Wintrust Financial Corporation

Welcome to Wintrust Financial Corporation's first quarter 2022 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 presentations. 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 the 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 FCC. 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 over to Mr. Edward Wehmer.

Thank you very much. Welcome, everybody, to our first quarter 22 earnings call. With me, as always, are Dave Dykstra, Dave Starr, Kate Bogey, who is remote, so I don't have the shock collar on, so I'm in great shape for today, Tim Crane, and Rich Murphy. We're going to go with the same format as we always do. I'm going to give some general comments regarding our results. I'm going to turn it over to Tim for more detail on the balance sheet. Dave Dykstra will follow some details on income statement, and Rich Murphy will comment on credit. And then back to me for some summary comments and thoughts about the future and some questions after that. All in all, it was a very good quarter. It went pretty much according to plan. Answer growth may seem muted compared to prior quarters. Last year, we had approximately $1 billion per quarter and $2 billion in the fourth quarter. We know that probably half of that $2 billion of growth is going to be transitory, not like inflation, but really transitory. It's related to the few big customers who experience large liquidity events at the end of the year. Does turnout be a case? So it appears we're back on $1 billion growth level per quarter as we're up just a little over $100 million in total assets. Managers' income and the margin both improved as expected. Ten basis points on the margin sans PPP. and $3 million out of net interest income, despite two fewer days in the quarter, and each stage worth approximately $3 million, plus or minus. The quarter-percent increase occurred late in the quarter, so we expect to receive further benefits going forward. Each quarter-percent increase should provide up to $50 million net interest income on an annualized basis, with the borrower positioned for future rate increases. Loans grew at the upper end of our guidance at around 9%. Because it was very diversified, pipelines remain extremely strong. Keep saying credit can't get any better, but it does. NPAs and NPLs remain extremely low. NPLs fell 17 million, 57.3 million, or 0.16% of total loans. NPAs decreased 15 million to 63.5 million, or 0.13% total assets. These are incredible numbers for a $50 billion bank. If I do say so myself, HARD TO GET MUCH BETTER, BUT WE WILL CONTINUE TO TRY. DAVE WILL DISCUSS OTHER INCOMPETENT DETAIL. I WANTED TO MAKE ONE COMMENT. AND MANY OF YOU DID NOT COUNT MSR VALUATION INCREASES AND DECREASES. THEY'RE A VERY IMPORTANT PART OF OUR PLANNING. INCLUDES SEEING THIS QUARTER BASICALLY OFFSET THE OCI EFFECT HIGHER RATE ON OUR TANGIBLE BOOK VALUE, WORKED ACCORDING TO PLAN. WHILE MANAGEMENT FEES CONTINUE TO GROW, OTHER EXPENSES WERE, OTHER EXPENSE GROWTH WAS PRETTY MUCH BENIGN. THE NUMBERS SIDE OF THINGS, I'M NOT GOING TO REPEAT EVERYTHING, $127.4 million, 29% over the fourth quarter. Blued earnings per share, $2.07. Pre-tax, pre-provision, $134.03. Anyhow, I'm sorry, $177.76 pre-tax, pre-provision. Pre-provision, $130 million. Earnings per share, $213.00. Pre-provision and margin of 261. We feel pretty good about where we are right now. And with that, I'm going to turn it over to Tim, who's going to cover official detail on the balance sheet.

Go ahead, Tim. Great. Thanks, Ed. In addition to the $800 million and the 9% loan growth, important to note that period end loan balances excluding PPP We're over $500 million ahead of the quarter average, which should help our second quarter results. PPP loans continue to run down as they are forgiven, and at roughly $250 million at quarter end, they're no longer material and will largely be gone by mid-year. Going forward, while encouraged by growing pipelines, we believe that loan growth in the mid to high single digits on an annualized basis remains a reasonable expectation given the uncertainty surrounding the macroeconomic outlook. Ed mentioned deposit growth of approximately 125 million for the quarter. This was influenced by a handful of very large client outflows related in most cases to funds that came to us in the fourth quarter and then left in the first quarter, essentially in and out transactions that crossed year end. Absent those outflows, organic deposit growth continued as expected. Entering the second quarter, we continue to watch deposit levels. and expect some continued volatility from atypically large commercial transactions. Interest-bearing deposit costs of 22 basis points for the quarter was down two basis points from year end and likely represents the low point of the cycle. While competitor deposit pricing remains muted, we are starting to see increases in the most rate-sensitive of the deposit categories. An example would be municipal deposits that track some of the state investment indices. On the investment front, with rates increasing, we deployed some liquidity during the quarter. Total investments were up approximately $1.2 billion. Remaining patient in deploying our excess liquidity continues to benefit the bank as rates continue to rise. At quarter end, liquidity remains strong with an excess of $4 billion yet to be deployed. Of note, our securities book of $6.5 billion is approximately 47% available for sale 53 percent held to maturity. The rapid rise in rates resulted in unrealized losses on the AFS securities that, combined with dividends and net of the bank's earnings, resulted in a small 30-cent reduction in tangible book value. On a percentage basis, this is one-half of one percent of the year-end tangible book. As rising rates and rate sensitivity remain a topic of interest, I want to reiterate some of what we discussed on the last quarter's call. First, we remain very asset sensitive and well positioned to benefit from rising rates. As shown in our presentation materials, 80 percent of our loans reprice or mature within a year. To reinforce Ed's earlier comments, we're early in the rate cycle. We continue to believe each 25 basis point increase in rates will generate approximately $40 to $50 million in pre-tax net interest income on an annualized basis and approximately a 10 basis point improvement in the margin. To be more specific on the margin, for the quarter, the margin improves six basis points on a reported basis, 10 points excluding PPP. On our last call, we suggested that the consensus rate forecast could result in a margin approaching 3% by year end. With more current projections, it's likely we will meet that target much earlier than anticipated and may approach 325 by year end. On the capital front, there was very little change in the bank's capital as earnings supported the quarter's growth. Capital remains appropriate on a risk-adjusted basis. Lastly, we continue to be pleased by our market momentum. In past quarters, we've highlighted the recognition the bank received from Greenwich regarding the satisfaction of our commercial clients. This quarter, we learned the bank was ranked highest in retail customer satisfaction by J.D. Power and Associates for Illinois. For six consecutive years, we've ranked first or second in customer satisfaction, something we're proud of, and it speaks to the strength of our retail banking franchise. With that, I'll hand it over to Dave.