Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Wintrust Financial Corp (WTFC, Financial) reported net income of over $152 million for the quarter and a record net income of just under $340 million for the first half of the year.
- Loan growth was strong, with an increase of $1.4 billion for the quarter, balanced across all material product categories.
- Deposit growth was also robust, increasing by slightly over $1.6 billion, with non-interest-bearing deposits remaining stable.
- Net interest margin was 3.52%, in line with expectations, contributing to record net interest income of $471 million.
- The company continues to gain market share in Chicago, the Midwest, and niche businesses, adding consumer and commercial clients at a healthy rate.
Negative Points
- Provision for credit losses increased to $40.1 million in the second quarter, up from $21.7 million in the prior quarter.
- Non-interest income decreased by approximately $19.4 million compared to the prior quarter, primarily due to the absence of a $20 million gain from the sale of a division in the first quarter.
- Non-interest expenses rose by $7.2 million, driven by higher salary and employee benefits, advertising and marketing expenses, and a charge related to the pending sale of a bank branch.
- Commercial real estate (CRE) loans saw an uptick in non-performing loans and charge-offs, reflecting ongoing stress in the sector.
- The company recorded a $4.3 million loss on securities and a modest gain on the sale of premium finance loans, indicating some volatility in non-interest income categories.
Q & A Highlights
Q: Question for either Rich or Tim, on the kind of the near term -- I guess, the near-term loan growth expectations. I mean this quarter was stronger than I thought it would be and obviously drove some of the provisioning as well, but what kind of a pullback do you expect in the third quarter? And just if there's anything else you would call out in terms of the second quarter activity.
A: (Richard Murphy, Vice Chairman, Chief Lending Officer) Well, as I pointed out, the second quarter is very affected by what happens in the P&C portfolio. And we knew that was coming. We talked about it at the end of the first quarter. That definitely gets tempered in the third quarter. But as I pointed out, we're still seeing really nice core opportunities in our primary markets. So I would say that we would probably be at the upper end of our range for the back half of the year. Certainly, in the fourth quarter, you're going to see P&C slowed down quite a bit. If you look back at our historic funding patterns, fourth quarter is probably one of the lower ones. So third quarter will be very strong. As I said, we'll probably be at the upper end of the range.
Q: Rich, on the charge-off levels, I think you used the term normalization. Anything you would call out in the second quarter. It looks like the commercial real estate charge-offs were a bit higher, but anything else unusual rolling around in there. And do you expect this -- it's hard to say a run rate, but is this more normal for you?
A: (Richard Murphy, Vice Chairman, Chief Lending Officer) No. I mean it's interesting when I was looking at the slides like that slide 19, where we have the commercial real estate charge-offs, it does pop up quite a bit. And I would point out that we had a number of CRE credits that were particularly challenged that we just got ahead of and just they were a number of different stories there. But if you look back to June 30, 2023, I mean, we are at 31 basis points. And so it's just in the CRE space, it's just lumpy. We don't necessarily anticipate that we would see a similar third quarter in charge-offs in CRE, but you just don't necessarily know. We would look at that substandard and criticized page and just point out that you're really not seeing a lot of movement. So -- it's just the -- we don't like to use the term episodic, but sometimes it is we're just a primary tenant of a property, you lose it, and it's tough to replace and there could be just these types of issues that affect that. But generally speaking, I mean it doesn't feel like Q2 was all that different other than some of these signs of normalization. When you look at that chart that we point out in terms of historical NPLs, we were at such a low level that it's just -- these numbers feel a little out of sort. But if you take a look at a broader tenure history. I mean, we're still at a very reasonable level in terms of charge-offs and NPLs.
Q: Your philosophy at this point and based on what you're seeing is to try to hold the reserve percentage relatively stable. Is that fair?
A: (David Stoehr, Chief Financial Officer, Executive Vice President) Well, certainly, we'd like that to happen. But yes, Jon, this is Dave. CECL sort of drives that result. Now we show in our deck, provisioning is always sort of been higher than our charge-offs over the last year or so. So we've been building reserves, and I think that what the CECL model said was that potentially could have more problematic economic times going forward to a slight extent and so we've built more reserves. And whether that happens or not, some of those economic factors recently have been getting a little bit better and not as problematic. So we have built the reserves. I think if you kind of look at the provisioning, if we had some people say, well, what should the provision be going forward? And CECL sort of says you've got to book your reserves based upon the back pattern at that point in time for the life of the loan going forward. So future provisioning would really sort of look at loan growth. And obviously, this quarter, we had really strong loan growth, so that added to the provision. And then just sort of the normal charge-off levels. And I mean if you look at the last three quarters, our provisioning has averaged about $35 million. So probably not a bad place to start. We would think that, that would exceed charge-offs again and build reserves, but one of those quarters was in the $20 million range, and one was a little bit more than what we had this quarter. So it fluctuates a little bit sort of based upon the growth and the economic factors. But probably from a provisioning standpoint, $35 million sort of plus or minus depending on growth and economic conditions or if we see any changes in the classified and other characteristics of the portfolio, which we aren't, as Rich said, it's very encouraging to us that classified loans substandard or special mention, those percentages are holding stable. And actually, if you look at the near-term delinquencies that we show in the earnings release, those are actually down this quarter from last quarter. So we're not seeing anything systemic out there. So as Rich said, the episodic nature of a couple of smaller deals added to it. But probably barring macroeconomic changes or something else, if you're sort of in the mid-30s, plus or minus, that's probably a decent estimate of what provisioning would be going forward. And obviously, we've been higher and lower than that based on economic factors. But I think that would mean that research would continue to build or stay stable.
Q: Couple of questions on the NIM. I guess, first on the funding strategy. Your CDs obviously drove a lot of the growth this quarter. I was just wondering, do you guys -- is there -- you're at 19% of the deposit stack -- is there a limit that you don't -- is there a limit as to how high you want that to go? And then what are your CD operates today?
A: (Timothy Crane, President, Chief Executive Officer, Director) Well, obviously, to the extent that CDs are your more expensive funding source, you'd prefer to have fewer, but it's not too recent history when those could have made up 30% of somebody's book. So I don't think we have a specific number, but -- we've shortened most of our promotional CD offerings, and they're plus or minus 5%. And what I can tell you is the offerings from approximately a year ago that are now renewing, are renewing at lower levels. And so we think there is some rationalization of the pricing to clients that we acquire with these promotional rates. But we were committed to funding the loan growth with core deposit growth this quarter, and we've done that. And we've acquired a lot of new customers, which we expect will
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
