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Wintrust Financial Corporation Reports Fourth Quarter 2020 Net Income of $101.2 million and Full-Year 2020 Net Income of $293.0 million
Source: Nasdaq GlobeNewswire / 20 Jan 2021 15:42:02 America/Chicago
ROSEMONT, Ill., Jan. 20, 2021 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation (“Wintrust”, “the Company”, "we" or "our") (Nasdaq: WTFC) announced net income of $101.2 million or $1.63 per diluted common share for the fourth quarter of 2020, a decrease in diluted earnings per common share of 2% compared to the third quarter of 2020 and an increase of 13% compared to the fourth quarter of 2019. The Company recorded net income of $293.0 million or $4.68 per diluted common share for the year ended December 31, 2020 compared to net income of $355.7 million or $6.03 per diluted common share for the same period of 2019.
Highlights of the Fourth Quarter of 2020:
Comparative information to the third quarter of 2020- Total assets increased by $1.3 billion.
- Total loans, excluding Paycheck Protection Program ("PPP") loans, increased by $607 million primarily due to growth in commercial loans and life insurance premium finance receivables. This growth also included a $71 million net increase in residential real estate loans for investment as the Company decided to allocate a portion of its current and future mortgage production for investment.
• In addition, during the fourth quarter of 2020, the Company exercised its early buy-out option on $248 million of eligible loans previously sold to the Government National Mortgage Association ("GNMA") recorded in mortgage loans held-for-sale. See Table 1 for more information.
• PPP loans originated in 2020 declined by $663 million in the fourth quarter of 2020 primarily as a result of processing forgiveness payments. As of January 15, 2021, approximately 23% of PPP loan balances originated in 2020 have been forgiven, approximately 45% of balances are in the forgiveness review or submission process, and approximately 32% of balances have yet to apply. - Total deposits increased by $1.2 billion, notwithstanding the return of approximately $666 million in wholesale deposits during the fourth quarter of 2020.
- Net interest income increased by $3.5 million primarily due to a reduction in the rate on interest-bearing deposits and loan growth.
• The rate on interest-bearing deposits declined by 10 basis points in the fourth quarter of 2020 as compared to the third quarter of 2020. This improvement more than offset a two basis point decline in the yield on total loans in the fourth quarter of 2020 as compared to the third quarter of 2020.
• The Company recognized $16.8 million of PPP loan fee accretion in the fourth quarter of 2020 as compared to $17.4 million in the third quarter of 2020 on PPP loans originated in 2020. As of December 31, 2020, the Company had approximately $32.5 million of PPP loan fees that have yet to be recognized in income. - The loans to deposits ratio ended the fourth quarter of 2020 at 86.5% as compared to 89.7% as of September 30, 2020. Excluding PPP loans, the loans to deposits ratio ended the fourth quarter of 2020 at 79.2%.
- Mortgage banking revenue decreased by $21.7 million to $86.8 million for the fourth quarter of 2020 as compared to $108.5 million in the prior quarter.
- Outstanding COVID-19 related loan modifications for customers totaled approximately $345 million or 1.2% of total loans, excluding PPP loans, as of December 31, 2020 as compared to $413 million or 1.4% as of September 30, 2020.
- Provision for credit losses totaled $1.2 million in the fourth quarter of 2020 as compared to $25.0 million in the third quarter of 2020.
- Recorded net charge-offs of $10.3 million in the fourth quarter of 2020, of which $5.9 million were reserves on individually assessed loans as of the prior quarter end, as compared to net charge-offs of $9.3 million in the third quarter of 2020. Net charge-offs as a percentage of average total loans, totaled 13 basis points in the fourth quarter of 2020 on an annualized basis compared to 12 basis points on an annualized basis in the third quarter of 2020.
- The allowance for credit losses on our core loan portfolio is approximately 1.82% of the outstanding balance as of December 31, 2020, down from 1.88% as of September 30, 2020. See Table 12 for more information.
- Non-performing loans declined by $45.6 million, or 26%, and totaled $127.5 million, or 0.40% of total loans, as of December 31, 2020 as compared to $173.1 million, or 0.54% of total loans, as of September 30, 2020.
Other items of note from the fourth quarter of 2020
- The following items had a $13.2 million unfavorable pre-tax income impact on the fourth quarter of 2020:
• Recorded a decrease in the value of mortgage servicing rights related to changes in fair value model assumptions of $5.2 million in the fourth quarter of 2020 as compared to a decrease of $3.0 million in the third quarter of 2020.
• Accrued $6.6 million of contingent consideration expense in the fourth quarter of 2020 related to the previous acquisition of mortgage operations as compared to $6.3 million in the third quarter of 2020, which was recorded in other non-interest expense.
• Recorded an impairment charge of $1.4 million in occupancy expense related to the planned closure of 10 bank branches. - Repurchased 974,150 shares of our common stock at a cost of $54.9 million, or an average price of $56.40 per share.
Edward J. Wehmer, Founder and Chief Executive Officer, commented, "Wintrust reported net income of $101.2 million for the fourth quarter of 2020, down from $107.3 million in the third quarter of 2020. The fourth quarter of 2020 was characterized by significant loan growth, increased net interest income, strong mortgage banking revenue, a significant reduction in non-performing loans and a continued focus to increase franchise value in our market area."
Reflecting on the year, Mr. Wehmer stated, "I am very appreciative of our staff's tireless efforts to make the best of a difficult year. The year offered many challenges and I could not be more proud of our results. Pre-tax income, excluding provision for credit losses (non-GAAP), increased by 13% to $604 million in 2020 as compared to $534 million in 2019. We finished 2020 with a lot of momentum and look forward to serving our communities and being responsive to our customers in the new year."
Mr. Wehmer continued, "The Company experienced significant loan growth, excluding PPP loans, in the fourth quarter of 2020, including growth in its commercial, commercial real estate, residential real estate loans for investment and life insurance premium finance receivable portfolios. In addition, the Company supplemented loan growth by exercising its early buy-out option on eligible GNMA loans. The majority of the loan growth was in the latter part of the quarter as total period end loans, excluding PPP loans, were $678 million higher than average total loans, excluding PPP loans, in the fourth quarter of 2020. Our loan pipelines remain strong and we expect to continue to grow loans in 2021 without compromising our credit standards. Total deposits increased by $1.2 billion as compared to the third quarter of 2020 even with the return of approximately $666 million in wholesale deposits. Additionally, the mix of deposit growth during the quarter was favorable evidenced by $1.3 billion of growth in non-interest bearing deposits. We continue to emphasize growing our franchise, including gathering low cost deposits, which we believe will drive value in the long term. Our loans to deposits ratio ended the quarter at 86.5% and we believe that we have sufficient liquidity to meet customer loan demand."
Mr. Wehmer commented, "Net interest income increased in the fourth quarter of 2020 primarily due to lower interest expense on interest-bearing deposits and loan growth. The rate on interest-bearing deposits declined 10 basis points in the fourth quarter of 2020 as compared to the third quarter of 2020. This improvement more than offset a two basis point decline in the yield on total loans in the fourth quarter of 2020 as compared to the third quarter of 2020. PPP loan fee accretion was relatively flat as the Company recognized $16.8 million of PPP loan fee accretion in the fourth quarter of 2020 as compared to $17.4 million in the third quarter of 2020. The three basis point decline in the net interest margin in the fourth quarter of 2020 as compared to the third quarter of 2020 was primarily due to increased levels of liquidity as average interest-bearing cash increased by $1.0 billion. We have accumulated excess liquidity in recent quarters and believe that, if conditions allow for suitable deployment of such excess liquidity, we could potentially increase our net interest margin by 15 to 30 basis points, depending on the mix of earning assets of such reinvestment."
Mr. Wehmer noted, “Our mortgage banking business delivered another strong quarter of mortgage banking revenue in light of the demand associated with historically low long-term interest rates. Loan volumes originated for sale in the fourth quarter of 2020 were $2.4 billion, up from $2.2 billion in the third quarter of 2020. Production revenue decreased during the quarter as the origination pipeline declined as compared to the end of the third quarter of 2020. This decline was partially due to the Company increasing its allocation of pipeline to originations for investment in order to increase earning assets on the balance sheet. Additionally, the Company recorded a $5.2 million decline in the value of mortgage servicing rights related to changes in fair value model assumptions. We are leveraging efficiencies in our delivery channels and staffing strategies to keep pace with unprecedented demand. The strong quarter of mortgage performance contributed to reporting a 1.12% net overhead ratio for the fourth quarter of 2020. We believe the first quarter of 2021 will provide another strong quarter for mortgage banking production."
Commenting on credit quality, Mr. Wehmer stated, "The Company recorded provision for credit losses of $1.2 million reflecting improvement in credit quality in the fourth quarter of 2020. We expended significant effort in the quarter diligently reviewing and addressing our credit portfolio. The Company's population of loans with a rating below "pass" as of December 31, 2020 declined by $273 million, or 14%, as compared to the prior quarter end primarily due to a note sale, pay-offs and risk rating upgrades. The level of non-performing loans decreased by $45.6 million primarily due to non-performing loan pay-offs. Additionally, net charge-offs remained relatively low totaling $10.3 million in the fourth quarter of 2020 as compared to $9.3 million in the third quarter of 2020. The allowance for credit losses on our core loan portfolio as of December 31, 2020 is approximately 1.82% of the outstanding balance. We believe that the Company’s reserves remain appropriate and we remain diligent in our review of credit."
Mr. Wehmer added, "In addition to the previously announced sale of three branches in southwestern Wisconsin, we continue to review our branch footprint and have initiated plans to close an additional 10 branches. These are predominantly smaller locations in close proximity to other Wintrust locations. As such, we do not expect any material attrition or customer disruption. We expect the noted branches to close prior to the end of the second quarter and the branch sale in Wisconsin to close in the second quarter. In the fourth quarter of 2020, we recorded an impairment charge of $1.4 million associated with the closing of the 10 locations. Collectively, the reduction of 13 locations represents approximately 7% of the Wintrust retail banking locations and will result in a reduction in expenses of approximately $5 million annually on an ongoing basis. It is important to note that while we see increased use of electronic services and are investing heavily in digital capabilities to allow clients to choose how they want to be served, Wintrust will continue to selectively open branches in areas where we are not represented."
Mr. Wehmer concluded, "We remain committed to supporting our community, including the well-being and safety of our customers and employees. We are participating in the latest round of PPP having opened our application portal on January 11, 2021. As of January 19, 2021, we have received approximately 5,400 applications aggregating in excess of $1.1 billion of loans with associated fees of approximately $44 million. We are focused on taking advantage of market opportunities to prudently deploy excess liquidity into earning assets. In particular, we expect to grow PPP loans, organic loans, residential real estate loans for investment and investment securities while maintaining an interest rate sensitive asset portfolio. We continue to evaluate our operating expense base to enhance future profitability. We also continue to carefully monitor the COVID-19 pandemic and evaluate the impact that it could have on the economy, our customers and our business. We remain focused on navigating the current environment by actively monitoring and managing our credit portfolio."
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SUMMARY OF RESULTS:
BALANCE SHEET
Total asset growth of $1.3 billion in the fourth quarter of 2020 was primarily comprised of a $977 million increase in interest-bearing deposits with banks, a $312 million increase in mortgage loans held-for-sale, and a $128 million increase in investment securities, partially offset by a $56 million decrease in loans. The Company believes that the $4.8 billion of interest-bearing deposits with banks held as of December 31, 2020 provides more than sufficient liquidity to operate its business plan.
The $56 million decrease in loans was primarily a result of processing forgiveness payments, as PPP loans declined by $663 million in the fourth quarter of 2020. Total loans, excluding PPP loans, increased by $607 million primarily due to growth in commercial loans and life insurance premium finance receivables. This growth also included a $71 million net increase in residential real estate loans for investment as the Company decided to allocate a portion of its current and future mortgage production for investment.
Total liabilities increased $1.3 billion in the fourth quarter of 2020 resulting primarily from a $1.2 billion increase in total deposits, which included the return of approximately $666 million in wholesale deposits. The increase in deposits was primarily due to a $1.3 billion increase in non-interest-bearing deposits. Our loans to deposits ratio ended the quarter at 86.5%. Management believes in substantially funding the Company's balance sheet with core deposits and utilizes brokered or wholesale funding sources as appropriate to manage its liquidity position as well as for interest rate risk management purposes.
For more information regarding changes in the Company’s balance sheet, see Consolidated Statements of Condition and Tables 1 through 3 in this report.
NET INTEREST INCOME
For the fourth quarter of 2020, net interest income totaled $259.4 million, an increase of $3.5 million as compared to the third quarter of 2020 and a decrease of $2.5 million as compared to the fourth quarter of 2019. The $3.5 million increase in net interest income in the fourth quarter of 2020 compared to the third quarter of 2020 was primarily due to a 10 basis point decline in the rate on interest-bearing deposits in the fourth quarter of 2020 and loan growth.
Net interest margin was 2.53% (2.54% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2020 compared to 2.56% (2.57% on a fully taxable-equivalent basis, non-GAAP) during the third quarter of 2020 and 3.17% (3.19% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2019. The three basis point decrease in net interest margin in the fourth quarter of 2020 as compared to the third quarter of 2020 was attributable to a 10 basis point decline in the yield on earning assets and a two basis point decrease in the net free funds contribution partially offset by a nine basis point decrease in the rate paid on interest-bearing liabilities. The 10 basis point decline in the yield on earning assets in the fourth quarter of 2020 as compared to the third quarter of 2020 was primarily due to a $1.0 billion increase in average interest-bearing deposits with banks and cash equivalents. The decrease in the rate paid on interest-bearing liabilities in the fourth quarter of 2020 as compared to the prior quarter is primarily due to a 10 basis point decrease in the rate paid on interest-bearing deposits as management initiated various deposit rate reductions given the low interest rate environment.
For more information regarding net interest income, see Tables 4 through 8 in this report.
ASSET QUALITY
The allowance for credit losses totaled $380.0 million as of December 31, 2020, a decrease of $9.0 million as compared to $389.0 million as of September 30, 2020. The allowance for credit losses decreased primarily due to portfolio changes and was partially offset by changes in the macroeconomic forecasted conditions. The Commercial, Industrial and Other portfolio realized a decrease in the allowance for credit losses as compared to the prior quarter-end, which was primarily driven by improving portfolio credit characteristics. There was an increase in the allowance for credit losses in the Commercial Real Estate portfolios driven by deterioration in the Commercial Real Estate Price Index forecast, partially offset by improvement in Baa Corporate Credit Spreads. Other key drivers of allowance for credit losses changes in these portfolios include, but are not limited to, decreases in COVID-19 related loan modifications and loan risk rating migration.
The provision for credit losses totaled $1.2 million for the fourth quarter of 2020 compared to $25.0 million for the third quarter of 2020 and $7.8 million for the fourth quarter of 2019. For more information regarding the provision for credit losses, see Table 11 in this report.
Management believes the allowance for credit losses is appropriate to account for expected credit losses. The Current Expected Credit Losses ("CECL") standard requires the Company to estimate expected credit losses over the life of the Company’s financial assets at a certain point in time. 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 the core loan portfolio, the niche and consumer loan portfolio and the purchased loan portfolio as of December 31, 2020 and September 30, 2020 is shown on Table 12 of this report.
Net charge-offs totaled $10.3 million in the fourth quarter of 2020, a $1.0 million increase from $9.3 million in the third quarter of 2020 and a $2.4 million decrease from $12.7 million in the fourth quarter of 2019. Net charge-offs as a percentage of average total loans, totaled 13 basis points in the fourth quarter of 2020 on an annualized basis compared to 12 basis points on an annualized basis in the third quarter of 2020 and 19 basis points on an annualized basis in the fourth quarter of 2019. For more information regarding net charge-offs, see Table 10 in this report.
As of December 31, 2020, $41.6 million of all loans, or 0.1%, were 60 to 89 days past due and $139.1 million, or 0.4%, were 30 to 59 days (or one payment) past due. As of September 30, 2020, $49.9 million of all loans, or 0.2%, were 60 to 89 days past due and $186.5 million, or 0.6%, were 30 to 59 days (or one payment) past due. Many of the commercial and commercial real-estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis.
The Company’s home equity and residential real estate loan portfolios continue to exhibit low delinquency rates as of December 31, 2020. Home equity loans at December 31, 2020 that are current with regard to the contractual terms of the loan agreement represent 98.3% of the total home equity portfolio. Residential real estate loans at December 31, 2020 that are current with regards to the contractual terms of the loan agreements comprised 96.8% of total residential real estate loans outstanding. For more information regarding past due loans, see Table 13 in this report.
Outstanding COVID-19 related loan modifications for customers totaled approximately $345 million or 1.2% of total loans, excluding PPP loans as of December 31, 2020 as compared to $413 million or 1.4% as of September 30, 2020 and $1.7 billion or 6.2% as of June 30, 2020. The outstanding modifications primarily changed terms to interest-only payments.
The ratio of non-performing assets to total assets was 0.32% as of December 31, 2020, compared to 0.42% at September 30, 2020, and 0.36% at December 31, 2019. Non-performing assets totaled $144.1 million at December 31, 2020, compared to $182.3 million at September 30, 2020 and $132.8 million at December 31, 2019. Non-performing loans totaled $127.5 million, or 0.40% of total loans, at December 31, 2020 compared to $173.1 million, or 0.54% of total loans, at September 30, 2020 and $117.6 million, or 0.44% of total loans, at December 31, 2019. The decrease in non-performing loans as of December 31, 2020 as compared to September 30, 2020 is primarily due to $30.1 million in payments received throughout the quarter. The payment activity was primarily driven by sales of underlying real property collateral, sales of operating businesses, and refinance activity. Other real estate owned ("OREO") of $16.6 million at December 31, 2020 increased by $7.4 million compared to $9.2 million at September 30, 2020 and increased $1.4 million compared to $15.2 million at December 31, 2019. Management is pursuing the resolution of all non-performing assets. At this time, management believes OREO is appropriately valued at the lower of carrying value or fair value less estimated costs to sell. For more information regarding non-performing assets, see Table 14 in this report.
NON-INTEREST INCOME
Wealth management revenue increased by $1.8 million during the fourth quarter of 2020 as compared to the third quarter of 2020 primarily due to increased trust and asset management fees and brokerage commissions. 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 decreased by $21.7 million in the fourth quarter of 2020 as compared to the third quarter of 2020, primarily due to a $23.3 million decrease in production revenue. Production revenue decreased as origination pipelines designated for sale declined as compared to the prior quarter, due in part to the Company's intention to retain more loans for investment. Loans originated for sale were $2.4 billion in the fourth quarter of 2020, an increase of $124.7 million as compared to the third quarter of 2020. The percentage of origination volume from refinancing activities was 65% in the fourth quarter of 2020 as compared to 59% in the third quarter of 2020. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market.
During the fourth quarter of 2020, the fair value of the mortgage servicing rights portfolio increased primarily due to the capitalization of $20.3 million of servicing rights during the fourth quarter of 2020. This increase was partially offset by a negative fair value adjustment of $5.2 million as well as a reduction in value of $9.0 million due to payoffs and paydowns of the existing portfolio. No economic hedges were outstanding relative to the mortgage servicing rights portfolio during the third or fourth quarter of 2020.
Other non-interest income increased by $6.4 million in the fourth quarter of 2020 as compared to the third quarter of 2020 primarily due to increased bank owned life insurance ("BOLI") revenue and income on partnership investments.
For more information regarding non-interest income, see Tables 15 and 16 in this report.
NON-INTEREST EXPENSE
Salaries and employee benefits expense increased by $7.1 million in the fourth quarter of 2020 as compared to the third quarter of 2020. The $7.1 million increase is comprised of an increase of $3.9 million in commissions and incentive compensation, an increase of $3.7 million in salaries expense, partially offset by a decrease of $520,000 in employee benefits expense.
The increase in commissions and incentive compensation is primarily due to increased commissions expense from higher levels of mortgage loan originations in the current quarter. The increase in salaries expense is primarily related to increased staffing costs to support mortgage origination and investment in technology related services to satisfy customer demands and create efficiencies in operations.
Occupancy expense totaled $19.7 million in the fourth quarter of 2020, an increase of $3.9 million as compared to the third quarter of 2020. This increase is primarily associated with an impairment charge of $1.4 million related to the planned closure of 10 bank branches, increased real estate tax assessment estimates and a higher level of utility charges.
Equipment expense totaled $20.6 million in the fourth quarter of 2020, an increase of $3.3 million as compared to the third quarter of 2020. This increase is primarily due to increased software licensing expenses.
Advertising and Marketing expense totaled $9.9 million in the fourth quarter of 2020, an increase of $2.0 million as compared to the third quarter of 2020. The increase in the fourth quarter relates primarily to increased digital advertising campaigns and corporate sponsorship costs. Marketing costs are incurred to promote the Company's brand, commercial banking capabilities and 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.
Miscellaneous expense in the fourth quarter of 2020 increased by $302,000 as compared to the third quarter of 2020. The fourth quarter of 2020 included $6.6 million of contingent consideration expense related to the previous acquisition of mortgage operations as compared to $6.3 million in the prior quarter. The liability for contingent consideration expense related to the previous acquisition of mortgage operations is based upon forward looking mortgage origination volumes and the estimated profitability of that operation. Should those assumptions change going forward, the liability may need to be increased or decreased. The contractual period covering contingent consideration ends in January 2023 and the final two years of the contract contemplate a lower ratio of contingent consideration relative to financial performance. As a result, the Company does not expect to have material adjustments to the contingent consideration liability in future periods. Miscellaneous expense also includes ATM expenses, correspondent bank charges, directors fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses and lending origination costs that are not deferred.
For more information regarding non-interest expense, see Table 17 in this report.
INCOME TAXES
The Company recorded income tax expense of $33.5 million in the fourth quarter of 2020 compared to $30.0 million in the third quarter of 2020 and $30.7 million in the fourth quarter of 2019. The effective tax rates were 24.87% in the fourth quarter of 2020 compared to 21.83% in the third quarter of 2020 and 26.33% in the fourth quarter of 2019. The effective tax rate in the third quarter of 2020 reflects the impact of a $9.0 million state income tax benefit related to the settlement of an uncertain tax position.
BUSINESS UNIT SUMMARY
Community Banking
Through its community banking unit, the Company provides banking and financial services primarily to individuals, small to mid-sized businesses, local governmental units and institutional clients residing primarily in the local areas the Company services. In the fourth quarter of 2020, this unit expanded its loan portfolio, excluding PPP loans, and its deposit portfolio. However, the banking segment also experienced net interest margin compression primarily due to increased levels of liquidity as average interest bearing cash increased by $1.0 billion in the fourth quarter of 2020 as compared to the third quarter of 2020.
Mortgage banking revenue was $86.8 million for the fourth quarter of 2020, a decrease of $21.7 million as compared to the third quarter of 2020 primarily due to a $23.3 million decrease in production revenue as origination pipelines declined as compared to the prior quarter. Service charges on deposit accounts totaled $11.8 million in the fourth quarter of 2020, an increase of $344,000 as compared to the third quarter of 2020 primarily due to higher account analysis and overdraft fees. The Company's gross commercial and commercial real estate loan pipelines remained strong as of December 31, 2020. Before the impact of scheduled payments and prepayments, gross commercial and commercial real estate loan pipelines were estimated to be approximately $1.1 billion to $1.3 billion at December 31, 2020. When adjusted for the probability of closing, the pipelines were estimated to be approximately $650 million to $750 million at December 31, 2020.
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 $2.9 billion during the fourth quarter of 2020 and average balances increased by $49.9 million as compared to the third quarter of 2020. The increase in average balances was more than offset by margin compression in this portfolio resulting in a $3.6 million decrease in interest income attributed to the lower market rates of interest associated with the insurance premium finance receivables portfolio. The Company's leasing business grew during the fourth quarter of 2020, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing by $95.2 million to $2.1 billion at the end of the fourth quarter of 2020. Revenues from the Company's out-sourced administrative services business were $1.3 million in the fourth quarter of 2020, an increase of $186,000 from the third quarter of 2020.
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 $26.8 million in the fourth quarter of 2020, an increase of $1.8 million compared to the third quarter of 2020. Increases in asset management fees were primarily due to favorable equity market performance during the fourth quarter of 2020. At December 31, 2020, the Company’s wealth management subsidiaries had approximately $30.1 billion of assets under administration, which included $3.5 billion of assets owned by the Company and its subsidiary banks, representing a $1.9 billion increase from the $28.2 billion of assets under administration at September 30, 2020.
ITEMS IMPACTING COMPARATIVE FINANCIAL RESULTS
Paycheck Protection Program
On March 27, 2020, the President of the United States signed the CARES Act, which authorized the Small Business Administration ("SBA") to guarantee loans under the PPP for small businesses who met the necessary eligibility requirements in order to keep their workers on the payroll. The Company began accepting applications on April 3, 2020. From such date through the end of 2020, the Company secured authorization from the SBA for and funded over 12,000 PPP loans with a carrying balance of approximately $3.4 billion. As of December 31, 2020, the carrying balance of such loans was reduced to approximately $2.7 billion primarily resulting from forgiveness by the SBA.
Acquisitions
On November 1, 2019, the Company completed its acquisition of SBC, Incorporated (“SBC”). SBC was the parent company of Countryside Bank. Through this business combination, the Company acquired Countryside Bank's six banking offices located in Countryside, Burbank, Darien, Homer Glen, Oak Brook and Chicago, Illinois. As of the acquisition date, the Company acquired approximately $620 million in assets, including approximately $423 million in loans, and approximately $508 million in deposits. The Company recorded goodwill of approximately $40 million on the acquisition.
On October 7, 2019, the Company completed its acquisition of STC Bancshares Corp. (“STC”). STC was the parent company of STC Capital Bank. Through this business combination, the Company acquired STC Capital Bank's five banking offices located in the communities of St. Charles, Geneva and South Elgin, Illinois. As of the acquisition date, the Company acquired approximately $250 million in assets, including approximately $174 million in loans, and approximately $201 million in deposits. The Company recorded goodwill of approximately $19 million on the acquisition.
On May 24, 2019, the Company completed its acquisition of Rush-Oak Corporation ("ROC"). ROC was the parent company of Oak Bank. Through this business combination, the Company acquired Oak Bank's one banking location in Chicago, Illinois. As of the acquisition date, the Company acquired approximately $223 million in assets, including approximately $125 million in loans, and approximately $161 million in deposits. The Company recorded goodwill of approximately $12 million on the acquisition.
Adoption of New Credit Losses Accounting Standard
Beginning in 2020, the Company adopted the CECL standard, which impacted the measurement of the Company’s allowance for credit losses (including the allowance for unfunded lending-related commitments). CECL replaced the previous incurred loss methodology, which delayed recognition until such loss was probable, with a methodology that reflects an estimate of lifetime expected credit losses considering current economic condition and forecasts. Though other assets, including investment securities and other receivables, were considered in-scope of the standard and required a measurement of the allowance for credit loss, the most significant impact of CECL remains within the Company’s loan portfolios and related lending commitments. For more information regarding the adoption of CECL, see the "Asset Quality" section and the asset quality Tables 10-14 in this report.
WINTRUST FINANCIAL CORPORATION
Selected Financial HighlightsThree Months Ended Years Ended (Dollars in thousands, except per share data) Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019 Selected Financial Condition Data (at end of period): Total assets $ 45,080,768 $ 43,731,718 $ 43,540,017 $ 38,799,847 $ 36,620,583 Total loans (1) 32,079,073 32,135,555 31,402,903 27,807,321 26,800,290 Total deposits 37,092,651 35,844,422 35,651,874 31,461,660 30,107,138 Junior subordinated debentures 253,566 253,566 253,566 253,566 253,566 Total shareholders’ equity 4,115,995 4,074,089 3,990,218 3,700,393 3,691,250 Selected Statements of Income Data: Net interest income $ 259,397 $ 255,936 $ 263,131 $ 261,443 $ 261,879 $ 1,039,907 $ 1,054,919 Net revenue (2) 417,758 426,529 425,124 374,685 374,099 1,644,096 1,462,091 Net income 101,204 107,315 21,659 62,812 85,964 292,990 355,697 Pre-tax income, excluding provision for credit losses (non-GAAP) (3) 135,891 162,310 165,756 140,044 124,508 604,001 533,965 Net income per common share – Basic 1.64 1.68 0.34 1.05 1.46 4.72 6.11 Net income per common share – Diluted 1.63 1.67 0.34 1.04 1.44 4.68 6.03 Selected Financial Ratios and Other Data: Performance Ratios: Net interest margin 2.53 % 2.56 % 2.73 % 3.12 % 3.17 % 2.72 % 3.45 % Net interest margin - fully taxable equivalent (non-GAAP) (3) 2.54 2.57 2.74 3.14 3.19 2.73 3.47 Non-interest income to average assets 1.44 1.58 1.55 1.24 1.25 1.46 1.23 Non-interest expense to average assets 2.56 2.45 2.48 2.58 2.78 2.51 2.79 Net overhead ratio (4) 1.12 0.87 0.93 1.33 1.53 1.05 1.57 Return on average assets 0.92 0.99 0.21 0.69 0.96 0.71 1.07 Return on average common equity 10.30 10.66 2.17 6.82 9.52 7.50 10.41 Return on average tangible common equity (non-GAAP) (3) 12.95 13.43 2.95 8.73 12.17 9.54 13.22 Average total assets $ 43,810,005 $ 42,962,844 $ 42,042,729 $ 36,625,490 $ 35,645,190 $ 41,371,339 $ 33,232,083 Average total shareholders’ equity 4,050,286 4,034,902 3,908,846 3,710,169 3,622,184 3,926,688 3,461,535 Average loans to average deposits ratio 87.8 % 89.6 % 87.8 % 90.1 % 88.8 % 88.8 % 91.4 % Period-end loans to deposits ratio 86.5 89.7 88.1 88.4 89.0 Common Share Data at end of period: Market price per common share $ 61.09 $ 40.05 $ 43.62 $ 32.86 $ 70.90 Book value per common share 65.24 63.57 62.14 62.13 61.68 Tangible book value per common share (non-GAAP) (3) 53.23 51.70 50.23 50.18 49.70 Common shares outstanding 56,769,625 57,601,991 57,573,672 57,545,352 57,821,891 Other Data at end of period: Tier 1 leverage ratio (5) 8.1 % 8.2 % 8.1 % 8.5 % 8.7 % Risk-based capital ratios: Tier 1 capital ratio (5) 10.0 10.2 10.1 9.3 9.6 Common equity tier 1 capital ratio(5) 8.8 9.0 8.8 8.9 9.2 Total capital ratio (5) 12.6 12.9 12.8 11.9 12.2 Allowance for credit losses (6) $ 379,969 $ 388,971 $ 373,174 $ 253,482 $ 158,461 Allowance for loan and unfunded lending-related commitment losses to total loans 1.18 % 1.21 % 1.19 % 0.91 % 0.59 % Number of: Bank subsidiaries 15 15 15 15 15 Banking offices 181 182 186 187 187 (1) Excludes mortgage loans held-for-sale.
(2) Net revenue includes net interest income and non-interest income.
(3) See “Supplemental Non-GAAP Financial Measures/Ratios” at Table 18 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. Effective January 1, 2020, the allowance for credit losses also includes the allowance for investment securities as a result of the adoption of Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses.
WINTRUST FINANCIAL CORPORATIONKey Operating Measures
Wintrust’s key operating measures and growth rates for the fourth quarter of 2020, as compared to the third quarter of 2020 (sequential quarter) and fourth quarter of 2019 (linked quarter), are shown in the table below:
Three Months Ended % or(1)
basis point (bp)
change from
3rd Quarter
2020% or
basis point (bp)
change from
4th Quarter
2019(Dollars in thousands, except per share data) Dec 31, 2020 Sep 30, 2020 Dec 31, 2019 Net income $ 101,204 $ 107,315 $ 85,964 (6 ) % 18 % Pre-tax income, excluding provision for credit losses (non-GAAP) (2) 135,891 162,310 124,508 (16 ) 9 Net income per common share – diluted 1.63 1.67 1.44 (2 ) 13 Net revenue (3) 417,758 426,529 374,099 (2 ) 12 Net interest income 259,397 255,936 261,879 1 (1 ) Net interest margin 2.53 % 2.56 % 3.17 % (3 ) bps (64 ) bps Net interest margin - fully taxable equivalent (non-GAAP) (2) 2.54 2.57 3.19 (3 ) (65 ) Net overhead ratio (4) 1.12 0.87 1.53 25 (41 ) Return on average assets 0.92 0.99 0.96 (7 ) (4 ) Return on average common equity 10.30 10.66 9.52 (36 ) 78 Return on average tangible common equity (non-GAAP) (2) 12.95 13.43 12.17 (48 ) 78 At end of period Total assets $ 45,080,768 $ 43,731,718 $ 36,620,583 12 % 23 % Total loans (5) 32,079,073 32,135,555 26,800,290 (1 ) 20 Total deposits 37,092,651 35,844,422 30,107,138 16 23 Total shareholders’ equity 4,115,995 4,074,089 3,691,250 13 12 (1) Period-end balance sheet percentage changes are annualized.
(2) See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 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 AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION(Unaudited) (Unaudited) (Unaudited) (Unaudited) Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, (In thousands) 2020 2020 2020 2020 2019 Assets Cash and due from banks $ 322,415 $ 308,639 $ 344,999 $ 349,118 $ 286,167 Federal funds sold and securities purchased under resale agreements 59 56 58 309 309 Interest-bearing deposits with banks 4,802,527 3,825,823 4,015,072 1,943,743 2,164,560 Available-for-sale securities, at fair value 3,055,839 2,946,459 3,194,961 3,570,959 3,106,214 Held-to-maturity securities, at amortized cost 579,138 560,267 728,465 865,376 1,134,400 Trading account securities 671 1,720 890 2,257 1,068 Equity securities with readily determinable fair value 90,862 54,398 52,460 47,310 50,840 Federal Home Loan Bank and Federal Reserve Bank stock 135,588 135,568 135,571 134,546 100,739 Brokerage customer receivables 17,436 16,818 14,623 16,293 16,573 Mortgage loans held-for-sale 1,272,090 959,671 833,163 656,934 377,313 Loans, net of unearned income 32,079,073 32,135,555 31,402,903 27,807,321 26,800,290 Allowance for loan losses (319,374 ) (325,959 ) (313,510 ) (216,050 ) (156,828 ) Net loans 31,759,699 31,809,596 31,089,393 27,591,271 26,643,462 Premises and equipment, net 768,808 774,288 769,909 764,583 754,328 Lease investments, net 242,434 230,373 237,040 207,147 231,192 Accrued interest receivable and other assets 1,351,455 1,424,728 1,437,832 1,460,168 1,061,141 Trade date securities receivable — — — 502,207 — Goodwill 645,707 644,644 644,213 643,441 645,220 Other intangible assets 36,040 38,670 41,368 44,185 47,057 Total assets $ 45,080,768 $ 43,731,718 $ 43,540,017 $ 38,799,847 $ 36,620,583 Liabilities and Shareholders’ Equity Deposits: Non-interest bearing $ 11,748,455 $ 10,409,747 $ 10,204,791 $ 7,556,755 $ 7,216,758 Interest bearing 25,344,196 25,434,675 25,447,083 23,904,905 22,890,380 Total deposits 37,092,651 35,844,422 35,651,874 31,461,660 30,107,138 Federal Home Loan Bank advances 1,228,429 1,228,422 1,228,416 1,174,894 674,870 Other borrowings 518,928 507,395 508,535 487,503 418,174 Subordinated notes 436,506 436,385 436,298 436,179 436,095 Junior subordinated debentures 253,566 253,566 253,566 253,566 253,566 Trade date securities payable 200,907 — — — — Accrued interest payable and other liabilities 1,233,786 1,387,439 1,471,110 1,285,652 1,039,490 Total liabilities 40,964,773 39,657,629 39,549,799 35,099,454 32,929,333 Shareholders’ Equity: Preferred stock 412,500 412,500 412,500 125,000 125,000 Common stock 58,473 58,323 58,294 58,266 57,951 Surplus 1,649,990 1,647,049 1,643,864 1,652,063 1,650,278 Treasury stock (100,363 ) (44,891 ) (44,891 ) (44,891 ) (6,931 ) Retained earnings 2,080,013 2,001,949 1,921,048 1,917,558 1,899,630 Accumulated other comprehensive income (loss) 15,382 (841 ) (597 ) (7,603 ) (34,678 ) Total shareholders’ equity 4,115,995 4,074,089 3,990,218 3,700,393 3,691,250 Total liabilities and shareholders’ equity $ 45,080,768 $ 43,731,718 $ 43,540,017 $ 38,799,847 $ 36,620,583 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)Three Months Ended Years Ended (In thousands, except per share data) Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019 Interest income Interest and fees on loans $ 280,185 $ 280,479 $ 294,746 $ 301,839 $ 308,055 $ 1,157,249 $ 1,228,480 Mortgage loans held-for-sale 6,357 5,791 4,764 3,165 3,201 20,077 11,992 Interest-bearing deposits with banks 1,294 1,181 1,310 4,768 8,971 8,553 29,803 Federal funds sold and securities purchased under resale agreements — — 16 86 390 102 700 Investment securities 18,243 21,819 27,105 32,467 27,611 99,634 108,046 Trading account securities 11 6 13 7 6 37 39 Federal Home Loan Bank and Federal Reserve Bank stock 1,775 1,774 1,765 1,577 1,328 6,891 5,416 Brokerage customer receivables 116 106 97 158 169 477 666 Total interest income 307,981 311,156 329,816 344,067 349,731 1,293,020 1,385,142 Interest expense Interest on deposits 32,602 39,084 50,057 67,435 74,724 189,178 278,892 Interest on Federal Home Loan Bank advances 4,952 4,947 4,934 3,360 1,461 18,193 9,878 Interest on other borrowings 2,779 3,012 3,436 3,546 3,273 12,773 13,897 Interest on subordinated notes 5,509 5,474 5,506 5,472 5,504 21,961 15,555 Interest on junior subordinated debentures 2,742 2,703 2,752 2,811 2,890 11,008 12,001 Total interest expense 48,584 55,220 66,685 82,624 87,852 253,113 330,223 Net interest income 259,397 255,936 263,131 261,443 261,879 1,039,907 1,054,919 Provision for credit losses 1,180 25,026 135,053 52,961 7,826 214,220 53,864 Net interest income after provision for credit losses 258,217 230,910 128,078 208,482 254,053 825,687 1,001,055 Non-interest income Wealth management 26,802 24,957 22,636 25,941 24,999 100,336 97,114 Mortgage banking 86,819 108,544 102,324 48,326 47,860 346,013 154,293 Service charges on deposit accounts 11,841 11,497 10,420 11,265 10,973 45,023 39,070 Gains (losses) on investment securities, net 1,214 411 808 (4,359 ) 587 (1,926 ) 3,525 Fees from covered call options — — — 2,292 1,243 2,292 3,670 Trading (losses) gains, net (102 ) 183 (634 ) (451 ) 46 (1,004 ) (158 ) Operating lease income, net 12,118 11,717 11,785 11,984 12,487 47,604 47,041 Other 19,669 13,284 14,654 18,244 14,025 65,851 62,617 Total non-interest income 158,361 170,593 161,993 113,242 112,220 604,189 407,172 Non-interest expense Salaries and employee benefits 171,116 164,042 154,156 136,762 145,941 626,076 546,420 Equipment 20,565 17,251 15,846 14,834 14,485 68,496 52,328 Operating lease equipment depreciation 9,938 9,425 9,292 9,260 9,766 37,915 35,760 Occupancy, net 19,687 15,830 16,893 17,547 17,132 69,957 64,289 Data processing 5,728 5,689 10,406 8,373 7,569 30,196 27,820 Advertising and marketing 9,850 7,880 7,704 10,862 12,517 36,296 48,595 Professional fees 6,530 6,488 7,687 6,721 7,650 27,426 27,471 Amortization of other intangible assets 2,634 2,701 2,820 2,863 3,017 11,018 11,844 FDIC insurance 7,016 6,772 7,081 4,135 1,348 25,004 9,199 OREO expense, net (114 ) (168 ) 237 (876 ) 536 (921 ) 3,628 Other 28,917 28,309 27,246 24,160 29,630 108,632 100,772 Total non-interest expense 281,867 264,219 259,368 234,641 249,591 1,040,095 928,126 Income before taxes 134,711 137,284 30,703 87,083 116,682 389,781 480,101 Income tax expense 33,507 29,969 9,044 24,271 30,718 96,791 124,404 Net income $ 101,204 $ 107,315 $ 21,659 $ 62,812 $ 85,964 $ 292,990 $ 355,697 Preferred stock dividends 6,991 10,286 2,050 2,050 2,050 21,377 8,200 Net income applicable to common shares $ 94,213 $ 97,029 $ 19,609 $ 60,762 $ 83,914 $ 271,613 $ 347,497 Net income per common share - Basic $ 1.64 $ 1.68 $ 0.34 $ 1.05 $ 1.46 $ 4.72 $ 6.11 Net income per common share - Diluted $ 1.63 $ 1.67 $ 0.34 $ 1.04 $ 1.44 $ 4.68 $ 6.03 Cash dividends declared per common share $ 0.28 $ 0.28 $ 0.28 $ 0.28 $ 0.25 $ 1.12 $ 1.00 Weighted average common shares outstanding 57,309 57,597 57,567 57,620 57,538 57,523 56,857 Dilutive potential common shares 588 449 414 575 874 496 762 Average common shares and dilutive common shares 57,897 58,046 57,981 58,195 58,412 58,019 57,619 TABLE 1: LOAN PORTFOLIO MIX AND GROWTH RATES AND COMMERCIAL REAL ESTATE BY STATE
% Growth From (Dollars in thousands) Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2020 (1) Dec 31, 2019 Balance: Mortgage loans held-for-sale, excluding early buy-out exercised loans guaranteed by U.S. Government Agencies $ 927,307 $ 862,924 $ 814,667 $ 642,386 $ 361,309 30 % 157 % Mortgage loans held-for-sale, early buy-out exercised loans guaranteed by U.S. Government Agencies 344,783 96,747 18,496 14,548 16,004 1020 2054 Total mortgage loans held-for-sale $ 1,272,090 $ 959,671 $ 833,163 $ 656,934 $ 377,313 130 % 237 % Commercial Commercial, industrial, and other $ 9,240,046 $ 8,897,986 $ 8,523,864 $ 9,025,886 $ 8,285,920 15 % 12 % Commercial PPP loans 2,715,921 3,379,013 3,335,368 — — (78 ) 100 Commercial real estate Construction and development 1,371,802 1,333,149 1,285,282 1,237,274 1,200,783 12 14 Non-construction 7,122,330 7,089,993 6,915,463 6,948,257 6,819,493 2 4 Home equity 425,263 446,274 466,596 494,655 513,066 (19 ) (17 ) Residential real estate Residential real estate loans for investment 1,214,744 1,143,908 1,186,768 1,244,690 1,231,123 25 (1 ) Residential mortgage loans, early buy-out eligible loans guaranteed by U.S. Government Agencies 44,854 240,902 240,661 132,699 123,098 (324 ) (64 ) Premium Finance receivables Commercial insurance 4,054,489 4,060,144 3,999,774 3,465,055 3,442,027 (1 ) 18 Life insurance 5,857,436 5,488,832 5,400,802 5,221,639 5,074,602 27 15 Consumer and other 32,188 55,354 48,325 37,166 110,178 (166 ) (71 ) Total loans, net of unearned income $ 32,079,073 $ 32,135,555 $ 31,402,903 $ 27,807,321 $ 26,800,290 (1 )% 20 % Mix: Mortgage loans held-for-sale, excluding early buy-out exercised loans guaranteed by U.S. Government Agencies 73 % 90 % 98 % 98 % 96 % Mortgage loans held-for-sale, early buy-out exercised loans guaranteed by U.S. Government Agencies 27 10 2 2 4 Total mortgage loans held-for-sale 100 % 100 % 100 % 100 % 100 % Commercial Commercial, industrial, and other 29 % 28 % 28 % 32 % 31 % Commercial PPP loans 8 11 11 — — Commercial real estate Construction and development 4 4 4 4 4 Non-construction 22 22 22 25 26 Home equity 1 1 1 2 2 Residential real estate Residential real estate loans for investment 4 3 3 4 5 Residential mortgage loans, early buy-out eligible loans guaranteed by U.S. Government Agencies 1 1 1 1 0 Premium Finance receivables Commercial insurance 13 13 13 13 13 Life insurance 18 17 17 19 19 Consumer and other 0 0 0 0 0 Total loans, net of unearned income 100 % 100 % 100 % 100 % 100 % (1) Annualized.
Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 (Dollars in thousands) Balance % of
Total
BalanceBalance % of
Total
BalanceBalance % of
Total
BalanceBalance % of
Total
BalanceBalance % of
Total
BalanceCommercial real estate - collateral location by state: Illinois $ 6,243,651 73.5 % $ 6,270,584 74.4 % $ 6,198,486 75.6 % $ 6,171,606 75.4 % $ 6,176,353 77.0 % Wisconsin 779,390 9.2 783,241 9.3 760,839 9.3 793,145 9.7 744,975 9.3 Total primary markets $ 7,023,041 82.7 % $ 7,053,825 83.7 % $ 6,959,325 84.9 % $ 6,964,751 85.1 % $ 6,921,328 86.3 % Indiana 301,177 3.5 265,905 3.2 249,423 3.0 249,680 3.1 218,963 2.7 Florida 131,259 1.5 133,602 1.6 133,810 1.6 126,786 1.5 114,629 1.4 Arizona 63,494 0.8 79,086 0.9 78,135 1.0 72,214 0.9 64,022 0.8 California 85,624 1.0 82,852 1.0 81,634 1.0 63,883 0.8 64,345 0.8 Texas 79,406 0.9 55,229 0.7 48,082 0.6 59,647 0.8 29,586 0.5 Other 810,131 9.6 752,643 8.9 650,336 7.9 648,570 7.8 607,403 7.5 Total commercial real estate $ 8,494,132 100 % $ 8,423,142 100 % $ 8,200,745 100 % $ 8,185,531 100 % $ 8,020,276 100 % TABLE 2: DEPOSIT PORTFOLIO MIX AND GROWTH RATES
% Growth From (Dollars in thousands) Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2020 (1) Dec 31, 2019 Balance: Non-interest bearing $ 11,748,455 $ 10,409,747 $ 10,204,791 $ 7,556,755 $ 7,216,758 51 % 63 % NOW and interest-bearing demand deposits 3,349,021 3,294,071 3,440,348 3,181,159 3,093,159 7 8 Wealth management deposits (2) 4,138,712 4,235,583 4,433,020 3,936,968 3,123,063 (9 ) 33 Money market 9,348,806 9,423,653 9,288,976 8,114,659 7,854,189 (3 ) 19 Savings 3,531,029 3,415,073 3,447,352 3,282,340 3,196,698 14 10 Time certificates of deposit 4,976,628 5,066,295 4,837,387 5,389,779 5,623,271 (7 ) (11 ) Total deposits $ 37,092,651 $ 35,844,422 $ 35,651,874 $ 31,461,660 $ 30,107,138 14 % 23 % Mix: Non-interest bearing 32 % 29 % 29 % 24 % 24 % NOW and interest-bearing demand deposits 9 9 10 10 10 Wealth management deposits (2) 11 12 12 13 10 Money market 25 26 25 26 26 Savings 10 10 10 10 11 Time certificates of deposit 13 14 14 17 19 Total deposits 100 % 100 % 100 % 100 % 100 % (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 and brokerage customers from unaffiliated companies which have been placed into deposit accounts.TABLE 3: TIME CERTIFICATES OF DEPOSIT MATURITY/RE-PRICING ANALYSIS
As of December 31, 2020(Dollars in thousands) Total Time
Certificates of
DepositWeighted-Average
Rate of Maturing
Time Certificates
of Deposit (1)1-3 months $ 872,282 1.74 % 4-6 months 1,327,476 1.82 7-9 months 948,251 1.57 10-12 months 760,907 1.19 13-18 months 628,017 0.85 19-24 months 224,885 0.98 24+ months 214,810 1.02 Total $ 4,976,628 1.47 % (1) Weighted-average rate excludes the impact of purchase accounting fair value adjustments.
TABLE 4: QUARTERLY AVERAGE BALANCES
Average Balance for three months ended, Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, (In thousands) 2020 2020 2020 2020 2019 Interest-bearing deposits with banks and cash equivalents (1) $ 4,381,040 $ 3,411,164 $ 3,240,167 $ 1,418,809 $ 2,206,251 Investment securities (2) 3,534,594 3,789,422 4,309,471 4,780,709 3,909,699 FHLB and FRB stock 135,569 135,567 135,360 114,829 94,843 Liquidity management assets (3) 8,051,203 7,336,153 7,684,998 6,314,347 6,210,793 Other earning assets (3)(4) 18,716 16,656 16,917 19,166 18,353 Mortgage loans held-for-sale 893,395 822,908 705,702 403,262 381,878 Loans, net of unearned income (3)(5) 31,783,279 31,634,608 30,336,626 26,936,728 26,137,722 Total earning assets (3) 40,746,593 39,810,325 38,744,243 33,673,503 32,748,746 Allowance for loan and investment security losses (6) (336,139 ) (321,732 ) (222,485 ) (176,291 ) (167,759 ) Cash and due from banks 344,536 345,438 352,423 321,982 316,631 Other assets 3,055,015 3,128,813 3,168,548 2,806,296 2,747,572 Total assets $ 43,810,005 $ 42,962,844 $ 42,042,729 $ 36,625,490 $ 35,645,190 NOW and interest-bearing demand deposits $ 3,320,527 $ 3,435,089 $ 3,323,124 $ 3,113,733 $ 3,016,991 Wealth management deposits 4,066,948 4,239,300 4,380,996 2,838,719 2,934,292 Money market accounts 9,435,344 9,332,668 8,727,966 7,990,775 7,647,635 Savings accounts 3,413,388 3,419,586 3,394,480 3,189,835 3,028,763 Time deposits 5,043,558 4,900,839 5,104,701 5,526,407 5,682,449 Interest-bearing deposits 25,279,765 25,327,482 24,931,267 22,659,469 22,310,130 Federal Home Loan Bank advances 1,228,425 1,228,421 1,214,375 951,613 596,594 Other borrowings 510,725 512,787 493,350 469,577 415,092 Subordinated notes 436,433 436,323 436,226 436,119 436,025 Junior subordinated debentures 253,566 253,566 253,566 253,566 253,566 Total interest-bearing liabilities 27,708,914 27,758,579 27,328,784 24,770,344 24,011,407 Non-interest-bearing deposits 10,874,912 9,988,769 9,607,528 7,235,177 7,128,166 Other liabilities 1,175,893 1,180,594 1,197,571 909,800 883,433 Equity 4,050,286 4,034,902 3,908,846 3,710,169 3,622,184 Total liabilities and shareholders’ equity $ 43,810,005 $ 42,962,844 $ 42,042,729 $ 36,625,490 $ 35,645,190 Net free funds/contribution (7) $ 13,037,679 $ 12,051,746 $ 11,415,459 $ 8,903,159 $ 8,737,339 (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) See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 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) Effective January 1, 2020 this includes the allowance for investment security losses as a result of the adoption of ASU 2016-13, Financial Instruments - Credit Losses.
(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.
TABLE 5: QUARTERLY NET INTEREST INCOMENet Interest Income for three months ended, Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, (In thousands) 2020 2020 2020 2020 2019 Interest income: Interest-bearing deposits with banks and cash equivalents $ 1,294 $ 1,181 $ 1,326 $ 4,854 $ 9,361 Investment securities 18,773 22,365 27,643 33,018 28,184 FHLB and FRB stock 1,775 1,774 1,765 1,577 1,328 Liquidity management assets (1) 21,842 25,320 30,734 39,449 38,873 Other earning assets (1) 130 113 113 167 176 Mortgage loans held-for-sale 6,357 5,791 4,764 3,165 3,201 Loans, net of unearned income (1) 280,509 280,960 295,322 302,699 308,947 Total interest income $ 308,838 $ 312,184 $ 330,933 $ 345,480 $ 351,197 Interest expense: NOW and interest-bearing demand deposits $ 1,074 $ 1,342 $ 1,561 $ 3,665 $ 4,622 Wealth management deposits 7,436 7,662 7,244 6,935 7,867 Money market accounts 3,740 7,245 13,140 22,363 25,603 Savings accounts 773 2,104 3,840 5,790 6,145 Time deposits 19,579 20,731 24,272 28,682 30,487 Interest-bearing deposits 32,602 39,084 50,057 67,435 74,724 Federal Home Loan Bank advances 4,952 4,947 4,934 3,360 1,461 Other borrowings 2,779 3,012 3,436 3,546 3,273 Subordinated notes 5,509 5,474 5,506 5,472 5,504 Junior subordinated debentures 2,742 2,703 2,752 2,811 2,890 Total interest expense $ 48,584 $ 55,220 $ 66,685 $ 82,624 $ 87,852 Less: Fully taxable-equivalent adjustment (857 ) (1,028 ) (1,117 ) (1,413 ) (1,466 ) Net interest income (GAAP) (2) 259,397 255,936 263,131 261,443 261,879 Fully taxable-equivalent adjustment 857 1,028 1,117 1,413 1,466 Net interest income, fully taxable-equivalent (non-GAAP) (2) $ 260,254 $ 256,964 $ 264,248 $ 262,856 $ 263,345 (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 "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 for additional information on this performance measure/ratio.TABLE 6: QUARTERLY NET INTEREST MARGIN
Net Interest Margin for three months ended, Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Yield earned on: Interest-bearing deposits with banks and cash equivalents 0.12 % 0.14 % 0.16 % 1.38 % 1.68 % Investment securities 2.11 2.35 2.58 2.78 2.86 FHLB and FRB stock 5.21 5.21 5.24 5.52 5.55 Liquidity management assets 1.08 1.37 1.61 2.51 2.48 Other earning assets 2.79 2.71 2.71 3.50 3.83 Mortgage loans held-for-sale 2.83 2.80 2.72 3.16 3.33 Loans, net of unearned income 3.51 3.53 3.92 4.52 4.69 Total earning assets 3.02 % 3.12 % 3.44 % 4.13 % 4.25 % Rate paid on: NOW and interest-bearing demand deposits 0.13 % 0.16 % 0.19 % 0.47 % 0.61 % Wealth management deposits 0.73 0.72 0.67 0.98 1.06 Money market accounts 0.16 0.31 0.61 1.13 1.33 Savings accounts 0.09 0.24 0.45 0.73 0.80 Time deposits 1.54 1.68 1.91 2.09 2.13 Interest-bearing deposits 0.51 0.61 0.81 1.20 1.33 Federal Home Loan Bank advances 1.60 1.60 1.63 1.42 0.97 Other borrowings 2.16 2.34 2.80 3.04 3.13 Subordinated notes 5.05 5.02 5.05 5.02 5.05 Junior subordinated debentures 4.23 4.17 4.29 4.39 4.46 Total interest-bearing liabilities 0.70 % 0.79 % 0.98 % 1.34 % 1.45 % Interest rate spread (1)(2) 2.32 % 2.33 % 2.46 % 2.79 % 2.80 % Less: Fully taxable-equivalent adjustment (0.01 ) (0.01 ) (0.01 ) (0.02 ) (0.02 ) Net free funds/contribution (3) 0.22 0.24 0.28 0.35 0.39 Net interest margin (GAAP) (2) 2.53 % 2.56 % 2.73 % 3.12 % 3.17 % Fully taxable-equivalent adjustment 0.01 0.01 0.01 0.02 0.02 Net interest margin, fully taxable-equivalent (non-GAAP) (2) 2.54 % 2.57 % 2.74 % 3.14 % 3.19 % (1) Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
(2) See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 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: YEAR-TO-DATE AVERAGE BALANCES, AND NET INTEREST INCOME AND MARGIN
Average Balance
for years ended,Interest
for years ended,Yield/Rate
for years ended,(Dollars in thousands) Dec 31, 2020 Dec 31,
2019Dec 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019 Interest-bearing deposits with banks and cash equivalents (1) $ 3,117,075 $ 1,494,418 $ 8,655 $ 30,503 0.28 % 2.04 % Investment securities (2) 4,101,136 3,651,091 101,799 110,326 2.48 3.02 FHLB and FRB stock 130,360 96,924 6,891 5,416 5.29 5.59 Liquidity management assets (3)(4) $ 7,348,571 $ 5,242,433 $ 117,345 $ 146,245 1.60 % 2.79 % Other earning assets (3)(4)(5) 17,863 16,385 523 714 2.94 4.36 Mortgage loans held-for-sale 707,147 308,645 20,077 11,992 2.84 3.89 Loans, net of unearned income (3)(4)(6) 30,181,204 24,986,736 1,159,490 1,232,415 3.84 4.93 Total earning assets (4) $ 38,254,785 $ 30,554,199 $ 1,297,435 $ 1,391,366 3.39 % 4.55 % Allowance for loan and investment security losses (7) (264,516 ) (164,587 ) Cash and due from banks 341,116 292,807 Other assets 3,039,954 2,549,664 Total assets $ 41,371,339 $ 33,232,083 NOW and interest-bearing demand deposits $ 3,298,554 $ 2,903,441 $ 7,642 $ 20,079 0.23 % 0.69 % Wealth management deposits 3,882,975 2,761,936 29,277 31,121 0.75 1.13 Money market accounts 8,874,488 6,659,376 46,488 91,940 0.52 1.38 Savings accounts 3,354,662 2,834,381 12,507 20,975 0.37 0.74 Time deposits 5,142,938 5,467,192 93,264 114,777 1.81 2.10 Interest-bearing deposits $ 24,553,617 $ 20,626,326 $ 189,178 $ 278,892 0.77 % 1.35 % Federal Home Loan Bank advances 1,156,106 658,669 18,193 9,878 1.57 1.50 Other borrowings 496,693 428,834 12,773 13,897 2.57 3.24 Subordinated notes 436,275 309,178 21,961 15,555 5.03 5.03 Junior subordinated debentures 253,566 253,566 11,008 12,001 4.27 4.67 Total interest-bearing liabilities $ 26,896,257 $ 22,276,573 $ 253,113 $ 330,223 0.94 % 1.48 % Non-interest-bearing deposits 9,432,090 6,711,298 Other liabilities 1,116,304 782,677 Equity 3,926,688 3,461,535 Total liabilities and shareholders’ equity $ 41,371,339 $ 33,232,083 Interest rate spread (4)(8) 2.45 % 3.07 % Less: Fully taxable-equivalent adjustment (4,415 ) (6,224 ) (0.01 ) (0.02 ) Net free funds/contribution (9) $ 11,358,528 $ 8,277,626 0.28 0.40 Net interest income/ margin (GAAP) (4) $ 1,039,907 1,054,919 2.72 % 3.45 % Fully taxable-equivalent adjustment 4,415 6,224 0.01 0.02 Net interest income/ margin, fully taxable-equivalent (non-GAAP) (4) $ 1,044,322 $ 1,061,143 2.73 % 3.47 % (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 taxable-equivalent adjustment based on a marginal federal corporate tax rate in effect as of the applicable period.
(4) See “Supplemental Non-GAAP Financial Measures/Ratios” at Table 18 for additional information on this performance ratio.
(5) Other earning assets include brokerage customer receivables and trading account securities.
(6) Loans, net of unearned income, include non-accrual loans.
(7) Effective January 1, 2020 this includes the allowance for investment security losses as a result of the adoption of ASU 2016-13, Financial Instruments - Credit Losses.
(8) Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
(9) 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 8: INTEREST RATE SENSITIVITYAs 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 is as follows:
Static Shock Scenario +200
Basis
Points+100
Basis
Points-100
Basis
PointsDec 31, 2020 25.0 % 11.6 % (7.9 )% Sep 30, 2020 23.4 10.9 (8.1 ) Jun 30, 2020 25.9 12.6 (8.3 ) Mar 31, 2020 22.5 10.6 (9.4 ) Dec 31, 2019 18.6 9.7 (10.9 ) Ramp Scenario +200
Basis
Points+100
Basis
Points-100
Basis
PointsDec 31, 2020 11.4 % 5.7 % (3.3 )% Sep 30, 2020 10.7 5.2 (3.5 ) Jun 30, 2020 13.0 6.7 (3.2 ) Mar 31, 2020 7.7 3.7 (3.8 ) Dec 31, 2019 9.3 4.8 (5.0 ) TABLE 9: MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES
Loans repricing or maturity period As of December 31, 2020 One year or less From one to five years Over five years (In thousands) Total Commercial Fixed rate $ 372,909 $ 1,878,763 $ 804,397 $ 3,056,069 Fixed Rate - PPP — 2,715,921 — 2,715,921 Variable rate 6,180,119 3,735 123 6,183,977 Total commercial $ 6,553,028 $ 4,598,419 $ 804,520 $ 11,955,967 Commercial real estate Fixed rate 557,819 2,087,351 377,779 3,022,949 Variable rate 5,435,402 35,781 — 5,471,183 Total commercial real estate $ 5,993,221 $ 2,123,132 $ 377,779 $ 8,494,132 Home equity Fixed rate 14,710 8,882 25 23,617 Variable rate 401,646 — — 401,646 Total home equity $ 416,356 $ 8,882 $ 25 $ 425,263 Residential real estate Fixed rate 31,179 11,061 384,420 426,660 Variable rate 60,121 319,347 453,470 832,938 Total residential real estate $ 91,300 $ 330,408 $ 837,890 $ 1,259,598 Premium finance receivables - commercial Fixed rate 3,967,351 87,138 — 4,054,489 Variable rate — — — — Total premium finance receivables - commercial $ 3,967,351 $ 87,138 $ — $ 4,054,489 Premium finance receivables - life insurance Fixed rate 12,424 299,640 18,931 330,995 Variable rate 5,526,441 — — 5,526,441 Total premium finance receivables - life insurance $ 5,538,865 $ 299,640 $ 18,931 $ 5,857,436 Consumer and other Fixed rate 8,696 5,031 1,392 15,119 Variable rate 17,069 — — 17,069 Total consumer and other $ 25,765 $ 5,031 $ 1,392 $ 32,188 Total per category Fixed rate 4,965,088 4,377,866 1,586,944 10,929,898 Fixed rate - PPP — 2,715,921 — 2,715,921 Variable rate 17,620,798 358,863 453,593 18,433,254 Total loans, net of unearned income $ 22,585,886 $ 7,452,650 $ 2,040,537 $ 32,079,073 Variable Rate Loan Pricing by Index: Prime $ 2,324,385 One- month LIBOR 9,338,592 Three- month LIBOR 394,592 Twelve- month LIBOR 6,112,979 Other 262,706 Total variable rate $ 18,433,254
Graph available at the following link: http://ml.globenewswire.com/Resource/Download/f719da90-6a62-4f5d-a7fb-d34801cb841aSource: 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 changes as the Prime rate which has historically moved when the Federal Reserve raises or lowers interest rates. Specifically, the Company has $9.3 billion of variable rate loans tied to one-month LIBOR and $6.1 billion of variable rate loans tied to twelve-month LIBOR. The above chart shows:
Basis Point (bp) Change in Prime 1-month
LIBOR12-month
LIBORFourth Quarter 2020 0 bp -1 bp -2 bps Third Quarter 2020 0 -1 -19 Second Quarter 2020 0 -83 -45 First Quarter 2020 -150 -77 -100 Fourth Quarter 2019 -25 -26 -3 TABLE 10: ALLOWANCE FOR CREDIT LOSSES
Three Months Ended Years Ended Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Dec 31, Dec 31, (Dollars in thousands) 2020 2020 2020 2020 2019 2020 2019 Allowance for credit losses at beginning of period $ 388,971 $ 373,174 $ 253,482 $ 158,461 $ 163,273 $ 158,461 $ 154,164 Cumulative effect adjustment from the adoption of ASU 2016-13 — — — 47,418 — 47,418 — Provision for credit losses 1,180 25,026 135,053 52,961 7,826 214,220 53,864 Other adjustments 155 55 42 (73 ) 30 179 (21 ) Charge-offs: Commercial 5,184 5,270 5,686 2,153 11,222 18,293 35,880 Commercial real estate 6,637 1,529 7,224 570 533 15,960 5,402 Home equity 683 138 239 1,001 1,330 2,061 3,702 Residential real estate 114 83 293 401 483 891 798 Premium finance receivables 4,214 4,640 3,434 3,184 3,817 15,472 12,902 Consumer and other 198 103 99 128 167 528 522 Total charge-offs 17,030 11,763 16,975 7,437 17,552 53,205 59,206 Recoveries: Commercial 4,168 428 112 384 1,871 5,092 2,845 Commercial real estate 904 175 493 263 1,404 1,835 2,516 Home equity 77 111 46 294 166 528 479 Residential real estate 69 25 30 60 50 184 422 Premium finance receivables 1,445 1,720 833 1,110 1,350 5,108 3,203 Consumer and other 30 20 58 41 43 149 195 Total recoveries 6,693 2,479 1,572 2,152 4,884 12,896 9,660 Net charge-offs (10,337 ) (9,284 ) (15,403 ) (5,285 ) (12,668 ) (40,309 ) (49,546 ) Allowance for credit losses at period end $ 379,969 $ 388,971 $ 373,174 $ 253,482 $ 158,461 $ 379,969 $ 158,461 Annualized net charge-offs by category as a percentage of its own respective category’s average: Commercial 0.03 % 0.16 % 0.20 % 0.08 % 0.46 % 0.12 % 0.41 % Commercial real estate 0.27 0.06 0.33 0.02 (0.04 ) 0.17 0.04 Home equity 0.55 0.02 0.16 0.57 0.89 0.33 0.61 Residential real estate 0.02 0.02 0.09 0.11 0.14 0.06 0.04 Premium finance receivables 0.11 0.12 0.12 0.10 0.12 0.11 0.12 Consumer and other 0.78 0.49 0.25 0.56 0.41 0.52 0.29 Total loans, net of unearned income 0.13 % 0.12 % 0.20 % 0.08 % 0.19 % 0.13 % 0.20 % Net charge-offs as a percentage of the provision for credit losses 876.02 % 37.10 % 11.41 % 9.98 % 161.87 % 18.82 % 91.99 % Loans at period-end $ 32,079,073 $ 32,135,555 $ 31,402,903 $ 27,807,321 $ 26,800,290 Allowance for loan losses as a percentage of loans at period end 1.00 % 1.01 % 1.00 % 0.78 % 0.59 % Allowance for loan and unfunded lending-related commitment losses as a percentage of loans at period end 1.18 1.21 1.19 0.91 0.59 Allowance for loan and unfunded lending-related commitment losses as a percentage of loans at period end, excluding PPP loans 1.29 1.35 1.33 0.91 0.59 TABLE 11: ALLOWANCE AND PROVISION FOR CREDIT LOSSES BY COMPONENT
Three Months Ended Years Ended Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Dec 31, Dec 31, (In thousands) 2020 2020 2020 2020 2019 2020 2019 Provision for loan losses $ 3,597 $ 21,678 $ 112,822 $ 50,396 $ 7,704 $ 188,493 $ 53,626 Provision for unfunded lending-related commitments losses (2,413 ) 3,350 22,236 2,569 122 25,742 238 Provision for held-to-maturity securities losses (4 ) (2 ) (5 ) (4 ) — (15 ) — Provision for credit losses $ 1,180 $ 25,026 $ 135,053 $ 52,961 $ 7,826 $ 214,220 $ 53,864 Allowance for loan losses $ 319,374 $ 325,959 $ 313,510 $ 216,050 $ 156,828 Allowance for unfunded lending-related commitments losses 60,536 62,949 59,599 37,362 1,633 Allowance for loan losses and unfunded lending-related commitments losses 379,910 388,908 373,109 253,412 158,461 Allowance for held-to-maturity securities losses 59 63 65 70 — Allowance for credit losses $ 379,969 $ 388,971 $ 373,174 $ 253,482 $ 158,461
TABLE 12: ALLOWANCE BY LOAN PORTFOLIOThe table below summarizes the calculation of allowance for loan losses and allowance for unfunded lending-related commitments losses for the Company’s core, niche and consumer and purchased loan portfolios, as of December 31, 2020 and September 30, 2020.
As of Dec 31, 2020 As of Sep 30, 2020 (Dollars in thousands) Recorded
InvestmentCalculated
Allowance% of its
category’s balanceRecorded
InvestmentCalculated
Allowance% of its
category’s balanceCommercial: Commercial, industrial and other, excluding PPP loans $ 9,162,327 $ 92,777 1.01 % $ 8,808,467 $ 110,045 1.25 % Commercial real estate: Construction and development 1,344,653 77,463 5.76 1,270,235 73,565 5.79 Non-construction 6,775,195 150,637 2.22 6,708,538 141,249 2.11 Home equity 395,248 11,027 2.79 412,162 11,216 2.72 Residential real estate 1,195,271 11,948 1.00 1,309,209 11,165 0.85 Total core loan portfolio $ 18,872,694 $ 343,852 1.82 % $ 18,508,611 $ 347,240 1.88 % Commercial PPP loans $ 2,715,921 $ 2 0.00 % $ 3,379,013 $ 3 0.00 % Premium finance receivables Commercial insurance loans 4,054,489 17,267 0.43 4,060,144 17,378 0.43 Life insurance loans 5,741,639 510 0.01 5,376,403 478 0.01 Consumer and other 30,133 290 0.96 53,191 555 1.04 Total niche and consumer loan portfolio $ 12,542,182 $ 18,069 0.14 % $ 12,868,751 $ 18,414 0.14 % Purchased commercial $ 77,719 $ 1,433 1.84 % $ 89,519 $ 2,846 3.18 % Purchased commercial real estate 374,284 15,503 4.14 444,369 19,196 4.32 Purchased home equity 30,015 410 1.37 34,112 461 1.35 Purchased residential real estate 64,327 511 0.79 75,601 625 0.83 Purchased life insurance loans 115,797 — — 112,429 — — Purchased consumer and other 2,055 132 6.42 2,163 126 5.83 Total purchased loan portfolio $ 664,197 $ 17,989 2.71 % $ 758,193 $ 23,254 3.07 % Total loans, net of unearned income $ 32,079,073 $ 379,910 1.18 % $ 32,135,555 $ 388,908 1.21 % Total loans, net of unearned income, excluding PPP loans $ 29,363,152 $ 379,908 1.29 % $ 28,756,542 $ 388,905 1.35 % TABLE 13: LOAN PORTFOLIO AGING
(Dollars in thousands) Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Loan Balances: Commercial Nonaccrual $ 21,743 $ 42,036 $ 42,882 $ 49,916 $ 37,224 90+ days and still accruing 307 — 1,374 1,241 1,855 60-89 days past due 6,900 2,168 8,952 8,873 3,275 30-59 days past due 44,381 48,271 23,720 86,129 77,324 Current 11,882,636 12,184,524 11,782,304 8,879,727 8,166,242 Total commercial $ 11,955,967 $ 12,276,999 $ 11,859,232 $ 9,025,886 $ 8,285,920 Commercial real estate Nonaccrual $ 46,107 $ 68,815 $ 64,557 $ 62,830 $ 26,113 90+ days and still accruing — — — 516 14,946 60-89 days past due 5,178 8,299 26,480 10,212 31,546 30-59 days past due 32,116 53,462 75,528 75,068 97,567 Current 8,410,731 8,292,566 8,034,180 8,036,905 7,850,104 Total commercial real estate $ 8,494,132 $ 8,423,142 $ 8,200,745 8,185,531 $ 8,020,276 Home equity Nonaccrual $ 6,529 $ 6,329 $ 7,261 $ 7,243 $ 7,363 90+ days and still accruing — — — — — 60-89 days past due 47 70 — 214 454 30-59 days past due 637 1,148 1,296 2,096 3,533 Current 418,050 438,727 458,039 485,102 501,716 Total home equity $ 425,263 $ 446,274 $ 466,596 $ 494,655 $ 513,066 Residential real estate Nonaccrual $ 26,071 $ 22,069 $ 19,529 $ 18,965 $ 13,797 90+ days and still accruing — — — 605 5,771 60-89 days past due 1,635 814 1,506 345 3,089 30-59 days past due 12,584 2,443 4,400 28,983 18,041 Current 1,219,308 1,359,484 1,401,994 1,328,491 1,313,523 Total residential real estate $ 1,259,598 $ 1,384,810 $ 1,427,429 $ 1,377,389 $ 1,354,221 Premium finance receivables Nonaccrual $ 13,264 $ 21,080 $ 16,460 $ 21,058 $ 21,180 90+ days and still accruing 12,792 12,177 35,638 16,505 11,517 60-89 days past due 27,801 38,286 42,353 12,730 12,119 30-59 days past due 49,274 80,732 61,160 70,185 51,342 Current 9,808,794 9,396,701 9,244,965 8,566,216 8,420,471 Total premium finance receivables $ 9,911,925 $ 9,548,976 $ 9,400,576 $ 8,686,694 $ 8,516,629 Consumer and other Nonaccrual $ 436 $ 422 $ 427 $ 403 $ 231 90+ days and still accruing 264 175 156 78 287 60-89 days past due 24 273 4 625 40 30-59 days past due 136 493 281 207 344 Current 31,328 53,991 47,457 35,853 109,276 Total consumer and other $ 32,188 $ 55,354 $ 48,325 $ 37,166 $ 110,178 Total loans, net of unearned income Nonaccrual $ 114,150 $ 160,751 $ 151,116 $ 160,415 $ 105,908 90+ days and still accruing 13,363 12,352 37,168 18,945 34,376 60-89 days past due 41,585 49,910 79,295 32,999 50,523 30-59 days past due 139,128 186,549 166,385 262,668 248,151 Current 31,770,847 31,725,993 30,968,939 27,332,294 26,361,332 Total loans, net of unearned income $ 32,079,073 $ 32,135,555 $ 31,402,903 $ 27,807,321 $ 26,800,290 TABLE 14: NON-PERFORMING ASSETS AND TROUBLED DEBT RESTRUCTURINGS ("TDRs")
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, (Dollars in thousands) 2020 2020 2020 2020(1) 2019 Loans past due greater than 90 days and still accruing (2): Commercial $ 307 $ — $ 1,374 $ 1,241 $ — Commercial real estate — — — 516 — Home equity — — — — — Residential real estate — — — 605 — Premium finance receivables 12,792 12,177 35,638 16,505 11,517 Consumer and other 264 175 156 78 163 Total loans past due greater than 90 days and still accruing 13,363 12,352 37,168 18,945 11,680 Non-accrual loans: Commercial 21,743 42,036 42,882 49,916 37,224 Commercial real estate 46,107 68,815 64,557 62,830 26,113 Home equity 6,529 6,329 7,261 7,243 7,363 Residential real estate 26,071 22,069 19,529 18,965 13,797 Premium finance receivables 13,264 21,080 16,460 21,058 21,180 Consumer and other 436 422 427 403 231 Total non-accrual loans 114,150 160,751 151,116 160,415 105,908 Total non-performing loans: Commercial 22,050 42,036 44,256 51,157 37,224 Commercial real estate 46,107 68,815 64,557 63,346 26,113 Home equity 6,529 6,329 7,261 7,243 7,363 Residential real estate 26,071 22,069 19,529 19,570 13,797 Premium finance receivables 26,056 33,257 52,098 37,563 32,697 Consumer and other 700 597 583 481 394 Total non-performing loans $ 127,513 $ 173,103 $ 188,284 $ 179,360 $ 117,588 Other real estate owned 9,711 2,891 2,409 2,701 5,208 Other real estate owned - from acquisitions 6,847 6,326 7,788 8,325 9,963 Other repossessed assets — — — — 4 Total non-performing assets $ 144,071 $ 182,320 $ 198,481 $ 190,386 $ 132,763 Accruing TDRs not included within non-performing assets $ 47,023 $ 46,410 $ 48,609 $ 47,049 $ 36,725 Total non-performing loans by category as a percent of its own respective category’s period-end balance: Commercial 0.18 % 0.34 % 0.37 % 0.57 % 0.45 % Commercial real estate 0.54 0.82 0.79 0.77 0.33 Home equity 1.54 1.42 1.56 1.46 1.44 Residential real estate 2.07 1.59 1.37 1.42 1.02 Premium finance receivables 0.26 0.35 0.55 0.43 0.39 Consumer and other 2.17 1.08 1.21 1.29 0.36 Total loans, net of unearned income 0.40 % 0.54 % 0.60 % 0.65 % 0.44 % Total non-performing assets as a percentage of total assets 0.32 % 0.42 % 0.46 % 0.49 % 0.36 % Allowance for credit losses as a percentage of non-accrual loans 332.82 % 241.93 % 246.90 % 157.97 % 149.62 % (1) Prior to the adoption of ASU 2016-13, acquired loans with evidence of credit quality deterioration (purchased credit deteriorated loans, or "PCD loans") were excluded from non-performing loans. PCD loans that meet the definition of non-accrual or are greater than 90 days past-due and still accruing interest are now included in non-performing loans and resulted in a $37.3 million increase in non-accrual loans upon adoption of ASU 2016-13 as of January 1, 2020.
(2) As of December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 2019, no TDRs were past due greater than 90 days and still accruing interest.Non-performing Loans Rollforward
Three Months Ended Years Ended Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Dec 31, Dec 31, (In thousands) 2020 2020 2020 2020 2019 2020 2019 Balance at beginning of period $ 173,103 $ 188,284 $ 179,360 $ 117,588 $ 114,284 $ 117,588 $ 113,234 Additions from becoming non-performing in the respective period 13,224 19,771 20,803 32,195 30,977 85,993 96,355 Additions from the adoption of ASU 2016-13 — — — 37,285 — 37,285 — Return to performing status (1,000 ) (6,202 ) (2,566 ) (486 ) (243 ) (10,254 ) (14,774 ) Payments received (30,146 ) (3,733 ) (11,201 ) (7,949 ) (19,380 ) (53,029 ) (45,168 ) Transfer to OREO and other repossessed assets (12,662 ) (598 ) — (1,297 ) — (14,557 ) (3,061 ) Charge-offs (7,817 ) (6,583 ) (12,884 ) (2,551 ) (11,798 ) (29,835 ) (39,591 ) Net change for niche loans (1) (7,189 ) (17,836 ) 14,772 4,575 3,748 (5,678 ) 10,593 Balance at end of period $ 127,513 $ 173,103 $ 188,284 $ 179,360 $ 117,588 $ 127,513 $ 117,588 (1) This includes activity for premium finance receivables and indirect consumer loans.
TDRsDec 31, Sep 30, Jun 30, Mar 31, Dec 31, (In thousands) 2020 2020 2020 2020 2019 Accruing TDRs: Commercial $ 7,699 $ 7,863 $ 5,338 $ 6,500 $ 4,905 Commercial real estate 10,549 10,846 19,106 18,043 9,754 Residential real estate and other 28,775 27,701 24,165 22,506 22,066 Total accrual $ 47,023 $ 46,410 $ 48,609 $ 47,049 $ 36,725 Non-accrual TDRs: (1) Commercial $ 10,491 $ 13,132 $ 20,788 $ 17,206 $ 13,834 Commercial real estate 6,177 13,601 8,545 14,420 7,119 Residential real estate and other 4,501 5,392 5,606 4,962 6,158 Total non-accrual $ 21,169 $ 32,125 $ 34,939 $ 36,588 $ 27,111 Total TDRs: Commercial $ 18,190 $ 20,995 $ 26,126 $ 23,706 $ 18,739 Commercial real estate 16,726 24,447 27,651 32,463 16,873 Residential real estate and other 33,276 33,093 29,771 27,468 28,224 Total TDRs $ 68,192 $ 78,535 $ 83,548 $ 83,637 $ 63,836 (1) Included in total non-performing loans.
Other Real Estate Owned
Three Months Ended Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, (In thousands) 2020 2020 2020 2020 2019 Balance at beginning of period $ 9,217 $ 10,197 $ 11,026 $ 15,171 $ 17,482 Disposals/resolved (3,839 ) (1,532 ) (612 ) (4,793 ) (4,860 ) Transfers in at fair value, less costs to sell 11,508 777 — 954 936 Additions from acquisition — — — — 2,179 Fair value adjustments (328 ) (225 ) (217 ) (306 ) (566 ) Balance at end of period $ 16,558 $ 9,217 $ 10,197 $ 11,026 $ 15,171 Period End Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Balance by Property Type: 2020 2020 2020 2020 2019 Residential real estate $ 2,324 $ 1,839 $ 1,382 $ 1,684 $ 1,016 Residential real estate development 1,691 — — — 810 Commercial real estate 12,543 7,378 8,815 9,342 13,345 Total $ 16,558 $ 9,217 $ 10,197 $ 11,026 $ 15,171 TABLE 15: NON-INTEREST INCOME
Three Months Ended Q4 2020 compared to
Q3 2020Q4 2020 compared to
Q4 2019Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, (Dollars in thousands) 2020 2020 2020 2020 2019 $ Change % Change $ Change % Change Brokerage $ 4,740 $ 4,563 $ 4,147 $ 5,281 $ 4,859 $ 177 4 % $ (119 ) (2 )% Trust and asset management 22,062 20,394 18,489 20,660 20,140 1,668 8 1,922 10 Total wealth management 26,802 24,957 22,636 25,941 24,999 1,845 7 1,803 7 Mortgage banking 86,819 108,544 102,324 48,326 47,860 (21,725 ) (20 ) 38,959 81 Service charges on deposit accounts 11,841 11,497 10,420 11,265 10,973 344 3 868 8 Gains (losses) on investment securities, net 1,214 411 808 (4,359 ) 587 803 NM 627 NM Fees from covered call options — — — 2,292 1,243 — NM (1,243 ) (100 ) Trading (losses) gains, net (102 ) 183 (634 ) (451 ) 46 (285 ) NM (148 ) NM Operating lease income, net 12,118 11,717 11,785 11,984 12,487 401 3 (369 ) (3 ) Other: Interest rate swap fees 4,930 4,029 5,693 6,066 2,206 901 22 2,724 NM BOLI 2,846 1,218 1,950 (1,284 ) 1,377 1,628 134 1,469 NM Administrative services 1,263 1,077 933 1,112 1,072 186 17 191 18 Foreign currency remeasurement (losses) gains (208 ) (54 ) (208 ) (151 ) 261 (154 ) NM (469 ) NM Early pay-offs of capital leases 118 165 275 74 24 (47 ) (28 ) 94 NM Miscellaneous 10,720 6,849 6,011 12,427 9,085 3,871 57 1,635 18 Total Other 19,669 13,284 14,654 18,244 14,025 6,385 48 5,644 40 Total Non-Interest Income $ 158,361 $ 170,593 $ 161,993 $ 113,242 $ 112,220 $ (12,232 ) (7 )% $ 46,141 41 % NM - Not meaningful.
Years Ended Dec 31, Dec 31, $ % (Dollars in thousands) 2020 2019 Change Change Brokerage $ 18,731 $ 18,825 $ (94 ) 0 % Trust and asset management 81,605 78,289 3,316 4 Total wealth management 100,336 97,114 3,222 3 Mortgage banking 346,013 154,293 191,720 124 Service charges on deposit accounts 45,023 39,070 5,953 15 (Losses) gains on investment securities, net (1,926 ) 3,525 (5,451 ) NM Fees from covered call options 2,292 3,670 (1,378 ) (38 ) Trading losses, net (1,004 ) (158 ) (846 ) NM Operating lease income, net 47,604 47,041 563 1 Other: Interest rate swap fees 20,718 13,072 7,646 58 BOLI 4,730 4,947 (217 ) (4 ) Administrative services 4,385 4,197 188 4 Foreign currency remeasurement (loss) gain (621 ) 783 (1,404 ) NM Early pay-offs of leases 632 35 597 NM Miscellaneous 36,007 39,583 (3,576 ) (9 ) Total Other 65,851 62,617 3,234 5 Total Non-Interest Income $ 604,189 $ 407,172 $ 197,017 48 % NM - Not meaningful.
TABLE 16: MORTGAGE BANKING
Three Months Ended Years Ended (Dollars in thousands) Dec 31,
2020Sep 30,
2020Jun 30,
2020Mar 31,
2020Dec 31,
2019Dec 31,
2020Dec 31,
2019Originations: Retail originations $ 1,757,093 $ 1,590,699 $ 1,588,932 $ 773,144 $ 782,122 $ 5,709,868 $ 2,730,865 Correspondent originations — — — — 4,024 — 385,729 Veterans First originations 594,151 635,876 621,878 442,957 459,236 2,294,862 1,381,327 Total originations for sale (A) $ 2,351,244 $ 2,226,575 $ 2,210,810 $ 1,216,101 $ 1,245,382 $ 8,004,730 $ 4,497,921 Originations for investment 192,107 73,711 56,954 73,727 105,911 396,499 460,734 Total originations $ 2,543,351 $ 2,300,286 $ 2,267,764 $ 1,289,828 $ 1,351,293 $ 8,401,229 $ 4,958,655 Purchases as a percentage of originations for sale 35 % 41 % 30 % 37 % 40 % 35 % 52 % Refinances as a percentage of originations for sale 65 59 70 63 60 65 48 Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % Production Margin: Production revenue (B) (1) $ 70,886 $ 94,148 $ 93,433 $ 49,327 $ 34,622 $ 307,794 $ 122,047 Production margin (B / A) 3.01 % 4.23 % 4.23 % 4.06 % 2.78 % 3.85 % 2.71 % Mortgage Servicing: Loans serviced for others (C) $ 10,833,135 $ 10,139,878 $ 9,188,285 $ 8,314,634 $ 8,243,251 MSRs, at fair value (D) 92,081 86,907 77,203 73,504 85,638 Percentage of MSRs to loans serviced for others (D / C) 0.85 % 0.86 % 0.84 % 0.88 % 1.04 % Servicing income $ 9,829 $ 8,118 $ 6,908 $ 7,031 $ 6,247 $ 31,886 $ 23,156 Components of MSR: MSR - current period capitalization $ 20,343 $ 20,936 $ 20,351 $ 9,447 $ 14,532 $ 71,077 $ 44,943 MSR - collection of expected cash flows - paydowns (688 ) (590 ) (419 ) (547 ) (483 ) (2,244 ) (1,901 ) MSR - collection of expected cash flows - payoffs (8,335 ) (7,272 ) (8,252 ) (6,476 ) (6,325 ) (30,335 ) (18,217 ) Valuation: MSR - changes in fair value model assumptions (5,223 ) (3,002 ) (7,982 ) (14,557 ) 2,329 (30,764 ) (14,778 ) Gain (loss) on derivative contract held as an economic hedge, net — — 589 4,160 (483 ) 4,749 519 MSR valuation adjustment, net of gain/(loss) on derivative contract held as an economic hedge $ (5,223 ) $ (3,002 ) $ (7,393 ) $ (10,397 ) $ 1,846 $ (26,015 ) $ (14,259 ) Summary of Mortgage Banking Revenue: Production revenue (1) $ 70,886 $ 94,148 $ 93,433 $ 49,327 $ 34,622 $ 307,794 $ 122,047 Servicing income 9,829 8,118 6,908 7,031 6,247 31,886 23,156 MSR activity 6,097 10,072 4,287 (7,973 ) 9,570 12,483 10,566 Other 7 (3,794 ) (2,304 ) (59 ) (2,579 ) (6,150 ) (1,476 ) Total mortgage banking revenue $ 86,819 $ 108,544 $ 102,324 $ 48,326 $ 47,860 $ 346,013 $ 154,293 (1) Production revenue represents revenue earned from the origination and subsequent sale of mortgages, including gains on loans sold and fees from originations, changes in derivative activity, processing and other related activities, and excludes servicing fees, changes in the fair value of servicing rights and changes to the mortgage recourse obligation and other non-production revenue.
TABLE 17: NON-INTEREST EXPENSEThree Months Ended Q4 2020 compared to
Q3 2020Q4 2020 compared to
Q4 2019Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, (Dollars in thousands) 2020 2020 2020 2020 2019 $ Change % Change $ Change % Change Salaries and employee benefits: Salaries $ 93,535 $ 89,849 $ 87,105 $ 81,286 $ 82,888 $ 3,686 4 % $ 10,647 13 % Commissions and incentive compensation 52,383 48,475 46,151 31,575 40,226 3,908 8 12,157 30 Benefits 25,198 25,718 20,900 23,901 22,827 (520 ) (2 ) 2,371 10 Total salaries and employee benefits 171,116 164,042 154,156 136,762 145,941 7,074 4 25,175 17 Equipment 20,565 17,251 15,846 14,834 14,485 3,314 19 6,080 42 Operating lease equipment depreciation 9,938 9,425 9,292 9,260 9,766 513 5 172 2 Occupancy, net 19,687 15,830 16,893 17,547 17,132 3,857 24 2,555 15 Data processing 5,728 5,689 10,406 8,373 7,569 39 1 (1,841 ) (24 ) Advertising and marketing 9,850 7,880 7,704 10,862 12,517 1,970 25 (2,667 ) (21 ) Professional fees 6,530 6,488 7,687 6,721 7,650 42 1 (1,120 ) (15 ) Amortization of other intangible assets 2,634 2,701 2,820 2,863 3,017 (67 ) (2 ) (383 ) (13 ) FDIC insurance 7,016 6,772 7,081 4,135 1,348 244 4 5,668 NM OREO expense, net (114 ) (168 ) 237 (876 ) 536 54 (32 ) (650 ) NM Other: Commissions - 3rd party brokers 764 778 707 865 717 (14 ) (2 ) 47 7 Postage 1,849 1,529 1,591 1,949 2,220 320 21 (371 ) (17 ) Miscellaneous 26,304 26,002 24,948 21,346 26,693 302 1 (389 ) (1 ) Total other 28,917 28,309 27,246 24,160 29,630 608 2 (713 ) (2 ) Total Non-Interest Expense $ 281,867 $ 264,219 $ 259,368 $ 234,641 $ 249,591 $ 17,648 7 % $ 32,276 13 % NM - Not meaningful.
Years Ended Dec 31, Dec 31, $ % (Dollars in thousands) 2020 2019 Change Change Salaries and employee benefits: Salaries $ 351,775 $ 310,352 $ 41,423 13 % Commissions and incentive compensation 178,584 148,600 29,984 20 Benefits 95,717 87,468 8,249 9 Total salaries and employee benefits 626,076 546,420 79,656 15 Equipment 68,496 52,328 16,168 31 Operating lease equipment depreciation 37,915 35,760 2,155 6 Occupancy, net 69,957 64,289 5,668 9 Data processing 30,196 27,820 2,376 9 Advertising and marketing 36,296 48,595 (12,299 ) (25 ) Professional fees 27,426 27,471 (45 ) 0 Amortization of other intangible assets 11,018 11,844 (826 ) (7 ) FDIC insurance 25,004 9,199 15,805 NM OREO expense, net (921 ) 3,628 (4,549 ) NM Other: Commissions - 3rd party brokers 3,114 2,918 196 7 Postage 6,918 9,597 (2,679 ) (28 ) Miscellaneous 98,600 88,257 10,343 12 Total other 108,632 100,772 7,860 8 Total Non-Interest Expense $ 1,040,095 $ 928,126 $ 111,969 12 % NM - Not meaningful.
TABLE 18: SUPPLEMENTAL NON-GAAP 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, return on average tangible common equity and pre-tax income, excluding provision for credit losses. 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. Management considers pre-tax income, excluding provision for credit losses, as a useful measurement of the Company's core net income.
Three Months Ended Years Ended Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Dec 31, Dec 31, (Dollars and shares in thousands) 2020 2020 2020 2020 2019 2020 2019 Reconciliation of Non-GAAP Net Interest Margin and Efficiency Ratio: (A) Interest Income (GAAP) $ 307,981 $ 311,156 $ 329,816 $ 344,067 $ 349,731 $ 1,293,020 $ 1,385,142 Taxable-equivalent adjustment: - Loans 324 481 576 860 892 2,241 3,935 - Liquidity Management Assets 530 546 538 551 573 2,165 2,280 - Other Earning Assets 3 1 3 2 1 9 9 (B) Interest Income (non-GAAP) $ 308,838 $ 312,184 $ 330,933 $ 345,480 $ 351,197 $ 1,297,435 $ 1,391,366 (C) Interest Expense (GAAP) $ 48,584 $ 55,220 $ 66,685 $ 82,624 $ 87,852 $ 253,113 $ 330,223 (D) Net Interest Income (GAAP) (A minus C) $ 259,397 $ 255,936 $ 263,131 $ 261,443 $ 261,879 $ 1,039,907 $ 1,054,919 (E) Net Interest Income (non-GAAP) (B minus C) $ 260,254 $ 256,964 $ 264,248 $ 262,856 $ 263,345 $ 1,044,322 $ 1,061,143 Net interest margin (GAAP) 2.53 % 2.56 % 2.73 % 3.12 % 3.17 % 2.72 % 3.45 % Net interest margin, fully taxable-equivalent (non-GAAP) 2.54 % 2.57 % 2.74 % 3.14 % 3.19 % 2.73 % 3.47 % (F) Non-interest income $ 158,361 $ 170,593 $ 161,993 $ 113,242 $ 112,220 $ 604,189 $ 407,172 (G) Gains (losses) on investment securities, net 1,214 411 808 (4,359 ) 587 (1,926 ) 3,525 (H) Non-interest expense 281,867 264,219 259,368 234,641 249,591 1,040,095 928,126 Efficiency ratio (H/(D+F-G)) 67.67 % 62.01 % 61.13 % 61.90 % 66.82 % 63.19 % 63.63 % Efficiency ratio (non-GAAP) (H/(E+F-G)) 67.53 % 61.86 % 60.97 % 61.67 % 66.56 % 63.02 % 63.36 % Reconciliation of Non-GAAP Tangible Common Equity Ratio: Total shareholders’ equity (GAAP) $ 4,115,995 $ 4,074,089 $ 3,990,218 $ 3,700,393 $ 3,691,250 Less: Non-convertible preferred stock (GAAP) (412,500 ) (412,500 ) (412,500 ) (125,000 ) (125,000 ) Less: Intangible assets (GAAP) (681,747 ) (683,314 ) (685,581 ) (687,626 ) (692,277 ) (I) Total tangible common shareholders’ equity (non-GAAP) $ 3,021,748 $ 2,978,275 $ 2,892,137 $ 2,887,767 $ 2,873,973 (J) Total assets (GAAP) $ 45,080,768 $ 43,731,718 $ 43,540,017 $ 38,799,847 $ 36,620,583 Less: Intangible assets (GAAP) (681,747 ) (683,314 ) (685,581 ) (687,626 ) (692,277 ) (K) Total tangible assets (non-GAAP) $ 44,399,021 $ 43,048,404 $ 42,854,436 $ 38,112,221 $ 35,928,306 Common equity to assets ratio (GAAP) (L/J) 8.2 % 8.4 % 8.2 % 9.2 % 9.7 % Tangible common equity ratio (non-GAAP) (I/K) 6.8 % 6.9 % 6.7 % 7.6 % 8.0 % Three Months Ended Years Ended Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Dec 31, Dec 31, (Dollars and shares in thousands) 2020 2020 2020 2020 2019 2020 2019 Reconciliation of Non-GAAP Tangible Book Value per Common Share: Total shareholders’ equity $ 4,115,995 $ 4,074,089 $ 3,990,218 $ 3,700,393 $ 3,691,250 Less: Preferred stock (412,500 ) (412,500 ) (412,500 ) (125,000 ) (125,000 ) (L) Total common equity $ 3,703,495 $ 3,661,589 $ 3,577,718 $ 3,575,393 $ 3,566,250 (M) Actual common shares outstanding 56,770 57,602 57,574 57,545 57,822 Book value per common share (L/M) $ 65.24 $ 63.57 $ 62.14 $ 62.13 $ 61.68 Tangible book value per common share (non-GAAP) (I/M) $ 53.23 $ 51.70 $ 50.23 $ 50.18 $ 49.70 Reconciliation of Non-GAAP Return on Average Tangible Common Equity: (N) Net income applicable to common shares $ 94,213 $ 97,029 $ 19,609 $ 60,762 $ 83,914 $ 271,613 $ 347,497 Add: Intangible asset amortization 2,634 2,701 2,820 2,863 3,017 11,018 11,844 Less: Tax effect of intangible asset amortization (656 ) (589 ) (832 ) (799 ) (793 ) (2,732 ) (3,068 ) After-tax intangible asset amortization 1,978 2,112 1,988 2,064 2,224 8,286 8,776 (O) Tangible net income applicable to common shares (non-GAAP) $ 96,191 $ 99,141 $ 21,597 $ 62,826 $ 86,138 $ 279,899 $ 356,273 Total average shareholders' equity $ 4,050,286 $ 4,034,902 $ 3,908,846 $ 3,710,169 $ 3,622,184 $ 3,926,688 $ 3,461,535 Less: Average preferred stock (412,500 ) (412,500 ) (273,489 ) (125,000 ) (125,000 ) (306,455 ) (125,000 ) (P) Total average common shareholders' equity $ 3,637,786 $ 3,622,402 $ 3,635,357 $ 3,585,169 $ 3,497,184 $ 3,620,233 $ 3,336,535 Less: Average intangible assets (682,290 ) (684,717 ) (686,526 ) (690,777 ) (689,286 ) (686,064 ) (641,802 ) (Q) Total average tangible common shareholders’ equity (non-GAAP) $ 2,955,496 $ 2,937,685 $ 2,948,831 $ 2,894,392 $ 2,807,898 $ 2,934,169 $ 2,694,733 Return on average common equity, annualized (N/P) 10.30 % 10.66 % 2.17 % 6.82 % 9.52 % 7.50 % 10.41 % Return on average tangible common equity, annualized (non-GAAP) (O/Q) 12.95 % 13.43 % 2.95 % 8.73 % 12.17 % 9.54 % 13.22 % Reconciliation of Non-GAAP Pre-Tax, Pre-Provision Income: Income before taxes $ 134,711 $ 137,284 $ 30,703 $ 87,083 $ 116,682 $ 389,781 $ 480,101 Add: Provision for credit losses 1,180 25,026 135,053 52,961 7,826 214,220 53,864 Pre-tax income, excluding provision for credit losses (non-GAAP) $ 135,891 $ 162,310 $ 165,756 $ 140,044 $ 124,508 $ 604,001 $ 533,965 Reconciliation of Non-GAAP Pre-Tax, Pre-Provision Income: Years Ended Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, 2018 2017 2016 2015 2014 2013 2012 2011 2010 Income before taxes $ 460,133 $ 389,997 $ 331,854 $ 251,765 $ 246,431 $ 224,440 $ 180,132 $ 128,033 $ 100,807 Add: Provision for credit losses 34,832 29,768 34,084 32,942 20,537 46,033 76,436 102,638 124,664 Pre-tax income, excluding provision for credit losses (non-GAAP) $ 494,965 $ 419,765 $ 365,938 $ 284,707 $ 266,968 $ 270,473 $ 256,568 $ 230,671 $ 225,471 WINTRUST SUBSIDIARIES AND LOCATIONS
Wintrust is a financial holding company whose common stock is traded on the Nasdaq Global Select Market (Nasdaq: WTFC). Its 15 community bank subsidiaries are: Lake Forest Bank & Trust Company, N.A., Hinsdale Bank & Trust Company, N.A., Wintrust Bank, N.A., in Chicago, Libertyville Bank & Trust Company, N.A., Barrington Bank & Trust Company, N.A., Crystal Lake Bank & Trust Company, N.A., Northbrook Bank & Trust Company, N.A., Schaumburg Bank & Trust Company, N.A., Village Bank & Trust, N.A., in Arlington Heights, Beverly Bank & Trust Company, N.A. in Chicago, Wheaton Bank & Trust Company, N.A., State Bank of The Lakes, N.A., in Antioch, Old Plank Trail Community Bank, N.A. in New Lenox, St. Charles Bank & Trust Company, N.A. and Town Bank, N.A., in Hartland, Wisconsin.
In addition to the locations noted above, the banks also operate facilities in Illinois in Addison, Algonquin, Aurora, Bloomingdale, Bolingbrook, Buffalo Grove, Burbank, Cary, Clarendon Hills, Crete, Countryside, Darien, Deerfield, Des Plaines, Downers Grove, Elgin, Elk Grove Village, Elmhurst, Evanston, Evergreen Park, Frankfort, Geneva, Glen Ellyn, Glencoe, Glenview, Gurnee, Grayslake, Hanover Park, Highland Park, Highwood, Hoffman Estates, Homer Glen, Itasca, Joliet, Lake Bluff, Lake Villa, Lansing, Lemont, Lindenhurst, Lynwood, Markham, Maywood, McHenry, Mokena, Mount Prospect, Mundelein, Naperville, North Chicago, Northfield, Norridge, Oak Lawn, Oak Brook, Orland Park, Palatine, Park Ridge, Prospect Heights, Ravinia, Riverside, Rolling Meadows, Round Lake Beach, Shorewood, Skokie, South Holland, Spring Grove, Steger, Stone Park, Vernon Hills, Wauconda, Waukegan, Western Springs, Willowbrook, Wilmette, Winnetka and Wood Dale, and in Wisconsin in Albany, Burlington, Clinton, Darlington, Delafield, Delavan, Elm Grove, Genoa City, Kenosha, Lake Geneva, Madison, Menomonee Falls, Milwaukee, Monroe, Pewaukee, Racine, Sharon, Wales, Walworth and Wind Lake, and in Dyer, Indiana and in Naples, Florida.
Additionally, the Company operates various non-bank business units:
- FIRST Insurance Funding, a division of Lake Forest Bank & Trust Company, N.A., and Wintrust Life Finance, a division of Lake Forest Bank & Trust Company, N.A., serve commercial and life insurance loan customers, respectively, throughout the United States.
- First Insurance Funding of Canada serves commercial insurance loan customers throughout Canada.
- Tricom, Inc. of Milwaukee provides high-yielding, short-term accounts receivable financing and value-added out-sourced administrative services, such as data processing of payrolls, billing and cash management services, to temporary staffing service clients located throughout the United States.
- Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A., engages primarily in the origination and purchase of residential mortgages for sale into the secondary market through origination offices located throughout the United States. Loans are also originated nationwide through relationships with wholesale and correspondent offices.
- Wintrust Investments, LLC is a broker-dealer providing a full range of private client and brokerage services to clients and correspondent banks located primarily in the Midwest.
- Great Lakes Advisors LLC provides money management services and advisory services to individual accounts.
- The Chicago Trust Company, N.A., a trust subsidiary, allows Wintrust to service customers’ trust and investment needs at each banking location.
- Wintrust Asset Finance offers direct leasing opportunities.
- CDEC provides Qualified Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code Section 1031.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, such as the impacts of the COVID-19 pandemic, and which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2019 Annual Report on Form 10-K and in any of the Company’s subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management’s long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company’s business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:
- the severity, magnitude and duration of the COVID-19 pandemic and the direct and indirect impact of such pandemic, as well as responses to the pandemic by the government, businesses and consumers, on our operations and personnel, commercial activity and demand across our business and our customers’ businesses;
- the disruption of global, national, state and local economies associated with the COVID-19 pandemic, which could affect the Company’s liquidity and capital positions, impair the ability of our borrowers to repay outstanding loans, impair collateral values and further increase our allowance for credit losses;
- the impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges;
- economic conditions that affect the economy, housing prices, the job market and other factors that may adversely affect the Company’s liquidity and the performance of its loan portfolios, particularly in the markets in which it operates;
- negative effects suffered by us or our customers resulting from changes in U.S. trade policies;
- the extent of defaults and losses on the Company’s loan portfolio, which may require further increases in its allowance for credit losses;
- estimates of fair value of certain of the Company’s assets and liabilities, which could change in value significantly from period to period;
- the financial success and economic viability of the borrowers of our commercial loans;
- commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin;
- the extent of commercial and consumer delinquencies and declines in real estate values, which may require further increases in the Company’s allowance for credit losses;
- inaccurate assumptions in our analytical and forecasting models used to manage our loan portfolio;
- changes in the level and volatility of interest rates, the capital markets and other market indices (including developments and volatility arising from or related to the COVID-19 pandemic) that may affect, among other things, the Company’s liquidity and the value of its assets and liabilities;
- a prolonged period of near zero interest rates or potentially negative interest rates, either broadly or for some types of instruments, which may affect the Company’s net interest income and net interest margin, and which could materially adversely affect the Company’s profitability;
- competitive pressures in the financial services business which may affect the pricing of the Company’s loan and deposit products as well as its services (including wealth management services), which may result in loss of market share and reduced income from deposits, loans, advisory fees and income from other products;
- failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of the Company’s recent or future acquisitions;
- unexpected difficulties and losses related to FDIC-assisted acquisitions;
- harm to the Company’s reputation;
- any negative perception of the Company’s financial strength;
- ability of the Company to raise additional capital on acceptable terms when needed;
- disruption in capital markets, which may lower fair values for the Company’s investment portfolio;
- ability of the Company to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations and to manage risks associated therewith;
- failure or breaches of our security systems or infrastructure, or those of third parties;
- security breaches, including denial of service attacks, hacking, social engineering attacks, malware intrusion or data corruption attempts and identity theft;
- adverse effects on our information technology systems resulting from failures, human error or cyberattacks;
- adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors;
- increased costs as a result of protecting our customers from the impact of stolen debit card information;
- accuracy and completeness of information the Company receives about customers and counterparties to make credit decisions;
- ability of the Company to attract and retain senior management experienced in the banking and financial services industries;
- environmental liability risk associated with lending activities;
- the impact of any claims or legal actions to which the Company is subject, including any effect on our reputation;
- losses incurred in connection with repurchases and indemnification payments related to mortgages and increases in reserves associated therewith;
- the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank;
- the soundness of other financial institutions;
- the expenses and delayed returns inherent in opening new branches and de novo banks;
- liabilities, potential customer loss or reputational harm related to closings of existing branches;
- examinations and challenges by tax authorities, and any unanticipated impact of the Tax Act;
- changes in accounting standards, rules and interpretations such as the new CECL standard and related changes to address the impact of COVID-19, and the impact on the Company’s financial statements;
- the ability of the Company to receive dividends from its subsidiaries;
- uncertainty about the discontinued use of LIBOR and transition to an alternative rate;
- a decrease in the Company’s capital ratios, including as a result of declines in the value of its loan portfolios, or otherwise;
- legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies, including those changes that are in response to the COVID-19 pandemic, including without limitation the CARES Act, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act, and the rules and regulations that may be promulgated thereunder;
- a lowering of our credit rating;
- changes in U.S. monetary policy and changes to the Federal Reserve’s balance sheet, including changes in response to the COVID-19 pandemic or otherwise;
- regulatory restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business;
- increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the regulatory environment;
- the impact of heightened capital requirements;
- increases in the Company’s FDIC insurance premiums, or the collection of special assessments by the FDIC;
- delinquencies or fraud with respect to the Company’s premium finance business;
- credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company’s premium finance loans;
- the Company’s ability to comply with covenants under its credit facility; and
- fluctuations in the stock market, which may have an adverse impact on the Company’s wealth management business and brokerage operation.
Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Any such statement speaks only as of the date the statement was made or as of such date that may be referenced within the statement. The Company undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events after the date of the press release. Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission and in its press releases.
CONFERENCE CALL, WEBCAST AND REPLAY
The Company will hold a conference call on Thursday, January 21, 2021 at 10:00 a.m. (Central Time) regarding fourth quarter and full year 2020 results. Individuals interested in listening should call (877) 363-5049 and enter Conference ID #9780585. A simultaneous audio-only webcast and replay of the conference call as well as an accompanying slide presentation may be accessed via the Company’s website at https://www.wintrust.com, Investor Relations, Investor News and Events, Presentations & Conference Calls. The text of the fourth quarter and full year 2020 earnings press release will be available on the home page of the Company’s website at https://www.wintrust.com and at the Investor Relations, Investor News and Events, Press Releases link on its website.
FOR MORE INFORMATION CONTACT:
Edward J. Wehmer, Founder & Chief Executive Officer
David A. Dykstra, Vice Chairman & Chief Operating Officer
(847) 939-9000
Web site address: www.wintrust.com