Wintrust Financial Q4 2024 Earnings Report

Wintrust Financial EPS Results

• Actual EPS: $2.63
• Consensus EPS: $2.52
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: $1.87

Wintrust Financial Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $640.71 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Wintrust Financial Announcement Details

• Quarter: Q4 2024
• Date: 1/21/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, January 22, 2025
• Conference Call Time: 10:00AM ET

Wintrust Financial (NASDAQ:WTFC) operates as a financial holding company. It operates in three segments: Community Banking, Specialty Finance, and Wealth Management. The Community Banking segment offers non-interest bearing deposits, non-brokered interest-bearing transaction accounts, and savings and domestic time deposits; home equity, consumer, and real estate loans; safe deposit facilities; and automatic teller machine (ATM), online and mobile banking, and other services. It also engages in the retail origination and purchase of residential mortgages; and provision of lending, deposits, and treasury management services to condominium, homeowner, and community associations, as well as asset-based lending for middle-market companies. In addition, this segment offers loan and deposit services to mortgage brokerage companies; lending to restaurant franchisees; direct leasing; small business administration loans; commercial mortgages and construction loans; and financial solutions. It provides personal and commercial banking services primarily to individuals, small to mid-sized businesses, local governmental units, and institutional clients. The Specialty Finance segment offers commercial and life insurance premiums financing for businesses and individuals; accounts receivable financing, value-added, and out-sourced administrative services; other specialty finance services; equipment financing through structured loan and lease products; and property and casualty premium financing; as well as data processing of payrolls, billing, and cash management services to temporary staffing industry. The Wealth Management segment provides wealth management services, such as trust and investment, asset management, tax-deferred exchange, securities brokerage, and retirement plan services. Wintrust Financial Corporation was founded in 1991 and is headquartered in Rosemont, Illinois.

Wintrust Financial Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Welcome to Lintrust Financial Corporation's 4th Quarter and Full Year 2024 Earnings Conference Call. A review of the results will be made by Tim Crain, 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, WindTrust's management may make statements that constitute projections, expectations, beliefs or similar forward looking statements.

[Operator]

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 ks 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.

[Operator]

I would now turn the conference over to Mr. Tim Crane.

[Tim Crane, President and CEO at Wintrust Financial]

Good morning. Thank you, Latif, and thank you for joining the WindTrust Financial 4th quarter earnings call. In addition to Latif's introductions, with me this morning are Dave Starr, Chief Financial Officer and Kate Bogie, 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.

[Tim Crane, President and CEO at Wintrust Financial]

We will cover both Q4 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 $695,000,000 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.

[Tim Crane, President and CEO at Wintrust Financial]

In our presentation materials as we do it 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 Q4, we reported net income of approximately $185,400,000 Net interest income increased 4.5% quarter over quarter and almost 12% versus last year's 4th quarter. For the quarter, we grew loans and deposits by approximately $1,000,000,000 each, importantly adding clients on both sides of the balance sheet that we believe will be with us for years to come.

[Tim Crane, President and CEO at Wintrust Financial]

The net interest margin of 3.51 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, nonperforming 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.

[Tim Crane, President and CEO at Wintrust Financial]

Except for fair value related movements, the mortgage business remains relatively insignificant in terms of financial impact. While we are hopeful to see our seasonal spring pickup in activity, current mortgage activity remains muted. Our other 2 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.

[Tim Crane, President and CEO at Wintrust Financial]

With that, I'll turn this over to Dave and to Rich and we'll be back to wrap up.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Thanks, Tim. First, with respect to the balance sheet growth, Tim mentioned another strong quarter of balanced loan and deposit growth. Specifically, the company recorded $1,000,000,000 of growth for loans and $1,100,000,000 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%.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

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 other aspects of the balance sheet results, total assets grew approximately $1,100,000,000 to $64,900,000,000 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.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

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 $1,800,000 security losses of approximately 2,800,000 unfavorable fair value mortgage banking revenue marks of $1,500,000 and approximately $5,700,000 of additional quarterly expense related to the inclusion of the McAtala Bank operations for a full quarter compared to just 2 thirds of a quarter in Q3 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 balance sheet major income statement categories.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Our net interest income increased $22,600,000 from the prior quarter and represented a record high amount of quarterly net interest income. A $2,600,000,000 increase in average earning assets and a stable net interest margin contributed to the increase. Our 4th quarter net interest margin was 3.51 percent, which was equal to the net margin in the prior quarter. Yields and rates on major balance sheet categories were lower because of recent market declines and short term interest rates with loan yields moving down 22 basis points to 6.68% in the 4th quarter and interest bearing deposits declining 33 basis points from the 3rd 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.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

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 provision for credit losses of $17,000,000 in the 4th quarter, which was lower than the $22,300,000 amount recorded in the prior quarter. The lower provision for credit losses recognized in the 4th quarter as compared to the prior quarter is primarily attributable to the day 1 provision for credit losses of approximately $15,500,000 related to the McAtala acquisition, which was recognized in the Q3 of this year. Turning to other non interest income and non interest expense sections. Total non interest income remained stable at approximately $113,000,000 in both the 3rd and the 4th quarter.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

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 the mortgage banking revenue, it increased by $4,500,000 in the 4th quarter compared to the 3rd quarter, primarily due to a change in fair value marks of favorable $5,500,000 impact. Offsetting this positive impact was a decrease in operational mortgage banking revenue of approximately $1,000,000 in the 4th 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 300 and $68,500,000 in the 4th quarter and were up approximately $7,900,000 from the 3rd quarter. The primary reasons were 1, the non interest expenses associated with the Makataua Bank acquisition, which were approximately $5,700,000 higher in the 4th quarter, including the core deposit intangible amortization to account for a full quarter of activity rather than 2 thirds of a quarter recorded in the 3rd quarter. The remaining increase of approximately $2,200,000 was a combination of relatively normal fluctuations with one of the largest increases of $2,700,000 related 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 $5,100,000 related to less advertising marketing costs as this category of expenses tends to be lower in the 4th and the 1st quarters due 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.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Total non interest expenses as a percent of average assets declined to 2.31 percent for the 4th quarter compared to 2.36% in the prior quarter and 2.62% in the Q4 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.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

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 an 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 credit.

[Rich Murphy, VC and CLO at Wintrust Financial]

Thanks, Dave. As Tim and Dave both noted, credit performance continued to be very solid in the 4th quarter. As detailed in the earnings release, loan growth for the quarter was $1,000,000,000 or 8% annualized. As noted on Slide 7, we saw strong and consistent growth across all major portfolios. A couple of specific areas of note include the Mortgage Warehouse team, which had another strong quarter as we continue to onboard new relationships, which have come with some meaningful deposit opportunities.

[Rich Murphy, VC and CLO at Wintrust Financial]

Portfolio residential real estate loans, which grew by $225,000,000 down from $321,000,000 in Q3, but indicative of the pickup of mortgage activity we saw in the second half of the year. We also saw growth in both the commercial premium finance and life premium finance segments. Loan growth for all of 2024 was $5,900,000,000 or 14% including the acquisition of Makatawa Bank and organic growth was $4,600,000,000 or 11%. We believe that loan growth for the Q1 of 2025 will continue to be strong and aligned with our previous guidance of mid to high single digits for a number of reasons. Our core C and I and leasing pipelines remain very solid and we have very strong momentum in our niche businesses including leasing, mortgage warehouse and Wintrust Life.

[Rich Murphy, VC and CLO at Wintrust Financial]

Offsetting this growth are signs of increased competition, competitive pressure as other banks and non banks look to deploy their capital by offering more aggressive pricing and structures that will not meet our standards. In summary, we continue to be optimistic about our ability to grow loans at attractive rates and maintain our credit discipline. From a credit quality perspective, as detailed on slide 15, we continue to see strong performance with signs of stabilization across the portfolio. This can be seen in a number of metrics. Non performing loans as a percentage of total loans decreased slightly from 38 basis points to 36 basis points.

[Rich Murphy, VC and CLO at Wintrust Financial]

NPLs in total were down for the quarter from $180,000,000 to $171,000,000 It's interesting to note that we have seen 3 straight quarters of lower NPLs in our commercial premium finance portfolio as we continue to manage the stress from the transportation segment of that portfolio. We are pleased to see this trend improve as a result of tighter loan structures and enhanced underwriting. Charge offs for the quarter were $15,900,000 or 13 basis points, down from $26,700,000 or 23 basis points in Q3. This reduction in charge offs is primarily the result of improved performance at our core commercial loan portfolio. Our portfolio continues to be very solid, well diversified and very granular.

[Rich Murphy, VC and CLO at Wintrust Financial]

Additional evidence of this can be seen on slide 15 where we saw stable to improving levels in our special mention and substandard loans. We believe that this quarter's level of NPLs and charge offs reflect a more stabilized credit environment as evidenced by the chart of historical non performing asset levels on slide 16. Finally, we are firmly committed to identifying problems early and charging them down where appropriate. Our goal as always is to stay ahead of any credit challenges. As noted in our last few earnings calls, we continue to be highly focused on our exposure to commercial real estate loans, which comprise roughly a quarter of our total portfolio.

[Rich Murphy, VC and CLO at Wintrust Financial]

A prolonged higher interest rate environment and continued pressure on occupancy and lease rates has affected CRE valuations, particularly in the office category. As detailed on Slide 19, we saw promising signs of stabilization during the 3rd quarter as CRE NPLs decreased from 0.33 percent to 0.16%. As noted earlier, we also saw CRE charge offs reduced from 53 basis points in Q2 to essentially 0 for the 3rd Q4. On Slide 20, we continue to provide enhanced detail on our CRE office exposure. Currently, this portfolio remains steady at $1,700,000,000 or 12.8 percent of our total CRE portfolio and only 3.5 percent of our total loan portfolio.

[Rich Murphy, VC and CLO at Wintrust Financial]

Of the $1,700,000,000 in office exposure, 44 percent is medical office or owner occupied. The average size of a loan in the office portfolio is only $1,500,000 and we have only 8 loans above $20,000,000 and only 5 of which are non medical or owner occupied. We perform portfolio reviews regularly on our CRE portfolio and we stay very engaged with our borrowers. As mentioned on prior calls, our CRE credit team regularly updates our deep dive analysis of every non owner occupied loan over $2,500,000 which will be renewing between now and the end of Q3 of 2025. This analysis which covered 84% of all non owner occupied CRE loans maturing this period resulted in the following.

[Rich Murphy, VC and CLO at Wintrust Financial]

Roughly half of the loans reviewed will clearly qualify for a renewal at prevailing rates. Roughly 34% of these loans are anticipated to be paid off or which will require a short term extension at prevailing rates. The remaining loans will require some additional attention, which could include a pay down or a pledge of additional collateral. We continue to back check the results of portfolio reviews conducted during prior quarters and have found that the projected outcomes versus the actual outcomes were very tightly correlated. And generally speaking, borrowers of loans deemed to require additional attention continue to support those loans.

[Rich Murphy, VC and CLO at Wintrust Financial]

As we have stated on prior calls, our portfolio is not immune from the effects of higher rates or the market forces behind lease rates, but we continue to proactively identify weaknesses in the portfolio and work with our borrowers to identify the best possible outcomes. We are also focused on the effects on our portfolio from the tragic wildfires in California, particularly in light of the relationship First Insurance Funding has with the insurance industry. We have done a thorough review of our entire portfolio and we would anticipate little impact, particularly in our premium finance portfolio, which is primarily secured by commercial policies. Our thoughts and prayers are with those who have been impacted by these tragic events. As many of you know, we have been in this business almost since our inception and we have seen minimal impact on our results from the numerous natural disasters experienced during this time.

[Rich Murphy, VC and CLO at Wintrust Financial]

However, it does provide our teams the opportunity to utilize their industry expertise to service and support our clients during these difficult times. In summary, we continue to be encouraged by the trends we saw in the Q4 and throughout 2024 and we believe that our portfolio is in reasonably good shape and appropriately reserved. That concludes my comments on credit and now I'll turn it back to Tim.

[Tim Crane, President and CEO at Wintrust Financial]

Great. Thanks, Rich. To wrap up our prepared remarks, I'd like to offer a couple of observations. This past year, our diverse businesses, specifically those related to asset generation, allowed us to grow loans and add clients when many others did not. The growth this quarter was evidence of that.

[Tim Crane, President and CEO at Wintrust Financial]

It was spread nicely across all categories. And while we're not immune to macro market factors, these diverse businesses allow us to effectively manage our growth, risk and to a degree, pricing. We believe the market moves to an area where pricing or credit structures become pressured, we're not compelled to compete and can adjust accordingly, often without compromising our target results. We believe the margin will be relatively stable into 2025. You might ask if we would benefit from a steepening yield curve.

[Tim Crane, President and CEO at Wintrust Financial]

The answer is that we may, but as Rich mentioned, we are also seeing some early signs of spread compression in loan pricing. We believe this is a reaction to muted loan growth at some competitor financial institutions in 2024. We enter 2025 with a lot of momentum. We're optimistic about our ability to continue to profitably grow our franchise. Pipelines are good.

[Tim Crane, President and CEO at Wintrust Financial]

Remain excited about the opportunities in West Michigan as a result of the McAtawah acquisition and in other markets where we've expanded. For example, Rockford, Illinois, the 4th largest city in Illinois, where we recently added 3 locations and are seeing very nice early results. We have a great team. They focus every day on taking care of clients in a way that others don't and in some cases can't and managing the related risks. That's how we win and that's what will generate continued strong financial results going forward.

[Tim Crane, President and CEO at Wintrust Financial]

I'm pleased with the Q4 and 2024 results. And at this point, I'll pause and we can take some questions.

[Operator]

Our first question comes from the line of Jon Arfstrom of RBC Capital Markets. Your question please, Jon.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Good morning, Jon. Thanks. Good morning, guys. Tim, just on some of your and maybe Rich as well on some of your comments on loan growth. I think I understand what you're saying.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

You alluded to it. You've grown when others have not, but you're seeing some more competition. Can you just talk about what you're hearing from your clients from a sentiment point of view? And curious what you're really saying and what you're flagging for growth expectations for 2025 based on what you're seeing today?

[Rich Murphy, VC and CLO at Wintrust Financial]

Yes. I mean, we're the guidance that

[Rich Murphy, VC and CLO at Wintrust Financial]

we provided, I think, is very realistic. And as you know, we've actually done better this past year than the guidance. And I think that where I do get nervous and I think I kind of point out in my comments and Tim's comments is that a lot of the opportunities that we saw like in CRE, I would point to in particular that we saw some really good opportunities over the course of the last 2 years that were priced right, structured right, really an opportunity to grow our portfolio and also to grow relationships. Those have in, I'd say, in the last 60 days become much more price sensitive. A lot more people in the market right now looking to do deals.

[Rich Murphy, VC and CLO at Wintrust Financial]

I think people who may have been a little bit anxious about their exposure in that category had kind of pulled out and now are back in. And again, as Tim pointed out, we're just not going to chase deals that we got to get appropriately paid for it. So I'm not overly concerned about those issues. I think again, that's why we have all these different asset categories. When something is not working, generally speaking, something else will.

[Rich Murphy, VC and CLO at Wintrust Financial]

But it's just we just it's a reminder to ourselves that we don't need to grow if it's not going to work for us. So again, we're not changing our guidance. We're not suggesting anything other than it's going to be a little bit of a headwind that we hadn't experienced over the last couple of years.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Okay. Fair enough on that. And then maybe Tim or Dave for you, I know it's a difficult question, but Tim you mentioned muted activity in mortgage. I actually thought you had a decent production quarter given the environment, but curious how you guys are feeling about the near to medium term outlook. And is there a rate level or a mortgage rate level where activity really starts to pick up?

[Tim Crane, President and CEO at Wintrust Financial]

Yes. I mean, John, we're obviously hopeful that there'll be some sort of pickup in the spring. There are signs that inventory is getting a little bit better. That was certainly one of the issues. On the rate front, as we mentioned last quarter, when in the Q3, we saw rates dip down to near 6%, we saw a pickup in activity that was pretty material and pretty rapid.

[Tim Crane, President and CEO at Wintrust Financial]

At 7%, that's less the case. And then many of our markets were hopefully on the tail end of kind of winter here. So, I would say something close to 6 would help. Inventory is going to get better, but we're still bouncing along the bottom right now.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Okay. All right. Thank you, guys. I'll step back.

[Tim Crane, President and CEO at Wintrust Financial]

Yes. Thanks, John.

[Operator]

Thank you. Our next question comes from the line of Jeff Rulis of D. A. Davidson. Please go ahead, Jeff.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Thanks. Good morning.

[Tim Crane, President and CEO at Wintrust Financial]

Good morning, Jeff.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Early part of the press release, you kind of call out some of the thematics or the focal points for 2025. And you included the expense management and just wanted to recheck if that's a course of just general good practice or if there's some real focal points that you want to tighten up or areas that you're looking at on that front on the expense specifically?

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

No, I think it's just an area of good practice to watch your expenses. We're still a growing company and so we're still investing in our digital products and our infrastructure and supporting the growth of the company. We certainly expect as Rich said that our loan growth will be the mid to high single digits for the year and we expect our expense growth to be less than that. And I think we said on the last call sort of maybe mid single digits over the current run rate for expense growth and then you would get operating leverage out of that. To the extent that loan growth didn't come, we have levers that we can pull and we could pull back on the expense growth.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

But our goal is to watch expenses closely, but continue to invest in the business to support the growth and we think that that's prudent as

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

we

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

have always done in our life is invest in the business and grow and get new customers and that investment pays dividends to compete with the big guys. So just more watching the expenses closely and that characterization I think is the best.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Okay. Thanks, Dave. Maybe if I could just check-in on M and A and appetite post Makatawa, kind of see about interest levels on your end. And then maybe if you could just touch on the priorities on capital if M and A is quiet, if you don't find those partnerships?

[Tim Crane, President and CEO at Wintrust Financial]

Well, with respect to M and A, we obviously field phone calls and post election, there's a level of enthusiasm that is perhaps increased. I would expect that we would continue to be disciplined. To Dave's point, we're investing in the business. We're building an infrastructure that can support a larger institution. And if we find an opportunity, great.

[Tim Crane, President and CEO at Wintrust Financial]

If not, we're very good at organic growth on a de novo basis. And Rockford that I mentioned would be an example of that, where we've added several locations in the 4th largest city in Illinois and there's been some disruption in that market and we're doing quite well. So I think time will tell, but certainly there's a higher level of enthusiasm, but nothing too specific to talk about. And Dave, you want to take the second part of that?

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Well, I mean from the capital perspective, is our capital ratios were relatively stable. CET1 went up a 10th of a point. We'd expect that to continue to grow with our mid to high single digit loan growth projections and our earnings levels. So I think we'll just continue to grow the capital over time and look for the acquisition opportunities. But I think the supporting the growth is the best use of capital right now and we don't have so much excess capital that we would look at a buyback right now.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Okay. And then just a housekeeping item, nice NPL move lower. It's the OREO up. Is just anything on is that acquired or legacy or just things flowing through on the OREO side?

[Rich Murphy, VC and CLO at Wintrust Financial]

Just things flowing through, taking in non performing, taking possession of the asset and getting the asset marketed, moving it out. That's just kind of what we do.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from the line of Terry McEvoy of Stephens Inc. Your line is open, Terry.

[Terry Mcevoy, Managing Director at Stephens Inc]

Thanks. Good morning, everyone. I think just starting with the 3.50 ish margin outlook, could you just talk about some of your deposit repricing and beta assumptions in that 3.50 and also where you see non interest bearing deposits trending? Sure.

[Tim Crane, President and CEO at Wintrust Financial]

The interest bearing deposit beta is around 67%, 65%, which is very close to what we saw kind of in the other side of the cycle here. Incremental interest bearing deposits coming on and kind of the 4% range for CDs, the 3% range for money market, kind of on a blended basis, the deposit growth in the low 3s. And with incremental asset generation in the kind of high 6s, it continues to support a margin in the 3.50 range. So feel very good about the matched loan and deposit growth as we go forward. We did see a bump up a little bit in non interest bearing deposits at the end of the quarter as we sometimes do.

[Tim Crane, President and CEO at Wintrust Financial]

But to Dave's point earlier, pretty consistent for the year in the 21% plus range and expect that, that would continue going forward. We'd like it to continue going forward. Especially the reason I think that's a good result for us in particular because we've experienced very material deposit growth this year. So as the denominator moves to be able to keep that flat is good indication that we're adding commercial relationships and commercial deposits.

[Terry Mcevoy, Managing Director at Stephens Inc]

Understood.

[Terry Mcevoy, Managing Director at Stephens Inc]

And then as a follow-up, Rich, I think you talked about just larger banks committing to loan growth in 2025 and it sounds like more of that is back end loaded. But when you look at your mix of businesses core leasing niche, what areas have kind of a mode around it where you think you're better protected from market competition? Should that occur this year or as this occurs this year?

[Rich Murphy, VC and CLO at Wintrust Financial]

Yes. No, it's a great question. I think that the certainly, I think you look at both premium finance businesses as having reasonably sized moats. I think we are industry leaders where we are our teams are very seasoned. They there's a lot of interesting pieces floating around in the insurance world these days and having a trusted partner is really an important piece.

[Rich Murphy, VC and CLO at Wintrust Financial]

So I think there's a good sized moat there. I think the work that we've done on the leasing side and growing that business out also has a pretty good opportunity for us to grow. Another interesting area is we talk about mortgage a lot. 2 areas that I think have been somewhat muted in their growth, but have if rates do come down and our mortgage warehouse, we've demonstrated pretty meaningful growth here over the course of the last year. And our resi portfolio has also grown nicely that if we do get a pickup in mortgage volume, we'll see some growth there.

[Rich Murphy, VC and CLO at Wintrust Financial]

So I think there's real opportunities here. But the other one that's kind of interesting and we've talked about it a lot is our course C and I growth that we've seen over the course of really the last 10 years, but certainly more pronounced in the last couple of years because of some of the marketplace dynamics in our primary market of Chicago. Those dynamics really haven't changed. And so we think that that ability to compete in the Chicago market on core C and I still is really a great opportunity for us. So I think there are some decent moats and that's why we continue to be pretty optimistic about our guidance on loan growth.

[Terry Mcevoy, Managing Director at Stephens Inc]

Great. Thanks for taking my questions.

[Tim Crane, President and CEO at Wintrust Financial]

You bet. Thanks.

[Operator]

Thank you. Our next question comes from the line of Nathan Race of Piper Sandler. Please go ahead, Nathan. Hey guys, good morning.

[Nathan Race, Director, Senior Research Analyst at Piper Sandler Companies]

Thanks for taking the questions. Going back to the discussion around the margin outlook, if the Fed remains on pause this year, maybe we get one cut in early 3Q. Curious if you think the margin can expand under that outlook just given what you have in terms of additional deposit cost leverage or is some of the repricing headwinds that kind of lag bed cuts on the insurance premium finance side of things somewhat of a headwind. I know there's a number of other yield curve dynamics that play into that, but just curious if you think there's some potential for margin expansion that is on hold for 2025?

[Tim Crane, President and CEO at Wintrust Financial]

Yes. So Nate, our kind of baseline assumption assumes one cut in the model. I think if it were to move on a quarterly basis either way from that our margin kind of continues to hold in the 3.50 range. To the degree that there's kind of upside opportunity, it will depend on the competitive environment that we find ourselves in and sort of the mix of business. But we've positioned for a pretty stable margin and think that we'll get good NII growth as a result of growth of the balance sheet.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Yes.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Nate, I'd say the thing that maybe impacts that view a little bit more is not so much what the Fed does on the short end because as Tim says, they're pretty neutral to that for these small moves. But the positive slope to the yield curve is helpful to us versus inverted curve in the past. So that offset some of the headwinds that Rich said he's concerned with competitive pricing. But we don't have that much that we priced long. And so there is some upside there, I think.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

But these headwinds on the mix of business and the like, you put it all into a pot of chili and it comes out being relatively stable, we think.

[Nathan Race, Director, Senior Research Analyst at Piper Sandler Companies]

Got it. That's helpful. And Dave, while I have you, I think last quarter we were discussing maybe that the gain on sale margin in mortgage can get back to 2%. Obviously, there were a number of factors that maybe inhibited that this quarter, but just curious how you're thinking about the gain on sale margin trajectory in 2025?

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Well, I still think when we talked about that last quarter, the rates were higher, we saw that little bit of a pop in applications and that we're optimistic and then sort of the whole curve the curve shot back up and mortgage prices shot back up. And as Tim says, in the low 6s, it was instructive to hit that because we did see a lot of pickup in volume in that short period of time. But then the market moved sort of dramatically back up. So put a little pressure, but you got to put in perspective, we've got $20,000,000 roughly of mortgage revenue and $10,000,000 of that is pretty steady in servicing. So the remaining $10,000,000 is as we said is muted and low.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Hopefully that goes up, but I would expect unless rates come down, we probably say all in $20,000,000 to $30,000,000 of net revenue in mortgage banking and if rates come down, we can it's gravy if rates come down. If we see some pickup in mortgage, that's just positive to us, I think, at this point because we think we have the infrastructure to support it. But if the activity picks up, I would expect that margin to get closer to 2% again. But it's really a fairly small piece of our earnings right now.

[Nathan Race, Director, Senior Research Analyst at Piper Sandler Companies]

Right. That's helpful. If I could just sneak one more question. I know we have some time until some of the preferred series reset or they're callable, but would just be curious to get your updated thoughts on managing capital and just in light of potentially refinancing or redeeming some of those preferred series?

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Yes, I mean they come up for re pricing in June and given the spreads that are on those with or if you were to look today, we'll either replace them with a new instrument that would have a tighter spread on them or just look to see what the other capital alternatives are in the market. We always do what's most favorable to the shareholders. And so we'll look and like you said, we have some time those aren't until June 5 or 6 months seems like an eternity in the banking world these days. So we'll see what happens with rates and what the markets do. But I think we like leverage in our capital stack.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

And so if the preferred market is open and favorable, we've most likely would just replace them.

[Nathan Race, Director, Senior Research Analyst at Piper Sandler Companies]

Okay. That's very helpful. I appreciate all the color. Thanks guys.

[Tim Crane, President and CEO at Wintrust Financial]

Thanks, Nate.

[Operator]

Thank you. Our next question comes from the line of Chris McGratty of KBW. Please go ahead, Chris.

[Christopher Mcgratty, Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Hey, good morning everybody.

[Nathan Race, Director, Senior Research Analyst at Piper Sandler Companies]

Hey Chris.

[Christopher Mcgratty, Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Dave, maybe for you on the just the expense clarity, the mid single digit that you talked about, given the partial contribution of Makatawa, is that a comment of growth off of Q4's run rate? We should be growing 5% or should I just simply look at 25% over 24% and say 5% and then revenues grow a little bit better?

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

No, I think I was trying to say in my earlier comments that it's off the current run rate. So the Q4 run rate because it's got a full quarter of Mackatawah in there and it also accommodates the decent growth we had during the course of the year. So the mid to high single digit loan growth is also based off of that run rate. So we're looking from this point forward sort of mid single digit expense growth and high single digit loan growth. So that would be the view.

[Christopher Mcgratty, Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Got it. Okay. And then given that, is there anything as you are now only you're only $65,000,000,000 is there anything is it terms of like a down payment to eventually considering going to $100,000,000 in that growth rate? Or is that too far where you're not yet quite building the expense though?

[Tim Crane, President and CEO at Wintrust Financial]

Well, I don't we don't break it out specifically, but we invest very regularly to be a larger institution. So our infrastructure is continually being upgraded to handle higher level of activity, geographic expansion if that becomes an opportunity available to us. So we think we've acquired good talent that would put us in good stead to become a larger institution. So there's probably some built in, but we don't break it out kind of discretely.

[Christopher Mcgratty, Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Okay. Thanks,

[Christopher Mcgratty, Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Tim. And then maybe one for Rich, I want to leave Rich out. On Slide 20,

[Christopher Mcgratty, Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

I

[Christopher Mcgratty, Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

just got to get everybody involved. The non accruals in the office book went down, was that a curing or a charge off? Just more just kind of the cadence.

[Rich Murphy, VC and CLO at Wintrust Financial]

That particular one was a loan that we were able to exit out of.

[Christopher Mcgratty, Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Okay. Thank you.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Sure.

[Operator]

Thank you. Our next question comes from the line of Ben Gurlinger of Citi. Your question please, Ben.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Hey, good morning, guys.

[Tim Crane, President and CEO at Wintrust Financial]

Hello, Ben.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

We could I know we talked through quite

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

a bit with NII and spread and then also mortgage, but previously also just look at fee income ex mortgage. It seems like you guys are looking to hire bankers and relationships in your footprint, but is there anything you can do from a supplemental or additional hiring perspective that would help drive those fee income items, albeit they're significantly smaller than your core banking. But just any thoughts there potentially down the road that'd be an area for M and A deployment on kind of supplemental ad?

[Tim Crane, President and CEO at Wintrust Financial]

Well, 1, we're pleased with the results both on the wealth side and with respect to kind of our treasury management and interest rate risk management products and other kind of fee income areas. But some of that sort of part and parcel to our ability to expand our relationships both with our retail clients and maybe more than that with our commercial clients. We're always looking for opportunities and if we were to find those, we certainly wouldn't hesitate to move forward. But they tend to be businesses that exhibit more kind of steady growth than trajectory changing growth. So nothing on the horizon right now.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Got you. That's helpful. And then from the expense front, just to follow-up on Chris' question in terms of like the 4Q annualized time is roughly 5%. Is there anything within that outside of just kind of normal marketing at baseball games and things like that we should look for in terms of seasonality now that you do have the Western Michigan franchise or is it kind of just back to legacy kind of seasonality trends?

[Tim Crane, President and CEO at Wintrust Financial]

Well, as we've talked about on prior calls, we'll continue to provide resources in West Michigan. And as an example, we would expect to grow that market and to the extent that included people, that sort of built into the plan. So there's nothing kind of atypical in the expense run rate, but we're always looking to add talented people and teams and we expect to expand geographically in the markets where we've started to operate. So, I would just view it as supportive of our growth.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Got you. That's helpful color. Appreciate the progress.

[Operator]

Thank you. Our next question comes from the line of Brendan Nosow of Hovde Group. Your question please, Brendan.

[Brendan Nosal, Director, Equity Research at Hovde Group]

Hey, good morning, guys. Hope you're all doing well. Thanks for taking the questions.

[Tim Crane, President and CEO at Wintrust Financial]

You bet.

[Brendan Nosal, Director, Equity Research at Hovde Group]

If I look at Slide 24 of the deck, the hedging strategy, it looks like you added about $1,000,000,000 of forward starting swaps during the quarter. Maybe just walk us through the thinking here and what you're trying to accomplish. I mean, is it as simple as you're thinking that rate cuts have been pushed out, so you want to extend that downside production?

[Tim Crane, President and CEO at Wintrust Financial]

Well, as we've talked about before, we think plus or minus $6,000,000,000 worth of hedges stabilizes our margin in a down rate environment. And so the hedges that were added recently, many of which were forward starting, just sort of fill up the bucket for 'twenty six and 'twenty seven and just add to our ability to kind of cushion any margin pressure from a downward rate environment.

[Christopher Mcgratty, Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Got it. Okay.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Just filling the buckets out for down the maturity schedule.

[Brendan Nosal, Director, Equity Research at Hovde Group]

Yes, that makes a good deal of sense. Then maybe turning to the premium finance business, just a few there. Wondering if you can add some color on what drove the increase in P and C loss content this quarter. And then just any color on new money origination yields in that business versus what is rolling off today?

[Rich Murphy, VC and CLO at Wintrust Financial]

Yes. There were 2 loans that occurred in the quarter that ended up being somewhat problematic, but we would anticipate that we'll recover in the Q1 what we have left. So we would anticipate that ultimately it's more of a timing issue than anything else. If it had happened during the quarter, you wouldn't have even noticed, but it just carried over the quarter. So

[Rich Murphy, VC and CLO at Wintrust Financial]

that's kind of all there

[Rich Murphy, VC and CLO at Wintrust Financial]

is to that. We other than what we talked about in prior quarters on the transportation side, the loss history and the delinquency history have largely been unchanged. And this kind of sticks out a little bit.

[Tim Crane, President and CEO at Wintrust Financial]

Yes. Both those businesses are predictable low loss businesses for us. We really like the growth opportunities attached to them and kind of yields on the P and C business are creeping up a little bit, continues to be a hard market. We'll see what happens with respect to the impacts of these latest natural disasters. But expect the blended loan yield to be in the high 6s for incremental business in the coming periods here.

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Yes. I mean, the P and C business tends to be a little bit higher than that, but the Life business is less. P and C, if you get a stable environment, is probably a little more of the prime rate and life generally is a couple of 100 basis points over the 1 year treasury. So depending on the growth in those, it mixes out. But you put them together and like Tim says, you put it all together, it's probably high 6s, low 7s sort of if you put the commercial and the premium threats together.

[Brendan Nosal, Director, Equity Research at Hovde Group]

Understood. Okay.

[Brendan Nosal, Director, Equity Research at Hovde Group]

Thank you for taking the questions.

[Tim Crane, President and CEO at Wintrust Financial]

Yes. Thank you.

[Operator]

Thank you. Our next question comes from the line of Jared Shaw of Barclays. Your question please, Jared.

[Jared Shaw, Managing Director at Barclays Capital]

Hey, good morning.

[Tim Crane, President and CEO at Wintrust Financial]

Good morning.

[Jared Shaw, Managing Director at Barclays Capital]

I guess maybe just looking at the DDA growth this quarter that was good. How should we be thinking about that sort of growing on a relative basis or an absolute basis throughout 2025? Do you think that you see that increasing as a percentage of the funding base from here now?

[Tim Crane, President and CEO at Wintrust Financial]

Well, number 1, it's episodic and year end is always a little bit of a volatile period as customers kind of get through their year end process. But we've been pretty steady at 21% -ish plus or minus. And given that we've grown deposits at a pretty healthy clip, we feel pretty comfortable. We're adding DDA on an absolute basis quarter over quarter and we would expect that trend to continue.

[Jared Shaw, Managing Director at Barclays Capital]

Okay, great. Thanks. And then any color on commercial line utilization rates during the quarter and where you expect that to sort of go within your guidance you expect growth in that?

[Rich Murphy, VC and CLO at Wintrust Financial]

Yes, it's interesting. We were somewhat optimistic during the year that we saw utilization rates coming up. They tailed down a little bit during the Q4, not exactly sure why that was. I think some of it was originations of new business where there's a fair amount of unused capacity, but hard to know. We still would imagine that over the course of this year, particularly if there is some pickup in economic activity, then you'd start to see those utilization rates tick up.

[Rich Murphy, VC and CLO at Wintrust Financial]

So right now, I think that's a little bit of a tailwind because they are historically low from what we've seen in the past. So yes, 4th quarter was not a particularly great utilization quarter, but we're not overly concerned by it.

[Jared Shaw, Managing Director at Barclays Capital]

Okay. Thanks. And then just finally for me, maybe more of a modeling housekeeping question. Dave, do you have the accretion from Makatawa that's within 3rd and 4th quarter NII? And then what an estimate would be for 25?

[David Dykstra, Vice Chairman & COO at Wintrust Financial]

Yes. No, we didn't do that. I think if you go back and look at last quarter where we put the table in the presentation, I think that's a pretty good indication on how to look at it going forward. We don't expect any large prepayments in that portfolio to impact it. So if you go back to last quarter, I think that'd be a good guide.

[Jared Shaw, Managing Director at Barclays Capital]

Okay. All right. Great. Thank you very much.

[Operator]

Thank you. I would now like to turn the conference back to Tim Crane for closing remarks. Sir?

[Tim Crane, President and CEO at Wintrust Financial]

Latif, thank you. And for those on the call, thank you for joining us this morning. We're always excited to share our results and tell the Wintrust story. As I mentioned earlier, we're off to a good start in 2025. If you have additional comments or feedback for us, please don't hesitate to call any of us.

[Tim Crane, President and CEO at Wintrust Financial]

And with that, we'll sign off. Have a good day.

Participants

Executives

• Tim Crane, President and CEO
• David Dykstra, Vice Chairman & COO
• Rich Murphy, VC and CLO

Analysts

• Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets
• Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson
• Terry Mcevoy, Managing Director at Stephens Inc
• Nathan Race, Director, Senior Research Analyst at Piper Sandler Companies
• Christopher Mcgratty, Managing Director, Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)
• Ben Gerlinger, Vice President of Equity Research at Citigroup
• Brendan Nosal, Director, Equity Research at Hovde Group
• Jared Shaw, Managing Director at Barclays Capital