WTFC - Wintrust Financial Corporation Reports First Quarter 2019 Net Income of $89.1 million An Increase of 9% Over Prior Year Quarter

ROSEMONT, Ill., April 15, 2019 (GLOBE NEWSWIRE) -- 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 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."

The graphs below illustrate certain highlights of the first quarter of 2019.

http://ml.globenewswire.com/Resource/Download/00fe74d7-f93f-4e19-ab97-d67e97fd6911

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:

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.”

 

 

EARNINGS PER SHARE

The following table shows the computation of basic and diluted earnings per share for the periods indicated:

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.

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.

 

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.

LOANS

Loan Portfolio Mix and Growth Rates

Commercial and Commercial Real Estate Loan Portfolios

DEPOSITS

Deposit Portfolio Mix and Growth Rates

 

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:

For the first quarter of 2019, net interest income totaled $262.0 million, an increase of $7.9 million as compared to the fourth quarter of 2018 and an increase of $36.9 million as compared to the first quarter of 2018. Net interest margin was 3.70% (3.72% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2019 compared to 3.61% (3.63% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2018 and 3.54% (3.56% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2018. The $7.9 million increase in net interest income in the first quarter of 2019 compared to the fourth quarter of 2018 was attributable to a $5.5 million increase from higher levels of earning assets and a $8.0 million increase due to a higher net interest margin, partially offset by a $5.6 million decrease due to two less days in the quarter.

Interest Rate Sensitivity

As an ongoing part of its financial strategy, the Company attempts to manage the impact of fluctuations in market interest rates on net interest income. Management measures its exposure to changes in interest rates by modeling many different interest rate scenarios.

The following interest rate scenarios display the percentage change in net interest income over a one-year time horizon assuming increases of 100 and 200 basis points and a decrease of 100 basis points. The Static Shock Scenario results incorporate actual cash flows and repricing characteristics for balance sheet instruments following an instantaneous, parallel change in market rates based upon a static (i.e. no growth or constant) balance sheet. Conversely, the Ramp Scenario results incorporate management’s projections of future volume and pricing of each of the product lines following a gradual, parallel change in market rates over twelve months.  Actual results may differ from these simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. The interest rate sensitivity for both the Static Shock and Ramp Scenario at March 31, 2019, December 31, 2018 and March 31, 2018 is as follows:

 

These results indicate that the Company has positioned its balance sheet to benefit from a rise in interest rates.  This analysis also indicates that the Company would benefit to a greater magnitude should a rise in interest rates be significant (i.e., 200 basis points) and immediate (Static Shock Scenario).

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table classifies the loan portfolio at March 31, 2019 by date at which the loans reprice or mature, and the type of rate exposure:

http://ml.globenewswire.com/Resource/Download/56f85e52-e126-403a-9736-e900730297bc

Source: Bloomberg

As noted in the table on the previous page, the majority of the Company’s portfolio is tied to LIBOR indices which, as shown in the table above, do not mirror the same increases as the Prime rate when the Federal Reserve raises interest rates.  Specifically, the Company has $8.2 billion of variable rate loans tied to one-month LIBOR and $4.8 billion of variable rate loans tied to twelve-month LIBOR. The above chart shows:

 

NON-INTEREST INCOME

The following table presents non-interest income by category for the periods presented:

Notable contributions to the change in non-interest income are as follows:

The increase in wealth management revenue during the current period as compared to the fourth quarter of 2018 is primarily attributable to higher fees on tax-deferred like-kind exchange services and market appreciation related to managed money accounts with fees based on assets under management. Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors, the brokerage commissions, managed money fees and insurance product commissions at Wintrust Investments and fees from tax-deferred like-kind exchange services provided by CDEC.

The decrease in mortgage banking revenue in the first quarter of 2019 as compared to the fourth quarter of 2018 resulted primarily from lower origination volumes and 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 totaled $678.5 million in the first quarter of 2019 as compared to $927.8 million in the fourth quarter of 2018 and $778.9 million in the first quarter of 2018. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. Mortgage revenue is also impacted by changes in the fair value of mortgage servicing rights ("MSRs") as the Company does not hedge this change in fair value. The Company records MSRs at fair value on a recurring basis. The table below presents additional selected information regarding mortgage banking revenue for the respective periods.

The net gains and net losses recognized on investment securities in the first quarter of 2019 and fourth quarter of 2018, respectively, were primarily due to unrealized gains and losses recognized on equity securities held by the Company, including a large cap value mutual fund.

The Company has typically written call options with terms of less than three months against certain U.S. Treasury and agency securities held in its portfolio for liquidity and other purposes. Management has entered into these transactions with the goal of economically hedging security positions and enhancing its overall return on its investment portfolio by using fees generated from these options to compensate for net interest margin compression. These option transactions are designed to mitigate overall interest rate risk and do not qualify as hedges pursuant to accounting guidance. There were no outstanding call option contracts at March 31, 2019, December 31, 2018 or March 31, 2018.

The increase in BOLI income was primarily the result of higher market returns during the first quarter of 2019 on certain investments supporting deferred compensation plan benefits.

The increase in miscellaneous non-interest income in the first quarter of 2019 as compared to the fourth quarter of 2018 is primarily due to income from investments in partnerships and positive adjustments from foreign currency remeasurement of the Company's Canadian subsidiary.

NON-INTEREST EXPENSE

The following table presents non-interest expense by category for the periods presented:

Notable contributions to the change in non-interest expense are as follows:

Salaries and employee benefits expense increased in the first quarter of 2019 compared to the fourth quarter of 2018 primarily as a result of lower salary deferrals related to loan origination costs and an increase in costs related to deferred compensation plans impacted by market returns of related BOLI investments.

Professional fees decreased in the first quarter of 2019 compared to the fourth quarter of 2018 primarily due to lower legal and consulting fees during the current period.

The increase in amortization of intangible assets in the first quarter of 2019 compared to the fourth quarter of 2018 was primarily due to the amortization of certain acquired intangible assets related to the acquisition of CDEC in mid-December of 2018.

Other miscellaneous expense increased during the first quarter of 2019 compared to the fourth quarter of 2018 as a result of various other expenses, including a $1.0 million non-tax-deductible settlement in the first quarter of 2019.

INCOME TAXES

The Company recorded income tax expense of $29.5 million in the first quarter of 2019 compared to $28.0 million in the fourth quarter of 2018 and $26.1 million in the first quarter of 2018. The effective tax rates were 24.86% in the first quarter of 2019, 26.01% in the fourth quarter of 2018 and 24.14% in the first quarter of 2018. The effective tax rates were impacted by excess tax benefits related to share-based compensation. These excess tax benefits were $1.6 million in the first quarter of 2019 compared to $160,000 in the fourth quarter of 2018 and $2.6 million in the first quarter of 2018. Excess tax benefits are expected to be higher in the first quarter when the majority of the Company's shared-based awards vest, and will fluctuate throughout the year based on the Company's stock price and timing of employee stock option exercises and vesting of other share-based awards.

The allowance for credit losses is comprised of the allowance for loan losses and the allowance for unfunded lending-related commitments. The allowance for loan losses is a reserve against loan amounts that are actually funded and outstanding while the allowance for unfunded lending-related commitments (separate liability account) relates to certain amounts that Wintrust is committed to lend but for which funds have not yet been disbursed. The provision for credit losses may contain both a component related to funded loans (provision for loan losses) and a component related to lending-related commitments (provision for unfunded loan commitments and letters of credit).

Net charge-offs as a percentage of loans, for the first quarter of 2019 totaled nine basis points on an annualized basis compared to 12 basis points on an annualized basis in the fourth quarter of 2018 and 13 basis points on an annualized basis in the first quarter of 2018.  Net charge-offs totaled $5.1 million in the first quarter of 2019, a $2.0 million decrease from $7.2 million in the fourth quarter of 2018 and a $1.6 million decrease from $6.7 million in the first quarter of 2018. The decrease in net charge-offs in the first quarter of 2019 compared to fourth quarter of 2018 is primarily the result of lower charge-offs within the commercial portfolio, partially offset by an increase in charge-offs within the commercial real estate portfolio, during the current period. The provision for credit losses, totaled $10.6 million for the first quarter of 2019 compared to $10.4 million for the fourth quarter of 2018 and $8.3 million for the first quarter of 2018.

Management believes the allowance for credit losses is appropriate to provide for inherent losses in the portfolio. There can be no assurances, however, that future losses will not exceed the amounts provided for, thereby affecting future results of operations. The amount of future additions to the allowance for credit losses will be dependent upon management’s assessment of the appropriateness of the allowance based on its evaluation of economic conditions, changes in real estate values, interest rates, the regulatory environment, the level of past-due and non-performing loans and other factors.

The following table presents the provision for credit losses by component for the periods presented:

The tables below summarize the calculation of allowance for loan losses for the Company’s core loan portfolio and consumer, niche and purchased loan portfolio, as of March 31, 2019 and December 31, 2018.

 

As part of the regular quarterly review performed by management to determine if the Company’s allowance for loan losses is appropriate, an analysis is prepared on the loan portfolio based upon a breakout of core loans and consumer, niche and purchased loans. A summary of the allowance for loan losses calculated for the loan components in both the core loan portfolio and the consumer, niche and purchased loan portfolio was shown on the preceding tables as of March 31, 2019 and December 31, 2018.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. In accordance with accounting guidance, credit deterioration on purchased loans is recorded as a credit discount at the time of purchase.

In addition to the $158.2 million of allowance for loan losses, there is $6.1 million of non-accretable credit discount on purchased loans reported in accordance with ASC 310-30 that is available to absorb credit losses.

The tables below show the aging of the Company’s loan portfolio at March 31, 2019 and December 31, 2018:

 

 

 

As of March 31, 2019, $19.2 million of all loans, or 0.1%, were 60 to 89 days past due and $176.2 million, or 0.7%, were 30 to 59 days (or one payment) past due. As of December 31, 2018, $34.2 million of all loans, or 0.1%, were 60 to 89 days past due and $136.1 million, or 0.6%, were 30 to 59 days (or one payment) past due. Many of the commercial and commercial real estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis. All loans within the life insurance premium financing portfolio shown as 60 to 89 days and 30 to 59 days past due (four and nine credits, respectively) remain fully secured.

The Company’s home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at March 31, 2019 that are current with regard to the contractual terms of the loan agreement represent 97.5% of the total home equity portfolio. Residential real estate loans at March 31, 2019 that are current with regards to the contractual terms of the loan agreements comprise 97.3% of total residential real estate loans outstanding.

Non-performing Assets

The following table sets forth Wintrust’s non-performing assets and troubled debt restructurings ("TDRs") performing under the contractual terms of the loan agreement, excluding PCI loans, at the dates indicated.

The ratio of non-performing assets to total assets was 0.43% as of March 31, 2019, compared to 0.44% at December 31, 2018, and 0.44% at March 31, 2018. Non-performing assets, excluding PCI loans, totaled $139.4 million at March 31, 2019, compared to $138.3 million at December 31, 2018 and $126.4 million at March 31, 2018. Non-performing loans, excluding PCI loans, totaled $117.6 million, or 0.49% of total loans, at March 31, 2019 compared to $113.2 million, or 0.48% of total loans, at December 31, 2018 and $89.7 million, or 0.41% of total loans, at March 31, 2018. OREO of $21.5 million at March 31, 2019 decreased $3.3 million compared to $24.8 million at December 31, 2018 and decreased $15.1 million compared to $36.6 million at March 31, 2018.

Management is pursuing the resolution of all credits in this category. At this time, management believes reserves are appropriate to absorb inherent losses and OREO is appropriately valued at the lower of carrying value or fair value less estimated costs to sell.

Nonperforming Loans Rollforward

The table below presents a summary of the changes in the balance of non-performing loans, excluding PCI loans, for the periods presented:

TDRs

The table below presents a summary of TDRs as of the respective date, presented by loan category and accrual status:

Other Real Estate Owned

The table below presents a summary of other real estate owned, as of March 31, 2019, December 31, 2018 and March 31, 2018, and shows the activity for the respective period and the balance for each property type:

Items Impacting Comparative Financial Results:

Acquisitions

On December 14, 2018, the Company acquired Elektra Holding Company, LLC ("Elektra"), the parent company of Chicago Deferred Exchange Company, LLC ("CDEC"). CDEC is a provider of 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.  CDEC has successfully facilitated more than 8,000 like-kind exchanges in the past decade for taxpayers nationwide.  These transactions typically generate customer deposits during the period following the sale of the property until such proceeds are used to purchase a replacement property.  The Company recorded goodwill of $37.6 million on the acquisition.

On December 7, 2018, the Company completed its acquisition of certain assets and the assumption of certain liabilities of American Enterprise Bank ("AEB"). Through this asset acquisition, the Company acquired approximately $164.0 million in assets, including approximately $119.3 million in loans, and approximately $150.8 million in deposits.

On August 1, 2018, the Company completed its acquisition of Chicago Shore Corporation ("CSC"). CSC was the parent company of Delaware Place Bank. Through this business combination, the Company acquired Delaware Place Bank's one banking location in Chicago, Illinois, approximately $282.8 million in assets, including approximately $152.7 million in loans, and approximately $213.1 million in deposits. The Company recorded goodwill of $26.5 million on the acquisition.

On January 4, 2018, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of Veterans First, in a business combination. The Company also acquired mortgage servicing rights assets from Veterans First on approximately 10,000 loans, totaling an estimated $1.6 billion in unpaid principal balance. Veterans First is a consumer direct lender with two offices, operating one in Salt Lake City and one in San Diego. The Company recorded goodwill of $9.1 million on the acquisition.

WINTRUST SUBSIDIARIES AND LOCATIONS

Wintrust is a financial holding company whose common stock is traded on the Nasdaq Global Select Market (Nasdaq: WTFC). Its 15 community bank subsidiaries are: Lake Forest Bank & Trust Company, N.A., Hinsdale Bank & Trust Company, Wintrust Bank in Chicago, Libertyville Bank & Trust Company, Barrington Bank & Trust Company, N.A., Crystal Lake Bank & Trust Company, N.A., Northbrook Bank & Trust Company, Schaumburg Bank & Trust Company, N.A., Village Bank & Trust in Arlington Heights, Beverly Bank & Trust Company, N.A. in Chicago, Wheaton Bank & Trust Company, State Bank of The Lakes in Antioch, Old Plank Trail Community Bank, N.A. in New Lenox, St. Charles Bank & Trust Company and Town Bank in Hartland, Wisconsin.

The banks also operate facilities in Illinois in Addison, Algonquin, Aurora, Bloomingdale, Buffalo Grove, Cary, Clarendon Hills, Crete, Deerfield, Des Plaines, Downers Grove, Elgin, Elk Grove Village, Elmhurst, Evanston, Evergreen Park, Frankfort, Geneva, Glen Ellyn, Glencoe, Glenview, Gurnee, Grayslake, Hanover Park, Highland Park, Highwood, Hoffman Estates, Island Lake, Itasca, Joliet, Lake Bluff, Lake Villa, Lansing, Lemont, Lindenhurst, Lynwood, Markham, McHenry, Mokena, Mount Prospect, Mundelein, Naperville, North Chicago, Northfield, Norridge, Oak Lawn, Orland Park, Palatine, Park Ridge, Prospect Heights, Ravinia, Riverside, Rogers Park, Rolling Meadows, Roselle, Round Lake Beach, Shorewood, Skokie, South Holland, Spring Grove, Steger, Stone Park, Vernon Hills, Wauconda, Western Springs, Willowbrook, Wilmette, Winnetka and Wood Dale, in Albany, Burlington, Clinton, Darlington, Delafield, Delavan, Elm Grove, Genoa City, Kenosha, Lake Geneva, Madison, Menomonee Falls, Milwaukee, Monroe, Pewaukee, Racine, Sharon, Wales, Walworth and Wind Lake, Wisconsin, in Dyer, Indiana and in Naples, Florida.

Additionally, the Company operates various non-bank business units:

• FIRST Insurance Funding, a division of Lake Forest Bank & Trust Company, N.A., and Wintrust Life Finance, a division of Lake Forest Bank & Trust Company, N.A., serve commercial and life insurance loan customers, respectively, throughout the United States.
• First Insurance Funding of Canada serves commercial insurance loan customers throughout Canada.
• Tricom, Inc. of Milwaukee provides high-yielding, short-term accounts receivable financing and value-added out-sourced administrative services, such as data processing of payrolls, billing and cash management services, to temporary staffing service clients located throughout the United States.
• Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A., engages primarily in the origination and purchase of residential mortgages for sale into the secondary market through origination offices located throughout the United States. Loans are also originated nationwide through relationships with wholesale and correspondent offices.
• Wintrust Investments, LLC is a broker-dealer providing a full range of private client and brokerage services to clients and correspondent banks located primarily in the Midwest.
• Great Lakes Advisors LLC provides money management services and advisory services to individual accounts.
• The Chicago Trust Company, a trust subsidiary, allows Wintrust to service customers’ trust and investment needs at each banking location.
• Wintrust Asset Finance offers direct leasing opportunities.
• CDEC provides Qualified Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031.

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2018 Annual Report on Form 10-K and in any of the Company’s subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management’s long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company’s business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:

• economic conditions that affect the economy, housing prices, the job market and other factors that may adversely affect the Company’s liquidity and the performance of its loan portfolios, particularly in the markets in which it operates;
• negative effects suffered by us or our customers resulting from changes in U.S. trade policies;
• the extent of defaults and losses on the Company’s loan portfolio, which may require further increases in its allowance for credit losses;
• estimates of fair value of certain of the Company’s assets and liabilities, which could change in value significantly from period to period;
• the financial success and economic viability of the borrowers of our commercial loans;
• commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin;
• the extent of commercial and consumer delinquencies and declines in real estate values, which may require further increases in the Company’s allowance for loan and lease losses;
• inaccurate assumptions in our analytical and forecasting models used to manage our loan portfolio;
• changes in the level and volatility of interest rates, the capital markets and other market indices that may affect, among other things, the Company’s liquidity and the value of its assets and liabilities;
• competitive pressures in the financial services business which may affect the pricing of the Company’s loan and deposit products as well as its services (including wealth management services), which may result in loss of market share and reduced income from deposits, loans, advisory fees and income from other products;
• failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of the Company’s recent or future acquisitions;
• unexpected difficulties and losses related to FDIC-assisted acquisitions;
• harm to the Company’s reputation;
• any negative perception of the Company’s financial strength;
• ability of the Company to raise additional capital on acceptable terms when needed;
• disruption in capital markets, which may lower fair values for the Company’s investment portfolio;
• ability of the Company to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations and to manage risks associated therewith;
• failure or breaches of our security systems or infrastructure, or those of third parties;
• security breaches, including denial of service attacks, hacking, social engineering attacks, malware intrusion or data corruption attempts and identity theft;
• adverse effects on our information technology systems resulting from failures, human error or cyberattacks;
• adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors;
• increased costs as a result of protecting our customers from the impact of stolen debit card information;
• accuracy and completeness of information the Company receives about customers and counterparties to make credit decisions;
• ability of the Company to attract and retain senior management experienced in the banking and financial services industries;
• environmental liability risk associated with lending activities;
• the impact of any claims or legal actions to which the Company is subject, including any effect on our reputation;
• losses incurred in connection with repurchases and indemnification payments related to mortgages and increases in reserves associated therewith;
• the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank;
• the soundness of other financial institutions;
• the expenses and delayed returns inherent in opening new branches and de novo banks;
• examinations and challenges by tax authorities, and any unanticipated impact of the Tax Act;
• changes in accounting standards, rules and interpretations such as the new CECL standard, and the impact on the Company’s financial statements;
• the ability of the Company to receive dividends from its subsidiaries;
• uncertainty about the future of LIBOR;
• a decrease in the Company’s capital ratios, including as a result of declines in the value of its loan portfolios, or otherwise;
• legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies;
• a lowering of our credit rating;
• changes in U.S. monetary policy and changes to the Federal Reserve’s balance sheet as a result of the end of its program of quantitative easing or otherwise;
• restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business resulting from the Dodd-Frank Act;
• increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the regulatory environment;
• the impact of heightened capital requirements;
• increases in the Company’s FDIC insurance premiums, or the collection of special assessments by the FDIC;
• delinquencies or fraud with respect to the Company’s premium finance business;
• credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company’s premium finance loans;
• the Company’s ability to comply with covenants under its credit facility; and
• fluctuations in the stock market, which may have an adverse impact on the Company’s wealth management business and brokerage operation.

Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Any such statement speaks only as of the date the statement was made or as of such date that may be referenced within the statement. The Company undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events after the date of the press release. Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission and in its press releases.

CONFERENCE CALL, WEBCAST AND REPLAY

The Company will hold a conference call at 2:00 p.m. (Central Time) on Tuesday, April 16, 2019 regarding first quarter 2019 results. Individuals interested in listening should call (877) 363-5049 and enter Conference ID #5868367. A simultaneous audio-only webcast and replay of the conference call may be accessed via the Company’s website at https://www.wintrust.com, Investor Relations, Investor News and Events, Presentations & Conference Calls. The text of the first quarter 2019 earnings press release will be available on the home page of the Company’s website at https://www.wintrust.com and at the Investor Relations, Investor News and Events, Press Releases link on its website.

 

WINTRUST FINANCIAL CORPORATION

Supplemental Financial Information

5 Quarter Trends

 

 

 

 

 

 

 

 

 

 

 

 

FOR MORE INFORMATION CONTACT:Edward J. Wehmer, President & Chief Executive OfficerDavid A. Dykstra, Senior Executive Vice President & Chief Operating Officer(847) 939-9000Web site address: www.wintrust.com