Wintrust Financial Corporation (WTFC) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 28, 2023. Wintrust is a Rosemont, Illinois-based financial holding company serving primarily the Chicago area, southern Wisconsin and northwest Indiana, with community banking, specialty finance and wealth management businesses. It reported $52.9 billion in total assets.
Financial results and condition
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net revenue | $1.956 billion | $1.711 billion | +14% |
| Net income | $509.7 million | $466.2 million | +9% |
| Diluted EPS | $8.02 | $7.58 | +6% |
| Net interest income | $1.495 billion | $1.125 billion | +33% |
| Net interest margin | 3.15% | 2.57% | +58 bps |
| Non-interest income | $461.1 million | $586.1 million | -21% |
| Non-interest expense | $1.177 billion | $1.133 billion | +4% |
Balance sheet: Assets were $52.95 billion (+6%); loans were $39.20 billion (+13%); deposits were $42.90 billion (+2%); and shareholders’ equity was $4.80 billion (+7%). The average loans-to-deposits ratio rose to 87.5% from 84.7%. Non-interest-bearing deposits were 30% of year-end deposits, down from 34%; brokered deposits rose to $3.17 billion, or 7.4% of deposits, from 3.8%.
Cash flow and liquidity: Operating activities provided $1.375 billion; investing activities used $3.491 billion; financing activities provided $2.196 billion. Year-end cash and cash equivalents were $491.0 million. Overnight liquid funds and interest-bearing bank deposits totaled about $2.5 billion, versus $5.8 billion a year earlier. Management said liquidity was supported by deposits, liquid investments and access to external funding.
Credit and capital: The total allowance for credit losses was $357.9 million, up from $299.7 million; net charge-offs were $20.3 million. Non-performing loans increased to $100.7 million from $74.4 million, and were 0.26% of loans versus 0.21%. Regulatory capital ratios were 9.1% CET1, 10.0% Tier 1, 11.9% total capital and 8.8% leverage; the company and its banks reported meeting applicable well-capitalized standards and the capital conservation buffer.
Debt and securities: Year-end funding included $2.316 billion of FHLB advances, $596.6 million of other borrowings, $437.4 million of subordinated notes and $253.6 million of junior subordinated debentures. The available-for-sale portfolio had $527.1 million of gross unrealized losses; held-to-maturity securities had a $691.2 million fair-value shortfall versus amortized cost. Net securities-related and other comprehensive losses materially reduced reported equity through accumulated other comprehensive loss of $427.6 million.
Material changes versus 2021
- Higher loan yields, growth in earning assets and rising rates drove net interest income up $370.4 million and expanded net interest margin by 58 basis points.
- Mortgage banking revenue fell 43% to $155.2 million as originations for sale declined to $2.8 billion from $6.8 billion and production margins compressed. Mortgage banking was a key offset to stronger net interest income.
- Provision for credit losses was $78.6 million, compared with a $59.3 million benefit in 2021, reflecting weaker forecast assumptions and loan growth. The allowance increased 19%.
- Loans grew faster than deposits. FHLB advances increased to $2.316 billion from $1.241 billion, while year-end liquid funds declined.
- Net losses on investment securities were $20.4 million, largely from equity investment valuation losses. A sharp rise in rates also drove substantial unrealized securities losses in other comprehensive income.
- Wintrust issued 3.45 million common shares in June 2022, raising approximately $285.7 million net. No shares were repurchased under the authorization during 2022.
Outlook, risks and unusual items
- Outlook: The filing provides no specific earnings or revenue guidance. Management described the company as asset-sensitive and noted that about 73% of loan balances were projected to reprice or mature in 2023. It also cited continued uncertainty around rates, the economy, mortgage activity, funding costs and credit conditions.
- Credit concentration: Commercial real estate loans totaled $9.95 billion, 25% of loans; 75.3% were in the company’s primary market area. Management’s credit-loss estimates are sensitive to commercial real estate price assumptions and corporate credit spreads.
- Interest-rate and liquidity risk: Rising rates can benefit asset yields but increase deposit and borrowing costs and pressure mortgage production. The filing’s modeled one-year net-interest-income change under a +200-basis-point shock was +7.2% (static) and +5.6% (ramp); actual outcomes may differ. Deposit competition, uninsured balances and reliance on wholesale funding warrant attention.
- Other risks: The filing highlights regional economic concentration, cybersecurity and third-party operational risk, regulatory and consumer-compliance costs, insurance-premium-finance fraud and insurer-credit risk, and the transition from LIBOR to replacement benchmarks.
- Contingencies: The company disclosed pending California employment/PAGA, fair-lending and ERISA matters. Management said it could not estimate potential liability for these matters and believed the claims were without merit; it did not expect pending matters, taken together, to materially affect operations or financial condition, while noting an unfavorable resolution could affect a particular period.
- Unusual accounting sensitivity: The allowance for credit losses is a significant estimate and the auditor identified it as a critical audit matter. The company reported unqualified audit opinions on its financial statements and internal controls.
- Shareholder return: Common dividends declared totaled $1.36 per share for 2022. In January 2023, the board approved a $0.40 quarterly dividend.
Important facts for investors to verify
- Whether deposit balances and funding costs remain stable, particularly given lower liquid funds, higher FHLB advances and the increase in brokered deposits.
- Whether loan growth and the higher allowance adequately reflect credit risk, with attention to CRE exposure, regional concentration, non-performing loans and charge-offs.
- How much of the 2022 net-interest-income and margin improvement persists as deposit rates reprice and loans reset.
- Whether mortgage banking revenue stabilizes and MSR valuation gains remain supportable as rates and prepayment assumptions change.
- The effect of unrealized securities losses on tangible capital, liquidity flexibility and the company’s ability to hold securities until recovery.
- Developments in the disclosed litigation, LIBOR transition, regulatory requirements and the company’s ability to maintain capital and dividend capacity.