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Section 1: 8-K (8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
Current Report
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 23, 2019
 
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 January 22, 2019, Wintrust Financial Corporation (the “Company”) announced earnings for the fourth 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: January 23, 2019

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
  
January 22, 2019
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 Full-Year 2018 Net Income of $343.2 million, an Increase of 33% Over Prior Year and Fourth Quarter 2018 Net Income of $79.7 million, an Increase of 16% Over Prior Year

ROSEMONT, ILLINOIS – Wintrust Financial Corporation (“Wintrust” or “the Company”) (Nasdaq: WTFC) announced record net income of $343.2 million or $5.86 per diluted common share for the year ended December 31, 2018 compared to net income of $257.7 million or $4.40 per diluted common share for the same period of 2017. The Company recorded net income of $79.7 million or $1.35 per diluted common share for the fourth quarter of 2018 compared to net income of $91.9 million or $1.57 per diluted common share for the third quarter of 2018 and $68.8 million or $1.17 per diluted common share for the fourth quarter of 2017.

Highlights of the Fourth Quarter of 2018 *:
    
Total period-end loans increased by $697 million from the prior quarter. The increase included $119 million of loans acquired in relation to the previously-announced acquisition of certain assets and assumption of certain liabilities of American Enterprise Bank ("AEB") completed in early December.
Total deposits increased by $1.2 billion from the prior quarter. This increase included $151 million of deposits assumed in relation to AEB as well as additional incremental deposits generated subsequent to the previously-announced acquisition of Elektra Holding Company, LLC ("Elektra"), the parent company of Chicago Deferred Exchange Company, LLC ("CDEC"), offset by a reduction in brokered funds.
Period-end total loans outstanding ended the year $657 million higher than total average loans outstanding during the fourth quarter of 2018, providing positive momentum for net interest income in the first quarter of 2019.
Net interest margin increased by two basis points from the prior quarter which combined with $580 million of average earning asset growth created an increase in net interest income of $6.5 million from the prior quarter.
Market volatility and recent acquisitions resulted in the following items negatively impacting fourth quarter 2018 pre-tax earnings:
An $8.5 million negative fair value adjustment recognized on mortgage servicing rights related to changes in valuation assumptions and pay-offs contributed to mortgage banking revenue decreasing by $17.8 million compared to the third quarter of 2018. Production revenue decreased due to lower origination volumes and lower revenue margins.
Recognized unrealized losses on equity securities of $2.6 million.
Recognized a $1.1 million foreign currency remeasurement loss, primarily related to weakness in Canadian currency.
Incurred $1.6 million of acquisition-related expenses.
Non-performing assets decreased by $17.5 million, now representing 0.44% of total assets. Non-performing loans decreased by $14.0 million while other real-estate owned decreased $3.5 million compared to the end of the third quarter of 2018.
Opened one new branch in the Brighton Park neighborhood of Chicago, Illinois, increasing our total branches to 167 locations.

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


1



Edward J. Wehmer, President and Chief Executive Officer, commented, "Wintrust reported record net income of $343.2 million for the year ended December 31, 2018, the eighth consecutive year of record net income. Net income was $79.7 million for the fourth quarter of 2018, down from the third quarter of 2018 primarily due to market related adjustments resulting from quickly declining interest rates and lower equity markets late in the year. These market related adjustments and acquisition-related expenses incurred in the fourth quarter negatively impacted our net overhead ratio by 18 basis points. During the fourth quarter, total assets and deposits grew by over $1 billion while we leveraged acquisitions to enhance our deposit mix. A substantial amount of the balance sheet growth occurred near the end of the quarter, which positions us well for the first quarter of 2019. Additionally, we improved our net interest margin by two basis points and have seen deposit costs stabilizing. The improvement in our funding mix should allow for further net interest margin expansion in the first quarter of 2019."

Mr. Wehmer continued, "We experienced strong loan growth in our commercial, commercial real-estate and premium finance receivables portfolios during the fourth quarter, increasing our total loans outstanding by $697 million. Our loan pipelines remain consistently strong, and reflect opportunities to continue to grow loan balances during 2019. Deposit growth outpaced loan growth during the fourth quarter, lowering our loan to deposit ratio to 91.3% at year-end. Organic deposit growth in the fourth quarter occurred across all deposit categories, except time certificates of deposit. The previously mentioned CDEC acquisition allowed the Company to bring $1.1 billion of low cost funding into our banks. The new deposit source was utilized to optimize the balance sheet by reducing outstanding wholesale funding positions, including $696 million of wholesale wealth management deposits, $75 million of maturing brokered CDs and $200 million of short-term Federal Home Loan Bank advances. We believe that we can continue to grow the CDEC deposit base which will further drive down the Company’s loan to deposit ratio to our desired operating range and enable us to expand our investment portfolio if opportunities and market conditions that meet our standards arise."

Commenting on credit quality, Mr. Wehmer noted, "During the fourth quarter of 2018, the Company continued its practice of addressing and resolving non-performing credits in a timely fashion. Total non-performing assets declined $17.5 million during the fourth quarter, dropping to 0.44% of total assets. Both non-performing loans and other real-estate owned declined during the quarter. Additionally, near-term 60 to 89 day delinquent loans declined to $34.2 million or only 0.1% of total loans in the fourth quarter of 2018. The allowance for loan losses as a percentage of non-performing loans ended the year at 135%. Net charge-offs for the fourth quarter were 12 basis points of total average loan balances with full year net charge-offs at a historically low level of nine basis points of total average loan balances. We believe that the Company’s reserves remain appropriate. The Company begins 2019 with credit quality in a very strong position but will continue to be diligent in its review of credit."

Mr. Wehmer further commented, “Our mortgage banking and wealth management businesses were both impacted by volatile markets in the fourth quarter. Mortgage banking revenue decreased $17.8 million. The mortgage origination environment in the fourth quarter was challenging as normal seasonality was further pressured by declining demand leading to lower origination volumes and production margins. Origination volumes decreased to $927.8 million, down from $1.2 billion in the third quarter. Home purchase activity continues to make up the bulk of our originations accounting for 71% of origination volumes in the fourth quarter. For much of the fourth quarter, mortgage rates increased, however, during the closing weeks of 2018, a sudden shift downward in rates contributed to the negative fair value adjustment on our mortgage servicing rights portfolio of $8.5 million related to changes in valuation assumptions and pay-offs. We continue to focus on efficiencies in our delivery channels and our operating costs in our mortgage banking area. Our wealth management businesses experienced headwinds in the fourth quarter due to declining equity prices. Despite these headwinds, wealth management revenue was essentially flat to the third quarter of 2018."

Turning to the future, Mr. Wehmer stated, “As 2019 begins, we expect our growth engines to continue their momentum. We expect continued organic growth in all areas of our businesses. Total period-end loans outstanding exceeded fourth quarter total average loans by $657 million, providing momentum for net interest income into the first quarter of 2019. Net interest margin is expected to improve in first quarter of 2019 fueled by the CDEC acquisition and stabilizing retail deposit costs. We will continue 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. Evaluating strategic acquisitions and organic branch growth will also be a part of our overall growth strategy with the continued goal of becoming Chicago’s bank and Wisconsin’s bank. We believe our opportunities for both internal growth and external growth remain consistently strong."


2



The graphs below illustrate certain highlights of the fourth quarter of 2018 and the year ended December 31, 2018.

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3



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4







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5



Wintrust’s key operating measures and growth rates for the fourth quarter of 2018, as compared to the sequential and linked quarters, are shown in the table below:
 
 
 
 
 
 
 
 
% or(4)
basis point  (bp) change from
3rd Quarter
2018
 
% or
basis point  (bp)
change from
4th Quarter
2017
  
 
Three Months Ended
 
 
(Dollars in thousands)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
 
Net income
 
$
79,657

 
$
91,948

 
$
68,781

 
(13
)
 
16

Net income per common share – diluted
 
$
1.35

 
$
1.57

 
$
1.17

 
(14
)
 
15

Net revenue (1)
 
$
329,396

 
$
347,493

 
$
300,137

 
(5
)
 
10

Net interest income
 
254,088

 
247,563

 
219,099

 
3

 
16

Net interest margin
 
3.61
%
 
3.59
%
 
3.45
%
 
2

bp 
 
16

bp 
Net interest margin - fully taxable equivalent (non-GAAP) (2)
 
3.63
%
 
3.61
%
 
3.49
%
 
2

bp
 
14

bp
Net overhead ratio (3)
 
1.79
%
 
1.53
%
 
1.69
%
 
26

bp 
 
10

bp 
Return on average assets
 
1.05
%
 
1.24
%
 
1.00
%
 
(19
)
bp 
 
5

bp 
Return on average common equity
 
10.01
%
 
11.86
%
 
9.39
%
 
(185
)
bp 
 
62

bp 
Return on average tangible common equity (non-GAAP) (2)
 
12.48
%
 
14.64
%
 
11.65
%
 
(216
)
bp
 
83

bp
At end of period
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
31,241,521

 
$
30,142,731

 
$
27,915,970

 
14

 
12

Total loans (5)
 
23,820,691

 
23,123,951

 
21,640,797

 
12

 
10

Total deposits
 
26,094,678

 
24,916,715

 
23,183,347

 
19

 
13

Total shareholders’ equity
 
3,267,570

 
3,179,822

 
2,976,939

 
11

 
10

 
(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
 
Years Ended
(Dollars in thousands, except per share data)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Selected Financial Condition Data (at end of period):
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
31,241,521

 
$
30,142,731

 
$
27,915,970

 
 
 
 
Total loans (7)
 
23,820,691

 
23,123,951

 
21,640,797

 
 
 
 
Total deposits
 
26,094,678

 
24,916,715

 
23,183,347

 
 
 
 
Junior subordinated debentures
 
253,566

 
253,566

 
253,566

 
 
 
 
Total shareholders’ equity
 
3,267,570

 
3,179,822

 
2,976,939

 
 
 
 
Selected Statements of Income Data:
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
254,088

 
$
247,563

 
$
219,099

 
$
964,903

 
$
832,076

Net revenue (1)
 
329,396

 
347,493

 
300,137

 
1,321,053

 
1,151,582

Net income
 
79,657

 
91,948

 
68,781

 
343,166

 
257,682

Net income per common share – Basic
 
$
1.38

 
$
1.59

 
$
1.19

 
$
5.95

 
$
4.53

Net income per common share – Diluted
 
$
1.35

 
$
1.57

 
$
1.17

 
$
5.86

 
$
4.40

Selected Financial Ratios and Other Data:
 
 
 
 
 
 
 
 
 
 
Performance Ratios:
 
 
 
 
 
 
 
 
 
 
Net interest margin
 
3.61
%
 
3.59
%
 
3.45
%
 
3.59
%
 
3.41
%
Net interest margin - fully taxable equivalent (non-GAAP) (2)
 
3.63
%
 
3.61
%
 
3.49
%
 
3.61
%
 
3.44
%
Non-interest income to average assets
 
0.99
%
 
1.34
%
 
1.18
%
 
1.23
%
 
1.21
%
Non-interest expense to average assets
 
2.78
%
 
2.87
%
 
2.87
%
 
2.85
%
 
2.78
%
Net overhead ratio (3)
 
1.79
%
 
1.53
%
 
1.69
%
 
1.62
%
 
1.56
%
Return on average assets
 
1.05
%
 
1.24
%
 
1.00
%
 
1.18
%
 
0.98
%
Return on average common equity
 
10.01
%
 
11.86
%
 
9.39
%
 
11.26
%
 
9.26
%
Return on average tangible common equity (non-GAAP) (2)
 
12.48
%
 
14.64
%
 
11.65
%
 
13.95
%
 
11.63
%
Average total assets
 
$
30,179,887

 
$
29,525,109

 
$
27,179,484

 
$
29,028,420

 
$
26,369,702

Average total shareholders’ equity
 
3,200,654

 
3,131,943

 
2,942,999

 
3,098,740

 
2,842,081

Average loans to average deposits ratio (excluding covered loans)
 
92.4
%
 
92.2
%
 
92.3
%
 
93.7
%
 
92.7
%
Period-end loans to deposits ratio (excluding covered loans)
 
91.3
%
 
92.8
%
 
93.3
%
 
 
 
 
Common Share Data at end of period:
 
 
 
 
 
 
 
 
 
 
Market price per common share
 
$
66.49

 
$
84.94

 
$
82.37

 
 
 
 
Book value per common share (2)
 
$
55.71

 
$
54.19

 
$
50.96

 
 
 
 
Tangible common book value per share (2)
 
$
44.73

 
$
44.16

 
$
41.68

 
 
 
 
Common shares outstanding
 
56,407,558

 
56,377,169

 
55,965,207

 
 
 
 
Other Data at end of period:(6)
 
 
 
 
 
 
 
 
 
 
Leverage Ratio (4)
 
9.1
%
 
9.3
%
 
9.3
%
 
 
 
 
Tier 1 capital to risk-weighted assets (4)
 
9.6
%
 
10.0
%
 
9.9
%
 
 
 
 
Common equity Tier 1 capital to risk-weighted assets (4)
 
9.2
%
 
9.5
%
 
9.4
%
 
 
 
 
Total capital to risk-weighted assets (4)
 
11.6
%
 
12.0
%
 
12.0
%
 
 
 
 
Allowance for credit losses (5)
 
$
154,164

 
$
151,001

 
$
139,174

 
 
 
 
Non-performing loans
 
113,234

 
127,227

 
90,162

 
 
 
 
Allowance for credit losses to total loans (5)
 
0.65
%
 
0.65
%
 
0.64
%
 
 
 
 
Non-performing loans to total loans
 
0.48
%
 
0.55
%
 
0.42
%
 
 
 
 
Number of:
 
 
 
 
 
 
 
 
 
 
Bank subsidiaries
 
15

 
15

 
15

 
 
 
 
Banking offices
 
167

 
166

 
157

 
 
 
 
 
(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)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
 
 
 
Cash and due from banks
 
$
392,142

 
$
279,936

 
$
277,534

Federal funds sold and securities purchased under resale agreements
 
58

 
57

 
57

Interest bearing deposits with banks
 
1,099,594

 
1,137,044

 
1,063,242

Available-for-sale securities, at fair value
 
2,126,081

 
2,164,985

 
1,803,666

Held-to-maturity securities, at amortized cost
 
1,067,439

 
966,438

 
826,449

Trading account securities
 
1,692

 
688

 
995

Equity securities with readily determinable fair value
 
34,717

 
36,414

 

Federal Home Loan Bank and Federal Reserve Bank stock
 
91,354

 
99,998

 
89,989

Brokerage customer receivables
 
12,609

 
15,649

 
26,431

Mortgage loans held-for-sale
 
264,070

 
338,111

 
313,592

Loans, net of unearned income
 
23,820,691

 
23,123,951

 
21,640,797

Allowance for loan losses
 
(152,770
)
 
(149,756
)
 
(137,905
)
Net loans
 
23,667,921

 
22,974,195

 
21,502,892

Premises and equipment, net
 
671,169

 
664,469

 
621,895

Lease investments, net
 
233,208

 
199,241

 
212,335

Accrued interest receivable and other assets
 
696,707

 
700,568

 
567,374

Trade date securities receivable
 
263,523

 

 
90,014

Goodwill and other intangible assets
 
619,237

 
564,938

 
519,505

Total assets
 
$
31,241,521

 
$
30,142,731

 
$
27,915,970

Liabilities and Shareholders’ Equity
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
Non-interest bearing
 
$
6,569,880

 
$
6,399,213

 
$
6,792,497

Interest bearing
 
19,524,798

 
18,517,502

 
16,390,850

 Total deposits
 
26,094,678

 
24,916,715

 
23,183,347

Federal Home Loan Bank advances
 
426,326

 
615,000

 
559,663

Other borrowings
 
393,855

 
373,571

 
266,123

Subordinated notes
 
139,210

 
139,172

 
139,088

Junior subordinated debentures
 
253,566

 
253,566

 
253,566

Accrued interest payable and other liabilities
 
666,316

 
664,885

 
537,244

Total liabilities
 
27,973,951

 
26,962,909

 
24,939,031

Shareholders’ Equity:
 
 
 
 
 
 
Preferred stock
 
125,000

 
125,000

 
125,000

Common stock
 
56,518

 
56,486

 
56,068

Surplus
 
1,557,984

 
1,553,353

 
1,529,035

Treasury stock
 
(5,634
)
 
(5,547
)
 
(4,986
)
Retained earnings
 
1,610,574

 
1,543,680

 
1,313,657

Accumulated other comprehensive loss
 
(76,872
)
 
(93,150
)
 
(41,835
)
Total shareholders’ equity
 
3,267,570

 
3,179,822

 
2,976,939

Total liabilities and shareholders’ equity
 
$
31,241,521

 
$
30,142,731

 
$
27,915,970



8



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

 
Three Months Ended
 
Years Ended
(In thousands, except per share data)
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Interest income
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
283,311

 
$
271,134

 
$
226,447

 
$
1,044,502

 
$
856,549

        Mortgage loans held-for-sale
3,409

 
5,285

 
3,291

 
15,738

 
12,332

Interest bearing deposits with banks
5,628

 
5,423

 
2,723

 
17,090

 
9,252

Federal funds sold and securities purchased under resale agreements

 

 

 
1

 
2

Investment securities
26,656

 
21,710

 
18,160

 
87,382

 
63,315

Trading account securities
14

 
11

 
2

 
43

 
25

Federal Home Loan Bank and Federal Reserve Bank stock
1,343

 
1,235

 
1,067

 
5,331

 
4,370

Brokerage customer receivables
235

 
164

 
150

 
723

 
623

Total interest income
320,596

 
304,962

 
251,840

 
1,170,810

 
946,468

Interest expense
 
 
 
 
 
 
 
 
 
Interest on deposits
55,975

 
48,736

 
24,930

 
166,553

 
83,326

Interest on Federal Home Loan Bank advances
2,563

 
1,947

 
2,124

 
12,412

 
8,798

Interest on other borrowings
3,199

 
2,003

 
1,600

 
8,599

 
5,370

Interest on subordinated notes
1,788

 
1,773

 
1,786

 
7,121

 
7,116

Interest on junior subordinated debentures
2,983

 
2,940

 
2,301

 
11,222

 
9,782

Total interest expense
66,508

 
57,399

 
32,741

 
205,907

 
114,392

Net interest income
254,088

 
247,563

 
219,099

 
964,903

 
832,076

Provision for credit losses
10,401

 
11,042

 
7,772

 
34,832

 
29,768

Net interest income after provision for credit losses
243,687

 
236,521

 
211,327

 
930,071

 
802,308

Non-interest income
 
 
 
 
 
 
 
 
 
Wealth management
22,726

 
22,634

 
21,910

 
90,963

 
81,766

Mortgage banking
24,182

 
42,014

 
27,411

 
136,990

 
113,472

Service charges on deposit accounts
9,065

 
9,331

 
8,907

 
36,404

 
34,513

(Losses) gains on investment securities, net
(2,649
)
 
90

 
14

 
(2,898
)
 
45

Fees from covered call options
626

 
627

 
1,610

 
3,519

 
4,402

Trading (losses) gains, net
(155
)
 
(61
)
 
24

 
11

 
(845
)
Operating lease income, net
10,882

 
9,132

 
8,598

 
38,451

 
29,646

Other
10,631

 
16,163

 
12,564

 
52,710

 
56,507

Total non-interest income
75,308

 
99,930

 
81,038

 
356,150

 
319,506

Non-interest expense
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
122,111

 
123,855

 
118,009

 
480,077

 
430,078

Equipment
11,523

 
10,827

 
9,500

 
42,949

 
38,358

Operating lease equipment depreciation
8,462

 
7,370

 
7,015

 
29,305

 
24,107

Occupancy, net
15,980

 
14,404

 
14,154

 
57,814

 
52,920

Data processing
8,447

 
9,335

 
7,915

 
35,027

 
31,495

Advertising and marketing
9,414

 
11,120

 
7,382

 
41,140

 
30,830

Professional fees
9,259

 
9,914

 
8,879

 
32,306

 
27,835

Amortization of other intangible assets
1,407

 
1,163

 
1,028

 
4,571

 
4,401

FDIC insurance
4,044

 
4,205

 
4,324

 
17,209

 
16,231

OREO expense, net
1,618

 
596

 
599

 
6,120

 
3,593

Other
19,068

 
20,848

 
17,775

 
79,570

 
71,969

Total non-interest expense
211,333

 
213,637

 
196,580

 
826,088

 
731,817

Income before taxes
107,662

 
122,814

 
95,785

 
460,133

 
389,997

Income tax expense
28,005

 
30,866

 
27,004

 
116,967

 
132,315

Net income
$
79,657

 
$
91,948

 
$
68,781

 
$
343,166

 
$
257,682

Preferred stock dividends
2,050

 
2,050

 
2,050

 
8,200

 
9,778

Net income applicable to common shares
$
77,607

 
$
89,898

 
$
66,731

 
$
334,966

 
$
247,904

Net income per common share - Basic
$
1.38

 
$
1.59

 
$
1.19

 
$
5.95

 
$
4.53

Net income per common share - Diluted
$
1.35

 
$
1.57

 
$
1.17

 
$
5.86

 
$
4.40

Cash dividends declared per common share
$
0.19

 
$
0.19

 
$
0.14

 
$
0.76

 
$
0.56

Weighted average common shares outstanding
56,395

 
56,366

 
55,924

 
56,300

 
54,703

Dilutive potential common shares
892

 
918

 
1,010

 
908

 
1,983

Average common shares and dilutive common shares
57,287

 
57,284

 
56,934

 
57,208

 
56,686


9



EARNINGS PER SHARE

The following table shows the computation of basic and diluted earnings per share for the periods indicated:
 
 
 
Three Months Ended
 
Years Ended
(In thousands, except per share data)
 
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Net income
 
 
$
79,657

 
$
91,948

 
$
68,781

 
$
343,166

 
$
257,682

Less: Preferred stock dividends
 
 
2,050

 
2,050

 
2,050

 
8,200

 
9,778

Net income applicable to common shares—Basic
(A)
 
77,607

 
89,898

 
66,731

 
334,966

 
247,904

Add: Dividends on convertible preferred stock, if dilutive
 
 

 

 

 

 
1,578

Net income applicable to common shares—Diluted
(B)
 
77,607

 
89,898

 
66,731

 
334,966

 
249,482

Weighted average common shares outstanding
(C)
 
56,395

 
56,366

 
55,924

 
56,300

 
54,703

Effect of dilutive potential common shares:
 
 
 
 
 
 
 
 
 
 
 
Common stock equivalents
 
 
892

 
918

 
1,010

 
908

 
998

Convertible preferred stock, if dilutive
 
 

 

 

 

 
985

Weighted average common shares and effect of dilutive potential common shares
(D)
 
57,287

 
57,284

 
56,934

 
57,208

 
56,686

Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic
(A/C)
 
$
1.38

 
$
1.59

 
$
1.19

 
$
5.95

 
$
4.53

Diluted
(B/D)
 
$
1.35

 
$
1.57

 
$
1.17

 
$
5.86

 
$
4.40


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
 
Years Ended
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
December 31,
 
December 31,
(Dollars and shares in thousands)
2018
 
2018
 
2018
 
2018
 
2017
 
2018
 
2017
Calculation of Net Interest Margin and Efficiency Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
(A) Interest Income (GAAP)
$
320,596

 
$
304,962

 
$
284,047

 
$
261,205

 
$
251,840

 
$
1,170,810

 
$
946,468

Taxable-equivalent adjustment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 - Loans
980

 
941

 
812

 
670

 
1,106

 
3,403

 
3,760

 - Liquidity Management Assets
586

 
575

 
566

 
531

 
1,019

 
2,258

 
3,713

 - Other Earning Assets
4

 
3

 
1

 
3

 
2

 
11

 
14

(B) Interest Income - FTE
$
322,166

 
$
306,481

 
$
285,426

 
$
262,409

 
$
253,967

 
$
1,176,482

 
$
953,955

(C) Interest Expense (GAAP)
66,508

 
57,399

 
45,877

 
36,123

 
32,741

 
205,907

 
114,392

(D) Net Interest Income - FTE (B minus C)
$
255,658

 
$
249,082

 
$
239,549

 
$
226,286

 
$
221,226

 
$
970,575

 
$
839,563

(E) Net Interest Income (GAAP) (A minus C)
$
254,088

 
$
247,563

 
$
238,170

 
$
225,082

 
$
219,099

 
$
964,903

 
$
832,076

Net interest margin (GAAP-derived)
3.61
%
 
3.59
%
 
3.61
%
 
3.54
%
 
3.45
%
 
3.59
%
 
3.41
%
Net interest margin - FTE
3.63
%
 
3.61
%
 
3.63
%
 
3.56
%
 
3.49
%
 
3.61
%
 
3.44
%
(F) Non-interest income
$
75,308

 
$
99,930

 
$
95,233

 
$
85,679

 
$
81,038

 
$
356,150

 
$
319,506

(G) (Losses) gains on investment securities, net
(2,649
)
 
90

 
12

 
(351
)
 
14

 
(2,898
)
 
45

(H) Non-interest expense
211,333

 
213,637

 
206,769

 
194,349

 
196,580

 
826,088

 
731,817

Efficiency ratio (H/(E+F-G))
63.65
%
 
61.50
%
 
62.02
%
 
62.47
%
 
65.50
%
 
62.40
%
 
63.55
%
Efficiency ratio - FTE (H/(D+F-G))
63.35
%
 
61.23
%
 
61.76
%
 
62.23
%
 
65.04
%
 
62.13
%
 
63.14
%
Calculation of Tangible Common Equity ratio (at period end)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total shareholders’ equity
$
3,267,570

 
$
3,179,822

 
$
3,106,871

 
$
3,031,250

 
$
2,976,939

 
 
 
 
Less: Non-convertible preferred stock
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
 
 
 
Less: Intangible assets
(619,237
)
 
(564,938
)
 
(531,371
)
 
(533,910
)
 
(519,505
)
 
 
 
 
(I) Total tangible common shareholders’ equity
$
2,523,333

 
$
2,489,884

 
$
2,450,500

 
$
2,372,340

 
$
2,332,434

 
 
 
 
Total assets
$
31,241,521

 
$
30,142,731

 
$
29,464,588

 
$
28,456,772

 
$
27,915,970

 
 
 
 
Less: Intangible assets
(619,237
)
 
(564,938
)
 
(531,371
)
 
(533,910
)
 
(519,505
)
 
 
 
 
(J) Total tangible assets
$
30,622,284

 
$
29,577,793

 
$
28,933,217

 
$
27,922,862

 
$
27,396,465

 
 
 
 
Tangible common equity ratio (I/J)
8.2
%
 
8.4
%
 
8.5
%
 
8.5
%
 
8.5
%
 
 
 
 
Calculation of book value per share
 
 
 
 
 
 
 
 
 
 
 
 
 
Total shareholders’ equity
$
3,267,570

 
$
3,179,822

 
$
3,106,871

 
$
3,031,250

 
$
2,976,939

 
 
 
 
Less: Preferred stock
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
 
 
 
(K) Total common equity
$
3,142,570

 
$
3,054,822

 
$
2,981,871

 
$
2,906,250

 
$
2,851,939

 
 
 
 
(L) Actual common shares outstanding
56,408

 
56,377

 
56,329

 
56,256

 
55,965

 
 
 
 
Book value per common share (K/L)
$
55.71

 
$
54.19

 
$
52.94

 
$
51.66

 
$
50.96

 
 
 
 
Tangible common book value per share (I/L)
$
44.73

 
$
44.16

 
$
43.50

 
$
42.17

 
$
41.68

 
 
 
 
Calculation of return on average common equity
 
 
 
 
 
 
 
 
 
 
 
 
 
(M) Net income applicable to common shares
$
77,607

 
$
89,898

 
$
87,530

 
$
79,931

 
$
66,731

 
$
334,966

 
$
247,904

Add: After-tax intangible asset amortization
1,041

 
871

 
734

 
761

 
738

 
3,407

 
2,907

(N) Tangible net income applicable to common shares
$
78,648

 
$
90,769

 
$
88,264

 
$
80,692

 
$
67,469

 
$
338,373

 
$
250,811

Total average shareholders' equity
$
3,200,654

 
$
3,131,943

 
$
3,064,154

 
$
2,995,592

 
$
2,942,999

 
$
3,098,740

 
$
2,842,081

Less: Average preferred stock
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(165,114
)
(O) Total average common shareholders' equity
$
3,075,654

 
$
3,006,943

 
$
2,939,154

 
$
2,870,592

 
$
2,817,999

 
$
2,973,740

 
$
2,676,967

Less: Average intangible assets
(574,757
)
 
(547,552
)
 
(533,496
)
 
(536,676
)
 
(519,626
)
 
(548,223
)
 
(519,910
)
(P) Total average tangible common shareholders’ equity
$
2,500,897

 
$
2,459,391

 
$
2,405,658

 
$
2,333,916

 
$
2,298,373

 
$
2,425,517

 
$
2,157,057

Return on average common equity, annualized (M/O)
10.01
%
 
11.86
%
 
11.94
%
 
11.29
%
 
9.39
%
 
11.26
%
 
9.26
%
Return on average tangible common equity, annualized (N/P)
12.48
%
 
14.64
%
 
14.72
%
 
14.02
%
 
11.65
%
 
13.95
%
 
11.63
%


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 fourth quarter of 2018, revenue within this unit was primarily driven by increased net interest income due to increased earning assets and a higher net interest margin. The net interest margin increased in the fourth quarter of 2018 compared to the third quarter of 2018 primarily as a result of higher yields within the loan portfolio. Mortgage banking revenue decreased by $17.8 million from $42.0 million for the third quarter of 2018 to $24.2 million for the fourth quarter of 2018. The lower revenue was primarily due to to lower origination volumes, lower revenue margins and a $8.5 million negative fair value adjustment recognized on mortgage servicing rights related to changes in valuation assumptions and pay-offs. Originations during the current period decreased to $927.8 million from $1.2 billion in the third quarter of 2018. Home purchases represented 71% of loan origination volume for the fourth 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 December 31, 2018, gross commercial and commercial real estate loan pipelines totaled $1.1 billion, or $671.1 million when adjusted for the probability of closing, compared to $1.1 billion, or $693.5 million when adjusted for the probability of closing, at September 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 fourth 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 $2.1 billion during the fourth quarter of 2018 resulted in a $25.1 million increase in average balances. The increase in average balances along with higher yields on these loans resulted in a $2.8 million increase in interest income attributed to this portfolio. The Company's leasing business showed steady growth during the fourth quarter of 2018, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing $132.7 million to $1.2 billion at the end of the fourth quarter of 2018. Revenues from the Company's out-sourced administrative services business remained steady, totaling approximately $1.3 million in the fourth quarter of 2018 and $1.1 million in the third quarter of 2018.

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 remained flat in the fourth quarter of 2018 compared to the third quarter of 2018, totaling $22.7 million in the current period. At December 31, 2018, the Company’s wealth management subsidiaries had approximately $24.2 billion of assets under administration, which includes $3.6 billion of assets owned by the Company and its subsidiary banks, representing a $1.8 billion decrease from the $26.0 billion of assets under administration at September 30, 2018. The decrease in the fourth quarter of 2018 was primarily due to the impact of market conditions on the value of assets under administration. In December, the Company acquired CDEC, which 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.

12



LOANS

Loan Portfolio Mix and Growth Rates
 
 
 
 
 
 
 
 
 
% Growth
(Dollars in thousands)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
From (1)
September 30,
2018
 
From
December 31,
2017
Balance:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
7,828,538

 
$
7,473,958

 
$
6,787,677

 
19
 %
 
15
 %
Commercial real estate
 
6,933,252

 
6,746,774

 
6,580,618

 
11

 
5

Home equity
 
552,343

 
578,844

 
663,045

 
(18
)
 
(17
)
Residential real estate
 
1,002,464

 
924,250

 
832,120

 
34

 
20

Premium finance receivables - commercial
 
2,841,659

 
2,885,327

 
2,634,565

 
(6
)
 
8

Premium finance receivables - life insurance
 
4,541,794

 
4,398,971

 
4,035,059

 
13

 
13

Consumer and other
 
120,641

 
115,827

 
107,713

 
16

 
12

Total loans, net of unearned income
 
$
23,820,691

 
$
23,123,951

 
$
21,640,797

 
12
 %
 
10
 %
Mix:
 
 
 
 
 
 
 
 
 
 
Commercial
 
33
%
 
32
%
 
31
%
 
 
 
 
Commercial real estate
 
29

 
29

 
30

 
 
 
 
Home equity
 
2

 
3

 
3

 
 
 
 
Residential real estate
 
4

 
4

 
4

 
 
 
 
Premium finance receivables - commercial
 
12

 
12

 
12

 
 
 
 
Premium finance receivables - life insurance
 
19

 
19

 
19

 
 
 
 
Consumer and other
 
1

 
1

 
1

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


13



Commercial and Commercial Real Estate Loan Portfolios
 
 
As of December 31, 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
 
$
5,120,096

 
34.6
%
 
$
34,298

 
$

 
$
46,586

Franchise
 
948,979

 
6.4

 
16,051

 

 
8,919

Mortgage warehouse lines of credit
 
144,199

 
1.0

 

 

 
1,162

Asset-based lending
 
1,026,056

 
7.0

 
635

 

 
9,138

Leases
 
565,680

 
3.8

 

 

 
1,502

PCI - commercial loans (1)
 
23,528

 
0.2

 

 
3,313

 
519

Total commercial
 
$
7,828,538

 
53.0
%
 
$
50,984

 
$
3,313

 
$
67,826

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
 
Construction
 
$
760,824

 
5.2
%
 
$
1,554

 
$

 
$
8,999

Land
 
141,481

 
1.0

 
107

 

 
3,953

Office
 
939,322

 
6.4

 
3,629

 

 
6,239

Industrial
 
902,248

 
6.1

 
285

 

 
6,088

Retail
 
892,478

 
6.0

 
10,753

 

 
9,338

Multi-family
 
976,560

 
6.6

 
311

 

 
9,395

Mixed use and other
 
2,205,195

 
14.9

 
2,490

 

 
16,210

PCI - commercial real estate (1)
 
115,144

 
0.8

 

 
6,241

 
45

Total commercial real estate
 
$
6,933,252

 
47.0
%
 
$
19,129

 
$
6,241

 
$
60,267

Total commercial and commercial real estate
 
$
14,761,790

 
100.0
%
 
$
70,113

 
$
9,554

 
$
128,093

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate - collateral location by state:
 
 
 
 
 
 
 
 
 
 
Illinois
 
$
5,336,454