | 12 | 16 | |||||||||||||||
| Premium finance receivables - PCD ^(2)^ | 136,944 | 139,282 | 140,908 | 146,557 | 165,770 | (7 | ) | (17 | ) | |||||||||||||
| Consumer and other | 35,546 | 107,962 | 87,161 | 106,547 | 118,129 | NM | (70 | ) | ||||||||||||||
| Consumer and other - PCD ^(2)^ | 1,620 | 2,216 | 2,326 | 2,645 | 2,675 | (108 | ) | (39 | ) | |||||||||||||
| Total loans, net of unearned income | $ | 27,807,321 | $ | 26,800,290 | $ | 25,710,171 | $ | 25,304,659 | $ | 24,214,629 | 15 | % | 15 | % | ||||||||
| Mix: | ||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||
| Commercial, industrial, and other | 32 | % | 31 | % | 32 | % | 33 | % | 33 | % | ||||||||||||
| Commercial, industrial, and other - PCD ^(2)^ | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||
| Construction and development | 4 | 4 | 4 | 4 | 4 | |||||||||||||||||
| Non-construction | 24 | 25 | 25 | 24 | 24 | |||||||||||||||||
| Commercial real estate - PCD ^(2)^ | 1 | 1 | 0 | 1 | 1 | |||||||||||||||||
| Home equity | 2 | 2 | 2 | 2 | 2 | |||||||||||||||||
| Home equity - PCD ^(2)^ | — | — | — | — | — | |||||||||||||||||
| Residential real estate | 5 | 5 | 5 | 4 | 4 | |||||||||||||||||
| Residential real estate - PCD ^(2)^ | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||
| Premium Finance receivables | ||||||||||||||||||||||
| Commercial insurance | 13 | 13 | 13 | 13 | 12 | |||||||||||||||||
| Life insurance | 18 | 18 | 18 | 18 | 18 | |||||||||||||||||
| Premium finance receivables - PCD ^(2)^ | 1 | 1 | 1 | 1 | 1 | |||||||||||||||||
| Consumer and other | 0 | 0 | 0 | 0 | 1 | |||||||||||||||||
| Consumer and other - PCD ^(2)^ | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||
| Total loans, net of unearned income | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
| (1) | Annualized. | |||||||||||||||||||||
| --- | --- | |||||||||||||||||||||
| (2) | As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified purchase credit impaired ("PCI") loans to purchased credit deteriorated ("PCD") loans effective January 1, 2020. For prior periods presented, the previously classified PCI loans are presented with the PCD loans in their respective class. | |||||||||||||||||||||
| --- | --- | |||||||||||||||||||||
| Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | ||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| % of<br><br>Total<br><br>Balance | % of<br><br>Total<br><br>Balance | % of<br><br>Total<br><br>Balance | % of<br><br>Total<br><br>Balance | % of<br><br>Total<br><br>Balance | ||||||||||||||||||
| (Dollars in thousands) | Balance | Balance | Balance | Balance | Balance | |||||||||||||||||
| Commercial real estate - collateral location by state: | ||||||||||||||||||||||
| Illinois | $ | 6,171,606 | 75.4 | % | $ | 6,176,353 | 77.0 | % | $ | 5,654,827 | 75.9 | % | $ | 5,505,290 | 75.7 | % | $ | 5,331,784 | 76.5 | % | ||
| Wisconsin | 793,145 | 9.7 | 744,975 | 9.3 | 744,577 | 10.0 | 740,288 | 10.2 | 758,097 | 10.9 | ||||||||||||
| Total primary markets | $ | 6,964,751 | 85.1 | % | $ | 6,921,328 | 86.3 | % | $ | 6,399,404 | 85.9 | % | $ | 6,245,578 | 85.9 | % | $ | 6,089,881 | 87.4 | % | ||
| Indiana | 249,680 | 3.1 | 218,963 | 2.7 | 193,350 | 2.6 | 179,977 | 2.5 | 175,350 | 2.5 | ||||||||||||
| Florida | 126,786 | 1.5 | 114,629 | 1.4 | 80,120 | 1.1 | 60,343 | 0.8 | 55,528 | 0.8 | ||||||||||||
| Arizona | 72,214 | 0.9 | 64,022 | 0.8 | 62,657 | 0.8 | 62,607 | 0.9 | 61,375 | 0.9 | ||||||||||||
| California | 63,883 | 0.8 | 64,345 | 0.8 | 67,999 | 0.9 | 68,497 | 0.9 | 67,545 | 1.0 | ||||||||||||
| Other | 708,217 | 8.6 | 636,989 | 8.0 | 645,137 | 8.7 | 659,242 | 9.0 | 523,826 | 7.4 | ||||||||||||
| Total commercial real estate | $ | 8,185,531 | 100.0 | % | $ | 8,020,276 | 100.0 | % | $ | 7,448,667 | 100.0 | % | $ | 7,276,244 | 100.0 | % | $ | 6,973,505 | 100.0 | % |
17
TABLE 2: DEPOSIT PORTFOLIO MIX AND GROWTH RATES
| % Growth From | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | Dec 31, 2019^(1)^ | Mar 31, 2019 | ||||||||||||
| Balance: | |||||||||||||||||||
| Non-interest bearing | $ | 7,556,755 | $ | 7,216,758 | $ | 7,067,960 | $ | 6,719,958 | $ | 6,353,456 | 19 | % | 19 | % | |||||
| NOW and interest bearing demand deposits | 3,181,159 | 3,093,159 | 2,966,098 | 2,788,976 | 2,948,576 | 11 | 8 | ||||||||||||
| Wealth management deposits ^(2)^ | 3,936,968 | 3,123,063 | 2,795,838 | 3,220,256 | 3,328,781 | 105 | 18 | ||||||||||||
| Money market | 8,114,659 | 7,854,189 | 7,326,899 | 6,460,098 | 6,093,596 | 13 | 33 | ||||||||||||
| Savings | 3,282,340 | 3,196,698 | 2,934,348 | 2,823,904 | 2,729,626 | 11 | 20 | ||||||||||||
| Time certificates of deposit | 5,389,779 | 5,623,271 | 5,619,236 | 5,505,623 | 5,350,707 | (17 | ) | 1 | |||||||||||
| Total deposits | $ | 31,461,660 | $ | 30,107,138 | $ | 28,710,379 | $ | 27,518,815 | $ | 26,804,742 | 18 | % | 17 | % | |||||
| Mix: | |||||||||||||||||||
| Non-interest bearing | 24 | % | 24 | % | 25 | % | 24 | % | 24 | % | |||||||||
| NOW and interest bearing demand deposits | 10 | 10 | 10 | 10 | 11 | ||||||||||||||
| Wealth management deposits ^(2)^ | 13 | 10 | 10 | 12 | 12 | ||||||||||||||
| Money market | 26 | 26 | 25 | 24 | 23 | ||||||||||||||
| Savings | 10 | 11 | 10 | 10 | 10 | ||||||||||||||
| Time certificates of deposit | 17 | 19 | 20 | 20 | 20 | ||||||||||||||
| 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, 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 March 31, 2020
| (Dollars in thousands) | CDARs &<br><br>Brokered<br><br>Certificates<br><br>of Deposit ^(1)^ | MaxSafe<br><br>Certificates<br><br>of Deposit ^(1)^ | Variable Rate<br><br>Certificates<br><br>of Deposit ^(2)^ | Other Fixed<br><br>Rate Certificates<br><br>of Deposit ^(1)^ | Total Time<br><br>Certificates of<br><br>Deposit | Weighted-Average<br><br>Rate of Maturing<br><br>Time Certificates<br><br>of Deposit ^(3)^ | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1-3 months | $ | 1,424 | $ | 22,260 | $ | 66,464 | $ | 1,270,123 | $ | 1,360,271 | 2.00 | % |
| 4-6 months | 1,686 | 23,324 | — | 627,255 | 652,265 | 1.88 | ||||||
| 7-9 months | 609 | 20,482 | — | 506,943 | 528,034 | 1.70 | ||||||
| 10-12 months | — | 9,319 | — | 762,874 | 772,193 | 1.98 | ||||||
| 13-18 months | 1,401 | 18,348 | — | 1,503,823 | 1,523,572 | 2.31 | ||||||
| 19-24 months | — | 6,631 | — | 368,831 | 375,462 | 2.00 | ||||||
| 24+ months | 88 | 2,794 | — | 175,100 | 177,982 | 1.75 | ||||||
| Total | $ | 5,208 | $ | 103,158 | $ | 66,464 | $ | 5,214,949 | $ | 5,389,779 | 2.03 | % |
| (1) | This category of certificates of deposit is shown by contractual maturity date. | |||||||||||
| --- | --- | |||||||||||
| (2) | This category includes variable rate certificates of deposit and savings certificates with the majority repricing on at least a monthly basis. | |||||||||||
| --- | --- | |||||||||||
| (3) | Weighted-average rate excludes the impact of purchase accounting fair value adjustments. | |||||||||||
| --- | --- |
18
TABLE 4: QUARTERLY AVERAGE BALANCES
| Average Balance for three months ended, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | |||||||||||
| (In thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||
| Interest-bearing deposits with banks and cash equivalents ^(1)^ | $ | 1,418,809 | $ | 2,206,251 | $ | 1,960,898 | $ | 893,332 | $ | 897,629 | |||||
| Investment securities ^(2)^ | 4,780,709 | 3,909,699 | 3,410,090 | 3,653,580 | 3,630,577 | ||||||||||
| FHLB and FRB stock | 114,829 | 94,843 | 92,583 | 105,491 | 94,882 | ||||||||||
| Liquidity management assets ^(6)^ | 6,314,347 | 6,210,793 | 5,463,571 | 4,652,403 | 4,623,088 | ||||||||||
| Other earning assets ^(3)(6)^ | 19,166 | 18,353 | 17,809 | 15,719 | 13,591 | ||||||||||
| Mortgage loans held-for-sale | 403,262 | 381,878 | 379,870 | 281,732 | 188,190 | ||||||||||
| Loans, net of unearned income ^(4)(6)^ | 26,936,728 | 26,137,722 | 25,346,290 | 24,553,263 | 23,880,916 | ||||||||||
| Total earning assets ^(6)^ | 33,673,503 | 32,748,746 | 31,207,540 | 29,503,117 | 28,705,785 | ||||||||||
| Allowance for loan and investment security losses ^(7)^ | (176,291 | ) | (167,759 | ) | (168,423 | ) | (164,231 | ) | (157,782 | ) | |||||
| Cash and due from banks | 321,982 | 316,631 | 297,475 | 273,679 | 283,019 | ||||||||||
| Other assets | 2,806,296 | 2,747,572 | 2,618,000 | 2,443,204 | 2,385,149 | ||||||||||
| Total assets | $ | 36,625,490 | $ | 35,645,190 | $ | 33,954,592 | $ | 32,055,769 | $ | 31,216,171 | |||||
| NOW and interest bearing demand deposits | $ | 3,113,733 | $ | 3,016,991 | $ | 2,912,961 | $ | 2,878,021 | $ | 2,803,338 | |||||
| Wealth management deposits | 2,838,719 | 2,934,292 | 2,888,817 | 2,605,690 | 2,614,035 | ||||||||||
| Money market accounts | 7,990,775 | 7,647,635 | 6,956,755 | 6,095,285 | 5,915,525 | ||||||||||
| Savings accounts | 3,189,835 | 3,028,763 | 2,837,039 | 2,752,828 | 2,715,422 | ||||||||||
| Time deposits | 5,526,407 | 5,682,449 | 5,590,228 | 5,322,384 | 5,267,796 | ||||||||||
| Interest-bearing deposits | 22,659,469 | 22,310,130 | 21,185,800 | 19,654,208 | 19,316,116 | ||||||||||
| Federal Home Loan Bank advances | 951,613 | 596,594 | 574,833 | 869,812 | 594,335 | ||||||||||
| Other borrowings | 469,577 | 415,092 | 416,300 | 419,064 | 465,571 | ||||||||||
| Subordinated notes | 436,119 | 436,025 | 436,041 | 220,771 | 139,217 | ||||||||||
| Junior subordinated debentures | 253,566 | 253,566 | 253,566 | 253,566 | 253,566 | ||||||||||
| Total interest-bearing liabilities | 24,770,344 | 24,011,407 | 22,866,540 | 21,417,421 | 20,768,805 | ||||||||||
| Non-interest bearing deposits | 7,235,177 | 7,128,166 | 6,776,786 | 6,487,627 | 6,444,378 | ||||||||||
| Other liabilities | 909,800 | 883,433 | 814,552 | 736,381 | 693,910 | ||||||||||
| Equity | 3,710,169 | 3,622,184 | 3,496,714 | 3,414,340 | 3,309,078 | ||||||||||
| Total liabilities and shareholders’ equity | $ | 36,625,490 | $ | 35,645,190 | $ | 33,954,592 | $ | 32,055,769 | $ | 31,216,171 | |||||
| Net free funds/contribution ^(5)^ | $ | 8,903,159 | $ | 8,737,339 | $ | 8,341,000 | $ | 8,085,696 | $ | 7,936,980 | |||||
| (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) | Other earning assets include brokerage customer receivables and trading account securities. | ||||||||||||||
| --- | --- | ||||||||||||||
| (4) | Loans, net of unearned income, include non-accrual loans. | ||||||||||||||
| --- | --- | ||||||||||||||
| (5) | 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. | ||||||||||||||
| --- | --- | ||||||||||||||
| (6) | See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 17 for additional information on this performance measure/ratio. | ||||||||||||||
| --- | --- | ||||||||||||||
| (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. | ||||||||||||||
| --- | --- |
19
TABLE 5: QUARTERLY NET INTEREST INCOME
| Net Interest Income for three months ended, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | |||||||||||
| (In thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||
| Interest income: | |||||||||||||||
| Interest-bearing deposits with banks and cash equivalents | $ | 4,854 | $ | 9,361 | $ | 10,636 | $ | 5,206 | $ | 5,300 | |||||
| Investment securities | 33,018 | 28,184 | 25,332 | 28,290 | 28,521 | ||||||||||
| FHLB and FRB stock | 1,577 | 1,328 | 1,294 | 1,439 | 1,355 | ||||||||||
| Liquidity management assets ^(2)^ | 39,449 | 38,873 | 37,262 | 34,935 | 35,176 | ||||||||||
| Other earning assets ^(2)^ | 167 | 176 | 189 | 184 | 165 | ||||||||||
| Mortgage loans held-for-sale | 3,165 | 3,201 | 3,478 | 3,104 | 2,209 | ||||||||||
| Loans, net of unearned income ^(2)^ | 302,699 | 308,947 | 315,255 | 310,191 | 298,021 | ||||||||||
| Total interest income | $ | 345,480 | $ | 351,197 | $ | 356,184 | $ | 348,414 | $ | 335,571 | |||||
| Interest expense: | |||||||||||||||
| NOW and interest bearing demand deposits | $ | 3,665 | $ | 4,622 | $ | 5,291 | $ | 5,553 | $ | 4,613 | |||||
| Wealth management deposits | 6,935 | 7,867 | 9,163 | 7,091 | 7,000 | ||||||||||
| Money market accounts | 22,363 | 25,603 | 25,426 | 21,451 | 19,460 | ||||||||||
| Savings accounts | 5,790 | 6,145 | 5,622 | 4,959 | 4,249 | ||||||||||
| Time deposits | 28,682 | 30,487 | 30,666 | 27,970 | 25,654 | ||||||||||
| Interest-bearing deposits | 67,435 | 74,724 | 76,168 | 67,024 | 60,976 | ||||||||||
| Federal Home Loan Bank advances | 3,360 | 1,461 | 1,774 | 4,193 | 2,450 | ||||||||||
| Other borrowings | 3,546 | 3,273 | 3,466 | 3,525 | 3,633 | ||||||||||
| Subordinated notes | 5,472 | 5,504 | 5,470 | 2,806 | 1,775 | ||||||||||
| Junior subordinated debentures | 2,811 | 2,890 | 2,897 | 3,064 | 3,150 | ||||||||||
| Total interest expense | $ | 82,624 | $ | 87,852 | $ | 89,775 | $ | 80,612 | $ | 71,984 | |||||
| Less: Fully taxable-equivalent adjustment | (1,413 | ) | (1,466 | ) | (1,557 | ) | (1,600 | ) | (1,601 | ) | |||||
| Net interest income^^(GAAP) ^(1)^ | 261,443 | 261,879 | 264,852 | 266,202 | 261,986 | ||||||||||
| Fully taxable-equivalent adjustment | 1,413 | 1,466 | 1,557 | 1,600 | 1,601 | ||||||||||
| Net interest income, fully taxable-equivalent (non-GAAP) ^(1)^ | $ | 262,856 | $ | 263,345 | $ | 266,409 | $ | 267,802 | $ | 263,587 | |||||
| (1) | See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 17 for additional information on this performance measure/ratio. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | 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. | ||||||||||||||
| --- | --- |
20
TABLE 6: QUARTERLY NET INTEREST MARGIN
| Net Interest Margin for three months ended, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | ||||||
| Yield earned on: | ||||||||||
| Interest-bearing deposits with banks and cash equivalents | 1.38 | % | 1.68 | % | 2.15 | % | 2.34 | % | 2.39 | % |
| Investment securities | 2.78 | 2.86 | 2.95 | 3.11 | 3.19 | |||||
| FHLB and FRB stock | 5.52 | 5.55 | 5.55 | 5.47 | 5.79 | |||||
| Liquidity management assets | 2.51 | 2.48 | 2.71 | 3.01 | 3.09 | |||||
| Other earning assets | 3.50 | 3.83 | 4.20 | 4.68 | 4.91 | |||||
| Mortgage loans held-for-sale | 3.16 | 3.33 | 3.63 | 4.42 | 4.76 | |||||
| Loans, net of unearned income | 4.52 | 4.69 | 4.93 | 5.07 | 5.06 | |||||
| Total earning assets | 4.13 | % | 4.25 | % | 4.53 | % | 4.74 | % | 4.74 | % |
| Rate paid on: | ||||||||||
| NOW and interest bearing demand deposits | 0.47 | % | 0.61 | % | 0.72 | % | 0.77 | % | 0.67 | % |
| Wealth management deposits | 0.98 | 1.06 | 1.26 | 1.09 | 1.09 | |||||
| Money market accounts | 1.13 | 1.33 | 1.45 | 1.41 | 1.33 | |||||
| Savings accounts | 0.73 | 0.80 | 0.79 | 0.72 | 0.63 | |||||
| Time deposits | 2.09 | 2.13 | 2.18 | 2.11 | 1.98 | |||||
| Interest-bearing deposits | 1.20 | 1.33 | 1.43 | 1.37 | 1.29 | |||||
| Federal Home Loan Bank advances | 1.42 | 0.97 | 1.22 | 1.93 | 1.67 | |||||
| Other borrowings | 3.04 | 3.13 | 3.30 | 3.37 | 3.16 | |||||
| Subordinated notes | 5.02 | 5.05 | 5.02 | 5.08 | 5.10 | |||||
| Junior subordinated debentures | 4.39 | 4.46 | 4.47 | 4.78 | 4.97 | |||||
| Total interest-bearing liabilities | 1.34 | % | 1.45 | % | 1.56 | % | 1.51 | % | 1.40 | % |
| Interest rate spread^(1)(3)^ | 2.79 | % | 2.80 | % | 2.97 | % | 3.23 | % | 3.34 | % |
| Less: Fully taxable-equivalent adjustment | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) |
| Net free funds/contribution^(2)^ | 0.35 | 0.39 | 0.42 | 0.41 | 0.38 | |||||
| Net interest margin (GAAP)^(3)^ | 3.12 | % | 3.17 | % | 3.37 | % | 3.62 | % | 3.70 | % |
| Fully taxable-equivalent adjustment | 0.02 | 0.02 | 0.02 | 0.02 | 0.02 | |||||
| Net interest margin, fully taxable-equivalent (non-GAAP)^(3)^ | 3.14 | % | 3.19 | % | 3.39 | % | 3.64 | % | 3.72 | % |
| (1) | Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities. | |||||||||
| --- | --- | |||||||||
| (2) | 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. | |||||||||
| --- | --- | |||||||||
| (3) | See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 17 for additional information on this performance measure/ratio. | |||||||||
| --- | --- |
21
TABLE 7: 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 | |||
|---|---|---|---|---|---|---|
| Mar 31, 2020 | 22.5 | % | 10.6 | % | (9.4 | )% |
| Dec 31, 2019 | 18.6 | 9.7 | (10.9 | ) | ||
| Sep 30, 2019 | 20.7 | 10.5 | (11.9 | ) | ||
| Jun 30, 2019 | 17.3 | 8.9 | (10.2 | ) | ||
| Mar 31, 2019 | 14.9 | 7.8 | (8.5 | ) | ||
| Ramp Scenario | +200<br>Basis<br>Points | +100<br>Basis<br>Points | -100<br>Basis<br>Points | |||
| --- | --- | --- | --- | --- | --- | --- |
| Mar 31, 2020 | 7.7 | % | 3.7 | % | (3.8 | )% |
| Dec 31, 2019 | 9.3 | 4.8 | (5.0 | ) | ||
| Sep 30, 2019 | 10.1 | 5.2 | (5.6 | ) | ||
| Jun 30, 2019 | 8.3 | 4.3 | (4.6 | ) | ||
| Mar 31, 2019 | 6.7 | 3.5 | (3.3 | ) |
22
TABLE 8: MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES
| Loans repricing or maturity period | ||||||||
|---|---|---|---|---|---|---|---|---|
| As of March 31, 2020 | One year or less | From one to five years | Over five years | |||||
| (In thousands) | Total | |||||||
| Commercial | ||||||||
| Fixed rate | $ | 295,238 | $ | 1,747,321 | $ | 808,067 | $ | 2,850,626 |
| Variable rate | 6,153,781 | 21,347 | 132 | 6,175,260 | ||||
| Total commercial | $ | 6,449,019 | $ | 1,768,668 | $ | 808,199 | $ | 9,025,886 |
| Commercial real estate | ||||||||
| Fixed rate | 518,259 | 2,242,979 | 434,901 | 3,196,139 | ||||
| Variable rate | 4,952,584 | 36,808 | — | 4,989,392 | ||||
| Total commercial real estate | $ | 5,470,843 | $ | 2,279,787 | $ | 434,901 | $ | 8,185,531 |
| Home equity | ||||||||
| Fixed rate | 24,813 | 4,070 | 570 | 29,453 | ||||
| Variable rate | 465,202 | — | — | 465,202 | ||||
| Total home equity | $ | 490,015 | $ | 4,070 | $ | 570 | $ | 494,655 |
| Residential real estate | ||||||||
| Fixed rate | 40,814 | 15,607 | 398,189 | 454,610 | ||||
| Variable rate | 90,205 | 338,495 | 494,079 | 922,779 | ||||
| Total residential real estate | $ | 131,019 | $ | 354,102 | $ | 892,268 | $ | 1,377,389 |
| Premium finance receivables - commercial | ||||||||
| Fixed rate | 3,378,077 | 86,978 | — | 3,465,055 | ||||
| Variable rate | — | — | — | — | ||||
| Total premium finance receivables - commercial | $ | 3,378,077 | $ | 86,978 | $ | — | $ | 3,465,055 |
| Premium finance receivables - life insurance | ||||||||
| Fixed rate | 16,164 | 142,886 | 23,785 | 182,835 | ||||
| Variable rate | 5,038,804 | — | — | 5,038,804 | ||||
| Total premium finance receivables - life insurance | $ | 5,054,968 | $ | 142,886 | $ | 23,785 | $ | 5,221,639 |
| Consumer and other | ||||||||
| Fixed rate | 8,478 | 8,304 | 1,669 | 18,451 | ||||
| Variable rate | 18,715 | — | — | 18,715 | ||||
| Total consumer and other | $ | 27,193 | $ | 8,304 | $ | 1,669 | $ | 37,166 |
| Total per category | ||||||||
| Fixed rate | 4,281,843 | 4,248,145 | 1,667,181 | 10,197,169 | ||||
| Variable rate | 16,719,291 | 396,650 | 494,211 | 17,610,152 | ||||
| Total loans, net of unearned income | $ | 21,001,134 | $ | 4,644,795 | $ | 2,161,392 | $ | 27,807,321 |
| Variable Rate Loan Pricing by Index: | ||||||||
| Prime | $ | 2,431,566 | ||||||
| One- month LIBOR | 8,888,190 | |||||||
| Three- month LIBOR | 332,833 | |||||||
| Twelve- month LIBOR | 5,696,796 | |||||||
| Other | 260,767 | |||||||
| Total variable rate | $ | 17,610,152 |
23
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 $8.9 billion of variable rate loans tied to one-month LIBOR and $5.7 billion of variable rate loans tied to twelve-month LIBOR. The above chart shows:
| Basis Points (bps) Change in | ||||||
|---|---|---|---|---|---|---|
| Prime | 1-month<br><br>LIBOR | 12-month<br><br>LIBOR | ||||
| First Quarter 2020 | -150 | bps | -77 | bps | -100 | bps |
| Fourth Quarter 2019 | -25 | -26 | -3 | |||
| Third Quarter 2019 | -50 | -38 | -15 | |||
| Second Quarter 2019 | 0 | -9 | -53 | |||
| First Quarter 2019 | 0 | -1 | -30 |
24
TABLE 9: ALLOWANCE FOR CREDIT LOSSES
| Three Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | |||||||||||
| (Dollars in thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||
| Allowance for credit losses at beginning of period | $ | 158,461 | $ | 163,273 | $ | 161,901 | $ | 159,622 | $ | 154,164 | |||||
| Cumulative effect adjustment from the adoption of ASU 2016-13 | 47,418 | — | — | — | — | ||||||||||
| Provision for credit losses | 52,961 | 7,826 | 10,834 | 24,580 | 10,624 | ||||||||||
| Other adjustments | (73 | ) | 30 | (13 | ) | (11 | ) | (27 | ) | ||||||
| Charge-offs: | |||||||||||||||
| Commercial | 2,153 | 11,222 | 6,775 | 17,380 | 503 | ||||||||||
| Commercial real estate | 85 | 533 | 809 | 326 | 3,734 | ||||||||||
| Home equity | 1,001 | 1,330 | 1,594 | 690 | 88 | ||||||||||
| Residential real estate | 356 | 483 | 25 | 287 | 3 | ||||||||||
| Premium finance receivables | 3,184 | 3,817 | 1,866 | 5,009 | 2,210 | ||||||||||
| Consumer and other | 128 | 167 | 117 | 136 | 102 | ||||||||||
| PCD^(1)^ | 530 | — | — | — | — | ||||||||||
| Total charge-offs | 7,437 | 17,552 | 11,186 | 23,828 | 6,640 | ||||||||||
| Recoveries: | |||||||||||||||
| Commercial | 356 | 1,871 | 367 | 289 | 318 | ||||||||||
| Commercial real estate | 79 | 1,404 | 385 | 247 | 480 | ||||||||||
| Home equity | 294 | 166 | 183 | 68 | 62 | ||||||||||
| Residential real estate | 60 | 50 | 203 | 140 | 29 | ||||||||||
| Premium finance receivables | 1,110 | 1,350 | 563 | 734 | 556 | ||||||||||
| Consumer and other | 39 | 43 | 36 | 60 | 56 | ||||||||||
| PCD^(1)^ | 214 | — | — | — | — | ||||||||||
| Total recoveries | 2,152 | 4,884 | 1,737 | 1,538 | 1,501 | ||||||||||
| Net charge-offs | (5,285 | ) | (12,668 | ) | (9,449 | ) | (22,290 | ) | (5,139 | ) | |||||
| Allowance for credit losses at period end | $ | 253,482 | $ | 158,461 | $ | 163,273 | $ | 161,901 | $ | 159,622 | |||||
| Annualized net charge-offs by category as a percentage of its own respective category’s average: | |||||||||||||||
| Commercial | 0.09 | % | 0.46 | % | 0.31 | % | 0.85 | % | 0.01 | % | |||||
| Commercial real estate | 0.00 | (0.04 | ) | 0.02 | 0.00 | 0.19 | |||||||||
| Home equity | 0.57 | 0.89 | 1.08 | 0.47 | 0.02 | ||||||||||
| Residential real estate | 0.10 | 0.14 | (0.07 | ) | 0.06 | (0.01 | ) | ||||||||
| Premium finance receivables | 0.10 | 0.28 | 0.15 | 0.55 | 0.23 | ||||||||||
| Consumer and other | 0.59 | 0.41 | 0.27 | 0.30 | 0.16 | ||||||||||
| PCD^(1)^ | 0.32 | — | — | — | — | ||||||||||
| Total loans, net of unearned income | 0.08 | % | 0.19 | % | 0.15 | % | 0.36 | % | 0.09 | % | |||||
| Net charge-offs as a percentage of the provision for credit losses | 9.98 | % | 161.87 | % | 87.22 | % | 90.68 | % | 48.37 | % | |||||
| Loans at period-end | $ | 27,807,321 | $ | 26,800,290 | $ | 25,710,171 | $ | 25,304,659 | $ | 24,214,629 | |||||
| Allowance for loan losses as a percentage of loans at period end | 0.78 | % | 0.59 | % | 0.63 | % | 0.63 | % | 0.65 | % | |||||
| Allowance for loan and unfunded lending-related commitment losses as a percentage of loans at period end | 0.91 | 0.59 | 0.64 | 0.64 | 0.66 | ||||||||||
| (1) | As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020. For prior periods presented, the previously classified PCI charge-offs and recoveries are presented with the non-PCI charge-offs and recoveries in their respective class. | ||||||||||||||
| --- | --- |
TABLE 10: ALLOWANCE AND PROVISON FOR CREDIT LOSSES BY COMPONENT
| Three Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | |||||||
| (In thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||
| Provision for loan losses | $ | 50,396 | $ | 7,704 | $ | 10,804 | $ | 24,510 | $ | 10,608 | |
| Provision for unfunded lending-related commitments losses | 2,569 | 122 | 30 | 70 | 16 | ||||||
| Provision for held-to-maturity securities losses | (4 | ) | — | — | — | — | |||||
| Provision for credit losses | $ | 52,961 | $ | 7,826 | $ | 10,834 | $ | 24,580 | $ | 10,624 | |
| Allowance for loan losses | $ | 216,050 | 156,828 | 161,763 | $ | 160,421 | $ | 158,212 | |||
| Allowance for unfunded lending-related commitments losses | 37,362 | 1,633 | 1,510 | 1,480 | 1,410 | ||||||
| Allowance for held-to-maturity securities losses | 70 | — | — | — | — | ||||||
| Allowance for credit losses | $ | 253,482 | $ | 158,461 | $ | 163,273 | $ | 161,901 | $ | 159,622 |
25
TABLE 11: 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 March 31, 2020 and December 31, 2019.
| As of March 31, 2020 | As of December 31, 2019 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Recorded<br><br>Investment | Calculated<br><br>Allowance | % of its<br><br>category’s balance | Recorded<br>Investment | Calculated<br>Allowance | % of its<br>category’s balance | ||||||
| Commercial: ^(1)^ | ||||||||||||
| Commercial, industrial and other | $ | 8,888,342 | $ | 104,754 | 1.18 | % | $ | 8,121,584 | $ | 64,829 | 0.80 | % |
| Commercial real estate: ^(1)^ | ||||||||||||
| Construction and development | 1,113,863 | 31,687 | 2.84 | 1,075,545 | 16,418 | 1.53 | ||||||
| Non-construction | 6,388,142 | 68,914 | 1.08 | 6,199,042 | 51,935 | 0.84 | ||||||
| Home equity ^(1)^ | 451,804 | 11,844 | 2.62 | 469,498 | 3,860 | 0.82 | ||||||
| Residential real estate ^(1)^ | 1,274,351 | 11,621 | 0.91 | 1,246,829 | 9,736 | 0.78 | ||||||
| Total core loan portfolio | $ | 18,116,502 | $ | 228,820 | 1.26 | % | $ | 17,112,498 | $ | 146,778 | 0.86 | % |
| Premium finance receivables ^(1)^ | ||||||||||||
| Commercial insurance loans | $ | 3,465,055 | $ | 7,426 | 0.21 | $ | 3,442,027 | $ | 8,132 | 0.24 | % | |
| Life insurance loans | 5,084,695 | 454 | 0.01 | 4,935,321 | 1,515 | 0.03 | ||||||
| Consumer and other ^(1)^ | 34,111 | 331 | 0.97 | 107,053 | 1,704 | 1.59 | ||||||
| Total niche and consumer loan portfolio | $ | 8,583,861 | $ | 8,211 | 0.10 | % | $ | 8,484,401 | $ | 11,351 | 0.13 | % |
| Purchased commercial ^(2)^ | $ | 137,544 | $ | 2,592 | 1.88 | $ | 164,336 | $ | 91 | 0.06 | % | |
| Purchased commercial real estate ^(2)^ | 683,526 | 12,195 | 1.78 | 745,689 | 158 | 0.02 | ||||||
| Purchased home equity ^(2)^ | 42,851 | 550 | 1.28 | 43,568 | 18 | 0.04 | ||||||
| Purchased residential real estate ^(2)^ | 103,038 | 929 | 0.90 | 107,392 | 64 | 0.06 | ||||||
| Purchased life insurance loans ^(2)^ | 136,944 | — | — | 139,281 | — | — | ||||||
| Purchased consumer and other ^(2)^ | 3,055 | 115 | 3.76 | 3,125 | 1 | 0.03 | ||||||
| Total purchased loan portfolio | $ | 1,106,958 | $ | 16,381 | 1.48 | $ | 1,203,391 | $ | 332 | 0.03 | % | |
| Total loans, net of unearned income | $ | 27,807,321 | $ | 253,412 | 0.91 | $ | 26,800,290 | 158,461 | 0.59 | % | ||
| (1) | As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020. Excludes PCD loans. | |||||||||||
| --- | --- | |||||||||||
| (2) | Includes PCD loans. | |||||||||||
| --- | --- |
26
TABLE 12: LOAN PORTFOLIO AGING
| As of March 31, 2020 | December 31, 2019 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Non-PCD | PCD^(1)^ | Total Loans | Non-PCD | PCD^(1)^ | Total Loans | ||||||
| Loan Balances: | ||||||||||||
| Commercial | ||||||||||||
| Nonaccrual | $ | 47,661 | $ | 2,255 | $ | 49,916 | $ | 37,224 | $ | — | $ | 37,224 |
| 90+ days and still accruing | 3 | 1,238 | 1,241 | — | 1,855 | 1,855 | ||||||
| 60-89 days past due | 8,541 | 332 | 8,873 | 2,852 | 423 | 3,275 | ||||||
| 30-59 days past due | 86,129 | — | 86,129 | 70,010 | 7,314 | 77,324 | ||||||
| Current | 8,857,394 | 22,333 | 8,879,727 | 8,147,528 | 18,714 | 8,166,242 | ||||||
| Total Commercial | $ | 8,999,728 | $ | 26,158 | $ | 9,025,886 | $ | 8,257,614 | $ | 28,306 | $ | 8,285,920 |
| Commercial real estate | ||||||||||||
| Nonaccrual | $ | 36,904 | $ | 25,926 | $ | 62,830 | $ | 26,113 | $ | — | $ | 26,113 |
| 90+ days and still accruing | 516 | — | 516 | — | 14,946 | 14,946 | ||||||
| 60-89 days past due | 7,415 | 2,797 | 10,212 | 23,573 | 7,973 | 31,546 | ||||||
| 30-59 days past due | 65,578 | 9,490 | 75,068 | 66,442 | 31,125 | 97,567 | ||||||
| Current | 7,863,567 | 173,338 | 8,036,905 | 7,666,708 | 183,396 | 7,850,104 | ||||||
| Total Commercial real estate | $ | 7,973,980 | $ | 211,551 | $ | 8,185,531 | $ | 7,782,836 | $ | 237,440 | $ | 8,020,276 |
| Home equity | ||||||||||||
| Nonaccrual | $ | 7,243 | $ | — | $ | 7,243 | $ | 7,363 | $ | — | $ | 7,363 |
| 90+ days and still accruing | — | — | — | — | — | — | ||||||
| 60-89 days past due | 214 | — | 214 | 454 | — | 454 | ||||||
| 30-59 days past due | 2,096 | — | 2,096 | 3,533 | — | 3,533 | ||||||
| Current | 485,102 | — | 485,102 | 501,716 | — | 501,716 | ||||||
| Total Home equity | $ | 494,655 | $ | — | $ | 494,655 | $ | 513,066 | $ | — | $ | 513,066 |
| Residential real estate | ||||||||||||
| Nonaccrual | $ | 13,132 | $ | 5,833 | $ | 18,965 | $ | 13,797 | $ | — | $ | 13,797 |
| 90+ days and still accruing | 605 | — | 605 | — | 5,771 | 5,771 | ||||||
| 60-89 days past due | 345 | — | 345 | 2,474 | 615 | 3,089 | ||||||
| 30-59 days past due | 26,437 | 2,546 | 28,983 | 16,664 | 1,377 | 18,041 | ||||||
| Current | 1,319,452 | 9,039 | 1,328,491 | 1,303,158 | 10,365 | 1,313,523 | ||||||
| Total Residential real estate | $ | 1,359,971 | $ | 17,418 | $ | 1,377,389 | $ | 1,336,093 | $ | 18,128 | $ | 1,354,221 |
| Premium finance receivables | ||||||||||||
| Nonaccrual | $ | 21,058 | $ | — | $ | 21,058 | $ | 21,180 | $ | — | $ | 21,180 |
| 90+ days and still accruing | 16,505 | — | 16,505 | 11,517 | — | 11,517 | ||||||
| 60-89 days past due | 12,730 | — | 12,730 | 12,119 | — | 12,119 | ||||||
| 30-59 days past due | 70,185 | — | 70,185 | 51,342 | — | 51,342 | ||||||
| Current | 8,429,272 | 136,944 | 8,566,216 | 8,281,189 | 139,282 | 8,420,471 | ||||||
| Total Premium finance receivables | $ | 8,549,750 | $ | 136,944 | $ | 8,686,694 | $ | 8,377,347 | $ | 139,282 | $ | 8,516,629 |
| Consumer and other | ||||||||||||
| Nonaccrual | $ | 232 | $ | 171 | $ | 403 | $ | 231 | $ | — | $ | 231 |
| 90+ days and still accruing | 78 | — | 78 | 163 | 124 | 287 | ||||||
| 60-89 days past due | 607 | 18 | 625 | 40 | — | 40 | ||||||
| 30-59 days past due | 188 | 19 | 207 | 344 | — | 344 | ||||||
| Current | 34,441 | 1,412 | 35,853 | 107,184 | 2,092 | 109,276 | ||||||
| Total Consumer and other | $ | 35,546 | $ | 1,620 | $ | 37,166 | $ | 107,962 | $ | 2,216 | $ | 110,178 |
| Total loans, net of unearned income | ||||||||||||
| Nonaccrual | $ | 126,230 | $ | 34,185 | $ | 160,415 | $ | 105,908 | $ | — | $ | 105,908 |
| 90+ days and still accruing | 17,707 | 1,238 | 18,945 | 11,680 | 22,696 | 34,376 | ||||||
| 60-89 days past due | 29,852 | 3,147 | 32,999 | 41,512 | 9,011 | 50,523 | ||||||
| 30-59 days past due | 250,613 | 12,055 | 262,668 | 208,335 | 39,816 | 248,151 | ||||||
| Current | 26,989,228 | 343,066 | 27,332,294 | 26,007,483 | 353,849 | 26,361,332 | ||||||
| Total loans, net of unearned income | $ | 27,413,630 | $ | 393,691 | $ | 27,807,321 | $ | 26,374,918 | $ | 425,372 | $ | 26,800,290 |
| (1) | As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020. For prior periods presented, the previously classified PCI loans are presented with the PCD loans in their respective class. | |||||||||||
| --- | --- |
27
TABLE 13: NON-PERFORMING ASSETS AND TROUBLED DEBT RESTRUCTURINGS ("TDRs")
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||||
| Loans past due greater than 90 days and still accruing ^(1)^: | Non-PCD | PCD^(2)^ | ||||||||||||||||
| Commercial | $ | 3 | $ | 1,238 | $ | — | $ | — | $ | 488 | $ | — | ||||||
| Commercial real estate | 516 | — | — | — | — | — | ||||||||||||
| Home equity | — | — | — | — | — | — | ||||||||||||
| Residential real estate | 605 | — | — | — | — | 30 | ||||||||||||
| Premium finance receivables | 16,505 | — | 11,517 | 10,612 | 6,940 | 6,726 | ||||||||||||
| Consumer and other | 78 | — | 163 | 53 | 172 | 218 | ||||||||||||
| Total loans past due greater than 90 days and still accruing | 17,707 | 1,238 | 11,680 | 10,665 | 7,600 | 6,974 | ||||||||||||
| Non-accrual loans: | ||||||||||||||||||
| Commercial | 47,661 | 2,255 | 37,224 | 43,931 | 47,604 | 55,792 | ||||||||||||
| Commercial real estate | 36,904 | 25,926 | 26,113 | 21,557 | 20,875 | 15,933 | ||||||||||||
| Home equity | 7,243 | — | 7,363 | 7,920 | 8,489 | 7,885 | ||||||||||||
| Residential real estate | 13,132 | 5,833 | 13,797 | 13,447 | 14,236 | 15,879 | ||||||||||||
| Premium finance receivables | 21,058 | — | 21,180 | 16,540 | 14,423 | 14,797 | ||||||||||||
| Consumer and other | 232 | 171 | 231 | 224 | 220 | 326 | ||||||||||||
| Total non-accrual loans | 126,230 | 34,185 | 105,908 | 103,619 | 105,847 | 110,612 | ||||||||||||
| Total non-performing loans: | ||||||||||||||||||
| Commercial | 47,664 | 3,493 | 37,224 | 43,931 | 48,092 | 55,792 | ||||||||||||
| Commercial real estate | 37,420 | 25,926 | 26,113 | 21,557 | 20,875 | 15,933 | ||||||||||||
| Home equity | 7,243 | — | 7,363 | 7,920 | 8,489 | 7,885 | ||||||||||||
| Residential real estate | 13,737 | 5,833 | 13,797 | 13,447 | 14,236 | 15,909 | ||||||||||||
| Premium finance receivables | 37,563 | — | 32,697 | 27,152 | 21,363 | 21,523 | ||||||||||||
| Consumer and other | 310 | 171 | 394 | 277 | 392 | 544 | ||||||||||||
| Total non-performing loans | $ | 143,937 | $ | 35,423 | $ | 117,588 | $ | 114,284 | $ | 113,447 | $ | 117,586 | ||||||
| Other real estate owned | 2,701 | — | 5,208 | 8,584 | 9,920 | 9,154 | ||||||||||||
| Other real estate owned - from acquisitions | 8,325 | — | 9,963 | 8,898 | 9,917 | 12,366 | ||||||||||||
| Other repossessed assets | — | — | 4 | 257 | 263 | 270 | ||||||||||||
| Total non-performing assets | $ | 154,963 | $ | 35,423 | $ | 132,763 | $ | 132,023 | $ | 133,547 | $ | 139,376 | ||||||
| Accruing TDRs not included within non-performing assets | $ | 46,995 | $ | 54 | $ | 36,725 | $ | 45,178 | $ | 45,862 | $ | 48,305 | ||||||
| Total non-performing loans by category as a percent of its own respective category’s period-end balance: | ||||||||||||||||||
| Commercial | 0.53 | % | 13.35 | % | 0.45 | % | 0.54 | % | 0.58 | % | 0.70 | % | ||||||
| Commercial real estate | 0.47 | 12.26 | 0.33 | 0.29 | 0.29 | 0.23 | ||||||||||||
| Home equity | 1.46 | — | 1.44 | 1.55 | 1.61 | 1.49 | ||||||||||||
| Residential real estate | 1.01 | 33.49 | 1.02 | 1.10 | 1.27 | 1.51 | ||||||||||||
| Premium finance receivables | 0.44 | — | 0.39 | 0.34 | 0.27 | 0.29 | ||||||||||||
| Consumer and other | 0.87 | 10.56 | 0.36 | 0.31 | 0.36 | 0.45 | ||||||||||||
| Total loans, net of unearned income | 0.53 | % | 9.00 | % | 0.44 | % | 0.44 | % | 0.45 | % | 0.49 | % | ||||||
| Total non-performing assets as a percentage of total assets | 0.49 | % | 0.36 | % | 0.38 | % | 0.40 | % | 0.43 | % | ||||||||
| Allowance for loan losses as a percentage of total non-performing loans | 120.46 | % | 133.37 | % | 141.54 | % | 141.41 | % | 134.55 | % | ||||||||
| (1) | As of March 31, 2020, December 31, 2019, September 30, 2019, June 30, 2019, and March 31, 2019, no TDRs were past due greater than 90 days and still accruing interest. | |||||||||||||||||
| --- | --- | |||||||||||||||||
| (2) | As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020. | |||||||||||||||||
| --- | --- |
28
Non-performing Loans Rollforward
| Three Months Ended | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | ||||||||||||||
| (In thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||||
| Non-PCD | PCD^(2)^ | |||||||||||||||||
| Balance at beginning of period | $ | 117,588 | $ | — | $ | 114,284 | $ | 113,447 | $ | 117,586 | $ | 113,234 | ||||||
| Additions, net | 30,390 | 1,805 | 30,977 | 20,781 | 20,567 | 24,030 | ||||||||||||
| Additions from the adoption of ASU 2016-13 | — | 37,285 | — | — | — | — | ||||||||||||
| Return to performing status | (317 | ) | (169 | ) | (243 | ) | (407 | ) | (47 | ) | (14,077 | ) | ||||||
| Payments received | (4,451 | ) | (3,498 | ) | (19,380 | ) | (16,326 | ) | (5,438 | ) | (4,024 | ) | ||||||
| Transfer to OREO and other repossessed assets | (1,297 | ) | — | — | (1,493 | ) | (1,486 | ) | (82 | ) | ||||||||
| Charge-offs | (2,551 | ) | — | (11,798 | ) | (6,984 | ) | (16,817 | ) | (3,992 | ) | |||||||
| Net change for niche loans ^(1)^ | 4,575 | — | 3,748 | 5,266 | (918 | ) | 2,497 | |||||||||||
| Balance at end of period | $ | 143,937 | $ | 35,423 | $ | 117,588 | $ | 114,284 | $ | 113,447 | $ | 117,586 | ||||||
| (1) | This includes activity for premium finance receivables and indirect consumer loans. | |||||||||||||||||
| --- | --- | |||||||||||||||||
| (2) | As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020. | |||||||||||||||||
| --- | --- |
TDRs
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | |||||
| Accruing TDRs: | ||||||||||
| Commercial | $ | 6,500 | $ | 4,905 | $ | 14,099 | $ | 15,923 | $ | 19,650 |
| Commercial real estate | 18,043 | 9,754 | 10,370 | 12,646 | 14,123 | |||||
| Residential real estate and other | 22,506 | 22,066 | 20,709 | 17,293 | 14,532 | |||||
| Total accrual | $ | 47,049 | $ | 36,725 | $ | 45,178 | $ | 45,862 | $ | 48,305 |
| Non-accrual TDRs: ^(1)^ | ||||||||||
| Commercial | $ | 17,206 | $ | 13,834 | $ | 7,451 | $ | 21,850 | $ | 34,390 |
| Commercial real estate | 14,420 | 7,119 | 7,673 | 2,854 | 1,517 | |||||
| Residential real estate and other | 4,962 | 6,158 | 6,006 | 5,435 | 4,150 | |||||
| Total non-accrual | $ | 36,588 | $ | 27,111 | $ | 21,130 | $ | 30,139 | $ | 40,057 |
| Total TDRs: | ||||||||||
| Commercial | $ | 23,706 | $ | 18,739 | $ | 21,550 | $ | 37,773 | $ | 54,040 |
| Commercial real estate | 32,463 | 16,873 | 18,043 | 15,500 | 15,640 | |||||
| Residential real estate and other | 27,468 | 28,224 | 26,715 | 22,728 | 18,682 | |||||
| Total TDRs | $ | 83,637 | $ | 63,836 | $ | 66,308 | $ | 76,001 | $ | 88,362 |
| (1) | Included in total non-performing loans. | |||||||||
| --- | --- |
Other Real Estate Owned
| Three Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | |||||||||||
| (In thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||
| Balance at beginning of period | $ | 15,171 | $ | 17,482 | $ | 19,837 | $ | 21,520 | $ | 24,820 | |||||
| Disposals/resolved | (4,793 | ) | (4,860 | ) | (4,501 | ) | (2,397 | ) | (2,758 | ) | |||||
| Transfers in at fair value, less costs to sell | 954 | 936 | 3,008 | 1,746 | 32 | ||||||||||
| Additions from acquisition | — | 2,179 | — | — | — | ||||||||||
| Fair value adjustments | (306 | ) | (566 | ) | (862 | ) | (1,032 | ) | (574 | ) | |||||
| Balance at end of period | $ | 11,026 | $ | 15,171 | $ | 17,482 | $ | 19,837 | $ | 21,520 | |||||
| Period End | |||||||||||||||
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | |||||||||||
| Balance by Property Type: | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||
| Residential real estate | $ | 1,684 | $ | 1,016 | $ | 1,250 | $ | 1,312 | $ | 3,037 | |||||
| Residential real estate development | — | 810 | 1,282 | 1,282 | 1,139 | ||||||||||
| Commercial real estate | 9,342 | 13,345 | 14,950 | 17,243 | 17,344 | ||||||||||
| Total | $ | 11,026 | $ | 15,171 | $ | 17,482 | $ | 19,837 | $ | 21,520 |
29
TABLE 14: NON-INTEREST INCOME
| Three Months Ended | Q1 2020 compared to Q4 2019 | Q1 2020 compared to Q1 2019 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | ||||||||||||||||||
| (Dollars in thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | Change | % Change | Change | % Change | |||||||||||||
| Brokerage | $ | 5,281 | $ | 4,859 | $ | 4,686 | $ | 4,764 | $ | 4,516 | 9 | % | 17 | % | ||||||||
| Trust and asset management | 20,660 | 20,140 | 19,313 | 19,375 | 19,461 | 520 | 3 | 1,199 | 6 | |||||||||||||
| Total wealth management | 25,941 | 24,999 | 23,999 | 24,139 | 23,977 | 942 | 4 | 1,964 | 8 | |||||||||||||
| Mortgage banking | 48,326 | 47,860 | 50,864 | 37,411 | 18,158 | 466 | 1 | 30,168 | NM | |||||||||||||
| Service charges on deposit accounts | 11,265 | 10,973 | 9,972 | 9,277 | 8,848 | 292 | 3 | 2,417 | 27 | |||||||||||||
| (Losses) gains on investment securities, net | (4,359 | ) | 587 | 710 | 864 | 1,364 | (4,946 | ) | NM | (5,723 | ) | NM | ||||||||||
| Fees from covered call options | 2,292 | 1,243 | — | 643 | 1,784 | 1,049 | 84 | 508 | 28 | |||||||||||||
| Trading (losses) gains, net | (451 | ) | 46 | 11 | (44 | ) | (171 | ) | (497 | ) | NM | (280 | ) | NM | ||||||||
| Operating lease income, net | 11,984 | 12,487 | 12,025 | 11,733 | 10,796 | (503 | ) | (4 | ) | 1,188 | 11 | |||||||||||
| Other: | ||||||||||||||||||||||
| Interest rate swap fees | 6,066 | 2,206 | 4,811 | 3,224 | 2,831 | 3,860 | NM | 3,235 | NM | |||||||||||||
| BOLI | (1,284 | ) | 1,377 | 830 | 1,149 | 1,591 | (2,661 | ) | NM | (2,875 | ) | NM | ||||||||||
| Administrative services | 1,112 | 1,072 | 1,086 | 1,009 | 1,030 | 40 | 4 | 82 | 8 | |||||||||||||
| Foreign currency remeasurement (losses) gains | (151 | ) | 261 | (55 | ) | 113 | 464 | (412 | ) | NM | (615 | ) | NM | |||||||||
| Early pay-offs of capital leases | 74 | 24 | 6 | — | 5 | 50 | NM | 69 | NM | |||||||||||||
| Miscellaneous | 12,427 | 9,085 | 10,878 | 8,640 | 10,980 | 3,342 | 37 | 1,447 | 13 | |||||||||||||
| Total Other | 18,244 | 14,025 | 17,556 | 14,135 | 16,901 | 4,219 | 30 | 1,343 | 8 | |||||||||||||
| Total Non-Interest Income | $ | 113,242 | $ | 112,220 | $ | 115,137 | $ | 98,158 | $ | 81,657 | 1 | % | 39 | % |
All values are in US Dollars.
NM - Not meaningful.
30
TABLE 15: MORTGAGE BANKING
| Three Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Mar 31, <br>2020 | Dec 31, <br>2019 | Sep 30, <br>2019 | Jun 30, <br>2019 | Mar 31, <br>2019 | ||||||||||
| Originations and Commitments: | |||||||||||||||
| Retail originations | $ | 773,144 | $ | 782,122 | $ | 913,631 | $ | 669,510 | $ | 365,602 | |||||
| Correspondent originations | — | 4,024 | 50,639 | 182,966 | 148,100 | ||||||||||
| Veterans First originations | 442,957 | 459,236 | 456,005 | 301,324 | 164,762 | ||||||||||
| Total originations for sale (A) | $ | 1,216,101 | $ | 1,245,382 | $ | 1,420,275 | $ | 1,153,800 | $ | 678,464 | |||||
| Originations for investment | 73,727 | 105,911 | 154,897 | 106,237 | 93,689 | ||||||||||
| Total originations | $ | 1,289,828 | $ | 1,351,293 | $ | 1,575,172 | $ | 1,260,037 | $ | 772,153 | |||||
| Purchases as a percentage of originations for sale | 37 | % | 40 | % | 48 | % | 63 | % | 67 | % | |||||
| Refinances as a percentage of originations for sale | 63 | 60 | 52 | 37 | 33 | ||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||
| Mandatory commitments to fund originations for sale ^(1)^ | $ | 1,375,162 | $ | 372,357 | $ | 433,009 | $ | 475,618 | $ | 285,917 | |||||
| Production Margin: | |||||||||||||||
| Production revenue (B) ^(2)^ | $ | 31,964 | $ | 35,600 | $ | 39,881 | $ | 29,905 | $ | 16,942 | |||||
| Production margin (B / A) | 2.63 | % | 2.86 | % | 2.81 | % | 2.59 | % | 2.50 | % | |||||
| Mortgage Servicing: | |||||||||||||||
| Loans serviced for others (C) | $ | 8,314,634 | $ | 8,243,251 | $ | 7,901,045 | $ | 7,515,186 | $ | 7,014,269 | |||||
| MSRs, at fair value (D) | 73,504 | 85,638 | 75,585 | 72,850 | 71,022 | ||||||||||
| Percentage of MSRs to loans serviced for others (D / C) | 0.88 | % | 1.04 | % | 0.96 | % | 0.97 | % | 1.01 | % | |||||
| Servicing income | $ | 7,031 | $ | 6,247 | $ | 5,989 | $ | 5,460 | $ | 5,460 | |||||
| Components of MSRs: | |||||||||||||||
| MSR - current period capitalization | $ | 9,447 | $ | 14,532 | $ | 14,029 | $ | 9,802 | $ | 6,580 | |||||
| MSR - collection of expected cash flows - paydowns | (547 | ) | (483 | ) | (456 | ) | (457 | ) | (505 | ) | |||||
| MSR - collection of expected cash flows - payoffs | (6,476 | ) | (6,325 | ) | (6,781 | ) | (3,619 | ) | (1,492 | ) | |||||
| Valuation: | |||||||||||||||
| MSR - changes in fair value model assumptions | (14,557 | ) | 2,329 | (4,058 | ) | (4,305 | ) | (8,744 | ) | ||||||
| Gain (loss) on derivative contract held as an economic hedge, net | 4,160 | (483 | ) | 82 | 920 | — | |||||||||
| MSR valuation adjustment, net of (loss)/gain on derivative contract held as an economic hedge | $ | (10,397 | ) | $ | 1,846 | $ | (3,976 | ) | $ | (3,385 | ) | $ | (8,744 | ) | |
| (1) | Certain volume adjusted for the estimated pull-through rate of the loan, which represents the Company’s best estimate of the likelihood that a committed loan will ultimately fund. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | Production revenue represents revenue earned from the origination and subsequent sale of mortgages, including gains on loans sold and fees from originations, processing and other related activities, and excludes servicing fees, changes in the fair value of servicing rights. Excludes changes to the mortgage recourse obligation, derivative income from interest rate lock commitments and other non-production revenue. | ||||||||||||||
| --- | --- |
31
TABLE 16: NON-INTEREST EXPENSE
| Three Months Ended | Q1 2020 compared to Q4 2019 | Q1 2020 compared to Q1 2019 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | |||||||||||||||
| (Dollars in thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | Change | % Change | Change | % Change | ||||||||||
| Salaries and employee benefits: | |||||||||||||||||||
| Salaries | $ | 81,286 | $ | 82,888 | $ | 78,067 | $ | 75,360 | $ | 74,037 | ) | (2 | )% | 10 | % | ||||
| Commissions and incentive compensation | 31,575 | 40,226 | 40,289 | 36,486 | 31,599 | (8,651 | ) | (22 | ) | (24 | ) | — | |||||||
| Benefits | 23,901 | 22,827 | 22,668 | 21,886 | 20,087 | 1,074 | 5 | 3,814 | 19 | ||||||||||
| Total salaries and employee benefits | 136,762 | 145,941 | 141,024 | 133,732 | 125,723 | (9,179 | ) | (6 | ) | 11,039 | 9 | ||||||||
| Equipment | 14,834 | 14,485 | 13,314 | 12,759 | 11,770 | 349 | 2 | 3,064 | 26 | ||||||||||
| Operating lease equipment | 9,260 | 9,766 | 8,907 | 8,768 | 8,319 | (506 | ) | (5 | ) | 941 | 11 | ||||||||
| Occupancy, net | 17,547 | 17,132 | 14,991 | 15,921 | 16,245 | 415 | 2 | 1,302 | 8 | ||||||||||
| Data processing | 8,373 | 7,569 | 6,522 | 6,204 | 7,525 | 804 | 11 | 848 | 11 | ||||||||||
| Advertising and marketing | 10,862 | 12,517 | 13,375 | 12,845 | 9,858 | (1,655 | ) | (13 | ) | 1,004 | 10 | ||||||||
| Professional fees | 6,721 | 7,650 | 8,037 | 6,228 | 5,556 | (929 | ) | (12 | ) | 1,165 | 21 | ||||||||
| Amortization of other intangible assets | 2,863 | 3,017 | 2,928 | 2,957 | 2,942 | (154 | ) | (5 | ) | (79 | ) | (3 | ) | ||||||
| FDIC insurance | 4,135 | 1,348 | 148 | 4,127 | 3,576 | 2,787 | NM | 559 | 16 | ||||||||||
| OREO expense, net | (876 | ) | 536 | 1,170 | 1,290 | 632 | (1,412 | ) | NM | (1,508 | ) | NM | |||||||
| Other: | |||||||||||||||||||
| Commissions - 3rd party brokers | 865 | 717 | 734 | 749 | 718 | 148 | 21 | 147 | 20 | ||||||||||
| Postage | 1,949 | 2,220 | 2,321 | 2,606 | 2,450 | (271 | ) | (12 | ) | (501 | ) | (20 | ) | ||||||
| Miscellaneous | 21,346 | 26,693 | 21,083 | 21,421 | 19,060 | (5,347 | ) | (20 | ) | 2,286 | 12 | ||||||||
| Total other | 24,160 | 29,630 | 24,138 | 24,776 | 22,228 | (5,470 | ) | (18 | ) | 1,932 | 9 | ||||||||
| Total Non-Interest Expense | $ | 234,641 | $ | 249,591 | $ | 234,554 | $ | 229,607 | $ | 214,374 | ) | (6 | )% | 9 | % |
All values are in US Dollars.
NM - Not meaningful.
32
TABLE 17: 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, pre-tax income, excluding provision for credit losses and pre-tax income, excluding provision for credit losses and MSR valuation adjustment. 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 and pre-tax income, excluding provision for credit losses and MSR valuation adjustment as useful measurements of the Company's core net income.
| Three Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | |||||||||||
| (Dollars and shares in thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||
| Reconciliation of Non-GAAP Net Interest Margin and Efficiency Ratio: | |||||||||||||||
| (A) Interest Income (GAAP) | $ | 344,067 | $ | 349,731 | $ | 354,627 | $ | 346,814 | $ | 333,970 | |||||
| Taxable-equivalent adjustment: | |||||||||||||||
| - Loans | 860 | 892 | 978 | 1,031 | 1,034 | ||||||||||
| - Liquidity Management Assets | 551 | 573 | 574 | 568 | 565 | ||||||||||
| - Other Earning Assets | 2 | 1 | 5 | 1 | 2 | ||||||||||
| (B) Interest Income (non-GAAP) | $ | 345,480 | $ | 351,197 | $ | 356,184 | $ | 348,414 | $ | 335,571 | |||||
| (C) Interest Expense (GAAP) | $ | 82,624 | $ | 87,852 | $ | 89,775 | $ | 80,612 | $ | 71,984 | |||||
| (D) Net Interest Income (GAAP) (A minus C) | $ | 261,443 | $ | 261,879 | $ | 264,852 | $ | 266,202 | $ | 261,986 | |||||
| (E) Net Interest Income (non-GAAP) (B minus C) | $ | 262,856 | $ | 263,345 | $ | 266,409 | $ | 267,802 | $ | 263,587 | |||||
| Net interest margin (GAAP) | 3.12 | % | 3.17 | % | 3.37 | % | 3.62 | % | 3.70 | % | |||||
| Net interest margin, fully taxable-equivalent (non-GAAP) | 3.14 | % | 3.19 | % | 3.39 | % | 3.64 | % | 3.72 | % | |||||
| (F) Non-interest income | $ | 113,242 | $ | 112,220 | $ | 115,137 | $ | 98,158 | $ | 81,657 | |||||
| (G) (Losses) gains on investment securities, net | (4,359 | ) | 587 | 710 | 864 | 1,364 | |||||||||
| (H) Non-interest expense | 234,641 | 249,591 | 234,554 | 229,607 | 214,374 | ||||||||||
| Efficiency ratio (H/(D+F-G)) | 61.90 | % | 66.82 | % | 61.84 | % | 63.17 | % | 62.63 | % | |||||
| Efficiency ratio (non-GAAP) (H/(E+F-G)) | 61.67 | % | 66.56 | % | 61.59 | % | 62.89 | % | 62.34 | % | |||||
| Reconciliation of Non-GAAP Tangible Common Equity Ratio: | |||||||||||||||
| Total shareholders’ equity (GAAP) | $ | 3,700,393 | $ | 3,691,250 | $ | 3,540,325 | $ | 3,446,950 | $ | 3,371,972 | |||||
| Less: Non-convertible preferred stock (GAAP) | (125,000 | ) | (125,000 | ) | (125,000 | ) | (125,000 | ) | (125,000 | ) | |||||
| Less: Intangible assets (GAAP) | (687,626 | ) | (692,277 | ) | (627,972 | ) | (631,499 | ) | (620,224 | ) | |||||
| (I) Total tangible common shareholders’ equity (non-GAAP) | $ | 2,887,767 | $ | 2,873,973 | $ | 2,787,353 | $ | 2,690,451 | $ | 2,626,748 | |||||
| (J) Total assets (GAAP) | $ | 38,799,847 | $ | 36,620,583 | $ | 34,911,902 | $ | 33,641,769 | $ | 32,358,621 | |||||
| Less: Intangible assets (GAAP) | (687,626 | ) | (692,277 | ) | (627,972 | ) | (631,499 | ) | (620,224 | ) | |||||
| (K) Total tangible assets (non-GAAP) | $ | 38,112,221 | $ | 35,928,306 | $ | 34,283,930 | $ | 33,010,270 | $ | 31,738,397 | |||||
| Common equity to assets ratio (GAAP) (L/J) | 9.2 | % | 9.7 | % | 9.8 | % | 9.9 | % | 10.0 | % | |||||
| Tangible common equity ratio (non-GAAP) (I/K) | 7.6 | % | 8.0 | % | 8.1 | % | 8.2 | % | 8.3 | % |
33
| Three Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, | Dec 31, | Sep 30, | Jun 30, | Mar 31, | |||||||||||
| (Dollars and shares in thousands) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||
| Reconciliation of Non-GAAP Tangible Book Value per Common Share: | |||||||||||||||
| Total shareholders’ equity | $ | 3,700,393 | $ | 3,691,250 | $ | 3,540,325 | $ | 3,446,950 | $ | 3,371,972 | |||||
| Less: Preferred stock | (125,000 | ) | (125,000 | ) | (125,000 | ) | (125,000 | ) | (125,000 | ) | |||||
| (L) Total common equity | $ | 3,575,393 | $ | 3,566,250 | $ | 3,415,325 | $ | 3,321,950 | $ | 3,246,972 | |||||
| (M) Actual common shares outstanding | 57,545 | 57,822 | 56,698 | 56,668 | 56,639 | ||||||||||
| Book value per common share (L/M) | $ | 62.13 | $ | 61.68 | $ | 60.24 | $ | 58.62 | $ | 57.33 | |||||
| Tangible book value per common share (non-GAAP) (I/M) | $ | 50.18 | $ | 49.70 | $ | 49.16 | $ | 47.48 | $ | 46.38 | |||||
| Reconciliation of Non-GAAP Return on Average Tangible Common Equity: | |||||||||||||||
| (N) Net income applicable to common shares | $ | 60,762 | $ | 83,914 | $ | 97,071 | $ | 79,416 | $ | 87,096 | |||||
| Add: Intangible asset amortization | 2,863 | 3,017 | 2,928 | 2,957 | 2,942 | ||||||||||
| Less: Tax effect of intangible asset amortization | (799 | ) | (793 | ) | (773 | ) | (771 | ) | (731 | ) | |||||
| After-tax intangible asset amortization | 2,064 | 2,224 | 2,155 | 2,186 | 2,211 | ||||||||||
| (O) Tangible net income applicable to common shares (non-GAAP) | $ | 62,826 | $ | 86,138 | $ | 99,226 | $ | 81,602 | $ | 89,307 | |||||
| Total average shareholders' equity | $ | 3,710,169 | $ | 3,622,184 | $ | 3,496,714 | $ | 3,414,340 | $ | 3,309,078 | |||||
| Less: Average preferred stock | (125,000 | ) | (125,000 | ) | (125,000 | ) | (125,000 | ) | (125,000 | ) | |||||
| (P) Total average common shareholders' equity | $ | 3,585,169 | $ | 3,497,184 | $ | 3,371,714 | $ | 3,289,340 | $ | 3,184,078 | |||||
| Less: Average intangible assets | (690,777 | ) | (689,286 | ) | (630,279 | ) | (624,794 | ) | (622,240 | ) | |||||
| (Q) Total average tangible common shareholders’ equity (non-GAAP) | $ | 2,894,392 | $ | 2,807,898 | $ | 2,741,435 | $ | 2,664,546 | $ | 2,561,838 | |||||
| Return on average common equity, annualized (N/P) | 6.82 | % | 9.52 | % | 11.42 | % | 9.68 | % | 11.09 | % | |||||
| Return on average tangible common equity, annualized (non-GAAP) (O/Q) | 8.73 | % | 12.17 | % | 14.36 | % | 12.28 | % | 14.14 | % | |||||
| Reconciliation of Non-GAAP Pre-Tax, Pre-Provision Income and Pre-Tax, Pre-Provision, Pre-MSR Adjustment Income: | |||||||||||||||
| Income before taxes | $ | 87,083 | $ | 116,682 | $ | 134,601 | $ | 110,173 | $ | 118,645 | |||||
| Add: Provision for credit losses | 52,961 | 7,826 | 10,834 | 24,580 | 10,624 | ||||||||||
| Pre-tax income, excluding provision for credit losses (non-GAAP) | $ | 140,044 | $ | 124,508 | $ | 145,435 | $ | 134,753 | $ | 129,269 | |||||
| Less: MSR valuation adjustment, net of (loss)/gain on derivative contract held as an economic hedge | $ | (10,397 | ) | $ | 1,846 | $ | (3,976 | ) | $ | (3,385 | ) | $ | (8,744 | ) | |
| Pre-tax income, excluding provision for credit losses and MSR valuation adjustments (non-GAAP) | $ | 150,441 | $ | 122,662 | $ | 149,411 | $ | 138,138 | $ | 138,013 |
34
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, 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, Island Lake, 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, Roselle, Round Lake Beach, Shorewood, Skokie, South Holland, South Elgin, 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. |
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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 potential 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
35
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; |
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| • | 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; |
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| • | 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; |
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| • | 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; |
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| • | negative effects suffered by us or our customers resulting from changes in U.S. trade policies; |
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| • | the extent of defaults and losses on the Company’s loan portfolio, which may require further increases in its allowance for credit losses; |
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| • | estimates of fair value of certain of the Company’s assets and liabilities, which could change in value significantly from period to period; |
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| • | the financial success and economic viability of the borrowers of our commercial loans; |
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| • | commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin; |
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| • | 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; |
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| • | inaccurate assumptions in our analytical and forecasting models used to manage our loan portfolio; |
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| • | 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; |
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| • | 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; |
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| • | 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; |
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| • | unexpected difficulties and losses related to FDIC-assisted acquisitions; |
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| • | harm to the Company’s reputation; |
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| • | any negative perception of the Company’s financial strength; |
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| • | ability of the Company to raise additional capital on acceptable terms when needed; |
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| • | disruption in capital markets, which may lower fair values for the Company’s investment portfolio; |
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| • | 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; |
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| • | failure or breaches of our security systems or infrastructure, or those of third parties; |
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| • | security breaches, including denial of service attacks, hacking, social engineering attacks, malware intrusion or data corruption attempts and identity theft; |
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| • | adverse effects on our information technology systems resulting from failures, human error or cyberattacks; |
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| • | 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; |
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| • | increased costs as a result of protecting our customers from the impact of stolen debit card information; |
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| • | accuracy and completeness of information the Company receives about customers and counterparties to make credit decisions; |
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| • | ability of the Company to attract and retain senior management experienced in the banking and financial services industries; |
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| • | environmental liability risk associated with lending activities; |
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| • | the impact of any claims or legal actions to which the Company is subject, including any effect on our reputation; |
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| • | losses incurred in connection with repurchases and indemnification payments related to mortgages and increases in reserves associated therewith; |
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| • | the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank; |
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| • | the soundness of other financial institutions; |
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| • | the expenses and delayed returns inherent in opening new branches and de novo banks; |
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| • | examinations and challenges by tax authorities, and any unanticipated impact of the Tax Act; |
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| • | 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; |
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| • | the ability of the Company to receive dividends from its subsidiaries; |
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36
| • | uncertainty about the discontinued use of LIBOR and transition to an alternative rate; |
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| • | a decrease in the Company’s capital ratios, including as a result of declines in the value of its loan portfolios, or otherwise; |
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| • | 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 and the rules and regulations that may be promulgated thereunder; |
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| • | a lowering of our credit rating; |
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| • | 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; |
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| • | regulatory restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business; |
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| • | increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the regulatory environment; |
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| • | the impact of heightened capital requirements; |
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| • | increases in the Company’s FDIC insurance premiums, or the collection of special assessments by the FDIC; |
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| • | delinquencies or fraud with respect to the Company’s premium finance business; |
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| • | credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company’s premium finance loans; |
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| • | the Company’s ability to comply with covenants under its credit facility; and |
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| • | fluctuations in the stock market, which may have an adverse impact on the Company’s wealth management business and brokerage operation. |
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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 Wednesday, April 22, 2020 at 10:00 a.m. (Central Time) regarding first quarter 2020 results. Individuals interested in listening should call (877) 363-5049 and enter Conference ID #6554248. 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 first quarter 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.
37
earningsreleasepresent20
Wintrust Financial Corporation Earnings Release Presentation Q1 2020
Q1 2020 Highlights Performance Highlights vs. Q4 2019 Key Observations (Q1 2020) • Net interest income decreased by $436,000 compared to the fourth quarter of 2019 as the impact of a 5 basis point decline in net interest margin and one less $62.8 million -$23.2 million day was partially offset by a $925 million increase in average earning assets. Net Income Net Income • The allowance for credit losses increased by $95.0 million to $253.5 million as $1.04 -$0.40 of March 31, 2020 as compared to $158.5 million as of December 31, 2019. The Diluted EPS1 Diluted EPS1 change in allowance for credit losses was due to: ◦ An increase of $47.4 million related to the cumulative effect adjustment 0.69% -27 bps2 from the adoption of the Current Expected Credit Loss ("CECL") 3 3 standard effective as of January 1, 2020. ROA ROA ◦ Provision for credit losses of $53.0 million in the current quarter. Provision for credit losses increased by $45.2 million from a provision 2 6.82% -270 bps for credit losses of $7.8 million in the fourth quarter of 2019 primarily 4 4 ROE ROE related to the implementation of CECL and the economic conditions created by the COVID-19 pandemic. 1.33% -20 bps2 ◦ Net charge-offs of $5.3 million in the first quarter of 2020 as compared Net Overhead Ratio Net Overhead Ratio to $12.7 million in the fourth quarter of 2019. 61.90% -492 bps2 Efficiency Ratio (GAAP) Efficiency Ratio (GAAP) Other First Quarter Highlights 61.67% -489 bps2 • Recorded $17.4 million of derivative income associated with mandatory Efficiency Ratio (Non-GAAP5) Efficiency Ratio (Non-GAAP5) commitments to fund mortgage originations for sale in the current quarter as compared to a $1.0 million derivative loss in the fourth quarter of 2019. As of 3/31/2020 vs. 12/31/2019 • Recorded a decrease in the value of mortgage servicing rights related to changes in fair value model assumptions, net of derivative contract activity $38.8 billion +$2.2 billion held as an economic hedge, of $10.4 million. Total Assets Total Assets • Recognized $4.4 million of net losses on investment securities, primarily as a $27.8 billion +$1.0 billion result of unrealized losses on market sensitive securities. Total Loans Total Loans • Incurred acquisition related costs of $1.7 million in the first quarter of 2020 as $31.5 billion +$1.4 billion compared to $2.4 million in the fourth quarter of 2019. Total Deposits Total Deposits 1 Diluted EPS: Net Income Per Common Share - Diluted 2 Bps: Basis Points 3 ROA: Return on Average Assets 4 ROE: Return on Average Common Equity 5See Non-GAAP reconciliation on pg. 14 2
Earnings Summary Condensed Income Statement Current Q Difference vs. Current Q Net Income & ROA ($ in Millions) Thousands ($) Q1 2020 Q4 2019 Q1 2019 $99.1 Net Interest Income $261,443 $(436) $(543) $89.1 $81.5 $86.0 Key Observations Non-Interest Income $113,242 $1,022 $31,585 1.16% 1.16% $62.8 • Pre-Provision Net Revenue increased by $15.5 million compared to Net Revenue $374,685 $586 $31,042 1.02% 0.96% the prior quarter and $10.8 million as compared to Q1 2019 Non-Interest Expense $234,641 $(14,950) $20,267 Pre-Provision Net Revenue $140,044 $15,536 $10,775 0.69% Provision For Credit Losses $52,961 $45,135 $42,337 • Income Before Taxes $87,083 $(29,599) $(31,562) Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Income Tax Expense $24,271 $(6,447) $(5,228) Net Income $62,812 $(23,152) $(26,334) Net Income ROA Preferred Stock Dividends $2,050 $— $— Net Income Available to Common Shares $60,762 $(23,152) $(26,334) Diluted EPS $1.04 $(0.40) $(0.48) Pre-Tax Income, excluding Provision for Credit Losses 1 ROA 0.69% -27 bps -47 bps and MSR Valuation Adjustments (Non-GAAP ) ($ in Millions) ROE 6.82% -270 bps -427 bps $149.4 $150.4 Diluted EPS Trend $1.69 $138.0 $138.1 $1.52 $1.38 $1.44 $1.04 $122.7 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Pre-Tax Income, excluding the Provision for Credit Losses and Diluted EPS MSR Valuation Adjustments 1See Non-GAAP reconciliation on pg. 14 3
Loan Portfolio Key Observations Total Loans ($ in Billions) • Total loans increased $1.0 billion from the prior quarter-end and $3.6 billion Year-over-Year Change $3.6B or 15% as compared to the end of Q1 2019. $27.8 $26.8 • Q1 2020 loan growth was strongest in Commercial and Commercial Real- $25.3 $25.7 Estate portfolios up $740 million and $165 million, respectively, compared to $24.2 prior quarter-end. Management estimates that nearly half of the growth in 5.06% 5.07% the commercial category during the quarter was a result of customer draws 4.93% 4.69% on unfunded commitments primarily occurring toward the end of the quarter. 4.52% • Before the impact of scheduled payments and prepayments, gross commercial and commercial real estate loan pipelines were estimated to be 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 approximately $1.0 billion to $1.1 billion at March 31, 2020. When adjusted for the probability of closing, the pipelines were estimated to be Total Loans Total Loan Yield approximately $590 million to $650 million at March 31, 2020. Loan Composition (as of 3/31/2020) Total Loans as of 3/31/2020 vs. 12/31/2019 ($ in Millions) $147 19% $23 32% $165 $23 $740 $(73) $27,807 13% $(18) 5% 29% 2% $26,800 l l 19 ia ate ity ate ia nce her 20 /20 erc st qu st erc ra Ot /20 /31 m l E e E l E m su & /31 12 om ea m ea om In er 3 C al R Ho al R - C ife m rci nti les - L nsu me ide ab les Co om es eiv vab C R ec cei e R Re anc ce Fin an m Fin iu um rem mi P Pre 4
Commercial and Commercial Real Estate Portfolio Loan Portfolio Mix, Growth, and % Unfunded as of 3/31/20 and 12/31/19 (Commercial and Commercial Real Estate Portfolio) As of As of Increase/ % Unfunded as % Unfunded as (Dollars in thousands) 3/31/2020 12/31/2019 (Decrease) of 3/31/20 of 12/31/19 Commercial: Commercial and industrial $ 4,511,456 $ 4,120,117 $ 391,339 Franchise 994,180 937,482 56,698 Mortgage warehouse lines of credit 323,844 292,781 31,063 Community Advantage - homeowner associations 229,368 224,929 4,439 Asset-based lending 1,045,066 989,018 56,048 Municipal 510,711 506,439 4,272 Leases 1,044,092 878,528 165,564 Other 341,011 308,320 32,691 Commercial, industrial, and other - PCD 1 26,158 28,306 (2,148) Total Commercial: $ 9,025,886 $ 8,285,920 $ 739,966 32.9% 36.2% Commercial real-estate: Residential construction $ 115,450 $ 36,429 $ 79,021 Commercial construction 909,668 986,871 (77,203) Land 212,156 177,483 34,673 Office 1,122,689 1,044,769 77,920 Industrial 1,073,050 1,032,866 40,184 Retail 1,132,097 1,097,930 34,167 Multi-family 1,417,843 1,311,542 106,301 Mixed use and other 1,991,027 2,094,946 (103,919) 1 Commercial real-estate - PCD 211,551 237,440 (25,889) Total Commercial real-estate: $ 8,185,531 $ 8,020,276 $ 165,255 10.1% 10.2% Total Commercial and Commercial real-estate $ 17,211,417 $ 16,306,196 $ 905,221 23.7% 25.6% (1) As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified purchase credit impaired ("PCI") loans to purchased credit deteriorated ("PCD") loans effective January 1, 2020. For prior periods presented, the previously classified PCI loans are presented with the PCD loans in their respective class. 5
Deposit Portfolio Key Observations Total Deposits ($ in Billions) • Total deposits increased by $1.4 billion from the prior quarter- Year-over-Year Change $4.7B or 17% end. The Company successfully grew deposits in the first quarter $31.5 through organic retail channels, including $282.7 million of $30.1 growth in our MaxSafe products, that was supplemented by an $28.7 $26.8 $27.5 increase in brokered deposits. 1.29% 1.37% 1.43% 1.33% • Rate paid on interest bearing deposits decreased 13 basis points 1.20% from the prior quarter. We expect to further realize the benefit of declining deposit rates in the second quarter of 2020 as this typically lags changes in the interest rate environment. 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 • Non-interest bearing deposits increased $340 million from the Total Deposits Total Interest Bearing Deposit Rate prior quarter-end and comprise 24% of total deposits. Deposit Composition (as of 3/31/2020) Total Deposits as of 3/31/2020 vs. 12/31/2019 ($ in Millions) $86 $260 17% 24% $814 10% $(233) $31,462 10% 26% 13% $88 $340 $30,107 s t s t 019 ing DA sit ke ng osi 020 /2 ear D po ar avi ep /2 /31 B ing De M S f D /31 12 est ar nt ey s o 3 ter Be me on te -In est ge M fica on ter na rti N In Ma Ce nd th e a eal Tim OW W N 6
Net Interest Margin 4.74% 4.74% 4.53% 4.25% 4.13% Net Interest Margin (Quarterly Trends) Net Interest Margin, Fully Taxable-Equivalent (Non-GAAP1) 3.72% 3.64% 4.74% 4.74% 3.39% 4.53% 3.19% 0.11% 3.14% 4.25% 4.13% 3.19% 3.72% 3.64% (0.04)% 3.14% 3.39% 3.70% 3.62% 3.19% 3.14% (0.12)% 3.37% 3.17% 3.12% 1.56% 1.51% 1.45% 1.40% 1.34% 1.56% 1.51% 9 ld te s 0 1.45% 201 ie Ra nd 202 1.40% 4 t Y ty Fu 1 1.34% Q sse ili ree Q g A iab t F 0.41% 0.42% in g L Ne 0.38% 0.39% arn in 0.35% E ear st B ere Int 0.38% 0.41% 0.42% 0.39% 0.35% Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Key Observations Net Interest Margin Net Free Funds Contribution Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 • Q1 2020 net interest income totaled $261.4 million. Earning Assets Yield Rate on Interest Bearing Liabilities ◦ A decrease of $436,000 as compared to Q4 2019 and a Net Interest Margin (GAAP) decrease of $543,000 as compared to Q1 2019. Net Interest Margin, Fully Taxable-Equivalent (Non-GAAP1) • Net interest margin decreased by 5 bps from the prior quarter: 4.74% 4.74% Earning Assets Yield ◦ Earning assets yield down 12 bps 4.53% ◦ Interest bearing liability rate decreased 11 bps 4.25% Net Free Funds Contribution 4.13% ◦ Net free funds decreased 4 bps Rate on Interest Bearing Liabilities 3.72% 3.64% 1 See Non-GAAP reconciliation on pg. 14 7 3.39% 3.19% 3.14% 3.70% 3.62% 1.56% 1.51% 3.37% 1.45% 1.40% 3.17% 31.1.324% 0.38% 0.41% 0.42% 0.39% 0.35% Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Net Interest Margin (GAAP) Net Interest Margin (Non-GAAP) Earning Assets Yield Net Free Funds Contribution Rate on Interest Bearing Liabilities
Credit Quality Non-Performing Loans (excl. PCD1) ("NPLs") ($ in Millions) Net Charge-Offs ("NCOs") ($ in Millions) 0.36% $143.9 $22.3 0.19% $117.6 $113.4 $114.3 $117.6 0.53% 0.15% 0.49% 0.09% $12.7 0.08% $9.4 0.45% 0.44% 0.44% $5.1 $5.3 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 1 NPLs (excl. PCD ) $ NCOs $ NPLs (excl. PCD1) as a % of Total Loans Annualized NCOs as a % of Average Total Loans Allowance for Credit Losses at Period-End ($ in Millions) Total Provision for Credit Losses ($ in Millions) $253.5 161.87% $53.0 Incurred Loss Method CECL Incurred Loss Method CECL $159.6 $161.9 $163.3 $158.5 90.68% 87.22% 0.91% • The Company estimates an increase to the allowance for credit losses 48.37% $24.6 of approximately 30% to 50% at adoption related to its loan portfolios 0.66% 0.64% 0.64% 0.59% and related lending commitments. Approximately 80% of the $10.6 $10.8 9.98% estimated increase is related to: $7.8 ◦ Additions to existing reserves for unfunded lending-related 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 commitments due to the consideration under CECL of expected utilization by the Company's borrowers over the life of such Total Allowance for Credit Losses Total Provision for Credit Losses $53.0 commitments. ◦ Establishment of reserves for acquired loans which previously Total Allowance for Credit Losses as a % of Total Loans Net Charge-Offs as a % of the Provision for Credit Losses $53.0 161.9% considered credit discounts. $24.6 1 The Company estimates an insignificant impact at adoption of PCD: Purchased Financial Assets with Credit Deterioration 8 90.7% $10.6 $24.6 8$71.02.%8 measuring an allowance for credit losses for other in-scope assets (e.g. $7.8 48.4% held-to-maturity debt securities). $10.6 $10.8 $7.8 10.0% Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 PENDING Provision for credit losses - PCD Provision for credit losses - non PCD Net charge-offs as a percentage of the provision for credit losses
Credit Quality - CECL Allowance for Credit Losses ($ in Thousands) - 3/31/2020 vs. 12/31/2019 Macro Economic Scenario Key Model Inputs Qualitative Considerations • Baa Corporate credit spread widens to a peak in • Economic Inputs • Downside risk due to recession Q3 2020 and then narrows over the remaining 5 ◦ Baa Credit Spread • Direct fiscal stimulus payments to borrowers quarters ◦ Commercial Real-Estate Price Index • Unemployment compensation program • Commercial Real Estate Price Index declines ◦ GDP assistance increased through Q4 2020 and recovers in 2021 ◦ Dow Jones Total Stock Market Index • Government sponsored Paycheck Protection • GDP growth rate reaches a low in Q2 2020 and • Portfolio Characteristics Program ("PPP") recovers to above trend growth by Q3 2021 ◦ Risk Ratings • Low exposure to industries with the highest risk • Dow Jones declines through Q4 2020 and starts factors appreciating in 2021 • High touch relationships with commercial and consumer borrowers • Stronger financial health of borrowers when compared to the Great Recession Economic Portfolio Factors Day 1 Changes $29,118 Adjustment $18,485 • Changes due to Key Observations $47,418 • New volume and macroeconomic run-off conditions • Changes in credit • CECL Day 1 quality transition • Aging of existing $253,482 adjustment portfolio • Includes ACL for • Shifts in $158,461 loans and leases, segmentation mix off-balance sheet • Changes in specific credit exposures reserves and debt securities • Net charge-offs 12/31/2019 3/31/2020 9
Credit Quality - COVID-19 Select High Impact Industries Industry Loan % of Total Total Loan Mix as of 3/31/2020: Select High Impact Industries vs All Balance Total Commitment Other $ shown in Millions Loans Balance Arts Entertainment & $207 0.7% $239 Recreation Dentists, Doctors, & $452 1.6% $537 Hospitals Hotels & $164 0.6% $166 Select High Accommodation Other Loans Impact Industries Nursing Home & $245 0.9% $289 91.3% Senior Living 8.7% Oil & Gas $62 0.2% $63 Restaurants & Food $1,186 4.3% $1,392 Services Social Services $93 0.3% $130 Total $2,409 8.7% $2,818 Total loans of $27.8 billion Key Observations - Restaurants and Food Services Additional Relief • The majority of portfolio is Quick Service Restaurants ("QSRs") which derive significant revenue via drive-thru and take to WTFC Customers Key Observations out and are not expected to be as impacted as dine-in only restaurants. (through 4/17/2020) • Franchisors have provided relief including deferral of royalty fees, advertising fees, rent relief and supplier negotiations. • Approximately $354 million of loan relief has been funded through April 17, 2020 to these customers as part of the PPP. • We have closed on COVID-19 related loan Paycheck Protection Program (PPP) modifications for customers with outstanding balances of Over 8,900 $3.3 Billion over $300MM. Of which, Applications Processed Total Loan Approvals approximately $219MM are 4/3/2020 for Approval in select high impact Began receiving • Estimated fees on industries. applications for PPP • Median loan size of loan approvals of approximately approximately $87,500. $85MM. 10
Non-Interest Income Non-Interest Income ($ in Millions) Operating Lease Income, Net ($ in Millions) $115.1 $112.2 $113.2 $12.5 $12.0 $12.0 $98.2 $18.2 $15.8 $15.7 $11.7 $81.7 $15.7 $10.0 $11.0 $11.3 $10.8 $9.3 $12.0 $12.5 $12.0 $230.1 $231.2 $19.9 $11.7 $228.6 $8.8 $224.2 $50.9 $47.9 $48.3 $10.8 $37.4 $18.2 $24.0 $24.1 $24.0 $25.0 $25.9 $207.1 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Wealth Management Mortgage Banking Operating Lease Income, Net Operating Lease Income, net Service Charges on Deposits Lease Investments, Net (Period-End Balance) Other1 Wealth Management Revenue ($ in Millions) Key Observations $25.9 • Non-interest income totaled $113.2 million: $24.1 $25.0 $24.0 $24.0 ◦ An increase of $1.0 million as compared to Q4 2019 and an $5.3 $4.5 $4.8 $4.7 $4.9 increase of $31.6 million as compared to Q1 2019. $19.5 $19.3 $19.3 $20.1 $20.6 • Mortgage banking revenue increased $466,000 as compared to Q4 $27.6 2019, primarily as a result of increased derivative income associated $25.9 $26.1 with mandatory commitments to fund originations for sale, partially $25.1 $25.0 offset by a decrease in the fair value of the mortgage servicing rights portfolio. Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 • Wealth management income increased $942,000 as compared to Q4 Trust and Asset Management 2019 primarily due to increased trust fees and brokerage revenue. Brokerage 1 Other NII - includes Interest Rate Swap Fees, BOLI, Administrative Services, FX Assets Under Administration ($ in Billions) Remeasurement Gains/(Losses), Early Pay-Offs of Capital Leases, Gains/(losses) on investment securities, net, Fees from covered call options, Trading gains/(losses), net 11 and Miscellaneous.
Mortgage Banking Production Revenue ($ in Millions) MSR1 Value and Loans Serviced for Others ($ in Millions) $48.3 $50.9 $0.1 $47.9 $9.4 $8,243 $8,315 MSR - Payoffs/ $7,901 LOGIC IN $14.0 Paydowns $39.9 $7,515 $37.4 $14.5 $35.6 $7,014 $8.2 $24.3 MSR - Change in $32.0 $0.9 Fair Value Model $29.9 $85.6 MORTGAGE $9.8 $2.8 Assumptions $18.2 $5.2 BANKING Production $75.6 $6.6 Revenue $16.9 2.81% 2.86% $72.9 $73.5 $71.0 $5.4 $39.9 $35.6 2.59% 2.63% REVENUE $32.0 Servicing Income 2.50% $29.9 & Other Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 $16.9 NEEDS TO BE MSR $2.3 Capitalization MSRs, at fair value Loans Serviced for Others $(7.2) $(6.8) $(7.0) Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 MODIFIED $(8.7) $(4.3) $(0.5) $(4.1) MSR Hedging $(14.6) Gains (Losses) Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Production Revenue Production Margin % of MSRs to Loans Serviced for Others 1.01% 0.97% 0.96% 1.04% 0.88% Originations for Sale (Quarterly $ in Millions) Key Observations Mortgage banking production revenue • Recorded $17.4 million of derivative income associated with increased by $3.6 $1,420 million as mortgage $1,245 mandatory commitments to fund originations for sale in the current $1,154 $1,216 $456 quarter as compared to a $1.0 million derivative loss in the fourth originations for sale quarter of 2019. Mandatory commitments to fund originations for totaled $1.2 billion in $301 $51 $459 $443 the first quarter of $678 $183 $4 sale were $1.4 billion at the end of the first quarter of 2020 as $165 compared to $372 million at the end of the fourth quarter of 2019. 2020 as compared to $148 $913 $1.2 billion in the $670 $782 $773 $365 • Production margin decreased from 2.86% in the fourth quarter of fourth quarter of 2019 to 2.63% in the first quarter of 2020. 2019. Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 • Origination volume mix in Q1 2020: Retail Originations Correspondent Originations ◦ 37% Purchases / 63% Refinances • As compared to origination volume mix in Q4 2019: Veterans First Originations ◦ 40% Purchases / 60% Refinances 1 MSR: Mortgage Servicing Right 12
Non-Interest Expense Trending Non-Interest Expense ($ in Millions) Expense Management Ratios $249.6 $229.6 $234.6 $234.6 1.72% $34.5 Salaries and $214.4 $28.5 $30.2 Employee Benefits 1.64% $33.2 $7.6 $6.5 $7.7 $8.4 $29.4 $6.2 $8.0 $9.8 $6.7 Equipment 1.53% $7.5 $6.2 $8.9 $12.5 $9.3 $5.6 $8.8 $13.4 $10.9 $12.8 $17.1 Occupancy, net $8.3 $15.0 1.40% $9.9 $15.9 $17.5 66.56% $16.2 $13.3 $14.5 $12.8 $14.8 Advertising and 1.33% $11.8 Marketing 62.89% Operating Lease 62.34% Equipment 61.59% 61.67% $133.7 $141.0 $145.9 $136.8 $125.7 Professional Fees Data Processing Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Other 1 2 3 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Net Overhead Ratio Efficiency Ratio (Non-GAAP ) Non-Interest Expense - Current Quarter vs. Prior Quarter Q1 2020 Key Observations ($ in Millions) • Salary and employee benefits decrease comprised $249.6 of: $0.8 $2.8 ◦ $8.7 million in commissions and $234.6 incentive compensation $(9.2) $(1.7) $(0.9) ◦ $1.6 million in salaries $(6.8) ◦ Partially offset by $1.1 million increase in employee benefits expense • Advertising & Marketing decreased $1.7 million 9 g s g e s 0 1 n ee n c se 2 20 ti F si an n 20 primarily due to lower mass media advertising 4 its ke l es r pe 1 Q d ef ar na oc su x Q an en io pr In E costs. s B M ss a C er ie e nd fe at I th ar ye a ro D D O • FDIC Insurance increased $2.8 million primarily al o g P F ll S pl in A m tis due to assessment credits received from FDIC in E er dv A the fourth quarter of 2019. 3 1 Other NIE - includes amortization of other intangible assets, FDIC insurance, OREO 2 Net Overhead Ratio - The net overhead ratio is calculated by netting total non- See Non-GAAP reconciliation expense, net, Commissions (3rd Party Brokers), Postage and Miscellaneous interest expense and total non-interest income, annualizing this amount, and dividing on pg.14 by that period's average total assets. A lower ratio indicates a higher degree of 13 efficiency.
Non-GAAP Reconciliation Three Months Ended Reconciliation of Non-GAAP Net Interest March 31, December 31, September 30, June 30, March 31, Margin and Efficiency Ratio ($ in Thousands): 2020 2019 2019 2019 2019 (A) Interest Income (GAAP) $ 344,067 $ 349,731 $ 354,627 $ 346,814 $ 333,970 Taxable-equivalent adjustment: - Loans 860 892 978 1,031 1,034 - Liquidity Management Assets 551 573 574 568 565 - Other Earning Assets 2 1 5 1 2 (B) Interest Income (non-GAAP) $ 345,480 $ 351,197 $ 356,184 $ 348,414 $ 335,571 (C) Interest Expense (GAAP) $ 82,624 $ 87,852 $ 89,775 $ 80,612 $ 71,984 (D) Net Interest Income (GAAP) (A minus C) $ 261,443 $ 261,879 $ 264,852 $ 266,202 $ 261,986 (E) Net Interest Income (non-GAAP) (B minus C) $ 262,856 $ 263,345 $ 266,409 $ 267,802 $ 263,587 Net interest margin (GAAP) 3.12% 3.17% 3.37% 3.62% 3.70% Net interest margin, fully taxable-equivalent (non- GAAP) 3.14% 3.19% 3.39% 3.64% 3.72% (F) Non-interest income $ 113,242 $ 112,220 $ 115,137 $ 98,158 $ 81,657 (G) (Losses) gains on investment securities, net (4,359) 587 710 864 1,364 (H) Non-interest expense 234,641 249,591 234,554 229,607 214,374 Efficiency ratio (H/(D+F-G)) 61.90% 66.82% 61.84% 63.17% 62.63% Efficiency ratio (non-GAAP) (H/(E+F-G)) 61.67% 66.56% 61.59% 62.89% 62.34% Reconciliation of Non-GAAP Pre-Tax, Pre-Provision Income and Pre-Tax, Pre-Provision, Pre-MSR Adjustment Income ($ in Thousands): Income before taxes $ 87,083 $ 116,682 $ 134,601 $ 110,173 $ 118,645 Add: Provision for credit losses 52,961 7,826 10,834 24,580 10,624 Pre-tax income, excluding provision for credit losses (non-GAAP) $ 140,044 $ 124,508 $ 145,435 $ 134,753 $ 129,269 Less: MSR valuation adjustment, net of (loss)/gain on derivative contract held as an economic hedge (10,397) 1,846 (3,976) (3,385) (8,744) Pre-tax income, excluding provision for credit losses and MSR valuation adjustments (non-GAAP) $ 150,441 $ 122,662 $ 149,411 $ 138,138 $ 138,013 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. 14
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 potential 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, PENDING 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: COVID • 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 UPDATE 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 loan 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; • 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; 15
Forward-Looking Statements • 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; PENDING • 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; COVID • the expenses and delayed returns inherent in opening new branches and de novo banks; • 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; UPDATE • 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 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. 16