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Section 1: 8-K (8-K)

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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): October 17, 2018
 
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
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))

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 October 17, 2018, Wintrust Financial Corporation (the “Company”) announced earnings for the third quarter of 2018. A copy of the press release relating to the Company’s earnings results is attached hereto as Exhibit 99.1. Certain supplemental information relating to non-GAAP financial measures reported in the attached press release is included on pages 10 through 11 of Exhibit 99.1.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
 
Exhibit
  

2



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
(Registrant)
 
 
 
By:
/s/ David L. Stoehr
 
 
David L. Stoehr
Executive Vice President and
    Chief Financial Officer
Date: October 17, 2018

3



INDEX TO EXHIBITS
 
 
 
Exhibit
  

4
(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1
Wintrust Financial Corporation
9700 W. Higgins Road, Suite 800, Rosemont, Illinois 60018
News Release
 
 
 
FOR IMMEDIATE RELEASE
  
October 17, 2018
FOR MORE INFORMATION CONTACT:
Edward J. Wehmer, President & Chief Executive Officer
David A. Dykstra, Senior Executive Vice President & Chief Operating Officer
(847) 939-9000
Web site address: www.wintrust.com

Wintrust Financial Corporation Reports Record Third Quarter 2018 Net Income, an Increase of 40% Over Prior Year, and Year-to-Date Net Income of $263.5 million, an Increase of 39% Over Prior Year

ROSEMONT, ILLINOIS – Wintrust Financial Corporation (“Wintrust” or “the Company”) (Nasdaq: WTFC) announced net income of $91.9 million or $1.57 per diluted common share for the third quarter of 2018 compared to net income of $89.6 million or $1.53 per diluted common share for the second quarter of 2018 and $65.6 million or $1.12 per diluted common share for the third quarter of 2017. The Company recorded net income of $263.5 million or $4.50 per diluted common share for the first nine months of 2018 compared to net income of $188.9 million or $3.23 per diluted common share for the same period of 2017.

Highlights of the Third Quarter of 2018 *:
    
Total loans increased by $513 million from the prior quarter, which included $151 million of loans acquired in relation to the previously-announced acquisition of Delaware Place Bank and its parent ("Delaware Place Bank") completed in early August.
Total assets now exceed $30 billion, increasing $678 million from the prior quarter. Asset growth included $280 million of assets acquired in relation to the acquisition of Delaware Place Bank.
Total deposits increased by $551 million from the prior quarter to $24.9 billion. This increase included $213 million from the acquisition of Delaware Place Bank.
Net interest income increased by $9.4 million from the prior quarter as a result of earning assets growth and one additional day in the quarter, partially offset by a two basis point reduction in net interest margin. The net interest margin decreased during the quarter primarily as a result of higher deposit costs from retail certificate of deposit and money market accounts, partially offset by increased yields on our loan portfolio.
Mortgage banking revenue increased to $42.0 million, up $2.2 million over the second quarter of 2018 primarily due to increased revenue from loans originated and sold during the third quarter, offset by lower production margins and a smaller positive fair market value adjustment to mortgage servicing rights.
Professional fees were impacted by certain consulting agreements paid in relation to the acquisition of Delaware Place Bank totaling $2.1 million. Approximately $147,000 of additional payments will be made in the fourth quarter related to these agreements. Other Delaware Place Bank related expenses in the third quarter were $64,000 of severance and $130,000 of system conversion-related costs.
Non-performing loans increased to $127.2 million. The increase from the prior quarter was primarily the result of four credit relationships totaling $46.6 million becoming non-performing during the third quarter.
Provision for credit losses totaled $11.0 million in the third quarter, increasing $6.0 million from the prior quarter. This increase was driven by $7.5 million of specific reserves on the four non-performing credit relationships noted above.
Opened three new branches, including two locations in Wisconsin and one location in Illinois. These locations along with the one location acquired from Delaware Place Bank in the Gold Coast/Streeterville neighborhood of Chicago, Illinois increase our total branches to 166 locations.

* See "Supplemental Financial Measures/Ratios" on pages 10-11 for more information on non-GAAP measures.

Edward J. Wehmer, President and Chief Executive Officer, commented, "Wintrust reported net income of $91.9 million for the third quarter of 2018, the eleventh consecutive quarter of record net income, and net income of $263.5 million for the first nine months of 2018. These results reflected the steady strength of our internal growth engine at Wintrust as we grew assets by

1



$678 million compared to the prior quarter. The third quarter of 2018 was also characterized by strong deposit growth, increased deposit costs, higher levels of liquidity and the acquisition of Delaware Place Bank."
    
Mr. Wehmer continued, "We grew our loan portfolio by $513 million during the third quarter, which included $151 million of loans acquired in relation to the acquisition of Delaware Place Bank. We experienced strong loan growth among our various loan categories during the period, including our commercial, commercial real estate and premium financing portfolios. We continue to take a measured approach in evaluating new loan opportunities. Our strategy to reduce our average loan to average deposit ratio below 90% continued in the third quarter. As part of this strategy, liquidity was accumulated and held to be invested at times that would yield appropriate spreads.  During most of the third quarter, yields were not in an acceptable range to allow immediate significant deployment of short-term liquidity into longer-term, higher yielding securities.  Thus, levels of liquidity were higher in the third quarter compared to the prior quarter.  Had the excess interest-bearing cash accumulated during the quarter been invested in the longer-term, higher yielding securities, the net interest margin would have been positively impacted by approximately 2 basis points, negating the reported net interest margin decline during the current quarter. Despite the reduction in net interest margin, net interest income increased by $9.4 million in the third quarter of 2018 primarily as a result of growth in outstanding loans and one additional day in the third quarter compared to the second quarter. Our loan pipelines remain consistently strong. Total deposits increased $551 million over the second quarter of 2018 to $24.9 billion as strong deposit growth continued in the third quarter of 2018. This increase in deposits included $213 million from the acquisition of Delaware Place Bank. Organic deposit growth was primarily related to money market accounts and certificate of deposit accounts as active marketing campaigns continued into the third quarter."

Commenting on credit quality, Mr. Wehmer noted, "The Company continued its practice of addressing and resolving non-performing credits in a timely fashion in the third quarter of 2018. Non-performing loans totaled $127.2 million, or 0.55% of total loans, an increase of $43.9 million compared to the most recent quarter. This increase during the third quarter of 2018 was primarily the result of four relationships totaling $46.6 million within the commercial loan portfolio becoming non-performing during the period. These four credit relationships are well reserved at the end of the quarter and are expected to be substantially resolved by the end of the first quarter of 2019. We believe these specific relationships are not characteristic of the entire portfolio and do not represent a trend within our overall loan portfolio. As a result of the increase in non-performing loans, the allowance for loan losses as a percentage of non-performing loans decreased to 118% at the end of the third quarter from 172% at the end of the second quarter. Net charge-offs totaled $4.7 million in the current quarter, increasing $3.6 million from the second quarter of 2018. Additionally, net charge-offs as a percentage of average total loans increased to eight basis points from two basis points in the second quarter. The increase in net charge-offs during the third quarter was primarily the result of higher recoveries within the commercial real estate and residential real estate portfolios during the second quarter. The specific reserves recognized on the four noted non-performing credit relationships, net charge-offs during the period and additional reserves established for loan growth during the period primarily drove the $11.0 million of provision for credit losses recognized in the third quarter of 2018. We believe that the Company's reserves remain appropriate."

Mr. Wehmer further commented, "Mortgage banking revenue in the third quarter of 2018 totaled $42.0 million, an increase of $2.2 million compared to the second quarter of 2018. Mortgage loan origination volumes in the third quarter of 2018 increased slightly to $1.2 billion from $1.1 billion in the second quarter of 2018. The increase in mortgage banking revenue was primarily due to increased revenue from loans originated and sold during the third quarter, tempered by smaller positive fair market value adjustment to mortgage servicing rights and reduction of production margin. We continue to focus on efficiencies in our delivery channels and operating costs in our mortgage banking area. Home purchase activity represented 76% of the volume for the third quarter of 2018 compared to 80% in the second quarter of 2018. We expect lower origination volumes in the fourth quarter due to normal seasonality and higher mortgage rates."

Turning to the future, Mr. Wehmer stated, "As our growth engine continues its momentum towards the end of 2018, we expect continued organic growth in all areas of our business. Loan growth at the end of the third quarter should add to momentum into the fourth quarter as period-end loan balances exceeded the third quarter average balances by approximately $301 million. Wintrust continues to take a steady and measured approach to achieving our main objectives of growing franchise value, increasing profitability, leveraging our expense infrastructure and continuing to increase shareholder value. We remain well-positioned for a rising interest rate environment in the future, which, coupled with this loan growth and investing our liquidity, should continue to grow net interest income. Evaluating strategic acquisitions and organic branch growth will also be a part of our overall growth strategy with the goal of becoming Chicago’s bank and Wisconsin’s bank. To that end, in addition to the location acquired through the Delaware Place Bank, the Company opened three new branches in the third quarter of 2018 and will continue to evaluate future locations in our market area. Our opportunities for both internal growth and external growth remain consistently strong."


2



The graphs below illustrate certain highlights of the third quarter of 2018.

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5



Wintrust’s key operating measures and growth rates for the third quarter of 2018, as compared to the sequential and linked quarters, are shown in the table below:
 
 
 
 
 
 
 
 
% or(4)
basis point  (bp) change from
2nd Quarter
2018
 
% or
basis point  (bp)
change from
3rd Quarter
2017
  
 
Three Months Ended
 
 
(Dollars in thousands)
 
September 30,
2018
 
June 30,
2018
 
September 30,
2017
 
 
Net income
 
$
91,948

 
$
89,580

 
$
65,626

 
3

 
40

Net income per common share – diluted
 
$
1.57

 
$
1.53

 
$
1.12

 
3

 
40

Net revenue (1)
 
$
347,493

 
$
333,403

 
$
295,719

 
4

 
18

Net interest income
 
247,563

 
238,170

 
215,988

 
4

 
15

Net interest margin
 
3.59
%
 
3.61
%
 
3.43
%
 
(2
)
bp 
 
16

bp 
Net interest margin - fully taxable equivalent (non-GAAP) (2)
 
3.61
%
 
3.63
%
 
3.46
%
 
(2
)
bp
 
15

bp
Net overhead ratio (3)
 
1.53
%
 
1.57
%
 
1.53
%
 
(4
)
bp 
 

bp 
Return on average assets
 
1.24
%
 
1.26
%
 
0.96
%
 
(2
)
bp 
 
28

bp 
Return on average common equity
 
11.86
%
 
11.94
%
 
9.15
%
 
(8
)
bp 
 
271

bp 
Return on average tangible common equity (non-GAAP) (2)
 
14.64
%
 
14.72
%
 
11.39
%
 
(8
)
bp
 
325

bp
At end of period
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
30,142,731

 
$
29,464,588

 
$
27,358,162

 
9

 
10

Total loans, excluding covered loans (5)
 
23,123,951

 
22,610,560

 
20,912,781

 
9

 
11

Total deposits
 
24,916,715

 
24,365,479

 
22,895,063

 
9

 
9

Total shareholders’ equity
 
3,179,822

 
3,106,871

 
2,908,925

 
9

 
9

 
(1)
Net revenue is net interest income plus non-interest income.
(2)
See "Supplemental Financial Measures/Ratios" 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.”



6



WINTRUST FINANCIAL CORPORATION
Selected Financial Highlights
 
 
Three Months Ended
 
Nine Months Ended
(Dollars in thousands, except per share data)
 
September 30,
2018
 
June 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
Selected Financial Condition Data (at end of period):
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
30,142,731

 
$
29,464,588

 
$
27,358,162

 
 
 
 
Total loans, excluding covered loans (7)
 
23,123,951

 
22,610,560

 
20,912,781

 
 
 
 
Total deposits
 
24,916,715

 
24,365,479

 
22,895,063

 
 
 
 
Junior subordinated debentures
 
253,566

 
253,566

 
253,566

 
 
 
 
Total shareholders’ equity
 
3,179,822

 
3,106,871

 
2,908,925

 
 
 
 
Selected Statements of Income Data:
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
247,563

 
$
238,170

 
$
215,988

 
$
710,815

 
$
612,977

Net revenue (1)
 
347,493

 
333,403

 
295,719

 
991,657

 
851,445

Net income
 
91,948

 
89,580

 
65,626

 
263,509

 
188,901

Net income per common share – Basic
 
$
1.59

 
$
1.55

 
$
1.14

 
$
4.57

 
$
3.34

Net income per common share – Diluted
 
$
1.57

 
$
1.53

 
$
1.12

 
$
4.50

 
$
3.23

Selected Financial Ratios and Other Data:
 
 
 
 
 
 
 
 
 
 
Performance Ratios:
 
 
 
 
 
 
 
 
 
 
Net interest margin
 
3.59
%
 
3.61
%
 
3.43
%
 
3.58
%
 
3.40
%
Net interest margin - fully taxable equivalent (non-GAAP) (2)
 
3.61
%
 
3.63
%
 
3.46
%
 
3.60
%
 
3.43
%
Non-interest income to average assets
 
1.34
%
 
1.34
%
 
1.17
%
 
1.31
%
 
1.22
%
Non-interest expense to average assets
 
2.87
%
 
2.90
%
 
2.70
%
 
2.87
%
 
2.74
%
Net overhead ratio (3)
 
1.53
%
 
1.57
%
 
1.53
%
 
1.56
%
 
1.52
%
Return on average assets
 
1.24
%
 
1.26
%
 
0.96
%
 
1.23
%
 
0.97
%
Return on average common equity
 
11.86
%
 
11.94
%
 
9.15
%
 
11.71
%
 
9.21
%
Return on average tangible common equity (non-GAAP) (2)
 
14.64
%
 
14.72
%
 
11.39
%
 
14.47
%
 
11.62
%
Average total assets
 
$
29,525,109

 
$
28,567,579

 
$
27,012,295

 
$
28,640,380

 
$
26,096,809

Average total shareholders’ equity
 
3,131,943

 
3,064,154

 
2,882,682

 
3,064,396

 
2,808,072

Average loans to average deposits ratio (excluding covered loans)
 
92.2
%
 
95.5
%
 
91.8
%
 
94.2
%
 
92.8
%
Period-end loans to deposits ratio (excluding covered loans)
 
92.8
%
 
92.8
%
 
92.1
%
 
 
 
 
Common Share Data at end of period:
 
 
 
 
 
 
 
 
 
 
Market price per common share
 
$
84.94

 
$
87.05

 
$
78.31

 
 
 
 
Book value per common share (2)
 
$
54.19

 
$
52.94

 
$
49.86

 
 
 
 
Tangible common book value per share (2)
 
$
44.16

 
$
43.50

 
$
40.53

 
 
 
 
Common shares outstanding
 
56,377,169

 
56,329,276

 
55,838,063

 
 
 
 
Other Data at end of period:(6)
 
 
 
 
 
 
 
 
 
 
Leverage Ratio (4)
 
9.3
%
 
9.4
%
 
9.2
%
 
 
 
 
Tier 1 capital to risk-weighted assets (4)
 
9.9
%
 
10.0
%
 
10.0
%
 
 
 
 
Common equity Tier 1 capital to risk-weighted assets (4)
 
9.5
%
 
9.6
%
 
9.5
%
 
 
 
 
Total capital to risk-weighted assets (4)
 
11.9
%
 
12.1
%
 
12.2
%
 
 
 
 
Allowance for credit losses (5)
 
$
151,001

 
$
144,645

 
$
134,395

 
 
 
 
Non-performing loans
 
127,227

 
83,282

 
77,983

 
 
 
 
Allowance for credit losses to total loans (5)
 
0.65
%
 
0.64
%
 
0.64
%
 
 
 
 
Non-performing loans to total loans
 
0.55
%
 
0.37
%
 
0.37
%
 
 
 
 
Number of:
 
 
 
 
 
 
 
 
 
 
Bank subsidiaries
 
15

 
15

 
15

 
 
 
 
Banking offices
 
166

 
162

 
156

 
 
 
 
 
(1)
Net revenue includes net interest income and non-interest income.
(2)
See “Supplemental Financial Measures/Ratios” 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 total average assets. A lower ratio indicates a higher degree of efficiency.
(4)
Capital ratios for current quarter-end are estimated.
(5)
The allowance for credit losses includes both the allowance for loan losses and the allowance for unfunded lending-related commitments, but excludes the allowance for covered loan losses.
(6)
Asset quality ratios exclude covered loans.
(7)
Excludes mortgage loans held-for-sale.

7



WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
 
 
 
(Unaudited)
 
 
 
(Unaudited)
(In thousands)
 
September 30,
2018
 
December 31,
2017
 
September 30,
2017
Assets
 
 
 
 
 
 
Cash and due from banks
 
$
279,936

 
$
277,534

 
$
251,896

Federal funds sold and securities purchased under resale agreements
 
57

 
57

 
56

Interest bearing deposits with banks
 
1,137,044

 
1,063,242

 
1,218,728

Available-for-sale securities, at fair value
 
2,164,985

 
1,803,666

 
1,665,903

Held-to-maturity securities, at amortized cost
 
966,438

 
826,449

 
819,340

Trading account securities
 
688

 
995

 
643

Equity securities with readily determinable fair value
 
36,414

 

 

Federal Home Loan Bank and Federal Reserve Bank stock
 
99,998

 
89,989

 
87,192

Brokerage customer receivables
 
15,649

 
26,431

 
23,631

Mortgage loans held-for-sale
 
338,111

 
313,592

 
370,282

Loans, net of unearned income, excluding covered loans
 
23,123,951

 
21,640,797

 
20,912,781

Covered loans
 

 

 
46,601

Total loans
 
23,123,951

 
21,640,797

 
20,959,382

Allowance for loan losses
 
(149,756
)
 
(137,905
)
 
(133,119
)
Allowance for covered loan losses
 

 

 
(758
)
Net loans
 
22,974,195

 
21,502,892

 
20,825,505

Premises and equipment, net
 
664,469

 
621,895

 
609,978

Lease investments, net
 
199,241

 
212,335

 
193,828

Accrued interest receivable and other assets
 
700,568

 
567,374

 
580,612

Trade date securities receivable
 

 
90,014

 
189,896

Goodwill
 
537,560

 
501,884

 
502,021

Other intangible assets
 
27,378

 
17,621

 
18,651

Total assets
 
$
30,142,731

 
$
27,915,970

 
$
27,358,162

Liabilities and Shareholders’ Equity
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
Non-interest bearing
 
$
6,399,213

 
$
6,792,497

 
$
6,502,409

Interest bearing
 
18,517,502

 
16,390,850

 
16,392,654

 Total deposits
 
24,916,715

 
23,183,347

 
22,895,063

Federal Home Loan Bank advances
 
615,000

 
559,663

 
468,962

Other borrowings
 
373,571

 
266,123

 
251,680

Subordinated notes
 
139,172

 
139,088

 
139,052

Junior subordinated debentures
 
253,566

 
253,566

 
253,566

Trade date securities payable
 

 

 
880

Accrued interest payable and other liabilities
 
664,885

 
537,244

 
440,034

Total liabilities
 
26,962,909

 
24,939,031

 
24,449,237

Shareholders’ Equity:
 
 
 
 
 
 
Preferred stock
 
125,000

 
125,000

 
125,000

Common stock
 
56,486

 
56,068

 
55,940

Surplus
 
1,553,353

 
1,529,035

 
1,519,596

Treasury stock
 
(5,547
)
 
(4,986
)
 
(4,884
)
Retained earnings
 
1,543,680

 
1,313,657

 
1,254,759

Accumulated other comprehensive loss
 
(93,150
)
 
(41,835
)
 
(41,486
)
Total shareholders’ equity
 
3,179,822

 
2,976,939

 
2,908,925

Total liabilities and shareholders’ equity
 
$
30,142,731

 
$
27,915,970

 
$
27,358,162



8



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

 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share data)
September 30,
2018
 
June 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
Interest income
 
 
 
 
 
 
 
 
 
Interest and fees on loans
271,134

 
255,063

 
223,897

 
761,191

 
628,876

        Mortgage loans held-for-sale
5,285

 
4,226

 
3,223

 
12,329

 
10,267

Interest bearing deposits with banks
5,423

 
3,243

 
3,272

 
11,462

 
6,529

Federal funds sold and securities purchased under resale agreements

 
1

 

 
1

 
2

Investment securities
21,710

 
19,888

 
16,058

 
60,726

 
45,155

Trading account securities
11

 
4

 
8

 
29

 
23

Federal Home Loan Bank and Federal Reserve Bank stock
1,235

 
1,455

 
1,080

 
3,988

 
3,303

Brokerage customer receivables
164

 
167

 
150

 
488

 
473

Total interest income
304,962

 
284,047

 
247,688

 
850,214

 
694,628

Interest expense
 
 
 
 
 
 
 
 
 
Interest on deposits
48,736

 
35,293

 
23,655

 
110,578

 
58,396

Interest on Federal Home Loan Bank advances
1,947

 
4,263

 
2,151

 
9,849

 
6,674

Interest on other borrowings
2,003

 
1,698

 
1,482

 
5,400

 
3,770

Interest on subordinated notes
1,773

 
1,787

 
1,772

 
5,333

 
5,330

Interest on junior subordinated debentures
2,940

 
2,836

 
2,640

 
8,239

 
7,481

Total interest expense
57,399

 
45,877

 
31,700

 
139,399

 
81,651

Net interest income
247,563

 
238,170

 
215,988

 
710,815

 
612,977

Provision for credit losses
11,042

 
5,043

 
7,896

 
24,431

 
21,996

Net interest income after provision for credit losses
236,521

 
233,127

 
208,092

 
686,384

 
590,981

Non-interest income
 
 
 
 
 
 
 
 
 
Wealth management
22,634

 
22,617

 
19,803

 
68,237

 
59,856

Mortgage banking
42,014

 
39,834

 
28,184

 
112,808

 
86,061

Service charges on deposit accounts
9,331

 
9,151

 
8,645

 
27,339

 
25,606

Gains (losses) on investment securities, net
90

 
12

 
39

 
(249
)
 
31

Fees from covered call options
627

 
669

 
1,143

 
2,893

 
2,792

Trading (losses) gains, net
(61
)
 
124

 
(129
)
 
166

 
(869
)
Operating lease income, net
9,132

 
8,746

 
8,461

 
27,569

 
21,048

Other
16,163

 
14,080

 
13,585

 
42,079

 
43,943

Total non-interest income
99,930

 
95,233

 
79,731

 
280,842

 
238,468

Non-interest expense
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
123,855

 
121,675

 
106,251

 
357,966

 
312,069

Equipment
10,827

 
10,527

 
9,947

 
31,426

 
28,858

Operating lease equipment depreciation
7,370

 
6,940

 
6,794

 
20,843

 
17,092

Occupancy, net
14,404

 
13,663

 
13,079

 
41,834

 
38,766

Data processing
9,335

 
8,752

 
7,851

 
26,580

 
23,580

Advertising and marketing
11,120

 
11,782

 
9,572

 
31,726

 
23,448

Professional fees
9,914

 
6,484

 
6,786

 
23,047

 
18,956

Amortization of other intangible assets
1,163

 
997

 
1,068

 
3,164

 
3,373

FDIC insurance
4,205

 
4,598

 
3,877

 
13,165

 
11,907

OREO expense, net
596

 
980

 
590

 
4,502

 
2,994

Other
20,848

 
20,371

 
17,760

 
60,502

 
54,194

Total non-interest expense
213,637

 
206,769

 
183,575

 
614,755

 
535,237

Income before taxes
122,814

 
121,591

 
104,248

 
352,471

 
294,212

Income tax expense
30,866

 
32,011

 
38,622

 
88,962

 
105,311

Net income
$
91,948

 
$
89,580

 
$
65,626

 
$
263,509

 
$
188,901

Preferred stock dividends
2,050

 
2,050

 
2,050

 
6,150

 
7,728

Net income applicable to common shares
$
89,898

 
$
87,530

 
$
63,576

 
$
257,359

 
$
181,173

Net income per common share - Basic
$
1.59

 
$
1.55

 
$
1.14

 
$
4.57

 
$
3.34

Net income per common share - Diluted
$
1.57

 
$
1.53

 
$
1.12

 
$
4.50

 
$
3.23

Cash dividends declared per common share
$
0.19

 
$
0.19

 
$
0.14

 
$
0.57

 
$
0.42

Weighted average common shares outstanding
56,366

 
56,299

 
55,796

 
56,268

 
54,292

Dilutive potential common shares
918

 
928

 
966

 
912

 
2,305

Average common shares and dilutive common shares
57,284

 
57,227

 
56,762

 
57,180

 
56,597


9



EARNINGS PER SHARE

The following table shows the computation of basic and diluted earnings per share for the periods indicated:
 
 
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share data)
 
 
September 30,
2018
 
June 30,
2018
 
September 30,
2017
 
September 30,
2018
 
September 30,
2017
Net income
 
 
$
91,948

 
$
89,580

 
$
65,626

 
$
263,509

 
$
188,901

Less: Preferred stock dividends
 
 
2,050

 
2,050

 
2,050

 
6,150

 
7,728

Net income applicable to common shares—Basic
(A)
 
89,898

 
87,530

 
63,576

 
257,359

 
181,173

Add: Dividends on convertible preferred stock, if dilutive
 
 

 

 

 

 
1,578

Net income applicable to common shares—Diluted
(B)
 
89,898

 
87,530

 
63,576

 
257,359

 
182,751

Weighted average common shares outstanding
(C)
 
56,366

 
56,299

 
55,796

 
56,268

 
54,292

Effect of dilutive potential common shares:
 
 
 
 
 
 
 
 
 
 
 
Common stock equivalents
 
 
918

 
928

 
966

 
912

 
988

Convertible preferred stock, if dilutive
 
 

 

 

 

 
1,317

Weighted average common shares and effect of dilutive potential common shares
(D)
 
57,284

 
57,227

 
56,762

 
57,180

 
56,597

Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic
(A/C)
 
$
1.59

 
$
1.55

 
$
1.14

 
$
4.57

 
$
3.34

Diluted
(B/D)
 
$
1.57

 
$
1.53

 
$
1.12

 
$
4.50

 
$
3.23


Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants, the Company’s convertible preferred stock and shares to be issued under the Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, being treated as if they had been either exercised or issued, computed by application of the treasury stock method. While potentially dilutive common shares are typically included in the computation of diluted earnings per share, potentially dilutive common shares are excluded from this computation in periods in which the effect would reduce the loss per share or increase the income per share. For diluted earnings per share, net income applicable to common shares can be affected by the conversion of the Company’s convertible preferred stock. Where the effect of this conversion would reduce the loss per share or increase the income per share for a period, net income applicable to common shares is not adjusted by the associated preferred dividends. On April 25, 2017, 2,073 shares of the Series C Preferred Stock were converted at the option of the respective holder into 51,244 shares of the Company's common stock, pursuant to the terms of the Series C Preferred Stock. On April 27, 2017, the Company caused a mandatory conversion of its outstanding 124,184 shares of Series C Preferred Stock into 3,069,828 shares of the Company's common stock at a conversion rate of 24.72 shares of common stock per share of Series C Preferred Stock. Cash was paid in lieu of fractional shares for an amount considered insignificant.

SUPPLEMENTAL 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 common book value per share and return on average tangible common equity. 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 (“FTE”) 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 FTE 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.

10




The following table presents a reconciliation of certain non-GAAP performance measures and ratios used by the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP financial measures for the last five quarters.

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
September 30,
 
September 30,
(Dollars and shares in thousands)
2018
 
2018
 
2018
 
2017
 
2017
 
2018
 
2017
Calculation of Net Interest Margin and Efficiency Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
(A) Interest Income (GAAP)
$
304,962

 
$
284,047

 
$
261,205

 
$
251,840

 
$
247,688

 
$
850,214

 
$
694,628

Taxable-equivalent adjustment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 - Loans
941

 
812

 
670

 
1,106

 
1,033

 
2,423

 
2,654

 - Liquidity Management Assets
575

 
566

 
531

 
1,019

 
921

 
1,672

 
2,694

 - Other Earning Assets
3

 
1

 
3

 
2

 
5

 
7

 
12

(B) Interest Income - FTE
$
306,481

 
$
285,426

 
$
262,409

 
$
253,967

 
$
249,647

 
$
854,316

 
$
699,988

(C) Interest Expense (GAAP)
57,399

 
45,877

 
36,123

 
32,741

 
31,700

 
139,399

 
81,651

(D) Net Interest Income - FTE (B minus C)
$
249,082

 
$
239,549

 
$
226,286

 
$
221,226

 
$
217,947

 
$
714,917

 
$
618,337

(E) Net Interest Income (GAAP) (A minus C)
$
247,563

 
$
238,170

 
$
225,082

 
$
219,099

 
$
215,988

 
$
710,815

 
$
612,977

Net interest margin (GAAP-derived)
3.59
%
 
3.61
%
 
3.54
%
 
3.45
%
 
3.43
%
 
3.58
%
 
3.40
%
Net interest margin - FTE
3.61
%
 
3.63
%
 
3.56
%
 
3.49
%
 
3.46
%
 
3.60
%
 
3.43
%
(F) Non-interest income
$
99,930

 
$
95,233

 
$
85,679

 
$
81,038

 
$
79,731

 
$
280,842

 
$
238,468

(G) Gains (losses) on investment securities, net
90

 
12

 
(351
)
 
14

 
39

 
(249
)
 
31

(H) Non-interest expense
213,637

 
206,769

 
194,349

 
196,580

 
183,575

 
614,755

 
535,237

Efficiency ratio (H/(E+F-G))
61.50
%
 
62.02
%
 
62.47
%
 
65.50
%
 
62.09
%
 
61.98
%
 
62.86
%
Efficiency ratio - FTE (H/(D+F-G))
61.23
%
 
61.76
%
 
62.23
%
 
65.04
%
 
61.68
%
 
61.72
%
 
62.47
%
Calculation of Tangible Common Equity ratio (at period end)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total shareholders’ equity
$
3,179,822

 
$
3,106,871

 
$
3,031,250

 
$
2,976,939

 
$
2,908,925

 
 
 
 
Less: Non-convertible preferred stock
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
 
 
 
Less: Intangible assets
(564,938
)
 
(531,371
)
 
(533,910
)
 
(519,505
)
 
(520,672
)
 
 
 
 
(I) Total tangible common shareholders’ equity
$
2,489,884

 
$
2,450,500

 
$
2,372,340

 
$
2,332,434

 
$
2,263,253

 
 
 
 
Total assets
$
30,142,731

 
$
29,464,588

 
$
28,456,772

 
$
27,915,970

 
$
27,358,162

 
 
 
 
Less: Intangible assets
(564,938
)
 
(531,371
)
 
(533,910
)
 
(519,505
)
 
(520,672
)
 
 
 
 
(J) Total tangible assets
$
29,577,793

 
$
28,933,217

 
$
27,922,862

 
$
27,396,465

 
$
26,837,490

 
 
 
 
Tangible common equity ratio (I/J)
8.4
%
 
8.5
%
 
8.5
%
 
8.5
%
 
8.4
%
 
 
 
 
Calculation of book value per share
 
 
 
 
 
 
 
 
 
 
 
 
 
Total shareholders’ equity
$
3,179,822

 
$
3,106,871

 
$
3,031,250

 
$
2,976,939

 
$
2,908,925

 
 
 
 
Less: Preferred stock
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
 
 
 
(K) Total common equity
$
3,054,822

 
$
2,981,871

 
$
2,906,250

 
$
2,851,939

 
$
2,783,925

 
 
 
 
(L) Actual common shares outstanding
56,377

 
56,329

 
56,256

 
55,965

 
55,838

 
 
 
 
Book value per common share (K/L)
$
54.19

 
$
52.94

 
$
51.66

 
$
50.96

 
$
49.86

 
 
 
 
Tangible common book value per share (I/L)
$
44.16

 
$
43.50

 
$
42.17

 
$
41.68

 
$
40.53

 
 
 
 
Calculation of return on average common equity
 
 
 
 
 
 
 
 
 
 
 
 
 
(M) Net income applicable to common shares
$
89,898

 
$
87,530

 
$
79,931

 
$
66,731

 
$
63,576

 
$
257,359

 
$
181,173

Add: After-tax intangible asset amortization
871

 
734

 
761

 
738

 
672

 
2,366

 
2,169

(N) Tangible net income applicable to common shares
$
90,769

 
$
88,264

 
$
80,692

 
$
67,469

 
$
64,248

 
$
259,725

 
$
183,342

Total average shareholders' equity
$
3,131,943

 
$
3,064,154

 
$
2,995,592

 
$
2,942,999

 
$
2,882,682

 
$
3,064,396

 
$
2,808,072

Less: Average preferred stock
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(178,632
)
(O) Total average common shareholders' equity
$
3,006,943

 
$
2,939,154

 
$
2,870,592

 
$
2,817,999

 
$
2,757,682

 
$
2,939,396

 
$
2,629,440

Less: Average intangible assets
(547,552
)
 
(533,496
)
 
(536,676
)
 
(519,626
)
 
(520,333
)
 
(539,281
)
 
(520,006
)
(P) Total average tangible common shareholders’ equity
$
2,459,391

 
$
2,405,658

 
$
2,333,916

 
$
2,298,373

 
$
2,237,349

 
$
2,400,115

 
$
2,109,434

Return on average common equity, annualized (M/O)
11.86
%
 
11.94
%
 
11.29
%
 
9.39
%
 
9.15
%
 
11.71
%
 
9.21
%
Return on average tangible common equity, annualized (N/P)
14.64
%
 
14.72
%
 
14.02
%
 
11.65
%
 
11.39
%
 
14.47
%
 
11.62
%


11



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 third quarter of 2018, revenue within this unit was primarily driven by increased net interest income due to increased earning assets and one additional day in the third quarter. The net interest margin decreased in the third quarter of 2018 compared to the second quarter of 2018 primarily as a result of higher deposit costs, partially offset by higher yields within the loan portfolio. Mortgage banking revenue increased by $2.2 million from $39.8 million for the second quarter of 2018 to $42.0 million for the third quarter of 2018. The higher revenue was primarily due to increased revenue from loans originated and sold during the third quarter, offset by lower production margins and smaller positive fair market value adjustment to mortgage servicing rights. Originations during the current period increased slightly to $1.2 billion from $1.1 billion in the second quarter of 2018. Home purchases represented 76% of loan origination volume for the third quarter of 2018. The Company's gross commercial and commercial real estate loan pipelines remain strong. Before the impact of scheduled payments and prepayments, at September 30, 2018, gross commercial and commercial real estate loan pipelines totaled $1.1 billion, or $693.5 million when adjusted for the probability of closing, compared to $1.3 billion, or $847.4 million when adjusted for the probability of closing, at June 30, 2018.

Specialty Finance

Through its specialty finance unit, the Company offers financing of insurance premiums for businesses and individuals, equipment financing through structured loans and lease products to customers in a variety of industries and accounts receivable financing, value-added, out-sourced administrative services, and other services. In the third quarter of 2018, the specialty finance unit experienced higher revenue as a result of increased volumes and higher yields within its insurance premium financing receivables portfolio. Originations of $1.9 billion during the third quarter of 2018 resulted in a $345.2 million increase in average balances. The increase in average balances along with higher yields on these loans resulted in an $8.7 million increase in interest income attributed to this portfolio. The Company's leasing business showed steady growth during the third quarter of 2018, with its portfolio of assets, including capital leases, loans and equipment on operating leases, totaling $1.1 billion at the end of the third quarter of 2018. Revenues from the Company's out-sourced administrative services business remained steady, totaling approximately $1.1 million in the third quarter of 2018 and $1.2 million in the second quarter of 2018.

Wealth Management

Through three separate subsidiaries within its wealth management unit, the Company offers a full range of wealth management services, including trust and investment services, asset management, securities brokerage services and 401(k) and retirement plan services. Wealth management revenue remained flat in the third quarter of 2018 compared to the second quarter of 2018, totaling $22.6 million in the current period. At September 30, 2018, the Company’s wealth management subsidiaries had approximately $26.0 billion of assets under administration, which includes $3.2 billion of assets owned by the Company and its subsidiary banks, representing a $1.4 billion increase from the $24.6 billion of assets under administration at June 30, 2018. In August, our brokerage services subsidiary, Wayne Hummer Investments, LLC, was renamed to Wintrust Investments, LLC to better align with our Wintrust brand.

12



LOANS

Loan Portfolio Mix and Growth Rates
 
 
 
 
 
 
 
 
 
% Growth
(Dollars in thousands)
 
September 30,
2018
 
December 31,
2017
 
September 30,
2017
 
From (1)
December 31,
2017
 
From
September 30,
2017
Balance:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
7,473,958

 
$
6,787,677

 
$
6,456,034

 
14
 %
 
16
 %
Commercial real estate
 
6,746,774

 
6,580,618

 
6,400,781

 
3

 
5

Home equity
 
578,844

 
663,045

 
672,969

 
(17
)
 
(14
)
Residential real estate
 
924,250

 
832,120

 
789,499

 
15

 
17

Premium finance receivables - commercial
 
2,885,327

 
2,634,565

 
2,664,912

 
13

 
8

Premium finance receivables - life insurance
 
4,398,971

 
4,035,059

 
3,795,474

 
12

 
16

Consumer and other
 
115,827

 
107,713

 
133,112

 
10

 
(13
)
Total loans, net of unearned income, excluding covered loans
 
$
23,123,951

 
$
21,640,797

 
$
20,912,781

 
9
 %
 
11
 %
Covered loans
 

 

 
46,601

 

 
(100
)
Total loans, net of unearned income
 
$
23,123,951

 
$
21,640,797

 
$
20,959,382

 
9
 %
 
10
 %
Mix:
 
 
 
 
 
 
 
 
 
 
Commercial
 
32
%
 
31
%
 
31
%
 
 
 
 
Commercial real estate
 
29

 
30

 
31

 
 
 
 
Home equity
 
3

 
3

 
3

 
 
 
 
Residential real estate
 
4

 
4

 
3

 
 
 
 
Premium finance receivables - commercial
 
12

 
12

 
13

 
 
 
 
Premium finance receivables - life insurance
 
19

 
19

 
18

 
 
 
 
Consumer and other
 
1

 
1

 
1

 
 
 
 
Total loans, net of unearned income, excluding covered loans
 
100
%
 
100
%
 
100
%
 
 
 
 
Covered loans
 

 

 

 
 
 
 
Total loans, net of unearned income
 
100
%
 
100
%
 
100
%
 
 
 
 
 
(1)
Annualized
















13



Commercial and Commercial Real Estate Loan Portfolios
 
 
As of September 30, 2018
 
 
 
 
% of
Total
Balance
 
Nonaccrual
 
> 90 Days
Past Due
and Still
Accruing
 
Allowance
For Loan
Losses
Allocation
  
 
 
 
(Dollars in thousands)
 
Balance
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial, industrial and other
 
$
4,805,486

 
33.8
%
 
$
41,322

 
$

 
$
45,111

Franchise
 
937,290

 
6.6

 
16,351

 
5,122

 
8,962

Mortgage warehouse lines of credit
 
171,860

 
1.2

 

 

 
1,350

Asset-based lending
 
1,033,851

 
7.3

 
910

 

 
9,389

Leases
 
509,675

 
3.6

 
4

 

 
1,338

PCI - commercial loans (1)
 
15,796

 
0.1

 

 
3,372

 
594

Total commercial
 
$
7,473,958

 
52.6
%
 
$
58,587

 
$
8,494

 
$
66,744

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
 
Construction
 
$
798,330

 
5.6
%
 
$
1,554

 
$

 
$
9,259

Land
 
119,004

 
0.9

 
228

 

 
3,816

Office
 
940,777

 
6.6

 
1,532

 

 
6,339

Industrial
 
885,931

 
6.2

 
178

 

 
6,002

Retail
 
887,702

 
6.2