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CST: 24/04/2019 04:47:44   

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

8 Days ago

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:

                   
              % 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.”

 
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.
 

 

 
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  
 
 

 

 
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  
 
 

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.

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 %
 

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

 
              % 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.


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.
 


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.
 


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     $ 335,571     $ 322,166     $ 262,409     4.74 %   4.58 %   4.13 %
Allowance for loan losses (157,782 )   (154,438 )   (143,108 )                        
Cash and due from banks 283,019     271,403     254,489                          
Other assets 2,385,149     2,128,407     1,930,118                          
Total assets $ 31,216,171     $ 30,179,887     $ 27,809,597                          
                                   
NOW and interest bearing demand deposits $ 2,803,338     $ 2,671,283     $ 2,255,692     $ 4,613     $ 4,007     $ 1,386     0.67 %   0.60 %   0.25 %
Wealth management deposits 2,614,035     2,289,904     2,250,139     7,000     7,119     5,441     1.09     1.23     0.98  
Money market accounts 5,915,525     5,632,268     4,520,620     19,460     16,936     4,667     1.33     1.19     0.42  
Savings accounts 2,715,422     2,553,133     2,813,772     4,249     3,096     2,732     0.63     0.48     0.39  
Time deposits 5,267,796     5,381,029     4,322,111     25,654     24,817     12,323     1.98     1.83     1.16  
Interest-bearing deposits $ 19,316,116     $ 18,527,617     $ 16,162,334     $ 60,976     $ 55,975     $ 26,549     1.29 %   1.20 %   0.67 %
Federal Home Loan Bank advances 594,335     551,846     872,811     2,450     2,563     3,639     1.67     1.84     1.69  
Other borrowings 465,571     385,878     263,125     3,633     3,199     1,699     3.16     3.29     2.62  
Subordinated notes 139,217     139,186     139,094     1,775     1,788     1,773     5.10     5.14     5.10  
Junior subordinated debentures 253,566     253,566     253,566     3,150     2,983     2,463     4.97     4.60     3.89  
Total interest-bearing liabilities $ 20,768,805     $ 19,858,093     $ 17,690,930     $ 71,984     $ 66,508     $ 36,123     1.40 %   1.33 %   0.83 %
Non-interest bearing deposits 6,444,378     6,542,228     6,639,845                          
Other liabilities 693,910     578,912     483,230                          
Equity 3,309,078     3,200,654     2,995,592                          
Total liabilities and shareholders’ equity $ 31,216,171     $ 30,179,887     $ 27,809,597                          
Interest rate spread (6)(8)                         3.34 %   3.25 %   3.30 %
Less:  Fully tax-equivalent adjustment             (1,601 )   (1,570 )   (1,204 )   (0.02 )   (0.02 )   (0.02 )
Net free funds/contribution (7) $ 7,936,980     $ 8,076,422     $ 8,077,168                 0.38     0.38     0.26  
Net interest income/ margin (GAAP) (8)             $ 261,986     $ 254,088     $ 225,082     3.70 %   3.61 %   3.54 %
Fully tax-equivalent adjustment             1,601     1,570     1,204     0.02     0.02     0.02  
Net interest income/ margin (non-GAAP) (8)             $ 263,587     $ 255,658     $ 226,286     3.72 %   3.63 %   3.56 %
(1) Includes interest-bearing deposits from banks, federal funds sold and securities purchased under resale agreements.
(2) Investment securities includes investment securities classified as available-for-sale and held-to-maturity, and equity securities with readily determinable fair values. Equity securities without readily determinable fair values are included within other assets.
(3) Interest income on tax-advantaged loans, trading securities and investment securities reflects a tax-equivalent adjustment based on the marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the three months ended March 31, 2019, December 31, 2018 and March 31, 2018 were $1.6 million, $1.6 million and $1.2 million, respectively.
(4) Other earning assets include brokerage customer receivables and trading account securities.
(5) Loans, net of unearned income, include non-accrual loans.
(6) Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
(7) Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
(8) See “Supplemental Financial Measures/Ratios” for additional information on this performance ratio.
 


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:

           
Static Shock Scenario   +200
Basis 
Points
  +100
 Basis
 Points
  -100
Basis
 Points
March 31, 2019   14.9 %   7.8 %   (8.5 )%
December 31, 2018   15.6 %   7.9 %   (8.6 )%
March 31, 2018   18.8 %   9.7 %   (11.6 )%

 

Ramp Scenario +200
Basis
Points
  +100
Basis
Points
  -100
Basis
Points
March 31, 2019 6.7 %   3.5 %   (3.3 )%
December 31, 2018 7.4 %   3.8 %   (3.6 )%
March 31, 2018 9.0 %   4.6 %   (4.8 )%

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:

 
As of March 31, 2019 One year or less   From one to five years   Over five years    
(Dollars in thousands)       Total
Commercial              
Fixed rate $ 164,370     $ 1,149,701     $ 755,402     $ 2,069,473  
Variable rate 5,917,650     6,923     145     5,924,718  
Total commercial $ 6,082,020     $ 1,156,624     $ 755,547     $ 7,994,191  
Commercial real estate              
Fixed rate 419,045     1,956,704     332,469     2,708,218  
Variable rate 4,237,177     28,102     8     4,265,287  
Total commercial real estate $ 4,656,222     $ 1,984,806     $ 332,477     $ 6,973,505  
Home equity              
Fixed rate 16,272     12,934     4,981     34,187  
Variable rate 494,261             494,261  
Total home equity $ 510,533     $ 12,934     $ 4,981     $ 528,448  
Residential real estate              
Fixed rate 30,648     20,501     235,107     286,256  
Variable rate 49,860     314,090     403,318     767,268  
Total residential real estate $ 80,508     $ 334,591     $ 638,425     $ 1,053,524  
Premium finance receivables - commercial              
Fixed rate 2,928,872     59,916         2,988,788  
Variable rate              
Total premium finance receivables - commercial $ 2,928,872     $ 59,916     $     $ 2,988,788  
Premium finance receivables - life insurance              
Fixed rate 19,925     66,737     6,087     92,749  
Variable rate 4,462,620             4,462,620  
Total premium finance receivables - life insurance $ 4,482,545     $ 66,737     $ 6,087     $ 4,555,369  
Consumer and other              
Fixed rate 80,068     11,236     2,072     93,376  
Variable rate 27,387     41         27,428  
Total consumer and other $ 107,455     $ 11,277     $ 2,072     $ 120,804  
Total per category              
Fixed rate 3,659,200     3,277,729     1,336,118     8,273,047  
Variable rate 15,188,955     349,156     403,471     15,941,582  
Total loans, net of unearned income $ 18,848,155     $ 3,626,885     $ 1,739,589     $ 24,214,629  
Variable Rate Loan Pricing by Index:              
Prime $ 2,307,308              
One- month LIBOR 8,188,860              
Three- month LIBOR 381,204              
Twelve- month LIBOR 4,836,490              
Other 227,720              
Total variable rate $ 15,941,582              

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:

  Changes in
  Prime   1-month
LIBOR
  12-month
LIBOR
Second Quarter 2018 +25 bps   +21 bps   +10 bps
Third Quarter 2018 +25 bps   +17 bps   +16 bps
Fourth Quarter 2018 +25 bps   +24 bps   +9 bps
First Quarter 2019 +0 bps   -1 bps   -30 bps
 

 

NON-INTEREST INCOME

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

 
    Three Months Ended                
    March 31,   December 31,   March 31,   Q1 2019 compared to
Q4 2018
  Q1 2019 compared to
Q1 2018
(Dollars in thousands)   2019   2018   2018   $ Change   % Change   $ Change   % Change
Brokerage   $ 4,516     $ 4,997     $ 6,031     $ (481 )   (10 )%   $ (1,515 )   (25 )%
Trust and asset management   19,461     17,729     16,955     1,732     10     2,506     15  
Total wealth management   $ 23,977     $ 22,726     $ 22,986     $ 1,251     6 %   $ 991     4 %
Mortgage banking   18,158     24,182     30,960     (6,024 )   (25 )   (12,802 )   (41 )
Service charges on deposit accounts   8,848     9,065     8,857     (217 )   (2 )   (9 )    
Gains (losses) on investment securities, net   1,364     (2,649 )   (351 )   4,013     N M   1,715     N M
Fees from covered call options   1,784     626     1,597     1,158     N M   187     12  
Trading (losses) gains, net   (171 )   (155 )   103     (16 )   10     (274 )   N M
Operating lease income, net   10,796     10,882     9,691     (86 )   (1 )   1,105     11  
Other:                            
Interest rate swap fees   2,831     2,602     2,237     229     9     594     27  
BOLI   1,591     (466 )   714     2,057     N M   877     N M
Administrative services   1,030     1,260     1,061     (230 )   (18 )   (31 )   (3 )
Foreign currency remeasurement gains (losses)   464     (1,149 )   (328 )   1,613     N M   792     N M
Early pay-offs of capital leases   5     3     33     2     67     (28 )   (85 )
Miscellaneous   10,980     8,381     8,119     2,599     31     2,861     35  
Total Other   $ 16,901     $ 10,631     $ 11,836     $ 6,270     59 %   $ 5,065     43 %
Total Non-Interest Income   $ 81,657     $ 75,308     $ 85,679     $ 6,349     8 %   $ (4,022 )   (5 )%
NM - Not meaningful.
 


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.

 
  Three Months Ended
(Dollars in thousands) March 31,
2019
  December 31,
2018
  March 31,
2018
   
Originations:   
Retail originations $ 365,602     $ 463,196     $ 539,911  
Correspondent originations 148,100     289,101     126,464  
Veterans First originations 164,762     175,483     112,477  
Total originations for sale (A) $ 678,464     $ 927,780     $ 778,852  
Originations for investment 93,689
    93,275
    43,249
 
Total originations $ 772,153     $ 1,021,055     $ 822,101  
           
Purchases as a percentage of originations for sale 67 %   71 %   73 %
Refinances as a percentage of originations for sale 33     29     27  
Total 100 %   100 %   100 %
           
Production Margin:          
Production revenue (B) (1) $ 16,606     $ 18,657     $ 20,526  
Production margin (B / A) 2.45 %   2.01 %   2.64 %
           
Mortgage Servicing:          
Loans serviced for others (C) $ 7,014,269     $ 6,545,870     $ 4,795,335  
MSRs, at fair value (D) 71,022     75,183     54,572  
Percentage of MSRs to loans serviced for others (D / C) 1.01 %   1.15 %   1.14 %
           
Components of Mortgage Banking Revenue:          
Production revenue $ 16,606     $ 18,657     $ 20,526  
MSR - current period capitalization 6,580     9,683     4,159  
MSR - collection of expected cash flows - paydowns (505 )   (496 )   (443 )
MSR - collection of expected cash flows - payoffs (1,492 )   (896 )   (759 )
MSR - changes in fair value model assumptions (8,744 )   (7,638 )   4,133  
Servicing income 5,460     4,917     2,905  
Other 253     (45 )   439  
Total mortgage banking revenue $ 18,158     $ 24,182     $ 30,960  
(1) Production revenue represents revenue earned from the origination and subsequent sale of mortgages, including gains on loans sold and fees from originations, processing and other related activities, and excludes servicing fees, changes in the fair value of servicing rights and changes to the mortgage recourse obligation.
 


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:

                   
  Three Months Ended                
  March 31,   December 31,   March 31,   Q1 2019 compared to
Q4 2018
  Q1 2019 compared to
Q1 2018
(Dollars in thousands) 2019   2018   2018   $ Change   % Change   $ Change   % Change
Salaries and employee benefits:                          
Salaries $ 74,037     $ 67,708     $ 61,986     $ 6,329     9 %   $ 12,051     19 %
Commissions and incentive compensation 31,599     33,656     31,949     (2,057 )   (6 )   (350 )   (1 )
Benefits 20,087     20,747     18,501     (660 )   (3 )   1,586     9  
Total salaries and employee benefits 125,723     122,111     112,436     3,612     3     13,287     12  
Equipment 11,770     11,523     10,072     247     2     1,698     17  
Operating lease equipment depreciation 8,319     8,462     6,533     (143 )   (2 )   1,786     27  
Occupancy, net 16,245     15,980     13,767     265     2     2,478     18  
Data processing 7,525     8,447     8,493     (922 )   (11 )   (968 )   (11 )
Advertising and marketing 9,858     9,414     8,824     444     5     1,034     12  
Professional fees 5,556     9,259     6,649     (3,703 )   (40 )   (1,093 )   (16 )
Amortization of other intangible assets 2,942     1,407     1,004     1,535     N M   1,938     N M
FDIC insurance 3,576     4,044     4,362     (468 )   (12 )   (786 )   (18 )
OREO expense, net 632     1,618     2,926     (986 )   (61 )   (2,294 )   (78 )
Other:                          
Commissions - 3rd party brokers 718     779     1,252     (61 )   (8 )   (534 )   (43 )
Postage 2,450     2,047     1,866     403     20     584     31  
Miscellaneous 19,060     16,242     16,165     2,818     17     2,895     18  
Total other 22,228     19,068     19,283     3,160     17     2,945     15  
Total Non-Interest Expense $ 214,374     $ 211,333     $ 194,349     $ 3,041     1 %   $ 20,025     10 %
NM - Not meaningful.
 


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.

 
ASSET QUALITY
 
Allowance for Credit Losses
   
  Three Months Ended
  March 31,   December 31,    March 31,
(Dollars in thousands) 2019    2018    2018
Allowance for loan losses at beginning of period $ 152,770      $ 149,756     $ 137,905  
Provision for credit losses 10,624     10,401     8,346  
Other adjustments (27 )   (79 )   (40 )
Reclassification (to) from allowance for unfunded lending-related commitments (16 )   (150 )   26  
Charge-offs:          
Commercial 503     6,416     2,687  
Commercial real estate 3,734     219     813  
Home equity 88     715     357  
Residential real estate 3     267     571  
Premium finance receivables - commercial 2,210     1,741     4,721  
Premium finance receivables - life insurance          
Consumer and other 102     148     129  
Total charge-offs 6,640     9,506     9,278  
Recoveries:          
Commercial 318     225     262  
Commercial real estate 480     1,364     1,687  
Home equity 62     105     123  
Residential real estate 29     47     40  
Premium finance receivables - commercial 556     567     385  
Premium finance receivables - life insurance          
Consumer and other 56     40     47  
Total recoveries 1,501     2,348     2,544  
Net charge-offs (5,139 )   (7,158 )   (6,734 )
Allowance for loan losses at period end $ 158,212     $ 152,770     $ 139,503  
Allowance for unfunded lending-related commitments at period end 1,410     1,394     1,243  
Allowance for credit losses at period end $ 159,622     $ 154,164     $ 140,746  
           
Annualized net charge-offs (recoveries) by category as a percentage of its own respective category’s average:          
Commercial 0.01 %   0.33 %   0.14 %
Commercial real estate 0.19     (0.07 )   (0.05 )
Home equity 0.02     0.43     0.15  
Residential real estate (0.01 )   0.10     0.26  
Premium finance receivables - commercial 0.23     0.16     0.68  
Premium finance receivables - life insurance 0.00     0.00     0.00  
Consumer and other 0.16     0.30     0.26  
Total loans, net of unearned income 0.09 %   0.12 %   0.13 %
Net charge-offs as a percentage of the provision for credit losses 48.37 %   68.82 %   80.69 %
           
Loans at period-end $ 24,214,629     $ 23,820,691     $ 22,062,134  
Allowance for loan losses as a percentage of loans at period end 0.65 %   0.64 %   0.63 %
Allowance for credit losses as a percentage of loans at period end 0.66 %   0.65 %   0.64 %
 

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:

   
  Three Months Ended
  March 31,     December 31,     March 31,
(Dollars in thousands) 2019     2018     2018
Provision for loan losses $ 10,608     $ 10,251     $ 8,372  
Provision for unfunded lending-related commitments 16     150     (26 )
Provision for credit losses $ 10,624     $ 10,401     $ 8,346  
 

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 of March 31, 2019
  Recorded   Calculated   As a percentage
of its own respective
(Dollars in thousands) Investment   Allowance   category’s balance
Commercial:(1)          
Commercial and industrial $ 4,460,202     $ 46,436     1.04 %
Asset-based lending 1,037,632     8,868     0.85  
Tax exempt 514,789     3,255     0.63  
Leases 615,015     1,675     0.27  
Commercial real estate:(1)          
Residential construction 38,986     879     2.25  
Commercial construction 759,826     8,240     1.08  
Land 146,654     4,194     2.86  
Office 891,365     6,266     0.70  
Industrial 931,343     6,532     0.70  
Retail 863,435     6,065     0.70  
Multi-family 1,073,431     10,874     1.01  
Mixed use and other 1,931,079     14,641     0.76  
Home equity(1) 500,636     8,584     1.71  
Residential real estate(1) 1,027,586     7,524     0.73  
Total core loan portfolio $ 14,791,979     $ 134,033     0.91 %
Commercial:          
Franchise $ 834,911     $ 11,975     1.43 %
Mortgage warehouse lines of credit 174,284     1,399     0.80  
Community Advantage - homeowner associations 185,488     465     0.25  
Aircraft 11,491     15     0.13  
Purchased commercial loans (2) 160,379     550     0.34  
Commercial real estate:          
Purchased commercial real estate (2) 337,386     159     0.05  
Purchased home equity (2) 27,812     43     0.15  
Purchased residential real estate (2) 25,938     106     0.41  
Premium finance receivables          
U.S. commercial insurance loans 2,620,703     6,251     0.24  
Canada commercial insurance loans (2) 368,085     592     0.16  
Life insurance loans (1) 4,389,599     1,376     0.03  
Purchased life insurance loans (2) 165,770          
Consumer and other (1) 117,561     1,246     1.06  
Purchased consumer and other (2) 3,243     2     0.06  
Total consumer, niche and purchased loan portfolio $ 9,422,650     $ 24,179     0.26 %
Total loans, net of unearned income $ 24,214,629     $ 158,212     0.65 %
(1) Excludes purchased loans reported in accordance with ASC 310-20 and ASC 310-30.
(2) Purchased loans represent loans reported in accordance with ASC 310-20 and ASC 310-30.
 

 

   
  As of December 31, 2018
  Recorded   Calculated   As a percentage
of its own respective
(Dollars in thousands) Investment   Allowance   category’s balance
Commercial:(1)          
Commercial and industrial $ 4,339,618     $ 42,948     0.99 %
Asset-based lending 1,025,805     9,138     0.89  
Tax exempt 495,896     3,150     0.64  
Leases 556,808     1,502     0.27  
Commercial real estate:(1)          
Residential construction 39,569     773     1.95  
Commercial construction 715,260     8,203     1.15  
Land 140,409     3,953     2.82  
Office 903,559     6,235     0.69  
Industrial 867,676     6,083     0.70  
Retail 856,114     9,312     1.09  
Multi-family 933,362     9,386     1.01  
Mixed use and other 2,120,361     16,183     0.76  
Home equity(1) 518,814     8,428     1.62  
Residential real estate(1) 975,750     7,001     0.72  
Total core loan portfolio $ 14,489,001     $ 132,295     0.91 %
Commercial:          
Franchise $ 885,882     $ 8,772     0.99 %
Mortgage warehouse lines of credit 144,199     1,162     0.81  
Community Advantage - homeowner associations 180,757     453     0.25  
Aircraft 12,218     17     0.14  
Purchased commercial loans (2) 187,355     684     0.37  
Commercial real estate:          
Purchased commercial real estate (2) 356,942     139     0.04  
Purchased home equity (2) 33,529     79     0.24  
Purchased residential real estate (2) 26,714     193     0.72  
Premium finance receivables          
U.S. commercial insurance loans 2,504,515     5,629     0.22  
Canada commercial insurance loans (2) 337,144     515     0.15  
Life insurance loans (1) 4,373,891     1,571     0.04  
Purchased life insurance loans (2) 167,903          
Consumer and other (1) 117,251     1,258     1.07  
Purchased consumer and other (2) 3,390     3     0.09  
Total consumer, niche and purchased loan portfolio $ 9,331,690     $ 20,475     0.22 %
Total loans, net of unearned income $ 23,820,691     $ 152,770     0.64 %
(1) Excludes purchased loans reported in accordance with ASC 310-20 and ASC 310-30.
(2) Purchased loans represent loans reported in accordance with ASC 310-20 and ASC 310-30.
 


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:

                       
      90+ days   60-89   30-59        
As of March 31, 2019     and still   days past   days past        
(Dollars in thousands) Nonaccrual   accruing   due   due   Current   Total Loans
Loan Balances:                                              
Commercial (1) $ 55,792     $ 2,499     $ 1,787     $ 49,700     $ 7,884,413     $ 7,994,191  
Commercial real estate (1) 15,933     4,265     5,612     54,872     6,892,823     6,973,505  
Home equity 7,885         810     4,315     515,438     528,448  
Residential real estate (1) 15,879     1,481     509     11,112     1,024,543     1,053,524  
Premium finance receivables - commercial 14,797     6,558     5,628     20,767     2,941,038     2,988,788  
Premium finance receivables - life insurance (1)     168     4,788     35,046     4,515,367     4,555,369  
Consumer and other (1) 326     280     47     350     119,801     120,804  
Total loans, net of unearned income $ 110,612     $ 15,251     $ 19,181     $ 176,162     $ 23,893,423     $ 24,214,629  

 

As of March 31, 2019
Aging as a % of Loan Balance
Nonaccrual   90+ days
and still
accruing
  60-89
days past
due
  30-59
days past
due
  Current   Total Loans
Commercial (1) 0.7 %   0.0 %   0.0 %   0.6 %   98.7 %   100.0 %
Commercial real estate (1) 0.2     0.1     0.1     0.8     98.8     100.0  
Home equity 1.5         0.2     0.8     97.5     100.0  
Residential real estate (1) 1.5     0.1     0.0     1.1     97.3     100.0  
Premium finance receivables - commercial 0.5     0.2     0.2     0.7     98.4     100.0  
Premium finance receivables - life insurance (1)     0.0     0.1     0.8     99.1     100.0  
Consumer and other (1) 0.3     0.2     0.0     0.3     99.2     100.0  
Total loans, net of unearned income 0.5 %   0.1 %   0.1 %   0.7 %   98.6 %   100.0 %
(1) Including PCI loans. 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.

 

 
      90+ days   60-89   30-59        
As of December 31, 2018     and still   days past   days past        
(Dollars in thousands) Nonaccrual   accruing   due   due   Current   Total Loans
Loan Balances:                                              
Commercial (1) $ 50,984     $ 3,313     $ 1,651     $ 34,861     $ 7,737,729     $ 7,828,538  
Commercial real estate (1) 19,129     6,241     10,826     51,566     6,845,490     6,933,252  
Home equity 7,147         131     3,105     541,960     552,343  
Residential real estate (1) 16,383     1,292     1,692     6,171     976,926     1,002,464  
Premium finance receivables - commercial 11,335     7,799     11,382     15,085     2,796,058     2,841,659  
Premium finance receivables - life insurance (1)         8,407     24,628     4,508,759     4,541,794  
Consumer and other (1) 348     227     87     733     119,246     120,641  
Total loans, net of unearned income $ 105,326     $ 18,872     $ 34,176     $ 136,149     $ 23,526,168     $ 23,820,691  

 

As of December 31, 2018
Aging as a % of Loan Balance:
Nonaccrual   90+ days
and still
accruing
  60-89
days past
due
  30-59
days past
due
  Current   Total Loans
Commercial (1) 0.7 %   0.0 %   0.0 %   0.4 %   98.9 %   100.0 %
Commercial real estate (1) 0.3     0.1     0.2     0.7     98.7     100.0  
Home equity 1.3         0.0     0.6     98.1     100.0  
Residential real estate (1) 1.6     0.1     0.2     0.6     97.5     100.0  
Premium finance receivables - commercial 0.4     0.3     0.4     0.5     98.4     100.0  
Premium finance receivables - life insurance (1)