Wintrust Financial Corporation

Welcome to Wintrust Financial Corporation's first quarter 2025 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 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 over to Mr. Tim Crane.

Tim Crane Latif, thank you. Good morning, everyone, and thank you for joining us for the Wintrust Financial first quarter earnings call. In addition to the introductions Lateef made, I'm joined by Dave Starr, our Chief Financial Officer, and Kate Bogey, our Chief Legal Officer. 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 on credit performance and loan activity. I'll be back to wrap up with some summary thoughts, and of course, we'll do our best to answer some questions at the end. Let me start with this was a very clean and straightforward quarter. We reported quarterly net income of $189 million and record net interest income of $526 million despite two fewer business days in the first quarter compared to the prior period. These results were in line with our expectations with several positive encouraging underlying elements. For the quarter, we grew loans by over $650 million and deposits by over $1.1 billion. We continue to gain share in the market, adding meaningful new client and household relationships. The net interest margin of 356 was five basis points higher than the fourth quarter result, reflecting disciplined loan and deposit pricing. We remain very neutral from a rate sensitivity standpoint and should continue to show a relatively stable margin in the coming quarters. That relatively stable margin combined with what we expect to be a solid second quarter from the standpoint of loan growth should yield continued good growth in net interest income. Charge-offs for the quarter were down to 11 basis points. The provision of $24 million was in line with the prior several quarters and resulted in slightly improved coverage ratios. Non-performing loans were stable. Overall, we continue to deliver consistent results in line with both our own expectations and those shared with you on prior calls. I'll turn this over to Dave, and I'll be back to offer some additional thoughts in a few minutes.

Great. Thanks, Tim. First, with respect to the balance sheet growth, Tim mentioned another strong quarter of loan and deposit growth. The loan growth was 6% on an annualized basis, which 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 8% on an annualized basis. This resulted in a period end loan to deposit ratio which remained consistent with the prior quarter at roughly 91%. Non-interest bearing deposits remained relatively stable during the first quarter and represented 21% of total deposits at the end of the quarter. Total non-interest bearing balances have stayed in a tight range of approximately 21 to 22% of total deposits for each of the last five quarters. Turning to the income statement results, another solid operating quarter producing a record level of net income and 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 $2.7 million and net security gains of $3.2 million. Those items essentially net each other out for minimal impacted net income and are discussed on the first page of the earnings release if you'd like to refer to them later. With those items in mind, I'll touch on each of the major income statement categories. As Tim mentioned, our net interest income increased slightly compared to the fourth quarter of 2024 to a record quarterly level. An increase of $496 million in average earning assets and a five basis point increase in net interest margin more than offset the two fewer days in the quarter. Our first quarter net interest margin was 3.56% compared to 3.51% in the prior quarter. Yields and rates on the major balance sheet categories were lower because of the recent market declines in short-term interest rates, with the loan yields moving down 15 basis points to 6.53%, and interest-bearing deposit costs declining 23 basis points from the fourth quarter to 3.16%. Given the current interest rate environment and even with a few rate changes in either direction, we remain confident that our net interest margin can continue to be relatively stable throughout the remainder of 2025. The slightly higher provision for credit losses recognized in the first quarter as compared to the prior quarter is primarily attributable to the uncertain economic environment and the potential impact of higher credit spreads and lower financial market valuations. Although I would note that our credit metrics remain low and stable during the first quarter. And the first quarter provision is near the average of the provision for credit losses that we recorded during the last five quarters. Rich Murphy will talk about credit and the loan portfolio characteristics in just a bit. Regarding other non-interest income and non-interest expenses, total non-interest income was relatively consistent with the prior quarter, increasing approximately $3.2 million relative to the fourth quarter of 2024. and totaled $116.6 million. Increases in net security gains and fees from covered call options were somewhat offset by lower wealth management revenue. Mortgage banking activity continued to be subdued and was essentially unchanged from the prior quarter. Turning to non-interest expense categories, non-interest expenses totaled $366.1 million in the first quarter and were well controlled and down approximately $2.4 million from the prior quarter. The primary reasons for the decrease were, one, salary and employee benefit expenses were down approximately $607,000. The slight decrease in this expense category was primarily due to annual merit increases that were effective February 1st, which were more than offset by lower commissions on reduced levels of mortgage and wealth management activity and lower health insurance claims. Relative to the prior quarter, the company experienced a seasonal decline in travel and entertainment expenses, as well as lower levels of professional fees due to a reduced level of project-related consulting fees and slightly lower marketing costs. Offsetting those expenses were approximately $2.7 million of acquisition-related costs during the quarter. The remaining variations in non-interest expenses during the quarter were a combination of other relatively non-noteworthy fluctuations. I would like to talk about second quarter expectations on non-interest expenses. We would expect them to increase slightly based upon the second quarter having a full effect of annual merit increases. So the first quarter had two-thirds of the impact. The second quarter will have the full impact of the merit increases. We expect to experience slightly higher employee benefit expense due to increased level of health insurance claims during the quarter compared to a seasonally low first quarter. And as we've discussed on many previous calls, marketing expenses tend to be higher in the second and third quarter of the year due to expenditures related to various major and minor league baseball sponsorships and other summertime sponsorship events held in the communities we serve. I think we can look at last year's trends and get a feel for roughly how the marketing expenses increase in the middle two quarters of the year relative to the first and the fourth quarters. Additionally, to the extent we see growth in the mortgage and or wealth management revenues, we'd have a corresponding increase in incentive compensation, but that would obviously be an overall beneficial situation. We also continue to build tangible book value per common share, ending the quarter at 78.83 cents per share compared to 75.39 cents per share in the prior quarter, and 70.4 cents per share in the year ago quarter. So with that, I'll conclude my comments and turn it over to Rich to discuss credit.