Q1 2025 Wintrust Financial Corp Earnings Call
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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: David Dykstra, Vice Chairman and Chief Operating Officer, and Richard Murphy, Vice Chairman and Chief Lending Officer.
David Dykstra: 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.
Speaker Change: 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.
Speaker Change: We're companies for 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 then the company's most recent form 10k and any subsequent filings with the SEC.
Speaker Change: 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.
Speaker Change: 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 Latif made, I'm joined by Dave Starr, Chief Financial Officer, and Kate Bogie, our Chief Legal Officer.
Speaker Change: 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 up. I'll be back to rep up with some summary thoughts, and of course we'll do our best to answer some questions at the end.
Speaker Change: 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.
Speaker Change: These results were in line with our expectations with several positive encouraging underlying elements.
Speaker Change: 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.
Speaker Change: The net interest margin of 356 was 5 basis points higher than the fourth quarter result, reflecting disciplined loan and deposit pricing.
Speaker Change: We remain very neutral from a rate sensitivity standpoint and should continue to show a relatively stable margin in the coming quarters.
Speaker Change: 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 that interest income.
Speaker Change: 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.
David Dykstra: 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.
Speaker Change: Great. Thanks, Tim. First, with respect to the balance sheet growth, Tim mentioned another strong quarter of a loan in deposit growth. A loan growth was 6% on an annualized basis, which was in line with our prior guidance of being in the mid-the-high single-digit growth range. And deposit growth for the quarter was approximately 8% on annualized basis.
Speaker Change: This result in a period in loan to deposit ratio which remained consistent with the prior quarter at roughly 91%.
Speaker Change: 9-interest bearing deposits remained relatively stable during the first quarter and represented 21% of total deposits at the end of the quarter. Total 9-interest bearing balances have stayed in a tight range of approximately 21 to 22% of total deposits for each of the last five quarters.
Speaker Change: Turning 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.
Speaker Change: From our perspective, the quarter included acquisition related costs of $2.7 million, 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.
Speaker Change: With those items in mind, I'll touch on each of the major balance sheet, our major income statement categories.
Speaker Change: 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.
Speaker Change: Our first quarter net interest margin was 3.56 percent compared to 3.51 percent in the prior quarter.
Speaker Change: Yields and Rates on the major balance sheet category for lower because of the recent market.
Speaker Change: Declines and short-term interest rates with the loan yield moving down 15 basis points to 6.53% and interest bearing deposit cost declining 23 basis points from the fourth quarter to 3.16%.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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. [inaudible]
Speaker Change: Rich Murphy will talk about credit in the lone portfolio characteristics in just a bit.
Speaker Change: Regarding other nine-interest income and nine-interest expenses, total nine-interest income was relatively consistent with the prior quarter, increasing approximately $3.2 million relative to the fourth quarter of 2024, and total $116.6 million.
Speaker Change: Increases the 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.
Speaker Change: Attorney to non-interest expense categories, non-interest expenses total $366.1 million in the first quarter, and we're well controlled and down approximately $2.4 million from the prior quarter.
Speaker Change: The primary reasons for the decrease were one salary employee benefit expenses were down in approximately $607,000.
Speaker Change: The slight decrease in the suspense 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.
Speaker Change: Relative to the prior recorder, the company experienced a seasonal decline in travel and entertainment expenses, as well as lower levels of professional fees due to reduced level of project related consulting fees and slightly lower marketing costs.
Speaker Change: Offsetting those expenses were approximately $2.7 million dollars of acquisition related cost during the quarter. The remaining variations in non-interest expenses during the quarter were combination of other relatively non-noteworthy fluctuations.
Speaker Change: So the first quarter had two-thirds of the impact, the second quarter will have the full impact of the merit increases.
We expect a...
Speaker Change: Level of health insurance claims during the quarter compared to a season-light low first quarter.
Speaker Change: 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 the expenditures related to various major and minor league baseball sponsorships and other summer time.
Speaker Change: Sponsorship of Mental Health and the Communities we serve. I think we can look at last year's trends and get a feel for roughly how them.
Speaker Change: 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.
Speaker Change: We also continue to build a tangible full value per common share of any of 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 go quarter. We also continue to build a tangible full value per share in the year go quarter.
Speaker Change: So with that, I'll conclude my comments and turn it over to Rich to discuss Crett. Thanks, Dave. As Tim and Dave both noted, Crettet performance continued to be very solid in the first quarter. As detailed in the earnings release, the loan growth for the quarter came from a number of areas.
Speaker Change: Our life premium finance segment, which had another strong quarter grew by 218 million. The mortgage warehouse team also built on their momentum from last year and grew by 126 million as we continue to fill out new relationships, which also come with meaningful deposit opportunities.
Speaker Change: and Portfolio Residential Real Estate loans grew by 72 million. We believe that long growth for the second quarter of 2025 will continue to be strong and at the high end of our previous guidance of mid to high single digits for a number of reasons.
Speaker Change: We have traditionally seen our highest funding volumes for our first insurance funding premium finance business in the second quarter of each year. We would anticipate growth in this segment alone to be close to $1 billion in Q2.
Speaker Change: In addition, Corsi and I have pipelines for main solid, and we have very strong momentum in our other niche businesses, including leasing and mortgage warehouse [inaudible]
Speaker Change: While there is growing uncertainty in economic conditions as a result of potential tariffs, tax law changes and funding cuts, we continue to remain optimistic about our ability to grow loans for their remainder of this year within our guidance and with appropriate structures
Speaker Change: From a criticality perspective, as detailed on slide 14, we continue to see strong credit performance across the portfolio. This can be seen in a number of metrics. Now performing loans as a percentage of total loans decrease slightly from 36 basis points to 35 basis points.
Speaker Change: NPL's in total were consisting quarter over quarter from 171 million to 172 million.
Speaker Change: Charge-offs for the quarter were 12.6 million or 11 basis points down from 15.9 million or 13 basis points in Q4.
Speaker Change: And while concerns about the economy continue to mount, we believe that the level of MPLs and charge ups in the first quarter reflect a stable credit environment as evidenced by the chart of historical non-performing asset levels on slide 15 and the consistent level in our special mention and substandard loans on slide 14.
Speaker Change: Finally, we are firmly committed to identifying problems early and charging them downward appropriate. Our goal, as always, is to stay ahead of any credit challenges.
Speaker Change: 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 one quarter of our total portfolio.
Speaker Change: As detailed on flight 18, we continue to see signs of stabilization during the first quarter as CRENPLs remain at a very low level, increasing slightly from 16.16% to 0.20%.
Speaker Change: and we saw CRE Chargers remaining at historically low levels from the three basis points to one basis point quarter over quarter.
Speaker Change: On Slide 19, we continue to provide enhanced detail on our CRE Office Exposure.
Speaker Change: Currently this portfolio remains steady at 1.6 billion or 12.7% of our total CRE portfolio and only 3.4% of our total loan portfolio.
Speaker Change: of the 1.6 billion of office exposure. 45% is medical officer owner occupied. The average size of a low in the office portfolio is only 1.5 million. We have only eight loans of 20 million and only five of which are non-medical or owner occupied.
Speaker Change: We continue to 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 their deep dive analysis of every non-owner occupied loan over two and a half million, which would be maturing between now and the end of this year.
Speaker Change: Disanalysis, which covered 79% of all known non-owner-occupied CRE loans maturing during this period, showed very consistent results compared to prior quarters.
Speaker Change: Tim mentioned macro uncertainties as a result of potential tariffs and funding cuts, and while it's too early to determine the full effects that these issues may cause, we believe the impact that our portfolio will be limited as a result of our strong underwriting standards and discipline approach to diversification.
Speaker Change: In addition, our goal is to stay ahead of these specific challenges. We are conducting detailed reviews of our portfolio to identify clients who may be impacted. As always, our goal is to be proactive and work closely with our clients to help them navigate periods of uncertainty.
Speaker Change: Time's like this really highlight the benefit of having a local bank and an experienced banking team on your side.
Speaker Change: That concludes my comments on credit, and now I'll turn it back to two [inaudible]
Tim Crane: Great. Thanks, Rich. To wrap up our prepared remarks, a reminder and a few thoughts. During the quarter, we announced an increase in our dividend to $2 per share on an annualized
Tim Crane: We continue to grow our capital ratio steadily, our CET run ratio, which ended the quarter at slightly over 10%.
Tim Crane: During the quarter we also received several forms of recognition. We received 14 coalition and Greenwich Awards, which measure performance with commercial clients on both a regional and national basis.
Tim Crane: We won the JD Power Award for Best Customer Service in Illinois for the fourth consecutive year.
Tim Crane: While we always appreciate the recognition from these organizations, what's really important is the feedback we receive around our differentiated client service. We use that feedback to better our relationships and service levels with the goal of continuing to win and retain business.
Tim Crane: Our net promoter scores, one recognized measure of client service, continue to improve and materially, and I would add very materially in some cases exceed those of our competitors.
Tim Crane: At a minimum, the uncertainty causes clients to pause and make sure they understand the environment and for lack of a better word, the rules before making major investments.
Tim Crane: To sum up, we had a solid first quarter. The important thing for us, regardless of economic conditions, is that we continue to care for our clients by delivering differentiated service that others do not, and in some cases cannot offer.
Tim Crane: We will be mindful of and prudent around the risk we take. Over time, independent of the economic conditions, this approach will continue to make us the bank of choice where we compete and will result in a more valuable franchise for our shareholders.
Tim Crane: At this point I'll pause and we can take some questions.
Speaker Change: As a reminder, to ask a question, you will need to press star 1-1 in your telephone. To remove yourself from the queue you may press star 1-1 again. Please stand by while we compile the Q&A roster.
Speaker Change: Come from the line of Jon Arfstrom, of RBC Capital Markets. Please go ahead Jon.
Hey, thanks. Good morning.
Are they actually pausing and is it having an impact?
Speaker Change: on your growth out what despite the fact you basically reiterated it, is there an impact right now?
Sure, Jon, and Richard and I can take this together.
Speaker Change: But we do hear of people pausing, and obviously people are concerned about uncertainty, but generally remain pretty encouraged about the local economy and
Speaker Change: and their ability to perform kind of on a normal basis. And so, as you suggested, we're not changing our expectations around loan growth at this point and think we'll have a particularly good second quarter in part due to the PNC business.
Speaker Change: John I would also point out we do a pretty deep analysis on our customer sentiment by going out there and talking to customers particularly those that we feel might be more affected by any tariffs or funding cuts.
Speaker Change: And generally, I think people are cautious, but they still seem to be playing this as business as usual until they hear different. So I wouldn't say there's a dramatic amount of pessimism. I'd say people are just kind of waiting and seeing, but we want to make sure that we're actively talking with them and making sure that they know that we're there for them.
Speaker Change: The second piece that I would point out is, you know, a number of pieces to our portfolio really wouldn't be affected by that. So, you know, the premium finance side, you know, you get some issues there relating to sediment, but, you know, people still need to ensure their properties, people still need to plan their estates.
Speaker Change: and the Mortgage Warehouse business is going to continue to do what it does. So, those topics that we're addressing right now really focus more on our core C&I and CRE portfolios. But there's a significant segment of our portfolio that we think will be largely unaffected by those tariffs, depending on what happens there. So, I think there's more that we don't know than we don't, but right now we still feel pretty good, certainly through the first half of the year.
Speaker Change: and from there it gets a little bit more difficult to see. Yeah, fair enough on that. Okay. And this is maybe somewhat related, but on slide 14, you break out your reserve cadence and...
Speaker Change: It looks like a better baseline, but some macro uncertainty factors. Can you just kind of walk us through the thought process on that in terms of what she did on the reserve changes?
Speaker Change: Jon, this is David Dykstra. You're right. The baseline economic scenario that we use out of moody is the factors out of moody that we use, there are a number of factors in that baseline scenario, the ones we use.
Speaker Change: Generally got better during the quarter, and so you'll see on that chart you referred to on slide 14, that was actually beneficial, but right near the end of the quarter, a few of those variables like the B.W.A. credits, reds, really sort of spiked up, and some of the equity markets.
Speaker Change: Even though the base fine forecast didn't fully incorporate those yet, so just for the uncertain conditions we provided for a little bit wider credit spreads and a little bit more deteriorated.
Speaker Change: Equity Market Situation, then what was in the baseline moody scenario?
Speaker Change: and that's the 35.9 million dollars number that shows on slide 14. That's that that overlay resulted in that amount of additional provision.
Speaker Change: But as I said in my comments, it's still roughly on the average what we've done the last five quarters, so we think it was prudent to do it given the situation and build the reserves.
Okay, all right, thanks, appreciate it.
Speaker Change: Thank you. Our next question comes from the line of Nathan Race of Piper Sandler. Please go ahead, Nathan.
Nathan Race: Hey guys, good morning. Thanks for taking the corner. Morning, Nate. Yep. I'm the margin front, you know, just curious in terms of how much additional kind of
Nathan Race: CD repricing front in the earnings release, but just curious on the non-
Speaker Change: and the University of California, San Francisco. And I'm going to talk about the University of California and the University of California and the University of California and the
Speaker Change: Well, I think there's a little bit there, Nate. It seems like the competition in the market is, again in Chicago is very rational and we've seen a little bit of decline by some of our competitors in those categories.
Speaker Change: So we think there's a little bit that we can do there.
Speaker Change: You know, we also expect to have a very strong second quarter long growth, so we have to balance that with raising the deposits from our core customers to support that long growth. But generally speaking, I think the trend is a slight decline in all the rates in the marketplace.
Speaker Change: Okay. Have you noticed any changes in competitive pricing on new home production lately? I know the coupon mix can vary depending on production in any given quarter. Obviously you have commercial insurance, premium finance, expect to have a strong two-key but just kind of any comments in terms of what you're seeing.
Speaker Change: from a competitive perspective and just kind of maybe on a blended basis where new loans are coming out of the portfolio at these days.
Speaker Change: I'd say generally things remain pretty consistent. When you look at premium finance, there's a little bit of a moat there where it's competitive, but I think we offer a product that we have a market share in that we are the market leader and I think we can price appropriately.
Speaker Change: We're seeing a little more pressure in CRE, particularly fully funded CRE, but as of this point nothing that is overly disconcerting, but I think a lot of banks are struggling for the long growth and so they're probably pricing a little more aggressively, particularly if they can get.
Speaker Change: and something that is fully funded from day one. So those are the two areas I would call out.
Speaker Change: Okay, in Richwell, I got you, if I could sleep one last one in, just in terms of the rise increase as long as in the quarter, any common threads or any geographic areas or port
Speaker Change: No, you know, it's funny. We were looking at that this morning and, you know, went back and the last quarter, you know, it was the other way. We actually had, you know, net upgrades. So our risk ratings are meant to be dynamic, you know, depending on, you know, certain things. It's a relatively nominal number relative to the entirety of the portfolio. And I went and looked at, you know, the few deals that did move and nothing real, no real common denominators there. So, you know, I
Speaker Change: I don't think it's the beginning of a trend, I think it's really more of a one-off.
Okay, great, I- [inaudible]
Appreciate all the color. Thanks, guys. Nice corner. Thanks, Nate.
Speaker Change: Thank you. Our next question comes from the line of Jared Shaw of Barclays. Please go ahead, Jared.
Hey, good morning, everybody. Thanks for the questions.
Speaker Change: Maybe starting just to follow up on Jon's credit question when we look at the...
Speaker Change: The Slide 14, Trends. It feels like, I guess, what Moody's got a little better in February and then worse in March, is that right? And then...
Speaker Change: You have your qualitative overlay. Should we think that if the Moody scenario, the baseline scenario, continues to stay weaker, gets a little weaker, would that drive provision a little higher from here? Or do you feel like your qualitative overlay? No, I don't think so.
Speaker Change: Covered for that, and maybe we see that pull back a little bit if we see broader deterioration on the baseline.
Speaker Change: Yeah, I don't necessarily think the baseline changes that much. It's more of the, a couple of the factors that we focus on, that impact our portfolio, the BAA credits breads and some of the equity market factors, they did not inside the Moody's forecast, but they did in the, you know, in reality we saw them deteriorate a little bit at the end of the quarter. So given that spike at the end of the quarter and the uncertainty with that, that is that that, that, that,
Speaker Change: Went into the first quarter, we did the overlay so we'll have to see how you know the you know the April and May and June Moody's forecasts come out and and how they apply but
Speaker Change: We think that $35.9 million overlay that we had in Arf and it would be appropriate to account for that. So unless there's any further deterioration, we would think it should be a fairly normal provision based upon growth, etc.
Okay.
All right, thanks. And then on wealth management.
Speaker Change: Can you just come in a little bit about how a sort of new client acquisition is going there in how that level of organic growth is versus the moods we've seen just from market rates on AUM?
Speaker Change: Yeah, this is Tim. I think, I mean, there's a couple things going on. We're in...
Speaker Change: Kind of the 11th hour of switching our platforms which provide better capabilities for our financial advisors and for
or Money Management Professionals. And so,
Speaker Change: That was part of the reason the first quarter was a little softer. We expect the improvement in the wealth management business and those better capabilities to...
Speaker Change: to give us some momentum going forward. And so obviously the market swings matter, but absent the market swings, we think we have good momentum and the team's well-position to continue to grow our wealth business.
Okay, thanks. I just found it for me.
Speaker Change: Can you share your updated thoughts on M&A and growth through acquisition, going forward once Bremmer's closed, do you feel that you have the capital to do that and is there sort of what's the appetite or the market-like on M&A now?
Well,
Speaker Change: You probably should ask the old national folks about Bremmer, but I understand they're against me. Yes, you have to disclose that couple of months. Sorry, man. No, that's okay, I know we've got them overlap on our call here too. So that's okay, I totally understand.
Speaker Change: The M&A conversations continue, obviously there's been volatility with respect to the market value of financial institutions, but
Speaker Change: We continue to have good conversations. We think we're good as an acquirer. We think Macatawas in a terrific place and we'll be growing as we kind of get the second half of the year going.
Speaker Change: So, we'll be disciplined, but certainly think we have the financial resources to move forward on any M&A that would be attractive to us.
Great. Thank you. Yep.
Speaker Change: Thank you. Our next question comes from the line of Chris McGratty of KBW. Please go ahead, Chris.
David Stoehr, David
Andrew Leischner: Hey, how's it going? This is Andrew Leifstrom, Christopher McGratty.
Hey Andrew, please, go ahead.
Speaker Change: Hey, so the positive growth has been pretty solid recently and just given economic uncertainty. How should we be thinking about the source of that positive growth going forward?
Speaker Change: Well, I think, I think, pretty consistent in terms of our existing mix in total, you know, as Rich mentioned a little bit earlier, and David did too, I think we...
Speaker Change: We'll try to grow deposits to match the loan growth and that's been kind of our MO for the last several quarters.
Speaker Change: The non-interest bearing piece has remained stable as we had, you know, principally commercial relationships [inaudible]
Speaker Change: Nice growth in terms of households on the consumer side. That's it.
Speaker Change: We even increase deposit cost at the margin. We like growing deposits. We add new clients to the franchise. We ultimately will sell those clients, other services.
Speaker Change: I don't think you'd see a mixed change that would be very material. No, I also point out that our deposit growth was stronger than our low growth of this quarter.
Speaker Change: and we then passed indicated that we thought they would sort of grow in tandem, but in anticipation in anticipation of a strong second quarter long growth.
Speaker Change: You know, we grew a little bit faster, and that will serve us well into the second quarter. But the market's so rational, our position is fantastic, we've had a deposition, so we think we can keep you're on a monthly level.
Speaker Change: Okay. Great. Thank you. That's that's it for me. Yeah, you bet
Tim Crane: But now I have to turn the conference back to Tim Crane for closing remarks, sir.
Speaker Change: Yeah, Latif, thank you. And for those of you who joined us this morning, thank you for taking the time.
Tim Crane: I just say a very clean quarter, NII up, margin up, good loan growth that should be better in the second quarter and solid evidence of differentiated service level versus our peers.
Tim Crane: We enter the second quarter with good momentum, and as always you'll get our best efforts, so thank you and Latif with that we'll sign off.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.