Wintrust Financial Corporation (NASDAQ: WTFC) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with 2022. This is an annual filing, not a standalone fourth-quarter results report.
Business context
Wintrust is an Illinois-based financial holding company with $56.3 billion in assets, operating 15 banks and 174 banking locations, primarily in the Chicago metropolitan area, southern Wisconsin and northwest Indiana. Its three segments are community banking, specialty finance and wealth management. Specialty finance includes insurance-premium financing, equipment finance and accounts-receivable financing.
Financial performance and condition
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net income | $622.6 million | $509.7 million | +22% |
| Diluted earnings per common share | $9.58 | $8.02 | +19% |
| Net revenue | $2.272 billion | $1.956 billion | +16% |
| Net interest income | $1.838 billion | $1.495 billion | +23% |
| Net interest margin | 3.66% | 3.15% | +51 basis points |
| Non-interest income | $434.1 million | $461.1 million | -6% |
| Non-interest expense | $1.312 billion | $1.177 billion | +11% |
| Provision for credit losses | $114.4 million | $78.6 million | Higher |
| Total assets at year-end | $56.3 billion | $52.9 billion | +6% |
| Loans at year-end | $42.1 billion | $39.2 billion | +7% |
| Deposits at year-end | $45.4 billion | $42.9 billion | +6% |
Profitability improved: return on average assets was 1.16% (1.01% in 2022), and return on average common equity was 12.90% (11.41%). The non-GAAP efficiency ratio improved to 57.55% from 59.38%. The effective tax rate was 26.3%, versus 27.2%.
Segment net income: Community banking earned $414.1 million, up from $349.3 million; specialty finance earned $175.5 million, up from $120.9 million; wealth management earned $33.0 million, down from $39.4 million. Community banking generated about 74% of consolidated net revenue, specialty finance 19%, and wealth management 7%, before intersegment eliminations.
Cash flow and liquidity: Net cash provided by operating activities was $744.4 million, compared with $1.375 billion in 2022. Investing activities used $3.238 billion, primarily reflecting loan growth; financing activities provided $2.426 billion, including $2.495 billion of deposit growth. Year-end cash and cash equivalents were $423.5 million, with $2.084 billion of interest-bearing deposits at banks. The company reported $15.1 billion of liquidity sources, approximately 117% of $12.9 billion in uninsured and uncollateralized deposits.
Credit and capital: Net charge-offs rose to $45.5 million from $20.3 million. Non-performing loans increased to $139.0 million from $100.7 million, or 0.33% of loans versus 0.26%; other real estate owned was $13.3 million. The allowance for credit losses was $427.6 million, including the allowance for held-to-maturity securities; the allowance for loans and unfunded lending commitments was $427.3 million. Commercial real estate loans totaled $11.3 billion, 27% of loans, with 68.8% located in the company’s primary markets. Company capital ratios were 9.4% CET1, 10.3% Tier 1 and 12.1% total capital; the company and all subsidiary banks were reported above applicable well-capitalized standards.
Funding and debt: Non-interest-bearing deposits fell to 23% of year-end deposits from 30%, as balances shifted toward interest-bearing products. Average cost of interest-bearing deposits rose to 2.81% from 0.62%. Year-end balances included $2.326 billion of FHLB advances, $645.8 million of other borrowings, $437.9 million of subordinated notes and $253.6 million of junior subordinated debentures. A $140 million subordinated note matures in June 2024; the revolving credit facility matures in December 2024.
Material changes and unusual items
- Higher rates, loan growth and a shift in earning-asset mix drove the margin increase and higher net interest income. Interest expense rose sharply, including deposit interest expense of $906.5 million versus $175.2 million in 2022.
- Mortgage banking revenue declined 46% to $83.1 million; mortgage originations for sale decreased to $2.0 billion from $2.8 billion. Management cited lower production and unfavorable mortgage-servicing-rights fair-value adjustments, partly offset by favorable adjustments to certain government-guaranteed early-buyout loans.
- FDIC insurance expense rose to $71.1 million from $28.6 million. This included a $34.4 million estimated special assessment related to 2023 bank failures, recorded in the fourth quarter and payable in installments beginning June 2024.
- The company’s available-for-sale securities had $3.503 billion fair value against $3.980 billion amortized cost; held-to-maturity securities had $3.215 billion fair value against $3.857 billion amortized cost. Management said available-for-sale unrealized losses were interest-rate and market-driven and it did not expect to need to sell those securities before recovery. Accumulated other comprehensive loss was $361.2 million.
- The company acquired Rothschild & Co Asset Management U.S. businesses in April 2023, recording $2.6 million of goodwill. Common dividends were $1.60 per share for 2023; the board approved $0.45 per share quarterly for early 2024. No open-market common-share repurchases were made in 2023.
Outlook, management commentary and risks
Management did not provide formal earnings or revenue guidance. Its interest-rate sensitivity discussion assumes three 25-basis-point Federal Reserve rate cuts beginning in June 2024 and anticipates net interest margin remaining in a narrow range near its then-current level in the near term. Management said approximately 72% of current loan balances were projected to reprice or mature in 2024 and may use derivatives or other balance-sheet actions to manage rate exposure.
Key risks include rising deposit costs or deposit outflows, interest-rate and securities valuation exposure, credit deterioration, and commercial real estate concentration—particularly office properties, which were 3.45% of total loans. The filing also highlights regional economic concentration, premium-finance exposure to insurance agents and carriers, cyber and third-party risks, regulatory and FDIC assessment costs, and mortgage servicing and repurchase exposure. Management reported no cybersecurity incident to date that had or was reasonably likely to have a material effect. Three disclosed legal matters remained contested; management said it could not estimate potential liability for those matters, while stating that their eventual outcomes were not expected to materially affect operations or financial condition, though an unfavorable resolution could affect a particular period.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. The allowance for credit losses was identified as a critical audit matter because of model complexity and judgment in forecasts and qualitative adjustments.
Important facts for investors to verify
- Whether deposit pricing and mix stabilize, and how the 2024 loan repricing profile affects net interest income and margin.
- Trends in commercial real estate, non-performing loans, charge-offs and allowance adequacy, including office exposure and local-market concentrations.
- Liquidity coverage and the composition and renewal behavior of uninsured deposits; confirm the filing’s uninsured-deposit measures and maturities.
- Realized securities losses or funding needs that could make securities sales necessary, given the fair-value discounts in the held-to-maturity portfolio.
- The impact of 2024 debt and funding maturities, including the June subordinated-note maturity, FHLB put/call dates and Canadian secured borrowing maturity.
- Whether mortgage banking revenue, MSR valuations and the disclosed legal matters or mortgage repurchase claims change materially.