Wintrust Financial Corporation

Welcome to Wintrust Financial Corporation's third quarter and year-to-date 2021 earnings conference call. A review of the results will be made by Edward Wehmer, former 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 references to both the earnings press release and earnings release review presentation. Following their presentations, there will 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 would now like to turn the conference call over to Edward Wehmer.

Thank you very much. Welcome, everybody, to our third quarter earnings call. As mentioned, with me are Dave Dykstra, Dave Starr, Kate Bogey, Tim Crane, and Rich Murphy. We have the same format as we instituted earlier this year. I'm going to give some general comments regarding our results. Go over to Tim Crane for more detail on the balance sheet, and to Dave Dykstra for other intel and other expense. And Rich Murphy will discuss credit. Back to me for some summary comments and thoughts on the future, and then time for questions. On the overview, all in all, very successful quarter. I can almost give the same comments made at the end of Q2. At the end of last April, at the start of the pandemic, the government's massive response to it indicated winter was supposed to be, was going to attempt to grow through it. We've accomplished this goal, and as such, third quarter shows this strategy is working. All our growth to date has been organic. Second quarter is another all-around billion-dollar quarter. Assets, deposits, core loans, not a PPP loans, all grew by over a billion dollars. Both prospects remain very good. A particular note, core loan growth resulted in overall increase in total loans for the quarter, even after PPP runoff. We're able to achieve another billion dollar loan quarter in Q4, which we believe is more than a reasonable assumption given our pipelines, which, by the way, are 13 months high at quarter end. We'll fully replace all the PPP balances. This was our intent before we embarked on this strategy. The income for the quarter was $109 million, or $1.77 for the losing common share. Here today, we stood at $367.4 million, or $6 per share. Ported net interest margin decreased four basis points, 2.59% to 2.59%, primarily due to excess liquidity. Net interest income was up $19.7 million from quarter two, if you back out the PPP loan income. In total, net interest income was up almost $8 million over quarter two. Period on loans exceeded average loans of the quarter by $670 million, which bodes well for Q4. Our liquidity portfolio is up $1.563 billion on average. This portfolio remains very short, over $5.2 billion in overnight money at the Fed, Investing this money as rates rise is a lever we can pull when the time is right. Stone Grove, as I say, was excellent in all areas of our business, as are current pipelines. Line usage remains low, a little over 39%. It's up around 1% from the end of quarter two. It appears we've hopefully hit bottom on this, and line usage started to increase. Normal average is close to 50%, so return on loan would add another billion dollars in outstanding loans. Credit quality got even better, and charge-offs totaling like net zero. We had some charge-offs, but we had recoveries, which should indicate to you our conservatism and writing things off and looking good on recovery. NPLs and NPAs were constant versus Q2. NPLs rose $2.5 million to $90 million for 27 basis points, while NPAs shrunk $2.5 million to 22 basis points. This plus improved portfolio quality and Moody's sunnier view of the overall economy, southern reserve release of $7.9 million. Mortgage increased experience and growth in the quarter. Dave will discuss in detail. Wealth management continued steady improvement, fees up $1 million for a quarter, up $18 million year-to-date. Let's turn the call over to Tim, who's going to provide some additional detail on the balance sheet.

Tim? Good. Thanks, Ed. I'd like to briefly highlight a few balance sheet items as well as cover two topics that appear to be of interest. First, with respect to the balance sheet, Total assets increased to just under $48 billion as we continue to experience strong growth. As Ed mentioned, loans excluding PPP grew $1.2 billion during the quarter, essentially mirroring last quarter's growth. The growth was spread across virtually all loan categories, as Rich will discuss in a few minutes. On a percentage basis, this is the second straight quarter where annualized loan growth, again excluding PPP, was approximately 15%. With respect to PPP loans, we saw a reduction of approximately $800 million during the quarter. At this point, almost all of the PPP loans originated in 2020 have been forgiven, and approximately half of the loans from 2021 either have been or are in the process of being forgiven. By year end, we project the remaining PPP balances will be down materially and the remaining income impact to be relatively small. For the remainder of the year, we are comfortable with our loan growth target at mid to high single digits on a percentage basis. Again, rich will provide some additional color on loan pipelines and the factors that would drive potential upside to that number. Deposit growth for the quarter was also strong, $1.1 billion, almost all of it either DDA or low-cost deposits. This is an annualized growth rate of approximately 12%. Despite the high levels of PPP forgiveness, we are not seeing unusual volatility in customer deposits. This quarter, the interest-bearing deposit cost fell another nine basis points to 29 basis points. This is largely a function of CD repricing. Deposit costs will continue to decline, but at a slower pace in coming quarters. As we've noted in prior periods, we continue to monitor the deposit growth carefully, given the high levels of liquidity in the market. However, we've used stable, low-cost deposits as a strength of the company and will continue to pursue deposits related to client relationships. On the investment front, we remain very liquid. During the quarter, our securities balances were up slightly as we replaced investments maturing, but generally have not yet moved to deploy the large amounts of excess liquidity as we remain wary of locking in low, long-term yields. As the market continues to trend up, We will evaluate our position and view appropriate deployment of this liquidity as an opportunity in future periods to improve the margin and income. Our capital levels remain appropriate given the conservative risk profile of the bank. You will note that during the quarter we repurchased approximately $9.5 million worth of stock at just over $71 per share. Given where we believe volumes and yields will land, we continue to expect that despite lower PPP accretion, net interest income will increase as it has for four consecutive quarters, and that excluding PPP, the margin will remain roughly stable. I have two other brief comments that relate to new slides in the earnings release presentation. The first has to do with digital adoption. You'll see on page nine of the presentation that our high-touch community banking model also has a high-tech component. and that we are seeing the same increases in digital adoption and usage that some larger banks have reported. We continue to upgrade our digital capabilities to give clients options on how they would like to be served. These capabilities position us to compete successfully and, in some cases, to differentiate ourselves versus our competitors. Currently, you'll see that a full two-thirds of our checking clients regularly use our digital services. Page 10 in the presentation document is also a new slide. It relates to the customer satisfaction of our commercial clients. In this case, the source is Greenwich data. And as you can see, WinTrust is top ranked across a host of important categories. To scale this for you, the 97% overall satisfaction score WinTrust achieves compares generally to scores in the 60s and 70s for many of our competitors. The service we provide increases the depth of our relationships and is the foundation for our strong momentum in the Illinois and Wisconsin markets, as well as nationally in many of our niche businesses. With that, I'll turn it over to Dave.