Wintrust Financial Corp (WTFC) Q1 2021 Earnings Call Transcript

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Wintrust Financial Corp (NASDAQ:WTFC)
Q1 2021 Earnings Call
Apr 20, 2021, 11:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Welcome to Wintrust Financial Corporation’s First Quarter 2021 Earnings Conference Call. A review of the results will be made by Edward Wehmer, Founder and Chief Executive Officer; Tim Crane, President; David Dykstra, Vice Chairman and Chief Operating Officer; and Richard Murphy, Vice Chairman and Chief Lending Officer. As part of their reviews, the presenters may make reference to both the earnings press release and the earnings release presentation. Following their presentation, there’ll be a formal question-and-answer session.

During the course of today’s call, Wintrust management may make statements that constitute projections, expectations, beliefs, or similar forward-looking statements. Actual results could differ materially from the results anticipated or projected in any such forward-looking statements. The company’s forward-looking assumptions that could cause the actual results to differ materially from the information discussed during this call are detailed in our earnings press release and in the company’s most recent Form 10-K and any subsequent filings on file with the SEC. Also, our remarks may reference certain non-GAAP financial measures. Our earnings press release and earnings release presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure. As a reminder, this conference call is being recorded.

I will now turn the conference call over to Mr. Edward Wehmer. You may begin.

Edward WehmerFounder & Chief Executive Officer

Thank you. Good morning everybody. Welcome to our first quarter earnings call. With me as always are Dave Dykstra; Dave Stoehr, our Chief Financial Officer; Kate Boege, our General Counsel; Tim Crane, President; Rich Murphy, who runs Credit. A new year means newer different format than we had in the past. I will give you some general comments regarding our results, go to Tim Crane, who’s going to discuss the balance sheet. He will then turn over to Dave Dykstra for more — an analysis of our income statement and Rich Murphy is going to give us an overview on credit. Then back to me for some summary comments or thoughts about the future. We’ll have time for questions.

For the quarter overview, assisted by a strong mortgage quarter, good quarter loan growth in line with previous guidance, the PPP loan production, lagging into excess liquidity utilization and sizable reserves at least we’re able to put up a record quarter, $153.1 million or $2.54 per common diluted share and ROA of 1.38%, ROE of 15.8% — sorry ROE at 15.8%, exceeded than previous quarter. Our net interest margin was constant at 2.54%. Our net interest income was up $2.5 mi from Q4 despite the fact that we had two fewer days in Q1 from Q4. And by now each day is worth approximately $3 million of earnings. Our wealth investment activity was done late the quarter, so this bodes well for Q2 of this year. Our loan growth was excellent. PPP Round 3 totaled $1.4 billion and helped us paid out and forgiveness on PPP Round 1 and 2, $667 million.

We said previously, the strategy was to grow the incredible rate environment relying on margin to enhance earnings until net interest income protection could catch up. We’ve been successful on both fronts to asset growth in the quarter to $600 million in Q4 and $7 billion in first quarter 2020. There still remains our strategy compasses to organic growth.

Now, I’m going to turn over to Tim Crane to talk about our balance sheet.

Tim CranePresident

Thanks, Ed. With respect to the quarter end balance sheet, several items worth highlighting, Ed mentioned the asset growth of just over $600 million. Loans were up $1.1 billion, roughly half related to PPP loan balances. More importantly, the other half or just over $0.5 billion represents core loan growth. Excluding PPP volumes, this represents approximately 7.1% annualized loan growth in line with the consistent loan growth target of mid to high single-digits on a percentage basis.

It’s important to note that the loan growth was strongest at the end of the quarter and that the period end loan balances were over $500 million higher than the quarterly average loan balance indicating strong momentum into the second quarter. Some of this detail is on page eight of the earnings release presentation. The growth was spread nicely across all loan categories and pipelines remain strong for all of our major businesses. We continue to benefit from the addition of clients from the halo effect of our PPP efforts and we’re starting to see more client activity as the pandemic impacts begin to recede. Deposit growth for the quarter was $780 million, a majority of the increase in non-interest bearing deposits. Deposit costs continue to fall primarily as we repriced term deposits. For the quarter, the rate paid on interest bearing deposits fell six basis points to 45 basis points. This is a trend we expect will continue in the coming quarters. Like many institutions, we’ve seen very significant deposit growth and are managing the flows carefully. However, we’ve used stable low cost deposits as a strength of our company and will continue to grow those deposits related to client relationships. Finally, on deposits, we’ve been opportunistic about securing some low cost longer term funding for the bank.

With respect to the securities portfolio, we remain very liquid. We did deploy some liquidity in the first quarter as investment securities increased by approximately $1 billion. As discussed on prior calls, we have done this on a measured basis mindful of the possibility of rising rates and wary of locking in low long-term yields. Approximately half the securities were purchased toward the end of the quarter at a rate above 2% as yields moved up in March from lower levels earlier in the quarter. To get a sense of the timing and the impact of the securities addition, the period end securities were $743, million higher than the average balance for the quarter and had the securities been on the balance sheet for the entire quarter, the margin would have been approximately three basis points higher. Despite the addition of the $1 billion in securities during the quarter, our duration remains approximately flat from a year ago and we remain well-positioned for rising rates. Lastly, as a result of the strong earnings, both the Tier 1 capital ratios and the CET-1 ratio improved from the prior quarter end and remain appropriate given the conservative risk profile of the bank.

Overall, from the standpoint of the balance sheet, we are watching deposit flows carefully, particularly those related to PPP loans, but the main message is continued good growth, which accelerated into the end of the quarter and will help future periods.


David DykstraVice Chairman & Chief Operating Officer

All right, thanks, Tim. As Ed mentioned, I will cover the notable changes throughout the entire income statement and I’ll start with net interest income. For the first quarter of 2021, our net interest income totaled $261.9 million that was an increase of $2.5 million compared to the fourth quarter of last year and a slight increase of $452,000 as compared to the first quarter of 2020. The $2.5 million increase in net interest income compared to the prior quarter was primarily due to the earning asset growth and increased PPP fee accretion, and as Ed mentioned, that’s despite two less days in the first quarter, which are worth about $3 million per day, so good NII growth.

As far as margin goes, it was unchanged from the prior quarter as the rate on interest bearing liabilities declined seven basis points in the first quarter as compared to the prior quarter, which was effectively offsetting a six basis points decline in the yield on total earning assets. The six basis point decline on the yield on earning assets was primarily due to an eight basis points decline in loan yields which were partially offset by a three basis point incre
ase on the yield on liquidity management assets. The decrease in the rates paid on interest bearing liabilities on the first quarter as compared to the prior quarter was primarily due to a six basis point decline in the interest bearing deposits due to lower repricing of our time deposits as Tim mentioned, we expect that to continue. PPP loan fee accretion increased as the company recognized $19.2 million of PPP loan fee accretion in the first quarter and that compared to $16.8 million in the fourth quarter of 2020.

Additionally, as Tim Crane mentioned, the late quarter deployment of liquidity into investments securities and the back end loaded loan growth during the quarter resulted in over $1.2 billion of a period end investment and loan balances exceeding the aggregate average balances of those categories, which we expect again to favorably impact net interest income in the second quarter. The margin is impacted still by excess liquidity on the balance sheet and we’ll be cautious about deploying that and prudent as far as that deployment goes, but there certainly is some upside there if we can deploy additional overnight liquidity into loans and longer term investments.

Turning to provision for credit losses, similar to many other banks that have reported this quarter, Wintrust recorded a negative provision for credit losses of $45.3 million compared to a positive provision of $1.2 million and $53 million in the prior and year ago quarters respectively. The negative provision was driven by a reduction in the allowance for credit losses, primarily due to improvements in the macroeconomic forecasts, including improvements in the commercial real estate price index and the VWAA corporate credit spreads. Additionally, the company saw improvement in…

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