Wintrust Financial Corporation

Welcome to Wintrust Financial Corporation's third 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 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 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.

Thank you very much. Welcome, everybody, to our third quarter earnings call. With me are Dave Dykstra, Dave Starr, Kate Bogey, our general counsel, Tim Crane, and Rich Murphy. They're the same format as usual. There's some general comments regarding our results. Turn it over to Tim Crane, who will give detail on the balance sheet and the margin. Dave Dyches, who then will discuss other income and other expense in detail. Rich Murphy will then discuss credit. Back to me for some summary comments and thoughts about the future. And as always, time for questions. First of all, I will tell you I did survive my back surgery. I was out a couple months, which probably were a couple weeks, which is probably the reason for the numbers being as good as they are this quarter. But all is well here, and the rumors of my demise have been greatly exaggerated. So I'm back in the saddle. For the quarter, income of $143 million, up 51% for the second quarter. Diluted earnings per share of $221 million, or FOR A DOLLAR UP 48% FROM THE PREVIOUS QUARTER. ON A PRE-TAX, PRE-PROVISION BASIS, I THINK THERE'S A RECORD FOR US, $206 MILLION. OUR NET INTEREST MARGIN AT $335 IS MOVING UP NICELY. THE BEACH BALL IS COMING UP. I HAVE SOME WORRY THAT THE BEACH BALL MIGHT BE SUFFERING FROM THE BENS COMING UP SO FAST, SO KEEP AN EYE ON THAT, THOUGH. TURN ASSETS 1.12, TURN EQUITY OF 12.31, TURN TANGIBLE EQUITY OF 15. THE OVERHEAD RATIO IS UP A LITTLE BIT, BUT TO BE EXPECTED. ON AN OVERALL BASIS HERE TODAY, IT'S 1.35, BUT 1.53 THIS QUARTER, AS DAVE WILL DISCUSS. WE HAD TO TAKE SOME EXTRA COMPENSATION BECAUSE OF HOW WELL THE QUARTER IS GOING. LET'S SEE. Credit front, Rich Murphy will talk about that. But we did have one large credit come in, basically, that took up a lot of the – makes up a lot of the – all the increase, really. We did have a couple bigger ones roll off, too. But we think that's adequately covered. Rich will talk about that. Assets, we closed at $52.4 billion. Loans were up $1 billion or more, up $750 – If you think of average versus quarter end, we start this quarter with a nice head start, and everything looks good going forward in that regard. Deposit's up $204 million. We're going to need to start pushing deposits very hard to keep up with our loan growth, and we've got a lot of ideas there, and they are being instituted as we speak for lower-cost deposits to come in. With that, I'm going to turn it over to Tim to take it away.

Great. Thanks, Ed. A couple of balance sheet items and then several items of interest, including the continued impact of rising rates on margin expectations. Ed mentioned the $1.1 billion of loan growth. That's 12% annualized. And importantly, it's spread nicely across all loan categories. In addition, the period end loan balances, Ed also mentioned $735 million higher than the quarter average, which will help our fourth quarter results. We're encouraged by stable loan 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 economic outlook. The $200 million worth of deposit growth affected by the rapid rise in rates combined with Fed balance sheet actions. It's making deposit gathering more challenging and the cost of deposits are rising. Interest-bearing deposit costs of 64 basis points for the quarter. We're up 36 basis points and will continue to trend up. We obviously anticipate continued increases in both the Fed funds rate and the rate associated with the bank's loan and deposit activities. Increases in loan yields at this point of the cycle continue to exceed the change in deposit costs, given our asset-sensitive position. Our deposit betas and the increase in deposit costs to date are in line with our expectations. We anticipate an interest-bearing deposit beta of approximately 40% over the full cycle and are currently operating below that level. Our securities book remained essentially unchanged in the quarter. At quarter end, liquidity remained strong with approximately $4 billion of interest-bearing cash on the balance sheet. Early in the fourth quarter, we deployed approximately $1 billion of the excess liquidity in the higher-yielding securities with attractive spreads. As we discussed last quarter, our securities book is approximately 47% available for sale and 53% held to maturity. During the quarter, the rise in interest rates resulted in an additional tax-adjusted unrealized loss of approximately $142 million on the AFS securities. While that's material, the tangible book value of 5842 remains stable compared to this time last year. With respect to rate sensitivity in the margin, first, although our gap position is down slightly, we remain asset sensitive and well positioned to benefit from continued rising rates. As a reminder, and this is outlined on page seven of the presentation, Approximately 80% by dollars of our loans repriced or mature within a year. Second, as we experience increasing rates, we continue to believe each 25 basis point increase in the Fed funds rate will generate approximately $40 million in pre-tax net interest income on an annualized basis. To be more specific on the margin, Ed mentioned the 335 that was up 42 basis points for the quarter. With rates rising rapidly, we've exceeded the margin improvement that we've discussed or projected on prior calls. At this point, depending mostly on the impact of competition for deposits, we believe a margin in excess of 370 is possible for the fourth quarter, with the margin approaching 4% at some point during the first quarter, also depending on the pace and magnitude of Fed funds' increases. Perhaps worth noting, during the quarter, the bank entered into several interest rate callers, These collars with terms between three and five years essentially provide some margin protection in the event that rates fall again to very low levels. For the quarter, capital ratios were stable to down slightly but remain appropriate given our risk profile. And as we also discussed last quarter, with higher rates and more typical loan growth, the company's earnings are projected to result in organic improvement to capital levels in the coming quarters. Overall, a pretty clean quarter. And with that, I'll turn it over to Dave.