Wintrust Financial Corporation

Welcome to Wintrust Financial Corporation's fourth quarter and full year 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 relief 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 statement. 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.

Good morning, everybody, and welcome to our fourth quarter 21 earnings call. With me always are Dave Dykstra, Dave Steyer, Kate Bogey, Tim Crane and Rich Murphy. We're going to have the same format as we usually, as we adopted earlier in the year. Seems to go pretty well. I'll give some general comments regarding our results. Turn it over to Tim for more detail on the balance sheet. Turn it over to Dave Dykstra who's going to talk about other income and expense. And Murph will then follow up with the discussion on credit. Come back to me for some summary comments about the future. And... And time for questions. As many of you already know, 12-27-21 marked the 30th anniversary of us opening our first bank. A little more than $6 million in capital raised from friends, neighbors, and family, 11 hearty souls embarked on the journey with absolutely no delusions of grandeur. Our goal was simple, to create a new type of community bank, one that combined high-touch banking with technology, i.e., high-tech, high-touch. to our people and businesses and the communities we serve. All along at the center of our homegrown culture have been four billers, our shareholders, employees, customers, and communities we serve. We now waver from that commitment in the 30 years we've been in existence. Of course, this anniversary I've been asked many times what I'm most proud of about Wintrust. Is it the 5,400 employees that make up Wintrust? Yeah, I'm pretty proud of that. To the $50 billion in banking assets and $35 billion in wealth management assets we've amassed over the years, I'm pretty proud of that too. To the record earnings we have delivered over the years, yes. In fact, our stock price broke the century mark. Feel pretty good about that too. Many of the attributes I'm very proud of. However, what I'm most proud of is the fact our culture has endured over that period. Culture dedicated to doing the right thing for our constituents, All the time. Take the blame, share the fame, and avoid the shame and enjoy the game. Our culture in a nutshell have endured even though we have grown beyond our wildest dreams. So enough of the walk down memory lane. Let's talk about the quarter of the year today results. All in all, another very successful quarter. Previous calls I referred to around as $1 billion quarters. This one's different. It's a $2 billion quarter. ASSETS ROW 2.3 BILLION TO 50.14 BILLION, 7.2% GROWTH, OR $5.1 BILLION, VERSUS 1231.20. CORE LOANS, NET OF PPP, AND LOANS HELD FOR SALE WENT TO $34.2 BILLION, $2 BILLION FOR THE QUARTER, 16.6% GROWTH, OR ABOUT $4.9 BILLION. DEPOSITS TO $42 BILLION OR $2.1 BILLION GROWTH FOR THE QUARTER, 13.5% or $5.2 billion up since 12-31-20. Loan growth was enhanced by the purchase of a portfolio of agency loans from Allstate, priced at $550 million. Tim will talk about this a little bit more. On the balance sheet front, our strategy, which we adopted at the start of the pandemic in April of 2020, of growing through the period and enhancing our interest rate sensitivity position, has paid off in spades. Mortgage and PPP loans took us through the depth of the pandemic, Our growth in core loans is more than replace the earnings power. These assets are extremely well positioned for higher rates. They appear to be here, finally. Paul Harvey, page two. On the earnings front, we record record year, $466 million or $758 million per diluted common share. We record income of $99 million or $58 million per diluted common share. $11% FROM THE THIRD CORE, MAYBE BECAUSE OF THE POSITIVE PROVISION OF $9.3 MILLION, AS OPPOSED TO NEGATIVE PROVISION OF ALMOST $8 MILLION. POSITIVE PROVISION WAS BROUGHT ABOUT BY THE ACQUISITION, THE DOUBLE ECONOMY WE HAVE TO DO THERE, AND THE FACT THAT OUR LOANS HAVE GROWN SO NICELY. THAT INTEREST INCOME WAS UP $8.5 MILLION COMPARED TO Q3. CORE INTEREST INCOME WAS UP $15.5 MILLION. AS THE PPP TRANSFORMATION WAS DOWN $7 MILLION. EARNING ASSET, BASICALLY LOAN LEVELS, THE FIVE BASIS POINTS DECLINE, THE POSITIVE COST OF MAJOR COMMODITIES CHANGE. LOAN PIPELINES REMAIN CONSISTENTLY STRONG. ALSO, WE START 2022, THE NICE HEAD START IS ENDING LOAN BALANCES TO DECEMBER AVERAGE LOANS BY $1.36 BILLION. Line utilization was up a smidge. That's kind of a smidge is a technical term we use around here, but not close to historical averages. We'll discuss it. Murph will talk about this in detail. It means over a billion dollars in loan growth if and when utilization returned to normal. MIM was down slightly for basis points due to additional liquidity. Trade tries, you can expect us to begin investing our excess liquidity. Current duration of our liquidity portfolio is low over three years, close to our normal six-plus years. We'll be prudent in our investment timing, though. CREDIT QUALITY GOT EVEN BETTER, BELIEVE IT OR NOT. MURPH WILL ALSO COVER THIS IN HIS REVIEW OF CREDIT. HOWEVER, I'LL NOTE THAT WE DID CONDUCT AN ASSET SALE NOTED IN THE RELEASE. WE'LL CONTINUE TO CALL THE PORTFOLIO AND GET RID OF BAD ASSETS, PENSION BAD ASSETS, AS SOON AS POSSIBLE. PTPP PRE-TAX PRE-PROVISION INCOME WAS UP APPROXIMATELY $5 MILLION TO $146.3 MILLION. WE EXPECT THE SEMINARY TO GO NICELY IN 2022, ESPECIALLY WITH RATES RISING AS ANTICIPATED. I'LL RUN ON THIS IN MY CLOSING REMARKS. One last point I want to make is our wealth management business. Assets under administration were up almost $1 billion in the quarter, approximately $5.5 billion year-over-year, to $35.5 billion for 18% growth rate. Obviously, the market up these numbers, but core growth in our account tolls is impressive. Fee run rates went from an annualized $107 million in the fourth quarter of 2021, $130 million in the fourth quarter of 2021. 2020, 2020, 2020. Yeah, you got it. I feel like Joe Biden here. I'm not going to talk for two hours. Very proud of the progress made this year. Look forward to continued growth in this area. Had a lot of momentum there. I'll turn it over to Tim. He'll take us through the balance sheet.

Great. Thanks, Ed. I'd like to highlight a couple of balance sheet items as well as comment on a couple items likely to be of interest. The $2 billion in loan growth that Ed referenced was spread nicely across all categories. Rich will add some color to that, but it includes the $578 million of loans from the previously announced November purchase of the Allstate agency loans. This portfolio is a very nice add to our existing agency lending business. Importantly, unlike some loan portfolio purchases that run off over time, this is a business that we believe we can continue to sustain and grow. It's also important to note that the overall loan growth does not yet include much benefit from increased line utilization, where we only saw modest improvement in the quarter. On an annualized basis, the loan growth for the quarter, excluding the portfolio purchase and PPP, was 18 percent, the third straight quarter at or above 15 percent, and Ed mentioned that the period and loan balances were well above the quarter average balances. Obviously, PPP loans continue to run off, down a little over a half billion dollars in the quarter, and now total $558 million, a number we expect to decline relatively quickly with continued forgiveness activity. Into 2022, we expect continued strong loan growth. While our guidance remains our historical mid- to high-single-digit loan growth on a percentage basis, net of PPP, Our short-term performance should continue to be at or above the high end of that range and likely better than peers. The $2 billion of deposit growth, just under half of that was non-interest-bearing deposits and the rest at very low cost. As a result, interest-bearing deposit costs declined to 24 basis points. While we believe there is some continued room for decline, the changes will be smaller going forward as the majority of deposits have repriced during the low-rate cycle. On the investment front, we remained very liquid with approximately $6.1 billion in liquidity at year end, and securities balance is essentially flat. While I expect we will begin to deploy some of the liquidity in the first part of 22 at somewhat higher rates than we saw in the fourth quarter, we remain cautious about locking in low long-term yields and remain very well positioned for rates at higher levels. On that topic, anticipating a question or two about rising rates, We've reported for several quarters that we have focused on remaining interest rate sensitive, expecting the possibility of higher rates. That continues to be the case, and we will benefit from upward changes that the market is starting to price into the consensus forward curves. Just a couple of highlights reinforcing Ed's earlier comments. Approximately 80 percent of our loans reprice within a year. You can see this on page 12 of the supplemental presentation. Our spreads, simply our loan yields versus our deposit costs, improved for the third straight quarter. Securities yields for many instruments are 20 to 50 basis higher than they were even a month ago. And while it's slightly more complicated than this, given loan floors, loan indices, deposit betas, and competitor actions, we believe each 25 basis point change in rates is worth about $40 to $50 million today. in pre-tax net interest income on an annualized basis. And you'll see this in a paragraph on the second page of our press release. The only thing that I would add is that early in the cycle, deposit costs tend not to rise as rapidly as they may following subsequent later increases. You can obviously do the math, but our net interest margin for the quarter was down four basis points, attributed solely to the continued impact of more liquidity. Absent that excess liquidity, our margin would have actually expanded by two basis points. Without large continued inflows, we expect the margin has bottomed and will certainly improve as rates begin to trend up. Going forward, each 25 basis point increase in rates equates to approximately a 10 basis point improvement in margin. And if, and that's a big if, the current consensus rate forecast plays out, its conceivable margin will be around 3% at year end. On the capital front, the bank's capital levels are down slightly as a result of the strong growth in the quarter but remain well within our targeted levels and appropriate on a risk-adjusted basis. Lastly, we continue to be very pleased by our market momentum. Last quarter, we highlighted the favorable Greenwich ratings and the satisfaction of our commercial clients. I would add that Wintrust ended 2021 as the top SBA lender in Illinois. In terms of customer behavior, We continue to see digital usage increase nicely. In 2022, we will continue to improve on our digital offerings with a near total revamp of our consumer and small business digital services. In addition to our high tech improvements, we will also enhance our high touch activities with the addition of locations in Oak Park, Illinois and Rockford, Illinois, both attractive markets where Wintrust historically has had a limited presence. As you can tell, we feel very good about where we begin 2022. And with that, I'll hand it over to Dave.