Wintrust Financial Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Wintrust is a financial holding company focused on community banking in the Chicago area, southern Wisconsin and northwest Indiana, with specialty finance and wealth management businesses. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $401.4 million | $287.5 million | $1,038.5 million | $829.0 million |
| Net interest margin (GAAP) | 3.34% | 2.58% | 2.96% | 2.58% |
| Provision for credit losses | $6.4 million | $(7.9) million | $30.9 million | $(68.6) million |
| Non-interest income | $101.5 million | $136.5 million | $367.2 million | $452.4 million |
| Non-interest expense | $296.5 million | $282.1 million | $869.4 million | $849.1 million |
| Net income | $143.0 million | $109.1 million | $364.9 million | $367.4 million |
| Diluted EPS | $2.21 | $1.77 | $5.78 | $6.00 |
Q3 net interest income rose 40%, supported by higher rates and loan growth; net interest margin increased 76 basis points year over year. Nine-month net income was slightly lower despite higher net interest income, as 2021 included a substantial credit-loss provision release and 2022 mortgage banking revenue was lower. Q3 efficiency ratio was 58.59% versus 66.17% a year earlier; nine-month ratio was 61.25% versus 66.27%.
Balance sheet, cash flow and capital
- At September 30, 2022, total assets were $52.4 billion, up 10% year over year. Loans were $38.2 billion, up 15%; deposits were $42.8 billion, up 7%.
- For the first nine months, operating cash flow was $1.06 billion, investing cash outflow was $2.95 billion and financing cash inflow was $1.97 billion. Cash and cash equivalents ended the period at $489.6 million.
- Management reported approximately $4.5 billion in overnight liquid funds and interest-bearing bank deposits at quarter-end. This is a broader liquidity measure than cash and cash equivalents.
- FHLB advances were $2.32 billion, compared with $1.24 billion at December 31, 2021. Other borrowings were $447.2 million, subordinated notes $437.3 million and junior subordinated debentures $253.6 million. The $100 million revolving credit facility had no outstanding balance.
- Regulatory capital ratios at quarter-end included an 8.8% Tier 1 leverage ratio, 9.9% Tier 1 capital ratio, 9.0% common equity Tier 1 ratio and 11.8% total capital ratio. The company reported compliance with credit-agreement covenants.
- Accumulated other comprehensive loss was $458.7 million, versus accumulated other comprehensive income of $4.1 million at year-end 2021, primarily reflecting rate-driven unrealized losses on available-for-sale securities and derivatives. Held-to-maturity securities had $2.7 billion fair value against $3.39 billion carrying value.
Material changes and operating trends
- Q3 loan growth included commercial, commercial real estate, residential real estate and premium finance receivables. Premium finance average balances grew 21% year over year, while the PPP loan balance fell to $43.7 million.
- Mortgage banking revenue fell 51% in Q3 and 37% year to date, to $27.2 million and $137.8 million, respectively, as higher rates reduced mortgage originations and production margins. Q3 loans originated for sale were $660.7 million versus $1.56 billion a year earlier.
- Q3 salaries and benefits increased 3%; advertising and marketing rose 23%. Nine-month total non-interest expense increased 2%.
- Common equity was bolstered by a June 2022 public offering of 3.45 million shares, producing approximately $285.7 million net proceeds. The quarterly common dividend was $0.34 per share, up from $0.31 in 2021.
Outlook, risks and unusual items
- The filing provides no specific earnings, revenue or margin guidance. Management cited continued loan growth, higher-rate benefits and adequate liquidity, while emphasizing uncertainty around economic conditions and credit forecasts.
- Credit-loss provision reflected loan growth and forecast assumptions, notably Baa corporate credit spreads. The allowance for loans and unfunded commitments was $315.0 million; net charge-offs were $15.2 million for the nine-month period. Non-performing loans were $97.6 million, or 0.26% of loans, at quarter-end.
- Management noted that rising rates and market volatility drove significant unrealized securities and hedge losses in other comprehensive income. Available-for-sale securities had $554.8 million of gross unrealized losses; the company said it did not consider these credit losses and did not intend or expect to be required to sell before recovery.
- Interest-rate sensitivity modeling showed estimated one-year net interest income changes at September 30 of +12.9% for a static +200-basis-point shock and +6.5% under the +200-basis-point ramp scenario; modeled declines under a 100-basis-point decrease were 8.7% and 3.9%, respectively. Actual results may differ.
- Key risks include interest-rate and deposit-cost changes, economic deterioration and borrower defaults, commercial real estate exposure concentrated in Illinois and Wisconsin, mortgage-market weakness, fair-value estimation, cyber and operational risks, and the ongoing LIBOR transition. The filing reported no material changes to the risk factors in the 2021 Form 10-K.
- Two 2022 mortgage-related lawsuits were disclosed: a California PAGA wage-payment action and a putative fair-lending class action. The company disputes the allegations and said potential liability could not be estimated. Management did not expect the described matters to materially affect operations or financial condition, though an unfavorable resolution could be material for a particular period.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether net interest margin gains persist as deposit rates and funding costs reprice.
- How loan quality, non-performing loans, charge-offs and the allowance evolve amid economic uncertainty, especially in commercial real estate and premium finance.
- Whether securities-related accumulated other comprehensive losses affect capital, liquidity or management’s ability to hold investments through recovery.
- Mortgage banking revenue, origination volumes and mortgage servicing rights valuations as interest rates and prepayments change.
- Future funding needs, FHLB advance levels, deposit mix and the maturity and terms of outstanding debt.
- Developments and potential exposure in the disclosed litigation, and any subsequent filing updates to outlook or risk disclosures.