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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): April 16, 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 April 15, 2019, Wintrust Financial Corporation (the “Company”) announced earnings for the first quarter of 2019. 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: April 16, 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
  
April 15, 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 First Quarter 2019 Net Income of $89.1 million,
An Increase of 9% Over Prior Year Quarter

ROSEMONT, ILLINOIS – Wintrust Financial Corporation (“Wintrust” or “the Company”) (Nasdaq: WTFC) announced net income of $89.1 million or $1.52 per diluted common share for the first quarter of 2019, an increase in diluted earnings per share of 13% compared to the prior quarter and 9% compared to the first quarter of 2018.

Highlights of the First Quarter of 2019:
    
Net interest margin increased by nine basis points from the prior quarter as the yield on earning assets increased by 16 basis points partially offset by a seven basis point increase on the rate paid on interest bearing liabilities.
Total loans increased by $394 million from the prior quarter.
Total deposits increased by $710 million from the prior quarter.
Non-performing assets to total assets declined by one basis point and now comprise 0.43% of total assets.
Recorded nine basis points of annualized net charge-offs down from 12 basis points in the prior quarter.
Market and interest rate volatility resulted in the following items impacting first quarter 2019 pre-tax earnings:
An $8.7 million negative fair value adjustment recognized on mortgage servicing rights related to changes in valuation assumptions.
Recognized unrealized gains on equity securities of $1.4 million.
Recognized a $464,000 foreign currency remeasurement gain, primarily related to changes in the Canadian currency.
Incurred a $1.0 million non-tax-deductible settlement recorded within miscellaneous non-interest expense.
Mortgage banking revenue declined by $6.0 million primarily due to lower production revenue and mortgage servicing rights capitalization as mortgage originations for sale totaled $678.5 million in the first quarter of 2019 as compared to $927.8 million in the fourth quarter of 2018.
Opened branches in Naples, Florida and the Fulton Market neighborhood of Chicago, as well as completed the acquisition of a Milwaukee branch from PyraMax Bank, FSB.
Announced an agreement to buy Rush-Oak Corporation, the parent company of Oak Bank.

Edward J. Wehmer, President and Chief Executive Officer, commented, "Wintrust reported net income of $89.1 million for the first quarter of 2019, up from $79.7 million in the fourth quarter of 2018. The Company experienced strong balance sheet growth as total assets were $1.1 billion higher than the prior quarter end and $3.9 billion higher than the first quarter of 2018. The first quarter was characterized by net interest margin expansion, loan and deposit growth, stable credit quality, market volatility impacting the mortgage division and cost control."

Mr. Wehmer continued, "Net interest margin for the Company increased considerably as earning assets benefited from the increase in short term interest rates in late 2018. Additionally, the Company managed deposits costs which continued to moderate as the rate paid on interest bearing deposits increased by nine basis points from the prior quarter or a calculated beta of 36% on the December 2018 rate hike. While this quarter demonstrates the benefit of Wintrust having maintained a rate sensitive position, the Company has taken action in recent quarters to reduce the asset sensitivity of its balance sheet given the recent increase in rates. Given the shape of the interest rate curve and projected interest rate environment, we expect some pressure on net interest

1



margin in the upcoming quarter. Growing low cost deposits in our market area remains a significant focus of the Company which we believe will be the key in mitigating net interest margin compression."

Mr. Wehmer added, "We experienced strong loan growth in our commercial and commercial premium finance receivables portfolios during the first quarter, increasing our total loans outstanding by $394 million. Our loan pipelines remain consistently strong, and reflect opportunities to continue to grow loans across most of our portfolio segments. Deposits grew by $710 million in the first quarter, lowering our loans to deposits ratio to 90.3%. We expect that we will be able to grow our retail and commercial deposit base while further supplementing deposit growth with deposits generated from the 1031 exchanges facilitated by our Chicago Deferred Exchange Company subsidiary."

Commenting on credit quality, Mr. Wehmer noted, "During the first quarter of 2019, the Company continued its practice of addressing and resolving non-performing credits in a timely fashion. Total non-performing assets increased slightly by $1.0 million during the first quarter, but declined to 0.43% of total assets. Non-performing loans increased by $4.4 million while other real-estate owned declined by $3.3 million during the quarter. Additionally, near-term 60 to 89 day delinquent loans declined to $19.2 million or only 0.1% of total loans in the first quarter of 2019. The allowance for loan losses as a percentage of non-performing loans remained flat to the prior quarter at 135%. As a percentage of average total loans, annualized net charge-offs for the first quarter were nine basis points down from 12 basis points in the prior quarter. We believe that the Company’s reserves remain appropriate and we remain diligent in our review of credit."

Mr. Wehmer further commented, “Our mortgage banking business was impacted by seasonal demand in the first quarter as loan volumes originated for sale decreased to $678.5 million, down from $927.8 million in the fourth quarter of 2018. The decline in origination volume resulted in lower production revenue and a decrease in mortgage servicing rights capitalization revenue. Declining long-term interest rates led to an increase in refinance activity, however home purchase activity continues to make up the majority of our originations accounting for 67% of loan volumes originated for sale in the first quarter. The decrease in long-term mortgage rates resulted in a negative fair value adjustment on our mortgage servicing rights portfolio of $8.7 million related to changes in valuation assumptions as compared to a $7.6 million negative fair value adjustment in the fourth quarter of 2018. These valuation adjustments negatively impacted the net overhead ratio by 11 basis points in the first quarter of 2019 and 10 basis points in the fourth quarter of 2018. We continue to focus on efficiencies in our delivery channels and our operating costs in our mortgage banking area. We believe that the lower mortgage rate outlook bodes well for mortgage origination demand in future quarters."

Turning to the future, Mr. Wehmer stated, “We believe 2019 got off to a strong start as we grew assets significantly while expanding net interest margin, maintaining strong credit quality and managing operating costs. We expect continued organic growth in all areas of our businesses. We will remain diligent in monitoring changes to the interest rate environment and managing the balance sheet to maximize net interest margin and net income. 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, like the announced acquisition of Oak Bank, 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 first quarter of 2019.

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3



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4



397537521_chart-7d1bc10009cc5c909f1a02.jpg
397537521_chart-bcfbf00dead1526db48.jpg


5



Wintrust’s key operating measures and growth rates for the first quarter of 2019, as compared to the fourth quarter of 2018 (sequential quarter) and first quarter of 2018 (linked quarter), are shown in the table below:
 
 
 
 
 
 
 
 
% or(4)
basis point  (bp) change from
4th Quarter
2018
 
% or
basis point  (bp)
change from
1st Quarter
2018
  
 
Three Months Ended
 
 
(Dollars in thousands)
 
March 31,
2019
 
December 31,
2018
 
March 31,
2018
 
 
Net income
 
$
89,146

 
$
79,657

 
$
81,981

 
12

 
9

Net income per common share – diluted
 
$
1.52

 
$
1.35

 
$
1.40

 
13

 
9

Net revenue (1)
 
$
343,643

 
$
329,396

 
$
310,761

 
4

 
11

Net interest income
 
261,986

 
254,088

 
225,082

 
3

 
16

Net interest margin
 
3.70
%
 
3.61
%
 
3.54
%
 
9

bp 
 
16

bp 
Net interest margin - fully taxable equivalent (non-GAAP) (2)
 
3.72
%
 
3.63
%
 
3.56
%
 
9

bp
 
16

bp
Net overhead ratio (3)
 
1.72
%
 
1.79
%
 
1.58
%
 
(7
)
bp 
 
14

bp 
Return on average assets
 
1.16
%
 
1.05
%
 
1.20
%
 
11

bp 
 
(4
)
bp 
Return on average common equity
 
11.09
%
 
10.01
%
 
11.29
%
 
108

bp 
 
(20
)
bp 
Return on average tangible common equity (non-GAAP) (2)
 
14.14
%
 
12.48
%
 
14.02
%
 
166

bp
 
12

bp
At end of period
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
32,358,621

 
$
31,244,849

 
$
28,456,772

 
14

 
14

Total loans (5)
 
24,214,629

 
23,820,691

 
22,062,134

 
7

 
10

Total deposits
 
26,804,742

 
26,094,678

 
23,279,327

 
11

 
15

Total shareholders’ equity
 
3,371,972

 
3,267,570

 
3,031,250

 
13

 
11

(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
(Dollars in thousands, except per share data)
 
March 31,
2019
 
December 31,
2018
 
March 31,
2018
Selected Financial Condition Data (at end of period):
 
 
 
 
 
 
Total assets
 
$
32,358,621

 
$
31,244,849

 
$
28,456,772

Total loans (1)
 
24,214,629

 
23,820,691

 
22,062,134

Total deposits
 
26,804,742

 
26,094,678

 
23,279,327

Junior subordinated debentures
 
253,566

 
253,566

 
253,566

Total shareholders’ equity
 
3,371,972

 
3,267,570

 
3,031,250

Selected Statements of Income Data:
 
 
 
 
 
 
Net interest income
 
$
261,986

 
$
254,088

 
$
225,082

Net revenue (2)
 
343,643

 
329,396

 
310,761

Net income
 
89,146

 
79,657

 
81,981

Net income per common share – Basic
 
$
1.54

 
$
1.38

 
$
1.42

Net income per common share – Diluted
 
$
1.52

 
$
1.35

 
$
1.40

Selected Financial Ratios and Other Data:
 
 
 
 
 
 
Performance Ratios:
 
 
 
 
 
 
Net interest margin
 
3.70
%
 
3.61
%
 
3.54
%
Net interest margin - fully taxable equivalent (non-GAAP) (3)
 
3.72
%
 
3.63
%
 
3.56
%
Non-interest income to average assets
 
1.06
%
 
0.99
%
 
1.25
%
Non-interest expense to average assets
 
2.79
%
 
2.78
%
 
2.83
%
Net overhead ratio (4)
 
1.72
%
 
1.79
%
 
1.58
%
Return on average assets
 
1.16
%
 
1.05
%
 
1.20
%
Return on average common equity
 
11.09
%
 
10.01
%
 
11.29
%
Return on average tangible common equity (non-GAAP) (3)
 
14.14
%
 
12.48
%
 
14.02
%
Average total assets
 
$
31,216,171

 
$
30,179,887

 
$
27,809,597

Average total shareholders’ equity
 
3,309,078

 
3,200,654

 
2,995,592

Average loans to average deposits ratio
 
92.7
%
 
92.4
%
 
95.2
%
Period-end loans to deposits ratio
 
90.3
%
 
91.3
%
 
94.8
%
Common Share Data at end of period:
 
 
 
 
 
 
Market price per common share
 
$
67.33

 
$
66.49

 
$
86.05

Book value per common share
 
$
57.33

 
$
55.71

 
$
51.66

Tangible book value per common share (non-GAAP) (3)
 
$
46.38

 
$
44.67

 
$
42.17

Common shares outstanding
 
56,638,968

 
56,407,558

 
56,256,498

Other Data at end of period:
 
 
 
 
 
 
Leverage Ratio (5)
 
9.1
%
 
9.1
%
 
9.3
%
Tier 1 capital to risk-weighted assets (5)
 
9.7
%
 
9.7
%
 
10.0
%
Common equity Tier 1 capital to risk-weighted assets (5)
 
9.3
%
 
9.3
%
 
9.5
%
Total capital to risk-weighted assets (5)
 
11.6
%
 
11.6
%
 
12.0
%
Allowance for credit losses (6)
 
$
159,622

 
$
154,164

 
$
140,746

Non-performing loans
 
117,586

 
113,234

 
89,690

Allowance for credit losses to total loans (6)
 
0.66
%
 
0.65
%
 
0.64
%
Non-performing loans to total loans
 
0.49
%
 
0.48
%
 
0.41
%
Number of:
 
 
 
 
 
 
Bank subsidiaries
 
15

 
15

 
15

Banking offices
 
170

 
167

 
157

(1)
Excludes mortgage loans held-for-sale.
(2)
Net revenue includes net interest income and non-interest income.
(3)
See “Supplemental Financial Measures/Ratios” 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.


7



WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
 
 
 
(Unaudited)
 
 
 
(Unaudited)
(In thousands)
 
March 31,
2019
 
December 31,
2018
 
March 31,
2018
Assets
 
 
 
 
 
 
Cash and due from banks
 
$
270,765

 
$
392,142

 
$
231,407

Federal funds sold and securities purchased under resale agreements
 
58

 
58

 
57

Interest bearing deposits with banks
 
1,609,852

 
1,099,594

 
980,380

Available-for-sale securities, at fair value
 
2,185,782

 
2,126,081

 
1,895,688

Held-to-maturity securities, at amortized cost
 
1,051,542

 
1,067,439

 
892,937

Trading account securities
 
559

 
1,692

 
1,682

Equity securities with readily determinable fair value
 
47,653

 
34,717

 
37,832

Federal Home Loan Bank and Federal Reserve Bank stock
 
89,013

 
91,354

 
104,956

Brokerage customer receivables
 
14,219

 
12,609

 
24,531

Mortgage loans held-for-sale
 
248,557

 
264,070

 
411,505

Loans, net of unearned income
 
24,214,629

 
23,820,691

 
22,062,134

Allowance for loan losses
 
(158,212
)
 
(152,770
)
 
(139,503
)
Net loans
 
24,056,417

 
23,667,921

 
21,922,631

Premises and equipment, net
 
676,037

 
671,169

 
626,687

Lease investments, net
 
224,240

 
233,208

 
190,775

Accrued interest receivable and other assets
 
888,492

 
696,707

 
601,794

Trade date securities receivable
 
375,211

 
263,523

 

Goodwill
 
573,658

 
573,141

 
511,497

Other intangible assets
 
46,566

 
49,424

 
22,413

Total assets
 
$
32,358,621

 
$
31,244,849

 
$
28,456,772

Liabilities and Shareholders’ Equity
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
Non-interest bearing
 
$
6,353,456

 
$
6,569,880

 
$
6,612,319

Interest bearing
 
20,451,286

 
19,524,798

 
16,667,008

 Total deposits
 
26,804,742

 
26,094,678

 
23,279,327

Federal Home Loan Bank advances
 
576,353

 
426,326

 
915,000

Other borrowings
 
372,194

 
393,855

 
247,092

Subordinated notes
 
139,235

 
139,210

 
139,111

Junior subordinated debentures
 
253,566

 
253,566

 
253,566

Accrued interest payable and other liabilities
 
840,559

 
669,644

 
591,426

Total liabilities
 
28,986,649

 
27,977,279

 
25,425,522

Shareholders’ Equity:
 
 
 
 
 
 
Preferred stock
 
125,000

 
125,000

 
125,000

Common stock
 
56,765

 
56,518

 
56,364

Surplus
 
1,565,185

 
1,557,984

 
1,540,673

Treasury stock
 
(6,650
)
 
(5,634
)
 
(5,355
)
Retained earnings
 
1,682,016

 
1,610,574

 
1,387,663

Accumulated other comprehensive loss
 
(50,344
)
 
(76,872
)
 
(73,095
)
Total shareholders’ equity
 
3,371,972

 
3,267,570

 
3,031,250

Total liabilities and shareholders’ equity
 
$
32,358,621

 
$
31,244,849

 
$
28,456,772



8



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

 
Three Months Ended
(In thousands, except per share data)
March 31,
2019
 
December 31,
2018
 
March 31,
2018
Interest income
 
 
 
 
 
Interest and fees on loans
$
296,987

 
$
283,311

 
$
234,994

Mortgage loans held-for-sale
2,209

 
3,409

 
2,818

Interest bearing deposits with banks
5,300

 
5,628

 
2,796

Federal funds sold and securities purchased under resale agreements

 

 

Investment securities
27,956

 
26,656

 
19,128

Trading account securities
8

 
14

 
14

Federal Home Loan Bank and Federal Reserve Bank stock
1,355

 
1,343

 
1,298

Brokerage customer receivables
155

 
235

 
157

Total interest income
333,970

 
320,596

 
261,205

Interest expense
 
 
 
 
 
Interest on deposits
60,976

 
55,975

 
26,549

Interest on Federal Home Loan Bank advances
2,450

 
2,563

 
3,639

Interest on other borrowings
3,633

 
3,199

 
1,699

Interest on subordinated notes
1,775

 
1,788

 
1,773

Interest on junior subordinated debentures
3,150

 
2,983

 
2,463

Total interest expense
71,984

 
66,508

 
36,123

Net interest income
261,986

 
254,088

 
225,082

Provision for credit losses
10,624

 
10,401

 
8,346

Net interest income after provision for credit losses
251,362

 
243,687

 
216,736

Non-interest income
 
 
 
 
 
Wealth management
23,977

 
22,726

 
22,986

Mortgage banking
18,158

 
24,182

 
30,960

Service charges on deposit accounts
8,848

 
9,065

 
8,857

Gains (losses) on investment securities, net
1,364

 
(2,649
)
 
(351
)
Fees from covered call options
1,784

 
626

 
1,597

Trading (losses) gains, net
(171
)
 
(155
)
 
103

Operating lease income, net
10,796

 
10,882

 
9,691

Other
16,901

 
10,631

 
11,836

Total non-interest income
81,657

 
75,308

 
85,679

Non-interest expense
 
 
 
 
 
Salaries and employee benefits
125,723

 
122,111

 
112,436

Equipment
11,770

 
11,523

 
10,072

Operating lease equipment depreciation
8,319

 
8,462

 
6,533

Occupancy, net
16,245

 
15,980

 
13,767

Data processing
7,525

 
8,447

 
8,493

Advertising and marketing
9,858

 
9,414

 
8,824

Professional fees
5,556

 
9,259

 
6,649

Amortization of other intangible assets
2,942

 
1,407

 
1,004

FDIC insurance
3,576

 
4,044

 
4,362

OREO expense, net
632

 
1,618

 
2,926

Other
22,228

 
19,068

 
19,283

Total non-interest expense
214,374

 
211,333

 
194,349

Income before taxes
118,645

 
107,662

 
108,066

Income tax expense
29,499

 
28,005

 
26,085

Net income
$
89,146

 
$
79,657

 
$
81,981

Preferred stock dividends
2,050

 
2,050

 
2,050

Net income applicable to common shares
$
87,096

 
$
77,607

 
$
79,931

Net income per common share - Basic
$
1.54

 
$
1.38

 
$
1.42

Net income per common share - Diluted
$
1.52

 
$
1.35

 
$
1.40

Cash dividends declared per common share
$
0.25

 
$
0.19

 
$
0.19

Weighted average common shares outstanding
56,529

 
56,395

 
56,137

Dilutive potential common shares
699

 
892

 
888

Average common shares and dilutive common shares
57,228

 
57,287

 
57,025


9



EARNINGS PER SHARE

The following table shows the computation of basic and diluted earnings per share for the periods indicated:
 
 
 
Three Months Ended
(In thousands, except per share data)
 
 
March 31,
2019
 
December 31,
2018
 
March 31,
2018
Net income
 
 
$
89,146

 
$
79,657

 
$
81,981

Less: Preferred stock dividends
 
 
2,050

 
2,050

 
2,050

Net income applicable to common shares
(A)
 
87,096

 
77,607

 
79,931

Weighted average common shares outstanding
(B)
 
56,529

 
56,395

 
56,137

Effect of dilutive potential common shares:
 
 
 
 
 
 
 
Common stock equivalents
 
 
699

 
892

 
888

Weighted average common shares and effect of dilutive potential common shares
(C)
 
57,228

 
57,287

 
57,025

Net income per common share:
 
 
 
 
 
 
 
Basic
(A/B)
 
$
1.54

 
$
1.38

 
$
1.42

Diluted
(A/C)
 
$
1.52

 
$
1.35

 
$
1.40


Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants, 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.

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 book value per common 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 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.


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
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
(Dollars and shares in thousands)
2019
 
2018
 
2018
 
2018
 
2018
Calculation of Net Interest Margin and Efficiency Ratio
 
 
 
 
 
 
 
 
 
(A) Interest Income (GAAP)
$
333,970

 
$
320,596

 
$
304,962

 
$
284,047

 
$
261,205

Taxable-equivalent adjustment:
 
 
 
 
 
 
 
 
 
 - Loans
1,034

 
980

 
941

 
812

 
670

 - Liquidity Management Assets
565

 
586

 
575

 
566

 
531

 - Other Earning Assets
2

 
4

 
3

 
1

 
3

(B) Interest Income (non-GAAP)
$
335,571

 
$
322,166

 
$
306,481

 
$
285,426

 
$
262,409

(C) Interest Expense (GAAP)
$
71,984

 
$
66,508

 
$
57,399

 
$
45,877

 
$
36,123

(D) Net Interest Income (GAAP) (A minus C)
$
261,986

 
$
254,088


$
247,563

 
$
238,170

 
$
225,082

(E) Net Interest Income (non-GAAP) (B minus C)
$
263,587

 
$
255,658

 
$
249,082

 
$
239,549

 
$
226,286

Net interest margin (GAAP)
3.70
%
 
3.61
%
 
3.59
%
 
3.61
%
 
3.54
%
Net interest margin (non-GAAP)
3.72
%
 
3.63
%
 
3.61
%
 
3.63
%
 
3.56
%
(F) Non-interest income
$
81,657

 
$
75,308

 
$
99,930

 
$
95,233

 
$
85,679

(G) Gains (losses) on investment securities, net
1,364

 
(2,649
)
 
90

 
12

 
(351
)
(H) Non-interest expense
214,374

 
211,333

 
213,637

 
206,769

 
194,349

Efficiency ratio (H/(D+F-G))
62.63
%
 
63.65
%
 
61.50
%
 
62.02
%
 
62.47
%
Efficiency ratio (non-GAAP) (H/(E+F-G))
62.34
%
 
63.35
%
 
61.23
%
 
61.76
%
 
62.23
%
 
 
 
 
 
 
 
 
 
 
Calculation of Tangible Common Equity Ratio (at period end)
 
 
 
 
 
 
 
 
 
Total shareholders’ equity
$
3,371,972

 
$
3,267,570

 
$
3,179,822

 
$
3,106,871

 
$
3,031,250

Less: Non-convertible preferred stock
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
Less: Intangible assets
(620,224
)
 
(622,565
)
 
(564,938
)
 
(531,371
)
 
(533,910
)
(I) Total tangible common shareholders’ equity
$
2,626,748

 
$
2,520,005

 
$
2,489,884

 
$
2,450,500

 
$
2,372,340

(J) Total assets
$
32,358,621

 
$
31,244,849

 
$
30,142,731

 
$
29,464,588

 
$
28,456,772

Less: Intangible assets
(620,224
)
 
(622,565
)
 
(564,938
)
 
(531,371
)
 
(533,910
)
(K) Total tangible assets
$
31,738,397

 
$
30,622,284

 
$
29,577,793

 
$
28,933,217

 
$
27,922,862

Common equity to assets ratio (GAAP) (L/J)
10.0
%
 
10.1
%
 
10.1
%
 
10.1
%
 
10.2
%
Tangible common equity ratio (non-GAAP) (I/K)
8.3
%
 
8.2
%
 
8.4
%
 
8.5
%
 
8.5
%
 
 
 
 
 
 
 
 
 
 
Calculation of Tangible Book Value per Common Share
 
 
 
 
 
 
 
 
 
Total shareholders’ equity
$
3,371,972

 
$
3,267,570

 
$
3,179,822

 
$
3,106,871

 
$
3,031,250

Less: Preferred stock
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
(L) Total common equity
$
3,246,972

 
$
3,142,570

 
$
3,054,822

 
$
2,981,871

 
$
2,906,250

(M) Actual common shares outstanding
56,639

 
56,408

 
56,377

 
56,329

 
56,256

Book value per common share (L/M)
$
57.33

 
$
55.71

 
$
54.19

 
$
52.94

 
$
51.66

Tangible book value per common share (non-GAAP) (I/M)
$
46.38

 
$
44.67

 
$
44.16

 
$
43.50

 
$
42.17

Calculation of Return on Average Tangible Common Equity
 
 
 
 
 
 
 
 
 
(N) Net income applicable to common shares
$
87,096

 
$
77,607

 
$
89,898

 
$
87,530

 
$
79,931

Add: Intangible asset amortization
2,942

 
1,407

 
1,163

 
997

 
1,004

Less: Tax effect of intangible asset amortization
(731
)
 
(366
)
 
(292
)
 
(263
)
 
(243
)
After-tax intangible asset amortization
2,211

 
1,041

 
871

 
734

 
761

(O) Tangible net income applicable to common shares (non-GAAP)
$
89,307

 
$
78,648

 
$
90,769

 
$
88,264

 
$
80,692

Total average shareholders' equity
$
3,309,078

 
$
3,200,654

 
$
3,131,943

 
$
3,064,154

 
$
2,995,592

Less: Average preferred stock
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
 
(125,000
)
(P) Total average common shareholders' equity
$
3,184,078

 
$
3,075,654

 
$
3,006,943

 
$
2,939,154

 
$
2,870,592

Less: Average intangible assets
(622,240
)
 
(574,757
)
 
(547,552
)
 
(533,496
)
 
(536,676
)
(Q) Total average tangible common shareholders’ equity (non-GAAP)
$
2,561,838

 
$
2,500,897

 
$
2,459,391

 
$
2,405,658

 
$
2,333,916

Return on average common equity, annualized (N/P)
11.09
%
 
10.01
%
 
11.86
%
 
11.94
%
 
11.29
%
Return on average tangible common equity, annualized (non-GAAP) (O/Q)
14.14
%
 
12.48
%
 
14.64
%
 
14.72
%
 
14.02
%

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 first quarter of 2019, revenue within this unit was primarily driven by increased net interest income due to increased earning assets and a higher net interest margin, partially offset by the impact of having two fewer days in the period. The net interest margin increased in the first quarter of 2019 compared to the fourth quarter of 2018 primarily as a result of higher yields within the loan portfolio. Mortgage banking revenue decreased by $6.0 million from $24.2 million for the fourth quarter of 2018 to $18.2 million for the first quarter of 2019. The lower revenue was primarily due to to lower origination volumes, negative fair value adjustments recognized on mortgage servicing rights related to changes in valuation assumptions and pay-offs, partially offset by higher production margins. Mortgage loans originated for sale during the current period decreased to $678.5 million from $927.8 million in the fourth quarter of 2018. Home purchases represented 67% of loan volume originated for sale for the first quarter of 2019. The Company's gross commercial and commercial real estate loan pipelines remain strong. Before the impact of scheduled payments and prepayments, at March 31, 2019, gross commercial and commercial real estate loan pipelines totaled $1.3 billion, or $812.9 million when adjusted for the probability of closing, compared to $1.1 billion, or $671.1 million when adjusted for the probability of closing, at December 31, 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 first quarter of 2019, the specialty finance unit experienced higher revenue as a result of increased volumes and higher yields within its insurance premium financing receivables portfolio. Originations within the insurance premium financing receivables portfolio were $2.1 billion during the first quarter of 2019 and average balances increased by $186.1 million. The increase in average balances along with higher yields on these loans resulted in a $5.9 million increase in interest income attributed to this portfolio. The Company's leasing business showed steady growth during the first quarter of 2019, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing $65.4 million to $1.3 billion at the end of the first quarter of 2019. Revenues from the Company's out-sourced administrative services business remained relatively steady, totaling approximately $1.0 million in the first quarter of 2019 and $1.3 million in the fourth 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 increased by $1.3 million in the first quarter of 2019 compared to the fourth quarter of 2018, totaling $24.0 million in the current period. At March 31, 2019, the Company’s wealth management subsidiaries had approximately $25.1 billion of assets under administration, which includes $3.7 billion of assets owned by the Company and its subsidiary banks, representing a $883.1 million increase from the $24.2 billion of assets under administration at December 31, 2018. The increase in the first quarter of 2019 was primarily due to the impact of market conditions on the value of assets under administration. Tax-deferred like-kind exchange services provided by CDEC, our Qualified Intermediary for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031, resulted in average deposit balances from these transactions totaling $821.1 million during the first quarter of 2019.

12



LOANS

Loan Portfolio Mix and Growth Rates
 
 
 
 
 
 
 
 
 
% Growth
(Dollars in thousands)
 
March 31,
2019
 
December 31,
2018
 
March 31,
2018
 
From (1)
December 31,
2018
 
From
March 31,
2018
Balance:
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
7,994,191

 
$
7,828,538

 
$
7,060,871

 
9
 %
 
13
 %
Commercial real estate
 
6,973,505

 
6,933,252

 
6,633,520

 
2

 
5

Home equity
 
528,448

 
552,343

 
626,547

 
(18
)
 
(16
)
Residential real estate
 
1,053,524

 
1,002,464

 
869,104

 
21

 
21

Premium finance receivables - commercial
 
2,988,788

 
2,841,659

 
2,576,150

 
21

 
16

Premium finance receivables - life insurance
 
4,555,369

 
4,541,794

 
4,189,961

 
1

 
9

Consumer and other
 
120,804

 
120,641

 
105,981

 
1

 
14

Total loans, net of unearned income
 
$
24,214,629

 
$
23,820,691

 
$
22,062,134

 
7
 %
 
10
 %
Mix:
 
 
 
 
 
 
 
 
 
 
Commercial
 
33
%
 
33
%
 
32
%
 
 
 
 
Commercial real estate
 
29

 
29

 
30

 
 
 
 
Home equity
 
2

 
2

 
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

 

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


13



Commercial and Commercial Real Estate Loan Portfolios
 
 
As of March 31, 2019
 
 
 
 
% of
Total
Balance
 
Nonaccrual
 
> 90 Days
Past Due
and Still
Accruing
 
Allowance
For Loan
Losses
Allocation
  
 
 
 
(Dollars in thousands)
 
Balance
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial, industrial and other
 
$
5,250,953

 
35.0
%
 
$
38,858

 
$

 
$
50,178

Franchise
 
879,906

 
5.9

 
15,799

 

 
12,055

Mortgage warehouse lines of credit
 
174,284

 
1.2

 

 

 
1,399

Asset-based lending
 
1,040,834

 
7.0

 
1,135

 

 
8,868

Leases
 
622,884

 
4.2

 

 

 
1,675

PCI - commercial loans (1)
 
25,330

 
0.1

 

 
2,499

 
463

Total commercial
 
$
7,994,191

 
53.4
%
 
$
55,792

 
$
2,499

 
$
74,638

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
 
Construction
 
$
803,669

 
5.4
%
 
$
1,030

 
$

 
$
9,142

Land
 
147,701

 
1.0

 
54

 

 
4,194

Office
 
926,375

 
6.2

 
4,482

 

 
6,267

Industrial
 
964,960

 
6.4

 
267

 

 
6,534

Retail
 
895,267

 
6.0

 
7,645

 

 
6,065

Multi-family
 
1,117,385

 
7.5

 
303

 

 
10,875

Mixed use and other
 
2,007,487

 
13.4

 
2,152

 

 
14,653

PCI - commercial real estate (1)
 
110,661

 
0.7

 

 
4,265

 
120

Total commercial real estate
 
$
6,973,505

 
46.6
%
 
$
15,933

 
$
4,265

 
$
57,850

Total commercial and commercial real estate
 
$
14,967,696

 
100.0
%
 
$
71,725

 
$
6,764

 
$
132,488

 
 
 
 
 
 
 
 
 
 
 
Commercial real estate - collateral location by state:
 
 
 
 
 
 
 
 
 
 
Illinois
 
$
5,331,784

 
76.5
%
 
 
 
 
 
 
Wisconsin
 
758,097

 
10.9

 
 
 
 
 
 
Total primary markets
 
$
6,089,881

 
87.4
%
 
 
 
 
 
 
Indiana
 
175,350

 
2.5

 
 
 
 
 
 
Florida
 
55,528

 
0.8

 
 
 
 
 
 
Arizona
 
61,375

 
0.9

 
 
 
 
 
 
Michigan
 
35,650

 
0.5

 
 
 
 
 
 
California
 
67,545

 
1.0

 
 
 
 
 
 
Other
 
488,176

 
6.9

 
 
 
 
 
 
Total
 
$
6,973,505

 
100.0
%
 
 
 
 
 
 
(1)
Purchased credit impaired ("PCI") loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.




14



DEPOSITS

Deposit Portfolio Mix and Growth Rates

  
 
 
 
 
 
 
 
% Growth
(Dollars in thousands)
 
March 31,
2019
 
December 31,
2018
 
March 31,
2018
 
From (1)
December 31,
2018
 
From
March 31,
2018
Balance:
 
 
 
 
 
 
 
 
 
 
Non-interest bearing
 
$
6,353,456

 
$
6,569,880

 
$
6,612,319

 
(13
)%
 
(4
)%
NOW and interest bearing demand deposits
 
2,948,576

 
2,897,133

 
2,315,122

 
7

 
27

Wealth management deposits (2)
 
3,328,781

 
2,996,764

 
2,495,134

 
45

 
33

Money market
 
6,093,596

 
5,704,866

 
4,617,122

 
28

 
32

Savings
 
2,729,626

 
2,665,194

 
2,901,504

 
10

 
(6
)
Time certificates of deposit
 
5,350,707

 
5,260,841

 
4,338,126

 
7

 
23

Total deposits
 
$
26,804,742

 
$
26,094,678

 
$
23,279,327

 
11
 %
 
15
 %
Mix:
 

 
 
 
 
 
 
 
 
Non-interest bearing
 
24
%
 
25
%
 
28
%
 
 
 
 
NOW and interest bearing demand deposits
 
11

 
11

 
10

 
 
 
 
Wealth management deposits (2)
 
12

 
12

 
11

 
 
 
 
Money market
 
23

 
22

 
20

 
 
 
 
Savings
 
10

 
10

 
12

 
 
 
 
Time certificates of deposit
 
20

 
20

 
19

 
 
 
 
Total deposits
 
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.

Time Certificates of Deposit
Maturity/Re-pricing Analysis
As of March 31, 2019
(Dollars in thousands)
 
CDARs &
Brokered
Certificates
    of Deposit (1)
 
MaxSafe
Certificates
    of Deposit (1)
 
Variable Rate
Certificates
    of Deposit (2)
 
Other Fixed
Rate  Certificates
    of Deposit (1)
 
Total Time
Certificates of
Deposit
 
Weighted-Average
Rate of Maturing
Time Certificates
    of Deposit (3)
1-3 months
 
$
249

 
$
32,771

 
$
99,466

 
$
874,080

 
$
1,006,566

 
1.52
%
4-6 months
 
75,064

 
30,871

 

 
701,663

 
807,598

 
1.74
%
7-9 months
 

 
13,019

 

 
583,211

 
596,230

 
1.80
%
10-12 months
 

 
22,078

 

 
686,059

 
708,137

 
1.98
%
13-18 months
 

 
7,181

 

 
909,809

 
916,990

 
2.24
%
19-24 months
 

 
15,942

 

 
459,659

 
475,601

 
2.70
%
24+ months
 
1,000

 
9,496

 

 
829,089

 
839,585

 
2.65
%
Total
 
$
76,313

 
$
131,358

 
$
99,466

 
$
5,043,570

 
$
5,350,707

 
2.05
%
(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.


15



NET INTEREST INCOME

The following table presents a summary of Wintrust’s average balances, net interest income and related net interest margins, calculated on a fully tax-equivalent basis, for the first quarter of 2019 compared to the fourth quarter of 2018 (sequential quarter) and first quarter of 2018 (linked quarter), respectively:
 
Average Balance
for three months ended,
 
Interest
for three months ended,
 
Yield/Rate
for three months ended,
(Dollars in thousands)
March 31,
2019
 
December 31,
2018
 
March 31,
2018
 
March 31,
2019
 
December 31,
2018
 
March 31,
2018
 
March 31,
2019
 
December 31,
2018
 
March 31,
2018
Interest-bearing deposits with banks and cash equivalents (1)
$
897,629

 
$
1,042,860

 
$
749,973

 
$
5,300

 
$
5,628

 
$
2,796

 
2.39
 %
 
2.14
 %
 
1.51
 %
Investment securities (2)
3,630,577

 
3,347,496

 
2,892,617

 
28,521

 
27,242

 
19,659

 
3.19

 
3.23

 
2.76

FHLB and FRB stock
94,882

 
98,084

 
105,414

 
1,355

 
1,343

 
1,298

 
5.79

 
5.43

 
4.99

Liquidity management assets (3)(8)
$
4,623,088

 
$
4,488,440

 
$
3,748,004

 
$
35,176

 
$
34,213

 
$
23,753

 
3.09
 %
 
3.02
 %
 
2.57
 %
Other earning assets (3)(4)(8)
13,591

 
16,204

 
27,571

 
165

 
253

 
174

 
4.91

 
6.19

 
2.56

Mortgage loans held-for-sale
188,190

 
265,717

 
281,181

 
2,209

 
3,409

 
2,818

 
4.76

 
5.09

 
4.06

Loans, net of unearned
income (3)(5)(8)
23,880,916

 
23,164,154

 
21,711,342

 
298,021

 
284,291

 
235,664

 
5.06

 
4.87

 
4.40

Total earning assets (8)
$
28,705,785

 
$
27,934,515

 
$
25,768,098