Wintrust Financial Corporation Reports Record First Quarter 2023 Net Income

ROSEMONT, Ill., April 19, 2023 (GLOBE NEWSWIRE) — Wintrust Financial Corporation (“Wintrust”, “the Company”, “we” or “our”) (Nasdaq: WTFC) announced record quarterly net income of $180.2 million or $2.80 per diluted common share for the first quarter of 2023, an increase in diluted earnings per common share of 26% compared to the fourth quarter of 2022. Pre-tax, pre-provision income (non-GAAP) totaled a record $266.6 million as compared to $242.8 million for the fourth quarter of 2022.

Edward J. Wehmer, Founder and Chief Executive Officer, commented, “Wintrust successfully navigated the first quarter with limited disruption thanks to our strong deposit franchise and balanced business model. Total deposits remained stable in the first quarter as the diversity of our deposit base showed its resilience in a volatile market. Credit metrics remained very strong with non-performing assets unchanged from the prior quarter, remaining at historic lows. Finally, the Company’s net interest margin increased during the quarter contributing to record quarterly net income.”

Highlights of the first quarter of 2023:
Comparative information to the fourth quarter of 2022, unless otherwise noted

• Total deposits remained relatively stable decreasing by $184 million or 0.4%.
• Total loans increased by $369 million. In addition, total loans as of March 31, 2023 were $472 million higher than average total loans in the first quarter of 2023 which is expected to benefit future quarters.
• Total assets were relatively unchanged declining by $76 million.
• Net interest income increased by $1.2 million as compared to the fourth quarter of 2022 primarily due to improvement in net interest margin, partially offset by the impact of two fewer days in the quarter.
  • Net interest margin increased by 10 basis points to 3.81% (3.83% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2023 as the upward repricing of earnings assets outpaced increases in total funding cost.
• Recorded a provision for credit losses of $23.0 million in the first quarter of 2023 as compared to a provision for credit losses of $47.6 million in the fourth quarter of 2022.
• The allowance for credit losses on our core loan portfolio as of March 31, 2023 is approximately 1.46% of the outstanding balance. See Table 11 for more information.
• Net charge-offs totaled $5.5 million or six basis points of average total loans on an annualized basis in the first quarter of 2023 as compared to $5.1 million or five basis points of average total loans on an annualized basis in the fourth quarter of 2022.
• Non-performing assets were unchanged at 0.21% of total assets.
• The Company recorded a net negative fair value adjustment of $3.0 million in the first quarter of 2023 as compared to a $702,000 net negative fair value adjustment in the fourth quarter of 2022 related to fair value changes in certain mortgage assets, see “Non-Interest Income” section for more information.
• The total risk-based capital ratio improved to 12.1% as of March 31, 2023 as compared to 11.9% as of December 31, 2022 due to strong earnings.
• Book value per common share increased by $3.12 to $75.24 as of March 31, 2023. Tangible book value per common share (non-GAAP) increased to $64.22 as of March 31, 2023 as compared to $61.00 as of December 31, 2022.

Mr. Wehmer continued, “Our well-established position as Chicago’s and Wisconsin’s bank proved its value as our deposit base was steady in the first quarter of 2023. Wintrust has a granular consumer and business deposit portfolio and does not have any material, at-risk deposit concentrations. In addition, we experienced growth in consumer deposits in the first quarter of 2023. Expanding our retail deposit market share and footprint remains among our top objectives. We expect to leverage our distinguished customer service, competitive rate offerings and diversified products including MaxSafe® to grow deposits in future quarters.”

Mr. Wehmer noted, “Maintaining sufficient liquidity is a fundamental part of our operation and we plan to continue to operate prudently. During the lower interest rate environment, Wintrust was measured in deploying excess liquidity into investment securities opting to both maintain interest rate sensitivity and ensure adequate liquidity for potential loan growth. As a result, if either a regulatory rule change caused Wintrust to recognize unrealized losses on our available-for-sale and held-to-maturity portfolios as a reduction to regulatory capital or if we fully liquidated our investment portfolio, our regulatory capital ratios would still be expected to exceed the well-capitalized thresholds.”

Mr. Wehmer commented, “Net interest margin increased by 10 basis points in the first quarter of 2023 as compared to the fourth quarter of 2022. The Company continued its efforts to moderate its interest rate sensitivity in the first quarter of 2023 by hedging its variable rate loan portfolio with receive-fixed interest rate swap derivatives. Due to prevailing interest rates and the inversion of the yield curve, hedging activities had a seven basis point negative impact on the first quarter net interest margin. However, these derivatives will benefit the Company if interest rates fall materially. Our net interest margin finished lower at quarter end and was approximately 3.70% due to an acceleration in deposit pricing, an unfavorable shift in deposit mix and the impact of hedging activity. We believe that we can hold the net interest margin around this level for the next two quarters as we expect further upward repricing in our premium finance receivables to generally offset additional deposit pricing pressure.”

Commenting on credit quality, Mr. Wehmer stated, “Credit metrics remain strong as non-performing assets totaled $110 million and comprised only 0.21% of total assets as of March 31, 2023, essentially unchanged from levels as of December 31, 2022. Net charge-offs totaled $5.5 million or six basis points of average total loans on an annualized basis in the first quarter of 2023 as compared to $5.1 million or five basis points of average total loans on an annualized basis in the fourth quarter of 2022. The allowance for credit losses totaled $376.3 million as of March 31, 2023, an increase of $18.4 million as compared to $357.9 million as of December 31, 2022. The allowance for credit losses on our core loan portfolio as of March 31, 2023 is approximately 1.46% of the outstanding balance. We believe that the Company’s reserves remain appropriate and we remain diligent in our review of credit.”

Mr. Wehmer concluded, “Our first quarter of 2023 results continued to demonstrate the multi-faceted nature of our business model which we believe uniquely positions us to be successful. We remain focused on growing deposits to support future asset growth. We are closely watching our expenses, striving to grow without a commensurate increase in expense. We are opportunistically evaluating the acquisition market for both banks and business lines of various sizes and are excited about our recent wealth management acquisition that closed in early April 2023. Of course, we remain diligent in our consideration of acquisition targets and intend to be prudent in our decision making, always seeking to minimize tangible book value dilution.”

The graphs below illustrate certain financial highlights of the first quarter of 2023 as well as historical financial performance. See “Supplemental Non-GAAP Financial Measures/Ratios” at Table 16 for additional information with respect to non-GAAP financial measures/ratios, including the reconciliations to the corresponding GAAP financial measures/ratios.

Graphs available at the following link: http://ml.globenewswire.com/Resource/Download/3118e7fe-b104-49b4-96de-9b527f49673b

SUMMARY OF RESULTS:

BALANCE SHEET

Total assets remained relatively unchanged from December 31, 2022 to March 31, 2023. Total loans increased by $369 million as compared to the fourth quarter of 2022 primarily due to growth in the commercial and residential real estate loan portfolios. Certain securities were called by option holders on March 31, 2023 which resulted in the recognition of a trade date receivable of $940 million as of March 31, 2023. In April 2023, the Company received proceeds related to the called securities which increased interest bearing cash on the balance sheet.

Total liabilities decreased by $295 million in the first quarter of 2023 as compared to the fourth quarter of 2022 primarily due to a $184 million decrease in total deposits. During the quarter, the Company experienced a change in the mix of deposits as non-interest bearing deposits migrated to interest bearing products. This included a notable migration to products offering enhanced FDIC insurance coverage such as the Company’s MaxSafe® product balances which increased by $1.1 billion as well as fully-insured reciprocal products which increased by $258 million. The majority of the Company’s deposits are insured as approximately 70% of the total deposit balance is either fully FDIC-insured or fully collateralized as of March 31, 2023.

For more information regarding changes in the Company’s balance sheet, see Consolidated Statements of Condition and Table 1 through Table 3 in this report.

NET INTEREST INCOME

For the first quarter of 2023, net interest income totaled $458.0 million, an increase of $1.2 million as compared to the fourth quarter of 2022. The $1.2 million increase in net interest income in the first quarter of 2023 compared to the fourth quarter of 2022 was primarily due to net interest margin improvement partially offset by the impact of having two fewer days in the quarter.

Net interest margin was 3.81% (3.83% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2023 compared to 3.71% (3.73% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2022. The net interest margin increase as compared to the fourth quarter of 2022 was due to a 61 basis point increase in yield on earning assets and a 17 basis point increase in the net free funds contribution. These improvements were partially offset by a 68 basis point increase in the rate paid on interest-bearing liabilities. The 61 basis point increase in the yield on earning assets in the first quarter of 2023 as compared to the fourth quarter of 2022 was primarily due to a 67 basis point expansion on loan yields and a higher liquidity management asset yield as the Company earned higher yields on interest-bearing deposits with banks. The 68 basis point increase in the rate paid on interest-bearing liabilities in the first quarter of 2023 as compared to the fourth quarter of 2022 is primarily due to a 67 basis point increase in the rate paid on interest-bearing deposits primarily related to the increasing rate environment.

For more information regarding net interest income, see Table 4 through Table 7 in this report.

ASSET QUALITY

The allowance for credit losses totaled $376.3 million as of March 31, 2023, an increase of $18.4 million as compared to $357.9 million as of December 31, 2022. A provision for credit losses totaling $23.0 million was recorded for the first quarter of 2023 as compared to $47.6 million recorded in the fourth quarter of 2022. For more information regarding the provision for credit losses, see Table 10 in this report.

Management believes the allowance for credit losses is appropriate to account for expected credit losses. The Current Expected Credit Losses (“CECL”) accounting standard requires the Company to estimate expected credit losses over the life of the Company’s financial assets as of the reporting date. There can be no assurances, however, that future losses will not significantly exceed the amounts provided for, thereby affecting future results of operations. A summary of the allowance for credit losses calculated for the loan components in each portfolio as of March 31, 2023, December 31, 2022, and September 30, 2022 is shown on Table 11 of this report.

Net charge-offs totaled $5.5 million in the first quarter of 2023, as compared to $5.1 million of net charge-offs in the fourth quarter of 2022. Net charge-offs as a percentage of average total loans were reported as six basis points in the first quarter of 2023 on an annualized basis compared to five basis points on an annualized basis in the fourth quarter of 2022. For more information regarding net charge-offs, see Table 9 in this report.

The Company’s delinquency rates remain low and manageable. For more information regarding past due loans, see Table 12 in this report.

Non-performing assets totaled $110 million and comprised only 0.21% of total assets as of March 31, 2023, essentially unchanged from levels as of December 31, 2022. Non-performing loans also remained flat totaling $101 million, or 0.25% of total loans, at March 31, 2023. For more information regarding non-performing assets, see Table 13 in this report.

NON-INTEREST INCOME

Wealth management revenue decreased $782,000 in the first quarter of 2023 as compared to the fourth quarter of 2022 primarily related to lower fees associated with our tax-deferred like-kind exchange business. 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 the Chicago Deferred Exchange Company.

Mortgage banking revenue increased by $857,000 in the first quarter of 2023 as compared to the fourth quarter of 2022 primarily due to higher production margins. The Company recorded net negative fair value adjustments of $3.0 million in the first quarter of 2023 related to fair value changes in certain mortgage assets. This included a $6.0 million decrease in the value of mortgage servicing rights related to changes in fair value model assumptions net of economic hedges and a positive $2.4 million valuation related adjustment on the Company’s held-for-sale portfolio of early buy-out exercised loans guaranteed by U.S. government agencies which are held at fair value. In addition, in miscellaneous non-interest income, the Company recorded a positive $545,000 valuation related adjustment on the Company’s held-for-investment portfolio of early buy-out exercised loans guaranteed by U.S. government agencies which are held at fair value. The Company intends to monitor the relationship of these assets and will seek to minimize the earnings impact of fair value changes in future quarters.

Net gain on investment securities totaled $1.4 million in the first quarter of 2023 related to changes in the value of equity securities as compared to net losses of $6.7 million in the fourth quarter of 2022.

Fees from covered call options increased $2.4 million in the first quarter of 2023 as compared to the fourth quarter of 2022. 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. These option transactions are designed to mitigate overall interest rate risk and do not qualify as hedges pursuant to accounting guidance.

For more information regarding non-interest income, see Table 14 in this report.

NON-INTEREST EXPENSE

Salaries and employee benefits expense decreased by $3.6 million in the first quarter of 2023 as compared to the fourth quarter of 2022. The $3.6 million decrease is primarily related to lower incentive compensation expense due to elevated bonus accruals in the fourth quarter of 2022. This was partially offset by increased base salaries primarily related to annual merit increases as well as approximately $1.0 million of severance expense primarily related to mortgage staffing reductions.

Advertising and marketing expenses in the first quarter of 2023 totaled $11.9 million, which is a $2.3 million decrease as compared to the fourth quarter of 2022 primarily due to a decrease in radio, digital advertising, and sport sponsorships. Marketing costs are incurred to promote the Company’s brand, commercial banking capabilities and the Company’s various products, to attract loans and deposits and to announce new branch openings as well as the expansion of the Company’s non-bank businesses. The level of marketing expenditures depends on the timing of sponsorship programs utilized which are determined based on the market area, targeted audience, competition and various other factors. Generally, these expenses are elevated in the second and third quarters of each year.

Lending expenses, net of deferred origination costs decreased by $3.2 million as compared to the fourth quarter of 2022 primarily due to decreased loan originations in the first quarter of 2023.

FDIC insurance expense increased by $1.9 million in the first quarter of 2023 as compared to the fourth quarter of 2022 due to an increase in the assessment rate that was effective January 1, 2023.

For more information regarding non-interest expense, see Table 15 in this report.

INCOME TAXES

The Company recorded income tax expense of $63.4 million in the first quarter of 2023 compared to $50.4 million in the fourth quarter of 2022. The effective tax rates were 26.01% in the first quarter of 2023 compared to 25.80% in the fourth quarter of 2022. Primarily as a result of fluctuations in currency rates in the fourth quarter of 2022, the Company’s effective tax rate was impacted by a $1.7 million tax benefit related to a reduction in the Global Intangible Low-taxed Income tax. The effective tax rates were also partially impacted by the tax effects related to share-based compensation which fluctuate based on the Company’s stock price and timing of employee stock option exercises and vesting of other share-based awards. The Company recorded excess tax benefits of $2.8 million in the first quarter of 2023, compared to excess tax benefits of $437,000 in the fourth quarter of 2022 related to share-based compensation.

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 2023, this unit expanded its commercial real estate and residential real estate loan portfolios and grew consumer deposits.

Mortgage banking revenue was $18.3 million for the first quarter of 2023, an increase of $857,000 as compared to the fourth quarter of 2022, primarily due to higher production margins. Service charges on deposit accounts totaled $12.9 million in the first quarter of 2023, a decrease of $151,000 as compared to the fourth quarter of 2022, primarily due to a reduction in overdraft fees. The Company’s gross commercial and commercial real estate loan pipelines remained robust as of March 31, 2023 indicating momentum for expected continued loan growth in the second quarter of 2023.

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, accounts receivable financing and value-added, out-sourced administrative services and other services. Originations within the insurance premium financing receivables portfolio were $3.8 billion during the first quarter of 2023 and average balances decreased by $39.1 million as compared to the fourth quarter of 2022. The Company’s leasing portfolio balance increased in the first quarter of 2023, with its portfolio of assets, including capital leases, loans and equipment on operating leases, totaling $3.1 billion as of March 31, 2023 as compared to $3.0 billion as of December 31, 2022. Revenues from the Company’s out-sourced administrative services business were $1.6 million in the first quarter of 2023, a decrease of $121,000 from the fourth quarter of 2022.

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 totaled $29.9 million in the first quarter of 2023, a decrease of $782,000 compared to the fourth quarter of 2022. The decline in wealth management revenue in the first quarter of 2023 was primarily related to lower fees associated with our tax-deferred like-kind exchange business. At March 31, 2023, the Company’s wealth management subsidiaries had approximately $35.2 billion of assets under administration, which included $7.4 billion of assets owned by the Company and its subsidiary banks, representing an increase from the $34.4 billion of assets under administration at December 31, 2022.

ITEMS IMPACTING COMPARATIVE FINANCIAL RESULTS

Common Stock Offering
In June 2022, the Company sold through a public offering a total of 3,450,000 shares of its common stock. Net proceeds to the Company totaled approximately $285.7 million, net of estimated issuance costs.

WINTRUST FINANCIAL CORPORATION
Key Operating Measures

Wintrust’s key operating measures and growth rates for the first quarter of 2023, as compared to the fourth quarter of 2022 (sequential quarter) and first quarter of 2022 (linked quarter), are shown in the table below:

(1)   Period-end balance sheet percentage changes are annualized.
(2)   See Table 16: Supplemental Non-GAAP Financial Measures/Ratios for additional information on this performance measure/ratio.
(3)   Net revenue is net interest income plus non-interest income.
(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 average total assets. A lower ratio indicates a higher degree of efficiency.
(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

(1)   Excludes mortgage loans held-for-sale.
(2)   Net revenue is net interest income and non-interest income.
(3)  See Table 16: Supplemental Non-GAAP 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 average total 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 the allowance for loan losses, the allowance for unfunded lending-related commitments and the allowance for held-to-maturity securities losses.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

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

TABLE 1: LOAN PORTFOLIO MIX AND GROWTH RATES

(1)   NM – Not meaningful.
(2)   Annualized

TABLE 2: DEPOSIT PORTFOLIO MIX AND GROWTH RATES

(1)   Annualized.
(2)   Represents deposit balances of the Company’s subsidiary banks from brokerage customers of Wintrust Investments, Chicago Deferred Exchange Company, LLC (“CDEC”), trust and asset management customers of the Company.

TABLE 3: TIME CERTIFICATES OF DEPOSIT MATURITY/RE-PRICING ANALYSIS
As of March 31, 2023

(1)   Weighted-average rate excludes the impact of purchase accounting fair value adjustments.

TABLE 4: QUARTERLY AVERAGE BALANCES

(1)   Includes interest-bearing deposits from banks and securities purchased under resale agreements with original maturities of greater than three months. Cash equivalents include federal funds sold and securities purchased under resale agreements with original maturities of three months or less.
(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)   See Table 16: Supplemental Non-GAAP Financial Measures/Ratios for additional information on this performance measure/ratio.
(4)   Other earning assets include brokerage customer receivables and trading account securities.
(5)   Loans, net of unearned income, include non-accrual loans.
(6)   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.

TABLE 5: QUARTERLY NET INTEREST INCOME

(1)   Interest income on tax-advantaged loans, trading securities and investment securities reflects a taxable-equivalent adjustment based on the marginal federal corporate tax rate in effect as of the applicable period.
(2)   See Table 16: Supplemental Non-GAAP Financial Measures/Ratios for additional information on this performance measure/ratio.

TABLE 6: QUARTERLY NET INTEREST MARGIN

(1)   Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
(2)   See Table 16: Supplemental Non-GAAP Financial Measures/Ratios for additional information on this performance measure/ratio.
(3)   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.

TABLE 7: 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 and decreases of 100 and 200 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 is as follows:

As shown above, the magnitude of potential changes in net interest income in various interest rate scenarios has continued to diminish. Given the recent unprecedented rise in interest rates, the Company has made a conscious effort to reposition its exposure to changing interest rates given the uncertainty of the future interest rate environment. To this end, management has executed various derivative instruments including collars and receive fixed swaps to hedge variable rate loan exposures and originated a higher percentage of its loan originations in longer term fixed rate loans. The Company will continue to monitor current and projected interest rates and expects to execute additional derivatives to mitigate potential fluctuations in the net interest margin in future years.

TABLE 8: MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES