Wintrust Financial Corporation

Welcome to Wintrust Financial Corporation's fourth quarter and full year 2024 earnings conference call. A review of the results will be made by Tim Crane, President and Chief Executive Officer, 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 their 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 over to Mr. Tim Crane.

Good morning. Thank you, Lateef, and thank you for joining the Wintrust Financial fourth quarter earnings call. In addition to Lateef's introductions, with me this morning are Dave Starr, Chief Financial Officer, and Kate Bogey, our General Counsel. In terms of an agenda, I'll share some high-level highlights. Dave Dykstra will speak to the financial results, and Rich will add some additional information and color on credit performance and loan activity. We will cover both fourth quarter, and in some cases, full-year 2024 results. I'll be back to wrap up with some summary thoughts on what we expect in 2025, and of course, we'll do our best to answer some questions at the end. For the year, we reported record net income of $695 million, up over 11.5% from 2023. These results reflect our efforts to generate the solid and continued growth of our franchise with a stable net interest margin. We target steady growth in both loans and deposits, the expansion of our non-interest revenue, sound and conservative liquidity and risk management, and an unwavering commitment to take care of our clients. In our presentation materials, as we do at every year end, we've included a series of historical charts that show solid progress on key metrics over the last 10 years, evidence that our approach not only works, but differentiates us from many of our peers. While this is not new information we think these charts illustrate, perhaps better than I can describe to you verbally, our strong and consistent historical performance. If you haven't already had a chance to review these materials, I would encourage you to take a few minutes to do so. For the fourth quarter, we reported net income of approximately $185.4 million. Net interest income increased 4.5% quarter over quarter, and almost 12% versus last year's fourth quarter. For the quarter, we grew loans and deposits by approximately a billion dollars each, importantly adding clients on both sides of the balance sheet that we believe will be with us for years to come. The net interest margin of 351 was in line with our expectations and represents good success in our effort to reduce margin volatility independent of interest rate fluctuations. I know many of you remember us as historically asset sensitive. It's important, I think, to note that we're now well positioned for an orderly movement of rates and or a shift in the slope of the yield curve. On the credit front, non-performing loans and charge-offs were down relative to last quarter. And again, Rich will spend some time walking you through the credit results and to offer some additional detail on the loan growth experience during the quarter in just a few minutes. Except for fair value-related movements, the mortgage business remains relatively insignificant in terms of financial impact. While we are hopeful to see a seasonal spring pickup in activity, current mortgage activity remains muted. Our other two major fee-based businesses, our treasury management business and our wealth businesses, continue to exhibit very steady growth. Overall, a solid and clean quarter. In particular, I think our teams continue to do a very nice job with respect to pricing and credit discipline, which will continue to show up in our results and specifically our margin going forward. With that, I'll turn this over to Dave and to Rich, and we'll be back to wrap up.

First, with respect to the balance sheet growth, Tim mentioned another strong quarter of balance loan and deposit growth. Specifically, the company recorded $1 billion of growth for loans and $1.1 billion of deposit growth. The loan growth was 8% on an annualized basis that was in line with our prior guidance of being in the mid to high single-digit growth range, and deposit growth for the quarter was approximately 9% on an annualized basis. And for the period, Loan-to-deposit ratio remained stable compared to the prior quarter at roughly 91.5%. Non-interest-bearing deposits remained relatively stable also during the quarter and increased slightly to 22% of total deposits. And it's interesting to note that non-interest-bearing deposits stayed in a fairly tight range during the course of 2024 in the 21% to 22% range. As to other aspects of the balance sheet results, total assets grew approximately $1.1 billion to $64.9 billion, and our risk-based capital ratios were relatively stable or slightly increased due to the strong earnings which supported the balance sheet growth. Overall, it was another successful quarter for our franchise. Our differentiated business model, exceptional team and service, and our unique position in our respective markets that we serve continue to serve us very well. Turning to the income statement, again, a solid operating quarter with just a few moving pieces. To that end, I'll start off by highlighting what we consider the uncommon items to be for the quarter. From our perspective, the quarter included acquisition related costs of approximately $1.8 million, security losses of approximately $2.8 million, unfavorable fair value mortgage banking revenue marks of $1.5 million, and approximately $5.7 million of additional quarterly expense related to the inclusion of the Makatawa Bank operations for a full quarter compared to just two-thirds of a quarter in the third quarter of this year. Each of these items are discussed in the first two pages of the earnings release if you'd like to refer to them later. With those items in mind, I'll now touch on some of the major income statement categories. Our net interest income increased $22.6 million from the prior quarter and represented a record high amount of quarterly net interest income. A $2.6 billion increase in average earning assets and a stable net interest margin contributed to the increase. Our fourth quarter net interest margin was 3.51%, which was equal to the net interest margin in the prior quarter. Yields and rates on major balance sheet categories were lower because of recent market declines in short-term interest rates, with loan yields moving down 22 basis points to 6.68% in the fourth quarter and interest-bearing deposits declining 33 basis points from the third quarter to 3.39%. It's also interesting to note that as a result of these changes in loan and deposit rates and the balance sheet growth was that the interest income increased during the quarter while interest expense actually decreased during the quarter. Given the current interest rate environment consensus forecast for future interest rates, we remain confident that our net interest margin can continue to be in a narrow range around 3.5% throughout 2025. We recorded a provision for credit losses of $17 million in the fourth quarter, which was lower than the $22.3 million amount recorded in the prior quarter. The lower provision for credit losses recognized in the fourth quarter as compared to the prior quarter is primarily attributable to the day one provision for credit losses of approximately $15.5 million related to the Macatawa acquisition, which was recognized in the third quarter of this year. Turning to other non-interest income and non-interest expense sections, total non-interest income remained stable at approximately $113 million in both the third and the fourth quarter. Wealth management revenue, mortgage revenue, and service charge income had the largest gains during the quarter, with those gains offset by security losses, foreign currency, remeasurement losses, and miscellaneous other changes, with the net result for the non-interest income increasing just $304,000. As to mortgage banking revenue, it increased by $4.5 million in the fourth quarter compared to the third quarter, primarily due to a change in fair value marks. a favorable $5.5 million impact. Offsetting this positive impact was a decrease in operational mortgage banking revenue of approximately $1 million in the fourth quarter compared to the prior quarter, and that was due to slightly lower originations of mortgage loans and slightly lower gain on sale margins. As to non-interest expenses, total non-interest expenses totaled $368.5 million in the fourth quarter, and were up approximately $7.9 million from the third quarter. The primary reasons were, one, the non-interest expenses associated with the McIntyre Bank acquisition, which were approximately $5.7 million higher in the fourth quarter, including the core deposit and tangible amortization, to account for a full quarter of activity rather than two-thirds of a quarter recorded in the third quarter. The remaining increase of approximately $2.2 million was a combination of relatively normal fluctuations with one of the largest increases of $2.7 million related to increased software expense associated with upgrading, maintaining our IT and information security infrastructure and furthering our investments in digital products and services, and the largest decrease of approximately $5.1 million related to the less advertising marketing costs as this category of expenses tends to be lower in the fourth and the first quarters to primarily less marketing for sponsorship expenditures related to various major league and minor league sponsorships and other summertime sponsorship events that we hold in our communities. Total non-interest expenses as percent of average assets declined to 2.31% for the fourth quarter compared to 2.36% in the prior quarter and 2.62% in the fourth quarter of last year, demonstrating improved expense leverage. In summary, this is a very solid quarter with good loan and deposit growth, a stable net interest margin with a steady outlook, a record level of net interest income, and a continued low level of non-performing assets. Our team delivered net income that was a record for any full fiscal year in the company's history, and we have a positive outlook for continued growth in asset revenue and earnings. We also continue to build our tangible book value per common share in 2024. And as you can see on slide 10 of our presentation deck, we've grown tangible book value per common share every year since we've been a public company. And although it's easy to get caught up in these quarterly results, I think it's instructive to look back over time. And as Tim referred to the 10-year charts that we included in our earnings release, I think if you look at those, they really provide impressive evidence that our approach to running the business has provided for consistent growth in loans, deposits, earnings, and tangible book value per share over an extended period of time, all while managing our credit risk very well. And we'll continue to work hard to continue those trends into 2025 and beyond. And with that, I'll conclude my comments and turn it over to Rich Murphy to discuss credits.