Wintrust Financial Corporation Reports Record Second Quarter 2018 Net Income, an Increase of 38% Over Prior Year, and Year-to-Date Net Income of $171.6 million, an Increase of 39% Over Prior Year

ROSEMONT, Ill., July 17, 2018 (GLOBE NEWSWIRE) — Wintrust Financial Corporation (“Wintrust” or “the Company”) (Nasdaq:WTFC) announced net income of $89.6 million or $1.53 per diluted common share for the second quarter of 2018 compared to net income of $82.0 million or $1.40 per diluted common share for the first quarter of 2018 and $64.9 million or $1.11 per diluted common share for the second quarter of 2017. The Company recorded net income of $171.6 million or $2.93 per diluted common share for the first six months of 2018 compared to net income of $123.3 million or $2.11 per diluted common share for the same period of 2017.

Highlights of the Second Quarter of 2018 *:

  • Total assets increased by $1.0 billion from the prior quarter and now total $29.5 billion.
  • Total deposits increased $1.1 billion from the prior quarter to $24.4 billion with non-interest bearing deposit accounts comprising 27% of total deposits.
  • Total loans increased by $548 million from the prior quarter.
  • Non-performing loans as a percentage of total loans decreased to 0.37% from 0.41% at the end of the prior quarter.
  • Allowance for loan losses as a percentage of total non-performing loans remained strong, increasing to 172%.
  • Net charge-offs decreased to $1.1 million, or two basis points of average total loans for the period.
  • Provision for credit losses totaled $5.0 million in the second quarter compared to $8.3 million in the prior quarter.
  • Net interest margin increased seven basis points and net interest income increased $13.1 million over the prior quarter.
  • Return on average assets increased to 1.26% from 1.20% in the first quarter.  Return on average common equity increased to 11.94% from 11.29% in the first quarter.
  • Mortgage banking revenue increased to $39.8 million, up $8.9 million over the first quarter of 2018 due to higher originations during the traditional spring purchase market and a full quarter’s impact from the iFreedom Direct Corporation DBA Veterans First Mortgage (“Veterans First”) acquisition, offset by lower production margins and smaller positive fair market value adjustment to mortgage servicing rights.
  • Salaries and employee benefits increased $9.2 million from the most recent quarter due to a full quarter impact from the Veterans First acquisition as well as higher incentive compensation on variable pay based arrangements, commissions on mortgage originations and salaries due to the Company’s growth.
  • Opened five new branches, including three locations in Illinois and two locations in Wisconsin.

* See “Supplemental Financial Measures/Ratios” on pages 1112 for more information on non-GAAP measures.

Edward J. Wehmer, President and Chief Executive Officer, commented, “Wintrust reported net income of $89.6 million for the second quarter of 2018, the tenth consecutive quarter of record net income, and net income of $171.6 million for the first six months of 2018. These results were driven by strong loan and deposit growth and an increased net interest margin as we continue to benefit from rising interest rates.  The second quarter of 2018 was also characterized by good credit quality metrics and increased mortgage banking revenue.”
               
Mr. Wehmer continued, “We experienced strong loan growth within the commercial portfolio and premium finance receivables portfolios during the period. The commercial real estate portfolio remained relatively flat during the second quarter as elevated payoffs and paydowns offset new loan growth within the portfolio. We continue to take a measured approach in evaluating new commercial real estate loan opportunities due to supply and demand issues in the market place, pricing competition and easing of underwriting standards by some competitors. Overall, we grew our loan portfolio by $548 million during the second quarter of 2018. Our loan pipelines improved to the highest levels since the second quarter of 2017. The increased loan volume, continued improvement in net interest margin from rising interest rates and an additional day in the second quarter compared to the first quarter helped net interest income increase by $13.1 million in the second quarter of 2018. Deposit growth was strong in the second quarter of 2018 as deposits increased $1.1 billion and exceeded $24 billion as of the end of the quarter. Our deposit growth was primarily the result of growth in money market accounts and retail certificate of deposit accounts as active marketing campaigns began to take effect. Five branches added during the second quarter of 2018 contributed $134 million of retail deposit balances to this growth.”

Commenting on credit quality, Mr. Wehmer noted, “During the second quarter of 2018, the Company continued its practice of addressing and resolving non-performing credits in a timely fashion. Net charge-offs totaled $1.1 million in the current quarter, decreasing $5.6 million from the first quarter of 2018. Additionally, net charge-offs as a percentage of average total loans decreased to two basis points from 13 basis points in the first quarter. Total non-performing assets decreased $7.5 million during the second quarter of 2018 resulting in non-performing assets as a percentage of total assets dropping from 0.44% to 0.40% during the period.  Total non-performing loans decreased $6.4 million in the second quarter of 2018 and now total $83.3 million, or 0.37% of total loans. As a percentage of non-performing loans, the allowance for loan losses increased to 172% at the end of the second quarter of 2018 from 156% at the end of the first quarter of 2018. We believe that the Company’s reserves remain appropriate.”

Mr. Wehmer further commented, “Mortgage banking revenue in the second quarter of 2018 totaled $39.8 million, an increase of $8.9 million compared to the first quarter of 2018. Mortgage loan origination volumes in the second quarter of 2018 increased to $1.1 billion from $779 million in the first quarter of 2018 as a result of higher purchase originations during the traditional spring purchase market and a full quarter’s impact from the Veterans First acquisition. The increase in mortgage banking revenue from higher originations was tempered by lower production margins and smaller positive fair market value adjustment to mortgage servicing rights as interest rates increased less during the second quarter of 2018 when compared to the first quarter of 2018. Home purchases activity represented 80% of the volume for the second quarter of 2018 compared to 73% in the first quarter of 2018. Our mortgage pipeline remains relatively strong. With respect to production margin, we anticipate that it will decline slightly in the third quarter with stabilization in future periods. We continue to focus on efficiencies in our delivery channels and operating costs in our mortgage banking area.”

Turning to the future, Mr. Wehmer stated, “Our growth engine continued its momentum into the second quarter of 2018 and we expect that to continue for the second half of the year. Loan growth at the end of the second quarter of 2018 should add to this momentum as period-end loan balances exceeded the second quarter average balance by $327 million. Wintrust continues to take a steady and measured approach to achieving our main objectives of growing franchise value, increasing profitability, leveraging our expense infrastructure and continuing to increase shareholder value. As our growth engine continues its momentum, we expect continued organic growth while still focusing on expense control. We remain well-positioned for a rising interest rate environment in the future, which, coupled with this loan growth, should continue to grow net interest income. Evaluating strategic acquisitions and organic branch growth will also be a part of our overall growth strategy with the goal of becoming Chicago’s bank and Wisconsin’s bank. To that end, the Company opened five new branches in the second quarter of 2018 and will continue to evaluate future locations in our market area including four expected branch openings in the third quarter of 2018. Our opportunities for both internal growth and external growth remain consistently strong.”

The graphs below illustrate certain highlights of the second quarter of 2018.

http://resource.globenewswire.com/Resource/Download/67e63205-bcc4-4010-9f95-adb4dbc564db

Wintrust’s key operating measures and growth rates for the second quarter of 2018, as compared to the sequential and linked quarters, are shown in the table below:

                % or(4)
basis point  (bp) change from
1st Quarter
2018
  % or
basis point  (bp)
change from
2nd Quarter
2017
    Three Months Ended    
(Dollars in thousands)   June 30,
 2018
  March 31,
 2018
  June 30,
 2017
   
Net income   $ 89,580     $ 81,981     $ 64,897     9   %   38   %
Net income per common share – diluted   $ 1.53     $ 1.40     $ 1.11     9   %   38   %
Net revenue (1)   $ 333,403     $ 310,761     $ 294,381     7   %   13   %
Net interest income   238,170     225,082     204,409     6   %   17   %
Net interest margin   3.61 %   3.54 %   3.41 %   7   bp   20   bp
Net interest margin – fully taxable equivalent (non-GAAP) (2)   3.63 %   3.56 %   3.43 %   7   bp   20   bp
Net overhead ratio (3)   1.57 %   1.58 %   1.44 %   (1 ) bp   13   bp
Return on average assets   1.26 %   1.20 %   1.00 %   6   bp   26   bp
Return on average common equity   11.94 %   11.29 %   9.55 %   65   bp   239   bp
Return on average tangible common equity (non-GAAP) (2)   14.72 %   14.02 %   12.02 %   70   bp   270   bp
At end of period                        
Total assets   $ 29,464,588     $ 28,456,772     $ 26,929,265     14   %   9   %
Total loans, excluding covered loans   22,610,560     22,062,134     20,743,332     10   %   9   %
Total deposits   24,365,479     23,279,327     22,605,692     19   %   8   %
Total shareholders’ equity   3,106,871     3,031,250     2,839,458     10   %   9   %
  1. Net revenue is net interest income plus non-interest income.
  2. See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.
  3. The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s average total assets. A lower ratio indicates a higher degree of efficiency.
  4. Period-end balance sheet percentage changes are annualized.

Certain returns, yields, performance ratios, or quarterly growth rates are “annualized” in this presentation to represent an annual time period. This is done for analytical purposes to better discern for decision-making purposes underlying performance trends when compared to full-year or year-over-year amounts. For example, a 5% growth rate for a quarter would represent an annualized 20% growth rate. Additional supplemental financial information showing quarterly trends can be found on the Company’s website at www.wintrust.com by choosing “Financial Reports” under the “Investor Relations” heading, and then choosing “Financial Highlights.”

WINTRUST FINANCIAL CORPORATION
Selected Financial Highlights

    Three Months Ended   Six Months Ended
(Dollars in thousands, except per share data)   June 30,
 2018
  March 31,
 2018
  June 30,
 2017
  June 30,
 2018
  June 30,
 2017
Selected Financial Condition Data (at end of period):                    
Total assets   $ 29,464,588     $ 28,456,772     $ 26,929,265          
Total loans, excluding covered loans   22,610,560     22,062,134     20,743,332          
Total deposits   24,365,479     23,279,327     22,605,692          
Junior subordinated debentures   253,566     253,566     253,566          
Total shareholders’ equity   3,106,871     3,031,250     2,839,458          
Selected Statements of Income Data:                    
Net interest income   $ 238,170     $ 225,082     $ 204,409     $ 463,252     $ 396,989  
Net revenue (1)   333,403     310,761     294,381     644,164     555,726  
Net income   89,580     81,981     64,897     171,561     123,275  
Net income per common share – Basic   $ 1.55     $ 1.42     $ 1.15     $ 2.98     $ 2.20  
Net income per common share – Diluted   $ 1.53     $ 1.40     $ 1.11     $ 2.93     $ 2.11  
Selected Financial Ratios and Other Data:                    
Performance Ratios:                    
Net interest margin   3.61 %   3.54 %   3.41 %   3.58 %   3.38 %
Net interest margin – fully taxable equivalent (non-GAAP) (2)   3.63 %   3.56 %   3.43 %   3.60 %   3.41 %
Non-interest income to average assets   1.34 %   1.25 %   1.39 %   1.29 %   1.25 %
Non-interest expense to average assets   2.90 %   2.83 %   2.83 %   2.87 %   2.77 %
Net overhead ratio (3)   1.57 %   1.58 %   1.44 %   1.58 %   1.52 %
Return on average assets   1.26 %   1.20 %   1.00 %   1.23 %   0.97 %
Return on average common equity   11.94 %   11.29 %   9.55 %   11.62 %   9.24 %
Return on average tangible common equity (non-GAAP) (2)   14.72 %   14.02 %   12.02 %   14.38 %   11.74 %
Average total assets   $ 28,567,579     $ 27,809,597     $ 26,050,949     $ 28,190,683     $ 25,632,004  
Average total shareholders’ equity   3,064,154     2,995,592     2,800,905     3,030,062     2,771,768  
Average loans to average deposits ratio (excluding covered loans)   95.5 %   95.2 %   94.1 %   95.3 %   93.3 %
Period-end loans to deposits ratio (excluding covered loans)   92.8 %   94.8 %   91.8 %        
Common Share Data at end of period:                    
Market price per common share   $ 87.05     $ 86.05     $ 76.44          
Book value per common share (2)   $ 52.94     $ 51.66     $ 48.73          
Tangible common book value per share (2)   $ 43.50     $ 42.17     $ 39.40          
Common shares outstanding   56,329,276     56,256,498     55,699,927          
Other Data at end of period:(6)                    
Leverage Ratio (4)   9.4 %   9.3 %   9.2 %        
Tier 1 capital to risk-weighted assets (4)   10.0 %   10.0 %   9.8 %        
Common equity Tier 1 capital to risk-weighted assets (4)   9.5 %   9.5 %   9.3 %        
Total capital to risk-weighted assets (4)   12.0 %   12.0 %   12.0 %        
Allowance for credit losses (5)   $ 144,645     $ 140,746     $ 131,296          
Non-performing loans   83,282     89,690     69,050          
Allowance for credit losses to total loans (5)   0.64 %   0.64 %   0.63 %        
Non-performing loans to total loans   0.37 %   0.41 %   0.33 %        
Number of:                    
Bank subsidiaries   15     15     15          
Banking offices   162     157     153          
  1. Net revenue includes net interest income and non-interest income.
  2. See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.
  3. The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency.
  4. Capital ratios for current quarter-end are estimated.
  5. The allowance for credit losses includes both the allowance for loan losses and the allowance for unfunded lending-related commitments, but excludes the allowance for covered loan losses.
  6. Asset quality ratios exclude covered loans.

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

    (Unaudited)       (Unaudited)
(In thousands)   June 30,
 2018
  December 31,
 2017
  June 30,
 2017
Assets            
Cash and due from banks   $ 304,580     $ 277,534     $ 296,105  
Federal funds sold and securities purchased under resale agreements   62     57     56  
Interest bearing deposits with banks   1,221,407     1,063,242     1,011,635  
Available-for-sale securities, at fair value   1,940,787     1,803,666     1,649,636  
Held-to-maturity securities, at amortized cost   890,834     826,449     793,376  
Trading account securities   862     995     1,987  
Equity securities with readily determinable fair value   37,839          
Federal Home Loan Bank and Federal Reserve Bank stock   96,699     89,989     80,812  
Brokerage customer receivables   16,649     26,431     23,281  
Mortgage loans held-for-sale   455,712     313,592     382,837  
Loans, net of unearned income, excluding covered loans   22,610,560     21,640,797     20,743,332  
Covered loans           50,119  
Total loans   22,610,560     21,640,797     20,793,451  
Allowance for loan losses   (143,402 )   (137,905 )   (129,591 )
Allowance for covered loan losses           (1,074 )
Net loans   22,467,158     21,502,892     20,662,786  
Premises and equipment, net   639,345     621,895     605,211  
Lease investments, net   194,160     212,335     191,248  
Accrued interest receivable and other assets   666,673     567,374     577,359  
Trade date securities receivable   450     90,014     133,130  
Goodwill   509,957     501,884     500,260  
Other intangible assets   21,414     17,621     19,546  
            Total assets   $ 29,464,588     $ 27,915,970     $ 26,929,265  
Liabilities and Shareholders’ Equity            
Deposits:            
Non-interest bearing   $ 6,520,724     $ 6,792,497     $ 6,294,052  
Interest bearing   17,844,755     16,390,850     16,311,640  
     Total deposits   24,365,479     23,183,347     22,605,692  
Federal Home Loan Bank advances   667,000     559,663     318,270  
Other borrowings   255,701     266,123     277,710  
Subordinated notes   139,148     139,088     139,029  
Junior subordinated debentures   253,566     253,566     253,566  
Trade date securities payable           5,151  
Accrued interest payable and other liabilities   676,823     537,244     490,389  
           Total liabilities   26,357,717     24,939,031     24,089,807  
Shareholders’ Equity:            
Preferred stock   125,000     125,000     125,000  
Common stock   56,437     56,068     55,802  
Surplus   1,547,511     1,529,035     1,511,080  
Treasury stock   (5,355 )   (4,986 )   (4,884 )
Retained earnings   1,464,494     1,313,657     1,198,997  
Accumulated other comprehensive loss   (81,216 )   (41,835 )   (46,537 )
           Total shareholders’ equity   3,106,871     2,976,939     2,839,458  
           Total liabilities and shareholders’ equity   $ 29,464,588     $ 27,915,970     $ 26,929,265  

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

 
  Three Months Ended   Six Months Ended
(In thousands, except per share data) June 30,
 2018
  March 31,
 2018
  June 30,
 2017
  June 30,
 2018
  June 30,
 2017
Interest income                  
Interest and fees on loans 255,063     234,994     209,289     490,057     406,205  
         Mortgage loans held-for-sale 4,226     2,818     3,420     7,044     5,818  
Interest bearing deposits with banks 3,243     2,796     1,634     6,039     3,257  
Federal funds sold and securities purchased under resale agreements 1         1     1     2  
Investment securities 19,888     19,128     15,524     39,016     29,097  
Trading account securities 4     14     4     18     15  
Federal Home Loan Bank and Federal Reserve Bank stock 1,455     1,298     1,153     2,753     2,223  
Brokerage customer receivables 167     157     156     324     323  
        Total interest income 284,047     261,205     231,181     545,252     446,940  
Interest expense                  
Interest on deposits 35,293     26,549     18,471     61,842     34,741  
Interest on Federal Home Loan Bank advances 4,263     3,639     2,933     7,902     4,523  
Interest on other borrowings 1,698     1,699     1,149     3,397     2,288  
Interest on subordinated notes 1,787     1,773     1,786     3,560     3,558  
Interest on junior subordinated debentures 2,836     2,463     2,433     5,299     4,841  
       Total interest expense 45,877     36,123     26,772     82,000     49,951  
Net interest income 238,170     225,082     204,409     463,252     396,989  
Provision for credit losses 5,043     8,346     8,891     13,389     14,100  
Net interest income after provision for credit losses 233,127     216,736     195,518     449,863     382,889  
Non-interest income                  
Wealth management 22,617     22,986     19,905     45,603     40,053  
Mortgage banking 39,834     30,960     35,939     70,794     57,877  
Service charges on deposit accounts 9,151     8,857     8,696     18,008     16,961  
Gains (losses) on investment securities, net 12     (351 )   47     (339 )   (8 )
Fees from covered call options 669     1,597     890     2,266     1,649  
Trading gains (losses), net 124     103     (420 )   227     (740 )
Operating lease income, net 8,746     9,691     6,805     18,437     12,587  
Other 14,080     11,836     18,110     25,916     30,358  
       Total non-interest income 95,233     85,679     89,972     180,912     158,737  
Non-interest expense                  
Salaries and employee benefits 121,675     112,436     106,502     234,111     205,818  
Equipment 10,527     10,072     9,909     20,599     18,911  
Operating lease equipment depreciation 6,940     6,533     5,662     13,473     10,298  
Occupancy, net 13,663     13,767     12,586     27,430     25,687  
Data processing 8,752     8,493     7,804     17,245     15,729  
Advertising and marketing 11,782     8,824     8,726     20,606     13,876  
Professional fees 6,484     6,649     7,510     13,133     12,170  
Amortization of other intangible assets 997     1,004     1,141     2,001     2,305  
FDIC insurance 4,598     4,362     3,874     8,960     8,030  
OREO expense, net 980     2,926     739     3,906     2,404  
Other 20,371     19,283     19,091     39,654     36,434  
       Total non-interest expense 206,769     194,349     183,544     401,118     351,662  
Income before taxes 121,591     108,066     101,946     229,657     189,964  
Income tax expense 32,011     26,085     37,049     58,096     66,689  
Net income $ 89,580     $ 81,981     $ 64,897     $ 171,561     $ 123,275  
Preferred stock dividends 2,050     2,050     2,050     4,100     5,678  
Net income applicable to common shares $ 87,530     $ 79,931     $ 62,847     $ 167,461     $ 117,597  
Net income per common share – Basic $ 1.55     $ 1.42     $ 1.15     $ 2.98     $ 2.20  
Net income per common share – Diluted $ 1.53     $ 1.40     $ 1.11     $ 2.93     $ 2.11  
Cash dividends declared per common share $ 0.19     $ 0.19     $ 0.14     $ 0.38     $ 0.28  
Weighted average common shares outstanding 56,299     56,137     54,775     56,218     53,528  
Dilutive potential common shares 928     888     1,812     909     2,981  
Average common shares and dilutive common shares 57,227     57,025     56,587     57,127     56,509  

EARNINGS PER SHARE

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

      Three Months Ended   Six Months Ended
(In thousands, except per share data)     June 30,
 2018
  March 31,
 2018
  June 30,
 2017
  June 30,
 2018
  June 30,
 2017
Net income     $ 89,580     $ 81,981     $ 64,897     $ 171,561     $ 123,275  
Less: Preferred stock dividends     2,050     2,050     2,050     4,100     5,678  
Net income applicable to common shares—Basic (A)   87,530     79,931     62,847     167,461     117,597  
Add: Dividends on convertible preferred stock, if dilutive                     1,578  
Net income applicable to common shares—Diluted (B)   87,530     79,931     62,847     167,461     119,175  
Weighted average common shares outstanding (C)   56,299     56,137     54,775     56,218     53,528  
Effect of dilutive potential common shares:                      
Common stock equivalents     928     888     927     909     994  
Convertible preferred stock, if dilutive             885         1,987  
Weighted average common shares and effect of dilutive potential common shares (D)   57,227     57,025     56,587     57,127     56,509  
Net income per common share:                      
Basic (A/C)   $ 1.55     $ 1.42     $ 1.15     $ 2.98     $ 2.20  
Diluted (B/D)   $ 1.53     $ 1.40     $ 1.11     $ 2.93     $ 2.11  

Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants, the Company’s convertible preferred stock and shares to be issued under the Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, being treated as if they had been either exercised or issued, computed by application of the treasury stock method. While potentially dilutive common shares are typically included in the computation of diluted earnings per share, potentially dilutive common shares are excluded from this computation in periods in which the effect would reduce the loss per share or increase the income per share. For diluted earnings per share, net income applicable to common shares can be affected by the conversion of the Company’s convertible preferred stock. Where the effect of this conversion would reduce the loss per share or increase the income per share for a period, net income applicable to common shares is not adjusted by the associated preferred dividends. On April 25, 2017, 2,073 shares of the Series C Preferred Stock were converted at the option of the respective holder into 51,244 shares of the Company’s common stock, pursuant to the terms of the Series C Preferred Stock. On April 27, 2017, the Company caused a mandatory conversion of its outstanding 124,184 shares of Series C Preferred Stock into 3,069,828 shares of the Company’s common stock at a conversion rate of 24.72 shares of common stock per share of Series C Preferred Stock. Cash was paid in lieu of fractional shares for an amount considered insignificant.

SUPPLEMENTAL FINANCIAL MEASURES/RATIOS

The accounting and reporting policies of Wintrust conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. These include taxable-equivalent net interest income (including its individual components), taxable-equivalent net interest margin (including its individual components), the taxable-equivalent efficiency ratio, tangible common equity ratio, tangible common book value per share and return on average tangible common equity. Management believes that these measures and ratios provide users of the Company’s financial information a more meaningful view of the performance of the Company’s interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.

Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent (“FTE”) 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 FTE basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses), measures how much it costs to produce one dollar of revenue. Securities gains or losses are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity ratio and tangible book value per common share as useful measurements of the Company’s equity.  The Company references the return on average tangible common equity as a measurement of profitability.

The following table presents a reconciliation of certain non-GAAP performance measures and ratios used by the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP financial measures for the last five quarters.

  Three Months Ended   Six Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,   June 30,   June 30,
(Dollars and shares in thousands) 2018   2018   2017   2017   2017   2018   2017
Calculation of Net Interest Margin and Efficiency Ratio                          
(A) Interest Income (GAAP) $ 284,047     $ 261,205     $ 251,840     $ 247,688     $ 231,181     $ 545,252     $ 446,940  
Taxable-equivalent adjustment:                          
 – Loans 812     670     1,106     1,033     831     1,482     1,621  
 – Liquidity Management Assets 566     531     1,019     921     866     1,097     1,773  
 – Other Earning Assets 1     3     2     5     2     4     7  
(B) Interest Income – FTE $ 285,426     $ 262,409     $ 253,967     $ 249,647     $ 232,880     $ 547,835     $ 450,341  
(C) Interest Expense (GAAP) 45,877     36,123     32,741     31,700     26,772     82,000     49,951  
(D) Net Interest Income – FTE (B minus C) $ 239,549     $ 226,286     $ 221,226     $ 217,947     $ 206,108     $ 465,835     $ 400,390  
(E) Net Interest Income (GAAP) (A minus C) $ 238,170     $ 225,082     $ 219,099     $ 215,988     $ 204,409     $ 463,252     $ 396,989  
Net interest margin (GAAP-derived) 3.61 %   3.54 %   3.45 %   3.43 %   3.41 %   3.58 %   3.38 %
Net interest margin – FTE 3.63 %   3.56 %   3.49 %   3.46 %   3.43 %   3.60 %   3.41 %
(F) Non-interest income $ 95,233     $ 85,679     $ 81,038     $ 79,731     $ 89,972     $ 180,912     $ 158,737  
(G) Gains (losses) on investment securities, net 12     (351 )   14     39     47     (339 )   (8 )
(H) Non-interest expense 206,769     194,349     196,580     183,575     183,544     401,118     351,662  
Efficiency ratio (H/(E+F-G)) 62.02 %   62.47 %   65.50 %   62.09 %   62.36 %   62.24 %   63.28 %
Efficiency ratio – FTE (H/(D+F-G)) 61.76 %   62.23 %   65.04 %   61.68 %   62.00 %   61.99 %   62.89 %
Calculation of Tangible Common Equity ratio (at period end)                          
Total shareholders’ equity $ 3,106,871     $ 3,031,250     $ 2,976,939     $ 2,908,925     $ 2,839,458          
Less: Non-convertible preferred stock (125,000 )   (125,000 )   (125,000 )   (125,000 )   (125,000 )        
Less: Intangible assets (531,371 )   (533,910 )   (519,505 )   (520,672 )   (519,806 )        
(I) Total tangible common shareholders’ equity $ 2,450,500     $ 2,372,340     $ 2,332,434     $ 2,263,253     $ 2,194,652          
Total assets $ 29,464,588     $ 28,456,772     $ 27,915,970     $ 27,358,162     $ 26,929,265          
Less: Intangible assets (531,371 )   (533,910 )   (519,505 )   (520,672 )   (519,806 )        
(J) Total tangible assets $ 28,933,217     $ 27,922,862     $ 27,396,465     $ 26,837,490     $ 26,409,459          
Tangible common equity ratio (I/J) 8.5 %   8.5 %   8.5 %   8.4 %   8.3 %        
Calculation of book value per share                          
Total shareholders’ equity $ 3,106,871     $ 3,031,250     $ 2,976,939     $ 2,908,925     $ 2,839,458          
Less: Preferred stock (125,000 )   (125,000 )   (125,000 )   (125,000 )   (125,000 )        
(K) Total common equity $ 2,981,871     $ 2,906,250     $ 2,851,939     $ 2,783,925     $ 2,714,458          
(L) Actual common shares outstanding 56,329     56,256     55,965     55,838     55,700          
Book value per common share (K/L) $ 52.94     $ 51.66     $ 50.96     $ 49.86     $ 48.73          
Tangible common book value per share (I/L) $ 43.50     $ 42.17     $ 41.68     $ 40.53     $ 39.40          

Calculation of return on average common equity                          
(M) Net income applicable to common shares $ 87,530     $ 79,931     $ 66,731     $ 63,576     $ 62,847     $ 167,461     $ 117,597  
Add: After-tax intangible asset amortization 734     761     738     672     726     1,495     1,497  
(N) Tangible net income applicable to common shares $ 88,264     $ 80,692     $ 67,469     $ 64,248     $ 63,573     $ 168,956     $ 119,094  
Total average shareholders’ equity $ 3,064,154     $ 2,995,592     $ 2,942,999     $ 2,882,682     $ 2,800,905     $ 3,030,062     $ 2,771,768  
Less: Average preferred stock (125,000 )   (125,000 )   (125,000 )   (125,000 )   (161,028 )   (125,000 )   (205,893 )
(O) Total average common shareholders’ equity $ 2,939,154     $ 2,870,592     $ 2,817,999     $ 2,757,682     $ 2,639,877     $ 2,905,062     $ 2,565,875  
Less: Average intangible assets (533,496 )   (536,676 )   (519,626 )   (520,333 )   (519,340 )   (535,077 )   (519,840 )
(P) Total average tangible common shareholders’ equity $ 2,405,658     $ 2,333,916     $ 2,298,373     $ 2,237,349     $ 2,120,537     $ 2,369,985     $ 2,046,035  
Return on average common equity, annualized  (M/O) 11.94 %   11.29 %   9.39 %   9.15 %   9.55 %   11.62 %   9.24 %
Return on average tangible common equity, annualized (N/P) 14.72 %   14.02 %   11.65 %   11.39 %   12.02 %   14.38 %   11.74 %

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 second quarter of 2018, revenue within this unit was primarily driven by increased net interest income due to a higher net interest margin, increased earning assets and one additional day in the second quarter. The net interest margin increased in the second quarter of 2018 compared to the first quarter of 2018 primarily as a result of higher yields on the commercial and commercial real estate loan portfolios (excluding lease loans) and the liquidity management assets portfolio, partially offset by higher rates on interest-bearing liabilities. Mortgage banking revenue increased by $8.9 million from $31.0 million for the first quarter of 2018 to $39.8 million for the second quarter of 2018. The higher revenue was primarily due to originations during the current period increasing to $1.1 billion from $778.9 million in the first quarter of 2018 as a result of typical seasonality in our primary markets and one full quarter’s impact of Veterans First. Home purchases represented 80% of loan origination volume for the second quarter of 2018. The increase in revenue from higher originations was tempered by lower production margins and smaller positive fair market value adjustment to mortgage servicing rights as interest rates increased less during the second quarter of 2018 when compared to the first quarter of 2018. The Company’s gross commercial and commercial real estate loan pipelines remain strong. Before the impact of scheduled payments and prepayments, at June 30, 2018, gross commercial and commercial real estate loan pipelines totaled $1.3 billion, or $847.4 million when adjusted for the probability of closing, compared to $1.1 billion, or $688.4 million when adjusted for the probability of closing, at March 31, 2018.

Specialty Finance

Through its specialty finance unit, the Company offers financing of insurance premiums for businesses and individuals, equipment financing through structured loans and lease products to customers in a variety of industries and accounts receivable financing, value-added, out-sourced administrative services, and other services. In the second quarter of 2018, the specialty finance unit experienced higher revenue as a result of increased volumes and higher yields within its insurance premium financing receivables portfolio. Originations of $2.1 billion during the second quarter of 2018 resulted in a $232.2 million increase in average balances. The increase in average balances along with higher yields on these loans resulted in a $5.3 million increase in interest income attributed to this portfolio. The Company’s leasing business remained steady during the second quarter of 2018, with its portfolio of assets, including capital leases, loans and equipment on operating leases, totaling $1.0 billion at the end of the second quarter of 2018. Revenues from the Company’s out-sourced administrative services business remained steady, totaling approximately $1.2 million in the second quarter of 2018 and $1.1 million in the first quarter of 2018.

Wealth Management

Through three separate subsidiaries within its wealth management unit, the Company offers a full range of wealth management services, including trust and investment services, asset management, securities brokerage services and 401(k) and retirement plan services. Wealth management revenue slightly decreased in the second quarter of 2018 to $22.6 million from $23.0 million in the first quarter of 2018. The decrease in revenue was primarily due to a decrease in brokerage fees due to a reduction in trading activity during the period. At June 30, 2018, the Company’s wealth management subsidiaries had approximately $24.6 billion of assets under administration, which includes $2.9 billion of assets owned by the Company and its subsidiary banks, representing a $299.0 million increase from the $24.3 billion of assets under administration at March 31, 2018. This increase in assets under administration was primarily driven by new customers and market appreciation. Starting in August, our brokerage services subsidiary, Wayne Hummer Investments, LLC, will be  renamed to Wintrust Investments, LLC to better align with our Wintrust brand.

LOANS

Loan Portfolio Mix and Growth Rates

                % Growth
(Dollars in thousands)   June 30,
 2018
  December 31,
 2017
  June 30,
 2017
  From (1)
December 31,
2017
  From
June 30,
2017
Balance:                    
Commercial   $ 7,289,060     $ 6,787,677     $ 6,406,289     15 %   14 %
Commercial real estate   6,575,084     6,580,618     6,402,494         3  
Home equity   593,500     663,045     689,483     (21 )   (14 )
Residential real estate   895,470     832,120     762,810     15     17  
Premium finance receivables – commercial   2,833,452     2,634,565     2,648,386     15     7  
Premium finance receivables – life insurance   4,302,288     4,035,059     3,719,043     13     16  
Consumer and other   121,706     107,713     114,827     26     6  
         Total loans, net of unearned income, excluding covered loans   $ 22,610,560     $ 21,640,797     $ 20,743,332     9 %   9 %
Covered loans           50,119         (100 )
         Total loans, net of unearned income   $ 22,610,560     $ 21,640,797     $ 20,793,451     9 %   9 %
Mix:                    
Commercial   32 %   31 %   31 %        
Commercial real estate   29     30     31          
Home equity   3     3     3          
Residential real estate   4     4     3          
Premium finance receivables – commercial   12     12     13          
Premium finance receivables – life insurance   19     19     18          
Consumer and other   1     1     1          
         Total loans, net of unearned income, excluding covered loans   100 %   100 %   100 %        
Covered loans                    
         Total loans, net of unearned income   100 %   100 %   100 %        

(1)  Annualized

Commercial and Commercial Real Estate Loan Portfolios

    As of June 30, 2018
        % of
Total
Balance
  Nonaccrual   > 90 Days
Past Due
and Still
Accruing
  Allowance
For Loan
Losses
Allocation
       
(Dollars in thousands)   Balance  
Commercial:                    
Commercial, industrial and other   $ 4,621,789     33.2 %   $ 13,543     $     $ 39,704  
Franchise   957,339     6.9     2,438         8,743  
Mortgage warehouse lines of credit   200,060     1.4             1,598  
Asset-based lending   1,042,755     7.5     2,158         8,958  
Leases   458,614     3.3     249         1,237  
PCI – commercial loans (1)   8,503     0.1         882     487  
        Total commercial   $ 7,289,060     52.4 %   $ 18,388     $ 882     $ 60,727  
Commercial Real Estate:                    
Construction   $ 807,235     5.8 %   $ 1,554     $     $ 9,337  
Land   115,357     0.8     228         3,716  
Office   894,349     6.5     1,333         5,971  
Industrial   882,525     6.4     185         5,902  
Retail   867,639     6.3     11,540         8,085  
Multi-family   952,048     6.9     342         9,688  
Mixed use and other   1,949,242     14.1     4,013         14,859  
PCI – commercial real estate (1)   106,689     0.8         3,194     102  
       Total commercial real estate   $ 6,575,084     47.6 %   $ 19,195     $ 3,194     $ 57,660  
       Total commercial and commercial real estate   $ 13,864,144     100.0 %   $ 37,583     $ 4,076     $ 118,387  
                     
Commercial real estate – collateral location by state:                    
Illinois   $ 5,100,132     77.6 %            
Wisconsin   726,874     11.1              
       Total primary markets   $ 5,827,006     88.7 %            
Indiana   153,807     2.3              
Florida   51,143     0.8              
Arizona   55,171     0.8              
Michigan   45,670     0.7              
California   68,459     1.0              
Other (no individual state greater than 0.6%)   373,828     5.7              
       Total   $ 6,575,084     100.0 %            

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

DEPOSITS

Deposit Portfolio Mix and Growth Rates

                % Growth
(Dollars in thousands)   June 30,
 2018
  December 31,
 2017
  June 30,
 2017
  From (1)
December 31,
2017
  From
June 30,
2017
Balance:                    
Non-interest bearing   $ 6,520,724     $ 6,792,497     $ 6,294,052     (8 )%   4 %
NOW and interest bearing demand deposits   2,452,474     2,315,055     2,459,238     12      
Wealth management deposits (2)   2,523,572     2,323,699     2,464,162     17     2  
Money market   5,205,678     4,515,353     4,449,385     31     17  
Savings   2,763,062     2,829,373     2,419,463     (5 )   14  
Time certificates of deposit   4,899,969     4,407,370     4,519,392     23     8  
         Total deposits   $ 24,365,479     $ 23,183,347     $ 22,605,692     10 %   8 %
Mix:                    
Non-interest bearing   27 %   29 %   28 %        
NOW and interest bearing demand deposits   10     10     11          
Wealth management deposits (2)   11     10     11          
Money market   21     20     19          
Savings   11     12     11          
Time certificates of deposit   20     19     20          
         Total deposits   100 %   100 %   100 %        
  1. Annualized
  2. Represents deposit balances of the Company’s subsidiary banks from brokerage customers of Wayne Hummer Investments, trust and asset management customers of the Company and brokerage customers from unaffiliated companies which have been placed into deposit accounts.

Time Certificates of Deposit
Maturity/Re-pricing Analysis
As of June 30, 2018

(Dollars in thousands)   CDARs &
Brokered
Certificates
  of Deposit (1)
  MaxSafe
Certificates
  of Deposit (1)
  Variable Rate
Certificates
  of Deposit (2)
  Other Fixed
Rate   Certificates
  of Deposit (1)
  Total Time
Certificates of
Deposit
  Weighted-Average
Rate of Maturing
Time Certificates
  of Deposit (3)
1-3 months   $     $ 36,755     $ 112,055     $ 698,040     $ 846,850     1.02 %
4-6 months   75,008     25,935         735,477     836,420     1.31 %
7-9 months       16,035         715,993     732,028     1.40 %
10-12 months   249     21,114         761,277     782,640     1.59 %
13-18 months       22,937         706,818     729,755     1.61 %
19-24 months       13,810         631,437     645,247     2.18 %
24+ months   1,000     9,124         316,905     327,029     1.87 %
Total   $ 76,257     $ 145,710     $ 112,055     $ 4,565,947     $ 4,899,969     1.52 %
  1. This category of certificates of deposit is shown by contractual maturity date.
  2. This category includes variable rate certificates of deposit and savings certificates with the majority repricing on at least a monthly basis.
  3. Weighted-average rate excludes the impact of purchase accounting fair value adjustments.

NET INTEREST INCOME

The following table presents a summary of Wintrust’s average balances, net interest income and related net interest margins, calculated on a fully tax-equivalent basis, for the second quarter of 2018 compared to the first quarter of 2018 (sequential quarters) and second quarter of 2017 (linked quarters), respectively:

  Average Balance  for three months ended,   Interest  for three months ended,   Yield/Rate  for three months ended,
(Dollars in thousands) June 30,
 2018
  March 31,
 2018
  June 30,
 2017
  June 30,
 2018
  March 31,
 2018
  June 30,
 2017
  June 30,
 2018
  March 31,
 2018
  June 30,
 2017
Interest-bearing deposits with banks and cash equivalents(1) $ 759,425     $ 749,973     $ 722,349     $ 3,244     $ 2,796     $ 1,635     1.71 %   1.51 %   0.91 %
Investment securities(2) 2,890,828     2,892,617     2,572,619     20,454     19,659     16,390     2.84     2.76     2.55  
FHLB and FRB stock 115,119     105,414     99,438     1,455     1,298     1,153     5.07 %   4.99     4.66  
Liquidity management assets(3)(8) $ 3,765,372     $ 3,748,004     $ 3,394,406     $ 25,153     $ 23,753     $ 19,178     2.68 %   2.57 %   2.27 %
Other earning assets(3)(4)(8) 21,244     27,571     25,749     172     174     162     3.24     2.56     2.53  
Mortgage loans held-for-sale 403,967     281,181     334,843     4,226     2,818     3,420     4.20     4.06     4.10  
Loans, net of unearned
income(3)(5)(8)
22,283,541     21,711,342     20,264,875     255,875     235,664     209,472     4.61     4.40     4.15  
Covered loans         51,823             648             5.01  
Total earning assets(8) $ 26,474,124     $ 25,768,098     $ 24,071,696     $ 285,426     $ 262,409     $ 232,880     4.32 %   4.13 %   3.88 %
Allowance for loan and covered loan losses (147,192 )   (143,108 )   (132,053 )                        
Cash and due from banks 270,240     254,489     242,495                          
Other assets 1,970,407     1,930,118     1,868,811                          
Total assets $ 28,567,579     $ 27,809,597     $ 26,050,949                          
                                   
NOW and interest bearing demand deposits $ 2,295,268     $ 2,255,692     $ 2,470,130     $ 1,901     $ 1,386     $ 1,214     0.33 %   0.25 %   0.20 %
Wealth management deposits 2,365,191     2,250,139     2,091,251     6,992     5,441     2,867     1.19     0.98     0.55  
Money market accounts 4,883,645     4,520,620     4,435,670     8,111     4,667     2,707     0.67     0.42     0.24  
Savings accounts 2,702,665     2,813,772     2,329,195     2,709     2,732     1,508     0.40     0.39     0.26  
Time deposits 4,557,187     4,322,111     4,295,428     15,580     12,323     10,175     1.37     1.16     0.95  
Interest-bearing deposits $ 16,803,956     $ 16,162,334     $ 15,621,674     $ 35,293     $ 26,549     $ 18,471     0.84 %   0.67 %   0.47 %
Federal Home Loan Bank advances 1,006,407     872,811     689,600     4,263     3,639     2,933     1.70     1.69     1.71  
Other borrowings 240,066     263,125     240,547     1,698     1,699     1,149     2.84     2.62     1.92  
Subordinated notes 139,125     139,094     139,007     1,787     1,773     1,786     5.14     5.10     5.14  
Junior subordinated debentures 253,566     253,566     253,566     2,836     2,463     2,433     4.42     3.89     3.80  
Total interest-bearing liabilities $ 18,443,120     $ 17,690,930     $ 16,944,394     $ 45,877     $ 36,123     $ 26,772     1.00 %   0.83 %   0.63 %
Non-interest bearing deposits 6,539,731     6,639,845     5,904,679                          
Other liabilities 520,574     483,230     400,971                          
Equity 3,064,154     2,995,592     2,800,905                          
Total liabilities and shareholders’ equity $ 28,567,579     $ 27,809,597     $ 26,050,949                          
Interest rate spread(6)(8)                         3.32 %   3.30 %   3.25 %
Less:  Fully tax-equivalent adjustment             (1,379 )   (1,204 )   (1,699 )   (0.02 )   (0.02 )   (0.02 )
Net free funds/contribution(7) $ 8,031,004     $ 8,077,168     $ 7,127,302                 0.31     0.26     0.18  
Net interest income/ margin(8)  (GAAP)             $ 238,170     $ 225,082     $ 204,409     3.61 %   3.54 %   3.41 %
Fully tax-equivalent adjustment             1,379     1,204     1,699     0.02     0.02     0.02  
Net interest income/ margin – FTE (8)             $ 239,549     $ 226,286     $ 206,108     3.63 %   3.56 %   3.43 %
  1. Includes interest-bearing deposits from banks, federal funds sold and securities purchased under resale agreements.
  2. Investment securities includes investment securities classified as available-for-sale and held-to-maturity, and equity securities with readily determinable fair values. Equity securities without readily determinable fair values are included within other assets.
  3. Interest income on tax-advantaged loans, trading securities and investment securities reflects a tax-equivalent adjustment based on the marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the three months ended June 30, 2018, March 31, 2018 and June 30, 2017 were $1.4 million, $1.2 million and $1.7 million, respectively.
  4. Other earning assets include brokerage customer receivables and trading account securities.
  5. Loans, net of unearned income, include non-accrual loans.
  6. Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
  7. Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
  8. See “Supplemental Financial Measures/Ratios” for additional information on this performance ratio.

For the second quarter of 2018, net interest income totaled $238.2 million, an increase of $13.1 million as compared to the first quarter of 2018 and an increase of $33.8 million as compared to the second quarter of 2017. Net interest margin was 3.61% (3.63% on a fully tax-equivalent basis) during the second quarter of 2018 compared to 3.54% (3.56% on a fully tax-equivalent basis) during the first quarter of 2018 and 3.41% (3.43% on a fully tax-equivalent basis) during the second quarter of 2017. The $13.1 million increase in net interest income in the second quarter of 2018 compared to the first quarter of 2018 was attributable to a $6.2 million increase from higher levels of earning assets, a $4.4 million increase from rising rates and a $2.5 million increase due to one more day in the quarter.

The following table presents a summary of Wintrust’s average balances, net interest income and related interest margins, calculated on a fully tax-equivalent basis, for six months ended June 30, 2018 compared to six months ended June 30, 2017:

  Average Balance  for six months ended,   Interest  for six months ended,   Yield/Rate   for six months ended,
(Dollars in thousands) June 30,
 2018
  June 30,
 2017
  June 30,
 2018
  June 30,
 2017
  June 30,
 2018
  June 30,
 2017
Interest-bearing deposits with banks and cash equivalents (1) $ 754,725     $ 751,389     $ 6,040     $ 3,259     1.61 %   0.87 %
Investment securities (2) 2,891,718     2,484,611     40,113     30,870     2.80     2.51  
FHLB and FRB stock 110,293     96,779     2,753     2,223     5.04     4.64  
Liquidity management assets(3)(8) $ 3,756,736     $ 3,332,779     $ 48,906     $ 36,352     2.63 %   2.20 %
Other earning assets(3)(4)(8) 24,390     25,494     346     345     2.86     2.73  
Mortgage loans held-for-sale 342,914     302,021     7,044     5,818     4.14     3.88  
Loans, net of unearned income(3)(5)(8) 21,999,022     19,961,821     491,539     406,260     4.51     4.10  
Covered loans     54,505         1,566         5.79  
Total earning assets(8) $ 26,123,062     $ 23,676,620     $ 547,835     $ 450,341     4.23 %   3.84 %
Allowance for loan and covered loan losses (145,161 )   (129,751 )                
Cash and due from banks 262,408     236,077                  
Other assets 1,950,374     1,849,058                  
Total assets $ 28,190,683     $ 25,632,004                  
                       
NOW and interest bearing demand deposits $ 2,275,589     $ 2,491,247     $ 3,286     $ 2,307     0.29 %   0.19 %
Wealth management deposits 2,307,983     2,086,793     12,433     5,179     1.09     0.50  
Money market accounts 4,703,135     4,421,863     12,778     4,928     0.55     0.22  
Savings accounts 2,757,911     2,278,392     5,440     2,837     0.40     0.25  
Time deposits 4,440,299     4,266,308     27,905     19,490     1.27     0.92  
Interest-bearing deposits $ 16,484,917     $ 15,544,603     $ 61,842     $ 34,741     0.76 %   0.45 %
Federal Home Loan Bank advances 939,978     436,873     7,902     4,523     1.70     2.09  
Other borrowings 251,532     247,740     3,397     2,288     2.72     1.86  
Subordinated notes 139,110     138,994     3,560     3,558     5.12     5.12  
Junior subordinated debentures 253,566     253,566     5,299     4,841     4.16     3.80  
Total interest-bearing liabilities $ 18,069,103     $ 16,621,776     $ 82,000     $ 49,951     0.91 %   0.60 %
Non-interest bearing deposits 6,589,511     5,845,083                  
Other liabilities 502,007     393,377                  
Equity 3,030,062     2,771,768                  
Total liabilities and shareholders’ equity $ 28,190,683     $ 25,632,004                  
Interest rate spread(6)(8)                 3.32 %   3.24 %
Less:  Fully tax-equivalent adjustment         (2,583 )   (3,401 )   (0.02 )   (0.03 )
Net free funds/contribution(7) $ 8,053,959     $ 7,054,844             0.28     0.17  
Net interest income/ margin(8)  (GAAP)         $ 463,252     $ 396,989     3.58 %   3.38 %
Fully tax-equivalent adjustment         2,583     3,401     0.02     0.03  
Net interest income/ margin – FTE (8)         $ 465,835     $ 400,390     3.60 %   3.41 %
  1. Includes interest-bearing deposits from banks, federal funds sold and securities purchased under resale agreements.
  2. Investment securities includes investment securities classified as available-for-sale and held-to-maturity, and equity securities with readily determinable fair values. Equity securities without readily determinable fair values are included within other assets.
  3. Interest income on tax-advantaged loans, trading securities and investment securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the six months ended June 30, 2018 and 2017 were $2.6 million and $3.4 million respectively.
  4. Other earning assets include brokerage customer receivables and trading account securities.
  5. Loans, net of unearned income, include non-accrual loans.
  6. Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
  7. Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
  8. See “Supplemental Financial Measures/Ratios” for additional information on this performance ratio.

For the first six months of 2018 net interest income totaled $463.3 million, an increase of $66.3 million as compared to the first six months of 2017. Net interest margin was 3.58% (3.60% on a fully tax-equivalent basis) for the first six months of 2018 compared to 3.38% (3.41% on a fully tax-equivalent basis) for the first six months of 2017. The $66.3 million increase in net interest income in the first six months of 2018 compared to the same period of 2017 was attributable to a $39.0 million increase from higher levels of earning assets and a $27.3 million increase from rising rates.

Interest Rate Sensitivity

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

The following interest rate scenarios display the percentage change in net interest income over a one-year time horizon assuming increases of 100 and 200 basis points and a decrease of 100 basis points. The Static Shock Scenario results incorporate actual cash flows and repricing characteristics for balance sheet instruments following an instantaneous, parallel change in market rates based upon a static (i.e. no growth or constant) balance sheet. Conversely, the Ramp Scenario results incorporate management’s projections of future volume and pricing of each of the product lines following a gradual, parallel change in market rates over twelve months.  Actual results may differ from these simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. The interest rate sensitivity for both the Static Shock and Ramp Scenario at June 30, 2018, March 31, 2018 and June 30, 2017 is as follows:

           
Static Shock Scenario   +200
Basis
Points
  +100
 Basis
 Points
  -100
Basis
Points
June 30, 2018   19.3 %   9.7 %   (10.7 )%
March 31, 2018   18.8 %   9.7 %   (11.6 )%
June 30, 2017   19.3 %   10.4 %   (13.5 )%

Ramp Scenario +200
Basis
Points
  +100
Basis
Points
  -100
Basis
Points
June 30, 2018 8.7 %   4.5 %   (4.4 )%
March 31, 2018 9.0 %   4.6 %   (4.8 )%
June 30, 2017 7.8 %   4.0 %   (4.6 )%

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

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table classifies the loan portfolio at June 30, 2018 by date at which the loans reprice or mature, and the type of rate exposure:

As of June 30, 2018 One year or less   From one to five years   Over five years    
(Dollars in thousands)       Total
Commercial              
Fixed rate $ 146,138     $ 919,964     $ 611,043     $ 1,677,145  
Variable rate 5,608,722     3,193         5,611,915  
Total commercial $ 5,754,860     $ 923,157     $ 611,043     $ 7,289,060  
Commercial real estate              
Fixed rate 391,292     1,793,231     267,142     2,451,665  
Variable rate 4,093,746     29,522     151     4,123,419  
Total commercial real estate $ 4,485,038     $ 1,822,753     $ 267,293     $ 6,575,084  
Home equity              
Fixed rate 10,778     7,900     25,751     44,429  
Variable rate 549,071             549,071  
Total home equity $ 559,849     $ 7,900     $ 25,751     $ 593,500  
Residential real estate              
Fixed rate 39,358     26,430     197,436     263,224  
Variable rate 62,023     246,611     323,612     632,246  
Total residential real estate $ 101,381     $ 273,041     $ 521,048     $ 895,470  
Premium finance receivables – commercial              
Fixed rate 2,755,795     77,657         2,833,452  
Variable rate              
Total premium finance receivables – commercial $ 2,755,795     $ 77,657     $     $ 2,833,452  
Premium finance receivables – life insurance              
Fixed rate 12,778     2,855     3,937     19,570  
Variable rate 4,282,718             4,282,718  
Total premium finance receivables – life insurance $ 4,295,496     $ 2,855     $ 3,937     $ 4,302,288  
Consumer and other              
Fixed rate 68,038     11,498     2,496     82,032  
Variable rate 39,674             39,674  
Total consumer and other $ 107,712     $ 11,498     $ 2,496     $ 121,706  
Total per category              
Fixed rate 3,424,177     2,839,535     1,107,805     7,371,517  
Variable rate 14,635,954     279,326     323,763     15,239,043  
        Total loans, net of unearned income $ 18,060,131     $ 3,118,861     $ 1,431,568     $ 22,610,560  
Variable Rate Loan Pricing by Index:              
Prime $ 2,596,588              
One- month LIBOR 7,538,044              
Three- month LIBOR 482,723              
Twelve- month LIBOR 4,384,194              
Other 237,494              
       Total variable rate $ 15,239,043              

http://resource.globenewswire.com/Resource/Download/3da6161d-7cc3-4410-a2cd-6b0d8c6821bf

Source: Bloomberg

As noted in the table on the previous page, the majority of the Company’s portfolio is tied to LIBOR indices which, as shown in the table above, do not mirror the same increases as the Prime rate when the Federal Reserve raises interest rates.  Specifically, the Company has $7.5 billion of variable rate loans tied to one-month LIBOR and $4.4 billion of variable rate loans tied to twelve-month LIBOR. The above chart shows:

    Changes in
    Prime   1-month
LIBOR
  12-month
LIBOR
Third Quarter 2017   0 bps   +1 bps   +4 bps
Fourth Quarter 2017   +25 bps   +33 bps   +33 bps
First Quarter 2018   +25 bps   +32 bps   +55 bps
Second Quarter 2018   +25 bps   +21 bps   +10 bps

NON-INTEREST INCOME

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

    Three Months Ended                
    June 30,   March 31,   June 30,   Q2 2018 compared to
Q1 2018
  Q2 2018 compared to
Q2 2017
(Dollars in thousands)   2018   2018   2017   $ Change   % Change   $ Change   % Change
Brokerage   $ 5,784     $ 6,031     $ 5,449     $ (247 )   (4 )%   $ 335     6 %
Trust and asset management   16,833     16,955     14,456     (122 )   (1 )   2,377     16  
Total wealth management   22,617     22,986     19,905     (369 )   (2 )   2,712     14  
Mortgage banking   39,834     30,960     35,939     8,874     29     3,895     11  
Service charges on deposit accounts   9,151     8,857     8,696     294     3     455     5  
Gains (losses) on investment securities, net   12     (351 )   47     363     NM   (35 )   (74 )
Fees from covered call options   669     1,597     890     (928 )   (58 )   (221 )   (25 )
Trading gains (losses), net   124     103     (420 )   21     20     544     NM
Operating lease income, net   8,746     9,691     6,805     (945 )   (10 )   1,941     29  
Other:                            
Interest rate swap fees   3,829     2,237     2,221     1,592     71     1,608     72  
BOLI   1,544     714     888     830     NM   656     74  
Administrative services   1,205     1,061     986     144     14     219     22  
Early pay-offs of capital leases   554     33     10     521     NM   544     NM
Miscellaneous   6,948     7,791     14,005     (843 )   (11 )   (7,057 )   (50 )
Total Other   14,080     11,836     18,110     2,244     19     (4,030 )   (22 )
Total Non-Interest Income   $ 95,233     $ 85,679     $ 89,972     $ 9,554     11 %   $ 5,261     6 %

    Six Months Ended        
    June 30,   June 30,   $   %
(Dollars in thousands)   2018   2017   Change   Change
Brokerage   11,815     11,669     $ 146     1 %
Trust and asset management   33,788     28,384     5,404     19  
Total wealth management   45,603     40,053     5,550     14  
Mortgage banking   70,794     57,877     12,917     22  
Service charges on deposit accounts   18,008     16,961     1,047     6  
Losses on investment securities, net   (339 )   (8 )   (331 )   NM
Fees from covered call options   2,266     1,649     617     37  
Trading gains (losses), net   227     (740 )   967     NM
Operating lease income, net   18,437     12,587     5,850     46  
Other:                
Interest rate swap fees   6,066     3,654     2,412     66  
BOLI   2,258     1,873     385     21  
Administrative services   2,266     2,010     256     13  
Early pay-offs of capital leases   587     1,221     (634 )   (52 )
Miscellaneous   14,739     21,600     (6,861 )   (32 )
Total Other   25,916     30,358     (4,442 )   (15 )
Total Non-Interest Income   180,912     158,737     $ 22,175     14 %

NM – Not meaningful

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

The increase in wealth management revenue during the current period as compared to the same period of 2017 is primarily attributable to growth in assets under management along with market appreciation related to managed money accounts with fees based on assets under management.  Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors and the brokerage commissions, managed money fees and insurance product commissions at Wayne Hummer Investments.

The increase in mortgage banking revenue in the current quarter as compared to the first quarter of 2018 resulted primarily from higher origination volumes as a result of typical seasonality in our primary markets and one full quarter’s impact of Veterans First. Mortgage loans originated or purchased for sale totaled $1.1 billion in the second quarter of 2018 as compared to $778.9 million in the first quarter of 2018 and $1.1 billion in the second quarter of 2017. The increase from higher originations was tempered by lower production margins and smaller positive fair market value adjustment to mortgage servicing rights as interest rates increased less during the second quarter of 2018 when compared to the first quarter of 2018. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. Mortgage revenue is also impacted by changes in the fair value of mortgage servicing rights as the Company does not hedge this change in fair value. The Company typically originates mortgage loans held-for-sale with associated mortgage servicing rights (“MSRs”) retained or released. Additionally, through the acquisition of Veterans First, the Company acquired approximately $13.8 million of MSRs in the first quarter of 2018. The Company records MSRs at fair value on a recurring basis. The table below presents additional selected information regarding mortgage banking revenue for the respective periods.

      Three Months Ended   Six Months Ended
(Dollars in thousands)     June 30,
2018
  March 31,
2018
  June 30,
2017
  June 30,
2018
  June 30,
2017
                                         
Originations:                                        
Retail originations     $ 769,279     539,911     $ 963,396     $ 1,309,190     $ 1,588,367  
Correspondent originations     122,986     126,464     170,862     249,450     268,358  
Veterans First originations     204,108     112,477         316,585      
Total originations (A)     $ 1,096,373     778,852     $ 1,134,258     $ 1,875,225     $ 1,856,725  
                       
Purchases as a percentage of originations     80 %   73 %   84 %   77 %   77 %
Refinances as a percentage of originations     20     27     16     23     23  
Total     100 %   100 %   100 %   100 %   100 %
                       
Production Margin:                      
Production revenue (B) (1)     $ 27,814     $ 20,526     $ 28,140     $ 48,340     $ 45,817  
Production margin (B / A)     2.54 %   2.64 %   2.48 %   2.58 %   2.47 %
                       
Mortgage Servicing:                      
Loans serviced for others (C)     $ 5,228,699     $ 4,795,335     $ 2,303,435          
MSRs, at fair value (D)     63,194     54,572     27,307          
Percentage of MSRs to loans serviced for others (D / C)     1.21 %   1.14 %   1.19 %        
                       
Components of Mortgage Banking Revenue:                      
Production revenue     $ 27,814     $ 20,526     $ 28,140     $ 48,340     $ 45,817  
MSR capitalization, net of payoffs and paydowns     6,525     2,957     4,886     9,482     7,223  
MSR fair value adjustments     2,097     4,133     825     6,230     981  
Servicing income     3,505     2,905     1,457     6,410     2,773  
Other     (107 )   439     631     332     1,083  
Total mortgage banking revenue     $ 39,834     $ 30,960     $ 35,939     $ 70,794     $ 57,877  
  1. Production revenue represents revenue earned from the origination and subsequent sale of mortgages, including gains on loans sold and fees from originations, processing and other related activities, and excludes servicing fees, changes in the fair value of servicing rights and changes to the mortgage recourse obligation.

The Company has typically written call options with terms of less than three months against certain U.S. Treasury and agency securities held in its portfolio for liquidity and other purposes. Management has entered into these transactions with the goal of economically hedging security positions and enhancing its overall return on its investment portfolio by using fees generated from these options to compensate for net interest margin compression. These option transactions are designed to mitigate overall interest rate risk and do not qualify as hedges pursuant to accounting guidance. Fees from covered call options decreased in the current quarter primarily as a result of selling call options against a smaller value of underlying securities resulting in lower premiums received by Company. There were no outstanding call option contracts at June 30, 2018, March 31, 2018 or June 30, 2017.

The decrease in operating lease income in the current quarter compared to the first quarter of 2018 is primarily related to a $1.1 million gain realized in the prior quarter from the sale of certain equipment held on operating leases.

NON-INTEREST EXPENSE

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

    Three Months Ended                
    June 30,   March 31,   June 30,   Q2 2018 compared to
Q1 2018
  Q2 2018 compared to
Q2 2017
Dollars in thousands)   2018   2018   2017   $ Change   % Change   $ Change   % Change
Salaries and employee benefits:                            
Salaries   $ 66,976     $ 61,986     $ 55,215     $ 4,990     8 %   $ 11,761     21 %
Commissions and incentive compensation   35,907     31,949     34,050     3,958     12     1,857     5  
Benefits   18,792     18,501     17,237     291     2     1,555     9  
Total salaries and employee benefits   121,675     112,436     106,502     9,239     8     15,173     14  
Equipment   10,527     10,072     9,909     455     5     618     6  
Operating lease equipment depreciation   6,940     6,533     5,662     407     6     1,278     23  
Occupancy, net   13,663     13,767     12,586     (104 )   (1 )   1,077     9  
Data processing   8,752     8,493     7,804     259     3     948     12  
Advertising and marketing   11,782     8,824     8,726     2,958     34     3,056     35  
Professional fees   6,484     6,649     7,510     (165 )   (2 )   (1,026 )   (14 )
Amortization of other intangible assets   997     1,004     1,141     (7 )   (1 )   (144 )   (13 )
FDIC insurance   4,598     4,362     3,874     236     5     724     19  
OREO expense, net   980     2,926     739     (1,946 )   (67 )   241     33  
Other:                            
Commissions – 3rd party brokers   1,174     1,252     1,033     (78 )   (6 )   141     14  
Postage   2,567     1,866     2,080     701     38     487     23  
Miscellaneous   16,630     16,165     15,978     465     3     652     4  
Total other   20,371     19,283     19,091     1,088     6     1,280     7  
     Total Non-Interest Expense   $ 206,769     $ 194,349     $ 183,544     $ 12,420     6 %   $ 23,225     13 %

    Six Months Ended        
    June 30,   June 30,   $   %
(Dollars in thousands)   2018   2017   Change   Change
Salaries and employee benefits:                
Salaries   $ 128,962     $ 110,223     $ 18,739     17 %
Commissions and incentive compensation   67,856     60,693     7,163     12  
Benefits   37,293     34,902     2,391     7  
Total salaries and employee benefits   234,111     205,818     28,293     14  
Equipment   20,599     18,911     1,688     9  
Operating lease equipment depreciation   13,473     10,298     3,175     31  
Occupancy, net   27,430     25,687     1,743     7  
Data processing   17,245     15,729     1,516     10  
Advertising and marketing   20,606     13,876     6,730     49  
Professional fees   13,133     12,170     963     8  
Amortization of other intangible assets   2,001     2,305     (304 )   (13 )
FDIC insurance   8,960     8,030     930     12  
OREO expense, net   3,906     2,404     1,502     62  
Other:                
Commissions – 3rd party brokers   2,426     2,131     295     14  
Postage   4,433     3,522     911     26  
Miscellaneous   32,795     30,781     2,014     7  
Total other   39,654     36,434     3,220     9  
      Total Non-Interest Expense   $ 401,118     $ 351,662     $ 49,456     14 %

NM – Not meaningful

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

Salaries and employee benefits expense increased in the current quarter compared to the first quarter of 2018 primarily as a result of higher salaries and commissions and incentive compensation. The increase in salaries is primarily due to additional salaries from the Veterans First acquisition as well as increases from merit-based salary increases for current employees effective in February and an increase of the minimum wage for eligible hourly employees effective in March. The increase in commissions and incentive compensation is the result of higher commissions due to increased production in mortgage banking and an increase in bonus and long-term performance-based incentive compensation recognized in the second quarter of 2018 due to higher earnings.

The increase in advertising and marketing expenses during the current quarter compared to the first quarter of 2018 and the second quarter of 2017 is primarily related to higher corporate sponsorship costs, which are typically higher in the spring and summer due to our marketing efforts with the Chicago Cubs and Chicago White Sox, as well as increased spending related to deposit generation and brand awareness to grow our loan and deposit portfolios. Marketing costs are incurred to promote the Company’s brand, commercial banking capabilities, the Company’s various products, to attract loans and deposits and to announce new branch openings as well as the expansion of the Company’s non-bank businesses. The level of marketing expenditures depends on the timing of sponsorship programs and type of marketing programs utilized which are determined based on the market area, targeted audience, competition and various other factors.

The decrease in OREO expense in the current quarter compared to the first quarter of 2018 was primarily the result of negative valuation adjustments and realized losses on the sale of certain OREO properties recognized in the previous quarter from our continuing efforts to address and resolve non-performing assets in a timely fashion. OREO expenses include all costs associated with obtaining, maintaining and selling other real estate owned properties as well as valuation adjustments.

INCOME TAXES

The Company recorded income tax expense of $32.0 million in the second quarter of 2018 compared to $26.1 million in the first quarter of 2018 and $37.0 million in the second quarter of 2017. The effective tax rates were 26.33% in the second quarter of 2018, 24.14% in the first quarter of 2018 and 36.34% in the second quarter of 2017. During the six months ended June 30, 2018, the Company recorded income tax expense of $58.1 million (25.30% effective tax rate) compared to $66.7 million (35.11% effective tax rate) for the same period of 2017. The lower effective tax rates for the 2018 quarterly and year-to-date periods as compared to 2017 were primarily due to the reduction of the federal corporate income tax rate effective in 2018 as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017. The Company recorded $712,000 of excess tax benefits in the second quarter of 2018 related to share-based compensation and $2.6 million in the first quarter of 2018, compared to $456,000 in the second quarter of 2017 and $3.4 million in the first quarter of 2017. Excess tax benefits are expected to be higher in the first quarter when the majority of the Company’s share-based awards vest, and will fluctuate throughout the year based on the Company’s stock price and timing of employee stock option exercises and vesting of other share-based awards.

ASSET QUALITY

Allowance for Credit Losses, excluding covered loans

    Three Months Ended   Six Months Ended
(Dollars in thousands)   June 30,
2018
  March 31,
2018
  June 30,
2017
  June 30,
2018
  June 30,
2017
Allowance for loan losses at beginning of period   $ 139,503     $ 137,905     $ 125,819     $ 137,905     $ 122,291  
Provision for credit losses   5,043     8,346     8,952     13,389     14,268  
Other adjustments (1)   (44 )   (40 )   (30 )   (84 )   (86 )
Reclassification (to) from allowance for unfunded lending-related commitments       26     106     26     (32 )
Charge-offs:                    
Commercial   2,210     2,687     913     4,897     1,554  
Commercial real estate   155     813     1,985     968     2,246  
Home equity   612     357     1,631     969     2,256  
Residential real estate   180     571     146     751     475  
Premium finance receivables – commercial   3,254     4,721     1,878     7,975     3,305  
Premium finance receivables – life insurance                    
Consumer and other   459     129     175     588     309  
Total charge-offs   6,870     9,278     6,728     16,148     10,145  
Recoveries:                    
Commercial   666     262     561     928     834  
Commercial real estate   2,387     1,687     276     4,074     830  
Home equity   171     123     144     294     209  
Residential real estate   1,522     40     54     1,562     232  
Premium finance receivables – commercial   975     385     404     1,360     1,016  
Premium finance receivables – life insurance                    
Consumer and other   49     47     33     96     174  
Total recoveries   5,770     2,544     1,472     8,314     3,295  
Net charge-offs   (1,100 )   (6,734 )   (5,256 )   (7,834 )   (6,850 )
Allowance for loan losses at period end   $ 143,402     $ 139,503     $ 129,591     $ 143,402     $ 129,591  
Allowance for unfunded lending-related commitments at period end   1,243     1,243     1,705     1,243     1,705  
Allowance for credit losses at period end   $ 144,645     $ 140,746     $ 131,296     $ 144,645     $ 131,296  
Annualized net charge-offs (recoveries) by category as a percentage of its own respective category’s average:                    
Commercial   0.09 %   0.14 %   0.02 %   0.11 %   0.02 %
Commercial real estate   (0.14 )   (0.05 )   0.11     (0.09 )   0.05  
Home equity   0.29     0.15     0.85     0.22     0.58  
Residential real estate   (0.64 )   0.26     0.05     (0.20 )   0.07  
Premium finance receivables – commercial   0.34     0.68     0.23     0.51     0.19  
Premium finance receivables – life insurance   0.00     0.00     0.00     0.00     0.00  
Consumer and other   1.21     0.26     0.45     0.76     0.22  
Total loans, net of unearned income, excluding covered loans   0.02 %   0.13 %   0.10 %   0.07 %   0.07 %
Net charge-offs as a percentage of the provision for credit losses   21.80 %   80.69 %   58.71 %   58.51 %   48.01 %
Loans at period-end, excluding covered loans   $ 22,610,560     $ 22,062,134     $ 20,743,332          
Allowance for loan losses as a percentage of loans at period end   0.63 %   0.63 %   0.62 %        
Allowance for credit losses as a percentage of loans at period end   0.64 %   0.64 %   0.63 %        
  1. Includes $742,000 of allowance for covered loan losses reclassified as a result of the termination of all existing loss share agreements with the FDIC during the fourth quarter of 2017.

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

Net charge-offs as a percentage of loans, excluding covered loans, for the second quarter of 2018 totaled two basis points on an annualized basis compared to 13 basis points on an annualized basis in the first quarter of 2018 and 10 basis points on an annualized basis in the second quarter of 2017.  Net charge-offs totaled $1.1 million in the second quarter of 2018, a $5.6 million decrease from $6.7 million in the first quarter of 2018 and a $4.2 million decrease from $5.3 million in the second quarter of 2017. The decrease in the second quarter of 2018 compared to first quarter of 2018 is primarily the result of decreased net charge-offs within the commercial real estate, residential real estate and commercial insurance premium finance receivables portfolios. The decrease in the second quarter of 2018 compared to second quarter of 2017 is primarily the result of decreased net charge-offs within the commercial real estate and residential real estate portfolios. The provision for credit losses, excluding the provision for covered loan losses, totaled $5.0 million for the second quarter of 2018 compared to $8.3 million for the first quarter of 2018 and $9.0 million for the second quarter of 2017.

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

The Company also provided a provision for covered loan losses on covered loans when applicable.

The following table presents the provision for credit losses and allowance for credit losses by component for the periods presented, including covered loans:

    Three Months Ended   Six Months Ended
    June 30,   March 31,   June 30,   June 30,   June 30,
(Dollars in thousands)   2018   2018   2017   2018   2017
Provision for loan losses   $ 5,043     $ 8,372     $ 9,058     $ 13,415     $ 14,236  
Provision for unfunded lending-related commitments       (26 )   (106 )   (26 )   32  
Provision for covered loan losses           (61 )       (168 )
Provision for credit losses   $ 5,043     $ 8,346     $ 8,891     $ 13,389     $ 14,100  
                     
            June 30,   March 31,   June 30,
            2018   2018   2017
Allowance for loan losses           $ 143,402     $ 139,503     $ 129,591  
Allowance for unfunded lending-related commitments           1,243     1,243     1,705  
Allowance for covered loan losses                   1,074  
Allowance for credit losses           $ 144,645     $ 140,746     $ 132,370  

The tables below summarize the calculation of allowance for loan losses for the Company’s core loan portfolio and consumer, niche and purchased loan portfolio, excluding covered loans, as of June 30, 2018 and March 31, 2018.

    As of June 30, 2018
    Recorded   Calculated   As a percentage
of its own respective
(Dollars in thousands)   Investment   Allowance   category’s balance
Commercial:(1)            
Commercial and industrial   $ 4,000,272     $ 36,381     0.91 %
Asset-based lending   1,041,894     8,957     0.86  
Tax exempt   432,435     2,856     0.66  
Leases   456,906     1,237     0.27  
Commercial real estate:(1)            
Residential construction   34,350     709     2.06  
Commercial construction   770,314     8,606     1.12  
Land   113,937     3,714     3.26  
Office   863,448     5,967     0.69  
Industrial   851,584     5,896     0.69  
Retail   836,901     8,047     0.96  
Multi-family   926,475     9,679     1.04  
Mixed use and other   1,876,807     14,811     0.79  
Home equity(1)   547,836     9,437     1.72  
Residential real estate(1)   854,176     6,199     0.73  
Total core loan portfolio   $ 13,607,335     $ 122,496     0.90 %
Commercial:            
Franchise   $ 881,921     $ 8,661     0.98 %
Mortgage warehouse lines of credit   200,060     1,598     0.80  
Community Advantage – homeowner associations   169,443     424     0.25  
Aircraft   2,586     3     0.12  
Purchased non-covered commercial loans (2)   103,543     610     0.59  
Commercial real estate:            
Purchased non-covered commercial real estate (2)   301,268     231     0.08  
Purchased non-covered home equity (2)   45,664     114     0.25  
Purchased non-covered residential real estate (2)   41,294     137     0.33  
Premium finance receivables            
U.S. commercial insurance loans   2,487,886     5,759     0.23  
Canada commercial insurance loans (2)   345,566     513     0.15  
Life insurance loans (1)   4,118,666     1,462     0.04  
Purchased life insurance loans (2)   183,622          
Consumer and other (1)   119,143     1,390     1.17  
Purchased non-covered consumer and other (2)   2,563     4     0.14  
Total consumer, niche and purchased loan portfolio   $ 9,003,225     $ 20,906     0.23 %
Total loans, net of unearned income, excluding covered loans   $ 22,610,560     $ 143,402     0.63 %
  1. Excludes purchased loans reported in accordance with ASC 310-20 and ASC 310-30.
  2. Purchased loans represent loans reported in accordance with ASC 310-20 and ASC 310-30.
    As of March 31, 2018
    Recorded   Calculated   As a percentage
of its own respective
(Dollars in thousands)   Investment   Allowance   category’s balance
Commercial:(1)            
Commercial and industrial   $ 3,989,211   $ 36,092   0.90 %
Asset-based lending   977,063   8,315   0.85  
Tax exempt   380,264   2,602   0.68  
Leases   412,786   1,222   0.30  
Commercial real estate:(1)            
Residential construction   44,328   860   1.94  
Commercial construction   769,330   8,723   1.13  
Land   121,005   3,988   3.30  
Office   853,839   5,795   0.68  
Industrial   872,761   5,895   0.68  
Retail   861,249   8,101   0.94  
Multi-family   903,778   9,599   1.06  
Mixed use and other   1,866,691   14,319   0.77  
Home equity(1)   571,925   9,719   1.70  
Residential real estate(1)   823,322   6,073   0.74  
Total core loan portfolio   $ 13,447,552   $ 121,303   0.90 %
Commercial:            
Franchise   $ 852,166   $ 7,032   0.83 %
Mortgage warehouse lines of credit   163,470   1,297   0.79  
Community Advantage – homeowner associations   168,656   422   0.25  
Aircraft   2,904   42   1.45  
Purchased non-covered commercial loans (2)   114,351   612   0.54  
Commercial real estate:            
Purchased non-covered commercial real estate (2)   340,539   201   0.06  
Purchased non-covered home equity (2)   54,622   141   0.26  
Purchased non-covered residential real estate (2)   45,782   205   0.45  
Premium finance receivables            
U.S. commercial insurance loans   2,263,019   5,415   0.24  
Canada commercial insurance loans (2)   313,131   491   0.16  
Life insurance loans (1)   4,002,726   1,427   0.04  
Purchased life insurance loans (2)   187,235      
Consumer and other (1)   103,312   911   0.88  
Purchased non-covered consumer and other (2)   2,669   4   0.15  
Total consumer, niche and purchased loan portfolio   $ 8,614,582   $ 18,200   0.21 %
Total loans, net of unearned income, excluding covered loans   $ 22,062,134   $ 139,503   0.63 %
  1. Excludes purchased loans reported in accordance with ASC 310-20 and ASC 310-30.
  2. Purchased loans represent loans reported in accordance with ASC 310-20 and ASC 310-30.

As part of the regular quarterly review performed by management to determine if the Company’s allowance for loan losses is appropriate, an analysis is prepared on the loan portfolio based upon a breakout of core loans and consumer, niche and purchased loans. A summary of the allowance for loan losses calculated for the loan components in both the core loan portfolio and the consumer, niche and purchased loan portfolio was shown on the preceding tables as of June 30, 2018 and March 31, 2018.

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

In addition to the $143.4 million of allowance for loan losses, there is $2.9 million of non-accretable credit discount on purchased loans reported in accordance with ASC 310-30 that is available to absorb credit losses.

The tables below show the aging of the Company’s loan portfolio at June 30, 2018 and March 31, 2018:

        90+ days   60-89   30-59        
As of June 30, 2018       and still   days past   days past        
(Dollars in thousands)   Nonaccrual   accruing   due   due   Current   Total Loans
Loan Balances:                        
Commercial (1)   $ 18,388     $ 882     $ 3,064     $ 15,923     $ 7,250,803     $ 7,289,060  
Commercial real estate (1)   19,195     3,194     4,119     27,682     6,520,894     6,575,084  
Home equity   9,096             3,226     581,178     593,500  
Residential real estate (1)   15,825     1,472     3,637     1,534     873,002     895,470  
Premium finance receivables – commercial   14,832     5,159     8,848     10,535     2,794,078     2,833,452  
Premium finance receivables – life insurance (1)           26,770     17,211     4,258,307     4,302,288  
Consumer and other (1)   563     286     150     310     120,397     121,706  
Total loans, net of unearned income   $ 77,899     $ 10,993     $ 46,588     $ 76,421     $ 22,398,659     $ 22,610,560  

As of June 30, 2018
Aging as a % of Loan Balance
  Nonaccrual   90+ days
and still
accruing
  60-89
days past
due
  30-59
days past
due
  Current   Total Loans
Commercial (1)   0.3 %   %   %   0.2 %   99.5 %   100.0 %
Commercial real estate (1)   0.3         0.1     0.4     99.2     100.0  
Home equity   1.5             0.5     98.0     100.0  
Residential real estate (1)   1.8     0.2     0.4     0.2     97.4     100.0  
Premium finance receivables – commercial   0.5     0.2     0.3     0.4     98.6     100.0  
Premium finance receivables – life insurance (1)           0.6     0.4     99.0     100.0  
Consumer and other (1)   0.5     0.2     0.1     0.3     98.9     100.0  
Total loans, net of unearned income   0.3 %   %   0.2 %   0.3 %   99.2 %   100.0 %
  1. Including PCI loans. PCI loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30.  Loan agings are based upon contractually required payments.
        90+ days   60-89   30-59        
As of March 31, 2018       and still   days past   days past        
(Dollars in thousands)   Nonaccrual   accruing   due   due   Current   Total Loans
Loan Balances:                        
Commercial (1)   $ 14,007     $ 856     $ 771     $ 54,233     $ 6,991,004     $ 7,060,871  
Commercial real estate (1)   21,825     3,107     3,563     58,469     6,546,556     6,633,520  
Home equity   9,828         1,505     4,033     611,181     626,547  
Residential real estate (1)   17,214     1,437     229     8,808     841,416     869,104  
Premium finance receivables – commercial   17,342     8,547     6,543     17,756     2,525,962     2,576,150  
Premium finance receivables – life insurance (1)           5,125     11,420     4,173,416     4,189,961  
Consumer and other (1)   720     269     216     291     104,485     105,981  
Total loans, net of unearned income   $ 80,936     $ 14,216     $ 17,952     $ 155,010     $ 21,794,020     $ 22,062,134  

As of March 31, 2018
Aging as a % of Loan Balance:
  Nonaccrual   90+ days
and still
accruing
  60-89
days past
due
  30-59
days past
due
  Current   Total Loans
Commercial (1)   0.2 %   %   %   0.8 %   99.0 %   100.0 %
Commercial real estate (1)   0.3         0.1     0.9     98.7     100.0  
Home equity   1.6         0.2     0.6     97.6     100.0  
Residential real estate (1)   2.0     0.2         1.0     96.8     100.0  
Premium finance receivables – commercial   0.7     0.3     0.3     0.7     98.0     100.0  
Premium finance receivables – life insurance (1)           0.1     0.3     99.6     100.0  
Consumer and other (1)   0.7     0.3     0.2     0.3     98.5     100.0  
Total loans, net of unearned income   0.4 %   0.1 %   0.1 %   0.7 %   98.7 %   100.0 %
  1. Including PCI loans. PCI loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30.  Loan agings are based upon contractually required payments.

As of June 30, 2018, $46.6 million of all loans, or 0.2%, were 60 to 89 days past due and $76.4 million, or 0.3%, were 30 to 59 days (or one payment) past due. As of March 31, 2018, $18.0 million of all loans, or 0.1%, were 60 to 89 days past due and $155.0 million, or 0.7%, were 30 to 59 days (or one payment) past due. The majority of the commercial and commercial real estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis. All loans within the life insurance premium financing portfolio shown as 60 to 89 days and 30 to 59 days past due (four and nine credits, respectively) remain fully secured.

The Company’s home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at June 30, 2018 that are current with regard to the contractual terms of the loan agreement represent 98.0% of the total home equity portfolio. Residential real estate loans at June 30, 2018 that are current with regards to the contractual terms of the loan agreements comprise 97.4% of total residential real estate loans outstanding.

Non-performing Assets, excluding covered assets

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

  June 30, March 31, June 30,
(Dollars in thousands) 2018 2018 2017
Loans past due greater than 90 days and still accruing(1):      
Commercial $   $   $  
Commercial real estate      
Home equity      
Residential real estate     179  
Premium finance receivables – commercial 5,159   8,547   5,922  
Premium finance receivables – life insurance     1,046  
Consumer and other 224   207   63  
Total loans past due greater than 90 days and still accruing 5,383   8,754   7,210  
Non-accrual loans(2):      
Commercial 18,388   14,007   10,191  
Commercial real estate 19,195   21,825   16,980  
Home equity 9,096   9,828   9,482  
Residential real estate 15,825   17,214   14,292  
Premium finance receivables – commercial 14,832   17,342   10,456  
Premium finance receivables – life insurance      
Consumer and other 563   720   439  
Total non-accrual loans 77,899   80,936   61,840  
Total non-performing loans:      
Commercial 18,388   14,007   10,191  
Commercial real estate 19,195   21,825   16,980  
Home equity 9,096   9,828   9,482  
Residential real estate 15,825   17,214   14,471  
Premium finance receivables – commercial 19,991   25,889   16,378  
Premium finance receivables – life insurance     1,046  
Consumer and other 787   927   502  
Total non-performing loans $ 83,282   $ 89,690   $ 69,050  
Other real estate owned 18,925   18,481   16,853  
Other real estate owned – from acquisitions 16,406   18,117   22,508  
Other repossessed assets 305   113   532  
Total non-performing assets $ 118,918   $ 126,401   $ 108,943  
TDRs performing under the contractual terms of the loan agreement $ 57,249   $ 39,562   $ 28,008  
Total non-performing loans by category as a percent of its own respective category’s period-end balance:      
Commercial 0.25 % 0.20 % 0.16 %
Commercial real estate 0.29   0.33   0.27  
Home equity 1.53   1.57   1.38  
Residential real estate 1.77   1.98   1.90  
Premium finance receivables – commercial 0.71   1.00   0.62  
Premium finance receivables – life insurance     0.03  
Consumer and other 0.65   0.87   0.44  
Total loans, net of unearned income 0.37 % 0.41 % 0.33 %
Total non-performing assets as a percentage of total assets 0.40 % 0.44 % 0.40 %
Allowance for loan losses as a percentage of total non-performing loans 172.19 % 155.54 % 187.68 %
  1. As of the dates shown, no TDRs were past due greater than 90 days and still accruing interest.
  2. Non-accrual loans included TDRs totaling $8.1 million, $8.1 million and $5.1 million as of June 30, 2018, March 31, 2018 and June 30, 2017, respectively.

The ratio of non-performing assets to total assets was 0.40% as of June 30, 2018, compared to 0.44% at March 31, 2018, and 0.40% at June 30, 2017. Non-performing assets, excluding covered assets and non-covered PCI loans, totaled $118.9 million at June 30, 2018, compared to $126.4 million at March 31, 2018 and $108.9 million at June 30, 2017. Non-performing loans, excluding covered loans and non-covered PCI loans, totaled $83.3 million, or 0.37% of total loans, at June 30, 2018 compared to $89.7 million, or 0.41% of total loans, at March 31, 2018 and $69.1 million, or 0.33% of total loans, at June 30, 2017. OREO, excluding covered OREO, of $35.3 million at June 30, 2018 decreased $1.3 million compared to $36.6 million at March 31, 2018 and decreased $4.0 million compared to $39.4 million at June 30, 2017.

Management is pursuing the resolution of all credits in this category. At this time, management believes reserves are appropriate to absorb inherent losses that are expected upon the ultimate resolution of these credits.

Nonperforming Loans Rollforward

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

    Three Months Ended   Six Months Ended
    June 30,   March 31,   June 30,   June 30,   June 30,
(Dollars in thousands)   2018   2018   2017   2018   2017
Balance at beginning of period   $ 89,690     $ 90,162     $ 78,979     $ 90,162     $ 87,454  
Additions, net, from non-covered portfolio   10,403     6,608     10,888     17,011     19,497  
Return to performing status   (759 )   (3,753 )   (975 )   (4,512 )   (2,567 )
Payments received   (4,589 )   (2,569 )   (10,684 )   (7,158 )   (16,298 )
Transfer to OREO and other repossessed assets   (3,528 )   (1,981 )   (2,543 )   (5,509 )   (4,204 )
Charge-offs   (1,968 )   (3,555 )   (4,344 )   (5,523 )   (5,624 )
Net change for niche loans (1)   (5,967 )   4,778     (2,271 )   (1,189 )   (9,208 )
Balance at end of period   $ 83,282     $ 89,690     $ 69,050     $ 83,282     $ 69,050  
  1. This includes activity for premium finance receivables and indirect consumer loans.

TDRs

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

    June 30,   March 31,   June 30,
(Dollars in thousands)   2018   2018   2017
Accruing TDRs:            
Commercial   $ 37,560     $ 19,803     $ 3,886  
Commercial real estate   15,086     16,087     17,349  
Residential real estate and other   4,603     3,672     6,773  
Total accrual   $ 57,249     $ 39,562     $ 28,008  
Non-accrual TDRs: (1)            
Commercial   $ 1,671     $ 1,741     $ 1,110  
Commercial real estate   1,362     1,304     1,839  
Residential real estate and other   5,028     5,069     2,134  
Total non-accrual   $ 8,061     $ 8,114     $ 5,083  
Total TDRs:            
Commercial   $ 39,231     $ 21,544     $ 4,996  
Commercial real estate   16,448     17,391     19,188  
Residential real estate and other   9,631     8,741     8,907  
Total TDRs   $ 65,310     $ 47,676     $ 33,091  
Weighted-average contractual interest rate of TDRs   5.46 %   4.84 %   4.28 %
  1. Included in total non-performing loans.

Other Real Estate Owned

The table below presents a summary of other real estate owned, excluding covered other real estate owned, as of June 30, 2018, March 31, 2018 and June 30, 2017, and shows the activity for the respective period and the balance for each property type:

    Three Months Ended
    June 30,   March 31,   June 30,
(Dollars in thousands)   2018   2018   2017
Balance at beginning of period   $ 36,598     $ 40,646     $ 39,864  
Disposals/resolved   (4,557 )   (3,679 )   (4,270 )
Transfers in at fair value, less costs to sell   4,801     1,789     3,965  
Fair value adjustments   (1,511 )   (2,158 )   (198 )
Balance at end of period   $ 35,331     $ 36,598     $ 39,361  
             
    Period End
    June 30,   March 31,   June 30,
Balance by Property Type   2018   2018   2017
Residential real estate   $ 5,155     $ 6,407     $ 7,684  
Residential real estate development   2,205     2,229     755  
Commercial real estate   27,971     27,962     30,922  
Total   $ 35,331     $ 36,598     $ 39,361  

Items Impacting Comparative Financial Results:

Acquisitions

On January 4, 2018, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of Veterans First, in a business combination. The Company also acquired mortgage servicing rights assets from Veterans First on approximately 10,000 loans, totaling an estimated $1.6 billion in unpaid principal balance. Veterans First is a consumer direct lender with three offices, operating two in Salt Lake City and one in San Diego, and originated in excess of $800 million in loans in 2017.

On February 14, 2017, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of American Homestead Mortgage, LLC (“AHM”), in a business combination. AHM is located in Montana’s Flathead Valley and originated approximately $55 million of residential mortgage loans in 2016.

Termination of Loss Share Agreements

On October 16, 2017, the Company entered in agreements with the FDIC that terminated all existing loss share agreements with the FDIC.  The loss share agreements were related to the Company’s acquisition of assets and assumption of liabilities of eight failed banks through FDIC assisted transactions in 2010, 2011 and 2012.

Under terms of the agreements, the Company made a net payment of $15.2 million to the FDIC as consideration for the early termination of the loss share agreements.  The Company recorded a pre-tax gain of approximately $0.4 million in the fourth quarter of 2017 to write off the remaining loss share asset, relieve the claw-back liability and recognize the payment to the FDIC.

Approximately $0.2 million of the remaining net indemnification liabilities that were scheduled to be amortized against future earnings did not occur for the remainder of the fourth quarter of 2017. Additionally, $0.8 million, $0.8 million and $0.7 million each year in 2018, 2019 and 2020, respectively, of previously scheduled amortization will not occur.

The termination of the FDIC loss share agreements has no effect on yields of the loans that were previously covered under these agreements.  Subsequent to this transaction, the Company is solely responsible for all future charge-offs, recoveries, gains, losses and expenses related to the previously covered assets as the FDIC will no longer share in those amounts.

WINTRUST SUBSIDIARIES AND LOCATIONS

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

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

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.
  • Wayne Hummer Investments, LLC is a broker-dealer providing a full range of private client and brokerage services to clients and correspondent banks located primarily in the Midwest.
  • Great Lakes Advisors LLC provides money management services and advisory services to individual accounts.
  • The Chicago Trust Company, a trust subsidiary, allows Wintrust to service customers’ trust and investment needs at each banking location.
  • Wintrust Asset Finance which offers direct leasing opportunities.

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2017 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:

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

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

CONFERENCE CALL, WEB CAST AND REPLAY

The Company will hold a conference call at 10:00 a.m. (Central Time) on Wednesday, July 18, 2018 regarding second quarter and year-to-date 2018 results. Individuals interested in listening should call (877) 363-5049 and enter Conference ID #2188524. A simultaneous audio-only web cast and replay of the conference call may be accessed via the Company’s website at http://www.wintrust.com, Investor Relations, Investor News and Events, Presentations & Conference Calls. The text of the second quarter and year-to-date 2018 earnings press release will be available on the home page of the Company’s website at http://www.wintrust.com and at the Investor Relations, Investor News and Events, Press Releases link on its website.

WINTRUST FINANCIAL CORPORATION

Supplemental Financial Information

5 Quarter Trends

WINTRUST FINANCIAL CORPORATION – Supplemental Financial Information
Selected Financial Highlights – 5 Quarter Trends
(Dollars in thousands, except per share data)

 

    Three Months Ended
    June 30,   March 31,   December 31,   September 30,   June 30,
    2018   2018   2017   2017   2017
Selected Financial Condition Data (at end of period):                    
Total assets   $ 29,464,588     $ 28,456,772     $ 27,915,970     $ 27,358,162     $ 26,929,265  
Total loans, excluding covered loans   22,610,560     22,062,134     21,640,797     20,912,781     20,743,332  
Total deposits   24,365,479     23,279,327     23,183,347     22,895,063     22,605,692  
Junior subordinated debentures   253,566     253,566     253,566     253,566     253,566  
Total shareholders’ equity   3,106,871     3,031,250     2,976,939     2,908,925     2,839,458  
Selected Statements of Income Data:                    
Net interest income   238,170     225,082     219,099     215,988     204,409  
Net revenue (1)   333,403     310,761     300,137     295,719     294,381  
Net income   89,580     81,981     68,781     65,626     64,897  
Net income per common share – Basic   $ 1.55     $ 1.42     $ 1.19     $ 1.14     $ 1.15  
Net income per common share – Diluted   $ 1.53     $ 1.40     $ 1.17     $ 1.12     $ 1.11  
Selected Financial Ratios and Other Data:                    
Performance Ratios:                    
Net interest margin   3.61 %   3.54 %   3.45 %   3.43 %   3.41 %
Net interest margin – fully taxable equivalent (non-GAAP) (2)   3.63 %   3.56 %   3.49 %   3.46 %   3.43 %
Non-interest income to average assets   1.34 %   1.25 %   1.18 %   1.17 %   1.39 %
Non-interest expense to average assets   2.90 %   2.83 %   2.87 %   2.70 %   2.83 %
Net overhead ratio (3)   1.57 %   1.58 %   1.69 %   1.53 %   1.44 %
Return on average assets   1.26 %   1.20 %   1.00 %   0.96 %   1.00 %
Return on average common equity   11.94 %   11.29 %   9.39 %   9.15 %   9.55 %
Return on average tangible common equity (non-GAAP) (2)   14.72 %   14.02 %   11.65 %   11.39 %   12.02 %
Average total assets   $ 28,567,579     $ 27,809,597     $ 27,179,484     $ 27,012,295     $ 26,050,949  
Average total shareholders’ equity   3,064,154     2,995,592     2,942,999     2,882,682     2,800,905  
Average loans to average deposits ratio (excluding covered loans)   95.5 %   95.2 %   92.3 %   91.8 %   94.1 %
Period-end loans to deposits ratio (excluding covered loans)   92.8     94.8     93.3     91.3     91.8  
Common Share Data at end of period:                    
Market price per common share   $ 87.05     $ 86.05     $ 82.37     $ 78.31     $ 76.44  
Book value per common share (2)   $ 52.94     $ 51.66     $ 50.96     $ 49.86     $ 48.73  
Tangible common book value per share (2)   $ 43.50     $ 42.17     $ 41.68     $ 40.53     $ 39.40  
Common shares outstanding   56,329,276     56,256,498     55,965,207     55,838,063     55,699,927  
Other Data at end of period:(6)                    
Leverage Ratio(4)   9.4 %   9.3 %   9.3 %   9.2 %   9.2 %
Tier 1 Capital to risk-weighted assets (4)   10.0 %   10.0 %   9.9 %   10.0 %   9.8 %
Common equity Tier 1 capital to risk-weighted assets (4)   9.5 %   9.5 %   9.4 %   9.5 %   9.3 %
Total capital to risk-weighted assets (4)   12.0 %   12.0 %   12.0 %   12.2 %   12.0 %
Allowance for credit losses (5)   $ 144,645     $ 140,746     $ 139,174     $ 134,395     $ 131,296  
Non-performing loans   83,282     89,690     90,162     77,983     69,050  
Allowance for credit losses to total loans (5)   0.64 %   0.64 %   0.64 %   0.64 %   0.63 %
Non-performing loans to total loans   0.37 %   0.41 %   0.42 %   0.37 %   0.33 %
Number of:                    
Bank subsidiaries   15     15     15     15     15  
Banking offices   162     157     157     156     153  
  1. Net revenue includes net interest income and non-interest income.
  2. See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.
  3. The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency.
  4. Capital ratios for current quarter-end are estimated.
  5. The allowance for credit losses includes both the allowance for loan losses and the allowance for unfunded lending-related commitments, but excluding the allowance for covered loan losses.
  6. Asset quality ratios exclude covered loans.

WINTRUST FINANCIAL CORPORATION – SUPPLEMENTAL FINANCIAL INFORMATION
Consolidated Statements of Condition – 5 Quarter Trends

    (Unaudited)   (Unaudited)       (Unaudited)   (Unaudited)
    June 30,   March 31,   December 31,   September 30,   June 30,
(In thousands)   2018   2018   2017   2017   2017
Assets                    
Cash and due from banks   $ 304,580     $ 231,407     $ 277,534     $ 251,896     $ 296,105  
Federal funds sold and securities purchased under resale agreements   62     57     57     56     56  
Interest bearing deposits with banks   1,221,407     980,380     1,063,242     1,218,728     1,011,635  
Available-for-sale securities, at fair value   1,940,787     1,895,688     1,803,666     1,665,903     1,649,636  
Held-to-maturity securities, at amortized cost   890,834     892,937     826,449     819,340     793,376  
Trading account securities   862     1,682     995     643     1,987  
Equity securities with readily determinable fair value   37,839     37,832              
Federal Home Loan Bank and Federal Reserve Bank stock   96,699     104,956     89,989     87,192     80,812  
Brokerage customer receivables   16,649     24,531     26,431     23,631     23,281  
Mortgage loans held-for-sale   455,712     411,505     313,592     370,282     382,837  
Loans, net of unearned income, excluding covered loans   22,610,560     22,062,134     21,640,797     20,912,781     20,743,332  
Covered loans               46,601     50,119  
Total loans   22,610,560     22,062,134     21,640,797     20,959,382     20,793,451  
Allowance for loan losses   (143,402 )   (139,503 )   (137,905 )   (133,119 )   (129,591 )
Allowance for covered loan losses               (758 )   (1,074 )
Net loans   22,467,158     21,922,631     21,502,892     20,825,505     20,662,786  
Premises and equipment, net   639,345     626,687     621,895     609,978     605,211  
Lease investments, net   194,160     190,775     212,335     193,828     191,248  
Accrued interest receivable and other assets   666,673     601,794     567,374     580,612     577,359  
Trade date securities receivable   450         90,014     189,896     133,130  
Goodwill   509,957     511,497     501,884     502,021     500,260  
Other intangible assets   21,414     22,413     17,621     18,651     19,546  
Total assets   $ 29,464,588     $ 28,456,772     $ 27,915,970     $ 27,358,162     $ 26,929,265  
Liabilities and Shareholders’ Equity                    
Deposits:                    
Non-interest bearing   $ 6,520,724     $ 6,612,319     $ 6,792,497     $ 6,502,409     $ 6,294,052  
Interest bearing   17,844,755     16,667,008     16,390,850     16,392,654     16,311,640  
Total deposits   24,365,479     23,279,327     23,183,347     22,895,063     22,605,692  
Federal Home Loan Bank advances   667,000     915,000     559,663     468,962