Wintrust Financial Corporation

Welcome to Wintrust Financial Corporation's second quarter and year-to-date 2021 earnings conference call. A review of the results will be made by Edward Wimmer, 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 the reviews, the presenters will be making reference to both the earnings press release and the earnings release presentation. Following the presentations, there will be a formal question and answer session. During the course of today's call, Windrush management may make statements that constitute objections, expectations, beliefs, or similar forward-looking statements. Actual results could differ materially from the result 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 representation of its non-GAAP financial measures 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.

Morning, everybody, and welcome to our second quarter earnings call. As mentioned with me are Dave Dykstra, our Chief Operating Officer, Dave Starr, our CFO, Kate Bogey, our General Counsel, Tim Crane, President, and Rich Murphy, Vice Chairman of Credit. We're going to stick with the format we started in first quarter. You don't have to listen to me as much. You can listen to Dave who's going to talk more. I'm going to give some general comments about our results. Dave Dykstra will give us a detailed analysis of the income statement. Tim Crane will talk about the balance sheet. Rich Murphy will provide an overview of credit. Then back to me for some summary comments and thoughts about the future. Of course, time for questions. Last April, at the start of the pandemic and the government's massive response to it, which included an elongated zero-interest rate environment, I indicated a win-trust approach would be to try to go through it. Dave, we have accomplished this goal. So, so far, so good. Second quarter shows the strategy is working. The growth today has been, all our growth today has been organic since that period of time. Second quarter was all around billion-dollar quarter, I like to say. Assets, deposits, and core loans out of PPV loans grew by approximately a billion dollars plus or minus. Our growth prospects remain very good. The income for the quarter totaled $105 million or $1.70 per common share. Year-to-date income was $258.3 million, $4.24 per common share. It reported that interest margin grew nine basis points to 2.63%, while net interest income was up $17.7 million in Q1. To back up the PPP loan income, the NIM grew three basis points, 2.49%. Core loan growth and investment activity was that at the end of the quarter, So this builds well for quarter three. Period end loans exceeded average loans in the quarter by over $800 million. So we start Q3 with that in our back pocket. As I said, loan growth was excellent. The pipelines in all our businesses remained very good. It's important to align usage to an all-time low of about 39%. Normal average is closer to 50%. So we will go back to that. We have a billion dollars of growth built in there. Credit quality got even better with net charge-offs totaling two basis points. NPLs and NPAs reached down. NPLs fell 11.3 million to 87.7 million, or 27 basis points, while NPAs fell 11.6 million to stand at 22 basis points total assets. This resulted in a reserve release of about $15.3 million. Keep saying credit can't get better. It keeps getting better. It's hard to believe. The mortgage experience is an inevitable decline in the quarter. Dave will discuss this in detail. It should be noted wealth management has been immune to this growth story. Assets under administration grew 2 billion or 5.3% or 25% annualized in the quarter through both the overall market and new business. Our wealth management assets now total 34.2 billion 32.2 billion at the end of quarter one, 30 billion at the end of the prior year. I'll turn it over to Dave for review of the income statement. I'm sorry.

This is Tim. I'll do the balance sheet maybe just for a second and then turn it over to Dave. As Ed mentioned, in the quarter, assets grew a billion one to 46.7 billion. A couple of items worth highlighting here. First, we experienced very strong core loan growth, loans excluding PPP, We're up $1.2 billion in the quarter. Growth was spread nicely across loan categories, commercial real estate, and our niche businesses. Rich will share a little more detail in a few minutes. On a percentage basis, this $1.2 billion equates to 15% annualized growth. And on a year-to-date basis, our loan growth, excluding PPP, is just over 11% annualized. As Ed mentioned, we believe these growth numbers are solid. as during the quarter we continued to see a decline in utilization, a trend that in the coming quarters we hope will reverse and will help rather than hurt our loan growth activity. In addition, the pipelines remain strong as we see evidence of accelerating economic activity in our markets. With respect to PPP loans, we saw a reduction of $1.4 billion as the forgiveness activity accelerated materially during the quarter. Total PPP loans at the end of the quarter were $1.9 billion, down from a peak of $3.3 billion at the end of the first quarter. For the remainder of the year, we remain comfortable with our loan growth target of mid to high single digits on a percentage basis, but could see upside with either improved line of credit utilization or continued strong market conditions. Deposit growth for the quarter was $932 million, a majority of the growth in non-interest-bearing DDA. This represents annualized growth of nearly 10%. Deposit costs continued to fall as we primarily repriced term deposits. For the quarter, the cost of interest-bearing deposits fell an additional seven basis points to 38 basis points, a trend we expect to continue in the coming quarters. Notably, the non-interest-bearing DDA deposits now comprise a third of our total deposits. As we've noted in prior quarters, we're monitoring the significant deposit growth carefully. However, we view stable, low-cost deposits as a strength of our company and will continue to grow those deposits related to client relationships. Obviously, like many institutions, we also remain very liquid. With rates falling and at low levels for most of the quarter, we held our securities position essentially stable during the quarter. We remain cautious in our deployment of the excess liquidity, wary of locking in low, long-term yields. We continue to evaluate our options and view the appropriate deployment of this liquidity as an opportunity in future periods. Given where we think volumes will land going forward, we expect generally steady to improving net interest income in the coming quarters despite lower levels of PPP accretion, and excluding PPP, expect a generally steady net interest margin. Capital levels essentially held steady during the quarter with strong growth and remain appropriate given the conservative risk profile of the bank. Overall, we remain well positioned to benefit from either stronger economic activity or higher rates or both as we enter the second half of the year. Dave?